Note 10-Income Taxes

The Company's effective tax rate was 3.1% and 2.8% for the third quarter and nine months ended December 30, 2011, and (6.1%) and 17.9% for the third quarter and nine months ended December 31, 2010. The following are the major events that had a significant impact on the effective tax rate for the nine months ended December 30, 2011, as compared to the effective tax rate for the nine months ended December 31, 2010:

During the third quarter of fiscal 2011, as a result of the audit settlement, the Company recognized benefits related to research and development (“R&D”) credits of approximately $68 million which had a favorable impact on the effective tax rate for the third quarter ended December 31, 2010 of 29.6%, and for the nine months ended December 31, 2010 of 9.9%.

During the the third quarter of fiscal 2012, as a result of the charge related to the U.K. National Health Service (NHS) contract, the Company established a valuation allowance of approximately $65 million against the prior year ending net deferred tax assets of the U.K. operating entities. The valuation allowance had an unfavorable impact on the tax rate for the third quarter ended December 30, 2011 of 4.5%, and for the nine months ended December 30, 2011 of 1.6%.

During the first quarter of fiscal 2012, the Company elected to change the tax status of one of its foreign subsidiaries. This change in tax status resulted in a deemed liquidation for U.S. tax purposes and triggered various deductions which resulted in an income tax benefit of approximately $121 million and had a favorable impact on the effective tax rate for the nine months ended December 30, 2011 of 2.9%.

During the second quarter of fiscal 2012, the Company settled various tax examinations and recognized income tax benefits related to the audit settlements and the expiration of statute of limitations of approximately $112 million which had a favorable impact on the effective tax rate for the nine months ended December 30, 2011 of 2.7%.

During the second quarter of fiscal 2012, the Company recorded a $2.7 billion goodwill impairment charge which was mostly not deductible for tax purposes. During the third quarter of fiscal 2012, the Company recorded an additional goodwill impairment charge of $60 million, which was also not deductible for tax purposes. The goodwill impairment charge had a significant impact on the effective tax rate for the third quarter and nine months ended December 30, 2011 and was one of the primary drivers of the remaining difference between the effective tax rate and statutory tax rate of 35%.

During the third quarter of fiscal 2012, the Company recorded a $1.5 billion charge related to the NHS contract. The Company established a full valuation allowance against the net operating losses in the U.K. and did not record a tax benefit for the NHS charge. The NHS charge had a significant impact on the effective tax rate for the third quarter and nine months ended December 30, 2011 and was one of the primary drivers of the remaining difference between the effective tax rate and statutory tax rate of 35%. The NHS contract is subject to ongoing negotiations, the outcome of which may produce objectively verifiable evidence that may require remeasurement of the valuation allowance in future periods.

During the nine months ended December 30, 2011, the Company's uncertain tax positions decreased by $187 million, net of $75 million of tax attributes and excluding interest and penalties, as compared to the fiscal year end 2011. The decrease in uncertain tax positions related to the settlement of the IRS examination and lapse of the statute of limitations during the second quarter of fiscal 2012 was $186 million, net of $26 million of tax attributes and excluding interest and penalties. In addition, there was an increase in uncertain tax positions of $13 million, net of $49 million of tax attributes, related to the acquisitions of iSOFT and AppLabs during the second quarter of fiscal 2012. As of December 30 2011, the Company's liability for uncertain tax positions was $217 million, and was included in other long-term liabilities, including interest of $30 million ($18 million net of tax) and penalties of $15 million.

During the nine months ended December 30, 2011, the Company recorded an interest benefit of $36 million ($23 million net of tax) and had a net release of penalties of $19 million. The reduction in interest and penalties was primarily a result of the settlement of the IRS examination and lapse of the statute of limitations during the second quarter of fiscal 2012.

As of December 30, 2011, the Company's liability for uncertain tax positions included $118 million related to amounts that, if recognized, would affect the effective tax rate, excluding related interest and penalties.

The Company may also settle other tax examinations, have lapses in statutes of limitations, or voluntarily settle income tax positions in negotiated settlements for different amounts than the Company has accrued as uncertain tax positions. The Company may need to accrue and ultimately pay additional amounts for tax positions that previously met a more likely than not standard if such positions are not upheld. Conversely, the Company could settle positions with the tax authorities for amounts lower than have been accrued or extinguish a position through payment. The Company believes the outcomes which are reasonably possible within the next twelve months may result in a reduction in the liability for uncertain tax positions of up to $20 million, excluding interest, penalties, and tax carryforwards.