Raytheon 2003 Annual Report Download - page 29

claims prior to the settlement and the project owners assumed
responsibility for all post-settlement obligations, including complet-
ing the construction of the projects, and all punch list and warranty
obligations. The Company believes that the obligations retained on
these projects are not material.
The Company recorded charges of $176 million in 2003,
$796 million in 2002, and $814 million in 2001 related to the
Massachusetts Projects. The charges resulted from delays, labor
and material cost growth, productivity issues, equipment and sub-
contractor performance, schedule liquidated damages, inaccurate
estimates of field engineered materials, and disputed changes.
In addition to the Massachusetts Projects, the Company has or
had obligations under Support Agreements on a number of other
projects. In several cases, the Company has entered into settle-
ment agreements that resolve the Company’s obligations under the
related Support Agreements. In connection with a number of other
projects on which the Company has obligations under Support
Agreements, the Company is continuing to undertake the final
stages of work, which includes warranty obligations, commercial
closeout, and claims resolution. In 2003, the Company recorded
charges of $6 million primarily related to the settlement of warranty
claims on one of these projects. In 2002 and 2001, the Company
recorded charges of $53 million and $210 million, respectively, for
various issues in connection with these projects, including but not
limited to, punch list items, start-up costs, reliability testing, and tur-
bine-related delays. Finally, there are projects with Support
Agreements provided by the Company on which WGI is continuing
to perform work, which could present risk to the Company if WGI
fails to meet its obligations in connection with those projects.
In performing its obligations under the remaining Support
Agreements, the Company has various risks and exposures, includ-
ing delays, equipment and subcontractor performance, warranty
closeout, various liquidated damages issues, collection of amounts
due under contracts, and potential adverse claims resolution under
various contracts and leases. In addition, the Company’s cost esti-
mates for these obligations are heavily dependent upon third par-
ties, including WGI, and their ability to perform construction
management, cost estimating, and other tasks requiring industry
expertise that the Company no longer possesses.
In 2003, the Company recorded charges of $49 million for
legal, management, and other costs related to RE&C versus
$38 million in 2002 and $30 million in 2001. In 2002 and 2001,
the Company allocated $79 million and $18 million, respectively, of
interest expense to RE&C based upon actual cash outflows since
the date of disposition. Since the Massachusetts Projects were
nearing completion, the Company did not allocate interest expense
to RE&C in 2003. In addition, in 2001, the Company recorded a
charge of $71 million to write off certain assets and liabilities as
a result of the WGI bankruptcy filing.
In 2003, 2002, and 2001, the pretax loss from discontinued
operations related to RE&C was $231 million, $966 million, and
$1,143 million, respectively.
Net cash used in operating activities from discontinued operations
related to RE&C was $513 million in 2003 versus $1,129 million in
2002 and $635 million in 2001. The Company expects its operat-
ing cash flow to be negatively affected by approximately $50 mil-
lion to $75 million in 2004 which includes project completion,
legal, and management costs related to RE&C. Further increases
to project costs may increase the estimated operating cash outflow
for RE&C in 2004.
In 2002, the Company sold its Aircraft Integration Systems busi-
ness (AIS) for $1,123 million, net, subject to purchase price adjust-
ments. The Company is currently involved in a purchase price
dispute related to the sale of AIS. 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 respon-
sibility for performance of the Boeing Business Jet®(BBJ) pro-
gram. The Company also retained $106 million of BBJ-related
assets, $18 million of receivables and other assets, and rights to a
$25 million jury award related to a 1999 claim against Learjet. At
December 31, 2003, the balance of these retained assets was
$45 million.
In 2003, the Company recorded charges related to AIS of
$17 million related to cost growth on the BBJ program and
$13 million as a result of continued difficulty the Company has
been experiencing liquidating the BBJ-related assets. In 2002, the
Company recorded charges of $66 million, which included a
$23 million write-down of a BBJ-related aircraft owned by the
Company, a $28 million charge for cost growth on one of the
two BBJ aircraft not yet delivered, and a $10 million charge to write
down other BBJ-related assets to the then estimated net realizable
value, offset by a $13 million gain resulting from the finalization
of the 1999 claim, described above. The write-down of the
BBJ-related aircraft resulted from the Company’s decision to mar-
ket this aircraft unfinished due to the environment of declining
prices for BBJ-related aircraft at the time. The Company was previ-
ously marketing this aircraft as a customized executive BBJ.
In 2003 and 2002, the pretax loss from discontinued operations
related to AIS was $30 million and $47 million, respectively. In
2001, pretax income from discontinued operations related to AIS
was $5 million.
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