Raytheon 2004 Annual Report Download - page 37

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19
Our future success will depend on our ability to develop new technologies that achieve market acceptance.
Both our commercial and defense markets are characterized by rapidly changing technologies and evolving
industry standards. Accordingly, our future performance depends on a number of factors, including our ability to:
• identify emerging technological trends in our target markets
• develop and maintain competitive products
• enhance our products by adding innovative features that differentiate our products from those of our
competitors
• develop and manufacture and bring products to market quickly at cost-effective prices
• effectively structure our businesses, through the use of joint ventures, teaming agreements, and other forms of
alliances, to the competitive environment
Specifically, at Raytheon Aircraft Company, our future success is dependent on our ability to meet scheduled
timetables for the development, certification and delivery of new and derivative product offerings and our ability to
continue to compete with our existing legacy aircraft products.
We believe that, in order to remain competitive in the future, we will need to continue to develop new products,
which will require the investment of significant financial resources. The need to make these expenditures could
divert our attention and resources from other projects, and we cannot be sure that these expenditures will
ultimately lead to the timely development of new technology. Due to the design complexity of our products, we
may in the future experience delays in completing development and introduction of new products. Any delays
could result in increased costs of development or deflect resources from other projects. In addition, there can be no
assurance that the market for our products will develop or continue to expand as we currently anticipate. The
failure of our technology to gain market acceptance could significantly reduce our revenues and harm our business.
Furthermore, we cannot be sure that our competitors will not develop competing technologies which gain market
acceptance in advance of our products. The possibility that our competitors might develop new technology or
products might cause our existing technology and products to become obsolete. If we fail in our new product
development efforts or our products fail to achieve market acceptance more rapidly than our competitors, our
revenues will decline and our business, financial condition and results of operations will be negatively affected.
We enter into fixed-price contracts which could subject us to losses in the event that we have cost overruns.
A significant portion of our contracts are entered into on a fixed-price basis. This allows us to benefit from cost
savings, but we carry the burden of cost overruns. If our initial estimates are incorrect, we can lose money on these
contracts. In addition, some of our contracts have provisions relating to cost controls and audit rights, and if we fail
to meet the terms specified in those contracts then we may not realize their full benefits. Our financial condition is
dependent on our ability to maximize our earnings from our contracts. Lower earnings caused by cost overruns
and cost controls would have a negative impact on our financial results.
Our business could be adversely affected by a negative audit by the U.S. Government.
U.S. Government agencies such as the Defense Contract Audit Agency, or the DCAA, routinely audit and
investigate government contractors. These agencies review a contractor’s performance under its contracts, cost
structure and compliance with applicable laws, regulations and standards. The DCAA also reviews the adequacy of,
and a contractor’s compliance with, its internal control systems and policies, including the contractor’s purchasing,
property, estimating, compensation and management information systems. Any costs found to be improperly
allocated to a specific contract will not be reimbursed, while such costs already reimbursed must be refunded. If an
audit uncovers improper or illegal activities, we may be subject to civil and criminal penalties and administrative
sanctions, including termination of contracts, forfeiture of profits, suspension of payments, fines and suspension or
prohibition from doing business with the U.S. Government. In addition, we could suffer serious reputational harm
if allegations of impropriety were made against us.