Raytheon 2006 Annual Report Download - page 80

We currently estimate that required pension plan cash contributions will be approximately $415 million and
discretionary cash contributions will be $400 million in 2007. We made cash contributions of $400 million in January
2007. We expect to contribute approximately $45 million to our other post-retirement benefits in 2007. Estimates for
2008 and beyond have not been provided due to the significant uncertainty of these amounts, which are subject to change
with respect to future interest rates, asset returns and pension funding reform. In addition, pension contributions are
eligible for future recovery through the pricing of products and services to the U.S. government, therefore, the amounts
noted above are not necessarily indicative of the impact these contributions will have on our liquidity.
In August 2006, the Pension Protection Act of 2006 (the Pension Act) was signed into law by President Bush. Under the
Pension Act, companies will be required to fully fund their pension plans over a seven-year period. For defense
contractors, the new funding rules become effective no sooner than 2008 and no later than 2011, depending on when the
Cost Accounting Standards Board aligns the Cost Accounting Standards with the new funding requirements. We are
currently assessing the Pension Act and its potential impact on pension funding pending further regulations and
guidance to be released by the Internal Revenue Service, Department of Labor and Department of Treasury.
Effective January 1, 2007, all eligible newly-hired or rehired employees participate in a new defined contribution plan in
lieu of our existing pension plans, subject to any applicable collective bargaining agreements. Our current eligible
employees will continue to participate in our existing pension plans without any changes to level of benefits or payment
options. This change is not expected to have a material impact on our estimated pension expense or contributions in
2007.
ACCOUNTING STANDARDS
In February 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards
No. 155, Accounting for Certain Hybrid Financial Instruments—an amendment of FASB Statements No. 133 and 140
(SFAS No. 155). SFAS No. 155 permits a fair value remeasurement for any hybrid financial instrument that contains an
embedded derivative that would otherwise require bifurcation. This accounting standard is effective as of the beginning
of fiscal years beginning after September 15, 2006. The effect, if any, of adopting SFAS No. 155 on our financial position
and results of operations is not expected to be material.
In March 2006, the FASB issued Statement of Financial Accounting Standards No. 156, Accounting for Servicing of
Financial Assets, an amendment of FASB Statement No. 140 (SFAS No. 156). SFAS No. 156 requires that servicing assets
and servicing liabilities be recognized at fair value, if practicable, when we enter into a servicing agreement and allows two
alternatives, the amortization and fair value measurement methods, as subsequent measurement methods. This
accounting standard is effective for all new transactions occurring as of the beginning of fiscal years beginning after
September 15, 2006. The effect, if any, of adopting SFAS No. 156 on our financial position and results of operations is not
expected to be material.
In June 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an
interpretation of FASB Statement No. 109 (FIN 48). FIN 48 clarifies the accounting for uncertainties in income taxes
recognized in an enterprise’s financial statements. FIN 48 requires that we determine whether it is more likely than not
that a tax position will be sustained upon examination by the appropriate taxing authority. If a tax position meets the
more likely than not recognition criteria, FIN 48 requires the tax position be measured at the largest amount of benefit
greater than 50% likely of being realized upon ultimate settlement. This accounting standard is effective for fiscal years
beginning after December 15, 2006. The cumulative effect of applying the provisions of this interpretation is required to
be reported separately as an adjustment to the opening balance of retained earnings in the year of adoption. We expect
the impact of its adoption to be a charge of approximately $13 million in 2007.
In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements
(SFAS No. 157). SFAS No. 157 establishes a framework for measuring fair value and requires expanded disclosures
regarding fair value measurements. This accounting standard is effective for financial statements issued for fiscal years
beginning after November 15, 2007. The effect, if any, of adopting SFAS No. 157 on our financial position and results of
operations has not been finalized.
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