Raytheon 2006 Annual Report Download - page 73

logistics modeling, simulation and visualization; obsolescence management; performance-based logistics; total asset
visibility; training and performance solutions. These solution sets are Raytheon technologies for implementing Mission
Support and are designed to enable customers to more efficiently address their logistics transformation challenges.
Net Sales. The increase in sales in 2006 was primarily due to additional deliveries and the ramp up of construction services
on contracts within our Logisitics and Training Systems (LTS) business. This was partially offset by the wind down of
three major programs, GUAM, AUTEC and Navy and Marine Corps Intranet (NMCI).
Operating Income and Margin. The decrease in operating margin in 2006 was primarily due to a profit adjustment related
to certain program costs which may be deemed unrecoverable.
Bookings and Backlog. In 2006, TS booked $198 million for the Nuclear Weapons Safety and Security (NWSS-Torp83)
program.
Other
% Change
(In millions except percentages) 2006 2005 2004
2006
versus
2005
2005
versus
2004
Net Sales $ 828 $ 781 $ 675 6.0% 15.7%
Operating Loss (94) (123) (31) 23.6% -296.8%
Operating Margin -11.4% -15.7% -4.6%
Gross Bookings 769 787 752 -2.3% 4.7%
Total Backlog 243 280 294 -13.2% -4.8%
The Other category is comprised of Flight Options LLC (FO), Raytheon Airline Aviation Services LLC (RAAS) and
Raytheon Professional Services LLC (RPS). FO offers services in the aircraft fractional ownership industry, including
programs for ownership shares of new and used aircraft, aircraft leasing and prepaid hourly membership programs.
RAAS manages the long-term wind-down of our commuter aircraft business. RPS works with customers to design and
execute learning solutions.
The increase in net sales in 2006 was mainly due to higher sales at FO and RPS while the decrease in operating loss in
2006 was primarily due to improved operating performance at FO and, to a lesser extent, improvements at RAAS
partially offset by a goodwill impairment charge at FO of $55 million.
The increase in sales in 2005 was mainly due to higher sales at FO and RPS while the increase in operating loss in 2005
was primarily due to the operating results of FO, a goodwill impairment charge at FO of $22 million and to a lesser extent
the operating results of RAAS. The higher operating loss at FO in 2005 was due to increased supplemental lift (higher
third party chartering expense) and maintenance expense related to the operational impacts primarily from older aircraft
in the fleet and the timing of peak customer demand. FO also recorded a $7 million charge in 2005 related to the
settlement of a lawsuit against FO and its minority shareholders. The higher losses at RAAS in 2005 were due to higher
aircraft maintenance expense in the period.
The goodwill impairment charges of $55 million in 2006 and $22 million in 2005 at FO were based upon our
determination that the fair value of the business was not sufficient to recover the carrying value of the assets, including
goodwill.
We estimated the fair value of FO using a discounted cash flow methodology based upon the respective FO long-range
plan and the financial objectives therein. This methodology involved significant judgment regarding FO’s projected
future cash flows and expected market conditions, and their impact on the selection of the discount rate used in
estimating the fair value of FO. The 2005 impairment charge was driven by a downward revision of FO’s then current
long-range plan as a result of 2005 performance, changes in valuation assumptions and the increase in goodwill as a result
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