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Raytheon Reports Strong First Quarter Results

Highlights

WALTHAM, Mass., April 25, 2007 /PRNewswire-FirstCall/ -- Raytheon Company (NYSE: RTN) reported first quarter 2007 income from continuing operations of $314 million or $0.69 per diluted share compared to $272 million or $0.61 per diluted share in the first quarter 2006. First quarter 2007 income from continuing operations was higher primarily due to improved operating results at Integrated Defense Systems (IDS), Missile Systems (MS), and Network Centric Systems (NCS).

"Our first quarter was another good quarter for the Company and a strong start to the year," said William H. Swanson, Raytheon's Chairman and CEO.

First quarter 2007 net income was $346 million or $0.76 per diluted share compared to $287 million or $0.64 per diluted share in the first quarter 2006. Net income for the first quarter 2007 included $32 million of income from discontinued operations or $0.07 per diluted share, primarily due to the results of Raytheon Aircraft Company (RAC), versus $15 million of income from discontinued operations or $0.03 per diluted share in the first quarter 2006. As previously announced, after the first quarter close, Raytheon completed the sale of RAC to Hawker Beechcraft Inc. for $3.3 billion, with after-tax net proceeds of approximately $2.5 billion. The Company expects to record a net after-tax gain of approximately $1 billion in the second quarter.

Net sales for the first quarter 2007 were $4.9 billion, up 6 percent from $4.7 billion in the first quarter 2006.

Operating cash flow from continuing operations for the first quarter 2007 was an outflow of $379 million versus an outflow of $48 million for the first quarter 2006. The decrease in operating cash flow was primarily due to a $400 million discretionary cash contribution made to the Company's pension plans in the first quarter 2007 versus a $200 million discretionary cash contribution made in the first quarter 2006.

During the first quarter 2007, the Company repurchased 5.1 million shares for $275 million as part of the Company's previously announced share repurchase program. In addition, as announced in March 2007, the Company's Board of Directors authorized a 6 percent increase to the Company's annual dividend, from $0.96 to $1.02 per share.

Net debt was $2.3 billion at the end of the first quarter 2007 compared with $1.5 billion at year-end 2006. Net debt is defined as total debt less cash and cash equivalents.

After the completion of the RAC sale in the second quarter, the Company initiated the redemption of approximately $1 billion of debt maturing from 2008 - 2010, which is expected to be completed on April 27, 2007. The Company expects to record a charge in the second quarter of approximately $40 million after-tax ($60 million pretax) primarily associated with the make-whole provision of this early debt retirement.

  Summary Financial Results                      1st Quarter            %
  ($ in millions, except per share data)      2007         2006       Change

  Net Sales                                 $4,928       $4,660         6%
  Total Operating Expenses                   4,418        4,227
  Operating Income                             510          433        18%
  Non-operating Expenses                        35           22
  Income from Cont. Ops. before Taxes         $475         $411        16%
  Income from Continuing Operations           $314         $272        15%
  Net Income                                  $346         $287        21%

  Diluted EPS from Continuing Operations     $0.69        $0.61        13%
  Diluted EPS                                $0.76        $0.64        19%

  Operating Cash Flow from Cont. Ops.        $(379)        $(48)



  Bookings and Backlog

  Bookings                                               1st Quarter
  (in millions)                                     2007               2006

  Total Bookings                                  $5,282             $4,967

  Backlog                                              Period ending
  (in millions)                                 03/25/07           12/31/06

  Backlog                                        $33,909            $33,838
  Funded Backlog                                 $18,592            $18,186

The Company reported total bookings for the first quarter 2007 of $5.3 billion compared to $5.0 billion in the first quarter 2006. The Company ended the first quarter 2007 with a record backlog of $33.9 billion compared to $31.8 billion at the end of the first quarter 2006 and $33.8 billion at the end of 2006.

  Outlook

  2007 Financial Outlook

  Bookings ($B)                                 21.0 - 22.0
  Net Sales ($B)                                21.4 - 21.9
  FAS/CAS Pension Expense ($M)                      270
  Interest Expense, net ($M)                      65 - 80
  Diluted Shares (M)                             446 - 448
  EPS from Cont. Ops. ($)                       2.85 - 3.00

  Operating Cash Flow from Cont. Ops. ($B)       1.5 - 1.7
  ROIC (%)                                       8.2 - 8.7


  The Company reaffirms the full-year 2007 outlook as detailed above.

Charts containing additional information on the Company's 2007 performance and guidance are available on the Company's website at http://www.raytheon.com/. See attachment F for information on the Company's calculation and use of ROIC, a non-GAAP financial measure.

  Segment Results

  Integrated Defense Systems

                                               1st Quarter            %
  ($ in millions)                             2007        2006      Change

  Net Sales                                 $1,092        $963        13%
  Operating Income                            $199        $158        26%
  Operating Margin                           18.2%       16.4%

Integrated Defense Systems (IDS) had first quarter 2007 net sales of $1,092 million, up 13 percent compared to $963 million in the first quarter 2006, primarily due to growth on Missile Defense Agency, U.S. Navy and U.S. Army programs, as well as on international programs. IDS recorded $199 million of operating income compared to $158 million in the first quarter 2006. The increase in operating income was primarily due to higher volume and improved performance on several domestic and international programs.

During the quarter, IDS booked $229 million for additional development work, including ship integration and detail design for the U.S. Navy's Zumwalt Class program. IDS also booked $148 million for the manufacture and integration support of a Terminal High Altitude Area Defense (THAAD) radar for the Missile Defense Agency and $144 million to provide engineering services support to the Patriot air and missile defense program for the U.S. Army.

  Intelligence and Information Systems

                                                1st Quarter            %
  ($ in millions)                             2007        2006      Change

  Net Sales                                   $588        $611        -4%
  Operating Income                             $55         $55         NM
  Operating Margin                            9.4%        9.0%

Intelligence and Information Systems (IIS) had first quarter 2007 net sales of $588 million compared to $611 million in the first quarter 2006, a decrease primarily due to reprioritization and procurement delays on certain classified programs, as previously disclosed. IIS recorded $55 million of operating income in the first quarter 2007 and the first quarter 2006.

During the quarter, IIS booked $286 million on a number of classified contracts.

  Missile Systems

                                                1st Quarter            %
  ($ in millions)                             2007        2006      Change

  Net Sales                                 $1,140        $989        15%
  Operating Income                            $120        $110         9%
  Operating Margin                           10.5%       11.1%

Missile Systems (MS) had first quarter 2007 net sales of $1,140 million, up 15 percent compared to $989 million in the first quarter 2006, primarily due to higher volume on Standard Missile and Phalanx. MS recorded $120 million of operating income compared to $110 million in the first quarter 2006.

During the quarter, MS booked $255 million for the production of Block IV Tactical Tomahawk cruise missiles for the U.S. Navy. MS also booked $101 million for the production of the Joint Standoff Weapons (JSOW) for the U.S. Air Force and Navy.

  Network Centric Systems

                                                1st Quarter            %
  ($ in millions)                            2007        2006       Change

  Net Sales                                  $929         $791        17%
  Operating Income                           $117          $84        39%
  Operating Margin                          12.6%        10.6%

Network Centric Systems (NCS) had first quarter 2007 net sales of $929 million, up 17 percent compared to $791 million in the first quarter 2006, primarily due to growth on U.S. Army programs. NCS recorded $117 million of operating income compared to $84 million in the first quarter 2006. The increase in operating income was primarily due to higher volume and improved program performance.

During the quarter, NCS booked $122 million to provide support for the Firefinder locating radar program and $92 million for the production of Commander's Independent Viewers (CIVs) for the U.S. Army.

  Space and Airborne Systems

                                                1st Quarter            %
  ($ in millions)                            2007        2006       Change

  Net Sales                                  $964       $1,018        -5%
  Operating Income                           $129         $145       -11%
  Operating Margin                          13.4%        14.2%

Space and Airborne Systems (SAS) had first quarter 2007 net sales of $964 million, down 5 percent compared to $1,018 million in the first quarter 2006, primarily due to the planned transition from development to production on several major programs. SAS recorded $129 million of operating income compared to $145 million in the first quarter 2006. Operating income was lower primarily due to favorable program profit and cost adjustments recorded from certain production programs in the first quarter 2006.

During the quarter, SAS booked $96 million on a number of classified contracts.

  Technical Services

                                                1st Quarter            %
  ($ in millions)                            2007        2006       Change

  Net Sales                                  $426        $450         -5%
  Operating Income                            $21         $31        -32%
  Operating Margin                           4.9%        6.9%

Technical Services (TS) had first quarter 2007 net sales of $426 million, down 5 percent compared to $450 million in the first quarter 2006, primarily due to lower volume on a support services program, as well as reduced bookings at the end of 2006. TS recorded operating income of $21 million in the first quarter 2007 compared to $31 million in the first quarter 2006. Operating income was lower primarily due to profit adjustments recorded on certain programs and reduced volume.

During the quarter, TS booked $347 million on work for the Department of Energy (DOE) and the Defense Threat Reduction Agency (DTRA).

Other

Net sales in the first quarter 2007 were $181 million compared to $190 million in the first quarter 2006, with an operating loss of $8 million in the first quarter 2007 compared to an operating loss of $13 million in the first quarter 2006.

Discontinued Operations

During the quarter, the Company recorded net income from discontinued operations of $32 million, compared to $15 million in the first quarter 2006, primarily related to RAC.

Raytheon Company (NYSE: RTN), with 2006 sales of $20.3 billion, is a technology leader specializing in defense, homeland security and other government markets throughout the world. With a history of innovation spanning 85 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 73,000 people worldwide.

Disclosure Regarding Forward-looking Statements

This release and the attachments contain forward-looking statements, including information regarding the Company's 2007 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: risks associated with the Company's 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; the potential impairment of the Company's goodwill; risks associated with Flight Options' ability to compete and meet its financial objectives; risks associated with the commuter and fractional ownership aircraft markets; the outcome of contingencies and litigation matters, including government investigations; the ability to recruit and retain qualified personnel; risks associated with acquisitions, joint ventures and other business arrangements; the impact of changes in the Company's credit ratings; and other factors as may be detailed from time to time in the Company's public announcements and Securities and Exchange Commission filings. In addition, these statements do not give effect to the potential impact of any acquisitions, divestitures or business combinations that may be announced or closed after the date hereof. 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.

Conference Call on the First Quarter 2007 Financial Results Raytheon's financial results conference call will be held on Wednesday, April 25, 2007 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 (866) 800 - 8651. 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.

  Attachment A

  Raytheon Company
  Preliminary Statement of Operations Information
  First Quarter 2007

  (In millions except per share amounts)                Three Months Ended
                                                      25-Mar-07   26-Mar-06

  Net sales                                              $4,928      $4,660

  Cost of sales                                           3,981       3,807
  Administrative and selling expenses                       340         319
  Research and development expenses                          97         101

  Total operating expenses                                4,418       4,227

  Operating income                                          510         433

  Interest expense                                           60          69
  Interest income                                           (28)        (21)
  Other (income) expense, net                                 3         (26)

  Non-operating expense, net                                 35          22

  Income from continuing operations
   before taxes                                             475         411

  Federal and foreign income taxes                          161         139

  Income from continuing operations                         314         272

  Income from discontinued operations,
   net of tax                                                32          15

  Net income                                               $346        $287

  Earnings per share from continuing
   operations
      Basic                                               $0.71       $0.61
      Diluted                                             $0.69       $0.61

  Earnings per share from discontinued
   operations
      Basic                                               $0.07       $0.03
      Diluted                                             $0.07       $0.03

  Earnings per share
      Basic                                               $0.78       $0.65
      Diluted                                             $0.76       $0.64

  Average shares outstanding
      Basic                                               441.0       442.3
      Diluted                                             453.5       448.8



  Attachment B

  Raytheon Company
  Preliminary Segment Information
  First Quarter 2007

  (In millions)

                                                          Operating Income
                                                            As a Percent
                     Net Sales       Operating Income         of Sales
                 Three Months Ended  Three Months Ended   Three Months Ended
                25-Mar-07 26-Mar-06  25-Mar-07 26-Mar-06 25-Mar-07 26-Mar-06

  Integrated
   Defense Systems $1,092     $963       $199      $158      18.2%     16.4%
  Intelligence and
   Information
   Systems            588      611         55        55       9.4%      9.0%
  Missile Systems   1,140      989        120       110      10.5%     11.1%
  Network Centric
   Systems            929      791        117        84      12.6%     10.6%
  Space and
   Airborne Systems   964    1,018        129       145      13.4%     14.2%
  Technical Services  426      450         21        31       4.9%      6.9%
  Other               181      190         (8)      (13)     -4.4%     -6.8%
  FAS/CAS Pension
   Adjustment           -        -        (62)      (85)
  Corporate and
   Eliminations      (392)    (352)       (61)      (52)

  Total            $4,928   $4,660       $510      $433      10.3%      9.3%



  Attachment C

  Raytheon Company
  Other Preliminary Information
  First Quarter 2007

                                                              Funded
                                          Backlog             Backlog
                                       (In millions)       (In millions)
                                   25-Mar-07  31-Dec-06 25-Mar-07  31-Dec-06

  Integrated Defense Systems          $8,089     $7,934   $4,156     $4,088
  Intelligence and Information
   Systems                             3,747      3,935      909        893
  Missile Systems                      9,638      9,504    5,386      5,135
  Network Centric Systems              5,146      5,059    4,041      4,037
  Space and Airborne Systems           5,210      5,591    2,784      2,770
  Technical Services                   1,825      1,572    1,062      1,020
  Other                                  254        243      254        243

  Total                              $33,909    $33,838  $18,592    $18,186



                                          Bookings
                                       (In millions)
                                     Three Months Ended
                                    25-Mar-07  26-Mar-06

  Total Bookings                      $5,282     $4,967



  Attachment D

  Raytheon Company
  Preliminary Balance Sheet Information
  First Quarter 2007

  (In millions)

  Balance sheets
                                              25-Mar-07          31-Dec-06
  Assets
  Cash and cash equivalents                       $1,660             $2,460
  Accounts receivable, less allowance
   for doubtful accounts                             174                178
  Contracts in process                             3,895              3,600
  Inventories                                        499                487
  Deferred federal and foreign income
   taxes                                             240                257
  Prepaid expenses and other current
   assets                                            233                239
  Assets held for sale                             2,398              2,296
    Total current assets                           9,099              9,517

  Property, plant and equipment, net               2,105              2,131
  Deferred federal and foreign income
   taxes                                             230                189
  Goodwill                                        11,539             11,539
  Other assets, net                                2,110              2,115
      Total assets                               $25,083            $25,491

  Liabilities and Stockholders' Equity
  Notes payable and current portion of
   long-term debt                                   $686               $687
  Advance payments and billings in
   excess of costs incurred                        1,947              1,962
  Accounts payable                                   833                920
  Accrued salaries and wages                         757                944
  Other accrued expenses                           1,196              1,193
  Liabilities held for sale                        1,018              1,009
    Total current liabilities                      6,437              6,715

  Accrued retiree benefits and other
   long-term liabilities                           3,973              4,232
  Long-term debt                                   3,283              3,278
  Minority interest                                  179                165
  Stockholders' equity                            11,211             11,101
      Total liabilities and
       stockholders' equity                      $25,083            $25,491



  Attachment E

  Raytheon Company
  Preliminary Cash Flow Information
  First Quarter 2007

  (In millions)

  Cash flow information
                                                     Three Months Ended
                                                25-Mar-07          26-Mar-06

  Income from continuing operations                 $314               $272
  Depreciation                                        69                 69
  Amortization                                        20                 19
  Working capital                                   (670)              (517)
  Discontinued operations                            (37)                28
  Net activity in financing receivables               21                 45
  Other                                             (133)                64
        Net operating cash flow                     (416)               (20)

  Capital spending                                   (39)               (35)
  Internal use software spending                     (15)                (4)
  Acquisitions                                         -                (47)
  Investment activity and divestitures                 -                 22
  Dividends                                         (107)               (98)
  Repurchase of common stock                        (275)              (102)
  Debt repayments                                      3                (32)
  Discontinued operations                            (27)                (8)
  Other                                               76                 66
           Total cash flow                         $(800)             $(258)



  Attachment F

  Raytheon Company
  Non-GAAP Financial Measures
  First Quarter 2007

  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 cumulative minimum pension liability/impact of adopting FAS 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

  (In millions)                                    2007 Guidance
                                             Low end           High end
                                             of range          of range
  Income from continuing operations
  Net interest expense, after-tax*           Combined          Combined
  Lease expense, after-tax*
  Return                                        $1,400            $1,465

  Net debt **
  Equity less investment in discontinued
   operations
  Lease expense x 8 plus financial
   guarantees                                Combined          Combined
  Minimum pension liability (cumulative)

  Invested capital from continuing
   operations***                               $17,050           $16,850

  ROIC                                            8.2%              8.7%

  *   effective tax rate: 34.2% (2007 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

  Media Contact:                      Investor Relations Contact:
  Mac Jeffery                         Greg Smith
  781-522-5111                        781-522-5141

SOURCE: Raytheon Company

CONTACT: Media, Mac Jeffery, +1-781-522-5111, or Investors, Greg Smith,
+1-781-522-5141, both of Raytheon Company

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

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