Raytheon 2004 Annual Report Download - page 61

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under letters of credit, surety bonds, and guarantees (Support Agreements) that it had provided to project owners
and other parties.
For several of these projects, the Company has entered into settlement agreements that resolve the Company’s
obligations under the related Support Agreements. On a number of these projects, the Company is continuing
closeout efforts which includes warranty obligations, commercial close out, and claims resolution. There are also
Support Agreements on projects where WGI is continuing to perform work which could present risk to the
Company if WGI fails to meet its obligations in connection with these projects. In meeting the obligations under
the remaining Support Agreements, the Company has various risks and exposures, including delays, equipment
and subcontractor performance, warranty close out, various liquidated damages issues, collection of amounts due
under contracts, and potential adverse claims resolution under various contracts and leases.
In August 2004, AES Red Oak LLC drew $30 million on a letter of credit provided by the Company. AES Red
Oak LLC is the owner of the Red Oak power project in Sayreville, NJ, and there is a dispute between the Company
and AES Red Oak LLC regarding the closeout of this project. The letter of credit was provided to AES Red Oak LLC
in 2002 in lieu of the owner withholding retainage from periodic construction milestone payments.
In 2004, 2003, and 2002, the pretax loss from discontinued operations related to RE&C was $42 million, $231
million, and $966 million, respectively. In 2004, the Company recorded a $24 million charge for an estimated
liability for foreign tax related matters. Although not expected to be material, additional losses on foreign tax
related matters could be recorded in the future as estimates are revised or the underlying matters are settled.
Included in 2003 and 2002 were charges of $176 million and $796 million, respectively, related to two construction
projects, the Mystic Station facility in Everett, MA and the Fore River facility in Weymouth, MA. Following WGI’s
abandonment of these projects in 2001, the Company undertook construction efforts and subsequently delivered
care, custody, and control of these projects to their owners in 2003 and closed on a settlement agreement with the
project owners and other interested parties in 2004. The charges resulted from delays, labor and material cost
growth, productivity issues, equipment and subcontractor performance, schedule liquidated damages, inaccurate
estimates of field engineered materials, and disputed changes. In 2002, the Company allocated $79 million of
interest expense to RE&C based upon actual cash outflows since the date of disposition. Since the projects were
nearing completion, the Company did not allocate interest expense to RE&C after 2002.
Net cash used in operating activities from discontinued operations related to RE&C was $61 million in 2004
versus $513 million in 2003 and $1,129 million in 2002.
In 2002, the Company sold its Aircraft Integration Systems business (AIS) for $1,123 million, net, subject to
purchase price adjustments. The Company is currently involved in a purchase price dispute related to the sale of
AIS in which the purchaser has claimed a purchase price adjustment of $85 million. The Company disputes this
claim and expects the matter to be resolved in arbitration. There was no pretax gain or loss on the sale of AIS,
however, due to the non-deductible goodwill associated with AIS, the Company recorded a tax provision of $212
million resulting in a $212 million after-tax loss on the sale of AIS. As part of the transaction, the Company
retained the responsibility for performance of the Boeing Business Jet (BBJ) program and retained certain assets
related to the BBJ program, which is now essentially complete.
In 2004, 2003, and 2002, the pretax loss from discontinued operations related to AIS was $23 million, $30
million, and $47 million, respectively, primarily related to the completion of the BBJ program.
In 2004, the total loss from discontinued operations was $65 million pretax, $63 million after-tax, or $0.14 per
basic and diluted share versus $261 million pretax, $170 million after-tax or $0.41 per basic and diluted share in
2003 and $1,013 million pretax, $887 million after-tax, or $2.21 per basic share and $2.17 per diluted share in 2002.
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Net cash provided by operating activities in 2004 was $2,071 million versus $2,034 million in 2003. Net cash used in
operating activities was $349 million in 2002. Net cash provided by operating activities from continuing operations