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Raytheon Reports Strong Second Quarter 2004 Performance, Offset by Previously Announced Settlement of Class Action Shareholder Lawsuit
* Bookings of $6 billion, record backlog of $32 billion * Sales of $4.9 billion, up 11 percent * Free cash flow from continuing operations of $818 million * As a result of charges of $0.51 per share from the settlement of a class action shareholder lawsui
WALTHAM, Mass., July 29 /PRNewswire-FirstCall/ -- Raytheon Company (NYSE:
RTN) reported second quarter 2004 income from continuing operations of $152
million or $0.35 per diluted share excluding the effect of charges related to
the previously announced settlement of a class action shareholder lawsuit and
from the early retirement of debt. Including those charges, the second
quarter 2004 loss from continuing operations was $94 million or $0.22 per
diluted share. This is compared to income from continuing operations of $186
million or $0.45 per diluted share in the second quarter 2003. The effect of
the shareholder lawsuit was a $222 million after-tax charge or $0.51 per
diluted share. The effect of the early retirement of debt was a $24 million
after-tax charge or $0.06 per diluted share. Non-cash pension expense
(FAS/CAS Pension Adjustment) negatively affected the quarter by $0.12 per
diluted share on a year-over-year basis.
Second quarter 2004 net loss was $108 million or $0.25 per diluted share
compared to net income of $100 million or $0.24 per diluted share in 2003. The
net loss for the second quarter of 2004 also includes a $14 million after-tax
loss in discontinued operations or $0.03 per diluted share versus $86 million
or $0.21 per diluted share in 2003.
Net sales for the second quarter 2004 were $4.9 billion, up 11 percent
from $4.4 billion in the comparable period in 2003. Government and Defense
sales for the quarter (after the elimination of intercompany sales) increased
11 percent to $4.2 billion from $3.8 billion in the comparable quarter.
Free cash flow from continuing operations for the second quarter was $818
million versus $649 million for the comparable period in 2003, an improvement
of $169 million due primarily to reduced working capital levels. Free cash
flow, including discontinued operations, for the second quarter 2004 was $793
million versus $533 million in 2003. Free cash flow is defined as operating
cash flow less capital spending and internal use software spending.
During the second quarter of 2004, the Company retired debt with a par
value of $877 million. Net debt was $5.5 billion at the end of the second
quarter compared with $6.7 billion at the end of 2003. Net debt is defined as
total debt minus cash and short term investments.
The Government and Defense businesses recorded second quarter bookings of
$5.0 billion compared to bookings of $3.8 billion in the second quarter of
2003. Government and Defense backlog reached a record $29.5 billion, an
increase of $4.4 billion over year end 2003.
Raytheon Aircraft Company's (RAC) second quarter bookings were $851
million compared to $423 million in 2003. During the quarter, NetJets Inc.
placed an order with a value in excess of $300 million for 20 new Hawker 800XP
mid-size business jets and 20 new Hawker 400XP light business jets.
"The second quarter represents another solid quarter for the Company,"
said William H. Swanson, Raytheon Chairman and CEO. "Our strong bookings and
sales performance demonstrate our continued focus on our customers. The
strong free cash flow highlights our consistent emphasis on execution. The
settlement of the class action shareholder lawsuit puts a significant
uncertainty behind us."
Change in outlook
The Company now expects 2004 earnings per share from continuing operations
to be $0.79 - $0.89 to reflect the loss of $0.51 per diluted share from the
settlement of the class action shareholder lawsuit. Excluding the impact of
the settlement, the Company expects 2004 earnings per share from continuing
operations of $1.30 - $1.40. The Company raised its full year guidance for
bookings to $24.5 billion from $23.0 billion. A chart containing the Company's
guidance is available on the Company's website.
Segment Results
Integrated Defense Systems
Integrated Defense Systems (IDS) second quarter 2004 net sales were $870
million, up 24 percent compared to $701 million in the second quarter 2003,
due primarily to continued growth in DD(X), the Navy's future destroyer
program, and strong missile defense sales. IDS generated $104 million of
second quarter 2004 operating income compared to $80 million in the 2003
comparable quarter.
During the quarter, IDS booked $363 million for Japan Patriot Product
Improvement Program. IDS also booked $139 million contract for the production
of the second Ballistic Missile Defense System (BMDS) Option 1 Radar, as well
as $63 million for the first year of the five year Torpedo Omnibus Production
contract, which is expected to exceed $500 million with all the options
exercised.
Intelligence and Information Systems
Intelligence and Information Systems (IIS) second quarter 2004 net sales
were $553 million, up 5 percent compared to $525 million in the second quarter
2003. IIS reported $51 million of operating income compared to $46 million in
the comparable quarter a year ago.
During the quarter, IIS booked $225 million in classified contracts. Also
in the quarter, the Department of Homeland Security awarded the US VISIT
program to the Accenture team, which includes Raytheon. Task orders for this
indefinite-delivery indefinite-quantity contract are currently being developed
jointly with the US VISIT program office.
Missile Systems
Missile Systems (MS) second quarter 2004 net sales were $939 million, up
13 percent compared to $833 million in the second quarter 2003, driven by
increased volume on Standard Missile-3 and Joint Standoff Weapon (JSOW). MS
generated $106 million of operating income compared to $104 million in the
comparable quarter a year ago. Operating income on higher sales in the
quarter was partially offset by the wind-down of cost recovery for prior year
restructuring actions.
During the quarter, MS booked $500 million for the definitization of the
Standard Missile-3 contract awarded in the third quarter of 2003. Also during
the quarter, MS booked a $269 million contract for the production of Evolved
SeaSparrow Missiles (ESSM).
Network Centric Systems
Network Centric Systems (NCS) second quarter 2004 net sales were $780
million, up 9 percent compared to $716 million in the second quarter 2003. NCS
recorded an operating profit of $66 million compared to $20 million in the
comparable quarter a year ago. Last year's second quarter operating income
included $40 million of charges due to performance issues on two older
programs.
During the quarter, NCS booked $313 million on a classified program. NCS
also booked an additional $30 million in options for the production of Army
Thermal Weapon Sights (TWS), bringing the total for the year to $127 million.
Space and Airborne Systems
Space and Airborne Systems (SAS) second quarter 2004 net sales were $985
million, up 11 percent compared to $886 million in the second quarter 2003,
due to higher classified and international programs, including F-15 Japan and
Greek Advanced Self Protection Integrated Suite (ASPIS). SAS generated $142
million of operating income compared to $127 million in the comparable quarter
a year ago.
During the quarter, SAS booked $360 million for Phase II System
Development and Demonstration (SSD) for the U.S. Air Force's Multi-Platform
Radar Technology Insertion Program (MP-RTIP). SAS also booked $105 million on
a number of classified contracts.
Also in the quarter, the U.S. Navy awarded the Boeing team, which includes
Raytheon, a contract to build the Multi-mission Maritime Aircraft (MMA). The
MMA program is expected to be added to bookings later in the year.
Technical Services
Technical Services (TS) second quarter 2004 net sales were $496 million,
up 7 percent from $465 million in the second quarter 2003. TS reported an
operating profit of $36 million in the second quarter of 2004 compared to $34
million in the comparable quarter a year ago.
During the quarter, TS booked $5 million for a 10-year, multiple award,
indefinite-delivery indefinite-quantity contract with a potential value of
$378 million to support the Fleet Technical Support Center Atlantic
(FTSCLANT). Additionally, TS was selected for an indefinite-delivery
indefinite-quantity contract with a potential value of $100 million by Naval
Sea Systems Command (NAVSEA) to provide engineering and product support
services as a SeaPort Enhanced prime contractor in each of the U.S. Navy's
seven geographic regions.
Aircraft
RAC's second quarter 2004 net sales were $570 million, up 6 percent from
$540 million in the second quarter 2003. RAC recorded an operating profit of
$23 million in the quarter compared to $12 million in the comparable quarter
in 2003. The Company now expects RAC to be profitable for 2004.
RAC delivered 75 commercial aircraft in the second quarter of 2004,
compared to 67 in the same quarter last year.
During the quarter, RAC received an order from NetJets Inc. for 20 new
Hawker 800XP mid-size business jets and 20 new Hawker 400XP light business
jets. These aircraft will be delivered in the 2005 - 2007 timeframe and have
an aggregate value totaling more than $300 million.
Other
Net sales for this segment in the second quarter 2004 were $153 million
compared to $112 million in the second quarter 2003. The segment recorded an
operating loss of $7 million in the second quarter 2004 compared to a loss of
$5 million in the comparable quarter in 2003. The increase in sales this
quarter is attributed to the consolidation of Flight Options in June 2003.
Discontinued Operations
During the quarter, the Company recorded an after-tax loss from
discontinued operations of $14 million, related to its former engineering and
construction and Aircraft Integration Systems businesses.
Raytheon Company (NYSE: RTN), with 2003 sales of $18.1 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 78,000 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; an agreement in principle to settle a
shareholder class action lawsuit pending in federal court in Massachusetts has
not yet been approved by the court; the ultimate resolution of insurance
coverage for the shareholder litigation; 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 outstanding letters of
credit, surety bonds, guarantees and other similar agreements related to a
number of contracts and leases of our former engineering and construction
business unit. 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.
Conference Call on the Second Quarter 2004 Financial Results
Raytheon's financial results conference call will be Thursday, July 29,
2004 at 9 a.m. EDT. Participants will be William 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 (888) 396 - 2386. 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 James Singer
781-522-5111 781-522-5136
Attachment A
Raytheon Company
Financial Information
Second Quarter 2004
(In millions except per share amounts)
Three Months Ended Six Months Ended
27-Jun-04 29-Jun-03 27-Jun-04 29-Jun-03
Net sales $4,929 $4,429 $9,605 $8,630
Cost of sales 4,105 3,570 8,089 7,050
Administrative and selling
expenses 357 345 683 647
Research and development expenses 127 131 242 237
Total operating expenses 4,589 4,046 9,014 7,934
Operating income 340 383 591 696
Interest expense 109 135 226 278
Interest income (10) (11) (22) (23)
Other expense (income), net 363 (8) 363 15
Non-operating expense, net 462 116 567 270
Income (loss) from continuing
operations before taxes (122) 267 24 426
Federal and foreign income taxes (28) 81 17 129
Income (loss) from continuing
operations (94) 186 7 297
Loss from discontinued
operations, net of tax (14) (86) (28) (102)
Income (loss) before accounting
change (108) 100 (21) 195
Cumulative effect of change in
accounting principle, net of tax - - 41 -
Net income (loss) $(108) $100 $20 $195
Earnings (loss) per share from
continuing operations
Basic $(0.22) $0.45 $0.02 $0.72
Diluted $(0.22) $0.45 $0.02 $0.72
Loss per share from discontinued
operations
Basic $(0.03) $(0.21) $(0.07) $(0.25)
Diluted $(0.03) $(0.21) $(0.07) $(0.25)
Earnings per share from
cumulative effect of change in
accounting principle
Basic $- $- $0.10 $-
Diluted $- $- $0.10 $-
Earnings (loss) per share
Basic $(0.25) $0.24 $0.05 $0.48
Diluted $(0.25) $0.24 $0.05 $0.47
Average shares outstanding
Basic 434.6 411.6 426.6 410.1
Diluted 434.6 414.9 429.3 412.8
Attachment B
Raytheon Company
Segment Information
Second Quarter 2004
(In millions)
Operating Income
As a Percent
Net Sales Operating Income of Sales
Three Months Ended Three Months Ended Three Months Ended
27-Jun-04 29-Jun-03 27-Jun-04 29-Jun-03 27-Jun-04 29-Jun-03
Integrated Defense
Systems $870 $701 $104 $80 12.0% 11.4%
Intelligence and
Information Systems 553 525 51 46 9.2% 8.8%
Missile Systems 939 833 106 104 11.3% 12.5%
Network Centric
Systems 780 716 66 20 8.5% 2.8%
Space and Airborne
Systems 985 886 142 127 14.4% 14.3%
Technical Services 496 465 36 34 7.3% 7.3%
Aircraft 570 540 23 12 4.0% 2.2%
Other 153 112 (7) (5) -4.6% -4.5%
FAS/CAS Pension
Adjustment - - (118) (27)
Corporate and
Eliminations (417) (349) (63) (8)
Total $4,929 $4,429 $340 $383 6.9% 8.6%
Operating Income
As a Percent
Net Sales Operating Income of Sales
Six Months Ended Six Months Ended Six Months Ended
27-Jun-04 29-Jun-03 27-Jun-04 29-Jun-03 27-Jun-04 29-Jun-03
Integrated
Defense Systems $1,709 $1,355 $198 $154 11.6% 11.4%
Intelligence and
Information
Systems 1,047 987 96 87 9.2% 8.8%
Missile Systems 1,904 1,690 213 205 11.2% 12.1%
Network Centric
Systems 1,500 1,487 121 82 8.1% 5.5%
Space and Airborne
Systems 1,998 1,780 271 231 13.6% 13.0%
Technical Services 970 956 67 70 6.9% 7.3%
Aircraft 944 901 (5) (23) -0.5% -2.6%
Other 328 152 (22) (8) -6.7% -5.3%
FAS/CAS Pension
Adjustment - - (239) (55)
Corporate and
Eliminations (795) (678) (109) (47)
Total $9,605 $8,630 $591 $696 6.2% 8.1%
Attachment C
Raytheon Company
Other Information
Continuing Operations
Second Quarter 2004
Funded
Backlog Backlog
(In millions) (In millions)
27-Jun-04 31-Dec-03 27-Jun-04 31-Dec-03
Integrated Defense Systems $6,691 $6,526 $3,222 $3,318
Intelligence and Information
Systems 3,833 3,899 930 655
Missile Systems 8,139 5,028 4,366 4,069
Network Centric Systems 3,557 3,259 2,711 2,488
Space and Airborne Systems 5,895 4,865 4,015 3,801
Technical Services 1,392 1,510 930 858
Aircraft 2,457 2,279 2,457 2,279
Other 178 176 178 176
$32,142 $27,542 $18,809 $17,644
Government and Defense businesses $29,507 $25,087 $16,174 $15,189
U.S. government backlog included
above $25,705 $21,353
Bookings
(In millions)
Three months ended
27-Jun-04 29-Jun-03
Government and Defense businesses $4,976 $3,766
Commercial businesses 1,004 517
$5,980 $4,283
New Aircraft Deliveries (Units)
Three Months Ended
27-Jun-04 29-Jun-03
Hawker 14 13
Premier I 9 8
Hawker 400XP 5 7
King Air 22 21
1900D Commuter - 1
Pistons 25 20
T-6A 20 17
Total 95 87
New Aircraft Bookings (Units)
Three Months Ended
27-Jun-04 29-Jun-03
Hawker 36 12
Premier I 10 4
Hawker 400XP 26 6
King Air 31 17
1900D Commuter 1
Pistons 12 13
Total 115 53
Attachment D
Raytheon Company
Preliminary Financial Information
Second Quarter 2004
(In millions)
Balance sheets
27-Jun-04 31-Dec-03
Assets
Cash and cash equivalents $1,004 $661
Short-term investments 74 -
Accounts receivable 424 485
Contracts in process 3,058 2,762
Inventories 2,068 1,998
Deferred federal and foreign income
taxes 498 466
Prepaid expenses and other current
assets 214 154
Assets from discontinued operations 55 59
Total current assets 7,395 6,585
Property, plant and equipment, net 2,670 2,711
Deferred federal and foreign income
taxes 288 337
Goodwill 11,480 11,479
Other assets, net 2,470 2,556
Total assets $24,303 $23,668
Liabilities and Stockholders' Equity
Notes payable and current portion of
long-term debt $168 $15
Advance payments, less contracts in
process 1,364 1,038
Accounts payable 814 833
Accrued salaries and wages 752 767
Other accrued expenses 1,521 1,153
Liabilities from discontinued
operations 64 43
Total current liabilities 4,683 3,849
Accrued retiree benefits and other
long-term liabilities 3,251 3,281
Long-term debt 5,896 6,517
Subordinated notes payable 478 859
Stockholders' equity 9,995 9,162
Total liabilities and
stockholders' equity $24,303 $23,668
Attachment E
Raytheon Company
Preliminary Cash Flow Information
Second Quarter 2004
(In millions)
Cash flow information
Three Months Ended
27-Jun-04 29-Jun-03
Income from continuing operations $(94) $186
Depreciation 89 78
Amortization 19 14
Working capital 895 288
Discontinued operations (25) (116)
Capital spending (74) (79)
Internal use software spending (25) (28)
Other 8 190
Subtotal - free cash flow (a) 793 533
Net activity in financing receivables 2 54
Purchase of short-term investments (74) -
Divestitures and sale of investments - 40
Dividends (85) (82)
Issuance of common stock 863 18
Debt repayments (855) (602)
Other 20 16
Total cash flow $664 $(23)
Segment free cash flow information
Three Months Ended
27-Jun-04 29-Jun-03
Integrated Defense Systems $322 $196
Intelligence and Information Systems 69 61
Missile Systems 233 (60)
Network Centric Systems 56 46
Space and Airborne Systems 222 131
Technical Services (3) 34
Aircraft 12 22
Other (91) (18)
Discontinued operations (25) (116)
Corporate (2) 237
$793 $533
(a) See Attachment F for a description of free cash flow.
Attachment F
Raytheon Company
Non-GAAP Financial Measures
Second Quarter 2004
(In millions except per share amounts)
This release contains non-GAAP financial measures (as defined by SEC
Regulation G). While these non-GAAP financial measures may be useful in
evaluating the Company, this information should be considered supplemental to
and not as a substitute for financial information prepared in accordance with
generally accepted accounting principles.
The following measures are considered "non-GAAP" financial measures under
SEC guidelines:
(i) Free cash flow.
(ii) Income from continuing operations excluding the effect of charges
related to the settlement of the class action lawsuit and the early retirement
of debt.
(iii) Diluted earnings per share from continuing operations excluding the
effect of charges related to the settlement of the class action lawsuit and
the early retirement of debt.
The Company uses these non-GAAP financial measures to facilitate
management's internal comparisons to the Company's historical operating
results, to competitor's operating results, and to provide greater
transparency to investors of supplemental information used by management in
its financial and operational decision-making. The Company uses certain of
these non-GAAP financial measures to evaluate its operating performance and to
determine management incentive compensation. The Company also uses non-GAAP
financial measures which exclude certain charges and credits because it
believes that such items are not indicative of its core operating results, are
not indicative of trends, and do not provide meaningful comparisons with other
reporting periods.
Free cash flow
Three Months Ended
27-Jun-04 29-Jun-03
Operating cash flow $892 $640
Less: Capital spending (74) (79)
Internal use software spending (25) (28)
Free cash flow 793 533
Less: Discontinued operations (25) (116)
Free cash flow from continuing operations $818 $649
Income From Continuing Operations Excluding Charges Related to Class
Action Lawsuit Settlement and Early Retirement of Debt
Three Months Ended
27-Jun-04 29-Jun-03
GAAP income from continuing operations $(94) $186
Excluding settlement of class action
lawsuit charge (329) -
Excluding early retirement of debt charge (37) -
Non-GAAP income from continuing
operations as adjusted $272 $186
Diluted Earnings Per Share From Continuing Operations Excluding Charges
Related to Class ActionLawsuit Settlement and Early Retirement of Debt
Three Months Ended
27-Jun-04 29-Jun-03
GAAP diluted earnings per share
from continuing operations $(0.22) $0.45
Excluding settlement of class action
lawsuit charge (0.51) -
Excluding early retirement
of debt charge (0.06) -
Non-GAAP diluted earnings
per share from continuing
operations as adjusted $0.35 $0.45
SOURCE: Raytheon Company
Web site: http://www.raytheon.com/