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 right. The emotional link with very best to continue to earn it. those who count on us is strong. We care and want to help. We have tried, for example, to bridge some of the aching distance between Sincerely, deployed servicemen and women and their families by supporting a program sponsored by the Freedom Calls Foundation, a non- profit, charitable organization. Supporting the foundation’s efforts, we have opened some of our facilities to service families so they can talk to and see their loved ones in Iraq via ․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․ video teleconference. Each “visit” has been . profoundly emotional and uplifting. To all of Chairman and CEO us at Raytheon, the importance of Mission Assurance is something we feel deeply. February 18, 2005
Remembering…
․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․ ․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․
Raytheon mourns the loss of Francis Burr and Joseph Sisco, each of whom served with distinction on Raytheon’s Board of Directors from 1977 to 1997. Dr. Sisco was a distinguished U.S. diplomat and President of American University whose important contributions to our world and our company are an enduring legacy. “Hooks” Burr was a prominent attorney and community supporter who left an indelible mark on institutions such as Massachusetts General Hospital, Harvard University and our company. It was an honor to know them both. – Bill Swanson
A Customer Focused Company
At Raytheon, we have a straightforward business Our customer relationships are built on a philosophy: If we help our customers foundation of trust. Trust deepens our partnership with succeed, then we will grow, and as we grow, our customers and our understanding of their needs. we will increase shareholder value. The people of Raytheon create superior integrated Customer focus is deeply woven into Raytheon’s solutions. This comes from our vast domain culture. At Raytheon, customer focus begins knowledge across the full spectrum of defense and with performance. Whether you are a passenger in a space platforms and our customer-centric approach Raytheon aircraft or a member of the armed to Mission Support solutions that ensure services relying on our technology, our dedication to customer success. Supporting the men and women Mission Assurance must be second to none. in uniform, and all who rely on our aircraft Our mantra,“promises made…promises kept,” and systems, is our priority. is deep within our culture. - , ,
Technology Leadership
Technical excellence has been a cornerstone of Raytheon’s Missile Technologies: Raytheon’s missile technologies success for over 80 years. Our four mission areas are are proven implementers of quick and decisive victories. developing next-generation technologies in Radio Frequency However, our recent expansion into non-lethal (RF); Electro-Optics (EO); Missile Technologies; and weapons provides additional tools ideally suited to the Command and Control, Communications, Computers and growing number of peacekeeping missions. Intelligence (C4I). Raytheon’s relentless focus on these technologies is sustained through Independent Research and Command and Control, Communications, Computers Development (IR&D), government-sponsored programs, and Intelligence: Raytheon’s C4I mission area is strategic industry partnerships, portfolio acquisitions dedicated to bringing order to the vast flow of intelligence and relationships with U.S. universities. and operational data, extracting useful knowledge out of the data and communicating decisions in a secure Radio Frequency: Raytheon’s RF technologies are central and timely manner. to a wide variety of missions. These include the network of U.S. missile defense sensors, air traffic management systems Raytheon’s technology solutions play a critical role for commercial airliners, fighter aircraft sensor suites, ship-based in security and defense, and this is what motivates us. This self-protection systems and tactical communication networks. passion is matched only by our activities to enhance math and science education across America in order to develop Electro-Optics: Our EO technologies can be found the next generation of scientists and engineers. in spacecraft, unmanned airplanes, ground vehicles and even in the hands of individual soldiers. EO is increasingly important in the Global War on Terror and allows our forces to “own the night.” ,
Mission Systems Integration
Raytheon’s unyielding commitment to our customers cuts across the enterprise as a motivating force behind our people, whether we are developing systems to defend the world from missile attack; securing our borders and protecting homelands; providing persistent intelligence, surveillance and reconnaissance; weaving distributed and seamless command and control environments to enable network centric operations; or providing our leaders with the capacity to engage our adversaries with precision to restore the peace.
At Raytheon, we leverage our domain knowledge across a range of core defense technologies to develop integrated mission systems that address the top priorities of our customers and help us create value for our shareholders.
Mission Support
Mission Support enables customer success by providing total expertise in modeling and simulation, supply chain life-cycle support that predicts customer needs, senses potential management, performance-based logistics, training and problems and proactively responds with the most appropriate obsolescence management. We are delivering comprehensive, solutions. This integrated approach, a natural evolution of innovative solutions to our customers’ ever-changing challenges. Raytheon’s world-class, after-sales support of the company’s products and systems, delivers a broad array of logistics These solutions transcend support of Raytheon’s products and support solutions to enhance readiness and deliver and enable us to build on our strong position superior operational availability for our customers. in the growing outsourcing, operations and maintenance market. Fusing information, logistics, transportation Responsive to growing customer demands for a reduced and other technologies allows us to provide our customers with logistics footprint, increased readiness, reduced response time vastly improved asset visibility and accessibility, and innovation, and greater cost efficiencies, Mission Support from sources of supply to point of need, so they can begins with concept development and refinement and extends confidently complete their missions. through modernization and upgrade, harnessing logistics and product support services across Raytheon’s businesses. Just as We are dedicated to partnering with customers to our capabilities have been built over decades of working in provide the right support, at the right place, at the right time partnership with our customers to enhance systems readiness in and in the right quantities – enhancing our customers’ the field, our mission-centric approach to full-spectrum technical and performance capability, enabling them to focus support involves whole-life partnerships with our customers. on their primary missions and ensuring mission success. No matter where, when or how customers require support to Today, support doesn’t begin after initial fielding; it is designed accomplish their missions, Raytheon is there. into our systems, leveraging Raytheon’s technological ™ ®
Mission Assurance
Mission Assurance is in the DNA of this company. Embedded in the culture of Raytheon is the commitment to meld our technology into the most reliable integrated mission systems in the world to address urgent defense, security and aircraft needs.
The people of Raytheon understand how to use our cutting-edge process knowledge to provide Mission Assurance for our customers. When members of the armed forces rely on our technology for their own defense, or passengers settle into a Beechcraft® or Hawker® aircraft, there should be no doubt that our systems will work. e a ․․․․․․․․․․․․․․․․ ․․․․․․․․․․․․․․․․ c g ․․․․․․․․․․․․․․․․ ․․․․․․․․․․․․․․․․ Missile Systems Raytheon b Intelligence and Aircraft f ․․․․․․․․․․․․․․․․ Information Company ․․․․․․․․․․․․․․․․ Raytheon Systems d Technical h ․․․․․․․․․․․․․․․․ Space and Services ․․․․․․․․․․․․․․․․ Raytheon Airborne Company Systems Systems Network Limited™ Integrated Centric Systems Defense Systems
A Vision of Diversity