Raytheon 2010 Annual Report Download - page 85

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Inventories—Inventories are stated at cost (first-in, first-out or average cost), but not in excess of realizable value. A write
down for excess or inactive inventory is recorded based upon an analysis that considers current inventory levels, historical
usage patterns, future sales expectations and salvage value.
Inventories consisted of the following at December 31:
(In millions) 2010 2009
Materials and purchased parts $63 $60
Work in process 278 257
Finished goods 22 27
Total $363 $344
We capitalize costs incurred in advance of contract award or funding in inventories, precontract costs, if we determine
contract award or funding is probable, excluding any start-up costs. We included capitalized precontract and other
deferred costs of $116 million and $88 million in inventories as work in process at December 31, 2010 and December 31,
2009, respectively.
Property, Plant and Equipment, Net—Property, plant and equipment, net are stated at cost less accumulated
depreciation. Major improvements are capitalized while expenditures for maintenance, repairs and minor improvements
are expensed. We include gains and losses on the sales of plant and equipment that are allocable to our contracts in
overhead as we can generally recover these costs through the pricing of products and services to the U.S. Government.
For all other sales or asset retirements, the assets and related accumulated depreciation and amortization are eliminated
from the accounts and any resulting gain or loss is reflected in income.
Provisions for depreciation are generally computed using a combination of accelerated and straight-line methods and are
based on estimated useful lives as follows:
Years
Machinery and equipment 3-10
Equipment leased to others 5-10
Buildings 20-45
Leasehold improvements are amortized over the lesser of the remaining life of the lease or the estimated useful life of the
improvement.
Impairment of Goodwill and Long-lived Assets—We evaluate our goodwill for impairment annually or whenever events
or circumstances indicate the carrying value of that goodwill may not be recoverable. We perform our annual
impairment test on the first day of the fourth quarter utilizing a two-step methodology that requires us to first identify
potential goodwill impairment and then measure the amount of the related goodwill impairment loss, if any. We have
identified our operating segments as reporting units under the impairment test assessment criteria outlined in GAAP. In
performing our annual impairment test in the fourth quarter of 2010 and 2009, we did not identify any goodwill
impairment.
We determine whether long-lived assets are to be held for use or disposal. Upon indication of possible impairment of
long-lived assets held for use, we evaluate the recoverability of such 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, we must have committed to a plan to dispose of the assets.
Once deemed held for disposal, the assets are stated at the lower of the carrying amount or fair value.
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