Note 18 - Income Taxes

12 Months Ended

Dec. 31, 2020

Notes to Financial Statements

Income Tax Disclosure [Text Block]

Income tax expense (benefit) —

	2020			2019			2018
Current
U.S. federal and state	$	14		$	13		$	14
Non-U.S.		79			92			128
Total current		93			105			142
Deferred
U.S. federal and state		(23	)		(104	)		(47	)
Non-U.S.		(12	)		(33	)		(17	)
Total deferred		(35	)		(137	)		(64	)
Total expense (benefit)	$	58		$	(32	)	$	78

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 before income taxes —

	2020			2019			2018
U.S. operations	$	(128	)	$	(166	)	$	26
Non-U.S. operations		115			337			468
Earnings before income taxes	$	(13	)	$	171		$	494

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 2010.

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. 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.

U.S. tax reform legislation —Beginning in 2018, the Tax Cuts and Jobs Act ("Act") may trigger a taxable deemed dividend to the extent that the annual earnings of our foreign subsidiaries exceed a specified threshold, based on the value of tangible foreign operating assets. The deemed dividend, if any, from this global intangible low-taxed income (GILTI) may be offset by the use of other tax attributes in that year, and specifically, the GILTI rules may impact the amount of cash tax savings that net operating losses provide. The SEC staff has indicated that a company should make and disclose certain policy elections related to accounting for GILTI. As to whether we will recognize deferred taxes for basis differences expected to reverse as GILTI or account for the effect of GILTI as a period cost when incurred, we intend to account for the tax effect of GILTI as a period cost. As to the realizability of the tax benefit provided by net operating losses, we are electing to utilize the tax law ordering approach.

Effective tax rate reconciliation —

	2020						2019						2018
	$			%			$			%			$			%
U.S. federal income tax rate		(3	)		21			36			21			103			21
Adjustments resulting from:
State & local income taxes, net of federal benefit		6			(46	)		(1	)		(1	)		6			1
Non-US income / expense		(5	)		39			25			15			23			5
Credits & tax incentives		(55	)		423			(62	)		(37	)		(87	)		(18	)
US foreign derived intangible income		(24	)		185			(4	)		(2	)
US tax & withholding tax on non-US earnings		20			(154	)		21			12			14			3
Intercompany sale of certain operating assets		27			(207	)								5			1
Settlement and return adjustments		3			(23	)		(19	)		(11	)		29			6
Enacted change in tax rates		(2	)		15			3			2			6			1
Pension settlement								73			43
Mexican non-deductible cost of goods sold		17			(130	)
Goodwill impairment		8			(61	)
Miscellaneous items		6			(46	)		(2	)		(1	)		1			—
Valuation allowance adjustments		60			(462	)		(102	)		(60	)		(22	)		(4	)
Effective income tax rate		58			(446	)		(32	)		(19	)		78			16

During 2020, we recognized tax expense of $60 for additional valuation allowances in foreign jurisdictions due to reduced income projections. We also recognized a benefit of $26 for the release of valuation allowance in Australia, based on recent history of profitability and increased income projections. For the year, we also recognized tax benefits of $37 related to tax actions that adjusted federal tax credits. A pre-tax goodwill impairment charge of $51 with an associated income tax benefit of $1 was recorded. In conjunction with the completion of the intercompany sale of certain assets to a non-U.S. affiliate, tax expense of $12 was recorded, including the corresponding foreign derived intangible income benefit.

During 2019, we recognized a benefit of $22 for the release of valuation allowance in a subsidiary in Brazil based on recent history of profitability and increased income projections. A pre-tax pension settlement charge of $259 was recorded, resulting in income tax expense of $11 and a valuation allowance release of $18. For the year, we also recognized benefits for the release of valuation allowance in the US of $34 based on increased income projections and $30 based on the development of a tax planning strategy related to federal tax credits. Partially offsetting this benefit in the US was $6 of expense related to a US state law change. During the second quarter of 2019, we also recorded tax benefits of $48 related to tax actions that adjusted federal tax credits.

During 2018, we recognized a benefit of $44 related to U.S. state law changes and the development and implementation of a tax planning strategy which adjusted federal tax credits, along with federal and state net operating losses and the associated valuation allowances. We also recognized benefits of $11 relating to the reversal of a provision for an uncertain tax position, $5 relating to the release of valuation allowances in the US based on improved income projections and $7 due to permanent reinvestment assertions. Partially offsetting these benefits was $5 of expense to settle outstanding tax matters in a foreign jurisdiction.

Foreign income repatriation — We continue to analyze and adjust the estimated impact of the non-U.S. income and withholding tax liabilities based on the amount and source of these earnings, as well as the expected means through which those earnings may be taxed. We recognized net expense of $6 in 2020, $3 in 2019 and a net benefit of $7 in 2018, 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 $9, $10 and $11 during 2020, 2019 and 2018 related to the actual transfer of funds to the U.S. The unrecognized tax liability associated with the operations in which we are permanently reinvested is $5 at December 31, 2020.

The earnings of our certain non-U.S. subsidiaries may be repatriated to the U.S. in the form of repayments of intercompany borrowings. Certain of our international operations had intercompany loan obligations to the U.S. totaling $1,338 at the end of 2020. Included in this amount are intercompany loans and related interest accruals with an equivalent value of $21 which are denominated in a foreign currency and considered to be permanently invested.

Valuation allowance adjustments — We have recorded valuation allowances in several entities 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.

When evaluating the need for a valuation allowance we consider all components of comprehensive income, and we weigh the positive and negative evidence, putting greater reliance on objectively verifiable 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 the historical financial results due to activities that were either new to the business or not expected to recur in the future, in order to identify the core earnings of the business. A sustained period of profitability, after considering changes to the historical results due to implemented actions and nonrecurring events, along with positive expectations for future profitability are necessary to reach a determination that a valuation allowance should be released. In 2020, we recognized a benefit of $26 for the release of valuation allowance in a subsidiary in Australia based on recent history of profitability and increased income projections. During the third quarter of 2019, we recognized a benefit of $22 for the release of a valuation allowance in a subsidiary in Brazil based on recent history of profitability and increased income projections.

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

	2020			2019
Net operating loss carryforwards	$	240		$	258
Postretirement benefits, including pensions		92			87
Research and development costs		149			124
Expense accruals		76			81
Other tax credits recoverable		234			244
Capital loss carryforwards		47			42
Inventory reserves		25			19
Postemployment and other benefits		5			6
Intangibles		17
Leasing activities		43			46
Total		928			907
Valuation allowances		(259	)		(190	)
Deferred tax assets		669			717
Unremitted earnings		(10	)		(4	)
Intangibles					(34	)
Depreciation		(87	)		(104	)
Other					(33	)
Deferred tax liabilities		(97	)		(175	)
Net deferred tax assets	$	572		$	542

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, 2020. 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						Earliest
	Tax		Valuation			Carryforward	Year of
	Asset		Allowance			Period	Expiration
Net operating losses
U.S. federal	$	40	$	—		20	2030
U.S. state		61		(33	)	Various	2021
Brazil		14		(5	)	Unlimited
France		8				Unlimited
Australia		26				Unlimited
Italy		31		(27	)	Unlimited
Germany		6		(6	)	Unlimited
Lithuania		1				Unlimited
South Africa		2				Unlimited
Spain		1				Unlimited
U.K.		7		(7	)	Unlimited
Canada		28		(25	)	20	2022
India		1				8	2028
China		14		(14	)	5	2021
Total	$	240	$	(117	)

In addition to the NOL carryforwards listed in the table above, we have deferred tax assets related to capital loss carryforwards of $47 which are fully offset with valuation allowances at  December 31, 2020. We also have deferred tax assets of $234 related to other credit carryforwards which are partially offset with $19 of valuation allowances at  December 31, 2020. The capital losses can be carried forward indefinitely while the other credits are generally available for 10 to 20 years.

The use of our $190 U.S. federal NOL as of  December 31, 2020 is subject to limitation due to the change in ownership of our stock in January 2008. 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. However, there can be no assurance that trading in our shares will not affect another change in ownership under the IRC which could 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 and $12 was accrued on the uncertain tax positions at  December 31, 2020 and 2019.

Reconciliation of gross unrecognized tax benefits —

	2020			2019			2018
Balance, beginning of period	$	119		$	107		$	119
Decrease related to expiration of statute of limitations		(5	)		(10	)		(4	)
Decrease related to prior years tax positions		(1	)					(15	)
Increase related to prior years tax positions		3			13			8
Increase related to current year tax positions		9			9			10
Decrease related to settlements		(21	)					(11	)
Balance, end of period	$	104		$	119		$	107

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 $68 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.