Raytheon 2004 Annual Report Download - page 64

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the Company. In 2004, in accordance with the terms of the equity security units, the Company received proceeds of
$863 million and issued 27.0 million shares of common stock. The terms of the equity security units required that
the mandatorily redeemable equity securities be remarketed. On February 11, 2004, the mandatorily redeemable
equity securities were remarketed and the quarterly distribution rate was reset at 7.0%.
The Company’s need for, cost of, and access to funds are dependent on future operating results, as well as
conditions external to the Company. Cash and cash equivalents, cash flow from operations, proceeds from
divestitures, and other available financing resources are expected to be sufficient to meet anticipated operating,
capital expenditure, and debt service requirements during the next twelve months and for the foreseeable future.
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In 2004, the Company entered into an agreement to sell certain general aviation finance receivables, with the buyer
assuming all servicing responsibilities. As part of the agreement, the Company retains a first loss deficiency
guarantee of 7.5% of the receivable amount sold. In 2004, $37 million of receivables were sold under the agreement,
with no associated gain or loss. Also in 2004, the Company sold $22 million of general aviation finance receivables
without any continuing involvement.
In 2003, the Company sold $337 million of general aviation finance receivables to a qualifying special purpose
entity which in turn issued beneficial interests in these receivables to a commercial paper conduit, received
proceeds of $279 million, retained a subordinated interest in and servicing rights to the receivables, and recognized
a gain of $2 million. The sale was non-recourse to the Company, and effectively reduced the Company’s exposure
to general aviation market risk for receivables by approximately 25 percent. At December 31, 2004 and 2003, the
outstanding balance of securitized accounts receivable held by the third party conduit totaled $204 million and
$320 million, respectively, of which the Company’s subordinated retained interest was $58 million and the fair
value of the servicing asset was $4 million and $6 million, respectively.
In 2001, the Company formed a joint venture, Thales-Raytheon Systems (TRS), described below in Major
Affiliated Entities. The Company has guaranteed TRS-related borrowings of up to $34 million under which $12
million was outstanding at December 31, 2004. The Company has also entered into other joint ventures, also
described below in Major Affiliated Entities. TRS and the other joint ventures, in the normal course of business,
have banks issue letters of credit and guarantees related to project performance and other contractual obligations.
While the Company expects these joint ventures to satisfy their loan, project performance, and other contractual
obligations, their failure to do so may result in a future obligation for the Company.
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.
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In 2002, the Company formed a joint venture, Flight Options LLC (FO), whereby the Company contributed its
Raytheon Travel Air fractional ownership business and loaned the new entity $20 million. In June 2003, the Company
participated in a financial recapitalization of FO. The Company now owns approximately 65 percent of FO and is
consolidating FO’s results in its financial statements. Prior to the financial recapitalization, 100 percent of FO’s $20
million of losses were recorded as other expense in the first six months of 2003 since the Company had been meeting
all of FO’s financing requirements. The consolidation of FO did not have a significant effect on the Company’s
financial position or results of operations, although the Company’s reported revenue, operating income, and other
expense changed as a result of the consolidation of FO’s results. The Company is recording 100 percent of FO’s losses
since the Company has been meeting all FO’s financing requirements. FO’s customers, in certain instances, have the
contractual ability to require FO to buy back their fractional share at its current fair market value. The estimated value
of this potential obligation was approximately $575 million at December 31, 2004.