Raytheon 2003 Annual Report Download - page 28

Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) 3333333333333
RAYTHEON COMPANY 333
of commuter aircraft and reduced the book value of commuter air-
craft inventory and equipment leased to others accordingly. In addi-
tion, the Company adjusted the book value of notes receivable and
established a reserve for off balance sheet receivables where there
was recourse to the Company based on the Company’s estimate
of exposures on customer financed assets due to defaults, refi-
nancing, and remarketing of these aircraft. Immediately prior to the
charge, the Company had exposure on approximately $1,600 mil-
lion of commuter-related assets consisting of 511 aircraft including
financing receivables, inventory, and leases. At December 31,
2003 and 2002, the Company’s exposure on commuter-related
assets was approximately $650 million consisting of 349 aircraft
and approximately $800 million consisting of 433 aircraft, respec-
tively. Commuter aircraft customers are generally thinly capitalized
companies that are dependent on the commuter aircraft industry. A
downturn in this industry could have a material adverse effect on
these customers and the Company.
The Company also recorded a $52 million charge related to a
fleet of Starship aircraft in 2001. During the first three quarters of
2001, the Company had not sold any of these aircraft and
recorded a charge to reduce the value of the aircraft to their esti-
mated fair value.
In 2002, the Company bought back the remaining off balance
sheet receivables, described below in Financial Condition and
Liquidity. In connection with the buyback of the off balance sheet
receivables, the Company recorded the long-term receivables at
estimated fair value, which included an assessment of the value of
the underlying aircraft. As a result of this assessment, the Company
adjusted the value of certain underlying aircraft, including both
commuter and Starship aircraft, some of which were written down
to scrap value. There was no net income statement impact as a
result of this activity.
Backlog at December 31
(In millions) 2003 2002 2001
Integrated Defense Systems $ 6,526 $ 5,011 $ 4,400
Intelligence and Information Systems 3,899 3,540 3,052
Missile Systems 5,028 3,509 3,437
Network Centric Systems 3,259 2,853 3,208
Space and Airborne Systems 4,865 4,523 5,075
Technical Services 1,510 1,603 1,958
Aircraft 2,279 4,396 4,114
Other 176 231 361
Total $27,542 $25,666 $25,605
Funded backlog included above $17,532 $17,062 $17,057
U.S. government backlog
included above $21,353 $18,254 $16,943
Funded backlog excludes U.S. and foreign government con-
tracts for which funding has not been appropriated.
Gross Bookings
(In millions) 2003 2002 2001
Integrated Defense Systems $ 4,344 $ 2,987 $ 2,558
Intelligence and Information Systems 2,371 2,478 1,957
Missile Systems 5,117 3,110 3,236
Network Centric Systems 3,118 2,582 2,534
Space and Airborne Systems 3,619 2,372 2,471
Technical Services 1,398 1,339 1,250
Aircraft 2,207 2,953 2,783
Other 519 99 228
Total $22,693 $17,920 $17,017
The increase in backlog in 2003 was due to strong bookings
across the defense businesses, particularly several large con-
tract awards at Integrated Defense Systems and Missile
Systems. In 2003, the Company reduced its reported Aircraft
backlog by $834 million related to an order received from Flight
Options as a result of Flight Options being consolidated with the
Company in the second quarter of 2003 as described below in
Major Affiliated Entities. In addition, an Aircraft customer can-
celed its order for 50 Hawker Horizon aircraft resulting in an
$895 million backlog reduction.
333 DISCONTINUED OPERATIONS
In 2000, the Company sold its Raytheon Engineers & Constructors
businesses (RE&C) to Washington Group International, Inc.
(WGI). In May 2001, WGI filed for bankruptcy protection. As a
result of the sale and the WGI bankruptcy, the Company was
required to perform various contract and lease obligations in con-
nection with a number of different projects under letters of credit,
surety bonds, and guarantees (Support Agreements) that it had
provided to project owners and other parties.
Among the projects involved were two construction projects,
the Mystic Station facility in Everett and the Fore River facility in
Weymouth (the “Massachusetts Projects”). Following WGI’s aban-
donment of these projects in 2001, the Company undertook con-
struction efforts on these projects, subsequently delivered care,
custody, and control of these projects to their owners, and, as of
December 31, 2003, was continuing to perform work on these
projects. On February 23, 2004, the Company closed on a settle-
ment agreement with the project owners and other interested par-
ties. The settlement included, among other things, a payment to the
Company of approximately $30 million, the return to the Company
of approximately $73 million in letters of credit the Company had
provided to the project owners, and a release of various claims
related to these projects. In addition, under the settlement, the
Company remained responsible for all subcontractor and vendor