Raytheon 2014 Annual Report Download - page 102

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
93
Periodically we enter into other equity method investments that are not related to our core operations. We record the income
or loss from these investments as a component of other (income) expense, net. We record losses beyond the carrying amount
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 foreign exchange rates and interest rates, and we use certain derivative financial
instruments to help manage these exposures. We execute these instruments with financial institutions that 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 were as follows at December 31:
Asset Derivatives Liability Derivatives
(In millions) 2014 2013 2014 2013
Derivatives designated as hedging instruments $ 5 $ 20 $ 19 $ 23
Derivatives not designated as hedging instruments 2353
Total $ 7 $ 23 $ 24 $ 26
The fair values of these derivatives are Level 2 in the fair value hierarchy for 2014 and 2013 because they are determined
based on a market approach utilizing externally quoted forward rates for similar contracts.
We recognized the following pretax gains (losses) related to foreign currency forward contracts designated as cash flow
hedges:
(In millions) 2014 2013
Effective Portion
Gain (loss) recognized in AOCL $(13)$(1)
Gain (loss) reclassified from AOCL to operating income (2)3
Amount excluded from effectiveness assessment and ineffective portion
Gain (loss) recognized in operating income ——
We recognized the following pretax gains (losses) related to foreign currency forward contracts not designated as cash flow
hedges:
(In millions) 2014 2013
Gain (loss) recognized in operating income $(3)$(1)
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 $926 million and $1,396 million
at December 31, 2014 and December 31, 2013, respectively. The net exposure of these contracts was approximately $57
million and $78 million at December 31, 2014 and December 31, 2013, respectively. The foreign currency forward contracts
at December 31, 2014 have maturities at various dates through 2028 as follows: $551 million in 2015; $224 million in 2016;
$116 million in 2017; $14 million in 2018; and $21 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, 2014 and December 31, 2013, the fair value of
our counterparty default exposure was less than $1 million and spread across numerous highly-rated counterparties.
There were no interest rate swaps outstanding at December 31, 2014 or December 31, 2013.