Raytheon 2012 Annual Report Download - page 84

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76
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our primary market exposures are to interest rates and foreign exchange rates.
We generally supplement our working capital requirements with a combination of variable-rate short-term and fixed-rate long-
term financing. 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. We may enter into interest rate swap agreements
with commercial and investment banks to manage interest rates associated with our financing arrangements. 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.
The following tables provide information as of December 31, 2012 and December 31, 2011 about our market risk exposure
associated with changing interest rates. For long-term debt obligations, the table presents principal cash flows by maturity
date and average interest rates related to outstanding obligations. There were no interest rate swaps outstanding at December 31,
2012 and December 31, 2011.
As of December 31, 2012
Principal Payments and Interest Rate Detail by Contractual Maturity Dates
(In millions, except percentages)
Long—Term Debt 2013 2014 2015 2016 2017 Thereafter Total Fair Value
Fixed-rate debt $ — $ — $ — $ — $ — $ 4,783 $ 4,783 $ 5,483
Average interest rate —% —% —% —% —% 4.372% 4.372%
As of December 31, 2011
Principal Payments and Interest Rate Detail by Contractual Maturity Dates
(In millions, except percentages)
Long—Term Debt 2012 2013 2014 2015 2016 Thereafter Total Fair Value
Fixed-rate debt $ — $ — $ 575 $ 400 $ — $ 3,683 $ 4,658 $ 5,121
Average interest rate — — 1.400% 1.625% — 4.932% 4.210%
In addition, 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.
For foreign currency forward contracts designated and qualifying for 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. Unrealized gains of $17 million
and $12 million were included in non-current assets and unrealized losses of $14 million and $22 million were included in
current liabilities at December 31, 2012 and December 31, 2011, respectively.
Realized gains and losses resulting from these cash flow hedges offset the foreign currency exchange gains and losses on the
underlying assets or liabilities being hedged. We believe our exposure due to changes in foreign currency rates is not material
due to our hedging policy.
At December 31, 2012, we had short-term investments with a fair value of $856 million, which are classified as available-
for-sale and consist of highly rated bank certificates of deposit with a minimum long-term debt rating of A or A2 and a minimum
short-term debt rating of A-1 and P-1. Our exposure due to changes in interest rates is not material due to the nature and
amount of our short-term investments (i.e., high-quality certificates of deposit).