Note 5 - Income Taxes

6 Months Ended

Jun. 30, 2013

Income Tax Disclosure [Text Block]

Income Tax Disclosure [Text Block]

5.      Income Taxes

Our provision for income taxes and the related effective income tax rates were as follows (in millions):

	Three months ended June 30,				Six months ended June 30,
	2013		2012		2013		2012
Provision for income taxes	$	(191)	$	(100)	$	(225)	$	(218)
Effective tax rate (1)		23.0%		17.4%		16.6%		18.7%

(1) As revised for the change in our method of recognizing pension expense.  See Note 1 of Notes to Consolidated Financial Statements for a discussion of the change and the impacts of the change for the three and six months ended June 30, 2012.

For the three and six months ended June 30, 2013, the effective income tax rate differed from the U.S. statutory rate of 35% primarily due to the following items:

·   Rate differences on income (loss) of consolidated foreign companies;

·   The impact of equity in earnings of nonconsolidated affiliates reported in the financials, net of tax; and

·   The benefit of tax incentives in foreign jurisdictions, primarily Taiwan.

In addition to the items noted above, the tax provision for the three months ended June 30, 2013 reflected the U.S. tax expense associated with the realized and unrealized gains on the translated earnings contracts.  Refer to Note 14 Hedging Activities for further information.  The tax provision for the six months ended June 30, 2013, reflects a $54 million tax benefit to record the impact of the American Taxpayer Relief Act enacted on January 3, 2013 and made retroactive to 2012.

For the three and six months ended June 30, 2012, the effective income tax rate differed from the U.S. statutory rate of 35% primarily due to the following items:

·   Rate differences on income (loss) of consolidated foreign companies;

·   The impact of equity in earnings of nonconsolidated affiliates reported in the financials, net of tax;

·   The expiration of favorable U.S. tax provisions; and

·   The benefit of tax incentives in foreign jurisdictions, primarily Taiwan.

Corning’s subsidiary in Taiwan is operating under tax holiday arrangements.  The benefit of the arrangement phases out through 2018.  The impact of the tax holiday on our effective tax rate is a reduction in the rate of 1.0 and 1.4 percentage points for the three months ended June 30, 2013 and 2012, respectively.  The impact of the tax holiday on our effective tax rate is a reduction in the rate of 0.9 and 1.4 percentage points for the six months ended June 30, 2013 and 2012, respectively.

Corning continues to indefinitely reinvest substantially all of its foreign earnings.  Our current analysis indicates that we have sufficient U.S. liquidity, including borrowing capacity, to fund foreseeable U.S. cash needs without requiring the repatriation of foreign cash.  One time or unusual items that may impact our ability or intent to keep our foreign earnings and cash indefinitely reinvested include significant U.S. acquisitions, stock repurchases, shareholder dividends, changes in tax laws and/or a change in our circumstances or economic conditions that negatively impact our ability to borrow or otherwise fund U.S. needs from existing U.S. sources.  While it remains impracticable to calculate the tax cost of repatriating our total unremitted foreign earnings, such cost could be material to the results of operations of Corning in a particular period.

While we expect the amount of unrecognized tax benefits to change in the next 12 months, we do not expect the change to have a significant impact on the results of operations or our financial position.