Raytheon Reports Fourth Quarter Results

* Defense businesses continue to deliver solid performance in the quarter, with sales up 10% and operating income up 7% year-over-year.

* Operating cash flow in defense businesses was $593 million in the quarter. Net debt was cut to $7.0 billion, down $1.7 billion in the quarter and $2.0 billion for the year.

* Excluding the impact of a third quarter charge at Raytheon Aircraft, EPS from continuing operations was $0.40 for the fourth quarter and $1.35 for the year. Including the impact of the charge, EPS from continuing operations for the fourth quarter was $0.15 and $0.01 for the year.

* Raytheon Aircraft gets JPATS award valued at $1.22 billion with options, its largest military order ever.

LEXINGTON, Mass., Jan. 23 /PRNewswire-FirstCall/ -- Raytheon Company (NYSE: RTN - news) reported fourth quarter sales of $4.6 billion, up from $4.4 billion in the fourth quarter of 2000. Income from continuing operations in the quarter was $57 million, or $0.15 per diluted share, compared with $190 million or $0.55 per diluted share a year ago. Fourth quarter 2001 EPS was negatively affected by a high tax rate resulting from a third quarter 2001 charge at Raytheon Aircraft Company. Excluding the impact of the charge, Raytheon had diluted EPS of $0.40 from continuing operations in the fourth quarter.

The defense businesses continued to deliver solid performance in the fourth quarter, with sales increasing 10 percent year-over-year and operating income up 7 percent. Adjusting for divestitures, sales in the defense businesses were up 11 percent.

"Our defense businesses are hitting on all cylinders, having consistently met or exceeded targets for revenue, cash and margin," said Daniel P. Burnham, Raytheon's chairman and chief executive officer. "I am especially pleased with how we've executed our strategy to reduce debt, despite the continuing challenges in discontinued operations. With our successful equity offerings, our cash generation in the defense businesses, and recent steps to reshape our portfolio, we're achieving financial flexibility to focus resources on the highest growth areas of our business." Burnham said the company is well positioned to capitalize on emerging opportunities in missile defense; intelligence, surveillance and reconnaissance (ISR) electronics; precision strike weapon systems; and homeland defense.

Raytheon had operating cash flow of $438 million in the quarter, $639 million from continuing operations that was offset by a $201 million cash outflow related to discontinued operations. This does not include $500 million received during the quarter from Hughes Electronics Corporation. The company expects to receive an additional $135.5 million from Hughes in the second quarter of 2002 to settle an acquisition purchase price dispute that began in 1998. In October, the company completed a $1.0 billion common stock offering, following a $1.2 billion equity offering in May. At the end of the fourth quarter, net debt was $7.0 billion, compared with $8.8 billion at the end of the third quarter of 2001, and $10.6 billion at its peak at the end of the first quarter of 1998. Raytheon expects to receive approximately $1.1 billion from the impending sale of Aircraft Integration Systems during the first quarter of 2002.

Including the impact of discontinued operations of $143 million after-tax and the extraordinary loss on debt repurchases, the company recorded a net loss in the fourth quarter of 2001 of $106 million, or $0.28 per diluted share, compared with net income of $168 million, or $0.49 per diluted share, in the fourth quarter of 2000.

Full-year 2001 sales totaled $16.9 billion, flat from the previous year due primarily to divestitures and continued weakness in the commercial aircraft business. Excluding divestitures, full-year sales for the defense businesses were up 8 percent. The company reported 2001 income from continuing operations of $5 million, or $0.01 per diluted share, compared with $498 million, or $1.46 per diluted share in 2000. Excluding the impact of the third quarter 2001 charge at Raytheon Aircraft, the company had diluted EPS from continuing operations of $1.35 for the year.

Including the impact of discontinued operations and the extraordinary loss on debt repurchases, the company recorded a loss of $703 million for the year, or $1.95 per diluted share, compared with net income of $141 million, or $0.41 per diluted share, in 2000. Consolidated operating cash outflow for the year, including discontinued operations cash outflow of $635 million, was $502 million, compared with operating cash inflow of $416 million for 2000.

Raytheon expects 2002 EPS from continuing operations to be $1.30 to $1.40, or $2.10 to $2.20, after the adoption of Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets. The company expects sales growth of 6 percent, adjusted for divestitures, and operating cash flow of $343 million for the year, excluding dividends and divestitures.

Electronic Systems

Electronic Systems (ES) reported fourth quarter 2001 sales of $2.1 billion, up 7 percent from a year ago due to new program starts. Adjusted for divestitures, ES sales were up 9 percent on a year-over-year basis. ES had operating income of $319 million in the quarter, compared with $350 million in the fourth quarter of 2000. Included in the fourth quarter of 2000 was a reversal of a previously recorded restructuring charge.

During the quarter, the Missile Defense Agency (formerly known as the Ballistic Missile Defense Organization) conducted the second successful intercept of a ballistic missile using Raytheon's Exoatmospheric Kill Vehicle (EKV), the PAVE PAWS Early Warning Radar (EWR), and Ground Based Radar- Prototype (BR-P). The test demonstrated the repeatability of the EKV's "hit- to-kill" technology and validated the design, capabilities and performance of the technology and systems Raytheon is developing for the Ground-based Midcourse Defense Segment (formerly National Missile Defense) program.

ES had backlog of $12.4 billion at the end of the fourth quarter.

Command, Control, Communication and Information Systems

Command, Control, Communication and Information Systems (C3I) had sales of $1.0 billion in the fourth quarter, up 18 percent from $883 million in the fourth quarter of 2000. C3I had operating income of $123 million, up 13 percent from $109 million a year ago. The improvement in sales and operating income was due largely to U.S. Navy, domestic air traffic control, and classified programs.

During the quarter, Raytheon was awarded a contract to provide Command and Control Switching System (CCSS) depot-level logistics support to Ogden Air Logistics Center at Hill Air Force Base, Utah. The contract has a value of up to $428 million.

C3I had backlog of $5.6 billion at the end of the fourth quarter.

Technical Services

Technical Services (TS) had sales of $543 million, up 18 percent from $462 million in the fourth quarter of 2000. TS recorded operating income of $42 million, an increase of 91 percent from $22 million in the fourth quarter of 2000. Sales and operating income in the fourth quarter of 2000 were negatively affected by contract adjustments.

During the fourth quarter of 2001, Raytheon was awarded a U.S. Navy engineering services contract with a potential value of $430 million. The contract from Naval Air Systems Command is to provide the supplies and services required to plan, manage and execute engineering, industrial, logistics and operational support services. The company also was awarded a subcontract, valued at up to $350 million, from Science Applications International Corporation to provide spares, repairs, modifications and support to the U.S. Air Force's Air Logistics Centers.

TS had backlog of $2.0 billion at the end of the fourth quarter.

Aircraft Integration Systems

Aircraft Integration Systems (AIS) recorded sales of $346 million in the fourth quarter of 2001, compared with $341 million a year ago. AIS recorded operating income of $23 million in the quarter, compared with an operating loss of $8 million in the 2000 fourth quarter. During the fourth quarter of 2000, AIS took a contract write-down on the Boeing Business Jet program of $39 million.

After the close of the quarter, Raytheon announced that it has agreed to sell AIS to L-3 Communications for $1.13 billion. The sale is expected to close by the end of the first quarter 2002. As part of the transaction, Raytheon will retain the ASTOR (Airborne Standoff Radar) program, certain receivables and the Boeing Business Jet program, which is nearing completion. The company expects to deliver one remaining aircraft in the first quarter of 2002 and the last aircraft in the second quarter of 2002.

AIS had backlog of $1.9 billion at the end of the fourth quarter.

Commercial Electronics

Commercial Electronics (CE) had fourth quarter sales of $114 million, compared with $182 million a year ago. The divestiture of Raytheon Recreational Marine in January of 2001 accounted for a $30 million decline in sales. CE recorded an operating loss for the quarter of $14 million. The loss was due primarily to continued weakness in CE's markets.

Raytheon Aircraft Company

Raytheon Aircraft Company (RAC) had sales of $718 million in the 2001 fourth quarter, compared with $847 million a year ago. RAC shipped 129 aircraft during the quarter, including 15 Premier I business jets. The business had an operating loss of $37 million in the fourth quarter of 2001, compared with operating income of $60 million a year ago. The loss was driven by lower volume and adverse mix, with shipments of Hawkers, Beechjets and 1900D products down 18 units year-over-year.

During the quarter, RAC was awarded a contract worth potentially $1.22 billion for T-6A Texan II military training aircraft, associated ground-based training devices and technical support. The contract is the largest in RAC's history, and is part of the Joint Primary Aircraft Training System (JPATS) program, which calls for nearly 800 aircraft through the year 2017. To date, the U.S. Air Force and U.S. Navy have ordered 168 of the two-seat T-6As.

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