Raytheon 2003 Annual Report Download - page 49

P47 333 RAYTHEON COMPANY 333
Company irrevocably and without recourse, transferred the receiv-
ables to the QSPE which in turn, issued beneficial interests in these
receivables to a commercial paper conduit. The assets of the QSPE
are not available to pay the claims of the Company or any other
entity. The Company retained a subordinated interest in the receiv-
ables sold of approximately 17 percent. The conduit obtained the
funds to purchase the interest in the receivables, other than the
retained interest, by selling commercial paper to third-party
investors. The Company retained responsibility for the collection
and administration of receivables. The Company continues serv-
icing the sold receivables and charges the third party conduit a
monthly servicing fee at market rates.
The Company accounted for the sale under Statement of
Financial Accounting Standards No. 140, Accounting for Transfers
and Servicing of Financial Assets and Extinguishment of Liabilities.
The gain was determined at the date of transfer based upon the rel-
ative fair value of the assets sold and the interests retained. The
Company estimated the fair value at the date of transfer and at
December 31, 2003 based on the present value of future expected
cash flows using certain key assumptions, including collection
period and a discount rate of 5.0%. At December 31, 2003 a 10
and 20 percent adverse change in the collection period and dis-
count rate would not have a material effect on the Company’s finan-
cial position or results of operations.
At December 31, 2003, the outstanding balance of securitized
accounts receivable held by the third party conduit totaled $320 mil-
lion, of which the Company’s subordinated retained interest was $58
million, and the fair value of the servicing asset was $6 million.
The Company also maintained a program under which it sold
general aviation and commuter aircraft long-term receivables under
a receivables purchase facility through the end of 2002. The
Company bought out the receivables that remained in the facility in
2002 for $1,029 million and brought the related assets onto the
Company’s books. In connection with the buyback, the Company
recorded the long-term receivables at estimated fair value using the
reserves established in 2001, as described in Note A, Accounting
Policies, Impairment of Long-Lived Assets. The loss resulting from
the sale of receivables was $6 million and $2 million in 2002 and
2001, respectively.
The increase in computer software in 2003 was due to the
Company’s conversion of significant portions of its existing finan-
cial systems to a new integrated financial package. Accumulated
amortization of computer software was $241 million and $219 mil-
lion at December 31, 2003 and 2002, respectively.
Investments, which are included in other assets, consisted of
the following at December 31:
2003
(In millions) Ownership % 2003 2002
Equity method investments:
Thales-Raytheon Systems Co. Ltd. 50.0 $78 $59
HRL Laboratories, LLC 33.3 30 29
Indra ATM S.L. 49.0 12 12
TelASIC Communications 23.5 72
Hughes Arabia Limited 49.0 113
Raytheon Aerospace — —5
Other n/a 8—
136 120
Other investments:
Alliance Laundry Systems —19
Other 10 15
10 34
Total $146 $154
In 2003, the Company sold the remaining interest in its former
aviation support business (Raytheon Aerospace) for $97 million
and recorded a gain of $82 million. The Company had sold a major-
ity interest in Raytheon Aerospace in 2001 for $154 million in cash
and retained $47 million in trade receivables and $66 million in
preferred and common equity in the business. The $66 million rep-
resented a 26 percent ownership interest and was recorded at
zero because the new entity was highly-leveraged.
In 2003, the Company sold its investment in Alliance Laundry
Systems for $15 million and recorded a loss of $4 million. The
Company had sold its commercial laundry business unit to Alliance
in 1998 for $315 million in cash and $19 million in securities.
In 2001, the Company formed a joint venture, Thales-Raytheon
Systems (TRS) that has two major operating subsidiaries, one of
which the Company controls and consolidates. TRS is a system of
systems integrator and provides fully customized solutions through
the integration of command and control centers, radars, and com-
munication networks. HRL Laboratories is a scientific research
facility whose staff engages in the areas of space and defense
technologies. Indra develops flight data processors for air traffic
control automation systems. TelASIC Communications delivers
high performance, cost-effective radio frequency (RF), analog
mixed signal, and digital solutions for both the commercial and
defense electronics markets. Hughes Arabia Limited was formed in
connection with the award of the Peace Shield program and offers
certain tax advantages to the Company.