Income Taxes

9 Months Ended

Oct. 30, 2021

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

Prior to the Separation, the Company's U.S. operations and certain of its non-U.S. operations were historically included in the income tax returns of the Former Parent or its subsidiaries that may not be part of the Company. For the periods prior to the Separation, the income tax expense (benefit) and all tax liabilities that are presented in these financial statements were calculated on a "carve-out" basis, which applied the accounting guidance as if we filed income tax returns for the Company on a standalone, separate return basis. The Company believes the assumptions supporting its allocation and presentation of income taxes on a separate return basis are reasonable. However, the Company's tax results, as presented in these financial statements for periods prior to the Separation, may not be reflective of the results that the Company expects to generate in the future.

Post-Separation, the Company will file a consolidated U.S. federal income tax return as well as separate and combined income tax returns in numerous state, local and international jurisdictions. Income tax expense (benefit) for the period prior to the Separation is based on the combined financial statements prepared on a "carve-out" basis. Income tax expense (benefit) for the period after the Separation is based on the consolidated results of the Company on a standalone basis.

For the third quarter of 2021, the Company calculated the provision for income taxes on the current estimate of the annual effective tax rate and adjusted as necessary for quarterly events. Due to the impacts of the COVID-19 pandemic, the income tax expense for the third quarter of 2020 was computed on a year-to-date effective tax rate.

For the third quarter of 2021, the Company’s effective tax rate was 22.2% compared to a (12.8%) tax benefit rate in the third quarter of 2020. The third quarter of 2021 rate was lower than the Company's combined estimated federal and state statutory rate primarily due to the recognition of excess tax benefits related to share-based awards that vested in the quarter. The third quarter of 2020 rate was lower than the Company's combined federal and state statutory rate primarily due to the resolution of a tax matter associated with certain foreign investments, which resulted in a $44 million tax benefit.

For year-to-date 2021, the Company's effective tax rate was 23.0% compared to 28.3% year-to-date 2020. The year-to-date 2021 rate was lower than the Company's combined estimated federal and state statutory rate primarily due to the recognition of excess tax benefits related to share-based awards that vested year-to-date. For year-to-date 2020, the Company recognized a benefit for income taxes of $140 million on a loss before income taxes of $495 million. The year-to-date 2020 rate was higher than the Company's combined estimated federal and state statutory rate primarily due to the resolution of a tax matter associated with certain foreign investments, which resulted in a $44 million tax benefit, partially offset by losses related to certain foreign subsidiaries that generated no tax benefit.

The Company paid income taxes in the amount of $6 million and $7 million for the third quarter of 2021 and 2020, respectively. Year-to-date income taxes paid were $21 million and $15 million for 2021 and 2020, respectively.

On August 2, 2021, the Company and the Former Parent entered into a Tax Matters Agreement. Under the agreement, the Former Parent will generally be responsible for all U.S. federal, state, local and non-U.S. income taxes of the Company for any taxable period, or portion of such period, ending on or before the Distribution Date. As such, the net liabilities associated with uncertain tax positions that were presented in the financial statements in prior periods on a carve-out basis were not transferred to the Company as part of the Separation.