Raytheon Company is an industry leader in defense and government electronics,
space, information technology, technical services, and business and special mission
aircraft. Raytheon was founded in 1922 and is currently incorporated in the state
of Delaware. The Company is the surviving company of the 1997 merger of HE Holdings,
Inc. and Raytheon Company.
Raytheon’s government and defense business is currently aligned in six business
segments: Integrated Defense Systems; Intelligence and Information Systems;
Missile Systems; Network Centric Systems; Space and Airborne Systems; and Technical
Services. Raytheon Aircraft is one of the leading providers of business and
special mission aircraft and delivers a broad line of jet, turboprop, and piston-powered
airplanes to individual, corporate and government customers world-wide.
The Company and its various subsidiaries act as a prime contractor or major
subcontractor for many different Government programs, including those that involve
the development and production of new or improved weapons or other types of
electronic systems or major components of such systems. Over its lifetime, a
program may be implemented by the award of many different individual contracts
and subcontracts. The funding of Government programs is subject to congressional
appropriations. Although multi-year contracts may be authorized in connection
with major procurements, Congress generally appropriates funds on a fiscal year
basis even though a program may continue for many years. Consequently, programs
are often only partially funded initially, and additional funds are committed
only as Congress makes further appropriations. The Government is required to
adjust equitably a contract price for additions or reductions in scope or other
changes ordered by it.
Generally, government contracts are subject to oversight audits by Government
representatives, and, in addition, they include provisions permitting termination,
in whole or in part, without prior notice at the Government’s convenience upon
the payment of compensation only for work done and commitments made at the time
of termination. In the event of termination for convenience, the contractor
will receive some allowance for profit on the work performed. The right to terminate
for convenience has not had any material adverse effect upon Raytheon’s business
in light of its total government business.
The Company’s government business is performed under both cost reimbursement
and fixed price prime contracts and subcontracts. Cost reimbursement contracts
provide for the reimbursement of allowable costs plus the payment of a fee.
These contracts fall into three basic types: (1) cost plus fixed fee contracts
which provide for the payment of a fixed fee irrespective of the final cost
of performance; (2) cost plus incentive fee contracts which provide for increases
or decreases in the fee, within specified limits, based upon actual results
as compared to contractual targets relating to such factors as cost, performance
and delivery schedule; and (3) cost plus award fee contracts which provide for
the payment of an award fee determined at the discretion of the customer based
upon the performance of the contractor against pre-established criteria. Under
cost reimbursement type contracts, Raytheon is reimbursed periodically for allowable
costs and is paid a portion of the fee based on contract progress. Some costs
incident to performing contracts have been made partially or wholly unallowable
by statute or regulation. Examples are charitable contributions, certain merger
and acquisition costs, lobbying costs and certain litigation defense costs.
Raytheon is sometimes dependent, for a variety of reasons, upon sole-source
suppliers for procurement requirements.
COMPETITION
The Company’s defense electronics businesses are direct participants in most
major areas of development in the defense, space, information gathering, data
reduction and automation fields. Technical superiority and reputation, price,
delivery schedules, financing, and reliability are among the principal competitive
factors considered by defense electronics customers. The on-going consolidation
of the U.S. and global defense, space and aerospace industries continues to
intensify competition. Consolidation among U.S. defense, space and aerospace
companies has resulted in a reduction in the number of principal prime contractors.
As a result of this consolidation, the Company frequently partners on various
programs with its major suppliers, some of whom are, from time to time, competitors
on other programs.
The Aircraft segment competes primarily with four other companies in the business
aviation industry. The principal factors for competition in the industry are
price, financing, operating costs, product reliability, cabin size and comfort,
product quality, travel range and speed, and product support. The Company believes
it possesses competitive advantages in the breadth of our product line, the
performance of our product line, and the strength of our product support.