Raytheon 2014 Annual Report Download - page 79

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and letters of credit. The increase in letters of credit of $514 million in 2014 compared to 2013 was primarily driven by advance
payment bonds of approximately $500 million related to certain international programs.
The TRS joint venture agreement was amended on June 10, 2014 to allow for termination of the joint venture by either party
every three years based on the scheduled date for the designation of a successor Chief Executive Officer for the joint venture
which would next occur in 2016. Termination terms and related payments are subject to negotiation between Thales S.A.
(Thales) and Raytheon, but generally would include a net payment due for undistributed earnings of the joint venture companies
since inception and a net payment based on the relative fair value of those companies excluding Air Command Systems
International S.A.S. (ACSI). As a result, any final future termination amounts cannot be determined precisely at this time and
could be different from those amounts recorded to date. However, if the joint venture were terminated as of December 31,
2014, we believe the termination payment we would be required to make based on a standard valuation approach would not
be material. If a termination liability exceeds $50 million, the agreement allows the paying side to elect to make payments,
inclusive of interest, in equal installments over five years to settle the liability.
In 1997, we provided a first loss guarantee of $133 million on $1.3 billion of U.S. Export-Import Bank loans (maturing in the
second quarter of 2015) to the Brazilian Government related to IDS' System for the Vigilance of the Amazon (SIVAM) program.
As of December 31, 2014, the guarantee amount was $60 million. Loan repayments by the Brazilian Government were current
at December 31, 2014.
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, 2014, 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 68. These agreements are designed to return economic value to the foreign country by requiring us 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 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 U.S. 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.