Raytheon 2009 Annual Report Download - page 121

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
A rollforward of our unrecognized tax benefits was as follows:
(In millions) 2009 2008 2007
Unrecognized tax benefits, beginning of year $415 $342 $ 500
Additions based on current year tax positions 20 36 63
Reductions based on current year tax positions —— (1)
Additions for prior year tax positions 34 38 34
Reductions for prior year tax positions —— (7)
Settlements with taxing authorities —(1) (247)
Unrecognized tax benefits, end of year $469 $415 $ 342
Although the final outcome remains uncertain, we may reach a settlement with the IRS Appeals division in 2010 to
resolve certain protested adjustments related to benefits claimed under the FSC and ETI regimes, revenue recognition
items, the deductibility of certain expenses, tax credits and certain other tax matters related to the years 1998–2005. Based
on the outcome of appeals proceedings, Joint Committee on Taxation review and the expiration of the statute of
limitations, it is reasonably possible that within the next 12 months our unrecognized tax benefits, exclusive of interest,
will decrease by approximately $195 million to $225 million, of which approximately $185 million to $203 million could
decrease tax expense.
We generally account for our state income tax expense as a deferred contract cost, as we can generally recover these costs
through the pricing of our products and services to the U.S. Government. We include this deferred contract cost in
contracts in process until allocated to our contracts, which generally occurs upon payment or when otherwise agreed as
allocable with the U.S. Government. Net state income taxes allocated to our contracts were $25 million, $122 million and
$81 million in 2009, 2008 and 2007, respectively. We include state income taxes allocated to our contracts in
administrative and selling expenses.
The American Jobs Creation Act of 2004 provides a deduction for income derived from qualifying domestic production
activities (the Domestic Manufacturing Deduction under Section 199 of the Internal Revenue Code (IRC)) that is phased
in over the 2005–2010 period. The deduction is equal to 3% of qualifying income in 2005 and 2006, 6% in 2007, 2008 and
2009, and 9% thereafter.
In October 2008, the Tax Extenders and Alternative Minimum Tax Relief Act of 2008 was enacted. This legislation
retroactively reinstated the research and development tax credit for 2008 and extended it through December 31, 2009. As
a result, we recorded a benefit of approximately $26 million in the fourth quarter of 2008 representing the benefit of the
research and development tax credit for the full year.
Deferred income taxes consisted of the following at December 31:
(In millions) 2009 2008
Current deferred tax assets (liabilities)
Other accrued expenses and reserves $ 166 $ 293
Accrued employee compensation and benefits 196 133
Contracts in process and inventories (89) (31)
Deferred income taxes-current $ 273 $ 395
Noncurrent deferred tax assets (liabilities)
Net operating loss and tax credit carryforwards $32$14
Pension benefits 1,384 1,447
Other retiree benefits 123 166
Depreciation and amortization (1,194) (1,008)
Other 68 116
Deferred income taxes-noncurrent $ 413 $ 735
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