Raytheon 2010 Annual Report Download - page 25

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, impact our performance and compliance costs. In addition,
current U.S. Government budgetary constraints could lead to changes in the procurement environment, including the
DoD’s recent initiative focused on efficiencies, affordability and cost growth and other changes to its procurement
practices. If and to the extent such changes occur, they could impact our results of operations and liquidity, and could
affect whether and, if so, how we pursue certain opportunities and the terms under which we are able to do so.
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 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
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 segmented; 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.
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