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PROVISION FOR INCOME TAXES | 12 Months Ended
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Dec. 31, 2015
Income Tax Disclosure [Abstract] |
PROVISION FOR INCOME TAXES | PROVISION FOR INCOME TAXES Components of earnings from continuing operations before income taxes and the provision (benefit) for U.S. and other income taxes from continuing operations follow:
| For years ended December 31,
(Dollars in millions) | 2015 |  | 2014 |  | 2013
Earnings from continuing operations before income taxes |  |  |  |  |
United States | $ | 618 |  |  | $ | 627 |  |  | $ | 1,437 |
Outside the United States | 511 |  |  | 363 |  |  | 242 |
Total | $ | 1,129 |  |  | $ | 990 |  |  | $ | 1,679 |
Provision (benefit) for income taxes on earnings from continuing operations |  |  |  |  |  |  |  |
United States Federal |  |  |  |  |  |  |  |
Current | $ | 87 |  |  | $ | 64 |  |  | $ | 143 |
Deferred | 119 |  |  | 135 |  |  | 300 |
Outside the United States |  |  |  |  |  |
Current | 59 |  |  | 66 |  |  | 3 |
Deferred | 16 |  |  | (35 | ) |  | 15 |
State and other |  |  |  |  |  |
Current | 22 |  |  | 6 |  |  | 30 |
Deferred | (28 | ) |  | (1 | ) |  | 16 |
Total | $ | 275 |  |  | $ | 235 |  |  | $ | 507 |
The following represents the deferred tax charge (benefit) recorded as a component of accumulated other comprehensive loss in stockholders' equity.
| For years ended December 31,
(Dollars in millions) | 2015 |  | 2014 |  | 2013
Unrecognized losses and prior service credits for benefit plans | $ | 42 |  |  | $ | (11 | ) |  | $ | 8 |
Cumulative translation adjustment | — |  |  | — |  |  | (1 | )
Unrealized gains (losses) on cash flow hedges | 21 |  |  | (141 | ) |  | 5 |
Total | $ | 63 |  |  | $ | (152 | ) |  | $ | 12 |
Total income tax expense (benefit) included in the consolidated financial statements was composed of the following:
| For years ended December 31,
(Dollars in millions) | 2015 |  | 2014 |  | 2013
Continuing operations | $ | 275 |  |  | $ | 235 |  |  | $ | 507 |
Discontinued operations | — |  |  | 2 |  |  | — |
Other comprehensive income | 63 |  |  | (152 | ) |  | 12 |
Total | $ | 338 |  |  | $ | 85 |  |  | $ | 519 |
Differences between the provision for income taxes on earnings from continuing operations and income taxes computed using the U.S. Federal statutory income tax rate follow:
| For years ended December 31,
(Dollars in millions) | 2015 |  | 2014 |  | 2013
Amount computed using the statutory rate | $ | 393 |  |  | $ | 345 |  |  | $ | 587 |
State income taxes, net | (3 | ) |  | 4 |  |  | 30 |
Foreign rate variance | (93 | ) |  | (105 | ) |  | (55 | )
Domestic manufacturing deduction | (12 | ) |  | (6 | ) |  | (17 | )
Change in reserves for tax contingencies | (7 | ) |  | (6 | ) |  | (16 | )
General business credits | (15 | ) |  | (8 | ) |  | (6 | )
Other | 12 |  |  | 11 |  |  | (16 | )
Provision for income taxes | $ | 275 |  |  | $ | 235 |  |  | $ | 507 |
Effective income tax rate | 24 | % |  | 24 | % |  | 30 | %
The effective tax rate was 24 percent for both 2015 and 2014. The 2015 effective tax rate reflected a benefit from both the U.S. federal tax manufacturing deduction, due to an increase in domestic taxable income, and increased U.S. federal tax credits compared to 2014. This was offset by a reduction in the foreign rate variance as a result of an unfavorable shift in foreign income to higher tax jurisdictions and limited benefit from the asset impairment of the Workington, UK acetate tow manufacturing facility. Both years reflect a benefit from the extension of favorable U.S. federal tax provisions, which resulted in a net benefit of approximately $15 million primarily related to research and development credits and deferral of certain earnings of foreign subsidiaries from U.S. income taxes. The 2014 effective tax rate of 24 percent reflected incremental benefit of approximately 6 percent over the 2013 effective tax rate of 30 percent. The primary items benefiting the Company’s effective tax rate were the impact of the annual pension and other postretirement benefit MTM accounting and incremental foreign rate benefit from the integration of the Solutia acquisition. The Company recognized a MTM loss of $304 million in 2014 and a MTM gain of $383 million in 2013, which were primarily recognized in U.S. legal entities. The $687 million reduction in U.S. earnings accounted for an approximately 5 percent benefit to the 2014 effective tax rate compared to 2013. The 2014 effective tax rate also benefited 3 percent compared to 2013 due to an incremental $50 million foreign rate variance. The incremental benefit was the result of the Company’s integration of Eastman and Solutia business operations and legal entity structures, including relocating certain of the Company’s global business headquarters, which are primarily international, to Europe to better serve customers, and implementing an integrated entity financing structure allowing more efficient redeployment of cash for subsidiaries outside the U.S. These 2014 incremental benefits over 2013 were partially offset by a 2013 $14 million tax benefit primarily due to adjustments to the tax provision to reflect the finalization of the 2012 consolidated U.S. Federal income tax return and a 2013 $14 million benefit for the finalization of foreign tax audits. The significant components of deferred tax assets and liabilities follow:
| December 31,
(Dollars in millions) | 2015 |  | 2014
Deferred tax assets |  |  |
Post-employment obligations | $ | 471 |  |  | $ | 529 |
Net operating loss carryforwards | 349 |  |  | 470 |
Tax credit carryforwards | 276 |  |  | 239 |
Environmental reserves | 122 |  |  | 123 |
Unrealized derivative loss | 162 |  |  | 165 |
Other | 193 |  |  | 294 |
Total deferred tax assets | 1,573 |  |  | 1,820 |
Less valuation allowance | 254 |  |  | 264 |
Deferred tax assets less valuation allowance | $ | 1,319 |  |  | $ | 1,556 |
Deferred tax liabilities |  |  |  |  |
Depreciation | $ | (1,176 | ) |  | $ | (1,144 | )
Amortization | (902 | ) |  | (1,001 | )
Other | (142 | ) |  | (158 | )
Total deferred tax liabilities | $ | (2,220 | ) |  | $ | (2,303 | )
Net deferred tax liabilities | $ | (901 | ) |  | $ | (747 | )
As recorded in the Consolidated Statements of Financial Position: |  |  |  |  |
Other current assets | $ | — |  |  | $ | 177 |
Other noncurrent assets | 27 |  |  | 28 |
Payables and other current liabilities | — |  |  | (6 | )
Deferred income tax liabilities | (928 | ) |  | (946 | )
Net deferred tax liabilities | $ | (901 | ) |  | $ | (747 | )
Unremitted earnings of subsidiaries outside the United States, considered to be reinvested indefinitely, totaled approximately $1.9 billion at December 31, 2015. It is not practicable to determine the deferred tax liability for temporary differences related to those unremitted earnings. For certain consolidated foreign subsidiaries, income and losses directly flow through to taxable income in the United States. These entities are also subject to taxation in the foreign tax jurisdictions. Net operating loss carryforwards exist to offset future taxable income in foreign tax jurisdictions and valuation allowances are provided to reduce deferred related tax assets if it is more likely than not that this benefit will not be realized. Changes in the estimated realizable amount of deferred tax assets associated with net operating losses for these entities could result in changes in the deferred tax asset valuation allowance in the foreign tax jurisdiction. At the same time, because these entities are also subject to tax in the United States, a deferred tax liability for the expected future taxable income will be established concurrently. Therefore, the impact of any reversal of valuation allowances on consolidated income tax expense will be only to the extent that there are differences between the United States statutory tax rate and the tax rate in the foreign jurisdiction. A valuation allowance of $23 million at December 31, 2015, has been provided against the deferred tax asset resulting from these operating loss carryforwards. At December 31, 2015, foreign net operating loss carryforwards totaled $779 million. Of this total, $86 million will expire in 3 to 20 years and $693 million have no expiration date. A valuation allowance of approximately $171 million has been provided against such net operating loss carryforwards. At December 31, 2015, federal net operating loss carryforwards of $243 million were available to offset future taxable income, which expire from 2025 to 2030. At December 31, 2015, foreign tax credit carryforwards of approximately $180 million were available to reduce possible future U.S. income taxes and which expire from 2017 to 2021. A partial valuation allowance of $55 million has been provided for Solutia's state net operating loss carryforwards. The valuation allowance will be retained until there is sufficient positive evidence to conclude that it is more likely than not that the deferred tax assets will be realized or the related statute expires. A full valuation allowance of $50 million had been provided against the U.S. deferred tax assets for Solutia's capital loss carryforward, which expired in 2015. As a result of the Solutia acquisition transaction, Solutia realized a change of ownership for purposes of Section 382 of the Internal Revenue Code. Management does not currently expect this change to significantly limit the Company's ability to utilize Solutia's U.S. net operating loss or foreign tax credit carryforwards estimated to be approximately $219 million and $180 million, respectively, at December 31, 2015. Amounts due to and from tax authorities as recorded in the Consolidated Statements of Financial Position:
| December 31,
(Dollars in millions) | 2015 |  | 2014
Miscellaneous receivables | $ | 92 |  |  | $ | 97 |
Payables and other current liabilities | $ | 33 |  |  | $ | 23 |
Other long-term liabilities | 32 |  |  | 24 |
Total income taxes payable | $ | 65 |  |  | $ | 47 |
A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows:
(Dollars in millions) | 2015 |  | 2014 |  | 2013
Balance at January 1 | $ | 117 |  |  | $ | 51 |  |  | $ | 65 |
Additions based on tax positions related to current year | — |  |  | — |  |  | — |
Additions based on acquisitions | 27 |  |  | 72 |  |  | — |
Lapse of statute of limitations | (7 | ) |  | (6 | ) |  | — |
Settlements | — |  |  | — |  |  | (14 | )
Balance at December 31 | $ | 137 |  |  | $ | 117 |  |  | $ | 51 |
As of December 31, 2015, 2014, and 2013, $137 million, $117 million, and $51 million, respectively, of unrecognized tax benefits would, if recognized, impact the Company's effective tax rate. Interest, net of tax, related to unrecognized tax benefits is recorded as a component of income tax expense. As of January 1, 2015, the Company had accrued a liability of $4 million for interest, net of tax, and had $3 million for tax penalties, net of tax benefit. During 2015, the Company recognized $2 million of expense for interest, net of tax, and no penalties associated with unrecognized tax benefits, offset by $2 million of income for interest, net of tax, and $2 million of penalties, net of tax, associated with expiration of statute of limitations. At December 31, 2015, the Company had accrued balances of $4 million for interest, net of tax benefit, and $1 million for penalties, net of tax benefit. As of January 1, 2014, the Company had accrued a liability of $4 million for interest, net of tax, and had $3 million for tax penalties, net of tax benefit. During 2014, the Company recognized $1 million of expense for interest, net of tax, and no penalties associated with unrecognized tax benefits, offset by $1 million of income for interest, net of tax, associated with expiration of statute of limitations. At December 31, 2014, the Company had accrued balances of $4 million for interest, net of tax benefit, and $3 million for penalties, net of tax benefit. As of January 1, 2013, the Company had accrued a liability of approximately $5 million for interest, net of tax, and had $3 million for tax penalties, net of tax benefit. During 2013, the Company recognized $1 million of expense for interest, net of tax, and no penalties associated with unrecognized tax benefits, offset by $2 million of income for interest, net of tax, associated with favorable audit settlements. At December 31, 2013, the Company had accrued balances of $4 million for interest, net of tax benefit, and $3 million for penalties, net of tax benefit. The Company files income tax returns in the United States and various state and foreign jurisdictions. The Company is no longer subject to U.S. Federal income tax examinations by tax authorities for years before 2011 and 2002 for Eastman and Solutia, respectively. With few exceptions, Eastman is no longer subject to state and local income tax examinations by tax authorities for years before 2010. Solutia, Inc. and related subsidiaries are no longer subject to state and local income tax examinations for years before 2000. With few exceptions, the Company is no longer subject to foreign income tax examinations by tax authorities for tax years before 2007. It is reasonably possible that, within the next twelve months, as a result of the resolution of federal, state, and foreign examinations and appeals, and the expiration of various statutes of limitation, unrecognized tax benefits will decrease by a range of $0 to $10 million.

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