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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."
Sources:
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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