Raytheon 2007 Annual Report Download - page 68

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The expense for income taxes differs from the U.S. statutory rate due to the following:
2007 2006 2005
Statutory tax rate 35% 35% 35%
Tax settlements and export tax benefit refund claims (9.9) ——
Other items, net (1.2) (1.3) (0.7)
Effective tax rate 23.9% 33.7% 34.3%
The effective tax rate was 23.9% in 2007, 33.7% in 2006 and 34.3% in 2005, reflecting the U.S. statutory rate adjusted for
various permanent differences between book and tax reporting. Included in the effective tax rate in 2007 was a $219
million favorable impact primarily related to the resolution of a federal research credit refund claim for the 1984-1990
years and certain export tax benefit refund claims, which reduced the effective tax rate by 9.9%. The effective tax rate in
2007 was also reduced by manufacturing benefits, research credits and Employee Stock Ownership Plan (ESOP) dividend
deductions, and was increased by various non-deductible expenses. The effective tax rate in 2006 was reduced by export-
related tax benefits, ESOP dividend deductions, manufacturing benefits and research credits, and was increased by
various non-deductible expenses. The effective tax rate in 2005 was reduced by export-related tax benefits, research
credits and ESOP dividend deductions, and was increased by various non-deductible expenses. Included in the effective
tax rate in 2005 was the impact of the $12 million nondeductible settlement with the SEC, an $18 million accrual related
to adjustments resulting from examinations by taxing authorities and other tax issues and a $5 million accrual related to
the repatriation of earnings from foreign subsidiaries. The provision for state income taxes has been included in
administrative and selling expenses as these costs can generally be recovered through the pricing of products and services
to the U.S. government.
Income from continuing operations was $1,693 million or $3.80 per diluted share on 445.7 million average shares
outstanding in 2007, $1,187 million or $2.63 per diluted share on 450.9 million average shares outstanding in 2006 and
$898 million or $1.98 per diluted share on 453.3 million average shares outstanding in 2005. The increase in continuing
operations of $506 million in 2007 compared to 2006 was principally due to the following: operational improvements of
$281 million from growth and performance improvements discussed below in Segment Results, $219 million of
tax-related benefits discussed above, lower net interest expense of $164 million and lower FAS/CAS expense of $103
million offset by higher taxes of $147 million related primarily to our higher income and an increase in other expense of
$114 million driven primarily by the loss on our early repurchase of debt. The increase in income from continuing
operations of $289 million in 2006 compared to 2005 was primarily due to improved operating results described below in
Segment Results.
Income (loss) from discontinued operations, net of tax, described below in Discontinued Operations, was $885 million of
income or $1.99 per diluted share in 2007, $96 million of income or $0.21 per diluted share in 2006 and $27 million of
loss or $0.06 per diluted share in 2005.
Net income was $2,578 million or $5.79 per diluted share in 2007, $1,283 million or $2.85 per diluted share in 2006 and
$871 million or $1.92 per diluted share in 2005.
SEGMENT RESULTS
We report our results in the following segments: Integrated Defense Systems, Intelligence and Information Systems,
Missile Systems, Network Centric Systems, Space and Airborne Systems and Technical Services.
Effective on the date of the sale of Flight Options LLC (FO) in 2007, we reorganized the remaining businesses which we
formerly disclosed in the Other category to realign our capabilities and technologies. As discussed below, FO is accounted
for as a discontinued operation. Also, our Raytheon Professional Services business was transferred to Technical Services.
With the sale of Raytheon Aircraft and FO, we have largely exited the commercial aircraft market and all remaining assets
and liabilities associated with the residual commuter aircraft portfolio of Raytheon Airline Aviation Services LLC (RAAS),
which currently generates only in idental revenues, were transferred to Corporate.
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