Raytheon 2014 Annual Report Download - page 124

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
115
The expense for income taxes differs from the U.S. statutory rate due to the following:
2014 2013 2012
Statutory tax rate 35.0% 35.0% 35.0%
Research and development (R&D) tax credit (1.1) (1.8) —
Tax settlements and refund claims (0.5) (0.8)(0.8)
Domestic manufacturing deduction benefit (2.7) (2.1)(1.9)
Tax benefit on foreign dividend (2.8) — —
Other, net (1.4) (1.0)(0.7)
Effective tax rate 26.5% 29.3% 31.6%
In December 2014, Congress enacted legislation that reinstated the Research & Development (R&D) tax credit that was
retroactive to the beginning of 2014. In the fourth quarter of 2014, we recorded a full year benefit of approximately $30
million related to the 2014 R&D tax credit.
We are subject to income taxes in the U.S. and numerous foreign jurisdictions. We have participated in the IRS Compliance
Assurance Process (CAP) program since 2011. We continue to participate in the CAP program for the 2013 and 2014 tax
years. In the first quarter of 2014 the IRS completed the examination for the 2012 tax year, which completed all examinations
through 2012. We are also under audit by multiple state and foreign tax authorities.
During 2013, the IRS completed its examination of our 2009 and 2012 tax years and we received final approval from the U.S.
Congressional Joint Committee on Taxation of a refund claim related to the 2011 tax year. As a result of closing the federal
audit examinations, our unrecognized tax benefits decreased by approximately $70 million, inclusive of interest, the majority
of which did not impact our income from continuing operations.
During 2012, we received final approval from the IRS and the U.S. Congressional Joint Committee on Taxation of an IRS
Appeals Division settlement for the 2006-2008 IRS examination cycle (2012 Tax Settlement). As a result, our unrecognized
tax benefits decreased by approximately $24 million, inclusive of interest, all of which increased our income from continuing
operations.
(In millions) 2014 2013 2012
Domestic income from continuing operations before taxes $ 2,868 $ 2,612 $ 2,630
Foreign income from continuing operations before taxes 115 145 149
At December 31, 2014, foreign earnings of approximately $384 million have been retained by foreign subsidiaries for
reinvestment. In the first quarter of 2014, a foreign subsidiary authorized and completed a transaction which resulted in a
taxable dividend of approximately $115 million. The transaction does not affect our indefinite reinvestment assertion because
it generated a net tax benefit of approximately $80 million. No provision has been made for deferred taxes on undistributed
earnings of non-U.S. subsidiaries as these earnings have been indefinitely invested or are expected to be remitted substantially
free of additional tax. Determination of the amount of unrecognized deferred tax liability on these undistributed earnings is
not practicable because of the complexity of laws and regulations, the varying tax treatment of alternative repatriation scenarios,
and the variation due to multiple potential assumptions relating to the timing of any future repatriation.
We made the following net tax payments during the years ended December 31:
(In millions) 2014 2013 2012
Federal $ 705 $ 628 $ 826
Foreign 19 22 13
State 35 39 78
We believe that our income tax reserves are adequate; 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 tax-related liabilities in the future as we revise estimates or we settle or otherwise resolve