Raytheon 2003 Annual Report Download - page 41

P39 333 RAYTHEON COMPANY 333
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, 2000 $132
Provisions 2
Utilizations (21)
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
PREPAID EXPENSES AND OTHER CURRENT ASSETS
Included in prepaid expenses and other current assets at
December 31, 2002 was $56 million of cash received in 2002 that
was restricted for payment in connection with the Company’s merger
with the defense business of Hughes Electronics Corporation in
December 1997. Also included at December 31, 2002 was
$48 million of restricted cash from the sale of the Company’s corpo-
rate headquarters. This cash was used to fund the construction of
the Company’s new corporate headquarters and the acquisition of
three other properties. In June 2003, the restrictions related to the
use of this cash expired, therefore, the remaining $10 million that had
not yet been spent was reflected in the statement of cash flows as
proceeds from sales of property, plant, and equipment in 2003.
CONTRACTS IN PROCESS Contracts in process are stated
at cost plus estimated profit but not in excess of realizable value.
INVENTORIES Inventories are stated at cost (principally first-
in, first-out or average cost), but not in excess of realizable value. A
provision for excess or inactive inventory is recorded based upon
an analysis that considers current inventory levels, historical usage
patterns, and future sales expectations.
PROPERTY, PLANT, AND EQUIPMENT Property, plant, and
equipment are stated at cost. Major improvements are capitalized
while expenditures for maintenance, repairs, and minor improve-
ments are charged to expense. When assets are retired or other-
wise disposed of, the assets and related accumulated depreciation
and amortization are eliminated from the accounts and any result-
ing gain or loss is reflected in income. Gains and losses resulting
from the sale of property, plant, and equipment at the defense busi-
nesses are included in overhead and reflected in the pricing of
products and services to the U.S. government.
Provisions for depreciation are generally computed using a com-
bination of accelerated and straight-line methods. Depreciation pro-
visions are based on estimated useful lives as follows: buildings —
20 to 45 years, machinery and equipment — 3 to 10 years, and
equipment leased to others — 5 to 10 years. Leasehold improve-
ments are amortized over the lesser of the remaining life of the lease
or the estimated useful life of the improvement.
IMPAIRMENT OF LONG-LIVED ASSETS Effective January 1,
2002, the Company adopted Statement of Financial Accounting
Standards No. 142, Goodwill and Other Intangible Assets (SFAS
No. 142). This accounting standard addresses financial account-
ing and reporting for goodwill and other intangible assets and
requires that goodwill amortization be discontinued and replaced
with periodic tests of impairment. A two-step impairment test is
used to first identify potential goodwill impairment and then meas-
ure the amount of goodwill impairment loss, if any.
In 2002, the Company recorded a goodwill impairment charge
of $360 million related to its former Aircraft Integration Systems
business (AIS) as a cumulative effect of change in accounting prin-
ciple. The fair value of AIS was determined based upon the pro-
ceeds received by the Company in connection with the sale, as
described in Note B, Discontinued Operations. Due to the non-
deductibility of this goodwill, the Company did not record a tax
benefit in connection with this impairment. Also in 2002, the
Company completed the transitional review for potential goodwill
impairment in accordance with SFAS No. 142 and recorded a
goodwill impairment charge of $185 million pretax or $149 million
after-tax, which represented all of the goodwill at Raytheon Aircraft,
as a cumulative effect of change in accounting principle. The fair
value of Raytheon Aircraft was determined using a discounted
cash flow approach. The total goodwill impairment charge in 2002
was $545 million pretax, $509 million after-tax, or $1.25 per
diluted share. The Company performs the annual impairment test in
the fourth quarter of each year. There was no goodwill impairment
associated with the annual impairment test performed in the fourth
quarter of 2003 and 2002.
The amount of goodwill by segment at December 31, 2003 was
$751 million for Integrated Defense Systems, $1,349 million for
Intelligence and Information Systems, $3,438 million for Missile
Systems, $2,306 million for Network Centric Systems, $2,639 mil-
lion for Space and Airborne Systems, $868 million for Technical
Services, and $128 million for Other. Information about additions
to goodwill in 2003 is included in Note C, Acquisitions and
Divestitures and Note H, Other Assets.