-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, G8wTgNPVfAkgLwiJkoy7+YgL1vJ07EtSCCkg5Tnz2i2EvkfVkNxq7FMSS7s2afvy 5O0T0Gq9IYRJXiMczAZnOQ== 0000082267-96-000001.txt : 19960321 0000082267-96-000001.hdr.sgml : 19960321 ACCESSION NUMBER: 0000082267-96-000001 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960320 SROS: CSX SROS: NYSE SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: RAYTHEON CO CENTRAL INDEX KEY: 0000082267 STANDARD INDUSTRIAL CLASSIFICATION: SEARCH, DETECTION, NAVIGATION, GUIDANCE, AERONAUTICAL SYS [3812] IRS NUMBER: 041760395 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-02833 FILM NUMBER: 96536512 BUSINESS ADDRESS: STREET 1: 141 SPRING ST CITY: LEXINGTON STATE: MA ZIP: 02173 BUSINESS PHONE: 6178626600 10-K405 1 1995 FORM 10-K 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 [Fee Required] for the fiscal year ended December 31, 1995. / / Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 [No Fee Required] 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, 1996, was approximately $12,457,336,422. 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, 1996: 240,141,425 Documents incorporated by reference and made a part of this Form 10-K: Portions of Raytheon's Annual Report Part I, Part II, Part IV to Stockholders for the fiscal year ended December 31, 1995 Portions of the Proxy Statement for Raytheon's Part III 1996 Annual Meeting which will be filed with the Commission within 120 days of the close of Raytheon's fiscal year 1 PART I ITEM 1. BUSINESS GENERAL Raytheon 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 $4.677 billion in 1995 and $3.930 billion in 1994 representing 39.9% of total sales in 1995 and 39.3% in 1994. Of these sales, $597 million in 1995 and $694 million in 1994 represented purchases made by the Government on behalf of foreign governments. 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 16,000 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; 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. 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 and the Army's Kwajalein Missile Range in the Pacific. 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. 2 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's piston-powered aircraft line includes the famous single-engine Beech Bonanza and the twin-engine Beech Baron aircraft purchased 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). The 800XP was recently introduced as the latest version of the 800 series. In September 1995 Raytheon Aircraft introduced a new light business jet, the Raytheon Premier I, which should first fly during the summer of 1997 and be FAA certified by the fall of 1998. Raytheon Aircraft is the leading producer of 19-passenger regional airliners known as the Beech 1900D stand-up cabin aircraft sold to commuter airlines and corporate customers. 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. It also produces two missile target drones for U.S. and allied forces. Raytheon Aerospace manages more than 1,200 aircraft at over 300 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. 3 MAJOR APPLIANCES SEGMENT The Major Appliances segment, which consists of Amana Refrigeration, Inc. and Speed Queen Company, manufactures and sells household and commercial appliances under the Amana, Speed Queen, Caloric, Modern Maid, Sunray, Huebsch, Menumaster and UniMac 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, central air conditioning systems, heat pumps and commercial microwave ovens. These products are sold to dealers for resale to the customer and to home builders for incorporation into new homes and apartments. Raytheon Appliances offers several industry-exclusive features including 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; the first compact commercial convection microwave oven in North America; and the first complete line of CFC-free refrigerators. 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. ELECTRONICS SEGMENT Raytheon's principal business is the design, manufacture and servicing of advanced electronic devices, equipment and systems for governmental and commercial customers. In January 1995, the Company combined its Missile Systems, Equipment, Electromagnetic Systems and Research divisions with Amber Engineering, Inc., Seiscor Technologies, Inc. to form the Raytheon Electronic Systems Division ("RES"). Raytheon Electronic Systems. RES produces the Patriot ground-based air defense missile system, which accounted for over $1 billion in sales in 1995. In addition to the U.S., seven foreign nations have selected Patriot, 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 more than $3 billion in foreign orders for Patriot equipment and services. RES also is the prime contractor for the Hawk ground-launched missile, which is owned by 20 allied nations in addition to the U.S. A Raytheon and Hughes Aircraft Company joint venture was selected as one of two winners of a U.S. Army competition for the program definition/validation phase of the Medium Extended Air Defense System, a U.S./European program also known as the U.S. Army's Corps Surface-to-Air Missile program, which 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. RES manufactures the U.S. Navy's Standard Missile and is the design agent for the next-generation Standard Missile-2 Block IV. The Company produces the Sparrow, which is used as a surface Navy missile in the U.S. and in both the surface navy and air-launched missions in allied forces. RES co-produces the primary air-to-air missile for U.S. Air Force and Navy fighter aircraft -- the Advanced Medium Range Air-to-Air Missile -- and is one of two contractors selected by the U.S. Navy to perform the initial development of the next-generation Sidewinder missile. RES is the prime contractor for the U.S. Army's Enhanced Fiber Optic Guided Missile demonstration program, which will provide rapidly deployable, lethal and highly survivable technologies to the U.S. early entry forces. RES is a major developer of ground-based phased-array radars, including the Ground-Based Radar for the Theater High Altitude Area Defense system, the U.S. Army's newest Theater Missile Defense program, and is developing for deployment to Kwajalein the Radar Technology Demonstrator phased array. These highly 4 advanced, solid state radars provide surveillance, tracking and fire control for both Theater and National Missile Defense. RES has also developed and upgraded several strategic surveillance and early warning radar systems including Pave Paws, the Ballistic Missile Early Warning System, Cobra Dane and Cobra Judy. 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 builds military communications systems, including the Air Force's Milstar satellite communications terminals and the Navy's Extremely High Frequency Satellite Communications Program terminals. RES also builds a family of militarized computers and workstations and last year 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. Through its UK subsidiary, Cossor Electronics Limited, RES produces a full line of IFF interrogators and transponders as well as military global positioning system receivers and nulling adaptive antennas. 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, including 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 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. E-Systems, Inc. In May 1995, Raytheon completed the acquisition of E-Systems, Inc. of Dallas, Texas, a $2 billion defense and government electronics company specializing in intelligence, reconnaissance and surveillance systems; command and control; specialized aircraft maintenance and modification; guidance, navigation and control, communications and data systems. The acquisition is the largest in Raytheon's 73-year history. 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 of and integration of complex systems. 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 patrol aircraft fleet. In the area of Command, Communications and Control, E-Systems was awarded a U.S. Navy contract in 1994 for the Cooperative Engagement Capability program and is developing a system that will network information from every ship in a battle group to extend perimeter defenses and vastly improve reaction time. E-Systems has a number of other products in the C3 area, including the advanced narrowband digital voice terminal -- 7,000 of which were shipped in 1994 -- and the Commander's Tactical Terminal, or CTT, which is the only family of intelligence dissemination terminals supporting military communications networks. 5 Using its global positioning system ("GPS") technology, E-Systems is upgrading the antenna electronics for the U.S. Air Force by providing performance enhancements to jam-resistant antenna subsystems. 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. 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. A leader in the field of wide-area environmental surveillance, RES has been awarded a contract 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. 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. Raytheon also has developed the Guardian airborne surveillance system which performs extensive data gathering activities for missions ranging from environmental control to drug interdiction. E-Systems' capabilities in environmental monitoring include expertise in aircraft integration and ground-based image processing. RES designs and installs air traffic control and weather systems at airports worldwide, including airports in The Netherlands, India, Norway, Switzerland, Germany, Oman, Hong Kong, China and Taiwan. Raytheon's Terminal Doppler Weather Radar system, which is being installed at 47 airports across the U.S. and Puerto Rico and in Hong Kong, 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. In air traffic control, E-Systems is using its differential GPS to demonstrate the feasibility of performing low-visibility landings of commercial aircraft. The Company is also modifying avionics and installing additional modifications for commercial flight inspection aircraft, which will be used by the Federal Aviation Administration to verify civilian airport equipment as operational and accurate. In partnership with the Regional Transportation Authority of Northeastern Illinois, RES is developing a Personal Rapid Transit that will enable people to travel to their destinations on demand and without intermediate stops. E-Systems offers capabilities in the transportation management market with cellular traffic management systems, GPS vehicle tracking systems and geostationary satellite vehicle tracking systems. E-Systems recently received a contract for an advanced communication system that will track and manage 1,600 vehicles for the city of Houston. E-Systems also 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 all 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 Raytheon Switchcraft. Raytheon Marine supplies marine radars, depth sounders, radiotelephones, autopilots, fish finders, ECDIS and navigation aids, Loran and GPS receivers and other marine electronics under the Raytheon, Apelco and Autohelm labels in the U.S. and abroad. In 1995, Raytheon acquired the marine navigation business of Anschuetz & Co. GmbH of Kiel, Germany -- 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 6 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 video custom designs -- 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 1995 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 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 have provisions for audit, price redetermination and other profit and cost controls and limitations and may be terminated, 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 may also 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 7 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 equalling 85% of costs incurred under the contract. For contracts and modifications issued after November 11, 1993, progress payments may not exceed 75% of incurred costs. The remaining amount, including profits or incentive fees, is billed upon delivery and final acceptance of end items under the contract. 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 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. During the first quarter of 1994 the Company's Board of Directors approved a company-wide restructuring plan designed to help maintain the Company's competitive position in a shrinking defense market and improve productivity in its commercial businesses. The plan is being implemented over a two-year period and resulted in a one-time, pre-tax charge of $250 million ($162 million after tax). The major elements of the plan include the costs of employee separations and relocations, facility consolidations and facility and equipment disposals. In 1995 Raytheon initiated changes in its defense business in Massachusetts to achieve $600 million in cost savings to enable it to remain 8 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. While Massachusetts-based defense operations continued to experience declines in sales and income, the rate of decline was not as great as in prior years. BACKLOG The Company's backlog of orders at December 31, 1995 was $10.551 billion compared with $8.070 billion at the end of 1994. The 1995 amount includes funded backlog of $5.142 billion from the Government compared with $3.641 billion at the end of 1994. 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. Approximately $2.662 billion of the overall backlog figure represents the unperformed portion of multi-year direct orders from foreign governments, of which $1.604 billion is for air defense systems or components thereof and related services and $1.058 billion is for the SIVAM environmental monitoring system. Approximately $1.212 billion of the overall backlog represents non-government foreign backlog. Backlog in the Engineering and Construction segment was $2.240 billion at the end of 1995 compared with $1.522 billion at the end of 1994 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 $836 million at the end of 1995 versus $1.203 billion at the end of 1994. The decrease was primarily due to the timing of orders for regional aircraft. Approximately $4.489 billion of the $10.551 billion 1995 year-end backlog is not expected to be filled during the following twelve months. RESEARCH AND DEVELOPMENT During 1995, Raytheon derived net sales of $982 million ($450 million in 1994 and $686.2 million in 1993) pursuant to Government contracts for research and development. In addition, during 1995 Raytheon expended $315.6 million on research and development efforts compared with $269.6 million in 1994 and $279.4 million in 1993. These expenditures principally have been for product development for the Government and for aircraft products. Approximately 16,100 employees (10,000 for 1994), of whom 8,200 (4,300 for 1994) hold engineering or scientific degrees, were actively engaged in research and development at the end of 1995. 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 in both military and commercial areas. 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 9 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. In the Major Appliances segment, quality, warranty, price, advertising and marketing are all competitive factors. Approximately 24 firms compete with Raytheon in the appliance field. Of these, Raytheon considers four firms to be significant competitors. 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. Several of the competitors of Raytheon Electronic Systems have relocated production facilities to states where the cost of doing business is less than in Massachusetts where most of Raytheon's defense electronics facilities are located. 10 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 arise or are threatened both by and against Raytheon. In the opinion of management, these claims will be disposed of in a satisfactory manner. EMPLOYMENT As of December 31, 1995, Raytheon had 73,200 employees compared with 60,200 employees at the end of 1994. The increase is primarily due to the May 1995 acquisition of E-Systems. 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 generally satisfactory. Raytheon has, for the most part, successfully negotiated labor agreements without significant work stoppages. Over the past ten years, Raytheon has experienced only one work stoppage: a two-week stoppage at its Amana, Iowa facility. 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. FOREIGN SALES Of total sales, Raytheon's sales to customers outside the United States were 23%, 19.6% and 18.4% in 1995, 1994 and 1993, 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 11 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. ITEM 2. PROPERTIES Raytheon and its subsidiaries operate in a number of plants, laboratories and office facilities in the United States and abroad. Raytheon's manufacturing, engineering, research, administrative, sales and storage floor space aggregated approximately 37.3 million square feet at December 31, 1995 more than 96% of which was located in the United States. Of such total, 50% was owned, 33% was held pursuant to long-term leases, 10% was held pursuant to short-term leases and 7% was Government-owned. Raytheon's facilities are suitable and adequate for its current level of business. In connection with the restructuring plan announced in March 1994, certain facilities have been and will be disposed of following consolidation. Raytheon maintains a wide-spread energy conservation effort in cooperation with Federal and state agencies. While Raytheon's businesses generally utilize clean manufacturing processes, such processes at times utilize chemicals, solvents, gases and other materials which could be hazardous. Several states have adopted "right-to-know" legislation entitling employees and, to a lesser extent, the public to information concerning such materials. Discharge of effluents and smoke particles are regulated by Federal and state agencies and frequently require permits. Discharge in excess of permit limitations may result in fines. Enforcement proceedings may be brought by citizen groups as well as government agencies. In the opinion of management, Raytheon complies with these regulations in all material respects. 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, 1995, 1994 and 1993.) The insurance policies for product liability coverage held by Raytheon Aircraft do not exclude punitive damages, and it is the position of Raytheon 12 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. Among agencies which oversee contract performance are: the Defense Contract Audit Agency, the Department of Defense Inspector General, the General Accounting Office, and 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. 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 any 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. 13 SUBSTITUTE ITEM 4. EXECUTIVE OFFICERS OF REGISTRANT AS OF MARCH 1, 1996 Elizabeth H. Allen: Vice President - Corporate Communications since August 1993. Prior to assuming her present position Ms. Allen was Vice President - Corporate Communications, Loral Corporation from January 1991. Age: 42 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: 53 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: 45 Renso L. Caporali: Senior Vice President - Government and Commercial Marketing since April 1995. Prior to assuming his present position Mr. Caporali was Chairman and Chief Executive Officer of the Grumman Corporation from 1991. Age: 62 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: 60 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: 44 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: 57 Herbert Deitcher: Senior Vice President - Treasurer since November 1989. Age: 62 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: 56 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: 41 14 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: 51 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: 47 Frank Kendall: Vice President - Engineering since December 1994. Prior to assuming his present position Mr.Kendall was a civilian employee with the Department of Defense from 1990. Age: 47 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: 58 Robert S. McWade: Vice President - Corporate Affairs since February 1996. Prior to assuming his present position Mr. McWade was Director, Corporate Communications, Textron, Inc. from September 1994 and Director, Corporate Relations, Bank of Boston from 1991. Age: 39 Charles Q. Miller: Executive Vice President and Group Executive 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: 50 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: 63 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: 53 Robert L. Swam: Executive Vice President and Chairman and Chief Executive Officer of Amana Refrigeration, 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: 55 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: 47 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: 58 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 15 until his or her earlier removal, resignation or death. 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, 1995 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, 1995 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, 1995 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, 1995 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. Item 10. Directors and Executive Officers of the Registrant Information regarding the directors of the Registrant is contained in the definitive proxy statement of the Registrant for the annual meeting of stockholders to be held May 22, 1996 on pages 2 through 4 under the caption "Election of Directors" and is incorporated herein by reference. See Part I, Substitute Item 4 of this Form 10-K for information regarding the executive officers of the Registrant. Item 11. Executive Compensation This information is contained in the definitive proxy statement of the Registrant for the annual meeting of stockholders to be held May 22, 1996 beginning with the caption "Executive Compensation of Directors" on pages 8 through 11 and is incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management This information is contained in the definitive proxy statement of the Registrant for the annual meeting of stockholders to be held May 22, 1996 under the caption "Security Ownership" on pages 5 and 6 and is incorporated herein by reference. Item 13. Certain Relationships and Related Transactions 16 This information is contained in the definitive proxy statement of the Registrant for the annual meeting of stockholders to be held May 22, 1995 under the caption "Other Information" on page 25 and is incorporated herein by reference. PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K (a) Financial Statements and Schedules (1) The following financial statements of Raytheon Company and Subsidiaries Consolidated, as contained in Raytheon's 1995 Annual Report to Stockholders, are hereby incorporated by reference: Balance Sheets at December 31, 1995 and 1994 Statements of Income for the Years Ended December 31, 1995, 1994 and 1993 Statements of Stockholders' Equity for the Years Ended December 31, 1995, 1994 and 1993 Statements of Cash Flows for the Years Ended December 31, 1995, 1994 and 1993 (2) The following financial statement schedule is included herein: Schedule II, Reserves for the Three Years Ended December 31, 1995 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 None. (c) Exhibits (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) On July 3, 1986 the Company filed a registration statement on Form 8-A, which form was amended on June 28, 1988, describing certain rights that may accrue to stock- holders in the event that a person or group acquires beneficial ownership of 20% or more of the Company's outstanding capital stock or commences a tender or exchange offer that would result in such person or group owning 25% or more of such outstanding capital stock. Said Registration Statement is hereby incorporated by reference. (10.1) Raytheon's 1976 Stock Option Plan, filed as an exhibit to Raytheon's Registration Statement No. 33-23449 on Form S-8, is hereby incorporated by reference. 17 (10.2) Raytheon's 1991 Stock Plan, filed as an exhibit to Raytheon's 1991 Form 10-K, is hereby incorporated by reference. (10.3) Raytheon's 1995 Stock Option Plan, filed as an exhibit to Raytheon's 1995 Proxy Statement dated April 18, 1995, is hereby incorporated by reference. (13) Raytheon's 1995 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* (28.1) Annual Report on Form 11-K for the (To be filed at a Raytheon Savings and Investment Plan later date under Form 10-K/A) (28.2) Annual Report on Form 11-K for the (To be filed at a Raytheon Savings and Investment Plan later date under for Specified Hourly Payroll Employees Form 10-K/A) (28.3) Annual Report on Form 11-K for the (To be filed at a Raytheon Employee Savings and later date under Investment Plan Form 10-K/A) * Filed electronically herewith. 18 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 15, 1996 19 SIGNATURES 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 (Dennis J. Picard) Chairman of the Board March 15, 1996 and Director (Principal Executive Officer) Charles F. Adams (Charles F. Adams) Director March 15, 1996 Francis H. Burr (Francis H. Burr) Director March 15, 1996 Ferdinand Colloredo-Mansfeld (Ferdinand Colloredo-Mansfeld) Director March 15, 1996 Theodore L.Eliot, Jr. (Theodore L. Eliot, Jr.) Director March 15, 1996 John R. Galvin (John R. Galvin) Director March 15, 1996 Barbara B. Hauptfuhrer (Barbara B. Hauptfuhrer) Director March 15, 1996 Richard D. Hill (Richard D. Hill) Director March 15, 1996 L. Dennis Kozlowski (L. Dennis Kozlowski) Director March 15, 1996 James N. Land, Jr. (James N. Land, Jr.) Director March 15, 1996 A. Lowell Lawson (A. Lowell Lawson) Director and March 15, 1996 Executive Vice President Thomas L. Phillips (Thomas L. Phillips) Director March 15, 1996 Warren B. Rudman (Warren B. Rudman) Director March 15, 1996 Joseph J. Sisco (Joseph J. Sisco) Director March 15, 1996 Alfred M. Zeien (Alfred M. Zeien) Director March 15, 1996 Peter R. D'Angelo (Peter R. D'Angelo) Executive Vice President - March 15, 1996 Chief Financial Officer, Controller (Chief Accounting Officer) 20
RAYTHEON COMPANY AND SUBSIDIARIES CONSOLIDATED ---------------------------------------------- SCHEDULE II - RESERVES FOR THE THREE YEARS ENDED DECEMBER 31, 1995 ------------------------------------------- (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 ------------------------------------------------------------------------------------------------------------------- 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 Year ended December 31, 1993: Allowance for doubtful $20,023 $ 4,586 - $(1,282) $25,891 accounts receivable Note (1) - Uncollectible accounts and adjustments, less recoveries
EX-99 2 EXHIBIT LIST 1 INDEX TO EXHIBITS (3A) Restated and Amended Certificate of Incorporation Incorporated by Reference (3B) Restated and Amended Bylaws Incorporated by Reference (4) Instruments Defining the Rights of Security Holders Incorporated by Reference (10.1) 1976 Stock Option Plan Incorporated by Reference (10.2) 1991 Stock Option Plan Incorporated by Reference (13) Annual Report to Security Holders Submitted electronically herewith. (21) Subsidiaries of the Registrant Submitted electronically herewith. (23.1) Consent of Independent Accountants Submitted electronically herewith. (23.2) Report of Independent Accountants Submitted electronically herewith. (27) Financial Data Schedule Submitted electronically herewith. (28.1) Annual Report on Form 11-K for the (To be filed at a later Raytheon Savings and Investment Plan date under Form 10-K/A) (28.2) Annual Report on Form 11-K for the (To be filed at a later Raytheon Savings and Investment Plan date under Form 10-K/A) for Specified Hourly Payroll Employees (28.3) Annual Report on Form 11-K for the (To be filed at a later Raytheon Employee Savings and date under Form 10-K/A) Investment Plan EX-13 3 MANAGEMENT'S DISCUSSION AND ANALYSIS 1 FINANCIAL STATEMENTS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 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 $11.7 billion, the highest in the company's history, compared with sales of $10.0 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 Anschuetz, 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 $2.873 billion in 1995. Income increased by 7.7 percent to $279 million due principally to higher returns on international projects. The Aircraft segment reported record sales and income for 1995. Sales of $2.024 billion were up 17.5 percent based on strong unit sales growth of regional and general aviation aircraft. Segment income was up 16.7 percent to $272 million, before a nonrecurring charge of $30 million included as part of the previously mentioned $77 million charge, based principally on the increased sales volume. 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 $1.473 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. 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 33.8 percent of consolidated sales in 1995 versus $3.546 billion or 35.4 percent of consolidated sales in 1994. Total sales to the U. S. government were $4.676 billion or 39.9 percent of consolidated sales versus $3.930 billion or 39.3 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 $1,289.4 million or 11.0 percent of sales versus $1,078.4 million or 10.8 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 $1,087.4 million or 9.3 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 the restructuring provision, including both salaried and bargaining unit employees located in Massachusetts and other states and in foreign locations. Through the end of 1995, $240.4 million of restructuring costs have been incurred, of which $102.2 million was employee related costs and $138.2 million was 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. The spending is expected to be completed early in 1996. 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 $46.3 million in 1995 versus $47.5 million in 1994. This income arises principally from the financing of customer long-term receivables. Other income (net) for 1995 increased to $254.6 million from $72.3 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 nondeductible 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 company will continue to repurchase shares in the open market under this authorization from time to time as conditions may warrant. 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. Backlog consisted of the following at Dec. 31: 1995 1994 - -------------------------------------------------------- (In millions) 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 backlog included above $ 5,142 $ 3,641 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. The Brazilian Senate is currently reviewing the President's request to modify the Senate financing resolutions that were approved in December of 1994. This vote is expected to take place during the first half of 1996. For the year ended December 31, 1995, cash flows from operating activities were $1,134.2 million as compared to $1,088.6 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, for 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. In the third quarter of 1995, under the company's 1992 shelf registration of $500 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 million of notes due 2005, which have a coupon rate of 6 1/2 percent, and $375 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. 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 $3.20 billion and $1.24 billion at December 31, 1995, and December 31, 1994, respectively. Through the end of 1995, there have been no borrowings under these lines of credit. 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. The company expects that the cash flow from operations and available debt financing will be sufficient to meet its funding requirements in 1996. 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. Capital expenditures in 1996 are expected to be above the 1995 level, excluding the effect of acquisitions. 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. 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. 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. In order to lock in favor- able rates, interest rate swaps and locks were entered into six weeks prior to and unwound in connection with the 1995 issuance of $750 million ten-year notes and $375 million thirty-year debentures. The impact on the financial position, liquidity, and results of operations from likely changes in foreign exchange and interest rates is immaterial 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. 121, Accounting for the Impairment of Long-Lived Assets, in the fourth quarter of 1995. In accordance with provisions of SFAS No. 121 and the past practices of the company, the company recorded a $125.0 million pre-tax special charge ($81.2 million after tax) related principally to real estate and goodwill valuation adjustments. The company will adopt 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 financial statement footnotes. The company expects to adopt the disclosure alternative. 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 immaterial. 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. 1994 versus 1993 Raytheon Company achieved record sales, earnings and earnings per share in 1994, excluding a special restructuring charge in the first quarter of 1994. Earnings rose 9.6 percent to $759.2 million and earnings per share rose 12.3 percent to $2.87, compared with earnings of $693.0 million and earnings per share of $2.56 in 1993. Net income for 1994 including the special restructuring charge of $162.3 million, or $.61 per share, was $596.9 million, or $2.26 per share. Spurred by increased commercial sales in the Engineering and Construction, Aircraft and Major Appliances segments, Raytheon's total 1994 sales were $10.0 billion, the highest in the company's history, and an 8.8 percent increase over 1993 sales of $9.2 billion. The 1994 results reflect the success of Raytheon's strategic transition to a commercial company while retaining its commitment to remain a leading competitor in defense. Raytheon's overall commercial business achieved record sales and profits in each quarter of 1994; commercial sales for the year increased to almost 65 percent of total sales and commercial profits increased to half of total profits. The Engineering and Construction segment had record sales and income in 1994 due to the acquisition of Ebasco in late 1993 and increased sales activity on international turnkey construction projects. Operating margins increased significantly in 1994. The Aircraft segment had record sales and income in 1994 due to increased sales of commuter and general aviation aircraft and improved operating margins. In 1994, Beech Aircraft and Raytheon Corporate Jets were combined into Raytheon Aircraft Company. The Major Appliances segment had record sales and income in 1994 due to increased sales of refrigerator, cooking and laundry products and improved operating margins. Sales in 1994 benefited from new product introductions as almost 50 percent of the segment's sales was generated by products not in production a year ago. In late 1994, the company expanded into frontload commercial washing machines with the acquisition of UniMac of Marianna, Florida. The Electronics segment had lower sales and income in 1994 due to the decline in defense spending. The company successfully expanded its defense technologies into the commercial marketplace by winning an international competition for an environmental monitoring system. The company acquired Xyplex, a leader in data networking, in October 1994. The Patriot surface-to-air missile system continued to be the company's largest program. Patriot sales were $1.089 billion and 10.9 percent of consolidated net sales in 1994 and $1.248 billion and 13.6 percent of consolidated net sales in 1993. The total funded backlog for Patriot at the end of 1994 was $1.734 billion. The Hawk surface-to-air missile system and the Advanced Medium Range Air-to-Air Missile (AMRAAM) also continued to be important sales contributors in 1994. Sales to the U.S. Department of Defense were $3.546 billion or 35.4 percent of consolidated sales in 1994 versus $4.219 billion or 45.9 percent in 1993. Total sales to the U.S. government were $3.930 billion or 39.3 percent of consolidated net sales versus $4.501 billion or 48.9 percent in 1993. Commercial sales to domestic customers were $4.121 billion or 41.2 percent of consolidated net sales in 1994 versus $3.004 billion or 32.6 percent of sales in 1993. Operating income, excluding the effect of the restructuring provision in the first quarter of 1994, was $1,078.4 million or 10.8 percent of sales versus $919.9 million or 10.0 percent of sales in 1993. The results for 1994, excluding the effect of the restructuring provision, were 17.2 percent above 1993 due to strong improvements in operating earnings in the Engineering and Construction, Aircraft and Major Appliances segments. Operating income after the restructuring provision was $828.6 million or 8.3 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. Through year-end 1994, $92.5 million of restructuring costs have been incurred, of which $22.1 million were employee related costs and $70.4 million was related to asset disposals, idle facilities and rearrangement costs. Additionally, 3,600 employees have been notified of termination, of which 2,200 have actually been terminated. Interest expense for 1994 increased to $48.5 million from $31.9 million in 1993. The increase was due to higher interest rates and higher average levels of debt outstanding. Interest and dividend income decreased to $47.5 million in 1994 from $56.5 million in 1993. The decrease is due to lower customer long-term receivables in 1994. Other income (net) for 1994 decreased to $72.3 million from $102.8 million in 1993. The decrease is principally due to lower 1994 license fee income on foreign missile contracts. Federal and foreign income taxes were $303.1 million in 1994 compared with $354.3 million in 1993. The 1994 effective tax rate was 33.7 percent, after the restructuring provision, versus 33.8 percent in 1993. The effective tax rate for 1994 reflects the statutory rate of 35 percent reduced by foreign tax credits. For reasons discussed above, income before the restructuring provision increased 9.6 percent or $66.2 million to $759.2 million from the $693.0 million reported for 1993. Net income after the restructuring provision was $596.9 million. Earnings per common share, before the restructuring provision, increased 12.3 percent to $2.87 from $2.56 in 1993. Earnings per common share after the restructuring provision were $2.26. Earnings per common share calculations were based on 264.7 million average shares outstanding in 1994 and 271.2 million average shares outstanding in 1993. During 1994, outstanding shares were reduced by 25.4 million shares as a result of the company's purchase of outstanding shares at a cost of $804.9 million, partially offset by 1,832,000 shares issued upon the exercise of employee stock options and restricted stock awards. In November 1992, to counter the dilution due to exercise of stock options, the Board of Directors authorized the purchase of up to four million shares of the company's common stock per year over the next five years. During 1994, approximately two 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. On February 22, 1995, the Board of Directors authorized the repurchase of up to 12 million shares of the company's common stock. The company will repurchase shares in the open market from time to time as conditions may warrant. The book value of common shares outstanding at December 31, 1994, was $15.92 per share as compared with $15.89 per share at December 31, 1993. Return on average equity in 1994, excluding the restructuring provision, was 17.4 percent versus 17.0 percent in 1993. Return on average equity in 1994, including the restructuring provision, was 14.1 percent. Backlog consisted of the following at Dec. 31: 1994 1993 - ------------------------------------------------------- (In millions) Electronics $5,287 $4,800 Engineering and Construction 1,522 1,824 Aircraft 1,203 1,082 Major Appliances 58 50 ------ ------ Total Backlog $8,070 $7,756 U.S. government-funded backlog included above $3,641 $4,519 Raytheon's total year-end backlog of $8.070 billion was up more than $300 million over the year-end 1993 backlog of $7.756 billion, due to the company's strong commercial content, including the competition Raytheon won for an environmental monitoring system, valued at over $1 billion, to allow the govern- ment of Brazil to monitor and protect the Amazon River rain forest. The program financing was approved by the Brazilian Senate in December 1994 and the company is currently negotiating a definitive contract with the Brazilian government. For the year ended December 31, 1994, cash receipts from operating activities of $1,088.6 million, a short-term debt increase of $159.9 million, and the sale of an equity investment of $85.1 million provided funds of $1,333.6 million. These funds were used to fund net additions to property, plant and equipment of $197.5 million, to pay dividends of $192.7 million, to purchase treasury shares for $804.9 million and for the purchase of acquired companies of $151.2 million. Accounts receivable increased to $976.3 million at year-end 1994 from $727.7 million in 1993, principally as a result of increased sales volume in the Aircraft and Major Appliances segments and the acquisition of Xyplex and UniMac. Other assets decreased to $1,049.1 million at year-end 1994 from $1,226.4 million in 1993. The decrease was due to the sale of $302.8 million of commuter airline long-term receivables to a bank syndicate partially offset by increased goodwill from the acquisition of Xyplex and UniMac. Advance payments, less related contracts in process balances, increased to $466.4 million at year-end 1994 from $376.1 million at the end of 1993 due mainly to advance payments received on foreign missile contracts. Federal and foreign income taxes, including deferred, consisted of a current asset of $165.6 million and a noncurrent liability of $134.6 million, for a net asset balance of $31.0 million at year-end 1994. The net balance at December 31, 1993 was a liability of $113.5 million, consisting of a current liability of $4.0 million and a noncurrent liability of $109.5 million. The change was due principally to 1994 tax payments to the U.S. government on items previously deferred under Internal Revenue regulations. Other accrued expenses increased to $651.7 million at year-end 1994 from $497.6 million at year-end 1993 due principally to the unspent portion of the restructuring provision recorded in 1994. Debt, net of cash and marketable securities, was $855.4 million at the end of 1994 as compared with $707.3 million at the end of 1993. Net debt as a percentage of equity was 21.8 percent at year-end 1994 versus 16.5 percent at year-end 1993. 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 $1.24 billion and $1.11 billion as of December 31, 1994, and December 31, 1993, respectively. Through the end of 1994, there have been no borrowings under these lines of credit. In September 1992 the company filed a shelf registration with the Securities and Exchange Commission registering the possible future issuance of unsecured debt securities of up to $500 million. Through the end of 1994, no debt securities have been issued. Capital expenditures increased to $267.4 million in 1994 from $256.1 million in 1993. Dividends declared to stockholders in 1994 increased to $192.7 million from $189.8 million in 1993. The dividend declared per common share was increased by 7 percent to $.1875 per quarter resulting in total dividends paid for the year 1994 of $.7375 per share. The company employed 60,200 people worldwide at December 31, 1994, compared with 63,800 at December 31, 1993. During 1994 the employment level declined by 4,600 people and 1,000 people were added as a result of acquisitions. The total of salaries and wages paid employees during 1994 was $2.895 billion compared with $2.732 billion in 1993. In December 1994 the company announced an agreement to purchase the marine navigation business of Anschuetz & Co. GmbH. The acquisition was completed in the first quarter of 1995. In 1994 the company adopted Statement of Financial Accounting Standards (SFAS) No. 112, Employers' Accounting for Post-employment Benefits, and SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities, the financial impact of which was immaterial. BUSINESS SEGMENT REPORTING - -------------------------------------------------------------------------------- The company operates in four major business areas: Electronics, both com- mercial and defense; Engineering and Construction, Aircraft, and Major Appliances. The principal contributor 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 pistons, 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. OPERATIONS BY BUSINESS SEGMENT
Sales to unaffiliated customers Segment income ------------------------------- ------------------------------ 1995 1994 1993 1995 1994 1993 - ------------------------------------------------------------------------------------------------------------------------------ (In millions) Electronics* $ 5,346 $ 4,016 $4,732 $ 797(1) $ 680 $ 815 Engineering and Construction 2,873 2,821 1,718 279 259 115 Aircraft 2,024 1,722 1,466 242(2) 233 182 Major Appliances* 1,473 1,454 1,285 81 87 45 ------- ------- ------ ------ ------ ------ Total Operating Segments $11,716 $10,013 $9,201 $1,399 $1,259 $1,157 ======= ======= ====== ------ ------ ------ Restructuring and special charges (125)(3) (250)(4) -- Corporate administrative and selling expenses (90) (74) (78) Corporate interest and other expense (230) (66) (32) Net gain on sale of D.C. Heath 210 -- -- Gain on sale of an investment 28 31 -- ------- ----- ------ Income before taxes $1,192 $900 $1,047 ======= ===== ======
(1) Includes a nonrecurring charge of $47 million. (2) Includes a nonrecurring charge of $30 million. (3) The special charge relates to the business segments as follows: Electronics, $115, and Engineering and Construction, $10. (4) The restructuring provision relates to the business segments as follows: Electronics, $193, Engineering and Construction, $37, Aircraft, $13, and Major Appliances, $7. *In 1995 BSG/REMCO, a European manufacturer of components principally for the appliance industry, was reclassified from the Electronics segment to the Major Appliances segment. Sales and segment income for 1994 and 1993 were restated for comparability.
Capital expenditures Depreciation and amortization -------------------------------- ----------------------------- 1995 1994 1993 1995 1994 1993 - ----------------------------------------------------------------------------------------------------------------- (In millions) Electronics $147 $120 $146 $228 $167 $170 Engineering and Construction 26 22 16 32 31 22 Aircraft 80 74 54 51 52 52 Major Appliances 76 51 40 60 54 52 ---- ----- ---- ---- ---- ---- Total $329 $267 $256 $371 $304 $296 ==== ==== ==== ==== ==== ==== Identifiable assets at December 31, ----------------------------------- 1995 1994 1993 - ------------------------------------------------------------- (In millions) Electronics $5,473 $2,867 $2,795 Engineering and Construction 1,544 1,359 1,248 Aircraft 1,832 2,171 2,409 Major Appliances 992 998 806 ------ ------ ------ Total $9,841 $7,395 $7,258 ======= ====== ======
OPERATIONS BY GEOGRAPHIC AREAS United States Outside United States (Principally Europe) Consolidated - --------------------------------------------------------------------------------------------------------------------------------- Sales to unaffiliated customers (In millions) 1995 $10,997 $719 $11,716 1994 9,224 789 10,013 1993 8,789 412 9,201 Net income 1995 738 54 792 1994 547 50 597 1993 676 17 693 Identifiable assets at December 31, 1995 9,171 670 9,841 December 31, 1994 6,929 466 7,395 December 31, 1993 6,892 366 7,258 - ------------------------------------------------------------------------------------------------------------------------------------
Sales between business segments and between geographic areas are immaterial. In the data by geographic area, U.S. sales in millions of $10,997, $9,224, and $8,789 include export sales, in millions, principally to Europe, the Middle East, and Far East, of $1,978, $1,173, and $1,284 for 1995 through 1993, respectively. Sales in millions to major customers, principally in Electronics, for 1995 through 1993, respectively, are: U.S. government (end user), $4,079, $3,236, and $3,722; U.S. government (foreign military sales), $597, $694, and $779. QUARTERLY FINANCIAL DATA - -------------------------------------------------------------------------------- Fourth quarter 1995 net income and earnings per share increased over the comparable 1994 quarter. The company recorded in the fourth quarter of 1995 a net pre-tax gain of $210 million from the sale of DC Heath, its educational publishing unit. The company also recorded in the fourth quarter of 1995 a special pre-tax charge of $125 million related to real estate and goodwill valuation adjustments, and non-recurring 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.
First Second Third Fourth - ------------------------------------------------------------------------------------ (In millions except per share data) 1995 Net sales $2,387.1 $2,816.1 $3,152.7 $3,359.7 Cost of sales 1,825.6 2,116.3 2,424.7 2,735.2 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 1994 Net sales $2,314.5 $2,527.0 $2,442.6 $2,728.8 Cost of sales 1,796.6 1,948.7 1,876.1 2,131.2 Net income 7.0 192.2 192.0 205.7 Earnings per common share* 0.03 0.71 0.73 0.80 Cash dividends per common share Declared 0.175 0.1875 0.1875 0.1875 Paid 0.175 0.175 0.1875 0.1875 Common stock prices per the Composite Tape High 34.44 33.57 34.32 33.00 Low 30.25 30.50 30.82 30.38 - --------------------------------------------------------------------------------------
*Earnings per share by quarter do not equal the earnings per share for the year due to fluctuations in the average shares outstanding. Note: Share data have been restated for the two-for-one stock split in October, 1995. TEN-YEAR STATISTICAL SUMMARY
1995 1994 1993 - -------------------------------------------------------------------- STATEMENTS OF INCOME Net sales $11,715.6 $10,012.9 $9,201.2 --------- --------- -------- Cost of sales 9,101.8 7,752.6 7,174.3 Administrative and selling expenses (note A) 1,210.8 912.3 827.6 Research and development expenses 315.6 269.6 279.4 --------- --------- -------- Total operating expenses 10,628.2 8,934.5(2) 8,281.3 --------- --------- -------- Operating income 1,087.4 1,078.4(2) 919.9 --------- --------- -------- Interest expense 196.6 48.5 31.9 Interest and dividend income (46.3) (47.5) (56.5) Other (income) expense, net (note A) (254.6) (72.3) (102.8) --------- --------- -------- Non-operating income, net (104.3) (71.3) (127.4) --------- --------- -------- Income before taxes 1,191.7 1,149.7(2) 1,047.3 Federal and foreign income taxes 399.2 390.5 354.3 --------- --------- -------- Net income $ 792.5 $ 759.2(3) $ 693.0 ========= ========= ======== Return on sales 6.8% 7.6%(3) 7.5% Return on average equity 19.3% 17.4%(3) 17.0% Earnings per common share (1)(4) Outstanding shares $ 3.25 $ 2.87(3) $ 2.56 Fully diluted $ 3.20 $ 2.85(3) $ 2.53 Cash dividends declared per common share(4) $ 0.75 $ 0.738 $ 0.70 Average common shares (in thousands)(4) Outstanding shares 243,989 264,736 271,166 Fully diluted 247,780 266,490 273,594 - -------------------------------------------------------------------- FINANCIAL POSITION AT YEAR-END Assets Current $ 5,275.2 $4,985.5 $4,609.2 Property, plant, and equipment, net 1,584.0 1,360.8 1,422.1 Total (including other non-current) 9,840.9 7,395.4 7,257.7 Working Capital Net working capital 1,584.8 1,702.4 1,809.0 Ratio of current assets to current liabilities 1.43 1.52 1.65 Financial Structure Long-term debt 1,487.7 24.5 24.4 Total debt 2,703.8 1,057.6 897.6 Stockholders' equity 4,292.0 3,928.2 4,297.9 Per common share(4) 17.83 15.92 15.89 Debt as a percentage of equity 63.0% 26.9% 20.9% - -------------------------------------------------------------------------------- GENERAL STATISTICS Total backlog $10,550.5 $ 8,069.8 $7,756.5 U.S. government-funded backlog (included above) 5,141.5 3,640.9 4,518.8 Property, plant, and equipment Capital expenditures 328.6 267.4 256.1 Depreciation and amortization 371.3 304.2 296.4 Total salaries and wages paid 3,450.7 2,894.7 2,731.5 Total number of employees (actual) 73,200 60,200 63,800 Outstanding shares of common stock (in thousands) 240,690 246,644 270,428 - --------------------------------------------------------------------------------
Notes: (1) Earnings per common share: outstanding shares computed on average number of common shares; fully diluted assumes exercise of dilutive stock options. (2) Excludes first quarter 1994 restructuring provision of $249.8 million. (3) Excludes first quarter 1994 after-tax restructuring provision of $162.3 million or $.61 per share. (4) All share data have been restated for the two-for-one stock split in October, 1995.
1992 1991 1990 1989 1988 1987 1986 - ----------------------------------------------------------------------------------------------- (In millions except per share data) $9,058.2 $9,274.2 $9,267.7 $8,796.1 $8,192.1 $7,659.4 $7,308.0 - -------- -------- -------- -------- -------- -------- -------- 7,057.5 7,351.9 7,391.4 6,996.5 6,536.6 6,123.4 5,843.0 817.2 822.1 809.8 779.3 743.5 668.9 662.1 289.9 278.5 267.6 274.7 271.0 266.1 254.0 - -------- -------- -------- -------- -------- -------- -------- 8,164.6 8,452.5 8,468.8 8,050.5 7,551.1 7,058.4 6,759.1 - -------- -------- -------- -------- -------- -------- -------- 893.6 821.7 798.9 745.6 641.0 601.0 548.9 - -------- -------- -------- -------- -------- -------- -------- 48.2 92.4 114.3 113.4 62.8 23.5 20.4 (60.7) (81.3) (94.7) (79.0) (57.8) (58.8) (71.0) (49.9) (62.1) (57.6) (46.5) (69.5) (49.6) (53.1) - -------- -------- -------- -------- -------- -------- -------- (62.4) (51.0) (38.0) (12.1) (64.5) (84.9) (103.7) - -------- -------- -------- -------- -------- -------- -------- 956.0 872.7 836.9 757.7 705.5 685.9 652.6 320.9 280.9 279.6 228.9 215.9 240.8 259.4 - -------- -------- -------- -------- -------- -------- -------- $ 635.1 $ 591.8 $ 557.3 $ 528.8 $ 489.6 $ 445.1 $ 393.2 ======== ======== ======== ======== ======= ======== ======= 7.0% 6.4% 6.0% 6.0% 6.0% 5.8% 5.4% 17.7% 19.2% 21.2% 23.3% 25.1% 22.0% 19.5% $2.36 $2.24 $2.14 $2.00 $1.84 $1.53 $1.28 $2.34 $2.22 $2.12 $1.99 $1.83 $1.52 $1.27 $0.663 $0.613 $0.60 $0.55 $0.50 $0.463 $0.438 269,008 264,460 261,330 264,108 266,484 291,054 308,164 271,290 266,092 262,482 265,642 267,786 293,592 310,784 - ------------------------------------------------------------------------------------------------------------------------------------ $3,775.8 $3,747.6 $3,603.5 $3,104.5 $2,844.3 $2,451.9 $2,023.6 1,420.0 1,516.5 1,532.1 1,456.3 1,355.2 1,217.4 1,103.7 6,015.1 6,087.1 6,119.4 5,338.3 4,739.5 4,162.5 3,656.2 1,639.0 1,031.5 457.8 282.4 267.1 183.2 370.7 1.77 1.38 1.15 1.10 1.10 1.08 1.22 25.3 39.3 46.4 46.0 41.3 44.7 48.7 732.0 1,143.7 1,471.6 1,229.6 952.8 595.4 180.9 3,843.2 3,323.4 2,846.5 2,426.1 2,121.0 1,849.1 1,954.6 14.16 12.45 10.89 9.24 7.99 6.83 6.60 19.0% 34.4% 51.7% 50.7% 44.9% 32.2% 9.3% - ------------------------------------------------------------------------------------------------------------------------------------ $7,273.2 $7,969.4 $8,809.5 $9,595.3 $8,712.4 $8,470.0 $7,766.5 5,310.6 5,579.2 6,566.4 6,973.5 6,759.1 6,362.3 5,448.2 307.7 348.5 390.7 413.9 421.3 354.2 346.4 302.1 306.1 303.5 281.6 259.0 236.5 237.9 2,957.7 3,017.4 2,972.7 2,816.4 2,659.8 2,457.9 2,245.2 63,900 71,600 76,700 77,600 76,200 76,500 75,000 271,320 266,880 261,420 262,480 265,494 270,796 296,312 - ------------------------------------------------------------------------------------------------------------------------------------
BALANCE SHEETS - ------------------------------------------------------------------------------------------------------------------------------------ Raytheon Company and Subsidiaries Consolidated December 31, ASSETS 1995 1994 - ------------------------------------------------------------------------------------------------------------------------------------ (In thousands) Current assets Cash and marketable securities (notes A and B) $ 210,284 $ 202,181 Accounts receivable, less allowance for doubtful accounts: 1995--$22,043,000; 1994--$21,290,000 926,800 976,278 Federal and foreign income taxes, including deferred (notes A and I) 196,711 165,615 Contracts in process (notes A and C) 2,212,689 1,951,270 Inventories (notes A and D) 1,502,983 1,499,458 Prepaid expenses (note M) 225,751 190,689 ---------- ---------- Total current assets 5,275,218 4,985,491 Property, plant, and equipment, net (notes A and E) 1,584,035 1,360,780 Other assets (notes A and F) 2,981,691 1,049,123 --------- --------- $9,840,944 $7,395,394 ========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------------------------------------------------------------------------------------------------------ Current liabilities Notes payable and current portion of long-term debt (notes G and H) $1,216,039 $1,033,081 Advance payments, less contracts in process: 1995--$586,792,000; 1994--$572,788,000 343,470 466,448 Accounts payable 1,041,848 894,911 Accrued salaries and wages 254,419 236,945 Other accrued expenses (note A) 834,647 651,680 --------- ---------- Total current liabilities 3,690,423 3,283,065 Accrued retiree benefits (note M) 270,025 25,068 Federal and foreign income taxes, including deferred (notes A and I) 100,797 134,571 Long-term debt (note H) 1,487,735 24,522 Commitments and contingencies (note J) Stockholders' equity (note R) Preferred stock, no par value Authorized: 3,000,000 shares Outstanding: 1995 and 1994--none (note K) Common stock, par value $1.00 per share Authorized: 400,000,000 shares Outstanding: 1995--240,690,000 shares; 1994--246,644,000 shares (after deducting shares in treasury: 1995--114,245,000; 1994--108,292,000) (notes K and L) 240,690 246,644 Additional paid-in capital 258,708 209,468 Equity adjustments (note A) 5,071 (9,463) Retained earnings 3,787,495 3,481,519 ---------- ---------- Total stockholders' equity 4,291,964 3,928,168 ---------- ---------- $9,840,944 $7,395,394 ========== ========== - ------------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements. STATEMENTS OF INCOME - -------------------------------------------------------------------------------- Raytheon Company and Subsidiaries Consolidated
Years Ended December 31: 1995 1994 1993 - -------------------------------------------------------------------------------------- (In thousands except per share data) Net sales (note A) $11,715,597 $10,012,855 $9,201,197 ----------- ----------- ---------- Cost of sales 9,101,847 7,752,567 7,174,279 Administrative and selling expenses 1,085,765 912,313 827,551 Research and development expenses (note A) 315,581 269,613 279,448 Restructuring and special charges (note A) 125,000 249,751 -- ----------- --------- --------- Total operating expenses 10,628,193 9,184,244 8,281,278 ----------- ---------- --------- Operating income 1,087,404 828,611 919,919 ----------- ---------- --------- Interest expense 196,627 48,504 31,867 Interest and dividend income (46,338) (47,492) (56,496) Other income, net (note A) (254,568) (72,340) (102,799) ----------- -------- -------- Non-operating income, net (104,279) (71,328) (127,428) ----------- -------- -------- Income before taxes 1,191,683 899,939 1,047,347 Federal and foreign income taxes (notes A and I) 399,195 303,063 354,356 ----------- -------- --------- Net income $ 792,488 $ 596,876 $ 692,991 =========== =========== ========== Earnings per common share (notes A and R) Outstanding shares $3.25 $2.26 $2.56 Fully diluted $3.20 $2.24 $2.53 - --------------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements. STATEMENTS OF STOCKHOLDERS' EQUITY - --------------------------------------------------------------------------------
Raytheon Company and Subsidiaries Consolidated Additional Common Stock Paid-in Equity Retained ------------ Years Ended December 31, 1995, 1994, and 1993: Shares Par Value Capital Adjustments Earnings - ------------------------------------------------------------------------------------------------------------------- (In thousands) Balance at December 31, 1992 As previously reported 135,660 $135,660 $273,559 $(7,068) $3,441,083 Two-for-one stock split (note R) 135,660 135,660 (135,660) ------- -------- -------- ------- ---------- As restated 271,320 271,320 137,899 (7,068) 3,441,083 Net income 692,991 Dividends declared--$.70 per share (189,827) Proceeds under common stock plans 3,334 3,334 65,632 Treasury shares purchased (3,956) (3,956) (2,452) (107,990) Treasury shares received on exercise of stock options (270) (270) (7,804) Foreign exchange translation adjustments 4,755 FAS No. 87 pension adjustment 213 ------- ------- ------- -------- --------- Balance at December 31, 1993 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 ======= ======== ========= ======= ========== - ------------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements. STATEMENTS OF CASH FLOWS - -------------------------------------------------------------------------------- Raytheon Company and Subsidiaries Consolidated
Years Ended December 31: 1995 1994 1993 - ------------------------------------------------------------------------------------------------------------ (In thousands) Cash flows from operating activities Net income $ 792,488 $ 596,876 $ 692,991 Adjustments to reconcile net income to net cash provided by operating activities, net of the effect of acquired companies Depreciation and amortization 371,399 304,166 296,415 Net gain on sale of operating division (210,000) -- -- Gain on sale of an investment (27,846) (31,056) -- Decrease (increase) in accounts receivable 116,406 (221,218) (38,478) Decrease in contracts in process 173,655 72,875 3,658 Decrease (increase) in inventories 44,748 23,826 (98,270) (Increase) decrease in long-term receivables (11,577) 77,456 48,356 Sales of commuter airlines long-term receivables -- 302,800 -- (Decrease) increase in advance payments (216,762) 90,351 106,107 Increase (decrease) in accounts payable 37,003 71,820 (3,167) Increase (decrease) in federal and foreign income taxes 83,322 (138,889) 95,073 Other adjustments, net (18,667) (60,389) (152,628) ---------- ---------- -------- Net cash provided by operating activities 1,134,169 1,088,618 950,057 --------- --------- -------- Cash flows from investing activities Additions to property, plant, and equipment (328,617) (267,376) (256,131) Disposals of property, plant, and equipment 61,861 69,844 36,516 (Increase) decrease in other assets (133,729) (3,218) 14,825 Payment for purchase of acquired companies, net of cash received (2,341,522) (151,209) (566,400) Proceeds from sale of operating division 449,200 -- -- Proceeds from sale of an investment 10,160 85,113 -- All other, net 355 (6,875) (904) ----------- --------- --------- Net cash used in investing activities (2,282,292) (273,721) (772,094) Cash flows from financing activities ----------- --------- --------- Dividends (182,487) (192,681) (189,827) Increase in short-term debt 139,692 159,912 166,407 Increase (decrease) in long-term debt, net 1,463,213 (929) (894) Purchase of treasury shares (320,013) (804,910) (114,398) Proceeds under common stock plans 59,274 38,386 68,966 All other, net (4,612) (4,122) (7,169) ----------- --------- --------- Net cash provided by (used in) financing activities 1,155,067 (804,344) (76,915) ----------- --------- --------- Effect of foreign exchange rates on cash 732 264 343 ----------- --------- --------- Net increase in cash and cash equivalents 7,676 10,817 101,391 Cash and cash equivalents at beginning of year 200,938 190,121 88,730 ----------- --------- --------- Cash and cash equivalents at end of year $208,614 $200,938 $190,121 ======== ======== ======== - ------------------------------------------------------------------------------------------------------------ The accompanying notes are an integral part of the financial statements.
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 1994 and 1993 financial statements and notes have been reclassified to conform with the 1995 presentation. 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(see note Q). 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. 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 produc- tion 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 acquired net assets 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 cost or fair market value. 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 $36,958,000, $32,552,000 and $22,108,000 in 1995, 1994, and 1993, respectively, for commission expense. 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, FSC (Foreign Sale Corporation) 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 non-cancelable 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 COSTS 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 Dec. 31, 1995, 1994, and 1993 were $6,911,000, $(3,463,000), and $151,000, respectively. Foreign exchange transaction gains and losses in 1995, 1994, and 1993 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 non-qualified stock options are credited to additional paid-in capital. The company will adopt 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 financial footnotes. The company expects to adopt the disclosure alternative. 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 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, 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 non-recurring 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. 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. Through year-end 1995, $240.4 million of restructuring costs has been incurred, of which $102.2 million was employee related costs and $138.2 million was related to asset disposals and idle facilties. The spending is expected to be completed early in 1996. 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 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 immaterial 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, 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 a financial institution. 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. NOTE B: CASH AND MARKETABLE SECURITIES
Cash and marketable securities consisted of the following at December 31: 1995 1994 - ----------------------------------------------------------------------------------------------------- (In thousands) Cash and cash equivalents $208,614 $200,938 Marketable securities 1,670 1,243 -------- -------- $210,284 $202,181 ======== ========
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 Dec. 31, 1995 and 1994, checks and amounts in transit amounted to $182,900,000 and $168,000,000, respectively. NOTE C: CONTRACTS IN PROCESS
Fixed Contracts in process consisted of the following at December 31, 1995: Cost Type Price Type Total - ------------------------------------------------------------------------------------------------------------------- (In thousands) 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 ======== ========== ========== Fixed Contracts in process consisted of the following at December 31, 1994: Cost Type Price Type Total - ------------------------------------------------------------------------------------------------------------------- (In thousands) U.S. government end-use contracts Billed $121,800 $ 163,998 $ 285,798 Unbilled 149,278 2,347,635 2,496,913 Less progress payments -- 1,461,302 1,461,302 -------- ---------- ---------- Total 271,078 1,050,331 1,321,409 -------- ---------- ---------- Other customers Billed 78,535 372,990 451,525 Unbilled 156,460 115,992 272,452 Less progress payments -- 94,116 94,116 -------- ---------- ---------- Total 234,995 394,866 629,861 -------- ---------- ---------- $506,073 $1,445,197 $1,951,270 ======== ========== ========== - -------------------------------------------------------------------------------------------------------------------
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 1996. Billed and unbilled contracts in process include retentions arising from contractual provisions. At Dec. 31, 1995, retentions amounted to $42,161,000 and are anticipated to be collected as follows: 1996--$30,305,000, 1997--$5,814,000, and the balance thereafter. Note D: Inventories
Inventories consisted of the following at December 31: 1995 1994 - -------------------------------------------------------------------------------------------------------------------------- (In thousands) Finished goods $ 596,080 $ 666,654 Work in process 728,792 812,626 Materials and purchased parts 456,402 379,842 Excess of current cost over LIFO values (176,725) (179,428) ---------- ---------- 1,604,549 1,679,694 Less progress payments 101,566 180,236 ---------- ---------- $1,502,983 $1,499,458 ========== ========== - --------------------------------------------------------------------------------------------------------------------------
The inventory values from which the excess of current cost over LIFO values are deductible were $488,765,000 and $527,161,000 at Dec. 31, 1995 and 1994, respectively. Note E: Property, Plant, and Equipment
Property, plant, and equipment consisted of the following at December 31: 1995 1994 - -------------------------------------------------------------------------------------------------------------------------- (In thousands) Land $ 53,090 $ 47,464 Buildings and leasehold improvements 1,184,072 926,628 Machinery and equipment 2,852,721 2,672,010 Equipment leased to others 25,866 44,899 ---------- ---------- 4,115,749 3,691,001 Less accumulated depreciation and amortization 2,531,714 2,330,221 ---------- ---------- $1,584,035 $1,360,780 ========== ========== - --------------------------------------------------------------------------------------------------------------------------
Accumulated amortization of equipment leased to others was $3,981,000 and $6,926,000 at Dec. 31, 1995 and 1994, respectively. Future minimum lease payments from non-cancelable Aircraft operating leases, which extend to 2003, amounted to $7,686,000. At Dec. 31, 1995, these payments were due as follows: (In thousands) (In thousands) 1996 $1,478 1999 $ 776 1997 728 2000 776 1998 744 Thereafter 3,184 Note F: Other Assets Other assets consisted of the following at December 31: 1995 1994 - -------------------------------------------------------------------------------- (In thousands) Long-term receivables Due from customers in installments to 2010 $ 102,261 $ 105,422 Sales-type leases, due in installments to 2010 48,277 33,539 Other, principally due from 1996 through 2010 21,707 21,707 Investments 183,034 73,884 Deferred charges and other non-current assets 80,129 73,474 Excess of cost over assets of acquired companies (net of accumulated amortization of 2,532,358 725,260 $103.5 million at December 31, 1995 and $46.1 million at December 31, 1994) Intangible pension asset 13,925 15,837 ----------- ---------- $ 2,981,691 $1,049,123 =========== ========== - ------------------------------------------------------------------------------ Long-term receivables and sales-type leases due from customers, of $150.5 million at Dec. 31, 1995, and $139.0 million at Dec. 31, 1994, included commuter airline receivables of $47.1 million and $63.6 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 a fractional ownership in a defined pool of trade receivables to a financial institution. 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 +.31%. 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 the banks and outstanding at Dec. 31, 1995 and Dec. 31, 1994, was $1,755.8 million and $1,026.0 million, respectively, of which 1995 proceeds of $729.8 million included $629.8 million for commuter and general aviation aircraft. Note G: Notes Payable
Notes payable consisted of the following at December 31: 1995 1994 - ------------------------------------------------------------------------------------------------ (In thousands) Notes payable $ 56,086 $ 83,247 Commercial paper 1,148,391 947,757 Weighted average interest rate on: Average note payable borrowings 6.30% 5.55% Average commercial paper 5.94% 4.20% Notes payable borrowings at December 31 5.70% 6.32% Commercial paper at December 31 5.83% 5.92% Aggregate borrowings outstanding Maximum month-end balance $4,051,846 $1,223,800 Average during the year $2,362,599 $1,012,992 - ------------------------------------------------------------------------------------------------
Credit lines or commitments with banks were maintained by subsidiary companies amounting to $196.7 million in 1995 and $186.1 million in 1994. 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 $3.20 billion at Dec. 31, 1995 and $1.24 billion at Dec. 31, 1994. Through Dec. 31, 1995, there have been no borrowings under these lines of credit. Total interest payments were $196 million, $48 million, and $36 million for 1995, 1994, and 1993, respectively. Note H: Long-term Debt
Long-term debt consisted of the following at December 31: 1995 1994 - ------------------------------------------------------------------------------------------------------------------- (In thousands) 30 year 7.375 % debentures due 2025 and callable after July 15, 2005 $ 361,373 $ -- 10 year 6.5 % long-term notes due 2005, not callable prior to maturity 728,216 -- Commercial paper backed by 5 year fixed for variable interest rate swap at 6.40% 375,000 -- Notes (including $17,639,000 in 1995 and $12,378,000 in 1994 of mortgage notes 34,708 26,599 and industrial revenue bonds), interest in the range of 4.6% to 13.75% payable in installments, maturing at various dates from 1996 to 2009 Less installments due within one year 11,562 2,077 ---------- ------ $1,487,735 $24,522 ========== ======= - -------------------------------------------------------------------------------------------------------------------
The aggregate amounts of installments due for the next five years are: - ---------------------------------------------------------------------- (In thousands) (In thousands) 1996 $ 11,562 1999 $ 2,347 1997 4,563 2000 384,487 1998 1,238 - ---------------------------------------------------------------------- Interest expense on long-term debt charged to income was $52,122,000, $1,158,000, and $1,257,000 for 1995 through 1993, respectively. Commercial paper in the amount of $375,000,000 has been classified as long-term since the company has borrowed this amount backed by a 5 year Syndicated Bank Credit Agreement combined with a 5 year fixed for variable interest rate swap. During 1995, the company issued $375,000,000 of 30 year 7.375 percent debentures due in 2025 with callability after ten years and $750,000,000 of ten year 6.50 percent notes due in 2005. The proceeds of these debt issues were used for the financing requirements of the E-Systems, Inc. acquisition. The principal amounts of debt were reduced by discounts and debt issue costs at Dec. 31, 1995 as follows. - ------------------------------------------------------------------------------- 30 Year 10 Year Debentures Notes ---------- ------- (In thousands) Principal $375,000 $750,000 Unamortized issue discounts (9,190) (8,799) Unamortized interest rate hedging costs (4,437) (12,985) -------- -------- Net debt $361,373 $728,216 ======== ======== The company has bank agreement covenants which require that the ratio of total debt to total capitalization not exceed 55 percent at any time. The company was in compliance with these covenants during 1995 and 1994. 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: 1995 1994 1993 - --------------------------------------------------------------------------- (In thousands) Current income tax expense Federal $263,489 $400,482 $273,656 Foreign (23,347) 25,429 15,100 Deferred income tax expense Federal 123,858 (119,663) 66,700 Foreign 35,195 (3,185) (1,100) -------- --------- ------- $399,195 $303,063 $354,356 ======== ======== ======== - ------------------------------------------------------------------------------- The provision for income taxes for 1995 through 1993 differs from the U.S. statutory rate due to the following: 1995 1994 1993 - -------------------------------------------------------------------------- Tax at statutory rate 35.0% 35.0% 35.0% FSC tax benefit (2.0) (1.0) (0.5) Goodwill amortization 1.3 0.3 0.2 Recovery of foreign tax credits (0.5) (1.1) (0.4) Other, net (0.3) 0.5 (0.5) ----- ----- ----- 33.5% 33.7% 33.8% ===== ===== ===== - ------------------------------------------------------------------------------- In 1995, 1994, and 1993 domestic profit before taxes amounted to $1,126,332,000, $827,258,000, and $1,015,695,000, respectively, and foreign profit before taxes amounted to $65,351,000, $72,681,000, and $31,652,000, respectively. Actual cash income tax payments by year were $275,300,000, $425,800,000, and $248,800,000, respectively, for 1995, 1994, and 1993. In 1995, net deferred tax assets were increased by $175,813,000 at the time of the acquisition of E-Systems, Inc. Details of the balance sheet captions, "Federal and foreign income taxes, including deferred," at December 31, 1995, 1994 and 1993 are as follows:
1995 1994 1993 - ------------------------------------------------------------------------------------ (In thousands) Current deferred tax assets (liabilities): Inventory and other $ 78,377 $ 50,078 $ 52,643 Long-term contracts 115,992 97,054 (15,900) Restructuring reserve 3,261 55,055 -- Inventory capitalization 27,689 29,546 33,355 Other (17,803) (7,203) 6,503 --------- -------- --------- Net current deferred tax assets 207,516 224,530 76,601 Current period tax liability (10,805) (58,915) (80,583) --------- -------- --------- Federal and foreign income taxes, including deferred -- current $ 196,711 $ 165,615 $ (3,982) ========= ========= ========= Non-current deferred tax assets (liabilities): Depreciation $(115,819) $ (97,095) $ (91,860) Revenue on leases (79,237) (27,596) (9,035) Postretirement benefits 103,014 -- -- Other (8,755) (9,880) (8,595) --------- -------- --------- Net non-current deferred tax liabilities (100,797) (134,571) (109,490) --------- -------- --------- Federal and foreign income taxes, including deferred -- non-current $(100,797) $(134,571) $(109,490) ========= ======== ========= - -----------------------------------------------------------------------------------------
Note J: Commitments and Contingencies At Dec. 31, 1995, the company had commitments under long-term leases requiring approximate annual rentals on a net lease basis as follows: - ------------------------------------------------------------------------------- (In thousands) (In thousands) 1996 $74,815 1999 $ 41,440 1997 64,757 2000 34,332 1998 52,025 Thereafter 201,087 - ------------------------------------------------------------------------------- Rental expense for 1995, 1994, and 1993 amounted to $102,925,000, $79,887,000, and $69,870,000, 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 $750 million. This coverage also includes the excess of liability over $10 million per occurrence. The Aircraft product liability reserve at December 31, 1995 was $29.6 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 immaterial. 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. 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 $979 million and $519 million of these contingent obligations, net of related outstanding advance payments, were outstanding at December 31, 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 difficult to determine, 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. Note K: Capital Stock Holders of each outstanding share of common stock also hold one quarter of a preferred stock purchase right. Under certain conditions, each whole right may be exercised to purchase one one-hundredth of a share of a new series of participating preferred stock at an exercise price of $180, subject to certain anti-dilution provisions. Under certain circumstances, the rights entitle holders to purchase stock having a value of twice the exercise price of the rights. The rights would become transferable apart from the common stock, only 10 days after a person or group acquired 20 percent or more or announced or made a tender offer which, if completed, would result in that person or group owning 25 percent or more of the common stock. The rights would become exercisable in the event that any person or group acquires 25 percent or more of the company's common stock. Under certain circumstances, all rights owned or beneficially owned by any acquiring person will be null and void. Rights may be redeemed by the company at any time prior to the occurrence of certain events at $.05 per right. The company has reserved for issuance upon exercise of the rights 1,000,000 shares of Series A Junior Participating Serial Preferred Stock. Note L: Employee Stock Plans The 1976 Stock Option Plan provides for the grant of both incentive and non- qualified options at an exercise price which is 100 percent of the fair market value on the date of grant. The 1991 Stock Plan provides for the grant of incentive options at an exercise price which is 100 percent 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 non-qualified options at an exercise price which is not less than 100 percent 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 prior to Jan. 1, 1987 may not be exercised while a previously granted incentive option remains outstanding; this limitation does not apply to non-qualified options issued under the plans. Incentive options granted after Dec. 31, 1986 first become exercisable to a maximum of $100,000 per year. Non-qualified options terminate 11 years from 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. Information for the years 1992 through 1995 with respect to the plans are as follows: Stock Options Shares Option Price - --------------------------------------------------------------------- (In thousands) Outstanding at December 31, 1992 8,990 $ 9.30 to $25.34 Granted 1,538 26.09 to 31.91 Exercised (3,366) 9.30 to 25.34 Expired (108) 10.55 to 31.91 ------ Outstanding at December 31, 1993 7,054 $ 9.77 to $31.91 Granted 3,688 31.13 to 33.31 Exercised (1,452) 9.77 to 29.63 Expired (132) 10.55 to 32.88 ------ Outstanding at December 31, 1994 9,158 $11.13 to $33.31 Granted 4,071 33.00 to 43.50 Exercised (2,132) 11.13 to 33.31 Expired (316) 13.75 to 39.03 ------ Outstanding at December 31, 1995 10,781 $15.25 to $43.50 ===== - ---------------------------------------------------------------------- These options expire at various dates through April 2006. Options for 7,319,000 shares were exercisable at prices ranging from $15.25 to $33.31 at Dec. 31, 1995. Awards of 256,000, 380,000 and 82,000 shares of restricted stock were made to employees in 1995, 1994, and 1993, respectively. There were 51,383,000, 13,765,000, and 15,437,000 shares of common stock (including shares held in treasury) reserved for stock options and restricted stock awards at Dec. 31, 1995, 1994, and 1993, respectively. Note M: 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 $31,156,000, $29,908,000, and $77,161,000 in 1995 through 1993, respectively. Foreign pension expense was $8,287,000, $4,866,000, and $6,118,000 in 1995 through 1993, respectively. Net periodic pension cost for the company and its subsidiaries in 1995 through 1993 included the following components:
Year ending December 31: 1995(1) 1994 1993 - ----------------------------------------------------------------------------------------------------------- (In thousands) Service cost--benefits earned during the period $ 98,207 $ 95,537 $ 96,915 Interest cost on projected benefit obligation 267,891 218,118 217,132 Actual (gain)/loss on assets (955,942) 37,612 (334,134) Net amortization and deferral 626,217 (323,866) 96,229 Curtailment adjustments (7,815)(2) -- -- --------- --------- -------- Net periodic pension costs 28,558 27,401 76,142 Defined contribution pension plans 2,598 2,507 1,019 --------- --------- -------- Total pension costs $ 31,156 $ 29,908 $ 77,161 ========= ========== ======== Assumptions used in the accounting were: Discount rate 7.50% 8.25% 7.75% Expected long-term rate of return on assets 9.0% 9.0% 9.0% Rate of increase in compensation levels 4.5% 5.0% 5.0% - ------------------------------------------------------------------------------------------------------------
The following table sets forth the funded status of the plans at:
December 31, 1995 (1) December 31, 1994 ----------------------------------------------------------------- Assets Exceed Accumulated Assets Exceed Accumulated Accumulated Benefits Accumulated Benefits Benefits Exceed Assets Benefits Exceed Assets - -------------------------------------------------------------------------------------------------------------------------------- (In thousands) Actuarial present value of benefit obligations: Vested benefit obligation $(3,399,386) $ (57,583) $(2,439,495) $(45,734) =========== ========= =========== ======== Accumulated benefit obligation $(3,538,658) $ (68,021) $(2,511,274) $(46,390) =========== ========= =========== ======== Projected benefit obligation $(3,998,382) $ (74,544) $(2,842,534) $(50,095) Plan assets at fair value 4,451,725 -- 3,031,587 4,368 ----------- --------- ----------- -------- Projected benefit obligation (in excess of) or less than plan assets 453,343 (74,544) 189,053 (45,727) Unrecognized net (gain) or loss (411,413) 11,907 (178,913) 12,017 Prior service cost not yet recognized in net periodic pension cost 212,270 13,723 202,730 15,302 Unrecognized net obligations (assets) at transition (42,652) 1,138 (48,720) 1,366 Adjustment required to recognize additional minimum liability - (21,330) - (25,068) ----------- --------- ----------- -------- Prepaid pension cost (liability) $ 211,548 $ (69,106) $ 164,150 $(42,110) =========== ========= =========== ======== - -----------------------------------------------------------------------------------------------------------------------------------
Plan assets primarily include equity and fixed income securities and, in addition to normal funding contributions, include prepayments of $60,719,000, $1,900,000, and $32,700,000 made in 1995, 1994 and 1993 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. NOTE M: PENSION AND OTHER EMPLOYEE BENEFITS (continued) 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 employee 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 non-contributory 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 1995, 1994, and 1993 included the following components :
Year ending December 31: 1995 (1) 1994 1993 - ------------------------------------------------------------------------------------------------------------------ (In thousands) Service cost--benefits earned during the period $ 8,265 $ 5,546 $ 8,346 Interest cost on accumulated postretirement benefit obligation 47,906 37,355 44,180 Actual (gain)/ loss on assets (8,283) 600 (3,757) Net amortization and deferral 16,041 18,514 24,841 Special termination benefits 18,900(3) - - --------- --------- --------- Net postretirement benefit cost $ 82,829 $ 62,015 $ 73,610 ========= ========= ========= Assumptions used in the accounting were: Discount rate 7.50% 8.25% 7.50% Expected long-term rate of return on assets 8.50% 8.50% 8.50% Rate of increase in compensation levels 4.50% 5.00% 5.00% Health care trend rate in the first year 7.50% 8.00% 10.00% Gradually declining to a trend rate of 5.00% 5.00% 5.00% In the years 2001 & beyond 2001 & beyond 2004 & beyond - ------------------------------------------------------------------------------------------------------------------ The following amounts are recognized in the balance sheet at December 31: 1995(1) 1994 1993 - ------------------------------------------------------------------------------------------------------------------ Accumulated postretirement benefit obligation (In thousands) Retirees $(516,767) $(356,573) $(381,084) Active employees eligible for benefits (32,339) (45,501) (55,519) Active employees not yet eligible for benefits (138,888) (73,674) (83,252) --------- --------- --------- Total obligation (687,994) (475,748) (519,855) Plan assets at fair value 175,172 105,983 77,052 --------- --------- --------- Total obligation (in excess of) plan assets (512,822) (369,765) (442,803) Unrecognized net (gain) (127,279) (89,074) (48,624) Unrecognized prior service cost (14,214) - - Unrecognized net obligation at transition 390,079 446,786 471,616 ---------- --------- -------- Accrued postretirement benefit cost $(264,236) $ (12,053) $ (19,811) ========= ========= ========= 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 $ 3,055 $ 3,706 $ 3,073 Accumulated postretirement benefit obligation $ 37,979 $ 38,262 $ 31,574 - -----------------------------------------------------------------------------------------------------------------------
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 $9,240. 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 $64,563,000, $49,436,000, and $42,761,000 for 1995 through 1993, respectively. The company's annual contribution to the Raytheon Employee Stock Ownership Plan 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 $11,748,000, $11,768,000, and $10,964,000 for 1995 through 1993, respectively. (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 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 work force 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. Note N: Business Segment Reporting For information regarding business segment reporting for 1995, 1994, and 1993, see page 46. Note O: Acquisitions and Divestitures The company has included in its consolidated results of operations the acquisitions under the purchase method of accounting for the following companies: E-Systems, Inc., assets of Litwin Engineers & Constructors, and Anschuetz. Cash paid for the acquisitions, net of cash acquired, was $2.342 billion and goodwill of $1.814 billion was recorded. During the year the company also sold D.C. Heath, its educational publishing unit, for $455 million. 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 neces- sarily 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. Note P: Quarterly Operating Results (unaudited) For information regarding quarterly operating results for 1995 and 1994, see page 47. Note Q: 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. The carrying value of notes receivable at December 31, 1995 and 1994 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 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 Dec. 31, 1995 and 1994 was estimated based on current rates offered to the company for similar debt with the same maturities and approximates the carrying value. - ----------------------------------------------------------------------------- At Dec. 31, 1995 and 1994, the company had outstanding interest rate swap agreements, with notional amounts, cross currency swap agreements and foreign currency forward exchange contracts which minimized or eliminated risk associated with interest rate changes and/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: - ----------------------------------------------------------------------------- 1995 1994 - ---------------------------------------------------------- (In thousands) Interest rate swaps $394,268 $ 20,367 Cross-currency swaps $ -- $ 14,864 Foreign exchange contracts $335,068 $316,600 - ----------------------------------------------------------------------------- The following table summarizes major currencies and contract amounts associated with foreign exchange contracts: - ----------------------------------------------------------------------------- 1995 1994 --------------------------------------------- (In thousands) Buy Sell Buy Sell -------- -------- -------- -------- Pound Sterling $ 25,007 $ 2,784 $ 38,300 $ 66,800 Japanese Yen 2,292 58,453 15,100 45,300 Netherlands Guilder 90,144 -- 49,400 -- German Mark 16,410 390 49,700 -- Canadian Dollar 35,562 2,021 10,100 -- French Franc 71,663 -- -- -- Australian Dollar 20,015 -- -- -- All others 6,885 3,442 12,800 29,100 -------- -------- -------- -------- Total $267,978 $ 67,090 $175,400 $141,200 ======== ======== ======== ======== - ----------------------------------------------------------------------------- Foreign currencies are translated at current rates at the reporting date. "Buy" amounts represent 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 6.4 percent to 10.4 percent at Dec. 31, 1995 and 1994, respectively. In addition, the cross-currency swaps reduced exposure to changes in foreign exchange rates. The contract carrying value of cross-currency swaps is considered to be fair value due to the company's practice of holding contracts to maturity where the principal payable is the same as the initial exchange. Foreign exchange forward contracts, used primarily to minimize fluctuations in the values of foreign currency payments and receipts, have maturities at various dates through July, 1998. Fair values for these contracts were determined by applying December 29, 1995 spot rates to the seven major currencies and comparing the U.S. dollar equivalents to the U.S. dollar contract amounts for the same currencies. The resulting difference was determined to be immaterial at the balance sheet date. 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 six weeks prior to the issuance of this debt. NOTE R: STOCK SPLIT On September 27, 1995, the Board of Directors voted to declare a two-for-one stock split. The additional shares resulting from the split were distributed on October 23, 1995 to stockholders of record, October 9, 1995. All share and per share information in this annual report has been adjusted to reflect the split. The company previously reported pre-split earnings per common share for 1994, 1993, and 1992 of $4.51, $5.11, and $4.72, respectively. 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. 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/ Peter R. D'Angelo /s/ Dennis J. Picard Executive Vice President and Chairman and Chief Financial Officer Chief Executive Officer 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, 1995 and 1994, and the related statements of income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1995. 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, 1995 and 1994, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. /s/ Coopers & Lybrand L.L.P. Boston, Mass. January 18,1996 EX-21 4 PRIMARY SUBS 1 EXHIBIT 21 SIGNIFICANT SUBSIDIARIES OF THE REGISTRANT Subsidiary Where Organized Percentage Owned E-Systems, Inc. Delaware 100% Raytheon Aircraft Company Kansas 100% Raytheon Engineers & Constructors, Inc. Delaware 100% EX-23 5 CONSENT OF EXPERTS 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 and 33-49033) and on Form S-3 (File Nos. 33-49045, 33-49269 and 33-59241) of our reports dated January 18,1996, on our audits of the consolidated financial statements and financial statement schedules of Raytheon Company and Subsidiaries Consolidated as of December 31, 1995 and 1994, and for each of the three years in the period ended December 31, 1995 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 20, 1996 EX-23 6 REPORTS OF EXPERTS 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 59 of the 1995 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, presents 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 18, 1996 EX-27 7 ART. 5 FDS FOR YEAR 10-K
5 1,000 12-MOS DEC-31-1995 DEC-31-1995 208,614 1,670 948,843 (22,043) 1,502,983 5,275,218 4,115,749 (2,531,714) 9,840,944 3,690,423 1,089,589 240,690 0 0 4,051,274 9,840,944 11,715,597 11,715,597 9,101,847 9,101,847 440,581 0 196,627 1,191,683 399,195 0 0 0 0 792,488 3.25 3.20
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