Raytheon 2005 Annual Report Download - page 71

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The Company provides these guarantees and letters of credit to TRS and other affiliates to assist these entities in
connection with obtaining financing on more favorable terms, making bids on contracts, and performing their
contractual obligations. While the Company expects these entities to satisfy their loans, project performance, and other
contractual obligations, their failure to do so may result in a future obligation for the Company.
In connection with the order for 50 Hawker 4000 aircraft received by RAC in 2005, which is subject to the negotiation
and execution of a mutually agreeable parent guarantee, RAC will be subject to liquidated damages of approximately $80
million if it fails to deliver at least 30 aircraft in accordance with the terms of the agreement. Under the agreement, RAC is
also providing a guaranteed maintenance program which runs for ten years from the delivery date of each Hawker 4000
aircraft and provides for a guaranteed cost of maintenance, subject to annual CPI and other adjustments, for each
aircraft. RAC is responsible for any costs that exceed the guaranteed cost of maintenance.
The customers of FO, in certain instances, have the contractual ability to require FO to buy back their fractional share
based on its current fair market value. The estimated value of this potential obligation was $575 million and $572 million
at December 31, 2005 and 2004, respectively.
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,
results of operations, or liquidity. Raytheon Aircraft is also subject to oversight by the Federal Aviation Administration
(the “FAA”). The FAA routinely evaluates aircraft operational and safety requirements and is responsible for certification
of new and modified aircraft. Future action by the FAA may adversely affect Raytheon Aircraft’s financial position, results
of operations, and liquidity, including recovery of its investment in its newer aircraft.
The following is a schedule of the Company’s contractual obligations outstanding at December 31, 2005:
(In millions) Total
Less
than
1 Year
1–3
years
4–5
years
After 5
years
Debt $ 4,096 $ 79 $ 995 $ 731 $2,291
Subordinated notes payable 382 382———
Interest payments 2,190 268 466 360 1,096
Operating leases 1,205 318 441 234 212
Purchase obligations 7,654 5,421 1,683 426 124
Total $15,527 $6,468 $3,585 $1,751 $3,723
Interest payments include interest on debt that is redeemable at the option of the Company.
The Company currently estimates that required pension plan cash contributions will be approximately $440 million in
2006. The Company made a discretionary cash contribution of $200 million in January 2006. The estimate for 2006 is
subject to change and will not be known with certainty until the status of pension funding reform legislation is finalized
in 2006. Estimates for 2007 and beyond have not been provided due to the significant uncertainty of these amounts,
which are subject to change with respect to future interest rates, asset returns and pension funding reform. In addition,
pension contributions are eligible for future recovery through the pricing of products and services to the U.S.
government, therefore, the amounts noted above are not necessarily indicative of the impact these contributions will have
on the Company’s liquidity.
Purchase obligations in the table above represent agreements with suppliers to purchase goods or services that are
enforceable and legally binding. The Company enters into contracts with customers, primarily the U.S. government,
which entitles the Company to full recourse for costs incurred, including purchase obligations, in the event the contract is
terminated by the customer for convenience. These purchase obligations are included above notwithstanding the
Company’s full recourse.
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