Raytheon 2005 Annual Report Download - page 33

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Backlog
The Company’s backlog of orders was $34.4 billion at December 31, 2005 and $32.5 billion at December 31, 2004. The
2005 amount includes backlog of approximately $27.2 billion from the U.S. government compared with $25.5 billion at
the end of 2004. Approximately $3.6 billion and $1.2 billion of the 2005 backlog amount represents direct foreign
government backlog and non-government foreign backlog, respectively. Approximately $19.1 billion of the 2005
year-end backlog is not expected to be filled during the following twelve months. These amounts include both funded
backlog (unfilled firm orders for products for which funding has been both authorized and appropriated) and unfunded
backlog (firm orders for which funding has not yet been appropriated). For additional information related to backlog
figures, see “Segment Results” within Item 7 of this Form 10-K.
Research and Development
Raytheon conducts extensive research and development activities to continually enhance its existing products and
services and develop new products and services to meet its customer’s changing needs and requirements. During 2005,
Raytheon expended $503 million on research and development efforts compared with $491 million in 2004 and $487
million in 2003. These expenditures principally have been for product development for the U.S. government and for
aircraft products, including bid and proposal efforts related to government programs. Raytheon also conducts funded
research and development activities under government contracts which are included in net sales. For additional
information related to research and development activities, see “Note A—Accounting Policies” within Item 8 of this
Form 10-K.
Raw Materials, Suppliers and Seasonality
Raytheon is dependent upon the delivery of materials by suppliers and the assembly of major components and
subsystems by subcontractors used in the Company’s products. Some products require relatively scarce raw materials. In
addition, in connection with its government and defense business, the Company must comply with specific procurement
requirements which may, in effect, limit the suppliers and subcontractors the Company may utilize. In some instances,
for a variety of reasons, the Company is dependent on sole-source suppliers. The Company enters into long-term or
volume purchase agreements with certain suppliers and takes other actions to ensure the availability of needed materials,
components and subsystems. In the case of Raytheon Aircraft Company (RAC), RAC is dependent on the successful
performance of its suppliers under international supply contracts for the production of certain aircraft and spare parts.
Raytheon generally has not experienced material difficulties in procuring the necessary raw materials, components and
other supplies for its products. However, the Company has been notified by certain suppliers that they supplied parts
which may not comply with certain procurement requirements applicable to DoD contractors. The Company
understands that other DoD contractors are experiencing similar potential supply issues. Management does not expect
the effects of this potential supply issue to be material.
In recent years, the Company’s revenues in the second half of the year have generally exceeded revenues in the first half.
The timing of government awards, the availability of government funding and product deliveries are among the factors
affecting the periods in which revenues are recorded. Management expects this trend to continue in 2006.
Competition
The Company’s government and defense businesses directly participate in most major areas of development in the
defense and government electronics, space, information technology, technical services and special mission aircraft
markets. Technical superiority and reputation, price, past performance, delivery schedules, financing, and reliability are
among the principal competitive factors considered by customers in these markets. Raytheon competes worldwide with a
number of U.S. and international companies in these markets, some of which may have more extensive or more
specialized engineering, manufacturing and marketing capabilities than Raytheon does in some areas. The on-going
consolidation of the U.S. and global defense, space and aerospace industries continues to intensify competition.
Consolidation among U.S. defense, space and aerospace companies has resulted in a reduction in the number of principal
prime contractors. As a result of this consolidation, the Company frequently partners on various programs with its major
suppliers, some of whom are, from time to time, competitors on other programs.
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