Raytheon

Greater Transparency in Tax Reporting

WHEREAS,“Corporate Income Taxes in the 1990s”, a report published by the well-respected Institute on Taxation and Economic Policy, found that because of a variety of tax breaks, Raytheon’s corporate tax rate over the three-year period ending 1998 was just 9.4%, well below the average rate of 21.7% paid by 250 of the largest American companies, well below industry rival Lockheed Martin’s tax rate of 31.4% and less than one-third the statutory corporate tax rate of 35%.

Using the same methodology employed in the study, Raytheon’s average federal corporate tax rate was 8.0% between 1996 and 2001. (Tax figures are those reported by the company, net of tax benefits for stock options. Profit figures exclude book write-offs for non-tax-deductible goodwill. Additional information on the methodolology employed can be found at http://www.ctj.org/itep/corp00pr.htm.)

Raytheon’s low effective corporate tax rate has played a substantial role in the company’s earnings performance. If Raytheon paid taxes at the average tax rate paid by other corporations, its earnings would be significantly lower. Yet shareholders understand very little about the details – and the risks – associated with corporate taxes.

At the same time that Raytheon has been successful in avoiding corporate taxes, it has derived significant benefits from government investments in the success of its business. Between 1998 and 2001, Raytheon received more than $345 million in loans or loan guarantees from the Export-Import Bank of the United States, the seventh highest amount of any US corporation. Government agencies have funded basic research to develop technologies that later end up in Raytheon’s products. Raytheon also benefits from a strong system of intellectual property rights, funded by the government. Finally, the federal government is Raytheon’s single largest customer.

During times of national emergency and war, there has historically been a call for shared sacrifice. Raytheon and other corporations may well be called upon to share in the sacrifice and to pay its fair share of the cost of operating the government on which the company depends for its success.

RESOLVED:

That shareholders request that the Board prepare a special report, providing greater transparency on corporate cash taxes paid than is presently available in the Form 10-K or the annual report. Specifically, the report shall explain, in plain language, each tax break that provides the company more than $5 million of tax savings. This report, prepared at a reasonable cost and omitting proprietary information, shall be available to requesting shareholders, no later than August 31, 2003.

Supporting Statement:

Relying on a low corporate tax rate to sustain high earnings entails political risks. As we continue in uncertain times, when corporations are coming under public scrutiny, it is possible that pressure to close corporate tax loopholes will emerge, putting Raytheon’s earnings at risk. In addition, corporate executives are compensated based in part on earnings growth. We believe it would be helpful to shareholders to easily understand how much of earnings growth stems solely from successful corporate tax avoidance.

Please vote FOR this resolution.

Responsible Wealth, 29 Winter Street, 2nd Floor, Boston, MA 02108.
Voice: 617/423-2148 Fax: 617/423-0191.
© 2002 Responsible Wealth. All rights reserved.