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 28, 2014		March 29, 2013			March 30, 2012
	(As Adjusted)		(As Adjusted)			(As Restated and Adjusted)
Domestic entities	$	574	$	(113	)	$	(764	)
Entities outside the United States	689		348			(228		)
Total	$	1,263	$	235		$	(992	)

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



	Twelve Months Ended
(Amounts in millions)	March 28, 2014		March 29, 2013			March 30, 2012
	(As Adjusted)		(As Adjusted)			(As Restated and Adjusted)
Current:
Federal	$	81	$	(330	)	$	(80	)
State	7		(5		)	11
Foreign	126		174			92
	214		(161		)	23
Deferred:
Federal	119		76			(212		)
State	25		(18		)	(33		)
Foreign	25		41			(6		)
	169		99			(251		)
Total income tax expense (benefit)	$	383	$	(62	)	$	(228	)

The current (benefit) provision for fiscal years 2014, 2013, and 2012, includes interest and penalties of $(9) million, $10 million, and $(53) 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 28, 2014		March 29, 2013		March 30, 2012
	(As Adjusted)		(As Adjusted)		(As Restated and Adjusted)
Statutory rate	35.0	%	35.0	%	(35.0	)%
State income tax, net of federal tax	1.8		(2.6	)	(1.9	)
Change in uncertain tax positions	2.9		2.4		2.5
Foreign tax rate differential	2.8		(126.7	)	(23.5	)
Income tax credits	(0.3	)	(0.1	)	(2.6	)
Valuation allowance	(11.8	)	175.2		40.4
Change in entity tax status	—		(0.7	)	(3.2	)
Loss on sale of securities	0.8		(105.4	)	—
Tax audit settlements	—		—		(11.2	)
Goodwill impairment	—		—		8.1
Other items, net	(0.9	)	(3.5	)	3.4
Effective tax rate	30.3	%	(26.4	)%	(23.0	)%

In fiscal 2014, the ETR was primarily driven by:


•	The Company recorded a tax expense of $10 million related to the previous restructuring of an operating subsidiary. This expense increased the ETR by 0.8%.


•	A net increase in uncertain tax positions across various jurisdictions of $36 million which increased the ETR by 2.9%. The primary drivers of this increase in tax expense were related to various tax issues including transfer pricing and foreign exchange losses.


•	A decrease in the valuation allowance determined on a tax jurisdictional basis due to a shift in the global mix of income which decreased tax expense and the ETR by $58 million and 4.6%, respectively


•	Local income on investment recoveries in certain jurisdictions (i) decreased the valuation allowance and the ETR by $90.6 million and 7.2%, respectively, and (ii) increased the foreign rate differential and ETR by $90.6 million and by 7.2%, respectively.

In fiscal 2012 and 2013, the ETR was primarily driven by:


•	In fiscal 2012, 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 11.2%.


•	In 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 $114 million and had a favorable impact of the ETR for the fiscal year of 11.5%.


•	In fiscal 2013, the Company executed an internal restructuring whereby a significant operating subsidiary was recapitalized. Certain securities issued pursuant to the recapitalization were subsequently sold to a third party. The sale resulted in the recognition of a capital loss of approximately $640 million, which reduced tax expense and the ETR by $248 million and 105.4%, respectively.


•	In fiscal 2013, a valuation allowance recorded for certain of the Company's German subsidiaries related to net operating losses and other net deferred tax assets. The impact to tax expense and the ETR was an increase of $77 million and 32.8%, respectively.

•

In fiscal 2013, there was an increase in the valuation allowance determined on a tax jurisdictional basis due to several factors including: (i) a shift in the global mix of income which increased tax expense and the ETR by $76 million and 32.3%, respectively (ii) capital gains from the sale of certain other assets which decreased tax expense and the ETR by $11.5 million and 4.9%, respectively and (iii) state capital losses and credits not expected to be fully utilized within the carryforward period which increased tax expense and the ETR by $29.6 million and 12.6%, respectively.


•	In fiscal 2013, local losses on investment write-downs in certain jurisdictions (i) increased the valuation allowance and the ETR by $240.5 million and 102.3%, respectively, and (ii) decreased the foreign rate differential and ETR by $240.5 million and 102.3%, respectively.

As a result of the restatement and other adjustments to the Company’s previously issued audited Consolidated Financial Statements for fiscal years 2014, 2013 and 2012, there were significant impacts to the effective tax rate for fiscal years 2014, 2013, and 2012. For the financial statement impacts of the financial restatement and other adjustments, see Note 2 and Note 3, respectively.

For the tax impact of discontinued operations, see Note 6.

The deferred tax assets (liabilities) are as follows:



(Amounts in millions)	March 28, 2014			March 29, 2013
	(As Restated)			(As Restated)
Deferred Tax Assets
Employee benefits	$	333		$	558
Tax loss/credit carryforwards	919			1,056
Accrued interest	20			47
State taxes	10			13
Cumulative foreign exchange gain/loss	2			14
Contract Accounting	38			—
Other assets	66			111
Total Deferred Tax Assets	1,388			1,799
Valuation allowance	(1,006		)	(1,244		)
Net Deferred Tax Assets	382			555

Deferred Tax Liabilities
Depreciation and amortization	(341		)	(322		)
Contract accounting	—			(53		)
Investment basis differences	(126		)	(128		)
Other liabilities	(112		)	(75		)
Total Deferred Tax Liabilities	(579		)	(578		)

Total Deferred Tax Liabilities	$	(197	)	$	(23	)

As a result of the restatement and other adjustments on the Company’s previously issued audited Consolidated Financial Statements for fiscal years prior to 2012, the Company has recorded uncertain tax positions relating to deductions in a foreign jurisdiction which impact fiscal years where the statute of limitation is closed or the ability to make certain elections has expired. As a result of this change, the tax loss/credit carryforwards and valuation allowance amounts have been reduced by offsetting amounts for each year in the table above, with no net impact on total deferred tax assets or deferred tax liabilities.

Income tax related assets are included in the accompanying balance sheet as follows:



(Amounts in millions)	March 28, 2014		March 29, 2013
Current:
Prepaid Expenses & Other Current Assets	$	11	$	24
Income Tax Receivables	92		239
Receivable for Uncertain Tax Positions	—		8
	103		271
Non-current:
Income Taxes Receivable and Prepaid Taxes	123		70
Other Deferred tax Assets	123		184
	246		254

Total	$	349	$	525

Income tax related liabilities are included in the accompanying balance sheet as follows:



(Amounts in millions)	March 28, 2014			March 29, 2013
Current:
Deferred Income Taxes	$	(25	)	$	—
Income Taxes Payable	(52		)	(41		)
	(77		)	(41		)
Non-current:
Deferred Taxes	(307		)	(231		)
Non-current Tax Liability for Uncertain Tax Positions	(250		)	(270		)
	(557		)	(501		)

Total	$	(634	)	$	(542	)

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. The valuation allowance decreased by $238 million in fiscal year 2014. This change is primarily due to the following:


•	A decrease in the valuation allowances in the U.K. and Denmark, primarily related to current year income and pension plan modifications;


•	A decrease in the valuation allowance in Luxembourg due to significant gains on investments;


•	A decrease in the valuation allowance for state credits and net operating losses.

Significant management judgment is required in determining the Company's provision for income taxes, deferred tax assets and liabilities, and any valuation allowance recorded against deferred tax assets. A valuation allowance has been recorded against deferred tax assets of approximately $1,006 million as of March 28, 2014 due to uncertainties related to the ability to utilize these assets. The valuation allowance is based on historical earnings, estimates of taxable income by jurisdiction and the period over which the deferred tax assets will be recoverable. Valuation allowances are evaluated periodically and will be subject to change in each future reporting period as a result of changes in various factors. Based on recent earnings in certain jurisdictions there is a reasonable possibility that, within the next year, sufficient positive evidence may become available to reach a conclusion that a portion of the valuation allowance will no longer be needed. As such, the Company may release a portion of its valuation allowance against its deferred tax assets within the next 12 months. This release would result in the recognition of certain deferred tax assets and a decrease to income tax expense for the period such release is recorded. Any such adjustment could materially impact the Company's financial position and results of operations.

The Company has available foreign net operating loss (NOL) carryforwards of $3,417 million and $3,661 million, federal NOL carryforwards of $73 million and $5 million, and state NOL carryforwards of $818 million and $782 million as of March 28, 2014 and March 29, 2013, respectively. The Company has foreign capital loss carryforwards of $80 million and $45 million as of March 28, 2014 and March 29, 2013, respectively. The Company also has state credit carryforwards of $53 million and $67 million and state capital loss carryforwards of $428 million and $411 million as of March 28, 2014 and March 29, 2013, respectively. The foreign NOL carryforwards as of March 28, 2014 can be carried over indefinitely, except for $60 million which expire at various dates through 2023. The federal NOL carryforwards as of March 28, 2014 expire at various dates through 2034. The state NOL and credit carryforwards as of March 28, 2014 expire at various dates through 2033. The state capital loss carryforwards as of March 29, 2013 expire in 2018.

The Company is currently the beneficiary of tax holiday incentives in India, which expire in various fiscal years through 2026. As a result of the India tax holiday incentives, the Company’s tax expense was reduced by approximately $3 million, $3 million, and $1 million, during fiscal years 2014, 2013, and 2012, respectively. The per share effects were $0.02, $0.02, and $0.01, for fiscal years 2014, 2013, and 2012, 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 28, 2014, the Company has not made a provision for U.S. income tax or additional foreign withholding taxes with respect to accumulated earnings of foreign subsidiaries where the foreign investment of such earnings is essentially permanent in duration. Generally, such amounts would become subject to U.S. taxation upon the remittance of dividends and under certain other circumstances. The cumulative undistributed positive earnings of the Company's foreign subsidiaries were approximately $3,110 million as of March 28, 2014. It is not practicable to estimate the tax cost of repatriating the cumulative undistributed taxable earnings of these foreign subsidiaries to the United States.

In May 2013, Finance Bill 2013 received the assent of the President of India and has been enacted as the Finance Act 2013. There are various provisions in the Finance Act, including a tax on the buy-back of shares and an increase in the dividend distribution tax from 16.22% to 16.99%. The Company uses the lower undistributed tax rate to measure deferred taxes on inside basis differences, including undistributed earnings, of our India operations as these earnings are permanently reinvested. While the Company has no plans to do so, events may occur in the future that could effectively force management to change its intent not to repatriate our India earnings. If the Company changes its intent and repatriates such earnings, a dividend distribution tax will be incurred for distributions from India. These additional taxes will be recorded as tax expense in the period in which the dividend is declared.

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 28, 2014, the Company’s liability for uncertain tax positions was $250 million, including interest of $27 million, penalties of $19 million, and net of tax attributes of $95 million. As of March 29, 2013, the Company’s liability for uncertain tax positions was $262 million, including interest of $38 million, penalties of $17 million, and net of tax attributes of $87 million.

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 28, 2014			March 29, 2013			March 30, 2012
	(As Restated)			(As Restated)			(As Restated)
Balance at Beginning of Fiscal Year	$	294		$	340		$	483
Gross increases related to prior year tax positions	31			7			27
Gross decreases related to prior year tax positions	(27		)	(40		)	(134		)
Gross increases related to current year tax positions	10			8			25
Settlements and statute of limitation expirations	(1		)	(18		)	(115		)
Current year acquisitions	—			—			56
Foreign exchange and others	(8		)	(3		)	(2		)
Balance at End of Fiscal Year	$	299		$	294		$	340

As a result of the restatement and other adjustments to the Company’s previously issued audited Consolidated Financial Statements for fiscal years prior to 2012, the Company has recorded uncertain tax positions relating to deductions in a foreign jurisdiction which impact fiscal years where the statute of limitation is closed or the ability to make certain elections has expired. This change in the uncertain tax position amount is reflected in the beginning balance of each fiscal year in the table above. The changes did not impact income tax liabilities and deferred income taxes in the Consolidated Balance Sheet.

The Company’s liability for uncertain tax positions at March 28, 2014, March 29, 2013, and March 30, 2012, includes $161 million, $148 million, and $155 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 28, 2014, the Company had a net reduction in interest of $11 million ($7 million net of tax) and accrued penalties of $2 million, and as of March 28, 2014, has recognized a liability for interest of $27 million ($21 million net of tax) and penalties of $19 million. During the year ended March 29, 2013, the Company accrued interest expense of $7 million ($5 million net of tax) and accrued penalties of $2 million, and as of March 29, 2013, recognized a liability for interest of $38 million ($28 million net of tax) and penalties of $17 million. 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, recognized a liability for interest of $31 million ($23 million net of tax) and penalties of $15 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		2010 and forward
Canada		2008 and forward
Denmark		2009 and forward
France		2009 and forward
Germany		2006 and forward
India		2008 and forward
United Kingdom		2010 and forward

It is reasonably possible that during the next twelve months the Company's liability for uncertain tax positions may change by a significant amount. The IRS is examining the Company's federal income tax returns for fiscal years 2008 through 2010. During fiscal 2014, the IRS indicated they need additional time to complete the examination. Therefore, the Company now expects to reach a resolution no earlier than fiscal year 2016. The significant items subject to examination primarily relate to foreign exchange losses and other US international tax issues. In addition, the Company may settle certain other tax examinations, have lapses in statutes 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 those that have been accrued or extinguish a position though payment. The Company believes the outcomes which are reasonably possible within the next twelve months may result in a reduction in liability for uncertain tax positions of up to $22 million excluding interest and penalties.