Raytheon 2005 Annual Report Download

Download and view the complete annual report

Please find the complete 2005 Raytheon annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 124

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124

Focused on the Customer
Annual Report 2005

Table of contents

  • Page 1
    Focused on the Customer Annual Report 2005

  • Page 2
    ... 03 04 05 03 04 05 03 04 05 1 2 3 Net debt is defined as total debt less cash and cash equivalents. Net capital is defined as net debt plus equity. ROIC is not a measure of financial performance under GAAP. For details about the company's calculation of ROIC, see page 100 of this report.

  • Page 3
    ... annual operating plan reviews, human resources reviews, strategy reviews and capabilities provided by our internal audit team and our Raytheon Company Evaluation Team enable Raytheon managers - from the corner office to the factory floor - to understand our business objectives and performance goals...

  • Page 4
    ... direction. E N V I RO N M E N TA L , H E A LT H & S A F E T Y To develop and provide superior solutions that achieve the effects our customers need, we remain focused on our core technologies of Radio Frequency (RF); Electro-Optics/Infrared (EO/IR); Missiles; and Command, Control, Communications...

  • Page 5
    ...or software engineering - it is a great feeling and an investment in our country's future. Integrity Raytheon has a long-established ethics program, and our Ethics and Compliance Office is highly respected among its peers. We engage all of our employees and the Board of Directors in ethics learning...

  • Page 6
    Mission Assurance means that when our customers see the Raytheon name, there should be "no doubt." When members of the armed forces rely on our technology for their own 4

  • Page 7
    ...a passenger or pilot settles into a Beechcraft or Hawker aircraft, our customers depend on us to do the job right. At Raytheon, Customer Success Is Our Mission . â„¢ Photo: Standard Terminal Automation Replacement System (STARS) at the Boston Consolidated Terminal Radar Approach Control (TRACON) 5

  • Page 8
    ... both the problems our customers face today and the challenges they anticipate tomorrow. As a leader in technologies that are critical to providing customers with cutting-edge solutions, our domain knowledge provides Mission Systems Integration solutions that meet our customers' urgent mission needs...

  • Page 9
    ... sensors, combining radar with electronic and in space, and support our customers in ongoing operations around the world. Missiles: We are developing game-changing technologies to make missiles more effective as "nodes on the network." C4I: Raytheon's Command, Control, Communications, Computers and...

  • Page 10
    ... of our portfolio of programs. Our portfolio is a differentiator - and our focus on performance discipline is key to creating value across the company. Meeting our commitments to our customers, partners and each other, and driving customer success - this is the performance challenge that engages the...

  • Page 11
    ... the speed and agility to support our customers' changing needs. We drive performance across all of our pursuits. Raytheon employs world-class processes such as our Integrated Product Development System (IPDS), Earned Value Management System (EVMS) and Capability Maturity Model® Integration (CMMI...

  • Page 12
    Raytheon Six Sigma (R6σ) is a disciplined, knowledge-based approach used to increase productivity, grow the business and enhance customer satisfaction. Used across the company to drive performance, R6σ is a key process embedded within the fabric of the company's culture. 10

  • Page 13
    ...σ can bring to the company and the customer is the Joint Standoff Weapon (JSOW) Block II program. A Raytheon-U.S. Navy JSOW team applied R6σ tools and practices to reduce cost by 25 percent and produce the next generation missile through parts reduction, reuse and robust performance. In 2005, the...

  • Page 14
    12

  • Page 15
    Raytheon's businesses deliver world-class products, systems and support for our customers and partners. Here are their stories. Photo: Simulation Center at Raytheon Missile Systems 13

  • Page 16
    ... Defense Systems (IDS), with 2005 sales of $3.8 billion, is Raytheon's leader in joint battlespace integration. IDS is at the forefront of Radio Frequency technology, producing the radar portion of the Missile Defense Agency's (MDA) Sea-Based X-Band Radar as part of an industry team. The business...

  • Page 17
    ..., surveillance and reconnaissance systems, creating a worldwide, network-centric enterprise for real-time information sharing. This cornerstone system is leading the way toward seamless interoperability among all military services with the open architecture, Web-based DCGS Integration Backbone...

  • Page 18
    ...Exoatmospheric Kill Vehicle for ground-based defense met critical test objectives, supporting efforts by the Missile Defense Agency to destroy ballistic missiles in space. The Joint Standoff Weapon team developed a JSOW Block II that provides the U.S. Navy expanded capabilities and lower unit costs...

  • Page 19
    ...billion, improved performance throughout its operation and achieved excellent financial results. From dramatically more effective approaches to program management to enhanced modeling and simulation capabilities, NCS is better equipped than ever before to deliver network-centric solutions with speed...

  • Page 20
    ... Technical Services Company LLC (RTSC), with 2005 sales of $2 billion, provides technology solutions for defense, federal and commercial customers worldwide. The business specializes in four market areas: counterproliferation and counter-terrorism, base and range operations, customized engineering...

  • Page 21
    ...-guided and conventional weapons, regardless of time or weather. The U.S. Navy authorized full-rate production of ATFLIR in 2005 for all F/A-18 aircraft. Another mission of SAS is the development of active electronically scanned array (AESA) radar systems. In 2005, SAS delivered ahead of schedule...

  • Page 22
    ... 4000 super-midsize jets and a 10-year maintenance program, valued at more than $1 billion. "In addition to the innovative design and superior performance of the Hawker 4000, Raytheon Aircraft Company's commitment to customer service and quality aircraft were key factors in our decision to purchase...

  • Page 23
    ...1778500 (I.R.S. Employer Identification No.) 870 Winter Street, Waltham, Massachusetts 02451 (Address of Principal Executive Offices) (Zip Code) (781) 522-3000 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Title of Each Class Name...

  • Page 24
    ... Financial Disclosure ...Item 9A. Controls and Procedures ...Item 9B. Other Information ...PART III Item 10. Item 11. Item 12. Item 13. Item 14. Directors and Executive Officers of the Registrant ...Executive Compensation ...Security Ownership of Certain Beneficial Owners and Management and Related...

  • Page 25
    ...located at 870 Winter Street, Waltham, Massachusetts 02451. Business Segments The Company operates in seven principal business segments: Integrated Defense Systems (IDS); Intelligence and Information Systems (IIS); Missile Systems (MS); Network Centric Systems (NCS); Space and Airborne Systems (SAS...

  • Page 26
    ... I I S )-IIS, headquartered in Garland, Texas, is a leading provider of systems, subsystems and software engineering services for national and tactical intelligence systems, as well as for homeland security and information technology (IT) solutions. Areas of special concentration include processing...

  • Page 27
    ... Weather Information Processing System for NOAA; and the maintenance on a variety of U.S. Patent and Trademark Office mission critical systems. RIS is also a key supplier of scientific and engineering services to NASA at five centers around the U.S. and is a leader in high performance computing...

  • Page 28
    ...a joint venture between Thales Group and Raytheon. TRS combines the two companies' capabilities in Air Command and Control Systems (ACCS), Air Operations Centers and Battlefield Weapon Locating Radar and Military Air Surveillance Radar to provide cost effective solutions for military air operations...

  • Page 29
    ... persistent surveillance radar for air traffic management systems. Space a nd Airborne Systems ( SAS)-SAS, headquartered in El Segundo, California, is a leader in the design and development of integrated systems and solutions for advanced missions, including unmanned aerial operations, electronic...

  • Page 30
    ..., performance and value in the super-midsize class of aircraft. The Company anticipates that the new composite-fuselage Hawker 4000 will be certified in early 2006. RAC's jet line includes the Hawker 800Xpi midsize jet, the Hawker 400XP light jet, and the Beechcraft Premier IA entry level light jet...

  • Page 31
    ... SeaVue), and provides a total "one-company" solution to customers. The 350ER is expected to achieve full certification during 2006. RAC also operates a network of fixed-base operations (FBOs), providing business aviation services at airports throughout North America, the United Kingdom and Mexico...

  • Page 32
    ...regulations and standards. The DCAA also reviews the adequacy of, and a contractor's compliance with, its internal control systems and policies, including the contractor's purchasing, property, estimating, compensation and management information systems. Any costs found to be improperly allocated to...

  • Page 33
    .... In the case of Raytheon Aircraft Company (RAC), RAC is dependent on the successful performance of its suppliers under international supply contracts for the production of certain aircraft and spare parts. Raytheon generally has not experienced material difficulties in procuring the necessary raw...

  • Page 34
    ...systems, air traffic control systems, sonar systems, aircraft products, electronic equipment, computer software and systems, personnel training, equipment maintenance and microwave communication. Foreign subsidiary working capital requirements generally are financed in the countries concerned. Sales...

  • Page 35
    ... and code of ethics entitled "Standards of Business Ethics and Conduct" are also available on the Company's website. Stockholders may request free copies of these documents from the Investor Relations Department by writing to Raytheon Company, Investor Relations, 870 Winter Street, Waltham, MA 02451...

  • Page 36
    ... government contracts and our ability to procure new government contracts, which could significantly reduce our revenues and negatively impact our financial condition and operations. We compete with other government contractors for a limited number of government programs and for uncertain levels...

  • Page 37
    ...of delays, cost overruns and product failures in connection with one or more large contracts, could negatively impact our results of operations and financial condition. Furthermore, we can give no assurance that we would be able to procure new U.S. government contracts to offset the revenues lost as...

  • Page 38
    ... bring products to market quickly at cost-effective prices; and ‫ מ‬Effectively structure our businesses, through the use of joint ventures, teaming agreements, and other forms of alliances, to the competitive environment. Specifically, at Raytheon Aircraft Company (RAC), our future success is...

  • Page 39
    ...regulations and standards. The DCAA also reviews the adequacy of, and a contractor's compliance with, its internal control systems and policies, including the contractor's purchasing, property, estimating, compensation and management information systems. Any costs found to be improperly allocated to...

  • Page 40
    ... fees in estimating sales and profit rates based on actual and anticipated awards. In addition, we use lot accounting for our new commercial aircraft such as the Beechcraft Premier I and the Hawker 4000. Lot accounting involves selecting an initial lot size at the time a new aircraft begins to be...

  • Page 41
    ... may increase our operating costs. Our commercial aircraft products are required to comply with numerous regulations governing design approvals, production and quality systems, airworthiness, and continuing operational safety in the U.S. and other countries in which our aircraft are sold. These...

  • Page 42
    .... We have obligations related to outstanding letters of credit, surety bonds and guarantees ("Support Agreements") provided in connection with a number of contracts and leases of our former engineering and construction business unit, which we sold to Washington Group International in July 2000...

  • Page 43
    ... such personnel could seriously harm our business. Due to the specialized nature of our businesses, our future performance is highly dependent upon the continued services of our key engineering personnel and executive officers, the development of additional management personnel and the hiring of...

  • Page 44
    ... or insurance. A significant portion of our business relates to designing, developing and manufacturing advanced defense and technology systems and products. New technologies may be untested or unproven. In addition, we may incur significant liabilities that are unique to our products and services...

  • Page 45
    ...2005, the Company's business segments and other units had major operations at the following locations: Location(s) Integrated Defense Systems San Diego, CA; Andover, MA; Woburn, MA; Sudbury, MA; Tewksbury, MA; Waltham, MA; Portsmouth, RI; Poulsboro, WA; Huntsville, AL; and Kiel, Germany Aurora, CO...

  • Page 46
    ... Systems Missile Systems Network Centric Systems Space and Airborne Systems Technical Services Aircraft Flight Options LLC Raytheon Airline Aviation Services LLC Raytheon Professional Services LLC Raytheon United Kingdom Raytheon International, Inc. Corporate, administration and services Total...

  • Page 47
    ... related to the commuter aircraft business and the timing of revenue recognition at Raytheon Aircraft Company. On April 15, 2005, the Company announced that it had submitted an offer of settlement to the staff of the SEC. The Company, without admitting or denying any wrongdoing, offered to pay...

  • Page 48
    ... East Coast Depot Operations for RTSC. Prior thereto, he was the Deputy General Manager of the Engineering and Depots Group of Raytheon Service Company. Age 45. Louise L. Francesconi Ms. Francesconi has served as Vice President of Raytheon Company and President of the Missile Systems business unit...

  • Page 49
    ... to October 1998, he was Vice President and General Manager of the Integrated Systems division within the Electronic Systems business unit. Age 62. Peter S. Pao Mr. Pao has served as Vice President of Raytheon Company and Chief Technology Officer (Acting) since January 2006. From September 2002 to...

  • Page 50
    ... domestic and international business development, program management, quality assurance, test engineering and product design/manufacture. Age 50. James E. Schuster Mr. Schuster has served as Executive Vice President of Raytheon Company and Chief Executive Officer of Raytheon Aircraft Company since...

  • Page 51
    ... annual CEO certification to the New York Stock Exchange was issued on June 3, 2005. For information concerning stock prices and dividends paid during the past two years, see "Note P-Quarterly Operating Results (unaudited)" within Item 8 of this Form 10-K. Issuer Purchases of Equity Securities Total...

  • Page 52
    ...291 8,870 Cash and cash equivalents Current assets Property, plant, and equipment, net Total assets Current liabilities Long-term liabilities (excluding debt) Long-term debt Subordinated notes payable Total debt Stockholders' equity General Statistics Total backlog U.S. government backlog included...

  • Page 53
    ... and government customers worldwide. The Company operates in seven principal business segments: Integrated Defense Systems (IDS); Intelligence and Information Systems (IIS); Missile Systems (MS); Network Centric Systems (NCS); Space and Airborne Systems (SAS); Technical Services (RTSC); and Aircraft...

  • Page 54
    ... Beechcraft and Hawker brands as the aircraft industry standard for quality, service and support; and ‫ מ‬Be a customer-focused company based on performance, relationships and solutions. Mission Support focuses on enabling customer success through total life-cycle support that predicts customer...

  • Page 55
    ... domain knowledge in four core areas: Radio Frequency (RF); Electro-optics and Infrared (EO/IR); Missiles and other precision-guided munitions; and Command and Control, Communications, Computers and Intelligence (C4I). The Company leverages these technologies across its products and business units...

  • Page 56
    .... The Company provides mission solutions across the entire precision engagement chain that are designed to address customers' increasing need to operate jointly (across services and between allied forces), work in a new net-centric paradigm, minimize collateral damage, and strike time-sensitive...

  • Page 57
    ..., and standards. The DCAA also reviews the adequacy of, and a contractor's compliance with, its internal control systems and policies, including the contractor's purchasing, property, estimating, compensation, and management information systems. Any costs found to be improperly allocated to...

  • Page 58
    ...The Company determines lot size based on several factors, including the size of firm backlog, market and competitive conditions, the expected annual production for the aircraft, and experience on similar new aircraft. The size of the initial lot for the Beechcraft Premier I is 200 units. The size of...

  • Page 59
    ... risk-free investments, the historical level of the risk premium associated with the other asset classes in which the Company has invested pension plan assets, and the expectations for future returns of each asset class. Since the Company's investment policy is to employ active management strategies...

  • Page 60
    ... related to the Company's settlement of a securities class action lawsuit described in Note L, Commitments and Contingencies of the Notes to the Financial Statements and a $132 million charge related to the Company's repurchase of long-term debt and subordinated notes payable. The effective tax rate...

  • Page 61
    ... to reflect these changes. Net Sales (In millions) 2005 2004 2003 Integrated Defense Systems Intelligence and Information Systems Missile Systems Network Centric Systems Space and Airborne Systems Technical Services Aircraft Other Corporate and Eliminations Total $ 3,807 2,509 4,124 3,205 4,175...

  • Page 62
    ...In millions) 2005 2004 2003 Integrated Defense Systems Intelligence and Information Systems Missile Systems Network Centric Systems Space and Airborne Systems Technical Services Aircraft Other FAS/CAS Pension Adjustment Corporate and Eliminations Total Operating Margin $ 548 229 431 333 606 146...

  • Page 63
    ... NCS programs. S p a c e a n d A i r b o r n e S y s t e m s ( S A S ) -SAS designs and develops integrated systems and solutions for advanced missions including unmanned aerial operations, electronic warfare, active electronically scanned array radars, airborne processors, weapon grade lasers...

  • Page 64
    ... 2004 and $573 million in 2003. FO offers services in the aircraft fractional ownership industry. RAAS manages the long-term winddown of the Company's commuter aircraft business. RPS works with customers to design and execute learning solutions. The increase in sales in 2004 was primarily due to the...

  • Page 65
    ...In millions) 2005 2004 2003 Integrated Defense Systems Intelligence and Information Systems Missile Systems Network Centric Systems Space and Airborne Systems Technical Services Aircraft Other Total U.S. government backlog included above Funded Backlog at December 31 (In millions) $ 8,010 4,077...

  • Page 66
    ... Company sold its Raytheon Engineers & Constructors businesses (RE&C) to Washington Group International, Inc. (WGI). As a result of WGI's bankruptcy, the Company was required to perform various contract and lease obligations under letters of credit, surety bonds, and guarantees (Support Agreements...

  • Page 67
    ...'s pension contribution requirement beginning in 2006. Savings and investment plan activity includes certain items related to the Company's 401(k) plan that were funded through the issuance of the Company's common stock and are non-cash operating activities included on the 2004 and 2003 statement of...

  • Page 68
    ... and expects to continue to be in compliance throughout 2006. Certain foreign subsidiaries of the Company maintain revolving bank lines of credit to provide them with a limited amount of short term liquidity. In 2005, Raytheon United Kingdom Limited, a U.K. subsidiary, entered into a $150 million...

  • Page 69
    ... settlement of the securities class action lawsuit, described in Note L, Commitments and Contingencies of the Notes to the Financial Statements. In 2004, the Company entered into an agreement to sell certain general aviation finance receivables, with the buyer assuming all servicing responsibilities...

  • Page 70
    ... integration of command and control centers, radars, and communication networks. HRL Laboratories is a scientific research facility whose staff engages in the areas of space and defense technologies. TelASIC Communications delivers high performance, cost-effective radio frequency (RF), analog mixed...

  • Page 71
    ... table above represent agreements with suppliers to purchase goods or services that are enforceable and legally binding. The Company enters into contracts with customers, primarily the U.S. government, which entitles the Company to full recourse for costs incurred, including purchase obligations, in...

  • Page 72
    ... into with commercial and investment banks and are directly related to a particular asset, liability, or transaction for which a firm commitment is in place. Financial instruments held by the Company which are subject to interest rate risk include notes payable, long-term debt, long-term receivables...

  • Page 73
    ...financial statements and 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...

  • Page 74
    ... of the Company's internal control over financial reporting based on our audit. We conducted our audit of internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the...

  • Page 75
    ..., respectively Additional paid-in capital Unearned compensation Accumulated other comprehensive income Treasury stock, at cost Retained earnings Total stockholders' equity Total liabilities and stockholders' equity The accompanying notes are an integral part of the financial statements. $ 79 $ 516...

  • Page 76
    RAYTHEON COMPANY CONSOLIDATED STATEMENTS OF OPERATIONS (In millions except per share amounts) Years Ended December 31: 2005 2004 2003 Net sales Cost of sales Administrative and selling expenses Research and development expenses Total operating expenses Operating income Interest expense Interest ...

  • Page 77
    RAYTHEON COMPANY CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Years Ended December 31, 2005, 2004, and 2003 (In millions except per share amounts) Accumulated Additional Other Total Common Paid-in Unearned Comprehensive Treasury Retained Stockholders' Stock Capital Compensation Income Stock ...

  • Page 78
    ... equipment Synthetic lease maturity payment Proceeds from sales of property, plant, and equipment Capitalized expenditures for internal use software Change in other assets Proceeds from sales of operating units and investments Payment for purchases of acquired companies, net of cash received Space...

  • Page 79
    ...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 commercial aircraft sales are determined based upon an...

  • Page 80
    ...2 (22) $ 50 Research and D evelopment Expenses-Expenditures for Company-sponsored research and development projects and bid and proposal costs are expensed as incurred. Customer-sponsored research and development projects performed under contracts are accounted for as contract costs as the work is...

  • Page 81
    ...CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) D e f e r r e d C o n t r a c t C o s t s-Certain costs incurred in the performance of the Company's government contracts are required to be recorded under generally accepted accounting principles but are not currently allocable to contracts. Such costs...

  • Page 82
    ... n c u r r e d-The Company receives advances, performance- based payments, and progress payments from customers which may exceed costs incurred on certain contracts. C o m p r e h e n s i v e I n c o m e-Comprehensive income and its components are presented in the statement of stockholders' equity...

  • Page 83
    .... Unfunded accumulated benefit obligations are included in accrued retiree benefits and other long-term liabilities. The Company funds annually those pension costs which are calculated in accordance with Internal Revenue Service regulations and standards issued by the Cost Accounting Standards Board...

  • Page 84
    ... under Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation, the Company's net income and earnings per share would have approximated the pro forma amounts indicated below: (In millions except per share amounts) 2005 2004 2003 Reported net income Stock-based...

  • Page 85
    ... to the Company's financial statements. Note B: Discontinued Operations In 2000, the Company sold its Raytheon Engineers & Constructors businesses (RE&C) to Washington Group International, Inc. (WGI). As a result of WGI's bankruptcy, the Company was required to perform various contract and lease...

  • Page 86
    ... this acquisition. In 2003, the Company acquired the Aerospace and Defence Services business unit of Honeywell International Inc. for $20 million in cash. Assets acquired included $4 million of contracts in process. Liabilities assumed included $1 million of accounts payable and $2 million of other...

  • Page 87
    ... CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Contracts in process consisted of the following at December 31, 2004: (In millions) Cost Type Fixed Price Total U.S. government end-use contracts Billed Unbilled Less progress payments Other customers Billed Unbilled Less progress payments Total $ 393...

  • Page 88
    ... 2013 Sales-type leases, due in installments to 2015 Computer software, net Pension-related intangible asset Investments Other noncurrent assets Total $ 294 67 49 462 175 146 682 $1,875 $ 315 70 86 479 186 149 705 $1,990 The Company provides long-term financing to its aircraft customers. The...

  • Page 89
    ... investors. The Company retained responsibility for the collection and administration of receivables. The Company continues to service the sold receivables and charges the third party conduit a monthly servicing fee at market rates. The Company accounted for the sale under Statement of Financial...

  • Page 90
    ...space and defense technologies. TelASIC Communications delivers high performance, cost-effective radio frequency (RF), analog mixed signal, and digital solutions for both the commercial and defense electronics markets. In 2005, the Company sold its interest in Indra ATM S.L., a Spanish joint venture...

  • Page 91
    ... redeemable at any time are at redemption prices equal to the present value of remaining principal and interest payments. Information about the subordinated notes payable is included in Note I, Equity Security Units. The debentures due in 2025 were redeemable at the option of the Company on or after...

  • Page 92
    ... no amounts outstanding under these lines of credit at December 31, 2005 and 2004, respectively. Compensating balance arrangements are not material. Total cash paid for interest on notes payable and long-term debt was $310 million, $396 million, and $515 million in 2005, 2004, and 2003, respectively...

  • Page 93
    ... program. The Company issued 2,325,000 and 6,486,000 shares of common stock in 2004 and 2003, respectively, to fund the Company Match and Company Contributions, as described in Note N, Pension and Other Employee Benefits. In addition, employee-directed 401(k) plan purchases (Employee Contributions...

  • Page 94
    ..., $0.01 par value per share, in multiple series with terms as determined by the Board of Directors. As discussed in Commitments and Contingencies, the terms of the settlement of the securities class action lawsuit include the issuance of warrants for the Company's stock with a stipulated value of...

  • Page 95
    ... 2004 2003 Statutory tax rate Extraterritorial income exclusion/foreign sales corporation tax benefit Research and development tax credit ESOP dividend deduction benefit Foreign tax credit benefit Non-deductible costs Federal tax cost of repatriation under the American Jobs Creation Act Other, net...

  • Page 96
    ... 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 tax credit carryforwards Pension benefits Other retiree benefits Depreciation and amortization Revenue on leases and...

  • Page 97
    ... of these costs from the U.S. government, which is included in contracts in process. The Company leases certain government-owned properties and is generally not liable for environmental remediation at these sites, therefore, no provision has been made in the financial statements for these costs. Due...

  • Page 98
    ... the Company's financial position, results of operations, or liquidity. Raytheon Aircraft is also subject to oversight by the Federal Aviation Administration (the "FAA"). The FAA routinely evaluates aircraft operational and safety requirements and is responsible for certification of new and modified...

  • Page 99
    ... the case. In May 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...

  • Page 100
    ... the 1995 Stock Option Plan, or as determined by the Management Development and Compensation Committee of the Board of Directors (MDCC) if issued under the 2001 Stock Plan. Awards of restricted stock units under the Company's LTPP will be made from the 2001 Stock Plan. The performance goals for both...

  • Page 101
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Stock option information for 2005, 2004, and 2003 follows: WeightedAverage Option Price (Share amounts in thousands) Shares Outstanding at December 31, 2002 Granted Exercised Expired Outstanding at December 31, 2003 Granted Exercised Expired ...

  • Page 102
    ... Pension and Other Employee Benefits The Company has pension plans covering the majority of its employees, including certain employees in foreign countries (Pension Benefits). In addition to providing pension benefits, the Company provides certain health care and life insurance benefits to retired...

  • Page 103
    ...each asset class was then weighted based on the target asset allocation to develop the long-term return on asset assumptions. The long-term return on asset assumptions for foreign Pension Benefits plans are based on the asset allocations and the economic environment prevailing in the locations where...

  • Page 104
    ..., funded status, and related actuarial assumptions of the Company's domestic and foreign Pension Benefits and Other Benefits plans. Change in Benefit Obligation (In millions) Pension Benefits 2005 2004 Other Benefits 2005 2004 Benefit obligation at beginning of year Service cost Interest cost Plan...

  • Page 105
    ... net periodic benefit cost and related actuarial assumptions of the Company's domestic and foreign Pension Benefits and Other Benefits plans. Components of Net Periodic Benefit Cost (In millions) 2005 Pension Benefits 2004 2003 Service cost Interest cost Expected return on plan assets Amortization...

  • Page 106
    ...total Pension Benefits expected to be paid from the plans or from the Company's assets, including both the Company's share of the benefit cost and the participants' share of the cost...461 The Company also maintains additional contractual pension benefits agreements for its top executive officers. The...

  • Page 107
    ...communications, air traffic management and homeland security. Space and Airborne Systems designs and develops integrated systems and solutions for advanced missions including unmanned aerial operations, electronic warfare, active electronically scanned array radars, airborne processors, weapon grade...

  • Page 108
    ... technology solutions for defense, federal government and commercial customers worldwide, specializing in counter-proliferation and counter-terrorism, base and range operations, customized engineering and manufacturing services, and mission support. Raytheon Aircraft designs, develops, manufactures...

  • Page 109
    ... and Information Systems Missile Systems Network Centric Systems Space and Airborne Systems Technical Services Aircraft Other Corporate Total $ 338 169 274 371 267 114 73 52 475 $2,133 $ 399 169 285 234 237 58 234 8 24 $1,648 $ 318 90 244 99 365 118 330 100 377 $2,041 Corporate free cash flow...

  • Page 110
    ... TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Capital Expenditures (In millions) 2005 2004 2003 Integrated Defense Systems Intelligence and Information Systems Missile Systems Network Centric Systems Space and Airborne Systems Technical Services Aircraft Other Corporate Total Depreciation and...

  • Page 111
    ... prices) 2005 First Second Third Fourth Net sales Gross margin Income from continuing operations Net income Earnings per share from continuing operations Basic Diluted Earnings per share Basic Diluted Cash dividends per share Declared Paid Common stock prices High Low $4,944 826 196 166 $ 0.43...

  • Page 112
    ... the quarters presented, therefore, the sum of the quarterly earnings per share may not equal the total computed for the year. Note Q: Financial Instruments At December 31, 2005, the Company recorded forward exchange contracts designated as cash flow hedges at their fair value. Unrealized gains of...

  • Page 113
    ... on sale of investments Securities and Exchange Commission settlement offer Loss on repurchases of long-term debt and subordinated notes payable Securities class action lawsuit settlement Gain on sale of commercial infrared business Gain on sale of aviation support business Equity losses related to...

  • Page 114
    ... the Company's internal control over financial reporting. ITEM 9B. OTHER INFORMATION. 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 2006 Annual Meeting...

  • Page 115
    ... AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS Information regarding security ownership of certain beneficial owners and for directors and executive officers is contained in the Company's definitive proxy statement for the 2006 Annual Meeting of Stockholders under the caption "Stock Ownership" and...

  • Page 116
    ... Report on Form 8-K filed May 10, 2001, is hereby incorporated by reference. Agreement of Resignation, Appointment and Acceptance, dated April 1, 2005, between Raytheon Company and The Bank of New York appointing Successor Trustee, Paying Agent and Registrar in connection with certain securities...

  • Page 117
    ... Savings Plan, filed as an exhibit to the Company's Registration Statement on Form S-8, File No. 333-56117, as amended by Post-Effective Amendment No. 1, File No. 333-52536, is hereby incorporated by reference. Raytheon Company Excess Pension Plan, filed as an exhibit to the Company's Annual Report...

  • Page 118
    ... upon a change in control of two times base salary and bonus): Charles E. Franklin, Richard A. Goglia, Lawrence J. Harrington, John D. Harris, Jon Jones, Biggs C. Porter, Rebecca R. Rhoads, and Pamela Wickham.* Letter Agreement between Raytheon Company and William H. Swanson, filed as an exhibit to...

  • Page 119
    ... 10, 2001, is hereby incorporated by reference. Settlement Agreement between Raytheon Company, Raytheon Engineers and Constructors International, Inc. and Washington Group International, Inc. dated January 23, 2002, filed as an exhibit to the Company's Annual Report on Form 10-K for the year ended...

  • Page 120
    ...as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.** Certificate of Biggs C. Porter pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant... an asterisk (*) are filed electronically herewith.) (Exhibits marked with two asterisks (**) are deemed to be furnished and not filed.) 98

  • Page 121
    .... RAYTHEON COMPANY /S/ BIGGS C. PORTER Biggs C. Porter Vice President and Corporate Controller (Principal Accounting Officer) Acting Chief Financial Officer (Principal Financial Officer) Dated: March 1, 2006 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has...

  • Page 122
    INVESTOR INFORMATION Global Headquarters Raytheon Company, 870 Winter Street, Waltham, MA 02451, 781.522.3000 Common Stock Symbol Media Relations Members of the news media requesting information about Raytheon should contact: Steven C. Brecken, Manager, Media Relations, Raytheon Company, 870 Winter...

  • Page 123
    ... Aircraft Company GREGORY S. SHELTON • Deputy General Manager Raytheon Technical Services Company LLC THOMAS M. CULLIGAN Vice President Internal Audit Raytheon Company JOHN D. HARRIS II Vice President Acting Chief Financial Officer Raytheon Company REBECCA R. RHOADS Vice President Engineering...

  • Page 124
    Raytheon Company 870 Winter Street Waltham, Massachusetts 02451-1449 USA www.raytheon.com