OREANDA-NEWS. Raytheon Company (NYSE: RTN) announced net sales for the second quarter 2015 were $5.8 billion compared to $5.7 billion in the second quarter 2014. Second quarter 2015 EPS from continuing operations was $1.65 compared to $1.59 in the second quarter 2014. Second quarter 2015 EPS from continuing operations included a favorable FAS/CAS Adjustment of $0.10 compared to a favorable FAS/CAS Adjustment of $0.18 in the second quarter 2014. In addition, second quarter 2015 EPS from continuing operations included, as expected, a $0.29 favorable impact from a tax settlement. It also included a $0.09 unfavorable impact associated with Raytheon|Websense acquisition accounting adjustments and acquisition related costs discussed in further detail below.

The Company had bookings of $7.6 billion in the second quarter 2015, resulting in a book-to-bill ratio of 1.30. In the second quarter 2014, bookings were $6.8 billion. Year-to-date 2015 bookings were $12.1 billion, resulting in a   book-to-bill ratio of 1.08. Year-to-date 2014 bookings were $11.1 billion.

"Our strategy to position the company for global growth is delivering results, which are reflected in the strong bookings and sales growth in the second quarter, as well as our improved growth outlook for 2015," said Thomas A. Kennedy, Raytheon Chairman and CEO. "Additionally, we continue to pursue a balanced capital deployment strategy to create value for our customers and shareholders."

Operating cash flow from continuing operations for the second quarter 2015 was $376 million compared to $153 million for the second quarter 2014. The increase in operating cash flow from continuing operations in the second quarter 2015 was primarily due to the timing of required pension contributions and the collection of the eBorders settlement with the U.K. Home Office, which was resolved in the first quarter 2015, partially offset by higher cash taxes.

Summary Financial Results

                      
                   
 

2nd Quarter

  

%

  

Six Months

  

%

($ in millions, except per share data)

2015

  

2014

  

Change

  

2015

  

2014

  

Change
                       

Bookings

$

7,580

    

$

6,772

    

11.9%

  

$

12,051

    

$

11,065

    

8.9%

Net Sales

$

5,848

    

$

5,701

    

2.6%

  

$

11,136

    

$

11,209

    

-0.7%

Income from Continuing Operations attributable to Raytheon Company

$

504

    

$

499

    

1.0%

  

$

1,055

    

$

1,088

    

-3.0%

EPS from Continuing Operations

$

1.65

    

$

1.59

    

3.8%

  

$

3.44

    

$

3.46

    

-0.6%

Operating Cash Flow from Continuing Operations

$

376

    

$

153

        

$

431

    

$

812

      

Workdays in Fiscal Reporting Calendar

64

    

64

        

125

    

126

      
                       
                       

In the second quarter 2015, the Company repurchased 1.9 million shares of common stock for $200 million. Year-to-date 2015, the Company repurchased 4.6 million shares of common stock for $500 million. The Company now expects its share repurchases in 2015 to be $1.0 billion, an increase of $250 million from its original expectation.

The Company ended the second quarter 2015 with $2.8 billion of net debt. Net debt is defined as total debt less cash and cash equivalents and short-term investments.

As previously announced, on May 29, 2015, the Company and Vista Equity Partners completed a transaction creating a new joint venture company that combines Websense, Inc. (Websense), formerly a Vista Equity portfolio company, and Raytheon Cyber Products, formerly part of Raytheon's Intelligence, Information and Services business. The newly formed commercial cybersecurity company, which is 80.3 percent owned by Raytheon and 19.7 percent by Vista Equity Partners, is known on an interim basis as Raytheon|Websense.

Second quarter 2015 results include Websense restructuring costs, and items related to the Raytheon|Websense transaction which are excluded from segment operating performance since management does not consider those items in evaluating the segment.

Raytheon|Websense Acquisition Accounting Adjustments and Acquisition Related Costs1
       

($ in millions, except per share data)

Operating
Income

  

EPS
       

Deferred Revenue Adjustment2

$

(10)

    

$

(0.02)

  

Amortization of Intangibles

$

(8)

    

$

(0.01)

  

Acquisition Related Costs

$

(23)

    

$

(0.05)

  

    Amounts excluded from segment results

$

(41)

    

$

(0.08)

  
       

Restructuring Costs (recorded in Raytheon|Websense segment results)

$

(5)

    

$

(0.01)

  

    Total

$

(46)

    

$

(0.09)

  
       

1See Attachment F for a reconciliation of how each of these items is calculated.

2Deferred Revenue Adjustment represents the impact of fair value adjustments to deferred revenue related to Raytheon|Websense, including historical Raytheon Cyber Products acquisitions.

Backlog

($ in millions)

 Period Ending
 

Q2 2015

  

Q2 2014

  

2014

Backlog

$

34,494

    

$

33,019

    

$

33,571

  

Funded Backlog

$

25,332

    

$

23,580

    

$

23,092

  

Backlog at the end of the second quarter 2015 was $34.5 billion, an increase of approximately $1.5 billion compared to the second quarter 2014. Funded backlog was $25.3 billion, an increase of approximately $1.8 billion compared to the second quarter 2014.

Outlook

The Company has updated its financial outlook for 2015 to reflect improved operating performance to date compared to prior guidance and the impact of the Raytheon|Websense transaction. Charts containing additional information on the Company's 2015 outlook are available on the Company's website at www.raytheon.com/ir.

2015 Financial Outlook

      
 

Current1

  

Prior (4/23/15)

Net Sales ($B)

22.7 - 23.2*

  

22.3 - 22.8

RW Deferred Revenue Adjustment ($M)2

(61)*

  

NA

RW Amortization of Intangibles ($M)2

(58)*

  

NA

FAS/CAS Adjustment ($M)

197

  

197

Interest Expense, net ($M)

 (225) - (235)

  

 (225) - (235)

Diluted Shares (M)

305 - 306*

  

305 - 307

Effective Tax Rate

 Approx. 27.0%

  

 Approx. 27.0%

EPS from Continuing Operations

$6.47 - $6.62*

  

$6.67 - $6.82

Operating Cash Flow from Continuing Operations ($B)

2.5 - 2.7*

  

2.4 - 2.7
       

1Updated to reflect the impact of the creation of Raytheon|Websense (RW) on May 29, 2015.

2RW Deferred Revenue Adjustment and RW Amortization of Intangibles represent the unfavorable impact of the acquisition accounting adjustments to record acquired deferred revenue at fair value and the amortization of acquired intangible assets, respectively, related to Raytheon|Websense, including historical Raytheon Cyber Products acquisitions

NA = Not Applicable

* Denotes change from prior guidance.

Segment Results

The Company's reportable segments are: Integrated Defense Systems (IDS); Intelligence, Information and Services (IIS); Missile Systems (MS); Space and Airborne Systems (SAS); and Raytheon|Websense (RW).

Integrated Defense Systems

                  
 

2nd Quarter

      

Six Months

  

($ in millions)

2015

  

2014

  

% Change

  

2015

  

2014

% Change

Net Sales

$

1,698

  

$

1,549

  

10%

  

$

3,131

  

$

3,030

3%

Operating Income

$

215

  

$

219

  

-2%

  

$

410

  

$

445

-8%

Operating Margin

  

12.7%

    

14.1%

        

13.1%

    

14.7%

  

Integrated Defense Systems (IDS) had second quarter 2015 net sales of $1,698 million compared to $1,549 million in the second quarter 2014. The increase in net sales was primarily driven by higher sales on international Patriot programs, including the recognition of previously deferred precontract costs and program activity in the quarter.

IDS recorded $215 million of operating income in the second quarter 2015 compared to $219 million in the second quarter 2014. The change in operating margin in the second quarter 2015 was primarily due to a change in program mix. 

Included in operating income in the second quarter 2015 was an adjustment of $33 million to eliminate all remaining estimated incentive fees related to the Air Warfare Destroyer (AWD) program due to the shipbuilder extending the planned schedule and related increase in costs to complete its portion of the program. Included in operating income in the second quarter 2014 was an adjustment of $38 million from a decrease in estimated incentive fees on the AWD program driven by an increase in expected costs by the shipbuilder to complete its portion of the program.

During the quarter, IDS booked $2.0 billion to provide advanced Patriot air and missile defense capability for the Kingdom of Saudi Arabia. IDS also booked $132 million to provide satellite communication ground terminals for an international customer and $77 million on the NextGen Weather Processor (NWP) program for the Federal Aviation Administration (FAA).

Intelligence, Information and Services1

                
 

2nd Quarter

      

Six Months

    

($ in millions)

2015

  

2014

  

% Change

  

2015

  

2014

  

% Change

Net Sales

$

1,496

  

$

1,493

  

—

  

$

2,868

  

$

2,922

  

-2%

Operating Income2

$

108

  

$

123

  

-12%

  

$

392

  

$

246

  

NM

Operating Margin

  

7.2%

    

8.2%

        

13.7%

    

8.4%

    

1 Revised to exclude Raytheon Cyber Products (RCP), formerly part of IIS. As discussed on page 2, RCP was combined with Websense, Inc. to create Raytheon|Websense, a new commercial cybersecurity joint venture, which is reported as a separate business segment.

2 Six Months 2015 operating income includes the favorable $181 million impact of the first quarter 2015 eBorders settlement.

NM = Not Meaningful

                    

Intelligence, Information and Services (IIS) had second quarter 2015 net sales of $1,496 million compared to $1,493 million in the second quarter 2014.

IIS recorded $108 million of operating income in the second quarter 2015 compared to $123 million in the second quarter 2014. The change in operating income was primarily due to program mix.

During the quarter, IIS booked $387 million on domestic training programs and $151 million on foreign training programs in support of Warfighter FOCUS activities. IIS also booked $376 million on a number of classified contracts.

Missile Systems

                
 

2nd Quarter

      

Six Months

    

($ in millions)

2015

  

2014

  

% Change

  

2015

  

2014

  

% Change

Net Sales

$

1,559

  

$

1,539

  

1%

  

$

3,032

  

$

3,113

  

-3%

Operating Income

$

183

  

$

190

  

-4%

  

$

390

  

$

398

  

-2%

Operating Margin

  

11.7%

    

12.3%

        

12.9%

    

12.8%

    

Missile Systems (MS) had second quarter 2015 net sales of $1,559 million compared to $1,539 million in the second quarter 2014.

MS recorded $183 million of operating income in the second quarter 2015 compared to $190 million in the second quarter 2014. The change in operating margin was primarily due to higher net program efficiencies in the second quarter 2014.

During the quarter, MS booked $529 million for Standard Missile-3 (SM-3®) for the Missile Defense Agency (MDA), $511 million on Evolved SeaSparrow Missile (ESSM) for the U.S. Navy and international customers, $363 million for Paveway™ for international customers, and $143 million for Standard Missile-6 (SM-6™) for the U.S. Navy. MS also booked $99 million on a classified program.

Space and Airborne Systems

                
 

2nd Quarter

      

Six Months

    

($ in millions)

2015

  

2014

  

% Change

  

2015

  

2014

  

% Change

Net Sales

$

1,416

  

$

1,505

  

-6%

  

$

2,774

  

$

2,903

  

-4%

Operating Income

$

186

  

$

202

  

-8%

  

$

359

  

$

392

  

-8%

Operating Margin

  

13.1%

    

13.4%

        

12.9%

    

13.5%

    

Space and Airborne Systems (SAS) had second quarter 2015 net sales of $1,416 million compared to $1,505 million in the second quarter 2014. The change in net sales was primarily due to lower sales on international tactical radar systems programs.

SAS recorded $186 million of operating income in the second quarter 2015 compared to $202 million in the second quarter 2014. The change in operating income was primarily due to lower volume in the second quarter 2015 combined with higher net program efficiencies in the second quarter 2014.

During the quarter, SAS booked $153 million on a multimission radar program for the U.S. Navy and an international customer, $99 million on an Active Electronically Scanned Array (AESA) radar Performance Based Logistics (PBL) contract for an international customer, and $82 million to provide communication subsystems for the U.S. Navy and an international customer. SAS also booked $250 million on a number of classified contracts.

Raytheon|Websense1

            
 

2nd Quarter

    

Six Months

  

($ in millions)

2015

  

2014

% Change

  

2015

  

2014

% Change

Net Sales

$

57

    

$

28

  

104%

  

$

81

    

$

51

  

59%

Operating Income/(loss)

$

(1)

    

$

3

  

-133%

  

$

(1)

    

$

7

  

-114%

Operating Margin

(1.8)%

      

10.7%

      

(1.2)%

      

13.7%

    

1 Excludes the unfavorable impact of the Raytheon|Websense acquisition accounting adjustments and certain acquisition related costs. See page 2 for more information on these items.

Raytheon|Websense (RW) is a new joint venture company that was created on May 29, 2015 through the combination of Websense, Inc. and Raytheon Cyber Products (RCP), formerly part of Raytheon's Intelligence, Information and Services business. The RW segment results have been presented to reflect RCP results for all periods and Websense results after the acquisition date.

RW had second quarter 2015 net sales of $57 million compared to $28 million in the second quarter 2014. 

RW recorded a loss of $1 million in the second quarter 2015 compared to $3 million of operating income in the second quarter 2014. The second quarter 2015 operating loss reflects higher RCP research and development and selling and marketing expenses to develop and launch new commercial products compared to second quarter 2014, as well as approximately $5 million of restructuring costs associated with the combination of Websense and RCP.