XML 32 R21.htm IDEA: XBRL DOCUMENT v3.22.2.2
Income Taxes
 9 Months Ended
Sep. 30, 2022
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
The effective tax rates, including discrete items, were as follows:
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Effective tax rate (1)
21.3 %53.3 %21.6 %29.8 %
_______________
(1) The decrease in the effective tax rate in the three and nine months ended September 30, 2022 was driven by a one-time legislative tax rate change in 2021.
We determine our interim tax provision using an Estimated Annual Effective Tax Rate methodology (“EAETR”). The EAETR is applied to the year-to-date ordinary income, exclusive of discrete items. The tax effects of discrete items are then included to arrive at the total reported interim tax provision.
The determination of the EAETR is based upon a number of estimates, including the estimated annual pre-tax ordinary income in each tax jurisdiction in which we operate. As our projections of ordinary income change throughout the year, the EAETR will change period-to-period. The tax effects of discrete items are recognized in the tax provision in the period they occur. Depending on various factors, such as the item’s significance in relation to total income and the rate of tax applicable in the jurisdiction to which it relates, discrete items in any quarter may materially impact the reported effective tax rate. As a global enterprise, our tax expense may be impacted by changes in tax rates or laws, the finalization of tax audits and reviews, as well as other factors. As such, there may be significant volatility in interim tax provisions.
The below table provides a reconciliation between our reported effective tax rates and the EAETR.
Three Months Ended September 30,
20222021
In millions, except percentagesBefore taxTaxEffective tax rate % impactBefore taxTaxEffective tax rate % impact
Consolidated operations$95.8 $20.4 21.3 %$(9.0)$(4.8)53.3 %
Discrete items:
Legislative tax rate changes (1)
— — — 0.1 
Litigation verdict charge (2)
— — 85.0 19.7 
Other tax only discrete items— (0.3)— 0.5 
Total discrete items— (0.3)85.0 20.3 
Consolidated operations, before discrete items$95.8 $20.1 $76.0 $15.5 
EAETR (3)
21.0 %20.4 %
Nine Months Ended September 30,
20222021
In millions, except percentagesBefore taxTaxEffective tax rate % impactBefore taxTaxEffective tax rate % impact
Consolidated operations$249.9 $53.9 21.6 %$126.5 $37.7 29.8 %
Discrete items:
Restructuring and other (income) charges, net— — 0.1 — 
Legislative tax rate changes (1)
— — — (14.6)
Litigation verdict charge (2)
— — 85.0 19.7 
Other tax only discrete items— (1.1)— 0.7 
Total discrete items— (1.1)85.1 5.8 
Consolidated operations, before discrete items$249.9 $52.8 $211.6 $43.5 
EAETR (3)
21.1 %20.6 %
_______________
(1) Legislative tax rate changes in 2021, enacted in the United Kingdom ("UK"), resulted in discrete tax expense of $14.6 million related to the revaluation of our net deferred tax liability associated with our UK operations. The corporate tax rate in the UK will increase from 19.0% to 25.0% on April 1, 2023.
(2) Refer to Note 14 for additional information.
(3) Increase in EAETR for the three and nine months ended September 30, 2022, as compared to September 30, 2021, is due to an overall change in the mix of forecasted earnings in various tax jurisdictions with varying rates, as well as an increase in foreign earnings deemed taxable in the U.S.
At September 30, 2022 and December 31, 2021, we had deferred tax assets of $9.2 million and $8.8 million, respectively, resulting from certain historical net operating losses from our Brazilian and Chinese operations and U.S. state tax credits for which a valuation allowance has been established. The ultimate realization of these deferred tax assets depends on the generation of future taxable income during the periods in which these net operating losses and tax credits are available to be used. In evaluating the realizability of these deferred tax assets, we consider projected future taxable income and tax planning strategies in making our assessment. As of September 30, 2022, we cannot objectively assert that these deferred tax assets are more likely than not to be realized and therefore we have maintained a valuation allowance. We intend to continue maintaining a valuation allowance on these deferred tax assets until there is sufficient evidence to support the reversal of all or some portion of these allowances. A release of all or a portion of the valuation allowance could be possible, if we determine that sufficient positive evidence becomes available to allow us to reach a conclusion that the valuation allowance will no longer be needed. A release of the valuation allowance would result in the recognition of certain deferred tax assets and a reduction to income tax
expense for the period the release is recorded. However, the exact timing and amount of the valuation allowance release are subject to change based on the level of profitability that we are able to actually achieve.