Raytheon 2013 Annual Report Download - page 91

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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Federal, Foreign and State Income Taxes—The Company and its 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. Such provisions differ from the amounts currently payable because certain
items of income and expense are recognized in different time periods for financial reporting purposes than for income tax
purposes. The Company does not provide for a U.S. income tax liability on undistributed earnings of our foreign subsidiaries.
Such earnings are indefinitely reinvested in foreign operations or expected to be remitted substantially free of additional tax.
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 described below in Deferred
Contract Costs.
Other Expense (Income), Net—Other expense (income), net consists primarily of gains and losses from our investments
held in rabbi trusts used to fund certain of our non-qualified deferred compensation plans, gains and losses on the early
repurchase of long-term debt and certain financing fees.
Cash and Cash Equivalents—Cash and cash equivalents consist of cash and highly liquid investments with original maturities
of 90 days or less at the date of purchase. The estimated fair value of cash and cash equivalents approximates the carrying
value due to their short maturities.
Short-term Investments—We invest in marketable securities in accordance with our short-term investment policy and cash
management strategy. At December 31, 2013, we had short-term investments consisting of highly rated bank certificates of
deposit with a minimum long-term debt rating of A or A2 and a minimum short term debt rating of A-1 or P-1.
The fair value of our short term investments consisted of the following at December 31:
(In millions) 2013 2012
Short-term investments $ 1,001 $ 856
The estimated fair value of our short-term investments approximates the carrying value due to their short maturities. These
investments are deemed Level 2 assets under the fair value hierarchy for both 2013 and 2012, as their fair value is determined
under a market approach using valuation models that utilize observable inputs, including maturity date, issue date, settlements
date, and current rates. These marketable securities are classified as available-for-sale and are recorded at fair value as short-
term investments in our consolidated balance sheets. The amortized cost of these securities closely approximated their fair
value as of December 31, 2013. Unrealized gains and losses on our available-for-sale securities are recorded in accumulated
other comprehensive loss (AOCL), net of tax. Realized gains and losses on sales of our available-for-sale securities are
recorded in other (income) expense, net on our consolidated statement of operations. When determined, other than temporary
declines in the value of available-for-sale securities are recorded as a loss in earnings. We make such determinations by
considering, among other factors, the length of time the fair value of the investment has been less than the carrying value,
future business prospects for the investee, and information regarding market and industry trends for the investee's business,
if available. For purposes of computing realized gains and losses on available-for-sale securities, we determine cost on a
specific identification basis. There were no securities deemed to have other than temporary declines in value for the twelve
months ended December 31, 2013. In the twelve months ended December 31, 2013, we recorded an unrealized gain on short-
term investments of less than $1 million, net of tax, in AOCL. In the twelve months ended December 31, 2013, we had sales
of short-term investments of $325 million, which resulted in gains of approximately $1 million recorded in other (income)
expense, net.
Contracts in Process, Net—Contracts in process, net are stated at cost plus estimated profit, but not in excess of estimated
realizable value. Included in contracts in process are accounts receivable, which include amounts billed and due from customers.
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 creditworthiness, historical payment experience, the age
of outstanding receivables and collateral to the extent applicable.
Deferred Contract Costs—Included in contracts in process, net are certain costs related to the performance of our U.S.
Government contracts which are required to be recorded under GAAP but are not currently allocable to contracts. Such costs