BOISE, Idaho, Aug. 28, 2001 – Washington Group International announced today that a report filed by the court-appointed Examiner KPMG LLP found that two events caused the company to seek protections afforded by the bankruptcy process.
The Examiner found that the RE&C transaction and associated financing were the cause of Washington Group’s financial difficulties. In the Summary of Findings, the report concludes: “…it is the Examiner’s conclusion that the Debtor’s Chapter 11 cases were precipitated primarily by two events…1) The RE&C Transaction…and 2) The RE&C Acquisition Financing.” This conclusion contradicts assertions made by Raytheon Company last week.
“We have made enormous strides in our financial restructuring and look forward to our plan being confirmed as soon as practicable. In the meantime, we have substantial liquidity: $70 million in cash and an untapped credit facility of $220 million. Our operations continue to excel, exceeding customer expectations and bringing to bear the extraordinary talent of our people,” said Stephen G. Hanks, Washington Group President and Chief Executive Officer.
“If we made a mistake, it was that we trusted Raytheon to tell us the truth about this business when they sold it to us and to live up to their contractual obligations afterwards. They have done neither,” Hanks said.
The Examiner’s Report was filed on Monday, August 27, 2001 in Bankruptcy Court in Reno.
RE&C Projects Caused 90% of the Cash Impact to Bankruptcy
In outlining the cash impact of the RE&C transaction, the Report found that the “[t]otal estimated net cash disbursements related to RE&C” totaled $803.8 million.
The company provided information to the Examiner showing that between December 1, 2000 (Washington Group’s fiscal year end) and May 13, 2001 (the day before the company filed bankruptcy), the company’s cash balances fell by $351 million. Of that decline, 90%, or $316 million, is the cash impact from former RE&C projects and businesses ($310 million) and reorganization costs ($6 million.)
In contrast to the negative cash flow from Raytheon’s fraudulent conveyance of RE&C, the Report found that Washington Group’s cash balances grew from $33 million at June 2, 2000, (the end of Washington Group’s second fiscal quarter) 35 days prior to the closing of the RE&C acquisition, to $441 million at December 1, 2000.
Raytheon Drops $240 Million in Claims
Washington Group also announced that Raytheon has withdrawn $240 million in claims against Washington Group. Following Washington Group’s demand that Raytheon substantiate its assertion regarding $240 million in retained claims, Raytheon relented, and withdrew the claim.
Also related to the bankruptcy proceedings, on August 2, 2001 Washington Group filed a suit against Raytheon Company seeking cash adjustments and the elimination of liabilities assumed by Washington Group that could total approximately $1.5 billion.
The adversary proceeding was filed in United States Bankruptcy Court for the District of Nevada in Reno in connection with Washington Group’s purchase from Raytheon Company of Raytheon Engineers & Constructors (RE&C) in July of 2000. Washington Group alleges that, because of hidden liabilities and overstated assets, RE&C was insolvent at the time of purchase.
During the 18-month period prior to July 7, 2000, Raytheon Company required RE&C to transfer more than $475 million received in advance client payments on three power plant projects to Raytheon Company. In addition, Raytheon Company grossly understated the estimate of liabilities being assumed by Washington Group.
Washington Group International, Inc., is a international engineering and construction firm.
With more than 35,000 employees at work in 43 states and more than 35 countries, the company offers a full life-cycle of services as a preferred provider of premier science, engineering, construction, program management, and development in 14 major markets.