Raytheon Reports 2004 Second Quarter Results
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Raytheon reported second quarter earnings for 2004. Revenues increased 11% to $4.9 billion due to growth across several business segments. However, earnings per share were $0.22 due to one-time charges related to settling a class action lawsuit and retiring debt. Excluding these charges, earnings per share were $0.35. Free cash flow increased to $818 million compared to the prior year. Looking ahead, Raytheon expects full year revenues of $20 billion and earnings per share between $0.79-0.89 or $1.30-1.40 excluding the class action settlement charges.
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Raytheon Reports 2004 Second Quarter Results
- 1. Raytheon Company Second Quarter Earnings July 29, 2004 Dial In Number 888-396-2386 Domestic 617-847-8712 International Passcode: 17861116 Replay Number 888-286-8010 Domestic 617-801-6888 International Reservation Number: 91902805 Available through August 7, 2004 1
- 2. Forward-Looking Statements This presentation contains forward-looking statements and projections. The Company cautions readers that 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 presentation. 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, 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 government investigations; the agreement in principle to settle the shareholder class action lawsuit pending in federal court in Massachusetts may not be approved by the court; the ultimate resolution of insurance coverage for the shareholder litigation; the effect of market conditions, particularly in relation to the general aviation, commuter and fractional aircraft markets; cost growth risks inherent with large long-term fixed price contracts; conflicts with other investors in joint ventures and less than wholly-owned businesses; and risks associated with outstanding letters of credit, surety bonds, guarantees and similar agreements related to a number of contracts and leases of our former engineering and construction business unit. Further information regarding the factors that could cause actual results to differ materially from the projected results can be found in the Company's filings with the Securities and Exchange Commission, including the Company's Annual Report on Form 10-K for the year ended December 31, 2003. 2
- 3. Q2 Highlights ● Strong Bookings drive Backlog to record $32B ● Sales of $4.9B result in 11% growth ● Earnings of $0.35 per diluted share excluding the effect of charges related to the previously announced settlement of a class action shareholder lawsuit and from the early retirement of debt. ● Charges of $0.51 per share for the shareholder settlement and $0.06 per share for the early retirement of debt result in a loss of $0.22 per share for continuing operations ● Continuing Operations Free Cash Flow for quarter of $818M ● Net Debt at the end of Q2 at $5.5B 3
- 4. Q2 - Consolidated Results ($ Millions) Net Sales Operating Income $340 As Reported 2004 2004 $4,929 $458 Excludes FAS/CAS Profit Adj. $383 As Reported 2003 $4,429 2003 $410 Excludes FAS/CAS Profit Adj. ● Total company sales up 11% ● 12% increase in op income excluding ● Government and Defense sales up 11% FAS/CAS pension adjustment Total Free Cash Flow Bookings $5,980 $793 2004 2004 2003 $533 2003 $4,283 ● ● Largest booking was $500M on SM-3 Outstanding second quarter performance ● Patriot Japan advance received in quarter program ● ● Includes over $600M of classified bookings YTD Q2 cash flow $793M higher than prior year ● The $210M cash payment of the shareholder settlement is expected in the third quarter 4
- 5. 2004 Financial Outlook Prior Current Bookings $23.0 B $24.5 B Sales $20 B+ $20 B * GAAP EPS from Cont. Ops $1.30 - $1.40 $0.79 - $0.89 EPS excl Shareholder Settlement $1.30 - $1.40 EPS Excluding FAS/CAS Adjustment and Shareholder Settlement $2.05 - $2.15 $2.05 - $2.15 Continuing Ops Free Cash Flow $1 B+ $1 B+ Total Free Cash Flow $1 B+ $1 B+ *Reflects Flight Options sales deferral of $190M 5
- 6. 2004 Financial Outlook: By Business Free Cash Sales ($B) Op. Margin % Flow ($M) IDS 3.3 - 3.4 11.8%-12.2% 325-375 IIS 2.2 - 2.3 9.5%-9.9% 100-150 MS 3.8 - 3.9 11.2%-11.6% 200-250 NCS 3.0 - 3.1 8.7%-9.1% 75-125 SAS 4.0 - 4.1 13.3%-13.7% 150-200 RTSC 2.0 - 2.1 7.0%-7.4% 50-100 Total Defense $18.6B - $18.7B 10.7%-11.1% $1B - $1.1B RAC 2.2 - 2.3 30M - 35M 50-100 Other 0.7 (50)M (25)-(75) Corporate/elims (1.6) (200)M 0-50 Subtotal $20B 8.8%-9.2% $1B+ FAS/CAS Inc Adj -2.4% Total Cont. Ops $20B 6.4%-6.8% $1B+ 6
- 7. 2004 EPS Guidance Prior Guidance GAAP EPS $1.30 - $1.40 Improvement at Raytheon Aircraft $0.04 Shareholder Settlement ($0.51) Debt Buyback offset by reduced interest expense ($0.04) Flight Options sales deferral ($0.03) Other $0.03 Current Guidance GAAP EPS $0.79 - $0.89 Current Guidance EPS Exc Shareholder Settlement $1.30 - $1.40 7
- 8. 2004 Free Cash Flow Outlook $M Income from continuing operations 350-400 Depreciation 380 Amortization 70 Working Capital 200 Discontinued operations (50) Capital Spending (435) Internal use software spending (140) Taxes 170 FAS/CAS income adjustment 473 Other (3) Free Cash Flow $1B+ 8
- 9. Segment Details 9
- 10. Q2 - Integrated Defense Systems (IDS) ($ Millions) Net Sales Operating Income $104 2004 2004 $870 2003 $701 2003 $80 ● Growth of 24% over prior year driven by DD(X), ● Increased volume Missile Defense and Cobra Judy Free Cash Flow Bookings 2004 $322 2004 $1,052 $196 $1,024 2003 2003 ● Includes advance on Japan Patriot award ● Includes $363M on the Japan Patriot program and $139M on the Ballistic Missile Defense System (BMDS) Radar program ● Includes $63M on the Torpedo Omnibus contract Note: Net sales include intercompany sales 10
- 11. Q2 - Intelligence & Information Systems (IIS) ($ Millions) Net Sales Operating Income 2004 $553 2004 $51 2003 $525 2003 $46 ● Growth of 5% driven by classified programs, ● Increased volume and productivity DCGS and NPOESS Free Cash Flow Bookings 2004 $69 2004 $406 2003 $61 2003 $424 ● Includes classified bookings of $225M Note: Net sales include intercompany sales 11
- 12. Q2 - Missile Systems (MS) ($ Millions) Net Sales Operating Income 2004 $939 2004 $106 2003 $833 2003 $104 ● Growth of 13% driven by Standard Missile-3 ● Up $2M driven by increased volume, partially and JSOW programs offset with wind-down on cost recovery for prior year restructuring Free Cash Flow Bookings 2004 $233 $1,287 2004 2003 ($60) 2003 $736 ● Includes favorable timing of performance ● Includes $500M booking for the definitization based payments of the Standard Missile-3 contract ● Includes $269M for the production of Evolved Seasparrow Missiles (ESSM) Note: Net sales include intercompany sales 12
- 13. Q2 - Network Centric Systems (NCS) ($ Millions) Net Sales Operating Income 2004 $780 $66 2004 2003 $716 2003 $20 ● Growth of 9% driven by TWS programs as well ● The second quarter of 2003 included as increased DD(X) effort contract adjustments of $40M on two programs Free Cash Flow Bookings $56 2004 2004 $922 2003 $46 $665 2003 ● Includes a classified booking of $313M Note: Net sales include intercompany sales 13
- 14. Q2 - Space and Airborne Systems (SAS) ($ Millions) Net Sales Operating Income 2004 $985 2004 $142 2003 $886 2003 $127 ● Growth of 11% due to higher classified and international ● Increased volume programs, including F-15 Japan and Greek ASPIS (Advanced Self Protection Integrated Suite) Free Cash Flow Bookings $1,082 2004 $222 2004 2003 $131 2003 $626 ● Includes a performance milestone collection ● Includes $360M on the Multi-Platform Radar on an international program Technology Insertion program (MP-RTIP) and over $100M of classified awards Note: Net sales include intercompany sales 14
- 15. Q2 - Technical Services (TS) ($ Millions) Net Sales Operating Income $496 $36 2004 2004 2003 $465 2003 $34 ● Growth of 7% driven by Jordan IFCS program ● Increased volume Bookings Free Cash Flow $226 2004 2004 ($3) 2003 $290 $34 2003 ● Reflects a cash outflow driven by the late timing of collections, which were collected early in Q3. Note: Net sales include intercompany sales 15
- 16. Q2 - Raytheon Aircraft Company (RAC) ($ Millions) Net Sales Operating Income $570 2004 2004 $23 2003 $540 $12 2003 ● Increased new aircraft sales combined with ● Growth reflects continued cost and productivity higher US JPATS (T-6 Trainer) program sales, benefits combined with increased volume partially offset by lower used aircraft sales Bookings Free Cash Flow $851 2004 $12 2004 $423 2003 2003 $22 ● Includes an order from NetJets for over $300M Note: Net sales exclude sales to Flight Options 16
- 17. Q2 - Other ($ Millions) Net Sales Operating Income $153 ($7) 2004 2004 2003 $112 2003 ($5) ● Increase in sales driven by the consolidation of Flight Options in June 2003 17
- 18. Installments Due on Long-Term Debt and Subordinated Notes Payable ($ Millions) As of Dec As of June As of July 31, 2003 Year 27, 2004 29, 2004 $ 1,048 2005 $ 815 $ 813 1,087 2006 704 654 1,149 2007 1,117 1,069 2008 544 517 484 2009 - - - Thereafter 3,504 3,328 3,298 Total $ 7,332 $ 6,481 $ 6,318 18
- 19. Non-GAAP Financial Measures The following measures are considered quot;non-GAAPquot; financial measures under SEC guidelines: (i) Free cash flow - Operating cash flow less capital spending and internal use software spending. (ii) Income from continuing operations excluding the effect of charges related to the settlement of the class action lawsuit and the early retirement of debt. (iii) Diluted earnings per share from continuing operations excluding the effect of charges related to the settlement of the class action lawsuit and the early retirement of debt. (iv) Operating Income Excluding FAS/CAS Adjustment - Operating income adjusted for the non-cash FAS/CAS pension amount.* (v) Earnings per Share Excluding FAS/CAS Adjustment (Economic EPS) - GAAP EPS from continuing operations adjusted for the non-cash FAS/CAS pension amount.* * The FAS/CAS pension adjustment is the difference between SFAS No. 87 (FAS) pension expense or income and the Cost Accounting Standards (CAS) (the standards that prescribe the allocation to and recovery of pension costs on U.S. government contracts), pension expenses. The Company uses these non-GAAP financial measures to facilitate management's internal comparisons to the Company's historical operating results, to competitors' operating results, and to provide greater transparency to investors of supplemental information used by management in its financial and operational decision-making. The Company uses certain of these non-GAAP financial measures to evaluate its operating performance and to determine management incentive compensation. The Company also uses non-GAAP financial measures which exclude certain charges and credits because it believes that such items are not indicative of its core operating results, are not indicative of trends, and do not provide meaningful comparisons with other reporting periods. 19
- 20. Reconciliation of Non-GAAP Financial Measures Three Months Ended 27-Jun-04 29-Jun-03 (I) Free cash flow Operating cash flow $ 892 $ 640 Less: Capital spending (74) (79) Internal use software spending (25) (28) Free cash flow 793 533 Less: Discontinued operations (25) (116) Free cash flow from continuing operations $ 818 $ 649 (ii) Income From Continuing Operations Excluding Charges Related to Class Action Lawsuit Settlement and Early Retirement of Debt GAAP income from continuing operations $ (94) $ 186 Excluding settlement of class action lawsuit charge (222) - Excluding early retirement of debt charge (24) - Non-GAAP income from continuing operations as adjusted $ 152 $ 186 (iii) Diluted Earnings Per Share From Continuing Operations Excluding Charges Related to Class Action Lawsuit Settlement and Early Retirement of Debt GAAP diluted earnings per share from continuing operations $ (0.22) $ 0.45 Excluding settlement of class action lawsuit charge (0.51) - Excluding early retirement of debt charge (0.06) - Non-GAAP diluted earnings per share from continuing operations as adjusted $ 0.35 $ 0.45 (iv) Operating Income Excluding FAS/CAS Adjustment GAAP operating income from continuing operations $ 340 $ 383 Excluding FAS/CAS Adjustment (118) (27) Non-GAAP operating income from continuing operations as adjusted $ 458 $ 410 (v) Earnings per Share Excluding FAS/CAS Adjustment GAAP diluted earnings per share from continuing operations $ (0.22) $ 0.45 Excluding FAS/CAS Adjustment (0.17) (0.05) Non-GAAP diluted earnings per share from continuing operations $ (0.05) $ 0.50 as adjusted (Economic EPS) 20