Raytheon 2006 Annual Report Download - page 81

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In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, The Fair Value Option for
Financial Assets and Financial Liabilities, including an amendment of FASB Statements No. 115 (SFAS No. 159). SFAS
No. 159 permits entities to choose, at specified election dates, to measure eligible items at fair value (the “fair value
option”). A business entity shall report unrealized gains and losses on items for which the fair value option has been
elected in earnings at each subsequent reporting period. This accounting standard is effective as of the beginning of an
entity’s first fiscal year that begins after November 15, 2007. The effect, if any, of adopting SFAS No. 159 on our financial
position and results of operations has not been finalized.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
Our primary market exposures are to interest rates and foreign exchange rates.
We meet our working capital requirements with a combination of variable-rate short-term and fixed-rate long-term
financing. We enter into interest rate swap agreements with commercial and investment banks to manage interest rates
associated with our financing arrangements. We also enter 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 we use 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 we hold that 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 that we held at December 31, 2006 and 2005, which are subject to interest rate risk resulting
from a hypothetical increase in interest rates of 10%, was approximately $2 million after-tax for the year ended
December 31, 2006 and 2005. Fixed-rate financial instruments were not evaluated, as the risk exposure is not material.
We believe our exposure due to changes in foreign exchange rates is not material due to our hedging policy and the fact
that we do not enter into speculative hedges.
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