Raytheon 2014 Annual Report Download - page 125

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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the underlying matters. In the ordinary course of business, we may take new positions that could increase or decrease our
unrecognized tax benefits in future periods.
The balance of unrecognized tax benefits, exclusive of interest, was $104 million and $118 million at December 31, 2014
and December 31, 2013, respectively, the majority of which would affect earnings if recognized. We accrue interest and
penalties related to unrecognized tax benefits in tax expense. At December 31, 2014, December 31, 2013 and December 31,
2012, we had $6 million, $5 million and $17 million of interest accrued related to unrecognized tax benefits, which, net of
the federal tax benefit, was approximately $4 million, $3 million and $11 million, respectively.
A rollforward of our unrecognized tax benefits was as follows:
(In millions) 2014 2013 2012
Unrecognized tax benefits, beginning of year $ 118 $ 129 $ 167
Additions based on current year tax positions 1104 1
Additions based on prior year tax positions 10 — —
Reductions based on prior year tax positions (25)(64)(39)
Settlements based on prior year tax positions —(51) —
Unrecognized tax benefits, end of year $ 104 $ 118 $ 129
It is reasonably possible that within the next 12 months our unrecognized tax benefits, exclusive of interest, may decrease by
up to $100 million, as a result of resolving various issues in the currently open cycles, including the R&D tax credit. We
expect that the majority of the decrease would affect the effective tax rate, if recognized.
We generally account for our state income tax expense as a deferred contract cost, as we can generally recover this expense
through the pricing of our products and services to the U.S. Government. We include this deferred amount in contracts in
process, net until allocated to our contracts, which generally occurs upon payment or when otherwise agreed as allocable with
the U.S. Government. Net state income tax expense allocated to our contracts was $41 million, $42 million and $78 million
in 2014, 2013 and 2012, respectively. We include state income tax expense allocated to our contracts in administrative and
selling expenses.
Deferred income taxes consisted of the following at December 31:
(In millions) 2014 2013
Current deferred tax assets (liabilities)
Accrued employee compensation and benefits $ 242 $ 240
Other accrued expenses and reserves 132 191
Contracts in process and inventories (539)(513)
Deferred income taxes-current $(165)$(82)
Noncurrent deferred tax assets (liabilities)
Pension benefits $ 2,242 $ 934
Other retiree benefits 110 113
Net operating loss and tax credit carryforwards 101 116
Depreciation and amortization (1,337)(1,346)
Other 106 (74)
Deferred income taxes-noncurrent $ 1,222 $(257)
As of December 31, 2014, we had foreign net operating loss carryforwards of approximately $392 million, of which $370
million was generated in the U.K. We believe that we will have sufficient taxable income to realize this deferred tax asset, as
any net operating loss generated in the U.K. may be carried forward indefinitely.