Raytheon 2015 Annual Report Download - page 126

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
116
At December 31, 2015, foreign earnings of approximately $688 million have been retained by foreign subsidiaries for
reinvestment. 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) 2015 2014 2013
Federal $ 1,008 $ 705 $ 628
Foreign 43 19 22
State 30 35 39
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
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 $7 million and $104 million at December 31, 2015 and
December 31, 2014, 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, 2015, December 31, 2014 and December 31, 2013, we
had $2 million, $6 million and $5 million of interest accrued related to unrecognized tax benefits, which, net of the federal
tax benefit, was approximately $0.5 million, $4 million and $3 million, respectively.
A rollforward of our unrecognized tax benefits was as follows:
(In millions) 2015 2014 2013
Unrecognized tax benefits, beginning of year $ 104 $ 118 $ 129
Additions based on current year tax positions 41 104
Additions based on prior year tax positions 110 —
Reductions based on prior year tax positions (102)(25)(64)
Settlements based on prior year tax positions ——(51)
Unrecognized tax benefits, end of year $7 $ 104 $ 118
With the exception of Forcepoint, we generally account for our state income tax expense as a deferred contract cost, to the
extent we can 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 $28
million, $41 million and $42 million in 2015, 2014 and 2013, respectively. We include state income tax expense allocated to
our contracts in administrative and selling expenses.