Income Taxes

The sources of (loss) income from continuing operations, before income taxes, classified between domestic entities and those entities domiciled outside of the United States, are as follows:



	Twelve Months Ended
(Amounts in millions)	March 30, 2012			April 1, 2011		April 2, 2010
Domestic entities	$	(1,701	)	$	582	$	447
Entities outside the United States	(2,646		)	386		575
Total	$	(4,347	)	$	968	$	1,022

The income tax (benefit) expense on (loss) income from continuing operations is comprised of:



	Twelve Months Ended
(Amounts in millions)	March 30, 2012			April 1, 2011		April 2, 2010
Current:
Federal	$	(121	)	$	19	$	85
State	16			23		(31		)
Foreign	99			101		130
	(6		)	143		184

Deferred:
Federal	(139		)	87		44
State	(21		)	7		(19		)
Foreign	45			6		(17		)
	(115		)	100		8
Total income tax expense (benefit)	$	(121	)	$	243	$	192

The current (benefit) provision for fiscal years 2012, 2011, and 2010, includes interest and penalties of $(53) million, $5 million, and $2 million, respectively, for uncertain tax positions.

The major elements contributing to the difference between the U.S. federal statutory tax rate of 35% and the effective tax rate (ETR) for continuing operations are as follows:



	Twelve Months Ended
	March 30, 2012		April 1, 2011		April 2, 2010
Statutory rate	(35.0	)%	35.0	%	35.0	%
State income tax, net of federal tax	(0.2	)	1.5		1.2
Change in uncertain tax positions	0.6		(2.5	)	(2.8	)
Foreign tax rate differential	(0.8	)	(4.6	)	(6.6	)
Income tax credits	(1.0	)	(8.7	)	(0.8	)
Valuation allowance	18.6		2.6		(5.6	)
Change in entity tax status	(2.6	)	—		—
Tax audit settlements	(2.6	)	—		—
Goodwill impairment	19.3		—		—
Other items, net	0.9		1.8		(1.6	)
Effective tax rate	(2.8	)%	25.1	%	18.8	%

In fiscal 2012, the ETR was primarily driven by:

•

The Company recorded a $1,485 million charge related to the NHS contract. Following the write-down, a full valuation allowance was established against the net operating losses in the U.K., which resulted in the Company not recording a tax benefit for the NHS charges. This charge and subsequent valuation allowance had a significant impact on the tax expense and ETR of $508 million and 12%, respectively.


•	The Company recorded a $2,745 million goodwill impairment charge which was mostly not deductible for tax purposes. This charge resulted in an impact to the tax expense and ETR of $838 million and 19%, respectively.


•	The Company settled various tax examinations and recognized income tax benefits related to audit settlements (and the expiration of statutes of limitations on audits) of approximately $111 million, which had a favorable impact on the ETR for the fiscal year of 3%.


•	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 $114 million and had a favorable impact of the ETR for the fiscal year of 3%.

The deferred tax assets (liabilities) are as follows:



(Amounts in millions)	March 30, 2012			April 1, 2011
Deferred Tax Assets
Employee benefits	$	705		$	601
Tax loss/credit carryforwards	899			246
Accrued interest	52			40
State taxes	13			17
Foreign gain/loss on exchange	6			4
Other assets	92			97
Total Deferred Tax Assets	1,767			1,005
Valuation allowance	(951		)	(96		)
Net Deferred Tax Assets	816			909

Deferred Tax Liabilities
Depreciation and amortization	(387		)	(495		)
Contract accounting	(90		)	(313		)
Investment basis differences	(128		)	(142		)
Other liabilities	(65		)	(30		)
Total Deferred Tax Liabilities	(670		)	(980		)

Total Deferred Tax Assets (Liabilities)	$	146		$	(71	)

Income tax related assets are included in the accompanying balance sheet as follows. Prepaid expenses and other current assets include the current portion of deferred tax assets of $19 million and $18 million as of March 30, 2012 and April 1, 2011, respectively. Receivables include income taxes receivable of $98 million and $74 million as of March 30, 2012 and April 1, 2011, respectively. Other assets include non-current deferred tax assets of $272 million and $324 million as of March 30, 2012 and April 1, 2011, respectively, and non-current income taxes receivable and prepaid taxes of $154 million and $73 million as of March 30, 2012 and April 1, 2011, respectively.

Income tax related liabilities are included in the accompanying balance sheet as follows. Income taxes payable and deferred income taxes consist of the current portion of deferred tax liabilities of $46 million and $208 million as of March 30, 2012 and April 1, 2011, respectively, the current portion of income taxes payable of $11 million and $18 million as of March 30, 2012 and April 1, 2011, respectively, and the current portion of liability for uncertain tax positions of $0 million and $171 million as of March 30, 2012 and April 1, 2011, respectively. Income tax liabilities and deferred income taxes included in non-current liabilities consist of non-current liability for uncertain tax positions of $257 million and $306 million as of March 30, 2012 and April 1, 2011, respectively, and the non-current portion of deferred tax liabilities of $99 million and $205 million as of March 30, 2012 and April 1, 2011, respectively, the non-current portion of income taxes payable of $1 million and $0 million as of March 30, 2012 and April 1, 2011, respectively.

In assessing the realizability of deferred tax assets, the Company considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized and adjusts the valuation allowance accordingly. In determining whether the deferred tax assets are realizable, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, taxable income in prior carryback years, projected future taxable income, tax planning strategies and recent financial operations. Valuation allowances are evaluated periodically and will be subject to change in each future reporting period as a result of changes in one or more of these factors. The change in the valuation allowance was $855 million in fiscal year 2012. This change is primarily due to the valuation allowance recorded in the U.K. as discussed above. Additionally, a valuation allowance was recorded in Luxembourg as a result of losses that are not expected to be realized.

The Company has available foreign net operating loss (NOL) carryforwards of $3,272 million and $881 million, federal NOL carryforwards of $14 million and $5 million, and state NOL carryforwards of $467 million and $581 million as of March 30, 2012 and April 1, 2011, respectively. In addition, the Company has federal tax credit carryforwards of $4 million as of March 30, 2012. The Company also has state credit carryforwards of $69 million and $73 million as of March 30, 2012 and April 1, 2011, respectively. The foreign NOL carryforwards as of March 30, 2012 can be carried over indefinitely, except for $209 million which expire at various dates through 2022. The federal NOL and tax credit carryforwards as of March 30, 2012 expire at various dates through 2032. The state NOL and credit carryforwards as of March 30, 2012 expire at various dates through 2032.

The Company is currently the beneficiary of tax holiday incentives in India, some of which expired in fiscal year 2010 and most of which expired in fiscal year 2011. The remaining tax holiday incentives in India will expire through 2026. As a result of the tax holiday incentives, the Company’s tax expense was reduced by approximately $1 million, $13 million, and $21 million, during fiscal years 2012, 2011, and 2010, respectively. The per share effects were $0.01, $0.08, and $0.14, for fiscal years 2012, 2011, and 2010, respectively.

In general, it is the practice and intention of the Company to reinvest the earnings of its non-U.S. subsidiaries in those operations. As of March 30, 2012, the Company has not made a provision for U.S. or additional foreign withholding taxes for the excess of the amount for financial reporting over the tax basis of investments in foreign subsidiaries that are essentially permanent in duration. Generally, such amounts become subject to U.S. taxation upon the remittance of dividends and under certain other circumstances. The cumulative undistributed earnings of the Company's foreign subsidiaries were approximately $2,023 million as of March 30, 2012. It is not practicable to estimate the amount of deferred tax liability related to investments in these foreign subsidiaries.

The Company accounts for income tax uncertainties in accordance with ASC 740-10, which prescribes a recognition threshold and measurement criteria for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Benefits from tax positions should be recognized in the financial statements only when it is more likely than not that the tax position will be sustained upon examination by the appropriate taxing authority that would have full knowledge of all relevant information. A tax position that meets the more-likely-than-not recognition threshold is measured at the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. Tax positions that previously failed to meet the more-likely-than-not recognition threshold should be recognized in the first subsequent financial reporting period in which that threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not recognition threshold should be derecognized in the first subsequent financial reporting period in which that threshold is no longer met. ASC 740 also provides guidance on the accounting for and disclosure of liabilities for uncertain tax positions, interest and penalties.

As of March 30, 2012, the Company’s liability for uncertain tax positions was $257 million, including interest of $31 million, penalties of $15 million, and net of tax attributes of $76 million. As of April 1, 2011, the Company’s liability for uncertain tax positions was $477 million, including interest of $88 million, penalties of $29 million, and net of tax attributes of $66 million.

Uncertain tax positions decreased from $477 million to $257 million during the fiscal year ended March 30, 2012. The decrease was primarily a result of the settlement of the IRS examination and lapse of the statute of limitations in the second quarter of fiscal 2012 in the amount of $263 million. In addition, uncertain tax positions increased by $21 million as a result of the acquisitions of iSOFT and AppLabs during the second quarter of fiscal 2012.

The following table summarizes the activity related to the Company’s uncertain tax positions (excluding interest and penalties and related tax attributes):



	Twelve Months Ended
(Amounts in millions)	March 30, 2012			April 1, 2011			April 2, 2010
Balance at Beginning of Fiscal Year	$	426		$	442		$	442
Gross increases related to prior year tax positions	27			22			47
Gross decreases related to prior year tax positions	(134		)	(41		)	(29		)
Gross increases related to current year tax positions	29			14			13
Settlements	(115		)	(15		)	(36		)
Current year acquisitions	56			—			—
Foreign exchange and others	(2		)	4			5
Balance at End of Fiscal Year	$	287		$	426		$	442

The Company’s liability for uncertain tax positions at March 30, 2012, April 1, 2011, and April 2, 2010, includes $155 million, $266 million, and $272 million, respectively, related to amounts that, if recognized, would affect the effective tax rate (excluding related interest and penalties).

The Company recognizes interest accrued related to uncertain tax positions and penalties as a component of income tax expense. During the year ended March 30, 2012, the Company had a net reduction of interest of $56 million ($36 million net of tax) and had a net reduction of penalties of $14 million, and as of March 30, 2012, has recognized a liability for interest of $31 million ($23 million net of tax) and penalties of $15 million. The net reduction of interest and penalties include impacts of normal operations, audit settlements, and acquisitions. During the year ended April 1, 2011, the Company accrued interest expense of $3 million ($2 million net of tax) and accrued penalties of $2 million, and as of April 1, 2011, has recognized a liability for interest of $88 million ($58 million net of tax) and penalties of $29 million. During the year ended April 2, 2010, the Company accrued an interest benefit of $3 million ($3 million net of tax) and had a net release of penalties of $1 million, and as of April 2, 2010, recognized a liability for interest of $85 million ($56 million net of tax) and penalties of $27 million.

Tax Examination Status:

The Company is currently under examination in several tax jurisdictions. A summary of the tax years that remain subject to examination in certain of the Company’s major tax jurisdictions are:



Jurisdiction:		Tax Years that Remain Subject to Examination (Fiscal Year Ending):
United States – Federal		2008 and forward
United States – Various States		2001 and forward
Australia		2007 and forward
Canada		2006 and forward
Denmark		2007 and forward
France		2005 and forward
Germany		2006 and forward
India		2006 and forward
United Kingdom		2010 and forward

It is reasonably possible that during the next 12 months the Company’s liability for uncertain tax positions may change by a significant amount. The Company may settle certain tax examinations, have lapses in statute 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 12 months may result in a reduction in the liability for uncertain tax positions up to approximately $11 million, excluding interest, penalties, and tax carryforwards.