RAYTHEON COMPANY 333 P29 333 Credit ratings for the Company were assigned by Fitch’s at F3 for short-term borrowing and BBB- for senior debt, by Moody’s at P-3 for short-term borrowing and Baa3 for senior debt, and by Standard and Poor’s at A-3 for short-term borrowing and BBB- for senior debt. from 1.6% to 8.3% and matures at various dates through 2028. Total debt as a percentage of total capital was 44.7 percent and 48.3 percent at December 31, 2003 and 2002, respectively. In 2003, the Company issued $425 million of long-term debt and used the proceeds to reduce the amounts outstanding under the Company’s lines of credit. Also in 2003, the Company issued $500 million of fixed rate long-term debt and $200 million of float- ing rate notes and used the proceeds to partially fund the repur- chase of long-term debt with a par value of $924 million. The Company has on file a shelf registration with the Securities and Exchange Commission registering the issuance of up to $3.0 bil- lion in debt securities, common or preferred stock, warrants to  purchase any of the aforementioned securities, and/or stock pur- chase contracts, under which $1.3 billion remained outstanding at December 31, 2003. In December 2003, the Company entered into various interest rate swaps that correspond to a portion of the Company’s fixed rate debt in order to effectively hedge interest rate risk. The $250 million notional value of the interest rate swaps effectively converted a por- tion of the Company’s total debt to variable rate debt. In 2002, the Company issued $575 million of long-term debt to reduce the amounts outstanding under the Company’s lines of credit. Also in 2002, the Company repurchased debt with a par value of $96 million.  In 2001, the Company entered into various interest rate swaps that corresponded to a portion of the Company’s fixed rate debt in order to effectively hedge interest rate risk. In 2002, the Company closed out these interest rate swaps and received proceeds  of $95 million which are being amortized over the remaining life  of the debt as a reduction to interest expense. At December 31, 2003, the unamortized balance was $45 million. Also in 2001,  the Company repurchased long-term debt with a par value of $1,375 million. Lines of credit with certain commercial banks exist to provide short-term liquidity. The lines of credit bear interest based upon LIBOR and were $2.7 billion at December 31, 2003, consisting of $1.4 billion which matures in November 2004 and $1.3 billion which matures in 2006. The lines of credit were $2.85 billion at December 31, 2002. There were no borrowings under the lines of credit at December 31, 2003, however, the Company had approxi- mately $300 million of outstanding letters of credit which effec- tively reduced the Company’s borrowing capacity under the lines of credit to $2.4 billion. There were no borrowings under the lines of credit at December 31, 2002.  Credit lines with banks are also maintained by certain foreign subsidiaries to provide them with a limited amount of short-term liquidity. These lines of credit were $99 million and $79 million at December 31, 2003 and 2002, respectively. There was $1 million outstanding under these lines of credit at December 31, 2003 and 2002.  In May 2001, the Company issued 17,250,000, 8.25% equity security units for $50 per unit totaling $837 million, net of offering costs of $26 million. The net proceeds of the offering were used to reduce debt and for general corporate purposes. Each equity security unit consists of a contract to purchase shares of the Company’s common stock on May 15, 2004, which will result in cash proceeds to the Company of $863 million, and a mandatorily redeemable equity security, with a stated liquidation amount of $50 due on May 15, 2006, which will require a cash payment by the Company of $863 million. The contract obligates the holder to pur- chase, for $50, shares of common stock equal to the settlement rate. The settlement rate is equal to $50 divided by the average market value of the Company’s common stock at that time. The  settlement rate cannot be greater than 1.8182 or less than 1.4903 shares of common stock per purchase contract. The terms of the equity security units required that the mandatorily redeemable equity securities be remarketed. On February 11, 2004, the mandatorily redeemable equity securities were remarketed and the quarterly distribution rate was reset at 7%. The Company did  not receive any proceeds from the remarketing. The proceeds were pledged to collateralize the holders’ obliga- tions under the contract to purchase the Company’s common stock on May 15, 2004. In May 2001, the Company issued 14,375,000 shares of com- mon stock for $27.50 per share. In October 2001, the Company The Company’s most restrictive bank agreement covenant is an interest coverage ratio that currently requires earnings before inter- est, taxes, depreciation, and amortization (EBITDA), excluding cer- tain charges, to be at least 2.5 times net interest expense for the prior four quarters. In July 2003, the covenant was amended to exclude pretax charges of $100 million related to RE&C and in October 2003, the covenant was further amended to exclude $226 million of pretax charges related to Network Centric Systems and Technical Services and $78 million of pretax charges related to RE&C. In July 2002, the covenant was amended to exclude charges of $450 million related to discontinued operations. In the third quarter of 2004, the interest coverage ratio will require EBITDA to be at least 3.0 times net interest expense for the prior four quarters. The Company was in compliance with the interest coverage ratio covenant, as amended, during 2003 and expects to continue to be in compliance throughout 2004.