Raytheon 2004 Annual Report Download - page 56

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38
Administrative and selling expenses were $1,433 million or 7.1 percent of sales in 2004, $1,306 million or 7.2
percent of sales in 2003, and $1,170 million or 7.0 percent of sales in 2002. Included in administrative and selling
expenses in 2002 was a $29 million gain on the sale of the Company’s corporate headquarters.
Research and development expenses were $491 million or 2.4 percent of sales in 2004, $487 million or 2.7
percent of sales in 2003, and $449 million or 2.7 percent of sales in 2002.
Operating income was $1,388 million or 6.9 percent of sales in 2004, $1,316 million or 7.3 percent of sales in
2003, and $1,783 million or 10.6 percent of sales in 2002. The changes in operating income by segment are
described below in Segment Results.
Interest expense from continuing operations was $418 million in 2004, $537 million in 2003, and $497 million in
2002. In 2002, the Company allocated $79 million of interest expense to discontinued operations. The Company
did not allocate interest expense to discontinued operations in 2004 or 2003. Total interest expense was $576
million in 2002. The decrease in interest expense in 2004 was due to lower average debt. The decrease in interest
expense in 2003 was due to a lower weighted-average cost of borrowing.
Interest income was $45 million in 2004, $50 million in 2003, and $27 million in 2002. The increase in interest
income in 2003 was due to interest on long-term receivables brought onto the Company’s books as part of the buy-
out of the Company’s aircraft receivables facility in the fourth quarter of 2002.
Other expense, net was $436 million in 2004, $67 million in 2003, and $237 million in 2002. Included in other
expense, net in 2004 was a $325 million charge related to the settlement of a securities class action lawsuit described
below in Commitments and Contingencies and a $132 million charge related to the Company’s repurchase of long-
term debt and subordinated notes payable described below in Capital Structure and Resources. Included in other
expense, net in 2002 was a $175 million charge to write-off the Company’s investment in Space Imaging and accrue
for a related credit facility guarantee which the Company paid in 2003, described below in Major Affiliated Entities.
Other income and expense also includes equity income and losses in unconsolidated subsidiaries.
The effective tax rate was 24.2 percent in 2004, 29.8 percent in 2003, and 29.7 percent in 2002, reflecting ESOP
dividend deductions, export-related tax benefits, and research and development tax credits applicable to certain
government contracts. In addition, the 2004 tax rate included a $42 million benefit from the change in tax law
primarily related to the extension of foreign tax credits from five to 10 years. At December 31, 2004, the Company
had net operating loss carryforwards of $835 million that expire in 2020 through 2023.
Income from continuing operations was $439 million or $0.99 per diluted share on 442.2 million average shares
outstanding in 2004, $535 million or $1.29 per diluted share on 415.4 million average shares outstanding in 2003,
and $756 million or $1.85 per diluted share on 408.0 million average shares outstanding in 2002. The increase in
average shares outstanding in 2004 was due to common stock issued in connection with the Company’s equity
security units described below in Capital Structure and Resources. The increase in average shares outstanding in
2003 was due to benefit plan-related activity.
The loss from discontinued operations, net of tax, described below in Discontinued Operations, was $63 million
or $0.14 per diluted share in 2004, $170 million or $0.41 per diluted share in 2003, and $887 million or $2.17 per
diluted share in 2002.
Effective January 1, 2004, the Company changed the measurement date for its pension and other postretirement
benefit plans from October 31 to December 31. This change in measurement date was accounted for as a change in
accounting principle. The cumulative effect of this change in accounting principle was a gain of $53 million pretax
for pension benefits and a gain of $10 million pretax for other postretirement benefits. Using the Company’s year
end as the measurement date for pension and other postretirement benefit plans more appropriately reflects the
plans’ financial status for the years then ended. In 2004, the total cumulative effect of the change in accounting
principle was a gain of $63 million pretax, $41 million after-tax, or $0.09 per diluted share.