Income taxes

6 Months Ended

Jun. 30, 2022

Income Tax Disclosure [Abstract]

Income taxes

Income taxes

	Three Months Ended June 30,					Six Months Ended June 30,
	2022			2021		2022			2021
Continuing operations
Provision (benefit) for income taxes (in millions)	$	29.3		22.7		$	(11.8)		36.3
Effective tax rate	43.4		%	45.7	%	(11.7		%)	46.1	%

2022 Compared to U.S. Statutory Rate

The effective income tax rate on continuing operations in the first six months of 2022 was less than the 21% U.S. statutory rate primarily due to the release of valuation allowances on U.S. tax credits deemed realizable as a result of the issuance of U.S. final foreign tax credit regulations, offset by the geographical mix of earnings, the seasonality of book losses for which no tax benefit can be recorded, nondeductible expenses in Mexico, taxes on cross border payments and U.S. taxable income limitations, and the characterization of a French business tax as an income tax.

2021 Compared to U.S. Statutory Rate

The effective income tax rate on continuing operations in the first six months of 2021 was greater than the 21% U.S. statutory rate primarily due to the geographical mix of earnings, the seasonality of book losses for which no tax benefit can be recorded, nondeductible expenses in Mexico, taxes on cross border payments and U.S. taxable income limitations, and the characterization of a French business tax as an income tax.

Valuation Allowance-Tax Credits

In the first quarter of 2022, we concluded that it is more likely than not that a substantial amount of the U.S. deferred tax assets for U.S. foreign tax credit and general business credit carryforwards that previously required a valuation allowance would be realized. Our conclusion was based upon an analysis of the final foreign tax credit regulations that the U.S. Treasury published in the Federal Register on January 4, 2022. Based upon this analysis, we determined a significant amount of the post-2021 foreign withholding taxes will now be ineligible for U.S. foreign income tax credit treatment and therefore we are forecasting that our U.S. operations will no longer annually be generating new foreign tax credits in excess of its annual foreign tax credit utilization limit. As a result, we expect to be able to utilize a substantial amount of our foreign tax credit and general business tax credit carryforwards to offset future tax prior to their expiration. Accordingly, we reversed a substantial amount of our valuation allowance on our net U.S. deferred tax assets, resulting in a $55.0 million benefit in our provision for income taxes for the period ended June 30, 2022. Due to the novel approach that the final regulations impose, it is possible that further developments in foreign country or U.S. tax laws could occur and may require us to change our assessment of the ultimate amounts we consider more-likely-than-not to be realized.

Additionally, as a result of the decision to terminate the cross currency swap contracts in July 2022 (see Note 8), the realization of the gain results in an additional source of future taxable income expected to utilize a further portion of foreign tax credit carryforward. Consequently, we released $10.9 million in valuation allowance in the second quarter of 2022 in other comprehensive income with an additional amount to be released in the third quarter of 2022 upon the termination and realization of the full amount of the gain.