Raytheon 2012 Annual Report Download - page 99

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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(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. Our Level 2 assets at December 31, 2012
include investments in marketable securities consisting of highly rated bank certificates of deposit. We did not
have any Level 2 assets at December 31, 2011. Our Level 2 liabilities at December 31, 2012 and December 31,
2011 include long-term debt.
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, 2012 and December 31, 2011.
Earnings per Share (EPS)—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 Long-Term Performance Plan (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 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 73%, 74%, and 76% of total net sales in 2012,
2011 and 2010, respectively. Total sales to customers outside the U.S., including foreign military sales through the U.S.
Government, were 26%, 25% and 23% of total net sales in 2012, 2011 and 2010, respectively. Sales to the U.S. Government
may be affected by changes in procurement policies, budget considerations, changing concepts of national defense, political
developments abroad and other factors. Sales to international customers may be affected by changes in the priorities and
budgets of international customers, which may be driven by changes in threat environments, geo-political uncertainties,
potentially volatile worldwide economic conditions, various regional and local economic and political factors, risks and
uncertainties and U.S. foreign policy.