Raytheon 2005 Annual Report Download - page 47

term with a strike price of $37.50 and will be issued when the settlement proceeds are distributed to the claimants. On
December 10, 2004, the Court entered a final judgment resolving all claims asserted against the Company and the
individual defendants. The Company expects that the distribution of the settlement proceeds, including the issuance of
the warrants, will occur in the second quarter of 2006.
SEC Investigation. As previously reported, the Company continues to cooperate with the staff of the Securities and
Exchange Commission (the “SEC”) in a formal investigation into the Company’s disclosure and accounting practices,
primarily related to the commuter aircraft business and the timing of revenue recognition at Raytheon Aircraft Company.
On April 15, 2005, the Company announced that it had submitted an offer of settlement to the staff of the SEC. The
Company, without admitting or denying any wrongdoing, offered to pay a civil penalty of $12 million and consent to the
entry of a cease and desist order with respect to violations of Sections 17(a)(2)-(3) of the Securities Act of 1933 and
Sections 13(a) and 13(b)(2)(A)-(B) of the Securities Exchange Act of 1934, and related SEC rules. The SEC staff has
agreed to recommend that the SEC approve the offer of settlement. The proposed settlement is subject to approval by the
SEC.
In addition, the SEC’s investigation of two of the Company’s employees in connection with this matter, one of whom
served as the Company’s Chief Financial Officer from December 2002 until April 15, 2005 remains unresolved. Both
individuals remain on administrative leave.
Other Matters
The Company is primarily engaged in providing products and services under contracts with the U.S. government and, to
a lesser degree, under direct foreign sales contracts, some of which are funded by the U.S. government. These contracts
are subject to extensive legal and regulatory requirements and, from time to time, agencies of the U.S. government
investigate whether the Company’s operations are being conducted in accordance with these requirements. U.S.
government investigations of the Company, whether relating to these contracts or conducted for other reasons, could
result in administrative, civil, or criminal liabilities, including repayments, fines or penalties being imposed upon the
Company, the suspension of government export licenses, or the suspension or debarment from future U.S. government
contracting. U.S. government investigations often take years to complete and many result in no adverse action against the
Company. Defense contractors are also subject to many levels of audit and investigation. Agencies which 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.
The Company is involved in various stages of investigation and cleanup relative to remediation of various environmental
sites. All appropriate costs expected to be incurred in connection therewith have been accrued. Due to the complexity of
environmental laws and regulations, the varying costs and effectiveness of alternative cleanup methods and technologies,
the uncertainty of insurance coverage and the unresolved extent of the Company’s responsibility, it is difficult to
determine the ultimate outcome of these matters. However, in the opinion of management, any liability is not expected
to have a material effect on the Company’s financial position, liquidity or results of operations. Additional information
regarding the effect of compliance with environmental protection requirements and the resolution of environmental
claims against the Company and its operations is contained in “Environmental Regulation” within Item 1, Item 1A “Risk
Factors,” “Commitments and Contingencies” within Item 7, and “Note L—Commitments and Contingencies” within
Item 8 of this Form 10-K.
Accidents involving personal injuries and property damage occur in general aviation travel. Raytheon Aircraft Company
(RAC) is a defendant in a number of product liability lawsuits that allege personal injury and property damage and seek
substantial recoveries including, in some cases, punitive and exemplary damages. RAC maintains partial insurance
coverage against such claims and maintains a level of uninsured risk determined by management to be prudent.
Additional information regarding aircraft product liability insurance is contained in “Note L—Commitments and
Contingencies” within Item 8 of this Form 10-K.
Various other claims and legal proceedings generally incidental to the normal course of business are pending or
threatened on behalf of or against the Company. While the Company cannot predict the outcome of these matters, in the
opinion of management, any liability arising from them will not have a material adverse effect on the Company’s
financial position, liquidity or results of operations after giving effect to provisions already recorded.
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