Raytheon 2003 Annual Report Download - page 31

from 1.6% to 8.3% and matures at various dates through 2028.
Total debt as a percentage of total capital was 44.7 percent and
48.3 percent at December 31, 2003 and 2002, respectively.
In 2003, the Company issued $425 million of long-term debt
and used the proceeds to reduce the amounts outstanding under
the Company’s lines of credit. Also in 2003, the Company issued
$500 million of fixed rate long-term debt and $200 million of float-
ing rate notes and used the proceeds to partially fund the repur-
chase of long-term debt with a par value of $924 million. The
Company has on file a shelf registration with the Securities and
Exchange Commission registering the issuance of up to $3.0 bil-
lion in debt securities, common or preferred stock, warrants to
purchase any of the aforementioned securities, and/or stock pur-
chase contracts, under which $1.3 billion remained outstanding at
December 31, 2003.
In December 2003, the Company entered into various interest
rate swaps that correspond to a portion of the Company’s fixed rate
debt in order to effectively hedge interest rate risk. The $250 million
notional value of the interest rate swaps effectively converted a por-
tion of the Company’s total debt to variable rate debt.
In 2002, the Company issued $575 million of long-term debt to
reduce the amounts outstanding under the Company’s lines of
credit. Also in 2002, the Company repurchased debt with a par
value of $96 million.
In 2001, the Company entered into various interest rate swaps
that corresponded to a portion of the Company’s fixed rate debt in
order to effectively hedge interest rate risk. In 2002, the Company
closed out these interest rate swaps and received proceeds
of $95 million which are being amortized over the remaining life
of the debt as a reduction to interest expense. At December 31,
2003, the unamortized balance was $45 million. Also in 2001,
the Company repurchased long-term debt with a par value of
$1,375 million.
The Company’s most restrictive bank agreement covenant is an
interest coverage ratio that currently requires earnings before inter-
est, taxes, depreciation, and amortization (EBITDA), excluding cer-
tain charges, to be at least 2.5 times net interest expense for the
prior four quarters. In July 2003, the covenant was amended to
exclude pretax charges of $100 million related to RE&C and in
October 2003, the covenant was further amended to exclude
$226 million of pretax charges related to Network Centric Systems
and Technical Services and $78 million of pretax charges related to
RE&C. In July 2002, the covenant was amended to exclude
charges of $450 million related to discontinued operations. In the
third quarter of 2004, the interest coverage ratio will require
EBITDA to be at least 3.0 times net interest expense for the prior
four quarters. The Company was in compliance with the interest
coverage ratio covenant, as amended, during 2003 and expects to
continue to be in compliance throughout 2004.
Credit ratings for the Company were assigned by Fitch’s at F3
for short-term borrowing and BBB- for senior debt, by Moody’s at
P-3 for short-term borrowing and Baa3 for senior debt, and by
Standard and Poor’s at A-3 for short-term borrowing and BBB- for
senior debt.
Lines of credit with certain commercial banks exist to provide
short-term liquidity. The lines of credit bear interest based upon
LIBOR and were $2.7 billion at December 31, 2003, consisting of
$1.4 billion which matures in November 2004 and $1.3 billion
which matures in 2006. The lines of credit were $2.85 billion at
December 31, 2002. There were no borrowings under the lines of
credit at December 31, 2003, however, the Company had approxi-
mately $300 million of outstanding letters of credit which effec-
tively reduced the Company’s borrowing capacity under the lines
of credit to $2.4 billion. There were no borrowings under the lines of
credit at December 31, 2002.
Credit lines with banks are also maintained by certain foreign
subsidiaries to provide them with a limited amount of short-term
liquidity. These lines of credit were $99 million and $79 million at
December 31, 2003 and 2002, respectively. There was $1 million
outstanding under these lines of credit at December 31, 2003
and 2002.
In May 2001, the Company issued 17,250,000, 8.25% equity
security units for $50 per 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 proceeds to the Company of $863 million, and a mandatorily
redeemable equity security, with a stated liquidation amount of $50
due on May 15, 2006, which will require a cash payment by the
Company of $863 million. The contract obligates the holder to pur-
chase, for $50, shares of common stock equal to the settlement
rate. The settlement rate is equal to $50 divided by the average
market value of the Company’s common stock at that time. The
settlement rate cannot be greater than 1.8182 or less than
1.4903 shares of common stock per purchase contract. The terms
of the equity security units required that the mandatorily redeemable
equity securities be remarketed. On February 11, 2004, the
mandatorily redeemable equity securities were remarketed and the
quarterly distribution rate was reset at 7%. The Company did
not receive any proceeds from the remarketing.
The proceeds were pledged to collateralize the holders’ obliga-
tions under the contract to purchase the Company’s common
stock on May 15, 2004.
In May 2001, the Company issued 14,375,000 shares of com-
mon stock for $27.50 per share. In October 2001, the Company
P29 333 RAYTHEON COMPANY 333