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1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
/X/ Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended December 31, 1999.
/ / Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from............... to
..............
Commission File Number 1-13699
RAYTHEON COMPANY
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 95-1778500
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
141 SPRING STREET, LEXINGTON, MASSACHUSETTS 02421
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (781) 862-6600
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on
Which Registered
Class A Common Stock, $.01 par value New York Stock Exchange
Class B Common Stock, $.01 par value Chicago Stock Exchange
Series A Junior Participating Preferred Pacific Exchange
Stock purchase rights
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes .X. No ...
A disclosure of one delinquent filer pursuant to Item 405 of Regulation S-K will
be contained in the Registrant's definitive proxy statement incorporated by
reference in Part III of this Form 10-K.
The aggregate market value of the voting stock held by non-affiliates of the
Registrant, as of February 27, 2000, was approximately $6,621,599,169. For
purposes of this disclosure, non-affiliates are deemed to be all persons other
than members of the Board of Directors of the Registrant.
Number of shares of Common Stock outstanding as of February 27, 2000:
337,647,682, consisting of 100,778,310 shares of Class A Common Stock and
236,869,372 shares of Class B Common Stock.
Documents incorporated by reference and made a part of this Form 10-K:
Portions of Raytheon's Annual Report Part I, Part II, Part IV
to Stockholders for the fiscal year
ended December 31, 1999
Portions of the Proxy Statement for Raytheon's Part III
2000 Annual Meeting which will be filed with
the Commission within 120 days after the close
of Raytheon's fiscal year
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PART I
Item 1. Business
GENERAL
Raytheon Company ("Raytheon" or the "Company") is a global technology
leader, with worldwide 1999 sales of $19.8 billion. The Company provides
products and services in the areas of defense and commercial electronics,
engineering and construction, and business and special mission aircraft.
Raytheon has operations throughout the United States and serves customers in
more than 80 countries around the world.
The Company, formerly known as HE Holdings, Inc. ("HE Holdings"), is
the surviving company of the December 17, 1997 merger (the "Hughes Merger") of
HE Holdings, Inc. and Raytheon Company, a Delaware corporation ("Former
Raytheon"). At the effective time of the Hughes Merger, the separate legal
existence of Former Raytheon ceased and HE Holdings was renamed "Raytheon
Company." Although, from a legal point of view, HE Holdings, Inc. is the
surviving company of the Hughes Merger, the Company's business is largely
conducted in the same manner as and under the senior management of Former
Raytheon. Accordingly, the historical disclosures in this Form 10-K for years
prior to 1998 and any year-to-year comparisons contained herein for years prior
to 1998, unless otherwise specifically noted, relate to the operations of Former
Raytheon, as a predecessor to the Company by merger, and not to HE Holdings,
Inc. as it existed prior to the Hughes Merger.
BUSINESS SEGMENTS
Electronics
Defense Electronics. Raytheon's defense electronics businesses
represent the combination and consolidation of four legacy defense
organizations--Raytheon Electronic Systems, Raytheon E-Systems, Raytheon TI
Systems and the defense electronics business of Hughes Electronics Corporation.
Raytheon's defense electronics businesses are engaged in the design, manufacture
and service of advanced electronic devices, equipment and systems for both
government and commercial customers. In addition to defense electronics systems,
Raytheon has been successful in the conversion of certain defense electronics
technologies to commercial and non-defense applications such as air traffic
control, environmental monitoring and communications. In 1999 the Company's
defense electronics business was conducted through the following business
segments: Defense Systems; Sensors and Electronics Systems; Command, Control,
Communication and Information Systems; Aircraft Integration Systems; and
Training and Services.
See "Business Segments - Consolidations and Reorganizations" regarding
the reorganization of the Company's defense electronics businesses.
Defense Systems. The Defense Systems segment ("DSS") focuses on
anti-ballistic missile systems; air defense; air-to-air, surface-to-air, and
air-to-surface missiles; naval and maritime systems; ship self-defense systems;
torpedoes; strike, interdiction and cruise missiles; and advanced munitions.
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DSS produces the Patriot ground-based air defense missile system, which
is capable of tracking and intercepting enemy aircraft, cruise missiles, and
tactical ballistic missiles. In addition to the U.S., eight nations have
selected Patriot as an integral part of their air defense systems. Since the end
of the Gulf War in 1991, Raytheon has received approximately $3.5 billion in
international orders for Patriot equipment and services. In addition, DSS leads
Raytheon's efforts as the prime contractor for the Hawk ground-launched missile,
which is in service with the U.S. and 18 allied nations.
DSS develops ground-based phased-array radars, including the X-Band
Radar (XBR) and Upgrade Early Warning Radar (UEWR) for National Missile Defense,
as well as the Ground-Based Radar (GBR) for the Theater High Altitude Area
Defense (THAAD) system, part of the U.S. Army's Theater Missile Defense Program.
It also is developing next-generation theater missile interceptors for the Navy
Area Defense (NAD) and Navy Theater Wide (NTW) systems and the Exoatmospheric
Kill Vehicle (EKV) for National Missile Defense.
DSS manufactures the primary air-to-air missile for the U.S. Air Force
and Navy fighter aircraft - the Advanced Medium Range Air-to-Air Missile
(AMRAAM), and is developing the AIM-9X (short-range air-to-air missile). Other
missiles produced by DSS include Tomahawk, TOW, Stinger, Maverick, Standard, the
High Speed Anti-Radiation Missile (HARM), Paveway laser-guided bombs, Extended
Range Guided Munitions (ERGM), XM-982, Joint Stand Off Weapon (JSOW), and
Javelin (pursuant to a joint venture with Lockheed Martin Corporation).
DSS also leads Raytheon's efforts as the prime contractor for the NATO
Sea-Sparrow Surface to Air Missile System (NSSMS), as well as producing the air-
and surface-launched versions of the Sparrow missile for both the U.S. and
foreign Navies. DSS produces Phalanx and the Rolling Airframe Missile (RAM),
which the U.S. and foreign Navies use as part of the ship self-defense system.
DSS develops sonars, combat control systems, minehunting equipment and torpedoes
for submarines and ships in U.S. and allied fleets, in addition to designing
unmanned underwater vehicles and laser sensors. DSS produces a variety of
shipboard radar systems. DSS also leads Raytheon's development efforts on the
U.S. Navy's next generation of surface combatant ships, the DD-21.
Sensors and Electronic Systems. The Sensors and Electronic Systems
segment ("SES") specializes in radar, electronic warfare, infrared, laser, and
GPS technologies. Its programs focus on land, naval, airborne and spaceborne
systems used for surveillance, reconnaissance, targeting, navigation, commercial
and scientific applications.
SES airborne radars are deployed on four operational tactical fighter
aircraft operated by U.S. forces (the F-14, F-15, F/A-18, and the AV-8B) and
international customers, as well as radars for the AC-130U gunship and the B-2
Stealth Bomber. SES is also part of a joint venture with Northrop Grumman
Corporation providing the next generation airborne radar for the F-22 aircraft.
The segment provides the Forward Looking Infrared (FLIR) and designation system
for the F-117 Stealth Fighter, the infrared subsystem for the F/A-18 targeting
pod, and is developing the Advanced Targeting FLIR for the F/A-18.
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SES supplies integrated sensor suites for applications such as the U.S.
Department of Defense's ("DoD") Global Hawk Unmanned Aerial Vehicle
Reconnaissance System, which includes a synthetic aperture radar and
electro-optical/infrared sensors. SES surveillance and reconnaissance systems
are used on a variety of aircraft, such as the British Tornado, the U.S. Air
Force U-2 and the U.S. Navy P-3 Orion. SES also provides space sensors for
defense and scientific applications.
SES night vision and fire control systems equip combat vehicles like
the M1 Abrams tank, Bradley Fighting Vehicle and a host of light armored
vehicles, ships and submarines, and aircraft. The segment also puts state of the
art technology in the hands of the infantry. Its sensor and electronic systems
are used for law enforcement, security, oil spill response, search and rescue
and many other commercial and industrial applications. One commercial night
vision application is a night driving safety option on the model year 2000
Cadillac(R) DeVille(R)(1).
The segment's surface radar products include radars for
intelligence/data collection, spacetrack, deep space surveillance, missile
warning and imaging and command and control radars. Tactical radars include
battlefield radars for Forward Area Air Defense Systems and hostile weapons
locating radars.
Command, Control, Communication and Information Systems. The Command,
Control, Communication and Information Systems segment ("C3I") is involved in
command, control and communication systems; air traffic control systems;
tactical radios; satellite communication ground control terminals; wide area
surveillance systems; advanced transportation systems; simulators and simulation
systems; ground-based information processing systems; image processing; large
scale information retrieval, processing and distribution systems; and global
broadcast systems.
An example of C3I's capabilities in the area of advanced information
integration is the U.S. Navy's Cooperative Engagement Capability (CEC) program.
CEC integrates sensor information from multiple sources to provide ships,
aircraft and land-based installations an integrated air picture. The system has
now successfully completed more than eight years of comprehensive at-sea
testing, including several live fire tests, and is now facing the challenges of
integration into the fleet.
C3I led Raytheon's role as the prime contractor for the Brazilian
System for the Vigilance of the Amazon (SIVAM) program, which calls for the
delivery of an integrated information network linking numerous sensors to
regional and national coordination centers. Information will be used to enable
the Brazilian Government to protect the environment, improve air safety and
weather forecasts, help control epidemics, manage land occupation and usage and
ensure effective law enforcement and border control.
C3I also designs and installs air traffic control (ATC) and weather
systems at airports worldwide. One example is the Federal Aviation
Administration (FAA)/DoD's Standard Terminal Automation Replacement System
(STARS) program, which will modernize and upgrade approximately 370 air traffic
control sites across the United States. Some of the countries Raytheon is
providing ATC systems and radars for include: Australia, Canada, Cyprus,
Germany, Hong Kong, India, Jamaica, The Netherlands, Norway, Oman, the People's
Republic of China, Switzerland and Taiwan.
(1) Cadillac and DeVille are registered trademarks of General Motors
Corporation.
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Aircraft Integration Systems. The Aircraft Integration Systems segment
("AIS") focuses on integration of airborne surveillance and intelligence systems
and aircraft modifications.
AIS specializes in developing and integrating complex electronic
systems for airborne Intelligence, Surveillance, and Reconnaissance (ISR)
missions. AIS provides signals intelligence, air-ground surveillance, maritime
surveillance, and airborne command post systems to both U.S. Government and
foreign customers. In addition, AIS modernizes aging aircraft through structural
refurbishment and avionics upgrades including completely new "glass" cockpits
with the latest display technologies and FAA-required air traffic management
systems that enhance air safety. The segment also designs and installs interiors
for executive aircraft and performs Special Operations Forces Support Activity
(SOFSA).
Training and Services. The Training and Services segment operates
under Raytheon Technical Services Company ("RTSC"). RTSC provides technical
services; training programs; and logistics and base operations support
throughout the U.S. and in 22 other countries.
RTSC performs complete engineering and depot-level cradle-to-grave
support to Raytheon-manufactured equipment and to various commercial and
military customers. Services provided include installation and test of upgrades
to deployed systems; engineering design, planning, and testing; repair and
refurbishment of DoD equipment; software engineering support; data management;
preparation of technical manuals; training for allied forces; system and
facility installations; field testing and evaluation; field engineering; and
system operation and maintenance.
RTSC is a world leader in providing and supporting range
instrumentation systems and bases worldwide for the DoD. It also provides
missile range calibration services for the U.S. Air Force, trains U.S. Army
personnel in battlefield tactics and supports undersea testing and evaluation
for the U.S. Navy. RTSC provides operations and engineering support to the
Atlantic Underwater Test and Evaluation Center, range technical support at Cape
Canaveral, and facilities maintenance at several DoD facilities, including the
U.S. Army's missile testing range in the Kwajalein Atoll. It also provides base
operations support to DoD facilities on Guam, Johnston Atoll and other
locations.
RTSC supplies professional services to a broad range of customers in
the areas of space and earth sciences, scientific data management,
transportation management, remote sensing, and computer networking. RTSC also
supports the U.S. Government's demilitarization activities in countries of the
former Soviet Union and the development and operation of Space Shuttle and Space
Station simulators for NASA's Johnson Space Center. It also provides logistics
and science support for the National Science Foundation's Antarctica program.
RTSC is a leader in commercial training, managing corporate
universities for General Motors and Raytheon, as well as providing instructor
and computer-based training to a number of commercial clients. The work for
General Motors ranges from dealer enthusiasm training in more than twenty
languages in Europe to factory floor training in plants around the world and
training for engineering support in North America. As part of the reorganization
of the Company's commercial businesses, RTSC's commercial training business was
moved to Commercial Electronics.
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See "Business Segments - Consolidations and Reorganizations" regarding
the reorganization of the Company's commercial electronics businesses.
Commercial Electronics. Raytheon's commercial electronics businesses
produce, among other things, marine radars and other marine electronics,
transmit/receive modules for satellite communications projects, and other
electronic components for a wide range of applications.
Raytheon Marine supplies marine radars, depth sounders,
radiotelephones, autopilots, fish finders, ECDIS and navigation aids, GPS and
Loran receivers and other marine electronics under the Raytheon, Apelco and
Autohelm labels in the U.S. and abroad. Raytheon Anschutz GmbH, located in Kiel,
Germany, manufactures gyro compasses, autopilots, steering control systems, and
integrated bridge systems for the commercial and military marine market.
Raytheon is using its gallium arsenide MMIC technology to develop
direct broadcast satellite television receivers and is currently delivering high
volumes of gallium arsenide power amplifiers to Motorola for use in the digital
StarTAC(R)2 phone for the cellular market.
For financial reporting purposes, certain operating segments within
Electronics have been aggregated as they exhibit similar long-term financial
performance characteristics. All material intercompany transactions have been
eliminated. During 1999 the reportable segments within Electronics included the
following: Defense Systems; Sensors and Electronic Systems; Command, Control,
Communication and Information Systems; and a combined group made up of Aircraft
Integration Systems, Training and Services, Commercial Electronics and Other.
See "Business Segments - Consolidations and Reorganizations" regarding
the reorganization of the Company's defense and commercial electronics
businesses.
Aircraft
Raytheon Aircraft offers a broad product line in the general aviation
market. Raytheon Aircraft manufactures, markets and supports piston-powered
aircraft, jet props and light and medium jets for the world's commercial,
regional airlines and military aircraft markets.
Raytheon Aircraft's piston-powered aircraft line includes the
single-engine Beech Bonanza and the twin-engine Beech Baron aircraft for
business and personal flying. The segment's King Air jetprop series includes the
Beech King Air C90, B200, and 350. The jet line includes the Beechjet 400A and
the Hawker 800XP midsize business jet. Raytheon Aircraft is the leading producer
of 19-passenger regional airliners, selling the Beech 1900D stand-up cabin
aircraft to commuter airlines and corporate customers. The Raytheon Premier I
entry-level business jet is currently in a certification test program. To date,
approximately 200 firm orders have been received for the Premier I, with an
anticipated certification by mid-year 2000 and deliveries to begin in the second
half of 2000. A new super midsize business jet, the Hawker Horizon, is currently
in development, leading to anticipated airplane certification and delivery in
2001.
(2) StarTAC is a registered trademark of Motorola, Inc.
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The segment supplies aircraft training systems for the military,
including the T-6A trainer selected as the next-generation trainer for the U.S.
Air Force and Navy under the Joint Primary Aircraft Training (JPATS) contract.
Raytheon Aircraft produces special mission aircraft, including a C-12
militarized version of the King Air B200 and the U-125 search-and-rescue variant
of the Hawker 800.
Raytheon Aerospace manages approximately 1,500 aircraft at over 250
sites around the world and provides contractor logistics and training support
for military and other government aircraft and missile target systems. Raytheon
Aircraft Services operates a network of business aviation service operations at
airports across the U.S.
Raytheon Travel Air sells fractional shares in aircraft and provides
aircraft management and transportation services for the owners of the shares.
The Travel Air program includes the Hawker 800XP, Beechjet 400A and the King Air
200. At year end 1999, Raytheon Travel Air had more than 400 fractional share
owners.
Engineering and Construction
Raytheon Engineers & Constructors ("RE&C") is a major full-service
engineering and construction firm serving customers worldwide. RE&C's major
product lines are Power, Infrastructure, Operations & Maintenance, Government,
Industrial Products, and Petroleum and Chemicals. Its range of capabilities
includes master planning, project financing, proprietary process technology,
environmental assessment, engineering and design, procurement, construction and
construction management, operations and maintenance, quality programs, and
systems integration.
RE&C undertakes some engineering and construction projects on a firm
fixed price basis ("lump sum turnkey") and as a result, benefits from cost
savings and carries the burden of cost overruns. RE&C is focusing on optimizing
its mix of ongoing services work and lump sum turnkey projects.
Examples of projects in which RE&C is currently engaged include: (i) a
$1.1 billion Sithe Energies award for two power plant projects in Massachusetts;
(ii) a $1.1 billion project to design, build, operate, and maintain a light rail
line in New Jersey; (iii) a project valued at more than $700 million to build a
dam and power plant at San Roque in the Philippines; (iv) projects valued at a
total of more than $1 billion to build and operate chemical weapons destruction
facilities in Umatilla, Oregon and Pine Bluff, Arkansas; (v) projects valued at
more than $120 million to design and build petrochemical facilities at two BASF
sites in Europe; (vi) major expansions of two Corning optical fiber
manufacturing plants in North Carolina; and (vii) operations and maintenance
services at the Motiva Refinery in Delaware, where the company has been
performing such work for more than 40 years.
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Financial information about Operations by Business Segments and
Operations by Geographic Areas is contained in Note N to Raytheon's Financial
Statements for the years ended December 31, 1999, 1998 and 1997 and is
incorporated herein by reference.
Consolidations and Reorganizations
In November 1999, the Company announced a reorganization of its defense
electronics businesses. The reorganization will be reflected in the Company's
2000 financial statements. In the new structure, Raytheon Systems Company has
been phased out; a new Electronic Systems business has been created by combining
the Company's former Defense Systems and Sensors and Electronic Systems
segments; and domestic and international business development has been combined
in one organization to provide focused customer solutions worldwide. The Company
also reorganized its Commercial Electronics business to put all commercial
electronics businesses, plus certain commercializable products and technologies
from Raytheon Systems Company, into one operating unit.
Divestitures
Consistent with Raytheon's strategy of divesting non-core assets to
focus and streamline core businesses and pay down debt, the Company divested a
number of business units in 1999. Cash proceeds from divestitures and sales of
investments totaled $267 million after tax.
SALES TO THE UNITED STATES GOVERNMENT
Sales to the United States Government (the "Government"), principally
to the Department of Defense ("DoD"), were $12.1 billion in 1999 and $12.8
billion in 1998, representing 60.8% of total sales in 1999 and 66.1% in 1998. Of
these sales, $1.0 billion in 1999 and $1.7 billion in 1998 represented purchases
made by the Government on behalf of foreign governments.
GOVERNMENT CONTRACTS
The Company and various subsidiaries act as a prime contractor or major
subcontractor for many different Government programs, including those that
involve the development and production of new or improved weapons or other types
of electronics systems or major components of such systems. Over its lifetime, a
program may be implemented by the award of many different individual contracts
and subcontracts. The funding of Government programs is subject to congressional
appropriations. Although multi-year contracts may be authorized in connection
with major procurements, Congress generally appropriates funds on a fiscal year
basis even though a program may continue for many years. Consequently, programs
are often only partially funded initially, and additional funds are committed
only as Congress makes further appropriations. The Government is required to
adjust equitably a contract price for additions or reductions in scope or other
changes ordered by it.
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Generally, Government contracts are subject to oversight audits by
Government representatives, and, in addition, they include provisions permitting
termination, in whole or in part, without prior notice at the Government's
convenience upon the payment of compensation only for work done and commitments
made at the time of termination. In the event of termination, the contractor
will receive some allowance for profit on the work performed. The right to
terminate for convenience has not had any significant effect upon Raytheon's
business in light of its total Government business.
The Company's Government business is performed under both cost
reimbursement and fixed price prime contracts and subcontracts. Cost
reimbursement contracts provide for the reimbursement of allowable costs plus
the payment of a fee. These contracts fall into three basic types: (i) cost plus
fixed fee contracts which provide for the payment of a fixed fee irrespective of
the final cost of performance; (ii) cost plus incentive fee contracts which
provide for increases or decreases in the fee, within specified limits, based
upon actual results as compared to contractual targets relating to such factors
as cost, performance and delivery schedule; and (iii) cost plus award fee
contracts which provide for the payment of an award fee determined at the
discretion of the customer based upon the performance of the contractor against
pre-established criteria. Under cost reimbursement type contracts, Raytheon is
reimbursed periodically for allowable costs and is paid a portion of the fee
based on contract progress. Some costs incident to performing contracts have
been made partially or wholly unallowable by statute or regulation. Examples are
charitable contributions, travel costs in excess of Government rates and certain
litigation defense costs.
The Company's fixed-price contracts are either firm fixed-price
contracts or fixed-price incentive contracts. Under firm-fixed price contracts,
Raytheon agrees to perform the contract for a fixed price and as a result
benefits from cost savings and carries the burden of cost overruns. Under fixed-
price incentive contracts, Raytheon shares with the Government savings accrued
from contracts performed for less than target costs and costs incurred in excess
of targets up to a negotiated ceiling price (which is higher than the target
cost) and carries the entire burden of costs exceeding the negotiated ceiling
price. Accordingly under such incentive contracts, the Company's profit may also
be adjusted up or down depending upon whether specified performance objectives
are met. Under firm-fixed price and fixed-price incentive type contracts, the
Company usually receives progress payments monthly from the Government generally
in amounts equaling 75% and 80% of costs incurred under (i) DoD contracts and
(ii) all other Government contracts, respectively. The remaining amount,
including profits or incentive fees, is billed upon delivery and final
acceptance of end items under the contract.
The Company's Government business is subject to specific procurement
regulations and a variety of socio-economic and other requirements. Failure to
comply with such regulations and requirements could lead to suspension or
debarment, for cause, from Government contracting or subcontracting for a period
of time. Among the causes for debarment are violations of various statutes,
including those related to procurement integrity, export control, government
security regulations, employment practices, the protection of the environment,
the accuracy of records and the recording of costs.
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Under many Government contracts, the Company is required to maintain
facility and personnel security clearances complying with DoD requirements.
Companies which are engaged in supplying defense-related equipment to
the Government are subject to certain business risks, some of which are peculiar
to that industry. Among these are: the cost of obtaining trained and skilled
employees; the uncertainty and instability of prices for raw materials and
supplies; the problems associated with advanced designs, which may result in
unforeseen technological difficulties and cost overruns; and the intense
competition and the constant necessity for improvement in facilities and
personnel training. Sales to the Government may be affected by changes in
procurement policies, budget considerations, changing concepts of national
defense, political developments abroad and other factors.
See "Item 1. Sales to the United States Government" for information
regarding the percentage of the Company's revenues generated from sales to the
Government.
BACKLOG
The Company's backlog of orders at December 31, 1999 was $28.4 billion
compared with $24.0 billion at the end of 1998. The 1999 amount includes funded
backlog of $16.1 billion from the Government compared with $14.6 billion at the
end of 1998.
Approximately $4.4 billion of the overall backlog figure represents the
unperformed portion of direct orders from foreign governments. Approximately
$3.1 billion of the overall backlog represents non-government foreign backlog.
Aircraft segment backlog was $4.3 billion at the end of 1999 versus
$2.5 billion at the end of 1998. The increase was primarily due to the receipt
of orders for general aviation aircraft including Horizon, Premier I and Hawker
800XP.
Backlog in the Engineering and Construction segment was $3.4 billion at
the end of 1999 compared with $3.9 billion at the end of 1998. Design and
construction contracts in this segment typically take from eighteen months to
several years to perform.
Approximately $15.5 billion of the $28.4 billion 1999 year-end backlog
is not expected to be filled during the following twelve months.
RESEARCH AND DEVELOPMENT
During 1999, Raytheon expended $508.5 million on research and
development efforts compared with $582.1 million in 1998 and $415.1 million in
1997. These expenditures principally have been for product development for the
Government and for aircraft products. In addition, Raytheon conducts funded
research and development activities under Government contracts which is included
in net sales.
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SUPPLIERS
Delivery of raw materials and supplies to Raytheon is generally
satisfactory. Raytheon is sometimes dependent, for a variety of reasons, upon
sole-source suppliers for procurement requirements. However, Raytheon has
experienced no significant difficulties in meeting production and delivery
obligations because of delays in delivery or reliance on such suppliers.
See Management's Discussion and Analysis of Financial Condition and
Results of Operations on pages 26 through 31 of the Company's Annual Report to
Stockholders for the year ended December 31, 1999 for information regarding the
"Year 2000" issue as it relates to the Company and the Company's suppliers.
COMPETITION
The Electronics business is a direct participant in most major areas of
development in the defense, space, information gathering, data reduction and
automation fields. Technical superiority and reputation, price, delivery
schedules, financing, and reliability are among the principal competitive
factors considered by electronics customers. The on-going consolidation of the
U.S. and global defense, space and aerospace industries continues to intensify
competition. Consolidation among U.S. defense, space and aerospace companies has
resulted in three principal prime contractors for the DoD, including the
Company. As a result of this consolidation, the Company frequently partners on
various programs with its major suppliers, some of whom are, from time to time,
competitors on other programs.
The Aircraft segment competes primarily with four other companies in
the business aviation industry. The principal factors for competition in the
industry are price, financing, operating costs, product reliability, cabin size
and comfort, product quality, travel range and speed, and product support. The
Company believes we possess competitive advantages in the breadth of our product
line, the performance of our product line, and the strength of our product
support.
Competition in the Engineering and Construction segment is intense and
comes from a number of domestic and foreign firms, competing for major business
opportunities worldwide. In addition to numerous small and specialty firms,
there are nine large competitors to the Company in this industry. Competition is
based primarily upon performance, technical skills, experience, reliability,
financing, and price. The ability to recruit and maintain highly skilled and
experienced professionals has a critical impact on the Company's competitiveness
in this industry. The industry's intense competition, particularly on contracts
that are competitively bid, can negatively impact price and margins. The Company
believes that the diversity of our customer base is a competitive strength.
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PATENTS AND LICENSES
Raytheon has long been an innovative leader in the development of new
products and manufacturing technologies. Raytheon and its subsidiaries own a
large intellectual property portfolio which includes, by way of example, United
States and foreign patents, unpatented know-how, trademarks and copyrights, all
of which contribute significantly to the preservation of the Company's strong
competitive position in the market. In certain instances, Raytheon has augmented
its technology base by licensing the proprietary intellectual property of
others. Although these patents and licenses are, in the aggregate, important to
the operation of the Company's business, no existing patent, license, or similar
intellectual property right is of such importance that its loss or termination
would, in the opinion of management, have a material effect on the Company's
business.
Raytheon's patent position and intellectual property portfolio is
deemed adequate for the conduct of its businesses. It is Raytheon's policy to
enforce its own intellectual property rights and to respect the rights of
others. Incidental to the normal course of business, infringement claims may
arise or may be threatened both by and against Raytheon. In the opinion of
management, these claims will not have a material adverse effect on the
Company's operations.
EMPLOYMENT
As of December 31, 1999, Raytheon had approximately 105,300 employees
compared with approximately 108,200 employees at the end of 1998. The decrease
is mainly due to layoffs within defense electronics and RE&C. Subsidiaries of
Raytheon Engineers & Constructors International, Inc. and certain other
subsidiaries have craft employees engaged for individual projects not included
in Raytheon's employee count.
Raytheon considers its union-management relationships to be
satisfactory. Raytheon has successfully negotiated labor agreements without any
work stoppages during 1999. Raytheon currently has collective bargaining
relationships with 11 different U.S. labor organizations and 5 different
non-U.S. labor organizations involving 36 and 7 separate labor agreements,
respectively.
INTERNATIONAL SALES
Of total sales, Raytheon's sales to customers outside the United States
(including foreign military sales) were 27%, 26% and 29% in 1999, 1998 and 1997,
respectively. These sales were principally in the fields of air defense systems,
air traffic control systems, sonar systems, aircraft products, petrochemical,
power and industrial plant design and construction, electronic equipment,
computer software and systems, personnel training, equipment maintenance and
microwave communication. Foreign subsidiary working capital requirements
generally are financed in the countries concerned. Sales and income from
international operations are subject to changes in currency values, domestic and
foreign government policies (including requirements to expend a portion of
program funds in-country) and regulations, embargoes and international
hostilities. Exchange restrictions imposed by various countries could restrict
the transfer of funds between countries and between Raytheon and its
subsidiaries. Raytheon generally has been able to protect itself against most
undue risks through insurance, foreign exchange contracts, contract provisions,
government guarantees or progress payments.
13
Raytheon utilizes the services of sales representatives and
distributors in connection with foreign sales. Normally representatives are paid
commissions and distributors are granted resale discounts in return for services
rendered.
The export from the U.S. of many of Raytheon's products may require the
issuance of a license by the Department of State under the Arms Export Control
of 1976, as amended (formerly the Foreign Military Sales Act); or by the
Department of Commerce under the Export Administration Act as kept in force by
the International Emergency Economic Powers Act of 1977, as amended ("IEEPA");
or by the Treasury Department under IEEPA or the Trading with the Enemy Act of
1917, as amended. Such licenses may be denied for reasons of U.S. national
security or foreign policy. In the case of certain exports of defense equipment
and services, the Department of State must notify Congress at least 15 or 30
days (depending on the identity of the country that will utilize the equipment
and services) prior to authorizing such exports. During that time, Congress may
take action to block a proposed export by joint resolution which is subject to
Presidential veto.
FACTORS THAT COULD AFFECT FUTURE RESULTS
This filing and the information we are incorporating by reference contain
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. All statements, other than statements of
historical facts included in this filing and the information incorporated by
reference, that we expect or anticipate will or may occur in the future,
including statements regarding our financial position, business strategy and
measures to implement that strategy, such as changes to operations, competitive
strengths, goals, expansion and growth of our business and operations, plans,
references to future success and other such matters, are forward-looking
statements. These statements are based on assumptions and analyses made by us in
light of our experience and our perception of historical trends, current
conditions and expected future developments as well as other factors we believe
are appropriate in the circumstances. However, whether actual results and
developments will conform with our expectations and predictions is subject to a
number of risks and uncertainties, including the factors discussed below, as
well as other factors which might be described from time to time in our filings
with the Securities and Exchange Commission.
All of the forward-looking statements we make in this filing and the
information we are incorporating by reference are qualified by these cautionary
statements. There can be no assurance that the actual results or developments
anticipated by us will be realized or, even if substantially realized, that they
will have the expected consequences to or effects on our business and
operations. We undertake no obligation to publicly update any forward-looking
statements, whether as a result of new information, future events or otherwise.
The following are some of the factors we think could cause our actual results to
differ materially from expected and historical results. Other factors besides
those listed here could also adversely affect the Company. All subsequent
forward-looking statements attributable to the Company or persons acting on
behalf of the Company are expressly qualified in their entirety by the factors
described below and in the documents containing such forward-looking statements.
If the cost-cutting efforts currently being undertaken at two of our core
business units are not successful, our financial results may not improve, which
may result in more volatility in the price of our stock in the future.
14
During 1998, we announced plans to reduce the workforce and close
facilities in conjunction with the consolidation and reorganization of two of
our business units, Raytheon Systems Company, our major defense electronics
operation, and Raytheon Engineers & Constructors, our engineering and
construction unit. Significant progress has been made to date in completing
these actions. As part of this effort, we have closed several facilities in the
United States while transferring the operations previously conducted at those
facilities to other Company sites. In addition, several of Raytheon Systems
Company's operations were consolidated. Both units' workforces have also been
significantly reduced. In September 1999, we announced plans to further reduce
costs at Raytheon Systems Company and Raytheon Engineers & Constructors. In
October 1999, we announced pretax charges totaling $599 million, including $147
million for restructuring charges for additional employment and facility space
reductions primarily at Raytheon Systems Company and Raytheon Engineers &
Constructors.
These cost-cutting actions have been taken in an effort to improve
these units' competitive position in their markets and ultimately, our results
of operations. There can be no assurance that these actions will ultimately be
successful in improving our results of operations. The results of operations of
these two units are affected by a wide variety of factors, including factors
that affect their industries generally. A failure to improve these important
business units' results of operations, which constitute a vital part of our
results of operations, could result in more volatility in the price of our
stock.
The restructuring charges resulting from these cost-cutting efforts
have had a negative impact on our earnings in 1999. There can be no assurance
that additional reductions and associated restructuring charges will not be
required in the future to improve one or both of these units' operations. Any
additional reductions and associated restructuring charges could negatively
impact future financial results.
Because we have recently sold a number of our business units, our business is
less diversified, which could reduce our earnings and might make us more
susceptible to negative conditions in our remaining businesses.
Consistent with our strategy of focusing on and streamlining our core
businesses and paying down our debt, during 1998 and 1999 we divested several
non-core business units. We also sold three business units that we agreed to
divest when we acquired the defense operations of Hughes Electronics Corporation
and the defense assets of Texas Instruments Incorporated in 1997. As a result of
these divestitures, we no longer receive revenues from these operations and,
without offsetting increases in revenues in our other businesses, our overall
revenues would decrease, which would have a negative affect on our financial
condition.
In addition, as a result of these divestitures, our business is now
less diversified and thus more dependent on our remaining businesses. As a
result, we are now more sensitive to conditions and trends in the remaining
industries in which we operate. Negative conditions and trends in these
remaining industries could cause our financial condition and results of
operations to suffer more heavily than would occur when our business lines were
more diversified. Our inability to overcome these negative conditions and trends
could have a negative impact on our financial condition.
15
We heavily depend on our government contracts, which are only partially funded,
subject to immediate termination and heavily regulated and audited, and the
termination or failure to fund one or more of these contracts could have a
negative impact on our operations.
We act as prime contractor or major subcontractor for many different
government programs. Over its lifetime, a program may be implemented by the
award of many different individual contracts and subcontracts. The funding of
government programs is subject to congressional appropriations. Although
multi-year contracts may be authorized in connection with major procurements,
Congress generally appropriates funds on a fiscal year basis even though a
program may continue for several years. Consequently, programs are often only
partially funded initially, and additional funds are committed only as Congress
makes further appropriations. The termination of funding for a government
program would result in a loss of anticipated future revenues attributable to
that program. That could have a negative impact on our operations. In addition,
the termination of a program or failure to commit additional funds to a program
already started could increase our overall costs of doing business.
Generally, government contracts are subject to oversight audits by
government representatives and contain provisions permitting termination, in
whole or in part, without prior notice at the government's convenience upon the
payment of compensation only for work done and commitments made at the time of
termination. We can give no assurance that one or more of our government
contracts will not be terminated under these circumstances. Also, we can give no
assurance that we would be able to procure new government contracts to offset
the revenues lost as a result of any termination of our contracts. As our
revenues are dependent on our procurement, performance and payment under our
contracts, the loss of one or more critical contracts could have a negative
impact on our financial condition.
Our government business is also subject to specific procurement
regulations and a variety of socio-economic and other requirements. These
requirements, although customary in government contracts, increase our
performance and compliance costs. These costs might increase in the future,
reducing our margins, which could have a negative effect on our financial
condition. Failure to comply with these regulations and requirements could lead
to suspension or debarment, for cause, from government contracting or
subcontracting for a period of time. Among the causes for debarment are
violations of various statutes, including those related to:
o procurement integrity
o export control
o government security regulations
o employment practices
o protection of the environment
o accuracy of records and the recording of costs
The termination of a government contract or relationship as a result of
any of these acts would have a negative impact on our operations and could have
a negative effect on our reputation and ability to procure other government
contracts in the future.
16
In addition, sales to the government may be affected by:
o changes in procurement policies
o budget considerations
o changing concepts of national defense
o political developments abroad
The influence of any of these factors, which are largely beyond our
control, could also negatively impact our financial condition. We also may
experience problems associated with advanced designs required by the government
which may result in unforeseen technological difficulties and cost overruns.
Failure to overcome these technological difficulties and the occurrence of cost
overruns would have a negative impact on our results.
We depend on the U.S. Government for a significant portion of our sales, and the
loss of this relationship or a shift in Government funding could have severe
consequences on the financial condition of Raytheon.
Approximately 61% of our net sales in 1999 were to the U.S. Government.
Therefore, any significant disruption or deterioration of our relationship with
the U.S. Government would significantly reduce our revenues. Our U.S. Government
programs must compete with programs managed by other defense contractors for a
limited number of programs and for uncertain levels of funding. Our competitors
continuously engage in efforts to expand their business relationships with the
U.S. Government at our expense and are likely to continue these efforts in the
future. The U.S. Government may choose to use other defense contractors for its
limited number of defense programs. In addition, the funding of defense programs
also competes with non-defense spending of the U.S. Government. Budget decisions
made by the U.S. Government are outside of our control and have long-term
consequences for the size and structure of Raytheon. A shift in government
defense spending to other programs in which we are not involved or a reduction
in U.S. Government defense spending generally could have severe consequences for
our results of operations.
We derive a significant portion of our revenues from international sales and are
subject to the risks of doing business in foreign countries.
In 1999, sales to international customers accounted for approximately
27% of our net sales. We expect that international sales will continue to
account for a substantial portion of our net sales for the foreseeable future.
As a result, we are subject to risks of doing business internationally,
including:
o changes in regulatory requirements
o domestic and foreign government policies, including requirements to expend
a portion of program funds locally and governmental industrial cooperation
requirements
o fluctuations in foreign currency exchange rates
o delays in placing orders
17
o the complexity and necessity of using foreign representatives and
consultants
o the uncertainty of adequate and available transportation
o the uncertainty of the ability of foreign customers to finance purchases
o uncertainties and restrictions concerning the availability of funding
credit or guarantees
o imposition of tariffs or embargoes, export controls and other trade
restrictions
o the difficulty of management and operation of an enterprise spread over
various countries
o compliance with a variety of foreign laws, as well as U.S. laws affecting
the activities of U.S. companies abroad
o general economic and geopolitical conditions, including international
hostilities, inflation, trade relationships and military and political
alliances
While these factors or the impact of these factors are difficult to
predict, any one or more of these factors could adversely affect our operations
in the future.
We may not be successful in obtaining the necessary licenses to conduct
operations abroad, and Congress may prevent proposed sales to foreign
governments.
Licenses are required from government agencies under the Export
Administration Act, the Trading with the Enemy Act of 1917 and the Arms Export
Control Act of 1976 for export of many of our products. We can give no assurance
that we will be successful in obtaining these necessary licenses in order to
conduct business abroad. In the case of certain sales of defense equipment and
services to foreign governments, the U.S. Government's Executive Branch must
notify Congress at least 15 to 30 days, depending on the location of the sale,
prior to authorizing these sales. During that time, Congress may take action to
block the proposed sale.
We may suffer problems relating to Year 2000 date conversion.
The Year 2000 problem concerns the inability of information systems to
properly recognize and process date-sensitive information beyond January 1,
2000. In January 1998, we initiated a formal comprehensive enterprise-wide
program to identify and to resolve Year 2000 related issues. The scope of the
program included the investigation of all Raytheon functions and products and
all internally used hardware and software systems, including embedded systems in
what are not traditionally considered information technology systems. We
followed an eight-step risk management process grouped into two major phases:
detection, including planning and awareness, inventory, triage, and detailed
assessment; and correction, including resolution, test planning, test execution,
and deployment.
Through the first two months of calendar year 2000, we completed the
transition from calendar year 1999 to 2000 with no reported significant impact
to our operations. We will continue to evaluate Year 2000 related exposures at
our suppliers and customers over the next several months. We will also continue
to monitor our systems, facilities and products to ensure that latent defects do
not manifest themselves over the next few months. Although our Year 2000
conversion efforts were successful, there are some remaining Year 2000-related
risks. These risks include potential product supply issues and other
non-operational issues.
18
Since January 1998, we have spent approximately $116 million to resolve
Year 2000 related issues. These costs included costs related to employees,
inside and outside consultants and services, system replacements and other
equipment requirements.
Competition within our markets may reduce our procurement of future contracts
and our sales.
The military and commercial industries in which we operate are highly
competitive. Our competitors range from highly resourceful small concerns, which
engineer and produce specialized items, to large, diversified firms. Several
established and emerging companies offer a variety of products for applications
similar to those of our products. Our competitors may have more extensive or
more specialized engineering, manufacturing and marketing capabilities than we
do in some areas. There can be no assurance that we can continue to compete with
these firms. In addition, some of our largest customers could develop the
capability to manufacture products similar to products that we manufacture. This
would result in these customers supplying their own products and competing
directly with us for sales of these products, all of which could significantly
reduce our revenues and seriously harm our business.
Furthermore, we are facing increased international competition and
cross-border consolidation of competition. There can be no assurance that we
will be able to compete successfully against our current or future competitors
or that the competitive pressures we face will not result in reduced revenues
and market share or seriously harm our business.
Our future success will depend on our ability to develop new technologies that
achieve market acceptance.
Both our commercial and defense markets are characterized by rapidly
changing technologies and evolving industry standards. Accordingly, our future
performance depends on a number of factors, including our ability to:
o identify emerging technological trends in our target markets
o develop and maintain competitive products
o enhance our products by adding innovative features that differentiate our
products from those of our competitors
o manufacture and bring products to market quickly at cost-effective prices
Specifically, at Raytheon Aircraft Company, our future success is
dependent on: (1) our ability to meet scheduled timetables for the certification
and delivery of new product offerings; (2) our ability to achieve the
efficiencies necessary to control product costs; and (3) continued market
acceptance of, and government regulations affecting, 19-seat turboprop commuter
aircraft. Any additional cost overruns at Raytheon Aircraft, similar to those
experienced in 1999, would have an adverse effect, potentially material, on our
financial results.
19
We believe that, in order to remain competitive in the future, we will
need to continue to develop new products, which will require the investment of
significant financial resources in new product development. The need to make
these expenditures could divert our attention and resources from other projects,
and we cannot be sure that these expenditures will ultimately lead to the timely
development of new technology. Due to the design complexity of our products, we
may in the future experience delays in completing development and introduction
of new products. Any delays could result in increased costs of development or
deflect resources from other projects. In addition, there can be no assurance
that the market for our products will develop or continue to expand as we
currently anticipate. The failure of our technology to gain market acceptance
could significantly reduce our revenues and harm our business. Furthermore, we
cannot be sure that our competitors will not develop competing technology which
gains market acceptance in advance of our products. The possibility that our
competitors might develop new technology or products might cause our existing
technology and products to become obsolete. If we fail in our new product
development efforts or our products fail to achieve market acceptance more
rapidly than our competitors', our revenues will decline and our business,
financial condition and results of operations will be negatively affected.
Our financial performance is significantly dependent on the timely and
successful conversion of our defense products into commercial markets.
In order to leverage technology that we develop for defense
applications, we frequently strive to adapt existing defense technology for
commercial markets. We may not be successful, however, in converting our defense
systems and devices into commercially viable products, and the market for such
products may be limited. Any of these results could have a negative impact on
our future revenues.
We enter into fixed-price contracts which could subject us to losses in the
event that we have cost overruns.
Sometimes we enter into contracts on a firm, fixed-price basis. This
allows us to benefit from cost savings, but carries the burden of cost overruns.
If our initial estimates are incorrect, we can lose money on these contracts. In
addition, some of our contracts have provisions relating to cost controls and
audit rights, and if we fail to meet the terms specified in those contracts then
we may not realize their full benefits. Our financial condition is dependent on
our ability to maximize our earnings from our contracts. Lower earnings caused
by cost overruns and cost controls would have a negative impact on our financial
results.
In 1998 and 1999, we experienced significant cost overruns at Raytheon
Engineers & Constructors, Raytheon Aircraft Company and our Aircraft Integration
Systems segment. Raytheon Engineers & Constructors also experienced project
delays and cancellations. There may be further cost overruns and losses as we
move to close out older contracts at Raytheon Engineers & Constructors,
particularly four large, international turnkey contracts. Many of the
fixed-price, turnkey contracts entered into prior to 1999 contain exposures and
obligations that are not entirely within the control of the Company (e.g.,
subcontractor performance or labor disputes). Any related cost overruns or
losses would have an adverse effect, potentially material, on our financial
results.
20
We depend on the recruitment and retention of qualified personnel, and our
failure to attract and retain personnel could seriously harm our business.
Due to the specialized nature of our businesses, our future performance
is highly dependent upon the continued services of our key engineering personnel
and executive officers. Our prospects depend upon our ability to attract and
retain qualified engineering, manufacturing, marketing, sales and management
personnel for our operations. Competition for personnel is intense, and we may
not be successful in attracting or retaining qualified personnel. Our failure to
compete for these personnel could seriously harm our business, results of
operations and financial condition.
A significant portion of our labor force is unionized, and our failure to
maintain stable relationships with our unions could seriously harm our business.
Approximately 16,000 of our employees are unionized, which represented
approximately 15% of our employees at December 31, 1999. As a result, we may
experience work stoppages from time to time, and we are vulnerable to the
demands imposed by our collective bargaining relationships. We cannot predict
how stable these relationships, currently with 11 different U.S. labor
organizations and 5 different non-U.S. labor organizations, will be or whether
we will be able to meet the requirements of these unions without impacting the
financial condition of Raytheon. In addition, the presence of unions may limit
our flexibility in dealing with our workforce. Work stoppages and instability in
our union relationships could negatively impact our ability to manufacture our
products on a timely basis, resulting in strain on our relationships with our
customers, as well as a loss of revenues. That would adversely affect our
results of operations.
We may be unable to adequately protect our intellectual property rights, which
could affect our ability to compete.
Protecting our intellectual property rights is critical to our ability
to compete and succeed as a company. We own a large number of United States and
foreign patents and patent applications, as well as trademark, copyright and
semiconductor chip mask work registrations which are necessary and contribute
significantly to the preservation of our competitive position in the market.
There can be no assurance that any of these patents and other intellectual
property will not be challenged, invalidated or circumvented by third parties.
In some instances, we have augmented our technology base by licensing the
proprietary intellectual property of others. In the future, we may not be able
to obtain necessary licenses on commercially reasonable terms. We enter into
confidentiality and invention assignment agreements with our employees, and
enter into non-disclosure agreements with our suppliers and appropriate
customers so as to limit access to and disclosure of our proprietary
information. These measures may not suffice to deter misappropriation or
independent third party development of similar technologies. Moreover, the
protection provided to our intellectual property by the laws and courts of
foreign nations may not be as advantageous to us as the remedies available under
United States law.
Our operations expose us to the risk of material environmental liabilities.
21
Because we use and generate large quantities of hazardous substances
and wastes in our manufacturing operations, we are subject to potentially
material liabilities related to personal injuries or property damages that may
be caused by hazardous substance releases and exposures. For example, we are
investigating and remediating contamination related to our current or past
practices at numerous properties and, in some cases, have been named as a
defendant in related personal injury or "toxic tort" claims.
We are also subject to increasingly stringent laws and regulations that
impose strict requirements for the proper management, treatment, storage and
disposal of hazardous substances and wastes, restrict air and water emissions
from our manufacturing operations, and require maintenance of a safe workplace.
These laws and regulations can impose substantial fines and criminal sanctions
for violations, and require the installation of costly pollution control
equipment or operational changes to limit pollution emissions and/or decrease
the likelihood of accidental hazardous substance releases. We incur, and expect
to continue to incur, substantial capital and operating costs to comply with
these laws and regulations. In addition, new laws and regulations, stricter
enforcement of existing laws and regulations, the discovery of previously
unknown contamination or the imposition of new clean-up requirements could
require us to incur costs in the future that would have a negative effect on our
financial condition or results of operations.
Provisions in our charter documents and rights agreement could make it more
difficult to acquire Raytheon and may reduce the market price of our stock.
Our certificate of incorporation and by-laws contain certain
provisions, such as a classified board of directors, a provision prohibiting
stockholder action by written consent, a provision prohibiting stockholders from
calling special meetings and a provision authorizing our Board of Directors to
consider factors other than stockholders' short-term interests in evaluating an
offer involving a change in control. Also, we have a rights plan, which limits
the ability of anyone to acquire more than 15% of our Class A or Class B Common
Stock. These provisions could have the effect of delaying or preventing a change
in control of Raytheon or the removal of Raytheon management, of deterring
potential acquirers from making an offer to our stockholders and of limiting any
opportunity to realize premiums over prevailing market prices for Raytheon
common stock. Provisions of the Shareholder Rights Agreement and the Hughes
Separation Agreement, both of which are incorporated as exhibits to this filing,
could also have the effect of deterring changes of control of Raytheon.
We depend on component availability, subcontractor performance and our key
suppliers to manufacture and deliver our products and services.
Our manufacturing operations are highly dependent upon the delivery of
materials by outside suppliers in a timely manner. In addition, we depend in
part upon subcontractors to assemble major components and subsystems used in our
products in a timely and satisfactory manner. Raytheon Engineers & Constructors
relies upon the performance of subcontractors in many of its fixed-price
contracts. While we enter into long-term or volume purchase agreements with a
few of our suppliers, we cannot be sure that materials, components, and
subsystems will be available in the quantities we require, if at all. We are
dependent for some purposes on sole-source suppliers. If any of them fails to
meet our needs, we may not have readily available alternatives. Our inability to
fill our supply needs would jeopardize our ability to satisfactorily and timely
complete our obligations under government and other contracts. This might result
in reduced sales, termination of one or more of these contracts and damage to
our reputation and relationships with our customers. All of these events could
have a negative effect on our financial condition.
22
Our dual class capital structure may depress the value of your Class B Common
Stock.
We have two distinct classes of common stock - Class A Common Stock and
Class B Common Stock. With respect to all actions other than the election or
removal of directors, holders of Class A Common Stock and Class B Common Stock
have equal voting rights. With respect to the election or removal of directors
only, holders of Class A Common Stock have 80.1% of the total voting power.
Holders of Class B Common Stock have the remaining 19.9% of the voting power. If
you hold Class B Common Stock, the value of your securities may be depressed by
the disparity in voting power. Furthermore, while shares of both our Class A and
Class B Common Stock currently trade on the New York Stock Exchange, the Chicago
Stock Exchange and the Pacific Exchange, the listing policies of each of these
exchanges with respect to corporations with dual-class capitalizations may
change in the future, and in the future such policies may not allow for the
continued listing of both our Class A and Class B Common Stock.
The unpredictability of our results may harm the trading price of our
securities, or contribute to volatility.
Our operating results may vary significantly over time for a variety of
reasons, many of which are outside of our control, and any of which may harm our
business. The value of our securities may fluctuate as a result of
considerations that are difficult to forecast, such as:
o volume and timing of product orders received and delivered
o levels of product demand
o consumer and government spending patterns
o the timing of contract receipt and funding
o our ability and the ability of our key suppliers to respond to changes in
customer orders
o timing of our new product introductions and the new product introductions
of our competitors
o changes in the mix of our products
o cost and availability of components and subsystems
o price erosion
o adoption of new technologies and industry standards
o competitive factors, including pricing, availability and demand for
competing products
o fluctuations in foreign currency exchange rates
o conditions in the capital markets and the availability of project financing
o the impact on recourse obligations at Raytheon Aircraft due to changes in
the collateral value of financed aircraft
o regulatory developments
o general economic conditions, particularly the cyclical nature of the
general aviation and engineering and construction markets in which we
participate
23
Item 2. Properties
The Company and its subsidiaries operate in a number of plants,
laboratories, warehouses and office facilities in the United States and abroad.
At December 31, 1999, the Company utilized approximately 48 million
square feet of floor space for manufacturing, engineering, research,
administration, sales and warehousing, approximately 96% of which was located in
the United States. Of such total, approximately 34% was owned, approximately 61%
was leased, and approximately 5% was made available under facilities contracts
for use in the performance of U. S. Government contracts. At December 31, 1999,
the Company had approximately 3.2 million square feet of additional floor space
that was not in use, including approximately 1.6 million square feet in
Company-owned facilities.
There are no major encumbrances on any of the Company's plants or
equipment other than financing arrangements which, in the aggregate, are not
material. In the opinion of management, the Company's properties have been well
maintained, are in sound operating condition and contain all equipment and
facilities necessary to operate at present levels.
At December 31, 1999, our business segments had major operations at the
following locations:
o Electronic Systems -- E. Camden, AR; Tucson, AZ; El Segundo, CA; Fullerton,
CA; Goleta, CA; Newport Beach, CA; Danbury, CT; Louisville, KY; Andover,
MA; Bedford, MA; Quincy, MA; Sudbury, MA; Tewksbury, MA; Portsmouth, RI;
Mukilteo, WA; Dallas, TX; Plano, TX; and Sherman, TX;
o Command, Control, Communication and Information Systems -- Fullerton, CA;
Aurora, CO; St. Petersburg, FL; Ft. Wayne, IN; Landover, MD; Townson, MD;
Marlboro, MA; Binghamton, NY; State College, PA; Garland, TX; and Falls
Church, VA;
o Aircraft Integration Systems -- Lexington, KY; Greenville, TX; and Waco,
TX;
o Training and Services -- Long Beach, CA; Indianapolis, IN; and Norfolk, VA;
o Commercial Electronics -- Andover, MA; Kiel, Germany; Portsmouth, UK; and
Malaga, Spain;
o Aircraft -- Selma, AL; Little Rock, AR; Salina, KS and Wichita, KS;
o Engineers and Constructors -- Birmingham, AL; Philadelphia, PA; and
Princeton, NJ; and
o Corporate -- Lexington, MA.
24
A summary of the utilized floor space at December 31, 1999, by business
segment, follows:
(in square feet with 000's omitted)
Gov't.
Leased Owned Owned Total
-------------------------------------
Electronic Systems 10,482 8,453 1,601 20,536
Command, Control, Communication 4,853 2,964 0 7,817
& Information Systems
Aircraft Integration Systems 4,472 216 1,004 5,692
Training & Services 3,111 76 0 3,187
Commercial Electronics 269 613 0 882
Aircraft 3,276 3,827 0 7,103
Engineers & Constructors 2,290 21 0 2,311
Corporate (includes domestic and 410 258 0 668
international sales offices) -------------------------------------
Total 29,163 16,428 2,605 48,196
See "Item 1. Factors That Could Affect Future Results" above, "Item 3.
Legal Proceedings", and Note K to Raytheon's Financial Statements in the
Company's Annual Report to Stockholders for the year ended December 31, 1999 for
information regarding the effect of compliance with environmental protection
requirements and the resolution of environmental claims against the Company and
its operations.
Item 3. Legal Proceedings
The Company is primarily engaged in providing products and services
under contracts with the U.S. Government and, to a lesser degree, under direct
foreign sales contracts, some of which are funded by the U.S. Government. These
contracts are subject to extensive legal and regulatory requirements and, from
time to time, agencies of the U.S. Government investigate whether the Company's
operations are being conducted in accordance with these requirements. U.S.
Government investigations of the Company, whether relating to these contracts or
conducted for other reasons, could result in administrative, civil or criminal
liabilities, including repayments, fines or penalties being imposed upon the
Company, or could lead to suspension or debarment from future U.S. Government
contracting. U.S. Government investigations often take years to complete and
many result in no adverse action against the Company.
25
New Matters
During October, November and December 1999, the Company and two of its
officers were named as defendants in purported class action lawsuits filed in
the United States District Court for the District of Massachusetts on October
14, 1999 by Merrill Roth (No. 99-12143NG), on October 15, 1999 by Robert Johnson
(No. 99-12146PBS) and Jeffrey Gelfand (No. 99-121954JLT), on October 18, 1999 by
Sidney Meisel (No. 99-12142PBS) and A. Richard Albrecht (No. 99-12178PBS), on
October 19, 1999 by Barbara Rice (No. 99-12185NG), on October 26, 1999 by David
DeForrest (No. 99-12222PBS) and Maureen Rocks (No. 99-12225PBS), on November 3,
1999 by Deborah Isaac (99-12297PBS), on November 8, 1999 by Jay Fleishman (No.
99-12339PBS), on December 1, 1999 by Lasensky Paper Stock PSP (No. 99-12463NG),
and on December 10, 1999 by Osprey Partners Investment Management, LLC
(99-12539-PB); in the United States District Court for the Southern District of
New York on October 25, 1999 by Raymond Masri (No. 99-10789); and in the United
States District Court for the District of Maryland on October 21, 1999 by Edwin
Hankin (No. S-99-3211) (collectively the "Complaints"). The Complaints
principally allege that the defendants violated federal securities laws by
purportedly making false and misleading statements and by failing to disclose
material information concerning the Company's financial performance, thereby
allegedly causing the value of the Company's stock to be artificially inflated.
The purported class periods for which damages are allegedly sought include March
30, 1998 to October 11, 1999 for the Rocks, Isaac and Osprey Partners actions;
January 28, 1999 to October 12, 1999 for the Roth, Rice, Masri, Hankin,
Fleishman and Lasensky Paper Stock actions; August 18, 1999 to October 11, 1999
for the Johnson, Gelfand, Albrecht and DeForrest actions; and September 16, 1999
to October 11, 1999 for the Meisel action. The Complaints have been consolidated
in the United States District Court for the District of Massachusetts (the
"Court"). The Court has appointed a lead plaintiff and lead counsel and has
directed that an amended, consolidated complaint be filed in early May, 2000.
The Company will have 45 days after it is served with a copy of the amended
complaint to answer or file a motion to dismiss.
The Company was also named as a nominal defendant and all of its
directors (except one) were named as defendants in purported derivative lawsuits
filed on October 25, 1999 in the Court of Chancery of the State of Delaware in
and for New Castle County by Ralph Mirarchi and others (No. 17495-NC), and on
November 24, 1999 in Middlesex County, Massachusetts, Superior Court by John
Chevedden (No. 99-5782) (collectively, the "Derivative Complaints"). The
Derivative Complaints contain allegations similar to those included in the
Complaints and further allege that the defendants purportedly breached fiduciary
duties to the Company and allegedly failed to exercise due care and diligence in
the management and administration of the affairs of the Company.
Although the Company believes that it and the other defendants have
meritorious defenses to the claims made in both the Derivative Complaints and
the other Complaints and intends to contest the lawsuits vigorously, an adverse
resolution of the lawsuits could have a material adverse effect on the Company's
financial position or results of operations in the period in which the lawsuits
are resolved. The Company is not presently able to reasonably estimate potential
losses, if any, related to the lawsuits.
26
The U.S. Customs Service has concluded its investigation of the
contemplated sale by Raytheon Canada Ltd., a subsidiary of the Company, of
troposcatter radio equipment to a customer in Pakistan. The Company has produced
documents in response to grand jury subpoenas, and grand jury appearances have
taken place. The Company has cooperated fully with the investigation. The
Government has not reached a final decision with respect to this matter. An
adverse decision relating to this matter could ultimately have a material
adverse effect on the Company's results of operations or financial condition.
In November 1999, the Company filed a complaint against Towers, Perrin,
Forster & Crosby (TPF&C) in the U.S. District Court for the District of
Massachusetts. The complaint arises out of a series of events concerning
certain Hughes Electronics pension plans (the "Hughes Plans"), portions of which
were acquired by the Company in connection with the merger with Hughes Defense.
Specifically, the complaint alleges that the Company was damaged by (i) false
representations made to the Company by TPF&C regarding the amount of surplus in
the Hughes Plans and (ii) errors committed by TPF&C in providing administrative
services to the Hughes Plans. The complaint seeks damages in an amount to be
determined at trial.
See Management's Discussion and Analysis of Financial Condition and
Results of Operations on pages 26 through 31 of the Company's Annual Report to
Stockholders for the year ended December 31, 1999 for a description of the
Company's disputes with Hughes Electronics regarding the following matters: (i)
the determination of the final purchase price for Hughes Defense and (ii) a
claim by the Company against Hughes Electronics concerning the accuracy and
completeness of disclosures made by Hughes Electronics prior to the merger of
Raytheon Company and HE Holdings, Inc.
Previously Reported Matters
Prior to the Hughes Merger, the business of Hughes Defense was
conducted by Hughes Aircraft Company ("HAC"), an indirect subsidiary of Hughes
Electronics Corporation. Since 1985, several actions seeking compensatory and
punitive damages in unspecified amounts have been filed against HAC by
plaintiffs alleging that they suffered injuries as a result of the migration of
alleged toxic substances into the Tucson, Arizona, water supply. These
substances were disposed of at a facility owned by the U.S. Government which HAC
operated and Raytheon now leases under a contract with the U.S. Air Force.
In 1991, HAC settled with the approximately 2,000 plaintiffs in one of
these cases, Valenzuela v. Hughes Aircraft Company. HAC's primary and excess
insurance carriers made substantial contributions toward this settlement.
Several of these carriers are seeking reimbursement of the amounts they paid. If
the insurers prevail in the insurance coverage litigation, the Company may
ultimately bear responsibility for a portion of the Valenzuela settlement.
27
Several other actions arising out of migration of alleged toxic
substances into the Tucson water supply have been settled or resolved in the
Company's favor, including:
1. Cordova v. Hughes Aircraft Company, et al., which was filed on January 13,
1992 with the Arizona Superior Court, Pima County by an estimated 90,000
member class against HAC, McDonnell Douglas Corporation, General Dynamics
Corporation and the Tucson Airport Authority as co-defendants. The court
denied class certification in 1996. Settlement was reached with all but 3
claimants in 1998. The remaining claims were dismissed. The claimants
appealed the dismissal of the claims, and the Arizona Court of Appeals
affirmed the trial court's entry of summary judgment on March 7, 2000.
2. Yslava v. Hughes Aircraft Company, an action filed on August 7, 1992 in
U.S. District Court for the District of Arizona by approximately 250
individual plaintiffs, alleging injury claims (inclusive of loss of
consortium claims). HAC filed third party claims against McDonnell Douglas
Corporation, General Dynamics Corporation, the Tucson Airport Authority and
the City of Tucson. A settlement has been effectuated and monies paid out.
This matter is now closed.
3. Lanier v. Hughes Aircraft Company, et al., a class action filed on
September 30, 1991 in U.S. District Court for the District of Arizona,
seeking medical monitoring for an estimated class of 50,000 residents from
the south side of Tucson. A court-approved settlement has been reached with
all of the plaintiffs, and the matter is now closed.
In addition, the Company has obtained state and federal court decisions
requiring its insurers to pay defense costs in these actions. Although the
Company believes that it has good bases for seeking indemnity coverage from its
carriers, it cannot reasonably estimate what, if any, coverage may, in fact, be
available.
The Company is also involved in various stages of investigation and
cleanup relative to remediation of various other sites. All appropriate costs
incurred in connection therewith have been accrued. Due to the complexity of
environmental laws and regulations, the varying costs and effectiveness of
alternative cleanup methods and technologies, the uncertainty of insurance
coverage and the unresolved extent of the Company's responsibility, it is
difficult to determine the ultimate outcome of these matters. However, in the
opinion of management, any liability will not have a material effect on the
Company's financial position, liquidity or results of operations after giving
effect to provisions already recorded.
Accidents involving personal injuries and property damage occur in
general aviation travel. When permitted by appropriate government agencies,
Raytheon Aircraft investigates accidents related to its products involving
fatalities or serious injuries. Through a relationship with FlightSafety
International, Raytheon Aircraft provides initial and recurrent pilot and
maintenance training services to reduce the frequency of accidents involving its
products.
28
Raytheon Aircraft is a defendant in a number of product liability
lawsuits which allege personal injury and property damage and seek substantial
recoveries including, in some cases, punitive and exemplary damages. Raytheon
Aircraft maintains partial insurance coverage against such claims and maintains
a level of uninsured risk determined by management to be prudent. (See Note J to
Raytheon's Financial Statements for the years ended December 31, 1998, 1997 and
1996.)
The insurance policies for product liability coverage held by Raytheon
Aircraft do not exclude punitive damages, and it is the position of Raytheon
Aircraft and its counsel that punitive damage claims are therefore covered.
Historically, the defense of punitive damage claims has been undertaken and paid
by insurance carriers. Under the law of some states, however, insurers are not
required to respond to judgments for punitive damages. Nevertheless, to date no
judgments for punitive damages have been sustained.
Defense contractors are subject to many levels of audit and
investigation. Agencies which oversee contract performance include: the Defense
Contract Audit Agency, the Department of Defense Inspector General, the General
Accounting Office, the Department of Justice and Congressional Committees. The
Department of Justice from time to time has convened grand juries to investigate
possible irregularities by the Company in governmental contracting.
Various claims and legal proceedings generally incidental to the normal
course of business are pending or threatened against the Company. While the
Company cannot predict the outcome of these matters, in the opinion of
management, any liability arising from them will not have a material effect on
the Company's financial position, liquidity or results of operations after
giving effect to provisions already recorded.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 4(A). Executive Officers of the Registrant
The executive officers of the Company are listed below. Each executive
officer was elected by the Board of Directors to serve for a term of one year
and until his or her successor is elected and qualified or until his or her
earlier removal, resignation or death.
Shay D. Assad: Executive Vice President and Chairman and Chief Executive Officer
of Raytheon Engineers & Constructors since December 1998. Prior to assuming his
present position, Mr. Assad was Senior Vice President and President and Chief
Operating Officer of Raytheon Engineers & Constructors from April 1998; Senior
Vice President - Contracts of the Company from January 1998; Vice President -
Contracts from July 1994 and Manager - Contracts, Missile Systems Division from
1985. Age: 49
Daniel P. Burnham: Chairman and Chief Executive Officer of the Company since
July 31, 1999. Prior thereto, Mr. Burnham served as President and Chief
Executive Officer of the Company from December 1, 1998 to July 31, 1999 and as
President and Chief Operating Officer from July 1, 1998 until December 1, 1998.
Prior to joining the Company, Mr. Burnham was Vice Chairman of AlliedSignal,
Inc. from October 1997 and President of AlliedSignal Aerospace and an Executive
Vice President of AlliedSignal, Inc. from 1992. Age: 53
29
Franklyn A. Caine: Senior Vice President and Chief Financial Officer since April
1999. Prior to assuming his present position, Mr. Caine was Executive Vice
President and Chief Financial Officer of Wang Laboratories, Inc. from 1994. Age:
50
Philip W. Cheney: Vice President - Engineering since May 1998. Prior to assuming
his present position, Dr. Cheney was Vice President - Commercial Electronics
from July 1994. Prior thereto, Dr. Cheney was Vice President - Engineering from
February 1990. Age: 64
Kenneth C. Dahlberg: Executive Vice President - Business Development and
President, Raytheon International, Inc. since January 2000. Prior to assuming
his present positions, Mr. Dahlberg was Executive Vice President and President
and Chief Operating Officer of Raytheon Systems Company since December 1997.
Prior thereto, Mr. Dahlberg was Senior Vice President of Hughes Aircraft Company
from September 1994 and Vice President of Hughes Electronics Corporation from
May 1993. Age: 55
Dennis M. Donovan: Senior Vice President - Human Resources since October 1998.
Prior to assuming his present position, Mr. Donovan was Vice President - Human
Resources of GE Power Systems from 1991. Age: 51
Richard A. Goglia: Vice President and Treasurer since January 1999. Prior to
assuming such position, Mr. Goglia was Director, International Finance from
March 1997; and Senior Vice President--Corporate Finance, GE Capital Corporation
from 1989. Age: 48
Michele C. Heid: Vice President and Corporate Controller since February 1999.
Prior to assuming her present position, Ms. Heid was Vice President - Corporate
Controller and Investor Relations from April, 1997; Vice President - Investor
Relations from September 1995; and Vice President - Investor Relations &
Strategic Planning, Cummins Engine Company from 1993. Age: 45
Thomas D. Hyde: Senior Vice President and General Counsel since January 2000.
Prior to assuming his present position, Mr. Hyde was Senior Vice President,
Secretary and General Counsel from September 1998; Senior Vice President and
General Counsel from February 1998; and Vice President and General Counsel from
February 1994. Age: 51
James L. Infinger: Vice President and Chief Information Officer since October
1997. Prior to assuming his present position Mr. Infinger was Senior Vice
President and Chief Information Officer of CompUSA, Inc. from June 1994. Age: 42
William H. Swanson: Executive Vice President and President of Electronic Systems
since January 2000. Prior to assuming his present position, Mr. Swanson was
Executive Vice President and Chairman and Chief Executive Officer of Raytheon
Systems Company from December 1997; Executive Vice President and General Manager
- - Raytheon Electronic Systems Division from March 1995; and Senior Vice
President and General Manager - Missile Systems Division from 1990. Age: 51
30
Hansel E. Tookes, II: Senior Vice President and President and Chief Executive
Officer of Raytheon Aircraft Company since January 2000. Prior to assuming his
present position, Mr. Tookes was President and Chief Operating Officer of
Raytheon Aircraft Company from September 1999 and President of Pratt & Whitney's
Large Military Engines group from 1996. Prior thereto, Mr. Tookes held various
leadership positions at Norden Systems and Hamilton Standard Division of United
Technologies Corp. from 1980, including Executive Vice President of Aircraft
Products and Vice President of Business Planning. Age: 52
Arthur E. Wegner: Executive Vice President and Chairman of Raytheon Aircraft
Company since January 2000. Prior to assuming his present position, Mr. Wegner
was Executive Vice President and Chairman and Chief Executive Officer of
Raytheon Aircraft Company from March 1995; and Senior Vice President and
Chairman and Chief Executive Officer of Raytheon Aircraft Company from July
1993. Age: 62
PART II
Item 5. Market For Registrant's Common Equity and Related Stockholder Matters
At December 31, 1999, there were 264,364 record holders of the
Company's Class A common stock and 18,334 record holders of the Company's Class
B common stock. Additional information required by this Item 5 is contained on
page 52 of Raytheon's Annual Report to Stockholders for the year ended December
31, 1999 and in Note O to Raytheon's Financial Statements for the years ended
December 31, 1999, 1998 and 1997 and is incorporated herein by reference.
On December 14, 1998, the Company issued an aggregate $250 million
principal face amount 6% Debentures due 2010 (the "6% Debentures") and an
aggregate $550 million principal face amount 6.40% Debentures due 2018 (the
"6.40% Debentures"; collectively, the 6% Debentures and the 6.40% Debentures may
be referred to as the "Debentures"). The group of underwriters of the Debentures
was lead by Credit Suisse First Boston and Morgan Stanley Dean Witter. The
offering price of the 6% Debentures was 100% ($250 million), resulting in
proceeds to the Company of 99.325% ($248,312,500) after underwriting discounts
and commissions of .675% ($1,687,500). The offering price of the 6.40%
Debentures was 99.587% ($547,728,500), resulting in proceeds to the Company of
98.712% ($542,916,000) after underwriting discounts and commissions of .875%
($4,812,500).
The Debentures were offered and sold to (i) Qualified Institutional
Buyers as defined in Rule 144A ("Rule 144A") of the Securities Act of 1933
("Securities Act") in transactions exempt from registration pursuant to Rule
144A, (ii) a limited number of other institutional "accredited investors" (as
defined in Rule 501(a)(1), (2), (3) and (7) under Regulation D of the Securities
Act in private sales exempt from registration under the Securities Act in
minimum denominations of $100,000, and/or (iii) to non-U.S. persons outside the
United States in reliance on Regulation S of the Securities Act ("Regulation S")
in transactions meeting the requirements of Regulation S. The proceeds of the
Debentures were used to refinance commercial paper borrowings with various
maturities and bearing interest at various rates.
31
Pursuant to the terms of a Registration Rights Agreement executed in
connection with the issuance of the Debentures, the Company filed an exchange
offer registration statement on Form S-4 in May 1999 covering the offer by the
Company to exchange 6% exchange debentures due 2010 and 6.40% exchange
debentures due 2018 registered under the Securities Act of 1933 for the
outstanding 6% Debentures and 6.40% Debentures.
After the close of the year, on March 7, 2000 the Company issued an
aggregate $2.25 billion of notes consisting of the following: $200 million
principal face amount floating rate notes due 2002 (the "Floating Rate Notes");
an aggregate $800 million principal face amount notes due 2003 (the "7.90%
Notes"); an aggregate $850 million principal face amount notes due 2006 (the
"8.20% Notes"); an aggregate $400 million principal face amount notes due 2010
(the "8.30% Notes" and, together with the Floating Rate Notes, 7.90% Notes and
8.20% Notes the "Notes"). The group of underwriters of the Notes was lead by
Credit Suisse First Boston and Morgan Stanley Dean Witter. The offering price of
the Floating Rate Notes was 100%, resulting in proceeds to the Company of 99.75%
($199,500,000) after underwriting discounts and commissions of .250% ($500,000).
The offering price of the 7.90% Notes was 99.830%, resulting in proceeds to the
Company of 99.480% ($795,840,000) after underwriting discounts and commissions
of .520% ($4,160,000). The offering price of the 8.20% Notes was 99.979%,
resulting in proceeds to the Company of 99.379% ($844,721,500) after
underwriting discounts and commissions of .621% ($5,278,500). The offering price
of the 8.30% Notes was 99.862%, resulting in proceeds to the Company of 99.212%
($396,848,000) after underwriting discounts and commissions of .788%
($3,152,000).
The Notes were offered and sold to (i) Qualified Institutional Buyers
as defined in Rule 144A ("Rule 144A") of the Securities Act of 1933 ("Securities
Act") in transactions exempt from registration pursuant to Rule 144A, (ii) a
limited number of other institutional "accredited investors" (as defined in Rule
501(a)(1), (2), (3) and (7) under Regulation D of the Securities Act in private
sales exempt from registration under the Securities Act in minimum denominations
of $100,000, and/or (iii) to non-U.S. persons outside the United States in
reliance on Regulation S of the Securities Act ("Regulation S") in transactions
meeting the requirements of Regulation S. The proceeds of the Notes were used to
reduce commercial paper and bank borrowings with various maturities and bearing
interest at various rates.
Item 6. Selected Financial Data
The information required by this Item 6 is included in the "Five Year
Statistical Summary" contained in the Company's Annual Report to Stockholders
for the year ended December 31, 1999 on page 25 and is incorporated herein by
reference.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The information required by this Item 7 is contained in the Company's
Annual Report to Stockholders for the year ended December 31, 1999 on pages 26
through 31 and is incorporated herein by reference.
32
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The information required by this Item 7A is contained in the Company's
Annual Report to Stockholders for the year ended December 31, 1999 on page 31
and is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
Selected quarterly financial data and the financial statements and
supplementary data of the Registrant are contained in the Company's Annual
Report to Stockholders for the year ended December 31, 1999 in Note O and on
pages 32 through 51, respectively, and are incorporated herein by reference.
Schedules required under Regulation S-X are filed as "Financial Statement
Schedules" pursuant to Item 14 hereof.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
Information regarding the directors of the Company is contained in the
Company's definitive proxy statement for the Annual Meeting of Stockholders to
be held on April 26, 2000 under the captions "The Board of Directors and Certain
of its Committees" and "Election of Directors" and is incorporated herein by
reference. Information regarding the executive officers of the Company is
contained in Part I, Item 4(A) of this Form 10-K.
Item 11. Executive Compensation
This information is contained in the Company's definitive proxy
statement for the Annual Meeting of Stockholders to be held on April 26, 2000
under the caption "Executive Compensation" and, except for the information
required by Items 402(k) and 402(l) of Regulation S-K, is incorporated herein by
reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
This information is contained in the Company's definitive proxy
statement for the Annual Meeting of Stockholders to be held on April 26, 2000
under the caption "Stock Ownership" and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
This information is contained in the Company's definitive proxy
statement for the Annual Meeting of Stockholders to be held on April 26, 2000
under the caption "Certain Relationships and Related Transactions" and is
incorporated herein by reference.
33
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) Financial Statements and Schedules
(1) The following financial statements of Raytheon
Company and Subsidiaries Consolidated, as contained
in Raytheon's 1999 Annual Report to Stockholders, are
hereby incorporated by reference:
Balance Sheets at December 31, 1999 and 1998
Statements of Income for the Years Ended
December 31, 1999, 1998 and 1997
Statements of Stockholders' Equity for the Years Ended
December 31, 1999, 1998 and 1997
Statements of Cash Flows for the Years Ended
December 31, 1999, 1998 and 1997
(2) The following financial statement schedule is included herein:
Schedule II, Reserves for the Three Years Ended
December 31, 1999
Schedules I, III and IV are omitted because they are
not required, not applicable or the information is
otherwise included.
(b) Reports on Form 8-K
During the first quarter of 2000, the Company made the
following filing on Form 8-K:
Raytheon Company Current Report on Form 8-K filed with the
Securities and Exchange Commission on February 25, 2000
(c) Exhibits
(The Exhibits without an asterisk (*) have been filed with
previous reports.)
2.1 Agreement and Plan of Merger dated as of January 16, 1997 by and
between Raytheon Company and HE Holdings, Inc., filed as an
exhibit to Former Raytheon's Current Report on Form 8-K filed
with the Securities and Exchange Commission on January 17, 1997,
is hereby incorporated by reference.
2.2 Hughes Spin-Off Separation Agreement dated as of December 17, 1997
by and between HE Holdings, Inc. and General Motors Corporation
filed as an exhibit to the Company's Registration Statement on
Form S-3, File No. 333-44321, is hereby incorporated by
reference.
34
3.1 Raytheon Company Restated Certificate of Incorporation, restated
as of February 11, 1998 filed as an exhibit to Raytheon's Annual
Report on Form 10-K for the year ended December 31, 1997, is
hereby incorporated by reference.
3.2 Raytheon Company Amended and Restated By-Laws, as amended through
January 28, 1998 filed as an exhibit to Raytheon's Annual Report
on Form 10-K for the year ended December 31, 1997, is hereby
incorporated by reference.
4.1 Indenture dated as of July 3, 1995 between Raytheon Company and
The Bank of New York, Trustee, filed as an exhibit to Former
Raytheon's Registration Statement on Form S-3, File No. 33-59241,
is hereby incorporated by reference.
4.2 Supplemental Indenture dated as of December 17, 1997 between
Raytheon Company and The Bank of New York, Trustee filed as an
exhibit to Raytheon's Annual Report on Form 10-K for the year
ended December 31, 1997, is hereby incorporated by reference.
4.3 Rights Agreement dated as of December 15, 1997 between the
Company and State Street Bank and Trust Company, as Rights Agent,
filed as an exhibit to the Company's Registration Statement on
Form 8-A, File No. 1-13699, is hereby incorporated by reference.
10.1 Raytheon Company 1976 Stock Option Plan, as amended, filed as an
exhibit to the Company's Registration Statement on Form S-8, File
No. 333-45629, is hereby incorporated by reference.
10.2 Raytheon Company 1991 Stock Plan, as amended, filed as an exhibit
to the Company's Quarterly Report on Form 10-Q for the quarter
ended July 4, 1999, is hereby incorporated by reference.
10.3 Raytheon Company 1995 Stock Option Plan, as amended, filed as an
exhibit to the Company's Quarterly Report on Form 10-Q for the
quarter ended July 4, 1999, is hereby incorporated by reference.
10.4 Plan for Granting Stock Options in Substitution for Stock Options
Granted by Texas Instruments Incorporated, filed as an exhibit to
the Company's Registration Statement on Form S-8, File No.
333-45629, is hereby incorporated by reference.
10.5 Plan for Granting Stock Options in Substitution for Stock Options
Granted by Hughes Electronics Corporation, filed as an exhibit to
the Company's Registration Statement on Form S-8, File No.
333-45629, is hereby incorporated by reference.
10.6 Raytheon Company 1997 Nonemployee Directors Restricted Stock
Plan, filed as an exhibit to the Company's Registration Statement
on Form S-8, File No. 333-45629, is hereby incorporated by
reference.
10.7 Raytheon Company Deferral Plan for Directors, filed as an exhibit
to Former Raytheon's Registration Statement on Form S-8, File No.
333-22969, is hereby incorporated by reference.
35
10.8 Form of Raytheon Company Change in Control Severance Agreement,
filed as an exhibit to Former Raytheon's Quarterly Report on Form
10-Q for the quarter ended June 30, 1996, is hereby incorporated
by reference. The Company has entered into Change in Control
Severance Agreements in the form of Agreement filed as Exhibit
10.8 with each of the following executives: Shay D. Assad,
Franklyn A. Caine, William H. Swanson and Arthur E. Wegner. The
agreements are designed to provide the executive with certain
severance benefits following a termination, all as more fully
described in the form of Agreement. The Company has also entered
into Change in Control Severance Agreements in the form of
Agreement filed as Exhibit 10.8 with nineteen other executives,
but which are immaterial to the Company. The agreements are
designed to provide the executive with certain severance benefits
following a termination, all as more fully described in the form
of Agreement.
10.9 Restricted Unit Award Agreement between the Company and Dennis J.
Picard, filed as an exhibit to Former Raytheon's Quarterly Report
on Form 10-Q for the quarter ended June 29, 1997, is hereby
incorporated by reference.
10.10 Form of Executive Change in Control Severance Agreement, filed
as an exhibit to the Company's Registration Statement on Form
S-4, File No. 333-37223, is incorporated herein by reference. The
Company has entered into Executive Change in Control Severance
Agreements in the form of Agreement filed as Exhibit 10.10 with
each of the following executives: Kenneth C. Dahlberg, Louise L.
Francesconi, Robert L. Horowitz, Charles S. Ream, Donald R.
Infante, David P. Molfenter and Jack O. Pearson. Such agreements
are designed to provide the executive with certain payments if
still employed by the Company at the end of the second and third
years after the Spin-Off Merger Effective Time, all as more fully
described in the form of Agreement.
10.11 Form of Executive Retention Agreement, filed as an exhibit to
the Company's Registration Statement on Form S-4, File No.
333-37223, is incorporated herein by reference. The Company has
entered into Executive Retention Agreements in the form of
Agreement filed as Exhibit 10.11 with each of the following
executives: Kenneth C. Dahlberg, Louise L. Francesconi, Robert L.
Horowitz, Charles S. Ream, Donald R. Infante, David P. Molfenter
and Jack O. Pearson. Such agreements are designed to provide the
executive with certain payments if still employed by the Company
at the end of the second and third years after the Spin-Off
Merger Effective Time, all as more fully described in the form of
Agreement.
10.12 Agreement dated as of June 15, 1998 between Raytheon Company and
Daniel P. Burnham, filed as an exhibit to Raytheon's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1998 is hereby
incorporated by reference.
10.13 Agreement dated February 22, 1999 between Raytheon Company and
Franklyn A. Caine, filed as an exhibit to Raytheon's Quarterly
Report on Form 10-Q for the quarter ended April 4, 1999, is
hereby incorporated by reference.
36
10.14 Amendment dated December 17, 1999 to William H. Swanson's Change
in Control Severance Agreement.*
10.15 Agreement dated December 17, 1999 between Raytheon Company and
Arthur E. Wegner.*
10.16 Consulting Agreement dated October 14, 1999 between Raytheon
Company and Warren B. Rudman.*
10.17 Consulting Agreement dated April 1, 1999 between Raytheon
Company and John M. Deutch.*
10.18 Raytheon Company $4 billion Credit Facility -- Five Year
Competitive Advance and Revolving Credit Facility, filed as an
exhibit to Former Raytheon's Quarterly Report on Form 10-Q for
the quarter ended March 30, 1997, is hereby incorporated by
reference.
10.19 HE Holdings, Inc. $3 billion Credit Facility - Five Year
Competitive Advance and Revolving Credit Facility, filed as an
exhibit to the Company's Registration Statement on Form S-4, File
No. 333-37223, is hereby incorporated by reference.
10.20 Amended and Restated Purchase and Sale Agreement dated as of
March 18, 1999 among Raytheon Aircraft Credit Corporation,
Raytheon Aircraft Receivables Corporation and the Purchasers
named therein, filed as an exhibit to Raytheon's Annual Report
on Form 10-K for the year ended December 31, 1998, is hereby
incorporated by reference.
10.21 Amendment and Restatement dated as of November 9, 1999 to the
Amended and Restated Purchase and Sale Agreement dated as of
March 18, 1999 among Raytheon Aircraft Credit Corporation,
Raytheon Aircraft Receivables Corporation and the Purchasers
named therein.*
10.22 Amended and Restated Guarantee dated as of March 18, 1999, made
by Raytheon Company in favor of the Purchasers named therein and
Bank of America National Trust and Savings Association, as
Managing Facility Agent, filed as an exhibit to Raytheon's Annual
Report on Form 10-K for the year ended December 31, 1998, is
hereby incorporated by reference.
10.23 Raytheon Savings and Investment Plan, as amended and restated
effective January 1, 1999.*
10.24 Raytheon Employee Savings and Investment Plan, as amended and
restated effective January 1, 1999.*
10.25 Raytheon Excess Savings Plan, filed as an exhibit to
Post-Effective Amendment No. 1 to the Company's Registration
Statement on Form S-8, File No. 333-56117, is hereby incorporated
by reference.
10.26 Raytheon Deferred Compensation Plan, filed as an exhibit to
Post-Effective Amendment No. 1 to the Company's Registration
Statement on Form S-8, File No. 333-56117, is hereby incorporated
by reference.
37
13 Raytheon Company 1999 Annual Report to Stockholders (furnished
for the information of the Commission and not to be deemed
"filed" as part of this Report except to the extent that portions
thereof are expressly incorporated herein by reference).
21 Subsidiaries of Raytheon Company.*
23.1 Consent of Independent Accountants.*
23.2 Report of Independent Accountants.*
24 Powers of Attorney.*
27 Financial Data Schedule.*
(Exhibits marked with an asterisk (*) are filed electronically herewith.)
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
RAYTHEON COMPANY
/s/ Thomas D. Hyde
Thomas D. Hyde
Senior Vice President and General Counsel
for the Registrant
Dated: March 27, 2000
38
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
SIGNATURES TITLE DATE
/s/ Daniel P. Burnham President, Chief Executive Officer March 22, 2000
Daniel P. Burnham and Chairman of the Board
(Principal Executive Officer)
/s/ Barbara M. Barrett Director March 22, 2000
Barbara M. Barrett
/s/ Ferdinand Colloredo-Mansfeld Director March 22, 2000
Ferdinand Colloredo-Mansfeld
/s/ John M. Deutch Director March 22, 2000
John M. Deutch
/s/ Thomas E. Everhart Director March 22, 2000
Thomas E. Everhart
/s/ John R. Galvin Director March 22, 2000
John R. Galvin
/s/ L. Dennis Kozlowski Director March 22, 2000
L. Dennis Kozlowski
/s/ Henrique de Campos Meirelles Director March 22, 2000
Henrique de Campos Meirelles
/s/ Thomas L. Phillips Director March 22, 2000
Thomas L. Phillips
/s/ Dennis J. Picard Director March 22, 2000
Dennis J. Picard
/s/ Warren B. Rudman Director March 22, 2000
Warren B. Rudman
/s/ William R. Spivey Director March 22, 2000
William R. Spivey
/s/ Alfred M. Zeien Director March 22, 2000
Alfred M. Zeien
/s/ Franklyn A. Caine Senior Vice President and March 22, 2000
Franklyn A. Caine Chief Financial Officer
/s/ Michele C. Heid Vice President - Corporate
Michele C. Heid Controller March 22, 2000
(Chief Accounting Officer)
39
RAYTHEON COMPANY AND SUBSIDIARIES CONSOLIDATED
----------------------------------------------
SCHEDULE II - RESERVES
FOR THE THREE YEARS ENDED DECEMBER 31, 1999
-------------------------------------------
(In thousands)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
Additions
Balance at Balance at
beginning Charged to costs Charged to other Deductions end of
Description of period and expenses accounts Note (1) period
- -----------------------------------------------------------------------------------------------------------------------
Year ended December 31, 1999:
Allowance for doubtful $20,771 $8,799 - $2,994 $26,576
accounts receivable
Year ended December 31, 1998:
Allowance for doubtful $21,763 $3,720 - $4,712 $20,771
accounts receivable
Year ended December 31, 1997:
Allowance for doubtful $20,260 $7,122 - $5,619 $21,763
accounts receivable
Note (1) - Uncollectible accounts and adjustments, less recoveries