Raytheon 2004 Annual Report Download - page 35

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17
Our government business is also subject to specific procurement regulations and a variety of socio-economic
and other requirements. These requirements, although customary in Government contracts, increase our
performance and compliance costs. These costs might increase in the future, reducing our margins, which could
have a negative effect on our financial condition. Failure to comply with these regulations and requirements could
lead to suspension or debarment, for cause, from Government contracting or subcontracting for a period of time.
Among the causes for debarment are violations of various statutes, including those related to:
• procurement integrity
• export control
• government security regulations
• employment practices
• protection of the environment
• accuracy of records and the recording of costs
• foreign corruption
The termination of a Government contract or relationship as a result of any of these acts would have a negative
impact on our operations and could have a negative effect on our reputation and ability to procure other
Government contracts in the future. On those contracts for which we are teamed with others and are not the prime
contractor, the U.S. Government could terminate a prime contract under which we are a subcontractor,
irrespective of the quality of our services as a subcontractor.
In addition, sales to the Government may be affected by:
• changes in procurement policies
• budget considerations
• unexpected developments, such as the terrorist attacks of September 11, 2001, which change concepts of
national defense
• political developments abroad, such as those occurring in the wake of the September 11 attacks
The influence of any of these factors, which are largely beyond our control, could also negatively impact our
financial condition. We also may experience problems associated with advanced designs and programs required by
the Government which may result in unforeseen technological difficulties and cost overruns. Failure to overcome
these technological difficulties and the occurrence of cost overruns would have a negative impact on our results.
We depend on the U.S. Government for a significant portion of our sales, and the loss of this relationship or a shift
in Government funding could have severe consequences on the financial condition of Raytheon.
Approximately 74% of our net sales in 2004 were to the U.S. Government. Therefore, any significant disruption
or deterioration of our relationship with the U.S. Government would significantly reduce our revenues. Our U.S.
Government programs must compete with programs managed by other defense contractors for a limited number
of programs and for uncertain levels of funding. Our competitors continuously engage in efforts to expand their
business relationships with the U.S. Government at our expense and are likely to continue these efforts in the
future. The U.S. Government may choose to use other defense contractors for its limited number of defense
programs. In addition, the funding of defense programs also competes with non-defense spending of the U.S.
Government. Budget decisions made by the U.S. Government are outside of our control and have long-term
consequences for the size and structure of Raytheon. A shift in Government defense spending to other programs in
which we are not involved or a reduction in U.S. Government defense spending generally could have severe
consequences for our results of operations.