Raytheon Reports Strong Second Quarter 2007 Results and Increases Full-year Guidance
Highlights
- Earnings per share (EPS) from continuing operations of $0.79, up 30 percent
- Sales of $5.4 billion, up 9 percent
- Increases full-year guidance for EPS, bookings and ROIC
- Sale of Raytheon Aircraft Company completed, resulting in after-tax net proceeds of $2.4 billion
- Repurchased 9.6 million shares for $526 million
WALTHAM, Mass., July 26, 2007 /PRNewswire-FirstCall/ -- Raytheon Company (NYSE: RTN) reported second quarter 2007 income from continuing operations of $356 million or $0.79 per diluted share compared to $276 million or $0.61 per diluted share in the second quarter 2006. Second quarter 2007 income from continuing operations was higher primarily due to operational improvements, combined with lower net interest and pension expense. As previously announced, second quarter 2007 income from continuing operations included a $39 million charge ($59 million pretax) or $0.09 per diluted share for the early redemption of $1.0 billion of debt.
"We are very pleased with the Company's solid operating performance in the first half of 2007, along with the significant wins during the quarter on Navy Multiband Terminal and Warfighter FOCUS programs, which represent a potential of $12 billion over the life of these programs," said William H. Swanson, Raytheon's Chairman and CEO. "Our strong operational improvements allow us to increase our 2007 guidance for full-year EPS and bookings."
Second quarter 2007 net income was $1,335 million or $2.97 per diluted share compared to $310 million or $0.69 per diluted share in the second quarter 2006. Net income for the second quarter 2007 included $979 million in discontinued operations or $2.18 per diluted share of which $986 million was attributable to the gain on the sale of Raytheon Aircraft Company (RAC), which was completed in the second quarter. The sale resulted in after-tax net proceeds of approximately $2.4 billion.
Net sales for the second quarter 2007 were $5.4 billion, up 9 percent from $5.0 billion in the second quarter 2006 led by Integrated Defense Systems (IDS), Missile Systems (MS) and Network Centric Systems (NCS).
Operating cash flow from continuing operations for the second quarter 2007 was an outflow of $46 million versus a positive $474 million for the second quarter 2006. The second quarter 2007 included $589 million in cash tax payments versus $101 million in cash tax payments paid in the second quarter 2006. Of the cash taxes paid in the second quarter 2007, $316 million was attributable to the gain on the sale of RAC.
Year-to-date operating cash flow from continuing operations was an outflow of $425 million versus a positive $426 million for the comparable period in 2006. The year-to-date decrease in operating cash flow was primarily due to $643 million in cash tax payments ($316 million attributable to the gain on the sale of RAC) in the first half 2007 versus $101 million of cash tax payments made in the first half 2006 combined with the $400 million discretionary cash contribution made to the Company's pension plans in the first quarter 2007 versus the $200 million discretionary cash contribution made in the first quarter 2006.
During the second quarter 2007, the Company repurchased 9.6 million shares for $526 million as part of the Company's previously announced share repurchase program. The Company has repurchased 14.7 million shares of common stock year-to-date for $801 million.
Summary Financial Results 2nd Quarter % Six Months % ($ in millions, except per share data) 2007 2006 Change 2007 2006 Change
Net Sales $5,419 $4,973 9% $10,347 $9,633 7% Total Operating Expenses 4,831 4,512 9,249 8,739 Operating Income 588 461 28% 1,098 894 23% Non-operating Expenses 53 42 88 64 Income from Cont. Ops. before Taxes $535 $419 28% $1,010 $830 22% Income from Continuing Operations $356 $276 29% $670 $548 22% Income from Discontinued Operations* 979 34 NM 1,011 49 NM Net Income $1,335 $310 331% $1,681 $597 182%
Operating Cash Flow from Cont. Ops.** $(46) $474 $(425) $426
* Includes after-tax net gain of $986 million on sale of Raytheon Aircraft Company in Q2'07 ** Includes $316 million cash tax payment related to the completion of the Raytheon Aircraft Company sale in Q2'07
Bookings and Backlog
Bookings 2nd Quarter Six Months (in millions) 2007 2006 2007 2006
The Company reported total bookings for the second quarter 2007 of $5.0 billion compared to $4.8 billion in the second quarter 2006. The Company ended the second quarter 2007 with backlog of $33.3 billion compared to $31.5 billion at the end of the second quarter 2006 and $33.8 billion at the end of 2006.
** Includes cash tax payments of approximately $630 million, resulting from the sale of Raytheon Aircraft
ROIC (%) 8.6 - 9.1 8.2 - 8.7
* As of April 25, 2007
The Company has increased full-year 2007 guidance for earnings per share from continuing operations, bookings and Return on Invested Capital (ROIC), and updated net interest expense guidance. Full-year 2007 guidance for operating cash flow from continuing operations has been revised to reflect approximately $630 million in cash tax payments related to the sale of RAC, of which $316 million was paid in the second quarter 2007, with the remaining $314 million expected to be paid in the second half of 2007. Charts containing additional information on the Company's 2007 performance and guidance are available on the Company's website at http://www.raytheon.com . See attachment F for the Company's calculation and use of ROIC, a non-GAAP financial measure.
Segment Results
Integrated Defense Systems
2nd Quarter % Six Months % ($ in millions) 2007 2006 Change 2007 2006 Change
Integrated Defense Systems (IDS) had second quarter 2007 net sales of $1,166 million, up 12 percent compared to $1,038 million in the second quarter 2006, primarily due to growth on Missile Defense Agency, U.S. Navy and U.S. Army programs, as well as on international programs. IDS recorded $212 million of operating income compared to $177 million in the second quarter 2006. The increase in operating income was primarily due to higher volume and improved performance on several domestic programs.
During the quarter, IDS booked $298 million to provide system and software engineering for the Ballistic Missile Defense System (BMDS) program, $146 million related to the renewal of an international Patriot technical support contract, and $113 million for the continued design, production, integration, and testing of Cobra Judy Replacement Mission Equipment (CJRME).
Intelligence and Information Systems (IIS) had second quarter 2007 net sales of $666 million, up 5 percent compared to $633 million in the second quarter 2006, primarily due to increased volume on several U.S. Air Force programs and on certain classified programs. IIS recorded $63 million of operating income compared to $58 million in the second quarter 2006.
During the quarter, IIS booked $332 million on a number of classified contracts, including $157 million on a major classified contract.
Missile Systems
2nd Quarter % Six Months % ($ in millions) 2007 2006 Change 2007 2006 Change
Missile Systems (MS) had second quarter 2007 net sales of $1,244 million, up 11 percent compared to $1,117 million in the second quarter 2006, primarily due to higher volume on Standard Missile, AIM-9X and Phalanx. MS recorded $134 million of operating income compared to $122 million in the second quarter 2006.
During the quarter, MS booked $175 million for the production of Advanced Medium-Range Air-to-Air Missile (AMRAAM) for the U.S. Air Force. MS also booked $105 million for additional development on the Rolling Airframe Missile (RAM) program for the U.S. Navy and $91 million for the production of Standard Missile-3 (SM-3).
Network Centric Systems
2nd Quarter % Six Months % ($ in millions) 2007 2006 Change 2007 2006 Change
Network Centric Systems (NCS) had second quarter 2007 net sales of $1,052 million, up 20 percent compared to $880 million in the second quarter 2006, primarily due to growth on U.S. Army programs. NCS recorded $139 million of operating income compared to $91 million in the second quarter 2006. The increase in operating income was primarily due to higher volume and improved program performance.
During the quarter, NCS booked $159 million for development work on the U.S. Navy Multiband Terminal (NMT) contract, which has a combined potential value over its lifetime in excess of $1 billion for development and production.
Space and Airborne Systems
2nd Quarter % Six Months % ($ in millions) 2007 2006 Change 2007 2006 Change
Space and Airborne Systems (SAS) had second quarter 2007 net sales of $1,065 million compared to $1,057 million in the second quarter 2006. SAS recorded $133 million of operating income compared to $152 million in the second quarter 2006. Operating income was lower primarily due to profit adjustments taken on certain programs.
During the quarter, SAS booked over $200 million on a number of classified contracts.
Technical Services
2nd Quarter % Six Months % ($ in millions) 2007 2006 Change 2007 2006 Change
Technical Services (TS) had second quarter 2007 net sales of $473 million compared to $466 million in the second quarter 2006. TS recorded operating income of $29 million in the second quarter 2007 compared to $30 million in the second quarter 2006.
During the quarter, TS was awarded the U.S. Army's Warfighter Field Operations Customer Support (FOCUS) contract to improve the readiness and effectiveness of U.S. Army soldiers. This Indefinite Delivery/Indefinite Quantity (IDIQ) contract has a potential total value in excess of $11 billion over a 10-year period.
Other
Net sales in the second quarter 2007 were $217 million compared to $202 million in the second quarter 2006, with operating income of $1 million in the second quarter 2007 compared to an operating loss of $10 million in the second quarter 2006.
Raytheon Company (NYSE: RTN), with 2006 sales of $20.3 billion, is a technology leader specializing in defense, homeland security and other government markets throughout the world. With a history of innovation spanning 85 years, Raytheon provides state-of-the-art electronics, mission systems integration and other capabilities in the areas of sensing; effects; and command, control, communications and intelligence systems, as well as a broad range of mission support services. With headquarters in Waltham, Mass., Raytheon employs 73,000 people worldwide.
Disclosure Regarding Forward-looking Statements
This release and the attachments contain forward-looking statements, including information regarding the Company's 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 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 Flight Options' ability to compete and meet its financial objectives; risks associated with the commuter and fractional ownership aircraft markets; 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; 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 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 2007 Financial Results
Raytheon's financial results conference call will be held on Thursday, July 26, 2007 at 9 a.m. EDT. 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 encouraged 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: Jon Kasle Greg Smith 781-522-5110 781-522-5141
Attachment A
Raytheon Company Preliminary Statement of Operations Information Second Quarter 2007
(In millions except per share amounts) Three Months Ended Six Months Ended 24-Jun-07 25-Jun-06 24-Jun-07 25-Jun-06
Net sales $5,419 $4,973 $10,347 $9,633
Cost of sales 4,326 4,032 8,307 7,839 Administrative and selling expenses 367 345 707 664 Research and development expenses 138 135 235 236
Total operating expenses 4,831 4,512 9,249 8,739
Operating income 588 461 1,098 894
Interest expense 54 68 114 137 Interest income (57) (13) (85) (34) Other expense (income), net 56 (13) 59 (39)
Non-operating expense, net 53 42 88 64
Income from continuing operations before taxes 535 419 1,010 830
Federal and foreign income taxes 179 143 340 282
Income from continuing operations 356 276 670 548
Net (loss) income from discontinued operations (7) 34 25 49 Net gain on disposal 986 - 986 -
Income from discontinued operations 979 34 1,011 49
Net income $1,335 $310 $1,681 $597
Earnings per share from continuing operations Basic $0.82 $0.62 $1.53 $1.24 Diluted $0.79 $0.61 $1.49 $1.22
Earnings per share from discontinued operations Basic $2.24 $0.08 $2.30 $0.11 Diluted $2.18 $0.08 $2.24 $0.11
Raytheon Company Preliminary Segment Information Second Quarter 2007
(In millions)
Operating Income As a Percent Net Sales Operating Income of Sales Three Months Ended Three Months Ended Three Months Ended 24-Jun-07 25-Jun-06 24-Jun-07 25-Jun-06 24-Jun-07 25-Jun-06
Integrated Defense Systems $1,166 $1,038 $212 $177 18.2% 17.1% Intelligence and Information Systems 666 633 63 58 9.5% 9.2% Missile Systems 1,244 1,117 134 122 10.8% 10.9% Network Centric Systems 1,052 880 139 91 13.2% 10.3% Space and Airborne Systems 1,065 1,057 133 152 12.5% 14.4% Technical Services 473 466 29 30 6.1% 6.4% Other 217 202 1 (10) 0.5% -5.0% FAS/CAS Pension Adjustment - - (63) (96) Corporate and Eliminations (464) (420) (60) (63)
Total $5,419 $4,973 $588 $461 10.9% 9.3%
Operating Income As a Percent Net Sales Operating Income of Sales Six Months Ended Six Months Ended Six Months Ended 24-Jun-07 25-Jun-06 24-Jun-07 25-Jun-06 24-Jun-07 25-Jun-06
Integrated Defense Systems $2,258 $2,001 $411 $335 18.2% 16.7% Intelligence and Information Systems 1,254 1,244 118 113 9.4% 9.1% Missile Systems 2,384 2,106 254 232 10.7% 11.0% Network Centric Systems 1,981 1,671 256 175 12.9% 10.5% Space and Airborne Systems 2,029 2,075 262 297 12.9% 14.3% Technical Services 899 916 50 61 5.6% 6.7% Other 398 392 (7) (23) -1.8% -5.9% FAS/CAS Pension Adjustment - - (125) (181) Corporate and Eliminations (856) (772) (121) (115)
Total $10,347 $9,633 $1,098 $894 10.6% 9.3%
Attachment C
Raytheon Company Other Preliminary Information Second Quarter 2007
Funded Backlog Backlog (In millions) (In millions) 24-Jun-07 31-Dec-06 24-Jun-07 31-Dec-06
Integrated Defense Systems $7,958 $7,934 $3,879 $4,088 Intelligence and Information Systems 3,615 3,935 877 893 Missile Systems 9,356 9,504 5,071 5,135 Network Centric Systems 5,328 5,059 4,031 4,037 Space and Airborne Systems 5,115 5,591 2,968 2,770 Technical Services 1,701 1,572 996 1,020 Other 245 243 245 243
Total $33,318 $33,838 $18,067 $18,186
Bookings (In millions) Three Months Ended 24-Jun-07 25-Jun-06
Total Bookings $4,973 $4,837
Attachment D
Raytheon Company Preliminary Balance Sheet Information Second Quarter 2007
(In millions)
Balance sheets 24-Jun-07 31-Dec-06 Assets Cash and cash equivalents $3,045 $2,460 Accounts receivable, less allowance for doubtful accounts 152 178 Contracts in process 3,945 3,600 Inventories 537 487 Deferred taxes 227 257 Prepaid expenses and other current assets 244 239 Assets held for sale - 2,296 Total current assets 8,150 9,517
Property, plant and equipment, net 2,086 2,131 Deferred taxes 240 189 Goodwill 11,541 11,539 Other assets, net 2,273 2,115 Total assets $24,290 $25,491
Liabilities and Stockholders' Equity Notes payable and current portion of long-term debt $686 $687 Advance payments and billings in excess of costs incurred 1,895 1,962 Accounts payable 893 920 Accrued salaries and wages 754 944 Other accrued expenses 1,379 1,193 Liabilities held for sale - 1,009 Total current liabilities 5,607 6,715
Accrued retiree benefits and other long-term liabilities 4,075 4,232 Long-term debt 2,233 3,278 Minority interest 195 165 Stockholders' equity 12,180 11,101 Total liabilities and stockholders' equity $24,290 $25,491
Attachment E
Raytheon Company Preliminary Cash Flow Information Second Quarter 2007
(In millions)
Cash flow information Three Months Ended Six Months Ended 24-Jun-07 25-Jun-06 24-Jun-07 25-Jun-06
Income from continuing operations $356 $276 $670 $548 Depreciation 74 74 143 143 Amortization 23 22 43 41 Working capital (48) (47) (718) (564) Discontinued operations (4) (14) (41) 14 Net activity in financing receivables 35 29 56 74 Other (486) 120 (619) 184 Net operating cash flow (50) 460 (466) 440
Capital spending (57) (53) (96) (88) Internal use software spending (19) (21) (34) (25) Acquisitions - - - (47) Investment activity and divestitures 3,117 28 3,117 50 Dividends (113) (107) (220) (205) Repurchase of common stock (526) - (801) (102) Debt repayments (1,041) (339) (1,038) (371) Discontinued operations - (10) (27) (18) Other 74 23 150 89 Total cash flow 1,385 $(19) $585 $(277)
Attachment F
Raytheon Company Non-GAAP Financial Measures Second Quarter 2007
We define 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 operating lease expense) divided by average invested capital after capitalizing operating leases (operating lease expense times a multiplier of 8), adding financial guarantees less net investment in Discontinued Operations, and adding back the cumulative minimum pension liability/impact of FAS 158. 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. We use ROIC as a measure of efficiency and effectiveness of our use of capital and as an element of management compensation.
Return on Invested Capital
2007 Current 2007 Prior (In millions) Guidance Guidance Low end High end Low end High end of range of range of range of range Income from continuing operations Net interest expense, after-tax* Combined Combined Combined Combined Lease expense, after-tax* Return $1,470 $1,535 $1,400 $1,465
Net debt ** Equity less investment in discontinued operations Lease expense x 8 plus financial guarantees Combined Combined Combined Combined Minimum pension liability (cumulative)
Invested capital from continuing operations*** $17,050 $16,850 $17,050 $16,850
ROIC 8.6% 9.1% 8.2% 8.7%
* Effective tax rate: 33.9% (2007 guidance) ** Net debt is defined as total debt less cash and cash equivalents and is calculated using a 2 point average *** Calculated using a 2 point average
CONTACT: Media Jon Kasle +1-781-522-5110
Investor Relations Greg Smith +1-781-522-5141 Both of Raytheon Company
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