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Raytheon Increases Full-year Guidance; Reports Strong Second Quarter 2008

WALTHAM, Mass., July 24, 2008 /PRNewswire-FirstCall/ --

  Highlights

  -- Sales of $5.9 billion, up 11 percent
  -- Operating income of $662 million, up 12 percent

-- Earnings per share (EPS) from continuing operations of $1.00, up 27 percent

  -- Solid bookings of $6.0 billion; backlog of $37.5 billion
  -- Strong operating cash flow from continuing operations of $767 million

-- Full-year guidance increased for sales, EPS, operating cash flow and ROIC

Raytheon Company (NYSE: RTN) reported second quarter 2008 income from continuing operations of $426 million or $1.00 per diluted share compared to $355 million or $0.79 per diluted share in the second quarter 2007. Second quarter 2008 income from continuing operations was higher primarily due to operational improvements and lower pension expense, as well as a prior-year $39 million charge ($59 million pretax) or $0.09 per diluted share for the early retirement of debt.

"All of our businesses performed well and the Company had a strong second quarter," said William H. Swanson, Raytheon's Chairman and CEO. "We are increasing our financial outlook for the year as a result of our solid performance."

Second quarter 2008 net income was $426 million or $1.00 per diluted share compared to $1,335 million or $2.97 per diluted share in the second quarter 2007. Net income for the second quarter 2007 included $980 million in discontinued operations or $2.18 per diluted share primarily due to the sale of Raytheon Aircraft Company (RAC), which was completed in the second quarter 2007.

Net sales for the second quarter 2008 were $5.9 billion, up 11 percent from $5.3 billion in the second quarter 2007, with growth across all of the Company's businesses.

Operating cash flow from continuing operations for the second quarter 2008 was a positive $767 million compared to an outflow of $30 million for the second quarter 2007. The improvement in the second quarter 2008 was primarily due to cash tax payments of $316 million made in the second quarter 2007 attributable to the gain on the sale of RAC and a reduction in working capital items in the second quarter 2008.

In the second quarter 2008 the Company repurchased 5.2 million shares of common stock for $340 million, as part of the Company's previously announced share repurchase program. The Company has repurchased 10.7 million shares of common stock year-to-date for $680 million.

  Summary Financial Results

                          2nd Quarter       %        Six Months        %
  ($ in millions, except
   per share data)       2008    2007     Change   2008     2007     Change

  Net Sales             $5,870  $5,278      11%  $11,224  $10,082      11%
  Total Operating
   Expenses              5,208   4,689             9,954    8,972
  Operating Income         662     589      12%    1,270    1,110      14%
  Non-operating
   Expenses                 15      53                31       88
  Income from Cont.
   Ops. before Taxes      $647    $536      21%   $1,239   $1,022      21%
  Income from
   Continuing
   Operations             $426    $355      20%     $826     $679      22%
  Inc. (Loss) from
   Disc. Ops., Net of
   Tax*                    -       980      NM        (2)   1,002      NM
  Net Income              $426  $1,335      NM      $824   $1,681      NM

  Diluted EPS from
   Continuing Ops.       $1.00   $0.79      27%    $1.92    $1.51      27%
  Diluted EPS            $1.00   $2.97      NM     $1.92    $3.73      NM

  Operating Cash Flow
   from Cont. Ops.**      $767    $(30)             $834    $(383)
  Workdays in Fiscal
   Reporting Calendar       64      64               127      123

  *  Includes after-tax net gain of $986 million on sale of Raytheon
     Aircraft Company (RAC) in Q2 '07
  ** Includes $316 million cash tax payment related to the completion of
     the RAC sale in Q2 '07
  NM - Not meaningful for comparison purposes due to the gain on sale of RAC
       in Q2 '07


  Bookings and Backlog

  Bookings                            2nd Quarter            Six Months
  (in millions)                      2008     2007         2008       2007

  Total Bookings                    $6,008   $4,832      $12,524     $9,990

  Backlog                           Period Ending
  (in millions)                   06/29/08 12/31/07

  Backlog                          $37,527  $36,614
  Funded Backlog                   $22,226  $20,518

The Company reported total bookings for the second quarter 2008 of $6.0 billion compared to $4.8 billion in the second quarter 2007. The Company ended the second quarter 2008 with a backlog of $37.5 billion compared to $36.6 billion at the end of 2007 and $33.3 billion at the end of the second quarter 2007.

  Outlook

  2008 Financial Outlook                     Current           Prior*

  Net Sales ($B)                           22.6 - 23.1       22.4 - 22.9
  FAS/CAS Pension Expense ($M)                 150               150
  Interest Expense, net ($M)                 40 - 55           45 - 60
  Diluted Shares (M)                        426 - 428         427 - 429
  EPS from Cont. Ops.                     $3.80 - $3.95     $3.65 - $3.80
  Operating Cash Flow from
   Cont. Ops. ($B)                           2.2 - 2.4         2.0 - 2.2
  ROIC (%)                                  9.9 - 10.4        9.6 - 10.1

  * As of April 24, 2008

The Company has increased full-year 2008 guidance for net sales, earnings per share from continuing operations, operating cash flow from continuing operations and Return on Invested Capital (ROIC), and updated net interest expense and diluted shares. Charts containing additional information on the Company's 2008 guidance are available on the Company's website at http://www.raytheon.com/. See attachment F for the Company's calculation and use of ROIC, a non-GAAP financial measure.

  Segment Results

  Integrated Defense Systems


                                   2nd Quarter     %      Six Months     %
  ($ in millions)                  2008    2007  Change  2008    2007 Change

  Net Sales                       $1,257  $1,166    8%  $2,449  $2,258   8%
  Operating Income                  $209    $212   -1%    $420    $411   2%
  Operating Margin                 16.6%   18.2%         17.1%   18.2%

Integrated Defense Systems (IDS) had second quarter 2008 net sales of $1,257 million, up 8 percent compared to $1,166 million in the second quarter 2007, primarily due to growth on U.S. Army programs. IDS recorded $209 million of operating income compared to $212 million in the second quarter 2007. The change in operating income was primarily due to program mix and favorable performance adjustments taken on certain programs in the second quarter 2007.

During the quarter, IDS booked $179 million for the upgrade and support of the Patriot system for Kuwait and South Korea. IDS also booked $143 million for the Rapid Aerostat Initial Deployment (RAID) program for the U.S. Army.

  Intelligence and Information Systems


                                    2nd Quarter   %      Six Months     %
  ($ in millions)                    2008  2007 Change  2008    2007  Change

  Net Sales                          $829  $666   24%  $1,521  $1,254   21%
  Operating Income                    $67   $63    6%    $119    $118    1%
  Operating Margin                   8.1%  9.5%          7.8%    9.4%

Intelligence and Information Systems (IIS) had second quarter 2008 net sales of $829 million, up 24 percent compared to $666 million in the second quarter 2007, primarily due to the U.K. e-Borders program. IIS recorded $67 million of operating income compared to $63 million in the second quarter 2007. The increase in operating income was primarily due to higher volume, partially offset by certain acquisition costs and other investments in cyber operations and information security capabilities.

During the quarter, IIS booked $497 million on a number of classified contracts, including $379 million on a major classified program.

  Missile Systems


                                    2nd Quarter  %      Six Months     %
  ($ in millions)                 2008    2007 Change  2008    2007  Change

  Net Sales                     $1,355  $1,244   9%  $2,666  $2,384   12%
  Operating Income                $156    $134  16%    $293    $254   15%
  Operating Margin               11.5%   10.8%        11.0%   10.7%

Missile Systems (MS) had second quarter 2008 net sales of $1,355 million, up 9 percent compared to $1,244 million in the second quarter 2007, primarily due to higher volume on the Phalanx, Paveway™, and Advanced Medium-Range Air-to-Air Missile (AMRAAM) programs. MS recorded $156 million of operating income compared to $134 million in the second quarter 2007. The increase in operating income was primarily due to higher volume and program performance.

During the quarter, MS booked $412 million for the production of AMRAAM for international customers and the U.S. Air Force. MS also booked $376 million for the production of Standard Missile-3 (SM-3) for the U.S. Navy and the Missile Defense Agency and $245 million for the production of Evolved Sea Sparrow Missiles (ESSM) for international customers and the U.S. Navy.

  Network Centric Systems

                                  2nd Quarter     %      Six Months     %
  ($ in millions)                 2008    2007  Change  2008    2007  Change

  Net Sales                      $1,173  $1,052   12%  $2,240  $1,981   13%
  Operating Income                 $145    $139    4%    $268    $256    5%
  Operating Margin                12.4%   13.2%         12.0%   12.9%

Network Centric Systems (NCS) had second quarter 2008 net sales of $1,173 million, up 12 percent compared to $1,052 million in the second quarter 2007, primarily due to increased volume on certain U.S. Army programs. NCS recorded $145 million of operating income compared to $139 million in the second quarter 2007. The increase in operating income was primarily due to higher volume.

During the quarter, NCS booked $115 million for the Airborne, Maritime and Fixed Site (AMF) Joint Tactical Radio System (JTRS) program.

  Space and Airborne Systems


                                    2nd Quarter     %      Six Months     %
  ($ in millions)                  2008    2007   Change  2008   2007 Change

  Net Sales                        $1,096  $1,065   3%  $2,091  $2,029   3%
  Operating Income                   $144    $133   8%    $265    $262   1%
  Operating Margin                  13.1%   12.5%        12.7%   12.9%

Space and Airborne Systems (SAS) had second quarter 2008 net sales of $1,096 million, up 3 percent compared to $1,065 million in the second quarter 2007. SAS recorded $144 million of operating income compared to $133 million in the second quarter 2007. The increase in operating income was primarily due to improved program performance.

  SAS booked $325 million on a number of classified contracts.

  Technical Services


                                    2nd Quarter   %     Six Months    %
  ($ in millions)                    2008  2007 Change  2008   2007 Change

  Net Sales                          $647  $514   26%  $1,168  $977   20%
  Operating Income                    $45   $32   41%     $80   $55   45%
  Operating Margin                   7.0%  6.2%          6.8%  5.6%

Technical Services (TS) had second quarter 2008 net sales of $647 million, up 26 percent compared to $514 million in the second quarter 2007, primarily due to training programs. TS recorded operating income of $45 million in the second quarter 2008 compared to $32 million in the second quarter 2007. The increase in operating income was primarily due to higher volume and improved program performance.

During the quarter, TS booked $309 million for work on the Warfighter Field Operations Customer Support (FOCUS) contract for the U.S. Army to provide live, virtual and constructive training services, bringing the year- to-date bookings on the program to $419 million.

Raytheon Company (NYSE: RTN), with 2007 sales of $21.3 billion, is a technology leader specializing in defense, homeland security and other government markets throughout the world. With a history of innovation spanning 86 years, Raytheon provides state-of-the-art electronics, mission systems integration and other capabilities in the areas of sensing; effects; and command, control, communications and intelligence systems, as well as a broad range of mission support services. With headquarters in Waltham, Mass., Raytheon employs 72,000 people worldwide.

Disclosure Regarding Forward-looking Statements

This release and the attachments contain forward-looking statements, including information regarding the Company's 2008 financial outlook, future plans, objectives, business prospects and anticipated financial performance. These forward-looking statements are not statements of historical facts and represent only the Company's current expectations regarding such matters. These statements inherently involve a wide range of known and unknown risks and uncertainties. The Company's actual actions and results could differ materially from what is expressed or implied by these statements. Specific factors that could cause such a difference include, but are not limited to: the Company's dependence on the U.S. Government for a significant portion of its business and the risks associated with U.S. Government sales, including changes or shifts in defense spending, uncertain funding of programs, potential termination of contracts, and difficulties in contract performance; the ability to procure new contracts; the risks of conducting business in foreign countries; the ability to comply with extensive governmental regulation, including import and export policies and procurement and other regulations; the impact of competition; the ability to develop products and technologies; the risk of cost overruns, particularly for the Company's fixed- price contracts; dependence on component availability, subcontractor performance and key suppliers; risks of a negative government audit; the use of accounting estimates in the Company's financial statements; risks associated with acquisitions, dispositions, joint ventures and other business arrangements; risks of an impairment of goodwill or other intangible assets; the outcome of contingencies and litigation matters, including government investigations; the ability to recruit and retain qualified personnel; the impact of potential security threats and other disruptions; and other factors as may be detailed from time to time in the Company's public announcements and Securities and Exchange Commission filings. The Company undertakes no obligation to make any revisions to the forward-looking statements contained in this release and the attachments or to update them to reflect events or circumstances occurring after the date of this release, including any acquisitions, dispositions or other business arrangements that may be announced or closed after such date. This release and the attachments also contain non-GAAP financial measures. A GAAP reconciliation and a discussion of the Company's use of these measures are included in this release or the attachments.

Conference Call on the Second Quarter 2008 Financial Results

Raytheon's financial results conference call will be held on Thursday, July 24, 2008 at 9 a.m. EDT. Participants will include William H. Swanson, Chairman and CEO, David C. Wajsgras, senior vice president and CFO, and other Company executives.

The dial-in number for the conference call will be (800) 901 - 5217. The conference call will also be audiocast on the Internet at http://www.raytheon.com/. Individuals may listen to the call and download charts that will be used during the call. These charts will be available for printing prior to the call.

Interested parties are encouraged to check the website ahead of time to ensure their computers are configured for the audio stream. Instructions for obtaining the free required downloadable software are posted on the site.

  Media Contact:                      Investor Relations Contact:
  Jon Kasle                           Jim Singer
  781-522-5110                        781-522-5136



  Attachment A

  Raytheon Company
  Preliminary Statement of Operations Information
  Second Quarter 2008

  (In millions, except per share amounts)

                                    Three Months Ended    Six Months Ended
                                    29-Jun-08 24-Jun-07  29-Jun-08 24-Jun-07

  Net sales                           $5,870   $5,278    $11,224    $10,082

  Cost of sales                        4,670    4,194      8,929      8,050
  Administrative and selling
   expenses                              396      357        776        687
  Research and development expenses      142      138        249        235

  Total operating expenses             5,208    4,689      9,954      8,972

  Operating income                       662      589      1,270      1,110

  Interest expense                        34       54         68        114
  Interest income                        (17)     (57)       (40)       (85)
  Other (income) expense, net             (2)      56          3         59

  Non-operating expense, net              15       53         31         88

  Income from continuing operations
   before taxes                          647      536      1,239      1,022

  Federal and foreign income taxes       221      181        413        343

  Income from continuing operations      426      355        826        679

  Income (loss) from discontinued
   operations, net of tax                  -       (6)        (2)        16
  Gain on sale of discontinued
   operation, net of tax                   -      986          -        986

  Income (loss) from discontinued
   operations, net of tax                  -      980         (2)     1,002

  Net income                            $426   $1,335       $824     $1,681

  Earnings per share from continuing
   operations
    Basic                              $1.03    $0.81      $1.99      $1.55
    Diluted                            $1.00    $0.79      $1.92      $1.51

  Earnings per share from
   discontinued operations
    Basic                                 $-    $2.24         $-      $2.28
    Diluted                               $-    $2.18         $-      $2.22

  Earnings per share
    Basic                              $1.03    $3.06      $1.98      $3.83
    Diluted                            $1.00    $2.97      $1.92      $3.73

  Average shares outstanding
    Basic                              414.0    436.7      416.1      438.9
    Diluted                            427.7    448.8      430.0      451.0



  Attachment B

  Raytheon Company
  Preliminary Segment Information
  Second Quarter 2008



                                                                Operating
                                                                  Income
                                               Operating       As a Percent
                             Net Sales           Income           of Sales
                           Three Months       Three Months     Three Months
                               Ended             Ended            Ended
                         29-Jun-   24-Jun-  29-Jun- 24-Jun-  29-Jun- 24-Jun-
                           08        07        08     07       08      07
  (In millions)
  Integrated Defense
   Systems               $1,257    $1,166    $209    $212     16.6%   18.2%
  Intelligence and
   Information Systems      829       666      67      63      8.1%    9.5%
  Missile Systems         1,355     1,244     156     134     11.5%   10.8%
  Network Centric
   Systems                1,173     1,052     145     139     12.4%   13.2%
  Space and Airborne
   Systems                1,096     1,065     144     133     13.1%   12.5%
  Technical Services        647       514      45      32      7.0%    6.2%
  FAS/CAS Pension
   Adjustment                 -         -     (34)    (63)
  Corporate and
   Eliminations            (487)     (429)    (70)    (61)

  Total                  $5,870    $5,278    $662    $589     11.3%   11.2%



                                                                Operating
                                                                  Income
                                                               As a Percent
                                               Operating         of Sales
                             Net Sales          Income          Six Months
                         Six Months Ended   Six Months Ended      Ended
                         29-Jun-   24-Jun-  29-Jun- 24-Jun-  29-Jun- 24-Jun-
                           08        07        08     07       08      07
  Integrated Defense
   Systems               $2,449    $2,258    $420    $411     17.1%   18.2%
  Intelligence and
   Information Systems    1,521     1,254     119     118      7.8%    9.4%
  Missile Systems         2,666     2,384     293     254     11.0%   10.7%
  Network Centric
   Systems                2,240     1,981     268     256     12.0%   12.9%
  Space and Airborne
   Systems                2,091     2,029     265     262     12.7%   12.9%
  Technical Services      1,168       977      80      55      6.8%    5.6%
  FAS/CAS Pension
   Adjustment                 -         -     (67)   (125)
  Corporate and
   Eliminations            (911)     (801)   (108)   (121)

  Total                 $11,224   $10,082  $1,270  $1,110     11.3%   11.0%



  Attachment C

  Raytheon Company
  Other Preliminary Information
  Second Quarter 2008

                                                              Funded
  (In millions)                        Backlog                Backlog
                                29-Jun-08  31-Dec-07   29-Jun-08  31-Dec-07

  Integrated Defense Systems      $8,882    $9,296      $5,044     $4,781
  Intelligence and Information
   Systems                         5,756     5,636       2,554      2,325
  Missile Systems                 10,250     9,379       5,873      5,218
  Network Centric Systems          5,479     5,102       4,244      3,957
  Space and Airborne Systems       5,102     5,276       3,301      3,037
  Technical Services               2,058     1,925       1,210      1,200

  Total                          $37,527   $36,614     $22,226    $20,518



                                          Bookings
                                     Three Months Ended
                                    29-Jun-08  24-Jun-07

  Total Bookings                      $6,008     $4,832



  Attachment D

  Raytheon Company
  Preliminary Balance Sheet Information
  Second Quarter 2008

  (In millions)
                                                29-Jun-08          31-Dec-07
  Assets
  Cash and cash equivalents                       $2,554             $2,655
  Accounts receivable, net                           113                126
  Contracts in process                             4,366              3,821
  Inventories                                        379                386
  Deferred taxes                                     440                432
  Prepaid expenses and other current
   assets                                            129                196
    Total current assets                           7,981              7,616

  Property, plant and equipment, net               2,021              2,058
  Prepaid retiree benefits                           645                617
  Goodwill                                        11,657             11,627
  Other assets, net                                1,293              1,363
      Total assets                               $23,597            $23,281

  Liabilities and Stockholders' Equity
  Advance payments and billings in
   excess of costs incurred                       $1,933             $1,845
  Accounts payable                                 1,128              1,141
  Accrued employee compensation                      846                902
  Other accrued expenses                             903                900
    Total current liabilities                      4,810              4,788

  Accrued retiree benefits and other
   long-term liabilities                           3,006              3,016
  Deferred taxes                                     543                451
  Long-term debt                                   2,269              2,268
  Minority interest                                  233                216
  Stockholders' equity
  Common stock                                         4                  4
  Additional paid-in capital                      10,788             10,544
  Accumulated other comprehensive loss            (1,856)            (1,956)
  Treasury stock, at cost                         (3,225)            (2,502)
  Retained earnings                                7,025              6,452
    Total stockholders' equity                    12,736             12,542
      Total liabilities and
       stockholders' equity                      $23,597            $23,281



  Attachment E

  Raytheon Company
  Preliminary Cash Flow Information
  Second Quarter 2008

  (In millions)                     Three Months Ended    Six Months Ended
                                   29-Jun-08  24-Jun-07  29-Jun-08 24-Jun-07

  Net income                         $426      $1,335      $824      $1,681
  (Income) loss from discontinued
   operations, net of tax               -        (980)        2      (1,002)
  Income from continuing operations   426         355       826         679

  Depreciation                         73          73       142         140
  Amortization                         24          21        47          40
  Working capital (excluding pension
   and taxes)*                        318         (39)     (385)       (692)
  Discontinued operations              (6)        (20)      (16)        (83)
  Net activity in financing
   receivables                          5          35        25          56
  Other                               (79)       (475)      179        (606)
      Net operating cash flow         761         (50)      818        (466)

  Capital spending                    (56)        (57)      (99)        (95)
  Internal use software spending      (13)        (19)      (30)        (34)
  Acquisitions                        (33)          -       (34)          -
  Investment activity and
   divestitures                         9       3,117         9       3,117
  Dividends                          (118)       (113)     (227)       (220)
  Repurchases of common stock        (340)       (526)     (680)       (801)
  Debt repayments                       -      (1,041)        -      (1,038)
  Discontinued operations               -           -         -         (28)
  Other                                57          74       142         150
      Total cash flow                $267      $1,385     $(101)       $585

* Working capital (excluding pension and taxes) is a summation of changes in: accounts receivable, net, contracts in process and advance payments and billings in excess of costs incurred, inventories, prepaid expenses and other current assets, accounts payable, accrued employee compensation, and other accrued expenses from the Statements of Cash Flows.

  Attachment F

  Raytheon Company
  Preliminary Return on Invested Capital Non-GAAP Financial Measure
  Second Quarter 2008

We define Return on Invested Capital (ROIC) as income from continuing operations plus after-tax net interest expense plus one-third of operating lease expense after-tax (estimate of interest portion of operating lease expense) divided by average invested capital after capitalizing operating leases (operating lease expense times a multiplier of 8), adding financial guarantees less net investment in Discontinued Operations, and adding back the impact of Statement of Financial Accounting Standards No. 158, Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans (SFAS No. 158). ROIC is not a measure of financial performance under generally accepted accounting principles (GAAP) and may not be defined and calculated by other companies in the same manner. ROIC should be considered supplemental to and not a substitute for financial information prepared in accordance with GAAP. We use ROIC as a measure of efficiency and effectiveness of our use of capital and as an element of management compensation.

  Return on Invested Capital

                                       2008 Current           2008 Prior
  (In millions)                          Guidance              Guidance
                                    Low end   High end    Low end   High end
                                    of range  of range    of range  of range
  Income from continuing
   operations
  Net interest expense,
   after-tax*                       Combined  Combined    Combined  Combined
  Lease expense, after-tax*
  Return                             $1,715    $1,780      $1,655    $1,720

  Net debt**
  Equity less investment in
   discontinued operations
  Lease expense x 8, plus
   financial guarantees             Combined  Combined    Combined  Combined
  SFAS No. 158 impact

  Invested capital from
   continuing operations***         $17,300   $17,100     $17,300   $17,100

  ROIC                                 9.9%     10.4%        9.6%     10.1%

  *   Effective 2008 tax rate: 33.5% (2008 guidance)

** Net debt is defined as total debt less cash and cash equivalents and is calculated using a 2 point average

*** Calculated using a 2 point average

SOURCE: Raytheon Company

CONTACT: Media, Jon Kasle, +1-781-522-5110, or Investors, Jim Singer,
+1-781-522-5136, both of Raytheon Company

Web site: http://www.raytheon.com/

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