Northrop Grumman 2010 Annual Report Download - page 92

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As of December 31, 2010, the estimated value of the company’s uncertain tax positions which are more-likely-
than-not to be sustained on examination was a liability of $137 million which includes accrued interest of
$11 million. This liability is included in other current liabilities and other long-term liabilities in the consolidated
statements of financial position. Assuming sustainment of these positions by the taxing authorities, the reversal of
the amounts accrued would reduce the company’s effective tax rate.
Unrecognized Tax Benefits – Unrecognized tax benefits represent the gross value of the company’s tax positions that
have not been reflected in the consolidated statements of operations and includes the value of the company’s
recorded uncertain tax positions. If the income tax benefits from these tax positions are ultimately realized, such
realization would affect the company’s effective tax rate.
The change in unrecognized tax benefits during 2010 and 2009, excluding interest, is as follows:
$ in millions 2010 2009 2008
December 31
Unrecognized tax benefits at beginning of the year $ 429 $416 $488
Additions based on tax positions related to the current year 19 12 5
Additions for tax positions of prior years 461 15
Statute expiration (9)
Settlements (326) (60) (83)
Net change in unrecognized tax benefits (303) 13 (72)
Unrecognized tax benefits at end of the year $ 126 $429 $416
Although the company believes that it has adequately provided for all of its tax positions, amounts asserted by
taxing authorities in future years could be greater than the company’s accrued positions. Accordingly, additional
provisions on income tax related matters could be recorded in the future due to revised estimates, settlement or
other resolution of the underlying tax matters. In addition, open tax years related to state and foreign
jurisdictions remain subject to examination but are not considered material. The IRS is currently conducting an
examination of the company’s tax returns for the years 2007 through 2009.
During the year ended December 31, 2010, 2009, and 2008, the company recorded approximately $88 million,
$6 million, and $(29) million of net interest income (expense), respectively, within its federal and foreign, and
state income tax provisions.
Deferred Income Taxes – Deferred income taxes reflect the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and tax purposes. Such amounts are
classified in the consolidated statements of financial position as current or noncurrent assets or liabilities based
upon the classification of the related assets and liabilities.
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NORTHROP GRUMMAN CORPORATION