Raytheon 2009 Annual Report Download - page 91

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Accumulated other comprehensive loss consisted of the following at December 31:
(In millions) 2009 2008
Unfunded projected benefit obligation $(4,892) $(5,123)
Foreign exchange translation 46 (42)
Cash flow hedges 22 (19)
Unrealized gains on investments 23
Interest rate lock (2) (1)
Total $(4,824) $(5,182)
The unfunded projected benefit obligation is shown net of tax benefits of $2,634 million and $2,759 million at
December 31, 2009 and 2008, respectively. The cash flow hedges are shown net of tax liabilities of $11 million and net of
tax benefits of $10 million at December 31, 2009 and 2008, respectively. The unrealized gains on investments are shown
net of tax liabilities of $1 million and $2 million at December 31, 2009 and 2008, respectively. The interest rate locks are
shown net of tax benefits of $1 million at December 31, 2009 and 2008.
Translation of Foreign Currencies—Assets and liabilities of foreign subsidiaries are translated at current exchange rates
and the effects of these translation adjustments are reported as a component of accumulated other comprehensive (loss)
income in stockholders’ equity. Deferred taxes are not recognized for translation related temporary differences of foreign
subsidiaries as their undistributed earnings are considered to be indefinitely reinvested. Income and expenses in foreign
currencies are translated at the average exchange rate during the period. Foreign exchange transaction gains and losses in
2009, 2008 and 2007 were not material.
Pension Costs—We have pension plans covering the majority of our employees, including certain employees in foreign
countries. We must calculate our pension costs under both CAS and FAS requirements under GAAP. The calculations
under CAS and FAS require judgment. CAS prescribes the allocation to and recovery of pension costs on U.S.
Government contracts through the pricing of products and services and the methodology to determine such costs. GAAP
outlines the methodology used to determine pension expense or income for financial reporting purposes. The CAS
requirements for pension costs and its calculation methodology differ from the FAS requirements and calculation
methodology. As a result, while both CAS and FAS use long-term assumptions in their calculation methodologies, each
method results in different calculated amounts of pension cost. In addition, the cash funding requirements for our
pension plans are determined under the Employee Retirement Income Security Act of 1974 (ERISA). ERISA funding
requirements use a third and different method to determine funding requirements, which are primarily based on the
year’s expected service cost and amortization of other previously unfunded liabilities. The ERISA funding requirements
will be replaced by the requirements under the Pension Protection Act of 2006. Under the Pension Protection Act,
companies will be required to fully fund their pension plans over a seven-year period. For certain defense contractors, the
new funding rules become effective when the Cost Accounting Standards Pension Harmonization Rule (Harmonization
Rule) goes into effect, no later than 2011. It is expected that the final Harmonization Rule will provide a framework to
make more similar the CAS requirements and the ERISA requirements, as revised by the Pension Protection Act. Due to
the foregoing differences in requirements and calculation methodologies, our FAS pension expense or income is not
necessarily indicative of the funding requirements or amount of government recovery.
We record CAS expense in the results of our business segments. Due to the differences between FAS and CAS amounts,
we also present the difference between FAS and CAS expense, referred to as our FAS/CAS Pension Adjustment, as a
separate line item in our segment results. This effectively increases or decreases the amount of total pension expense in
our results of operations so such amount is equal to the FAS expense amount under GAAP.
For purposes of determining pension expense under GAAP, investment gains and losses are spread over 3 years to
develop a market-related value of the assets.
We recognize the funded status of a postretirement benefit plan (defined benefit pension and other benefits) as an asset
or liability on our consolidated balance sheets. Funded status represents the difference between the projected benefit
77