Raytheon 2009 Annual Report Download - page 98

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
noncontrolling interests and classifying them as a component of equity in our consolidated balance sheets for all periods
presented. Our consolidated statements of operations include net income, which represents net income attributable to
Raytheon Company and net income attributable to noncontrolling interests, as well as a new line item titled net income
attributable to Raytheon Company, which is the equivalent of the prior net income line item. The accounting standard
requires enhanced disclosures to clearly distinguish between our interests and the interests of noncontrolling owners. Our
primary noncontrolling interest relates to TRS LLC. The adoption of this accounting standard resulted in an increase in
NCS’ operating income by $40 million, $23 million and $26 million for 2009, 2008 and 2007, respectively. This increase
in operating income also resulted in a corresponding increase in NCS’ operating margin of 0.9%, 0.5% and 0.6% for
2009, 2008 and 2007, respectively. The effects of the adoption of this accounting standard have been reflected in our
segment results for NCS.
TRS LLC formed a joint venture with TRS SAS called Air Command Systems International S.A.S. (ACSI), for which TRS
LLC performs work. Our investment in ACSI is included in other equity investments above and at December 31, 2009,
TRS LLC had $79 million of receivables due from ACSI.
Note 8: Derivative Financial Instruments
In 2009, we adopted the required new accounting standard regarding disclosure of derivative instruments and hedging
activities. Our primary market exposures are to interest rates and foreign exchange rates. We use certain derivative
financial instruments to help manage these exposures. We execute these instruments with financial institutions we judge
to be credit-worthy and the majority of the foreign currencies are denominated in currencies of major industrial
countries. We do not hold or issue derivative financial instruments for trading or speculative purposes.
Cash flow hedges—We enter into foreign currency forward contracts with commercial banks to fix the foreign currency
exchange rates on specific commitments and payments to vendors, and customer receipts. Our foreign currency hedges
are transaction driven and directly relate to a particular asset, liability or transaction for which commitments are in place.
For foreign currency forward contracts designated and qualified for cash flow hedge accounting, we record the effective
portion of the gain or loss on the derivative in accumulated other comprehensive loss, net of tax, and reclassify it into
earnings in the same period or periods during which the hedged revenue or cost of sales transaction affects earnings. We
expect approximately $17 million of after-tax net unrealized gains, included in accumulated other comprehensive loss at
December 31, 2009, to be reclassified into earnings at then-current values over the next twelve months as the underlying
hedged transactions occur. Realized gains and losses resulting from these cash flow hedges offset the foreign exchange
gains and losses on the underlying transactions being hedged. Gains and losses on derivatives not designated for hedge
accounting or representing either hedge ineffectiveness or hedge components excluded from the assessment of
effectiveness are recognized currently in earnings in cost of sales.
The fair value amounts in our consolidated balance sheet at, related to foreign currency forward contracts consisted of the
following at December 31, 2009:
Asset Derivatives Liability Derivatives
(In millions)
Balance Sheet
Location
Fair
Value
Balance Sheet
Location
Fair
Value
Derivatives designated as hedging instruments Other assets, net $56 Other accrued expenses $23
Derivatives not designated as hedging instruments Other assets, net 13 Other accrued expenses 10
Total $69 $33
84