Raytheon 2012 Annual Report Download

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R A Y T H E O N 2 0 1 2 A N N U A L R E P O R T

Table of contents

  • Page 1
    R A Y T H E O N 2 0 1 2 A N N U A L R E P O R T

  • Page 2
    ...Net Sales Adjusted Income Adjusted EPS1 Operating Cash Flow from Continuing Operations Dividends Declared per Share 1 $25,150 2,078 5.51 1,892 1.50 $24,791 2,067 5.85 2,102 1.72 $24,414 2,074 6.21 1,951 2.00 1 Adjusted Income is income from continuing operations attributable to Raytheon Company...

  • Page 3
    ... orders for missiles, radars, training, communications and classified programs. Internationally, we received orders for command and control systems, precision munitions, and sensors, among many other awards. International revenue was 26 percent of our total 2012 revenue - setting the standard for...

  • Page 4
    ... electronic warfare, cyber, C3I (Command, Control, Communications and Intelligence) and training. The exciting things we are doing today include continuing to break new ground with our air and missile defense capabilities. Raytheon's new-production Patriot Air and Missile Defense system received the...

  • Page 5
    ... Emergency Communications Network program upgrade for the U.S. Air Force. Additionally, in 2012, we were awarded a $70 million competitive alternate development contract from the Air Force for the Family of Advanced Beyond Line of Sight Terminal program that will allow for secure communications...

  • Page 6
    ... safest year in its history. Our recordable injury rate improved 8.6% over 2011. These results are industry leading and are a product of our world-class processes and operating discipline. In the area of diversity, the company once again achieved a 100-percent score on the Human Rights Campaign (HRC...

  • Page 7
    ... (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) (Zip Code) (781) 522-3000 (Registrant's telephone number, including area code) Securities...

  • Page 8
    ... ...Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ...Controls and Procedures...Other Information... 26 28 29 76 77 125 125 125 Directors, Executive Officers and Corporate Governance...Executive Compensation...Security Ownership of Certain Beneficial Owners and...

  • Page 9
    ... through a number of acquisitions. We are incorporated in the state of Delaware. Our principal executive offices are located at 870 Winter Street, Waltham, Massachusetts 02451. In this section, we describe our business, including our business segments, product lines, customers, operations and other...

  • Page 10
    ... information processing, information integration and visualization systems for intelligence, satellite and space-based programs for DoD customers. Key programs include advanced ground solutions for strategic and tactical ISR missions, including Global Hawk, U-2, and the U.S. Air Force's CFS program...

  • Page 11
    ... system solutions to government and critical infrastructure customers worldwide. Through ISS, Raytheon protects mission critical systems against a wide range of internal and external threats. ISS is an industry leader in computer network operations, cross-security domain information sharing, insider...

  • Page 12
    ...(MFRFS) Ku-band Close Combat Tactical Radar sense and warn system for Forward Operating Bases following the performance of Raytheon's shorter range Ka-band systems deployed in Afghanistan. Also in 2012, the Company acquired the Government Solutions business of SafeNet, Inc., a privately-held company...

  • Page 13
    ... operational needs incorporating next-generation communications, sensing, and command and control solutions. Space and Airborne Systems (SAS)-SAS, headquartered in El Segundo, California, is a leader in the design and development of integrated systems and solutions for advanced missions, including...

  • Page 14
    ... of the secure mission computer/signal processing systems on the F-16, F-22 and F-35 aircraft. Space Systems (SS)-SS designs and manufactures space and space-qualified sensor payloads for large national programs and develops innovative solutions for emerging intelligence, defense and civil space...

  • Page 15
    ...the Australian Government. Programs include designing, developing, and installing the combat system for the new Air Warfare Destroyer, and supplying in-service engineering support for the Collins Class Submarine (with IDS); providing aerospace related design, integration and lifecycle operations and...

  • Page 16
    ... risks associated with U.S. Government program funding and appropriations and government contracts, and with supplying technologically-advanced, cutting edge defense-related products and services to the U.S. Government. U.S. Government contracts generally are subject to the Federal Acquisition...

  • Page 17
    ... defense systems, missile systems, airborne radars, naval systems, air traffic control systems, electronic equipment, computer software and systems, personnel training, equipment maintenance and microwave communications technology, and other products and services permitted under the International...

  • Page 18
    ...efforts related to U.S. Government programs. We also conduct funded research and development activities under U.S. Government contracts which are included in total net sales. For additional information related to our research and development activities, see "Note 1: Summary of Significant Accounting...

  • Page 19
    ...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 20
    ... and Special Activities Committee of the Board of Directors and our code of ethics entitled "Code of Conduct". Raytheon 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 21
    ... information regarding our financial outlook, future plans, objectives, business prospects, products and services, trends and anticipated financial performance including with respect to our liquidity and capital resources, our backlog, our pension expense and funding, the impact of new accounting...

  • Page 22
    ... impact our results of operations and financial condition. Furthermore, we can give no assurance that we would be awarded new U.S. Government contracts to offset the revenues lost as a result of termination of any of our contracts. The funding of U.S. Government programs is subject to congressional...

  • Page 23
    ... agreements or financial support obligations, known as offset obligations, and provide for penalties if we fail to meet such requirements. Our international contracts may also be subject to termination at the customer's convenience or for default based on performance, and may be subject to funding...

  • Page 24
    ... for our current and future markets. To achieve our business strategies and continue to 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...

  • Page 25
    ...'s operations are being conducted in accordance with applicable requirements. The DCAA and DCMA also review the adequacy of and a contractor's compliance with its internal control systems and policies, including the contractor's accounting, purchasing, property, estimating, earned value management...

  • Page 26
    ... strategic objectives and other benefits expected from acquisitions or investments, the diversion of our attention and resources from our operations and other initiatives, the potential impairment of acquired assets, and the potential loss of key employees and customers of the acquired businesses...

  • Page 27
    ...networks and related systems are critical to the operation of our business and essential to our ability to successfully perform day-to-day operations. We are also involved with information technology systems for certain customers and other third parties, which generally face similar security threats...

  • Page 28
    ... and technology systems and products. New technologies may be untested or unproven. In addition, we may incur significant liabilities that are unique to our products and services, including missile systems, command and control systems, border security systems, and air traffic management systems. In...

  • Page 29
    ...Space and Airborne Systems-El Segundo, CA; Goleta, CA; Sunnyvale, CA; Forest, MS; Dallas, TX; and McKinney TX. - Technical Services-Chula Vista, CA; Orlando, FL; Indianapolis, IN; Burlington, MA; Troy, MI; Dulles, VA; Norfolk, VA; and Canberra, Australia. - Corporate and Other-Billerica, MA; Waltham...

  • Page 30
    A summary of the space owned, leased and/or utilized by us as of December 31, 2012, by business segment is 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 ...

  • Page 31
    ... Vice President, Engineering, Technology and Quality for the Network Centric Systems business unit. Prior to rejoining Raytheon in April 2004, Ms. Dugle held a wide range of officer-level positions with ADC Communications, Inc., a global provider of network infrastructure products and services. Age...

  • Page 32
    ... Airborne Systems (SAS) business unit, and from May 2003 to July 2007 was Vice President of the Mission System Integration product line within the SAS business unit. Dr. Kennedy joined Raytheon in 1983 and has held positions of increasing responsibility as a new business leader and program manager...

  • Page 33
    ... President of Raytheon Company and President of the Space and Airborne Systems (SAS) business unit since March 2010. From May 2007 to March 2010, he was President of the TS business unit. From March 2007 to May 2007, Mr. Yuse was Vice President and Deputy General Manager of the TS business unit, and...

  • Page 34
    PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES At February 11, 2013, there were 29,709 record holders of our common stock. Our common stock is traded on the New York Stock Exchange under the symbol "RTN". For information ...

  • Page 35
    ... stock issued to employees. In September 2011, our Board of Directors authorized the repurchase of up to $2.0 billion of our outstanding common stock. All previous share repurchase programs have been completed as of December 31, 2012. Share repurchases will take place from time to time at management...

  • Page 36
    ...except per share amounts and total employees) Results of Operations 2012 2011 2010 2009 2008 Total net sales Operating income Interest expense, net Income from continuing operations Income (loss) from discontinued operations, net of tax Net income Net income attributable to Raytheon Company Diluted...

  • Page 37
    ... defense and related programs for primarily 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...

  • Page 38
    ... positioned to support and provide many of these critical and enduring missions and capabilities. U.S. Government sales, excluding foreign military sales, accounted for 73% of our total net sales in 2012. Our principal U.S. Government customer is the DoD. Although DoD funding has grown substantially...

  • Page 39
    ... sales through the U.S. Government). Internationally, the growing threat of additional terrorist activity, cyber threats, emerging nuclear states, long-range missiles and conventional military threats have led to an increase in demand for defense products and services and homeland security solutions...

  • Page 40
    ... with the most appropriate solutions. Our Mission Support capabilities include technical services, system engineering, product support, logistics, training, operations and maintenance. Our training business continues to expand and we now train military, civil and commercial customers in over 80...

  • Page 41
    ... to maximize operating income and cash. We pursue a capital deployment strategy that balances funding for growing our business, including capital expenditures, acquisitions, and research and development; prudently managing our balance sheet, including debt repayments and pension contributions; and...

  • Page 42
    ...2010, Raytheon Systems Limited (RSL) was notified of its termination on the U.K. Border Agency (UKBA) program, which resulted in a net backlog adjustment of $556 million at IIS. Total net sales were $24.4 billion, $24.8 billion and $25.2 billion in 2012, 2011 and 2010, respectively. Operating income...

  • Page 43
    ...the schedule (e.g., the number and type of milestone events), technical requirements (e.g., a newly-developed product versus a mature product), and other contract requirements. Management must make assumptions and estimates regarding labor productivity and availability, the complexity of the work to...

  • Page 44
    ..., 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 (ERISA...

  • Page 45
    ... equities International equities Fixed-income securities Cash and cash equivalents Private equity and private real estate Other (including absolute return funds) 25% - 35% 15% - 25% 25% - 40% 1% - 10% 3% - 10% 5% - 20% In validating the 2012 long-term ROA assumption, we reviewed our pension plan...

  • Page 46
    ..., the pattern of cost recognition is different. The key drivers of CAS pension expense include the funded status and the method used to calculate CAS reimbursement for each of our plans. Under the existing CAS rules, which continue to apply through 2012, the discount rate used to measure liabilities...

  • Page 47
    ... manager and evaluated internally to determine whether any adjustments are required to reflect fair value. The change in accumulated other comprehensive loss (AOCL) related to pension and other postretirement benefit plans is as follows: (In millions) 2012 2011 2010 Beginning balance Amortization...

  • Page 48
    ... 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 impairment...

  • Page 49
    ... and per share data) 2012 2011 2010 2012 2011 2010 Net sales $ 20,380 Products 4,034 Services 24,414 Total net sales Operating expenses Cost of sales 15,712 Products 3,380 Services 19,092 Total cost of sales 1,629 Administrative and selling expenses 704 Research and development expenses 21...

  • Page 50
    ...depot services operations programs, driven primarily by new contract awards. The increase in external net sales at SAS was primarily due to higher net sales related to Raytheon Applied Signal Technology (RAST), which we acquired in the first quarter of 2011, higher volume on ISR systems programs due...

  • Page 51
    ...in 2012, 2011 and 2010, respectively. Total Cost of Sales Cost of sales, for both products and services, consists of labor, material and subcontract costs, as well as related allocated costs. For each of our contracts, we manage the nature and amount of direct costs at the contract level, and manage...

  • Page 52
    ... the UKBA Program dispute and arbitration at IIS, partially offset by an increase of $62 million in state taxes allocated to our contracts. The increase in administrative and selling expenses of $33 million in 2011 compared to 2010 was primarily due to $62 million of acquisition-related expenses and...

  • Page 53
    ... reflects the 35% U.S. statutory rate adjusted for various permanent differences between book and tax reporting. During 2012, we received final approval from the Internal Revenue Service (IRS) and U.S. Congressional Joint Committee on Taxation of IRS Appeals Division settlement for the 2006-2008 IRS...

  • Page 54
    ..., related to our former turbo-prop commuter aircraft portfolio, Raytheon Airline Aviation Services (RAAS), in 2012 compared to 2011. The decrease in income (loss) from discontinued operations, net of tax, of $17 million in 2011 compared to 2010 was primarily due to the 2010 Tax Settlement, described...

  • Page 55
    ... to purchase shares of our common stock, with an exercise price of $37.50 per share, were included in our calculations of diluted EPS at December 31, 2011 and 2010. These warrants expired in June 2011. Diluted Earnings (Loss) per Share from Discontinued Operations Attributable to Raytheon Company...

  • Page 56
    ... We report our results in the following segments: IDS; IIS; MS; NCS; SAS; and TS. The following provides some context for viewing our segment performance through the eyes of management. Given the nature of our business, bookings, net sales, and operating income (and the related operating margin...

  • Page 57
    ... services and travel expenses) and adjustments for loss contracts. Operating Income (and the related operating margin percentage)-We generally express changes in segment operating income in terms of volume, net changes in EAC adjustments or changes in contract mix and other program performance...

  • Page 58
    ... 4,918 4,830 3,472 (2,029) $ 25,150 Operating Income (In millions) 2012 2011 2010 Integrated Defense Systems Intelligence and Information Systems Missile Systems Network Centric Systems Space and Airborne Systems Technical Services FAS/CAS Adjustment Corporate and Eliminations Total $ 918 247...

  • Page 59
    ... and the impact is determinable. Funded Backlog Backlog at December 31 (In millions) 2012 2011 2010 2012 Total Backlog 2011 2010 Integrated Defense Systems Intelligence and Information Systems Missile Systems Network Centric Systems Space and Airborne Systems Technical Services Total $ 7,313 1,067...

  • Page 60
    ...the technology, development and production of sensors and mission systems. IDS provides solutions to the U.S. Department of Defense (DoD), its services and agencies, and numerous international customers which represent approximately half of IDS' business. Total Net Sales-Total net sales in 2012 were...

  • Page 61
    ... technical and logistics support for a Hawk and Patriot air and missile defense program for an international customer, $293 million on an Early Warning Surveillance Radar System (EWSRS) support program for Taiwan, $240 million to provide engineering services, production and support for the Aegis...

  • Page 62
    ... on the Air & Missile Defense Radar (AMDR) program for the U.S. Navy. Intelligence and Information Systems % Change 2012 compared to 2011 2011 compared to 2010 (In millions, except percentages) 2012 2011 2010 $ 3,012 Total Net Sales Total Operating Expenses 1,264 Cost of sales-labor 1,078 Cost...

  • Page 63
    ... System Advanced Control Segment (GPS-OCX) and JPSS programs. Backlog at December 31, 2011 was relatively consistent with December 31, 2010. Bookings decreased by $461 million in 2012 compared to 2011. In 2012, IIS booked $172 million on a contract to provide ISR support to the U.S. Air Force. IIS...

  • Page 64
    ... production efforts. Total Operating Expenses-Total operating expenses in 2012 were relatively consistent with 2011. The increase in labor costs of $94 million was primarily due to labor volume on the SM-3 program as a result of higher scheduled production rates. The increase in other cost of sales...

  • Page 65
    ... programs described above in Total Net Sales. Included in EAC adjustments in 2011 was a $21 million favorable contract resolution. Included in contract mix and other performance in 2011 was a $15 million negative adjustment related to a contract settlement. The increase in operating margin in 2011...

  • Page 66
    ...of the network through communications, sensors, and command and control systems, to develop and produce customer solutions for land combat modernization, international and domestic Air Traffic Management (ATM) and other transportation systems, military and civil communications, and homeland security...

  • Page 67
    ... systems, and reduced sales on U.S. Army and other production programs. Included in the change in mix and other performance are $17 million of costs related to ending a supplier agreement and $14 million for inventory valuation allowances. The decrease in operating margin in 2012 compared to 2011...

  • Page 68
    Technology Integration (HTI) forward-looking infrared kits for the U.S. Army, $104 million on the NMT program for the U.S. Navy and $96 million for Improved Thermal Sight Systems (ITSS) for an international customer. Space and Airborne Systems % Change 2012 compared to 2011 2011 compared to 2010 (...

  • Page 69
    ...$713 million in 2012 compared to 2011. In 2012, SAS booked $617 million on radar contracts for international customers, $205 million to provide Multi-Spectral Targeting Systems (MTS) for unmanned aerial vehicles to the U.S. Air Force, $77 million for the production of radar warning receivers for the...

  • Page 70
    ...of technical and professional services to defense, federal, international and commercial customers worldwide. It specializes in training, logistics, engineering services and solutions, product and operational support services for the mission support, homeland security, space, civil aviation, counter...

  • Page 71
    ... training programs in support of the Warfighter FOCUS activities and $246 million for work on the Air Traffic Control Optimum Training Solution (ATCOTS) contract to maintain and improve air traffic control (ATC) training and support the FAA in meeting the current and future ATC demands. Bookings...

  • Page 72
    ... 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 2012 census data. After 2013, the FAS/CAS Pension Adjustment is more difficult to predict because future FAS and CAS expense is based on a number of...

  • Page 73
    ... Raytheon Aircraft Company (Raytheon Aircraft). At December 31, 2012 and December 31, 2011, we had $36 million and $44 million, respectively, of liabilities primarily related to non-income tax obligations, certain environmental and product liabilities, various contract obligations and aircraft lease...

  • Page 74
    ... funding for growing our business, including working capital, capital expenditures, acquisitions and research and development; prudently managing our balance sheet, including debt repayments and pension contributions; and returning cash to our stockholders, including dividend payments and share...

  • Page 75
    ... based on actual asset performance and future interest rates. Pension assets and liabilities are valued annually at December 31 for purposes of determining funded status and future year for FAS expense, CAS expense and cash funding requirements. The STE Act does not change the calculation of our FAS...

  • Page 76
    ... of cash acquired were as follows: (In millions) 2012 2011 2010 Payments for purchases of acquired companies, net of cash acquired $ 301 $ 645 $ 152 In December 2012, we acquired the Government Solutions business of SafeNet, Inc., subsequently renamed Raytheon Secure Information Systems, LLC...

  • Page 77
    ... from combining operations and the value of the existing workforce, and $28 million of intangible assets, primarily related to technology, trade names and customer relationships with a weighted-average life of five years. Financing Activities (In millions) 2012 2011 2010 Net cash provided by...

  • Page 78
    ...the Raytheon 2010 Stock Plan. Under the plan, we may grant restricted stock awards, restricted stock units, stock grants, stock options and stock appreciation rights. Cash Dividends-Our Board of Directors authorized the following cash dividends: (In millions, except per share amounts) 2012 2011 2010...

  • Page 79
    ...: Short-Term Rating Agency Debt Rating Long-Term Senior Debt Rating Outlook Date of Last Action Fitch Moody's S&P F2 P-2 A-2 AA3 A- Stable Stable Stable September 2008 October 2011 September 2008 Shelf Registrations-We have an effective shelf registration with the SEC, filed in January 2013...

  • Page 80
    ... at December 31, 2011, related to our Thales-Raytheon Systems Co. Ltd. (TRS) joint venture. We provide these guarantees and letters of credit to TRS and other affiliates to assist these entities in obtaining financing on more favorable terms, making bids on contracts and performing their contractual...

  • Page 81
    ...compliance with applicable rules and regulations. Agencies that oversee contract performance include: the Defense Contract Audit Agency, the Defense Contract Management Agency, the Inspector General of the Department of Defense and other departments and agencies, the Government Accountability Office...

  • Page 82
    ...of credit. We therefore recorded $80 million of costs related to the UKBA drawdown (UKBA LOC Adjustment), which is included in the operating expenses of our Intelligence and Information Systems (IIS) segment in the first quarter of 2011. In June 2011, RSL submitted in the arbitration its defenses to...

  • Page 83
    ...results of operations or liquidity. In addition, various other claims and legal proceedings generally incidental to the normal course of business are ... result from these matters. ACCOUNTING STANDARDS New pronouncements issued but not effective until after December 31, 2012, are not expected to ...

  • Page 84
    ... tables provide information as of December 31, 2012 and December 31, 2011 about our market risk exposure associated with changing interest rates. For long-term debt obligations, the table presents principal cash flows by maturity date and average interest rates related to outstanding obligations...

  • Page 85
    ...information included in this Annual Report. To meet this responsibility, we maintain a system of internal control over financial reporting to provide reasonable assurance that assets are safeguarded and that transactions are properly executed and recorded. The system includes policies and procedures...

  • Page 86
    ... statements and on the Company's internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain...

  • Page 87
    ... 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, par value, $0.01 per share...

  • Page 88
    ... COMPANY CONSOLIDATED STATEMENTS OF OPERATIONS (In millions, except per share amounts) Years Ended December 31: 2012 2011 2010 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 89
    ...Years Ended December 31: 2012 2011 2010 $ 1,900 Net income Other comprehensive income (loss), before tax: 35 Foreign exchange translation 13 Cash flow hedges and interest rate locks (6) Unrealized gains (losses) on investments and other, net Pension and other employee benefit plans: 1 Net change in...

  • Page 90
    ... stock plans activity Warrants exercised Share repurchases Balance at December 31, 2011 Net income Other comprehensive income (loss) Dividends declared Distributions and other activity related to noncontrolling interests Common stock plans activity Share repurchases Balance at December 31, 2012...

  • Page 91
    ... current assets Accounts payable Income taxes receivable/payable Accrued employee compensation Other accrued expenses Other long-term liabilities Pension and other postretirement benefit plans Other, net Net cash provided by (used in) operating activities from continuing operations Net cash provided...

  • Page 92
    .... Revenue Recognition-We use the percentage-of-completion accounting method to 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...

  • Page 93
    ... for as contract costs as the work is performed and included in contracts in process, net in our consolidated balance sheets. Bid and proposal costs were between 40% and 50% of total research and development expenses in 2012, 2011 and 2010. Federal, Foreign and State Income Taxes-The Company and its...

  • Page 94
    ... on fixed price service contracts at December 31, 2012 and December 31, 2011. Pension and other postretirement benefits costs are allocated to our contracts as allowed costs based on the U.S. Government cost accounting standards (CAS). The CAS requirements for pension and other postretirement...

  • Page 95
    ...are allocable to our contracts in overhead as we generally can 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...

  • Page 96
    ... Ended December 31, 2011 Tax (Expense) Benefit Net-of-Tax Amount Foreign exchange translation Cash flow hedges and interest rate locks Unrealized gain (loss) on investments, and other, net Pension and other employee benefit plans: Net change in initial net obligation Prior service (cost) credit...

  • Page 97
    ... at the average exchange rate during the period. Foreign exchange transaction gains and losses in 2012, 2011 and 2010 were not material. Treasury Stock-During 2012, our Board of Directors authorized the retirement of all outstanding treasury shares directly held by the Company. As a result, all...

  • Page 98
    ... ended December 31, 2012 and 2011. We designate most foreign currency forward contracts as cash flow hedges of forecasted purchases and sales denominated in foreign currencies, and interest rate swaps as fair value hedges of our fixed-rate financing obligations. We classify the cash flows from these...

  • Page 99
    ... rights to dividends or dividend equivalents, whether paid or unpaid, in the number of shares outstanding in our basic and diluted EPS calculations. As a result, we have included all of our outstanding unvested restricted stock and Long-Term Performance Plan (LTPP) awards that meet the retirement...

  • Page 100
    ... in certain businesses that meet strategic and financial criteria. In December 2012, we acquired the Government Solutions business of SafeNet, Inc., subsequently renamed Raytheon Secure Information Systems, LLC (RSIS) for approximately $280 million in cash, net of cash acquired and exclusive...

  • Page 101
    ... Defense Systems Intelligence and Information Systems Network Centric Systems Space and Airborne Systems (In millions) Missile Systems Technical Services Total Balance at December 31, 2010 $ Increase for acquisitions Effect of foreign exchange rates and other Balance at December 31, 2011...

  • Page 102
    ... operations, including interest, primarily related to our previous disposition of Raytheon Engineers and Constructors (RE&C). Note 5: Contracts in Process, Net Contracts in process, net consisted of the following at December 31: Cost-Type (In millions) 2012 2011 Fixed-Price 2012 2011 Total 2012 2011...

  • Page 103
    ...7 87 In 2001, we formed the TRS joint venture. TRS is a system of systems integrator and provides fully customized solutions through the integration of command and control centers, radars, and communication networks. We record our share of the TRS income or loss and other comprehensive income (loss...

  • Page 104
    ...) related to foreign currency forward contracts not designated as cash flow hedges were not material at December 31, 2012 and 2011. There were no interest rate swaps outstanding for the years ended December 31, 2012 and 2011. In December 2012, we issued $1.1 billion of fixed rate long-term debt...

  • Page 105
    ... value on a recurring basis consisted of the following at December 31: 2012 (in millions) Level 1 Level 2 (A) Level 3 Total Assets Marketable securities held in trust Short-term investments Foreign currency forward contracts Liabilities Deferred compensation Foreign currency forward contracts 2011...

  • Page 106
    ... fixed rate long-term debt. We may enter into interest rate swap agreements with commercial and investment banks to manage interest rates associated with our financing arrangements. The adjustments to the principal amounts of long-term debt were as follows at December 31: (In millions) 2012 2011...

  • Page 107
    ...December 31, 2012, we had commitments under agreements to outsource a portion of our information technology function, which have no minimum annual payments. Environmental Matters-We are involved in various stages of investigation and cleanup related to remediation of various environmental sites. Our...

  • Page 108
    ...) program being performed by Network Centric Systems. Loan repayments by the Brazilian Government were current at December 31, 2012. We have entered into industrial cooperation agreements, sometimes referred to as offset agreements, as a condition to obtaining orders for our products and services...

  • Page 109
    ... Agency, the Defense Contract Management Agency, the Inspector General of the Department of Defense and other departments and agencies, the Government Accountability Office, the Department of Justice and Congressional Committees. From time to time, these and other agencies investigate or conduct...

  • Page 110
    ... in conjunction with certain product sales for which we recognize revenue upon delivery. Activity related to product warranty accruals was as follows: (In millions) 2012 2011 2010 Beginning balance Provisions for warranties Warranty services provided Ending balance $ $ 38 5 (10) 33 $ $ 43...

  • Page 111
    ... is integral in determining the price of the related long-term contracts. The table above excludes these costs. Note 12: Stockholders' Equity The changes in shares of our common stock outstanding were as follows: (In millions) 2012 2011 2010 Beginning balance Warrants exercised Stock plans activity...

  • Page 112
    ... of diluted EPS: (In millions) 2012 2011 2010 Stock options included in the calculation of EPS (dilutive) 0.9 4.4 6.5 Our Board of Directors is authorized to issue up to 200 million shares of preferred stock, $0.01 par value per share, in multiple series with terms as determined by them. There...

  • Page 113
    ... stock units and stock appreciation rights to our employees, officers, nonemployee directors and consultants. Awards of restricted stock, restricted stock units and stock appreciation rights generally are made by the Management Development and Compensation Committee of our Board of Directors...

  • Page 114
    ...broad-based equity compensation from stock options to restricted stock. There have been no stock options granted since 2005. Stock option activity was as follows: WeightedAverage Remaining Contractual Term (in years) Shares (in thousands) WeightedAverage Option Price Aggregate Intrinsic Value (in...

  • Page 115
    ... plan, respectively. At December 31, 2012 and December 31, 2011, $1.0 billion and $1.1 billion of these amounts were invested in our stock fund, respectively. We also maintain additional contractual pension benefits agreements for certain of our executive officers. The liability associated...

  • Page 116
    ...Retirement Plan Summary Financial Information The tables below outline the components of net periodic benefit cost and related actuarial assumptions of our domestic and foreign Pension Benefits and Other Benefits plans. Components of Net Periodic Benefit Cost (In millions) 2012 Pension Benefits 2011...

  • Page 117
    ... FINANCIAL STATEMENTS (CONTINUED) Funded Status - Amounts Recognized on our Balance Sheets (In millions) December 31: Pension Benefits 2012 2011 Other Benefits 2012 2011 Noncurrent assets Current liabilities Noncurrent liabilities Net amount recognized on our balance sheets $ - (69) (7,138...

  • Page 118
    ..., plan assets, funded status and related actuarial assumptions of our domestic and foreign Pension Benefits and Other Benefits plans. Change in Projected Benefit Obligation (In millions) Pension Benefits 2012 2011 Other Benefits 2012 2011 Projected benefit obligation at beginning of year Service...

  • Page 119
    ... Assumptions 5.00% 8.68% 2% -7% 4.40% 5.73% 8.68% 2% -7% 4.50% Other Benefits 6.23% 8.68% 2% -7% 4.51% 2012 2011 2010 Discount rate Expected long-term rate of return on plan assets Rate of compensation increase Range Average Health care trend rate in the next year Gradually declining to an...

  • Page 120
    ...The selection of investment managers is done with careful evaluation of all aspects of performance and risk, due diligence of internal operations and controls, reputation, systems evaluation and a review of investment managers' policies and processes. The Plan also utilizes funds that track an index...

  • Page 121
    ...relationships between securities which are generally recognized by institutional traders. Investments in private equity funds and private real estate funds are estimated at fair market value which primarily utilizes net asset values reported by the investment manager or fund administrator. We review...

  • Page 122
    ... Accounting Policies) at December 31, 2012 and December 31, 2011 were as follows: Fair Value Measurements at December 31, 2012 (In millions) Total Level 1 Level 2 Level 3 U.S. equities All capitalization(1) International equities Developed markets(1) Emerging markets(1) Fixed-income securities...

  • Page 123
    ... return opportunities created by special situations and corporate events tied to corporate merger and acquisition activity, restructuring, bankruptcy or financial distress. (11) Equity hedge fund strategies invest in global public equity securities, equity related options and derivatives and employ...

  • Page 124
    ..., 2011 Actual return on plan assets(1) Purchases, issuances, settlements Transfers in and/or out of Level 3 Ending Balance at Dec 31, 2012 (In millions) Fixed-income securities Fixed-income hedge funds Other funds Absolute return funds Relative value Event driven Equity hedge Macro Private equity...

  • Page 125
    ... consist primarily of publicly-traded equity securities and publicly-traded fixed-income securities. VEBA Trust Asset Information Asset category Percent of Plan Assets at Dec 31: 2012 2011 Fixed-income securities U.S. equities International equities Cash and cash equivalents Total Note 15: Income...

  • Page 126
    ... IRS Revenue Agent's report for the 2009 and 2010 cycles in the first quarter of 2013. The IRS selected us to participate in the Compliance Assurance Process (CAP) program for 2011-2013. We are also under audit by multiple state and foreign tax authorities. Domestic income from continuing operations...

  • Page 127
    ... to our contracts in administrative and selling expenses. Deferred income taxes consisted of the following at December 31: (In millions) 2012 2011 Current deferred tax assets (liabilities) Other accrued expenses and reserves Accrued employee compensation and benefits Contracts in process and...

  • Page 128
    ... spectrum of airborne and ballistic missile threats and is a world leader in the technology, development and production of sensors and mission systems. IIS is a leader in global intelligence, surveillance and reconnaissance (ISR), advanced cyber solutions, and DoD space, weather and environmental...

  • Page 129
    ... TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Intersegment Sales (in millions) 2012 2011 2010 Integrated Defense Systems Intelligence and Information Systems Missile Systems Network Centric Systems Space and Airborne Systems Technical Services Total Operating Income (in millions) $ 79 13 37...

  • Page 130
    ... 60 455 $ $ 78 47 55 84 109 16 55 444 2012 $ $ 75 45 53 85 84 16 56 414 2011 Integrated Defense Systems Intelligence and Information Systems Missile Systems Network Centric Systems Space and Airborne Systems Technical Services Corporate Total $ 1,983 2,396 5,293 4,514 4,781 1,363 6,356 $ 26...

  • Page 131
    ...net sales Gross margin Income from continuing operations Net income attributable to Raytheon Company EPS from continuing operations attributable to Raytheon Company common stockholders(1) Basic Diluted EPS attributable to Raytheon Company common stockholders(1) Basic Diluted Cash dividends per share...

  • Page 132
    ...impact of the adjustment reduced IIS operating income by $80 million. During the third quarter of 2011, we received final approval from the IRS and the U.S. Congressional Joint Committee on Taxation of the 2011 Tax Settlement. As a result, our unrecognized tax benefits decreased by approximately $60...

  • Page 133
    ... 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 2013 Annual Meeting of...

  • Page 134
    ... under our executive compensation plans is contained in Part II, Item 5 of this Annual Report on Form 10-K. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE This information is contained in our definitive proxy statement for the 2013 Annual Meeting of Stockholders...

  • Page 135
    ... 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 136
    .... Raytheon Company 1997 Nonemployee Directors Restricted Stock Plan, as amended on September 21, 2005, filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended September 25, 2005, is hereby incorporated by reference. Raytheon Company Deferral Plan for Directors, filed...

  • Page 137
    .... Form of Change in Control Severance Agreement between the Company and certain executive officers (providing for benefits in the event of a qualified termination upon a change in control of three times base salary and bonus), filed as an exhibit to the Company's Annual Report on Form 10-K for...

  • Page 138
    ... by reference. Summary of Non-Employee Director Compensation, filed as an exhibit to the Company's Current Report on Form 8-K filed November 1, 2005, is hereby incorporated by reference. Guarantee Agreement, dated as of May 9, 2001, between Raytheon Company and The Bank of New York as initial...

  • Page 139
    ... 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 140
    ... 906 of the Sarbanes-Oxley Act of 2002.** The following materials from Raytheon Company's Annual Report on Form 10-K for the year ended December 31, 2012, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii...

  • Page 141
    ... behalf by the undersigned, thereunto duly authorized. RAYTHEON COMPANY /s/ Michael J. Wood Michael J. Wood Vice President, Controller and Chief Accounting Officer Dated: February 13, 2013 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the...

  • Page 142
    ... Relations Security analysts, shareholders and investment professionals with other inquiries regarding Raytheon Company should contact: Todd Ernst, vice president, Investor Relations, Raytheon Company, 870 Winter Street, Waltham, MA 02451, at 877.786.7070. Media Relations Members of the news media...

  • Page 143
    ... Contracts and Supply Chain Raytheon Company RICHARD R. YUSE President Space and Airborne Systems * Effective April 1, 2013, Mr. Crowley was elected President, Integrated Defense Systems; Ms. Dugle was elected President, Intelligence, Information and Services; Mr. Harris was elected General Manager...

  • Page 144
    ... Connect with us: Raytheon Company 870 Winter Street Waltham, Massachusetts 02451-1449 USA www.raytheon.com Raytheon, Customer Success is our Mission, NoDoubt, MathMovesU and SM-3 are registered trademarks of Raytheon Company. Patriot and SM-6 are trademarks of Raytheon Company. FA/18 Superhornet...