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Posted 27 Aug 2001   For week ended August 10, 2001
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Sent on Mormon-News: 20Aug01

By Paul Carter

LDS-Led WGI's Fight with Raytheon Accelerating

BOISE, IDAHO -- Washington Group International and Raytheon each filed documents this past week with the bankruptcy court where WGI is seeking financial protection while it works to address the financial damage from its purchase of Raytheon's former heavy construction division.

On August 6th, Washington Group International, Inc. asked that certain sale terms be thrown out from its agreement to purchase the construction division, RC&E. The request came three days after a Raytheon court filing that seeks additional creditor standing for hundreds of millions of dollars that Raytheon is spending to finish construction projects abandoned by WGI and Raytheon is working to complete.

The President and CEO of Washington Group International is Stephen G. Hanks who is a member of The Church of Jesus Christ of Latter-Day Saints. WGI was previously Morrison-Knudsen, a well-regarded and profitable Boise Idaho-based private firm which successfully completed massive hydro-electric dam and construction projects throughout the world. With the change to WGI, the traditions of success of Morrison-Knudsen seemed to be continuing, until the purchase of RE&C.

WGI alleges that Raytheon committed fraud in its transaction with WGI by hiding liabilities and overstating assets of RE&C. Certain power plant construction projects were incurring cost overruns much larger than the costs disclosed in purchase documents. The purchase price for RE&C was $43 million plus the assumption of liabilities, which were estimated at the time of the sale to be $450 million.

Raytheon has denied the charges and the dispute is in arbitration. However, courts have had to intervene to require that Raytheon provide audited documents that provide greater detail regarding RE&C and its projects. Under bankruptcy protection, WGI has discontinued work on certain large projects, including two power plants in Massachusetts with penalties for missing project deadlines. Raytheon has stepped in to work some of these projects and recently filed its project completion expenses with the bankruptcy court as liabilities of WGI under the terms of the contract for the sale of RE&C.

Raytheon has informed its stock holders that the company may be required to spend up to $825 million to complete projects which WGI has abandoned. According to reports, the size of that figure reflects how huge cost the overruns were which were not disclosed.

Regarding WGI's latest court action, Stephen Hanks issued a statement that said in part, "Today's filing is to ensure that action taken by Raytheon Co. during the 18-month period prior to our Chapter 11 filing will not deprive our unsecured creditors of hundreds of millions of dollars that should be available to them in the bankruptcy estate. We filed this suit on behalf of these creditors."

In response, Raytheon spokesman David Polk stated, "Every dime that Raytheon spends on WGI projects is a claim that we have against WGI. This is a ploy, and we think it's designed to keep us from exercising our rights as one of their creditors."


Raytheon Fights Bankrupt Firm over Sale of Construction Unit
Boston Globe 7Aug01 B4
By Ross Kerber, Globe Staff
Washington Group filing could saddle firm with $500m in costs

Washington Group sues over purchase from Raytheon
Reuters 2Aug01 B4

Washington Group says Raytheon owes $469 mln
Reuters 2Jul01 B4

Lexington, Mass.-Based Raytheon Plans $177 Million Charge from Two Disputes
Boston Globe 28Jun01 B4
By Ross Kerber, The Boston Globe

Washington Group Challenges Reliablity of ''Blatantly Erroneous'' Raytheon Financial Statements
Business Wire 6Jun01 B4
Purported "GAAP Compliant" Raytheon Balance Sheets Miss the Mark by Hundreds of Millions of Dollars

Washington Group calls Raytheon documents 'blatantly erroneous'
Reuters 6Jun01 B4

Judge Deals Setback to Lexington, Mass.-Based Raytheon in Audit Battle
Boston Globe 22May01 B4
By Ross Kerber, The Boston Globe

Raytheon ordered to give Washington Group audit
Reuters 21May01 B4
By Leslie Gevirtz

See also:

LDS-led Construction Firm Files Chapter 11


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