<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 September 29, 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
(State or Other Jurisdiction of Incorporation or Organization)
04-1760395
(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 Securitie 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 SEPTEMBER 29, 1996: 236,035,695
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2
RAYTHEON COMPANY AND SUBSIDIARIES CONSOLIDATED
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BALANCE SHEETS (Unaudited)
Sept. 29, 1996 Dec. 31, 1995
(In thousands)
ASSETS
Cash and marketable securities $ 161,437 $ 210,284
Accounts receivable 977,501 926,800
Federal and foreign income taxes,
including deferred 298,909 196,711
Contracts in process, less progress payments 2,850,909 2,212,689
Inventories 1,765,654 1,502,983
Prepaid expenses 223,925 225,751
----------- ----------
Total current assets 6,278,335 5,275,218
Property, plant and equipment, net 1,753,691 1,584,035
Intangible assets 3,138,693 2,572,347
Other assets, net 615,029 409,344
----------- ----------
$11,785,748 $9,840,944
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable and current portion
of long-term debt $2,941,403 $1,216,039
Accounts payable 1,077,400 1,041,848
Advance payments, less contracts in process 348,224 343,470
Accrued expenses 1,127,374 1,089,066
---------- ----------
Total current liabilities 5,494,401 3,690,423
Accrued retiree benefits 253,769 270,025
Federal and foreign income taxes,
including deferred 96,006 100,797
Long-term debt 1,493,205 1,487,735
Stockholders' equity 4,448,367 4,291,964
----------- ----------
$11,785,748 $9,840,944
=========== ==========
The accompanying notes are an integral part of the financial statements.
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3
<TABLE>
<CAPTION>
RAYTHEON COMPANY AND SUBSIDIARIES CONSOLIDATED
STATEMENTS OF INCOME (Unaudited)
Three Months Ended Nine Months Ended
Sept. 29, 1996 Oct. 1, 1995 Sept. 29, 1996 Oct. 1, 1995
(In thousands except per share data)
<S> <C> <C> <C> <C>
Net Sales $3,012,574 $3,152,718 $8,893,891 $8,355,906
---------- ---------- ---------- ----------
Cost of sales 2,407,328 2,424,712 6,946,440 6,366,554
Administrative and selling expenses 254,358 294,057 781,655 808,475
Research and development expenses 76,862 79,619 254,326 244,496
Special charge 34,000 - 34,000 -
---------- ---------- ---------- ----------
Total operating expenses 2,772,548 2,798,388 8,016,421 7,419,525
---------- ---------- ---------- ----------
Operating income 240,026 354,330 877,470 936,381
---------- ---------- ---------- ----------
Interest expense 70,827 67,353 185,684 140,364
Interest and dividend income (62,322) (12,063) (101,220) (29,023)
Other expense/(income), net 5,604 (6,471) (28,836) (43,594)
---------- ---------- ---------- ----------
Non-operating expense, net 14,109 48,819 55,628 67,747
---------- ---------- ---------- ----------
Income before taxes 225,917 305,511 821,842 868,634
Federal and foreign income taxes 38,027 104,780 238,069 298,473
---------- ---------- ---------- ----------
Net income $ 187,890 $ 200,731 $ 583,773 $ 570,161
========== ========== ========== ==========
Earnings per common share $0.80 $0.82 $2.45 $2.33
Average number of common shares
outstanding during period 235,932 243,174 237,833 244,796
Dividends declared per common share $0.20 $0.1875 $0.60 $0.5625
</TABLE>
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)
Nine Months Ended
Sept 29, 1996 Oct 1, 1995
(In thousands)
Cash flows from operating activities:
Net income $ 583,773 $ 570,161
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation and amortization 301,594 293,884
Special charge 34,000 -
Sale of long-term receivables 461,200 422,800
Other adjustments, net (1,901,714) (809,532)
---------- -----------
Net cash (used) provided by operating activities (521,147) 477,313
---------- -----------
Cash flows from investing activities:
Additions to property, plant and equipment (287,597) (225,988)
Payment for purchase of acquired companies,
net of cash received (584,390) (2,341,522)
Proceeds from sale of operating subsidiary, net 66,551 0
Additions to intangible assets (36,207) (38,779)
All other, net (5,481) 11,222
---------- -----------
Net cash used in investing activities (847,124) (2,595,067)
---------- -----------
Cash flows from financing activities:
Change in short-term debt 1,721,396 987,118
Change in long-term debt (3,122) 1,455,857
Dividends (142,317) (137,363)
Purchase of treasury shares (305,842) (223,520)
Proceeds under common stock plans 45,047 43,959
All other, net 4,992 (4,101)
---------- ----------
Net cash provided by financing activities 1,320,154 2,121,950
---------- ----------
Effect of foreign exchange rates on cash (663) 652
---------- ----------
Net increase in cash and cash equivalents (48,780) 4,848
Cash and cash equivalents at beginning of year 208,614 200,938
---------- ---------
Cash and cash equivalents at end of third quarter $ 159,834 $ 205,786
========== =========
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:
Sept 29, 1996 Dec. 31,1995
(In thousands)
Cash and marketable securities
Cash and cash equivalents $ 159,834 $ 208,614
Marketable securities 1,603 1,670
---------- ----------
Total cash and marketable securities $ 161,437 $ 210,284
========== ==========
Inventories
Finished goods $ 586,931 $ 596,080
Work in process 848,704 628,786
Material and purchased parts 509,494 454,719
Excess of current cost over LIFO values (179,475) (176,602)
---------- ----------
Total Inventories $1,765,654 $1,502,983
========== ==========
Property, plant and equipment
At cost $4,446,091 $4,115,748
Accumulated depreciation and amortization (2,692,400) (2,531,713)
---------- ----------
Net property, plant and equipment $1,753,691 $1,584,035
========== ==========
Stockholders' equity
Preferred stock, no outstanding shares $ - $ -
Common stock, outstanding shares 236,036 240,690
Additional paid-in capital 295,364 258,708
Equity adjustments (19,187) 5,071
Retained earnings 3,936,154 3,787,495
---------- ----------
Total stockholders' equity $4,448,367 $4,291,964
========== ==========
(2) The company announced in the third quarter that it will exit the
manual-clean range market and dispose of the assets, including the facility,
of the Delaware, Ohio operation. The company recorded a $34.0 million pre-tax
charge for this closing in the third quarter.
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6
(3) 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 the company'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 Sept. 29, 1996, $248.1 million of restructuring costs have been
incurred, of which $103.2 million was employee related costs and $144.9 million
was related principally to asset disposals and idle facilities.
(4) Common shares outstanding and all per share data have been restated for the
two-for-one stock split on October 23, 1995.
(5) 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
Third Quarter 1996 versus 1995
Raytheon Company reported third quarter earnings of $210.0 million, or $.89
per share, on sales of $3.013 billion, before a previously announced special
charge of $22.1 Million after tax or $.09 Per share to exit the manual-clean
range market and close its Delaware, Ohio plant. For the same period last
year, earnings were $200.7 million, or $.82 per share, on sales of $3.153
billion. Earnings for 1996, including the special charge, were $187.9 million or
$.80 per share.
Operating income, before the special charge, was down 15.0 percent from last
year's level after adjusting for the 1995 sale of D. C. Heath and the effects
of strike-related losses resulting from the now-settled eight-week strike at
Cedarapids, the manufacturing arm of Raytheon Engineers & Constructors. The
lower than anticipated operating income is primarily attributable to delays in
contract awards at Raytheon Engineers & Constructors and lower revenue and
increased sales promotion costs in the company's appliance segment.
The shortfall in operating income was offset by $75.0 million in research
and development tax credits and associated interest income.
The Engineering and Construction segment had slightly higher sales in the
third quarter due to increased engineering and construction effort. Earnings
were down due to lower margins resulting from delays in receipt of foreign
turnkey projects and strike-related costs at Cedarapids.
The Aircraft segment reported higher revenues due to increased aircraft
services. Earnings were down due to a change in the sales mix.
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7
The Major Appliance segment had lower sales and earnings due principally to
competitive pressures in the retail market for home appliance products and
increased sales promotion costs.
In the Electronics segment, E-Systems, based in Dallas, Texas, which is engaged
in defense electronics activity that is less sensitive to the decline in
defense weapons procurement, had increased sales for the quarter, and there was
a sales increase in commercial electronics from continuing operations, which
excludes D.C. Heath, and commercial electronics profits were up substantially
for the quarter. Raytheon Electronics Systems sales and earnings were lower
than 1995, principally at its Massachusetts-based defense operations, but the
division met its income objectives for the quarter. The Electronics segment
had lower sales in the quarter and earnings were down, principally due to the
lower sales volume.
Sales to the U. S. government were $1.276 billion and 42.3 percent of total
sales in the third quarter of 1996 versus $1.272 billion and 40.3 percent
of total sales in the comparable quarter of 1995.
Administration and selling expenses decreased to $254.4 million and 8.4
percent of sales in 1996 from $294.1 million and 9.3 percent of sales in 1995
due principally to the sale of D. C. Heath.
Research and development expenses were $76.9 million and 2.6 percent of sales
in 1996 versus $79.6 million and 2.5 percent of sales in 1995.
Operating income, excluding the effect of the special charge of $34.0 million
pre-tax, was $274.0 million and 9.1 percent of sales in 1996 versus $354.3
million and 11.2 percent of sales in 1995. Operating income, including the
special charge, was $240.0 million versus $354.3 million in 1995. As noted
previously, the shortfall in operating income was offset by $75.0 million in
research and development tax credits and associated interest income.
Interest expense was $70.8 million in 1996 versus $67.4 million in 1995. The
increase was due principally to the higher debt level.
Interest and dividend income for 1996 increased to $62.3 million from $12.1
million in 1995 due to accrued interest before tax on a federal income tax
refund claim.
Other (income) expense, net for 1996 was a $5.6 million expense in 1996 versus
$6.5 million income in 1995 due to increased goodwill amortization in 1996 and
1995 included a one time gain on the sale of an investment.
The 1996 effective tax rate of 16.8 percent reflects the statutory rate of 35
percent reduced principally by incremental research and development tax credits
applicable to certain government contracts and Foreign Sales Corporation tax
credits, partially offset by non-deductible amortization of goodwill.
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8
For reasons discussed above, net income for 1996, excluding the $22.1 million
after tax special charge, increased to $210.0 million from $200.7 million in
1995. Net income for 1996 including the special charge was $187.9 million.
Earnings per share, excluding the $22.1 million after tax or $.09 per share
special charge, were $.89 versus $.82 in 1995. Earnings per share for 1996
including the special charge were $.80.
The average number of shares outstanding during the third quarter of 1996 were
235.9 million versus 243.2 million in 1995. During the quarter, outstanding
shares were increased by 581,000 due to the exercise of employee stock options.
This was offset by the repurchase of 581,000 shares in the open market at a
cost of $29.2 million. The company also repurchased an additional 325,000
shares at a cost of $16.3 million.
Nine Months 1996 Versus 1995
Consolidated net sales during the first nine months of 1996 increased by 6.4
percent to $8.894 billion. Sales increased in all four business segments.
Sales to the U.S. government were $3.708 billion in the first nine months of
1996 versus $3.314 billion in the first nine months of 1995 and were 41.7
percent of consolidated net sales in 1996 versus 39.7 percent in 1995.
Operating income, excluding the special charge of $34.0 million pre tax, was
$911.5 million or 10.2 percent of sales in 1996 versus $936.4 million or 11.2
percent of sales in 1995. Operating income for 1996 including the special
charge was $877.5 million.
Non-operating expense was $55.6 million in 1996 versus $67.7 million in 1995.
Interest expense increased to $185.7 million in 1996 from $140.4 million in
1995 due principally to the acquisition of E-Systems. Interest and dividend
income was $101.2 million in 1996 versus $29.0 million in 1995 due principally
to accrued interest before tax on a federal income tax refund claim. Other
income decreased to $28.8 million in 1996 versus $43.6 million in 1995 due
principally to increased goodwill amortization from the acquisition of
E-Systems.
The effective tax rate of 29.0 percent in 1996 reflects the statutory rate of
35 percent reduced principally by incremental research and development tax
credits applicable to certain government contracts and Foreign Sales
Corporation tax credits, partially offset by non-deductible amortization of
goodwill.
For reasons discussed above, net income for 1996, excluding the special charge
of $22.1 million after tax, was $605.9 million versus $570.2 million in 1995.
Net income for 1996 including the special charge was $583.8 million.
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9
Earnings per share, excluding the special charge of $22.1 million after tax,
increased 9.4 percent to $2.55 in 1996 versus $2.33 in 1995. Earnings per share
including the special charge were $2.45 in 1996. The average number of common
shares outstanding was 237.8 million for the first nine months of 1996 versus
244.8 million for the comparable 1995 period. During the first nine months of
1996, outstanding shares were increased by 1.450 million due to the exercise of
employee stock options. This was offset by the repurchase of 1.450 million
shares on the open market at a cost of $72.6 million. The company also
repurchased an additional 4.654 million shares at a cost of $233.2 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 9.7 million
shares purchased under this authorization.
The book value of common shares outstanding at the end of the period was $18.85
as compared with $17.83 at December 31, 1995 and $17.29 at October 1, 1995.
All share and per share data have been restated for the two-for-one stock split
on October 23, 1995.
Backlog consisted of the following at:
September 29, December 31, October 1,
1996 1995 1995
(In Millions)
Electronics $ 6,824 $ 7,411 $ 7,189
Engineering & Construction 3,101 2,240 1,907
Aircraft 1,284 836 1,070
Major Appliances 45 64 64
------- ------- -------
$11,254 $10,551 $10,230
U.S. Government Backlog
included above $4,918 $5,142 $5,069
The Electronics backlog at September 29, 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 has approved the President's
request to modify the Senate financing resolutions that were approved in
December 1994 and final costs and terms and conditions of the contract are
currently being negotiated.
For the first nine months of 1996 there was a negative cash flow from
operations of $521.1 million. Net income plus depreciation and amortization
provided a positive cash flow of $885.4 million but this was more than offset
by increases in contracts in process and inventories and a lower level of
current liabilities. During the period funds were used for additions to
property, plant and equipment of $287.6 million, dividends of $142.3 million
and for treasury share purchases of $305.8 million. Additionally, during 1996
$584.4 million was expended for acquired companies. As a result of the above,
short term debt increased by $1.7 billion. The company expects that the cash
flow from operations and available debt financing will be sufficient to meet
its funding requirements in 1996.
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10
Debt, net of cash and marketable securities, was $4.273 billion at September
29, 1996, as compared with $2.494 billion at December 31, 1995, and $3.337
billion at October 1, 1995. Net debt as a percentage of total capitalization
was 49.0 percent at September 29, 1996, as compared with 36.7 percent at
December 31, 1995 and 44.3 percent at October 1, 1995.
Contracts in process increased to $2.851 billion at September 29, 1996, from
$2.213 billion at December 31, 1995, due principally to increased sales volume
and longer collection cycles at the Engineering and Construction segment.
Inventories increased to $1.766 billion at September 29, 1996 from $1.503
billion at December 31, 1995, due principally to increased commercial
inventories.
Intangible assets increased to $3.139 billion at September 29, 1996, from
$2.572 billion at December 31, 1995, due principally to the goodwill arising
from the acquisitions during the period.
Capital expenditures were $287.6 million during the first nine months of 1996
versus $226.0 million in 1995. This increase was due principally to increased
1996 expenditures at the Aircraft segment.
Dividends declared to stockholders during the first nine months of 1996 were
$142.3 million versus $137.4 million in 1995. The dividend rate was $.20 per
quarter for the first three quarters of 1996 versus $.1875 per quarter for the
first three quarters of 1995.
Total employment was 76,400 at September 29, 1996, versus 73,200 at December
31, 1995, and 74,600 at October 1, 1995. The increase from December 31, 1995,
is due principally to the acquisitions made during the quarter.
The company acquired during the second quarter of 1996, the engineering and
construction assets of Rust International, the aircraft modification and
defense electronics business of Chrysler Technologies and the marine
communication assets of Standard Radio AB of Sweden. The financial results of
these companies are included in the consolidated earnings of the company from
the respective dates of acquisition.
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 the
company'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 September 29,
1996, $248.1 million of restructuring costs have been incurred, of which $103.2
million was employee related costs and $144.9 million was related principally
to asset disposals and idle facilities.
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11
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.
Forward Looking Statement
- -------------------------
Statements which are not historical facts made in this report are
forward-looking statements that involve risks and uncertainties including the
effect of worldwide 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
Exhibit 27: Financial Data Schedule (filed only electronically
with the Securities and Exchange Commission).
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12
(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)
By: /s/Peter R. D'Angelo
Peter R. D'Angelo
Executive Vice President and
Chief Financial Officer
November 13, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-29-1996
<CASH> 159,834
<SECURITIES> 1,603
<RECEIVABLES> 977,501
<ALLOWANCES> 0
<INVENTORY> 1,765,654
<CURRENT-ASSETS> 6,278,335
<PP&E> 4,446,091
<DEPRECIATION> 2,692,400
<TOTAL-ASSETS> 11,785,748
<CURRENT-LIABILITIES> 5,494,401
<BONDS> 1,091,647
0
0
<COMMON> 236,036
<OTHER-SE> 4,212,331
<TOTAL-LIABILITY-AND-EQUITY> 11,785,748
<SALES> 8,893,891
<TOTAL-REVENUES> 8,893,891
<CGS> 6,946,440
<TOTAL-COSTS> 6,946,440
<OTHER-EXPENSES> 288,326
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 185,684
<INCOME-PRETAX> 821,842
<INCOME-TAX> 238,069
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 583,773
<EPS-PRIMARY> 2.45
<EPS-DILUTED> 0
</TABLE>
