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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (date of earliest event reported): December 17, 1997
RAYTHEON COMPANY (formerly HE Holdings, Inc.)
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(Exact name of registrant as specified in its charter)
Delaware 1-13699 95-1778500
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(State of Incorporation) (Commission File (IRS Employer
Number) Identification
Number)
141 Spring Street
Lexington, Massachusetts 02173
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including are code: (781) 862-6600
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Item 2. Acquisition or Disposition of Assets.
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On December 17, 1997, HE Holdings, Inc. ("HE Holdings") consummated
the merger of Raytheon Company ("Old Raytheon") with and into HE Holdings.
Immediately upon consummation of the merger, HE Holdings changed its name to
Raytheon Company ("New Raytheon"). In connection with the merger, each share of
issued and outstanding common stock, $1.00 par value per share of Old Raytheon
was converted into one share of Class B common stock $.01 par value per share of
New Raytheon (the "Class B Common Stock"). Immediately prior to the merger,
HE Holdings incurred $4.0 billion of indebtedness under certain credit
agreements, all of which was contributed to Hughes Electronics Corporation or
its affiliates. The obligation to repay this debt remains an obligation of New
Raytheon. Pursuant to paragraph (a) of Rule 12g-3, promulgated under the
Securities Exchange Act of 1934, as amended (the "Act"), the Class B Common
Stock is deemed registered under Section 12(b) of the Act.
In connection the closing of the merger, New Raytheon issued a press
release, a copy of which is attached hereto as Exhibit 99.1 and is specifically
incorporated herein by reference.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
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(a) Financial Statements of the Businesses Acquired.
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The audited balance sheet of Old Raytheon and Subsidiaries Consolidated as
of December 31, 1996 and 1995 and the related statements of income,
stockholders' equity and cash flows for each of the three years in the
period ended December 31, 1996, were previously filed as Appendix C to the
Registration Statement on Form S-4 (File No. 333-39861), dated November 10,
1997, and are hereby incorporated herein by reference.
The unaudited balance sheet of Old Raytheon Company and Subsidiaries
Consolidated as of September 28, 1997 and the related statements of income
and cash flows for each of the nine months ended September 28, 1997 and
September 29, 1996, were previously filed as Appendix C to the Registration
Statement on Form S-4 (File No. 333-39861), dated November 10, 1997, and
are hereby incorporated herein by reference.
(b) Pro Forma Financial Information.
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Pro forma combined condensed statements of earnings for the year ended
December 31, 1996, and for the nine months ended September 28, 1997 and pro
forma combined condensed balance sheet as of September 28, 1997, in each
case reflecting the merger of Old Raytheon with and into HE Holdings, were
previously filed as pages 95-101 of the Solicitation Statement/Prospectus
which forms a part of the Registration Statement on Form S-4 (File No. 333-
39861), dated November 10, 1997, and are hereby incorporated herein by
reference.
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(c) Exhibits. The following exhibits are filed as part of this report.
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3(i) Amended and Restated Certificate of Incorporation, as amended by the
Certificate of Merger of Raytheon Company with and into HE Holdings,
changing the name of the Registrant to Raytheon Company.
3(ii) Amended and Restated By-Laws.
23.1 Consent of Coopers & Lybrand L.L.P.
99.1 Press release, dated December 18, 1997.
99.2 Appendix C to the Registration Statement on Form S-4 (File No.
333-39861), dated November 10, 1997.
99.3 Pages 95-101 of the Solicitation Statement/Prospectus which forms a part
of the Registration Statement on Form S-4 (File No. 333-39861), dated
November 10, 1997.
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SIGNATURE
Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned hereunto duly authorized.
Dated: December 17, 1997
RAYTHEON COMPANY
By: /s/ Thomas D. Hyde
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Name: Thomas D. Hyde
Title: Vice President and
General Counsel
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EXHIBIT INDEX
Exhibit
Number Description
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3(i) Amended and Restated Certificate of Incorporation as amended by
Certificate of Merger of Raytheon Company with and into HE
Holdings, changing the name of the Registrant to Raytheon
Company.
3(ii) Amended and Restated By-Laws.
23.1 Consent of Coopers & Lybrand L.L.P.
99.1 Press release, dated December 18, 1997.
99.2 Appendix C to the Registration Statement on Form S-4
(File No. 333-39861), dated November 10, 1997.
99.3 Pages 95-101 of the Solicitation Statement/Prospectus which
forms a part of the Registration Statement on Form S-4 (File
No. 333-39861), dated November 10, 1997.
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EXHIBIT 3(i)
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
HE HOLDINGS, INC.
HE Holdings, Inc. (the "Corporation"), a corporation organized and
existing under the General Corporation law of the State of Delaware (the
"DGCL"), does hereby certify as follows:
1. The present name of the Corporation is HE Holdings, Inc. The
Corporation was originally incorporated under the name "Hughes Aircraft Company"
and its original certificate of incorporation was filed with the office of the
Secretary of State of the State of Delaware on December 17, 1953.
2. This Amended and Restated Certificate of Incorporation was duly
adopted by the Board of Directors of the Corporation and by the sole stockholder
of the Corporation in accordance with Sections 228, 242 and 245 of the DGCL.
3. This Amended and Restated Certificate of Incorporation restates
and integrates and further amends the certificate of incorporation of the
Corporation, as heretofore amended (the "Certificate of Incorporation").
4. Upon the filing (the "Effective Time") of this Certificate of
Incorporation pursuant to the DGCL, all shares of the Corporation's common
stock, no par value per share, issued and outstanding immediately prior to the
Effective Time (the "Old Common Stock") shall be reclassified as and changed
into an aggregate of 102,630,503 validly issued, fully paid, and non-assessable
shares of Class A Common Stock, par value $.01 per share ("Hughes Class A Common
Stock"), without any action by the holder thereof. At the Effective Time, the
share certificate(s) that theretofore represented shares of Old Common Stock
shall thereafter represent the reclassified shares of Hughes Class A Common
Stock.
5. The text of the Certificate of Incorporation is amended and
restated in its entirety as follows:
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ARTICLE I.
Name
The name of the corporation (which is hereinafter referred to as the
"Corporation") is: "HE Holdings, Inc."
ARTICLE II
Registered Agent
The address of the Corporation's registered office in the State of
Delaware is The Corporation Trust Center, 1209 Orange Street in the City of
Wilmington, County of New Castle. The name of the Corporation's registered
agent at such address is The Corporation Trust Company.
ARTICLE III
Purpose
The purpose of the Corporation shall be to engage in any lawful act or
activity for which corporations may be organized and incorporated under the
General Corporation Law of the State of Delaware (the "DGCL").
ARTICLE IV
Capital Stock
Section 1. The Corporation is authorized to issue 1,650,000,000 shares
of capital stock, of which (a) 1,450,000,000 shares shall be shares of Common
Stock, $.01 par value per share ("Common Stock"), and which shares of Common
Stock shall be divided into two classes, 450,000,000 shares of Common Stock
shall be shares of Class A Common Stock ("Class A Common Stock") and
1,000,000,000 shares of Common Stock shall be shares of Class B Common Stock
("Class B Common Stock"), and (b) 200,000,000 shares shall be shares of
Preferred Stock, $.01 par value per share ("Preferred Stock").
SECTION 2. Common Stock.
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(a) Until the time that any shares of Class B Common Stock are first
issued, the powers, preferences and rights, and the qualifications, limitations
and restrictions of the Common Stock are as follows:
(i) Voting Rights. Except as otherwise required by law, the
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holders of Class A Common Stock will be entitled to one vote per share on all
matters to be voted on by the Corporation's stockholders.
(ii) Dividends. The holders of Class A Common Stock will be
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entitled to dividends if, when and as declared by the Corporation's board of
directors, out of funds legally available therefor, whether payable in cash,
property or securities of the Corporation.
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(b) From and after the time that any shares of Class B Common Stock
are first issued, the powers, preferences and rights, and the qualifications,
limitations and restrictions of the Common Stock are as follows:
(i) Voting. The voting rights of the holders of record of shares
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of Class A Common Stock and Class B Common Stock on the relevant record date for
each annual or special meeting of stockholders of the Corporation shall be as
set forth below:
(A) With respect to the election or removal of directors (x) the
holders of record of shares of Class B Common Stock shall be entitled to one (1)
vote for each share of Class B Common Stock standing in each such person's name
on the stock transfer records of the Corporation, which votes shall represent in
the aggregate 19.9% of the total voting power of all holders of Common Stock
entitled to vote thereon, and (y) the holders of record of shares of Class A
Common Stock shall be entitled to such number of votes for each share of Class A
Common Stock standing in each such person's name on the stock transfer records
of the Corporation as shall be necessary to entitle the holders of all shares of
Class A Common Stock to vote, in the aggregate, 80.1% of the total voting power
of all holders of Common Stock entitled to vote thereon. Promptly following the
fixing of a record date for each annual or special meeting of stockholders at
which directors are to be elected or a vote with respect to removal is to be
taken, the Board of Directors of the Corporation (the "Board") shall determine
the number of votes per share of Class A Common Stock that each holder of record
of Class A Common Stock shall be entitled to cast to implement the foregoing.
The determination of such number of votes by the Board shall be final and shall
be set forth in the notice of such meeting of stockholders delivered to the
holders of Common Stock.
(B) With respect to all matters on which holders of Common Stock
shall be entitled to vote other than the election or removal of directors, each
share of Class A Common Stock and each share of Class B Common Stock shall be
entitled to cast one (1) vote per share, and the approval of any such matter
shall require the affirmative vote of the holders of the shares of Class A
Common Stock and the shares of Class B Common Stock outstanding at the relevant
record date, with each class voting separately, in each case acting by such vote
as would be required under applicable law were such class of Common Stock the
only class of Common Stock of the Corporation then outstanding (or by such
greater vote than would be required under applicable law as may be set forth
herein or in the by-laws of the Corporation), as well as the approval of the
holders of any class or series of Preferred Stock which may be entitled to vote
thereon.
(ii) Dividends. Subject to the rights of the holders of any class or
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series of outstanding Preferred Stock, and subject to any other provisions
hereof and applicable law, holders of shares of Class A Common Stock and holders
of shares of Class B Common Stock shall be entitled to receive such dividends
and other distributions in cash, stock or property of the Corporation as may be
declared thereon by the Board from time to time out of assets or funds of the
Corporation legally available therefor; provided that if a dividend or other
distribution on any Common Stock is declared or paid by the Corporation (which
declaration and payment shall be solely in the discretion of the Board),
including, but not limited to, dividends or other
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distributions payable in cash, Common Stock or options or warrants to purchase
Common Stock or securities exchangeable for or convertible into Common Stock, or
other securities or property of the Corporation, such dividend or other
distribution shall be declared and paid to the holders of Class A Common Stock
and Class B Common Stock, and the holders of shares of Class A Common Stock and
the holders of shares of Class B Common Stock shall be entitled to receive the
same amount per share of any such dividends and other distributions in cash,
securities or property of the Corporation (and with respect to dividends or
distributions not in cash, in the same form); provided, however, that nothing in
this Article IV shall prevent the declaration of a dividend or other
distribution of shares of Class A Common Stock to holders of Class A Common
Stock and shares of Class B Common Stock to holders of Class B Common Stock so
long as, immediately following such dividend or other distribution, the number
of shares of Class A Common Stock and Class B Common Stock then outstanding
bears the same relationship to each other as did the number of shares of Class A
Common Stock and Class B Common Stock outstanding immediately prior to such
dividend or other distribution.
(iii) Split, Subdivision or Combination. In the case of any split,
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sub division, combination or reclassification of Class A Common Stock or Class B
Common Stock, the shares of Class B Common Stock or Class A Common Stock, as the
case may be, shall also be split, subdivided, combined or reclassified so that
the number of shares of Class A Common Stock and Class B Common Stock
outstanding immediately following such split, subdivision, combination or
reclassification shall bear the same relationship to each other as did the
number of shares of Class A Common Stock and Class B Common Stock outstanding
immediately prior to such split, subdivision, combination or reclassification.
(iv) Liquidation, Dissolution, Mergers, etc. In the event of any
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liquidation, dissolution or winding up (either voluntary or involuntary) of the
Corporation, the holders of Class A Common Stock and the holders of Class B
Common Stock shall be entitled to receive the assets and funds of the
Corporation available for distribution, after payments to creditors and to the
holders of any Preferred Stock of the Corporation that may at the time be
outstanding, in proportion to the number of shares held by them, respectively,
without regard to class. In the event of any corporate merger, consolidation,
purchase or acquisition of property or stock, or other reorganization in which
any consideration is to be received by the holders of Class A Common Stock or
the holders of Class B Common Stock, the holders of Class A Common Stock and the
holders of Class B Common Stock shall receive the same type and amount of
consideration on a per share basis.
(v) Repurchases, etc. The Corporation shall not directly or
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indirectly redeem, purchase, repurchase or otherwise acquire for consideration
(including, without limitation, by directly or indirectly assisting or
supporting any other person or entity in any direct or indirect redemption,
purchase, repurchase or other acquisition for consideration), and shall not
directly or indirectly in any other fashion agree to, facilitate, condone or
support in any way or manner whatsoever any direct or indirect redemption,
purchase, repurchase or other acquisition for consideration by any person or
entity of, any shares of Common Stock unless such redemption, purchase,
repurchase or other acquisition is effected ratably in accordance with the
number of outstanding shares of Class A Common Stock and Class B Common Stock,
is for
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consideration of the same type and amount as to shares of Class A Common Stock
and shares of Class B Common Stock, and is not in any other way prejudicial to
the rights of the holders of one class of Common Stock in favor of the other
class of Common Stock; provided, however, that in the case of an offer to
purchase shares of Common Stock by the Corporation made to all holders of Common
Stock, the Corporation shall purchase shares of Common Stock ratably in
accordance with the number of shares of each class of Common Stock tendered
thereunder.
(vi) Rights Otherwise Identical. Except as expressly set forth
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herein, the rights of the holders of Class A Common Stock and the rights of the
holders of Class B Common Stock shall be in all respects and for all purposes
and in all circumstances absolutely and completely identical, and the
Corporation shall not in any other manner directly or indirectly take any other
action or in any other fashion agree to, facilitate, condone or support any
transaction in which the holders of the Class A Common Stock and the Class B
Common Stock are subject to discriminatory or unequal treatment.
SECTION 3. Preferred Stock. The Preferred Stock may be issued from
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time to time in one or more series. The Board is hereby authorized to provide
by resolution from time to time for the issuance of shares of Preferred Stock in
series and, by filing a certificate pursuant to the DGCL (hereinafter referred
to as a "Preferred Stock Designation"), to establish from time to time the
number of shares to be included in each such series, and to fix the designation,
powers, privileges, preferences and rights of the shares of each such series and
the qualifications, limitations and restrictions thereof. The authority of the
Board with respect to each series shall include, but not be limited to,
determination of the following:
(a) the designation of the series, which may be by distinguishing number,
letter or title;
(b) the number of shares of the series, which number the Board may
thereafter (except where otherwise provided in the Preferred Stock
Designation) increase or decrease (but not below the number of shares
thereof then outstanding);
(c) whether dividends, if any, shall be cumulative or noncumulative, and,
in the case of shares of any series having cumulative dividend rights,
the date or dates or method of determining the date or dates from
which dividends on the shares of such series shall be cumulative;
(d) the rate of any dividends (or method of determining such dividends)
payable to the holders of the shares of such series, any conditions
upon which such dividends shall be paid and the date or dates or the
method for determining the date or dates upon which such dividends
shall be payable;
(e) the price or prices (or method of determining such price or prices) at
which, the form of payment of such price or prices (which may be cash,
property or rights, including securities of the same or another
corporation or other entity) for which, the period or periods within
which and the terms and conditions upon which the shares of such
series may be redeemed, in whole or in part, at the option of the
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Corporation or at the option of the holder or holders thereof or upon
the happening of a specified event or events, if any;
(f) the obligation, if any, of the Corporation to purchase or redeem
shares of such series pursuant to a sinking fund or otherwise and the
price or prices at which, the form of payment of such price or prices
(which may be cash, property or rights, including securities of the
same or another corporation or other entity) for which, the period or
periods within which and the terms and conditions upon which the
shares of such series shall be redeemed or purchased, in whole or in
part, pursuant to such obligation;
(g) the amount payable out of the assets of the Corporation to the holders
of shares of the series in the event of any voluntary or involuntary
liquidation, dissolution or winding up of the affairs of the
Corporation;
(h) provisions, if any, for the conversion or exchange of the shares of
such series, at any time or times at the option of the holder or
holders thereof or at the option of the Corporation or upon the
happening of a specified event or events, into shares of any other
class or classes or any other series of the same or any other class or
classes of stock, or any other security, of the Corporation, or any
other corporation or other entity, and the price or prices or rate or
rates of conversion or exchange and any adjustments applicable
thereto, and all other terms and conditions upon which such conversion
or exchange may be made;
(i) restrictions on the issuance of shares of the same series or of any
other class or series, if any; and
(j) the voting rights, if any, of the holders of shares of the series.
SECTION 4. Series A Junior Participating Preferred Stock. The Board
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hereby authorizes the issuance of the Series A Junior Participating Preferred
Stock as follows:
(a) Designation and Amount. The shares of such series shall be
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designated as "Series A Junior Participating Preferred Stock" (the "Series A
Preferred Stock") and the number of shares constituting the Series A Preferred
Stock shall be 4,000,000. Such number of shares may be increased or decreased by
resolution of the Board of Directors; provided, that no decrease shall reduce
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the number of shares of Series A Preferred Stock to a number less than the
number of shares then outstanding plus the number of shares reserved for
issuance upon the exercise of outstanding options, rights or warrants or upon
the conversion of any outstanding securities issued by the Corporation
convertible into Series A Preferred Stock.
(b) Dividends and Distributions.
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(i) Subject to the rights of the holders of any shares of any
series of Preferred Stock (or any similar stock) ranking prior and superior to
the Series A Preferred Stock with respect to dividends, the holders of shares of
Series A Preferred Stock, in preference to the
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holders of shares of Class A Common Stock and Class B Common Stock of the
Corporation, and of any other junior stock, shall be entitled to receive, when,
as and if declared by the Board of Directors out of funds legally available for
the purpose, quarterly dividends payable in cash on the first day of March,
June, September and December in each year (each such date being referred to
herein as a "Quarterly Dividend Payment Date"), commencing on the first
Quarterly Dividend Payment Date after the first issuance of a share or fraction
of a share of Series A Preferred Stock, in an amount per share (rounded to the
nearest cent) equal to the greater of (A) $1 or (B) subject to the provision for
adjustment hereinafter set forth, 100 times the aggregate per share amount of
all cash dividends, and 100 times the aggregate per share amount (payable in
kind) of all non-cash dividends or other distributions, other than a dividend
payable in shares of Common Stock or a subdivision of the outstanding shares of
Common Stock (by reclassification or otherwise), declared on the Common Stock
since the immediately preceding Quarterly Dividend Payment Date or, with respect
to the first Quarterly Dividend Payment Date, since the first issuance of any
share or fraction of a share of Series A Preferred Stock. In the event the
Corporation shall at any time declare or pay any dividend on the Common Stock
payable in shares of Common Stock, or effect a subdivision or combination or
consolidation of the outstanding shares of Common Stock (by reclassification or
otherwise than by payment of a dividend in shares of Common Stock) into a
greater or lesser number of shares of Common Stock, then in each such case the
amount to which holders of shares of Series A Preferred Stock were entitled
immediately prior to such event under clause (B) of the preceding sentence shall
be adjusted by multiplying such amount by a fraction, the numerator of which is
the number of shares of Common Stock outstanding immediately after such event
and the denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(ii) The Corporation shall declare a dividend or distribution on the
Series A Preferred Stock as provided in paragraph (i) of this subsection
immediately after it declares a dividend or distribution on the Common Stock
(other than a dividend payable in shares of Common Stock); provided that, in the
event no dividend or distribution shall have been declared on the Common Stock
during the period between any Quarterly Dividend Payment Date and the next
subsequent Quarterly Dividend Payment Date, a dividend of $1 per share on the
Series A Preferred Stock shall nevertheless be payable on such subsequent
Quarterly Dividend Payment Date.
(iii) Dividends shall begin to accrue and be cumulative on outstanding
shares of Series A Preferred Stock from the Quarterly Dividend Payment Date next
preceding the date of issue of such shares, unless the date of issue of such
shares is prior to the record date for the first Quarterly Dividend Payment
Date, in which case dividends on such shares shall begin to accrue from the date
of issue of such shares, or unless the date of issue is a Quarterly Dividend
Payment Date or is a date after the record date for the determination of holders
of shares of Series A Preferred Stock entitled to receive a quarterly dividend
and before such Quarterly Dividend Payment Date, in either of which events such
dividends shall begin to accrue and be cumulative from such Quarterly Dividend
Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends
paid on the shares of Series A Preferred Stock in an amount less than the total
amount of such dividends at the time accrued and payable on such shares shall be
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allocated pro rata on a share-by-share basis among all such shares at the time
outstanding. The Board of Directors may fix a record date for the determination
of holders of shares of Series A Preferred Stock entitled to receive payment of
a dividend or distribution declared thereon, which record date shall be not more
than 60 days prior to the date fixed for the payment thereof.
(c) Voting Rights. The holders of shares of Series A Preferred Stock
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shall have the following voting rights:
(i) Subject to the provision for adjustment hereinafter set
forth, each share of Series A Preferred Stock shall entitle the holder thereof
to 100 votes on all matters submitted to a vote of the stockholders of the
Corporation. In the event the Corporation shall at any time declare or pay any
dividend on the Common Stock payable in shares of Common Stock, or effect a
subdivision or combination or consolidation of the outstanding shares of Common
Stock (by reclassification or otherwise than by payment of a dividend in shares
of Common Stock) into a greater or lesser number of shares of Common Stock, then
in each such case the number of votes per share to which holders of shares of
Series A Preferred Stock were entitled immediately prior to such event shall be
adjusted by multiplying such number by a fraction, the numerator of which is the
number of shares of Common Stock outstanding immediately after such event and
the denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(ii) Except as otherwise provided herein, in any other Certificate
of Designations creating a series of Preferred Stock or any similar stock, or by
law, the holders of shares of Series A Preferred Stock and the holders of shares
of Class B Common Stock shall vote together as one class on all matters
submitted to a vote of stockholders of the Corporation.
(iii) Except as set forth herein, or as otherwise provided by law,
holders of Series A Preferred Stock shall have no special voting rights and
their consent shall not be required (except to the extent they are entitled to
vote with holders of Common Stock as set forth herein) for taking any corporate
action.
(d) Certain Restrictions.
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(i) Whenever quarterly dividends or other dividends or
distributions payable on the Series A Preferred Stock as provided in Section
4(b) are in arrears, thereafter and until all accrued and unpaid dividends and
distributions, whether or not declared, on shares of Series A Preferred Stock
outstanding shall have been paid in full, the Corporation shall not:
(A) declare or pay dividends, or make any other
distributions, on any shares of stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the
Series A Preferred Stock;
(B) declare or pay dividends, or make any other
distributions, on any shares of stock ranking on a parity (either as
to dividends or upon liquidation, dissolution or winding up) with the
Series A Preferred Stock, except dividends paid ratably on the Series
A Preferred Stock and all such parity stock on which
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dividends are payable or in arrears in proportion to the total amounts
to which the holders of all such shares are then entitled;
(C) redeem or purchase or otherwise acquire for consideration
shares of any stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series A Preferred
Stock, provided that the Corporation may at any time redeem, purchase
or otherwise acquire shares of any such junior stock in exchange for
shares of any stock of the Corporation ranking junior (either as to
dividends or upon dissolution, liquidation or winding up) to the
Series A Preferred Stock; or
(D) redeem or purchase or otherwise acquire for consideration
any shares of Series A Preferred Stock, or any shares of stock ranking
on a parity with the Series A Preferred Stock, except in accordance
with a purchase offer made in writing or by publication (as determined
by the Board of Directors) to all holders of such shares upon such
terms as the Board of Directors, after consideration of the respective
annual dividend rates and other relative rights and preferences of the
respective series and classes, shall determine in good faith will
result in fair and equitable treatment among the respective series or
classes.
(ii) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any shares of
stock of the Corporation unless the Corporation could, under paragraph (i) of
this Section 4(d), purchase or otherwise acquire such shares at such time and in
such manner.
(e) Reacquired Shares. Any shares of Series A Preferred Stock
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purchased or otherwise acquired by the Corporation in any manner whatsoever
shall be retired and canceled promptly after the acquisition thereof. All such
shares shall upon their cancellation become authorized but unissued shares of
Preferred Stock and may be reissued as part of a new series of Preferred Stock
subject to the conditions and restrictions on issuance set forth herein, in the
Certificate of Incorporation, or in any other Certificate of Designations
creating a series of Preferred Stock or any similar stock or as otherwise
required by law.
(f) Liquidation, Dissolution or Winding Up. Upon any liquidation,
----------------------------------- --
dissolution or winding up of the Corporation, no distribution shall be made (1)
to the holders of shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series A Preferred Stock unless,
prior thereto, the holders of shares of Series A Preferred Stock shall have
received $100 per share, plus an amount equal to accrued and unpaid dividends
and distributions thereon, whether or not declared, to the date of such payment,
provided that the holders of shares of Series A Preferred Stock shall be
entitled to receive an aggregate amount per share, subject to the provision for
adjustment hereinafter set forth, equal to 100 times the aggregate amount to be
distributed per share to holders of shares of Common Stock, or (2) to the
holders of shares of stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series A Preferred Stock,
except distributions made ratably on the Series A Preferred Stock and all such
parity stock in proportion to the total amounts to
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which the holders of all such shares are entitled upon such liquidation,
dissolution or winding up. In the event the Corporation shall at any time
declare or pay any dividend on the Common Stock payable in shares of Common
Stock, or effect a subdivision or combination or consolidation of the
outstanding shares of Common Stock (by reclassification or otherwise than by
payment of a dividend in shares of Common Stock) into a greater or lesser number
of shares of Common Stock, then in each such case the aggregate amount to which
holders of shares of Series A Preferred Stock were entitled immediately prior to
such event under the proviso in clause (1) of the preceding sentence shall be
adjusted by multiplying such amount by a fraction the numerator of which is the
number of shares of Common Stock outstanding immediately after such event and
the denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(g) Consolidation, Merger, etc. In case the Corporation shall enter
---------------------------
into any consolidation, merger, other than the merger of Raytheon Company with
and into the Corporation, combination or other transaction in which the shares
of Common Stock are exchanged for or changed into other stock or securities,
cash and/or any other property, then in any such case each share of Series A
Preferred Stock shall at the same time be similarly exchanged or changed into an
amount per share, subject to the provision for adjustment hereinafter set forth,
equal to 100 times the aggregate amount of stock, securities, cash and/or any
other property (payable in kind), as the case may be, into which or for which
each share of Common Stock is changed or exchanged. In the event the Corporation
shall at any time declare or pay any dividend on the Common Stock payable in
shares of Common Stock, or effect a subdivision or combination or consolidation
of the outstanding shares of Common Stock (by reclassification or otherwise than
by payment of a dividend in shares of Common Stock) into a greater or lesser
number of shares of Common Stock, then in each such case the amount set forth in
the preceding sentence with respect to the exchange or change of shares of
Series A Preferred Stock shall be adjusted by multiplying such amount by a
fraction, the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to such
event.
(h) No Redemption. The shares of Series A Preferred Stock shall
-------------
not be redeemable.
(i) Rank. The Series A Preferred Stock shall rank, with respect to
----
the payment of dividends and the distribution of assets, junior to all series of
any other class of the Corporation's Preferred Stock.
(j) Amendment. The Certificate of Incorporation of the Corporation
---------
shall not be amended in any manner which would materially alter or change the
powers, preferences or special rights of the Series A Preferred Stock so as to
affect them adversely without the affirmative vote of the holders of at least
two-thirds of the outstanding shares of Series A Preferred Stock, voting
together as a single class.
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<PAGE>
SECTION 5. General. The Common Stock shall be subject to the express
-------
terms of the Preferred Stock and any series thereof. Except as otherwise
provided by law or by the resolution or resolutions adopted by the Board
designating the rights, powers and preferences of any series of Preferred Stock,
the Common Stock shall have the exclusive right to vote for the election of
directors and for all other purposes, and holders of Preferred Stock shall not
be entitled to receive notice of any meeting of stockholders at which they are
not entitled to vote. The Corporation shall be entitled to treat the person in
whose name any share of its stock is registered as the owner thereof for all
purposes and shall not be bound to recognize any equitable or other claim to, or
interest in, such share on the part of any other person, whether or not the
Corporation shall have notice thereof, except as expressly provided by
applicable law.
ARTICLE V
Stockholder Action
Any action required or permitted to be taken by the stockholders of
the Corporation must be effected at a duly called annual or special meeting of
such holders and may not be effected by any consent in writing by such holders.
Except as otherwise required by law and subject to the rights of the holders of
any class or series of stock having a preference over the Common Stock as to
dividends or upon liquidation, special meetings of stockholders of the
Corporation for any purpose or purposes may be called only by the Board pursuant
to a resolution stating the purpose or purposes thereof approved by a majority
of the total number of directors which the Corporation would have if there were
no vacancies (the "Whole Board") or by the Chairman of the Board and any power
of stockholders to call a special meeting is specifically denied. No business
other than that stated in the notice shall be transacted at any special meeting.
ARTICLE VI
Board of Directors
SECTION 1. Number, election and terms. The number of directors of
--------------------------
the Corporation shall be, except as otherwise fixed by or pursuant to the
provisions of Article IV relating to the rights of the holders of any class or
series of stock having a preference over the Common Stock as to dividends or
upon liquidation to elect additional directors under specified circumstances,
fixed from time to time exclusively pursuant to a resolution adopted by a
majority of the Whole Board (but shall not be less than three). The directors,
other than those who may be elected by the holders of any class or series of
stock having a preference over the Common Stock as to dividends or upon
liquidation, shall be classified, with respect to the time for which they
severally hold office, into three classes, as nearly equal in number as
possible, one class to be originally elected for a term expiring at the annual
meeting of stockholders to be held in 1998, another class to be originally
elected for a term expiring at the annual meeting of stockholders to be held in
1999, and another class to be originally elected for a term expiring at the
annual meeting of stockholders to be held in 2000, with each director to hold
office until such person's successor is duly elected and qualified. At each
succeeding annual meeting of stockholders, directors elected to succeed those
directors whose terms then expire shall be elected for a term of office to
expire at the third succeeding annual meeting of stockholders after their
election, with
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each director to hold office until such person's successor shall have been duly
elected and qualified.
SECTION 2. Stockholder nomination of director candidates; Stockholder
----------------------------------------------------------
Proposal of Business. Advance notice of stockholder nominations for the
- --------------------
election of directors and of the proposal of business by stockholders shall be
given in the manner provided in the By-Laws of the Corporation, as amended and
in effect from time to time.
SECTION 3. Newly created directorships and vacancies. Except as
-----------------------------------------
otherwise provided for or fixed by or pursuant to the provisions of Article IV
relating to the rights of the holders of any class or series of stock having a
preference over the Common Stock as to dividends or upon liquidation to elect
directors under specified circumstances, (i) newly created directorships
resulting from any vacancies on the Board resulting from death, resignation,
disqualification, removal or other cause shall be filled by the affirmative vote
of a majority of the remaining directors then in office, even though less than a
quorum of the Board, and not by the stockholders and (ii) newly created
directorships resulting from any increase in the number of directors after the
adoption of a resolution by a majority of the Whole Board in accordance with
Section 1 of this Article VI shall be filled by the affirmative vote of the
holders of Common Stock, voting in accordance with the provisions of Section
2(a)(i) of Article IV regarding election of directors at the next succeeding
annual or special meeting of stockholders. Any director appointed in accordance
with clause (i) of the preceding sentence shall hold office until the next
annual or special meeting of stockholders and until such director's successor
shall have been duly elected and qualified. Any director elected in accordance
with clause (ii) of the preceding sentence shall hold office for the remainder
of the full term of the class of director in which the new directorship was
created and until such director's successor shall have been duly elected and
qualified. No decrease in the number of directors constituting the Board shall
shorten the term of any incumbent director.
SECTION 4. Removal. Subject to the rights of any class or series of
-------
stock having a preference over the Common Stock as to dividends or upon
liquidation to elect directors under specified circumstances, any director may
be removed from office only for cause by the affirmative vote of the holders of
the shares of Common Stock, voting together as a single class in the same manner
and with the same votes per share as provided in Section 2(a)(i) of Article IV
with respect to the election of directors (i.e. with the holders of Class A
Common Stock having 80.1% of the total voting power to remove directors and the
number of votes per share necessary to achieve such voting power determined by
the Board).
ARTICLE VII
By-Laws
The By-Laws may be altered or repealed and new By-Laws may be adopted
(1) at any annual or special meeting of stockholders, by the affirmative vote of
the holders of the shares of Common Stock voting in accordance with Section
2(a)(ii) of Article IV; provided, however, that in the case of any such
stockholder action at a special meeting of stockholders, notice of the
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<PAGE>
proposed alteration, repeal or adoption of the new By-law or By-Laws must be
contained in the notice of such special meeting, or (2) by the affirmative vote
of a majority of the Whole Board.
ARTICLE VIII
Amendment of Certificate of Incorporation
The Corporation reserves the right at any time from time to time to
amend, alter, change or repeal any provision contained in this Certificate of
Incorporation, and any other provisions authorized by the laws of the State of
Delaware at the time in force may be added or inserted, in the manner now or
hereafter prescribed by law; and, except as set forth in Article X, all rights,
preferences and privileges of whatsoever nature conferred upon stockholders,
directors or any other persons whomsoever by and pursuant to this Certificate of
Incorporation in its present form or as hereafter amended are granted subject to
the right reserved in this Article.
ARTICLE IX
Corporate Action
In addition to any other considerations which the Board may lawfully
take into account, in determining whether to take or to refrain from taking
corporate action on any matter, including making or declining to make any
recommendation to the stockholders of the Corporation, the Board may in its
discretion consider the long-term as well as short-term best interests of the
Corporation (including the possibility that these interests may be best served
by the continued independence of the Corporation), taking into account, and
weighing as the directors deem appropriate, the effects of such action on
employees, suppliers and customers of the Corporation and its subsidiaries and
the effect upon communities in which offices or other facilities of the
Corporation are located, and any other factors the directors consider pertinent.
ARTICLE X
Limited Liability; Indemnification
SECTION 1. Limited Liability of Directors. A director of the
------------------------------
Corporation shall not be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except to the extent such exemption from liability or limitation thereof is not
permitted under the DGCL as the same exists or may hereafter be amended.
Neither the amendment nor repeal of Section 1 of this Article X shall eliminate
or reduce the effect of Section 1 of this Article X in respect of any matter
occurring, or any cause of action, suit or claim that, but for Section 1 of this
Article X would accrue or arise, prior to such amendment or repeal.
SECTION 2. Indemnification and Insurance. (a) Right to
-----------------------------
Indemnification. Each person who was or is made a party or is threatened to be
made a party to or is involved in any action, suit or proceeding, whether civil,
criminal, administrative or investigative (hereinafter a "proceeding"), by
reason of the fact that such person, or a person of whom such person is the
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<PAGE>
legal representative, is or was a director or officer of the Corporation or is
or was serving at the request of the Corporation as a director or officer of
another corporation or of a partnership, joint venture, trust or other
enterprise, including service with respect to employee benefit plans, whether
the basis of such proceeding is alleged action in an official capacity as a
director or officer or in any other capacity while serving as a director or
officer shall be indemnified and held harmless by the Corporation to the fullest
extent authorized by the DGCL, as the same exists or may hereafter be amended
(but, in the case of any such amendment, to the fullest extent permitted by law,
only to the extent that such amendment permits the Corporation to provide
broader indemnification rights than said law permitted the Corporation to
provide prior to such amendment), against all expense, liability and loss
(including attorneys' fees, judgment, fines, amounts paid or to be paid in
settlement, and excise taxes or penalties arising under the Employee Retirement
Income Security Act of 1974, as in effect from time to time) reasonably incurred
or suffered by such person in connection therewith and such indemnification
shall continue as to a person who has ceased to be a director or officer, and
shall inure to the benefit of such person's heirs, executors and administrators;
provided, however, that, except as provided in paragraph (b) of this Section,
the Corporation shall indemnify any such person seeking indemnification in
connection with a proceeding (or part thereof) initiated by such person only if
such proceeding (or part thereof) was authorized by the Board. The right to
indemnification conferred in this Section shall be a contract right and shall
include the right to have the Corporation pay the expenses incurred in defending
any such proceeding in advance of its final disposition; any advance payments to
be paid by the Corporation within 20 calendar days after the receipt by the
Corporation of a statement or statements from the claimant requesting such
advance or advances from time to time; provided, however, that, if and to the
extent the DGCL requires, the payment of such expenses incurred by a director or
officer in such person's capacity as a director or officer (and not in any other
capacity in which service was or is rendered by such person while a director or
officer, including, without limitation, service to an employee benefit plan) in
advance of the final disposition of a proceeding, shall be made only upon
delivery to the Corporation of an undertaking, by or on behalf of such director
or officer, to repay all amounts so advanced if it shall ultimately be
determined that such director or officer is not entitled to be indemnified under
this Section or otherwise. The Corporation may, to the extent authorized from
time to time by the Board, grant rights to indemnification, and rights to have
the Corporation pay the expenses incurred in defending any proceeding in advance
of its final disposition, to any employee or agent of the Corporation to the
fullest extent of the provisions of this Article with respect to the
indemnification and advancement of expenses of directors and officers of the
Corporation.
(b) Right of Claimant to Bring Suit. If a claim under paragraph (a)
of this Section is not paid in full by the Corporation within 30 calendar days
after a written claim has been received by the Corporation, the claimant may at
any time thereafter bring suit against the Corporation to recover the unpaid
amount of the claim and, if successful in whole or in part, the claimant shall
be entitled to be paid also the expense of prosecuting such claim. It shall be
a defense to any such action (other than an action brought to enforce a claim
for expenses incurred in defending any proceeding in advance of its final
disposition where the required undertaking, if any is required, has been
tendered to the Corporation) that the claimant has not met the standard of
conduct which makes it permissible under the DGCL for the Corporation to
indemnify the
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<PAGE>
claimant for the amount claimed, but the burden of proving such defense shall be
on the Corporation. Neither the failure of the Corporation (including its Board
of Directors, independent legal counsel, or its stockholders) to have made a
determination prior to the commencement of such action that indemnification of
the claimant is proper in the circumstances because the claimant has met the
applicable standard of conduct set forth in the DGCL, nor an actual
determination by the Corporation (including its Board, independent legal
counsel, or its stockholders) that the claimant has not met such applicable
standard of conduct, shall be a defense to the action or create a presumption
that the claimant has not met the applicable standard of conduct.
(c) Non-Exclusivity of Rights. The right to indemnification and the
payment of expenses incurred in defending a proceeding in advance of its final
disposition conferred in this Section shall not be exclusive of any other right
which any person (including, without limitation, any person other than an
officer or director of the Corporation) may have or hereafter acquire under any
statute, provision of the Certificate of Incorporation, By-Laws, agreement, vote
of stockholders or disinterested directors or otherwise. No repeal or
modification of this Article shall in any way diminish or adversely affect the
rights of any director or officer of the Corporation hereunder in respect of any
occurrence or matter arising prior to any such repeal or modification.
(d) Insurance. The Corporation may maintain insurance, at its
expense, to protect itself and any director, officer, employee or agent of the
Corporation or another corporation, partnership, joint venture, trust or other
enterprise against any such expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against such expense,
liability or loss under the DGCL.
(e) Severability. If any provision or provisions of this Article X
shall be held to be invalid, illegal or unenforceable for any reason whatsoever:
(1) the validity, legality and enforceability of the remaining provisions of
this Article X (including, without limitation, each portion of any paragraph of
this Article X containing any such provision held to be invalid, illegal or
unenforceable, that is not itself held to be invalid, illegal or unenforceable)
shall not in any way be affected or impaired thereby; and (2) to the fullest
extent possible, the provisions of this Article X (including, without
limitation, each such portion of any paragraph of this Article X containing any
such provision held to be invalid, illegal or unenforceable) shall be construed
so as to give effect to the intent manifested by the provision held invalid,
illegal or unenforceable.
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<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Amended and
Restated Certificate of Incorporation to be duly executed this 12th day of
December, 1997.
By: /s/ Roxanne S. Austin
__________________________________
Name: Roxanne S. Austin
Title: Vice President
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<PAGE>
CERTIFICATE OF MERGER
OF
RAYTHEON COMPANY
WITH AND INTO
HE HOLDINGS, INC.
Under Section 251
of
the Delaware General Corporation Law
THE UNDERSIGNED, HE Holdings, Inc. ("Defense") and Raytheon Company
("Raytheon"), in connection with the merger of Raytheon with and into Defense
(the "Merger"), hereby certify as follows:
FIRST: The name and the state of incorporation of each of the
constituent corporations are:
Name State of Incorporation
---- ----------------------
HE Holdings, Inc. Delaware
Raytheon Company Delaware
SECOND: An agreement and plan of merger relating to the Merger (the
"Agreement of Merger") has been approved, adopted, certified, executed and
acknowledged by each of the constituent corporations in accordance with Section
251 of the Delaware General Corporation Law.
THIRD: The name of the surviving corporation of the Merger is
HE Holdings, Inc.
FOURTH: The Certificate of Incorporation of the surviving corporation
shall be the Amended and Restated Certificate of Incorporation of HE Holdings,
Inc. as filed with the Secretary of State of Delaware on December 12, 1997;
provided, however, that Article I thereof shall be amended and restated as of
the effectiveness of the Merger to read as follows:
<PAGE>
"Article I
Name
The name of the corporation (which is hereafter referred to as
the "Corporation") is Raytheon Company."
FIFTH: The merger shall be effective at and as of 5:00 p.m. (Eastern
Time) on December 17, 1997.
SIXTH: The executed Agreement of Merger is on file at the principal
place of business of the surviving corporation at 141 Spring Street, Lexington,
Massachusetts 02173.
SEVENTH: A copy of the Agreement of Merger will be furnished by the
surviving corporation, on request and without cost, to any stockholder of either
constituent corporation.
IN WITNESS WHEREOF, the undersigned corporations have duly executed this
Certificate this 17th day of December 1997.
RAYTHEON COMPANY
By: /s/ Thomas D. Hyde
---------------------------------
Name: Thomas D. Hyde
Title: Vice President and General
Counsel
HE HOLDINGS, INC.
By: /s/ J.L. Williamson
------------------------
Name: J.L. Williamson
Title: Assistant Secretary
2
<PAGE>
Exhibit 3(ii)
AMENDED AND RESTATED
BY-LAWS
OF
HE HOLDINGS, INC.
(Amended and Restated as of December 7, 1997)
Incorporated under the Laws of the State of Delaware
______________________
ARTICLE I
Offices And Records
Section 1.1. Delaware Office. The principal office of the
Corporation in the State of Delaware shall be located in the City of Wilmington,
County of New Castle, and the name and address of its registered agent is The
Corporation Trust Company, 1209 Orange Street in the City of Wilmington, County
of New Castle.
Section 1.2. Other Offices. The Corporation may have such other
offices, either within or outside the State of Delaware, as the Board of
Directors of the Corporation (the "Board") may designate or as the business of
the Corporation may from time to time require.
Section 1.3. Books and Records. The books and records of the
Corporation may be kept outside the State of Delaware at such place or places as
may from time to time be designated by the Board.
<PAGE>
ARTICLE II
Stockholders
Section 2.1. Annual Meeting. The annual meeting of the stockholders of
the Corporation shall be held on such date and at such time as may be fixed by
resolution of the Board.
Section 2.2. Special Meeting. Except as otherwise required by law and
subject to the rights of the holders of any class or series of stock having a
preference over the Common Stock as to dividends or upon liquidation, special
meetings of stockholders of the Corporation for any purpose or purposes may be
called only by (i) the Board pursuant to a resolution stating the purpose or
purposes thereof approved by a majority of the total number of directors which
the Corporation would have if there were no vacancies (the "Whole Board") or
(ii) by the Chairman of the Board. No business other than that stated in the
notice shall be transacted at any special meeting.
Section 2.3. Place of Meeting. The Board or the Chairman of the Board, as
the case may be, may designate the place of meeting for any annual meeting or
for any special meeting of the stockholders. If no designation is so made, the
place of meeting shall be the principal office of the Corporation.
Section 2.4. Notice of Meeting. Written or printed notice stating (i) the
place, day and hour of the meeting, (ii) with respect to a meeting to elect or
remove directors, the number of votes per share of Class A Common Stock that
record holders of Class A Common Stock will have at such meeting (as such number
is determined in accordance with Section 2(a)(i) of Article IV of the
Certificate of Incorporation of the Corporation (the "Certificate of
Incorporation")), and (iii) the purpose or purposes for which the meeting is
called, shall be delivered by the Corporation not less than 10 calendar days nor
more than 60 calendar days before the date of the meeting, either personally or
by mail, to each stockholder of record entitled to vote at such meeting. If
mailed, such notice shall be deemed to be delivered when deposited in the United
States mail with postage thereon prepaid, addressed to the stockholder at such
person's address as it appears on the stock transfer books of the Corporation.
Such further notice shall be given as may be required by law. Only such business
shall be conducted at a special meeting of stockholders as shall have been
brought before the meeting pursuant to the Corporation's notice of meeting.
Meetings may be held without notice if all stockholders entitled to vote are
present, or if notice is waived by those not present in accordance with Section
6.4 of these By-
2
<PAGE>
Laws. Any previously scheduled meeting of the stockholders may be postponed,
and any special meeting of the stockholders may be canceled, by resolution of
the Board upon public notice given prior to the date previously scheduled for
such meeting of stockholders.
Section 2.5. Quorum and Adjournment; Voting. Except as otherwise
provided by law or by the Certificate of Incorporation, the holders of a
majority of the voting power of all outstanding shares of capital stock of the
Corporation entitled to vote generally in the election of directors (the "Voting
Stock"), represented in person or by proxy, shall constitute a quorum at a
meeting of stockholders, except that when specified business is to be voted on
by a class or series of stock voting as a class, the holders of a majority of
the shares of each such class or series shall constitute a quorum of such class
or series for the transaction of such business and a quorum of each such class
or series entitled to vote thereon shall be required to act. To the extent that
a quorum is present with respect to consideration of and action on a particular
matter or matters but a quorum is not present as to another matter or matters,
consideration of and action on the matter or matters for which a quorum is
present may occur, and, after such consideration and action, the meeting may be
adjourned for purposes of the consideration of and action on the matter or
matters for which a quorum is not present. The Chairman of the meeting may
adjourn the meeting from time to time, whether or not there is such a quorum.
No notice of the time and place of adjourned meetings need be given except as
required by law. The stockholders present at a duly called meeting at which a
quorum is present may continue to transact business until adjournment,
notwithstanding the withdrawal of enough stockholders to leave less than a
quorum.
Section 2.6. Proxies. At all meetings of stockholders, a stockholder
may vote by proxy executed in writing (or in such manner prescribed by the
General Corporation Law of the State of Delaware (the "DGCL")) by the
stockholder, or by such person's duly authorized attorney in fact.
Section 2.7. Notice of Stockholder Business and Nominations.
(A) Annual Meetings of Stockholders.
(1) Nominations of persons for election to the Board and the proposal
of business to be considered by the stockholders may be made at an annual
meeting of stockholders (a) pursuant to the Corporation's notice of meeting
pursuant to Section 2.4 of these By-Laws, (b) by or at the direction of the
Board, or (c) by any
3
<PAGE>
stockholder of the Corporation who was a stockholder of record at the time of
giving of notice provided for in this By-Law, who is entitled to vote at the
meeting and who complies with the notice procedures set forth in this By-Law.
(2) For nominations or other business to be properly brought before
an annual meeting by a stockholder pursuant to clause (c) of paragraph (A)(1) of
this By-Law, the stockholder must have given timely notice thereof in writing to
the Secretary of the Corporation and such other business must otherwise be a
proper matter for stockholder action. To be timely, a stockholder's notice
shall be delivered to the Secretary at the principal executive offices of the
Corporation not later than the close of business on the 90th calendar day nor
earlier than the close of business on the 120th calendar day prior to the first
anniversary of the preceding year's annual meeting; provided, however, that in
the event that the date of the annual meeting is more than 30 calendar days
before or more than 60 calendar days after such anniversary date, notice by the
stockholder to be timely must be so delivered not earlier than the close of
business on the 120th calendar day prior to such annual meeting and not later
than the close of business on the later of the 90th calendar day prior to such
annual meeting or the 10th calendar day following the calendar day on which
public announcement of the date of such meeting is first made by the
Corporation. For purposes of determining whether a stockholder's notice shall
have been delivered in a timely manner for the annual meeting of stockholders in
1998, the first anniversary of the previous year's meeting shall be deemed to be
May 31, 1998. In no event shall the public announcement of an adjournment of an
annual meeting commence a new time period for the giving of a stockholder's
notice as described above. Such stockholder's notice shall set forth (a) as to
each person whom the stockholder proposes to nominate for election or re-
election as a director all information relating to such person that is required
to be disclosed in solicitations of proxies for election of directors in an
election contest, or is otherwise required, in each case pursuant to Regulation
14A under the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
and Rule 14a-11 thereunder (including such person's written consent to being
named in the proxy statement as a nominee and to serving as a director if
elected); (b) as to any other business that the stockholder proposes to bring
before the meeting, a brief description of the business desired to be brought
before the meeting, the reasons for conducting such business at the meeting and
any financial interest in such business of such stockholder and the beneficial
owner, if any, on whose behalf the proposal is made; and (c) as to the
stockholder giving the notice and the beneficial owner, if any, on whose behalf
the nomination or proposal is made (i) the name and address of such stockholder,
as they appear on the Corporation's books, and of such beneficial owner and (ii)
the class and number of shares of
4
<PAGE>
the Corporation which are owned beneficially and of record by such stockholder
and such beneficial owner.
(3) Notwithstanding anything in the second sentence of paragraph
(A)(2) of this By-Law to the contrary, in the event that the number of directors
to be elected to the Board is increased and there is no public announcement by
the Corporation naming all of the nominees for director or specifying the size
of the increased Board at least 100 calendar days prior to the first
anniversary of the preceding year's annual meeting, a stockholder's notice
required by this By-Law shall also be considered timely, but only with respect
to nominees for any new positions created by such increase, if it shall be
delivered to the Secretary at the principal executive offices of the Corporation
not later than the close of business on the 10th calendar day following the day
on which such public announcement is first made by the Corporation.
(B) Special Meetings of Stockholders.
Only such business shall be conducted at a special meeting of
stockholders as shall have been brought before the meeting pursuant to the Cor
poration's notice of meeting under Section 2.4 of these By-Laws. Nominations of
persons for election to the Board may be made at a special meeting of
stockholders at which directors are to be elected pursuant to the Corporation's
notice of meeting (a) by or at the direction of the Board, or (b) provided that
the Board has determined that directors shall be elected at such meeting, by any
stockholder of the Corporation who is a stockholder of record at the time of
giving of notice provided for in this By-Law, who shall be entitled to vote at
the meeting and who complies with the notice procedures set forth in this By-
Law. In the event the Corporation calls a special meeting of stockholders for
the purpose of electing one or more directors to the Board, any stockholder may
nominate a person or persons (as the case may be), for election to such
position(s) as specified in the Corporation's notice of meeting pursuant to such
clause (b), if the stockholder's notice required by paragraph (A)(2) of this By-
Law shall be delivered to the Secretary at the principal executive offices of
the Corporation not earlier than the close of business on the 120th calendar day
prior to such special meeting and not later than the close of business on the
later of the 90th calendar day prior to such special meeting or the 10th
calendar day following the day on which public announcement is first made of the
date of the special meeting and of the nominees proposed by the Board to be
elected at such meeting. In no event shall the public announcement of an
adjournment of a special meeting commence a new time period for the giving of a
stockholder's notice as described above.
5
<PAGE>
(C) General.
(1) Only such persons who are nominated in accordance with the
procedures set forth in this By-Law shall be eligible to serve as directors and
only such business shall be conducted at a meeting of stockholders as shall have
been brought before the meeting in accordance with the procedures set forth in
this By-Law. Except as otherwise provided by law, the Certificate of
Incorporation or these By-Laws, the Chairman of the meeting shall have the power
and duty to determine whether a nomination or any business proposed to be
brought before the meeting was made or proposed, as the case may be, in
accordance with the procedures set forth in this By-Law and, if any proposed
nomination or business is not in compliance with this By-Law, to declare that
such defective proposal or nomination shall be disregarded.
(2) For purposes of this By-Law, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service, Associated
Press or comparable national news service or in a document publicly filed by the
Corporation with the Securities and Exchange Commission pursuant to Section 13,
14 or 15(d) of the Exchange Act.
(3) Notwithstanding the foregoing provisions of this By-Law, a
stockholder shall also comply with all applicable requirements of the Exchange
Act and the rules and regulations thereunder with respect to the matters set
forth in this By-Law. Nothing in this By-Law shall be deemed to affect any
rights (i) of stockholders to request inclusion of proposals in the
Corporation's proxy statement pursuant to Rule 14-8 under the Exchange Act or
(ii) of the holders of any series of Preferred Stock to elect directors under an
applicable Preferred Stock Designation (as defined in the Certificate of
Incorporation).
Section 2.8. Procedure for Election of Directors; Required Vote.
Election of directors at all meetings of the stockholders at which directors are
to be elected shall be by ballot, and, subject to the rights of the holders of
any series of Preferred Stock to elect directors under an applicable Preferred
Stock Designation, a plurality of the votes cast thereat shall elect directors.
Except as otherwise provided by law, the Certificate of Incorporation, Preferred
Stock Designation, or these By-Laws, in all matters other than the election of
directors, the affirmative vote of a majority of the voting power of the shares
present in person or represented by proxy at the meeting and entitled to vote on
the matter shall be the act of the stockholders.
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Section 2.9. Inspectors of Elections; Opening and Closing the Polls.
The Board by resolution shall appoint, or shall authorize an officer of the
Corporation to appoint, one or more inspectors, which inspector or inspectors
may include individuals who serve the Corporation in other capacities,
including, without limitation, as officers, employees, agents or
representatives, to act at the meetings of stockholders and make a written
report thereof. One or more persons may be designated as alternate inspectors
to replace any inspector who fails to act. If no inspector or alternate has
been appointed to act or is able to act at a meeting of stockholders, the
Chairman of the meeting shall appoint one or more inspectors to act at the
meeting. Each inspector, before discharging such person's duties, shall take
and sign an oath to execute faithfully the duties of inspector with strict
impartiality and according to the best of such person's ability. The
inspector(s) shall have the duties prescribed by law. The Chairman of the
meeting shall fix and announce at the meeting the date and time of the opening
and the closing of the polls for each matter upon which the stockholders will
vote at a meeting.
Section 2.10. No Stockholder Action by Written Consent. Any action
required or permitted to be taken by the stockholders of the Corporation must be
effected at a duly called annual or special meeting of such holders and may not
be effected by any consent in writing by such holders.
ARTICLE III
Board of Directors
Section 3.1. General Powers. The business and affairs of the
Corporation shall be managed under the direction of the Board. In addition to
the powers and authorities by these By-Laws expressly conferred upon them, the
Board may exercise all such powers of the Corporation and do all such lawful
acts and things as are not by statute or by the Certificate of Incorporation or
by these By-Laws required to be exercised or done by the stockholders.
Section 3.2. Number and Tenure. Except as otherwise fixed by or
pursuant to the provisions of Article IV of the Certificate of Incorporation
relating to the rights of the holders of any class or series of stock having a
preference over the Common Stock as to dividends or upon liquidation to elect
additional directors under specified circumstances, the number of the directors
of the Corporation shall be as set forth in, and fixed from time to time
exclusively in the manner set forth in, Article VI of the Certificate of
Incorporation.
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Section 3.3. Regular Meetings. A regular meeting of the Board shall be
held without other notice than this By-Law immediately after, and at the same
place as, the annual meeting of stockholders. The Board may, by resolution,
provide the time and place for the holding of additional regular meetings
without other notice than such resolution.
Section 3.4. Special Meetings. Special meetings of the Board shall be
called at the request of the Chairman of the Board, the President or a majority
of the Board then in office. The person or persons authorized to call special
meetings of the Board may fix the place and time of the meetings.
Section 3.5. Notice. Notice of any special meeting of directors shall
be given to each director at such person's business or residence in writing by
hand delivery, first-class or overnight mail, courier service or facsimile
transmission, or orally by telephone. If mailed by first-class mail, such notice
shall be deemed adequately delivered when deposited in the United States mails
so addressed, with postage thereon prepaid, at least 5 calendar days before such
meeting. If by overnight mail or courier service, such notice shall be deemed
adequately delivered when the notice is delivered to the overnight mail or
courier service company at least 24 hours before such meeting. If by facsimile
transmission, such notice shall be deemed adequately delivered when the notice
is transmitted at least 12 hours before such meeting. If by telephone or by hand
delivery, the notice shall be given at least 12 hours prior to the time set for
the meeting. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the Board need be specified in the notice of such
meeting, except for amendments to these By-Laws, as provided under Section 8.1.
A meeting may be held at any time without notice if all the directors are
present or if those not present waive notice of the meeting either before or
after such meeting.
Section 3.6. Action by Consent of Board of Directors. Any action
required or permitted to be taken at any meeting of the Board or of any
committee thereof may be taken without a meeting if all members of the Board or
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the Board or committee.
Section 3.7. Conference Telephone Meetings. Members of the Board or
any committee thereof may participate in a meeting of the Board or such
committee by means of conference telephone or similar communications equipment
by
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means of which all persons participating in the meeting can hear each other, and
such participation in a meeting shall constitute presence in person at such
meeting.
Section 3.8. Quorum. Subject to Section 3.9, a whole number of
directors equal to at least a majority of the Whole Board shall constitute a
quorum for the transaction of business, but if at any meeting of the Board there
shall be less than a quorum present, a majority of the directors present may
adjourn the meeting from time to time without further notice. The act of the
majority of the directors present at a meeting at which a quorum is present
shall be the act of the Board. The directors present at a duly organized meeting
may continue to transact business until adjournment, notwithstanding the
withdrawal of enough directors to leave less than a quorum.
Section 3.9. Vacancies. Except as otherwise provided for or fixed by
or pursuant to the provisions of Article IV of the Certificate of Incorporation
relating to the rights of the holders of any class or series of stock having a
preference over the Common Stock as to dividends or upon liquidation to elect
directors under specified circumstances, newly created directorships resulting
from any increase in the number of Directors and any vacancies on the Board
resulting from death, resignation, disqualification, removal or other cause
shall be filled in accordance with, and any director elected to such newly
created directorships shall hold office in accordance with, Article VI of the
Certificate of Incorporation. No decrease in the number of directors
constituting the Board shall shorten the term of any incumbent director.
Section 3.10. Committees. (a) The Board, by resolution adopted by a
majority of the Whole Board, may designate one or more committees which, to the
extent permitted by law, may exercise such powers and have such responsibilities
as shall be specified in the designating resolution. Each committee shall
consist of two or more directors of the Corporation. The Board may designate one
or more directors as alternate members of any committee, who may replace any
absent or disqualified member at any meeting of the committee. In the absence or
disqualification of any member of such committee or committees, the member or
members thereof present at any meeting and not disqualified from voting, whether
or not constituting a quorum, may unanimously appoint another member of the
Board to act at the meeting in the place of any such absent or disqualified
member. Each committee shall keep written minutes of its proceedings and shall
report such proceedings to the Board when required.
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(b) A majority of any committee may determine its action and fix the
time and place of its meetings, unless the Board shall otherwise provide. Notice
of such meetings shall be given to each member of the committee in the manner
provided for in Section 3.5 of these By-Laws. The Board shall have power at any
time to fill vacancies in, to change the membership of, or to dissolve any such
committee. Nothing herein shall be deemed to prevent the Board from appointing
one or more committees consisting in whole or in part of persons who are not
directors of the Corporation; provided, however, that no such committee shall
have or may exercise any authority of the Board.
Section 3.11. Removal. Any director may be removed from office only
in accordance with Article VI of the Certificate of Incorporation.
Section 3.12. Records. The Board shall cause to be kept a record
containing the minutes of the proceedings of the meetings of the Board and of
the stockholders, appropriate stock books and registers and such books of
records and accounts as may be necessary for the proper conduct of the business
of the Corporation.
ARTICLE IV
Officers
Section 4.1. Elected Officers. The elected officers of the
Corporation shall be a Chairman of the Board, a Chief Financial Officer, a
Secretary, a Treasurer, and such other officers (including, without limitation,
a President, Senior Vice Presidents and Executive Vice Presidents and Vice
Presidents) as the Board from time to time may deem proper. The Chairman of the
Board shall be chosen from among the directors. All officers elected by the
Board shall each have such powers and duties as generally pertain to their
respective offices, subject to the specific provisions of this Article IV. Such
officers shall also have such powers and duties as from time to time may be
conferred by the Board or by any committee thereof. The Board or any committee
thereof may from time to time elect, or the Chairman of the Board or President
may appoint, such other officers (including one or more Vice Presidents,
Controllers, Assistant Secretaries and Assistant Treasurers), as may be
necessary or desirable for the conduct of the business of the Corporation. Such
other officers and agents shall have such duties and shall hold their offices
for such terms as shall be provided in these By-Laws or as may be prescribed by
the Board or such committee or by the Chairman of the Board or President, as the
case may be.
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Section 4.2. Election and Term of Office. The elected officers of the
Corporation shall be elected annually by the Board at the regular meeting of the
Board held after the annual meeting of the stockholders. If the election of
officers shall not be held at such meeting, such election shall be held as soon
thereafter as convenient. Each officer shall hold office until such person's
successor shall have been duly elected and shall have qualified or until such
person's death or until such person shall resign or be removed pursuant to
Section 4.8.
Section 4.3. Chairman of the Board; Chief Executive Officer. The
Chairman of the Board shall preside at all meetings of the stockholders and of
the Board and shall be the Chief Executive Officer of the Corporation. The
Chairman of the Board shall be responsible for the general management of the
affairs of the Corporation and shall perform all duties incidental to such
person's office which may be required by law and all such other duties as are
properly required of such person by the Board. The Chairman of the Board shall
make reports to the Board and the stockholders, and shall see that all orders
and resolutions of the Board and of any committee thereof are carried into
effect. The Chairman of the Board may also serve as President, if so elected by
the Board. The directors also may elect a Vice-Chairman to act in the place of
the Chairman upon his or her absence or inability to act.
Section 4.4. Chief Financial Officer. The Chief Financial Officer
shall be the principal financial officer of the Corporation and shall have such
powers and shall perform such duties as shall be assigned to such person by the
Board.
Section 4.5. President. The President, if any, shall act in a general
executive capacity and shall assist the Chairman of the Board in the
administration and operation of the Corporation's business and general
supervision of its policies and affairs. The President, if he or she is also a
director, shall, in the absence of or because of the inability to act of the
Chairman of the Board, perform all duties of the Chairman of the Board and
preside at all meetings of stockholders and of the Board.
Section 4.6. Vice Presidents. Each Senior Vice President and
Executive Vice President and any Vice President shall have such powers and shall
perform such duties as shall be assigned to such person by the Board.
Section 4.7. Treasurer. The Treasurer shall exercise general
supervision over the receipt, custody and disbursement of corporate funds. The
Treasurer shall cause the funds of the Corporation to be deposited in such banks
as
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may be authorized by the Board, or in such banks as may be designated as
depositories in the manner provided by resolution of the Board. The Treasurer
shall have such further powers and duties and shall be subject to such
directions as may be granted or imposed from time to time by the Board, the
Chairman of the Board, the President, if any, or the Chief Financial Officer.
Section 4.8. Secretary. (a) The Secretary shall keep or cause to be
kept in one or more books provided for that purpose, the minutes of all meetings
of the Board, the committees of the Board and the stockholders; the Secretary
shall see that all notices are duly given in accordance with the provisions of
these By-Laws and as required by law; shall be custodian of the records and the
seal of the Corporation and affix and attest the seal to all stock certificates
of the Corporation (unless the seal of the Corporation on such certificates
shall be a facsimile, as hereinafter provided) and affix and attest the seal to
all other documents to be executed on behalf of the Corporation under its seal;
and shall see that the books, reports, statements, certificates and other
documents and records required by law to be kept and filed are properly kept and
filed; and in general, shall perform all the duties incident to the office of
Secretary and such other duties as from time to time may be assigned to the
Secretary by the Board, the Chairman of the Board or the President.
(b) Assistant Secretaries shall have such of the authority and
perform such of the duties of the Secretary as may be provided in these By-Laws
or assigned to them by the Board or the Chairman of the Board or by the
Secretary. During the Secretary's absence or inability, the Secretary's
authority and duties shall be possessed by such Assistant Secretary or Assistant
Secretaries as the Board, the Chairman of the Board, the President or a Vice
Chairman of the Board may designate.
Section 4.9. Removal. Any officer elected, or agent appointed, by the
Board may be removed by the affirmative vote of a majority of the Whole Board
whenever, in their judgment, the best interests of the Corporation would be
served thereby. Any officer or agent appointed by the Chairman of the Board or
the President may be removed by such person whenever, in such person's judgment,
the best interests of the Corporation would be served thereby. No elected
officer shall have any contractual rights against the Corporation for
compensation by virtue of such election beyond the date of the election of such
person's successor, such person's death, such person's resignation or such
person's removal, whichever event shall first occur, except as otherwise
provided in an employment contract or under an employee deferred compensation
plan.
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Section 4.10. Vacancies. A newly created elected office and a vacancy
in any elected office because of death, resignation, or removal may be filled by
the Board for the unexpired portion of the term at any meeting of the Board. Any
vacancy in an office appointed by the Chairman of the Board or the President
because of death, resignation, or removal may be filled by the Chairman of the
Board or the President.
ARTICLE V
Stock Certificates and Transfers
Section 5.1. Stock Certificates and Transfers. The interest of each
stockholder of the Corporation shall be evidenced by certificates for shares of
stock in such form as the appropriate officers of the Corporation may from time
to time prescribe. The shares of the stock of the Corporation shall be
transferred on the books of the Corporation by the holder thereof in person or
by such person's attorney, upon surrender for cancellation of certificates for
at least the same number of shares, with an assignment and power of transfer
endorsed thereon or attached thereto, duly executed, with such proof of the
authenticity of the signature as the Corporation or its agents may reasonably
require. The certificates of stock shall be signed, countersigned and registered
in such manner as the Board may by resolution prescribe, which resolution may
permit all or any of the signatures on such certificates to be in facsimile. In
case any officer, transfer agent or registrar who has signed or whose facsimile
signature has been placed upon a certificate has ceased to be such officer,
transfer agent or registrar before such certificate is issued, it may be issued
by the Corporation with the same effect as if he were such officer, transfer
agent or registrar at the date of issue.
Section 5.2. Lost, Stolen or Destroyed Certificates. No certificate
for shares of stock in the Corporation shall be issued in place of any
certificate alleged to have been lost, destroyed or stolen, except on production
of such evidence of such loss, destruction or theft and on delivery to the
Corporation of a bond of indemnity in such amount, upon such terms and secured
by such surety, as the Board or any financial officer may in its or such
person's discretion require.
13
<PAGE>
ARTICLE VI
Miscellaneous Provisions
Section 6.1. Fiscal Year. The fiscal year of the Corporation shall
begin on the first day of January and end on the thirty-first day of December of
each year.
Section 6.2. Dividends. The Board may from time to time declare, and
the Corporation may pay, dividends on its outstanding shares in the manner and
upon the terms and conditions provided by law and the Certificate of
Incorporation.
Section 6.3. Seal. The corporate seal shall have inscribed thereon
the words "Corporate Seal," the year of incorporation and around the margin
thereof the words "Delaware."
Section 6.4. Waiver of Notice. Whenever any notice is required to be
given to any stockholder or director of the Corporation under the provisions of
the DGCL or these By-Laws, a waiver thereof in writing, signed by the person or
persons entitled to such notice, whether before or after the time stated
therein, shall be deemed equivalent to the giving of such notice. Neither the
business to be transacted at, nor the purpose of, any annual or special meeting
of the stockholders or the Board or committee thereof need be specified in any
waiver of notice of such meeting.
Section 6.5. Audits. The accounts, books and records of the
Corporation shall be audited upon the conclusion of each fiscal year by an
independent certified public accountant selected by the Board, and it shall be
the duty of the Board to cause such audit to be done annually.
Section 6.6. Resignations. Any director or any officer, whether
elected or appointed, may resign at any time by giving written notice of such
resignation to the Chairman of the Board, the President, or the Secretary, and
such resignation shall be deemed to be effective as of the close of business on
the date said notice is received by the Chairman of the Board, the President, or
the Secretary, or at such later time as is specified therein. No formal action
shall be required of the Board or the stockholders to make any such resignation
effective.
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ARTICLE VII
Contracts, Proxies, Etc.
Section 7.1. Contracts. Except as otherwise required by law, the
Certificate of Incorporation, a Preferred Stock Designation, or these By-Laws,
any contracts or other instruments may be executed and delivered in the name and
on the behalf of the Corporation by such officer or officers of the Corporation
as the Board may from time to time direct. Such authority may be general or
confined to specific instances as the Board may determine. The Chairman of the
Board, the President or any Senior Vice President, Executive Vice President or
Vice President may execute bonds, contracts, deeds, leases and other instruments
to be made or executed for or on behalf of the Corporation. Subject to any
restrictions imposed by the Board or the Chairman of the Board, the President or
any Senior Vice President, Executive Vice President or Vice President of the
Corporation may delegate contractual powers to others under such person's
jurisdiction, it being understood, however, that any such delegation of power
shall not relieve such officer of responsibility with respect to the exercise of
such delegated power.
Section 7.2. Proxies. Unless otherwise provided by resolution adopted
by the Board, the Chairman of the Board, the President, the Chief Financial
Officer, or any Senior Vice President, Executive Vice President or Vice
President may from time to time appoint an attorney or attorneys or agent or
agents of the Cor poration, in the name and on behalf of the Corporation, to
cast the votes which the Corporation may be entitled to cast as the holder of
stock or other securities in any other corporation, any of whose stock or other
securities may be held by the Corporation, at meetings of the holders of the
stock or other securities of such other corporation, or to consent in writing,
in the name of the Corporation as such holder, to any action by such other
corporation, and may instruct the person or persons so appointed as to the
manner of casting such votes or giving such consent, and may execute or cause to
be executed in the name and on behalf of the Corporation and under its corporate
seal or otherwise, all such written proxies or other instruments as he may deem
necessary or proper in the premises.
ARTICLE VIII
Amendments
Section 8.1. Amendments. The By-Laws may be altered or repealed and
new By-Laws may be adopted (1) at any annual or special meeting of stockholders
by the affirmative vote of the holders of shares of Common Stock in
15
<PAGE>
accordance with Articles IV and VII of the Certificate of Incorporation;
provided, however, that, in the case of any such stockholder action at a special
meeting of stockholders, notice of the proposed alteration, repeal or adoption
of the new By-Law or By-Laws must be contained in the notice of such special
meeting, or (2) by the affirmative vote of a majority of the Whole Board.
16
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EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this filing of Raytheon
Company and Subsidiaries Consolidated on Form 8-K of our report dated January
20, 1997, except as to the information presented in note R for which the date is
February 23, 1997 on our audits of the consolidated financial statements and
financial statement schedule of Raytheon Company and Subsidiaries Consolidated.
/s/ Coopers & Lybrand L.L.P.
Boston, Massachusetts
December 17, 1997
<PAGE>
Exhibit 99.1
Raytheon Company
Corporate Communications
141 Spring Street
Lexington, MA 02173
RAYTHEON
------------
NEWS RELEASE
ROBERT S. MCWADE
C-2409 12/18/96
(617)860-2846
RAYTHEON COMPLETES MERGER WITH HUGHES AIRCRAFT, ANNOUNCES CREATION OF RAYTHEON
SYSTEMS COMPANY
LEXINGTON, MA (12/18/98) -- Raytheon Company announced today the completion of
its merger with Hughes defense, creating one of the largest industrial
corporations in the United States.
At the same time, Raytheon announced the formation of Raytheon Systems Company
and appointed William H. Swanson as Chairman and Chief Executive Officer of that
new organization. Raytheon Systems Company will be headquartered in the
Washington, D.C. area and will include the Hughes defense operations and the
operations that have been part of Raytheon Electronic Systems, Raytheon TI
Systems, and Raytheon E-Systems. Raytheon Systems Company will be one of the
world's largest defense contractors and will operate as part of Raytheon
Company.
"Our strategy has been to remain a top tier company in a consolidating defense
industry," said Dennis J. Picard, Chairman and Chief Executive Officer of
Raytheon Company. "The historic merger with Hughes defense and our earlier
acquisitions have enabled us to achieve that strategy. Today, we can proudly
say that we are a global technology leader and a defense electronics powerhouse.
We also continue to remain strong in our commercial businesses, with leadership
positions in general aviation aircraft, commercial electronics and engineering
and construction."
The value of the transaction is $9.5 billion, with $4.04 billion in debt and
$5.46 billion in equity. This debt/equity split is based on a 30-day collar
period average market price of $53.21 per share of Raytheon stock. Raytheon
announced its agreement to merge with Hughes defense in January, 1997. The
merger was approved by the United States Department of Justice in October and by
stockholders of Raytheon, General Motors
<PAGE>
(GM$1 2/3 par value) and GM Class "H" stock in December. The merger was
completed yesterday.
"We have been focusing on how best to combine the Raytheon and Hughes
operations since we first announced the merger in January," said Picard. "We
will now move quickly--as shown by today's announcement of Raytheon Systems
Company--to take the steps necessary to ensure that we remain competitive. Our
goal is to create an organization that we believe will set a new standard of
excellence in the products and services we provide to our customers, creating
exciting opportunities for our employees and strong returns for our
shareholders."
"I am pleased to announce the appointment of William H. Swanson as Chairman and
Chief Executive Officer of Raytheon Systems Company," said Picard. "Bill's
outstanding record of achievement at Raytheon while serving in key positions
such as General Manager of Raytheon Electronic Systems makes him ideally suited
to the needs of Raytheon Systems Company. With extensive experience in a wide
range of defense products, a strong background in converting defense
technologies to commercial applications and a demonstrated ability to integrate
complex organizations, I am confident that Bill will be a superb leader of
Raytheon Systems Company." Swanson will report directly to Chairman and CEO
Picard.
Raytheon also announced the appointment of Ken C. Dahlberg as President and
Chief Operating Officer of Raytheon Systems Company, reporting to Swanson.
Dahlberg was formerly a Corporate Vice President of Hughes Electronics
Corporation and a Senior Vice President of Hughes Aircraft Company. At Hughes,
Dahlberg was also President of the Sensors and Communications Systems
organization. "Ken Dahlberg has had a career defined by excellence in a wide
variety of capacities at Hughes," said Picard. "Together, he and Bill Swanson
will make an outstanding management team fully capable of leading Raytheon
Systems Company into the next century."
Raytheon also announced that, in keeping with his previous plans, A. Lowell
Lawson, currently the Chairman and Chief Executive Officer of Raytheon
E-Systems, will retire in January, 1998. Lawson will remain on Raytheon's board
until the completion of his current term in May, 1998. Also, John C. Weaver,
currently President and Chief Operating Officer of Hughes Aircraft Company, has
been elected as an Executive Vice President of Raytheon Company. Weaver will
take over responsibility for Engineering
<PAGE>
<PAGE>
and Business Development in April 1998 on retirement of Renso Caporali,
currently Senior Vice President for Engineering and Business Development for
Raytheon Company.
"Lowell Lawson's contributions both to Raytheon Company and to the security of
the United States during his long career have been enormous," said Picard. "His
experience will be missed. Renso Caporali has done a superb job in helping to
grow our business development organization and in ensuring engineering
excellence throughout the company. At the same time, however, I am pleased to
be welcoming such a distinguished individual as John Weaver into the top ranks
of Raytheon Company."
With the addition of Hughes defense, Raytheon Company will have revenues of more
than $20 billion on a 1997 pro forma basis. The new Raytheon Systems Company
will account for approximately US$14.5 billion on a 1997 pro forma basis.
Raytheon Systems Company
- ------------------------
"Raytheon Systems Company is now, without question, a world leader in electronic
systems, the most dynamic segment of the defense business," said William H.
Swanson, Chairman and Chief Executive Officer of Raytheon Systems Company. "We
will encourage creativity, innovation and engineering excellence among our
employees and focus on providing unparalleled value to our customers."
"Raytheon Electronic Systems, Raytheon TI Systems, Raytheon E-Systems and Hughes
defense will be stronger together than they would have been separately,"
continued Swanson. "The combination of these companies into Raytheon Systems
Company puts us in a better position to win new programs in the future by
lowering costs, allowing us to focus our independent research and development,
and bringing together the finest people and technologies in the defense
business."
Raytheon Systems Company will have five major business segments: Defense
Systems; Sensors and Electronic Systems; Command, Control and Communications
(C/3/) Systems; Intelligence, Information and Aircraft Integration Systems; and
Training and Services. Each segment will be managed by an Executive Vice
President of Raytheon Systems Company who will report to Swanson and Dahlberg.
This five-segment structure is designed to bring together all the resources of
the company in key product areas in order to provide customers with
state-of-the-art, cost-effective systems. Details of the segments are as
follows:
<PAGE>
. Defense Systems will focus on anti-tactical ballistic missile systems; air
---------------
defense; air-to-air, surface-to-air, and air-to-ground missiles; naval and
maritime systems; ship self-defense systems; torpedoes; strike, interdiction
and cruise missiles; and advanced munitions. David L. McPherson, formerly
President of the Weapons Systems Segment of Hughes Aircraft, has been
appointed an Executive Vice President of Raytheon Systems Company and General
Manager of the Defense Systems segment.
. Sensors and Electronic Systems will focus on ground, shipboard and airborne
------------------------------
fire control and surveillance systems; primary and secondary air traffic
control radars; ground, space based, night vision, and reconnaissance
sensors; and electronic warfare and GPS systems. David W. Welp, a Senior Vice
President of Raytheon Company and formerly President of Raytheon TI Systems,
has been appointed an Executive Vice President of Raytheon Systems Company
and General Manager of the Sensors and Electronic Systems segment. Welp will
be supported in his duties by Christine Davis, who has been appointed a
Senior Vice President of Raytheon Systems Company and Deputy General Manager,
Sensors and Electronic Systems. Davis was formerly Senior Vice President and
Manager of the Electronic Systems Division at Raytheon TI Systems.
. C/3/ Systems will focus on command, control and communications systems; air
----------
traffic control systems; tactical radios; satellite communication ground
terminals; wide area surveillance systems; advanced transportation systems;
and simulators and simulation systems. C. Dale Reis, a Senior Vice President
of Raytheon Company and formerly Deputy General Manager of Raytheon
Electronic Systems, has been appointed an Executive Vice President of
Raytheon Systems Company and General Manager of the C/3/ Systems segment.
. Intelligence, Information and Aircraft Integration Systems will focus on
----------------------------------------------------------
ground-based information processing systems; large scale information
retrieval, processing and distribution systems; global broadcast systems;
airborne surveillance and intelligence systems integration; aircraft
modification; and head-of-state aircraft systems. Brian D. Cullen, a Vice
President of Raytheon Company and formerly Senior Vice President, Airborne
Systems Division at Raytheon E-Systems, has been appointed an Executive Vice
President of Raytheon Systems Company and General Manager of Intelligence,
Information and Aircraft Integration Systems. Cullen will be supported in his
duties by Terry W. Heil, a Vice President of Raytheon Company, who has been
<PAGE>
appointed a Senior Vice President of Raytheon Systems Company and Deputy
General Manager, Intelligence, Information and Aircraft Integration Systems.
Heil was formerly Senior Vice President, Intelligence and Communication
Systems Division at Raytheon E-Systems.
. Training and Services will focus on training services and integrated
---------------------
training programs; technical services; and logistics and lifetime support.
Francis S. Marchilena, a Vice President of Raytheon Company and formerly
Assistant General Manager of Raytheon Electronic Systems, has been appointed
an Executive Vice President of Raytheon Systems Company and General Manager
of the Training and Services segment. Marchilena will be supported in his
duties by Philip T. Le Pore, who has been appointed a Senior Vice President
of Raytheon Systems Company and Deputy General Manager, Training and
Services. Le Pore was formerly President of Hughes Technical Services
Company.
"With this first-class team in place, we will now finalize the specific actions
necessary to make Raytheon Electronic Systems, Raytheon TI Systems, Raytheon
E-Systems and Hughes defense into a unified organization that will lead the
industry in quality and value," added Swanson "We expect to announce additional
details about Raytheon Systems Company in January."
The Commercial Businesses of Raytheon Company
- ---------------------------------------------
In addition to its defense activities, Raytheon competes in a variety of
commercial businesses. Raytheon Aircraft Company (RAC) is a world leader in
general aviation, offering the most extensive product line in the industry.
Additionally, RAC provides special mission aircraft, aircraft maintenance
services, target drones and aircraft training systems to the military services.
RAC won the 1995 competition for the multi-billion dollar, next-generation Joint
Primary Aircraft Training System (JPATS) trainer for the U.S. Air Force and U.S.
Navy.
Raytheon Engineers and Constructors (RE&C) is one of the largest engineering,
construction, and operations and maintenance organizations in the world. Its
markets include: fossil-fuel and nuclear power; petroleum and gas; polymers and
chemicals, pharmaceuticals and biotechnology; metals, mining and light industry;
food and consumer products, and pulp and paper, among others.
<PAGE>
In commercial electronics, Raytheon is a leader in marine electronics and
microelectronics. Raytheon Marine supplies marine radars, depth sounders,
radios, autopilots, fish finders, navigation aids, GPS receivers as well as
complete solutions to integrated bridge control, communication systems, GPS and
gyro compasses. In the area of microelectronics, Raytheon specializes in the
use of gallium arsenide Monolithic Microwave Integrated Circuit (MMIC)
technology and is deploying MMIC technology to global satellite communications,
direct broadcast satellite television receivers, wireless local area networks
and next-generation digital cellular telephones.
Raytheon Company, with headquarters in Lexington, Mass. is an international high
technology company which operates in commercial and defense electronics,
engineering and construction, aircraft, and appliances. The company celebrates
its 75th anniversary this year.
###
NOTE: This press release contains forward-looking statements that involve a
number of risks and uncertainties. Important factors that could cause actual
results to differ materially from those indicated by such forward-looking
statements are set forth under "Item 1--Business" of Raytheon's Annual Report on
Form 10-K for the year ended December 31, 1996. These include the ability to
integrate Hughes Defense with Raytheon, including Raytheon TI Systems ("RTIS").
The combination of Raytheon, RTIS and Hughes Defense will require, among other
things, integration of RTIS and Hughes Defense organizations, business
infrastructure and products with those of Raytheon in a way that enhances the
performance of the combined businesses. The challenges posed by these
transactions include the integration of numerous geographically separated
manufacturing facilities and research and development centers. The success of
this transition to an integrated entity will be significantly influenced by
Raytheon's ability to retain key employees, to integrate differing management
structures and to realize anticipated cost synergies, all of which will require
significant management time and resources.
<PAGE>
EXHIBIT 99.2
APPENDIX C
RAYTHEON COMPANY AND SUBSIDIARIES CONSOLIDATED
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
INDEX PAGE
----- ----
<S> <C>
UNAUDITED FINANCIAL STATEMENTS AS OF SEPTEMBER 28, 1997 AND FOR THE
NINE MONTH PERIODS ENDED SEPTEMBER 28, 1997 AND SEPTEMBER 29, 1996
Balance Sheets..................................................... C-2
Statements of Income............................................... C-3
Statements of Cash Flows........................................... C-4
Notes to Combined Financial Statements............................. C-5
COMBINED FINANCIAL STATEMENTS AS OF DECEMBER 31, 1996 AND 1995 AND
FOR THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1996 AND REPORT
OF INDEPENDENT ACCOUNTANTS
Report of Independent Accountants.................................. C-6
Balance Sheets..................................................... C-7
Statements of Income............................................... C-8
Statements of Stockholders' Equity................................. C-9
Statements of Cash Flows........................................... C-10
Notes to Financial Statements...................................... C-11
</TABLE>
APPENDIX C
1
<PAGE>
RAYTHEON COMPANY AND SUBSIDIARIES CONSOLIDATED
BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 28, 1997 DECEMBER 31, 1996
------------------ -----------------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Cash and marketable securities............ $ 267,684 $ 138,821
Accounts receivable....................... 953,652 808,715
Federal and foreign income taxes, includ-
ing deferred............................. 227,554 246,120
Contracts in process, less progress pay-
ments.................................... 3,148,259 2,592,006
Inventories............................... 1,652,815 1,590,967
Prepaid expenses.......................... 304,005 227,266
----------- -----------
Total current assets.................. 6,553,969 5,603,895
Property, plant and equipment, net........ 2,046,958 1,802,012
Other assets.............................. 6,655,225 3,720,169
----------- -----------
$15,256,152 $11,126,076
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable and current portion of long-
term debt................................ $ 2,174,785 $ 2,226,935
Accounts payable.......................... 1,265,300 1,125,881
Advance payments, less contracts in proc-
ess...................................... 389,327 341,326
Accrued expenses.......................... 1,515,709 997,691
----------- -----------
Total current liabilities............. 5,345,121 4,691,833
Accrued retiree benefits.................. 423,793 249,992
Federal and foreign income taxes, includ-
ing deferred............................. 85,765 85,765
Long-term debt............................ 4,386,377 1,500,476
Stockholders' equity...................... 5,015,096 4,598,010
----------- -----------
$15,256,152 $11,126,076
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
APPENDIX C
2
<PAGE>
RAYTHEON COMPANY AND SUBSIDIARIES CONSOLIDATED
STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------------------------- -------------------------------------
SEPTEMBER 28, 1997 SEPTEMBER 29, 1996 SEPTEMBER 28, 1997 SEPTEMBER 29, 1996
------------------ ------------------ ------------------ ------------------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
NET SALES............... $3,445,310 $3,032,360 $9,669,204 $8,946,745
---------- ---------- ---------- ----------
Cost of sales......... 2,635,702 2,428,087 7,426,576 7,004,735
Administrative and
selling expenses..... 269,501 254,358 811,871 781,655
Research and
development expenses. 120,510 76,862 290,057 254,326
Special charge........ -- 34,000 -- 34,000
---------- ---------- ---------- ----------
Total operating
expenses........... 3,025,713 2,793,307 8,528,504 8,074,716
---------- ---------- ---------- ----------
OPERATING INCOME........ 419,597 239,053 1,140,700 872,029
---------- ---------- ---------- ----------
Interest expense...... 119,810 70,827 262,593 185,684
Interest and dividend
income............... (9,291) (60,314) (24,341) (92,884)
Other (income)
expense, net......... (13,189) 2,623 (12,050) (42,613)
---------- ---------- ---------- ----------
Non-operating
expense, net....... 97,330 13,136 226,202 50,187
---------- ---------- ---------- ----------
INCOME BEFORE TAXES..... 322,267 225,917 914,498 821,842
Federal and foreign
income taxes........... 111,047 38,027 310,366 238,069
---------- ---------- ---------- ----------
NET INCOME.............. $ 211,220 $ 187,890 $ 604,132 $ 583,773
========== ========== ========== ==========
Earnings per common
shares................. $ 0.89 $ 0.80 $ 2.56 $ 2.45
Average number of common
shares outstanding
during period.......... 236,411 235,932 236,327 237,833
Dividends declared per
common share........... $ 0.20 $ 0.20 $ 0.60 $ 0.60
</TABLE>
The accompanying notes are an integral part of the financial statements.
APPENDIX C
3
<PAGE>
RAYTHEON COMPANY AND SUBSIDIARIES CONSOLIDATED
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
------------------------
SEPT. SEPT.
28, 1997 29, 1996
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income......................................... $ 604,132 $ 583,773
Adjustments to reconcile net income to net cash
provided by operating activities..................
Depreciation and amortization.................... 325,326 271,321
Special charge................................... -- 34,000
Sale of receivables.............................. 1,080,500 524,500
Gain on sale of operating unit................... (13,000) --
Other adjustments, net........................... (1,702,995) (1,934,741)
----------- -----------
Net cash provided by (used in) operating
activities........................................ 293,963 (521,147)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment......... (305,381) (287,597)
Payment for purchase of acquired companies, net of
cash received..................................... (3,018,277) (584,390)
Proceeds from sale of operating unit, net.......... 522,200 66,551
Additions to intangible assets..................... (8,684) (36,207)
All other, net..................................... (86,059) (5,481)
----------- -----------
Net cash used in investing activities.............. (2,896,201) (847,124)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Change in short-term debt.......................... (52,150) 1,721,396
Change in long-term debt........................... 2,885,901 (3,122)
Dividends.......................................... (141,808) (142,317)
Purchase of treasury shares........................ (65,256) (305,842)
Proceeds under common stock plans.................. 48,722 45,047
All other, net..................................... 60,069 4,992
----------- -----------
Net cash provided by financing activities.......... 2,735,478 1,320,154
----------- -----------
Effect of foreign exchange rates on cash............. (3,986) (663)
----------- -----------
Net increase (decrease) in cash and cash equivalents. 129,254 (48,780)
Cash and cash equivalents at beginning of year....... 137,379 208,614
----------- -----------
Cash and cash equivalents at end of third quarter.... $ 266,633 $ 159,834
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
APPENDIX C
4
<PAGE>
RAYTHEON COMPANY AND SUBSIDIARIES CONSOLIDATED
NOTES TO FINANCIAL STATEMENTS
(1) Details of certain balance sheet accounts are as follows:
<TABLE>
<CAPTION>
SEPT. 28, 1997 DEC. 31, 1996
-------------- -------------
(IN THOUSANDS)
<S> <C> <C>
CASH AND MARKETABLE SECURITIES
Cash and cash equivalents........................ $ 266,633 $ 137,379
Marketable securities............................ 1,051 1,442
----------- -----------
Total cash and marketable securities........... $ 267,684 $ 138,821
=========== ===========
INVENTORIES
Finished goods................................... $ 371,977 $ 616,660
Work in process.................................. 934,847 650,132
Material and purchased parts..................... 503,968 482,152
Excess of current cost over LIFO values.......... (157,977) (157,977)
----------- -----------
Total inventories.............................. $ 1,652,815 $ 1,590,967
=========== ===========
PROPERTY, PLANT AND EQUIPMENT
At cost.......................................... $ 4,928,196 $ 4,490,359
Accumulated depreciation and amortization........ (2,881,238) (2,688,347)
----------- -----------
Net property, plant and equipment.............. $ 2,046,958 $ 1,802,012
=========== ===========
STOCKHOLDERS' EQUITY
Preferred stock, no outstanding shares........... $ -- $ --
Common stock, outstanding shares................. 236,331 236,250
Additional paid-in capital....................... 353,174 307,451
Equity adjustments............................... (40,670) (11,966)
Retained earnings................................ 4,466,261 4,066,275
----------- -----------
Total stockholders' equity..................... $ 5,015,096 $ 4,598,010
=========== ===========
</TABLE>
(2) In connection with the sale of receivables as noted in the Statement of
Cash Flows, the following special purpose entities were established in
accordance with Statement of Financial Accounting Standards No. 125,
Accounting for Transfers and Servicing of Financial Assets and
Extinquishments of Liabilities: Raytheon Aircraft Receivables Corporation,
Raytheon Commercial Appliances Finance Corporation, Raytheon
Appliances/Amana Receivables Corporation, Raytheon Commercial Appliances
Receivables Corporation and Raytheon Engineers & Constructors Receivables
Corporation.
(3) The company will adopt Statement of Financial Accounting Standards No. 128,
Earnings per Share, in the fourth quarter of 1997. The adoption is not
expected to have a material effect on the company's financial position,
results of operations, or earnings per share.
(4) The company will adopt Statement of Financial Accounting Standards No. 130,
Reporting Comprehensive Income, in 1998, by making the appropriate
disclosures.
(5) The company will adopt Statement of Financial Standards No. 131, Disclosure
about Segments of an Enterprise and Related Information, in 1998, by making
the appropriate disclosures.
(6) Certain amounts in the 1996 financial statements have been reclassified to
conform with the 1997 presentation.
(7) The information furnished has been prepared from the accounts without
audit. In the opinion of management, the information reflects all
adjustments, which are of a normal recurring nature, necessary for a fair
presentation of the financial statements for the interim periods.
APPENDIX C
5
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
Raytheon Company
Lexington, Mass.
We have audited the accompanying balance sheets of Raytheon Company and
Subsidiaries Consolidated as of December 31, 1996 and 1995, and the related
statements of income, stockholders' equity and cash flows for each of the three
years in the period ended December 31, 1996. These financial statements are the
responsibility of the company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Raytheon Company and
Subsidiaries Consolidated as of December 31, 1996 and 1995, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
Boston, Mass.
January 20,1997, except as to the information presented in note R
for which the date is February 23, 1997.
/s/ Coopers & Lybrand L.L.P.
APPENDIX C
6
<PAGE>
RAYTHEON COMPANY AND SUBSIDIARIES CONSOLIDATED
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995
----------------- -----------------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets
Cash and marketable securities (notes A
and B).................................. $ 138,821 $ 210,284
Accounts receivable, less allowance for
doubtful accounts: 1996--$20,260,000;
1995--$22,043,000....................... 808,715 926,800
Federal and foreign income taxes,
including deferred
(notes A and I)......................... 246,120 196,711
Contracts in process (notes A and C)..... 2,592,006 2,212,689
Inventories (notes A and D).............. 1,590,967 1,502,983
Prepaid expenses (note L)................ 227,266 225,751
----------- -----------
Total current assets................... 5,603,895 5,275,218
Property, plant, and equipment, net (notes
A and E).................................. 1,802,012 1,584,035
Other assets (notes A and F)............... 3,720,169 2,981,691
----------- -----------
$11,126,076 $ 9,840,944
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Notes payable and current portion of
long-term debt
(notes G and H)......................... $ 2,226,935 $ 1,216,039
Advance payments, less contracts in
process:
1996--$803,056,000; 1995--$586,792,000.. 341,326 343,470
Accounts payable......................... 1,125,881 1,041,848
Accrued salaries and wages............... 272,877 254,419
Other accrued expenses (note A).......... 724,814 834,647
----------- -----------
Total current liabilities.............. 4,691,833 3,690,423
Accrued retiree benefits (note L).......... 249,992 270,025
Income taxes, including deferred (notes A
and I).................................... 85,765 100,797
Long-term debt (note H).................... 1,500,476 1,487,735
Commitments and contingencies (note J).....
Stockholders' equity (note Q)
Preferred stock, no par value
Authorized: 3,000,000 shares...........
Outstanding: 1996 and 1995--none.......
Common stock, par value $1.00 per shares
Authorized: 400,000,000 shares.........
Outstanding: 1996--236,250,000 shares;
1995--240,690,000 shares (after
deducting shares in treasury: 1996--
118,685,000; 1995--114,245,000) (note
K).................................... 236,250 240,690
Additional paid-in capital............... 307,451 258,708
Equity adjustments (note A).............. (11,966) 5,071
Retained earnings........................ 4,066,275 3,787,495
----------- -----------
Total stockholders' equity........... 4,598,010 4,291,964
----------- -----------
$11,126,076 $ 9,840,944
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
APPENDIX C
7
<PAGE>
RAYTHEON COMPANY AND SUBSIDIARIES CONSOLIDATED
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31:
----------------------------------------
1996 1995 1994
------------ ------------ ------------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Net sales (note A)................... $ 12,330,538 $ 11,804,174 $ 10,097,662
Cost of sales........................ 9,753,970 9,159,447 7,769,882
Administrative and selling expenses.. 1,021,127 1,085,765 912,313
Research and development expenses
(note A)............................ 323,271 315,581 269,613
Restructuring and special charges
(note A)............................ 34,000 125,000 249,751
------------ ------------ ------------
Total operating expenses......... 11,132,368 10,685,793 9,201,559
------------ ------------ ------------
Operating income..................... 1,198,170 1,118,381 896,103
------------ ------------ ------------
Interest expense..................... 256,253 196,627 48,504
Interest and dividend income......... (101,996) (26,288) (19,611)
Other income, net (note A)........... (39,549) (243,641) (32,729)
------------ ------------ ------------
Non-operating expense (income), net.. 114,708 (73,302) (3,836)
------------ ------------ ------------
Income before taxes.................. 1,083,462 1,191,683 899,939
Federal and foreign income taxes
(notes A and I)..................... 322,311 399,195 303,063
------------ ------------ ------------
Net income (note A).................. $ 761,151 $ 792,488 $ 596,876
------------ ------------ ------------
Earnings per common share (notes A
and Q)
Outstanding shares................. $ 3.21 $ 3.25 $ 2.26
Fully diluted...................... $ 3.16 $ 3.20 $ 2.24
============ ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
APPENDIX C
8
<PAGE>
RAYTHEON COMPANY AND SUBSIDIARIES CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
-----------------------------------------------------
COMMON STOCK
------------------
ADDITIONAL
PAID-IN EQUITY RETAINED
SHARES PAR VALUE CAPITAL ADJUSTMENTS EARNINGS
------- --------- ---------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance at December 31,
1993 (note Q)........... 270,428 $270,428 $193,275 $ (2,100) $3,836,257
Net income............... 596,876
Dividends declared--$.738
per share............... (192,681)
Proceeds under common
stock plans............. 1,864 1,864 41,476
Treasury shares
purchased............... (25,338) (25,338) (20,638) (758,933)
Treasury shares received
on exercise of stock
options................. (310) (310) (4,645)
Foreign exchange
translation adjustments. (3,613)
FAS No. 87 pension
adjustment.............. (3,750)
------- -------- -------- -------- ----------
Balance at December 31,
1994.................. 246,644 246,644 209,468 (9,463) 3,481,519
Net income............... 792,488
Dividends declared--$.75
per share............... (182,487)
Proceeds under common
stock plans............. 2,388 2,388 64,502
Treasury shares
purchased............... (8,144) (8,144) (7,844) (304,025)
Treasury shares received
on exercise of stock
options................. (198) (198) (7,418)
Foreign exchange
translation adjustments. 10,374
FAS No. 115 unrealized
valuation adjustment.... 2,973
FAS No. 87 pension
adjustment.............. 1,187
------- -------- -------- -------- ----------
Balance at December 31,
1995.................. 240,690 240,690 258,708 5,071 3,787,495
Net income............... 761,151
Dividends declared--$.80
per share............... (189,574)
Proceeds under common
stock plans............. 1,864 1,864 63,837
Treasury shares
purchased............... (6,104) (6,104) (6,942) (292,797)
Treasury shares received
on exercise of stock
options................. (200) (200) (8,152)
Foreign exchange
translation adjustments. (3,071)
FAS No. 115 unrealized
valuation adjustment.... (15,045)
FAS No. 87 pension
adjustment.............. 1,079
------- -------- -------- -------- ----------
Balance at December 31,
1996.................. 236,250 $236,250 $307,451 ($11,966) $4,066,275
======= ======== ======== ======== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
APPENDIX C
9
<PAGE>
RAYTHEON COMPANY AND SUBSIDIARIES CONSOLIDATED
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31:
-----------------------------------
1996 1995 1994
---------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities
Net income.............................. $ 761,151 $ 792,488 $ 596,876
Adjustments to reconcile net income to
net cash provided by operating
activities, net of the effect of
acquired companies.....................
Depreciation and amortization......... 368,923 371,399 304,166
Net gain on sale of operating divi-
sion................................. -- (210,000) --
Gain on sale of an investment......... -- (27,846) (31,056)
Sale of receivables................... 1,208,600 1,081,100 797,000
Increase in accounts receivable....... (993,944) (964,694) (332,218)
(Increase) decrease in contracts in
process.............................. (580,830) 173,655 72,875
(Increase) decrease in inventories.... (38,154) 44,748 23,826
Increase in long term receivables..... (57,014) (11,577) (305,744)
(Decrease) increase in advance pay-
ments................................ (44,861) (216,762) 90,351
Increase in accounts payable.......... 48,510 37,003 71,820
Increase (decrease) in federal and
foreign income taxes................. 47,341 83,322 (138,889)
(Decrease) increase in other current
liabilities.......................... (373,677) 80,876 32,135
Other adjustments, net................ (54,750) (59,122) (23,283)
---------- ----------- ----------
Net cash provided by operating ac-
tivities........................... 291,295 1,174,590 1,157,859
---------- ----------- ----------
Cash flows from investing activities
Additions to property, plant, and
equipment.............................. (406,005) (328,617) (267,376)
Disposals of property, plant, and
equipment.............................. 15,765 61,861 69,844
Increase in other assets................ (7,544) (113,599) (2,891)
Payment for purchase of acquired
companies, net of cash received........ (584,390) (2,341,522) (151,209)
Proceeds from sale of operating units... 66,551 449,200 --
Proceeds from sale of an investment..... -- 10,160 85,113
Additions to intangible assets.......... (23,918) (60,551) (69,568)
All other, net.......................... 2,059 355 (6,875)
---------- ----------- ----------
Net cash used in investing activi-
ties............................... (937,482) (2,322,713) (342,962)
---------- ----------- ----------
Cash flows from financing activities
Dividends............................... (189,574) (182,487) (192,681)
Increase in short-term debt............. 1,006,928 139,692 159,912
Increase (decrease) in long-term debt... 4,149 1,463,213 (929)
Purchase of treasury shares............. (305,842) (320,013) (804,910)
Proceeds under common stock plans....... 57,348 59,274 38,386
All other, net.......................... 2,180 (4,612) (4,122)
---------- ----------- ----------
Net cash provided (used in) financ-
ing activities..................... 575,189 1,155,067 (804,344)
---------- ----------- ----------
Effect of foreign exchange rates on cash.. (237) 732 264
---------- ----------- ----------
Net (decrease) increase in cash and cash
equivalents.............................. (71,235) 7,676 10,817
Cash and cash equivalents at beginning of
year..................................... 208,614 200,938 190,121
---------- ----------- ----------
Cash and cash equivalents at end of year.. $ 137,379 $ 208,614 $ 200,938
========== =========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
APPENDIX C
10
<PAGE>
RAYTHEON COMPANY AND SUBSIDIARIES CONSOLIDATED
NOTES TO FINANCIAL STATEMENTS
NOTE A: ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of the parent
company and all domestic and foreign subsidiary companies. The books of the
parent and all subsidiaries are maintained on a calendar year basis. All
material intercompany transactions have been eliminated. Certain amounts in the
1995 and 1994 financial statements and notes have been reclassified to conform
with the 1996 presentation. Certain accounts were reclassified in the
statements of income to reconcile operating income with segment income.
Cash Equivalents and Marketable Securities
Cash and cash equivalents include only cash and short-term, highly liquid
investments (those with original maturities when purchased of 90 days or less).
Cash equivalents and marketable securities are valued in accordance with the
provisions of Statement of Financial Accounting Standards No. 115, Accounting
for Certain Investments in Debt and Equity Securities (SFAS 115) (see note P).
Dividends are recorded as income when declared.
Contracts in Process
Sales under long-term contracts are recorded under the percentage of
completion method, wherein costs and estimated gross margin are recorded as
sales as the work is performed. Costs include direct engineering and
manufacturing costs, applicable overheads, and special tooling and test
equipment. Estimated gross margin provides for the recovery of allocable
research, development (including bid proposal), marketing and administration
costs, and for accrued income. Accrued income is based on the percentage of
estimated total income that incurred costs to date bear to estimated total
costs after giving effect to the most recent estimates of cost and funding at
completion. When appropriate, increased funding is assumed based on expected
adjustments of contract prices for increased scope and other changes ordered by
the customer. Some contracts contain incentive provisions based upon
performance in relation to established targets to which applicable recognition
has been given in the contract estimates. Since many contracts extend over a
long period of time, revisions in cost and funding estimates during the
progress of work have the effect of adjusting in the current period earnings
applicable to performance in prior periods. When the current contract estimate
indicates a loss, provision is made for the total anticipated loss. In
accordance with these practices, contracts in process are stated at cost plus
estimated profit but not in excess of realizable value.
Inventories
Aircraft inventories at Raytheon Aircraft, except finished goods, are stated
at the lower of cost (principally last-in, first-out) or market. Work in
process is stated at total cost incurred reduced by estimated costs of units
delivered.
All other inventories are stated at cost (principally first-in, first-out or
average basis) but not in excess of net realizable value.
Research and Development Expenses
Research and development expenditures for company-sponsored projects are
expensed as incurred.
Property, Plant, and Equipment
Property, plant, and equipment are stated at cost. Betterments and major
renewals are capitalized and included in property, plant, and equipment
accounts while expenditures for maintenance and repairs and minor renewals are
charged to expense. When assets are retired or otherwise disposed of, the
assets and related allowances for depreciation and amortization are eliminated
from the accounts and any resulting gain or loss is reflected in income.
APPENDIX C
11
<PAGE>
RAYTHEON COMPANY AND SUBSIDIARIES CONSOLIDATED
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Provisions for depreciation are computed generally on the sum-of-the-years-
digits method, except for certain operations, which use the straight-line or
declining-balance method. Depreciation provisions are based on estimated useful
lives: buildings--20 to 45 years; machinery and equipment, including production
tooling--3 to 10 years; equipment leased to others--5 to 10 years. Leasehold
improvements are amortized over the lesser of the remaining life of the lease
or the estimated useful life of the improvement.
Excess of Cost Over Net Assets of Acquired Companies
The excess of cost over net assets acquired is amortized on the straight-line
method over its estimated useful life but not in excess of 40 years. The
company evaluates the possible impairment of goodwill at each reporting period
based on the undiscounted projected cash flows of the related business unit.
Investments
Investments, which are included in Other Assets, include equity ownership of
20 percent to 50 percent in affiliated companies and of less than 20 percent in
other companies. Investments in affiliated companies are accounted for under
the equity method, wherein the company's share of their earnings and income
taxes applicable to the assumed distribution of such earnings are included in
net income. Other investments are stated at the lower of cost or fair market
value and certain available for sale investments are accounted in accordance
with the provisions of SFAS 115.
Commissions
The company pays commissions to sales representatives, distributors, and
agents under various arrangements in return for services rendered in connection
with obtaining orders. Such commissions are charged to income as related sales
are recorded and, for income statement purposes, are applied as a reduction of
sales. In some cases, payment of such commissions is made upon the company's
receipt of advance payments under the related contracts or in accordance with
schedules contained in the contracts governing commissions, and such amounts
are applied as a reduction of advance payments received. Sales have been
reduced by $30,337,000, $36,958,000 and $32,552,000 in 1996, 1995, and 1994,
respectively, for commission expense.
Federal and Foreign Income Taxes
The company and its domestic subsidiaries provide for federal income taxes on
pretax accounting income at rates in effect under existing tax law. The
recovery of foreign tax credits related to foreign contracts, Foreign Sale
Corporation (FSC) tax benefits, and other tax credits are recorded on a flow-
through basis. Foreign subsidiaries have recorded provisions for income taxes
at applicable foreign tax rates in a similar manner.
Lease Accounting
Revenue from certain qualifying noncancelable aircraft lease contracts are
accounted for as sales-type leases wherein the present values of all payments,
net of executory costs, are recorded currently as revenues, and the related
costs of the aircraft are charged to cost of sales. Associated interest, using
the interest method, is recorded over the term of the lease agreements. All
other leases for aircraft are accounted for under the operating method wherein
revenues are recorded as earned over the rental aircraft lives. Service
revenues are recognized ratably over contractual periods or as services are
performed.
Pension Cost
The company and its subsidiaries have several pension and retirement plans
covering the majority of employees, including certain employees in foreign
countries.
APPENDIX C
12
<PAGE>
RAYTHEON COMPANY AND SUBSIDIARIES CONSOLIDATED
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Annual charges to income are made for costs of the plans, including current
service costs, interest on projected benefit obligations, and net amortization
and deferral (unrecognized net obligation (asset) at transition, unrecognized
prior service costs, and actuarial net gains or losses), increased or reduced
by the return on assets. Unfunded accumulated benefit obligations are accounted
for as a long-term liability on the balance sheet. It is the company's policy
to fund annually those pension costs which are calculated in accordance with
Internal Revenue Service regulations and standards issued by the Cost
Accounting Standards Board.
Translation of Foreign Currencies
Assets and liabilities of foreign subsidiaries are translated at current
exchange rates, and the effects of these translation adjustments are reported
as a component of equity adjustments in stockholders' equity. The balances at
December 31, 1996, 1995, and 1994 were $3,840,000, $6,911,000, and
($3,463,000), respectively. Foreign exchange transaction gains and losses in
1996, 1995, and 1994 were not material.
Employee Stock Plans
Proceeds from the exercise of stock options under the employee stock plans
are credited to common stock at par value, and the excess of the option price
over par value is credited to additional paid-in capital. There are no charges
or credits to income with respect to the options. The market value at the date
of award of restricted stock awards is credited to common stock at par value,
and the excess is credited to additional paid-in capital. The market value is
also charged to income as compensation expense over the vesting period. Income
tax benefits arising from restricted stock transactions, employees' premature
disposition of option shares, and exercise of nonqualified stock options are
credited to additional paid-in capital.
The company adopted statement of Financial Accounting Standard No. 123,
Accounting for Stock-Based Compensation, in 1996. The standard defines a fair
value based method of accounting for employee stock options. The pro forma net
income and earnings per share effect of the fair value based accounting is
disclosed in the notes to the financial statements.
Earnings Per Common Share
Earnings per common share are based upon the weighted average number of
common shares outstanding during each year.
Fully diluted earnings per common share include the additional shares
resulting from the assumed exercise of all outstanding dilutive stock options
reduced by the number of shares repurchasable from the assumed proceeds of such
options.
Restructuring and Special Items
The company announced in the third quarter of 1996 that it would exit the
manual-clean range market and dispose of the assets, including the facility of
the Delaware, Ohio, operation. A $34.0 million pre-tax charge ($22.1 million
after tax) was recorded for this closing. For 1996, earnings, earnings per
share and fully diluted earnings per share were $783.3 million, $3.30 and $3.25
respectively, excluding the special charge. The company recorded in the fourth
quarter of 1995 a net pre-tax gain of $210 million from the sale of D.C. Heath,
its educational publishing unit. The company adopted statement of Financial
Accounting Standard No. 121, Accounting for the Impairment of Long-Lived Assets
to be Disposed of, in the fourth quarter of 1995 which resulted in a $125
million pre-tax special charge ($81.2 million after tax) related to specific
assets, liabilities or commitments, and nonrecurring charges of $77 million,
related principally to inventory and contract valuations. The net gain resulted
in a $5.2 million after-tax increase to net income, or $.02 per share. For
1995, earnings, earnings per share and fully diluted earnings per share were
$787.3 million, $3.23 and $3.18 respectively, excluding the one-time gain.
APPENDIX C
13
<PAGE>
RAYTHEON COMPANY AND SUBSIDIARIES CONSOLIDATED
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The company recorded in the first quarter of 1994 a restructuring provision
of $249.8 million before tax. The restructuring was driven by the significant
reductions in the defense budget and increasing commercial competition.
Approximately 65 percent of the restructuring costs were attributable to
Raytheon's defense business and the remainder to its commercial business.
Through year-end 1996, $249.3 million of restructuring costs have been
incurred, of which $103.4 million was employee-related costs and $145.9 million
was related to asset disposals and idle facilities. For 1994, earnings,
earnings per share and fully diluted earnings per share were $759.2 million,
$2.87 and $2.85 respectively, excluding the restructuring provision.
Interest Rate and Foreign Currency Interest Rate Swap Agreements, Rate Locks
and Foreign Exchange Contracts
The company enters into interest rate and foreign currency interest rate swap
agreements with commercial banks to reduce the impact of changes in interest
rates and foreign exchange rates on long-term debt and on financing
arrangements with customers and foreign subsidiaries. The company meets its
working capital requirements mainly with variable rate short-term financing.
Interest rate swaps are used to provide purchasers of the company's products
with fixed financing terms over extended time periods. Cross-currency interest
rates swaps have allowed the company's foreign subsidiaries to meet borrowing
needs at lower interest rates compared to local borrowing. The company also
enters into foreign exchange contracts to minimize fluctuations in the value of
payments due to international vendors and the value of foreign currency
denominated receipts. The hedges used by the company are transaction driven and
are directly related to a particular asset, liability or transaction for which
a commitment is in place. Swaps and foreign exchange contracts are held to
maturity and no exchange traded or over-the-counter instruments have been
purchased. The impact on the financial position and results of operations from
likely changes in foreign exchange rates and interest rates is not material due
to the minimizing of risk through the hedging of transactions related to
specific assets, liabilities, or commitments.
Risks and Uncertainties
Companies such as Raytheon, which are engaged in supplying defense-related
equipment to the government, are subject to certain business risks peculiar to
that industry. Sales to the government may be affected by changes in
procurement policies, budget considerations, changing concepts of national
defense, political developments abroad and other factors. As a result of the
1985 Balanced Budget and Emergency Deficit Reduction Control Act, the federal
deficit and changing world order conditions, Department of Defense (DoD)
budgets have been subject to increasing pressure resulting in an uncertainty as
to the future effects of DoD budget cuts. Raytheon has, nonetheless, maintained
a solid foundation of tactical defense systems which meet the needs of the
United States and its allies, as well as servicing a broad government program
base and wide range of commercial electronic businesses. These factors lead
management to believe that there is high probability of continuation of
Raytheon's current major tactical defense programs.
The company provides long-term financing principally to its aircraft
customers. The company sells general and regional aviation long-term
receivables to a bank syndicate and a fractional ownership in a defined pool of
trade receivables to financial institutions. The banks have recourse against
the company, at varying percentages, depending on the character of the
receivables sold. The underlying aircraft serve as collateral for the
receivables, and the future resale value of the aircraft is an important
consideration in the transaction. Based on the company's experience to date
with resale activities and pricing, management believes that any liability
arising from these transactions will not have a material effect on the
company's financial position, liquidity, or results of operations.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
APPENDIX C
14
<PAGE>
RAYTHEON COMPANY AND SUBSIDIARIES CONSOLIDATED
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE B: CASH AND MARKETABLE SECURITIES
<TABLE>
<CAPTION>
CASH AND MARKETABLE
SECURITIES CONSISTED OF THE
FOLLOWING AT DECEMBER 31:
---------------------------
1996 1995
------------- -------------
(IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents.......................... $ 137,379 $ 208,614
Marketable securities.............................. 1,442 1,670
------------- -------------
$ 138,821 $ 210,284
============= =============
</TABLE>
Under the company's cash management program, checks and amounts in transit
are not considered reductions of cash or accounts payable until presented to
the appropriate banks for payment. At December 31, 1996 and 1995, checks and
amounts in transit amounted to $177,600,000 and $182,900,000, respectively.
NOTE C: CONTRACTS IN PROCESS
<TABLE>
<CAPTION>
CONTRACTS IN PROCESS CONSISTED OF THE
FOLLOWING AT DECEMBER 31, 1996
-------------------------------------
COST TYPE FIXED PRICE TYPE TOTAL
--------- ---------------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
U.S. government end-use contracts
Billed................................. $205,643 $ 139,655 $ 345,298
Unbilled............................... 348,971 1,813,148 2,162,119
Less progress payments................. -- 1,068,638 1,068,638
-------- ---------- ----------
Total................................ 554,614 884,165 1,438,779
-------- ---------- ----------
Other customers
Billed................................. 63,474 164,110 227,584
Unbilled............................... 123,457 1,265,478 1,388,935
Less progress payments................. -- 463,292 463,292
-------- ---------- ----------
Total................................ 186,931 966,296 1,153,227
-------- ---------- ----------
$741,545 $1,850,461 $2,592,006
======== ========== ==========
<CAPTION>
CONTRACTS IN PROCESS CONSISTED OF
THE FOLLOWING AT DECEMBER 31, 1995
-------------------------------------
COST TYPE FIXED PRICE TYPE TOTAL
--------- ---------------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
U.S. government end-use contracts
Billed................................. $251,462 $ 182,320 $ 433,782
Unbilled............................... 303,148 2,239,814 2,542,962
Less progress payments................. -- 1,368,878 1,368,878
-------- ---------- ----------
Total................................ 554,610 1,053,256 1,607,866
-------- ---------- ----------
Other customers
Billed................................. 29,915 95,470 125,385
Unbilled............................... 154,665 692,069 846,734
Less progress payments................. -- 367,296 367,296
-------- ---------- ----------
Total................................ 184,580 420,243 604,823
-------- ---------- ----------
$739,190 $1,473,499 $2,212,689
======== ========== ==========
</TABLE>
APPENDIX C
15
<PAGE>
RAYTHEON COMPANY AND SUBSIDIARIES CONSOLIDATED
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The U.S. government has a security title to unbilled amounts associated with
contracts that provide for progress payments.
Unbilled amounts are recorded on the percentage of completion method and are
recoverable from the customer upon shipment of the product, presentation of
billings, or completion of the contract. It is anticipated that substantially
all of these unbilled amounts, net of progress payments, will be collected
during 1997.
Billed and unbilled contracts in process include retentions arising from
contractual provisions. At December 31, 1996, retentions amounted to
$65,285,000 and are anticipated to be collected as follows: 1997--$41,144,000,
1998--$6,352,000, and the balance thereafter.
NOTE D: INVENTORIES
<TABLE>
<CAPTION>
INVENTORIES CONSISTED OF THE
FOLLOWING AT DECEMBER 31:
------------------------------
1996 1995
-------------- --------------
(IN THOUSANDS)
<S> <C> <C>
Finished goods.................................. $ 616,660 $ 596,080
Work in process................................. 702,180 728,792
Materials and purchased parts................... 482,152 456,402
Excess of current cost over LIFO values......... (157,977) (176,725)
-------------- --------------
1,643,015 1,604,549
Less progress payments.......................... 52,048 101,566
-------------- --------------
$ 1,590,967 $ 1,502,983
============== ==============
</TABLE>
The inventory values from which the excess of current cost over LIFO values
are deductible were $423,564,000 and $488,765,000 at December 31, 1996 and
1995, respectively.
NOTE E: PROPERTY, PLANT, AND EQUIPMENT
<TABLE>
<CAPTION>
PROPERTY, PLANT, AND
EQUIPMENT CONSISTED
OF THE
FOLLOWING AT DECEMBER 31:
-------------------------
1996 1995
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Land.................................................. $ 66,008 $ 53,090
Buildings and leasehold improvements.................. 1,273,678 1,184,072
Machinery and equipment............................... 3,077,606 2,852,721
Equipment leased to others............................ 73,067 25,866
------------ ------------
4,490,359 4,115,749
Less accumulated depreciation and amortization........ 2,688,347 2,531,714
------------ ------------
$ 1,802,012 $ 1,584,035
============ ============
</TABLE>
Accumulated amortization of equipment leased to others was $5,508,000 and
$3,981,000 at December 31, 1996 and 1995, respectively.
APPENDIX C
16
<PAGE>
RAYTHEON COMPANY AND SUBSIDIARIES CONSOLIDATED
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Future minimum lease payments from noncancelable aircraft operating leases,
which extend to 2006, amounted to $35,882,000.
<TABLE>
<CAPTION>
AT DECEMBER 31,
1996, THESE PAYMENTS
WERE DUE AS FOLLOWS:
--------------------
(IN THOUSANDS)
<S> <C> <C>
1997.................................................... $ 5,717
1998.................................................... 5,907
1999.................................................... 5,537
2000.................................................... 5,270
2001.................................................... 5,270
Thereafter.............................................. 8,181
</TABLE>
NOTE F: OTHER ASSETS
<TABLE>
<CAPTION>
OTHER ASSETS CONSISTED OF THE
FOLLOWING AT DECEMBER 31:
-----------------------------
1996 1995
-------------- --------------
(IN THOUSANDS)
<S> <C> <C>
Long-term receivables
Due from customers in installments to 2009.... $ 175,920 $ 102,261
Sales-type leases, due in installments to
2012......................................... 21,559 48,277
Other, principally due from 1997 through 2012. 31,519 21,707
Investments..................................... 251,171 183,034
Deferred charges and other noncurrent assets.... 161,254 80,129
Excess of cost over net assets of acquired
companies (net of accumulated amortization of
$183.6 million and $103.5 million at December
31, 1996 and 1995, respectively)............... 3,066,972 2,532,358
Intangible pension asset........................ 11,774 13,925
-------------- --------------
$ 3,720,169 $ 2,981,691
============== ==============
</TABLE>
Long-term receivables and sales-type leases due from customers, of $197.5
million at December 31, 1996, and $150.5 million at December 31, 1995, included
commuter airline receivables of $116.1 million and $47.1 million, respectively.
Since it is the company's policy to have the aircraft serve as collateral for
the commuter airline receivables, management does not expect to incur any
material losses against the net book value of the long-term receivables. The
company sold general and commuter aviation long-term receivables to a bank
syndicate and sold a fractional ownership in a defined pool of engineering &
construction and commercial appliance trade receivables to financial
institutions. The interest rate on the general aviation receivables is
LIBOR+.55% and on the commuter receivables LIBOR+.4% and +.35% and on the trade
receivables commercial paper rate +.225% to +.29%. The interest rates are
adjusted based on the company's debt rating.
The banks have a first priority claim on all proceeds, including the
underlying equipment and any insurance proceeds, and have recourse against the
company, at varying percentages, depending upon the character of the
receivables sold. The balance of receivables sold to banks or financial
institutions and outstanding at December 31, 1996 and December 31, 1995, was
$2,493.7 million and $1,912.4 million, respectively, of which 1996 net proceeds
of $581.3 million included $288.3 million for commuter and general aviation
aircraft.
The company will adopt Statement of Financial Accounting Standard No. 125,
Accounting for Transfers and Servicing of Financial Assets and Extinguishment
of Liabilities, in 1997. The adoption is not expected to have a material effect
on the company's financial position or results of operation.
APPENDIX C
17
<PAGE>
RAYTHEON COMPANY AND SUBSIDIARIES CONSOLIDATED
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE G: NOTES PAYABLE
<TABLE>
<CAPTION>
NOTES PAYABLE CONSISTED
OF THE FOLLOWING
AT DECEMBER 31:
------------------------
1996 1995
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Notes payable......................................... $ 63,050 $ 56,086
Commercial paper...................................... 2,155,821 1,148,391
Weighted average interest rate on:
Average notes payable borrowings.................... 6.51% 6.30%
Average commercial paper............................ 5.40% 5.94%
Notes payable borrowings at December 31............. 5.11% 5.70%
Commercial paper at December 31..................... 5.53% 5.83%
Aggregate borrowings outstanding
Maximum month-end balance........................... $ 3,135,929 $ 4,051,846
Average during the year............................. $ 2,890,261 $ 2,362,599
</TABLE>
Credit lines or commitments with banks were maintained by subsidiary
companies amounting to $188.3 million in 1996 and $196.7 million in 1995.
Compensating balance arrangements are not material. In addition, lines of
credit with certain commercial banks exist as a standby facility to support the
issuance of commercial paper by the company. These lines of credit were $3.5
billion at December 31, 1996 and $3.2 billion at December 31, 1995. Through
December 31, 1996, there have been no borrowings under these lines of credit.
Total interest payments were $257 million, $160 million, and $48 million for
1996, 1995, and 1994, respectively.
NOTE H: LONG-TERM DEBT
<TABLE>
<CAPTION>
LONG-TERM DEBT
CONSISTED OF THE FOLLOWING
AT DECEMBER 31:
---------------------------
1996 1995
------------- -------------
(IN THOUSANDS)
<S> <C> <C>
30 year 7.375% debentures due 2025 and redeemable
after July 15, 2005............................... $ 361,834 $ 361,373
10 year 6.5% long-term notes due 2005, not
redeemable prior to maturity...................... 730,499 728,216
Commercial paper backed by 5 year fixed for
variable interest rate
swap at 6.40%..................................... 375,000 375,000
Notes (including $19,392,000 and $17,639,000 at
December 31, 1996 and 1995 respectively, of
mortgage notes and industrial revenue bonds),
interest in the range of 2.04% to 10.0% in
installments, maturing at various dates from 1997
to 2006........................................... 41,207 34,708
Less installments due within one year.............. 8,064 11,562
------------- -------------
$ 1,500,476 $ 1,487,735
============= =============
</TABLE>
The aggregate amounts of installments due for the next five years are:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
1997......................................................... $ 8,064
1998......................................................... 5,406
1999......................................................... 9,718
2000......................................................... 378,017
2001......................................................... 2,937
</TABLE>
APPENDIX C
18
<PAGE>
RAYTHEON COMPANY AND SUBSIDIARIES CONSOLIDATED
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Interest expense on long-term debt charged to income was $103,187,000,
$52,122,000, and $1,158,000 for 1996 through 1994, respectively.
Commercial paper in the amount of $375,000,000 has been classified as long-
term due to company borrowings of that amount which are supported by a 5 year
Syndicated Bank Credit Agreement combined with a 5 year fixed for variable
interest rate swap.
In 1995, the company issued $375,000,000 of 30 year, 7.375 percent debentures
due in 2025, redeemable after ten years, and $750,000,000 of ten year 6.50
percent notes due in 2005. The proceeds from these issues were used for
acquisition financing.
The principal amounts of debt were reduced by debt issue discounts and costs
at December 31, 1996, as follows:
<TABLE>
<CAPTION>
30 YEAR DEBENTURES 10 YEAR NOTES
------------------ -------------
(IN THOUSANDS)
<S> <C> <C>
Principal...................................... $375,000 $750,000
Unamortized issue discounts.................... (8,879) (7,877)
Unamortized interest rate hedging costs........ (4,287) (11,624)
-------- --------
Net debt....................................... $361,834 $730,499
</TABLE>
The company has bank agreement covenants which require (1) That the ratio of
total debt to total capitalization not exceed 55%, and (2) That the sum of
profit before tax plus net interest expense be at least three times net
interest expense over the prior four fiscal quarters. The company was in
compliance with these covenants during 1996 and 1995.
NOTE I: FEDERAL AND FOREIGN INCOME TAXES
Income reported for federal and foreign tax purposes differs from pretax
accounting income due to variations between requirements of Internal Revenue
codes and the company's accounting practices. The provisions for federal and
foreign income taxes consisted of the following for the years ended December
31:
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Current income tax expense
Federal......................................... $169,870 $263,489 $400,482
Foreign......................................... 33,784 (23,347) 25,429
Deferred income tax expense
Federal......................................... 150,983 123,858 (119,663)
Foreign......................................... (32,326) 35,195 (3,185)
-------- -------- --------
$322,311 $399,195 $303,063
======== ======== ========
</TABLE>
The provision for income taxes for 1996 through 1994 differs from the U.S.
statutory rate due to the following:
<TABLE>
<S> <C> <C> <C>
Tax at statutory rate...................................... 35.0% 35.0% 35.0%
Research and development tax credit........................ (4.6)(1) (0.4) --
FSC tax benefit............................................ (2.5) (2.0) (1.0)
Goodwill amortization...................................... 1.7 1.3 0.3
Recovery of foreign tax credits............................ -- (0.5) (1.1)
Other, net................................................. 0.1 0.1 0.5
---- ---- ----
29.7% 33.5% 33.7%
==== ==== ====
</TABLE>
- ------
(1) Accrued retroactive research and development tax credits applicable to
certain government contracts
APPENDIX C
19
<PAGE>
RAYTHEON COMPANY AND SUBSIDIARIES CONSOLIDATED
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
In 1996, 1995, and 1994 domestic profit before taxes amounted to
$1,061,335,000, $1,126,332,000, and $827,258,000, respectively, and foreign
profit before taxes amounted to $22,127,000, $65,351,000, and $72,681,000,
respectively.
Actual cash income tax payments by year were $274,700,000, $275,300,000, and
$425,800,000, respectively, for 1996, 1995, and 1994. In 1996 and 1995, net
deferred tax assets were increased by $108,235,000 and $175,813,000,
respectively, in connection with acquisitions.
Details of the balance sheet captions, "Federal and foreign income taxes,
including deferred," at December 31, 1996, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Current deferred tax assets (liabilities):
Inventory and other......................... $ 10,215 $ 78,377 $ 50,078
Long-term contracts......................... 198,861 115,992 97,054
Restructuring reserve....................... 154 3,261 55,055
Inventory capitalization.................... 16,611 27,689 29,546
Other....................................... (43,779) (17,803) (7,203)
--------- --------- ---------
Net current deferred tax assets............. 182,062 207,516 224,530
Current period tax prepaid (liability)........ 64,058 (10,805) (58,915)
--------- --------- ---------
Federal and foreign income taxes, including
deferred--current............................ $ 246,120 $ 196,711 $ 165,615
========= ========= =========
Noncurrent deferred tax assets (liabilities):
Depreciation................................ $(125,684) $(115,819) $ (97,095)
Revenue on leases........................... (58,096) (79,237) (27,596)
Postretirement benefits..................... 104,730 103,014 --
Other....................................... (6,715) (8,755) (9,880)
--------- --------- ---------
Noncurrent deferred tax liabilities........... (85,765) (100,797) (134,571)
--------- --------- ---------
Federal and foreign income taxes, including
deferred--noncurrent......................... $ (85,765) $(100,797) $(134,571)
========= ========= =========
</TABLE>
NOTE J: COMMITMENTS AND CONTINGENCIES
At December 31, 1996, the company had commitments under long-term leases
requiring approximate annual rentals on a net lease basis as follows:
<TABLE>
<CAPTION>
(IN
THOUSANDS)
<S> <C> <C>
1997.......................................................... $ 85,041
1998.......................................................... 69,677
1999.......................................................... 56,052
2000.......................................................... 46,655
2001.......................................................... 39,827
Thereafter.................................................... 182,162
</TABLE>
Rental expense for 1996, 1995, and 1994 amounted to $112,649,000,
$102,925,000, and $79,887,000, respectively.
Defense contractors are subject to many levels of audit and investigation.
Among agencies that oversee contract performance are the Defense Contract Audit
Agency, the Inspector General, the Defense Criminal Investigative Service, the
General Accounting Office, the Department of Justice, and Congressional
Committees. Over recent years, the Department of Justice has convened Grand
Juries from time to time to investigate possible irregularities by the company
in government contracting. Management believes that such investigations,
APPENDIX C
20
<PAGE>
RAYTHEON COMPANY AND SUBSIDIARIES CONSOLIDATED
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
individually and in the aggregate, will not have any material adverse effect
upon the financial condition of the company.
The company self-insures for losses and expenses for aircraft product
liability up to a maximum of $50 million annually. Excess insurance is
purchased from third parties to cover excess aggregate liability exposure from
$50 million to $1 billion. This coverage also includes the excess of liability
over $10 million per occurrence. The aircraft product liability reserve at
December 31, 1996 was $27.5 million.
Recurring costs associated with the company's environmental compliance
program are not material and are expensed as incurred. Capital expenditures in
connection with environmental compliance are not material. The company is
involved in various stages of investigation and cleanup relative to remediation
of various sites. All appropriate costs incurred in connection therewith have
been expensed. Due to the complexity of environmental laws and regulations, the
varying costs and effectiveness of alternative cleanup methods and
technologies, the uncertainty of insurance coverage, and the unresolved extent
of the company's responsibility, it is difficult to determine the ultimate
outcome of these matters. However, in the opinion of management, any additional
liability will not have a material effect on the company's financial position,
liquidity, or results of operations after giving effect to provisions already
recorded.
The company will adopt the American Institute of Certified Public Accountants
Statement of Position 96-1, Environmental Remediation Liabilities, in 1997. The
adoption of the standard will not have a material effect on the company's
financial position or results of operations.
The company issues guarantees and has banks issue, on its behalf, letters of
credit to meet various bid, performance, warranty, retention and advance
payment obligations. Approximately $1,363 million, $979 million and $519
million of these contingent obligations, net of related outstanding advance
payments, were outstanding at December 31, 1996, 1995, and 1994, respectively.
These instruments expire on various dates through the year 2003.
Various claims and legal proceedings generally incidental to the normal
course of business are pending or threatened against the company. While the
ultimate liability from these proceedings is presently indeterminable, in the
opinion of management, any additional liability will not have a material effect
on the company's financial position, liquidity, or results of operations after
giving effect to provisions already recorded.
NOTE K: EMPLOYEE STOCK PLANS
The 1976 Stock Option Plan provides for the grant of both incentive and
nonqualified options at an exercise price which is 100% of the fair market
value on the date of grant. The 1991 Stock Option Plan provides for the grant
of incentive options at an exercise price which is 100% of the fair market
value, and non-qualified options at an exercise price which may be less than
the fair market value on the date of grant. The 1995 Stock Option Plan provides
for the grant of both incentive and nonqualified options at an exercise price
which is not less than 100% of the fair market value on the date of grant.
The plans also provide that all options may be exercised in their entirety 12
months after the date of grant. Incentive options terminate 10 years from the
date of grant, and those options granted after Dec. 31, 1986 become exercisable
to a maximum of $100,000 per year. Nonqualified options terminate 11 years from
the date of grant or 10 years and a day if issued in connection with the 1995
plan. The 1991 plan also provides for the award of restricted stock and
restricted units. Restricted awards are made at prices determined by the
Compensation Committee of the Board of Directors and are compensatory in
nature. Restricted stock and restricted unit awards vest over a specified
period of time of not less than one year nor more than 10 years. The plans'
expiration dates are March 22, 1998, March 26, 2001 and March 21, 2005.
APPENDIX C
21
<PAGE>
RAYTHEON COMPANY AND SUBSIDIARIES CONSOLIDATED
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
All restricted stock awards entitle the participant to full dividend and
voting rights. Unvested shares are restricted as to disposition and subject to
forfeiture under certain circumstances. Upon issuance of restricted shares,
unearned compensation is charged to share-owners' equity for the cost of
restricted stock and recognized as compensation expense ratably over the
vesting periods, as applicable. Awards of 19,500; 256,000; and 380,000 shares
of restricted stock were made to employees at a weighted average value at the
grant date of $50.87, $38.07, and $32.29 in 1996, 1995 and 1994, respectively.
The amount of compensation expense recorded was $6.9 million, $4.8 million and
$2.9 million for 1996, 1995 and 1994, respectively.
There were 49,562,000; 51,383,000; and 13,765,000 shares of common stock
(including shares held in treasury) reserved for stock options and restricted
stock awards at December 31, 1996, 1995, and 1994, respectively.
The following are the shares exercisable at the corresponding weighted
average exercise price at December 31, 1996, 1995, and 1994, respectively:
8,820,000 at $31.32; 7,319,000 at $26.71; and 5,531,000 at $22.04.
Information for the years 1993 through 1996 with respect to the plans are as
follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
STOCK OPTIONS SHARES OPTION PRICE
- ------------- -------------- ----------------
(IN THOUSANDS)
<S> <C> <C>
Outstanding at December 31, 1993................ 7,054 $21.64
Granted....................................... 3,688 32.79
Exercised..................................... (1,452) 20.00
Expired....................................... (132) 28.22
------ ------
Outstanding at December 31, 1994................ 9,158 $26.30
Granted....................................... 4,071 36.61
Exercised..................................... (2,132) 22.92
Expired....................................... (316) 34.04
------ ------
Outstanding at December 31, 1995................ 10,781 $30.63
Granted....................................... 3,890 52.53
Exercised..................................... (1,845) 26.91
Expired....................................... (256) 45.47
------ ------
Outstanding at December 31, 1996................ 12,570 $37.65
====== ======
</TABLE>
The following table summarizes information about stock options outstanding at
December 31, 1996:
STOCK OPTIONS OUTSTANDING
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------- --------------------
WEIGHTED AVERAGE WEIGHTED WEIGHTED
SHARES CONTRACTUAL AVERAGE SHARES AVERAGE
EXERCISE OUTSTANDING REMAINING EXERCISE EXERCISABLE EXERCISE
PRICE RANGE AT 12/31/96 LIFE PRICE AT 12/31/96 PRICE
----------- ----------- ---------------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$15.51 to $35.38........ 5,836,183 6.1 years $27.37 5,836,183 $27.37
$39.03 to $52.25........ 3,050,127 8.4 years $39.31 2,983,627 $39.06
$52.56 to $54.63........ 3,684,050 9.4 years $52.56 -- --
---------- ---------
Total................... 12,570,360 8,819,810
========== =========
</TABLE>
APPENDIX C
22
<PAGE>
RAYTHEON COMPANY AND SUBSIDIARIES CONSOLIDATED
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The company applies Accounting Principles Board Opinion No.25, Accounting for
Stock Issued to Employees, and related interpretations, in accounting for its
plans. Accordingly, no compensation expense has been recognized for its stock-
based compensation plans other than for restricted stock. The company has
adopted the disclosure-only provisions of Financial Accounting Standards
No.123, Accounting for Stock-Based Compensation. Accordingly, no compensation
cost was recognized for the stock option plans. Had compensation cost for the
company's stock option plans been determined based on the fair value at the
grant date for awards under these plans, consistent with the methodology
prescribed under SFAS No.123, the company's net income and earnings per share
would have approximated the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Net income-as reported..................................... $ 761,151 $ 792,488
Net income-pro forma....................................... $ 739,165 $ 779,175
Earnings per share-as reported............................. $ 3.21 $ 3.25
Earnings per share-pro forma............................... $ 3.11 $ 3.19
Fully diluted-as reported.................................. $ 3.16 $ 3.20
Fully diluted-pro forma.................................... $ 3.06 $ 3.14
</TABLE>
The weighted-average fair value of each option granted in 1996 and 1995 is
estimated as $10.79 and $8.30 on the date of grant using the Black-Scholes
option-pricing model with the following weighted-average assumptions:
<TABLE>
<S> <C>
Expected life........................................... 4 years
Assumed annual dividend................................. 6%
growth rate (5 year historical rate)
Expected volatility..................................... 15%
Risk free interest rate................................. 5% to 7.5% range
(the month-end yields on 4 year
treasury strips equivalent zero coupon)
Assumed annual forfeiture rate.......................... 5%
</TABLE>
The effects of applying SFAS No.123 in this pro forma disclosure are not
indicative of future amounts. SFAS No.123 does not apply to awards prior to
1995 and additional awards in future years are anticipated.
NOTE L: PENSION AND OTHER EMPLOYEE BENEFITS
The company and its subsidiaries have several pension and retirement plans
covering the majority of employees, including certain employees in foreign
countries. The major plans covering salaried and management employees provide
pension benefits that are based on the five highest consecutive years of the
employee's compensation in the ten years before retirement. Plans covering
hourly and union employees generally provide benefits of stated amounts for
each year of service, but in some cases can also use a final average pay based
calculation. The company's funding policy for the salaried plans is to
contribute annually at a rate that is intended to remain at a level percentage
of compensation for the covered employees. The company's funding policy on the
hourly and union plans is to contribute annually at a rate that is intended to
remain level for the covered employees. Unfunded prior service costs under the
funding policy are generally amortized over periods from 10 to 30 years.
Total pension expense was $93,283,000; $31,156,000; and $29,908,000; in 1996
through 1994, respectively. Foreign pension expense was $9,937,000; $8,287,000;
and $4,866,000 in 1996 through 1994, respectively.
APPENDIX C
23
<PAGE>
RAYTHEON COMPANY AND SUBSIDIARIES CONSOLIDATED
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Net periodic pension cost for the company and its subsidiaries in 1996
through 1994 included the following components:
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31
-------------------------------
1996 1995(1) 1994
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost--benefits earned during the
period....................................... $126,589 $ 98,207 $ 95,537
Interest cost on projected benefit obligation. 307,115 267,891 218,118
Actual (gain)/loss on assets.................. (669,917) (955,942) 37,612
Net amortization and deferral................. 325,191 626,217 (323,866)
Curtailment adjustments....................... 1,176 (7,815)(2) --
-------- -------- --------
Net periodic pension costs.................... 90,154 28,558 27,401
Defined contribution pension plans............ 3,129 2,598 2,507
-------- -------- --------
Total pension costs........................... $ 93,283 $ 31,156 $ 29,908
======== ======== ========
Assumptions used in the accounting were:
Discount rate............................... 7.75% 7.50% 8.25%
Expected long-term rate of return on assets. 9.25% 9.00% 9.00%
Rate of increase in compensation levels..... 4.50% 4.50% 5.00%
</TABLE>
The following table sets forth the funded status of the plans at:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995(1)
--------------------------- ---------------------------
ASSETS EXCEED ACCUMULATED ASSETS EXCEED ACCUMULATED
ACCUMULATED BENEFITS ACCUMULATED BENEFITS
BENEFITS EXCEED ASSETS BENEFITS EXCEED ASSETS
------------- ------------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Actuarial present value
of benefit obligations:
Vested benefit
obligation........... $(3,603,273) $(68,623) $(3,399,386) $(57,583)
----------- -------- ----------- --------
Accumulated benefit
obligation........... $(3,752,844) $(70,840) $(3,538,658) $(68,021)
----------- -------- ----------- --------
Projected benefit
obligation........... $(4,183,811) $(83,104) $(3,998,382) $(74,544)
Plan assets at fair
value................ 4,960,892 -- 4,451,725 --
----------- -------- ----------- --------
Projected benefit
obligation (in excess
of) or less than plan
assets............... 777,081 (83,104) 453,343 (74,544)
Unrecognized net
(gain) or loss....... (762,898) 15,199 (411,413) 11,907
Prior service cost not
yet recognized in net
periodic pension
cost................. 212,641 12,544 212,270 13,723
Unrecognized net
obligation (asset) at
transition........... (34,423) 911 (42,652) 1,138
Adjustment required to
recognize additional
minimum liability.... -- (18,047) -- (21,330)
----------- -------- ----------- --------
Prepaid pension cost
(liability).......... $ 192,401 $(72,497) $ 211,548 $(69,106)
=========== ======== =========== ========
</TABLE>
Plan assets primarily include equity and fixed income securities and, in
addition to normal funding contributions, include prepayments of $60,719,000;
and $1,900,000 made in 1995 and 1994 respectively.
The company's salaried pension plan provides that in the event of a
termination of the plan within three years after an involuntary change of
control of the company, the assets of the plan will be applied to satisfy all
APPENDIX C
24
<PAGE>
RAYTHEON COMPANY AND SUBSIDIARIES CONSOLIDATED
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
liabilities to participants and beneficiaries in accordance with section 4044
of the Employee Retirement Income Security Act of 1974. Any remaining assets
will be applied on a pro rata basis to increase the benefits to the
participants and beneficiaries.
In addition to providing pension benefits, the company and most of its
subsidiaries provide certain health care and life insurance benefits for
retired employees. Substantially all of the company's U.S. employees may become
eligible for these benefits if they reach normal retirement age while working
for the company. Retiree health plans are paid for in part by retiree
contributions, which are adjusted annually. Benefits are provided through
various insurance companies whose charges are based either on the benefits paid
during the year or annual premiums. Health benefits are provided to retirees,
their covered dependents and beneficiaries. Retiree life insurance plans are
noncontributory and cover the retiree only.
In 1993, the company adopted Statement of Financial Accounting Standards No.
106, Employers' Accounting for Postretirement Benefits Other than Pensions,
which requires recognition of an accumulated postretirement benefit obligation
for retiree costs existing at the time of implementation, as well as an
incremental expense recognition for changes in the obligation attributable to
each successive year. Prior to 1995, all company segments had elected to
amortize past service costs over the allowable 20 year period. During 1995 the
company acquired E-Systems, Inc. who had elected in 1992 to recognize all its
past service cost immediately upon implementation.
The company is funding the liability for many salaried and hourly employees
and plans to continue to do so. The net postretirement benefit cost for the
company and its subsidiaries in 1996, 1995 and 1994 included the following
components:
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31:
---------------------------------------------
1996 1995(1) 1994
------------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost--benefits earned
during the period.............. $ 9,297 $ 8,265 $ 5,546
Interest cost on accumulated
postretirement benefit
obligation..................... 52,472 47,906 37,355
Actual (gain)/loss on assets.... (29,482) (8,283) 600
Amortization of transition
obligation..................... 26,712 27,340 24,830
Other amortizations and
deferrals (net)................ 7,146 (11,299) (6,316)
Curtailment and other
adjustments.................... 3,159 18,900(3) --
------------- ------------- -------------
Net postretirement benefit cost. $ 69,304 $ 82,829 $62,015
============= ============= =============
Assumptions used in the
accounting were:
Discount rate................. 7.75% 7.50% 8.25%
Expected long-term rate of
return on assets............. 8.75% 8.50% 8.50%
Rate of increase in
compensation levels.......... 4.50% 4.50% 5.00%
Health care trend rate in the
next year.................... 7.00% 7.50% 8.00%
Gradually declining to a trend
rate of...................... 5.00% 5.00% 5.00%
In the years.................. 2001 & beyond 2001 & beyond 2001 & beyond
</TABLE>
APPENDIX C
25
<PAGE>
RAYTHEON COMPANY AND SUBSIDIARIES CONSOLIDATED
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The following amounts are recognized in the balance sheet at:
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31:
-------------------------------
1996 1995(1) 1994
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Accumulated postretirement benefit obligation
Retirees................................... $(559,666) $(516,767) $(356,573)
Active employees eligible for benefits..... (41,158) (32,339) (45,501)
Active employees not yet eligible for
benefits.................................. (131,260) (138,888) (73,674)
--------- --------- ---------
Total obligation......................... (732,084) (687,994) (475,748)
Plan assets at fair value.................. 183,750 175,172 105,983
--------- --------- ---------
Total obligation (in excess of) plan
assets.................................... (548,334) (512,822) (369,765)
Unrecognized net (gain).................... (67,258) (127,279) (89,074)
Unrecognized prior service cost............ (12,969) (14,214) --
Unrecognized net obligation at transition.. 360,255 390,079 446,786
--------- --------- ---------
Accrued postretirement benefit cost........ $(268,306) $(264,236) $ (12,053)
========= ========= =========
The effect of a one percentage point increase
in the assumed health care trend rate for
each future year on:
Aggregate of service and interest cost... $ 3,576 $ 3,055 $ 3,706
Accumulated postretirement benefit
obligation.............................. $ 43,596 $ 37,979 $ 38,262
</TABLE>
- ------
(1) 1995 data, including $17,117,000 of Net Periodic Pension Cost, $7,853,000
of Accrued Pension Cost, $15,041,000 of Net Periodic Postretirement Benefit
Cost and $235,383,000 of Accrued Postretirement Benefit Cost, were a result
of having acquired E-Systems, Inc. in April 1995.
(2) Various plan curtailments were recognized, as a result of workforce
reductions which were planned as part of the restructuring program.
(3) Benefit enhancements were made to various plans during the year in order to
accelerate attrition through voluntary retirements.
The company has adopted Statement of Financial Accounting Standards No. 112
(FAS 112), Employers' Accounting for Postemployment Benefits, in 1994. FAS 112
requires that benefits to be paid for former or inactive employees after
employment but prior to retirement must be accrued if certain criteria are met.
The adoption of FAS 112 had no material financial impact on the company.
Under the terms of the Raytheon Savings and Investment Plan, a defined
contribution plan, covered employees are allowed to contribute up to 17 percent
of their pay limited to $9,500. The company contributes amounts equal to 50
percent of the employee's contributions, up to a maximum of 3 percent of the
employee's pay. Total expense for the plan was $68,090,000; $64,563,000; and
$49,436,000 for 1996 through 1994, respectively.
The company's annual contribution to the Raytheon Employee Stock Ownership
Plans is approximately one-half of one percent of salaries and wages, limited
to $150,000, of substantially all United States salaried and a majority of
hourly employees. The expense was $14,670,000; $11,748,000; and $11,768,000 and
the number of shares allocated to participant accounts was 296,000; 177,000 and
185,000 for 1996 through 1994, respectively.
APPENDIX C
26
<PAGE>
RAYTHEON COMPANY AND SUBSIDIARIES CONSOLIDATED
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE M: BUSINESS SEGMENT REPORTING
The company operates in four major business areas: Electronics, both
commercial and defense; Engineering and Construction; Aircraft; and Major
appliances. The principal contributors to Electronics sales and earnings are
defense missile systems and other products. The Engineering and Construction
segment does business in some 60 countries around the world. The Aircraft
segment manufactures, markets and supports piston, jetprops and medium and
light jet aircraft for commercial, regional airline and military markets around
the world. The Major Appliance segment manufactures and sells household and
commercial appliances to dealers and distributors in the United States and to
foreign locations. Sales and segment income for 1995 and 1994 have been
restated to conform with the 1996 presentation.
Certain accounts were reclassified to reconicile segment income with
operating income, as reported in the statements of income. The
reclassifications did not have a material effect on the income of the segments
other than the aircraft segment. Aircraft segment income was reduced in all
years due to the inclusion of interest cost associated with the financing of
off-balance sheet receivables. This cost was previously reported as a part of
corporate interest expense. The change did not affect the company's income
before taxes or net income.
OPERATIONS BY BUSINESS SEGMENTS
<TABLE>
<CAPTION>
SALES TO UNAFFILIATED CUSTOMERS SEGMENT INCOME
-------------------------------- ----------------------------
1996 1995 1994 1996 1995 1994
---------- ---------- ---------- ------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Electronics............. $ 5,424 $ 5,389 $ 4,057 $ 766 $ 740 (3) $ 630
Engineering and
Construction........... 3,053 2,883 2,827 211 (6) 262 239
Aircraft................ 2,345 2,060 1,759 181 167 (4) 195
Major Appliances........ 1,509 1,472 1,455 74 74 82
---------- ---------- ---------- ------ ------ ------
Total Operating
Segments............... $ 12,331 $ 11,804 $ 10,098 $1,232 $1,243 $1,146
========== ========== ========== ====== ====== ======
Restructuring and
special charges........ (34)(1) (125)(2) (250)(5)
Gain on sale of D.C.
Heath.................. -- 210 --
Net interest expense.... (154) (170) (28)
Other income............ 39 5 1
Gain on sale of an
investment............. -- 29 31
---------- ---------- ---------- ------ ------ ------
Income before taxes..... $1,083 $1,192 $ 900
========== ========== ========== ====== ====== ======
</TABLE>
- ------
(1) The 1996 special charge of $34 million relates to the Major Appliances
segment.
(2) The special charge relates to the business segments as follows:
Electronics, $115, and Engineering and Construction, $10.
(3) Includes a nonrecurring charge of $47 million.
(4) Includes a nonrecurring charge of $30 million.
(5) The restructuring provision relates to the business segments as follows:
Electronics, $193, Engineering and Construction, $37, Aircraft $13, and
Major Appliances $7.
(6) Excludes second quarter fee adjustment on a major foreign project which was
covered by a pre-existing contingency reserve.
APPENDIX C
27
<PAGE>
RAYTHEON COMPANY AND SUBSIDIARIES CONSOLIDATED
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
DEPRECIATION AND
CAPITAL EXPENDITURES AMORTIZATION
-------------------- -----------------
1996 1995 1994 1996 1995 1994
------ ------ ------ ----- ----- -----
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Electronics............................. $ 160 $ 147 $ 120 $ 220 $ 228 $ 167
Engineering and Construction............ 27 26 22 37 32 31
Aircraft................................ 140 80 74 50 51 52
Major Appliances........................ 79 76 51 62 60 54
------ ------ ------ ----- ----- -----
Total................................... $ 406 $ 329 $ 267 $ 369 $ 371 $ 304
====== ====== ====== ===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
IDENTIFIABLE ASSETS AT DECEMBER 31,
------------------------------------
1996 1995 1994
------------ ----------- -----------
(IN MILLIONS)
<S> <C> <C> <C>
Electronics............................... $ 5,881 $ 5,473 $ 2,867
Engineering and Construction.............. 2,059 1,544 1,359
Aircraft.................................. 2,372 1,832 2,171
Major Appliances.......................... 814 992 998
------------ ----------- -----------
Total..................................... $ 11,126 $ 9,841 $ 7,395
============ =========== ===========
</TABLE>
OPERATIONS BY GEOGRAPHIC AREAS
<TABLE>
<CAPTION>
OUTSIDE UNITED STATES
UNITED STATES (PRINCIPALLY EUROPE) CONSOLIDATED
------------- --------------------- ------------
(IN MILLIONS)
<S> <C> <C> <C>
Sales to unaffiliated
customers
1996......................... $11,570 $761 $12,331
1995......................... 11,017 787 11,804
1994......................... 9,309 789 10,098
Net income
1996......................... 740 21 761
1995......................... 738 54 792
1994......................... 547 50 597
Identifiable assets at
December 31, 1996............ 10,473 653 11,126
December 31, 1995............ 9,171 670 9,841
December 31, 1994............ 6,929 466 7,395
</TABLE>
Sales between business segments and between geographic areas are not
material. In the data by geographic area, U.S. sales in millions of $11,570,
$11,017, and $9,309 include export sales, in millions, principally to Europe,
the Middle East, and Far East, of $2,137, $1,907, and $1,173 for 1996 through
1994, respectively.
Sales in millions to major customers, principally in Electronics, for 1996
through 1994, respectively, are: U.S. government (end user), $4,638, $4,079,
and $3,236; U.S. government (foreign military sales), $502, $597, and $694.
APPENDIX C
28
<PAGE>
RAYTHEON COMPANY AND SUBSIDIARIES CONSOLIDATED
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE N: ACQUISITIONS AND DIVESTITURES
The company has included in its consolidated results of operations the
acquisitions under the purchase method of accounting of the following
companies: the aircraft modification and defense electronics businesses of
Chrysler Technologies (from June 1996); the engineering and construction assets
of Rust International (from June 1996); and the marine communication assets of
Standard Radio AB of Sweden (from June 1996). The cash paid for the
acquisitions, net of cash acquired, was $584.4 million. No pro forma results
have been presented since they would not be material to the consolidated
results.
The following unaudited pro forma financial information combines Raytheon and
E-Systems results of operations as if the acquisition had taken place on
January 1, 1995, and on January 1, 1994. The pro forma results are not
necessarily indicative of what the results of operations actually would have
been if the transaction had occurred on the applicable dates indicated and are
not intended to be indicative of future results of operations.
<TABLE>
<CAPTION>
1995 1994*
--------- ----------
(IN MILLIONS EXCEPT
EARNINGS PER SHARE)
<S> <C> <C>
Net sales................................................... $ 12,397 $ 12,046
Net income.................................................. 794 584
Earnings per share.......................................... 3.25 2.21
</TABLE>
- ------
* includes after tax restructuring provision of $162.3 million, or $.61 per
share.
Also, in April 1996, the company sold Xyplex, its data networking subsidiary,
for $177.5 million in cash and securities.
APPENDIX C
29
<PAGE>
RAYTHEON COMPANY AND SUBSIDIARIES CONSOLIDATED
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE O: QUARTERLY OPERATING RESULTS (UNAUDITED)
QUARTERLY FINANCIAL DATA
The third quarter of 1996 includes a special charge of $22.1 million after
tax or $.09 per share to exit the manual-clean range market and close the
Delaware, Ohio plant.
The fourth quarter of 1995 includes a one-time gain of $5.2 million after tax
or $.02 per share related to the sale of D.C. Heath, net of special charges.
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
-------- -------- -------- --------
(IN MILLIONS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
1996
Net sales............................. $2,787.6 $3,126.8 $3,032.4 $3,383.7
Cost of sales......................... 2,141.3 2,435.4 2,428.1 2,749.2
Net income............................ 186.5 209.4 187.9 177.4
Earnings per common share............. 0.78 0.88 0.80 0.75
Cash dividends per common share
Declared............................ 0.20 0.20 0.20 0.20
Paid................................ 0.1875 0.20 0.20 0.20
Common stock prices per the Composite
Tape
High................................ 54.13 53.63 55.00 56.13
Low................................. 45.00 48.75 43.38 45.75
1995
Net sales............................. $2,399.1 $2,844.6 $3,174.0 $3,386.5
Cost of sales......................... 1,832.3 2,130.5 2,442.7 2,754.0
Net income............................ 173.9 195.5 200.7 222.4
Earnings per common share............. 0.71 0.80 0.82 0.92
Cash dividends per common share
Declared............................ 0.1875 0.1875 0.1875 0.1875
Paid................................ 0.1875 0.1875 0.1875 0.1875
Common stock prices per the Composite
Tape
High................................ 37.19 39.81 42.69 47.25
Low................................. 31.44 34.75 38.75 41.50
</TABLE>
- ------
Note:
Share data have been restated for the two-for-one stock split in October, 1995.
NOTE P: FINANCIAL INSTRUMENTS
For certain financial instruments, including cash, cash equivalents,
marketable securities, and short-term debt, it is estimated that carrying value
approximates fair value, due to their short maturities and varying interest
rates of the debt.
The carrying value of notes receivable at December 31, 1996 and 1995 is
estimated to approximate fair value based principally on the underlying
interest rates and terms, maturities, collateral, and credit status of the
receivables.
The carrying values of marketable securities and investments are based on
quoted market prices or the present value of future cash flows and earnings
which approximate fair value.
APPENDIX C
30
<PAGE>
RAYTHEON COMPANY AND SUBSIDIARIES CONSOLIDATED
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The value of the guarantees and letters of credit reflect fair value.
The fair value of long-term debt at December 31, 1996 and 1995 was estimated
based on current rates offered to the company for similar debt with the same
maturities and approximates the carrying value.
At December 31, 1996 and 1995, the company had outstanding interest rate swap
agreements, with notional amounts, and foreign currency forward exchange
contracts which minimized or eliminated risk associated with interest rate
changes or foreign currency exchange rate fluctuations. All of these financial
instruments were related to specific transactions and particular assets or
liabilities for which a firm commitment existed. These instruments were
executed with credit-worthy institutions and the majority of the foreign
currencies were denominated in currencies of major industrial countries:
<TABLE>
<CAPTION>
1996 1995
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Interest rate swaps.......................................... $388,785 $394,268
Foreign exchange contracts................................... $270,017 $335,068
</TABLE>
The following table summarizes major currencies and contract amounts
associated with foreign exchange contracts:
<TABLE>
<CAPTION>
1996 1995
----------------- ----------------
BUY SELL BUY SELL
-------- -------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Pound Sterling............................... $ 94,742 $ 5,129 $ 25,007 $ 2,784
Japanese Yen................................. 9,160 30,707 2,292 58,453
Netherlands Guilder.......................... 3,437 75,600 90,144 --
German Mark.................................. 1,153 -- 16,410 390
Canadian Dollar.............................. 17,287 1,248 35,562 2,021
French Franc................................. 10,400 -- 71,663 --
Australian Dollar............................ 16,175 -- 20,015 --
All others................................... 2,738 2,241 6,885 3,442
-------- -------- -------- -------
Total........................................ $155,092 $114,925 $267,978 $67,090
======== ======== ======== =======
</TABLE>
Foreign currencies are translated at current rates at the reporting date.
"Buy" amounts represents the U.S. dollar equivalent of commitments to purchase
foreign currencies and "sell" amounts represent the U.S. dollar equivalent of
commitments to sell foreign currencies.
Swap contracts mature at various dates through the year 2000 and essentially
fix the interest rates on that portion of debt at rates from 4.7 percent to 9.5
percent at December 31, 1996, and 1995, respectively.
Foreign exchange forward contracts, used primarily to minimize fluctuations
in the values of foreign currency payments and receipts, have maturities at
various dates through April, 1999. Fair values for these contracts were
determined by applying December 31, 1996, spot rates to the eight major
currencies and comparing the U.S. dollar equivalents to the U.S. dollar
contract amounts for the same currencies. The resulting difference was not
material and approximates the contract amounts.
The company, in order to lock in favorable rates, entered into interest rate
swaps and locks in connection with the 1995 issuance of $750 million ten-year
notes and $375 million thirty-year debentures. Both the interest rate swaps and
locks were unwound prior to the issue of the 1995 debt.
APPENDIX C
31
<PAGE>
RAYTHEON COMPANY AND SUBSIDIARIES CONSOLIDATED
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE Q: STOCK SPLIT
All share data have been restated to reflect the stock split effective on
October 23, 1995.
NOTE R: SUBSEQUENT EVENTS
On January 6, 1997, the company announced that the Board of Directors
approved a definitive agreement to purchase the assets of Texas Instruments'
defense operations for $2.950 billion in cash. Texas Instruments Defense
Systems and Electronics Group, headquartered in Lewisville, Texas will have
1996 revenues of approximately $1.8 billion. The group is a premier supplier of
advanced defense systems, including precision-guided weapons, antiradiation and
strike missiles, airborne radar, night vision systems and electronic warfare
systems. The group has approximately 12,000 employees, based largely in Texas.
The transaction is subject to Hart-Scott-Rodino antitrust review and is
expected to close in the second quarter of 1997.
On January 16, 1997, the company announced that it has entered into
definitive agreements with Hughes Electronics Corporation to bring about the
merger of the Hughes Electronics defense operations (Hughes Aircraft) and
Raytheon. The combined company will be called Raytheon. The transaction is
valued at $9.5 billion, comprised of approximately $5.1 billion in common stock
and $4.4 billion in debt.
The company's debt will increase as a result of the planned transactions and
the covenants applicable to the existing financing arrangements have been
modified by the participating entities to accommodate the increase in debt.
Hughes Aircraft, the Hughes Electronics' defense business, will have 1996
revenues of approximately $6.3 billion. It has approximately 40,000 employees,
principally in the states of California, Arizona, Indiana, Texas and Virginia.
Hughes is a premier supplier of advanced defense electronics systems and
services, principally in Naval systems, airborne and ground-based radars,
ground, air and ship-launched missiles, tactical communications, and training
simulators and services. Hughes also supplies Air Traffic Control systems to
the U.S. Federal Aviation Administration and to foreign governments, and is
active in the fields of global positioning systems and infrared/electro-optics.
The transaction is subject to approval by Raytheon's stockholders, certain
regulatory approvals (including Hart-Scott-Rodino antitrust review), approval
by the holders of GM and GM "H" common stocks, and the receipt by GM of rulings
from the Internal Revenue Service relating to certain federal income tax
consequences of the transaction.
TRANSACTION SUMMARY
Hughes Aircraft will be spun off to the holders of GM's $1 2/3 and Class H
common stocks in a transaction intended to be tax free. In connection with the
spin-off and subsequent merger, two classes of common stock will be created:
Class A common stock, which will be held by GM $1 2/3 and Class H stockholders
after the spin-off and will be entirely held by the public; and Class B common
stock.
Immediately following the spin-off of Hughes Aircraft, Raytheon and Hughes
Aircraft will merge. In the merger, Raytheon stockholders will receive all of
the Class B common stock of the combined company. The Class B common stock will
represent approximately 70 percent of the equity of the combined company, and
the Class A common stock will represent the remaining, approximately 30
percent.
APPENDIX C
32
<PAGE>
RAYTHEON COMPANY AND SUBSIDIARIES CONSOLIDATED
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The merger terms provide that Hughes Aircraft's total debt will be adjusted
to reflect variations in the market price of Raytheon stock, subject to
specified limits, so that the two components of value will total $9.5 billion
so long as such market price is between $44.42 and $54.29 per share. The
approximately $5.1 billion in common stock issued to the Class A stockholders
is based upon the midpoint of this range. The balance of the $9.5 billion
transaction value will be made up of approximately $4.4 billion in Hughes
Aircraft debt.
In the election of directors to the combined company board, Class A common
stock will have an 80.1 percent voting interest, and Class B common stock will
have a 19.9 percent voting interest. The board of directors will have staggered
terms for directors. Except as to voting rights for directors, each class will
vote separately as to all other matters, and the Class A and Class B stock will
have identical rights. In a merger, acquisition or any other type of
reorganization, Class A and Class B common stock must receive the same
consideration.
On February 23, 1997, the company announced that it is evaluating strategic
alternatives for the Appliance Group, which may result in the sale or merger of
the group at some time in the future. The company retained an advisor to assist
with this evaluation. The decision to undertake this strategic reassessment was
made in the context of Raytheon's financial priorities, and the belief that the
Appliance Group may have greater value to another company with more focus on
the markets served by the group.
APPENDIX C
33
<PAGE>
EXHIBIT 99.3
NEW RAYTHEON PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
The following pro forma combined condensed financial statements have been
prepared by Raytheon's management from Raytheon's historical consolidated
financial statements and from the historical financial statements of TI Defense
and Hughes Defense. The pro forma combined condensed statement of earnings
reflects adjustments as if the TI Acquisition and the Merger had occurred on
January 1, 1996. The pro forma combined condensed balanced sheet reflects
adjustments as if the Merger had occurred on September 28, 1997. The pro forma
adjustments described in the accompanying notes are based upon preliminary
estimates and certain assumptions that Raytheon management believes are
reasonable in such circumstances.
The pro forma combined condensed financial statements should be read in
conjunction with Raytheon's Consolidated Financial Statements (including the
notes thereto) included as Appendix C to this document, and with the historical
financial statements of Hughes Defense and TI Defense (including the related
notes thereto), which are included in Appendices D & E, respectively, to this
document.
The pro forma combined condensed financial statements are not necessarily
indicative of what Raytheon's actual financial position or results of
operations would have been if the TI Acquisition and the Merger had occurred on
the applicable date indicated. Moreover, they are not intended to be indicative
of future results of operations or financial position. The pro forma combined
condensed financial statements do not reflect the cost and revenue synergies
associated with such transactions, which Raytheon expects to realize commencing
in the first year of operation.
NEW RATHEON
1
<PAGE>
NEW RAYTHEON PRO FORMA COMBINED CONDENSED STATEMENT OF EARNINGS
FOR THE NINE MONTHS ENDED SEPTEMBER 28, 1997
(IN MILLIONS, EXCEPT PER SHARE)
<TABLE>
<CAPTION>
HISTORICAL
HISTORICAL HISTORICAL PRO FORMA PRO FORMA HUGHES PRO FORMA PRO FORMA
RAYTHEON TI DEFENSE ADJUSTMENTS COMBINED DEFENSE ADJUSTMENTS COMBINED
---------- ---------- ----------- --------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales............... $9,669 $824 $10,493 $5,157 $15,650
------ ---- ----- ------- ------ ---- -------
Cost of sales........... 7,426 638 $ (4)(2a) 8,079 4,272 $(18)(3c) 12,380
(6)(2b) (72)(3d)
35 (2e) 140 (3g)
(10)(2c) (21)(3e)
Amortization of push-
down goodwill.......... 76 (76)(3c) 0
Administration and
selling expenses....... 812 55 867 259 1,126
Research and development
expenses............... 290 44 334 127 461
------ ---- ----- ------- ------ ---- -------
Operating income....... 1,141 87 (15) 1,213 423 47 1,683
------ ---- ----- ------- ------ ---- -------
Interest expense........ 263 263 72 (72)(3i) 263
Interest income......... (24) (24) (24)
Acquisition interest
expense................ 110 (2d) 110 225 (3f) 335
Other (income)/expense.. (12) 2 (10) (10) (20)
------ ---- ----- ------- ------ ---- -------
Income before tax...... 914 85 (125) 874 361 (106) 1,129
------ ---- ----- ------- ------ ---- -------
Federal and foreign
income taxes........... 310 32 (44)(2f) 298 154 (20)(3h) 432
------ ---- ----- ------- ------ ---- -------
Net income............. $ 604 $ 53 $ (81) $ 576 $ 207 $(86) $ 697
====== ==== ===== ======= ====== ==== =======
Earnings per common
share
Outstanding shares..... $ 2.56 $ 2.44 $ 2.06
Fully diluted.......... $ 2.51 $ 2.39 $ 2.03
Average common shares
Outstanding............ 236 236 103 339
Fully diluted.......... 241 241 103 344
</TABLE>
See accompanying notes to pro forma combined condensed financial statements.
NEW RAYTHEON
2
<PAGE>
NEW RAYTHEON PRO FORMA COMBINED CONDENSED STATEMENT OF EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN MILLIONS, EXCEPT PER SHARE)
<TABLE>
<CAPTION>
HISTORICAL
HISTORICAL HISTORICAL PRO FORMA PRO FORMA HUGHES PRO FORMA PRO FORMA
RAYTHEON TI DEFENSE ADJUSTMENTS COMBINED DEFENSE ADJUSTMENTS COMBINED
---------- ---------- ----------- --------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales............... $12,331 $1,800 $14,131 $6,383 $20,514
Cost of sales........... 9,755 1,415 $ (6)(2a) 11,169 5,216 $ (18)(3c) 16,430
(12)(2b) (95)(3d)
69 (2e) 187 (3g)
(52)(2c) (29)(3e)
Amortization of push-
down goodwill.......... 101 (101)(3c) 0
Administration and
selling expenses 1,021 129 1,150 301 1,451
Research and development
expenses............... 323 78 401 192 593
Special charges......... 34 0 34 0 34
------- ------ ----- ------- ------ ----- -------
Operating income....... 1,198 178 1 1,377 573 56 2,006
------- ------ ----- ------- ------ ----- -------
Interest expense........ 256 256 92 (92)(3i) 256
Interest income......... (102) (102) (102)
Acquisition interest
expense................ 198 (2d) 198 300 (3f) 498
Other (income)/expense.. (40) 3 (37) (9) (46)
------- ------ ----- ------- ------ ----- -------
Income before tax...... 1,084 175 (197) 1,062 490 (152) 1,400
------- ------ ----- ------- ------ ----- -------
Federal and foreign
income taxes........... 322 66 (69)(2f) 319 209 (29)(3h) 499
------- ------ ----- ------- ------ ----- -------
Net income............. $ 762 $ 109 $(128) $ 743 $ 281 $(123) $ 901
======= ====== ===== ======= ====== ===== =======
Earnings per common
share..................
Outstanding shares..... $ 3.21 $ 3.14 $ 2.65
Fully diluted.......... $ 3.16 $ 3.08 $ 2.62
Average common shares
Outstanding............ 237 237 103 340
Fully diluted.......... 241 241 103 344
</TABLE>
See accompanying notes to pro forma combined condensed financial statements.
NEW RAYTHEON
3
<PAGE>
NEW RAYTHEON PRO FORMA COMBINED CONDENSED BALANCE SHEET
AS OF SEPTEMBER 28, 1997
(IN MILLIONS)
<TABLE>
<CAPTION>
HISTORICAL
HISTORICAL PRO FORMA HUGHES PRO FORMA PRO FORMA
RAYTHEON RECLASSIFICATIONS COMBINED DEFENSE ADJUSTMENTS COMBINED
---------- ----------------- --------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets
Cash and marketable
securities........... $ 268 $ 268 $ 73 $ (73)(3b) $ 268
Accounts receivable... 954 $(207)(2g) 747 687 1,434
Contracts in process.. 3,148 395 (2g) 3,543 1,579 (190)(3b) 4,932
Inventories........... 1,653 (188)(2g) 1,465 445 1,910
Other................. 531 531 263 794
------- ----- ------- ------ ------ -------
Total current
assets............. 6,554 6,554 3,047 (263) 9,338
Property, plant and
equipment, net....... 2,047 2,047 1,095 8 (3b) 3,150
Cost in excess of net
assets acquired...... 5,954 5,954 2,892 (2,892)(3b) 13,464
7,510 (3b)
Pension asset......... 1,075 (3b) 1,075
Other assets.......... 701 701 128 203 (3b) 1,032
------- ------- ------ ------ -------
Total assets........ $15,256 $15,256 $7,162 $5,641 $28,059
======= ======= ====== ====== =======
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and
current portion of
long-term debt....... $ 2,175 $ 2,175 $ 119 $2,310 (3a) $ 4,604
Advance payments...... 389 389 310 699
Accounts payable...... 1,265 1,265 327 1,592
Other................. 1,516 1,516 780 543 (3b) 2,839
------- ------- ------ ------ -------
Total current
liabilities........ 5,345 5,345 1,536 2,853 9,734
Long-term debt and
capitalized leases..... 4,386 4,386 32 2,130 (3a) 6,548
Other................... 510 510 328 859 (3b) 1,697
Stockholders' equity:
Common stock at par... 236 236 103(3a) 339
Additional paid-in-
capital.............. 313 313 4,962(3a) 5,275
Retained earnings....... 4,466 4,466 5,266 (5,266)(3b) 4,466
------- ------- ------ ------ -------
Total stockholders'
equity............. 5,015 5,015 5,266 (201) 10,080
------- ------- ------ ------ -------
Total liabilities
and stockholders'
equity............. $15,256 $15,256 $7,162 $5,641 $28,059
======= ======= ====== ====== =======
</TABLE>
See accompanying notes to pro forma combined condensed financial statements.
NEW RAYTHEON
4
<PAGE>
NOTES TO NEW RAYTHEON PRO FORMA
COMBINED CONDENSED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying pro forma combined condensed statements of earnings present
the historical results of operations of Raytheon, TI Defense and Hughes Defense
for the year ended December 31, 1996 and for the nine months ended September
28, 1997, with pro forma adjustments as if the TI Acquisition and the Merger
had taken place on January 1, 1996. The historical results of operations of
Raytheon for the nine months ended September 28, 1997 includes the financial
results for Raytheon TI Systems from July 11, 1997. The historical results of
operations of TI Defense includes financial results for the six month period
ending June 29, 1997. The TI Defense financial results for the period from June
30, 1997 to July 10, 1997 were not material. The pro forma combined condensed
balance sheet presents the historical balance sheets of Raytheon and Hughes
Defense as of September 28, 1997, with pro forma adjustments as if the Merger
had been consummated as of September 28, 1997, in a transaction accounted for
as a purchase for financial accounting purposes in accordance with generally
accepted accounting principles.
Certain reclassifications have been made to the historical financial
statements of Raytheon, TI Defense and Hughes Defense to conform to the pro
forma combined condensed financial statement presentation on a consistent
basis.
2. PRO FORMA ADJUSTMENTS--TI DEFENSE
The following adjustments give pro forma effect to the TI Acquisition (in
millions):
<TABLE>
<C> <S>
(a) Adjustment to eliminate the amortization of intangible assets of TI
Defense which would not have been incurred if the TI Acquisition had
occurred on January 1, 1996.
(b) Adjustment to reflect the effect on 1996 and 1997 results relating to
a net reduction of accumulated contract costs as an allowance for
Raytheon's normal profit on its efforts to complete such contracts,
and other contract valuation adjustments.
(c) Elimination of $32 of non-recurring employee related costs and $20 of
non-recurring corporate allocations from the parent of TI Defense as
a result of the TI Acquisition for the year ended December 31, 1996
and $10 of non-recurring corporate allocations for the six months
ending June 29, 1997.
(d) Adjustments which represent additional estimated interest expense
resulting from the use of borrowings to finance the TI Acquisition
and incremental interest on Raytheon's pre-TI Acquisition variable
rate borrowings to reflect the change in credit rating as a result of
the TI Acquisition.
(e) The amortization of excess of costs over acquired net assets over an
estimated life of 40 years. Such amortization expense is subject to
possible adjustment resulting from the completion of the valuation
analyses. Raytheon expects that any subsequent adjustment would not
materially affect the combined pro forma results.
(f) The estimated tax effect on the applicable pro forma adjustments.
(g) Reclassifications made to conform the TI Defense historical financial
statements to the unaudited pro forma combined condensed financial
statement presentation.
</TABLE>
NEW RAYTHEON
5
<PAGE>
NOTES TO NEW RAYTHEON PRO FORMA
COMBINED CONDENSED FINANCIAL STATEMENTS
3. PRO FORMA ADJUSTMENTS--HUGHES DEFENSE
The following adjustments give pro forma effect to the Merger (in millions):
<TABLE>
<C> <S> <C>
(a) To record the exchange consideration at closing:
Purchase price ($9,500 less acquired debt of $120)......... $9,380
======
(Assumed financing is based on the price per share of
Raytheon Common Stock at the announcement date of the
merger:
Equity--102,634 thousand shares at assumed market value of
$49.35 per share totals $5,065. $49.35 represents the mid-
point of the market price collar mechanism. Neither the use
of other market price assumptions within the range, nor the
use of the highest recent closing price of Raytheon Common
Stock of $60.25 on October 2, would have a significant
effect on pro forma results.
Debt--$4,435 less $120 of debt assumed plus acquisition
costs of $125 totals $4,440 to be financed with a
combination of variable rate short-term borrowings of
$2,310 and fixed rate medium- and long-term borrowings of
$2,130 at an average interest rate of 6.37%).
To adjust the assets and liabilities to their estimated
(b) fair values:
Net assets of Hughes Defense at September 28, 1997......... 5,266
Additional assets to be recorded in the Merger............. 45
Additional liabilities to be recorded in the Merger........ (94)
Cash not included in the Merger............................ (73)
Contracts in process valuation adjustments................. (190)
Accrual for future lease cost in excess of fair market
value...................................................... (264)
Provision for the estimated exit costs of integrating
acquired operations........................................ (495)
To include pension assets and reflect fair market value
less the projected benefit obligation...................... 892
To include the liability for post-retirement benefits other
than pensions.............................................. (366)
Deferred tax benefits...................................... 166
Costs in excess of net assets of Hughes Defense............ 7,510
Acquisition costs.......................................... (125)
Elimination of Hughes Defense goodwill..................... (2,892)
------
$9,380
======
</TABLE>
<TABLE>
<C> <S>
(c) Adjustment to eliminate the amortization of intangible assets of
Hughes Defense which would not have been incurred if the Merger had
occurred on January 1, 1996.
(d) Adjustment to reflect the effect on 1996 and 1997 results relating to
a net reduction of accumulated contract costs as an allowance for
Raytheon's normal profit on its efforts to complete such contracts.
(e) Elimination of $29 of non-recurring corporate allocation from the
parent of Hughes Defense as a result of the Merger for the year ended
December 31, 1996 and $21 for the nine months ended September 28,
1997.
(f) Adjustments which represent additional estimated interest expense
resulting from the use of borrowings to finance the Merger and
incremental interest on Raytheon's pre-Merger variable rate
borrowings to reflect the change in credit rating as a result of the
Merger.
</TABLE>
NEW RAYTHEON
6
<PAGE>
NOTES TO NEW RAYTHEON PRO FORMA
COMBINED CONDENSED FINANCIAL STATEMENTS
<TABLE>
<C> <S>
(g) The amortization of excess of costs over acquired net assets over an
estimated life of 40 years. Such amortization expense is subject to
possible adjustment resulting from the completion of the valuation
analyses. Raytheon expects that any subsequent adjustment would not
materially affect the combined pro forma results.
(h) The estimated tax effect on the applicable pro forma adjustments.
(i) Elimination of Hughes Defense interest expense.
(j) The purchase price to be paid is subject to adjustment based on the
actual net assets at the time of the closing and the amount of debt
and equity to be issued is subject to adjustment based on the price
of Raytheon Common Stock at the closing.
</TABLE>
4. OTHER
On September 10, 1997 Raytheon consummated the sale of its home appliance
heating and air conditioning and commercial cooking businesses to Goodman
Manufacturing Co., L.P. for an aggregate amount of $550 million in cash,
subject to certain changes in the net working capital of such businesses
between December 31, 1996 and the closing date of the transaction. The 1996
sales, operating income, net income and total assets of the businesses sold
were not material to Raytheon's results of operations and as such the sale of
these businesses was not included in the pro forma financial statements.
The Department of Justice and Raytheon entered into an agreement regarding
the TI Acquisition on July 2, 1997, pursuant to which Raytheon agreed to divest
the Gallium Arsenide foundry and Monolithic Microwave Integrated Circuit
business of the R/F Microwave business unit of Texas Instruments after closing
the transaction. The business, which accounted for less than $40 million in
1996 revenues, was not material and as such the sale of this business has not
been included in the pro forma financial statements.
On October 16, 1997 the Department of Justice filed with the U.S. District
Court for the District of Columbia an agreement among the Department of Justice
Raytheon, GM and HE Holdings regarding the Merger. The agreement, when entered
as a final judgment pursuant to court order, will require Raytheon to divest
portions of Hughes' Electro Optics business and portions of Raytheon TI
Systems' Focal Plane Array business. These two businesses, which together
accounted for less than $55 million in 1996 revenues,were not material and as
such the sale of these businesses has not been included in the pro forma
financial statements.
NEW RAYTHEON
7
