Income and Other Taxes (Tables)

12 Months Ended

Dec. 31, 2018

Income before income taxes and equity income (pre-tax income) from continuing operations was as follows:



	Year Ended December 31,
	2018		2017		2016
Domestic income	$	380	$	399	$	415
Foreign income	218		171		153
Income before Income Taxes and Equity Income	$	598	$	570	$	568

Provisions for income taxes from continuing operations were as follows:

A reconciliation of the U.S. federal statutory income tax rate to the consolidated effective income tax rate was as follows:



	Year Ended December 31,
	2018		2017		2016
U.S. federal statutory income tax rate	21.0	%	35.0	%	35.0	%
Nondeductible expenses	3.4	%	1.2	%	2.9	%
Effect of tax law changes	13.3	%	70.2	%	1.2	%
Change in valuation allowance for deferred tax assets	0.5	%	1.0	%	(1.4	)%
State taxes, net of federal benefit	2.4	%	2.3	%	3.0	%
Audit and other tax return adjustments	(2.0	)%	(8.0	)%	(4.1	)%
Tax-exempt income, credits and incentives	(2.0	)%	(2.9	)%	(4.0	)%
Foreign rate differential adjusted for U.S. taxation of foreign profits⁽¹⁾	4.4	%	(15.2	)%	(22.6	)%
Other	2.0	%	0.8	%	0.9	%
Effective Income Tax Rate	43.0	%	84.4	%	10.9	%

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(1)	The “U.S. taxation of foreign profits” represents the U.S. tax, net of foreign tax credits, associated with actual and deemed repatriations of earnings from our non-U.S. subsidiaries.

Total income tax expense (benefit) was allocated to the following items:



	Year Ended December 31,
	2018			2017			2016
Pre-tax income	$	257		$	481		$	62
Discontinued operations⁽¹⁾	—			(12		)	(250		)
Common shareholders' equity:
Changes in defined benefit plans	131			63			15
Cash flow hedges	5			5			(8		)
Translation adjustments	(9		)	1			2
Retained Earnings⁽²⁾	36			—			—
Total Income Tax Expense (Benefit)	$	420		$	538		$	(179	)

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(1)	Refer to Note 5 - Divestitures for additional information regarding discontinued operations.


(2)	Refer to Note 2 - Revenue for additional information regarding our adoption of ASU 2014-09.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:



	2018			2017			2016
Balance at January 1	$	125		$	165		$	222
Additions (Reductions) related to current year	2			1			(9		)
Additions related to prior years positions	3			10			—
Reductions related to prior years positions	(13		)	(46		)	(31		)
Settlements with taxing authorities⁽¹⁾	(6		)	(5		)	—
Reductions related to lapse of statute of limitations	(3		)	(3		)	(2		)
Currency	—			3			(2		)
Tax Positions assumed in Conduent Separation	—			—			(13		)
Balance at December 31	$	108		$	125		$	165

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(1)	The majority of settlements did not result in the utilization of cash.

The tax effects of temporary differences that give rise to significant portions of the deferred taxes were as follows:



	December 31,
	2018			2017
Deferred Tax Assets
Research and development	$	252		$	143
Post-retirement medical benefits	99			183
Net operating losses	389			432
Operating reserves, accruals and deferrals	138			128
Tax credit carryforwards	254			646
Deferred and share-based compensation	32			43
Pension	266			308
Depreciation	90			106
Other	46			62
Subtotal	1,566			2,051
Valuation allowance	(397		)	(435		)
Total	$	1,169		$	1,616

Deferred Tax Liabilities
Unearned income and installment sales	$	291		$	344
Intangibles and goodwill	129			134
Unremitted earnings of foreign subsidiaries	59			140
Other	1			14
Total	$	480		$	632

Total Deferred Taxes, Net	$	689		$	984

Reconciliation to the Consolidated Balance Sheets
Deferred tax assets	$	740		$	1,026
Deferred tax liabilities⁽¹⁾	(51		)	(42		)
Total Deferred Taxes, Net	$	689		$	984

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(1)	Represents the deferred tax liabilities recorded in Other long-term liabilities - refer to Note 13 - Supplementary Financial Information.