Raytheon 2010 Annual Report Download - page 54

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manner and the amounts presented may not recalculate directly due to rounding. Adjusted EPS was as follows:
2010 2009 2008
Diluted EPS from continuing operations attributable to Raytheon Company common
stockholders $ 4.79 $ 4.89 $3.93
Earnings per share impact of the FAS/CAS Pension Adjustment 0.40 (0.04) 0.19
Earnings per share impact of the unfavorable adjustment due to the impact of pension
investment returns on existing contracts —— 0.11
Earnings per share impact of the UK Border Agency Program 0.75 ——
Earnings per share impact of the Tax Settlement (0.45) ——
Earnings per share impact of the early retirement of debt charges 0.13 0.04 —
Earnings per share impact of the acceleration of deferred gains related to terminated interest
rate swaps on retired debt (0.03) (0.01) —
Adjusted EPS $ 5.58 $ 4.87 $4.22
SEGMENT RESULTS
We report our results in the following segments: Integrated Defense Systems (IDS), Intelligence and Information Systems
(IIS), Missile Systems (MS), Network Centric Systems (NCS), Space and Airborne Systems (SAS) and Technical Services
(TS). The following provides some context for viewing our segment performance through the eyes of management.
Given the nature of our business, bookings, net sales and operating income (including operating margin percentage),
which we disclose and discuss at the segment level, are most relevant to an understanding of management’s view of our
segment performance, and often these measures have significant interrelated effects as described below. In addition, we
disclose and discuss backlog, which represents future sales that we expect to recognize over the contract period, which is
generally the next several years.
Bookings: We disclose the amount of bookings for each segment and notable contract awards. Bookings generally
represent the dollar value of new contracts awarded to us during the reporting period and include firm orders for which
funding has not been appropriated. We believe bookings are an important measure of future performance and are an
indicator of potential future changes in net sales, since we cannot record revenues under a new contract without first
having a booking in the current or preceding period (i.e., a contract award).
Total Net Sales and Total Operating Expenses: We generally express changes in net sales in terms of volume. Volume
generally refers to increases or decreases in revenues related to varying amounts of total operating expenses, which are
comprised of cost of sales, administrative and selling expenses and research and development expenses, incurred on
individual contracts (i.e., from performance against contractual commitments on our bookings related to engineering,
production or service activity). Therefore, we discuss volume changes attributable principally to individual programs
unless there is a discrete event (e.g., a major contract termination, natural disaster or major labor strike, etc.), or some
other unusual item that has a material effect on changes in a segment’s volume for a reported period. Due to the nature of
our contracts, the amount of costs incurred and related revenues will naturally fluctuate over the life of the contracts. As a
result, in any reporting period, the changes in volume on numerous contracts are likely to be due to normal fluctuations
in our production activity or service levels.
Operating Income (and the related operating margin percentage): We generally express changes in segment operating
income in terms of volume, changes in program performance or changes in contract mix. Changes in volume discussed
in net sales typically drive corresponding changes in our operating income based on the profit rate for a particular
contract. Changes in program performance typically relate to profit recognition associated with revisions to total
estimated costs at completion that reflect improved or deteriorated operating performance or award fee rates. Changes in
contract mix refer to changes in operating margin due to a change in the relative volume of contracts with higher or lower
fee rates such that the overall average margin rate for the segment changes. Because each segment has thousands of
contracts, in any reporting period, changes in operating income and margin are likely to be due to normal changes in
volume, program performance and mix on many contracts with no single change or series of related changes materially
driving a segment’s change in operating income or operating margin percentage.
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