Income Taxes

12 Months Ended

Mar. 31, 2012

Income Tax [Abstract]

Income Taxes

Note 16 – Income Taxes

The amounts of income (loss) from continuing operations before taxes attributable to domestic and foreign operations are as follows:

	YEAR ENDED MARCH 31,
(in millions)	2012		2011		2010
Domestic	$	830	$	751	$	699
Foreign		524		458		453
	$	1,354	$	1,209	$	1,152

Income tax expense (benefit) from continuing operations consists of the following:

	YEAR ENDED MARCH 31,
(in millions)	2012			2011		2010
Current:
Federal	$	275		$	110	$	198
State		37			48		15
Foreign		120			88		112
		432			246		325
Deferred:
Federal		4			65		28
State		(22	)		5		13
Foreign		2			70		27
		(16	)		140		68
Total:
Federal		279			175		226
State		15			53		28
Foreign		122			158		139
	$	416		$	386	$	393

The tax expense from continuing operations is reconciled to the tax expense computed at the U.S. federal statutory tax rate as follows:

	YEAR ENDED MARCH 31,
(in millions)	2012			2011			2010
Tax expense at U.S. federal statutory tax rate	$	474		$	423		$	403
Effect of international operations		(89	)		(129	)		(55	)
U.S. federal and state tax contingencies		23			61			14
State taxes, net of U.S. federal tax benefit		17			13			7
Valuation allowance		(15	)		(2	)		5
Other, net		6			20			19
Tax expense	$	416		$	386		$	393

Deferred income taxes reflect the effect of temporary differences between the carrying amounts of assets and liabilities recognized for financial reporting purposes and the amounts recognized for tax purposes. The tax effects of the temporary differences from continuing operations are as follows:

	AT MARCH 31,
(in millions)	2012			2011
Deferred tax assets:
Modified accrual basis accounting for revenue	$	447		$	441
Share-based compensation		48			50
Accrued expenses		30			53
Net operating losses		173			178
Intangible assets amortizable for tax purposes		11			16
Deductible state tax and interest benefits		56			43
Other		53			52
Total deferred tax assets		818			833
Valuation allowances		(68	)		(85	)
Total deferred tax assets, net of valuation allowances		750			748
Deferred tax liabilities:
Purchased software		133			73
Depreciation		31			17
Other intangible assets		56			70
Capitalized development costs		206			191
Total deferred tax liabilities		426			351
Net deferred tax asset	$	324		$	397

In management’s judgment, it is more likely than not that the total deferred tax assets, net of valuation allowance, of approximately $750 million will be realized in the foreseeable future. Realization of the net deferred tax assets is dependent on the Company’s generation of sufficient future taxable income in the related tax jurisdictions to obtain benefit from the reversal of temporary differences, net operating loss carryforwards, and tax credit carryforwards. The amount of deferred tax assets considered realizable is subject to adjustments in future periods if estimates of future taxable income change.

U.S. federal, state and foreign net operating loss carryforwards (NOLs) totaled approximately $876 million and $891 million at March 31, 2012 and 2011, respectively. The NOLs will expire as follows: $722 million between 2013 and 2032 and $154 million may be carried forward indefinitely.

A valuation allowance has been provided for deferred tax assets that are not expected to be realized. The valuation allowance decreased approximately $17 million and $12 million at March 31, 2012 and 2011, respectively. The decrease in the valuation allowance at March 31, 2012 resulted primarily from the recognition of state NOLs due to a change in forecasted state taxable income. The decrease in the valuation allowance at March 31, 2011 primarily related to the likelihood of utilization of NOLs.

No provision has been made for U.S. federal income taxes on approximately $1,999 million and $1,719 million at March 31, 2012 and 2011, respectively, of unremitted earnings of the Company’s foreign subsidiaries since the Company plans to permanently reinvest all such earnings outside the United States. It is not practicable to determine the amount of tax associated with such unremitted earnings.

At March 31, 2012, the gross liability for income taxes associated with uncertain tax positions, including interest and penalties, is approximately $641 million (of which none is classified as current). In addition, at March 31, 2012, the Company has recorded approximately $56 million of deferred tax assets for future deductions of interest and state income taxes related to these uncertain tax positions. At March 31, 2011, the gross liability for income taxes associated with uncertain tax positions, including interest and penalties, was approximately $620 million (of which approximately $26 million was classified as current). In addition, at March 31, 2011, the Company had recorded approximately $43 million of deferred tax assets for future deductions of interest and state income taxes related to these uncertain tax positions.

A roll-forward of the Company’s uncertain tax positions for all U.S. federal, state and foreign tax jurisdictions is as follows:

	AT MARCH 31,
(in millions)	2012			2011
Balance, beginning of year	$	522		$	415
Additions for tax positions related to the current year		26			52
Additions for tax positions from prior years		21			127
Reductions for tax positions from prior years		(17	)		(33	)
Settlement payments		(19	)		(32	)
Statute of limitations expiration		(6	)		(8	)
Translation and other		(4	)		1
Balance, end of year	$	523		$	522

The amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate is $410 million and $400 million at March 31, 2012 and 2011, respectively. The gross amount of interest and penalties accrued, reported in “Total liabilities,” was approximately $118 million, $98 million and $82 million for fiscal years 2012, 2011 and 2010, respectively. The amount of interest and penalties recognized was approximately $20 million, $16 million and $12 million for fiscal years 2012, 2011 and 2010, respectively.

A number of years may elapse before a particular uncertain tax position for which the Company has not recorded a financial statement benefit is audited and finally resolved. The number of years with open tax audits varies depending on the tax jurisdiction. The Company is subject to tax audits in the following major taxing jurisdictions:

• United States — federal tax years are open for years 2005 and forward;

• Germany — tax years are open for years 2007 and forward;

• Italy — tax years are open for years 2008 and forward;

• Japan— tax years are open for years 2007 and forward; and

• United Kingdom — tax years are open for years 2010 and forward.

In April 2011, the U.S. Internal Revenue Service (IRS) completed its examination of the Company’s federal income tax returns for the tax years ended March 31, 2005, 2006 and 2007 and issued a report of its findings in connection with the examination. The Company disagrees with certain proposed adjustments in the report and is vigorously disputing these matters through the IRS appellate process. While the Company believes that it has recorded reserves sufficient to cover exposures related to these issues, such that the ultimate disposition of this matter will not have a material adverse effect on the Company’s consolidated financial position or results of operations, the resolution of this matter involves uncertainties and the ultimate resolution could differ from the amounts recorded. The IRS is also examining the Company’s federal income tax returns for the tax years ended March 31, 2008, 2009 and 2010.

While it is difficult to predict the final outcome or the timing of resolution of any particular tax matter, the Company believes that its financial statements reflect the probable outcome of uncertain tax positions. The Company may adjust these reserves, as well as any related interest or penalties, in light of changing facts and circumstances including the settlement of income tax audits and the expiration of statutes of limitations. To the extent a settlement differs from the amounts previously reserved, that difference would be generally recognized as a component of income tax expense in the period of resolution. The Company does not believe it is reasonably possible that the amount of unrecognized tax benefits will significantly increase or decrease within the next 12 months, as the Company does not believe the appeals process will be concluded within the next 12 months.