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Baker Hughes Incorporated
Notes to Consolidated Financial Statements
55
reflected in our consolidated balance sheets. For further information on the fair value of our debt, see Note 12.
"Indebtedness."
We monitor our exposure to various business risks including commodity prices, foreign currency exchange
rates and interest rates and regularly use derivative financial instruments to manage these risks. Our policies do
not permit the use of derivative financial instruments for speculative purposes. At the inception of a new derivative,
we designate the derivative as a hedge or we determine the derivative to be undesignated as a hedging instrument.
We document the relationships between the hedging instruments and the hedged items, as well as our risk
management objectives and strategy for undertaking various hedge transactions. We assess whether the
derivatives that are used in hedging transactions are highly effective in offsetting changes in cash flows of the
hedged item at both the inception of the hedge and on an ongoing basis.
We have a program that utilizes foreign currency forward contracts to reduce the risks associated with the
effects of certain foreign currency exposures. Under this program, our strategy is to have gains or losses on the
foreign currency forward contracts mitigate the foreign currency transaction and translation gains or losses to the
extent practical. These foreign currency exposures typically arise from changes in the value of assets and liabilities
which are denominated in currencies other than the functional currency. Our foreign currency forward contracts
generally settle in less than 180 days. We record all derivatives as of the end of our reporting period in our
consolidated balance sheet at fair value. For those forward contracts designated as fair value hedging instruments
or held as undesignated hedging instruments, we record the changes in fair value of the forward contracts in our
consolidated statements of income (loss) along with the change in fair value of the hedged item. Changes in the
fair value of forward contracts designated as cash flow hedging instruments are recognized in other comprehensive
income until the hedged item is recognized in earnings. For derivatives designated as a cash flow hedge, the
ineffective portion of that derivative's change in fair value is recognized in earnings. Recognized gains and losses
on derivatives entered into to manage foreign currency exchange risk are included in MG&A expenses in the
consolidated statements of income (loss).
We had outstanding foreign currency forward contracts with notional amounts aggregating $499 million and
$580 million to hedge exposure to currency fluctuations in various foreign currencies at December 31, 2015 and
2014, respectively. Based on quoted market prices as of December 31, 2015 or 2014 for forward contracts with
similar terms and maturity dates, we recorded losses of $1 million and $11 million, respectively, to adjust these
forward contracts to their fair market value.
New Accounting Standards Updates
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update ("ASU")
No. 2014-09, Revenue from Contracts with Customers. The ASU will supersede most of the existing revenue
recognition requirements in U.S. GAAP and will require entities to recognize revenue at an amount that reflects the
consideration to which the Company expects to be entitled in exchange for transferring goods or services to a
customer. The new standard also requires significantly expanded disclosures regarding the qualitative and
quantitative information of an entity's nature, amount, timing, and uncertainty of revenue and cash flows arising from
contracts with customers. The pronouncement is to be applied retrospectively and is effective for annual reporting
periods beginning after December 15, 2017, with early adoption permitted as of January 1, 2017. We have not
completed an evaluation of the impact the pronouncement will have on our consolidated financial statements and
related disclosures.
In April 2015, the FASB issued ASU No. 2015-3, Simplifying the Presentation of Debt Issuance Costs. The ASU
requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct
deduction from the carrying amount of that debt liability, consistent with debt discounts. The pronouncement is
effective for annual reporting periods beginning after December 15, 2015. We currently report debt issuance costs
consistent with the guidance of this ASU; therefore there will be no impact on our consolidated financial statements
and related disclosures upon adoption.
In April 2015, the FASB issued ASU No. 2015-5, Customer's Accounting for Fees Paid in a Cloud Computing
Arrangement. The ASU provides guidance to customers about whether a cloud computing arrangement includes a
software license and the related accounting treatment. The pronouncement is effective for annual reporting periods