Income Taxes (Tables)

12 Months Ended

Dec. 31, 2018

Provision for Federal & Foreign Income Tax Expense

Our provision for federal and foreign income tax expense for continuing operations consisted of the following (in millions):



	2018			2017			2016
Federal income tax expense (benefit):
Current
Operations	$	975		$	(189	)	$	1,327
One-time charge due to tax legislation ^(a)	(6		)	43			—
Deferred
Operations	(194		)	1,607			(261		)
One-time charge due to tax legislation ^(a)	(37		)	1,843			—
Total federal income tax expense	738			3,304			1,066
Foreign income tax expense (benefit):
Current	67			53			56
Deferred	(13		)	(1		)	(29		)
Total foreign income tax expense	54			52			27
Total income tax expense	$	792		$	3,356		$	1,093


^(a)	Represents one-time charge in 2017 primarily due to the re-measurement of certain net deferred tax assets using the lower U.S. corporate income tax rate and a deemed repatriation tax, and true-up to this charge in 2018.

Reconciliation of Income Tax Expense Computed Using U.S. Statutory Federal Tax Rate to Actual Income Tax Expense

Our reconciliation of the U.S. federal statutory income tax rate (21% in 2018 and 35% in 2017 and 2016) to actual income tax expense for continuing operations is as follows (dollars in millions):



	2018					2017					2016
	Amount			Rate		Amount			Rate		Amount			Rate
Income tax expense at the U.S. federal statutory tax rate	$	1,226		21.0	%	$	1,836		35.0	%	$	1,664		35.0	%
Research and development tax credit	(138		)	(2.4	)	(115		)	(2.2	)	(107		)	(2.2	)
Foreign derived intangible income deduction	(61		)	(1.0	)	—			—		—			—
Tax deductible dividends	(59		)	(1.0	)	(94		)	(1.8	)	(92		)	(1.9	)
Excess tax benefits for share-based payment awards	(55		)	(0.9	)	(106		)	(2.0	)	(152		)	(3.2	)
Deferred tax write-down and transition tax ^(a)	(43		)	(0.7	)	1,886			35.9		—			—
U.S. manufacturing deduction benefit ^(b)	—			—		(7		)	(0.1	)	(117		)	(2.5	)
Tax accounting method change ^(c)	(61		)	(1.0	)	—			—		—			—
Other, net	(17		)	(0.4	)	(44		)	(0.8	)	(103		)	(2.2	)
Income tax expense	$	792		13.6	%	$	3,356		64.0	%	$	1,093		23.0	%


^(a)	Includes a deferred tax re-measurement and transition tax true-up in 2018 and one-time charge in 2017 primarily due to the re-measurement of certain net deferred tax assets using the lower U.S. corporate income tax rate and a deemed repatriation tax.


^(b)	Includes a reduction in our 2017 manufacturing benefit as a result of our decision to accelerate contributions to our pension funds in 2018. The Tax Act repealed the manufacturing benefit for years after 2017.


^(c)	Recognized tax benefit of $61 million in 2018 from our change in a tax accounting method related to restoration of tax basis.

Components of Federal and Foreign Deferred Tax Assets and Liabilities

The primary components of our federal and foreign deferred income tax assets and liabilities at December 31 were as follows (in millions):



	2018			2017^(a)
Deferred tax assets related to:
Accrued compensation and benefits	$	584		$	595
Pensions ^(b)	2,623			2,495
Other postretirement benefit obligations	148			153
Contract accounting methods	539			531
Foreign company operating losses and credits	38			27
Other	160			154
Valuation allowance ^(c)	(20		)	(20		)
Deferred tax assets, net	4,072			3,935
Deferred tax liabilities related to:
Goodwill and purchased intangibles	296			266
Property, plant and equipment	296			239
Exchanged debt securities and other	294			303
Deferred tax liabilities	886			808
Net deferred tax assets	$	3,186		$	3,127


^(a)	Components of our federal and foreign deferred income tax assets and liabilities at December 31, 2017 after taking into account the estimated impacts of the Tax Act and related items.


^(b)	The increase in 2018 is primarily due to lower tax deductions for pension contributions resulting from our 2017 decision to accelerate pension contributions to our pension fund in order to receive a deduction in 2017.


^(c)	A valuation allowance was provided against certain foreign company deferred tax assets arising from carryforwards of unused tax benefits.