Income Taxes (Tables)

12 Months Ended

Dec. 31, 2019

Income Tax Disclosure [Abstract]

Source of pre-tax income and components of income tax expense

The source of pre-tax income and the components of income tax expense are as follows:

	Year Ended December 31,
(in millions)	2019			2018			2017
Income components:
Domestic	$	203		$	208		$	162
Foreign	213			377			304
Total pre-tax income	$	416		$	585		$	466
Income tax expense components:
Current:
Domestic – federal	$	39		$	9		$	109
Domestic – state and local	13			13			9
Foreign	40			61			51
Total Current	92			83			169
Deferred:
Domestic – federal	$	7		$	17		$	(29	)
Domestic – state and local	(1		)	5			10
Foreign	(83		)	(69		)	(14		)
Total Deferred	(77		)	(47		)	(33		)
Total income tax provision	$	15		$	36		$	136
Effective income tax rate	3.7		%	6.1		%	29.2		%

Schedule of effective income tax rate reconciliation

Reconciliations between taxes at the U.S. federal income tax rate and taxes at our effective income tax rate on earnings before income taxes are as follows:

	Year Ended December 31,
	2019		2018		2017
Tax provision at U.S. statutory rate	21.0	%	21.0	%	35.0	%
Increase (decrease) in tax rate resulting from:
State income taxes	2.7		2.3		1.6
Uncertain tax positions	0.4		2.6		1.6
Valuation allowance	1.2		(47.1	)	3.3
Tax exempt interest	(3.0	)	(1.4	)	(10.6	)
Foreign tax rate differential	0.7		2.9		(6.7	)
Impact of foreign earnings, net	1.6		(1.7	)	37.0
Tax incentives	(9.6	)	(6.2	)	(6.6	)
Intercompany sale of assets	—		35.5		—
Other – net	1.7		(0.3	)	(0.5	)
Rate change	(18.1	)	—		(22.9	)
Goodwill impairment	7.8		—		—
Federal R&D tax credit	(1.2	)	(0.8	)	(1.0	)
Stock compensation	(1.5	)	(0.7	)	(1.0	)
Effective income tax rate	3.7	%	6.1	%	29.2	%

Components of net deferred tax assets and liabilities

The following is a summary of the components of the net deferred tax assets and liabilities recognized in the Consolidated Balance Sheets:

	December 31,
(in millions)	2019			2018
Deferred tax assets:
Employee benefits	$	106		$	97
Accrued expenses	26			30
Loss and other tax credit carryforwards	240			279
Inventory	6			7
Lease Liabilities	57			—
Other	3			11
	438			424
Valuation allowance	(191		)	(234		)
Net deferred tax asset	$	247		$	190
Deferred tax liabilities:
Intangibles	$	160		$	247
Investment in foreign subsidiaries	7			8
Property, plant, and equipment	78			69
Lease right-of-use assets	57			—
Other	29			29
Total deferred tax liabilities	$	331		$	353

Reconciliation of Deferred Tax Asset Valuation Allowance

A reconciliation of the change in valuation allowance on deferred tax assets is as follows:

(in millions)	2019			2018			2017
Valuation allowance — January 1	$	234		$	350		$	311
Change in assessment (a)	(2		)	1			(28		)
Current year operations	2			(271		)	48
Foreign currency and other (b)	(43		)	154			19
Valuation allowance — December 31	$	191		$	234		$	350

(a) Decrease in assessment in 2019 is primarily attributable to profitability of certain jurisdictions. Increase in assessment in 2018 is primarily attributable to loss positions in various jurisdictions.

(b)

Included in foreign currency and other in 2018 is an increase in net operating losses due to amended prior year tax returns for which a valuation allowance was recorded.

Deferred taxes classification

Deferred taxes are classified in the Consolidated Balance Sheets as follows:

	December 31,
(in millions)	2019			2018
Non-current assets	$	226		$	140
Non-current liabilities	(310		)	(303		)
Total net deferred tax liabilities	$	(84	)	$	(163	)

Tax attributes available to reduce future taxable income

Tax attributes available to reduce future taxable income begin to expire as follows:

(in millions)	December 31, 2019		First Year of Expiration
U.S. net operating loss	$	8	December 31, 2024
State net operating loss	98		December 31, 2020
State excess interest expense	9		Indefinitely
State tax credits	2		Indefinitely
Foreign net operating loss	1,018		December 31, 2020
Foreign tax credits	3		December 31, 2030

Reconciliation of the beginning and ending amount of unrecognized tax benefits

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

(in millions)	2019			2018			2017
Unrecognized tax benefits — January 1	$	136		$	130		$	67
Current year tax positions	3			—			56
Prior year tax positions	(5		)	7			7
Acquisitions	—			—			—
Settlements	(5		)	(1		)	—
Unrecognized tax benefits — December 31	$	129		$	136		$	130

Earliest open tax years by major jurisdiction

The following table summarizes our earliest open tax years by major jurisdiction:

Jurisdiction	Earliest Open Year
Italy	2013
Luxembourg	2016
Sweden	2013
Germany	2009
United Kingdom	2013
United States	2016
Switzerland	2017