Raytheon 2012 Annual Report Download - page 37

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Management's Discussion and Analysis (MD&A) of Financial Condition and Results of Operations are outlined below:
MD&A Topic Page
OVERVIEW
Introduction
Raytheon Company develops technologically advanced, integrated products, services and solutions in four core defense
markets: sensing; effects; command, control, communications and intelligence (C3I); and mission support, as well as other
important markets, such as cybersecurity. We serve both domestic and international customers, as both a prime contractor and
subcontractor on a broad portfolio of defense and related programs for primarily government customers.
We operate in six business segments: Integrated Defense Systems (IDS); Intelligence and Information Systems (IIS); Missile
Systems (MS); Network Centric Systems (NCS); Space and Airborne Systems (SAS); and Technical Services (TS). For a
more detailed description of our segments, see “Business Segments” within Item 1 of this Form 10-K.
In this section, we discuss our industry and how certain factors may affect our business, key elements of our strategy, and
how our financial performance is assessed and measured by management. Next, we discuss our critical accounting estimates,
which are those estimates that are most important to both the reporting of our financial condition and results of operations
and require management's subjective judgment. We then review our results of operations for 2012, 2011 and 2010, beginning
with an overview of our total company results, followed by a more detailed review of those results by business segment. We
also review our financial condition and liquidity including our capital structure and resources, off-balance sheet arrangements,
commitments and contingencies, as well as changes in accounting standards, and conclude with a discussion of our exposure
to various market risks.
Industry Considerations
Domestic Considerations
The U.S. Government continues to focus on efforts to both stimulate the economy and reduce federal budget deficits in order
to address the growing amount of national debt. The Budget Control Act of 2011 (BCA) was enacted as part of the
Administration's and Congress' effort to reduce the deficit. The BCA reduces the U.S. Department of Defense's (DoD) base
budget (excluding funding for operations in Afghanistan) by $487 billion over the ten-year period from fiscal year (FY)2012
- FY 2021 relative to the long-range defense plans that accompanied the FY 2012 budget request.
The BCA also required Congress to enact legislation by January 15, 2012 that would result in deficit reduction of at least $1.2
trillion, which Congress has not done. Pursuant to the terms of the BCA, as amended by the American Taxpayer Relief Act
of 2012, a sequestration is scheduled to commence on March 1, 2013 that would result in a total of nearly $1.2 trillion in
reduced funding over the FY 2013 - FY 2021 period. Unless Congress and the Administration agree to amend, delay, or revoke
the BCA, the DoD will bear approximately 50% of the cuts, excluding reduced interest payments, under sequestration. DoD
Overview 29
Financial Summary 33
Critical Accounting Estimates 34
Consolidated Results of Operations 41
Segment Results 48
Financial Condition and Liquidity 66
Capital Resources 70
Contractual Obligations 71
Off-Balance Sheet Arrangements 71
Commitments and Contingencies 72
Accounting Standards 75