INCOME TAXES - USD ($) $ in Millions |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2019 |
Jun. 30, 2018 |
Jun. 30, 2019 |
Jun. 30, 2018 |
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| Income Tax Disclosure [Abstract] | ||||
| INCOME TAXES |
INCOME TAXES
Our effective tax rate increased to 23.5% in the second quarter of 2019 from 22.9% in the same period of 2018 (23.3% year-to-date in 2019 compared to 21.1% in the same period of 2018). The recognition in income tax of excess tax benefits related to share-based compensation reduced our effective rate by 0.2% year-to-date in 2019 compared to 1.3% in the same period of 2018 (there was not a significant impact in the second quarter of 2019 or 2018). Other favorable items that impacted our effective tax rate in 2018, but did not recur in 2019, included favorable resolutions of uncertain tax positions and favorable tax provisions enacted in the Bipartisan Budget Act of 2018.
As discussed in our Annual Report on Form 10-K for the year ended December 31, 2018, we have recognized liabilities for uncertain tax positions. We reevaluate these uncertain tax positions on a quarterly basis. 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. However, an estimate of the range of reasonably possible outcomes cannot be made. 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 statutes of limitations, additional regulatory guidance on the Tax Cuts and Jobs Act or other unforeseen circumstances.
As of June 30, 2019 and December 31, 2018, we maintained a valuation allowance against certain deferred tax assets primarily related to foreign net operating loss carryforwards. We intend to maintain a valuation allowance on these deferred tax assets until there is sufficient evidence to support the reversal of all or some portion of the allowance. Given our current and anticipated future foreign earnings, we believe there is a reasonable possibility that within the next 12 months sufficient positive evidence may become available to allow us to reach a conclusion that a portion of the valuation allowance will no longer be needed. Release of a portion of the valuation allowance would result in the recognition of certain deferred tax assets and a decrease to income tax expense for the period in which the release is recorded. The exact timing and amount of any valuation allowance release are subject to change depending on the level of profitability that we are able to achieve.
As discussed in note 17, we recognized pre-tax transformation strategy costs of $21 million in the second quarter of 2019 ($144 million year-to-date). As a result, we recorded an additional income tax benefit in the second quarter of $4 million ($34 million year-to-date). This year-to-date benefit was generated at a higher average tax rate than the U.S. federal statutory tax rate primarily due to the effect of U.S. state and local taxes and foreign taxes.
As discussed in note 17, we recognized pre-tax transformation strategy costs of $263 million in the second quarter of 2018. As a result, we recorded an income tax benefit of $63 million. This benefit was generated at a higher average tax rate than the U.S. federal statutory rate primarily due to the effect of U.S. state and local taxes.
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| Transformation cost | $ 21 | $ 263 | $ 144 | $ 263 |