Raytheon 2009 Annual Report Download

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Raytheon 2009 Annual Report

Table of contents

  • Page 1
    Raytheon 2009 Annual Report

  • Page 2
    ... and values, we executed at a worldclass level through 8,000 programs and 15,000 contracts, bringing Mission Assurance to our customers and solid growth to our shareholders. Our domain knowledge, technological leadership and culture of innovation continue to create expanding opportunities globally...

  • Page 3
    ...12.2% 1,500 3.29 1,249 1.02 15.2% 10.5% Operating Cash Flow from Continuing Operations Dividends Declared per Share Debt to Capital Return on Invested Capital (Adjusted in 2007) 1 Net Sales Operating Income Diluted EPS from Continuing Operations (Adjusted in 2007)1 ROIC (Adjusted in 2007)1 In...

  • Page 4
    ... solutions are setting new standards in this emerging marketplace, capabilities that have been enhanced through a series of acquisitions these last few years in insider threat software, vulnerability assessments and information operations, and infrastructure protection, engineering, research...

  • Page 5
    ...and safe work environment. Raytheon's Mission:Health program offers comprehensive health and wellness services and resources to employees and their families. Our workplace safety activities are guided by one overriding goal: to achieve an injury-free workplace. William H. Swanson Chairman and Chief...

  • Page 6
    ... Raytheon. Fueled by diversity and driven by customer needs, the ï¬,ow of ideas encompasses air, land, sea, space and cyberspace to solve problems, protect against threats and help our customers succeed. From innovative solutions in Sensing, Effects, C3I and Mission Support...from Homeland Security...

  • Page 7
    ...: Raytheon Advanced Combat Radar (RACR); Effects: Rolling Airframe Missile (RAM); C3I: Distributed Common Ground System (DCGS); Mission Support: Marksmanship Training (Photo courtesy U.S. Army); International: Australia's Hobart Class Air Warfare Destroyer; Homeland Security: Integrated solutions...

  • Page 8
    ...2009 sales of $5.5 billion, is a global integrator of defense systems. It provides innovative and affordable solutions to international and domestic customers through domain expertise, systems integration and superior program management. In 2009, IDS continued its focus on integrated air and missile...

  • Page 9
    ... control solutions for its customers. Space and Airborne Systems, with 2009 sales of $4.6 billion, is an international leader in providing air dominance, persistent battle space awareness and space solutions. In 2009, its scalable, adaptable RACR was successfully installed in an F-16, opening new...

  • Page 10
    ...and open environment for all employees. Raytheon was honored by CIO® Magazine as a recipient of the 2009 CIO 100, an annual award that recognizes organizations around the world that exemplify the highest level of operational and strategic excellence in information technology. The readers of Careers...

  • Page 11
    2009 Form 10-K 9

  • Page 12
    2009 Form 10-K

  • Page 13
    ... Number 1-13699 RAYTHEON COMPANY (Exact Name of Registrant as Specified in its Charter) Delaware (State or Other Jurisdiction of Incorporation or Organization) 95-1778500 (I.R.S. Employer Identification No.) 870 Winter Street, Waltham, Massachusetts 02451 (Address of Principal Executive Offices...

  • Page 14
    ... Item 9A. Controls and Procedures ...113 Item 9B. Other Information ...113 PART III Item 10. Item 11. Item 12. Item 13. Item 14. Directors, Executive Officers and Corporate Governance ...Executive Compensation ...Security Ownership of Certain Beneficial Owners and Management and Related Stockholder...

  • Page 15
    ...We operate in six business segments: ‫ מ‬Integrated Defense Systems; ‫ מ‬Intelligence and Information Systems; ‫ מ‬Missile Systems; ‫ מ‬Network Centric Systems; ‫ מ‬Space and Airborne Systems; and ‫ מ‬Technical Services. Revenue and other financial information regarding...

  • Page 16
    ... Space, Intelligence Operations Support, Cybersecurity, Environmental Solutions and Civil Security. IIS continued to perform under key programs including the Distributed Common Ground Systems (DCGS) 10.2 where the company has created and continues to manage a worldwide, network-centric enterprise...

  • Page 17
    ...information security solutions and services to government and Fortune 500 customers worldwide. Through ISS, Raytheon combines its legacy information assurance business with three key acquisitions to provide leading cybersecurity offerings, including Active Defense-protecting mission critical systems...

  • Page 18
    ... system solutions supporting the Air Warfare Systems, Naval Warfare Systems and Land Combat product lines, as well as leading our entry into Unmanned Systems. AS & DES pursues opportunities in the missile defense and directed energy markets, including the development of new missile defense solutions...

  • Page 19
    ... S )-C2S develops, delivers and supports domestic and international military and civil customers, including the Federal Aviation Administration (FAA), Department of Transportation and DoD, with integrated networked command and control (C2) systems encompassing ground, air, space and security systems...

  • Page 20
    ...through its Raytheon Precision Manufacturing products. Customers include the DoD, NASA and international customers. 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, headquartered in El Segundo, California, is a leader in the design and development of integrated systems and solutions for...

  • Page 21
    ... technical, scientific and professional services to defense, federal, international and commercial customers worldwide. It specializes in training, logistics, engineering services, product support and operational support services. TS provides solutions for mission support, homeland security, space...

  • Page 22
    ..., U.K. Home Office and commercial air traffic control organizations. Programs include e-Borders, an advanced border control and security program (with IIS), the Airborne Standoff Radar (ASTOR), a world-class ground surveillance capability (with SAS) and the Joint Effects Tactical Targeting System...

  • Page 23
    ..., cost structure 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...

  • Page 24
    ... 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 maintenance and microwave communication and other products and services...

  • Page 25
    operations and investments are subject to U.S. Government laws, regulations and policies, including the ITAR and the Foreign Corrupt Practices Act and the export laws and regulations described below, as well as foreign government laws, regulations and procurement policies and practices, which may ...

  • Page 26
    ...space, information technology and technical services and support markets. Technical superiority, reputation, price, past performance, delivery schedules, financing and reliability are among the principal competitive factors considered by customers in these markets. We compete worldwide with a number...

  • Page 27
    ... Affairs Committee of the Board of Directors and our 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...

  • Page 28
    ...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 29
    ... and regulations. They are also subject to local government laws, regulations and procurement policies and practices which may differ from U.S. Government regulations, including regulations relating to import-export control, investments, exchange controls and repatriation of earnings, as well as to...

  • Page 30
    ... environment. We believe that, in order to remain competitive in the future, we will need to continue to invest significant financial resources to develop new and adapt or modify our existing offerings and technologies, including through internal research and development, acquisitions and joint...

  • Page 31
    ... 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 costs found to...

  • Page 32
    ... future results of operations and financial condition. We use estimates and assumptions in accounting for our pension and other benefit plans, which are evaluated and updated on an annual basis. Changes in key estimates and assumptions, such as discount rates and assumed long-term return on assets...

  • Page 33
    ... information, and threats to physical security. These types of events could disrupt our operations, require significant management attention and resources, and could negatively impact our reputation among our customers and the public, which could have a negative impact on our financial condition...

  • Page 34
    ... and control systems, border security systems, and air traffic management systems. In some, but not all, circumstances, we may be entitled to indemnification from our customers, either through contractual provisions, qualification of our products and services by the Department of Homeland Security...

  • Page 35
    ... England; Malaga, Spain; and Glenrothes, Scotland. ‫ מ‬Space and Airborne Systems-El Segundo, CA; Goleta, CA; Forest, MS; Dallas, TX; and McKinney, TX. ‫ מ‬Technical Services-Chula Vista, CA; El Segundo, CA; Van Nuys, CA; Orlando, FL; Indianapolis, IN; Burlington, MA; Troy, MI; Norfolk, VA...

  • Page 36
    ..., by business segment was as follows: Leased Owned(1) Government Owned(2) Total(3) Integrated Defense Systems Intelligence and Information Systems Missile Systems Network Centric Systems Space and Airborne Systems Technical Services Corporate Totals 2,160,000 2,390,000 2,750,000 2,720,000 2,875...

  • Page 37
    ... technology, media and financial services company, and General Electric Capital Corporation where his last position was Senior Vice President-Corporate Finance. Age 58. Jon C. Jones Mr. Jones has served as Vice President of Raytheon Company and President of the Space and Airborne Systems (SAS...

  • Page 38
    ... the Chairman of the Board of the New England Legal Foundation. Age 63. William H. Swanson Mr. Swanson has served as Chairman since January 2004 and as Chief Executive Officer since July 2003. Mr. Swanson joined Raytheon in 1972 and has held increasingly responsible management positions, including...

  • Page 39
    ... the FAS/CAS Pension Adjustment. Dividends are subject to quarterly approval by our Board of Directors. Securities Authorized for Issuance Under Equity Compensation Plans The following table provides information about our equity compensation plans that authorize the issuance of shares of our...

  • Page 40
    ... the Standard & Poor's 500 Stock Index and the Standard & Poor's Aerospace & Defense Index. Total Return To Shareholders (Includes reinvestment of dividends) Annual Return Percentage Years Ending 12/31/2006 12/31/2007 12/31/2008 Company / Index 12/31/2005 12/31/2009 Raytheon Common Stock S&P 500...

  • Page 41
    Issuer Purchases of Equity Securities Total Number of Shares Purchased as Part of Publicly Announced Plan Period Total Number of Shares Purchased(1) Average Price Paid per Share Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plan(2) October (September 28, 2009-October 25...

  • Page 42
    ... per share amounts and total employees) Results of Operations 2009 2008 2007 2006 2005 Total net sales Operating income Interest expense, net Income from continuing operations (Loss) income from discontinued operations, net of tax Net income Net income attributable to Raytheon Company Net cash...

  • Page 43
    ... of defense and related programs for government customers. We operate in six 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 (TS). For a more...

  • Page 44
    ... military sales through the U.S. Government). Internationally, the growing threat of additional terrorist activity, emerging nuclear states and conventional military threats have led to an increase in demand for defense products and services and homeland security solutions. While recent global...

  • Page 45
    ...our presence in the domestic and international homeland security markets, focusing on transportation security, immigration control/identity management, critical infrastructure protection, energy security, intelligence program support, law enforcement solutions and emergency preparedness and response...

  • Page 46
    ... 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, to assess program...

  • Page 47
    ... financial performance measures to manage our business on a consolidated basis and by business segment and to monitor and assess our results of operations: ‫ מ‬Bookings-a forward-looking metric that measures the value of new contracts awarded to us during the year. ‫ מ‬Net Sales-a growth...

  • Page 48
    ... service sales are primarily related to our TS operating segment. Percentage-of-Completion Accounting-We account for our long-term contracts associated with the design, development, manufacture, or modification of complex aerospace or electronic equipment and related services, such as certain cost...

  • Page 49
    ... the revenue recognition policies discussed above. Other Considerations-The majority of our sales are driven by pricing based on costs incurred to produce products or perform services under contracts with the U.S. Government. Cost-based pricing is determined under the Federal Acquisition Regulations...

  • Page 50
    ... result, while both CAS and FAS use long-term assumptions in their calculation methodologies, each method results in different calculated amounts of pension cost. In addition, the cash funding requirements for our pension plans are determined under the Employee Retirement Income Security Act of 1974...

  • Page 51
    ... income securities, 5% to 15% for cash and 0% to 15% for other investments (including private equity and real estate). The long-term ROA assumptions for foreign pension benefit plans are based on the asset allocations and the economic environment prevailing in the locations where the pension plans...

  • Page 52
    ... our annual update, generally planned in the third quarter, of our actuarial estimate of the unfunded benefit obligation for both FAS and CAS for final 2009 census data. After 2010, the FAS/CAS Pension Adjustment is more difficult to predict because future FAS and CAS expense is based on a number of...

  • Page 53
    ... data for peer companies, plus an equity risk premium related to specific company risk factors, and the after-tax rate of return on our debt, weighted at the relative values of our debt and equity. Preparation of forecasts for use in the long-range plan and the selection of the discount rate involve...

  • Page 54
    ... percentages and per share data) 2009 2008 2007 Net sales Products Services Total net sales Operating expenses Cost of sales-products Cost of sales-services Administrative and selling expenses Research and development expenses Total operating expenses Operating income Non-operating expense, net...

  • Page 55
    ... of $150 million related to the FAS/CAS Pension Adjustment discussed below. The increase in cost of product sales of $501 million in 2009 compared to 2008 was primarily due to increased costs at IDS, SAS and MS, the primary drivers of which are discussed above in Total Net Sales and in Segment...

  • Page 56
    ... to $1,435 million of increased costs, the primary drivers of which are discussed above in our discussion of Total Net Sales and in Segment Results below, offset by lower expense of $150 million related to the FAS/CAS Pension Adjustment. The increase in total operating expenses of $1,607 million in...

  • Page 57
    ... differences between book and tax reporting, including manufacturing tax benefits, tax benefits related to certain refund claims, including $26 million of benefits primarily related to certain U.S. and foreign research tax incentives and Employee Stock Ownership Plan (ESOP) dividend deductions...

  • Page 58
    ... (0.19) (0.37) $ 4.12 $ 4.15 We report our results in the following 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 (TS). The following provides some...

  • Page 59
    ...,881 $23,174 $21,301 2009 2008 2007 Integrated Defense Systems Intelligence and Information Systems Missile Systems Network Centric Systems Space and Airborne Systems Technical Services FAS/CAS Pension Adjustment Corporate and Eliminations Total 859 $ 870 259 253 604 584 674 575 647 569 215 174 27...

  • Page 60
    ... cancellation or termination occurs. Backlog at December 31 (In millions) Funded Backlog 2009 2008 2007 2009 Total Backlog 2008 2007 Integrated Defense Systems Intelligence and Information Systems Missile Systems Network Centric Systems Space and Airborne Systems Technical Services Total $ 5,595...

  • Page 61
    ... and civil security response solutions. Key domestic customers include the U.S. Navy, Army and Air Force, and the MDA. Key international customers include Japan, Saudi Arabia, United Arab Emirates (UAE), Taiwan, Australia, Germany, Korea and Finland. Total Net Sales and Total Operating Expenses...

  • Page 62
    ... subcontractor work related to the initial development phase and $98 million of higher net sales, principally from higher volume on a competitive design program for the U.S. Air Force's next generation global positioning ground system awarded in the fourth quarter of 2007. The increase in operating...

  • Page 63
    ... Service contract to provide global intelligence, surveillance and reconnaissance support. Missile Systems % Change 2009 2008 compared compared to 2008 to 2007 (In millions, except percentages) 2009 2008 2007 Total Net Sales Total Operating Expenses Operating Income Operating Margin Bookings...

  • Page 64
    ... million on the RAM program, driven by increased production on a direct foreign sale award received in the first half of 2007 and development work on the Block II version of the missile; $72 million from higher production rates on the Phalanx program, per customer schedule requirements; $64 million...

  • Page 65
    ...and Marine Corps and other government customers, as well as numerous international customers. On October 26, 2009, NCS acquired BBN, a strategic research partner with the DoD and a provider of critical solutions for national defense and security missions. Total Net Sales and Total Operating Expenses...

  • Page 66
    ...intelligence, surveillance and reconnaissance (ISR), precision engagement, unmanned aerial operations and space. Leveraging advanced concepts, state-of-the-art technologies and mission systems knowledge, SAS provides electro-optical/infrared sensors, airborne radars for surveillance and fire control...

  • Page 67
    ... to defense, federal, international and commercial customers worldwide. It specializes in training, logistics, engineering services, product support and operational support services. TS provides solutions for the mission support, homeland security, space, civil aviation, counterproliferation and...

  • Page 68
    ... booked $492 million on work for the Department of Energy and DTRA, and $48 million on domestic operational training programs and $70 million on foreign operational training programs in support of the U.S. Army's Warfighter FOCUS activities. FAS/CAS Pension Adjustment The FAS/CAS Pension Adjustment...

  • Page 69
    ... represent unallocated costs and certain other corporate costs not considered part of management's evaluation of reportable segment operating performance, including the net costs associated with our residual commuter aircraft portfolio. The components of total net sales related to Corporate and...

  • Page 70
    ... Intelligence and Information Systems Missile Systems Network Centric Systems Space and Airborne Systems Technical Services Total DISCONTINUED OPERATIONS $20 7 14 12 12 4 $69 (Loss) income from discontinued operations, net of tax consisted of the following results from Raytheon Aircraft Company...

  • Page 71
    ... adverse effect on our financial position, results of operations or liquidity. We also retained certain U.K. pension assets and obligations for a limited number of U.K. pension plan participants as part of the Raytheon Aircraft sale, which we include in our pension disclosures. No interest expense...

  • Page 72
    ... lower pension and other postretirement benefit payments as discussed below; and $37 million of proceeds from the termination of our interest rate swap agreements. The remainder of the increase in net cash was primarily due to an increase in net cash receipts in line with total net sales growth. The...

  • Page 73
    ... by operating activities, proceeds from the sale of Raytheon Aircraft in 2007 and proceeds from the issuance of new debt in 2009 as our primary source for the repayment of debt, payment of dividends and the repurchase of our common stock. The decrease of $344 million in net cash used in financing...

  • Page 74
    ... of our common stock had been repurchased and approximately $870 million remained under this program. All previous repurchase programs had been completed as of December 31, 2009. Cash Dividends-Our Board of Directors declared the following cash dividends: (In millions, except per share amounts) 2009...

  • Page 75
    ... lines of credit at December 31, 2009 and December 31, 2008. Compensating balance arrangements are not material. Credit Ratings-Three major corporate debt rating organizations, Fitch Ratings (Fitch), Moody's Investors Service (Moody's) and Standard & Poor's (S&P), assign ratings to our short-term...

  • Page 76
    ... and servicing rights to the receivables. We irrevocably, and without recourse, transferred the receivables to a qualifying special-purpose entity (QSPE), General Aviation Receivables Corporation (GARC), formed in 2003, which in turn, issued beneficial interests in these receivables to a commercial...

  • Page 77
    ... aircraft globally to thinly capitalized companies whose financial condition could be significantly affected by a number of factors, including fuel and other costs, industry consolidation, declining commercial aviation market conditions and the U.S. Government budget for the Essential Air Service...

  • Page 78
    ...by us. We also provide products and services to customers outside of the U.S. and those sales are subject to local government laws, regulations and procurement policies and practices. Our compliance with such local government regulation or any applicable U.S. Government regulation (e.g., the Foreign...

  • Page 79
    ... information as of December 31, 2009 and 2008 about our market risk exposure associated with changing interest and exchange rates. For long-term debt obligations, the table presents principal cash flows by maturity date and average interest rates related to outstanding obligations. For interest rate...

  • Page 80
    ...it into earnings in the same period or periods during which the hedged revenue or cost of sales transaction affects earnings. Realized gains and losses resulting from these cash flow hedges offset the foreign currency exchange gains and losses on the underlying assets or liabilities being hedged. We...

  • Page 81
    ... 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 82
    ... PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholders of Raytheon Company: In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, of equity, and of cash flows present fairly, in all material respects, the financial position...

  • Page 83
    ... of costs incurred Accounts payable Accrued employee compensation Other accrued expenses Total current liabilities Accrued retiree benefits and other long-term liabilities Deferred taxes Long-term debt Commitments and contingencies (note 11) Equity Raytheon Company stockholders' equity Common stock...

  • Page 84
    ... COMPANY CONSOLIDATED STATEMENTS OF OPERATIONS (In millions, except per share amounts) Years Ended December 31: 2009 2008 2007 Net sales Products Services Total net sales Operating expenses Cost of sales-products Cost of sales-services Administrative and selling expenses Research and development...

  • Page 85
    ... unfunded projected benefit obligation Elimination of Raytheon Aircraft unfunded projected benefit obligation and cash flow hedges in connection with sale Foreign exchange translation Cash flow hedges Comprehensive income (loss) Dividends declared Impact to adopt new accounting standard (Note 15...

  • Page 86
    ... operations Net cash (used in) provided by investing activities Cash flows from financing activities Dividends paid Issuance of long-term debt, net of offering costs Repayments of long-term debt Repurchases of common stock Activity under common stock plans Tax benefit from stock-based awards...

  • Page 87
    ... to our consolidated financial statements. Revenue Recognition-We account for our long-term contracts associated with the design, development, manufacture, or modification of complex aerospace or electronic equipment and related services, such as certain cost-plus service contracts, using the...

  • Page 88
    ...proposal costs were between 40% and 50% of total research and development expenses in 2009, 2008 and 2007. Federal, Foreign and State Income Taxes-The Company and its domestic subsidiaries provide for federal income taxes on pretax accounting income at rates in effect under existing tax law. Foreign...

  • Page 89
    ... in overhead as we can generally recover these costs through the pricing of products and services to the U.S. Government. For all other sales or asset retirements, the assets and related accumulated depreciation and amortization are eliminated from the accounts and any resulting gain or loss...

  • Page 90
    ... or fair value. Computer Software-Internal use computer software, which consists primarily of an integrated financial software package used across the Company, is stated at cost less accumulated amortization and is amortized using the straight-line method over its estimated useful life, generally 10...

  • Page 91
    ... result, while both CAS and FAS use long-term assumptions in their calculation methodologies, each method results in different calculated amounts of pension cost. In addition, the cash funding requirements for our pension plans are determined under the Employee Retirement Income Security Act of 1974...

  • Page 92
    ... or loss from the early termination of interest rate swaps. Employee Stock Plans-Stock-based compensation cost is measured at the grant date based on the calculated fair value of the award. The expense is recognized over the employees' requisite service period, generally the vesting period of the...

  • Page 93
    ... assets, primarily related to technology, contractual backlog and trade name with a weighted-average life of eight years, in connection with this acquisition. In 2008, we acquired Telemus Solutions, Inc. and SI Government Solutions at Intelligence Information Systems (IIS) for a total of $52...

  • Page 94
    ... adverse effect on our financial position, results of operations or liquidity. We also retained certain U.K. pension assets and obligations for a limited number of U.K. pension plan participants as part of the Raytheon Aircraft sale, which we include in our pension disclosures. No interest expense...

  • Page 95
    ...(loss) from discontinued operations related to Raytheon Aircraft and Flight Options was as follows: (In millions) Raytheon Aircraft 2009 2008 2007 Flight Options 2009 2008 2007 Net sales Operating expenses Income (loss) before taxes Federal and foreign income taxes (benefits) Operating income (loss...

  • Page 96
    ... aircraft serve as collateral for these accounts receivable. We estimated the fair value of the subordinated retained interest at December 31, 2009 and 2008 based on the present value of future expected cash flows using certain key assumptions, including collection period and a discount rate...

  • Page 97
    ... radars and communication networks. TRS has two major operating subsidiaries, one of which, Thales-Raytheon Systems Co. LLC (TRS LLC), we control and consolidate and is a component of our NCS segment, and the other one, Thales-Raytheon Systems Company S.A.S. (TRS SAS), which we account for using the...

  • Page 98
    ... in NCS' operating margin of 0.9%, 0.5% and 0.6% for 2009, 2008 and 2007, respectively. The effects of the adoption of this accounting standard have been reflected in our segment results for NCS. TRS LLC formed a joint venture with TRS SAS called Air Command Systems International S.A.S. (ACSI), for...

  • Page 99
    ... across numerous highly rated counterparties. Fair value hedges - We periodically enter into interest rate swap agreements with commercial and investment banks to manage interest rates associated with our financing arrangements. The $575 million notional value of the interest rate swaps that were...

  • Page 100
    ... that we value using those levels of inputs. Level 1: Quoted prices in active markets for identical assets or liabilities. Our Level 1 assets are investments in marketable securities held in rabbi trusts that we use to pay benefits under certain of our non-qualified deferred compensation plans which...

  • Page 101
    ... of period Total gains (realized/unrealized): Included in income (loss) from discontinued operations, net of tax Included in other comprehensive income (loss) Balance at end of period Note 10: Notes Payable and Long-term Debt $66 - 1 $67 $63 4 (1) $66 Notes payable and long-term debt consisted...

  • Page 102
    ...We terminated these interest rate swap agreements in the first quarter of 2009, and collected cash of $37 million related to the early termination.... rate swaps Unamortized issue discounts Unamortized interest rate hedging costs Total The aggregate amounts of principal payments due on long-term debt...

  • Page 103
    ... stages of investigation and cleanup related to remediation of various environmental sites. Our estimate of total environmental remediation costs was $208 million and $157 million at December 31, 2009 and 2008, respectively. Discounted at a weighted-average risk-free rate of 5.7%, we estimated the...

  • Page 104
    ... aircraft globally to thinly capitalized companies, whose financial condition could be significantly affected by a number of factors, including fuel and other costs, industry consolidation, declining commercial aviation market conditions and the U.S. Government budget for the Essential Air Service...

  • Page 105
    ...by us. We also provide products and services to customers outside of the U.S. and those sales are subject to local government laws, regulations and procurement policies and practices. Our compliance with such local government regulation or any applicable U.S. Government regulation (e.g., the Foreign...

  • Page 106
    ... deferred compensation plans. Our Board of Directors declared cash dividends of $1.24, $1.12 and $1.02 per share in 2009, 2008 and 2007, respectively. Earnings Per Share (EPS) We compute Basic EPS attributable to Raytheon Company common stockholders by dividing income from continuing operations...

  • Page 107
    ...standard related to whether instruments granted in share-based payment transactions are participating securities. This accounting standard requires us to include all unvested stock awards which contain non-forfeitable rights to dividends or dividend equivalents, whether paid or unpaid, in the number...

  • Page 108
    ... shares of preferred stock, $0.01 par value per share, in multiple series with terms as determined by our Board of Directors. There were no shares of preferred stock outstanding at December 31, 2009 and December 31, 2008. In June 2006, we issued 12.0 million warrants to purchase our common stock...

  • Page 109
    ... rights. The 1997 Nonemployee Directors Restricted Stock Plan provides for the award of restricted stock to nonemployee directors. Awards of restricted stock, restricted stock units and stock appreciation rights generally are made by the Management Development and Compensation Committee of our Board...

  • Page 110
    ... simulation method for the TSR portion of the award. Compensation expense for the CFCF and ROIC portions of the awards will be adjusted based upon the expected achievement of those performance goals. LTPP activity related to the expected units was as follows: Weighted-Average Grant Date Fair Value...

  • Page 111
    ... but does not allow for future salary increases. In addition to providing pension benefits, we provide 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...

  • Page 112
    ... single entity, investment manager, sector or international location. The Plan's investments are stated at fair value. Investments in equity securities (common and preferred) are valued at the last reported sales price. Investments in fixed-income securities are generally valued using methods based...

  • Page 113
    ... Unobservable Inputs (Level 3) (In millions) Total Cash and cash U.S. equity All capitalization(2) U.S. equity hedge funds(3) International equity(2) Developed markets Emerging markets Fixed income securities U.S. Government bonds or treasuries U.S. Agency securities Corporate bonds Investment...

  • Page 114
    ... equities, international equities, corporate bonds and U.S. Government bonds or treasuries. Cash collateral obligations of $233 million were received for securities on loan as of December 31, 2009. Cash collateral was invested in a separately maintained and managed cash collateral investment account...

  • Page 115
    ...income securities U.S. equity International equity Cash Total 55% 31% 8% 6% 100% 56% 25% 14% 5% 100% The tables below provide a reconciliation of benefit obligations, plan assets, funded status and related actuarial assumptions of our domestic and foreign Pension Benefits and Other Benefits plans...

  • Page 116
    ... as components of net periodic benefit cost in 2010 are as follows: Adjustment to Accumulated Other Comprehensive (Loss) Income (In millions) December 31: Pension Benefits 2009 Other Benefits 2009 Net loss Transition obligation Prior service (cost) credit Total $(579) - (13) $(592) $ (6) (4) 45...

  • Page 117
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Weighted-Average Year-End Benefit Obligation Assumptions December 31: Pension Benefits 2009 2008 Other Benefits 2009 2008 Discount rate Rate of compensation increase Health care trend rate in the next year Gradually declining to an ultimate ...

  • Page 118
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Weighted-Average Net Periodic Benefit Cost Assumptions 2009 Other Benefits 2008 2007 Discount rate Expected Long-term rate of return on plan assets Rate of compensation increase Health care trend rate in the next year Gradually declining to an ...

  • Page 119
    ...contractual pension benefits agreements for certain of our executive officers. The liability was $31 million and $29 million at December 31, 2009 and 2008, respectively. We maintain a defined contribution plan that includes a 401(k) plan and an employee stock ownership plan (ESOP). Covered employees...

  • Page 120
    ... due to the following: 2009 2008 2007 Statutory tax rate Research and development tax credit Tax settlements and refund claims Domestic manufacturing deduction benefit ESOP dividend deduction benefit Non-deductible costs Other, net Effective tax rate We are subject to income taxes in the U.S. and...

  • Page 121
    ...million could decrease tax expense. We generally account for our state income tax expense as a deferred contract cost, as we can generally recover these costs through the pricing of our products and services to the U.S. Government. We include this deferred contract cost in contracts in process until...

  • Page 122
    ... commercial customers worldwide. It specializes in training, logistics, engineering services, product support, and operational support services. TS provides solutions for the mission support, homeland security, space, civil aviation, counterproliferation and counterterrorism markets. Segment total...

  • Page 123
    ... $ 1,776 2007 $ Integrated Defense Systems Intelligence and Information Systems Missile Systems Network Centric Systems Space and Airborne Systems Technical Services FAS/CAS Pension Adjustment Corporate and Eliminations Total $ 859 259 604 674 647 215 27 (243) $ 3,042 $ 870 253 584 575 569 174...

  • Page 124
    ... the pricing of our products and services to the U.S. Government. Intersegment Operating Income (In millions) 2009 2008 2007 Integrated Defense Systems Intelligence and Information Systems Missile Systems Network Centric Systems Space and Airborne Systems Technical Services Total $ 8 2 7 41 52 63...

  • Page 125
    ... as follows: Integrated Defense Systems Intelligence and Information Systems Network Centric Systems Space and Airborne Systems (In millions) Missile Systems Technical Services Total Balance at December 31, 2007 Adjustment for acquisitions Effect of foreign exchange rates and other Balance at...

  • Page 126
    ... FINANCIAL STATEMENTS (CONTINUED) Note 17: Quarterly Operating Results (Unaudited) (In millions, except per share amounts, stock prices and workdays) 2009(1) First Second Third Fourth Total net sales Gross margin Income from continuing operations Net income attributable to Raytheon Company...

  • Page 127
    ... 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 2010 Annual Meeting of...

  • Page 128
    ... OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS Information regarding security ownership of certain beneficial owners and for directors and executive officers is contained in our definitive proxy statement for the 2010 Annual Meeting of Stockholders under the caption "Stock Ownership" and is...

  • Page 129
    ... and on the Company's internal control over financial reporting as of December 31, 2009 is included in Part II, Item 8 of this Annual Report on Form 10-K. The independent registered public accounting firm's consent with respect to this report appears in Exhibit 23 of this Annual Report on Form 10...

  • Page 130
    ... 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 the 8.25% Equity Security Units originally authorized and issued...

  • Page 131
    ... executive officers (providing for benefits in the event of a qualified termination upon a change in control of two times base salary and bonus).* Letter Agreement between Raytheon Company and William H. Swanson, filed as an exhibit to the Company's Current Report on Form 8-K filed April 24, 2003...

  • Page 132
    ... 2005 between Raytheon Company and Gregory S. Shelton, filed as an exhibit to the Company's Current Report on Form 8-K filed December 20, 2005, is hereby incorporated by reference. Summary of Executive Severance and Change in Control Policy, filed as an exhibit to the Company's Annual Report on Form...

  • Page 133
    ... 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 134
    ... Agreement between the Company and its executive officers.* Statement regarding Computation of Ratio of Earnings to Fixed Charges for the year ended December 31, 2009.* Subsidiaries of Raytheon Company.* Consent of Independent Registered Public Accounting Firm.* Certification of William H. Swanson...

  • Page 135
    ... Accounting Officer Dated: February 24, 2010 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. SIGNATURES TITLE DATE /S/ WILLIAM H. SWANSON...

  • Page 136
    Investor Information Global Headquarters 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 The 2010 Annual Meeting of Stockholders will be held on ...

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  • Page 141
    ... Space and Airborne Systems Taylor W. Lawrence, Ph.D. President Missile Systems Keith J. Peden Senior Vice President Human Resources Raytheon Company Rebecca R. Rhoads Vice President and Chief Information Officer Raytheon Company Mark E. Russell Vice President Engineering, Technology and Mission...

  • Page 142
    ... Productivity and Quality Center. Energy Star is a registered trademark of the Environmental Protection Agency. Human Rights Campaign is a registered trademark of the Human Rights Campaign Foundation. CIO is a registered trademark of International Data Group. Copyright © 2010 Raytheon Company...