Raytheon 2009 Annual Report Download - page 30

limit certain future market opportunities. We are also facing increasing competition in our domestic and international
markets from foreign and multinational firms. Additionally, some customers, including the DoD, are increasingly turning
to commercial contractors, rather than traditional defense contractors, for information technology and other support
work. 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 for our current and future markets.
To achieve our business strategies and continue to grow our revenues and operating profit, we must successfully develop
new or adapt or modify our existing offerings and technologies for our current core defense markets and our future
markets, including adjacent and emerging markets. Accordingly, our future performance depends on a number of
factors, including our ability to:
ⳮIdentify emerging technological trends in our current and future markets;
ⳮIdentify additional uses for our existing technology to address customer needs in our current and future markets;
ⳮDevelop and maintain competitive products and services for our current and future markets;
ⳮEnhance our offerings by adding innovative features that differentiate our offerings from those of our competitors;
ⳮDevelop and manufacture and bring solutions 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 reflect the competitive environment.
We believe that, in order to remain competitive in the future, we will need to continue to invest significant financial
resources to develop new and adapt or modify our existing offerings and technologies, including through internal
research and development, acquisitions and joint ventures or other teaming arrangements. 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 offerings and technologies. 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 exists that our competitors might develop new technology or offerings that 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 contracts could
be negatively impacted, which would negatively impact our results of operations and financial condition.
We enter into fixed-price and other contracts which could subject us to losses in the event that we experience cost growth
that cannot be billed to customers.
Generally, our customer contracts are either fixed-priced or cost reimbursable contracts. Under fixed-priced contracts,
which represent about half of our backlog, we receive a fixed price irrespective of the actual costs we incur and,
consequently, we must carry the burden of any cost overruns. Due to their nature, fixed-priced contracts inherently have
more risk than cost reimbursable contracts, particularly fixed-price development contracts where the costs to complete
the development stage of the program can be highly variable, uncertain and difficult to estimate. Under cost reimbursable
contracts, subject to a contract-ceiling amount in certain cases, we are reimbursed for allowable costs and paid a fee,
which may be fixed or performance based. If our costs exceed the contract ceiling or are not allowable under the contract
or applicable regulations, we may not be able to obtain reimbursement for all such costs and our fees may be reduced or
eliminated. Because many of our contracts involve advanced designs and innovative technologies, we may experience
unforeseen technological difficulties and cost overruns. Under both types of contracts, if we are unable to control costs or
if our initial cost 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, 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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