Raytheon 2013 Annual Report Download

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RAYTHEON 2013 ANNUAL REPORT

Table of contents

  • Page 1
    R A Y T H E O N 2 0 1 3 A N N U A L R E P O R T

  • Page 2
    ..., except per share amounts 2011 2012 2013 Net Sales Adjusted Income Adjusted EPS 1 1 $24,791 2,067 5.85 5.22 2,102 1.72 $24,414 2,099 6.28 5.65 1,951 2.00 $23,706 2,069 6.38 5.96 2,382 2.20 EPS from Continuing Operations Operating Cash Flow from Continuing Operations Dividends Declared per...

  • Page 3
    ...the full-year 2012. In 2013, our adjusted earnings per share was $6.38. We had strong operating cash ï¬,ow from continuing operations of $2.4 billion. We generated net sales of $23.7 billion and bookings of $22.1 billion. We ended 2013 with a backlog of $33.7 billion, a funded backlog of $23 billion...

  • Page 4
    ... our wins on the U.S. Navy's new Air and Missile Defense Radar (AMDR) and its Next Generation Jammer (NGJ) - important development programs that Transportable Radar Surveillance Model 2 (AN/TPY-2) ballistic missile defense radar to the Missile Defense Agency and were awarded a contract worth...

  • Page 5
    ... provider of protected Advanced Extremely High Frequency satellite terminals for secure communications by winning a $134 million Air Force program to develop the Global Aircrew Strategic Network Terminal. CYBER: The cyber domain continues to be a dynamic one, solutions to Raytheon's businesses and...

  • Page 6
    ... upon the solid foundation of Raytheon's Vision, Strategy, Goals and Values, our culture aligns our world-class people to operate together as one company around the VISION S T R AT E G Y GOALS VA L U E S As we look across the company, our performance remains solid, our strategy continues to...

  • Page 7
    2013 FOR M 10- K

  • Page 8

  • Page 9
    ...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) (Zip Code...

  • Page 10
    ... with Accountants on Accounting and Financial Disclosure ...Controls and Procedures...Other Information... 25 27 28 70 72 119 119 119 Directors, Executive Officers and Corporate Governance...Executive Compensation...Security Ownership of Certain Beneficial Owners and Management and Related...

  • Page 11
    ... leader specializing in defense and other government markets throughout the world. We develop technologically advanced, integrated products, services and solutions in four core defense markets: sensing; effects; command, control, communications and intelligence (C3I); and mission support, as...

  • Page 12
    ...Air Force's Global Positioning System Next Generation Operational Control System (GPS OCX). IIS continued to focus on growing its classified business, receiving a number of significant classified contract awards. Also in 2013, Raytheon acquired Visual Analytics Incorporated, a privately-held company...

  • Page 13
    ... with its core business needs. Using systems engineering practices, GTS applies commercial solutions, processes, tools and training experts to make its training programs available anytime, anywhere to domestic and international commercial customers through its Raytheon Professional Services group...

  • Page 14
    ... integrated system solutions for combat vehicle upgrade programs, including the U.S. Marine Corps Light Armored Vehicle Anti-Tank (LAV-AT) modernization program. Advanced Missile Systems (AMS)-AMS focuses on the development and early introduction of next-generation, end-to-end system solutions that...

  • Page 15
    ... 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 applications, lasers, precision guidance systems, signals intelligence systems...

  • Page 16
    ... 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 Regulation (FAR), which sets forth policies...

  • Page 17
    ... contracts, cost structure and compliance with applicable laws, regulations and standards. 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...

  • Page 18
    ... engaged in supplying technologically-advanced, cutting edge defense-related products and services to the U.S. Government, we are subject to certain business risks, some of which are specific to our industry. These risks include: the cost of obtaining and retaining trained and skilled employees; the...

  • Page 19
    ... the U.S. Government. 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 Policies" within Item...

  • Page 20
    ... 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 21
    ... 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 02451, or by...

  • Page 22
    ... 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 23
    ... impact our results of operations, financial condition or liquidity. 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...

  • Page 24
    ... of operations, financial condition or liquidity. Our international sales are also subject to local government laws, regulations, and procurement policies and practices which may differ from U.S. Government regulations. These include regulations relating to import-export control, technology transfer...

  • Page 25
    ..., for information technology and other support work. If we are unable to continue to compete successfully against our current or future competitors, we may experience declines in revenues and market share which could negatively impact our results of operations, financial condition or liquidity...

  • Page 26
    ...'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 27
    ...acquisitions or investments, the diversion of our attention and resources from our operations and other initiatives, the potential impairment of acquired assets and liabilities, the performance of underlying products, capabilities or technologies and the potential loss of key employees and customers...

  • Page 28
    ... information technology 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...

  • Page 29
    ... the specialized nature 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...

  • Page 30
    ...a number of plants, laboratories, warehouses and office facilities in the U.S. and abroad. As of December 31, 2013 we owned, leased and/or utilized (through operating agreements) approximately 28.5 million square feet of floor space for manufacturing, engineering, research, administration, sales and...

  • Page 31
    ...Waltham, MA; Garland, TX; Greenville, TX; Plano, TX; Arlington, VA and Dulles, VA. A summary of the space owned, leased and/or utilized by us as of December 31, 2013, by business segment is as follows: Leased Owned(1) Government Owned(2) Total(3) Integrated Defense Systems Intelligence, Information...

  • Page 32
    ... Corporation, a global security and information technology company. From June 2010 to November 2010, Mr. Crowley served as chief operating officer of Lockheed Martin Corporation's Aeronautics business unit and from May 2005 to June 2010, he served as executive vice president and general manager of...

  • Page 33
    ... technology, media and financial services company, and General Electric Capital Corporation where his last position was Senior Vice President-Corporate Finance. Age 62. Thomas A. Kennedy Dr. Kennedy has served as Executive Vice President of Raytheon Company and Chief Operating Officer since...

  • Page 34
    ... 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 former Technical Services (TS) business unit. From March 2007 to May 2007, Mr. Yuse was Vice President and Deputy General Manager of...

  • Page 35
    PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES At February 10, 2014, there were 27,539 record holders of our common stock. Our common stock is traded on the New York Stock Exchange under the symbol "RTN". For information ...

  • Page 36
    .../31/2012 12/31/2013 Raytheon Common Stock S&P 500 Index S&P Aerospace & Defense Index 100 100 100 103.62 126.46 124.64 95.33 145.51 143.47 104.05 148.59 151.04 128.28 172.37 173.04 208.23 228.19 268.07 Issuer Purchases of Equity Securities Total Number of Shares Purchased as Part of Publicly...

  • Page 37
    ...the factors that may affect the comparability of the financial data presented below. FIVE-YEAR STATISTICAL SUMMARY (In millions, except per share amounts and total employees) Results of Operations 2013 2012 2011 2010 2009 Total net sales Operating income Interest expense, net Income from continuing...

  • Page 38
    ... 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, as well as other important markets, such as cyber and information security...

  • Page 39
    ... actions on U.S. Government spending and future DoD budgets on our programs are unknown at this time, and we are unable to specifically predict the effect any of the foregoing would have on our future financial performance and outlook. The impact of sequestration on our 2013 total net sales was less...

  • Page 40
    ... aligned with our product offerings, technologies, services and capabilities. With respect to other domestic customers beyond the DoD, we have contracts with a wide range of U.S. Government agencies, including the Department of Justice (DoJ), the Department of State, the Department of Energy, the...

  • Page 41
    ...and grow our position in our core markets: sensing, effects, C3I, mission support and cyber; - Leverage our domain knowledge in air, land, sea, space and cyber for all markets; - Extend core capabilities to relevant new markets and customers; - Expand global business by building on our relationships...

  • Page 42
    ... and execution at each step in a program's life-cycle; Product Data Management (PDM), which is our business system software for engineering; Achieving Process Excellence (APEX), which is our SAP business system software for accounting, finance and program management; Process Re-Invention Integrating...

  • Page 43
    ... program execution and the prudent management of capital and investments in order to maximize operating income and cash. We pursue a capital deployment strategy that balances funding for growing our business, including working capital, capital expenditures, acquisitions and research and development...

  • Page 44
    .... Incentive and award fees generally are awarded at the discretion of the customer or upon achievement of certain program milestones or cost targets. Incentive and award fees, as well as penalties related to contract performance, are considered in estimating profit rates. Estimates of award fees are...

  • Page 45
    ... for each deliverable based on the revenue recognition policies described 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...

  • Page 46
    ... for financial reporting purposes, which is not indicative of the funding requirements for pension and PRB plans that we determine under the Employee Retirement Income Security Act of 1974 (ERISA). CAS prescribes the allocation to and recovery of pension and PRB costs on U.S. Government contracts...

  • Page 47
    ... market expectations, it does provide insight into general historical trends and longterm asset performance. In validating the 2013 long-term ROA assumption, we reviewed our pension plan asset performance since 1986. Our average annual actual rate of return since 1986 of 9.29%, determined on an...

  • Page 48
    ... equities International equities Fixed-income securities Cash and cash equivalents Private equity and private real estate Other (including absolute return funds) 40% - 60% 25% - 40% 15% - 25% 25% - 40% 1% - 10% 3% - 8% 5% - 20% Our long-term ROA assumptions for foreign Pension Benefits plans are...

  • Page 49
    ... 2013 would drive a change in estimated costs in EACs and related contract profit rates as of December 31, 2012). The contract impact resulting from the change in CAS pension expense is difficult to estimate because remaining performance periods can vary, the amount and timing of expected new awards...

  • Page 50
    ... primarily utilizes net asset values reported by the investment manager or fund administrator. We review independently appraised values, audited financial statements and additional pricing information to evaluate the net asset values. For the very limited group of securities and other assets for...

  • Page 51
    ... on training programs supporting the U.S. Army's Warfighter FOCUS activities due to a decrease in customer determined activity levels, and lower net sales on the National Science Foundation (NSF) Polar program, which was completed in the first quarter of 2012. Products and Services Net Sales - 2013...

  • Page 52
    ... conditions. Total Cost of Sales Cost of sales, for both products and services, consists of labor, materials and subcontractors 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 indirect...

  • Page 53
    ... and selling expenses of $47 million, $27 million of lower acquisition-related costs for Raytheon Applied Signal Technology, Inc. (RAST), and a $15 million increase in insurance recovery, net of legal and period expenses, in connection with the UKBA Program dispute and arbitration at IIS. 43

  • Page 54
    ... products and services to the U.S. Government. Net state income taxes allocated to our contracts were $42 million, $78 million and $16 million in 2013, 2012, and 2011, respectively. Research and development expenses in 2013 were relatively consistent in amount and as a percentage of total net sales...

  • Page 55
    ... tax expense, differs from the U.S. statutory rate due to the following: 2013 2012 2011 Statutory tax rate Research and development tax credit Tax settlements and refund claims Domestic manufacturing deduction benefit Other items, net Effective tax rate 35.0% (1.8) (0.8) (2.1) (1.0) 29.3% 35...

  • Page 56
    ... in 2012 compared to 2011 was primarily due to the $159 million increase in operating income, described above in Operating Income, partially offset by the $96 million increase in federal and foreign income taxes, related primarily to higher levels of income and the change in the effective tax rate...

  • Page 57
    .... Adjusted EPS Adjusted EPS was as follows: 2013 2012 2011 Diluted EPS from continuing operations attributable to Raytheon Company common stockholders EPS impact of the FAS/CAS Adjustment Per share impact of 2012 R&D tax credit EPS impact of the early retirement of debt charges EPS impact of UKBA...

  • Page 58
    ...IDS; IIS; MS; and SAS. 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 percentage), which we disclose and discuss at the segment level...

  • Page 59
    ... understanding of the awarded but not executed portions of our contracts. Funded Backlog Backlog at December 31 (In millions) 2013 2012 2011 2013 Total Backlog 2012 2011 Integrated Defense Systems Intelligence, Information and Services Missile Systems Space and Airborne Systems Total $ 9,397 2,592...

  • Page 60
    ... or deteriorated operating performance or award fee rates. We have a Companywide standard and disciplined quarterly EAC process in which management reviews the progress and performance of our contracts. As part of this process, management reviews information including, but not limited to, any...

  • Page 61
    ... related changes, materially driving a segment's change in operating income or operating margin percentage. Operating income by segment was as follows: Operating Income (In millions) 2013 2012 2011 Integrated Defense Systems Intelligence, Information and Services Missile Systems Space and Airborne...

  • Page 62
    ... Air Traffic Management (ATM) systems. IDS delivers combat-proven performance against the complete spectrum of airborne and ballistic missile threats and is a world leader in the technology, development, and production of sensors and mission systems. IDS provides solutions to the U.S. Department of...

  • Page 63
    ...awards and lower bookings on a close combat tactical radar program due to the completion of the program. In 2013, IDS booked $1,277 million on a ground based air defense system for Oman. IDS also booked $393 million for the Engineering and Manufacturing Development (EMD) phase of the Air and Missile...

  • Page 64
    ... professional services to intelligence, defense, federal and commercial customers worldwide. IIS specializes in global Intelligence, Surveillance and Reconnaissance (ISR), navigation, DoD space and weather solutions, cybersecurity, analytics, training, logistics, mission support, and engineering and...

  • Page 65
    ... in the specifically disclosed bookings below. In 2012, IIS booked $900 million on domestic training programs and $394 million on foreign training programs in support of the Warfighter FOCUS activities, $246 million for work on the Air Traffic Control Optimum Training Solution (ATCOTS) contract to...

  • Page 66
    ...addition, IIS booked $1,610 million on a number of classified contracts. Missile Systems % Change 2013 compared to 2012 2012 compared to 2011 (In millions, except percentages) 2013 2012 2011 $ 6,599 Total Net Sales Total Operating Expenses 2,008 Cost of sales-labor 2,732 Cost of sales-materials...

  • Page 67
    ... lower production rates. The lower net sales were partially offset by higher net sales of $170 million on the Standard Missile 3 (SM-3â„¢) program due to higher volume driven by scheduled increases in production and development efforts. Total Operating Expenses-Total operating expenses in 2013 were...

  • Page 68
    ... 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 applications, lasers, precision guidance systems, signals intelligence systems...

  • Page 69
    ... to December 31, 2012 was primarily due to bookings in excess of sales, principally within our Tactical Airborne Systems product line. Backlog at December 31, 2012 was relatively consistent with December 31, 2011. The bookings decrease of $611 million in 2013 compared to 2012 was driven primarily by...

  • Page 70
    ... Government cost accounting standards (CAS). The results of each segment only include pension and PRB expense under CAS that we generally recover through the pricing of our products and services to the U.S. Government. The components of the FAS/CAS Adjustment were as follows: (In millions) 2013 2012...

  • Page 71
    ...$7 million, respectively, of assets primarily related to the receivable associated with the Flight Options excise tax settlement, and our retained interest in general aviation finance receivables previously sold by Raytheon Aircraft. At December 31, 2013 and December 31, 2012, we had $16 million and...

  • Page 72
    ... strategy that balances 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...

  • Page 73
    ... differences in requirements and calculation methodologies, our FAS pension expense or income is not indicative of the funding requirement or amount of government recovery. Other postretirement benefit payments were $22 million, $19 million and $18 million in 2013, 2012 and 2011, respectively. Tax...

  • Page 74
    ... management incentive payments. RAST provides advanced intelligence, surveillance and reconnaissance (ISR) solutions to enhance global security. The acquisition is part of our strategy to extend and enhance our Space and Airborne Systems (SAS) offerings related to certain classified and Department...

  • Page 75
    ... 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) 2013 2012 2011 Cash dividends...

  • Page 76
    .... Factors that affect our global capital deployment strategy include anticipated cash flows, the ability to repatriate cash in a tax efficient manner, funding requirements for operations and investment activities, acquisitions and divestitures, and capital market conditions. Credit Facilities-In...

  • Page 77
    ... binding agreements with suppliers to purchase goods or services. We enter into contracts with customers, primarily the U.S. Government, which entitle us to full recourse for costs incurred, including purchase obligations, in the event the contract is terminated by the customer for convenience...

  • Page 78
    ... 2015) to the Brazilian Government related to IDS' System for the Vigilance of the Amazon (SIVAM) program. Loan repayments by the Brazilian Government were current at December 31, 2013. We have entered into industrial cooperation agreements, sometimes referred to as offset agreements, as a condition...

  • Page 79
    ... disputes to have a material effect on our financial position, results of operations or liquidity, either individually or in the aggregate. On July 22, 2010, Raytheon Systems Limited (RSL) was notified by the UK Border Agency (UKBA) that it had been terminated for cause on a program. The termination...

  • Page 80
    ... of these costs will be recovered in our overhead rates. ACCOUNTING STANDARDS New pronouncements issued but not effective until after December 31, 2013, are not expected to have a material impact on our financial position, results of operations or liquidity. ITEM 7A. QUANTITATIVE AND QUALITATIVE...

  • Page 81
    ...of variable-rate short-term and fixed-rate longterm financing. We enter into foreign currency forward contracts with commercial banks to fix the foreign currency exchange rates on specific commitments and payments to vendors and customer receipts. We may enter into interest rate swap agreements with...

  • Page 82
    ...transactions are 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...

  • Page 83
    ... balance sheets and the related consolidated statements of operations, of comprehensive income, of equity, and of cash flows present fairly, in all material respects, the financial position of Raytheon Company and its subsidiaries at December 31, 2013 and 2012, and the results of their operations...

  • Page 84
    ... 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 10) Equity Raytheon Company stockholders' equity Common stock, par value, $0.01 per share...

  • Page 85
    RAYTHEON COMPANY CONSOLIDATED STATEMENTS OF OPERATIONS (In millions, except per share amounts) Years Ended December 31: 2013 2012 2011 Net sales Products Services Total net sales Operating expenses Cost of sales-products Cost of sales-services General and administrative expenses Total operating ...

  • Page 86
    ...: 2013 2012 2011 Net income Other comprehensive income (loss), before tax: Foreign exchange translation Cash flow hedges and interest rate locks Unrealized gains (losses) on investments and other, net Pension and other employee benefit plans, net: Net change in initial net obligation Prior service...

  • Page 87
    ...CONSOLIDATED STATEMENTS OF EQUITY Accumulated other comprehensive loss Total Raytheon Company stockholders' equity Years Ended December 31, 2013, 2012 and 2011 (in millions) Common stock Additional paid-in capital Retained earnings Noncontrolling interests in subsidiaries Total equity Balance...

  • Page 88
    ... 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 89
    ...into the following four businesses: Integrated Defense Systems (IDS); Intelligence, Information and Services (IIS); Missile Systems (MS); and Space and Airborne Systems (SAS). As used in these notes, the terms "we", "us", "our", "Raytheon" and the "Company" mean Raytheon Company and its subsidiaries...

  • Page 90
    ... million, $451 million and $450 million in 2013, 2012 and 2011, respectively. Customer-sponsored research and development projects performed under contracts are accounted for as contract costs as the work is performed and included in contracts in process, net in our consolidated balance sheets. 80

  • Page 91
    ... compensation plans, gains and losses on the early repurchase of long-term debt and certain financing fees. Cash and Cash Equivalents-Cash and cash equivalents consist of cash and highly liquid investments with original maturities of 90 days or less at the date of purchase. The estimated fair value...

  • Page 92
    ... sales expectations and salvage value. Inventories consisted of the following at December 31: (In millions) 2013 2012 Materials and purchased parts Work in process Finished goods Total $ $ 73 279 11 363 $ $ 74 291 16 381 We capitalize costs incurred in advance of contract award or funding...

  • Page 93
    ...activity during the years ended December 31, 2013, 2012 and 2011: Foreign exchange translation Cash flow hedges and interest rate locks Unrealized gains (losses) on investments and other, net Pension and other employee benefit plans, net (In millions) Total Balance at December 31, 2010 Before tax...

  • Page 94
    ... at the average exchange rate during the period. Foreign exchange transaction gains and losses in 2013, 2012 and 2011 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 95
    ..., is included in "Note 13: Pension and Other Employee Benefits" (for marketable securities held in trust), "Note 1: Summary of Significant Accounting Policies" (for short-term investments), and "Note 8: Derivative Financial Instruments" (for foreign currency forward contracts). We did not have any...

  • Page 96
    ... of a stock-based award, if any, is reflected in the consolidated statements of cash flows as a financing activity rather than an operating activity. Risks and Uncertainties-We provide a wide range of technologically advanced products, services and solutions for principally governmental customers in...

  • Page 97
    ... is as follows: Integrated Defense Systems(1) Intelligence, Information and Services(1) Space and Airborne Systems(1) (In millions) Missile Systems(1) Total Balance at December 31, 2011 Increase for acquisitions Effect of foreign exchange rates and other Balance at December 31, 2012 Increase for...

  • Page 98
    ...$7 million, respectively, of assets primarily related to the receivable associated with the Flight Options excise tax settlement, and our retained interest in general aviation finance receivables previously sold by Raytheon Aircraft. At December 31, 2013 and December 31, 2012, we had $16 million and...

  • Page 99
    .... 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) as a component of cost of sales and AOCL...

  • Page 100
    ... are Level 2 in the fair value hierarchy for 2013 and 2012 because they are determined based on a market approach utilizing externally quoted forward rates for similar contracts. We recognized the following pretax gains (losses) related to foreign currency forward contracts designated as cash flow...

  • Page 101
    ...The fair value of long-term debt was determined on quoted prices in inactive markets, which falls within Level 2 of the fair value measurement hierarchy for 2013 and 2012. In the fourth quarter of 2012, we received proceeds of $1,092 million for the issuance of $1.1 billion fixed rate long-term debt...

  • Page 102
    ...December 31, 2013, 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 103
    ... 2015) to the Brazilian Government related to IDS' System for the Vigilance of the Amazon (SIVAM) program. Loan repayments by the Brazilian Government were current at December 31, 2013. We have entered into industrial cooperation agreements, sometimes referred to as offset agreements, as a condition...

  • Page 104
    ... disputes to have a material effect on our financial position, results of operations or liquidity, either individually or in the aggregate. On July 22, 2010, Raytheon Systems Limited (RSL) was notified by the UK Border Agency (UKBA) that it had been terminated for cause on a program. The termination...

  • Page 105
    ... with several issues, the largest of which relates to specific research and development and capital projects undertaken by SAS between 2000 and 2005. To date, no COFDs have been provided for 2000 to 2003 periods at SAS on these issues. The Government alleges that the costs incurred on the projects...

  • Page 106
    ... be retired immediately upon repurchase. In March 2013, our Board of Directors authorized a 10% increase to our annual dividend payout rate from $2.00 to $2.20 per share. Our Board of Directors declared dividends of $2.20, $2.00 and $1.72 per share in 2013, 2012 and 2011, respectively. Dividends are...

  • Page 107
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Earnings Per Share (EPS) EPS from continuing operations attributable to Raytheon Company common stockholders and unvested share-based payment awards was as follows: 2013 2012 2011 Basic EPS attributable to Raytheon Company common stockholders: ...

  • Page 108
    ... awards, restricted 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...

  • Page 109
    ...The performance goals for the three outstanding performance cycles at December 31, 2013, are independent of each other and based on three metrics, as defined in the award agreements: return on invested capital (ROIC), weighted at 50%; total shareholder return (TSR) relative to a peer group, weighted...

  • Page 110
    ... health care and life insurance benefits to retired employees and to eligible employees upon retirement through other postretirement benefit plans (Other Benefits). The fair value of plan assets for our domestic and foreign Pension Benefit plans was as follows: (In millions) 2013 2012 Domestic...

  • Page 111
    ... defined contribution plans. The liabilities related to the nonqualified defined contribution plans were $300 million and $251 million at December 31, 2013 and December 31, 2012, respectively. We also maintain additional contractual pension benefits agreements for certain executive officers...

  • Page 112
    ...payments reflect our portion only. (In millions) Pension Benefits Other Benefits 2014 2015 2016 2017 2018 Thereafter (next 5 years) $ 1,568 1,606 1,600 1,590 1,523 7,980 $ 57 57 57 57 57 277 Defined Benefit Retirement Plan Summary Financial Information The tables below outline the components of...

  • Page 113
    ... TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Funded Status - Amounts Recognized on our Balance Sheets (In millions) December 31: Pension Benefits 2013 2012 Other Benefits 2013 2012 Noncurrent assets Current liabilities Noncurrent liabilities Net amount recognized on our balance sheets $ 119...

  • Page 114
    ... Benefits 2013 2012 Other Benefits 2013 2012 Fair value of plan assets at beginning of year Actual return (loss) on plan assets Company contributions Plan participants' contributions Plan settlements Foreign exchange gain (loss) Benefits paid Fair value of plan assets at end of year Retirement Plan...

  • Page 115
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Weighted-Average Net Periodic Benefit Cost Assumptions 2013 Other Benefits 2012 2011 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 ...

  • Page 116
    ... term while maintaining sufficient liquidity to pay the benefits of the Plan. Asset allocation ranges are set to produce the highest return on investment taking into account investment risks that are prudent and reasonable given prevailing market conditions. In developing the asset allocation ranges...

  • Page 117
    ... operations and controls, reputation, systems evaluation and a review of investment managers' policies and processes. The Plan also utilizes funds that track an index and are highly liquid. Investment performance is monitored frequently against appropriate benchmarks and tracked to compliance...

  • Page 118
    ... FINANCIAL STATEMENTS (CONTINUED) The fair value of our Plan assets by asset category and by level (as described in "Note 1: Summary of Significant Accounting Policies") at December 31, 2013 and December 31, 2012 were as follows: Fair Value Measurements at December 31, 2013 (In millions) Total Level...

  • Page 119
    ...operations and execute the investment policy. This amount is not considered to be part of the cash target allocation set forth in the investment policy. (9) Absolute return funds seek returns that are less volatile than long only funds under all market conditions. (10) Relative value fund strategies...

  • Page 120
    ..., 2012 Actual return on plan assets(1) Purchases, issuances, settlements Transfers in and/or out of Level 3 Ending Balance at Dec 31, 2013 (In millions) Fixed-income securities Fixed-income hedge funds Other funds Absolute return funds Relative value Event driven Equity hedge Macro Multi-strategy...

  • Page 121
    ...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 Multi-strategy Private equity...

  • Page 122
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) VEBA Trust Asset Information Asset category Percent of Plan Assets at Dec 31: 2013 2012 Fixed-income securities U.S. equities International equities Cash and cash equivalents Total Note 14: Income Taxes The provision for federal and foreign ...

  • Page 123
    ... the effective tax rate, if recognized. We generally account for our state income tax expense as a deferred contract cost, as we can generally recover this expense through the pricing of our products and services to the U.S. Government. We include this deferred amount in contracts in process, net...

  • Page 124
    ..., 2012 and 2011, respectively. Note 15: Business Segment Reporting Our reportable segments, organized based on capabilities and technologies, are: IDS; IIS; MS; and SAS. IDS is a leader in integrated air and missile defense; radar solutions; naval combat and ship electronic systems; command, control...

  • Page 125
    ... not considered part of management's evaluation of reportable segment operating performance. Segment financial results were as follows: Total Net Sales (in millions) 2013 2012 2011 Integrated Defense Systems Intelligence, Information and Services Missile Systems Space and Airborne Systems Corporate...

  • Page 126
    ... FINANCIAL STATEMENTS (CONTINUED) Intersegment Operating Income (in millions) 2013 2012 2011 Integrated Defense Systems Intelligence, Information and Services Missile Systems Space and Airborne Systems Total Capital Expenditures (in millions) $ $ 9 72 17 62 160 2013 $ $ 8 72 24 73 177 2012...

  • Page 127
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The following is a breakdown of net sales to major customers: (In millions) 2013 2012 2011 Sales to the U.S. Government(1) Sales to the U.S. Department of Defense(1) Total international sales(2) Foreign military sales through the U.S. ...

  • Page 128
    ...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 129
    ...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 2014 Annual Meeting of Stockholders...

  • Page 130
    ... February 11, 2014 on the Company's financial statements filed as a part hereof for the fiscal years ended December 31, 2013, 2012 and 2011 and on the Company's internal control over financial reporting as of December 31, 2013 is included in Part II, Item 8 of this Annual Report on Form 10K. The...

  • Page 131
    ... Company's Current Report on Form 8-K filed September 27, 2010, is hereby incorporated by reference. Indenture relating to Senior Debt Securities dated as of July 3, 1995, between Raytheon Company and The Bank of New York, Trustee, filed as an exhibit to the former Company's Registration Statement...

  • Page 132
    4.8 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 under the Indenture dated as ...

  • Page 133
    ... Directors Restricted Stock Plan, filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended June 29, 2008, is hereby incorporated by reference. Form of Change in Control Severance Agreement between the Company and certain executive officers (providing for benefits...

  • Page 134
    ... to the Company's Current Report on Form 8-K filed December 14, 2006, is hereby incorporated by reference. Summary of the Raytheon Company Long-Term Performance Plan* Stock Purchase Agreement by and among, Hawker Beechcraft Corporation, Greenbulb Limited, Raytheon Company, Raytheon Aircraft Holdings...

  • Page 135
    ... materials from Raytheon Company's Annual Report on Form 10-K for the year ended December 31, 2013, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Comprehensive Income...

  • Page 136
    ... the undersigned, thereunto duly authorized. RAYTHEON COMPANY /s/ Michael J. Wood Michael J. Wood Vice President, Controller and Chief Accounting Officer Dated: February 11, 2014 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following...

  • Page 137
    ...rate. Media Relations Members of the news media requesting information about Raytheon should contact: Pam Erickson, vice president, Corporate Public Relations, Raytheon Company, 870 Winter Street, Waltham, MA 02451, at 781.522.5822. We define Adjusted EPS as diluted EPS from continuing operations...

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  • Page 141
    ... RESOURCES AND SECURITY RAYTHEON COMPANY Richard R. Yuse PRESIDENT SPACE AND AIRBORNE SYSTEMS Thomas M. Culligan p SENIOR VICE PRESIDENT BUSINESS DEVELOPMENT, RII RAYTHEON COMPANY Rebecca R. Rhoads VICE PRESIDENT AND CHIEF INFORMATION OFFICER RAYTHEON COMPANY PRESIDENT GLOBAL BUSINESS SERVICES...

  • Page 142
    ...: Raytheon Company 870 Winter Street Waltham, Massachusetts 02451-1449 USA www.raytheon.com Raytheon, , Customer Success Is Our Mission and SM-3 are registered trademarks of Raytheon Company. F-16 is a registered trademark of Lockheed Martin Corporation. SM-6 and Patriot are trademarks of Raytheon...