<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (date of earliest event reported): December 17, 1997
RAYTHEON COMPANY
-------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 1-2833 04-1760395
------------------------ ------------------ ------------------
(State of Incorporation) (Commission File (IRS Employer
Number) Identification
Number)
141 Spring Street
Lexington, Massachusetts 02173
---------------------------------------- ---------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (781) 862-6600
<PAGE>
Item 2. Acquisition or Disposition of Assets.
------------------------------------
On December 17, 1997, Raytheon Company ("Old Raytheon") consummated the
merger of Old Raytheon with and into HE Holdings, Inc. ("HE Holdings"), pursuant
to which the separate existence of Old Raytheon ceased and was continued by HE
Holdings, which, immediately upon consummation of the merger, changed its name
to Raytheon Company ("New Raytheon"). In connection with the merger, each share
of issued and outstanding common stock, $1.00 par value per share of Old
Raytheon was converted into one share of Class B common stock, $.01 par value
per share of New Raytheon (the "Class B Common Stock"). Immediately prior to the
merger, HE Holdings incurred $4.0 billion of indebtedness under certain credit
agreements, all of which was contributed to Hughes Electronics Corporation or
its affiliates. The obligation to repay this debt remains an obligation of New
Raytheon.
In connection the closing of the merger, New Raytheon issued a press
release, a copy of which is attached hereto as Exhibit 99.1 and is specifically
incorporated herein by reference.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
------------------------------------------------------------------
(b) Pro Forma Financial Information.
-------------------------------
Pro forma combined condensed statements of earnings for the year ended
December 31, 1996, and for the nine months ended September 28, 1997, and
pro forma combined condensed balance sheet as of September 28, 1997, in
each case reflecting the merger of Old Raytheon with and into HE Holdings
were previously filed as pages 95-101 of the Solicitation
Statement/Prospectus which forms a part of the Registration Statement on
Form S-4 (File No. 333-39861), dated November 10, 1997, and are hereby
incorporated herein by reference.
(c) Exhibits. The following exhibits are filed as part of this report:
--------
99.1 Press release, dated December 18, 1997.
99.2 Pages 95-101 of the Solicitation Statement/Prospectus which forms a
part of the Registration Statement on Form S-4 (File No. 333-39861),
dated November 10, 1997.
<PAGE>
SIGNATURE
Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned hereunto duly authorized.
Dated: December 17, 1997
RAYTHEON COMPANY
By: /s/ Thomas D. Hyde
----------------------------------------
Name: Thomas D. Hyde
Title: General Counsel of Raytheon Company
(formerly HE Holdings, Inc.) as successor
to Raytheon Company
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
- ------ -----------
99.1 Press release, dated December 18, 1997.
99.2 Pages 95--101 of the Solicitation
Statement\Prospectus which forms a part of the
Registration Statement on Form S-4 (File No.
333-39861), dated November 10, 1997.
<PAGE>
Exhibit 99.1
Raytheon Company
Corporate Communications
141 Spring Street
Lexington, MA 02173
RAYTHEON
------------
NEWS RELEASE
ROBERT S. MCWADE
C-2409 12/18/96
(617)860-2846
RAYTHEON COMPLETES MERGER WITH HUGHES AIRCRAFT, ANNOUNCES CREATION OF RAYTHEON
SYSTEMS COMPANY
LEXINGTON, MA (12/18/98) -- Raytheon Company announced today the completion of
its merger with Hughes defense, creating one of the largest industrial
corporations in the United States.
At the same time, Raytheon announced the formation of Raytheon Systems Company
and appointed William H. Swanson as Chairman and Chief Executive Officer of that
new organization. Raytheon Systems Company will be headquartered in the
Washington, D.C. area and will include the Hughes defense operations and the
operations that have been part of Raytheon Electronic Systems, Raytheon TI
Systems, and Raytheon E-Systems. Raytheon Systems Company will be one of the
world's largest defense contractors and will operate as part of Raytheon
Company.
"Our strategy has been to remain a top tier company in a consolidating defense
industry," said Dennis J. Picard, Chairman and Chief Executive Officer of
Raytheon Company. "The historic merger with Hughes defense and our earlier
acquisitions have enabled us to achieve that strategy. Today, we can proudly
say that we are a global technology leader and a defense electronics powerhouse.
We also continue to remain strong in our commercial businesses, with leadership
positions in general aviation aircraft, commercial electronics and engineering
and construction."
The value of the transaction is $9.5 billion, with $4.04 billion in debt and
$5.46 billion in equity. This debt/equity split is based on a 30-day collar
period average market price of $53.21 per share of Raytheon stock. Raytheon
announced its agreement to merge with Hughes defense in January, 1997. The
merger was approved by the United States Department of Justice in October and by
stockholders of Raytheon, General Motors
<PAGE>
(GM$1 2/3 par value) and GM Class "H" stock in December. The merger was
completed yesterday.
"We have been focusing on how best to combine the Raytheon and Hughes
operations since we first announced the merger in January," said Picard. "We
will now move quickly--as shown by today's announcement of Raytheon Systems
Company--to take the steps necessary to ensure that we remain competitive. Our
goal is to create an organization that we believe will set a new standard of
excellence in the products and services we provide to our customers, creating
exciting opportunities for our employees and strong returns for our
shareholders."
"I am pleased to announce the appointment of William H. Swanson as Chairman and
Chief Executive Officer of Raytheon Systems Company," said Picard. "Bill's
outstanding record of achievement at Raytheon while serving in key positions
such as General Manager of Raytheon Electronic Systems makes him ideally suited
to the needs of Raytheon Systems Company. With extensive experience in a wide
range of defense products, a strong background in converting defense
technologies to commercial applications and a demonstrated ability to integrate
complex organizations, I am confident that Bill will be a superb leader of
Raytheon Systems Company." Swanson will report directly to Chairman and CEO
Picard.
Raytheon also announced the appointment of Ken C. Dahlberg as President and
Chief Operating Officer of Raytheon Systems Company, reporting to Swanson.
Dahlberg was formerly a Corporate Vice President of Hughes Electronics
Corporation and a Senior Vice President of Hughes Aircraft Company. At Hughes,
Dahlberg was also President of the Sensors and Communications Systems
organization. "Ken Dahlberg has had a career defined by excellence in a wide
variety of capacities at Hughes," said Picard. "Together, he and Bill Swanson
will make an outstanding management team fully capable of leading Raytheon
Systems Company into the next century."
Raytheon also announced that, in keeping with his previous plans, A. Lowell
Lawson, currently the Chairman and Chief Executive Officer of Raytheon
E-Systems, will retire in January, 1998. Lawson will remain on Raytheon's board
until the completion of his current term in May, 1998. Also, John C. Weaver,
currently President and Chief Operating Officer of Hughes Aircraft Company, has
been elected as an Executive Vice President of Raytheon Company. Weaver will
take over responsibility for Engineering
<PAGE>
<PAGE>
and Business Development in April 1998 on retirement of Renso Caporali,
currently Senior Vice President for Engineering and Business Development for
Raytheon Company.
"Lowell Lawson's contributions both to Raytheon Company and to the security of
the United States during his long career have been enormous," said Picard. "His
experience will be missed. Renso Caporali has done a superb job in helping to
grow our business development organization and in ensuring engineering
excellence throughout the company. At the same time, however, I am pleased to
be welcoming such a distinguished individual as John Weaver into the top ranks
of Raytheon Company."
With the addition of Hughes defense, Raytheon Company will have revenues of more
than $20 billion on a 1997 pro forma basis. The new Raytheon Systems Company
will account for approximately US$14.5 billion on a 1997 pro forma basis.
Raytheon Systems Company
- ------------------------
"Raytheon Systems Company is now, without question, a world leader in electronic
systems, the most dynamic segment of the defense business," said William H.
Swanson, Chairman and Chief Executive Officer of Raytheon Systems Company. "We
will encourage creativity, innovation and engineering excellence among our
employees and focus on providing unparalleled value to our customers."
"Raytheon Electronic Systems, Raytheon TI Systems, Raytheon E-Systems and Hughes
defense will be stronger together than they would have been separately,"
continued Swanson. "The combination of these companies into Raytheon Systems
Company puts us in a better position to win new programs in the future by
lowering costs, allowing us to focus our independent research and development,
and bringing together the finest people and technologies in the defense
business."
Raytheon Systems Company will have five major business segments: Defense
Systems; Sensors and Electronic Systems; Command, Control and Communications
(C/3/) Systems; Intelligence, Information and Aircraft Integration Systems; and
Training and Services. Each segment will be managed by an Executive Vice
President of Raytheon Systems Company who will report to Swanson and Dahlberg.
This five-segment structure is designed to bring together all the resources of
the company in key product areas in order to provide customers with
state-of-the-art, cost-effective systems. Details of the segments are as
follows:
<PAGE>
. Defense Systems will focus on anti-tactical ballistic missile systems; air
---------------
defense; air-to-air, surface-to-air, and air-to-ground missiles; naval and
maritime systems; ship self-defense systems; torpedoes; strike, interdiction
and cruise missiles; and advanced munitions. David L. McPherson, formerly
President of the Weapons Systems Segment of Hughes Aircraft, has been
appointed an Executive Vice President of Raytheon Systems Company and General
Manager of the Defense Systems segment.
. Sensors and Electronic Systems will focus on ground, shipboard and airborne
------------------------------
fire control and surveillance systems; primary and secondary air traffic
control radars; ground, space based, night vision, and reconnaissance
sensors; and electronic warfare and GPS systems. David W. Welp, a Senior Vice
President of Raytheon Company and formerly President of Raytheon TI Systems,
has been appointed an Executive Vice President of Raytheon Systems Company
and General Manager of the Sensors and Electronic Systems segment. Welp will
be supported in his duties by Christine Davis, who has been appointed a
Senior Vice President of Raytheon Systems Company and Deputy General Manager,
Sensors and Electronic Systems. Davis was formerly Senior Vice President and
Manager of the Electronic Systems Division at Raytheon TI Systems.
. C/3/ Systems will focus on command, control and communications systems; air
----------
traffic control systems; tactical radios; satellite communication ground
terminals; wide area surveillance systems; advanced transportation systems;
and simulators and simulation systems. C. Dale Reis, a Senior Vice President
of Raytheon Company and formerly Deputy General Manager of Raytheon
Electronic Systems, has been appointed an Executive Vice President of
Raytheon Systems Company and General Manager of the C/3/ Systems segment.
. Intelligence, Information and Aircraft Integration Systems will focus on
----------------------------------------------------------
ground-based information processing systems; large scale information
retrieval, processing and distribution systems; global broadcast systems;
airborne surveillance and intelligence systems integration; aircraft
modification; and head-of-state aircraft systems. Brian D. Cullen, a Vice
President of Raytheon Company and formerly Senior Vice President, Airborne
Systems Division at Raytheon E-Systems, has been appointed an Executive Vice
President of Raytheon Systems Company and General Manager of Intelligence,
Information and Aircraft Integration Systems. Cullen will be supported in his
duties by Terry W. Heil, a Vice President of Raytheon Company, who has been
<PAGE>
appointed a Senior Vice President of Raytheon Systems Company and Deputy
General Manager, Intelligence, Information and Aircraft Integration Systems.
Heil was formerly Senior Vice President, Intelligence and Communication
Systems Division at Raytheon E-Systems.
. Training and Services will focus on training services and integrated
---------------------
training programs; technical services; and logistics and lifetime support.
Francis S. Marchilena, a Vice President of Raytheon Company and formerly
Assistant General Manager of Raytheon Electronic Systems, has been appointed
an Executive Vice President of Raytheon Systems Company and General Manager
of the Training and Services segment. Marchilena will be supported in his
duties by Philip T. Le Pore, who has been appointed a Senior Vice President
of Raytheon Systems Company and Deputy General Manager, Training and
Services. Le Pore was formerly President of Hughes Technical Services
Company.
"With this first-class team in place, we will now finalize the specific actions
necessary to make Raytheon Electronic Systems, Raytheon TI Systems, Raytheon
E-Systems and Hughes defense into a unified organization that will lead the
industry in quality and value," added Swanson "We expect to announce additional
details about Raytheon Systems Company in January."
The Commercial Businesses of Raytheon Company
- ---------------------------------------------
In addition to its defense activities, Raytheon competes in a variety of
commercial businesses. Raytheon Aircraft Company (RAC) is a world leader in
general aviation, offering the most extensive product line in the industry.
Additionally, RAC provides special mission aircraft, aircraft maintenance
services, target drones and aircraft training systems to the military services.
RAC won the 1995 competition for the multi-billion dollar, next-generation Joint
Primary Aircraft Training System (JPATS) trainer for the U.S. Air Force and U.S.
Navy.
Raytheon Engineers and Constructors (RE&C) is one of the largest engineering,
construction, and operations and maintenance organizations in the world. Its
markets include: fossil-fuel and nuclear power; petroleum and gas; polymers and
chemicals, pharmaceuticals and biotechnology; metals, mining and light industry;
food and consumer products, and pulp and paper, among others.
<PAGE>
In commercial electronics, Raytheon is a leader in marine electronics and
microelectronics. Raytheon Marine supplies marine radars, depth sounders,
radios, autopilots, fish finders, navigation aids, GPS receivers as well as
complete solutions to integrated bridge control, communication systems, GPS and
gyro compasses. In the area of microelectronics, Raytheon specializes in the
use of gallium arsenide Monolithic Microwave Integrated Circuit (MMIC)
technology and is deploying MMIC technology to global satellite communications,
direct broadcast satellite television receivers, wireless local area networks
and next-generation digital cellular telephones.
Raytheon Company, with headquarters in Lexington, Mass. is an international high
technology company which operates in commercial and defense electronics,
engineering and construction, aircraft, and appliances. The company celebrates
its 75th anniversary this year.
###
NOTE: This press release contains forward-looking statements that involve a
number of risks and uncertainties. Important factors that could cause actual
results to differ materially from those indicated by such forward-looking
statements are set forth under "Item 1--Business" of Raytheon's Annual Report on
Form 10-K for the year ended December 31, 1996. These include the ability to
integrate Hughes Defense with Raytheon, including Raytheon TI Systems ("RTIS").
The combination of Raytheon, RTIS and Hughes Defense will require, among other
things, integration of RTIS and Hughes Defense organizations, business
infrastructure and products with those of Raytheon in a way that enhances the
performance of the combined businesses. The challenges posed by these
transactions include the integration of numerous geographically separated
manufacturing facilities and research and development centers. The success of
this transition to an integrated entity will be significantly influenced by
Raytheon's ability to retain key employees, to integrate differing management
structures and to realize anticipated cost synergies, all of which will require
significant management time and resources.
<PAGE>
EXHIBIT 99.2
NEW RAYTHEON PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
The following pro forma combined condensed financial statements have been
prepared by Raytheon's management from Raytheon's historical consolidated
financial statements and from the historical financial statements of TI Defense
and Hughes Defense. The pro forma combined condensed statement of earnings
reflects adjustments as if the TI Acquisition and the Merger had occurred on
January 1, 1996. The pro forma combined condensed balanced sheet reflects
adjustments as if the Merger had occurred on September 28, 1997. The pro forma
adjustments described in the accompanying notes are based upon preliminary
estimates and certain assumptions that Raytheon management believes are
reasonable in such circumstances.
The pro forma combined condensed financial statements should be read in
conjunction with Raytheon's Consolidated Financial Statements (including the
notes thereto) included as Appendix C to this document, and with the historical
financial statements of Hughes Defense and TI Defense (including the related
notes thereto), which are included in Appendices D & E, respectively, to this
document.
The pro forma combined condensed financial statements are not necessarily
indicative of what Raytheon's actual financial position or results of
operations would have been if the TI Acquisition and the Merger had occurred on
the applicable date indicated. Moreover, they are not intended to be indicative
of future results of operations or financial position. The pro forma combined
condensed financial statements do not reflect the cost and revenue synergies
associated with such transactions, which Raytheon expects to realize commencing
in the first year of operation.
NEW RATHEON
1
<PAGE>
NEW RAYTHEON PRO FORMA COMBINED CONDENSED STATEMENT OF EARNINGS
FOR THE NINE MONTHS ENDED SEPTEMBER 28, 1997
(IN MILLIONS, EXCEPT PER SHARE)
<TABLE>
<CAPTION>
HISTORICAL
HISTORICAL HISTORICAL PRO FORMA PRO FORMA HUGHES PRO FORMA PRO FORMA
RAYTHEON TI DEFENSE ADJUSTMENTS COMBINED DEFENSE ADJUSTMENTS COMBINED
---------- ---------- ----------- --------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales............... $9,669 $824 $10,493 $5,157 $15,650
------ ---- ----- ------- ------ ---- -------
Cost of sales........... 7,426 638 $ (4)(2a) 8,079 4,272 $(18)(3c) 12,380
(6)(2b) (72)(3d)
35 (2e) 140 (3g)
(10)(2c) (21)(3e)
Amortization of push-
down goodwill.......... 76 (76)(3c) 0
Administration and
selling expenses....... 812 55 867 259 1,126
Research and development
expenses............... 290 44 334 127 461
------ ---- ----- ------- ------ ---- -------
Operating income....... 1,141 87 (15) 1,213 423 47 1,683
------ ---- ----- ------- ------ ---- -------
Interest expense........ 263 263 72 (72)(3i) 263
Interest income......... (24) (24) (24)
Acquisition interest
expense................ 110 (2d) 110 225 (3f) 335
Other (income)/expense.. (12) 2 (10) (10) (20)
------ ---- ----- ------- ------ ---- -------
Income before tax...... 914 85 (125) 874 361 (106) 1,129
------ ---- ----- ------- ------ ---- -------
Federal and foreign
income taxes........... 310 32 (44)(2f) 298 154 (20)(3h) 432
------ ---- ----- ------- ------ ---- -------
Net income............. $ 604 $ 53 $ (81) $ 576 $ 207 $(86) $ 697
====== ==== ===== ======= ====== ==== =======
Earnings per common
share
Outstanding shares..... $ 2.56 $ 2.44 $ 2.06
Fully diluted.......... $ 2.51 $ 2.39 $ 2.03
Average common shares
Outstanding............ 236 236 103 339
Fully diluted.......... 241 241 103 344
</TABLE>
See accompanying notes to pro forma combined condensed financial statements.
NEW RAYTHEON
2
<PAGE>
NEW RAYTHEON PRO FORMA COMBINED CONDENSED STATEMENT OF EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN MILLIONS, EXCEPT PER SHARE)
<TABLE>
<CAPTION>
HISTORICAL
HISTORICAL HISTORICAL PRO FORMA PRO FORMA HUGHES PRO FORMA PRO FORMA
RAYTHEON TI DEFENSE ADJUSTMENTS COMBINED DEFENSE ADJUSTMENTS COMBINED
---------- ---------- ----------- --------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales............... $12,331 $1,800 $14,131 $6,383 $20,514
Cost of sales........... 9,755 1,415 $ (6)(2a) 11,169 5,216 $ (18)(3c) 16,430
(12)(2b) (95)(3d)
69 (2e) 187 (3g)
(52)(2c) (29)(3e)
Amortization of push-
down goodwill.......... 101 (101)(3c) 0
Administration and
selling expenses 1,021 129 1,150 301 1,451
Research and development
expenses............... 323 78 401 192 593
Special charges......... 34 0 34 0 34
------- ------ ----- ------- ------ ----- -------
Operating income....... 1,198 178 1 1,377 573 56 2,006
------- ------ ----- ------- ------ ----- -------
Interest expense........ 256 256 92 (92)(3i) 256
Interest income......... (102) (102) (102)
Acquisition interest
expense................ 198 (2d) 198 300 (3f) 498
Other (income)/expense.. (40) 3 (37) (9) (46)
------- ------ ----- ------- ------ ----- -------
Income before tax...... 1,084 175 (197) 1,062 490 (152) 1,400
------- ------ ----- ------- ------ ----- -------
Federal and foreign
income taxes........... 322 66 (69)(2f) 319 209 (29)(3h) 499
------- ------ ----- ------- ------ ----- -------
Net income............. $ 762 $ 109 $(128) $ 743 $ 281 $(123) $ 901
======= ====== ===== ======= ====== ===== =======
Earnings per common
share..................
Outstanding shares..... $ 3.21 $ 3.14 $ 2.65
Fully diluted.......... $ 3.16 $ 3.08 $ 2.62
Average common shares
Outstanding............ 237 237 103 340
Fully diluted.......... 241 241 103 344
</TABLE>
See accompanying notes to pro forma combined condensed financial statements.
NEW RAYTHEON
3
<PAGE>
NEW RAYTHEON PRO FORMA COMBINED CONDENSED BALANCE SHEET
AS OF SEPTEMBER 28, 1997
(IN MILLIONS)
<TABLE>
<CAPTION>
HISTORICAL
HISTORICAL PRO FORMA HUGHES PRO FORMA PRO FORMA
RAYTHEON RECLASSIFICATIONS COMBINED DEFENSE ADJUSTMENTS COMBINED
---------- ----------------- --------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets
Cash and marketable
securities........... $ 268 $ 268 $ 73 $ (73)(3b) $ 268
Accounts receivable... 954 $(207)(2g) 747 687 1,434
Contracts in process.. 3,148 395 (2g) 3,543 1,579 (190)(3b) 4,932
Inventories........... 1,653 (188)(2g) 1,465 445 1,910
Other................. 531 531 263 794
------- ----- ------- ------ ------ -------
Total current
assets............. 6,554 6,554 3,047 (263) 9,338
Property, plant and
equipment, net....... 2,047 2,047 1,095 8 (3b) 3,150
Cost in excess of net
assets acquired...... 5,954 5,954 2,892 (2,892)(3b) 13,464
7,510 (3b)
Pension asset......... 1,075 (3b) 1,075
Other assets.......... 701 701 128 203 (3b) 1,032
------- ------- ------ ------ -------
Total assets........ $15,256 $15,256 $7,162 $5,641 $28,059
======= ======= ====== ====== =======
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and
current portion of
long-term debt....... $ 2,175 $ 2,175 $ 119 $2,310 (3a) $ 4,604
Advance payments...... 389 389 310 699
Accounts payable...... 1,265 1,265 327 1,592
Other................. 1,516 1,516 780 543 (3b) 2,839
------- ------- ------ ------ -------
Total current
liabilities........ 5,345 5,345 1,536 2,853 9,734
Long-term debt and
capitalized leases..... 4,386 4,386 32 2,130 (3a) 6,548
Other................... 510 510 328 859 (3b) 1,697
Stockholders' equity:
Common stock at par... 236 236 103(3a) 339
Additional paid-in-
capital.............. 313 313 4,962(3a) 5,275
Retained earnings....... 4,466 4,466 5,266 (5,266)(3b) 4,466
------- ------- ------ ------ -------
Total stockholders'
equity............. 5,015 5,015 5,266 (201) 10,080
------- ------- ------ ------ -------
Total liabilities
and stockholders'
equity............. $15,256 $15,256 $7,162 $5,641 $28,059
======= ======= ====== ====== =======
</TABLE>
See accompanying notes to pro forma combined condensed financial statements.
NEW RAYTHEON
4
<PAGE>
NOTES TO NEW RAYTHEON PRO FORMA
COMBINED CONDENSED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying pro forma combined condensed statements of earnings present
the historical results of operations of Raytheon, TI Defense and Hughes Defense
for the year ended December 31, 1996 and for the nine months ended September
28, 1997, with pro forma adjustments as if the TI Acquisition and the Merger
had taken place on January 1, 1996. The historical results of operations of
Raytheon for the nine months ended September 28, 1997 includes the financial
results for Raytheon TI Systems from July 11, 1997. The historical results of
operations of TI Defense includes financial results for the six month period
ending June 29, 1997. The TI Defense financial results for the period from June
30, 1997 to July 10, 1997 were not material. The pro forma combined condensed
balance sheet presents the historical balance sheets of Raytheon and Hughes
Defense as of September 28, 1997, with pro forma adjustments as if the Merger
had been consummated as of September 28, 1997, in a transaction accounted for
as a purchase for financial accounting purposes in accordance with generally
accepted accounting principles.
Certain reclassifications have been made to the historical financial
statements of Raytheon, TI Defense and Hughes Defense to conform to the pro
forma combined condensed financial statement presentation on a consistent
basis.
2. PRO FORMA ADJUSTMENTS--TI DEFENSE
The following adjustments give pro forma effect to the TI Acquisition (in
millions):
<TABLE>
<C> <S>
(a) Adjustment to eliminate the amortization of intangible assets of TI
Defense which would not have been incurred if the TI Acquisition had
occurred on January 1, 1996.
(b) Adjustment to reflect the effect on 1996 and 1997 results relating to
a net reduction of accumulated contract costs as an allowance for
Raytheon's normal profit on its efforts to complete such contracts,
and other contract valuation adjustments.
(c) Elimination of $32 of non-recurring employee related costs and $20 of
non-recurring corporate allocations from the parent of TI Defense as
a result of the TI Acquisition for the year ended December 31, 1996
and $10 of non-recurring corporate allocations for the six months
ending June 29, 1997.
(d) Adjustments which represent additional estimated interest expense
resulting from the use of borrowings to finance the TI Acquisition
and incremental interest on Raytheon's pre-TI Acquisition variable
rate borrowings to reflect the change in credit rating as a result of
the TI Acquisition.
(e) The amortization of excess of costs over acquired net assets over an
estimated life of 40 years. Such amortization expense is subject to
possible adjustment resulting from the completion of the valuation
analyses. Raytheon expects that any subsequent adjustment would not
materially affect the combined pro forma results.
(f) The estimated tax effect on the applicable pro forma adjustments.
(g) Reclassifications made to conform the TI Defense historical financial
statements to the unaudited pro forma combined condensed financial
statement presentation.
</TABLE>
NEW RAYTHEON
5
<PAGE>
NOTES TO NEW RAYTHEON PRO FORMA
COMBINED CONDENSED FINANCIAL STATEMENTS
3. PRO FORMA ADJUSTMENTS--HUGHES DEFENSE
The following adjustments give pro forma effect to the Merger (in millions):
<TABLE>
<C> <S> <C>
(a) To record the exchange consideration at closing:
Purchase price ($9,500 less acquired debt of $120)......... $9,380
======
(Assumed financing is based on the price per share of
Raytheon Common Stock at the announcement date of the
merger:
Equity--102,634 thousand shares at assumed market value of
$49.35 per share totals $5,065. $49.35 represents the mid-
point of the market price collar mechanism. Neither the use
of other market price assumptions within the range, nor the
use of the highest recent closing price of Raytheon Common
Stock of $60.25 on October 2, would have a significant
effect on pro forma results.
Debt--$4,435 less $120 of debt assumed plus acquisition
costs of $125 totals $4,440 to be financed with a
combination of variable rate short-term borrowings of
$2,310 and fixed rate medium- and long-term borrowings of
$2,130 at an average interest rate of 6.37%).
To adjust the assets and liabilities to their estimated
(b) fair values:
Net assets of Hughes Defense at September 28, 1997......... 5,266
Additional assets to be recorded in the Merger............. 45
Additional liabilities to be recorded in the Merger........ (94)
Cash not included in the Merger............................ (73)
Contracts in process valuation adjustments................. (190)
Accrual for future lease cost in excess of fair market
value...................................................... (264)
Provision for the estimated exit costs of integrating
acquired operations........................................ (495)
To include pension assets and reflect fair market value
less the projected benefit obligation...................... 892
To include the liability for post-retirement benefits other
than pensions.............................................. (366)
Deferred tax benefits...................................... 166
Costs in excess of net assets of Hughes Defense............ 7,510
Acquisition costs.......................................... (125)
Elimination of Hughes Defense goodwill..................... (2,892)
------
$9,380
======
</TABLE>
<TABLE>
<C> <S>
(c) Adjustment to eliminate the amortization of intangible assets of
Hughes Defense which would not have been incurred if the Merger had
occurred on January 1, 1996.
(d) Adjustment to reflect the effect on 1996 and 1997 results relating to
a net reduction of accumulated contract costs as an allowance for
Raytheon's normal profit on its efforts to complete such contracts.
(e) Elimination of $29 of non-recurring corporate allocation from the
parent of Hughes Defense as a result of the Merger for the year ended
December 31, 1996 and $21 for the nine months ended September 28,
1997.
(f) Adjustments which represent additional estimated interest expense
resulting from the use of borrowings to finance the Merger and
incremental interest on Raytheon's pre-Merger variable rate
borrowings to reflect the change in credit rating as a result of the
Merger.
</TABLE>
NEW RAYTHEON
6
<PAGE>
NOTES TO NEW RAYTHEON PRO FORMA
COMBINED CONDENSED FINANCIAL STATEMENTS
<TABLE>
<C> <S>
(g) The amortization of excess of costs over acquired net assets over an
estimated life of 40 years. Such amortization expense is subject to
possible adjustment resulting from the completion of the valuation
analyses. Raytheon expects that any subsequent adjustment would not
materially affect the combined pro forma results.
(h) The estimated tax effect on the applicable pro forma adjustments.
(i) Elimination of Hughes Defense interest expense.
(j) The purchase price to be paid is subject to adjustment based on the
actual net assets at the time of the closing and the amount of debt
and equity to be issued is subject to adjustment based on the price
of Raytheon Common Stock at the closing.
</TABLE>
4. OTHER
On September 10, 1997 Raytheon consummated the sale of its home appliance
heating and air conditioning and commercial cooking businesses to Goodman
Manufacturing Co., L.P. for an aggregate amount of $550 million in cash,
subject to certain changes in the net working capital of such businesses
between December 31, 1996 and the closing date of the transaction. The 1996
sales, operating income, net income and total assets of the businesses sold
were not material to Raytheon's results of operations and as such the sale of
these businesses was not included in the pro forma financial statements.
The Department of Justice and Raytheon entered into an agreement regarding
the TI Acquisition on July 2, 1997, pursuant to which Raytheon agreed to divest
the Gallium Arsenide foundry and Monolithic Microwave Integrated Circuit
business of the R/F Microwave business unit of Texas Instruments after closing
the transaction. The business, which accounted for less than $40 million in
1996 revenues, was not material and as such the sale of this business has not
been included in the pro forma financial statements.
On October 16, 1997 the Department of Justice filed with the U.S. District
Court for the District of Columbia an agreement among the Department of Justice
Raytheon, GM and HE Holdings regarding the Merger. The agreement, when entered
as a final judgment pursuant to court order, will require Raytheon to divest
portions of Hughes' Electro Optics business and portions of Raytheon TI
Systems' Focal Plane Array business. These two businesses, which together
accounted for less than $55 million in 1996 revenues,were not material and as
such the sale of these businesses has not been included in the pro forma
financial statements.
NEW RAYTHEON
7
