Raytheon 2009 Annual Report Download - page 114

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(3) Hedge funds can employ numerous strategies and seek to hedge some of the risk inherent in their investments by using a variety of methods,
including short selling and derivative instruments.
(4) Investment grade bonds are fixed income securities with a rating equivalent to a Standard & Poors rating of BBB- or better. Non-investment grade
bonds have an equivalent rating of BB+ or less.
(5) Investments in private equity funds are predominantly invested in U.S. and Western Europe private equity funds.
(6) The Plan participates in a securities lending program with the Trustee. The program allows the Trustee to loan securities, which are assets of the
Plan, to approved brokers (the “Borrowers”). The Trustee requires Borrowers, pursuant to a security loan agreement, to deliver collateral to secure
each loan. The Plan bears the risk of loss with respect to the unfavorable change in fair value of the invested cash collateral. The market value of
securities on loan is reflected in the various asset categories above. Loaned securities were predominantly U.S. equities, international equities,
corporate bonds and U.S. Government bonds or treasuries. Cash collateral obligations of $233 million were received for securities on loan as of
December 31, 2009. Cash collateral was invested in a separately maintained and managed cash collateral investment account, which was primarily
invested in investment grade bonds and is reflected in the assets above.
(7) As of December 31, 2009, this category included $21 million of cash on deposit with a broker for future margin requirements and $66 million of
net receivables and payables which consisted primarily of pending trades, interest, dividends and other payable expenses.
Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
(In millions)
Beginning
Balance at
December 31, 2008
Actual return on
plan assets(1)
Purchases,
issuances,
settlements
Transfers
in and/or
out of
Level 3
Ending
Balance at
December 31,
2009
U.S. equity
All capitalization $ 2 $ (2) $ — $— $—
Fixed income securities
Fixed income hedge funds 282 49 (159) — 172
Real estate
Private real estate funds 185 (70) 10 — 125
Other funds
Private equity funds 272 (23) (7) — 242
Hedge funds 51 16 (67) — —
Insurance contracts 24 2 (4) — 22
Other 86 — (20) — 66
Total $902 $(28) $(247) $— $627
(1) The actual return on plan assets for assets still held at the end of the year was $14 million.
The Plan limits the use of derivatives through direct or separate account investments such that the derivatives used are
liquid and able to be readily valued in the market. Derivative usage in separate account structures is limited to hedging
purposes or to gain market exposure in a non-speculative manner. The fair market value of the Plan’s derivatives through
direct or separate account investments was $2 million as of December 31, 2009.
In addition, assets are held in trust for non-U.S. pension plans, primarily in the U.K. and Canada which are governed
locally in accordance with specific jurisdictional requirements. These assets are overseen by local management in Canada
and by Trustees with a combination of members representing plan participants and local management in the U.K.
Investments in the non-U.S. plans consist primarily of fixed-income securities and equity securities. These investments
are valued using significant observable inputs (Level 2) as well as quoted prices in active markets (Level 1). The fair
market value of assets for the international pension plans was $545 million as of December 31, 2009. Investments with
significant unobservable inputs (Level 3) are immaterial in the non-U.S. pension plans.
The fair market value of assets related to our Other Benefits was $407 million as of December 31, 2009. $171 million of
these assets were invested in the master trust described above and are therefore invested in the same assets described
above. The remaining investments are held within Voluntary Employees’ Beneficiary Association (VEBA) trusts. The
assets of the VEBAs are also overseen by the Investment Committee and managed by the same investment fiduciary as
manages the master trust’s investments with a separate team. These assets are generally invested in domestic fixed income
securities as well as U.S. equity securities. These investments are valued primarily using quoted prices in active markets
(Level 1) as well as significant observable inputs (Level 2). There were no Level 3 investments in the VEBAs at
December 31, 2009 or December 31, 2008.
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