P51 333 RAYTHEON COMPANY 333 333 NOTE L: FEDERAL AND  FOREIGN INCOME TAXES The provision for federal and foreign income taxes consisted of the following: The provision for state income taxes was included in general and administrative expenses as these costs can generally be recovered through the pricing of products and services to the U.S. government. The provision for income taxes differs from the U.S. statutory rate due to the following: Effective January 1, 2002, the Company discontinued the amor- tization of goodwill as required by SFAS No. 142, as described in Note A, Accounting Policies, Impairment of Long-lived Assets. The higher effective tax rate in 2001 resulted from the increased effect of non-deductible amortization of goodwill on lower income before taxes resulting primarily from the charges at Raytheon Airline Aviation Services.  In 2003, 2002, and 2001, domestic income (loss) before taxes was $493 million, $(12) million, and $(1,156) million, respectively, and foreign income before taxes was $8 million, $75 million, and $118 million, respectively. Income reported for federal and foreign tax purposes differs from pretax accounting income due to differences between U.S. Internal Revenue Code requirements and the Company’s accounting practices. No provision has been made for deferred taxes on undistributed earnings of non-U.S. subsidiaries as these earnings have been indefinitely reinvested. Net cash (payments) refunds were $(13) million, $145 million, and $27 million in 2003, 2002, and 2001, respectively.  Deferred federal and foreign income taxes consisted of the fol- lowing at December 31: There were $12 million and $1 million of taxes refundable included in prepaid expenses and other current assets at December 31, 2003 and 2002, respectively. Federal tax benefits related to discontinued operations were $91 million in 2003 and $126 million in 2002 and were included in deferred federal and for- eign income taxes in the table above. At December 31, 2003, the Company had net operating loss carryforwards of $1.4 billion that expire in 2020 through 2023, for- eign tax credit carryforwards of $41 million that expire in 2006 through 2008, and research tax credit carryforwards of $26 million that expire in 2018 to 2023. The Company believes it will be able to utilize all of these carryforwards over the next 3 to 4 years. At December 31, 2003, the Company had commitments under long-term leases requiring annual rentals on a net lease basis as follows: Rent expense in 2003, 2002, and 2001 was $441 million, $449 million, and $276 million, respectively. In the normal course of business, the Company leases equipment, office buildings, and other facilities under leases that include standard escalation clauses for adjusting rent payments to reflect changes in price indices, as well as renewal options. 333 NOTE M: COMMITMENTS AND CONTINGENCIES (In millions) 2003 2002 2001 Current income tax expense Federal $130 $5 1 $8 7 Foreign 3 5 4 Deferred income tax expense (benefit) Federal 94 243 (30) Foreign — 21 37 Total $227 $320 $ 98 2003 2002 2001 Statutory tax rate 35.0% 35.0% 35.0% Foreign sales corporation tax benefit (3.1) (3.5) (36.0) ESOP dividend deduction benefit (1.7) (1.1) (11.0) Research and development tax credit (0.8) (1.0) (5.0) Goodwill amortization — — 109.0 Other, net 0.4 0.3 6.0 Effective tax rate 29.8% 29.7% 98.0% (In millions) 2003 2002 Current deferred tax assets  Other accrued expenses $289 $ 378 Accrued salaries and wages 105 104 Contracts in process and inventories 72 119 Deferred federal and foreign income taxes—current $ 466 $601 Noncurrent deferred tax assets (liabilities)  Net operating loss and foreign tax  credit carryforwards $ 631 $ 533 Pension benefits 310 348 Other retiree benefits 226 235 Depreciation and amortization (703) (711) Revenue on leases and other (127) (124) Deferred federal and foreign income taxes-noncurrent $337 $ 281 (In millions) 2004 $294 2005 271 2006 236 2007 198 2008 151 Thereafter 327