Raytheon 2003 Annual Report Download

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Table of contents

  • Page 1

  • Page 2
    ...growth. O N TH E C OVE R 3 3 3 An F-15 fighter pilot prepares to take off. In 2003, F-15C Eagles flew with two improved combat capabilities provided by Raytheon: the first operational airborne Active Electronically Scanned Array radar and the AIM-9X next generation Sidewinder air-to-air missile.

  • Page 3
    ... Productivity W I L L I A M H . SWA N S O N Chairman and CEO D E A R F E L LOW S H A R E H O L D E R S 3 333 Raytheon's 2003 Annual Report tells the story of a company that is well positioned in defense, that has re-base- affected by Network Centric Systems and Raytheon Technical Services...

  • Page 4
    ... and information systems; a U.S. Missile Defense Agency Kinetic Energy Interceptor to target hostile missiles in the boost phase; a role as Ground Sensor Integrator for U.S. Army Future Combat Systems; continued modernization of the radar on the Air Force B-2 bomber; technical services for...

  • Page 5
    ... teamwork and collaboration. 3 3 To me, valuing people starts with a healthy and safe work environment. Since 1998, the company has reduced employee injuries by 78 percent. Now that Raytheon has reduced its injury rate to a level that many consider to be "world class," we are challenging the team to...

  • Page 6
    ...N MISSILE DEFENSE 3 3 3 The Cobra Judy ship-based radar is an important element in the boost, midcourse and terminal phases of a layered defense system in which Raytheon partners with the United States and its allies. Raytheon will replace the existing Cobra Judy radar system with a dual-band radar...

  • Page 7
    ...next generation shipboard Cobra Judy replacement system. It will provide foreign ballistic missile data collection for the M D A and strategic and related communities. For the midcourse and terminal phases, the company successfully tested its S TA N D A R D Missile-3 in 2003. Raytheon also continued...

  • Page 8
    ... systems integration for the Global Hawk® unmanned aerial vehicle, U-2 reconnaissance plane and classified programs. Internationally, the $1.4 billion Airborne Stand-off Radar (ASTOR) program for the United Kingdom celebrated major customer milestones, strengthening Raytheon's bid to develop...

  • Page 9
    ... Services and winning contracts to replace the combat control system for Australia's Collins-class submarines. Raytheon Canada Ltd., in partnership with the Canadian government, expanded distribution of the world's first high-frequency surface wave radar. In 2003, Raytheon contracted business...

  • Page 10
    ... example of the company's success in partnering with its customers for outstanding mission solutions is the F/A-18 Super Hornet, the Navy's premier fighter and attack aircraft. Sophisticated Raytheon sensors make pilots aware of situations that change in an instant. Sensing systems, such as Dave...

  • Page 11
    ... Electronically Scanning Array radar, the AN/ASQ-228 Advanced Targeting ForwardLooking Infrared system, and the ALR-67(V)3&4 fourth-generation radar warning receiver, work in harmony to keep the air crew safe, protect the aircraft, and accomplish the mission. Raytheon weapon systems for the Super...

  • Page 12
    ... its business to support the evolving needs of its customers. 3 3 Performance international customers, Missile Systems earned contract awards in two key programs in 2003. The United Kingdom and New Zealand selected the Javelinâ„¢ anti-tank weapon system to meet their mediumrange anti-armor needs...

  • Page 13
    ... contract, Raytheon will replace the existing Cobra Judy, a surveillance and data collection system that supports U.S. treaty monitoring activities, with a dual-band radar suite consisting of X-band and S-band active phased array sensors and other related mission equipment. 3 3 Under international...

  • Page 14
    ... production Global Hawk Ground Station Mission Control Element, which manages the unmanned aircraft and its sensors and controls a number of air vehicles simultaneously. The contract was extended to Consolidated Field Support for the U-2 aircraft. 3 3 IIS assumed management of the Homeland Security...

  • Page 15
    ... systems and showed that various subsystems were working properly. 3 3 The Air Force awarded the business a contract to continue upgrading the radar on the B-2 bomber. This is the second phase of a multi-year program to retrofit the B-2 ï¬,eet with a new Ku-band active-array radar antenna. Raytheon...

  • Page 16
    ... screens highlights the information Raytheon helps deliver to the C D H Q . 3 N ETWO R K C E NTR I C SYSTE M S (N C S), which reported sales of $2.8 billion in 2003, provided the war fighter with systems to network and securely distribute information throughout the battlespace. Thermal soldier...

  • Page 17
    ... NASA's Deep Space Network. 3 3 RTSC which reported sales of $2 billion in 2003, provides technology solutions for defense, federal and commercial customers worldwide. It specializes in customized engineering services; logistics and supply chain management; training; and science, research and...

  • Page 18
    ... business jets in the NetJets® ï¬,eet of fractionally owned aircraft. The order includes an option for an additional 50 Hawker 400XP aircraft, which brings the total potential order value to more than $600 million. 33 industry's finest customer service and support, RAC used new systems technology...

  • Page 19
    ...Notes Payable and Long-term Debt 49 Note J Equity Security Units 50 Note K Stockholders' Equity 51 Note L Federal and Foreign Income Taxes 51 Note M Commitments and Contingencies 54 Note N Employee Stock Plans 55 Note O Pension and Other Employee Benefits 58 Note P Business Segment Reporting 61 Note...

  • Page 20
    ...effect of change in accounting principle, net of tax Net income (loss) Diluted earnings per share from continuing operations Diluted earnings (loss) per share Dividends declared per share Average diluted shares outstanding (in thousands) FINANCIAL POSITION AT YEAR-END 3 3 3 Cash and cash equivalents...

  • Page 21
    ...work in a new net-centric paradigm, minimize collateral damage, and strike time sensitive targets. The Company's precision engagement systems include: U-2 sensor suite, F-15 and F/A-18 Active Electronically Scanned Array radars, Advanced Medium Range Air-to-Air Missile, Situation Awareness Data Link...

  • Page 22
    ... Aircraft. Although the Company will continue to focus on working capital management at the defense businesses, this level of improvement is not expected to continue into the foreseeable future. F I N A N C I A L S U M M A RY The health of the markets for Raytheon Aircraft's products and services...

  • Page 23
    ... judgment. The Company's long-term return on asset (ROA) and discount rate assumptions are considered to be the key variables in determining pension expense or income. To develop the long-term ROA assumption, the Company considered the current level of expected returns on risk-free investments...

  • Page 24
    ... Company's long-term return on asset assumption and the actual rate of return on pension plan assets over the last several years. The decrease in gross margin as a percent of sales in 2003 was due, in part, to charges of $237 million at Network Centric Systems and $39 million at Technical Services...

  • Page 25
    ... charge related to the Company's repurchase of long-term debt, described below in Capital Structure and Resources, and $20 million of equity losses related to Flight Options® LLC, offset by an $82 million gain from the sale of the Company's investment in its former aviation support business, both...

  • Page 26
    ...and Information Systems, Missile Systems, Network Centric Systems, Space and Airborne Systems, Technical Services, Aircraft, and Other. In 2003, the Company began reporting its defense businesses in six segments. In addition, the Company's Commercial Electronics businesses were reassigned to the new...

  • Page 27
    ... Aviation Services LLC (RAAS), and Raytheon Professional Services LLC (RPS) had 2003 sales of $573 million versus $210 million in 2002 and $207 million in 2001. FO offers services in the aircraft fractional ownership industry. RAAS is a unit formed to manage the Company's commuter aircraft business...

  • Page 28
    ... foreign government contracts for which funding has not been appropriated. Gross Bookings (In millions) 2003 2002 2001 Integrated Defense Systems Intelligence and Information Systems Missile Systems Network Centric Systems Space and Airborne Systems Technical Services Aircraft Other Total $ 4,344...

  • Page 29
    ...legal, and management costs related to RE&C. Further increases to project costs may increase the estimated operating cash outflow for RE&C in 2004. In 2002, the Company sold its Aircraft Integration Systems business (AIS) for $1,123 million, net, subject to purchase price adjustments. The Company is...

  • Page 30
    ... related to the Company's merger with the defense business of Hughes Electronics Corporation (Hughes Defense). Under the terms of the agreement, Hughes Electronics agreed to reimburse the Company approximately $635 million of its purchase price, with $500 million received in 2001 and the balance...

  • Page 31
    ...unit totaling $837 million, net of offering costs of $26 million. The net proceeds of the offering were used to reduce debt and for general corporate purposes. Each equity security unit consists of a contract to purchase shares of the Company's common stock on May 15, 2004, which will result in cash...

  • Page 32
    ...AT E D E N T I T I E S In 2002, the Company formed a joint venture, Flight Options LLC (FO), whereby the Company contributed its Raytheon Travel Air® fractional ownership business and loaned the new entity $20 million. In June 2003, the Company participated in a financial recapitalization of FO. As...

  • Page 33
    ... the Company's accounting practices primarily related to the commuter aircraft business and the timing of revenue recognition at Raytheon Aircraft. The Company has been providing documents and information to the SEC staff. In addition, certain present and former officers and employees of the Company...

  • Page 34
    ... 2003, two purported class action lawsuits were filed on behalf of participants in the Company's savings and investment plans who invested in the Company's stock between August 19, 1999 and May 27, 2003. The two class action complaints are brought pursuant to the Employee Retirement Income Security...

  • Page 35
    ... in relation to the general aviation and commuter aircraft markets; the uncertainty of the timing and amount of net realizable value of Boeing Business Jet-related assets; risks inherent with large long-term fixed price contracts, particularly the ability to contain cost growth and programs which...

  • Page 36
    ... of long-term debt Advance payments, less contracts in process of $1,071 in 2003 and $1,688 in 2002 Accounts payable Accrued salaries and wages Other accrued expenses Liabilities from discontinued operations Total current liabilities Accrued retiree benefits and other long-term liabilities Long-term...

  • Page 37
    ... RAYTHEON COMPANY 333 C O N S O L I DAT E D S TAT E M E N T S O F O P E R AT I O N S 33333333333333333333333333 (In millions except per share amounts) Years Ended December 31: 2003 2002 2001 Net sales Cost of sales Administrative and selling expenses Research and development expenses Total...

  • Page 38
    ... translation Cash flow hedges Unrealized gains on residual interest securities Interest rate lock Comprehensive income Dividends declared-$0.80 per share Issuance of common stock Common stock plan activity Trust preferred security distributions Treasury stock activity Balance at December 31, 2003...

  • Page 39
    ... in investing activities Cash flows from financing activities Dividends (Decrease) increase in short-term debt and other notes Issuance of long-term debt, net of offering costs Repayments of long-term debt Issuance of equity security units Issuance of common stock Proceeds under common stock plans...

  • Page 40
    ... under warranty provisions performed under long-term contracts are accounted for as contract costs as the work is performed. The estimation of these costs is an integral part of the determination of the pricing of the Company's products and services. Warranty provisions related to aircraft sales are...

  • Page 41
    ... business of Hughes Electronics Corporation in December 1997. Also included at December 31, 2002 was $48 million of restricted cash from the sale of the Company's corporate headquarters. This cash was used to fund the construction of the Company's new corporate headquarters and the acquisition...

  • Page 42
    ...of $7 million related to the Company's estimate of exposures on customer financed assets due to defaults, refinancing, and remarketing of these aircraft. In connection with the buyback of the off balance sheet receivables, the Company recorded the long-term receivables at estimated fair value, which...

  • Page 43
    ...the plans, including current service costs, interest on projected benefit obligations, and net amortization and deferrals, increased or reduced by the return on assets. Unfunded accumulated benefit obligations are accounted for as a long-term liability. The Company funds annually those pension costs...

  • Page 44
    ... Accounting Standards No. 132 (revised 2003), Employers' Disclosures about Pensions and Other Postretirement Benefits, an 3 3 3 N OT E B : D I S C O N T I N U E D O P E R AT I O N S In 2000, the Company sold its Raytheon Engineers & Constructors businesses (RE&C) to Washington Group International...

  • Page 45
    ...) 2003 2002 Current liabilities Total liabilities $ 37 $ 37 $ 319 $ 319 In 2002, the Company sold its Aircraft Integration Systems business (AIS) for $1,123 million, net, subject to purchase price adjustments. The Company is currently involved in a purchase price dispute related to the sale of...

  • Page 46
    ... In 2002, the Company formed a joint venture with Flight Options, Inc. whereby the Company contributed its Raytheon Travel Air® fractional ownership business and loaned the new entity $20 million. In June 2003, the Company participated in a financial recapitalization of Flight Options LLC (FO) and...

  • Page 47
    ... 333 RAYTHEON COMPANY 333 Activity related to restructuring initiatives was as follows: Exit Costs (In millions) 2003 2002 2001 Contracts in process consisted of the following at December 31, 2002: $47 (In millions) Cost Type Fixed Price Total Accrued liability at beginning of year Changes in...

  • Page 48
    ... customers. The underlying aircraft serve as collateral for general aviation and commuter aircraft receivables. The Company maintains reserves for estimated uncollectible aircraft-related long-term receivables. The balance of these reserves was $60 million and $69 million at December 31, 2003...

  • Page 49
    ... totaled $320 million, of which the Company's subordinated retained interest was $58 million, and the fair value of the servicing asset was $6 million. The Company also maintained a program under which it sold general aviation and commuter aircraft long-term receivables under a receivables purchase...

  • Page 50
    ... the proceeds to reduce the amounts outstanding under the Company's lines of credit. Also in 2003, the Company issued $500 million of long-term debt and $200 million of floating rate notes. The proceeds were used to partially fund the repurchase of long-term debt with a par value of $924 million at...

  • Page 51
    ... 49 333 RAYTHEON COMPANY 333 The principal amounts of long-term debt were reduced by debt issue discounts and interest rate hedging costs of $102 million and $105 million, respectively, on the date of issuance, and are reflected as follows at December 31: (In millions) 2003 2002 Total cash paid...

  • Page 52
    ...100,000 shares of common stock in 2003 and 2002, respectively, to fund the Company Match and Company Contributions, as described in Note O, Pension and Other Employee Benefits. In addition, employeedirected 401(k) plan purchases (Employee Contributions) of the Company stock fund were funded through...

  • Page 53
    ... expenses Accrued salaries and wages Contracts in process and inventories Deferred federal and foreign income taxes-current Noncurrent deferred tax assets (liabilities) Net operating loss and foreign tax credit carryforwards Pension benefits Other retiree benefits Depreciation and amortization...

  • Page 54
    ... pricing of products and services to the U.S. government. The recovery of environmental cleanup costs from the U.S. government is considered probable based on the Company's long history of receiving reimbursement for such costs. Accordingly, the Company has recorded $47 million at December 31, 2003...

  • Page 55
    ... 2003, two purported class action lawsuits were filed on behalf of participants in the Company's savings and investment plans who invested in the Company's stock between August 19, 1999 and May 27, 2003. The two class action complaints are brought pursuant to the Employee Retirement Income Security...

  • Page 56
    ...and 2001, respectively. Stock option information for 2003, 2002, and 2001 follows: WeightedAverage Shares Option Price (Share amounts in thousands) Outstanding at December 31, 2000 Granted Exercised Expired Outstanding at December 31, 2001 Granted Exercised Expired Outstanding at December 31, 2002...

  • Page 57
    ... the long-term return on asset assumption. The tables below detail assets by category for the Company's domestic Pension Benefits and Other Benefits plans. These assets consist primarily of publicly-traded equity securities (including 2,279,000 shares of the Company's common stock with a fair value...

  • Page 58
    ... Benefit Cost (In millions) 2003 Pension Benefits 2002 2001 The fair value of plan assets for the Company's domestic and foreign plans was $9,661 million and $325 million, respectively, at December 31, 2003 and $8,898 million and $258 million, respectively, at December 31, 2002. Funded Status...

  • Page 59
    ...2003, specific authoritative guidance on accounting for the federal subsidy is pending, and that guidance, when issued, could require the Company to change previously reported information. The Company maintains an employee stock ownership plan (ESOP) which includes the Company's 401(k) plan (defined...

  • Page 60
    ... supports business jets, turboprops, and piston-powered aircraft for the world's commercial, fractional ownership, and military aircraft markets. In 2003, the Company changed the way pension expense or income is reported in the Company's segment results. Statement of Financial Accounting Standards...

  • Page 61
    ...sales do not include intersegment aircraft sales to FO. Operating Income (In millions) 2003 2002 2001 Integrated Defense Systems Intelligence and Information Systems Missile Systems Network Centric Systems Space and Airborne Systems Technical Services Aircraft Other Corporate and Eliminations Total...

  • Page 62
    ... Company. Capital Expenditures (In millions) 2003 2002 2001 Identifiable Assets (In millions) December 31: 2003 2002 Integrated Defense Systems Intelligence and Information Systems Missile Systems Network Centric Systems Space and Airborne Systems Technical Services Aircraft Other Corporate Total...

  • Page 63
    ... as fair value hedges. There was no hedge ineffectiveness during 2003. The Company has one outstanding interest rate swap agreement related to long-term receivables at Raytheon Aircraft with a notional amount of $33 million that matures in 2004. Under this agreement, the Company pays interest at...

  • Page 64
    ...480 $149 1 31 - 6 31 - - $218 Gain on sale of aviation support business Loss (gain) on debt repurchase Equity losses in unconsolidated affiliates Loss (gain) on sale of investments Space Imaging charge Gain on sale of recreational marine business Other Total $ (82) 77 14 7 - - 51 $ 67 - $ (2) 26...

  • Page 65
    ... related information contained in this Annual Report have been prepared by and are the responsibility of the Company's management. The Company's financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America and reflect judgments...

  • Page 66
    ... Company, 870 Winter Street, Waltham, MA 02451 Telephone: 781.522.3000 3 3 3 COM MON 3 3 3 WE B S ITE S TO C K SY M B O L Raytheon Company common stock is listed on the New York, Chicago, and Pacific stock exchanges. The stock symbol is: RTN 3 3 3 A N N UA L Raytheon's Web site offers financial...

  • Page 67
    ... Executive Officer Raytheon Company RALP H H. ACABA Vice President Contracts Raytheon Company M ICHAE L D. K E E BAUG H Vice President Six Sigma, Supply Chain and Learning Raytheon Company COLIN J . R . SCHOTTLAENDER Staff Executive Raytheon Company President Intelligence and Information Systems...

  • Page 68
    T H E R AY T H E O N T E A M : C O M M I T T E D TO C U STO M E R S U C C E S S Raytheon employees pictured above are representative of the many members of the Raytheon team who have been honored for their work in technology, diversity, mentoring and customer focus. An Equal Opportunity Employer