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Raytheon Reports Strong Fourth Quarter 2004 EPS of $0.54 from Continuing Operations
* Sales increase of 12 percent for the quarter and year * Free cash flow from continuing operations of $712 million in the quarter and $1.5 billion for the year * Net debt of $4.6 billion; reduction of $2.1 billion for year
WALTHAM, Mass., Feb. 3, 2005 /PRNewswire-FirstCall/ -- Raytheon Company
(NYSE: RTN) reported fourth quarter 2004 income from continuing operations of
$246 million or $0.54 per diluted share compared to $217 million or $0.52 per
diluted share in the fourth quarter 2003. Non-cash pension expense (FAS/CAS
Pension Adjustment) negatively affected the fourth quarter 2004 by $0.13 per
diluted share on a year-over-year basis.
Income from continuing operations for the fourth quarter of 2004 and 2003
included a net after-tax charge of $13 million and $14 million, respectively.
The net charge in the fourth quarter 2004 consisted of an after-tax $55
million charge ($85 million pretax) from the early redemption of debt and a
$42 million benefit from the change in the tax law which extends the carry
forward period of foreign tax credits. The net charge in the fourth quarter
2003 consisted of an after-tax $50 million charge ($77 million pretax) from
the early redemption of debt and an after-tax $36 million gain ($55 million
pretax) from the sale of the Company's remaining investment in its former
aviation support business.
Fourth quarter 2004 net income, including the effects of discontinued
operations, was $245 million or $0.54 per diluted share compared to $205
million or $0.49 per diluted share in 2003.
Net sales for the fourth quarter 2004 were $5.7 billion, up 12 percent
from $5.1 billion in the comparable period in 2003. Government and Defense
sales for the quarter (after the elimination of intercompany sales) increased
12 percent to $4.7 billion from $4.2 billion in the comparable quarter.
Free cash flow from continuing operations for the fourth quarter was $712
million versus $906 million for the comparable period in 2003. Free cash flow
is defined by the Company as operating cash flow less capital spending and
internal use software spending.
During the fourth quarter of 2004, the Company retired $1.2 billion of
debt, bringing the total year debt reduction to $2.2 billion. Net debt was
$4.6 billion at the end of 2004 compared with $6.7 billion at the end of 2003.
Net debt is defined as total debt less cash and cash equivalents.
"In 2004 we said we would focus on predictable performance, strong
relationships, and innovative customer solutions. We did what we said we were
going to do and then some," said William H. Swanson, Raytheon Chairman and
CEO. "This is our fifth consecutive quarter of predictable financial
performance. Our focus on the customer is paying dividends and more
importantly, we continue to build on the trust and confidence they have in
Raytheon which is reflected in our growth."
Full Year Financial Results
For the full year the Company reported income from continuing operations
of $439 million or $0.99 per diluted share compared to $535 million or $1.29
per diluted share in 2003. Income from continuing operations in 2004 was
negatively affected by an after-tax charge of $222 million or $0.50 per
diluted share for the second quarter settlement of a class action shareholder
lawsuit. Non-cash pension expense negatively affected 2004 results by $0.75
per diluted share versus $0.18 per diluted share in 2003. Income from
continuing operations in 2003 included third quarter after-tax charges of $158
million ($226 million pretax) or $0.38 per diluted share from Network Centric
Systems and Technical Services.
The Company reported 2004 net income of $417 million or $0.94 per diluted
share compared to $365 million or $0.88 per diluted share in 2003. Net income
for 2004 included a $63 million after-tax loss in discontinued operations or
$0.14 per diluted share, versus $170 million or $0.41 per diluted share in
2003. Net income for 2004 also included a previously reported first quarter
$41 million or $0.09 per diluted share benefit from a cumulative effect of
change in accounting principle due to the change in the Company's pension and
other post-retirement benefit plans measurement date from Oct. 31 to Dec. 31.
Total 2004 net sales for the Company were $20.2 billion compared to $18.1
billion for 2003, an increase of 12 percent. Government and Defense sales for
the year (after the elimination of intercompany sales) increased 11 percent to
$17.2 billion from $15.5 billion in 2003.
Free cash flow from continuing operations was $1.5 billion in 2004
compared to $1.6 billion in 2003. Free cash flow, including discontinued
operations, for the full year 2004 was $1.4 billion versus $1.0 billion in
2003.
Bookings and Backlog
The Government and Defense businesses recorded fourth quarter bookings of
$4.2 billion and bookings for the full year 2004 of $21.9 billion. Government
and Defense ended 2004 with a backlog of $29.6 billion, an increase of $4.5
billion over year end 2003.
Raytheon Aircraft Company's bookings were $1.1 billion in the fourth
quarter of both 2004 and 2003. Full year 2004 bookings were $3.1 billion
versus $2.2 billion for 2003.
Outlook
The Company reaffirmed its guidance for 2005 earnings per share from
continuing operations of $1.80 - $1.90. This guidance includes higher pension
expense attributable to a lower discount rate offset by expected profit
improvements in 2005. Charts containing the Company's guidance are available
on the Company's website at http://www.raytheon.com/.
Segment Results
Integrated Defense Systems
Integrated Defense Systems (IDS) fourth quarter 2004 net sales were $914
million, up 16 percent compared to $791 million in the fourth quarter 2003,
due primarily to growth in Japan Patriot Product Improvement Program, DD(X),
and Cobra Judy. IDS recorded $119 million of fourth quarter 2004 operating
income compared to $95 million in the comparable quarter a year ago.
During the quarter, IDS booked $282 million for the award of Ballistic
Missile Defense System (BMDS) Radar Options 2 and 3 by the Missile Defense
Agency (MDA). IDS also booked an additional $234 million for Japan Patriot
Product Improvement Program, for a total of $597 million for the year.
Intelligence and Information Systems
Intelligence and Information Systems (IIS) fourth quarter 2004 net sales
were $601 million, up 14 percent compared to $525 million in the fourth
quarter 2003, due primarily to continued growth in classified programs. IIS
recorded $51 million of operating income compared to $53 million in the
comparable quarter a year ago. Operating income in the fourth quarter 2004
included a charge for nonrecoverable costs.
During the quarter, IIS booked $373 million on a number of classified
contracts, bringing total classified bookings for the year to over $1.3
billion.
Missile Systems
Missile Systems (MS) fourth quarter 2004 net sales were $1,012 million, up
7 percent compared to $943 million in the fourth quarter 2003. MS recorded
$114 million of operating income compared to $108 million in the comparable
quarter a year ago.
During the quarter, MS booked $201 million for the option exercise of
AMRAAM production and logistics support. Also, MS was awarded a $116 million
contract for the continued production of AIM-9X Sidewinder short-range air-to-
air missiles.
Network Centric Systems
Network Centric Systems (NCS) fourth quarter 2004 net sales were $836
million, up 9 percent compared to $766 million in the fourth quarter 2003. NCS
recorded operating income of $88 million compared to $75 million in the
comparable quarter a year ago.
During the quarter, NCS booked $132 million for the definitization of a
contract modification with the Federal Aviation Administration for the Wide
Area Augmentation System (WAAS).
Space and Airborne Systems
Space and Airborne Systems (SAS) fourth quarter 2004 net sales were $1,141
million, up 18 percent compared to $967 million in the fourth quarter 2003,
due primarily to an increase in classified and production programs. SAS
recorded $159 million of operating income compared to $130 million in the
comparable quarter a year ago. Operating income was higher due primarily to
productivity improvements on production programs and higher volume, partially
offset by a $55 million charge on an international program as a result of a
recent qualification test failure.
During the quarter, SAS booked $102 million on a number of classified
contracts. Also, SAS received an option to proceed with its X-band thin radar
aperture (XTRA) contract, allowing the Company to produce the next generation
radar antenna technology for the Joint Unmanned Combat Air System (J-UCAS).
Technical Services
Technical Services (TS) fourth quarter 2004 net sales were $593 million,
up 6 percent compared to $560 million in the fourth quarter 2003. TS recorded
operating income of $46 million in the fourth quarter of 2004 compared to $39
million in the comparable quarter a year ago.
During the quarter, TS booked $76 million on the Live Training Program
with the U.S. Army. Also, TS was competitively awarded a contract with a
potential value of $94 million by the U.S. Navy to provide mission support for
Relocatable-Over-the-Horizon-Radar (ROTHR) systems.
Aircraft
Raytheon Aircraft Company (RAC) fourth quarter 2004 net sales were $853
million, up 19 percent from $717 million in the fourth quarter 2003. RAC
recorded operating income of $47 million in the quarter compared to $29
million in the comparable quarter in 2003. Operating income in the fourth
quarter 2004 included a favorable profit adjustment of $21 million on the T-6A
program. Operating income in the fourth quarter 2003 included a favorable
profit adjustment on the T-6A program of $37 million, partially offset by a
$22 million charge on the Premier program.
RAC delivered 117 commercial aircraft in the fourth quarter of 2004,
compared to 100 in the same quarter last year. For the year, RAC delivered
300 commercial aircraft, compared to 259 in 2003.
During the quarter, RAC received a $240 million contract modification to
provide for the Lot 12 option exercise of JPATS T-6A.
As previously announced, during the quarter the Federal Aviation
Administration (FAA) granted a provisional type certification for the Hawker
Horizon. Customer acceptance of the first Hawker Horizon was completed in
December.
Other
Net sales for this segment in the fourth quarter 2004 were $183 million
compared to $230 million in the fourth quarter 2003. The segment recorded an
operating loss of $11 million in the fourth quarter 2004 compared to an
operating loss of $21 million in the comparable quarter in 2003.
Discontinued Operations
During the quarter, the Company recorded an after-tax loss from
discontinued operations of $1 million 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 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 and a securities class action lawsuit
related to the sale of our former engineering and construction business; the
ultimate resolution of insurance coverage for the class action shareholder and
derivative lawsuits against the Company; the effect of market conditions,
particularly in relation to the general aviation, commuter, and fractional
aircraft markets; cost growth risks inherent with large long-term fixed price
contracts; conflicts with other investors 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, 2003 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 Fourth Quarter 2004 Financial Results
Raytheon's financial results conference call will be Thursday, February 3,
2005 at 9 a.m. EST. Participants will be William H. Swanson, Chairman and
CEO, Edward Pliner, senior vice president and 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
Fourth Quarter 2004
(In millions except per share amounts)
Three Months Ended Twelve Months Ended
31-Dec-04 31-Dec-03 31-Dec-04 31-Dec-03
Net sales $5,704 $5,101 $20,245 $18,109
Cost of sales 4,727 4,174 16,933 15,000
Administrative and selling expenses 411 354 1,433 1,306
Research and development expenses 126 121 491 487
Total operating expenses 5,264 4,649 18,857 16,793
Operating income 440 452 1,388 1,316
Interest expense 92 122 418 537
Interest income (12) (17) (45) (50)
Other expense, net 68 40 436 67
Non-operating expense, net 148 145 809 554
Income from continuing operations
before taxes 292 307 579 762
Federal and foreign income taxes 46 90 140 227
Income from continuing operations 246 217 439 535
Loss from discontinued
operations, net of tax (1) (12) (63) (170)
Income before accounting change 245 205 376 365
Cumulative effect of change in
accounting principle, net of tax - - 41 -
Net income $245 $205 $417 $365
Earnings per share from
continuing operations
Basic $0.55 $0.52 $1.00 $1.30
Diluted $0.54 $0.52 $0.99 $1.29
Loss per share from discontinued
operations
Basic $- $(0.03) $(0.14) $(0.41)
Diluted $- $(0.03) $(0.14) $(0.41)
Earnings per share from
cumulative effect of change in
accounting principle
Basic $- $- $0.09 $-
Diluted $- $- $0.09 $-
Earnings per share
Basic $0.54 $0.49 $0.95 $0.88
Diluted $0.54 $0.49 $0.94 $0.88
Average shares outstanding
Basic 450.2 416.3 438.1 412.7
Diluted 456.4 418.7 442.2 415.4
Attachment B
Raytheon Company
Segment Information
Fourth Quarter 2004
(In millions)
Operating Income
As a Percent
Net Sales Operating Income of Sales
Three Months Three Months Three Months
Ended Ended Ended
31-Dec 31-Dec 31-Dec 31-Dec 31-Dec 31-Dec
-04 -03 -04 -03 -04 -03
Integrated Defense
Systems $ 914 $ 791 $ 119 $95 13.0% 12.0%
Intelligence and
Information Systems 601 525 51 53 8.5% 10.1%
Missile Systems 1,012 943 114 108 11.3% 11.5%
Network Centric
Systems 836 766 88 75 10.5% 9.8%
Space and Airborne
Systems 1,141 967 159 130 13.9% 13.4%
Technical Services 593 560 46 39 7.8% 7.0%
Aircraft 853 717 47 29 5.5% 4.0%
Other 183 230 (11) (21) -6.0% -9.1%
FAS/CAS Pension
Adjustment - - (118) (27)
Corporate and
Eliminations (429) (398) (55) (29)
Total $5,704 $5,101 $ 440 $ 452 7.7% 8.9%
Operating Income
As a Percent
Net Sales Operating Income of Sales
Twelve Months Twelve Months Twelve Months
Ended Ended Ended
31-Dec 31-Dec 31-Dec 31-Dec 31-Dec 31-Dec
-04 -03 -04 -03 -04 -03
Integrated Defense
Systems $3,456 $2,864 $417 $331 12.1% 11.6%
Intelligence and
Information
Systems 2,215 2,045 198 194 8.9% 9.5%
Missile Systems 3,844 3,538 436 424 11.3% 12.0%
Network Centric
Systems 3,113 2,809 274 19 8.8% 0.7%
Space and Airborne
Systems 4,068 3,677 568 492 14.0% 13.4%
Technical Services 2,075 1,963 151 107 7.3% 5.5%
Aircraft 2,421 2,088 63 2 2.6% 0.1%
Other 675 573 (40) (34) -5.9% -5.9%
FAS/CAS Pension
Adjustment - - (474) (109)
Corporate and
Eliminations (1,622) (1,448) (205) (110)
Total $20,245 $18,109 $1,388 $1,316 6.9% 7.3%
Attachment C
Raytheon Company
Other Information
Fourth Quarter 2004
Funded
Backlog Backlog
(In millions) (In millions)
31-Dec-04 31-Dec-03 31-Dec-04 31-Dec-03
Integrated Defense Systems $6,628 $6,526 $3,454 $3,318
Intelligence and Information
Systems 3,913 3,899 770 655
Missile Systems 8,341 5,028 4,517 4,069
Network Centric Systems 3,595 3,259 2,627 2,488
Space and Airborne Systems 5,216 4,865 3,127 3,801
Technical Services 1,918 1,510 976 858
Aircraft 2,638 2,279 2,638 2,279
Other 294 176 294 176
$32,543 $27,542 $18,403 $17,644
Government and Defense businesses $29,611 $25,087 $15,471 $15,189
U.S. government backlog included
above $25,525 $21,353
Bookings Bookings
(In millions) (In millions)
Three months ended Twelve months ended
31-Dec-04 31-Dec-03 31-Dec-04 31-Dec-03
Government and Defense
businesses $4,200 $7,065 $21,867 $19,967
Commercial businesses 1,275 1,319 3,833 2,726
$5,475 $8,384 $25,700 $22,693
New Aircraft New Aircraft
Deliveries (Units) Deliveries (Units)
Three Months Ended Twelve months ended
31-Dec-04 31-Dec-03 31-Dec-04 31-Dec-03
Horizon - - - -
Hawker 800XP 17 19 50 47
Premier I 14 11 37 29
Hawker 400XP 14 7 28 24
King Air 46 39 104 86
1900D Commuter - - 1 1
Pistons 35 26 93 82
T-6A 16 18 67 68
Total 142 120 380 337
New Aircraft New Aircraft
Bookings (Units) Bookings (Units)
Three Months Ended Twelve months ended
31-Dec-04 31-Dec-03 31-Dec-04 31-Dec-03
Horizon 2 2 4 5
Hawker 800XP 17 12 79 34
Premier I 13 8 34 17
Hawker 400XP 11 54 43 70
King Air 45 36 139 85
1900D Commuter - - 1 1
Pistons 35 30 157 71
T-6A 50 47 57 51
Total 173 189 514 334
Attachment D
Raytheon Company
Preliminary Financial Information
Fourth Quarter 2004
(In millions)
Balance sheets
31-Dec-04 31-Dec-03
Assets
Cash and cash equivalents $556 $661
Accounts receivable 478 485
Contracts in process 3,514 3,302
Inventories 1,745 1,998
Deferred federal and foreign income taxes 469 466
Prepaid expenses and other current assets 343 154
Assets from discontinued operations 19 59
Total current assets 7,124 7,125
Property, plant and equipment, net 2,738 2,711
Deferred federal and foreign income taxes 71 337
Goodwill 11,516 11,479
Other assets, net 2,704 2,556
Total assets $24,153 $24,208
Liabilities and Stockholders' Equity
Notes payable and current portion of
long-term debt $516 $15
Advance payments, less contracts in process 1,900 1,578
Accounts payable 867 833
Accrued salaries and wages 934 767
Other accrued expenses 1,403 1,086
Liabilities from discontinued operations 24 43
Total current liabilities 5,644 4,322
Accrued retiree benefits and other
long-term liabilities 3,224 3,281
Long-term debt 4,229 6,517
Subordinated notes payable 408 859
Minority interest 97 67
Stockholders' equity 10,551 9,162
Total liabilities and
stockholders' equity $24,153 $24,208
Attachment E
Raytheon Company
Preliminary Cash Flow Information
Fourth Quarter 2004
(In millions)
Cash flow information
Three Months Ended Twelve Months Ended
31-Dec-04 31-Dec-03 31-Dec-04 31-Dec-03
Income from continuing operations $246 $217 $439 $535
Depreciation 94 97 361 333
Amortization 19 17 73 60
Working capital 435 702 650 708
Discontinued operations (11) (48) (43) (533)
Capital spending (154) (185) (363) (428)
Internal use software spending (30) (27) (103) (98)
Other 102 85 398 466
Subtotal - free cash flow (a) 701 858 1,412 1,043
Net activity in financing
receivables 48 309 193 465
Sale of short-term investments 74 - - -
Acquisitions (42) - (112) (60)
Divestitures and sale of investments 43 57 47 111
Dividends (91) (84) (349) (331)
Issuance of common stock - 11 867 74
Debt repayments (1,253) (706) (2,254) (965)
Space Imaging debt guarantee - - - (130)
Synthetic lease maturity - - - (125)
Other 27 13 91 35
Total cash flow $(493) $458 $(105) $117
Segment free cash flow information
Three Months Ended Twelve Months Ended
31-Dec-04 31-Dec-03 31-Dec-04 31-Dec-03
Integrated Defense Systems $126 $99 $399 $318
Intelligence and Information
Systems 57 71 152 88
Missile Systems 65 327 285 244
Network Centric Systems 173 131 240 115
Space and Airborne Systems 80 131 237 365
Technical Services 34 28 69 104
Aircraft 84 89 134 20
Other 15 (37) (83) (55)
Discontinued operations (11) (48) (43) (533)
Corporate 78 67 22 377
$701 $858 $1,412 $1,043
(a) See Attachment F for a description of free cash flow.
Attachment F
Raytheon Company
Non-GAAP Financial Measures
Fourth Quarter 2004
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 Twelve Months Ended
31-Dec-04 31-Dec-03 31-Dec-04 31-Dec-03
Operating cash flow $885 $1,070 $1,878 $1,569
Less : Capital spending (154) (185) (363) (428)
Internal use software spending (30) (27) (103) (98)
Free cash flow 701 858 1,412 1,043
Plus : Discontinued operations 11 48 43 533
Free cash flow from
continuing operations $712 $906 $1,455 $1,576
SOURCE: Raytheon Company
Web site: http://www.raytheon.com/