Raytheon 2006 Annual Report Download - page 105

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Our Board of Directors is authorized to issue up to 200,000,000 shares of preferred stock, $0.01 par value per share, in
multiple series with terms as determined by our Board of Directors.
As discussed in Commitments and Contingencies, the terms of the settlement of the securities class action lawsuit include
the issuance of warrants for our stock with a stipulated value of $200 million. In June 2006, in connection with the
settlement, we issued 12.0 million warrants with a strike price of $37.50 and a five-year term.
Note 11: Federal and Foreign Income Taxes
The provision for federal and foreign income taxes consisted of the following:
(In millions) 2006 2005 2004
Current income tax expense
Federal $378 $388 $109
Foreign 19 20 7
Deferred income tax expense (benefit)
Federal 168 20 (7)
Foreign 16 7—
Total $581 $435 $109
The provision for state income taxes of $29 million, $8 million and $6 million in 2006, 2005 and 2004, respectively, was
included in administrative and selling expenses.
The provision for income taxes differs from the U.S. statutory rate due to the following:
2006 2005 2004
Statutory tax rate 35.0% 35.0% 35.0%
Extraterritorial income exclusion/foreign sales corporation tax benefit (0.8) (1.4) (3.8)
Research and development tax credit (0.3) (1.2) (0.9)
ESOP dividend deduction benefit (0.8) (1.0) (2.6)
Domestic manufacturing deduction benefit (0.6) ——
Foreign tax credit benefit —— (6.6)
Non-deductible costs 1.4 1.5 1.8
Federal tax cost of repatriation under the American Jobs Creation Act —0.4 —
Other, net 0.5 1.4 (0.3)
Effective tax rate 34.4% 34.7% 22.6%
In 2006, 2005 and 2004, domestic income before taxes was $1,632 million, $1,177 million and $463 million, respectively,
and foreign income before taxes was $56 million, $76 million and $20 million, respectively. Income reported for federal
and foreign tax purposes differs from pretax income due to differences between U.S. Internal Revenue Code or foreign
tax law requirements and our accounting practices. No provision has been made for deferred taxes on undistributed
earnings of non-U.S. subsidiaries as these earnings have been indefinitely reinvested. Determination of the amount of
unrecognized deferred tax liability on these undistributed earnings is not practicable. Total net cash payments were
approximately $375 million, $56 million and $5 million in 2006, 2005 and 2004, respectively.
IRS examinations of our tax returns have been completed for years through 2002. We have protested to the IRS Appeals
Division certain positions taken by the IRS examination team in the recently completed audit of years 1998 through 2002.
The IRS Appeals Division is in the process of completing its reports resolving various domestic and Foreign Sales
Corporation (FSC) issues for years 1989 through 1997. The examination of our federal research tax credit refund claim for
years 1984 through 1990 was completed in 2006 and we protested the results of the examination to the IRS Appeals Division.
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