Raytheon Reports 2004 Fourth Quarter Results

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Raytheon Reports 2004 Fourth Quarter Results

  1. 1. Raytheon Company Fourth Quarter Earnings February 3, 2005 Dial In Number 800-265-0241 Domestic 617-847-8704 International Passcode: 33188529 Replay Number 888-286-8010 Domestic 617-801-6888 International Reservation Number: 33021328 Available through February 10, 2005
  2. 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 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 www.raytheon.com.quot; 2
  3. 3. Q4 Highlights ● Bookings of $5.5B Ending backlog of $32.5B ● ● Sales of $5.7B Increase of 12% for the quarter and total year ● ● Earnings of $0.54 per diluted share ● Free Cash Flow for the quarter of $701M ● Net Debt at 2004 year end at $4.6B 3
  4. 4. Q4 - Consolidated Results ($ Millions) Operating Income Net Sales $440 As Reported 2004 $558 Excludes FAS/CAS Profit Adj. 2004 $5,704 $452 As Reported 2003 2003 $5,101 $479 Excludes FAS/CAS Profit Adj. ● Total Company Q4 sales up 12% ● Primarily Q4 volume combined with ● Government and Defense Q4 sales up 12% improvement at Raytheon Aircraft Total Free Cash Flow Bookings 2004 $701 $5,475 2004 2003 $858 2003 $8,384 ● Total year free cash flow of $1.4B compared ● Total year bookings of $25.7B compared to $1.0B for 2003. to $22.7B for 2003. 4
  5. 5. 2005 Financial Outlook Prior Current Bookings $22.5B - $23.5B $22.5B - $23.5B Sales $21.5B - $22.0B $21.5B - $22.0B FAS/CAS Pension Adjustment Expense $406M $463M Interest expense, net $315M - $325M $315M - $325M Diluted Shares 455M 455M GAAP EPS from Cont. Ops $1.80-$1.90 $1.80-$1.90 Continuing Ops Free Cash Flow $1.2B - $1.4B $1.2B - $1.4B Total Free Cash Flow $1.2B - $1.4B $1.2B - $1.4B 5
  6. 6. Pension Impact ($ Millions except EPS) Prior Guidance Current Guidance Expense 2005E 2006E 2005E 2006E FAS $ (759) $ (683) $ (811) $ (708) CAS $ (353) $ (398) $ (348) $ (388) FAS/CAS Pension Adjustment $ (406) $ (285) $ (463) $ (320) Diluted EPS Effect $ (0.60) $ (0.42) $ (0.68) $ (0.48) Cash Funding Required $ (338) $ (447) $ (312) $ (443) CAS Recovery $ 353 $ 398 $ 348 $ 388 Discretionary pension funding $ (200) $ (200) $ (200) $ (200) 6
  7. 7. Segment Details 7
  8. 8. Q4 - Integrated Defense Systems (IDS) ($ Millions) Operating Income Net Sales 2004 $119 2004 $914 2003 $95 2003 $791 ● Growth of 16% driven by Japan Patriot ● Volume related Product Improvement Program (PI3), Cobra Judy, and DD(X) Bookings Free Cash Flow 2004 $969 2004 $126 2003 $2,026 2003 $99 ● Includes a $55M advance on an international ● Includes $282M for the award of BMDS Radar Options program and $234M for Japan PI3 ● Q4 2003 included $782M for Cobra Judy and $447M for JLENS Spiral 2 Note: Net sales include intercompany sales 8
  9. 9. Q4 - Intelligence & Information Systems (IIS) ($ Millions) Operating Income Net Sales 2004 $51 2004 $601 2003 $53 2003 $525 ● Growth of 14% driven by classified ● Includes a charge for nonrecoverable costs programs Free Cash Flow Bookings 2004 $57 $591 2004 2003 $71 $526 2003 ● Includes $373M of classified bookings Note: Net sales include intercompany sales 9
  10. 10. Q4 - Missile Systems (MS) ($ Millions) Operating Income Net Sales 2004 $114 2004 $1,012 2003 $108 2003 $943 ● Growth of 7% driven by SM3, JSOW, ● Volume related and ESSM Free Cash Flow Bookings $65 2004 $1,039 2004 2003 $327 2003 $1,849 ● ● ● Total year free cash flow of $285M compared ● Includes $201M for the option exercise of AMRAAM to $244M for 2003. production and logistics support and $116M for AIM-9X Sidewinder ● Total year bookings $2.1B higher than prior year Note: Net sales include intercompany sales 10
  11. 11. Q4 - Network Centric Systems (NCS) ($ Millions) Net Sales Operating Income 2004 $836 2004 $88 2003 $766 2003 $75 ● Growth of 9% driven by Army programs ● Volume related Free Cash Flow Bookings $173 2004 2004 $620 2003 $131 2003 $1,017 ● Includes $132M for Wide Area Augmentation System (WAAS) Note: Net sales include intercompany sales 11
  12. 12. Q4 - Space and Airborne Systems (SAS) ($ Millions) Net Sales Operating Income $1,141 2004 $159 2004 2003 $130 2003 $967 ● Growth of 18% driven by an increase in ● Primarily productivity improvements on production classified and production programs programs and higher volume, partially offset by a $55M write-off on an international program Bookings Free Cash Flow $502 2004 2004 $80 2003 $1,128 2003 $131 ● Includes $102M on a number of classified contracts Note: Net sales include intercompany sales 12
  13. 13. Q4 - Technical Services (TS) ($ Millions) Net Sales Operating Income 2004 $593 2004 $46 $560 2003 2003 $39 Bookings Free Cash Flow $479 2004 2004 $34 2003 $28 2003 $520 ● Includes $76M on the Live Training Program and a competitive award on the ROTHR program Note: Net sales include intercompany sales 13
  14. 14. Q4 - Raytheon Aircraft Company (RAC) ($ Millions) Operating Income Net Sales 2004 $47 2004 $853 2003 $29 2003 $717 ● Growth of 19% driven by an increase in new ● Volume combined with continued cost and used aircraft sales and productivity benefits Free Cash Flow Bookings $1,102 2004 2004 $84 2003 $1,095 2003 $89 Note: Net sales exclude sales to Flight Options 14
  15. 15. Q4 - Other ($ Millions) Operating Income Net Sales 2004 ($11) 2004 2004 $183 2003 $230 ($21) 2003 2003 15
  16. 16. Non-GAAP Financial Measures The following measures are considered quot;non-GAAPquot; financial measures under SEC guidelines: (i) Free cash flow - Operating cash flow less capital spending and internal use software spending. (ii) Operating income excluding the FAS/CAS Adjustment - Operating income adjusted for the non-cash FAS/CAS pension amount. The FAS/CAS pension adjustment is the difference between SFAS No. 87 (FAS) pension income or expense and the Cost Accounting Standards (CAS) pension expense. CAS standards are those that prescribe the allocation to and recovery of pension costs on U.S. government contracts. The Company uses these non-GAAP financial measures to evaluate its operating performance and to facilitate management's internal comparisons to the Company's historical operating results and to competitors' operating results. The company also uses free cash flow in determining management incentive compensation.The Company believes disclosure of these measures provides greater transparency to investors of information used by management in its financial and operational decision making. While this information may be useful in evaluating the Company, it should be considered supplemental to and not as a substitute for financial information prepared in accordance with generally accepted accounting principles. 16
  17. 17. Reconciliation of Non-GAAP Financial Measures ($ Millions) Three Months Ended Twelve Months Ended 31-Dec-04 31-Dec-03 2005F 31-Dec-04 31-Dec-03 (i) Free cash flow Operating cash flow $ 883 $ 1,070 $ 1,700-1,850 $ 1,876 $ 1,569 Less: Capital spending $ (152) $ (185) $ (375)-(350) $ (361) $ (428) Internal use software spending $ (30) $ (27) $ (125)-(100) $ (103) $ (98) Free cash flow $ 701 $ 858 $ 1,200-1,400 $ 1,412 $ 1,043 Plus: Discontinued operations $ 11 $ 48 $ 20-25 $ 43 $ 533 Free cash flow from continuing operations $ 712 $ 906 $ 1,220-1,425 $ 1,455 $ 1,576 (ii) Operating income excluding FAS/CAS pension adjustment Operating income from continuing operations $ 440 $ 452 Less: FAS/CAS pension adjustment $ (118) $ (27) Operating income from continuing operations $ 558 $ 479 excluding FAS/CAS pension adjustment 17
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