DEAR FELLOW SHAREHOLDERS,
Raytheon delivered strong operating performance in 2010.
We continued executing well and delivered solid bottom-line results in a challenging environment. This was a result of our focus on program execution and productivity initiatives driven by Raytheon Six Sigma™ and operational improvements. We have a strong balance sheet, a diverse portfolio of innovative technologies both in depth and breadth, as well as strong demand for our solutions domestically and internationally.
The year had some headwinds including program delays, U.S. government budget uncertainty and a difficult economy. However, our strategies pre- pared us well for these conditions and allowed us to leverage our capabilities, cost competitiveness, solid program performance and strong customer alignment to achieve one of the highest competitive win rates in the company’s history. In short, we created opportunities from challenges.
During 2010, our adjusted earnings per share rose to $5.58, up 15 percent from 2009 to 2010, primarily due to our operational improvements and capital deployment actions. We also generated strong operating cash flow of $1.9 billion for the year, after making a fourth quarter $750 million discretionary contribution to our pension plans. For the full year, Raytheon had a 14.6 percent return on invested capital and continued to have strong operating margins. The company ended the year with a net debt of near zero.
Raytheon demonstrated its balanced approach to capital deployment with a number of actions in 2010 as we continued our focus on creating value for our customers and our shareholders. The company repurchased 29 million shares of common stock for about $1.5 billion during 2010. This, coupled with our sixth consecutive year of dividend increases, and the discretionary pension contribution, underscored our approach.
We increased long-term value generation in 2010 through strategic acquisition activity. We acquired Technology Associates, Trusted Computer Solutions and substantially all the assets of an Australian company, Compucat Research Pty. Ltd. These transactions bring new and complementary capabilities to our company and customers. In December, we announced the Applied Signal Technology acquisition which closed in January 2011. AST brings world-class technologies, and its talent aligns with Raytheon’s strong Intelligence, Surveillance and Reconnaissance solutions. This combination of strengths along with our complementary cultures of innovation will provide capabilities to address our customers’ current and future challenges.
2010 was a great year for competitive wins, including programs such as Small Diameter Bomb, 
Global Positioning System (GPS) Advanced Control Segment, Air and Missile Defense Radar for the U.S. Navy, and the Standard Terminal Automation Replacement System for air traffic control, among others. These wins position us well for future competitions.
A PORTFOLIO WITH
DEPTH AND BREADTH
One of Raytheon’s strengths is the depth and breadth of our portfolio of technologies, products, systems and capabilities. We believe they are well aligned with our customers’ needs to address important threats. One could argue that these threats have increased in our global environment.
Nowhere was this more evident than in the cyber-domain. Insider threats were headline news in 2010, and this is an area where we have built world-class capabilities. Our customers are increasingly relying on our award-winning SureView™ information protection solution, as well as our other Cybersecurity technologies that close the cyberthreat.
Our Homeland Security capabilities were strengthened with the introduction of our Clear View™ security solutions. It is a comprehensive security management system for critical infrastructure, border security and other security needs.
An uncertain world increases the demand for our Intelligence, Surveillance and Reconnaissance capabilities. Raytheon is uniquely capable of providing full-spectrum ISR solutions that address Secretary Gates’ mandate to provide additional tactical ISR capability to our forces deployed in combat.
In Missile Defense, we had several key tests and intercepts that prove the system is ready and ready to be further developed to meet all future missile defense requirements. Most notably, our Standard Missile-3 is the cornerstone of the U.S. Phased Adaptive Approach, and demand continues to grow for our Patriot Air and Missile Defense System.
Our more than 70 years’ expertise in radars serves as a cornerstone for Missile Defense, and is used in scores of other applications on land, sea, air and space – from tactical fighters outfitted with our active electronically scanned array Raytheon Advanced Combat Radars, to radar design for the U.S. Air Force’s Space Fence for tracking and detecting space objects.
We continue to grow our position in the training market. Raytheon performs some of the world’s largest military and commercial training contracts, and we’ve been recognized as No. 1 in HRO Today magazine’s “Baker’s Dozen in Learning” for three years in a row.
Our portfolio is increasingly international in scope, and the inter- national market remains a key area of growth for the company. In 2010, 23 percent of our sales were to international customers, and our international revenues grew by 10 percent.
INNOVATION IN TECHNOLOGY
AND PROCESSES
As a technology leader, Raytheon needs to be at the forefront of innovation. Our contract research and development (CRAD) bookings were up in 2010 by 28 percent, while sales on these programs increased by 13 percent. This provides much of the funding for the next generation of Raytheon technologies, and keeps us at the cutting edge of technology development in areas directly in line with our customers’ needs.
At the same time, our common business, IT and operations processes allow us to leverage the power of our 72,000 people, and make us flexible, adaptable and faster going forward. With an eye toward continuous improvement, we will remain focused on driving our systems and processes to even greater levels of efficiency.
CORPORATE RESPONSIBILITY
Raytheon’s results related to corporate responsibility are also important to measure. Here too, we have much to be proud of.
We have long been a strong supporter of science, technology, engineering and math education, since it is critically important for us to inspire today’s students to develop and sustain an interest in math and science. This commitment only grew in 2010. Raytheon celebrated the fifth anniversary of its signature MathMovesU® program with a multifaceted launch including a new MathMovesU website and a variety of local community activities. The program has now touched the lives of more than 1 million students, teachers and parents. All these efforts were bolstered by Raytheon employee volunteers, who doubled their volunteer hours over the previous year.
Additionally, Raytheon joined the launch of the “Change the Equation” initiative supporting President Obama’s “Educate to Innovate” campaign and sponsored NBC’s “Education Nation” in September. We are continuing as the title sponsor of the MATHCOUNTS® National Competition through 2014, and I had the privilege of serving as the honorary chair of National Engineers Week.
We are proud of our commitment to ethics and to maintaining the highest ethical standards in all that we do. Raytheon’s ethics program is reinforced each year with comprehensive ethics education, since our success is dependent on each individual’s commitment.
We continue to position ourselves as best in class with regard to environmental, health and safety programs. To that end, we became a Save Energy Now® LEADER with the U.S. Department of Energy and committed to a 25-percent reduction in energy intensity over 10 years. In early 2011 we were awarded the U.S. Environmental Protection Agency’s ENERGY STAR® Sustained Excellence Award for the fourth year in a row.
We are making progress on our goal of an injury-free workplace to protect our greatest resource – our people. We achieved the lowest employee injury rate in our industry and received the Aerospace Industries Association Worker Safety Excellence Award in the Aerospace Components Category.
KEEPING US ON TRACK: OUR VISION, STRATEGY, GOALS AND VALUES
When I reflect on our accomplishments during the year, I see a company that excels at what it sets out to do. That’s good for our customers, it’s good for our shareholders, and it’s good for our employees.
As we continue creating opportunities from challenges, we cannot lose sight of the rock-solid foundation formed by Raytheon’s Vision, Strategy, Goals and Values. In this environment, they are as important as ever. They are a compass – keeping our 72,000 people aligned and pointed on a true course. They show we are ready as a company.
A proud member of the Raytheon team for 39 years,
William H. Swanson
Chairman and Chief Executive Officer
March 2011
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