Income Taxes

A summary of income (loss) before taxes related to U.S. and foreign operations are as follows:



	Years Ended December 31,
(In millions)	2018		2017			2016
U.S.	$	319	$	278		$	(70	)
Foreign	247		(17		)	177
Income before income tax provision (benefit)	$	566	$	261		$	107

The components of the income tax provision (benefit) consist of the following:



	Years Ended December 31,
(In millions)	2018			2017			2016
Current:
U.S. Federal	$	2		$	2		$	(11	)
State	6			(3		)	6
Foreign	69			59			48
Total current income tax provision	$	77		$	58		$	43
Deferred:
U.S. Federal⁽¹⁾	$	57		$	(134	)	$	1
State	2			(2		)	(2		)
Foreign ⁽²⁾	(14		)	(21		)	(20		)
Total deferred income tax provision (benefit)	45			(157		)	(21		)
Total income tax provision (benefit)	$	122		$	(99	)	$	22

(1)

On December 22, 2017, the Tax Act was signed into law. The Tax Act includes numerous changes to existing U.S. tax law, including a permanent reduction in the federal corporate income tax rate from 35% to 21%. The rate reduction became effective January 1, 2018. As a result, the Company recorded a tax benefit of $173 million in the fourth quarter of 2017 related to the revaluation of its net deferred tax liabilities. The Company did not record any changes during the measurement period.

(2)

On December 31, 2017, a law was published in France enacting a rate reduction from 34.43% to 25.83% to be phased in over five years starting in 2018. On December 29, 2017, a law was published in Belgium enacting a tax rate reduction from 33.99% to 25% to be phased in over three years starting in 2018. Consequently, the Company recorded a tax benefit of $10 million in the fourth quarter of 2017 related to the revaluation of its net deferred tax liabilities.

The effective tax rate reconciliations are as follows:



	Years Ended December 31,
	2018		2017		2016
U.S. federal statutory tax rate	21.0	%	35.0	%	35.0	%
State taxes, net of U.S. federal benefit	1.2		(1.2	)	4.8
Foreign rate differential	(1.1	)	(6.7	)	(13.2	)
Foreign operations ⁽¹⁾	8.3		(0.1	)	2.4
Valuation allowance	(3.7	)	0.8		11.2
Changes in uncertain tax positions	—		5.1		(0.1	)
Effect of law changes ⁽²⁾	—		(70.2	)	(12.3	)
Stock-based compensation	(3.8	)	(3.3	)	(4.7	)
Other	(0.3	)	2.4		(2.2	)
Effective tax rate	21.6	%	(38.2	)%	20.9	%


(1)	Foreign operations include the net impact of the changes to foreign valuation allowances, the cost of foreign inclusion net of foreign tax credits, and permanent items related to foreign operations.


(2)	2017 U.S., France and Belgium tax rate changes; 2016 France tax rate change.

Components of the Net Deferred Tax Asset or Liability

The tax effects of temporary differences that give rise to significant portions of the deferred tax asset and deferred tax liability are as follows:



	Years Ended December 31,
(In millions)	2018			2017
Deferred tax asset
Net operating loss and other tax attribute carryforwards	$	154		$	191
Accrued expenses	60			65
Pension and other retirement obligations	25			26
Other	62			64
Total deferred tax asset	301			346
Valuation allowance	(73		)	(93		)
Total deferred tax asset, net	228			253
Deferred tax liability
Intangible assets	(330		)	(371		)
Property and equipment	(299		)	(255		)
Other	(35		)	(38		)
Total deferred tax liability	(664		)	(664		)
Net deferred tax liability	$	(436	)	$	(411	)

The deferred tax asset and deferred tax liability above are reflected in the Consolidated Balance Sheets as follows:



	December 31,
(In millions)	2018			2017
Other long-term assets	$	8		$	8
Deferred tax liability	(444		)	(419		)
Net deferred tax liability	$	(436	)	$	(411	)

Investments in Foreign Subsidiaries

As a result of the Tax Act, the Company has decided to apply a partial indefinite reversal assertion to pre-2018 earnings and profits that have been invested back into the foreign businesses. The Company has also decided not to apply an indefinite reversal assertion on all 2018 and future years’ earnings and profits. The Company has recorded federal, state and withholding taxes in the amount of $2 million related to the change in assertion.

Operating Loss and Tax Credit Carryforwards

As of December 31, 2018 and 2017, the Company had federal net operating losses for all U.S. operations (including those of minority owned subsidiaries) of $82 million and $188 million, respectively, expiring at various times between 2028 and 2038. As of December 31, 2018 and 2017, the tax effect (before federal benefit) of the Company’s state net operating losses was $26 million and $33 million, respectively, expiring at various times between 2019 and 2038.

As of December 31, 2018 and 2017, the Company had federal tax credit carryforwards of $16 million and $34 million, respectively, expiring at various times starting in 2032 with certain credits having an unlimited carryforward period. As of December 31, 2018 and 2017, the Company had state tax credit carryforwards of $8 million and $10 million, respectively, expiring at various times between 2019 and 2030.

As of December 31, 2018 and 2017, the Company’s foreign net operating losses available to offset future taxable income were $382 million and $332 million, respectively. These foreign loss carryforwards will expire at various times beginning in 2019, with some losses having an unlimited carryforward period.

Valuation Allowance

The Company has evaluated the available positive and negative evidence and concluded that, for some of its deferred tax assets, it is more likely than not that these assets will not be realized in the foreseeable future. Based on the Company’s assessment, as of December 31, 2018, total valuation allowances of $73 million were recorded against deferred tax assets. Although realization is not assured, the Company has concluded that it is more likely than not that the remaining deferred tax assets will be realized and as such no valuation allowance has been provided on these assets. The Company’s valuation allowance decreased by $20 million during the year ended December 31, 2018.

The following table presents a roll-forward of the valuation allowance for the years ended December 31, 2018, 2017 and 2016, respectively:



(In millions)	Balance at Beginning of Year		Additions		Reductions/ Charges			Balance at End of Year
Valuation allowance
Year Ended December 31, 2018	$	93	$	—	$	(20	)	$	73
Year Ended December 31, 2017	83		29		(19		)	93
Year Ended December 31, 2016	68		15		—			83

Unrecognized Tax Benefits (UTB)

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:



	Years Ended December 31,
(In millions)	2018			2017			2016
Beginning balance	$	25		$	15		$	12
Additions for tax positions of the current period	1			2			—
Additions for tax positions from acquisitions	—			—			10
Additions for tax positions of prior years	2			17			1
Reductions for tax positions of prior years	(3		)	—			—
Settlements with tax authorities	—			(3		)	—
Reductions due to the statute of limitations	(1		)	(6		)	(8		)
Currency translation adjustment	(1		)	—			—
Ending balance	$	23		$	25		$	15
Interest and penalties	6			5			4
Gross unrecognized tax benefits	$	29		$	30		$	19

Total UTB that, if recognized, would impact the effective income tax rate as of the end of the year	$	22		$	23		$	11

During the next 12 months, it is reasonably possible that the Company could reflect a reduction to unrecognized tax benefits of $4 million due to the statute of limitations lapsing on positions or because tax positions are sustained on audit.

The Company is subject to taxation in the United States, various states and various foreign jurisdictions. As of December 31, 2018, the Company has no tax years under examination by the Internal Revenue Service (“IRS”). The Company has various U.S. state and local examinations and non-U.S. examinations in process. The U.S. federal tax returns after 2008, state and local returns after 2009, and non-U.S. returns after 2007 are open under relevant statutes of limitations and are subject to audit.