Income Taxes

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

Income Taxes

Note 14 – Income taxes:

		Years ended December 31,
		2019		2020		2021
	(In millions)
Pre-tax income:
United States		$	23.5	$	45.2	$	131.4
Non-U.S. subsidiaries			81.2		55.4		126.4
Total		$	104.7	$	100.6	$	257.8
Expected tax expense at U.S. federal statutory income tax   rate of 21%		$	22.0	$	21.1	$	54.1
Non-U.S. tax rates			5.2		.5		4.5
Incremental net tax benefit on earnings and losses of U.S.   and non-U.S. tax group companies			(4.5)		(8.7)		(2.0)
Valuation allowance			4.5		3.8		.9
Global intangible low-tax income, net			1.8		2.2		2.8
Tax rate changes			4.7		(.2)		—
U.S. state income taxes, net			(.3)		.9		1.5
Adjustment to the reserve for uncertain tax positions, net			(5.1)		(3.8)		(2.6)
Nondeductible expenses			1.5		1.0		1.1
Assessment (refund) of prior tax payments, net			(2.1)		—		.1
Other, net			(1.2)		(.9)		(.3)
Income tax expense		$	26.5	$	15.9	$	60.1
Components of income tax expense:
Currently payable:
U.S. federal and state		$	4.3	$	13.3	$	29.7
Non-U.S.			22.0		14.9		21.5
Total			26.3		28.2		51.2
Deferred income taxes (benefit):
U.S. federal and state			(4.1)		(10.3)		(1.7)
Non-U.S.			4.3		(2.0)		10.6
Total			.2		(12.3)		8.9
Income tax expense		$	26.5	$	15.9	$	60.1
Comprehensive provision for income taxes   allocable to:
Income from continuing operations		$	26.5	$	15.9	$	60.1
Discontinued operations			—		.6		—
Other comprehensive income (loss):
Currency translation			(.2)		1.6		(.8)
Pension plans			(15.6)		(7.3)		29.7
Other			(.5)		(.4)		—
Total		$	10.2	$	10.4	$	89.0

The amount shown in the preceding table of our income tax rate reconciliation for non-U.S. tax rates represents the result determined by multiplying the pre-tax earnings or losses of each of our non-U.S. subsidiaries by the difference between the applicable statutory income tax rate for each non-U.S. jurisdiction and the U.S. federal statutory tax rate. The amount shown on such table for incremental net tax benefit on earnings and losses on non-U.S. and non-tax group companies includes, as applicable, (i) deferred income taxes (or deferred income tax benefits) associated with the  current year earnings of all our Chemicals Segment’s non-U.S. subsidiaries, (ii) current U.S. income taxes (or current income tax benefit), including U.S. personal holding company tax, as applicable, attributable to current-year income (losses) of one of Kronos’ non-U.S. subsidiaries, which subsidiary is treated as a dual resident for U.S. income tax purposes, to the extent the current-year income (losses) of such subsidiary is subject to U.S. income tax under the U.S. dual-resident provisions of the Internal Revenue Code, (iii) deferred income taxes associated with our direct investment in

Kronos and (iv) current and deferred income taxes associated with distributions and earnings from our investment in LandWell and BMI.

The components of the net deferred income taxes at December 31, 2020 and 2021 are summarized in the following table.

	December 31,
	2020				2021
	Assets		Liabilities		Assets		Liabilities
		(In millions)
Tax effect of temporary differences related to:
Inventories	$	1.9	$	—	$	—	$	(2.5)
Property and equipment		—		(67.2)		—		(70.4)
Lease assets (liabilities)		6.3		(6.5)		5.0		(5.1)
Accrued OPEB costs		3.0		—		2.8		—
Accrued pension costs		100.5		—		74.1		—
Accrued environmental liabilities		31.0		—		28.5		—
Other deductible differences		9.2		—		9.3		—
Other taxable differences		—		(13.1)		—		(15.5)
Investments in subsidiaries and affiliates		2.7		(48.1)		7.3		(52.7)
Tax on unremitted earnings of non-U.S. subsidiaries		—		(12.0)		—		(11.2)
Tax loss and tax credit carryforwards		100.4		—		89.4		—
Valuation allowance		(17.5)		—		(18.4)		—
Adjusted gross deferred tax assets (liabilities)		237.5		(146.9)		198.0		(157.4)
Netting of items by tax jurisdiction		(117.3)		117.3		(111.2)		111.2
Net noncurrent deferred tax asset (liability)	$	120.2	$	(29.6)	$	86.8	$	(46.2)

Tax authorities are examining certain of our U.S. and non-U.S. tax returns and have or may propose tax deficiencies, including penalties and interest. Because of the inherent uncertainties involved in settlement initiatives and court and tax proceedings, we cannot guarantee that these tax matters, if any, will be resolved in our favor, and therefore our potential exposure, if any, is also uncertain. We believe we have adequate accruals for additional taxes and related interest expense which could ultimately result from tax examinations. We believe the ultimate disposition of tax examinations should not have a material adverse effect on our consolidated financial position, results of operations or liquidity.

Our Chemicals Segment has substantial net operating loss (NOL) carryforwards in Germany (the equivalent of $451 million for German corporate purposes at December 31, 2021) and in Belgium (the equivalent of $19 million for Belgian corporate tax purposes at December 31, 2021). At December 31, 2021, we have concluded that no deferred income tax asset valuation allowance is required to be recognized with respect to such carryforwards, principally because (i) such carryforwards have an indefinite carryforward period, (ii) we have utilized a portion of such carryforwards during the most recent three-year period and (iii) we currently expect to utilize the remainder of such carryforwards over the long term. However, prior to the complete utilization of such carryforwards, if we were to generate additional losses in our German or Belgian operations for an extended period of time, or if applicable law were to change such that the carryforward period was no longer indefinite, it is possible that we might conclude the benefit of such carryforwards would no longer meet the more-likely-than-not recognition criteria, at which point we would be required to recognize a valuation allowance against some or all of the then-remaining tax benefit associated with the carryforwards.

Prior to the enactment of the 2017 Tax Act the undistributed earnings of our Chemicals Segment’s European subsidiaries were deemed to be permanently reinvested (we had not made a similar determination with respect to the undistributed earnings of our Chemicals Segment’s Canadian subsidiary). Pursuant to the one time repatriation tax (Transition Tax) provisions of the 2017 Tax Act which imposed a one-time repatriation tax on post-1986 undistributed earnings, we recognized current income tax expense of $74.1 million and elected to pay such tax over an eight year period beginning in 2018.  At December 31, 2021, the balance of our unpaid Transition Tax is $50.4 million, which will be paid in annual installments over the remainder of the eight-year period. Of such $50.4 million, $44.5 million is recorded as a

noncurrent payable to affiliate (income taxes payable to Contran) classified as a noncurrent liability in our Consolidated Balance Sheet, and $5.9 million is included with our current payable to affiliate (income taxes payable to Contran) classified as a current liability (a portion of our noncurrent income tax payable to affiliate was reclassified to our current payable to affiliate for the portion of our 2021 Transition Tax installment due within the next twelve months). See Note 17.

In the fourth quarter of 2019, we recognized an income tax benefit of $3.0 million primarily related to the favorable settlement of a prior year tax matter in Germany, with $1.5 million recognized as a current cash tax benefit and $1.5 million recognized as a non-cash deferred income tax benefit related to an increase to our German net operating loss carryforward. In addition, we recognized a non-cash deferred income tax expense of $4.7 million primarily related to the revaluation of our net deferred income tax asset in Germany resulting from a decrease in the German trade tax rate.

We recognize deferred income taxes with respect to the excess of the financial reporting carrying amount over the income tax basis of our direct investment in Kronos common stock because the exemption under GAAP to avoid such recognition of deferred income taxes is not available to us. At December 31, 2021, we have recognized a deferred income tax liability with respect to our direct investment in Kronos of $45.4 million. There is a maximum amount (or cap) of such deferred income taxes we are required to recognize with respect to our direct investment in Kronos. The maximum amount of such deferred income tax liability we would be required to have recognized (the cap) is $155.4 million. During 2021, we recognized a non-cash deferred income tax expense with respect to our direct investment in Kronos of $5.0 million for the increase in the deferred income taxes required to be recognized with respect to the excess of the financial reporting carrying amount over the income tax basis of our direct investment in Kronos common stock, to the extent such increase related to our equity in Kronos’ net income during such period. We recognized a similar non-cash deferred income tax benefit of $2.4 million in 2020 and a non-cash deferred income tax expense of $.1 million in 2019. A portion of the net change with respect to the excess of the financial reporting carrying amount over the income tax basis of our direct investment in Kronos common stock during such periods related to our equity in Kronos’ other comprehensive income (loss) items, and the amounts shown in the table above for income tax expense (benefit) allocated to other comprehensive income (loss) items includes amounts related to our equity in Kronos’ other comprehensive income (loss) items.

On March 27, 2020, the “Coronavirus Aid, Relief and Economic Security (CARES) Act” was signed into law in response to the COVID-19 pandemic. The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer side social security payments, modifications to the limitation of business interest for tax years beginning in 2019 and 2020 and technical corrections to tax depreciation methods for qualified improvement property. The modification to the business interest provisions increased the business interest limitation from 30% of adjusted taxable income to 50% of adjusted taxable income which increased our allowable interest expense deduction for 2019 and 2020. Consequently, in the first quarter of 2020 we recognized a cash tax benefit of $1.0 million related to the reversal of the valuation allowance recognized in 2019 for the portion of the disallowed interest expense we did not expect to fully utilize at December 31, 2019 and we considered such modifications in our 2020 provision for income taxes. Other provisions of the CARES Act did not have a material impact on our provision for income taxes in 2020. Although these CARES Act provisions expired at the end of 2020, in 2021 we recognized less disallowed interest expense than in recent years and a lower valuation allowance for the portion of the carryforward we believe does not meet the more-likely-than-not measurement criteria primarily due to the increase in our adjusted taxable income.

The following table shows the changes in the amount of our uncertain tax positions (exclusive of the effect of interest and penalties) during 2019, 2020 and 2021:

	Years ended December 31,
	2019		2020		2021
		(In millions)
Unrecognized tax benefits:
Amount at beginning of year	$	21.0	$	13.8	$	9.6
Net increase (decrease):
Tax positions taken in prior periods		(5.6)		(.3)		—
Tax positions taken in current period		.7		.6		.6
Lapse due to applicable statute of limitations		—		(4.8)		(3.6)
Settlement with taxing authorities		(2.2)		—		—
Changes in currency exchange rates		(.1)		.3		(.2)
Amount at end of year	$	13.8	$	9.6	$	6.4

If our uncertain tax positions were recognized, a benefit of $6.6 million at December 31, 2021, would affect our effective income tax rate. We currently estimate that our unrecognized tax benefits will decrease by approximately $3.5 million, excluding interest, during the next twelve months related to the expiration of certain statutes of limitations.

We and Contran file income tax returns in U.S. federal and various state and local jurisdictions. We also file income tax returns in various foreign jurisdictions, principally in Germany, Canada, Belgium and Norway. Our U.S. income tax returns prior to 2018 are generally considered closed to examination by applicable tax authorities. Our non-U.S. income tax returns are generally considered closed to examination for years prior to: 2016 for Norway; 2016 for Canada; 2017 for Germany; and 2018 for Belgium.

We accrue interest and penalties on our uncertain tax positions as a component of our provision for income taxes. We accrued interest and penalties of $1.3 million during 2019, $.8 million during 2020 and $.7 million during 2021, and at December 31, 2020 and 2021 we had $1.3 million and $.9 million, respectively, accrued for interest and an immaterial amount accrued for penalties for our uncertain tax positions.