Raytheon 2004 Annual Report Download - page 78

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Notes to Consolidated Financial Statements (Continued)
LOT ACCOUNTING The Company uses lot accounting for new commercial aircraft introductions at Raytheon
Aircraft. Lot accounting involves selecting an initial lot size at the time a new aircraft begins to be delivered and
measuring an average cost over the entire lot for each aircraft sold. The costs attributed to aircraft delivered are
based on the estimated average cost of all aircraft in the lot and are determined under the learning curve concept,
which anticipates a predictable decrease in unit costs from cost reduction initiatives and as tasks and production
techniques become more efficient through repetition. Costs incurred on in-process and delivered aircraft in excess
of the estimated average cost were included in inventories and totaled $89 million and $91 million on Premier at
December 31, 2004 and 2003, respectively, and $90 million on Horizon at December 31, 2004. Once the initial lot
has been completed, the use of lot accounting is discontinued. The Company determines lot size based on several
factors, including the size of firm backlog, the expected annual production on the aircraft, and experience on
similar new aircraft. The size of the initial lot for the Beechcraft Premier I and the Hawker Horizon is 200 and 75
units, respectively.
RESEARCH AND DEVELOPMENT EXPENSES Expenditures for company-sponsored research and development
projects are expensed as incurred. Customer-sponsored research and development projects performed under
contracts are accounted for as contract costs as the work is performed.
FEDERAL AND FOREIGN INCOME TAXES The Company and its domestic subsidiaries provide for federal
income taxes on pretax accounting income at rates in effect under existing tax law. Foreign subsidiaries have
recorded provisions for income taxes at applicable foreign tax rates in a similar manner.
CASH AND CASH EQUIVALENTS Cash and cash equivalents consist of cash and short-term, highly liquid
investments with original maturities of 90 days or less.
ALLOWANCE FOR DOUBTFUL ACCOUNTS The Company maintains an allowance for doubtful accounts to
provide for the estimated amount of accounts receivable that will not be collected. The allowance is based upon an
assessment of customer credit-worthiness, historical payment experience, the age of outstanding receivables, and
collateral to the extent applicable.
Activity related to the allowance for doubtful accounts was as follows:
(In millions)
Balance at December 31, 2001 $113
Provisions 2
Utilizations (42)
Balance at December 31, 2002 73
Provisions 1
Utilizations (39)
Balance at December 31, 2003 35
Provisions 8
Utilizations (2)
Balance at December 31, 2004 $41
CONTRACTS IN PROCESS Contracts in process are stated at cost plus estimated profit, but not in excess of
realizable value.