PAGE 1
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 April 2, 1995
/ / 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
Incorporation or Organization) (I.R.S. Employer 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 subject to such filing requirements
for the past 90 days. Yes x No
---- ----<PAGE>
PAGE 2
NUMBER OF COMMON SHARES OUTSTANDING AT APRIL 2, 1995: 123,090,000<PAGE>
PAGE 3
RAYTHEON COMPANY AND SUBSIDIARIES CONSOLIDATED
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
RAYTHEON COMPANY AND SUBSIDIARIES CONSOLIDATED
----------------------------------------------
BALANCE SHEETS (Unaudited)
April 2, 1995 Dec. 31, 1994
------------- -------------
(In thousands)
ASSETS
Cash and marketable securities $ 193,467 $ 202,181
Accounts receivable 960,011 976,278
Federal and foreign income taxes
including deferred 95,865 165,615
Contracts in process, less progress
payments 2,052,865 1,951,270
Inventories 1,722,510 1,499,458
Prepaid expenses 183,476 190,689
---------- ----------
Total current assets 5,208,194 4,985,491
Property, plant and equipment, net 1,362,494 1,360,780
Other assets 1,103,367 1,049,123
---------- ----------
$7,674,055 $7,395,394
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable and current portion
of long-term debt $1,404,741 $1,033,081
Accounts payable 788,570 894,911
Advance payments, less contracts in
process 355,181 466,448
Accrued expenses 887,212 888,625
---------- ----------
Total current liabilities 3,435,704 3,283,065
Non-current pension liability 25,068 25,068
Federal and foreign income taxes,
including deferred 134,571 134,571
Long-term debt 24,152 24,522
Stockholders' equity 4,054,560 3,928,168
---------- ----------
$7,674,055 $7,395,394
========== ==========
The accompanying notes are an integral part of the financial statements.<PAGE>
PAGE 4
RAYTHEON COMPANY AND SUBSIDIARIES CONSOLIDATED
---------------------------------------------
STATEMENTS OF INCOME (Unaudited)
Three Months Ended
April 2, 1995 April 3, 1994
------------- -------------
(In thousands, except per share data)
Net sales $2,387,116 $2,314,471
---------- ----------
Cost of sales 1,825 555 1,796,549
Administrative and selling expenses 230,345 213,601
Research and development expenses 75,065 61,387
Restructuring provision - 249,751
---------- ----------
Total operating expenses 2,130,965 2,321,288
---------- ----------
Operating income 256,151 (6,817)
---------- ----------
Interest expense 22,678 10,508
Interest and dividend income (8,503) (17,275)
Other (income) expense, net (23,838) (6,996)
---------- ----------
Non-operating (income) expense, net (9,663) (13,763)
---------- ----------
Income before taxes 265,814 6,946
Federal and foreign income taxes 91,878 (20)
---------- ----------
Net income $ 173,936 $ 6,966
=========== ===========
Earnings per common share $1.41 $ .05
Average number of common shares
outstanding during period 123,171 135,141
Dividends declared per common share $.375 $.35
The accompanying notes are an integral part of the financial statements.<PAGE>
PAGE 5
RAYTHEON COMPANY AND SUBSIDIARIES CONSOLIDATED
----------------------------------------------
STATEMENTS OF CASH FLOWS (Unaudited)
Three Months Ended
April 2, 1995 April 3, 1994
------------- -------------
(In thousands)
Cash flows from operating activities
Net income $173,936 $ 6,966
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation 65,377 69,156
Restructuring provision - 249,751
Other adjustments, net of the effect
of acquired companies (376,601) (162,302)
-------- --------
Net cash provided (used) in operating activities (137,288) 163,571
-------- --------
Cash flows from investing activities
Additions to property, plant and equipment (55,423) (68,086)
Payment for purchase of acquired companies,
net of cash acquired (108,052) -
All other, net (18,541) (3,891)
-------- --------
Net cash used in investing activities (182,016) (71,977)
-------- --------
Cash flows from financing activities
Change in short-term debt 371,660 (61,766)
Dividends (46,215) (47,221)
Purchase of treasury shares (35,771) (39,666)
Proceeds under common stock plans 20,382 15,646
All other, net 300 (1,808)
-------- --------
Net cash provided (used) by financing activities 310,356 (134,815)
-------- --------
Effect of foreign exchange rates on cash 963 (269)
-------- --------
Net decrease in cash and cash equivalents (7,985) (43,490)
Cash and cash equivalents at beginning
of year 200,938 190,121
-------- --------
Cash and cash equivalents at end of period $192,953 $146,631
======== ========
The accompanying notes are an integral part of the financial statements.<PAGE>
PAGE 6
RAYTHEON COMPANY AND SUBSIDIARIES CONSOLIDATED
----------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(1) Details of certain balance sheet accounts are as follows:
April 2, 1995 Dec. 31, 1994
------------- -------------
(In thousands)
Cash and marketable securities
Cash and cash equivalents $ 192,953 $ 200,938
Marketable securities 514 1,243
---------- ----------
Total cash and marketable securities $ 193,467 $ 202,181
========== ==========
Inventories
Finished goods $ 869,727 $ 666,654
Work in process 620,399 632,390
Materials and purchased parts 411,812 379,842
Excess of current cost over LIFO values (179,428) (179,428)
---------- ----------
Total inventories $1,722,510 $1,499,458
========== ==========
Property, plant and equipment
At cost $3,746,716 $3,691,001
Accumulated depreciation and
amortization (2,384,222) (2,330,221)
---------- ----------
Net property, plant and equipment $1,362,494 $1,360,780
========== ==========
Stockholders' equity
Preferred stock, no outstanding shares $ - $ -
Common stock, outstanding shares 123,090 123,322
Additional paid-in capital 351,401 332,790
Equity adjustments 4,597 (9,463)
Retained earnings 3,575,472 3,481,519
---------- ----------
Total stockholders' equity $4,054,560 $3,928,168
========== ==========
(2) The company recorded in the first quarter of 1994 a restructuring
provision of $249.8 million before tax. The restructuring was
driven by the significant reductions in the defense budget and
increasing commercial competition. Approximately 65 percent of
the restructuring costs are attributable to Raytheon's defense
business and the remainder to its commercial business. The
company-wide plan will result in personnel reductions of
approximately 4,400 people, including both salaried and
bargaining unit employees located in Massachusetts and other
states and in foreign locations. The restructuring provision
includes estimated costs for employee severance and other
benefits of $91 million, asset write-downs of $23 million and<PAGE>
PAGE 7
idle facility-related costs of $136 million. Cash flow
expenditures, net of tax recovery of $87 million, were $67
million in 1994 and will be $32 million in 1995 and are funded by
the company's cash flow from operating activities. The
restructuring plan, when fully implemented, will result in annual
savings of $280 million, which will help the company's
competitive position in a shrinking defense market and improve
productivity in its commercial businesses. During the first
quarter of 1995 the company concluded that certain originally
approved actions would not be implemented due to a revision in
the restructuring plan for the Electronics segment. The revised
plan includes additional actions for the consolidation of the
defense-related business and funds available from the original
restructuring were allocated to the additional actions with no
change to the original provision of $249.8 million. Through the
first quarter of 1995 $129.2 million of restructuring costs has
been incurred, of which $42.4 million was employee related costs
and $86.8 million was related principally to asset disposals and
idle facilities. Additionally, 3,600 employees have been
notified of termination of which 2,800 have actually been
terminated. The spending is expected to be essentially completed
by the end of 1995.
(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.
First Quarter 1995 versus 1994
-------------------------------
Raytheon Company reported record first quarter earnings of $173.9 million
on record sales of $2.387 billion, driven by the strength of its commercial
business. Earnings per share increased 12.8 percent to $1.41, also a first
quarter record. In 1994's first quarter, earnings were $169.3 million and
earnings per share were $1.25, excluding a special charge of $162.3
million, or $1.20 per share, related primarily to the restructuring of
defense operations. First quarter sales in 1994 were $2.314 billion.
Raytheon's commercial sector led the company to its best first quarter in
history, offsetting lower defense-related sales and earnings.
The company's total backlog at the end of the quarter was $8.157 billion
and was 10.5 percent higher than the backlog at the end of the first
quarter of 1994. The backlog increase was led by the Engineering and
Construction segment which recorded three major power projects during the
quarter, increasing its backlog by 23.9 percent over the 1994 first
quarter.<PAGE>
PAGE 8
The Engineering and Construction segment, with worldwide operations, had
record first quarter profits, due primarily to improved margins on foreign
contracts. Sales were lower than 1994 due primarily to the timing of key
international and domestic turnkey projects.
The Aircraft segment headquartered in Wichita, Kansas and Little Rock,
Arkansas, had record first quarter sales and profits, resulting from
increased deliveries of regional aircraft, King Air jetprops and Hawker
special mission aircraft.
The Appliance segment, headquartered in Amana, Iowa had record first
quarter sales and increased profits due principally to increased shipments
of commercial laundry products from the recently acquired Unimac product
line.
In the Electronics segment, Raytheon Marine, headquartered in Manchester,
N.H., had strong sales and profits led by shipments of recreational boating
products and by the acquisition of Anschuetz, a Germany-based marine
electronics company with high-seas products that complement Raytheon's
existing marine electronics line.
Sales and profits were lower in government electronics due to the decline
in defense spending and increased competition, which resulted in lower
sales and profits for the Electronics segment. The company continued its
efforts to reduce costs, including the previously reported consolidation of
all of its defense related business units into the Raytheon Electronics
Systems Division, as announced on January 17. The company also continued
to work with state and local officials, utility executives and employees in
Massachusetts to address the state's competitive disadvantage in
manufacturing, including areas such as state tax policy and energy.
Sales to the U.S. government were $875 million in the first quarter of
1995, a decrease of $189 million or 17.8 percent from the comparable
quarter of 1994.
U. S. government sales were 36.7 percent of consolidated net sales in 1995
compared with 46.0 percent in 1994. Commercial sales to U.S. customers
increased to $958 million or 40.1 percent of consolidated sales from the
$893 or 38.6 percent reported in 1994. Sales to customers outside the
United States were $554 million or 23.2 percent of consolidated sales
versus $357 million or 15.4 percent reported in 1994.
Operating income was $256.2 million or 10.7 percent of sales versus $242.9
million or 10.5 percent of sales in 1994. The 1994 results exclude the
effect of the restructuring provision which is discussed below. The
operating income for 1994 after the restructuring provision was a loss of
$6.8 million or .3 percent of sales.
The company recorded in the first quarter of 1994 a restructuring provision
of $249.8 million before tax. The restructuring was driven by the
significant reductions in the defense budget and increasing commercial
competition. Approximately 65 percent of the restructuring costs are<PAGE>
PAGE 9
attributable to Raytheon's defense business and the remainder to its
commercial business. The company-wide plan will result in personnel
reductions of approximately 4,400 people, including both salaried and
bargaining unit employees located in Massachusetts and other states and in
foreign locations. The restructuring provision includes estimated costs
for employee severance, and other benefits of $91 million, asset write-
downs of $23 million and idle facility-related costs of $136 million. Cash
flow expenditures, net of tax recovery of $87 million, were $67 million in
1994 and will be $32 million in 1995 and are funded by the company's cash
flow from operating activities. The restructuring plan, when fully
implemented, will result in annual savings of $280 million, which will help
the company's competitive position in a shrinking defense market and
improve productivity in its commercial businesses. During the first
quarter of 1995 the company concluded that certain originally approved
actions would not be implemented due to a revision in the restructuring
plan for the Electronics segment. The revised plan includes additional
actions for the consolidation of the defense-related business and funds
available from the original restructuring were allocated to the additional
actions with no change to the original provision of $249.8 million.
Through the first quarter of 1995 $129.2 million of restructuring costs has
been incurred, of which $42.4 million was employee related costs and $86.8
million was related principally to asset disposals and idle facilities.
Additionally, 3,600 employees have been notified of termination of which
2,800 have actually been terminated. The spending is expected to be
essentially completed by the end of 1995.
Interest expense for 1995 increased to $22.7 million from $10.5 million in
1994. The increase is due principally to higher interest rates for
commercial paper.
Interest and dividend income for 1995 declined to $8.5 million from $17.3
million in 1994. The 1994 results included an interest payment received on
a federal income tax refund.
Other income (net) for 1995 increased to $23.8 million from $7.0 million in
1994. The increase is due to a gain on the sale of stock held as an
investment.
The 1995 tax rate reflects the statutory rate of 35% reduced by foreign tax
credits.
For reasons discussed above, net income increased by $4.6 million or 2.7
percent from 1994 excluding the effect of the 1994 restructuring provision.
The net income for 1994 after the restructuring provision was $7.0 million.
Earnings per common share increased 12.8 percent to $1.41 for the first
quarter of 1995 from $1.25 for the first quarter of 1994 excluding the 1994
restructuring provision. The 1994 earnings per share were $.05 after the
restructuring provision of $1.20 per share. The average number of shares
outstanding during the first quarter of 1995 was 123.2 million versus 135.1
million in 1994. During the quarter outstanding shares were increased by
293,000 due to the exercise of employee stock options. The company also<PAGE>
PAGE 10
acquired 525,000 treasury shares at a cost of $35.8 million.
On February 23, 1994 the Board of Directors authorized the repurchase of up
to 12 million shares of the company's common stock. In 1994, 11.7 million
shares were purchased under this authorization and the balance were
purchased during the first quarter of 1995.
On February 22, 1995 the Board of Directors authorized the repurchase of up
to 6 million shares of the company's common stock. The company will
repurchase shares in the open market from time to time as conditions
warrant.
The book value of common shares outstanding at the end of the period was
$32.94, as compared with $31.85 at December 31, 1994 and $31.38 at April 3,
1994.
Backlog consisted of the following at:
April 2, Dec. 31, April 3,
1995 1994 1994
(In millions)
Electronics $5,028 $5,311 $4,660
Engineering and Construction 1,967 1,522 1,588
Aircraft 1,126 1,203 1,085
Major Appliances 36 34 47
------ ------ ------
Total Backlog $8,157 $8,070 $7,380
U.S. government funded
backlog included above $3,438 $3,641 $4,377
During the first quarter of 1995 there was a negative cash flow from
operations of $137.3 million due to increased commercial inventories,
higher contracts in process balances at both government and commercial
businesses and a lower level of advance payments principally on foreign
contracts, partially offset by net income and depreciation. During the
quarter funds were used for additions to property, plant and equipment of
$55.4 million, for acquired companies of $108.1 million and for dividends
of $46.2 million. As a result of the above, short-term debt increased by
$371.7 million. The company expects to reduce commercial inventories and
contracts in process levels over the balance of 1995 through increased
sales and cost control efforts.
Inventories increased to $1,722.5 million at April 2, 1995 from $1,499.5
million at December 31, 1994 due principally to increased commercial
inventories at the Aircraft and Major Appliances segments.
Federal and foreign income taxes declined to $95.9 million at April 2, 1995
from $165.6 million at December 31, 1994 due to the timing of federal
income tax payments.
Advance payments, less contracts in process, declined to $355.2 million at
April 2, 1995 from $466.4 million at December 31, 1994 due to lower levels<PAGE>
PAGE 11
of advance payments at the Electronics and Engineering and Construction
segments.
Debt, net of cash and marketable securities, was $1,236 million at April 2,
1995 as compared with $855 million at December 31, 1994 and $687 million at
April 3, 1994. Net debt as a percentage of equity was 30.5 percent at
April 2, 1995 as compared with 21.8 percent at December 31, 1994 and 16.2
percent at April 3, 1994. The company expects that the cash flow from
operations and available debt financing will be sufficient to meet its
funding requirements in 1995.
Capital expenditures were $55.4 million for the first quarter of 1995
versus $68.1 million in the first quarter of 1994. Capital expenditures
for the year 1995 are expected to be slightly above the 1994 level.
Dividends declared to stockholders during the first quarter of 1995 were
$46.2 million versus $47.2 million in 1994. The dividend rate in the first
quarter of 1995 was $.375 per common share versus $.35 in the first quarter
of 1994.
Total employment was 60,500 at April 2, 1995, as compared with 60,200 at
December 31, 1994 and 62,200 at April 3, 1994.
During the first quarter of 1995 the company completed a previously
announced acquisition of the marine navigation business of Anschuetz & Co,
GmbH. Anschuetz, located in Kiel, Germany, is one of the world's leading
manufacturers of gyro compasses, autopilots and steering control systems
for the commercial and military marine market. Anschuetz has become part
of Raytheon Marine Company.
Shortly after the close of the first quarter of 1995, the company announced
a cash tender offer to combine Raytheon and E-Systems, a successful,
growing company in the defense and government electronics business with
1994 sales of approximately $2 billion and a record year-end backlog in
excess of $2.6 billion. Headquartered in Dallas, E-Systems has
approximately 16,000 employees. The transaction, valued at approximately
$2.3 billion, was completed on April 28, 1995 and the financial results of
E-Systems will be consolidated with Raytheon commencing in the second
quarter of 1995. The acquisition will be financed through a combination of
short-term, medium-term and long-term financing. The combination of E-
Systems and Raytheon creates a company with over $12 billion in annualized
revenues. This combination is expected to providee a small increase in
Raytheon's earnings per share in 1995 based on increased E-Systems' sales
volume from its record order backlog at the end of the first quarter of
1995 and growth synergies from the combination with Raytheon, and an
increasingly positive contribution to earnings per share thereafter. The
combination is consistent with Raytheon's strategy to remain a strong
diversified commercial company and a top tier competitor in defense.
The unaudited financial statements of E-Systems and the unaudited pro-forma
combined condensed financial statements for Raytheon and E-Systems for the
three month periods ending April 2, 1995 and April 3, 1994 in accordance<PAGE>
PAGE 12
with the provisions of Accounting Principles Board opinion number 16 on
business combinations are set forth on pages 11-26.
The company enters into interest rate and foreign currency interest rate
swap agreements with commercial banks to reduce the impact of changes in
interest rates and foreign exchange rates on financing arrangements with
customers and foreign subsidiaries. The company meets its working capital
requirements mainly with variable rate short-term financing. Interest rate
swaps are used to provide purchasers of the company's products with fixed
financing terms over extended time periods. Cross-currency interest rate
swaps have allowed the company's foreign subsidiaries to meet borrowing
needs at lower interest rates compared to local borrowing. The company
also enters into foreign exchange forward contracts to minimize
fluctuations in the value of payments due to international vendors and the
value of foreign currency denominated receipts. The hedges used by the
company are directly related to a particular asset, liability or
transaction for which a firm commitment is in place. Swaps and foreign
exchange contracts are held to maturity and no exchange traded or over-the-
counter instruments have been purchased. The impact on the financial
position, liquidity, and results of operations from likely changes in
foreign exchange and interest rates is immaterial due to the minimizing of
risk through the hedging of transactions related to specific assets,
liabilities or commitments.
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
difficult 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, liquidity, or results
of operations after giving effect to amounts already recorded.<PAGE>
PAGE 13
FINANCIAL STATEMENTS
(UNAUDITED)
E-SYSTEMS, INC. and SUBSIDIARIES
Statement of Consolidated Income
Three Months Ended March 31, 1995 and March 31, 1994
(Amounts in Thousands)
Three Months Ended
March 31, 1995 March 31, 1994
----------------------------------------------------------------------
Net Sales $514,647 $495,129
Other Income 1,289 1,028
-------- --------
515,936 496,157
Costs and Expenses
Contract and manufacturing
costs, selling, general and
administrative expense 470,717 453,692
Interest expense 706 512
-------- --------
471,423 454,204
Income before federal
income taxes 44,513 41,953
Provision for taxes on income -
Note B 15,134 13,844
-------- --------
NET INCOME $ 29,379 $ 28,109
======== ========
Earnings Per Share $ 0.85 $ 0.82
======== ========
Dividends Per Share $0.375 $0.300
======== ========<PAGE>
PAGE 14
E-SYSTEMS, INC. and SUBSIDIARIES
Consolidated Balance Sheet
(Amounts in Thousands)
ASSETS March 31, 1995 Dec. 31, 1994
-----------------------------------------------------------------------
CURRENT ASSETS
Cash and cash equivalents $ 62,655 $ 24,401
Accounts receivable 421,966 438,205
Unreimbursed costs and fees under
cost-plus-fee contracts 206,690 186,855
Fixed-price contracts:
Fixed-price contracts in progress 85,812 83,903
Less progress and advance payments 13,533 11,802
---------- ----------
72,279 72,101
Raw materials and purchased parts 53,015 40,272
Prepaid expenses and other assets 17,264 18,877
---------- ----------
TOTAL CURRENT ASSETS 833,869 780,711
OTHER ASSETS
Prepaid pension costs 38,611 34,485
Deferred charges and other 76,242 69,022
Deferred federal income taxes 70,246 72,160
Costs in excess of net
assets acquired 99,245 101,962
---------- ----------
284,344 277,629
PROPERTY, PLANT AND EQUIPMENT 543,050 531,570
Less allowances for depreciation 222,257 215,743
---------- ----------
320,793 315,827
---------- ----------
$1,439,006 $1,374,167
========== ==========<PAGE>
PAGE 15
LIABILITIES AND
STOCKHOLDERS' EQUITY March 31, 1995 Dec. 31, 1994
--------------------------------------------------------------------------
CURRENT LIABILITIES
Accounts payable $ 77,454 $ 95,316
Accrued liabilities 137,944 92,065
Short-term obligations and current
portion of long-term debt 13,825 9,517
Federal income taxes payable 13,613 --
---------- ---------
TOTAL CURRENT LIABILITIES 242,836 196,898
LONG-TERM DEBT
Notes payable 4,454 3,769
Installment lease obligations 6,337 6,346
---------- ---------
10,791 10,115
DEFERRED ITEMS
Retiree health care and life
insurance benefits 283,161 284,227
Other deferred items 42,522 46,298
---------- ---------
325,683 330,525
STOCKHOLDERS' EQUlTY
Common stock, par value $1.00
Authorized 50,OOO,OOO shares;
issued and outstanding 34,180,685
shares in 1995 and 34,071,113
shares in 1994. 34,181 34,071
Additional capital 182,269 178,810
Retained earnings 643,246 623,748
---------- ----------
859,696 836,629
---------- ----------
$1,439,006 $1,374,167
========== ==========<PAGE>
PAGE 16
Note A -- Basis of Presentation
The accompanying unaudited consolidated condensed financial statements have
been prepared in accordance with the instructions to Form 10-Q and
therefore do not include all information and notes necessary for a fair
presentation of financial position, results of operations, and cash flows
in conformity with generally accepted accounting principles. In the opinion
of management, all adjustments necessary for a fair presentation of the
results of the interim period have been made and are of a normal, recurring
nature.
Note B -- Federal Income Taxes
The effective income tax rate for the first three months of 1995 and 1994
is less than the statutory rate due to the tax effect of income excluded
under Foreign Sales Corporation tax regulations and the tax benefit of
certain ESOP dividends.
Note C -- Earnings Per Share
Earnings per share is computed based on the sum of the average outstanding
common shares and common equivalent shares (Quarter ended March 31, 1995
and March 31, 1994, 34,504,000 and 34;425,000, respectively.
Note D -- Contingencies
There have been no significant changes in the status of contingencies since
December 31, 1994. <PAGE>
PAGE 17
FINANCIAL STATEMENTS
(UNAUDITED)
E-SYSTEMS, INC. and SUBSIDIARIES
Statement of Consolidated Income
Three Months Ended March 31, 1994 and March 31, 1993
(Amounts in Thousands)
Three Months Ended
March 31, 1994 March 31, 1993
----------------------------------------------------------------------
Net Sales $495,129 $531,441
Other Income 1,028 1,480
-------- --------
496,157 532,921
Costs and Expenses
Contract and manufacturing
costs, selling, general and
administrative expense 453,692 489,950
Interest expense 512 2,032
-------- --------
454,204 491,982
Income before federal
income taxes 41,953 40,939
Provision for taxes on income -
Note B 13,844 13,510
-------- --------
NET INCOME $ 28,109 $ 27,429
======== ========
Earnings Per Share $ 0.82 $ 0.81
======== ========
Dividends Per Share $0.300 $0.275
======== ========<PAGE>
PAGE 18
E-SYSTEMS, INC. and SUBSIDIARIES
Consolidated Balance Sheet
(Amounts in Thousands)
ASSETS March 31, 1994 Dec. 31, 1993
-----------------------------------------------------------------------
CURRENT ASSETS
Cash and cash equivalents $ 58,506 $ 32,638
Accounts receivable 435,559 426,404
Unreimbursed costs and fees under
cost-plus-fee contracts 221,022 207,519
Fixed-price contracts:
Fixed-price contracts in progress 80,762 54,644
Less progress and advance payments 20,550 21,580
---------- ----------
60,212 33,064
Raw materials and purchased parts 8,701 11,714
Prepaid expenses and other assets 20,046 38,623
---------- ----------
TOTAL CURRENT ASSETS 804,046 749,962
OTHER ASSETS
Prepaid pension costs 36,296 36,489
Deferred charges and other 59,132 56,653
Deferred federal income taxes 64,874 65,544
Costs in excess of net
assets acquired 61,911 62,401
---------- ----------
222,213 221,087
PROPERTY, PLANT AND EQUIPMENT 499,701 498,454
Less allowances for depreciation 189,561 190,330
---------- ----------
310,140 308,124
---------- ----------
$1,336,399 $1,279,173
========== ==========<PAGE>
PAGE 19
LIABILITIES AND
STOCKHOLDERS' EQUITY March 31, 1994 Dec. 31, 1993
----------------------------------------------------------------------
CURRENT LIABILITIES
Accounts payable $ 75,486 $ 95,316
Accrued liabilities 94,114 92,065
Short-term obligations and current
portion of long-term debt 25,256 9,517
Federal income taxes payable 10,432 --
---------- ---------
TOTAL CURRENT LIABILITIES 205,288 196,898
LONG-TERM DEBT
Notes payable 738 3,769
Installment lease obligations 7,103 6,346
---------- ---------
7,841 10,115
DEFERRED ITEMS
Retiree health care and life
insurance benefits 288,770 284,227
Other deferred items 42,733 46,298
---------- ---------
331,503 330,525
STOCKHOLDERS' EQUlTY
Common stock, par value $1.00
Authorized 50,OOO,OOO shares;
issued and outstanding 34,180,685
shares in 1995 and 34,071,113
shares in 1994. 33,975 34,071
Additional capital 174,814 178,810
Retained earnings 582,978
---------- ----------
791,767 836,629
---------- ----------
$1,336,399 $1,279,173
========== ==========<PAGE>
PAGE 20
Note A -- Basis of Presentation
The accompanying unaudited consolidated condensed financial statements have
been prepared in accordance with the instructions to Form 10-Q and
therefore do not include all information and notes necessary for a fair
presentation of financial position, results of operations, and cash flows
in conformity with generally accepted accounting principles. In the opinion
of management, all adjustments necessary for a fair presentation of the
results of the interim period have been made and are of a normal, recurring
nature. Certain 1993 amounts have been reclassified to conform to the 1994
presentation.
Note B -- Federal Income Taxes
The effective income tax rate for the first three months of 1994 and 1993
is less than the statutory rate due to the tax effect of income excluded
under Foreign Sales Corporation tax regulations and the tax benefit of
certain ESOP dividends.
Note C -- Earnings Per Share
Earnings per share are computed based on the sum of the average outstanding
common shares and common equivalent shares (Quarter ended March 31, 1994
and March 31, 1993, 34,425,000 and 33,705,000, respectively.) Common
equivalent shares assume the exercise of all dilutive stock options.
Primary and fully dilutive earnings per share are essentially the same.
Note D -- Contingencies
There have been no significant changes in the status of contingencies since
December 31, 1993. Refer to Management's Discussion and Analysis for a
discussion of contingencies. <PAGE>
PAGE 21
UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma combined condensed financial
statements have been prepared by the Corporation's management from its
historical consolidated financial statements and from the historical
financial statements of E-Systems, Inc. The unaudited pro forma combined
condensed statements of earnings reflect adjustments as if the Transaction
had occurred on January 1, 1994 and January 1, 1995. The unaudited pro
forma combined condensed balance sheets reflect adjustments as if the
Transaction had occurred on April 3, 1994 and April 2, 1995. See "Note 1 -
- Basis of Presentation." The pro forma adjustments described in the
accompanying notes are based upon preliminary estimates and certain
assumptions that management of the Corporation believes are reasonable in
such circumstances.
The unaudited pro forma combined condensed financial statements should
be read in conjunction with the historical consolidated financial
statements of the Corporation and the related notes thereto. The unaudited
pro forma combined condensed financial statements should also be read in
conjunction with the historical financial statements of E-Systems, Inc. and
the related notes thereto.
The unaudited pro forma combined condensed financial statements are not
necessarily indicative of what the financial position or results of
operations actually would have been if the Transaction had occurred on the
applicable date indicated. Moreover, they are not intended to be
indicative of future results of operations or financial position.
The combination of Raytheon and E-Systems creates a company with over
$12 billion in annualized revenues. This combination is expected to
provide a small increase in Raytheon's earnings per share in 1995 based on
increased E-Systems sales volume from its record order backlog at the end
of the first quarter of 1995 and growth synergies from the combination with
Raytheon, and an increasingly positive contribution to earnings per share
thereafter. The combination is consistent with Raytheon's strategy to
remain a strong diversified commercial company...and a top tier competitor
in defense.<PAGE>
PAGE 22
Raytheon Company
Computation of Ratio of Earnings to Fixed Charges
(Dollar Amounts in Thousands)
Three Months Ended
Description April 2, 1995
----------- ------------------
Income before taxes per
statement of income $265,814
Add:
Portion of rents representative of
the interest factor 8,782
Interest on indebtedness 22,678
Amortization of debt
expense and premium 33
--------
Income as adjusted $297,307
========
Fixed charges:
Portion of rents representative of
the interest factor $ 8,782
Interest on indebtedness 22,678
Capitalized interest 403
Amortization of debt
expense and premium 33
--------
Fixed charges $ 31,896
========
Ratio of earnings to
fixed charges 9.3
========<PAGE>
PAGE 23
Unaudited Pro Forma Combined Condensed Statement of Earnings
For the months ended April 3, 1994
Pro-Forma Pro Forma
Raytheon E-Systems Adjustments Combined
(In millions, except per share data)
Net sales $2,314 $496 $ $2,810
Cost of sales 1,796 391 (1) (2c) 2,181
Admin. and selling expenses 214 46 (5) (2d) 260
Research and development expenses 61 17 78
Restructuring provision 250 250
------ ---- --- ------
Operating income (7) 42 6 41
Interest income, net 7 7
Acquisition interest expense 32 (2e) 32
Amortization of acquisition goodwill 10 (2f) 10
Other income 7 7
------ ---- --- ------
Income before tax 7 42 (36) 13
Federal and foreign income taxes 14 (9) (2g) 5
------ ---- --- ------
Net income $ 7 $ 28 $(27) $ 8
Earnings per common share
Outstanding shares $ .05 $ .06
Fully diluted $ .04 $ .06
Average common shares
Outstanding 135.1 135.1
Fully diluted 136.2 136.2<PAGE>
PAGE 24
Unaudited Pro Forma Combined Condensed Statement of Earnings
For the months ended April 2, 1995
Pro-Forma Pro Forma
Raytheon E-Systems Adjustments Combined
(In millions, except per share data)
Net sales $2,387 $516 $ $2,903
Cost of sales 1,826 404 (1) (2c) 2,224
Admin. and selling expenses 230 51 (5) (2d) 281
Research and development expenses 75 16 91
------ ---- --- ------
Operating income 256 45 6 307
Interest expense, net 14 1 15
Acquisition interest expense 35 (2e) 35
Amortization of acquisition goodwill 10 (2f) 10
Other income 24 24
------ ---- --- ------
Income before tax 266 44 (39) 271
Federal and foreign income taxes 92 15 (11) (2g) 96
------ ---- --- ------
Net income $ 174 $ 29 $(28) $ 175
Earnings per common share
Outstanding shares $ 1.41 $ 1.41
Fully diluted $ 1.40 $ 1.40
Average common shares
Outstanding 123.2 123.2
Fully diluted 124.4 124.4
<PAGE>
PAGE 25
Unaudited Pro Forma Combined Condensed Balance Sheet
As of April 2, 1995
Pro-Forma Pro Forma
Raytheon E-Systems Adjustments Combined
(In millions)
Assets
Current assets
Cash and marketable securities $ 193 $ 63 $ (63) (2b) $ 193
Accounts receivable 960 960
Contracts in process 2,053 754 (124) (2d) 2,683
Inventories 1,723 1,723
Other 279 17 296
----- ------ ---- -----
Total Current assets 5,208 834 (187) 5,855
Property, plant and equipment, net 1,363 321 (8) (2b) 1,676
Costs in excess of net assets acq. 99 (99) (2b) 1,680
1,680 (2b)
Other assets 1,103 185 (7) (2b) 1,322
(39) (2b)
80 (2b)
------ ------ ------ -------
Total assets $7,674 $1,439 $1,420 $10,533
====== ====== ====== =======
Liabilities and stockholders equity
Current liabilities
Notes payable and current portion
of long term debt $1,405 $ 14 $ 700 (2b) $ 2,119
Advance payments 355 355
Accounts payable 789 77 866
Other 887 152 49 (2b) 1,088
------ ------ ------ -------
Total Current liabilities $3,436 243 749 4,428
Long term debt 24 4 1,492 (2b) 1,520
Other 159 332 84 (2b) 530
(45) (2b)
Stockholders equity 4,055 860 (860) 4,055
------ ------ ------ -------
$7,674 $1,439 $1,420 $10,533
====== ====== ====== =======<PAGE>
PAGE 26
Unaudited Pro Forma Combined Condensed Balance Sheet
As of April 3, 1994
Pro-Forma Pro Forma
Raytheon E-Systems Adjustments Combined
(In millions)
Assets
Current assets
Cash and marketable securities $ 147 $ 59 $ (59) (2b) $ 147
Accounts receivable 672 672
Contracts in process 2,048 725 (100) (2d) 2,673
Inventories 1,581 1,581
Other 178 20 198
------ ------ ----- -----
Total Current assets 4,626 804 (159) 5,271
Property, plant and equipment, net 1,405 310 (8) (2b) 1,707
Costs in excess of net assets acq. 62 (62) (2b) 1,684
1,684 (2b)
Other assets 1,233 160 (7) (2b) 1,430
(36) (2b)
80 (2b)
------ ------ ------ -------
Total assets $7,264 $1,336 $1,492 $10,092
====== ====== ====== =======
Liabilities and stockholders equity
Current liabilities
Notes payable and current portion
of long term debt $ 811 $ 25 $ 700 (2b) $ 1,536
Advance payments 413 413
Accounts payable 693 75 768
Other 1,065 105 49 (2b) 1,219
------ ---- ---- -------
Total Current liabilities 2,982 205 749 3,936
Long term debt 23 1,496 (2b) 1,519
Other 26 339 84 (2b) 404
(45) (2b)
Stockholders equity 4,233 792 (792) 4,233
------ ------ ------ -------
$7,264 $1,336 $1,492 $10,092
====== ====== ====== =======<PAGE>
PAGE 27
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited pro forma combined condensed statements of
earnings presents the historical results of operations of the Corporation
and E-Systems, Inc. for the period ended April 2, 1995, and April 3, 1994,
with pro forma adjustments as if the Transaction had taken place on January
1, 1995 and January 1, 1994, respectively. The unaudited pro forma
combined condensed balance sheets present the historical balance sheets of
the Corporation and E-Systems, Inc. as of April 2, 1995 and April 3, 1994,
respectively in a transaction accounted for as a purchase in accordance
with generally accepted accounting principles.
Certain reclassifications have been made to the historical financial
statements of the Corpration and E-Systems, Inc. to conform to the pro
forma combined condensed financial statement presentation on a consistent
basis.
2. PRO FORMA ADJUSTMENTS
The following adjustments give pro forma effect to the Transaction
(Dollars in Millions, except per share data):
(a) To record the Exchange Consideration at closing:
(Assumed financing $700 million, $1,492 million medium
and long term notes at a blended rate of 6.25% for the
period ending April 2, 1995 and assumed financing $700
million, $1,496 million medium and long term notes at a
blended rate of 5.5% for the period ended April 3,
1994.
At April 2, At April 3,
1995 1994
----------- -----------
Purchase Price $2,348 $2,348
Less: Cash acquired with acquisition (63) (59)
Cash received from exercise of
stock options (93) (93)
------ ------
Net financing $2,192 $2,196
(b) To adjust the assets and liabilities to
their estimated fair values:
Net assets of E-Systems, Inc. $ 860 $ 792
Cash used for financing (63) (59)
Contracts in process valuation adjustments (124) (100)
Writedown of real estate to fair market value (8) (8)
Writedown of other assets to realizable value (7) (7)
Establish pension liability (84) (84)
Provision for the est. costs of
integrating oper. (10) (10)
Provision for legal contingencies (4) (4)<PAGE>
PAGE 28
Deferred tax benefits 80 80
Costs in excess of net assets of
acquired bus. 1,680 1,684
Adjust liability for post retirement
benefits other than pensions 45 45
Eliminate prepaid pension expense (39) (36)
Acquisition costs (35) (35)
E-Systems, Inc. goodwill (99) (62)
------ ------
$2,192 $2,196
(c) Adjustment to eliminate the amortization of intangible assets of
E-Systems, Inc. which would not have been incurred if the
transaction had occurred on January 1.
(d) Adjustment to reflect the effect on financial results relating to
a net reduction of accumulated contract costs resulting from
valuing acquired contracts in process at contract price, minus
the estimated cost to complete and an allowance for the
Corporation's normal profit on its efforts to complete such
contracts, and other contract valuation adjustments.
(e) Adjustments which represent additional estimated interest expense
resulting from the use of borrowings to finance the transaction.
(f) The amortization of excess of costs over acquired net assets over
an estimated life of 40 years. Such amortization expense is
subject to possible adjustment resulting from the completion of
the valuation analyses. The Corporation expects that any
subsequent adjustment would not materially effect the combined
pro forma results.
(g) The tax effect, using a 35% statutory rate, on the net pro forma
adjustments.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - None
(b) Reports on Form 8-K. On May 9, 1995, the Company filed a Form 8-
K with the Securities and Exchange Commission as a result of the
acquisition of E-Systems, Inc. by RTN Acquisition Corporation, a
wholly owned subsidiary of the Company.
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)<PAGE>
PAGE 29
/s/ Peter R. D'Angelo
By: Peter R. D'Angelo
Executive Vice President
Chief Financial Officer
May 17, 1995<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> APR-02-1995
<CASH> 192,952
<SECURITIES> 515
<RECEIVABLES> 960,011
<ALLOWANCES> 0
<INVENTORY> 1,722,510
<CURRENT-ASSETS> 5,208,194
<PP&E> 3,703,975
<DEPRECIATION> (2,377,334)
<TOTAL-ASSETS> 7,674,055
<CURRENT-LIABILITIES> 3,435,704
<BONDS> 0
<COMMON> 123,090
0
0
<OTHER-SE> 3,931,470
<TOTAL-LIABILITY-AND-EQUITY> 7,674,055
<SALES> 2,387,116
<TOTAL-REVENUES> 2,387,116
<CGS> 1,825,555
<TOTAL-COSTS> 1,825,555
<OTHER-EXPENSES> 75,065
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 22,678
<INCOME-PRETAX> 265,814
<INCOME-TAX> 91,878
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 173,936
<EPS-PRIMARY> 1.41
<EPS-DILUTED> 0
</TABLE>
