Raytheon 2014 Annual Report Download - page 96

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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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, 2014 and 2013. 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, 2014 and 2013. We did not have any material amounts of Level 3 assets or liabilities at December 31,
2014 and 2013.
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 70%, 72%, and 73% of total net sales in 2014,
2013 and 2012, respectively. Total sales to customers outside the U.S., including foreign military sales through the U.S.