Raytheon 2015 Annual Report Download - page 26

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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.
Additionally, 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.
Competition within our markets may reduce our revenues and market share and limit our future market opportunities.
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 increased 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 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, increased pressure
to limit U.S. defense spending and changes in the U.S. government procurement environment may limit certain future market
opportunities for us. For example, the DoD increasingly is committed to awarding contracts through competitive bidding and
relying on competitive contract award types. 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 in our core markets, we may experience
declines in revenues and market share which could negatively impact our results of operations, financial condition or liquidity.
In addition, due to the current competitive environment, we continue to see an increase in bid protests from unsuccessful
bidders on new program awards. Generally, a bid protest will delay the start of contract activities, delay earnings, and could
result in the award decision being overturned, requiring a re-bid of the contract.
In addition, we formed Forcepoint in May 2015, our cybersecurity joint venture discussed in more detail below, to accelerate
our growth in the commercial cybersecurity market. However, there can be no assurance that Forcepoint will meet our
expectations. Additionally, the commercial cybersecurity market is characterized by rapid changes in technology, products,
customer specifications and industry standards, and Forcepoint may not be able to successfully and timely develop new
products and services or adapt its current offerings to such changes in order to compete effectively. In addition, Forcepoint's
revenues are dependent on third-party sales channels as well as its internal sales force, and there can be no assurance that
these sales efforts will be successful. If Forcepoint is unable to compete successfully in the commercial cybersecurity market,
it may divert financial and management resources that would otherwise be used to benefit our other operations.
As a U.S. government contractor, we are subject to extensive procurement rules and regulations. Changes in such rules,
regulations and business practice could negatively affect current programs and potential awards, and our business could
be negatively affected if we fail to comply with any procurement rules and regulations.
U.S. government contractors must comply with specific procurement regulations and other requirements including export-
import control, security, contract pricing and cost, contract termination and adjustment, audit and product integrity
requirements. These requirements impact our performance and compliance costs. In addition, the U.S. government has and
may continue to implement initiatives focused on efficiencies, affordability and cost growth and other changes to its
procurement practices which may negatively affect our results of operations, financial condition or liquidity, and could affect
whether and, if so, how we pursue certain opportunities and the terms under which we are able to do so.
For example, in April 2015 the DoD initiated Better Buying Power 3.0 (BBP), which reiterates the DoD’s previously-announced
preferences with respect to contractual payment and cost reimbursement terms, and contractor independent research and
development efforts. BBP maintains a preference for incentive-based contracts that set cost and profit targets and require
contractors to share cost overruns and underruns with the U.S. government. BBP also indicates a preference for progress
payments, which are usually lower than performance-based payments and would thus affect the timing of our cash flows.
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, forfeiture of profits, and the assessment
of civil and criminal penalties and fines, which could negatively impact our results of operations, financial condition or
liquidity. Our failure to comply with these regulations and requirements could also lead to suspension or debarment, for cause,