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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
/X/ Quarterly Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended July 3, 1994
/ / Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ............ to ...............
Commission File Number 1-2833
RAYTHEON COMPANY
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 04-1760395
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
141 SPRING STREET, LEXINGTON, MASSACHUSETTS 02173
(Address of Principal Executive Offices) (Zip Code)
(617) 862-6600
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
NUMBER OF COMMON SHARES OUTSTANDING AT JULY 3, 1994: 133,084,000
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RAYTHEON COMPANY AND SUBSIDIARIES CONSOLIDATED
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
RAYTHEON COMPANY AND SUBSIDIARIES CONSOLIDATED
----------------------------------------------
BALANCE SHEETS (Unaudited)
July 03, 1994 Dec. 31, 1993
------------- -------------
(In thousands)
ASSETS
Cash and marketable securities $ 188,626 $ 190,231
Accounts receivable 897,145 727,713
Contracts in process, less progress
payments 2,045,165 2,024,145
Inventories 1,535,856 1,500,393
Prepaid expenses 178,229 166,761
---------- ----------
Total current assets 4,845,021 4,609,243
Property, plant and equipment, net 1,400,636 1,422,086
Other assets 920,623 1,226,383
---------- ----------
$7,166,280 $7,257,712
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes and accounts payable $1,511,890 $1,688,363
Advance payments, less contracts in
process 406,410 376,097
Accrued expenses 896,660 731,848
Federal and foreign income taxes,
including deferred 53,290 113,472
---------- ----------
Total current liabilities 2,868,250 2,909,780
Non-current pension liability 25,696 25,696
Long-term debt 22,489 24,376
Stockholders' equity 4,249,845 4,297,860
---------- ----------
$7,166,280 $7,257,712
========== ==========
The accompanying notes are an integral part of the financial statements.
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<TABLE> RAYTHEON COMPANY AND SUBIDIARIES CONSOLIDATED
---------------------------------------------
STATEMENTS OF INCOME (Unaudited)
Three Months Ended Six Months Ended
July 3, 1994 July 4, 1993 July 3, 1994 July 4, 1993
------------ ------------- ------------ -------------
(In thousands except per share amounts)
<S> <C> <C> <C> <C>
Net sales $2,526,993 $2,258,315 $4,841,464 $4,461,827
---------- ---------- ---------- ----------
Cost of sales 1,948,726 1,749,136 3,745,276 3,473,671
Administrative and selling expenses 227,091 203,416 440,692 392,622
Research and development expenses 71,821 76,711 133,207 154,719
Restructuring provision 249,751 -
---------- ---------- ---------- ----------
Total operating expenses 2,247,638 2,029,263 4,568,926 4,021,012
---------- ---------- ---------- ----------
Operating income 279,355 229,052 272,538 440,815
---------- ---------- ---------- ----------
Interest expense 12,864 6,686 23,372 13,739
Interest and dividend income (12,468) (12,863) (29,743) (27,416)
Other (income) expense, net (12,064) (33,371) (19,060) (49,384)
---------- ---------- ---------- ----------
Non-operating (income) expense, net (11,668) (39,548) (25,431) (63,061)
---------- ---------- ---------- ----------
Income before taxes 291,023 268,600 297,969 503,876
Federal and foreign income taxes 98,794 89,320 98,774 167,081
---------- ---------- ---------- -----------
Net income $ 192,229 $ 179,280 $ 199,195 $ 336,795
========== ========== ========== ===========
Earnings per common share $1.43 $1.32 $1.48 $2.48
Average number of common shares
outstanding during period 134,027 135,567 134,584 135,678
Dividends declared per common share $.375 $.35 $.725 $.70
The accompanying notes are an integral part of the financial statements.
</TABLE>
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RAYTHEON COMPANY AND SUBSIDIARIES CONSOLIDATED
----------------------------------------------
STATEMENTS OF CASH FLOWS (Unaudited)
Six Months Ended
July 03, 1994 July 04, 1993
------------- -------------
(In thousands)
Cash flows from operating activities:
Net income $199,195 $336,795
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation 134,374 138,920
Restructuring provision 249,751 -
Sale of commuter airlines
long-term receivables 302,800 -
Other adjustments, net (436,822) (279,685)
-------- --------
Net cash provided by operating activities 449,298 196,030
-------- --------
Cash flows from investing activities:
Additions to property, plant and equipment (129,127) (117,492)
All other, net (17,540) 11,251
-------- --------
Net cash used in investing activities (146,667) (106,241)
-------- --------
Cash flows from financing activities:
Change in short-term debt (55,138) 69,584
Dividends (97,276) (94,969)
Purchase of treasury shares (170,603) (63,771)
Proceeds under common stock plans 23,125 41,016
All other, net (1,887) 1,095
-------- --------
Net cash used in financing activities (301,779) (47,045)
-------- --------
Effect of foreign exchange rates on cash (2,456) 290
-------- --------
Net increase (decrease) in cash and cash
equivalents (1,604) 43,034
Cash and cash equivalents at beginning
of year 190,121 88,730
-------- --------
Cash and cash equivalents at end of
second quarter $188,517 $131,764
======== ========
The accompanying notes are an integral part of the financial statements.
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RAYTHEON COMPANY AND SUBSIDIARIES CONSOLIDATED
----------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(1) Details of certain balance sheet accounts are as follows:
July 3, 1994 Dec. 31, 1993
------------ -------------
(In thousands)
Cash and marketable securities
Cash and cash equivalents $ 188,517 $ 190,121
Marketable securities 109 110
---------- ----------
Total cash and marketable securities $ 188,626 $ 190,231
========== ==========
Inventories
Finished goods $ 667,154 $ 659,436
Work in process 721,246 713,075
Materials and purchased parts 327,530 302,404
Excess of current cost over LIFO values (180,074) (174,522)
---------- ----------
Total inventories $1,535,856 $1,500,393
========== ==========
Property, plant and equipment
At cost $3,713,596 $3,590,333
Accumulated depreciation and
amortization (2,312,960) (2,168,247)
---------- ----------
Net property, plant and equipment $1,400,636 $1,422,086
========== ==========
Stockholders' equity
Preferred stock, no outstanding shares $ - $ -
Common stock, outstanding shares 133,084 135,214
Additional paid-in capital 344,248 328,489
Equity adjustments (4,556) (2,100)
Retained earnings 3,777,069 3,836,257
---------- ----------
Total stockholders' equity $4,249,845 $4,297,860
========== ==========
(2) The company recorded a previously announced restructuring charge of
$249.8 million before tax and $162.3 million after tax in the first
quarter of 1994. The restructuring was driven by the significant
reductions in defense budgets and increasing commercial competition.
Approximately 65 percent of the restructuring costs are attributable
to Raytheon's defense business and the remainder to its commercial
businesses. The company-wide plan will result in personnel
reductions of about 4400 people and will help maintain the company's
competitive position in a shrinking defense market and improve
productivity in its commercial businesses. Through the end of the
second quarter $29.8 million of restructuring costs have been
incurred and approximately 400 employees have been terminated.
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(3) The information furnished has been prepared from the accounts
without audit. In the opinion of management, the information
reflects all adjustments, which are of a normal recurring nature,
necessary for a fair presentation of the financial statements for
the interim periods.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
Second Quarter 1994 Versus 1993
-------------------------------
Raytheon Company reported record second quarter results -- earning $192.2
million, or $1.43 per share, on sales of $2.527 billion during the second
quarter of 1994. In the same period last year, net income was $179.3
million, or $1.32 per share, on sales of $2.258 billion.
Raytheon's three commercial business segments -- Energy and Environmental,
Aircraft Products, and Major Appliances -- each posted record second
quarter sales and profits.
Also during the quarter Raytheon was awarded a contract to provide the
Republic of China (Taiwan) with a Modified Air defense System (MADS) based
on the company's Patriot system.
Shortly after the end of the quarter the company announced that a team
headed by Raytheon was selected by the Brazilian government to develop and
produce the Amazon Surveillance System (SIVAM). The project is valued at
more than $1 billion and is scheduled to run through the year 2000.
The operations of our business segments in the second quarter of 1994 are
discussed below.
The Energy and Environmental segment reported record second quarter sales
and profits led by the performance of Raytheon Engineers and Constructors
and by the contributions of its Ebasco subsidiary acquired late in 1993.
The Aircraft Products segment reported record second quarter sales and
profits at Beech Aircraft and sales and profits contributions from
Raytheon Corporate Jets, which was acquired in August 1993.
The Major Appliances segment also reported record second quarter sales and
profits based on increased shipments of cooking, heating and
airconditioning, refrigerator, and laundry products.
The Electronics segment reported lower second quarter sales and profits
due to reduced defense spending worldwide.
Sales to the U.S. government were $1.004 billion in the second quarter of
1994, a decrease of $171 million or 14.6% from the comparable quarter of
1993. U.S. government sales were 39.7% of consolidated second quarter net
sales in 1994 compared with 52.0% in 1993. Commercial sales to U.S.
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customers increased to $1.067 billion or 42.2% of consolidated sales from
the $707 million or 31.3% reported in 1993. Sales to customers outside
the United States were $456 million or 18.1% of consolidated sales versus
$376 million or 16.7% reported in 1993.
Second quarter operating income was $279.4 million or 11.1% of sales in
1994 versus $229.1 million or 10.1% of sales in 1993. Operating income
for 1994 was 22.0% above 1993 due to strong improvements in operating
income in the Energy and Environmental, Aircraft Products, and Major
Appliances segments.
Interest expense for 1994 increased to $12.9 million from $6.7 million in
1993. The increase was due to a higher level of debt outstanding and
higher borrowing rates on commercial paper.
Other income (net) decreased to $12.1 million in 1994 versus $33.4 million
in 1993. The 1993 results included a gain on the sale of preferred stock
previously held as an investment.
The 1994 effective tax rate of 33.9% reflects the statutory rate of 35%
reduced by foreign tax credits.
For reasons discussed above, net income increased $12.9 million or 7.2% to
$192.2 million from the $179.3 million reported for the second quarter of
1993.
Earnings per common share increased 8.3% to $1.43 for the second quarter
of 1994 from $1.32 for the second quarter of 1993. The average number of
common shares outstanding during the second quarter of 1994 was 134.0
million versus 135.6 million in 1993. During the quarter outstanding
shares were reduced by 2.1 million shares as the result of the company's
purchase of outstanding shares at a cost of $130.9 million, partially
offset by 257,000 shares issued upon the exercise of employee stock
options.
Six Months 1994 Versus 1993
---------------------------
Consolidated net sales increased 8.5% to $4.841 billion in 1994 from
$4.462 billion in 1993. Sales increased in the Energy and Environmental,
Aircraft Products and Major Appliances segments and decreased in the
Electronics segment.
Sales to the U.S. government were $2.068 billion versus $2.372 billion in
1993 and were 42.7% of consolidated net sales versus 53.2% in 1993. Sales
to customers outside the United States were $813 million or 16.8% of
consolidated net sales in 1994 versus $727 million or 16.3% of
consolidated net sales in 1993. Commercial sales to U.S. customers were
$1.960 billion or 40.5% of consolidated net sales in 1994 versus $1.363
billion or 30.5% of sales in 1993.
Operating income, excluding the effect of the restructuring provision
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recorded in the first quarter of 1994, was $522.3 million or 10.8% of
sales versus $440.8 million or 9.9% of sales in 1993. The results for
1994 excluding the effect of the restructuring provision were 18.5% above
1993 due to strong improvements in operating earnings in the Energy and
Environmental, Aircraft Products and Major Appliances segments.
The company recorded in the first quarter of 1994 a restructuring
provision of $249.8 million. Operating income, after the restructuring
provision was $272.5 million or 5.6% of sales. The restructuring was
driven by the significant reductions in defense budgets and increasing
commercial competition. Approximately 65% of the restructuring costs are
attributable to Raytheon's defense business and the remainder to its
commercial businesses. The company-wide plan will result in personnel
reductions of about 4400 people. It will help maintain the company's
competitive position in a shrinking defense market and improve
productivity in its commercial businesses. Through the end of the second
quarter $29.8 million of restructuring costs have been incurred and
approximately 400 employees have been terminated.
Non-operating income (net) was $25.4 million in 1994 versus $63.1 million
in 1993. The decrease is due to a 1993 gain on the sale of an investment,
lower 1994 license fee income on foreign missile contracts and higher 1994
interest expense.
The 1994 effective tax rate of 33.1% reflects the statutory rate of 35%
reduced by foreign tax credits.
For the reasons discussed above, income before the restructuring provision
increased $24.7 million or 7.3% to $361.5 million from the $336.8 million
reported in the first six months of 1993. Net income after the
restructuring provision was $199.2 million.
Earnings per common share before the restructuring provision increased
8.1% to $2.68 from $2.48 for the first six months of 1993. Earnings per
common share after the restructuring provision were $1.48 for the first
six months of 1994. The average number of common shares outstanding was
134.6 million for the first six months of 1994 versus 135.7 million for
the comparable 1993 period. During the first six months of 1994
outstanding shares were reduced by 2.7 million shares as a result of the
company's purchase of outstanding shares at a cost of $170.6 million,
partially offset by 594,000 shares issued upon the exercise of employee
stock options.
On February 23, 1994, the Board of Directors authorized the repurchase of
up to 12 million shares of the company's common stock. The company will
repurchase shares in the open market from time to time as conditions may
warrant.
The book value of common shares outstanding at the end of the period was
$31.93, as compared with $31.79 at December 31, 1993 and $30.01 at July 4,
1993.
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Backlog consisted of the following at:
July 3, 1994 Dec. 31, 1993 July 4, 1993
------------ ------------- ------------
(in millions)
Electronics $4,834 $4,817 $5,114
Aircraft Products 1,028 1,082 924
Energy and Environmental 1,363 1,824 743
Major Appliances 49 33 49
------ ------ ------
Total Backlog $7,274 $7,756 $6,830
U.S. Government Funded
backlog included above $3,982 $4,519 $4,667
Total debt was $841 million as of July 3, 1994, as compared with $898
million at December 31, 1993 and $801 million at July 4, 1993. Debt as a
percentage of equity was 19.8% at July 3, 1994 as compared with 20.9% at
December 31, 1993 and 19.7% at July 4, 1993. The company believes that
the cash flow from operations will be sufficient to meet the normal
funding requirements of the company in 1994. Lines of credit with certain
commercial banks exist as a standby facility to support the commercial
paper issued by the company. These lines of credit were $850 million at
July 3, 1994. There have been no borrowings under these lines of credit.
Capital expenditures were $129.1 million for the first six months of 1994
as compared with $117.5 million for the first six months of 1993.
During the first six months of 1994 cash flows from operating activities
provided $449.3 million, as compared to $196.0 million provided by
operating activities during the first six months of 1993. The cash flow
from operations was increased during 1994 by the sale of $302.8 million of
commuter airline receivables to a bank syndicate partially offset by lower
trade payables and other accruals. The $449.3 million of cash generated
by operating activities in 1994 was used principally to fund additions to
property, plant and equipment of $129.1 million, pay dividends of $97.3
million, purchase treasury shares of $170.6 million, and to reduce short-
term debt by $55.1 million.
Dividends declared to stockholders during the first six months of 1994
were $97.3 million versus $95.0 million in 1993. Raytheon's board of
directors declared a second quarter dividend of 37.5 cents per share -- an
increase of 2.5 cents per share, or 7%, over the prior quarter's dividend.
Total employment at July 3, 1994 was 60,900, as compared with 63,800 at
December 31, 1993 and 61,400 at July 4, 1993.
Recurring costs associated with the company's environmental compliance
program are not material and are expensed as incurred. Capital
expenditures in connection with environmental compliance are immaterial.
The company is involved in various stages of investigation and cleanup
relative to remediation of various sites. All appropriate costs incurred
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in connection therewith have been expensed. Due to the complexity of
environmental laws and regulations, the varying costs and effectiveness of
alternative cleanup methods and technologies, the uncertainty of insurance
coverage, and the unresolved extent of the company's responsibility, it is
not possible to determine the ultimate outcome of these matters. However,
in the opinion of management, any additional liability will not have a
material effect on the company's financial position or results of
operations after giving effect to amounts already recorded.
PART II. OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
The company's Annual Meeting of Stockholders was held on May
25, 1994. The following directors were elected at the
meeting: Francis H. Burr (104,263,472 votes for; 711,485
withhold authority; 0 abstentions; 0 broker non-votes); Thomas
L. Phillips (104,373,833 votes for; 601,123 withhold
authority; 0 abstentions; 0 broker non-votes); Warren B.
Rudman (103,711,491 votes for; 1,263,465 withhold authority; 0
abstentions; 0 broker non-votes); Joseph J. Sisco (104,319,182
votes for; 655,774 withhold authority; 0 abstentions; 0 broker
non-votes). The following directors continued in office after
the meeting: Charles F. Adams, Max E. Bleck, Ferdinand
Colloredo-Mansfeld, Theodore L. Eliot, Jr., Barbara B.
Hauptfuhrer, Richard D. Hill, James N. Land, Jr., Dennis J.
Picard and Alfred M. Zeien.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
RAYTHEON COMPANY (Registrant)
By: /s/ Sheldon Rutstein
Sheldon Rutstein
Senior Vice President
Chief Financial Officer
DATE: August 15, 1994
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