Income Taxes

Our effective tax rate (income taxes as a percentage of income from continuing operations before income taxes) was 29.5 percent in the third quarter of fiscal 2016 compared with 29.6 percent in the third quarter of fiscal 2015.

In the third quarter of fiscal 2016, our effective tax rate benefited from the favorable impact of:


•	Amounts recorded in respect of our expected near-term recognition of a tax loss for the divestiture of Aerostructures, net of valuation allowance, following our classification of Aerostructures as held for sale as of the end of the third quarter of fiscal 2016;


•	Additional deductions and additional research credits claimed on our fiscal 2015 tax return compared with our recorded estimates at the end of fiscal 2015; and


•	State tax reductions resulting from our integration of Exelis operations.

This favorable impact was partially offset by the non-deductibility for tax purposes of additional portions of the impairment charge recorded in the second quarter of fiscal 2016 described in Note N — Impairment of Goodwill and Other Assets in these Notes, as that charge was finalized during the third quarter of fiscal 2016.

In the third quarter of fiscal 2015, our effective tax rate benefited from additional deductions (primarily related to manufacturing) and additional research credits claimed on our fiscal 2014 tax return compared with our recorded estimates at the end of fiscal 2014, as well as from finalizing issues with tax authorities.

Our effective tax rate was 50.3 percent in the first three quarters of fiscal 2016 compared with 28.3 percent in the first three quarters of fiscal 2015.

In the first three quarters of fiscal 2016, our effective tax rate was negatively impacted by the non-deductibility for tax purposes of portions of the impairment charge recorded in the second quarter of fiscal 2016 described in Note N — Impairment of Goodwill and Other Assets in these Notes. This negative impact was partially offset by the favorable impact of:


•	The discrete items noted above favorably impacting the third quarter of fiscal 2016;


•	The effect of legislation enacted in the second quarter of fiscal 2016 that restored the U.S. Federal income tax credit for qualifying research and development (“R&D”) expenses for calendar year 2015 and made the credit permanent for the periods following December 31, 2015;


•	The settlement of a state tax issue for an amount lower than the previously recorded estimate; and


•	Several differences between GAAP and tax accounting for investments.

In the first three quarters of fiscal 2015, our effective tax rate benefited from:


•	The discrete items noted above favorably impacting the third quarter of fiscal 2015;


•	The effect of legislation enacted in the second quarter of fiscal 2015 that restored the U.S. Federal income tax credit for qualifying R&D expenses for calendar year 2014;


•	Finalizing issues with Canadian and U.S. tax authorities for amounts lower than previously recorded estimates; and


•	The recognition of foreign tax credits resulting from a dividend paid by a foreign subsidiary during fiscal 2013 that exceeded the U.S. tax liability in respect of the dividend.

See Note B — Discontinued Operations and Divestitures and Note T — Subsequent Events in these Notes for additional information.