Raytheon 2015 Annual Report Download - page 49

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Our Pension and PRB plan’s investments are stated at fair value. Investments in equity securities (common and preferred) are
valued at the last reported sales price when an active market exists. Investments in fixed-income securities are generally valued
using methods based upon market transactions for comparable securities and various relationships between securities which
are generally recognized by institutional traders. Investments in private equity funds, private real estate funds, and other
commingled funds are estimated at fair market value which primarily utilizes net asset values reported by the investment
manager or fund administrator. We review additional valuation and pricing information from the fund managers, including
audited financial statements, to evaluate the net asset values.
The change in accumulated other comprehensive loss (AOCL) related to pension and PRB plans was as follows:
(In millions) 2015 2014 2013
Beginning balance $(11,437)$(7,923)$
(12,051)
Amortization of net losses included in net income 1,135 898 1,161
Gain (loss) arising during the period (610)(4,412) 2,967
Ending balance $(10,912)$(11,437)$
(7,923)
The balance in AOCL related to our pension and PRB plans is composed primarily of differences between changes in discount
rates, differences between actual and expected asset returns, differences between actual and assumed demographic experience,
and changes in plan provisions. Changes to our pension and PRB obligation as a result of these variables are initially reflected
in other comprehensive income. The deferred gains and losses are amortized and included in future pension expense over the
average employee service period of approximately 10 years at December 31, 2015. The $0.6 billion in 2015 losses arising
during the period were driven primarily by actual returns, which were lower than our expected return and had an impact of
approximately $1.6 billion, as well as other actuarial factors, partially offset by the increase in the discount rate from 4.08%
at December 31, 2014 to 4.47% at December 31, 2015, which had an impact of approximately $1.2 billion.
The $4.4 billion in 2014 losses arising during the period were driven primarily by the decrease in the discount rate from 5.08%
at December 31, 2013 to 4.08% at December 31, 2014, which had an impact of approximately $3.0 billion, and actual returns
which were lower than our expected return and had an impact of approximately $0.3 billion, as well as other actuarial factors
including mortality. The mortality assumption is the basis for determining the longevity of our pension participants and the
expected period over which they will receive pension benefits. A 2014 study released by the Society of Actuaries indicated
that life expectancies have increased over the past several years and are longer than what was assumed by most existing
mortality tables. Since December, 31, 2014, our pension obligations reflect a change in the underlying mortality assumption,
which reflects improvements in life expectancy consistent with the Society of Actuaries 2014 study. In addition, these pension
obligations reflect an increase in the expected rate of future longevity improvement taking into consideration data from multiple
sources including the Society of Actuaries 2014 study and Social Security Administration data. These changes resulted in an
increase in our projected benefit obligation of $0.6 billion as of December 31, 2014.
The $3.0 billion in 2013 gains arising during the period were driven primarily by the increase in the discount rate from 4.15%
at December 31, 2012 to 5.08% at December 31, 2013, which had an impact of approximately $2.4 billion and actual returns,
which were higher than our expected return, which had an impact of approximately $1.1 billion, partially offset by other
actuarial factors.
Goodwill
We evaluate our goodwill for impairment annually as of the first day of our fiscal fourth quarter and in any interim period in
which circumstances arise that indicate our goodwill may be impaired. Indicators of impairment include, but are not limited
to, the loss of significant business, significant decreases in federal government appropriations or funding for our contracts, or
other significant adverse changes in industry or market conditions. No events occurred during the periods presented that
indicated the existence of an impairment with respect to our goodwill. We estimate the fair value of our reporting units using
a discounted cash flow (DCF) model based on our most recent long-range plan in place at the time of our impairment testing,
and compare the estimated fair value of each reporting unit to its net book value, including goodwill. We discount the cash
flow forecasts using the weighted-average cost of capital method at the date of evaluation. The weighted-average cost of
capital is comprised of the estimated required rate of return on equity, based on publicly available data for peer companies,
plus an equity risk premium related to specific company risk factors, and the after-tax rate of return on debt, weighted at the
relative values of the estimated debt and equity for the industry. Preparation of forecasts for use in the long-range plan and