Northrop Grumman 2012 Annual Report Download - page 69

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NORTHROP GRUMMAN CORPORATION
-59-
Income tax expense differs from the amount computed by multiplying the statutory federal income tax rate times the
earnings from continuing operations before income taxes due to the following:
Year Ended December 31
$ in millions 2012 2011 2010
Income tax expense on continuing operations at statutory rate $1,038 $1,079 $ 828
Manufacturing deduction (42)(32)(33)
Research tax credit —(17)(12)
Tax settlements and adjustments to uncertain tax position accruals ——(298)
Other, net (9)(33)(23)
Total federal and foreign income taxes $ 987 $ 997 $ 462
Uncertain Tax Positions
The company files income tax returns in the U.S. federal jurisdiction, and in various state and foreign jurisdictions.
The IRS is currently conducting an examination of the company's tax returns for the years 2007 through 2011. Open
tax years related to state and foreign jurisdictions remain subject to examination, but are not considered material.
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 change in unrecognized tax benefits during 2012, 2011, and 2010, excluding interest, is as follows:
December 31
$ in millions 2012 2011 2010
Unrecognized tax benefits at beginning of the year $118 $126 $429
Additions based on tax positions related to the current year 12 11 19
Additions for tax positions of prior years 28 31 4
Reductions for tax positions of prior years (1)(22) —
Settlements (1)(28)(326)
Net change in unrecognized tax benefits 38 (8)(303)
Unrecognized tax benefits at end of the year $156 $118 $126
These liabilities, along with $19 million of accrued interest and penalties, are included in other non-current liabilities
in the consolidated statements of financial position. If the income tax benefits from these tax positions are ultimately
realized, $128 million of federal and foreign benefits would affect the company’s effective tax rate.
During the years ended December 31, 2012, 2011, and 2010, the company recorded approximately ($1) million, ($5)
million, and $88 million of net interest (expense)/income, 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 non-current assets or liabilities based upon the classification of the
related assets and liabilities.