Raytheon 2012 Annual Report Download - page 72

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The components of the FAS/CAS Pension Adjustment were as follows:
(In millions) 2012 2011 2010
FAS expense $(1,093)$(1,073)$
(896)
CAS expense 838 733 666
FAS/CAS Pension Adjustment $(255)$(340)$
(230)
As described above in Critical Accounting Estimates, a key driver of the difference between FAS and CAS expense (and
consequently, the FAS/CAS Pension Adjustment) is the pattern of earnings and expense recognition for gains and losses that
arise when our asset and liability experience differ from our assumptions under each set of requirements. Generally, such
gains or losses are amortized under FAS over the average future working lifetime of the eligible employee population of
approximately 10 years at December 31, 2012, and are currently amortized under CAS over a 15-year period. However, the
CAS Harmonization described above will reduce this amortization period from 15 to 10 years beginning in 2013, as well as
changing the liability measurement method. In accordance with both FAS and CAS, a “market-related value” of our plan
assets is used to calculate the amount of deferred asset gains or losses to be amortized. The market-related value of assets is
determined using actual asset gains or losses over a certain prior period (three years for FAS and five years for CAS, subject
to certain limitations under CAS on the difference between the market-related value and actual market value of assets). Because
of this difference in the number of years over which actual asset gains or losses are recognized and subsequently amortized,
FAS expense generally tends to reflect recent gains or losses faster than CAS. Another driver of CAS expense (but not FAS
expense) is the funded status of our pension plans under CAS. As noted above, CAS expense is only recognized for plans that
are not fully funded; consequently, if plans become or cease to be fully funded under CAS due to our asset or liability experience,
our CAS expense will change accordingly.
The change in the FAS/CAS Pension Adjustment of $85 million in 2012 compared to 2011 was driven by a $105 million
increase in our CAS expense, primarily due to the continued recognition of the 2008 negative asset returns.
The change in the FAS/CAS Pension Adjustment of $110 million in 2011 compared to 2010 was primarily driven by a $177
million increase in our FAS expense. The $177 million increase in our FAS expense was driven primarily by the continued
recognition of the 2008 losses in the market related value of assets, which had an impact of approximately $200 million. Our
CAS expense increased $67 million as a result of actual versus expected asset and liability experience.
For 2013 compared to 2012, we currently expect our FAS expense will increase more than our CAS expense, which will
increase the FAS/CAS Pension Adjustment. We expect the FAS/CAS Pension Adjustment to be approximately $289 million
of expense driven by the lower discount rate environment and the difference in the recognition period for actual asset gains
and losses under FAS and CAS, described above. This expected increase in FAS expense in excess of CAS expense is subject
to our annual update, generally planned in the third quarter, of our actuarial estimate of the unfunded benefit obligation for
both FAS and CAS for final 2012 census data. After 2013, the FAS/CAS Pension Adjustment is more difficult to predict
because future FAS and CAS expense is based on a number of key assumptions for future periods. Differences between those
assumptions and future actual results could significantly change both FAS and CAS expense in future periods. However, based
solely on our current assumptions at December 31, 2012 and taking into account CAS Harmonization, which increases CAS
expense in 2013 and beyond, we would expect after 2013 our FAS/CAS Pension Adjustment expense to decline and ultimately
result in FAS/CAS Pension Adjustment income in 2015.
The components of the FAS/CAS PRB Adjustment were as follows:
(In millions) 2012 2011 2010
FAS (expense) income $(16)$(13) $ 11
CAS expense 16 16 32
FAS/CAS PRB Adjustment $— $ 3 $ 43
The FAS/CAS PRB Adjustment in 2012 was relatively consistent with 2011.
The change in the FAS/CAS PRB Adjustment of $40 million in 2011 compared to 2010 was primarily due to the expiration
of historical amortization under FAS of previous benefit modifications.