Raytheon 2010 Annual Report Download - page 22

factors, including geo-political events and macroeconomic conditions. 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 DoD’s modernization initiatives. Looking forward, defense spending levels are becoming increasingly difficult to
predict and will be affected by numerous factors. Such factors include the external threat environment, funding for
on-going operations in Iraq and Afghanistan, priorities of the Administration and the Congress, and the overall health of
the U.S. and world economies and the state of governmental finances.
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.
In addition, we are involved in U.S. Government programs, principally through our IIS and SAS business segments,
which are classified by the U.S. Government and our ability to discuss these programs, including any risks and disputes
and claims associated with and our performance under such programs, could be limited due to applicable security
restrictions.
Our financial performance is dependent on our ability to perform on 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 party 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 awarded new U.S.
Government contracts to offset the revenues lost as a result of termination of any 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. If
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. From time to time, when a formal appropriation bill has not been signed
into law before the end of the U.S. Government’s fiscal year, Congress may pass a Continuing Resolution that authorizes
agencies of the U.S. Government to continue to operate, generally at the same funding levels from the prior year, but does
not authorize new spending initiatives, during a certain period. During such period (or until the regular appropriation
bills are passed), delays can occur in procurement of products and services due to lack of funding, and these delays can
affect our results of operations during the period of delay.
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 manufacture 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.
14