Raytheon 2015 Annual Report Download - page 29

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We depend on the recruitment and retention of qualified personnel, and our failure to attract and retain such personnel
could seriously harm our business.
Due to the specialized nature of our business, our future performance is highly dependent upon the continued services of our
key engineering personnel and executive officers, the development of additional management personnel and the hiring of new
qualified engineering, manufacturing, marketing, sales and management personnel for our operations. In addition, certain
personnel may be required to receive security clearance and substantial training in order to work on certain programs or
perform certain tasks. Competition for personnel is intense and we may not be successful in attracting or retaining qualified
personnel. Furthermore, a significant percentage of our current workforce is nearing retirement. To the extent that we lose
experienced personnel, it is critical that we develop other employees, hire new qualified personnel, and successfully manage
the transfer of critical knowledge. The loss of key employees, our inability to attract new qualified employees or adequately
train employees, or the delay in hiring key personnel could seriously harm our business.
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 Inspectors 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 our operations
are being conducted in accordance with applicable requirements. The DCAA and DCMA also review the adequacy of, and
our compliance with, our internal control systems and policies, including our accounting, purchasing, property, estimating,
earned value management and material management accounting systems. Our final allowable incurred costs for each year are
subject to audit and have from time to time resulted in disputes between us and the U.S. government. The DoJ has, from time
to time, convened grand juries to investigate possible irregularities in our costs. Any costs found to be improperly allocated
to a specific contract will not be reimbursed or must be refunded if already reimbursed. In addition, we could suffer serious
reputational harm if allegations of impropriety were made against us.
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, management's 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 a 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 management's 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 detailed discussion of how our financial statements can be affected by contract accounting policies, see “Critical
Accounting Estimates” 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 plan 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 (PRB) 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 PRB plans' expense and funded status, and our cash contributions to such plans, could negatively change which would