International Paper 2014 Annual Report Download - page 99

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A reconciliation of income tax expense using the
statutory U.S. income tax rate compared with the actual
income tax provision follows:
In millions 2014 2013 2012
Earnings (loss) from
continuing
operations before income
taxes
and equity earnings $ 872 $1,228 $ 967
Statutory U.S. income tax rate 35% 35 % 35%
Tax expense (benefit) using
statutory U.S. income tax rate 305 430 338
State and local income taxes 10 (2) 9
Tax rate and permanent
differences on non-U.S.
earnings (72) (90) (116)
Net U.S. tax on non-U.S.
dividends 16 (15) 48
Tax benefit on manufacturing
activities (46) (27) (15)
Non-deductible business
expenses 747
Non-deductible goodwill 35 37 34
Tax audits —(770) —
Subsidiary liquidation (85) ——
Retirement plan dividends (5) (5) (5)
Tax basis adjustments —(33) —
Tax credits (34) (23) —
Medicare subsidy ——5
Other, net (8) (4) 1
Income tax provision
(benefit) $ 123 $ (498) $ 306
Effective income tax rate 14% (41)% 32%
The tax effects of significant temporary differences,
representing deferred income tax assets and liabilities
at December 31, 2014 and 2013, were as follows:
In millions 2014 2013
Deferred income tax assets:
Postretirement benefit accruals $ 189 $ 193
Pension obligations 1,517 725
Alternative minimum and other tax
credits 342 515
Net operating and capital loss
carryforwards 672 610
Compensation reserves 280 281
Other 266 284
Gross deferred income tax assets 3,266 2,608
Less: valuation allowance (415)(413)
Net deferred income tax asset $2,851 $2,195
Deferred income tax liabilities:
Intangibles $(316)$(304)
Plants, properties and equipment (2,707) (2,919)
Forestlands and related installment
sales (2,290) (2,307)
Gross deferred income tax liabilities $ (5,313) $(5,530)
Net deferred income tax liability $ (2,462) $(3,335)
Deferred income tax assets and liabilities are recorded
in the accompanying consolidated balance sheet under
the captions Deferred income tax assets, Deferred
charges and other assets, Other accrued liabilities, and
Deferred income taxes. There is an increase in deferred
income tax assets principally relating to the tax impact
of changes in qualified pension liabilities partially offset
by the utilization of tax credits. Deferred tax liabilities
decreased primarily due to book depreciation in excess
of tax depreciation. Of the $2.3 billion forestlands and
related installment sales deferred tax liability, $1.4
billion relates to a 2006 International Paper installment
sale of forestlands and $840 million relates to a 2007
Temple-Inland installment sale of forestlands (see Note
12). Certain tax attributes reflected on our tax returns
as filed differ from those reflected in the deferred income
tax accounts due to uncertain tax benefits.
The valuation allowance for deferred income tax assets
as of December 31, 2014 was $415 million. The net
change in the total valuation allowance for the year
ended December 31, 2014 was an increase of $2
million.
A reconciliation of the beginning and ending amount of
unrecognized tax benefits for the years ended
December 31, 2014, 2013 and 2012 is as follows:
In millions 2014 2013 2012
Balance at January 1 $(161)$(972)$ (857)
(Additions) reductions based on
tax positions related to current
year (15) (22) 12
Additions for tax positions of prior
years (1) (29) (140)
Reductions for tax positions of
prior years 9824 6
Settlements —26 2
Expiration of statutes of
limitations 211 7
Currency translation adjustment 81(2)
Balance at December 31 $(158)$(161)$ (972)
Included in the balance at December 31, 2014, 2013
and 2012 are $1 million, $1 million and $14 million,
respectively, for tax positions for which the ultimate
benefits are highly certain, but for which there is
uncertainty about the timing of such benefits. However,
except for the possible effect of any penalties, any
disallowance that would change the timing of these
benefits would not affect the annual effective tax rate,
but would accelerate the payment of cash to the taxing
authority to an earlier period.
The Company accrues interest on unrecognized tax
benefits as a component of interest expense. Penalties,
if incurred, are recognized as a component of income
tax expense. The Company had approximately $41
million and $54 million accrued for the payment of
estimated interest and penalties associated with