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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 March 31, 1996
/ / 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 Identification No.)
of 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 MARCH 31, 1996: 239,316,000
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2
RAYTHEON COMPANY AND SUBSIDIARIES CONSOLIDATED
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
RAYTHEON COMPANY AND SUBSIDIARIES CONSOLIDATED
BALANCE SHEETS (UNAUDITED)
March 31, 1996 Dec. 31, 1995
-------------- -------------
(In thousands)
ASSETS
Cash and marketable securities .......... $ 182,732 $ 210,284
Accounts receivable ..................... 902,717 926,800
Federal and foreign income taxes,
including deferred .................... 155,168 196,711
Contracts in process, less progress
payments ................................. 2,427,926 2,212,689
Inventories ................................ 1,623,756 1,502,983
Prepaid expenses ........................... 217,646 225,751
----------- -----------
Total current assets............. 5,509,945 5,275,218
Property, plant and equipment, net ....... 1,601,853 1,584,035
Other assets, net ........................ 3,146,089 2,981,691
----------- -----------
$10,257,887 $ 9,840,944
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable and current portion
of long-term debt .........................$ 1,706,808 $ 1,216,039
Accounts payable ............................ 950,746 1,041,848
Advance payments, less contracts in
process ................................... 347,829 343,470
Accrued expenses ............................ 1,053,106 1,089,066
----------- -----------
Total current liabilities ....... 4,058,489 3,690,423
Accrued retiree benefits ................. 264,759 270,025
Federal and foreign income taxes,
including deferred ..................... 100,797 100,797
Long-term debt ........................... 1,487,089 1,487,735
Stockholders' equity ..................... 4,346,753 4,291,964
----------- -----------
$10,257,887 $ 9,840,944
=========== ===========
The accompanying notes are an integral part of the financial statements.
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RAYTHEON COMPANY AND SUBSIDIARIES CONSOLIDATED
STATEMENTS OF INCOME (Unaudited)
Three Months Ended
March 31, 1996 April 02, 1995
(In thousands except per share data)
Net sales $2,769,423 $2,387,116
---------- ----------
Cost of sales 2,122,703 1,825,555
Administrative and selling expenses 264,728 230,345
Research and development expenses 87,462 75,065
---------- ----------
Total operating expenses 2,474,893 2,130,965
---------- ----------
Operating income 294,530 256,151
---------- ----------
Interest expense 54,163 22,678
Interest and dividend income (23,563) (8,503)
Other income, net (18,138) (23,838)
---------- ----------
Non-operating expense (income), net 12,462 (9,663)
---------- ----------
Income before taxes 282,068 265,814
Federal and foreign income taxes 95,582 91,878
---------- ----------
Net income $186,486 $173,936
========== ==========
Earnings per common share $0.78 $0.71
Average number of common shares
outstanding during period 240,093 246,342
Dividends declared per common share $0.20 $0.1875
The accompanying notes are an integral part of the financial statements.
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4
RAYTHEON COMPANY AND SUBSIDIARIES CONSOLIDATED
STATEMENTS OF CASH FLOWS (Unaudited)
Three Months Ended
March 31, 1996 April 02, 1995
(In thousands)
Cash flows from operating activities:
Net income $186,486 $173,936
Adjustments to reconcile net income to
net cash used in operating activities
Depreciation and amortization 87,251 74,516
Sale of airlines
long-term receivables 64,200 142,100
Other adjustments, net of the effect of
acquired companies (569,561) (527,840)
-------- -------
Net cash used in operating activities (231,624) (137,288)
--------- ---------
Cash flows from investing activities:
Additions to property, plant and equipment (103,980) (55,423)
Payment for purchase of acquired companies,
net of cash acquired 0 (108,052)
All other, net (56,646) (18,541)
--------- --------
Net cash used in investing activities (160,626) (182,016)
--------- ---------
Cash flows from financing activities:
Change in short-term debt 490,769 371,660
Dividends (47,859) (46,215)
Purchase of treasury shares (96,104) (35,771)
Proceeds under common stock plans 17,083 20,382
All other, net 1,576 300
-------- -------
Net cash provided by financing activities 365,465 310,356
-------- --------
Effect of foreign exchange rates on cash (334) 963
-------- --------
Net decrease in cash and cash
equivalents (27,119) (7,985)
Cash and cash equivalents at beginning
of year 208,614 200,938
-------- -------
Cash and cash equivalents at end of period $181,495 $192,953
======== ========
The accompanying notes are an integral part of the financial statements
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5
RAYTHEON COMPANY AND SUBSIDIARIES CONSOLIDATED
NOTES TO FINANCIAL STATEMENTS
(1) Details of certain balance sheet accounts are as follows:
March 31, 1996 Dec. 31, 1995
(In thousands)
Cash and marketable securities
Cash and cash equivalents $181,495 $208,614
Marketable securities 1,237 1,670
-------- --------
Total cash and marketable securities $182,732 $210,284
======== ========
Inventories
Finished goods $595,209 $596,080
Work in process 730,497 628,786
Materials and purchased parts 474,775 454,719
Excess of current cost over LIFO values (176,725) (176,602)
-------- ----------
Total inventories $1,623,756 $1,502,983
========== ==========
Property, plant and equipment
At cost $4,171,314 $4,115,748
Accumulated depreciation and amortization (2,569,461) (2,531,713)
---------- ----------
Net property, plant and equipment $1,601,853 $1,584,035
========== ==========
Stockholders' equity
Preferred stock, no outstanding shares $ - $ -
Common stock, outstanding shares 239,316 240,690
Additional paid-in capital 273,085 258,708
Equity adjustments 254 5,071
Retained earnings 3,834,098 3,787,495
---------- ---------
Total stockholders' equity $4,346,753 $4,291,964
========== ==========
The accompanying notes are an integral part of the financial statements.
(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 completed personnel reductions of 4,400 people under this restructuring
provision, including both salaried and bargaining unit employees located in
Massachusetts and other states and in foreign locations. Through March 31, 1996,
$245.2 million of restructuring costs have been incurred, of which $102.8
million was employee related costs and $142.4 million was related principally to
asset disposals and idle facilities. The spending is expected to be completed in
the first half of 1996.
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(3) Common shares outstanding and all per share data have been restated for the
two-for-one stock split on October 23, 1995.
(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 1996 versus 1995
Raytheon Company reported record first quarter earnings of $186.5 million, or
$.78 per share, on record first quarter sales of $2.769 billion. In 1995's first
quarter, earnings were $173.9 million, or $.71 per share, on sales of $2.387
billion.
Raytheon Engineers & Constructors, Raytheon Aircraft, Raytheon Appliances and
Raytheon E-Systems contributed to the company's increased sales. The increased
profits were driven by continuing profit growth in the commercial businesses and
by Raytheon E-Systems.
The Engineering and Construction segment had increased first quarter sales based
principally on increased volume in the domestic and international hydrocarbon
market and increased effort on government management and operations programs,
and increased after tax profits on a stand alone basis due to higher sales
volume.
The Aircraft segment reported increased sales and increased after tax profits
on a stand alone basis due to higher sales to commercial and U. S. government
customers.
The Major Appliance segment had increased sales and after tax profits on a
stand alone basis despite strong competitive price pressures on home appliance
margins.
In the Electronics segment, sales increased due to the contributions of Raytheon
E-Systems. The segment's increased after tax profits on a stand alone basis
were due to E-Systems and continuing strong returns at commercial electronics.
Revenues declined at Raytheon's Massachusetts-based defense operations due to
the reduced level of defense spending.
Sales to the U. S. government were $1.146 billion, an increase of $271
million or 31.0 percent from the comparable quarter of 1995. U. S. government
sales were 41.4 percent of consolidated net sales in 1996 compared with 36.7
percent in 1995. The increase in U.S. government sales is due to the acquisition
of E-Systems in May 1995.
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Administrative and selling expenses increased to $264.7 million in 1996 from
$230.3 million in 1995 due principally to the acquisition of E-Systems.
Research and development expenses increased to $87.5 million in 1996 from $75.1
million in 1995 due principally to the acquisition of E-Systems.
Operating income was $294.5 million or 10.6 percent of sales versus $256.2
million or 10.7 percent of sales in 1995.
Interest expense for 1996 increased to $54.2 million from $22.7 million in 1995.
The increase was due principally to the higher debt level from the acquisition
of E-Systems.
Interest and dividend income for 1996 increased to $23.6 million from $8.5
million in 1995 due to accrued interest before tax on a federal income tax
refund claim.
Other income (net) for 1996 declined to $18.1 million from $23.8 million in
1995. The 1996 results include $20 million before tax from the release of a
contingency reserve associated with the recent sale of a business,
partially offset by increased goodwill amortization from the acquisition of
E-Systems. The 1995 results include a gain of $21.1 million before tax on the
sale of stock held as an investment.
The 1996 effective tax rate of 33.9 percent reflects the statutory rate of 35
percent reduced principally by Foreign Sales Corporation tax credits and
incremental research and development tax credits applicable to certain
government contracts, partially offset by non-deductible amortization of
goodwill.
For reasons discussed above, net income increased by $12.6 million or 7.2
percent from 1995.
Earnings per common share increased by 9.9 percent to $.78 for the first quarter
of 1996 from $.71 for the first quarter of 1995. The average number of shares
outstanding during the first quarter of 1996 was 240.1 million versus 246.3
million in 1995. During the quarter outstanding shares were increased by
approximately 570,000 due to the exercise of employee stock options. This was
offset by the repurchase of approximately 570,000 shares in the open market at a
cost of $28.2 million. The company also repurchased an additional 1.4 million
shares at a cost of $67.9 million.
On February 22, 1995, the Board of Directors authorized the repurchase of up to
12 million shares of the company's common stock. There have been 6.6 million
shares purchased under this authorization through the first quarter of 1996.
The book value of common shares outstanding at the end of the period was
$18.16 as compared with $17.83 at December 31, 1995 and $16.47 at April 2, 1995.
All share and per share data have been restated for the two-for-one stock split
on October 23, 1995.
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Backlog consisted of the following at:
March 31, December 31, April 2,
1996 1995 1995
(In millions)
----------------------------------------
Electronics $6,983 $7,411 $4,997
Engineering and Construction 2,242 2,240 1,967
Aircraft 1,289 836 1,126
Major Appliances 39 64 67
------- ------- ------
Total Backlog $10,553 $10,551 $8,157
U.S. government backlog
included above $5,045 $5,142 $3,438
The increase in the Electronics backlog and the U. S. government portion of the
total backlog from April 2, 1995, reflects the acquisition of E-Systems. The
Electronics backlog at March 31, 1996, includes $1.1 billion related to the
SIVAM contract awarded by the government of Brazil to monitor and protect the
Amazon River rain forest. The Brazilian Senate is currently reviewing the
President's request to modify the Senate financing resolutions that were
approved in December of 1994. This vote is expected to take place during the
first half of 1996.
During the first quarter of 1996 there was a negative cash flow from operations
of $231.6 million. Net income plus depreciation and amortization provided a
positive cash flow of $273.7 million but this was more than offset by increases
in inventories and long-term receivables, increased contracts in process due to
higher sales volume and a lower level of current liabilities. During the quarter
funds were used for additions to property, plant and equipment of $104.0
million, dividends of $47.9 million and for treasury share purchases of $96.1
million. As a result of the above, short-term debt increased by $490.8 million.
The company expects that the cash flow from operations and available debt
financing will be sufficient to meet its funding requirements in 1996.
Debt, net of cash and marketable securities, was $3,011 million at March 31,
1996, as compared with $2,494 million at December 31, 1995, and $1,236 million
at April 2, 1995. Net debt as a percentage of total capitalization was 40.9
percent at March 31, 1996, as compared with 36.7 percent at December 31, 1995,
and 23.4 percent at April 2, 1995.
Capital expenditures were $104.0 million for the first quarter of 1996 versus
$55.4 million in the first quarter of 1995, due to increased 1996 expenditures
at the Aircraft Segment and the acquisition of E-Systems. Capital expenditures
in 1996 are expected to be above the 1995 level, excluding the effect of
acquisitions.
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Dividends declared to stockholders during the first quarter of 1996 were $47.9
million versus $46.2 million in 1995. During the quarter, the Board of Directors
declared a 6.7 percent increase in the company's first quarter dividend, from
$.1875 to $.20 per share.
Total employment was 72,900 at March 31, 1996 as compared with 73,200 at
December 31, 1995, and 60,500 at April 2, 1995. The increase from April 2, 1995,
is principally due to the acquisition of E-Systems.
Shortly after the close of the quarter, Raytheon announced that it has agreed to
purchase Chrysler Technologies' aircraft modification and defense electronics
businesses from Chrysler Corporation for $455 million in cash. The purchase is
subject to Hart-Scott-Rodino clearance and is expected to close in the second
quarter 1996. The two Chrysler Technologies businesses being acquired--Chrysler
Technologies Airborne Systems, Inc. and Electrospace Systems, Inc.--are expected
to add slightly to Raytheon's earnings in 1996, and increasingly add to earnings
in 1997 and beyond. Chrysler Technologies will become part of Raytheon
E-Systems. The acquisition is consistent with Raytheon's successful strategy to
remain a top tier defense contractor as well as a strong, diversified commercial
company.
Raytheon also announced on April 10 that it has completed the sale of its
Xyplex, Inc. subsidiary to Whittaker Corporation for $117.5 million in cash and
securities.
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 completed personnel reductions of 4,400 people under this restructuring
provision, including both salaried and bargaining unit employees located in
Massachusetts and other states and in foreign locations. Through March 31, 1996,
$245.2 million of restructuring costs have been incurred, of which $102.8
million was employee related costs and $142.4 million was related principally to
asset disposals and idle facilities. The spending is expected to be completed in
the first half of 1996.
The company enters into interest rate swaps and locks and foreign currency
forward agreements with commercial and investment banks to reduce the impact of
changes in interest rates and foreign exchange rates on long-term debt and on
purchases, sales, and financing arrangements with lenders, vendors, customers
and foreign subsidiaries. The company meets its working capital requirements
mainly with variable rate short-term financing. Interest rate swaps are
primarily used to provide purchasers of the company's products with fixed
financing terms over extended time periods. 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 normally 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 provisions already recorded.
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Statements which are not historical facts made in this report are forward-
looking statements that involve risks and uncertainties including the effect of
political and economic conditions, the results of financing efforts, and the
timing of awards and contracts.
PART II. OTHER INFORMATION
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/ Peter R. D'Angelo
Peter R. D'Angelo
Executive Vice President
Chief Financial Officer
May 15, 1996
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<CASH> 181,495
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<RECEIVABLES> 902,717
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