General Dynamics 2013 Annual Report Download - page 49

State and local income taxes allocable to U.S. government contracts
are included in operating costs and expenses in the Consolidated
Statements of Earnings (Loss) and, therefore, not included in the
provision above.
The reconciliation from the statutory federal income tax rate to our
effective income tax rate follows:
Year Ended December 31 2011 2012 2013
Statutory federal income tax rate 35.0% 35.0% 35.0%
State tax on commercial operations, net of
federal benefits 0.4 (1.6) 0.7
Impact of international operations (1.0) 53.8 –
Domestic production deduction (1.8) (11.2) (2.2)
Domestic tax credits (0.6) (1.4) (0.8)
Goodwill impairment – 92.1 –
Other, net (0.6) (5.3) (1.6)
Effective income tax rate 31.4% 161.4% 31.1%
In 2013, other, net primarily represents a tax benefit from the
shutdown of the ruggedized hardware product line in our Information
Systems and Technology business group.
Our 2012 effective tax rate was unfavorably impacted by two items.
Due to the non-deductible nature of a substantial portion of our
goodwill, there was a limited tax benefit recognized on the impairment.
In addition, due to the unfavorable market conditions impacting certain
of our international subsidiaries, a valuation allowance was established
for their net deferred tax assets, including the operating losses
resulting from the charges at our European Land Systems business in
the fourth quarter of 2012 (see deferred tax assets table below).
Deferred Tax Assets. The tax effects of temporary differences between
reported earnings and taxable earnings consisted of the following:
December 31 2012 2013
Retirement benefits $ 1,746 $ 783
Tax loss and credit carryforwards 561 581
Salaries and wages 261 249
Workers’ compensation 260 272
A-12 contract termination 94 163
Other 331 311
Deferred assets 3,253 2,359
Valuation allowance (335) (383)
Net deferred assets $ 2,918 $ 1,976
Intangible assets $ (950) $ (995)
Contract accounting methods (367) (322)
Property, plant and equipment (PP&E) (231) (269)
Capital Construction Fund (239) (240)
Other (153) (133)
Deferred liabilities $ (1,940) $ (1,959)
Net deferred tax asset $ 978 $ 17
Our net deferred tax asset was included on the Consolidated Balance
Sheets in other assets and liabilities as follows:
December 31 2012 2013
Current deferred tax asset $ 44 $ 36
Current deferred tax liability (173) (298)
Noncurrent deferred tax asset 1,251 416
Noncurrent deferred tax liability (144) (137)
Net deferred tax asset $ 978 $ 17
We believe it is more likely than not that we will generate sufficient
taxable income in future periods to realize our deferred tax assets,
subject to valuation allowances recognized.
Our retirement benefits deferred tax amount includes a deferred tax
asset of $2.1 billion on December 31, 2012, and $1.2 billion on
December 31, 2013, related to the amounts recorded in accumulated
other comprehensive loss (AOCL) to recognize the funded status of our
retirement plans. See Notes L and P for further discussion. The decrease
in the December 31, 2013, deferred tax asset amount is due to
improvement in the funded status of our defined-benefit retirement plans
during the year.
With the settlement of the A-12 litigation, we expect to receive in
2014 the tax benefits from the contract termination. Further, we believe
we are entitled to interest in accordance with the Internal Revenue Code
that will be recognized when the amount is determined to be realizable.
See Note N to the Consolidated Financial Statements for further
discussion of the A-12 settlement.
One of our deferred tax liabilities results from our participation in the
Capital Construction Fund (CCF). The CCF is a program, established by
the U.S. government and administered by the Maritime Administration,
that affects the timing of a portion of our tax payments. The program
supports the acquisition, construction, reconstruction or operation of U.S.
flag merchant marine vessels. It allows us to defer federal and state
income taxes on earnings derived from eligible programs as long as the
funds are deposited and used for qualified activities. Unqualified
withdrawals are subject to taxation plus interest. The CCF is
collateralized by qualified assets as defined by the Maritime
Administration. We had U.S. government accounts receivable invested in
the CCF of $684 on December 31, 2012, and $459 on December 31,
2013.
On December 31, 2013, we had net operating loss carryforwards of
$1.5 billion that begin to expire in 2016 and R&D and investment tax
credit carryforwards of $181 that begin to expire in 2014.
Earnings from continuing operations before income taxes included
international income (loss) of $473 in 2011, ($194) in 2012 and $360 in
2013. We intend to reinvest indefinitely the undistributed earnings of
some of our non-U.S. subsidiaries. On December 31, 2013, we had
approximately $1.7 billion of undistributed earnings from these non-U.S.
General Dynamics Annual Report 2013 45