RAYTHEON COMPANY 333 Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) 3333333333333 Funded backlog excludes U.S. and foreign government con- tracts for which funding has not been appropriated. of commuter aircraft and reduced the book value of commuter air- craft inventory and equipment leased to others accordingly. In addi- tion, the Company adjusted the book value of notes receivable and established a reserve for off balance sheet receivables where there was recourse to the Company based on the Company’s estimate of exposures on customer financed assets due to defaults, refi- nancing, and remarketing of these aircraft. Immediately prior to the charge, the Company had exposure on approximately $1,600 mil- lion of commuter-related assets consisting of 511 aircraft including financing receivables, inventory, and leases. At December 31, 2003 and 2002, the Company’s exposure on commuter-related assets was approximately $650 million consisting of 349 aircraft and approximately $800 million consisting of 433 aircraft, respec- tively. Commuter aircraft customers are generally thinly capitalized companies that are dependent on the commuter aircraft industry. A downturn in this industry could have a material adverse effect on these customers and the Company. The increase in backlog in 2003 was due to strong bookings across the defense businesses, particularly several large con- tract awards at Integrated Defense Systems and Missile Systems. In 2003, the Company reduced its reported Aircraft backlog by $834 million related to an order received from Flight Options as a result of Flight Options being consolidated with the Company in the second quarter of 2003 as described below in Major Affiliated Entities. In addition, an Aircraft customer can- celed its order for 50 Hawker Horizon aircraft resulting in an $895 million backlog reduction.  The Company also recorded a $52 million charge related to a fleet of Starship aircraft in 2001. During the first three quarters of 2001, the Company had not sold any of these aircraft and recorded a charge to reduce the value of the aircraft to their esti- mated fair value.  In 2002, the Company bought back the remaining off balance sheet receivables, described below in Financial Condition and Liquidity. In connection with the buyback of the off balance sheet receivables, the Company recorded the long-term receivables at estimated fair value, which included an assessment of the value of the underlying aircraft. As a result of this assessment, the Company adjusted the value of certain underlying aircraft, including both commuter and Starship aircraft, some of which were written down to scrap value. There was no net income statement impact as a result of this activity. In 2000, the Company sold its Raytheon Engineers & Constructors businesses (RE&C) to Washington Group International, Inc. (WGI). In May 2001, WGI filed for bankruptcy protection. As a result of the sale and the WGI bankruptcy, the Company was required to perform various contract and lease obligations in con- nection with a number of different projects under letters of credit, surety bonds, and guarantees (Support Agreements) that it had provided to project owners and other parties. Among the projects involved were two construction projects, the Mystic Station facility in Everett and the Fore River facility in Weymouth (the “Massachusetts Projects”). Following WGI’s aban- donment of these projects in 2001, the Company undertook con- struction efforts on these projects, subsequently delivered care, custody, and control of these projects to their owners, and, as of December 31, 2003, was continuing to perform work on these projects. On February 23, 2004, the Company closed on a settle- ment agreement with the project owners and other interested par- ties. The settlement included, among other things, a payment to the Company of approximately $30 million, the return to the Company of approximately $73 million in letters of credit the Company had provided to the project owners, and a release of various claims related to these projects. In addition, under the settlement, the Company remained responsible for all subcontractor and vendor 333 DISCONTINUED OPERATIONS Gross Bookings (In millions) 2003 2002 2001 Integrated Defense Systems $ 4,344 $ 2,987 $ 2,558 Intelligence and Information Systems 2,371 2,478 1,957 Missile Systems 5,117 3,110 3,236 Network Centric Systems 3,118 2,582 2,534 Space and Airborne Systems 3,619 2,372 2,471 Technical Services 1,398 1,339 1,250 Aircraft 2,207 2,953 2,783 Other  519 99 228 Total  $22,693 $17,920 $17,017 Backlog at December 31  (In millions) 2003 2002 2001 Integrated Defense Systems $ 6,526 $ 5,011 $ 4,400 Intelligence and Information Systems 3,899 3,540 3,052 Missile Systems 5,028 3,509 3,437 Network Centric Systems 3,259 2,853 3,208 Space and Airborne Systems 4,865 4,523 5,075 Technical Services 1,510 1,603 1,958 Aircraft 2,279 4,396 4,114 Other  176 231 361 Total  $27,542 $25,666 $25,605 Funded backlog included above $17,532 $17,062 $17,057 U.S. government backlog included above $21,353 $18,254 $16,943