Raytheon 2004 Annual Report Download - page 84

66
Notes to Consolidated Financial Statements (Continued)
disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of
revenue and expenses during the reporting period. Actual results could differ from those estimates.
 :  
In 2000, the Company sold its Raytheon Engineers & Constructors businesses (RE&C) to Washington Group
International, Inc. (WGI). In May 2001, WGI filed for bankruptcy protection. As a result, the Company was
required to perform various contract and lease obligations in connection with a number of different projects 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 its 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 after-tax 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.
The loss from discontinued operations, net of tax, related to RE&C was $48 million, $151 million, and $645
million in 2004, 2003, and 2002, respectively.
Liabilities from discontinued operations included net current liabilities for RE&C of $17 million and $37 million
at December 31, 2004 and 2003, respectively.
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