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Income Taxes

12 Months Ended

Dec. 31, 2019

Income (loss) before taxes related to our U.S. and foreign operations was as follows:



	Years Ended December 31,
(In millions)	2019		2018		2017
U.S.	$	379	$	319	$	278
Foreign	190		247		(17		)
Income before income tax provision (benefit)	$	569	$	566	$	261

The income tax provision (benefit) is comprised of the following:



	Years Ended December 31,
(In millions)	2019			2018			2017
Current:
U.S. Federal	$	18		$	2		$	2
State	3			6			(3		)
Foreign	62			69			59
Total current income tax provision	$	83		$	77		$	58
Deferred:
U.S. Federal⁽¹⁾	$	52		$	57		$	(134	)
State	—			2			(2		)
Foreign ^{(2) (3)}	(6		)	(14		)	(21		)
Total deferred income tax provision (benefit)	46			45			(157		)
Total income tax provision (benefit)	$	129		$	122		$	(99	)


(1)	On December 22, 2017, the Tax Cuts and Jobs Act (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, we recorded a tax benefit of $173 million in the fourth quarter of 2017 related to the revaluation of our net deferred tax liabilities. We did not record any changes during the measurement period.


(2)	On December 29, 2019, a law was published in France modifying the phases of previously enacted rate reductions. Consequently, we recorded a tax expense of $3 million in the fourth quarter of 2019 related to the revaluation of our net deferred tax liabilities due to the expected recognition of these liabilities.

(3)

On December 31, 2017, a law was published in France enacting a rate reduction from 34.4% to 25.8% 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 34% to 25% to be phased in over three years starting in 2018. Consequently, we recorded a tax benefit of $10 million in the fourth quarter of 2017 related to the revaluation of our net deferred tax liabilities.

The effective tax rate reconciliations were as follows:



	Years Ended December 31,
	2019		2018		2017
U.S. federal statutory tax rate	21.0	%	21.0	%	35.0	%
State taxes, net of U.S. federal benefit	0.7		1.2		(1.2	)
Foreign rate differential	(0.3	)	(1.1	)	(6.7	)
Foreign operations ⁽¹⁾	2.9		8.3		(0.1	)
Valuation allowance	0.1		(3.7	)	0.8
Changes in uncertain tax positions	(0.9	)	—		5.1
Effect of law changes ^{(2) (3)}	0.6		—		(70.2	)
Stock-based compensation	(0.3	)	(3.8	)	(3.3	)
Other	(1.2	)	(0.3	)	2.4
Effective tax rate	22.6	%	21.6	%	(38.2	)%


(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)	In 2019, there were tax rate changes in France.


(3)	In 2017, there were tax rate changes in the U.S., France and Belgium.

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 were as follows:



	Years Ended December 31,
(In millions)	2019			2018
Deferred tax asset
Net operating loss and other tax attribute carryforwards	$	129		$	154
Accrued expenses	45			60
Pension and other retirement obligations	17			25
Other	59			62
Total deferred tax asset	250			301
Valuation allowance	(69		)	(73		)
Total deferred tax asset, net	181			228
Deferred tax liability
Intangible assets	(297		)	(330		)
Property and equipment	(324		)	(299		)
Other	(46		)	(35		)
Total deferred tax liability	(667		)	(664		)
Net deferred tax liability	$	(486	)	$	(436	)

The deferred tax asset and deferred tax liability above are reflected on our Consolidated Balance Sheets as follows:



	December 31,
(In millions)	2019			2018
Other long-term assets	$	9		$	8
Deferred tax liability	(495		)	(444		)
Net deferred tax liability	$	(486	)	$	(436	)

Investments in Foreign Subsidiaries

As a result of the Tax Act, we decided to apply a partial indefinite reversal assertion to pre-2018 earnings and profits that have been invested back into the foreign businesses. We also decided not to apply an indefinite reversal assertion on all 2018 and future years’ earnings and profits.

Operating Loss and Tax Credit Carryforwards



		December 31,
(In millions)	Expiration Date	2019		2018
Federal net operating losses for all U.S. operations (including those of minority owned subsidiaries)	2032 - 2037 ⁽¹⁾	$	72	$	82
Tax effect (before federal benefit) of state net operating losses	Various times starting in 2020 ⁽¹⁾	26		26
Federal tax credit carryforwards	Various times starting in 2032 ⁽¹⁾	4		16
State tax credit carryforward	Various times starting in 2020 ⁽¹⁾	10		8
Foreign net operating losses available to offset future taxable income	Various times starting in 2020 ⁽¹⁾	379		382


(1)	Some credits and losses have unlimited carryforward periods.

Valuation Allowance

We established a valuation allowance for some of our deferred tax assets, as it is more-likely-than-not that these assets will not be realized in the foreseeable future. We concluded that the remaining deferred tax assets will more-likely-than-not be realized, though this is not assured, and as such no valuation allowance has been provided on these assets.

The balances and activity related to our valuation allowance were as follows:



(In millions)	Beginning Balance		Additions		Reductions/ Charges			Ending Balance
Year Ended December 31, 2019	$	73	$	—	$	(4	)	$	69
Year Ended December 31, 2018	93		—		(20		)	73
Year Ended December 31, 2017	83		29		(19		)	93

Unrecognized Tax Benefits

A reconciliation of the beginning and ending amount of unrecognized tax benefits (“UTB”) is as follows:



	Years Ended December 31,
(In millions)	2019			2018			2017
Beginning balance	$	23		$	25		$	15
Additions for tax positions of the current period	—			1			2
Additions for tax positions of prior years	3			2			17
Reductions for tax positions of prior years	(7		)	(3		)	—
Settlements with tax authorities	(1		)	—			(3		)
Reductions due to the statute of limitations	(1		)	(1		)	(6		)
Currency translation adjustment	—			(1		)	—
Ending balance	$	17		$	23		$	25
Interest and penalties	7			6			5
Gross unrecognized tax benefits	$	24		$	29		$	30

Total UTB that, if recognized, would impact the effective income tax rate as of the end of the year	$	16		$	22		$	23

We could reflect a reduction to unrecognized tax benefits of $3 million over the next 12 months due to the statute of limitations lapsing on positions or because tax positions are sustained on audit.

We are subject to taxation in the United States and various states and foreign jurisdictions. As of December 31, 2019, we have no tax years under examination by the Internal Revenue Service (“IRS”). We have 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 2012, and non-U.S. returns after 2008 are open under relevant statutes of limitations and are subject to audit.