Raytheon 2005 Annual Report Download - page 85

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The highly competitive market for business and special mission aircraft is also subject to certain business risks. These
risks include timely development and certification of new product offerings, the current state of the general aviation and
commuter aircraft markets, and government regulations affecting aircraft.
The Company’s consolidated financial statements are based on the application of generally accepted accounting
principles which require the Company to make estimates and assumptions about future events that affect the amounts
reported in its financial statements and the accompanying notes. Future events and their effects can not be determined
with certainty. Therefore, the determination of estimates requires the exercise of judgment. Actual results could differ
from those estimates, and any such differences may be material to the Company’s financial statements.
Note B: Discontinued Operations
In 2000, the Company sold its Raytheon Engineers & Constructors businesses (RE&C) to Washington Group
International, Inc. (WGI). As a result of WGI’s bankruptcy, the Company was required to perform various contract and
lease obligations under letters of credit, surety bonds, and guarantees (Support Agreements) that it had provided to
project owners and other parties.
The Company has settled many of its Support Agreement obligations. For its remaining Support Agreement obligations,
the Company has various risks and exposures, including warranty close out, various liquidated damages issues, and
potential adverse claims resolution.
The Company is currently engaged in a dispute with AES Red Oak LLC (AES) over the close out of the Red Oak power
project. The dispute involves, among other things, a draw down of $30 million by AES in August 2004 from a line of
credit provided by the Company.
In 2005, 2004, and 2003, the pretax loss from discontinued operations related to RE&C was $41 million, $42 million, and
$231 million, respectively. In 2005 and 2004, the Company recorded after-tax charges of $23 million and $24 million,
respectively, 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 were charges of $176 million related to the completion of the Mystic Station and Fore River
construction projects in Massachusetts.
The after-tax loss from discontinued operations related to RE&C was $50 million, $48 million, and $151 million in 2005,
2004, and 2003, respectively.
Liabilities from discontinued operations included net current liabilities for RE&C of $33 million and $17 million at
December 31, 2005 and 2004, respectively.
In 2002, the Company sold its Aircraft Integration Systems business (AIS) for $1,123 million, net, subject to purchase
price adjustments. 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
January 2006, a dispute regarding the AIS purchase price was resolved in arbitration and the Company recorded a pretax
charge of $26 million in 2005 related to this settlement.
In 2005, 2004, and 2003, the pretax loss from discontinued operations related to AIS was $33 million, $23 million and
$30 million, respectively, primarily related to the completion of the BBJ program and the resolution of the purchase price
dispute.
Assets and liabilities related to AIS included net current assets of $19 million as of December 31, 2004 and net current
liabilities of $16 million and $7 million as of December 31, 2005 and 2004, respectively.
In 2005, the total loss from discontinued operations was $74 million pretax, $71 million after-tax, or $0.16 per basic and
diluted share versus $65 million pretax, $63 million after-tax, or $0.14 per basic and diluted share in 2004 and $261
million pretax, $170 million after-tax, or $0.41 per basic and diluted share in 2003.
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