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Transcript of Security Solutions Transportation Sensor Systems Civil Communications Mission Control Military...
Security Solutions
Transportation
Sensor Systems
Civil Communications
Mission Control
Military Communications
NCS
GOAL: Understand how the decisions you make impact key company measures.
…to make better, smarter, faster, business decisions!
Road Map
Today:• Understand the 5
key drivers of business
• How Raytheon is performing around each driver
• The annual report and financial statements
Tomorrow:• Examples of companies performing well around
the 5 drivers
• Deepen our understanding through teaching the 5 drivers and the financial statements
• Applying the business drivers to your business and communicating this to the class
• Aligning our personal objectives with the business needs
• Individual Action plans
Our Program Methodology
Important Question!
What’s your “Business Acumen”?
How much do you know about Raytheon’s
Key Success Measures?
Let’s find out!
1 - How much Cash was on hand? $________
2 - How much Cash was generated by Operating Activities? $________
3 - How much Free Cash Flow was on hand? $________
4 - What was our total Net Sales? $________
5 - What was our Operating Income/EBIT? $________
6 - What was our Net Income? $________
7 - What was our EPS? $________
8 - What was our Backlog? $________
9 - How much did Net Sales grow (Y/Y)? _______%
10 - What was our Operating Income growth? _______%
11 - What was our Net Income growth? _______%
12 - What was our EPS growth (Y/Y)? _______%
*Given all the above, how do we stack up against other companies?
Pop Quiz!
For fiscal year: 2011
35
Clear Learning Objectives:
1. List and describe the 12 key performance measures that are important Bill, Dan and the Executive Team.
2. List and describe the 5 business drivers all successful businesses must focus on.
3. Create a personal action plan that can positively impact personal performance and company results.
4. Teach specific components of Raytheon’s financial statements.
5. Better articulate company performance & strategy.
®
Only 5-10% of business start-ups survive past 5 years.
16% of CEOs lose their job every year. Booz Allen Hamilton 5th annual Study
70% of merger and acquisition activity do not live up to expectation. Wall Street Journal 2007
Business can be tough!
So why do businesses fail?
Acumen means?
3
…the ability to make good business decisions, in a timely manner, with an understanding of how the decision should impact the business.
Every business must focus on five business drivers.
If they do, they will be successful. If they don’t, they’ll fail.
Let’s Start a Business!
Ram Charan Believes:
When it comes to running a business successfully,the street vendor and the CEOs of some of the world’s largest and most successful companies talk and think very much alike.
-Ram Charan
®
8
Cash
Growth Growth
Cash Assets
Profit
Definitions:
Cash:
Measures
Cash Flow:
Definition
See Page 58
(Savings Account)
$5,000 On hand
(Savings Account)
$5,000 On hand
(Checking Account)
$100,000 Salary- $90,000 Expenses $10,000 Cash Flow
Put in Acct.
Spend it
Invest it
(Checking Account)
$100,000 Salary- $90,000 Expenses $10,000 Cash Flow
Put in Acct.
Spend it
Invest it
Cash FlowCash Flow
Cash Cash
What is required to Grow and Maintain the business.
Cash
8
Free Cash Flow:Operating cash flow minus capital expenditures minus internal use software expenses. What is it used for??
It is the cash available to a company to use for paying debt, providing dividends to investors, buying back stock, expansion, acquisitions, and/or financial stability to weather difficult market conditions.
®
Why is CASH so important?
“Cash is more important than your mother.“
-Al Shugart (Former Seagate CEO)
“Cash is a company’s oxygen supply...” …and allows you to stay in business.”
-Ram Charan
Cash is King!Cash is King!
“Cash is more important than profit.”
-Peter Drucker
®
Top 6 Uses of Cash1 - Dividend Pay-outs 4 - Research & Development (R&D)
2 - Stock Buy-Back 5 - Capital Expenditures (CAP-EX)
3 - Mergers & Acquisitions (M&A) 6 – Debt Retirement9
$588M
$1,250M$645M
$625M
$340M
$0M
1. Can a company have: •Too little cash?
• Too much cash?
2.How much cash should a company have?•“Companies ought to keep just enough cash to cover their
o Operational expenseso Interest expenseso Capital expenditureso ….plus a little bit more in case of emergencies.” ~Investopedia
•Why carry more cash:• Cash Conversion Cycle: Time to turn inventory & A/R into cash.• Projected Reliability: Timing of expenditures & required disbursements.• Growth Needs: Strategic objectives regarding expansion & acquisitions.• Risk Reserve Needs: Uncertainties/Risk factors: economy, loss of key mgmt, loss of patent
life, etc. • Current Access to Cash: Status of lines of credit.• Additional Access: Ability to raise cash from equity or debt offerings. (Based on company’s credit rating).
•Sources of Cash:•Earn it: Core business/Sales (Cash From Operations) Pros: Cons?•Sell an asset: Stocks, real estate, capital assets, etc.) Pros: Cons?•Borrow it: Get loans (Debt Financing) Pros: Cons?
Sell stocks (Equity financing)
CASH
Yes! #1 reason why companies fail.
Yes! Not using cash wisely. Shareholders want:
Invest it or return it to us!
®
9
WHY? •They sell commodities•Short sales cycle•More predictable business model
WHY? •They sell commodities•Short sales cycle•More predictable business model
High Cash vs. Low Cash
1.8%
2.0%
1.7%
High Cash Position
WHY? •Acquisitions•Long sales cycle•High risk industries (pharma, tech)•Unique brand
S&P 500 Average: Cash = 6%
Low Cash Position
42%
75%
32%
9
DSO (Days Sales Outstanding) is a measure of number of days before Sales turns into Cash.
Total Days Sales Outstanding
Sales Invoice Collections
Unbilled/Retained DSO
Billed DSO
9
What is the connection
between DSO and Cash Flow?
Why is important to collect cash (money) as soon as possible?
Put the money to work again. What if I can increase retention – customers & employees
What if I can pay slower? Spread costs out. Depends on the contract type. Can hurt relationships.
Key ways to increase CASH and CASH
FLOW:
To increase CASH:
Paying slower Collecting faster … with the same sales revenues and costs.
To increase CASH and CASH FLOW:
Increase revenues/sales Reduce/cut costs
®
9
CASH: Raytheon®
Total “Sales”
Cash
Cash Flow
Cost of Capital: The required return necessary to make a capital budgeting project, such as building a new factory, worthwhile. Cost of capital includes the cost of debt and the cost of equity.
Free cash flow: Operating cash flow minus capital expenditures. It is the cash available to a company to use for paying debt, providing dividends to investors, buying back stock, expansion, acquisitions, and/or financial stability to weather difficult market conditions.
Business DriverRaytheon
(in Millions)
2011 2010 2009 2008
Net Sales $24,857 $25,183 $24,881 $23,174
Net Income $1,896 $1,879 $1,935 $1,672
Cash
Cash $4,000 $3,638 $2,642 $2,259
Cash as a % of Sales 16.1% 14.4% 10.6% 9.7%
Cash From Operations (CF) $2,156 $1,931 $2,745 $2,036
Free Cash Flow (FCF) $1,719* $1,599 $3,111 $1,252
S&P 500 Average: Cash = 6%
CASH: Raytheon®
Total “Sales”
Cash
Cash Flow
Business Driver
RaytheonGeneral
DynamicsLockheed
MartinBoeing
Northrop Grumman
2011 2011 2011 2011 2012
Net Sales $24,857 $32,677 $46,499 $68,735 $26,412
Net Income $1,896 $2,526 $2,655 $4,018 $2,118
Cash
Cash $4,000 $2,649 $3,582 $10,049 $3,002
Cash as a % of Sales 16.1% 8.11% 7.70% 14.62% 11.37%
Cash From Operations (CF) $2,156 $3,238 $4,253 $4,023 $2,115
Free Cash Flow (FCF) $1,719* $2,780 $2,310 $2,503
S&P 500 Average: Cash = 6%
4. Benchmark the numbers
2011 2010
Cash $4,000 M $3,368 M (UP)
Cash Flow $2,156 M $1,931 M (UP)
Free Cash Flow $1,719 M $1,599 M (UP)
1. Define Cash Driver• What is required to grow
and maintain the business.
2. Measures of Cash1. Cash: Easily converted into cash in 90 days
or less.
2. Cash Flow: Difference of cash in and cash out over a given period of time.
3. Free Cash Flow: Operating cash flow minus capital expenditures.
3. Importance of Cash Driver• Have sufficient cash to run the business
• What is the cost of that cash (capital)
• Enhance shareholder value
• Improve attractiveness to suppliers and customers.
CASH - Review
9
®
Action Plan: What Single Action are You Committed to do to Positively Impact CASH and CASH
FLOW?
®
Manage billing milestones – efficiently execute completion milestones Minimize time from task completion to payment (Days Sales
Outstanding – DSO) Ensure timecard compliance
Timely – DAILY input / accurate entry of time worked Establishment and communication of proper charge numbers Pre-emptive discussion on how to charge in weather calamities,
training, etc. Timely review/approval of subcontractor and consultant invoices Focus on timely submittal of invoices and hours by subcontractors Fully participate and understand monthly financial reviews Maximize profitability Excellent contract performance
Equates to happy customer who don’t protest invoices or delay payments due to dissatisfaction
9
10
Profit
Growth Growth
Cash Assets
Profit
How do you increase Profit($)?
#1- Increase price
#2- Lower costs
#3- Or Both!#3- Or Both!
SALES - all expenses SALES - all expenses
Net IncomeNet Income
•Profit = Earnings or Income•Expressed in Dollars $ or as a Percent %
Profit
®
Definition: PROFIT
SALES – All program costs SALES – All program costs
Operating Profit:Operating Profit:
10Earnings Per Share (EPS):Earnings Per Share (EPS): Net Profit / # of outstanding shares
Measures
Profit
Notes:
Gross Margin: Sales – Cost of Goods Sold (COGS)A good indication of how profitable a company is at the most fundamental level. Companies with higher gross margins will have more money left over to spend on other business operations, such as research and development or marketing.
Operating Profit or EBIT: Earnings Before Interest and Taxes (non-controlables)EBIT is a good gauge of how well a company is being managed.
EBITDA:Earnings Before Interest, Taxes, Depreciation and Amortization
Net Profit Margin:Revenues - all expenses.
11
Sales Price: $1.50
Water - $ .04Label - $ .11 COGSBottle & cap - $ .15 Packaging - $ .20 Direct LaborTotal: ($ .50)
$1.50 - $.50 = $1.00 Gross Profit = 67% Gross Margin
Rent - $ .03Salaries, Gen, Admin. (SG&A) - $ .30Marketing - $ .08 (Controlables) Shipping - $ .19 Total: ($ .60)
$1.50 - $.50 - $.60 = $.40 Operating Income (EBIT)
Interest Expense - $ .04 (Non-controlables) Taxes - $. 06Total: ($ .10)
$1.50 - $.50 - $.60 - $.10 = $.30 (EBITDA)
Depreciation /Amortization - $ .02
$1.50 - $.50 - $.60 - $.10 - .02 = $.28 Net Profit = 18.6% Net Margin
Gross & Net Profit($) / Margin(%)
®
Artesian Water
Company
11
= Gross Profit/Margin $5,160 20.8%
Net Revenue (Sales) $ 24,857 - Costs of Goods Sold (COGS) (Cost of Sales) - $ 19,697
2011(in millions)
= Operating Income (Profit) / EBIT $ 2,857 11.5%
Also called: “Net Profit” and “Net Earnings”
- SG&A, R&D (Op Ex): - $ 2,303
®
= Net Income($) / Margin(%) $ 1,866 7.5%
- Interest Expense, Taxes, Etc: - $ 991
$1.00
Gross Profit/Margin & Net Profit/Margin
11
WHY?
They sell commodities.
“If you’re not unique, you better be cheap!”
WHY?
They sell commodities.
“If you’re not unique, you better be cheap!”
To drive Profit($) you need either: High Margin (%) or High Volume
High Margin vs. Low Margin
28%
32%
22%
3.6%
8.0%
1.7%
High Margins
Low Margins
WHY?
They offer something Unique!
S&P 500 Averages: Net Margin = 14%
11
Examples of PROFIT In Action ®
General Mills: Hot’n Spicy Chex Mix:
“We had 14 different pretzel shapes. By getting rid of some of them, we saved $1 million a year.”
Yoplait: Ditched multicolored lids, saving $2 million a year:
Airlines: Baggage Fees fatten airline revenues by $3.8B
Why do we want our company to be
profitable???
11
Example of Example of ProfitProfit
®
11
“In 1912, the Model T for the first time cost less than the prevailing average annual wage in the United States.”
“Ignoring conventional wisdom, Henry Ford continually sacrificed margins to increase sales. In fact, profits per car did fall as he slashed prices from $220 in 1909 to $99 in 1914.”
“But Sales Exploded!”
“Ford demonstrated that a strategic, systematic lowering of prices could boost profits, as net income rose from…
$3 million in 1909 to $25 million in 1914.”~Daniel Gross, Forbes Greatest Business Stories
(in millions)
®
Earning Per Share = $ 1,866 M (Net Income available to common stockholders) ÷ 353.6 M (Diluted Shares)
$ 5.28 On Statement of Operations
Profit: Raytheon
S&P 500 Averages: Gross Margin = 34% Operating Margin = 15% Net Margin = 14%
Business Driver
Raytheon
(in Millions)
2011 2010 2009 2008
Net Sales $24,857 $25,183 $24,881 $23,174
Net Income $1,866 $1,879 $1,935 $1,672
Profit
Operating Profit ($) $2,857 $2,607 $3,042 $2,620
Operating Margin (%) 11.5% 10.4% 12.2% 11.3%
Net Income ($) $1,866 $1,879 $1,935 $1,672
Net Margin (%) 7.6% 7.5% 7.8% 7.2%
EPS ($) $5.28 $4.79 $4.89 $3.92
®
Profit: Benchmarks
(in millions)
Business DriverRaytheon
General Dynamics
Lockheed Martin
BoeingNorthrop Grumman
2011 2011 2011 2011 2012
Net Sales $24,857 $32,677 $46,499 $68,735 $26,412
Net Income $1,896 $2,526 $2,655 $4,018 $2,118
Profit
Operating Profit ($) $2,857 $3,826 $3,980 $5,844 $3,276
Operating Margin (%) 11.5% 11.7% 8.6% 8.5% 12.4%
Net Income ($) $1,896 $2,526 $2,655 $4,018 $2,118
Net Margin (%) 7.6% 7.7% 5.7% 5.8% 8.0%
EPS ($) $5.28 $6.82 $7.81 $5.34 $7.52
S&P 500 Averages: Gross Margin = 34% Operating Margin = 15% Net Margin = 14%
Raytheon Raytheon ProfitProfit
11
1. Define Profit Driver What is left over after you have subtracted
expenses.
Can be expressed in dollars ($) or as a percent (%).
2. Measures of Profit
1. Gross Profit (Margin) – subtract COGS
2. Operating Income - EBIT – Earnings Before Interest and Taxes
3. Net Income – subtract ALL expenses
3. Importance of Profit Driver Net Profit is one of the most important
#’s for the business.
Indicates price strength & cost controls
Identifies ability to manage costs
4. Benchmark the numbers
1. Operating Income = UP
2. Net Income = UP
3. EPS = UP
®
PROFIT - Review
Discussion: Action Plan-What Single Action are You Committed to
do to Positively Impact PROFIT? ®
• Manage expenses: - Manage cost budgets, approve only costs that have relevance and a business need
• Improve staffing practices- Reduce number of days between “Need Date to Start Date” to minimize
Opportunity Loss in revenue- When a position is vacant, we are not generating revenue- Have people with contingent offers lined up for backfills when required- Ensure the right people are in the right job- Minimize turnover- Support staffing efforts by participating in job fairs- Emphasize / encourage job referrals with your employees
• Effective program execution• Continuous process improvement – minimize waste, and reduce costs• High Customer satisfaction – award fees• Understand the various contract vehicles that are available, how
each one works – i.e. Firm Fixed Price, Cost Plus, etc., and the impact on profit
11
12
Assets
Growth Growth
Cash Assets
Profit
Definition: Definition: AssetsAssets
Assets
Asset Strength (Have)
• People:
• Property:
• Cash:
• Inventory:
• Plant & Equipment:
• Information:
Asset Utilization (Use)
Increase employee productivity.
increase usage with lower number of buildings.
Buy back stock, acquire another company, invest in higher returns.
“just in time” inventory increasing inventory turnover.
Decrease cycle time.
Increase number of patents per year.
What we have and how well we use what we have.
Definition
®
12
Definition: Definition: AssetsAssets®
Definition:What we have and how well we use what we have.
Assets: Include cash, property, plant, equipment (PP&E), technology, intellectual property, and people. Work processes are key “assets.” “People are considered, by many organization, their most important asset.”
Asset Strength (Have): Refers to the amount of liquidity your company has, including cash, cash equivalents, and unused lines of credit. The greater your company’s liquidity, the greater your Asset Strength.
Asset Utilization (Use): Refers to the return you obtain from your Assets. The more you can increase an asset’s ability to make or save money, the higher the utilization. In general Asset Utilization means the efficient use of assets—how hard a company’s assets work to make money, to produce revenue profitably.
We can increase Asset Utilization in two fundamental ways: (1) Decrease the amount of assets used to get results, and (2) increase the results obtained from using the same assets.
13
AssetsHigh & Low: ROA
High ROA Low ROA
Business Measures and Metrics
Raytheon Coach RIMM Proctor & Gamble Abbott Labs
2011 2011 2-26-2011 6-30-2011 2010
Revenues $25,857 $4,158 $19,907 $82,559 $38,166
Assets
Return on Assets (ROA) 14.8% 33.4% 26.5% 8.5% 7.8%
(In Millions)
ROA = Net Income = 1,866 = 7.2% Total Assets 25,854
S&P 500 Average: 6.56%13
AssetsHigh & Low: Equity Position
High Equity Ratio Low Equity Ratio
Business Measures and Metrics
Raytheon Google Apple Bank of America US Bankcorp
2011 2011 2011 2010 2010
Revenues $24,857 $37,905 $108,249 $110,220 $20,518
Assets
Equity Ratio 32.3% 80.1% 65.8% 10.1% 9.6%
(In Millions)
Raytheon = . Equity = $8,340 = 32.3%.
Total Assets $25,854
S&P 500 Average: 20%
13
Definition: Definition: AssetsAssets(Page 12)
®
Balancing…
Asset AssetStrength Utilization
The costs of excess inventory: - Cost of capital - Storage costs - Obsolescence - Inventory shrinkage
Benefit of a strong credit rating:-Can borrow more money… -at a cheaper rate.
What a company may sacrifice to have a high rating:- Borrow less money- Hold more cash- Take less risk thus lower returns
A strong asset base = financial strength = …costs MONEY!
Strong asset utilization = higher efficiencies = higher productivity
…more profit or MONEY!
13
Raytheon: ASSETS
13
®
Financial Summary Financial Summary Bookings
– Key Bookings (> $100M) to go in 2011: Sentinel, Saudi MODA C4I, Angola HFSWR, VIRTSIM and LA-RICS
– Book-to-bill >1.0 in all five years, with backlog growing 7.6 percent over the five-year period
Sales – $6.4 Billion in 2016 – Five percent (CAGR 2011-2016) driven by growth in Security Solutions (23 percent) Mission Support (13 percent)
and Transportation (7 percent)
– International – 14 percent CAGR to $1.8 Billion by 2016 driven primarily by MENA, India and Australia
2012 Op Margin – 2012 operating margin decline driven by run-out of 2nd Gen EO programs; margins remain consistent throughout remaining five years
Cash Conversion – 101 percent for the five-year period
'11 '12 '13 '14 '15 '16
Bookings
-
1.0
2.0
3.0
4.0
5.0
6.0
7.0
'11 '12 '13 '14 '15 '16
Sales
0%
2%
4%
6%
8%
10%
12%
14%
16%
0.0
0.2
0.4
0.6
0.8
1.0
1.2
'11 '12 '13 '14 '15 '16
Op Profit/ROIC
’11–’16CAGR 5.6%
’11–’16CAGR 5.6%
’11–’16CAGR 5.0%
’11–’16CAGR 5.0%
’11–’16CAGR 3.4%
’11–’16CAGR 3.4%
14% MarginTarget 4%
Ext. Sales GrowthTarget 14%
Ext. Op Margin
13
(in millions)
ROA = Net Income Total Assets
Assets: Raytheon
ROIC = Net Income - Dividends Total Capital
®
Business Driver
Raytheon
(in Millions)
2011 2010 2009 2008
Net Sales $24,857 $25,183 $24,881 $23,174
Net Income $1,896 $1,879 $1,935 $1,672
Assets
Net Sales $24,857 $25,183 $24,881 $23,174
Bookings $26,555 $24,449 $25,058 $26,820
Backlog $35,312 $34,551 $36,877 $38,884
ROIC 14.60% 13.30% 12.00%
13
S&P 500 Averages for 2010:
ROA = 5.8%R&D Spend = 5%Cap Ex = 5%
(in millions)®
Assets: Benchmarks
Business Driver
RaytheonGeneral
DynamicsLockheed
MartinBoeing
Northrop Grumman
2011 2011 2011 2011 2012
Net Sales $24,857 $32,677 $46,499 $68,735 $26,412
Net Income $1,896 $2,526 $2,655 $4,018 $2,118
Assets
Net Sales $24,857 $32,677 $46,499 $68,735 $26,412
Backlog $35,312 $57,410 $80,700 $355,500 $39,515
13
S&P 500 Averages for 2010:
ROA = 5.8%R&D Spend = 5%Cap Ex = 5%
Assets - Review
1. Define Asset Driver
• What we have and
• How well we use what we have.
2. Measures of Asset• ROA – Percent value of total revenue to total
assets.
• Backlog
3. Importance of Asset Driver• Demonstrates ability to work smarter
rather than harder.
• Indicates company invests in “right” assets
• Indication of execution
4. Benchmark the numbers
5. Bookings = UP
6. Backlog = UP
ASSETS = Efficiencies, productivity, speed,
making assets work harder
• Increase efficiencies (employee/company)• Increase employee productivity• Measure employee output• Increase performance • Increase process efficiencies• Reduce under-performing assets• Reduce steps in work processes• Increase cross-training of employees• Reduce cycle time• Decrease travel distance for US Trainers• Increase multi-sales• Increase smart road mapping
(page 13)
®
• Decrease customer churn• Increase FCR (First Call Resolution)• Decrease average handle time (AHT) per call• Use resources better within the company • Least cost network design• Schedule more efficiently• Encourage web meetings• Least cost routing• Reduce unplanned absences Your own idea…
REVIEW:
Action Plan: What Single Action are You Committed to
do to Positively Impact ASSETS?
13
Growth
Growth Growth
Cash Assets
Profit
14
Definition: Growth
Growth
14
The ability to increase year over year, quarter over quarter, and/or month over month.
• Sales Growth: Top-line Sales/Revenue
Measures
• EPS Growth:Increase/decrease in earnings per share.
• Operating Income Growth:Measures operational efficiencies.
“In today’s business world, no growth means lagging behind in a world that grows every day…”
“Investors expect it, employees are energized by it, customers are generally attracted to it and executives are measured by it.”
Definition
• Net Income/profit Growth:Bottom-line/Profit
“Change is a constant in today’s business world so you are either growing with it or dying from it. Growth forces a company to change and adapt, to anticipate customer needs, and to look for new opportunities.”
Investors expect it
Employees are more energized
Growth provides opportunities for employees
Customers are generally more attracted to it
Attracts better suppliers
Executives are measured by it.
It takes 5 times as much to win a new customer as it does to keep an existing one.
Why is Why is Growth Growth so so important?important?
®
15
Business in Rapid Business in Rapid GrowthGrowth
• Best & brightest leave first• Productivity goes down• Morale goes down• Costs are cut, which limits ability to
grow, and the company becomes less profitable.
Studies Show: It usually takes 4 or 5 years for the company to recover.
Business in Rapid Business in Rapid DeclineDecline
• Attracts/Retains the best & brightest!• Productivity goes up = more profit =
more cash = more ability to grow!• Morale is typically higher.• You have the ability to grow in your
career!
Public Company: Gets more time and attention than any of the 5 drivers.
15
GrowthHigh & Low: Revenue Growth
High Revenue Growth Low Revenue Growth
Business Measures and Metrics
Raytheon Apple Amazon Wal-mart Yahoo!
2011 2011 2010 2010 2010
Revenues $24,857 $108,249 $34,204 $421,849 $6,324
Growth
Revenue Growth (1.3%) 65.9% 39.6% 3.4% (2.1)
(In Millions)
Growth Calculations = This Year - 1 x 100 = % Growth Last Year
Raytheon Rev Growth = 24,857 - 1 x 100 = (1.3%) 25,183
(in millions)®
Growth: Raytheon
Business Driver
Raytheon
(in Millions)
2011 2010 2009 2008
Net Sales $24,857 $25,183 $24,881 $23,174
Net Income $1,896 $1,879 $1,935 $1,672
Growth
Net Sales Growth -1.3% 1.2% 7.4% 8.8%
Operating Income Growth 9.6% -14.3% 16.1% 11.3%
Net Income Growth 0.9% -2.9% 15.7% -35.1%
EPS Growth 10.2% -2.0% 24.7% -31.8%
S&P 500 Average Revenue Growth: 10.5%
(in millions)®
Growth: Benchmarks
Operating Income:The only way to determine if a companies operating margin is good is to compare it to that of other companies in the same industry.
Business Driver
RaytheonGeneral
DynamicsLockheed
MartinBoeing
Northrop Grumman
2011 2011 2011 2011 2012
Net Sales $24,857 $32,677 $46,499 $68,735 $26,412
Net Income $1,896 $2,526 $2,655 $4,018 $2,118
Growth
Net Sales Growth -1.3% 0.65% 1.80% -5.80% -6.15%
Operating Income Growth 9.6% -0.03% -0.02% 17.56% 15.88%
Net Income Growth 0.9% -3.73% -7.7% 21.50% 3.17%
EPS Growth 10.2% 0.88% 0.00% 20.00% 10.26%
Growth: Raytheon - Financial Outlook
15
Growth: By Business - Financial Outlook
15
Our Strategic Approach
Significant shifts to meet growth objectives
Rigorous market/business selection Exploit existing capabilities and costs Strategies that are clear on how and
why we win Resources allocated to highest returns Shaping the market
Market LeadershipMarket LeadershipIdentify • Shape • Brand • AchieveIdentify • Shape • Brand • Achieve
Program centric Duplicate cost and base erosion Competing on multiple fronts/one off
investments Democratic allocation of resources Reactive to RFP’s
Top 10 programs represent Top 10 programs represent 30% of Sales and 50% of Profit30% of Sales and 50% of Profit
RAYTHEON MOST PRIVATE
2011 Total Revenue = ~$5 Billion
Business definition drives resource alignment
0
20
40
60
80
100%
PrecisionMachining
ELCAN(Midland)
$0.3B
ELCAN (Texas)
Soldier Sensors
Military Platform Sensor Systems
Small Unit ImmersionClose Combat Radars
$1.1B
Combat & Sensing Systems
SATCOMTerminals
TacticalCommunications
Electronic Warfare
IFF
$1.0B
IntegratedCommunications
Systems
CivilCommunications
Cyber-C2
IT Network Ops &Support
ATC Radars
ATADomestic
Security Solutions
Military GBAS
SBAS
Highway TransportationManagement Systems
ATA Int'l
$1.1B
Security &Transportation
Systems
Military C2 Domestic
Military C2 Int'l
Short/IntermediateRange Radars
$1.1B
C4ISystems
BBNR&D
RVSMilitary/Science
$0.5B
AdvancedPrograms
Operations
Soldier Systems MSI (NettWarrior)
2011 Revenue by Business Area
Short-Short-to-Int. to-Int. Range Range RadarsRadars
ATC ATC RadarsRadars
Cyber-C2
Highway Transportation Management Systems
Civil Comms
Tact. Comms
IFF
Mil. C2 Mil. C2 Intl.Intl.
Security Solutions
High
Low
Mil PlatformSensor Systems
SoldierSensors
RVS Non-Mil.Commercial
IT Network Ops
HealthcareBrokerage
Small UnitImmersion
ATA ATA Dom.Dom.
Mil. C2 Mil. C2 Dom.Dom.
ATA ATA Intl.Intl.
Close Combat Radars
GBAS GBAS (Mil)(Mil)
RVS RVS Military/ Military/ ScienceScience
ELCAN
SATCOMTerm.
Soldier Sys MSI(NettWarrior)
Distant Follower Follower Market Leader
SBASSBAS
Integrated Comms Systems
C4I Systems
Security & Transportation Sys.
Advanced Programs
Combat & Sensing Systems
Key Input Provider/Broader RTN Asset
EW
Mar
ket
Att
ract
iven
ess
Current size Growth rate Profitability Unawarded contracts
Current size Growth rate Profitability Unawarded contracts
NCS Ability to Win Relative market share Technology advantages Customer access/relationships
Relative market share Technology advantages Customer access/relationships
$500M Revenue
NCS Portfolio Map: Current
3. Importance of Growth Driver “Investors expect it, employees are energized
by it, customers are generally attracted to it and executives are measured by it.”
1. Define Growth Driver
The ability to increase year over year, quarter over quarter, and/or month over month.
2. Measures of Growth• Net Sales Growth: Top-line/Sales
• Operating Income Growth:
• Net Income Growth: Bottom-line/Profit
• EPS Growth:
4. Benchmark the numbers5. Net Sales = (-1.3%) Down
6. Operating Income = 9.6% Up
7. Net Income = 0.9% Up
8. EPS growth = 10.2% Up
Growth - Review
GROWTH = Increase: -Sales, and/or
-Profits, and/or
-Earnings per share (EPS) for public companies. Quarter over quarter, or year over year increases Organic growth: comes from a company’s existing business Inorganic growth: comes from merger and acquisitions.
• Perform well on a daily basis – performance is key to retaining AND acquiring new business
• Keep customers informed about contract options• Know the program deliverables, risks, scope and opportunities• Anticipate customers’ needs• Keep BD Process and PM Involvement• Know what Raytheon contract vehicles are available to have customers shift new
work to, or to consolidate work under one of our prime contracts• Help with proposals• Provide insight into customer/business intelligence being careful NOT to compromise
OCI (Organizational Conflict of Interest)• Understand and tell management what other contractors are doing in our customer
spaces
(page 15)
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Action Plan: What Single Action are You Committed to
do to Positively Impact GROWTH?
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8
People
(page 16)
Definition: People
People
People: The end user or consumer of your product.
The re-seller.
The “internal customer”.
“Communicate a persons potential so clearly that they are inspired to see it within themselves.”
®
“People are considered, by many organizations, their most important asset.”
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1. People will forget what you said, people will forget what you did, but people will never forget how you made them feel ~Maya Angelou
2. “Under promise and over deliver” (Satisfaction is a function of expectations!)
3. We speak at ____ words per minute, versus, We think at ____ words per minute!
4. 93% of communication is non-verbal. 7 percent verbal (words) 38 percent vocal (volume, pitch, rhythm, etc) 55 percent body movements (mostly facial expressions)
5. Vocabulary! (Active Vocabulary): Average person: 5-6,000 root words Genius: 16,000 words Shakespeare: 29,000 wordsStudies show:1. CEO & Executives: Highest Vocabulary Business Acumen!2. Entry level employees: Lowest Vocabulary
The The “Experience”“Experience”(Take notes on Page 17)
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Customers:Customers:(Take notes on Page 17)
What’s more important than What’s more important than meetingmeeting Customer Customer Expectations?Expectations?
Anticipate Customer Needs & Expectations!Anticipate Customer Needs & Expectations!
Henry Ford: Henry Ford: “ “If I would have asked my customers what they wanted, they If I would have asked my customers what they wanted, they would have said a faster horse.”would have said a faster horse.”
Wayne Gretzky:Wayne Gretzky:““I skate where the puck is going to be.”I skate where the puck is going to be.”
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What companies have failed to anticipate customer expectations? What were the results?
GM/Ford Kodak & Polaroid Jet Blue (Airlines industry) IBM Sony
How Do You Impact your CUSTOMERS (or anticipate their needs)?
Failing to Anticipate Failing to Anticipate customer needs/expectations!customer needs/expectations!
“I think there is a world market for maybe five computers.” - Thomas Watson, chairman of IBM, 1943
Source: How Computers Work, Ron White, Que Corp/Macmillan, 1999 pgs 4, 38, 108.
(Take notes on Page 17)®
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Raytheon Leadership Competencies
Leader of the Future Profile
Experiences
• Multifunctional professional experience
• Multiple Raytheon Businesses or multiple industry experiences
• Led teams in distinctly different environments
– Turnaround, Site Lead, Growth Opportunity, Increased Scope, High Visibility, Enterprise Initiative, Resource Constrained, Org Transition
• Proven success driving business growth – Adjacent markets, M&A, international
• Strong business fundamentals
• Lived and worked outside the USA
Behaviors
Has vision & leads with courage Exhibits 100% integrity Leads organizational change Vigilantly cultivates talent pipeline Exhibits global mindset & inclusivity Drives growth through innovation, taking
appropriate risks Has “Board Room” level presence Fosters strong relationships
– Promotes matrix effectiveness & alignment – Operates “from the market back”
Strategic and Visionary Thinking Influential Communication People Development Innovative / Creative
Customer Focus Business Acumen Performance / Results Ethical Leadership
Courage Alignment Achievement Diversity / Inclusive Self-Management
PeopleHigh & Low: Profit per Employee
High Revenue Growth Low Revenue Growth
Business Measures and Metrics
Raytheon Apple Amazon Wal-mart Yahoo!
2011 9/2011 2010 2010 2010
Revenues $24,857 $108,249 $34,204 $421,849 $6,324
Profit $1,896 $25,922 $1,152 $16,389 $1,231
People
Employees 71,000 60,400 43,200 2,100,000 13,600
Revenue Per Employee $350,098 $1,792,201 $791,759 $200,880 $465,000
Profit Per Employee $26,704 $429,172 $26,666 $7,804 $90,514
(In Millions)
RaytheonGeneral
DynamicsLockheed
MartinBoeing
CompanyNorthrop
Grumman 2011 2011 2011 2011 2011
24,857 32,677 46,499 68,735 26,412Net Income 1,896 2,526 2,655 4,018 2,118
People Employees 72,000 88,000 126,000 160,500 79,600
Revenue per Person $345,236 $371,330 $369,040 $428,255 $331,799 Income per Employee 36,333 28,705 $21,071 $25,034 $26,608
®
People: Raytheon
Revenue per Employee = Employees Net Sales
Income per Employee = Employees Net Profit
INTERNAL:
• Develop teams into leaders• Invest in employees• Develop a learning culture• Exceed deadlines• Be positive• Always follow through• Increase vision• Anticipate needs and expectations• Increase employee education• HR: Hire the best!
(page 17)
EXTERNAL:
•Listen with empathy to resolve unhappy customers•Ensure equipment functionality before customer takes it home•Possess good product knowledge when selling •Qualify each customer•Better educate customers•Set up customer phones•Increase customer negotiations•Increase customer awareness•Accurately set customer expectations
®
Action Plan: What Single Action are You Committed to
do to Positively Impact PEOPLE?
REVIEW:People: Internal & External1)Meet Exceed Anticipate!2)Ask Listen Follow Through!3)Meet monthly: ask, “Are there any gaps in my performance and have my priorities changed?”
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Question: Can you ignore any of these over time and still be successful?
Drivers are Inter-dependant!
5 Business Acumen Elements:5 Business Acumen Elements:(Page 18)
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Demystify the Annual Demystify the Annual ReportReport
-Training, Teaching Module--Training, Teaching Module-
Purpose of the Annual Report?(high-level view)
General Communication to _____?
Marketing to _____?
Compliance.
Demystify the Annual Report
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Raytheon: Annual Report
• Financial Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . (pages 0-1)
• Letter from CEO . . . . . . . . . . . . . . . . . . . . . . . . . . . . (pages 2-3)
Management’s Discussion & Analysis . . . . . . (pages 29-)
• Financial Statement
Notes to the Financial Section . . . . . . . . . . . . . (pages 73-)
• Statement of Operations . . (page 70)
• Balance Sheet . . . . . . . . . . (page 71)
• Statement of Cash Flows. . (page 72)
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