Raytheon 2015 Annual Report Download - page 24

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We depend on the U.S. government for a substantial portion of our business, and changes in government defense spending
and priorities could have consequences on our financial position, results of operations and business.
In 2015, U.S. government sales, excluding foreign military sales, accounted for approximately 68% of our total net sales. Our
revenues from the U.S. government largely result from contracts awarded to us under various U.S. government programs,
primarily defense-related programs with the U.S. Department of Defense (DoD), as well as a broad range of programs with
the U.S. Intelligence Community and other departments and agencies. The funding of our programs is subject to the overall
U.S. government policies, budget and appropriation decisions and processes which are driven by numerous factors, including
geo-political events, macroeconomic conditions, and the ability of the U.S. government to enact relevant legislation, such as
appropriations bills and accords on the debt ceiling.
In recent years, U.S. government appropriations have been affected by larger U.S. government budgetary issues and related
legislation. In 2011, Congress enacted the Budget Control Act of 2011 (BCA), which established specific limits on annual
appropriations for fiscal years (FY) 2012–2021. Pursuant to the BCA, which was amended by the American Taxpayer Relief
Act of 2012, the Bipartisan Budget Act of 2013 and the Bipartisan Budget Act of 2015 (BBA), the FY 2013 DoD budget was
reduced by 7.8% as compared to FY 2012, and the DoD budget remained essentially flat for FY 2014 and 2015. While the
BBA provides for stability and modest growth to the DoD budget through FY 2017, future spending levels are uncertain. In
addition, in recent years the U.S. government has been unable to complete its budget process before the end of its fiscal year,
resulting in both a governmental shut-down and Continuing Resolutions to extend sufficient funds only for U.S. government
agencies to continue operating. Additionally, while the BBA eliminates the debt ceiling through FY 2017, the national debt
has recently threatened to reach the statutory debt ceiling, and such an event in future years could result in the U.S. government
defaulting on its debts.
As a result, defense spending levels are difficult to predict beyond the near-term due to numerous factors, including the external
threat environment, future governmental priorities and the state of governmental finances. Significant changes in defense
spending or changes in U.S. government priorities, policies and requirements could have a material adverse effect on our
results of operations, financial condition or liquidity.
Our financial results largely are dependent on our ability to perform on our U.S. government contracts, which are subject
to uncertain levels of funding and timing, as well as termination. Our financial results could also be affected by development
delays, cost overruns or product failures in connection with these contracts.
Our financial results largely are 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 of such
contracts, 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, financial condition or liquidity. 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.
U.S. government contracts generally permit the government to terminate the contract, in whole or in part, without prior notice,
at the U.S. 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 U.S. 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.
The funding of U.S. government programs is subject to congressional appropriations, which are made on a fiscal year basis
even for multi-year programs. Consequently, programs are often only partially funded initially and may not continue to be
funded in future years. In addition, regular appropriation bills may be delayed, which may result in revenue collection delays
or delays in our contract performance due to lack of funds to procure related products and services. Under certain circumstances,
we may use our own funds to meet our customer's desired delivery dates or other requirements. Furthermore, if appropriations
for one of our programs become unavailable, or are reduced or delayed, the U.S. government may terminate our contract or
subcontract under such program.