Raytheon 2005 Annual Report Download - page 72

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ACCOUNTING STANDARDS
In December 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting
Standards No. 123 (revised 2004), Share-Based Payments (SFAS No. 123R). SFAS No. 123R requires the recognition of
compensation expense related to stock options under SFAS No. 123, Accounting for Stock-Based Compensation. In April
2005, the effective date for this accounting standard was deferred until the first annual period beginning after June 15,
2005. The Company expects to adopt SFAS No. 123R prospectively in the first quarter of 2006 with an anticipated impact
to earnings per share of less than $0.02 per share for the year 2006.
In November 2004, the FASB issued Statement of Financial Accounting Standards No. 151, an amendment of ARB
No. 43, Chapter 4, Inventory Costs (SFAS No. 151). This accounting standard, which is effective for annual periods
beginning after June 15, 2005, requires that abnormal amounts of idle facility expense, freight, handling costs, and wasted
materials (spoilage) should be recognized as current-period charges. The adoption of SFAS No. 151 is not expected to
have a material effect on the Company’s financial position, results of operations, or liquidity.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
The Company’s primary market exposures are to interest rates and foreign exchange rates.
The Company meets its working capital requirements with a combination of variable rate short-term and fixed rate long-
term financing. The Company enters into interest rate swap agreements with commercial and investment banks to
manage interest rates associated with the Company’s financing arrangements. The Company also enters into foreign
currency forward contracts with commercial banks to fix the dollar value of commitments and payments to international
vendors and the value of foreign currency denominated receipts. The market-risk sensitive instruments used by the
Company for hedging are entered into with commercial and investment banks and are directly related to a particular
asset, liability, or transaction for which a firm commitment is in place.
Financial instruments held by the Company which are subject to interest rate risk include notes payable, long-term debt,
long-term receivables, investments, and interest rate swap agreements. The aggregate hypothetical loss in earnings for one
year of those financial instruments held by the Company at December 31, 2005 and 2004, which are subject to interest
rate risk resulting from a hypothetical increase in interest rates of 10%, was approximately $2 million and $1 million
after-tax for the year ended December 31, 2005 and 2004, respectively. Fixed rate financial instruments were not
evaluated, as the risk exposure is not material. The Company believes its exposure due to changes in foreign exchange
rates is not material due to the Company’s hedging policy and the fact that the Company does not enter into speculative
hedges.
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