UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (date of earliest event reported): April 25, 2007
RAYTHEON COMPANY
(Exact name of registrant as specified in its charter)
| Delaware | 1-13699 | 95-1778500 | ||
| (State of Incorporation) | (Commission File Number) | (IRS Employer Identification Number) |
870 Winter Street, Waltham, Massachusetts 02451
(Address of Principal Executive Offices) (Zip Code)
(781) 522-3000
(Registrant’s telephone number, including area code)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
| ¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| ¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| ¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| ¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
| Item 2.02. | Results of Operations and Financial Condition |
On April 25, 2007, Raytheon Company issued a press release announcing financial results for the fiscal quarter ended March 25, 2007. A copy of the press release is furnished with this report as Exhibit 99.1. The information in this report, including Exhibit 99.1, is furnished in accordance with SEC Release No. 33-8216 and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 (the “Exchange Act”) or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933 or the Exchange Act, regardless of any general incorporation language in such filing.
| Item 9.01. | Financial Statements and Exhibits |
(d) Exhibits
| 99.1 | Press Release issued by Raytheon Company dated April 25, 2007. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| RAYTHEON COMPANY | ||||||||
| Date: April 25, 2007 | By: | /S/ DAVID C. WAJSGRAS | ||||||
| David C. Wajsgras | ||||||||
| Senior Vice President and Chief Financial Officer | ||||||||
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EXHIBIT INDEX
| Exhibit No. | Description | |
| 99.1 | Press release issued by Raytheon Company dated April 25, 2007. |
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Exhibit 99.1
 |
Media Relations |
News release
FOR IMMEDIATE RELEASE
| Media Contact: | Investor Relations Contact: | |||
| Mac Jeffery | Greg Smith | |||
| 781-522-5111 | 781-522-5141 |
Raytheon Reports Strong First Quarter Results
Highlights
| • | Solid bookings of $5.3 billion; record backlog of $33.9 billion |
| • | Sales of $4.9 billion, up 6 percent |
| • | Operating income from continuing operations of $510 million, up 18 percent |
| • | Earnings per share (EPS) from continuing operations of $0.69, up 13 percent |
WALTHAM, Mass., (April 25, 2007) – Raytheon Company (NYSE: RTN) reported first quarter 2007 income from continuing operations of $314 million or $0.69 per diluted share compared to $272 million or $0.61 per diluted share in the first quarter 2006. First quarter 2007 income from continuing operations was higher primarily due to improved operating results at Integrated Defense Systems (IDS), Missile Systems (MS), and Network Centric Systems (NCS).
“Our first quarter was another good quarter for the Company and a strong start to the year,” said William H. Swanson, Raytheon’s Chairman and CEO.
First quarter 2007 net income was $346 million or $0.76 per diluted share compared to $287 million or $0.64 per diluted share in the first quarter 2006. Net income for the first quarter 2007 included $32 million of income from discontinued operations or $0.07 per diluted share, primarily due to the results of Raytheon Aircraft Company (RAC), versus $15 million of income from discontinued operations or $0.03 per diluted share in the first quarter 2006. As previously announced, after the first quarter close, Raytheon completed the sale of RAC to Hawker Beechcraft Inc. for $3.3 billion, with after-tax net proceeds of approximately $2.5 billion.
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The Company expects to record a net after-tax gain of approximately $1 billion in the second quarter.
Net sales for the first quarter 2007 were $4.9 billion, up 6 percent from $4.7 billion in the first quarter 2006.
Operating cash flow from continuing operations for the first quarter 2007 was an outflow of $379 million versus an outflow of $48 million for the first quarter 2006. The decrease in operating cash flow was primarily due to a $400 million discretionary cash contribution made to the Company’s pension plans in the first quarter 2007 versus a $200 million discretionary cash contribution made in the first quarter 2006.
During the first quarter 2007, the Company repurchased 5.1 million shares for $275 million as part of the Company’s previously announced share repurchase program. In addition, as announced in March 2007, the Company’s Board of Directors authorized a 6 percent increase to the Company’s annual dividend, from $0.96 to $1.02 per share.
Net debt was $2.3 billion at the end of the first quarter 2007 compared with $1.5 billion at year-end 2006. Net debt is defined as total debt less cash and cash equivalents.
After the completion of the RAC sale in the second quarter, the Company initiated the redemption of approximately $1 billion of debt maturing from 2008 - 2010, which is expected to be completed on April 27, 2007. The Company expects to record a charge in the second quarter of approximately $40 million after-tax ($60 million pretax) primarily associated with the make-whole provision of this early debt retirement.
| Summary Financial Results |
1st Quarter | % Change |
|||||||||
| ($ in millions, except per share data) | 2007 | 2006 | |||||||||
| Net Sales |
$ | 4,928 | $ | 4,660 | 6 | % | |||||
| Total Operating Expenses |
4,418 | 4,227 | |||||||||
| Operating Income |
510 | 433 | 18 | % | |||||||
| Non-operating Expenses |
35 | 22 | |||||||||
| Income from Cont. Ops. before Taxes |
$ | 475 | $ | 411 | 16 | % | |||||
| Income from Continuing Operations |
$ | 314 | $ | 272 | 15 | % | |||||
| Net Income |
$ | 346 | $ | 287 | 21 | % | |||||
| Diluted EPS from Continuing Operations |
$ | 0.69 | $ | 0.61 | 13 | % | |||||
| Diluted EPS |
$ | 0.76 | $ | 0.64 | 19 | % | |||||
| Operating Cash Flow from Cont. Ops. |
$ | (379 | ) | $ | (48 | ) | |||||
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Bookings and Backlog
| Bookings |
1st Quarter | |||||
| (in millions) | 2007 | 2006 | ||||
| Total Bookings |
$ | 5,282 | $ | 4,967 | ||
| Backlog |
Period ending | |||||
| (in millions) | 03/25/07 | 12/31/06 | ||||
| Backlog |
$ | 33,909 | $ | 33,838 | ||
| Funded Backlog |
$ | 18,592 | $ | 18,186 | ||
The Company reported total bookings for the first quarter 2007 of $5.3 billion compared to $5.0 billion in the first quarter 2006. The Company ended the first quarter 2007 with a record backlog of $33.9 billion compared to $31.8 billion at the end of the first quarter 2006 and $33.8 billion at the end of 2006.
Outlook
| 2007 Financial Outlook |
||
| Bookings ($B) |
21.0 - 22.0 | |
| Net Sales ($B) |
21.4 - 21.9 | |
| FAS/CAS Pension Expense ($M) |
270 | |
| Interest Expense, net ($M) |
65 - 80 | |
| Diluted Shares (M) |
446 - 448 | |
| EPS from Cont. Ops. ($) |
2.85 - 3.00 | |
| Operating Cash Flow from Cont. Ops. ($B) |
1.5 - 1.7 | |
| ROIC (%) |
8.2 - 8.7 |
The Company reaffirms the full-year 2007 outlook as detailed above.
Charts containing additional information on the Company’s 2007 performance and guidance are available on the Company’s website at www.raytheon.com. See attachment F for information on the Company’s calculation and use of ROIC, a non-GAAP financial measure.
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Segment Results
Integrated Defense Systems
| 1st Quarter | % Change |
||||||||||
| ($ in millions) | 2007 | 2006 | |||||||||
| Net Sales |
$ | 1,092 | $ | 963 | 13 | % | |||||
| Operating Income |
$ | 199 | $ | 158 | 26 | % | |||||
| Operating Margin |
18.2 | % | 16.4 | % | |||||||
Integrated Defense Systems (IDS) had first quarter 2007 net sales of $1,092 million, up 13 percent compared to $963 million in the first quarter 2006, primarily due to growth on Missile Defense Agency, U.S. Navy and U.S. Army programs, as well as on international programs. IDS recorded $199 million of operating income compared to $158 million in the first quarter 2006. The increase in operating income was primarily due to higher volume and improved performance on several domestic and international programs.
During the quarter, IDS booked $229 million for additional development work, including ship integration and detail design for the U.S. Navy’s Zumwalt Class program. IDS also booked $148 million for the manufacture and integration support of a Terminal High Altitude Area Defense (THAAD) radar for the Missile Defense Agency and $144 million to provide engineering services support to the Patriot air and missile defense program for the U.S. Army.
Intelligence and Information Systems
| 1st Quarter | % Change |
||||||||||
| ($ in millions) | 2007 | 2006 | |||||||||
| Net Sales |
$ | 588 | $ | 611 | -4 | % | |||||
| Operating Income |
$ | 55 | $ | 55 | NM | ||||||
| Operating Margin |
9.4 | % | 9.0 | % | |||||||
Intelligence and Information Systems (IIS) had first quarter 2007 net sales of $588 million compared to $611 million in the first quarter 2006, a decrease primarily due to reprioritization and procurement delays on certain classified programs, as previously
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disclosed. IIS recorded $55 million of operating income in the first quarter 2007 and the first quarter 2006.
During the quarter, IIS booked $286 million on a number of classified contracts.
Missile Systems
| 1st Quarter | % Change |
||||||||||
| ($ in millions) | 2007 | 2006 | |||||||||
| Net Sales |
$ | 1,140 | $ | 989 | 15 | % | |||||
| Operating Income |
$ | 120 | $ | 110 | 9 | % | |||||
| Operating Margin |
10.5 | % | 11.1 | % | |||||||
Missile Systems (MS) had first quarter 2007 net sales of $1,140 million, up 15 percent compared to $989 million in the first quarter 2006, primarily due to higher volume on Standard Missile and Phalanx. MS recorded $120 million of operating income compared to $110 million in the first quarter 2006.
During the quarter, MS booked $255 million for the production of Block IV Tactical Tomahawk cruise missiles for the U.S. Navy. MS also booked $101 million for the production of the Joint Standoff Weapons (JSOW) for the U.S. Air Force and Navy.
Network Centric Systems
| 1st Quarter | % Change |
||||||||||
| ($ in millions) | 2007 | 2006 | |||||||||
| Net Sales |
$ | 929 | $ | 791 | 17 | % | |||||
| Operating Income |
$ | 117 | $ | 84 | 39 | % | |||||
| Operating Margin |
12.6 | % | 10.6 | % | |||||||
Network Centric Systems (NCS) had first quarter 2007 net sales of $929 million, up 17 percent compared to $791 million in the first quarter 2006, primarily due to growth on U.S. Army programs. NCS recorded $117 million of operating income compared to $84 million
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in the first quarter 2006. The increase in operating income was primarily due to higher volume and improved program performance.
During the quarter, NCS booked $122 million to provide support for the Firefinder locating radar program and $92 million for the production of Commander’s Independent Viewers (CIVs) for the U.S. Army.
Space and Airborne Systems
| 1st Quarter | % Change |
||||||||||
| ($ in millions) | 2007 | 2006 | |||||||||
| Net Sales |
$ | 964 | $ | 1,018 | -5 | % | |||||
| Operating Income |
$ | 129 | $ | 145 | -11 | % | |||||
| Operating Margin |
13.4 | % | 14.2 | % | |||||||
Space and Airborne Systems (SAS) had first quarter 2007 net sales of $964 million, down 5 percent compared to $1,018 million in the first quarter 2006, primarily due to the planned transition from development to production on several major programs. SAS recorded $129 million of operating income compared to $145 million in the first quarter 2006. Operating income was lower primarily due to favorable program profit and cost adjustments recorded from certain production programs in the first quarter 2006.
During the quarter, SAS booked $96 million on a number of classified contracts.
Technical Services
| 1st Quarter | % Change |
||||||||||
| ($ in millions) | 2007 | 2006 | |||||||||
| Net Sales |
$ | 426 | $ | 450 | -5 | % | |||||
| Operating Income |
$ | 21 | $ | 31 | -32 | % | |||||
| Operating Margin |
4.9 | % | 6.9 | % | |||||||
Technical Services (TS) had first quarter 2007 net sales of $426 million, down 5 percent compared to $450 million in the first quarter 2006, primarily due to lower volume on a support services program, as well as reduced bookings at the end of 2006. TS recorded
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operating income of $21 million in the first quarter 2007 compared to $31 million in the first quarter 2006. Operating income was lower primarily due to profit adjustments recorded on certain programs and reduced volume.
During the quarter, TS booked $347 million on work for the Department of Energy (DOE) and the Defense Threat Reduction Agency (DTRA).
Other
Net sales in the first quarter 2007 were $181 million compared to $190 million in the first quarter 2006, with an operating loss of $8 million in the first quarter 2007 compared to an operating loss of $13 million in the first quarter 2006.
Discontinued Operations
During the quarter, the Company recorded net income from discontinued operations of $32 million, compared to $15 million in the first quarter 2006, primarily related to RAC.
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 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
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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; the potential impairment of the Company’s goodwill; risks associated with Flight Options’ ability to compete and meet its financial objectives; 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.
Conference Call on the First Quarter 2007 Financial Results
Raytheon’s financial results conference call will be held on Wednesday, April 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 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.
# # #
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Attachment A
Raytheon Company
Preliminary Statement of Operations Information
First Quarter 2007
| Three Months Ended | ||||||||
| (In millions except per share amounts) | 25-Mar-07 | 26-Mar-06 | ||||||
| Net sales |
$ | 4,928 | $ | 4,660 | ||||
| Cost of sales |
3,981 | 3,807 | ||||||
| Administrative and selling expenses |
340 | 319 | ||||||
| Research and development expenses |
97 | 101 | ||||||
| Total operating expenses |
4,418 | 4,227 | ||||||
| Operating income |
510 | 433 | ||||||
| Interest expense |
60 | 69 | ||||||
| Interest income |
(28 | ) | (21 | ) | ||||
| Other (income) expense, net |
3 | (26 | ) | |||||
| Non-operating expense, net |
35 | 22 | ||||||
| Income from continuing operations before taxes |
475 | 411 | ||||||
| Federal and foreign income taxes |
161 | 139 | ||||||
| Income from continuing operations |
314 | 272 | ||||||
| Income from discontinued operations, net of tax |
32 | 15 | ||||||
| Net income |
$ | 346 | $ | 287 | ||||
| Earnings per share from continuing operations |
||||||||
| Basic |
$ | 0.71 | $ | 0.61 | ||||
| Diluted |
$ | 0.69 | $ | 0.61 | ||||
| Earnings per share from discontinued operations |
||||||||
| Basic |
$ | 0.07 | $ | 0.03 | ||||
| Diluted |
$ | 0.07 | $ | 0.03 | ||||
| Earnings per share |
||||||||
| Basic |
$ | 0.78 | $ | 0.65 | ||||
| Diluted |
$ | 0.76 | $ | 0.64 | ||||
| Average shares outstanding |
||||||||
| Basic |
441.0 | 442.3 | ||||||
| Diluted |
453.5 | 448.8 | ||||||
Attachment B
Raytheon Company
Preliminary Segment Information
First Quarter 2007
(In millions)
| Net Sales Three Months Ended |
Operating Income Three Months Ended |
Operating Income As a Percent of Sales Three Months Ended |
||||||||||||||||||||
| 25-Mar-07 | 26-Mar-06 | 25-Mar-07 | 26-Mar-06 | 25-Mar-07 | 26-Mar-06 | |||||||||||||||||
| Integrated Defense Systems |
$ | 1,092 | $ | 963 | $ | 199 | $ | 158 | 18.2 | % | 16.4 | % | ||||||||||
| Intelligence and Information Systems |
588 | 611 | 55 | 55 | 9.4 | % | 9.0 | % | ||||||||||||||
| Missile Systems |
1,140 | 989 | 120 | 110 | 10.5 | % | 11.1 | % | ||||||||||||||
| Network Centric Systems |
929 | 791 | 117 | 84 | 12.6 | % | 10.6 | % | ||||||||||||||
| Space and Airborne Systems |
964 | 1,018 | 129 | 145 | 13.4 | % | 14.2 | % | ||||||||||||||
| Technical Services |
426 | 450 | 21 | 31 | 4.9 | % | 6.9 | % | ||||||||||||||
| Other |
181 | 190 | (8 | ) | (13 | ) | -4.4 | % | -6.8 | % | ||||||||||||
| FAS/CAS Pension Adjustment |
— | — | (62 | ) | (85 | ) | ||||||||||||||||
| Corporate and Eliminations |
(392 | ) | (352 | ) | (61 | ) | (52 | ) | ||||||||||||||
| Total |
$ | 4,928 | $ | 4,660 | $ | 510 | $ | 433 | 10.3 | % | 9.3 | % | ||||||||||
Attachment C
Raytheon Company
Other Preliminary Information
First Quarter 2007
| Backlog (In millions) |
Funded Backlog (In millions) | |||||||||||
| 25-Mar-07 | 31-Dec-06 | 25-Mar-07 | 31-Dec-06 | |||||||||
| Integrated Defense Systems |
$ | 8,089 | $ | 7,934 | $ | 4,156 | $ | 4,088 | ||||
| Intelligence and Information Systems |
3,747 | 3,935 | 909 | 893 | ||||||||
| Missile Systems |
9,638 | 9,504 | 5,386 | 5,135 | ||||||||
| Network Centric Systems |
5,146 | 5,059 | 4,041 | 4,037 | ||||||||
| Space and Airborne Systems |
5,210 | 5,591 | 2,784 | 2,770 | ||||||||
| Technical Services |
1,825 | 1,572 | 1,062 | 1,020 | ||||||||
| Other |
254 | 243 | 254 | 243 | ||||||||
| Total |
$ | 33,909 | $ | 33,838 | $ | 18,592 | $ | 18,186 | ||||
| Bookings (In millions) Three Months Ended | ||||||
| 25-Mar-07 | 26-Mar-06 | |||||
| Total Bookings |
$ | 5,282 | $ | 4,967 | ||
Attachment D
Raytheon Company
Preliminary Balance Sheet Information
First Quarter 2007
(In millions)
Balance sheets
| 25-Mar-07 | 31-Dec-06 | |||||
| Assets |
||||||
| Cash and cash equivalents |
$ | 1,660 | $ | 2,460 | ||
| Accounts receivable, less allowance for doubtful accounts |
174 | 178 | ||||
| Contracts in process |
3,895 | 3,600 | ||||
| Inventories |
499 | 487 | ||||
| Deferred federal and foreign income taxes |
240 | 257 | ||||
| Prepaid expenses and other current assets |
233 | 239 | ||||
| Assets held for sale |
2,398 | 2,296 | ||||
| Total current assets |
9,099 | 9,517 | ||||
| Property, plant and equipment, net |
2,105 | 2,131 | ||||
| Deferred federal and foreign income taxes |
230 | 189 | ||||
| Goodwill |
11,539 | 11,539 | ||||
| Other assets, net |
2,110 | 2,115 | ||||
| Total assets |
$ | 25,083 | $ | 25,491 | ||
| Liabilities and Stockholders’ Equity |
||||||
| Notes payable and current portion of long-term debt |
$ | 686 | $ | 687 | ||
| Advance payments and billings in excess of costs incurred |
1,947 | 1,962 | ||||
| Accounts payable |
833 | 920 | ||||
| Accrued salaries and wages |
757 | 944 | ||||
| Other accrued expenses |
1,196 | 1,193 | ||||
| Liabilities held for sale |
1,018 | 1,009 | ||||
| Total current liabilities |
6,437 | 6,715 | ||||
| Accrued retiree benefits and other long-term liabilities |
3,973 | 4,232 | ||||
| Long-term debt |
3,283 | 3,278 | ||||
| Minority interest |
179 | 165 | ||||
| Stockholders’ equity |
11,211 | 11,101 | ||||
| Total liabilities and stockholders’ equity |
$ | 25,083 | $ | 25,491 | ||
Attachment E
Raytheon Company
Preliminary Cash Flow Information
First Quarter 2007
(In millions)
Cash flow information
| Three Months Ended | ||||||||
| 25-Mar-07 | 26-Mar-06 | |||||||
| Income from continuing operations |
$ | 314 | $ | 272 | ||||
| Depreciation |
69 | 69 | ||||||
| Amortization |
20 | 19 | ||||||
| Working capital |
(670 | ) | (517 | ) | ||||
| Discontinued operations |
(37 | ) | 28 | |||||
| Net activity in financing receivables |
21 | 45 | ||||||
| Other |
(133 | ) | 64 | |||||
| Net operating cash flow |
(416 | ) | (20 | ) | ||||
| Capital spending |
(39 | ) | (35 | ) | ||||
| Internal use software spending |
(15 | ) | (4 | ) | ||||
| Acquisitions |
— | (47 | ) | |||||
| Investment activity and divestitures |
— | 22 | ||||||
| Dividends |
(107 | ) | (98 | ) | ||||
| Repurchase of common stock |
(275 | ) | (102 | ) | ||||
| Debt repayments |
3 | (32 | ) | |||||
| Discontinued operations |
(27 | ) | (8 | ) | ||||
| Other |
76 | 66 | ||||||
| Total cash flow |
$ | (800 | ) | $ | (258 | ) | ||
Attachment F
Raytheon Company
Non-GAAP Financial Measures
First Quarter 2007
We define Return on Invested Capital (ROIC) as income from continuing operations plus after-tax net interest expense plus one-third of operating lease expense after-tax (estimate of interest portion of operating lease expense) divided by average invested capital after capitalizing operating leases (operating lease expense times a multiplier of 8), adding financial guarantees less net investment in Discontinued Operations, and adding back the cumulative minimum pension liability/impact of adopting FAS 158. ROIC is not a measure of financial performance under generally accepted accounting principles (GAAP) and may not be defined and calculated by other companies in the same manner. ROIC should be considered supplemental to and not a substitute for financial information prepared in accordance with GAAP. We use ROIC as a measure of efficiency and effectiveness of our use of capital and as an element of management compensation.
Return on Invested Capital
| (In millions) | 2007 Guidance | |||||||
| Low end of range |
High end of range |
|||||||
| Income from continuing operations |
||||||||
| Net interest expense, after-tax* |
Combined | Combined | ||||||
| Lease expense, after-tax* |
||||||||
| Return |
$ | 1,400 | $ | 1,465 | ||||
| Net debt ** |
||||||||
| Equity less investment in discontinued operations |
||||||||
| Lease expense x 8 plus financial guarantees |
Combined | Combined | ||||||
| Minimum pension liability (cumulative) |
||||||||
| Invested capital from continuing operations*** |
$ | 17,050 | $ | 16,850 | ||||
| ROIC |
8.2 | % | 8.7 | % | ||||
| * | effective tax rate: 34.2% (2007 guidance) |
| ** | Net debt is defined as total debt less cash and cash equivalents and is calculated using a 2 point average |
| *** | Calculated using a 2 point average |