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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, 1998.
/ / 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 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 ...
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. [X]
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The aggregate market value of the voting stock held by non-affiliates of
the Registrant, as of February 28, 1999, was approximately $17,823,904,334. 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 28, 1999:
336,184,525, consisting of 101,255,005 shares of Class A Common Stock and
234,929,520 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 Part I, Part II,
for the fiscal year ended December 31, 1998 Part IV
Portions of the Proxy Statement for Raytheon's Part III
1999 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 1998 sales of more than $19.5 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. 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
represents the combination and consolidation of the legacy defense
organizations--the former defense operations of Hughes Electronics Corporation
("Hughes Defense") and the defense assets of Texas Instruments, Inc. ("TI
Defense"), Raytheon E-Systems and Raytheon Electronics Systems. 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.
For public reporting purposes, certain operating segments within
Electronics have been aggregated as they exhibit similar long-term financial
performance characteristics and do not meet the quantitative threshold. All
material intercompany transactions have been eliminated. During 1998 the
reportable segments within Electronics included the following: Defense Systems;
Sensors and Electronics Systems; Intelligence, Information, and Aircraft
Integration Systems; and a combined group made up of Command, Control, and
Communications Systems, Training and Services, and Commercial Electronics and
Other.
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During the first quarter of 1999, the Company completed a
reorganization of certain business segments to better align the operations with
customer needs and to eliminate management redundancy. The Intelligence,
Information, and Aircraft Integration Systems segment, with the exception of its
Aircraft Integration Systems division was merged with Command, Control, and
Communications Systems to create Command, Control, Communication, and
Information Systems. The Aircraft systems division was established as a separate
segment called Aircraft Integration Systems. The impact of this organizational
change is reflected in the descriptions below, and will be incorporated into the
Company's 1999 financial statements.
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.
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 over $3 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 18 allied nations in addition to the U.S.
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 missile). Other missiles
produced by DSS include Tomahawk, TOW, Stinger, Maverick, and Standard.
DSS also leads Raytheon's efforts as the prime contractor for the NATO
Sea-Sparrow Surface to Air Missile System (NSSMS), DSS also produces the air-
and surface-launched versions of the Sparrow missile for both the U.S. and
foreign Navies. DSS also 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 also 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.
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DSS strike weapons programs include 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. Also, Raytheon
through DSS is the prime contractor for the U.S. Army's Enhanced Fiber Optic
Guided Missile (EFOGM) demonstration program, which is intended to provide
rapidly deployable, lethal and highly survivable technologies to the U.S. early
entry forces.
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, reconaissance, 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.
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 anticipated
commercial night vision application is a night driving safety option on the
model year 2000 Cadillac(R) DeVille(R)(1).
(1) Cadillac & DeVille are registered trademarks of General Motors Corporation.
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, Communications and Information Systems. The Command,
Control, Communications 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; large scale information
retrieval, processing and distribution systems; and global broadcast systems.
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C3I is part of a team under contract to design, develop, integrate and
test the command, control, communications and intelligence sonar, combat control
and architecture subsystems for the U.S. Navy's next generation attack submarine
- - the New Attack Submarine or NSSN. The segment builds military communications
systems and also a family of Extended Environment (E(2)) COTS computers and
workstations.
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 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. C3I also has capabilities in
large-scale image processing and advanced signal processing.
C3I lead 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 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 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, China, Cyprus, Germany, Hong Kong, India, Jamaica, The
Netherlands, Norway, Oman, Switzerland and Taiwan. Raytheon's Terminal Doppler
Weather Radar (TDWR) system is being installed at 42 sites across the United
States and Puerto Rico. The new Hong Kong airport is the first international
installation of Raytheon's TDWR system. 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
and landing.
Aircraft Integration Systems. The Aircraft Integration Systems segment
("AIS") focuses on integration of airborne surveillance and intelligence
systems; aircraft modifications; and head-of-state aircraft systems.
AIS specializes in the design and installation of interiors for
executive and VIP/head-of-state aircraft. The segment also performs Special
Operations Forces Support Activity (SOFSA) and is working on the Airborne Early
Warning and Control (AEW&C) program. During 1998, Raytheon (through AIS)
continued the U.S. Air Force's C-141 avionics modernization program which
includes a "glass cockpit," a digital autopilot, an improved, integrated GPS
navigation system, and enhanced situational awareness systems.
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Training and Services. The Training and Services segment ("TSS")
provides training services and integrated training programs; technical services;
and logistics and support with operations throughout the U.S. and overseas.
TSS performs complete engineering and depot-level cradle-to-grave
support to Raytheon-manufactured equipment and to various 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.
TSS is a world leader in providing and supporting range instrumentation
systems and equipment 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. TSS 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.
TSS supplies professional services to a broad range of federal
customers in the areas of space and earth sciences, scientific data management,
transportation management, remote sensing, and computer networking. The segment
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.
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 Anshutz 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 low noise
amplifiers and power amplifiers for hand sets for the IRIDIUM(R)(2) global
satellite communications project, which is designed to provide voice, paging,
data, facsimile and location services anywhere on Earth. 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)(3)
phone now being introduced in the cellular market.
(2) IRIDIUM is a registered trademark and service mark of Iridium I.P.L.L.C.
(3) StarTAC is a registered trademark of Motorola, Inc.
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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 includes the
Beech King Air 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. The
Raytheon Premier I business jet took its maiden flight on December 22, 1998. To
date, more than 140 firm orders have been received for the Premier I. The
Premier I is currently in a certification test program. In November 1996,
Raytheon Aircraft announced a new super midsize business jet, the Hawker
Horizon. The Horizon is currently in production leading to anticipated airplane
certification and delivery in 2001.
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 1999. 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.
Raytheon Aerospace manages approximately 1,500 aircraft at over 245
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 and Constructors ("RE&C") is one of the largest
engineering, construction, operations and maintenance firms serving markets
throughout the world. Its markets include: fossil and nuclear power; process
automation consulting services; petroleum and gas; polymers and chemicals; food
and consumer products; environmental services, including chemical munitions
destruction; infrastructure and transportation.
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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 project worth more
than $700 million to build a dam and power plant on the Lower Agno River at San
Roque, on the island of Luzon in the Philippines (the earth and rock fill dam
will be approximately 3,600 feet long and 650 feet high, making it one of the
largest embankment dams in the world); (ii) a contract to install a coal
pulverization and injection system to fuel a blast furnace at a steel mill in
Maryland; (iii) construction of a chemical weapons destruction facility in Pine
Bluff, Arkansas, part of a $512 million contract to build and operate the plant,
(iv) construction of a new satellite launch complex for The Boeing Company at
Cape Canaveral Air Station, Florida, and (v) work on the $1.1 billion
Hudson-Bergen light rail project in New Jersey.
Financial information about Operations by Business Segments and
Operations by Geographic Areas is contained in Note M to Raytheon's
Financial Statements for the years ended December 31, 1998, 1997 and
1996 and is incorporated herein by reference.
Consolidations
In January 1998, Raytheon announced plans to reduce the RSC workforce
by 8,700 employees and reduce facility space by approximately 8 million square
feet. In October 1998, the Company announced previously planned actions to
accelerate and expand these initiatives, thereby reducing employment by a total
of 12 percent by the end of 1998 and another 4 percent in 1999, for a total
reduction of 16 percent, or approximately 14,000 positions by the end of 1999.
RSC will also vacate an additional 2 million square feet at 8 facilities and
complete all facility related actions by the end of 1999 through sales,
subleases and lease termination. The principal actions involve the consolidation
of missile and other electronic systems manufacturing and engineering, as well
as the consolidation of certain component manufacturing, into Centers of
Excellence.
In January 1998, Raytheon also announced plans to reduce the RE&C
workforce by 1,000 employees and close or partially close 16 offices, or
approximately 1.1 million square feet. Raytheon is reassessing the structure and
operations of this business, while implementing the previously announced cost
reduction initiatives. In the fourth quarter of 1998, the Company (i) modified
the plan announced in January 1998 to close fewer facilities and (ii) announced
plans for an additional 260 person reduction in the RE&C workforce.
SALES TO THE UNITED STATES GOVERNMENT
Sales to the United States Government (the "Government"), principally
to the Department of Defense ("DoD"), were $12.827 billion in 1998 and $6.270
billion in 1997 representing 65.7% of total sales in 1998 and 45.9% in 1997. Of
these sales, $1.660 billion in 1998 and $483 million in 1997 represented
purchases made by the Government on behalf of foreign governments.
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DIVESTITURES AND ACQUISITIONS
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 1998 as set forth below. In addition, pursuant to
agreements with the U.S. government in connection with the acquisitions of
Hughes Defense and TI Defense, Raytheon divested a portion of each of its Second
Generation Ground-Based Electro-Optics, Focal Plane Array and Monolithic
Microwave Integrated Circuits assets as described below.
On December 31, 1998, Raytheon sold its Transportation Management
Solutions business to Orbital Sciences Corporation for approximately $21
million.
On December 18, 1998, Raytheon sold its Sonobuoy business to Undersea
Sensor Systems, Inc., a subsidiary of Ultra Electronics, Inc., for approximately
$23 million.
On November 29, 1998, Raytheon sold its Raytheon Aircraft Company
Montek subsidiary to Moog, Inc. for approximately $160 million.
On October 21, 1998, Raytheon sold a portion of its Second Generation
Ground-Based Electro-Optics assets (formerly a part of Hughes Defense), as well
as a portion of its Focal Place Array assets (formerly part of TI Defense), to
DRS Technologies, Inc. for approximately $45 million.
On September 17, 1998, Raytheon sold its Raytheon Systems Limited
Flight Training business to GE Capital for approximately $66 million.
On September 9, 1998, Raytheon acquired AlliedSignal Inc.'s
Communications Systems business for approximately $63 million.
On August 21, 1998, Raytheon sold its E-MASS, Inc. robotic tape storage
subsidiary to Advanced Digital Information Corporation for approximately $25
million.
On May 18, 1998, Raytheon sold it electronic controls business
(formerly part of the appliances segment) to EGO Group of Germany for
approximately $36 million.
On May 5, 1998, Raytheon sold its Commercial Laundry business to a
company organized by Bain Capital, Inc. and Raytheon Commercial Laundry
management for approximately $334 million.
On March 31, 1998, Raytheon sold its Seiscor subsidiary to Pulse
Communications, Inc. for approximately $13 million.
On January 13, 1998, Raytheon sold the Monolithic Microwave Integrated
Circuits (MMIC) operations of former TI Defense to TriQuint Semiconductor Inc.
for approximately $39 million.
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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.
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 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.
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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.
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 1. 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, 1998 was $23.669
billion compared with $21.250 billion at the end of 1997. The 1998 amount
includes funded backlog of $14.622 billion from the Government compared with
$12.547 billion at the end of 1997. During the third quarter of 1998, Raytheon
changed its method of reporting backlog at certain locations in order to provide
a consistent method of reporting across and within Raytheon businesses. The
company includes the full value of contract awards when received, excluding
awards and options expected in future periods. Prior to the change, contract
values, which were awarded, but incrementally funded, were excluded from
reported backlog for some parts of the business. The one-time impact of this
change was a $1.1 billion increase to Electronics backlog and a $0.9 billion
increase to Engineering and Construction backlog, related principally to U.S.
government contracts. Prior periods have not been restated for this change.
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Approximately $3.817 billion of the overall backlog figure represents
the unperformed portion of direct orders from foreign governments. Approximately
$2.556 billion of the overall backlog represents non-government foreign backlog.
Backlog in the Engineering and Construction segment was $3.888 billion
at the end of 1998 compared with $2.900 billion at the end of 1997. Design and
construction contracts in this segment typically take from eighteen months to
several years to perform.
Aircraft segment backlog was $2.133 billion at the end of 1998 versus
$1.709 billion at the end of 1997. The increase was primarily due to the receipt
of orders for general aviation aircraft including Horizon, Premier I and Hawker
800XP.
Approximately $9.569 billion of the $23.669 billion 1998 year-end
backlog is not expected to be filled during the following twelve months.
RESEARCH AND DEVELOPMENT
During 1998, Raytheon derived net sales of $4.372 billion ($2.115
billion in 1997 and $1.496 billion in 1996) pursuant to Government contracts for
research and development. In addition, during 1998 Raytheon expended $582.1
million on research and development efforts compared with $415.1 million in 1997
and $323.3 million in 1996. 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 28 through 32 of the Company's Annual Report to Stockholders
for the year ended December 31, 1998 for information regarding the "Year 2000"
issue as it relates to 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.
14
Competition in the Engineering and Construction segment comes from a
number of domestic and foreign firms, competing 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 within the
engineering and construction industry.
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, range, speed and service support.
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 semiconductor 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, 1998, Raytheon had approximately 108,200 employees
compared with approximately 119,200 employees at the end of 1997. The decrease
is mainly due to layoffs within Raytheon Systems Company and RE&C, divestitures
of Seiscor, BSG/Remco, Commercial Laundry and Raytheon Aircraft Company Montek,
offset by the acquisition of the Communications Division of AlliedSignal, Inc.
See "Part I, Divestitures and Acquisitions." 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.
15
INTERNATIONAL SALES
Of total sales, Raytheon's sales to customers outside the United States
(including foreign military sales) were 26%, 29% and 28% in 1998, 1997 and 1996,
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. Although international sales as a percentage of
Raytheon's total sales decreased slightly from 1997 to 1998 (primarily due to
the merger of Hughes Defense and acquisition of TI Defense), it is anticipated
that, consistent with the Company's goals, such percentage of international
sales will increase. 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.
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 1999 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
16
products, (vii) the ability to protect proprietary information and technology
or to obtain necessary licenses on commercially reasonable terms, (viii) the
ability 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 (xi) the risks inherent in large,
long-term fixed-price contracts, (xii) competitive pressures and other risks
identified below by business segment and (xiii) the success of strategic
acquisition or divestiture actions.
Total 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, 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.
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 and cross-border consolidation of 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 and (ii) consumer
spending patterns affecting recreational boat sales and favorable economic
conditions for commercial marine products and sales.
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, (vi) the availability of infrastructure funding for improvements to
U.S. highways and (vii) the ability of the Company to successfully implement its
consolidation and cost reduction plans for RE&C.
17
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) government legislation affecting aviation, such as user fees,
(iii) price pressures within the market, (iv) the ability to meet scheduled
timetables for the introduction of new products, (v) delays in U.S. Government
export approvals and (v) third party financing availability.
Consolidation and Reorganization of Raytheon Systems Company. The
Company continues its consolidation and reorganization of Raytheon Systems
Company. 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, the continued execution of the
consolidation and reorganization planned. The challenges include the integration
of numerous geographically separated manufacturing facilities and research and
development centers. The success of this plan 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 and there can be no assurance that additional restructuring
actions will not be required.
Year 2000 Data Conversion. While the Company expects to resolve all
Year 2000 risks without material adverse impact on results of operations,
liquidity, or financial condition, important factors that could cause actual
results to differ materially include (i) the Company's ability to detect all
Year 2000 problems, (ii) the Company's ability to achieve successful and timely
resolution of all Year 2000 issues, and (iii) the preparedness of the Company's
critical suppliers to avoid Year 2000 related service and delivery
interruptions.
See Management's Discussion and Analysis of Financial Condition and
Results of Operations on pages 28 through 32 of the Company's Annual Report to
Stockholders for the year ended December 31, 1998 for information regarding the
Company's efforts with respect to Year 2000 issues and status thereof.
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, 1998, the Company utilized approximately 53 million
square feet of floor space for manufacturing, engineering, research,
administration, sales and warehousing, approximately 95% of which was located in
the United States. Of such total, approximately 40% was owned, approximately 55%
was leased, and approximately 5% was made available under facilities contracts
for use in the performance of United States Government contracts. At December
31, 1998 the Company had approximately 3.3 million square feet of additional
floor space that was not in use, including approximately 2 million square feet
in Company-owned facilities.
18
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, 1998, by
business segment, follows:
(in square feet with 000's omitted)
Leased Owned Gov't Owned Total
Total Electronics 23,332 17,079 2,541 42,952
Engineering &
Construction 2,260 80 0 2,340
Aircraft 3,249 3,727 0 6,976
Corporate (includes
international sales
offices) 619 258 0 877
- --------------------------------------------------------------------------
29,460 21,144 2,541 53,145
See "Part I, Item 3 -- Legal Proceedings," and Management's Discussion
and Analysis of Financial Condition and Results of Operations on pages 28
through 32 of the Company's Annual Report to Stockholders for the year ended
December 31, 1998 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. 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.
Several other actions arising out of migration of alleged toxic
substances into the Tucson water supply are still pending, including:
19
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. Settlement was reached with all
but 3 claimants in 1998. Such remaining claims were dismissed, the
dismissal of which are now on appeal.
2. Yslava v. Hughes Aircraft Company, an action filed 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.
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.
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.)
20
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: 48
Daniel P. Burnham: Director of the Company since July 1,1998. President and
Chief Executive Officer of the Company since December 1, 1998. From July 1, 1998
until December 1, 1998 Mr. Burnham served as President and Chief Operating
Officer of the Company. 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:
52
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: 63
21
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: 54
Peter R. D'Angelo: Executive Vice President and Chief Financial Officer since
April 1997. 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: 60
Dennis 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: 50
David S. Dwelley: Vice President - Strategic Business Development since April
1991. Age: 59
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: 47
Michele C. Heid: Vice President - 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: 44
Thomas D. Hyde: Senior Vice President, Secretary and General Counsel since
September 1998. Prior to assuming his present position, Mr. Hyde was Senior Vice
President and General Counsel from February 1998; and Vice President and
General Counsel from February 1994. Age: 50
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: 41
Dennis J. Picard: Director since 1989 and Chairman since December 1998. Prior to
assuming his present position, Mr. Picard was Chairman and Chief Executive
Officer since March 1991. Prior thereto, Mr. Picard was President from 1989.
Age: 66
Robert A. Skelly: Vice President - Assistant to the Executive Office since
February 1994. Prior to assuming his present position, Mr. Skelly was Vice
President - Administration, Environmental Quality and Procurement from September
1992. Age: 56
22
William H. Swanson: Executive Vice President and Chairman 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 from March 1995; Senior Vice President and
General Manager - Missile Systems Division from 1990. Age: 50
John C. Weaver: Executive Vice President, Business Development and Chairman of
Raytheon International, Inc. since May 1998. Prior to assuming his present
position, Mr. Weaver was Executive Vice President, Business Development and
Engineering from December 1997. Prior thereto, Mr. Weaver was President and
Chief Operating Officer of Hughes Aircraft Company from 1990. Age: 65
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. Age: 61
On March 10, 1999, the Company announced Mr. D'Angelo's intention to
retire after 37 years of service with the Company. Also on March 10, 1999, the
Company announced the appointment of Franklyn A. Caine to the position of Senior
Vice President and Chief Financial Officer, succeeding Mr. D'Angelo. Mr. Caine
currently is the Executive Vice President and Chief Financial Officer of Wang
Laboratories, Inc., a position he has held since 1994. It is anticipated that
Mr. Caine will assume his position with the Company on or about April 1, 1999.
PART II
Item 5. Market For Registrant's Common Equity and Related Stockholder Matters
At December 31, 1998, there were approximately 282,238 record holders
of the Company's Class A common stock and 19,086 record holders of the Company's
Class B common stock. Additional information required by this Item 5 is
contained on page 56 of Raytheon's Annual Report to Stockholders for the year
ended December 31, 1998 and in Note N to Raytheon's Financial Statements for the
years ended December 31, 1998, 1997 and 1996 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 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
23
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.
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, 1998 on page 27 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, 1998 on pages 28
through 32 and is incorporated herein by reference.
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, 1998 on page 38
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, 1998 in Note N and on
pages 33 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 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 28, 1999 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.
24
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 28, 1999
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 28, 1999
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 April 28, 1999
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 1998 Annual Report to Stockholders, are
hereby incorporated by reference:
Balance Sheets at December 31, 1998 and 1997
Statements of Income for the Years Ended
December 31, 1998, 1997 and 1996
Statements of Stockholders' Equity for the Years Ended
December 31, 1998, 1997 and 1996
Statements of Cash Flows for the Years Ended
December 31, 1998, 1997 and 1996
(2) The following financial statement schedule is included
herein:
Schedule II, Reserves for the Three Years Ended
December 31, 1998
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
None.
25
(c) Exhibits
(The Exhibits without an asterisk (*) have been filed with
previous reports)
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 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 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 Registration Statement on Form S-8, File No. 333-45629, is hereby
incorporated by reference.
26
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, 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.
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.
27
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 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.
10.14 Consulting Agreement dated September 1, 1998 between Raytheon Company
and Warren B. Rudman.*
10.15 Consulting Agreement dated April 1, 1998 between Raytheon Company
and John Deutch.*
28
10.16 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.
10.17 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.
10.18 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.
10.19 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.
10.20 Termination Replacement and Restatement Agreement dated as of May 1, 1998
among Raytheon Company and the Lenders named therein establishing a new
Facility R 364-Day Credit Agreement 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.
10.21 Termination Replacement and Restatement Agreement dated as of May 1, 1998
among Raytheon Company and the Lenders named therein establishing a new
Facility H 364-Day Credit Agreement 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.
10.22 Termination Replacement and Restatement Agreement dated as of March 18,
1999 among Raytheon Company and the Lenders named therein establishing a
new Facility H 364-Day Credit Agreement.*
10.23 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.*
10.24 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.*
10.25 Raytheon Savings and Investment Plan, heretofore filed as an exhibit to
the Company's S-8 Registration Statement No. 333-56117 on June 5, 1998,
as amended and restated effective January 1, 1999, is filed herewith.*
10.26 Raytheon Employee Savings and Investment Plan, heretofore filed as an
exhibit to the Company's S-8 Registration Statement No. 333-56117 on
June 5, 1998, as amended and restated effective January 1, 1999, is
filed herewith.*
29
13 Raytheon Company 1998 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.*
99 Amended 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 Secretary
for the Registrant
Dated: March 24, 1999
30
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
Daniel P. Burnham President and Chief March 24, 1999
(Daniel P. Burnham) Executive Officer and Director
(Principal Executive Officer)
Dennis J. Picard Chairman of the Board March 24, 1999
(Dennis J. Picard) and Director
Ferdinand Colloredo-Mansfeld Director March 24, 1999
(Ferdinand Colloredo-Mansfeld)
John M. Deutch Director March 24, 1999
(John M. Deutch)
Steven D. Dorfman Director March 24, 1999
(Steven D. Dorfman)
Thomas E. Everhart Director March 24, 1999
(Thomas E. Everhart)
John R. Galvin Director March 24, 1999
(John R. Galvin)
Barbara B. Hauptfuhrer Director March 24, 1999
(Barbara B. Hauptfuhrer)
Richard D. Hill Director March 24, 1999
(Richard D. Hill)
L. Dennis Kozlowski Director March 24, 1999
(L. Dennis Kozlowski)
James N. Land, Jr. Director March 24, 1999
(James N. Land, Jr.)
Henrique de Campos Meirelles) Director March 24, 1999
(Henrique de Campos Meirelles)
Thomas L. Phillips Director March 24, 1999
(Thomas L. Phillips)
Warren B. Rudman Director March 24, 1999
(Warren B. Rudman)
Alfred M. Zeien Director March 24, 1999
(Alfred M. Zeien)
Peter R. D'Angelo Executive Vice President - March 24, 1999
(Peter R. D'Angelo) Chief Financial Officer
Michele C. Heid Vice President - Corporate Controller March 24, 1999
(Michele C. Heid) (Chief Accounting Officer)
31
RAYTHEON COMPANY AND SUBSIDIARIES CONSOLIDATED
----------------------------------------------
SCHEDULE II - RESERVES
FOR THE THREE YEARS ENDED DECEMBER 31, 1998
-------------------------------------------
(In thousands)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
Additions
Balance at Charged to Charged to Balance at
beginning costs and other Deductions end of
Description of period expenses accounts Note (1) period
- -----------------------------------------------------------------------------------------------------
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
Year ended December 31, 1996:
Allowance for doubtful $22,043 $1,207 - $2,990 $20,260
accounts receivable
accounts receivable
Note (1) - Uncollectible accounts and adjustments, less recoveries