Note 17 - Income Taxes

12 Months Ended

Dec. 31, 2022

Notes to Financial Statements

Income Tax Disclosure [Text Block]

Income tax expense —

	2022			2021			2020
Current
U.S. federal and state	$	19		$	(31	)	$	14
Non-U.S.		112			104			79
Total current		131			73			93
Deferred
U.S. federal and state		160			54			(23	)
Non-U.S.		(7	)		(55	)		(12	)
Total deferred		153			(1	)		(35	)
Total expense	$	284		$	72		$	58

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 —

	2022			2021			2020
U.S. operations	$	(343	)	$	(170	)	$	(128	)
Non-U.S. operations		312			414			115
Earnings (loss) before income taxes	$	(31	)	$	244		$	(13	)

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 2008.

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.

GILTI 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. Recent macroeconomic factors have resulted in losses in the United States. A valuation allowance has been provided for deferred tax assets where GILTI is not a source of income; however, the GILTI tax law ordering approach provides positive evidence for certain other deferred tax assets without a valuation allowance.

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 benefit of $1 in 2022, net expense of nil in 2021 and net expense of $6 in 2020, 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 $6, $8 and $9 during 2022, 2021 and 2020 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, 2022.

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 $1,023 at the end of 2022. Included in this amount are intercompany loans and related interest accruals with an equivalent value of $19 which are denominated in a foreign currency and considered to be permanently invested.

Effective tax rate reconciliation —

	2022						2021						2020
	$			%			$			%			$			%
U.S. federal income tax rate		(7	)		21			51			21			(3	)		21
Adjustments resulting from:
State and local income taxes, net of federal benefit		(6	)		19									6			(46	)
Non-U.S. income / expense		(2	)		7			15			6			(5	)		39
Credits and tax incentives		(27	)		87			1						(55	)		423
U.S. foreign derived intangible income								(1	)					(24	)		185
U.S. tax and withholding tax on non-US earnings		42			(135	)		14			6			20			(154	)
Intercompany sale of certain operating assets		(1	)		3			(1	)					27			(207	)
Settlement and return adjustments		(7	)		23			5			2			3			(23	)
Enacted change in tax rates		(4	)		13			(5	)		(2	)		(2	)		15
Mexican non-deductible cost of goods sold														17			(130	)
Goodwill impairment		47			(151	)								8			(61	)
Miscellaneous items		(6	)		19			(7	)		(3	)		6			(46	)
Valuation allowance adjustments		255			(822	)								60			(462	)
Effective income tax rate		284			(916	)		72			30			58			(446	)

During 2022, we recognized tax expense of $240 to record valuation allowance in the U.S., which includes $189 on U.S. federal credits and attributes and $51 related to U.S. state attributes. In addition, we recorded a tax benefit of $32 to adjust U.S. tax credits. A pre-tax goodwill impairment charge of $191 with an associated income tax benefit of $2 was also recorded.

During 2021, we recognized tax expense of $46 to record valuation allowance in the U.S. 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.

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

	2022			2021
Net operating loss carryforwards	$	181		$	187
Postretirement benefits, including pensions		49			71
Research and development costs		208			169
Expense accruals		49			77
Other tax credits recoverable		241			218
Capital loss carryforwards		51			56
Inventory reserves		32			25
Postemployment and other benefits		4			4
Intangibles					1
Leasing activities		69			55
Other		71			26
Total		955			889
Valuation allowances		(512	)		(258	)
Deferred tax assets		443			631
Unremitted earnings		(9	)		(10	)
Intangibles		(1	)
Depreciation		(66	)		(74	)
Deferred tax liabilities		(76	)		(84	)
Net deferred tax assets	$	367		$	547

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, 2022. 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. state	$	55	$	(55	)	Various	2023
Brazil		11		(5	)	Unlimited
France		6				Unlimited
Australia		20				Unlimited
Italy		19		(18	)	Unlimited
Germany		4		(4	)	Unlimited
Sweden		1				Unlimited
South Africa		2		(2	)	Unlimited
U.K.		15		(6	)	Unlimited
Canada		43		(41	)	20	2026
India		1				8	2028
China		4		(4	)	5	2023
Total	$	181	$	(135	)

In addition to the NOL carryforwards listed in the table above, we have deferred tax assets related to capital loss carryforwards of $51 which are fully offset with valuation allowances at  December 31, 2022. We also have deferred tax assets of $241 related to other credit carryforwards which are largely offset with $236 of valuation allowances at  December 31, 2022. The capital losses can generally be carried forward indefinitely while the other credits are generally available for 10 to 20 years.

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 $7 and $6 was accrued on the uncertain tax positions at  December 31, 2022 and 2021, with no net impact to tax expense in 2021.

Reconciliation of gross unrecognized tax benefits —

	2022			2021			2020
Balance, beginning of period	$	126		$	104		$	119
Decrease related to expiration of statute of limitations		(6	)		(5	)		(5	)
Decrease related to prior years tax positions		(43	)		(2	)		(1	)
Increase related to prior years tax positions		7			16			3
Increase related to current year tax positions		18			13			9
Decrease related to settlements								(21	)
Balance, end of period	$	102		$	126		$	104

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.