RAYTHEON COMPANY 333 P61 333 333 NOTE Q: QUARTERLY  OPERATING RESULTS (UNAUDITED) 333 NOTE R: FINANCIAL INSTRUMENTS (In millions except per share amounts and stock prices) 2003 First Second Third Fourth Net sales $4,201 $4,429 $4,378 $5,101 Gross margin 721 859 602 927 Income from  continuing operations 111 186 21 217 Net income (loss) 95 100 (35) 205 Earnings per share from continuing operations Basic $ 0.27 $ 0.45 $ 0.05 $ 0.52 Diluted 0.27 0.45 0.05 0.52 Earnings (loss) per share Basic 0.23 0.24 (0.08) 0.49 Diluted 0.23 0.24 (0.08) 0.49 Cash dividends per share Declared 0.20 0.20 0.20 0.20 Paid 0.20 0.20 0.20 0.20 Common stock prices  High $32.09 $33.69 $33.97 $30.24 Low 24.31 27.15 27.74 25.45 2002 First Second Third Fourth Net sales $3,911 $4,095 $4,092 $4,662 Gross margin 751 888 852 911 Income from  continuing operations 150 223 228 155 Income (loss) before  accounting change (74) (136) 147 (68) Net income (loss) (583) (136) 147 (68) Earnings per share from continuing operations Basic $ 0.38 $ 0.56 $ 0.56 $ 0.38 Diluted 0.37 0.54 0.56 0.38 Earnings (loss) per share  before accounting change Basic (0.19) (0.34) 0.36 (0.17) Diluted (0.19) (0.33) 0.36 (0.17) Earnings (loss) per share Basic (1.47) (0.34) 0.36 (0.17) Diluted (1.44) (0.33) 0.36 (0.17) Cash dividends per share Declared 0.20 0.20 0.20 0.20 Paid 0.20 0.20 0.20 0.20 Common stock prices  High $40.95 $44.52 $38.63 $30.75 Low 30.88 37.54 28.61 26.86 Note: Earnings per share are computed independently for each of the quarters pre- sented, therefore, the sum of the quarterly earnings per share may not equal the total computed for the year.  The Company has one outstanding interest rate swap agree- ment related to long-term receivables at Raytheon Aircraft with a notional amount of $33 million that matures in 2004. Under this agreement, the Company pays interest at a fixed rate of 6.2% and receives a variable rate equal to one-month LIBOR. The variable rate applicable to this agreement was 1.2% at December 31, 2003. This interest rate swap is considered a cash flow hedge.  At December 31, 2003, the Company had recorded the interest rate swap at fair value consisting of an unrealized loss of $1 mil- lion included in current liabilities with the offset included in  other comprehensive income, net of tax, which is expected to be reclassified to earnings over the next twelve months. The ineffective portion was not material in 2003, 2002, and 2001. In 2003, the Company entered into interest rate swaps, as described in Note I, Notes Payable and Long-term Debt. These interest rate swaps were designated as fair value hedges. There was no hedge ineffectiveness during 2003. At December 31, 2003, the Company recorded forward exchange contracts designated as cash flow hedges at their fair value. Unrealized gains of $76 million were included in noncurrent assets and unrealized losses of $39 million were included in current liabil- ities. The offset was included in other comprehensive income, net of tax, of which approximately $5 million of net unrealized gains are expected to be reclassified to earnings over the next twelve months as the underlying transactions mature. Gains and losses resulting from these cash flow hedges offset the foreign exchange gains and losses on the underlying assets or liabilities being hedged. The maturity dates of the forward exchange contracts outstanding at December 31, 2003 extend through 2013. Certain immaterial con- tracts were not designated as effective hedges and therefore were included in other expense. The amount charged to other expense related to these contracts was less than $1 million in 2003 and 2002.