Income Taxes

12 Months Ended

Dec. 31, 2019

INCOME TAXES

Our effective tax rate was 18.7%, (50.8)% and 50.6% for 2019, 2018 and 2017. The effective income tax rate for 2019 reflects the tax related to the transfer of intellectual properties between tax jurisdictions and the continued lower effective income tax rates as a result of our European operations. The effective income tax rate for 2018 reflects the tax effect related to the transfer of intellectual properties between tax jurisdictions, the continuing impact of complying with the Tax Cuts and Jobs Act of 2017 (the Tax Act) and continued lower effective income tax rates as a result of our European operations. The effective income tax rate for 2017 reflects compliance with the Tax Act offset by lower effective income tax rates as a result of our European operations.



Effective Income Tax Rate Reconciliation
	2019		2018		2017
United States federal statutory rate	21.0	%	21.0	%	35.0	%
United States state and local income taxes, less federal deduction	1.7		0.4		1.2
Foreign income tax at rates other than 21%	(4.6	)	(6.5	)	(21.0	)
Tax Cuts and Jobs Act of 2017 transition tax	—		2.2		38.0
Tax Cuts and Jobs Act of 2017 deferred tax changes	—		(0.6	)	2.3
Tax related to repatriation of foreign earnings	(0.5	)	0.5		—
Intellectual property transfer	3.5		(63.8	)	—
Other	(2.4	)	(4.0	)	(4.9	)
Effective income tax rate	18.7	%	(50.8	)%	50.6	%

In December 2017 the Tax Act was signed into law in the United States. The law includes significant changes to the United States corporate income tax system, including a federal corporate rate reduction, limitations on the deductibility of certain expenses and the transition of United States international taxation from a worldwide tax system to a territorial tax system. As part of the

transition to a territorial tax system, the Tax Act requires taxpayers to calculate a one-time transition tax based on undistributed earnings of foreign subsidiaries.

The Tax Act subjects a United States shareholder to tax on Global Intangible Low-Taxed Income (GILTI) earned by certain foreign subsidiaries. We have elected to account for GILTI tax in the year the tax is incurred.



Earnings Before Income Taxes
	2019		2018		2017
United States	$	366	$	509	$	499
International	2,196		1,847		1,564
Total	$	2,562	$	2,356	$	2,063



Components of Income Tax Expense (Benefit)
Current income tax expense:	2019			2018			2017
United States federal	$	(17	)	$	178		$	836
United States state and local	46			30			38
International	324			177			133
Total current income tax expense	$	353		$	385		$	1,007
Deferred income tax (benefit) expense:
United States federal	$	10		$	(44	)	$	84
United States state and local	(1		)	(20		)	(9		)
International	117			(1,518		)	(39		)
Total deferred income tax (benefit) expense	$	126		$	(1,582	)	$	36
Total income tax (benefit) expense	$	479		$	(1,197	)	$	1,043

Interest and penalties included in other income (expense), net were expense of ($9), ($9) and ($28) in 2019, 2018 and 2017. The United States federal deferred income tax benefit (expense) includes the utilization of net operating loss carryforwards of $50, $31 and $32 in 2019, 2018 and 2017.



Deferred Income Tax Assets and Liabilities
Deferred income tax assets:	2019			2018
Inventories	$	415		$	390
Product-related liabilities	57			60
Other accrued expenses	221			222
Depreciation and amortization	1,363			1,504
State income taxes	65			70
Share-based compensation	49			47
Net operating loss carryforwards	95			134
Other	207			177
Total deferred income tax assets	$	2,472		$	2,604
Less valuation allowances	(75		)	(66		)
Net deferred income tax assets	$	2,397		$	2,538
Deferred income tax liabilities:
Depreciation and amortization	$	(893	)	$	(865	)
Undistributed earnings	(37		)	(46		)
Other	—			(3		)
Total deferred income tax liabilities	$	(930	)	$	(914	)
Net deferred income tax assets	$	1,467		$	1,624
Reported as:
Noncurrent deferred income tax assets	$	1,575		$	1,678
Noncurrent liabilities—Other liabilities	(108		)	(54		)
Total	$	1,467		$	1,624

Accrued interest and penalties were $94 and $85 on December 31, 2019 and 2018 which were reported in current and noncurrent accrued expenses and other liabilities.

Net operating loss carryforwards totaling $378 on December 31, 2019 are available to reduce future taxable earnings of certain domestic and foreign subsidiaries. United States loss carryforwards of $358 expire through 2045. International loss carryforwards of $20 begin to expire in 2037; however, some have no expiration. We also have a tax credit carryforward of $65 with $63 being subject to a full valuation allowance. The credits with a full valuation allowance

have no expiration; however, we do not anticipate generating income tax in excess of the credits in the foreseeable future.

We recorded a transition tax on undistributed foreign earnings as required by the Tax Act. No other provision was made for United States income taxes that may result from future remittances of the undistributed earnings of foreign subsidiaries that are determined to be indefinitely reinvested. Determination of the total amount of unrecognized deferred income tax on undistributed earnings of foreign subsidiaries is not practicable.



Uncertain Income Tax Positions
	2019			2018
Beginning uncertain tax positions	$	528		$	540
Increases related to current year income tax positions	62			22
Increases related to prior year income tax positions	5			25
Decreases related to prior year income tax positions:
Settlements and resolutions of income tax audits	(78		)	(37		)
Statute of limitations expirations	(40		)	(14		)
Foreign currency translation	(5		)	(8		)
Ending uncertain tax positions	$	472		$	528
Reported as:
Noncurrent liabilities—Income taxes	$	472		$	528

Our income tax expense would have been reduced by $468 and $521 on December 31, 2019 and 2018 had these uncertain income tax positions been favorably resolved. It is reasonably possible that the amount of unrecognized tax benefits will significantly change due to one or more of the following events in the next 12 months: expiring statutes, audit activity, tax payments, competent authority proceedings related to transfer pricing or final decisions in matters that are the subject of controversy in various taxing jurisdictions in which we operate, including inventory transfer pricing, cost sharing, product royalty and foreign branch arrangements. We are not able to reasonably estimate the amount or the future periods in which changes in unrecognized tax benefits may be resolved. Interest and penalties incurred associated with uncertain tax positions are included in other income (expense), net.

In the normal course of business, income tax authorities in various income tax jurisdictions both within the United States and internationally conduct routine audits of our income tax returns filed in prior years. These audits are generally designed to determine if individual income tax authorities are in agreement with our interpretations of complex income tax regulations regarding the allocation of income to the various income tax jurisdictions. Income tax years are open from 2014 through the current year for the United States federal jurisdiction. Income tax years open for our other major jurisdictions range from 2005 through the current year.