Raytheon 2009 Annual Report Download - page 31

Our business could be adversely affected by a negative audit by the U.S. Government.
As a government contractor, we are subject to routine audits and investigations by U.S. 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 U.S. Government. In addition, we could suffer serious reputational harm if allegations of impropriety were made
against us.
As a U.S. Government contractor, we are subject to a number of procurement rules and regulations.
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. In addition,
current U.S. Government budgetary constraints could lead to changes in the procurement environment. If such changes
occur, our costs of complying with procurement requirements 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 by suppliers of materials and the assembly by subcontractors of major components
and subsystems 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. In addition, some of our suppliers or subcontractors may be
impacted by the recent global financial crisis, which could impair their ability to meet their obligations to us. 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
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