<PAGE>
1
EXHIBIT 99.3
Raytheon Savings and Investment Plan for
Puerto Rico Based Employees
Financial Statements
To Accompany 1999 Form 5500
Annual Report of Employee Benefit Plan
Under ERISA of 1974
For the Year Ended December 31, 1999
The supplemental schedules to the Plan's Form 5500 are not required since the
Plan's assets are held in a Master Trust. Accordingly, the Plan administrator
must file detailed financial information, including the supplemental schedules,
separately with the Department of Labor.
<PAGE>
2
Report of Independent Accountants
To the Participants and Administrator of the
Raytheon Savings and Investment Plan for Puerto Rico Based Employees
In our opinion, the accompanying statements of net assets available for plan
benefits and the related statements of changes in net assets available for plan
benefits present fairly, in all material respects, the net assets available for
plan benefits of the Raytheon Savings and Investment Plan for Puerto Rico Based
Employees (the "Plan") at December 31, 1999 and December 31, 1998, and the
changes in net assets available for plan benefits for the year ended December
31, 1999 in conformity with accounting principles generally accepted in the
United States. These financial statements are the responsibility of the Plan's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with auditing standards generally accepted in the United States,
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
As discussed in Note J to the financial statements, the Plan will be transferred
from Raytheon Catalytic, Inc. to Morrison Knudsen upon the expected closing of
the stock sale.
PricewaterhouseCoopers LLP
Boston, Massachusetts
June 16, 2000
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3
Statements of Net Assets Available for Plan Benefits
As of December 31, 1999 and 1998
1999 1998
Assets
Master trust investments:
At contract value (Notes B, E and K):
Investment contracts $ 200,776 $ 87,670
Common collective trust 3,608 1,716
At fair value (Notes B and K):
Registered investment companies 744,624 575,071
Common collective trust 233,408 241,676
Raytheon Company common stock 302,334 321,152
Participant loans 126,313 37,300
---------- ----------
1,611,063 1,264,585
---------- ----------
Receivables:
Accrued investment income and other receivables 3,349 2,417
Cash and cash equivalents 28,117 13,742
---------- ----------
Total assets $1,642,529 $1,280,744
---------- ----------
Liabilities
Payable for outstanding purchases $ 1,287 $ 776
Accrued expenses and other payables 513 1,019
---------- ----------
Total liabilities $ 1,800 $ 1,795
---------- ----------
Net assets available for plan benefits $1,640,729 $1,278,949
========== ==========
The accompanying notes are an integral part of these financial statements.
<PAGE>
4
Statement of Changes in Net Assets Available for Plan Benefits
For the Year Ended December 31, 1999
Additions to net assets attributable to:
Investment income (Notes B, E and K):
Net depreciation of investments $ (150,000)
Interest and dividends 96,208
----------
(53,792)
Contributions and deferrals:
Employee deferrals 320,305
Employer contributions 170,663
Transfers (Note I) 91,610
----------
582,578
Total additions 528,786
----------
Deductions from net assets attributable to:
Distributions to participants 166,501
Administrative expenses 505
----------
Total deductions 167,006
----------
Increase in net assets 361,780
Net assets, beginning of year 1,278,949
----------
Net assets, end of year $1,640,729
==========
The accompanying notes are an integral part of these financial statements.
<PAGE>
5
Notes to Financial Statements
A. Description of Plan
General
The following description of the Raytheon Savings and Investment Plan
for Puerto Rico Based Employees (the "Plan") provides only general information.
Participants should refer to the plan document for a complete description of the
Plan's provisions. The Plan is a defined contribution plan covering certain
Puerto Rico based employees of Raytheon Catalytic, Inc., a wholly owned
subsidiary of Raytheon Company (the "Company"). To participate in the Plan,
eligible employees must have three months of service and may enter the Plan only
on the first pay date of each month. The purpose of the Plan is to provide
participants with a tax-effective means of meeting both short and long-term
investment objectives. The Plan, effective as of January 1, 1995, is intended to
comply with all the requirements for a "qualified profit sharing plan" under the
Revenue Code of Puerto Rico (the "Code"). The Plan is subject to the provisions
of the Employee Retirement Income Security Act of 1974 (ERISA).
All of the Plan's investments are combined with the investments of
other similar defined contribution plans of Raytheon Company into the Raytheon
Company Master Trust for Defined Contribution Plans ("Master Trust"). The
trustee of the Master Trust maintains a separate account reflecting the
equitable share in the Master Trust of each plan.
Investment income and administrative expenses relating to the Master
Trust are allocated to the individual plans based upon average monthly balances
invested by each plan.
Contributions and Deferrals
Effective January 1, 1999, employees are allowed to defer up to 20% of
their annual compensation up to a maximum of $8,000 to the Plan. Employee
contributions, including rollovers, are invested based on participant elections.
The Company will match contribution amounts equal to 100% of each participant's
deferral, up to a maximum of 4% of compensation. The Company match shall be made
to the Raytheon Common Stock Fund and must be held in that fund until the
beginning of the fifth plan year following the plan year for which the
contribution was made. The Company will also make an Employee Stock Ownership
Portion ("ESOP") contribution equal to one-half of one percent of the
participant's compensation. The ESOP portion of the Plan provides for
investment, primarily in Raytheon Company Class B common stock; however, as
required by the Code, the Plan permits limited diversification after a
participant attains age 55 or completes 10 years of plan participation
(including participation in the prior ESOP plans).
Participants may invest their deferrals in increments of 1% in any
combination of thirteen funds. The investment objectives of the funds range from
conservative investments with an emphasis on preservation of capital to equity
investments with an emphasis on capital gains. The underlying assets that make
up the funds include cash and equivalents, investment contracts, registered
investment companies, common collective trusts, common stock and Raytheon
Company stock.
Dividends and distributions from investments of all fund options are
reinvested in their respective funds; stock dividends, stock splits and similar
changes are also reflected in the funds.
<PAGE>
6
Participant Accounts
Each participant's account is credited with the participant's deferral,
the Company's contributions and an allocation of Plan earnings. Plan earnings
are allocated based on account balances by fund. Participant's accounts are
debited with an allocation of Plan expenses.
Vesting
Effective January 1, 1999, all employee and employer contributions and
earnings thereon are fully and immediately 100% vested for each participant who
performs an hour of service on or after January 1, 1999.
Prior to 1999, vesting requirements for employer contributions plus
earnings thereon varied depending upon when an employee became eligible to
participate in the Plan. Vesting generally occurred upon completion of five
years of service or after 3 years of participation or upon retirement, death,
disability, or attainment of retirement age. Forfeitures of the nonvested
portions of terminated participants' accounts are used to reduce required
contributions of the Company. Participants were always immediately vested in
their voluntary deferrals plus actual earnings thereon.
Distributions to Participants
A participant may withdraw all or a portion of deferrals, employer
contributions and related earnings upon attainment of age 59 1/2. For reasons of
financial hardship, as defined in the plan document, a participant may withdraw
all or part of deferrals. On termination of employment, a participant will
receive a lump-sum distribution. If the vested account is valued in excess of
$3,500, the participant has the option to defer distribution. A retiree or a
beneficiary of a deceased participant may defer the distribution until January
of the year following attainment of age 65.
Loans to Participants
A participant may borrow against a portion of the balance in the
participant's account, subject to certain restrictions. The maximum amount of a
loan is one-half of the participant's account balance up to $50,000. The minimum
loan which may be granted is $500. The interest rate applied is equal to the
prime rate published in the Wall Street Journal on the first business day in
each calendar quarter. Loans must be repaid over a period of up to five years by
means of payroll deductions. In certain cases, the repayment period may be
extended up to 15 years. Interest paid to the Plan on loans to participants is
credited to the borrower's account in the investment fund to which repayments
are made.
Administrative Expenses
Certain expenses of administering the Plan are paid by the plan
participants.
<PAGE>
7
B. Summary of Significant Accounting Policies
The accompanying financial statements are prepared on the accrual basis
of accounting. The provisions of AICPA Statement of Position 99-3 were adopted
in 1999 and prior period financial statements and disclosures have been
reclassified where appropriate.
The Plan's investment contracts and common collective trust are fully
benefit-responsive and are therefore included in the financial statements at
their contract value, defined as net contributions and deferrals plus interest
earned on the underlying investments at contracted rates. Contract value
approximates fair value. Investments in mutual funds and the common collective
trust are valued at the closing net asset value reported on the last business
day of the year. Investments in securities (common stocks) traded on a national
securities exchange are valued at the last reported sales price on the last
business day of the year. Cash equivalents are short-term money market
instruments and are valued at cost, which approximates fair value. Participant
loans are valued at cost, which approximates fair value.
Security transactions are recorded on the trade date. Except for its
investment contracts (Note E), the Plan's investments are held in a trust.
Payable for outstanding security transactions represents trades which have
occurred but have not yet settled.
The Plan presents in the statement of changes in net assets the net
appreciation (depreciation) in the fair value of its investments, which consists
of the realized gains or losses and the unrealized appreciation (depreciation)
on those investments.
Dividend income is recorded on the ex-dividend date. Income from other
investments is recorded as earned on an accrual basis. Investment income
includes both dividend and interest income.
Benefits are recorded when paid.
The preparation of the financial statements in conformity with
generally accepted accounting principles requires the Plan administrator to make
significant estimates and assumptions that affect the reported amounts of net
assets and liabilities available for benefits at the date of the financial
statements and the changes in net assets available for benefits during the
reporting period and, when applicable, disclosures of contingent assets and
liabilities at the date of the financial statements. Actual results could differ
from the estimates included in the financial statements.
The Plan provides for various investment options in any combination of
stocks, bonds, fixed income securities, mutual funds and other investment
securities. Investment securities are exposed to various risks, such as interest
rate, market and credit risk. Due to the level of risk associated with certain
investment securities and the level of uncertainty related to changes in the
value of investment securities, it is at least reasonably possible that changes
in risks in the near term would materially affect participants' account balances
and the amounts reported in the statement of net assets available for plan
benefits and the statement of changes in net assets available for plan benefits.
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8
C. Investments
The following presents investments that represent 5 percent or more of
the Plan's net assets:
December 31,
1999 1998
Fidelity Equity Income Fund $ 274,126 $ 287,340
Raytheon Company common stock** 302,334 321,152
BT Pyramid Equity Index Fund 233,408 241,676
Fidelity Magellan Fund 153,327 117,182
Fidelity Blue Chip Fund 143,838 109,521
Vanguard PrimeCap Fund 90,575 *
Participant loans 126,313 *
* Investments were less than 5 percent of the Plan's net assets.
** Amount is made up of both participant and non-participant directed funds.
During the year ended December 31, 1999 the Plan's investments
experienced a net depreciation as follows:
Registered investment companies $ 43,969
Common collective trusts 46,175
Raytheon Company common stock (240,144)
---------
$(150,000)
---------
D. Nonparticipant-Directed Investments
Information about the net assets and the significant components of the
changes in net assets relating to the nonparticipant-directed investments is as
follows:
December 31,
1999 1998
Net assets:
Raytheon Company common stock $113,962 $77,794
Cash and cash equivalents 5,606 1,071
-------- -------
Total $119,568 $78,865
======== =======
For the Year Ended
December 31, 1999
Changes in net assets:
Contributions $ 169,781
Interest and dividends 232
Net depreciation of investments (108,446)
Distributions to participants (17,263)
Administrative expenses (364)
Net fund transfers (3,237)
---------
$ 40,703
=========
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9
E. Investment Contracts
The Plan invests in collateralized fixed income investment portfolios
which are managed by insurance companies and investment management firms. The
credited interest rates are adjusted semiannually to reflect the experienced and
anticipated yields to be earned on such investments, based on their book value.
The annualized average yield and credited interest rates were as follows:
Annualized Credited
average interest
yield rate
For the year ended December 31, 1999:
Chase Manhattan Bank (429666) 5.69% 5.69%
Deutsche Bank AG (FID-RAY-1) 5.59% 5.59%
Fidelity IPL (633-GCDC) 5.75% 5.76%
Fidelity STIF 5.22% 5.74%
State Street Bank and Trust (99054) 5.70% 5.70%
Westdeutsche Landesbank (WLB6173) 5.69% 5.69%
For the year ended December 31, 1998:
Banker's Trust (WBS 92-485) 6.85% 6.85%
Metropolitan Life Insurance Company (GIC GA-12908) 6.58% 6.58%
Metropolitan Life Insurance Company (GIC GA-13659) 6.10% 6.10%
Prudential Asset Management Company (GIC 917163-001) 6.75% 6.75%
Connecticut General (GIC 0025174) 5.58% 5.58%
Fidelity IPL (633-GCDC) 5.62% 5.62%
Monumental Life Insurance Company (GIC BDA00463FR-00) 7.84% 7.84%
The contract values are subject to limitations in certain situations
including large workforce reductions and plan termination.
F. Related Party Transactions
The Plan's trustee is Fidelity Management Trust Company (the
"Trustee"). The Trustee holds the funds for the Plan and is responsible for
managing the Plan's investment assets, executing all investment transactions,
recording approved transactions, and, therefore these transactions qualify as
party-in-interest.
In accordance with the provisions of the Plan, the Trustee acts as the
Plan's agent for purchases and sales of shares of Raytheon Company common stock.
These transactions are performed on a Master Trust level. For the Master Trust,
purchases amounted to $721,986,347 and sales amounted to $204,780,412 for the
year ended December 31, 1999.
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10
G. Tax Status
The Plan obtained its latest determination letter in August 1996, in
which the Treasury department of the Commonwealth of Puerto Rico stated that the
Plan, as submitted, was in compliance with the applicable requirements of the
Puerto Rico Income Tax Act of 1954, as amended. Since receiving the
determination letter, the Plan has been amended. The Plan administrator and the
Plan's legal counsel believe that the Plan is designed and being operated in
compliance with the applicable requirements of the aforementioned Act.
H. Plan Termination
Although it has not expressed any intention to do so, the Company
reserves the right under the Plan at any time or times to discontinue its
contributions and to terminate the Plan subject to the provisions of ERISA. In
the event of plan termination, after payment of all expenses and proportional
adjustment of accounts to reflect such expenses, fund losses or profits, and
reallocations, each participant shall be entitled to receive any amounts then
credited to his or her account.
I. Transfers
Transfers include transfers of participant accounts, individually
and/or in-groups, between the Plan and all other plans included in the Master
Trust for those participants and/or groups of participants who changed plans
during the year. Transfers also include transfers of participant accounts,
individually and/or in-groups, between the Plan and similar savings plans of
other companies for those participants who changed companies during the year.
J. Subsequent Event
On April 14, 2000, the Company signed a definitive agreement with Morrison
Knudsen to sell all of the stock of Raytheon Engineers & Constructors, Inc. and
several subsidiaries, including Raytheon Catalytic, Inc., the sponsor of the
Plan. Consequently, as of the closing date of the stock sale, the Plan will be
transferred from the Raytheon controlled group of corporations to the Morrison
Knudsen controlled group of corporations.
<PAGE>
11
K. Master Trust
The following is a summary of net assets available for plan benefits by
Plan under the Master Trust as of December 31, 1999:
<TABLE>
<CAPTION>
Raytheon
Raytheon Savings and
Raytheon Employee Investment Plan Raytheon
Savings and Savings and for Puerto Rico Defined
Investment Investment Based Contribution
Plan Plan Employees Master Trust
<S> <C> <C> <C> <C>
Assets:
Master trust investments:
At contract value:
Investment contracts $1,365,686,304 $152,581,183 $ 200,776 $1,518,468,263
Common collective trust 24,541,396 2,741,885 3,608 27,286,889
At fair value:
Registered investment
companies 3,418,046,502 189,241,065 744,624 3,608,032,191
Common collective trust 897,408,197 62,574,915 233,408 960,216,520
Raytheon Company
common stock 767,489,840 85,131,829 302,334 852,924,003
Common stock 279,907,944 7,967,256 - 287,875,200
Participant loans 224,811,843 44,414,163 126,313 269,352,319
-------------- ------------ ---------- --------------
Total investments 6,977,892,026 544,652,296 1,611,063 7,524,155,385
-------------- ------------ ---------- --------------
Cash and cash equivalents 108,497,715 9,876,650 28,117 118,402,482
Receivables:
Employer contributions 456,290 3,556,816 - 4,013,106
Accrued investment income
and other receivables 9,328,981 947,795 3,349 10,280,125
Transfer receivable* 558,535,238 - - 558,535,238
-------------- ------------ ---------- --------------
Total assets $7,654,710,250 $559,033,557 $1,642,529 $8,215,386,336
-------------- ------------ ---------- --------------
Liabilities
Payable for outstanding
purchases $ 3,078,603 $ 356,829 $ 1,287 $ 3,436,719
Accrued expenses and other
payables 1,903,254 141,490 513 2,045,257
Transfer payable* - 558,535,238 - 558,535,238
-------------- ------------ ---------- --------------
Total liabilities $ 4,981,857 $559,033,557 $ 1,800 $ 564,017,214
-------------- ------------ ---------- --------------
Net assets available for plan
benefits $7,649,728,393 $ - $1,640,729 $7,651,369,122
============== ============ ========== ==============
Percentage of total trust 99.98% 0.00% 0.02% 100.00%
assets
* The transfer receivable/payable represents the merger of the Raytheon
Employee Savings and Investment Plan into the Raytheon Savings and Investment Plan.
</TABLE>
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12
The following is a summary of net assets available for plan benefits by
Plan under the Master Trust as of December 31, 1998:
<TABLE>
<CAPTION>
Raytheon
Savings and
Raytheon Investment Raytheon
Raytheon Employee Plan for Defined
Savings and Savings and Puerto Rico Other prior Contribution
Investment Investment Based plans merged Master
Plan Plan Employees 12/31/98 Trust
<S> <C> <C> <C> <C> <C>
Assets:
Master trust investments:
At contract value:
Investment contracts $ 776,630,273 $ 20,713,337 $ 87,670 $ 521,071,601 $1,318,502,881
Common collective trust 15,198,859 405,365 1,716 10,197,509 25,803,449
At fair value:
Registered investment
companies 1,144,209,772 31,699,672 575,071 1,522,564,673 2,699,049,188
Common collective trust 519,296,605 10,496,295 241,676 215,568,215 745,602,791
Raytheon Company
common stock 356,701,412 8,925,215 321,152 549,724,121 915,671,900
Common stock - - - 172,859,819 172,859,819
Participant loans 127,374,239 6,229,708 37,300 117,046,618 250,687,865
-------------- ------------ ---------- -------------- ---------------
Total investments 2,939,411,160 78,469,592 1,264,585 3,109,032,556 6,128,177,893
-------------- ------------ ---------- -------------- ---------------
Cash and cash equivalents 80,249,335 2,117,237 13,742 64,877,770 147,258,084
Receivables:
Employer contributions - - - 3,595,261 3,595,261
Accrued investment income
and other receivables 3,214,568 75,163 2,417 4,247,441 7,539,589
Transfer receivable* 3,824,865,272 210,313,280 - - 4,035,178,552
-------------- ------------ ---------- -------------- ---------------
Total assets $6,847,740,335 $290,975,272 $1,280,744 $3,181,753,028 $10,321,749,379
-------------- ------------ ---------- -------------- ---------------
Liabilities
Payable for outstanding
purchases $ 861,953 $ 21,566 $ 776 $ 1,047,830 $ 1,932,125
Accrued expenses and other
payables 1,415,440 32,586 1,019 1,353,322 2,802,367
Transfer payable* - - - 3,179,351,876 3,179,351,876
-------------- ------------ ---------- -------------- ---------------
Total liabilities $ 2,277,393 $ 54,152 $ 1,795 $3,181,753,028 $ 3,184,086,368
-------------- ------------ ---------- -------------- ---------------
Net assets available for
plan benefits $6,845,462,942 $290,921,120 $1,278,949 $ - $ 7,137,663,011
============== ============ ========== ============== ===============
Percentage of total trust 95.91% 4.07% 0.02% 0.00% 100.00%
assets
* Represents the merger of the other prior plans into the Raytheon Savings and Investment Plan and the
Raytheon Employee Savings and Investment Plan.
</TABLE>
<PAGE>
13
The following is a summary of investment income by Plan under the
Master Trust for the year ended December 31, 1999:
<TABLE>
<CAPTION>
Raytheon
Raytheon Savings and
Raytheon Employee Investment Plan Raytheon
Savings and Savings and for Puerto Rico Defined
Investment Investment Based Contribution
Plan Plan Employees Master Trust
<S> <C> <C> <C> <C>
Investment income:
Interest and dividends $ 422,485,598 $ 30,193,248 $ 96,208 $ 452,775,054
Net appreciation/(depreciation)
Registered investment companies 133,664,027 7,294,448 43,969 141,002,444
Common collective trusts 166,058,412 11,577,692 46,175 177,682,279
Raytheon Company common stock (498,666,117) (63,984,845) (240,144) (562,891,106)
Common stock 189,763,388 6,009,679 - 195,773,067
------------- ------------ --------- -------------
(9,180,290) (39,103,026) (150,000) (48,433,316)
------------- ------------ --------- -------------
Total investment income/(loss) $ 413,305,308 $ (8,909,778) $ (53,792) $ 404,341,738
============= ============ ========= =============
</TABLE>
