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Raytheon Company (NYSE:RTN)

2012 Annual Meeting of Stockholders

May 31, 2012 11:00 am ET

Executives

William H. Swanson - Chairman, Chief Executive Officer and Chairman of Executive Committee

Jay B. Stephens - Senior Vice President, Secretary and General Counsel

Peter Descovich

William H. Swanson

Good morning, everyone. Will the meeting please come to order? I want to welcome you to Raytheon's 83rd Annual Meeting. I am Bill Swanson, Chairman and CEO of Raytheon.

Each of you should find a program on your chair describing the flow of the meeting and the procedures we will follow. If you don't have a program, would you please raise your hand? Like we're all set there. If this is your first meeting, you might want to familiarize yourself with ground rules. We request only shareholders or shareholders' representatives address the meeting. We also ask that you limit your questions or comments to 2 minutes. This meeting will be webcast, and we welcome those listeners. I'm pleased to report that your company had a strong year in 2011. And based on our first quarter results announced last month, we're off to a good start this year. I'll discuss our progress in a few minutes.

Right now, there's some individuals I'd like for all of you to meet. First, our Board of Directors. I'd like to introduce each director and ask them to please stand, starting first with Linda Stuntz; Bill Spivey; Ron Skates; Mike Ruettgers, our Lead Director; Fred Poses; Steve Hadley; John Deutch, Vernon Clark; and our newest member, Jim Cartwright.

Ladies and gentlemen, in addition to myself, those are your directors standing for reelection today. We are fortunate to have such a qualified, independent and committed directors serving on our board. I look forward to continuing to work with them in the future. Also with us today is Raytheon's leadership team. I'd like to ask the leadership team, please, to stand and be recognized.

I'm very proud of this team and what it has accomplished for our customers and our shareholders and thank you, all, for what you do. Joining me on stage this morning is Jay Stephens. Jay is our Senior Vice President, General Counsel and Corporate Secretary. He will act as the Secretary of the meeting and take minutes. Jay, thank you for joining us. We're also pleased to have with us here today Andrea Smith, who will provide sign language interpretation. Welcome, Andrea. Good to see you again, and thank you for coming. The board has designated Peter Descovich of Broadridge Financial Solutions as Inspector of Election today. This is Peter's ninth year serving in this capacity. Welcome back again, Peter. Good to see you.

Now let's make sure we have a quorum present.

Jay B. Stephens

Chairman, we do have a quorum.

William H. Swanson

The Secretary advises me that a quorum is present in person or by proxy. It is 11:05, I declare the polls open. The polls will remain open until all business properly before the meeting has been acted upon. The proxy describes the items to be acted upon today. If you will look at the ballot -- if you need a ballot, would you please raise your hand? Okay, thank you. We will collect any that need to be voted upon at the conclusion.

The first 3 items on the ballot as proposed by the board and discussed in the proxy are as follows: the election of all directors, the advisory vote on executive compensation and the ratification of PricewaterhouseCoopers as the company's independent auditor. These items are now formally placed before the meeting. Are there any comments on the director nominees or the company proposals? Hearing none, now I'll move to the consideration of the shareholder proposals appearing in the proxy.

We will address the proxy in the order as they appear. As we consider these proposals, I'd like you to know that the Governance and Nominating Committee and the full board engage in a thorough review of the company's governance practices to ensure that they are sound and contemporary and that we remain focused on world-class governance practices. These practices are described in detail in our proxy and additional information is available on our website at www.raytheon.com.

Now to the consideration of the first shareholder proposal, executive stock retention. Does John Chevedden or his representative wish to introduce and discuss the proposal? If so, could you please go to the microphone and begin by stating your name?

Unknown Shareholder

Shareholder Proposal 4 on proxy, executives to retain significant stock. Resolved, shareholders urge that our executive pay committee adopt a policy requiring that senior executives retain a significant percentage of stock acquired through equity pay programs until 1 year following the termination of their employment and to report to shareholders regarding this policy before our next annual shareholder meeting.

Shareholders recommend that a percentage of at least 33% of net after-tax stock be required. This policy shall apply to future grants and awards of equity pay and should address the permissibility of transactions such as hedging transactions, which are not sales but reduce the risk of loss to executives. This proposal asks for a retention policy starting as soon as possible.

Requiring senior executives to hold a significant portion of stock obtained through executive pay plans after employment termination would focus our executives on our company's long-term success. A Conference Board Task Force report on executive pay stated that at least hold-to-retirement requirements give executives "an ever-growing incentive to focus on long-term stock price performance."

Please encourage our board to respond positively to this proposal to initiate improved corporate governance to make our company more competitive. Again, executives to retain significant stock, Proposal 4.

William H. Swanson

Thank you. Any other comments? Hearing none, the board is opposed to this proposal. The company already has in place a rigorous stock ownership and retention policy consistent with the practices of many other large prominent companies and good governance norms. The policy does what it is supposed to do, promoting alignment with the interest of our shareholders. In addition, several years ago in advance of regulatory requirements, we adopted a clawback policy enabling the company to recover incentive compensation from an executive in case of wrongdoing. The policy further aligns executive compensation with shareholder interest.

In contrast to current policies, the requirement of this proposal would unduly and unfairly undermine the company's incentive programs, impede the company's ability to attract and retain qualified executive talent, and could incentivize employees to sell stock. For these and many other reasons stated in the proxy, the board recommends a vote against this proposal.

Next item on the agenda is the shareholder proposal regarding approval of supplementary executive retirement plans. Does David White, our representative of the AFL-CIO, wish to introduce and discuss this proposal?

David White

Yes, thank you, Mr. Chairman. My name is David White. I'm with the International Association of Machinists & Aerospace Workers, representing this resolution on behalf of AFL-CIO Reserve Fund.

This proposal aims to initiate a policy for future shareholder approval on executive supplemental retirement benefits for senior executives or SERP. SERP provides retirement benefits for a select group of management, where highly compensated executives whose compensation exceeds limits set by Federal tax laws. Raytheon provides executives with the opportunity to earn additional pension benefits not provided by the company's tax-qualified retirement plan or the company's Excess Pension Plan. Under the SERP, participating senior executives after 15 years of service and age 60 may receive annual payments up to 50% of their final average compensation.

In addition, certain executives have received pension enhancements. General Counsel Jay Stephens has received 5 additional years of pension credit for years not actually worked. According to the current proxy, Mr. Stephens has accumulated more than $4.9 million in SERP benefits as of December 31, 2011. Additionally, he and other senior executives are eligible to receive an additional 3 years of pension credit under terms of their change-in control agreements.

Providing senior executives with extraordinary retirement benefits increases the cost of the company's nonqualified retirement plans to shareholders. These retirement benefits for executives are unfunded plans, payable out of the general assets and associated pension liabilities can be significant. In addition, these extraordinary benefits are unnecessary given the high levels of compensation at Raytheon for executives. To help ensure that the use of SERP benefits for senior executives are in the best interest of shareholders, such benefits should be submitted for shareholder approval. For these reasons, I ask that you support this resolution. Thank you.

William H. Swanson

Thank you. Are there any other comments? Hearing none, the board is opposed to this proposal because the company's SERP is an important tool in recruiting and retaining key executives. It's intended to establish parity and the retirement benefit of a senior executive who comes to the company mid-career so that the executives' retirements benefits are on par with other senior executives. Further, the SERP benefit is offset by the amounts payable under any prior employer pension plans and social security. All SERPs are not the same. Raytheon's SERP is narrowly tailored, sparingly used, fully disclosed and is de minimis. In other words, it is well under 1% of the current pension plan obligation.

For these and other reasons, stated in the proxy, the board recommends a vote against this proposal. Now the last shareholder proposal regarding shareholder action by written consent. Does the representative of the Chevedden Trust wish to introduce and discuss the proposal?

Ray Chevedden

Ray T. Chevedden of Los Angeles. Proposal 6, shareholder action by written consent. Resolved, shareholders request that our Board of Directors undertake such steps as may be necessary to permit written consent by shareholders entitled to cast the minimum number of votes that would be necessary to authorize the action at a meeting at which all shareholders entitled to vote thereon were present and voting to the fullest extent permitted. This includes written consent regarding issues that our board is not in favor of.

This proposal topic won majority shareholder support at 13 major companies in 2010. This included 67% support at both Allstate and Sprint. Hundreds of major companies enable shareholder action by written consent. Please encourage our board to respond positively to this proposal to initiate improved corporate governance, shareholder action by written consent.

William H. Swanson

Thank you. Are there any other comments? Hearing none, the board is opposed to this proposal because the company already has in place meaningful mechanisms for shareholder access, which are superior to action by written consent. We have an annual meeting, the board can call special meetings and shareholders owning at least 25% of the company's shares can call a special meeting at any time. In particular, the 25% special meeting provision is a superior process for shareholder access because it allows for discussion of multiple viewpoints, gives greater access to shareholders at a lower threshold and is more cost-effective.

For these and other reasons described in the proxy, the board recommends a vote against this proposal. We will now proceed with the vote. If you have a ballot to submit, please raise your hand and a ballot will be collected and counted.

Thank you. Are there anymore? Seeing none, it is now 11:15 and I declare the polls closed. I instruct the inspector of elections to prepare a report with preliminary voting results. While the inspector is preparing his report, I'd like to make a few brief comments on the state of the company.

I'm pleased to report that in 2011, Raytheon once again delivered strong operating results. Our margins, earnings, cash flow were all better-than-expected. Our bookings and backlog were strong. We capitalized on global market opportunities and successfully managed the challenges of an evolving economic environment, both domestically and internationally. And we're off to a good start in 2012.

For the first quarter, we reported sales, adjusted margins, earning per share and cash flow that were well ahead of expectations. We saw strong classified bookings and maintained our strong position in global markets. This continued solid operating performance allowed us to raise our EPS guidance for the year.

Given our confidence in the company's cash generation potential and strength of our overall financial position, we're continuing our balanced capital deployment strategy. During 2011, the company repurchased 27.1 million shares of common stock for about $1.3 billion. We increased our long-term value generation through key acquisitions to strengthen and enhance our capabilities.

In March, the board voted to increase the company's annual dividend payout by 16% to $2 per share, our eighth consecutive annual increase. Overall, I'm pleased with how the company is operating in this environment. We're working on the things that can make us even better and on the things that we can control.

We're reducing our cost by focusing on continuous improvement, increasing our efficiencies and are operating with speed and agility. And we're capitalizing on our well-aligned portfolio to deliver the affordable and innovative solutions our domestic and international customers need and demand. These include adapting our proven technologies for new and innovative applications that are both cost-effective and can be brought to market very quickly. Two recent examples are contracts we received to adapt our missile and sensor technologies, the Multi-Function Radio Frequency Systems, MFRFS radar as we call it, and the Accelerated Improved Intercept Initiative system, which we call AI3. AI3 systems' development will accumulate or come together in a demonstration in 16 months followed by low rate initial production. In other words, a quick turn.

We also continue to invest in and develop new capabilities in our core and growth markets like missile defense, electronic warfare, intelligence, surveillance and reconnaissance and cyber. At the same time, we strengthened and grown our commitment to corporate responsibility. That commitment is in our new corporate responsibility report available in the back of the room. It will be this report that I'd ask you to take home a copy. It will give you -- it's also posted on the Raytheon website. And I'd ask you to go through it.

In its pages, you will see that our recent efforts are yielding impressive results for a wide range of stakeholders. In other words, in the area of sustainability, we've reduced our water consumption by 21%, our greenhouse gas emissions by 16%, our energy consumption by 9% since 2008. And we've set the bar even higher by announcing 15 new sustainability goals for the company.

In safety and wellness, we finished last year with the best safety record in our company's history. And in our drive towards an injury-free workplace, we've committed to having all our major U.S. sites participating in the Occupational Safety & Health Administration's Volunteer Protection Program, VPP, by 2013. In math and science education, our MathMovesU programs have touched the lives of nearly 3 million students, teachers and parents. And those of you in the Washington area might have seen our newest initiative, MathAlive! Since launching in March, it's become one of the most valued exhibits at the Smithsonian. It even outperformed The Muppets, where more than 0.25 million visitors in less than 3 months have visited the exhibit. These programs are bolstered by our employee volunteers, who've doubled their recorded volunteer hours in 2011 over the previous year. And our support for our armed services has helped the Wounded Warrior program exceed all of its 2011 goals.

As I look at the company, we have much to be proud of and thankful for. 2012 marks Raytheon's 90th anniversary and the 60th anniversary of our listing on the New York Stock Exchange. I'd like to point out that only 12% of the companies on the exchange have been listed as long as Raytheon. Today, we're guided by our vision, our strategy, goals and values, so what was true 90 years ago may be somewhat different now, but remains steadfast as Raytheon's consistent focus on excellence and technology and innovation in tackling some of our customers' hardest problems.

This gives me an opportunity to thank those who were there at the beginning and throughout the company's history who pointed us to where we are today. Today, we have a diverse portfolio, strong international business, a dedicated and agile team and a focus on operational excellence that provides the foundation for Raytheon's continued performance.

In short, we have the right strategy for this environment and we're well-positioned for the future. For that, I'd also like to thank today's world-class Raytheon team for all they do and will do on behalf of our shareholders, our customers and our company. Thank you.

We're now ready for the question-and-answer segment, at which we will -- after which we will announce the voting results. If a shareholder has a question, I would ask them to proceed to the standup mic, wait to be recognized, or if needed, a mic will be brought to you. And please begin by stating your name and that you're a shareholder. And I'd ask that you confine your questions to the topics related to the company's business of interest and shareholders. And as I've mentioned at the beginning, if you could contain your remarks to 2 minutes. Are there any questions at this time?

Not hearing any questions, I see that the inspector is ready to report results of the voting. In a moment, the preliminary vote results will be displayed on the screen to my left at the front of the room. We'll also post the final voting results on our website tomorrow and thereafter in a Form 8-K filed with the SEC. Peter, if I could ask you to announce the results, please?

Peter Descovich

All nominees have been elected with a majority of the votes cast. The compensation of the named executive officers as described in the proxy statement has been approved with 94.24% of the votes for versus 5.76% against and abstaining. The selection of the company's independent auditor has been ratified with 98.12% of the votes for versus 1.88% against and abstaining.

With respect to the shareholder proposals, the results are as follows. The executive stock retention has received 24.42% of the votes for the proposal versus 75.58% against and abstaining, and has thus failed to pass. The proposal regarding Supplemental Executive Retirement Plan has received 29.63% of the votes for the proposal versus 70.37% against and abstaining, and has thus failed to pass. The proposal regarding shareholder action by written consent has received 42.96% of the votes for the proposal versus 57.04% against and abstaining, and has thus failed to pass.

My certificate as Inspector of Election will be executed and delivered to the Secretary. Thank you.

William H. Swanson

Peter, thanks very much, and I look forward to seeing you next year. Thank you. Since we've concluded the business of the meeting, the meeting is hereby adjourned. I'd like to thank you, all, for taking the time to attend or listen in today's meeting. And I would also like to thank you for your confidence that you've shown in our company. Have a nice day and safe travels everyone. Thank you.

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