Income Taxes

Income tax expense (benefit) attributable to continuing operations —



	2015			2014			2013
Current
U.S. federal and state	$	12		$	(5	)	$	23
Non-U.S.	80			134			106
Total current	92			129			129

Deferred
U.S. federal and state	(9		)	(177		)	(1		)
Non-U.S.	(1		)	(22		)	(9		)
Total deferred	(10		)	(199		)	(10		)
Total expense (benefit)	$	82		$	(70	)	$	119

We record interest and penalties related to uncertain tax positions as a component of income tax expense or benefit. Net interest expense for the periods presented herein is not significant.

Income from continuing operations before income taxes —



	2015		2014		2013
U.S. operations	$	72	$	175	$	151
Non-U.S. operations	220		85		217
Income from continuing operations before income taxes	$	292	$	260	$	368

Income tax audits — We conduct business globally and, as a result, file income tax returns in multiple jurisdictions that are subject to examination by taxing authorities throughout the world. With few exceptions, we are no longer subject to U.S. federal, state and local or foreign income tax examinations for years before 2009. The U.S. federal income tax audits for 2011 and 2012 were settled during the first quarter of 2015, resulting in no incremental cash taxes.

We are currently under audit by U.S. and foreign authorities for certain taxation years. When the issues related to these periods are settled, the total amounts of unrecognized tax benefits for all open tax years may be modified. We accrued tax reserves of $2 in 2014 and $6 in 2013 for an uncertain tax position in Italy, which was settled in 2015. Audit outcomes and the timing of the audit settlements are subject to uncertainty and we cannot make an estimate of the impact on our financial position at this time.

Effective tax rate reconciliation for continuing operations —



	2015		2014		2013
U.S. federal income tax rate	35	%	35	%	35	%
Adjustments resulting from:
State and local income taxes, net of federal benefit	1		1
Non-U.S. income	(10	)	(6	)	(4	)
Non-U.S. tax incentives	(2	)	(4	)	(4	)
Non-U.S. withholding taxes on undistributed earnings of non-U.S. operations	5		4		5
Intercompany sale of certain operating assets	9
Settlement and return adjustments			3		1
Miscellaneous items	2				1
Valuation allowance adjustments	(12	)	(60	)	(2	)
Effective income tax rate for continuing operations	28	%	(27	)%	32	%

The income tax rate varies from the U.S. federal statutory rate of 35% due to establishment, release and adjustment of valuation allowances in several countries, nondeductible expenses, local tax incentives in several countries outside the U.S., different statutory tax rates outside the U.S. and withholding taxes related to repatriations of international earnings to the U.S.

In 2014, income tax expense in the U.S. was reduced by $179 for release of valuation allowances for income forecasted to be realized in 2015 in connection with a tax planning action that involved a sale of an affiliate’s stock and certain operating assets by a U.S. subsidiary of the company to a non-U.S. affiliate expected to be completed in 2015. During the fourth quarter of 2015, the tax planning action was completed. The final income generated by the transaction was higher than anticipated as a consequence of proposed Internal Revenue Service regulations issued in 2015 providing guidance on the tax treatment afforded a component of the tax planning action we undertook, as well as revised income estimates, which resulted in an additional $66 release of valuation allowance. In conjunction with the completion of the intercompany sale of certain operating assets to a non-U.S. affiliate, a prepaid tax asset of $190 was recorded. The prepaid tax asset represents the usage of tax attributes recognized in 2014 and 2015, through the release of valuation allowance on our deferred tax assets, and will be amortized into tax expense over the life of the assets transferred in the transaction. During 2015, $2 of the prepaid tax asset was recognized in tax expense, as a result of this amortization. In addition, we recognized tax expense of $23 related to the sale of the affiliate’s stock.

No tax benefit was recognized on a charge of $80 in 2014 relating to the divestiture of our Venezuela operations due to the existence of a valuation allowance, resulting in an increase in the effective tax rate.

In 2013, income tax expense was reduced by $7 for the impact of new tax legislation and tax rate changes outside the U.S. Additionally, non-U.S. income in each of the three years contributed to an effective tax rate of less than 35% due to lower statutory tax rates in the countries where we operate outside the U.S.

Foreign income repatriation — We provide for U.S. federal income and non-U.S. withholding taxes on the earnings of our non-U.S. operations that are not considered to be permanently reinvested. Accordingly, we continue to analyze and adjust the estimated tax impact of the income and non-U.S. withholding liabilities based on the amount and source of these earnings. We recognized net expense of $1, $3 and $8 for 2015, 2014 and 2013 related to future income taxes and non-U.S. withholding taxes on repatriations from operations that are not permanently reinvested. We also paid withholding taxes of $7, $7 and $13 during 2015, 2014 and 2013 related to the actual transfer of funds to the U.S. and between foreign subsidiaries.

The earnings of our non-U.S. subsidiaries will likely be repatriated to the U.S. in the form of repayments of intercompany borrowings and distributions from earnings. Certain of our international operations had intercompany loan obligations to the U.S. totaling $1,233 at the end of 2015. Included in this amount are intercompany loans and related interest accruals with an equivalent value of $32 which are denominated in a foreign currency and considered to be permanently invested.

Valuation allowance adjustments — We have generally not recognized tax benefits on losses generated in several entities, including in the U.S., where the recent history of operating losses does not allow us to satisfy the “more likely than not” criterion for the recognition of deferred tax assets. Consequently, there is no income tax expense or benefit recognized on the pre-tax income or losses in these jurisdictions as valuation allowances are adjusted to offset the associated tax expense or benefit.

At December 31, 2015, we have a valuation allowance against our deferred tax assets in the U.S. When evaluating the continued need for this valuation allowance we consider all components of comprehensive income, and we weigh the positive and negative evidence, putting greater reliance on objectively verifiable historical evidence than on projections of future profitability that are dependent on actions that have not occurred as of the assessment date. We also consider changes to historical profitability of actions occurring in the year of assessment that have a sustained effect on future profitability, the effect on historical profits of nonrecurring events, as well as tax planning strategies. These effects included items such as the lost future interest income resulting from the prepayment on and subsequent sale of the payment-in-kind callable note receivable, the additional interest expense resulting from the $750 senior unsecured notes payable issued in July 2013 and the effects of the intercompany transfer of an affiliate's stock and certain operating assets, as discussed above. A sustained period of profitability, after considering historical changes from implemented actions and nonrecurring events, along with positive expectations for future profitability are necessary for a determination that a valuation allowance should be released. Our U.S. operations have experienced improved profitability in recent years, but our analysis of the income of the U.S. operations, including changes to the historical income for the effects of developments through the current date and planned future actions, demonstrates historical losses as of December 31, 2015. Therefore, we have not achieved a level of sustained historical profitability that would, in our judgment, support a release of the valuation allowance at December 31, 2015.

Deferred tax assets and liabilities — Temporary differences and carryforwards give rise to the following deferred tax assets and liabilities.



	2015			2014
Net operating loss carryforwards	$	448		$	654
Postretirement benefits, including pensions	137			148
Research and development costs	89			110
Expense accruals	58			57
Other tax credits recoverable	63			60
Capital loss carryforwards	50			55
Inventory reserves	15			18
Postemployment and other benefits	5			4
Other				25
Total	865			1,131
Valuation allowance	(662		)	(728		)
Deferred tax assets	203			403

Unremitted earnings	(68		)	(31		)
Intangibles	(29		)	(41		)
Depreciation	(43		)	(39		)
Other	(27		)	(58		)
Deferred tax liabilities	(167		)	(169		)
Net deferred tax assets	$	36		$	234

Carryforwards — Our deferred tax assets include benefits expected from the utilization of net operating loss (NOL), capital loss and credit carryforwards in the future. The following table identifies the net operating loss deferred tax asset components and the related allowances that existed at December 31, 2015. Due to time limitations on the ability to realize the benefit of the carryforwards, additional portions of these deferred tax assets may become unrealizable in the future.



	Deferred Tax Asset		Valuation Allowance			Carryforward Period	Earliest Year of Expiration
Net operating losses
U.S. federal	$	256	$	(256	)	20	2028
U.S. state	108		(108		)	Various	2016
Brazil	20		(20		)	Unlimited
France	12					Unlimited
Australia	31		(31		)	Unlimited
South Africa	3		(3		)	Unlimited
U.K.	7		(4		)	Unlimited
Argentina	11		(11		)	5	2016
Total	$	448	$	(433	)

In addition to the NOL carryforwards listed in the table above, we have deferred tax assets related to capital loss carryforwards of $50 which are fully offset with valuation allowances at December 31, 2015. We also have deferred tax assets of $63 related to other credit carryforwards which are offset with $61 of valuation allowances at December 31, 2015. The capital losses can be carried forward indefinitely while the other credits are generally available for 10 to 20 years with portions currently expiring. We also have a deferred tax asset of $32 related to NOLs for excess tax benefits generated upon the settlement of stock awards that increased a current year net operating loss. We cannot record the benefit of these losses in the financial statements until the losses are utilized to reduce our income taxes payable at which time we will recognize the tax benefit in equity.

The use of a portion of our $730 U.S. federal NOL as of December 31, 2015 is subject to limitation due to the change in ownership of our stock upon emergence from bankruptcy. Generally, the application of the relevant Internal Revenue Code (IRC) provisions will release the limitation on $84 of pre-change NOLs each year, allowing pre-change losses to offset post-change taxable income. Through further evaluation and audit adjustment, and after considering U.S. taxable income in 2015, we estimate that $594 of our U.S. federal NOLs remains subject to limitation as of December 31, 2015. The remainder of our U.S. federal NOLs represents a combination of post-change NOLs and pre-change NOLs on which the limitation has been released. However, there can be no assurance that trading in our shares will not effect another change in ownership under the IRC which would further limit our ability to utilize our available NOLs.

Unrecognized tax benefits — Unrecognized tax benefits are the difference between a tax position taken, or expected to be taken, in a tax return and the benefit recognized for accounting purposes. Interest income or expense, as well as penalties relating to income tax audit adjustments and settlements, are recognized as components of income tax expense or benefit. Interest of $6 was accrued on the uncertain tax positions at both December 31, 2015 and 2014.

Reconciliation of gross unrecognized tax benefits —



	2015			2014			2013
Balance, beginning of period	$	109		$	101		$	108
Decrease related to expiration of statute of limitations	(6		)	(3		)	(7		)
Decrease related to prior years tax positions	(8		)				(6		)
Increase related to current year tax positions	8			25			6
Decrease related to settlements	(16		)	(14		)
Balance, end of period	$	87		$	109		$	101

We anticipate that the change in our gross unrecognized tax benefits will not be significant in the next twelve months, as a result of examinations in various jurisdictions. The settlement of these matters will not impact the effective tax rate. Gross unrecognized tax benefits of $46 would impact the effective tax rate if recognized. If other open matters are settled with the IRS or other taxing jurisdictions, the total amounts of unrecognized tax benefits for open tax years may be modified.