EX-99 5 0005.txt 1 Exhibit 99.2 Raytheon Employee Savings and Investment Plan Financial Statements to Accompany 1999 Form 5500 Annual Report of Employee Benefit Plan Under ERISA of 1974 For the Year Ended December 31, 1999 The supplemental schedules to the Plan's Form 5500 are not required since the Plan's assets are held in a Master Trust. Accordingly, the Plan administrator must file detailed financial information, including the supplemental schedules, separately with the Department of Labor. 2 Report of Independent Accountants To the Participants and Administrator of The Raytheon Employee Savings and Investment Plan In our opinion, the accompanying statements of net assets available for plan benefits and the related statements of changes in net assets available for plan benefits present fairly, in all material respects, the net assets available for plan benefits of the Raytheon Employee Savings and Investment Plan (the "Plan") at December 31, 1999 and December 31, 1998, and the changes in net assets available for plan benefits for the year ended December 31, 1999 in conformity with accounting principles generally accepted in the United States. These financial statements are the responsibility of the Plan's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States, which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. As discussed in Notes A and K to the financial statements, the Plan was amended to merge and consolidate the Plan into the Raytheon Savings and Investment Plan. PricewaterhouseCoopers LLP Boston, Massachusetts June 16,2000 3 Statements of Net Assets Available for Plan Benefits As of December 31, 1999 and 1998 1999 1998 Assets Master trust investments: At contract value (Notes B, E and M): Investment contracts $152,581,183 $ 20,713,337 Common collective trust 2,741,885 405,365 At fair value (Notes B and M): Registered investment companies 189,241,065 31,699,672 Common collective trust 62,574,915 10,496,295 Raytheon Company common stock 85,131,829 8,925,215 Common stock 7,967,256 - Participant loans 44,414,163 6,229,708 ------------ ------------ 544,652,296 78,469,592 ------------ ------------ Receivables: Employer contributions 3,556,816 - Accrued investment income and other receivables 947,795 75,163 Transfer receivable (Note J) - 210,313,280 Cash and cash equivalents 9,876,650 2,117,237 ------------ ------------ Total assets $559,033,557 $290,975,272 ------------ ------------ Liabilities Payable for outstanding purchases $ 356,829 $ 21,566 Accrued expenses and other payables 141,490 32,586 Transfer payable (Note K) 558,535,238 - ------------ ------------ Total liabilities $559,033,557 $ 54,152 ------------ ------------ Net assets available for plan benefits $ - $290,921,120 ============ ============ The accompanying notes are an integral part of these financial statements. 4 Statement of Changes in Net Assets Available for Plan Benefits For the Year Ended December 31, 1999 Additions to net assets attributable to: Investment income (Notes B, E and M): Net depreciation of investments $(39,103,026) Interest and dividends 30,193,248 ------------ (8,909,778) Contributions and deferrals: Employee deferrals 44,477,008 Employer contributions 23,990,930 Transfers (Note J) 274,605,975 ------------ 343,073,913 Total additions 334,164,135 ------------ Deductions from net assets attributable to: Distributions to participants 50,443,869 Administrative expenses 72,190 Transfers and Plan merger (Note I and K) 574,569,196 ------------ Total deductions 625,085,255 ------------ Decrease in net assets (290,921,120) Net assets, beginning of year 290,921,120 ------------ Net assets, end of year $ - ============ 5 Notes to Financial Statements A. Description of Plan General The following description of the Raytheon Employee Savings and Investment Plan (the "Plan") provides only general information. Participants should refer to the plan document for a complete description of the Plan's provisions. As more fully described in Note K, effective January 1, 2000 the participants and related account balances of the Plan were merged into the Raytheon Savings and Investment Plan (RAYSIP). The Plan's provisions were adopted by the RAYSIP and effective December 31, 1999 the Plan ceased to exist as a separate entity. As more fully described in Note J, effective January 1, 1999, the participants and related account balances of several defined contribution plans (collectively referred to as "Prior Plans") were merged into the Plan. The Plan is a defined contribution plan and covers the employees of the Raytheon Support Services Company and the Range Systems Engineer Support Company, respectively, wholly-owned subsidiaries of Raytheon Company (the "Company"). To participate in the Plan, eligible employees must have three months of service and may enter the Plan only on the first day of each month. Effective January 1, 1999, certain union employees of the former Raytheon Systems Company, Cedar Rapids, Inc. and Raytheon Aircraft Company who participated in Prior Plans were merged into the Plan and all eligible employees, including those from Prior Plans, may join the Plan immediately. In addition, the Raytheon Stock Ownership Plan for Specified Hourly Payroll Employees (referred to as the "Prior ESOP Plan") was merged into the Plan and created an additional employee stock ownership portion (ESOP) of the Plan. The purpose of the Plan is to provide participants with a tax-effective means of meeting both short and long-term investment objectives. The Plan is intended to be a "qualified cash or deferred arrangement" under the Internal Revenue Code (the "Code"). The ESOP is intended to be an employee stock ownership arrangement in compliance with all of the related requirements for a qualified stock bonus plan as defined in the Code. The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974 (ERISA). The Plan's investments are combined with the investments of other similar defined contribution plans of the Company into the Raytheon Company Master Trust for Defined Contribution Plans (the "Master Trust"). The trustee of the Master Trust maintains a separate account reflecting the equitable share in the Master Trust of each plan. Investment income and administrative expenses relating to the Master Trust are allocated to the individual plan based upon average monthly balances invested by each plan. 6 Contributions and Deferrals Effective January 1, 1999, eligible employees at certain divisions of the former Raytheon Systems Company may defer up to 20%, depending upon division. For 1999, the annual employee deferral for a participant would not exceed $10,000. Rollover contributions from other qualified plans are accepted by the Plan. In addition, for certain union employees at the former Raytheon Systems Company, Cedar Rapids, Inc. and Raytheon Aircraft Company, the Company will match amounts ranging from 1.5% to 4% of compensation. The Company match is participant directed at certain divisions. At divisions where the Company match is not participant directed, the match shall be made to the Raytheon Common Stock Fund and must be held in that fund until the beginning of the fifth plan year following the plan year for which the contribution was made. For certain divisions, the Company will also make qualified non-elective contributions (QNECs), employer contributions based on hours of service or percent of pay and/or ESOP contributions. When applicable, ESOP contributions are equal to one-half of one percent of the participant's compensation. The ESOP portion of the Plan provides for investment, primarily in Raytheon Company Class B common stock; however, as required by the Code, the Plan permits limited diversification after a participant attains age 55 or completes 10 years of plan participation (including participation in the Prior ESOP Plan). Participants may invest their deferrals in increments of 1% in any combination of fourteen funds. The investment objectives of the funds range from conservative investments with an emphasis on preservation of capital to equity investments with an emphasis on capital gains. The underlying assets that make up the funds include cash and equivalents, investment contracts, registered investment companies. Participant Accounts Each participant's account is credited with the participant's deferral, any applicable employer contributions (QNECs, matching contributions, employer or ESOP) and an allocation of Plan earnings. Plan earnings are allocated based on account balances by fund. Participant's accounts are debited with an allocation of Plan expenses. Vesting Participants are immediately vested in their voluntary deferrals and employer contributions plus actual earnings thereon for each participant who performs an hour of service or after January 1, 1999. Certain union employees at the former Raytheon Systems Company, Cedar Rapids, Inc. and Raytheon Aircraft Company, whose accounts merged into the Plan effective January 1, 1999, will retain the vesting schedule from their Prior Plan. Vesting requirements for employer contributions plus earnings thereon may vary depending upon when an employee became eligible to participate in the Prior Plan. Vesting generally occurs upon completion of five years of service or upon three years of Plan participation or upon retirement, death, disability, or attainment of normal retirement age. Forfeitures of the non-vested portions of terminated participants' accounts are used to reduce required contributions of the Company. During 1999, the total amount of forfeitures from the plan was $76,773. Distributions to Participants A participant may withdraw all or a portion of deferrals, employer contributions and related earnings upon attainment of age 59 1/2. For reasons of financial hardship, as defined in the plan document, a participant may withdraw all or a portion of deferrals. On termination of employment, a participant will receive a lump-sum distribution unless the vested account is valued in excess of $5,000, and the participant elects to defer distribution. A retiree or a beneficiary of a deceased participant may defer the distribution until January of the year following attainment of age 65. 7 Loans to Participants A participant may borrow against a portion of the balance in the participant's account, subject to certain restrictions. The maximum amount of a loan is the lesser of one-half of the participant's account balance or $50,000. The minimum loan which may be granted is $500. The interest rate applied is equal to the prime rate published in the Wall Street Journal on the first business day in June and December of each year. Loans must be repaid over a period of up to five years by means of payroll deductions. In certain cases, the repayment period may be extended up to 15 years. Interest paid to the Plan on loans to participants is credited to the borrower's account in the investment fund to which repayments are made. Administrative Expenses The Plan participants pay substantially all expenses of administering the Plan. B. Summary of Significant Accounting Policies The accompanying financial statements are prepared on the accrual basis of accounting. The provisions of AICPA Statement of Position 99-3 were adopted in 1999 and prior period financial statements and disclosures have been reclassified where appropriate. The Plan's investment contracts and common collective trust are fully benefit-responsive and are therefore included in the financial statements at their contract value, defined as net employee contributions plus interest earned on the underlying investments at contracted rates. Contract value approximates fair value. Investments in mutual funds and the common collective trust are valued at the closing net asset value reported on the last business day of the year. Investments in securities (common stocks) traded on a national securities exchange are valued at the last reported sales price on the last business day of the year. Cash equivalents are short-term money market instruments and are valued at cost, which approximates fair value. Participant loans are valued at cost, which approximates fair value. Security transactions are recorded on the trade date. Except for its investment contracts (Note E), the Plan's investments are held in a trust. Payable for outstanding security transactions represent trades which have occurred but have not yet settled. The Plan presents in the statement of changes in net assets the net appreciation (depreciation) in the fair value of its investments, which consists of the realized gains or losses and the unrealized appreciation (depreciation) on those investments. Dividend income is recorded on the ex-dividend date. Income from other investments is recorded as earned on an accrual basis. Investment income includes both dividend and interest income. 8 Benefits are recorded when paid. The preparation of the financial statements in conformity with generally accepted accounting principles requires the Plan administrator to make significant estimates and assumptions that affect the reported amounts of net assets and liabilities available for benefits at the date of the financial statements and the changes in net assets available for benefits during the reporting period and, when applicable, disclosures of contingent assets and liabilities at the date of the financial statements. Actual results could differ from the estimates included in the financial statements. The Plan provides for various investment options in any combination of stocks, bonds, fixed income securities, mutual funds and other investment securities. Investment securities are exposed to various risks, such as interest rate, market and credit risk. Due to the level of risk associated with certain investment securities and the level of uncertainty related to changes in the value of investment securities, it is at least reasonably possible that changes in risks in the near term would materially affect participants' account balances and the amounts reported in the statement of net assets available for plan benefits and the statement of changes in net assets available for plan benefits. C. Investments There were no investment that represented 5% or more of the Plan's net assets at December 31, 1998 due to transfer receivable for $210,313,280 (Note J) which made all investments equal to less than 5% of the Plan's net assets. There were no investments that represented 5% or more of the Plan's net assets at December 31, 1999 as there were no net assets due to the Plan merger and consolidation into RAYSIP (Note K). During the year ended December 31, 1999 the Plan's investments experienced a net depreciation as follows: Registered investment companies $ 7,294,448 Common collective trusts 11,577,692 Raytheon Company common stock (63,984,845) Common stock 6,009,679 ------------ $(39,103,026) ============ 9 D. Nonparticipant-Directed Investments Information about the net assets and the significant components of the changes in net assets relating to the nonparticipant-directed investments is as follows: December 31, 1999 1998 Net assets: Raytheon Company common stock $23,824,206 $43,673,432 Cash and cash equivalents 1,171,865 601,053 ----------- ----------- Total $24,996,071 $44,274,485 =========== =========== For the year ended December 31,1999 Changes in net assets: Contributions $ 8,353,812 Interest and dividends 8,179 Net depreciation of investments (23,893,377) Distributions to participants (2,782,479) Administative expenses (12,350) Net fund transfers (952,198) ------------ $(19,278,413) ============ E. Investment Contracts The Plan invests in collateralized fixed income investment portfolios which are managed by insurance companies and investment management firms. The credited interest rates are adjusted semiannually to reflect the experienced and anticipated yields to be earned on such investments, based on their book value. The annualized average yield and credited interest rates were as follows: Annualized Credited average interest yield rate For the year ended December 31, 1999: Chase Manhanttan Bank (429666) 5.69% 5.69% Deutsche Bank AG (FID-RAY-1) 5.59% 5.59% Fidelity IPL (633-GCDC) 5.75% 5.76% Fidelity STIF 5.22% 5.74% State Street Bank and Trust (99054) 5.70% 5.70% Westdeutsche Landesbank (WLB 6173) 5.69% 5.69% For the year ended December 31, 1998: Banker's Trust (WBS 92-485) 6.85% 6.85% Metropolitan Life Insurance Company (GIC GA-12908) 6.58% 6.58% Metropolitan Life Insurance Company (GIC GA-13659) 6.10% 6.10% Prudential Asset Management Company (GIC 917163-001) 6.75% 6.75% Connecticut General (GIC 0025174) 5.58% 5.58% Fidelity IPL (633-GCDC) 5.62% 5.62% Monumental Life Insurance Company (GIC BDA00463FR-00) 7.84% 7.84% 10 The contract values are subject to limitations in certain situations including large workforce reductions and plan termination. F. Federal Income Tax Status The Internal Revenue Service has determined and informed the Company by letter dated June 1995 that the Plan and related trust are designed in accordance with applicable sections of the Code. The Plan has been amended since receiving the determination letter. However, the Plan administrator and the Plan's legal counsel believe that the Plan is currently designed and being operated in compliance with applicable requirements of the Code. G. Plan Termination Although it has not expressed any intention to do so, the Company reserves the right under the Plan at any time or times to discontinue its contributions and to terminate the Plan subject to the provisions of ERISA. In the event of plan termination, after payment of all expenses and proportional adjustment of accounts to reflect such expenses, fund losses or profits, and reallocations, each participant shall be entitled to receive any amounts then credited to his or her account. H. Related Party Transactions The Plan's trustee is Fidelity Management Trust Company (the "Trustee"). The Trustee holds the funds for the Plan and is responsible for managing the Plan's investment assets, executing all investment transactions, recording approved transactions, and, therefore these transactions qualify as party-in-interest. In accordance with the provisions of the Plan, the Trustee acts as the Plan's agent for purchases and sales of shares of Raytheon Company common stock. These transactions are performed on a Master Trust level. For the Master Trust, purchases amounted to $721,986,347 and sales amounted to $204,780,412 for the year ended December 31, 1999. I. Transfers Transfers include transfers of participant accounts, individually and/or in groups, between the Plan and all other plans included in the Master Trust for those participants and/or groups of participants who changed plans during the year. Transfers also include transfers of participant accounts, individually and/or in-groups, between the Plan and similar savings plans of other companies for those participants who changed companies during the year. J. Transfer Receivable As part of an overall effort to minimize plan design differences and increase administrative efficiencies, the Board of Directors of Raytheon Company voted on December 16, 1998 to merge the participants and their account balances from several Prior Plans into the Plan. The Prior Plans ceased to exist on December 31, 1998 and effective January 1, 1999, the plan provisions of the Plan govern. 11 The transfer receivable by Prior Plan at December 31, 1998 is as follows: Raytheon Savings and Investment Plan for Specified Hourly Payroll Employees $109,994,457 Raytheon Tucson Bargaining Unit Employees Savings and Investment Plan 46,783,076 Raytheon Savings and Retirement Plan (10014) 18,676,997 Serv-Air, Inc. Savings and Retirement Plan 18,053,874 Raytheon Stock Ownership Plan for Specified Hourly Payroll Employees 16,804,876 ------------ Total $210,313,280 ------------ Subsequent to December 31, 1998, the Plan and RAYSIP were further amended with respect to the transfer amounts related to certain Prior Plans covering hourly payroll employees. The amounts shown above for the Raytheon Savings and Investment Plan for Specified Hourly Payroll Employees and the Raytheon Stock Ownership Plan for Specified Hourly Payroll Employees were increased to reflect a complete transfer of those specific plans into the Plan. Additionally, certain unions from the E-Systems, Inc. Employee Savings Plan were also merged into RESIP. These changes resulted in a net increase in the actual transfer receivable to the Plan as of December 31, 1998 of $274,605,975. This amount is reflected in the 1999 transfer activity. K. Transfer Payable In a continuing effort to improve administrative efficiencies, the Plan was amended and effective January 1, 2000 was merged into and consolidated with RAYSIP. The Plan ceased to exist as a separate plan after December 31, 1999 and effective January 1, 2000 the provisions of the RAYSIP were modified to incorporate the Plan provisions related to Plan eligible and certain union employees. As of December 31, 1999 the transfer payable to the RAYSIP is $558,535,238. This represents a complete transfer of all assets and obligations related to the Plan. L. Subsequent Event On April 14, 2000, the Company signed a definitive agreement with Morrison Knudsen to sell all of the stock of Raytheon Engineers & Constructors, Inc. and several subsidiaries. Employees of Raytheon Engineers & Constructors enrolled in the Plan will consequently be treated as vested terminated employees effective on the closing date of the transaction. 12 M. Master Trust The following is a summary of net assets available for plan benefits by Plan under the Master Trust of December 31, 1999:
Raytheon Raytheon Savings and Raytheon Employee Investment Raytheon Savings and Savings and Plan for Defined Investment Investment Puerto Rico Contribution Plan Plan Based Master Employees Trust Assets Master trust investments: At contract value: Investment contracts $1,365,686,304 $152,581,183 $ 200,776 $1,518,468,263 Common collective trust 24,541,396 2,741,885 3,608 27,286,889 At fair value: Registered investment companies 3,418,046,502 189,241,065 744,624 3,608,032,191 Common collective trust 897,408,197 62,574,915 233,408 960,216,520 Raytheon Company common stock 767,489,840 85,131,829 302,334 852,924,003 Common stock 279,907,944 7,967,256 - 287,875,200 Participant loans 224,811,843 44,414,163 126,313 269,352,319 -------------- ------------ ---------- -------------- Total investments 6,977,892,026 544,652,296 1,611,063 7,524,155,385 -------------- ------------ ---------- -------------- Cash and cash equivalents 108,497,715 9,876,650 28,117 118,402,482 Receivables: Employer contributions 456,290 3,556,816 - 4,013,106 Accrued investment income and other receivables 9,328,981 947,795 3,349 10,280,125 Transfer receivable* 558,535,238 - - 558,535,238 -------------- ------------ ---------- -------------- Total assets $7,654,710,250 $559,033,557 $1,642,529 $8,215,386,336 -------------- ------------ ---------- -------------- Liabilities Payable for outstanding purchases $ 3,078,603 $ 356,829 $ 1,287 $ 3,436,719 Accrued expenses and other payables 1,903,254 141,490 513 2,045,257 Transfer payable* - 558,535,238 - 558,535,238 -------------- ------------ ---------- -------------- Total liabilities $ 4,981,857 $559,033,557 $ 1,800 $ 564,017,214 -------------- ------------ ---------- -------------- Net assets available for plan benefit $7,649,728,393 $ - $1,640,729 $7,651,369,122 ============== ============ ========== ============== Percentage of total trust assets 99.98% 0.00% 0.02% 100.00% * See Note K
13 The following is a summary of net assets available for plan benefits by Plan under the Master Trust as of December 31, 1998:
Raytheon Savings and Raytheon Investment Raytheon Employee Plan for Other prior Raytheon Savings and Savings and Puerto Rico plans merged Defined Investment Investment Based December 31, Contributions Plan Plan Employees 1998 Master Trust Assets Master trust investments: At contract value: Investment contracts $ 776,630,273 $ 20,713,337 $ 87,670 $ 521,071,601 $ 1,318,502,881 Common collective trusts 15,198,859 405,365 1,716 10,197,509 25,803,449 At fair value: Registered investment 1,144,209,772 31,699,672 575,071 1,522,564,673 2,699,049,188 companies Common collective trust 519,296,605 10,496,295 241,676 215,568,215 745,602,791 Raytheon Company common 356,701,412 8,925,215 321,152 549,724,121 915,671,900 stock Common stock - - - 172,859,819 172,859,819 Participant loans 127,374,239 6,229,708 37,300 117,046,618 250,687,865 -------------- ------------ ---------- -------------- --------------- Total investments 2,939,411,160 78,469,592 $1,264,585 $3,109,032,556 6,128,177,893 -------------- ------------ ---------- -------------- --------------- Cash and cash equivalents 80,249,335 2,117,237 13,742 64,877,770 147,258,084 Receivables: Employer contributions - - - 3,595,261 3,595,261 Accrued investment income and other receivables 3,214,568 75,163 2,417 4,247,441 7,539,589 Transfer receivable* 3,824,865,272 210,313,280 - - 4,035,178,552 -------------- ------------ ---------- -------------- --------------- Total assets $6,847,740,335 $290,975,272 $1,280,744 $3,181,753,028 $10,321,749,379 -------------- ------------ ---------- -------------- --------------- Liabilities Payable for outstanding $ 861,953 $ 21,566 $ 776 $ 1,047,830 $ 1,932,125 purchases Accrued expenses and other 1,415,440 32,586 1,019 1,353,322 2,802,367 payables Transfer payable* - - - 3,179,351,876 3,179,351,876 -------------- ------------ ---------- -------------- --------------- Total liabilities $ 2,277,393 $ 54,152 $ 1,795 $3,181,753,028 $ 3,184,086,368 -------------- ------------ ---------- -------------- --------------- Net assets available for plan $6,845,462,942 $290,921,120 $1,278,949 $ - $ 7,137,663,011 benefits ============== ============ ========== ============== =============== Percentage of total trust assets 95.91% 4.07% 0.02% 0.00% 100.00% * See Note J
14 The following is a summary of investment income by Plan under the Master Trust for the year ended December 31, 1999:
Raytheon Savings and Raytheon Investment Raytheon Raytheon Employee Plan for Defined Savings and Savings and Puerto Rico Contribution Investment Investment Based Master Plan Plan Employees Trust Investment income: Interest and dividends $ 422,485,598 $ 30,193,248 $ 96,208 $ 452,775,054 Net appreciation/(depreciation): Registered investment companies 133,664,027 7,294,448 43,969 141,002,444 Common collective trusts 166,058,412 11,577,692 46,175 177,682,279 Raytheon Company common stock (498,666,117) (63,984,845) (240,144) (562,891,106) Common stock 189,763,388 6,009,679 - 195,773,067 ------------- ------------ --------- ------------- (9,180,290) (39,103,026) (150,000) (48,433,316) ------------- ------------ --------- ------------- Total investment income/(loss) $ 413,305,308 $ (8,909,778) $ (53,792) $ 404,341,738 ============= ============ ========= =============