Raytheon’s 2003 Annual Report tells the story of a company that is well positioned in defense, that has re-baselined its business aircraft operations to reflect difficult market conditions, 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.

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.

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.

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 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.

Including the impact of discontinued operations, the company’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.

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 program and general management — and in almost all levels of leadership. 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.

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 communication, in person when possible, electronically when not. I try to read all of my emails within 24 hours. Ideally, I like to have a clean email screen before I go to sleep each night.

A CUSTOMER-FOCUSED COMPANY    Given all this, what kind of company do I believe Raytheon is today? The answer is: Raytheon today is a company committed to customer success. We believe that if you help the customer succeed, you will create the right conditions to meet the needs of all your constituents. We believe that customer focus creates customer success, that customer success drives growth and that growth creates shareholder value. So, we believe that a customer focus creates shareholder value.

In our view, a customer-focused company has three pillars: performance, relationships and solutions.

PERFORMANCE    Performance is really as simple as “promises made and promises kept.” It’s taking one’s commitments seriously; when we make them, we must fulfill them. During the year, our customers and partners showed confidence in us in many ways. We received awards for a ship-based radar for ballistic missile defense from the U.S. Navy; a next generation U.S. Air Force Distributed Common Ground System, the backbone of current and future intelligence and information systems; a U.S. Missile Defense Agency Kinetic Energy Interceptor to target hostile missiles in the boost phase; a role as Ground Sensor Integrator for U.S. Army Future Combat Systems; continued modernization of the radar on the Air Force B-2 bomber; technical services for NASA; and 50 Hawker 400XP light jets and eight Hawker 800XP mid-size jets – from NetJets® Inc.

RELATIONSHIPS    Relationships are built on trust. Our customers depend on us. One of the most emotional examples of this personal bond is what it feels like to correspond with someone deployed in harm’s way. Those who have had this experience know that it can be wrenching to receive an email from someone stationed in a high-risk area while you’re sitting at a computer screen in the safety of your office. You think long and hard before you compose your response. Before I press the "send" button, I always ask myself: Have I listened? Have I helped? Have we done everything we can?

Listening. We are a company that listens; we’re getting better and better at listening, but we need to get better still. Building positive relationships with our customers begins with listening – and trust. Integrity is something that only succeeds when it’s embedded in the culture. We ask the members of the Raytheon team to treat the company’s name as if it were their own. We ask the leaders of the team to create and maintain an environment in which people are encouraged to step forward so that we can address issues early. Everything we do must begin with integrity.

SOLUTIONS    We must develop and provide superior customer solutions, working as one company. We’re a technology company at our core. We plan to drive Raytheon technology as a key differentiator. You will see many examples of the company’s technology solutions in this Annual Report.

As we build on our strength in technology, we must also align our capabilities with the needs of our customers. I believe we have done so. We saw that alignment in Afghanistan and in Operation Iraqi Freedom. Our individual businesses work hard at this. We also have four Strategic Business Areas — Missile Defense; Precision Engagement; Intelligence, Surveillance and Reconnaissance; and Homeland Security — that are designed to facilitate customer solutions that cross our businesses and may even extend beyond our company.

We understand that to succeed internationally, we must be sensitive to the unique needs of each of our customers — whether for Airborne Stand-off Radar systems and Paveway IV precision- guided bombs in the U.K.; combat control systems for Australian submarines; or solutions to meet evolving defense needs in Japan.

RAYTHEON'S VALUES   We are a company based on values: People, Integrity, Commitment, Excellence. We’ve talked about the last three. Now for the first: valuing people. That can sound nebulous; after all, who doesn’t value people? But at Raytheon, it has specific meaning. It means treating people with respect and dignity, welcoming diversity and diverse opinions, helping our teammates improve their skills, recognizing and rewarding accomplishment and fostering teamwork and collaboration.

To me, valuing people starts with a healthy and safe work environment. Since 1998, the company has reduced employee injuries by 78 percent. Now that Raytheon has reduced its injury rate to a level that many consider to be “world class,” we are challenging the team to prevent every injury. The goal must be an injury-free workplace, because anything else is unacceptable.

I do have a passion for our customers, this company and its people. I believe that if we help our customers succeed, our employees, partners and stockholders will share in our success. I also believe that if we stay focused on what matters, our company will be on a path to greatness.

For all of the reasons above — and as illustrated in the pages that follow — at Raytheon, Customer Success Is Our Mission.

Sincerely,

William H. Swanson
Chairman and CEO

February 18, 2004

Be the most admired defense and aerospace systems supplier through world-class people and technology.

Achieve above-market growth in our four Strategic Business Areas: Missile Defense; Precision Engagement; Intelligence, Surveillance and Reconnaissance; and Homeland Security.

Restore Raytheon Aircraft to preeminence in aviation, showcasing the Beechcraft® and Hawker® brands.

Be a Customer-Focused Company based on Performance, Relationships and Solutions.

Meet our commitments to our Customers, partners and each other, driving Customer Success.

Build positive, solid relationships with our Customers, partners and each other. Listen, anticipate, respond, follow-through.

Develop and provide superior Customer solutions, working as One Company.

On behalf of the Board of Directors and the employees of Raytheon, I want to offer a special “thank you” to my predecessor, Dan Burnham, who stepped down as CEO on July 1, 2003, and retired as Chairman on January 28, 2004. Dan led the transformation of the company, helped give us financial flexibility, sharpened our focus and made sure we had a defense portfolio second to none. He launched and embedded Raytheon Six Sigma, introduced contemporary HR practices and managed a smooth leadership succession. His trust, friendship and confidence have been, and will continue to be, very important to me. On behalf of all of his friends at Raytheon, I wish Dan and his wife, Meg, all the very best as they embark on their wonderful, chosen path together.

BILL SWANSON