Raytheon 2012 Annual Report Download - page 39

31
redeploy out of Afghanistan. The request for future OCO funding will be determined on an as-needed basis and will likely be
closely correlated to the amount of troops required for each operation. OCO funding has not been a significant source of new
orders for Raytheon in the last three years, and is not expected to be so in future years.
Although the uncertainty of funding changes that may result from the BCA, among other factors, makes predicting the DoD
budget beyond FY 2013 difficult, we expect the DoD to continue to prioritize and protect the key capabilities required to
execute its strategy, including ISR, cybersecurity, missile defense, electronic warfare, unmanned systems, special operations
forces and interoperability with allied forces. We believe those priorities are well aligned with our product offerings,
technologies, services and capabilities.
With respect to other domestic customers beyond the DoD, we have contracts with a wide range of U.S. Government agencies,
including the Department of Justice (DoJ), the Department of State, the Department of Energy, the Intelligence Community,
the National Aeronautics and Space Administration (NASA), the Federal Aviation Administration (FAA), the Department of
Homeland Security (DHS) and the National Science Foundation (NSF). Similar to the budget environment for the DoD, we
expect the Administration will have to take the spending limits imposed by the BCA into account when determining spending
priorities for these agencies. Our relationship with these agencies generally is determined more by specific program
requirements than by a direct correlation to the overall funding levels for these agencies; however, further changes in
government spending priorities may adversely impact these specific programs. We also have contracts with various state and
local government agencies that also are subject to budget constraints and conflicts in spending priorities.
We currently are involved in over 15,000 contracts, with no single contract accounting for more than 5% of our total net sales
in 2012. Although we believe our diverse portfolio of programs and capabilities is well suited to a changing defense
environment, we face numerous challenges and risks, as discussed 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
In 2012, our sales to customers outside of the U.S. accounted for 26% of our total net sales (including foreign military sales
through the U.S. Government). Internationally, the growing threat of additional terrorist activity, cyber threats, emerging
nuclear states, long-range missiles and conventional military threats have led to an increase in demand for defense products
and services and homeland security solutions. In North Asia, both short- and long-term security concerns are increasing demand
for air and missile defense, air/naval modernization, maritime security, homeland security and air traffic management. In the
Middle East, threats from state and non-state actors are increasing demand for air and missile defense, air/land/naval force
modernization, precision engagement, maritime security, border security, and cybersecurity solutions. In South America, the
economic growth in some developing countries is being accompanied by an increase in defense spending. While this region
has traditionally been a smaller market for U.S.-based suppliers, it is likely to see above average growth rates in the future.
In Europe, nations continue to manage downward pressure on defense spending as their governments grapple with regional
economic challenges and reprioritize accordingly. Although these global economic challenges may continue to restrain and
even shrink the defense budgets of certain European nations, requirements for advanced air and missile defense capabilities
continue to exist in the European market. Overall, we believe many international defense budgets have the potential to grow
and to do so at a faster rate than the U.S. defense budget.
International customers have and are expected to continue to adopt defense modernization initiatives similar to the DoD. We
believe this trend will continue as many international customers are facing a threat environment that is similar to the U.S. and
they are looking for advanced weapons and sensor systems. Alliance members also wish to assure their forces and systems
will be interoperable with U.S. and North Atlantic Treaty Organization (NATO) forces. However, international demand is
sensitive to changes in the priorities and budgets of international customers and geo-political uncertainties, which may be
driven by changes in threat environments and potentially volatile worldwide economic conditions, various regional and local
economic and political factors, risks and uncertainties, 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.