Raytheon 2007 Annual Report Download - page 48

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. Some products require relatively scarce raw materials. We are generally subject to
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.
We use estimates in accounting for many of our programs 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 whether the intent of entering into
multiple contracts was effectively to enter into a single project in order to determine whether such contracts should be
combined or segregated; 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. 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 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 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 or long-term
return on assets (ROA) (which is used to determine the funded status of our pension plans) is decreased due to changes
in our assumptions or other reasons, our pension plan funded status and expense could increase which would negatively
impact our results of operations. In addition, if our actual return on assets differs from our long-term ROA assumption,
our pension plan funded status and pension expense would change.
We have made, and expect to continue to make, strategic acquisitions and investments, and these activities involve risks
and uncertainties.
In pursuing our business strategies, we continually review, evaluate and consider potential investments and acquisitions.
In evaluating such transactions, we are required to make difficult judgments regarding the value of business
opportunities, technologies and other assets, and the risks and cost of potential liabilities. Furthermore, acquisitions and
investments involve certain other 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,
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