RTN
#Yes, sure.
I'll address, <UNK>, the TRS one.
There are a few moving pieces with the remaining venture going forward that impact both IDS operating income and at the Raytheon level net income, but they essentially offset each other and are not significant to our results so we shouldn't see an impact one way the other going forward.
And on the Forcepoint, you're absolutely correct, <UNK>.
You know, commercial cyber is a dynamic and rapidly evolving environment, and you did mention competitive landscape, and it's going to continue to shift, Raytheon continues to invest in R&D to ensure that we have the best products and capabilities for customers, and that's where we're getting the feedback from our customers on.
I would add one thing is that you probably saw that the multiples and valuations for Blue Coat acquisition do reflect the premium value and growth potential that this commercial cyber market currently has.
Just a quick status on Forcepoint, we have integrated Websense in with our Raytheon cyber products group.
It's substantially complete.
It was a seamless transition to the new organization, and now we are working to complete the transition of the Stonesoft acquisition into the overall Company, and we see considerable upside potential as we move forward based on this business we have put together.
Hey, <UNK>.
<UNK>, you know the nature of our business.
The majority of these big awards have about a three-year or five-year cycle, in that range.
So traditionally, I mean, we lighten up the first year.
If it's three year, we lighten up the first year little bit, lighten up the last year, and the middle year is the main.
But normally it's about a three-year duration in terms of revenue generation out of the majority of the bookings.
IIS does have some quick term, one-year type turn business, but majority of the business, and a majority of these major awards that we brought in, are three- to five-year type revenue generators.
And I would just add, you know, obviously we're not giving guidance for 2017, but from when you convert that strong pipeline to a financial perspective, the backlog we had entering the year on the heels of a 1.09% book-to-bill, strong book-to-bill through the first six months, strong four-quarter trailing book-to-bill, as <UNK> mentioned in his comment, a pipeline that we haven't seen of this magnitude for quite some time.
We expect to continue to grow that top line, taking all that into account into 2017 and drive margin expansion as well.
Let me hit that, <UNK>, real quick.
It breaks into three buckets.
The first bucket, and I actually mentioned in my prior comments, was the counter-terrorism.
And that's driving the sales on the precision weapons across-the-board at missiles.
The other bucket is deterrence, and that's essentially driving a lot of the work relative to our Patriot missiles and our Patriot systems, and then the last large bucket is, I would call it, and these were the third offset strategy or the future in terms of upgrades to new missiles and capabilities.
In the middle bucket on the deterrence, there is a large ---+ when you saw that in terms of awards on our standard missile product line.
The bottom line is, is that missile company is getting significant uptick in each of those three major areas, and we should see that going out for a sustained period of time, at least over the next five years.
And <UNK>, I would just a little bit more nearer term, if I take that op tempo bucket around our consumables and then the rest of the business that the other two buckets that <UNK> described, think of it this way: for the growth this year is split roughly half-and-half between, you know, driven by the op tempo and consumables, and the other half through the rest of the business, and as <UNK> said, based upon the demand we are seeing across the board there, we would expect all aspects of the missiles' business to contribute to growth over the next 12 to 18 months.
Let me address the $500 million.
The $500 million is multiple opportunities for bookings for the rest of the year.
So we're not just hanging our hat on one big award to be able to bring that on board.
Relative to next-generation jammer, that program is moving ahead excellently, it's on schedule, and we're very happy about the performance of that program.
Obviously our customer, the Navy, is also very happy with the performance.
We are working with the Navy in terms of the next, I call it next-generation jammer II or another implementation of a next-generation jammer.
And we are well on our track I believe to have a solid offering for the Navy on that program.
I think just to add to <UNK>'s point about the $500 million increase, <UNK>, you know across multiple programs as <UNK> said, a lot of the, you know, bookings, the favorable bookings we've seen so far is timing, but within SAS is where we see a lot of those opportunities playing out.
They've had a real strong first half of the year between the international classified booking in Q1, JPSS and next-gen jammer that we mentioned, so across multiple opportunities.
But the growth would mostly be in the SAS business.
Yes <UNK>, so at this point it is too soon to predict where we think things will go between now and the end of the year.
You know, we will give everyone an updated outlook as we typically do on the third-quarter call.
That said, let me give you a little bit of insight to a few things.
Year to date our asset return is about 4 1/2%, and due to asset smoothing any type of actual return would have to be significantly different than expected at year end in order to have a meaningful impact on 2017 THAAD CAS and/or net cash.
That said, assuming all other assumptions remain the same, every 25 basis points change in our discount rate has about an $80 million impact on 2017 THAAD CAS, and net cash would be unchanged because it continues to be based upon a 25-year average discount rate.
So a few variables there that you all can use and model but again, with half the year left to go, a little too early to predict what exactly next year may look like and we'll update you hear at the end of October on our third-quarter call.
So first of all, Small Diameter Bomb II, it's definitely going on the F-35s.
So that's going to ---+ all the F-35s, both the domestic and international, have an opportunity to be able to use that very sophisticated precision weapon.
So I think that's the main aircraft now.
It also goes on F-15s and F-16s, and it's up pretty simple system to integrate on to an aircraft, so we will be working to put that on any aircraft that we're allowed to go put it on.
But the bottom line is, is that forecast assumes just the F-35, F-16s and F-15s.
A majority of it being domestic, so we have still significant upside from that number on the international marketplace
Thank you, <UNK>.
Yes, so let me take that and then if <UNK> wants to add any color he can, and I'll start, <UNK>, with IDS, right.
So we've been talking about IDS for a while, but we obviously continue to see opportunities to expand margin further in the second half of the year.
You know we did raise our margin guidance based upon the results through the first half of the year, up by about 40 basis points, half of that was because of a little bit higher of gain on the TRS transaction, and the other half was from productivity we are seeing because of the leverage of the volume going through our factory, the investments in factory automation equipment upgrades, as we mentioned before.
And, you know, I talk about our third-quarter guidance and how it was from a timing point of view impacted by TRS moving into Q2, but we did offset ---+ that was worth about $0.50 ---+ we did offset about $0.12 of that, primarily driven by further opportunities for net program efficiencies to drive more margin.
Those are moving in from Q4 to Q3, not just at IDS but at other businesses.
So we feel real good about where we are headed going forward from a margin perspective.
We would expect to continue as we've been saying both at the Company level and specifically at IDS, to continue to expand margins going forward beyond 2016 into 2017 as well.
From an IIS perspective on the sales, they had a good quarter.
Their sales were up to 3%, driven by cyber security and special-mission programs.
For the second half, we see their sales in line with last year's second half despite having four fewer workdays, and we still expect growth for the year at IIS in the low single digits.
I'll just cap that off, <UNK>, with the fact that both our Andover plant and IDS and also our Tucson plant, there is ---+ and on the Tucson plant we tripled production on several of the missiles there without having a significant need to (inaudible) capital expenditures to be able to do that, and also at the IDS plant, because I know you've been at before, the parking lot is overflowing, which means there's ---+ and that's not just a one shift, that's on multiple shifts.
So both of those factories are chugging along at very high capacity rates that obviously [gives] a strong signal and strong support for high margins moving forward.
Good morning,
Let me hit on the international side right off the bat here, is that we have 2017, I did mention the Pit Bull and Patriot opportunity, and we also have the THAAD TPY-II radar opportunity in 2017 also, 2017/2018.
But that's kind of two big ones for 2017, but there are a also significant number of orders for precision munitions that will be coming in, in 2017 and some other areas in terms of missionized aircraft that we believe will be coming in 2017 also.
So we believe at bottom line that a strong pipeline of international awards in the 2017 timeframes.
And I think, you know, you mentioned Brexit, and I'll make more of a general comment rather than specific to your question about international.
You know, we don't see any significant impact at all from Brexit.
Just to put it in perspective, the British pound is the functional currency for only about 2% of our sales, so not a major impact at all to the Company and to the business.
And I think on the Middle East, you know we mentioned the order for Kuwait Patriot upgrade for about $0.5 billion here in the quarter.
I think <UNK> also mentioned in one of his prior comments back in Q1 we had another significant order for about $650 million for an international classified customer, and we've been pretty consistent over the last couple years, you know, with our customers, our nations that produce oil, that they have a demand for our products because they're looking to protect their citizens and their sovereignty, and we're seen no change to that sitting here today.
<UNK>, we'll split the question here.
As we talked about earlier, we had a major award in the first quarter, and that was at SAS for an international product which set them up for a good year in terms of conversion of that revenue in essentially 2016, 2017 and 2018.
They've also done quite well in the classified domain in terms of new awards and of converting those new awards into revenue.
They also are working in completing up on the next-generation jammer P&D program, which is in full swing, another significant revenue generator for the overall business.
And I can tell you they're operating on all cylinders relative to all the other programs that they have in there, and it's a good healthy mix.
I would call it new programs coming onboard, programs that are I would call it in their mature stage, and then programs that are starting to fall off.
So they have a very good, I would call it a very healthy mix of programs that should be good revenue generators here for the next five years.
And as far as your question on the, you know, the sales in back half of the year, so sales were up 9% in the quarter and 8% year to date, driven by classified programs at SAS.
The second half will be driven by both domestic and international classified programs.
Obviously they're off to a good start, and we see ourselves ending the year closer to the higher end of their sales range.
What may be distorting it a little bit here for you is, you know, we give it to you in one of the attachments, our workdays are a little different this year where the back half of the year in Q4 in particular has four fewer workdays than we saw in 2015.
If you normalize for that, they would be showing some growth in the low single digits in the second half.
Morning, <UNK>.
Sure.
So let me start with the CIP.
You're right, we have seen a build up in our CIP balance.
This increase was in line with what we're expecting.
It was primarily driven by our sales growth, along with the timing of program milestones and collections, including the ramp-up on some of the more recent awards that we've had last year and into the early part of this year.
It's also, you know, important and I would note that our expected cadence is similar this year to prior years, with the buildup of CIP in the first half and then a decrease in the second half, really driven primarily by the timing of certain milestones and collections.
If you look forward to the end of the year, and I think we talked about this back in Q1, we would expect our CIP balance to be up compared to 2015 but more in line with what our balance was at the end of Q1 of 2016, and this is in-line with our growth profile and again driven by the timing of program milestones.
As we move to the back half of 2016 and into 2017, we will continue to focus on driving working capital improvements and cash flow generation across the business.
You know, we obviously saw strong cash flow here in the quarter.
Some of it was timing, <UNK>, right.
But some of it was permanent improvement for the year, which is why we raised the outlook for the year by $100 million to the new range of $2.8 billion to $3.1 billion.
As far as cash taxes go, I think that was your second question, no change from a total year point of view from what we were previously expecting there.
We still think cash taxes will be paid a little bit over $900 million for the year.
The net of refunds, a little over $750 million for the year as well.
I think your third question was around the cash impact in 2017 from the required funding of the pension, you know, so look as we've said previously there, when we hold all the assumptions constant, we see our CAS increasing, going from 2016 to 2017 as we transition fully to harmonization, and then remaining relatively flat beyond that.
In 2016, the pension cash flow is a bit of an anomaly.
It's up from 2015, but then again after 2016, the cash flow from pension, it's still expected to be positive but more as we've said at a normalized rate, plus or minus $700 million, net positive.
We do see improved cash flow in our business as programs continue to progress through their life cycles and achieve significant program milestones that will improve the cash position, and our continued focus on working capital including cycle time and payment-term reductions with our customers will also drive some cash flow, which could and will offset part of that increase.
You know, as reminder that increase is really driven by the plans coming out of full funding from a PPA point of view, and again primarily having to fund the annual-service cost.
As we always do, kind of last point here, you know we'll continue to monitor all aspects of the pension, and you know, we will consider making it, if it makes economic sense to the Company, to the shareholders, we'll consider making discretionary contributions, you know, before the year's over that could potentially have a further impact on the cash flow profile in 2017 and beyond.
Morning, Rob.
That's an excellent question.
There's actually two pursuits or two programs that polling is pursuing.
One is a system that the Patriot system satisfies, and as you probably have seen in the press, the minister of defense is moving forward with the Poland acquisition.
And so it's working government-to-government and also Raytheon is heavily involved in that procurement.
Then there's another program which is being competed, and it's a shorter range system that ties directly in with the capabilities of our NASAM system, the system that protects our nation's capital.
It's also the system that we sold to Oman and about four other countries outside the United States.
So that's the two.
We are obviously positioned on Poland Patriot, and we are working to make sure that we're in a good position on the short-range system, too.
Yes, so from a revenue point of view, for the total year, we see IDS sales, you know, roughly in line with 2015, with as you said the cadence improving as we move through Q3 and Q4.
And that's due primarily to the start up of some new awards this year, as well as the continued ramp-up on some of our international Patriot programs as they move through their normal lifecycle.
You know, from a margin point of view, as I said earlier, we still see opportunities for margin expansion.
We were pleased with the results in the second quarter.
The 15.5% margin that IDS delivered, excluding the TRS gain.
As I mentioned, part of that was from accelerating net program efficiencies, profit improvements, from the back half of the year into the second quarter.
We see a little bit more of that in the third quarter.
We upped the margin guidance by the 40 basis points, half of which was attributable to operating performance, the other half to the gain.
And we would expect to continue to see margin improvement at IDS beyond 2016's rate normalized for the TRS gain, we'd expect to see improvement continuing into 2017.
Yes, so the $0.20, and maybe it's just the definition of the buckets here, so you got the $0.03, right.
On the gain, right.
That's about $0.03 higher, a $0.05 on tax, about $0.09 from the business operating margins, okay.
And then there was, I mentioned interest was a little better, that's about $0.01, and then we had some corporate operating items that was another $0.02.
So you can bucket it a lot of ways, but around $0.12 out of that $0.20 from operations, and about $0.08 from non-operating items.
Miles, what was the second program you were asking about.
Okay, let me hit the first one here on T-X competition, and a little bit about our approach to the competition.
We're treating the program as more than just an airplane, flying an airplane.
It's really about preparing the pilots for the mission success in advance, and we're looking at for their ability to deal with multi-faceted and increasingly complex battle space, and so what we are bringing to the table is our industry-leading capabilities in training and also next-generation mission systems, and believe we're well-positioned to provide the Air Force a comprehensive solution to their training needs here.
Our offering is the Alenia M-346 in any configuration, and it's already training fourth- and fifth-generation pilots from Israel, Singapore, Italy and Poland.
It is a complete system, and the classroom to simulators to the aircraft, it is operationally proven.
It does provide high degrees of confidence in both schedules cost and performance based on its proven capability.
Our T-100 solution incorporates also our team's expertise in live virtual constructive training, and again that's to drive efficiency and enhance affordability.
In terms of timing, it is our understanding that the Air Force does plan to release an RFP by the end of this year and to award a contract by the end of next year.
So we are working this very heavily.
It's an important program to Raytheon.
It's also an important program to the Air Force, and we believe we have the best solution on that.
Okay, we're going that leave it there for the day.
Thank you for joining us this morning.
We look forward to speaking with you again on our third-quarter conference call in October.
Tawanda.
