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Raytheon Company reported third quarter 2004 income from continuing operations of $186 million or $0.41 per diluted share compared to $21 million or $0.05 per diluted share in the third quarter 2003. The third quarter 2003 included charges of $226 million or $0.38 per diluted share at Network Centric Systems (NCS) and Technical Services (TS). Non-cash pension expense (FAS/CAS Pension Adjustment) negatively affected the third quarter 2004 by $0.13 per diluted share on a year-over-year basis. Third quarter 2004 net income was $152 million or $0.34 per diluted share compared to a net loss of $35 million or $0.08 per diluted share in 2003. Net income for the third quarter of 2004 also included a $34 million after-tax loss in discontinued operations or $0.07 per diluted share, primarily attributable to a foreign tax related matter, versus $56 million or $0.13 per diluted share in 2003. Net sales for the third quarter 2004 were $4.9 billion, up 13 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 12 percent to $4.1 billion from $3.7 billion in the comparable quarter. Sales in the third quarter 2003 included a $212 million reduction resulting from the 2003 NCS and TS charges. Excluding the effect of the 2003 charges, 2004 sales increased over 2003 for the Company by 8 percent and for Government and Defense by 6 percent. Free cash flow from continuing operations for the third quarter was $220 million. Excluding the impact of the shareholder lawsuit settlement payment of $210 million, free cash flow from continuing operations for the quarter was $430 million versus $535 million for the comparable period in 2003. Year-to- date cash flow from continuing operations remains ahead of prior year. Discontinued operations consumed $16 million of cash in the third quarter 2004 versus $64 million in the comparable period in 2003. Free cash flow is defined as operating cash flow less capital spending and internal use software spending. The Government and Defense businesses recorded third quarter bookings of $4.8 billion compared to bookings of $4.1 billion in the third quarter of 2003. Government and Defense backlog reached a record $30.1 billion at the end of the third quarter 2004. Raytheon Aircraft Company's third quarter bookings were $704 million compared to $383 million in 2003. "I am very pleased that Raytheon continues to deliver positive results," said William H. Swanson, Raytheon Chairman and CEO. "Our program execution and strong customer focus are driving the Company's performance." During the third quarter of 2004, the Company retired debt with a par value of $137 million, bringing the total debt reduction year-to-date to $1.0 billion. Subsequent to the end of the quarter, the Company initiated the retirement of an additional $1.2 billion of debt, bringing the total expected debt retirement for the year to $2.3 billion. The Company expects to take a charge in the fourth quarter of $90 million or $0.13 per diluted share associated with this debt retirement. Net debt was $5.3 billion at the end of the third quarter compared with $6.7 billion at the end of 2003. Net debt is defined as total debt less cash and short-term investments. Change in Outlook The Company now expects 2004 earnings per share from continuing operations of $0.87 - $0.92, higher than its prior guidance of $0.79 - $0.89, as a result of improvements at RAC and at the Government and Defense businesses. The higher guidance includes income of $0.10 per diluted share as a result of legislation that extended the foreign tax credit from five to 10 years and the loss of $0.12 per diluted share from the early retirement of debt, net of interest savings. The Company now expects full year free cash flow to exceed $1.1 billion. Earnings per share from continuing operations in 2005 are expected to be $1.80-$1.90. This earnings guidance does not reflect any change in our previously disclosed pension assumptions. The Company expects net sales for 2005 of $21.5 - $22.0 billion. Government and Defense net sales for 2005 are expected to be $18.0 - $18.5 billion (after the elimination of intercompany sales). RAC net sales for 2005 are expected to be $2.6 - $2.8 billion. The Company expects 2005 free cash flow of $1.1 - $1.3 billion. Charts containing the Company's guidance are available on the Company's website. Segment Results Integrated Defense Systems Integrated Defense Systems (IDS) third quarter 2004 net sales were $833 million, up 16 percent compared to $718 million in the third quarter 2003, due primarily to continued growth in DD(X), the Navy's future destroyer program, Integrated Air Defense programs, and Cobra Judy. IDS generated $100 million of third quarter 2004 operating income compared to $82 million in the 2003 comparable quarter. During the quarter, IDS booked $207 million for the definitization of the Cobra Judy contract awarded in the fourth quarter of 2003, bringing the total booked to approximately $1 billion. IDS also booked $99 million for the definitization of the JLENS Spiral 2 Development contract awarded in the fourth quarter of 2003, bringing the total booked to $770 million. Intelligence and Information Systems Intelligence and Information Systems (IIS) third quarter 2004 net sales were $567 million, up 6 percent compared to $533 million in the third quarter 2003. IIS reported $51 million of operating income compared to $54 million in the comparable quarter a year ago. During the quarter, IIS booked $80 million for the Air Force's Contractor Field Service Worldwide Support contract to provide field support for various sensors and data links on an Intelligence, Surveillance, and Reconnaissance (ISR) system. This contract has a value of up to $1.45 billion for the life of the program. IIS also booked $345 million in classified contracts. Missile Systems Missile Systems (MS) third quarter 2004 net sales were $928 million compared to $905 million in the third quarter 2003. MS generated $109 million of operating income compared to $111 million in the comparable quarter a year ago. During the quarter, MS booked $411 million to develop and produce the new Standard Missile-6 Extended Range Active Missile for the U.S. Navy. The U.S. Navy also awarded MS a $287 million contract for the next-generation Block IV Tomahawk cruise missile. MS received a contract worth approximately $144 million for AMRAAM production and logistics support from the United Kingdom Ministry of Defense. Network Centric Systems Network Centric Systems (NCS) third quarter 2004 net sales were $777 million compared to $556 million in the third quarter 2003. NCS recorded operating income of $65 million compared to an operating loss of $138 million in the comparable quarter a year ago. Last year's third quarter included charges resulting in a reduction in sales and operating income of $178 million and $187 million, respectively, related to performance issues on certain NCS programs. During the quarter, NCS booked an additional $212 million for its role as the Ground Sensor Integrator (GSI) on the Future Combat Systems (FCS) contract as well as being selected to develop three sensors awarded to date by the GSI contract. Additionally, the United Kingdom Ministry of Defence awarded a $17 million contract to conduct the assessment phase of the British Army's Joint Effects Tactical Targeting System (JETTS) digitization requirement. The follow on manufacture phase could exceed $500 million. Space and Airborne Systems Space and Airborne Systems (SAS) third quarter 2004 net sales were $929 million compared to $930 million in the third quarter 2003. SAS generated $138 million of operating income compared to $131 million in the comparable quarter a year ago, an increase due to international programs. During the quarter, SAS booked $195 million for the fourth phase of a multi-year Radar Modernization Program (RMP) to retrofit the B-2 bomber fleet with a new Active Electronically Scanned Array (AESA) antenna. SAS also booked $120 million on a number of classified contracts. After the quarter close, the Company announced that it had acquired Photon Research Associates Inc. (PRA), based in San Diego, California. PRA is a pioneer in the development and application of physics-based modeling, simulation and analysis products and services for the government market. The major focus of its business operations has been in the areas of remote sensing, missile defense, surveillance/reconnaissance, and intelligence data analysis. Technical Services Technical Services (TS) third quarter 2004 net sales were $512 million compared to $447 million in the third quarter 2003. TS reported operating income of $38 million in the third quarter of 2004 compared to an operating loss of $2 million in the comparable quarter a year ago. Last year's third quarter included charges resulting in a reduction in sales and operating income of $34 million and $39 million, respectively. During the quarter, the National Science Foundation's Office of Polar Programs exercised its five year option on the U.S. Antarctic Program, awarding TS a $546 million contract extension that runs from April 2005 through March 2010. Aircraft Raytheon Aircraft Company's (RAC) third quarter 2004 net sales were $624 million, up 33 percent from $470 million in the third quarter 2003. RAC recorded operating income of $21 million in the quarter compared to an operating loss of $4 million in the comparable quarter in 2003. RAC delivered 83 commercial aircraft in the third quarter of 2004, compared to 61 in the same quarter last year. Other Net sales for this segment in the third quarter 2004 were $164 million compared to $191 million in the third quarter 2003. The segment recorded an operating loss of $7 million in the third quarter 2004 compared to an operating loss of $5 million in the comparable quarter in 2003. Discontinued Operations During the quarter, the Company recorded an after-tax loss from discontinued operations of $34 million, related to its former engineering and construction and Aircraft Integration Systems businesses. The Company recorded a $24 million charge in the quarter for a foreign tax related item. 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. Conference Call on the Third Quarter 2004 Financial Results Raytheon's financial results conference call will be Thursday, October 28, 2004 at 9 a.m. EDT. Participants will be William H. 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 (800) 265-0241. The conference call will also be audiocast on the Internet at 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.