Raytheon 2006 Annual Report Download - page 100

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 7: Other Assets
Other assets, net consisted of the following at December 31:
(In millions) 2006 2005
Long-term receivables
Due from customers in installments to 2015 $ 148 $ 251
Other, principally due through 2013 45 56
Sales-type leases, due in installments to 2015 83
Computer software, net 418 412
Pension-related intangible asset —147
Investments 161 146
Other noncurrent assets 808 653
Total $1,588 $1,668
We provide long-term financing to our aircraft and fractional aircraft customers in which the underlying aircraft serve as
collateral. We maintain reserves for estimated uncollectible aircraft-related long-term receivables. The balance of these
reserves was $14 million and $13 million at December 31, 2006 and 2005, respectively. The reserves for estimated
uncollectible aircraft-related long-term receivables represent our current estimate of future losses. We established these
reserves based on an overall evaluation of identified risks. As a part of that evaluation, we considered certain specific
receivables and factors including extended delinquency and requests for restructuring, among other things. Long-term
receivables included commuter aircraft receivables of $155 million and $228 million at December 31, 2006 and 2005,
respectively.
We accrue interest on aircraft-related long-term receivables in accordance with the terms of the underlying notes. When
an aircraft-related long-term receivable is over 90 days past due, we generally stop accruing interest. At December 31,
2006, there were no aircraft-related long-term receivables on which we were not accruing interest. At December 31, 2005,
there were $7 million of aircraft-related long-term receivables on which we were not accruing interest. Interest payments
related to these receivables are credited to income when received. Once a past-due receivable has been brought current,
we begin to accrue interest again. Interest deemed to be uncollectible is written off at the time the determination is made.
In 2004, we entered into an agreement to sell certain general aviation finance receivables, with the buyer assuming all
servicing responsibilities. As part of the agreement, we retained a first loss deficiency guarantee of 7.5% of the receivable
amount sold. In 2006, we did not sell any receivables under this agreement. In 2005 and 2004, $5 million and $37 million,
respectively, of receivables were sold under the agreement, with no associated gain or loss. Also in 2006, 2005 and 2004,
we sold $64 million, $18 million and $22 million, respectively, of general aviation finance and fractional share note
receivables without any continuing involvement.
In 2006, we sold an undivided interest of general aviation finance receivables, while retaining a subordinated interest in
and servicing rights to the receivables. We received proceeds of $67 million and recognized a gain of $1 million. We
irrevocably, and without recourse, transferred the receivables to the qualifying special purpose entity (QSPE), formed in
2003, which in turn, issued beneficial interests in these receivables to a commercial paper conduit. The transaction
involves a third party guarantee of the conduit investment. The assets of the QSPE are not available to pay the claims of
the Company or any other entity. We retained a subordinated interest in the receivables sold of approximately 3%. 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. We retained responsibility for the collection and administration of receivables.
We continue to service the sold receivables and charge the third party conduit a monthly servicing fee at market rates.
We 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 relative fair value of the assets sold and the interests retained. We estimated the fair value at the date of transfer
and at December 31, 2006 and 2005 based on the present value of future expected cash flows using certain key
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