News Release

Raytheon Reports Strong Second Quarter 2004 Performance, Offset by Previously Announced Settlement of Class Action Shareholder Lawsuit
* Bookings of $6 billion, record backlog of $32 billion * Sales of $4.9 billion, up 11 percent * Free cash flow from continuing operations of $818 million * As a result of charges of $0.51 per share from the settlement of a class action shareholder lawsuit and $0.06 per share from the early retirement of debt the Company reported a loss per share of $0.22 from continuing operations

WALTHAM, Mass., Jul 29, 2004 (PRNewswire-FirstCall via COMTEX) -- Raytheon Company reported second quarter 2004 income from continuing operations of $152 million or $0.35 per diluted share excluding the effect of charges related to the previously announced settlement of a class action shareholder lawsuit and from the early retirement of debt. Including those charges, the second quarter 2004 loss from continuing operations was $94 million or $0.22 per diluted share. This is compared to income from continuing operations of $186 million or $0.45 per diluted share in the second quarter 2003. The effect of the shareholder lawsuit was a $222 million after-tax charge or $0.51 per diluted share. The effect of the early retirement of debt was a $24 million after-tax charge or $0.06 per diluted share. Non-cash pension expense (FAS/CAS Pension Adjustment) negatively affected the quarter by $0.12 per diluted share on a year-over-year basis.

Second quarter 2004 net loss was $108 million or $0.25 per diluted share compared to net income of $100 million or $0.24 per diluted share in 2003. The net loss for the second quarter of 2004 also includes a $14 million after-tax loss in discontinued operations or $0.03 per diluted share versus $86 million or $0.21 per diluted share in 2003.

Net sales for the second quarter 2004 were $4.9 billion, up 11 percent from $4.4 billion in the comparable period in 2003. Government and Defense sales for the quarter (after the elimination of intercompany sales) increased 11 percent to $4.2 billion from $3.8 billion in the comparable quarter.

Free cash flow from continuing operations for the second quarter was $818 million versus $649 million for the comparable period in 2003, an improvement of $169 million due primarily to reduced working capital levels. Free cash flow, including discontinued operations, for the second quarter 2004 was $793 million versus $533 million in 2003. Free cash flow is defined as operating cash flow less capital spending and internal use software spending.

During the second quarter of 2004, the Company retired debt with a par value of $877 million. Net debt was $5.5 billion at the end of the second quarter compared with $6.7 billion at the end of 2003. Net debt is defined as total debt minus cash and short term investments.

The Government and Defense businesses recorded second quarter bookings of $5.0 billion compared to bookings of $3.8 billion in the second quarter of 2003. Government and Defense backlog reached a record $29.5 billion, an increase of $4.4 billion over year end 2003.

Raytheon Aircraft Company's (RAC) second quarter bookings were $851 million compared to $423 million in 2003. During the quarter, NetJets Inc. placed an order with a value in excess of $300 million for 20 new Hawker 800XP mid-size business jets and 20 new Hawker 400XP light business jets.

"The second quarter represents another solid quarter for the Company," said William H. Swanson, Raytheon Chairman and CEO. "Our strong bookings and sales performance demonstrate our continued focus on our customers. The strong free cash flow highlights our consistent emphasis on execution. The settlement of the class action shareholder lawsuit puts a significant uncertainty behind us."

Change in outlook

The Company now expects 2004 earnings per share from continuing operations to be $0.79 - $0.89 to reflect the loss of $0.51 per diluted share from the settlement of the class action shareholder lawsuit. Excluding the impact of the settlement, the Company expects 2004 earnings per share from continuing operations of $1.30 - $1.40. The Company raised its full year guidance for bookings to $24.5 billion from $23.0 billion. A chart containing the Company's guidance is available on the Company's website.

Segment Results

  Integrated Defense Systems

Integrated Defense Systems (IDS) second quarter 2004 net sales were $870 million, up 24 percent compared to $701 million in the second quarter 2003, due primarily to continued growth in DD(X), the Navy's future destroyer program, and strong missile defense sales. IDS generated $104 million of second quarter 2004 operating income compared to $80 million in the 2003 comparable quarter.

During the quarter, IDS booked $363 million for Japan Patriot Product Improvement Program. IDS also booked $139 million contract for the production of the second Ballistic Missile Defense System (BMDS) Option 1 Radar, as well as $63 million for the first year of the five year Torpedo Omnibus Production contract, which is expected to exceed $500 million with all the options exercised.

Intelligence and Information Systems

Intelligence and Information Systems (IIS) second quarter 2004 net sales were $553 million, up 5 percent compared to $525 million in the second quarter 2003. IIS reported $51 million of operating income compared to $46 million in the comparable quarter a year ago.

During the quarter, IIS booked $225 million in classified contracts. Also in the quarter, the Department of Homeland Security awarded the US VISIT program to the Accenture team, which includes Raytheon. Task orders for this indefinite-delivery indefinite-quantity contract are currently being developed jointly with the US VISIT program office.

Missile Systems

Missile Systems (MS) second quarter 2004 net sales were $939 million, up 13 percent compared to $833 million in the second quarter 2003, driven by increased volume on Standard Missile-3 and Joint Standoff Weapon (JSOW). MS generated $106 million of operating income compared to $104 million in the comparable quarter a year ago. Operating income on higher sales in the quarter was partially offset by the wind-down of cost recovery for prior year restructuring actions.

During the quarter, MS booked $500 million for the definitization of the Standard Missile-3 contract awarded in the third quarter of 2003. Also during the quarter, MS booked a $269 million contract for the production of Evolved SeaSparrow Missiles (ESSM).

Network Centric Systems

Network Centric Systems (NCS) second quarter 2004 net sales were $780 million, up 9 percent compared to $716 million in the second quarter 2003. NCS recorded an operating profit of $66 million compared to $20 million in the comparable quarter a year ago. Last year's second quarter operating income included $40 million of charges due to performance issues on two older programs.

During the quarter, NCS booked $313 million on a classified program. NCS also booked an additional $30 million in options for the production of Army Thermal Weapon Sights (TWS), bringing the total for the year to $127 million.

Space and Airborne Systems

Space and Airborne Systems (SAS) second quarter 2004 net sales were $985 million, up 11 percent compared to $886 million in the second quarter 2003, due to higher classified and international programs, including F-15 Japan and Greek Advanced Self Protection Integrated Suite (ASPIS). SAS generated $142 million of operating income compared to $127 million in the comparable quarter a year ago.

During the quarter, SAS booked $360 million for Phase II System Development and Demonstration (SSD) for the U.S. Air Force's Multi-Platform Radar Technology Insertion Program (MP-RTIP). SAS also booked $105 million on a number of classified contracts.

Also in the quarter, the U.S. Navy awarded the Boeing team, which includes Raytheon, a contract to build the Multi-mission Maritime Aircraft (MMA). The MMA program is expected to be added to bookings later in the year.

Technical Services

Technical Services (TS) second quarter 2004 net sales were $496 million, up 7 percent from $465 million in the second quarter 2003. TS reported an operating profit of $36 million in the second quarter of 2004 compared to $34 million in the comparable quarter a year ago.

During the quarter, TS booked $5 million for a 10-year, multiple award, indefinite-delivery indefinite-quantity contract with a potential value of $378 million to support the Fleet Technical Support Center Atlantic (FTSCLANT). Additionally, TS was selected for an indefinite-delivery indefinite-quantity contract with a potential value of $100 million by Naval Sea Systems Command (NAVSEA) to provide engineering and product support services as a SeaPort Enhanced prime contractor in each of the U.S. Navy's seven geographic regions.

Aircraft

RAC's second quarter 2004 net sales were $570 million, up 6 percent from $540 million in the second quarter 2003. RAC recorded an operating profit of $23 million in the quarter compared to $12 million in the comparable quarter in 2003. The Company now expects RAC to be profitable for 2004.

RAC delivered 75 commercial aircraft in the second quarter of 2004, compared to 67 in the same quarter last year.

During the quarter, RAC received an order from NetJets Inc. for 20 new Hawker 800XP mid-size business jets and 20 new Hawker 400XP light business jets. These aircraft will be delivered in the 2005 - 2007 timeframe and have an aggregate value totaling more than $300 million.

Other

Net sales for this segment in the second quarter 2004 were $153 million compared to $112 million in the second quarter 2003. The segment recorded an operating loss of $7 million in the second quarter 2004 compared to a loss of $5 million in the comparable quarter in 2003. The increase in sales this quarter is attributed to the consolidation of Flight Options in June 2003.

Discontinued Operations

During the quarter, the Company recorded an after-tax loss from discontinued operations of $14 million, related to its former engineering and construction and Aircraft Integration Systems businesses.

Raytheon Company , with 2003 sales of $18.1 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 78,000 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 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; an agreement in principle to settle a shareholder class action lawsuit pending in federal court in Massachusetts has not yet been approved by the court; the ultimate resolution of insurance coverage for the shareholder litigation; 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 outstanding letters of credit, surety bonds, guarantees and other similar agreements related to a number of contracts and leases of our former engineering and construction business unit. 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.

Conference Call on the Second Quarter 2004 Financial Results

Raytheon's financial results conference call will be Thursday, July 29, 2004 at 9 a.m. EDT. Participants will be William Swanson, Chairman and CEO, Edward Pliner, senior vice president and CFO, and other Company executives.

The dial-in number for the conference call will be (888) 396 - 2386. 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 2004



  (In millions except per share amounts)
                                     Three Months Ended   Six Months Ended
                                  27-Jun-04  29-Jun-03  27-Jun-04  29-Jun-03

  Net sales                           $4,929  $4,429    $9,605     $8,630

  Cost of sales                        4,105   3,570     8,089      7,050
  Administrative and selling
   expenses                              357     345       683        647
  Research and development expenses      127     131       242        237

  Total operating expenses             4,589   4,046     9,014      7,934

  Operating income                       340     383       591        696

  Interest expense                       109     135       226        278
  Interest income                        (10)    (11)      (22)       (23)
  Other expense (income), net            363      (8)      363         15

  Non-operating expense, net             462     116       567        270

  Income (loss) from continuing
   operations before taxes              (122)    267        24        426

  Federal and foreign income taxes       (28)     81        17        129

  Income (loss) from continuing
   operations                            (94)    186         7        297

  Loss from discontinued
   operations, net of tax                (14)    (86)      (28)      (102)

  Income (loss) before accounting
   change                               (108)    100       (21)       195

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

  Net income (loss)                    $(108)   $100       $20       $195

  Earnings (loss) per share from
   continuing operations
      Basic                           $(0.22)  $0.45     $0.02      $0.72
      Diluted                         $(0.22)  $0.45     $0.02      $0.72

  Loss per share from discontinued
   operations
      Basic                           $(0.03) $(0.21)   $(0.07)    $(0.25)
      Diluted                         $(0.03) $(0.21)   $(0.07)    $(0.25)

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

  Earnings (loss) per share
      Basic                           $(0.25)  $0.24     $0.05      $0.48
      Diluted                         $(0.25)  $0.24     $0.05      $0.47

  Average shares outstanding
      Basic                            434.6   411.6     426.6      410.1
      Diluted                          434.6   414.9     429.3      412.8




   Attachment B

   Raytheon Company
   Segment Information
   Second Quarter 2004


   (In millions)

                                                           Operating Income
                                                             As a Percent
                     Net Sales        Operating Income         of Sales
                  Three Months Ended  Three Months Ended  Three Months Ended
                 27-Jun-04 29-Jun-03 27-Jun-04 29-Jun-03 27-Jun-04 29-Jun-03

 Integrated Defense
  Systems             $870     $701    $104      $80      12.0%     11.4%
 Intelligence and
  Information Systems  553      525      51       46       9.2%      8.8%
 Missile Systems       939      833     106      104      11.3%     12.5%
 Network Centric
  Systems              780      716      66       20       8.5%      2.8%
 Space and Airborne
  Systems              985      886     142      127      14.4%     14.3%
 Technical Services    496      465      36       34       7.3%      7.3%
 Aircraft              570      540      23       12       4.0%      2.2%
 Other                 153      112      (7)      (5)     -4.6%     -4.5%
 FAS/CAS Pension
  Adjustment             -        -    (118)     (27)
 Corporate and
  Eliminations        (417)    (349)    (63)      (8)

 Total              $4,929   $4,429    $340     $383       6.9%      8.6%




                                                           Operating Income
                                                             As a Percent
                       Net Sales      Operating Income         of Sales
                   Six Months Ended    Six Months Ended    Six Months Ended
                 27-Jun-04 29-Jun-03 27-Jun-04 29-Jun-03 27-Jun-04 29-Jun-03
  Integrated
   Defense Systems  $1,709   $1,355    $198     $154      11.6%      11.4%
  Intelligence and
   Information
   Systems           1,047      987      96       87       9.2%       8.8%
  Missile Systems    1,904    1,690     213      205      11.2%      12.1%
  Network Centric
   Systems           1,500    1,487     121       82       8.1%       5.5%
  Space and Airborne
   Systems           1,998    1,780     271      231      13.6%      13.0%
  Technical Services   970      956      67       70       6.9%       7.3%
  Aircraft             944      901      (5)     (23)     -0.5%      -2.6%
  Other                328      152     (22)      (8)     -6.7%      -5.3%
  FAS/CAS Pension
   Adjustment            -        -    (239)     (55)
  Corporate and
   Eliminations       (795)    (678)   (109)     (47)

  Total              $9,605  $8,630    $591     $696       6.2%      8.1%




   Attachment C

   Raytheon Company
   Other Information
   Continuing Operations
   Second Quarter 2004

                                                               Funded
                                           Backlog             Backlog
                                        (In millions)       (In millions)
                                   27-Jun-04  31-Dec-03 27-Jun-04  31-Dec-03


  Integrated Defense Systems          $6,691     $6,526   $3,222     $3,318
  Intelligence and Information
   Systems                             3,833      3,899      930        655
  Missile Systems                      8,139      5,028    4,366      4,069
  Network Centric Systems              3,557      3,259    2,711      2,488
  Space and Airborne Systems           5,895      4,865    4,015      3,801
  Technical Services                   1,392      1,510      930        858
  Aircraft                             2,457      2,279    2,457      2,279
  Other                                  178        176      178        176

                                     $32,142    $27,542  $18,809    $17,644

  Government and Defense businesses  $29,507    $25,087  $16,174    $15,189

  U.S. government backlog included
   above                             $25,705    $21,353




                                                      Bookings
                                                    (In millions)
                                                  Three months ended
                                            27-Jun-04           29-Jun-03

  Government and Defense businesses            $4,976              $3,766
  Commercial businesses                         1,004                 517

                                               $5,980              $4,283


                                          New Aircraft Deliveries (Units)
                                                    Three Months Ended
                                             27-Jun-04           29-Jun-03

  Hawker                                           14                  13
  Premier I                                         9                   8
  Hawker 400XP                                      5                   7
  King Air                                         22                  21
  1900D Commuter                                    -                   1
  Pistons                                          25                  20
  T-6A                                             20                  17
     Total                                         95                  87




                                             New Aircraft Bookings (Units)
                                                    Three Months Ended
                                              27-Jun-04         29-Jun-03

  Hawker                                             36                12
  Premier I                                          10                 4
  Hawker 400XP                                       26                 6
  King Air                                           31                17
  1900D Commuter                                                        1
  Pistons                                            12                13
     Total                                          115                53




   Attachment D

   Raytheon Company
   Preliminary Financial Information
   Second Quarter 2004

  (In millions)

  Balance sheets
                                               27-Jun-04          31-Dec-03
  Assets
  Cash and cash equivalents                       $1,004               $661
  Short-term investments                              74                  -
  Accounts receivable                                424                485
  Contracts in process                             3,058              2,762
  Inventories                                      2,068              1,998
  Deferred federal and foreign income
   taxes                                             498                466
  Prepaid expenses and other current
   assets                                            214                154
  Assets from discontinued operations                 55                 59
    Total current assets                           7,395              6,585

  Property, plant and equipment, net               2,670              2,711
  Deferred federal and foreign income
   taxes                                             288                337
  Goodwill                                        11,480             11,479
  Other assets, net                                2,470              2,556
      Total assets                               $24,303            $23,668

  Liabilities and Stockholders' Equity
  Notes payable and current portion of
   long-term debt                                   $168                $15
  Advance payments, less contracts in
   process                                         1,364              1,038
  Accounts payable                                   814                833
  Accrued salaries and wages                         752                767
  Other accrued expenses                           1,521              1,153
  Liabilities from discontinued
   operations                                         64                 43
    Total current liabilities                      4,683              3,849

  Accrued retiree benefits and other
   long-term liabilities                           3,251              3,281
  Long-term debt                                   5,896              6,517
  Subordinated notes payable                         478                859
  Stockholders' equity                             9,995              9,162
      Total liabilities and
       stockholders' equity                      $24,303            $23,668




   Attachment E

   Raytheon Company
   Preliminary Cash Flow Information
   Second Quarter 2004

  (In millions)

  Cash flow information
                                                      Three Months Ended
                                               27-Jun-04          29-Jun-03

  Income from continuing operations                 $(94)              $186
  Depreciation                                        89                 78
  Amortization                                        19                 14
  Working capital                                    895                288
  Discontinued operations                            (25)              (116)
  Capital spending                                   (74)               (79)
  Internal use software spending                     (25)               (28)
  Other                                                8                190
        Subtotal - free cash flow (a)                793                533

  Net activity in financing receivables                2                 54
  Purchase of short-term investments                 (74)                 -
  Divestitures and sale of investments                 -                 40
  Dividends                                          (85)               (82)
  Issuance of common stock                           863                 18
  Debt repayments                                   (855)              (602)
  Other                                               20                 16
           Total cash flow                          $664               $(23)


  Segment free cash flow information
                                                       Three Months Ended
                                                27-Jun-04          29-Jun-03

  Integrated Defense Systems                        $322               $196
  Intelligence and Information Systems                69                 61
  Missile Systems                                    233                (60)
  Network Centric Systems                             56                 46
  Space and Airborne Systems                         222                131
  Technical Services                                  (3)                34
  Aircraft                                            12                 22
  Other                                              (91)               (18)
  Discontinued operations                            (25)              (116)
  Corporate                                           (2)               237
                                                    $793               $533


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



   Attachment F

   Raytheon Company
   Non-GAAP Financial Measures
   Second Quarter 2004

  (In millions except per share amounts) 

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 excluding the effect of charges related to the settlement of the class action lawsuit and the early retirement of debt.

(iii) Diluted earnings per share from continuing operations excluding the effect of charges related to the settlement of the class action lawsuit and the early retirement of debt.

The Company uses these non-GAAP financial measures to facilitate management's internal comparisons to the Company's historical operating results, to competitor's operating results, and to provide greater transparency to investors of supplemental information used by management in its financial and operational decision-making. The Company uses certain of these non-GAAP financial measures to evaluate its operating performance and to determine management incentive compensation. 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
                                                 27-Jun-04      29-Jun-03
  Operating cash flow                                 $892           $640

  Less: Capital spending                              (74)           (79)
  Internal use software spending                      (25)           (28)
   Free cash flow                                      793            533

  Less: Discontinued operations                       (25)          (116)
   Free cash flow from continuing operations          $818           $649


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

                                                    Three Months Ended
                                                  27-Jun-04      29-Jun-03

  GAAP income from continuing operations             $(94)           $186
  Excluding settlement of class action
  lawsuit charge                                     (329)              -
  Excluding early retirement of debt charge           (37)              -
  Non-GAAP income from continuing
   operations as adjusted                             $272           $186


  Diluted Earnings Per Share From Continuing Operations Excluding Charges
  Related to Class ActionLawsuit Settlement and Early Retirement of Debt

                                                     Three Months Ended
                                                  27-Jun-04      29-Jun-03

  GAAP diluted earnings per share
   from continuing operations                      $(0.22)          $0.45
  Excluding settlement of class action
   lawsuit charge                                   (0.51)              -
  Excluding early retirement
   of debt charge                                   (0.06)              -
  Non-GAAP diluted earnings
   per share from continuing
   operations as adjusted                            $0.35          $0.45

SOURCE Raytheon Company

Media: James Fetig, +1-781-522-5111, or Investor Relations: James Singer, +1-781-522-5136, both of Raytheon Company