Raytheon 2005 Annual Report Download - page 53

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Raytheon Company and its subsidiaries (Raytheon or 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 its core defense markets: radars and radio-frequency systems; infrared
and electro-optical sensors and systems; missiles and precision weapons; and command, control, communications,
computer and intelligence systems. In all of these markets, the Company provides full life-cycle services to its customers,
including product design, delivery, and mission support.
Raytheon Aircraft Company (RAC or 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.
The Company operates in seven principal business segments: Integrated Defense Systems (IDS); Intelligence and
Information Systems (IIS); Missile Systems (MS); Network Centric Systems (NCS); Space and Airborne Systems (SAS);
Technical Services (RTSC); and Aircraft. For a more detailed description of the segments, see “Business Segments” within
Item 1 of this Form 10-K.
Defense Industry Considerations
The global War on Terrorism, Operation Enduring Freedom and Operation Iraqi Freedom have altered the defense and
security environment of the United States and have had, and for the foreseeable future are likely to continue to have, a
significant impact on the markets for defense and advanced technology systems and products. The U.S. Department of
Defense (the “DoD”) continues to focus on both supporting ongoing operations in Afghanistan and Iraq and
transforming the U.S. military to confront future threats. In addition, the Office of Homeland Security and other
government agencies continue to focus on enhancing the security of our homeland. To further these priorities, the
Company’s defense customers have been focusing on the development of the following defense capabilities: speed,
precision, flexibility, and the ability to share knowledge and information. With these capabilities, forces should be better
able to seize and sustain initiative, concentrate combat power, and prevent an enemy response. The development and
integration of advanced technologies and defense electronics is critical to this new approach.
Overall U.S. defense spending has increased in recent years in connection with the foregoing changes, and the
congressionally mandated Quadrennial Defense Review (QDR) released by the DoD in February 2006 indicates
continued support of the changes. The QDR recommends certain changes to force structure, particularly with respect to
special operations forces, relating to the global War on Terrorism and the insurgency in Iraq. However, at the same time,
the QDR also largely maintains the DoD’s transformation initiatives that the Company has supported over the last several
years. Specifically, the QDR sets forth the following transformation priorities for which the Company is a key contributor:
ⳮContinued broad emphasis on net-centricity, with the Company’s Distributed Common Ground System at its core;
ⳮContinued development of the U.S. Army’s Future Combat Systems, which the Company supports through its
Ground Sensor Integrator, Battle Command Management and Execution, and Non-Line-of-Sight Launch System
efforts;
ⳮContinued production of DD(X), the U.S. Navy’s next generation surface combatant, for which the Company is the
prime system integrator; and
ⳮAcceleration of the deployment of Global Hawk and Predator unmanned aerial vehicles, both of which carry
Company payloads and systems.
The President’s fiscal year 2007 budget and Future Years Defense Plan (“FYDP”), which projects defense costs for the
next five years, are generally consistent with the QDR’s recommendations. Within the DoD budget, the Research,
Development, Test and Evaluation budget and the Procurement budget, collectively known as the investment accounts,
are a key source of funding for the Company’s programs. These investment accounts show continued growth throughout
the FYDP. The Company also receives substantial revenue from the DoD Operations and Maintenance accounts, which
are also expected to continue to grow, and from the supplemental funds required to support ongoing operations.
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