Highlights
* Earnings per share (EPS) from continuing operations of $0.72, up 41
percent * Strong operating cash flow; net debt at $2.8 billion, lowest in
over 11 years * Strong bookings of $6.1 billion; sales of $5.7 billion, up
7 percent * 2006 full-year guidance increased for EPS, bookings, operating
cash flow, and return on invested capital (ROIC)
WALTHAM, Mass., Oct. 26, 2006 /PRNewswire-FirstCall/ -- Raytheon
Company (NYSE: RTN) reported third quarter 2006 income from continuing
operations of $323 million or $0.72 per diluted share compared to $231
million or $0.51 per diluted share in the third quarter 2005. Third quarter
2006 net income was $321 million or $0.71 per diluted share compared to
$228 million or $0.50 per diluted share in the third quarter 2005. Third
quarter 2006 net income was higher primarily due to improved operating
results at Integrated Defense Systems (IDS) and Raytheon Aircraft Company
(RAC), combined with a reduction in pension expense.
"Raytheon had another very strong quarter," said William H. Swanson,
Raytheon's Chairman and CEO. "Our operating results demonstrate the
Company's continued focus on execution, and as a result, the Company is
able to increase its full-year EPS, bookings, cash flow, and ROIC
guidance."
Net sales for the third quarter 2006 were $5.7 billion, up 7 percent
from $5.3 billion in the third quarter 2005. Government and Defense sales
for the quarter (after the elimination of intercompany sales) increased 5
percent to $4.7 billion from $4.5 billion in the third quarter 2005. RAC
sales for the quarter increased 18 percent to $758 million from $642
million in the third quarter 2005.
Operating cash flow from continuing operations for the third quarter
2006 was $750 million versus $798 million for the third quarter 2005.
Year-to-date operating cash flow from continuing operations was $1,194
million versus $1,344 million for the comparable period in 2005. The
decrease in both the third quarter and year-to-date 2006 versus the
comparable periods in 2005 is primarily due to higher cash tax payments in
2006.
During the third quarter 2006, the Company repurchased 5.5 million
shares of common stock for $250 million as part of the Company's previously
announced share repurchase programs. The Company has repurchased 7.9
million shares of common stock year-to-date for $352 million.
Net debt was $2.8 billion at the end of the third quarter 2006 compared
with $3.3 billion at year-end 2005 and $4.2 billion at the end of the third
quarter 2005. Net debt is defined as total debt less cash and cash
equivalents.
Summary Financial Results
(in millions, except per share data)
3rd Quarter % Nine Months %
2006 2005 Change 2006 2005 Change
Net Sales $5,693 $5,331 7% $16,556 $15,684 6%
Total Operating
Expenses 5,156 4,917 15,053 14,466
Operating Income 537 414 30% 1,503 1,218 23%
Non-operating
Expenses 44 61 101 212
Income from Cont.
Ops. before Taxes $493 $353 40% $1,402 $1,006 39%
Income from Continuing
Operations $323 $231 40% $923 $660 40%
Net Income $321 $228 41% $918 $595 54%
Diluted EPS from
Continuing
Operations $0.72 $0.51 41% $2.05 $1.45 41%
Diluted EPS $0.71 $0.50 42% $2.04 $1.31 56%
Cash Flow from
Continuing
Operations $750 $798 $1,194 $1,344
Bookings and Backlog
Bookings
(in millions) 3rd Quarter Nine Months
2006 2005 2006 2005
Bookings
Government and Defense $5,237 $3,422 $14,655 $15,317
Commercial 883 737 2,386 2,187
Total Bookings $6,120 $4,159 $17,041 $17,504
Backlog Period ending
(in millions) 09/24/06 12/31/05
Backlog $34,587 $34,419
Funded Backlog $18,860 $17,580
The Government and Defense businesses reported third quarter 2006
bookings of $5.2 billion compared to $3.4 billion in the third quarter
2005, an increase driven by several programs in Missile Systems (MS) and
Network Centric Systems (NCS). RAC reported third quarter 2006 bookings of
$717 million compared to $572 million in the third quarter 2005.
The Government and Defense businesses ended the third quarter 2006 with a
backlog of $31.7 billion compared to $31.2 billion at the end of 2005. The
Company ended the quarter with a backlog of $34.6 billion compared to $34.4
billion at the end of 2005.
Outlook
2006 Financial Outlook
Current Prior *
Bookings ($B) 23.0 - 24.0 22.0 - 23.0
Net Sales ($B) 23.1 - 23.6 23.1 - 23.6
FAS/CAS Pension Expense ($M) 378 378
Interest Expense, net ($M) 200 - 210 220 - 230
Diluted Shares 449 - 451 449 - 451
EPS from Cont. Ops. ($) 2.70 - 2.80 2.60 - 2.70
Net Debt ($B) 2.0 - 2.2 2.3 - 2.5
Operating Cash Flow ($B) 2.3 - 2.5 2.0 - 2.2
ROIC (%) 8.4 - 8.8 8.2 - 8.6
* As of July 27, 2006
The Company has increased full-year 2006 guidance for earnings per
share from continuing operations, bookings, operating cash flow, and return
on invested capital (ROIC). In addition, the Company's full-year 2006
guidance reflects a reduction in both net interest expense and net debt.
2007 Financial Outlook
Bookings ($B)
24.5 - 25.5
Net Sales ($B)
Government and Defense 22.2 - 22.7
Eliminations of Intercompany Sales (1.7)
Government and Defense after Elims 20.5 - 21.0
Raytheon Aircraft 3.3
Other 0.8
Total Company 24.6 - 25.1
EPS from Cont. Ops. ($) 2.95 - 3.05
Operating Cash Flow ($B) 1.7 - 1.9
ROIC (%) 9.0 - 9.4
Charts containing additional information on the Company's 2006 and 2007
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)
3rd Quarter % Nine Months %
2006 2005 Change 2006 2005 Change
Net Sales $1,030 $919 12% $3,031 $2,765 10%
Operating Income $167 $134 25% $502 $394 27%
Operating Margin 16.2% 14.6% 16.6% 14.2%
Integrated Defense Systems (IDS) had third quarter 2006 net sales of
$1,030 million, up 12 percent compared to $919 million in the third quarter
2005, primarily due to growth in DDG 1000 and international programs. IDS
recorded $167 million of operating income compared to $134 million in the
third quarter 2005. The increase in operating income was primarily due to
higher volume and program performance improvements on domestic and
international programs.
During the quarter, IDS booked $92 million to provide torpedoes, spares
and support for the U.S. Navy.
Intelligence and Information Systems
(in millions, except margin percent)
3rd Quarter % Nine Months %
2006 2005 Change 2006 2005 Change
Net Sales $626 $649 -4% $1,870 $1,821 3%
Operating Income $58 $57 2% $171 $166 3%
Operating Margin 9.3% 8.8% 9.1% 9.1%
Intelligence and Information Systems (IIS) had third quarter 2006 net
sales of $626 million compared to $649 million in the third quarter 2005, a
decrease primarily due to the timing of funding on certain classified
programs. IIS recorded $58 million of operating income compared to $57
million in the third quarter 2005.
During the quarter, IIS booked $294 million on a number of classified
contracts, including $111 million on a major classified contract.
Missile Systems
(in millions, except margin percent)
3rd Quarter % Nine Months %
2006 2005 Change 2006 2005 Change
Net Sales $1,081 $1,005 8% $3,187 $3,002 6%
Operating Income $109 $104 5% $341 $313 9%
Operating Margin 10.1% 10.3% 10.7% 10.4%
Missile Systems (MS) had third quarter 2006 net sales of $1,081
million, up 8 percent compared to $1,005 million in the third quarter 2005,
primarily due to a ramp up on Standard Missile and several development
programs. MS recorded $109 million of operating income compared to $104
million in the third quarter 2005.
During the quarter, MS booked $369 million for the production of
Phalanx Weapons Systems for the U.S. Navy. MS also booked $311 million for
additional development work on the Exoatmospheric Kill Vehicle (EKV)
program, $267 million for the production of Standard Missile-3 (SM-3) for
the Missile Defense Agency, and $163 million for the production of
Tube-launched Optically guided Wire controlled (TOW) missiles for the U.S.
Army.
Network Centric Systems
(in millions, except margin percent)
3rd Quarter % Nine Months %
2006 2005 Change 2006 2005 Change
Net Sales $879 $833 6% $2,550 $2,399 6%
Operating Income $87 $87 NM $262 $244 7%
Operating Margin 9.9% 10.4% 10.3% 10.2%
Network Centric Systems (NCS) had third quarter 2006 net sales of $879
million, up 6 percent compared to $833 million in the third quarter 2005,
primarily due to growth in the Combat Systems business. NCS recorded
operating income of $87 million in the third quarter 2006 and in the third
quarter 2005.
During the quarter, NCS booked $285 million for the production of
Improved Target Acquisition System (ITAS) for the U.S. Army and the U.S.
Marine Corps. NCS also booked $97 million to provide Horizontal Technology
Integration (HTI) forward-looking infrared kits to the U.S. Army.
Space and Airborne Systems
(in millions, except margin percent)
3rd Quarter % Nine Months %
2006 2005 Change 2006 2005 Change
Net Sales $1,069 $1,013 6% $3,144 $3,030 4%
Operating Income $148 $143 3% $445 $444 NM
Operating Margin 13.8% 14.1% 14.2% 14.7%
Space and Airborne Systems (SAS) had third quarter 2006 net sales of
$1,069 million, up 6 percent compared to $1,013 million in the third
quarter 2005, primarily due to growth in the Advanced Targeting Forward
Looking Infrared (ATFLIR) and Airborne Radar Production programs. SAS
recorded $148 million of operating income compared to $143 million in the
third quarter 2005.
During the quarter, SAS booked $96 million to supply the Hellenic Air
Force with Advanced Self-Protection Integrated Suite (ASPIS) equipment for
its F-16 aircraft fleet. SAS also booked $192 million on a number of
classified contracts.
Technical Services
(in millions, except margin percent)
3rd Quarter % Nine Months %
2006 2005 Change 2006 2005 Change
Net Sales $509 $479 6% $1,445 $1,455 -1%
Operating Income $36 $38 -5% $100 $107 -7%
Operating Margin 7.1% 7.9% 6.9% 7.4%
Technical Services (TS) had third quarter 2006 net sales of $509
million, up 6 percent compared to $479 million in the third quarter 2005,
primarily due to growth in the Logistics and Training Systems business. TS
recorded operating income of $36 million in the third quarter of 2006
compared to $38 million in the third quarter 2005. Operating income was
lower primarily due to favorable program profit adjustments recorded in the
prior year.
During the quarter, TS booked $145 million on a number of Logistics and
Training Systems business contracts.
Aircraft
(in millions, except margin percent)
3rd Quarter % Nine Months %
2006 2005 Change 2006 2005 Change
Net Sales $758 $642 18% $1,996 $1,771 13%
Operating Income $70 $34 106% $127 $69 84%
Operating Margin 9.2% 5.3% 6.4% 3.9%
Raytheon Aircraft Company (RAC) had third quarter 2006 net sales of
$758 million, up 18 percent compared to $642 million in the third quarter
2005, primarily due to increased new aircraft deliveries. RAC recorded
operating income of $70 million compared to $34 million in the third
quarter 2005. Operating income was higher due to continued improved
operating performance, favorable aircraft volume and mix, and a favorable
adjustment related to warranty expense.
After the quarter, RAC received an order from NetJets(R) Inc. for the
purchase of 48 additional Hawker(R) aircraft, 30 Hawker 750s and 18 Hawker
900XPs. These aircraft are expected to be delivered in the 2007 - 2009
timeframe and have a value totaling more than $500 million.
Other
Net sales for the Other segment in the third quarter 2006 were $190
million compared to $185 million in the third quarter 2005. The segment
recorded an operating loss of $11 million in the third quarter 2006
compared to an operating loss of $25 million in the third 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 and 2007 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 Third Quarter 2006 Financial Results
Raytheon's financial results conference call will be Thursday, October
26, 2006 at 9 a.m. ET. Participants will include 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
Preliminary Statement of Operations Information
Third Quarter 2006
(In millions except per share amounts)
Three Months Ended Nine Months Ended
24-Sep-06 25-Sep-05 24-Sep-06 25-Sep-05
Net sales $5,693 $5,331 $16,556 $15,684
Cost of sales 4,656 4,445 13,529 13,053
Administrative and selling
expenses 373 348 1,124 1,053
Research and development expenses 127 124 400 360
Total operating expenses 5,156 4,917 15,053 14,466
Operating income 537 414 1,503 1,218
Interest expense 64 79 201 237
Interest income (17) (14) (58) (38)
Other (income) expense, net (3) (4) (42) 13
Non-operating expense, net 44 61 101 212
Income from continuing operations
before taxes 493 353 1,402 1,006
Federal and foreign income taxes 170 122 479 346
Income from continuing operations 323 231 923 660
Loss from discontinued
operations, net of tax (2) (3) (5) (65)
Net income $321 $228 $918 $595
Earnings per share from
continuing operations
Basic $0.73 $0.52 $2.09 $1.47
Diluted $0.72 $0.51 $2.05 $1.45
Loss per share from discontinued
operations
Basic $- $(0.01) $(0.01) $(0.14)
Diluted $- $(0.01) $(0.01) $(0.14)
Earnings per share
Basic $0.73 $0.51 $2.08 $1.33
Diluted $0.71 $0.50 $2.04 $1.31
Average shares outstanding
Basic 441.9 445.6 442.3 448.4
Diluted 451.6 452.1 450.5 454.4
Attachment B
Raytheon Company
Preliminary Segment Information
Third Quarter 2006
(In millions)
Operating Income
Net Sales Operating Income As a Percent of Sales
Three Months Ended Three Months Ended Three Months Ended
24-Sep-06 25-Sep-05 24-Sep-06 25-Sep-05 24-Sep-06 25-Sep-05
Integrated Defense
Systems $1,030 $919 $167 $134 16.2% 14.6%
Intelligence and
Information Systems 626 649 58 57 9.3% 8.8%
Missile Systems 1,081 1,005 109 104 10.1% 10.3%
Network Centric
Systems 879 833 87 87 9.9% 10.4%
Space and Airborne
Systems 1,069 1,013 148 143 13.8% 14.1%
Technical Services 509 479 36 38 7.1% 7.9%
Aircraft 758 642 70 34 9.2% 5.3%
Other 190 185 (11) (25) -5.8% -13.5%
FAS/CAS Pension
Adjustment - - (93) (117)
Corporate and
Eliminations (449) (394) (34) (41)
Total $5,693 $5,331 $537 $414 9.4% 7.8%
Operating Income
Net Sales Operating Income As a Percent of Sales
Nine Months Ended Nine Months Ended Nine Months Ended
24-Sep-06 25-Sep-05 24-Sep-06 25-Sep-05 24-Sep-06 25-Sep-05
Integrated Defense
Systems $3,031 $2,765 $502 $394 16.6% 14.2%
Intelligence and
Information
Systems 1,870 1,821 171 166 9.1% 9.1%
Missile Systems 3,187 3,002 341 313 10.7% 10.4%
Network Centric
Systems 2,550 2,399 262 244 10.3% 10.2%
Space and Airborne
Systems 3,144 3,030 445 444 14.2% 14.7%
Technical Services 1,445 1,455 100 107 6.9% 7.4%
Aircraft 1,996 1,771 127 69 6.4% 3.9%
Other 582 566 (34) (66) -5.8% -11.7%
FAS/CAS Pension
Adjustment - - (283) (349)
Corporate and
Eliminations (1,249) (1,125) (128) (104)
Total $16,556 $15,684 $1,503 $1,218 9.1% 7.8%
Attachment C
Raytheon Company
Other Preliminary Information
Third Quarter 2006
Funded
Backlog Backlog
(In millions) (In millions)
24-Sep-06 31-Dec-05 24-Sep-06 31-Dec-05
Integrated Defense Systems $7,411 $8,010 $3,277 $3,009
Intelligence and Information
Systems 4,009 4,077 748 642
Missile Systems 8,913 8,040 4,805 4,443
Network Centric Systems 4,532 4,307 3,374 2,839
Space and Airborne Systems 5,257 5,220 2,724 2,851
Technical Services 1,546 1,594 1,013 916
Aircraft 2,656 2,891 2,656 2,600
Other 263 280 263 280
$34,587 $34,419 $18,860 $17,580
Government and Defense businesses $31,668 $31,248 $15,941 $14,700
Bookings
(In millions)
Three Months Ended
24-Sep-06 25-Sep-05
Government and Defense businesses $5,237 $3,422
Commercial businesses 883 737
$6,120 $4,159
New Aircraft Deliveries (Units)
Three Months Ended
24-Sep-06 25-Sep-05
Hawker 800XP 18 13
Premier 9 2
Hawker 400XP 12 14
King Air 36 27
Pistons 20 8
T-6A 18 16
Total 113 80
New Aircraft Bookings (Units)
Three Months Ended
24-Sep-06 25-Sep-05
Hawker 4000 2 -
Hawker 800XP 18 11
Premier 10 9
Hawker 400XP 13 11
King Air 39 38
Pistons 20 13
T-6A 2 -
Total 104 82
Attachment D
Raytheon Company
Preliminary Balance Sheet Information
Third Quarter 2006
(In millions)
Balance sheets
24-Sep-06 31-Dec-05
Assets
Cash and cash equivalents $1,162 $1,202
Accounts receivable, less allowance
for doubtful accounts 367 425
Contracts in process 3,799 3,469
Inventories 2,139 1,722
Deferred federal and foreign income
taxes 341 435
Prepaid expenses and other current
assets 273 314
Total current assets 8,081 7,567
Property, plant and equipment, net 2,588 2,675
Goodwill 11,617 11,554
Other assets, net 2,501 2,585
Total assets $24,787 $24,381
Liabilities and Stockholders' Equity
Notes payable and current portion of
long-term debt $582 $79
Subordinated notes payable - 408
Advance payments and billings in
excess of costs incurred 1,965 2,012
Accounts payable 1,084 962
Accrued salaries and wages 971 987
Other accrued expenses 1,285 1,403
Liabilities from discontinued
operations 50 49
Total current liabilities 5,937 5,900
Accrued retiree benefits and other
long-term liabilities 3,695 3,559
Deferred federal and foreign income
taxes 209 125
Long-term debt 3,401 3,969
Minority interest 165 119
Stockholders' equity 11,380 10,709
Total liabilities and
stockholders' equity $24,787 $24,381
Attachment E
Raytheon Company
Preliminary Cash Flow Information
Third Quarter 2006
(In millions)
Cash flow information
Three Months Ended Nine Months Ended
24-Sep-06 25-Sep-05 24-Sep-06 25-Sep-05
Net income $321 $228 $918 $595
Depreciation 90 86 271 262
Amortization 23 23 70 65
Working capital 37 245 (621) (106)
Discontinued operations 2 (4) (2) (56)
Net activity in financing
receivables 35 (12) 141 79
Other 244 228 415 449
Net operating cash flow 752 794 1,192 1,288
Capital spending (68) (71) (173) (183)
Internal use software spending (25) (25) (51) (61)
Acquisitions (40) (39) (87) (99)
Investment activity and
divestitures - - 50 7
Dividends (108) (99) (313) (289)
Repurchase of common stock (250) (198) (352) (390)
Debt repayments (74) (31) (445) (93)
Other 50 35 139 84
Total cash flow $237 $366 $(40) $264
Attachment F
Raytheon Company
Non-GAAP Financial Measures
Third 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 2006 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 $1,415 $1,460
Net Debt**
Equity** Combined Combined
Lease Expense x 8 plus Financial
Guarantees**
Invested Capital $16,775 $16,575
ROIC 8.4% 8.8%
2007 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 $1,510 $1,555
Net Debt**
Equity** Combined Combined
Lease Expense x 8 plus Financial
Guarantees**
Invested Capital $16,700 $16,500
ROIC 9.0% 9.4%
* effective tax rate of 33.9% (2006 Guidance) and 34.0% (2007 Guidance)
** two-point average
SOURCE Raytheon Company
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Related links:
http://www.raytheon.com/
CONTACT:
Media: Mac Jeffery, +1-781-522-5111, or
Investor Relations: Greg Smith, +1-781-522-5141, both of Raytheon
Company
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