Lockheed Martin 2011 Annual Report Download - page 57

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contracts are designated as fair value hedges. Related gains and losses on foreign currency exchange and interest rate swap
contracts, to the extent they are effective hedges, are recognized in earnings at the same time the hedged transaction is
recognized in earnings. To the extent the hedges are ineffective, gains and losses on the contracts are recognized in current
period earnings. The aggregate notional amount of the outstanding foreign currency exchange contracts at December 31, 2011
and 2010 was $1.7 billion and $2.2 billion. The aggregate notional amount of our interest rate swap contracts at
December 31, 2011 was $450 million. There were no interest rate swap contracts outstanding at December 31, 2010. At
December 31, 2011 and 2010, the net fair value of our derivative instruments was not material (Note 15). A 10% appreciation or
devaluation of the hedged currency as compared to the level of foreign exchange rates for currencies under contract at
December 31, 2011 would not have a material impact on the aggregate net fair value of such contracts or our cash flows.
We evaluate the credit quality of potential counterparties to derivative transactions and only enter into agreements with
those deemed to have acceptable credit risk at the time the agreements are executed. Our foreign currency exchange hedge
portfolio is diversified across several banks. We periodically monitor changes to counterparty credit quality as well as our
concentration of credit exposure to individual counterparties. We do not hold or issue derivative financial instruments for
trading or speculative purposes.
We maintain a Rabbi Trust that includes investments to fund certain of our non-qualified deferred compensation plans.
As of December 31, 2011, investments in the Rabbi Trust totaled $781 million and are reflected at fair value on our Balance
Sheet in other assets. The Rabbi Trust holds investments in marketable equity securities and fixed-income securities that are
exposed to price changes and changes in interest rates. Changes in the value of the Rabbi Trust are recognized on our
Statement of Earnings in other non-operating income, net, and were not material during 2011. A portion of the liabilities
associated with the deferred compensation plans supported by the Rabbi Trust is also impacted by changes in the market
price of our common stock and certain market indices. Changes in the value of the deferred compensation liabilities are
recognized on our Statement of Earnings in unallocated corporate costs and were not material during 2011. The current
portion of the deferred compensation plan liabilities is on our Balance Sheet in salaries, benefits, and payroll taxes, and the
non-current portion of the liability is on our Balance Sheet in other liabilities. The resulting change in the value of the
liabilities has the effect of partially offsetting the impact of changes in the value of the Rabbi Trust.
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