Income Taxes (Tables)

12 Months Ended

Sep. 30, 2018

Income tax expense from continuing operations was calculated based on the following components of income before income taxes:

The components of income tax expense from continuing operations are as follows:

The effective income tax rate from continuing operations differed from the U.S. statutory tax rate as detailed below:



	2018		2017		2016
Statutory tax rate	24.6	%	35.0	%	35.0	%
Impact of International Operations	(0.7	)	(4.4	)	(0.6	)
State and local income taxes	0.7		1.6		1.1
Research and development credit	(5.6	)	(5.0	)	(6.4	)
Domestic manufacturing deduction	(0.6	)	(2.1	)	(2.0	)
U.S. Tax Reform	(10.9	)	—		—
Non-deductible goodwill	1.3		—		—
Tax settlements	(0.7	)	(0.1	)	—
Stock compensation - excess tax benefits	(1.8	)	(1.3	)	(0.4	)
Change in valuation allowance	(0.1	)	0.1		(4.5	)
Other	1.0		0.5		—
Effective income tax rate	7.2	%	24.3	%	22.2	%

Net long-term deferred income tax benefits (liabilities) consist of the tax effects of temporary differences related to the following:



	September 30
(in millions)	2018			2017
Inventory	$	(176	)	$	(276	)
Product warranty costs	28			45
Customer incentives	31			66
Contract reserves	17			49
Retirement benefits	116			400
Intangibles	(352		)	(602		)
Capital lease liability	11			19
Property	(138		)	(196		)
Stock-based compensation	20			37
Deferred compensation	17			27
Compensation and benefits	17			38
Research and development credit carryforward	54			25
Valuation allowance	(22		)	(23		)
Other	47			81
Deferred income taxes, net	$	(330	)	$	(310	)

Changes in the valuation allowance for deferred tax assets are summarized as follows:



	September 30
(in millions)	2018			2017		2016
Balance at beginning of year	$	23		$	—	$	42
Charged to costs and expenses	—			1		—
B/E Aerospace acquisition	—			22		—
Deductions⁽¹⁾	(1		)	—		(42		)
Balance at September 30	$	22		$	23	$	—

⁽¹⁾ 2016 deduction of $42 million was primarily due to the creation of a tax planning strategy

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:



	September 30
(in millions)	2018			2017			2016
Beginning balance	$	201		$	45		$	39
Additions for tax positions related to the current year	24			73			11
Additions for tax positions of prior years	16			1			7
Additions for tax positions related to acquisitions	1			86			—
Reductions for tax positions of prior years	(24		)	(1		)	(10		)
Reductions for tax positions related to settlements with taxing authorities	(4		)	(3		)	(2		)
Ending balance	$	214		$	201		$	45

ROCKWELL COLLINS INC 10-K