Raytheon Company (RTN)

RTN 
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Raytheon (RTN)

Q4 2012 Earnings Call

January 24, 2013 9:00 am ET

Executives

Todd B. Ernst - Vice President of Investor Relations

William H. Swanson - Chairman, Chief Executive Officer and Chairman of Executive Committee

David C. Wajsgras - Chief Financial Officer and Senior Vice President

Analysts

Joseph B. Nadol - JP Morgan Chase & Co, Research Division

Jason M. Gursky - Citigroup Inc, Research Division

Yair Reiner - Oppenheimer & Co. Inc., Research Division

Carter Copeland - Barclays Capital, Research Division

Samuel J. Pearlstein - Wells Fargo Securities, LLC, Research Division

Robert Spingarn - Crédit Suisse AG, Research Division

Robert Stallard - RBC Capital Markets, LLC, Research Division

Douglas S. Harned - Sanford C. Bernstein & Co., LLC., Research Division

Cai Von Rumohr - Cowen and Company, LLC, Research Division

George Shapiro

David E. Strauss - UBS Investment Bank, Research Division

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Raytheon Fourth Quarter 2012 Earnings Conference Call. My name is Chanel, and I will be your operator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to Mr. Todd Ernst, Vice President of Investor Relations. Please proceed.

Todd B. Ernst

All right. Thank you, Chanel. Good morning, everyone. Thank you for joining us today for our fourth quarter conference call. The results we announced this morning, the audio feed of this call and the slides that we'll reference are available on our website at raytheon.com. Following this morning's call, an archive of both the audio replay and a printable version of the slides will be available in the Investor Relations section of our website.

With me today are Bill Swanson, our Chairman and Chief Executive Officer; and Dave Wajsgras, our Chief Financial Officer. We'll start with some brief remarks by Bill and Dave, and then move on to questions.

Before I turn the call over to Bill, I'd like to caution you regarding our forward-looking statements. Any matters discussed today that are not historical facts, particularly comments regarding the company's future plans, objectives and expected performance, constitute forward-looking statements. These statements are based on a wide range of assumptions that the company believes are reasonable, but are subject to a range of uncertainties and risks that are summarized at the end of our earnings release and are discussed in detail in our SEC filings.

With that, I'll turn the call over to Bill. Bill?

William H. Swanson

Thank you, Todd. Good morning, everyone.

Raytheon delivered solid operating results in 2012. Our focus on lowering costs and program execution drove higher than expected earnings and cash flow for the year. Demand for our broad portfolio of cutting-edge technologies and innovative solutions resulted in bookings well in excess of expectation, and we ended 2012 with a record funded backlog.

Fourth quarter bookings were strong at $7.9 billion, resulting in a book-to-bill of 1.23. International comprised a robust 40% of fourth quarter bookings.

When looking at the full year, our book-to-bill was 1.09 and was driven by strong domestic orders for missiles, radars, training, communication and classified programs, as well as international orders for command and control systems, precision munitions and sensors among a multitude of other awards. We also exceeded our initial bookings expectation by about 6%, ending the year with $26.5 billion of total bookings, with domestic demand a little higher and international also strong.

In the fourth quarter, international revenue increased 8% over last year and represents 27% of the quarter's total revenue. For all of 2012, international revenue was 26% of our total revenue, setting the standard for our industry and continuing to validate our international strategy.

As a technology and innovation leader, we continued our investment strategy to strengthen our capabilities, grow our market position and better meet customer needs.

During the fourth quarter, we completed 2 acquisitions. SafeNet Government Solutions is a world-class provider of encryption technology that aligns well with Raytheon's advanced strategic and tactical communications capabilities and enhances our position in these markets. Teligy specializes in wireless RF communication, vulnerability analysis, reverse engineering and rapid prototyping. These acquisitions ensure that we are well positioned in communications and cyber markets for the future.

Looking at the defense environment, the U.S. government averted the brunt of the fiscal cliff earlier this month. However, the ultimate outcome for sequestration was delayed and not resolved, and the new potential implementation date for sequestration is now March 1. The government continues to operate under a continuing resolution for fiscal year '13 that runs through March 27 or roughly halfway through its fiscal year. It's important to remember that we've been operating under various CRs and the threat from sequestration for a while now, and the company continues to perform well. This is a testament to the strength of our strategy and the operating talent across the company.

As we've discussed on previous calls, we're planning for potential various outcomes. Regardless, our focus remains on continually finding new ways to deliver world-class technology, while at the same time reducing our costs and improving our efficiency, whatever the environment. With our culture of continuous improvement, it's how we manage and run the company.

Our latest example of this is the formation of our Global Business Services group, or GBS, that we announced last week. GBS will leverage common systems across the company, enabling simplified processes and increasing operational speed and agility while providing value to our customers. It brings together the best practices from the company's supply chain management, finance, information technology and human resource functions to drive increased customer satisfaction and improve efficiencies. And it will build on the continuing success of our ongoing enterprise efficiency initiatives by applying proven service delivery practices more broadly across the company.

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