Income Taxes

9 Months Ended

Sep. 30, 2022

Income Tax Disclosure [Abstract]

Income Taxes

10. Income Taxes

For interim tax reporting, the Company estimates its annual effective tax rate and applies it to year-to-date ordinary income. Jurisdictions where no tax benefit can be recognized due to a valuation allowance are excluded from the estimated annual effective tax rate. The effect of including these jurisdictions on the quarterly effective rate calculation could result in a higher or lower effective tax rate during a quarter due to the mix and timing of actual earnings versus annual projections. The tax effects of certain items, including changes in judgment about valuation allowances and effects of changes in tax laws or rates, are excluded from the estimated annual effective tax rate calculation and recognized in the interim period in which they occur. The Company considers both positive and negative evidence and evaluates its deferred tax assets quarterly to determine if valuation allowances are required or should be adjusted. This assessment considers, among other matters, the nature, frequency and amount of recent losses, the duration of statutory carryforward periods, reversals of existing taxable temporary differences, and tax planning strategies. In making such judgments, significant weight is given to evidence that can be objectively verified.

For the three months ended September 30, 2022, the Company recorded an income tax expense of $67 million on income from continuing operations before income taxes of $39 million. This compares to an income tax expense of $34 million on income from continuing operations before income taxes of $59 million in the three months ended September 30, 2021. Income tax expense for the three months ended September 30, 2022 differs from the U.S. statutory rate due primarily to pre-tax income that is taxed at rates higher than the U.S. statutory rate and pre-tax losses for which no tax benefit is recognized.

For the nine months ended September 30, 2022, the Company recorded income tax expense of $140 million on loss from continuing operations before income taxes of $11 million. This compares to an income tax expense of $122 million on income from continuing operations before income taxes of $251 million in the nine months ended September 30, 2021. Income tax expense for the nine months ended September 30, 2022 differs from the U.S. statutory rate due primarily to pre-tax income that is taxed at rates higher than the U.S. statutory rate and pre-tax losses for which no tax benefit is recognized. In addition, a $7 million non-cash benefit related to the release of a valuation allowance was recognized during the nine months ended September 30, 2022.

Income tax expense for the three and nine months ended September 30, 2021 differs from the U.S. statutory rate due primarily to pre-tax income taxed at rates higher than U.S. statutory rate and pre-tax losses with no tax benefits, partially offset by a non-cash tax benefit of $12 million relating to the reversal of valuation allowances.

The Company believes it is reasonably possible up to $38 million in unrecognized tax benefits related to the expiration of foreign statute of limitations and the conclusion of income tax examinations may be recognized within the next twelve months.

On August 16, 2022, the U.S. enacted the Inflation Reduction Act of 2022, which, among other things, implements a 15% minimum tax on book income of certain large corporations, a 1% excise tax on net stock repurchases, and several tax incentives to promote clean energy. Based on its current analysis of the provisions, the Company does not believe this legislation will have a material effect on its consolidated financial statements.