SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2019 or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-13699
(Exact Name of Registrant as Specified in its Charter)
(State or Other Jurisdiction of Incorporation or Organization)
(I.R.S. Employer Identification No.)
870 Winter Street, Waltham, Massachusetts 02451
(Address of Principal Executive Offices) (Zip Code)
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Name of Each Exchange on Which Registered
Common Stock, $0.01 par value
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer
Smaller Reporting Company
Emerging Growth Company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The aggregate market value of the voting stock held by non-affiliates of the Registrant as of June 28, 2019 was approximately $48.3 billion.
The number of shares of Common Stock outstanding as of February 10, 2020 was 278,441,000.
Documents incorporated by reference and made a part of this Form 10-K:
Portions of the Registrant’s Definitive Proxy Statement for its 2020 Annual Meeting of Stockholders or an amendment on Form 10-K/A are incorporated by reference in Part III of this Form 10-K.
ITEM 1. BUSINESS
Raytheon Company, together with its subsidiaries, is a technology and innovation leader specializing in defense and other government markets throughout the world. The terms “we,” “us,” “our,” “Raytheon” and the “Company” mean Raytheon Company and its subsidiaries, unless the context indicates another meaning. We develop technologically advanced and integrated products, services and solutions in our core markets: integrated air and missile defense; electronic warfare; command, control, communications, computers, cyber, intelligence, surveillance and reconnaissance; space systems; effects; and cyber. We serve both domestic and international customers primarily as a prime contractor or subcontractor on a broad portfolio of defense and related programs for government customers.
We were founded in 1922 and have grown internally and through a number of acquisitions. We are incorporated in the state of Delaware. Our principal executive offices are located at 870 Winter Street, Waltham, Massachusetts 02451.
Proposed Merger with United Technologies Corporation (UTC)
On June 9, 2019, we entered into an Agreement and Plan of Merger (the Merger Agreement) with UTC and Light Merger Sub Corp., a wholly-owned subsidiary of UTC (Merger Sub). Under the terms and subject to the conditions set forth in the Merger Agreement, Merger Sub will merge with and into Raytheon (the Merger) with Raytheon surviving the Merger as a wholly-owned subsidiary of UTC. At the effective time of the Merger (the Effective Time), each share of common stock of Raytheon issued and outstanding immediately prior to the Effective Time (except for shares held by Raytheon as treasury stock) will be converted into the right to receive 2.3348 shares of common stock of UTC (and, if applicable, cash in lieu of fractional shares), less any applicable withholding taxes. At the Effective Time, Raytheon’s stockholders will hold approximately 43%, and UTC’s stockholders will hold approximately 57%, of the outstanding shares of common stock of UTC.
The Merger Agreement also provides that, prior to the consummation of the Merger, UTC will complete the previously announced separation of its commercial businesses, Otis and Carrier, from its other businesses (the Separation), and the pro rata distributions to its stockholders of 100% of the common stock of the entity holding the Otis business and 100% of the common stock of the entity holding the Carrier business (the Distributions).
The Merger was approved by Raytheon’s stockholders at a special meeting of Raytheon’s stockholders held on October 11, 2019. The issuance of shares of UTC Common Stock in connection with the Merger was approved by UTC’s stockholders at a special meeting of UTC’s stockholders held on October 11, 2019.
For more information refer to “Note 2: Proposed Merger with United Technologies Corporation (UTC)” within Item 8 of this Form 10-K.
In this section, we describe our business, including our business segments, product lines, customers, operations and other considerations.
We operate in five business segments:
Integrated Defense Systems;
Intelligence, Information and Services;
Space and Airborne Systems; and
The following is a description of each of our business segments. As part of the description, we include a discussion of some of the segment’s notable initiatives and achievements in 2019, such as certain key contract awards and new product introductions.
Integrated Defense Systems (IDS)—IDS, headquartered in Tewksbury, Massachusetts, is a leader in integrated air and missile defense; large land- and sea-based radar solutions; command, control, communications, computers, cyber and intelligence
solutions; naval combat and ship electronic and sensing systems; and undersea sensing and effects solutions. IDS delivers combat-proven performance against the complete spectrum of airborne and ballistic missile threats and is a world leader in the technology, development, and production of sensors and mission systems. IDS provides solutions to the U.S. Department of Defense (DoD), and more than 50 international customers which represent more than half of IDS’s business.
In 2019, IDS booked several significant awards to provide advanced Patriot® Air and Missile Defense (A&MD) systems and National Advanced Surface-to-Missile Systems (NASAMSTM). IDS was awarded contracts to provide Patriot A&MD and NASAMS systems to Qatar, contracts to provide additional Patriot A&MD systems to the U.S. Army and other international customers, and a contract to provide NASAMS for the Commonwealth of Australia. IDS was instrumental in Raytheon being selected to provide the U.S. Army with their next generation 360-degree capable radar, the Lower Tier Air and Missile Defense Sensor (LTAMDS). LTAMDS is a new radar that is designed to ultimately replace the current U.S. Army’s Patriot radars. LTAMDS is managed as a Corporate project and as a result, the related net expenses are not included in management’s evaluation of IDS’s segment results. In addition, the U.S. Navy awarded IDS options to continue to produce the low-rate initial production Air and Missile Defense Radar (AMDR) units for the DDG-51 class of warships. IDS also received an award to provide Guidance Enhanced Missiles (GEM-T) for an international customer and awards for the Army Navy/Transportable Radar Surveillance-Model 2 (AN/TPY-2) radar program for the Kingdom of Saudi Arabia (KSA).
IDS has the following principal product lines:
Integrated Air and Missile Defense (IAMD)—IAMD provides combat-proven air and missile defense systems, including the Patriot A&MD system which is the cornerstone of the air and missile defense architecture for 17 nations around the world, including the U.S. and seven NATO nations. The NASAMS, also offered by IAMD, is a highly adaptable mid-range solution for any operational air defense requirement. It is deployed in the U.S. and ten other nations around the world. IAMD was also instrumental in Raytheon being selected to provide the U.S. Army with LTAMDS. For segment reporting purposes, the costs related to the LTAMDS project are presented as part of Corporate and other unallocated costs as discussed above. Total sales from IAMD were approximately 10% of our consolidated revenues for 2019, 2018 and 2017.
Mission Systems and Sensors (MSS)—MSS provides integrated whole-life air and missile defense systems. MSS produces systems and solutions, including early warning radar, the AN/TPY-2, the Multi-Function Radio Frequency System (MFRFS), and other land-based surveillance and search radars, which provide threat detection, precision tracking, discrimination and classification of ballistic missile threats. In addition, MSS provides command, control, communications, computers, cyber and intelligence solutions through the development, delivery and support of complex integrated, networked, actionable combat command and control solutions for air and land combat commanders. MSS also provides tailored capabilities to deliver Air Defense Operations Centers (ADOC) for integrated command and control, fire direction and weapons systems and sensors to our global customers. Key MSS customers include the U.S. Army and Air Force, the Missile Defense Agency (MDA), and international customers.
Seapower Capability Systems (SCS)—SCS is a provider and integrator of maritime air and missile defense radar systems, naval combat management, and anti-submarine and mine warfare systems, as well as sensors, maritime naval navigation systems, and torpedoes for U.S. and international navies. SCS provides the low-rate initial production AMDR units, designated as AN/SPY-6, for the U.S. Navy’s DDG 51 class of warships. SCS’s contracts with the U.S. Navy also include Enterprise Air Surveillance Radar (EASR) for aircraft carriers and amphibious warfare ships, and, in the anti-submarine warfare area, a new variable depth sonar solution for the littoral combat ship class. In addition, as a ship integrator for the U.S. Navy, SCS provides mission systems equipment and combat and missions system integration for the following ship classes: DDG 1000 destroyers; LPD 17 amphibious warfare ships; and CVN 78 aircraft carriers. SCS also provides the innovative undersea mine neutralization system known as Barracuda for the U.S. Navy.
IDS also includes the Advanced Technology (AT) product line, which executes contract research and development programs primarily with the Office of Naval Research (ONR), the Strategic Capabilities Office (SCO) and the Defense Advanced Research Projects Agency (DARPA) in advanced materials, semiconductors such as Gallium Nitride (GaN) and next-generation systems such as Flexible Digital Array Radar (FlexDAR) and Cross Domain Maritime Surveillance and Targeting (CDMaST), to support Raytheon product lines. AT also pursues attractive adjacent growth markets such as undersea warfare and directed energy. In addition, IDS works closely with the U.S. government research labs including ONR, MIT Lincoln Labs and DARPA.
Intelligence, Information and Services (IIS)—IIS, headquartered in Dulles, Virginia, provides a full range of technical and professional services to intelligence, defense, federal and commercial customers worldwide. IIS specializes in global Intelligence, Surveillance and Reconnaissance (ISR); navigation; DoD space and weather solutions; cybersecurity; analytics; training; logistics; mission support; advanced software-based complex systems; automation and sustainment solutions; and international and domestic Air Traffic Management (ATM) systems. Key customers include the U.S. Intelligence Community, the DoD, the Federal Aviation Administration (FAA), the National Oceanic and Atmospheric Administration (NOAA), the Department of Homeland Security (DHS), NASA and a number of international customers.
During 2019, IIS won a number of contracts, including multi-year contracts to develop and deploy a mission-critical, advanced Cyber Security Operations Center (CSOC) and related services for a country in the Middle East and North Africa (MENA) region and a low-rate initial production award to outfit the U.S. Navy’s nuclear-powered aircraft carriers and amphibious assault ships with Joint Precision Approach and Landing Systems (JPALS). In addition to these wins, IIS continued to grow its classified business in both cyber and space, receiving a number of significant contracts. In the first quarter of 2019 we acquired an additional 10% equity ownership in the Range Generation Next LLC (RGNext) joint venture, increasing our equity ownership to 60% and giving us control of RGNext operations.
Effective July 1, 2019, IIS combined and reorganized the previous Global Intelligence Solutions (GIS), Mission Support and Modernization (MSM), and Navigation, Weather and Services (NWS) product lines to form the C2, Space and Intelligence (CSI) product line and the Navigation and Modernization Solutions (NMS) product line to align similar capabilities and solutions. IIS has the following principal product lines:
C2, Space and Intelligence (CSI)—CSI combines space and intelligence mission support with an expanding portfolio of command and control solutions, such as large-scale data processing and exploitation, storage architectures, and high-performance data handling and processing systems, offering customers the ability to seamlessly operate across every domain, sharing and exploiting data as quickly as it can be collected. CSI serves the U.S. Intelligence Community, the DoD, and civil federal agencies. In addition to numerous classified programs, CSI key programs include integrating commercial software methods and solutions into the U.S. Air Force’s Air and Space Operations Center (AOC) and the Joint Polar Satellite System (JPSS), which supports multiple civil, defense and international polar-orbiting environmental satellites.
Cybersecurity and Special Missions (CSM)—CSM provides broad cyber domain capabilities and advanced solutions to strengthen critical systems and support mission execution. CSM designs, implements and integrates customized cyber products and services and quick-reaction solutions. In addition, CSM provides high-consequence special mission support for the U.S. Intelligence Community, the DoD, civil federal agencies, international governments and commercial enterprises. Raytheon leverages and incorporates CSM cyber capabilities across the Company.
Global Training Solutions (GTS)—GTS provides integrated operational training through comprehensive support for live, virtual and constructive training exercises and operations, maintenance for training and range systems, curriculum development and instruction, management oversight and administration for contractor activities, and supply support for government-owned property and material. Previously, GTS provided these services principally under the Warfighter Field Operations Customer Support (Warfighter FOCUS) contract with the U.S. Army, which largely transitioned to a number of competitively awarded replacement programs throughout 2019. GTS will participate in some of the planned replacement programs; however, some of the work has been awarded to other contractors. GTS also provides critical commercial training solutions through Raytheon Professional Services for both domestic and international customers.
Navigation and Modernization Solutions (NMS)—NMS combines airspace and mission systems modernization and product support efforts, primarily supporting programs for NASA, the DoD and the FAA by implementing secure environmental and navigation ground solutions and data processing. NMS capabilities include ground systems for command and control of space assets, and domestic and international ATM. Key programs include the ATM solution Standard Terminal Automation Replacement System (STARS), the JPALS, the Global Positioning System Next Generation Operational Control System (GPS-OCX). NMS also develops advanced ground stations to control unmanned systems, such as Global Hawk®, and provides cyber-resiliency and avionics solutions for a wide range of aircraft, including the V-22, CH-53 and HH-60. Through its RGNext joint venture, NMS provides operation and mission support to U.S. Air Force space launch and U.S. Army test facilities. NMS also delivers product support services for other Raytheon business segments, including system deployment, installation and integration, logistics and training for military and civil customers in over 80 countries.
IIS also operates the Cyber Operations, Development and Evaluation (CODE) Center, an advanced cyber range in which the Company integrates our capabilities and demonstrates, tests and assesses new cyber products and services to determine how they can best integrate into a customer’s CSOC. IIS leverages CODE Center capabilities to drive both internal and external research and development with Governmental entities and commercial cyber protection companies.
Missile Systems (MS)—MS, headquartered in Tucson, Arizona, designs, develops, integrates and produces missile and combat systems for the armed forces of the U.S. and allied nations. Leveraging its capabilities in advanced airframes, guidance and navigation systems, high-resolution sensors, surveillance, hypersonic systems, targeting and netted systems, MS provides and supports a broad range of advanced weapon systems including missiles, smart munitions, close-in weapon systems, projectiles, kinetic kill vehicles, directed energy effectors and advanced combat sensor solutions. Key customers include the U.S. Navy, Army, Air Force and Marine Corps, the MDA, and the armed forces of more than 50 allied nations.
In 2019, MS continued to capture key contract awards from a broad global customer base, including a multi-year award for the Standard Missile-6 (SM-6®), Standard Missile-3 (SM-3®), Advanced Medium-Range Air-to-Air Missile (AMRAAM®), AIM 9-X Sidewinder short-range air-to-air missile, the next generation development of the Evolved Seasparrow Missile (ESSM®), Phalanx®, Tomahawk cruise missile development and production, the U.S. Air Force’s Long Range Standoff (LRSO) program, the U.S. Navy’s over-the-horizon weapon system (the Naval Strike Missile, or NSM) and a number of classified and unclassified awards in hypersonic, sensor, undersea warfare and missile defense technologies. MS also completed successful flight tests on the SM-3, SM-6, Exoatmospheric Kill Vehicle (EKV), Rolling Airframe Missile (RAMTM), Tomahawk and StormBreaker™ programs.
Air Warfare Systems (AWS)—AWS products and services enable the U.S. Armed Forces and international customers to attack, suppress and destroy air-, sea- and ground-based targets. Products include the AMRAAM, a state-of-the-art, highly dependable and battle-proven air-to-air missile that also has a surface-to-air launch application; the Tomahawk cruise missile, an advanced surface- or submarine-launched cruise missile with loitering and network communication capability; StormBreaker, an air-to-ground glide weapon designed to engage moving targets in adverse weather and through battlefield conditions; the Joint Standoff Weapon (JSOW®), a family of air-to-ground weapons that employ an integrated GPS/inertial navigation system that guides the weapon to the target; the Paveway™ family of laser and GPS precision guided munitions; the AIM-9X Sidewinder short-range air-to-air missile; the Miniature Air Launched Decoy-Jammer (MALD®-J), a high endurance electronic warfare decoy/jammer used to deceive and degrade air defenses; the High-Speed Anti-Radiation Missile (HARM®); the Maverick® precision strike missile; and the Griffin®, a small lightweight missile that can be employed from aircraft, unmanned aerial vehicles, ships or ground-launched against light targets. Also, AWS partners with Kongsberg Defence Systems on the NSM and the Joint Strike Missile (JSM), which are over-the-horizon anti-surface warfare and land attack weapons systems to be used on various aircraft platforms and ship classes. Total sales from AWS were approximately 10% of our consolidated revenues for 2019, 2018, and 2017.
Strategic and Naval Systems (SNS)—SNS designs, develops, produces, and supports air and missile defense interceptor systems along with highly effective, layered ship defense systems for U.S. Armed Forces and more than 30 allied countries across multiple platforms to counter the threats of today and tomorrow. SNS's primary customers are the MDA and the U.S. Navy as well as various international customers. The SNS portfolio includes the Standard Missile family of products with capabilities including sea- and land-based endo- and exoatmospheric defense against short- and intermediate-range ballistic missiles and tri-mission defense against air, surface and ballistic missile threats. The product line designs, develops, integrates, manufactures, and supports the Phalanx Close-In Weapon System (CIWS), employed on land and at sea; and the RAM and Launcher System, the SeaRAM® system, and the ESSM® family of missiles all protecting ships against air, subsurface and surface cruise/ballistic missile threats. In addition, SNS’s contracts with the MDA include sustainment of the EKV, which is the primary weapon payload of the Ground Based Interceptor (GBI) for ballistic missile defense. SNS continues to leverage its strategic international cooperative partnerships to evolve its existing products and technologies with a goal of addressing the full spectrum of threats to both the U.S. and our allies. Total sales from SNS were approximately 10% of our consolidated revenues for 2019, 2018, and 2017.
Land Warfare Systems (LWS)—LWS provides precision missiles and munitions, advanced electro-optical/infrared (EO/IR) sensors, and integrated mission solutions in the land domain for the U.S. Army and Marine Corps, and the militaries of more than 50 allied nations. LWS capabilities are designed to provide warfighters the situational awareness and lethality they need to overmatch and defeat evolving complex threats. The LWS portfolio includes the Tube-launched, Optically-tracked, Wireless-guided (TOW®) weapon system, a long-range precision anti-armor/anti-fortification/anti-amphibious-landing weapon system,
Javelin, a man-portable anti-tank missile in partnership with Lockheed Martin, and the Excalibur® precision artillery munition, which is a GPS-guided round providing indirect precision fire for ground forces. LWS also includes the 3rd Generation Forward Looking Infrared (FLIR), which leverages proven sensor technology to provide the warfighter with high-definition resolution and magnification of target images in darkness and in a range of adverse environmental conditions and produces an unmanned aircraft system (UAS) called Coyote®, which is a multi-purpose solution for ISR, Counter-UAS, and strike missions.
Advanced Missile Systems (AMS)—AMS focuses on the development and early introduction of next-generation, end-to-end system solutions that are designed to support the MS customer base including the U.S. Air Force, Navy, Army, MDA, DARPA, the ONR, the Air Force Research Laboratory (AFRL), and the SCO. AMS develops and demonstrates systems and technologies aimed to solve customer problems in all mission areas and then transitions more mature products or families of products to one of the other MS product lines or other business segments before those products enter the production phase of their life cycle. AMS is engaged in opportunities involving the transition from weapon development to warfighter fielding in the areas of next generation missile systems, hypersonic and counter-hypersonic weapons, long range strike weapons, UAS, non-kinetic solutions, space applications, undersea warfare and collaborative weapon technologies.
Space and Airborne Systems (SAS)—SAS, headquartered in McKinney, Texas, is a leader in the design, development and manufacture of integrated sensor and communication systems for advanced missions. These missions include intelligence, surveillance and reconnaissance; precision engagement; manned and unmanned aerial operations; and space. Leveraging state-of-the-art technologies, mission systems and domain knowledge, SAS designs, manufactures, supports and sustains civil and military electro-optical/infrared (EO/IR) sensors; airborne radars for surveillance and fire control applications; lasers; precision guidance systems; signals intelligence systems; processors; electronic warfare systems; tactical and strategic communications; and space-qualified systems. Key customers are the U.S. Navy, Air Force, and Army, international allies and classified customers.
In 2019, SAS was selected to develop and deliver a new active electronically scanned array (AESA) radar for Boeing’s B-52 bomber. In addition, the U.S. Marine Corps selected SAS’s APG-79(v)4 AESA radar for its F/A-18C/D classic Hornet fleet. SAS was awarded a contract by the U.S. Air Force to develop two prototype high-energy laser (HEL) counter-UAS for a year-long overseas deployment. SAS also delivered its first Next Generation Jammer (NGJ) Mid-Band pod to the U.S. Navy for ground and aircraft integration testing, and received a follow-on award for the NGJ program for the U.S. Navy. In addition, SAS received a contract to build the Geostationary Littoral Imaging and Monitoring Radiometer sensor for NASA. This new sensor will create highly detailed views of physical and biological conditions in coastal waters. SAS was also awarded a number of classified contracts in intelligence, surveillance and reconnaissance, space protection, electronic warfare and signals intelligence.
SAS has the following principal product lines:
Intelligence, Surveillance and Reconnaissance Systems (ISRS)—ISRS designs, develops and manufactures a wide array of advanced Multispectral EO/IR sensors, light-sensing focal plane arrays, advanced visible and infrared sensors, AESA and mechanically scanned radars and various integrated airborne intelligence, surveillance, and reconnaissance systems solutions to provide customers with actionable information for strike, persistent surveillance and special mission platforms. These systems perform detection, identification, tracking, targeting, navigation, weather, and situational awareness tasks on a variety of airborne platforms, including maritime, littoral and overland patrol aircraft, unmanned aerial systems, and other tactical, attack and transport rotary- and fixed-wing aircraft. Key ISRS programs include the F-35 next-generation Electro-Optical Distributed Aperture System (EODAS); Multi-Spectral Targeting Systems (MTS) on numerous unmanned and manned aircraft; the Silent Knight Terrain Following/Terrain Avoiding radar for rotary-wing platforms; and an international classified program.
Secure Sensor Solutions (S3)—S3 designs, manufactures and develops cost-effective, high-performance integrated sensor solutions for tactical and strategic platforms, which deliver trusted, actionable information for mission assurance. S3 provides integrated advanced fire control radars to customers, including the U.S. Navy, Marine Corps, and Air Force and international governments. S3 produces AESA radars for the U.S. Air Force’s F-15 and B-2 aircraft, the U.S. Navy’s F/A-18E/F and EA-18G, the U.S. Marine Corps’ F/A-18C/D and radars for several international customers. S3 develops Airborne Early Warning & Reconnaissance Systems (AEWRS) across multiple platforms, for U.S. and international customers, including the Global Hawk and U2. S3 also develops sophisticated anti-jam GPS solutions for many customers and provides a wide range of state-of-the-art product families and engineering services for the DoD’s response to dynamic threat environments.
Electronic Warfare Systems (EWS)—EWS designs and manufactures cost-effective, high-performance electronic warfare systems and equipment for strategic and tactical aircraft, helicopters, surface ships and ground forces for the U.S. Air Force, Army, Navy, Special Operations Forces, and intelligence agencies and international governments. EWS products deliver a range of non-kinetic effects ranging from radar jamming to information operations. The EWS portfolio includes the Next Generation Jammer (NGJ) program, the HEL Weapon Systems for Counter-UAS and Precision Strike program, integrated electronic warfare suites, development of electronic warfare planning and management tools (EW PMT), the Multi-function Integrated Receiver/Exciter System (MFIRES) product family, advanced classified programs, and products which include towed decoys, radar warning receivers, radar and communications countermeasures and missile warning sensors.
Integrated Communication Systems (ICS)—ICS is a market leader in tactical airborne communications, software-defined radio technology, advanced tactical and protected networking, protected tactical satellite communication (SATCOM) terminals and cryptology and real-time sensor networking. The ARC-231 radio is deployed on U.S. and international rotary-wing platforms and fixed-wing aircraft. The Vinson/ANDVT Cryptology Modernization (VACM) family of products provides secure communications for U.S. and international customers. ICS is the only producer of Advanced Extremely High Frequency (AEHF) satellite terminals for all U.S. military branches, providing protected, highly secure SATCOM terminals for the U.S. military, including the Navy Multiband Terminal (NMT) and the Air Force Family of Advanced Beyond Line of Sight Terminal (FAB-T) and related ground terminals, Global Aircrew Strategic Network Terminal (Global ASNT) and the Army Secure Mobile Anti-Jam Reliable Tactical Terminal (SMART-T).
Space Systems (SS)—SS designs and manufactures space and space-qualified sensor payloads for large national programs and develops innovative solutions for emerging commercial, intelligence, defense and civil space applications. SS provides EO/IR, radio frequency (RF), radar and laser space-based sensors to customers, including the DoD, MDA, NASA, classified and commercial customers, and international governments. SS also provides the Visible Infrared Imaging Radiometer Suite (VIIRS), an advanced imaging and radiometric sensor for NASA and NOAA weather/environmental monitoring programs.
Advanced Concepts Technology (ACT), an innovation incubator, is also part of SAS. ACT conducts both internal and contract research and development for customers, including the AFRL and DARPA. ACT produces cutting-edge products and capabilities, including next-generation all-weather millimeter wave targeting radars, advanced mission system architecture, electro-optical (EO) and RF technologies, advanced speech recognition with natural language understanding, and systems exploiting acoustic phenomenology. In addition, BBN Technologies within ACT develops technology to direct and control swarms of small, autonomous air and ground vehicles for DARPA.
Forcepoint—Forcepoint, headquartered in Austin, Texas, develops cybersecurity products serving commercial and government organizations worldwide. Forcepoint was created in May 2015 as a joint venture of Raytheon and Vista Equity Partners that brought together the capabilities of the legacy Raytheon Cyber Products (RCP) and Websense, Inc. (Websense) businesses. On November 18, 2019, Raytheon acquired Vista Equity Partners’ interest in Forcepoint, such that Forcepoint is now wholly owned by Raytheon. Refer to “Note 11: Redeemable Noncontrolling Interests” within Item 8 of this Form 10-K for additional information. Forcepoint delivers a portfolio of human-centric cybersecurity capabilities that incorporate behavior based insights, including risk adaptive data loss prevention; user and entity behavior analytics (UEBA) and cloud access security broker (CASB) capabilities; insider threat solutions; next-generation firewall (NGFW) technology; cloud and on premise web and email security; and cross domain transfer products. Forcepoint's customers deploy its software products on standard servers, mobile endpoints or other information technology hardware, including Forcepoint optimized appliances, as a software-as-a-service (otherwise referred to as a cloud-based or cloud service) offering, or in a hybrid hardware/cloud configuration. Forcepoint’s customers include large enterprises, small- and medium-sized businesses and both domestic and international government agencies.
Forcepoint has the following principal product lines:
Global Governments and Critical Infrastructure—In addition to providing the full suite of Forcepoint products to government customers, Global Governments and Critical Infrastructure provides a suite of cross domain and insider threat technologies designed to enable defense, intelligence and civilian agencies to securely and efficiently access and transfer data, including streaming video, across multiple domains. In addition, Forcepoint provides these technologies to critical infrastructure customers. Global Governments and Critical Infrastructure products are deployed primarily in high assurance environments.
Enterprise Security—Enterprise Security consists of the User and Data Security solution area and the Cloud Access and Network Security solution area. User and Data Security provides risk adaptive data loss prevention; UEBA; and insider threat security products. Forcepoint’s data loss prevention suite of products extend data security control solutions to enterprise cloud applications, end user software applications and sensitive data and intellectual property on laptops, both on- and off-network, and include dynamic data protection, which allows automated enforcement at the individual level driven by analytics-defined risk indicators. Forcepoint’s UEBA products analyze large amounts of data to assess risk. Forcepoint’s insider threat suite of products spans analytics, insider threat, advanced threat protection and related security features. Cloud Access and Network Security solutions provide a range of appliances that consolidate multiple security capabilities and deliver real-time security functionality, including content security and firewall capabilities. The content security solutions integrate Forcepoint's web, email, filtering, and NGFW technologies into a single security architecture that may be deployed in the cloud, on premise (e.g. a proxy server or firewall) and in a hybrid environment. In addition, Forcepoint’s CASB product provides visibility, access and control as users interact with data in cloud applications. The firewall products consist of the Forcepoint NGFW and the Forcepoint Sidewinder proxy firewall products. The Forcepoint NGFW product provides software and hardware solutions that focus on high-availability, centralized management and policy deployment across large networks and protection from advanced evasion techniques. The Forcepoint Sidewinder product provides proxy-based firewall software and hardware solutions, designed to allow for clear visibility and control of command filtering, protocol enforcement and application access.
In addition to the principal product lines, Forcepoint provides consulting services of certified engineers who assess, plan, design, analyze and optimize security solutions for its customers' business environments.
Sales to the U.S. Government
(In millions, except percentages)
Sales to the U.S. government(1)
Sales to the U.S. government as a percentage of Total Net Sales(1)
Foreign military sales through the U.S. government
Foreign military sales through the U.S. government as a percentage of Total Net Sales
Excludes foreign military sales through the U.S. government.
Our principal U.S. government customer is the DoD; other U.S. government customers include U.S. Intelligence Community agencies, NASA, the DHS and the FAA.
U.S. Government Contracts and Regulation
We act as a prime contractor or major subcontractor for numerous U.S. government programs. As a result, we are subject to extensive regulations and requirements of the U.S. government agencies and entities that govern these programs, including with respect to the award, administration and performance of contracts under such programs. We are also subject to certain unique business risks associated with U.S. government program funding and appropriations, U.S. government contracts, and supplying technologically-advanced, cutting-edge defense-related products and services to the U.S. government.
U.S. government contracts generally are subject to the Federal Acquisition Regulation (FAR), which sets forth policies, procedures and requirements for the acquisition of goods and services by the U.S. government; department-specific regulations that implement or supplement the FAR, such as the DoD's Defense Federal Acquisition Regulation Supplement (DFARS); and other applicable laws and regulations. These regulations impose a broad range of requirements, many of which are unique to government contracting, including various procurement, import and export, security, contract pricing and cost, contract termination and adjustment, audit and product integrity requirements. A contractor's failure to comply with these regulations and requirements could result in reductions to the value of contracts, contract modifications or termination, cash withholds on contract payments, forfeiture of profits, and the assessment of penalties and fines, and could lead to suspension or debarment, for cause, from U.S. government contracting or subcontracting for a period of time. In addition, government contractors are also subject to routine audits and investigations by U.S. government agencies such as the Defense Contract Audit Agency (DCAA) and Defense Contract Management Agency (DCMA). These agencies review a contractor's performance under its contracts, cost structure and compliance with applicable laws, regulations and standards. The DCAA and DCMA also review the adequacy of and a contractor's compliance with its internal control systems and policies, including the contractor's accounting, purchasing, property, estimating, earned value management and material management accounting systems. For
a discussion of certain risks associated with compliance with U.S. government contract regulations and requirements, see Item 1A of this Form 10-K.
U.S. government contracts include both cost reimbursement and fixed-price contracts. Cost reimbursement contracts, subject to a contractual cost-ceiling amount in certain cases, provide for the reimbursement of allowable costs plus the payment of a fee. These contracts fall into three basic types: (1) cost-plus fixed fee contracts which provide for the payment of a fixed fee irrespective of the final cost of performance; (2) cost-plus incentive fee contracts which provide for increases or decreases in the target incentive fee, within specified limits, based upon actual cost results compared to contractual cost targets; and (3) cost-plus award fee contracts which provide for the payment of an award fee determined at the discretion of the customer based upon the performance of the contractor against pre-established criteria. Under cost reimbursement contracts, the contractor is reimbursed periodically for allowable costs and is paid a portion of the fee based on contract progress. Some costs incidental to performing contracts have been made partially or wholly unallowable for reimbursement by statute, the FAR or other regulation. Examples of such costs include charitable contributions, certain merger and acquisition costs, lobbying costs, interest expense and certain litigation defense costs. We also classify time-and-materials (T&M) contracts as cost reimbursement contracts as they are typically used to cover certain contract costs plus a set amount of fee.
Fixed-price contracts are predominantly either firm fixed-price (FFP) contracts or fixed-price incentive (FPI) contracts. Under FFP contracts, the contractor agrees to perform a specific scope of work for a fixed price and as a result, benefits from cost savings and carries the burden of cost overruns. Under FPI contracts, the contractor shares with the U.S. government savings accrued from contracts performed for less than target costs and costs incurred in excess of target costs up to a negotiated ceiling price (which is higher than the target costs) and carries the entire burden of costs exceeding the negotiated ceiling price. Accordingly, under such contracts, the contractor's profit may also be adjusted up or down depending upon whether specified cost objectives are met. Under FFP and FPI type contracts, the contractor usually receives either negotiated performance-based payments (PBPs) or monthly progress payments from the U.S. government generally in amounts equaling 80% of costs incurred under U.S. government contracts. The remaining amount, including profits or incentive fees, is billed upon delivery and acceptance of end items under the contract. The DoD has expressed a preference to utilize FPI as opposed to FFP contracts. In the event we experience a greater proportion of FPI contracts and/or progress payments for our fixed-price DoD contracts in the future than historically, it could have an adverse effect on our operating margins, cash flow and liquidity. For a discussion of certain risks associated with fixed-price and cost reimbursement contracts and risks associated with changes in U.S. government procurement rules, regulations and business practices, see Item 1A of this Form 10-K.
U.S. government contracts generally also permit the government to terminate the contract, in whole or in part, without prior notice, at the U.S. government's convenience or for default based on performance. If a contract is terminated for convenience, the contractor is generally entitled to payments for its allowable costs and will receive some allowance for profit on the work performed. If a contract is terminated for default, the contractor is generally entitled to payments for its work that has been accepted by the U.S. government, but a termination arising out of our default could expose us to liability and have a negative impact on our ability to obtain future contracts and orders. The U.S. government's right to terminate its contracts has not had a material adverse effect upon our operations, financial condition or liquidity. For a discussion of the risks associated with the U.S. government's right to terminate its contracts, see Item 1A of this Form 10-K.
U.S. government programs generally are implemented by the award of individual contracts and subcontracts. Congress generally appropriates funds on a fiscal year basis even though a program may extend across several fiscal years. Consequently, programs are often only partially funded initially and additional funds become contractually obligated only if Congress makes further appropriations. The contracts and subcontracts under a program generally are subject to termination for convenience or adjustment if appropriations for such programs are not available or change. The U.S. government is required to equitably adjust a contract price for additions or reductions in scope or other changes ordered by it. For a discussion of the risks associated with program funding and appropriations, see Item 1A and “Overview” within Item 7 of this Form 10-K. In addition, because we are engaged in supplying technologically-advanced, cutting-edge defense-related products and services to the U.S. government, we are subject to certain business risks, some of which are specific to our industry. These risks include: (1) the cost and ability to attract and retain trained, skilled and qualified employees; (2) the uncertainty and instability of prices and supply of raw materials and components; (3) the problems associated with advanced designs, which may result in unforeseen technological difficulties and cost overruns; (4) the intense competition and the constant necessity for improvement in facility utilization and personnel training; and (5) the impact of potential security and cyber threats. Our sales to the U.S. government may be affected by changes in procurement policies, budget considerations, changing priorities for national defense, global