BAE Systems (LSE: BA) has gained 12% to 319 pence so far during 2012, making the share one of the year's better performers in the FTSE 100 (UKX). During the same time, the blue-chip index has gained about 2%.

Britain's biggest manufacturer, BAE is expected this year to deliver revenues of £19 billion. But it won't be an easy climb, as the firm faces generally lower military spending by U.S. and U.K. governments -- a situation that looks set to continue given the macroeconomic challenges both countries face for the next few years.

In February, BAE Systems reported troubling full-year results for 2011 -- a 7% drop in full-year profits to £2 billion, on a 14% dive in sales -- and the firm predicted revenues would remain stagnant this year.

BAE chief executive Ian King outlined a bleak vision of a world in which "affordability has become the priority for our customers" and further job cuts remained a possibility. The gloomy prognosis pushed BAE's shares down by nearly 3%.

"BAE Systems is operating in a difficult business environment as defense spending reduces in its largest markets, the U.S. and U.K. Little sales growth can be expected for the group in 2012 in current market conditions," King added.

In August, BAE reported a tough first six months as expected. The company said sales declined 10% to £8.3 billion and underlying EBITDA dropped 3%. Profits were hit by a delay completing the Project Salam deal with Saudi Arabia.

Despite the results, BAE increased its interim dividend by 4% to 7.8 pence per share -- covered by around twice underlying earnings -- and said its order backlog had increased to £40 billion. Perhaps good news for shareholders.

In October, BAE was dealt another blow as its proposed merger with EADS, the Franco-German owner of Airbus, came to a halt due to a political deadlock. The deal could have created a European rival to America's Boeing. BAE shares fell 2% on the news.

No doubt BAE's investors will hope for better sales progress next year, helped perhaps by a resurgence in military spending and BAE's ability to secure more contracts.

Today, you could argue the company is attractively priced. With the shares trading at about 319 pence, BAE is rated on a prospective price-to-earnings ratio of just under eight and offers a dividend yield of 6.3%.

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