Raytheon 2014 Annual Report Download - page 26

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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 also are subject to specific procurement requirements that may, in
effect, limit the suppliers and subcontractors we may utilize, including requirements for genuine original equipment
manufacturer parts. As we continue to seek further cost efficiencies throughout the enterprise, we may centralize procurements
in order to attain better pricing through strategic sourcing.
In some instances, we are dependent on sole-source suppliers. If any of these suppliers or subcontractors fails to meet our
needs or becomes insolvent, we may not have readily available alternatives or alternatives at prices that meet the demands of
our customers. While we enter into long-term or volume purchase agreements with certain suppliers and take other actions,
such as accelerating supplier payments commensurate with value delivered, to ensure financial viability and 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 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. In addition, we must comply with other procurement
requirements, including restrictions on the use of certain chemicals in the European Union and conducting diligence and
providing disclosure regarding the use of certain minerals, known as conflict minerals, which may impact our procurement
practices and increase our costs.
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.
For a complete discussion regarding how our financial statements can be affected by contract accounting policies, see “Critical
Accounting Estimates” beginning on page 34 within Item 7 of this Form 10-K.
Significant changes in key estimates and assumptions, such as discount rates and assumed long-term return on assets
(ROA), as well as our actual investment returns on our pension plan assets and other actuarial factors, could affect our
earnings, equity and pension contributions in future periods.
We must determine our pension and other postretirement benefit plans' expense or income which involves significant judgment,
particularly with respect to our discount rate, long-term ROA and other actuarial assumptions. If our assumptions change
significantly due to changes in economic, legislative, and/or demographic experience or circumstances, our pension and other
postretirement benefit plans' expense and funded status, and our cash contributions to such plans, could negatively change
which would negatively impact our results of operations. In addition, differences between our actual investment returns and
our long-term ROA assumption would result in a change to our pension and other postretirement benefit plans' expense and