Northrop Grumman 2012 Annual Report Download - page 70

NORTHROP GRUMMAN CORPORATION
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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 2012 2011
Deferred Tax Assets
Retirement benefits $2,710 $1,819
Provisions for accrued liabilities 675 649
Stock-based compensation 146 130
Other 151 147
Gross deferred tax assets 3,682 2,745
Less valuation allowance (52)(50)
Net deferred tax assets 3,630 2,695
Deferred Tax Liabilities
Goodwill 804 716
Property, plant, and equipment, net 376 277
Contract accounting differences 199 218
Other 135 88
Gross deferred tax liabilities 1,514 1,299
Total net deferred tax assets $2,116 $1,396
Realization of the deferred tax asset is primarily dependent on generating sufficient taxable income in future periods.
The company believes it is more-likely-than-not that all deferred tax assets will be realized, net of any valuation
allowances currently established.
At December 31, 2012, the company has available unused net operating losses of $185 million that may be applied
against future taxable income, primarily in the United Kingdom that may be used indefinitely. A valuation allowance
of $52 million has been recorded against the tax assets due to the uncertainty of the realization of these net operating
losses and other deferred tax assets principally in foreign jurisdictions.
Undistributed Foreign Earnings
As of December 31, 2012, the company has accumulated undistributed earnings generated by its foreign
subsidiaries. No deferred tax liability has been recorded on these earnings since the company intends to permanently
reinvest these earnings. Should these earnings be distributed in the form of dividends or otherwise, the distributions
would be subject to U.S. federal income tax at the statutory rate of 35 percent, less foreign tax credits available to
offset such distributions, if any. In addition, such distributions may be subject to withholding taxes in the various tax
jurisdictions.
8. GOODWILL AND OTHER PURCHASED INTANGIBLE ASSETS
Goodwill
Goodwill and other purchased intangible assets are included in the identifiable assets of the segment to which the
operations of the acquired entity have been assigned. Impairment tests are performed at least annually and more
often as circumstances require. Any goodwill impairment, as well as the amortization of other purchased intangible
assets, is charged against the respective segment’s operating income. Our annual impairment test was performed as
of November 30, 2012, for all segments. In performing the goodwill impairment tests, the company uses a
discounted cash flow approach corroborated by comparative market multiples, where appropriate, to determine the
fair value of its businesses. Adverse changes in political and economic conditions, such as the potential for
sequestration and/or actions on the national debt ceiling by the U.S. Government, or changes in other factors
affecting the impairment analysis, such as discount rates, could result in an impairment of our goodwill in the future.
Information Systems is the segment most sensitive to future impairment. Accumulated goodwill impairment losses
at December 31, 2012, and 2011, totaled $570 million at the Aerospace Systems segment.