Raytheon Posts 9 Percent Growth in Earnings Per Share; Contract Wins Up More Than 30 Percent - Company Financial Information

Edge: Work-Group Computing Report, August 2, 1999

Raytheon Company (NYSE:RTNA)(NYSE:RTNB) has reported second quarter sales of $5.2 billion, up from $5.1 billion for the 1998 second quarter. Sales were up four percent after adjusting for divestitures in the intervening period. New business wins during the quarter reached $6.1 billion, up from $4.6 billion in the 1998 second quarter and also up from the $5.2 billion recorded in the first quarter this year.

Raytheon's 1999 second quarter earnings per share were up 9 percent at $0.86 per diluted share, or $294 million, versus $0.79 per diluted share for the 1998 second quarter, or $270 million. Earnings per share were up 12 percent compared to the 1998 second quarter, excluding special items.

Operating income increased to $650 million, or 12.5 percent of sales for the 1999 second quarter, up from $529 million, or 10.4 percent of sales for the same period last year. "Raytheon's growth in operating margin is a key measure of the success with which we have integrated our defense electronics businesses and taken out cost," said Daniel P. Burnham, Raytheon Company president and chief executive officer.

"I am particularly proud that Raytheon scored some important strategic wins during the quarter," Burnham said. He noted that the United Kingdom Ministry of Defence selected the Raytheon team as its preferred contractor for the Airborne Standoff Radar (ASTOR) program. "Winning this program is evidence that Raytheon can integrate technology from across the company into competitive solutions for global markets," he said. ASTOR is not included in the $6.1 billion of new wins in the quarter.

Burnham also pointed to the company's continued participation in the rapidly growing market for fractional ownership of business jets. "Raytheon Aircraft secured its largest ever business jet order when Executive Jet, Inc. chose to purchase up to 100 Hawker Horizon aircraft," he said. "That is a strong vote of confidence in the Horizon, and in our strategy to use composite material technology to create a light, efficient, and comfortable business jet that gives customers longer range at lower operating costs."

Raytheon's total backlog at the end of the second quarter was $24.5 billion.

Operating cash flow in the 1999 second quarter improved by $829 million over the 1999 first quarter due to seasonally lower working capital requirements. Consolidated debt was $9.9 billion at the end of the quarter, compared to $10.4 billion at the end of the 1998 second quarter. Net debt (total debt less cash and cash equivalents) was $9.8 billion at the end of the quarter, compared to $10.1 billion at the end of the 1998 second quarter.

Electronics Businesses

Raytheon's electronics businesses reported operating income of $555 million for the second quarter of 1999 on sales of $3.8 billion, compared to operating income of $426 million on sales of $3.8 billion for the 1998 second quarter. Operating margin for the segment was up significantly, at 14.5 percent, compared to 11.1 percent last year.

The growth in margin is largely attributable to $94 million in restructuring savings recorded during the period at Raytheon Systems Company (RSC). A cumulative total of $644 million in restructuring savings has been realized since the beginning of 1998. RSC has eliminated 11,300 positions due to this restructuring, and has reduced facility space by 4.5 million square feet as a result of the restructuring initiatives. At the same time, the company has been recruiting aggressively for critical technical skills in support of new business.

The electronics businesses reported a number of business highlights during the quarter, including:

* Raytheon Systems Limited was chosen as the preferred contractor for the ASTOR program. The $1.3 billion airborne radar surveillance program provides day/night and all-weather imagery of the ground over a large area, and will be recorded in backlog when the contract is finalized. The ASTOR program has additional international potential beyond the U.K.;

* A U.S. Navy contract, with a potential maximum value of $414 million, for upgraded Tomahawk cruise missiles on an as-needed basis under the Emergency Supplemental Funding bill;

* A $140 million U.S. Navy contract for engineering and manufacturing development of the next generation Multi-Function Radar, which will equip future aircraft carriers and destroyers with advanced solid state radar suites. This was a pivotal win for Raytheon that will usher in a new generation of X-Band solid state technology for the surface Navy, positioning the company to be a prime supplier of radar to the Navy far into the future.

* A classified contract by the National Reconnaissance Office to develop and integrate the future system architecture for a large multi-element space and ground system;

* A U.S. Air Force contract to develop the Joint Precision Approach and Landing System, the future multi-service, low-visibility landing system to replace aging systems with a single technology for all services and missions;