INCOME TAXES

3 Months Ended

Mar. 31, 2023

Income Tax Disclosure [Abstract]

INCOME TAXES

INCOME TAXES

Our quarterly income tax provision is calculated using an estimated annual effective income tax approach. The quarterly effective tax rate can differ from our estimated annual effective tax rate as the Company cannot apply an effective tax rate approach for all of its operations. For those entities that can apply an effective tax rate approach, as of March 31, 2023, our annual effective tax rate, excluding discrete items, is 22.4%, as compared to 26.4% as of March 31, 2022. 

The remaining entities, which are operations that generate pre-tax losses which cannot be tax benefited and/or have an effective tax rate which cannot be reliably estimated, have to account for their income taxes on a discrete year-to-date basis as of the end of each quarter and are excluded from the effective tax rate approach. The estimated annual effective tax rate for 2023 and 2022 also excludes the unfavorable impact of withholding taxes associated with certain intercompany payments, including royalties, service charges, interest and dividends, which in the aggregate are relatively consistent each year due to the need to repatriate funds to cover costs incurred in the U.S. and U.K., such as interest on debt and central expenses. Withholding taxes associated with the relatively consistent intercompany payments are accounted for discretely and accrued in the provision for income taxes as they become due.

The provision for income taxes for the three months ended March 31, 2023 and 2022 was $12.0 and $4.8, respectively. Our effective tax rates for the three months ended March 31, 2023 and 2022 were (15.0)% and (5.7)%, respectively.

The effective tax rates for the three months ended March 31, 2023 and 2022 were impacted by CTI restructuring charges which could not all be benefited, losses which could not all be benefited, country mix of earnings, limitations on use of tax attribute carryforwards and withholding taxes. The effective tax rate in the quarter ended March 31, 2023 was also favorably impacted by other miscellaneous tax benefits of $0.5. The effective tax rate in the quarter ended March 31, 2022 was unfavorably impacted by the recording of valuation allowances of $3.1 and other miscellaneous net tax expense of $5.0.

In prior years, we had previously recorded valuation allowances against certain deferred tax assets associated with the U.S. and various foreign jurisdictions. We intend to continue maintaining these valuation allowances on our deferred tax assets until there is sufficient evidence to support the reversal of all or some portion of these allowances. Release of the valuation allowance would result in the recognition of certain deferred tax assets and a decrease to income tax expense for the period the release is recorded. However, the exact timing and amount of any such valuation allowance release is subject to change depending on the

basis of the level of profitability that we are able to achieve. The Company continuously monitors its operational and capital structure changes, business performance, tax planning actions and tax planning strategies that could potentially allow for the recognition of deferred tax assets which are currently subject to a valuation allowance. There is the possibility that in the foreseeable future, certain deferred tax assets could be recognized, related to improvements in actual and/or expected operating results.

Further, the Company continuously assesses available positive and negative evidence to estimate whether sufficient future taxable income will be generated to utilize our existing deferred tax assets that are not subject to a valuation allowance. The Company continuously monitors the performance of entities and assesses the need for any further valuation allowances based on market performance and executability of tax planning actions and opportunities (including corporate restructuring). Should macroeconomic and sociopolitical conditions change, or our business operations not improve, or tax planning actions and opportunities not be implemented, up to approximately $49.3 of the Company's recognized deferred tax assets could potentially need to be offset with the recording of a valuation allowance in the future.