Lockheed Martin 2007 Annual Report Download - page 86

The primary components of our federal and foreign deferred income tax assets and liabilities at December 31 were as
follows:
(In millions) 2007 2006
Deferred tax assets related to:
Contract accounting methods $ 465 $ 643
Accrued compensation and benefits 683 580
Accumulated postretirement benefit obligations 400 417
Pensions (a) 563 1,362
Foreign company operating losses and credits 34 42
Gross deferred tax assets 2,145 3,044
Less: valuation allowance (b) 30 34
Net deferred tax assets 2,115 3,010
Deferred tax liabilities related to:
Purchased intangibles 365 358
Property, plant and equipment 180 199
Other 54 66
Deferred tax liabilities 599 623
Net deferred tax assets $1,516 $2,387
(a) The decrease in the deferred tax balance resulted from a reduction in Accrued pension liabilities calculated in accordance with FAS 158.
(b) A valuation allowance has been provided against certain foreign company deferred tax assets arising from carryforwards of unused tax
benefits.
We adopted FIN 48 effective January 1, 2007. FIN 48 clarifies and sets forth consistent rules for accounting for
uncertain income tax positions in accordance with FAS 109. The cumulative effect of applying the provisions of this
interpretation was a $31 million noncash increase to our opening balance of Retained earnings in 2007. We have recorded
liabilities for unrecognized tax benefits related to permanent and temporary tax adjustments which, exclusive of interest,
totaled $195 million at December 31, 2007 and $266 million at January 1, 2007, after the adjustment to the beginning
balance of Retained earnings. The net decrease in the liability of $71 million primarily resulted from the following:
(In millions)
Balance at January 1, 2007 $266
Increase (decrease) related to tax positions in prior years
Recognition of benefits from resolution of issues with IRS (98)
Unrecognized tax benefits arising from acquisition activity 28
Tax positions related to the current year 81
Decreases related to settlements with taxing authorities (82)
Balance at December 31, 2007 $195
Approximately $150 million of the $195 million of liabilities at the end of 2007 are recorded in Other liabilities on the
Balance Sheet, with the remainder recorded in Other current liabilities. At December 31, 2007, the amount of unrecognized
tax benefits from permanent tax adjustments that, if recognized, would affect the effective tax rate, was $180 million. Over
the next year, we do not expect a significant increase or decrease in the unrecognized tax benefits recorded as of
December 31, 2007. In the ordinary course of business, we may take new tax positions that could increase or decrease
unrecognized tax benefits in future periods. The amount of net interest and penalties recognized as a component of income
tax expense during the years ended December 31, 2007 and 2006, as well as the amount of interest and penalties accrued at
December 31, 2007, was not material.
We and our subsidiaries file income tax returns in the U.S. federal jurisdiction and various foreign jurisdictions. With
few exceptions, the statute of limitations is no longer open for U.S. federal or non-U.S. income tax examinations for the years
before 2003. In 2007, the IRS closed its examinations of our U.S. federal income tax returns through December 31, 2004 and
all of our claims associated with additional ETI benefits for years prior to 2005. Examinations of our 2005 and 2006 tax
returns commenced in 2007 and, upon filing our tax return for 2007, the 2007 tax year will be added to those examinations.
These examinations are expected to be completed in 2009.
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