Raytheon 2014 Annual Report Download - page 40

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of Homeland Security (DHS). Similar to the budget environment for the DoD, we expect the Administration 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 2014. 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 2014, our sales to customers outside of the U.S. accounted for 29% 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 systems
and services and other security solutions. In North Asia, both short- and long-term regional security concerns are increasing
demand for air and missile defense, air/naval modernization, and maritime security. In the Middle East and North Africa,
threats from state and emerging non-state actors are increasing demand for air and missile defense, air/land/naval force
modernization, precision engagement, ISR, maritime and border security, and cybersecurity solutions. Given such threat
environments, we expect our customers to continue to prioritize security investments even if their budgets are impacted by
volatile short-term energy prices. In South and Central America, economic growth in certain developing countries is being
accompanied by an increase in defense spending. While this region has traditionally been a smaller market for U.S.-based
defense contractors, defense spending in such region is likely to grow at rates faster than those of other regions in the future
and attract more U.S.-based suppliers. In Europe, nations continue to manage downward pressure on defense spending as their
governments grapple with regional economic challenges and reprioritize accordingly. While these economic challenges may
continue to restrain and even reduce the defense budgets of certain European nations, others have made commitments to
increase spending in response to recent geopolitical events and conflicts in Eastern Europe and the resulting uncertainty and
security threat environment. Based on the foregoing, we expect that European nations will continue to seek advanced air and
missile defense capabilities. 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 threat environments similar to that of 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 geopolitical uncertainties, which may be
driven by changes in threat environments, volatility in worldwide economic conditions, regional and local economic and
political factors, U.S. foreign policy and other risks and uncertainties. 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
The following are the broad elements of our strategy:
– Build upon our areas of strength within our key mission areas;
– Focus additional resources on emerging opportunities within the Department of Defense market;
– Engage key countries as individual markets with multiple customers; and
– Extend Raytheon's advanced cyber solutions beyond the U.S. Government into international and commercial markets.
Our Capabilities
We believe that our broad mix of technologies, domain expertise and key capabilities, our cost-effective, best-value solutions
and the alignment of these strengths with customer needs position us favorably to grow and increase share in our core markets.
Our core markets also serve as a solid base from which to expand into growth areas, such as cybersecurity, key mission areas
and new customer relationships. We continually explore opportunities to leverage our existing capabilities, or develop or
acquire additional ones, to expand into growth markets.