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Raytheon Reports Solid First Quarter 2016 Results

The following excerpt is from the company's SEC filing.

Strong bookings of

$6.2 billion

; book-to-bill ratio of 1.08

Net sales of

$5.8 billion

percent

EPS from continuing operations of

Solid operating cash flow from continuing operations of

$325 million

As previously announced, increased annual dividend by 9.3 percent to $2.93 per share

Updated full-year 2016 guidance

__________________________________________________________________________________________________

WALTHAM, Mass., (April 28, 2016) - Raytheon Company (NYSE: RTN) announced net sales for the

first quarter 2016

percent compared to

$5.3 billion

in the

first quarter 2015

First quarter 2016

EPS from continuing operations was

EPS from continuing operations included, as expected, an

unfavorable impact associated with acquisition accounting adjustments related to Forcepoint

, partially offset by a tax benefit of $0.05 from adopting the new accounting standard for stock compensation, which was not in the Company's prior financial outlook. First quarter 2016 EPS from continuing operations included a favorable FAS/CAS Adjustment of $0.23 compared to a favorable FAS/CAS Adjustment of $0.10 in the first quarter 2015. In addition, first quarter 2015 EPS from continuing operations included a $0.42 favorable impact for the eBorders settlement with the U.K. Home Office.

“Raytheon had a good start to 2016 with bookings, sales, EPS and cash flow ahead of our expectations in the quarter,” said Thomas A. Kennedy, Raytheon Chairman and CEO. “Demand from our global customers continues to be strong, with particular strength in bookings from domestic as well as the Middle East and North Africa region.”

Operating cash flow from continuing operations for the first quarter 2016 was

$55 million

for the first quarter 2015. The increase in operating cash flow from continuing operations in the first quarter 2016 was primarily due to the timing of collections and tax payments.

Summary Financial Results

1st Quarter

($ in millions, except per share data)

Change

Bookings

Net Sales

Income from Continuing Operations attributable to

Raytheon Company

-22.3%

EPS from Continuing Operations

-19.7%

Operating Cash Flow from Continuing Operations

Workdays in Fiscal Reporting Calendar

First quarter 2015 Income from Continuing Operations attributable to Raytheon Company and EPS from Continuing Operations included the favorable $181 million pretax ($131 million after-tax) and $0.42 impact, respectively, for the eBorders settlement.

The Company had bookings of

, resulting in a book-to-bill ratio of 1.08 in the quarter. First quarter 2015 bookings were

$4.5 billion

In the

, the Company repurchased 3.2 million shares of common stock for $400 million. In addition, as previously announced, the Company's Board of Directors voted to increase the Company's annual dividend rate by 9.3 percent from $2.68 to $2.93 per share, the twelfth consecutive annual dividend increase.

The Company ended the first quarter 2016 with

$2.7 billion

of net debt. Net debt is defined as total debt less cash and cash equivalents and short-term investments.

Backlog

($ in millions)

Period Ending

Q1 2016

Q1 2015

34,768

32,485

34,669

Funded Backlog

26,168

23,723

25,060

Backlog at the end of the first quarter 2016 was

$34.8 billion

, an increase of approximately $2.3 billion compared to the end of the first quarter 2015. Funded backlog was

$26.2 billion

, an increase of approximately $2.4 billion compared to the end of the first quarter 2015.

Outlook

The Company has updated its financial outlook for 2016. Charts containing additional information on the Company's 2016 outlook are available on the Company's website at www.raytheon.com/ir.

2016 Financial Outlook

Current

Net Sales ($B)

24.0 - 24.5

Deferred Revenue Adjustment ($M)

Amortization of Acquired Intangibles ($M)

FAS/CAS Adjustment ($M)

Interest Expense, net ($M)

(220) - (230)

Diluted Shares (M)

296 - 298

Effective Tax Rate

~28.5%*

~30.0%

$6.93 - $7.13*

$6.80 - $7.00

Operating Cash Flow from Continuing Operations ($B)

2.7 - 3.0

* Denotes change from prior guidance

Deferred Revenue Adjustment and Amortization of Intangibles represent the unfavorable impact of the acquisition accounting adjustments to record acquired deferred revenue at fair value and the amortization of acquired intangible assets for all business segments.

Segment Results

The Company's reportable segments are: Integrated Defense Systems (IDS); Intelligence, Information and Services (IIS); Missile Systems (MS); Space and Airborne Systems (SAS); and Forcepoint.

As previously reported, effective January 1, 2016, the Company reclassified, for all business segments, acquisition accounting adjustments such that they are no longer reported within the business segments and are instead reported in separate deferred revenue adjustment and amortization of acquired intangibles line items. In addition, as previously reported, effective January 1, 2016, the Company reorganized the IDS and IIS business segments. The business results that follow reflect the above changes.

% Change

Operating Income

Operating Margin

Integrated Defense Systems (IDS) had

net sales of

$1,337 million

, up 2 percent compared to

$1,307 million

. The increase in net sales for the quarter was primarily driven by higher sales on certain international Patriot programs.

IDS recorded

$147 million

of operating income in the

$183 million

. The change in operating income for the quarter was primarily driven by a $36 million unfavorable program adjustment. This program is included in one of the Company's joint ventures. As such, approximately 50 percent of the unfavorable impact is reversed on the Company's income statement on the net loss attributable to noncontrolling interest line. The adjustment is related to costs to replace or repair defective shelters built by one of our subcontractors on an international command and control program in the first quarter 2016. The company is pursuing recovery of these costs.

During the quarter, IDS booked $191 million to provide Patriot engineering services support for U.S. and international customers and $84 million to provide advanced Patriot air and missile defense capability for the U.S. Army. IDS also booked $198 million on a classified program.

First quarter 2015 operating income includes the favorable $181 million impact of the eBorders settlement.

NM = Not Meaningful

Intelligence, Information and Services (IIS) had

$1,493 million

$1,461 million

. The increase in net sales for the quarter was primarily driven by higher sales on cybersecurity and special missions programs.

IIS recorded

$100 million

$295 million

. First quarter 2015 operating income included the favorable $181 million impact of the eBorders settlement.

During the quarter, IIS booked $301 million for a U.S. Air Force program. IIS also booked $555 million on a number of classified contracts.

Missile Systems (MS) had

$1,720 million

, up 17 percent compared to

$1,473 million

. The increase in net sales for the quarter was primarily driven by higher sales on the Paveway™ and Advanced Medium-Range Air-to-Air Missile (AMRAAM

) programs.

MS recorded

$192 million

$207 million

. The decrease in operating income for the quarter was primarily driven by higher net program efficiencies and a favorable resolution of a contractual issue in the first quarter 2015, as well as an unfavorable change on incentive fees on a missile defense program in the first quarter 2016. This was partially offset by higher volume and a favorable change in program mix in the first quarter 2016.

During the quarter, MS booked $646 million for AMRAAM for the U.S. Air Force, U.S. Navy and international customers. MS also booked $272 million for Standard Missile-6 (SM-6™) for the U.S. Navy and $225 million for Paveway for the U.S. Air Force and international customers.

Space and Airborne Systems (SAS) had

$1,450 million

, up 7 percent compared to

$1,358 million

. The increase in net sales for the quarter was primarily driven by higher sales on classified programs, including an international program.

SAS recorded

$173 million

$182 million

. The change in operating income for the quarter was primarily due to a change in program mix.

During the quarter, SAS booked over $650 million on an international classified contract and $553 million on the Joint Polar Satellite System (JPSS) program for NASA. SAS also booked $470 million on a number of domestic classified contracts.

Shortly after the quarter close, SAS received a $1.0 billion award on the Next Generation Jammer (NGJ) program for the U.S. Navy.

Forcepoint had

$136 million

$24 million

. Forcepoint recorded

$14 million

. The increase in net sales and operating income for the quarter was primarily due to the acquisitions of Websense in May 2015 and Stonesoft in January 2016.

About Raytheon

Raytheon Company, with 2015 sales of $23 billion and 61,000 employees, is a technology and innovation leader specializing in defense, civil government and cybersecurity solutions. With a history of innovation spanning 94 years, Raytheon provides state-of-the-art electronics, mission systems integration, C5I

products and services, sensing, effects, and mission support for customers in more than 80 countries. Raytheon is headquartered in Waltham, Mass. Visit us at

and follow us on Twitter

@raytheon

Conference Call on the First Quarter 2016 Financial Results

Raytheon's financial results conference call will be held on Thursday, April 28, 2016 at 9 a.m. ET. Participants will include Thomas A. Kennedy, Chairman and CEO; Anthony F. O'Brien, vice president and CFO; and other Company executives.

The dial-in number for the conference call will be (866) 202-0886 in the U.S. or (617) 213-8841 outside of the U.S. The conference call will also be audiocast on the Internet at

. 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 due to budgetary constraints, spending cuts resulting from sequestration, a government shutdown, or otherwise, 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 unpredictability of timing of international bookings; the ability to comply with extensive governmental regulation and obtain approvals, including export and import requirements such as the International Traffic in Arms Regulations and the Export Administration Regulations, anti-bribery and anti-corruption requirements including the Foreign Corrupt Practices Act,

industrial cooperation agreement obligations, and procurement and other regulations; changes in government procurement practices; the impact of competition; the ability to develop products and technologies; the impact of potential security and cyber threats, and other disruptions; the ability to recruit and retain qualified personnel; 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 and partner performance and key suppliers; risks of a negative government audit; risks associated with acquisitions, investments, dispositions, joint ventures and other business arrangements; the ability to grow in the government and commercial cybersecurity markets; risks of an impairment of goodwill or other intangible assets; the use of accounting estimates in the Company's financial statements; the outcome of contingencies and litigation matters, including government investigations; the impact of financial markets and global economic conditions; the risk of environmental liabilities; 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 may contain non-GAAP financial measures. In such event, a GAAP reconciliation and a discussion of the Company's use of these measures are included in this release or the attachments.

Attachment A

Preliminary Statement of Operations Information

(In millions, except per share amounts)

Three Months Ended

3-Apr-16

29-Mar-15

Operating expenses

Cost of sales

General and administrative expenses

Total operating expenses

Operating income

Non-operating (income) expense, net

Interest expense

Interest income

Other (income) expense, net

Total non-operating (income) expense, net

Income from continuing operations before taxes

Federal and foreign income taxes

Income (loss) from discontinued operations, net of tax

Net income

Less: Net income (loss) attributable to noncontrolling

interests in subsidiaries

Net income attributable to Raytheon Company

Basic earnings (loss) per share attributable to Raytheon

Company common stockholders:

Income from continuing operations

Income (loss) from discontinued operations, net of tax

Net income

Diluted earnings (loss) per share attributable to Raytheon

Amounts attributable to Raytheon Company common

stockholders:

Average shares outstanding

Basic

Diluted

Attachment B

Preliminary Segment Information

As a Percent of Net Sales

(In millions, except percentages)

Eliminations

Total business segment

Acquisition Accounting Adjustments

Corporate

Attachment C

Other Preliminary Information

(In millions)

Total Backlog

31-Dec-15

10,242

10,629

10,822

10,885

Total Bookings

Administrative and selling expenses

Research and development expenses

Total general and administrative expenses

Attachment D

Preliminary Balance Sheet Information

Assets

Current assets

Cash and cash equivalents

Short-term investments

Contracts in process, net

Inventories

Prepaid expenses and other current assets

Total current assets

Property, plant and equipment, net

Goodwill

14,791

14,731

Other assets, net

Total assets

28,829

29,281

Liabilities, Redeemable Noncontrolling Interest and Equity

Current liabilities

Advance payments and billings in excess of costs incurred

Accounts payable

Accrued employee compensation

Other current liabilities

Total current liabilities

Accrued retiree benefits and other long-term liabilities

Long-term debt

Redeemable noncontrolling interest

Raytheon Company stockholders' equity

Common stock

Additional paid-in capital

Accumulated other comprehensive loss

(7,050

(7,176

Retained earnings

17,141

16,903

Total Raytheon Company stockholders' equity

10,124

10,128

Noncontrolling interests in subsidiaries

Total equity

10,310

10,330

Total liabilities, redeemable noncontrolling interest and equity

Attachment E

Preliminary Cash Flow Information

Cash flows from operating activities

(Income) loss from discontinued operations, net of tax

Adjustments to reconcile to net cash provided by (used in) operating activities from continuing operations, net of acquisitions and divestitures

Depreciation and amortization

Stock-based compensation

Deferred income taxes

Tax benefit from stock-based awards

Changes in assets and liabilities

Contracts in process, net and advance payments and billings in excess of costs incurred

Income taxes receivable/payable

Other accrued expenses

Other, net

Net cash provided by (used in) operating activities from continuing operations

Net cash provided by (used in) operating activities from discontinued operations

Cash flows from investing activities

Additions to property, plant and equipment

Proceeds from sales of property, plant and equipment

Additions to capitalized internal use software

Purchases of short-term investments

Sales of short-term investments

Maturities of short-term investments

Payments for purchases of acquired companies, net of cash received

Net cash provided by (used in) investing activities

Cash flows from financing activities

Dividends paid

Repurchases of common stock under share repurchase programs

Repurchases of common stock to satisfy tax withholding obligations

Contribution from noncontrolling interests

Net cash provided by (used in) financing activities

Net increase (decrease) in cash and cash equivalents

Cash and cash equivalents at beginning of the period

Cash and cash equivalents at end of period

Attachment F

Supplemental EPS Information

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

Per share impact of Forcepoint acquisition accounting adjustments (B)

Per share impact of all other acquisition accounting adjustments (excluding Forcepoint) (C)

Per share impact of adoption of new accounting standard for stock compensation (D)

Per share impact of the eBorders settlement (E)

Tax effect (at 35% statutory rate)

After-tax impact

Diluted shares

Forcepoint deferred revenue adjustment

Forcepoint amortization of acquired intangibles

Total Forcepoint acquisition accounting adjustments

Amount attributable to Raytheon Company (80.3%)

IDS amortization of acquired intangibles

IIS amortization of acquired intangibles

MS amortization of acquired intangibles

SAS amortization of acquired intangibles

Total all other acquisition accounting adjustments (excluding Forcepoint)

Adoption of new accounting standard for stock compensation

Tax effect (at 27.7% blended global tax rate)

The above information was disclosed in a filing to the SEC. To see the filing, click here.

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Other recent filings from the company include the following:

Raytheon Company releases salary data. CEO sees compensation rise 15% - April 27, 2016
Other preliminary proxy statements - April 12, 2016
Raytheon Company's Vice President just disposed of 22,345 shares - April 6, 2016