Income and Other Taxes

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

Income and Other Taxes

Income and Other Taxes

(Loss) income before income taxes and equity income (pre-tax (loss) income) from continuing operations was as follows:

	Year Ended December 31,
	2021		2020		2019
Domestic (loss) income	$	(343)	$	353	$	679
Foreign (loss) income	(132)		(101)		143
(Loss) Income before Income Taxes and Equity Income	$	(475)	$	252	$	822

The components of Income tax (benefit) expense from continuing operations were as follows:

	Year Ended December 31,
	2021		2020		2019
Federal Income Taxes
Current	$	33	$	3	$	(3)
Deferred	(61)		58		98
Foreign Income Taxes
Current	29		19		43
Deferred	(20)		(34)		5
State Income Taxes
Current	10		8		15
Deferred	(8)		10		21
Income Tax (Benefit) Expense	$	(17)	$	64	$	179

A reconciliation of the U.S. federal statutory income tax rate to the consolidated effective income tax rate was as follows:

	Year Ended December 31,
	2021		2020		2019
U.S. federal statutory income tax rate	21.0	%	21.0	%	21.0	%
Nondeductible expenses	(1.9)	%	4.1	%	1.3	%
Effect of tax law changes	3.1	%	(10.5)	%	(4.6)	%
Change in valuation allowance for deferred tax assets	2.0	%	9.9	%	2.0	%
State taxes, net of federal benefit	(0.6)	%	5.5	%	3.5	%
Audit and other tax return adjustments	5.6	%	1.4	%	0.6	%
Tax-exempt income, credits and incentives	4.5	%	(5.9)	%	(2.1)	%
Foreign rate differential adjusted for U.S. taxation of foreign profits(1)	(0.9)	%	(2.6)	%	0.1	%
Stock-based compensation	(0.2)	%	2.3	%	(0.3)	%
Goodwill impairment	(29.1)	%	—	%	—	%
Other	0.1	%	0.2	%	0.3	%
Effective Income Tax Rate	3.6	%	25.4	%	21.8	%

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(1)The “U.S. taxation of foreign profits” represents the U.S. tax, net of foreign tax credits, associated with actual and deemed repatriations of earnings from our non-U.S. subsidiaries.

On a consolidated basis, including discontinued operations, we paid a total of $61, $32 and $94 in income taxes to federal, foreign and state jurisdictions during the three years ended December 31, 2021, 2020 and 2019, respectively.

Total income tax expense (benefit) was allocated to the following items:

	Year Ended December 31,
	2021		2020		2019
Pre-tax (loss) income	$	(17)	$	64	$	179
Discontinued operations(1)	—		—		95
Common shareholders' equity:
Changes in defined benefit plans	143		43		(55)
Cash flow hedges	(1)		1		(1)
Translation adjustments	(4)		(3)		8
Retained Earnings	—		—		—
Total Income Tax Expense	$	121	$	105	$	226

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(1)Refer to Note 6 - Divestitures for additional information regarding discontinued operations.

Unrecognized Tax Benefits and Audit Resolutions

We recognize tax liabilities when, despite our belief that our tax return positions are supportable, we believe that certain positions may not be fully sustained upon review by tax authorities. Each period, we assess uncertain tax positions for recognition, measurement and effective settlement. Benefits from uncertain tax positions are measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon settlement - the more-likely-than-not recognition threshold. Where we have determined that our tax return filing position does not satisfy the more-likely-than-not recognition threshold, we have recorded no tax benefits. These assessments require the use of considerable estimates and judgments and can increase or decrease our effective tax rate, as well as impact our operating results. A difference in the ultimate resolution of uncertain tax positions from what is currently estimated could have a material impact on our results of operations and financial condition.

The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations in a variety of jurisdictions. We are also subject to ongoing tax examinations in numerous jurisdictions due to the extensive geographical scope of our operations. As a result, we have received, and may in the future receive, proposed tax adjustments and tax assessments in multiple jurisdictions. We regularly assess the likelihood of the outcomes resulting from these ongoing tax examinations as part of our continuing assessment of uncertain tax positions to determine our provision for income taxes. The specific timing of when the resolution of each tax position will be reached is uncertain. As of December 31, 2021, we do not believe that there are any positions for which it is reasonably possible that the total amount of unrecognized tax benefits will significantly increase or decrease within the next 12 months.

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

	2021		2020		2019
Balance at January 1	$	115	$	127	$	108
Additions related to current year	7		3		42
Additions related to prior years positions	—		8		17
Reductions related to prior years positions	(14)		(10)		(36)
Settlements with taxing authorities(1)	7		(8)		(1)
Reductions related to lapse of statute of limitations	(7)		(7)		(3)
Currency	(1)		2		—
Balance at December 31	$	107	$	115	$	127

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(1)The majority of settlements did not result in the utilization of cash.

Included in the balances at December 31, 2021, 2020 and 2019 are $1, $8 and $3, respectively, of tax positions that are highly certain of realizability but for which there is uncertainty about the timing or that they may be reduced through an indirect benefit from other taxing jurisdictions. Because of the impact of deferred tax accounting, other than for the possible incurrence of interest and penalties, the disallowance of these positions would not affect the annual effective tax rate.

Within income tax expense, we recognize interest and penalties accrued on unrecognized tax benefits, as well as interest received from favorable settlements. We had $1, $4 and $2 accrued for the payment of interest and penalties associated with unrecognized tax benefits at December 31, 2021, 2020 and 2019, respectively.

In the U.S., we are no longer subject to U.S. federal income tax examinations for years before 2017. With respect to our major foreign jurisdictions, we are no longer subject to tax examinations by tax authorities for years before 2011.

Deferred Income Taxes

At December 31, 2021 we have not provided deferred taxes on our undistributed pre-1987 E&P of approximately $330, as such undistributed earnings have been determined to be indefinitely reinvested and we currently do not plan to initiate any action that would precipitate a deferred tax impact. The decrease from the amount at December 31, 2020 of $350 is due to foreign currency translation adjustments. Additionally, we have also not provided deferred taxes on the outside basis differences in our investments in foreign subsidiaries that are unrelated to undistributed earnings. These basis differences are also indefinitely reinvested. A determination of the unrecognized deferred taxes related to these components is not practicable.

The tax effects of temporary differences that give rise to significant portions of the deferred taxes were as follows:

	December 31,
	2021		2020
Deferred Tax Assets
Research and development	$	185	$	150
Post-retirement medical benefits	78		94
Net operating losses	363		377
Operating reserves, accruals and deferrals	133		124
Tax credit carryforwards	143		249
Deferred and share-based compensation	24		13
Pension	7		211
Depreciation	31		35
Operating lease liabilities	62		82
Other	36		44
Subtotal	1,062		1,379
Valuation allowance	(357)		(396)
Total	$	705	$	983
Deferred Tax Liabilities
Finance lease and installment sales	$	61	$	247
Intangibles and goodwill	122		140
Unremitted earnings of foreign subsidiaries	31		31
Operating lease ROU assets	58		76
Other	22		16
Total	$	294	$	510
Total Deferred Taxes, Net	$	411	$	473
Reconciliation to the Consolidated Balance Sheets
Deferred tax assets	$	519	$	508
Deferred tax liabilities(1)	(108)		(35)
Total Deferred Taxes, Net	$	411	$	473

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(1)Represents the deferred tax liabilities recorded in Other long-term liabilities - refer to Note 15 - Supplementary Financial Information.

We record the estimated future tax effects of temporary differences between the tax bases of assets and liabilities and the amounts reported, as well as net operating loss and tax credit carryforwards. Deferred tax assets are assessed for realizability and, where applicable, a valuation allowance is recorded to reduce the total deferred tax asset to an amount that will, more-likely-than-not, be realized in the future. We apply judgment in assessing the realizability of these deferred tax assets and the need for any valuation allowances. In determining the amount of deferred tax assets that are more-likely-than-not to be realized, we considered historical profitability, projected future taxable income, the expected timing of the reversals of existing temporary differences and tax planning strategies. The deferred tax assets requiring significant judgment are U.S. tax credit carryforwards with a limited life.

The net change in the total valuation allowance for the years ended December 31, 2021, 2020 and 2019 was a decrease of $39, a decrease of $3 and an increase of $2, respectively. The valuation allowance relates primarily to certain net operating loss carryforwards, tax credit carryforwards and deductible temporary differences for which we have concluded it is more-likely-than-not that these items will not be realized in the ordinary course of operations.

Although realization is not assured, we have concluded that it is more-likely-than-not that the deferred tax assets, for which a valuation allowance was determined to be unnecessary, will be realized in the ordinary course of

operations based on the available positive and negative evidence, including scheduling of deferred tax liabilities and projected income from operating activities. The amount of the net deferred tax assets considered realizable, however, could change in the near term if future income or income tax rates are higher or lower than currently estimated, or if there are differences in the timing or amount of future reversals of existing taxable or deductible temporary differences.

At December 31, 2021, we had tax credit carryforwards of $143 available to offset future income taxes, of which $2 are available to carryforward indefinitely while the remaining $141 will expire 2022 through 2042 if not utilized. We also had net operating loss carryforwards for income tax purposes of $496 that will expire 2022 through 2042, if not utilized, and $1.6 billion available to offset future taxable income indefinitely.