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Raytheon Reports Strong Fourth Quarter 2004 EPS of $0.54 from Continuing Operations
* Sales increase of 12 percent for the quarter and year

WALTHAM, Mass., Feb. 3, 2005, 2005 /PRNewswire-FirstCall via COMTEX/ -- Raytheon Company (NYSE: RTN) reported fourth quarter 2004 income from continuing operations of $246 million or $0.54 per diluted share compared to $217 million or $0.52 per diluted share in the fourth quarter 2003. Non-cash pension expense (FAS/CAS Pension Adjustment) negatively affected the fourth quarter 2004 by $0.13 per diluted share on a year-over-year basis.

Income from continuing operations for the fourth quarter of 2004 and 2003 included a net after-tax charge of $13 million and $14 million, respectively. The net charge in the fourth quarter 2004 consisted of an after-tax $55 million charge ($85 million pretax) from the early redemption of debt and a $42 million benefit from the change in the tax law which extends the carry forward period of foreign tax credits. The net charge in the fourth quarter 2003 consisted of an after-tax $50 million charge ($77 million pretax) from the early redemption of debt and an after-tax $36 million gain ($55 million pretax) from the sale of the Company's remaining investment in its former aviation support business.

Fourth quarter 2004 net income, including the effects of discontinued operations, was $245 million or $0.54 per diluted share compared to $205 million or $0.49 per diluted share in 2003.

Net sales for the fourth quarter 2004 were $5.7 billion, up 12 percent from $5.1 billion in the comparable period in 2003. Government and Defense sales for the quarter (after the elimination of intercompany sales) increased 12 percent to $4.7 billion from $4.2 billion in the comparable quarter.

Free cash flow from continuing operations for the fourth quarter was $712 million versus $906 million for the comparable period in 2003. Free cash flow is defined by the Company as operating cash flow less capital spending and internal use software spending.

During the fourth quarter of 2004, the Company retired $1.2 billion of debt, bringing the total year debt reduction to $2.2 billion. Net debt was $4.6 billion at the end of 2004 compared with $6.7 billion at the end of 2003. Net debt is defined as total debt less cash and cash equivalents.

"In 2004 we said we would focus on predictable performance, strong relationships, and innovative customer solutions. We did what we said we were going to do and then some," said William H. Swanson, Raytheon Chairman and CEO. "This is our fifth consecutive quarter of predictable financial performance. Our focus on the customer is paying dividends and more importantly, we continue to build on the trust and confidence they have in Raytheon which is reflected in our growth."

Full Year Financial Results

For the full year the Company reported income from continuing operations of $439 million or $0.99 per diluted share compared to $535 million or $1.29 per diluted share in 2003. Income from continuing operations in 2004 was negatively affected by an after-tax charge of $222 million or $0.50 per diluted share for the second quarter settlement of a class action shareholder lawsuit. Non-cash pension expense negatively affected 2004 results by $0.75 per diluted share versus $0.18 per diluted share in 2003. Income from continuing operations in 2003 included third quarter after-tax charges of $158 million ($226 million pretax) or $0.38 per diluted share from Network Centric Systems and Technical Services.

The Company reported 2004 net income of $417 million or $0.94 per diluted share compared to $365 million or $0.88 per diluted share in 2003. Net income for 2004 included a $63 million after-tax loss in discontinued operations or $0.14 per diluted share, versus $170 million or $0.41 per diluted share in 2003. Net income for 2004 also included a previously reported first quarter $41 million or $0.09 per diluted share benefit from a cumulative effect of change in accounting principle due to the change in the Company's pension and other post-retirement benefit plans measurement date from Oct. 31 to Dec. 31.

Total 2004 net sales for the Company were $20.2 billion compared to $18.1 billion for 2003, an increase of 12 percent. Government and Defense sales for the year (after the elimination of intercompany sales) increased 11 percent to $17.2 billion from $15.5 billion in 2003.

Free cash flow from continuing operations was $1.5 billion in 2004 compared to $1.6 billion in 2003. Free cash flow, including discontinued operations, for the full year 2004 was $1.4 billion versus $1.0 billion in 2003.

Bookings and Backlog

The Government and Defense businesses recorded fourth quarter bookings of $4.2 billion and bookings for the full year 2004 of $21.9 billion. Government and Defense ended 2004 with a backlog of $29.6 billion, an increase of $4.5 billion over year end 2003.

Raytheon Aircraft Company's bookings were $1.1 billion in the fourth quarter of both 2004 and 2003. Full year 2004 bookings were $3.1 billion versus $2.2 billion for 2003.

Outlook

The Company reaffirmed its guidance for 2005 earnings per share from continuing operations of $1.80 - $1.90. This guidance includes higher pension expense attributable to a lower discount rate offset by expected profit improvements in 2005. Charts containing the Company's guidance are available on the Company's website at http://www.raytheon.com.

Segment Results

Integrated Defense Systems

Integrated Defense Systems (IDS) fourth quarter 2004 net sales were $914 million, up 16 percent compared to $791 million in the fourth quarter 2003, due primarily to growth in Japan Patriot Product Improvement Program, DD(X), and Cobra Judy. IDS recorded $119 million of fourth quarter 2004 operating income compared to $95 million in the comparable quarter a year ago.

During the quarter, IDS booked $282 million for the award of Ballistic Missile Defense System (BMDS) Radar Options 2 and 3 by the Missile Defense Agency (MDA). IDS also booked an additional $234 million for Japan Patriot Product Improvement Program, for a total of $597 million for the year.

Intelligence and Information Systems

Intelligence and Information Systems (IIS) fourth quarter 2004 net sales were $601 million, up 14 percent compared to $525 million in the fourth quarter 2003, due primarily to continued growth in classified programs. IIS recorded $51 million of operating income compared to $53 million in the comparable quarter a year ago. Operating income in the fourth quarter 2004 included a charge for nonrecoverable costs.

During the quarter, IIS booked $373 million on a number of classified contracts, bringing total classified bookings for the year to over $1.3 billion.

Missile Systems

Missile Systems (MS) fourth quarter 2004 net sales were $1,012 million, up 7 percent compared to $943 million in the fourth quarter 2003. MS recorded $114 million of operating income compared to $108 million in the comparable quarter a year ago.

During the quarter, MS booked $201 million for the option exercise of AMRAAM production and logistics support. Also, MS was awarded a $116 million contract for the continued production of AIM-9X Sidewinder short-range air-to- air missiles.

Network Centric Systems

Network Centric Systems (NCS) fourth quarter 2004 net sales were $836 million, up 9 percent compared to $766 million in the fourth quarter 2003. NCS recorded operating income of $88 million compared to $75 million in the comparable quarter a year ago.

During the quarter, NCS booked $132 million for the definitization of a contract modification with the Federal Aviation Administration for the Wide Area Augmentation System (WAAS).

Space and Airborne Systems

Space and Airborne Systems (SAS) fourth quarter 2004 net sales were $1,141 million, up 18 percent compared to $967 million in the fourth quarter 2003, due primarily to an increase in classified and production programs. SAS recorded $159 million of operating income compared to $130 million in the comparable quarter a year ago. Operating income was higher due primarily to productivity improvements on production programs and higher volume, partially offset by a $55 million charge on an international program as a result of a recent qualification test failure.

During the quarter, SAS booked $102 million on a number of classified contracts. Also, SAS received an option to proceed with its X-band thin radar aperture (XTRA) contract, allowing the Company to produce the next generation radar antenna technology for the Joint Unmanned Combat Air System (J-UCAS).

Technical Services

Technical Services (TS) fourth quarter 2004 net sales were $593 million, up 6 percent compared to $560 million in the fourth quarter 2003. TS recorded operating income of $46 million in the fourth quarter of 2004 compared to $39 million in the comparable quarter a year ago.

During the quarter, TS booked $76 million on the Live Training Program with the U.S. Army. Also, TS was competitively awarded a contract with a potential value of $94 million by the U.S. Navy to provide mission support for Relocatable-Over-the-Horizon-Radar (ROTHR) systems.

Aircraft

Raytheon Aircraft Company (RAC) fourth quarter 2004 net sales were $853 million, up 19 percent from $717 million in the fourth quarter 2003. RAC recorded operating income of $47 million in the quarter compared to $29 million in the comparable quarter in 2003. Operating income in the fourth quarter 2004 included a favorable profit adjustment of $21 million on the T-6A program. Operating income in the fourth quarter 2003 included a favorable profit adjustment on the T-6A program of $37 million, partially offset by a $22 million charge on the Premier program.

RAC delivered 117 commercial aircraft in the fourth quarter of 2004, compared to 100 in the same quarter last year. For the year, RAC delivered 300 commercial aircraft, compared to 259 in 2003.

During the quarter, RAC received a $240 million contract modification to provide for the Lot 12 option exercise of JPATS T-6A.

As previously announced, during the quarter the Federal Aviation Administration (FAA) granted a provisional type certification for the Hawker Horizon. Customer acceptance of the first Hawker Horizon was completed in December.

Other

Net sales for this segment in the fourth quarter 2004 were $183 million compared to $230 million in the fourth quarter 2003. The segment recorded an operating loss of $11 million in the fourth quarter 2004 compared to an operating loss of $21 million in the comparable quarter in 2003.

Discontinued Operations

During the quarter, the Company recorded an after-tax loss from discontinued operations of $1 million related to its former engineering and construction and Aircraft Integration Systems businesses.

Raytheon Company (NYSE: RTN), with 2004 sales of $20.2 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

Certain statements included 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; 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 and a securities class action lawsuit related to the sale of our former engineering and construction business; the ultimate resolution of insurance coverage for the class action shareholder and derivative lawsuits against the Company; 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 our former engineering and construction business related to outstanding letters of credit, surety bonds, guarantees and similar agreements and the resolution of claims and litigation. 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 and quarterly reports on Form 10-Q, copies of which may be obtained at the Company's website at http://www.raytheon.com.

Conference Call on the Fourth Quarter 2004 Financial Results

Raytheon's financial results conference call will be Thursday, February 3, 2005 at 9 a.m. EST. Participants will be William H. Swanson, Chairman and CEO, Edward Pliner, senior vice president and CFO, and other Company executives.

The dial-in number for the conference call will be (800) 265 - 0241. 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                    Greg Smith
     781-522-5111                   781-522-5141


    Attachment A

    Raytheon Company
    Financial Information
    Fourth Quarter 2004



    (In millions except per share amounts)
                                     Three Months Ended   Twelve Months Ended

                                     31-Dec-04 31-Dec-03 31-Dec-04   31-Dec-03

    Net sales                           $5,704  $5,101    $20,245     $18,109

    Cost of sales                        4,727   4,174     16,933      15,000
    Administrative and selling expenses    411     354      1,433       1,306
    Research and development expenses      126     121        491         487

    Total operating expenses             5,264   4,649     18,857      16,793

    Operating income                       440     452      1,388       1,316

    Interest expense                        92     122        418         537
    Interest income                        (12)    (17)       (45)        (50)
    Other expense, net                      68      40        436          67

    Non-operating expense, net             148     145        809         554

    Income from continuing operations
     before taxes                          292     307        579         762

    Federal and foreign income taxes        46      90        140         227

    Income from continuing operations      246     217        439         535

    Loss from discontinued
     operations, net of tax                 (1)    (12)       (63)       (170)

    Income before accounting change        245     205        376         365

    Cumulative effect of change in
     accounting principle, net of tax        -       -         41           -

    Net income                            $245    $205       $417        $365

    Earnings per share from
     continuing operations
        Basic                            $0.55   $0.52      $1.00       $1.30
        Diluted                          $0.54   $0.52      $0.99       $1.29

    Loss per share from discontinued
     operations
        Basic                             $-    $(0.03)    $(0.14)     $(0.41)
        Diluted                           $-    $(0.03)    $(0.14)     $(0.41)

    Earnings per share from
     cumulative effect of change in
     accounting principle
        Basic                             $-      $-        $0.09        $-
        Diluted                           $-      $-        $0.09        $-

    Earnings per share
        Basic                            $0.54   $0.49      $0.95       $0.88
        Diluted                          $0.54   $0.49      $0.94       $0.88

    Average shares outstanding
        Basic                            450.2   416.3      438.1       412.7
        Diluted                          456.4   418.7      442.2       415.4


    Attachment B

    Raytheon Company
    Segment Information
    Fourth Quarter 2004

    (In millions)

                                                           Operating Income
                                                              As a Percent
                          Net Sales      Operating Income       of Sales
                         Three Months      Three Months       Three Months
                            Ended             Ended              Ended
                       31-Dec     31-Dec  31-Dec   31-Dec   31-Dec   31-Dec
                         -04        -03     -04      -03      -04      -03

    Integrated Defense
     Systems           $ 914     $ 791   $ 119      $95     13.0%   12.0%
    Intelligence and
     Information Systems 601       525      51       53      8.5%   10.1%
    Missile Systems    1,012       943     114      108     11.3%   11.5%
    Network Centric
     Systems             836       766      88       75     10.5%    9.8%
    Space and Airborne
     Systems           1,141       967     159      130     13.9%   13.4%
    Technical Services   593       560      46       39      7.8%    7.0%
    Aircraft             853       717      47       29      5.5%    4.0%
    Other                183       230     (11)     (21)   -6.0%   -9.1%
    FAS/CAS Pension
     Adjustment            -         -    (118)     (27)
    Corporate and
     Eliminations       (429)     (398)    (55)     (29)

    Total             $5,704    $5,101   $ 440    $ 452      7.7%    8.9%


                                                           Operating Income
                                                             As a Percent
                           Net Sales     Operating Income       of Sales
                         Twelve Months     Twelve Months     Twelve Months
                            Ended              Ended             Ended
                       31-Dec    31-Dec   31-Dec   31-Dec   31-Dec  31-Dec
                         -04       -03      -04      -03      -04     -03

    Integrated Defense
     Systems          $3,456    $2,864    $417     $331     12.1%   11.6%
    Intelligence and
     Information
     Systems           2,215     2,045     198      194      8.9%    9.5%
    Missile Systems    3,844     3,538     436      424     11.3%   12.0%
    Network Centric
     Systems           3,113     2,809     274       19      8.8%    0.7%
    Space and Airborne
     Systems           4,068     3,677     568      492     14.0%   13.4%
    Technical Services 2,075     1,963     151      107      7.3%    5.5%
    Aircraft           2,421     2,088      63        2      2.6%    0.1%
    Other                675       573     (40)     (34)    -5.9%   -5.9%
    FAS/CAS Pension
     Adjustment            -         -    (474)    (109)
    Corporate and
     Eliminations     (1,622)   (1,448)   (205)    (110)

    Total            $20,245   $18,109  $1,388   $1,316      6.9%    7.3%


    Attachment C

    Raytheon Company
    Other Information
    Fourth Quarter 2004

                                                                 Funded
                                            Backlog             Backlog
                                         (In millions)       (In millions)
                                      31-Dec-04  31-Dec-03 31-Dec-04 31-Dec-03

    Integrated Defense Systems          $6,628     $6,526   $3,454     $3,318
    Intelligence and Information
     Systems                             3,913      3,899      770        655
    Missile Systems                      8,341      5,028    4,517      4,069
    Network Centric Systems              3,595      3,259    2,627      2,488
    Space and Airborne Systems           5,216      4,865    3,127      3,801
    Technical Services                   1,918      1,510      976        858
    Aircraft                             2,638      2,279    2,638      2,279
    Other                                  294        176      294        176

                                       $32,543    $27,542  $18,403    $17,644

    Government and Defense businesses  $29,611    $25,087  $15,471    $15,189

    U.S. government backlog included
     above                             $25,525    $21,353



                                          Bookings             Bookings
                                       (In millions)        (In millions)
                                     Three months ended  Twelve months ended
                                    31-Dec-04  31-Dec-03 31-Dec-04  31-Dec-03

    Government and Defense
     businesses                       $4,200     $7,065   $21,867     $19,967
    Commercial businesses              1,275      1,319     3,833       2,726

                                      $5,475     $8,384   $25,700     $22,693


                                        New Aircraft         New Aircraft
                                     Deliveries (Units)   Deliveries (Units)
                                     Three Months Ended  Twelve months ended
                                    31-Dec-04  31-Dec-03 31-Dec-04   31-Dec-03

    Horizon                                -          -         -           -
    Hawker 800XP                          17         19        50          47
    Premier I                             14         11        37          29
    Hawker 400XP                          14          7        28          24
    King Air                              46         39       104          86
    1900D Commuter                         -          -         1           1
    Pistons                               35         26        93          82
    T-6A                                  16         18        67          68
      Total                              142        120       380         337


                                        New Aircraft         New Aircraft
                                      Bookings (Units)     Bookings (Units)
                                     Three Months Ended  Twelve months ended
                                    31-Dec-04  31-Dec-03 31-Dec-04   31-Dec-03

    Horizon                                2          2         4           5
    Hawker 800XP                          17         12        79          34
    Premier I                             13          8        34          17
    Hawker 400XP                          11         54        43          70
    King Air                              45         36       139          85
    1900D Commuter                         -          -         1           1
    Pistons                               35         30       157          71
    T-6A                                  50         47        57          51
      Total                              173        189       514         334


    Attachment D

    Raytheon Company
    Preliminary Financial Information
    Fourth Quarter 2004

    (In millions)

    Balance sheets
                                                  31-Dec-04          31-Dec-03
    Assets
    Cash and cash equivalents                         $556               $661
    Accounts receivable                                478                485
    Contracts in process                             3,514              3,302
    Inventories                                      1,745              1,998
    Deferred federal and foreign income taxes          469                466
    Prepaid expenses and other current assets          343                154
    Assets from discontinued operations                 19                 59
      Total current assets                           7,124              7,125

    Property, plant and equipment, net               2,738              2,711
    Deferred federal and foreign income taxes           71                337
    Goodwill                                        11,516             11,479
    Other assets, net                                2,704              2,556
        Total assets                               $24,153            $24,208

    Liabilities and Stockholders' Equity
    Notes payable and current portion of
     long-term debt                                   $516                $15
    Advance payments, less contracts in process      1,900              1,578
    Accounts payable                                   867                833
    Accrued salaries and wages                         934                767
    Other accrued expenses                           1,403              1,086
    Liabilities from discontinued operations            24                 43
      Total current liabilities                      5,644              4,322

    Accrued retiree benefits and other
     long-term liabilities                           3,224              3,281
    Long-term debt                                   4,229              6,517
    Subordinated notes payable                         408                859
    Minority interest                                   97                 67
    Stockholders' equity                            10,551              9,162
        Total liabilities and
         stockholders' equity                      $24,153            $24,208


    Attachment E

    Raytheon Company
    Preliminary Cash Flow Information
    Fourth Quarter 2004

    (In millions)

    Cash flow information
                                     Three Months Ended   Twelve Months Ended
                                    31-Dec-04  31-Dec-03 31-Dec-04   31-Dec-03

    Income from continuing operations   $246      $217       $439        $535
    Depreciation                          94        97        361         333
    Amortization                          19        17         73          60
    Working capital                      435       702        650         708
    Discontinued operations              (11)      (48)       (43)       (533)
    Capital spending                    (154)     (185)      (363)       (428)
    Internal use software spending       (30)      (27)      (103)        (98)
    Other                                102        85        398         466
        Subtotal - free cash flow (a)    701       858      1,412       1,043

    Net activity in financing
     receivables                          48       309        193         465
    Sale of short-term investments        74         -          -           -
    Acquisitions                         (42)        -       (112)        (60)
    Divestitures and sale of investments  43        57         47         111
    Dividends                            (91)      (84)      (349)       (331)
    Issuance of common stock               -        11        867          74
    Debt repayments                   (1,253)     (706)    (2,254)       (965)
    Space Imaging debt guarantee           -         -          -        (130)
    Synthetic lease maturity               -         -          -        (125)
    Other                                 27        13         91          35
          Total cash flow              $(493)     $458      $(105)       $117


    Segment free cash flow information
                                    Three Months Ended    Twelve Months Ended
                                    31-Dec-04 31-Dec-03  31-Dec-04   31-Dec-03

    Integrated Defense Systems          $126       $99       $399        $318
    Intelligence and Information
     Systems                              57        71        152          88
    Missile Systems                       65       327        285         244
    Network Centric Systems              173       131        240         115
    Space and Airborne Systems            80       131        237         365
    Technical Services                    34        28         69         104
    Aircraft                              84        89        134          20
    Other                                 15       (37)       (83)        (55)
    Discontinued operations              (11)      (48)       (43)       (533)
    Corporate                             78        67         22         377
                                        $701      $858     $1,412      $1,043


    (a) See Attachment F for a description of free cash flow.


    Attachment F

    Raytheon Company
    Non-GAAP Financial Measures
    Fourth Quarter 2004

Free cash flow is a "non-GAAP" financial measure under SEC regulations. The Company defines free cash flow as operating cash flow less capital spending and internal use software spending. Our definition may differ from similarly titled measures used by others. The Company uses free cash flow to facilitate management's internal comparisons to the Company's historical operating results and to competitors' operating results and as an element of management incentive compensation. The Company believes disclosure of free cash flow performance provides investors greater transparency with respect to information used by management in its financial and operational decision making. While this information may be useful in evaluating the Company, it should be considered supplemental to and not as a substitute for financial information prepared in accordance with generally accepted accounting principles.

Free cash flow
                                       Three Months Ended  Twelve Months Ended
                                       31-Dec-04 31-Dec-03 31-Dec-04 31-Dec-03
    Operating cash flow                    $885    $1,070   $1,878    $1,569
    Less : Capital spending                (154)     (185)    (363)     (428)
           Internal use software spending   (30)      (27)    (103)      (98)
            Free cash flow                  701       858    1,412     1,043
    Plus : Discontinued operations           11        48       43       533
            Free cash flow from
             continuing operations         $712      $906   $1,455    $1,576

SOURCE Raytheon Company

James Fetig, +1-781-522-5111, or Greg Smith, +1-781-522-5141 both of Raytheon Company
http://www.prnewswire.com

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