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Raytheon Reports Strong Third Quarter 2005 EPS of $0.51 from Continuing Operations, up 24 Percent
* Sales of $5.3 billion, up 8 percent * Free cash flow from continuing operations of $702 million * Increased 2005 guidance for full-year EPS, bookings and free cash flow
WALTHAM, Mass., Oct. 27, 2005 /PRNewswire-FirstCall/ -- Raytheon Company (NYSE: RTN) reported third quarter 2005 income from continuing operations of $231 million or $0.51 per diluted share compared to $186 million or $0.41 per diluted share in the third quarter 2004. Third quarter 2005 income from continuing operations was higher due to better operating results in both the Government and Defense businesses and at Raytheon Aircraft Company (RAC) combined with lower interest expense.
Third quarter 2005 net income was $228 million or $0.50 per diluted share compared to $152 million or $0.34 per diluted share in the third quarter 2004. Net income for the third quarter of 2005 included a $3 million after-tax loss in discontinued operations or $0.01 per diluted share versus a $34 million after-tax loss or $0.07 per diluted share in the third quarter 2004.
"Our performance and operating results this quarter continue to demonstrate the strength of the Company," said William H. Swanson, Raytheon's Chairman and CEO. "This strength is reflected in our increased 2005 guidance for full-year EPS, bookings and free cash flow from continuing operations."
Net sales for the third quarter 2005 were $5.3 billion, up 8 percent from $4.9 billion in the 2004 comparable quarter. Government and Defense sales for the quarter (after the elimination of intercompany sales) increased 9 percent to $4.5 billion from $4.1 billion in the 2004 comparable quarter. RAC sales for the quarter increased 3 percent to $642 million from $624 million in the 2004 comparable quarter.
Free cash flow from continuing operations for the third quarter 2005 was $702 million versus $268 million for the 2004 comparable quarter. In the third quarter 2004, the Company made a $210 million payment to settle a shareholder lawsuit. Free cash flow is defined by the Company as operating cash flow less capital spending and internal use software spending.
During the third quarter of 2005, the Company repurchased 5 million shares of common stock for $198 million as part of the Company's previously announced $700 million share repurchase program, bringing the total shares of common stock repurchased year-to-date to 10 million for $390 million.
Net debt was $4.2 billion at the end of the third quarter 2005 compared with $4.6 billion at the end of 2004. After the end of the quarter, the Company initiated the redemption of $196 million of 7.375% debentures due July 15, 2025.
Summary Financial Results 3rd Quarter % Nine Months % (in millions, except per share data) 2005 2004 Change 2005 2004 Change Net Sales $5,331 $4,936 8% $15,684 $14,541 8% Total Operating Expenses 4,917 4,579 14,466 13,593 Operating Income 414 357 16% 1,218 948 28% Non-operating Expenses 61 94 212 661 Income from Cont. Ops. before Taxes $353 $263 34% $1,006 $287 251% Income from Continuing Operations $231 $186 24% $660 $193 242% Net Income $228 $152 50% $595 $172 246% Diluted EPS from Continuing Operations $0.51 $0.41 24% $1.45 $0.44 230% Diluted EPS $0.50 $0.34 47% $1.31 $0.39 236% Free Cash Flow from Cont. Operations $702 $268 $1,100 $888 Bookings and Backlog Bookings 3rd Quarter Nine Months (in millions) 2005 2004 2005 2004 Bookings Government and Defense $3,422 $4,770 $15,317 $17,667 Commercial 737 969 2,187 2,558 Total Bookings $4,159 $5,739 $17,504 $20,225 Backlog Period ending (in millions) 09/25/05 12/31/04 Backlog $33,122 $32,543 Funded Backlog $17,430 $18,403
The Government and Defense businesses recorded third quarter 2005 bookings of $3.4 billion compared to bookings of $4.8 billion in the third quarter of 2004.
Raytheon Aircraft Company's third quarter 2005 bookings were $572 million compared to $704 million in the 2004 comparable quarter.
The Company ended the quarter with a backlog of $33.1 billion compared to $32.5 billion at the end of 2004. The Government and Defense businesses ended the quarter with a backlog of $30.7 billion compared to $29.6 billion at the end of 2004.
Outlook 2005 Financial Outlook Prior * Current Bookings $23.7B - $24.7B $24.5B - $25.0B Net Sales $21.6B - $22.1B $21.6B - $22.1B FAS/CAS Pension Expense $463M $465M Interest Expense, net $285M - $300M $265M - $275M Diluted Shares 455M 454M EPS from Cont. Ops. $1.90 - $2.00 $2.00 - $2.05 Cont. Ops./Total Free Cash Flow $1.3B - $1.5B $1.6B - $1.8B * As of July 28, 2005
The Company has increased full-year 2005 guidance for earnings per share from continuing operations, bookings, and free cash flow from operations. The Company has decreased full-year 2005 guidance for net interest expense. Charts containing additional information on the Company's guidance are available on the Company's website at http://www.raytheon.com/.
2006 Financial Outlook
Bookings $22.0B-$23.0B
Net Sales
Government and Defense $20.8B-$21.3B
Eliminations of Intercompany Sales ($1.6B)
Government and Defense after Elims $19.2B-$19.7B
Raytheon Aircraft $3.0B-$3.2B
Other $0.7B-$0.8B
Total Company $23.1B-$23.6B
EPS from Cont. Ops. $2.40-$2.50
Free Cash Flow $1.2B-$1.4B
Charts containing additional information on the Company's 2006 guidance are available on the Company's website at http://www.raytheon.com/.
Segment Results
Integrated Defense Systems
3rd Quarter % Nine Months %
(in millions, except margin
percent) 2005 2004 Change 2005 2004 Change
Net Sales $919 $833 10% $2,765 $2,542 9%
Operating Income $134 $100 34% $394 $298 32%
Operating Margin 14.6% 12.0% 14.2% 11.7%
Integrated Defense Systems (IDS) had third quarter 2005 net sales of $919 million, up 10 percent compared to $833 million in the third quarter 2004, primarily due to growth in international programs and the Cobra Judy program partially offset, as expected, by lower sales on the Sea-Based Radar program. IDS recorded $134 million of third quarter 2005 operating income compared to $100 million in the comparable quarter a year ago. Operating income was higher primarily due to increased sales on international programs and program performance improvements.
Intelligence and Information Systems
3rd Quarter % Nine Months %
(in millions, except margin
percent) 2005 2004 Change 2005 2004 Change
Net Sales $649 $597 9% $1,821 $1,704 7%
Operating Income $57 $53 8% $166 $150 11%
Operating Margin 8.8% 8.9% 9.1% 8.8%
Intelligence and Information Systems (IIS) had third quarter 2005 net sales of $649 million, up 9 percent compared to $597 million in the third quarter 2004, primarily due to continued growth in classified programs. IIS recorded $57 million of operating income compared to $53 million in the comparable quarter a year ago.
During the quarter, IIS booked $537 million on a number of classified contracts.
As previously announced, during the quarter the Company acquired UTD, Inc., a privately held science and engineering company, which will add to Raytheon's capabilities in mission support.
Missile Systems
3rd Quarter % Nine Months %
(in millions, except margin
percent) 2005 2004 Change 2005 2004 Change
Net Sales $1,005 $928 8% $3,002 $2,832 6%
Operating Income $104 $109 -5% $313 $322 -3%
Operating Margin 10.3% 11.7% 10.4% 11.4%
Missile Systems (MS) had third quarter 2005 net sales of $1,005 million, up 8 percent compared to $928 million in the third quarter 2004, primarily due to a ramp up on Tactical Tomahawk and several developmental programs. MS recorded $104 million of operating income compared to $109 million in the comparable quarter a year ago. Last year's third quarter operating income included cost recovery for previous years' restructuring actions.
During the quarter, MS booked $98 million for the Javelin Supplemental for the U.S. Army. MS also booked $86 million for the production of Standard Missile-3 (SM-3) for the U.S. Navy and the Missile Defense Agency.
Network Centric Systems
3rd Quarter % Nine Months %
(in millions, except margin
percent) 2005 2004 Change 2005 2004 Change
Net Sales $833 $764 9% $2,399 $2,226 8%
Operating Income $87 $64 36% $244 $182 34%
Operating Margin 10.4% 8.4% 10.2% 8.2%
Network Centric Systems (NCS) had third quarter 2005 net sales of $833 million, up 9 percent compared to $764 million in the third quarter 2004 primarily due to increased effort on development programs and communication programs. NCS recorded operating income of $87 million compared to $64 million in the comparable quarter a year ago. Operating income was higher due to improved performance.
Space and Airborne Systems
3rd Quarter % Nine Months %
(in millions, except margin
percent) 2005 2004 Change 2005 2004 Change
Net Sales $1,013 $929 9% $3,030 $2,927 4%
Operating Income $143 $138 4% $444 $409 9%
Operating Margin 14.1% 14.9% 14.7% 14.0%
Space and Airborne Systems (SAS) had third quarter 2005 net sales of $1,013 million, up 9 percent compared to $929 million in the third quarter 2004 primarily due to growth in ATFLIR production and airborne radar programs. SAS recorded $143 million of operating income compared to $138 million in the comparable quarter a year ago.
During the quarter, SAS booked $551 million on a number of classified contracts.
Technical Services
3rd Quarter % Nine Months %
(in millions, except margin
percent) 2005 2004 Change 2005 2004 Change
Net Sales $479 $489 -2% $1,455 $1,417 3%
Operating Income $38 $38 0% $107 $104 3%
Operating Margin 7.9% 7.8% 7.4% 7.3%
Technical Services (TS) had third quarter 2005 net sales of $479 million compared to $489 million in the third quarter 2004. TS recorded operating income of $38 million in the third quarter of 2005 and in the comparable quarter a year ago.
During the quarter, TS was awarded an additional $62 million in orders, with a potential value of $564 million, from the Defense Threat Reduction Agency (DTRA) for work in the former Soviet Union.
Aircraft
3rd Quarter % Nine Months %
(in millions, except margin
percent) 2005 2004 Change 2005 2004 Change
Net Sales $642 $624 3% $1,771 $1,568 13%
Operating Income $34 $21 62% $69 $16 331%
Operating Margin 5.3% 3.4% 3.9% 1.0%
Raytheon Aircraft Company (RAC) had third quarter 2005 net sales of $642 million compared to $624 million in the third quarter 2004. RAC recorded operating income of $34 million in the quarter compared to $21 million in the comparable quarter in 2004. Operating income was higher due to commercial and Special Mission delivery mix, higher revenue from other government programs, and continued improved operating performance.
Other
Net sales for the Other segment in the third quarter 2005 were $185 million compared to $164 million in the third quarter 2004. The segment recorded an operating loss of $25 million in the third quarter 2005 compared to an operating loss of $7 million in the comparable quarter in 2004.
Discontinued Operations
During the quarter, the Company recorded an after-tax loss from discontinued operations of $3 million or $0.01 per diluted share related to its former engineering and construction and Aircraft Integration Systems businesses.
Raytheon Company (NYSE: RTN), with 2004 sales of $20.2 billion, is an industry leader in defense and government electronics, space, information technology, technical services, and business and special mission aircraft. With headquarters in Waltham, Mass., Raytheon employs 80,000 people worldwide.
Disclosure Regarding Forward-looking Statements
Certain statements included in this release, including any statements relating to the Company's future plans, objectives, and projected future financial performance, contain or are based on, forward-looking statements within the meaning of the federal securities laws. Specifically, statements that are not historical facts, including statements accompanied by words such as "believe," "expect," "estimate," "intend," or "plan," and variations of these words and similar expressions, are intended to identify forward-looking statements and convey the uncertainty of future events or outcomes. The Company cautions readers that any such forward-looking statements are based on assumptions that the Company believes are reasonable, but are subject to a wide range of risks, and actual results may differ materially. The Company expressly disclaims any current intention to provide updates to forward- looking statements, and the estimates and assumptions associated with them, after the date of this release. Important factors that could cause actual results to differ include, but are not limited to: the ability to obtain or the timing of obtaining future government awards; the availability of government funding; changes in government or customer priorities due to program reviews or revisions to strategic objectives; difficulties in developing and producing operationally advanced products and technology systems; termination of government contracts; program performance, including resolution of claims; timing of contract payments; the performance of critical subcontractors; government import and export policies and other government regulations; the ultimate resolution of contingencies and legal matters, including government investigations; the ultimate resolution of insurance coverage for class action shareholder and derivative lawsuits against the Company; the effect of regulatory actions and market conditions, particularly in relation to the general aviation, commuter, and fractional aircraft businesses; cost growth risks inherent with large long-term fixed price contracts; conflicts with other investors and business risks in joint ventures and less than wholly-owned businesses; and risks associated with our former engineering and construction business related to outstanding letters of credit, surety bonds, guarantees and similar agreements and the resolution of claims and litigation. Further information regarding the factors that could cause actual results to differ materially from the projected results can be found in the Company's filings with the Securities and Exchange Commission, including the Company's Annual Report on Form 10-K for the year ended December 31, 2004 and quarterly reports on Form 10-Q, copies of which may be obtained at the Company's website at http://www.raytheon.com/.
Conference Call on the Third Quarter 2005 Financial Results
Raytheon's financial results conference call will be Thursday, October 27, 2005 at 9 a.m. EDT. Participants will be William H. Swanson, Chairman and CEO, Biggs C. Porter, vice president and corporate controller, and acting CFO, and other Company executives.
The dial-in number for the conference call will be (800) 265 - 0241. 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 urged 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:
James Fetig Greg Smith
781-522-5111 781-522-5141
Attachment A
Raytheon Company
Financial Information
Third Quarter 2005
(In millions except per
share amounts) Three Months Ended Nine Months Ended
25-Sep-05 26-Sep-04 25-Sep-05 26-Sep-04
Net sales $5,331 $4,936 $15,684 $14,541
Cost of sales 4,445 4,129 13,053 12,242
Administrative and selling
expenses 348 327 1,053 986
Research and development expenses 124 123 360 365
Total operating expenses 4,917 4,579 14,466 13,593
Operating income 414 357 1,218 948
Interest expense 79 100 237 326
Interest income (14) (11) (38) (33)
Other expense, net (4) 5 13 368
Non-operating expense, net 61 94 212 661
Income from continuing operations
before taxes 353 263 1,006 287
Federal and foreign income taxes 122 77 346 94
Income from continuing operations 231 186 660 193
Loss from discontinued
operations, net of tax (3) (34) (65) (62)
Income before accounting change 228 152 595 131
Cumulative effect of change in
accounting principle, net of tax - - - 41
Net income $228 $152 $595 $172
Earnings per share from
continuing operations
Basic $0.52 $0.41 $1.47 $0.44
Diluted $0.51 $0.41 $1.45 $0.44
Loss per share from discontinued
operations
Basic $(0.01) $(0.08) $(0.14) $(0.14)
Diluted $(0.01) $(0.07) $(0.14) $(0.14)
Earnings per share from
cumulative effect of change in
accounting principle
Basic $- $- $- $0.09
Diluted $- $- $- $0.09
Earnings per share
Basic $0.51 $0.34 $1.33 $0.40
Diluted $0.50 $0.34 $1.31 $0.39
Average shares outstanding
Basic 445.6 449.2 448.4 434.1
Diluted 452.1 453.5 454.4 437.3
Attachment B
Raytheon Company
Segment Information
Third Quarter 2005
(In millions)
Operating Income
Net Sales Operating Income As a Percent of Sales
Three Months Ended Three Months Ended Three Months Ended
25-Sep-05 26-Sep-04 25-Sep-05 26-Sep-04 25-Sep-05 26-Sep-04
Integrated Defense
Systems $919 $833 $134 $100 14.6% 12.0%
Intelligence and
Information
Systems 649 597 57 53 8.8% 8.9%
Missile Systems 1,005 928 104 109 10.3% 11.7%
Network Centric
Systems 833 764 87 64 10.4% 8.4%
Space and Airborne
Systems 1,013 929 143 138 14.1% 14.9%
Technical Services 479 489 38 38 7.9% 7.8%
Aircraft 642 624 34 21 5.3% 3.4%
Other 185 164 (25) (7) -13.5% -4.3%
FAS/CAS Pension
Adjustment - - (117) (117)
Corporate and
Eliminations (394) (392) (41) (42)
Total $5,331 $4,936 $414 $357 7.8% 7.2%
Operating Income
Net Sales Operating Income As a Percent of Sales
Nine Months Ended Nine Months Ended Nine Months Ended
25-Sep-05 26-Sep-04 25-Sep-05 26-Sep-04 25-Sep-05 26-Sep-04
Integrated Defense
Systems $2,765 $2,542 $394 $298 14.2% 11.7%
Intelligence and
Information
Systems 1,821 1,704 166 150 9.1% 8.8%
Missile Systems 3,002 2,832 313 322 10.4% 11.4%
Network Centric
Systems 2,399 2,226 244 182 10.2% 8.2%
Space and Airborne
Systems 3,030 2,927 444 409 14.7% 14.0%
Technical Services 1,455 1,417 107 104 7.4% 7.3%
Aircraft 1,771 1,568 69 16 3.9% 1.0%
Other 566 492 (66) (29) -11.7% -5.9%
FAS/CAS Pension
Adjustment - - (349) (356)
Corporate and
Eliminations (1,125) (1,167) (104) (148)
Total $15,684 $14,541 $1,218 $948 7.8% 6.5%
Attachment C
Raytheon Company
Other Information
Third Quarter 2005
Funded
Backlog Backlog
(In millions) (In millions)
25-Sep-05 31-Dec-04 25-Sep-05 31-Dec-04
Integrated Defense Systems $7,004 $6,628 $3,178 $3,454
Intelligence and Information
Systems 4,153 4,066 612 811
Missile Systems 8,011 8,341 4,395 4,517
Network Centric Systems 4,175 3,587 2,881 2,623
Space and Airborne Systems 5,690 5,216 2,957 3,127
Technical Services 1,635 1,773 953 939
Aircraft 2,203 2,638 2,203 2,638
Other 251 294 251 294
$33,122 $32,543 $17,430 $18,403
Government and Defense businesses $30,668 $29,611 $14,976 $15,471
U.S. government backlog included
above $26,960 $25,525
Bookings
(In millions)
Three Months Ended
25-Sep-05 26-Sep-04
Government and Defense businesses $3,422 $4,770
Commercial businesses 737 969
$4,159 $5,739
New Aircraft Deliveries (Units)
Three Months Ended
25-Sep-05 26-Sep-04
Hawker 800XP 13 13
Premier I / IA 2 11
Hawker 400XP 14 5
King Air 27 31
Pistons 8 25
T-6A 16 18
Total 80 103
New Aircraft Bookings (Units)
Three Months Ended
25-Sep-05 26-Sep-04
Horizon - 1
Hawker 800XP 11 20
Premier I / IA 9 9
Hawker 400XP 11 4
King Air 38 46
Pistons 13 78
Total 82 158
Attachment D
Raytheon Company
Preliminary Financial Information
Third Quarter 2005
(In millions)
Balance sheets
25-Sep-05 31-Dec-04
Assets
Cash and cash equivalents $820 $556
Accounts receivable 452 478
Contracts in process 3,676 3,514
Inventories 2,014 1,745
Deferred federal and foreign income
taxes 420 469
Prepaid expenses and other current
assets 316 343
Assets from discontinued operations 15 19
Total current assets 7,713 7,124
Property, plant and equipment, net 2,591 2,738
Deferred federal and foreign income
taxes - 71
Goodwill 11,549 11,516
Other assets, net 2,471 2,704
Total assets $24,324 $24,153
Liabilities and Stockholders' Equity
Notes payable and current portion of
long-term debt $472 $516
Subordinated notes payable 408 -
Advance payments and billings in
excess of costs incurred 2,056 1,900
Accounts payable 964 867
Accrued salaries and wages 968 934
Other accrued expenses 1,317 1,403
Liabilities from discontinued
operations 29 24
Total current liabilities 6,214 5,644
Accrued retiree benefits and other
long-term liabilities 3,145 3,224
Deferred federal and foreign income
taxes 150 -
Long-term debt 4,170 4,229
Subordinated notes payable - 408
Minority interest 140 97
Stockholders' equity 10,505 10,551
Total liabilities and
stockholders' equity $24,324 $24,153
Attachment E
Raytheon Company
Preliminary Cash Flow Information
Third Quarter 2005
(In millions)
Cash flow information
Three Months Ended Nine Months Ended
25-Sep-05 26-Sep-04 25-Sep-05 26-Sep-04
Income from continuing
operations $231 $186 $660 $193
Depreciation 86 93 262 267
Amortization 23 19 65 54
Working capital 245 (62) (106) 215
Discontinued operations (4) (16) (56) (32)
Capital spending (71) (75) (183) (209)
Internal use software spending (25) (23) (61) (73)
Net activity in financing
receivables (12) 48 79 145
Other 225 82 384 296
Subtotal - free cash flow (a) 698 252 1,044 856
Sale of short-term investments - - - (74)
Acquisitions (39) - (99) (70)
Investment activity and
divestitures - - 7 4
Dividends (99) (90) (289) (258)
Issuance of common stock - - - 867
Repurchase of common stock (198) - (390) -
Debt repayments (31) (143) (93) (1,001)
Other 35 26 84 64
Total cash flow $366 $45 $264 $388
Segment free cash flow information
Three Months Ended Nine Months Ended
25-Sep-05 26-Sep-04 25-Sep-05 26-Sep-04
Integrated Defense Systems $115 $80 $275 $273
Intelligence and Information
Systems 48 78 63 112
Missile Systems 16 28 298 220
Network Centric Systems 215 139 217 67
Space and Airborne Systems 198 50 20 157
Technical Services 58 17 72 20
Aircraft (75) 86 (82) 133
Other 18 13 42 (37)
Discontinued operations (4) (16) (56) (32)
Corporate 109 (223) 195 (57)
Total free cash flow $698 $252 $1,044 $856
(a) See Attachment F for a description of free cash flow.
Attachment F
Raytheon Company
Non-GAAP Financial Measures
Third Quarter 2005
Free cash flow is a "non-GAAP" financial measure under SEC regulations.
The Company defines free cash flow as operating cash flow less capital
spending and internal use software spending. Our definition may differ
from similarly titled measures used by others. The Company uses free cash
flow to facilitate management's internal comparisons to the Company's
historical operating results and to competitors' operating results and as
an element of management incentive compensation. The Company believes
disclosure of free cash flow performance provides investors greater
transparency with respect to information used by management in its
financial and operational decision making. While this information may be
useful in evaluating the Company, it should be considered supplemental
to and not as a substitute for financial information prepared in
accordance with generally accepted accounting principles.
Free cash flow
Three Months Ended Nine Months Ended
25-Sep-05 26-Sep-04 25-Sep-05 26-Sep-04
Operating cash flow $794 $350 $1,288 $1,138
Less: Capital spending (71) (75) (183) (209)
Internal use software spending (25) (23) (61) (73)
Free cash flow 698 252 1,044 856
Plus: Discontinued operations 4 16 56 32
Free cash flow from
continuing operations $702 $268 $1,100 $888
Free cash flow guidance
2005 Current Guidance Prior Guidance
Full year Low end High end Low end High end
of range of range of range of range
Operating cash flow $2,105 $2,260 $1,735 $1,895
Less: Capital and internal
software spending (500) (450) (500) (450)
Free cash flow 1,605 1,810 1,235 1,445
Plus: Discontinued operations 40 35 80 75
Free cash flow from
continuing operations $1,645 $1,845 $1,315 $1,520
2006 Guidance
Full year Low end of range High end of range
Operating cash flow $1,700 $1,855
Less: Capital and internal
software spending (530) (480)
Free cash flow 1,170 1,375
Plus: Discontinued operations 30 25
Free cash flow from
continuing operations $1,200 $1,400
SOURCE: Raytheon Company
CONTACT: Media Contact: James Fetig, +1-781-522-5111, or Investor
Relations Contact: Greg Smith, +1-781-522-5141, both of Raytheon Company
Web site: http://www.raytheon.com/