Income Taxes

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

The components of Loss before income taxes were:

Years ended December 31,	2021	2020	2019
U.S.	($5,475)	($14,882)	($2,792)
Non-U.S.	442	406	533
Total	($5,033)	($14,476)	($2,259)

Income tax benefit consisted of the following:

Years ended December 31,	2021	2020	2019
Current tax (benefit)/expense
U.S. federal	($89)	($3,968)	($308)
Non-U.S.	147	148	169
U.S. state	42	21	(161)
Total current	100	(3,799)	(300)
Deferred tax (benefit)/expense
U.S. federal	(855)	652	(953)
Non-U.S.	(12)		(3)
U.S. state	24	612	(367)
Total deferred	(843)	1,264	(1,323)
Total income tax (benefit)/expense	($743)	($2,535)	($1,623)

Net income tax (refunds)/payments were ($1,480), $37 and $837 in 2021, 2020 and 2019, respectively.

The following is a reconciliation of the U.S. federal statutory tax to actual income tax (benefit)/expense:

Years ended December 31,	2021			2020			2019
	Amount	Rate		Amount	Rate		Amount	Rate
U.S. federal statutory tax	($1,057)	21.0	%	($3,039)	21.0	%	($474)	21.0	%
Valuation allowance	512	(10.2)		2,603	(18.0)		25	(1.1)
Research and development credits	(189)	3.8		(284)	2.0		(382)	16.9
State income tax provision, net of effects on U.S. federal tax	(94)	1.9		(168)	1.2		(45)	2.0
Tax on non-U.S. activities	47	(0.9)		7	(0.1)		20	(0.9)
Impact of CARES Act (1)	3	(0.1)		(1,175)	8.1
Other provision adjustments	41	(0.9)		234	(1.7)		66	(3.0)
Excess tax benefits(2)	(6)	0.1		(82)	0.6		(180)	8.0
Audit settlements(3)				(587)	4.1		(371)	16.4
Foreign derived intangible income(4)				(31)	0.2		(229)	10.1
Tax deductible dividends				(13)	0.1		(53)	2.4
Income tax (benefit)/expense	($743)	14.7	%	($2,535)	17.5	%	($1,623)	71.8	%

(1)    On March 27, 2020, the CARES Act was enacted, which includes a five year net operating loss (NOL) carryback provision which enabled us to benefit from the 2020 U.S. federal tax NOL at the former federal tax rate of 35%. In 2021 and 2020, we recorded tax expense of $3 and tax benefits of $1,175 related to the NOL carryback provision.

(2)    In 2021, 2020 and 2019, we recorded excess tax benefits related to employee share-based payments of $6, $82 and $180, respectively.

(3)    In the fourth quarter of 2020, we recorded a tax benefit of $587 related to the settlement of the 2015-2017 federal tax audit. In the fourth quarter of 2019, we recorded a tax benefit of $371 related to the settlement of state tax audits spanning 15 tax years.

(4)    In 2020 and 2019, we recorded tax benefits related to foreign derived intangible income of $31 and $229, respectively which effectively apply a lower U.S. tax rate to intangible income derived from serving non-U.S. markets.

Significant components of our deferred tax assets/(liabilities) at December 31 were as follows:

	2021	2020
Inventory and long-term contract methods of income recognition	($3,827)	($4,313)
Pension benefits	1,739	3,029
Fixed assets, intangibles and goodwill	(1,657)	(1,645)
Federal net operating loss, credit, interest and other carryovers(1)	1,522	317
Other employee benefits	991	957
State net operating loss, credit, interest and other carryovers(2)	929	777
Other postretirement benefit obligations	913	1,023
Accrued expenses and reserves	763	808
737 MAX customer concessions and other considerations	682	1,253
Other	227	(36)
Gross deferred tax assets/(liabilities) before valuation allowance	$2,282	$2,170
Valuation allowance	(2,423)	(3,094)
Net deferred tax assets/(liabilities) after valuation allowance	($141)	($924)

(1)     Of the deferred tax asset for federal net operating loss, credit, interest and other carryovers, $536 expires on or before December 31, 2041 and $986 may be carried over indefinitely.

(2)     Of the deferred tax asset for state net operating loss, credit, interest and other carryovers, $453 expires on or before December 31, 2041 and $476 may be carried over indefinitely.

Net deferred tax assets/(liabilities) at December 31 were as follows:

	2021	2020
Deferred tax assets	$11,258	$11,600
Deferred tax liabilities	(8,976)	(9,430)
Valuation allowance	(2,423)	(3,094)
Net deferred tax assets/(liabilities)	($141)	($924)

The Company’s deferred income tax assets of $11,258 can be used in future years to offset taxable income and reduce income taxes payable. The Company’s deferred income tax liabilities of $8,976 will partially offset deferred income tax assets and result in higher taxable income in future years and increase income taxes payable. Tax law determines whether future reversals of temporary differences will result in taxable and deductible amounts that offset each other in future years. The particular years in which temporary differences result in taxable or deductible amounts generally are determined by the timing of the recovery of the related asset or settlement of the related liability. The deferred income tax assets and liabilities relate primarily to U.S. federal and state tax jurisdictions. From a U.S. federal tax perspective, the Company generated a tax NOL in 2020 that was carried back to prior years when the tax rate was 35% due to the CARES Act benefit as described above. The Company generated tax NOL and interest carryovers in 2021 that can be carried forward indefinitely and federal research and development credits that can be carried forward 20 years.

In the fourth quarter of 2020 and throughout 2021, the Company was in a three-year cumulative pre-tax loss position. We also normalized earnings and other comprehensive income (OCI) for certain non-recurring items and reached a normalized three-year cumulative loss position in 2021. Adjustments to normalize earnings included non-recurring items for certain 737 MAX expenses, an agreement with the Department of Justice, severance costs and remeasurement gains and losses from the annual

remeasurement of pension and other postretirement benefit obligations. For purposes of assessing the recoverability of deferred tax assets, the Company determined that it could not include future projected earnings in the analysis due to recent history of losses.

As of December 31, 2021 and 2020, the Company has recorded valuation allowances of $2,423 and $3,094 primarily for certain federal deferred tax assets, as well as for certain federal and state net operating loss and tax credit carryforwards. To measure the valuation allowance, the Company estimated in what year each of its deferred tax assets and liabilities would reverse using systematic and logical methods to estimate the reversal patterns. Based on these methods, deferred tax liabilities are assumed to reverse and generate taxable income over the next 5 to 10 years while deferred tax assets related to pension and other postretirement benefit obligations are assumed to reverse and generate tax deductions over the next 15 to 20 years. The valuation allowance primarily results from not having sufficient income from deferred tax liability reversals in the appropriate future periods to support the realization of deferred tax assets.

During 2021, the Company decreased the valuation allowance by $671. This reflects a tax benefit of $1,206 included in OCI primarily due to the net actuarial gains that resulted from the annual remeasurement of pension assets and liabilities. This was partially offset by tax expense of $512 recorded in continuing operations and an increase of $23 related to the associated federal benefit of state impacts.

Until the Company generates sustained levels of profitability, additional valuation allowances may have to be recorded with corresponding adverse impacts on earnings and/or OCI.

The Tax Cuts and Jobs Act (TCJA) one-time repatriation tax and Global Intangible Low Tax Income liabilities effectively taxed the undistributed earnings previously deferred from U.S. income taxes. We have not provided for deferred income taxes on the undistributed earnings from certain non-U.S. subsidiaries because such earnings are considered to be indefinitely reinvested. If such earnings were to be distributed, any deferred income taxes would not be significant.

As of December 31, 2021 and 2020, the amounts accrued for the payment of income tax-related interest and penalties included in the Consolidated Statements of Financial Position were not significant. The amounts of interest included in the Consolidated Statements of Operations were not significant for the years ended December 31, 2021, 2020 and 2019.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

	2021	2020	2019
Unrecognized tax benefits – January 1	$966	$1,476	$2,412
Gross increases – tax positions in prior periods	64	44	100
Gross decreases – tax positions in prior periods	(245)	(581)	(1,418)
Gross increases – current period tax positions	73	136	344
Gross decreases – current period tax positions			(1)
Settlements		(109)	39
Statute Lapse
Unrecognized tax benefits – December 31	$858	$966	$1,476

As of December 31, 2021, 2020 and 2019, the total amount of unrecognized tax benefits include $790, $734 and $1,287, respectively, that would affect the effective tax rate, if recognized. As of December 31, 2021, these amounts are primarily associated with the amount of research tax credits claimed and various other matters.

Federal income tax audits have been settled for all years prior to 2018. The Internal Revenue Service (IRS) began the 2018-2019 federal tax audit in the first quarter of 2021 and recently added tax year 2020 to the audit. We are also subject to examination in major state and international jurisdictions for the 2008-2020 tax years. We believe appropriate provisions for all outstanding tax issues have been made for all jurisdictions and all open years.