harris corporation
harris corporation
harris corporation
Create successful ePaper yourself
Turn your PDF publications into a flip-book with our unique Google optimized e-Paper software.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)<br />
A reconciliation of the United States statutory income tax rate to our effective income tax rate follows:<br />
2011 2010 2009<br />
U.S. statutory income tax rate ......................................... 35.0% 35.0% 35.0%<br />
State taxes ....................................................... 1.6 1.1 0.3<br />
International income ................................................ 0.4 0.2 0.3<br />
Settlement of tax audits ............................................. — — (1.3)<br />
Research and development tax credit .................................... (1.2) (0.7) (2.0)<br />
U.S. production activity benefit ........................................ (2.6) (1.6) (2.4)<br />
Impairment of goodwill and other long-lived assets ......................... — — 6.6<br />
Other items ...................................................... 0.1 (0.8) (0.9)<br />
Effective income tax rate ............................................ 33.3% 33.2% 35.6%<br />
United States income taxes have not been provided on $341.4 million of undistributed earnings of international<br />
subsidiaries because of our intention to reinvest those earnings indefinitely. Determination of unrecognized deferred<br />
U.S. tax liability for the undistributed earnings of international subsidiaries is not practicable. Tax loss and credit<br />
carryforwards as of July 1, 2011 have expiration dates ranging between one year and no expiration in certain<br />
instances. The amount of Federal, international, and state and local tax loss carryforwards as of July 1, 2011 were<br />
$57.8 million, $80.0 million and $10.7 million, respectively. Income (loss) from continuing operations before<br />
income taxes of international subsidiaries was $8.9 million, $(4.9) million and $(59.3) million in fiscal 2011, 2010<br />
and 2009, respectively. Income taxes paid were $322.4 million, $280.5 million and $308.4 million in fiscal 2011,<br />
2010 and 2009, respectively. The valuation allowance increased $8.4 million from $80.3 million at the end of fiscal<br />
2010 to $88.7 million at the end of fiscal 2011. The valuation allowance has been established for financial reporting<br />
purposes to offset certain domestic and foreign deferred tax assets due to uncertainty regarding our ability to realize<br />
them in the future.<br />
A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows:<br />
2011 2010<br />
(In millions)<br />
2009<br />
Balance at beginning of the fiscal year ............................... $33.2 $23.1 $ 42.9<br />
Additions based on tax positions taken during the current fiscal year ......... 3.2 6.1 2.3<br />
Additions based on tax positions taken during prior fiscal years. ............ 18.4 7.6 0.4<br />
Decreases based on tax positions taken during prior fiscal years ............ (3.1) (0.2) (19.3)<br />
Decreases from settlements ....................................... (1.7) — (3.0)<br />
Decreases from lapse of statutes of limitations ......................... (1.6) (3.4) (0.2)<br />
Balance at end of the fiscal year .................................... $48.4 $33.2 $ 23.1<br />
As of July 1, 2011, we had $48.4 million of unrecognized tax benefits, of which $35.4 million would favorably<br />
impact our future tax rates in the event that the tax benefits are eventually recognized.<br />
We recognize accrued interest and penalties related to unrecognized tax benefits as part of our income tax<br />
expense. We had accrued $3.5 million for the potential payment of interest and penalties as of July 2, 2010 (and this<br />
amount was not included in the $33.2 million of unrecognized tax benefits balance at July 2, 2010 shown above)<br />
and $2.4 million of this total could favorably impact future tax rates. We had accrued $7.0 million for the potential<br />
payment of interest and penalties as of July 1, 2011 (and this amount was not included in the $48.4 million of<br />
unrecognized tax benefits balance at July 1, 2011 shown above) and $5.3 million of this total could favorably<br />
impact future tax rates.<br />
We file numerous separate and consolidated income tax returns reporting our financial results and, where<br />
appropriate, those of our subsidiaries and affiliates, in the U.S. Federal jurisdiction, and various state, local and<br />
foreign jurisdictions. Pursuant to the Compliance Assurance Process, the Internal Revenue Service (“IRS”) is<br />
examining fiscal 2010, fiscal 2011 and fiscal 2012. We are currently under examination by the Canadian Revenue<br />
Agency for fiscal years 2005 through 2010, and we are appealing portions of a Canadian assessment relating to<br />
fiscal years 2000 through 2004. We are currently under examination by various state and international tax authorities<br />
for fiscal years ranging from 1997 through 2010. It is reasonably possible that there could be a significant decrease<br />
89