Income Taxes (Unaudited)

6 Months Ended

Jun. 30, 2017



	Three Months Ended June 30						Six Months Ended June 30
$ in millions	2017			2016			2017			2016
Federal and foreign income tax expense	$	255		$	213		$	388		$	333
Effective income tax rate	31.6		%	29.2		%	24.6		%	23.7		%

Current Quarter

The company’s effective tax rate of 31.6 percent for the three months ended June 30, 2017 was higher as compared with the same period in 2016, principally due to an increase through the second quarter of 2017 in the proportion of research and development expenditures incurred for contracts that do not qualify for purposes of the research and development tax credit and higher prior year base expenditures used to calculate the research credit.

Year to Date

The company’s effective tax rate of 24.6 percent for the six months ended June 30, 2017 was higher as compared with the same period in 2016. The company’s effective tax rate for the six months ended June 30, 2017 includes $47 million of excess tax benefits related to employee share-based compensation, a $42 million benefit recognized in connection with the Congressional Joint Committee on Taxation’s approval of the Internal Revenue Service (IRS) examination of the company’s 2012-2013 tax returns and a $22 million benefit recognized for additional research credits claimed on our prior year tax returns. The company’s effective tax rate of 23.7 percent for the six months ended June 30, 2016 included $84 million of excess tax benefits related to employee share-based compensation.

We file income tax returns in the U.S. federal jurisdiction and in various state and foreign jurisdictions. Our 2014-2015 federal tax returns are currently under IRS examination. The company believes it is reasonably possible that within the next twelve months we may resolve certain matters related to the years under examination, which may result in reductions of our unrecognized tax benefits up to $110 million and income tax expense up to $30 million.