Raytheon 2015 Annual Report Download - page 109

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
99
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 2024. 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:
(In millions) 2015 2014
Guarantees $ 213 $ 266
Letters of credit 2,242 1,938
Surety bonds 264 298
Included in guarantees and letters of credit described above were $203 million and $187 million, respectively, at December 31,
2015, and $196 million and $244 million, respectively, at December 31, 2014, 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 and meet their project performance and other contractual obligations, their failure to do so may result in a future obligation
to us. We periodically evaluate the risk of TRS and other affiliates failing to meet their obligations described above. At
December 31, 2015, we believe the risk that TRS and other affiliates will not be able to meet their obligations is minimal for
the foreseeable future based on their current financial condition. All obligations were current at December 31, 2015. At
December 31, 2015 and December 31, 2014, we had an estimated liability of $8 million and $9 million, respectively, related
to these guarantees and letters of credit.
In 2001, we formed the TRS joint venture with Thales S.A. See additional background on the TRS joint venture in "Note 9:
Other Assets, Net" within Item 8 of this Form 10-K. On December 24, 2015 Thales S.A. and Raytheon entered into a letter
agreement relating to the joint venture agreement for the TRS joint venture (excluding Thales-Raytheon Systems Air and
Missile Defense Command and Control S.A.S (TRS AMDC2), previously called Air Command Systems International S.A.S).
The letter agreement contemplates that the parties will use their commercially reasonable efforts to amend the joint venture
agreement on or before June 30, 2016 to reduce its existing scope of work to NATO-only business opportunities involving
air command and control systems. In connection with the contemplated changes, we will reacquire Thales S.A.'s noncontrolling
interest in Thales-Raytheon Systems LLC (TRS LLC) and sell our equity method interest in TRS SAS, with a net payment
due to Thales S.A. totaling $90 million based on the relative values and undistributed earnings of TRS LLC and TRS SAS.
Any gain or loss resulting from the transactions contemplated by the letter agreement will be recognized upon completion of
a definitive agreement and resolution of all contingencies which is expected to occur on or before June 30, 2016. The TRS
joint venture will continue to operate under the current structure until the close of the transactions.
We have an approximately $400 million international classified contract that did not achieve certain contractual milestones
in 2015. We are working with the customer to complete the milestones quickly and we currently do not expect to be terminated
on the program. However, if we were terminated for default, it could result in a write-off currently estimated at $180–$200
million.
As discussed in "Note 5: Forcepoint Joint Venture", under the joint venture agreement between Raytheon Company and Vista
Equity Partners, Raytheon may be required to purchase Vista Equity Partners' interest in Forcepoint.
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, 2015, the aggregate amount
of our offset agreements had an outstanding notional value of approximately $5.5 billion. 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