Raytheon 2012 Annual Report Download - page 24

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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 new growth and emerging markets. Accordingly, our future performance depends on a number of factors, including
our ability to:
– Identify the needs of, and growth opportunities in, new and emerging markets;
– Identify emerging technological and other trends in our current and future markets;
– Identify additional uses for our existing technology to address customer needs in our current and future markets;
– Develop and maintain competitive products and services for our current and future markets;
– Enhance our offerings by adding innovative features that differentiate our offerings from those of our competitors;
– Develop and manufacture and bring solutions to market quickly at cost-effective prices; and
– Effectively structure our businesses, through the use of joint ventures, collaborative 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 approximately 60% 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 and are not authorized by the customer 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.