Raytheon 2006 Annual Report Download - page 95

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 2: Discontinued Operations
Income from discontinued operations consists of the following results from Raytheon Aircraft, Raytheon Engineers &
Constructors businesses (RE&C) and Aircraft Integration Systems business (AIS):
Pretax After-tax
(In millions) 2006 2005 2004 2006 2005 2004
Raytheon Aircraft $274 $187 $ 96 $181 $124 $ 65
RE&C (6) (41) (42) (4) (50) (48)
AIS (1) (33) (23) (1) (21) (15)
Total $267 $113 $ 31 $176 $53 $ 2
No interest expense was allocated to discontinued operations for the years ended December 31, 2006, 2005 and 2004
since there was no debt specifically attributable to discontinued operations or required to be repaid with proceeds from
the sale.
Raytheon Aircraft—In December 2006, we entered into a definitive agreement to sell Raytheon Aircraft Company for
approximately $3.3 billion. The transaction, which is subject to customary conditions and regulatory approvals, is
expected to close in the first half of 2007. We decided to explore strategic alternatives for Raytheon Aircraft, a provider of
business and special mission aircraft, because, among other reasons, it did not address our core markets and had limited
synergies with our government and defense businesses.
As a result of entering into the definitive agreement, we have reported Raytheon Aircraft as a discontinued operation in
this Form 10-K in accordance with Statement of Financial Accounting Standards No. 144, Accounting for the
Impairment or Disposal of Long-lived Assets. Accordingly, our results of operations for all periods presented have been
reclassified to reflect Raytheon Aircraft as a discontinued operation, and the assets and liabilities of Raytheon Aircraft
have been reclassified as held for sale for all periods presented. We will retain certain obligations of Raytheon Aircraft
after the sale, including environmental liabilities, product liability and certain U.K. pension benefits. In addition, we will
retain a residual interest in certain receivables sold by Raytheon Aircraft through 2006. These assets and liabilities are
included within the relevant account balances in our consolidated financial statements. Any future income statement
activity related to these accounts will be included in discontinued operations.
The income from discontinued operations related to Raytheon Aircraft was as follows:
(In millions) 2006 2005 2004
Net sales $2,983 $2,856 $2,420
Operating expenses 2,720 2,681 2,333
Income before taxes 274 187 96
Federal and foreign income taxes 93 63 31
Income from discontinued operations $ 181 $ 124 $ 65
Revenue from aircraft sales are recognized at the time of physical delivery of the completed aircraft. Revenue from certain
qualifying non-cancelable aircraft lease contracts is accounted for as sales-type leases. The present value of all payments,
net of executory costs, are recorded as revenue, and the related costs of the aircraft are charged to cost of sales. Associated
interest, using the interest method, is recorded over the term of the lease agreements. All other leases for aircraft are
accounted for under the operating method wherein revenue is recorded as earned over the rental period. Service revenue
is recognized ratably over contractual periods or as services are performed.
In connection with certain aircraft sales, we have offered trade-in incentives whereby the customer will receive a
pre-determined trade-in value if they purchase another aircraft from the Company. The difference between the value of
these trade-in incentives, the majority of which expire by the end of 2008, and the current estimated fair value of the
underlying aircraft was approximately $1 million at December 31, 2006. There is a high degree of uncertainty inherent in
the assessment of the likelihood and value of trade-in commitments.
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