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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
/X/ Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended December 31, 1996.
/ / 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 1-2833
RAYTHEON COMPANY
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 04-1760395
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
141 SPRING STREET, LEXINGTON, MASSACHUSETTS 02173
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (617) 862-6600
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
Common Stock, $1.00 par value New York Stock Exchange
Preferred Stock, No par value Chicago Stock Exchange
Pacific Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: NONE
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 ...
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [x]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant, as of February 23, 1997, was approximately $11,070,735,098. For
purposes of this disclosure, non-affiliates are deemed to be all persons other
than members of the Board of Directors of the Registrant.
Number of shares of Common Stock outstanding as of February 23, 1997:236,293,354
Documents incorporated by reference and made a part of this Form 10-K:
Portions of Raytheon's Annual Report to Stockholders Part I, Part II, Part IV
for the fiscal year ended December 31, 1996
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PART I
Item 1. Business
GENERAL
Raytheon Company ("Raytheon" or the "Company") is an international,
high technology company which operates in four businesses: commercial and
defense electronics, engineering and construction, aircraft and major
appliances. Historically the Company's principal business has been the design,
manufacture and servicing of advanced electronic devices, equipment and systems
for government and commercial use, and Raytheon remains a top tier defense
contractor in the United States. Through a diversification program begun in
1964, Raytheon has become a major competitor in engineering and construction
services, aircraft products and major appliances. In recent years, the Company
has strengthened its businesses through consolidation, operational improvement
and acquisitions and has diversified core defense technologies into commercial
markets while remaining a strong defense company.
Sales to the United States Government (the "Government"), principally
to the Department of Defense ("DOD"), were $5.140 billion in 1996 and $4.677
billion in 1995 representing 41.7% of total sales in 1996 and 39.6% in 1995. Of
these sales, $502 million in 1996 and $597 million in 1995 represented purchases
made by the Government on behalf of foreign governments.
RECENT DEVELOPMENTS
On January 4, 1997, the Company entered into an Asset Purchase
Agreement (the "Asset Purchase Agreement") with Texas Instruments Incorporated
("Texas Instruments") pursuant to which the Company agreed to purchase
substantially all of the assets of, and to assume substantially all of the
liabilities related to, the Defense Systems and Electronics business (the
"Defense Business") of Texas Instruments. The consideration to be paid by the
Company in connection with the purchase of the Defense Business is $2.875
billion in cash, subject to adjustment for certain changes in the net assets of
the Defense Business between September 30, 1996 and the closing date of the
purchase (and not including an additional payment of $75 million in respect of a
related assignment and license of certain related intellectual property).
On January 16, 1997, Raytheon entered into an Agreement and Plan of
Merger (the "Merger Agreement") with HE Holdings, Inc. ("Hughes"), a Delaware
corporation and an indirect, wholly owned subsidiary of General Motors
Corporation, a Delaware corporation ("GM"), pursuant to which Raytheon agreed to
merge with and into Hughes (the "Merger").
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Immediately prior to the consummation of the Merger, Hughes will be
spun off to the holders of GM's $1-2/3 and Class H common stocks in a
transaction intended to be tax-free to Hughes, GM and such holders. Immediately
prior to the spin-off, GM will consummate a series of transactions such that, at
the time of the spin-off Hughes will consist primarily of the defense business
of Hughes Electronics Corporation, the parent corporation of Hughes. In
connection with the spin-off and subsequent merger, two classes of common stock
will be created: Class A common stock, which will be held by GM $1-2/3 and Class
H stockholders after the spin-off; and Class B common stock.
Immediately following the spin-off of Hughes, Raytheon and Hughes will
consummate the Merger. In the Merger, Raytheon stockholders will receive all of
the Class B common stock of the combined company. The Class B common stock will
represent approximately 70 percent of the equity of the combined company, and
the Class A Common stock will represent the remaining equity, approximately 30
percent.
The Merger Agreement provides that Hughes' total debt as of the time of
the Merger will be adjusted to reflect variations in the market price of
Raytheon stock, subject to specified limits. Prior to the Merger, Raytheon has
agreed that Hughes may borrow, and become liable to repay, approximately $4.4
billion, which amount will be contributed by Hughes to GM or another affiliate
of GM that is not a subsidiary of Hughes and the proceeds of which will
therefore not be assets of Hughes as of the time of the Merger. The actual
amount will be determined by subtracting from $9.5 billion any other outstanding
debt of Hughes as of the effective time of the Merger and the product of (x) the
number of shares of Class A common stock to be issued to GM stockholders
(102,630,503 shares) and (y) the average closing market price of the Company's
Common Stock during the 30-day period ending on the fifth day prior to
consummation of the Merger; provided that in the event such average price is
less than $44.42, it will be deemed to be $44.42, and in the event such price is
more than $54.29, it shall be deemed to be $54.29. Based on the midpoint of this
range, approximately $5.1 billion in common stock would be issued to the Class A
stockholders. The balance of the $9.5 billion transaction value would then be
made up of approximately $4.4 billion in Hughes debt. Such debt would become a
liability of the combined company.
The transaction is subject, among other things, to approval of the
Company's stockholders, certain regulatory approvals (including
Hart-Scott-Rodino antitrust review), approval by the holders of GM $1-2/3 and
Class H common stocks and receipt by GM of rulings from the Internal Revenue
Service relating to certain federal tax consequences of the transaction.
On February 23, 1997, the Company announced its intention to explore
strategic alternatives for the Appliance Group, including its possible sale.
Proceeds from such a sale would be used to reduce the debt to be incurred in
connection with the acquisition of the defense business of Texas Instruments and
the merger with Hughes. The Company believes that the sale of the Appliance
Group would allow the Company to focus on its core businesses, defense
electronics, engineering and construction, and aircraft, while also helping to
reduce its debt level.
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ENGINEERING AND CONSTRUCTION SEGMENT
The Engineering and Construction segment is one of the largest
engineering, construction and operations and maintenance organizations in the
world with approximately 16,800 employees. It offers a full range of program
management capabilities including project planning, financing, process
development, engineering, design, construction, start-up, operations and
maintenance services. Its markets include: fossil and nuclear power; petroleum
and gas; polymers and chemicals; pharmaceuticals and biotechnology; metals,
mining, and light industry; pulp and paper; food and consumer products;
environmental services, including chemical munitions destruction; infrastructure
and transportation; test range, base and facilities management and maintenance;
and air traffic control support services.
Raytheon Engineers & Constructors was formed in 1993 through the
consolidation of United Engineers & Constructors, Badger, Raytheon Service
Company and Cedarapids. During 1993 Raytheon Engineers & Constructors acquired
the infrastructure, power and construction operations of Ebasco Services
Incorporated. In July 1995 Raytheon Engineers & Constructors purchased assets of
Houston-based Litwin Engineers & Constructors, adding to the Company's refining
and petrochemical capabilities. During 1996, Raytheon Engineers & Constructors
acquired the pulp and paper, industrial process engineering and construction
assets of Rust International Inc.
Raytheon Engineers & Constructors undertakes some engineering and
construction projects on a firm fixed price basis ("lump sum turnkey") and as a
result benefits from cost savings and carries the burden of cost overruns.
Raytheon Service Company is one of the nation's leading government
technical support contractors. It provides operations, maintenance and support
services for many U.S. defense systems, including SSPARS and BMEWS early warning
radars; the U.S. Air Force's Eastern Range; the Army's Kwajalein Missile Range
in the Pacific, and the Navy's Atlantic Undersea test and evaluation centers in
the Atlantic. Raytheon also provides technical support services to the Federal
Aviation Administration.
The segment offers rock-crushing, asphalt-mixing and asphalt-paving
equipment under the Cedarapids name to customers in the U.S. and
internationally. It also performs steel and vessel fabrication and markets
on-site soil remediation systems that remove gasoline and diesel fuel
contaminants.
AIRCRAFT SEGMENT
In 1994 Raytheon combined Beech Aircraft and Raytheon Corporate Jets to
form Raytheon Aircraft. The segment offers the broadest product line in general
and business aviation manufacturing, marketing and supporting piston-powered
aircraft, turboprops and midsize and light jets for the world's commercial,
regional airline and military markets. Raytheon Aircraft remained the premier
general aviation manufacturer in 1996, leading the industry in total fixed wing
aircraft shipments for business and government customers.
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Raytheon Aircraft's piston-powered aircraft line includes the famous
single-engine Beech Bonanza and the twin-engine Beech Baron aircraft for
business and personal flying. The segment's King Air jetprop series --
introduced in 1964 -- includes the Beech King Air's C90, B200 and 350, which
have outsold every line of business jet and turboprop since entering the market.
The jet line includes the Beechjet 400A and the Hawker midsize business jet line
consisting of the Hawker 1000 and the Hawker 800XP (Extended Performance).
Raytheon Aircraft is the leading producer of 19-passenger regional airliners,
selling the Beech 1900D stand-up cabin aircraft to commuter airlines and
corporate customers. In September 1995, Raytheon Aircraft introduced a new light
business jet, the Raytheon Premier I. In November 1996, Raytheon Aircraft
introduced a new super midsize business jet, the Hawker Horizon.
The segment supplies aircraft training systems for the military,
including the Beech Pilatus PC-9MkII trainer selected as the next-generation
trainer for the U.S. Air Force and Navy under the Joint Primary Aircraft
Training (JPATS) contract. Deliveries are scheduled to begin in 1998. Raytheon
Aircraft also produces the U.S. Air Force's T-1A trainer, the military
counterpart of the Beechjet 400A light jet, a C-12 militarized version of the
King Air B200 and the U-125 search-and-rescue variant of the Hawker 800. The
T-1A Jayhawk contract will be completed in 1997. It also produces two missile
target drones for U.S. and allied forces.
Raytheon Aerospace manages more than 1,700 aircraft at over 160 sites
around the world and provides total contractor logistics and training support
for military and other government aircraft and missile target systems. Raytheon
Aircraft Services operates a network of business aviation service operations at
airports across the U.S.
MAJOR APPLIANCES SEGMENT
The Major Appliances segment, which merged its Amana Refrigeration,
Inc. and Speed Queen Company subsidiaries in 1996 to form Raytheon Appliances,
manufactures and sells household and commercial appliances under the Amana,
Speed Queen, UniMac, Huebsch and Menumaster brand names. Products include
refrigerators, gas and electric ranges, cooktops, wall ovens and microwave
ovens, home washers and dryers and commercial laundry equipment for use in coin
laundries and institutional settings, freezers, dishwashers, room air
conditioners, furnaces, package terminal air conditioners, central air
conditioning systems, heat pumps and commercial microwave ovens. Home appliance
products are sold to dealers for resale to the customer and to home builders for
incorporation into new homes and apartments. Commercial appliances are sold to
distributors for resale to installing dealers or contractors.
Raytheon Appliances offers several industry-exclusive features
including refrigerators with beverage chillers, Tempasure system, adaptive
defrost control and the industry's only U.S. produced bottom mount freezer
configuration; top load laundry equipment with stainless steel wash baskets and
dryer drums; Quartz halogen cooktops with ten-position, variable intensity
control systems for more even heating and the first compact commercial
convection microwave oven in North America.
The Company's heating and air conditioning, refrigerator and microwave
oven, cooking appliance and laundry manufacturing facilities are the first U.S.
plants in their respective industries to be certified to ISO 9001, the most
stringent of the ISO 9000 international series of manufacturing quality
standards.
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ELECTRONICS SEGMENT
Raytheon's principal business is the design, manufacture and servicing
of advanced electronic devices, equipment and systems for governmental and
commercial customers.
Raytheon Electronic Systems (RES). RES produces the Patriot
ground-based air defense missile system, which is capable of simultaneously
tracking and intercepting enemy aircraft, cruise missiles, and tactical
ballistic missiles. In addition to the U.S., seven foreign nations have selected
Patriot as an integral part of their air defense systems, including Germany, The
Netherlands, Israel, Japan, Saudi Arabia, Kuwait, and the Republic of China
(Taiwan). Since the end of the Gulf War in 1991, Raytheon has received
approximately $3 billion in foreign orders for Patriot equipment and services.
RES is the prime contractor for the Hawk ground-launched missile, which
is owned by 18 Allied nations in addition to the U.S. Recent major Hawk upgrade
contracts have been received from Spain, Saudi Arabia and Egypt.
A joint venture of RES and Hughes Aircraft Company is one of two
contractors currently working on the program definition/validation phase of the
Medium Extended Air Defense System (MEADS)--a U.S./European program with
potential value in the billions of dollars. MEADS will provide U.S. and Allied
Forces with missile batteries, sensors, and command and control systems that
will move with and protect maneuver forces from observation and attack by enemy
air forces and tactical missiles. One contractor team will be selected in 1999
to continue the program.
RES is a major developer of ground-based phased-array radars, including
the Ground-Based Radar (GBR) for the Theater High Altitude Area Defense (THAAD)
system, the U.S. Army's newest Theater Missile Defense Program.
In 1995 Raytheon and Hughes Aircraft Company formed a joint venture
(Standard Missile Company) which is owned 50% by each partner. All orders for
Standard Missile are contracted with Standard Missile Company by the Navy and
subcontracted to Raytheon and Hughes. RES manufactures the U.S. Navy's Standard
Missile at its Bristol, Tennessee factory and was the design agent for the
next-generation Standard Missile-2 Block IV (Aegis-ER) which is now in low rate
production.
RES is the prime contractor for the NATO Sea-Sparrow Surface to Air
Missile System (NSSMS) and produces the air and surface launched versions of the
Sparrow missile, the MK-48 Vertical Launch System and the MK-73/93 CWI
transmitters for both the U.S. and foreign Navies.
RES manufactures the primary air-to-air missile for U.S. Air Force and
Navy fighter aircraft--the Advanced Medium Range Air-to-Air Missile (AMRAAM).
RES is the prime contractor for the U.S. Army's Enhanced Fiber Optic
Guided Missile (EFOGM) demonstration program--a key part of the U.S. Army Rapid
Force Projection Initiative, which will provide rapidly deployable, lethal and
highly survivable technologies to the U.S. early entry forces.
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RES produces a variety of shipboard radar systems for the Arleigh
Burke-class destroyers, such as the Aegis AN/SPY-1D transmitters and Mk 99 fire
control units. Nearly every U.S. Navy ship carries at least one Raytheon
radar/fire control system, which includes the Tartar, SPS-49, and Seasparrow
systems.
RES is working on the engineering and manufacturing development of the
Joint Tactical Combat Training System (JTCTS), a joint U.S. Navy and Air Force
effort to develop and procure tactical training range systems configured for
mobile, fixed, and transportable applications for both shore-based and forward
deployed tactical training.
RES builds military communications systems, including the Air Forces's
Milstar satellite communications terminals and the Navy's Extremely High
Frequency Satellite Communications Program (NESP) terminals. In 1996, RES was
selected to develop and produce the U.S. Army's Secure Mobile Antijam Reliable
Tactical Terminal (SMART-T) system, the Tri-Band Super High Frequency Tactical
Terminals for HMMWV variant (T3[H]), and the high data rate submarine terminal
(HDR) for the U.S. Navy.
RES also builds a family of extended environment (E2) COTS computers
and workstations and in 1995 won a contract to replace the mission computer on
the Navy's E-2C surveillance aircraft using a Raytheon-developed Model 940
computer based on Digital Equipment Corporation's 64-bit Alpha chip technology.
The French AWACS will also utilize E2 COTS computers.
In Command, Communications, Control, Computer and Intelligence (C4I),
RES is working on an Army contract to develop a high-speed intelligence
correlation system called MICOR and a program to monitor weapon effectiveness
known as the Joint Precision Strike Demonstration (JPSD).
RES, through its UK subsidiary, Raytheon Cossor produces a full line of
IFF interrogators and transponders as well as military global positioning system
(GPS) receivers and nulling adaptive antennas. Raytheon Cossor is also a world
leader in manufacturing airport secondary surveillance radars.
RES develops sonars, combat control systems and minehunting equipment
for submarines and ships in U.S. and allied fleets in addition to designing
unmanned underwater vehicles and laser sensors. Examples include the CCS Mk 2
submarine combat control system upgrade, the AN/SQQ-32 minehunting sonar system
and the Mk 30 Mod 2 training target system for antisubmarine warfare training.
RES is part of a team that recently won a contract to design, develop,
integrate, and test the command, control, communications and intelligence (C3I)
sonar, combat control, and architecture subsystems for the U.S. Navy's
next-generation attack submarine--the New Attack Submarine or NSSN. In addition,
the GD Marine Bath Iron Works Raytheon SAIC team was one of three contractors
down-selected for the Phase II functional design effort for the Navy's Arsenal
Ship program.
RES Engineering Laboratories perform applied research on advanced
materials, electro-optics, infrared detectors, digital technology and microwave
semiconductors. The laboratories are making important contributions in the areas
of advanced microwave and millimeter-wave components for radar and missile
guidance systems and military communications; flat panel field emission
displays; electronically steered optical phased array development; surface
acoustic wave stabilized oscillator technology; diamond coating technology; and
free-standing diamond plate development.
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Raytheon E-Systems, Inc. Acquired in May 1995, Raytheon E-Systems
specializes in intelligence, reconnaissance and surveillance systems; command
and control; specialized aircraft maintenance and modification; guidance,
navigation and control, communications and data systems.
Raytheon E-Systems' core business is focused on intelligence,
reconnaissance and surveillance. Many of these programs are classified,
involving the development or upgrading of sensors, platforms, ground processing
for and integration of complex systems. Raytheon E-Systems is an industry leader
in software development for highly complex information systems having developed
millions of lines of code that is currently operational. Raytheon E-Systems is
also a pioneer in the application of advanced high performance supercomputer
systems. In 1996 this unit was awarded a contract valued at approximately $170
million to develop and maintain a major shared resource center at the U.S. Army
Research Laboratory at Aberdeen Proving Ground in Maryland. The total contract
encompasses a suite of computers, software, development tools, training, and
user support. When completed, the Army Research Laboratory system will be one of
the single largest computing engines in the world. In 1994, E-Systems won major
P3-C airframe refurbishment contracts from the U.S. Navy and the Royal
Australian Air Force. The Australian contract covers upgrades to all mission
equipment and cockpit displays, communications and navigation systems and the
integration of new equipment. The U.S. Navy project is designed to extend the
operational life of its P-3C maritime aircraft fleet.
During 1996, Raytheon acquired the aircraft modification and defense
electronics businesses of Chrysler Technologies. These operations are now part
of Raytheon E-Systems. The two Chrysler Technologies operations complement
Raytheon E-Systems existing programs, technologies, and customers. They will
supplement Raytheon E-Systems' expertise in engineering design and systems
integration, aircraft modification and flight testing, corrosion control on
large wide-body aircraft, and development and production of satellite
communications, secure communications and electronic warfare systems.
In the area of Command, Communications, Control, Computer and
Intelligence (C4I) systems, Raytheon E-Systems was awarded a U.S. Navy contract
in 1994 for the Cooperative Engagement Capability program. This system will
network information from every ship in a battle group to extend perimeter
defenses and vastly improve reaction time. Raytheon E-Systems has a number of
other products in the C4I area including the Global Command and Control System
maintenance and technical support contract award in 1996 to Raytheon E-Systems
by Defense Information Systems Agency and a U.S. Navy contract for the E-6B
command post modification.
Raytheon E-Systems designs and builds advanced electronic
countermeasures systems to protect U.S. and allied ships and planes against
enemy strikes. These systems include the AN/ALQ-184 airborne countermeasures pod
for the Air Force and AN/SLQ-32 shipboard jamming system for the Navy. Raytheon
E-Systems also has considerable capabilities in large scale image processing and
advanced signal processing.
Commercial Initiatives. Raytheon has successfully expanded its defense
capabilities into commercial markets such as environmental monitoring, air
traffic control, transportation and data management.
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A leader in the field of wide-area environmental surveillance, RES won
an international competition to develop and produce the System for the
Surveillance of the Amazon (SIVAM)--an environmental monitoring system that will
help Brazil protect natural resources, sustain economic growth and support
proper land use, conservation and development in the Amazon region. On March 14,
1997, Raytheon announced that the SIVAM contract had been signed by the
government of Brazil and that all financing agreements for the program had been
finalized. The system is based on an integrated network of telecommunications,
remote satellite sensing and imagery and ground-based and airborne sensors
controlled by regional and national coordination centers. Combining its
pioneering electronics technology and aviation expertise, Raytheon has developed
the Guardian airborne surveillance system. Using highly interactive surveillance
capabilities, the flight-proven Guardian performs extensive data gathering
activities for missions ranging from environmental control to drug interdiction.
Raytheon E-Systems' capabilities in environmental monitoring include expertise
ground-based image processing.
Raytheon E-Systems has entered the commercial marketplace with
satellite imagery applications based on precision technologies previously
developed for military use. A strategic initiative in this area is Space
Imaging, Inc., a partnership among Raytheon E-Systems, Lockheed Martin
Corporation, Mitsubishi Corporation, and other investors. During 1996, Space
Imaging merged with EOSAT Company, which gives it the capability to sell
five-meter imagery Earth information from a constellation of satellites
including the Indian Remote Sensing Satellite. In December 1997, Space Imaging
plans to launch a satellite which will yield images with a resolution of one
meter.
RES designs and installs air traffic control (ATC) and weather systems
at airports worldwide. Raytheon is the world's leading manufacturer and supplier
of air traffic control systems and radars. Some of the countries Raytheon is
providing ATC systems and radars for include The Netherlands, India, Norway,
Switzerland, Australia, Germany, Oman, Hong Kong, Jamaica, Cyprus, China, and
Taiwan. Raytheon is supplying the Royal Australian Air Force with a new defense
and air traffic system under a $124 million contract.
RES recently won a contract valued at $619.9 million for the Digital
Airport Surveillance Radar (DASR) program--a joint procurement by the DOD for
the U.S. Air Force and Navy, and the Federal Aviation Administration. RES's
Raytheon Canada subsidiary is providing the primary surveillance radars for the
program.
In September 1996, a team led by RES won the FAA/DOD Standard Terminal
Automation Replacement System (STARS) program, which is potentially worth $1
billion and will modernize and upgrade approximately 370 air traffic control
sites across the United States.
Raytheon's Terminal Doppler Weather Radar (TDWR) system is being
installed at 42 sites across the U.S. and Puerto Rico, and the company in 1994
won its first international TDWR contract for the Hong Kong airport. TDWR uses
Doppler radar technology to warn air traffic controllers of sudden wind shifts,
such as microbursts, which have been blamed for numerous aircraft accidents,
particularly during takeoff or landing.
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In partnership with the Regional Transportation Authority of
Northeastern Illinois, RES is developing a Personal Rapid Transit (PRT) system
for Rosemont, Illinois that will enable people to travel to their destinations
on demand and without intermediate stops. Raytheon has build a PRT test track at
RES's Marlborough, Massachusetts facility, and operational testing is ongoing.
Raytheon E-Systems has strong capabilities in communications and data
management technologies, including data storage and retrieval systems; image
management and communications networks for medical applications; and the
development and maintenance of a nationwide computer network to catalog and
track student loans for the U.S. Department of Education.
Raytheon Electronics. Raytheon Electronics consists of Raytheon
Marine Company, Raytheon Semiconductor, Seiscor Technologies, Inc.,
Raytheon Microelectronics and Switchcraft, Inc.
Raytheon Marine supplies marine radars, depth sounders,
radiotelephones, autopilots, fish finders, ECDIS and navigation aids, GPS and
Loran receivers and other marine electronics under the Raytheon, Apelco and
Autohelm labels in the U.S. and abroad. Acquired in 1995, Raytheon Anschtz GmbH,
located in Kiel, Germany, is one of the world's leading manufacturers of gyro
compasses, autopilots, steering control systems, and integrated bridge systems
for the commercial and military marine market.
In microelectronics and components Raytheon is developing the Main
Mission Antenna transceiver systems for the IRIDIUM global satellite
communications project, which is designed to provide voice, paging, data,
facsimile and location services anywhere on Earth. The antenna systems use
Raytheon Microelectronics' gallium arsenide monolithic microwave integrated
circuit ("MMIC") technology. Raytheon is also using its MMIC technology to
develop direct broadcast satellite television receivers, wireless local area
networks and next-generation digital cellular phones.
Raytheon also produces a line of silicon semiconductor components --
specializing in multi-media and PC voltage regulators -- at its Semiconductor
Division. Raytheon provides a wide range of electronic components under the
Switchcraft label, including jacks and plugs, switches and connectors. Raytheon
designs and manufactures telephone transmission equipment, including
state-of-the-art digital loop-carrier equipment at its Seiscor Technologies
subsidiary.
During the fourth quarter of 1995, Raytheon sold its D.C. Heath and
Company publishing division to Houghton Mifflin Company for $455 million.
Financial information about Operations by Business Segments and
Operations by Geographic Areas is contained on page 46 of Raytheon's
1996 Annual Report to Stockholders and is incorporated herein by
reference.
GOVERNMENT CONTRACTS
The Company and various subsidiaries act as a prime contractor or major
subcontractor for many different Government programs including those that
involve the development and production of new or improved weapons or other types
of electronics systems or major components of such systems. Over its lifetime, a
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program may be implemented by the award of many different individual contracts
and subcontracts. The funding of Government programs is subject to congressional
appropriations. Although multi-year contracts may be authorized in connection
with major procurements, Congress generally appropriates funds on a fiscal year
basis even though a program may continue for many years. Consequently, programs
are often only partially funded initially and additional funds are committed
only as Congress makes further appropriations. The Government is required to
adjust equitably a contract price for additions or reductions in scope or other
changes ordered by it.
Generally, Government contracts are subject to oversight audits by
Government representatives, to profit and cost controls and limitations, and to
provisions permitting termination, in whole or in part, without prior notice at
the Government's convenience upon the payment of compensation only for work done
and commitments made at the time of termination. In the event of termination,
the contractor will receive some allowance for profit on the work performed. The
right to terminate for convenience has not had any significant effect upon
Raytheon's business in light of its total Government business.
The Company's Government business is performed under both cost
reimbursement and fixed price prime contracts and subcontracts. Cost
reimbursement contracts provide for the reimbursement of allowable costs plus
the payment of a fee. These contracts fall into three basic types: (i) cost plus
fixed fee contracts which provide for the payment of a fixed fee irrespective of
the final cost of performance; (ii) cost plus incentive fee contracts which
provide for increases or decreases in the fee, within specified limits, based
upon actual results as compared to contractual targets relating to such factors
as cost, performance and delivery schedule; and (iii) cost plus award fee
contracts which provide for the payment of an award fee determined in the
discretion of the customer based upon the performance of the contractor against
pre-established criteria. Under cost reimbursement type contracts, Raytheon is
reimbursed periodically for allowable costs and is paid a portion of the fee
based on contract progress. Some costs incident to performing contracts have
been made partially or wholly unallowable by statute or regulation. Examples are
charitable contributions, travel costs in excess of government rates and certain
litigation defense costs.
The Company's fixed price contracts are either firm fixed price
contracts or fixed price incentive contracts. Under firm fixed price contracts,
Raytheon agrees to perform the contract for a fixed price and as a result
benefits from cost savings and carries the burden of cost overruns. Under fixed
price incentive contracts, Raytheon shares with the Government savings accrued
from contracts performed for less than target costs and costs incurred in excess
of targets up to a negotiated ceiling price (which is higher than the target
cost) and carries the entire burden of costs exceeding the negotiated ceiling
price. Under such incentive contracts, the Company's profit may also be adjusted
up or down depending upon whether specified performance objectives are met.
Under firm fixed price and fixed price incentive type contracts, the Company
usually receives progress payments monthly from the Government generally in
amounts equaling 80% of costs incurred under the contract. The remaining amount,
including profits or incentive fees, is billed upon delivery and final
acceptance of end items under the contract.
<PAGE>
12
The Company's Government business is subject to specific procurement
regulations and a variety of socio-economic and other requirements. Failure to
comply with such regulations and requirements could lead to suspension or
debarment, for cause, from Government contracting or subcontracting for a period
of time. Among the causes for debarment are violations of various statutes,
including those related to employment practices, the protection of the
environment, the accuracy of records and the recording of costs. The Company has
not, at any time, been debarred or suspended.
Under many Government contracts, the Company is required to maintain
facility and personnel security clearances complying with DOD requirements.
Companies which are engaged in supplying defense-related equipment to
the Government are subject to certain business risks some of which are peculiar
to that industry. Among these are: the cost of obtaining trained and skilled
employees; the uncertainty and instability of prices for raw materials and
supplies; the problems associated with advanced designs, which may result in
unforeseen technological difficulties and cost overruns; and the intense
competition and the constant necessity for improvement in facilities and
personnel training. Sales to the Government may be affected by changes in
procurement policies, budget considerations, changing concepts of national
defense, political developments abroad and other factors.
As a result of the 1985 Balanced Budget and Emergency Deficit Reduction
Control Act, the federal deficit and changing world order conditions, DOD
budgets have been subject to increasing pressure resulting in an uncertainty as
to the future effects of DOD budget cuts. Raytheon has, nonetheless, maintained
a solid foundation of tactical defense systems which meet the needs of the
United States and its allies, as well as serving a broad government program base
and wide range of commercial electronics businesses. These factors lead
management to believe that there is high probability of continuation of
Raytheon's current major tactical defense programs.
In 1995 Raytheon initiated changes in its defense business in
Massachusetts to achieve $600 million in cost savings to enable it to remain
competitive in defense manufacturing in the state with companies based in
lower-cost states. Raytheon worked with local unions to achieve cost controls
and enhance productivity; it worked with Massachusetts lawmakers to enact tax
reduction legislation for manufacturing firms in the state; and it worked with
utility companies to cut electricity costs in the state.
BACKLOG
The Company's backlog of orders at December 31, 1996 was $12.066
billion compared with $10.551 billion at the end of 1995. The 1996 amount
includes funded backlog of $5.637 billion from the Government compared with
$5.142 billion at the end of 1995. Normally, the Government funds its major
programs only to the dollar level appropriated annually by Congress, even though
the total estimated program values are considerably greater. Accordingly, the
Company's Government funded backlog represents only that amount which has been
appropriated and against which the Company can be reimbursed for work performed.
<PAGE>
13
Approximately $2.231 billion of the overall backlog figure represents
the unperformed portion of multi-year direct orders from foreign governments, of
which $1.180 billion is for air defense systems or components thereof and
related services and $1.051 billion is for the SIVAM environmental monitoring
system. Approximately $2.073 billion of the overall backlog represents
non-government foreign backlog.
Backlog in the Engineering and Construction segment was $3.565 billion
at the end of 1996 compared with $2.240 billion at the end of 1995. The increase
was due primarily to an increase in international turnkey energy projects.
Design and construction contracts in this segment typically take from eighteen
months to several years to perform.
Aircraft segment backlog was $1.163 billion at the end of 1996
versus $836 million at the end of 1995. The increase was primarily due to the
receipt of orders for Premier I.
Approximately $5.129 billion of the $12.066 billion 1996 year-end
backlog is not expected to be filled during the following twelve months.
RESEARCH AND DEVELOPMENT
During 1996, Raytheon derived net sales of $1,496 million ($982 million
in 1995 and $450 million in 1994) pursuant to Government contracts for research
and development. In addition, during 1996 Raytheon expended $323.3 million on
research and development efforts compared with $315.6 million in 1995 and $269.6
million in 1994. These expenditures principally have been for product
development for the Government and for aircraft products.
SUPPLIERS
Delivery of raw materials and supplies to Raytheon is generally
satisfactory. Raytheon is sometimes dependent, for a variety of reasons, upon
sole-source suppliers for procurement requirements. However, Raytheon has
experienced no significant difficulties in meeting production and delivery
obligations because of delays in delivery or reliance on such suppliers.
COMPETITION
The military and commercial industries in which Raytheon operates are
highly competitive. Raytheon's competitors range from highly resourceful small
concerns, which engineer and produce specialized items, to large, diversified
firms.
In the Engineering and Construction segment it is estimated that about
15 firms compete for major business opportunities worldwide. Competition is
based primarily upon technical superiority, project experience and price. The
ability to arrange or otherwise provide financing to customers is sometimes
significant in attracting or retaining clients.
Competition in the Aircraft segment comes from a number of domestic and
foreign jet, turboprop and piston aircraft manufacturers. Principal elements of
competition in the industry are price, financing, operating costs, reliability,
cabin size and comfort, product quality, speed and service support.
<PAGE>
14
In the Major Appliances segment, quality, warranty, price, advertising
and marketing are all competitive factors. Approximately 34 firms compete with
Raytheon in the various major appliance segments. Of these, Raytheon considers
four firms to be significant competitors in Home Appliances, six firms in
Commercial Laundry, eight firms in Heating and Air Conditioning and two firms in
Commercial Cooking.
The Electronics segment is a direct participant in most major areas of
development in the defense, space, information gathering, data reduction and
automation fields. Technical superiority and reputation, price, delivery
schedules, financing and reliability are principal competitive factors
considered by electronics customers. About half of the 30 largest defense
contractors in the United States are competitors in the Electronics segment.
PATENTS AND LICENSES
Raytheon has long been an innovative leader in the development of new
products and manufacturing technologies. Raytheon and its subsidiaries own a
large number of United States and foreign patents and patent applications as
well as trademark, copyright and chip mask work registrations which are
necessary and contribute significantly to the preservation of the Company's
strong competitive position in the market. In certain instances, Raytheon has
augmented its technology base by licensing the proprietary intellectual property
of others.
Raytheon's patent position and intellectual property portfolio is
deemed adequate for the conduct of its businesses. It is Raytheon's policy to
enforce its own intellectual property rights and to respect the rights of
others. Incidental to the normal course of business, infringement claims may
arise or may be threatened both by and against Raytheon. In the opinion of
management, these claims will not have a material adverse affect on the
Company's operations.
EMPLOYMENT
As of December 31, 1996, Raytheon had 75,300 employees compared with
73,200 employees at the end of 1995. The increase is primarily due to the
acquisitions of Chrysler Technologies and Rust Engineering, partially offset by
reductions in the defense electronics segment and the sale of Xyplex.
Subsidiaries of Raytheon Engineers & Constructors International, Inc. and
certain other subsidiaries have craft employees engaged for individual projects
not included in Raytheon's employee count.
Raytheon considers its employee relations to be satisfactory. Raytheon
has, for the most part, successfully negotiated labor agreements without
significant work stoppages, with the exception of a nine week strike that
occurred during the summer of 1996 at the Cedarapids, Inc. facility located in
Cedar Rapids, Iowa. Negotiations with the primary union representing Raytheon
Electronic Systems employees in Massachusetts occurred in the summer and fall of
1995. Due to the dramatic decline in defense procurement and the Company's need
to achieve a competitive position in this increasingly cost sensitive market,
the Company sought and received significant changes to the terms and conditions
of the contract, including a three-year wage freeze, work rule changes and
benefit changes. Negotiations for a five year agreement with the hourly
employees represented by the International Association of Machinists (IAM) at
Raytheon Aircraft in Wichita and Salina, Kansas were successfully completed in
1996.
<PAGE>
15
FOREIGN SALES
Of total sales, Raytheon's sales to customers outside the United States
were 28%, 28% and 26% in 1996, 1995 and 1994, respectively. These sales were
principally in the fields of air defense systems, air traffic control systems,
sonar systems, aircraft products, petrochemical power and industrial plant
design and construction, electronic equipment, computer software and systems,
personnel training, equipment maintenance and microwave communication. Foreign
working capital requirements generally are financed in the countries concerned.
Sales and income from international operations are subject to changes in
currency values, domestic and foreign government policies (including
requirements to expend a portion of program funds in-country) and regulations,
embargoes and international hostilities. Exchange restrictions imposed by
various countries could restrict the transfer of funds between countries and
between Raytheon and its subsidiaries. Raytheon generally has been able to
protect itself against most undue risks through insurance, foreign exchange
contracts, contract provisions, government guarantees or progress payments.
Raytheon utilizes the services of sales representatives and
distributors in connection with foreign sales. Normally representatives are paid
commissions and distributors are granted resale discounts in return for services
rendered.
Licenses are required from Government agencies under the Export
Administration Act, the Trading with the Enemy Act of 1917 and the Arms Export
Control Act of 1976 (formerly the Foreign Military Sales Act) for export from
the United States of many of Raytheon's products. In the case of certain sales
of defense equipment and services to foreign governments, the Government's
Executive Branch must notify Congress at least 30 days prior to authorizing such
sales. During that time, Congress may take action to block the proposed sale.
FACTORS THAT COULD AFFECT FUTURE RESULTS -- FORWARD LOOKING STATEMENTS
Statements in this filing which are not historical facts are forward
looking statements under the provisions of the Private Securities Litigation
Reform Act of 1995. All forward looking statements involve risks and
uncertainties. The Company wishes to caution readers that the following
important factors, among others, in some cases have affected, and in the future
could affect, the Company's actual results and could cause its actual results in
fiscal 1997 and beyond to differ materially from those expressed in any forward
looking statements made by, or on behalf of, the Company.
Important factors that could cause actual results to differ materially
include but are not limited to (i) the effect of global economic conditions,
(ii) the success of and investment in new product development, (iii) product
demand and market acceptance, (iv) the timing of new business awards, (v) the
introduction of competing products or technologies by competitors, (vi) the
successful conversion of defense products and technology to commercially viable
products, (vii) the ability to protect proprietary information and technology or
to obtain necessary licenses on commercially reasonable terms, (viii) obtaining
and retaining skilled workers, (ix) the ability to obtain and maintain a strong
supplier base and the capacity to meet product demand, (x) the trade policies of
foreign governments and (xi) competitive pressures and other risks identified
below by business segment.
<PAGE>
16
Electronics Segment. In the domestic defense electronics segment,
important factors that could cause actual results to differ materially include,
in addition to those factors described in the preceding paragraph, (i) the
uncertainties surrounding Congressional appropriations and/or Department of
Defense funding, (ii) contract provisions for price determination, profit and
cost controls and limitations and audit, (iii) the ability of government
customers to terminate existing contracts, wholly or partially, for their own
convenience with a requirement to pay only for work performed or committed with
a reasonable allowance for profit, (iv) advanced design problems and associated
technological difficulties with the potential for cost overruns, (v) changes in
procurement policies, (vi) the changing needs for and changes in the type of
weapon systems to be procured, (vii) political developments domestically and
internationally and (viii) changes in the competitive landscape due to the
consolidation of the U.S. or global defense industry.
With respect to the international defense electronics market, important
factors that could cause actual results to differ materially include, in
addition to those noted above, (i) delays in placing orders, (ii) the ability of
foreign customers to finance purchases, (iii) uncertainties and restrictions
concerning the availability of funding credit or guarantees, (iv) changing
military and political alliances, (v) U.S. or foreign export controls and trade
restrictions, (vi) government policies with respect to restrictions on doing
business with certain countries, (vii) governmental industrial cooperation
requirements, (viii) foreign exchange risks, (ix) increased international
competition, (x) the adequacy and availability of transportation, (xi) the
complexity and necessity of using foreign representatives and consultants and
(xii) the uncertainty of complying with the laws of specific countries and of
U.S. laws affecting the activities of U.S. companies abroad.
In the commercial electronics segment, important factors that may cause
actual results to differ materially include, in addition to those noted above,
(i) product demand, including continued expansion of the satellite
telecommunications and telecommunications systems markets, (ii) consumer
spending patterns affecting recreational boat sales and favorable economic
conditions for commercial marine product sales, (iii) consumer demand for PC's
and audio entertainment components and (iv) the successful introduction of new
products, including the multiple Wireless LAN Systems.
Engineering and Construction Segment. In the engineering and
construction segment, important factors that could cause actual results to
differ materially include, in addition to those noted above, (i) the effects of
global, regional and country specific economic conditions due to its increasing
international backlog, (ii) performance risks for existing and future contracts,
(iii) conditions in the capital markets and the availability of project
financing, (iv) international political conditions and (v) the timing of
contract receipt and funding.
Aircraft Segment. In the aircraft segment, important factors that could
cause actual results to differ materially include, in addition to those noted
above, (i) market perceptions of and government regulations affecting regional
aircraft, (ii) product availability for the Hawker 800XP as a result of the line
transfer from the U.K. to the U.S., (iii) price pressures within the market,
(iv) the ability to meet scheduled timetables for the introduction of new
products, (v) delays in U.S. Government export approvals and (vi) third party
financing availability.
<PAGE>
17
Appliances Segment. In the appliance segment, important factors that
could cause actual results to differ materially include, in addition to those
noted above, (i) modifications to actual purchases under agreement, (ii) weather
conditions that may affect seasonal product demand, (iii) the effect of
increasing U.S. Department of Energy regulations and of federal and state
regulations regarding the protection of the environment, (iv) the effect of
lower consumer demand fueled by higher interest rates and lower disposable
income and (v) given the Company's announced intention to evaluate strategic
alternatives regarding its appliance business, including possible divestiture,
the continued ability of the appliance group to attract and maintain key
employees and to maintain its customer base.
Acquisitions. In January 1997, the Company entered into definitive
agreements to acquire the defense systems and electronics business of Texas
Instruments Incorporated and to bring about the merger of the Company with the
defense business of Hughes Electronics Corporation. These transactions will
require, among other things, integration of the TI and Hughes defense
organizations, business infrastructure and products with those of the Company 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 the Company'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.
Item 2. Properties
The Company and its subsidiaries operate in a number of plants,
laboratories, warehouses and office facilities in the United States and abroad.
At December 31, 1996, the Company utilized approximately 38.4 million
square feet of floor space in manufacturing, engineering, research,
administrative, sales and warehouses, approximately 96% of which was located in
the United States. Of such total, approximately 51% was owned, approximately 43%
was leased and approximately 6% was made available under facilities contracts
for use in the performance of United States Government contracts. At December
31, 1996 the Company had approximately 1.3 million square feet of additional
floor space that was not in use, including approximately 1.2 million square feet
in Company-owned facilities. There are no major encumbrances on any of the
Company's plants or equipment other than financing arrangements which in the
aggregate are not material. In the opinion of management, the Company's
properties have been well maintained, are in sound operating condition and
contain all equipment and facilities necessary to operate at present levels. In
connection with the restructuring plan announced in March 1994, the Company has
disposed and will continue to dispose of certain facilities.
A summary of the utilized floor space at December 31, 1996, by business
segment, follows:
(in square feet with 000's omitted)
Leased Owned Gov't Owned TOTAL
Electronics 7,516 10,025 1,905 19,446
Engineering &
Construction 3,364 1,169 360 4,893
Aircraft 3,149 3,860 0 7,009
Appliances 2,153 4,571 0 6,724
Corporate (includes 156 206 0 362
international sales offices) ------ ------ ----- ------
TOTAL 16,338 19,831 2,265 38,434
<PAGE>
18
Information regarding the effect of compliance with environmental
protection requirements and the resolution of environmental claims against the
Company and its operations is contained in Management's Discussion and Analysis
of Financial Condition and Results of Operations on pages 41 through 45 of
Raytheon Company's Annual Report to Stockholders for the year ended December 31,
1996 and is incorporated herein by reference. See also Item 3, Legal
Proceedings, immediately below.
Item 3. Legal Proceedings
The Company is involved in various stages of investigation and cleanup
relative to remediation of various sites. All appropriate costs incurred in
connection therewith have been expensed. Due to the complexity of environmental
laws and regulations, the varying costs and effectiveness of alternative cleanup
methods and technologies, the uncertainty of insurance coverage and the
unresolved extent of the Company's responsibility, it is difficult to determine
the ultimate outcome of these matters. However, in the opinion of management,
any liability will not have a material effect on the Company's financial
position, liquidity or results of operations after giving effect to provisions
already recorded.
Accidents involving personal injuries and property damage occur in
general aviation travel. When permitted by appropriate government agencies,
Raytheon Aircraft investigates accidents related to its products involving
fatalities or serious injuries. Through a relationship with FlightSafety
International, Raytheon Aircraft provides initial and recurrent pilot and
maintenance training services to reduce the frequency of accidents involving its
products.
Raytheon Aircraft is a defendant in a number of product liability
lawsuits which allege personal injury and property damage and seek substantial
recoveries including, in some cases, punitive and exemplary damages. Raytheon
Aircraft maintains partial insurance coverage against such claims and maintains
a level of uninsured risk determined by management to be prudent. (See Note J to
Raytheon's Financial Statements for the years ended December 31, 1996, 1995 and
1994.)
The insurance policies for product liability coverage held by Raytheon
Aircraft do not exclude punitive damages, and it is the position of Raytheon
Aircraft and its counsel that punitive damage claims are therefore covered.
Historically, the defense of punitive damage claims has been undertaken and paid
by insurance carriers. Under the law of some states, however, insurers are not
required to respond to judgments for punitive damages. Nevertheless, to date no
judgments for punitive damages have been sustained.
Defense contractors are subject to many levels of audit and
investigation. Agencies which oversee contract performance include: the Defense
Contract Audit Agency, the Department of Defense Inspector General, the General
Accounting Office, the Department of Justice and Congressional Committees. The
Department of Justice from time to time has convened grand juries to investigate
possible irregularities by the Company in governmental contracting.
<PAGE>
19
Various claims and legal proceedings generally incidental to the normal
course of business are pending or threatened against the Company. While the
Company cannot predict the outcome of these matters, in the opinion of
management, any liability arising from them will not have a material effect on
the Company's financial position, liquidity or results of operations after
giving effect to provisions already recorded.
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable.
PART II
Item 5. Market For Registrant's Common Equity and Related Stockholder Matters
This information is contained in the Annual Report to Stockholders for
the year ended December 31, 1996 on page 1, on page 47 under the caption
"Quarterly Financial Data" and on the back cover and is incorporated herein by
reference.
Item 6. Selected Financial Data
This information is included in the "Ten Year Statistical Summary"
contained in the Annual Report to Stockholders for the year ended December 31,
1996 on pages 48 and 49 and is incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
This information is contained in the Annual Report to Stockholders for
the year ended December 31, 1996 on pages 41 through 45 and is incorporated
herein by reference.
Item 8. Financial Statements and Supplemental Data
Selected quarterly financial data and the financial statements and
supplementary data of the Registrant are contained in the Annual Report to
Stockholders for the year ended December 31, 1996 on page 47 and pages 50
through 66, respectively, and are incorporated herein by reference. Schedules
required under Regulation S-X are filed as "Financial Statement Schedules"
pursuant to Item 14 hereof.
Item 9. Changes in and Disagreements with Accountants and Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
Board of Directors
The Board of Directors met sixteen times during 1996. All directors
attended at least 75% of the aggregate number of meetings of the Board of
Directors and the Committees on which they served. Overall attendance at such
meetings was approximately 95%.
<PAGE>
20
The Audit Committee of the Board of Directors consists of Francis H.
Burr, Richard D. Hill, L. Dennis Kozlowski and James N. Land, Jr. The Audit
Committee met three times during 1996. The Committee's duties are to consult
with and make inquiry of the Company's outside auditors from time to time; to
review procedures followed and reports submitted by such outside auditors; to
make such further investigations of the Company's financial affairs as it deems
appropriate; to report to the Board of Directors on the results of such
consultation and investigation; and to recommend to the Board of Directors the
engagement of the Company's outside auditors.
The Compensation Committee of the Board of Directors consists of
Charles F. Adams, Barbara B. Hauptfuhrer, Richard D. Hill, Warren B. Rudman,
Joseph J. Sisco and Alfred M. Zeien. The Compensation Committee met twelve
times during 1996. The Committee's duties are to develop, review and recommend
to the Board of Directors compensation programs for the executive officers of
the Company.
The Executive Committee of the Board of Directors consists of Charles
F. Adams, Francis H. Burr, Ferdinand Colloredo-Mansfeld, Thomas L. Phillips and
Dennis J. Picard. The Executive Committee met seven times during 1996. The
Committee is empowered to act for the full Board during intervals between
Board meetings, with the exception of certain matters that by law may not be
delegated.
The Planning and Nominating Committee of the Board of Directors consists of
Charles F. Adams, Francis H. Burr, Theodore L. Eliot, Jr., John R. Galvin, James
N. Land, Jr., Thomas L. Phillips, Warren B. Rudman and Joseph J. Sisco. The
Planning and Nominating Committee met twice during 1996. The Committee's duties
are to study strategies for achieving corporate goals, to propose to the Board
of Directors candidates for election to the Board and to make other
recommendations relating to Board membership. The Planning and Nominating
Committee will consider nominees recommended by stockholders. No formal
procedures are required to be followed by stockholders in submitting such
recommendations.
During 1996, each Board member, other than Messrs. Picard and Lawson,
was paid a quarterly retainer of $6,500 and, in addition, was paid a fee of
$1,000 for attendance at each meeting of the Board and each committee meeting
other than telephonic meetings and committee meetings of less than two hours'
duration held on the day of full Board meetings for which the fee was $500.
Pursuant to the Company's Deferral Plan for Directors (the "Deferral Plan"),
adopted by the Board on November 26, 1996, beginning in 1997, directors may
defer receipt of their quarterly retainer and/or meeting fees until retirement
from the Board. Deferred payments accrue interest (payable by the Company) at
the same prescribed government rate applicable to compensation deferred by
employees under the Company's Voluntary Deferment Plan.
Prior to adoption of the Deferral Plan, directors not eligible for
benefits under any Company-sponsored pension plan, who have served on the Board
for at least five years, and who complied with a prescribed non-competition
agreement, were entitled to a monthly payment equal to one-twelfth the amount of
the director's annual retainer in effect at the time of the director's
retirement from the Board under the Raytheon Company Retirement Plan for
Directors. Payments under the plan terminated upon the earlier of the death of
the retiree and his/her spouse or the expiration of fifteen consecutive years
from the initial payment under the plan.
<PAGE>
21
Pursuant to the Deferral Plan, benefits to be provided to all current
and future directors under the Retirement Plan for Directors have been
terminated. In connection with this termination, the present value of each
current director's pension benefit was converted into shares of the Company's
Common Stock. In accordance with the terms of the Deferral Plan, these shares
are held in trust for the benefit of the individual directors until their
qualified retirement from the Board. The shares issued to the current directors
are included in the Beneficial Ownership Table set forth in Part III, Item 12
below and each director has the power to vote these shares at any meeting of the
stockholders of the Company.
Executive Officers of the Registrant
Gail P. Anderson: Vice President - Human Resources since December 1994.
Prior to assuming his present position Mr. Anderson was Vice President - Human
Resources, Phillips Petroleum Company from 1986. Age: 54
Shay D. Assad: Vice President - Contracts since July 1994. Prior to assuming
his present position Mr. Assad was Manager-Contracts, Missile Systems Division
from 1985. Age: 46
Renso L. Caporali: Senior Vice President Engineering and Business
Development since January 1997. Prior to assuming his present position Mr.
Caporali was Senior Vice President - Government and Commercial Marketing since
April 1995 and Chairman and Chief Executive Officer of the Grumman Corporation
from 1991. Age: 63
Philip W. Cheney: Vice President and Group Executive - Commercial
Electronics since July 1994. Prior to assuming his present position Dr. Cheney
was Vice President - Engineering from February 1990. Age: 61
Kenneth H. Colburn: Vice President - Project and International Finance
since January 1995. Prior to assuming his present position Mr. Colburn was
Managing Director-Investment Banking Department-East Coast Group, CS First
Boston Corporation from January 1991. Age: 45
Peter R. D'Angelo: Executive Vice President, Chief Financial Officer and
Controller since March 1995. Prior to assuming his present position Mr. D'Angelo
was Vice President, Chief Financial Officer and Controller from January 1995;
Vice President and Corporate Controller from 1992 and Controller - Missile
Systems Division from 1984. Age: 58
Herbert Deitcher: Senior Vice President-Treasurer since November 1989. Age: 63
David S. Dwelley: Vice President - Strategic Business Development since
April 1991. Prior to assuming his present position Mr. Dwelley was Vice
President and President of Raytheon Europe Limited from 1989. Age: 57
Michele C. Heid: Vice President - Investor Relations since September 1995.
Prior to assuming her present position Ms. Heid was Vice President - Investor
Relations & Strategic Planning, Cummins Engine Company from 1993 and Vice
President - Investor Relations, Cummins Engine Company from 1991. Age: 42
<PAGE>
22
Christoph L. Hoffmann: Executive Vice President - Law, Corporate
Administration, and Secretary since March 1995. Prior to assuming his present
position Mr. Hoffmann was Senior Vice President - Law, Human Resources and
Corporate Administration, and Secretary from February 1994; Vice President,
Secretary and General Counsel from July 1991, Vice President from April 1991 and
Senior Vice President, General Counsel and Secretary of Pneumo Abex Corporation
from 1986. Age: 52
Thomas D. Hyde: Vice President and General Counsel since February 1994.
Prior to assuming his present position Mr. Hyde was Assistant General Counsel
from August 1992; Senior Vice President, General Counsel and Chief Financial
Officer of MNC Financial Inc. Special Assets Bank from 1991; and Vice President,
Finance of Manville Sales Corporation from 1988. Age: 48
A. Lowell Lawson: Executive Vice President since May 1995. Chairman and
Chief Executive Officer of E-Systems, Inc. since August 1994. Mr. Lawson was
President of E-Systems from 1989. Age: 59
Robert S. McWade: Vice President - Corporate Affairs and Communications
since January 1997. Prior to assuming his present position Mr. McWade was Vice
President - Corporate Affairs since February 1996; Director, Corporate
Communications, Textron, Inc. from September 1994; and Director, Corporate
Relations, Bank of Boston from 1988. Age: 40
Charles Q. Miller: Executive Vice President and Chairman and Chief
Executive Officer of Raytheon Engineers & Constructors International, Inc. since
March 1995. Prior to assuming his present position Mr. Miller was Senior Vice
President and Group Executive and Chairman and Chief Executive Officer of
Raytheon Engineers & Constructors International, Inc. from March 1993; and
President, United Engineers & Constructors, Inc. from 1990. Age: 51
Dennis J. Picard: Director since 1989 and Chairman and Chief Executive
Officer since March 1991. Prior to assuming his present position Mr. Picard was
President from 1989. Age: 64
Robert A. Skelly: Vice President - Assistant to the Executive Office. Prior
to assuming his present position Mr. Skelly was Vice President - Administration,
Environmental Quality and Procurement from September 1992 and Vice President -
Public and Financial Relations from January 1991. Age: 54
Robert L. Swam: Executive Vice President and Chairman and Chief Executive
Officer of Raytheon Appliances, Inc. since March 1995. Prior to assuming his
present position Mr. Swam was Senior Vice President and Group Executive -
Appliance Group from January 1992 and an independent consultant from 1989. Age:
56
William H. Swanson: Executive Vice President and General Manager - Raytheon
Electronic Systems Division since March 1995. Prior to assuming his present
position Mr. Swanson was Senior Vice President and General Manager - Missile
Systems Division from 1990. Age: 48
Arthur E. Wegner: Executive Vice President and Chairman and Chief Executive
Officer of Raytheon Aircraft Company since March 1995. Prior to assuming his
present position Mr. Wegner was Senior Vice President and Chairman and Chief
Executive Officer of Raytheon Aircraft from July 1993 and Executive Vice
President and President of the Aerospace/Defense Sector of United Technologies
Corporation from 1989. Age: 59
<PAGE>
23
Each executive officer was elected by the Board of Directors to serve
for a term of one year and until his or her successor is elected and qualified
or until his or her earlier removal, resignation or death.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's directors and executive officers, and persons who own
more than ten percent of the Company's Common Stock, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission
and the New York Stock Exchange. Directors, officers and ten-percent
shareholders are also required to furnish the Company with copies of all Section
16(a) forms they file.
To the Company's knowledge, based solely on a review of such forms
furnished to the Company and written representations that no other reports were
required, the Company believes that during the fiscal year ended December 31,
1996 all such Section 16(a) filing requirements were complied with except that
one filing covering one transaction by Thomas D. Hyde, Vice President and
General Counsel of the Company, was filed late.
Item 11. Executive Compensation
Set forth below is information concerning the annual and long-term
compensation for the Company's chief executive officer and the four other most
highly compensated executive officers for the fiscal years ending December 31,
1996, 1995 and 1994.
<PAGE>
24
<TABLE>
<CAPTION>
Summary Compensation Table
Long-Term
Annual Compensation Compensation Awards
------------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
Restricted All Other
Name and Salary(1) Bonus Stock Awards(2) Options Compensation(3)
Principal
Position Year ($) ($) ($) (#) ($)
(a) (b) (c) (d) (f) (g) (i)
Dennis J.
Picard 1996 $1,015,002 $1,870,000(4) 0 270,000(5) $714,222
Chairman of 1995 $ 999,996 $ 870,000 0 220,000 $ 12,906
the Board 1994 $ 965,754 $ 870,000 0 130,000 $ 12,507
and Chief
Executive
Officer
A. Lowell 1996 $ 575,000 $ 450,000 0 40,000 $ 5,293
Lawson 1995 $ 573,908(6) $ 425,000 $1,560,000 0 $ 7,872
Executive Vice 1994 N/A N/A N/A N/A N/A
President,
Chairman and
CEO - Raytheon
E-Systems, Inc.
William H. 1996 $ 419,520 $ 305,000 0 40,000 $ 6,932
Swanson 1995 $ 419,520 $ 290,000 0 30,000 $ 6,787
Executive Vice 1994 $ 411,450 $ 290,000 0 20,000 $ 7,068
President and
General
Manager-Raytheon
Electronic
Systems
<PAGE>
25
Arthur E. 1996 $ 403,464 $ 255,000 0 40,000 $ 9,233
Wegner 1995 $ 397,500 $ 240,000 0 40,000 $ 8,931
Executive Vice 1994 $ 386,250 $ 175,000 $ 648,750 40,000 $332,204
President and
Chairman and
CEO-Raytheon
Aircraft Company
Christoph L. 1996 $ 385,194 $ 250,000 0 30,000 $ 7,415
Hoffmann 1995 $ 379,500 $ 235,000 0 30,000 $ 7,203
Executive Vice 1994 362,250 $ 225,000 $ 324,375 28,000 $ 7,392
President and
Secretary
</TABLE>
<PAGE>
26
(1) The amounts reported in column (c) for 1995 reflect salary adjustments in
the course of the normal compensation review cycle effective July 1, 1994
(except for Mr. Lawson, who was not an employee of the Company at that time).
Pursuant to the Company's announced wage freeze for 1995, the salaries for Mr.
Picard and the named executive officers (other than Mr. Lawson) in effect for
1995 remained frozen at the levels approved on July 1, 1994. Therefore, there
was no increase for the salary year July, 1994 to July, 1995. Any increase shown
in the 1995 amounts from 1994 is the result of the difference between the salary
year and the calendar year.
(2) The executive is not entitled to the cash amount shown in column (f) in the
year the restricted stock award is made. The award vests over several years and
is subject to the executive remaining employed by the Company. Dividends are
paid on the restricted stock reported in column (f).
The number and value at closing price on December 31, 1996 of the aggregate
restricted stock holdings (over which the executive has voting but no investment
power) of each of the named executives is as follows: Mr. Picard -- 66,668
shares, $3,208,398; Mr. Lawson -- 40,000 shares, $1,925,000; Mr. Swanson --
19,200 shares, $924,000; Mr. Wegner -- 24,000 shares, $1,155,000; Mr. Hoffmann
- -- 22,000 shares, $1,058,750.
Mr. Hoffmann's 1994 restricted stock grant shown in column (f) consists of a
total of 10,000 shares awarded on June 22, 1994. Shares subject to the award
vest pro rata over a five year period beginning on the first anniversary of the
award date. Accordingly, 4,000 shares have vested to date.
Mr. Wegner's 1994 restricted stock grant shown in column (f) consists of a total
of 20,000 shares awarded on June 22, 1994. Shares subject to the award vest pro
rata over a five year period beginning on the first anniversary of the award
date. Accordingly, 8,000 shares have vested to date
(3) For 1996, the amounts in column (i) include: (a) the value of life insurance
premiums paid by the Company (Mr. Picard -- $8,841; Mr. Lawson -- $2,162; Mr.
Swanson -- $1,551; Mr. Wegner -- $3,852; and Mr. Hoffmann -- $2,034); (b)
Company contributions of $881 for each executive under the Company's Stock
Ownership Plan; and (c) Company contributions of $4,500 for each executive other
than Mr. Lawson under the Company's Savings and Investment Plan. For Mr. Lawson,
in addition to the value of life insurance premiums, the amount in column (i)
also includes contributions by Raytheon E-Systems to the Raytheon E-Systems
401(K) plan of $2,250.
For Mr. Picard the amount shown for 1996 includes a strategic accomplishment
award of $700,000 made by the Board of Directors in special recognition of his
outstanding contribution and success with regard to the Company's strategic plan
since 1991. This includes, for example, the acquisitions of Ebasco, E-Systems,
Litwin, Anschutz and Chrysler Technologies.
For Mr. Wegner the amount shown for 1994 includes amounts paid in connection
with his relocation from Connecticut to Raytheon Aircraft Company's headquarters
in Wichita, Kansas consisting of $181,333 in respect of the loss incurred on the
sale of his residence in Connecticut and $143,253 to reimburse him for tax
liabilities associated with payments under the Company's relocation policies.
<PAGE>
27
(4) The Compensation Committee of the Board of Directors was advised by its
independent compensation consultant that despite the Company's performance
ranking in the top 25th percentile of its peer group, Mr. Picard's compensation
continued to rank below the average of those holding similar positions within
the peer group. Based on key achievements realized in 1996, the Compensation
Committee determined independently to award Mr. Picard an annual performance
incentive bonus which recognized his value to the Company and its stockholders
and took into account his below average compensation position.
(5) In 1996, as part of a review of Mr. Picard's overall compensation, the
Compensation Committee's independent compensation consultant presented
information on predicted option values for the chief executive officers of
companies within the Company's peer group. Based on this information, the
Compensation Committee awarded Mr. Picard stock options designed to provide him
with approximately the same hypothetical economic value as that accorded to the
chief executives of these peer group companies. In fact, as of the date of this
filing, no economic value has been derived from this award.
(6) Includes all salary paid to Mr.Lawson during 1995, including the period
prior to May 8, 1995 - the effective date of the merger of E-Systems with the
Company.
<PAGE>
28
<TABLE>
<CAPTION>
Option Grants In Last Fiscal Year (1)
Individual Grants Grant Date Value
% of Total
No. of Options
Securities Granted to
Underlying Employees in Exercise or
Options Fiscal Base Price Expiration Grant Date
Name Granted(#)(2) Year ($/Share)(3) Date Present Value(4)
(a) (b) (c) (d) (e) (h)
<S> <C> <C> <C> <C> <C>
Dennis J. 1,902 0.05% $52.5625 06/09/06 $ 20,542
Picard 268,098 6.89% $52.5625 06/10/06 $2,895,458
A. Lowell 1,902 0.05% $52.5625 06/09/06 $ 20,542
Lawson 38,098 0.98% $52.5625 06/10/06 $ 411,458
William H. 1,902 0.05% $52.5625 06/09/06 $ 20,542
Swanson 38,098 0.98% $52.5625 06/10/06 $ 411,458
Arthur E. 1,902 0.05% $52.5625 06/09/06 $ 20,542
Wegner 38,098 0.98% $52.5625 06/10/06 $ 411,458
Christoph L. 1,902 0.05% $52.5625 06/09/06 $ 20,542
Hoffmann 28,098 0.72% $52.5625 06/10/06 $ 303,458
</TABLE>
<PAGE>
29
(1) The table contains two separate lines for each individual. The first line
represents the grant of incentive stock options and the second represents the
grant of nonqualified stock options. The option grants are reported separately
because they have different expiration dates.
(2) Options become exercisable one year after the grant date.
(3) Fair market value of underlying shares on the date of grant.
(4) As of December 31, 1996, the options set forth in this table had no value
because at that date the market value of the underlying shares was below the
option price. Furthermore, the ultimate values of the options will depend on the
future market price of the Company's Common Stock, which cannot be forecast with
reasonable accuracy. The actual value, if any, an optionee will realize upon
exercise of an option will depend on the excess of the market value of the
Company's Common Stock over the exercise price on the date the option is
exercised.
The estimated grant date present value reflected in the above table is
determined using the Black-Scholes model. As required pursuant to the
regulations of the Securities and Exchange Commission, the material assumptions
and adjustments incorporated in the Black-Scholes model in estimating the value
of the options reflected in the above table include the following: an exercise
price of $52.5625, equal to the fair market value of the underlying stock on the
date of grant; an option term of 10 years; an interest rate of 6.41% that
represents the interest rate on a U.S. Treasury security on the date of grant
with a maturity date corresponding to that of the option term; volatility of
15.0% calculated using daily stock prices for an average of three years prior to
the grant date; assumed dividend growth of 6.0%; and reductions of approximately
5.0% to reflect the probability of forfeiture due to termination prior to
vesting.
<PAGE>
30
<TABLE>
<CAPTION>
Aggregated Option Exercises In Last Fiscal Year
And Fiscal Year End Option Values
Value of
Unexercised
Number of Unexercised In-the-Money
Options at FY End Options at FY End
(#) $
(d) (e)
-------------------- -----------------
Shares
Acquired on Value
Exercise Realized
Name (#)(1) ($) Exercis- Unexer- Exercis- Unexer-
(a) (b) (c) able cisable able cisable(1)
- ------- --------- --------- -------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Dennis J. -0- -0- 499,120 270,000 $7,430,250 $0
Picard
A. Lowell -0- -0- -0- 40,000 $ 0 $0
Lawson
<PAGE>
31
William H. -0- -0- 134,382 40,000 $2,730,475 $0
Swanson
Arthur E. -0- -0- 100,000 40,000 $1,311,870 $0
Wegner
Christoph 2,562 $31,464 65,842 30,000 $ 887,539 $0
L. Hoffmann
</TABLE>
<PAGE>
32
(1) Based on the $48.125 closing price per share of the Company's Common
Stock at December 31, 1996.
The Company's salaried pension plan (the "Salaried Pension Plan")
covers all salaried employees, excluding those at certain subsidiaries, who have
completed one year of service and attained age 21. The Salaried Pension Plan is
Company funded and does not require or permit employee contributions. Benefits
are computed by a formula which takes into account an employee's years of
service and plan membership, final average compensation and an estimated
primary Social Security benefit.
The following table shows the estimated annual retirement benefits
payable to salaried employees on normal retirement at age 65 under the Salaried
Pension Plan and the Company's excess benefit plan, a separate non-funded plan
adopted by the Board of Directors in 1980. The excess benefit plan provides
benefits that would otherwise be denied participants due to certain Internal
Revenue Code limitations on qualified benefit plans.
Annual Estimated Benefits Under The Raytheon Company Pension Plan
For Salaried Employees And Excess Benefit Plan
Years of Pension Credit at Age 65
---------------------------------
Final Average
Compensation 15 Years 20 Years 30 Years 40 Years
- ------------ -------- -------- -------- --------
$ 200,000 $ 54,000 $ 72,000 $ 96,000 $ 120,000
400,000 108,000 144,000 192,000 240,000
600,000 162,000 216,000 288,000 360,000
800,000 216,000 288,000 384,000 480,000
1,000,000 270,000 360,000 480,000 600,000
1,200,000 324,000 432,000 576,000 720,000
1,400,000 378,000 504,000 672,000 840,000
1,600,000 432,000 576,000 768,000 960,000
1,800,000 486,000 648,000 864,000 1,080,000
2,000,000 540,000 720,000 960,000 1,200,000
Pension benefits shown in the above table are straight life annuity
amounts and assume retirement at age 65 (normal retirement age). Under the plan
formula, the amounts in the table will be reduced by a percentage of the
employee's estimated primary Social Security benefit. Pension benefits are based
on the average compensation (salary and bonus) paid during the sixty highest
consecutive months of employment. For 1996, covered compensation for Messrs.
Swanson, Wegner and Hoffmann is the same as their salary and bonus shown in the
Summary Compensation Table set forth earlier in this Part III, Item 11. As of
December 31, 1996, those executive officers had the following years of credited
service: Mr. Swanson -- 23 years; Mr. Wegner -- 8 years; and Mr. Hoffmann -- 4
years. The years of credited service for Mr. Wegner include additional years of
service granted to Mr. Wegner as an inducement to join the Company.
<PAGE>
33
In 1996, the Board of Directors adopted a supplemental executive
retirement plan (the "Supplemental Plan") similar to the plan covering certain
Raytheon E-Systems employees (described below) and to plans currently in place
at companies within the Company's peer group. Mr. Picard's total pension benefit
from both the Salaried Pension Plan and the Supplemental Plan has been fixed at
65% of the average of his covered compensation (consisting of base salary, bonus
and strategic accomplishment award as disclosed in the Summary Compensation
Table set forth earlier in this Part III, Item 11) for the three consecutive
years during the last ten years prior to retirement for which such covered
compensation was the highest. The estimated annual pension benefit for Mr.
Picard based on his current compensation level, assuming retirement at age 65,
is $1,591,417. As of December 31, 1996, Mr. Picard had 41 years of credited
service with the Company.
Employees of Raytheon E-Systems, including A. Lowell Lawson, do not
participate in the Salaried Pension Plan. Mr. Lawson participates in the
Raytheon E-Systems Salaried Retirement Plan and the supplemental executive
retirement plan (the "SERP"). The SERP provides selected Raytheon E-Systems
executives with retirement income as a supplement to compensation and employee
benefits that would otherwise be denied them by reason of certain Internal
Revenue Code limitations on qualified benefit plans. Specifically, the SERP
provides to participants attaining age 60 and having 10 years of credited
service a retirement benefit in an amount equal to 65% of the participant's
"Average Monthly Compensation." Amounts payable under the SERP are reduced by
payments under the Raytheon E-Systems Salaried Retirement Plan and the
recipient's primary Social Security benefit. "Average Monthly Compensation" is
defined as the sum of the salary and bonus paid the employee during the three
consecutive years out of the ten years preceding retirement or disability which
yields the highest monthly amount when divided by 36. The estimated annual SERP
benefit for Mr. Lawson based on his current compensation level, assuming
retirement at age 65, is $518,702.
The Company has entered into Change-in-Control Severance Agreements
(the "Severance Agreements") with the executive officers named in the Summary
Compensation Table. The Severance Agreements provide severance pay and
continuation of certain benefits upon the occurrence of a Change in Control.
Entry into the Severance Agreements was unanimously approved by the Board of
Directors. The agreements with Messrs. Picard, Swanson, Wegner and Hoffmann are
effective as of November 22, 1995. The agreement with Mr. Lawson becomes
effective upon the termination of his employment agreement described below.
Generally, a "Change in Control" will be deemed to have occurred in any
of the following circumstances: (i) the acquisition of 25% or more of the
outstanding voting stock of the Company by any person, entity or group; (ii) the
persons serving as directors of the Company as of November 22, 1995, and
replacements or additions subsequently approved by a majority vote of the Board,
cease to make up at least a majority of the Board; (iii) a merger, consolidation
or reorganization in which the stockholders of the Company prior to the merger
wind up owning less than 50% of the voting power of the surviving corporation;
(iv) a complete liquidation or dissolution of the Company or disposition of all
or substantially all of the assets of the Company.
<PAGE>
34
The Severance Agreements contain a dual trigger which requires, in
addition to a Change in Control, a qualifying termination of the executive's
employment within two years following a Change in Control for the executive to
receive benefits under the Severance Agreement, which include (i) a cash payment
of three times his current compensation (including base salary plus targeted
bonus); (ii) special supplemental retirement benefits determined as if the
executive had three years additional credit service under the Company's pension
plans as of the date of termination; and (iii) continuation of fringe benefits
pursuant to all welfare, benefit and retirement plans under which the executive
and his family are eligible to receive benefits for a period of up to three
years. In addition, the Severance Agreements provide for a supplemental cash
payment to the executive to the extent necessary to preserve the level of
benefits provided in the event of the imposition on the executive of excise
taxes payable in respect of "excess parachute payments" under the Internal
Revenue Code.
E-Systems entered into an employment agreement with Mr. Lawson as of
September 27, 1989 which extends through May 8, 1998. Under the agreement, Mr.
Lawson has agreed to render his exclusive services to E-Systems. Mr. Lawson's
minimum annual compensation is the base salary most recently approved by the
Board. The agreement provides for full vesting of Mr. Lawson's benefits under
the SERP, which he may receive upon retirement following his attaining age 60.
Mr. Lawson's employment agreement provides for the continuation of certain of
his business and other perquisites upon retirement, including post-retirement
life insurance benefits in an amount equal to two times his annual salary.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table lists those persons or groups known to the Company
to be the beneficial owner of more than 5% of the Company's Common Stock as of
December 31, 1996:
Name and Address of Amount and Nature of Percent
Beneficial Owner Beneficial Ownership of Class
FMR Corp. 16,324,235 (1) 6.92%
82 Devonshire Street
Boston, MA 02109
(1) FMR Corp. has filed a Schedule 13G with the Securities and Exchange
Commission disclosing that it was the beneficial owner of 16,324,235 shares of
the Company's Common Stock as of December 31, 1996. This number includes:
15,372,792 shares beneficially owned by Fidelity Management & Research Company;
892,423 shares beneficially owned by Fidelity Management Trust Company; 59,020
shares beneficially owned by Fidelity International Limited; and 16,324,235
shares beneficially owned by Edward C. Johnson 3d and Abigail P. Johnson and
members of the Edward C. Johnson 3d family. Edward C. Johnson 3d and FMR Corp.
each has sole dispositive power over 16,265,215 shares and sole voting power
over 570,723 shares. Fidelity International Limited has sole voting and
dispositive power over 59,020 shares.
As of March 15, 1997, the following directors and named executive
officers and the directors and all executive officers as a group were the
beneficial owners of the number of shares of Common Stock indicated below:
<PAGE>
35
Number of Shares
and Nature of
Beneficial Owner or Group Beneficial Ownership Percent of Class
Charles F. Adams 1,208,817(1) *
Francis H. Burr 8,988(2) *
Ferdinand Colloredo-Mansfeld 10,988(2) *
Theodore L. Eliot, Jr. 6,988(2) *
John R. Galvin 5,403(2,3) *
Barbara B. Hauptfuhrer 6,988(2,4) *
Richard D. Hill 11,743(2) *
Christoph L. Hoffmann 107,774(5) *
L. Dennis Kozlowski 9,988(2) *
James N. Land, Jr. 10,988(2) *
A. Lowell Lawson 40,018(6) *
Thomas L. Phillips 217,648 *
Dennis J. Picard 797,447(7) *
Warren B. Rudman 5,588(2,8) *
Joseph J. Sisco 7,883(2) *
William H. Swanson 175,143(9) *
Arthur E. Wegner 133,601(10) *
Alfred M. Zeien 6,988(2) *
All directors and executive
officers as a group, (31 in
number, including those
listed above). 2,453,805(11),12) 1.0%
- ------------------------------------------------
* Less than one percent of the class
(1) All shares held in trust and voting and investment power is shared.
(2) Includes 4,988 shares held in trust for the benefit of the individual
director. Each director has the power to vote the shares held for his or her
account. The shares were issued pursuant to the Company's Deferral Plan for
Directors. See Part III, Item 10 of this Report.
(3) Excludes shares held by various mutual funds of the Seligman Group of
Investment Companies. As a director or trustee, Gen. Galvin shares voting and
investment power in these shares with other Seligman directors and trustees.
Gen. Galvin disclaims beneficial ownership of all such shares.
(4) Excludes shares held by various mutual funds of the Vanguard Group of
Investment Companies. As a director of Vanguard, Mrs. Hauptfuhrer shares
voting and investment power in these shares with other Vanguard directors. Mrs.
Hauptfuhrer disclaims beneficial ownership of all such shares.
(5) Includes 17,543 shares as to which voting and investment power are shared,
65,842 shares as to which Mr. Hoffmann has the right to acquire beneficial
ownership within sixty days of said date, 2,389 shares held in the Raytheon
Stock Ownership/Savings and Investment Plan and 22,000 restricted shares over
which he has voting power but no investment power.
<PAGE>
36
(6) Includes 40,000 restricted shares over which Mr.Lawson has voting power but
no investment power and 18 shares held in the Raytheon Stock Ownership/Savings
and Investment Plan.
(7) Includes 499,120 shares as to which Mr. Picard has the right to acquire
beneficial ownership within sixty days of said date, 518 shares held in the
Raytheon Stock Ownership/Savings and Investment Plan and 66,668 restricted
shares over which he has voting power but no investment power.
(8) Excludes shares held by any of the mutual funds of Dreyfus Corporation. As
a director of several funds managed by Dreyfus Corporation, Mr. Rudman shares
voting and investment power in the shares held by such funds with the other
directors of those funds and with the directors of Dreyfus Corporation.
Mr. Rudman disclaims beneficial ownership of all such shares.
(9) Includes 134,382 shares as to which Mr. Swanson has the right to acquire
beneficial ownership within sixty days of said date, 639 shares held in the
Raytheon Stock Ownership/Savings and Investment Plan and 19,200 restricted
shares over which he has voting power but no investment power.
(10) Includes 100,000 shares as to which Mr. Wegner has the right to acquire
beneficial ownership within sixty days of said date, 41 shares held in the
Raytheon Stock Ownership/Savings and Investment Plan and 24,000 restricted
shares over which he has voting power but no investment power.
(11) Share ownership includes, in the case of certain officers, a minor number
of shares held by trusts or family members as to which beneficial ownership is
disclaimed.
(12) Includes 1,674,900 shares as to which individual members of the group have
the right to acquire beneficial ownership within sixty days of said date, 14,549
shares held in the Raytheon Stock Ownership/Savings and Investment Plan and
320,368 restricted shares over which individuals have voting power but no
investment power.
Item 13. Certain Relationships and Related Transactions
During 1996 the Company retained the law firm of Ropes & Gray for
various legal services. Francis H. Burr, a Director and member of the Audit,
Planning and Nominating, and Policy Committees, is of counsel to such firm.
During 1996 the Company retained the law firm of Paul, Weiss, Rifkind,
Wharton and Garrison for various legal services. Warren B. Rudman, a Director
and member of the Compensation, Planning and Nominating and Policy Committees,
is a member of such firm.
C-M Holdings L.P., of which Mr. Colloredo-Mansfeld is a principal
owner, through a subsidiary, leases an office, service area/warehouse to a
subsidiary of the Company at a rent of approximately $671,386 per year. Mr.
Colloredo-Mansfeld is a Director and member of the Executive, Finance and Policy
Committees.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) Financial Statements and Schedules
<PAGE>
37
(1) The following financial statements of Raytheon Company and
Subsidiaries Consolidated, as contained in Raytheon's 1996
Annual Report to Stockholders, are hereby incorporated by
reference:
Balance Sheets at December 31, 1996 and 1995
Statements of Income for the Years Ended
December 31, 1996, 1995 and 1994
Statements of Stockholders' Equity for the Years Ended
December 31, 1996, 1995 and 1994
Statements of Cash Flows for the Years Ended
December 31, 1996, 1995 and 1994
(2) The following financial statement schedule is included herein:
Schedule II, Reserves for the Three Years Ended
December 31, 1996
Schedules I, III and IV are omitted because they are not
required, not applicable or the information is otherwise
included.
(b) Reports on Form 8-K
During the first quarter of 1997, the Company made the
following filings on Form 8-K:
(1) Raytheon Company Current Report on Form 8-K filed with the
Securities and Exchange Commission on January 6, 1997.
(2) Raytheon Company Current Report on Form 8-K filed with the
Securities and Exchange Commission on January 17, 1997.
(c) Exhibits
(2.1) Asset Purchase Agreement dated as of January 4, 1997
between Raytheon Company and Texas Instruments
Incorporated, heretofore filed as an exhibit to the
Company's Current Report on Form 8-K filed with the
Securities and Exchange Commission on January 6,
1997, is hereby incorporated by reference.
(2.2) Agreement and Plan of Merger dated as of January 16,
1997 by and between Raytheon Company and HE Holdings,
Inc., heretofore filed as an exhibit to the Company's
Current Report on Form 8-K filed with the Securities
and Exchange Commission on January 17, 1997, is
hereby incorporated by reference.
(2.3) Implementation Agreement dated as of January 16, 1997
by and between Raytheon Company and General Motors
Corporation, heretofore filed as an exhibit to the
Company's Current Report on Form 8-K filed with the
Securities and Exchange Commission on January 17,
1997, is hereby incorporated by reference.
<PAGE>
38
(3.1) Raytheon Company Restated Certificate of
Incorporation, as amended through September 27, 1995,
heretofore filed as an exhibit to Raytheon's Form
10-Q for the quarter ended October 1, 1995, is hereby
incorporated by reference.
(3.2) Raytheon Company By-Laws, as amended and restated
through October 25, 1995, heretofore filed as an
exhibit to Raytheon's Form 10-Q for the quarter ended
October 1, 1995, are hereby incorporated by
reference.
(4) Indenture dated as of July 3, 1995 between Raytheon
Company and The Bank of New York, Trustee, relating
to the Company's 6 1/2% Notes due July 15, 2005 and
the Company's 7 3/8% Debentures due 2025, filed as an
exhibit to Raytheon's Registration Statement on Form
S-3, File No. 33-59241, is hereby incorporated by
reference.
(10.1) Raytheon Company 1976 Stock Option Plan, as amended, filed
as an exhibit to the Company's Form 10-Q for the quarter
ended June 30, 1996, is hereby incorporated by reference.
(10.2) Raytheon Company 1991 Stock Plan, as amended, filed as an
exhibit to the Company's Form 10-Q for the quarter ended
June 30, 1996, is hereby incorporated by reference.
(10.3) Raytheon Company 1995 Stock Option Plan, filed as an exhibit
to the Company's Registration Statement on Form S-8, File
No. 33-60635, is hereby incorporated by reference.
(10.4) Raytheon Company Deferral Plan for Directors, filed as an
exhibit to the Company's Registration Statement on Form S-8
File No. 333-22969, is hereby incorporated by reference.
(10.5) Form of Raytheon Company Change in Control Severance
Agreement, filed as an exhibit to the Company's Form
10-Q for the quarter ended June 30, 1996, is hereby
incorporated by reference.**
(13) Raytheon Company 1996 Annual Report to Stockholders
(furnished for the information of the Commission and
not to be deemed "filed" as part of this Report
except to the extent that portions thereof are
expressly incorporated by reference).
(21) Subsidiaries of Raytheon Company*
(23.1) Consent of Independent Accountants*
(23.2) Report of Independent Accountants*
(27) Financial Data Schedule*
<PAGE>
39
* Filed electronically herewith.
** The Company has entered into Change in Control Severance Agreements in
the form of Agreement filed as Exhibit 10.5 with each of the following
executives: Peter R. D'Angelo, Christoph L. Hoffmann, A. Lowell Lawson, Charles
Q. Miller, Dennis J. Picard, Robert L. Swam, William H. Swanson and Arthur
E.Wegner. The agreements are designed to provide the executive with certain
severance benefits following a termination, including, without limitation,
payment of an amount equal to three times the executive's salary and targeted
bonus and the continuation of certain employee benefits for up to three years,
all as more fully described in the form of Agreement.
The Company has entered into Change in Control Severance Agreements in the
form of Agreement filed as Exhibit 10.5 with nineteen other executives, but
which are immaterial to the Company. The agreements are designed to provide the
executive with certain severance benefits following a termination, including,
without limitation, payment of an amount equal to two times the executive's
salary and targeted bonus and the continuation of certain employee benefits for
up to two years, all as more fully described in the form of Agreement.
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) 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
/s/ Christoph L. Hoffmann
Christoph L. Hoffmann
Executive Vice President and Secretary
for the Registrant
Dated: March 26, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
SIGNATURES TITLE DATE
Dennis J. Picard Chairman of the Board
(Dennis J. Picard) and Director (Principal March 26, 1997
Executive Officer)
Charles F. Adams Director March 26, 1997
(Charles F. Adams)
Francis H. Burr Director March 26, 1997
(Francis H. Burr)
Ferdinand Colloredo-Mansfeld Director March 26, 1997
(Ferdinand Colloredo-Mansfeld)
Theodore L. Eliot, Jr. Director March 26, 1997
(Theodore L. Eliot, Jr.)
<PAGE>
40
John R. Galvin Director March 26, 1997
(John R. Galvin)
Barbara B. Hauptfuhrer Director March 26, 1997
(Barbara B. Hauptfuhrer)
Richard D. Hill Director March 26, 1997
(Richard D. Hill)
Director March 26, 1997
(L. Dennis Kozlowski)
Director March 26, 1997
(James N. Land, Jr.)
A. Lowell Lawson Director and March 26, 1997
(A. Lowell Lawson) Executive Vice President
Thomas L. Phillips Director March 26, 1997
(Thomas L. Phillips)
Warren B. Rudman Director March 26, 1997
(Warren B. Rudman)
Joseph J. Sisco Director March 26, 1997
(Joseph J. Sisco)
Alfred M. Zeien Director March 26, 1997
(Alfred M. Zeien)
Peter R. D'Angelo Executive Vice President - Chief March 26, 1997
(Peter R. D'Angelo) Financial Officer, Controller
(Chief Accounting Officer)
<PAGE>
41
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
RAYTHEON COMPANY AND SUBSIDIARIES CONSOLIDATED
- -----------------------------------------------------------------------------------------------------------
----------------------------------------------
SCHEDULE II - RESERVES
FOR THE THREE YEARS ENDED DECEMBER 31, 1996
-------------------------------------------
(In thousands)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
Additions
Balance at Balance at
beginning Charged to costs Charged to other Deductions end of
Description of period and expenses accounts Note (1) Period
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------
Year ended December 31, 1996:
Allowance for doubtful $22,043 $ 1,207 - $2,990 $20,260
accounts receivable
Year ended December 31, 1995:
Allowance for doubtful $21,290 $ 3,078 - $2,325 $22,043
accounts receivable
Year ended December 31, 1994:
Allowance for doubtful $25,891 $ 2,473 - $ 7,074 $21,290
accounts receivable
Note (1) - Uncollectible accounts and adjustments, less recoveries
</TABLE>
<PAGE>
1
INDEX TO EXHIBITS
(2.1) Asset Purchase Agreement dated as of January 4, 1997 between Raytheon
Company and Texas Instruments Incorporated, heretofore filed as an
exhibit to the Company's Current Report on Form 8-K filed with the
Securities and Exchange Commission on January 6, 1997, is hereby
incorporated by reference.
(2.2) Agreement and Plan of Merger dated as of January 16, 1997 by and
between Raytheon Company and HE Holdings, Inc., heretofore filed as an
exhibit to the Company's Current Report on Form 8-K filed with the
Securities and Exchange Commission on January 17, 1997, is hereby
incorporated by reference.
(2.3) Implementation Agreement dated as of January 16, 1997 by and between
Raytheon Company and General Motors Corporation, heretofore filed as an
exhibit to the Company's Current Report on Form 8-K filed with the
Securities and Exchange Commission on January 17, 1997, is hereby
incorporated by reference.
(3.1) Raytheon Company Restated Certificate of Incorporation, as amended
through September 27, 1995, heretofore filed as an exhibit to
Raytheon's Form 10-Q for the quarter ended October 1, 1995, is hereby
incorporated by reference.
(3.2) Raytheon Company By-Laws, as amended and restated through October 25,
1995, heretofore filed as an exhibit to Raytheon's Form 10-Q for the
quarter ended October 1, 1995, are hereby incorporated by reference.
(4) Indenture dated as of July 3, 1995 between Raytheon Company and The
Bank of New York, Trustee, relating to the Company's 6 1/2% Notes due
July 15, 2005 and the Company's 7 3/8% Debentures due 2025, filed as an
exhibit to Raytheon's Registration Statement on Form S-3, File No.
33-59241, is hereby incorporated by reference.
(10.1) Raytheon Company 1976 Stock Option Plan, as amended, filed as an
exhibit to the Company's Form 10-Q for the quarter ended June 30, 1996,
is hereby incorporated by reference.
(10.2) Raytheon Company 1991 Stock Plan, as amended, filed as an exhibit to
the Company's Form 10-Q for the quarter ended June 30, 1996, is hereby
incorporated by reference.
(10.3) Raytheon Company 1995 Stock Option Plan, filed as an exhibit to the
Company's Registration Statement on Form S-8, File No. 33-60635, is
hereby incorporated by reference.
(10.4) Raytheon Company Deferral Plan for Directors, filed as an exhibit to
the Company's Registration Statement on Form S-8, File No. 333-22969,
is hereby incorporated by reference.
(10.5) Form of Raytheon Company Change in Control Severance Agreement, filed
as an exhibit to the Company's Form 10-Q for the quarter ended June 30,
1996, is hereby incorporated by reference.**
(13) Raytheon Company 1996 Annual Report to Stockholders (furnished for the
information of the Commission and not to be deemed "filed" as part of
this Report except to the extent that portions thereof are expressly
incorporated by reference).
<PAGE>
2
(21) Subsidiaries of Raytheon Company*
(23.1) Consent of Independent Accountants*
(23.2) Report of Independent Accountants*
(27) Financial Data Schedule*
* Filed electronically herewith.
** The Company has entered into Change in Control Severance Agreements in the
form of Agreement filed as Exhibit 10.5 with each of the following
executives: Peter R. D'Angelo, Christoph L. Hoffmann, A. Lowell Lawson,
Charles Q. Miller, Dennis J. Picard, Robert L. Swam, William H. Swanson and
Arthur E.Wegner. The agreements are designed to provide the executive with
certain severance benefits following a termination, including, without
limitation, payment of an amount equal to three times the executive's salary
and targeted bonus and the continuation of certain employee benefits for up
to three years, all as more fully described in the form of Agreement.
<PAGE>
1
EXHIBIT 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
1996 versus 1995
Raytheon Company reported 1996 earnings of $783.3 million, or $3.30 per
share, before a third quarter special charge of $22.1 million or $.09 per share.
For 1995, earnings were $787.3 million, or $3.23 per share before a one time
gain of $5.2 million, or $.02 per share.
Total Raytheon sales in 1996 reached $12.3 billion, the highest in the
company's history, as sales were up in all four business segments.
In January 1997, Raytheon entered into definitive agreements to
purchase the assets of Texas Instruments' (TI) defense operations for $2.95
billion in cash and to merge with Hughes Electronics' defense operations, with
the combined company to be called Raytheon. The Hughes transaction is valued at
$9.5 billion, comprised of approximately $5.1 billion in common stock and $4.4
billion in debt to be assumed by the merged company. (Refer to Note R of the
notes to the financial statements for a full description of the Hughes
transaction).
On a 1996 pro forma basis, the combined company will have revenues of
approximately $21 billion, over $13 billion of which will be in defense
electronics. The current backlog for the combined company will be approximately
$23 billion, with defense electronics accounting for $18 billion. The Hughes
transaction, coupled with the recently announced acquisition of TI's defense
business, is expected to result in a slight dilution to the earnings of the
combined company in 1997, as compared to the earnings of Raytheon on a
stand-alone basis for the same period. The combined transactions should be
minimally accretive in 1998 and increasingly accretive thereafter.
The two transactions are subject to regulatory approvals, including
Hart-Scott-Rodino antitrust review, with the Hughes transaction subject to a
favorable ruling by the Internal Revenue Service and approval by Raytheon, GM
and GM "H" stockholders.
Raytheon's total backlog at the end of 1996 stood at a record $12.1
billion, up $1.5 billion, or 14.4 percent, compared with year-end 1995. The
backlog increase was driven principally by a 59 percent increase in the backlog
of Raytheon Engineers & Constructors at the end of 1996 compared with the end of
1995. Raytheon Engineers & Constructors ended 1996 with a record backlog of $3.6
billion.
The company made three acquisitions in 1996: the aircraft modification
and defense electronics businesses of Chrysler Technologies; the engineering and
construction assets of Rust International; and the marine communication assets
of Standard Radio AB of Sweden.
<PAGE>
2
The Segment Financial results are as follows:
The Electronics segment's 1996 sales and income increased over 1995's
results, which included a one-time special charge. Sales and income increased at
Dallas-based Raytheon E-Systems, reflecting inclusion of a full year of
E-Systems results as well as a partial year's results for the complementary
acquisition of two Chrysler Technologies defense businesses. Raytheon's
Massachusetts-based defense operations experienced declines in sales and income.
Excluding D.C. Heath and Xyplex, which were divested in late 1995 and early
1996, respectively, sales and income increased in Raytheon's Commercial
Electronics business.
Raytheon Aircraft of Wichita, Kansas, the world leader in general
aviation, reported record sales and increased income for the year over 1995,
which included a one-time special charge, due to increased aircraft shipments
and services.
Raytheon Engineers & Constructors, one of the largest engineering,
construction, operations and maintenance firms in the world, reported record
sales for the year. Although sales were higher than 1995 due primarily to
increased engineering and construction effort, income was down due to the delay
of higher margin international turnkey projects combined with the effects of
strike-related losses at Cedarapids.
Raytheon Appliances had record sales for the year due to increased
shipments of heating and air conditioning products, refrigerators and self-clean
ranges; however, income, excluding the special charge, was flat due principally
to competitive pressures in the retail market and increased sales promotion
costs.
On February 23, 1997, the company announced that it is evaluating
strategic alternatives for the Appliance Group, which may result in the sale or
merger of the group at some time in the future. The company retained an advisor
to assist with this evaluation. The decision to undertake this strategic
reassessment was made in the context of Raytheon's financial priorities, and the
belief that the Appliance Group may have greater value to another company with
more focus on the markets served by the group.
Sales to the U. S. Department of Defense were $4.032 billion or 32.7
percent of consolidated sales in 1996 versus $3.961 billion or 33.6 percent of
consolidated sales in 1995. Total sales to the U. S. government were $5.140
billion or 41.7 percent of consolidated sales in 1996 versus $4.677 billion or
39.6 percent of consolidated sales in 1995.
Administration and selling expenses decreased to $1,021.0 million, or
8.3 percent of sales in 1996, from $1,085.8 million, or 9.2 percent of sales in
1995, due principally to the sale of D.C. Heath and Xyplex.
Research and development expenses increased to $323.3 million, or 2.6
percent of sales in 1996, from $315.6 million, or 2.7 percent of sales in 1995,
due principally to the inclusion of a full year of E-Systems results and a
partial year's results for the acquired Chrysler Technologies businesses.
Operating income in 1996, excluding the special charge of $34.0 million
pre-tax, was $1,232.2 million, or 10.0 percent of sales, versus $1,320.4
million, or 11.2 percent of sales, in 1995. The 1995 operating income excludes a
special charge of $125.0 million and nonrecurring items of $77.0 million.
Operating income for 1996, including the special charge, was $1,198.2 million,
or 9.7 percent of sales, while operating income for 1995, including the special
charge and nonrecurring items, was $1,118.4 million.
The company announced in the third quarter of 1996 that it would exit
the manual-clean range market and dispose of the assets related to that
operation, including its facility located in Delaware, Ohio, and recorded a
$34.0 million pre-tax charge for this closing. The after-tax effect was $22.1
million or $.09 per share.
<PAGE>
3
The company recorded in the first quarter of 1994 a restructuring
provision of $249.8 million before tax. The restructuring was driven by the
significant reductions in the defense budget and increasing commercial
competition. Approximately 65 percent of the restructuring costs were
attributable to the company's defense business and the remainder to its
commercial business. The company completed personnel reductions of 4,400 people
under this restructuring provision, including both salaried and bargaining unit
employees located in Massachusetts and other states and in foreign locations.
Through December 31, 1996, $249.3 million of restructuring costs have been
incurred, of which $103.4 million were employee-related costs and $145.9 million
were related principally to asset disposals and idle facilities.
Interest expense for 1996 increased to $256.3 million from $196.6
million in 1995. The increase was due principally to the higher average debt
level.
Interest and dividend income increased to $102.0 million in 1996 from
$26.3 million in 1995 due principally to accrued interest before tax on a
retroactive federal income tax refund claim.
Other income, net was $39.5 million in 1996 versus $243.6 million in
1995. The 1995 amount includes a $210 million net pre-tax gain from the sale of
D.C. Heath.
Federal and foreign income taxes were $322.3 million in 1996 compared
with $399.2 million in 1995. The 1996 effective tax rate was 29.7 percent versus
33.5 percent in 1995. The effective tax rate for 1996 reflects the statutory
rate of 35 percent reduced by accrued research and development tax credits and
Foreign Sales Corporation (FSC) tax credits, partially offset by nondeductible
amortization of goodwill. The decrease in the effective tax rate in 1996 from
1995 was due to the accrued retroactive research and development tax credits
applicable to certain government contracts. For reasons discussed above, income,
excluding the special charge of $22.1 million, was $783.3 million in 1996 versus
$787.3 million in 1995 before the 1995 one-time gain of $5.2 million.
Earnings per common share were $3.30 before the special charge of $.09
per share, versus $3.23 per share in 1995 excluding the one-time gain of $.02
per share. Earnings per share including the special charge were $3.21 in 1996,
versus $3.25 in 1995 including the one-time gain.
Earnings per common share calculations were based on 237.4 million
average shares outstanding in 1996 and 244.0 million average shares outstanding
in 1995. Common shares outstanding and all per share data have been restated to
reflect the two-for-one stock split effective October 23, 1995. During 1996,
outstanding shares were reduced by 6.1 million shares as the result of the
company's purchase of outstanding shares at a cost of $305.8 million, partially
offset by 1.8 million shares issued upon the exercise of employee stock options.
In November 1992, the Board of Directors authorized the purchase of up
to 4 million shares of the company's common stock per year over the next five
years to counter the dilution due to the exercise of stock options. During 1996,
1.8 million shares were purchased under this authorization. On February 23,
1994, the Board of Directors authorized the repurchase of up to 24 million
shares of the company's common stock. Purchases under this authorization were
completed in 1995. On February 22, 1995, the Board of Directors authorized the
repurchase of up to 12 million shares of the company's common stock. Through
December 31, 1996, 9.5 million shares have been purchased under this
authorization.
<PAGE>
4
The book value of common shares outstanding at December 31, 1996, was
$19.46 as compared with $17.83 at December 31, 1995. Return on average equity
was 17.9 percent in 1996 excluding the special charge, versus 19.2 percent in
1995 excluding the net one-time gain.
Backlog consisted of the following at December 31:
(In millions) 1996 1995
- -------------------------------------------------------
Electronics $ 7,303 $ 7,411
Engineering and Construction 3,565 2,240
Aircraft 1,163 836
Major Appliances 35 64
------- -------
Total Backlog $12,066 $10,551
U.S. government-funded $ 5,637 $ 5,142
backlog included above
- -------------------------------------------------------
The Electronics backlog at December 31, 1996, includes $1.1 billion
related to the SIVAM contract awarded by the government of Brazil to monitor and
protect the Amazon River rain forest. On March 14, 1997, the company announced
that the contract had been signed by the government of Brazil and all financing
agreements for the program had been finalized.
For the year ended December 31, 1996, cash flows from operating
activities were $291.3 million as compared with $1,174.6 million during the year
ended December 31, 1995. In 1996 funds were used for additions to property,
plant and equipment of $406.0 million; dividends of $189.6 million; purchases of
treasury stock of $305.8 million and net payments for acquired companies of
$584.4 million. Funds were provided by increasing short-term debt by $1,006.9
million.
In 1995, under the company's 1992 shelf registration of $500.0 million
of debt securities and a 1995 registration of $1.5 billion of debt and/or equity
securities, the company issued $1.125 billion of debt securities in a public
offering comprised of $750.0 million of notes due 2005, which have a coupon rate
of 6 1/2 percent and $375.0 million of debentures due 2025 which have a coupon
rate of 7 3/8 percent. The notes are not redeemable prior to maturity, and the
debentures are not redeemable prior to July 15, 2005. This financing, along with
increased short-term borrowing, was used principally to fund the 1995
acquisition of E-Systems.
Debt, net of cash and marketable securities, was $3.589 billion at
December 31, 1996, as compared with $2.493 billion at December 31, 1995. Net
debt as a percentage of total capitalization was 43.8 percent at December 31,
1996, as compared with 36.7 percent at December 31, 1995.
Accounts receivable decreased to $808.7 million at December 31, 1996,
from $926.8 million at December 31, 1995 due principally to the sale of
receivables to bank syndicates and other financial institutions.
Contracts in process increased to $2.592 billion at December 31, 1996,
from $2.213 billion at December 31, 1995, due principally to increased effort on
major foreign turnkey projects at the Engineering and Construction segment.
<PAGE>
5
Property, plant and equipment, net, increased to $1.802 billion at
December 31, 1996, from $1.584 billion at December 31, 1995, due to increased
investment at the Aircraft segment and the acquisition of the Chrysler
Technologies businesses and Rust Engineering.
Other assets increased to $3.720 billion at December 31, 1996, from
$2.982 billion at December 31, 1995, due principally to goodwill arising from
the acquisitions of the Chrysler Technologies businesses and Rust Engineering.
Capital expenditures were $406.0 million in 1996 versus $328.6 in 1995. The
increase was due principally to higher expenditures in the Aircraft segment.
Capital expenditures in 1997 are expected to be above the 1996 level, excluding
the effect of acquisitions.
Dividends declared to stockholders during 1996 were $189.6 million
versus $182.5 million in 1995. The quarterly dividend rate was $.20 for each
quarter of 1996 versus $.1875 for each quarter of 1995.
Total employment was 75,300 at December 31, 1996, as compared with
73,200 at December 31, 1995. The increase was due principally to the
acquisitions of the Chrysler Technologies businesses and Rust Engineering,
partially offset by reductions in the defense electronics segment and the sale
of Xyplex.
The company's debt of $3.727 billion at December 31, 1996, will
increase by approximately $2.950 billion as a result of the planned acquisition
of the defense operations of TI. The planned merger of the Hughes Electronics
defense operations will add approximately $4.400 billion of additional debt and
approximately $5.100 billion of additional equity through the issuance of
additional common shares (refer to Note R of the notes to the financial
statements for a full description of the transaction). The company intends to
finance the additional debt initially through an expansion of the company's
short-term borrowing facilities. Approximately $3.0 to $4.5 billion of the
short-term borrowing is expected to be replaced with a combination of medium and
long-term notes and bonds shortly after the closure of the transactions. The
covenants applicable to the existing financing arrangements have been modified
by the participating entities to accommodate the increase in debt.
Total debt as a percentage of total capital was 44.8 percent at
December 31, 1996, and 38.6 percent at December 31, 1995, and is expected to
rise as a result of the acquisitions.
Credit ratings for the company, based on the proposed acquisitions,
have been lowered by Moody's to P-2 for short-term borrowing and A-3 for senior
debt as of January 16, 1997, by Standard and Poor's to A-3 for short-term
borrowing and BBB for senior debt as of January 17, 1997, and by Duff & Phelps
to D-2 for short-term borrowing and BBB+ for senior debt as of February 26,
1997. Moody's and Standard and Poor's still have the company's ratings under
review with negative implications. The company expects that its cash flow from
operations and asset reductions will be sufficient to maintain investment grade
credit ratings and available debt financing will be sufficient to meet any
additional funding requirements in 1997.
Lines of credit with certain commercial banks exist as a standby
facility to support the issuance of commercial paper by the company. The lines
of credit were $3.483 billion and $3.203 billion at December 31, 1996, and
<PAGE>
6
December 31, 1995, respectively. Through the end of 1996, there were no
borrowings under these lines of credit, as borrowings were via commercial paper
supported by the lines of credit. Commencing on January 17, 1997 substantially
all new borrowings have been under the committed lines of credit from the
participating commercial banks.
The company enters into interest rate swaps and locks and foreign
currency forward agreements with commercial and investment banks to reduce the
impact of changes in interest rates and foreign exchange rates on long-term debt
and on purchases, sales, and financing arrangements with lenders, vendors,
customers and foreign subsidiaries. The company meets its working capital
requirements mainly with variable rate short-term financing. Interest rate swaps
are primarily used to provide purchasers of the company's products with fixed
financing terms over extended time periods. The company also enters into foreign
exchange forward contracts to minimize fluctuations in the value of payments due
to international vendors and the value of foreign currency denominated receipts.
The hedges used by the company are directly related to a particular asset,
liability, or transaction for which a firm commitment is in place. Swaps and
foreign exchange contracts are normally held to maturity and no exchange traded
or over-the-counter instruments have been purchased. The impact on the financial
position, liquidity, and results of operations from likely changes in foreign
exchange and interest rates is not material due to the minimizing of risk
through the hedging of transactions related to specific assets, liabilities, or
commitments.
The company adopted Statement of Financial Accounting Standard No. 123,
Accounting for Stock-Based Compensation, in 1996. The standard defines a fair
value based method of accounting for employee stock options. The compensation
expense arising from this method of accounting can be reflected in the financial
statements or, alternatively, the pro forma net income and earnings per share
effect of the fair value based accounting can be disclosed in the notes to the
financial statements. The company adopted the disclosure alternative and the
results are disclosed in the notes to the financial statements.
Recurring costs associated with the company's environmental compliance
program are not material and are expensed as incurred. Capital expenditures in
connection with environmental compliance are not material. The company is
involved in various stages of investigation and cleanup relative to remediation
of various sites. All appropriate costs incurred in connection therewith have
been expensed. Due to the complexity of environmental laws and regulations, the
varying costs and effectiveness of alternative cleanup methods and technologies,
the uncertainty of insurance coverage, and the unresolved extent of the
company's responsibility, it is difficult to determine the ultimate outcome of
these matters. However, in the opinion of management, any additional liability
will not have a material effect on the company's financial position, liquidity,
or results of operations after giving effect to amounts already recorded.
The company will adopt Statement of Financial Accounting Standard No.
125, Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities, in 1997. The adoption is not expected to have a
material effect on the company's financial position or results of operations.
<PAGE>
7
The company will adopt the American Institute of Certified Public
Accountants Statement of Position 96-1, Environmental Remediation Liabilities,
in 1997. The adoption of the standard will not have a material effect on the
company's financial position or results of operations.
1995 versus 1994
Raytheon Company reported increased 1995 net income of $792.5 million,
or $3.25 per share compared with 1994 net income of $596.9 million, or $2.26 per
share. The 1994 results include a first quarter after-tax restructuring charge
of $162.3 million, or $.61 per share. The 1994 earnings, excluding the
restructuring charge, were $759.2 million, or $2.87 per share.
Total Raytheon sales in 1995 reached $11.8 billion, the highest in the
company's history, compared with sales of $10.1 billion in 1994. Raytheon's
results in 1995 reflect the company's solid overall commercial sales and profits
driven by continued strong performances at Raytheon Aircraft, Raytheon Engineers
& Constructors, and Commercial Electronics, as well as the significant
contribution of E-Systems, the Dallas-based defense and government electronics
company acquired by Raytheon in 1995.
Total debt came down substantially to $2.7 billion at year end compared
with a peak of approximately $4 billion earlier in 1995 following the
acquisition of E-Systems. Raytheon ended the year with debt, net of cash and
marketable securities, of $2.5 billion, or 36.7 percent of total capitalization.
Raytheon's total backlog ended the year at a record $10.551 billion
reflecting a 47 percent increase in the backlog of Raytheon Engineers &
Constructors compared with year-end 1994 and a record E-Systems backlog.
The company made three acquisitions in 1995: E-Systems, a leader in
intelligence, reconnaissance and surveillance systems was acquired on April 29,
1995; assets of Litwin Engineers & Constructors, an international leader in
hydrocarbon refining and process technology were acquired on July 26, 1995; and
Anschutz, one of the world's leading manufacturers of gyro compasses,
autopilots, and steering control systems--a high seas product line that
complements Raytheon's existing marine electronics line--was acquired on
February 15, 1995.
The company recorded in the fourth quarter of 1995 a net pre-tax gain
of $210 million from the sale of D.C. Heath, its educational publishing unit.
The company also recorded in the fourth quarter of 1995 a special pre-tax charge
of $125 million related principally to real estate and goodwill valuation
adjustments, and an additional charge of $77 million to cost of sales related
principally to provisions for inventory and contracts. The above transactions
resulted in a $5.2 million after-tax increase to net income, or $.02 per share.
The segment financial results are as follows:
The Engineering and Construction segment reported record sales and
income for 1995. Sales increased to $2.883 billion in 1995. Income increased by
9.6 percent to $262 million due principally to higher returns on international
projects.
The Aircraft segment reported record sales for 1995. Sales of $2.060
billion were up 17.1 percent based on strong unit sales growth of regional and
general aviation aircraft. Segment income was $197 million, before a
nonrecurring charge of $30 million included as part of the previously mentioned
$77 million charge.
<PAGE>
8
Raytheon Aircraft was selected by the U. S. Air Force and U. S. Navy for
the next generation primary trainer, the Joint Primary Aircraft Training System
(JPATS). The JPATS program, a major win for Raytheon, is valued at up to $7
billion over more than 20 years. Additionally, there is the potential for
significant international sales.
The Major Appliances segment had increased sales to $1.472 billion in
1995 due principally to the acquisition of UniMac, while income was down due to
strong competitive price pressures and higher material costs.
The Electronics segment had increased sales and income in 1995 due to
the contribution of E-Systems and commercial electronics. Segment income was
$787 million before a nonrecurring charge of $47 million. Raytheon's
Massachusetts-based defense operations experienced declines in sales and income;
however, the rate of decline was not as great as in prior years.
In 1995, Raytheon initiated sweeping changes in its defense business in
Massachusetts, moving forward with management, workforce, legislative, and
utility initiatives to achieve $600 million in cost savings to enable the
company to remain competitive in defense manufacturing in the state. Raytheon
Electronic Systems (RES) was formed through the consolidation of the Missile
Systems and Equipment Divisions. In addition to management initiatives, Raytheon
worked with local unions to achieve cost controls and enhance productivity.
Working with Massachusetts lawmakers, the company won tax reduction legislation
for manufacturing firms in the state and the company reached a groundbreaking
agreement with a major Massachusetts utility to cut its electricity costs in the
state. These initiatives are designed to make Raytheon more competitive with
companies based in lower-cost areas.
Sales to the U. S. Department of Defense were $3.961 billion, or 33.6
percent of consolidated sales in 1995, versus $3.546 billion, or 35.1 percent of
consolidated sales, in 1994. Total sales to the U. S. government were $4.677
billion, or 39.6 percent of consolidated sales, versus $3.930 billion, or 38.9
percent in 1994.
Administration and selling expenses increased to $1,085.8 million in
1995, versus $912.3 million in 1994, due principally to the acquisition of
E-Systems.
Research and development expenses increased to $315.6 million in 1995,
versus $269.6 million in 1994, due principally to the acquisition of E-Systems.
Operating income in 1995, excluding the special charge and nonrecurring
items, was $1,320.4 million, or 11.2 percent of sales, versus $1,145.9 million,
or 11.3 percent of sales, in 1994. The 1994 results exclude the effect of the
first quarter 1994 restructuring provision. Operating income for 1995, including
the special charge and nonrecurring items, was $1,118.4 million, or 9.5 percent
of sales.
The company recorded in the first quarter of 1994 a restructuring
provision of $249.8 million before tax. The restructuring was driven by the
significant reductions in the defense budget and increasing commercial
competition. Approximately 65 percent of the restructuring costs are
attributable to Raytheon's defense business and the remainder to its commercial
business. The company completed personnel reductions of 4,400 people under this
restructuring provision, including both salaried and bargaining unit employees
located in Massachusetts and other states and in foreign locations. Through the
<PAGE>
9
end of 1995, $240.4 million of restructuring costs have been incurred, of which
$102.2 million were employee-related costs and $138.2 million were related
principally to asset disposals and idle facilities. Cash flow expenditures, net
of tax recovery of $87 million, were $67 million in 1994 and $32 million in
1995.
Interest expense for 1995 increased to $196.6 million from $48.5
million in 1994. The increase was due to higher interest rates and higher
average levels of debt outstanding, due principally to the acquisition of
E-Systems.
Interest and dividend income was $26.3 million in 1995 versus $19.6
million in 1994. This income arises principally from the financing of customer
long-term receivables.
Other income (net) for 1995 increased to $243.6 million from $32.7
million in 1994. The 1995 amount includes a $210 million net pre-tax gain from
the sale of D.C. Heath.
Federal and foreign income taxes were $399.2 million in 1995 compared
with $303.1 million in 1994. The 1995 effective tax rate was 33.5 percent versus
33.7 percent in 1994. The effective tax rate for 1995 reflects the statutory
rate of 35 percent reduced by Foreign Sales Corporation (FSC) tax credits,
partially offset by non-deductible amortization of goodwill.
For reasons discussed above, income increased by 4.4 percent to $792.5
million from the $759.2 million reported for 1994 before the restructuring
provision.
Earnings per common share increased 13.2 percent to $3.25 per share
from $2.87 per share in 1994 before the restructuring provision.
Earnings per common share calculations were based on 244.0 million
average shares outstanding in 1995 and 264.7 million average shares outstanding
in 1994. Common shares outstanding and all per share data have been restated to
reflect the two-for-one stock split effective October 23, 1995. During 1995,
outstanding shares were reduced by 8.1 million shares as a result of the
company's purchase of outstanding shares at a cost of $320.0 million, partially
offset by 2.2 million shares issued upon the exercise of employee stock options.
In November 1992, the Board of Directors authorized the purchase of up
to 4 million shares of the company's common stock per year over the next five
years to counter the dilution due to the exercise of stock options. During 1995,
2.2 million shares were purchased under this authorization. On February 23,
1994, the Board of Directors authorized the repurchase of up to 24 million
shares of the company's common stock. In 1994, 23.4 million shares were
purchased under this authorization and the balance purchased in 1995. On
February 22, 1995, the Board of Directors authorized the repurchase of up to 12
million shares of the company's common stock. In 1995, 5.3 million shares were
purchased under this authorization
The book value of common shares outstanding at December 31, 1995, was
$17.83 as compared with $15.92 at December 31, 1994. Return on average equity
was 19.3 percent in 1995 versus 17.4 percent in 1994 excluding the restructuring
provision.
<PAGE>
10
Backlog consisted of the following at December 31:
(In millions) 1995 1994
- ----------------------------------------------------
Electronics $ 7,411 $5,287
Engineering and Construction 2,240 1,522
Aircraft 836 1,203
Major Appliances 64 58
------- ------
Total Backlog $10,551 $8,070
U.S. government-funded $ 5,142 $3,641
backlog included above
- ----------------------------------------------------
Raytheon's total backlog of $10,551 billion at year-end 1995 was up 31
percent from year-end 1994. The increase in the Electronics backlog and the U.
S. government portion of the total backlog reflects the acquisition of
E-Systems. The Electronics backlog includes $1.1 billion related to the SIVAM
contract awarded by the government of Brazil to monitor and protect the Amazon
River rain forest.
For the year ended December 31, 1995, cash flows from operating
activities were $1,174.6 million as compared to $1,157.9 million during the
comparable 1994 period. In 1995 these funds were used for: additions to
property, plant and equipment of $328.6 million; dividends of $182.5 million;
the purchase of treasury shares of $260.7 million, net of the proceeds received
on the exercise of employee stock options; and to pay down short-term debt.
During 1995, $2.342 billion was expended for acquired companies, principally the
acquisition of E-Systems. The funds for the acquisitions were provided by
increasing long-term and short-term debt. In the fourth quarter of 1995, $449.2
million of funds were received from the sale of D.C. Heath and were used to
reduce short-term debt.
Debt, net of cash and marketable securities, was $2.494 billion at
December 31, 1995, as compared with $855 million at December 31, 1994. Net debt
as a percentage of total capitalization was 36.7 percent at December 31, 1995,
as compared with 17.9 percent at December 31, 1994.
Contracts in process increased to $2.213 billion at December 31, 1995,
from $1.951 billion at December 31, 1994, due principally to the acquisition of
E-Systems.
Property, plant and equipment increased to $1.584 billion at December
31, 1995, from $1.361 billion at December 31, 1994, due principally to the
acquisition of E-Systems.
Other assets (net) increased to $2.982 billion at December 31, 1995,
from $1.049 billion at December 31, 1994, due principally to the goodwill
arising from the acquisition of E-Systems.
Capital expenditures were $328.6 million in 1995 versus $267.4 million
in 1994. The increase was due principally to the acquisition of E-Systems.
Dividends declared to stockholders during 1995 were $182.5 million
versus $192.7 million in 1994. The quarterly dividend rate was $.1875 for each
quarter of 1995 versus $.175 in the first quarter of 1994 and $.1875 for the
second, third, and fourth quarters of 1994.
<PAGE>
11
Total employment was 73,200 at December 31, 1995, as compared with
60,200 at December 31, 1994. The increase in employment is principally due to
the acquisition of E-Systems.
FORWARD LOOKING STATEMENTS
Statements in this Report which are not historical facts are forward
looking statements under the provisions of the Private Securities Litigation
Reform Act of 1995. All forward looking statements involve risks and
uncertainties. The Company wishes to caution readers that several important
factors, including those noted in the Management's Discussion and Analysis
section of this Report at pages 41 through 45, could affect the Company's actual
results and could cause its actual results in fiscal 1997 and beyond to differ
materially from those expressed in any forward looking statements made by, or on
behalf of, the Company. Further information regarding the important factors that
could cause actual results to differ from projected results can be found in
Raytheon's reports filed with the SEC, including our form 10-K for the year
ended December 31, 1996.
BUSINES SEGMENT REPORTING
The company operates in four major business areas: Electronics, both
commercial and defense; Engineering and Construction; Aircraft; and Major
appliances. The principal contributors to Electronics sales and earnings are
defense missile systems and other products. The Engineering and Construction
segment does business in some 60 countries around the world. The Aircraft
segment manufactures, markets and supports piston, jetprops and medium and light
jet aircraft for commercial, regional airline and military markets around the
world. The Major Appliance segment manufactures and sells household and
commercial appliances to dealers and distributors in the United States and to
foreign locations. Sales and segment income for 1995 and 1994 have been restated
to conform with the 1996 presentation.
Certain accounts were reclassified to reconicile segment income with
operating income, as reported in the statements of income. The reclassifications
did not have a material effect on the income of the segments other than the
aircraft segment. Aircraft segment income was reduced in all years due to the
inclusion of interest cost associated with the fnancing of off-balance sheet
receivables. This cost was previously reported as a part of corporate interest
expense. The change did not affect the company's income before taxes or net
income.
<PAGE>
12
<TABLE>
<CAPTION>
OPERATIONS BY BUSINESS SEGMENTS
- --------------------------------------------------------------------------------
(In millions) Sales to unaffiliated customers Segment income
------------------------------- --------------
1996 1995 1994 1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Electronics $ 5,424 $ 5,389 $ 4,057 $ 766 $ 740(3) $ 630
Engineering and
Construction 3,053 2,883 2,827 211(6) 262 239
Aircraft 2,345 2,060 1,759 181 167(4) 195
Major Appliances 1,509 1,472 1,455 74 74 82
------- ------- ------- ----- ----- -----
Total Operating
Segments $12,331 $11,804 $10,098 $1,232 $1,243 $1,146
======= ======= ======= ====== ====== ======
Restructuring and
special charges (34)(1) (125)(2) (250)(5)
Gain on sale of
D.C. Heath - 210 -
Net interest expense (154) (170) (28)
Other income 39 5 1
Gain on sale of an
investment - 29 31
------ ------ -------
Income before
taxes $1,083 $1,192 $ 900
====== ====== =======
- ----------------------------------------------------------------------------------
</TABLE>
- ----------
(1) The 1996 special charge of $34 million relates to the Major Appliances
segment.
(2) The special charge relates to the business segments as follows: Electronics,
$115, and Engineering and Construction, $10.
(3) Includes a nonrecurring charge of $47 million.
(4) Includes a nonrecurring charge of $30 million.
(5) The restructuring provision relates to the business segments as follows:
Electronics, $193, Engineering and Construction, $37, Aircraft $13, and
Major Appliances $7.
(6) Excludes second quarter fee adjustment on a major foreign project which
was covered by a pre-existing contingency reserve.
<PAGE>
13
<TABLE>
<CAPTION>
Capital expenditures Depreciation and Amortization
---------------------------------------------------------
(In millions) 1996 1995 1994 1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Electronics $160 $147 $120 $220 $228 $167
Engineering and
Construction 27 26 22 37 32 31
Aircraft 140 80 74 50 51 52
Major Appliances 79 76 51 62 60 54
---- ---- ---- ---- ---- ----
Total $406 $329 $267 $369 $371 $304
==== ==== ==== ==== ==== ====
Identifiable assets at December 31,
- ----------------------------------------------------
(In millions) 1996 1995 1994
- ----------------------------------------------------
Electronics $ 5,881 $5,473 $2,867
Engineering and
Construction 2,059 1,544 1,359
Aircraft 2,372 1,832 2,171
Major Appliances 814 992 998
------- ------ ------
Total $11,126 $9,841 $7,395
======= ====== ======
</TABLE>
<PAGE>
14
<TABLE>
<CAPTION>
OPERATIONS BY GEOGRAPHIC AREAS
- ------------------------------------------------------------------------------
(In millions) United States Outside United States Consolidated
(Principally Europe)
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales to unaffiliated customers
- ------------------------------------------------------------------------------
1996 $11,570 $ 761 $12,331
1995 11,017 787 11,804
1994 9,309 789 10,098
Net income
- ------------------------------------------------------------------------------
1996 740 21 761
1995 738 54 792
1994 547 50 597
Identifiable assets at
- ------------------------------------------------------------------------------
December 31, 1996 10,473 653 11,126
December 31, 1995 9,171 670 9,841
December 31, 1994 6,929 466 7,395
- ------------------------------------------------------------------------------
</TABLE>
<PAGE>
15
Sales between business segments and between geographic areas are not
material. In the data by geographic area, U.S. sales in millions of $11,570,
$11,017, and $9,309 include export sales, in millions, principally to Europe,
the Middle East, and Far East, of $2,137, $1,907, and $1,173 for 1996 through
1994, respectively.
Sales in millions to major customers, principally in Electronics, for 1996
through 1994, respectively, are: U.S. government (end user), $4,638, $4,079, and
$3,236; U.S. government (foreign military sales), $502, $597, and $694.
QUARTERLY FINANCIAL DATA
The third quarter of 1996 includes a special charge of $22.1 million
after tax or $.09 per share to exit the manual-clean range market and close the
Delaware, Ohio plant.
The fourth quarter of 1995 includes a one-time gain of $5.2 million
after tax or $.02 per share related to the sale of D.C. Heath, net of special
charges.
(In millions except
per share data) First Second Third Fourth
- ------------------------------------------------------------------
1996
- ------------------------------------------------------------------
Net sales $2,787.6 $3,126.8 $3,032.4 $3,383.7
Cost of sales 2,141.3 2,435.4 2,428.1 2,749.2
Net income 186.5 209.4 187.9 177.4
Earnings per
common share 0.78 0.88 0.80 0.75
Cash dividends
per common share
Declared 0.20 0.20 0.20 0.20
Paid 0.1875 0.20 0.20 0.20
Common stock prices
per the Composite Tape
High 54.13 53.63 55.00 56.13
Low 45.00 48.75 43.38 45.75
<PAGE>
16
1995
- ------------------------------------------------------------------
Net sales $2,399.1 $2,844.6 $3,174.0 $3,386.5
Cost of sales 1,832.3 2,130.5 2,442.7 2,754.0
Net income 173.9 195.5 200.7 222.4
Earnings per
common share 0.71 0.80 0.82 0.92
Cash dividends
per common share
Declared 0.1875 0.1875 0.1875 0.1875
Paid 0.1875 0.1875 0.1875 0.1875
Common stock prices
per the Composite Tape
High 37.19 39.81 42.69 47.25
Low 31.44 34.75 38.75 41.50
- ------------------------------------------------------------------
Note:
Share data have been restated for the two-for-one stock split in October, 1995.
<PAGE>
17
TEN YEAR STATISTICAL SUMMARY
<TABLE>
<CAPTION>
(In millions except per share data)
1996 1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Statements of Income
- -----------------------------------------------------------------------------------------------------
Net sales $12,330.5 $11,804.2 $10,097.7 $ 9,334.1 $ 9,121.7
- -----------------------------------------------------------------------------------------------------
Cost of sales 9,754.0 9,159.4 7,769.9 7,181.8 7,064.1
Administrative and
selling expenses (note A) 1,021.0 1,085.8 912.3 827.6 817.2
Research and development expenses 323.3 315.6 269.6 279.4 289.9
Special charge 34.0 125.0 249.8 -- --
- -----------------------------------------------------------------------------------------------------
Total operating expenses 11,132.3(3) 10,685.8 9,201.6(5) 8,288.8 8,171.2
- -----------------------------------------------------------------------------------------------------
Operating income 1,198.2(3) 1,118.4 896.1(5) 1,045.3 950.5
- -----------------------------------------------------------------------------------------------------
Interest expense 256.3 196.6 48.5 31.9 48.2
Interest and dividend income (102.0) (26.3) (19.6) (7.3) (9.2)
Other income, net (note A) (39.6) (243.6) (32.7) (26.6) (44.5)
- -----------------------------------------------------------------------------------------------------
Non-operating expense (income), net 114.7 (73.3) (3.8) (2.0) (5.5)
- -----------------------------------------------------------------------------------------------------
Income before taxes 1,083.5(3) 1,191.7(4) 899.9(5) 1,047.3 956.0
Federal and foreign income taxes 322.3 399.2 303.0 354.3 320.9
- -----------------------------------------------------------------------------------------------------
Net income $ 761.2(3) $ 792.5(4) $ 596.9(5) $ 693.0 $ 635.1
=====================================================================================================
Return on sales 6.2% 6.7% 5.9% 7.4% 7.0%
Return on average equity 17.4% 19.3% 14.1% 17.0% 17.7%
Earnings per common share (1)(2)
Outstanding shares $ 3.21(3) $ 3.25(4) $ 2.26(5) $ 2.56 $ 2.36
Fully diluted $ 3.16(3) $ 3.20(4) $ 2.24(5) $ 2.53 $ 2.34
Cash dividends declared per
common share(2) $ 0.80 $ 0.75 $ 0.738 $ 0.70 $ 0.663
Average common shares (in thousands)(2)
Outstanding shares 237,413 243,989 264,736 271,166 269,008
Fully diluted 240,736 247,780 266,490 273,594 271,290
- -----------------------------------------------------------------------------------------------------
Financial Position at Year-End
- -----------------------------------------------------------------------------------------------------
Assets
Current $ 5,603.9 $ 5,275.2 $ 4,985.5 $ 4,609.2 $ 3,775.8
Property, plant, and equipment, net 1,802.0 1,584.0 1,360.8 1,422.1 1,420.0
Total (including other non-current) 11,126.1 9,840.9 7,395.4 7,257.7 6,015.1
Working Capital
Net working capital 912.1 1,584.8 1,702.4 1,809.0 1,639.0
Ratio of current assets to
current liabilities 1.19 1.43 1.52 1.65 1.77
<PAGE>
18
Financial Structure
Long-term debt 1,500.5 1,487.7 24.5 24.4 25.3
Total debt 3,727.4 2,703.8 1,057.6 897.6 732.0
Stockholders' equity 4,598.0 4,292.0 3,928.2 4,297.9 3,843.2
Per common share(2) 19.46 17.83 15.92 15.89 14.16
Debt as a percentage of equity 81.1% 63.0% 26.9% 20.9% 19.0%
- -----------------------------------------------------------------------------------------------------
General Statistics
- -----------------------------------------------------------------------------------------------------
Total backlog $12,066.1 $10,550.5 $ 8,069.8 $ 7,756.5 $ 7,273.2
U.S. government-funded backlog
(included above) 5,637.5 5,141.5 3,640.9 4,518.8 5,310.6
Property, plant, and equipment
Capital expenditures 406.0 328.6 267.4 256.1 307.7
Depreciation and amortization 368.9 371.4 304.2 296.4 302.1
Total salaries and wages paid 3,710.2 3,450.7 2,894.7 2,731.5 2,957.7
Total number of employees (actual) 75,300 73,200 60,200 63,800 63,900
Outstanding shares of common stock
(in thousands) 236,250 240,690 246,644 270,428 271,320
- -----------------------------------------------------------------------------------------------------
</TABLE>
Notes:
(1) Earnings per common share: outstanding shares computed on average number
of common shares; fully diluted assumes exercise of dilutive stock options.
(2) All share data have been restated for the two-for-one stock split in October
1995. (3) Includes special charge of $34.0 million pre-tax, $22.1 million
after-tax, or $.09 per share. (4) Includes one-time gain of $8.0 million
pre-tax, $5.2 million after-tax, or $.02 per share. (5) Includes
restructuring charge of $249.8 million pre-tax, $162.3 million after-tax,
or $.61 per share.
<PAGE>
19
TEN YEAR STATISTICAL SUMMARY (continued)
<TABLE>
<CAPTION>
(In millions except per share data)
1991 1990 1989 1988 1987
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Statements of Income
- -----------------------------------------------------------------------------------------------------
Net sales $ 9,359.4 $ 9,337.9 $ 8,852.4 $ 8,251.9 $ 7,695.0
- -----------------------------------------------------------------------------------------------------
Cost of sales 7,356.9 7,395.1 6,998.6 6,538.6 6,124.5
Administrative and
selling expenses (note A) 822.1 809.8 779.3 743.5 668.9
Research and development expenses 278.5 267.6 274.7 271.0 266.1
Special charge -- -- -- -- --
- -----------------------------------------------------------------------------------------------------
Total operating expenses 8,457.5 8,472.5 8,052.6 7,553.1 7,059.5
- -----------------------------------------------------------------------------------------------------
Operating income 901.9 865.4 799.8 698.8 635.5
- -----------------------------------------------------------------------------------------------------
Interest expense 92.4 114.3 113.4 62.8 23.5
Interest and dividend income (10.3) (34.5) (32.4) (23.3) (29.1)
Other (income) expense, net (note A) (52.9) (51.3) (38.9) (46.2) (44.8)
- -----------------------------------------------------------------------------------------------------
Non-operating expense (income), net 29.2 28.5 42.1 (6.7) (50.4)
- -----------------------------------------------------------------------------------------------------
Income before taxes 872.7 836.9 757.7 705.5 685.9
Federal and foreign income taxes 280.9 279.6 228.9 215.9 240.8
- -----------------------------------------------------------------------------------------------------
Net income $ 591.8 $ 557.3 $ 528.8 $ 489.6 $ 445.1
=====================================================================================================
<PAGE>
20
Return on sales 6.3% 6.0% 6.0% 5.9% 5.8%
Return on average equity 19.2% 21.2% 23.3% 25.1% 22.0%
Earnings per common share (1)(2)
Outstanding shares $ 2.24 $ 2.14 $ 2.00 $ 1.84 $ 1.53
Fully diluted $ 2.22 $ 2.12 $ 1.99 $ 1.83 $ 1.52
Cash dividends declared per
common share(2) $ 0.613 $ 0.60 $ 0.55 $ 0.50 $ 0.463
Average common shares (in thousands)(2)
Outstanding shares 264,460 261,330 264,108 266,484 291,054
Fully diluted 266,092 262,482 265,642 267,786 293,592
- -----------------------------------------------------------------------------------------------------
Financial Position at Year-End
- -----------------------------------------------------------------------------------------------------
Assets
Current $ 3,747.6 $ 3,603.5 $ 3,104.5 $ 2,844.3 $ 2,451.9
Property, plant, and equipment, net 1,516.5 1,532.1 1,456.3 1,355.2 1,217.4
Total (including other non-current) 6,087.1 6,119.4 5,338.3 4,739.5 4,162.5
Working Capital
Net working capital 1,031.5 457.8 282.4 267.1 183.2
Ratio of current assets to
current liabilities 1.38 1.15 1.10 1.10 1.08
Financial Structure
Long-term debt 39.3 46.4 46.0 41.3 44.7
Total debt 1,143.7 1,471.6 1,229.6 952.8 595.4
Stockholders' equity 3,323.4 2,846.5 2,426.1 2,121.0 1,849.1
Per common share(2) 12.45 10.89 9.24 7.99 6.83
Debt as a percentage of equity 34.4% 51.7% 50.7% 44.9% 32.2%
- -----------------------------------------------------------------------------------------------------
<PAGE>
21
General Statistics
- -----------------------------------------------------------------------------------------------------
Total backlog $ 7,969.4 $ 8,809.5 $ 9,595.3 $ 8,712.4 $ 8,470.0
U.S. government-funded backlog
(included above) 5,759.2 6,566.4 6,973.5 6,759.1 6,362.3
Property, plant, and equipment
Capital expenditures 348.5 390.7 413.9 421.3 354.2
Depreciation and amortization 306.1 303.5 281.6 259.0 236.5
Total salaries and wages paid 3,017.4 2,972.7 2,816.4 2,659.8 2,457.9
Total number of employees (actual) 71,600 76,700 77,600 76,200 76,500
Outstanding shares of common stock
(in thousands) 266,880 261,420 262,480 265,494 270,796
- -----------------------------------------------------------------------------------------------------
</TABLE>
Notes:
(1) Earnings per common share: outstanding shares computed on average number
of common shares; fully diluted assumes exercise of dilutive stock options.
(2) All share data have been restated for the two-for-one stock split in October
1995. (3) Includes special charge of $34.0 million pre-tax, $22.1 million
after-tax, or $.09 per share. (4) Includes one-time gain of $8.0 million
pre-tax, $5.2 million after-tax, or $.02 per share. (5) Includes
restructuring charge of $249.8 million pre-tax, $162.3 million after-tax,
or $.61 per share.
<PAGE>
22
Raytheon Company and Subsidiaries Consolidated
BALANCE SHEETS
<TABLE>
<CAPTION>
(In thousands) December 31, 1996 December 31, 1995
- -------------------------------------------------------------------------------
<S> <C> <C>
Assets
- -------------------------------------------------------------------------------
Current assets
Cash and marketable
securities (notes A and B) $ 138,821 $ 210,284
Accounts receivable, less allowance
for doubtful accounts:
1996--$20,260,000;
1995--$22,043,000 808,715 926,800
Federal and foreign income taxes,
including deferred (notes A and I) 246,120 196,711
Contracts in process (notes A and C) 2,592,006 2,212,689
Inventories (notes A and D) 1,590,967 1,502,983
Prepaid expenses (note L) 227,266 225,751
----------- -----------
Total current assets 5,603,895 5,275,218
Property, plant, and equipment, net
(notes A and E) 1,802,012 1,584,035
Other assets (notes A and F) 3,720,169 2,981,691
- -----------------------------------------------------------------------------
$11,126,076 $ 9,840,944
=============================================================================
<PAGE>
23
Liabilities and Stockholders' Equity
Current liabilities
Notes payable and current portion of
long-term debt (notes G and H) $ 2,226,935 $ 1,216,039
Advance payments, less contracts
in process:
1996--$803,056,000;
1995--$586,792,000 341,326 343,470
Accounts payable 1,125,881 1,041,848
Accrued salaries and wages 272,877 254,419
Other accrued expenses (note A) 724,814 834,647
- -------------------------------------------------------------------------------
Total current liabilities 4,691,833 3,690,423
Accrued retiree benefits (note L) 249,992 270,025
Income taxes, including deferred
(notes A and I) 85,765 100,797
Long-term debt (note H) 1,500,476 1,487,735
<PAGE>
24
Commitments and contingencies (note J)
Stockholders' equity (note Q)
Preferred stock, no par value
Authorized: 3,000,000 shares
Outstanding: 1996 and 1995--none
Common stock, par value $1.00 per share
Authorized: 400,000,000 shares
Outstanding: 1996--236,250,000 shares;
1995--240,690,000 shares
(after deducting shares in treasury:
1996--118,685,000;
1995--114,245,000) (note K) 236,250 240,690
Additional paid-in capital 307,451 258,708
Equity adjustments (note A) (11,966) 5,071
Retained earnings 4,066,275 3,787,495
- -----------------------------------------------------------------------------
Total stockholders' equity 4,598,010 4,291,964
- -----------------------------------------------------------------------------
$11,126,076 $ 9,840,944
=============================================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
25
Raytheon Company and Subsidiaries Consolidated
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
(In thousands except per share data)
Years Ended December 31: 1996 1995 1994
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales (note A) $12,330,538 $11,804,174 $10,097,662
- --------------------------------------------------------------------------------------
Cost of sales 9,753,970 9,159,447 7,769,882
Administrative and selling expenses 1,021,127 1,085,765 912,313
Research and development expenses (note A) 323,271 315,581 269,613
Restructuring and special charges (note A) 34,000 125,000 249,751
- --------------------------------------------------------------------------------------
Total operating expenses 11,132,368 10,685,793 9,201,559
- --------------------------------------------------------------------------------------
Operating income 1,198,170 1,118,381 896,103
- --------------------------------------------------------------------------------------
Interest expense 256,253 196,627 48,504
Interest and dividend income (101,996) (26,288) (19,611)
Other income, net (note A) (39,549) (243,641) (32,729)
- --------------------------------------------------------------------------------------
Non-operating expense (income), net 114,708 (73,302) (3,836)
- --------------------------------------------------------------------------------------
Income before taxes 1,083,462 1,191,683 899,939
Federal and foreign income taxes
(notes A and I) 322,311 399,195 303,063
- --------------------------------------------------------------------------------------
Net income (note A) $ 761,151 $ 792,488 $ 596,876
======================================================================================
Earnings per common share (notes A and Q)
Outstanding shares $3.21 $3.25 $2.26
Fully diluted $3.16 $3.20 $2.24
- --------------------------------------------------------------------------------------
</TABLE>
<PAGE>
26
Raytheon Company and Subsidiaries Consolidated
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
(In thousands) Common Stock Additional Equity Retained
Years Ended December 31, Shares Par Value Paid-in Capital Adjustments Earnings
1996, 1995, and 1994:
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1993
(note Q) 270,428 $270,428 $193,275 $ (2,100) $3,836,257
Net income 596,876
Dividends declared--
$.738 per share (192,681)
Proceeds under common
stock plans 1,864 1,864 41,476
Treasury shares purchased (25,338) (25,338) (20,638) (758,933)
Treasury shares received on
exercise of stock options (310) (310) (4,645)
Foreign exchange translation
adjustments (3,613)
FAS No. 87 pension adjustment (3,750)
- --------------------------------------------------------------------------------------------
Balance at December 31, 1994 246,644 246,644 209,468 (9,463) 3,481,519
Net income 792,488
Dividends declared--
$.75 per share (182,487)
Proceeds under common
stock plans 2,388 2,388 64,502
Treasury shares purchased (8,144) (8,144) (7,844) (304,025)
Treasury shares received on
exercise of stock options (198) (198) (7,418)
Foreign exchange translation
adjustments 10,374
FAS No. 115 unrealized valuation
adjustment 2,973
FAS No. 87 pension adjustment 1,187
- --------------------------------------------------------------------------------------------
Balance at December 31, 1995 240,690 240,690 258,708 5,071 3,787,495
Net income 761,151
Dividends declared--
$.80 per share (189,574)
Proceeds under common
stock plans 1,864 1,864 63,837
Treasury shares purchased (6,104) (6,104) (6,942) (292,797)
Treasury shares received
on exercise of stock options (200) (200) (8,152)
Foreign exchange translation
adjustments (3,071)
FAS No. 115 unrealized valuation
adjustment (15,045)
FAS No. 87 pension adjustment 1,079
- --------------------------------------------------------------------------------------------
Balance at December 31, 1996 236,250 $236,250 $307,451 ($11,966) $4,066,275
============================================================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
27
Raytheon Company and Subsidiaries Consolidated
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
<S> <C> <C> <C>
(In thousands) Years Ended December 31: 1996 1995 1994
- -------------------------------------------------------------------------------------------
Cash flows from operating activities
Net income $ 761,151 $ 792,488 $ 596,876
Adjustments to reconcile net income
to net cash provided by operating
activities, net of the effect of
acquired companies
Depreciation and amortization 368,923 371,399 304,166
Net gain on sale of operating division -- (210,000) -
Gain on sale of an investment -- (27,846) (31,056)
Sale of receivables 1,208,600 1,081,100 797,000
Increase in accounts receivable (993,944) (964,694) (332,218)
(Increase) decrease in contracts in process (580,830) 173,655 72,875
(Increase) decrease in inventories (38,154) 44,748 23,826
Increase in long term receivables (57,014) (11,577) (305,744)
(Decrease) increase in advance payments (44,861) (216,762) 90,351
Increase in accounts payable 48,510 37,003 71,820
Increase (decrease) in federal and
foreign income taxes 47,341 83,322 (138,889)
(Decrease) increase in other
current liabilities (373,677) 80,876 32,135
Other adjustments, net (54,750) (59,122) (23,283)
- -------------------------------------------------------------------------------------------
Net cash provided by operating activities 291,295 1,174,590 1,157,859
- -------------------------------------------------------------------------------------------
<PAGE>
28
Cash flows from investing activities
Additions to property, plant, and equipment (406,005) (328,617) (267,376)
Disposals of property, plant, and equipment 15,765 61,861 69,844
Increase in other assets (7,544) (113,599) (2,891)
Payment for purchase of acquired companies,
net of cash received (584,390) (2,341,522) (151,209)
Proceeds from sale of operating units 66,551 449,200 --
Proceeds from sale of an investment -- 10,160 85,113
Additions to intangible assets (23,918) (60,551) (69,568)
All other, net 2,059 355 (6,875)
- -------------------------------------------------------------------------------------------
Net cash used in investing activities (937,482) (2,322,713) (342,962)
- -------------------------------------------------------------------------------------------
Cash flows from financing activities
Dividends (189,574) (182,487) (192,681)
Increase in short-term debt 1,006,928 139,692 159,912
Increase (decrease) in long-term debt 4,149 1,463,213 (929)
Purchase of treasury shares (305,842) (320,013) (804,910)
Proceeds under common stock plans 57,348 59,274 38,386
All other, net 2,180 (4,612) (4,122)
- -------------------------------------------------------------------------------------------
Net cash provided (used in) financing
activities 575,189 1,155,067 (804,344)
- -------------------------------------------------------------------------------------------
Effect of foreign exchange rates on cash (237) 732 264
- -------------------------------------------------------------------------------------------
Net (decrease) increase in cash
and cash equivalents (71,235) 7,676 10,817
Cash and cash equivalents at beginning of year 208,614 200,938 190,121
- -------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 137,379 $ 208,614 $ 200,938
===========================================================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
29
NOTES TO FINANCIAL STATEMENTS
Note A: Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of the
parent company and all domestic and foreign subsidiary companies. The books of
the parent and all subsidiaries are maintained on a calendar year basis. All
material intercompany transactions have been eliminated. Certain amounts in the
1995 and 1994 financial statements and notes have been reclassified to conform
with the 1996 presentation. Certain accounts were reclassified in the statements
of income to reconcile operating income with segment income.
Cash Equivalents and Marketable Securities
Cash and cash equivalents include only cash and short-term, highly
liquid investments (those with original maturities when purchased of 90 days or
less).
Cash equivalents and marketable securities are valued in accordance
with the provisions of Statement of Financial Accounting Standards No. 115,
Accounting for Certain Investments in Debt and Equity Securities (SFAS 115)(see
note P). Dividends are recorded as income when declared.
Contracts in Process
Sales under long-term contracts are recorded under the percentage of
completion method, wherein costs and estimated gross margin are recorded as
sales as the work is performed. Costs include direct engineering and
manufacturing costs, applicable overheads, and special tooling and test
equipment. Estimated gross margin provides for the recovery of allocable
research, development (including bid proposal), marketing and administration
costs, and for accrued income. Accrued income is based on the percentage of
estimated total income that incurred costs to date bear to estimated total costs
after giving effect to the most recent estimates of cost and funding at
completion. When appropriate, increased funding is assumed based on expected
adjustments of contract prices for increased scope and other changes ordered by
the customer. Some contracts contain incentive provisions based upon performance
in relation to established targets to which applicable recognition has been
given in the contract estimates. Since many contracts extend over a long period
of time, revisions in cost and funding estimates during the progress of work
have the effect of adjusting in the current period earnings applicable to
performance in prior periods. When the current contract estimate indicates a
loss, provision is made for the total anticipated loss. In accordance with these
practices, contracts in process are stated at cost plus estimated profit but not
in excess of realizable value.
Inventories
Aircraft inventories at Raytheon Aircraft, except finished goods, are
stated at the lower of cost (principally last-in, first-out) or market. Work in
process is stated at total cost incurred reduced by estimated costs of units
delivered.
<PAGE>
30
All other inventories are stated at cost (principally first-in,
first-out or average basis) but not in excess of net realizable value.
Research and Development Expenses
Research and development expenditures for company-sponsored projects
are expensed as incurred.
Property, Plant, and Equipment
Property, plant, and equipment are stated at cost. Betterments and
major renewals are capitalized and included in property, plant, and equipment
accounts while expenditures for maintenance and repairs and minor renewals are
charged to expense. When assets are retired or otherwise disposed of, the assets
and related allowances for depreciation and amortization are eliminated from the
accounts and any resulting gain or loss is reflected in income.
Provisions for depreciation are computed generally on the
sum-of-the-years-digits method, except for certain operations, which use the
straight-line or declining-balance method. Depreciation provisions are based on
estimated useful lives: buildings--20 to 45 years; machinery and equipment,
including production tooling--3 to 10 years; equipment leased to others--5 to 10
years. Leasehold improvements are amortized over the lesser of the remaining
life of the lease or the estimated useful life of the improvement.
Excess of Cost Over Net Assets of Acquired Companies
The excess of cost over net assets acquired is amortized on the
straight-line method over its estimated useful life but not in excess of 40
years. The company evaluates the possible impairment of goodwill at each
reporting period based on the undiscounted projected cash flows of the related
business unit.
Investments
Investments, which are included in Other Assets, include equity
ownership of 20 percent to 50 percent in affiliated companies and of less than
20 percent in other companies. Investments in affiliated companies are accounted
for under the equity method, wherein the company's share of their earnings and
income taxes applicable to the assumed distribution of such earnings are
included in net income. Other investments are stated at the lower of cost or
fair market value and certain available for sale investments are accounted in
accordance with the provisions of SFAS 115.
Commissions
The company pays commissions to sales representatives, distributors,
and agents under various arrangements in return for services rendered in
connection with obtaining orders. Such commissions are charged to income as
related sales are recorded and, for income statement purposes, are applied as a
reduction of sales. In some cases, payment of such commissions is made upon the
company's receipt of advance payments under the related contracts or in
accordance with schedules contained in the contracts governing commissions, and
such amounts are applied as a reduction of advance payments received. Sales have
been reduced by $30,337,000, $36,958,000 and $32,552,000 in 1996, 1995, and
1994, respectively, for commission expense.
<PAGE>
31
Federal and Foreign Income Taxes
The company and its domestic subsidiaries provide for federal income
taxes on pretax accounting income at rates in effect under existing tax law. The
recovery of foreign tax credits related to foreign contracts, Foreign Sale
Corporation (FSC) tax benefits, and other tax credits are recorded on a
flow-through basis. Foreign subsidiaries have recorded provisions for income
taxes at applicable foreign tax rates in a similar manner.
Lease Accounting
Revenue from certain qualifying noncancelable aircraft lease contracts
are accounted for as sales-type leases wherein the present values of all
payments, net of executory costs, are recorded currently as revenues, and the
related costs of the aircraft are charged to cost of sales. Associated interest,
using the interest method, is recorded over the term of the lease agreements.
All other leases for aircraft are accounted for under the operating method
wherein revenues are recorded as earned over the rental aircraft lives. Service
revenues are recognized ratably over contractual periods or as services are
performed.
Pension Cost
The company and its subsidiaries have several pension and retirement
plans covering the majority of employees, including certain employees in foreign
countries.
Annual charges to income are made for costs of the plans, including
current service costs, interest on projected benefit obligations, and net
amortization and deferral (unrecognized net obligation (asset) at transition,
unrecognized prior service costs, and actuarial net gains or losses), increased
or reduced by the return on assets. Unfunded accumulated benefit obligations are
accounted for as a long-term liability on the balance sheet. It is the company's
policy to fund annually those pension costs which are calculated in accordance
with Internal Revenue Service regulations and standards issued by the Cost
Accounting Standards Board.
Translation of Foreign Currencies
Assets and liabilities of foreign subsidiaries are translated at
current exchange rates, and the effects of these translation adjustments are
reported as a component of equity adjustments in stockholders' equity. The
balances at December 31, 1996, 1995, and 1994 were $3,840,000, $6,911,000, and
($3,463,000), respectively. Foreign exchange transaction gains and losses in
1996, 1995, and 1994 were not material.
Employee Stock Plans
Proceeds from the exercise of stock options under the employee stock
plans are credited to common stock at par value, and the excess of the option
price over par value is credited to additional paid-in capital. There are no
charges or credits to income with respect to the options. The market value at
the date of award of restricted stock awards is credited to common stock at par
value, and the excess is credited to additional paid-in capital. The market
value is also charged to income as compensation expense over the vesting period.
Income tax benefits arising from restricted stock transactions, employees'
premature disposition of option shares, and exercise of nonqualified stock
options are credited to additional paid-in capital.
<PAGE>
32
The company adopted statement of Financial Accounting Standard No. 123,
Accounting for Stock-Based Compensation, in 1996. The standard defines a fair
value based method of accounting for employee stock options. The pro forma net
income and earnings per share effect of the fair value based accounting is
disclosed in the notes to the financial statements.
Earnings Per Common Share
Earnings per common share are based upon the weighted average number of
common shares outstanding during each year.
Fully diluted earnings per common share include the additional shares
resulting from the assumed exercise of all outstanding dilutive stock options
reduced by the number of shares repurchasable from the assumed proceeds of such
options.
Restructuring and Special Items
The company announced in the third quarter of 1996 that it would exit
the manual-clean range market and dispose of the assets, including the facility
of the Delaware, Ohio, operation. A $34.0 million pre-tax charge ($22.1 million
after tax) was recorded for this closing. For 1996, earnings, earnings per share
and fully diluted earnings per share were $783.3 million, $3.30 and $3.25
respectively, excluding the special charge. The company recorded in the fourth
quarter of 1995 a net pre-tax gain of $210 million from the sale of D.C. Heath,
its educational publishing unit. The company adopted statement of Financial
Accounting Standard No. 121, Accounting for the Impairment of Long-Lived Assets
to be Disposed of, in the fourth quarter of 1995 which resulted in a $125
million pre-tax special charge ($81.2 million after tax) related to specific
assets, liabilities or commitments, and nonrecurring charges of $77 million,
related principally to inventory and contract valuations. The net gain resulted
in a $5.2 million after-tax increase to net income, or $.02 per share. For 1995,
earnings, earnings per share and fully diluted earnings per share were $787.3
million, $3.23 and $3.18 respectively, excluding the one-time gain.
The company recorded in the first quarter of 1994 a restructuring
provision of $249.8 million before tax. The restructuring was driven by the
significant reductions in the defense budget and increasing commercial
competition. Approximately 65 percent of the restructuring costs were
attributable to Raytheon's defense business and the remainder to its commercial
business.
Through year-end 1996, $249.3 million of restructuring costs have been
incurred, of which $103.4 million was employee-related costs and $145.9 million
was related to asset disposals and idle facilities. For 1994, earnings, earnings
per share and fully diluted earnings per share were $759.2 million, $2.87 and
$2.85 respectively, excluding the restructuring provision.
Interest Rate and Foreign Currency Interest Rate Swap
Agreements, Rate Locks and Foreign Exchange Contracts
The company enters into interest rate and foreign currency interest
rate swap agreements with commercial banks to reduce the impact of changes in
interest rates and foreign exchange rates on long-term debt and on financing
arrangements with customers and foreign subsidiaries. The company meets its
working capital requirements mainly with variable rate short-term financing.
Interest rate swaps are used to provide purchasers of the company's products
with fixed financing terms over extended time periods. Cross-currency interest
rates swaps have allowed the company's foreign subsidiaries to meet borrowing
<PAGE>
33
needs at lower interest rates compared to local borrowing. The company also
enters into foreign exchange contracts to minimize fluctuations in the value of
payments due to international vendors and the value of foreign currency
denominated receipts. The hedges used by the company are transaction driven and
are directly related to a particular asset, liability or transaction for which a
commitment is in place. Swaps and foreign exchange contracts are held to
maturity and no exchange traded or over-the-counter instruments have been
purchased. The impact on the financial position and results of operations from
likely changes in foreign exchange rates and interest rates is not material due
to the minimizing of risk through the hedging of transactions related to
specific assets, liabilities, or commitments.
Risks and Uncertainties
Companies such as Raytheon, which are engaged in supplying
defense-related equipment to the government, are subject to certain business
risks peculiar to that industry. Sales to the government may be affected by
changes in procurement policies, budget considerations, changing concepts of
national defense, political developments abroad and other factors. As a result
of the 1985 Balanced Budget and Emergency Deficit Reduction Control Act, the
federal deficit and changing world order conditions, Department of Defense (DoD)
budgets have been subject to increasing pressure resulting in an uncertainty as
to the future effects of DoD budget cuts. Raytheon has, nonetheless, maintained
a solid foundation of tactical defense systems which meet the needs of the
United States and its allies, as well as servicing a broad government program
base and wide range of commercial electronic businesses. These factors lead
management to believe that there is high probability of continuation of
Raytheon's current major tactical defense programs.
The company provides long-term financing principally to its aircraft
customers. The company sells general and regional aviation long-term receivables
to a bank syndicate and a fractional ownership in a defined pool of trade
receivables to financial institutions. The banks have recourse against the
company, at varying percentages, depending on the character of the receivables
sold. The underlying aircraft serve as collateral for the receivables, and the
future resale value of the aircraft is an important consideration in the
transaction. Based on the company's experience to date with resale activities
and pricing, management believes that any liability arising from these
transactions will not have a material effect on the company's financial
position, liquidity, or results of operations.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
<PAGE>
34
Note B: Cash and Marketable Securities
(In thousands) Cash and marketable securities consisted of
the following at December 31:
- -----------------------------------------------------------------
1996 1995
Cash and cash equivalents $ 137,379 $ 208,614
Marketable securities 1,442 1,670
--------- ---------
$ 138,821 $ 210,284
=================================================================
Under the company's cash management program, checks and amounts in
transit are not considered reductions of cash or accounts payable until
presented to the appropriate banks for payment. At December 31, 1996 and 1995,
checks and amounts in transit amounted to $177,600,000 and $182,900,000,
respectively.
<PAGE>
35
Note C: Contracts in Process
<TABLE>
<CAPTION>
(In thousands) Contracts in process consisted of the following at December 31, 1996
Cost Type Fixed Price Type Total
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. government end-use contracts
Billed $ 205,643 $ 139,655 $ 345,298
Unbilled 348,971 1,813,148 2,162,119
Less progress payments - 1,068,638 1,068,638
- -----------------------------------------------------------------------------------
Total 554,614 884,165 1,438,779
- -----------------------------------------------------------------------------------
Other customers
Billed 63,474 164,110 227,584
Unbilled 123,457 1,265,478 1,388,935
Less progress payments -- 463,292 463,292
- -----------------------------------------------------------------------------------
Total 186,931 966,296 1,153,227
- -----------------------------------------------------------------------------------
$ 741,545 $1,850,461 $2,592,006
===================================================================================
(In thousands) Contracts in process consisted of the following at December 31, 1995
Cost Type Fixed Price Type Total
- -----------------------------------------------------------------------------------
<PAGE>
36
U.S. government end-use contracts
Billed $ 251,462 $ 182,320 $ 433,782
Unbilled 303,148 2,239,814 2,542,962
Less progress payments -- 1,368,878 1,368,878
- -----------------------------------------------------------------------------------
Total 554,610 1,053,256 1,607,866
- -----------------------------------------------------------------------------------
Other customers
Billed 29,915 95,470 125,385
Unbilled 154,665 692,069 846,734
Less progress payments -- 367,296 367,296
- -----------------------------------------------------------------------------------
Total 184,580 420,243 604,823
- -----------------------------------------------------------------------------------
$ 739,190 $1,473,499 $2,212,689
===================================================================================
</TABLE>
<PAGE>
37
The U.S. government has a security title to unbilled amounts associated
with contracts that provide for progress payments.
Unbilled amounts are recorded on the percentage of completion method
and are recoverable from the customer upon shipment of the product, presentation
of billings, or completion of the contract. It is anticipated that substantially
all of these unbilled amounts, net of progress payments, will be collected
during 1997.
Billed and unbilled contracts in process include retentions arising
from contractual provisions. At December 31, 1996, retentions amounted to
$65,285,000 and are anticipated to be collected as follows: 1997--$41,144,000,
1998--$6,352,000, and the balance thereafter.
Note D: Inventories
(In thousands) Inventories consisted of the following
at December 31: 1996 1995
- ----------------------------------------------------------
Finished goods $ 616,660 $ 596,080
Work in process 702,180 728,792
Materials and purchased parts 482,152 456,402
Excess of current cost over
LIFO values (157,977) (176,725)
- ----------------------------------------------------------
1,643,015 1,604,549
Less progress payments 52,048 101,566
- ----------------------------------------------------------
$1,590,967 $1,502,983
==========================================================
The inventory values from which the excess of current cost over LIFO
values are deductible were $423,564,000 and $488,765,000 at December 31, 1996
and 1995, respectively.
Note E: Property, Plant, and Equipment
(In thousands) Property, plant, and equipment
consisted of the following at
December 31:
1996 1995
- ------------------------------------------------------------
Land $ 66,008 $ 53,090
Buildings and leasehold
improvements 1,273,678 1,184,072
Machinery and equipment 3,077,606 2,852,721
Equipment leased to others 73,067 25,866
- ------------------------------------------------------------
4,490,359 4,115,749
Less accumulated depreciation
and amortization 2,688,347 2,531,714
- ------------------------------------------------------------
$1,802,012 $1,584,035
============================================================
<PAGE>
38
Accumulated amortization of equipment leased to others was $5,508,000
and $3,981,000 at December 31, 1996 and 1995, respectively.
Future minimum lease payments from noncancelable aircraft operating
leases, which extend to 2006, amounted to $35,882,000.
At December 31, 1996, these payments were due as follows:
(In thousands)
1997 $ 5,717
1998 5,907
1999 5,537
2000 5,270
2001 5,270
Thereafter 8,181
Note F: Other Assets
(In thousands) Other assets consisted of the following
at December 31:
1996 1995
- -------------------------------------------------------------
Long-term receivables
Due from customers in
installments to 2009 $ 175,920 $ 102,261
Sales-type leases, due
in installments to 2012 21,559 48,277
Other, principally due
from 1997 through 2012 31,519 21,707
Investments 251,171 183,034
Deferred charges and other
noncurrent assets 161,254 80,129
Excess of cost over net assets of
acquired companies (net of
accumulated amortization of 3,066,972 2,532,358
$183.6 million and $103.5 million
at December 31, 1996 and 1995,
respectively)
Intangible pension asset 11,774 13,925
- -------------------------------------------------------------
$3,720,169 $2,981,691
=============================================================
Long-term receivables and sales-type leases due from customers, of
$197.5 million at December 31, 1996, and $150.5 million at December 31, 1995,
included commuter airline receivables of $116.1 million and $47.1 million,
respectively. Since it is the company's policy to have the aircraft serve as
collateral for the commuter airline receivables, management does not expect to
incur any material losses against the net book value of the long-term
receivables. The company sold general and commuter aviation long-term
receivables to a bank syndicate and sold a fractional ownership in a defined
pool of engineering & construction and commercial appliance trade receivables to
financial institutions. The interest rate on the general aviation receivables is
LIBOR+.55% and on the commuter receivables LIBOR+.4% and +.35% and on the trade
receivables commercial paper rate +.225% to +.29%. The interest rates are
adjusted based on the company's debt rating. The banks have a first priority
claim on all proceeds, including the underlying equipment and any insurance
proceeds, and have recourse against the company, at varying percentages,
depending upon the character of the receivables sold. The balance of receivables
sold to banks or financial institutions and outstanding at December 31, 1996 and
December 31, 1995, was $2,493.7 million and $1,912.4 million, respectively, of
which 1996 net proceeds of $581.3 million included $288.3 million for commuter
and general aviation aircraft.
<PAGE>
39
The company will adopt Statement of Financial Accounting Standard No.
125, Accounting for Transfers and Servicing of Financial Assets and
Extinguishment of Liabilities, in 1997. The adoption is not expected to have a
material effect on the company's financial position or results of operation.
Note G: Notes Payable
(In thousands) Notes payable consisted of the
following at December 31:
1996 1995
- -----------------------------------------------------------
Notes payable $ 63,050 $ 56,086
Commercial paper 2,155,821 1,148,391
Weighted average interest rate on:
Average notes payable borrowings 6.51% 6.30%
Average commercial paper 5.40% 5.94%
Notes payable borrowings at
December 31 5.11% 5.70%
Commercial paper at December 31 5.53% 5.83%
Aggregate borrowings outstanding
Maximum month-end balance $3,135,929 $4,051,846
Average during the year $2,890,261 $2,362,599
- -----------------------------------------------------------
Credit lines or commitments with banks were maintained by subsidiary
companies amounting to $188.3 million in 1996 and $196.7 million in 1995.
Compensating balance arrangements are not material. In addition, lines of credit
with certain commercial banks exist as a standby facility to support the
issuance of commercial paper by the company. These lines of credit were $3.5
billion at December 31, 1996 and $3.2 billion at December 31, 1995. Through
December 31, 1996, there have been no borrowings under these lines of credit.
Total interest payments were $257 million, $160 million, and $48 million for
1996, 1995, and 1994, respectively.
<PAGE>
40
Note H: Long-term Debt
(In thousands) Long-term debt consisted of the following at
December 31:
1996 1995
- -----------------------------------------------------------
30 year 7.375% debentures due
2025 and redeemable after
July 15, 2005 $ 361,834 $ 361,373
10 year 6.5% long-term notes due
2005, not redeemable prior
to maturity 730,499 728,216
Commercial paper backed by 5 year
fixed for variable interest rate
swap at 6.40% 375,000 375,000
Notes (including $19,392,000 and
$17,639,000 at December 31,
1996 and 1995 respectively, 41,207 34,708
of mortgage notes and industrial
revenue bonds), interest in the
range of 2.04% to 10.0% in
installments, maturing at various
dates from 1997 to 2006
Less installments due within one year 8,064 11,562
- ------------------------------------------------------------
$1,500,476 $1,487,735
============================================================
The aggregate amounts of installments due for the next five years are:
- ------------------------------------------------------------
(In thousands)
1997 $8,064
1998 5,406
1999 9,718
2000 378,017
2001 2,937
Interest expense on long-term debt charged to income was $103,187,000,
$52,122,000, and $1,158,000 for 1996 through 1994, respectively.
Commercial paper in the amount of $375,000,000 has been classified as
long-term due to company borrowings of that amount which are supported by a 5
year Syndicated Bank Credit Agreement combined with a 5 year fixed for variable
interest rate swap.
In 1995, the company issued $375,000,000 of 30 year, 7.375 percent
debentures due in 2025, redeemable after ten years, and $750,000,000 of ten year
6.50 percent notes due in 2005. The proceeds from these issues were used for
acquisition financing.
The principal amounts of debt were reduced by debt issue discounts and
costs at December 31, 1996, as follows:
<PAGE>
41
(In thousands)
30 Year Debentures 10 Year Notes
- ---------------------------------------------------------------
Principal $375,000 $750,000
Unamortized issue discounts (8,879) (7,877)
Unamortized interest rate
hedging costs (4,287) (11,624)
- --------------------------------------------------------------
Net debt $361,834 $730,499
==============================================================
The company has bank agreement covenants which require (1) That the
ratio of total debt to total capitalization not exceed 55%, and (2) That the sum
of profit before tax plus net interest expense be at least three times net
interest expense over the prior four fiscal quarters. The company was in
compliance with these covenants during 1996 and 1995.
Note I: Federal and Foreign Income Taxes
Income reported for federal and foreign tax purposes differs from
pretax accounting income due to variations between requirements of Internal
Revenue codes and the company's accounting practices. The provisions for federal
and foreign income taxes consisted of the following for the years ended December
31:
(In thousands) 1996 1995 1994
- ----------------------------------------------------------------
Current income tax expense
Federal $169,870 $263,489 $400,482
Foreign 33,784 (23,347) 25,429
Deferred income tax expense
Federal 150,983 123,858 (119,663)
Foreign (32,326) 35,195 (3,185)
- -----------------------------------------------------------------
$322,311 $399,195 $303,063
==================================================================
The provision for income taxes for 1996 through 1994 differs from the
U.S. statutory rate due to the following:
Tax at statutory rate 35.0% 35.0% 35.0%
Research and development
tax credit (4.6)(1) (0.4) --
FSC tax benefit (2.5) (2.0) (1.0)
Goodwill amortization 1.7 1.3 0.3
Recovery of foreign tax credits -- (0.5) (1.1)
Other, net 0.1 0.1 0.5
- -----------------------------------------------------------------
29.7% 33.5% 33.7%
=================================================================
(1) Accrued retroactive research and development tax credits applicable to
certain government contracts.
<PAGE>
42
In 1996, 1995, and 1994 domestic profit before taxes amounted to
$1,061,335,000, $1,126,332,000, and $827,258,000, respectively, and foreign
profit before taxes amounted to $22,127,000, $65,351,000, and $72,681,000,
respectively.
Actual cash income tax payments by year were $274,700,000,
$275,300,000, and $425,800,000, respectively, for 1996, 1995, and 1994.
In 1996 and 1995, net deferred tax assets were increased by
$108,235,000 and $175,813,000, respectively, in connection with acquisitions.
Details of the balance sheet captions, "Federal and foreign income
taxes, including deferred," at December 31, 1996, 1995 and 1994 are as follows:
(In thousands) 1996 1995 1994
- ----------------------------------------------------------------
Current deferred tax assets (liabilities):
Inventory and other $ 10,215 $ 78,377 $ 50,078
Long-term contracts 198,861 115,992 97,054
Restructuring reserve 154 3,261 55,055
Inventory capitalization 16,611 27,689 29,546
Other (43,779) (17,803) (7,203)
- -----------------------------------------------------------------
Net current deferred
tax assets 182,062 207,516 224,530
Current period tax prepaid
(liability) 64,058 (10,805) (58,915)
- -----------------------------------------------------------------
Federal and foreign income taxes,
including deferred--current $ 246,120 $ 196,711 $ 165,615
=================================================================
Noncurrent deferred tax assets (liabilities):
Depreciation $(125,684) $(115,819) $ (97,095)
Revenue on leases (58,096) (79,237) (27,596)
Postretirement benefits 104,730 103,014 --
Other (6,715) (8,755) (9,880)
- -----------------------------------------------------------------
Noncurrent deferred tax
liabilities (85,765) (100,797) (134,571)
- -----------------------------------------------------------------
Federal and foreign income
taxes, including deferred
-- noncurrent $ (85,765) $(100,797) $(134,571)
=================================================================
Note J: Commitments and Contingencies
At December 31, 1996, the company had commitments under long-term
leases requiring approximate annual rentals on a net lease basis as follows:
(In thousands)
- ---------------------------
1997 $85,041
1998 69,677
1999 56,052
2000 46,655
2001 39,827
Thereafter 182,162
- ---------------------------
<PAGE>
43
Rental expense for 1996, 1995, and 1994 amounted to $112,649,000,
$102,925,000, and $79,887,000, respectively.
Defense contractors are subject to many levels of audit and
investigation. Among agencies that oversee contract performance are the Defense
Contract Audit Agency, the Inspector General, the Defense Criminal Investigative
Service, the General Accounting Office, the Department of Justice, and
Congressional Committees. Over recent years, the Department of Justice has
convened Grand Juries from time to time to investigate possible irregularities
by the company in government contracting. Management believes that such
investigations, individually and in the aggregate, will not have any material
adverse effect upon the financial condition of the company.
The company self-insures for losses and expenses for aircraft product
liability up to a maximum of $50 million annually. Excess insurance is purchased
from third parties to cover excess aggregate liability exposure from $50 million
to $1 billion. This coverage also includes the excess of liability over $10
million per occurrence. The aircraft product liability reserve at December 31,
1996 was $27.5 million.
Recurring costs associated with the company's environmental compliance
program are not material and are expensed as incurred. Capital expenditures in
connection with environmental compliance are not material. The company is
involved in various stages of investigation and cleanup relative to remediation
of various sites. All appropriate costs incurred in connection therewith have
been expensed. Due to the complexity of environmental laws and regulations, the
varying costs and effectiveness of alternative cleanup methods and technologies,
the uncertainty of insurance coverage, and the unresolved extent of the
company's responsibility, it is difficult to determine the ultimate outcome of
these matters. However, in the opinion of management, any additional liability
will not have a material effect on the company's financial position, liquidity,
or results of operations after giving effect to provisions already recorded.
The company will adopt the American Institute of Certified Public
Accountants Statement of Position 96-1, Environmental Remediation Liabilities,
in 1997. The adoption of the standard will not have a material effect on the
company's financial position or results of operations.
The company issues guarantees and has banks issue, on its behalf,
letters of credit to meet various bid, performance, warranty, retention and
advance payment obligations. Approximately $1,363 million, $979 million and $519
million of these contingent obligations, net of related outstanding advance
payments, were outstanding at December 31, 1996, 1995, and 1994, respectively.
These instruments expire on various dates through the year 2003.
Various claims and legal proceedings generally incidental to the normal
course of business are pending or threatened against the company. While the
ultimate liability from these proceedings is presently indeterminable, in the
opinion of management, any additional liability will not have a material effect
on the company's financial position, liquidity, or results of operations after
giving effect to provisions already recorded.
<PAGE>
44
Note K: Employee Stock Plans
The 1976 Stock Option Plan provides for the grant of both incentive and
nonqualified options at an exercise price which is 100% of the fair market value
on the date of grant. The 1991 Stock Option Plan provides for the grant of
incentive options at an exercise price which is 100% of the fair market value,
and non-qualified options at an exercise price which may be less than the fair
market value on the date of grant. The 1995 Stock Option Plan provides for the
grant of both incentive and nonqualified options at an exercise price which is
not less than 100% of the fair market value on the date of grant.
The plans also provide that all options may be exercised in their
entirety 12 months after the date of grant. Incentive options terminate 10 years
from the date of grant, and those options granted after Dec. 31, 1986 become
exercisable to a maximum of $100,000 per year. Nonqualified options terminate 11
years from the date of grant or 10 years and a day if issued in connection with
the 1995 plan. The 1991 plan also provides for the award of restricted stock and
restricted units. Restricted awards are made at prices determined by the
Compensation Committee of the Board of Directors and are compensatory in nature.
Restricted stock and restricted unit awards vest over a specified period of time
of not less than one year nor more than 10 years. The plans' expiration dates
are March 22, 1998, March 26, 2001 and March 21, 2005.
All restricted stock awards entitle the participant to full dividend
and voting rights. Unvested shares are restricted as to disposition and subject
to forfeiture under certain circumstances. Upon issuance of restricted shares,
unearned compensation is charged to share-owners' equity for the cost of
restricted stock and recognized as compensation expense ratably over the vesting
periods, as applicable. Awards of 19,500; 256,000; and 380,000 shares of
restricted stock were made to employees at a weighted average value at the grant
date of $50.87, $38.07, and $32.29 in 1996, 1995 and 1994, respectively. The
amount of compensation expense recorded was $6.9 million, $4.8 million and $2.9
million for 1996, 1995 and 1994, respectively.
There were 49,562,000; 51,383,000; and 13,765,000 shares of common
stock(including shares held in treasury) reserved for stock options and
restricted stock awards at December 31, 1996, 1995, and 1994, respectively.
The following are the shares exercisable at the corresponding weighted
average exercise price at December 31, 1996, 1995, and 1994, respectively:
8,820,000 at $31.32; 7,319,000 at $26.71; and 5,531,000 at $22.04.
Information for the years 1993 through 1996 with respect to the plans
are as follows:
<PAGE>
45
Note K: Employee Stock Plans
Stock Options Shares Weighted Average
Option Price
- ------------------------------------------------------------------
(In thousands)
Outstanding at December 31, 1993 7,054 $ 21.64
Granted 3,688 32.79
Exercised (1,452) 20.00
Expired (132) 28.22
- -------------------------------------------------------------
Outstanding at December 31, 1994 9,158 $ 26.30
Granted 4,071 36.61
Exercised (2,132) 22.92
Expired (316) 34.04
- -------------------------------------------------------------
Outstanding at December 31, 1995 10,781 $ 30.63
Granted 3,890 52.53
Exercised (1,845) 26.91
Expired (256) 45.47
- -------------------------------------------------------------
Outstanding at December 31, 1996 12,570 $ 37.65
=============================================================
The following table summarizes information about stock options outstanding at
December 31, 1996:
Stock Options Outstanding
Options Outstanding Options Exercisable
Weighted Average Weighted Weighted
Shares Contractual Average Shares Average
Exercise Outstanding Remaining Exercise Exercisable Exercise
Price Range At 12/31/96 Life Price at 12/31/96 Price
- --------------------------------------------------------------------------------
$15.51 to $35.38 5,836,183 6.1 years $27.37 5,836,183 $27.37
$39.03 to $52.25 3,050,127 8.4 years $39.31 2,983,627 $39.06
$52.56 to $54.63 3,684,050 9.4 years $52.56 -- --
- --------------------------------------------------------------------------------
Total 12,570,360 8,819,810
================================================================================
<PAGE>
46
The company applies Accounting Principles Board Opinion No.25,
Accounting for Stock Issued to Employees, and related interpretations, in
accounting for its plans. Accordingly, no compensation expense has been
recognized for its stock-based compensation plans other than for restricted
stock. The company has adopted the disclosure-only provisions of Financial
Accounting Standards No.123, Accounting for Stock-Based Compensation.
Accordingly, no compensation cost was recognized for the stock option plans. Had
compensation cost for the company's stock option plans been determined based on
the fair value at the grant date for awards under these plans, consistent with
the methodology prescribed under SFAS No.123, the company's net income and
earnings per share would have approximated the pro forma amounts indicated
below:
(000's omitted) 1996 1995
- --------------------------------------------------------
Net income-as reported $ 761,151 $ 792,488
Net income-pro forma $ 739,165 $ 779,175
Earnings per share-as reported $3.21 $3.25
Earnings per share-pro forma $3.11 $3.19
Fully diluted-as reported $3.16 $3.20
Fully diluted-pro forma $3.06 $3.14
The weighted-average fair value of each option granted in 1996 and 1995
is estimated as $10.79 and $8.30 on the date of grant using the Black-Scholes
option-pricing model with the following weighted-average assumptions:
Expected life 4 years
Assumed annual dividend 6%
growth rate (5 year historical rate)
Expected volatility 15%
Risk free interest rate 5% to 7.5% range
(the month-end yields on 4 year
treasury strips equivalent zero coupon)
Assumed annual forfeiture rate 5%
The effects of applying SFAS No.123 in this pro forma disclosure are
not indicative of future amounts. SFAS No.123 does not apply to awards prior to
1995 and additional awards in future years are anticipated.
Note L: Pension and Other Employee Benefits
The company and its subsidiaries have several pension and retirement
plans covering the majority of employees, including certain employees in foreign
countries. The major plans covering salaried and management employees provide
pension benefits that are based on the five highest consecutive years of the
employee's compensation in the ten years before retirement. Plans covering
hourly and union employees generally provide benefits of stated amounts for each
year of service, but in some cases can also use a final average pay based
calculation. The company's funding policy for the salaried plans is to
contribute annually at a rate that is intended to remain at a level percentage
of compensation for the covered employees. The company's funding policy on the
hourly and union plans is to contribute annually at a rate that is intended to
remain level for the covered employees. Unfunded prior service costs under the
funding policy are generally amortized over periods from 10 to 30 years.
Total pension expense was $93,283,000; $31,156,000; and $29,908,000; in
1996 through 1994, respectively. Foreign pension expense was $9,937,000;
$8,287,000; and $4,866,000 in 1996 through 1994, respectively.
<PAGE>
47
Net periodic pension cost for the company and its subsidiaries in 1996
through 1994 included the following components:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
(In thousands)
Years ending December 31: 1996 1995(1) 1994
- --------------------------------------------------------------------------
Service cost--benefits earned
during the period $ 126,589 $ 98,207 $ 95,537
Interest cost on projected
benefit obligation 307,115 267,891 218,118
Actual (gain)/loss on assets (669,917) (955,942) 37,612
Net amortization and deferral 325,191 626,217 (323,866)
Curtailment adjustments 1,176 (7,815)(2) --
- --------------------------------------------------------------------------
Net periodic pension costs 90,154 28,558 27,401
Defined contribution
pension plans 3,129 2,598 2,507
- --------------------------------------------------------------------------
Total pension costs $ 93,283 $ 31,156 $ 29,908
==========================================================================
Assumptions used in the accounting were:
Discount rate 7.75% 7.50% 8.25%
Expected long-term rate of
return on assets 9.25% 9.00% 9.00%
Rate of increase in
compensation levels 4.50% 4.50% 5.00%
- --------------------------------------------------------------------------
</TABLE>
<PAGE>
48
<TABLE>
<CAPTION>
The following table sets forth the funded status of the plans at:
(In thousands) December 31, 1996 December 31, 1995 (1)
- ------------------------------------------------------------------------------------------
Assets Exceed Accumulated Assets Exceed Accumulated
Accumulated Benefits Accumulated Benefits
Benefits Exceed Benefits Exceed
Assets Assets
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------
Actuarial present value of benefit obligations:
Vested benefit obligation $(3,603,273) $ (68,623) $ (3,399,386) $ (57,583)
==========================================================================================
Accumulated benefit obligation $(3,752,844) $ (70,840) $ (3,538,658) $ (68,021)
==========================================================================================
Projected benefit obligation $(4,183,811) $ (83,104) $ (3,998,382) $ (74,544)
Plan assets at fair value 4,960,892 -- 4,451,725 --
- ------------------------------------------------------------------------------------------
Projected benefit obligation
(in excess of) or less
than plan assets 777,081 (83,104) 453,343 (74,544)
Unrecognized net (gain) or loss (762,898) 15,199 (411,413) 11,907
Prior service cost not yet recognized
in net periodic pension cost 212,641 12,544 212,270 13,723
Unrecognized net obligation (asset)
at transition (34,423) 911 (42,652) 1,138
Adjustment required to recognize
additional minimum liability -- (18,047) -- (21,330)
- ------------------------------------------------------------------------------------------
Prepaid pension cost (liability) $ 192,401 $ (72,497) $ 211,548 $ (69,106)
==========================================================================================
</TABLE>
<PAGE>
49
Plan assets primarily include equity and fixed income securities and,
in addition to normal funding contributions, include prepayments of $60,719,000;
and $1,900,000 made in 1995 and 1994 respectively.
The company's salaried pension plan provides that in the event of a
termination of the plan within three years after an involuntary change of
control of the company, the assets of the plan will be applied to satisfy all
liabilities to participants and beneficiaries in accordance with section 4044 of
the Employee Retirement Income Security Act of 1974. Any remaining assets will
be applied on a pro rata basis to increase the benefits to the participants and
beneficiaries.
In addition to providing pension benefits, the company and most of its
subsidiaries provide certain health care and life insurance benefits for retired
employees. Substantially all of the company's U.S. employees may become eligible
for these benefits if they reach normal retirement age while working for the
company. Retiree health plans are paid for in part by retiree contributions,
which are adjusted annually. Benefits are provided through various insurance
companies whose charges are based either on the benefits paid during the year or
annual premiums. Health benefits are provided to retirees, their covered
dependents and beneficiaries. Retiree life insurance plans are noncontributory
and cover the retiree only.
In 1993, the company adopted Statement of Financial Accounting
Standards No.106, Employers' Accounting for Postretirement Benefits Other than
Pensions, which requires recognition of an accumulated postretirement benefit
obligation for retiree costs existing at the time of implementation, as well as
an incremental expense recognition for changes in the obligation attributable to
each successive year. Prior to 1995, all company segments had elected to
amortize past service costs over the allowable 20 year period. During 1995 the
company acquired E-Systems, Inc. who had elected in 1992 to recognize all its
past service cost immediately upon implementation.
The company is funding the liability for many salaried and hourly
employees and plans to continue to do so. The net postretirement benefit cost
for the company and its subsidiaries in 1996, 1995 and 1994 included the
following components:
<PAGE>
50
<TABLE>
<CAPTION>
(In thousands) Years ending December 31: 1996 1995(1) 1994
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost--benefits
earned during the period $ 9,297 $ 8,265 $ 5,546
Interest cost on accumulated
postretirement benefit
obligation 52,472 47,906 37,355
Actual (gain)/ loss on assets (29,482) (8,283) 600
Amortization of transition
obligation 26,712 27,340 24,830
Other amortizations and deferrals
(net) 7,146 (11,299) (6,316)
Curtailment and other adjustments 3,159 18,900(3) --
- --------------------------------------------------------------------------------------
Net postretirement benefit cost $ 69,304 $ 82,829 $ 62,015
======================================================================================
<PAGE>
51
Assumptions used in the accounting were:
Discount rate 7.75% 7.50% 8.25%
Expected long-term rate of
return on assets 8.75% 8.50% 8.50%
Rate of increase in compensation levels 4.50% 4.50% 5.00%
Health care trend rate in the next year 7.00% 7.50% 8.00%
Gradually declining to a trend rate of 5.00% 5.00% 5.00%
In the years 2001 & beyond 2001 & beyond 2001 & beyond
- -------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
52
The following amounts are recognized in the balance sheet at:
<TABLE>
<CAPTION>
(In thousands) Years ending December 31:1996 1995(1) 1994
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------
Accumulated postretirement
benefit obligation
Retirees $ (559,666) $ (516,767) $ (356,573)
Active employees eligible
for benefits (41,158) (32,339) (45,501)
Active employees not yet
eligible for benefits (131,260) (138,888) (73,674)
- ---------------------------------------------------------------------------------
Total obligation (732,084) (687,994) (475,748)
Plan assets at fair value 183,750 175,172 105,983
- ---------------------------------------------------------------------------------
Total obligation (in excess of)
plan assets (548,334) (512,822) (369,765)
Unrecognized net (gain) (67,258) (127,279) (89,074)
Unrecognized prior service cost (12,969) (14,214) --
Unrecognized net obligation at
transition 360,255 390,079 446,786
- ---------------------------------------------------------------------------------
Accrued postretirement
benefit cost $ (268,306) $ (264,236) $ (12,053)
=================================================================================
</TABLE>
<PAGE>
53
The effect of a one percentage point increase in the assumed health care trend
rate for each future year on:
Aggregate of service and
interest cost $ 3,576 $ 3,055 $ 3,706
Accumulated postretirement
benefit obligation $ 43,596 $ 37,979 $ 38,262
(1) 1995 data, including $17,117,000 of Net Periodic Pension Cost, $7,853,000
of Accrued Pension Cost, $15,041,000 of Net Periodic Postretirement Benefit
Cost.
Benefit Cost and $235,383,000 of Accrued Postretirement Benefit Cost,
were a result of having acquired E-Systems, Inc. in April 1995.
(2) Various plan curtailments were recognized, as a result of workforce
reductions which were planned as part of the restructuring program.
(3) Benefit enhancements were made to various plans during the year in order to
accelerate attrition through voluntary retirements.
<PAGE>
54
The company has adopted Statement of Financial Accounting Standards No.
112 (FAS 112), Employers' Accounting for Postemployment Benefits, in 1994. FAS
112 requires that benefits to be paid for former or inactive employees after
employment but prior to retirement must be accrued if certain criteria are met.
The adoption of FAS 112 had no material financial impact on the company.
Under the terms of the Raytheon Savings and Investment Plan, a defined
contribution plan, covered employees are allowed to contribute up to 17 percent
of their pay limited to $9,500. The company contributes amounts equal to 50
percent of the employee's contributions, up to a maximum of 3 percent of the
employee's pay. Total expense for the plan was $68,090,000; $64,563,000; and
$49,436,000 for 1996 through 1994, respectively.
The company's annual contribution to the Raytheon Employee Stock
Ownership Plans is approximately one-half of one percent of salaries and wages,
limited to $150,000, of substantially all United States salaried and a majority
of hourly employees. The expense was $14,670,000; $11,748,000; and $11,768,000
and the number of shares allocated to participant accounts was 296,000; 177,000
and 185,000 for 1996 through 1994, respectively.
Note M: Business Segment Reporting
For information regarding business segment reporting for 1996, 1995, and 1994,
see page 46.
<PAGE>
55
Note N: Acquisitions and Divestitures
The company has included in its consolidated results of operations the
acquisitions under the purchase method of accounting of the following companies:
the aircraft modification and defense electronics businesses of Chrysler
Technologies (from June 1996); the engineering and construction assets of Rust
International (from June 1996); and the marine communication assets of Standard
Radio ABof Sweden (from June 1996). The cash paid for the acquisitions, net of
cash acquired, was $584.4 million. No pro forma results have been presented
since they would not be material to the consolidated results.
The following unaudited pro forma financial information combines
Raytheon and E-Systems results of operations as if the acquisition had taken
place on January 1, 1995, and on January 1, 1994. The pro forma results are not
necessarily indicative of what the results of operations actually would have
been if the transaction had occurred on the applicable dates indicated and are
not intended to be indicative of future results of operations.
(In millions except
earnings per share) 1995 1994*
- --------------------------------------------------------
Net sales $12,397 $12,046
Net income 794 584
Earnings per share 3.25 2.21
- --------------------------------------------------------
*includes after tax restructuring provision of $162.3 million, or $.61
per share.
Also, in April 1996, the company sold Xyplex, its data networking
subsidiary, for $117.5 million in cash and securities.
Note O: Quarterly Operating Results (unaudited)
For information regarding quarterly operating results for 1996 and 1995 see page
47.
Note P: Financial Instruments
For certain financial instruments, including cash, cash equivalents,
marketable securities, and short-term debt, it is estimated that carrying value
approximates fair value, due to their short maturities and varying interest
rates of the debt.
The carrying value of notes receivable at December 31, 1996 and 1995 is
estimated to approximate fair value based principally on the underlying interest
rates and terms, maturities, collateral, and credit status of the receivables.
The carrying values of marketable securities and investments are based
on quoted market prices or the present value of future cash flows and earnings
which approximate fair value.
The value of the guarantees and letters of credit reflect fair value.
The fair value of long-term debt at December 31, 1996 and 1995 was
estimated based on current rates offered to the company for similar debt with
the same maturities and approximates the carrying value.
<PAGE>
56
At December 31, 1996 and 1995, the company had outstanding interest
rate swap agreements, with notional amounts, and foreign currency forward
exchange contracts which minimized or eliminated risk associated with interest
rate changes or foreign currency exchange rate fluctuations. All of these
financial instruments were related to specific transactions and particular
assets or liabilities for which a firm commitment existed. These instruments
were executed with credit-worthy institutions and the majority of the foreign
currencies were denominated in currencies of major industrial countries:
(In thousands) 1996 1995
- --------------------------------------------------------
Interest rate swaps $388,785 $ 394,268
Foreign exchange contracts $270,017 $335,068
- --------------------------------------------------------
The following table summarizes major currencies and contract amounts associated
with foreign exchange contracts:
(In thousands) 1996 1995
- ---------------------------------------------------------------
Buy Sell Buy Sell
- ---------------------------------------------------------------
Pound Sterling $ 94,742 $ 5,129 $ 25,007 $ 2,784
Japanese Yen 9,160 30,707 2,292 58,453
Netherlands Guilder 3,437 75,600 90,144 --
German Mark 1,153 - 16,410 390
Canadian Dollar 17,287 1,248 35,562 2,021
French Franc 10,400 -- 71,663 --
Australian Dollar 16,175 -- 20,015 --
All others 2,738 2,241 6,885 3,442
- ---------------------------------------------------------------
Total $155,092 $114,925 $267,978 $ 67,090
===============================================================
Foreign currencies are translated at current rates at the reporting date.
"Buy" amounts represents the U.S. dollar equivalent of commitments to purchase
foreign currencies and "sell" amounts represent the U.S. dollar equivalent of
commitments to sell foreign currencies.
Swap contracts mature at various dates through the year 2000 and
essentially fix the interest rates on that portion of debt at rates from 4.7
percent to 9.5 percent at December 31, 1996, and 1995, respectively.
Foreign exchange forward contracts, used primarily to minimize
fluctuations in the values of foreign currency payments and receipts, have
maturities at various dates through April, 1999. Fair values for these contracts
were determined by applying December 31, 1996, spot rates to the eight major
currencies and comparing the U.S. dollar equivalents to the U.S. dollar contract
amounts for the same currencies. The resulting difference was not material and
approximates the contract amounts.
The company, in order to lock in favorable rates, entered into interest
rate swaps and locks in connection with the 1995 issuance of $750 million
ten-year notes and $375 million thirty-year debentures. Both the interest rate
swaps and locks were unwound prior to the issue of the 1995 debt.
<PAGE>
57
Note Q: Stock Split
All share data have been restated to reflect the stock split effective on
October 23, 1995.
Note R: Subsequent Events
On January 6, 1997, the company announced that the Board of Directors
approved a definitive agreement to purchase the assets of Texas Instruments'
defense operations for $2.950 billion in cash. Texas Instruments Defense Systems
and Electronics Group, headquartered in Lewisville, Texas will have 1996
revenues of approximately $1.8 billion. The group is a premier supplier of
advanced defense systems, including precision-guided weapons, antiradiation and
strike missiles, airborne radar, night vision systems and electronic warfare
systems. The group has approximately 12,000 employees, based largely in Texas.
The transaction is subject to Hart-Scott-Rodino antitrust review and is expected
to close in the second quarter of 1997.
On January 16, 1997, the company announced that it has entered into
definitive agreements with Hughes Electronics Corporation to bring about the
merger of the Hughes Electronics defense operations (Hughes Aircraft) and
Raytheon. The combined company will be called Raytheon. The transaction is
valued at $9.5 billion, comprised of approximately $5.1 billion in common stock
and $4.4 billion in debt.
The company's debt will increase as a result of the planned
transactions and the covenants applicable to the existing financing arrangements
have been modified by the participating entities to accommodate the increase in
debt. Hughes Aircraft, the Hughes Electronics' defense business, will have 1996
revenues of approximately $6.3 billion. It has approximately 40,000 employees,
principally in the states of California, Arizona, Indiana, Texas and Virginia.
Hughes is a premier supplier of advanced defense electronics systems
and services, principally in Naval systems, airborne and ground-based radars,
ground, air and ship-launched missiles, tactical communications, and training
simulators and services. Hughes also supplies Air Traffic Control systems to the
U.S. Federal Aviation Administration and to foreign governments, and is active
in the fields of global positioning systems and infrared/electro-optics. The
transaction is subject to approval by Raytheon's stockholders, certain
regulatory approvals (including Hart-Scott-Rodino antitrust review), approval by
the holders of GM and GM "H" common stocks, and the receipt by GM of rulings
from the Internal Revenue Service relating to certain federal income tax
consequences of the transaction.
Transaction Summary
Hughes Aircraft will be spun off to the holders of GM's $1-2/3 and
Class H common stocks in a transaction intended to be tax free. In connection
with the spin-off and subsequent merger, two classes of common stock will be
created: Class A common stock, which will be held by GM $1-2/3 and Class H
stockholders after the spin-off and will be entirely held by the public; and
Class B common stock.
Immediately following the spin-off of Hughes Aircraft, Raytheon and
Hughes Aircraft will merge. In the merger, Raytheon stockholders will receive
all of the Class B common stock of the combined company. The Class B common
stock will represent approximately 70 percent of the equity of the combined
company, and the Class A common stock will represent the remaining,
approximately 30 percent.
<PAGE>
58
The merger terms provide that Hughes Aircraft's total debt will be
adjusted to reflect variations in the market price of Raytheon stock, subject to
specified limits, so that the two components of value will total $9.5 billion so
long as such market price is between $44.42 and $54.29 per share. The
approximately $5.1 billion in common stock issued to the Class A stockholders is
based upon the midpoint of this range. The balance of the $9.5 billion
transaction value will be made up of approximately $4.4 billion in Hughes
Aircraft debt.
In the election of directors to the combined company board, Class A
common stock will have an 80.1 percent voting interest, and Class B common stock
will have a 19.9 percent voting interest. The board of directors will have
staggered terms for directors. Except as to voting rights for directors, each
class will vote separately as to all other matters, and the Class A and Class B
stock will have identical rights. In a merger, acquisition or any other type of
reorganization, Class A and Class B common stock must receive the same
consideration.
On February 23, 1997, the company announced that it is evaluating
strategic alternatives for the Appliance Group, which may result in the sale or
merger of the group at some time in the future. The company retained an advisor
to assist with this evaluation. The decision to undertake this strategic
reassessment was made in the context of Raytheon's financial priorities, and the
belief that the Appliance Group may have greater value to another company with
more focus on the markets served by the group.
Company Responsibility for Financial Statements
Raytheon Company has prepared the financial statements and related data
contained in this Annual Report. The company's financial statements have been
prepared in conformity with generally accepted accounting principles and reflect
judgments and estimates as to the expected effects of transactions and events
currently being reported. Raytheon is responsible for the integrity and
objectivity of the financial statements and other financial data included in
this report. To meet this responsibility, the company maintains a system of
internal accounting controls to provide reasonable assurance that assets are
safeguarded and that transactions are properly executed and recorded. The system
includes policies and procedures, internal audits, and company officers'
reviews.
/s/ Peter R. D'Angelo
Peter R. D'Angelo
Executive Vice President,
Chief Financial Officer
The Audit Committee of the Board of Directors is composed solely of outside
directors. The Committee meets periodically and, when appropriate, separately
with representatives of the independent accountants, company officers, and the
internal auditors to monitor the activities of each.
Upon recommendation of the Audit Committee, Coopers & Lybrand L.L.P.,
independent accountants, have been selected by the Board of Directors to audit
the company's financial statements and their report follows.
/s/ Dennis J. Picard
Dennis J. Picard
Chairman and
Chief Executive Officer
<PAGE>
59
Report of Independent Accountants
To the Board of Directors and Stockholders
Raytheon Company
Lexington, Mass.
We have audited the accompanying balance sheets of Raytheon Company and
Subsidiaries Consolidated as of December 31, 1996 and 1995, and the related
statements of income, stockholders' equity and cash flows for each of the three
years in the period ended December 31, 1996. These financial statements are the
responsibility of the company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Raytheon Company and
Subsidiaries Consolidated as of December 31, 1996 and 1995, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
/s/ Coopers & Lybrand L.L.P.
Coopers & Lybrand L.L.P.
Boston, Mass.
January 20,1997, except as to the information presented in note R for which the
date is February 23, 1997.
<PAGE>
1
EXHIBIT 21
SIGNIFICANT SUBSIDIARIES OF THE REGISTRANT
Subsidiary Where Organized Percentage Owned
Raytheon E-Systems, Inc. Delaware 100%
Raytheon Aircraft Company Kansas 100%
Raytheon Engineers & Constructors
Constructors International, Inc. Delaware 100%
<PAGE>
1
EXHIBIT 23.1
CONSENT OF
INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statements
of Raytheon Company and Subsidiaries Consolidated on Form S-8 (File Nos.
2-55841, 2-87308, 2-93903, 2-93871, 33-3720, 33-3723, 33-5650, 33-10811,
33-14165, 33-15242, 33-15396, 33-15397, 33-15398, 33-21454, 33-21741, 33-22211,
33-23449, 33-23751, 33-24695, 33-49041, 33-49033 and 333-22969) and on Form S-3
(File Nos. 33-49045, 33-49269 and 33-59241) of our reports dated January 18,
1997 except as to information presented in Note R for which the date is February
23, 1997, on our audits of the consolidated financial statements and financial
statement schedules of Raytheon Company and Subsidiaries Consolidated as of
December 31, 1996 and 1995, and for each of the three years in the period ended
December 31, 1996 which reports are incorporated by reference or included in
this Annual Report on Form 10-K.
/s/ Coopers & Lybrand
Coopers & Lybrand L.L.P.
Boston, Massachusetts
March 27, 1997
<PAGE>
1
EXHIBIT 23.2
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
Raytheon Company:
Our report on the consolidated financial statements of Raytheon Company and
Subsidiaries Consolidated has been incorporated by reference in this Form 10-K
from page 66 of the 1996 Annual Report to Stockholders of Raytheon Company. In
connection with our audits of such financial statements, we have also audited
the related financial statement schedules listed in Item 14(a) of this Form
10-K. In our opinion, the financial statement schedules referred to above, when
considered in relation to the basic financial statements taken as a whole,
represents fairly, in all material respects, the information required to be
included therein.
/s/ Coopers & Lybrand L.L.P.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
January 20, 1997, except for the
information presented in Note R for
which the date is February 23, 1997
<PAGE>
1
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