Raytheon 2004 Annual Report Download - page 99

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81
Notes to Consolidated Financial Statements (Continued)
In 1997, the Company provided a first loss guarantee of $133 million on $1.3 billion of U.S. Export-Import Bank
loans (maturing in 2015) to the Brazilian government related to the System for the Vigilance of the Amazon
(SIVAM) program being performed by the Company’s Network Centric Systems segment.
Defense contractors are subject to many levels of audit and investigation. Agencies that oversee contract
performance include: the Defense Contract Audit Agency, the Department of Defense Inspector General, the
Government Accountability Office, the Department of Justice, and Congressional Committees. The Department of
Justice, from time to time, has convened grand juries to investigate possible irregularities by the Company.
Individually and in the aggregate, these investigations are not expected to have a material adverse effect on the
Company’s financial position or results of operations.
The Company continues to cooperate with the staff of the Securities and Exchange Commission (SEC) on a
formal investigation related to the Company’s accounting practices primarily related to the commuter aircraft
business and the timing of revenue recognition at Raytheon Aircraft. The Company has been providing documents
and information to the SEC staff. In addition, certain present and former officers and employees of the Company
have provided testimony in connection with this investigation. The Company is unable to predict the outcome of
the investigation or any action that the SEC might take.
In May 2004, without admitting any liability or wrongdoing, the Company reached an agreement to settle a
securities class action lawsuit originally filed in 1999 on behalf of the Company and all individual defendants. The
terms of the settlement include a cash payment of $210 million and the issuance of warrants for the Company’s
stock with a stipulated value of $200 million. The warrants will have a five-year term with a strike price of $37.50
and will be issued when the settlement proceeds are distributed to the claimants which is expected to occur in 2005.
In December 2004, the court approved the settlement, resolving all claims asserted against the Company and the
individual defendants. In connection with the settlement, the Company recorded a charge of $329 million, of which
$325 million was included in other expense, a $410 million accrued expense, and an $85 million receivable for
insurance proceeds primarily related to this settlement. The charge for the settlement will be revised in future
quarters to reflect changes in the fair value of the warrants after they are issued. In 2004, the Company paid $210
million into escrow in connection with the settlement.
In July 2004, without admitting any liability or wrongdoing, the Company and the individual defendants
reached a tentative agreement to settle a derivative action related to the class action lawsuit described above. The
settlement, which is subject to court approval, will resolve all claims in the case and is not expected to have a
material effect on the Company’s financial position or results of operations.
In June 2001, a class action lawsuit was filed on behalf of all purchasers of common stock or senior notes of WGI
during the class period of April 17, 2000 through March 1, 2001 (the “WGI Complaint”). The plaintiff class claims
to have suffered harm by purchasing WGI securities because the Company and certain of its officers allegedly
violated federal securities laws by misrepresenting the true financial condition of RE&C in order to sell RE&C to
WGI at an artificially inflated price. An amended complaint was filed in October 2001 alleging similar claims. The
Company and the individual defendants filed a motion seeking to dismiss the action in November 2001. In April
2002, the motion to dismiss was denied. In September 2002, the defendants filed an answer to the amended
complaint and discovery is proceeding. In April 2003, the court conditionally certified the class and defined the
class period as that between April 17, 2000 and March 2, 2001, inclusive.