Northrop Grumman 2011 Annual Report Download - page 88

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NORTHROP GRUMMAN CORPORATION
The change in unrecognized tax benefits during 2011, 2010 and 2009, excluding interest, is as follows:
December 31
$ in millions 2011 2010 2009
Unrecognized tax benefits at beginning of the year $126 $ 429 $416
Additions based on tax positions related to the current year 11 19 12
Additions for tax positions of prior years 31 4 61
Reductions for tax positions of prior years (22)
Settlements (28) (326) (60)
Net change in unrecognized tax benefits (8) (303) 13
Unrecognized tax benefits at end of the year $118 $ 126 $429
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. The company does not expect the unrecognized tax benefits to
significantly change in the next 12 months. The IRS is currently conducting an examination of the company’s tax
returns for the years 2007 through 2009.
During the years ended December 31, 2011, 2010 and 2009, the company recorded approximately $(5) million,
$88 million, and $6 million of net interest income/(expense), respectively, within its federal, 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.
The tax effects of significant temporary differences and carryforwards that gave rise to year-end deferred federal,
state and foreign tax balances, as presented in the consolidated statements of financial position, are as follows:
December 31
$ in millions 2011 2010
Deferred Tax Assets
Retirement benefits $1,819 $1,337
Provisions for accrued liabilities 649 686
Stock-based compensation 130 91
Other 78 10
Gross deferred tax assets 2,676 2,124
Less valuation allowance (50)
Net deferred tax assets 2,626 2,124
Deferred Tax Liabilities
Goodwill amortization 716 692
Depreciation and amortization 277 143
Contract accounting differences 218 255
Purchased intangibles 19 14
Gross deferred tax liabilities 1,230 1,104
Total net deferred tax assets $1,396 $1,020
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