MISSILE SYSTEMS ( MS), which reported sales of $3.5 billion in 2003, continued its leading position as a devel- oper and supplier of innovative weapon systems and built on its core strengths to grow its business to support the evolving needs of its customers. 33 Performance was highlighted by the successful use of those weapon systems in combat by U.S. and allied forces in Operation Iraqi Freedom. Raytheon’s precision-guided weapons gave war fighters pinpoint accuracy and reduced collateral damage. Paveway laser-guided bombs and Tomahawk cruise missiles were key systems used during the conflict. 33 To meet customer needs, the company tripled production of Paveway II from 2002 to 2003, and earned a $174 million production contract. Raytheon also accel- erated efforts to recertify and remanufacture Tomahawks to incorpo- rate system upgrades. Missile Systems continued to mature key programs in development to meet evolving battlefield requirements. 33 The new Tactical Tomahawk proved its capabilities in a number of significant flight tests during 2003 and earned a $224 million initial production contract. The weapon is expected to become operational in 2004. Tactical Tomahawk incorporates innovative technologies and provides growth and advanced capabilities to the Navy, and the opportunity for stable business for Raytheon. 33 The Evolved Sea Sparrow Missile, an advanced ship self-defense missile developed for the U.S. and NATO allies, was successfully fired from ships of the navies of the U.S., Australia and the Netherlands and completed Navy testing and evaluation, paving the way for full-rate production in 2004. AIM-9X, the next generation Sidewinder air-to-air missile, is now operationally fielded after a highly successful flight test. 3 33 As part of the company’s overall strategy to meet the needs of its international customers, Missile Systems earned contract awards in two key programs in 2003. The United Kingdom and New Zealand selected the Javelin™ anti-tank weapon system to meet their medium- range anti-armor needs. Missile Systems also provided technical support to Raytheon Systems Limited, which was selected to pro- vide an upgraded Paveway designated as Paveway IV, to meet the Royal Air Force’s precision-guided bomb needs, opening up new markets internationally and in the U.S. 33 In the growing area of mis- sile defense, Raytheon was part of a team awarded the Kinetic Energy Interceptor (KEI), a $4 billion contract to the team, from the Missile Defense Agency. KEI will provide the U.S. with the ability to destroy hostile missiles during the vulnerable boost phase of flight. 33 Earlier in the year, the company secured an $881 million contract for engineering and manufacturing to continue development and begin deployment of the STANDARD Missile-3 as part of the Missile Defense Agency’s sea-based Aegis Ballistic Missile Defense System. In addition, Raytheon delivered the first deployment version of the Exoatmospheric Kill Vehicle (EKV), which will be tested as part  of the Ground-based Missile Defense system in 2004, and won a $177 million contract to build 15 additional EKVs. 33 Based on the previous year’s investments, Missile Systems secured nearly $190 million of leading-edge technology programs to deliver impor- tant new capabilities, one of which is the U.S. Air Force’s Miniature Air Launched Decoy. 33 The breadth of the Missile Systems portfolio continues to position the company to respond to the evolving needs of its customers with innovative, cost effective solutions. Scheduled for fleet introduction in 2004, the Tactical Tomahawk will have the capability to respond to changing battlefield conditions through the use of its loiter and mission flex features. The navigation and power source of the self-guided Tactical Tomahawk are shown in the wireframe of this image. MISSILE SYSTEMS 333 777 P 10 LOUISE  FRANCESCONI President