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Income Taxes
 12 Months Ended
Dec. 31, 2022
Income Tax Disclosure [Abstract]  
Income Taxes

9. Income Taxes

The domestic and foreign components of income (loss) before income taxes were as follows (in millions):

 

Year Ended December 31,

 

 

2022

 

 

2021

 

 

2020

 

United States

$

108

 

 

$

(9

)

 

$

(289

)

Foreign

 

31

 

 

 

21

 

 

 

(141

)

Income (loss) before income taxes

$

139

 

 

$

12

 

 

$

(430

)

The provision (benefit) for income taxes for 2022, 2021 and 2020 consisted of the following (in millions):

 

Year Ended December 31,

 

 

2022

 

 

2021

 

 

2020

 

U.S. Federal:

 

 

 

 

 

 

 

 

Current

$

—

 

 

$

—

 

 

$

—

 

Deferred

 

—

 

 

 

(1

)

 

 

—

 

 

 

—

 

 

 

(1

)

 

 

—

 

U.S. State:

 

 

 

 

 

 

 

 

Current

 

—

 

 

 

—

 

 

 

—

 

Deferred

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Foreign:

 

 

 

 

 

 

 

 

Current

 

9

 

 

 

7

 

 

 

1

 

Deferred

 

1

 

 

 

1

 

 

 

(4

)

 

 

10

 

 

 

8

 

 

 

(3

)

Income tax provision (benefit)

$

10

 

 

$

7

 

 

$

(3

)

The reconciliation between the Company’s effective tax rate on income (loss) from continuing operations and the statutory tax rate is as follows (in millions):

 

Year Ended December 31,

 

 

2022

 

 

2021

 

 

2020

 

Income tax provision (benefit) at federal statutory rate

$

29

 

 

$

3

 

 

$

(90

)

Foreign tax rate differential

 

1

 

 

 

2

 

 

 

1

 

State income tax provision (benefit), net of federal benefit

 

4

 

 

 

(1

)

 

 

(4

)

Nondeductible expenses

 

2

 

 

 

—

 

 

 

2

 

Nondeductible goodwill impairment

 

—

 

 

 

—

 

 

 

25

 

Currency translation losses

 

2

 

 

 

—

 

 

 

—

 

Capital loss carryforward

 

(2

)

 

 

—

 

 

 

—

 

Change in valuation allowance

 

(28

)

 

 

2

 

 

 

61

 

Other

 

2

 

 

 

1

 

 

 

2

 

Income tax provision (benefit)

$

10

 

 

$

7

 

 

$

(3

)

Effective tax rate

 

7.2

%

 

 

54.8

%

 

 

0.6

%

In general, the effective tax rate differs from the U.S. statutory rate due to recurring items, such as differing tax rates on income earned in foreign jurisdictions, nondeductible expenses, state income taxes and the change in valuation allowance recorded against deferred tax assets. For the year ended December 31, 2022, the effective tax rate was primarily driven by the recognition of tax expense from

earnings in Canada offset by current year realization of deferred tax assets and corresponding release of valuation allowance in the U.S., as well as impairment charges incurred as a result of substantially completing the liquidation of certain foreign subsidiaries with no associated tax benefit. For the year ended December 31, 2021, the effective tax rate was primarily driven by the low level of consolidated pre-tax income and the recognition of tax expense from earnings in Canada, which was not able to be offset by benefits recognized on losses in other jurisdictions.

Significant components of the Company’s deferred tax assets and liabilities were as follows (in millions):

 

December 31,

 

 

2022

 

 

2021

 

 

2020

 

Deferred tax assets:

 

 

 

 

 

 

 

 

Allowances and operating liabilities

$

6

 

 

$

6

 

 

$

3

 

Net operating loss carryforwards

 

76

 

 

 

92

 

 

 

79

 

Foreign tax credit carryforwards

 

7

 

 

 

7

 

 

 

7

 

Allowance for doubtful accounts

 

5

 

 

 

4

 

 

 

5

 

Inventory reserve

 

9

 

 

 

10

 

 

 

13

 

Stock-based compensation

 

5

 

 

 

5

 

 

 

6

 

Intangible assets

 

45

 

 

 

57

 

 

 

66

 

Capital loss carryforward

 

12

 

 

 

10

 

 

 

11

 

Tax over book basis in depreciable assets

 

4

 

 

 

5

 

 

 

5

 

Lease liabilities

 

11

 

 

 

9

 

 

 

12

 

Other

 

3

 

 

 

3

 

 

 

4

 

Total deferred tax assets

$

183

 

 

$

208

 

 

$

211

 

Deferred tax liabilities:

 

 

 

 

 

 

 

 

ROU assets

 

(10

)

 

 

(7

)

 

 

(11

)

Other

 

(1

)

 

 

—

 

 

 

—

 

Total deferred tax liabilities

$

(11

)

 

$

(7

)

 

$

(11

)

Net deferred tax assets before valuation allowance

 

172

 

 

 

201

 

 

 

200

 

Valuation allowance

 

(173

)

 

 

(201

)

 

 

(199

)

Net deferred tax assets (liabilities)

$

(1

)

 

$

—

 

 

$

1

 

The Company records a valuation allowance when it is more-likely-than-not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of the deferred tax assets depends on the ability to generate sufficient taxable income of the appropriate character in the future and in the appropriate taxing jurisdictions. If the Company was to determine that it would be able to realize the deferred tax assets in the future in excess of their net recorded amount, the Company would make an adjustment to the valuation allowance, which would reduce the provision for income taxes.

The Company remains in a three-year cumulative loss position at the end of 2022. As a result, management believes that it is not more-likely-than-not that the Company would be able to realize the benefits of its deferred tax assets in the U.S., Canada and other foreign jurisdictions and accordingly recognized a valuation allowance for the year ended December 31, 2022. The change during the year in the valuation allowance was a reduction of $27 million in the U.S. and $1 million in other foreign jurisdictions resulting from a corresponding reduction in deferred tax assets.

There are no uncertain tax positions as of any of the periods presented. To the extent penalties and interest would be assessed on any underpayment of income tax, such accrued amounts are classified as a component of income tax provision (benefit) in the financial statements consistent with the Company’s policy. For the year ended December 31, 2022, the Company did not record any income tax expense for interest and penalties related to uncertain tax positions.

The Company is subject to taxation in the U.S., various states and foreign jurisdictions. The Company has significant operations in the U.S. and Canada and to a lesser extent in various other international jurisdictions. Tax years that remain subject to examination vary by legal entity but are generally open in the U.S. for the tax years ending after 2018 and outside the U.S. for the tax years ending after 2016.

In the U.S., the Company has $304 million of federal net operating loss carryforwards as of December 31, 2022, of which $158 million will expire between 2036 through 2037 and $146 million have no expiration. The potential associated tax benefit of $64 million has been reduced by a $64 million valuation allowance. The Company has $171 million of state net operating loss carryforwards as of December 31, 2022, with the majority expiring after 2034. The potential tax benefit of $9 million has been reduced by a $9 million valuation allowance. Outside the U.S., the Company has $17 million of net operating loss carryforwards as of December 31, 2022, of which $13 million have no expiration and $4 million will expire between 2024 and 2032. The potential tax benefit of $3 million has been reduced by a $3 million valuation allowance. As of December 31, 2022, the Company has $7 million of excess foreign tax credits in the U.S. The foreign tax credits will expire between 2024 and 2027. The potential tax benefit of $7 million has been reduced by a $7 million valuation allowance. In addition to a reduction in future income tax expense, future income tax payments will also be reduced in the event the Company ultimately realizes the benefit of these net operating loss carryforwards and foreign tax credits.

As of December 31, 2022, the Company has an immaterial amount of undistributed foreign earnings that may be subject to taxation upon a future distribution. The Company has not recorded deferred income taxes on undistributed foreign earnings that it considers to be indefinitely reinvested. The Company makes a determination each period whether to indefinitely reinvest these earnings. If, as a result of these reassessments, the Company distributes these earnings in the future, additional tax liabilities may result, offset by any available foreign tax credits. The Company has not recorded deferred income taxes on other outside basis differences inherent in the Company’s foreign subsidiaries that it considers to be indefinitely reinvested, as such determination is not practicable.

Because of the number of tax jurisdictions in which the Company operates, its effective tax rate can fluctuate as operations and the local country tax rates fluctuate. The Company is also subject to audits by federal, state and foreign jurisdictions which may result in proposed assessments. The Company’s future tax provision will reflect any favorable or unfavorable adjustments to its estimated tax liabilities when resolved. The Company is unable to predict the outcome of these matters. However, the Company believes that none of these matters will have a material adverse effect on the results of operations or financial position of the Company.