RAYTHEON COMPANY 333 P19 333 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL 3333333333 CONDITION AND RESULTS OF OPERATIONS 333 OVERVIEW Raytheon Company (the “Company”) is one of the largest defense electronics contractors in the world, serving all branches of the U.S. military and other U.S. government agencies, NATO, and many allied governments. The Company is a leader in defense electron- ics, including missiles; radar; sensors and electro-optics; intelli- gence, surveillance, and reconnaissance (ISR); command, control, communication, and information systems; naval systems; air traffic control systems; and technical services. The Company’s defense businesses are well positioned to capitalize on emerging opportu- nities in missile defense; precision engagement; intelligence, sur- veillance, and reconnaissance; and homeland security. Due to the multi-year defense spending cycle, recent increased budget authorizations in these areas are expected to favorably impact the Company’s defense businesses over the next several years.  Raytheon Aircraft is a leading provider of business and special mission aircraft and delivers a broad line of jet, turboprop, and piston-powered airplanes to individual, corporate, and government customers worldwide.  DEFENSE INDUSTRY CONSIDERATIONS Recent events, including the global War on Terrorism, Operation Enduring Freedom, and Operation Iraqi Freedom, have altered the defense and security environment of the United States. These events have had, and for the foreseeable future are likely to continue to have, a significant impact on the markets for defense and advanced tech- nology systems and products. The U.S. Department of Defense continues to focus on both supporting ongoing operations and transforming our military to confront future threats. Our customers plan to operate in a new paradigm. They define an approach that emphasizes speed, precision, and flexibility, by sharing superior knowledge, enabling forces to seize and sustain initiative, concen- trate combat power, and prevent an enemy response. In this new environment, the need for advanced technology and defense elec- tronics is clear. The recent growth in military expenditures is driven by the  multi-pronged approach required to fight the War on Terrorism, replenish war materials consumed during continued operations in Afghanistan and Iraq, and sustain the momentum in pursuit of transformation.  The Company’s strategy is designed to capitalize on the breadth and depth of the Company’s technology and extensive domain expertise in order to meet the evolving needs of the Company’s customers. The Company is focusing on the following Strategic Business Areas, which are aligned with the ongoing military opera- tions and Department of Defense transformation goals: MISSILE DEFENSE The Company provides an extensive array  of technologies and is a major partner in missile defense. The Company is committed to helping the U.S. Missile Defense Agency, the organization responsible for developing an operational Ballistic Missile Defense System achieve its objectives. The President’s commitment to have a U.S. missile defense system operational by 2004 is reinforced by the increase in emphasis and funding in the latest budgets. The Company’s broad array of tech- nologies covers all three phases of the missile defense system — boost, midcourse, and terminal defense — and includes Standard Missile-3, Space Tracking and Surveillance System, Cobra Judy, Exo-Atmospheric Kill Vehicle, Early Warning Radar, Sea-Based X-Band Radar, High Power Discriminator, Terminal High-Altitude Area Defense, and Patriot. PRECISION ENGAGEMENT The Company provides mission solu- tions across the entire precision engagement chain. The Company’s customers are increasingly looking for mission solu- tions that address the need to operate jointly (across services and between allied forces), work in a new net-centric paradigm, mini- mize collateral damage, and strike time sensitive targets. The Company’s precision engagement systems include: U-2 sensor suite, F-15 and F/A-18 Active Electronically Scanned Array radars, Advanced Medium Range Air-to-Air Missile, Situation Awareness Data Link, NetFires, Joint Standoff Weapon, Paveway, Tactical Tomahawk, F/A-18 Radar Warning Receiver, High Power Micro- wave, and High Energy Lasers. INTELLIGENCE, SURVEILLANCE AND RECONNAISSANCE The Company’s innovative sensing, processing, and dissemination technologies effectively compress the information gap from hours to minutes. The Company provides integrated systems solutions for observing, locating, processing, deciding, and disseminating actionable information, enabling network-centric operations for decision makers. These abilities are crucial for war fighters to achieve information dominance throughout the entire battlespace. The Company’s key ISR programs include: Global Hawk sensor suite, E-10A Battle Management Command and Control, Space Based Radar, National Polar-orbiting Operational Environmental Satellite Systems, Future Combat Systems, DD(X), and numerous classified programs. HOMELAND SECURITY In the area of Homeland Security, the Company has skills, experience, and technology in areas such as airport security; command, control, and communication; and the integration and fusion of sensory inputs for real-time decision sup- port. This is still a new market with significant uncertainty and the ultimate customers and available funding have yet to be determined. 33 Missile Defense 33 Precision Engagement 33 Intelligence, Surveillance and Reconnaissance 33 Homeland Security