Raytheon 2007 Annual Report Download - page 91

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
equipment is recognized as services are rendered once persuasive evidence of an arrangement exists, our price is fixed or
determinable, and we have determined that collectibility is reasonably assured.
We apply the separation guidance in Emerging Issues Task Force 00-21, Revenue Arrangements with Multiple
Deliverables (EITF 00-21) for contracts with multiple deliverables. Revenue arrangements with multiple deliverables are
evaluated to determine if the deliverables should be divided into more than one unit of accounting. For contracts with
more than one unit of accounting, we recognize revenue for each deliverable based on the revenue recognition policies
discussed above.
Research and Development Expenses—Expenditures for Company-sponsored research and development projects
and bid and proposal costs are expensed as incurred. Customer-sponsored research and development projects performed
under contracts are accounted for as contract costs as the work is performed.
Federal, Foreign and State Income Taxes—The Company and our domestic subsidiaries provide for federal
income taxes on pretax accounting income at rates in effect under existing tax law. Foreign subsidiaries record provisions
for income taxes at applicable foreign tax rates in a similar manner. The payments made for state income taxes are
included in administrative and selling expenses as these costs can generally be recovered through the pricing of products
and services to the U.S. government in the period in which the tax is payable. Accordingly, the state income tax provision
(benefit) is allocated to contracts in future periods as discussed below in Deferred Contract Costs.
Cash and Cash Equivalents—Cash and cash equivalents consist of cash and short-term, highly liquid investments
with original maturities of 90 days or less at the date of purchase.
Allowance for Doubtful Accounts—We maintain 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, 2004 $28
Provisions 2
Utilizations (11)
Balance at December 31, 2005 19
Provisions —
Utilizations (1)
Balance at December 31, 2006 18
Provisions —
Utilizations (10)
Balance at December 31, 2007 $8
Contracts in Process—Contracts in process are stated at cost plus estimated profit, but not in excess of estimated
realizable value.
Deferred Contract Costs—Certain costs incurred in the performance of our U.S. government contracts are required
to be recorded under GAAP but are not currently allocable to contracts. Such costs are deferred and primarily include a
portion of our environmental expenses, asset retirement obligations, certain restructuring costs, deferred state income tax
and workers’ compensation. At December 31, 2007 and December 31, 2006, the net deferred contract costs were
approximately $80 million and $40 million, respectively. These costs are allocated to contracts when they are paid or
62