| RAYTHEON CO/ ITEM 1A RISK FACTORS This Form 10-K and the information we are incorporating by reference contain forward-looking statements within the meaning of federal securities laws, including information regarding the Company’s 2006 financial outlook, future plans, objectives, business prospects and anticipated financial performance |
| You can identify these statements by the fact that they include words such as “will,” “believe,” “anticipate,” “expect,” “estimate,” “intend,” “plan,” or variations of these words, or similar expressions |
| These forward-looking statements are not statements of historical facts and represent only our current expectations regarding such matters |
| These statements inherently involve a wide range of known and unknown uncertainties |
| The Company’s actual actions and results could differ materially from what is expressed or implied by these statements |
| Specific factors that could cause such a difference include, but are not limited to, those set forth below and other important factors disclosed previously and from time to time in our other filings with the Securities and Exchange Commission |
| Given these factors, as well as other variables that may affect our operating results, you should not rely on forward-looking statements, assume that past financial performance will be a reliable indicator of future performance, nor use historical trends to anticipate results or trends in future periods |
| We expressly disclaim any obligation or intention to provide updates to the forward-looking statements and the estimates and assumptions associated with them |
| We depend on the US government for a significant portion of our sales, and the impairment of this relationship or changes in government defense spending could have severe consequences on our business |
| Approximately 74prca of our net sales in 2005 were to the US government |
| Therefore, any significant disruption or deterioration of our relationship with the US government could adversely affect our current government contracts and our ability to procure new government contracts, which could significantly reduce our revenues and negatively impact our financial condition and operations |
| We compete with other government contractors for a limited number of government programs and for uncertain levels of funding |
| Our competitors continuously engage in efforts to expand their business relationships with the US government at our expense |
| Accordingly, despite our efforts to maintain and broaden our relationships with it, the US government may choose to use other contractors for its limited number of programs |
| In addition, our revenues from the US government largely result from contracts awarded under various defense programs |
| The funding of our programs is subject to the overall US government budget and appropriation decisions and processes and our programs must compete for funding with non-defense programs and other defense programs in which we are not involved |
| US government budget decisions, including defense spending, are based on changing government priorities and objectives, which are driven by numerous factors, including geo-political events and macroeconomic conditions, and are beyond our control |
| In recent years, the overall level of US defense spending has increased for numerous reasons, including increases in funding of operations in Iraq and Afghanistan and the US Department of Defense’s military transformation initiatives |
| We can give no assurance that US defense spending will continue to grow |
| Significant changes to US defense spending could have long-term consequences for our size and structure |
| In addition, as a result of changing government priorities and requirements, defense spending could shift away from certain programs to other programs or into new areas and the timing of funding of certain programs could change |
| Shifts or reductions in defense spending or changes in timing could result in the reduction or elimination of, or the delay in, funding of one or more of our defense programs, which could negatively impact our results of operations and financial condition |
| A substantial majority of our business is governed by US government contracts, which are subject to continued appropriations by Congress and termination |
| In our government and defense businesses, we act as a prime contractor or major subcontractor for many different US government programs |
| A program generally is implemented by the award of individual contracts and subcontracts and is subject to congressional appropriations |
| Congress generally appropriates funds on a fiscal year basis even though a program may extend for several years |
| Consequently, programs are often only partially funded initially, and additional funds are committed only as Congress makes further appropriations |
| US government contracts and subcontracts under a program are subject to termination or adjustment if appropriations for such program are not available or change |
| 14 ______________________________________________________________________ [40]Table of Contents In addition, US government contracts generally contain provisions permitting termination, in whole or in part, without prior notice at the US government’s convenience as well as termination for default based on performance |
| Upon termination for convenience, we are generally entitled to compensation only for work done and commitments made at the time of termination |
| 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 US government could terminate the prime contract for convenience or otherwise, irrespective of our performance as a subcontractor |
| In addition, our government contracts typically involve the development, application and manufacturing 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 our government contracts |
| Our financial performance is highly dependent on our procurement, performance and payment under our US government contracts |
| While we are involved in numerous programs and are parties to thousands of US government contracts, the termination of one or more large contracts, 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 able to procure new US government contracts to offset the revenues lost as a result of any termination of our contracts |
| We derive a significant portion of our revenues from international sales and are subject to the risks of doing business in foreign countries |
| In 2005, sales to non-US customers, including foreign military sales, accounted for approximately 19prca of our net sales |
| We expect that international sales will continue to account for a significant portion of our revenues for the foreseeable future |
| As a result, we are subject to risks of doing business internationally, including: – The difficulty of complying with various US and foreign laws, regulations, policies and other requirements regarding, among other things, investments, operations, and trade restrictions; – Fluctuations in foreign currency exchange rates; – The complexity and necessity of using foreign representatives and consultants; – Uncertainties and restrictions concerning the availability of funding credit or guarantees; – The difficulty of managing and operating an enterprise spread over various countries; – Economic and geopolitical developments and conditions, including international hostilities, acts of terrorism and governmental reactions, inflation, trade relationships, changes in government and military and political alliances; and – Uncertainty of dispute resolution in foreign jurisdictions |
| While these factors or the impact of these factors are difficult to predict, any one or more of these factors could negatively impact our results of operations and financial condition |
| We may not be successful in obtaining the necessary licenses to conduct operations abroad, and Congress may prevent proposed sales to foreign governments |
| In order to sell many of our products outside of the US, we must first obtain licenses and authorizations from various government agencies |
| For certain sales of defense equipment and services to foreign governments, the US Department of State must notify Congress at least 15 to 30 days, depending on the size and location of the sale, prior to authorizing these sales |
| During that time, Congress may take action to block the proposed sale |
| We can give no assurance that we will continue to be successful in obtaining the necessary licenses or authorizations or that Congress will not prevent certain sales |
| Our inability to sell products outside of the US could negatively impact our results of operations and financial condition |
| 15 ______________________________________________________________________ [41]Table of Contents Competition within our markets may reduce our procurement of future contracts and our sales |
| We operate in highly competitive markets |
| Our competitors range from highly resourceful small concerns, which engineer and produce specialized items, to large, diversified firms |
| Several established and emerging companies offer a variety of products for applications similar to those of our products |
| Our competitors may have more extensive or more specialized engineering, manufacturing and marketing capabilities than we do in some areas |
| In addition, as the defense industry consolidates, companies may enhance their competitive position and ability to compete against us |
| We are also facing increasing competition in our domestic and international markets from foreign and multinational firms |
| Some of our largest customers could develop the capability to manufacture products similar to products that we manufacture and provide services similar to services we offer |
| This would result in these customers supplying their own products or services and competing directly with us for sales of these products or services, all of which could significantly reduce our revenues and negatively impact our operations and financial results |
| Accordingly, 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 and financial condition |
| Our future success depends on our ability to develop new offerings and technologies that achieve market acceptance |
| The markets in which we operate are characterized by rapidly changing technologies and evolving industry standards |
| Accordingly, our future performance depends on a number of factors, including our ability to: – Identify emerging technological trends in our target markets; – Develop and maintain competitive products and services; – Enhance our offerings by adding innovative features that differentiate our offerings from those of our competitors; – Develop and manufacture and bring products to market quickly at cost-effective prices; and – Effectively structure our businesses, through the use of joint ventures, teaming agreements, and other forms of alliances, to the competitive environment |
| Specifically, at Raytheon Aircraft Company (RAC), our future success is dependent on our ability to meet scheduled timetables for the development, certification and delivery of new and derivative product offerings and our ability to continue to compete using our existing legacy aircraft products |
| We believe that, in order to remain competitive in the future, we will need to continue to invest significant financial resources to develop new products, services and technologies |
| 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 technology |
| 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 that our competitors might develop new technology or offerings 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 government contracts could be negatively impacted, which would negatively impact our business, results of operations and financial condition |
| We enter into fixed-price contracts which could subject us to losses in the event that we have cost overruns |
| A significant portion of our contracts are entered into on a fixed-price basis |
| This allows us to benefit from cost savings, but we carry the burden of cost overruns |
| Because many of our contracts involve advanced designs and innovative technologies, we may experience unforeseen technological difficulties and cost overruns |
| If our initial 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 then 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 |
| 16 ______________________________________________________________________ [42]Table of Contents Our business could be adversely affected by a negative audit by the US government |
| As a government contractor, we are subject to routine audits and investigations by US government agencies such as the Defense Contract Audit Agency (DCAA) |
| These agencies review a contractor’s performance under its contracts, cost structure and compliance with applicable laws, regulations and standards |
| The DCAA also reviews the adequacy of, and a contractor’s compliance with, its internal control systems and policies, including the contractor’s purchasing, property, estimating, compensation and management information systems |
| Any costs found to be improperly allocated to a specific contract will not be reimbursed or must be refunded if already reimbursed |
| If an audit uncovers improper or illegal activities, we may be subject to civil and criminal penalties and administrative sanctions, which may include: termination of contracts; forfeiture of profits; suspension of payments; fines; and suspension or prohibition from doing business with the US government |
| In addition, we could suffer serious reputational harm if allegations of impropriety were made against us |
| As a US government contractor, we are subject to a number of procurement rules and regulation |
| Government contractors must also comply with specific procurement regulations and other requirements |
| These requirements, although customary in government contracts, increase our performance and compliance costs |
| If these requirements change, our costs of complying with them could increase and reduce our margins |
| In addition, failure to comply with these regulations and requirements could result in reductions of the value of contracts, contract modifications or termination, and the assessment of penalties and fines, which could negatively impact our results of operations and financial condition |
| Our failure to comply with 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 or relationship 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 |
| We depend on component availability, subcontractor performance and our key suppliers to manufacture and deliver our products and services |
| We are dependent upon the delivery of materials by suppliers and the assembly of major components and subsystems by subcontractors used in our products in a timely and satisfactory manner and in full compliance with applicable terms and conditions |
| In our government and defense businesses, we must comply with specific procurement requirements, which may, in effect, limit the suppliers and subcontractors we may utilize |
| In some instances, we are dependent on sole-source suppliers |
| If any of these suppliers or subcontractors fails to meet our needs, we may not have readily available alternatives |
| While we enter into long-term or volume purchase agreements with certain suppliers and take other actions to ensure the availability of needed materials, components, and subsystems, we cannot be sure that such items will be available in the quantities we require, if at all |
| If we experience a material supplier or subcontractor problem, our ability to satisfactorily and timely complete our customer obligations could be negatively impacted which could result in reduced sales, termination of contracts and damage to our reputation and relationships with our customers |
| We could also incur additional costs in addressing such a problem |
| Any of these events could have a negative impact on our results of operations and financial condition |
| 17 ______________________________________________________________________ [43]Table of Contents We use estimates in accounting for many of our programs and our new commercial aircraft and changes in our estimates could adversely affect our future financial results |
| Contract accounting requires judgment relative to assessing risks, including risks associated with customer directed delays and reductions in scheduled deliveries, unfavorable resolutions of claims and contractual matters, judgments associated with estimating contract revenues and costs, and assumptions for schedule and technical issues |
| Due to the size and nature of many of our contracts, the estimation of total revenues and cost at completion is complicated and subject to many variables |
| For example, we must make assumptions regarding the length of time to complete the contract because costs also include expected increases in wages and prices for materials; consider incentives or penalties related to performance on contracts in estimating sales and profit rates, and record them when there is sufficient information for us to assess anticipated performance; and use estimates of award fees in estimating sales and profit rates based on actual and anticipated awards |
| In addition, we use lot accounting for our new commercial aircraft such as the Beechcraft Premier I and the Hawker 4000 |
| Lot accounting involves selecting an initial lot size at the time a new aircraft begins to be delivered and measuring an average margin over the entire lot for each aircraft sold |
| The costs attributed to aircraft delivered are based on the estimated average margin of all aircraft in the lot and are determined under the learning curve concept which anticipates a predictable decrease in unit costs from cost reduction initiatives and as tasks and production techniques become more efficient through repetition |
| Once the initial lot has been completed, the use of lot accounting is discontinued |
| Accordingly, the selection of lot size is a critical judgment |
| We determine lot size based on several factors, including the size of firm backlog, the expected annual production on the aircraft, and the anticipated market demand for the product |
| Because of the significance of the judgments and estimation processes described above, it is likely that materially different amounts could be recorded if we used different assumptions, including our ability to sell at least the number of aircraft included in the initial lot size, or if the underlying circumstances were to change |
| Changes in underlying assumptions, circumstances or estimates may adversely affect our future results of operations and financial condition |
| We must assess the value of used aircraft and aircraft materials and parts which requires significant judgment, and changes in the value of such items could adversely affect our future financial results |
| The valuation of used aircraft in inventories, which are stated at cost, but not in excess of realizable value, requires significant judgment |
| The valuation of used aircraft is also considered in assessing the realizable value of certain commuter aircraft-related assets which serve as collateral for the underlying financing arrangements |
| As part of our assessment of realizable value, we evaluate many factors, including current and future market conditions, the age and condition of the aircraft, and availability levels for the aircraft in the market |
| In addition, the valuation of aircraft materials and parts that support our worldwide fleet of aircraft, which are stated at cost, but not in excess of realizable value, also requires significant judgment |
| As part of our assessment of realizable value, we evaluate many factors, including the expected useful life of the aircraft, some of which have remained in service for up to 50 years |
| Furthermore, we assumed an orderly disposition of both used aircraft and aircraft materials and parts in connection with our assessments of realizable value |
| Changes in market or economic conditions and changes in products or competitive products may adversely impact the future valuation of used aircraft and aircraft materials and parts and such change in valuation could negatively impact our future financial condition and results of operations |
| Goodwill and other intangible assets represent a significant portion of our assets and any impairment of these assets could negatively impact our results of operation |
| At December 31, 2005, we had goodwill and other intangible assets of approximately dlra12dtta1 billion, net of accumulated amortization, which represented approximately 50prca of our total assets |
| Our goodwill is subject to an impairment test on an annual basis and is also tested whenever events and circumstances indicate that goodwill may be impaired |
| Any excess goodwill carrying value resulting from the impairment test must be written off in the period of determination |
| Intangible assets (other than goodwill) are generally amortized over a one to five-year period |
| In addition, we will continue to incur non-cash charges in connection with the amortization of our intangible assets other than goodwill over the remaining 18 ______________________________________________________________________ [44]Table of Contents useful lives of such assets |
| Future determinations of significant write-offs of goodwill as a result of an impairment test or any accelerated amortization of other intangible assets could have a negative impact on our results of operations and financial condition |
| Our results of operations and financial condition could be adversely affected by a downturn in the general aviation and other aircraft markets |
| If there is a downturn in the general aviation and other aircraft markets due to declining general economic conditions or other reasons, our results of operations and financial condition could be negatively impacted |
| RAC could experience declining sales of aircraft and increases in aircraft inventories and costs |
| RAC provides long-term financing to its customers, so it could also experience an increase in defaults under these financing arrangements |
| In such a downturn, Flight Options LLC (FO) could also experience declining sales of fractional ownership services and incur greater losses, which could result in the Company’s investment in FO becoming further impaired and the Company incurring additional charges |
| In addition, Raytheon Airline Aviation Services LLC (RAAS) has exposure to outstanding financial arrangements for commuter aircraft, with the aircraft serving as collateral under these arrangements |
| RAAS commuter aircraft customers are generally thinly capitalized companies whose financial condition could be significantly affected by sustained higher fuel costs, industry consolidation, and declining commercial aviation market conditions |
| As a result, RAAS could experience an increase in financial defaults by its aircraft customers |
| We are at risk of losses and adverse publicity stemming from any accident involving aircraft for which we hold design authority |
| If a Raytheon aircraft were to crash or be involved in an accident, we could be exposed to significant tort liability |
| Our insurance may be inadequate to cover damages arising from any future accidents |
| In the event that our insurance is not adequate, we may be forced to bear substantial losses from an accident |
| In addition, any accident involving a Raytheon aircraft could create a public perception that our aircraft are not safe or reliable, which could harm our reputation, result in reduced sales, and harm our business |
| Furthermore, accidents and incidents involving Raytheon aircraft may prompt the Federal Aviation Administration (FAA) to issue directives or other notices regarding the aircraft |
| Publication of a FAA directive or notice could create a public perception that a particular Raytheon aircraft is not safe, reliable, or suitable for an operator’s needs |
| This perception could result in a claim being filed against us or lost future sales, or both |
| In addition, the FAA could require design modifications causing us to incur significant expenditures altering an aircraft design, altering aircraft in production, and altering fielded aircraft under warranty |
| FAA airworthiness directives are typically followed by similar regulatory requirements in other countries where affected aircraft are certified |
| The publication of any of the foregoing by the FAA could lead to a decline in revenues and have a negative impact on our business, financial condition and results of operations |
| The aircraft manufacturing industry is subject to extensive government regulation, and changes in such regulations may increase our operating costs |
| Our commercial aircraft products are required to comply with numerous regulations governing design approvals, production and quality systems, airworthiness, and continuing operational safety in the US and other countries in which our aircraft are sold |
| These requirements are administered by the FAA in the United States and the aviation authorities of other countries, including, in the case of Europe, the European Aviation Safety Agency (EASA) |
| If these requirements change, our costs of complying with them could increase and reduce our margins |
| 19 ______________________________________________________________________ [45]Table of Contents We use estimates in accounting for our pension plan and changes in our estimates could adversely affect our results of operations |
| We must determine our pension plan expense or income which involves significant judgment, particularly with respect to our long-term return on pension assets and discount rate assumptions |
| If our discount rate assumption (which is used to determine the present value of our benefit obligations) is decreased due to changes in our assumptions or other reasons, our pension plan expense could increase which would negatively impact our results of operations |
| We have entered, and expect to continue to enter, into joint venture, teaming and other arrangements, and these activities involve risks and uncertainties |
| In the ordinary course of our business, we have entered, and expect to continue to enter, into certain joint venture, teaming and other business relationships to, among other things, expand our research and development, sales and other capabilities and support our broad portfolio of products and services |
| In some of these business arrangements, we may partner with one or more competitors |
| Some arrangements may involve foreign partners |
| These arrangements involve certain risks and uncertainties, including: – the risk of the joint venture or applicable entity failing to satisfy its loan, project performance, and other contractual obligations, which may result in certain liabilities to us for guarantees and other commitments; – the challenges in achieving strategic objectives and other benefits expected from the business arrangement; – the risk of conflicts arising between us and our partners and the difficulty of managing and resolving such conflicts; and – the difficulty of managing or otherwise monitoring such business arrangements |
| We have made, and expect to continue to make, strategic acquisitions and investments, and these activities involve risks and uncertainties |
| We have completed a number of acquisitions and investments over the past several years, and we currently intend to do so in the future |
| Acquisitions and investments involve certain risks and uncertainties, including the difficulty in integrating newly-acquired businesses, the challenges in achieving strategic objectives and other benefits expected from acquisitions or investments, the potential impairment of acquired assets, and the potential loss of key employees of the acquired businesses |
| We may incur additional charges relating to our former Engineering and Construction Business |
| We have obligations related to outstanding letters of credit, surety bonds and guarantees (“Support Agreements”) provided in connection with a number of contracts and leases of our former engineering and construction business unit, which we sold to Washington Group International in July 2000 |
| In meeting our obligations under the remaining Support Agreements, we have various risks and exposures, including warranty closeout, various liquidated damages issues, and potential adverse claims resolution |
| While these potential obligations, liabilities and risks or the impact of them may be difficult to predict, they could have a negative impact on our financial condition and results of operations |
| The outcome of litigation in which we have been named as a defendant is unpredictable and an adverse decision in any such matter could have a material adverse effect on our financial position, results of operations, and liquidity |
| We are defendants in a number of litigation matters and are subject to various other claims, demands and investigations |
| These matters may divert financial and management resources that would otherwise be used to benefit our operations |
| Although we believe that we have meritorious defenses to the claims made in the litigation matters to which we have been named a party, and intend to contest each lawsuit vigorously, no assurances can be given that the results of these matters will be favorable to us |
| An adverse resolution or outcome of any of these lawsuits, claims, demands or investigations could have a negative impact on our financial condition, results of operations, and liquidity |
| 20 ______________________________________________________________________ [46]Table of Contents We depend on the recruitment and retention of qualified personnel, and our failure to attract and retain such personnel could seriously harm our business |
| Due to the specialized nature of our businesses, our future performance is highly dependent upon the continued services of our key engineering personnel and executive officers, the development of additional management personnel and the hiring of new qualified engineering, manufacturing, marketing, sales and management personnel for our operations |
| Competition for personnel is intense, and we may not be successful in attracting or retaining qualified personnel |
| In addition, certain personnel may be required to receive security clearance and substantial training in order to work on certain programs or perform certain tasks |
| The loss of key employees, our inability to attract new qualified employees or adequately train employees, or the delay in hiring key personnel could seriously harm our business, results of operations and financial condition |
| Approximately 11cmam500 of our employees are unionized, which represented approximately 15prca of our employees at December 31, 2005 |
| As a result, we may experience work stoppages, which could adversely affect our business |
| We cannot predict how stable our union relationships, currently with 9 different US labor organizations and 4 different non-US labor organizations, will be or whether we will be able to successfully negotiate successor agreements without impacting our financial condition |
| In addition, the presence of unions may limit our flexibility in dealing with our workforce |
| Work stoppages could negatively impact our ability to manufacture our products on a timely basis, which could negatively impact our results of operations and financial condition |
| We may be unable to adequately protect our intellectual property rights, which could affect our ability to compete |
| We own many United States and foreign patents and patent applications, and have rights in unpatented know-how, trademarks, and copyrights |
| On occasion, we have applied for semiconductor chip mask work registrations |
| The US government has licenses in our patents and certain other intellectual property that are developed in performance of government contracts, and it may use or authorize others to use such patents and intellectual property for government purposes |
| There can be no assurance that any of our patents and other intellectual property will not be challenged, invalidated or circumvented by third parties |
| In some instances, we have augmented our technology base by licensing the proprietary intellectual property of others |
| In the future, we may not be able to obtain necessary licenses on commercially reasonable terms |
| We enter into confidentiality and invention assignment agreements with our employees, and enter into non-disclosure agreements with our suppliers and appropriate customers so as to limit access to and disclosure of our proprietary information |
| These measures may not suffice to deter misappropriation or independent third party development of similar technologies |
| Moreover, the protection provided to our intellectual property by the laws and courts of foreign nations may not be as advantageous to us as the remedies available under United States law |
| Our operations expose us to the risk of material environmental liabilities |
| We use and generate large quantities of hazardous substances and wastes in our manufacturing operations |
| As a result, we are subject to potentially material liabilities related to personal injuries or property damages that may be caused by hazardous substance releases and exposures |
| For example, we are investigating and remediating contamination related to our current or past practices at numerous properties and, in some cases, have been named as a defendant in related personal injury or “toxic tort” claims |
| We are also subject to increasingly stringent laws and regulations that impose strict requirements for the proper management, treatment, storage and disposal of hazardous substances and wastes, restrict air and water emissions from our manufacturing operations, including government-owned facilities we manage, and require maintenance of a safe workplace |
| These laws and regulations can impose substantial fines and criminal sanctions for violations, and require the installation of costly pollution control equipment or operational changes to limit pollution emissions and/or decrease the likelihood of accidental hazardous substance releases |
| In addition, if we were convicted of a violation of the Federal Clean Air Act or the Clean Water Act, the facility involved in the violation cannot be used in performing any US government contract awarded during the violation period |
| We incur, and expect to continue to incur, substantial capital and 21 ______________________________________________________________________ [47]Table of Contents operating costs to comply with these laws and regulations |
| In addition, new laws and regulations, stricter enforcement of existing laws and regulations, the discovery of previously unknown contamination or the imposition of new clean-up requirements could require us to incur costs in the future that would have a negative effect on our financial condition or results of operations |
| We face certain significant risk exposures and potential liabilities that may not be adequately covered by indemnity or insurance |
| A significant portion of our business relates to designing, developing and manufacturing advanced defense and technology systems and products |
| New technologies may be untested or unproven |
| In addition, we may incur significant liabilities that are unique to our products and services, including missile systems, command and control systems, and air traffic management systems |
| In some, but not all, circumstances, we may receive indemnification from the US government |
| While we maintain insurance for certain risks, the amount of our insurance coverage may not be adequate to cover all claims or liabilities, and it is not possible to obtain insurance to protect against all operational risks and liabilities |
| Accordingly, we may be forced to bear substantial costs resulting from risks and uncertainties of our business which would negatively impact our results of operations and financial condition |
| The unpredictability of our results may harm the trading price of our securities, or contribute to volatility |
| Our operating results may vary significantly over time for a variety of reasons, many of which are outside of our control, and any of which may harm our business |
| The value of our securities may fluctuate as a result of considerations that are difficult to forecast, such as: – volume and timing of product orders received and delivered; – levels of product demand; – government spending patterns; – the timing of contract receipt and funding; – our ability and the ability of our key suppliers to respond to changes in customer orders; – timing of our new product introductions and the new product introductions of our competitors; – changes in the mix of our products; – cost and availability of components and subsystems; – price erosion; – adoption of new technologies and industry standards; – competitive factors, including pricing, availability and demand for competing products; – fluctuations in foreign currency exchange rates; – conditions in the capital markets and the availability of project financing; – regulatory developments; – general economic conditions, particularly the cyclical nature of the general aviation market in which we participate; and – our ability to obtain licenses from the US government to sell products abroad |
| A rating downgrade by credit agencies could limit our access to capital and cause our borrowing costs to increase |
| A downgrade in our credit rating could negatively affect our ability to access capital |
| If the rating agencies downgrade our ratings, particularly below investment grade, it may significantly limit our access to capital and our borrowing costs would increase |
| In addition, we would likely be required to pay a higher interest rate in future financings and our potential pool of investors and funding sources would likely decrease |