Income Taxes (Notes)

9 Months Ended

Sep. 30, 2021

Income Tax Disclosure [Abstract]

Income Tax Disclosure [Text Block]

Income Taxes    

The process for calculating the Company’s income tax expense involves estimating actual current taxes due plus assessing temporary differences arising from differing treatment for tax and accounting purposes that are recorded as deferred tax assets and liabilities. Deferred tax assets are periodically evaluated to determine their recoverability and whether a valuation allowance is necessary.

A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized. When determining the amount of net deferred tax assets that are more likely than not to be realized, the Company assesses all available positive and negative evidence. The weight given to the positive and negative evidence is commensurate with the extent the evidence may be objectively verified. As such, it is generally difficult for positive evidence regarding projected future taxable income exclusive of reversing taxable temporary differences to outweigh objective negative evidence of recent financial reporting losses.

Based on these criteria and the relative weighting of both the positive and negative evidence available, and in particular the activity surrounding our prior earnings history including the forward losses previously recognized in the U.S., the Company recorded an incremental valuation allowance of $122.5 for the nine months ended September 30, 2021. The change from December 31, 2020 is an additional valuation allowance of $104.6 recognized on the deferred tax assets generated from the 2021 activity and a $17.9 adjustment related to law changes, return to provision and other state impacts. The total valuation allowance, including the increase of $122.5 recorded for the nine-month period ended September 30, 2021, was $272.5. This results in a net U.S. deferred tax liability after valuation allowance of $13.7.

The Company has determined a valuation allowance on certain U.K. deferred tax assets is needed based upon cumulative losses generated in the U.K. The Company recorded an incremental valuation allowance of $70.7 against deferred tax assets for the nine-month period ended September 30, 2021 which is comprised of $13.5 for opening balance sheet adjustments related to the Bombardier Acquisition, $0.1 related to OCI, ($0.7) from discrete items including return to provision, ($3.6) from continuing operations and a discrete tax expense of $61.4 for the change in enacted corporate tax rates from 19% to 25% effective April 1, 2023. The total valuation allowance, including the nine-month period ended September 30, 2021 increase of $70.7, was $261.5. This results in a net U.K. deferred tax liability after valuation allowance of $10.9.

The Company will continue to regularly assess the potential for realization of its net deferred tax assets in future periods. Changes in future earnings projections, among other factors, may cause the Company to record a valuation allowance against some or all of its net deferred tax assets, which may materially impact its income tax expense in the period the Company determines that these factors have changed.

The Company files income tax returns in all jurisdictions in which it operates. The Company establishes reserves to provide for additional income taxes that may be due upon audit. These reserves are established based on management’s assessment as to the potential exposure attributable to permanent tax adjustments and associated interest. All tax reserves are analyzed quarterly and adjustments made as events occur that warrant modification.

In general, the Company records income tax expense each quarter based on its estimate as to the full year’s effective tax rate. Certain items, however, are given discrete period treatment and the tax effects for such items are therefore reported in the quarter that an event arises. Events or items that may give rise to discrete recognition include excess tax benefits with respect to share-based compensation, finalizing amounts in income tax returns filed, finalizing audit examinations for open tax years and expiration of statutes of limitations, and changes in tax law.

The 0.15% effective tax rate for the nine months ended September 30, 2021 differs from the 37.3% effective tax rate for the same period of 2020 primarily due to the valuation allowance recorded in 2021. As the Company is currently reporting a pre-tax loss for the nine months ended September 30, 2021, increases to tax expense result in a decrease to the effective tax rate and decreases to tax expense result in an increase to the effective tax rate.

As of September 30, 2021, the Company had deferred $16.5 of employer payroll taxes, as allowed by the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), which is required to be deposited by December 2022. As of September 30, 2021, the Company has recorded an estimated pre-tax employee retention credit of approximately $18.8 related to calendar year 2020. The Company is evaluating its eligibility to continue with the pre-tax employee retention credit. In addition, as of September 30, 2021, the Company had recorded a deferral of $15.5 of Value Added Tax payments that has the option to pay in smaller payments through the end of March 31, 2022 interest free under the United Kingdom deferral scheme. Payments under this deferral program started in June 2021.

The Company's federal audit for the 2020 tax year is substantially complete under the Internal Revenue Service Compliance Assurance Program ("CAP"). The Company will continue to participate in the CAP program for the 2021 and 2022 tax years. The CAP program’s objective is to resolve issues in a timely, contemporaneous manner and eliminate the need for a lengthy post-filing examination.  The Company has an open tax audit in the Kingdom of Morocco for the tax years ended prior to the Company's ownership of the Moroccan legal entity. The Company has open audits in France for tax years 2018 and 2019 and Malaysia for tax years 2014 to 2019.