Press Release

Raytheon Reports Strong First Quarter Results

By SpaceRef Editor
April 24, 2008
Filed under , ,

WALTHAM, Mass., April 24, 2008 Raytheon Company
(NYSE: ) reported first quarter 2008 income from continuing operations of
$400 million or $0.93 per diluted share compared to $324 million or $0.71 per
diluted share in the first quarter 2007. First quarter 2008 income from
continuing operations was higher primarily due to increased volume, combined
with lower net interest and pension expense.

“With the strong performance in the first quarter, the Company is off to a
good start,” said William H. Swanson, Raytheon’s Chairman and CEO. “Our strong
bookings, record backlog and solid operating performance demonstrate the
Company is continuing to execute and is well positioned going forward.”

First quarter 2008 net income was $398 million or $0.92 per diluted share
compared to $346 million or $0.76 per diluted share in the first quarter 2007.
Net income for the first quarter 2008 included an after-tax loss of $2 million
or $0.01 per diluted share in discontinued operations compared to income of
$22 million or $0.05 per diluted share in the first quarter 2007 primarily due
to the results of Raytheon Aircraft Company, which was sold in the second
quarter 2007.

Net sales for the first quarter 2008 were $5.4 billion, up 11 percent from
$4.8 billion in the first quarter 2007.

Operating cash flow from continuing operations for the first quarter 2008
was a positive $67 million compared to an outflow of $353 million for the
first quarter 2007. First quarter 2007 included a $400 million discretionary
cash contribution made to the Company’s pension plans.

In the first quarter 2008 the Company repurchased 5.5 million shares of
common stock for $340 million, as part of the Company’s previously announced
share repurchase program. In addition, as announced in March 2008, the
Company’s Board of Directors voted to increase the Company’s annual dividend
by 10 percent from $1.02 to $1.12 per share.



    Summary Financial Results                     1st Quarter          %
    ($ in millions, except per share data)     2008       2007       Change

    Net Sales                                 $5,354     $4,804         11%
    Total Operating Expenses                   4,746      4,283
    Operating Income                             608        521         17%
    Non-operating Expenses                        16         35
    Income from Cont. Ops. before Taxes         $592       $486         22%
    Income from Continuing Operations           $400       $324         23%
    (Loss) income from Disc. Ops., Net of Tax     (2)        22         NM
    Net Income                                  $398       $346         15%

    Diluted EPS from Continuing Operations     $0.93      $0.71         31%
    Diluted EPS                                $0.92      $0.76         21%

    Operating Cash Flow from Cont. Ops.          $67      $(353)
    Workdays in Fiscal Reporting Calendar         63         59



    Bookings and Backlog
    Bookings                                              1st Quarter
    (in millions)                                    2008               2007

    Total Bookings                                  $6,516             $5,158

    Backlog                                               Period Ended
    (in millions)                                 03/30/08           12/31/07

    Backlog                                        $37,697            $36,614
    Funded Backlog                                 $22,859            $20,518

The Company reported total bookings for the first quarter 2008 of $6.5
billion compared to $5.2 billion in the first quarter 2007. The Company ended
the first quarter 2008 with a record backlog of $37.7 billion compared to
$36.6 billion at the end of 2007 and $33.9 billion at the end of the first
quarter 2007.


    Outlook
    2008 Financial Outlook

    Net Sales ($B)                                         22.4 - 22.9
    FAS/CAS Pension Expense ($M)                               150
    Interest Expense, net ($M)                               45 - 60
    Diluted Shares (M)                                      427 - 429
    EPS from Cont. Ops.                                   $3.65 - $3.80
    Operating Cash Flow from Cont. Ops. ($B)                2.0 - 2.2
    ROIC (%)                                                9.6 - 10.1

The Company reaffirms full-year 2008 guidance. Charts containing
additional information on the Company’s 2008 guidance are available on the
Company’s website at www.raytheon.com . See attachment F for the Company’s
calculation and use of Return on Invested Capital (ROIC), a non-GAAP financial
measure.


    Segment Results
    Integrated Defense Systems
                                                   1st Quarter            %
    ($ in millions)                             2008         2007       Change

    Net Sales                                  $1,192       $1,092        9%
    Operating Income                             $211         $199        6%
    Operating Margin                            17.7%        18.2%

Integrated Defense Systems (IDS) had first quarter 2008 net sales of
$1,192 million, up 9 percent compared to $1,092 million in the first quarter
2007, primarily due to growth on Missile Defense Agency and U.S. Army
programs. IDS recorded $211 million of operating income compared to $199
million in the first quarter 2007. The increase in operating income was
primarily due to higher volume and the sale of licensed software.

During the quarter, IDS booked an initial $331 million for the design,
development and support of the Patriot system for international customers,
including $246 million for South Korea and $85 million for Taiwan. IDS also
booked $133 million to provide engineering services support for a Patriot air
and missile defense program for the U.S. Army.



    Intelligence and Information Systems
                                                   1st Quarter           %
    ($ in millions)                             2008        2007       Change

    Net Sales                                   $692        $588         18%
    Operating Income                             $52         $55         -5%
    Operating Margin                            7.5%        9.4%

Intelligence and Information Systems (IIS) had first quarter 2008 net
sales of $692 million, up 18 percent compared to $588 million in the first
quarter 2007, primarily due to new programs, including U.K. e-Borders. IIS
recorded $52 million of operating income compared to $55 million in the first
quarter 2007. The decrease in operating income was primarily due to certain
acquisition costs and other investments in cyber operations and information
security capabilities, partially offset by higher volume.

During the quarter, IIS booked an additional $182 million on the U.K.
e-Borders contract, bringing the total inception-to-date bookings for this
program to $1.6 billion. IIS also booked $556 million on a number of
classified contracts, including $171 million on a major classified program.



    Missile Systems
                                                   1st Quarter            %
    ($ in millions)                             2008         2007       Change

    Net Sales                                  $1,311       $1,140        15%
    Operating Income                             $137         $120        14%
    Operating Margin                            10.5%        10.5%

Missile Systems (MS) had first quarter 2008 net sales of $1,311 million,
up 15 percent compared to $1,140 million in the first quarter 2007, primarily
due to higher volume on international and development programs. MS recorded
$137 million of operating income compared to $120 million in the first quarter
2007. The increase in operating income was due to higher volume.

During the quarter, MS booked $578 million for Standard Missile-3 for the
U.S. Navy and the Missile Defense Agency. MS also booked $293 million for the
production of Tactical Tomahawk cruise missiles and $127 million for the
production of AIM-9X Sidewinder short range air-to-air missiles for the U.S.
Navy. In addition, MS booked $123 million for the production of Tube-launched
Optically guided Wire controlled (TOW) missiles for international customers
and the U.S. Marine Corps.



    Network Centric Systems
                                                   1st Quarter           %
    ($ in millions)                             2008        2007      Change

    Net Sales                                  $1,067        $929        15%
    Operating Income                             $123        $117         5%
    Operating Margin                            11.5%       12.6%

Network Centric Systems (NCS) had first quarter 2008 net sales of $1,067
million, up 15 percent compared to $929 million in the first quarter 2007,
primarily due to increased volume on certain U.S. Army programs. NCS recorded
$123 million of operating income compared to $117 million in the first quarter
2007. The increase in operating income was primarily due to higher volume.

During the quarter, NCS booked $309 million to provide Horizontal
Technology Integration (HTI) forward-looking infrared kits and $100 million
for Long Range Advanced Scout Surveillance Systems (LRAS3) for the U.S. Army.
NCS also booked $203 million for the production of Improved Target Acquisition
Systems (ITAS) for the U.S. Army and the U.S. Marine Corps.



    Space and Airborne Systems
                                                   1st Quarter          %
    ($ in millions)                             2008        2007       Change

    Net Sales                                   $995        $964         3%
    Operating Income                            $121        $129        -6%
    Operating Margin                           12.2%       13.4%

Space and Airborne Systems (SAS) had first quarter 2008 net sales of $995
million, up 3 percent compared to $964 million in the first quarter 2007,
primarily due to growth on airborne sensor programs. SAS recorded $121
million of operating income compared to $129 million in the first quarter
2007. The decrease in operating income was primarily due to a change in
program mix.

    SAS booked $186 million on a number of classified contracts.



    Technical Services
                                                   1st Quarter           %
    ($ in millions)                             2008        2007       Change

    Net Sales                                   $521        $463         13%
    Operating Income                             $35         $23         52%
    Operating Margin                            6.7%        5.0%

Technical Services (TS) had first quarter 2008 net sales of $521 million,
up 13 percent compared to $463 million in the first quarter 2007, primarily
due to training, mission support, and depot support services programs. TS
recorded operating income of $35 million in the first quarter 2008 compared to
$23 million in the first quarter 2007. The increase in operating income was
primarily due to higher volume and profit adjustments taken on certain
programs in 2007.

During the quarter, TS booked $110 million for work on the Warfighter
Field Operations Customer Support (FOCUS) contract for the U.S. Army to
provide live, virtual and constructive training services.

Raytheon Company (NYSE: ), with 2007 sales of $21.3 billion, is a
technology leader specializing in defense, homeland security and other
government markets throughout the world. With a history of innovation
spanning 86 years, Raytheon provides state-of-the-art electronics, mission
systems integration and other capabilities in the areas of sensing; effects;
and command, control, communications and intelligence systems, as well as a
broad range of mission support services. With headquarters in Waltham, Mass.,
Raytheon employs 72,000 people worldwide.

Disclosure Regarding Forward-looking Statements

This release and the attachments contain forward-looking statements,
including information regarding the Company’s 2008 financial outlook, future
plans, objectives, business prospects and anticipated financial performance.
These forward-looking statements are not statements of historical facts and
represent only the Company’s current expectations regarding such matters.
These statements inherently involve a wide range of known and unknown risks
and uncertainties. The Company’s actual actions and results could differ
materially from what is expressed or implied by these statements. Specific
factors that could cause such a difference include, but are not limited to:
the Company’s dependence on the U.S. government for a significant portion of
its business and the risks associated with U.S. government sales, including
changes or shifts in defense spending, uncertain funding of programs,
potential termination of contracts, and difficulties in contract performance;
the ability to procure new contracts; the risks of conducting business in
foreign countries; the ability to comply with extensive governmental
regulation, including import and export policies and procurement and other
regulations; the impact of competition; the ability to develop products and
technologies; the risk of cost overruns, particularly for the Company’s fixed-
price contracts; dependence on component availability, subcontractor
performance and key suppliers; risks of a negative government audit; the use
of accounting estimates in the Company’s financial statements; risks
associated with acquisitions, dispositions, joint ventures and other business
arrangements; risks of an impairment of goodwill or other intangible assets;
the outcome of contingencies and litigation matters, including government
investigations; the ability to recruit and retain qualified personnel; the
impact of potential security threats and other disruptions; and other factors
as may be detailed from time to time in the Company’s public announcements and
Securities and Exchange Commission filings. The Company undertakes no
obligation to make any revisions to the forward-looking statements contained
in this release and the attachments or to update them to reflect events or
circumstances occurring after the date of this release, including any
acquisitions, dispositions or other business arrangements that may be
announced or closed after such date. This release and the attachments also
contain non-GAAP financial measures. A GAAP reconciliation and a discussion
of the Company’s use of these measures are included in this release or the
attachments.

Conference Call on the First Quarter 2008 Financial Results

Raytheon’s financial results conference call will be held on Thursday,
April 24, 2008 at 9 a.m. EDT. Participants will include William H. Swanson,
Chairman and CEO, David C. Wajsgras, senior vice president and CFO, and other
Company executives.

The dial-in number for the conference call will be (866) 800 – 8651. The
conference call will also be audiocast on the Internet at www.raytheon.com.
Individuals may listen to the call and download charts that will be used
during the call. These charts will be available for printing prior to the
call.

Interested parties are encouraged to check the website ahead of time to
ensure their computers are configured for the audio stream. Instructions for
obtaining the free required downloadable software are posted on the site.

    Media Contact:                      Investor Relations Contact:
    Jon Kasle                           Greg Smith
    781-522-5110                        781-522-5141



    Attachment A

    Raytheon Company
    Preliminary Statement of Operations Information
    First Quarter 2008

    (In millions, except per share amounts)             Three Months Ended
                                                       30-Mar-08   25-Mar-07

    Net sales                                             $5,354      $4,804

    Cost of sales                                          4,259       3,856
    Administrative and selling expenses                      380         330
    Research and development expenses                        107          97

    Total operating expenses                               4,746       4,283

    Operating income                                         608         521

    Interest expense                                          34          60
    Interest income                                          (23)        (28)
    Other expense, net                                         5           3

    Non-operating expense, net                                16          35

    Income from continuing operations before taxes           592         486

    Federal and foreign income taxes                         192         162

    Income from continuing operations                        400         324

    (Loss) income from discontinued
     operations, net of tax                                   (2)         22

    Net income                                              $398        $346

    Earnings per share from continuing operations
        Basic                                              $0.96       $0.73
        Diluted                                            $0.93       $0.71

    (Loss) earnings per share from
     discontinued operations
        Basic                                             $(0.01)      $0.05
        Diluted                                           $(0.01)      $0.05

    Earnings per share
        Basic                                              $0.95       $0.78
        Diluted                                            $0.92       $0.76

    Average shares outstanding
        Basic                                              418.2       441.0
        Diluted                                            432.3       453.5



    Attachment B

    Raytheon Company
    Preliminary Segment Information
    First Quarter 2008

                                                            Operating Income
                        Net Sales       Operating Income As a Percent of Sales
    (In millions)  Three Months Ended  Three Months Ended  Three Months Ended
                   30-Mar-08 25-Mar-07 30-Mar-08 25-Mar-07 30-Mar-08 25-Mar-07

    Integrated
    Defense
     Systems          $1,192    $1,092    $211     $199     17.7%   18.2%
    Intelligence
     and Information
     Systems             692       588      52       55      7.5%    9.4%
    Missile Systems    1,311     1,140     137      120     10.5%   10.5%
    Network Centric
     Systems           1,067       929     123      117     11.5%   12.6%
    Space and Airborne
     Systems             995       964     121      129     12.2%   13.4%
    Technical Services   521       463      35       23      6.7%    5.0%
    FAS/CAS Pension
     Adjustment            -         -     (33)     (62)
    Corporate and
     Eliminations       (424)     (372)    (38)     (60)

    Total             $5,354    $4,804    $608     $521     11.4%   10.8%



    Attachment C

    Raytheon Company
    Other Preliminary Information
    First Quarter 2008

                                                            Funded
    (In millions)                Backlog                   Backlog
                         30-Mar-08     31-Dec-07    30-Mar-08    31-Dec-07

    Integrated Defense
     Systems                $9,306       $9,296       $5,382       $4,781
    Intelligence and
     Information Systems     5,831        5,636        2,641        2,325
    Missile Systems          9,661        9,379        5,674        5,218
    Network Centric Systems  5,696        5,102        4,547        3,957
    Space and Airborne
     Systems                 5,277        5,276        3,341        3,037
    Technical Services       1,926        1,925        1,274        1,200

    Total                  $37,697      $36,614      $22,859      $20,518


                                Bookings
                            Three Months Ended
                           30-Mar-08   25-Mar-07

    Total Bookings          $6,516      $5,158



    Attachment D

    Raytheon Company
    Preliminary Balance Sheet Information
    First Quarter 2008

    (In millions)
                                                 30-Mar-08          31-Dec-07
    Assets
    Cash and cash equivalents                       $2,287             $2,655
    Accounts receivable, net                           128                126
    Contracts in process                             4,068              3,821
    Inventories                                        385                386
    Deferred taxes                                     436                432
    Prepaid expenses and other current assets          193                196
      Total current assets                           7,497              7,616

    Property, plant and equipment, net               2,035              2,058
    Prepaid retiree benefits                           631                617
    Goodwill                                        11,632             11,627
    Other assets, net                                1,339              1,363
        Total assets                               $23,134            $23,281

    Liabilities and Stockholders' Equity
    Advance payments and billings in
     excess of costs incurred                       $1,842             $1,845
    Accounts payable                                 1,044              1,141
    Accrued employee compensation                      563                902
    Other accrued expenses                           1,025                900
      Total current liabilities                      4,474              4,788

    Accrued retiree benefits and other
     long-term liabilities                           3,038              3,016
    Deferred taxes                                     483                451
    Long-term debt                                   2,288              2,268
    Minority interest                                  219                216
    Stockholders' equity                            12,632             12,542
        Total liabilities and
         stockholders' equity                      $23,134            $23,281



    Attachment E

    Raytheon Company
    Preliminary Cash Flow Information
    First Quarter 2008

    (In millions)                                      Three Months Ended
                                                30-Mar-08          25-Mar-07

    Net income                                       $398               $346
    Plus (less): Loss (income) from
     discontinued operations, net of tax                2                (22)
    Income from continuing operations                 400                324

    Depreciation                                       69                 67
    Amortization                                       23                 19
    Working capital                                  (703)              (653)
    Discontinued operations                           (10)               (63)
    Net activity in financing receivables              20                 21
    Other                                             258               (131)
             Net operating cash flow                   57               (416)

    Capital spending                                  (43)               (38)
    Internal use software spending                    (17)               (15)
    Dividends                                        (109)              (107)
    Repurchases of common stock                      (340)              (275)
    Debt repayments                                     -                  3
    Discontinued operations                             -                (28)
    Other                                              84                 76
             Total cash flow                        $(368)             $(800)



    Attachment F

    Raytheon Company
    Preliminary Return on Invested Capital Non-GAAP Financial Measure
    First Quarter 2008

        We define Return on Invested Capital (ROIC) as income from continuing
    operations plus after-tax net interest expense plus one-third of operating
    lease expense after-tax (estimate of interest portion of operating lease
    expense) divided by average invested capital after capitalizing operating
    leases (operating lease expense times a multiplier of 8), adding financial
    guarantees less net investment in Discontinued Operations, and adding back
    the cumulative minimum pension liability/impact of FAS 158.  ROIC is not a
    measure of financial performance under generally accepted accounting
    principles (GAAP) and may not be defined and calculated by other companies
    in the same manner.  ROIC should be considered supplemental to and not a
    substitute for financial information prepared in accordance with GAAP. We
    use ROIC as a measure of efficiency and effectiveness of our use of
    capital and as an element of management compensation.



    Return on Invested Capital

    (In millions)                                    2008 Guidance
                                               Low end           High end
                                               of range          of range
    Income from continuing operations
    Net interest expense, after-tax*           Combined          Combined
    Lease expense, after-tax*
    Return                                      $1,655            $1,720

    Net debt **
    Equity less investment in discontinued
     operations
    Lease expense x 8 plus financial
     guarantees                                Combined          Combined
    Minimum pension liability (cumulative)

    Invested capital from continuing
     operations***                             $17,300           $17,100

    ROIC                                          9.6%             10.1%

    *   Effective 2008 tax rate: 34.1% (2008 guidance)
    **  Net debt is defined as total debt less cash and cash equivalents and
        is calculated using a 2 point average
    *** Calculated using a 2 point average

SpaceRef staff editor.