Raytheon 2006 Annual Report Download - page 110

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
ERISA Complaint alleges that we, our Pension and Investment Group and our Investment Committee breached ERISA
fiduciary duties by failing to: (1) prudently and loyally manage plan assets, (2) monitor the Pension and Investment
Group and the Investment Committee and provide them with accurate information, (3) provide complete and accurate
information to plan participants and beneficiaries and (4) avoid conflicts of interest. In October 2004, the defendants
filed a motion to dismiss the Second Consolidated Amended ERISA Complaint. In September 2005, the court heard the
motion to dismiss but declined to decide the motion subject to a trial on a statue of limitations issue which was scheduled
for June 2006. In mediation with a federal magistrate in May 2006, the parties reached a tentative settlement. On June 23,
2006, a proposed settlement agreement was presented to the court for approval. On February 6, 2007, the court approved
the settlement agreement. The settlement agreement requires us to pay $5.5 million, with part of that amount payable
directly to our savings and investment plans, part payable directly to certain participants and beneficiaries and part
payable for expenses. The court also approved an order requiring us to pay plaintiffs’ attorney fees of $1.5 million, as
determined by a federal magistrate in September 2006. We recorded a charge of $7 million to other expense in 2006 in
connection with this tentative settlement. The class for purposes of settlement consists of any person who was a
participant or beneficiary at any time between October 7, 1998 and April 30, 2006, and whose plan accounts included
investments in the Raytheon Common Stock Fund. If no appeal or request for reconsideration of the court’s February 6,
2007 orders is requested within 30 days, those orders will become final. Based on the approval of the settlement, the
outcome of this matter is expected to be immaterial.
In addition, various claims and legal proceedings generally incidental to the normal course of business are pending or
threatened against us. While the ultimate liability or potential range of loss, if any, from these proceedings is presently
indeterminable, any additional liability is not expected to have a material adverse effect on our financial position, results
of operations or liquidity.
Note 13: Employee Stock Plans
We recorded $104 million, $60 million and $24 million of expense related to stock-based compensation in 2006, 2005
and 2004, respectively. We recorded $34 million, $21 million and $8 million as a tax benefit related to stock-based
compensation in 2006, 2005 and 2004, respectively. At December 31, 2006, there was $143 million of compensation
expense, related to nonvested awards not yet recognized which is expected to be recognized over a weighted-average
period of 1.6 years.
Shares issued as a result of stock option exercise or conversion of restricted stock unit awards will be funded through
treasury stock or through the issuance of new shares.
Restricted Stock
The 2001 Stock Plan provides for the award of restricted stock, restricted stock units and stock appreciation rights. The
1997 Nonemployee Directors Restricted Stock Plan provides for the award of restricted stock to nonemployee directors.
Awards of restricted stock, restricted stock units and stock appreciation rights generally are made by the Management
Development and Compensation Committee of our Board of Directors (MDCC) and are compensatory in nature. These
awards vest over a specified period of time as determined by the MDCC, generally 4 years for employee awards and one
year for nonemployee directors. Restricted stock awards entitle the recipient to full dividend and voting rights. Nonvested
shares are restricted as to disposition and subject to forfeiture under certain circumstances. 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 of restricted stock, calculated under the intrinsic value method at the date of award, is charged to income as
compensation expense over the vesting period with a corresponding credit to common stock at par value and additional
paid-in capital.
No further grants are allowed under the 2001 Stock Plan or the 1997 Nonemployee Directors Restricted Stock Plan after
January 30, 2011 and November 25, 2011, respectively.
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