Raytheon 2012 Annual Report Download - page 23

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these regulations and requirements could also lead to suspension or debarment, for cause, from government contracting or
subcontracting for a period of time. Among the causes for debarment are violations of various statutes, including those related
to procurement integrity, export control, government security regulations, employment practices, protection of the
environment, accuracy of records and the recording of costs, and foreign corruption. The termination of a government contract
as a result of any of these acts could have a negative impact on our results of operations and financial condition and could
have a negative impact on our reputation and ability to procure other government contracts in the future.
Our international business is subject to geo-political and economic factors, regulatory requirements and other risks.
Our international business exposes us to geo-political and economic factors, regulatory requirements and other risks associated
with doing business in foreign countries. These risks differ from and potentially may be greater than those associated with
our domestic business. In 2012, our sales to customers outside the U.S. (including foreign military sales through the U.S.
Government) accounted for 26% of our total net sales. Our exposure to such risks may increase if our international business
continues to grow as we anticipate.
Our international business is sensitive to changes in the priorities and budgets of international customers, which may be driven
by changes in threat environments, geo-political uncertainties, potentially volatile worldwide economic conditions, various
regional and local economic and political factors, risks and uncertainties and U.S. foreign policy. Our international sales are
subject to U.S. laws, regulations and policies, including the International Traffic in Arms Regulations (ITAR), the Foreign
Corrupt Practices Act, and other export laws and regulations. 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 our products outside of the U.S.
We can give no assurance that we will continue to be successful in obtaining the necessary licenses or authorizations or that
certain sales will not be prevented or delayed. Any significant impairment of our ability to sell products outside of the U.S.
could negatively impact our results of operations, financial condition or liquidity.
Our international sales are also subject to local government laws, regulations, and procurement policies and practices which
may differ from U.S. Government regulations. These include regulations relating to import-export control, technology transfer,
investments, exchange controls and repatriation of earnings. We must also manage a certain degree of exposure to the risk of
currency fluctuations. International contract laws, regulations and contractual terms differ from those of the U.S. and may be
interpreted differently by foreign courts. Our international contracts may include industrial cooperation agreements requiring
specific in-country purchases, manufacturing agreements or financial support obligations, known as offset obligations, and
provide for penalties if we fail to meet such requirements. Our international contracts may also be subject to termination at
the customer's convenience or for default based on performance, and may be subject to funding risks. We also are exposed to
risks associated with using third party foreign representatives and consultants for international sales and operations, and
teaming with international subcontractors, partners and suppliers in connection with international programs. As a result of
these factors, we could experience financial penalties, award and funding delays on international programs and could incur
losses on such programs which could negatively impact our results of operations, financial condition or liquidity.
Competition within our markets may reduce our revenues and market share.
We operate in highly competitive markets and our competitors may have more extensive or more specialized engineering,
manufacturing and marketing capabilities than we do in some areas. We anticipate increasing competition in our core markets
as a result of continued defense industry consolidation, including cross-border consolidation of competition, which has enabled
companies to enhance their competitive position and ability to compete against us. We are also facing heightened competition
in our domestic and international markets from foreign and multinational firms. In addition, as discussed in more detail above,
current U.S. defense spending levels are likely to decline and future spending levels are increasingly difficult to predict.
Increased pressure to limit U.S. defense spending and changes in the U.S. Government procurement environment may limit
certain future market opportunities. 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, financial condition or liquidity. In the current competitive
environment there may be an increase in bid protests from unsuccessful bidders on new program awards. Generally, a bid
protest will delay the start of contract activities, and could result in the award decision being overturned, requiring a re-bid
of the contract.