RAYTHEON COMPANY 333 P41 333 COMPREHENSIVE INCOME Comprehensive income and its components are presented in the statement of stockholders’ equity.  Accumulated other comprehensive income consisted of the fol- lowing at December 31:  The minimum pension liability adjustment is shown net of tax benefits of $1,195 million and $1,132 million at December 31, 2003 and 2002, respectively. The unrealized losses on interest- only strips are shown net of tax benefits of $1 million at December 31, 2003 and 2002. The interest rate lock is shown net of tax benefits of $1 million at December 31, 2003 and 2002. The cash flow hedges are shown net of tax liabilities of $13 million and $3 million at December 31, 2003 and 2002, respectively.  arrangements. The Company also enters into foreign currency for- ward contracts with commercial banks only to fix the dollar value of specific commitments and payments to international vendors and the value of foreign currency denominated receipts. The hedges used by the Company are transaction driven and are directly related to a particular asset, liability, or transaction for which a com- mitment is in place. These instruments are executed with credit- worthy institutions and the majority of the foreign currencies are denominated in currencies of major industrial countries. The Company does not hold or issue financial instruments for trading or speculative purposes. FAIR VALUE OF FINANCIAL INSTRUMENTS The estimated fair value of certain financial instruments, including cash, cash equivalents, and short-term debt approximates the carrying value due to their short maturities and varying interest rates. The esti- mated fair value of notes receivable approximates the carrying value based principally on the underlying interest rates and terms, maturities, collateral, and credit status of the receivables. The estimated fair value of investments, other than those accounted for under the cost or equity method, are based on quoted market prices. The estimated fair value of long-term debt of approxi- mately $7.0 billion at December 31, 2003 was based on quoted market prices. Estimated fair values for financial instruments are based on pric- ing models using current market information. The amounts realized upon settlement of these financial instruments will depend on actual market conditions during the remaining life of the instruments. EMPLOYEE STOCK PLANS Proceeds from the exercise of stock options under employee stock plans are credited to common stock at par value and the excess is credited to additional paid-in capital. The fair value at the date of award of restricted stock is credited to common stock at par value and the excess is credited to additional paid-in capital. The fair value is charged to income as compensation expense over the vesting period. Income tax bene- fits arising from employees’ premature disposition of stock option shares and exercise of nonqualified stock options are credited to additional paid-in capital.  The Company applies Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations, in accounting for its stock-based compensation plans. Accordingly, no compensation expense has been recog- nized for its stock-based compensation plans other than for restricted stock.  Had compensation expense for the Company’s stock option plans been determined based on the fair value at the grant date for awards under these plans, consistent with the methodology  prescribed under Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation, the The Company meets its working capital requirements with a combi- nation of variable rate short-term and fixed rate long-term financing. The Company enters into interest rate swap agreements or interest rate locks with commercial and investment banks primarily to man- age interest rates associated with the Company’s financing PENSION COSTS The Company has several pension and retirement plans covering the majority of employees, including cer- tain employees in foreign countries. Annual charges to income are made for the cost of the plans, including current service costs, inter- est on projected benefit obligations, and net amortization and defer- rals, increased or reduced by the return on assets. Unfunded accumulated benefit obligations are accounted for as a long-term liability. The Company funds annually those pension costs which are calculated in accordance with Internal Revenue Service regulations and standards issued by the Cost Accounting Standards Board.  INTEREST RATE AND FOREIGN CURRENCY CONTRACTS TRANSLATION OF FOREIGN CURRENCIES Assets and lia- bilities of foreign subsidiaries are translated at current exchange rates and the effects of these translation adjustments are reported as a component of accumulated other comprehensive income in stockholders’ equity. Deferred taxes are not recognized for translation- related temporary differences of foreign subsidiaries as their undis- tributed earnings are considered to be permanently invested. Income and expenses in foreign currencies are translated at the weighted-average exchange rate during the period. Foreign exchange transaction gains and losses in 2003, 2002, and 2001 were not material. (In millions) 2003 2002 Minimum pension liability $(2,240) $(2,122) Unrealized losses on interest-only strips (2) (2) Interest rate lock (1) (2) Foreign exchange translation  24 (58) Cash flow hedges 24 5 Unrealized gains (losses) on investments 1 (1) Total $(2,194) $(2,180)