Income Taxes

9 Months Ended

Sep. 30, 2024

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

The Company’s year-to-date tax provision is comprised of the most recent estimated annual effective tax rate applied to year-to-date pre-tax ordinary income. The tax impacts of unusual or infrequently occurring items, including changes in judgment about valuation allowances and effects of changes in tax laws or rates, are recorded discretely in the interim period in which they occur. In addition, the tax provision is adjusted for the interim period impact of non-benefited pre-tax losses.

The estimated annual effective tax rate, before discrete items, applied to ordinary income was 20.9% in both the third quarter and nine months ended September 30, 2024, and 23.0% in both the third quarter and nine months ended September 30, 2023. The 2024 rate was lower than the 2023 rate and the U.S. federal statutory rate of 21% primarily due to a net benefit related to U.S. federal and state research and development (“R&D”) credits, a U.S. deduction on Foreign Derived Intangible Income (“FDII”), and a U.S. tax benefit recognized for foreign tax credits, partially offset by additional U.S. tax on Global Intangible Low-Taxed Income (“GILTI”), incremental state tax, nondeductible expenses, and foreign earnings subject to tax in jurisdictions with tax rates higher than the U.S. federal statutory rate of 21%. The 2023 rate was higher than the U.S. federal statutory rate of 21% primarily due to additional U.S. tax on GILTI and other foreign earnings, incremental state tax and foreign taxes on earnings also subject to U.S. federal income tax, nondeductible expenses, and foreign earnings subject to tax in jurisdictions with tax rates higher than the U.S. federal statutory rate of 21%.

For the third quarter of 2024 and 2023, the tax rate including discrete items was 6.2% and 22.3%, respectively. In the third quarter of 2024, the Company recorded a discrete net tax benefit of $46 primarily attributable to a $44 net benefit related to additional U.S. federal and state R&D credits claimed for prior years upon completion of the Company’s R&D study, the substantial portion of which are U.S. federal credits which have been approved under audit by the U.S. Internal Revenue Service, and a $2 excess tax benefit for stock compensation. In the third quarter of 2023, the Company recorded a discrete net tax benefit of $1 for other small items.

For the nine months ended September 30, 2024 and 2023, the tax rate including discrete items was 15.1% and 25.0%, respectively. For the nine months ended September 30, 2024, the Company recorded a discrete net tax benefit of $58 primarily attributable to a $44 net benefit related to additional U.S. federal and state R&D credits claimed for prior years upon completion of the Company’s R&D study, the substantial portion of which are U.S. federal credits which have been approved under audit by the U.S. Internal Revenue Service, a $9 excess tax benefit for stock compensation, a $6 benefit to release a valuation allowance related to U.S. foreign tax credits, and a net tax charge of $1 for other small items. For the nine months ended September 30, 2023, the Company recorded a discrete net tax charge of $13 attributable to a $20 charge for a tax reserve established in France (See Note Q) and a net tax charge of $1 for other small items, reduced by an $8 excess tax benefit for stock compensation.

The tax provision was comprised of the following:

	Third quarter ended				Nine months ended
	September 30,				September 30,
	2024		2023		2024		2023
Pre-tax income at estimated annual effective income tax rate before discrete items	$	74	$	55	$	207	$	162
Impact of change in estimated annual effective tax rate on previous quarter’s pre-tax income	(5)		—		—		—
Interim period treatment of operational losses in foreign jurisdictions for which no tax benefit is recognized	(1)		—		1		1
Tax reserve (Q)	—		—		—		20
Other discrete items	(46)		(1)		(58)		(7)
Provision for income taxes	$	22	$	54	$	150	$	176