Raytheon 2009 Annual Report Download - page 120

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The expense for income taxes differs from the U.S. statutory rate due to the following:
2009 2008 2007
Statutory tax rate 35.0% 35.0% 35.0%
Research and development tax credit -0.9% -1.0% -0.8%
Tax settlements and refund claims -0.9% -0.5% -9.9%
Domestic manufacturing deduction benefit -0.9% -0.5% -0.9%
ESOP dividend deduction benefit -0.4% -0.5% -0.5%
Non-deductible costs 0.3% 0.4% 0.5%
Other, net 0.3% -0.2% 0.2%
Effective tax rate 32.5% 32.7% 23.6%
We are subject to income taxes in the U.S. and numerous foreign jurisdictions.
Domestic income from continuing operations before taxes was $2,806 million, $2,360 million and $2,141 million in 2009,
2008 and 2007, respectively, and foreign income from continuing operations before taxes was $124 million, $162 million
and $110 million in 2009, 2008 and 2007, respectively. 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 federal and foreign tax
payments, net of refunds and credits, were $208 million, $448 million and $734 million in 2009, 2008 and 2007,
respectively.
During 2007, we settled our federal research credit claim for the years 1984–1990 and certain domestic and Foreign Sales
Corporation (FSC) issues for the years 1989–1997. IRS examinations of our tax returns have been completed through
2005 and the IRS has opened an examination of our tax returns for 2006–2008. We have protested to the IRS Appeals
Division certain proposed adjustments primarily involving benefits under the FSC and Extraterritorial Income (ETI)
exclusion regimes for 1998–2005. Additionally, we are under audit by a number of state tax authorities. State tax liabilities
are routinely adjusted to account for any changes in federal taxable income.
We believe we adequately provide for all tax positions, however, amounts asserted by taxing authorities could be greater
or less than amounts accrued and reflected in our consolidated balance sheets. Accordingly, we could record adjustments
to the amounts for federal, foreign and state-related liabilities in the future as we revise estimates or we settle or otherwise
resolve the underlying matters.
In 2007, we adopted the required new accounting standard which changed the requirements when accounting for various
tax positions, and recognized a $13 million increase in our liability for unrecognized tax benefits, which we accounted for
as a reduction to retained earnings. The balance of unrecognized tax benefits at December 31, 2009, exclusive of interest,
was $469 million, of which $364 million would affect earnings if recognized. The balance of unrecognized tax benefits at
December 31, 2008, exclusive of interest, was $415 million, of which $315 million would affect earnings if recognized.
We accrue interest and penalties related to unrecognized tax benefits in tax expense. As a result, we recorded $27 million,
$26 million and $32 million of gross interest and penalties in 2009, 2008 and 2007, respectively, which net of the federal
tax benefit was $17 million in 2009 and 2008 and $21 million in 2007. At December 31, 2009, and 2008, respectively, we
had approximately $123 million and $96 million of interest and penalties accrued related to unrecognized tax benefits,
which, net of the federal tax benefit was approximately $80 million and $63 million, respectively. In the ordinary course
of business, we may take new tax positions that could increase or decrease unrecognized tax benefits in future periods.
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