Raytheon 2007 Annual Report Download - page 62

security including border surveillance, air traffic management, precision engagement, naval systems integration and
intelligence and surveillance and reconnaissance. In addition, as coalition forces increasingly integrate military operations
worldwide, we believe that our leadership in network centric operations will continue to be a key discriminator.
In 2007, our international bookings grew from $3.4 billion in 2006 to $6.7 billion in 2007. Notable awards include
e-Borders, a contract with the U.K. Home Office, and Air Warfare Destroyer, a contract with Australia to design, develop
and procure the combat system for the new Hobart Class destroyers.
Focus on the Customer and Execution
Our customer focus continues to be a critical part of our strategy—underpinned by a focus on performance, relationships
and solutions. Performance means being able to meet customer commitments and is ensured through strong processes,
metrics and oversight. We maintain a “process architecture” that spans our broad programs and pursuits. It consists of
processes such as Integrated Product Development System (IPDS) which assures consistency of evaluation and execution
at each step in a program’s life-cycle. These processes are linked to an array of front-end and back-end metrics. With this
structure, we are able to track results and be alerted to potential issues through numerous oversight mechanisms,
including operating reviews and annual operating plan reviews.
We are also continuing to build strong customer relationships by listening to customers, working with them as partners
and including them on Raytheon Six SigmaTM teams to jointly improve their programs and processes. We are increasingly
focused on responding to our customers’ changing requirements with rapid and effective solutions to real problems.
Other Business Considerations
We currently are involved in approximately 15,000 contracts. Our largest contract in 2007 was DDG 1000, which
accounted for less than 5% of total sales in 2007. We believe that our diverse portfolio of programs and capabilities is well
suited to a changing defense environment. However, we face numerous challenges and risks, as discussed below and
under Item 1A “Risk Factors” of this Form 10-K.
We remain dependent on the U.S. government for a substantial portion of our business. Sales to the U.S. government
may be affected by changes in procurement policies, budget considerations, changing defense requirements and political
developments such as changes in Congress and the Administration. The influence of these factors, which are largely
beyond our control, could impact our financial position and results of operations. In addition, we operate in highly
competitive markets. These markets are becoming increasingly more concentrated in response to the trend of certain
customers awarding a smaller number of large multi-service contracts and industry consolidation. Additionally, the DoD
and international customers are increasingly turning to commercial contractors for IT and other support work.
Our future success is dependent on our ability to execute our business strategies. First, we must continue to perform on
existing programs, as past performance is an important selection criteria for new competitive awards. Second, we must
successfully execute our growth strategies, as discussed above. In order to execute, we must be able to identify the most
appropriate opportunities to leverage our capabilities and technologies, as well as emerging customer trends in these
markets. We then must successfully develop, market and support new offerings and technologies for those markets which
will require the investment of significant financial resources and substantial management attention.
We also focus on significant changes in our estimates of contract sales, costs and profits, to assess program performance
and the potential impact of such changes on our results of operations. As discussed in greater detail in “Critical
Accounting Estimates”, our method of accounting for our contracts requires that we estimate contract revenues and
costs. Due to the size, length of time and nature of the work required to be performed on many of our contracts, our
estimates are complicated and subject to many variables. We review our contract estimates periodically to assess whether
revisions are warranted and make revisions and adjustments to our estimates in the ordinary course. Changes in
estimates of contract sales, costs and profits are recognized using a cumulative catch-up, which recognizes in the current
period the cumulative effect of the changes on current and prior periods. A significant change in one or more of these
estimates could affect the profitability of one or more of our contracts. In addition, given our number of contracts and
our accounting methods, we may recognize changes in multiple contracts in a fiscal quarter that, individually, may be
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