Raytheon Reports 2004 First Quarter Results

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Raytheon Reports 2004 First Quarter Results

  1. 1. Raytheon Company First Quarter Earnings April 29, 2004 Dial In Number 800-901-5218 Domestic 617-786-4511 International Replay Number 888-286-8010 Domestic 617-801-6888 International Reservation Number: 36633390 Available through May 7, 2004
  2. 2. Forward Looking Statements Certain statements included in this presentation, 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 quot;believe,quot; quot;expect,quot; quot;estimate,quot; quot;intend,quot; or quot;plan,quot; 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 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 investigations; 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 other support 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. This presentation includes certain non-GAAP financial measures as defined under SEC rules. As required by SEC rules, the Company has provided a quantitative reconciliation of each of those measures to the most directly comparable GAAP measure. This reconciliation, along with definitions of non-GAAP terms used by the Company, is included in this presentation.
  3. 3. Q1 HIGHLIGHTS ● Strong Bookings drive Backlog to record $31.2B ● 11% year over year Revenue growth, (8% excluding Flight Options) ● Continuing operations EPS of $0.24; $0.04 higher than guidance ● Consolidated diluted EPS of $0.30 including discontinued operations (-$0.03) and change in pension accounting measurement date ($0.10) ● Free Cash Flow exceeds guidance by approximately $650M ● Net Debt at the end of Q1 at $7.1B vs. forecast of $7.8B 3
  4. 4. Q1 - Consolidated Results ($ Millions) Net Sales Operating Income $251 As Reported 2004 $4,676 2004 Excludes FAS/CAS Profit Adj. $372 $313 As Reported 2003 $4,201 2003 $341 Excludes FAS/CAS Profit Adj. ● Driven by double digit growth from ● 9% increase in op income excluding IDS, MS, & SAS FAS/CAS pension adjustment ● G&D margins as expected Free Cash Flow Bookings $8,505 ($286) 2004 2004 2003 ($819) 2003 $5,380 ● Every business better than target ● Current quarter includes KEI ● Successful financial system implementation booking of $2.1B ● Large international collection earlier than ● Q1 classified bookings over $1.7 B expected 4
  5. 5. PENSION IMPACT ($ Millions except EPS) PRIOR GUIDANCE CURRENT GUIDANCE EXPENSE 2004E 2005E 2004E 2005E FAS ($714) ($732) ($741) ($754) CAS ($256) ($339) ($264) ($350) INCOME ADJUSTMENT ($458) ($393) ($477) ($404) DILUTED EPS EFFECT ($0.72) ($0.60) ($0.75) ($0.62) CASH FUNDING REQUIRED ($318) ($316) ($400) ($355) CAS RECOVERY $256 $339 $264 $350 NET CASH IMPACT ($62) $23 ($136) ($5) 5
  6. 6. 2004 FINANCIAL OUTLOOK Prior Current Bookings $22 B $23.0 B Sales $19.5 - $20.0 B $20.0 B+ GAAP EPS from Cont. Ops $1.25 - $1.35 $1.30 - $1.40 EPS Excluding FAS/CAS Adj $1.97 - $2.07 $2.05 - $2.15 Continuing Ops Free Cash Flow Approx $1 B $1 B+ Total Free Cash Flow Approx $1 B $1 B+ 6
  7. 7. BUSINESS UNIT DETAILED Q1 RESULTS BACKUP 7
  8. 8. Q1 - INTEGRATED DEFENSE SYSTEMS (IDS) ($ Millions) Net Sales Operating Income $94 2004 2004 $839 2003 $654 2003 $74 ● Up 28% primarily due to DD(x) and ● Increase driven by volume, margin on target Strong Missile Defense Sales Free Cash Flow Bookings 2004 ($129) 2004 $786 ($13) $904 2003 2003 ● Significantly better than expected ● Current quarter includes SLAMRAAM ● Financial system implementation in Q1 2004; booking $122M, Patriot engineering negative impact of $210M, services $148M ● Large international collection earlier than expected Note: Net sales include intercompany sales 8
  9. 9. Q1 - INTELLIGENCE & INFORMATION SYSTEMS (IIS) ($ Millions) Net Sales Operating Income 2004 $494 2004 $45 2003 $462 2003 $41 ● Up 7% driven by classified programs, ● Driven by volume; margin on target NPOESS and DCGS Free Cash Flow Bookings 2004 ($45) 2004 $553 2003 ($87) 2003 $678 ● Improved collection cycles ● Current Qtr includes classified bookings nearly $400M Note: Net sales include intercompany sales 9
  10. 10. Q1 - MISSILE SYSTEMS (MS) ($ Millions) Net Sales Operating Income 2004 $965 2004 $107 2003 $857 2003 $101 ● Up 13% driven by the Phalanx and Standard Missile-3 ● Up 6% driven by increased sales volume, programs partially offset with wind-down on cost recovery for prior year restructuring costs ● Margin on target Free Cash Flow Bookings 2004 ($41) $3,742 2004 2003 ($219) 2003 $1,610 ● 2003 included financial system implementation ● Current quarter includes KEI booking of $2.1B, NLOS-LS for $525M, Tactical Tomahawk LRIP Missiles for $170M and a contract for Paveway II Laser Guided Bomb Kits Note: Net sales include intercompany sales 10
  11. 11. Q1 - NETWORK CENTRIC SYSTEMS (NCS) ($ Millions) Net Sales Operating Income 2004 $720 $55 2004 2003 $771 2003 $62 ● Q1 sales on target ● Q1 margin on target ● Down 7% from prior year due to the projected ● Decrease in income driven by volume and decrease in Air Traffic Management and run-out of low margin programs Communications product lines Free Cash Flow Bookings ($129) 2004 2004 $827 2003 ($173) $800 2003 ● Financial system implementation in Q1 2004; ● Current quarter includes $101M of changes negative impact of $62M to existing HTI contract due to Block 1 A-Kits ● Higher milestone collections than prior year and B-Kits ECP Note: Net sales include intercompany sales 11
  12. 12. Q1 - SPACE AND AIRBORNE SYSTEMS (SAS) ($ Millions) Net Sales Operating Income 2004 $1,013 2004 $129 2003 $894 2003 $104 ● Up 13% driven by International and Classified ● Q1 income increase driven by volume programs Free Cash Flow Bookings $1,682 2004 ($115) 2004 2003 ($50) 2003 $792 ● Outflow vs. prior year driven by ● Current quarter includes over $1B in classified liquidation of international payments bookings Note: Net sales include intercompany sales 12
  13. 13. Q1 - TECHNICAL SERVICES (TS) ($ Millions) Net Sales Operating Income $474 $31 2004 2004 2003 $491 2003 $36 ● Q1 sales on target ● Q1 margin on target ● Year over year decline primarily due to the completion in 2003 of a major Base & Range Services contract Bookings Free Cash Flow $331 2004 2004 $16 2003 $260 $6 2003 ● Continued focus on cash ● Q1 includes $65M International booking Note: Net sales include intercompany sales 13
  14. 14. Q1 - RAYTHEON AIRCRAFT COMPANY (RAC) ($ Millions) Net Sales Operating Income $374 2004 2004 ($28) 2003 $361 2003 ($35) ● Lower new aircraft unit sales offset by higher ● Operating income slightly better than expected used aircraft sales Bookings Free Cash Flow $425 2004 ($20) 2004 $306 2003 2003 $4 ● Q1 free cash flow on target ● Current quarter includes $95M on JPATS program Note: Net sales exclude sales to Flight Options 14
  15. 15. Q1 - OTHER ($ Millions) Net Sales Operating Income $175 ($15) 2004 2004 2003 $40 2003 ($3) ● Consolidation of Flight Options' results in the ● Consolidation of Flight Options' results in the current quarter accounts for $133M of the current quarter accounts for $9M of the increased sales. increased loss. 15
  16. 16. Reconciliation of Non-GAAP Financial Measures 2003 2004 Q1 Q1 A. Free Cash Flow Operating cash flow ($740) ($201) Less: Capital spending ($58) ($60) Internal use software spending ($21) ($25) Free cash flow ($819) ($286) Less: Discontinued operations ($305) $9 Free cash flow from continuing operations ($514) ($295) B. Net Debt Total debt $9,081 $7,410 Less cash $387 $340 Net Debt $8,694 $7,070 C. Operating income before FAS/CAS adjustment Operating income $313 $251 FAS/CAS pension adjustment $28 $121 Operating income before FAS/CAS adjustment $341 $372 D. EPS excluding FAS/CAS adjustment EPS from continuing operations $0.27 $0.24 FAS/CAS pension adjustment $0.05 $0.20 EPS excluding FAS/CAS adjustment $0.32 $0.44 Definitions: Free cash flow is defined as operating cash flow less capital spending and internal use software spending. Net debt is defined as total debt less cash and cash equivalents. Operating income before FAS/CAS adjustment is defined as operating income adjusted for non cash FAS/CAS pension amount EPS excluding FAS/CAS adjustment is defined as EPS from continuing operations adjusted for the non cash FAS/CAS pension amount. 16

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