Raytheon 2003 Annual Report Download - page 33

venture in the joint venture’s capacity as prime contractor. Accord-
ingly, the Company records the work it performs for the joint ven-
ture as operating activity.
333 COMMITMENTS AND CONTINGENCIES
Defense contractors are subject to many levels of audit and investi-
gation. Agencies that oversee contract performance include: the
Defense Contract Audit Agency, the Department of Defense
Inspector General, the General Accounting 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. Except as noted in the fol-
lowing paragraphs, individually and in the aggregate, these investi-
gations are not expected to have a material adverse effect on the
Company’s financial position or results of operations.
In 2002, the Company received service of a grand jury subpoena
issued by the United States District Court for the Central District of
California. The subpoena seeks documents related to the activities of
an international sales representative engaged by the Company
related to a foreign military sales contract in Korea in the late 1990s.
The Company has cooperated fully in the investigation including pro-
ducing documents in response to the subpoena. The Company has in
place appropriate compliance policies and procedures, and believes
its conduct has been consistent with those policies and procedures.
The Company continues to cooperate with the staff of the
Securities and Exchange Commission (SEC) on a formal investiga-
tion 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 late 1999, the Company and two of its officers were named as
defendants in several class action lawsuits which were consoli-
dated into a single complaint in June 2000, when four addi-
tional former or present officers were named as defendants (the
“Consolidated Complaint”). The Consolidated Complaint principally
alleges that the defendants violated federal securities laws by mak-
ing misleading statements and by failing to disclose material infor-
mation concerning the Company’s financial performance during the
purported class period. In March 2000, the court certi-
fied the class of plaintiffs as those people who purchased the
Company’s stock between October 7, 1998 and October 12,
1999. In August 2001, the court issued an order dismissing most of
the claims asserted against the Company and the individual defen-
dants. In March 2003, the plaintiff filed an amendment to the
Consolidated Complaint which sought to add the Company’s
independent auditor as an additional defendant. In May 2003, the
court issued an order dismissing one of the two claims that had
been asserted against the Company’s independent auditor. In
February 2004, the Company and the individual defendants filed a
motion for summary judgment, which the plaintiff opposes. A hear-
ing on the summary judgment motion is scheduled for April 2004.
The Court has scheduled a trial to begin in May 2004. The
Company’s independent auditor has also filed a motion for summary
judgment which the plaintiff opposes.
In 1999 and 2000, the Company was named as a nominal
defendant and all of its directors at the time (except one) were
named as defendants in purported derivative lawsuits. The deriva-
tive complaints contain allegations similar to those included in the
Consolidated Complaint and further allege that the defendants
breached fiduciary duties to the Company and allegedly failed to
exercise due care and diligence in the management and adminis-
tration of the affairs of the Company. In December 2001, the
Company and the individual defendants filed a motion to dismiss
one of the derivative lawsuits. These actions have since been con-
solidated, and the plaintiffs have filed a consolidated amended
complaint. In April 2003, the defendants filed a motion to dismiss
the consolidated amended complaint.
In June 2001, a class action lawsuit was filed on behalf of all pur-
chasers 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 pur-
chasing WGI securities because the Company and certain of its offi-
cers 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 defen-
dants filed a motion seeking to dismiss the action in November 2001.
In April 2002, the motion to dismiss was denied. The defendants
have filed their answer to the amended complaint and discovery is
proceeding. In April 2003, the District Court conditionally certified
the class and defined the class period as that between April 17,
2000 and March 2, 2001, inclusive. The defendants have filed their
answer to the amended complaint and discovery is proceeding.
In July 2001, the Company was named as a nominal defendant
and all of its directors at the time have been named as defendants in
two identical purported derivative lawsuits. These lawsuits were con-
solidated into one action (the “Consolidated Amended Derivative
Complaint”) in January 2004 and contain allegations similar to those
included in the WGI Complaint and further allege that the individual
defendants breached fiduciary duties to the Company and failed to
maintain systems necessary for prudent management and control of
the Company’s operations. The defendants filed a motion to dismiss
the Consolidated Amended Derivative Complaint in March 2004.
P31 333 RAYTHEON COMPANY 333