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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
/X/ Quarterly Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended April 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 (I.R.S. Employer
of Incorporation or Organization) Identification No.)
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
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subject to such filing requirements for the past 90 days.
Yes.x.. No...
NUMBER OF COMMON SHARES OUTSTANDING AT APRIL 3, 1994: 134,896,000
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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)
Apr. 3, 1994 Dec. 31, 1993
------------- -------------
(In thousands)
ASSETS
Cash and marketable securities $ 146,739 $ 190,231
Accounts receivable 672,228 727,713
Contracts in process, less progress
payments 2,048,045 2,024,145
Inventories 1,580,553 1,500,393
Prepaid expenses 178,345 166,761
---------- ----------
Total current assets 4,625,910 4,609,243
Property, plant and equipment, net 1,404,678 1,422,086
Other assets 1,232,989 1,226,383
---------- ----------
$7,263,577 $7,257,712
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes and accounts payable $1,504,404 $1,688,363
Advance payments, less contracts in
process 412,885 376,097
Accrued expenses 968,321 731,848
Federal and foreign income taxes,
including deferred 96,387 113,472
---------- ----------
Total current liabilities 2,981,997 2,909,780
Non-current pension liability 25,696 25,696
Long-term debt 22,568 24,376
Stockholders' equity 4,233,316 4,297,860
---------- ----------
$7,263,577 $7,257,712
========== ==========
The accompanying notes are an integral part of the financial statements.
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RAYTHEON COMPANY AND SUBIDIARIES CONSOLIDATED
---------------------------------------------
STATEMENTS OF INCOME (Unaudited)
Three Months Ended
Apr. 3, 1994 Apr. 4, 1993
------------- -------------
(In thousands except per share
data)
Net sales $2,314,471 $2,203,512
---------- ----------
Cost of sales 1,796 549 1,724,535
Administrative and selling expenses 213,601 189,206
Research and development expenses 61,387 78,008
Restructuring provision 249,751 -
---------- ----------
Total operating expenses 2,321,288 1,991,749
---------- ----------
Operating income (6,817) 211,763
---------- ----------
Interest expense 10,508 7,053
Interest and dividend income (17,275) (14,553)
Other (income) expense, net (6,996) (16,013)
---------- ----------
Non-operating (income) expense, net (13,763) (23,513)
---------- ----------
Income before taxes 6,946 235,276
Federal and foreign income taxes (20) 77,761
---------- ----------
Net income $ 6,966 $ 157,515
=========== ===========
Earnings per common share $ .05 $1.16
Average number of common shares
outstanding during period 135,141 135,790
Dividends declared per common share $.35 $.35
The accompanying notes are an integral part of the financial statements.
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RAYTHEON COMPANY AND SUBSIDIARIES CONSOLIDATED
----------------------------------------------
STATEMENTS OF CASH FLOWS (Unaudited)
Three Months Ended
Apr. 3, 1994 Apr. 4, 1993
------------ -------------
(In thousands)
Cash flows from operating activities:
Net income $ 6,966 $157,515
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation 69,156 67,947
Restructuring provision 249,751 -
Other adjustments, net (162,302)
(42,444)
-------- --------
Net cash provided by operating activities 163,571 183,018
-------- --------
Cash flows from investing activities:
Additions to property, plant and equipment (68,086)
(60,754)
All other, net (3,891)
(11,468)
-------- --------
Net cash used in investing activities (71,977)
(72,222)
-------- --------
Cash flows from financing activities:
Change in short-term debt (61,766)
(31,754)
Dividends (47,221)
(47,508)
Purchase of treasury shares (39,666)
(27,223)
Proceeds under common stock plans 15,646 24,642
All other, net (1,808) 626
-------- --------
Net cash used in financing activities (134,815)
(81,217)
-------- --------
Effect of foreign exchange rates on cash (269) 142
-------- --------
Net increase (decrease) in cash and cash
equivalents (43,490) 29,721
Cash and cash equivalents at beginning
of year 190,121 88,730
-------- --------
Cash and cash equivalents at end of
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first quarter $146,631 $118,451
======== ========
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:
April 3, 1994 Dec. 31, 1993
------------- -------------
(In thousands)
Cash and marketable securities
Cash and cash equivalents $ 146,631 $ 190,121
Marketable securities 108 110
---------- ----------
Total cash and marketable
securities $ 146,739 $ 190,231
========== ==========
Inventories
Finished goods $ 701,014 $ 659,436
Work in process 729,979 713,075
Materials and purchased parts 327,357 302,404
Excess of current cost over
LIFO values (177,797) (174,522)
---------- ----------
Total inventories $1,580,553 $1,500,393
========== ==========
Property, plant and equipment
At cost $3,670,293 $3,590,333
Accumulated depreciation
and amortization (2,265,615) (2,168,247)
---------- ----------
Net property, plant and equipment $1,404,678 $1,422,086
========== ==========
Stockholders' equity
Preferred stock, no outstanding shares $ - $ -
Common stock, outstanding shares 134,896 135,214
Additional paid-in capital 342,317 328,489
Equity adjustments (2,369) (2,100)
Retained earnings 3,758,472 3,836,257
---------- ----------
Total stockholders' equity $4,233,316 $4,297,860
========== ==========
(2) During the first quarter of 1994 the company adopted Statement of
Financial Standards No. 112, Employers' Accounting for
Postemployment Benefits, and Statement of Financial Standards No.
115, Accounting for Certain Investments in Debt and Equity
Securities. The adoption of these standards did not have a
material financial impact on the company.
(3) 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, resulting in net income of $7.0 million, or
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$.05 per share. 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 be
implemented over a two-year period and will help maintain the
company's competitive position in a shrinking defense market and
improve productivity in its commercial businesses.
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(4) 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.
First Quarter 1994 Versus 1993
------------------------------
Raytheon Company achieved the best first quarter results in its history,
before special charges related to the restructuring plan announced March
9. The company reported record first quarter earnings of $169.3 million,
or $1.25 share, on record first quarter sales of $2.314 billion. In the
same period last year, net income was $157.5 million, or $1.16 per share,
on sales of $2.204 billion.
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, resulting in net income of $7.0 million, or $.05 per share. The
restructuring was driven by the significant reductions in defense budgets
and increasing commercial competition. Approximately 65% of the
restructuring charges are attributable to Raytheon's defense business and
the remainder to its commercial businesses. The company-wide plan will be
implemented over a two-year period and will help maintain the company's
competitive position in a shrinking defense market and improve
productivity in its commercial businesses.
The operations of our business segments in the first quarter of 1994 are
discussed below. These results exclude the effect of restructuring
charges.
The Energy and Environmental segment reported record sales and profits led
by the improved operating performance of Raytheon Engineers & Constructors
and by the contributions of its EBASCO subsidiary, which was acquired late
in 1993.
Raytheon Engineers & Constructors' performance was driven by continued
strong demand in the electric power plant and petroleum and gas markets
and by improvement in the specialty chemicals and fertilizers market.
The Aircraft Products segment reported record sales and profits based on
increased commercial sales and profits at Beech Aircraft and sales and
profit contributions by Raytheon Corporate Jets, which was acquired in
August 1993.
The Major Appliances segment also reported record sales and strong profit
growth based on increased shipments of cooking, heating and air
conditioning, refrigerator, and laundry products. During the first
quarter, 79% of major appliance sales were from products developed within
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the past 18 months.
Home laundry sales continued their strong performance in the first quarter
increasing 15% over the comparable 1993 period. Commercial laundry sales
were up 14% compared with last year's first quarter largely due to new
DISPLAY (TM) electronic control washers and dryers. The DISPLAY (TM) line
of washers and dryers provides the multi-housing and coin-operated market
with electronic displays and automatic data readout.
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The Electronics segment reported lower sales and profits during the
quarter due to the lower U.S. defense procurement budget and to delays in
the receipt of international government orders.
Sales to the U. S. government were $1.064 billion in the first quarter of
1994, a decrease of $133 million or 11.1% from the comparable quarter of
1993. U. S. government sales were 46.0% of consolidated net sales in 1994
compared with 54.3% in 1993. Commercial sales to U. S. customers
increased to $893 million or 38.6% of consolidated sales from the $656
million or 29.8% reported in 1993. Sales to customers outside the United
States were $357 million or 15.4% of consolidated sales versus $351
million or 15.9% reported in 1993.
Operating income excluding the effect of the restructuring provision was
$242.9 million or 10.5% of sales versus $211.8 million or 9.6% of sales in
1993. The results for 1994 were 14.7% above 1993 due to strong
improvements in operating earnings in the Energy and Environmental,
Aircraft, and Major Appliance segments.
The company recorded in the quarter a restructuring provision of $249.8
million that was previously announced on March 9. Operating income after
the restructuring provision was a loss of $6.8 million or .3% of sales.
The company-wide plan will be implemented over a two-year period and could
ultimately result in personnel reductions of about 4400 people or 7% of
the company's total worldwide population. Key to the plan is the
consolidation of the company's missile manufacturing business in New
England into its Andover, MA facility and the creation of a consolidated
materials center, also located in Andover, that will service the majority
of Raytheon's defense businesses. The consolidation at Andover will
result in the closure of facilities in Lowell, Northboro and Norwood, MA
and the transfer of defense electronics subassembly work from Manchester,
NH to Andover.
The plan also includes restructuring in Raytheon's commercial businesses
worldwide. Beech Aircraft will consolidate its manufacturing facilities
in Wichita, KS, including outfitting of the Hawker 800 and 1000 and the
closing of its Selma, AL facility and transferring its maintenance work to
Little Rock, AR. Raytheon Marine will consolidate its U. S. facilities at
Manchester, NH and its European facilities at Portsmouth, England.
Raytheon Engineers & Constructors will undergo a number of consolidations
including the realignment of certain of its engineering operations and
will draw selected resources from its Denver, Cambridge (MA), Chicago and
Tampa offices to establish an International Center of Operations in
Houston, TX. Cedarapids will consolidate a number of functions including
the support functions of its Standard Havens operation in Kansas City, MO
with those of its headquarters in Cedar Rapids, IA.
The restructuring provision of $249.8 million includes estimated costs for
employee severance and relocation of $71 million, asset write downs of $55
million, moves and rearrangements of $74 million, and idle facility costs
of $50 million. Of the total, $64 million represents non-cash items.
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Cash flow expenditures, net of tax recovery of $87 million, are estimated
at $67 million in 1994 and $32 million in 1995.
Interest expense for 1994 increased to $10.5 million from $7.1 million in
1993. The increase was due principally to a higher level of debt
outstanding.
Other income (net) decreased to $7.0 million in 1994 versus $16.0 million
in 1993. The decrease is due principally to lower license fee income on
foreign missile contracts which is expected to continue at a lower level
than 1993 for the balance of 1994.
The 1994 effective tax rate reflects the statutory rate of 35% reduced by
foreign tax credits.
For the reasons discussed above, income before the restructuring provision
of $162.3 million increased $11.8 million or 7.5% to $169.3 million from
the $157.5 million reported for the first quarter of 1993 and was 7.3% of
net sales in the first quarter of 1994 versus 7.1% for the first quarter
of 1993. Net income was $7.0 million for the first quarter of 1994.
Earnings per common share before the restructuring provision increased
7.8% to $1.25 for the first quarter of 1994 from $1.16 for the first
quarter of 1993. Earnings per common share were $.05 after the
restructuring provision of $1.20 per common share. The average number of
common shares outstanding during the first quarter of 1994 was 135.1
million versus 135.8 million in 1993. During the quarter outstanding
shares were increased by 337,000 due to the exercise of employee stock
options. The company also acquired 614,000 treasury shares at a total
cost of $39.7 million.
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
$31.38 per share, as compared with $31.79 at December 31, 1993 and $29.11
at April 4, 1993.
Backlog consisted of the following at:
April 3, December 31, April 4,
1994 1993 1993
------- ------------ -------
(In millions)
Electronics $4,660 $4,817 $5,706
Aircraft Products 1,085 1,082 978
Energy and Environmental 1,588 1,824 865
Major Appliances 47 33 57
------ ------ ------
Total Backlog $7,380 $7,756 $7,606
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U. S. government funded
backlog included above $4,377 $4,519 $5,223
Total debt was $834 million as of April 3, 1994, as compared with $898
million at December 31, 1993 and $700 million at April 4, 1993. Debt as a
percentage of equity was 19.7% as of April 3, 1994 as compared with 20.9%
at December 31, 1993 and 17.7% at April 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 $1.11 billion at
April 3, 1994. There have been no borrowings under these lines of credit.
Capital expenditures were $68.1 million for the first quarter of 1994 as
compared with $60.8 million for the first quarter of 1993.
During the first quarter of 1994, cash flows from operating activities
provided $163.6 million, as compared to $183.0 million provided by
operating activities during the first quarter of 1993. The $163.6 million
of cash generated by operating activities in 1994 was used to fund
additions to property, plant and equipment of $68.1 million, pay dividends
of $47.2 million and to reduce short-term debt by $61.8 million.
Dividends declared to stockholders during the first quarter of 1994 were
$47.2 million versus $47.5 million in 1993. The dividend rate in both
quarters was $.35 per common share.
Total employment at April 3, 1994 was 62,200, as compared with 63,800 at
December 31, 1993 and 63,300 at April 4, 1993.
During the first quarter of 1994 the company adopted Statement of
Financial Standards No. 112, Employers' Accounting for Postemployment
Benefits, and Statement of Financial Standards No. 115, Accounting for
Certain Investments in Debt and Equity Securities. The financial impact
for the quarter was immaterial as will be the impact for the year.
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
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.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - None
(b) Reports on Form 8-K - None
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)
/s/ Sheldon Rutstein
By: Sheldon Rutstein
Senior Vice President
Chief Financial Officer
DATE: May 17, 1994
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