Raytheon 2012 Annual Report Download - page 25

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Our business could be adversely affected by a negative audit or investigatory finding by the U.S. Government.
As a government contractor, we are subject to audits and investigations by U.S. Government agencies including the Defense
Contract Audit Agency (DCAA), the Defense Contract Management Agency (DCMA), the Inspector General of the DoD and
other departments and agencies, the Government Accountability Office, the Department of Justice (DoJ) and Congressional
Committees. From time to time, these and other agencies investigate or conduct audits to determine whether a contractor’s
operations are being conducted in accordance with applicable requirements. The DCAA and DCMA also review the adequacy
of and a contractor's compliance with its internal control systems and policies, including the contractor's accounting, purchasing,
property, estimating, earned value management and material management accounting systems. Our final allowable incurred
costs for each year are also subject to audit and have from time to time resulted in disputes between us and the U.S. Government.
In addition, the DoJ has, from time to time, convened grand juries to investigate possible irregularities by us. 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
or investigation 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.
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, including
but not limited to the requirements for genuine original equipment manufacturer parts, 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, especially smaller entities, may continue to be impacted by volatile global economic
conditions, 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, financial condition or liquidity.
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.