Raytheon 2015 Annual Report Download

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2015
ANNUAL REPORT

Table of contents

  • Page 1
    2 0 1 5 A N N U A L R E P O R T

  • Page 2
    ...millions, except per share amounts 2013 $33,685 23,706 2,938 5.96 2,382 2.20 2014 $33,571 22,826 3,179 6.97 2,064 2.42 2015 $34,669 23,247 3,013 6.75 2,346 2.68 Backlog Net Sales Operating Income EPS from Continuing Operations Operating Cash Flow from Continuing Operations Dividends Declared per...

  • Page 3
    ...markets. Most notably, we acquired from Vista Equity Partners its premier commercial cybersecurity business, Websense, and entered into a joint venture with Vista Equity Partners, combining Websense with Raytheon Cyber Products to form our new ForcepointTM business. "Your company returned to growth...

  • Page 4
    ... and depth of Forcepoint's product offerings. In the government realm, our strong international cyber business grew with the securing of two new countries as customers for our cybersecurity solutions to protect their networks against advanced cyber threats. ELECTRONIC WARFARE: Raytheon has long been...

  • Page 5
    ... us a contract extension with a potential value of $102 million for work at its Johnson Space Center to support facilities that are critical to human spaceï¬,ight, such as operations and engineering services at the Neutral Buoyancy Lab and Space Vehicle Mockup Facility. We also booked $963 million...

  • Page 6
    ...is reinforced by our ethical culture of integrity and a top score from Transparency International-UK in 2015. Trust leads to respect and is demonstrated when we embrace diversity and inclusion; as a result, Raytheon was named a "Best Place to Work" by the Human Rights Campaign® for the 11th year in...

  • Page 7
    2015 FORM 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... 26 28 29 72 74 123 123 123 Directors, Executive Officers and Corporate Governance...Executive Compensation...Security Ownership of Certain Beneficial Owners and Management and Related...

  • Page 11
    ...grown internally and 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 May 2015, we created Raytheon|Websense, a new cybersecurity joint venture company (with Vista Equity...

  • Page 12
    ...IIS, headquartered in Dulles, Virginia, provides a full range of technical and professional services to intelligence, defense, federal and commercial customers worldwide. IIS specializes in global Intelligence, Surveillance and Reconnaissance (ISR); navigation; U.S. Department of Defense (DoD) space...

  • Page 13
    ... V-22 Osprey aircraft; border and critical infrastructure security solutions; integrated operations for the NORAD command center, NASA's Neutral Buoyancy Lab and, through its RGNext joint venture, for U.S. Air Force space launch facilities; and upgrades of airborne and sea-based weapons systems and...

  • Page 14
    ...new cyber products and services to determine how they can best integrate into a customer's Cyber Security Operations Center (CSOC). IIS leverages CODE Center capabilities to drive both internal and external research and development with Governmental entities and commercial cyber protection companies...

  • Page 15
    ... operations, and space. Leveraging advanced concepts, state-of-the-art technologies and mission systems knowledge, SAS provides electro-optical/infrared (EO/IR) sensors, airborne radars for surveillance and fire control applications, lasers, precision guidance systems, signals intelligence systems...

  • Page 16
    SAS has the following principal product lines, which reflect the merger of the former Tactical Airborne Systems and Integrated Technology Programs product lines into Secure Sensor Solutions (SSS), effective January 4, 2016, to better align with customer demands: Intelligence, Surveillance and ...

  • Page 17
    to Vista Equity Partners. The new company combines Raytheon's advanced cybersecurity technologies and Websense's industry-leading TRITON platform to provide defense-grade cybersecurity solutions to domestic and international customers. Forcepoint's customers deploy its software products on standard ...

  • Page 18
    ... System (with IIS as of January 1, 2016), and provides aerospace-related design, integration, operations and maintenance services as well as management of the Naval Communications Station Harold E. Holt (with IIS). Sales to the U.S. Government (In millions, except percentages) 2015 (1) 2014 2013...

  • Page 19
    ... terminate its contracts has not had a material adverse effect upon our operations, financial condition or liquidity. For a discussion of the risks associated with the U.S. government's right to terminate its contracts, see Item 1A "Risk Factors" of this Form 10-K. U.S. government programs generally...

  • Page 20
    ... and the Export Administration Regulations (EAR). Generally, we internally fund our foreign subsidiary working capital requirements in the applicable countries. Sales and income from international operations and investments are subject to U.S. government laws, regulations and policies, including the...

  • Page 21
    ...product development for 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...

  • Page 22
    ...in U.S. defense spending may potentially limit certain future market opportunities. See Item 1A "Risk Factors" and "Overview" within Item 7 of this Form 10-K for a more detailed discussion of these and other related risks. Intellectual Property We own an intellectual property portfolio that includes...

  • Page 23
    ... 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 24
    ... financial position, results of operations and business. In 2015, U.S. government sales, excluding foreign military sales, accounted for approximately 68% of our total net sales. Our revenues from the U.S. government largely result from contracts awarded to us under various U.S. government programs...

  • Page 25
    ..., principally through our IIS and SAS business segments, which have security requirements that place limits on our ability to discuss our performance on these programs, including any risks, disputes and claims. Our future success depends on our ability to develop new offerings and technologies for...

  • Page 26
    ...by rapid changes in technology, products, customer specifications and industry standards, and Forcepoint may not be able to successfully and timely develop new products and services or adapt its current offerings to such changes in order to compete effectively. In addition, Forcepoint's revenues are...

  • Page 27
    ... volatility in energy prices, changes in U.S. foreign policy, and other risks and uncertainties. Our international sales are subject to U.S. laws, regulations and policies, including the International Traffic in Arms Regulations (ITAR), the Export Administration Regulations (EAR), the Foreign...

  • Page 28
    ... quickly and include, but are not limited to, computer viruses, attempts to access information, denial of service attacks and other electronic security breaches. Our information technology networks and related systems are critical to the operation of our business and essential to our ability to...

  • Page 29
    ..., our internal control systems and policies, including our accounting, purchasing, property, estimating, earned value management and material management accounting systems. Our final allowable incurred costs for each year are subject to audit and have from time to time resulted in disputes between...

  • Page 30
    ..., a new cybersecurity joint venture company (with Vista Equity Partners), through a series of transactions by which we acquired Websense, Inc. (Websense) from Vista Equity Partners and combined it with Raytheon Cyber Products (RCP), formerly part of our Intelligence, Information and Services (IIS...

  • Page 31
    ...may limit our flexibility in dealing with our workforce. Work stoppages could negatively impact our ability to manufacture our products on a timely basis, which could negatively impact our results of operations and financial condition. We may be unable to adequately protect our intellectual property...

  • Page 32
    ... 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, air traffic management systems...

  • Page 33
    ..., TX; Arlington, VA; and Dulles, VA. - - - - - A summary of the space owned, leased and/or utilized by us as of December 31, 2015, 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 34
    ... and Chief Operating Officer of Raytheon Company. From June 2010 to March 2013, he served as Vice President of Raytheon Company and President of the Integrated Defense Systems (IDS) business unit. From July 2007 to June 2010, he was Vice President of the Tactical Airborne Systems product line within...

  • Page 35
    ... the course of his 29-year career, including Vice President of Finance and the senior finance executive responsible for Raytheon Airline Aviation Services and Raytheon's International Landed Companies, and Chief Financial Officer for Raytheon Aircraft Company. Age 51. Rebecca R. Rhoads Ms. Rhoads...

  • Page 36
    PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES At February 8, 2016, there were 24,208 record holders of our common stock. Our common stock is traded on the New York Stock Exchange under the symbol "RTN". For information ...

  • Page 37
    .../2012 12/31/2013 12/31/2014 12/31/2015 Raytheon Common Stock S&P 500 Index S&P Aerospace & Defense Index 100 100 100 109.14 102.11 105.28 134.56 118.45 120.61 218.42 156.82 186.85 265.38 178.29 208.21 313.19 180.75 219.52 Issuer Purchases of Equity Securities Total Number of Shares Purchased...

  • Page 38
    ..., 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 2015 2014 2013 2012 2011 Total net sales Operating income Interest expense...

  • Page 39
    ... and Contingencies...OVERVIEW Introduction Raytheon Company develops technologically advanced and integrated products, services and solutions in our core markets: sensing; effects; command, control, communications, computers, cyber and intelligence (C5Iâ„¢); mission support; and cybersecurity. We...

  • Page 40
    ...for our products and services, see Item 1A "Risk Factors" of this Form 10K. International Considerations In 2015, our sales to customers outside of the U.S. accounted for 31% of our total net sales (including foreign military sales through the U.S. government). Internationally, the growing threat of...

  • Page 41
    ...we successfully executed on our strategy to extend our significant cyber capabilities into the commercial markets by creating Forcepoint, a new commercial cybersecurity joint venture company (with Vista Equity Partners) that combines Websense and RCP, formerly part of our IIS business. Forcepoint is...

  • Page 42
    ... on 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 capital expenditures, acquisitions and research and development; prudently...

  • Page 43
    ... development or production of tangible assets, the delivery of software code or a specific capability. Our service revenue is primarily related to our IIS business segment. Percentage-of-Completion Accounting-We use the percentage-of-completion accounting method to account for our longterm contracts...

  • Page 44
    ... 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 and PRB costs and its calculation...

  • Page 45
    ... material effect on our financial position, results of operations or liquidity. The assumptions in the calculations of our pension FAS expense and CAS expense, which involve significant judgment, are described below. FAS Expense-Our long-term return on plan assets (ROA) and discount rate assumptions...

  • Page 46
    ...the fourth quarter of 2014, we reduced our long-term target allocation for equities and increased our target allocation for fixed income within the investment policy allocations established by our Investment Committee in order to reduce the overall exposure to equity volatility. This change in asset...

  • Page 47
    ... 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% 5%-22% 5%-20% Our long-term ROA assumptions for foreign Pension Benefits plans...

  • Page 48
    ... be approximately $34 million (the FAS/CAS Pension Adjustment and the lower profit rate impact in 2015 on fixed-price contracts in backlog at December 31, 2014). A change in our long-term ROA assumption would be subject to review by our government customer for reasonableness. Given our history of...

  • Page 49
    ... valuation and pricing information from the fund managers, including audited financial statements, to evaluate the net asset values. The change in accumulated other comprehensive loss (AOCL) related to pension and PRB plans was as follows: (In millions) 2015 2014 2013 Beginning balance Amortization...

  • Page 50
    ... of our IIS segment, and then sold a minority interest in the combined company to Vista Equity Partners to establish Forcepoint, a new cybersecurity joint venture company (with Vista Equity Partners). In connection with these transactions, we reorganized our operating and reporting structure with...

  • Page 51
    ..., partially offset by higher net sales on cybersecurity and special missions programs excluding a classified program for an international customer, primarily driven by the fourth quarter of 2014 acquisition of Raytheon Blackbird Technologies (RBT). Products and Services Net Sales - 2015 vs. 2014-The...

  • Page 52
    ...in external products net sales at SAS was primarily due to the international tactical radar systems programs discussed above. The increase in services net sales of $104 million in 2015 compared to 2014 was primarily due to higher external services net sales of $142 million at IDS, driven principally...

  • Page 53
    .... In March 2015, Raytheon Systems Limited (RSL) reached a settlement with the UK Home Office concluding the parties' dispute regarding the UK Home Office's July 2010 termination of RSL's eBorders contract within our IIS segment. The settlement included a cash payment from the UK Home Office to RSL...

  • Page 54
    ...52 million at Forcepoint driven by our acquisition of Websense and development on new commercial products. The increase in research and development expenses of $35 million in 2014 compared to 2013 was primarily due to higher independent research and development activity related to electronic warfare...

  • Page 55
    ... of $600 million of fixed-rate long-term debt in the fourth quarter of 2014, and a $12 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 losses of $1 million in 2015 compared to net gains of...

  • Page 56
    ...in 2014 related to the resolution of a dispute and related litigation with the U.S. government regarding pension segment closing adjustments under CAS 413 for previously divested operations. Income (loss) from discontinued operations, net of tax, in 2014 was relatively consistent with 2013. Included...

  • Page 57
    ... to Raytheon Company common stockholders of $1.01 in 2014 compared to 2013 was primarily due to the increase in income from continuing operations described above in Income from Continuing Operations. Our common stock share activity for the years ended 2015, 2014, and 2013 was as follows: (Shares in...

  • Page 58
    ...establish Forcepoint, a new cybersecurity joint venture company (with Vista Equity Partners). In connection with these transactions, we reorganized our operating and reporting structure with Forcepoint as our fifth reporting segment. We report our results in the following segments: IDS; IIS; MS; SAS...

  • Page 59
    ...the awarded but not executed portions of our contracts. Funded Backlog Backlog at December 31 (In millions) 2015 2014 2013 2015 Total Backlog 2014 2013 Integrated Defense Systems Intelligence, Information and Services Missile Systems Space and Airborne Systems Forcepoint(1) Total (1) $ 9,600 2,294...

  • Page 60
    ...as follows: Total Net Sales (in millions) 2015 2014 2013 Integrated Defense Systems Intelligence, Information and Services Missile Systems Space and Airborne Systems Forcepoint(1) Eliminations Total business segment sales Forcepoint Acquisition Accounting Adjustments(2) Total (1) (2) $ 6,375 5,733...

  • Page 61
    ...Operating income by segment was as follows: Operating Income (in millions) 2015 2014 2013 Integrated Defense Systems Intelligence, Information and Services Missile Systems Space and Airborne Systems Forcepoint(1) Eliminations Total business segment operating income Forcepoint Acquisition Accounting...

  • Page 62
    ...2015 2014 2013 Bookings Total Backlog $ 7,044 11,842 $ 6,953 11,495 $ 5,869 10,916 1.3% 3.0% 18.5% 5.3% IDS is a leader in integrated air and missile defense; large land- and sea-based radar solutions; command, control, communications, computers, cyber and intelligence (C5Iâ„¢) solutions...

  • Page 63
    ...the 2015 international Patriot bookings in our Integrated Air and Missile Defense (IAMD) product line described below, partially offset by sales in excess of bookings spread across our other product lines. The increase in backlog of $579 million at December 31, 2014 compared to December 31, 2013 was...

  • Page 64
    ... Korea, $130 million on the All Electronic Tolling System (AETS) for the Massachusetts Department of Transportation (MassDOT), $105 million on the WAAS Dual Frequency Operations program for the FAA, and $94 million to provide Patriot technical and logistics support for Taiwan. In 2013, IDS booked...

  • Page 65
    ... professional services to intelligence, defense, federal and commercial customers worldwide. IIS specializes in global Intelligence, Surveillance and Reconnaissance (ISR); navigation; U.S. Department of Defense (DoD) space and weather solutions; cybersecurity; analytics; training; logistics; mission...

  • Page 66
    ...to a commercial customer, and $166 million on a contract to provide ISR support to the U.S. Air Force. IIS also booked $1,491 million on a number of classified contracts, including a $100 million award for international cyber. Missile Systems % Change 2015 compared to 2014 2014 compared to 2013 (In...

  • Page 67
    ... due to a contract awarded in the third quarter of 2015, partially offset by $120 million of lower net sales on the Standard Missile-3 (SM-3®) program primarily due to the planned transition from development to production. The decrease in total net sales of $290 million in 2014 compared to 2013 was...

  • Page 68
    ..., $117 million for Laser Guided Rockets for an international customer, $104 million for MALD® for the U.S. Air Force, $80 million for the Excalibur® program for the U.S. Army, and $140 million on a classified program. In 2013, MS booked $619 million for the production and development of SM-3® and...

  • Page 69
    ... operations, and space. Leveraging advanced concepts, state-of-the-art technologies and mission systems knowledge, SAS provides electro-optical/infrared (EO/ IR) sensors, airborne radars for surveillance and fire control applications, lasers, precision guidance systems, signals intelligence systems...

  • Page 70
    ...by lower bookings in our Intelligence, Surveillance and Reconnaissance Systems (ISRS) and Tactical Airborne Systems (TAS) product lines, partially offset by higher bookings in our Electronic Warfare Systems (EWS) product line. In 2015, SAS booked $153 million on a multi-mission radar program for the...

  • Page 71
    ...) 2015 2014 2013 Bookings Total Backlog NM = Not meaningful $ 352 479 $ 101 52 $ 82 45 NM NM 23.2% 15.6% Forcepoint, formerly known as Raytheon|Websense, is a global provider of information technology security products and related services designed to protect commercial and government...

  • Page 72
    ...acquisition of Websense, partially offset by the additional research and development and sales and marketing expenses for the development and launch of new commercial products. Operating income in 2015 and 2014 excludes $119 million and $6 million, respectively, related to the acquisition accounting...

  • Page 73
    ... Total Forcepoint Acquisition Accounting Adjustments (1) The deferred revenue adjustment to operating income was less than $(1) million in 2014 and 2013. $ $ (61) (58) (119) $ $ - (6) (6) $ $ - (9) (9) The change in our Forcepoint Acquisition Accounting Adjustments of $113 million in 2015...

  • Page 74
    ... integration-related expenses in 2015. Included in operating income related to Corporate in 2014 was $25 million of stock-based compensation expense associated with RSUs awarded in 2014. The RSU awards vest over a specified period of time as determined by the Management Development and Compensation...

  • Page 75
    ...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 returning cash to our shareholders, including dividend payments and share...

  • Page 76
    ... and calculation methodologies, our FAS pension expense or income is not indicative of the funding requirement or amount of government recovery. Tax Payments and Refunds-We made the following net tax payments during the years ended December 31: (In millions) 2015 2014 2013 Federal Foreign State...

  • Page 77
    ...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) 2015 2014 2013 Purchases of short-term...

  • Page 78
    ... the Websense acquisition, we combined Websense with RCP to form Forcepoint and then sold 19.7% of the equity interest in Forcepoint to Vista Equity Partners for $343 million. For more information on the Forcepoint joint venture, see Item 1 "Business," and "Note 5: Forcepoint Joint Venture" within...

  • Page 79
    ... enforceable and legally 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...

  • Page 80
    ..., at December 31, 2014, related to our joint venture in Thales-Raytheon Systems Co. Ltd. (TRS). 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...

  • Page 81
    ...) of Vista Equity Partners' interest in Forcepoint at a price equal to fair value as determined under the joint venture agreement. We have entered into industrial cooperation agreements, sometimes referred to as offset agreements, as a condition to obtaining orders for our products and services from...

  • Page 82
    ...ABOUT MARKET RISK Our primary market exposures are to interest rates and foreign exchange rates. We generally supplement our working capital requirements with a combination of variable-rate short-term and fixed-rate longterm financing. We enter into foreign currency forward contracts with commercial...

  • Page 83
    ... revenue or cost of sales ...cash flow hedges offset the foreign currency exchange gains and losses on the underlying assets or liabilities being hedged. We believe our exposure due to changes in foreign currency rates is not material due to our hedging policy. At December 31, 2015, we had short-term...

  • Page 84
    ... 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 Committee...

  • Page 85
    ... with the policies or procedures may deteriorate. Based on its assessment, management has concluded that the Company maintained effective internal control over financial reporting as of December 31, 2015, based on criteria in Internal Control - Integrated Framework, issued by the COSO in 2013. The...

  • Page 86
    REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholders of Raytheon Company: In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, of comprehensive income, of equity, and of cash flows present ...

  • Page 87
    RAYTHEON COMPANY CONSOLIDATED BALANCE SHEETS (In millions, except per share amount) December 31: Assets 2015 2014 Current assets Cash and cash equivalents Short-term investments Contracts in process, net Inventories Prepaid expenses and other current assets Total current assets Property, plant and ...

  • Page 88
    RAYTHEON COMPANY CONSOLIDATED STATEMENTS OF OPERATIONS (In millions, except per share amounts) Years Ended December 31: 2015 2014 2013 Net sales Products Services Total net sales Operating expenses Cost of sales-products Cost of sales-services General and administrative expenses Total operating ...

  • Page 89
    RAYTHEON COMPANY CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In millions) Years Ended December 31: 2015 2014 2013 Net income Other comprehensive income (loss), before tax: Pension and other employee benefit plans, net: Prior service (cost) credit arising during period Amortization of prior ...

  • Page 90
    RAYTHEON COMPANY CONSOLIDATED STATEMENTS OF EQUITY Accumulated other comprehensive income (loss) Total Raytheon Company stockholders' equity Years Ended December 31, 2015, 2014 and 2013 (in millions): Common stock Additional paid-in capital Retained earnings Noncontrolling interests in ...

  • Page 91
    ... by (used in) operating activities from continuing operations, net of the effect of acquisitions and divestitures Depreciation and amortization Stock-based compensation Deferred income taxes Tax benefit from stock-based awards Changes in assets and liabilities Contracts in process, net and advance...

  • Page 92
    ... of our contracts. As part of this process, management reviews information including, but not limited to, any outstanding key contract matters, progress toward completion and the related program schedule, identified risks and opportunities, and the related changes in estimates of revenues and costs...

  • Page 93
    ... contract is recognized in the period the loss is determined. Net EAC adjustments had the following impact on our operating results: (In millions, except per share amounts) 2015 2014 2013 Operating income Income from continuing operations attributable to Raytheon Company Diluted earnings per share...

  • Page 94
    ... income taxes are included in administrative and selling expenses as these costs can generally be recovered through the pricing of products and services to the U.S. government in the period in which the tax is payable. Accordingly, the state income tax provision (benefit) is allocated to contracts...

  • 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
    ... primarily of our enterprisewide software solutions, is stated at cost less accumulated amortization and is amortized using the straight-line method over its estimated useful life, generally 10 years. Computer software development costs related to software products developed for external use are...

  • Page 97
    .... U.S. GAAP outlines the methodology used to determine pension expense or income for financial reporting purposes. For purposes of determining pension expense under U.S. GAAP, a calculated "market-related value" of our plan assets is used to develop the amount of deferred asset gains or losses to...

  • Page 98
    ... and amortized in future pension expense over the estimated average remaining employee service period. Derivative Financial Instruments-We enter into foreign currency forward contracts with commercial banks to fix the foreign currency exchange rates on specific commitments, payments, and receipts...

  • Page 99
    ... 2014. Fair value information for those assets and liabilities, including their classification in the fair value hierarchy, is included in "Note 14: Pension and Other Employee Benefits" (for marketable securities held in trust) and "Note 1: Summary of Significant Accounting Policies" (for short-term...

  • Page 100
    ..., including industry-specific requirements, and provide companies with a single revenue recognition model for recognizing revenue from contracts with customers. The core principle of the new standard is that a company should recognize revenue to depict the transfer of promised goods or services to...

  • Page 101
    ... 2015, Raytheon Systems Limited (RSL) reached a settlement with the UK Home Office concluding the parties' dispute regarding the UK Home Office's July 2010 termination of RSL's eBorders contract within our Intelligence, Information and Services (IIS) segment. The settlement included a cash payment...

  • Page 102
    ... and Special Missions (CSM) product area. RFS provides security operations centers (SOCs), managed security service solutions and cybersecurity professional services. RFS will accelerate Raytheon's expansion into managed security services across federal, international and commercial markets. In...

  • Page 103
    ...price allocation for RBT at IIS in 2015. For information on our intangible assets, see "Note 9: Other Assets, Net". Note 5: Forcepoint Joint Venture In May 2015, we created Raytheon|Websense, a new cybersecurity joint venture company (with Vista Equity Partners), through a series of transactions by...

  • Page 104
    ...audits associated with our divestiture of Raytheon Aircraft Company and recorded a $25 million gain, net of federal tax expense, in discontinued operations. Note 7: Contracts in Process, Net Contracts in process, net, consisted of the following at December 31: Cost-Type (In millions) 2015 2014 Fixed...

  • Page 105
    ... 14: Pension and Other Employee Benefits". (2) For further details, refer to "Note 15: Income Taxes". $ 525 294 $ 519 313 700 308 906 $ 2,733 303 241 1,065 $ 2,441 Computer software amortization expense was $70 million, $79 million and $82 million in 2015, 2014 and 2013, respectively. Other...

  • Page 106
    ...$ In 2001, we formed the TRS joint venture with Thales S.A. 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...

  • Page 107
    ...December 31, 2015. We are providing this ratio as this metric is used by our lenders to monitor our leverage and is also a threshold that limits our ability to utilize this facility. Total cash paid for interest on long-term debt was $232 million, $209 million and $210 million in 2015, 2014 and 2013...

  • Page 108
    ... annual rentals on a net lease basis as follows: (In millions) 2016 2017 2018 2019 2020 Thereafter $ 220 190 162 124 102 352 Rent expense was $236 million, $225 million and $248 million in 2015, 2014 and 2013, respectively. In the normal course of business, we lease equipment, office buildings...

  • Page 109
    ... the joint venture agreement between Raytheon Company and Vista Equity Partners, Raytheon may be required to purchase Vista Equity Partners' interest in Forcepoint. We have entered into industrial cooperation agreements, sometimes referred to as offset agreements, as a condition to obtaining orders...

  • Page 110
    ... sales for which we recognize revenue upon delivery. Activity related to product warranty accruals was as follows: (In millions) 2015 2014 2013 Beginning balance Provisions for warranties Warranty services provided Ending balance $ $ 32 1 (9) 24 $ $ 30 9 (7) 32 $ $ 33 3 (6) 30 We account...

  • Page 111
    ... annual dividend payout rate from $2.42 to $2.68 per share. Our Board of Directors declared dividends of $2.68, $2.42 and $2.20 per share in 2015, 2014 and 2013, respectively. Dividends are subject to quarterly approval by our Board of Directors. Note 13: Stock-based Compensation Plans The Raytheon...

  • Page 112
    .... At the date of grant each share of restricted stock is credited to common stock at par value. The fair value of restricted stock, calculated under the intrinsic value method at the date of grant, is charged to income as compensation expense generally over the vesting period with a corresponding...

  • Page 113
    ... fair value of restricted stock and RSUs vested and the related tax benefit realized were as follows: (In millions) 2015 2014 2013 Fair value of restricted stock and RSUs vested Tax benefit realized related to vested shares/units $ 167 58 $ 161 56 $ 116 41 Long-term Performance Plan (LTPP...

  • Page 114
    ... 2014 2013 Fair value of LTPP units vested Tax benefit realized related to vested LTPP units $ 93 33 $ 70 25 $ 23 8 In the third quarter of 2015, Forcepoint established long-term incentive plans that provide for awards of unit appreciation rights and profits interests in the joint venture...

  • Page 115
    ... care and life insurance benefits to retired employees and to eligible employees upon retirement through other postretirement benefit (PRB) plans. The fair value of plan assets for our domestic and foreign Pension Benefits plans was as follows: (In millions) 2015 2014 Domestic Pension Benefits plan...

  • Page 116
    ...(income) and related actuarial assumptions of our domestic and foreign Pension Benefits and PRB Benefits plans. Components of Net Periodic Pension Expense (Income) (In millions) 2015 Pension Benefits 2014 2013 Service cost Interest cost Expected return on plan assets Amounts reflected in net funded...

  • Page 117
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Components of Net Periodic PRB Expense (Income) (In millions) PRB Benefits 2014 2015 2013 Service cost Interest cost Expected return on plan assets Amounts reflected in net funded status Amortization of prior service cost included in net ...

  • Page 118
    ... of benefit obligations, plan assets and related actuarial assumptions of our domestic and foreign Pension Benefits and PRB plans. Change in Projected Benefit Obligation (In millions) Pension Benefits 2015 2014 PRB Benefits 2015 2014 Projected benefit obligation at beginning of year Service cost...

  • Page 119
    ... 4.40% PRB Benefits 4.15% 8.67% 2%-7% 4.40% 2015 2014 2013 Discount rate Expected long-term rate of return on plan assets Rate of compensation increase Range Average Health care trend rate* * Currently at the ultimate trend rate. Weighted-Average Year-End Benefit Obligation Assumptions 4.05...

  • Page 120
    ...the fourth quarter of 2014, we reduced our long-term target allocation for equities and increased our target allocation for fixed income within the investment policy allocations established by our Investment Committee in order to reduce the overall exposure to equity volatility. This change in asset...

  • Page 121
    ... Pension Benefits Plan (Plan) assets, which consist of investments in cash and cash equivalents, publicly traded U.S. and international equity securities, private equity funds, private real estate funds, fixed-income securities, commingled funds and other investments such as insurance contracts...

  • Page 122
    ... by limiting the amount that can be invested by sector, country and issuer. The Plan's investments are stated at fair value. Investments in equity securities (common and preferred) are valued at the last reported sales price when an active market exists. Investments in fixed-income securities are...

  • Page 123
    ... $ 2,694 $ $ U.S. and International equities primarily include investments across the spectrum of large, medium and small market capitalization stocks. Corporate debt securities/instruments include investment grade and non-investment grade bonds. Core fixed-income securities are funds that invest...

  • Page 124
    ... representing plan participants and local management in the U.K. Investments in the non-U.S. Pension Benefits plans consist primarily of fixed-income securities and equity securities and had a fair market value of $837 million and $868 million at December 31, 2015 and December 31, 2014, respectively...

  • Page 125
    ... related to the 2011 tax year. As a result of closing the federal audit examinations, our unrecognized tax benefits decreased by approximately $70 million, inclusive of interest, the majority of which did not impact our income from continuing operations. (In millions) 2015 2014 2013 Domestic income...

  • Page 126
    ...With the exception of Forcepoint, we generally account for our state income tax expense as a deferred contract cost, to the extent we can 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, until...

  • Page 127
    ...Integrated Defense Systems (IDS); Intelligence, Information and Services (IIS); Missile Systems (MS); Space and Airborne Systems (SAS); and Forcepoint. IDS is a leader in integrated air and missile defense; large land- and sea-based radar solutions; command, control, communications, computers, cyber...

  • Page 128
    ... Segment financial results were as follows: Total Net Sales (in millions) 2015 2014 2013 Integrated Defense Systems Intelligence, Information and Services Missile Systems Space and Airborne Systems Forcepoint(1) Eliminations Total business segment sales Forcepoint Acquisition Accounting Adjustments...

  • Page 129
    ... STATEMENTS (CONTINUED) Operating Income (in millions) 2015 2014 2013 Integrated Defense Systems Intelligence, Information and Services Missile Systems Space and Airborne Systems Forcepoint(1) Eliminations Total business segment operating income Forcepoint Acquisition Accounting Adjustments FAS/CAS...

  • Page 130
    ... our consolidated statements of cash flows due to non-cash transactions. 2015 2014 2013 Depreciation and Amortization (in millions) Integrated Defense Systems Intelligence, Information and Services Missile Systems Space and Airborne Systems Forcepoint Forcepoint Acquisition Accounting Adjustments...

  • Page 131
    ... TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The following is a breakdown of net sales to major customers: (In millions) 2015 2014 2013 Sales to the U.S. government(1) Sales to the U.S. Department of Defense(1) Total international sales(2) Foreign direct commercial sales(1) Foreign military...

  • Page 132
    ...' dispute regarding the UK Home Office's July 2010 termination of RSL's eBorders contract within our IIS segment. After certain expenses and derecognition of outstanding receivables, IIS recorded $181 million in operating income through a reduction in cost of sales in the first quarter of 2015...

  • Page 133
    ...Management's Report on Internal Control Over Financial Reporting is set forth in Part II, Item 8 of this Annual Report on Form 10-K. Report of the Independent Registered Public Accounting Firm-The effectiveness of our internal control over financial reporting as of December 31, 2015 has been audited...

  • Page 134
    ... February 10, 2016 on the Company's financial statements filed as a part hereof for the fiscal years ended December 31, 2015, 2014 and 2013 and on the Company's internal control over financial reporting as of December 31, 2015 is included in Part II, Item 8 of this Annual Report on Form 10K. The...

  • Page 135
    ... 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 136
    ... Pension Plan, as amended and restated effective as of January 1, 2009, as further amended effective January 1, 2009*, filed as an exhibit to the Company's Annual Report for the year ended December 31, 2013, is hereby incorporated by reference. Raytheon Company Supplemental Executive Retirement Plan...

  • Page 137
    ...by reference. 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...

  • Page 138
    .... Summary of 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. Form of Indemnification Agreement between the Company and each of its directors and executive officers, filed as...

  • Page 139
    ... Executive Officer) Vice President and Chief Financial Officer (Principal Financial Officer) Vice President, Controller and Chief Accounting Officer (Principal Accounting Officer) Director Director Director Director Director Director Director Director Director Director February 10, 2016 February...

  • Page 140
    Investor Information Global Headquarters Raytheon Company, 870 Winter Street, Waltham, Massachusetts 02451; tel. 781.522.3000 Investor Relations Security analysts, shareholders and investment professionals with other inquiries regarding Raytheon Company should contact: Todd Ernst, vice president, ...

  • Page 141
    ... LLC * Lead Director THOMAS A. KENNEDY Chairman and Chief Executive Officer ANTHONY F. O'BRIEN Vice President Chief Financial Officer LAWRENCE J. HARRINGTON Vice President Internal Audit REBECCA R. RHOADS President Global Business Services JOHN D. HARRIS II Vice President Business Development...

  • Page 142
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