Raytheon 2012 Annual Report Download - page 22

14
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. When a formal appropriation bill has not been signed into law before the end of the U.S. Government's fiscal
year, which has become more frequent in recent years, Congress may pass a Continuing Resolution (CR) that authorizes
agencies of the U.S. Government to continue to operate, generally at the same funding levels from the prior year, but typically
does not authorize new spending initiatives, during this period. Appropriations can also be impacted by other budgetary
considerations, such as failure to increase the statutory debt ceiling of the U.S. Government. 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. Currently, the U.S. Government is operating under
a CR through March 27, 2013. It is unclear whether the CR will be extended or final appropriations bills will be passed by
that date.
Appropriations can also be affected by legislation that addresses larger budgetary issues of the U.S. Government. Examples
include the BCA and its sequestration provisions which will, unless amended, significantly reduce appropriations below
currently forecasted levels for most federal agencies, including the DoD, and legislation to raise the debt ceiling for the U.S.
Government.
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.
As a U.S. Government contractor, we are subject to extensive procurement rules and regulations and changes in such
rules, regulations and business practice could negatively affect current programs and potential awards.
Government contractors must also comply with specific procurement regulations and other requirements including import
and export, security, contract pricing and cost, contract termination and adjustment, audit and product integrity requirements.
These requirements, although customary in government contracts, impact our performance and compliance costs. In addition,
current U.S. Government budgetary constraints could lead to changes in the procurement environment, including the DoD's
initiatives focused on efficiencies, affordability and cost growth and other changes to its procurement practices such as changes
in payment term preferences. If and to the extent such changes occur as a result of these initiatives or otherwise, they could
impact our results of operations and liquidity, and could affect whether and, if so, how we pursue certain opportunities and
the terms under which we are able to do so.
In addition, failure to comply with the procurement regulations and requirements could result in reductions of the value of
contracts, contract modifications or termination, cash withholds on contract payments, and the assessment of penalties and
fines, which could negatively impact our results of operations, financial condition or liquidity. Our failure to comply with