Income taxes

12 Months Ended

Dec. 31, 2020

Income taxes

Income taxes

21.  INCOME TAXES

The amounts disclosed within the income tax footnote represent those attributable to continuing operations.

The components of (loss) income before income taxes were:

	Year Ended December 31,
	2020		2019		2018
U.S.	$	(69)	$	77	$	(806)
Non-U.S.		—		—		(117)
(Loss) income before taxes	$	(69)	$	77	$	(923)

Income tax (benefit) expense is comprised of the following:

	Year Ended December 31,
	2020		2019		2018
Current tax (benefit) expense
U.S.	$	(5)	$	5	$	—
Non-U.S.		—		—		—
		(5)		5		—
Deferred tax benefit
U.S.		(17)		—		(2)
Non-U.S.		—		—		(46)
		(17)		—		(48)
Income tax (benefit) expense	$	(22)	$	5	$	(48)

A reconciliation of the U.S. federal tax rate to the Company’s effective income tax rate is as follows:

	Year Ended December 31,
	2020			2019			2018
U.S. statutory income tax rate		21	%		21	%		21	%
Expected income tax (benefit) expense at statutory rate	$	(14)		$	16		$	(194)
Non-deductible expenses		8			15			6
Tax on international operations		—			(1)			(45)
Change in valuation allowance		49			(108)			96
Base Erosion and Anti-Abuse Tax		(5)			5			—
Outside basis difference in assets held for sale		(39)			78			—
Tax credits		(3)			(1)			(9)
Non-deductible goodwill impairment		—			—			98
Remeasurement of previously held equity interest		(18)			—			—
Other		—			1			—
Income tax (benefit) expense	$	(22)		$	5		$	(48)
Effective income tax rate		32	%		6	%		5	%

Significant components of deferred tax assets and liabilities are as follows:

	Year Ended December 31,
	2020		2019		2018
Tax benefit of losses carried forward	$	209	$	219	$	222
Tax credits		93		82		91
Construction contract liabilities		—		89		77
Property and equipment		—		—		15
Trade and other payables		35		41		38
Employee benefits		52		41		49
Unrealized gains and losses		20		6		6
Other		1		18		21
Deferred tax assets		410		496		519
Valuation allowance		(228)		(231)		(304)
Deferred tax assets, net of valuation allowance		182		265		215
Construction contract liabilities		(10)		—		—
Property and equipment		(55)		(47)		—
Goodwill and intangibles		(106)		(124)		(213)
Outside basis difference in assets held for sale		—		(78)		—
Other		—		(10)		(2)
Deferred tax liabilities		(171)		(259)		(215)
Deferred tax assets, net	$	11	$	6	$	—

The Company assesses the deferred tax assets for recoverability and, based upon all available evidence, establishes a valuation allowance to reduce the deferred tax assets to the amount that is more-likely-than-not realizable. The valuation allowance decreased $3 million from December 31, 2019 to December 31, 2020. This decrease was primarily due to the impact of current year operations, offset by the taxable gain recognized on the sale of MDA and adjustments to prior year deferred taxes.

During 2019, in connection with the MDA Transaction, the Company re-evaluated its prior permanent reinvestment assertion and concluded that it could no longer assert that the basis difference related to its investment was permanently reinvested. Accordingly, the Company established a deferred tax liability of approximately $78 million on the taxable temporary difference associated with its investment. In connection with the completion of the MDA Transaction, taxable gain was recognized in 2020 resulting in a release of the taxable temporary difference associated with its investment.

As of December 31, 2020, the Company has approximately $791 million, $822 million, and $16 million of federal, state, and non-U.S. net operating loss (“NOL”) carryforwards. The U.S. Domestication does not impact the availability of the losses carried forward to future years. We have recorded a $2 million income tax receivable as a result of an anticipated NOL carryback resulting from the Vricon Acquisition.

The following table summarizes the NOL carryforwards by jurisdiction:

	Expiration Period		December 31, 2020
Federal	2035 - 2037	$	512
	None		279
State	2022 - 2038		756
	None		66
Non-U.S.	None		16

The Company also has U.S. federal and state tax credits carried forward of $77 million and $11 million as of December 31, 2020, relating to research and development expenditures set to expire between 2021 and 2040 and state research credits with no expiry. Additionally, the Company has U.S. foreign tax credits carried forward of $5 million set to expire between 2021 and 2030.

The following table summarizes the changes in unrecognized tax benefits:

	Year Ended December 31,
	2020		2019		2018
Balance, beginning of year	$	7	$	—	$	—
Gross increases related to prior period tax positions		2		6		—
Gross increases related to current period tax positions		1		1		—
Gross decreases related to prior period tax positions		(1)		—		—
Balance, end of year	$	9	$	7	$	—

As of December 31, 2020, there were $9 million of unrecognized tax benefits that, if recognized, would be offset by changes in the deferred tax assets. It is not anticipated that a material reduction of unrecognized tax benefits will occur within the next twelve months.

The Company and its subsidiaries file income tax returns in the United States and various foreign jurisdictions. With some exceptions, the Company remains subject to income tax examination in the United States for years after 2002.

The Company records interest and penalties accrued or recovered in relation to unrecognized tax benefits in income tax expense. The Company has not recognized any interest and penalties in the three-year comparative period due to available attributes.