Note 18 - Income Taxes

12 Months Ended

Dec. 31, 2021

Notes to Financial Statements

Income Tax Disclosure [Text Block]

Income tax expense (benefit) —

	2021			2020			2019
Current
U.S. federal and state	$	(31	)	$	14		$	13
Non-U.S.		104			79			92
Total current		73			93			105
Deferred
U.S. federal and state		54			(23	)		(104	)
Non-U.S.		(55	)		(12	)		(33	)
Total deferred		(1	)		(35	)		(137	)
Total expense (benefit)	$	72		$	58		$	(32	)

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 —

	2021			2020			2019
U.S. operations	$	(170	)	$	(128	)	$	(166	)
Non-U.S. operations		414			115			337
Earnings before income taxes	$	244		$	(13	)	$	171

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.

GLTI Policy Elections — The SEC staff has indicated that a company should make and disclose certain policy elections related to accounting for global intangible low-taxed income (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.

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 nil in 2021, $6 in 2020, and $3 in 2019, 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 $8, $9 and $10 during 2021, 2020 and 2019 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 $6 at December 31, 2021.

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 $1,172 at the end of 2021. Included in this amount are intercompany loans and related interest accruals with an equivalent value of $20 which are denominated in a foreign currency and considered to be permanently invested.

Effective tax rate reconciliation —

	2021						2020						2019
	$			%			$			%			$			%
U.S. federal income tax rate		51			21			(3	)		21			36			21
Adjustments resulting from:
State & local income taxes, net of federal benefit								6			(46	)		(1	)		(1	)
Non-US income / expense		15			6			(5	)		39			25			15
Credits & tax incentives		1						(55	)		423			(62	)		(37	)
US foreign derived intangible income		(1	)					(24	)		185			(4	)		(2	)
US tax & withholding tax on non-US earnings		14			6			20			(154	)		21			12
Intercompany sale of certain operating assets		(1	)					27			(207	)
Settlement and return adjustments		5			2			3			(23	)		(19	)		(11	)
Enacted change in tax rates		(5	)		(2	)		(2	)		15			3			2
Pension settlement														73			43
Mexican non-deductible cost of goods sold								17			(130	)
Goodwill impairment								8			(61	)
Miscellaneous items		(7	)		(3	)		6			(46	)		(2	)		(1	)
Valuation allowance adjustments								60			(462	)		(102	)		(60	)
Effective income tax rate		72			30			58			(446	)		(32	)		(19	)

During 2021, we recognized tax expense of $46 to record valuation allowance in the US due to reduced income projections. We also recognized tax benefit of $46 for the release of valuation allowances in several foreign jurisdictions based on recent history of profitability and increased income projections. The contrast of these two positions is representative of the jurisdictional mix of results and relative attributes. We also recognized tax expense of $18 related to the expiration of federal tax credits.

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.

Deferred tax assets and liabilities — Temporary differences and carryforwards give rise to the following deferred tax assets and liabilities. Certain items for 2020 have been reclassified to better align with the descriptions presented. However, the net deferred tax assets and deferred tax liabilities remain unchanged.

	2021			2020
Net operating loss carryforwards	$	187		$	220
Postretirement benefits, including pensions		71			92
Research and development costs		169			149
Expense accruals		77			76
Other tax credits recoverable		218			219
Capital loss carryforwards		56			47
Inventory reserves		25			25
Postemployment and other benefits		4			5
Intangibles		1			17
Leasing activities		55			43
Other		26			35
Total		889			928
Valuation allowances		(258	)		(259	)
Deferred tax assets		631			669
Unremitted earnings		(10	)		(10	)
Depreciation		(74	)		(87	)
Deferred tax liabilities		(84	)		(97	)
Net deferred tax assets	$	547		$	572

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, 2021. 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	$	14	$	—		20	2031
U.S. state		52		(41	)	Various	2022
Brazil		10		(4	)	Unlimited
France		7				Unlimited
Australia		23				Unlimited
Italy		25		(24	)	Unlimited
Germany		5		(5	)	Unlimited
South Africa		2		(2	)	Unlimited
U.K.		13		(7	)	Unlimited
Canada		30		(27	)	20	2026
India		1				8	2028
China		5		(5	)	5	2022
Total	$	187	$	(115	)

In addition to the NOL carryforwards listed in the table above, we have deferred tax assets related to capital loss carryforwards of $56 which are fully offset with valuation allowances at  December 31, 2021. We also have deferred tax assets of $218 related to other credit carryforwards which are partially offset with $63 of valuation allowances, of which $98 are U.S. foreign tax credits offset with $35 of valuation allowance at  December 31, 2021. The capital losses can be carried forward indefinitely while the other credits are generally available for 10 to 20 years.

The use of our $106 U.S. federal NOL as of  December 31, 2021 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 $6 was accrued on the uncertain tax positions at  December 31, 2021 and 2020, with no net impact to tax expense in 2021.

Reconciliation of gross unrecognized tax benefits —

	2021			2020			2019
Balance, beginning of period	$	104		$	119		$	107
Decrease related to expiration of statute of limitations		(5	)		(5	)		(10	)
Decrease related to prior years tax positions		(2	)		(1	)
Increase related to prior years tax positions		16			3			13
Increase related to current year tax positions		13			9			9
Decrease related to settlements					(21	)
Balance, end of period	$	126		$	104		$	119

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 $78 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.