Raytheon 2005 Annual Report Download - page 38

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Competition within our markets may reduce our procurement of future contracts and our sales.
We operate in highly competitive markets. Our competitors range from highly resourceful small concerns, which
engineer and produce specialized items, to large, diversified firms. Several established and emerging companies offer a
variety of products for applications similar to those of our products. Our competitors may have more extensive or more
specialized engineering, manufacturing and marketing capabilities than we do in some areas. In addition, as the defense
industry consolidates, companies may enhance their competitive position and ability to compete against us. We are also
facing increasing competition in our domestic and international markets from foreign and multinational firms.
Some of our largest customers could develop the capability to manufacture products similar to products that we
manufacture and provide services similar to services we offer. This would result in these customers supplying their own
products or services and competing directly with us for sales of these products or services, all of which could significantly
reduce our revenues and negatively impact our operations and financial results.
Accordingly, if we are unable to continue to compete successfully against our current or future competitors, we may
experience declines in revenues and market share which could negatively impact our results of operations and financial
condition.
Our future success depends on our ability to develop new offerings and technologies that achieve market acceptance.
The markets in which we operate are characterized by rapidly changing technologies and evolving industry standards.
Accordingly, our future performance depends on a number of factors, including our ability to:
ⳮIdentify emerging technological trends in our target markets;
ⳮDevelop and maintain competitive products and services;
ⳮEnhance our offerings by adding innovative features that differentiate our offerings from those of our competitors;
ⳮDevelop and manufacture and bring products to market quickly at cost-effective prices; and
ⳮEffectively 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 (RAC), 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 using our existing legacy aircraft products.
We believe that, in order to remain competitive in the future, we will need to continue to invest significant financial
resources to develop new products, services and technologies. 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 the 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
offerings 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 offerings might cause our existing technology and
offerings to become obsolete. If we fail in our new product development efforts or our products or services fail to achieve
market acceptance more rapidly than our competitors, our ability to procure new government contracts could be
negatively impacted, which would negatively impact our business, results of operations and financial condition.
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. Because many of our contracts involve advanced designs and innovative
technologies, we may experience unforeseen technological difficulties and 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. Lower earnings caused by cost overruns and cost controls would have a negative impact on our results of
operations.
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