Lockheed Martin 2013 Annual Report Download - page 80

Our reconciliation of the 35% U.S. federal statutory income tax rate to actual income tax expense for continuing
operations is as follows (in millions):
2013 2012 2011
Income tax expense at the U.S. federal statutory tax rate $1,454 $1,425 $1,271
U.S. manufacturing deduction benefit (100) (29) (106)
Research and development tax credit (96) — (35)
Tax deductible dividends (77) (73) (62)
Goodwill impairment - non-deductible portion 50 ——
IRS appeals and audit resolution —— (89)
Other, net (26) 4 (15)
Income tax expense $1,205 $1,327 $ 964
Our tax-deductible pension contributions were significantly higher in 2012 than in 2013 or 2011 and, accordingly, our
U.S. manufacturing deduction for 2012 was significantly reduced.
We recognized tax benefits of $96 million in 2013 and $35 million in 2011 from U.S. research and development (R&D)
tax credits. On January 2, 2013, the President signed into law the American Taxpayer Relief Act of 2012, which retroactively
reinstated the R&D tax credit for two years, from January 1, 2012 through December 31, 2013. As the effects of tax law
changes are recognized in the period in which new legislation is enacted, $37 million ($.11 per share) of tax benefit
attributable to 2012 was recorded during 2013, in addition to $39 million ($.12 per share) of tax benefit attributable to 2013.
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.
The non-cash goodwill impairment charge (Note 1) of $195 million, net of state tax benefits, increased our effective tax
rate because only a portion of the charge will qualify for a tax deduction.
In April 2011, the U.S. Congressional Joint Committee on Taxation completed its review of the IRS Appeals Division’s
resolution of certain adjustments related to our tax years 2003 through 2008. As a result, we recognized additional tax
benefits and reduced our income tax expense for 2011 by $89 million ($.26 per share).
We participate in the IRS Compliance Assurance Process program. The IRS examinations of the years 2012, 2011, and
2010 were completed in the fourth quarter of 2013, 2012, and 2011. We also resolved certain issues in our 2009 tax return
with the IRS Appeals Division in 2012. The resolution of these examinations and issues did not have a material impact on
our effective tax rates.
The primary components of our federal and foreign deferred income tax assets and liabilities at December 31 were as
follows (in millions):
2013 2012
Deferred tax assets related to:
Accrued compensation and benefits $ 918 $ 909
Pensions (a) 3,198 5,117
Other postretirement benefit obligations 316 433
Contract accounting methods 721 853
Foreign company operating losses and credits 52 34
Other 223 284
Valuation allowance (b) (8) (8)
Deferred tax assets, net 5,420 7,622
Deferred tax liabilities related to:
Goodwill and purchased intangibles 410 402
Property, plant, and equipment 575 604
Exchanged debt securities and other (c) 502 544
Deferred tax liabilities 1,487 1,550
Net deferred tax assets (d) $3,933 $6,072
(a) The decrease in 2013 was primarily due to using a higher discount rate for the annual measurement adjustment related to our
postretirement benefit plans (Note 10).
(b) A valuation allowance has been provided against certain foreign company deferred tax assets arising from carryforwards of unused tax
benefits.
(c) Includes deferred taxes associated with the exchange of debt securities in 2012 (Note 9) and prior years.
(d) Includes net foreign current deferred tax liabilities, which are included on the Balance Sheets in other current liabilities.
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