Raytheon 2011 Annual Report Download - page 94

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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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, 2011 and December 31, 2010.
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, 2011 and 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.
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, excluding foreign military sales, were 74% of total net sales in 2011, 76% of total net
sales in 2010 and 77% of total net sales in 2009. Total sales to customers outside the U.S., including foreign military sales
through the U.S. Government, were 25%, 23% and 21% of total net sales in 2011, 2010 and 2009, respectively. Sales to the
government may be affected by changes in procurement policies, budget considerations, changing concepts of national defense,
political developments abroad and other factors.