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RAYTHEON REPORTS STRONG FIRST QUARTER

02 Feb 06. Raytheon Company (NYSE: RTN) reported fourth quarter 2005 income from continuing operations of $282 million or $0.63 per diluted share, (2004: $246m or $0.54). Fourth quarter 2005 net income was $276 million or $0.61 per (2004: $245m or $0.54).

“Raytheon had another good year,” said William H. Swanson, Raytheon’s Chairman and CEO. “We had strong results across the Company and ended the year with the lowest net debt in ten years. This once again demonstrates our continued commitment to our customers and shareholders.”

Fourth quarter 2005 results included an after-tax $30m gain ($45m pretax) or $0.07 per diluted share from the sale of the Company’sstake in its Indra ATM S.L., a Spanish joint venture. Fourth quarter 2005 results also included an after-tax $19 million impairment charge ($22m pretax) or $0.04 per diluted share related to the Company’s investment in Flight Options. Also, during the fourth quarter 2005, the Company recorded an after-tax $7m charge ($10m pretax) or $0.02 per diluted share from the early redemption of debt. Fourth quarter 2004 results included a net after-tax $13m charge or $0.03 per diluted share related to a charge for the early redemption of debt partially offset by a benefit from the change in the tax law.

Net sales for the fourth quarter 2005 were $6.2bn, up 9 percent from $5.7bn in the fourth quarter 2004. Government and Defense sales for the quarter (after the elimination of inter-company sales) increased 5 percent to $4.9 billion from $4.7 billion in the fourth quarter 2004. Raytheon Aircraft Company (RAC) sales for the quarter increased 27 percent to $1,085m from (2004: $853m).

Free cash flow from continuing operations for the fourth quarter 2005 was
$1,033 million versus $760 million for the fourth quarter 2004. Free cash flow is defined by the Company as operating cash flow less capital spending and internal use software spending and constitutes a non-GAAP financial measure. See Attachment F “Non-GAAP Financial Measures” for a reconciliation of free cash flow to operating cash flow and a discussion of the Company’s use of non-GAAP financial information.

During the fourth quarter 2005, the Company repurchased 1.2 million shares of common stock for $46 million as part of the Company’s previously announced $700 million share repurchase program. The Company repurchased 11.2 million shares of common stock in 2005 for $436 million. Also during the quarter, the Company retired $196 million of debt, bringing the total year debt reduction to $678 million. Net debt was $3.3bn at the end of 2005, (2004: $4.6bn).

Full Year Financial Results

For the full year the Company reported income from continuing operations of $942m or $2.08 per diluted share, (2004: $439m or $0.99). The Company reported 2005 net income of $871m or $1.92 per diluted share, (2004: $417m or $0.94). Net income for 2005 included a $71m after-tax loss in discontinued operations or $0.16 per diluted share, versus $63m or $0.14 per diluted share in 2004. The 2004 results also included an after-tax charge of $222m or $0.50 per diluted share for the settlement of a class action shareholder lawsuit.

Total 2005 net sales for the Company were $21.9bn, (2004: $20.2bn), an increase of 8 percent. Government and Defense sales for the year (after the elimination of intercompany sales) increased 6 percent to $18.2bn from $17.2bn in 2004. RAC sales for the year increased 18 percent to $2.9bn from $2.4bn in 2004.

Free cash flow from continuing operations was $2.1bn in 2005 compared to $1.6bn in 2004.

The Government and Defense businesses reported fourth quarter 2005 bookings of $5.2bn with full-year 2005 bookings of $20.5bn. The Government and Defense businesses ended 2005 with a backlog of $31.2bn, an increase of $1.6bn over year end 2004.

RAC’s fourth quarter 2005 bookings were $1.8bn compared to $1.1bn in the fourth quarter 2004. Full-year 2005 bookings were $3.5bn versus $3.1bn for 2004.

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