Raytheon 2014 Annual Report Download

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2014 ANNUAL REPORT

Table of contents

  • Page 1
    2 0 1 4 A N N U A L R E P O R T

  • Page 2
    ... 2,064 2.42 Net Sales Operating Income EPS from Continuing Operations Adjusted Income1 Adjusted EPS1 Operating Cash Flow from Continuing Operations Dividends Declared per Share 1. Adjusted Income is income from continuing operations attributable to Raytheon Company common stockholders and Adjusted...

  • Page 3
    ... 2013, and our backlog at the end of 2014 included 40 percent international business. A case in point, we added the 13th country to the global Patriotâ„¢ family with the $2.4 billion award to provide the State of Qatar with the Patriot Air and Missile Defense System. In 2014, we had solid net sales...

  • Page 4
    ...by acquiring Blackbird Technologies-strengthening our offerings in persistent surveillance, secure mobile communications and cybersecurity solutions in intelligence and special operations markets. In the cyber market, we are winning new business and seeing significant opportunities developing both...

  • Page 5
    ... strategic sourcing plan across our supply chain. We are optimizing our global shared services and pursuing operational excellence via commercial best practices. We are reducing our footprint. The bottom line is that we are focused on driving cost savings and affordability for customers and returns...

  • Page 6
    ...commitment to shape initiatives that promote high business standards, transparency, and anti-corruption in the U.S. and internationally. We were named one of the 2014 Global Aon Hewitt Top Companies for Leaders and a 2015 Best Place to Work by the Human Rights Campaign-marking the 10th year in a row...

  • Page 7
    2 0 1 4 F O R M 1 0 - K

  • Page 8
    ... No.) 870 Winter Street, Waltham, Massachusetts 02451 (Address of Principal Executive Offices) (Zip Code) (781) 522-3000 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Title of Each Class Name of Each Exchange on Which...

  • Page 9
    ... with Accountants on Accounting and Financial Disclosure ...Controls and Procedures...Other Information... 26 28 29 73 74 121 121 121 Directors, Executive Officers and Corporate Governance...Executive Compensation...Security Ownership of Certain Beneficial Owners and Management and Related...

  • Page 10
    ... indicates another meaning. We develop technologically advanced and integrated products, services and solutions in our core markets: sensing; effects; command, control, communications and intelligence (C3I); and mission support, as well as cyber and information security. We serve both domestic...

  • Page 11
    ...NASA; operation and maintenance services for radar systems in northern Canada; and security forces training in the Middle East. IIS also received a follow-on contract award to provide field support for the U.S. Air Force's high altitude ISR and distributed common ground system mission. IIS continued...

  • Page 12
    ... full life-cycle mission operations, engineering, sustainment and modernization services for site and platform missions across all domains, as well as multi-intelligence (multi-INT) ground systems and unmanned systems technology for civil agencies and the U.S. Air Force. MSM's core services are...

  • Page 13
    ... Systems (AMS)-AMS focuses on the development and early introduction of next-generation, end-to-end system solutions that support the AWS, NAMD, AMDS and LWS product lines. AMS also pursues opportunities in directed energy and adjacent markets, including the development of force protection solutions...

  • Page 14
    ... integrated sensor solutions for tactical and strategic platforms, delivering trusted, actionable information for mission assurance. TAS provides integrated sensor systems with advanced fire control radars and processor technologies to customers including the U.S. Navy, Marine Corps, and Air Force...

  • Page 15
    ... (RA) and Raytheon Canada Limited (RCL). RSL designs, develops, manufactures and integrates a range of high technology electronic systems and software in the areas of sensing, effects, command & control, intelligence systems as well as cyber security for defense and other government customers in the...

  • Page 16
    ... 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 management and material management accounting...

  • Page 17
    ... areas of air and missile 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...

  • Page 18
    ... our existing products and services, and develop new products and services to meet our customers' changing needs and requirements, and address new market opportunities. During 2014 we expended $500 million on research and development efforts compared to $465 million and $451 million in 2013 and 2012...

  • Page 19
    ... report on Form SD in 2014 stating that we were not able to determine the country of origin of conflict minerals contained in our manufactured products. In recent years, our revenues in the second half of the year have generally exceeded revenues in the first half. The timing of new program awards...

  • 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, 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 23
    ... contractors. In addition, foreign companies may be subject to fewer restrictions on technology transfer than U.S. Government contractors. Our international contracts may include industrial cooperation agreements requiring specific in-country purchases, manufacturing agreements or financial support...

  • Page 24
    ... those related to procurement integrity, export control, U.S. Government security regulations, employment practices, protection of the environment, accuracy of records and the recording of costs, and foreign corruption. The termination of a U.S. Government contract as a result of any of these acts...

  • 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
    ... with applicable terms and conditions. Some products require relatively scarce raw materials. We also are subject to specific procurement requirements that may, in effect, limit the suppliers and subcontractors we may utilize, including requirements for genuine original equipment manufacturer parts...

  • 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...

  • Page 28
    ... of operations and financial condition. We may be unable to adequately protect our intellectual property rights, which could affect our ability to compete. We own many U.S. and foreign patents and patent applications, and have rights in unpatented know-how, data, software, trademarks and copyrights...

  • Page 29
    ... 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 but not limited to missile systems, command and control systems, border security systems, and air traffic management systems...

  • Page 30
    ...Plano, TX; Arlington, VA; and Dulles, VA. - - - - A summary of the space owned, leased and/or utilized by us as of December 31, 2014, by business segment is as follows: (In square feet) Leased Owned(1) Government Owned(2) Total(3) Integrated Defense Systems Intelligence, Information and Services...

  • Page 31
    ... on foreign exchange rates as of December 31, 2014) as payment for capabilities delivered, damages and other monetary relief. The Tribunal reserved ruling on costs and on the quantification of interest payable to RSL for a later date. On September 15, 2014, the UKBA filed a challenge to the award in...

  • Page 32
    ... Officer since April 2014 and a Director since January 2014. From April 2013 to March 2014, he served as Executive Vice President and Chief Operating Officer of Raytheon Company. From June 2010 to March 2013, he served as Vice President and President of the Integrated Defense Systems (IDS) business...

  • Page 33
    ...Resources and Security for the former Technical Services business. From May 2004 to December 2008, Ms. Newsome was Director of Organization Performance and Talent Management for the former Intelligence and Information Systems business. Ms. Newsome joined Raytheon in 2001 as a human resources manager...

  • 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 9, 2015, there were 25,718 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 12/31/2014 Raytheon Common Stock S&P 500 Index S&P Aerospace & Defense Index 100 100 100 92.00 115.06 115.11 100.41 117.49 121.19 123.79 136.30 138.83 200.95 180.44 215.08 244.15 205.14 239.67 Issuer Purchases of Equity Securities Total Number of Shares Purchased as Part...

  • Page 37
    ... reference, in order to understand 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 2014 2013 2012 2011 2010 Total net sales Operating income Interest...

  • Page 38
    ...Accounting Standards OVERVIEW Introduction Raytheon Company develops technologically advanced and integrated products, services and solutions in our core markets: sensing; effects; command, control, communications and intelligence (C3I); and mission support, as well as cyber and information security...

  • Page 39
    ..., unmanned systems, special operations forces and interoperability with allied forces. We believe those priorities are well 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...

  • Page 40
    ... markets with multiple customers; and - Extend Raytheon's advanced cyber solutions beyond the U.S. Government into international and commercial markets. Our Capabilities We believe that our broad mix of technologies, domain expertise and key capabilities, our cost-effective, best-value solutions...

  • Page 41
    ... customer success through total life-cycle support that predicts customer needs, senses potential problems and proactively responds with the most appropriate solutions. Our Mission Support capabilities include technical services, system engineering, product support, logistics, training, operations...

  • Page 42
    ... business system software for accounting, finance and program management; Process Re-Invention Integrating Systems for Manufacturing (PRISM), which is our SAP software for manufacturing operations; Advanced Company Estimating System (ACES), which is our cost proposal system; and Raytheon Enterprise...

  • Page 43
    ...repayments and pension contributions; and returning cash to our shareholders, including dividend payments and share repurchases. Backlog represents the dollar value of firm orders for which work has not been performed. Backlog generally increases with bookings and generally converts into sales as we...

  • Page 44
    ... and performance of our contracts. As part of this process, management reviews information including, but not limited to, any outstanding key contract matters, progress towards completion and the related program schedule, identified risks and opportunities, and the related changes in estimates of...

  • Page 45
    ... 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. The CAS requirements for pension costs and its calculation...

  • Page 46
    ..., including historical market performance, inflation and interest rates. The reasonable range of long-term returns that was used to validate the long-term ROA assumption for the calculation of the net periodic benefit cost for 2014, 2013 and 2012, are shown below. Percentile 2014 2013 2012 25th...

  • Page 47
    ... a trend or pattern of returns significantly above or below our existing assumption, we determined our long-term ROA assumption for our domestic pension plans in 2014 would remain at 8.75%, consistent with our 2013 assumption. In September 2013, the Actuarial Standards Board issued a revision to the...

  • Page 48
    ... equity) U.S. 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%-20% 5%-20% Our long-term ROA assumptions for foreign Pension Benefits plans...

  • Page 49
    ...18 million (the FAS/CAS Pension Adjustment and the lower profit rate impact in 2014 on fixed price contracts in backlog at December 31, 2013). A change in our long-term ROA assumption would be subject to review by our government customer for reasonableness. Given our history of recovering changes to...

  • Page 50
    ... fair market value, which 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 limited group of securities and...

  • Page 51
    ...missile defense radar program for an international customer also due to planned decreases in production. The decrease in external net sales at IDS was partially offset by higher net sales from an international air defense system program awarded in the fourth quarter of 2013, higher net sales from an...

  • Page 52
    ... 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 53
    ... administrative and selling expenses is the provision for state income taxes, which generally can be recovered through the pricing of products and services to the U.S. Government. Net state income taxes allocated to our contracts were $41 million, $42 million and $78 million in 2014, 2013, and 2012...

  • Page 54
    ...210 The increase in total non-operating (income) expense, net of $15 million in 2014 compared to 2013, was primarily due to a $10 million change in the fair value of marketable securities held in trust associated with certain of our non-qualified deferred compensation plans, due to net gains of $11...

  • Page 55
    ... related to the 2011 tax year. During 2012, we received final approval from the IRS and the JCT on settlement for the 2012 Tax Settlement. Our effective tax rate in 2014 was lower than the statutory federal tax rate primarily due to the tax benefit on the foreign dividend which decreased the rate...

  • Page 56
    .... Diluted Earnings per Share (EPS) from Continuing Operations Attributable to Raytheon Company Common Stockholders (In millions, except per share amounts) 2014 2013 2012 Income from continuing operations attributable to Raytheon Company Diluted weighted-average shares outstanding Diluted EPS from...

  • Page 57
    ... follows: 2014 2013 2012 Diluted EPS from continuing operations attributable to Raytheon Company common stockholders Per share impact of the FAS/CAS Adjustment Per share impact of the tax benefit of foreign dividend Per share impact of 2012 R&D tax credit Per share impact of the early retirement of...

  • Page 58
    ... than for longer periods and that shorter term changes in bookings may not necessarily indicate a material trend. Bookings (In millions) 2014 2013 2012 Integrated Defense Systems Intelligence, Information and Services Missile Systems Space and Airborne Systems Total $ 6,953 5,306 6,383 5,410 $ 24...

  • Page 59
    ... understanding of the awarded but not executed portions of our contracts. Funded Backlog Backlog at December 31 (In millions) 2014 2013 2012 2014 Total Backlog 2013 2012 Integrated Defense Systems Intelligence, Information and Services Missile Systems Space and Airborne Systems Total $ 8,939 2,902...

  • Page 60
    ... 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 outstanding...

  • 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) 2014 2013 2012 Integrated Defense Systems Intelligence, Information and Services Missile Systems Space and Airborne...

  • Page 62
    ... and domestic 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...

  • Page 63
    ...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 weapon system for the U.S. Navy, $199 million to provide Consolidated Contractor Logistics Support...

  • Page 64
    ... and Space Administration (NASA) and an increasing number of international customers. Total Net Sales-Total net sales in 2014 were relatively consistent with 2013. Included in total net sales was $151 million of lower net sales on training programs supporting the U.S. Army's Warfighter FOCUS...

  • Page 65
    ... million award for international cyber. 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 maintain...

  • Page 66
    ... energy effectors and advanced combat sensor solutions. Key customers include the U.S. Navy, Army, Air Force and Marine Corps, the MDA and the armed forces of more than 40 allied nations. Total Net Sales-The decrease in total net sales of $290 million in 2014 compared to 2013 was primarily due to...

  • Page 67
    ...activity on the U.S. Army sensor programs described above in Total Net Sales, partially offset by $17 million of costs related to ending a supplier agreement and $14 million for inventory valuation allowances in 2012. The decrease in operating margin in 2013 compared to 2012 was primarily due to the...

  • Page 68
    ..., state-of-the-art technologies and mission systems knowledge, SAS provides EO/IR sensors, airborne radars for surveillance and fire control applications, lasers, precision guidance systems, signals intelligence systems, processors, electronic warfare systems, communication systems, and space...

  • Page 69
    ... Airborne Systems product lines, partially offset by higher bookings in our Intelligence, Surveillance and Reconnaissance Systems product line. In 2014, SAS booked $267 million to provide radar subsystems for the U.S. Navy, $197 million to provide radar components for an international customer...

  • Page 70
    ... 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) 2014 2013 2012 FAS/CAS...

  • Page 71
    ... part of management's evaluation of reportable segment operating performance. The components of total net sales and operating income related to Corporate and Eliminations were as follows: Total Net Sales (in millions) 2014 2013 2012 Intersegment sales eliminations Corporate Total Total Operating...

  • Page 72
    ... related litigation with the U.S. Government regarding pension segment closing adjustments under U.S. Government Cost Accounting Standard 413 (CAS 413) for operations we divested over ten years ago. Under CAS 413, a pension plan termination adjustment is required when a contractor divests a business...

  • Page 73
    ... with the Pension Protection Act (PPA), which amended the Employee Retirement Income Security Act of 1974 (ERISA) rules and are affected by the actual return on plan assets and plan funded status. The funding requirements under the PPA require us to fully fund our pension plans over a rolling...

  • Page 74
    ...-term investment policy and cash management strategy. These marketable securities are classified as available-for-sale and are recorded at fair value as short-term investments in our consolidated balance sheets. Activity related to short-term investments was as follows: (In millions) 2014 2013 2012...

  • Page 75
    ... retention payments. RSIS was integrated into our Space and Airborne Systems (SAS) business, within the Integrated Communications Systems product line as the Secure Information Systems product area. RSIS provides advanced encryption capabilities needed by government and industry customers to protect...

  • Page 76
    ...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) 2014 2013 2012...

  • Page 77
    ... Debt Rating Outlook Date of Last Action Fitch Moody's S&P F2 P-2 A-1 AA3 A Stable Stable Stable September 2008 October 2011 May 2014 Shelf Registrations-We have an effective shelf registration with the SEC, filed in January 2013, which covers the registration of debt securities, common stock...

  • Page 78
    ... at December 31, 2013, 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 79
    ... in accordance with offset requirements. We have historically not been required to pay any such penalties. As a U.S. Government contractor, we are subject to many levels of audit and investigation by the U.S. Government relating to our contract performance and compliance with applicable rules and...

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

  • Page 81
    ... loss. We believe that we appropriately charged the disputed costs based on government accounting standards and applicable precedent and properly disclosed our approach to the Government. We also believe that in many cases, the statute of limitations has run on the issues. Based upon the foregoing...

  • Page 82
    ... the foreign currency exchange rates on specific commitments and payments to vendors and customer receipts. We may enter into interest rate swap agreements with commercial and investment banks to manage interest rates associated with our financing arrangements. The market-risk sensitive instruments...

  • Page 83
    ...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 84
    ... on these financial 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...

  • Page 85
    ... Accounts payable Accrued employee compensation Other accrued expenses Total current liabilities Accrued retiree benefits and other long-term liabilities Long-term debt Commitments and contingencies (Note 10) Equity Raytheon Company stockholders' equity Common stock, par value, $0.01 per share...

  • Page 86
    RAYTHEON COMPANY CONSOLIDATED STATEMENTS OF OPERATIONS (In millions, except per share amounts) Years Ended December 31: 2014 2013 2012 Net sales Products Services Total net sales Operating expenses Cost of sales-products Cost of sales-services General and administrative expenses Total operating ...

  • Page 87
    ...) Years Ended December 31: 2014 2013 2012 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...

  • Page 88
    ... Common stock plans activity Share repurchases Balance at December 31, 2012 Net income Other comprehensive income (loss), net of tax Dividends declared Distributions and other activity related to noncontrolling interests Common stock plans activity Share repurchases Balance at December 31, 2013 Net...

  • Page 89
    ... 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 90
    ... and performance of our contracts. As part of this process, management reviews information including, but not limited to, any outstanding key contract matters, progress towards completion and the related program schedule, identified risks and opportunities, and the related changes in estimates of...

  • Page 91
    ... FINANCIAL STATEMENTS (CONTINUED) of funding from our customer, and overhead cost rates, among other variables. These estimates also include the estimated cost of satisfying our industrial cooperation agreements, sometimes referred to as offset obligations, required under certain contracts...

  • Page 92
    ... 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 93
    ... upon an analysis that considers current inventory levels, historical usage patterns, future sales expectations and salvage value. Inventories consisted of the following at December 31: (In millions) 2014 2013 Materials and purchased parts Work in process Finished goods Total $ $ 70 326 18 414...

  • Page 94
    ...of the following activity during the years ended December 31, 2014, 2013 and 2012: 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...

  • Page 95
    ... average exchange rate during the period. Foreign exchange transaction gains and losses in 2014, 2013 and 2012 were not material. Treasury Stock-Repurchased shares are retired immediately upon repurchase. We account for treasury stock under the cost method. Upon retirement the excess over par value...

  • 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
    ... net of cash acquired, and exclusive of retention payments. RBT is a leading provider of persistent surveillance, secure tactical communications and cybersecurity solutions to the Intelligence Community and special operations market and further expands our Intelligence, Information and Services (IIS...

  • Page 98
    ... retention payments. RSIS was integrated into our Space and Airborne Systems (SAS) business, within the Integrated Communications Systems product line as the Secure Information Systems product area. RSIS provides advanced encryption capabilities needed by government and industry customers to protect...

  • Page 99
    ... FINANCIAL STATEMENTS (CONTINUED) A rollforward of goodwill by segment is as follows: Integrated Defense Systems Intelligence, Information and Services Space and Airborne Systems (In millions) Missile Systems Total Balance at December 31, 2012 Increase for acquisitions Effect of foreign exchange...

  • Page 100
    ... 31: Cost-Type (In millions) 2014 2013 Fixed-Price 2014 2013 Total 2014 2013 U.S. Government contracts (including foreign military sales): Billed Unbilled Progress payments Other customers: Billed Unbilled Progress payments Allowance for doubtful accounts Total contracts in process, net $ 409...

  • Page 101
    ...the investee further financial support. 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 IDS segment, and the other one, Thales-Raytheon Systems Company S.A.S. (TRS SAS), which we account for using...

  • Page 102
    ... are Level 2 in the fair value hierarchy for 2014 and 2013 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 103
    ... cost. The fair value of long-term debt was determined on quoted prices in inactive markets, which falls within Level 2 of the fair value hierarchy. The estimated fair value of long-term debt was the following at December 31: (In millions) 2014 2013 Fair value of long-term debt $ 5,936 $ 5,036...

  • Page 104
    ...$225 million, $248 million and $258 million in 2014, 2013 and 2012, respectively. In the normal course of business, we lease equipment, office buildings and other facilities under leases that include standard escalation clauses for adjusting rent payments to reflect changes in price indices, as well...

  • Page 105
    ... had commitments under agreements to outsource a portion of our information technology function, which have minimum annual payments of less than $5 million. Environmental Matters-We are involved in various stages of investigation and cleanup related to remediation of various environmental sites. Our...

  • Page 106
    ... in accordance with offset requirements. We have historically not been required to pay any such penalties. As a U.S. Government contractor, we are subject to many levels of audit and investigation by the U.S. Government relating to our contract performance and compliance with applicable rules and...

  • Page 107
    ... 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 notice...

  • Page 108
    ... is integral in determining the price of the related long-term contracts. The table above excludes these costs. Note 11: Stockholders' Equity The changes in shares of our common stock outstanding were as follows: (In millions) 2014 2013 2012 Beginning balance Stock plans activity Stock repurchases...

  • Page 109
    ... per share in 2014, 2013 and 2012, respectively. Dividends are subject to quarterly approval by our Board of Directors. Earnings Per Share (EPS) EPS from continuing operations attributable to Raytheon Company common stockholders and unvested share-based payment awards was as follows: 2014 2013 2012...

  • Page 110
    ... paid-in capital. During 2014, we awarded 0.3 million restricted stock units (RSUs) to retirement-eligible employees. These awards vest over a specified period of time as determined by the Management Development and Compensation Committee of our Board of Directors (MDCC) and are compensatory...

  • Page 111
    ...FINANCIAL STATEMENTS (CONTINUED) with the RSUs in 2014, approximately $25 million pretax, $17 million after-tax, rather than over the vesting period of the awards. Restricted stock activity was as follows: WeightedAverage Grant Date Fair Value Shares (in thousands) Outstanding at December 31, 2011...

  • Page 112
    ... certain 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 Benefits plans was as follows: (In millions) 2014 2013...

  • Page 113
    ... with the Pension Protection Act (PPA), which amended the Employee Retirement Income Security Act of 1974 (ERISA) rules and are affected by the actual return on plan assets and plan funded status. The funding requirements under the PPA require us to fully fund our pension plans over a rolling...

  • Page 114
    ... is funded by participant contributions. Other Benefit payments reflect our portion only. (In millions) Pension Benefits Other Benefits 2015 2016 2017 2018 2019 Thereafter (next 5 years) $ 1,782 1,759 1,724 1,660 1,410 7,786 $ 59 58 57 56 55 264 Defined Benefit Retirement Plan Summary Financial...

  • Page 115
    ...FINANCIAL STATEMENTS (CONTINUED) Funded Status - Amounts Recognized on our Balance Sheets (In millions) December 31: Pension Benefits 2014 2013 Other Benefits 2014 2013... not included in net income during the period Effect of exchange rates Total change in accumulated other comprehensive loss during ...

  • Page 116
    ... Benefits 2014 2013 Other Benefits 2014 2013 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 117
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Weighted-Average Net Periodic Benefit Cost Assumptions 2014 Other Benefits 2013 2012 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 118
    ... solely indicative of future market expectations, it does provide insight into general historical trends and long-term asset performance. In validating the 2014 long-term ROA assumption, we reviewed our pension plan asset performance since 1986. Our average annual actual rate of return since 1986 of...

  • Page 119
    ...at fair market value which 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 limited group of securities and...

  • Page 120
    ... market debt Core fixed-income(3) Global multi-sector fixed-income(4) Fixed-income hedge funds(5) Securitized(6) Convertible(7) Cash and cash equivalents(8) Other funds Absolute return funds(9) Relative value(10) Event driven(11) Equity hedge(12) Macro(13) Multi-strategy(14) Private equity funds...

  • Page 121
    ... market debt Core fixed-income(3) Global multi-sector fixed-income(4) Fixed-income hedge funds(5) Securitized(6) Convertible(7) Cash and cash equivalents(8) Other funds Absolute return funds(9) Relative value(10) Event driven(11) Equity hedge(12) Macro(13) Multi-strategy(14) Private equity funds...

  • Page 122
    ... 31, 2012 Actual return on plan assets(1) Purchases, issuances, settlements Transfers in and/or out of Level 3 Fixed-income securities Fixed-income hedge funds Securitized Other funds Absolute return funds Relative value Event driven Equity hedge Macro Multi-strategy Private equity funds Private...

  • Page 123
    ... non-U.S. Pension Benefits plans consist primarily of fixed-income securities and equity securities and had a fair market value of $868 million and $806 million at December 31, 2014 and December 31, 2013, respectively. These investments are valued using quoted prices in active markets (Level 1) as...

  • Page 124
    ... Assurance Process (CAP) program since 2011. We continue to participate in the CAP program for the 2013 and 2014 tax years. In the first quarter of 2014 the IRS completed the examination for the 2012 tax year, which completed all examinations through 2012. We are also under audit by multiple state...

  • Page 125
    ... 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 126
    ..., state-of-the-art technologies and mission systems knowledge, SAS provides EO/IR sensors, airborne radars for surveillance and fire control applications, lasers, precision guidance systems, signals intelligence systems, processors, electronic warfare systems, communication systems, and space...

  • Page 127
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Operating Income (in millions) 2014 2013 2012 Integrated Defense Systems Intelligence, Information and Services Missile Systems Space and Airborne Systems FAS/CAS Adjustment Corporate and Eliminations Total $ 974 508 800 846 286 (235) $ 3,179...

  • Page 128
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Depreciation and Amortization (in millions) 2014 2013 2012 Integrated Defense Systems Intelligence, Information and Services Missile Systems Space and Airborne Systems Corporate Total Total Assets (in millions) $ $ 95 57 76 168 43 439 $ $...

  • Page 129
    ... FINANCIAL STATEMENTS (CONTINUED) Note 16: Quarterly Operating Results (Unaudited) (In millions, except per share amounts, stock prices and workdays) 2014 First(3) Second Third Fourth Total net sales Gross margin Income from continuing operations Net income attributable to Raytheon Company...

  • Page 130
    ... 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 will be contained in our definitive proxy statement for the 2015 Annual Meeting of...

  • Page 131
    ...definitive proxy statement for the 2015 Annual Meeting of Stockholders under the caption "Stock Ownership" and is incorporated herein by reference. Information regarding securities authorized for issuance under our executive compensation plans is contained in Part II, Item 5 of this Annual Report on...

  • Page 132
    ... the Company's Current Report on Form 8-K filed June 4, 2014, 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 on...

  • Page 133
    ... 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 of July 3, 1995 and the Second Supplemental Indenture dated as of May 9, 2001, filed...

  • Page 134
    ... Executive Retirement Plan, as amended and restated effective as of January 1, 2009, as further amended effective January 1, 2011, filed as an exhibit to the Company's Annual Report for the year ended December 31, 2013, is hereby incorporated by reference. Raytheon Company Deferred Compensation Plan...

  • Page 135
    ...Inc. and Washington Group International, Inc. dated January 23, 2002, filed as an exhibit to the Company's Annual Report on Form 10-K for the year ended December 31, 2002, is hereby incorporated by reference. Fifth Amended and Restated Purchase and Sale Agreement between General Aviation Receivables...

  • Page 136
    ... the Raytheon Company Long-term Performance Plan, filed as an exhibit to the Company's Annual Report for the year ended December 31, 2013, is hereby incorporated by reference. Stock Purchase Agreement by and among, Hawker Beechcraft Corporation, Greenbulb Limited, Raytheon Company, Raytheon Aircraft...

  • Page 137
    ... materials from Raytheon Company's Annual Report on Form 10-K for the year ended December 31, 2014, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Comprehensive Income...

  • Page 138
    ... 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 11, 2015 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the...

  • Page 139
    ...Relations, Raytheon Company, 870 Winter Street, Waltham, MA 02451, at 781.522.5822. Website Raytheon's website offers financial information and facts about the Company, its products and services. We periodically add additional news and information. Raytheon's website address is http://www.raytheon...

  • Page 140

  • Page 141
    ... SUPPLY CHAIN Frank R. Jimenez VICE PRESIDENT GENERAL COUNSEL AND SECRETARY Rebecca R. Rhoads PRESIDENT GLOBAL BUSINESS SERVICES VICE PRESIDENT AND CHIEF INFORMATION OFFICER Richard R. Yuse PRESIDENT SPACE AND AIRBORNE SYSTEMS * Leadership and Board listing as of April 1, 2015 ** Lead Director

  • Page 142
    ...Connect with Raytheon Company 870 Winter Street Waltham, Massachusetts 02451-1449 USA www.raytheon.com Copyright ©, 2015, Raytheon Company. All rights reserved. Patriot is a trademark of Raytheon Company, and SM-3, TOW, AMRAAM, Raytheon, the Raytheon logo, and Customer Success is our Mission, are...