Raytheon 2010 Annual Report Download - page 74

We have entered into industrial cooperation agreements, sometimes referred to as offset agreements, as a condition to
obtaining orders for our products and services from certain customers in foreign countries. These agreements are
designed to enhance the social and economic environment of the foreign country by requiring the contractor to promote
investment in the country. Offset agreements may be satisfied through activities that do not require us to use cash,
including transferring technology, providing manufacturing and other consulting support to in-country projects, and the
purchase by third parties (e.g., our vendors) of supplies from in-country vendors. These agreements may also be satisfied
through our use of cash for such activities as purchasing supplies from in-country vendors, providing financial support
for in-country projects, building or leasing facilities for in-country operations and making investments in local ventures.
We typically do not commit to offset agreements until orders for our products or services are definitive. The amounts
ultimately applied against our offset agreements are based on negotiations with the customer and typically require cash
outlays that represent only a fraction of the original amount in the offset agreement. Offfset programs usually extend over
several years and may provide for penalties in the event we fail to perform in accordance with offset requirements. We
have historically not been required to pay any such penalties.
Government contractors are 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 and Congressional Committees. The Department of Justice has, from time to time, 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 regulations or any applicable U.S. Government regulations (e.g., the Foreign
Corrupt Practices Act and the International Traffic in Arms Regulations) may also be investigated or audited. We do not
expect these audits and investigations to have a material adverse effect on our financial position, results of operations or
liquidity, either individually or in the aggregate.
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 SEC and the Department of Justice 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 position, results of operations or liquidity.
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 by MBDA relating to an alleged 1995 Workshare Agreement.
The asserted claims involve breach of contract, intellectual property infringement and other related matters. The
arbitration panel stayed further proceedings, including the issuance of the liability decision on the non-IP claims
presented during the May 2006 hearing, while the parties engaged in settlement efforts. The parties were unable to
conclude an enforceable settlement, and in August 2009, the panel released its liability decision, rejecting some of
MBDA’s non-IP claims, while finding Raytheon liable for some other non-IP claims. We did not record any significant
additional financial liability as a result of our estimate of the impact of the decision. The proceedings will now resume to
determine liability for the asserted IP claims and to assess overall damages, if any. At this point, we are unable to estimate
a range of potential loss, if any, because the IP claims are vague, discovery is in process, and any potential damages
involve complex, technical matters subject to interpretation by the arbitration panel. We believe that we have meritorious
defenses to the asserted IP claims and intend to continue to contest them vigorously; however, an adverse resolution of
this matter could have a material effect on our financial position, results of operations or liquidity.
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.
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