Raytheon 2014 Annual Report Download - page 72

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63
The decrease in operating income related to Corporate of $50 million in 2014 compared to 2013 was primarily due to $25
million of stock compensation expense associated with restricted stock units (RSUs) awarded in 2014. The RSU awards vest
over a specified period of time as determined by the Management Development and Compensation Committee of our Board
of Directors (MDCC) and are compensatory in nature. The RSUs continue to vest, but do not accelerate, on the scheduled
vesting dates into retirement subject to the employee's compliance with certain post-employment covenants. Due to the
continued vesting provisions of the RSUs into retirement, the Company recognized all of the stock compensation expense
associated with the RSUs in 2014 rather than over the vesting period of the awards.
Total net sales and operating income related to Corporate in 2013 remained relatively consistent with 2012.
Discontinued Operations
In pursuing our business strategies we have divested certain non-core businesses, investments and assets when appropriate.
All residual activity relating to our previously disposed businesses appears in discontinued operations.
In the second quarter of 2014, we received notice of the resolution of a dispute and related litigation with the U.S. Government
regarding pension segment closing adjustments under U.S. Government Cost Accounting Standard 413 (CAS 413) for
operations we divested over ten years ago. Under CAS 413, a pension plan termination adjustment is required when a contractor
divests a business, yet retains ownership of the pension plan assets and liabilities of that business. These adjustments can
result in payments to the U.S. Government for pension plans that are in surplus position or payments to contractors for plans
that are in a deficit position. As a result, in 2014 we received payment of $81 million and recorded a $52 million gain, net of
federal tax expense, in discontinued operations, attributable to the affected plans that were in a deficit position at the time of
divestiture.
In the divestiture of Flight Options LLC (Flight Options), we agreed to indemnify Flight Options in the event Flight Options
was assessed and paid excise taxes. In the fourth quarter of 2010, Internal Revenue Service (IRS) appeals proceedings failed
to resolve the federal excise tax dispute, and as a result, the IRS assessed Flight Options for excise taxes. As a result, in the
fourth quarter of 2010, we recorded a $39 million charge, net of federal tax benefit, in discontinued operations. In the first
quarter of 2011, Flight Options paid the assessment. We contested the matter through litigation, and in the fourth quarter of
2013, we reached a settlement and recorded a $33 million gain, net of federal tax expense, in discontinued operations.
Additionally in the fourth quarter of 2013, we reached a settlement regarding certain tax audits associated with our divestiture
of Raytheon Aircraft Company. As a result of this settlement, we recorded a $25 million gain, net of federal tax expense, in
discontinued operations.
We retained certain assets and liabilities of our previously-disposed businesses. At December 31, 2014 we had $1 million of
assets. At December 31, 2013 we had $56 million of assets primarily related to a receivable for an excise tax settlement
associated with Flight Options. At December 31, 2014 and December 31, 2013, we had $15 million and $16 million of liabilities
primarily related to certain environmental and product liabilities, non-income tax obligations, various contract obligations
and aircraft lease obligations. We also retained certain pension assets and obligations, which we include in our pension
disclosures.
FINANCIAL CONDITION AND LIQUIDITY
Overview
We pursue a capital deployment strategy that balances funding for growing our business, including working capital, capital
expenditures, acquisitions and research and development; prudently managing our balance sheet, including debt repayments
and pension contributions; and returning cash to our shareholders, including dividend payments and share repurchases, as
outlined below. Our need for, cost of and access to funds are dependent on future operating results, as well as other external
conditions. We currently expect that cash and cash equivalents, available-for-sale securities, cash flow from operations and
other available financing resources will be sufficient to meet anticipated operating, capital expenditure, investment, debt
service and other financing requirements during the next twelve months and for the foreseeable future.