Raytheon 2006 Annual Report Download - page 96

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
We use 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 margin over the entire lot for
each aircraft sold. The costs attributed to aircraft delivered are based on the estimated average margin 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 margin were included in assets held for sale and
totaled $18 million and $67 million on Premier at December 31, 2006 and 2005, respectively, and $136 million and $112
million on Hawker 4000 at December 31, 2006 and 2005, respectively. Once the initial lot has been completed, the use of
lot accounting is discontinued. We determine 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 is 200 units of which 166 units had been delivered at December 31, 2006. There was 23 units for the
Premier in firm backlog of which 16 units are expected to be delivered from the initial lot. The size of the initial lot for the
Hawker 4000 is 75 units and no units had been delivered at December 31, 2006. There was 81 units for the Hawker 4000
in firm backlog of which 41 units are expected to be delivered from the initial lot. At December 31, 2006, deferred costs of
$13 million related to Premier and $89 million related to Hawker 4000 were not recoverable from existing firm orders.
General and program specific manufacturing equipment and tooling at Raytheon Aircraft are included in assets held for
sale. There was $174 million and $191 million of program specific manufacturing equipment and tooling related to
Premier and Hawker 4000 at December 31, 2006 and 2005, respectively.
The components of assets and liabilities related to Raytheon Aircraft were as follows at December 31:
(In millions) 2006 2005
Current assets $1,771 $1,627
Noncurrent assets 525 746
Total assets $2,296 $2,373
Current liabilities $ 872 $ 740
Noncurrent liabilities 137 288
Total liabilities $1,009 $1,028
Total assets consisted primarily of accounts receivable, net, of $165 million and $198 million, inventories of $1,426
million and $1,262 million and property, plant and equipment of $521 million and $539 million at December 31, 2006
and 2005, respectively. Total liabilities consisted primarily of advance payments and billings in excess of costs of $420
million and $334 million, accounts payable of $228 million and $149 million, accrued expenses of $186 million and $209
million and accrued retiree benefits and other long-term receivables of $137 million and $222 million at December 31,
2006 and 2005, respectively.
Raytheon Engineers & Constructors—In 2000, we sold RE&C to Washington Group International, Inc. (WGI). As
a result of WGI’s bankruptcy, we were required to perform various contract and lease obligations under letters of credit,
surety bonds and guarantees (Support Agreements) that it had provided to project owners and other parties.
We have since settled many of its Support Agreement obligations. For the remaining Support Agreement obligations, we
have various risks and exposures, including warranty close out, various liquidated damages issues and potential adverse
claims resolution.
In 2005 and 2004, we recorded after-tax charges of $23 million and $24 million, respectively, for an estimated liability for
foreign tax-related matters. Although not expected to be material, additional losses on foreign tax-related matters could
be recorded in the future as estimates are revised or the underlying matters are settled.
Other accrued expenses included net current liabilities for RE&C of $23 million and $33 million at December 31, 2006
and 2005, respectively.
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