Raytheon 2007 Annual Report Download - page 60

The share of funding devoted to the modernization accounts, primarily procurement, within these emergency
supplemental appropriations has steadily grown. Of the President’s $189 billion request for FY 2008 emergency funding,
40% is for modernization, which is $26 billion, or 52% more than the FY 2007 level. This growth is fueled by a greater
need for force protection of the warfighter as well as the growing need to replace or extensively refurbish equipment
which is wearing down due to operations in Afghanistan and Iraq.
Looking forward, the DoD budget will be affected by several factors, including the following:
ⳮExternal threats to our national security, including potential security threats posed by extremist Islamic terrorism and
countries such as Iran, North Korea, or a politically unstable Pakistan.
ⳮFunding for on-going operations in Iraq and, to a lesser extent, Afghanistan, which will require funding above and
beyond the DoD base budget for their duration.
ⳮFuture priorities of the next Administration which could result in significant changes in the DoD budget overall and
how much within that budget is devoted to recapitalization, modernization and other DoD funding priorities
beginning with the FY 2010 budget.
ⳮThe overall health of the U.S. and world economies and the U.S. government’s finances.
Based on the enacted and proposed levels of funding for DoD for FY 2008 and FY 2009, we expect continued defense
spending growth in the near-term. However, projected defense spending becomes increasingly uncertain beyond that
period due to numerous factors, including those noted above. For more information on the risks and uncertainties that
could impact the U.S. government’s demand for our products and services, see Item 1A “Risk Factors” of this Form 10-K.
International Considerations
Internationally, the growing threat of additional terrorist activity, emerging nuclear states and conventional military
threats have led to an increase in demand for defense products and services and homeland security solutions. We
currently anticipate that international defense budgets will grow slightly faster than domestic budgets. International
customers are expected to also continue to adopt similar defense transformation initiatives as the DoD’s initiatives. We
believe that this trend will continue because many international customers are facing the same threat environment
changes as the United States and they wish to assure that their forces and systems will be interoperable with U.S. and
NATO forces. Certain countries have increased their defense budgets due to strong regional or local economic growth
which may allow them to simultaneously undertake domestic infrastructure, defense and homeland security projects.
However, international demand is sensitive to changes in the priorities and budgets of international customers, which
may be driven by potentially volatile regional and local economic and political factors, as well as U.S. foreign policy. For
more information on the risks and uncertainties that could impact international demand for our products and services,
see Item 1A “Risk Factors” of this Form 10-K.
Our Strategy and Opportunities
The following are the key elements of our strategy:
ⳮFocus on key strategic pursuits, technology and mission assurance to protect and grow our position in our four core
defense markets, Sensing, Effects, C3I and Mission Support.
ⳮLeverage our domain knowledge in these core defense markets, as well as in Mission Systems Integration, Homeland
Security, and Information Assurance/Information Operations.
ⳮExpand our international business by increasing defense sales and seeking adjacent opportunities.
ⳮBe a Customer-focused company based on performance, relationships, and solutions.
Our Core Defense Markets
We believe that our technologies, domain knowledge and key capabilities and their alignment with customer needs in our
core defense markets position us favorably to continue to grow and increase our market share. Our core markets also
serve as a solid base from which to expand into adjacent and emerging markets, such as in Mission Systems Integration,
Homeland Security, and Information Assurance/Information Operations. We continually explore opportunities to use
our existing capabilities or develop or acquire additional ones to expand into closely adjacent markets.
ⳮSensing—We are focused on expanding beyond traditional RF (radio frequency)/EO (electro-optical) systems and
into adjacent markets such as hyperspectral, acoustic and ultraviolet systems and sensors to detect Weapons of Mass
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