Raytheon 2010 Annual Report Download - page 30

ITEM 3. LEGAL PROCEEDINGS
We primarily engage 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 the U.S. Government funds. These contracts are subject to
extensive legal and regulatory requirements and, from time to time, agencies of the U.S. Government investigate whether
our operations are being conducted in accordance with these requirements. U.S. Government investigations of us,
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 us, 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 us. Government contractors are also subject to many
levels of audit and investigation. Agencies that oversee contract performance include: the Defense Contract Audit Agency,
the Defense Contract Management Agency, the Inspector General of the Department of Defense and other departments
and agencies, the Government Accountability Office, the Department of Justice (DoJ) and Congressional Committees.
The DoJ, from time to time, has convened grand juries to investigate possible irregularities by us. We also provide
products and services to customers outside of the U.S. and those sales are subject to local government laws, regulations
and procurement policies and practices. Our compliance with such local government regulation or any applicable U.S.
Government regulation (e.g., the Foreign Corrupt Practices Act and the International Traffic in Arms Regulations) may
also be investigated or audited.
We are currently conducting a self-initiated internal review of certain of our international operations, focusing on
compliance with the Foreign Corrupt Practices Act. In the course of the review, we have identified several possible areas
of concern relating to payments made in connection with certain international operations related to a jurisdiction where
we do business. We have voluntarily contacted the Securities and Exchange Commission and the DoJ to advise both
agencies that an internal review is underway. Because the internal review is ongoing, we cannot predict the ultimate
consequences of the review. Based on the information available to date, we do not believe that the results of this review
will have a material adverse effect on our financial condition, results of operations or liquidity.
We are involved in various stages of investigation and cleanup related to remediation of various environmental sites. We
accrued all appropriate costs we expect to incur in connection therewith. 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 our responsibility, it is difficult to determine the ultimate outcome of
these matters. However, in the opinion of management, we do not expect any additional liability to have a material effect
on our financial position, results of operations or liquidity. Additional information regarding the effect of compliance
with environmental protection requirements and the resolution of environmental claims against us and our operations
can be found in “Environmental Regulation” within Item 1, Item 1A “Risk Factors,” “Commitments and Contingencies”
within Item 7 and “Note 11: Commitments and Contingencies” within Item 8 of this Form 10-K.
On July 22, 2010, Raytheon Systems Limited (RSL) was notified by the UK Border Agency that it had been terminated for
cause on a program. The termination notice included allegations that RSL had failed to perform on certain key milestones
and other matters in addition to claims to recover certain losses incurred and previous payments made to RSL. We
believe that RSL performed well and delivered substantial capabilities to the UK Border Agency under the program,
which has been operating successfully and providing actionable information since live operations began in May 2009. On
July 29, 2010, RSL filed a dispute notice on the grounds that the termination by the UK Border Agency was not valid. On
August 18, 2010, the UK Border Agency initiated arbitration proceedings on this issue. We expect the arbitration
procedures to commence in the first half of 2011. We intend to pursue vigorously the collection of receivables for the
program and damages in connection with the termination and defend ourselves against the UK Border Agency’s claims
for losses and previous payments.
As a result of the termination notice, we adjusted our estimated amount of revenue and costs under the program in the
second quarter of 2010. The adjustment was based on our determination that certain assets were no longer expected to be
recovered and for estimated costs for certain exit cost obligations under the contract and the estimated settlement of
expected future subcontractor claims. The impact of the adjustment reduced Intelligence and Information Systems’ total
net sales and operating income by $316 million and $395 million, respectively, for the year ended December 31, 2010. At
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