Raytheon

Last edited by Phil Mattera on September 15, 2008 - 7:43am

War & Disaster Profiteering

Company Snapshot:

Raytheon is essentially a missile supermarket. It sells Sidewinder air-to-air missiles, Maverick air-to-ground missiles, Patriot surface-to-air missiles, Tomahawk submarine-launched cruise missiles and other kinds of deadly projectiles. The company also supplies the Pentagon with science-fiction-sounding weapons such as the Exoatmospheric Kill Vehicle and Kinetic Energy Interceptors as well as a variety of the electronic components that are so prevalent in modern warfare.

Raytheon made its name producing radar systems during the Second World War. After the war and for the following five decades, the company tried its hand at numerous civilian businesses such as computers, semiconductors, microwave ovens, textbook publishing, and small airplanes, but it eventually dropped out of them all and now focuses virtually all its attention on serving military customers. Thanks to a series of acquisitions in the 1990s and a steady stream of new contracts, it is now one of the largest Pentagon contractors. At the end of 2007 it had a $30 billion federal contract backlog.

Profile editor:

Phil Mattera

Ownership status:

Publicly traded

Number of employees worldwide:

72,000

Chief executive officer:

William H. Swanson

2008 Global Fortune 500 rank:

379

Website:

http://www.raytheon.com/

Tel:

781-522-3000

Fax:

781-522-3001

Corporate accountability

Accountability overview:

One of the biggest controversies concerning Raytheon has been its production of the Joint Standoff Weapon (JSOW), which was used as a delivery vehicle for cluster bombs, the weapon widely condemned because of its devastating impact on civilians.

In the late 1980s Raytheon was one of numerous military contractors targeted in the wide-ranging corruption probe by Henry Hudson, a U.S. Attorney in Virginia. In March 1990 the company pleaded guilty to trafficking in classified Pentagon budget documents and paid civil and criminal fines of $1 million.

In 1994 Raytheon paid $4 million to settle charges that it overbilled the Pentagon for an early-warning radar system.

In 1997 Raytheon and its former Amana unit agreed to pay $10 million to settle a class-action lawsuit contending that Amana sold defective furnaces and water heaters.

In 1998 Raytheon paid $2.7 million settle allegations that it improperly charged the Defense Department for expenses incurred in marketing products to foreign governments.

In 1999 Raytheon paid $400,000 to settle claims that it overcharged the Defense Department on an aircraft maintenance contract.

In 2000 Raytheon agreed to pay the federal government just over $1 million to resolve quality-control issues on various electronic devices sold to the Pentagon. The company had voluntarily reported the problems after discovering “testing anomalies.”

In 2002 Raytheon was one of three companies that settled charges brought by the Securities and Exchange Commission (SEC) for violating a new rule prohibiting the release of financial information to large investors or security analysts without making the same information available to the public.

In 2003 Raytheon agreed to pay $3.9 million to settle charges that its aircraft division overbilled the Defense Department when invoicing the cost of liability insurance. At the same time, the company disclosed that the SEC was investigating fraudulent accounting practices at the aircraft unit. More than three years later, the company finally settled the matter by agreeing to pay a penalty of $12 million.

Also in 2003, Raytheon agreed to pay a $25 million civil penalty to resolve State Department charges that the company violated export controls by selling military communications equipment to Pakistan through its Canadian subsidiary.

In a rare rebuke by a company to its chief executive, Raytheon announced in 2006 that it was denying William Swanson an annual raise and reducing his stock award. The move, which reportedly cost the CEO about $1 million, came after it was discovered that Swanson had apparently engaged in plagiarism in the preparation of his book Swanson’s Unwritten Rules of Management.

Tax issues:

In his book The Great American Jobs Scam, Greg LeRoy describes how in the mid-1990s Raytheon threatened to move its extensive operations out of Massachusetts unless the state provided substantial tax breaks. The state caved in, and Raytheon ended up saving about $21 million a year.

Labor:

Raytheon reports that some 8 percent of its workers are covered by collective bargaining agreements. In the United States, most of the unionized workers are members of the International Brotherhood of Electrical Workers (IBEW) and the International Association of Machinists (IAM).

Members of IBEW Local 1505 in Massachusetts struck the company for five weeks in 2000 before approving a new four-year agreement.

IAM members at Raytheon’s civil aircraft operation in Wichita, Kansas responded angrily to a 2003 report that the company planned to outsource wire harness work. Despite launching a pressure campaign, the union could not stop the transfer of work. Two years later, IAM District 70 members rejected what the company called its final contract offer, which went into effect when two-thirds of the membership failed to approve a strike vote.

In 2003 members of IAM Local 933 at its Raytheon Missile Systems in Arizona voted to strike in response to a company proposal to raise worker healthcare costs, but a compromise was approved at the last minute. In 2006, however, the local did walk out, staying on strike for ten weeks before reaching agreement with the company on a new contract.

Environment and product safety:

Raytheon is associated with a number of toxic waste sites, including those resulting from production facilities that contaminated ground water with substances such as the carcinogen trichloroethylene (TCE). These include sites in the Boston area, the Tucson area and an area of St. Petersburg, Florida.

The St. Petersburg situation, where an underground plume of toxic waste is reported to be migrating toward Boca Ciega Bay, has been especially controversial. In April 2008 two class action lawsuits were filed against the company on behalf of local residents. The company brought in experts who insisted the plume did not pose a health risk, but that did little to allay anger in the community.

Location(s)

Headquarters

870 Winter Street

Waltham, MA, 02451

United States

See map: Google Maps

History

Raytheon had its origins in 1922, when a civil engineer named Laurence Marshall and Harvard physicist Charles Smith founded American Appliance Co. to market a new home refrigeration system based on compressed gases that Smith had developed. Marshall and Smith, however, soon turned their attention to vacuum tubes and other electronic devices that could be used in radios, the talking boxes that were taking the world by storm. Soon the company, renamed Raytheon (meaning roughly “light of the gods”), was a major manufacturer of tube rectifiers. After RCA, the dominant radio producer of the day, decided to capture the rectifier tube market for itself, Raytheon had to diversify.

The escalation of military spending in the period leading up to the Second World War provided an opportunity for the company. Raytheon was hand-picked to produce functional radar systems based on technology developed by U.S. and British scientists. In 1941 the company received a contract to outfit 100 Navy ships with radar. It went on to become the dominant provider of radar systems for the U.S. fleet during the war.

After the war, Raytheon acquired several smaller electronics companies and sought to survive amid heightened competition in both radar and sonar from large corporations such as General Electric, RCA, Westinghouse Electric and Sperry. Through the 1950s Raytheon refined its military offerings such as the Sparrow and Hawk missiles, while also participating (to a lesser extent) in civilian markets such as computers.

During the 1960s Raytheon tried to expand its role in computers by acquiring Packard-Bell’s operations in that business. It also purchased the Amana Refrigeration Company, which Raytheon used to commercialize the microwave heating technology it had invented two decades earlier. Amana introduced the first countertop microwave oven in 1967.

That period also saw other diversification moves as Raytheon acquired companies as varied as E.B. Badger, a builder of petroleum and petrochemical plants, and textbook publisher D.C. Heath. Through the 1970s and 1980s, the company expanded its role in home appliances and tried new fields through purchases such as small-plane producer Beech Aircraft.

During this time, Raytheon did not neglect its military businesses, which consisted mainly of radar systems, communications equipment and missiles, including its Patriot missile, which would be celebrated during the Persian Gulf War of 1991, though later evaluations were a lot less positive.

When the end of the Cold War put pressure on military contractors to consolidate, Raytheon took steps to ensure it would be a survivor. In 1995 it acquired the secretive company E-Systems, giving it an important foothold in military intelligence communications. The following year it purchased two defense businesses from Chrysler, and the year after that it bought the military operations of Texas Instruments. But its biggest move was the 1997 purchase of the military business of Hughes Electronics from General Motors for more than $9 billion. All this propelled Raytheon to the top tier of military electronics suppliers. It also brought some antitrust concern, but the Justice Department and the Pentagon supported the consolidation.

While it was bulking up its military operations, Raytheon began shedding civilian operations such as home appliances, semiconductors and commercial laundries. In late 2006 it also agreed to sell off its business jet unit, which had been the subject of an SEC investigation Raytheon had to pay $12 million to resolve. Today, Raytheon is almost exclusively focused on military markets.

Financial information

Stock ticker symbol:

RTN

Total revenue:

$21.3 billion

Fiscal year:

2007

Net Income:

$2.6 billion

Fiscal year:

2007

Major lines of business/segments:

Raytheon divides its business into six segments and describes them as follows:

Integrated Defense Systems - IDS, headquartered in Tewksbury, Massachusetts, is Raytheon's leader in Joint Battlespace Integration providing affordable, integrated solutions to a strong international and domestic customer base, including the U.S. Missile Defense Agency, the U.S. Armed Forces and the Department of Homeland Security. Key international customers include Japan, Saudi Arabia, United Arab Emirates, Taiwan, Australia, Germany and the United Kingdom. The main product lines within the segment are: Seapower Capability Systems, National and Theater Security Programs and Patriot Air & Missile Defense Systems.

Intelligence & Information Systems - IIS, headquartered in Garland, Texas, is a leading provider of intelligence and information systems to government and commercial customers in the U.S. Department of Defense/civil space, Intelligence, Surveillance and Reconnaissance (ISR), Federal Information technology, and homeland security markets. IIS leverages broad capabilities and expertise in signal and image processing, geospatial intelligence, air- and space-borne command and control, ground engineering support, weather and environmental management, information technology, information assurance and homeland security.

Missile Systems — MS, headquartered in Tucson, Arizona, is a premier developer and producer of missile systems for the armed forces of the U.S. and other allied nations. Leveraging its key capabilities in advanced airframes, guidance and navigation systems, high-resolution sensors, targeting and netted systems, MS has developed and supports a broad range of cutting edge weapon systems that includes missiles, smart munitions, projectiles, kinetic kill vehicles, space vehicles and directed energy effectors. Major customers include the U.S. Navy, Army, Air Force, Marine Corps, Missile Defense Agency and the armed forces of more than 40 allied nations.

Network Centric Systems — NCS, headquartered in McKinney, Texas, develops and produces mission solutions for networking, command and control, battle space awareness and transportation management. Major programs include command and control systems, integrated communications systems, netted sensor systems and homeland security, as well as civil applications and components to create these systems. Major customers include the U.S. Army, Air Force, Navy and Marine Corps, and the Federal Aviation Administration (FAA), as well as numerous international customers.

Space and Airborne Systems — SAS, headquartered in El Segundo, California, is a leader in the design and development of integrated systems and solutions for advanced missions, including traditional and non-traditional intelligence, surveillance and reconnaissance, precision engagement, unmanned aerial operations, special forces operations and space. Leveraging advanced concepts, state-of-the-art technologies, and mission systems knowledge, SAS provides electro-optic/infrared sensors, airborne radars for surveillance and fire control applications, lasers, precision guidance systems, electronic warfare systems, and space-qualified systems for civilian and military applications. Major customers include the U.S. Navy, Air Force and Army, as well as classified and international customers.

Technical Services — TS, headquartered in Reston, Virginia, provides technical, scientific and professional services for defense, federal and commercial customers worldwide. It specializes in Mission Support, counter-proliferation and counter-terrorism, base and range operations and customized engineering services. Mission Support is Raytheon’s integrated set of cost effective technologies, solutions and services that support our customers, ensuring operational readiness of the enterprise to achieve mission success.

Specialized Information

Links to federal contract rankings in U.S.:

No. 4 on Washington Technology magazine 2008 list of top prime federal contractors

No. 5 on Government Executive magazine list

No. 4 on FedSpending list of top contractors