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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, 1997.
/ / 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 Identification No.)
Incorporation or Organization)
141 SPRING STREET, LEXINGTON, MASSACHUSETTS 02173
(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 ...
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
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The aggregate market value of the voting stock held by non-affiliates of the
Registrant, as of February 22, 1998, was approximately $18,648,013,310. 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 22, 1998:
338,811,777, consisting of 102,630,503 shares of Class A Common Stock and
236,181,274 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 to Stockholders for the fiscal
year ended December 31, 1997 are incorporated by reference in Part I,
Part II and Part IV.
Portions of the Proxy Statement for Raytheon's 1998 Annual Meeting
which will be filed with the Commission within 120 days after the
close of Raytheon's fiscal year, are incorporated by reference in
Part III.
PART I
Item 1. Business
GENERAL
Raytheon Company ("Raytheon" or the "Company") is a global technology
leader, with worldwide 1997 pro forma sales of more than $20 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 and any
year-to-year comparisons contained herein, 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.
Former Raytheon's 1997 results of operations include less than two weeks'
results relating to Hughes Defense (as defined below) after completion of the
Hughes Merger.
RECENT DEVELOPMENTS
Acquisitions
On December 17, 1997, the predecessor to the Company completed the
Hughes Merger. At the time of the Hughes Merger, the operations and assets of HE
Holdings consisted of the defense business of Hughes Electronics Corporation
("Hughes Defense"), a supplier of advanced defense electronics systems and
services, principally in naval systems; airborne and ground-based radars,
ground-, air- and ship-launched missiles; tactical communications;
electro-optical systems; complex information systems and training systems and
services. Immediately following the Hughes Merger, the surviving corporation
changed its name to Raytheon Company. The value of the transaction was $9.5
billion (subject to post-closing adjustments), including approximately $5.5
billion in equity in the form of Class A Common Stock distributed to the common
stockholders of General Motors Corporation, the former parent of Hughes Defense,
and approximately $4.0 billion in debt. The proceeds of this indebtedness were
contributed to an affiliate of Hughes Electronics Corporation prior to the
Hughes Merger but the obligation remains with the Company.
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On July 11, 1997, the Company consummated the acquisition (the "TI
Acquisition") of the defense systems and electronics business of Texas
Instruments Incorporated ("TI Defense"), subject to post-closing adjustments.
The businesses of TI Defense, a supplier of advanced defense systems, including
tactical missiles, precision-guided weapons, radar, night vision systems and
electronic warfare systems, were conducted through Raytheon TI Systems from July
11, 1997 through December 17, 1997 and are now conducted through Raytheon
Systems Company.
Raytheon Systems Company
Simultaneously with the consummation of the Hughes Merger on December
17, 1997, Raytheon announced the creation of Raytheon Systems Company ("RSC") to
integrate Raytheon's defense electronics businesses. RSC includes the business
units of Raytheon formerly known as Raytheon Electronic Systems, Raytheon
E-Systems and Raytheon TI Systems, along with Hughes Defense. RSC currently
consists of the following five business units:
Defense Systems -- anti-tactical ballistic missile systems; air defense;
air-to-air, surface-to air, and air-to-ground missiles, naval and maritime
systems; ship self-defense systems; torpedoes, strike, interdiction and
cruise missiles; and advanced munitions.
Sensors and Electronic Systems -- ground, shipboard and airborne fire
control and surveillance systems; primary and secondary air traffic control
radars; ground- and space-based electro-optic sensors; electronic warfare;
and GPS systems.
Command, Control and Communication Systems -- command, control and
communications systems; air traffic control systems; tactical radios;
satellite communication ground control terminals; wide area surveillance
systems; advanced transportation systems; and simulators and simulation
systems.
Intelligence, Information and Aircraft Integration Systems -- ground-based
information processing systems; large scale information retrieval,
processing and distribution systems; global broadcast systems; airborne
surveillance and intelligence systems integration; aircraft modifications;
and head-of-state aircraft systems.
Training and Services -- training services and integrated training
programs; technical services; and logistics and support. In addition, in
connection with the reorganization of Raytheon's defense electronics
operations, a majority of the operations of Raytheon Service Company,
formerly a unit of Raytheon Engineers & Constructors, is now part of RSC's
Training and Services business unit. Raytheon Service Company provides
operations, maintenance and technical services for many U.S. defense
systems and agencies.
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Divestitures
On March 26, 1998, Raytheon announced that it had entered into an
agreement to sell its electronic controls business (formerly part of its
appliances segment) to EGO Group of Germany for approximately $38 million.
There can be no assurance that the sale will be consummated.
On February 23, 1998, Raytheon announced that it had entered into an
agreement to sell its Commercial Laundry business for approximately $358 million
to a company organized by Bain Capital, Inc., and Raytheon Commercial Laundry
management. There can be no assurance that the sale will be consummated.
On January 13, 1998, Raytheon sold the Monolithic Microwave Integrated
Circuit operations of TI Defense to TriQuint Semiconductor, Inc., for
approximately $39 million.
On December 31, 1997, Raytheon completed the sale of Switchcraft,
Inc., a manufacturer of switching and connection equipment, to a company
organized by Cortec Group, Inc., and Switchcraft management for $69 million.
Also, on the same day, the Company completed the sale of Raytheon Semiconductor,
Inc., a manufacturer of silicon semiconductor components, to Fairchild
Semiconductor for $120 million.
On September 10, 1997, Raytheon sold its home appliance, heating and
air conditioning and commercial cooking businesses to Goodman Manufacturing
Company, L.P. ("Goodman"). In connection with the sale of the home appliance,
heating and air conditioning and commercial cooking businesses to Goodman, the
results of Raytheon's remaining appliance businesses have been included in
Raytheon's Electronics Segment under Commercial Electronics.
Raytheon is also in the process of selling portions of Hughes
Defense's electro-optics business and portions of TI Defense's focal-plane array
business in accordance with an agreement with the Department of Justice relating
to the Hughes Merger.
Consolidations
On January 23, 1998, RSC announced several planned cost reduction
measures. In addition to closing 20 facilities and partially closing six
facilities over the next two years, RSC plans to reduce employment by
approximately 10% -- or 8,700 jobs -- over the same time period. Also, 2,700
engineers will be reassigned to help fill technical positions. These steps will
result in a planned reduction of facility space from 42 million square feet to
34 million square feet.
On January 23, 1998, Raytheon also announced a planned effort to
reduce costs at RE&C to improve its competitive position. Raytheon expects to
close or partially close 16 offices at RE&C in early 1998 and reduce RE&C's work
force by approximately 1,000 positions. These actions come in response to RE&C's
1997 profit performance, which declined from 1996. The Company believes that
RE&C's results were adversely affected, in part, by a slowdown in some of RE&C's
served global engineering and construction markets.
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SALES TO THE UNITED STATES GOVERNMENT
Sales to the United States Government (the "Government"), principally
to the Department of Defense ("DOD"), were $6.270 billion in 1997 and $5.140
billion in 1996 representing 45.9% of total sales in 1997 and 41.7% in 1996. Of
these sales, $483 million in 1997 and $502 million in 1996 represented purchases
made by the Government on behalf of foreign governments.
BUSINESS SEGMENTS
Electronics
Defense Electronics. Raytheon's defense electronics businesses are
engaged in the design, manufacture and service of advanced electronics devices,
equipment and systems for both government and commercial customers. In addition
to defense electronics systems, Raytheon has converted certain defense
electronics technologies to commercial and non-defense applications such as air
traffic control, environmental monitoring and communications. Raytheon's defense
electronics businesses are now conducted through RSC. See "Recent Developments
- -- Raytheon Systems Company." However, during 1997, Raytheon's defense
electronics businesses were conducted through Raytheon Electronic Systems,
Raytheon E-Systems and, from July 11, Raytheon TI Systems.
Raytheon Electronic Systems. Raytheon Electronic Systems ("RES")
produces missile and air defense systems. RES 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., seven foreign 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 billion in foreign orders for Patriot equipment and
services. In addition, RES is the prime contractor for the Hawk ground-launched
missile, which is owned by 18 allied nations in addition to the U.S.
RES develops ground-based phased-array radars, including the
Ground-Based Radar (GBR) for the Theater High Altitude Area Defense (THAAD)
system, the U.S. Army's newest Theater Missile Defense Program.
RES 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 the prime contractor for the U.S. Army's Enhanced Fiber Optic
Guided Missile (EFOGM) demonstration program, which will provide rapidly
deployable, lethal and highly survivable technologies to the U.S. early entry
forces.
The prime contractor for the NATO Sea-Sparrow Surface to Air Missile
System (NSSMS), RES also produces the air and surface launched versions of the
Sparrow missile for both the U.S. and foreign Navies.
RES produces a variety of shipboard radar systems. Nearly every U.S.
Navy ship carries at least one Raytheon radar/fire control system. An
international variant is operational in Japan and an order was received during
1997 adding Spain to the list of users.
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RES develops sonars, combat control systems and minehunting equipment
for submarines and ships in U.S. and allied fleets, in addition to designing
unmanned underwater vehicles and laser sensors. RES is part of a team under
contract to design, develop, integrate and test the command, control,
communications and intelligence (C3I) sonar, combat control and architecture
subsystems for the U.S., Navy's next-generation attack submarine the New Attack
Submarine or NSSN.
RES builds military communications systems and also a family of
extended environment (E2) COTS computers and workstations.
Raytheon E-Systems, Inc. Acquired in May 1995, Raytheon E-Systems
specializes in intelligence, reconnaissance and surveillance systems; command
and control; specialized aircraft maintenance and modification; guidance,
navigation and control, communications and data systems. During 1996, the
aircraft modification and defense electronics businesses of Chrysler
Technologies were added to Raytheon E-Systems.
Raytheon E-Systems' core business is focused on intelligence,
reconnaissance and surveillance. Many of these programs are classified,
involving the development or upgrading of sensors, platforms, ground processing
for and integration of complex systems. Raytheon E-Systems develops software for
highly complex information systems. Raytheon E-Systems is also involved in the
application of advanced high performance supercomputer systems.
An example of Raytheon's capabilities in the area of advanced
information integration is the U.S. Navy's Cooperative Engagement Capability
("CEC") program. CEC provides the capability to integrate theater sensors and
weapon systems ships, aircraft and land-based installations into an integrated
air picture. The system has now successfully completed more than seven years of
comprehensive at-sea testing, including several live fire tests and is now
facing the challenges of integration into the fleet.
Raytheon E-Systems designs and builds advanced electronic
countermeasures systems to protect U.S. and allied ships and planes against
enemy strikes. Raytheon E-Systems also has capabilities in large scale image
processing and advanced signal processing.
Raytheon TI Systems, Inc. On July 11, 1997, the Company consummated
the TI Acquisition. The businesses of TI Defense, a supplier of advanced defense
systems, including tactical missiles, precision-guided weapons, radar, night
vision systems and electronic warfare systems, were conducted through Raytheon
TI Systems ("RTIS") from July 11, 1997 through year-end and are now conducted
through Raytheon Systems Company. RTIS applies advanced technologies such as
image processing, microprocessing and sensors to meet the needs of the defense
community.
RTIS' missile business is focused in the air-to-ground weapons market,
primarily with the High Speed Anti-Radar Missile (HARM), Paveway laser-guided
bombs and the Joint Stand Off Weapon (JSOW) missile. Other RTIS missile products
include the JAVELIN and the Extended Range Guided Munition (ERGM) programs.
RTIS, as the prime contractor and lead in a 60/40 joint venture with Lockheed
Martin Corporation, manufactures the JAVELIN man-portable medium anti-tank
weapon system.
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RTIS produces electro-optic systems including Forward Looking Infrared
(FLIR) night vision systems, infrared sensors and lasers and infrared
fire-control systems. Numerous RTIS FLIR systems are in use throughout the world
in aircraft, aboard ships, on combat vehicles and on man-portable applications.
RTIS is developing and producing terrain following/terrain avoidance
radar systems for military aircraft. In a joint venture with Northrop Grumman
Corporation, RTIS is also producing the next generation airborne radar for the
F-22 aircraft. RTIS also develops and produces ocean search and surveillance
radar and magnetic anomaly detection systems for carrier- and land-based
fixed-wing aircraft and helicopters. These radars are designed for missions
requiring periscope detection, long-range surface surveillance, target tracking
and imaging/target classification.
Commercial Initiatives within Defense Electronics. In addition to
defense electronics systems, Raytheon has converted certain defense electronics
technologies to commercial and non-defense applications such as air traffic
control, environmental monitoring and communications.
During 1997, the contract for the Brazilian System for the Vigilance
of the Amazon ("SIVAM"), won in international competition by Raytheon, became
effective and work formally commenced. The SIVAM project calls for the delivery
of an integrated information network linking numerous sensors to regional and
national coordination centers. Information will be used 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.
Raytheon designs and installs air traffic control ("ATC") and weather
systems at airports worldwide. Some of the countries Raytheon is providing ATC
systems and radars for include The Netherlands, India, Norway, Switzerland,
Australia, Germany, Oman, Hong Kong, Jamaica, Cyprus, China, and Taiwan. In
September 1996, a team led by Raytheon won the FAA/DOD Standard Terminal
Automation Replacement System (STARS) program, which is potentially worth $1
billion and will modernize and upgrade approximately 370 air traffic control
sites across the United States.
Raytheon's Terminal Doppler Weather Radar ("TDWR") system is being
installed at 42 sites across the U.S. and Puerto Rico. The first international
installation of Raytheon's TDWR system is planned for the new Hong Kong airport
in 1998. TDWR uses Doppler radar technology to warn air traffic controllers of
sudden wind shifts, such as microbursts, which have been blamed for numerous
aircraft accidents, particularly during takeoff or landing.
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.
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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.
In microelectronics and components Raytheon is developing the Main
Mission Antenna transceiver systems for the IRIDIUM global satellite
communications project, which is designed to provide voice, paging, data,
facsimile and location services anywhere on Earth. The antenna systems use
Raytheon Microelectronics' gallium arsenide monolithic microwave integrated
circuit ("MMIC") technology. Raytheon is also using its MMIC technology to
develop direct broadcast satellite television receivers, wireless local area
networks and next-generation digital cellular phones.
Since the sale of its home appliance, heating and air conditioning and
commercial cooking businesses to Goodman on September 10, 1997, the Company's
remaining appliance businesses have been included within Commercial Electronics.
Raytheon's commercial laundry business manufactures laundry equipment under the
Speed Queen, UniMac and Huebsh brand names for sale into the coin store,
multi-housing and on-premise laundry markets. On February 23, 1998 Raytheon
announced that it had entered into an agreement to sell its commercial laundry
business to Bain Capital, Inc. and Raytheon Commercial Laundry management. On
March 26, 1998, Raytheon announced that it had entered into an agreement to sell
its electronic controls business to EGO Group of Europe. See "Item 1. Business,
Recent Developments--Divestitures."
Aircraft
Raytheon Aircraft offers one of the broadest product lines 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 introduced
in 1964 - includes the Beech King Air's C90, B200 and 350. The jet line includes
the Beechjet 400A and the Hawker 800XP (Extended Performance) 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. In September 1995, Raytheon Aircraft announced a new
light business jet, the Raytheon Premier I. In November 1996, Raytheon Aircraft
announced a new super midsize business jet, the Hawker Horizon.
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.
Deliveries are scheduled to begin in 1998. Raytheon Aircraft also produced the
U.S. Air Force's T-1A trainer, the military counterpart of the Beechjet 400A
light jet, a C-12 militarized version of the King Air B200 and the U-125
search-and-rescue variant of the Hawker 800. The T-1A Jayhawk contract was
completed in 1997. Raytheon Aircraft also produces two missile target drones for
U.S. and allied forces.
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Raytheon Aerospace manages more than 1,500 aircraft at over 120 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, established in 1997, 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.
Engineering and Construction
Raytheon Engineers & Constructors ("RE&C") is one of the largest
engineering and construction firms in the United States, serving markets
throughout the world. Its markets include: fossil and nuclear power; petroleum
and gas; polymers and chemicals; pharmaceuticals and biotechnology; metals,
mining, and light industry; pulp and paper; food and consumer products;
environmental services, including chemical munitions destruction; infrastructure
and transportation. RE&C also retains a portion of the operations of Raytheon
Service Company, the majority of which have been transferred to RSC. See "Recent
Developments--Raytheon Systems Company."
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.
Financial information about Operations by Business
Segments and Operations by Geographic Areas is contained
in Note O to Raytheon's Financial Statements for the years
ended December 31, 1997, 1996 and 1995 and is incorporated
herein by reference.
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 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 in 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. 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 80% of costs incurred under the contract. 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 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.
As a result of the 1985 Balanced Budget and Emergency Deficit
Reduction Control Act, the federal deficit and changing world order conditions,
DOD budgets have been subject to increasing pressure resulting in an uncertainty
as to the future effects of DOD budget cuts. Raytheon has, nonetheless,
maintained a solid foundation of tactical defense systems which meets the needs
of the United States and its allies, while serving a broad government program
base and wide range of commercial electronics businesses. These factors lead
management to believe that there is high probability of continuation of
Raytheon's current major tactical defense programs.
See "Item I. Business -- 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, 1997 was $21.250
billion compared with $12.066 billion at the end of 1996. The 1997 amount
includes funded backlog of $12.547 billion from the Government compared with
$5.637 billion at the end of 1996. Normally, the Government funds its major
programs only to the dollar level appropriated annually by Congress, even though
the total estimated program values are considerably greater. Accordingly, the
Company's Government funded backlog represents only that amount which has been
appropriated and against which the Company can be reimbursed for work performed.
Approximately $2.527 billion of the overall backlog figure represents the
unperformed portion of multi-year direct orders from foreign governments.
Approximately $2.091 billion of the overall backlog represents non-government
foreign backlog.
Backlog in the Engineering and Construction segment was $3.239 billion
at the end of 1997 compared with $3.565 billion at the end of 1996. Design and
construction contracts in this segment typically take from eighteen months to
several years to perform.
Aircraft segment backlog was $1.709 billion at the end of 1997 versus
$1.163 billion at the end of 1996. The increase was primarily due to the receipt
of orders for commercial aircraft including King Air, Premier I and Horizon.
Approximately $7.148 billion of the $21.250 billion 1997 year-end
backlog is not expected to be filled during the following twelve months.
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RESEARCH AND DEVELOPMENT
During 1997, Raytheon derived net sales of $2.115 billion ($1.496
billion in 1996 and $982 million in 1995) pursuant to Government contracts for
research and development. In addition, during 1997 Raytheon expended $415.1
million on research and development efforts compared with $323.3 million in 1996
and $315.6 million in 1995. These expenditures principally have been for product
development for the Government and for aircraft products.
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 49 through 53 of the Company's Annual Report to Stockholders
for the year ended December 31, 1997 for information regarding the "Year 2000"
issue as it relates to the the Company and the Company's suppliers.
COMPETITION
The military and commercial industries in which Raytheon operates are
highly competitive. Raytheon's competitors range from highly resourceful small
concerns, which engineer and produce specialized items, to large, diversified
firms.
The Electronics segment 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 principal competitive factors
considered by electronics customers. Most of the largest defense contractors in
the United States are competitors in the Electronics segment.
In the Engineering and Construction segment it is estimated that about
15 firms compete for major business opportunities worldwide. Competition is
based primarily upon technical superiority, project experience and price. The
ability to arrange or otherwise provide financing to customers is sometimes
significant in attracting or retaining clients.
Competition in the Aircraft segment comes from a number of domestic
and foreign jet, turboprop and piston aircraft manufacturers. Principal elements
of competition in the industry are price, financing, operating costs,
reliability, cabin size and comfort, product quality, speed and service support.
13
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 number of United States and foreign patents and patent applications as
well as trademark, copyright and chip mask work registrations which are
necessary and 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.
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 affect on the
Company's operations.
EMPLOYMENT
As of December 31, 1997, Raytheon had approximately 119,150 employees
compared with approximately 75,300 employees at the end of 1996. The increase is
primarily due to the Hughes Merger and the TI Acquisition, partially offset by
the sales of the Company's home appliance, heating and air conditioning and
commercial cooking businesses, Raytheon Semiconductor and Switchcraft. See "Part
I, Recent Developments -- Acquisitions -- Divestitures." 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, for the most part, successfully negotiated labor
agreements without significant work stoppages, with the exception of a nine week
strike that occurred during the summer of 1996 at the Cedarapids, Inc. facility
located in Cedar Rapids, Iowa. Raytheon currently has collective bargaining
relationships with 13 different labor organizations involving 39 separate labor
agreements.
FOREIGN SALES
Of total sales, Raytheon's sales to customers outside the United
States were 29%, 28% and 28% in 1997, 1996 and 1995, 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.
14
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.
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 (formerly the Foreign Military Sales Act) for export from
the United States of many of Raytheon's products. In the case of certain sales
of defense equipment and services to foreign governments, the Government's
Executive Branch must notify Congress at least 15 to 30 days (depending on the
location of the sale) prior to authorizing such sales. During that time,
Congress may take action to block the proposed sale.
FACTORS THAT COULD AFFECT FUTURE RESULTS -- FORWARD LOOKING STATEMENTS
Statements in this filing which are not historical facts are forward
looking statements under the provisions of the Private Securities Litigation
Reform Act of 1995. All forward looking statements involve risks and
uncertainties. The Company wishes to caution readers that the following
important factors, among others, in some cases have affected, and in the future
could affect, the Company's actual results and could cause its actual results in
fiscal 1998 and beyond to differ materially from those expressed in any forward
looking statements made by, or on behalf of, the Company.
Important factors that could cause actual results to differ materially
include but are not limited to (i) the effect of global economic conditions,
(ii) the success of and investment in new product development, (iii) product
demand and market acceptance, (iv) the timing of new business awards, (v) the
introduction of competing products or technologies by competitors, (vi) the
successful conversion of defense products and technology to commercially viable
products, (vii) the ability to protect proprietary information and technology or
to obtain necessary licenses on commercially reasonable terms, (viii) the
ablilty to obtain and retain skilled workers, (ix) the ability to obtain and
maintain a strong supplier base and the capacity to meet product demand, (x) the
trade policies of foreign governments and (xi) competitive pressures and other
risks identified below by business segment.
Electronics Segment. In the domestic defense electronics segment,
important factors that could cause actual results to differ materially include,
in addition to those factors described in the preceding paragraph, (i) the
uncertainties surrounding Congressional appropriations and/or Department of
Defense funding, (ii) contract provisions for price determination, profit and
cost controls and limitations and audit, (iii) the ability of government
customers to terminate existing contracts, wholly or partially, for their own
convenience with a requirement to pay only for work performed or committed with
a reasonable allowance for profit, (iv) advanced design problems and associated
technological difficulties with the potential for cost overruns, (v) changes in
procurement policies, (vi) the changing needs for and changes in the type of
weapon systems to be procured, (vii) political developments domestically and
internationally and (viii) changes in the competitive landscape due to the
consolidation of the U.S. or global defense industry.
15
With respect to the international defense electronics market,
important factors that could cause actual results to differ materially include,
in addition to those noted above, (i) delays in placing orders, (ii) the ability
of foreign customers to finance purchases, (iii) uncertainties and restrictions
concerning the availability of funding credit or guarantees, (iv) changing
military and political alliances, (v) U.S. or foreign export controls and trade
restrictions, (vi) government policies with respect to restrictions on doing
business with certain countries, (vii) governmental industrial cooperation
requirements, (viii) foreign exchange risks, (ix) increased international
competition, (x) the adequacy and availability of transportation, (xi) the
complexity and necessity of using foreign representatives and consultants and
(xii) the uncertainty of complying with the laws of specific countries and of
U.S. laws affecting the activities of U.S. companies abroad.
In the commercial electronics segment, important factors that may
cause actual results to differ materially include, in addition to those noted
above, (i) product demand, including continued expansion of the satellite
telecommunications and telecommunications systems markets, (ii) consumer
spending patterns affecting recreational boat sales and favorable economic
conditions for commercial marine product sales, (iii) consumer demand for PC's
and audio entertainment components and (iv) the successful introduction of new
products, including the multiple Wireless LAN Systems.
Engineering and Construction Segment. In the engineering and
construction segment, important factors that could cause actual results to
differ materially include, in addition to those noted above, (i) the effects of
global, regional and country specific economic conditions due to international
backlog, (ii) performance risks for existing and future contracts, (iii)
conditions in the capital markets and the availability of project financing,
(iv) international political conditions, (v) the timing of contract receipt and
funding and (vi) the ability of the Company to successfully implement its
consolidation and cost reduction plans for RE&C.
Aircraft Segment. In the aircraft segment, important factors that
could cause actual results to differ materially include, in addition to those
noted above, (i) market perceptions of and government regulations affecting
regional aircraft, (ii) price pressures within the market, (iii) the ability to
meet scheduled timetables for the introduction of new products, (iv) delays in
U.S. Government export approvals and (v) third party financing availability.
16
Integration of TI Defense and Hughes Defense. The Company believes
that the creation of Raytheon Systems Company will facilitate the Company's
ability to integrate the TI Defense and Hughes Defense businesses. However, the
Company may encounter difficulties or may not realize the full benefits expected
from such integration. The success of Raytheon Systems Company will require,
among other things, integration of the TI Defense and Hughes Defense
organizations, business infrastructure and products with those of Former
Raytheon in a way that enhances the performance of the combined businesses. The
challenges posed by these transactions include the integration of numerous
geographically separated manufacturing facilities and research and development
centers. The success of this transition to an integrated entity will be
significantly influenced by the Company's ability to retain key employees, to
integrate differing management structures and to realize anticipated cost
synergies, all of which will require significant management time and resources.
Any material delays or unexpected costs incurred in connection with such
integration could have a material adverse effect on the Company's business,
operating results or financial condition.
In order to mitigate these risks, over the past year, teams drawn from
Raytheon E-Systems, Raytheon Electronic Systems, Hughes Defense and TI Defense
developed a comprehensive architecture for consolidating and organizing the new
RSC. Ultimately, hundreds of employees contributed. These teams reviewed every
operation, and their recommendations were made to a Management Transition
Committee and a Defense Business Executive Council, both of which included
Raytheon, Hughes Defense, and TI Defense management. The goal was to break
through the boundaries of the four separate defense businesses.
As a result, the Company believes that it has removed cultural
barriers by eliminating the former structures of Raytheon Electronic Systems,
Raytheon E-Systems, Raytheon TI Systems, and Hughes Defense, and created five
new business segments within RSC - Defense Systems; Sensors and Electronic
Systems; Command, Control and Communication Systems; Intelligence, Information
and Aircraft Integration Systems; and Training and Services. Each of these
segments is made up of elements of the four former businesses and is focused and
organized along product and service lines.
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, 1997, the Company utilized approximately 56.2 million
square feet of floor space in manufacturing, engineering, research,
administrative, sales and warehouses, approximately 97% of which was located in
the United States. Of such total, approximately 48% was owned, approximately 49%
was leased and approximately 3% was made available under facilities contracts
for use in the performance of United States Government contracts. At December
31, 1997 the Company had approximately 2.6 million square feet of additional
floor space that was not in use, including approximately 2.5 million square feet
in Company-owned facilities.
17
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.
A summary of the utilized floor space at December 31, 1997, by
business segment, follows:
(in square feet with 000's omitted)
Government
Leased Owned Owned TOTAL
Electronics 20,925 21,282 1,939 44,146
Engineering &
Construction 3,131 1,242 119 4,492
Aircraft 3,221 4,027 0 7,248
Corporate (includes
international sales offices) 134 235 0 369
------ ------ ----- ------
TOTAL 27,411 26,786 2,058 56,255
See "Part I, Item 3 -- Legal Proceedings," and Management's Discussion
and Analysis of Financial Condition and Results of Operations on pages --
through -- of the Company's Annual Report to Stockholders for the year ended
December 31, 1997 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
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 United States 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, for $84.5 million. HAC's
primary and excess insurance carriers contributed approximately $71 million
toward the Valenzuela settlement and HAC contributed approximately $13 million.
Subsequently, several of HAC's insurance carriers have sought or are seeking
reimbursement of the amounts they paid. Certain of these actions have been
settled or dismissed without prejudice, pending resolution of other related
toxic tort actions and exhaustion of HAC's primary insurance coverage. If the
insurers that have not settled with HAC prevail in the insurance coverage
litigation, the Company may ultimately bear responsibility for a substantial
portion of the Valenzuela settlement.
18
Several other actions arising out of migration of alleged toxic
substances into the Tucson water supply are still pending, including:
1. Cordova v. Hughes Aircraft Company, et al., which was filed 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. Fewer than 200
property damage and injury claims (with associated loss of consortium
claims) remain.
2. Yslava v. Hughes Aircraft Company, an action filed by approximately 800
individual plaintiffs, alleging injury claims (with associated 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.
3. Lanier v. Hughes Aircraft Company, et al., a class action seeking
medical monitoring for an estimated class of 50,000 residents from the
south side of Tucson.
The Company is vigorously defending these actions, and believes both
that it has strong defenses to the claims asserted against it and that it has
claims for contribution against other entities. 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.
19
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 L to
Raytheon's Financial Statements for the years ended December 31, 1997, 1996 and
1995.)
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
In December 1997, the stockholders of Former Raytheon, acting by
written consent, approved the Hughes Merger. As of December 17, 1997, Former
Raytheon's transfer agent received and recorded unrevoked written consents from
the holders of 181,734,841 shares of Former Raytheon common stock broken out as
follows: Consent - 180,053,579, Withhold - 929,227, Abstain - 752,053.
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.
Gail P. Anderson: Senior Vice President - Human Resources since
January 1998. Prior to assuming his present position Mr. Anderson was Vice
President - Human Resources from December 1994 and Vice President - Human
Resources, Phillips Petroleum Company from 1986. Age: 56
20
Shay D. Assad: Senior Vice President - Contracts since January 1998.
Prior to assuming his present position Mr. Assad was Vice President - Contracts
from July 1994 and Manager-Contracts, Missile Systems Division from 1985. Age:
47
Renso L. Caporali: Senior Vice President Engineering and Business
Development since January 1997. Prior to assuming his present position Mr.
Caporali was Senior Vice President - Government and Commercial Marketing since
April 1995 and Chairman and Chief Executive Officer of the Grumman Corporation
from 1991. Age: 64
Philip W. Cheney: Vice President and Group Executive - Commercial
Electronics since July 1994. Prior to assuming his present position Dr. Cheney
was Vice President - Engineering from February 1990. Age: 62
Kenneth H. Colburn: Vice President - Project and International Finance
since January 1995. Prior to assuming his present position Mr. Colburn was
Managing Director-Investment Banking Department-East Coast Group, CS First
Boston Corporation from January 1991. Age: 46
Kenneth C. Dahlberg: Executive Vice President and President and Chief
Operating Officer of Raytheon Systems Company since December 1997. Prior to
assuming his present position Mr. Dahlberg was Senior Vice President of Hughes
Aircraft Company from September, 1994 and Vice President of Hughes Electronics
Corporation from May, 1993. Age: 53
Peter R. D'Angelo: Executive Vice President and Chief Financial
Officer since March 1995. Prior to assuming his present position Mr. D'Angelo
was Executive Vice President, Chief Financial Officer and Controller since March
1995; Vice President, Chief Financial Officer and Controller from January 1995;
Vice President and Corporate Controller from 1992 and Controller - Missile
Systems Division from 1984. Age: 59
Herbert Deitcher: Senior Vice President - Treasurer since November
1989. Age: 64
David S. Dwelley: Vice President - Strategic Business Development
since April 1991. Prior to assuming his present position Mr. Dwelley was Vice
President and President of Raytheon Europe Limited from 1989. Age: 58
Michele C. Heid: Vice President - Corporate Controller and Investor
Relations since April 1997. Prior to assuming her present position Ms. Heid was
Vice President - Investor Relations since September 1995; Vice President -
Investor Relations & Strategic Planning, Cummins Engine Company from 1993 and
Vice President - Investor Relations, Cummins Engine Company from 1991. Age: 43
Christoph L. Hoffmann: Executive Vice President - Law, Corporate
Administration, and Secretary since March 1995. Prior to assuming his present
position Mr. Hoffmann was Senior Vice President - Law, Human Resources and
Corporate Administration, and Secretary from February 1994; Vice President,
Secretary and General Counsel from July 1991, Vice President from April 1991 and
Senior Vice President, General Counsel and Secretary of Pneumo Abex Corporation
from 1986. Age: 53
21
Thomas D. Hyde: Senior Vice President and General Counsel since
January 1998. Prior to assuming his present position Mr. Hyde was Vice President
and General Counsel since February 1994; Assistant General Counsel from August
1992; Senior Vice President, General Counsel and Chief Financial Officer of MNC
Financial Inc. Special Assets Bank from 1991; and Vice President, Finance of
Manville Sales Corporation from 1988. Age: 49
James L. Infinger: Vice President - 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: 40
Robert S. McWade: Vice President - Corporate Affairs and
Communications since January 1997. Prior to assuming his present position Mr.
McWade was Vice President - Corporate Affairs since February 1996; Director,
Corporate Communications, Textron, Inc. from September 1994; and Director,
Corporate Relations, Bank of Boston from 1988. Age: 41
Charles Q. Miller: Executive Vice President and Chairman and Chief
Executive Officer of Raytheon Engineers & Constructors International, Inc. since
March 1995. Prior to assuming his present position Mr. Miller was Senior Vice
President and Group Executive and Chairman and Chief Executive Officer of
Raytheon Engineers & Constructors International, Inc. from March 1993; and
President, United Engineers & Constructors, Inc. from 1990. Age: 52
Dennis J. Picard: Director since 1989 and Chairman and Chief Executive
Officer since March 1991. Prior to assuming his present position Mr. Picard was
President from 1989. Age: 65
Robert A. Skelly: Vice President - Assistant to the Executive Office.
Prior to assuming his present position Mr. Skelly was Vice President -
Administration, Environmental Quality and Procurement from September 1992 and
Vice President - Public and Financial Relations from January 1991. Age: 55
William H. Swanson: Executive Vice President and Chief Executive
Officer of Raytheon Systems Company since December 1997. Prior to assuming his
present position Mr. Swanson was Executive Vice President and General Manager -
Raytheon Electronic Systems Division since March 1995; Senior Vice President and
General Manager - Missile Systems Division from 1990. Age: 49
John C. Weaver: Executive Vice President, Business Development and
Engineering since December 1997. Prior to assuming his present position Mr.
Weaver was President and Chief Operating Officer of Hughes Aircraft Company from
1990. Age: 64
Arthur E. Wegner: Executive Vice President and Chairman and Chief
Executive Officer of Raytheon Aircraft Company since March 1995. Prior to
assuming his present position Mr. Wegner was Senior Vice President and Chairman
and Chief Executive Officer of Raytheon Aircraft from July 1993 and Executive
Vice President and President of the Aerospace/Defense Sector of United
Technologies Corporation from 1989. Age: 60
22
PART II
Item 5. Market For Registrant's Common Equity and Related Stockholder Matters
The information required by this Item 5 is contained in Note P to
Raytheon's Financial Statements for the years ended December 31, 1997, 1996 and
1995 and is incorporated herein by reference.
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, 1997 on page 54 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, 1997 on pages 49
through 53 and is incorporated herein by reference.
Item 8. Financial Statements and Supplemental 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, 1997 on page and pages
through , 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 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 May 27, 1998 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 May 27, 1998
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.
23
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 May 27, 1998
under the caption "Security 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 May 27, 1998
under the caption "Certain Relationships and Related Transactions" and is
incorporated herein by reference.
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 1997 Annual Report to Stockholders, are
hereby incorporated by reference:
Balance Sheets at December 31, 1997 and 1996
Statements of Income for the Years Ended
December 31, 1997, 1996 and 1995
Statements of Stockholders' Equity for the Years Ended
December 31, 1997, 1996 and 1995
Statements of Cash Flows for the Years Ended
December 31, 1997, 1996 and 1995
(2) The following financial statement schedule is included
herein:
Schedule II, Reserves for the Three Years Ended
December 31, 1997
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 1998, the Company made the
following filings on Form 8-K:
(1) Raytheon Company Current Report on Form 8-K filed with the
Securities and Exchange Commission on January 26, 1998.
(2) Raytheon Company Current Report on Form 8-K filed with the
Securities and Exchange Commission on March 18, 1998.
24
(c) Exhibits
2.1 Asset Purchase Agreement dated as of January 4, 1997
between Raytheon Company and Texas Instruments Incorporated,
heretfore filed as an exhibit to Former Raytheon's Current
Report on Form 8-K filed with the Securities and Exchange
Commission on January 6, 1997, is hereby incorporated by
reference.
2.2 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.
2.3 Implementation Agreement dated as of January 16, 1997 by and
between Raytheon Company and General Motors Corporation, 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.
2.4 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.
3.1 Raytheon Company Restated Certificate of Incorporation,
restated as of February 11, 1998.*
3.2 Raytheon Company Amended and Restated By-Laws, as amended
through January 28, 1998.*
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.*
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 Registration Statement on Form S-8,
File No. 333-45629, is hereby incorporated by reference.
25
10.3 Raytheon Company 1995 Stock Option Plan, filed as an exhibit
to the Company's Registration Statement on Form S-8, File No.
333-45629, is hereby incorporated by reference.
10.4 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.
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: Peter R. D'Angelo, Christoph L. Hoffmann, Charles
Q. Miller, Dennis J. Picard, 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.
26
10.10 Form of HE Holdings, Inc. 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. HE Holdings 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: John C. Weaver, Barry L. Abrahams, Kenneth C.
Dahlberg, Gerald H. Putman, George E. Speake, William C.
Bowes, Louise L. Francesconi, Robert L. Horowitz, John T.
Kuelbs, Charles A. Leader, David L. McPherson, Charles S.
Ream, Terry Snyder, Donald R. Infante, Frederick C. McNutt,
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 HE Holdings 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.
HE Holdings has entered into Executive Retention Agreements in
the form of Agreement filed as Exhibit 10.11 with each of the
following executives: John C. Weaver, Barry L. Abrahams,
Kenneth C. Dahlberg, Gerald H. Putman, George E. Speake,
William C. Bowes, Louise L. Francesconi, Robert L. Horowitz,
John T. Kuelbs, Charles A. Leader, David L. McPherson, Charles
S. Ream, Terry Snyder, Donald R. Infante, Frederick C. McNutt,
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 Form of HE Holdings, Inc. 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.
HE Holdings has entered into Executive Retention Agreements in
the form of Agreement filed as Exhibit 10.12 with 86 other of
its executives. The agreements are designed to provide the
executive with certain payments if still employed by the
Company at the end of the first and second years after the GM
Spin-Off Merger Effective Time, all as more fully described in
the form of Agreement.
10.13 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.
10.14 Raytheon Company $3 billion Credit Facility -- 364-day
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.
27
10.15 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.
10.16 HE Holdings, Inc. $2 billion Credit Facility -- 364-day
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.
13 Raytheon Company 1997 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.*
* 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/ Christoph L. Hoffmann
Christoph L. Hoffmann
Executive Vice President and Secretary
for the Registrant
Dated: March 25, 1998
28
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
Dennis J. Picard Chairman of the Board
(Dennis J. Picard) and Director (Principal March 25, 1998
Executive Officer)
Ferdinand Colloredo-Mansfeld Director March 25, 1998
(Ferdinand Colloredo-Mansfeld)
Steven D, Dorfman Director March 25, 1998
(Steven D, Dorfman)
Thomas E. Everhart Director March 25, 1998
(Thomas E. Everhart)
Theodore L. Eliot, Jr. Director March 25, 1998
(Theodore L. Eliot, Jr.)
John R. Galvin Director March 25, 1998
(John R. Galvin)
Barbara B. Hauptfuhrer Director March 25, 1998
(Barbara B. Hauptfuhrer)
Richard D. Hill Director March 25, 1998
(Richard D. Hill)
L. Dennis Kozlowski Director March 25, 1998
(L. Dennis Kozlowski)
James N. Land, Jr. Director March 25, 1998
(James N. Land, Jr.)
A. Lowell Lawson Director March 25, 1998
(A. Lowell Lawson)
Charles H. Noski Director March 25, 1998
(Charles H. Noski)
Thomas L. Phillips Director March 25, 1998
(Thomas L. Phillips)
Warren B. Rudman Director March 25, 1998
(Warren B. Rudman)
Director
(Alfred M. Zeien)
Peter R. D'Angelo Executive Vice President - Chief March 25, 1998
(Peter R. D'Angelo) Financial Officer
Michele C. Heid Vice President - Corporate Controller March 25, 1998
(Michele C. Heid) and Investor Relations (Chief
Accounting Officer)
29
RAYTHEON COMPANY AND SUBSIDIARIES CONSOLIDATED
----------------------------------------------
SCHEDULE II - RESERVES
FOR THE THREE YEARS ENDED DECEMBER 31, 1997
-------------------------------------------
(In thousands)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
Additions
Balance
Balance at Charged to Charged at end
beginning costs and to other Deductions of
Description of period expenses accounts Note (1) period
- -------------------------------------------------------------------------------
Year ended December 31, 1997:
Allowance for doubtful $20,260 $7,122 - $5,619 $21,763
accounts receivable
Year ended December 31, 1996:
Allowance for doubtful $22,043 $1,207 - $2,990 $20,260
accounts receivable
Year ended December 31, 1995:
Allowance for doubtful $21,290 $3,078 - $2,325 $22,043
accounts receivable
Note (1) - Uncollectible accounts and adjustments, less recoveries