Raytheon 2013 Annual Report Download - page 70

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FAS/CAS Adjustment
The FAS/CAS Adjustment represents the difference between our pension and other postretirement benefit (PRB) expense or
income under Financial Accounting Standards (FAS) requirements under GAAP and our pension and PRB expense under
U.S. Government cost accounting standards (CAS). The results of each segment only include pension and PRB expense under
CAS that we generally recover through the pricing of our products and services to the U.S. Government.
The components of the FAS/CAS Adjustment were as follows:
(In millions) 2013 2012 2011
FAS/CAS Pension Adjustment $(253)$(255) $ (340)
FAS/CAS PRB Adjustment 4— 3
FAS/CAS Adjustment $(249)$(255) $ (337)
The components of the FAS/CAS Pension Adjustment were as follows:
(In millions) 2013 2012 2011
FAS expense $(1,240)$(1,093) $ (1,073)
CAS expense 987 838 733
FAS/CAS Pension Adjustment $(253)$(255) $ (340)
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, 2013, and are currently amortized under CAS over a 15-year period. However, the
CAS Harmonization described above reduced this amortization period from 15 to 10 years beginning in 2013, as well as
changed the liability measurement method. In accordance with both FAS and CAS, a “calculated 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 our FAS/CAS Pension Adjustment of $2 million in 2013 compared to 2012 was driven by a $147 million
increase in FAS and a $149 million increase in our CAS expense. The increase in our FAS expense in 2013 was primarily due
to the increase in the amortization of deferred actuarial losses as a result of the decrease in the discount rate. The increase in
the CAS expense in 2013 was primarily due to the continued recognition of the 2008 negative asset returns.
The change in the FAS/CAS Pension Adjustment of $85 million in 2012 compared to 2011 was primarily driven by a $105
million increase in our CAS expense, primarily due to the continued recognition of the 2008 negative asset returns.
For 2014 compared to 2013, we currently expect our FAS expense to decrease and our CAS expense to increase, which causes
the FAS/CAS Pension Adjustment to increase income. We expect the FAS/CAS Pension Adjustment to be approximately $346
million of income driven by the higher discount rate environment, the differences in the recognition period for actual asset
gains and losses under FAS and CAS and CAS harmonization, as described above. This expected decrease in FAS expense
and increase in 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 census data. After 2014, 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, 2013 and taking into account CAS
Harmonization, which increases CAS expense in 2014 and beyond, we would expect our FAS/CAS Pension Adjustment to
increase income in 2015.