|UNION CARBIDE CORP /NEW/ filed this Form 10-K on 02/15/2018|
Provision (Credit) for Income Taxes
On December 22, 2017, the Tax Cuts and Jobs Act ("The Act") was enacted. The Act reduces the U.S. federal corporate tax rate from 35 percent to 21 percent, requires companies to pay a one-time transition tax on earnings of foreign subsidiaries that were previously deferred, creates new provisions related to foreign sourced earnings, eliminates the domestic manufacturing deduction and moves to a territorial system. At December 31, 2017, the Corporation had not completed its accounting for the tax effects of The Act; however, the Corporation made a reasonable estimate of the effects on its existing deferred tax balances and the one-time transition tax, which resulted in a provisional charge of $250 million, included in "Provision (Credit) for income taxes."
The Corporation reported $645 million for the tax provision in 2017, which resulted in an overall effective tax rate of 75.9 percent. The tax rate for 2017 was unfavorably impacted by the enactment of The Act and the recognition of a deferred gain related to the sale of stock between Dow and UCC in 2014. This compares with a tax benefit of $32 million in 2016, which resulted in an overall effective tax rate of negative 56.1 percent. In 2016, the tax rate was favorably impacted by the release of a reserve in excess of the settlement of an uncertain tax position and the impact from the asbestos-related charge. The underlying factors affecting UCC's overall effective tax rates are summarized in Note 7 to the Consolidated Financial Statements.
Net Income Attributable to UCC
The Corporation reported net income of $205 million in 2017, compared with net income of $89 million for 2016.
Capital spending in 2017 was $223 million compared with $267 million in 2016, reflecting spending on U.S. Gulf Coast projects and site infrastructure projects in both years.
Recent Accounting Guidance
See Note 2 to the Consolidated Financial Statements for a summary of recent accounting guidance.
Critical Accounting Estimates
The preparation of financial statements and related disclosures in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") requires management to make judgments, assumptions and estimates that affect the amounts reported in the consolidated financial statements and accompanying notes. Note 1 to the Consolidated Financial Statements describes the significant accounting policies and methods used in preparation of the consolidated financial statements. Following are the Corporation's accounting policies impacted by judgments, assumptions and estimates:
The Corporation is subject to legal proceedings and claims arising out of the normal course of business. The Corporation routinely assesses the likelihood of any adverse judgments or outcomes to these matters, as well as ranges of probable losses. A determination of the amount of the reserves required, if any, for these contingencies is made after thoughtful analysis of each known claim. The Corporation has an active risk management program consisting of numerous insurance policies secured from many carriers. These policies provide coverage that is utilized to minimize the financial impact, if any, of the legal proceedings. The required reserves may change in the future due to new developments in each matter. For further discussion, see Note 14 to the Consolidated Financial Statements.
The Corporation is and has been involved in a large number of asbestos-related suits filed primarily in state courts during the past four decades. These suits principally allege personal injury resulting from exposure to asbestos-containing products and frequently seek both actual and punitive damages. The alleged claims primarily relate to products that UCC sold in the past, alleged exposure to asbestos-containing products located on UCC's premises, and UCC's responsibility for asbestos suits filed against a former subsidiary, Amchem Products, Inc. ("Amchem"). Each year, Ankura Consulting Group, LLC ("Ankura") performs a review for UCC based upon historical asbestos claims and resolution activity and historical defense spending. UCC compares current asbestos claim, resolution and defense spending activity to the results of the most recent Ankura study at each balance sheet date to determine whether the asbestos-related liability continues to be appropriate.
In 2016, UCC elected to change its method of accounting for asbestos-related defense and processing costs from expensing as incurred to estimating and accruing a liability. In addition to performing their annual review of pending and future asbestos claim resolution activity, Ankura also performed a review for UCC of asbestos-related defense and processing costs to determine a reasonable estimate of future defense and processing costs to be included in the asbestos-related liability, through the terminal year of 2049.