The weighted average number of shares outstanding (in millions) for the years ended December 31, used to compute earnings per share are as follows:
Basic earnings per share is calculated based on the weighted average number of shares outstanding, excluding treasury shares and the outstanding shares held by the ShareValue Trust. Diluted earnings per share is calculated based on that same number of shares plus dilutive potential common shares. Dilutive potential common shares may include shares distributable under stock option, stock unit, Performance Shares and ShareValue Trust plans. Potential common shares are considered dilutive if they would either reduce earnings per share or increase loss per share.
The weighted average number of shares outstanding at December 31 (in millions), included in the table below, is excluded from the computation of diluted earnings per share because the average market price did not exceed the exercise/threshold price. However, these shares may be dilutive potential common shares in the future.
The (benefit)/provision for taxes on income consisted of the following:
The following is a reconciliation of the tax derived by applying the U.S. federal statutory rate of 35% to the earnings before income taxes and comparing that to the recorded income tax (benefit)/provision:
The 2003 effective income tax rate of (30.5)% varies from the federal statutory tax rate of 35%, due to tax benefits from federal tax refunds, Foreign Sales Corporation (FSC) and Extraterritorial Income (ETI) Exclusion tax benefits of $115, partially offset by tax charges related to the non-deductibility for tax purposes of significant portions of goodwill impairment charges. This rate also reflects tax credits, state income taxes, charitable donations and tax-deductible dividends.
The effective income tax rates for 2002 and 2001 also vary from the federal statutory tax rate principally due to FSC and ETI benefits ($195 in 2002 and $222 in 2001) and favorable resolution of certain audit issues. Offsetting these benefits are state income taxes and in 2001, the non-deductibility of certain goodwill amortization. The 2001 income tax rate also reflects a one-time benefit reflecting a settlement with the Internal Revenue Service (IRS) relating to research credit claims on McDonnell Douglas Corporation fixed price government contracts applicable to the 1986-1992 federal income tax returns.
The components of net deferred tax assets at December 31 were as follows:
At December 31, the deferred tax assets, net of deferred tax liabilities, resulted from temporary differences associated with the following:
Of the deferred tax asset for net operating loss and credit carryovers, $61 expires in years ending from December 31, 2004 through December 31, 2023 and $15 may be carried over indefinitely. Income taxes have been settled with the IRS for all years through 1981, and IRS examinations have been completed through 1997. During 2003, a partial settlement was reached with the IRS for the years 1992–1997 and we received a refund of taxes and related interest of $1,095 (of which $397 represents interest). Also, in January and February 2004, we received federal tax refunds and a notice of approved refund totaling $145 (of which $40 represents interest). The refunds related to a settlement of the 1996 tax year and the 1997 partial tax year for McDonnell Douglas Corporation, which we merged with on August 1, 1997. The notice of approved refund related to the 1985 tax year. These events resulted in a $727 increase in net earnings for the year ended December 31, 2003. We believe adequate provision has been made for all outstanding issues for all open years.
Net income tax (refunds)/payments were $(507), $(49) and $1,521 in 2003, 2002 and 2001, respectively.
Accounts receivable at December 31 consisted of the following:
The following table summarizes our accounts receivable under U.S. Government contracts that were not billable or related to outstanding claims as of December 31:
Unbillable receivables on U.S. Government contracts arise when the sales or revenues based on performance attainment, though appropriately recognized, cannot be billed yet under terms of the contract. Accounts receivable related to claims are items that we believe are earned, but are subject to uncertainty concerning their determination or ultimate realization.
As of December 31, 2003 and 2002, other accounts receivable included $602 and $474 of reinsurance receivables relating to Astro Ltd., a wholly-owned subsidiary, that operates as a captive insurance company. Currently, Astro Ltd. insures aviation liability, workers compensation, general liability, property, as well as various other smaller risk liability insurances.
As of December 31, 2003 and 2002, amounts due to us pending contract completion amounted to $68 and $195.