1 EXHIBIT 99.5 E-SYSTEMS, INC. EMPLOYEE SAVINGS PLAN FINANCIAL STATEMENTS TO ACCOMPANY 1998 FORM 5500 ANNUAL REPORT OF EMPLOYEE BENEFIT PLAN UNDER ERISA OF 1974 FOR THE YEAR ENDED DECEMBER 31, 1998 Certain supplemental schedules that are required by the Employee Retirement Income Security Act of 1974 (ERISA) are not presented because they are not applicable. 2 Report of Independent Accountants To the Participants and Administrator of the E-Systems, Inc. Employee Savings Plan: In our opinion, the accompanying statements of net assets available for plan benefits and the related statement of changes in net assets available for plan benefits present fairly, in all material respects, the net assets available for benefits of The E-Systems, Inc. Employee Savings Plan (the "Plan") at December 31, 1998 and 1997, and the changes in net assets available for benefits for the year ended December 31, 1998 in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Plan's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. Our audits were conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental schedule of Reportable Transactions is presented for the purpose of additional analysis and is not a required part of the basic financial statements but is supplementary information required by the Department of Labor's Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. The supplemental schedule is the responsibility of the Plan's management. The supplemental schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. As discussed in Notes A and G to the financial statements, the Board of Directors of Raytheon Company voted on December 16, 1998, to merge the Plan into the Raytheon Savings and Investment Plan. PricewaterhouseCoopers LLP Boston, Massachusetts June 4, 1999 3 E-SYSTEMS, INC. EMPLOYEE SAVINGS PLAN STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS December 31, 1998 and 1997 ASSETS 1998 1997 Investments--at fair value: Mutual funds $633,702,737 $613,860,560 Collective investment fund 57,431,843 61,180,556 Raytheon common stock fund 31,793,467 35,787,508 Participant loans 21,561,171 22,992,597 ------------ ------------ 744,489,218 733,821,221 ------------ ------------ Receivables: Employee contributions 798 2,135,509 Employer contributions 755 9,520,806 Other 2,585 ------------ ------------ Total assets 744,493,356 745,477,536 ------------ ------------ Liabilities: Transfer payables (Note G) 744,493,356 ------------ ------------ Total liabilities 744,493,356 - ------------ ------------ Net assets available for benefits $ - $745,477,536 ============ ============ The accompanying notes are an integral part of the financial statements. 4 E-SYSTEMS, INC. EMPLOYEE SAVINGS PLAN STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS for the year ended December 31, 1998 1998 Additions to net assets attributable to: Investment income (Notes B, E and H): Net appreciation of investments $ 38,648,777 Interest & dividends 46,828,458 ------------- 85,477,235 Contributions and deferrals: Employee deferrals 50,750,177 Employer contributions 8,219,008 Transfers (Note F) 100,188 ------------- 59,069,373 Total additions 144,546,608 ------------- Deductions from net assets attributable to: Distributions to participants 145,309,738 Administrative expenses 117,034 Transfers (Note F and G) 744,597,372 ------------- Total deductions 890,024,144 ------------- Decrease in net assets (745,477,536) Net assets, beginning of year 745,477,536 ------------- Net assets, end of year $ 0 ============= The accompanying notes are an integral part of the financial statements. 5 E-SYSTEMS, INC. EMPLOYEE SAVINGS PLAN NOTES TO FINANCIAL STATEMENTS A. Description of Plan: General As more fully described in Note G, the E-Systems Inc. Employee Savings Plan (the "Plan") ceased to exist as of December 31, 1998 and effective January 1, 1999, the Plan was merged into the Raytheon Savings and Investment Plan (RAYSIP). The following description of the Plan provides only general information that is applicable through December 31, 1998. A detailed description of the Plan is contained in the Plan document. The Plan is a defined contribution plan sponsored by Raytheon E-Systems, Inc. ("E-Systems" or the "Company"), a wholly owned subsidiary of Raytheon Company, which became effective January 1, 1995. Employees are immediately eligible to participate in the Plan. The Plan provides an individual account for each participant. Amounts disbursed to participants or transfers between funds are based solely upon amounts contributed to each participant's account adjusted to reflect any withdrawals and distributions, investment earnings attributable to such fund balances and appreciation or depreciation of the market value of the fund. The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974 ("ERISA"). Contributions and Deferrals Eligible employees are allowed to defer to the Plan up to 10% of their salaries. The Company contributes amounts equal to 50% of each participant's deferral, up to a maximum of 3% of the participant's salary. For 1998, the annual employee deferral for a participant cannot exceed $10,000. Rollover contributions from other qualified plans are accepted by the Plan. The Plan also provides for Regular Discretionary Employer Contributions ("E-CAP") up to 1-1/2% of the lesser of (1) base rate of pay, or (2) W-2 pay plus elected reductions. To be eligible for this contribution, the participant must be an active employee on December 31. Certain Company subsidiaries may make Optional Employer Contributions. If employed by one of these subsidiaries on December 31, the participants receives an allocation equal to a certain percentage, determined by the Board of Directors of Raytheon Company, of the lesser of (1) base rate of pay, or (2) W-2 pay plus elected reductions. Employee contributions are invested by the trustee as directed by participants and can be invested in any combination of the funds listed below. Company matching contributions, and other discretionary contributions, if any may be invested in a different combination of funds than the employee contributions. If a separate election for the Company contributions is not made by the participant, these contributions are then invested in the same fund or funds selected by the participant for their pre-tax contributions. 6 Participants have the option of investing their contributions in any of the following funds: The Vanguard Retirement Savings Trust: investments seek the highest level of current income consistent with safety and stability of principal by investing primarily in contracts issued by life insurance companies, investment contracts issued by domestic commercial banks or United States branches of foreign banks, and other similar types of fixed-principal investments. The Trust may also hold no more than 15% of its assets in short-term obligations, money market funds, or federally insured deposits. The Vanguard/Morgan Growth Fund: investments consist primarily of common stocks of corporations with either established growth patterns, emergin growth potential, or cyclical growth deposits. The Vanguard/Windsor Fund: investments consist of a portfolio of common stocks, the objective of which is primarily long-term growth and secondly, current income through dividends. The Vanguard Money Market reserves Prime Portfolio: investments consist of high-quality money market instruments that mature in one year or less. The Vanguard Short-Term Corporate Bond Portfolio: investments consist of investment grade bonds with maturities from less than one to four years, including United States Treasury and agency obligations, the objective of which is primarily to conserve principal and secondly, to maximize current income. The Vanguard Index Trust 500 Portfolio: investments consist of a portfolio of stocks designed to match the performance of Standard & Poor's 500 Corporate stock Price Index. The Vanguard/Wellesley Income Fund: investments consist of about 60% in fixed-income securities and 40% in common stocks. The Fund objective is primarily current income through dividends, and secondly, moderate capital growth. The Vanguard International Value Portfolio: investments seek maximum long-term total return consistent with reasonable risk by investing in a diversified group of large and medium-sized companies based outside of the United States. Total return includes both income and capital appreciation. The Raytheon Common Stock Fund: investments consist of Raytheon Class B common stock. However, contributions may be invested in the Vanguard Money Market Reserves Prime Portfolio until a stock purchase is made. Participant Accounts Each participant's account is credited with the participant's deferral, the Company's contribution and an allocation of plan earnings. Plan earnings are allocated based on account balances by fund. 7 Vesting Participants are immediately 100% vested in their account balances derived from Company contributions, employee contributions and any amounts rolled over to the Plan from another eligible plan. Distributions to Participants A participant may withdraw all or a portion of deferrals, employer contributions and related earnings upon attainment of age 59 1/2. For reasons of financial hardship, as defined in the Plan document, a participant may withdraw all or a portion of deferrals. On termination of employment, a participant will receive a lump-sum distribution unless the vested account is valued in excess of $3,500 and the participant elects to defer distribution. A retiree or a beneficiary of a deceased participant may defer the distribution until January of the year following attainment of age 65. Loans to Participants A participant may borrow against a portion of the balance in the participant's account, subject to certain restrictions. The maximum amount of a loan is the lesser of one-half of the participant's vested account balance or $50,000. The minimum loan which may be granted is $500. The interest rate applied is equal to the prime rate published in the Wall Street Journal on the last business day of each quarter. Loans must be repaid over a period of up to 5 years by means of payroll deductions. In certain cases, the repayment period may be extended up to 15 years. Interest paid to the Plan on loans to participants is credited to the borrower's account in the investment fund to which repayments are made. Administrative Expenses Substantially all expenses of administering the Plan are paid by the plan participants. B. Summary of Significant Accounting Policies: The accompanying financial statements are prepared on the accrual basis of accounting. The valuation of the Plans investments in all funds is based on the market value of the assets held in the funds. The Plan's relative interest in the funds is determined on a unit-method basis. The valuation of the Vanguard Funds is based on the closing market price of the assets which comprise the funds on the last business day of the Plan year. Investments in the Vanguard Retirement Savings Trust are carried at market value (which equals original cost plus accrued interest less any distribution). Contract value approximates market value. The valuation of Class B common stock in the Raytheon Common Stock Fund is based on closing market price as reported on the New York Stock Exchange on the last business day of the Plan year. Participant loans are valued at cost which approximates fair value. 8 Security transactions are recorded on trade date. Payables for outstanding security transactions represent trades which have occurred but have not yet settled. The Plan presents in the statement of changes in net assets the net appreciation (depreciation) in the fair value of its investments, which consists of the realized gains or losses and the unrealized appreciation (depreciation) on those investments. Dividend income is recorded on the ex-dividend date. Income from other investments is recorded as earned on an accrual basis. Investment income includes both dividend and interest income. Benefits are recorded when paid. The preparation of the financial statements in conformity with generally accepted accounting principles requires the Plan administrator to make significant estimates and assumptions that affect the reported amounts of net assets and liabilities available for benefits at the date of the financial statements and the change in net assets available for benefits during the reporting period and, when applicable, disclosures of contingent assets and liabilities at the date of the financial statements. Actual results could differ from the estimates included in the financial statements. The Plan provides for various investment options in any combination of stocks, bonds, fixed income securities, mutual funds and other investment securities. Investment securities are exposed to various risks, such as interest rate, market and credit risk. Due to the level of risk associated with certain investment securities and the level of uncertainty related to changes in the value of investment securities, it is at least reasonably possible that changes in risks in the near term would materially affect participants' account balances and the amounts reported in the statement of net assets available for plan benefits and the statement of changes in net assets available for plan benefits. C. Federal Income Tax Status: The Internal Revenue Service has determined and informed the Company by letter dated December 1996 that the Plan and related trust are designed in accordance with applicable sections of the Internal Revenue Code (the "Code"). The Plan has been amended since the determination letter. However, the Plan administrator and the Plan's legal counsel believe that the Plan is currently designed and being operated in compliance with applicable requirements of the Code. Therefore, no provision for income taxes has been included in the Plan's financial statements. D. Plan Termination: Although it has not expressed any intention to do so, the Company reserves the right under the Plan at any time or times to discontinue its contributions and to terminate the Plan subject to the provisions of ERISA. In the event of plan termination, amounts in participants' accounts will be distributed in a single lump sum; if the participant does not consent to an immediate distribution, the amount can be transferred to another defined contribution plan sponsored by the Company. 9 E. Related Party Transactions: The Plan's trustee is Vanguard Fiduciary Trust Company (the "Trustee"). The Trustee holds the funds for the Plan and is responsible for managing the Plan's investment assets, executing all investment transactions, recording approved transactions, and, therefore these transactions qualify as party-in-interest. In accordance with the provisions of the Plan, the Trustee acts as the Plan's agent for purchases and sales of Raytheon Company Common Stock. For the year ended December 31, 1998, purchases amounted to $14,712,663 and sales amounted to $20,317,082. F. Transfers: Transfers include transfers of participant accounts, individually and/or in-groups, between the Plan and other plans included in the Raytheon Company Master Trust for those participants, and/or groups of participants, who changed plans during the year. Transfers also include transfers of participant accounts, individually and/or in-groups, between the Plan and similar savings plans of other companies for those participants who changed companies during the year. G. Transfer Payables: As part of an overall effort to minimize plan design differences and increase administrative efficiencies, the Board of Directors of Raytheon Company voted on December 16, 1998 to merge the participants and their account balances from the Plan into the RAYSIP. Effective January 1, 1999, the plan provisions of the RAYSIP govern. The transfer payables represent a complete transfer of assets. 10 H. Net Assets Availiable for Plan Benefits by Fund: The following is a summary of net assets available for plan benefits by fund as of December 31, 1998: Raytheon Vanguard Vanguard Vanguard Vanguard Vanguard Common Retirement Morgan Growth Windsor Money Market Short Term Stock Fund Savings Trust Fund Fund Reserves Corporate Bond Assets: Investments at fair value: Mutual Funds $113,211,987 $179,362,915 $90,549,186 $17,953,500 Collective investment fund $57,431,843 Raytheon Common Stock Fund $31,793,467 Participant loans ----------- ----------- ------------ ------------ ----------- ----------- Total investments 31,793,467 57,431,843 113,211,987 179,362,915 90,549,186 17,953,500 ----------- ----------- ------------ ------------ ----------- ----------- Receivables: Employee contributions 588 131 (671) (469) 275 43 Employer contributions 186 54 82 151 80 17 Other receivables 595 168 150 404 775 67 ----------- ----------- ------------ ------------ ----------- ----------- Total assets 31,794,836 57,432,196 113,211,548 179,363,001 90,550,316 17,953,627 ----------- ----------- ------------ ------------ ----------- ----------- Liabilities: Transfer payables (Note G) 31,794,836 57,432,196 113,211,548 179,363,001 90,550,316 17,953,627 ----------- ----------- ------------ ------------ ----------- ----------- Total liabilities 31,794,836 57,432,196 113,211,548 179,363,001 90,550,316 17,953,627 ----------- ----------- ------------ ------------ ----------- ----------- Net assets available for plan benefits $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 =========== =========== ============ ============ =========== =========== 11 Vanguard Vanguard Vanguard Participant Index Trust Wellesley International Loan 500 Portfolio Income Fund Value Fund Total Assets: Investments at fair value: Mutual Funds $175,613,111 $41,019,572 $15,992,466 $633,702,737 Collective investment fund 57,431,843 Raytheon Common Stock Fund 31,793,467 Participant loans $21,561,171 21,561,171 ------------ ----------- ----------- ----------- ------------ Total investments 175,613,111 41,019,572 15,992,466 21,561,171 744,489,218 ------------ ----------- ----------- ----------- ------------ Receivables: Employee contributions 564 279 58 798 Employer contributions 135 32 18 755 Other receivables 364 11 51 2,585 ------------ ----------- ----------- ----------- ------------ Total assets 175,614,174 41,019,894 15,992,593 21,561,171 744,493,356 ------------ ----------- ----------- ----------- ------------ Liabilities: Transfer payables (Note G) 175,614,174 41,019,894 15,992,593 21,561,171 744,493,356 ------------ ----------- ----------- ----------- ------------ Total liabilities 175,614,174 41,019,894 15,992,593 21,561,171 744,493,356 ------------ ----------- ----------- ----------- ------------ Net assets available for plan benefits $ 0 $ 0 $ 0 $ 0 $ 0 ============ =========== =========== =========== ============ 12 H. Net Assets Availiable for Plan Benefits by Fund: The following is a summary of net assets available for plan benefits by fund as of December 31, 1997: Raytheon * Vanguard* Vanguard* Vanguard* Vanguard* Vanguard Common Retirement Morgan Growth Windsor Money Market Short Term Stock Fund Savings Trust Fund Fund Reserves Corporate Bond Assets: Investments at fair value: Mutual Funds $97,914,498 $226,774,736 $91,047,417 $16,848,440 Collective investment fund $61,180,556 Raytheon Common Stock Fund $35,787,508 Participant loans ----------- ----------- ----------- ------------ ----------- ----------- Total investments 35,787,508 61,180,556 97,914,498 226,774,736 91,047,417 16,848,440 Receivables: Employee contributions 141,251 161,840 301,542 629,130 219,638 61,411 Employer contributions 1,597,516 225,700 905,920 1,566,103 2,542,782 142,667 Other Receivables ----------- ----------- ----------- ------------ ----------- ----------- Total assets 37,526,275 61,568,096 99,121,960 228,969,969 93,809,837 17,052,518 ----------- ----------- ----------- ------------ ----------- ----------- Liabilities: ----------- ----------- ----------- ------------ ----------- ----------- Total liabilities - - - - - - ----------- ----------- ----------- ------------ ----------- ----------- Net assets available for plan benefits $37,526,275 $61,568,096 $99,121,960 $228,969,969 $93,809,837 $17,052,518 =========== =========== =========== ============ =========== =========== 13 Vanguard* Vanguard Vanguard Participant Index Trust Wellesley International Loan 500 Portfolio Income Fund Value Fund Total Assets: Investments at fair value: Mutual Funds $134,265,332 $32,126,350 $14,883,787 $613,860,560 Collective investment fund 61,180,556 Raytheon Common Stock Fund 35,787,508 Participant loans $22,992,597 22,992,597 ------------ ----------- ----------- ----------- ------------ Total investments 134,265,332 32,126,350 14,883,787 22,992,597 733,821,221 Receivables: Employee contributions 434,798 109,353 76,546 2,135,509 Employer contributions 1,732,435 462,314 345,369 9,520,806 Other Receivables ------------ ----------- ----------- ----------- ------------ Total assets 136,432,565 32,698,017 15,305,702 22,992,597 745,477,536 ------------ ----------- ----------- ----------- ------------ Liabilities: ------------ ----------- ----------- ----------- ------------ Total liabilities - - - - - ------------ ----------- ----------- ----------- ------------ Net assets available for plan benefits $136,432,565 $32,698,017 $15,305,702 $22,992,597 $745,477,536 =========== =========== =========== =========== ============ *Represents more than 5% of net assets available for plan benefits 14 H. Changes in Net Assets Availiable for Plan Benefits by Fund: The following is a summary of changes in net assets available for plan benefits by fund as of December 31, 1998: Raytheon Vanguard Vanguard Vanguard Vanguard Vanguard Common Retirement Morgan Growth Windsor Money Market Short Term Stock Fund Savings Trust Fund Fund Reserves Corporate Bond Additions to net assets attributable to: Investment income Net appreciation (depreciation) $3,271,481 $12,070,155 ($16,306,145) $ 38,494 Interest & dividends 461,134 $ 3,816,141 9,102,200 17,415,762 $ 4,980,264 1,125,397 Contributions and transfers: Employee contributions 3,115,521 2,742,863 8,016,899 13,263,615 3,711,186 1,301,151 Employer contributions 596,771 560,049 1,206,693 2,229,943 763,562 231,953 Transfers (Note F and G) 439 39 598 986 204 37 ---------- ----------- ----------- ------------ ------------- ----------- Total additions 7,445,346 7,119,092 30,396,545 16,604,161 9,455,216 2,697,032 Deductions from net assets attributable to: Distributions to participants 3,859,905 17,094,278 16,579,289 34,765,672 22,270,456 3,464,245 Administrative expenses 12,228 3,329 14,525 24,010 25,207 2,725 Transfers (Notes F and G) 31,806,164 57,432,195 113,243,716 179,365,102 90,550,316 17,955,055 ---------- ----------- ----------- ------------ ----------- ----------- Total deductions 35,678,297 74,529,802 129,837,530 214,154,784 112,845,979 21,422,025 Interfund Transfers (9,293,324) 5,842,614 319,025 (31,419,346) 9,580,926 1,672,475 . Decrease in net assets (37,526,275) (61,568,096) (99,121,960) (228,969,969) (93,809,837) (17,052,518) ---------- ----------- ----------- ----------- ------------ ----------- Net assets, beginning of year 37,526,275 61,568,096 99,121,960 228,969,969 93,809,837 17,052,518 ----------- ----------- ----------- ------------ ------------ ----------- Net assets, end of year $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 =========== ========== =========== ============ ============ =========== 15 Vanguard Vanguard Vanguard Participant Index Trust Wellesley International Loan 500 Portfolio Income Fund Value Fund Total Additions to net assets attributable to: Investment income Net appreciation (depreciation) $ 37,725,059 $ 242,309 $ 1,607,424 $38,648,777 Interest & dividends 2,822,467 3,849,330 1,226,704 $2,029,059 46,828,458 Contributions and transfers: Employee contributions 13,598,274 3,228,244 1,772,424 50,750,177 Employer contributions 1,859,070 485,963 285,004 8,219,008 Transfers (Note F and G) 1,288 168 460 95,969 100,188 ------------ ----------- ------------ ------------ ------------ Total additions 56,006,158 7,806,014 4,892,016 2,125,028 144,546,608 Deductions from net assets attributable to: Distributions to participants 35,011,683 7,372,390 2,479,399 2,412,421 145,309,738 Administrative expenses 24,800 6,739 3,471 0 117,034 Transfers (Notes F and G) 175,646,449 41,019,895 16,017,309 21,561,171 744,597,372 ------------ ----------- ------------ ------------ ------------ Total deductions 210,682,932 48,399,024 18,500,179 23,973,592 890,024,144 Interfund Transfers 18,244,209 7,894,993 (1,697,539) (1,144,033) 0 Decrease in net assets (136,432,565) (32,698,017) (15,305,702) (22,992,597) (745,477,536) ------------ ----------- ----------- ------------ ------------ Net assets, beginning of year 136,432,565 32,698,017 15,305,702 22,992,597 745,477,536 ------------ ----------- ----------- ------------ ------------ Net assets, end of year $ 0 $ 0 $ 0 $ 0 $ 0 ============ =========== =========== =========== ============ 16 E-SYSTEMS, INC. EMPLOYEE SAVINGS PLAN LINE 27d - SCHEDULE OF REPORTABLE TRANSACTIONS for the year ended December 31, 1998 Cost of Historical Current Value of Assets Historical Description of Asset Purchase Price Selling Price Cost of Asset on Transaction Date Gain (Loss) Category (iii)--Series of securities transactions Vanguard 500 Index Fund $81,138,253 $81,138,253 Vanguard 500 Index Fund $77,516,822 $60,408,602 77,516,822 $17,108,220 Vanguard Morgan Growth Fund 40,366,110 40,366,110 Vanguard Morgan Growth Fund 37,139,375 32,953,957 37,139,375 4,185,418 Vanguard Prime Money Market 77,930,088 77,930,088 Vanguard Prime Money Market 78,428,524 78,428,524 78,428,524 Vanguard Windsor Fund 49,282,450 49,282,450 Vanguard Windsor Fund 80,389,112 77,116,825 80,389,112 3,272,287 Vanguard Retirement Savings Trust 27,412,254 27,412,254 Vanguard Retirement Savings Trust 31,161,006 31,161,006 31,161,006 Raytheon Common Stock Fund 25,752,750 25,752,750 Raytheon Common Stock Fund 33,018,710 30,456,483 33,018,710 2,562,227 There were no category (i), (ii) or (iv) reportable transactions during 1998.