Raytheon 2003 Annual Report Download - page 42

RAYTHEON COMPANY 333
Notes to Consolidated Financial Statements (Continued) 33333333333333333333333333333333333333333333
In accordance with SFAS No. 142, goodwill amortization was
discontinued as of January 1, 2002. The following adjusts reported
income from continuing operations and basic and diluted earnings
per share (EPS) from continuing operations to exclude good-
will amortization:
(In millions except per share amounts) 2001
Reported income from continuing operations $ 2
Goodwill amortization, net of tax 305
Adjusted income from continuing operations $ 307
Reported basic EPS from continuing operations $0.01
Goodwill amortization, net of tax 0.86
Adjusted basic EPS from continuing operations $0.87
Reported diluted EPS from continuing operations $0.01
Goodwill amortization, net of tax 0.84
Adjusted diluted EPS from continuing operations $0.85
The following adjusts reported net loss and basic and diluted
loss per share to exclude goodwill amortization:
(In millions except per share amounts) 2001
Reported net loss $ (755)
Goodwill amortization, net of tax 333
Adjusted net loss $ (422)
Reported basic loss per share $(2.12)
Goodwill amortization, net of tax 0.94
Adjusted basic loss per share $(1.18)
Reported diluted loss per share $(2.09)
Goodwill amortization, net of tax 0.92
Adjusted diluted loss per share $(1.17)
Intangible assets subject to amortization consisted primarily of
drawings and intellectual property totaling $59 million (net of
$38 million of accumulated amortization) at December 31, 2003
and $27 million (net of $30 million of accumulated amortization) at
December 31, 2002. Amortization expense is expected to approxi-
mate $11 million for each of the next five years.
In 2002, the Company adopted Statement of Financial
Accounting Standards No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. Accordingly, upon indication of
possible impairment, the Company evaluates the recoverability of
held-for-use long-lived assets by measuring the carrying amount of
the assets against the related estimated undiscounted future cash
flows. When an evaluation indicates that the future undiscounted
cash flows are not sufficient to recover the carrying value of the
asset, the asset is adjusted to its estimated fair value. In order for
long-lived assets to be considered held-for-disposal, the Company
must have committed to a plan to dispose of the assets.
During the first half of 2001, the Company experienced a signif-
icant decrease in the volume of used commuter aircraft sales. An
evaluation of commuter aircraft market conditions and the events of
September 11, 2001 indicated the market weakness would con-
tinue into the foreseeable future. As a result, the Company com-
pleted an analysis of the estimated fair value of the various models
of commuter aircraft and reduced the book value of commuter air-
craft inventory and equipment leased to others accordingly. In addi-
tion, the Company adjusted the book value of notes receivable and
established a reserve for off balance sheet receivables based on
the Company’s estimate of exposures on customer financed assets
due to defaults, refinancing, and remarketing of these aircraft. As
a result of these analyses, the Company recorded a charge of
$693 million in the third quarter of 2001 which consisted of a
reduction in inventory of $158 million, a reduction of equipment
leased to others of $174 million, a reserve for notes receivable of
$16 million, and a reserve for off balance sheet receivables of
$345 million. The balance of this reserve was $361 million at
December 31, 2001. In 2002, the Company utilized $121 million
of this reserve, leaving a balance of $240 million at the time the
Company bought back the remaining off balance sheet receiv-
ables, as described in Note H, Other Assets.
The Company also recorded a $52 million charge in the
third quarter of 2001 related to a fleet of Starship aircraft. During
the first three quarters of 2001, the Company had not sold any of
these aircraft and recorded a charge to reduce the value of the air-
craft to their estimated fair value. The charge consisted of a reduc-
tion in the value of aircraft in inventory of $31 million, a reduction in
the value of equipment leased to others of $14 million, and a
reserve of $7 million related to the Company’s estimate of expo-
sures on customer financed assets due to defaults, refinancing,
and remarketing of these aircraft.
In connection with the buyback of the off balance sheet receiv-
ables, the Company recorded the long-term receivables at esti-
mated fair value, which included an assessment of the value of the
underlying aircraft. As a result of this assessment, the Company
adjusted the value of certain underlying aircraft, including both
commuter and Starship aircraft, some of which were written down
to scrap value. There was no net income statement impact as a
result of this activity.
COMPUTER SOFTWARE Internal use computer software is
stated at cost less accumulated amortization and is amortized
using the straight-line method over its estimated useful life, gener-
ally 10 years.
INVESTMENTS Investments, which are included in other
assets, include equity ownership of 20 percent to 50 percent in
unconsolidated affiliates and of less than 20 percent in other com-
panies. Investments in unconsolidated affiliates are accounted for
under the equity method. Investments in other companies with
readily determinable market prices are stated at estimated fair
value with unrealized gains and losses included in other compre-
hensive income. Other investments are stated at cost.