Income Taxes

9 Months Ended

Jul. 31, 2020

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

For interim income tax reporting we estimate our annual effective tax rate and apply it to our year to date ordinary income (loss). Tax jurisdictions with a projected full year loss for which a tax benefit cannot be realized are excluded. Our annual effective tax rate is primarily impacted by jurisdictions that continue to be in a valuation allowance where tax benefits are not recognized. The tax effects of unusual or infrequently occurring items, including changes in judgment about valuation allowances and effects of changes in tax laws or rates, are reported in the interim period in which they occur.

For the three months and nine months ended July 31, 2020, we recognized an income tax expense of $8 million and $10 million, respectively, compared to an income tax expense of $29 million and $9 million for the respective prior year periods. The change in tax is primarily due to the decrease in earnings and earnings and/or losses for which no tax expense or benefit can be recognized due to valuation allowances. This is partially offset by a $38 million benefit associated with a group annuity contract purchase for certain retired pension plan participants, recorded in the first quarter of 2019. Other differences for the three and nine months ended July 31, 2020 include geographical mix and certain discrete items, primarily related to the change in value of the U.S. dollar resulting in an income tax expense of $7 million and an income tax benefit of $8 million for the three months and nine months ended July 31, 2020, respectively.

We have evaluated the need to maintain a valuation allowance for deferred tax assets based on our assessment of whether it is more-likely-than-not that deferred tax benefits will be realized through the generation of future taxable income. We continue to maintain a valuation allowance on the majority of our U.S. deferred tax assets as well as certain foreign deferred tax assets that we believe, on a more-likely-than-not basis, will not be realized based on our analysis of the relevant facts and circumstances. For all remaining deferred tax assets, while we believe that it is more-likely-than-not that they will be realized, we believe that it is reasonably possible that additional deferred tax asset valuation allowances could be required in the next twelve months.

On March 27, 2020, the CARES Act was enacted in response to the COVID-19 pandemic. The CARES Act contains numerous income tax provisions, such as relaxing the limitations on the deductibility of interest and the carryback of net operating losses for specific periods. We have performed an analysis of these provisions and due to the unavailability of excess taxable income in the current or carry back periods, and the application of a valuation allowance to deferred tax assets, the Company's effective income tax rate and its tax provision are currently unaffected by the provisions of the CARES Act.

Additionally, the CARES Act provides for refundable employee retention credits and the deferral of the employer-paid portion of social security taxes. As of July 31, 2020, we elected to defer the employer-paid portion of social security taxes for the remainder of 2020, to be repaid equally in December 2021 and December 2022. The total employer-paid portion of social security taxes deferred as of July 31, 2020 is $9 million. We intend to claim the refundable employee retention tax credits provided under the CARES Act, which can be used to offset payroll tax liabilities. We estimate the potential benefits that the employee retention credits can provide to be approximately $3 million.