Raytheon 2013 Annual Report Download - page 95

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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Realized gains and losses resulting from these cash flow hedges offset the foreign exchange gains and losses on the underlying
transactions being hedged. Gains and losses on derivatives not designated for hedge accounting or representing either hedge
ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized currently in net sales or
cost of sales.
We also periodically enter into pay-variable, receive-fixed interest rate swaps to manage interest rate risk associated with our
fixed-rate financing obligations. We account for our interest rate swaps as fair value hedges of a portion of our fixed-rate
financing obligations, and accordingly record gains and losses from changes in the fair value of these swaps in interest expense,
along with the offsetting gains and losses on the fair value adjustment of the hedged portion of our fixed-rate financing
obligations. We also record in interest expense the net amount paid or received under the swap for the period and the amortization
of gain or loss from the early termination of interest rate swaps. There were no interest rate swaps outstanding for the years
ended December 31, 2013 and 2012. For a discussion of the impacts of our hedging activities on our results, see "Note 8:
Derivative Financial Instruments".
Fair Values—The accounting standard for fair value measurements provides a framework for measuring fair value and requires
expanded disclosures regarding fair value measurements. Fair value is defined as the price that would be received for an asset
or the exit price that would be paid to transfer a liability in the principal or most advantageous market in an orderly transaction
between market participants on the measurement date. This accounting standard established a fair value hierarchy, which
requires an entity to maximize the use of observable inputs, where available. The following summarizes the three levels of
inputs required:
Level 1: Quoted prices in active markets for identical assets or 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.
Level 3: Unobservable inputs supported by little or no market activity that are significant to the fair value of the assets or
liabilities.
Assets and liabilities measured at fair value on a recurring basis consisted of marketable securities held in trust, short-term
investments and foreign currency forward contracts as of December 31, 2013 and 2012. Fair value information for those assets
and liabilities, including their classification in the fair value hierarchy, is included in "Note 13: Pension and Other Employee
Benefits" (for marketable securities held in trust), "Note 1: Summary of Significant Accounting Policies" (for short-term
investments), and "Note 8: Derivative Financial Instruments" (for foreign currency forward contracts). We did not have any
significant nonfinancial assets or nonfinancial liabilities that would be recognized or disclosed at fair value on a recurring
basis as of December 31, 2013 and 2012. We did not have any material amounts of Level 3 assets or liabilities at December 31,
2013 and 2012.
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