Raytheon 2006 Annual Report Download - page 44

and macroeconomic conditions, and are beyond our control. While the overall level of U.S. defense spending has
increased in recent years for numerous reasons, including increases in funding of operations in Iraq and Afghanistan and
the U.S. Department of Defense’s military transformation initiatives, we can give no assurance that such spending will
continue to grow, or not be reduced. Significant changes in defense spending could have long-term consequences for our
size and structure. In addition, changes in government priorities and requirements could impact the funding, or the
timing of funding, of our programs which could negatively impact our results of operations and financial condition.
Our financial performance is dependent on our ability to perform our U.S. government contracts which are subject to
uncertain levels of funding and termination.
Our financial performance is dependent on our performance under our U.S. government contracts. While we are
involved in numerous programs and are parties to thousands of U.S. government contracts, the termination of one or
more large contracts, whether due to lack of funding, for convenience, or otherwise, or the occurrence of delays, cost
overruns and product failures in connection with one or more large contracts, could negatively impact our results of
operations and financial condition. Furthermore, we can give no assurance that we would be able to procure new U.S.
government contracts to offset the revenues lost as a result of any termination of our contracts.
The funding of U.S. government programs is subject to congressional appropriations. Congress generally appropriates
funds on a fiscal year basis even though a program may extend over several fiscal years. Consequently, programs are often
only partially funded initially and additional funds are committed only as Congress makes further appropriations. In the
event that appropriations for one of our programs become unavailable, or are reduced or delayed, our contract or
subcontract under such program may be terminated or adjusted by the government, which could have a negative impact
on our future sales under such contract or subcontract.
In addition, U.S. government contracts generally also permit the government to terminate the contract, in whole or in
part, without prior notice, at the government’s convenience or for default based on performance. If one of our contracts
is terminated for convenience, we would generally be entitled to payments for our allowable costs and would receive
some allowance for profit on the work performed. If one of our contracts is terminated for default, we would generally be
entitled to payments for our work that has been accepted by the government. A termination arising out of our default
could expose us to liability and have a negative impact on our ability to obtain future contracts and orders. Furthermore,
on contracts for which we are a subcontractor and not the prime contractor, the U.S. government could terminate the
prime contract for convenience or otherwise, irrespective of our performance as a subcontractor.
Our government contracts also typically involve the development, application and manufacturing of advanced defense
and technology systems and products aimed at achieving challenging goals. New technologies may be untested or
unproven. In some instances, product requirements or specifications may be modified. As a result, we may experience
technological and other performance difficulties, which may result in delays, setbacks, cost overruns and product failures,
in connection with performing our government contracts.
Our international sales are a significant portion of our business and such sales may expand in the future; accordingly, we
may increasingly become subject to the risks of doing business in foreign countries.
Our international business exposes us to certain unique and potentially greater risks than our domestic business and our
exposure to such risks may increase if our international business continues to grow as we anticipate. Our international
business is subject to local government regulations and procurement policies and practices, including regulations relating
to import-export control, investments, exchange controls and repatriation of earnings, as well as to varying currency,
geo-political and economic risks. We also are exposed to risks associated with using foreign representatives and
consultants for international sales and operations and teaming with international subcontractors and suppliers in
connection with international programs.
We may not be successful in obtaining the necessary licenses to conduct operations abroad, and Congress may prevent
proposed sales to foreign governments.
Due to the nature of our products, we must first obtain licenses and authorizations from various U.S. government
agencies before we are permitted to sell many of our products outside of the U.S. For example, the U.S. Department of
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