GOALS FOR 2004 333 Customer Growth People Productivity WILLIAM H. SWANSON Chairman and CEO DEAR FELLOW  SHAREHOLDERS 333 Raytheon’s 2003 Annual Report tells the story of a company that is well positioned in defense, that has re-base- lined its business aircraft operations to reflect difficult market con- ditions, that has enjoyed exceptional cash flow performance and that has put many of its issues behind it. While the company still has work to do, I believe we are focused on the right things and on the right path going forward.  33 STRONG GOVERNMENT AND DEFENSE BOOKINGS AND BACKLOG Government and Defense bookings for the year were $20 billion, up from $14.9  billion in 2002, pushing year-end 2003 Government and Defense backlog to a record $25 billion, an increase of $4 billion over  the prior year. This strong bookings and backlog performance  is a direct result, I believe, of our focus on our  customers .  33 Government and Defense sales, which constitute the lion’s share of total company sales, increased 7 percent compared with the prior year, after the elimination of intercompany sales. The increase was led by Integrated Defense Systems, Missile Systems and Space and Airborne Systems. Total company net sales in 2003 were $18.1 billion, up from $16.8 billion in 2002.  33 Income from continuing operations was $535 million or $1.29 per diluted share in 2003 compared with $756 million or $1.85 per diluted share in 2002. Income from continuing operations in 2003 was negatively 3 affected by Network Centric Systems and Raytheon Technical Services Company, and by increased non-cash pension expense.  It was positively affected by strong operating performance  in a number of our other Government and Defense businesses.  33 Including the impact of discontinued operations, the com- pany’s net income in 2003 was $0.88 per diluted share compared with a net loss of $1.57 per diluted share in the prior year.  33 TAKING THE PULSE OF THE COMPANY My career with Raytheon began in 1972. It has been my privilege to work since then as an engineer on the shop floor, in materials, manufacturing, fabrication and quality, in systems integration and planning, in pro- gram and general management — and in almost all levels of leader- ship. These experiences have left me with a love for this company, its people and its customers — and a strong sense of stewardship on behalf of our shareholders. 33 While metrics are extremely important in leading a team of 78,000 people, one also needs to have a feel of the  pulse of the company. I hold a view that you remember a third of what you read, half of what you hear, but 100 percent of what you  feel . That feeling for the pulse of the company is very important. For this reason, I value one-on-one communica- tion, in person when possible, electronically when not. I try to read all of my e-mails within 24 hours. Ideally, I like to have a clean e-mail