Press Release: Raytheon Exits the Personal Rapid Transit Business, October 12, 1999
Raytheon reduces earnings outlook for 1999 and 2000; Announces $638 million of charges against earnings. The stock lost 50% of its value on this day.
FOR IMMEDIATE RELEASE
Contact: Toni Simonetti 781.860.2539
Lexington, Mass. -- October 12, 1999 -- Raytheon today reported that it is
reducing its earnings expectations for 1999 and 2000 as a result of revenue
shortfalls and lower-than-expected margins at Raytheon Systems Company
(RSC), and additional charges to be taken against earnings attributable to
both the Electronics Segment and Raytheon Engineers & Constructors (RE&C).
The new charges (detailed below) amount to $638 million pre-tax to be
recorded in 1999, or $1.15 per share, plus an additional $30 million that
will be recorded in 2000 as incurred. Also affecting reported earnings for
1999 is a charge of $82 million pre-tax, or $0.16 per share, that was
recorded in the first quarter upon adoption of accounting standard SOP98-5.
Raytheon's current estimate for 1999 earnings per share is between $1.40 -
$1.50 per share including the effect of all charges, or $2.70-$2.80 per
share excluding charges. This compares to the most recent consensus
estimate of $3.56 per share. For the year 2000, the company estimates
earnings per share will be in the range of $2.10-$2.25, compared to the
most recent consensus estimate of $3.91 per share.
"This is very disappointing news," said Daniel P. Burnham, Raytheon
chairman and chief executive officer. "We are frustrated with this
performance, but I can assure you we have dug deeply to understand the
issues and are dealing with the problems. We've also come to the conclusion
that fundamental changes are taking place in our business and in the
industry, and as a result we are changing some key assumptions in our
business model to arrive at a new baseline for Raytheon that is fact-based
Revenue for 1999 is expected to be approximately $20 billion, or about $600
million less than originally expected, primarily attributable to delays in
procurement decisions and a continuing shortage of software engineers to
work on revenue-producing programs. Further, Raytheon believes annual
revenue growth for 1999 and 2000 will be approximately 3 percent, instead
of its earlier estimate of 6-8 percent per year. Profit margins at RSC,
widely expected to be about 15 percent, are declining and are now estimated
to be about 12 percent next year. Despite substantial improvements in
productivity, overall margins declined due to emerging competitive pricing
issues, lower-than-expected margins on international business, and an
unfavorable change in the domestic versus international mix.
In the years 2001 and beyond, the company expects to grow revenue at a
higher rate than market growth. The company expects to drive improvement in
margin from the 12 percent level through Raytheon Six Sigma, working
capital efficiencies, and portfolio management.
Operating cash flow for the year is adversely affected by the cash
component of the charges combined with the company's revised revenue and
profitability outlook. Consequently, Raytheon expects to end the year with
approximately $9.3 billion in net debt in 1999 and $9.0 billion in net debt
at year-end 2000.
"Clearly, our businesses can and should be large generators of cash, and
anything less is unacceptable performance. We have taken immediate action
to redirect the entire company to improve our cash management capability,"
Details of the charges, of which approximately half will have a cash impact
over time, are as follows:
* $274 million in new restructuring charges for additional employment
and facility space reductions and related period expenses;
* $74 million in special charges, primarily to write down to fair market
value certain assets such as the company's investment in Iridium ($35
million), wireless networking inventory ($33 million), and the exit
from the personal rapid transit business ($6 million);
* $320 million in operating charges related primarily to contract
performance issues on four contracts at each of RSC ($195 million) and
RE&C ($125 million).
"While Raytheon moved quickly and decisively to consolidate and integrate
several new defense electronics businesses into the company's portfolio,
this put a tremendous strain on people and systems," Burnham explained. "In
retrospect, we tried to do too much too fast, given the size of the task,
our state of readiness, and the depth and maturity of the management team.
The consolidation is largely behind us now and the benefits of
restructuring and productivity improvements are helping to counter the
effects of these setbacks.
"Raytheon continues to be a strong company that can outperform in its
industries," Burnham continued. "We believe that aerospace, defense, and
electronics are growth businesses and Raytheon is well-positioned to share
in that growth."
He also noted that key initiatives underway, such as Raytheon Six Sigma,
leadership development, and cash management, continue at full speed and are
delivering early results.
"Raytheon has profound strengths. Our program performance is sound and our
technology is world-class as evidenced by the recent successful EKV
(Exoatmospheric Kill Vehicle) test. Although we clearly have not done so
this year, we have the ability to generate substantial amounts of cash. Our
productivity continues to improve and has helped offset some of the pricing
pressure we are facing. We understand the dynamics that drive our earnings
and believe that we have found the bottom. While our first priority for
cash will be to pay down debt, we will take advantage of any appropriate
opportunity to return value to our stockholders. In the end, we will work
to re-establish our credibility and restore investor confidence through
deeds, not words," Burnham concluded.
Raytheon Company, based in Lexington, Massachusetts, is a global technology
leader that provides products and services in the areas of commercial and
defense electronics, engineering and construction, and business and special
mission aircraft. Raytheon has operations throughout the United States and
serves customers in more than 80 countries around the world.
Disclosure regarding forward-looking statements: Certain statements made in
this press release contain forward-looking statements, within the meaning
of the Private Securities Litigation Reform Act, regarding the company's
future plans, objectives and expected performance. Specifically, statements
in this release that are not historical facts, including statements
accompanied by words such as "believe," "expect," "anticipate," "estimate,"
"intend," or "plan" are intended to identify forward-looking statements and
convey the uncertainty of future events or outcomes. The company cautions
readers that any such forward-looking statements are based on assumptions
that the company believes are reasonable, but are subject to a wide-range
of risks, and, there is no assurance that actual results may not differ
materially. Important facts that could cause actual results to differ
include but are not limited to: differences in anticipated and actual
program results, the ability to realize anticipated cost efficiencies, the
effect of market conditions, the impact of competitive products and
pricing, and the integration of acquisitions, among other things. Further
information regarding the factors that could cause actual results to differ
from projected results can be found in the company's reports filed with the
SEC, including "Item 1 - Business" in Raytheon's most recent Form 10-K.
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Last modified: February 18, 2008