Quarterly report pursuant to Section 13 or 15(d)

Note 12 - Income Taxes

v3.19.2
Note 12 - Income Taxes
 9 Months Ended
Jul. 31, 2019
Notes to Financial Statements  
Income Tax Disclosure [Text Block]
Note
12.
Income Taxes
 
In
December 2017,
the Tax Cuts and Jobs Act (the
“2017
Tax Act”) was enacted. The
2017
Tax Act significantly revised the U.S. corporate income tax regime by, among other things, the following items:
 
 
●
Lowering the U.S. corporate tax rate from
35%
to
21%
effective
January 1, 2018.
In accordance with ASC Topic
740,
Income Taxes
, the Predecessor recognized the income tax effects of the
2017
Tax Act in its financial statements in the period the
2017
Tax Act was signed into law;
 
●
Provides for a
100
percent deduction for foreign-source portion of dividends received from specified
10
percent owned foreign corporations by U.S. corporate shareholders. The deduction is unavailable for hybrid dividends;
 
●
Creates a requirement that certain income earned by controlled foreign corporations (“CFCs”) must be included currently in the gross income of the CFC's U.S. shareholder; and
 
●
The Global Intangible Low Tax Income (“GILTI”) provisions are effective for tax years beginning on or after
January 1, 2018.
In FASB staff Q&A Topic
740,
No.
5,
Accounting for Global Intangible Low-Taxed Income, the FASB staff noted that ASC
740
was
not
clear with respect to the appropriate accounting for GILTI, and accordingly, an entity
may
either: (
1
) elect to treat taxes on GILTI as period costs similar to special deductions, or (
2
) recognize deferred tax assets and liabilities when basis differences exist that are expected to affect the amount of GILTI inclusion upon reversal (the deferred method). The Company has
not
yet adopted an accounting policy related to GILTI.
 
For the
third
quarter ended
July 31, 2019,
we recorded an income tax benefit of
$1.9
million on pretax income of
$0.8
million, resulting in an effective tax rate that is
not
meaningful. The primary items impacting the change in our effective tax rate from the prior quarter include (
1
) a change in our estimated full year effective tax rate due to a change in our estimated full year income before tax and (
2
) a change in our estimated full year foreign income inclusion. The change in estimated full year effective tax rate resulted in a true-up to income tax expense in the current quarter. For the same Predecessor quarter in the prior year, we recorded income tax expense of
$1.7
million on pretax income of
$6.5
million, resulting in an effective tax rate of
26.1%.
 
For the Successor period from
December 6, 2018
to
July 31, 2019,
the Company recorded an income tax benefit of
$3.1
million on a pretax loss of
$13.6
million, resulting in an effective tax rate of
22.9%.
The effective tax rate for this period was heavily affected by the income tax expense activity discussed above for the successor quarter ended
July 31, 2019.
 
For the Predecessor period from
November 1, 2018
to
December 5, 2018,
the Company recorded an income tax benefit of
$4.2
million on a pretax loss of
$26.8
million, resulting in an effective tax rate of
15.7%.
For the Predecessor period for the
nine
months ended
July 31, 2018,
the Company recorded an income tax benefit of
$10.6
million on pretax income of
$16.4
million, resulting in an effective tax rate that was
not
meaningful.
 
The factors impacting comparability between our effective tax rates for the periods discussed above are as follows:
 
 
(
1
)
The net impact from the enactment of the
2017
Tax Act, which reduced the U.S. federal corporate income tax rate from
35%
to
21%;
 
(
2
)
The Predecessor recording a tax benefit of
$14.74
million in the
nine
months ended
July 31, 2018
related to the re-measurement of deferred tax assets and liabilities to reflect the reduction in the U.S. corporate income tax rate from
35%
to
21%
percent;
 
(
3
)
The Predecessor recording a provisional tax expense of
$0.5
million in the
nine
months ended
July 31, 2018
related to the deemed repatriation of earnings from its foreign subsidiaries;
 
(
4
)
The Predecessor recording a provisional tax benefit of
$0.5
million in the
nine
months ended
July 31, 2018
related to the reduction of the deferred tax liability on unrepatriated foreign earnings due to the
100
percent dividends received deduction;
 
(
5
)
The Predecessor recording tax expense of
$1.4
million for the period ended
December 5, 2018
related to nondeductible transaction related costs;
 
(
6
)
The Successor including
$0.6
million of tax expense in the estimated annual effective rate for the period ended
July 31, 2019
related to GILTI; and
  (
7
)		 The Successor including
$0.8
million of tax benefit in the estimated annual effective tax rate for the period ended
July 31, 2019
related to a reduction in liability of foreign income.
 
At
July 31, 2019
and
October 31, 2018,
we had deferred tax liabilities, net of deferred tax assets, of
$71.2
million and
$39.0
million, respectively. The increase in our net deferred tax liability is primarily due to deferred tax liabilities recorded in purchase accounting related to the fair value adjustments to fixed assets and other identifiable intangible assets.  The Company has a valuation allowance of
$0.1
million as of both
July 31, 2019
and
October 31, 2018
related to foreign tax credit carryforwards where realization is more uncertain at this time due to the limited carryforward periods that exist.
 
The Company had
no
liability for uncertain tax positions at
July 31, 2019
and
October 31, 2018.