Raytheon 2003 Annual Report Download - page 51

P49 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
Principal $6,593 $ 7,511
Unamortized issue discounts (41) (39)
Unamortized interest rate hedging costs (35) (40)
Installments due within one year —(1,152)
Total $6,517 $ 6,280
The aggregate amounts of installments due on long-term debt
for the next five years are:
(In millions)
2004 $ —
2005 1,048
2006 228
2007 1,149
2008 544
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. The
Company was in compliance with the interest coverage ratio
covenant, as amended, during 2003.
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 liq-
uidity. 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. Compensating balance arrangements are not material.
Total cash paid for interest was $515 million, $522 million, and
$705 million in 2003, 2002, and 2001, respectively, including
amounts classified as discontinued operations.
333NOTE J: EQUITY SECURITY UNITS
The Company has 17,250,000, 8.25%, $50 par value equity
security units outstanding. Each equity security unit consists of a
contract to purchase shares of the Company’s common stock on
May 15, 2004 and a mandatorily redeemable equity security with a
stated liquidation amount of $50 due on May 15, 2006.
The contract obligates the holder to purchase, 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 pur-
chase contract. The contract requires a quarterly distribution, which
is recorded as a reduction in additional paid-in capital, of 1.25% per
year of the stated amount of $50 per purchase contract. Cash paid
for the quarterly distribution on the contract was $11 million in
2003 and 2002, and $6 million in 2001.
The mandatorily redeemable equity security represents pre-
ferred stock of RC Trust I (RCTI), a subsidiary of the Company that
initially issued this preferred stock to the Company in exchange for
a subordinated note. The subordinated notes payable have the
same terms as the mandatorily redeemable equity security and rep-
resent an undivided interest in the assets of RCTI, a Delaware busi-
ness trust formed for the purpose of issuing these securities and
whose assets consist solely of subordinated notes receivable
issued by the Company. RCTI is considered to be a variable inter-
est entity under the provisions of FIN 46, described above in
Note A, Accounting Policies, Accounting Standards, and because
the preferred stock was a part of the equity security units issued by
the Company, the Company is not considered the primary benefici-
ary of RCTI. As a result, RCTI is not consolidated by the Company
under the provisions of FIN 46. The subordinated notes payable
were previously reported as mandatorily redeemable equity securi-
ties on the Company’s balance sheet and in accordance with
FIN 46 prior periods have been restated to reflect this change.
The subordinated notes payable pay a quarterly distribution,
which is included in interest expense, of 7% per year until May 15,
2004. Cash paid for the quarterly distribution on the subordinated
notes payable was $60 million in 2003 and 2002, and $31 million
in 2001.
The terms of the equity security units required that the mandato-
rily redeemable equity securities be remarketed. On February 11,
2004, the mandatorily redeemable equity securities were remar-
keted and the quarterly distribution rate on the mandatorily
redeemable equity securities and the subordinated notes payable