Raytheon 2012 Annual Report Download - page 81

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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 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, 2012.
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. At December 31, 2012, the aggregate amount
of our offset agreements had an outstanding notional value of approximately $5 billion. To the extent we have entered into
purchase obligations that satisfy our offset agreements, those amounts are included in the Contractual Obligations table on
page 71. These agreements are designed to return economic value to the foreign country by requiring the contractor to engage
in activities supporting local defense or commercial industries, promoting a balance of trade, developing in-country technology
capabilities, or addressing other local development priorities. Offset agreements may be satisfied through activities that do
not require a direct cash payment, including transferring technology, providing manufacturing, training 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 activities such as subcontracting with local partners, purchasing
supplies from in-country vendors, providing financial support for in-country projects, and making investments in local ventures.
Such activities may also vary country-by-country depending upon requirements as dictated by their governments. 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 customers and typically require cash outlays that represent
only a fraction of the notional value in the offset agreements. Offset programs usually extend over several or more 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.
As a government contractor, we are subject to many levels of audit and investigation by the U.S. Government relating to our
contract performance and compliance with applicable rules and regulations. 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. From time to time, these and other agencies investigate or conduct audits to determine whether
our operations are being conducted in accordance with applicable requirements. Such investigations and audits 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. Our final allowable incurred costs
for each year are also subject to audit and have from time to time resulted in disputes between us and the U.S. Government
with litigation resulting at the Court of Federal Claims (COFC) or the Armed Services Board of Contract Appeals (ASBCA)
or their related courts of appeals. In addition, 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. Other than as specifically disclosed herein,
we do not expect these audits, investigations or disputes to have a material effect on our financial position, results of operations
or liquidity, either individually or in the aggregate.
We have completed 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 identified possible areas of concern involving certain practices
related to operations in a foreign jurisdiction where we do business. We voluntarily disclosed and shared the results of our
review with the SEC and the DoJ. The SEC staff and the DoJ have completed their review of this matter without recommending
enforcement action.
On July 22, 2010, RSL was notified by the UKBA 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 claiming
entitlement to recovery of certain losses incurred and previous payments made to RSL. We believe that RSL performed well
and delivered substantial capabilities to the UKBA under the program, which has been operating successfully and providing
actionable information since live operations began in May 2009. 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 impact of the UKBA Program Adjustment
reduced IIS' total net sales and operating income by $316 million and $395 million, respectively, for the year ended
December 31, 2010. The UKBA Program Adjustment also reduced total company diluted earnings per share from continuing
operations by $0.75 in the year ended December 31, 2010. On July 29, 2010, RSL filed a dispute notice on the grounds that