Raytheon 2014 Annual Report Download - page 71

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above, beginning in 2013, CAS Harmonization reduced this amortization period from 15 to 10 years, as well as changed the
liability measurement method. 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 $534 million in 2014 compared to 2013 was driven by a $345 million
decrease in our FAS expense and by a $189 million increase in our CAS expense. The decrease in our FAS expense in 2014
was primarily due to the higher discount rate at December 31, 2013 compared to the discount rate as of December 31, 2012,
and the favorable 2013 asset performance. The increase in the CAS expense in 2014 was primarily due to the first year of the
CAS Harmonization phased transition to the use of a discount rate based on high quality corporate bonds, consistent with
PPA, to measure liabilities in determining the CAS pension expense. This was offset by a decrease in CAS as a result of the
passage of the HATFA Act described above. The change in the discount rate used to measure liabilities for purposes of
determining CAS pension expenses has been included in our contracts through our overhead forward pricing rates.
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.
For 2015 compared to 2014, we currently expect our FAS expense to increase more than our CAS expense resulting in a lower
FAS/CAS Pension Adjustment to income. We expect the FAS/CAS Pension Adjustment to be approximately $200 million of
income driven by the differences in the assumptions and the recognition period for gains and losses under FAS and CAS and
CAS Harmonization and the impact of the change in our long-term ROA assumption, as described above. This expected
increase in FAS and 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 2015, 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, 2014 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 2016.
The components of the FAS/CAS PRB Adjustment were as follows:
(In millions) 2014 2013 2012
FAS (expense) $(8)$(10) $ (16)
CAS expense 13 14 16
FAS/CAS PRB Adjustment $ 5 $ 4 $ —
Corporate and Eliminations
Corporate and Eliminations includes corporate expenses and intersegment sales and profit eliminations. Corporate expenses
represent unallocated costs and certain other corporate costs not considered part of management’s evaluation of reportable
segment operating performance.
The components of total net sales and operating income related to Corporate and Eliminations were as follows:
Total Net Sales (in millions) 2014 2013 2012
Intersegment sales eliminations $(1,624)$(1,798) $ (1,875)
Corporate —— —
Total $(1,624)$(1,798) $ (1,875)
Total Operating Income (in millions) 2014 2013 2012
Intersegment profit eliminations $(157)$(160) $ (177)
Corporate (78)(28)(11)
Total $(235)$(188) $ (188)