Raytheon Reports Strong Third Quarter 2007 Results; Announces New $2.0 Billion Share Repurchase Plan

WALTHAM, Mass., Oct. 25, 2007 /PRNewswire-FirstCall/ -- Raytheon Company (NYSE: RTN) reported third quarter 2007 income from continuing operations of $304 million or $0.69 per diluted share compared to $267 million or $0.59 per diluted share in the third quarter 2006. Third quarter 2007 income from continuing operations was higher primarily due to operational improvements, combined with lower net interest and pension expense, partially offset by an after-tax impairment charge of $69 million ($84 million pretax) or $0.16 per diluted share in connection with the disposition process of Flight Options. Third quarter 2007 income from continuing operations excluding Flight Options was $380 million or $0.86 per diluted share compared to $274 million or $0.61 per diluted share in the third quarter 2006. (1)

Raytheon also announced that on October 15, 2007 , it entered into a definitive agreement to sell Flight Options to H.I.G. Capital, a global private investment firm. This transaction is expected to close in the fourth quarter 2007.

"Our program execution, strong backlog and customer focus are driving the Company's performance and delivering value to our shareholders," said William H. Swanson, Raytheon Chairman and CEO. "With the pending sale of Flight Options, going forward our attention will be focused on our core business, leading technologies and Mission Support to our global customers."

Third quarter 2007 net income was $299 million or $0.68 per diluted share compared to $321 million or $0.71 per diluted share in the third quarter 2006. Net income for the third quarter 2007 included a $5 million after-tax loss in discontinued operations or $0.01 per diluted share versus a $54 million gain or $0.12 in the third quarter 2006. Third quarter 2006 discontinued operations results included Raytheon Aircraft Company (RAC), which was sold by the Company in the second quarter 2007.

Net sales for the third quarter 2007 were $5.4 billion, up 8 percent from $4.9 billion in the third quarter 2006 led primarily by Integrated Defense Systems (IDS), Missile Systems (MS) and Network Centric Systems (NCS).

Operating cash flow from continuing operations for the third quarter 2007 was $735 million versus $733 million for the third quarter 2006. The third quarter 2007 included $203 million in cash tax payments versus $53 million in cash tax payments in the third quarter 2006. Of the cash taxes paid in the third quarter 2007, $157 million was attributable to the gain on the sale of RAC.

Year-to-date operating cash flow from continuing operations was $310 million versus $1,159 million for the comparable period in 2006. The year-to- date decrease in operating cash flow was primarily due to $846 million in cash tax payments ($473 million attributable to the gain on the sale of RAC) versus $154 million of cash tax payments made in the comparable period in 2006 combined with the $400 million discretionary cash contribution made to the Company's pension plans in the first quarter 2007 versus the $200 million discretionary cash contribution made in the first quarter 2006.

During the third quarter 2007, the Company repurchased 8.6 million shares for $500 million as part of the Company's previously announced share repurchase program. The Company has repurchased 23.3 million shares of common stock year-to-date for $1.3 billion.

The Board of Directors, on October 24, 2007 , authorized the repurchase of up to an additional $2.0 billion of the Company's outstanding common stock. Share repurchases will take place from time to time at management's discretion depending on market conditions.

The Company reported total bookings for the third quarter 2007 of $6.5 billion compared to $5.4 billion in the third quarter 2006. The Company ended the third quarter 2007 with backlog of $33.9 billion compared to $31.9 billion at the end of the third quarter 2006 and $33.8 billion at the end of 2006.

The Company has updated full-year 2007 guidance, including the reclassification of Flight Options as a discontinued operation for full-year 2007. Charts containing additional information on the Company's 2007 guidance are available on the Company's website at http://www.raytheon.com. See attachment F for the Company's calculation and use of Return on Invested Capital (ROIC), a non-GAAP financial measure.

Additional information regarding the Company's 2008 guidance will be provided on the fourth quarter earnings conference call scheduled for January 31, 2008 .

Integrated Defense Systems (IDS) had third quarter 2007 net sales of $1,147 million, up 11 percent compared to $1,030 million in the third quarter 2006, primarily due to growth on Missile Defense Agency and U.S. Army programs, as well as on international programs. IDS recorded $206 million of operating income compared to $167 million in the third quarter 2006. The increase in operating income was primarily due to higher volume and improved performance on several international and domestic programs.

During the quarter, IDS booked $958 million for the production phase of mission support equipment for the two lead Zumwalt-class destroyers for the U.S. Navy. IDS also booked $123 million for the Patriot Pure Fleet program for the U.S. Army.

After the quarter close, IDS was awarded $1.2 billion for the Australian Air Warfare Destroyer contract, which was booked in October 2007 .

Intelligence and Information Systems (IIS) had third quarter 2007 net sales of $680 million, up 9 percent compared to $626 million in the third quarter 2006, primarily due to increased volume on several U.S. Air Force and information systems programs. IIS recorded $64 million of operating income compared to $58 million in the third quarter 2006.

During the quarter, IIS booked $781 million for the National Polar- orbiting Operational Environmental Satellite System (NPOESS) program and $101 million for the U.S. Air Force's Consolidated Field Service (CFS) contract to provide global intelligence, surveillance and reconnaissance support. IIS also booked $279 million on a number of classified contracts.

After the quarter close, the Company acquired Oakley Networks, a leading developer of cyber-security technology, which will add to Raytheon's capabilities in information operations/information assurance solutions.

Missile Systems (MS) had third quarter 2007 net sales of $1,247 million, up 15 percent compared to $1,081 million in the third quarter 2006, primarily due to higher volume on the Standard Missile and Evolved Sea Sparrow Missile (ESSM) programs. MS recorded $139 million of operating income compared to $109 million in the third quarter 2006. The increase in operating income was primarily due to higher volume and improved performance.

During the quarter, MS booked $223 million for the production of ESSM and $201 million for Standard Missile-2 (SM-2). MS also booked $117 million for the production of Javelin for the U.S. Army and U.S. Marines.

Network Centric Systems (NCS) had third quarter 2007 net sales of $1,036 million, up 18 percent compared to $879 million in the third quarter 2006, primarily due to increased volume on certain U.S. Army programs. NCS recorded $123 million of operating income compared to $87 million in the third quarter 2006. The increase in operating income was primarily due to higher volume and improved program performance.

During the quarter, NCS booked $116 million to provide Long Range Advanced Scout Surveillance Systems (LRAS3) and $104 million for Horizontal Technology Integration (HTI) forward-looking infrared kits to the U.S. Army. NCS also booked $106 million on the Long Range Radar Service Life Extension Program (LRR SLEP).

Also during the quarter, the U.S. Navy directed Raytheon to proceed with the development of the Navy Multiband Terminal (NMT).

Space and Airborne Systems (SAS) had third quarter 2007 net sales of $1,016 million, down 5 percent compared to $1,069 million in the third quarter 2006, primarily due to lower volume on some airborne systems programs and a reduction in classified space bookings due to customer reprioritization. SAS recorded $121 million of operating income compared to $148 million in the third quarter 2006. Operating income was lower primarily due to profit adjustments taken on certain programs in both the third quarter 2006 and 2007 and reduced volume.

Technical Services (TS) had third quarter 2007 net sales of $513 million compared to $500 million in the third quarter 2006. TS recorded operating income of $34 million in the third quarter 2007 compared to $35 million in the third quarter 2006.

Other

Net sales in the third quarter 2007 were $191 million compared to $190 million in the third quarter 2006. The segment recorded an operating loss of $96 million in the third quarter 2007 compared to an operating loss of $10 million in the third quarter 2006. During the third quarter 2007, the Company initiated a process to dispose of its Flight Options (FO) business. The Company recorded an after-tax impairment charge of $69 million ($84 million pretax), which includes all of FO's remaining goodwill and a portion of its intangible assets, as a result of the disposition process.

On October 15, 2007 , Raytheon entered into a definitive agreement to sell FO to H.I.G. Capital, a global private investment firm. In the fourth quarter 2007, the Company expects to record an additional after-tax charge of approximately $45 million, subject to purchase price adjustments, to write down the net assets of FO to the expected final net sales price. The Company will present FO as a discontinued operation in the fourth quarter 2007 and for all periods presented.

Raytheon Company (NYSE: RTN), with 2006 sales of $20.3 billion, is a technology leader specializing in defense, homeland security and other government markets throughout the world. With a history of innovation spanning 85 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 73,000 people worldwide.

Disclosure Regarding Forward-looking Statements

This release and the attachments contain forward-looking statements, including information regarding the Company's 2007 and 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: risks associated with the Company's 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; potential further charges relating to Flight Options; risks associated with the Company's sale of Flight Options; risks associated with the commuter and fractional ownership aircraft markets; the outcome of contingencies and litigation matters, including government investigations; the ability to recruit and retain qualified personnel; risks associated with acquisitions, joint ventures and other business arrangements; the impact of changes in the Company's credit ratings; and other factors as may be detailed from time to time in the Company's public announcements and Securities and Exchange Commission filings. In addition, these statements do not give effect to the potential impact of any acquisitions, divestitures or business combinations that may be announced or closed after the date hereof. 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. 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 Third Quarter 2007 Financial Results

Raytheon's financial results conference call will be held on Thursday, October 25, 2007 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 http://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.

SOURCE Raytheon Company



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