Raytheon Reports Solid First Quarter Results -- Adjusted EPS of $1.38, up 10 percent; EPS from continuing operations of $1.06(1)

-- Adjusted operating margin of 12.5 percent, up 10 basis points; reported operating margin of 9.7 percent(1)

-- Net sales of $6.1 billion

-- As previously announced, increased annual dividend rate by 15 percent to $1.72 per share

WALTHAM, Mass., April 28, 2011 /PRNewswire-FirstCall/ -- Raytheon Company (NYSE: RTN) announced first quarter 2011 Adjusted EPS of $1.38 per diluted share compared to $1.25 per diluted share in the first quarter 2010(1), up 10 percent.  

"I am very pleased with the Company's solid performance in the quarter, particularly given the challenging budget environment," said William H. Swanson, Raytheon's Chairman and CEO.  "Our continued focus on cost efficiencies and program performance is reflected in the year-over-year improvements in our operating results."

First quarter 2011 EPS from continuing operations was $1.06 compared to $1.18 in the first quarter 2010.  First quarter 2011 included an unfavorable FAS/CAS Adjustment(1) of $0.16, compared to $0.07 in the first quarter 2010.  In connection with the UK Border Agency (UKBA) program, first quarter 2011 also included an $80 million pretax ($56 million after-tax) or $0.16 per diluted share unfavorable adjustment.  This adjustment is based on the UKBA's decision to draw down on the previously disclosed letters of credit (UKBA LOC Adjustment) provided by Raytheon Systems Limited (RSL).  The determination of the validity of the drawdown is now subject to the ongoing arbitration proceedings related to the UKBA program.  

Net sales were $6.1 billion in both the first quarter 2011 and the first quarter 2010.  First quarter 2011 was affected by the duration of the continuing resolution.

First quarter 2011 operating cash flow from continuing operations of $69 million was better than expected, driven by improved cash collections.  First quarter 2010 operating cash flow from continuing operations was $257 million.  The year-over-year change was primarily due to a financial systems implementation at Technical Services, which impacted the timing of customer billings.

In the first quarter 2011, the Company repurchased 6.1 million shares of common stock for $312 million, as part of its previously announced share repurchase program.  In addition, as announced in March 2011, the Company's Board of Directors voted to increase the Company's annual dividend rate by 15 percent from $1.50 to $1.72 per share, the seventh consecutive annual dividend increase.  

Also as previously announced, in the first quarter 2011, the Company completed the acquisition of Applied Signal Technology, Inc., which has become part of Raytheon's Space and Airborne Systems (SAS) business.

The Company ended the first quarter 2011 with $951 million of net debt.  Net debt is defined as total debt less cash and cash equivalents.

(1) Adjusted EPS is EPS from continuing operations attributable to Raytheon Company common stockholders excluding the EPS impact of the FAS/CAS Adjustment and, from time to time, certain other items.  Adjusted Operating Margin is total operating margin excluding the margin impact of the FAS/CAS Adjustment, and from time to time, certain other items.  See attachment F for a discussion of the FAS/CAS Adjustment, which represents the combination of the FAS/CAS Pension Adjustment and FAS/CAS PRB Adjustment.   Q1 2011 Adjusted EPS and Adjusted Operating Margin also exclude the impact of the UKBA LOC Adjustment as discussed above.  Adjusted EPS and Adjusted Operating Margin are non-GAAP financial measures. See attachment F for a reconciliation of these measures and a discussion of why the Company is presenting this information.

Summary Financial Results 

1st Quarter


%

($ in millions, except per share data) 

2011


2010


Change







Net sales 

$6,062


$     6,053


-

Income from continuing operations attributable to Raytheon Company

$   383 (1)


$        453


-15%

Adjusted Income(2)

$   497


$        480


4%

EPS from continuing operations

$  1.06 (1)


$       1.18


-10%

Adjusted EPS(2) 

$  1.38


$       1.25


10%

Operating cash flow from cont. ops. 

$     69


$        257









Workdays in fiscal reporting calendar  

64


60









(1) The impact of the UKBA LOC Adjustment reduced first quarter 2011 income from continuing operations $80 million pretax ($56 million after-tax) and EPS by $0.16 per share.


(2) Adjusted Income is income from continuing operations attributable to Raytheon Company common stockholders excluding the after-tax impact of the FAS/CAS Adjustment and, from time to time, certain other items.   See attachment F for a discussion of the FAS/CAS Adjustment, which represents the combination of the FAS/CAS Pension Adjustment and FAS/CAS PRB Adjustment.  Adjusted EPS is EPS from continuing operations attributable to Raytheon Company common stockholders excluding the EPS impact of the FAS/CAS Adjustment and, from time to time, certain other items.  Q1 2011 Adjusted Income and Adjusted EPS also exclude the UKBA LOC Adjustment.  Adjusted Income and Adjusted EPS are non-GAAP financial measures. See attachment F for a reconciliation of these measures and a discussion of why the Company is presenting this information.



Bookings and Backlog  

Bookings

1st Quarter

($ in millions)

2011


2010





Bookings

$   5,103


$    6,526

Backlog

Period Ending

($ in millions)

Q1 2011


2010





Backlog

$ 33,705


$  34,551

Funded Backlog

$ 21,743


$  22,632



The Company reported bookings for the first quarter 2011 of $5.1 billion compared to $6.5 billion in the first quarter 2010.

Outlook

2011 Financial Outlook







Current


Prior (1/27/11)








Net Sales ($B)


25.5 - 26.3


25.5 - 26.3


FAS/CAS Adjustment ($M)(1)


(365)*


(367)


Interest Expense, Net ($M)


(155) - (165)


(155) - (165)


Diluted Shares (M)


353 - 359


353 - 359


Effective Tax Rate


~30.5%


~30.5%


EPS from Continuing Operations


$4.67 - $4.82*


$4.83 - $4.98


Adjusted EPS(2)


$5.50 - $5.65


$5.50 - $5.65


Operating Cash Flow from Cont. Ops. ($B)

2.0 - 2.2


2.0 - 2.2


ROIC (%)(1)


13.1 - 13.6*


13.4 - 13.9


* Denotes change from prior guidance.





(1) As previously reported in the Company's 2010 Form 10-K, beginning in 2011, the Company began treating for management reporting purposes the FAS/CAS PRB Adjustment consistent with the FAS/CAS Pension Adjustment. See attachment F for a discussion of the FAS/CAS Adjustment, which represents the combination of the FAS/CAS Pension Adjustment and the FAS/CAS PRB Adjustment.  This change is now reflected in the current 2011 outlook for the FAS/CAS Adjustment & ROIC.  ROIC is a non-GAAP financial measure.  See attachment G for more information on the definition of ROIC and the Company’s use of ROIC.


(2) Adjusted EPS is EPS from continuing operations attributable to Raytheon Company common stockholders excluding the EPS impact of the FAS/CAS Adjustment and, from time to time, certain other items.  In addition to the FAS/CAS Adjustment, Q1 2011 Adjusted EPS excludes the impact of the UKBA LOC Adjustment. Adjusted EPS is a non-GAAP financial measure.  See attachment F for a reconciliation of this measure and a discussion of why the Company is presenting this information.












The Company has reaffirmed 2011 full-year guidance for net sales, Adjusted EPS, and operating cash flow from continuing operations and has updated guidance for full-year 2011 EPS from continuing operations to reflect the impact of the UKBA LOC Adjustment.  Charts containing additional information on the Company's 2011 outlook are available on the Company's website at www.raytheon.com/ir.

Segment Results

Integrated Defense Systems










1st Quarter


%

($ in millions)


2011


2010


Change








Net Sales


$     1,219


$    1,336


-9%

Operating Income


$       193


$      208


-7%

Operating Margin


15.8%


15.6%












Integrated Defense Systems (IDS) had first quarter 2011 net sales of $1,219 million compared to $1,336 million in the first quarter 2010.  As expected, the change in net sales was primarily due to lower sales on a U.S. Navy program.  IDS recorded $193 million of operating income compared to $208 million in the first quarter 2010, driven by the change in volume.

During the quarter, IDS booked $131 million to provide engineering services support for a Patriot air and missile defense program for U.S. and international customers.  IDS also booked $107 million for development on the competitively awarded Space Fence program for the U.S. Air Force.

Intelligence and Information Systems










1st Quarter


%

($ in millions)


2011


2010


Change








Net Sales


$         750


$         730


3%

Operating Income


$          (28)


$            48


NM

Operating Margin


-3.7%


6.6%












Intelligence and Information Systems (IIS) had first quarter 2011 net sales of $750 million compared to $730 million in the first quarter 2010. The increase in net sales was primarily due to higher sales on Global Positioning System Operational Control Segment (GPS-OCX).  IIS operating income in the first quarter 2011 was reduced by $80 million or a 10.6 percent margin impact due to the UKBA LOC Adjustment.

During the quarter, IIS booked $347 million for the development of the Joint Polar Satellite System (JPSS) for NASA. IIS also booked $326 million on a number of classified contracts.

Missile Systems










1st Quarter


%

($ in millions)


2011


2010


Change








Net Sales


$       1,329


$        1,361


-2%

Operating Income


$          155


$          157


-1%

Operating Margin


11.7%


11.5%












Missile Systems (MS) had first quarter 2011 net sales of $1,329 million compared to $1,361 million in the first quarter 2010.  The change in net sales was primarily due to lower sales on Standard Missile-2 (SM-2).  MS recorded $155 million of operating income compared to $157 million in the first quarter 2010.  

During the quarter, MS booked $375 million for the development and production of Standard Missile-3 (SM-3) for the Missile Defense Agency. MS also booked $177 million for the production of Excalibur for the U.S. Army and an international customer.

Network Centric Systems










1st Quarter


%

($ in millions)


2011


2010


Change








Net Sales


$         1,121


$        1,176


-5%

Operating Income


$          160


$          163


-2%

Operating Margin


14.3%


13.9%












Network Centric Systems (NCS) had first quarter 2011 net sales of $1,121 million compared to $1,176 million in the first quarter 2010.  The change in net sales was primarily due to lower sales on a U.S. Army sensor program.  NCS recorded $160 million of operating income compared to $163 million in the first quarter 2010.

During the quarter, NCS booked $69 million for the Thermal Weapon Sight (TWS) program for the U.S. Army and $64 million for Enhanced Position Location Reporting System (EPLRS) and MicroLight® radios from the Australian Defence Materiel Organisation (DMO).

Space and Airborne Systems










1st Quarter


%

($ in millions)


2011


2010


Change








Net Sales


$       1,265


$       1,095


16%

Operating Income


$          156


$          156


-

Operating Margin


12.3%


14.2%












Space and Airborne Systems (SAS) had first quarter 2011 net sales of $1,265 million, up 16 percent compared to $1,095 million in the first quarter 2010, primarily due to growth on classified business and an international airborne tactical radar program.  SAS recorded $156 million of operating income in both the first quarter 2011 and the first quarter 2010.  First quarter 2011 operating income included $13 million of acquisition-related costs for Applied Signal Technology, Inc.

During the quarter, SAS booked $782 million on an international program.  SAS also booked $150 million on a number of classified contracts.

Technical Services










1st Quarter


%

($ in millions)


2011


2010


Change








Net Sales


$         799


$          801


-

Operating Income


$             81


$            67


21%

Operating Margin


10.1%


8.4%












Technical Services (TS) had first quarter 2011 net sales of $799 million compared to $801 million in the first quarter 2010.  TS recorded operating income of $81 million in the first quarter 2011 compared to $67 million in the first quarter 2010, primarily due to operational improvements.  

During the quarter, TS booked $87 million on domestic training programs and $63 million on foreign training programs in support of Warfighter FOCUS activities.  TS also booked $150 million to provide operational and logistics support to the National Science Foundation (NSF) Office of Polar Programs.

Raytheon Company (NYSE: RTN), with 2010 sales of $25 billion, is a technology and innovation leader specializing in defense, homeland security and other government markets throughout the world. With a history of innovation spanning 89 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.

Conference Call on the First Quarter 2011 Financial Results

Raytheon's financial results conference call will be held on Thursday, April 28, 2011 at 9 a.m. ET. 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 (877) 415-3182 in the U.S. or (857) 244-7325 outside of the U.S.  The conference call will also be audiocast on the Internet at www.raytheon.com/ir.  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.

Disclosure Regarding Forward-looking Statements

This release and the attachments contain forward-looking statements, including   information regarding the Company's 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 resolution of program terminations; 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, the Foreign Corrupt Practices Act, the International Traffic in Arms Regulations, and procurement and other regulations; the impact of competition; the ability to develop products and technologies; the impact of changes in the financial markets and global economic conditions; the risk that actual pension returns, discount rates or other actuarial assumptions are significantly different than the Company's assumptions; 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.

Media Contact:

Investor Relations Contact:

Jon Kasle

Todd Ernst

781-522-5110

781-522-5141



Attachment A 

Raytheon Company

Preliminary Statement of Operations Information

First Quarter 2011







(In millions, except per share amounts)

Three Months Ended




03-Apr-11


28-Mar-10







Net sales

$    6,062


$    6,053

Operating expenses




    Cost of sales

4,904


4,784

    Administrative and selling expenses

428


408

    Research and development expenses

139


152







Total operating expenses

5,471


5,344







Operating income

591


709







    Interest expense

43


32

    Interest income

(5)


(3)

    Other (income) expense

-


(1)







Non-operating (income) expense, net

38


28







Income from continuing operations before taxes

553


681







Federal and foreign income taxes

165


220







Income from continuing operations

388


461







Income (loss) from discontinued operations, net of tax

1


(8)







Net income

389


453








Less: Net income (loss) attributable to noncontrolling interests in subsidiaries

5


8







Net income attributable to Raytheon Company

$       384


$       445







Basic earnings (loss) per share attributable to Raytheon Company





common stockholders:





    Income from continuing operations

$      1.07


$      1.20


    Income (loss) from discontinued operations, net of tax

-


(0.02)


    Net income

1.07


1.18







Diluted earnings (loss) per share attributable to Raytheon Company





common stockholders:





    Income from continuing operations

$      1.06


$      1.18


    Income (loss) from discontinued operations, net of tax

-


(0.02)


    Net income

1.06


1.16







Amounts attributable to Raytheon Company common stockholders:





    Income from continuing operations

$       383


$       453


    Income (loss) from discontinued operations, net of tax

1


(8)


    Net income

$       384


$       445







Average shares outstanding






    Basic

357.4


377.6



    Diluted

360.8


384.4



Attachment B 

Raytheon Company

Preliminary Segment Information*

First Quarter 2011
























 Operating Income 



 Net Sales


 Operating Income


As a Percent of Net Sales 

(In millions, except percentages)


 Three Months Ended 


 Three Months Ended 


 Three Months Ended 



03-Apr-11


28-Mar-10


03-Apr-11


28-Mar-10


03-Apr-11


28-Mar-10














Integrated Defense Systems


$              1,219


$               1,336


$                 193


$                  208


15.8%


15.6%

Intelligence and Information Systems


750


730


(28)


48


-3.7%


6.6%

Missile Systems


1,329


1,361


155


157


11.7%


11.5%

Network Centric Systems


1,121


1,176


160


163


14.3%


13.9%

Space and Airborne Systems


1,265


1,095


156


156


12.3%


14.2%

Technical Services


799


801


81


67


10.1%


8.4%

FAS/CAS Adjustment


-


-


(89)


(42)





Corporate and Eliminations


(421)


(446)


(37)


(48)


















Total


$              6,062


$               6,053


$                 591


$                  709


9.7%


11.7%














*  This Preliminary Segment Information was prepared on the same basis as our annual consolidated financial statements, except for the change in treatment for management reporting purposes the amounts related to the FAS/CAS postretirement benefit adjustment (FAS/CAS PRB Adjustment). This change became effective on January 1, 2011.  



Attachment B 

Raytheon Company

Pro Forma Segment Information *

Quarters 2010 and Full Years 2010, 2009 and 2008
















Operating Income


Operating Income


Three Months Ended


Twelve Months Ended


28-Mar-10


27-Jun-10


26-Sep-10


31-Dec-10


31-Dec-10


31-Dec-09


31-Dec-08















Integrated Defense Systems

$                      208


$                      218


$                      206


$                      238


$                      870


$                      847


$                      856

Intelligence and Information Systems

48


(330)


58


67


(157)


252


245

Missile Systems

157


162


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