Raytheon 2006 Annual Report Download - page 108

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Environmental remediation costs expected to be incurred are:
(In millions)
2007 $22
2008 15
2009 10
2010 8
2011 6
Thereafter 46
We issue guarantees and have banks and surety companies issue, on our behalf, letters of credit and surety bonds to meet
our various bid, performance, warranty, retention and advance payment obligations and those of our affiliates.
Approximately $311 million, $702 million and $120 million of these guarantees, letters of credit and surety bonds, for
which there were stated values, were outstanding at December 31, 2006, respectively, and $312 million, $767 million and
$78 million were outstanding at December 31, 2005, respectively. These instruments expire on various dates through
2015.
Included in guarantees and letters of credit above was $92 million and $157 million at December 31, 2006, respectively
and $76 million and $183 million at December 31, 2005, respectively related to our joint venture in Thales-Raytheon
Systems (TRS). Also, included in guarantees, letters of credit and surety bonds above was $83 million, $86 million and
$11 million at December 31, 2006, respectively and $94 million, $56 million and $63 million at December 31, 2005,
respectively related to discontinued operations. Additional guarantees of project performance for which there is no stated
value also remain outstanding.
We provide 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 we expect 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 the third quarter of 2006, we were informed by the Internal Revenue Service that it intends to conduct a federal excise
tax audit at Flight Options, which we believe will cover our treatment of certain Flight Options customer fees and
charges. We believe that an unfavorable outcome is not probable because, among other reasons, there is a reasonable
basis for our position that federal excise tax does not apply to management fees charged to our customers and such
position is consistent with industry practice. Nevertheless, the ultimate resolution of this matter is uncertain and difficult
to predict and an unfavorable outcome could have a material effect on our results of operations.
In March 2006, pilots at Flight Options voted to be represented by the International Brotherhood of Teamsters. Flight
Options is engaged in good faith negotiations with the union to reach a mutually acceptable labor agreement for its pilots.
While the terms of any future labor agreement, if any, are presently indeterminable, such an agreement could result in
changes in pilots’ wages, benefits and working conditions that may increase Flight Options’ operating costs and impact
our competitive position in the fractional aircraft market.
The customers of Flight Options, in certain instances, have the contractual ability to require Flight Options to buy back
their fractional share based on its current fair market value. The estimated value of this potential obligation was $497
million and $575 million at December 31, 2006 and 2005, respectively.
RAAS has exposure to outstanding financing arrangements for commuter aircraft, with the aircraft serving as collateral
for these arrangements. Commuter aircraft customers of RAAS are generally thinly capitalized companies whose financial
condition could be significantly affected by sustained higher fuel costs, industry consolidation and declining commercial
aviation market conditions. At December 31, 2006 and December 31, 2005, our exposure on commuter aircraft assets
held as inventory, collateral on notes or leased assets was approximately $325 million relating to 192 aircraft and
approximately $475 million relating to 253 aircraft, respectively. The carrying value of commuter aircraft assets assumes
an orderly disposition of these assets. If we were to dispose of these assets in an other than orderly disposition, or sell the
business in its entirety, the value realized would likely be reduced.
80