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Raytheon 2007 Annual Report
Raytheon 2007 Annual Report

Table of contents

  • Page 1
    Raytheon 2007 Annual Report

  • Page 2
    ... or $0.49 per diluted share tax-related benefit as described on page 39 of the Form 10K included within this report. 2007 Income from Continuing Operations... back cover of this report. 2 ROIC is not a measure of financial performance under GAAP. For details on the company's calculation of ROIC, ...

  • Page 3
    ... Army common sensor payload for manned and unmanned aircraft, an IDIQ award that starts out small, but could grow to more than $1.0 billion in potential sales; the F-15E radar modernization program; a "down-select" for one of the U.S. Air Force contracts to develop one of the new system designs for...

  • Page 4
    ... Information Assurance/Information Operations. - Expand our international business by increasing defense sales and seeking adjacent opportunities. - Be a Customer Focused company based on Performance, Relationships and Solutions. Securing the Future of Our Technical Talent Pipeline As a technology...

  • Page 5
    ... on us to meet the needs of our servicemen and women, to help provide for homeland security, to support safe and efficient air-traffic management, and to provide other key solutions. Customer Success Is Our Mission sponsorships and employee volunteerism. We work with the Business-Higher Education...

  • Page 6
    ... day, Raytheon employees strive to bring our Mission Assurance promise of NoDoubt™ performance to new levels. Our strong performance in 2007 is the direct result of our strategic focus, process discipline and absolute commitment to our customers' success. A year ago we defined four core markets...

  • Page 7
    ..., including electro-optical, radio frequency (RF), hyperspectral, acoustic and ultraviolet systems. Decades of RF leadership stand behind Raytheon's latest generation of Active Electronically Scanned Array radar. In 2007, production soared to meet U.S. Navy, Air Force and Air National Guard needs...

  • Page 8

  • Page 9
    ... hostile information systems to using directed energy in urban warfare. Raytheon solutions span the spectrum of current and next-generation effects, supported by advanced capabilities in areas ranging from airframes and guidance and navigation systems to high-resolution sensors and targeting systems...

  • Page 10

  • Page 11
    ... raw data into actionable intelligence. Raytheon's leadership in C3I encompasses strategic and tactical systems covering ground, sea, air and space operations-all built on advanced network architecture and global combat experience. Navy Multiband Terminal (NMT) Photo: Paired NMT antennas...

  • Page 12

  • Page 13
    Mission Support Successful missions often require complex technologies to be deployed in extraordinarily demanding circumstances. Mission Support spans them all with systems and solutions to ensure ï¬,awless performance. Raytheon expertise addresses this vast market from information management to ...

  • Page 14

  • Page 15
    .... We also addressed international opportunities in adjacent markets. Our November e-Borders win confirmed Raytheon's global leadership in homeland security. e-Borders Photo: This comprehensive air, sea, rail and border security program for the United Kingdom is expected to set new standards for...

  • Page 16

  • Page 17
    ... and advanced systems engineering capabilities enable us to identify, synthesize and deliver all the elements to meet urgent mission needs. Australian Air Warfare Destroyer Illustration: Raytheon Australia provides mission systems integration for the Royal Australian Navy's Hobart Class Air Warfare...

  • Page 18

  • Page 19
    ... crucial defense markets offer expanding scope for Raytheon's world-class technology, advanced innovation process and mission systems integration capabilities. With the 2007 sale of our commercial aircraft businesses, we reshaped our portfolio to focus on our core government and defense business and...

  • Page 20
    ..., Six Sigma disciplines and our commitment to Mission Assurance, Raytheon businesses are the link between core capabilities and concrete results for our customers. Each of our businesses has a proud history and unique resources to help customers meet challenging needs and achieve success. We are...

  • Page 21
    ...: Patriot Radar Integrated Defense Systems Dan Smith, President Integrated Defense Systems (IDS), with 2007 sales of $4.7 billion, is a leading worldwide provider of integrated joint battlespace and homeland security solutions. IDS, prime contractor and system integrator for the Patriot system, is...

  • Page 22
    ... systems and solutions provider to government customers in the United States and internationally. IIS capabilities extend beyond intelligence, surveillance and reconnaissance to include Department of Defense/civil space, homeland security, federal information technology and information assurance...

  • Page 23
    ... kill vehicle, a key element of the ground-based missile defense program. The business demonstrated a 22 revolutionary, low-cost solution for boost and ascent phase threats with its network-centric airborne defense element, which incorporates proven technologies from MS air-to-air weapon systems...

  • Page 24
    ... Raytheon's market position in satellite communications. Additionally, program wins in command and control systems continue to highlight the business's integration capability. NCS also made significant progress in developing its security and transportation solutions product line. Opportunities...

  • Page 25
    ...and Airborne Systems Jon Jones, President Space and Airborne Systems (SAS), with 2007 sales of $4.3 billion, is a leading supplier of integrated sensing solutions for advanced applications in aviation and a global leader in space sensors, including the emerging operationally responsive space market...

  • Page 26
    ... technical, scientific and professional services for defense, federal and commercial customers worldwide. The business specializes in Mission Support, integrated training solutions, counter-proliferation and counter-terrorism, base and range operations, and customized engineering services. A global...

  • Page 27
    ... and science students through programs such as MathMovesU®, FIRST Robotics, VolunteerMatch® and MATHCOUNTS®, and has led to increased support for members of the U.S. armed forces, veterans and other service organizations. We salute the Raytheon employees worldwide whose enthusiastic involvement...

  • Page 28
    ... opportunity. Shown at the 2007 award ceremony are Vicki Lipnic, Assistant Secretary, Employment Standards Administration; William H. Swanson, Raytheon Chairman and Chief Executive Officer; Honorable Elaine E. Chao, U.S. Secretary of Labor; Tanya Lewis, Raytheon Director of Compliance Management...

  • Page 29
    2007 Form 10-K

  • Page 30
    ... of Incorporation or Organization) 95-1778500 (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...

  • Page 31
    ... ...Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ...Controls and Procedures ...Other Information ...Directors, Executive Officers and Corporate Governance ...Executive Compensation ...Security Ownership of Certain Beneficial Owners and Management and Related...

  • Page 32
    ...Network Centric Systems; ‫ מ‬Space and Airborne Systems; and ‫ מ‬Technical Services. Revenue and other financial information regarding our business segments is set forth on pages 39-46 of this Form 10-K. In 2007, we successfully completed the sale of Raytheon Aircraft Company (Raytheon...

  • Page 33
    ... changes to its products and technologies for applications in additional markets, such as homeland security. For example, IDS has coupled innovations provided by small business partners with its own prime program management, process maturity, and manufacturing expertise to assist the Department...

  • Page 34
    ... into international markets and other new opportunities. IIS was awarded e-Borders, a contract to develop and implement an advanced border control and security program for the U.K. Home Office. IIS is also working with the U.S. Air Force Space and Missile Command to develop a new system design for...

  • Page 35
    ...Segment, which enables the Global Hawk to provide continuous, all-weather surveillance capability to the Joint Forces; and the Consolidated Field Services program in support of the U-2 reconnaissance aircraft. In 2008, IIS established Information Security Solutions (ISS), a new product line of cyber...

  • Page 36
    ..., headquartered in McKinney, Texas, develops and produces mission solutions for networking, command and control, battle space awareness and transportation management. Major programs include command and control systems, integrated communications systems, netted sensor systems and homeland security...

  • Page 37
    ... New York and New Jersey. ‫ מ‬T h a l e s - R a y t h e o n S y s t e m s , L L C ( T R S )-TRS is a joint venture between Thales Group and Raytheon. TRS combines the two companies' capabilities in Air Command and Control Systems (ACCS), Air Operations Centers, Battlefield Weapon Locating Radar...

  • Page 38
    ...and infrared sensors for surveillance, reconnaissance and targeting mission support, including the APY-10 radar for the U.S. Navy's Multi-Mission Maritime Aircraft, and the ASQ-228 ATFLIR targeting pod for the F/A-18. ISRS also provides the Enhanced Integrated Sensor Suite (EISS) for the Global Hawk...

  • Page 39
    ... and upgrades of Raytheon products and systems at customer facilities and works with the FAA and Transportation Security Administration on select domestic homeland security programs. ISS provides maintenance and site integration work on major command and control systems, including telecommunication...

  • Page 40
    ... Raytheon Australia is a Mission Support and mission systems integration provider to the Australian government. Programs include the recent Air Warfare Destroyer contract to design, develop and procure the combat system for the new Hobart Class destroyers (with IDS). Raytheon Australia also manages...

  • Page 41
    ... or financial condition in light of our total government and defense business. For a discussion of the risks associated with the U.S. government's right to terminate its contracts, see Item 1A "Risk Factors" of this Form 10-K. U.S. government programs generally are implemented by the award of...

  • Page 42
    ... participate in most major areas of development in the defense and government electronics, space, information technology and technical services and support markets. Technical superiority, reputation, price, past performance, delivery schedules, financing and reliability are among the principal...

  • Page 43
    .... International sales were principally in the fields of air defense systems, missile systems, airborne radars, naval systems, air traffic control systems, missile defense systems, electronic equipment, computer software and systems, homeland security solutions, personnel training, equipment...

  • Page 44
    ... Affairs Committee of Board of Directors and code of ethics entitled "Standards of Business Ethics and Conduct". Stockholders may request free copies of these documents from our Investor Relations Department by writing to Raytheon Company, Investor Relations, 870 Winter Street, Waltham, MA 02451...

  • Page 45
    ... or otherwise, irrespective of our performance as a subcontractor. Our government contracts also typically involve the development, application and manufacturing of advanced defense and technology systems and products aimed at achieving challenging goals. New technologies may be untested or unproven...

  • Page 46
    ...grow our revenues and operating profit, we must successfully develop new or adapt or modify our existing offerings and technologies for our current core defense markets and our future markets, including adjacent and emerging markets. Accordingly, our future performance depends on a number of factors...

  • Page 47
    ... and compliance with applicable laws, 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...

  • Page 48
    ...; consider incentives or penalties related to performance on contracts in estimating sales and profit rates, and record them when there is sufficient information for us to assess anticipated performance; and use estimates of award fees in estimating sales and profit rates based on actual and...

  • Page 49
    ... of our business, 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 management personnel...

  • Page 50
    ... our products on a timely basis, which could negatively impact our results of operations and financial condition. We may be unable to adequately protect our intellectual property rights, which could affect our ability to compete. We own many U.S. and foreign patents and patent applications, and...

  • Page 51
    ...Airborne Systems-El Segundo, CA; Goleta, CA; Long Beach, CA; Forest, MS; Dallas, TX; McKinney, TX; and Glenrothes, Scotland. ‫ מ‬Technical Services-Chula Vista, CA; Long Beach, CA; Pomona, CA; Van Nuys, CA; Indianapolis, IN; Burlington, MA; Troy, MI; Norfolk, VA; Reston, VA; Canberra, Australia...

  • Page 52
    ...as of December 31, 2007, by business segment is as follows: Leased Owned(1) Gov't Owned(2) Total(3) Integrated Defense Systems Intelligence and Information Systems Missile Systems Network Centric Systems Space and Airborne Systems Technical Services Corporate Totals (1) (2) (3) 2,259,000 2,952,000...

  • Page 53
    ... and financial services company, and General Electric Capital Corporation where his last position was Senior Vice President-Corporate Finance. Age 56. Jon C. Jones Mr. Jones has served as Vice President of Raytheon Company and President of the Space and Airborne Systems (SAS) business unit since...

  • Page 54
    ... and international business development, program management, quality assurance, test engineering and product design/manufacture. Age 52. Daniel L. Smith Mr. Smith has served as Vice President of Raytheon Company and President of the Integrated Defense Systems (IDS) business unit since September...

  • Page 55
    ... awards may be settled in cash or in stock at the discretion of the Management Development and Compensation Committee. This amount also includes 166,192 shares that may be issued upon settlement of restricted stock units generally issued to non-U.S. employees. The restricted stock units are granted...

  • Page 56
    ... & Poor's Aerospace & Defense Index. Total Return To Shareholders (Includes reinvestment of dividends) Annual Return Percentage Years Ending 12/31/2004 12/31/2005 12/31/2006 Company/Index 12/31/2003 12/31/2007 Raytheon Common Stock S&P 500 Index S&P Aerospace & Defense Index 0.40 28.68 23...

  • Page 57
    ... $750 million of our outstanding common stock. On October 24, 2007, our Board of Directors authorized the repurchase of up to an additional $2.0 billion of our outstanding common stock. Purchases may take place from time to time at management's discretion depending upon market conditions. 28

  • Page 58
    ... SUMMARY(1) (In millions except share amounts and total employees) Results of Operations 2007 2006 2005 2004 2003 Net sales Operating income Interest expense, net Income from continuing operations Income (loss) from discontinued operations, net of tax Cumulative effect of change in accounting...

  • Page 59
    ... OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW Introduction Raytheon Company develops technologically advanced, integrated products, services and solutions in four core defense markets: Sensing; Effects; Command, Control, Communications and Intelligence (C3I) and Mission Support. We...

  • Page 60
    ...as in Mission Systems Integration, Homeland Security, and Information Assurance/Information Operations. ‫ מ‬Expand our international business by increasing defense sales and seeking adjacent opportunities. ‫ מ‬Be a Customer-focused company based on performance, relationships, and solutions...

  • Page 61
    ... protection, energy security, intelligence program support, law enforcement solutions, and emergency preparedness and response. In 2007, our IIS business segment was awarded e-Borders, a contract to develop and implement an advanced border control and security program for the U.K. Home Office...

  • Page 62
    ..., 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, to assess program performance...

  • Page 63
    ... change to our results of operations. FINANCIAL SUMMARY Management is focused on the following financial indicators: ‫ מ‬Bookings-a forward-looking metric that measures the value of new contracts awarded to us during the year. ‫ מ‬Net Sales-a growth metric that measures our revenue...

  • Page 64
    ... of materials, productivity and manufacturing efficiency and labor availability. Incentive and award fees which are generally awarded at the discretion of the customer, as well as penalties related to contract performance, are considered in estimating profit rates. Estimates of award fees are based...

  • Page 65
    ... judgment. Our longterm return on assets (ROA) and discount rate assumptions are the key variables in determining pension expense and the funded status of our pension plans. To develop the long-term ROA assumption, we perform periodic studies which consider our asset allocation strategies, recent...

  • Page 66
    ... on existing firm orders, expected future orders, contracts with suppliers, labor agreements and general market conditions. Significant changes in these forecasts or the discount rate selected could affect the estimated fair value of one or more of our reporting units and could result in a goodwill...

  • Page 67
    ... revenues incurred due to varying production activity levels, delivery rates or service levels on individual contracts. Volume changes will typically carry a corresponding margin change based on the profit rate for a particular contract. Segment operating margin reflects the performance on programs...

  • Page 68
    ... share in 2005. SEGMENT RESULTS We report our results in the following segments: Integrated Defense Systems, Intelligence and Information Systems, Missile Systems, Network Centric Systems, Space and Airborne Systems and Technical Services. Effective on the date of the sale of Flight Options LLC...

  • Page 69
    ... segment results were revised to reflect these changes. Net Sales (In millions) 2007 2006 2005 Integrated Defense Systems Intelligence and Information Systems Missile Systems Network Centric Systems Space and Airborne Systems Technical Services Corporate and Eliminations Total Operating Income (In...

  • Page 70
    ... as the prime mission systems equipment integrator for all electronic and combat systems of the Zumwalt Class Destroyer program (DDG 1000). IDS also continued to evolve its products and technologies for use in additional markets, such as homeland security. Net Sales. The increase in sales in 2007 of...

  • Page 71
    ... into international markets and other new opportunities. IIS was awarded e-Borders, a contract to develop and implement an advanced border control and security program for the U.K. Home Office. IIS is also working with the U.S. Air Force Space and Missile Command to develop a new system design for...

  • Page 72
    ...develops and produces net-centric mission solutions for networked sensors, command and control communications, air traffic management and homeland security. In 2007, NCS continued developing and expanding its international business and presence overseas. NCS had key initiatives into adjacent markets...

  • Page 73
    ...the Firefinder locating radar program, SATCOM on the move systems to the U.S. Army for use on the Mine Resistant Ambush Protected vehicle, and the Horizontal Technology Integration (HTI) program. NCS also booked $159 million for development work on the U.S. Navy Multiband Terminal (NMT) contract and...

  • Page 74
    ...TS provides 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. In 2007, TS led a team that secured the...

  • Page 75
    ...) (71) $ (27) R a y t h e o n A i r c r a f t-In 2007, we completed the sale of Raytheon Aircraft to Hawker Beechcraft Inc., a new company formed by GS Capital Partners, an affiliate of Goldman Sachs, and Onex Partners, for $3,318 million in gross proceeds, which resulted in net proceeds of $3,117...

  • Page 76
    ... other tax obligations incurred prior to the sale of FO. O t h e r D i s c ont i nue d O pe rat i ons-In 2000, we sold Raytheon Engineers & Constructors to Washington Group International, Inc. (WGI). As a result of WGI's bankruptcy, we were required to perform various contract and lease obligations...

  • Page 77
    ... joint venture, for $59 million. F i n a n c i n g Ac t i v i t i e s-Cash provided by operating activities has been the primary source used to repay debt, pay dividends and repurchase common stock. In 2007, we also used the proceeds from the sale of Raytheon Aircraft. Net cash used in financing...

  • Page 78
    ...billion at December 31, 2006. Our cash is invested directly in commercial paper of financial institutions and corporations with AA-/Aa3 or better long-term and A-1+/P-1 short-term debt ratings, AAA/Aaa U.S. Treasury money market funds and in interest bearing bank accounts. Credit Facilities. We have...

  • Page 79
    ... 2015) to the Brazilian government related to the System for the Vigilance of the Amazon (SIVAM) program being performed by Network Centric Systems. Loan repayments by the Brazilian government were current at December 31, 2007. In addition, we have entered into joint ventures formed specifically to...

  • Page 80
    ... to many levels of audit and investigation. Agencies that oversee contract performance include: the Defense Contract Audit Agency, the Inspector General of the Department of Defense and other departments and agencies, the Government Accountability Office, the Department of Justice and Congressional...

  • Page 81
    ... into law by President Bush. Under the Pension Act, companies will be required to fully fund their pension plans over a seven-year period. For defense contractors, the new funding rules become effective no sooner than 2009 and no later than 2011, depending on when the U.S. Government Cost Accounting...

  • Page 82
    ... 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 83
    ... in other comprehensive income, net of tax. Gains and losses resulting from these cash flow hedges offset the foreign exchange gains and losses on the underlying assets or liabilities being hedged. We believe our exposure due to changes in foreign exchange rates is not material due to our hedging...

  • Page 84
    ... LLP, an independent registered public accounting firm, as stated in their report which is included below. /s/ William H. Swanson William H. Swanson Chairman and Chief Executive Officer /s/ David C. Wajsgras David C. Wajsgras Senior Vice President and Chief Financial Officer 55

  • Page 85
    ... discloses, uncertain tax positions. Also as discussed in Note 14 to the consolidated financial statements, in 2006, the Company changed the manner in which it accounts for, and discloses, pensions and other postretirement benefits. A company's internal control over financial reporting is a process...

  • Page 86
    ... in excess of costs incurred Accounts payable Accrued employee compensation Other accrued expenses Liabilities held for sale Total current liabilities Accrued retiree benefits and other long-term liabilities Deferred taxes Long-term debt Liabilities held for sale Commitments and contingencies (note...

  • Page 87
    RAYTHEON COMPANY CONSOLIDATED STATEMENTS OF OPERATIONS (In millions except per share amounts) Years Ended December 31: 2007 2006 2005 Net sales Operating expenses Cost of sales Administrative and selling expenses Research and development expenses Total operating expenses Operating income Interest ...

  • Page 88
    ... of Raytheon Aircraft unfunded projected benefit obligation and cash flow hedges in connection with sale Foreign exchange translation Cash flow hedges Comprehensive income Dividends declared-$1.02 per share Impact to initially adopt FIN 48 Common stock plan activity Treasury stock activity...

  • Page 89
    ... in accounts payable (Decrease) increase in accrued employee compensation Decrease in other accrued expenses Change in income taxes payable Origination of financing receivables Collection of financing receivables not sold Sale of financing receivables Tax benefit from stock-based awards Pension and...

  • Page 90
    ...with the Securities and Exchange Commission's Staff Accounting Bulletin No. 104, Revenue Recognition (SAB 104), or other relevant revenue recognition accounting literature. Revenue under such contracts is generally recognized upon delivery or as the service is performed. Revenue on contracts to sell...

  • Page 91
    ...performed under contracts are accounted for as contract costs as the work is performed. F e d e r a l , F o r e i g n a n d S t a t e I n c o m e Ta x e s-The Company and our domestic subsidiaries provide for federal income taxes on pretax accounting income at rates in effect under existing tax law...

  • Page 92
    ... are retired or otherwise disposed of, the assets and related accumulated depreciation and amortization are eliminated from the accounts and any resulting gain or loss is reflected in income. Gains and losses resulting from the sale of plant and equipment at the government and defense businesses are...

  • Page 93
    ...) 2007 2006 Unfunded projected benefit obligation(1) Foreign exchange translation Cash flow hedges(2) Unrealized gains on interest-only strips Interest rate lock Total (1) Includes $(98) million, net of tax benefits of $52 million, in 2006 related to Raytheon Aircraft. (2) Includes $20 million, net...

  • Page 94
    ..., investment gains and losses are spread over 3 years to develop a market-related value of the assets. We adopted Statement of Financial Accounting Standards No. 158, Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106...

  • Page 95
    ... unit awards and the straight line amortization method for our Long Term Performance Plan (LTPP). Prior to the adoption of SFAS No. 123R, we accounted for stock options to employees in accordance with Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees and related...

  • Page 96
    ... repaid with proceeds from the sales. R a y t h e o n A i r c r a f t-In 2007, we completed the sale of Raytheon Aircraft to Hawker Beechcraft Inc., a new company formed by GS Capital Partners, an affiliate of Goldman Sachs, and Onex Partners, for $3,318 million in gross proceeds, which resulted in...

  • Page 97
    ...420 million, accounts payable of $228 million, accrued expenses of $186 million and accrued retiree benefits and other long-term liabilities of $137 million at December 31, 2006. F l i g h t O p t i o n s-As a result of the decision to sell Flight Options LLC (FO) and the subsequent sale in November...

  • Page 98
    ... tax obligations incurred prior to the sale of FO. O t h e r D i s c ont i nue d Ope rat i ons-In 2000, we sold Raytheon Engineers & Constructors (RE&C) to Washington Group International, Inc. (WGI). As a result of WGI's bankruptcy, we were required to perform various contract and lease obligations...

  • Page 99
    ... of $60 million related to the 2003 acquisition of Solypsis Corporation. Pro forma financial information has not been provided for these acquisitions as they are not material either individually or in the aggregate. We funded each of the above acquisitions using cash on hand. The operating...

  • Page 100
    ... Work in process Materials and purchased parts Total $ 47 276 63 $386 $ 91 229 56 $376 Inventories at the government and defense businesses include component parts, materials and in certain instances, costs incurred in advance of contract award or funding. If we determine that the contract award...

  • Page 101
    ... and administration of receivables. We continue to service the sold receivables and charge the third party conduit a monthly servicing fee at market rates. We accounted for the sale under Statement of Financial Accounting Standards No. 140, Accounting for Transfers and Servicing of Financial Assets...

  • Page 102
    ... 2001, we formed a joint venture, Thales-Raytheon Systems Co. Ltd. (TRS), which we account for using the equity method. TRS is a system of systems integrator and provides fully customized solutions through the integration of command and control centers, radars and communication networks. TRS has two...

  • Page 103
    ..., and expect to continue to be in compliance throughout 2008. Certain of our foreign subsidiaries 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 committed...

  • Page 104
    ... of up to an additional $750 million of our outstanding common stock commencing in 2006. 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...

  • Page 105
    ... tax rate Tax settlements and export tax benefit refund claims Domestic manufacturing deduction benefit Research and development tax credit ESOP dividend deduction benefit Extraterritorial Income exclusion/Foreign Sales Corporation tax benefit Federal tax cost of repatriation under the American Jobs...

  • Page 106
    ... proposed adjustments primarily involving benefits under the Foreign Sales Corporation and Extraterritorial Income (ETI) exclusion regimes for 1998-2002. We are under audit by a number of state tax authorities. State tax liabilities will be adjusted to account for any changes in federal taxable...

  • Page 107
    ... expenses Accrued salaries and wages Contracts in process and inventories Deferred 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 other...

  • Page 108
    ... portion of our information technology function requiring minimum annual payments as follows: (In millions) 2008 2009 2010 and thereafter $68 68 - Insurance is purchased from third parties to cover aggregate liability exposure up to $1.25 billion. The aircraft product liability reserve, which...

  • Page 109
    ... to many levels of audit and investigation. Agencies that oversee contract performance include: the Defense Contract Audit Agency, the Inspector General of the Department of Defense and other departments and agencies, the Government Accountability Office, the Department of Justice and Congressional...

  • Page 110
    ... stock units and stock appreciation rights generally are made by the Management Development and Compensation Committee of our Board of Directors (MDCC) and are compensatory in nature. These awards vest over a specified period of time as determined by the MDCC, generally 4 years for employee awards...

  • Page 111
    ... 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. There were no stock options granted in...

  • Page 112
    ...: 2005 Expected life Assumed annual dividend growth rate Expected volatility Assumed annual forfeiture rate 4 years 5% 30% 8% The expected life was determined based upon our prior experience. The expected volatility was determined using the Company's and our peer-group's historic volatility...

  • Page 113
    ...$54 million, respectively. There were 35.1 million and 41.5 million additional shares of common stock (including shares held in treasury) authorized for stock option, restricted stock and restricted stock unit awards under our stock plans at December 31, 2007 and December 31, 2006, respectively. 84

  • 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
    ... of benefit obligations, plan assets, funded status and related actuarial assumptions of our domestic and foreign Pension Benefits and Other Benefits plans. Change in Benefit Obligation (In millions) Pension Benefits 2007 2006 Other Benefits 2007 2006 Benefit obligation at beginning of year Service...

  • Page 116
    ... at December 31, 2006. Change in Plan Assets (In millions) Pension Benefits 2007 2006 Other Benefits 2007 2006 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) Fair...

  • Page 117
    ... asset (obligation) Prior service credit (cost) Total Weighted-Average Year-End Benefit Obligation Assumptions December 31: $(305) - (14) $(319) Pension Benefits 2007 2006 $ - (4) 52 $ 48 Other Benefits 2007 2006 Discount rate Rate of compensation increase Health care trend rate in the next year...

  • Page 118
    ... employers who provide drug coverage to retirees. Since our postretirement benefit programs provide prescription drug benefits to retirees, secondary to Medicare, the legislation does not apply to our plans. We maintain an employee stock ownership plan (ESOP), which includes our 401(k) plan (defined...

  • Page 119
    ... and control solutions for air/space platforms, operations, maintenance and engineering (OM&E) services and information technology and homeland security solutions. Missile Systems provides a broad range of weapon systems, including missiles, smart munitions, projectiles, kinetic kill vehicles and...

  • Page 120
    ... revised to reflect these changes. Segment financial results were as follows: Net Sales (In millions) 2007 2006 2005 Integrated Defense Systems Intelligence and Information Systems Missile Systems Network Centric Systems Space and Airborne Systems Technical Services Corporate and Eliminations Total...

  • Page 121
    ... 2007 $ 53 30 37 61 87 17 63 $ 348 2006 Integrated Defense Systems Intelligence and Information Systems Missile Systems Network Centric Systems Space and Airborne Systems Technical Services Corporate Assets held for sale Total Goodwill (In millions) December 31: $ 1,824 2,203 4,824 3,841 4,351...

  • Page 122
    ... 0.255 $65.33 60.70 63 Fourth Net sales Gross margin Income from continuing operations Net income Earnings per share from continuing operations(2) Basic Diluted Earnings per share(2) Basic Diluted Cash dividends per share Declared(4) Paid Common stock prices High Low Workdays(3) $4,520 860 284 287...

  • Page 123
    ..., on September 22, 2006 our Board of Directors approved a quarterly dividend of $0.24 per share, which was also recorded in the third quarter of 2006. Note 17: Financial Instruments At December 31, 2007, we recorded forward exchange contracts designated as cash flow hedges at their fair value...

  • Page 124
    ... 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 2008 Annual Meeting of Stockholders...

  • Page 125
    ... and Related Transactions" and under the caption "Corporate Governance-Board Independence" and is incorporated herein by reference. ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES This information is contained in our definitive proxy statement for the 2008 Annual Meeting of Stockholders...

  • Page 126
    ... 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 127
    ...is hereby incorporated by reference. Raytheon Company Supplemental Executive Retirement Plan, filed as an exhibit to the Company's Annual Report on Form 10-K for the year ended December 31, 2004, is hereby incorporated by reference. Raytheon Company Deferred Compensation Plan, filed as an exhibit to...

  • Page 128
    ... 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 129
    ...of New York as initial Guarantee Trustee, filed as an exhibit to the Company's Current Report on Form 8-K filed May 10, 2001, is hereby incorporated by reference. Settlement Agreement between Raytheon Company, Raytheon Engineers and Constructors International, Inc. and Washington Group International...

  • Page 130
    ... Aircraft Holdings, Inc. and Raytheon Aircraft Services Limited dated as of December 20, 2006, filed as an exhibit to the Company's Current Report on Form 8-K filed December 22, 2006, is hereby incorporated by reference. Form of Performance Share Award with respect to the Long-Term Performance Plan...

  • Page 131
    ... William R. Spivey /s/ Linda G. Stuntz Linda G. Stuntz Chairman and Chief Executive Officer (Principal Executive Officer) Senior Vice President and Chief Financial Officer (Principal Financial Officer) Vice President and Chief Accounting Officer (Principal Accounting Officer) Director February...

  • Page 132
    ...Headquarters Website Raytheon Company 870 Winter Street, Waltham, MA 02451 781.522.3000 Common Stock Symbol Raytheon Company common stock is listed on the New York Stock Exchange. The ticker symbol is RTN. Annual Meeting Raytheon's website offers financial information and facts about the company...

  • Page 133
    ... Defense Systems JAY B. STEPHENS President Technical Services * Retired in 2008 Vice President Company Evaluation Team Raytheon Company LAWRENCE J. HARRINGTON Vice President Engineering, Technology and Mission Assurance Raytheon Company KEITH J. PEDEN Senior Vice President General Counsel and...

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