Northrop Grumman 2009 Annual Report Download - page 92

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company has split-dollar life insurance policies on former officers and executives from acquired businesses which are
recorded at the lesser of their cash surrender value or premiums paid. The policies are utilized as a partial funding source
for deferred compensation and other non-qualified employee retirement plans. Amounts associated with these policies
are recorded in miscellaneous other assets in the consolidated statements of financial position.
Long-Term Debt – The fair value of long-term debt was calculated based on interest rates available for debt with
terms and maturities similar to the company’s existing debt arrangements.
12. INCOME TAXES
The company’s effective tax rate on earnings from continuing operations for the year ended December 31, 2009,
was 30.6 percent as compared with 33.8 percent and 32.8 percent in 2008 and 2007, respectively (excluding for
2008 the non-cash, non-deductible goodwill impairment charge of $3.1 billion at Aerospace Systems and
Shipbuilding). The company’s effective tax rates reflect tax credits, manufacturing deductions and the impact of
settlements with the Internal Revenue Service (IRS). During 2009, the company reached a final settlement with
the IRS regarding its audit of the company’s tax returns for the years ended December 31, 2001 through 2003
and recognized $75 million of net benefit upon settlement, including $20 million of interest. During 2008, the
company reached a final settlement with the IRS regarding its audit of the TRW tax returns for the years ended
1999 through 2002 and recognized $35 million of benefit upon settlement, including $4 million of interest.
During 2007, the company reached a partial settlement agreement with the IRS regarding its audit of the
company’s tax years ended December 31, 2001 through 2003 and recognized $22 million of benefit upon
settlement, including $6 million of interest.
Income tax expense, both federal and foreign, consisted of the following:
$ in millions 2009 2008 2007
Year Ended December 31
Income Taxes on Continuing Operations
Currently payable
Federal income taxes $ 527 $ 728 $ 627
Foreign income taxes 34 35 42
Total federal and foreign income taxes currently payable 561 763 669
Change in deferred federal and foreign income taxes 132 96 186
Total federal and foreign income taxes $ 693 $ 859 $ 855
The geographic source of earnings (loss) from continuing operations before income taxes is as follows:
$ in millions 2009 2008 2007
Year Ended December 31
Domestic income (loss) $2,140 $(622) $2,515
Foreign income 126 102 91
Income (loss) from continuing operations before income taxes $2,266 $(520) $2,606
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NORTHROP GRUMMAN CORPORATION
eBP - v54508-i003_a.pdf - Page 86 of 124 - March 11, 2010 - 20:02:40