Income Taxes

12 Months Ended

Dec. 31, 2023

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

The components of income before income taxes and the provision for income taxes for the years indicated are presented below:

	2023		2022		2021
Income before income taxes:
U.S.	$	244	$	111	$	39
Foreign	595		557		209
Total income before income taxes	839		668		248
Provision for income taxes:
Current tax expense:
U.S. federal	6		8		2
State and local	5		2		2
Foreign	183		159		180
Total current tax expense	194		169		184
Deferred tax expense (benefit):
U.S. federal	—		5		(57)
State and local	1		(1)		(2)
Foreign	(7)		(7)		(2)
Total deferred tax (benefit)	(6)		(3)		(61)
Total provision for income taxes	$	188	$	166	$	123

Deferred income taxes are provided for the tax effects of temporary differences between the financial reporting basis and tax basis of assets and liabilities. Significant temporary differences as of December 31, 2023 and 2022, are summarized as follows:

	2023		2022
Deferred tax assets attributable to:
Employee benefit accruals	$	32	$	30
Pensions and postretirement plans	16		14
Lease liabilities	54		49
Bad debt	5		6
Inventory reserve	16		22
Net operating loss carryforwards	58		59
Tax credit carryforwards	5		5
Derivative contracts	16		—
Uniform capitalization	12		9
Other	35		33
Total deferred tax assets	249		227
Valuation allowances	(46)		(51)
Net deferred tax assets	203		176
Deferred tax liabilities attributable to:
Property, plant and equipment	184		175
Identified intangibles	33		48
Right-of-use lease assets	51		46
Foreign withholding and state taxes on unremitted earnings	1		1
Goodwill	35		31
Brazilian indirect tax credits	—		4
Derivative contracts	—		3
Total deferred tax liabilities	304		308
Net deferred tax liabilities	$	101	$	132

Of the $58 million of tax-effected net operating loss carryforwards as of December 31, 2023, $42 million are for foreign loss carryforwards, $14 million for state loss carryforwards, and $2 million for U.S. federal loss carryforwards. Of the $42 million of foreign loss carryforwards, $24 million are related to Canada, $5 million to Australia, $4 million to Brazil, $3 million to Argentina, and $3 million to Malaysia with carryforward periods of 20 years, indefinite, indefinite, 5 years and 10 years, respectively. U.S. federal and state loss carryforwards have various expiration periods beginning in 2025.

A valuation allowance is established when it is more likely than not that all or a portion of a deferred tax asset will not be realized. Prior to establishing a valuation allowance, we consider historical taxable income, scheduled reversal of deferred tax liabilities, tax planning strategies, tax carryovers and projected future taxable income. As of December 31, 2023, we maintained valuation allowances of $46 million, consisting of $23 million primarily related to foreign loss carryforwards, $14 million for state loss carryforwards, $6 million for state credits and carryforwards, $2 million for U.S. federal loss carryforwards and $1 million for certain foreign tax credits, all of which we have determined will more likely than not expire prior to realization.

Net operating loss carryforwards disclosed in the financial statements differ from the as-filed tax returns due to an unrecognized tax benefit. Foreign net operating loss carryforwards and valuation allowances would increase $10 million absent the unrecognized tax benefit.

A reconciliation of the U.S. federal statutory tax rate to our effective tax rate follows:

	2023		2022		2021
Provision for tax at U.S. statutory rate	21.0	%	21.0	%	21.0	%
Tax rate difference on foreign income	6.1		7.2		13.3
Foreign currency foreign exchange	(1.8)		(0.3)		3.2
Inflation adjustments	(0.5)		(0.6)		(4.0)
Tax benefit of intercompany financing	(0.4)		(0.4)		(1.6)
U.S. international tax implications	1.0		2.2		0.8
Valuation allowance in Argentina	—		—		(0.4)
Favorable judgment on the treatment of credits and interest on indirect taxes	(0.2)		(0.3)		(4.8)
Unremitted earnings	—		—		(12.1)
Impairment charge related to Argentina joint venture	—		—		35.5
Foreign-derived intangible income (FDII)	(1.5)		(1.0)		—
Brazil exclusion of certain tax incentives	(1.2)		(4.0)		—
Other items, net	(0.1)		1.1		(1.3)
Provision at effective tax rate	22.4	%	24.9	%	49.6	%

The 2023 statutory tax rates (including surcharges and local jurisdictional taxes when applicable) were 30 percent in Mexico, 32 percent in Germany, 35 percent in Colombia, 39 percent in Pakistan, and 26 percent in Canada, where we have significant operations. In addition, our subsidiary in Brazil has a statutory tax rate of 34 percent before the application of local incentives that vary each year.

During 2023, the IRS released Notice 2023-55, to address the final foreign tax credit regulations issued in 2022. The notice was effective in 2023 and provided retroactive relief to fiscal 2022. This increased our ability to claim certain foreign tax credits against U.S. taxes with respect to fiscal years 2022 and 2023.

Additionally, during 2023, the Brazilian Government published Law 14.596/23, which established a transfer pricing framework in Brazil that is aligned with the Organization for Economic Co-operation and Development (“OECD”) guidelines. The law was effective January 1, 2024, but our subsidiary in Brazil elected to early adopt the law as of January 1, 2023, which provided a favorable country earnings mix and related increase in our foreign-derived intangible income.

As of December 31, 2023, we had a $1 million accrual for foreign withholding on certain unremitted earnings from foreign subsidiaries. No foreign withholding taxes, federal and state taxes or foreign currency gains or losses have been provided on distributions of approximately $2.7 billion of unremitted earnings of our foreign subsidiaries, as such amounts are considered permanently reinvested. It is not practicable to estimate the additional income taxes, including applicable foreign withholding taxes that would be due upon the repatriation of these earnings.

A reconciliation of the beginning and ending amounts of unrecognized tax benefits, excluding interest and penalties, for 2023 and 2022 is as follows:

	2023		2022
Balance at January 1	$	30	$	29
Additions for tax positions related to prior years	1		5
Reductions for tax positions related to prior years	(1)		(1)
Additions based on tax positions related to the current year	1		1
Reductions related to a lapse in the statute of limitations	—		(4)
Balance at December 31	$	31	$	30

Of the $31 million of unrecognized tax benefits as of December 31, 2023, $20 million represents the amount that, if recognized, could affect the effective tax rate in future periods. The remaining $11 million includes $10 million of net operating loss carryforwards that would have otherwise had a valuation allowance and $1 million of U.S. federal benefits.

We account for interest and penalties related to income tax matters within the provision for income taxes. We have accrued $5 million of interest expense and penalties related to unrecognized tax benefits as of December 31, 2023.

We are subject to U.S. federal income tax as well as income tax in multiple states and non-U.S. jurisdictions. The U.S. federal tax returns are subject to audit for the years 2020 through 2023. In general, our foreign subsidiaries remain subject to audit for years 2013 and later.

It is reasonably possible that the total amount of unrecognized tax benefits including interest and penalties will increase or decrease within twelve months of December 31, 2023. We believe it is reasonably possible that $4 million of the unrecognized tax benefits may be recognized within twelve months of December 31, 2023, as a result of a statute of limitations lapse and potential settlement.