10-K
UNION CARBIDE CORP /NEW/ filed this Form 10-K on 02/15/2018
Entire Document
 

The Corporation bases the determination of pension expense on a market-related valuation of plan assets that reduces year-to-year volatility. This market-related valuation recognizes investment gains or losses over a five-year period from the year in which they occur. Investment gains or losses for this purpose represent the difference between the expected return calculated using the market-related value of plan assets and the actual return based on the market value of plan assets. Since the market-related value of plan assets recognizes gains or losses over a five-year period, the future value of plan assets will be impacted when previously deferred gains or losses are recorded. Over the life of the plan, both gains and losses have been recognized and amortized. At December 31, 2017, $12 million of net losses remain to be recognized in the calculation of the market-related value of plan assets. These net losses will result in increases in future pension expense as they are recognized in the market-related value of assets.

The net decrease in the market-related value of assets due to the recognition of prior gains (losses) is presented in the following table:

Net Decrease in Market-Related Asset Value due to Recognition of Prior Gains (Losses)
 
In millions
2018
$
(15
)
2019
(31
)
2020
12

2021
22

Total
$
(12
)

Based on the 2018 pension assumptions and changes in the market-related value of assets, the Corporation expects net periodic benefit cost to increase approximately $17 million for pension and other postretirement benefits in 2018 compared with 2017. The increase in net periodic benefit cost is primarily due to the impact of lower discount rates and the resulting increase in amortization of actuarial losses.

A 25 basis point adjustment in the long-term return on assets assumption would change total pension expense for 2018 by $8 million. A 25 basis point adjustment in the discount rate assumption would have an immaterial impact on the total pension expense for 2018.

Income Taxes
Deferred tax assets and liabilities are determined based on temporary differences between the financial reporting and tax bases of assets and liabilities, applying enacted tax rates expected to be in effect for the year in which the differences are expected to reverse. Based on the evaluation of available evidence, both positive and negative, the Corporation recognizes future tax benefits, such as net operating loss carryforwards and tax credit carryforwards, to the extent that realizing these benefits is considered more likely than not.

At December 31, 2017, the Corporation had a net deferred tax asset balance of $511 million, after valuation allowances of $19 million. In evaluating the ability to realize the deferred tax assets, the Corporation relies on, in order of increasing subjectivity, taxable income in prior carryback years, the future reversals of existing taxable temporary differences, tax planning strategies and forecasted taxable income using historical and projected future operating results.

At December 31, 2017, the Corporation had deferred tax assets for tax loss and tax credit carryforwards of $47 million of which $30 million is subject to expiration in the years 2018 through 2022. In order to realize these deferred tax assets for tax loss and tax credit carryforwards, the Corporation needs taxable income of approximately $1,538 million across multiple jurisdictions. The taxable income needed to realize the deferred tax assets for tax loss and tax credit carryforwards that are subject to expiration between 2018 through 2022 is $618 million.

The Corporation recognizes the financial statement effects of an uncertain tax position when it is more likely than not, based on technical merits, that the position will be sustained upon examination. At December 31, 2017, the Corporation had a liability for uncertain tax positions of $1 million.

The Corporation accrues for non-income tax contingencies when it is probable that a liability to a taxing authority has been incurred and the amount of the contingency can be reasonably estimated. At December 31, 2017, the Corporation had an immaterial tax contingency reserve.

On December 22, 2017, The Act was enacted, making significant changes to the U.S. tax law. The SEC staff issued Staff Accounting Bulletin No. 118 ("SAB 118"), which provides guidance on accounting for the tax effects of The Act for which the accounting

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