-- NCS business performance negatively impacted sales and EPS
-- Loss per share of $0.08 including the impact of discontinued
operations
-- Year-to-date Government and Defense bookings up 23 percent and sales
up 7 percent
-- Free cash flow from continuing operations of $535 million
-- 8-10 percent revenue growth expected in 2004
LEXINGTON, Mass., Oct. 23 /PRNewswire-FirstCall/ -- Raytheon Company
(NYSE: RTN) reported third quarter 2003 income from continuing operations of
$21 million or $0.05 per diluted share compared to $228 million or $0.56 per
diluted share in the third quarter 2002. The reduction in earnings primarily
reflects performance issues in the Network Centric Systems (NCS) business
including $187 million or $0.31 per diluted share primarily related to cost
growth on risk programs identified last quarter. The Company also recorded
charges of $39 million or $0.06 per diluted share at the Technical Services
(TS) business.
At NCS, continued technical challenges, reductions and delays in scheduled
deliveries, negative developments on contract negotiations, and performance
deterioration all contributed to the cost growth. At TS, the charge was due
to a customer-driven change in scope on a long-term contract and a change in
the expectation for the recoverability of certain costs.
Non-cash pension expense (FAS/CAS pension adjustment) accounted for $0.14
of the decrease in earnings per diluted share on a year-over-year basis.
Third quarter 2003 net loss was $35 million or $0.08 per diluted share
compared to net income of $147 million or $0.36 per diluted share in 2002.
Net loss for the third quarter of 2003 includes a $56 million after-tax loss
in discontinued operations or $0.13 per diluted share versus an $81 million
after-tax loss in discontinued operations or $0.20 per diluted share in 2002.
The charges in the quarter would cause a technical default relative to the
interest coverage ratio in the Company's senior credit facilities. The
Company will request, and expects to receive, as it has in the past, an
amendment to remain in compliance.
Net sales for the third quarter 2003 were $4.4 billion, up from $4.1
billion in the comparable period in 2002. The third quarter 2003 includes
$141 million of sales resulting from the previously announced consolidation of
Flight Options. Government and Defense sales for the quarter (after the
elimination of intercompany sales) increased 3 percent to $3.7 billion from
$3.6 billion in the comparable quarter, including a $178 million negative
impact to sales resulting from the NCS charges. Integrated Defense Systems
(IDS), Intelligence and Information Systems (IIS), Missile Systems (MS), and
Space and Airborne Systems (SAS) all generated double-digit sales growth in
the quarter.
Free cash flow for the third quarter 2003 was $471 million, net of $64
million consumed by discontinued operations. Free cash flow for the
comparable quarter last year was $80 million. Free cash flow from continuing
operations for the third quarter was $535 million versus $402 million for the
comparable period in 2002. Free cash flow is a non-GAAP financial measure
that the Company defines as operating cash flow less capital spending and
internal use software spending. Attachment G contains a table reconciling
this measure to operating cash flow, the most directly comparable GAAP
measure.
"We are disappointed that an otherwise strong quarter has been diminished
by the shortfalls at Network Centric Systems and Technical Services," said
William H. Swanson, Raytheon chief executive officer and president. "We have
taken and will continue to take appropriate actions to address these
performance issues. Going forward, we expect that these businesses will be
more predictable performers." Swanson also stated, "IDS, IIS, MS and SAS all
delivered strong results in the quarter and continued their exceptional
performance in 2003."
The Government and Defense businesses recorded strong third quarter
bookings of over $4 billion and year-to-date bookings of nearly $13 billion
versus the comparable period bookings of $10.5 billion last year. RAC posted
third quarter bookings of approximately $550 million and year-to-date bookings
of $1.4 billion versus $2.3 billion in the 2002 comparable period. The higher
2002 bookings were due primarily to an approximately $850 million Flight
Options order in the first quarter.
OUTLOOK
The Company expects fourth quarter 2003 sales to be $4.9 to $5.0 billion
and income from continuing operations to be $0.52 to $0.54 per diluted share.
Stronger performance in a number of the defense businesses will be offset by
lower sales and profit at NCS. The Company also expects free cash flow from
continuing operations to be $500 to $550 million and total free cash flow to
be $450 to $500 million for the fourth quarter.
For the full year, the Company expects sales to be $17.9 to $18.0 billion
and income from continuing operations to be $1.29 to $1.31 per diluted share.
The Company also expects free cash flow from continuing operations to be
approximately $1.2 billion and total free cash flow to be $625 to $675 million
for the year.
The Company expects total 2004 sales growth to be 8 to 10 percent versus
prior guidance of 6 to 8 percent. Government and Defense sales growth in 2004
is expected to be 8 to 10 percent. RAC sales growth is expected to be 10 to
12 percent due to the full year impact of the consolidation of Flight Options.
Income from continuing operations is expected to be $1.50 to $1.60 per
diluted share in 2004 versus previous guidance of $1.60 to $1.70 per diluted
share. The new income guidance reflects deterioration in the forecasted sales
mix, volume and operating margin rate at NCS, and assumes no change in the
pension expense assumption. As previously disclosed, a decrease in the
discount rate assumption would increase our expected 2004 pension expense.
The Company continues to expect that 2004 free cash flow will be about
$1.0 billion.
SEGMENT RESULTS
Integrated Defense Systems
Integrated Defense Systems (IDS) third quarter 2003 net sales were $718
million, up 33 percent compared to $541 million in the third quarter 2002 due
primarily to continued growth in DD(X), the Navy's future destroyer program,
strong missile defense sales, and increased Patriot engineering support for
Operation Iraqi Freedom. IDS generated $82 million of operating income
compared to $70 million in the 2002 comparable quarter.
Subsequent to the end of the quarter, IDS responded to a sole source
solicitation released by the Naval Sea Systems Command (NAVSEA) for the
design, production, integration, and testing of Cobra Judy Replacement Mission
Equipment (CJRME).
Intelligence and Information Systems
Intelligence and Information Systems (IIS) third quarter 2003 net sales
were $533 million, up 10 percent compared to $485 million in the third quarter
2002 due primarily to strong growth in new classified programs. IIS earned
$54 million of operating income compared to $46 million in the comparable
quarter a year ago.
During the quarter, IIS was awarded a $101 million contract to provide
information technology operations and maintain NASA's Earth Observing System.
Missile Systems
Missile Systems (MS) third quarter 2003 net sales were $905 million, up 14
percent compared to $792 million in the third quarter 2002 driven by work on
the Tomahawk remanufacturing program and an increase in production for Air
Intercept Missile (AIM-9X), Enhanced Sea Sparrow Missile, Paveway, Standard
Missile-3, and Tactical Tomahawk. MS generated $111 million of operating
income compared to $94 million in the comparable quarter a year ago.
During the quarter, MS was awarded an $880 million not-to-exceed letter
contract from the U.S. Navy to continue development of the Standard Missile-3
(SM-3); $330 million of this award was included in third quarter bookings. In
addition, MS definitized its contract for the Exoatmospheric Kill Vehicle
(EKV) in the amount of $159 million.
Network Centric Systems
Network Centric Systems (NCS) third quarter 2003 net sales were $556
million, down 27 percent compared to $759 million in the third quarter 2002.
NCS recorded an operating loss of $138 million compared to $63 million in
income in the comparable quarter a year ago. The decline in operating income
reflects charges of $187 million including approximately $147 million
associated with the ten previously identified programs at risk, as well as $40
million resulting from negative developments in other parts of the NCS
business.
Space and Airborne Systems
Space and Airborne Systems (SAS) third quarter 2003 net sales were $930
million, up 16 percent compared to $803 million in the third quarter 2002, due
to stronger classified sales and new and follow-on Air Force awards. SAS
generated $131 million of operating income compared to $109 million in the
comparable quarter a year ago.
During the third quarter SAS received over $300 million in classified
awards and a $242 million contract to equip the Greek Air Force F-16 aircraft
fleet with its ASPIS II electronic warfare system.
Technical Services
Technical Services (TS) third quarter 2003 net sales were $447 million,
down 20 percent from $556 million in the third quarter 2002, due primarily to
the loss of the Kwajalein missile range contract in 2002. TS reported an
operating loss of $2 million compared to operating income of $37 million in
the comparable quarter last year. The reduction in operating income reflects
write-offs of approximately $39 million primarily related to a change in scope
on a long-term contract and a provision for the recoverability of certain
costs.
Aircraft
Raytheon Aircraft Company (RAC) third quarter 2003 net sales were $637
million, up from $451 million in the third quarter 2002. RAC recorded an
operating loss of $10 million in the quarter compared to an operating loss of
$11 million in the comparable quarter in 2002. The net impact of Flight
Options' consolidation this quarter was a $141 million increase in sales and
$2 million decrease in operating income.
RAC delivered 61 commercial aircraft in the third quarter of 2003,
compared to 43 in the same quarter last year.
DISCONTINUED OPERATIONS
The total after-tax loss from discontinued operations for the quarter was
$56 million. During the quarter, the Company recorded a $36 million after-tax
charge associated with increased costs for close-out of supplier contracts and
estimates of cost to complete punch list activities for two power plant
construction projects. The Company also recorded a $15 million after-tax
charge for period and other costs associated with its former engineering and
construction businesses, including legal expense, increased costs on abandoned
leases and settlement of a warranty obligation. Also, the Company recorded a
$5 million after-tax charge related to its former Aircraft Integration Systems
business.
Raytheon Company (NYSE: RTN), with 2002 sales of $16.8 billion, is an
industry leader in defense, government and commercial electronics, space,
information technology, technical services, and business and special mission
aircraft. With headquarters in Lexington, Mass., Raytheon employs more than
76,000 people worldwide.
Disclosure Regarding Forward-looking Statements
Certain statements made 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, particularly at the Company's NCS
business unit; 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 investigations; the effect of market conditions, particularly in
relation to the general aviation and commuter aircraft markets; the
uncertainty of the timing and amount of net realizable value of Boeing
Business Jet-related assets; risks inherent with large long-term fixed price
contracts, particularly the ability to contain cost growth; the Company's lack
of construction industry expertise resulting from the Company's sale of its
Engineers and Constructors business; the timing of project completion and
customer acceptance of two Massachusetts construction projects; delays and
cost growth arising from testing and commissioning processes conducted at the
Massachusetts projects; the final determination by the Company of the required
expenditures to complete the Massachusetts projects; and the impact of change
orders, the recoverability of the Company's claims and the outcome of
defending claims asserted against the Company. Further information regarding
the factors that could cause actual results to differ materially from the
Company's expectations are disclosed in the Company's SEC filings, including
"Item 1-Business" of the Company's Annual Report on Form 10-K for the year
ended December 31, 2002 and in the Company's Quarterly Report on Form 10-Q for
the quarter ended June 29, 2003.
Conference Call on the Third Quarter 2003 Financial Results
Raytheon's financial results conference call will be Thursday, October 23,
2003 at 9 a.m. EDT. Participants will be William Swanson, chief executive
officer and president, Edward Pliner, senior vice president and CFO, and other
company executives.
The dial-in number for the conference call will be (800) 299-9630. 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 Tim Oliver
781-860-2386 781-860-2167
Attachment A
Raytheon Company
Financial Information
Third Quarter 2003
(In millions, except per share amounts)
Three Months Ended Nine Months Ended
28-Sep-03 29-Sep-02 28-Sep-03 29-Sep-02
Net sales $4,378 $4,092 $13,008 $12,098
Cost of sales 3,776 3,240 10,826 9,607
Administrative and selling
expenses 305 285 952 892
Research and development
expenses 129 112 366 337
Total operating expenses 4,210 3,637 12,144 10,836
Operating income 168 455 864 1,262
Interest expense 137 118 415 388
Interest income (10) (7) (33) (24)
Other (income) expense 12 15 27 36
Non-operating expense, net 139 126 409 400
Income from continuing operations
before taxes 29 329 455 862
Federal and foreign income taxes 8 101 137 262
Income from continuing operations 21 228 318 600
Loss from discontinued
operations, net of tax (56) (81) (158) (664)
Income (loss) before
extraordinary item and
accounting change (35) 147 160 (64)
Extraordinary gain from debt
repurchases, net of tax - - - 1
Cumulative effect of change in
accounting principle, net of tax - - - (509)
Net income (loss) $(35) $147 $160 $(572)
Earnings per share from
continuing operations
Basic $0.05 $0.56 $0.77 $1.50
Diluted $0.05 $0.56 $0.77 $1.47
Loss per share from discontinued
operations
Basic $(0.14) $(0.20) $(0.38) $(1.66)
Diluted $(0.13) $(0.20) $(0.38) $(1.62)
Loss per share from cumulative
effect of change in accounting
principle
Basic $- $- $- $(1.27)
Diluted $- $- $- $(1.25)
Earnings (loss) per share
Basic $(0.08) $0.36 $0.39 $(1.43)
Diluted $(0.08) $0.36 $0.39 $(1.40)
Average shares outstanding
Basic 414.3 403.7 411.5 399.8
Diluted 417.8 408.7 414.5 408.7
Attachment B
Raytheon Company
Segment Information
Third Quarter 2003
(In millions)
Operating Income
Net Sales Operating Income As a Percent of Sales
Three Months Ended Three Months Ended Three Months Ended
28-Sep-03 29-Sep-02 28-Sep-03 29-Sep-02 28-Sep-03 29-Sep-02
Integrated
Defense Systems $ 718 $ 541 $ 82 $ 70 11.4% 12.9%
Intelligence
and Information
Systems 533 485 54 46 10.1% 9.5%
Missile Systems 905 792 111 94 12.3% 11.9%
Network Centric
Systems 556 759 (138) 63 -24.8% 8.3%
Space and Airborne
Systems 930 803 131 109 14.1% 13.6%
Technical Services 447 556 (2) 37 -0.4% 6.7%
Aircraft 637 451 (10) (11) -1.6% -2.4%
FAS/CAS Pension
Adjustment - - (28) 53
Corporate and
Eliminations (348) (295) (32) (6)
Total $4,378 $4,092 $ 168 $ 455 3.8% 11.1%
Attachment C
Raytheon Company
Other Information
Continuing Operations
Third Quarter 2003
Backlog
(In millions)
28-Sep-03 29-Sep-02
Integrated Defense Systems $5,399 $4,920
Intelligence and Information
Systems 3,876 3,674
Missile Systems 4,187 3,498
Network Centric Systems 2,972 2,610
Space and Airborne Systems 4,580 4,501
Technical Services 1,606 1,694
Aircraft 2,016 4,423
Corporate 183 260
$24,819 $25,580
Government and Defense businesses $22,620 $20,897
U.S. government backlog included
above $19,419 $17,986
Bookings Bookings
(In millions) (In millions)
Three months ended Nine Months Ended
28-Sep-03 29-Sep-02 28-Sep-03 29-Sep-02
Government and Defense
businesses $4,091 $4,799 $12,901 $10,458
Commercial businesses 555 335 1,408 2,308
$4,646 $5,134 $14,309 $12,766
Aircraft Deliveries (Units)
Three Months Ended
28-Sep-03 29-Sep-02
Hawker 7 9
Premier I 7 3
Beechjet 7 4
King Air 18 16
1900D Commuter - 3
Pistons 22 16
T-6A 19 13
Total 80 64
Aircraft Bookings (Units)
Three Months Ended
28-Sep-03 29-Sep-02
Hawker 6 7
Premier I 2 2
Beechjet 8 4
King Air 26 11
1900D Commuter - -
Pistons 15 5
T-6A - -
Total 57 29
Attachment D
Raytheon Company
Preliminary Financial Information
Third Quarter 2003
(In millions)
Balance sheets
28-Sep-03 31-Dec-02 29-Sep-02
Assets
Cash and cash equivalents $203 $544 $619
Accounts receivable 543 675 440
Contracts in process 3,255 3,016 3,478
Inventories 2,085 2,032 2,275
Deferred federal and foreign income
taxes 485 601 548
Prepaid expenses and other current
assets 135 247 151
Assets from discontinued operations 60 75 83
Total current assets 6,766 7,190 7,594
Property, plant and equipment, net 2,620 2,396 2,324
Goodwill 11,474 11,170 11,170
Deferred federal and foreign income
taxes 358 281 -
Other assets, net 2,578 2,909 3,524
Total assets $23,796 $23,946 $24,612
Liabilities and Stockholders' Equity
Notes payable and current portion of
long-term debt $559 $1,153 $776
Advance payments, less contracts in
process 1,008 819 781
Accounts payable 786 776 803
Accrued salaries and wages 826 710 747
Other accrued expenses 1,082 1,316 1,185
Liabilities from discontinued
operations 75 333 383
Total current liabilities 4,336 5,107 4,675
Accrued retiree benefits and other
long-term liabilities 2,853 2,831 1,221
Deferred federal and foreign income
taxes - - 837
Long-term debt 6,702 6,280 6,088
Mandatorily redeemable equity
securities 859 858 858
Stockholders' equity 9,046 8,870 10,933
Total liabilities and
stockholders' equity $23,796 $23,946 $24,612
Attachment E
Raytheon Company
Preliminary Cash Flow Information
Third Quarter 2003
(In millions)
Cash flow information
Three Months Ended
28-Sep-03 29-Sep-02
Income from continuing operations $21 $228
Depreciation 82 77
Amortization 16 15
Working capital 426 107
Discontinued operations (64) (322)
Capital spending (106) (96)
Internal use software spending (22) (42)
Other 118 113
Subtotal - free cash flow (a) 471 80
Net activity in financing receivables (2) (115)
Acquisitions (20) -
Divestitures and sale of investments 14 43
Dividends (82) (81)
Issuance of common stock 28 62
Debt repayments (450) (1,008)
Synthetic lease maturity (125) -
Other 5 (4)
Total cash flow $(161) $(1,023)
Segment free cash flow information
Three Months Ended
28-Sep-03 29-Sep-02
Integrated Defense Systems $36 $55
Intelligence and Information Systems 43 46
Missile Systems 196 37
Network Centric Systems 110 49
Space and Airborne Systems 153 111
Technical Services 36 27
Aircraft (111) (81)
Discontinued operations (64) (322)
Other 72 158
$471 $80
(a) See Attachment G for a description of free cash flow.
Attachment F
Raytheon Company
Definitions
Third Quarter 2003
(In millions except share and per share amounts)
Debt-to-capital ratio
28-Sep-03 31-Dec-02 29-Sep-02
Notes payable and current portion of
long-term debt 559 1,153 776
Long-term debt 6,702 6,280 6,088
Mandatorily redeemable equity
securities 859 (1) (1)
Total debt 8,120 7,433 6,864
Notes payable and current portion of
long-term debt 559 1,153 776
Long-term debt 6,702 6,280 6,088
Mandatorily redeemable equity
securities 859 858 858
Stockholders' equity 9,046 8,870 10,933
Total capital 17,166 17,161 18,655
Debt-to-capital ratio 47.3% 43.3% 36.8%
(1) The Company adopted SFAS No. 150 in the third quarter of 2003
which requires that the mandatorily redeemable equity securities be
classified as debt. In accordance with SFAS No. 150, prior periods
were not restated.
NCS and TS EPS impact
NCS TS
28-Sep-03 28-Sep-03
Operating income impact of
charge 187 39
Effective tax rate for the
nine months ended
September 28, 2003 30.1% 30.1%
After tax impact 131 27
Q3 diluted shares
outstanding 417.8 417.8
EPS impact $0.31 $0.06
Operating margin rate
Operating margin rate is defined as operating income divided by net sales.
Attachment G
Raytheon Company
Reconciliation of Non-GAAP Financial Measure
Third Quarter 2003
(In millions)
Reconciliation of Non-GAAP Financial Measure
Operating cash flow
Three Months Ended
28-Sep-03 29-Sep-02
Operating cash flow $599 $218
Less: Capital spending (106) (96)
Internal use software
spending (22) (42)
Free cash flow $471 $80
Note: Free cash flow represents a non-GAAP financial measure defined as
operating cash flow less capital spending and internal use software
spending. The Company's management uses non-GAAP financial
measures to evaluate the operating performance of its business and
as a component for determining incentive-based compensation. In
addition, the Company believes that free cash flow is an important
measure of performance used by some investors, equity analysts and
others to make informed investment decisions. The definitions used
here may differ from those used by other companies.
SOURCE Raytheon Company
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Related links:
www.raytheon.com
CONTACT:
Media, James Fetig, +1-781-860-2386, or
Investor Relations, Tim Oliver, +1-781-860-2167, both of Raytheon
Company
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