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Raytheon Reports Solid First Quarter 2014 Results

Companies mentioned in this article: Raytheon Company

WALTHAM, Mass., April 24, 2014 /PRNewswire/ -- Raytheon Company (NYSE: RTN) announced first quarter 2014 EPS from continuing operations of $1.87 compared to $1.49 in the first quarter 2013. First quarter 2014 Adjusted EPS(1) was $1.43 per diluted share compared to $1.56 per diluted share in the first quarter 2013. The first quarter 2014 Adjusted EPS(1) excluded the previously announced $0.25 favorable tax impact from cash repatriation in the first quarter 2014. In addition, the first quarter 2014 Adjusted EPS(1) excluded a favorable FAS/CAS Adjustment of $0.18, compared with an unfavorable FAS/CAS Adjustment of $0.14 in the first quarter 2013. The first quarter 2013 Adjusted EPS(1) also excluded $0.08 associated with the impact of the 2012 research and development (R&D) tax credit approved by Congress in January 2013.

"Raytheon delivered solid operating performance in the first quarter," said Thomas A. Kennedy, Raytheon's CEO. "Our longstanding focus on operational excellence, consistent program performance and a portfolio of affordable and innovative solutions provides a strong foundation for ongoing value creation for our global customers and shareholders."

_____________________________

(1) Adjusted EPS is diluted 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. First quarter 2014 Adjusted EPS excluded the $0.25 favorable tax impact of approximately $80 million resulting from cash repatriation in the first quarter 2014. First quarter 2013 Adjusted EPS excluded the $0.08 impact of the 2012 research and development (R&D) tax credit, approved by Congress in January 2013 that relates to 2012. 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)                                                             2014           2013          Change
                                                                                                       ----                        ------


    Net Sales                                                                                                $5,508         $5,879          -6.3%

    Income from Continuing Operations attributable to                                                          $589           $490          20.2%

       Raytheon Company

    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.
    ---------------------------------------------------------------------------------------------------------------------------------

Net sales for the first quarter 2014 were $5.5 billion compared to $5.9 billion in the first quarter 2013. Net sales for the first quarter 2014 were in-line with the Company's prior financial guidance.

The Company generated strong operating cash flow for the first quarter 2014. Operating cash flow from continuing operations for the first quarter 2014 was $659 million compared to $422 million for the first quarter 2013. The increase in operating cash from continuing operations in the first quarter 2014 was primarily due to the timing of collections.

In the first quarter 2014, the Company repurchased 2.1 million shares of common stock for $200 million. In addition, as previously announced, the Company's Board of Directors voted to increase the Company's annual dividend rate by 10 percent from $2.20 to $2.42 per share, the tenth consecutive annual dividend increase.

The Company ended the first quarter 2014 with $204 million of net debt. Net debt is defined as total debt less cash and cash equivalents and short-term investments.

Bookings and Backlog


    Bookings                                Backlog
    --------                                -------

     ($
     in
     millions)    1st Quarter           ($ in millions)           Period Ending
                                                                  -------------

               2014           2013                            Q1       Q1
                                                            2014      2013              2013
               ----          ----                        -----     -----              ----

    Bookings         $4,293        $3,606     Backlog             $32,183         $33,546      $33,685

                                          Funded Backlog        $22,745         $22,523      $23,014

The Company had bookings of $4.3 billion in the first quarter 2014, and ended the first quarter 2014 with a backlog of $32.2 billion and a funded backlog of $22.7 billion, an increase of $222 million compared to the first quarter 2013.

Outlook

The Company is reaffirming its prior financial outlook for 2014. Charts containing additional information on the Company's 2014 outlook are available on the Company's website at www.raytheon.com/ir.


    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.


    ---

Segment Results

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


    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%

Integrated Defense Systems (IDS) had first quarter 2014 net sales of $1,481 million compared to $1,596 million in the first quarter 2013. The change in net sales was primarily due to the scheduled completion of certain production phases on two international Patriot programs.

IDS recorded $226 million of operating income compared to $262 million in the first quarter 2013. The change in operating income was primarily driven by lower volume as well as higher net program efficiencies in the first quarter 2013.

During the quarter, IDS booked $515 million to provide advanced Patriot air and missile defense capability for Kuwait. IDS also booked $98 million to provide Patriot engineering services support for U.S. and international customers.


    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%

Intelligence, Information and Services (IIS) had first quarter 2014 net sales of $1,450 million compared to $1,521 million in the first quarter 2013. The change in net sales was primarily due to lower volume on training programs.

IIS recorded $125 million of operating income compared to $124 million in the first quarter 2013.

During the quarter, IIS booked $111 million on the Joint Polar Satellite System (JPSS) program for NASA and $104 million on training programs in support of Warfighter FOCUS activities, including $59 million on domestic programs and $45 million on foreign programs. IIS also booked $535 million on a number of classified contracts, including $195 million for a cyber solution for an international customer.


    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%

Missile Systems (MS) had first quarter 2014 net sales of $1,574 million compared to $1,636 million in the first quarter 2013. The change in net sales was primarily driven by lower sales on U.S. Army programs.

MS recorded $208 million of operating income compared to $214 million in the first quarter 2013. The change in operating income was primarily due to lower volume.

During the quarter, MS booked $479 million for Standard Missile-3 (SM-3(TM)) for the Missile Defense Agency (MDA). MS also booked $164 million for Paveway(TM) and $86 million for Maverick missiles for international customers.


    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%

Space and Airborne Systems (SAS) had first quarter 2014 net sales of $1,398 million compared to $1,582 million in the first quarter 2013. The change in net sales was primarily due to lower volume on tactical communications systems programs and on classified programs.

SAS recorded $190 million of operating income compared to $227 million in the first quarter 2013. The change in operating income was primarily due to lower volume and contract mix.

During the quarter, SAS booked $116 million to provide radar spares for an international customer and $81 million for software enhancements to Active Electronically Scanned Array (AESA) radars for the U.S. Air Force. SAS also booked $216 million on a number of classified contracts.

About Raytheon
Raytheon Company, with 2013 sales of $24 billion and 63,000 employees worldwide, is a technology and innovation leader specializing in defense, security and civil markets throughout the world. With a history of innovation spanning 92 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 cyber security and 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 @Raytheon.

Conference Call on the First Quarter 2014 Financial Results
Raytheon's financial results conference call will be held on Thursday, April 24, 2014 at 9 a.m. ET. Participants will include Thomas A. Kennedy, CEO; David C. Wajsgras, senior vice president and CFO; and other Company executives.

The dial-in number for the conference call will be (866) 953-6857 in the U.S. or (617) 399-3481 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 due to budgetary constraints, spending cuts resulting from sequestration under the amended Budget Control Act of 2011, 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 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 and cyber 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.

Raytheon Company
Global Headquarters
Waltham, Mass.

Investor Relations Contact
Todd Ernst
781.522.5141

Media Contact
Dave Desilets
781.522.5855

    Attachment A

    Raytheon Company

    Preliminary Statement of
     Operations Information

    First Quarter 2014


    (In millions, except per                        Three
     share amounts)                                Months
                                                    Ended
                                                   ------

                                              30-              31-
                                             Mar-           Mar-
                                              14                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                As a Percent of Net
                                                                                                                                       (1)                           Sales (1)

    (In millions, except percentages)                                                  Three Months                     Three Months
                                                                                           Ended                           Ended                      Three Months Ended
                                                                                      -------------                    -------------                  ------------------

                                                                                  30-Mar-           31-Mar-         30-Mar-            31-Mar-
                                                                                     14                 13                14                   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-                31-               30-               31-
                                               Mar-             Dec-            Mar-             Dec-
                                                14                  13                14               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-                31-
                                               Mar-             Mar-
                                                14                  13
                                              ----                ----


    Total Bookings                                     $4,293            $3,606
                                                       ======            ======



                                                   General and

                                                  Administrative
                                                     Expenses

                                                   Three Months
                                                       Ended
                                                  -------------

                                                30-                31-
                                               Mar-             Mar-
                                                14                  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-               31-
                                          Mar-           Dec-
                                           14                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-              31-
                                                                                                                                         Mar-          Mar-
                                                                                                                                          14               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                Low      High
                                                                                                                                                                                                Ended                    end      end
                                                                                                                                                                                            ------------

                                                                                                                                                                                          30-              31-             of       of
                                                                                                                                                                                        Mar-              Mar-            range     range
                                                                                                                                                                                           14               13
                                                                                                                                                                                        ----              ----            ------   ------

    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-              31-
                                                                                                                                                                                        Mar-              Mar-
                                                                                                                                                                                           14               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                Low      High
                                                                                                                                                                                                Ended                    end      end
                                                                                                                                                                                            ------------

                                                                                                                                                                                          30-              31-             of       of
                                                                                                                                                                                        Mar-              Mar-            range     range
                                                                                                                                                                                           14               13
                                                                                                                                                                                        ----              ----            ------   ------

    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.

SOURCE Raytheon Company