Raytheon 2007 Annual Report Download - page 109

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 us.
Also included in guarantees and letters of credit above was $85 million and $21 million at December 31, 2007, related to
discontinued operations. Included in guarantees, letters of credit and surety bonds above was $83 million, $92 million
and $11 million at December 31, 2006 related to discontinued operations.
Our residual commuter aircraft portfolio has exposure to outstanding financing arrangements with the aircraft serving as
collateral. We have sold aircraft to 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, 2007 and December 31, 2006, our exposure on commuter aircraft assets held as inventory, collateral on
notes or as leased assets, was approximately $250 million relating to 156 aircraft and approximately $325 million relating
to 192 aircraft, respectively. The carrying value of commuter aircraft assets assumes an orderly disposition of these assets,
consistent with our historical experience and strategy to dispose of these residual 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 less than
the carrying value.
In 1997, we 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 Network Centric Systems. Loan repayments by the Brazilian government were current at December 31,
2007.
Government contractors are subject to many levels of audit and investigation. Agencies that oversee contract
performance include: the Defense Contract Audit Agency, the Inspector General of the Department of Defense and other
departments and agencies, 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 us. Individually and in the aggregate, these audits and investigations are not expected to have a material
adverse effect on our financial position, results of operations or liquidity.
In 2006, Technical Services recorded a profit adjustment related to certain program costs which may be deemed
unrecoverable. Although not expected to be material, we may incur additional charges as we continue to assess and
engage in discussions regarding the matter.
In May 2006, international arbitration hearings commenced against us, as the successor to the Hughes Electronics defense
business, in connection with certain claims brought in 2004 relating to an alleged 1995 Workshare Agreement. The
asserted claims include breach of contract, intellectual property infringement and other related claims. The arbitrator’s
liability decision on certain of the claims has been stayed while the parties engage in settlement discussions. The ultimate
resolution of this matter, however, remains uncertain and difficult to predict. We believe that we have meritorious
defenses to these claims and intend to continue to contest the claims vigorously. An adverse resolution of this matter
could have a material effect on our results of operations.
In addition, various claims and legal proceedings generally incidental to the normal course of business are pending or
threatened against us. While the ultimate liability or potential range of loss, if any, from these proceedings is presently
indeterminable, any additional liability is not expected to have a material adverse effect on our financial position, results
of operations or liquidity.
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