Baker Hughes 2004 Annual Report Download - page 85

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At฀December฀31,฀2004,฀we฀had฀entered฀into฀several฀฀
foreign฀currency฀forward฀contracts฀with฀notional฀amounts฀
aggregating฀$78.0฀million฀to฀hedge฀exposure฀to฀currency฀฀
fluctuations฀in฀various฀foreign฀currencies,฀including฀the฀British฀
Pound฀Sterling,฀the฀Norwegian฀Krone,฀the฀Euro฀and฀the฀Brazil-
ian฀Real.฀These฀contracts฀are฀designated฀and฀qualify฀as฀fair฀
value฀hedging฀instruments.฀Based฀on฀quoted฀market฀prices฀as฀
of฀December฀31,฀2004฀for฀contracts฀with฀similar฀terms฀and฀
maturity฀dates,฀we฀recorded฀a฀loss฀of฀$0.4฀million฀to฀adjust฀
these฀foreign฀currency฀forward฀contracts฀to฀their฀fair฀market฀
value.฀This฀loss฀offsets฀designated฀foreign฀exchange฀gains฀
resulting฀from฀the฀underlying฀exposures฀and฀is฀included฀in฀sell-
ing,฀general฀and฀administrative฀expense฀in฀the฀consolidated฀
statement฀of฀operations.
At฀December฀31,฀2004,฀we฀had฀also฀entered฀into฀several฀
foreign฀currency฀forward฀contracts฀with฀notional฀amounts฀
aggregating฀$122.4฀million฀to฀hedge฀exposure฀to฀currency฀
fluctuations฀in฀various฀foreign฀currencies,฀including฀the฀British฀
Pound฀Sterling฀and฀the฀Canadian฀Dollar.฀These฀exposures฀arise฀
when฀local฀currency฀operating฀expenses฀are฀not฀in฀balance฀
with฀local฀currency฀revenue฀collections.฀The฀funding฀of฀such฀
imbalances฀is฀supported฀by฀short-term฀intercompany฀borrow-
ing฀commitments฀that฀have฀definitive฀amounts฀and฀funding฀
dates.฀All฀fundings฀are฀scheduled฀to฀take฀place฀on฀or฀before฀
December฀31,฀2005.฀These฀foreign฀currency฀forward฀contracts฀
were฀designated฀as฀cash฀flow฀hedging฀instruments฀and฀are฀
fully฀effective.฀Based฀on฀quoted฀market฀prices฀as฀of฀Decem-
ber฀31,฀2004฀for฀contracts฀with฀similar฀terms฀and฀maturity฀
dates,฀we฀recorded฀a฀loss฀of฀$0.1฀million฀to฀adjust฀these฀฀
foreign฀currency฀forward฀contracts฀to฀their฀fair฀market฀value.฀
The฀loss฀is฀recorded฀in฀other฀comprehensive฀income฀in฀the฀
consolidated฀balance฀sheet.
At฀December฀31,฀2003,฀we฀had฀entered฀into฀several฀for-
eign฀currency฀forward฀contracts฀with฀notional฀amounts฀aggre-
gating฀$62.5฀million฀to฀hedge฀exposure฀to฀currency฀fluctuations฀
in฀various฀foreign฀currencies,฀including฀the฀British฀Pound฀Ster-
ling,฀the฀Norwegian฀Krone,฀the฀Euro,฀the฀Brazilian฀Real฀and฀
the฀Argentine฀Peso.฀These฀contracts฀are฀designated฀and฀qualify฀
as฀fair฀value฀hedging฀instruments.฀Based฀on฀quoted฀market฀
prices฀as฀of฀December฀31,฀2003฀for฀contracts฀with฀similar฀
terms฀and฀maturity฀dates,฀we฀recorded฀a฀gain฀of฀$1.5฀million฀
to฀adjust฀these฀foreign฀currency฀forward฀contracts฀to฀their฀fair฀
market฀value.฀This฀gain฀offsets฀designated฀foreign฀exchange฀
losses฀resulting฀from฀the฀underlying฀exposures฀and฀is฀included฀
in฀selling,฀general฀and฀administrative฀expense฀in฀the฀consoli-
dated฀statement฀of฀operations.
The฀counterparties฀to฀the฀forward฀contracts฀are฀major฀
financial฀institutions.฀The฀credit฀ratings฀and฀concentration฀of฀
risk฀of฀these฀financial฀institutions฀are฀monitored฀on฀a฀continu-
ing฀basis.฀In฀the฀unlikely฀event฀that฀the฀counterparties฀fail฀to฀
meet฀the฀terms฀of฀a฀foreign฀currency฀contract,฀our฀exposure฀
is฀limited฀to฀the฀foreign฀currency฀rate฀differential.
2004฀Form฀10-K฀฀฀฀฀35