Highlights
* EPS from continuing operations of $0.69, up 35 percent * Strong operating
cash flow; net debt at $3.1 billion, lowest in over 10 years * Strong
bookings of $5.5 billion; sales of $5.7 billion, up 6 percent * Increases
full-year guidance for EPS, operating cash flow, and ROIC * Announces
decision to explore strategic alternatives for Raytheon Aircraft Company
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
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Related links:
http://www.raytheon.com
CONTACT:
Media Contact: Mac Jeffery, +1-781-522-5111,
or Investor Relations Contact: Greg Smith, +1-781-522-5141, both
of Raytheon Company
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