Income Taxes |
6 Months Ended |
|---|---|
Jun. 30, 2026 | |
| Income Tax Disclosure [Abstract] | |
| Income Taxes | INCOME TAXES For the second quarter of 2026, we recorded income tax expense of $46 million on loss before income taxes of $161 million. For the first six months of 2026, we recorded income tax expense of $112 million on loss before income taxes of $341 million. Income tax expense for the three and six months ended June 30, 2026 includes net discrete tax expense of $5 million and $25 million, respectively, and is primarily related to an expected settlement of a prior year tax matter in one of our foreign locations. For the second quarter of 2025, we recorded income tax expense of $24 million on income before income taxes of $305 million. For the first six months of 2025, we recorded income tax expense of $37 million on income before income taxes of $436 million. Income tax expense for the three and six months ended June 30, 2025 includes net discrete tax benefits of $4 million and $5 million, respectively. We record taxes based on overall estimated annual effective tax rates. The difference between our effective tax rate and the U.S. statutory rate of 21% for the three and six months ended June 30, 2026 primarily relates to losses in the U.S. and foreign jurisdictions in which no tax benefits are recorded and the discrete items noted above. The difference between our effective tax rate and the U.S. statutory rate of 21% for the three and six months ended June 30, 2025 was favorably impacted by gains recognized as a result of the sales of the OTR tire business and the Dunlop brand, which included certain associated intellectual property and other intangible assets, in jurisdictions where no taxes are recorded, net of losses in foreign jurisdictions in which no tax benefits are recorded, and the discrete items noted above. We consider both positive and negative evidence when measuring the need for a valuation allowance. The weight given to the evidence is commensurate with the extent to which it may be objectively verified. Current and cumulative financial reporting results are a source of objectively verifiable information. We give operating results during the most recent three-year period a significant weight in our analysis. We perform scheduling exercises to determine if sufficient taxable income of the appropriate character exists in the periods required in order to realize our deferred tax assets with limited lives (such as tax loss carryforwards and tax credits) prior to their expiration. We also consider prudent tax planning strategies (including an assessment of their feasibility) to accelerate taxable income if required to utilize expiring deferred tax assets. A valuation allowance is not required to the extent that, in our judgment, positive evidence exists with a magnitude and duration sufficient to result in a conclusion that it is more likely than not that our deferred tax assets will be realized. At June 30, 2026 and December 31, 2025, we had approximately $1.6 billion and $1.4 billion, respectively, of U.S. federal, state and local net deferred tax assets and related valuation allowances totaling $1.6 billion and $1.4 billion, respectively. At June 30, 2026 and December 31, 2025, we also had foreign net deferred tax assets of approximately $1.6 billion and $1.5 billion, respectively, and related valuation allowances of approximately $1.3 billion. Our foreign valuation allowances include a $1.1 billion full valuation allowance on our net deferred tax assets in Luxembourg. Our losses in the U.S. and various foreign taxing jurisdictions in recent periods represented sufficient negative evidence to require us to maintain a full valuation allowance against certain of these net deferred tax assets. Each reporting period, we assess available positive and negative evidence and estimate if sufficient future taxable income will be generated to utilize these existing deferred tax assets. We do not believe that sufficient positive evidence required to release valuation allowances on our U.S. and foreign deferred tax assets will exist within the next twelve months. The Organisation for Economic Co-operation and Development ("OECD") have published the Pillar Two model rules which adopt a global corporate minimum tax of 15% for multinational enterprises with average revenue in excess of €750 million. Certain jurisdictions in which we operate enacted legislation consistent with one or more of the OECD Pillar Two model rules effective in 2024. The model rules include minimum domestic top-up taxes, income inclusion rules, and undertaxed profit rules all aimed to ensure that multinational corporations pay a minimum effective corporate tax rate of 15% in each jurisdiction in which they operate. We do not expect the Pillar Two model rules to materially impact our annual effective tax rate in 2026. However, we are continuing to evaluate the Pillar Two model rules and related developments, including the side-by-side safe harbor package for U.S.-based multinationals, and their potential impact on future periods. We are open to examination in the United States from 2021 onward and in Germany from 2019 onward. Generally, for our remaining tax jurisdictions, years from 2021 onward are still open to examination. Following an audit by the Internal Revenue Service ("IRS"), we received a Notice of Proposed Adjustment ("NOPA") during the second quarter of 2025 related to an intercompany sale of certain intellectual property in 2021. The IRS proposed to disallow income recognition totaling $1.5 billion associated with this transaction. The federal tax charge related to that income recognition was fully offset by the utilization of $315 million of then-existing deferred tax assets, including tax loss carryforwards and foreign tax credits. We challenged the proposed adjustment through the established IRS administrative procedures and engaged in settlement discussions with the IRS. On July 29, 2026, we entered into a closing agreement with the IRS resolving all federal income tax consequences related to the 2021 transaction (the "IRS settlement"). As a result of the IRS settlement, in the third quarter of 2026 we expect to write-off approximately $45 million of our deferred tax assets that were previously utilized to offset the related federal and state taxes. However, since our U.S. deferred tax assets are in a full valuation allowance, the write-off of those deferred tax assets will not have a material impact on our operating results or cash flow.
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