Raytheon 2012 Annual Report Download - page 104

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
96
of the investment only when we guarantee obligations of the investee or commit to provide the investee further financial
support.
Note 8: Derivative Financial Instruments
Our primary market exposures are to interest rates and foreign exchange rates and 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 our foreign currency forward contracts are denominated in currencies of major industrial countries. We do not
hold or issue derivative financial instruments for trading or speculative purposes.
The fair value amounts of asset derivatives included in other assets, net and liability derivatives included in other accrued
expenses in our consolidated balance sheets related to foreign currency forward contracts consisted of the following at
December 31:
Asset Derivatives Liability Derivatives
(In millions) 2012 2011 2012 2011
Derivatives designated as hedging instruments $ 13 $ 11 $ 12 $ 17
Derivatives not designated as hedging instruments 4125
Total $ 17 $ 12 $ 14 $ 22
We recognized the following pretax gains (losses) related to foreign currency forward contracts designated as cash flow
hedges:
(In millions) 2012 2011
Effective Portion
Gain (loss) recognized in AOCL $8
$—
Gain (loss) reclassified from AOCL to operating income 110
Amount excluded from effectiveness assessment and ineffective portion
Gain (loss) recognized in operating income ——
Pretax gains (losses) related to foreign currency forward contracts not designated as cash flow hedges were not material at
December 31, 2012 and 2011.
There were no interest rate swaps outstanding for the years ended December 31, 2012 and 2011.
In December 2012, we issued $1.1 billion of fixed rate long-term debt with a maturity of 10 years. In conjunction with the
debt issuance, we entered into interest rate lock agreements with a total notional value of $700 million to manage interest rate
risk, which resulted in a decrease to AOCL of $3 million to be amortized over the term of the debt issued. As of December
31, 2012, the above referenced interest rate locks were closed out.
In November 2011, we issued $1.0 billion of fixed rate long-term debt with maturities ranging from 3 to 30 years. In conjunction
with the debt issuance, we entered into interest rate lock agreements with a total notional value of $575 million to manage
interest rate risk, which resulted in an increase to AOCL of $5 million to be amortized over the term of the debt issued. As of
December 31, 2011, the above referenced interest rate locks were closed out.
We use foreign currency forward contracts to fix the functional currency value of specific commitments, payments and receipts.
The aggregate notional amount of the outstanding foreign currency forward contracts was $1,305 million and $941 million
at December 31, 2012 and December 31, 2011, respectively. The foreign currency forward contracts at December 31, 2012
have maturities at various dates through 2028 as follows: $744 million in 2013; $298 million in 2014; $95 million in 2015;
$92 million in 2016; and $76 million thereafter.
Our foreign currency forward contracts contain off-set or netting provisions to mitigate credit risk in the event of counterparty
default, including payment default and cross default. At both December 31, 2012 and December 31, 2011, the fair value of
our counterparty default exposure was less than $1 million and spread across numerous highly rated counterparties.