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Raytheon Reports 10 Percent Sales Growth in Second Quarter 2005 and Increases Full-year Guidance
  • Sales of $5.4 billion, EPS of $0.51 from Continuing Operations
  • Bookings of $8.1 billion, record backlog of $34.6 billion
  • Free cash flow from continuing operations of $736 million

WALTHAM, Mass., July 28, 2005 /PRNewswire-FirstCall/ -- Raytheon Company (NYSE: RTN) reported second quarter 2005 income from continuing operations of $233 million or $0.51 per diluted share compared to a loss from continuing operations of $94 million or $0.22 per diluted share in the second quarter 2004. Second quarter 2004 income from continuing operations, excluding the effect of charges for the settlement of a class action shareholder lawsuit and the early retirement of debt, was $152 million or $0.35 per diluted share. Second quarter 2005 income from continuing operations was higher due to better operating results in the Government and Defense businesses and at Raytheon Aircraft Company (RAC) combined with lower interest expense.

"I continue to be pleased with performance throughout the Company," said William H. Swanson, Raytheon's Chairman and CEO. "The strength of our bookings and record backlog demonstrate that the Company is well positioned for future growth."

Second quarter 2005 net income was $201 million or $0.44 per diluted share compared to a net loss of $108 million or $0.25 per diluted share in 2004. Net income for the second quarter of 2005 included a $32 million after-tax loss in discontinued operations or $0.07 per diluted share, primarily attributable to foreign tax related matters, versus a $14 million after-tax loss or $0.03 per diluted share in 2004.

Net sales for the second quarter 2005 were $5.4 billion, up 10 percent from $4.9 billion in the comparable period in 2004. Government and Defense sales for the quarter (after the elimination of intercompany sales) increased 8 percent to $4.5 billion from $4.2 billion in the comparable quarter. RAC sales for the quarter increased 21 percent to $687 million from $570 million in the 2004 comparable quarter.

Free cash flow from continuing operations for the second quarter 2005 was $736 million versus $820 million for the comparable period in 2004, a decrease primarily due to timing of collections. Year-to-date free cash flow was $398 million versus $620 million for the comparable period in 2004, a decrease primarily due to a $200 million discretionary cash contribution to the Company's pension plans made in the first quarter of 2005. Free cash flow is defined by the Company as operating cash flow less capital spending and internal use software spending.

During the second quarter of 2005, the Company repurchased 3.6 million shares of common stock for $139 million as part of the Company's previously announced $700 million share repurchase program, bringing the total shares of common stock repurchased year-to-date to 4.9 million for $192 million.

Net debt was $4.6 billion at the end of the second quarter 2005 and at the end of 2004.



    Summary Financial Results      2nd Quarter     %      Six Months      %
    (in millions, except per
    share data)                    2005    2004  Change  2005     2004  Change

    Net sales                     $5,409  $4,929   10%  $10,353  $9,605    8%
    Total operating expenses       4,982   4,589          9,549   9,014
    Operating income                 427     340   26%      804     591   36%
    Non-operating expenses            70     462            151     567
    Income (loss) from cont. ops.
     before taxes                   $357   $(122)          $653     $24
    Income (loss) from continuing
     operations                     $233    $(94)          $429      $7
    Net income (loss)               $201   $(108)          $367     $20

    Diluted EPS from continuing
     operations                    $0.51  $(0.22)         $0.94   $0.02
    Diluted EPS                    $0.44  $(0.25)         $0.81   $0.05

    Free cash flow from cont.
     operations                     $736    $820           $398    $620
Bookings and Backlog

The Government and Defense businesses recorded strong second quarter 2005 bookings of $7.3 billion compared to bookings of $5.0 billion in the second quarter of 2004, a 46 percent increase primarily due to two large bookings at Integrated Defense Systems.

Raytheon Aircraft Company's second quarter 2005 bookings were $602 million compared to $851 million in the 2004 comparable quarter. Second quarter 2004 bookings included a single order in excess of $300 million.

The Company ended the quarter with a record backlog of $34.6 billion compared to $32.5 billion at the end of 2004. The Government and Defense businesses ended the quarter with a backlog of $31.8 billion compared to $29.6 billion at the end of 2004.




    Bookings                           2nd Quarter           Six Months
    (in millions)                     2005     2004        2005     2004

    Bookings
     Government and Defense           $7,283   $4,976     $11,895  $12,897
     Commercial                          787    1,004       1,450    1,588
    Total Bookings                    $8,070   $5,980     $13,345  $14,485

    Backlog                           Period ending
    (in millions)                   06/26/05 12/31/04

    Backlog                          $34,551  $32,543
    Funded Backlog                   $19,287  $18,403

Outlook

The Company now expects 2005 earnings per share from continuing operations to be $1.90 - $2.00 versus its previous guidance of $1.85 - $1.95. The Company raised its full year guidance for net sales to $21.6 - $22.1 billion from $21.5 - $22.0 billion. The Company now expects net interest expense to be $285 - $300 million versus its previous guidance of $300 - $315 million. The Company raised its full year guidance for bookings to $23.7 - $24.7 billion from $23.2 - $24.2 billion. Charts containing the Company's guidance are available on the Company's website at http://www.raytheon.com.


    2005 Financial Outlook                       Prior             Current

    Bookings                                 $23.2B - $24.2B   $23.7B - $24.7B
    Net Sales                                $21.5B - $22.0B   $21.6B - $22.1B
    FAS/CAS Pension Expense                         $463M            $463M
    Interest Expense, net                      $300M - $315M     $285M - $300M
    Diluted Shares                                   455M             455M
    EPS from Cont. Ops.                        $1.85 - $1.95    $1.90 - $2.00

    Cont. Ops./Total Free Cash Flow            $1.3B - $1.5B    $1.3B - $1.5B



    Segment Results
    Integrated Defense Systems


                                     2nd Quarter    %      Six Months     %
    (in millions, except margin
    percent)                         2005   2004  Change  2005    2004  Change

    Net Sales                         $940   $870    8%  $1,846  $1,709    8%
    Operating Income                  $139   $104   34%    $260    $198   31%
    Operating Margin                 14.8%  12.0%         14.1%   11.6%

Integrated Defense Systems (IDS) had second quarter 2005 net sales of $940 million, up 8 percent compared to $870 million in the second quarter 2004, primarily due to growth in international Patriot programs and the Cobra Judy program partially offset, as expected, by lower sales on the Sea-Based Radar program. IDS recorded $139 million of second quarter 2005 operating income compared to $104 million in the comparable quarter a year ago. Operating income was higher primarily due to increased sales on international programs and profit adjustments on contracts nearing completion.

During the quarter, IDS booked $1.7 billion of a $3 billion award to continue the ship system integration and detail design for the U.S. Navy's DD(X) Destroyer. IDS also booked $631 million to provide Taiwan with an Early Warning Surveillance Radar System. These were partially offset by a backlog adjustment of $700 million due to a customer funding profile change to the JLENS program, which is expected to be restored to backlog later this year.


    Intelligence and Information Systems


                                      2nd Quarter   %      Six Months     %
    (in millions, except margin
    percent)                           2005  2004 Change  2005    2004  Change

    Net Sales                          $630  $583    8%  $1,172  $1,107    6%
    Operating Income                    $59   $52   13%    $109     $97   12%
    Operating Margin                   9.4%  8.9%          9.3%    8.8%


Intelligence and Information Systems (IIS) had second quarter 2005 net sales of $630 million, up 8 percent compared to $583 million in the second quarter 2004, primarily due to continued growth in classified programs. IIS recorded $59 million of operating income compared to $52 million in the comparable quarter a year ago.

During the quarter, IIS booked $430 million on a number of classified contracts, including a major international competitive classified contract.

Missile Systems


                                     2nd Quarter    %      Six Months     %
    (in millions, except margin
    percent)                         2005   2004  Change  2005    2004  Change

    Net Sales                       $1,007   $939    7%  $1,997  $1,904    5%
    Operating Income                  $104   $106   -2%    $209    $213   -2%
    Operating Margin                 10.3%  11.3%         10.5%   11.2%


Missile Systems (MS) had second quarter 2005 net sales of $1,007 million, up 7 percent compared to $939 million in the second quarter 2004, primarily due to a ramp up on Tactical Tomahawk and several new programs. MS recorded $104 million of operating income compared to $106 million in the comparable quarter a year ago. Last year's second quarter operating income included cost recovery for prior year restructuring actions.

During the quarter, MS booked $163 million for the production of 251 Evolved SeaSparrow Missiles (ESSM) for the U.S. Navy and nine other allied nations. MS also booked $111 million for a classified contract.


    Network Centric Systems


                                      2nd Quarter   %      Six Months     %
    (in millions, except margin
    percent)                           2005  2004 Change  2005    2004  Change

    Net Sales                          $804  $758    6%  $1,566  $1,462    7%
    Operating Income                    $78   $64   22%    $157    $118   33%
    Operating Margin                   9.7%  8.4%         10.0%    8.1%

Network Centric Systems (NCS) had second quarter 2005 net sales of $804 million, up 6 percent compared to $758 million in the second quarter 2004 primarily due to increased effort on development programs and communication programs. NCS recorded operating income of $78 million compared to $64 million in the comparable quarter a year ago. Operating income was higher due to improved performance.

During the quarter, NCS booked $485 million for the definitization of the Ground Sensor Integrator (GSI) on the Future Combat System (FCS) contract initially awarded in the third quarter of 2003, bringing the total booked to over $1 billion on this program. NCS also booked $169 million for a Horizontal Technology Integration (HTI) production follow-on contract for the U.S. Army.


    Space and Airborne Systems


                                      2nd Quarter    %     Six Months     %
    (in millions, except margin
    percent)                          2005   2004  Change 2005    2004  Change

    Net Sales                        $1,060   $985   8%  $2,017  $1,998    1%
    Operating Income                   $146   $142   3%    $301    $271   11%
    Operating Margin                  13.8%  14.4%        14.9%   13.6%

Space and Airborne Systems (SAS) had second quarter 2005 net sales of $1,060 million, up 8 percent compared to $985 million in the second quarter 2004 primarily due to growth in ATFLIR production and airborne radar programs. SAS recorded $146 million of operating income compared to $142 million in the comparable quarter a year ago.

During the quarter, SAS booked $586 million for the production of 190 APG- 79 Active Electronically Scanned Array (AESA) radars for the F/A-18 Super Hornet program. SAS also booked $130 million on a number of classified contracts.


    Technical Services


                                        2nd Quarter   %   Six Months   %

    (in millions, except margin         2005  2004 Change 2005  2004 Change
    percent)
    Net Sales                            $509  $478   6%  $976  $928   5%
    Operating Income                      $38   $35   9%   $69   $66   5%
    Operating Margin                     7.5%  7.3%       7.1%  7.1%

Technical Services (TS) had second quarter 2005 net sales of $509 million, up 6 percent compared to $478 million in the second quarter 2004. TS recorded operating income of $38 million in the first quarter of 2005 compared to $35 million in the comparable quarter a year ago.

During the quarter, TS booked $57 million from the Defense Threat Reduction Agency to provide improved security at Russian nuclear weapons storage facilities under the Cooperative Threat Reduction Program. TS also booked a mission support contract valued at $29 million to provide avionics maintenance to AP-3C aircraft for the Australian Commonwealth.


    Aircraft


                                      2nd Quarter   %     Six Months     %
    (in millions, except margin
    percent)                           2005  2004 Change  2005   2004  Change

    Net Sales                          $687  $570   21%  $1,129   $944   20%
    Operating Income                    $33   $23   43%     $35    $(5)
    Operating Margin                   4.8%  4.0%          3.1%  -0.5%

    Commercial Deliveries                79    75    5%     112    100   12%

Raytheon Aircraft Company (RAC) had second quarter 2005 net sales of $687 million, up 21 percent from $570 million in the second quarter 2004. RAC recorded operating income of $33 million in the quarter compared to $23 million in the comparable quarter in 2004. Operating income was higher primarily due to higher sales volume and aircraft mix.

RAC delivered 79 commercial aircraft in the second quarter of 2005, compared to 75 in the same quarter last year.

Other

Net sales for this segment in the second quarter 2005 were $189 million compared to $153 million in the second quarter 2004. The segment recorded an operating loss of $20 million in the second quarter 2005 compared to an operating loss of $7 million in the comparable quarter in 2004.

Discontinued Operations

During the quarter, the Company recorded an after-tax loss from discontinued operations of $32 million or $0.07 per diluted share related to its former engineering and construction and Aircraft Integration Systems businesses. The $32 million after-tax loss includes a $23 million charge in the quarter for foreign tax related matters.

Raytheon Company (NYSE: RTN), with 2004 sales of $20.2 billion, is an industry leader in defense and government electronics, space, information technology, technical services, and business and special mission aircraft. With headquarters in Waltham, Mass., Raytheon employs 80,000 people worldwide.

Disclosure Regarding Forward-looking Statements

Certain statements included in this release, including any statements relating to the Company's future plans, objectives, and projected future financial performance, contain or are based on, forward-looking statements within the meaning of the federal securities laws. Specifically, statements that are not historical facts, including statements accompanied by words such as "believe," "expect," "estimate," "intend," or "plan," and variations of these words and similar expressions, 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 actual results may differ materially. The Company expressly disclaims any current intention to provide updates to forward- looking statements, and the estimates and assumptions associated with them, after the date of this release. Important factors that could cause actual results to differ include, but are not limited to: the ability to obtain or the timing of obtaining future government awards; the availability of government funding; changes in government or customer priorities due to program reviews or revisions to strategic objectives; difficulties in developing and producing operationally advanced products and technology systems; termination of government contracts; program performance, including resolution of claims; timing of contract payments; the performance of critical subcontractors; government import and export policies and other government regulations; the ultimate resolution of contingencies and legal matters, including government investigations; the ultimate resolution of insurance coverage for class action shareholder and derivative lawsuits against the Company; the effect of regulatory actions and market conditions, particularly in relation to the general aviation, commuter, and fractional aircraft businesses; cost growth risks inherent with large long-term fixed price contracts; conflicts with other investors and business risks in joint ventures and less than wholly-owned businesses; and risks associated with our former engineering and construction business related to outstanding letters of credit, surety bonds, guarantees and similar agreements and the resolution of claims and litigation. Further information regarding the factors that could cause actual results to differ materially from the projected results can be found in the Company's filings with the Securities and Exchange Commission, including the Company's Annual Report on Form 10-K for the year ended December 31, 2004 and quarterly reports on Form 10-Q, copies of which may be obtained at the Company's website at http://www.raytheon.com.

Conference Call on the Second Quarter 2005 Financial Results

Raytheon's financial results conference call will be Thursday, July 28, 2005 at 9 a.m. EDT. Participants will be William H. Swanson, Chairman and CEO, Biggs C. Porter, vice president and corporate controller, and acting CFO, and other Company executives.

The dial-in number for the conference call will be (800) 265 - 0241. The conference call will also be audiocast on the Internet at http://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 urged 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.





    Attachment A

    Raytheon Company
    Financial Information
    Second Quarter 2005


    (In millions except per share amounts) Three Months Ended Six Months Ended
                                       26-Jun-05 27-Jun-04 26-Jun-05 27-Jun-04

    Net sales                             $5,409   $4,929    $10,353   $9,605

    Cost of sales                          4,490    4,117      8,608    8,113
    Administrative and selling expenses      356      345        705      659
    Research and development expenses        136      127        236      242

    Total operating expenses               4,982    4,589      9,549    9,014

    Operating income                         427      340        804      591

    Interest expense                          82      109        158      226
    Interest income                          (12)     (10)       (24)     (22)
    Other expense, net                         -      363         17      363

    Non-operating expense, net                70      462        151      567

    Income (loss) from continuing
     operations before taxes                 357     (122)       653       24

    Federal and foreign income taxes         124      (28)       224       17

    Income (loss) from continuing
     operations                              233      (94)       429        7

    Loss from discontinued operations, net
     of tax                                  (32)     (14)       (62)     (28)

    Income (loss) before accounting change   201     (108)       367      (21)

    Cumulative effect of change in
     accounting principle, net of tax          -        -          -       41

    Net  income (loss)                      $201    $(108)      $367      $20

    Earnings (loss) per share from
     continuing operations
        Basic                              $0.52   $(0.22)     $0.95    $0.02
        Diluted                            $0.51   $(0.22)     $0.94    $0.02

    Loss per share from discontinued
     operations
        Basic                             $(0.07)  $(0.03)    $(0.14)  $(0.07)
        Diluted                           $(0.07)  $(0.03)    $(0.14)  $(0.07)

    Earnings per share from cumulative
     effect of change in
      accounting principle
        Basic                               $-       $-         $-      $0.10
        Diluted                             $-       $-         $-      $0.10

    Earnings (loss) per share
        Basic                              $0.45   $(0.25)     $0.82    $0.05
        Diluted                            $0.44   $(0.25)     $0.81    $0.05

    Average shares outstanding
        Basic                              449.0    434.6      449.8    426.6
        Diluted                            455.1    434.6      455.6    429.3



    Attachment B

     Raytheon Company
     Segment Information
     Second Quarter 2005

    (In millions)


                                                              Operating Income
                        Net Sales      Operating Income  As a Percent of Sales
                    Three Months Ended  Three Months Ended  Three Months Ended
                   26-Jun-05 27-Jun-04 26-Jun-05 27-Jun-04 26-Jun-05 27-Jun-04

    Integrated Defense
     Systems            $940      $870      $139      $104     14.8%     12.0%
    Intelligence
     and Information
     Systems             630       583        59        52      9.4%      8.9%
    Missile Systems    1,007       939       104       106     10.3%     11.3%
    Network Centric
     Systems             804       758        78        64      9.7%      8.4%
    Space and Airborne
     Systems           1,060       985       146       142     13.8%     14.4%
    Technical Services   509       478        38        35      7.5%      7.3%
    Aircraft             687       570        33        23      4.8%      4.0%
    Other                189       153       (20)       (7)   -10.6%     -4.6%
    FAS/CAS Pension
     Adjustment           -         -       (116)     (118)

    Corporate and
     Eliminations       (417)     (407)      (34)      (61)

    Total             $5,409    $4,929      $427      $340      7.9%      6.9%


                                                             Operating Income
                         Net Sales     Operating Income  As a Percent of Sales
                      Six Months Ended  Six Months Ended     Six Months Ended
                   26-Jun-05 27-Jun-04 26-Jun-05 27-Jun-04 26-Jun-05 27-Jun-04


    Integrated Defense
     Systems          $1,846    $1,709      $260      $198     14.1%     11.6%
    Intelligence and
     Information
     Systems           1,172     1,107       109        97      9.3%      8.8%
    Missile Systems    1,997     1,904       209       213     10.5%     11.2%
    Network Centric
     Systems           1,566     1,462       157       118     10.0%      8.1%
    Space and Airborne
     Systems           2,017     1,998       301       271     14.9%     13.6%
    Technical Services   976       928        69        66      7.1%      7.1%
    Aircraft           1,129       944        35        (5)     3.1%     -0.5%
    Other                381       328       (41)      (22)   -10.8%     -6.7%
    FAS/CAS Pension
     Adjustment           -         -       (232)     (239)

    Corporate and
     Eliminations       (731)     (775)      (63)     (106)

    Total            $10,353    $9,605      $804      $591      7.8%      6.2%




    Attachment C

    Raytheon Company
    Other Information
    Second Quarter 2005

                                                                 Funded
                                            Backlog             Backlog
                                         (In millions)       (In millions)
                                      26-Jun-05  31-Dec-04 26-Jun-05 31-Dec-04

    Integrated Defense Systems          $7,454     $6,628   $3,630     $3,454
    Intelligence and Information
     Systems                             4,019      4,066      840        811
    Missile Systems                      8,618      8,341    4,931      4,517
    Network Centric Systems              4,332      3,587    3,052      2,623
    Space and Airborne Systems           5,715      5,216    3,129      3,127
    Technical Services                   1,644      1,773      936        939
    Aircraft                             2,499      2,638    2,499      2,638
    Other                                  270        294      270        294

                                       $34,551    $32,543  $19,287    $18,403

    Government and Defense businesses  $31,782    $29,611  $16,518    $15,471

    U.S. government backlog included
     above                             $28,018    $25,525




                                                           Bookings
                                                        (In millions)
                                                      Three months ended
                                                26-Jun-05           27-Jun-04

    Government and Defense businesses              $7,283              $4,976
    Commercial businesses                             787               1,004

                                                   $8,070              $5,980


                                               New Aircraft Deliveries (Units)
                                                      Three Months Ended
                                                 26-Jun-05           27-Jun-04

    Horizon                                             -                   -
    Hawker 800XP                                       13                  14
    Premier I                                           6                   9
    Hawker 400XP                                       16                   5
    King Air                                           27                  22
    1900D Commuter                                      -                   -
    Pistons                                            25                  25
    T-6A                                               17                  20
       Total                                          104                  95


                                                 New Aircraft Bookings (Units)
                                                       Three Months Ended
                                                 26-Jun-05           27-Jun-04

    Horizon                                             1                   1
    Hawker 800XP                                       13                  35
    Premier I                                           6                  10
    Hawker 400XP                                        8                  26
    King Air                                           42                  31
    1900D Commuter                                      -                   -
    Pistons                                            14                  12
    T-6A                                                -                   -
       Total                                           84                 115




    Attachment D

    Raytheon Company
    Preliminary Financial Information
    Second Quarter 2005

    (In millions)

    Balance sheets
                                                 26-Jun-05          31-Dec-04
    Assets
    Cash and cash equivalents                         $454               $556
    Accounts receivable                                410                478
    Contracts in process                             3,689              3,514
    Inventories                                      1,960              1,745
    Deferred federal and foreign income
     taxes                                             436                469
    Prepaid expenses and other current
     assets                                            325                343
    Assets from discontinued operations                 17                 19
      Total current assets                           7,291              7,124

    Property, plant and equipment, net               2,623              2,738
    Deferred federal and foreign income
     taxes                                               -                 71
    Goodwill                                        11,511             11,516
    Other assets, net                                2,553              2,704
        Total assets                               $23,978            $24,153

    Liabilities and Stockholders' Equity
    Notes payable and current portion of
     long-term debt                                   $468               $516
    Subordinated notes payable                         408                  -
    Advance payments and billings in
     excess of costs incurred                        1,919              1,900
    Accounts payable                                   952                867
    Accrued salaries and wages                         799                934
    Other accrued expenses                           1,326              1,403
    Liabilities from discontinued
     operations                                         31                 24
      Total current liabilities                      5,903              5,644

    Accrued retiree benefits and other
     long-term liabilities                           3,130              3,224
    Deferred federal and foreign income
     taxes                                              65                  -
    Long-term debt                                   4,219              4,229
    Subordinated notes payable                           -                408
    Minority interest                                  126                 97
    Stockholders' equity                            10,535             10,551
        Total liabilities and
         stockholders' equity                      $23,978            $24,153




    Attachment E

    Raytheon Company
    Preliminary Cash Flow Information
    Second Quarter 2005

    (In millions)

    Cash flow information
                                       Three Months Ended   Six Months Ended
                                    26-Jun-05  27-Jun-04  26-Jun-05  27-Jun-04

    Income from continuing
     operations                          $233       $(94)      $429        $7
    Depreciation                           88         89        176       174
    Amortization                           22         19         42        35
    Working capital                       283        888       (351)      277
    Discontinued operations               (49)       (25)       (52)      (16)
    Capital spending                      (64)       (74)      (112)     (134)
    Internal use software spending        (20)       (25)       (36)      (50)
    Net activity in financing
     receivables                           46          2         91        97
    Other                                 148         15        159       214
        Subtotal -- free cash flow (a)    687        795        346       604

    Sale of short-term investments          -        (74)         -       (74)
    Acquisitions                            -          -        (60)      (70)
    Investment activity and divestitures    -          -          7         4
    Dividends                            (100)       (85)      (190)     (168)
    Issuance of common stock                -        863          -       867
    Repurchase of common stock           (139)         -       (192)        -
    Debt borrowings (repayments)         (484)      (855)       (62)     (858)
    Other                                  33         20         49        38
          Total cash flow                 $(3)      $664      $(102)     $343


    Segment free cash flow information
                                       Three Months Ended   Six Months Ended
                                    26-Jun-05  27-Jun-04  26-Jun-05  27-Jun-04

    Integrated Defense Systems            $70       $322       $160      $193
    Intelligence and Information Systems   58         77         15        34
    Missile Systems                       231        233        282       192
    Network Centric Systems               142         57          2       (72)
    Space and Airborne Systems             69        222       (178)      107
    Technical Services                     32        (12)        14         3
    Aircraft                              (59)        (9)        (7)       47
    Other                                  15        (68)        24       (50)
    Discontinued operations               (49)       (25)       (52)      (16)
    Corporate                             178         (2)        86       166
                                         $687       $795       $346      $604


    (a) See Attachment F for a description of free cash flow.


    Attachment F

     Raytheon Company
     Non-GAAP Financial Measures
     Second Quarter 2005

This release contains non-GAAP financial measures (as defined by SEC Regulation G). While these non-GAAP financial measures may be useful in evaluating the Company, this information should be considered supplemental to and not as a substitute for financial information prepared in accordance with generally accepted accounting principles.

The following measures are considered "non-GAAP" financial measures under SEC guidelines:

(i) Free cash flow
(ii) Income from Continuing Operations and EPS Excluding Charges Related to Class Action Lawsuit Settlement and Early Retirement of Debt

Free cash flow is a "non-GAAP" financial measure under SEC regulations. The Company defines free cash flow as operating cash flow less capital spending and internal use software spending. Our definition may differ from similarly titled measures used by others. The Company uses free cash flow to facilitate management's internal comparisons to the Company's historical operating results and to competitors' operating results and as an element of management incentive compensation. The Company believes disclosure of free cash flow performance provides investors greater transparency with respect to information used by management in its financial and operational decision making. The Company also uses non-GAAP financial measures which exclude certain charges and credits because it believes that such items are not indicative of its core operating results, are not indicative of trends, and do not provide meaningful comparisons with other reporting periods.



    Free cash flow
                                       Three Months Ended   Six Months Ended
                                    26-Jun-05    27-Jun-04 26-Jun-05 27-Jun-04
    Operating cash flow                  $771         $894     $494      $788
    Less: Capital spending                (64)         (74)    (112)     (134)
          Internal use software
           spending                       (20)         (25)     (36)      (50)
          Free cash flow                  687          795      346       604
    Plus: Discontinued
          operations                       49           25       52        16
                Free cash flow from
                 continuing operations   $736         $820     $398      $620


    Free cash flow guidance

    2005                                Current Guidance
    Full year                 Low end of range   High end of range
    Operating cash flow                 $1,735      $1,895
    Less: Capital and internal
           software spending              (500)       (450)
          Free cash flow                 1,235       1,445
    Plus: Discontinued
           operations                       80          75
                Free cash flow from
                 continuing operations  $1,315      $1,520



    2004 Income From Continuing Operations and EPS Excluding Charges Related
    to Class Action Lawsuit Settlement and Early Retirement of Debt

                                       Three Months Ended
                                            27-Jun-04
                                    Income from    EPS from
                                     continuing   continuing
                                     operations   operations
    GAAP, as reported                     $(94)     $(0.22)
      Excluding settlement of
       class action lawsuit charge        (222)      (0.51)
      Excluding early retirement
       of debt charge                      (24)      (0.06)
    Non-GAAP                              $152       $0.35

SOURCE Raytheon Company

/CONTACT: Media Contact: James Fetig, +1-781-522-5111, or Investor Relations Contact: Greg Smith, +1-781-522-5141, both of Raytheon Company/

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