Northrop Grumman 2009 Annual Report Download - page 93

Download and view the complete annual report

Please find page 93 of the 2009 Northrop Grumman annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 132

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132

Income tax expense differs from the amount computed by multiplying the statutory federal income tax rate times
the earnings (loss) from continuing operations before income taxes due to the following:
$ in millions 2009 2008 2007
Year Ended December 31
Income tax (benefit) expense on continuing operations at statutory rate $793 $(183) $912
Goodwill impairment 1,071
Manufacturing deduction (24) (19) (19)
Research tax credit (17) (13) (14)
Settlement of IRS appeals cases, net of additional uncertain tax position accruals (75) (35) (22)
Other, net 16 38 (2)
Total federal and foreign income taxes $693 $859 $855
Uncertain Tax Positions – During the third quarter of 2009, the company reached a final settlement agreement
with the IRS and the U.S. Congressional Joint Committee on Taxation (Joint Committee) with respect to the
IRS’ audit of the company’s tax returns for the years 2001 through 2003. As a result of this settlement, the
company reduced its liability for uncertain tax positions by $60 million, which was recorded as a reduction to
the company’s effective tax rate.
During the third quarter of 2008, the company reached a final settlement agreement with the IRS and Joint
Committee with respect to the IRS’ audit of the TRW tax returns for the years 1999 through 2002. As a result
of this settlement, the company reduced its liability for uncertain tax positions by $126 million (including
accrued interest of $44 million), $95 million of which was recorded as a reduction of goodwill.
As of December 31, 2009, the estimated value of the company’s uncertain tax positions was a liability of
$423 million which includes accrued interest of $61 million. If the company’s positions are sustained by the
taxing authorities in favor of the company, the reversal of the amounts accrued for uncertain tax positions would
reduce the company’s effective tax rate.
Unrecognized Tax Benefits – Unrecognized tax benefits consist of the carrying value of the company’s recorded
uncertain tax positions as well as the potential tax benefits that could result from other tax positions that have not
been recognized in the financial statement under GAAP. At December 31, 2009, and 2008, unrecognized tax
benefits that have not been recognized in the financial statements amounted to $67 million. The change in
unrecognized tax benefits during 2009 and 2008, excluding interest, is as follows:
$ in millions 2009 2008
December 31
Unrecognized tax benefit at beginning of the year $416 $488
Additions based on tax positions related to the current year 12 5
Additions for tax positions of prior years 61 15
Statute expiration (9)
Settlements (60) (83)
Net change in unrecognized tax benefits 13 (72)
Unrecognized tax benefit at end of the year $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
-83-
NORTHROP GRUMMAN CORPORATION
eBP - v54508-i003_a.pdf - Page 87 of 124 - March 11, 2010 - 20:02:40