<PAGE>
1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q/A
/X/ Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended July 4, 1999
/ / Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from
............ to ...............
Commission File Number 1-13699
RAYTHEON COMPANY
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 95-1778500
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
141 SPRING STREET, LEXINGTON, MASSACHUSETTS 02421
(Address of Principal Executive Offices) (Zip Code)
(781) 862-6600
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes /x/ No / /
Number of shares of common stock outstanding as of July 4, 1999: 337,668,000,
consisting of 100,805,000 shares of Class A common stock and 236,863,000 shares
of Class B common stock.
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2
RAYTHEON COMPANY
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
BALANCE SHEETS
(Unaudited)
July 4, 1999 Dec. 31, 1998
(Restated) (Restated)
------------ -------------
(In millions)
ASSETS
Current assets
Cash and cash equivalents $ 108 $ 421
Accounts receivable, less
allowance for doubtful accounts 913 618
Contracts in process 5,478 4,859
Inventories 2,142 1,991
Deferred federal and foreign income taxes 700 840
Prepaid expenses and other current assets 290 236
------- ------
Total current assets 9,631 8,965
Property, plant, and equipment, net 2,275 2,275
Goodwill, net 14,193 14,396
Other assets, net 2,807 2,596
------- -------
Total assets $28,906 $28,232
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Notes payable and current portion
of long-term debt $ 2,090 $ 827
Advance payments, less contracts in
process 1,180 1,251
Accounts payable 1,902 2,071
Accrued salaries and wages 655 703
Other accrued expenses 1,839 2,180
------- -------
Total current liabilities 7,666 7,032
Accrued retiree benefits and other
long-term liabilities 1,697 1,679
Deferred federal and foreign income taxes 600 561
Long-term debt 7,790 8,163
Stockholders' equity 11,153 10,797
------- -------
Total liabilities and
stockholders' equity $28,906 $28,232
======= =======
The accompanying notes are an integral part of the financial statements.
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3
RAYTHEON COMPANY
STATEMENTS OF INCOME (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
July 4, June 28, July 4, June 28,
1999 1998 1999 1998
(Restated) (Restated) (Restated) (Restated)
------------ ------------ ------------ ------------
(In millions except per share amounts)
<S> <C> <C> <C> <C>
Net sales $ 5,210 $ 5,037 $10,235 $ 9,730
-------- -------- ------- --------
Cost of sales 4,029 3,910 7,995 7,566
Administrative and selling expenses 402 456 744 802
Research and development expenses 135 154 246 298
-------- -------- ------- --------
Total operating expenses 4,566 4,520 8,985 8,666
-------- -------- ------- --------
Operating income 644 517 1,250 1,064
-------- --------- ------- --------
Interest expense, net 176 182 353 353
Other income, net (11) (99) (5) (102)
-------- -------- ------- --------
Non-operating expense, net 165 83 348 251
-------- -------- ------- --------
Income before taxes 479 434 902 813
Federal and foreign income taxes 189 171 354 322
-------- -------- ------- --------
Income before accounting change 290 263 548 491
Cumulative effect of change in
accounting principle, net of tax -- -- 53 --
-------- -------- ------- --------
Net income $ 290 $ 263 $ 495 $ 491
======== ========= ======= ========
Earnings per share before
accounting change
Basic $ 0.86 $ 0.78 $ 1.63 $ 1.45
Diluted $ 0.84 $ 0.77 $ 1.60 $ 1.43
Earnings per share
Basic $ 0.86 $ 0.78 $ 1.47 $ 1.45
Diluted $ 0.84 $ 0.77 $ 1.45 $ 1.43
Dividends declared per common share $ 0.20 $ 0.20 $ 0.40 $ 0.40
The accompanying notes are an integral part of the financial statements.
</TABLE>
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4
RAYTHEON COMPANY
STATEMENTS OF CASH FLOWS (Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
July 4, 1999 June 28, 1998
(Restated) (Restated)
------------- -------------
(In millions)
<S> <C> <C>
Cash flows from operating activities
Net income $ 495 $ 491
Adjustments to reconcile net income to net cash
used in operating activities, net of the effect of
acquisitions and divestitures
Depreciation and amortization 345 393
Net gain on sale of operating units (9) (94)
(Increase) decrease in accounts receivable (290) 20
Increase in contracts in process (629) (725)
Increase in inventories (205) (210)
Decrease in current deferred federal and foreign
income taxes 140 269
(Increase) decrease in prepaid expenses and
other current assets (54) 6
(Decrease) increase in advance payments (70) 69
(Decrease) increase in accounts payable (166) 15
Decrease in accrued salaries and wages (46) (31)
Decrease in other accrued expenses (347) (330)
Other adjustments, net 28 (37)
------- -------
Net cash used in operating activities (808) (164)
------- -------
Cash flows from investing activities
Sale of financing receivables 484 392
Origination of financing receivables (587) (496)
Collection of financing receivables not sold 34 29
Expenditures for property, plant, and equipment (181) (241)
Increase in other assets (52) (2)
Payment for purchase of acquired companies -- (86)
Proceeds from sales of operating units and
investments 54 406
------- -------
Net cash (used in) provided by investing activities (248) 2
------- -------
Cash flows from financing activities
Dividends (134) (136)
Increase (decrease) in short-term debt 888 (1,220)
Increase in long-term debt 2 1,588
Purchase of treasury shares (147) (94)
Proceeds under common stock plans 134 45
------- -------
Net cash provided by financing activities 743 183
------- -------
Net (decrease) increase in cash and cash equivalents (313) 21
Cash and cash equivalents at beginning of year 421 296
------- -------
Cash and cash equivalents at end of period $ 108 $ 317
======= =======
The accompanying notes are an integral part of the financial statements.
</TABLE>
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5
RAYTHEON COMPANY
NOTES TO FINANCIAL STATEMENTS (Unaudited)
1. Basis of Presentation
The accompanying unaudited financial statements of Raytheon Company (the
"Company") have been prepared on substantially the same basis as the Company's
annual consolidated financial statements. These interim unaudited financial
statements should be read in conjunction with the Company's Annual Report on
Form 10-K/A for the year ended December 31, 1998. The information furnished has
been prepared from the accounts without audit. In the opinion of management,
these financial statements reflect all adjustments, which are of a normal
recurring nature, necessary for a fair presentation of the financial statements
for the interim periods. Certain prior year amounts have been reclassified to
conform with the current year presentation.
2. Restatement of Financial Statements
On December 6, 1999, the SEC issued Staff Accounting Bulletin No. 101, Revenue
Recognition in Financial Statements (SAB 101), which among other guidance,
clarifies certain conditions to be met in order to recognize revenue. After
reexamining the terms underlying certain transactions of Raytheon Aircraft, the
Company has determined that revenue related to these transactions should be
reversed. In view of the cumulative effect of the unrecorded adjustment on the
results of future periods, the Company has restated its annual and quarterly
consolidated financial statements. The restatements were required to reverse
sales that the Company believed were properly recorded as bill and hold sales
when the manufacturing process was substantially complete and the rights of
ownership of the aircraft had passed to the buyer, but before minor
modifications had been completed and the physical delivery of the aircraft
occurred. The restated financial statements reflect sales when final delivery of
the aircraft occurred. As these adjustments relate to the timing of revenue
recognition all reversals are recognized in later periods. The financial
statements and related notes set forth in this Form 10-Q/A reflect all such
restatements. A summary of the impact of the restatements for the periods ended
July 4, 1999 and June 28, 1998 follows (in millions except per share amounts):
Results of Operations
- ---------------------
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
July 4, 1999 June 28, 1998
---------------------------- ----------------------------
Previously As Previously As
Reported Restated Reported Restated
<S> <C> <C> <C> <C>
Net sales $ 5,202 $ 5,210 $ 5,078 $ 5,037
Cost of sales 4,015 4,029 3,939 3,910
Operating income 650 644 529 517
Net income 294 290 270 263
Diluted earnings per share $ 0.86 $ 0.84 $ 0.79 $ 0.77
<CAPTION>
Six Months Ended Six Months Ended
July 4, 1999 June 28, 1998
---------------------------- ----------------------------
Previously As Previously As
Reported Restated Reported Restated
<S> <C> <C> <C> <C>
Net Sales $10,105 $10,235 $ 9,652 $ 9,730
Cost of sales 7,885 7,995 7,497 7,566
Operating income 1,230 1,250 1,055 1,064
Net income 482 495 484 491
Diluted earnings per share $ 1.41 $ 1.45 $ 1.41 $ 1.43
<CAPTION>
Financial Position
- ------------------
July 4, 1999 December 31, 1998
---------------------------- ----------------------------
Previously As Previously As
Reported Restated Reported Restated
<S> <C> <C> <C> <C>
Inventories $ 1,969 $ 2,142 $ 1,711 $ 1,991
Deferred taxes 675 700 809 840
Current assets 9,416 9,631 8,637 8,965
Total assets 28,726 28,906 27,939 28,232
Advanced payments 926 1,180 865 1,251
Accounts payable 1,921 1,902 2,091 2,071
Other accrued expenses 1,848 1,839 2,194 2,180
Current liabilities 7,440 7,666 6,680 7,032
Stockholders' equity 11,199 11,153 10,856 10,797
</TABLE>
3. Restructuring
During the first six months of 1999, the Company's activity related to
previously announced restructuring initiatives at the Electronics businesses
and Raytheon Engineers & Constructors (RE&C) was as follows:
<TABLE>
<CAPTION>
Electronics Electronics RE&C
Exit Costs Restructuring Restructuring
------------------- ------------------- --------------------
(In millions except employee data)
<S> <C> <C> <C>
Accrued liability at December 31, 1998 $ 399 $ 164 $ 66
------------ ------------- --------------
Costs incurred
Severance and other employee related costs 49 14 34
Facility closure and related costs 124 17 6
------------ ------------- --------------
173 31 40
------------ ------------- --------------
Accrued liability at July 4, 1999 $ 226 $ 133 $ 26
============ ============= ==============
Cash expenditures $ 173 $ 31 $ 40
Number of employee terminations due to
restructuring actions during the first
six months of 1999 1,000 500 300
Number of square feet exited due to
restructuring actions during the first
six months of 1999 0.9 0.5 0.1
</TABLE>
The Company also incurred $72 million of period and capital expenditures during
the six months ended July 4, 1999 related to RSC restructuring initiatives.
The cumulative number of employee terminations due to restructuring actions for
Electronics exit costs, Electronics restructuring, and RE&C restructuring was
4,600, 3,500, and 1,600, respectively. The cumulative number of square feet
exited due to restructuring actions for Electronics exit costs, Electronics
restructuring, and RE&C restructuring was 3.3 million, 1.4 million, and 1.0
million, respectively.
<PAGE>
6
4. Business Segment Reporting
The Company operates in three major business areas: Electronics, both defense
and commercial, Engineering and Construction, and Aircraft. In the first quarter
of 1999, the Company completed a reorganization of certain business segments
within Total Electronics to better align the operations with customer needs.
Prior year segment results have been restated to reflect this change. Segment
financial results were as follows:
<TABLE>
<CAPTION>
Sales Operating Income
Three Months Ended Three Months Ended
July 4, 1999 June 28,1998 July 4,1999 June 28, 1998
(Restated) (Restated) (Restated) (Restated)
------------- ------------ ------------ -------------
(In millions)
<S> <C> <C> <C> <C>
Defense Systems $ 1,399 $ 1,273 $ 235 $ 196
Sensors and Electronic Systems 637 756 108 125
Command, Control, Communication, and
Information Systems 952 902 134 62
Aircraft Integration Systems, Training
and Services, Commercial Electronics,
and Other 833 890 78 43
-------- -------- --------- ---------
Total Electronics 3,821 3,821 555 426
Engineering and Construction 650 618 20 30
Aircraft 739 598 69 61
-------- -------- --------- =========
Total $ 5,210 $ 5,037 $ 644 $ 517
======== ========= ========= =========
Sales Operating Income
Six Months Ended Six Months Ended
July 4, 1999 June 28, 1998 July 4, 1999 June 28, 1998
(Restated) (Restated) (Restated) (Restated)
------------ ------------- ------------ -------------
(In millions)
Defense Systems $ 2,657 $ 2,450 $ 454 $ 372
Sensors and Electronic Systems 1,385 1,397 234 230
Command, Control, Communication, and
Information Systems 1,857 1,773 238 147
Aircraft Integration Systems, Training
and Services, Commercial Electronics,
and Other 1,633 1,772 147 136
------- -------- -------- --------
Total Electronics 7,532 7,392 1,073 885
Engineering and Construction 1,342 1,162 50 63
Aircraft 1,361 1,176 127 116
------- -------- -------- --------
Total $10,235 $ 9,730 $ 1,250 $ 1,064
======= ======== ======== ========
</TABLE>
<PAGE>
7
Identifiable Assets
July 4, 1999 Dec. 31, 1998
(Restated) (Restated)
------------ -------------
(In millions)
Defense Systems $ 2,549 $ 2,286
Sensors and Electronic Systems 1,926 1,823
Command, Control, Communication, and
Information Systems 1,688 1,641
Aircraft Integration Systems, Training
and Services, Commercial Electronics,
and Other 2,166 1,993
Unallocated Electronics Items 13,131 13,032
------- ------
Total Electronics 21,460 20,775
Engineering and Construction 1,563 1,478
Aircraft 3,016 2,667
Corporate 2,867 3,312
------- -------
Total $28,906 $28,232
======= =======
Identifiable assets attributed to Unallocated Electronics Items primarily
consist of goodwill and prepaid pension. While these assets have not been
allocated back to the segments, the associated income statement impact,
including goodwill amortization, has been included in the determination of the
Electronics businesses operating income.
5. Inventories
Inventories consisted of the following at:
July 4, 1999 Dec. 31, 1998
(Restated) (Restated)
------------ -------------
(In millions)
Inventories
Finished goods $ 239 $ 317
Work in process 1,437 1,315
Materials and purchased parts 615 507
Excess of current cost
over LIFO values (149) (148)
------ ------
Total inventories $2,142 $1,991
====== ======
6. Special Purpose Entities
In connection with the sale of receivables, the following special purpose
entities have been established as of July 4, 1999, Raytheon Receivables, Inc.,
Raytheon Aircraft Receivables Corporation, and Raytheon Engineers & Constructors
Receivables Corporation. The balance of receivables sold to banks or financial
institutions outstanding at July 4, 1999 was $2,947 million. No material gain or
loss resulted from the sales of receivables.
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8
7. Stockholders' Equity
Stockholders' equity consisted of the following at:
July 4, 1999 Dec. 31, 1998
(Restated) (Restated)
------------ -------------
(In millions)
Preferred stock, no outstanding shares $ -- $ --
Class A common stock, outstanding shares 1 1
Class B common stock, outstanding shares 2 2
Additional paid-in capital 6,418 6,272
Accumulated other comprehensive income (49) (50)
Treasury stock (408) (257)
Retained earnings 5,189 4,829
------- -------
Total stockholders' equity $11,153 $10,797
======= =======
Common stock outstanding 337.7 336.8
======= =======
During the first half of 1999, outstanding shares were reduced by the repurchase
of 2.5 million shares offset by an increase of 3.4 million shares due to
stock-based compensation plan activity.
Share information used to calculate earnings per share (EPS) is as follows:
Three Months Ended Six Months Ended
July 4, June 28, July 4, June 28,
1999 1998 1999 1998
-------- -------- ------- -------
(In thousands)
Average common shares
outstanding for basic EPS 336,885 338,366 336,620 338,458
Dilutive effect of stock plans 6,795 4,772 5,187 4,657
------- ------- ------- -------
Average common shares
outstanding for diluted EPS 343,680 343,138 341,807 343,115
======= ======= ======= =======
Options to purchase 0.1 million shares of common stock for the three months
ended July 4, 1999 and June 28, 1998 and options to purchase 6.4 million and 6.1
million shares of common stock for the six months ended July 4, 1999 and June
28, 1998, respectively did not affect the computation of diluted EPS. The
exercise prices for these options were greater than the average market price of
the Company's common stock during the respective periods.
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9
The components of other comprehensive income for the Company generally include
foreign currency translation adjustments, minimum pension liability adjustments,
and unrealized gains and losses on marketable securities classified as
available-for-sale. The computation of comprehensive income is as follows:
Three Months Ended Six Months Ended
July 4, June 28, July 4, June 28,
1999 1998 1999 1998
(Restated) (Restated) (Restated) (Restated)
---------- ---------- ---------- ----------
(In millions)
Net income $290 $263 $495 $491
Other comprehensive income (7) (5) 1 (21)
---- ---- ---- ----
Total comprehensive income $283 $258 $496 $470
==== ==== ==== ====
8. Change in Accounting Principle
Effective January 1, 1999, the Company adopted the American Institute of
Certified Public Accountants Statement of Position 98-5, Reporting on the Costs
of Start-Up Activities (SOP 98-5). This accounting standard requires that
certain start-up and pre-contract award costs be expensed as incurred. During
the first quarter of 1999, the Company recorded a charge of $53 million or $0.16
per diluted share, reflecting the initial application of SOP 98-5 and the
cumulative effect of the change in accounting principle as of January 1, 1999.
9. Subsequent Events
In July 1999, the Company announced it had reached an agreement to sell its
Cedarapids, Inc. subsidiary for approximately $170 million in cash.
In July 1999, the Company filed a shelf registration with the Securities and
Exchange Commission registering the possible future issuance of up to $3.0
billion in debt and/or equity securities. This filing is not yet effective.
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Consolidated Results of Operations - Second quarter 1999 compared with second
quarter 1998
On December 6, 1999, the SEC issued Staff Accounting Bulletin No. 101, Revenue
Recognition in Financial Statements (SAB 101), which among other guidance,
clarifies certain conditions to be met in order to recognize revenue. After
reexamining the terms underlying certain transactions of Raytheon Aircraft, the
Company has determined that revenue related to these transactions should be
reversed. In view of the cumulative effect of the unrecorded adjustment on the
results of future periods, the Company has restated its annual and quarterly
consolidated financial statements. The restatements were required to reverse
sales that the Company believed were properly recorded as bill and hold sales
when the manufacturing process was substantially complete and the rights of
ownership of the aircraft had passed to the buyer, but before minor
modifications had been completed and the physical delivery of the aircraft
occurred. The restated financial statements reflect sales when final delivery
of the aircraft occurred. As these adjustments relate to the timing of revenue
recognition all reversals are recognized in later periods. The financial
statements and related notes set forth in this Form 10-Q/A reflect all such
restatements.
Net sales for the second quarter of 1999 were $5.2 billion versus $5.0 billion
for the same period in 1998. Sales to the U.S. Department of Defense were 52
percent of sales for the second quarter of 1999 versus 55 percent of sales for
the second quarter of 1998. Total second quarter 1999 and 1998 sales to the U.S.
government, including foreign military sales, were 61 percent and 66 percent of
sales, respectively. Total international sales, including foreign military
sales, were 27 percent of sales for the second quarter of 1999 versus 26 percent
of sales for the second quarter of 1998.
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10
Gross margin for the second quarter of 1999 was $1,181 million or 22.7 percent
of sales versus $1,127 million or 22.4 percent of sales for the second quarter
of 1998. The increase in margin as a percent of sales was primarily attributable
to the Electronics businesses due to restructuring related cost reductions and
sales mix.
Administrative and selling expenses were $402 million or 7.7 percent of sales
for the second quarter of 1999 versus $456 million or 9.1 percent of sales for
the second quarter of 1998. Excluding the 1998 special charges of $84 million,
administrative and selling expenses were $372 million or 7.4 percent of sales
for the second quarter of 1998. The increase in administrative and selling
expenses is primarily due to increases in variable stock-based compensation
charges and start-up activities associated with the Company's Six Sigma
initiatives.
Research and development expenses decreased to $135 million or 2.6 percent of
sales for the second quarter of 1999 versus $154 million or 3.1 percent of sales
for the second quarter of 1998. The decrease in research and development
expenses was due primarily to the elimination of duplicate research and
development processes within Raytheon Systems Company (RSC) and the timing of
expenditures during the year.
Operating income was $644 million or 12.4 percent of sales for the second
quarter of 1999 versus $517 million or 10.3 percent of sales for the second
quarter of 1998. Excluding the 1998 special charges, operating income was $601
million or 11.9 percent of sales. The changes in operating income by segment are
discussed below.
Interest expense, net for the second quarter of 1999 was $176 million compared
to $182 million for the second quarter of 1998.
Other income, net for the second quarter of 1999 was $11 million versus $99
million for the second quarter of 1998, which included a $94 million pretax gain
from divestitures.
The effective tax rate was 39.5 percent for the second quarter of 1999 versus
39.4 percent for the second quarter of 1998. The effective tax rate reflects
primarily the United States statutory rate of 35 percent reduced by foreign
sales corporation tax credits and research and development tax credits
applicable to certain government contracts, increased by non-deductible
amortization of goodwill.
Net income was $290 million for the second quarter of 1999, or $0.84 per diluted
share on 343.7 million average shares outstanding versus net income of $263
million for the second quarter of 1998, or $0.77 per diluted share on 343.1
million average shares outstanding.
Total employment was approximately 108,100 at July 4, 1999, approximately
108,200 at December 31, 1998, and approximately 114,900 at June 28, 1998. The
decreases are primarily a result of the continuing restructuring initiatives at
RSC and Raytheon Engineers & Constructors (RE&C), offset by the recruitment of
employees for critical technical skills in support of new business.
<PAGE>
11
The Electronics businesses reported second quarter 1999 sales of $3.8 billion,
unchanged from the same period a year ago and operating income of $555 million
or 14.5 percent of sales versus $426 million or 11.1 percent of sales for the
same period a year ago. Excluding the 1998 special charges, operating income was
$510 million or 13.3 percent of sales. The increase in operating income as a
percent of sales was primarily a result of decreases in cost of sales and
research and development expenses made in conjunction with the restructuring
initiatives at RSC.
Defense Systems reported second quarter 1999 sales of $1.4 billion, an increase
from $1.3 billion for the same period a year ago. Operating income was $235
million for the second quarter of 1999 versus $196 million for the second
quarter of 1998. Operating margin was 16.8 percent for the second quarter of
1999 versus 15.4 percent for the second quarter of 1998. The increase in
operating margin was primarily due to sales mix and lower costs as a result of
restructuring actions.
Sensors and Electronic Systems reported sales of $637 million in the second
quarter of 1999, compared to $756 million for the second quarter of 1998.
Operating income was $108 million for the second quarter of 1999 versus $125
million for the same period a year ago. Operating margin was 17.0 percent for
the second quarter of 1999 versus 16.5 percent for the second quarter of 1998.
The decrease in sales is primarily due to program terminations and divestitures.
Command, Control, Communication, and Information Systems reported sales for the
second quarter of 1999 of $952 million compared to sales of $902 million for the
second quarter of 1998. Operating income was $134 million for the second quarter
of 1999 versus $62 million for the second quarter of 1998. Operating margin was
14.1 percent for the second quarter of 1999 versus 6.9 percent for the second
quarter of 1998. The increase in operating margin was primarily due to favorable
resolution of claim settlements in the current quarter. In addition, the prior
year was negatively affected by charges on international air traffic control
programs.
Aircraft Integration Systems, Training and Services, Commercial Electronics, and
Other reported sales of $833 million for the second quarter of 1999 versus $890
million for the second quarter of 1998. Operating income was $78 million for the
second quarter of 1999 versus $43 million for the second quarter of 1998.
Operating margin was 9.4 percent for the second quarter of 1999 versus 4.8
percent for the second quarter of 1998. The decrease in sales was a result of
the divestiture of the commercial laundry business in the second quarter of
1998. The increase in operating margin was primarily due to the 1998 special
charges of $84 million offset by higher margin programs completed in the prior
year.
During 1998, the Company announced plans to reduce the workforce and close
facilities in conjunction with RSC's consolidation and reorganization. The
Company expects to face continuing competitive pressures and the need to be
active in cost management. In light of these ongoing challenges, the Company is
evaluating additional cost reduction actions to protect its competitive position
and maintain its historical levels of profitability at RSC.
RE&C reported second quarter 1999 operating income of $20 million on sales of
$650 million, compared to second quarter 1998 operating income of $30 million on
sales of $618 million. Project delays, cancellations, and cost growth
contributed to the erosion in operating margin from 4.9 percent of sales a year
ago to 3.1 percent of sales for the quarter. The Company expects that the
difficulties encountered in the second quarter will continue into the second
half of the year.
During 1998, the Company announced plans to reduce the RE&C workforce and reduce
facility space and recorded $108 million of restructuring charges. The Company
will essentially complete these actions during 1999. Based on current estimates,
the Company expects to incur approximately $10 million less than the plan due to
lower facility exit costs. In the second quarter of 1999, the Company
implemented additional restructuring plans to further reduce the RE&C workforce
by approximately 200 employees at a cost of $10 million. The Company expects to
face continuing competitive pressures and the need to be active in cost
management. In light of these ongoing challenges, the Company is evaluating
additional cost reduction actions at RE&C.
Raytheon Aircraft reported second quarter 1999 sales of $739 million versus $598
million for the same period a year ago and operating income of $69 million or
9.3 percent of sales versus $61 million or 10.2 percent of sales for the same
period a year ago. The increase in sales is due to increased demand for mid-size
corporate jets. The decline in operating margin as a percent of sales was due to
increased research and development expenses for two new aircraft, the Premier I
and Hawker Horizon. Also contributing to the decrease in operating margin as a
percent of sales was the divestiture of the Raytheon Aircraft Montek subsidiary
in the fourth quarter of 1998.
<PAGE>
12
Six months 1999 versus six months 1998
Net sales for the first six months of 1999 were $10.2 billion, an increase of
5 percent versus $9.7 billion for the same period in 1998. Sales to the U.S.
Department of Defense were 53 percent of sales for the first six months of 1999
versus 55 percent of sales for the first six months of 1998. Total sales to the
U.S. government during the first six months of 1999 and 1998, including foreign
military sales, were 62 percent and 65 percent of sales, respectively. Total
international sales, including foreign military sales, were 27 percent of sales
for the first six months of 1999 versus 26 percent of sales for the same period
in 1998.
Gross margin for the first six months of 1999 was $2,240 million or 21.9 percent
of sales versus $2,164 million or 22.2 percent of sales for the first six months
of 1998. The decrease in margin as a percent of sales was attributable to the
sales mix at Aircraft and lower margins at RE&C, partially offset by higher
margins at the Electronics businesses due to restructuring related cost
reductions and sales mix.
Administrative and selling expenses were $744 million or 7.3 percent of sales
for the first six months of 1999 versus $802 million or 8.2 percent of sales for
the first six months of 1998. Excluding the 1998 special charges of $84 million,
administrative and selling expenses were $718 million or 7.4 percent of sales
for the first six months of 1998.
Research and development expenses decreased to $246 million or 2.4 percent of
sales for the first six months of 1999 from $298 million or 3.1 percent of sales
for the first six months of 1998. The decrease in research and development
expenses was due primarily to the elimination of duplicate research and
development processes within RSC and the timing of expenditures during the year.
Operating income was $1,250 million or 12.2 percent of sales for the first six
months of 1999 versus $1,064 million or 10.9 percent of sales for the first six
months of 1998. Excluding the 1998 special charges, operating income was $1,148
million or 11.8 percent of sales. The changes in operating income by segment are
discussed below.
Interest expense, net was $353 million for both the first six months of 1999 and
1998.
Other income, net for the first six months of 1999 was $5 million versus
$102 million for the first six months of 1998, which included a $94 million
pretax gain from divestitures.
The effective tax rate was 39.2 percent for the first six months of 1999 versus
39.6 percent for the first six months of 1998. The effective tax rate reflects
primarily the United States statutory rate of 35 percent reduced by foreign
sales corporation tax credits and research and development tax credits
applicable to certain government contracts, increased by non-deductible
amortization of goodwill.
Effective January 1, 1999, the Company adopted the American Institute of
Certified Public Accountants Statement of Position 98-5, Reporting on the Costs
of Start-Up Activities (SOP 98-5). This accounting standard requires that
certain start-up and pre-contract award costs be expensed as incurred. During
the first quarter of 1999, the Company recorded a charge of $53 million or $0.16
per diluted share, reflecting the initial application of SOP 98-5 and the
cumulative effect of the change in accounting principle as of January 1, 1999.
<PAGE>
13
Income before accounting change was $548 million for the first six months of
1999, or $1.60 per diluted share on 341.8 million average shares outstanding
versus net income of $491 million for the first six months of 1998, or $1.43 per
diluted share on 343.1 million average shares outstanding. Net income for the
first six months of 1999 was $495 million, or $1.45 per diluted share.
The Electronics businesses reported sales for the first six months of 1999 of
$7.5 billion versus $7.4 billion for the same period a year ago and operating
income of $1,073 million or 14.2 percent of sales compared with $885 million or
12.0 percent of sales for the same period a year ago. Excluding the 1998 special
charges, operating income was $969 million or 13.1 percent of sales. The
increase in operating income as a percent of sales was primarily a result of
decreases in cost of sales and research and development expenses made in
conjunction with the restructuring initiatives at RSC.
Defense Systems reported sales for the first six months of 1999 of $2.7 billion,
an increase from $2.5 billion for the same period a year ago. Operating income
increased to $454 million, or 17.1 percent of sales for the first six months of
1999 from $372 million, or 15.2 percent of sales for the first six months of
1998. The increase in operating margin was primarily due to sales mix and lower
costs as a result of restructuring actions.
Sensors and Electronic Systems reported sales of $1.4 billion for both the first
six months of 1999 and 1998. Operating income was $234 million, or 16.9 percent
of sales for the first six months of 1999 versus $230 million, or 16.5 percent
of sales for the same period a year ago.
Command, Control, Communication, and Information Systems reported sales of $1.9
billion for the first six months of 1999 versus $1.8 billion of sales for the
first six months of 1998. Operating income was $238 million, or 12.8 percent of
sales for the first six months of 1999 compared to $147 million or 8.3 percent
for the same period of 1998. The increase in operating margin was primarily due
to sales mix, prior year charges on international programs, and favorable claim
settlements.
Aircraft Integration Systems, Training and Services, Commercial Electronics, and
Other reported sales of $1.6 billion for the first six months of 1999, down from
$1.8 billion for the first six months of 1998. Operating income was $147
million, or 9.0 percent of sales compared to $136 million, or 7.7 percent of
sales for the same period a year ago. The decrease in sales was a result of the
divestiture of the commercial laundry business in the second quarter of 1998.
The increase in operating margin was primarily due to the 1998 special charges
of $84 million offset by higher margin programs completed in the prior year.
RE&C reported sales of $1.3 billion during the first six months of 1999 versus
$1.2 billion for the same period a year ago and operating income of $50 million
or 3.7 percent of sales, compared with $63 million or 5.4 percent of sales for
the same period a year ago. Project delays, cancellations, and cost growth
contributed to the erosion in operating margins. The Company expects that the
difficulties encountered during the first six months of 1999 will continue into
the second half of the year.
Raytheon Aircraft reported sales of $1.4 billion for the first six months of
1999 versus $1.2 billion for the same period a year ago and operating margin of
$127 million or 9.3 percent of sales, compared to $116 million or 9.9 percent of
sales for the same period a year ago. The increase in sales is due to increased
demand for mid-size corporate jets. The decline in operating margin as a percent
of sales was due to increased research and development expenses for two new
aircraft, the Premier I and Hawker Horizon. Also contributing to the decrease in
operating margin as a percent of sales was the divestiture of the Raytheon
Aircraft Montek subsidiary in the fourth quarter of 1998.
Backlog consisted of the following at:
July 4, Dec. 31, June 28,
1999 1998 1998
(Restated) (Restated) (Restated)
---------- ---------- ----------
(In millions)
Electronics $17,801 $17,648 $15,625
Engineering and Construction 3,498 3,888 2,691
Aircraft 3,440 2,509 2,335
------- ------- -------
Total backlog $24,739 $24,045 $20,651
======= ======= =======
U.S. government backlog
included above $14,159 $14,622 $11,589
======= ======= =======
<PAGE>
14
Backlog at Aircraft is up because of additional orders received for the Premier
I and Hawker Horizon aircraft. During the third quarter of 1998, the Company
changed its method of reporting backlog at certain locations in order to provide
a consistent method of reporting across and within the Company's businesses.
Backlog includes the full value of contract awards when received, excluding
awards and options expected in future periods. Prior to the change, contract
values which were awarded but incrementally funded were excluded from reported
backlog for some parts of the business. The one-time impact of this change was a
$1.1 billion increase to Electronics backlog and a $0.9 billion increase to
Engineering and Construction backlog, related principally to U.S. government
contracts. Prior periods have not been restated for this change.
The Company has an investment in Space Imaging L.P., a limited partnership
created to take advantage of opportunities in the geographical information
services market. The Company is also a partial guarantor of Space Imaging's
commercial bank debt. In April 1999, an attempt to launch a commercial imaging
satellite, which was to be operated by Space Imaging, failed. A second satellite
launch is scheduled in the third quarter of 1999. Failure of this launch could
have a material adverse effect on the Company's financial position and results
of operations. The Company has guaranteed 45 percent of Space Imaging's $300
million revolving credit facility. At July 4, 1999, the Company's investment in
and other assets related to Space Imaging totaled $71 million.
The Company is also a minor shareholder in Iridium LLC, which operates a
global satellite phone and paging service. Iridium has recently been
experiencing financial difficulty and filed for Chapter 11 protection from
creditors on August 13, 1999. At July 4, 1999, the Company's investment in and
other assets related to Iridium totaled $22 million.
Financial Condition and Liquidity
Net cash used in operating activities for the first six months of 1999 was $808
million versus $164 million for the first six months of 1998. The increase was
due principally to increased working capital requirements in the Electronics
businesses, costs associated with restructuring activities, and an increase in
inventory at Raytheon Aircraft. The first quarter 1999 delayed customer billings
of $57 million resulting from problems encountered during a new financial
software implementation were corrected in the second quarter of 1999. During the
first half of 1999, the Company incurred $316 million of restructuring-related
expenditures at RSC and RE&C combined, compared to $27 million during the same
period a year ago.
Net cash used in investing activities was $248 million for the first six months
of 1999 versus cash provided of $2 million for the first six months of 1998.
Origination and sale of financing receivables for the six months ended July 4,
1999 were $587 million and $484 million, respectively, versus orgination and
sale of financing receivables for the six months ended June 28, 1998 of $496
million and $392 million, respectively. Capital expenditures were $181 million
for the first six months of 1999 versus $241 million for the first six months of
1998. Capital expenditures including facilities consolidation for the full year
1999 are expected to be approximately $500 million. Proceeds from the sale of
operating units and investments was $54 million for the first six months of 1999
versus $406 million for the first six months of 1998. During the first six
months of 1998, the company made payments of $86 million for transaction-related
expenditures incurred in connection with the acquisition of Texas Instruments'
defense business and the merger with the defense business of Hughes Electronics
Corporation (Hughes Defense).
<PAGE>
15
The Company merged with Hughes Defense in December 1997. Pursuant to the terms
of the Master Separation Agreement (the "Separation Agreement"), which requires
an adjustment based on net assets, the final purchase price for Hughes Defense
has not been determined. Based on the terms and conditions of the Separation
Agreement, the Company believes that it is entitled to a reduction in purchase
price, a position that Hughes Electronics disputes. The Company and Hughes
Electronics have begun the process of negotiating a possible resolution of this
matter. If the matter is not successfully resolved through negotiation, the
Separation Agreement provides for binding arbitration. Accordingly, while the
Company expects a reduction in purchase price from the original terms of the
agreement, the amount, timing, and effect on the Company's financial position
are uncertain. As a result of this uncertainty, no amounts have been recorded in
the financial statements related to this gain contingency.
Net cash provided by financing activities was $743 million for the first six
months of 1999 versus $183 million for the first six months of 1998. Dividends
paid to stockholders in the first half of 1999 were $134 million versus $136
million in the first half of 1998. The quarterly dividend rate was $0.20 per
share for the first two quarters of both 1999 and 1998. Outstanding shares were
reduced by the repurchase of 2.5 million shares for $147 million during the
first six months of 1999 and 1.6 million shares for $94 million during the same
period a year ago. In March 1999, the Board of Directors authorized the
repurchase of up to six million shares of the Company's Class A and Class B
common stock over the next three years.
Total debt was $9.9 billion at July 4, 1999, compared to $9.0 billion at
December 31, 1998, and $10.4 billion at June 28, 1998.
In July 1999, the Company filed a shelf registration with the Securities and
Exchange Commission registering the possible future issuance of up to $3.0
billion in debt and/or equity securities. This filing is not yet effective.
Lines of credit with certain commercial banks exist as standby facilities to
support the issuance of commercial paper by the Company. The lines of credit
were $4.1 billion and $4.4 billion at July 4, 1999 and December 31, 1998,
respectively. At July 4, 1999 and December 31, 1998, there were no borrowings
under these lines of credit.
The Company's need for, cost of, and access to funds are dependent on future
operating results, as well as conditions external to the Company. The Company
believes that its financial position will be sufficient to maintain access to
the capital markets in order to support its current operations.
Quantitative and Qualitative Disclosures About Financial Market Risks
The following discussion covers quantitative and qualitative disclosures about
the Company's financial market risks. The Company's primary market exposures are
to interest rates and foreign exchange rates.
The Company meets its working capital requirements with a combination of
variable rate short-term and fixed rate long-term financing. The Company enters
into interest rate swap agreements with commercial banks primarily to reduce the
impact of changes in interest rates on short-term financing arrangements. The
Company also enters into foreign exchange contracts with commercial banks to
minimize fluctuations in the value of payments to international vendors and the
value of foreign currency denominated receipts. The market-risk sensitive
instruments used by the Company for hedging are entered into with commercial
banks and are directly related to a particular asset, liability, or transaction
for which a firm commitment is in place. The Company sells receivables through
various special purpose entities and retains a partial interest that may include
servicing rights, interest only strips, and subordinated certificates.
<PAGE>
16
Financial instruments held by the Company which are subject to interest rate
risk include notes payable, commercial paper, long-term debt, long-term
receivables, investments, and interest rate swap agreements. The aggregate
hypothetical loss in earnings for one year of those financial instruments held
by the Company at July 4, 1999 which are subject to interest rate risk resulting
from a hypothetical increase in interest rates of 10 percent is $1 million,
after-tax. The hypothetical loss was determined by calculating the aggregate
impact of a one-year increase of 10 percent in the interest rate of each
variable rate financial instrument held by the Company at July 4, 1999. Fixed
rate financial instruments were not evaluated, as the risk exposure is not
material.
Year 2000 Date Conversion
The Year 2000 problem concerns the inability of information systems to recognize
properly and process date-sensitive information beyond January 1, 2000.
In January 1998, the Company initiated a formal comprehensive enterprise-wide
program to identify and to resolve Year 2000 related issues. The scope of the
program includes the investigation of all Company functions and products and all
internally used hardware and software systems, including embedded systems in
what are not traditionally considered information technology systems. The
program has developed standard processes and an internal service center in
support of Year 2000 readiness. The Company is following an eight-step risk
management process grouped into two major phases, detection (planning and
awareness, inventory, triage, and detailed assessment) and correction
(resolution, test planning, test execution, and deployment).
The Company has identified the following eight system types that could have
risk: application, infrastructure, test equipment, engineering computing,
manufacturing, delivered product, facilities, and supply chain. The completion
of several large acquisitions in recent years through which the Company
inherited a significant number of systems, products, and facilities adds to the
complexity of this task.
The detection phase of the program, which covered all eight system types, has
been completed and 99 percent of the tasks in the corrective action phase to
resolve all identified Year 2000 issues for internally used hardware and
software systems has been completed. The Company expects to complete the
remaining corrective activities during the third quarter of 1999. The Company
has instituted and is executing a formal audit program to assess its state of
readiness. Also, the Company is assessing the risk of supplier readiness, and in
selected cases is reviewing the preparedness of individual suppliers for Year
2000.
On the basis of expected total cost, the corrective action phase is 76 percent
complete. A significant portion of the remaining costs are for the development
of contingency plans to augment existing disaster recovery plans and sourcing
strategies for identified risks. The Company expects to complete these
activities during the fourth quarter of 1999.
<PAGE>
17
Since January 1998, the Company has spent $100 million on the Year 2000 program,
$20 million on the detection phase, and $80 million on the corrective action
phase. Prior to 1998, expenditures on the program were insignificant. Total cost
at completion of the program is currently estimated to be $125 million. Of the
total $125 million estimated costs, $20 million relates to the detection phase
and $105 million is for correction. All costs, except those incurred for
long-lived assets, are expensed as incurred. These costs include employees,
inside and outside consultants and services, system replacements, and other
equipment requirements. Total estimated costs of the Year 2000 program are
predominantly internal; however, the Company has employed consultants in an
advisory capacity, primarily in the detection phase. Although a number of minor
information technology projects have been deferred as a result of the priority
given to the Year 2000 program, no significant projects which would materially
affect the Company's financial position or results of operations have been
delayed.
The Company currently expects to resolve all identified Year 2000 issues for
internally used hardware and software systems by the end of 1999; however, there
can be no assurances as to the ultimate success of the program. The Company
continues to assess its exposure attributable to external factors, including
uncertainties regarding the ability of critical suppliers to avoid Year 2000
related service and delivery interruptions. While the Company has no reason to
conclude that any specific supplier represents a significant Year 2000 risk, it
is currently unable to conclude that all of its critical suppliers will
successfully resolve all Year 2000 issues on a timely basis. The Company is
considering various contingency plans for problems that may result from a
critical supplier's inability to successfully resolve its Year 2000 issues. A
"reasonably likely worst case" scenario of Year 2000 risks for the Company could
include isolated interruption of deliveries from critical suppliers, increased
manufacturing costs until the problems are resolved, delayed product shipments,
lost revenues, lower cash receipts, and certain product liability issues. The
Company is unable to quantify the potential effect of these items which could
have a material adverse effect on its financial position or results of
operations should some combination of these events come to pass.
Accounting Standards
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities (SFAS No. 133). This accounting standard, which is
effective for all fiscal quarters of fiscal years beginning after June 15, 2000,
requires that all derivatives be recognized as either assets or liabilities at
estimated fair value. The adoption of SFAS No. 133 is not expected to have a
material effect on the Company's financial position or results of operations.
<PAGE>
18
Forward-Looking Statements
Statements which are not historical facts contained in this report are
forward-looking statements under the provisions of the Private Securities
Litigation Reform Act of 1995 that involve risks and uncertainties. These risks
include, in addition to the specific uncertainties referenced in this report,
the effect of worldwide political and market conditions, the impact of
competitive products and pricing, the timing of awards and contracts,
particularly international contracts, and risks inherent with large long-term
fixed price contracts. Further information regarding the factors that could
cause actual results to differ materially from projected results can be found in
"Item 1-Business" in Raytheon's Annual Report on Form 10-K for the year ended
December 31, 1998.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security-Holders
At the annual meeting of stockholders held on April 28, 1999, the
stockholders of the company took the following action:
1. The holders of Class A common stock and Class B common stock, voting
together as a single class, elected the following three directors for terms of
office expiring at the annual meeting of stockholders in the year 2002:
Name For Withhold
Daniel P. Burnham 950,166,851 6,097,436
John R. Galvin 950,080,680 6,183,607
Alfred M. Zeien 949,970,687 6,293,600
The following directors continued in office after the meeting: Ferdinand
Colloredo-Mansfeld, John M. Deutch, Thomas E. Everhart, L. Dennis Kozlowski,
James N. Land, Jr., Henrique de Campos Meirelles, Thomas L. Phillips, Dennis J.
Picard, and Warren B. Rudman.
2. The holders of Class A common stock and Class B common stock, voting as
separate classes, rejected a stockholder proposal which recommended that the
company adopt the CERES principles. The Class A vote was 5,188,591 for and
62,912,751 against, with 3,407,063 abstentions and 9,454,685 broker non-votes.
The Class B vote was 10,198,882 for and 145,854,292 against, with 12,461,386
abstentions and 31,149,639 broker non-votes.
3. The holders of Class A common stock and Class B common stock, voting as
separate classes, rejected a stockholder proposal which recommended that the
company prepare a comprehensive report on its foreign military sales. The Class
A vote was 1,008,521 for and 67,571,915 against, with 2,927,970 abstentions and
9,454,684 broker non-votes. The Class B vote was 5,719,181 for and 148,988,263
against, with 13,807,118 abstentions and 31,149,639 broker non-votes.
4. The holders of Class A common stock and Class B common stock, voting as
separate classes, rejected a stockholder proposal which recommended that the
entire Board of Directors be elected annually with at least a 70% majority of
independent directors. The Class A vote was 27,152,096 for and 43,835,799
against, with 520,479 abstentions and 9,454,717 broker non-votes. The Class B
vote was 76,709,831 for and 89,547,684 against, with 2,256,444 abstentions and
31,150,242 broker non-votes.
<PAGE>
19
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 10.1 Raytheon Company 1991 Stock Plan
Exhibit 10.2 Raytheon Company 1995 Stock Option Plan
Exhibit 27.1 Restated Financial Data Schedule for the period
ended July 4, 1999 (filed only electronically with
the Securities and Exchange Commission)
Exhibit 27.2 Restated Financial Data Schedule for the period
ended June 28, 1998 (filed only electronically with
the Securities and Exchange Commission)
(b) Reports on Form 8-K
None
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
RAYTHEON COMPANY (Registrant)
By: /s/ Franklyn A. Caine
Franklyn A. Caine
Senior Vice President and
Chief Financial Officer
By: /s/ Michele C. Heid
Michele C. Heid
Vice President and
Corporate Controller
(Chief Accounting Officer)
August 18, 1999
<PAGE>
Exhibit List
Exhibit No. Description
10.1 Raytheon Company 1991 Stock Plan
10.2 Raytheon Company 1995 Stock Option Plan
27.1 Restated Financial Data Schedule for the period
ended July 4, 1999
27.2 Restated Financial Data Schedule for the period
ended June 28, 1998
<PAGE>
1
EXHIBIT 10.1
Raytheon Company
1991 Stock Plan
as Amended October 26, 1994
Section 1. Establishment and Purpose
The Raytheon Company 1991 Stock Plan (the "1991 Plan"), for eligible
employees is established effective March 27, 1991, subject to stockholder
approval at the Corporation's 1991 Annual Meeting. The purpose of the Plan is to
attract and retain the best available talent and encourage the highest level of
performance by employees in order to enhance the profitable growth of the
Corporation and otherwise to serve the best interests of the Corporation and its
shareholders. By affording eligible employees the opportunity to acquire
proprietary interests in the Corporation and by providing them incentives to put
forth maximum efforts for the success of the Corporation's business, the 1991
Plan is expected to contribute to the attainment of those objectives. The
maximum number of shares of common stock as to which awards may be granted from
time to time under the 1991 Plan shall be 2,000,000. If for any reason, any
shares as to which an option has been granted cease to be subject to purchase
thereunder or any restricted shares or restricted units are forfeited to the
Corporation, or to the extent that any awards under the 1991 Plan denominated in
shares or units are paid or settled in cash or are surrendered upon the exercise
of an option, then (unless the 1991 Plan shall have been terminated) such shares
or units and any shares received by the Corporation upon the exercise of an
option, shall become available for subsequent awards under the 1991 Plan (to the
same employee who received the original award or to a different employee or
employees); provided, however, that shares received by the Corporation upon the
exercise of an incentive stock option shall not be available for the subsequent
award of additional incentive stock options under the 1991 Plan. Any shares
issued by the Corporation in respect of the assumption or substitution of
outstanding awards from a corporation or other business entity acquired by the
Corporation shall not reduce the number of shares available for awards under the
1991 Plan. No incentive stock option shall be granted hereunder more than ten
years after March 26, 1991. The Stock which may be issued under the 1991 Plan
may be authorized but unissued Stock or stock now or hereafter held by the
Corporation as Treasury Stock; such Stock may be acquired, subsequently or in
anticipation of the transaction, in the open market to satisfy the requirements
of the 1991 Plan.
Section 2. Definitions
The following terms, as used herein, shall have the meaning specified:
"Board of Directors" means the Board of Directors of Raytheon Company
as it may be comprised from time to time.
"Code" shall mean the Internal Revenue Code of 1986, as the same may be
amended from time to time. Reference in the 1991 Plan to any section of the Code
shall be deemed to include any amendments or successor provision to such section
and any regulations under such section.
<PAGE>
2
"Committee" shall mean the Compensation Committee of the Board of
Directors appointed to administer the Plan in accordance with Section 3.
"Corporation" means Raytheon Company including its affiliates and subsidiaries.
"Eligible Employees" Awards will be limited to officers and other
employees who are regular full-time employees of the Corporation. In determining
the employees to whom awards shall be granted and the number of shares or units
to be covered by each award, the Committee shall take into account the nature of
employees' duties, their present and potential contributions to the success of
the Corporation and such other factors as it shall deem relevant in connection
with accomplishing the purposes of the 1991 Plan. A director of the Corporation
or of a subsidiary who is not also a regular full-time employee will not be
eligible to receive an award.
"Option" shall mean any option granted under the 1991 Plan for the
purchase of common stock.
"Participant" means any eligible employee who is approved by the Committee to
participate in the 1991 Plan.
"Restricted Award" shall mean a Restricted Unit Award or a Restricted
Stock Award.
"Restricted Period" means the designated period of time during which
restrictions are in effect with respect to the Restricted Stock or Restricted
Units.
"Restricted Stock" means Stock contingently awarded to a Participant
under the 1991 Plan subject to the restrictions set forth in Sections 4 and 5.
"Restricted Stock Award" shall mean an award of common stock granted
under the restricted award provisions of the 1991 Plan.
"Restricted Units" are units to acquire shares of common stock (or in
the sole discretion of the Committee, cash as provided in Section 5.4) which are
restricted as provided in Section 5.
"Stock" means shares of common stock of Raytheon Company.
Section 3. Administration of the Plan
The 1991 Plan shall be administered by the Compensation Committee of
the Board of Directors of Raytheon Company. No member of this Committee shall be
a Participant in this Plan. If any member of the Committee shall at any time not
be a "disinterested person" or shall otherwise not qualify to administer the
1991 Plan as contemplated by Rule 16b-3, as amended, or other applicable rules
under Section 16(b) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), the 1991 Plan shall be administered by only those members of
the Committee who qualify as such disinterested persons or otherwise are so
qualified to administer the 1991 Plan in compliance with such rules.
<PAGE>
3
The Committee shall have plenary authority in its discretion, subject
to and not inconsistent with the express provisions of the 1991 Plan, to grant
options, to determine the purchase price of the common stock covered by each
option, the term of each option, the employees to whom, and the time or times at
which, options shall be granted and the number of shares to be covered by each
option; to designate options as incentive stock options or nonqualified options;
to grant restricted shares and restricted units and to determine the term of the
restricted period and other conditions applicable to such shares or units, the
employees to whom, and the time or times at which, restricted shares or
restricted units shall be granted and the number of shares or units to be
covered by each grant; to interpret the 1991 Plan; to prescribe, amend and
rescind rules and regulations relating to the 1991 Plan; to determine the terms
and provisions of the option agreements and the restricted share and restricted
unit agreements (which need not be identical) entered into in connection with
awards under the 1991 Plan; and to make all other determinations deemed
necessary or advisable for the administration of the 1991 Plan. The Committee
may delegate to one or more of its members or to one or more agents such
administrative duties as it may deem advisable, and the Committee or any person
to whom it has delegated duties as aforesaid may employ one or more persons to
render advice with respect to any responsibility the Committee or such person
may have under the 1991 Plan.
The Committee may employ attorneys, consultants, accountants or other
persons and the Committee, the Corporation and its officers and directors shall
be entitled to rely upon the advice, opinions or valuations of any such persons.
All actions taken and all interpretations and determinations made by the
Committee in good faith shall be final and binding upon all employees who have
received awards, the Corporation and all other interested persons. No member or
agent of the Committee shall be personally liable for any action, determination,
or interpretation made in good faith with respect to the 1991 Plan or awards
made thereunder, and all members and agents of the Committee shall be fully
protected by the Corporation in respect of any such action, determination or
interpretation.
Section 4. Award and Delivery of Restricted Stock or Restricted Units
4.1 At the time a Restricted Stock Award or Restricted Unit Award is
made, the Restricted Period applicable to such Restricted Stock Award or
Restricted Unit Award shall be established and shall not be less than one year
nor more than ten years. Each Restricted Award may have a different Restricted
Period. At the time a Restricted Award is made, conditions may be specified for
the incremental lapse of restrictions during the Restricted Period and for the
termination of restrictions upon the satisfaction of other conditions in
addition to or other than the expiration of the Restricted Period, including but
not limited to provisions related to a change of control, with respect to all or
any portion of the Restricted Stock or Restricted Units.
<PAGE>
4
4.2 All restrictions shall terminate with respect to all Restricted
Stock or Restricted Units upon the Participant's (i) death; or (ii) total
disability as evidenced by commencement and continuation for more than one year
of benefits under the Corporation's Long Term Disability Plan (or if not a
member of the Long Term Disability Plan the Participant would have been eligible
for benefits using Long Term Disability Plan standards); or (iii) retirement at
age 65 or later unless otherwise specified in the Restricted Award.
4.3 Each Restricted Award shall be evidenced by a written agreement
signed by the Participant and the Chief Executive Officer, or, in the case of a
Restricted Award to the Chief Executive Officer, by the Participant and by a
member of the Committee (the "award letter") which shall state the Restricted
Period and such other terms and conditions which may be applicable, including
payment by the Participant of the par value of the Restricted Stock upon
execution of the award letter (the "Purchase Price") if such payment is required
by state law.
Section 5. Restrictions
5.1 A stock certificate representing the number of shares of Restricted
Stock granted to a Participant shall be registered in the Participant's name but
shall be held in custody by the Corporation for the Participant's account. The
Participant shall generally have the rights and privileges of a stockholder as
to such Restricted Stock including the right to vote such Restricted Stock,
except that the following restrictions shall apply: (i) the Participant shall
not be entitled to delivery of the certificate until the expiration or
termination of the Restricted Period and the satisfaction of any other
conditions specified in the award letter; (ii) none of the Restricted Stock may
be sold, transferred, assigned, pledged, or otherwise encumbered or disposed of
during the Restricted Period and until the satisfaction of any other conditions
specified in the award letter; and (iii) except as set forth in Section 4 or as
set forth in the award letter executed pursuant to Section 4, all of the
Restricted Stock shall be forfeited and all rights of the Participant to such
Restricted Stock including any stock dividends on such Restricted Stock shall
terminate without further obligation on the part of the Corporation unless the
Participant has remained a regular full-time employee of the Corporation until
the expiration or termination of the Restricted Period and the satisfaction of
any other conditions specified in the award letter applicable to such Restricted
Stock.
The Participant shall have the same rights and privileges, and be
subject to the same restrictions, with respect to any Stock received pursuant to
Section 8.
5.2 At the discretion of the Corporation, cash dividends with respect
to the Restricted Stock may be either currently paid or withheld by the
Corporation for the Participant's account, and interest shall be paid on the
amount of cash dividends withheld at a rate and subject to such terms as
determined by the Corporation. Cash dividends so withheld shall not be subject
to forfeiture. Stock dividends with respect to the Restricted Stock (if the
distribution of such does not generate federal income tax liability to the
Participant) shall be held in the Participant's account and shall be subject to
forfeiture. Stock dividends which are taxable to the Participant may, in the
discretion of the Committee, be distributed to the Participant. Upon the
forfeiture of any Restricted Stock, such forfeited Stock and any stock dividends
on such forfeited Stock held for Participant's account shall be transferred to
the Corporation without further action by the Participant and any amounts paid
by the Participant upon the issuance of the Restricted Stock shall be returned
to the Participant with interest.
<PAGE>
5
5.3 Upon the expiration or termination of the Restricted Period and the
satisfaction of any other conditions prescribed by the Committee or at such
earlier time as provided for in Section 4 or in the award letter applicable to
such Restricted Stock, the restrictions applicable to the Restricted Stock shall
terminate and a stock certificate for the number of shares with respect to which
the restrictions have terminated shall be delivered, free of all such
restrictions, except any that may be imposed by law, to the Participant or the
Participant's beneficiary or estate, as the case may be. The Corporation shall
not be required to deliver any fractional share of common stock but will pay, in
lieu thereof, the fair market value (determined as of the date the restrictions
terminate) of such fractional share to the Participant or the Participant's
beneficiary or estate, as the case may be. No payment will be required from the
Participant upon the delivery of any Restricted Stock, except any payment of par
value which may be required by state law and except that any amount necessary to
satisfy applicable federal, state or local tax requirements shall be satisfied
by withholding an equivalent amount of Stock (valued at fair market value on the
date the restrictions terminate) or paid promptly by the Participant upon
notification of the amount due and prior to or concurrently with the delivery of
a certificate representing such Stock.
5.4 In the case of an award of Restricted Units, no shares of common
stock shall be issued at the time the award is made, and the Corporation shall
not be required to set aside a fund for the payment of any such award.
Upon the expiration or termination of the Restricted Period and the
satisfaction of any other conditions prescribed by the Committee or at such
earlier time as provided for in Section 4, the Corporation shall deliver to the
employee or the employee's beneficiary or estate, as the case may be, one share
of common stock for each Restricted Unit with respect to which the restrictions
have lapsed ("vested unit") and cash equal to any dividend equivalents credited
with respect to each such vested unit and the interest thereon; provided,
however, that the Committee may, in its sole discretion, elect to pay cash or
part cash and part common stock in lieu of delivering only common stock for the
vested units. If a cash payment is made in lieu of delivering common stock, the
amount of such cash payment shall be equal to the mean between the highest and
lowest sales prices of the common stock as reported in the New York Stock
Exchange Composite Tape for the date on which the Restricted Period lapsed with
respect to such vested unit, or if there are no sales on such date, on the next
preceding day on which there were sales. Upon the occurrence of change in
control (as defined in Section 11 (b), all outstanding vested units (including
Restricted Units whose restrictions have lapsed as a result of the occurrence of
such change in control) and credited dividend equivalents shall be payable as
soon as practicable but in no event later than ninety days after such change in
control in cash, in shares of common stock, or part in cash and part in common
stock, as the Committee, in its sole discretion, shall determine. To the extent
that an employee receives cash in payment for his or her vested units, such
employee shall receive an amount equal to the fair market value of the shares of
common stock he or she would have received had he or she been delivered common
stock.
<PAGE>
6
Section 6. Termination of Employment
Unless otherwise determined by the Compensation Committee, or otherwise
provided in the award letter, if a Participant to whom Restricted Stock has been
granted ceases to be an employee of the Corporation prior to the end of the
Restricted Period and the satisfaction of any other conditions specified in the
award letter, for any reason other than the reasons specified in Section 4, the
Participant shall immediately forfeit all Restricted Stock and stock dividends
thereon. Nothing in the 1991 Plan or in any Restricted Award or option granted
pursuant to the 1991 Plan shall confer upon any employee any right to continue
in the employ of the Corporation or interfere in any way with the right of the
Corporation to terminate such employment at any time.
Section 7. Options
Each employee to whom an Option is granted under the 1991 Plan shall,
as consideration therefor, remain in continuous employ of the Corporation for
twelve months from the date of the granting of such Option before the employee
can exercise any part thereof, and said options shall, subject to the
limitations on incentive stock options set forth below, be exercisable in full
at the expiration of twelve months from the date of grant. Notwithstanding the
foregoing, in the case of Options granted under the 1991 Plan in substitution of
outstanding options or awards granted by a corporation or other business entity
acquired by the Corporation (a "Substitute Option"), the date of granting of
such Substitute Option shall be deemed to be the date of the original grant of
the option being substituted (a "Substituted Option") by the corporation or
other business entity acquired by the Corporation and an employee's service in
the continuous employ of such acquired corporation or business entity since the
grant of the Substituted Option shall be included for purposes of determining
the length of said employee's service in the continuous employ of the
Corporation. When an employee to whom an Option has been granted takes an
authorized leave of absence (which does not constitute a cessation of employment
pursuant hereto), the period of time elapsed during such leave of absence, shall
be included in computing the dates upon which any part of the Option becomes
exercisable, except to the extent that the Committee in its discretion otherwise
determines. The Committee may, in its sole discretion, cancel in whole or in
part, the unexercised portion of any Option at any time that it determines that
the optionee is not performing satisfactorily the duties to which he or she was
assigned on the effective date of the grant of the Option to him or her, or
duties of at least equal responsibility.
Except as otherwise provided below, no option shall be exercised unless
at the time of such exercise the holder of the Option is in the employment of
the Corporation. Employees who are on authorized leave of absence or who are on
salary continuance or vacation subsequent to the last day worked as defined
herein are not "in the employment of the Corporation or one of its subsidiaries"
for purposes of this Section. Employees who retire while on vacation, leave of
absence or salary continuance, shall be deemed to have retired at the close of
business on the last day worked.
<PAGE>
7
Each incentive option granted hereunder shall by its terms provide: (a)
that such Option shall not be exercised after expiration of ten years from the
effective date of granting such Option and (b) that the aggregate fair market
value (determined at the time the option is granted) of the stock with respect
to which incentive stock options are exercisable for the first time by any
individual employee during any calendar year (under all incentive stock option
plans of Raytheon Company and its subsidiary corporations) shall not exceed
$100,000. No incentive stock option shall be granted if the exercise thereof
would cause the optionee to become the holder of ten percent or more of the
Corporation's common stock. Incentive options may contain such additional
provisions as may be required in order to be "incentive stock options" under
the Code.
Nonqualified options shall not be exercisable after expiration of
eleven years from the effective date of grant. Subject to the foregoing, an
Option granted under the Plan shall be exercisable in whole or at any time at
the expiration of one year from the date of grant or in part from time to time
thereafter but in no case may an option be exercised for a fraction of a share.
Each option granted under this Plan shall by its terms provide that it
is not assignable or transferable otherwise than by will or the laws of descent
and distribution and an option may be exercised during the lifetime of the
holder thereof only by him or her. The holder of an Option or his or her legal
representatives, legatees, or distributees, as the case may be, shall have none
of the rights of a stockholder with respect to any shares subject to such Option
until such shares have been issued to him or her under the terms of this Plan.
7.1 Procedure for Exercise
(a) An Option may be exercised only by submitting to the Office of the
Vice President - Human Resources a completed copy of an exercise form preceded
(except as otherwise provided by paragraph (b) of this Section 7.1) by wire
transfer of immediately available funds or accompanied (except as otherwise
provided by paragraph (b) of this Section 7.1) by a certified or cashier's check
payable to the order of the Company or shares of the Corporation's common stock
held by the Participant for at least six months with a current fair market value
equal to the full amount of the total price of the shares for which the Option
is to be exercised. The Option will be deemed to have been exercised only when
the completed form with such payment has been received by the Office of the Vice
President - Human Resources. A request for exercise which is received by the
Office of the Vice President - Human Resources after the expiration of such
Option or after the expiration of the time within exercise which is permitted
pursuant to the Plan, whichever is earlier, shall not be a valid exercise.
Certificates for shares tendered must be endorsed or accompanied by signed stock
powers with the signature guaranteed by a U.S. commercial bank or trust company
or by a brokerage firm having membership on the New York Stock Exchange. Shares
tendered in payment will be valued at the average of the high and low trade
prices for the day preceding the date of exercise as published in The Wall
Street Journal. Any deficiency in the option exercise price shall be paid by
certified or cashier's check.
<PAGE>
8
(b) In lieu of payment by wire transfer, certified or cashier's check
or other shares of the Corporation's common stock held by the Participant for at
least six months as described in paragraph (a) of this Section 7, an Optionee
may, unless prohibited by applicable law, elect to effect payment by including
with the written notice referred to in paragraph (a) of this Section 7
irrevocable instructions to deliver for sale to a registered securities broker
acceptable to the Corporation a number of the shares subject to the Option being
exercised sufficient, after brokerage commissions, to cover the aggregate
exercise price of such Option and, if the Optionee further elects, the
Optionee's withholding obligations with respect to such exercise referred to in
Section 13, together with irrevocable instructions to such broker to sell such
shares and to remit directly to the Company such aggregate exercise price and,
if the Optionee has so elected, the amount of such withholding obligation. The
Corporation shall not be required to deliver to such securities broker any stock
certificate for such shares (which delivery may be by book-entry) until it has
received from the broker such exercise price and, if the Optionee has so
elected, such withholding obligation amount.
7.2 Time of Granting Options
The granting of an Option pursuant to the Plan shall be deemed to take
place at the time when the Committee shall take action authorizing the grant of
such Option or at such subsequent time as the Committee shall designate,
provided, however, that all grants shall be deemed to be conditioned upon the
optionee being an employee of the Corporation on the effective date of the
grant.
7.3 Termination of Employment
If a holder of an Option shall retire, take leave of absence, or shall
cease to be employed by the Corporation for any reason other than death after he
or she shall have been continuously so employed for twelve months from and after
the date of the granting of an Option, he or she may, but only within the period
of time listed below immediately succeeding the last day worked prior to such
retirement, leave of absence or cessation, exercise such option:
<PAGE>
9
Time Following Last Day Worked
Reason for Absence from Work Within Which Option May Be Exercised
Retirement Three Years
Medical Leave of Absence During Such Leave
Personal Leave of Absence Three Months
Discharge for cause or other None
severance of employment
determined by Committee to
warrant termination of option
Layoff One Year
Quit Three Months
In no event may an Option be exercised following its expiration or
cancellation.
For purposes of the 1991 Plan, "last day worked" means the last day on
which the holder was responsible for performing his or her assigned duties for
the Corporation. Any period of accrued vacation or salary continuance for which
the holder may be eligible as of his or her retirement or cessation of
employment shall not extend the period in which options must be exercised.
Transfer of employment between corporations in the group comprised of the
Corporation and its subsidiaries shall not be deemed a cessation of employment.
Whether a leave of absence for other than medical reasons, duly authorized by
the Corporation shall constitute a cessation of employment for purposes of the
1991 Plan shall be determined by the Committee, which determination unless
overruled by the Board of Directors, shall be final and conclusive. The grant of
an Option will not confer upon a holder of an Option any right with respect to
continuance of employment by the Corporation, nor will it interfere in any way
with his or her right, or his or her employer's right, to terminate his or her
employment at any time.
7.4 Death of Holder
In the event of the death of a holder of an Option while in the employ
of the Corporation, or during a period following the last day worked within
which the Option of such holder was permitted to be exercised, the Option shall
be exercisable only within twelve months following such death (but not later
than the expiration date of the Option) and then only (a) by his or her estate
or by the person or persons who acquired the right to exercise such Option by
bequest or inheritance or by reason of the death of the decedent, and (b) if and
to the extent that he or she was entitled to exercise the Option at the date of
his or her death.
<PAGE>
10
7.5 Option Price
The purchase price under each incentive stock option shall be not less
than one hundred percent of the fair market value of such shares at the time
such Option is granted. Other options may be granted at such prices above or
below the fair market value of the shares as the Committee may determine.
Section 8. Changes in Capitalization
In the event of any change in the outstanding shares of Stock by reason
of a stock dividend or split, recapitalization, merger or consolidation,
reorganization, combination or exchange of shares or other similar corporate
change, the maximum aggregate number of shares available under the 1991 Plan and
the number of shares covered by each previously granted Option and Restricted
Award, if any, shall be proportionally adjusted by the Board of Directors with
such determination being conclusive.
Section 9. Effective Date
The 1991 Plan is effective as of March 27, 1991, subject to the
approval of the stockholders at the Corporation's 1991 Annual Meeting. The
Committee may, at its discretion, grant Options and Restricted Stock Awards
under the 1991 Plan subject to such stockholder approval of the 1991 Plan.
Options and Restricted Stock Awards, issuance or delivery of stock upon exercise
of options or upon expiration of restrictions on Restricted Stock shall be
expressly subject to the conditions that, to the extent required by law at the
time of exercise of Options or grant of Restricted Stock Awards, issuance or
delivery, (i) the shares of Stock shall be duly listed upon the New York Stock
Exchange; and (ii) if the Corporation deems it necessary or desirable, a
Registration Statement under the Securities Act of 1933 with respect to such
stock shall be effective.
Section 10. Designation of Beneficiary
A Participant may, with the consent of the Committee, designate a
person or persons to receive Restricted Stock to which the Participant is
entitled in the event of the Participant's death. Such designation shall be made
in writing upon forms supplied by and delivered to the Committee, and may be
revoked in writing. If a Participant fails effectively to designate a
beneficiary, the Participant's Restricted Stock shall be distributed in
accordance with his will or, if intestate, the laws of descent and distribution.
Section 11. Lapse at Discretion of the Committee; Lapse Upon Termination
Following a Change in Control
(a) The Committee shall have the authority to accelerate the time at which
the restrictions on Restricted Stock and Restricted Units will lapse or to
remove any of such restrictions whenever it may decide in its absolute
discretion that, by reason of changes in applicable tax, securities, or other
laws or other changes in circumstances arising after the date of the Award, such
action is in the best interest of the Company, and equitable to the Participant,
his heirs, or designated beneficiaries.
<PAGE>
11
(b) The restrictions on Restricted Stock and Restricted Units shall
lapse and Nonqualified Stock Options issued hereunder become exercisable
immediately upon a change in control of the Corporation. For purposes of this
paragraph, the term "change in control" shall be deemed to occur upon (1) the
approval by the shareholders of the Corporation of (A) any consolidation or
merger of the Corporation in which the Corporation is not the continuing or
surviving corporation or pursuant to which shares of common stock would be
converted into cash, securities or other property, other than a merger in which
the holders of common stock immediately prior to the merger will have the same
proportionate ownership of common stock of the surviving corporation immediately
after the merger, (B) any sale, lease, exchange, or other transfer (in one
transaction or a series of related transactions) of all or substantially all the
assets of the Corporation, or (C) adoption of any plan or proposal for the
liquidation or dissolution of the Corporation, or (2) any "person" (as defined
in Section 13(d) of the Securities Exchange Act of 1934), other than the
Corporation or subsidiary or employee benefit plan or trust maintained by the
Corporation or any of its subsidiaries, shall become the "beneficial owner" (as
defined in Rule 13d-3 under the Securities Exchange Act of 1934), directly or
indirectly, of more than twenty-five percent of the common stock outstanding at
the time, without the prior approval of the Board of Directors of the
Corporation.
The Committee shall have authority to provide with respect to any
future grants of nonqualified options under the Corporation's 1976 Stock Option
Plan, as amended, rights corresponding to those described in clause (A) and (B),
as the case may be, of the immediately preceding paragraph in the event of a
"change in control" (as defined therein).
Section 12. Compliance with Securities and Exchange Commission Requirements
No certificate for shares of Stock distributed pursuant to the Plan
shall be executed and delivered until the Company shall have taken such action,
if any, as is then required to comply with the provisions of the Securities Act
of 1933, as amended, the Securities Exchange Act of 1934, as amended, or any
other applicable laws, and the requirements of any exchange on which the Stock
may, at the time, be listed.
Section 13. Compliance with Tax Laws
To the extent required by applicable federal, state or local laws or
regulations, the Corporation may withhold from any cash to be distributed to a
Participant pursuant to the Plan or from salary or other compensation payable to
the Participant amounts sufficient to comply with the Corporation's obligations
under such laws or regulations. The Corporation may require the Participant, as
a condition to delivering shares upon exercise of nonqualified stock options
(whether for cash or stock) or as a condition to delivery of restricted stock
which becomes deliverable pursuant to the Plan, to pay to the Corporation
amounts sufficient to meet the Corporation's obligations under such laws or
regulations.
<PAGE>
12
Section 14. Termination and Amendment
The Board of Directors of the Corporation may suspend, terminate,
modify or amend the 1991 Plan, provided that any amendment that would increase
the aggregate number of shares of Stock which may be issued under the 1991 Plan,
materially increase the benefits accruing to Participants under the 1991 Plan,
or materially modify the requirements as to eligibility for participation in the
1991 Plan, must be approved by the Corporation's stockholders, except that any
such increase or modification that may result from adjustments authorized by
Section 8 shall not require such approval. If the 1991 Plan is terminated, the
terms of the 1991 Plan shall, notwithstanding such termination, continue to
apply to Awards granted prior to such termination. In addition, no suspension,
termination, modification or amendment of the Plan may, without the consent of
the Participant to whom a Stock Option or Restricted Stock Award shall
theretofore have been granted, adversely affect the rights of such Participant
under such Award Stock Option or Restricted Stock Award.
Section 15. Duration
The 1991 Plan shall remain in effect until all Stock Options have been
exercised or expired and until all Restricted Stock shall have been delivered
without restrictions or forfeited under the 1991 Plan provided that no Stock
Options shall be granted and no Restricted Stock Awards shall be made under the
Plan after March 26, 2001.
<PAGE>
EXHIBIT 10.2 1
RAYTHEON COMPANY
1995 STOCK OPTION PLAN
1. Definitions. As used in this Raytheon Company 1995 Stock Option Plan
the following terms have the following meanings:
1.1 "Change in Corporate Control" means (a) the time of approval by the
shareholders of the Company of (i) any consolidation or merger of the Company in
which the Company is not the continuing or surviving corporation or pursuant to
which shares of Stock would be converted into cash, securities or other
property, other than a merger in which the holders of Stock immediately prior to
the merger will have the same proportionate ownership of common stock of the
surviving corporation immediately after the merger, (ii) any sale, lease,
exchange, or other transfer (in one transaction or a series of related
transactions) of all or substantially all the assets of the Company, or (iii)
adoption of any plan or proposal for the liquidation or dissolution of the
Company; or (b) the date on which any "person" (as defined in Section 13(d) of
the Securities Exchange Act of 1934), other than the Company or a subsidiary or
employee benefit plan or trust maintained by the Company or any of its
subsidiaries, shall become (together with its "affiliates" and "associates," as
defined in Rule 12b-2 under the Securities Exchange Act of 1934) the "beneficial
owner" (as defined in Rule 13d-3 under the Securities Exchange Act of 1934),
directly or indirectly, of more than 25% of the Stock outstanding at the time,
without the prior approval of the Board of Directors of the Company.
1.2 "Code" means the Internal Revenue Code of 1986, as amended.
1.3 "Committee" means the Compensation Committee of the Company's Board
of Directors, consisting exclusively of directors who at the relevant time are
"outside directors" within the meaning of ss.162(m) of the Code.
1.4 "Company" means Raytheon Company, a Delaware corporation.
1.5 "Company Officer" means the Chairman of the Board, the President,
and any Executive Vice President, Senior Vice President or Vice President of the
Corporation.
1.6 "Fair Market Value" means the value of a share of Stock of the Company
on any date as determined by the Board.
1.7 "Grant Date" means the date on which an Option is granted, as
specified in Section 7.
1.8 "Immediate Family" means any child, stepchild, grandchild, parent,
grandparent, spouse, sibling, mother-in-law, father-in-law, son-in-law,
daughter-in-law, brother-in-law, or sister-in-law, including adoptive
relationships.
1.9 "Incentive Stock Option" means an Option grant that is intended to meet
the requirements of Section 422 of the Code.
<PAGE>
2
1.10 "Non-Statutory Stock Option" means an Option grant that is not
intended to be an Incentive Stock Option.
1.11 "Option" means an option to purchase shares of the Stock granted
under the Plan.
1.12 "Option Agreement" means an agreement between the Company and an
Optionee setting forth the terms and conditions of an Option.
1.13 "Option Period" means the period from the date of the grant of an
Option to the date when the Option expires as stated in the terms of the Option
Agreement.
1.14 "Option Price" means the price paid by an Optionee for an Option
under this Plan.
1.15 "Option Share" means any share of Stock of the Company transferred
to an Optionee upon exercise of an Option pursuant to this Plan.
1.16 "Optionee" means a person eligible to receive an Option, as
provided in Section 6, to whom an Option shall have been granted under the Plan.
1.17 "Plan" means this 1995 Stock Option Plan of the Company.
1.18 "Related Corporation" means a Parent Corporation or a Subsidiary
Corporation, each as defined in Section 424 of the Code.
1.19 "Stock" means common stock, $0.01 par value, of the Company.
2. Purpose. This 1995 Stock Option Plan is intended to encourage
ownership of Stock by key employees of the Company and its Related Corporations
and to provide additional incentive for them to promote the success of the
Company's business. With respect to any Incentive Stock Options that may be
granted hereunder, the Plan is intended to be an incentive stock option plan
within the meaning of Section 422 of the Code.
3. Term of the Plan. Options under the Plan may be granted not later
than March 21, 2005.
4. Stock Subject to the Plan. At no time shall the number of shares of
Stock then outstanding which are attributable to the exercise of Options granted
under the Plan, plus the number of shares then issuable upon exercise of
outstanding options granted under the Plan, exceed 20,000,000 shares, subject,
however, to the provisions of Section 15 of the Plan. No Optionee may be granted
in any year Options to purchase more than 200,000 shares of Stock, subject to
adjustment pursuant to Section 15. Shares to be issued upon the exercise of
Options granted under the Plan may be either authorized but unissued shares or
shares held by the Company in its treasury. If any Option expires or terminates
for any reason without having been exercised in full, the shares not purchased
thereunder shall again be available for Options thereafter to be granted.
<PAGE>
3
5. Administration. The Plan shall be administered by the Committee.
Subject to the provisions of the Plan (including, without limitation, the
provisions of Section 19), the Committee shall have complete authority, in its
discretion, to make the following determinations with respect to each Option to
be granted by the Company: (a) the key employee to receive the Option; (b) the
time of granting the Option; (c) the number of shares subject thereto; (d) the
Option Price (subject to Section 8 below); (e) the Option Period; and (f)
whether the Option is an Incentive Stock Option or a Non-Statutory Stock Option.
Incentive Stock Options granted under this Plan shall be designated specifically
as such. In making such determinations, the Committee may take into account the
nature of the services rendered by the respective employees, their present and
potential contributions to the success of the Company and its subsidiaries, and
such other factors as the Committee in its discretion shall deem relevant.
Subject to the provisions of the Plan, the Committee shall also have complete
authority to interpret the Plan, to prescribe, amend and rescind rules and
regulations relating to it, to determine the terms and provisions of the
respective Option Agreements (which need not be identical), and to make all
other determinations necessary or advisable for the administration of the Plan.
The Committee's determinations on the matters referred to in this Section 5
shall be conclusive.
6. Eligibility. An Option may be granted only to a key employee of one
or more of the Company and its subsidiaries. A director of one or more of the
Company and its subsidiaries who is not also an employee of one or more of the
Company and its subsidiaries shall not be eligible to receive Options.
7. Time of Granting Options. The granting of an Option shall take place
at the time specified by the Committee. Only if expressly so provided by the
Committee shall the Grant Date be the date on which an Option Agreement shall
have been duly executed and delivered by the Company and the Optionee.
8. Option Price. The Option Price under each Option shall be as
determined by the Committee but shall not be less than 100% of the Fair Market
Value of the Stock on the Grant Date.
9. Option Period. No Incentive Stock Option may be exercised later than
the tenth anniversary of the Grant Date. No Non-Statutory Stock Option may be
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<INCOME-PRETAX> 813
<INCOME-TAX> 322
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 491
<EPS-BASIC> 1.45
<EPS-DILUTED> 1.43
</TABLE>
