Hess 2014 Annual Report Download - page 88

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HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
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At December 31, 2014, the Corporation has recognized a gross deferred tax asset related to net operating loss carryforwards of
$3,010 million before application of valuation allowances. The deferred tax asset is comprised of $2,131 million attributable to
foreign net operating losses which begin to expire in 2029, $712 million attributable to U.S. federal operating losses which begin to
expire in 2020 and $167 million attributable to losses in various U.S. states which begin to expire in 2015. The deferred tax asset
attributable to foreign net operating losses, net of valuation allowances, is $1,504 million, substantially all of which relates to loss
carryforwards in Denmark, Norway and Malaysia. At December 31, 2014, the Corporation has federal, state and foreign alternative
minimum tax credit carryforwards of $109 million which can be carried forward indefinitely, and approximately $1 million of other
business credit carryforwards. Foreign tax credit carryforwards, which begin to expire in 2016, total $83 million.
In the Consolidated Balance Sheet, deferred tax assets and liabilities are netted by taxing jurisdiction and are recorded at
December 31 as follows:
2014 2013
(In millions)
Other current assets ...........................................................................................................................................
.
$ 373 $ 963
Deferred income taxes (long-term asset) ..........................................................................................................
.
2,169 2,319
Accrued liabilities .............................................................................................................................................
.
— (1)
Deferred income taxes (long-term liability) ......................................................................................................
.
(2,009) (2,292)
Net deferred tax assets .................................................................................................................................
.
$ 533 $ 989
A net deferred tax asset of $5 million relating to the energy trading joint venture, HETCO, is included in current assets associated
with assets held for sale in the consolidated balance sheet at December 31, 2014. A net deferred tax liability of $157 million,
primarily relating to fixed asset basis differences and net operating losses of the Corporation’s subsidiaries in Thailand and Indonesia,
is included in current liabilities associated with assets held for sale in the Consolidated Balance Sheet at December 31, 2013.
The difference between the Corporation’s effective income tax rate from continuing operations and the U.S. statutory rate is
reconciled below:
2014 2013 2012
U.S. statutory rate......................................................................................................................... 35.0% 35.0% 35.0%
Effect of foreign operations* ....................................................................................................... 1.0 6.9 12.5
State income taxes, net of Federal income tax ............................................................................. 1.5 0.1 0.6
Change in enacted tax laws .......................................................................................................... — (14.8) 3.4
Gains on asset sales, net ............................................................................................................... (8.3) (15.6) (5.4)
Other ............................................................................................................................................ 1.3 0.7 (0.3)
Total ........................................................................................................................................ 30.5% 12.3% 45.8%
* The variance in effective income tax rates attributable to the effect of foreign operations primarily resulted from the suspension of operations in Libya for a portion
of 2013 and most of 2014.
Below is a reconciliation of the gross beginning and ending amounts of unrecognized tax benefits:
2014 2013
(In millions)
Balance at January 1 ........................................................................................................................................ $ 570 $ 523
Additions based on tax positions taken in the current year ......................................................................... 42 161
Additions based on tax positions of prior years .......................................................................................... 70 2
Reductions based on tax positions of prior years ........................................................................................ (76) (96)
Reductions due to settlements with taxing authorities ................................................................................ (3) (19)
Reductions due to lapses in statutes of limitation ....................................................................................... — (1)
Balance at December 31 .................................................................................................................................. $ 603 $ 570
The December 31, 2014 balance of unrecognized tax benefits includes $528 million that, if recognized, would impact the
Corporation’s effective income tax rate. Over the next 12 months, it is reasonably possible that the total amount of unrecognized tax
benefits could decrease by up to $94 million due to settlements with taxing authorities or other resolutions, as well as lapses in statutes
of limitation. The Corporation had accrued interest and penalties related to unrecognized tax benefits of $62 million and $52 million
as of December 31, 2014 and 2013, respectively.
The Corporation has not recognized deferred income taxes on the portion of undistributed earnings of foreign subsidiaries expected
to be indefinitely reinvested in foreign operations. The Corporation had undistributed earnings from foreign subsidiaries that it
expects to be indefinitely reinvested in foreign operations of approximately $8.3 billion as of December 31, 2014. The Corporation
has not measured the unrecognized deferred tax liability related to these earnings because this determination is not practicable.
The Corporation and its subsidiaries file income tax returns in the U.S. and various foreign jurisdictions. The Corporation is no
longer subject to examinations by income tax authorities in most jurisdictions for years prior to 2005.