RAYTHEON COMPANY 333 P39 333 ALLOWANCE FOR DOUBTFUL ACCOUNTS The Company maintains 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: PREPAID EXPENSES AND OTHER CURRENT ASSETS Included in prepaid expenses and other current assets at December 31  2002 was $56 million of cash received in 2002 that was restricted for payment in connection with the Company’s merger with the defense business of Hughes Electronics Corporation in December 1997. Also included at December 31  2002 was $48 million of restricted cash from the sale of the Company’s corpo- rate headquarters. This cash was used to fund the construction of the Company’s new corporate headquarters and the acquisition of three other properties. In June 2003  the restrictions related to the use of this cash expired  therefore  the remaining $10 million that had not yet been spent was reflected in the statement of cash flows as proceeds from sales of property  plant  and equipment in 2003.  CONTRACTS IN PROCESS Contracts in process are stated at cost plus estimated profit but not in excess of realizable value.  INVENTORIES Inventories are stated at cost (principally first- in  first-out or average cost)  but not in excess of realizable value. A provision for excess or inactive inventory is recorded based upon an analysis that considers current inventory levels  historical usage patterns  and future sales expectations. PROPERTY  PLANT  AND EQUIPMENT Property  plant  and equipment are stated at cost. Major improvements are capitalized while expenditures for maintenance  repairs  and minor improve- ments are charged to expense. When assets are retired or other- wise disposed of  the assets and related accumulated depreciation and amortization are eliminated from the accounts and any result- ing gain or loss is reflected in income. Gains and losses resulting from the sale of property  plant  and equipment at the defense busi- The amount of goodwill by segment at December 31  2003 was $751 million for Integrated Defense Systems  $1 349 million for Intelligence and Information Systems  $3 438 million for Missile Systems  $2 306 million for Network Centric Systems  $2 639 mil- lion for Space and Airborne Systems  $868 million for Technical Services  and $128 million for Other. Information about additions to goodwill in 2003 is included in Note C  Acquisitions and Divestitures and Note H  Other Assets. In 2002  the Company recorded a goodwill impairment charge of $360 million related to its former Aircraft Integration Systems business (AIS) as a cumulative effect of change in accounting prin- ciple. The fair value of AIS was determined based upon the pro- ceeds received by the Company in connection with the sale  as described in Note B  Discontinued Operations. Due to the non- deductibility of this goodwill  the Company did not record a tax benefit in connection with this impairment. Also in 2002  the Company completed the transitional review for potential goodwill impairment in accordance with SFAS No. 142 and recorded a goodwill impairment charge of $185 million pretax or $149 million after-tax  which represented all of the goodwill at Raytheon Aircraft  as a cumulative effect of change in accounting principle. The fair value of Raytheon Aircraft was determined using a discounted cash flow approach. The total goodwill impairment charge in 2002 was $545 million pretax  $509 million after-tax  or $1.25 per diluted share. The Company performs the annual impairment test in the fourth quarter of each year. There was no goodwill impairment associated with the annual impairment test performed in the fourth quarter of 2003 and 2002. IMPAIRMENT OF LONG-LIVED ASSETS Effective January 1  2002  the Company adopted Statement of Financial Accounting Standards No. 142  Goodwill and Other Intangible Assets (SFAS No. 142). This accounting standard addresses financial account- ing and reporting for goodwill and other intangible assets and requires that goodwill amortization be discontinued and replaced with periodic tests of impairment. A two-step impairment test is used to first identify potential goodwill impairment and then meas- ure the amount of goodwill impairment loss  if any.  Provisions for depreciation are generally computed using a com- bination of accelerated and straight-line methods. Depreciation pro- visions are based on estimated useful lives as follows: buildings — 20 to 45 years  machinery and equipment — 3 to 10 years  and equipment leased to others — 5 to 10 years. Leasehold improve- ments are amortized over the lesser of the remaining life of the lease or the estimated useful life of the improvement. nesses are included in overhead and reflected in the pricing of products and services to the U.S. government. (In millions) Balance at December 31  2000 $132 Provisions 2 Utilizations (21) Balance at December 31  2001 113 Provisions 2 Utilizations (42) Balance at December 31  2002  73 Provisions 1 Utilizations (39) Balance at December 31  2003 $35