Raytheon 2010 Annual Report Download - page 88

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Level 1: Quoted prices in active markets for identical assets or liabilities. Our Level 1 assets are investments in
marketable securities held in rabbi trusts that we use to pay benefits under certain of our non-qualified deferred
compensation plans, which we include in other assets, net. Our Level 1 liabilities include our obligations to pay
certain non-qualified deferred compensation plan benefits, which we include in accrued retiree benefits and
other long-term liabilities. Under these non-qualified deferred compensation plans, participants designate
investment options (primarily mutual funds) to serve as the basis for measurement of the notional value of
their accounts. We also include foreign currency forward contracts that we trade in an active exchange market
in our Level 1 assets and liabilities.
Level 2: Observable inputs, other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices
in markets that are not active; or other inputs that are observable or that we corroborate with observable
market data for substantially the full term of the related assets or liabilities. We did not have any Level 2 assets
or liabilities at December 31, 2010 and December 31, 2009.
Level 3: Unobservable inputs supported by little or no market activity that are significant to the fair value of the assets
or liabilities. We did not have any Level 3 assets or liabilities at December 31, 2010.
Earnings per Share—We compute basic EPS attributable to Raytheon Company common stockholders by dividing
income from continuing operations attributable to Raytheon Company common stockholders, income (loss) from
discontinued operations attributable to Raytheon Company common stockholders and net income attributable to
Raytheon Company, by our weighted-average common shares outstanding, including participating securities
outstanding, as described below, during the period. Diluted EPS reflects the potential dilution beyond shares for basic
EPS that could occur if securities or other contracts to issue common stock were exercised, converted into common stock
or resulted in the issuance of common stock that would have shared in our earnings. We compute basic and diluted EPS
using actual income from continuing operations attributable to Raytheon Company common stockholders, income (loss)
from discontinued operations attributable to Raytheon Company common stockholders, net income attributable to
Raytheon Company, and our actual weighted-average shares and participating securities outstanding rather than the
numbers presented within our consolidated financial statements, which are rounded to the nearest million. As a result, it
may not be possible to recalculate EPS as presented in our consolidated financial statements. Furthermore, it may not be
possible to recalculate EPS attributable to Raytheon Company common stockholders by adjusting EPS from continuing
operations by EPS from discontinued operations.
We include all unvested stock awards that contain non-forfeitable rights to dividends or dividend equivalents, whether
paid or unpaid, in the number of shares outstanding in our basic and diluted EPS calculations. As a result, we have
included all of our outstanding unvested restricted stock and LTPP awards that meet the retirement eligible criteria in our
calculation of basic and diluted EPS. We disclose EPS for common stock and unvested share-based payment awards, and
separately disclose distributed and undistributed earnings. Distributed earnings represent common stock dividends and
dividends earned on unvested share-based payment awards of retirement eligible employees. Undistributed earnings
represent earnings that were available for distribution but were not distributed. Common stock and unvested share-based
payment awards earn dividends equally, as shown in the table below.
Employee Stock Plans—Stock-based compensation cost is measured at the grant date based on the calculated fair value
of the award. The expense is recognized over the employees’ requisite service period, generally the vesting period of the
award. The expense is amortized over the service period using the graded vesting method for our restricted stock and
restricted stock units and the straight line amortization method for our Long-Term Performance Plan (LTPP). The
related gross excess tax benefit received upon exercise of stock options or vesting of a stock-based award, if any, is
reflected in the consolidated statements of cash flows as a financing activity rather than an operating activity.
Risks and Uncertainties—We provide a wide range of technologically advanced products, services and solutions for
principally governmental customers in the U.S. and abroad, and are subject to certain business risks specific to that
industry. Total sales to the U.S. Government, including foreign military sales, were 88% of total net sales in 2010 and
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