Raytheon 2010 Annual Report Download - page 73

Financing Arrangements and Other—We issue guarantees and banks and surety companies issue, on our behalf, letters of
credit and surety bonds to meet various bid, performance, warranty, retention and advance payment obligations of us or
our affiliates. These instruments expire on various dates through 2020. Additional guarantees of project performance for
which there is no stated value also remain outstanding. The stated values outstanding consisted of the following at
December 31, 2010 and December 31, 2009:
(In millions) 2010 2009
Guarantees $ 281 $227
Letters of Credit 1,067 898
Surety Bonds 213 203
Included in guarantees and letters of credit described above were $134 million and $256 million, respectively, at
December 31, 2010, and $80 million and $206 million, respectively, at December 31, 2009, related to our joint venture in
TRS. We provide these guarantees and letters of credit to TRS and other affiliates to assist these entities in 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 to us. At December 31, 2010 and December 31, 2009, we had an estimated liability of $9
million and $6 million, respectively, related to these guarantees and letters of credit. We periodically evaluate the risk of
TRS and other affiliates failing to satisfy their loans, project performance and meet other contractual obligations
described above. At December 31, 2010, we believe the risk that TRS and other affiliates will not be able to perform or
meet their obligations is minimal for the foreseeable future based on their current financial condition. All obligations
were current at December 31, 2010.
Our residual turbo-prop commuter aircraft portfolio has exposure to outstanding financing arrangements with the
aircraft serving as collateral. We have sold and leased commuter aircraft globally to thinly capitalized companies, whose
financial condition could be significantly affected by a number of factors, including fuel and other costs, the availability of
credit, industry consolidation, declining commercial aviation market conditions and the U.S. Government budget for the
Essential Air Service program. Based on recent economic trends, including tightening credit markets and volatile fuel
costs, these companies may increasingly experience difficulties meeting their financial commitments. At December 31,
2010 and December 31, 2009, our exposure on commuter aircraft assets held as inventory, collateral on notes or as leased
assets, was approximately $68 million relating to 77 aircraft and approximately $109 million relating to 106 aircraft,
respectively. The valuation of used aircraft is also considered in assessing the realizable value of certain commuter aircraft
related to assets which serve as collateral for the underlying financial arrangements. As part of the assessment of realizable
value, we evaluate many factors, including sales transaction history, current market conditions, anticipated future market
conditions and age and condition of the aircraft. The carrying value of our commuter aircraft portfolio assumes an
orderly disposition of these assets, consistent with our historical experience and strategy. The tightening of credit markets
and economic conditions have reduced the number of potential buyers who are able to obtain financing and have
negatively impacted the ability of existing customers to refinance their aircraft through a third party. If the long-term
market prospects for these aircraft were to significantly erode or cease, our valuation of these assets would likely be less
than the carrying value. We periodically evaluate potential alternative strategies for the disposal of these assets. If we were
to dispose of these assets in an other than orderly manner or sell the portfolio 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 Network Centric Systems’ System for the Vigilance of the Amazon
(SIVAM) program. Loan repayments by the Brazilian Government were current at December 31, 2010.
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