1. Raytheon Company
Fourth Quarter Earnings
February 3, 2005
Dial In Number
800-265-0241 Domestic
617-847-8704 International
Passcode: 33188529
Replay Number
888-286-8010 Domestic
617-801-6888 International
Reservation Number: 33021328
Available through February 10, 2005

2. Forward-Looking Statements
This presentation contains forward-looking statements and projections. The Company cautions
readers that 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 presentation. 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 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 and a securities class action lawsuit related to the sale of our former engineering
and construction business; the ultimate resolution of insurance coverage for the class action
shareholder and derivative lawsuits against the Company; the effect of market conditions,
particularly in relation to the general aviation, commuter and fractional aircraft markets; cost
growth risks inherent with large long-term fixed price contracts; conflicts with other investors
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, 2003 and quarterly reports on Form 10-Q, copies of which may be obtained at the
Company's website www.raytheon.com.quot;
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3. Q4 Highlights
● Bookings of $5.5B
Ending backlog of $32.5B
●
● Sales of $5.7B
Increase of 12% for the quarter and total year
●
● Earnings of $0.54 per diluted share
● Free Cash Flow for the quarter of $701M
● Net Debt at 2004 year end at $4.6B
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4. Q4 - Consolidated Results
($ Millions)
Operating Income
Net Sales
$440
As Reported
2004
$558
Excludes FAS/CAS Profit Adj.
2004 $5,704
$452
As Reported
2003
2003 $5,101 $479
Excludes FAS/CAS Profit Adj.
● Total Company Q4 sales up 12% ● Primarily Q4 volume combined with
● Government and Defense Q4 sales up 12% improvement at Raytheon Aircraft
Total Free Cash Flow Bookings
2004 $701
$5,475
2004
2003 $858 2003 $8,384
● Total year free cash flow of $1.4B compared ● Total year bookings of $25.7B compared
to $1.0B for 2003. to $22.7B for 2003.
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5. 2005 Financial Outlook
Prior Current
Bookings $22.5B - $23.5B $22.5B - $23.5B
Sales $21.5B - $22.0B $21.5B - $22.0B
FAS/CAS Pension Adjustment Expense $406M $463M
Interest expense, net $315M - $325M $315M - $325M
Diluted Shares 455M 455M
GAAP EPS from Cont. Ops $1.80-$1.90 $1.80-$1.90
Continuing Ops Free Cash Flow $1.2B - $1.4B $1.2B - $1.4B
Total Free Cash Flow $1.2B - $1.4B $1.2B - $1.4B
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6. Pension Impact
($ Millions except EPS)
Prior Guidance Current Guidance
Expense 2005E 2006E 2005E 2006E
FAS $ (759) $ (683) $ (811) $ (708)
CAS $ (353) $ (398) $ (348) $ (388)
FAS/CAS Pension Adjustment $ (406) $ (285) $ (463) $ (320)
Diluted EPS Effect $ (0.60) $ (0.42) $ (0.68) $ (0.48)
Cash
Funding Required $ (338) $ (447) $ (312) $ (443)
CAS Recovery $ 353 $ 398 $ 348 $ 388
Discretionary pension funding $ (200) $ (200) $ (200) $ (200)
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7. Segment Details
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8. Q4 - Integrated Defense Systems (IDS)
($ Millions)
Operating Income
Net Sales
2004 $119
2004 $914
2003 $95
2003 $791
● Growth of 16% driven by Japan Patriot ● Volume related
Product Improvement Program (PI3),
Cobra Judy, and DD(X)
Bookings
Free Cash Flow
2004 $969
2004 $126
2003 $2,026
2003 $99
● Includes a $55M advance on an international ● Includes $282M for the award of BMDS Radar Options
program and $234M for Japan PI3
● Q4 2003 included $782M for Cobra Judy and $447M for
JLENS Spiral 2
Note: Net sales include intercompany sales
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9. Q4 - Intelligence & Information Systems (IIS)
($ Millions)
Operating Income
Net Sales
2004 $51
2004 $601
2003 $53
2003 $525
● Growth of 14% driven by classified ● Includes a charge for nonrecoverable costs
programs
Free Cash Flow Bookings
2004 $57 $591
2004
2003 $71 $526
2003
● Includes $373M of classified bookings
Note: Net sales include intercompany sales
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10. Q4 - Missile Systems (MS)
($ Millions)
Operating Income
Net Sales
2004 $114
2004 $1,012
2003 $108
2003 $943
● Growth of 7% driven by SM3, JSOW, ● Volume related
and ESSM
Free Cash Flow
Bookings
$65
2004 $1,039
2004
2003 $327 2003 $1,849
● ●
● Total year free cash flow of $285M compared ● Includes $201M for the option exercise of AMRAAM
to $244M for 2003. production and logistics support and $116M for
AIM-9X Sidewinder
● Total year bookings $2.1B higher than prior year
Note: Net sales include intercompany sales
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11. Q4 - Network Centric Systems (NCS)
($ Millions)
Net Sales
Operating Income
2004 $836
2004 $88
2003 $766 2003 $75
● Growth of 9% driven by Army programs ● Volume related
Free Cash Flow Bookings
$173
2004 2004 $620
2003 $131 2003 $1,017
● Includes $132M for Wide Area Augmentation
System (WAAS)
Note: Net sales include intercompany sales
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12. Q4 - Space and Airborne Systems (SAS)
($ Millions)
Net Sales Operating Income
$1,141
2004 $159
2004
2003 $130
2003 $967
● Growth of 18% driven by an increase in ● Primarily productivity improvements on production
classified and production programs programs and higher volume, partially offset by
a $55M write-off on an international program
Bookings
Free Cash Flow
$502
2004
2004 $80
2003 $1,128
2003 $131
● Includes $102M on a number of classified contracts
Note: Net sales include intercompany sales
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13. Q4 - Technical Services (TS)
($ Millions)
Net Sales Operating Income
2004 $593 2004 $46
$560
2003 2003 $39
Bookings
Free Cash Flow
$479
2004
2004 $34
2003 $28 2003 $520
● Includes $76M on the Live Training
Program and a competitive award
on the ROTHR program
Note: Net sales include intercompany sales
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14. Q4 - Raytheon Aircraft Company (RAC)
($ Millions)
Operating Income
Net Sales
2004 $47
2004 $853
2003 $29
2003 $717
● Growth of 19% driven by an increase in new ● Volume combined with continued cost
and used aircraft sales and productivity benefits
Free Cash Flow Bookings
$1,102
2004
2004 $84
2003 $1,095
2003 $89
Note: Net sales exclude sales to Flight Options
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15. Q4 - Other
($ Millions)
Operating Income
Net Sales
2004
($11)
2004
2004 $183
2003 $230 ($21)
2003 2003
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16. Non-GAAP Financial Measures
The following measures are considered quot;non-GAAPquot; financial measures under SEC guidelines:
(i) Free cash flow - Operating cash flow less capital spending and internal use software spending.
(ii) Operating income excluding the FAS/CAS Adjustment - Operating income adjusted for the non-cash FAS/CAS
pension amount. The FAS/CAS pension adjustment is the difference between
SFAS No. 87 (FAS) pension income or expense and the Cost Accounting Standards (CAS)
pension expense. CAS standards are those that prescribe the allocation to and recovery of
pension costs on U.S. government contracts.
The Company uses these non-GAAP financial measures to evaluate its operating performance and to facilitate
management's internal comparisons to the Company's historical operating results and to competitors' operating results.
The company also uses free cash flow in determining management incentive compensation.The Company believes
disclosure of these measures provides greater transparency to investors of information used by management in its
financial and operational decision making.
While this information may be useful in evaluating the Company, it should be considered supplemental to and not
as a substitute for financial information prepared in accordance with generally accepted accounting principles.
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17. Reconciliation of Non-GAAP Financial Measures
($ Millions)
Three Months Ended Twelve Months Ended
31-Dec-04 31-Dec-03 2005F 31-Dec-04 31-Dec-03
(i) Free cash flow
Operating cash flow $ 883 $ 1,070 $ 1,700-1,850 $ 1,876 $ 1,569
Less: Capital spending $ (152) $ (185) $ (375)-(350) $ (361) $ (428)
Internal use software spending $ (30) $ (27) $ (125)-(100) $ (103) $ (98)
Free cash flow $ 701 $ 858 $ 1,200-1,400 $ 1,412 $ 1,043
Plus: Discontinued operations $ 11 $ 48 $ 20-25 $ 43 $ 533
Free cash flow from continuing operations $ 712 $ 906 $ 1,220-1,425 $ 1,455 $ 1,576
(ii) Operating income excluding FAS/CAS pension adjustment
Operating income from continuing operations $ 440 $ 452
Less: FAS/CAS pension adjustment $ (118) $ (27)
Operating income from continuing operations $ 558 $ 479
excluding FAS/CAS pension adjustment
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