Raytheon Reports Solid Third Quarter 2012 Results -- Strong bookings of $7.3 billion; book-to-bill of 1.21

-- Adjusted EPS(1) of $1.60, up 15 percent; EPS from continuing operations was $1.51, up 6 percent

-- Adjusted Operating Margin(1), of 13.8 percent, up 80 basis points; reported operating margin of 13.0 percent up 120 basis points

-- Net sales of $6.0 billion, down 1 percent

-- Strong operating cash flow from continuing operations of $1.1 billion

-- Increased full-year 2012 guidance for EPS

WALTHAM, Mass., Oct. 25, 2012 /PRNewswire/ -- Raytheon Company (NYSE: RTN) announced third quarter 2012 Adjusted EPS(1) of $1.60 per diluted share compared to $1.39 per diluted share in the third quarter 2011, up 15 percent. The increase was primarily driven by operational improvements and capital deployment actions. Third quarter 2012 EPS from continuing operations was $1.51 compared to $1.42 in the third quarter 2011. Third quarter 2012 included an unfavorable FAS/CAS Adjustment of $0.09, compared with an unfavorable FAS/CAS Adjustment of $0.14 in the third quarter 2011. Third quarter 2011 also included a $0.17 per diluted share favorable tax settlement.

"Raytheon's strong operating performance in the third quarter reflects our continued focus on reducing cost, and increasing productivity," said William H. Swanson, Raytheon's Chairman and CEO. "Our bookings in the quarter were strong, and we have significant opportunities in both domestic and international markets for our innovative technologies and affordable solutions."

____________________________________
1 Adjusted EPS is EPS from continuing operations attributable to Raytheon Company common stockholders and Adjusted Operating Margin is total operating margin, in each case, excluding the impact of the FAS/CAS Adjustment, and from time to time, certain other items.  Q3 2011 Adjusted EPS also excludes the impact of the favorable tax settlement 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.

Q3 2011 vs. Q3 2012 EPS Variance

3rd Quarter


Nine Months


EPS


Adjusted EPS*


EPS


Adjusted EPS*

Q3 2011

$

1.42



$

1.39



$

3.68



$

4.13


Operational Improvements

0.07



0.07



0.24



0.24


Reduced Share Count

0.08



0.08



0.27



0.27


Other Items, net

0.06



0.06



(0.05)



(0.05)


FAS/CAS Adjustment**

0.05





0.10




UKBA LOC Adjustment





0.17




2011 Tax Settlement

(0.17)





(0.17)




Q3 2012

$

1.51



$

1.60



$

4.24



$

4.61










* 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. Amounts may not add due to rounding.

**  Represents the difference between the 3rd quarter 2012 and 3rd quarter 2011 FAS/CAS Adjustments of $(0.09) and $(0.14), respectively and the first nine months of 2012 and first nine months of 2011 FAS/CAS Adjustments of $(0.36) and $(0.46), respectively.









Net sales for the third quarter 2012 were $6,045 million, compared to $6,116 million in the third quarter 2011. The Company reported strong bookings for the third quarter 2012 of $7,293 million, resulting in a book-to-bill ratio of 1.21. Bookings in the third quarter 2011 were $6,884 million.

The Company generated strong operating cash flow in the quarter.  Operating cash flow from continuing operations for the third quarter 2012 was $1,111 million compared to $845 million for the third quarter 2011.  The increase in operating cash from continuing operations in the third quarter 2012 was primarily due to the timing of collections and pension contributions, partially offset by higher tax payments.

In the third quarter 2012, the Company repurchased 2.2 million shares of common stock for $125 million as part of its previously announced share repurchase program. Year-to-date 2012, the Company repurchased 14.1 million shares of common stock for $725 million.

The Company ended the third quarter 2012 with $1.0 billion of net debt. Net debt is defined as total debt less cash and cash equivalents and short-term investments.

Summary Financial Results

























3rd Quarter


%


Nine Months


%

($ in millions, except per share data)

2012


2011


Change


2012


2011


Change













Net Sales

$

6,045



$

6,116



-1%


$

17,975



$

18,369



-2%

Income from Continuing Operations attributable to

   Raytheon Company

$

501



$

498



1%


$

1,423



$

1,309



9%

Adjusted Income*

$

532



$

487



9%


$

1,545



$

1,473



5%

EPS from Continuing Operations

$

1.51



$

1.42



6%


$

4.24



$

3.68



15%

Adjusted EPS*

$

1.60



$

1.39



15%


$

4.61



$

4.13



12%

Operating Cash Flow from Continuing Operations

$

1,111



$

845





$

963



$

816




Workdays in Fiscal Reporting Calendar

63



63





191



191
















* 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. Q3 2011 Adjusted Income also excludes the favorable tax settlement discussed above. 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









($ in millions)

3rd Quarter


Nine Months



2012


2011


2012


2011


Bookings

$

7,293



$

6,884



$

18,612



$

19,408





























Backlog







($ in millions)

Period Ending



Q3 2012


2011


Q3 2011


Backlog

$

35,015



$

35,312



$

34,985



Funded Backlog

$

22,886



$

22,462



$

21,734



The Company had bookings of $7.3 billion in the third quarter 2012 and had a period ending backlog of $35.0 billion

Outlook

The Company has updated its full-year 2012 outlook. Charts containing additional information on the Company's 2012 outlook are available on the Company's website at www.raytheon.com/ir

2012 Financial Outlook







Current


Prior (7/26/12)

Net Sales ($B)


 24.3 - 24.7*


24.5 - 25.0

FAS/CAS Adjustment ($M)


(252)*


(284)

Interest Expense, net ($M)


(190) - (200)


(190) - (200)

Diluted Shares (M)


334 - 335


 334 - 335

Effective Tax Rate


~32%


~32%

EPS from Continuing Operations


 $5.36 - $5.46*


$5.15 - $5.30

Adjusted EPS**


 $5.85 - $5.95*


$5.70 - $5.85

Operating Cash Flow from Continuing Operations ($B)


 1.8 - 2.0*


 1.7 - 1.9






* Denotes change from prior guidance.





** 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.

Although it remains uncertain if sequestration under the Budget Control Act (BCA) will be implemented, sequestration could have a significant impact on the U.S. Military, the Aerospace and Defense Industry and Federal spending. Several industry associations estimate that sequestration, if implemented, could have a severe impact on U.S. Aerospace and Defense Industry employment nationwide. We believe that Raytheon's large international market presence, portfolio of programs, technology and focus on high priority areas should help to mitigate some of the potential overall impact.

Segment Results

The Company's reportable segments are: Integrated Defense Systems, Intelligence and Information Systems, Missile Systems, Network Centric Systems, Space and Airborne Systems, and Technical Services.

Integrated Defense Systems












3rd Quarter




Nine Months



($ in millions)

2012


2011


% Change


2012


2011


% Change

Net Sales

$

1,275



$

1,176



8%


$

3,716



$

3,667



1%

Operating Income

$

240



$

204



18%


$

692



$

600



15%

Operating Margin

18.8%



17.3%





18.6%



16.4%




Integrated Defense Systems (IDS) had third quarter 2012 net sales of $1,275 million, up 8 percent compared to $1,176 million in the third quarter 2011. The increase in net sales was primarily due to higher sales on an international Patriot program. IDS recorded $240 million of operating income compared to $204 million in the third quarter 2011. The increase in operating income was primarily due to favorable contract mix and higher volume in the third quarter 2012.

During the quarter, IDS booked $123 million for the Upgraded Early Warning Radar (UEWR) system for the Missile Defense Agency (MDA) and the U.S. Air Force.  IDS also booked $84 million to provide air and missile defense capability for the U.S. Army.

Intelligence and Information Systems










3rd Quarter




Nine Months



($ in millions)

2012


2011


% Change


2012


2011*


% Change

Net Sales

$

742



$

760



-2%


$

2,257



$

2,262



-

Operating Income

$

60



$

58



3%


$

183



$

85



NM

Operating Margin

8.1%



7.6%





8.1%



3.8%





* First quarter 2011 included an $80 million reduction to operating income due to the UKBA LOC Adjustment as described in attachment F.

NM - Not Meaningful












Intelligence and Information Systems (IIS) had third quarter 2012 net sales of $742 million compared to $760 million in the third quarter 2011. IIS recorded $60 million of operating income compared to $58 million in the third quarter 2011.

During the quarter, IIS booked $170 million on a contract to provide intelligence, surveillance and reconnaissance (ISR) support to the U.S. Air Force.  IIS also booked $559 million on a number of classified contracts.

Missile Systems










3rd Quarter




Nine Months



($ in millions)

2012


2011


% Change


2012


2011


% Change

Net Sales

$

1,443



$

1,413



2%


$

4,149



$

4,108



1%

Operating Income

$

189



$

178



6%


$

538



$

484



11%

Operating Margin

13.1%



12.6%





13.0%



11.8%




Missile Systems (MS) had third quarter 2012 net sales of $1,443 million compared to $1,413 million in the third quarter 2011. The increase in net sales was primarily driven by higher sales on the Standard Missile 3 (SM-3) program. MS recorded $189 million of operating income compared to $178 million in the third quarter 2011. The increase in operating income was primarily due to improved program performance.

During the quarter, MS booked $1,242 million for the production and development of SM-3 for the Missile Defense Agency (MDA). MS also booked $350 million for the production of Tube-launched, Optically-tracked, Wireless-guided (TOW) missiles for the U.S. Army and Marines, $101 million for Phalanx weapon systems for the U.S. Navy and an international customer, and $87 million on Miniature Air-Launch Decoy (MALD®) for the U.S. Air Force.

Network Centric Systems










3rd Quarter




Nine Months



($ in millions)

2012


2011


% Change


2012


2011


% Change

Net Sales

$

963



$

1,104



-13%


$

2,925



$

3,360



-13%

Operating Income

$

131



$

162



-19%


$

370



$

492



-25%

Operating Margin

13.6%



14.7%





12.6%



14.6%




Network Centric Systems (NCS) had third quarter 2012 net sales of $963 million compared to $1,104 million in the third quarter 2011. The change in net sales, as expected, was primarily due to lower sales on U.S. Army production programs. NCS recorded $131 million of operating income compared to $162 million in the third quarter 2011. The change in operating income was primarily due to a change in contract mix and lower volume in the third quarter 2012.

During the quarter, NCS booked $70 million on the Family of Advanced Beyond-Line-of-Sight Terminals (FAB-T) program for the U.S. Air Force.

Space and Airborne Systems










3rd Quarter




Nine Months



($ in millions)

2012


2011


% Change


2012


2011


% Change

Net Sales

$

1,322



$

1,305



1%


$

3,956



$

3,914



1%

Operating Income

$

190



$

171



11%


$

567



$

503



13%

Operating Margin

14.4%



13.1%





14.3%



12.9%




Space and Airborne Systems (SAS) had third quarter 2012 net sales of $1,322 million compared to $1,305 million in the third quarter 2011. SAS recorded $190 million of operating income compared to $171 million in the third quarter 2011. The increase in operating income was primarily due to a change in contract mix and improved program performance.

During the quarter, SAS booked $105 million for an international sensor program. SAS also booked $382 million on a number of classified contracts.

Technical Services










3rd Quarter




Nine Months



($ in millions)

2012


2011


% Change


2012


2011


% Change

Net Sales

$

785



$

817



-4%


$

2,408



$

2,467



-2%

Operating Income

$

64



$

75



-15%


$

210



$

228



-8%

Operating Margin

8.2%



9.2%





8.7%



9.2%




Technical Services (TS) had third quarter 2012 net sales of $785 million compared to $817 million in the third quarter 2011. The change in net sales was due to lower net sales on a National Science Foundation (NSF) Polar contract, which was completed in the first quarter 2012. TS recorded operating income of $64 million compared to $75 million in the third quarter 2011. 

During the quarter, TS booked $246 million for work on the Air Traffic Control Optimum Training Solution (ATCOTS) contract for the Federal Aviation Administration (FAA). TS also booked $252 million on domestic training programs and $137 million on foreign training programs in support of Warfighter FOCUS activities. 

About Raytheon

Raytheon Company, with 2011 sales of $25 billion and 71,000 employees worldwide, is a technology and innovation leader specializing in defense, homeland security and other government markets throughout the world. With a history of innovation spanning 90 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. Raytheon is headquartered in Waltham, Mass. For more about Raytheon, visit us at www.raytheon.com and follow us on Twitter at @raytheon.

Conference Call on the Third Quarter 2012 Financial Results

Raytheon's financial results conference call will be held on Thursday, October 25, 2012 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 (866) 510-0712 in the U.S. or (617) 597-5380 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