Baker Hughes 2007 Annual Report Download - page 119

36 Baker Hughes Incorporated
FOREIGN CURRENCY AND FOREIGN CURRENCY
FORWARD CONTRACTS
We conduct operations around the world in a number of
different currencies. A number of our significant foreign sub-
sidiaries have designated the local currency as their functional
currency. As such, future earnings are subject to change due
to fluctuations in foreign currency exchange rates when trans-
actions are denominated in currencies other than our func-
tional currencies. To minimize the need for foreign currency
forward contracts to hedge this exposure, our objective is to
manage foreign currency exposure by maintaining a minimal
consolidated net asset or net liability position in a currency
other than the functional currency. To the extent that market
conditions and/or local regulations prevent us from maintain-
ing a minimal consolidated net asset or net liability position,
we may enter into foreign currency forward contracts or
option contracts.
At December 31, 2007, we had entered into several foreign
currency forward contracts with notional amounts aggregat-
ing $115.0 million to hedge exposure to currency fluctuations
in various foreign currency denominated accounts payable
and accounts receivable, including the British Pound Sterling,
Norwegian Krone, Euro and the Brazilian Real. These contracts
are designated and qualify as fair value hedging instruments.
Based on quoted market prices as of December 31, 2007 for
contracts with similar terms and maturity dates, we recorded
a gain of $1.1 million to adjust these foreign currency forward
contracts to their fair market value. This gain offsets designated
foreign currency exchange losses resulting from the underlying
exposures and is included in marketing, general and adminis-
trative expense in the consolidated statement of operations.
At December 31, 2007, we had entered into option con-
tracts with notional amounts aggregating $20.0 million as a
hedge of fluctuations in the Russian Ruble exchange rate. The
contracts were not designated as hedging instruments. Based
on quoted market prices as of December 31, 2007 for contracts
with similar terms and maturity dates, we recorded a loss of
$0.3 million to adjust the carrying value of these contracts to
their fair market value. This loss is included in marketing, gen-
eral and administrative expense in our consolidated statement
of operations.
At December 31, 2006, we had entered into several foreign
currency forward contracts with notional amounts aggregating
$105.0 million to hedge exposure to currency fluctuations in
various foreign currency payables and receivables, including
British Pound Sterling, Norwegian Krone, Euro, Indonesian
Rupiah and Brazilian Real. These contracts were designated
and qualified as fair value hedging instruments. Based on
quoted market prices as of December 31, 2006 for contracts
with similar terms and maturity dates, we recorded a loss of
$0.2 million to adjust these foreign currency forward contracts
to their fair market value. This loss offsets designated foreign
currency exchange gains resulting from the underlying expo-
sures and is included in marketing, general and administrative
expense in the consolidated statement of operations.
The counterparties to our foreign currency forward con-
tracts are major financial institutions. The credit ratings and
concentration of risk of these financial institutions are mon-
itored on a continuing 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
exchange rate differential.
We had fixed rate debt aggregating $1,075.0 million at December 31, 2007 and 2006. The following table sets forth the
required cash payments for our indebtedness, which bear a fixed rate of interest and are denominated in U.S. Dollars, and the
related weighted average effective interest rates by expected maturity dates as of December 31, 2007 and 2006 (dollar amounts
in millions).
2007 2008 2009 2010 2011 2012 Thereafter Total
As of December 31, 2007:
Long-term debt(1) (2) $ – $ – $ 525.0 $ – $ – $ – $ 550.0 $ 1,075.0
Weighted average
effective interest rates 5.24%(3) 7.54% 6.40%(3)
As of December 31, 2006:
Long-term debt(1) (2) $ – $ – $ 525.0 $ – $ – $ – $ 550.0 $ 1,075.0
Weighted average
effective interest rates 5.22%(3) 7.55% 6.39%(3)
(1) Amounts do not include any unamortized discounts, deferred issuance costs or net deferred gains on terminated interest rate swap agreements.
(2) Fair market value of fixed rate long-term debt was $1,154.3 million at December 31, 2007 and $1,169.7 million at December 31, 2006.
(3) Includes the effect of the amortization of net deferred gains on terminated interest rate swap agreements.