XML 35 R19.htm IDEA: XBRL DOCUMENT
v3.8.0.1

INCOME TAXES | 12 Months Ended
--- | ---
Dec. 31, 2017
Income Tax Disclosure [Abstract] |
INCOME TAXES | INCOME TAXES The income tax expense (benefit) for the years ended December 31, 2017, 2016 and 2015 consists of the following (in millions):
| 2017 |  | 2016 |  | 2015
Current: |  |  |  |  |
U.S. Federal | $ | 671 |  |  | $ | 1,338 |  |  | $ | 1,634 |
U.S. State and Local | 49 |  |  | 67 |  |  | 88 |
Non-U.S. | 288 |  |  | 177 |  |  | 236 |
Total Current | 1,008 |  |  | 1,582 |  |  | 1,958 |
Deferred: |  |  |  |  |
U.S. Federal | 1,121 |  |  | 103 |  |  | 469 |
U.S. State and Local | 118 |  |  | 31 |  |  | 65 |
Non-U.S. | (9 | ) |  | (11 | ) |  | 6 |
Total Deferred | 1,230 |  |  | 123 |  |  | 540 |
Total Income Tax Expense | $ | 2,238 |  |  | $ | 1,705 |  |  | $ | 2,498 |
Income before income taxes includes the following components (in millions):
| 2017 |  | 2016 |  | 2015
United States | $ | 5,998 |  |  | $ | 4,322 |  |  | $ | 6,348 |
Non-U.S. | 1,150 |  |  | 814 |  |  | 994 |
Total Income Before Income Taxes: | $ | 7,148 |  |  | $ | 5,136 |  |  | $ | 7,342 |
A reconciliation of the statutory federal income tax rate to the effective income tax rate for the years ended December 31, 2017, 2016 and 2015 consists of the following:
| 2017 |  | 2016 |  | 2015
Statutory U.S. federal income tax rate | 35.0 | % |  | 35.0 | % |  | 35.0 | %
U.S. state and local income taxes (net of federal benefit) | 1.5 |  |  | 1.5 |  |  | 1.7 |
Non-U.S. tax rate differential | (2.0 | ) |  | (2.4 | ) |  | (1.2 | )
Nondeductible/nontaxable items | (0.1 | ) |  | 0.8 |  |  | 0.2 |
U.S. federal tax credits | (1.8 | ) |  | (1.2 | ) |  | (1.3 | )
Income tax benefit from the Tax Cuts and Jobs Act and other non-U.S. tax law changes | (3.6 | ) |  | — |  |  | — |
Defined benefit plans mark-to-market charge tax rate differential (1) | 1.5 |  |  | — |  |  | — |
Other | 0.8 |  |  | (0.5 | ) |  | (0.4 | )
Effective income tax rate | 31.3 | % |  | 33.2 | % |  | 34.0 | %
(1) Impact of applying Tax Act corporate rate enacted of 21% versus 35% Our effective tax rate is affected by recurring factors, such as statutory tax rates in the jurisdictions we operate in and the relative amounts of taxable income we earn in those jurisdictions. It is also affected by discrete items that may occur in any given year, but may not be consistent from year to year. Our effective tax rate decreased to 31.3% in 2017, compared with 33.2% in 2016 and 34.0% in 2015, primarily due to the effects of the aforementioned recurring factors and the following discrete tax items: Tax Cuts and Jobs Act On December 22, 2017, the United States enacted into law the Tax Act. The Tax Act makes broad and complex changes to the U.S. tax code, including a permanent corporate rate reduction to 21% and a transition to a territorial international system effective in 2018. The Tax Act also includes provisions that affect 2017, including: (1) requiring a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries (“Transition Tax”) that is payable over eight years; (2) requiring a remeasurement of all U.S. deferred tax assets and liabilities to the newly enacted corporate tax rate of 21%; and (3) providing for additional first-year depreciation that allows full expensing of qualified property placed into service after September 27, 2017. In late December 2017, the SEC staff issued SAB 118, which provides guidance on accounting for the tax effects of the Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the related accounting under U.S. GAAP. If a company’s accounting for certain income tax effects of the Tax Act is incomplete, but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. Accordingly, we have recorded provisional estimates related to our Transition Tax liability, our change in indefinite reinvestment assertion for certain foreign subsidiaries and the remeasurement of our U.S. net deferred tax liabilities. To calculate the amount of the Transition Tax, we must determine, in addition to other factors, the amount of post-1986 earnings and profits (“E&P”) of the foreign subsidiaries as well as the amount of non-U.S. income taxes paid on such earnings. We are able to make a reasonable estimate of the Transition Tax and recorded a provisional liability of $310 million; however, there are certain factors that could impact our provisional estimate. First, several of our foreign subsidiaries have a fiscal year-end, and E&P for these subsidiaries cannot be precisely calculated until their fiscal years conclude during 2018. Second, we continue to gather additional information needed to precisely estimate the impact of the Transition Tax on our U.S. state and local tax liabilities given the complexity of the relevant state laws. Finally, we expect additional regulatory guidance and technical clarifications from the U.S. Department of the Treasury and Internal Revenue Service within the next 12 months that could change our provisional estimate of the Transition Tax. Undistributed E&P of our foreign subsidiaries amounted to $5.002 billion at December 31, 2017. As the U.S. has moved to a territorial system, we have changed our indefinite reinvestment assertion with respect to the earnings of certain foreign subsidiaries. As a result, we have recorded a provisional deferred tax liability and corresponding increase to deferred tax expense of $24 million. There are certain factors, discussed above with regard to the Transition Tax, which could also impact our provisional estimate for the change in indefinite reinvestment assertion. For all other foreign subsidiaries, we continue to assert that these earnings are indefinitely reinvested. $1.335 billion of the undistributed E&P of our foreign subsidiaries is considered to be indefinitely reinvested and, accordingly, no deferred income taxes have been provided thereon. Upon distribution of those earnings in the form of dividends or otherwise, we would be subject to U.S. state and local taxes and withholding taxes payable in various jurisdictions. Determination of the amount of unrecognized deferred income tax liability is not practicable because of the complexities associated with its hypothetical calculation. We will continue to evaluate our indefinite reinvestment assertion for all foreign subsidiaries in light of the Tax Act, and our provisional estimate is subject to change. For our net U.S. deferred tax liabilities, we have recorded a provisional decrease of $606 million with a corresponding reduction to deferred tax expense of $606 million for the year ended December 31, 2017. While we are able to make a reasonable estimate of the impact of the reduction in corporate rate, it may be affected by other analyses related to the Tax Act, including, but not limited to, completing the analysis of our 2017 capital expenditures that qualify for full expensing and the state tax effect of adjustments made to federal temporary differences. Other 2017 Discrete Items In the fourth quarter of 2017, we recognized an income tax benefit of $193 million related to pre-tax mark-to-market losses of $800 million on our pension and postretirement defined benefit plans.This income tax benefit was generated at a lower average statutory tax rate than the 2017 U.S. federal statutory tax rate due to future tax rate changes enacted by the Tax Act and differences between U.S. and foreign statutory rates, which was partially offset by the effect of U.S. state and local taxes. In the fourth quarter of 2017, tax law changes were enacted in certain non-U.S. jurisdictions in which we operate. As a result, we have recorded a decrease to our foreign net deferred tax assets of $14 million with a corresponding net increase to deferred tax expense of $14 million for the year ended December 31, 2017. In the first quarter of 2017, we adopted a new accounting standard that requires the recognition of excess tax benefits related to share-based compensation in income tax expense, which resulted in tax benefits for the year ended December 31, 2017 of $71 million and reduced our effective tax rate by 1.0%. 2016 Discrete Items In the fourth quarter of 2016, we recognized an income tax benefit of $978 million related to pre-tax mark-to-market losses of $2.651 billion on our pension and postretirement defined benefit plans. This income tax benefit was generated at a higher average statutory tax rate than the U.S. federal statutory tax rate because it included the effect of U.S. state and local taxes. 2015 Discrete Items During the third quarter of 2015 and after the filing of our annual federal tax returns, we reconciled our deferred tax balances and identified adjustments to be made with respect to prior years’ deferred tax balances. The adjustments resulted in a reduction of income tax expense of $66 million. In connection with our acquisition of Coyote Logistics in 2015, we distributed $500 million of cash held by a Canadian subsidiary to its U.S. parent during the fourth quarter of 2015. As a result of the distribution, we recorded additional net income tax expense of $28 million. In the fourth quarter of 2015, we recognized an income tax benefit of $39 million related to pre-tax mark-to-market losses of $118 million on our pension and postretirement defined benefit plans. This income tax benefit was generated at a lower average statutory tax rate than our U.S. federal statutory tax rate because it was due, in part, to non-U.S. benefit plans. Other favorable rate impacting items in 2015 include: resolution of several U.S. state and local tax matters; the extension of favorable U.S. federal tax provisions associated with the Protecting Americans from Tax Hikes Act of 2015 related to research and development tax credits and work opportunity tax credits; and the execution of two bilateral advance pricing agreements. These agreements established intercompany transfer pricing arrangements between the U.S. and certain non-U.S. jurisdictions related to our small package operations for tax years 2010 through 2019. Other Items Beginning in 2012, we were granted a tax incentive for certain of our non-U.S. operations, which is effective through December 31, 2021. The tax incentive is conditional upon our meeting specific employment and investment thresholds. The impact of this tax incentive decreased non-U.S. tax expense by $24 million ($0.03 per share), $21 million ($0.02 per share) and $25 million ($0.03 per share) for 2017, 2016, and 2015, respectively. Deferred income tax assets and liabilities are comprised of the following at December 31, 2017 and 2016 (in millions):
| 2017 |  | 2016
Fixed assets and capitalized software | $ | (3,288 | ) |  | $ | (4,782 | )
Other | (535 | ) |  | (756 | )
Deferred tax liabilities | (3,823 | ) |  | (5,538 | )
Pension and postretirement benefits | 1,877 |  |  | 4,236 |
Loss and credit carryforwards | 323 |  |  | 229 |
Insurance reserves | 449 |  |  | 733 |
Stock compensation | 182 |  |  | 297 |
Other | 626 |  |  | 681 |
Deferred tax assets | 3,457 |  |  | 6,176 |
Deferred tax assets valuation allowance | (126 | ) |  | (159 | )
Deferred tax asset (net of valuation allowance) | 3,331 |  |  | 6,017 |
Net deferred tax asset (liability) | $ | (492 | ) |  | $ | 479 |
Amounts recognized in the consolidated balance sheets: |  |  |
Deferred tax assets | $ | 265 |  |  | $ | 591 |
Deferred tax liabilities | (757 | ) |  | (112 | )
Net deferred tax asset (liability) | $ | (492 | ) |  | $ | 479 |
The valuation allowance changed by $(33), $(38) and $(11) million during the years ended December 31, 2017, 2016 and 2015, respectively. We have a U.S. federal capital loss carryforward of $34 million as of December 31, 2017, $32 million of which expires on December 31, 2021 and the remainder of which expires on December 31, 2022. In addition, we have U.S. state and local operating loss and credit carryforwards as follows (in millions):
| 2017 |  | 2016
U.S. state and local operating loss carryforwards | $ | 1,215 |  |  | $ | 603 |
U.S. state and local credit carryforwards | $ | 83 |  |  | $ | 70 |
The U.S. state and local operating loss carryforwards expire at varying dates through 2037. The U.S. state and local credits can be carried forward for periods ranging from one year to indefinitely. We also have non-U.S. loss carryforwards of $728 million as of December 31, 2017, the majority of which may be carried forward indefinitely. As indicated in the table above, we have established a valuation allowance for certain non-U.S. and state carryforwards, due to the uncertainty resulting from a lack of previous taxable income within the applicable tax jurisdictions. The following table summarizes the activity related to our unrecognized tax benefits (in millions):
| Tax |  | Interest |  | Penalties
Balance at January 1, 2015 | $ | 172 |  |  | $ | 42 |  |  | $ | 3 |
Additions for tax positions of the current year | 24 |  |  | — |  |  | — |
Additions for tax positions of prior years | 45 |  |  | 21 |  |  | 3 |
Reductions for tax positions of prior years for: |  |  |  |  |
Changes based on facts and circumstances | (85 | ) |  | (8 | ) |  | — |
Settlements during the period | (6 | ) |  | (2 | ) |  | — |
Lapses of applicable statute of limitations | (2 | ) |  | — |  |  | — |
Balance at December 31, 2015 | 148 |  |  | 53 |  |  | 6 |
Additions for tax positions of the current year | 17 |  |  | — |  |  | — |
Additions for tax positions of prior years | 20 |  |  | 10 |  |  | — |
Reductions for tax positions of prior years for: |  |  |  |  |
Changes based on facts and circumstances | (41 | ) |  | (13 | ) |  | — |
Settlements during the period | — |  |  | — |  |  | — |
Lapses of applicable statute of limitations | — |  |  | — |  |  | — |
Balance at December 31, 2016 | 144 |  |  | 50 |  |  | 6 |
Additions for tax positions of the current year | 16 |  |  | — |  |  | — |
Additions for tax positions of prior years | 33 |  |  | 14 |  |  | 3 |
Reductions for tax positions of prior years for: |  |  |  |  |
Changes based on facts and circumstances | (24 | ) |  | (18 | ) |  | — |
Settlements during the period | (6 | ) |  | (3 | ) |  | — |
Lapses of applicable statute of limitations | (3 | ) |  | — |  |  | — |
Balance at December 31, 2017 | $ | 160 |  |  | $ | 43 |  |  | $ | 9 |
The total amount of gross unrecognized tax benefits as of December 31, 2017, 2016 and 2015 that, if recognized, would affect the effective tax rate were $159, $142 and $147 million, respectively. Our continuing policy is to recognize interest and penalties associated with income tax matters as a component of income tax expense. We file income tax returns in the U.S. federal jurisdiction, most U.S. state and local jurisdictions, and many non-U.S. jurisdictions. We have substantially resolved all U.S. federal income tax matters for tax years prior to 2014. A number of years may elapse before an uncertain tax position is audited and ultimately settled. It is difficult to predict the ultimate outcome or the timing of resolution for uncertain tax positions. It is reasonably possible that the amount of unrecognized tax benefits could significantly increase or decrease within the next twelve months. Items that may cause changes to unrecognized tax benefits include the timing of interest deductions and the allocation of income and expense between tax jurisdictions. These changes could result from the settlement of ongoing litigation, the completion of ongoing examinations, the expiration of the statute of limitations or other unforeseen circumstances. At this time, an estimate of the range of the reasonably possible change cannot be made.

X
- References No definition available. + Details
Name: | us-gaap_IncomeTaxDisclosureAbstract
Namespace Prefix: | us-gaap_
Data Type: | xbrli:stringItemType
Balance Type: | na
Period Type: | duration

X
- 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
Name: | us-gaap_IncomeTaxDisclosureTextBlock
Namespace Prefix: | us-gaap_
Data Type: | nonnum:textBlockItemType
Balance Type: | na
Period Type: | duration