Press Release: Raytheon Exits the Personal Rapid Transit Business, October 12, 1999

Raytheon reduces earnings outlook for 1999 and 2000; Announces $638 million of charges against earnings. The stock lost 50% of its value on this day.


Contact: Toni Simonetti 781.860.2539

Lexington, Mass. -- October 12, 1999 -- Raytheon today reported that it is

reducing its earnings expectations for 1999 and 2000 as a result of revenue

shortfalls and lower-than-expected margins at Raytheon Systems Company

(RSC), and additional charges to be taken against earnings attributable to

both the Electronics Segment and Raytheon Engineers & Constructors (RE&C).

The new charges (detailed below) amount to $638 million pre-tax to be

recorded in 1999, or $1.15 per share, plus an additional $30 million that

will be recorded in 2000 as incurred. Also affecting reported earnings for

1999 is a charge of $82 million pre-tax, or $0.16 per share, that was

recorded in the first quarter upon adoption of accounting standard SOP98-5.

Raytheon's current estimate for 1999 earnings per share is between $1.40 -

$1.50 per share including the effect of all charges, or $2.70-$2.80 per

share excluding charges. This compares to the most recent consensus

estimate of $3.56 per share. For the year 2000, the company estimates

earnings per share will be in the range of $2.10-$2.25, compared to the

most recent consensus estimate of $3.91 per share.

"This is very disappointing news," said Daniel P. Burnham, Raytheon

chairman and chief executive officer. "We are frustrated with this

performance, but I can assure you we have dug deeply to understand the

issues and are dealing with the problems. We've also come to the conclusion

that fundamental changes are taking place in our business and in the

industry, and as a result we are changing some key assumptions in our

business model to arrive at a new baseline for Raytheon that is fact-based

and realistic."

Revenue for 1999 is expected to be approximately $20 billion, or about $600

million less than originally expected, primarily attributable to delays in

procurement decisions and a continuing shortage of software engineers to

work on revenue-producing programs. Further, Raytheon believes annual

revenue growth for 1999 and 2000 will be approximately 3 percent, instead

of its earlier estimate of 6-8 percent per year. Profit margins at RSC,

widely expected to be about 15 percent, are declining and are now estimated

to be about 12 percent next year. Despite substantial improvements in

productivity, overall margins declined due to emerging competitive pricing

issues, lower-than-expected margins on international business, and an

unfavorable change in the domestic versus international mix.

In the years 2001 and beyond, the company expects to grow revenue at a

higher rate than market growth. The company expects to drive improvement in

margin from the 12 percent level through Raytheon Six Sigma, working

capital efficiencies, and portfolio management.

Operating cash flow for the year is adversely affected by the cash

component of the charges combined with the company's revised revenue and

profitability outlook. Consequently, Raytheon expects to end the year with

approximately $9.3 billion in net debt in 1999 and $9.0 billion in net debt

at year-end 2000.

"Clearly, our businesses can and should be large generators of cash, and

anything less is unacceptable performance. We have taken immediate action

to redirect the entire company to improve our cash management capability,"

Burnham said.

Details of the charges, of which approximately half will have a cash impact

over time, are as follows:

* $274 million in new restructuring charges for additional employment

and facility space reductions and related period expenses;

* $74 million in special charges, primarily to write down to fair market

value certain assets such as the company's investment in Iridium ($35

million), wireless networking inventory ($33 million), and the exit

from the personal rapid transit business ($6 million);

* $320 million in operating charges related primarily to contract

performance issues on four contracts at each of RSC ($195 million) and

RE&C ($125 million).

"While Raytheon moved quickly and decisively to consolidate and integrate

several new defense electronics businesses into the company's portfolio,

this put a tremendous strain on people and systems," Burnham explained. "In

retrospect, we tried to do too much too fast, given the size of the task,

our state of readiness, and the depth and maturity of the management team.

The consolidation is largely behind us now and the benefits of

restructuring and productivity improvements are helping to counter the

effects of these setbacks.

"Raytheon continues to be a strong company that can outperform in its

industries," Burnham continued. "We believe that aerospace, defense, and

electronics are growth businesses and Raytheon is well-positioned to share

in that growth."

He also noted that key initiatives underway, such as Raytheon Six Sigma,

leadership development, and cash management, continue at full speed and are

delivering early results.

"Raytheon has profound strengths. Our program performance is sound and our

technology is world-class as evidenced by the recent successful EKV

(Exoatmospheric Kill Vehicle) test. Although we clearly have not done so

this year, we have the ability to generate substantial amounts of cash. Our

productivity continues to improve and has helped offset some of the pricing

pressure we are facing. We understand the dynamics that drive our earnings

and believe that we have found the bottom. While our first priority for

cash will be to pay down debt, we will take advantage of any appropriate

opportunity to return value to our stockholders. In the end, we will work

to re-establish our credibility and restore investor confidence through

deeds, not words," Burnham concluded.

Raytheon Company, based in Lexington, Massachusetts, is a global technology

leader that provides products and services in the areas of commercial and

defense electronics, engineering and construction, and business and special

mission aircraft. Raytheon has operations throughout the United States and

serves customers in more than 80 countries around the world.

Disclosure regarding forward-looking statements: Certain statements made in

this press release contain forward-looking statements, within the meaning

of the Private Securities Litigation Reform Act, regarding the company's

future plans, objectives and expected performance. Specifically, statements

in this release that are not historical facts, including statements

accompanied by words such as "believe," "expect," "anticipate," "estimate,"

"intend," or "plan" are intended to identify forward-looking statements and

convey the uncertainty of future events or outcomes. The company cautions

readers that any such forward-looking statements are based on assumptions

that the company believes are reasonable, but are subject to a wide-range

of risks, and, there is no assurance that actual results may not differ

materially. Important facts that could cause actual results to differ

include but are not limited to: differences in anticipated and actual

program results, the ability to realize anticipated cost efficiencies, the

effect of market conditions, the impact of competitive products and

pricing, and the integration of acquisitions, among other things. Further

information regarding the factors that could cause actual results to differ

from projected results can be found in the company's reports filed with the

SEC, including "Item 1 - Business" in Raytheon's most recent Form 10-K.

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Last modified: February 18, 2008