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Raytheon Reports Strong Second Quarter 2006 Results and Increases Full-year Guidance

Highlights

WALTHAM, Mass., July 27, 2006 /PRNewswire-FirstCall/ -- Raytheon Company (NYSE: RTN) reported second quarter 2006 income from continuing operations of $311 million or $0.69 per diluted share compared to $233 million or $0.51 per diluted share in the second quarter 2005. Second quarter 2006 income from continuing operations was higher primarily due to improved operating results at the Company's Government and Defense businesses. The second quarter 2006 income from continuing operations included a $34 million or $0.05 per diluted share favorable adjustment related to the final valuation of warrants issued in the quarter in connection with the 2004 settlement of a class action shareholder lawsuit and a $7 million or $0.01 per diluted share charge related to the tentative settlement of ERISA litigation filed in 2003.

"We continue to be pleased with our operating performance and our positive outlook for the remainder of 2006," said William H. Swanson, Raytheon's Chairman and CEO. "The team remains focused on providing our customers with the best-in-class solutions and enhancing shareholder value."

Second quarter 2006 net income was $310 million or $0.69 per diluted share compared to $201 million or $0.44 per diluted share in the second quarter 2005. Net income for the second quarter of 2005 included a $32 million after-tax loss in discontinued operations or $0.07 per diluted share primarily attributable to foreign tax related matters.

Net sales for the second quarter 2006 were $5.7 billion, up 6 percent from $5.4 billion in the second quarter 2005. Government and Defense sales for the quarter (after the elimination of intercompany sales) increased 5 percent to $4.8 billion from $4.5 billion in the second quarter 2005. Raytheon Aircraft Company (RAC) sales for the quarter increased 8 percent to $745 million from $687 million in the second quarter 2005.

Operating cash flow from continuing operations for the second quarter 2006 was $439 million versus $820 million for the second quarter 2005, a decrease primarily due to higher collections in the prior year's same period that resulted from a financial system implementation in the first quarter 2005. Year-to-date operating cash flow from continuing operations was $444 million versus $546 million for the comparable period in 2005, a decrease primarily due to higher 2006 cash tax payments.

Net debt was $3.1 billion at the end of the second quarter 2006 compared with $3.3 billion at the end of 2005 and $4.6 billion at the end of the second quarter 2005. Net debt is defined as total debt less cash and cash equivalents. During the second quarter 2006, the Company retired $408 million of subordinated notes payable.

The Company is also announcing that it intends to explore strategic alternatives for Raytheon Aircraft Company, which may include among others, a potential sale of the business, an initial public offering or spin-off to shareholders or some combination thereof. There can be no assurance that a transaction involving RAC will occur. The Company currently anticipates that any such transaction will not involve Flight Options LLC or Raytheon Airline Aviation Services LLC, the Company's commuter aircraft business. The Company has retained Credit Suisse to serve as its financial advisor and assist it in this process. As a matter of policy, the Company will not comment upon any proposals received or any rumors relating to any of the foregoing.

  Summary Financial Results
  (in millions, except per share data)
                         2nd Quarter       %         Six Months      %
  2006                2005    Change    2006     2005    Change

  Net Sales         $5,711    $5,409      6%  $10,863   $10,353      5%
  Total Operating
   Expenses          5,199     4,982            9,897     9,549
  Operating Income     512       427     20%      966       804     20%
  Non-operating
   Expenses             40        70               57       151
  Income from Cont.
   Ops. before Taxes  $472      $357     32%     $909      $653     39%
  Income from Continuing
   Operations         $311      $233     33%     $600      $429     40%
  Net Income          $310      $201     54%     $597      $367     63%

  Diluted EPS from
   Continuing
   Operations        $0.69     $0.51     35%    $1.33     $0.94     41%
  Diluted EPS        $0.69     $0.44     57%    $1.33     $0.81     64%

  Cash Flow from
   Continuing
   Operations         $439      $820             $444      $546



  Bookings and Backlog


  Bookings                      2nd Quarter                 Six Months
  (in millions)             2006         2005         2006         2005

  Bookings
    Government and
     Defense              $4,637       $7,283       $9,418      $11,895
    Commercial               817          787        1,503        1,450
  Total Bookings          $5,454       $8,070      $10,921      $13,345

  Backlog                     Period ending
  (in millions)         06/25/06     12/31/05

  Backlog                $34,269      $34,419
  Funded Backlog         $19,189      $17,580

The Government and Defense businesses reported second quarter 2006 bookings of $4.6 billion compared to $7.3 billion in the second quarter 2005. Bookings in the second quarter 2005 included $1.7 billion related to DDG 1000, $631 million for a Taiwan Early Warning Surveillance Radar System, and $586 million for APG-79 Active Electronically Scanned Array (AESA) radars. RAC reported second quarter 2006 bookings of $617 million compared to $602 million in the second quarter 2005.

The Government and Defense businesses ended the second quarter 2006 with a backlog of $31.3 billion compared to $31.2 billion at the end of 2005. The Company ended the quarter with a backlog of $34.3 billion compared to $34.4 billion at the end of 2005.

  Outlook
  2006 Financial Outlook                         Current          Prior *

  Bookings ($B)                                22.0 - 23.0     22.0 - 23.0
  Net Sales ($B)                               23.1 - 23.6     23.1 - 23.6
  FAS/CAS Pension Expense ($M)                     378             360
  Interest Expense, net ($M)                    220 - 230       220 - 230
  Diluted Shares                                449 - 451       449 - 451
  EPS from Cont. Ops.                         $2.60 - $2.70   $2.55 - $2.65

  Net Debt ($B)                                 2.3 - 2.5       2.4 - 2.6
  Operating Cash Flow ($B)                      2.0 - 2.2       1.9 - 2.1
  ROIC (%)                                      8.2 - 8.6       8.0 - 8.4

  * As of April 27, 2006

The Company has increased full-year 2006 guidance for earnings per share from continuing operations, operating cash flow, and Return on Invested Capital (ROIC). In addition, the Company has updated guidance for the 2006 FAS/CAS pension expense and net debt. Charts containing additional information on the Company's 2006 guidance are available on the Company's website at http://www.raytheon.com/. See attachment F for the Company's calculation and use of ROIC, a non-GAAP financial measure.

  Segment Results
  Integrated Defense Systems
  (in millions, except margin percent)
                          2nd Quarter     %          Six Months      %
  2006                2005    Change    2006     2005    Change

  Net Sales         $1,038      $940     10%   $2,001    $1,846      8%
  Operating Income    $177      $139     27%     $335      $260     29%
  Operating Margin   17.1%     14.8%            16.7%     14.1%

Integrated Defense Systems (IDS) had second quarter 2006 net sales of $1,038 million, up 10 percent compared to $940 million in the second quarter 2005, primarily due to growth in DDG 1000 and international programs. IDS recorded $177 million of operating income compared to $139 million in the second quarter 2005. Operating income was higher primarily due to higher volume and program performance improvements on domestic and international programs.

During the quarter, IDS booked $126 million to provide electronic systems and integration for the U.S. Navy for the next three LPD 17 ships.

  Intelligence and Information Systems
  (in millions, except margin percent)
                        2nd Quarter       %          Six Months       %
  2006                2005    Change    2006     2005    Change

  Net Sales           $633      $630      NM   $1,244    $1,172      6%
  Operating Income     $58       $59     -2%     $113      $109      4%
  Operating Margin    9.2%      9.4%             9.1%      9.3%

Intelligence and Information Systems (IIS) had second quarter 2006 net sales of $633 million compared to $630 million in the second quarter 2005. IIS recorded $58 million of operating income compared to $59 million in the second quarter 2005.

During the quarter, IIS booked $521 million on a number of classified contracts, including $276 million on a major classified contract.

  Missile Systems
  (in millions, except margin percent)
                         2nd Quarter      %          Six Months      %
  2006                2005    Change    2006     2005    Change

  Net Sales         $1,117    $1,007     11%   $2,106    $1,997      5%
  Operating Income    $122      $104     17%     $232      $209     11%
  Operating Margin   10.9%     10.3%            11.0%     10.5%

Missile Systems (MS) had second quarter 2006 net sales of $1,117 million, up 11 percent compared to $1,007 million in the second quarter 2005, primarily due to a ramp up on Standard Missile and several development programs. MS recorded $122 million of operating income compared to $104 million in the second quarter 2005. Operating income in 2006 included an award fee resulting from a successful Standard Missile-3 (SM-3) flight test.

During the quarter, MS booked $208 million on a major classified contract. MS also booked $144 million on Small Diameter Bomb (SDB) II for the U.S. Air Force, $107 million for additional development on SM-3 for the U.S. Navy, and $101 million for additional development effort on the Exoatmospheric Kill Vehicle (EKV) program.

  Network Centric Systems
  (in millions, except margin percent)
                         2nd Quarter      %          Six Months      %
  2006                2005    Change    2006     2005    Change

  Net Sales           $880      $804      9%   $1,671    $1,566      7%
  Operating Income     $91       $78     17%     $175      $157     11%
  Operating Margin   10.3%      9.7%            10.5%     10.0%

Network Centric Systems (NCS) had second quarter 2006 net sales of $880 million, up 9 percent compared to $804 million in the second quarter 2005, primarily due to growth in the Combat Systems business. NCS recorded operating income of $91 million compared to $78 million in the second quarter 2005. Operating income was higher primarily due to volume and continued program performance improvements.

During the quarter, NCS booked $129 million on a number of awards in the Combat Systems business.

  Space and Airborne Systems
  (in millions, except margin percent)
                         2nd Quarter      %          Six Months      %
  2006                2005    Change    2006     2005    Change

  Net Sales         $1,057    $1,060      NM   $2,075    $2,017      3%
  Operating Income    $152      $146      4%     $297      $301     -1%
  Operating Margin   14.4%     13.8%            14.3%     14.9%

Space and Airborne Systems (SAS) had second quarter 2006 net sales of $1,057 million compared to $1,060 million in the second quarter 2005. SAS recorded $152 million of operating income compared to $146 million in the second quarter 2005. Operating margin was higher primarily due to program performance improvements in the quarter.

During the quarter, SAS booked $377 million on a number of classified contracts.

  Technical Services
  (in millions, except margin percent)
                         2nd Quarter      %         Six Months       %
  2006                2005    Change    2006     2005    Change

  Net Sales           $476      $509     -6%     $936      $976     -4%
  Operating Income     $32       $38    -16%      $64       $69     -7%
  Operating Margin    6.7%      7.5%             6.8%      7.1%

Technical Services (TS) had second quarter 2006 net sales of $476 million compared to $509 million in the second quarter 2005. The decrease in sales is primarily due to the completion, as planned, of several large programs. TS recorded operating income of $32 million in the second quarter of 2006 compared to $38 million in the second quarter 2005. Operating income was lower primarily due to a profit adjustment related to certain program costs which may be deemed unrecoverable.

During the quarter, TS booked $198 million to improve weapons security at an international location.

  Aircraft
  (in millions, except margin percent)
                         2nd Quarter      %          Six Months      %
  2006                2005    Change    2006     2005    Change

  Net Sales           $745      $687      8%   $1,238    $1,129     10%
  Operating Income     $41       $33     24%      $57       $35     63%
  Operating Margin    5.5%      4.8%             4.6%      3.1%

Raytheon Aircraft Company (RAC) had second quarter 2006 net sales of $745 million, up 8 percent compared to $687 million in the second quarter 2005, primarily due to increased new aircraft deliveries. RAC recorded operating income of $41 million compared to $33 million in the second quarter 2005. Operating income was higher due to continued improved operating performance and favorable aircraft volume and mix.

Other

Net sales for the Other segment in the second quarter 2006 were $202 million compared to $189 million in the second quarter 2005. The segment recorded an operating loss of $10 million in the second quarter 2006 compared to an operating loss of $20 million in the second quarter 2005.

Raytheon Company (NYSE: RTN), with 2005 sales of $21.9 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

This release and the attachments contain forward-looking statements, including information regarding the Company's 2006 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, aircraft manufacturing 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 the general aviation, commuter and fractional ownership aircraft markets; accidents involving the Company's aircraft; 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; risks associated with exploring strategic alternatives for RAC, including the uncertainty of whether a transaction will be consummated and the potential disruption to RAC's business during such transaction; 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, including any potential RAC transaction, 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 Second Quarter 2006 Financial Results

Raytheon's financial results conference call will be Thursday, July 27, 2006 at 9 a.m. ET. Participants will be 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 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:
  Mac Jeffery                         Greg Smith
  781-522-5111                        781-522-5141



  Attachment A

  Raytheon Company
  Financial Information
  Second Quarter 2006

  (In millions except per share amounts)
                                   Three Months Ended   Six Months Ended
                                   25-Jun-06 26-Jun-05 25-Jun-06   26-Jun-05

  Net sales                           $5,711  $5,409    $10,863     $10,353

  Cost of sales                        4,655   4,490      8,873       8,608
  Administrative and selling
   expenses                              390     356        751         705
  Research and development expenses      154     136        273         236

  Total operating expenses             5,199   4,982      9,897       9,549

  Operating income                       512     427        966         804

  Interest expense                        69      82        137         158
  Interest income                        (17)    (12)       (41)        (24)
  Other (income) expense, net            (12)      -        (39)         17

  Non-operating expense, net              40      70         57         151

  Income from continuing operations
   before taxes                          472     357        909         653

  Federal and foreign income taxes       161     124        309         224

  Income from continuing operations      311     233        600         429

  Loss from discontinued
   operations, net of tax                 (1)    (32)        (3)        (62)

  Net income                            $310    $201       $597        $367

  Earnings per share from
   continuing operations
      Basic                            $0.70   $0.52      $1.36       $0.95
      Diluted                          $0.69   $0.51      $1.33       $0.94

  Loss per share from discontinued
   operations
      Basic                             $-    $(0.07)    $(0.01)     $(0.14)
      Diluted                           $-    $(0.07)    $(0.01)     $(0.14)

  Earnings per share
      Basic                            $0.70   $0.45      $1.35       $0.82
      Diluted                          $0.69   $0.44      $1.33       $0.81

  Average shares outstanding
      Basic                            442.6   449.0      442.5       449.8
      Diluted                          450.9   455.1      450.3       455.6



  Attachment B

  Raytheon Company
  Segment Information
  Second Quarter 2006


  (In millions)


                                                          Operating Income
                        Net Sales     Operating Income As a Percent of Sales
                   Three Months Ended Three Months Ended Three Months Ended
                 25-Jun-06 26-Jun-05 25-Jun-06 26-Jun-05 25-Jun-06 26-Jun-05

  Integrated
   Defense Systems $1,038      $940    $177     $139       17.1%      14.8%
  Intelligence and
   Information
   Systems            633       630      58       59        9.2%       9.4%
  Missile Systems   1,117     1,007     122      104       10.9%      10.3%

  Network Centric
   Systems            880       804      91       78       10.3%      9.7%

  Space and Airborne
   Systems          1,057     1,060     152      146       14.4%     13.8%
  Technical Services  476       509      32       38        6.7%      7.5%

  Aircraft            745       687      41       33        5.5%      4.8%

  Other               202       189     (10)     (20)      -5.0%    -10.6%

  FAS/CAS Pension
   Adjustment           -         -    (100)    (116)

  Corporate and
   Eliminations      (437)     (417)    (51)     (34)

  Total            $5,711    $5,409    $512     $427        9.0%      7.9%




                                                          Operating Income
                       Net Sales     Operating Income  As a Percent of Sales
                   Six Months Ended   Six Months Ended   Six Months Ended
                 25-Jun-06 26-Jun-05 25-Jun-06 26-Jun-05 25-Jun-06 26-Jun-05

  Integrated
   Defense
   Systems         $2,001    $1,846    $335     $260       16.7%       14.1%
  Intelligence
   and Information
   Systems          1,244     1,172     113      109        9.1%        9.3%
  Missile Systems   2,106     1,997     232      209       11.0%       10.5%

  Network Centric
   Systems          1,671     1,566     175      157       10.5%       10.0%

  Space and Airborne
   Systems          2,075     2,017     297      301       14.3%       14.9%
  Technical Services  936       976      64       69        6.8%        7.1%

  Aircraft          1,238     1,129      57       35        4.6%        3.1%

  Other               392       381     (23)     (41)      -5.9%      -10.8%

  FAS/CAS Pension
   Adjustment           -         -    (190)    (232)

  Corporate and
   Eliminations      (800)     (731)    (94)     (63)

  Total           $10,863   $10,353    $966     $804        8.9%        7.8%



  Attachment C

  Raytheon Company
  Other Information
  Second Quarter 2006

                                                              Funded
                                          Backlog             Backlog
                                       (In millions)       (In millions)
                                   25-Jun-06  31-Dec-05 25-Jun-06  31-Dec-05

  Integrated Defense Systems          $7,698     $8,010   $3,501     $3,009
  Intelligence and Information
   Systems                             3,869      4,077      725        642
  Missile Systems                      8,261      8,040    4,756      4,443
  Network Centric Systems              4,327      4,307    3,087      2,839
  Space and Airborne Systems           5,464      5,220    3,108      2,851
  Technical Services                   1,644      1,594    1,006        916
  Aircraft                             2,721      2,891    2,721      2,600
  Other                                  285        280      285        280

                                     $34,269    $34,419  $19,189    $17,580

  Government and Defense businesses  $31,263    $31,248  $16,183    $14,700



                                                       Bookings
                                                     (In millions)
                                                   Three Months Ended
                                              25-Jun-06           26-Jun-05

  Government and Defense businesses              $4,637              $7,283
  Commercial businesses                             817                 787

                                                 $5,454              $8,070


                                             New Aircraft Deliveries (Units)
                                                    Three Months Ended
                                               25-Jun-06           26-Jun-05

  Hawker 800XP                                       16                  13
  Premier                                             7                   6
  Hawker 400XP                                       13                  16
  King Air                                           33                  27
  Pistons                                            30                  25
  T-6A                                                8                  17
     Total                                          107                 104



                                               New Aircraft Bookings (Units)
                                                      Three Months Ended
                                                 25-Jun-06         26-Jun-05

  Hawker 4000                                          1                 1
  Hawker 800XP                                        13                13
  Premier                                              9                 6
  Hawker 400XP                                         5                 8
  King Air                                            38                42
  Pistons                                             20                14
  T-6A                                                 -                 -
     Total                                            86                84




  Attachment D

  Raytheon Company
  Preliminary Financial Information
  Second Quarter 2006

  (In millions)

  Balance sheets
                                               25-Jun-06          31-Dec-05
  Assets
  Cash and cash equivalents                         $925             $1,202
  Accounts receivable, less allowance
   for doubtful accounts                             402                425
  Contracts in process                             3,755              3,469
  Inventories                                      1,969              1,722
  Deferred federal and foreign income
   taxes                                             372                435
  Prepaid expenses and other current
   assets                                            277                314
    Total current assets                           7,700              7,567

  Property, plant and equipment, net               2,621              2,675
  Goodwill                                        11,590             11,554
  Other assets, net                                2,542              2,585
      Total assets                               $24,453            $24,381

  Liabilities and Stockholders' Equity
  Notes payable and current portion of
   long-term debt                                    $91                $79
  Subordinated notes payable                           -                408
  Advance payments and billings in
   excess of costs incurred                        1,984              2,012
  Accounts payable                                 1,001                962
  Accrued salaries and wages                         805                987
  Other accrued expenses                           1,147              1,403
  Liabilities from discontinued
   operations                                         47                 49
    Total current liabilities                      5,075              5,900

  Accrued retiree benefits and other
   long-term liabilities                           3,658              3,559
  Deferred federal and foreign income
   taxes                                             209                125
  Long-term debt                                   3,945              3,969
  Minority interest                                  147                119
  Stockholders' equity                            11,419             10,709
      Total liabilities and
       stockholders' equity                      $24,453            $24,381




  Attachment E

  Raytheon Company
  Preliminary Cash Flow Information
  Second Quarter 2006

  (In millions)

  Cash flow information
                                     Three Months Ended   Six Months Ended
                                    25-Jun-06 26-Jun-05 25-Jun-06  26-Jun-05

  Net income                            $310      $201      $597       $367
  Depreciation                            93        88       181        176
  Amortization                            24        22        47         42
  Working capital                       (143)      283      (619)      (351)
  Discontinued operations                 21       (49)       (4)       (52)
  Net activity in financing
   receivables                            37        46       106         91
  Other                                  118       180       132        221
      Net operating cash flow            460       771       440        494

  Capital spending                       (62)      (64)     (105)      (112)
  Internal use software spending         (21)      (20)      (26)       (36)
  Acquisitions                             -         -       (47)       (60)
  Investment activity and
   divestitures                           28         -        50          7
  Dividends                             (107)     (100)     (205)      (190)
  Repurchase of common stock               -      (139)     (102)      (192)
  Debt (repayments) borrowings          (340)     (484)     (371)       (62)
  Other                                   23        33        89         49
        Total cash flow                 $(19)      $(3)    $(277)     $(102)



  Attachment F

  Raytheon Company
  Non-GAAP Financial Measures
  Second Quarter 2006


  Return on Invested Capital (ROIC) is a "non-GAAP" financial measure under
  SEC regulations.  The Company defines 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 the operating
  lease expense), divided by average invested capital after capitalizing
  operating leases (operating lease expense times a multiplier of 8) and
  adding financial guarantees.  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. The Company uses ROIC to
  make the most efficient and effective use of capital and as an element of
  management incentive compensation.


  Return on Invested Capital

  (In millions)                                   Current Guidance
                                         Low end of range High end of range
  Income from Continuing Operations
  Net Interest Expense, after-tax*           Combined          Combined
  Lease Expense, after-tax*
  Return                                           $1,385            $1,430
  Net Debt **
  Equity**                                   Combined          Combined
  Lease Expense x 8 plus Financial
   Guarantees**
  Invested Capital                                $16,900           $16,700
  ROIC                                               8.2%              8.6%


  *   effective tax rate of 33.6%
  **  two-point average

SOURCE: Raytheon Company

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

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

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