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Raytheon 2006 Annual Report

Table of contents

  • Page 1
    Raytheon 2006 Annual Report

  • Page 2

  • Page 3
    Raytheon Financial Highlights Years ended December 31 Dollars in millions, except per share amounts 2004 2005 2006 Backlog Net Sales Operating Income Net Income Diluted EPS from Continuing Operations Operating Cash Flow from Continuing Operations Dividends Declared per Share Net Debt1 Net Debt ...

  • Page 4
    ...employees trained in ROIC to date and additional employees planned for 2007. It was a year in which the company took strategic steps to focus on our core government and defense businesses, announcing in December a definitive agreement to sell Raytheon Aircraft Company. We thank the team at Raytheon...

  • Page 5
    ... the Raytheon Certified Systems Architect program that is training and certifying a new generation of technical leaders to be capable of designing and integrating the mission solutions of the future. We have a number of certified architects - supported by close to 3,000 engineers trained in...

  • Page 6
    ...â„¢ and MATHCOUNTS to connect interested employees with opportunities to support math in their communities, investing in our Raytheon Scholars program for college scholarship assistance to children of employees, sponsoring FIRST Robotics school teams and scholarships, and moving forward...

  • Page 7
    ...Intelligence): integrated systems that optimize operational planning and execution. - Effects: technologies that achieve specific actions or outcomes. - Mission Support: total life-cycle solutions that ensure NoDoubt ™ performance. Through strategic vision, disciplined management and world-class...

  • Page 8
    ... enable night vision and support precision strike missions. In 2006 Raytheon passed a major milestone in the use of EO technology for space-based missile tracking with the delivery of the first Block VI infrared sensor payload for the Missile Defense Agency's Space Tracking and Surveillance System.

  • Page 9
    ... for the first time at last year's Farnborough International Air Show, ASTOR performed superbly in extensive airborne testing during 2006, with precise in-flight imagery exceeding expectations. In 2006, Raytheon also delivered the ASTOR training system and the first ground station units. 7 Photo...

  • Page 10
    ... and control of three unmanned vehicles from a single ground station. And as an example of our expansion into adjacent markets, Raytheon was awarded a contract to provide the Florida Turnpike Enterprise with an open-road tolling system on its highways based on our command and control technologies.

  • Page 11
    ... worldwide, real-time information sharing. The system's open architecture and Web-based DCGS Integration Backbone (DIB) will allow all military services to share intelligence seamlessly, no matter where forces are located. 9 Photo: DCGS terminal at Raytheon Intelligence and Information Systems

  • Page 12
    ... information systems. The specificity of the Effects generated requires sophisticated and highly tailored supporting technology. This includes directed-energy weapons in addition to traditional missiles and precision-guided munitions. Raytheon capabilities span the gamut of current and emerging...

  • Page 13
    ... other Raytheon component, an Upgraded Early Warning Radar (UEWR) system at Beale Air Force Base in California, supported the intercept by successfully providing information to the GMD Ground Fire Control. The GMD system is designed 11 to protect all 50 U.S. states against limited ballistic missile...

  • Page 14
    ... Integrated Solution Sets draw on a combination of technology and business process engineering disciplines. Condition-Based Maintenance; Integrated Supply Chain Management; Obsolescence Management; Training and Performance Support; Total Asset Visibility; Integrated Information Management; Logistics...

  • Page 15
    ... System depends heavily on preparation, support and development. Our design engineering and Mission Support engineers enhance customer acceptance testing, installation and initial checkout. Raytheon's distance support to the Army includes a full warranty - backed by replacement parts - and technical...

  • Page 16
    ...the-art integrated mission systems. Our people and technology address some of the world's most compelling needs, ranging from missile defense in north Asia, to homeland security in the Middle East, command and control in Europe, and naval systems on the Pacific Rim. With our global companies in the...

  • Page 17
    ... "Patriot" has become increasingly synonymous with "security." Raytheon's Patriot Air and Missile Defense System is in place on three continents to protect ground forces and civilians under threat of hostile attack from the air. From Europe to the Middle East and Asia, governments are now turning to...

  • Page 18
    Raytheon supports approximately 14,000 contracts through a unique level of technology and innovation in three areas: our core markets, a commitment to Mission Assurance, and our Mission Systems Integration capability. In our core markets, Raytheon's Sensing, C3I, Effects and Mission Support ...

  • Page 19
    ... domain knowledge enables solutions that allow us to identify the elements that need to be connected, while our systems engineering capabilities help our customers connect the elements to achieve the mission. On the following pages, you will learn more about each of our businesses and the services...

  • Page 20
    ..., intelligence and missile defense solutions to protect the U.S., deployed forces, friends and allies. Critical Raytheon capabilities include discrimination solutions and X-Band radar technologies. 18 Photo: (top) Zumwalt Ship Mission Center, Portsmouth, R.I. Photo: (bottom) IDS employees at...

  • Page 21
    ... and Information Systems (IIS), with 2006 sales of $2.6 billion, provides U.S. government and international customers with innovative Command, Control, Communications and Intelligence (C3I) solutions to meet the demands for modern intelligence, surveillance and reconnaissance technologies to support...

  • Page 22
    ...tests of its Exoatmospheric Kill Vehicle (EKV) and Standard Missile-3. Applying its technologies to new markets, Raytheon earned a homeland security contract award for MS' Vigilant Eagle system, which uses directed energy to protect aircraft from shoulder-fired missiles. 20 Photo: (top) U.S. Navy...

  • Page 23
    ... North America's airspace to better protect against possible terrorist threats. Photo: (top) The Improved Target Acquisition System (ITAS) continues to meet warfighter needs in operations around the world. Photo: (bottom) NCS team member testing an antenna feed for the Navy Multiband Terminal...

  • Page 24
    ...for special operations aircraft further showcase the business as a customerfocused mission systems integrator and innovator. A world leader in advanced electro-optical and infrared space sensors, SAS provides unparalleled actionable intelligence to Department of Defense, national and civil customers...

  • Page 25
    ...2006 sales of $2 billion, provides technology solutions for defense, federal and commercial customers worldwide. The business specializes in counter-proliferation and counter-terrorism, base and range operations, customized engineering and manufacturing services, and Mission Support. Working closely...

  • Page 26
    ...where we live and work, addressing current needs and creating new opportunities. While our first priority is math and science education, we also support other charitable causes through corporate and employee giving, scholarships and volunteerism. Our signature program in support of math and science...

  • Page 27
    ... improving math and science education among middle school-aged students in America by inspiring them to get excited about math. The MathMovesU program combines student interest in exciting careers with grant money and awards to generate excitement in math. In the first year of the program, Raytheon...

  • Page 28
    2006 Form 10-K

  • Page 29
    ... 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 of Each Exchange on Which...

  • Page 30
    ... Disagreements with Accountants on Accounting and Financial Disclosure ...Item 9A. Controls and Procedures ...Item 9B. Other Information ...PART III Item 10. Item 11. Item 12. Item 13. Item 14. Directors, Executive Officers and Corporate Governance ...Executive Compensation ...Security Ownership of...

  • Page 31
    ... We currently operate in six principal business segments: ‫ מ‬Integrated Defense Systems (IDS) ‫ מ‬Intelligence and Information Systems (IIS) ‫ מ‬Missile Systems (MS) ‫ מ‬Network Centric Systems (NCS) ‫ מ‬Space and Airborne Systems (SAS) ‫ מ‬Technical Services (TS) We...

  • Page 32
    ...provides whole-life systems and solutions to key international customers that deliver a wide range of capabilities in integrated air defense, missile defense and naval systems. This business area also leverages tools, processes and subject matter expertise developed on major U.S. programs to provide...

  • Page 33
    ...new control systems for unmanned vehicles. In addition, IIS earned a Capability Maturity Model Integration (CMMI®) Level 3 certification across the business, the newest standard for benchmarking best practices for product and service development in the defense industry. Operating in four key market...

  • Page 34
    guidance and navigation systems, high-resolution sensors, targeting and netted systems, MS has developed and supports a broad range of cutting edge weapon systems that includes missiles, smart munitions, projectiles, kinetic kill vehicles, space vehicles and directed energy effectors. During 2006, ...

  • Page 35
    ...S )-NCS, headquartered in McKinney, Texas, develops and produces net-centric mission solutions for networked sensors, command and control communications, and air traffic and homeland security. NCS capabilities include network centric operations, mission systems integration and recognized excellence...

  • Page 36
    ... solutions for military air operations centers and joint operations centers. TRS builds the Firefinder Weapon Locating Radar system for the U.S. Army and international customers, as well as the U.S. Battle Control System (BCS). ‫ מ‬Other NCS business areas include Raytheon Systems Limited...

  • Page 37
    ... government and commercial customers worldwide, specializing in Mission Support-total life-cycle support that predicts customer needs, senses potential problems and responds proactively with appropriate solutions, as well as homeland security, customized engineering and manufacturing services and...

  • Page 38
    ... develops advanced laser and fusion technologies. ‫ מ‬Other TS business areas include Raytheon Australia and Raytheon Polar Services (Raytheon Polar). Raytheon Australia is a Mission Support and mission systems integration provider to the Australian Government, managing the entire operations...

  • Page 39
    ... 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. For a discussion of certain risks associated with compliance with U.S. government contract regulations and...

  • Page 40
    ... Form 10-K. Research and Development We conduct extensive research and development activities to continually enhance our existing products and services and develop new products and services to meet our customers' changing needs and requirements and to address new market opportunities. During 2006...

  • Page 41
    ...of Raytheon Aircraft. Approximately 15% of our employees are unionized. We consider our union-management relationships to be generally satisfactory. However, from November 2006 to January 2007, members of the International Association of Machinists at a Missile Systems site conducted a work stoppage...

  • Page 42
    ..." within Item 8 of this Form 10-K. Available Information and Stock Exchange Certification Our Internet address is www.raytheon.com. The content on our website is available for information purposes only. It should not be relied upon for investment purposes, nor is it incorporated by reference into...

  • Page 43
    ...documents from the Investor Relations Department by writing to Raytheon Company, Investor Relations, 870 Winter Street, Waltham, MA 02451, or by calling (781) 522-5123 or by sending an email request to [email protected]. We filed our annual CEO certification with the New York Stock Exchange on May...

  • Page 44
    ... 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 a result of any termination of our contracts. The funding of U.S. government programs is subject to congressional...

  • Page 45
    ...contractors, for information technology and other support work. If we are unable to continue to compete successfully against our current or future competitors, we may experience declines in revenues and market share which could negatively impact our results of operations and financial condition. Our...

  • Page 46
    ...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 a specific contract will not be reimbursed or must...

  • Page 47
    ... in reduced sales; and compliance with extensive government regulation over aircraft manufacturing, which could require us to incur greater costs and reduce our margins. If Flight Options is unable to meet its projected future financial performance or otherwise support its carrying value, we could...

  • Page 48
    ... 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 new qualified engineering, manufacturing, marketing, sales and...

  • Page 49
    ...results of operations. We face certain significant risk exposures and potential liabilities that may not be adequately covered by indemnity or insurance. A significant portion of our business relates to designing, developing and manufacturing advanced defense and technology systems and products. New...

  • Page 50
    ... our reported results of operations, financial condition and other financial measures. From time to time, the Financial Accounting Standards Board, the SEC and other regulatory bodies may issue new and revised standards, interpretations and other guidance that change Generally Accepted Accounting...

  • Page 51
    ...2006, by business segment is as follows: Leased Owned(1) Gov't Owned Total(2) Integrated Defense Systems Intelligence and Information Systems Missile Systems Network Centric Systems Space and Airborne Systems Technical Services Aircraft(3) Other Administration and Services Totals (1) (2) (3) 2,332...

  • Page 52
    ... Duggan, III v. Raytheon Company et al. (Civil Action No. 03-10995-RGS), were filed in the U.S. District Court in Massachusetts on behalf of participants in our savings and investment plans who invested in our common stock between August 19, 1999 and May 27, 2003. The two class action complaints are...

  • Page 53
    ... Technical Services Company LLC (RTSC) since October 2001. Before assuming leadership of RTSC, Mr. Even had oversight for the Engineering and Production Support business unit in Indianapolis, formerly the Naval Air Warfare Center, from 1999 to 2001. From 1998 to 1999, Mr. Even was Director of East...

  • Page 54
    ... Tactical Systems within the Sensors and Electronic Systems division of Raytheon Systems Company. He joined Raytheon in 1977 and held positions of increasing responsibility in domestic and international business development, program management, quality assurance, test engineering and product design...

  • Page 55
    ...Raytheon Company and Chief Executive Officer of Raytheon Aircraft Company since May 2001. From April 2000 to May 2001, Mr. Schuster was Vice President of Raytheon Company and President of the Aircraft Integration Systems business unit. From September 1999 to April 2000, he was Deputy General Manager...

  • Page 56
    ... the defense businesses of Texas Instruments Incorporated and Hughes Electronics Corporation in 1997. We assumed individual options and did not assume any equity compensation plans of either Texas Instruments or Hughes Electronics in connection with the acquisitions. Options that terminate prior to...

  • Page 57
    ... Board of Directors approved an increase to our repurchase program, subject to the closing of our sale of Raytheon Aircraft, of up to an additional $750 million, which has not been included above. Purchases may take place from time to time at management's discretion depending upon market conditions...

  • Page 58
    ...(1) (In millions except share amounts and total employees) Results of Operations 2006 2005 2004 2003 2002 Net sales Operating income Interest expense Income from continuing operations Income (loss) from discontinued operations, net of tax Cumulative effect of change in accounting principle, net of...

  • Page 59
    ... Mission Support, including full life-cycle services and training. We operate in six principal business segments: Integrated Defense Systems (IDS), Intelligence and Information Systems (IIS), Missile Systems (MS), Network Centric Systems (NCS), Space and Airborne Systems (SAS) and Technical Services...

  • Page 60
    ... of radar. EO technologies allow the warfighter to see the extended battlespace across space, airborne and surface domains, including technologies that enable night vision and precision strike missions. During 2006, our SAS business segment delivered the first Block VI sensor payload for the missile...

  • Page 61
    ... business segments involved in BMDS include IDS and MS, and our programs include the Space Tracking and Surveillance System, Cobra Judy Radar, Kinetic Energy Interceptor, Exoatmospheric Kill Vehicle, Sea-Based X-Band Radar, Standard Missile-3, the Patriot Air and Missile Defense System, and Terminal...

  • Page 62
    ... total life-cycle support that predicts customer needs, senses potential problems and proactively responds with the most appropriate solutions. Our Mission Support capabilities include technical services, system engineering, logistics, training, operations and maintenance. During 2006, we teamed...

  • Page 63
    ... we believed that Raytheon Aircraft would be an attractive business given its improving financial and operating performance in recent years and the continued strength of the general aviation market. We believe that the sale of Raytheon Aircraft will enable us to focus on our core markets and provide...

  • Page 64
    ...We then must successfully develop, market and support new offerings and technologies for those markets which will require the investment of significant financial resources and substantial management attention. We also focus on significant changes in our estimates of contract sales, costs and profits...

  • Page 65
    ... with the Securities and Exchange Commission's Staff Accounting Bulletin (SAB) No. 104, Revenue Recognition, or other relevant revenue recognition accounting literature. Revenue under such contracts is generally recognized upon delivery or as the service is performed. Revenue from software is...

  • Page 66
    ... in a new defined contribution plan in lieu of our existing pension plans, subject to any applicable collective bargaining agreements. Our current eligible employees will continue to participate in our existing pension plans without any change to level of benefits or payment options. This change is...

  • Page 67
    ... class action lawsuit filed in 2003 (both lawsuits are described in Note 12, Commitments and Contingencies of the Notes to the Financial Statements). Included in other (income) expense, net in 2005 was a $45 million gain on the sale of our investment in Indra ATM S.L., a Spanish joint venture...

  • Page 68
    ... with our Other category. Net Sales (In millions) 2006 2005 2004 Integrated Defense Systems Intelligence and Information Systems Missile Systems Network Centric Systems Space and Airborne Systems Technical Services Other Corporate and Eliminations Total Operating Income (In millions) $ 4,220 2,560...

  • Page 69
    ... backlog excludes U.S. and foreign government contracts for which funding has not been appropriated. Integrated Defense Systems Intelligence and Information Systems Missile Systems Network Centric Systems Space and Airborne Systems Technical Services Other Total $ 4,118 2,701 6,021 4,037 4,021...

  • Page 70
    ... image intelligence and weather and climate systems, command and control solutions for air/space platforms, operations, maintenance and engineering (OM&E) services, homeland security and information technology solutions. During 2006, IIS continued to perform well in its classified business, gaining...

  • Page 71
    ....1% NCS develops and produces net-centric mission solutions for networked sensors, command and control communications, air traffic management and homeland security. During 2006, NCS acquired Houston Associates, Inc. and Virtual Technology Corporation. Both companies complement NCS' network systems...

  • Page 72
    ... Operating Income Operating Margin Gross Bookings Total Backlog $4,319 $4,175 $4,068 604 606 568 14.0% 14.5% 14.0% 4,021 3,996 3,901 5,591 5,220 5,216 3.4% -0.3% 0.6% 7.1% 2.6% 6.7% 2.4% 0.1% SAS designs and develops integrated systems and solutions for advanced missions including intelligence...

  • Page 73
    ..., including programs for ownership shares of new and used aircraft, aircraft leasing and prepaid hourly membership programs. RAAS manages the long-term wind-down of our commuter aircraft business. RPS works with customers to design and execute learning solutions. The increase in net sales in 2006...

  • Page 74
    ...collateral for these arrangements. Commuter aircraft customers of RAAS are generally thinly capitalized companies whose financial condition could be significantly affected by sustained higher fuel costs, industry consolidation and declining commercial aviation market conditions. At December 31, 2006...

  • Page 75
    ... we believed that Raytheon Aircraft would be an attractive business given its improving financial and operating performance in recent years and the continued strength of the general aviation market. We believe that the sale of Raytheon Aircraft will enable us to focus on our core markets and provide...

  • Page 76
    .... We expect to make total contributions, required and discretionary, to our pension plans of approximately $815 million in 2007. As described in Note 1, Accounting Policies, of the Notes to the Financial Statements, we adopted SFAS No. 158, Employers' Accounting for Defined Benefit Pension and Other...

  • Page 77
    ... under this program. In December 2006, our Board of Directors, subject to the closing of our sale of Raytheon Aircraft, authorized an increase to our existing repurchase program of up to an additional $750 million of our outstanding common stock. CAPITAL STRUCTURE AND RESOURCES Total debt was...

  • Page 78
    ...a teaming arrangement between two contractors for the benefit of the customer, generally the U.S. government, whereby we receive a subcontract from the joint venture in the joint venture's capacity as prime contractor. Accordingly, we record the work it performs for the joint venture as an operating...

  • Page 79
    ... and $76 million and $183 million at December 31, 2005, respectively, related to Thales-Raytheon Systems (TRS), a joint venture we formed in 2001. TRS has two major operating subsidiaries, one of which we control and consolidate. Our investment in TRS was $150 million at December 31, 2006 and $102...

  • Page 80
    ...the Internal Revenue Service, Department of Labor and Department of Treasury. Effective January 1, 2007, all eligible newly-hired or rehired employees participate in a new defined contribution plan in lieu of our existing pension plans, subject to any applicable collective bargaining agreements. Our...

  • Page 81
    ... market exposures are to interest rates and foreign exchange rates. We meet our working capital requirements with a combination of variable-rate short-term and fixed-rate long-term financing. We enter into interest rate swap agreements with commercial and investment banks to manage interest rates...

  • Page 82
    ... properly executed and recorded. The system includes policies and procedures, internal audits and our officers' reviews. Our Audit Committee of our Board of Directors is composed solely of directors who are independent under applicable SEC and New York Stock Exchange rules. Our Audit Committee meets...

  • Page 83
    ... 2006, the Company changed the manner in which it accounts for pension and other post-employment benefits and, in 2004, the Company changed its measurement date for its pension and other post-employment benefit plans from October 31 to December 31. Internal Control Over Financial Reporting Also, in...

  • Page 84
    ... in excess of costs incurred Accounts payable Accrued salaries and wages Other accrued expenses Liabilities held for sale Total current liabilities Accrued retiree benefits and other long-term liabilities Deferred federal and foreign income taxes Long-term debt Commitments and contingencies (note...

  • Page 85
    RAYTHEON COMPANY CONSOLIDATED STATEMENTS OF OPERATIONS (In millions except per share amounts) Years Ended December 31: 2006 2005 2004 Net sales Cost of sales Administrative and selling expenses Research and development expenses Total operating expenses Operating income Interest expense Interest ...

  • Page 86
    ... income Dividends declared-$0.88 per share Common stock plan activity Treasury stock activity Balance at December 31, 2005 Net income Other comprehensive income Minimum pension liability Foreign exchange translation Cash flow hedges Unrealized gains on investments Comprehensive income Adjustment to...

  • Page 87
    ...the effect of acquisitions and divestitures Depreciation and amortization Deferred federal and foreign income taxes Net gain on sales of operating units and investments Savings and investment plan activity Decrease (increase) in accounts receivable Change in contracts in process and advance payments...

  • Page 88
    ... with the Securities and Exchange Commission's Staff Accounting Bulletin (SAB) No. 104, Revenue Recognition, or other relevant revenue recognition accounting literature. Revenue under such contracts is generally recognized upon delivery or as the service is performed. Revenue from software is...

  • Page 89
    ...-term contracts. Research and Development 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...

  • Page 90
    ...current long-range plan as a result of 2005 performance, changes in valuation assumptions and the increase in goodwill as a result of the acquisition of the minority shares. FO implemented several measures in 2006 to improve its operating performance and increase its customer satisfaction, including...

  • Page 91
    ... for Missile Systems, $2,306 million for Network Centric Systems, $2,674 million for Space and Airborne Systems, $867 million for Technical Services and $133 million for Other. The goodwill at the Other segment at December 31, 2006 and 2005 was entirely related to Flight Options. Information about...

  • Page 92
    ... to pension plans included in the pending sale of Raytheon Aircraft. Includes $20 million, net of tax liabilities of $11 million, in 2006 related to Raytheon Aircraft. As of December 31, 2006, we adopted Statement of Financial Accounting Standards No. 158 Employers' Accounting for Defined Benefit...

  • Page 93
    ... current market information. The amounts realized upon settlement of these financial instruments will depend on actual market conditions during the remaining life of the instruments. M i n o r i t y I n t e r e s t-Our minority interest primarily relates to our investment in Thales-Raytheon Systems...

  • Page 94
    ... of Financial Accounting Standards No. 156, Accounting for Servicing of Financial Assets, an amendment of FASB Statement No. 140 (SFAS No. 156). SFAS No. 156 requires that servicing assets and servicing liabilities be recognized at fair value, if practicable, when we enter into a servicing agreement...

  • Page 95
    ... not address our core markets and had limited synergies with our government and defense businesses. As a result of entering into the definitive agreement, we have reported Raytheon Aircraft as a discontinued operation in this Form 10-K in accordance with Statement of Financial Accounting Standards...

  • Page 96
    ... completed, the use of lot accounting is discontinued. We determine lot size based on several factors, including the size of firm backlog, the expected annual production on the aircraft and experience on similar new aircraft. The size of the initial lot for the Beechcraft Premier I is 200 units of...

  • Page 97
    ... formed a joint venture with Flight Options, Inc. whereby we contributed our Raytheon Travel Air fractional ownership business and loaned the new entity $20 million. In June 2003, we participated in a financial recapitalization of Flight Options LLC and exchanged certain Flight Options LLC debt for...

  • Page 98
    ... TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Note 4: Contracts in Process Contracts in process consisted of the following at December 31, 2006: (In millions) Cost Type Fixed Price Total U.S. government end-use contracts Billed Unbilled Less progress payments Other customers Billed Unbilled...

  • Page 99
    ... STATEMENTS (CONTINUED) Note 5: Inventories Inventories consisted of the following at December 31: (In millions) 2006 2005 Finished goods Work in process Materials and purchased parts Total $170 229 88 $487 $163 248 49 $460 Inventories at Flight Options and Raytheon Airline Aviation Services...

  • Page 100
    ... 2013 Sales-type leases, due in installments to 2015 Computer software, net Pension-related intangible asset Investments Other noncurrent assets Total $ 148 45 8 418 - 161 808 $1,588 $ 251 56 3 412 147 146 653 $1,668 We provide long-term financing to our aircraft and fractional aircraft customers...

  • Page 101
    ... a joint venture, Thales-Raytheon Systems (TRS) that has two major operating subsidiaries, one of which we control and consolidate. TRS is a system of systems integrator and provides fully customized solutions through the integration of command and control centers, radars and communication networks...

  • Page 102
    ... portion of our total fixed-rate debt to variable-rate debt based on LIBOR. The principal amounts of long-term debt were reduced by debt issue discounts of $58 million at December 31, 2006 and 2005, and interest rate hedging costs of $36 million at December 31, 2006 and 2005, on the date of issuance...

  • Page 103
    .... Note 9: Equity Security Units In 2001, we issued 17,250,000, 8.25%, $50 par value equity security units. Each equity security unit consisted of a contract to purchase shares of our common stock on May 15, 2004 and a mandatorily redeemable equity security with a stated liquidation amount of $50...

  • Page 104
    ... existing repurchase program. We issued 2,325,000 shares of common stock in 2004 to fund the Company Match and Company Contributions, as described in Note 14, Pension and Other Employee Benefits. In addition, employee-directed 401(k) plan purchases (Employee Contributions) of our common stock fund...

  • Page 105
    ... issue up to 200,000,000 shares of preferred stock, $0.01 par value per share, in multiple series with terms as determined by our 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...

  • Page 106
    ... 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 107
    ...10 million per occurrence. The aircraft product liability reserve, which is not part of our pending sale of Raytheon Aircraft, was $22 million and $33 million at December 31, 2006 and 2005, respectively. We are involved in various stages of investigation and cleanup related to remediation of various...

  • Page 108
    ... in a future obligation for the Company. In the third quarter of 2006, we were informed by the Internal Revenue Service that it intends to conduct a federal excise tax audit at Flight Options, which we believe will cover our treatment of certain Flight Options customer fees and charges. We believe...

  • Page 109
    ...fair value of the warrants based on trading on the New York Stock Exchange on the date of issuance. The warrants are listed for trading on the NYSE under the symbol "RTN WS." In May 2003, two purported class action lawsuits were filed on behalf of participants in our savings and investment plans who...

  • Page 110
    ...6, 2007, the court approved the settlement agreement. The settlement agreement requires us to pay $5.5 million, with part of that amount payable directly to our savings and investment plans, part payable directly to certain participants and beneficiaries and part payable for expenses. The court also...

  • Page 111
    ... two metrics: free cash flow and total shareholder return (TSR) relative to a peer group. The performance goals for the 2006 - 2008 LTPP are independent of each other and based on three metrics: free cash flow, weighted at 50%, return on invested capital (ROIC), as defined, weighted at 25%, and TSR...

  • Page 112
    ... FINANCIAL STATEMENTS (CONTINUED) The increase related to expected performance represents increases to awards based on the expected achievement of performance goals. Stock Options In 2004, we changed the primary form of our broad-based equity compensation from stock options to restricted stock...

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    ...The total intrinsic value of options exercised in the years ended December 31, 2006, 2005 and 2004 was $87 million, $32 million and $34 million, respectively. Stock option activity related to nonvested shares for the year ended December 31, 2006 was as follows: WeightedAverage Grant Date Fair Value...

  • Page 114
    ... certain health care and life insurance benefits to retired employees through other postretirement benefit plans (Other Benefits). Substantially all of our U.S. employees may become eligible for the Other Benefits. We adopted Statement of Financial Accounting Standards No. 158, Employers' Accounting...

  • Page 115
    ...date for Pension Benefits and Other Benefit plans more appropriately reflects the plans' financial status for the years then ended. In 2004, the total cumulative effect of the change in accounting principle was a gain of $63 million pretax, $41 million after-tax, or $0.09 per basic and diluted share...

  • Page 116
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Benefits plan assets and the expectations for future returns of each asset class. Since our investment policy is to employ active management strategies in all asset classes, the potential exists to outperform the broader markets; therefore, the ...

  • Page 117
    ..., at December 31, 2005. Change in Plan Assets (In millions) Pension Benefits 2006 2005 Other Benefits 2006 2005 Fair value of plan assets at beginning of year Actual return on plan assets Company contributions Plan participants' contributions Foreign exchange Benefits paid Net transfer in (out...

  • Page 118
    ...asset (obligation) Prior service credit (cost) Total Weighted-Average Year-End Benefit Obligation Assumptions December 31: Pension Benefits 2006 2005 $(392) - (15) $(407) $ (7) (7) 52 $38 Other Benefits 2006 2005 Discount rate Rate of compensation increase Health care trend rate in the next year...

  • Page 119
    ...2006 and federal subsidies to employers who provide drug coverage to retirees. Since our post retirement benefit programs do not provide any prescription drug benefits to retirees, the legislation does not apply to our plans. We maintain an employee stock ownership plan (ESOP) which includes our 401...

  • Page 120
    ... systems, including missiles, smart munitions, projectiles, kinetic kill vehicles and directed energy effectors. Network Centric Systems provides net-centric mission solutions for networked sensors, command and control communications, air traffic management and homeland security. Space and Airborne...

  • Page 121
    ... for Technical Services. Operating Income (In millions) 2006 2005 2004 Integrated Defense Systems Intelligence and Information Systems Missile Systems Network Centric Systems Space and Airborne Systems Technical Services Other FAS/CAS Pension Adjustment Corporate and Eliminations Total $ 691...

  • Page 122
    ... Systems Intelligence and Information Systems Missile Systems Network Centric Systems Space and Airborne Systems Technical Services Other Corporate Discontinued Operations Total United States $ 1,761 1,946 4,770 3,731 4,271 1,361 1,045 4,310 2,296 $25,491 All Other Asia/ (Principally Pacific Europe...

  • Page 123
    ...All Other (Principally Europe) Total December 31, 2006 December 31, 2005 Note 16: Quarterly Operating Results (Unaudited) (In millions except per share amounts and stock prices) 2006(3) First $4,128 4,216 $307 298 $4,435 4,514 Second Third Fourth Net sales Gross margin Income from continuing...

  • Page 124
    ... earnings related to discontinued operations upon the sale of Raytheon Aircraft. Gains and losses resulting from these cash flow hedges offset the foreign exchange gains and losses on the underlying assets or liabilities being hedged. The maturity dates of the forward exchange contracts outstanding...

  • Page 125
    ... Gain 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 Other Total $(34...

  • Page 126
    ... affect our internal control over financial reporting. ITEM 9B. OTHER INFORMATION None. PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE Information regarding members of our Board of Directors is contained in our definitive proxy statement for the 2007 Annual Meeting of...

  • Page 127
    ... "Corporate Governance-Director Nomination Process." ITEM 11. EXECUTIVE COMPENSATION This information is contained in our definitive proxy statement for the 2007 Annual Meeting of Stockholders under the caption "Executive Compensation," including "Compensation Discussion and Analysis," "The Board...

  • Page 128
    ...an exhibit to the former Company's Registration Statement on Form S-3, File No. 33-59241, is hereby incorporated by reference. Supplemental Indenture dated as of December 17, 1997 between Raytheon Company and The Bank of New York, Trustee filed as an exhibit to the Company's Annual Report on Form 10...

  • Page 129
    .... Raytheon Company Excess Pension Plan, filed as an exhibit to the Company's Annual Report on Form 10-K for the year ended on December 31, 2004, is hereby incorporated by reference. Raytheon Company Supplemental Executive Retirement Plan, filed as an exhibit to the Company's Annual Report on...

  • Page 130
    ... Nonemployee Directors Restricted Stock Plan, filed as an exhibit to the Company's Current Report on Form 8-K filed May 9, 2005, is hereby incorporated by reference. Form of Change in Control Severance Agreement between the Company and each of the following executive officers (providing for benefits...

  • Page 131
    ... Purchase and Sale Agreement between General Aviation Receivables Corporation, Raytheon Aircraft Receivables Corporation, Raytheon Aircraft Credit Corporation, Receivables Capital Corporation and Bank of America, N.A., dated September 1, 2003, filed as an exhibit to the Company's Annual Report...

  • Page 132
    ... the Raytheon Company Long-Term Performance Plan, filed as an exhibit to the Company's Current Report on Form 8-K filed December 14, 2006, is hereby incorporated by reference. Stock Purchase Agreement by and among, Hawker Beechcraft Corporation, Greenbulb Limited, Raytheon Company, Raytheon Aircraft...

  • Page 133
    ...its behalf by the undersigned, thereunto duly authorized. RAYTHEON COMPANY /s/ Michael J. Wood Michael J. Wood Vice President and Chief Accounting Officer Dated: February 22, 2007 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following...

  • Page 134
    ... news media requesting information about Raytheon should contact: Mac Jeffery, vice president, Public Relations, Raytheon Company, 870 Winter Street, Waltham, MA 02451, at 781.522.5111. Website Raytheon Company common stock is listed on the New York Stock Exchange. The ticker symbol is RTN. Annual...

  • Page 135
    ... Contracts and Supply Chain Raytheon Company JON C. JONES Senior Vice President Human Resources Raytheon Company REBECCA R. RHOADS Senior Vice President and Chief Financial Officer Raytheon Company PAMELA A. WICKHAM President Technical Services LOUISE L. FRANCESCONI President Space and Airborne...

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