Income Taxes (Unaudited)

6 Months Ended

Jun. 30, 2019



	Three Months Ended June 30						Six Months Ended June 30
$ in millions	2019			2018			2019			2018
Federal and foreign income tax expense	$	167		$	187		$	338		$	346
Effective income tax rate	16.2		%	19.2		%	16.4		%	17.5		%

Current Quarter

The second quarter 2019 effective tax rate decreased to 16.2 percent from 19.2 percent in the second quarter of 2018 primarily due to higher research credits. The company’s effective tax rate for the second quarter of 2019 includes $36 million of current year research credits and $15 million of additional research credits related to a prior year, as compared to $22 million of research credits in the second quarter of 2018.

Year to Date

The year to date 2019 effective tax rate decreased to 16.4 percent from 17.5 percent in same period of 2018 primarily due to higher research credits, partially offset by lower excess tax benefits for employee share-based compensation. The company’s year to date 2019 effective tax rate includes $67 million of current year research credits, $15 million of additional research credits related to a prior year and $13 million of excess tax benefits for employee share-based compensation. The company’s year to date 2018 effective tax rate included $42 million of research credits and $26 million of excess tax benefits for employee share-based compensation.

Since enactment of the Tax Cuts and Jobs Act in late 2017, the IRS and U.S. Treasury Department have issued and are expected to further issue interpretive guidance that impacts taxpayers. We will continue to evaluate such guidance as it is issued, and, at this time, the company expects it is reasonably possible that within the next twelve months our unrecognized tax benefits, primarily related to timing items, may increase by up to an additional $70 million.

We file income tax returns in the U.S. federal jurisdiction and in various state and foreign jurisdictions. The Northrop Grumman 2014-2017 federal tax returns and refund claims related to its 2007-2016 federal tax returns are currently under IRS examination. In addition, legacy Orbital ATK federal tax returns for the year ended March 31, 2015, the nine-month transition period ended December 31, 2015 and calendar years 2016-2017 are currently under IRS examination.