General Dynamics 2015 Annual Report Download - page 50

operations that is taxed at lower rates and utilization of foreign tax
credits.
Net Deferred Tax Assets. The tax effects of temporary differences
between reported earnings and taxable income consisted of the
following:
December 31 2015 2014
Retirement benefits $ 1,347 $ 1,403
Tax loss and credit carryforwards 522 701
Salaries and wages 275 301
Workers’ compensation 248 257
Other 406 363
Deferred assets 2,798 3,025
Valuation allowances (425) (494)
Net deferred assets $ 2,373 $ 2,531
Intangible assets $ (1,013) $ (973)
Contract accounting methods (261) (227)
Property, plant and equipment (285) (280)
Capital Construction Fund qualified ships (240) (240)
Other (203) (167)
Deferred liabilities $ (2,002) $ (1,887)
Net deferred tax asset $ 371 $ 644
Our net deferred tax asset was included on the Consolidated
Balance Sheets in other assets and liabilities as follows:
December 31 2015 2014
Current deferred tax asset $3 $16
Current deferred tax liability (829) (729)
Noncurrent deferred tax asset 1,272 1,439
Noncurrent deferred tax liability (75) (82)
Net deferred tax asset $ 371 $ 644
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 the valuation allowances recognized.
Our retirement benefits deferred tax amount includes a deferred tax
asset of $1.6 billion on December 31, 2015, and $1.8 billion on
December 31, 2014, 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.
One of our deferred tax liabilities results from our participation in the
Capital Construction Fund (CCF), a program established by the U.S.
government and administered by the Maritime Administration that
supports the acquisition, construction, reconstruction or operation of
U.S. flag merchant marine vessels. The program allows us to defer
federal and state income taxes on earnings derived from eligible
programs as long as the proceeds are deposited in the fund and
withdrawals are used for qualified activities. We had U.S. government
accounts receivable pledged (and thereby deposited) to the CCF of $42
on December 31, 2015, and $100 on December 31, 2014.
On December 31, 2015, we had net operating loss carryforwards of
$972 that begin to expire in 2018, a capital loss carryforward of $229
that expires in 2020 and tax credit carryforwards of $151 that begin to
expire in 2021.
Earnings from continuing operations before income taxes included
non-U.S. income of $573 in 2015, $507 in 2014 and $361 in 2013. We
intend to reinvest indefinitely the undistributed earnings of some of our
non-U.S. subsidiaries. On December 31, 2015, we had approximately $2
billion of undistributed earnings from these non-U.S. subsidiaries. In
general, should these earnings be distributed, a portion would be treated
as dividends under U.S. tax law and thus subject to U.S. federal
corporate income tax at the statutory rate of 35 percent, but would
generate offsetting foreign tax credits.
Tax Uncertainties. For all periods open to examination by tax
authorities, we periodically assess our liabilities and contingencies based
on the latest available information. Where we believe there is more than
a 50 percent chance that our tax position will not be sustained, we
record our best estimate of the resulting tax liability, including interest, in
the Consolidated Financial Statements. We include any interest or
penalties incurred in connection with income taxes as part of income tax
expense.
We participate in the Internal Revenue Service (IRS) Compliance
Assurance Process (CAP), a real-time audit of our consolidated federal
corporate income tax return. The IRS has examined our consolidated
federal income tax returns through 2014. We do not expect the
resolution of tax matters for open years to have a material impact on our
results of operations, financial condition, cash flows or effective tax rate.
Based on all known facts and circumstances and current tax law, we
believe the total amount of any unrecognized tax benefits on
December 31, 2015, is not material to our results of operations, financial
condition or cash flows, and if recognized, would not have a material
impact on our effective tax rate. In addition, there are no tax positions for
which it is reasonably possible that the unrecognized tax benefits will
significantly vary over the next 12 months, producing, individually or in
the aggregate, a material effect on our results of operations, financial
condition or cash flows.
46 General Dynamics Annual Report 2015