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1
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): January 23, 1998
RAYTHEON COMPANY
(Exact name of registrant as specified in its charter)
1-13699
(Commission File Number)
Delaware 95-1778500
(State of Incorporation) (IRS Employer Identification Number)
141 Spring Street
Lexington, Massachusetts 02173
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (781) 862-6600
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Item 5. Other Events
On January 23, 1998, the Registrant announced certain details regarding
the consolidation and organization of its defense and electronics unit as well
as an effort to reduce costs within its engineering and construction business.
In connection with these announcements, the Registrant issued a press release, a
copy of which is attached hereto as Exhibit 99.1 and is incorporated herein by
reference and the foregoing description is qualified in its entirety by
reference to such press release.
On January 26, 1998, the Registrant announced financial results for its
fiscal year ended December 31, 1997. The results included certain restructuring
and special charges relating to the acquisition of the defense business of Texas
Instruments Incorporated and the merger with Hughes defense, and to the
consolidation within its engineering and construction business. In connection
with these announcements, the Registrant issued a press release, a copy of which
is attached hereto as Exhibit 99.2 and is incorporated herein by reference and
the foregoing description is qualified in its entirety by reference to such
press release.
Item 7. Financial Statements, Pro Forma Financial Statements and Exhibits
(c) The following exhibits are filed as part of this report:
99.1 Press release dated January 23, 1998.
99.2 Press release dated January 26, 1998.
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: January 26, 1998
RAYTHEON COMPANY
By: /s/ Thomas D. Hyde
Thomas D. Hyde
Vice President and
General Counsel
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EXHIBIT INDEX
Exhibit
Number Description
99.1 Press release, dated January 23, 1998
99.2 Press release, dated January 26, 1998
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EXHIBIT 99.1
FOR IMMEDIATE RELEASE
Robert S. McWade
(781) 860-2846
Barry French
(781) 860-2173
Toni Simonetti
(781) 860-2539
C-2413 1/23/98
RAYTHEON DETAILS DEFENSE CONSOLIDATIONS, ORGANIZATION; ANNOUNCES ENGINEERING
AND CONSTRUCTION CONSOLIDATION
Changes Are Designed to Reduce Costs, Increase Efficiency, Maximize Utilization
of Facilities, Ensure Long Term Competitiveness and Position Company for Growth
LEXINGTON, MASSACHUSETTS, USA (1/23/98) -- Raytheon Company announced today the
consolidation and organization of its defense and electronics unit, Raytheon
Systems Company, and a focused effort to reduce costs at Raytheon Engineers &
Constructors.
As part of this effort, Raytheon Systems Company (RSC) will make major changes
at 26 facilities, closing 20 and partially closing six over the next two years.
This will result in a reduction of facility space from 42 million square feet to
34 million square feet, or approximately 20 percent. Employment will be reduced
by approximately 10 percent -- or 8,700 jobs -- over the next two years and
2,700 engineers will be reassigned to help fill technical positions, generally
near their current locations. RSC will also organize its operations to bring
together the best practices and technologies from across the organization while
optimizing the utilization of facilities and eliminating duplication and excess
capacity.
Raytheon Engineers & Constructors (RE&C) will close or partially close 16
offices in early 1998 and reduce its workforce by approximately six percent, or
1,000 positions. This action comes in response to the downturn in the global
engineering and construction market and the need for RE&C to continue improving
its competitive position.
Raytheon Systems Company's actions are the direct result of a thorough,
year-long planning effort. Raytheon announced in January, 1997, that it would
merge with Hughes defense and acquire the Texas Instruments (TI) defense
business. Over the past year, employees from Raytheon Electronic Systems,
Raytheon E-Systems, Hughes and TI developed a comprehensive architecture for
consolidating and organizing the new Raytheon Systems Company. These teams
reviewed every operation and made specific recommendations to both a Management
Transition Committee and a Defense Business Executive Council, comprised of
Raytheon, Hughes and TI senior management.
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Raytheon completed its merger with Hughes defense on December 17, 1997, creating
one of the largest industrial corporations in the United States. On December 18,
1997, Raytheon announced the formation of Raytheon Systems Company, one of the
world's largest defense companies, with more than $14 billion in defense and
electronics sales in 1997. Raytheon Systems Company will be headquartered in the
Washington DC area and will operate as part of Raytheon Company.
"Today, only one month after creating Raytheon Systems Company, we are
announcing some of the most dramatic changes ever at any defense company
- --changes that we believe will not only reduce costs but will also create the
right structure for future growth," said William H. Swanson, chairman and chief
executive officer of Raytheon Systems Company. "These actions put us on track to
meet our 10-15% cost reduction targets. In addition, combining and consolidating
our defense business in this unprecedented manner enables us to generate real
savings for the American taxpayer."
Changing Defense Environment
Changing customer demands combined with major developments in the global
political environment have resulted in massive shifts in the defense industry.
The end of the Cold War -- and the corresponding decline of more than 60 percent
in U.S. defense procurement budgets since 1990 -- have created excessive
manufacturing overcapacity in the industry. Defense customers, under intense
pressure to do more with less, are increasingly focusing on integrated
solutions, program life cycle costs, research and development, and reduced
procurement spending, resulting in smaller production runs.
The U.S. defense industry - encouraged by the U.S. Department of Defense - has
responded to these developments with acquisitions and consolidations designed to
reduce overcapacity, focus investments in research and development, eliminate
program overlap and lower the cost of future defense products and services.
"The actions we are taking today are not easy, but they are essential," said
Swanson. "The U.S. defense procurement budget has fallen dramatically, our
competitors have become much larger and more efficient through mergers and
consolidations, and there has been a new focus on electronics-based products. In
order to remain competitive in this new era we have taken the actions necessary
to streamline our operations. Furthermore, we are confident that by bringing
Raytheon, Hughes and the defense business of Texas Instruments together we will
win more contracts, achieve greater savings and preserve more jobs over time
than these companies could have separately. It must be understood that without
taking these measures, Raytheon, Hughes Aircraft and TI Defense Systems
separately would have withered and, quite possibly, died." In response to these
competitive challenges, Raytheon's plan includes the consolidation of
facilities, the creation of Centers of Excellence and the focusing of
manufacturing operations to a reduced number of sites. "Delivering value to our
customers means that we must provide products, systems and services that are
both cost-effective and high quality," said Ken Dahlberg, president and chief
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operating officer of Raytheon Systems Company. "The structure that we are
putting in place at Raytheon Systems Company will allow us to focus on best
practices while bringing unparalleled efficiency to our processes by eliminating
redundancy and increasing utilization. At the same time, we will ensure
collaborative engineering across our company by bringing the best talent to bear
on any particular program, regardless of physical location."
Centers of Excellence
Centers of Excellence are cross-functional organizations that design and
manufacture key components and subassemblies. The Centers of Excellence will
allow a focus on best-of-class engineering and manufacturing practices; maximize
design efficiency and standardization; eliminate duplication of work and
underutilization of facilities; and provide productivity through a reduced
number of processes.
Raytheon Systems Company Centers of Excellence are as follows:
Printed Wiring Board Fabrication, located in Austin, Texas. This Center
of Excellence will combine work previously done at six facilities.
Circuit Card Assembly, located in Lewisville, Texas and Andover,
Massachusetts. These two Centers of Excellence will combine work previously done
at 19 facilities.
Microelectronics, located in Dallas (Expressway), Texas and Quincy,
Massachusetts. These two Centers of Excellence will combine work previously done
at 11 facilities.
Metal Fabrication, located in Dallas (Lemmon/Sherman), Texas, Tucson,
Arizona, and Andover and Waltham, Massachusetts. These four Centers of
Excellence will combine work previously done at 15 facilities.
Cables, located in St. Petersburg, Florida. This Center of Excellence
will combine work previously done at 10 facilities.
Optics, located in Midland, Ontario (Canada) and Danbury, Connecticut.
These two Centers of Excellence will combine work previously done at three
facilities.
Electro-Optical Components and Coolers, located at the Santa Barbara
Research Center and in Dallas (Expressway), Texas. These two Centers of
Excellence will combine work previously done at four facilities.
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Consolidated Manufacturing Facilities
Raytheon Systems Company will also consolidate manufacturing operations into a
number of geographically focused organizations that will play a lead role in the
design and manufacture of products and services within a given program area. The
objective of this consolidation is to improve integration of manufacturing and
engineering, eliminate duplication of work, improve economies of scale, and
allow higher facility utilization.
Consolidated manufacturing facilities are as follows:
Missiles/ Strike Weapons, located in Tucson, Arizona, Lewisville,
Texas, and Andover, Massachusetts (Patriot and Hawk). These three centers will
combine work previously done at five facilities.
Torpedoes, Ship Combat Systems, Sonar, Mine Warfare, and Ocean
Surveillance Systems, located in Mukilteo, Washington and Portsmouth, Rhode
Island. These two centers will combine work previously done at four facilities.
Final Assembly Checkout (FACO), located in Tucson, Arizona and East
Camden, Arkansas. These two centers will combine work previously done at five
facilities.
Radar, located in Andover, Massachusetts, El Segundo, California
(FACO), Forest, Mississippi, McKinney, Texas, and Orangeburg, South Carolina.
These five centers will combine work previously done at six facilities.
Electro-Optical, located in McKinney, Texas. This center will combine
work previously done at four facilities. Space-based electro-optical work will
remain in El Segundo.
Depot, located in Indianapolis, Indiana, Chula Vista, California, and
Virginia Beach, Virginia. These three centers will combine work previously done
at seven facilities.
Radios/Terminals, located in St. Petersburg, Florida. This center wil
combine work previously done at five facilities.
Facility Restructuring
Raytheon Systems Company will make substantial changes to its facilities,
affecting sites across the United States and around the world. The company will
make major changes at 26 facilities, closing 20 and partially closing six over
the next two years. This will result in a reduction of facility space from 42
million square feet to 34 million square feet, or approximately 20 percent.
Raytheon will also close 28 international and 22 domestic marketing offices,
reducing the total of such offices to 67 from the current 117. Raytheon will
continue to have a significant global presence, with offices across the United
States and in 33 countries around the world. Raytheon will not exit from any
country as a result of these closures.
Specific facility actions announced today are reviewed in detail below.
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Arizona
In Arizona, the Raytheon Systems Company consolidation will result in
the reduction of approximately 500 positions. The company will continue to be a
significant employer in the state with more than 7,200 employees. "Most of the
reductions in Arizona are the result of general and administrative efficiencies
created by combining various operations," said Dahlberg. "We are committed to
Arizona and pleased to locate the headquarters for our Defense Systems segment,
a consolidated center for missile production, and Centers of Excellence in
Tucson."
California
The Raytheon Systems Company consolidation will result in the reduction
of approximately 5,200 positions in defense operations. The company will,
however, remain a significant employer in the state with approximately 11,600
employees. "Most of the major changes being made in California are the result of
activities being moved to Centers of Excellence outside of the state," said
Dahlberg. "Raytheon has made a commitment to focus work in its most efficient
facilities. While we have superb people in California, the fact is that many of
our operations here are less efficient than those elsewhere. Larger, more modern
and efficient Centers of Excellence already exist in other states and we are
compelled to align our resources accordingly."
"The job reductions in the state should not draw attention away from
the fact that we are locating the headquarters of the Sensors and Electronic
Systems segment in El Segundo," said Dahlberg. "In addition, we will have a
Center of Excellence for electro-optical components in the Santa Barbara/Goleta
area, a new surface naval depot center in Chula Vista, and major engineering
populations in El Segundo, Fullerton, Chula Vista and Santa Barbara."
Major site-by-site actions in California include:
- - In El Segundo, El Segundo North personnel will be consolidated into the El
Segundo South complex, which will become the headquarters for the Sensors and
Electronic Systems segment.
- - In the Santa Barbara/Goleta area, the former Raytheon Amber facility will be
closed and work consolidated into the former Hughes Santa Barbara Research
Center. In addition, the former Raytheon E-Systems Los Carneros facility will be
closed and work moved to appropriate Centers of Excellence and to the nearby
Hollister location.
- - As part of an overall consolidation of depot operations, the two current
facilities in San Diego (Naval and Maritime Systems, and Services) and the
facility in Irvine will be closed and work moved to Chula Vista and
Indianapolis. One building at the Long Beach facility will be closed and work
also moved to Chula Vista and Indianapolis.
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- - The Sycamore Canyon operation will be closed and work consolidated into
existing final assembly and checkout (FACO) facilities in East Camden, Arkansas,
and Tucson, Arizona.
- - The Torrance facility will be closed. The Torrance Advanced Technology Group
will be moved to El Segundo South and the gallium arsenide operations will be
transferred to Raytheon Electronics, the commercial electronics unit of Raytheon
Company.
- - The Westchester facility will be closed and personnel consolidated into
El Segundo.
Georgia
As a result of the Department of Justice Hart Scott Rodino review,
Raytheon was required to divest the ground electro-optics business in La Grange.
Thus the facility, which currently employs 275 people, will be closed.
Indiana
The Raytheon Systems Company consolidation will result in the reduction
of approximately 400 positions over the next two years. Some work currently at
the facilities in Fort Wayne, which employ approximately 2,000 people, will be
transferred to other manufacturing centers and the facilities will be
consolidated. "While there will be reductions in Fort Wayne, these will be
partially offset by expected growth in Indianapolis," said Dahlberg. "We have
designated the Indianapolis facility as a depot center focused on upgrading,
repairing and modifying equipment for the military."
New Jersey
The facility in Mahwah will be closed and work moved to appropriate
Centers of Excellence. Despite the reduction of 140 positions, Raytheon will
retain a significant presence in New Jersey with more than 1,000 employees.
Maryland
Raytheon Systems Company has facilities in Maryland in Lanham,
Greenbelt, Landover, and Linthicum. The Greenbelt facility, which employs 250
people, will be consolidated with the nearby Lanham operation. Over the next two
years, 130 general and administrative positions will be eliminated from the
company's Maryland operations. Raytheon will retain a significant presence in
Maryland with more than 1500 employees.
Massachusetts
Despite the reduction of approximately 300 general and administrative
positions, Raytheon will retain a significant presence in Massachusetts with
more than 15,000 employees.
Pennsylvania
The facility in Chambersburg will be closed and final assembly and
check-out work from that operation will be consolidated into major FACO
facilities. The Chambersburg closure will result in the loss of 11 positions. In
addition, 50 general and administrative positions will be eliminated from the
State College operation. Despite these reductions, Raytheon will remain a
significant presence in Pennsylvania with more than 1,200 employees.
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Rhode Island
The facility in Middletown, which employs approximately 100 people,
will be closed and all personnel and work will be transferred to the nearby
Portsmouth facility. Raytheon will experience no change in headcount and will
retain a significant presence in Rhode Island with more than 1200 employees.
Tennessee
In Tennessee, the Raytheon Systems Company consolidation will result in
the reduction of approximately 525 positions with the closure of the Bristol
plant and Chattanooga FACO facility. "While Raytheon's people in Tennessee have
performed superbly over the years, the Bristol facility is operating well below
the level needed to make it economically viable," said Dahlberg. "The logical
choice is to consolidate the Bristol missile manufacturing operations and the
associated operation in Chattanooga into our main center for missile
manufacturing in Tucson and FACO in East Camden, Arkansas.
Texas
The Raytheon Systems Company consolidation will result in the reduction
of approximately 600 general and administrative positions. Despite these
reductions, Raytheon will remain one of the largest employers in the state, with
more than 25,000 employees in defense and commercial operations. "While Raytheon
will reconfigure a number of our operations in Texas, we are proud to have a
leading presence in the state, particularly in the Dallas area," said Dahlberg.
"By improving the efficiency of our Texas operations we will be well-positioned
for future growth in that state."
Major site-by-site actions in Texas include:
- - Dallas Expressway Research East facility will be consolidated into nearby
operations and the building will be vacated and revert to Texas Instruments.
- - The Forest Lane building will be vacated and will revert to Texas Instruments
for use as the TI world headquarters.
- - One building at the Richardson facility will be closed and work will be
transferred to the Garland operation.
- - A machining Center of Excellence will be located in the south building of the
Sherman facility. Other work will be transferred out, allowing part of the
facility to be closed.
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Virginia
In Virginia, the Raytheon Systems Company consolidation will result in
the reduction of approximately 600 employees. Despite these reductions, Raytheon
will retain a significant presence in Virginia with more than 3,500 employees.
"We have taken the hard decision to close the Herndon operation and consolidate
the work into our much larger simulator facility in Texas," said Dahlberg.
"There is simply not enough simulator work to maintain two facilities. While we
are closing our facility in Hampton and consolidating the operation in Norfolk,
work from those sites will be moved to nearby Virginia Beach."
"While we are making extensive changes to our business operations, we remain
committed to those core values that made Raytheon a leader in the defense
industry," said Swanson. "We will continue to respect the needs of our
employees, customers, shareholders and communities. We will hold ourselves to
the highest ethical standards. We will work as a team and encourage creativity
among our employees. We will show our commitment to the communities in which we
operate. By staying true to these core values, we intend to remain an industry
leader for many years to come."
Segment Headquarters and Staff Announcements
Raytheon Systems Company also announced the locations for the headquarters of
its five business segments. "We have chosen headquarters locations where there
is a focus of segment operations," said Swanson. "All of the five locations we
have selected are superb places to do business and will provide excellent
long-term locations for Raytheon Systems Company. We look forward to being able
to contribute to these communities and the many other communities where we
operate."
The headquarters for the five previously announced segments will be located as
follows:
Defense Systems will be headquartered in Tucson, Arizona. As previously
announced, David L. McPherson, formerly president of the Weapons Systems Segment
of Hughes Aircraft, is general manager, Defense Systems segment and an executive
vice president of Raytheon Systems Company.
Sensors and Electronic Systems will be headquartered in El Segundo,
California. As previously announced, David W. Welp, formerly president of
Raytheon TI Systems, is general manager, Sensors and Electronic Systems segment
and an executive vice president of Raytheon Systems Company. Christine Davis,
formerly senior vice president of Raytheon TI Systems, had previously been
appointed deputy general manager, Sensors and Electronic Systems, and a senior
vice president of Raytheon Systems Company.
Command, Control and Communication Systems will be headquartered in
Marlborough, Massachusetts. As previously announced, C. Dale Reis, formerly
deputy general manager of Raytheon Electronic Systems, will be general manager,
C3 Systems segment and an executive vice president of Raytheon Systems Company.
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Intelligence, Information and Aircraft Integration Systems will be
headquartered in Garland, Texas. As previously announced, Brian D. Cullen,
formerly senior vice president, Airborne Systems Division at Raytheon E-Systems,
will be general manager, Intelligence, Information and Aircraft Integration
Systems segment and an executive vice president of Raytheon Systems Company.
Terry W. Heil, formerly a senior vice president of Raytheon E-Systems, had
previously been appointed deputy general manager, Intelligence, Information and
Aircraft Integration Systems and a senior vice president of Raytheon Systems
Company.
Training and Services will be headquartered in Vienna, Virginia. As
previously announced, Francis S. Marchilena, formerly assistant general manager
of Raytheon Electronic Systems, will be general manager, Training and Services
and an executive vice president of Raytheon Systems Company. Philip T. Le Pore,
formerly president, Hughes Technical Services Company, has been appointed deputy
general manager, Training and Services and a senior vice president of Raytheon
Systems Company.
Raytheon Systems Company Staff Announcements
Raytheon Systems Company also announced the following appointments:
Barry L. Abrahams, formerly senior vice president, merger and
transition activities, at Hughes Aircraft has been appointed senior vice
president, business development;
Gail Philip Anderson, vice president, human resources at Raytheon
Company will also serve as the senior human resources executive at Raytheon
Systems Company, reflecting the importance of managing personnel issues during
the transition period.
Gerald H. Putman, formerly senior vice president, human resources and
administration at Hughes Aircraft, has been appointed senior vice president,
human resources at Raytheon Systems Company. Putman will report as deputy to
Anderson.
Richard J. Foley, formerly manager of contracts at Raytheon Electronic
Systems, has been appointed senior vice president, contracts;
John T. Kuelbs, formerly senior vice president, general counsel and
secretary at Hughes Aircraft, has been appointed senior vice president, legal;
Charles S. Ream, formerly senior vice president and chief financial
officer at Hughes Aircraft, has been appointed senior vice president, finance;
Lynn C. Brown, formerly communications director at Raytheon TI Systems,
has been appointed vice president, communications;
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James Boley, formerly director of security, National Reconnaissance
Office, Central Intelligence Agency, has been appointed vice president,
security. Boley will also serve as director of security for Raytheon Company.
Peter M. Quast, formerly vice president, integrated manufacturing
operations at the sensors and communications segment of Hughes Aircraft, has
been appointed vice president, materials/product support;
Glenn E. Gaustad, formerly vice president and chief technology officer
at Raytheon TI Systems, has been appointed vice president, engineering and
technology;
Walter C. Staltman, formerly senior vice president and manager of
engineering at Raytheon TI Systems, has been appointed vice president,
information technology.
"I am pleased to announce these appointments to the Raytheon Systems Company
headquarters staff," said Swanson. "With these announcements, we can say --
without any question -- that Raytheon Systems Company has the strongest, most
experienced management team in the business."
Raytheon Engineers & Constructors
Responding to the slowdown in the global engineering and construction
marketplace, Raytheon Engineers & Constructors (RE&C) will restructure its
operations to reduce costs and improve efficiency. The restructuring includes
the closure or partial closure of 16 offices in early 1998 and a workforce
reduction of approximately 1000 positions from a total employee base of more
than 11,000. In addition, RE&C will institute a variety of cost-saving changes
to compensation and benefit plans.
"We are taking these steps to respond to the well-documented project delays the
industry is facing world-wide," said Charles Q. Miller, chairman and chief
executive officer of Raytheon Engineers & Constructors. "The actions we are
taking are essential to remain a strong, healthy company. We expect these cost
savings will improve our competitive position and help us to win new projects
without sacrificing margins. These are difficult measures, but we'll be poised
for renewed growth as the market recovers."
The major sites being closed (with employment in parentheses) are: Tampa,
Florida (200); Pittsburgh, Pennsylvania (130); two offices in Atlanta, Georgia
(100); and Knoxville, Tennessee (90). Smaller locations being closed include:
Baton Rouge, Louisiana; Kingsport, Tennessee; Lyndhurst, New Jersey; Mobile,
Alabama; Richmond, Virginia; Sacramento, California; Santa Ana, California; and
Winston-Salem, North Carolina. In addition, excess facilities in Birmingham,
Alabama; Houston, Texas and Lexington, Massachusetts will be eliminated.
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The major locations affected by reductions in force include Birmingham, Alabama
(135), Philadelphia, Pennsylvania (80), Princeton, New Jersey (60) and Houston,
Texas (50). "We will subsequently shift most of the work from the offices being
closed to the Birmingham, Princeton and Houston regional Centers of Excellence,"
said Miller. "This will allow us to eliminate duplication in staff and improve
efficiency, while maintaining quality services for our clients."
"With these cost-cutting actions in place, we are better positioned to meet
future challenges," said Miller. "Our recent $700 million in new awards, much of
which will be executed by our U.S. offices, is an indication of the
effectiveness of these measures. Our task now is to keep our costs low and
operate as efficiently as possible so that we can continue to win new work and
execute it profitably. We've taken the tough measures to do just that." As part
of the restructuring of Raytheon's defense operations, Raytheon Service Company,
now part of RE&C, will move its Defense Services operation to the Training and
Services segment of Raytheon Systems Company. The Commercial Services group,
which includes chemical demilitarization, environmental and quality programs,
and engineering and construction for the U.S. government, will remain part of
RE&C.
Raytheon Engineers & Constructors also announced that it is implementing an
expanded performance-based incentive program that will be structured to reach as
many employees as possible and shifting most employees to a 9/80 work schedule,
under which employees work eighty hours over nine days, allowing every other
Friday to be taken as a day off.
Raytheon Company
Employee Support
Raytheon Company will provide separation packages for displaced employees from
Raytheon Systems Company and Raytheon Engineers & Constructors. These packages
will include compensation and benefits which will vary based on a number of
factors, such as length of tenure with the company and specific business
unit/facility policies.
In addition, Raytheon will provide a variety of support services, such as career
transition centers, in-house career fairs and, in some cases, relocation
assistance. The career centers will be established by a third-party firm and
will include services such as interview training and resume preparation support.
Raytheon also has a job placement assistance system to provide employees with
current information about employment opportunities throughout Raytheon. "We know
that this time of transition will be very difficult and we are committed, as
much as possible, to supporting displaced employees as they transition to new
jobs," said Gail P. Anderson, vice president of human resources at Raytheon
Company. "Our job placement system can help identify new opportunities within
Raytheon. Where placement within the company is not possible, Raytheon will
provide a variety of support services to help with the transition to
opportunities with other companies. We also recognize that for all of our
employees there will be a time of uncertainty as the restructuring process moves
forward. We will do our best to keep them informed about company plans and
activities."
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Raytheon will announce special charges associated with the consolidations at
Raytheon Systems Company and Raytheon Engineers & Constructors on January 26 as
part of the company's 1997 earnings release.
Company Overview
Raytheon Company, headquartered in Lexington, Mass., is a global technology
leader, with world-wide sales of more than US$20 billion and more than 110,000
employees. The company provides state-of-the-art products and services in the
areas of commercial and defense electronics, engineering and construction, and
business and special mission aircraft. Raytheon has operations throughout the
United States and serves customers in more than 80 countries around the world.
- - end -
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 and under "Risk Factors" in
Raytheon's Solicitation Statement/Prospectus dated November 10, 1997.
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1
EXHIBIT 99.2
FOR IMMEDIATE RELEASE
Toni Simonetti
(781) 860-2539
Robert S. McWade
(781) 860-2846
C-2414 1/26/98
http://www.raytheon.com
RAYTHEON REPORTS RECORD EARNINGS AND RECORD SALES*
LEXINGTON, MASSACHUSETTS, USA (1/26/98) -- Raytheon Company today reported 1997
earnings of $848.5 million, or $3.55 per share, not including a fourth quarter
restructuring and a special charge, on sales of $13.7 billion. For 1996,
Raytheon's earnings were $783.3 million, or $3.31 per share, not including a
special charge, on sales of $12.3 billion. For 1997, operating income increased
28 percent on an 11 percent increase in sales, before restructuring and special
charges. Raytheon's 1997 results include only a partial year related to the July
acquisition of the Texas Instruments' (TI) defense operation and less than two
weeks' results related to the December merger with Hughes defense. On a pro
forma 1997 basis, Raytheon's revenues would have been in excess of $20 billion.
"In 1997 and the first weeks of 1998, Raytheon has taken the
necessary strategic steps forward to focus our resources in our core businesses
and to consolidate and organize our operations to compete successfully in the
defense and government electronic systems area, and in core commercial markets,"
said Dennis J. Picard, Raytheon's chairman and chief executive officer.
"Raytheon today is one of the largest industrial corporations in the United
States -- and one that is strong, lean and well focused."
- --------------------------
*Not including restructuring and special charges
Raytheon's strong operating income in 1997 was led by Raytheon TI
Systems and Raytheon E-Systems, both of which are now part of Raytheon Systems
Company, and by Raytheon Aircraft, which has demonstrated strong leadership in
Raytheon's commercial sector.
In 1997, Raytheon accomplished the following:
- - Acquired the defense business of Texas Instruments and merged with
Hughes defense;
- - Formed Raytheon Systems Company (RSC) by combining Raytheon
Electronic Systems, Raytheon E-Systems, Raytheon TI Systems and Hughes defense,
and announced the leadership team for Raytheon Systems Company;
- - And divested its respected but non-core home appliance, heating and
air conditioning, and commercial cooking operations, its Semiconductor business
and its Switchcraft electronic components business.
<PAGE>
2
On January 23, 1998, slightly more than one month after the completion
of the merger with Hughes defense and the formation of Raytheon Systems Company,
Raytheon announced the consolidation and organization of its defense and
electronics unit. At the same time, the company announced a consolidation of
operations at Raytheon Engineers & Constructors.
Raytheon's 1997 net income was $526.8 million, or $2.20 per share,
including restructuring and special charges of $321.7 million. For 1996, net
income was $761.2 million, or $3.22 per share, including a special charge of
$22.1 million.
Raytheon ended the year with debt, net of cash and marketable
securities, of $9.8 billion, compared with $3.6 billion a year ago. This
increase is principally due to the financing requirements of the merger with
Hughes defense and the TI defense acquisition, partially offset by the sale of
the appliance and other non-core operations. Net debt was 48.4 percent of total
capital at the end of 1997.
Free cash flow for the year 1997 was approximately $300 million, an
improvement of more than $600 million over 1996. For the fourth quarter 1997,
free cash flow amounted to approximately $480 million.
Raytheon reported fourth quarter 1997 sales, earnings and earnings per
share of $4.0 billion, $244.4 million and $.98 per share, respectively, not
including restructuring and special charges. Comparable results for the fourth
quarter of 1996 were: sales of $3.4 billion; earnings of $177.4 million; and
earnings per share of $.75.
Raytheon's 1997 fourth quarter earnings of $244.4 million, or $.98 per
share excluding restructuring and special charges, include earnings of $209.5
million, or $.89 per share, from base operations; earnings of $38.6 million, or
$.16 per share, from the sale of the Semiconductor and Switchcraft businesses;
and a loss of $3.7 million or $.02 per share from Hughes defense. Additionally,
the issuance of 102.6 million Class A common shares associated with the Hughes
defense merger caused a dilution of $.05 per share.
In the fourth quarter of 1997, the company recorded restructuring and
special charges of $321.7 million after tax, or $1.29 per share.
The restructuring and special charges were fourth quarter events and,
consistent with accounting principles, were taken in that quarter. Fourth
quarter results, therefore, showed a net loss of $77.3 million, or a net loss of
$.31 per share, for the quarter.
The restructuring and special charges of $321.7 million, after tax,
included $221.0 million applicable to the Electronics segment, principally
Raytheon Systems Company; $81.2 million applicable to the Engineering and
Construction segment; and $20.5 million applicable to the Aircraft segment. The
charges principally include the costs of facility and office closures, employee
severance costs, one-time costs from the merger with Hughes defense and the
acquisition of TI defense, non-recurring charges related principally to contract
valuations, and the write-down of non-current assets to fair market value.
<PAGE>
3
The Raytheon Systems Company provision is being made in conjunction
with the consolidation and reorganization of its four separate components into
one focused structure in order to remain highly competitive in the defense
industry. As announced on January 23, Raytheon Systems Company (RSC) will make
major changes at 26 facilities, closing 20 and partially closing six over the
next two years. This will result in a reduction of facility space from 42
million square feet to 34 million square feet, or approximately 20 percent.
Employment will be reduced by approximately 10 percent -- or 8,700 jobs -- over
the next two years and 2,700 engineers will be reassigned to help fill technical
positions, generally near their current locations. RSC will also organize its
operations to bring together the best practices and technologies from across the
organization while optimizing the utilization of facilities and eliminating
duplication and excess capacity.
It was also announced on January 23 that Raytheon Engineers &
Constructors will close or partially close 16 offices in early 1998 and reduce
its workforce by approximately nine percent, or 1,000 positions. This action
comes in response to the downturn in the global engineering and construction
market and the need for Raytheon Engineers & Constructors to continue improving
its competitive position.
For 1997, Raytheon Aircraft reported record sales and record operating
income, reflecting increased shipments of general aviation aircraft and
contracts for services. Based in Wichita, Kansas, Raytheon Aircraft is the world
leader in general aviation.
The Electronics segment led Raytheon's sales and earnings performance
in 1997, with record sales and record operating income*. Both sales and
operating income were up for Raytheon Electronic Systems and Raytheon E-Systems,
both of which are now part of Raytheon Systems Company, as well as for
Commercial Electronics. Raytheon's 1997 results include partial results for
Raytheon TI Systems, which was acquired on July 11, and for Hughes defense, with
which Raytheon merged on December 17. These two defense businesses are now also
part of Raytheon Systems Company.
Sales for Raytheon Engineers & Constructors were essentially flat in
1997 while income was lower due to delays in funding of new international orders
and slowdowns on several turnkey projects, along with the increased expenses
required to develop international opportunities which will not be realized until
future periods.
<PAGE>
4
In September 1997, Raytheon completed the sale of the home appliance,
heating and air conditioning and commercial cooking operations of the Appliance
Group. Raytheon has retained the commercial laundry and electronic controls
operations. In 1996, these two operations combined accounted for approximately
20 percent of revenues and 50 percent of profits for the Appliance Group.
Raytheon is continuing its strategic evaluation of these two businesses.
- ---------------------------------
* Not including restructuring and special charges
Raytheon Company entered 1998 with a strong backlog of $21.3 billion,
including a U.S. government backlog of $12.5 billion.
Raytheon Company, headquartered in Lexington, Mass., is a global
technology leader. The company provides state-of-the-art products and services
in the areas of commercial and defense electronics, engineering and
construction, and business and special mission aircraft. Raytheon has operations
throughout the United States and serves customers in more than 80 countries
around the world.
More information about Raytheon can be found on the World Wide Web at
http://www.raytheon.com.
Statements which are not historical facts contained in this release, including
certain statements in the annual business highlights, are forward looking
statements under the provisions of the Private Securities Litigation Reform Act
of 1995. All forward looking statements involve risks and uncertainties. The
company wishes to caution readers that several important factors could cause its
actual results to differ materially from those expressed in any forward looking
statements made by, or on behalf of, the company. Further information regarding
the important factors that could cause actual results to differ from projected
results can be found under "Item 1 -- Business" of Raytheon's Annual Report on
Form 10-K for the year ended December 31, 1996, and under "Risk Factors" in
Raytheon's Solicitation Statement/Prospectus dated November 10, 1997
###
Financial tables appear on the next pages, followed by Raytheon's business
highlights for the year.
<PAGE>
5
<TABLE>
<CAPTION>
Raytheon Company
Selected Financial Data
4th Quarter, 1997
Three Months Ended Year Ended
Dec. 31, Dec. 31, Dec. 31, Dec. 31,
1997 1996 Change 1997 1996 Change
<S> <C> <C> <C> <C> <C> <C>
Dollars in millions, except for
earnings per share, or unless
indicated.
Net sales $4,004.3 $3,383.8 18.3% $13,673.5 $12,330.5 10.9%
Operating income excluding
restructuring & special charge $438.5 $326.1 34.5% $1,579.2 $1,232.2 28.2%
Non-operating expense (income), net $67.9 $64.5 $294.1 $114.7
Income before taxes excluding
restructuring & special charges $370.6 $261.6 $1,285.1 $1,117.5
Federal and foreign income taxes $126.2 $84.2 $436.6 $334.2
Net earnings excluding
restructuring & special charges $244.4 $177.4 37.8% $848.5 $783.3 8.3%
E.P.S. excluding restructuring &
special charges $0.98 $0.75 30.7% $3.55 $3.31 7.3%
Restructuring & special charges
after tax $321.7 $321.7 $22.1
Net income including restructuring
and special charges $(77.3) $177.4 $526.8 $761.2
E.P.S. - basic $(0.31) $0.75 $2.20 $3.22
Average number of common shares
outstanding during period
(millions)(1) 248.3 235.5 238.9 236.6
Total backlog (billions) $21.250 $12.066
Government-funded backlog (billions) $12.547 $5.637
Total debt $10,063 $3,727
Cash and marketable securities $296 $139
------- ------
Debt, net of cash and marketable securities $9,767 $3,588
Total employees 119,200 75,300
(1) Outstanding common shares at the end of period were 338.6 million at 12/31/97 and 236.3 million at 12/31/96.
</TABLE
<PAGE>
6
</TABLE>
<TABLE>
<CAPTION>
Segment Financial Data
Fourth Quarter Year Ended
Sales Sales
<S> <C> <C> <C> <C>
Dollars in Millions 1997 1996 1997 1996
Electronics $2,250 $1,432 $7,042 $5,424
Engineering and Construction $835 $747 $3,033 $3,053
Aircraft $798 $851 $2,446 $2,345
Major Appliances $121 $354 $1,152 $1,509
------ ------ ------- -------
Totals $4,004 $3,384 $13,673 $12,331
====== ====== ======= =======
</TABLE>
<PAGE>
7
<TABLE>
<CAPTION
Fourth Quarter Segment Income Year Ended Segment Income
1997 1996 1997 1996
<S> <C> <C> <C> <C> <C> <C> <C> <C>
% of % of % of % of
Dollars in Millions $M(2) Sales $M Sales $M(2) Sales $M(1) Sales
Electronics $293 13.0% $176 12.3% $1,096 15.6% $766 14.1%
Engineering and Construction $37 4.4% $55 7.4% $181 6.0% $211 6.9%
Aircraft $89 11.2% $77 9.0% $239 9.8% $181 7.7%
Major Appliances $19 15.7% $18 5.1% $63 5.5% $74 4.9%
---- ---- ------ ------
Total Segment Income $438 10.9% $326 9.6% $1,579 11.5% $1,232 10.0%
==== ==== ====== ======
(1) Excludes special charge of $34 million related to the Appliances segment.
(2)Excludes restructuring and special charges of $495 million of which $340 million relates to the Electronics segment,
$125 million to the Engineering and Construction segment, and $30 million to the Aircraft segment.
Certain reclassifications of prior period information were made to conform to the current year presentation.
</TABLE>
<PAGE>
8
Backlog by Segment
Dollars in Millions 1997 1996
Electronics $16,260 $7,303
Engineering and Construction $3,239 $3,565
Aircraft $1,709 $1,163
Major Appliances $42 $35
Total Backlog $21,250 $12,066
U.S. Government Funded
Backlog Included Above $12,547 $5,637
RAYTHEON'S BUSINESS HIGHLIGHTS FOR 1997
RAYTHEON AIRCRAFT
- - Development continued during the year on three major new aircraft
simultaneously: the Hawker Horizon super mid-size business jet, which fills a
product niche between mid-size business jets such as the Hawker 800XP and larger
aircraft; the Raytheon Premier I light business jet; and the T-6A Texan II
primary training aircraft for the U.S. Air Force and U.S. Navy.
- - During the year, Raytheon Aircraft created the Raytheon Travel Air business
unit, an aircraft fractional ownership company which broadens market access to
business aviation. The Raytheon Travel Air fleet consists of new King Air B200
turboprop aircraft, Beechjet 400A business jets, and Hawker 800XP mid-sized
business jets. Each model may be purchased in fractional increments, such as
one-eighth or one-quarter shares. Raytheon Aircraft also created Raytheon
Aircraft Parts Inventory and Distribution Company, which distributes aircraft
parts worldwide.
- - The Beech King Air series of aircraft continued to account for the vast
majority of the total current twin-turboprop market.
- - Central Mountain Air in Canada ordered 10 1900D 19-seat commuter aircraft,
with an option for 10 more, and Proteus Airlines in France ordered 10 aircraft
for its commuter fleet. The success of the 1900D aircraft lies in its dispatch
reliability and its economics.
- - In 1997, Bombardier Services ordered 24 T-6A primary training aircraft for the
NATO Flying Training Canada program. The Canadian program will provide primary
and secondary training for all Canadian Air Force Pilots and participating NATO
pilots.
- - Raytheon's delivery of the first T-6A Texan II to the U.S. Air Force is
scheduled for late 1998. The Joint Primary Aircraft Training System (JPATS)
program for the U.S. Air Force and U.S. Navy calls for more than 700 of the
aircraft to be built through the year 2017. In May 1997, Raytheon Aircraft
dedicated its new 191,000-square-foot facility for all integrated product teams
associated with the program, including marketing, engineering, logistics, and
flight department.
<PAGE>
9
- - In special mission aircraft, the Japan Air Self Defense Force exercised an
option for four additional U-125A reconnaissance aircraft, based on the Hawker
800 jet, and a Beech King Air aircraft configured to calibrate airway systems
became the first aircraft to land at Hong Kong's new Chek Lap Kok Airport.
- - Raytheon Aircraft Services, a subsidiary of Raytheon Aircraft, began
construction of a new fixed-base operation in Atlantic City, N.J., which will
feature more than 50,000 square feet, including 29,000 square feet of hangar
space. It will service Beech and Hawker customers throughout the Northeast.
- - Raytheon Aerospace, which provides total contractor logistics and training
support for military and government fixed- and rotary-wing aircraft in 49 states
and 30 countries, was selected to refit the T-1A Jayhawk trainer fleet with
global positioning systems; won a two-year, $210 million contract to provide
contractor field teams for government aircraft support around the world; and was
awarded a contract to maintain all Department of Justice/Drug Enforcement
Administration aircraft.
ELECTRONICS SEGMENT
RAYTHEON SYSTEMS COMPANY
Note to readers: The Raytheon Systems Company highlights which follow are
intended to give the reader a feeling for the breadth of capabilities inherent
in this company. The following highlights for 1997 include activity and orders
received by Texas Instruments defense and Hughes defense prior to the
acquisition and merger with Raytheon.
- - In 1997, Raytheon acquired the defense business of Texas Instruments and
merged with Hughes defense, formed Raytheon Systems Company (RSC) by combining
Raytheon Electronic Systems, Raytheon E-Systems, Raytheon TI Systems and Hughes
defense, and announced the leadership team for Raytheon Systems Company. On
January 23, 1998, slightly more than one month after the completion of the
merger with Hughes defense and the formation of Raytheon Systems Company,
Raytheon announced the consolidation and organization of its defense and
electronics unit.
Missiles and Advanced Munitions
- - Raytheon Systems Company is a world leader in pioneering a new generation of
advanced missiles, including the next generation short range, air-to-air
missile, called the AIM-9X; the Advanced Medium-Range Air-to-Air Missile
(AMRAAM); the new air-launched Joint Standoff Weapon (JSOW); and the Javelin
man-portable, anti-armor missile.
- - The company is working under a $169 million engineering and manufacturing
development contract for the new AIM-9X "dogfight" missile, a joint program of
the U.S.
<PAGE>
10
Navy and U.S. Air Force, with the Navy serving as the executive service. The
AIM-9X missile program has a multi-billion-dollar, multiyear potential to meet
both U.S. and allied needs.
- - The former Raytheon Electronic Systems and Hughes defense operations, now part
of Raytheon Systems Company, were awarded contracts totaling about $278 million
for the latest lot of AMRAAM missiles. AMRAAM is the primary medium-range,
air-to-air weapon for use on Air Force, Navy and allied fighter aircraft. The
missile incorporates an advanced, active "fire and forget" radar guidance system
for use against multiple targets.
- - The U.S. Navy awarded the company an $85.7 million contract for the second low
rate initial production lot of the JSOW system for 180 baseline systems and
associated support equipment. The air-launched weapon contains BLU-97
submunitions to hit ground targets. A key standoff weapon for U.S. Navy and U.S.
Air Force attack aviation, JSOW is capable of precision ordinance delivery at
standoff ranges, which means that the pilot can launch the weapon at a ground
target without entering harms way.
- - The Javelin Joint Venture missile program with Lockheed Martin was awarded a
$745 million, three-year contract for full-ratproduction and delivery to the
U.S. Army and U.S. Marine Corps. Javelin is the first man-portable, shoulder-
launched, fire and forget anti-armor missile.
- - Raytheon Systems Company is also developing the Enhanced Fiber Optic Guided
Missile, called EFOGM. The U.S. Army awarded Raytheon initial funding to begin
purchasing material for 256 missiles for the system.
- - The Standard Missile-2 Block IVA missile, developed by the Standard Missile
Company, scored a direct hit on a tactical ballistic missile target in a test at
the White Sands Missile Range in January of 1997. This significant event allowed
the U.S. Navy to continue with the engineering and manufacturing development
phase of the program.
- - The U.S. Navy demonstrated the versatility and adaptability of the Standard
Missile-2 in a test firing at White Sands Missile Range, in which a specially
modified SM-2 Block III round operated in a new surface-to-surface mode to a
ground target.
- - A new program under development is the U.S. Navy EX-171 Extended Range Guided
Munition (ERGM) for which a contract was received in late 1996 for design,
development, and low-rate initial production. ERGM broadens Raytheon Systems
Company into the area of guided projectiles.
- - The U.S. Naval Air Systems Command exercised a fiscal 1997 option under its
fiscal 1994 -1998 Tomahawk production/depot contract for the upgrade of 35
Tomahawk Cruise Missiles from the Block II to the Block III configuration.
Raytheon Systems Company is also developing the next version of the missile,
called the Block IV. Early in 1997, the U.S. Navy expressed interest in a
Tactical Tomahawk variant, an improved version of the cruise missile.
<PAGE>
11
Air Defense Systems
- - During the year, Raytheon received additional funding to continue upgrading
the Patriot Air Defense System, which is a surface-to-air system to defend
against tactical ballistic missiles, aircraft and cruise missiles. The U.S. Army
Radar Enhancement Phase 3 program makes significant modifications to the Patriot
ground equipment and radar that will improve its surveillance capabilities. In
1997 Raytheon received an additional research and development funding increment
for continued work on the Patriot Anti-Cruise Missile Seeker upgrade program.
- - The government of the Kingdom of Saudi Arabia awarded Raytheon a
$484 million direct sale contract for technical assistance, training, and
logistics support for the Kingdom's Patriot and Hawk air defense systems.
- - Early in 1997, Raytheon signed a contract with the U.S. Army Missile Command
on behalf of the government of Egypt to remanufacture eight Hawk fire units.
- - The company, with Kongsberg, Gruppen, ASA of Norway, has developed a new
medium-range, air defense system for international sales evolved from the Hawk
air defense system to incorporate AMRAAM in a ground-launched mode. The new
system is called Hawk-AMRAAM.
- - The company was the winner of the Joint Land Attack Cruise Missile Defense
Elevated, Netted Sensor System (JLENS) program. A contract award is expected in
1998. JLENS will provide elevated sensors to support the engagement of cruise
missiles at ranges beyond ground-based radar horizons.
- - United Missile Defense Company won a concept development contract to develop
and integrate a National Missile Defense System for the United States. This
activity led to the submission of a competitive proposal to become the Lead
System Integrator for National Missile Defense development, integration, and
fielding, which would have the potential to be a major program.
- - The Ground-Based Radar (GBR) built by Raytheon for the Theater High Altitude
Area Defense (THAAD) system performed extremely well in U.S. Army radar tests
during 1997. The GBR will be used with the THAAD interceptor, which is under
development; will complement the Patriot air defense system; and by cueing
Patriot, will provide a robust, two-tiered defense against attacking tactical
ballistic missiles.
Naval Systems
- - The company continued to work as electronic systems integrator on a contract
awarded to Avondale Industries, Inc. of New Orleans, La., for the U.S. Navy's
new San Antonio-class amphibious ships, the LPD 17. The Navy has options for
construction of LPD 18 and LPD 19, which could mean additional opportunity.
During 1997, the program completed several program reviews, including a design
readiness review.
- - Spain's Ministry of Defense signed a letter of agreement with the U.S. Navy
that designates the Aegis combat system for its newly approved F-100 class of
frigates. Raytheon provides SPY-ID radar transmitters and Mk 99 fire control
systems to the U.S. Navy under prime contracts for the Aegis program.
<PAGE>
12
- - Raytheon was awarded incremental funding by Lockheed Martin Federal Systems
for Raytheon's effort on the New Attack Submarine development program. Under the
program, Raytheon will develop combat control, sonar, and architecture
subsystems for the next-generation attack submarine.
Sensors and Electronic Systems
- - Raytheon Systems Company is the leading developer and producer of
sophisticated airborne radar systems, which are deployed by the U.S. military
aboard a broad range of aircraft including the F-14, F-15, F/A-18, U-2, AC-130U,
and the B-2, as well as by a number of foreign nations.
- - The first U.S. Air Force F-15 Eagle equipped with an upgraded APG-63 (V) 1
radar successfully completed its first test flight in July. The radar upgrade
will provide the F-15C/D air superiority fighter with great reliability and
maintainability. APG-73 radars were delivered to the Royal Australian Air Force,
Canadian Forces and Malaysia for F/A-18 Hornets. Deliveries began of APG-70
equipped F-15I aircraft to Israel. This radar and the other deliveries were
under contract from the Boeing Company.
- - Raytheon was also selected by the Boeing Company to develop the Advanced
Targeting Forward-Looking Infrared (ATFLIR) system for the U.S. Navy's F/A-18
Hornet and Super Hornet aircraft. The pod features third generation midwave IR
focal plane array technology for both infrared targeting and navigation systems.
The long range performance provided by this technology will enable F/A-18 air
crews to deliver air-to-ground weapons from beyond the range of anti-aircraft
artillery and many surface-to-air missiles.
- - Raytheon Systems Company successfully transitioned several second generation
forward-looking infrared (FLIR) sensor systems from development into production.
Raytheon received a multi-year, annually funded production contract for second
generation FLIR imaging upgrade kits that will provide significantly greater
performance for U.S. Army combat vehicles. The contract was awarded by the
Communications-Electronics Command in Fort Monmouth, N.J. The contract is for
the Horizontal Technology Integration (HTI) 2nd Generation FLIR program. The
first fully funded increment includes a contract for the M1A2 Abrams Commander's
Independent Thermal Viewer. Other Army sights to be forward-fitted with the HTI
B-kit include the M1A2 Abrams Thermal Imaging System and the Bradley Fighting
Vehicle's Improved Bradley Acquisition System (IBAS) and Commander's Independent
Viewer (CIV). Additionally, the B-kit FLIR is being incorporated into other U.S.
Army Advanced Technology Demonstration programs.
- - Raytheon Systems Company received a U.S. Air Force contract for fabrication of
16 AN/AAQ-26 Gunship Infrared Detecting Sets and installation on nine AC-130U
and seven AC-130H gunship aircraft. The effort includes interim contractor
support and the delivery of spare units. The contract was awarded by the
Aeronautical Systems Center, Wright-Patterson Air Force Base, Dayton, Ohio.
<PAGE>
13
- - Engineering and manufacturing development (EMD) continues on the AN/APG-77
phased array radar for the U.S. Air Force's F-22 Advanced Tactical Fighter, with
joint venture partner, Northrop Grumman.
Electronic Warfare Systems
- - In airborne countermeasures, Raytheon was awarded additional funding in 1997
and in early 1998 for production of AN/ALE-50 towed decoy and related equipment.
- - Raytheon signed a contract with Lockheed Martin Fairchild Systems to build
Towed Radar Decoy Subsystems for the United Kingdom's Replacement Maritime
Patrol Aircraft. The decoy system consists of a launch controller,
launcher/retriever, fiber-optic link, and a towed decoy. This new towed radar is
retrievable and features fiber optics linkage to the aircraft.
C3 Systems
- - The U.S. Navy's Cooperative Engagement Capability (CEC) program successfully
proved itself once again in joint operations in a test conducted in September in
the coastal areas of the Gulf of Mexico. The CEC system has now successfully
completed more than seven years of comprehensive at-sea testing, including
several live-fire tests. It has been designed to enable and developed to
integrate theater sensors and weapon systems on ships, aircraft, and land-based
installations into a common, seamless defense system.
- - A seven-month contract extension valued at $120 million was awarded by the
U.S. Air Force Electronic Systems Center in August 1997 for the continued
sustainment of the Royal Saudi Air Force (RSAF) Peace Shield System. The Peace
Shield System allows the RSAF to manage its airborne and ground-based resources
to maintain sovereignty of the Kingdom's airspace. It includes a central Command
Operations Center, five regional centers, 17 long-range radars, and a number of
remote facilities.
- - Raytheon received a contract to build, test, and support the installation of
integrated Command, Control, Communications, Computers and Intelligence (C4I)
systems for all Cyclone-class patrol ships for the U.S. Navy. The C4I systems
are designed to keep the ship's captain updated on the current coastal battle
environment. The system interfaces to standard Navy information processing
systems and networks and features multi-channel satellite communications and
automatic, instantaneous satellite tracking. All equipment is based on proven
off-the-shelf technology.
<PAGE>
14
- - The company has been awarded a contract to develop, manufacture, test, and
install the White Sands (N.M.) Missile Range-Frequency Surveillance System. The
system is designed to ensure that the missile range is free of radio frequency
interference that could compromise transmitted control signals during testing. -
The U.S. Air Force Electronic Systems Center awarded the company a $44.3 million
contract for the National Air and Space Warfare Model Program, a computer-based
simulation system capable of integrating live and simulated entities on a common
virtual battlefield for the full range of Air Force missions and training
requirements.
- - The U.S. Air Force awarded Raytheon a contract for the Command and Control
Product Lines program. A Raytheon-led team will develop systems to reduce the
overall time and cost associated with acquiring software-intensive command and
control systems.
Military Communications
- - Raytheon won a contract award valued at $133 million from the U.S. Army
Communications and Electronics Command in Fort Monmouth, N.J., to fulfill joint
services requirements for the production and pre-planned product improvements of
the Joint Tactical Terminal/Common Integrated Broadcast Service-Modules. The
system provides a secure intelligence dissemination reporting system and
situational awareness capability for deployment with tactical units.
- - The company was awarded two contracts from the Defense Advanced Research
Projects Agency to develop technology for next generation advanced
communications systems.
- - A $79.2 million multiyear production contract was received from the U.S. Army
Communications-Electronics Command, Ft. Monmouth, N.J., to provide 2,392
Enhanced Position Location Reporting System (EPLRS) receiver/transmitters. EPLRS
provides data communications for situational awareness, fratricide avoidance,
targeting information, and command and control data.
- - Raytheon was awarded a contract to develop demand assigned multiple access
capability for the Secure, Mobile, Antijam, Reliable Tactical-Terminal for the
U.S. Army's Milstar satellite communications program.
- - The U.S. Navy Space and Naval Warfare Systems Command announced the selection
of Raytheon for the AN/WSC-6(v)X SHF SATCOM Terminal program. The competed Navy
program, with options, has a total potential value of $110 million.
Intelligence and Information Systems
- - The company was selected as the prime contractor for the U.S. military's
Global Broadcast Service (GBS) contract, a six-year project that will
dramatically accelerate and customize the delivery via satellite of video,
imagery, and data to U.S. forces. While the initial contract value is less than
$100 million, additional contract options could be worth an estimated $200
million over the next several years. The system will enable information to be
delivered anywhere around the globe in seconds, compared to minutes or hours
needed in the past, using a common desktop computer interface.
<PAGE>
15
Aircraft Systems and Modernization Programs
- - Raytheon reinforced its position as the world leader in modernizing maritime
patrol aircraft. In the United States, refurbishment of the first P-3C was
completed in January 1998 as part of the U.S. Navy's Sustained Readiness Program
(SRP). Additional P-3s are being refurbished as part of the contract to extend
the operational service life of the aircraft platform. The SRP contract is
valued at more than $200 million for an expected quantity of 58 P-3C aircraft.
Options under the current contract could be extended to include refurbishment of
more aircraft.
- - Internationally, the installation process began in December of 1997 on the
first maritime patrol aircraft for the Royal Australian Air Force (RAAF). This
multiyear upgrade program is valued at $400 million. The RAAF P-3 refurbishment
project includes a major systems upgrade to 18 aircraft. In alliance with
Australian industry team members, the Sea Sentinel program involves major
upgrades to all mission equipment and cockpit displays, communications and
navigation systems, and integration of the new mission equipment into the
aircraft.
- - Raytheon presented the first E-6B TACAMO aircraft to the U.S. Navy and the
U.S. Strategic Command in May. The aircraft is a Boeing 707 extensively modified
to provide highly reliable and survivable communications. Work on the E-6B was
performed under an $82.3 million contract with the Naval Air Systems Command and
covers five aircraft. The contract includes two options with a value of
approximately $75.6 million for follow-on fabrication, installation, and testing
of modification kits.
- - Raytheon's work moved forward on the ground segment of the Global Hawk
unmanned aerial vehicle program, as the launch and recovery element portion of
the ground segment operated in support of the Air Vehicle Systems Integration
Laboratory's training and testing of Global Hawk 1. The Unmanned Aerial Vehicle
represents a new tool in providing the theater commander with surveillance
capability.
Training and Services
- - Raytheon Systems Company is a leader in advanced training systems, simulators
and services for a variety of military and civil requirements. For military
applications, the company has developed training programs for the B-2, F/A-18,
and F-16 aircraft.
- - In 1997, the company was awarded contracts to build F-22 pilot training and
maintenance training devices and a contract from the U.S. Army for the first
year production phase of the Fire Support Combined Arms Tactical Trainer, a
program to enable field artillery forces to hone their gunnery skills. -
Raytheon Systems Company also provides a wide range of scientific, technical and
support services, specializing in operations and maintenance of customer
equipment and systems; repair and supply depot operations; and range support and
privatization of government services, among others.
<PAGE>
16
- - The company is working with the City of Indianapolis and the U.S. Navy to
privatize the Naval Air Warfare Center in Indianapolis, the largest Department
of Defense privatization initiative to date.
- - The company was awarded a contract in 1997 by Denmark's Civil Aviation
Administration to provide advanced ATC training systems, marking the first major
order for FIRSTplus(TM).
- - The company also restructured its training systems contract with NASA's
Johnson Space Center in 1997. The agreement calls for support of NASA through
April 2002.
RAYTHEON SYSTEMS COMPANY
TECHNOLOGY DIVERSIFICATION PROGRAMS
Readers note: These programs are interwoven within various business segments of
Raytheon Systems Company. They are broken out here to give the reader a sense of
the breadth of activities in which Raytheon is applying defense technologies to
commercial markets.
Air Traffic Control
- - In the United States, progress continued on the Standard Terminal Automation
Replacement System (STARS) program, which Raytheon won in 1996, with a value of
nearly $1 billion. STARS will modernize and upgrade 331 Terminal Automation
Systems for the Federal Aviation Administration and the Department of Defense.
Testing of the full service system is under way. Three sites are scheduled to be
installed in 1998: Washington National Airport, Boston's Logan Airport, and
Eglin Air Force Base in Florida. STARS will replace critical air traffic control
software and computers with a next generation commercial-off-the-shelf system in
the airport terminal area.
- - Raytheon is also working on the Digital Airport Surveillance Radar, a critical
element of the DoD and FAA air traffic modernization program to maintain a
terminal area surveillance network into the 21st century. The total potential
contract value is over $600 million.
- - The FAA awarded Raytheon a $44.5 million contract for the Integrated Terminal
Weather System (ITWS) program. ITWS integrates various existing FAA and National
Weather Service sensors to provide a unified set of weather data to air traffic
controllers to enhance airport terminal capacity.
- - Other programs include the Wide Area Augmentation System (WAAS) contract,
awarded in 1996, a five-year project to develop and deploy a satellite-based
navigation system over the United States.
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17
- - Raytheon is a leader in international air traffic control, with experience
ranging from individual airport installations to country-wide, multiple-site,
turnkey systems. During 1997, the company was awarded a contract for an S-band
solid state primary radar and a monopulse secondary radar at Guangzhou airport
from the Chinese Aviation Authority. This award was followed by a contract for
an S-band radar and two monopulse secondary radars from the Botswana Department
of Civil Aviation.
- - During the year, a new state-of-the-art Air Traffic Control system at Beijing
Capitol Airport was unveiled.
- - Raytheon has been notified by the Civil Aviation Authority of Mongolia that it
was selected to provide a new air traffic control system for the Ulaanbaatar
Airport and a communication system linking 22 remote airfields throughout
Mongolia.
Surface Transportation Management
- - Transportation Management Solutions (TMS), which provides fleet management and
transportation information solutions for mobile workforce, security, and public
transit applications, was awarded new contracts from Rochester Gas and Electric,
Irving Oil, and the Mass Transit Division of Pompano Beach, Florida. Additional
phases were awarded from the Suburban Mobility Authority for Regional
Transportation in Detroit and the Maryland Mass Transit Administration. TMS is
expanding its efforts in the Pacific Rim by partnering with Communications
Technologies, Inc., a Korean firm specializing in wireless communications and
electronics manufacturing.
Environmental Monitoring
- - During the year, the contract for the System for the Vigilance of the Amazon
(SIVAM) was signed by the Government of Brazil, Raytheon, Embraer and ATECH.
Letters of credit necessary to release the financing for SIVAM were issued. With
the issuance of the letters of credit, the contract became effective and
Raytheon could formally begin work on the contract. The four sources providing
financing for the program are the United States Export Import Bank, AB Svensk
Exportkredit (the Swedish export bank), Raytheon, and the SIVAM Vendor Trust.
The U.S. Export Import Bank is providing the majority of the financing, with
loans totaling just over $1 billion. The SIVAM project calls for the delivery of
an integrated information network that links numerous sensors to regional and
national coordination centers, giving the Brazilian government the capability to
collect and process extensive data from the Amazon region. This information will
be made available to Brazilian agencies for use in protecting the environment,
improving air safety, increasing the accuracy of weather forecasting, assisting
in the detection, prevention and control of epidemics, managing land occupation
and usage, and ensuring effective law enforcement and border control.
<PAGE>
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Stratospheric Observatory
- - Planned and required baseline flight testing was completed in December 1997
for Raytheon's support of NASA's stratospheric observatory for infrared
astronomy. Raytheon is a major subcontractor to Universities Space Research
Association, which is participating in the NASA contract to develop and operate
the stratospheric observatory to expand humanity's knowledge of the universe.
The Raytheon effort, which has a value of approximately $100 million, covers a
five-year development period and a follow-on 10-year period of observation. The
contract calls for the modification of a Boeing 747SP aircraft to house a 2.7
meter (8.8 feet) infrared telescope and associated mission control systems.
Satellite Imagery
- - Information technology expertise was also applied to NASA's Mission to Planet
Earth program. Raytheon Systems Company is working on a multi-year contract to
develop and field the Earth Observing System Data and Information System
(EOSDIS) Core System (ECS). In 1997, a significant milestone was completed by
demonstrating the ability of ECS to process and archive global change data. -
Also during 1997, a Sea-Viewing Wide-Field-Of-View instrument began a five-year
mission on board the OrbView-2 satellite. The instrument will collect full
global images of the Earth's oceans every 48 hours. It is expected to expand
understanding of the oceans' biological and physical processes.
- - Raytheon's broad capabilities in commercial remote sensing will also be used
by Space Imaging/EOSAT Company, which is preparing to launch a commercial
satellite with one-meter resolution in early 1998. Raytheon is a member of the
Space Imaging/EOSAT joint venture.
Resource Management
- - The Savi Technology, Inc., subsidiary received a $117.7 million contract to
supply Radio Frequency Identification equipment to the Department of Defense.
The contract calls for Savi to provide hardware, software and services
supporting the deployment of these systems in all three armed services and the
U.S. Coast Guard. SAVI uses commercial-off-the-shelf, two-way radio frequency
and reader technologies, combined with conventional computer databases and
hardware, to create integrated logistics and management systems for government
and commercial customers.
COMMERCIAL ELECTRONICS
- - In 1997, Raytheon established itself as a major supplier of components based
on gallium arsenide monolithic microwave integrated circuits (MMIC) technology
to the wireless marketplace. Raytheon's Microelectronics operation is now
shipping more than 1 million units per month into the direct broadcast
satellite, cellular/personal communication system (PCS), and satellite handset
markets. In addition to the components that are used in handsets for cellular
and PCS terrestrial systems, Microelectronics has won contracts for RF handset
components for two major worldwide satellite communication systems: the
IRIDIUM(R) and Globalstar(TM) programs.
<PAGE>
19
- - Forty-four IRIDIUM satellites have been placed in orbit. Raytheon Systems
Company's main mission antennae are an integral part of the system.
Microelectronics provides transmit/receive modules for the IRIDIUM antenna
systems, and S-Band transmit modules and L-Band receive modules for the
satellite-based antenna for the Globalstar program.
- - In 1997, production ramped up for the Raylink(TM) wireless local area network
(LAN) product family consisting of a PC card, a wireless LAN adapter, and the
access point, which is a wireless LAN-to-Ethernet bridge.
- - Raytheon continued to be a leader in marine electronics, developing new marine
electronics systems using strong in-house, broad-based technology. In the
recreational marine marketplace, the company began deliveries early in 1997 of
its "265" and "365" fishfinders, winners of the 1996 IMTEC Innovation Award.
Raytheon continued to be a leading supplier of electronic packages to boat
builders, including Tiara, Sea Ray, Bayliner, and Beneteau. Key products for OEM
customers are radar and chartplotters, autopilots, and integrated
instrumentation packages.
- - Raytheon introduced the Raytheon recreational Pathfinder SL72 radar, which
capitalizes on Raytheon's advanced radar signal processing and antenna
expertise. Other products included new models of Raytheon's Autohelm brand
tiller and inboard autopilots, the ST5000 and ST6000 control units.
- - Raytheon continued to serve the commercial marine electronics market with
sophisticated electronic systems that link functions of the bridge together into
an "integrated bridge." At the Europort exhibition in Amsterdam in November,
Raytheon introduced the MK II Pathfinder high seas radars and electronic chart
display integrated system together with new Anschutz steering and heading
systems to match as one totally new integrated bridge.
- - At year end, Raytheon completed the sale of its Semiconductor unit to
Fairchild Semiconductor Corp. and its Switchcraft unit to a company formed by
Cortec Group, Inc., and Switchcraft management. While strong operations, the two
businesses did not reflect Raytheon's core business strategy.
RAYTHEON ENGINEERS & CONSTRUCTORS
- - A Raytheon-led engineering and construction consortium received a turnkey
contract to provide engineering, procurement, and construction services for a
major, grassroots hot briquetted iron production facility in Guayana City,
Venezuela. The value of Raytheon's work is approximately $190 million. The
facility will produce 1.5 million metric tons per year of a briquetted form of
direct reduced iron, which is used in making steel. The owner of the plant will
be POSVEN, C.A., a joint venture involving shareholders from Korea, Venezuela,
Mexico, and the United States. Construction began in 1997 following a
groundbreaking ceremony attended by Venezuelan President Rafael Caldera.
<PAGE>
20
- - Progress continued on a 1.33 million-tons-per-year coke plant for Indiana
Harbor Coke Company, an affiliate of Sun Company Inc. It is being built at
Inland Steel Company's Indiana Harbor Works steel plant in East Chicago, Ind.
Indiana Harbor Coke Company will sell output of the plant to Inland Steel.
Raytheon is providing turnkey engineering, procurement, and construction
services. Raytheon also will install 16 waste heat boilers for an 87-megawatt
co-generation facility that will use waste heat from the coke plant. The
combined value of the coke plant and co-generation projects to Raytheon is in
excess of $200 million.
- - During the year, Raytheon Engineers & Constructors received a turnkey contract
valued in excess of $100 million from Fina Oil and Chemical Company for a major
expansion project in Texas. Raytheon is providing engineering, procurement, and
construction services for a 400 million-pound-per-year high density polyethylene
plant in Bayport, Texas.
- - Raytheon received two contracts from the Norwegian State Owned Oil Company
(Statoil) to upgrade and expand its on-shore oil and gas treatment facilities.
Raytheon will provide engineering, procurement, and construction services to
upgrade a crude oil unit and build a natural gas liquids fractionation facility
at Statoil's Mongstad, Norway, refinery. Gas storage caverns also will be
constructed. The value to Raytheon is $138 million. Raytheon has worked on five
projects for Statoil during the past several years.
- - Also in Norway, Raytheon was awarded a $160 million contract from Norsk Hydro
for new crude oil processing facilities in Sture. Raytheon will provide
engineering, procurement, construction, and commissioning services. The new
facilities will process crude oil to certain specifications and separate other
products, such as liquefied petroleum gas.
- - Work continued on a grassroots cumene facility and on expansion of a phenol
unit for Caprolactam Leuna GmbH (CAPROLEUNA) at its manufacturing complex in
Leuna, Germany. Raytheon is providing turnkey engineering, procurement, and
construction services for both the cumene and phenol facilities. Cumene and
phenol are chemical intermediates. Raytheon is also providing proprietary
Mobil/Badger cumene process technology, which is a highly advanced technology
for the production of cumene. Cumene is feedstock for the phenol unit; the
phenol is used to produce caprolactam, a raw material for a nylon which
CAPROLEUNA uses to make rugs.
<PAGE>
21
- - During the year, Raytheon completed work on a paraxylene plant in Ulsan,
Korea, for Yukong, now known as SK Ltd. Mechanical completion of the plant was
achieved just 18 months after project launch and six months ahead of the normal
time required to complete a project of comparable scope. Paraxylene is used in
the production of synthetic textile fibers and plastic bottles.
- - New orders included a turnkey contract for a major pharmaceutical project for
Merck in Ballydine, Ireland. Raytheon will provide engineering, procurement, and
construction services for the facility, which is an expansion of Merck's
existing Ballydine facility.
- - An agreement was reached for Raytheon Engineers & Constructors to provide
design, engineering, and construction services for Coca-Cola production and
distribution facilities worldwide. In the first award under the agreement,
Raytheon received a $17.5 million contract from Coca-Cola Femsa, S.A. de C.V. to
provide complete engineering, procurement, and construction services for a major
new production and bottling facility in Toluca, Mexico, approximately 35 miles
from Mexico City.
- - Raytheon also received an award to provide engineering and construction
management services for an expansion of Procter & Gamble's Pringles(R)
potato-chip factory in Mechelen, Belgium.
- - Groundbreaking ceremonies were held in the spring of 1997 at the New Jersey
site of the Hudson-Bergen Light Rail Transit System being built by Raytheon
Engineers & Constructors. Preparatory work includes clearing operations, new
drainage, building retaining walls, and rebuilding bridges. The project is
moving ahead on schedule. The Raytheon-led team for the $1.1 billion project
will design, build, operate, and maintain the 9.5 mile line between Hudson and
Bergen counties in northern New Jersey. The rail line is expected to carry
25,000 passengers daily when it opens in the year 2000.
- - Raytheon, as part of a consortium with Mitsubishi, was awarded a lump-sum,
turnkey contract for a new 1,200-megawatt, gas-fired power plant to be built at
the British Petroleum Chemicals complex in Hull, England. Under the contract
with Entergy Power Group, Raytheon will provide engineering, procurement,
construction, start-up, and commissioning services. Raytheon's portion of the
work is valued at $204 million.
- - Other power project work in progress includes a 100-megawatt coal-fired power
plant for Tangshan/Sithe Thermal Power Company Limited, a joint venture between
Sithe China Holdings Limited and the Tangshan District Heating Company for a
plant in Tangshan, 200 kilometers east of Beijing. The plant will provide both
electricity and heat. The project is the first time a western firm is serving as
a turnkey contractor using Chinese equipment and labor exclusively. The plant is
scheduled to begin operations in 1998.
<PAGE>
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- - Raytheon Engineers & Constructors is a world leader in constructing facilities
to destroy chemical weapons. The company won a multi-year contract valued at
$567 million to construct and operate a chemical weapons destruction facility at
the Umatilla Army Depot in Umatilla, Ore. Construction began in 1997. Raytheon
was selected to provide overall management of the project, including
construction, procurement, startup, and operations and maintenance services.
- - Raytheon continues to operate the Army's chemical weapons destruction facility
in the Pacific, under a $500 million, five-year
award received in 1996. The Johnston Atoll Chemical Agent Disposal System is the
world's first full-scale chemical weapons destruction facility.
- ------------------------
IRIDIUM is a registered trademark and service mark of Iridium LLC. Globalstar is
a trademark of Loral Qualcomm Satellite Services, Incorporated. Pringles is a
registered trademark of The Procter & Gamble Company.
- end -
