Note 6 - Income Taxes

12 Months Ended

Dec. 31, 2014

Income Tax Disclosure [Abstract]

Income Tax Disclosure [Text Block]

6.      Income Taxes

Income before income taxes follows (in millions):

	Years ended December 31,
	2014		2013		2012
U.S. companies	$	2,384	$	1,274	$	382
Non-U.S. companies		1,184		1,199		1,593
Income before income taxes	$	3,568	$	2,473	$	1,975

The current and deferred amounts of the provision (benefit) for income taxes follow (in millions):

	Years ended December 31,
	2014		2013		2012
Current:
Federal	$	38	$	3	$	(4)
State and municipal		32		12		3
Foreign		414		308		321
Deferred:
Federal		411		112		143
State and municipal		(9)		50		(8)
Foreign		210		27		(116)
Provision for income taxes	$	1,096	$	512	$	339

Amounts are reflected in the preceding tables based on the location of the taxing authorities.

Reconciliation of the U.S. statutory income tax rate to our effective tax rate for continuing operations follows:

	Years ended December 31,
	2014		2013		2012
Statutory U.S. income tax rate	35.0%		35.0%		35.0%
State income tax (benefit), net of federal effect	4.9	(8)	0.6		0.2
Tax holidays (1)	(0.4)		(1.2)		(1.7)
Investment and other tax credits (2)	(0.3)		(2.0)		(1.1)
Rate difference on foreign earnings	(8.3)		(7.9)	(4)	(2.0)
Equity earnings impact (3)	(2.0)		(6.6)		(13.6)
Valuation allowances	0.7	(6)	3.1	(5)	(0.1)
Other items, net	1.1	(7)	(0.3)		0.5
Effective income tax (benefit) rate	30.7%		20.7%		17.2%

(1) Primarily related to a subsidiary in Taiwan operating under tax holiday arrangements.  The nature and extent of such arrangements vary, and the benefits of existing arrangements phase out in future years (through 2018).  The impact of tax holidays on net income per share on a diluted basis was $0.01 in 2014, $0.02 in 2013 and $0.02 in 2012.

(2) Primarily related to research and development and other credits in the U.S.

(3) Equity in earnings of nonconsolidated affiliates reported in the financials net of tax.  The decrease from 2012-2013 was driven by significantly lower earnings from Samsung Corning Precision Materials and from 2013-2014 the change of Samsung Corning Precision Materials from an equity company to a consolidated entity.

(4) In 2013, $74 million of tax benefit increase was due to $37 million expense recorded in 2012 that was reversed in the first quarter of 2013 as a result of the retroactive application of the American Taxpayer Relief Act enacted on January 3, 2013.  In 2013, the additional increase in the benefit was attributable to excess foreign tax credits realized in U.S. from a taxable intercompany loan.

(5) Primarily related to change in judgment on the realizability of Australia and certain state deferred tax assets.

(6) $177 million tax expense related to change in judgment on the realizability of Germany and Japan deferred tax assets is partially offset with benefit from state deferred tax asset valuation allowance reductions, including the valuation allowance relating to the New York State attribute reduction discussed in (8) below.

(7) Includes in 2014, $9 million benefit for domestic manufacturing deduction and $46 million of tax expense related to out of period transfer pricing adjustments.  The impact of these corrections is not material to any individual period previously presented.

(8) Includes $100 million tax expense related to the write-off of New York State tax attributes for a state law change that were offset with full valuation allowance.

The tax effects of temporary differences and carryforwards that gave rise to significant portions of the deferred tax assets and liabilities follows (in millions):

	December 31,
	2014		2013
Loss and tax credit carryforwards	$	1,235	$	1,788
Other Assets		69		63
Asset impairments and restructuring reserves		170		172
Postretirement medical and life benefits		312		290
Fixed assets				85
Other accrued liabilities		246		320
Other employee benefits		473		387
Gross deferred tax assets		2,505		3,105
Valuation allowance		(298)		(286)
Total deferred tax assets		2,207		2,819
Intangible and other assets		(152)		(321)
Fixed assets		(299)
Total deferred tax liabilities		(451)		(321)
Net deferred tax assets	$	1,756	$	2,498

The net deferred tax assets are classified in our consolidated balance sheets as follows (in millions):

	December 31,
	2014		2013
Current deferred tax assets	$	248	$	278
Non-current deferred tax assets		1,889		2,234
Current deferred tax liabilities		(5)		(1)
Non-current deferred tax liabilities		(376)		(13)
Net deferred tax assets	$	1,756	$	2,498

Details on deferred tax assets for loss and tax credit carryforwards at December 31, 2014 follow (in millions):

			Expiration
	Amount		2015-2019		2020-2024		2025-2034		Indefinite
Net operating losses	$	423	$	92	$	120	$	20	$	191
Capital losses		9		9
Tax credits		803		62		672		38		31
Totals as of December 31, 2014	$	1,235	$	163	$	792	$	58	$	222

The recognition of windfall tax benefits from stock-based compensation deducted on the tax return is prohibited until realized through a reduction of income tax payable.  Cumulative tax benefits totaling $236 million will be recorded in additional paid-in-capital when credit carry forwards are utilized and the windfall tax benefit can be realized.

Deferred tax assets are to be reduced by a valuation allowance if, based on the weight of available positive and negative evidence, it is more likely than not (a likelihood of greater than 50 percent) that some portion or all of the deferred tax assets will not be realized.  Corning has valuation allowances on certain shorter-lived deferred tax assets such as those represented by capital loss and state tax net operating loss carry forwards, as well as other foreign net operating loss carryforwards, because we cannot conclude that it is more likely than not that we will earn income of the character required to utilize these assets before they expire.  U.S. profits of approximately $5.1 billion will be required to fully realize the U.S. deferred tax assets as of December 31, 2014, of which $110.3 million will be required over the next 20 years to realize the deferred tax assets related to general business credits and $2.1 billion of foreign sourced income will be required over the next 10 years to fully realize the deferred tax assets associated with foreign tax credits.  The amount of U.S. and foreign deferred tax assets that have remaining valuation allowances at December 31, 2014 and 2013 was $298 million and $286 million, respectively.

The following is a tabular reconciliation of the total amount of unrecognized tax benefits (in millions):

	2014		2013
Balance at January 1	$	15	$	16
Additions based on tax positions related to the current year				1
Additions for tax positions of prior years		5
Reductions for tax positions of prior years
Settlements and lapse of statute of limitations		(10)		(2)
Balance at December 31	$	10	$	15

Included in the balance at December 31, 2014 and 2013 are $5 million and $7 million, respectively, of unrecognized tax benefits that would impact our effective tax rate if recognized.

We recognize accrued interest and penalties associated with uncertain tax positions as part of tax expense.  For the years ended December 31, 2014, 2013 and 2012, the amounts recognized in interest expense and income were immaterial.  The amounts accrued at December 31, 2014 and 2013 for the payment of interest and penalties were not significant.

While we expect the amount of unrecognized tax benefits to change in the next 12 months, we do not expect the change to have a significant impact on the results of operations or our financial position.

Corning Incorporated, as the common parent company, and all 80%-or-more-owned of its U.S. subsidiaries join in the filing of consolidated U.S. federal income tax returns.  All such returns for periods ended through December 31, 2004, have been audited by and settled with the Internal Revenue Service (IRS).  The statute for all years from 2004 forward will remain open until the statute closes for the return in which the NOL carryovers generated in 2004 and 2005 are fully utilized.  The statute for U.S. foreign tax and research and experimentation credit carryforwards generated through 2013 will also remain open until the statute closes for the returns in which the credits are utilized.

Corning Incorporated and its U.S. subsidiaries file income tax returns on a combined, unitary or stand-alone basis in multiple state and local jurisdictions, which generally have statutes of limitations ranging from 3 to 5 years.  Various state income tax returns are currently in the process of examination or administrative appeal.

Our foreign subsidiaries file income tax returns in the countries in which they have operations.  Generally, these countries have statutes of limitations ranging from 3 to 7 years.  Years still open to examination by foreign tax authorities in major jurisdictions include Japan (2009 onward), Taiwan (2013 onward) and South Korea (2010 onward).

Corning continues to indefinitely reinvest substantially all of its foreign earnings, with the exception of approximately $10 million of current earnings that have very low or no tax cost associated with their repatriation.  Our current analysis indicates that we have sufficient U.S. liquidity, including borrowing capacity, to fund foreseeable U.S. cash needs without requiring the repatriation of foreign cash.  One time or unusual items that may impact our ability or intent to keep our foreign earnings and cash indefinitely reinvested include significant U.S. acquisitions, stock repurchases, shareholder dividends, changes in tax laws, derivative contract settlements or the development of tax planning ideas that allow us to repatriate earnings at minimal or no tax cost, and/or a change in our circumstances or economic conditions that negatively impact our ability to borrow or otherwise fund U.S. needs from existing U.S. sources.  As of December 31, 2014, taxes have not been provided on approximately $10.3 billion of accumulated foreign unremitted earnings that are expected to remain invested indefinitely.  While it remains impracticable to calculate the tax cost of repatriating our total unremitted foreign earnings, such cost could be material to the results of operations of Corning in a particular period.