OREANDA-NEWS. Raytheon Company (NYSE: RTN) announced net sales for the fourth quarter 2015 of $6.3 billion, up 3 percent compared to $6.1 billion in the fourth quarter 2014. Fourth quarter 2015 EPS from continuing operations was $1.85 compared to $1.86 in the fourth quarter 2014. Fourth quarter 2015 EPS from continuing operations included, as expected, an $0.08 unfavorable impact associated with acquisition accounting adjustments related to Forcepoint™, formerly known as Raytheon|Websense.

Net sales in 2015 were $23.2 billion, up 2 percent compared to $22.8 billion in 2014. Full-year 2015 EPS from continuing operations was $6.75 compared to $6.97 for the full-year 2014. Full-year 2015 EPS from continuing operations included, as expected, a $0.25 unfavorable impact associated with Forcepoint acquisition accounting adjustments and acquisition-related costs discussed in further detail below.

"Raytheon delivered solid operating performance and returned to growth in 2015. Strong bookings during the year from our global customers position us well for continued growth in 2016," said Thomas A. Kennedy, Raytheon Chairman and CEO. "As we look ahead, we remain focused on creating value for our shareholders and customers by delivering strong program execution, while also investing in our future and pursuing a balanced capital deployment strategy."

The Company generated strong operating cash flow for both the fourth quarter and full-year. Operating cash flow from continuing operations for the fourth quarter 2015 was $813 million compared to $829 million for the fourth quarter 2014. Fourth quarter 2015 operating cash flow from continuing operations was after a $200 million pretax discretionary cash contribution to the Company's pension plans compared to $600 million in the fourth quarter 2014. For the full-year 2015 and 2014, the Company generated $2.3 billion and $2.1 billion of operating cash flow from continuing operations, respectively.

Summary Financial Results

                      
                   
 

4th Quarter

  

%

  

Twelve Months

  

%

($ in millions, except per share data)

2015

  

2014

  

Change

  

2015

  

2014

  

Change
                       

Bookings

$

7,861

    

$

7,109

    

10.6%

  

$

25,227

    

$

24,052

    

4.9%

Net Sales

$

6,328

    

$

6,143

    

3.0%

  

$

23,247

    

$

22,826

    

1.8%

Income from Continuing Operations attributable to

   Raytheon Company

$

558

    

$

576

    

-3.1%

  

$

2,061

    

$

2,179

    

-5.4%

EPS from Continuing Operations

$

1.85

    

$

1.86

    

-0.5%

  

$

6.75

    

$

6.97

    

-3.2%

Operating Cash Flow from Continuing Operations

$

813

    

$

829

        

$

2,346

    

$

2,064

      

Workdays in Fiscal Reporting Calendar

61

    

60

        

249

    

249

      
                       
                       

The Company had bookings of $7.9 billion in the fourth quarter 2015, resulting in a book-to-bill ratio of 1.24 in the quarter. Fourth quarter 2014 bookings were $7.1 billion. Full-year 2015 bookings were $25.2 billion, resulting in a book-to-bill ratio of 1.09 for the year. Full-year 2014 bookings were $24.1 billion.

In the fourth quarter 2015, the Company repurchased 2.0 million shares of common stock for $250 million. For the full-year 2015, the Company repurchased 9.0 million shares of common stock for $1.0 billion.  Also, as previously announced in November 2015, the Company's Board of Directors authorized the repurchase of up to an additional $2.0 billion of the Company's outstanding common stock.

The Company ended 2015 with $2.1 billion of net debt. Net debt is defined as total debt less cash and cash equivalents and short-term investments.

Fourth quarter and full-year 2015 results include items related to the Forcepoint transaction which are excluded from segment operating performance since management does not consider those items in evaluating the segment.

Forcepoint Acquisition Accounting Adjustments and Acquisition-Related Costs1

    
               
 

4th Quarter 2015

  

Twelve Months 2015

($ in millions, except per share data)

Operating Income

  

EPS

  

Operating Income

  

EPS
               

Deferred Revenue Adjustment2

$

(24)

    

$

(0.04)

    

$

(61)

    

$

(0.10)

  

Amortization of Acquired Intangibles

$

(24)

    

$

(0.04)

    

$

(58)

    

$

(0.10)

  

Acquisition-Related Costs

$

—

    

$

—

    

$

(26)

    

$

(0.05)

  

    Amounts excluded from segment results

$

(48)

    

$

(0.08)

    

$

(145)

    

$

(0.25)

  

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 Forcepoint including historical Raytheon Cyber Products acquisitions.

Backlog

($ in millions)

 Period Ending
 

2015

    

2014

Backlog

$

34,669

      

$

33,571

  

Funded Backlog

$

25,060

      

$

23,092

  

Backlog at the end of 2015 was $34.7 billion, an increase of approximately $1.1 billion compared to the end of 2014. Funded backlog was $25.1 billion, an increase of approximately $2.0 billion compared to the end of 2014.

Outlook

Effective January 1, 2016, the Company reclassified, for all business segments, acquisition accounting adjustments related to the amortization of acquired intangibles and adjustments to record acquired deferred revenue at fair value, such that they will no longer be reported within the business segments and will instead be reported in separate deferred revenue adjustment and amortization of intangibles line items. The 2015 deferred revenue adjustment and amortization of acquired intangibles in the table below have been recast to reflect this change.

2016 Financial Outlook

      
 

2015 Actual

  

2016 Outlook

Net Sales ($B)

23.2

  

24.0 - 24.5

Deferred Revenue Adjustment ($M)1

(61)

  

(67)

Amortization of Acquired Intangibles ($M)1

(107)

  

(121)

FAS/CAS Adjustment ($M)

185

  

428

Interest Expense, net ($M)

(222)

  

 (220) - (230)

Diluted Shares (M)

305

  

296 - 298

Effective Tax Rate

26.3%

  

 ~30.0%

EPS from Continuing Operations

6.75

  

$6.80 - $7.00

Operating Cash Flow from Continuing Operations ($B)

2.3

  

 2.7 - 3.0
       

1Deferred Revenue Adjustment and 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 for all business segments. 2015 Deferred Revenue Adjustment and Amortization of Intangibles in the table above have been recast under the new segment reporting methodology described above. Under the prior method, the 2015 Deferred Revenue Adjustment and Amortization of Intangibles were ($61M) and ($58M), respectively, for the Forcepoint segment only. Additionally, the outlook above includes the initial estimated impact of the Stonesoft & Sidewinder acquisitions, which closed on January 13, 2016.

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 Forcepoint.

Effective January 1, 2016, in order to gain additional efficiencies, the Company reorganized the IDS and IIS business segments to move certain air traffic systems, border and critical infrastructure protection and highway tolling programs from IDS to IIS.

The pro-forma attachments at the end of this release present prior period segment data recasted to reflect these changes and the acquisition accounting adjustments changes discussed above.

The business results discussed below do not reflect the changes to segment reporting, because they became effective January 1, 2016:

Integrated Defense Systems

                    
 

4th Quarter

      

Twelve Months

    

($ in millions)

2015

  

2014

  

% Change

  

2015

  

2014

  

% Change

Net Sales

$

1,711

  

$

1,627

  

5%

  

$

6,375

  

$

6,085

  

5%

Operating Income

$

295

  

$

299

  

-1%

  

$

917

  

$

974

  

-6%

Operating Margin

17.2%

  

18.4%

      

14.4%

  

16.0%

    

Integrated Defense Systems (IDS) had fourth quarter 2015 net sales of $1,711 million, up 5 percent compared to $1,627 million in the fourth quarter 2014. The increase in net sales for the quarter was primarily driven by higher sales on the Air Warfare Destroyer (AWD) program and on certain international Patriot programs. IDS had full-year 2015 net sales of $6,375 million, up 5 percent compared to $6,085 million in 2014. The increase in net sales for the full-year was primarily driven by higher sales on international Patriot programs.

IDS recorded $295 million of operating income in the fourth quarter 2015 compared to $299 million in the fourth quarter 2014. IDS recorded $917 million of operating income in 2015 compared to $974 million in 2014. The change in operating income for the full-year was primarily driven by the mix of international Patriot programs.

During the quarter, IDS booked $255 million on the Zumwalt-class destroyer program for the U.S. Navy. IDS also booked $189 million to provide Consolidated Contractor Logistics Support (CCLS) and $119 million for a radar sustainment contract for the Missile Defense Agency (MDA), $134 million on the Standard Terminal Automation Replacement System (STARS) program for the Federal Aviation Administration (FAA), $81 million for the AWD program for the Australian Navy, $78 million to provide advanced Patriot air and missile defense capability for the U.S. Army, and $75 million to provide training and logistics support for an international customer.

Intelligence, Information and Services

                
 

4th Quarter

      

Twelve Months

    

($ in millions)

2015

  

2014

  

% Change

  

2015

  

2014

  

% Change

Net Sales

$

1,427

  

$

1,517

  

-6%

  

$

5,733

  

$

5,889

  

-3%

Operating Income1

$

99

  

$

131

  

-24%

  

$

599

  

$

495

  

NM

Operating Margin

6.9%

  

8.6%

      

10.4%

  

8.4%

    

1 Twelve 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 fourth quarter 2015 net sales of $1,427 million compared to $1,517 million in the fourth quarter 2014. The change in net sales for the quarter was primarily driven by lower sales on an international classified program. IIS had full-year 2015 net sales of $5,733 million compared to $5,889 million in 2014. The change in net sales for the full-year was primarily driven by lower sales on training programs and on an international classified program.

IIS recorded $99 million of operating income in the fourth quarter 2015 compared to $131 million in the fourth quarter 2014. Operating income for the quarter was impacted by higher costs on an international classified program. IIS recorded $599 million of operating income in 2015 compared to $495 million in 2014. The increase in operating income for the full-year was primarily driven by the eBorders settlement, which contributed $181 million to operating income in the first quarter 2015.

During the quarter, IIS booked $105 million on a contract to provide intelligence, surveillance and reconnaissance (ISR) support to the U.S. Air Force and $78 million to provide technology and support for the Counter-Narcoterrorism Technology Program Office (CNTPO). IIS also booked $475 million on a number of classified contracts.

Missile Systems

                
 

4th Quarter

      

Twelve Months

    

($ in millions)

2015

  

2014

  

% Change

  

2015

  

2014

  

% Change

Net Sales

$

1,879

  

$

1,719

  

9%

  

$

6,556

  

$

6,309

  

4%

Operating Income

$

258

  

$

212

  

22%

  

$

867

  

$

800

  

8%

Operating Margin

13.7%

  

12.3%

      

13.2%

  

12.7%

    

Missile Systems (MS) had fourth quarter 2015 net sales of $1,879 million, up 9 percent compared to $1,719 million in the fourth quarter 2014. The increase in net sales for the quarter was primarily driven by higher sales on Paveway™. MS had full-year 2015 net sales of $6,556 million compared to $6,309 million in 2014. The increase in net sales for the full-year was driven by higher sales spread across various production programs, including Paveway; the Tube-launched, Optically-tracked, Wireless-guided (TOW®) missiles program; and certain missile defense programs.

MS recorded $258 million of operating income in the fourth quarter 2015 compared to $212 million in the fourth quarter 2014. The increase in operating income for the quarter was primarily due to higher volume and higher net program efficiencies in 2015. MS recorded $867 million of operating income in 2015 compared to $800 million in 2014. The increase in operating income for the full-year was primarily due to a change in program mix, and higher volume and net program efficiencies in 2015.

During the quarter, MS booked $870 million for Paveway, $580 million for Standard Missile-3 (SM-3®), $229 million for Phalanx Weapon Systems, $98 million for the Stinger® Weapon System, $96 million for Evolved SeaSparrow Missile (ESSM), and $90 million for the Rolling Airframe Missile (RAM) program, all for U.S. and international customers.

Space and Airborne Systems

                
 

4th Quarter

      

Twelve Months

    

($ in millions)

2015

  

2014

  

% Change

  

2015

  

2014

  

% Change

Net Sales

$

1,576

  

$

1,660

  

-5%

  

$

5,796

  

$

6,072

  

-5%

Operating Income

$

231

  

$

217

  

6%

  

$

794

  

$

846

  

-6%

Operating Margin

14.7%

  

13.1%

      

13.7%

  

13.9%

    

Space and Airborne Systems (SAS) had fourth quarter 2015 net sales of $1,576 million compared to $1,660 million in the fourth quarter 2014. The change in net sales for the quarter was spread across numerous programs. SAS had full-year 2015 net sales of $5,796 million compared to $6,072 million in 2014. The change in net sales for the full-year was primarily due to lower sales on international tactical radar systems programs.

SAS recorded $231 million of operating income in the fourth quarter 2015 compared to $217 million in the fourth quarter 2014. The increase in operating income for the quarter was primarily due to favorable mix. SAS recorded $794 million of operating income in 2015 compared to $846 million in 2014. The change in operating income for the full-year was primarily due to higher net program efficiencies in 2014.

During the quarter, SAS booked $102 million on the Navy Multiband Terminal (NMT) program, $92 million for the production of Active Electronically Scanned Array (AESA) radars for an international customer, and $88 million to provide radar components for the U.S Air Force. SAS also booked $371 million on a number of classified contracts.

Forcepoint1

                
 

4th Quarter

      

Twelve Months

    

($ in millions)

2015

  

2014

  

% Change

  

2015

  

2014

  

% Change

Net Sales

$

133

  

$

23

  

NM

  

$

328

  

$

104

  

NM

Operating Income/(loss)

$

11

  

$

(1)

  

NM

  

$

30

  

$

11

  

NM

Operating Margin

8.3%

  

(4.3)%

      

9.1%

  

10.6%

    

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

NM = Not Meaningful

            

Forcepoint, formerly known as Raytheon|Websense, had fourth quarter 2015 net sales of $133 million compared to $23 million in the fourth quarter 2014. Forcepoint had full-year 2015 net sales of $328 million compared to $104 million in 2014.

Forcepoint recorded $11 million of operating income in the fourth quarter 2015 compared to a loss of $1 million in the fourth quarter 2014. Forcepoint recorded $30 million of operating income in 2015 compared to $11 million in 2014.

The increase in net sales and operating income for both the quarter and full-year was primarily due to the acquisition of Websense in May 2015.

About Raytheon

Raytheon Company, with 2015 sales of $23 billion and 61,000 employees worldwide, is a technology and innovation leader specializing in defense, civil government and cybersecurity solutions. With a history of innovation spanning 94 years, Raytheon provides state-of-the-art electronics, mission systems integration, capabilities in C5I (command, control, communications, computing, cyber and intelligence), sensing, effects and mission support services. Raytheon is headquartered in Waltham, Mass.