Raytheon Reports Solid First Quarter 2014 Results

Summary Financial Results

1st Quarter

%

($ in millions, except per share data)

2014

2013

Change

Net Sales

$

5,508

$

5,879

-6.3%

Income from Continuing Operations attributable to

   Raytheon Company

$

589

$

490

20.2%

Adjusted Income*

$

452

$

511

-11.5%

EPS from Continuing Operations

$

1.87

$

1.49

25.5%

Adjusted EPS*

$

1.43

$

1.56

-8.3%

Operating Cash Flow from Continuing Operations

$

659

$

422

Workdays in Fiscal Reporting Calendar

62

63

* Adjusted Income is income from continuing operations attributable to Raytheon Company common stockholders, and Adjusted EPS is diluted EPS from continuing operations attributable to Raytheon Company common stockholders; in each case, excluding the after-tax impact of the FAS/CAS Adjustment and, from time to time, certain other items. First quarter 2014 Adjusted Income and Adjusted EPS excluded the approximately $80 million and $0.25 impact, respectively, of a favorable tax impact resulting from cash repatriation in the first quarter 2014. First quarter 2013 Adjusted Income and Adjusted EPS excluded the $25 million and $0.08 impact, respectively, of the 2012 R&D tax credit. See attachment F for a reconciliation of these measures and a discussion of why the Company is presenting this information.

Bookings

Backlog

($ in millions)

1st Quarter

($ in millions)

 Period Ending

2014

2013

Q1 2014

Q1 2013

2013

Bookings

$

4,293

$

3,606

Backlog

$

32,183

$

33,546

$

33,685

Funded Backlog

$

22,745

$

22,523

$

23,014

2014 Financial Outlook

Net Sales ($B)

22.5 - 23.0

FAS/CAS Adjustment ($M)

346

Interest Expense, net ($M)

 (200) - (210)

Diluted Shares (M)

312 - 314

Effective Tax Rate

 Approx. 28.5%

EPS from Continuing Operations

$6.74 - $6.89

Adjusted EPS*

$5.76 - $5.91

Operating Cash Flow from Continuing Operations ($B)

 2.3 - 2.5

* Adjusted EPS is diluted EPS 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. In addition to the FAS/CAS Adjustment, 2014 Adjusted EPS guidance also excludes the $0.25 favorable tax impact of approximately $80 million resulting from cash repatriation in the first quarter 2014. See attachment F for a reconciliation of this measure and a discussion of why the Company is presenting this information.

Integrated Defense Systems

1st Quarter

($ in millions)

2014

2013

% Change

Net Sales

$

1,481

$

1,596

-7%

Operating Income

$

226

$

262

-14%

Operating Margin

15.3%

16.4%

Intelligence, Information and Services

1st Quarter

($ in millions)

2014

2013

% Change

Net Sales

$

1,450

$

1,521

-5%

Operating Income

$

125

$

124

1%

Operating Margin

8.6%

8.2%

Missile Systems

1st Quarter

($ in millions)

2014

2013

% Change

Net Sales

$

1,574

$

1,636

-4%

Operating Income

$

208

$

214

-3%

Operating Margin

13.2%

13.1%

Space and Airborne Systems

1st Quarter

($ in millions)

2014

2013

% Change

Net Sales

$

1,398

$

1,582

-12%

Operating Income

$

190

$

227

-16%

Operating Margin

13.6%

14.3%

Attachment A

Raytheon Company

Preliminary Statement of Operations Information

First Quarter 2014

(In millions, except per share amounts)

Three Months Ended

30-Mar-14

31-Mar-13

Net sales

$

5,508

$

5,879

Operating expenses

     Cost of sales

4,161

4,605

     General and administrative expenses

559

568

Total operating expenses

4,720

5,173

Operating income

788

706

Non-operating (income) expense, net

     Interest expense

51

53

     Interest income

(3)

(3)

     Other (income) expense, net

—

(7)

Total non-operating (income) expense, net

48

43

Income from continuing operations before taxes

740

663

Federal and foreign income taxes

147

167

Income from continuing operations

593

496

Income (loss) from discontinued operations, net of tax

7

(2)

Net income

600

494

Less: Net income attributable to noncontrolling

   interests in subsidiaries

4

6

Net income attributable to Raytheon Company

$

596

$

488

Basic earnings (loss) per share attributable to Raytheon

  Company common stockholders:

     Income from continuing operations

$

1.87

$

1.50

     Income (loss) from discontinued operations, net of tax

0.02

(0.01)

     Net income

1.89

1.49

Diluted earnings (loss) per share attributable to Raytheon

  Company common stockholders:

     Income from continuing operations

$

1.87

$

1.49

     Income (loss) from discontinued operations, net of tax

0.02

(0.01)

     Net income

1.89

1.49

Amounts attributable to Raytheon Company common

  stockholders:

     Income from continuing operations

$

589

$

490

     Income (loss) from discontinued operations, net of tax

7

(2)

     Net income

$

596

$

488

Average shares outstanding

     Basic

315.0

327.4

     Diluted

315.8

328.2

Attachment B

Raytheon Company

Preliminary Segment Information

First Quarter 2014

Operating Income

Net Sales ⁽¹⁾

Operating Income ⁽¹⁾

As a Percent of Net Sales ⁽¹⁾

(In millions, except percentages)

Three Months Ended

Three Months Ended

Three Months Ended

30-Mar-14

31-Mar-13

30-Mar-14

31-Mar-13

30-Mar-14

31-Mar-13

Integrated Defense Systems

$

1,481

$

1,596

$

226

$

262

15.3

%

16.4

%

Intelligence, Information and Services

1,450

1,521

125

124

8.6

%

8.2

%

Missile Systems

1,574

1,636

208

214

13.2

%

13.1

%

Space and Airborne Systems

1,398

1,582

190

227

13.6

%

14.3

%

FAS/CAS Adjustment

—

—

87

(71)

Corporate and Eliminations

(395)

(456)

(48)

(50)

Total

$

5,508

$

5,879

$

788

$

706

14.3

%

12.0

%

(1) 2013 amounts have been revised to reflect our April 1, 2013 segment consolidation.

Attachment C

Raytheon Company

Other Preliminary Information

First Quarter 2014

(In millions)

Funded Backlog

Total Backlog

30-Mar-14

31-Dec-13

30-Mar-14

31-Dec-13

Integrated Defense Systems

$

8,977

$

9,397

$

10,596

$

10,916

Intelligence, Information and Services

2,585

2,592

5,579

5,856

Missile Systems

6,564

6,859

8,667

9,162

Space and Airborne Systems

4,619

4,166

7,341

7,751

Total

$

22,745

$

23,014

$

32,183

$

33,685

Bookings

Three Months Ended

30-Mar-14

31-Mar-13

Total Bookings

$

4,293

$

3,606

General and

Administrative Expenses

Three Months Ended

30-Mar-14

31-Mar-13

Administrative and selling expenses

$

448

$

461

Research and development expenses

$

111

$

107

Total general and administrative expenses

$

559

$

568

Attachment D

Raytheon Company

Preliminary Balance Sheet Information

First Quarter 2014

(In millions)

30-Mar-14

31-Dec-13

Assets

Current assets

     Cash and cash equivalents

$

3,036

$

3,296

     Short-term investments

1,495

1,001

     Contracts in process, net

5,211

4,870

     Inventories

363

363

     Prepaid expenses and other current assets

334

286

          Total current assets

10,439

9,816

Property, plant and equipment, net

1,902

1,937

Goodwill

12,765

12,764

Other assets, net

1,435

1,450

               Total assets

$

26,541

$

25,967

Liabilities and Equity

Current liabilities

     Advance payments and billings in excess of costs incurred

$

2,612

$

2,350

     Accounts payable

1,078

1,178

     Accrued employee compensation

867

1,068

     Other accrued expenses

1,422

1,214

          Total current liabilities

5,979

5,810

Accrued retiree benefits and other long-term liabilities

4,244

4,226

Long-term debt

4,735

4,734

Equity

  Raytheon Company stockholders' equity

     Common stock

3

3

     Additional paid-in capital

1,795

1,972

     Accumulated other comprehensive loss

(4,962)

(5,113)

     Retained earnings

14,582

14,173

          Total Raytheon Company stockholders' equity

11,418

11,035

     Noncontrolling interests in subsidiaries

165

162

          Total equity

11,583

11,197

               Total liabilities and equity

$

26,541

$

25,967

Attachment E

Raytheon Company

Preliminary Cash Flow Information

First Quarter 2014

(In millions)

Three Months Ended

30-Mar-14

31-Mar-13

Net income

$

600

$

494

(Income) loss from discontinued operations, net of tax

(7)

2

Income from continuing operations

593

496

Depreciation

73

74

Amortization

34

34

Working capital (excluding pension and income taxes)*

(530)

(793)

Other long-term liabilities

(12)

(15)

Pension and other postretirement benefit plans

180

291

Other, net

321

335

               Net operating cash flow from continuing operations

$

659

$

422

Supplemental Cash Flow Information

Capital spending

$

(39)

$

(49)

Internal use software spending

(12)

(9)

Purchases of short-term investments

(1,345)

(201)

Sales of short-term investments

457

—

Maturities of short-term investments

400

153

Dividends

(174)

(164)

Repurchases of common stock under stock repurchase programs

(200)

(225)

* Working capital (excluding pension and income taxes) is a summation of changes in: contracts in process, net and advance payments and billings in excess of costs incurred, inventories, prepaid expenses and other current assets, accounts payable, accrued employee compensation, and other accrued expenses from the Consolidated Statements of Cash Flows.

Attachment F

Raytheon Company

Non-GAAP Financial Measures - Adjusted EPS, Adjusted Income and Adjusted Operating Margin

First Quarter 2014

Adjusted EPS Non-GAAP Reconciliation

(In millions, except per share amounts)

2014 Guidance

Three Months Ended

Low end

High end

30-Mar-14

31-Mar-13

of range

of range

Diluted EPS from continuing operations attributable to Raytheon Company common stockholders

$

1.87

$

1.49

$

6.74

$

6.89

Per share impact of the FAS/CAS Adjustment (A)

(0.18)

0.14

(0.72)

(0.72)

Per share impact of the tax benefit of cash repatriation (B)

(0.25)

—

(0.25)

(0.26)

Per share impact of the 2012 research and development (R&D) tax credit (C)

—

(0.08)

—

—

Adjusted EPS (2), (3)

$

1.43

$

1.56

$

5.76

$

5.91

(A)

FAS/CAS Adjustment

$

(87)

$

71

$

(346)

$

(346)

         Tax effect (1)

30

(25)

121

121

After-tax impact

(57)

46

(225)

(225)

Diluted shares

315.8

328.2

314.0

312.0

Per share impact

$

(0.18)

$

0.14

$

(0.72)

$

(0.72)

(B)

Tax benefit of cash repatriation

$

(80)

$

—

$

(80)

$

(80)

Diluted shares

315.8

—

314.0

312.0

Per share impact

$

(0.25)

$

—

$

(0.25)

$

(0.26)

(C)

2012 R&D tax credit

$

—

$

(25)

$

—

$

—

Diluted shares

—

328.2

—

—

Per share impact

$

—

$

(0.08)

$

—

$

—

Adjusted Income Non-GAAP Reconciliation

(In millions)

Three Months Ended

30-Mar-14

31-Mar-13

Income from continuing operations attributable to Raytheon Company common stockholders

$

589

$

490

FAS/CAS Adjustment (1)

(57)

46

Tax benefit of cash repatriation

(80)

—

2012 R&D tax credit

—

(25)

Adjusted Income (2), (4)

$

452

$

511

Adjusted Operating Margin Non-GAAP Reconciliation

2014 Guidance

Three Months Ended

Low end

High end

30-Mar-14

31-Mar-13

of range

of range

Operating Margin

14.3%

12.0%

14.1%

14.3%

FAS/CAS Adjustment

(1.6)%

1.2%

(1.5)%

(1.5)%

Adjusted Operating Margin (2), (5)

12.7%

13.2%

12.6%

12.8%

(1)

Tax effected at 35% federal statutory tax rate.

(2)

These amounts are not measures of financial performance under U.S. generally accepted accounting principles (GAAP).  They should be considered supplemental to and not a substitute for financial performance in accordance with GAAP and may not be defined and calculated by other companies in the same manner. These amounts exclude the FAS/CAS Adjustment and, from time to time, certain other items. We are providing these measures because management uses them for the purposes of evaluating and forecasting the Company's financial performance and believes that they provide additional insights into the Company's underlying business performance. We also believe that they allow investors to benefit from being able to assess our operating performance in the context of how our principal customer, the U.S. Government, allows us to recover pension and postretirement benefit (PRB) costs and to better compare our operating performance to others in the industry on that same basis. Amounts may not recalculate directly due to rounding.

(3)

Adjusted EPS is diluted EPS 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. Three Months Ended March 30, 2014 and Guidance Adjusted EPS excludes the $0.25 impact of a net tax benefit of approximately $80 million resulting from cash repatriation in connection with a transaction with a foreign subsidiary in January 2014. Three Months Ended March 31, 2013 Adjusted EPS excludes the earnings per share impact of an R&D tax credit that relates to 2012. In January 2013, Congress approved legislation that included the extension of the R&D tax credit. The legislation retroactively reinstated the R&D tax credit for 2012 and extended it through December 31, 2013. As a result, we recorded the 2012 benefit in the first quarter of 2013.

(4)

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. Three Months Ended March 30, 2014 Adjusted Income also excludes the net tax benefit as discussed above. Three Months Ended March 31, 2013 Adjusted Income also excludes the R&D tax credit that relates to 2012, as discussed above.

(5)

Adjusted Operating Margin is defined as total operating margin excluding the margin impact of the FAS/CAS Adjustment and, from time to time, certain other items.