2004 Raytheon Annual Report
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Focused on the Customer 2004 annual report Board of Directors ․․․․․․․․․․․․․․․․․․․․․․․․․ ․․․․․․․․․․․․․․․․․․․․․․․․․ ․․․․․․․․․․․․․․․․․․․․․․․․․ ․․․․․․․․․․․․․․․․․․․․․․․․․ ․․․․․․․․․․․․․․․․․․․․․․․․․ . . . . . , .** Chairman and CEO Institute Professor Chairman and Retired President and Chairman and Raytheon Company Massachusetts Institute of Chief Executive Officer Chief Executive Officer Chief Executive Officer Technology American Standard Data General Corporation Cypress International Inc. ․․․․․․․․․․․․․․․․․․․․․․․․․ ․․․․․․․․․․․․․․․․․․․․․․․․․ Companies, Inc. ․․․․․․․․․․․․․․․․․․․․․․․․․ Retired General, U.S. Army . . ․․․․․․․․․․․․․․․․․․․․․․․․․ . Former Commander-in- International Business and President Emeritus . * Retired President and Chief of the United Nations Aviation Attorney California Institute of of Counsel Chief Executive Officer Command, Republic of ․․․․․․․․․․․․․․․․․․․․․․․․․ Technology Paul, Weiss, Rifkind, Luminent, Inc. Korea/United States Wharton Garrison ․․․․․․․․․․․․․․․․․․․․․․․․․ Combined Forces/United - ․․․․․․․․․․․․․․․․․․․․․․․․․ . States Forces Korea Retired Chairman and . Partner Chief Executive Officer Chairman Stuntz, Davis Staffier, P.C. *Lead Director Cabot Industrial Trust EMC Corporation **Retiring effective “2004 was a strong year with May 4, 2005 record orders of $25.7 billion; sales Leadership Team of $20.2 billion – a 12% increase Clockwise from upper left: Rebecca R. Rhoads, Jay B. Stephens, Donald M. Ronchi, Charles E. Franklin, Keith J. Peden, John D. Harris II, Edward S. Pliner, Thomas M. Culligan, Lawrence J. Harrington, Gregory S. Shelton, James E. Schuster, over 2003; record backlog of Michael D. Keebaugh, Daniel L. Smith, Louise L. Francesconi, William H. Swanson, Jack R. $32.5 billion; $2.1 billion of net Kelble, Colin J.R. Schottlaender, Bryan J. Even ․․․․․․․․․․․․․․․․․․․․․․․․․ ․․․․․․․․․․․․․․․․․․․․․․․․․ . . debt reduction; and 32% total Chairman and CEO Chairman and Raytheon Company Chief Executive Officer ․․․․․․․․․․․․․․․․․․․․․․․․․ Raytheon Aircraft Company return for our shareholders.” . ․․․․․․․․․․․․․․․․․․․․․․․․․ Executive Vice President . Business Development, RII Vice President ․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․ Raytheon Company ․․․․․․․․․․․․․․․․․․․․․․․․․ ․․․․․․․․․․․․․․․․․․․․․․․․․ ․․․․․․․․․․․․․․․․․․․․․․․․․ Engineering, Technology, . ․․․․․․․․․․․․․․․․․․․․․․․․․ . . . Manufacturing and Quality . Vice President President Vice President and Raytheon Company Chairman and CEO President Internal Audit Space and Airborne Systems Chief Information Officer ․․․․․․․․․․․․․․․․․․․․․․․․․ Raytheon Technical Raytheon Company ․․․․․․․․․․․․․․․․․․․․․․․․․ Raytheon Company . Services Company LLC ․․․․․․․․․․․․․․․․․․․․․․․․․ . ․․․․․․․․․․․․․․․․․․․․․․․․․ President ․․․․․․․․․․․․․․․․․․․․․․․․․ . Senior Vice President . Integrated Defense Systems . Vice President Human Resources Vice President ․․․․․․․․․․․․․․․․․․․․․․․․․ President Contracts Raytheon Company Six Sigma, Supply . Missile Systems Raytheon Company ․․․․․․․․․․․․․․․․․․․․․․․․․ Chain and Learning Senior Vice President and ․․․․․․․․․․․․․․․․․․․․․․․․․ ․․․․․․․․․․․․․․․․․․․․․․․․․ . Raytheon Company General Counsel . . Senior Vice President and ․․․․․․․․․․․․․․․․․․․․․․․․․ Raytheon Company Vice President President Chief Financial Officer .. Company Evaluation Team Intelligence and Raytheon Company Raytheon Company Information Systems President Design by Addison www.addison.com Addison Design by Network Centric Systems Dear Fellow Shareholders, . Chairman and CEO Raytheon had a strong year in 2004. We said that we would focus on predictable performance, strong rela- tionships and innovative customer solutions. We did what we said we were going to do and then some. Our focus on the customer is paying dividends and, more importantly, we continue to build on the trust and confidence our customers have in Raytheon, which is reflected in our growth. Total sales rose 12 percent in 2004 to $20.2 bil- Raytheon’s operating cash flow was $2.1 bil- lion, Government and Defense operating lion for the year. The company’s net debt income increased 30 percent, and Govern- was $4.6 billion at the end of 2004 compared ment and Defense backlog was $29.6 billion at with $6.7 billion at the end of 2003. Since the the end of the year, up $4.5 billion over year- beginning of 2000, we have reduced net debt end 2003. Raytheon Aircraft’s performance by more than half. was much improved, reflecting a continued focus on the fundamentals, a better general The improvement in our balance sheet aviation market and a renewed luster to the enabled the Board of Directors near the end Beechcraft® and Hawker® aircraft brands. of the year to approve plans to increase the While Raytheon’s income from continuing annual dividend by 10 percent and to autho- operations was lower in 2004 than 2003, this rize the repurchase of up to $700 million of was primarily due to the settlement of a class outstanding common stock. We also plan to action shareholder lawsuit, which put the continue to pay down debt, which will make uncertainty of this litigation behind us. our balance sheet even stronger. in Tucson, which was featured in a front-page article in The Wall Street Journal. That’s what we accomplished. But what is the • Process discipline. We believe this helps us context for our accomplishments? become more predictable in everything we • Customer focus. This is primary. We do, from program management to software believe that customer focus creates customer development. Raytheon Six Sigma™ (R6σ™), success, that customer success drives growth for example, has become part of the DNA and that growth creates shareholder value. structure of our company. With tens of thou- • Performance. Performance is basic to sands of R6σ Specialists, hundreds of Experts, everything we do, which is why we want to and dozens of Master Experts, R6σ is embed- take it to a new level. We believe that customer ded in the company. Over the years, the appli- and shareholder confidence are earned by cation of R6σ has transitioned from cash meeting commitments. management to program performance, engi- • Relationships. We are a company that neering and suppliers, and now to growth. listens and builds on trust. • Global presence. Our focus on relation- • Solutions. This starts with understanding ships and solutions helped drive growth in our customers’ needs and then responding our international business in 2004. Progress with appropriate solutions. We have a diversi- included selection for the assessment phase fied portfolio of thousands of programs. Our of the British Army’s Joint Effects Tactical strength is in developing and integrating the Targeting System; an award for F/A-18 electronic and information systems that Hornet flight simulators for the Royal empower defense “platforms” such as ships, Australian Air Force; and the selection of tanks and planes. Our engineers and scientists upgrades and other elements for Japan’s are domain experts in all elements that make emerging missile defense capabilities. up a mission – from “intelligence” to “effects.” • Talent. Raytheon is blessed with highly In other words, we have an understanding of skilled employees. It is essential that we the elements and we know how to put the attract and retain talent to develop the inno- pieces together to achieve the objectives of the vative solutions to meet our customers’ mission. This knowledge enables us to make future needs. If we are to do this successfully, the elements work better together, allowing us we will need to draw on a large, diverse pool to be a trusted partner on any mission. of talent and to take the societal steps • Technology leadership. Raytheon engineers necessary to ensure we have future genera- and scientists are working on an incredible tions of engineers and scientists. Along these range of exciting solutions, from an X-band lines, Raytheon was proud to pledge thin radar aperture for advanced airborne $850,000 to Tuskegee University to provide systems to research into fields that would scholarships for highly talented undergradu- once have been considered science fiction at ate students majoring in engineering and places like our Missile Systems’ “Bike Shop” computer science. • Integrity. I define integrity as treating the company’s name as if it were one’s own. This stewardship starts with me and with the Board of Directors, and ultimately extends to All of these aspects are important and they are all 80,000 employees. For this reason, all of us all related to being a company that is focused on the Board have participated in an ethics on customer success and shareholder value. training program tailored to the Board’s That’s because we believe that if we help our unique responsibilities, and we have a well- customers succeed, we will create the right established ethics training program for all of conditions to meet the needs of our sharehold- our employees. ers and our other stakeholders. • Mission Assurance. We want our customers to never, ever have a doubt when they see the There’s nothing magic about it. We will Raytheon name on anything. Whether the concentrate on the fundamentals and on user of our systems and services is a soldier, harnessing the energy of our entire team. We sailor, airman or Marine; a researcher in the believe this is the way to meet the needs of all Antarctic; an air traffic controller; or a pas- who rely on us. senger or pilot in one of our Beechcraft® or Hawker® aircraft – our customers depend on Thank you for your support. We will do our us to do the job