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Income Taxes | 12 Months Ended
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Dec. 31, 2018
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes 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.
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 $2.0 billion to reflect the estimated impact of the Tax Act. We recorded a corresponding net one-time charge of $2.0 billion ($6.77 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. We applied the guidance in Staff Accounting Bulletin 118 when accounting for the enactment-date effects of the Tax Act in 2017 and throughout 2018. At December 31, 2017, we had substantially completed our provisional analysis of the income tax effects of the Tax Act and recorded a reasonable estimate in 2017 of such effects. During 2018, we refined our calculations, evaluated changes in interpretations and assumptions that we had made, applied additional guidance issued by the U.S. Government, and evaluated actions and related accounting policy decisions we have made. As of December 22, 2018, we completed our accounting for all of the enactment-date income tax effects of the Tax Act and did not identify any material changes to the provisional, net, one-time charge for the year ended December 31, 2017, related to the Tax Act. 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 $83 million for 2018, $103 million for 2017, and $112 million for 2016. 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.
Tax benefits from U.S. research and development (R&D) tax credits were $138 million in 2018, $115 million in 2017, and $107 million in 2016. We recognized a new tax benefit of $61 million in 2018 from the deduction for foreign derived intangible income enacted by the Tax Act. The Tax Act repealed the U.S. manufacturing deduction for years after 2017. Therefore, there was no U.S. manufacturing benefit in 2018. Tax benefits from the U.S. manufacturing deduction were $7 million in 2017 and $117 million in 2016. 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 benefit of the tax deduction has declined, principally due to the lower tax rate 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 $55 million in 2018, $106 million in 2017, and $152 million in 2016. We also recognized a tax benefit of $61 million in 2018 from our change in a tax accounting method reflecting a 2012 Court of Federal Claims decision, which held that the tax basis in certain assets should be increased and realized upon the assets’ disposition. The 2016 income tax rate also benefited from the nontaxable gain recorded in connection with the consolidation of AWE. We participate in the IRS Compliance Assurance Process program. Examinations of the years 2017 and 2018 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):
|  | 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.
As of December 31, 2018, 2017, and 2016, our liabilities associated with unrecognized tax benefits were 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 2015, other than with respect to refunds. We received net federal and foreign income tax refunds of $41 million in 2018, primarily due to a 2017 net operating loss carryback arising from our accelerated pension contributions. Our federal and foreign income tax payments, net of refunds received, were $1.1 billion in 2017 and $1.3 billion in 2016.

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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://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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