Raytheon Watch

It's Not the Crime in the Streets,
It's the Crime in the Corporate Suites

Raytheon Stock Watch

October 27, 1999

Raytheon Stock has been extremely volatile, trading at less than $23 in October, 1999, having plunged from a high of nearly $75 earlier in the year. The loss in equity to shareholders represented about $8 billion.

The plunge in stock prices occurred when the Wall Street Journal reported that Raytheon is over cost or behind schedule on more than a dozen fixed-price defense contracts. The Journal reported that Raytheon is behind on its lucrative Tomahawk cruise missiles, P-3 Orion patrol aircraft and RC-135 reconnaissance aircraft programs. It also reportedly is having trouble with the shoulder-held Javelin missile, the Navy Extremely High Frequency Satellite Communications program and the conversion of a military plant in Umatilla in northern Oregon for commercial use.

According to Reuters, CEO Daniel Burnham told analysts that he'd been working to reform a culture at Raytheon where managers think in terms of what they hope to deliver, rather than what is realistic. "We've told people, 'Tell us what's going on here. Don't hide behind hope,'" Burnham said. "This has been clearly a big wakeup call to a lot of people.'' Contrary to Burnham's suggestions, Raytheon's managers were not hiding behind hope -- they were hiding out of fear. Raytheon fosters a claustrophobic and tyrannical culture in which managers are rightly fearful that an excess of honesty will get them fired, as it has in the past.

Earlier this year, Burnham approved a suit (see http://www.gis.net/~larrabee/yahoo.htm )aimed at shutting up managers, who were fired or threatened with the firing for posting messages on the Yahoo Raytheon Message Board.

If Burnham's statements mean that managers are knowingly making false statements of material fact, and that this is being disclosed in SEC filings, then it may be time for the securities lawyers to fire up their word processors and start filing class action lawsuits on behalf of the shareholders. [Editor's Update: As of October 26, 1999, at least 10 Class Action suits had been filed.]

http://www.gis.net/~larrabee/classaction.htm

Even if members of the class of shareholders represented in the lawsuit recover only a fraction of their losses, damages could run into billions of dollars and amount to several years of profits for Raytheon. Raytheon's annual net income was $527 million in 1997 and $864 million in 1998. Its 1999 debt is over $9 billion.

In the wake of Raytheon's stock free fall, J. Whitfield Larrabee, founder of Raytheon Watch, said "The company has a long history of unethical, illegal and criminal conduct. It should hardly be a surprise that its projections have been so far off. Based on information provided by sources that I found to be credible and reliable, I would not be surprised if other hidden losses come to light, and that profits will again be lower than projected. I have tried to warn investors about this company for some time. It is a house of cards, just waiting to collapse."

Raytheon Watch

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