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Income Taxes | 12 Months Ended
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Dec. 31, 2017
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes On December 22, 2017, the President signed the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act, among other things, lowered the U.S. corporate income tax rate from 35% to 21% effective January 1, 2018. Consequently, we wrote down our net deferred tax assets as of December 31, 2017 by $1.9 billion to reflect the estimated impact of the Tax Act. We recorded a corresponding net one-time charge of $1.9 billion ($6.69 per share), substantially all of which was non-cash, primarily related to enactment of the Tax Act, the re-measurement of certain net deferred tax assets using the lower U.S. corporate income tax rate, a deemed repatriation tax, and a reduction in the U.S. manufacturing benefit as a result of our decision to accelerate contributions to our pension fund in 2018 in order to receive a tax deduction in 2017. While we have substantially completed our provisional analysis of the income tax effects of the Tax Act and recorded a reasonable estimate of such effects, the net one-time charge related to the Tax Act may differ, possibly materially, due to, among other things, further refinement of our calculations, changes in interpretations and assumptions that we have made, additional guidance that may be issued by the U.S. Government, and actions and related accounting policy decisions we may take as a result of the Tax Act. We will complete our analysis over a one-year measurement period ending December 22, 2018, and any adjustments during this measurement period will be included in net earnings from continuing operations as an adjustment to income tax expense in the reporting period when such adjustments are determined. Our provision for federal and foreign income tax expense for continuing operations consisted of the following (in millions):
|  | 2017 |  |  | 2016 |  |  | 2015 |
Federal income tax expense (benefit): |  |  |  |  |  |
Current |  |  |  |  |  |
Operations |  | $ | (189 | ) |  | $ | 1,327 |  |  | $ | 1,573 |
One-time charge due to tax legislation (a) |  | 43 |  |  | — |  |  | — |
Deferred |  |  |  |  |  |
Operations |  | 1,613 |  |  | (231 | ) |  | (473 | )
One-time charge due to tax legislation (a) |  | 1,819 |  |  | — |  |  | — |
Total federal income tax expense |  | 3,286 |  |  | 1,096 |  |  | 1,100 |
Foreign income tax expense (benefit): |  |  |  |  |  |
Current |  | 53 |  |  | 56 |  |  | 39 |
Deferred |  | 1 |  |  | (19 | ) |  | 34 |
Total foreign income tax expense |  | 54 |  |  | 37 |  |  | 73 |
Total income tax expense |  | $ | 3,340 |  |  | $ | 1,133 |  |  | $ | 1,173 |
(a) | Represents one-time charge due primarily to the re-measurement of certain net deferred tax assets using the lower U.S. corporate income tax rate and a deemed repatriation tax.
State income taxes are included in our operations as general and administrative costs and, under U.S. Government regulations, are allowable costs in establishing prices for the products and services we sell to the U.S. Government. Therefore, a substantial portion of state income taxes is included in our net sales and cost of sales. As a result, the impact of certain transactions on our operating profit and of other matters presented in these consolidated financial statements is disclosed net of state income taxes. Our total net state income tax expense was $103 million for 2017, $112 million for 2016, and $106 million for 2015. Our reconciliation of the 35% U.S. federal statutory income tax rate to actual income tax expense for continuing operations is as follows (dollars in millions):
|  | 2017 |  | 2016 |  | 2015
|  | Amount |  | Rate |  | Amount |  | Rate |  | Amount |  | Rate
Income tax expense at the U.S. federal statutory tax rate |  | $ | 1,844 |  |  | 35.0 | % |  | $ | 1,710 |  |  | 35.0 | % |  | $ | 1,505 |  |  | 35.0 | %
Deferred tax write down and transition tax (a) |  | 1,862 |  |  | 35.3 |  |  | — |  |  | — |  |  | — |  |  | — |
Excess tax benefits for share-based payment awards |  | (106 | ) |  | (2.0 | ) |  | (152 | ) |  | (3.1 | ) |  | — |  |  | — |
U.S. manufacturing deduction benefit (b) |  | (7 | ) |  | (0.1 | ) |  | (117 | ) |  | (2.4 | ) |  | (123 | ) |  | (2.9 | )
Research and development tax credit |  | (115 | ) |  | (2.2 | ) |  | (107 | ) |  | (2.2 | ) |  | (70 | ) |  | (1.6 | )
Tax deductible dividends |  | (94 | ) |  | (1.8 | ) |  | (92 | ) |  | (1.9 | ) |  | (87 | ) |  | (2.0 | )
Other, net |  | (44 | ) |  | (0.8 | ) |  | (109 | ) |  | (2.2 | ) |  | (52 | ) |  | (1.2 | )
Income tax expense |  | $ | 3,340 |  |  | 63.4 | % |  | $ | 1,133 |  |  | 23.2 | % |  | $ | 1,173 |  |  | 27.3 | %
(a) | Includes one-time charge due primarily 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 fund in 2018.
In 2016, we adopted the accounting standard update for employee share-based payment awards on a prospective basis. Accordingly, we recognized additional income tax benefits of $106 million and $152 million during the years ended December 31, 2017 and 2016. The 2016 income tax rate also benefited from the nontaxable gain recorded in connection with the consolidation of AWE. Tax benefits from the U.S. manufacturing deduction were insignificant in 2017, $117 million in 2016, and $123 million in 2015. We recognized tax benefits of $115 million in 2017, $107 million in 2016, and $70 million in 2015 from U.S. research and development (R&D) tax credits, including benefits attributable to prior periods. We receive a tax deduction for dividends paid on shares of our common stock held by certain of our defined contribution plans with an employee stock ownership plan feature. The amount of the tax deduction has increased as we increased our dividend over the last three years, partially offset by a decline in the number of shares in these plans. As a result of a decision in 2015 to divest our LMCFT business (see “Note 3 – Acquisitions and Divestitures”), we recorded an asset impairment charge of approximately $90 million. This charge was partially offset by a net deferred tax benefit of about $80 million. The net impact of the resulting tax benefit reduced the effective income tax rate by 1.2 percentage points in 2015. We participate in the IRS Compliance Assurance Process program. Examinations of the years 2015, 2016, and 2017 remain under IRS review. The primary components of our federal and foreign deferred income tax assets and liabilities at December 31 were as follows (in millions):
|  | 2017(a) |  |  | 2016 |
Deferred tax assets related to: |  |  |  |
Accrued compensation and benefits |  | $ | 595 |  |  | $ | 1,012 |
Pensions (b) |  | 2,495 |  |  | 5,197 |
Other postretirement benefit obligations |  | 153 |  |  | 302 |
Contract accounting methods |  | 487 |  |  | 878 |
Foreign company operating losses and credits |  | 27 |  |  | 30 |
Other |  | 154 |  |  | 327 |
Valuation allowance (c) |  | (20 | ) |  | (15 | )
Deferred tax assets, net |  | 3,891 |  |  | 7,731 |
Deferred tax liabilities related to: |  |  |  |
Goodwill and purchased intangibles |  | 266 |  |  | 378 |
Property, plant and equipment |  | 239 |  |  | 346 |
Exchanged debt securities and other |  | 303 |  |  | 418 |
Deferred tax liabilities |  | 808 |  |  | 1,142 |
Net deferred tax assets |  | $ | 3,083 |  |  | $ | 6,589 |
(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 decrease in 2017 was primarily due to the enactment of the Tax Act and our decision to accelerate contributions of cash to our defined benefit pension plans, partially offset by the reduction in the discount rate used to measure our postretirement benefit plans (see “Note 11 – Postretirement Benefit Plans”).
(c) | A valuation allowance was provided against certain foreign company deferred tax assets arising from carryforwards of unused tax benefits.
As of December 31, 2017 and 2016, our liabilities associated with unrecognized tax benefits are not material. We and our subsidiaries file income tax returns in the U.S. federal jurisdiction and various foreign jurisdictions. With few exceptions, the statute of limitations is no longer open for U.S. federal or non-U.S. income tax examinations for the years before 2014, other than with respect to refunds. U.S. income taxes have been provided on deemed repatriated earnings of $435 million related to our non-U.S. companies as of December 31, 2017, as a result of the enactment of the Tax Act. The additional net transition tax of $43 million on the deemed repatriated earnings was recorded for 2017. Before the Tax Act, U.S. income taxes and foreign withholding taxes have not been provided on earnings of $386 million and $310 million that have not been distributed by our non-U.S. companies as of December 31, 2016 and 2015. Our intention before enactment of the Tax Act was to permanently reinvest these earnings, thereby indefinitely postponing their remittance to the U.S. If these earnings had been remitted, we estimate that the additional income taxes after foreign tax credits would have been approximately $64 million in 2016 and $49 million in 2015. In addition, we have reevaluated our intention concerning repatriation of foreign earnings. While our investment in foreign subsidiaries continues to be permanent in duration, in light of our decision to accelerate contributions to our defined benefit pension plans, earnings from certain foreign subsidiaries may be repatriated. Our federal and foreign income tax payments, net of refunds received, were $1.1 billion in 2017, $1.3 billion in 2016, and $1.8 billion in 2015.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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