Baker Hughes 2015 Annual Report Download - page 52

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INTEREST RATE RISK
We have debt in fixed and floating rate instruments. We are subject to interest rate risk on our debt and
investment portfolio. We maintain an interest rate risk management strategy which primarily uses a mix of fixed and
variable rate debt that is intended to mitigate the risk exposure to changes in interest rates in the aggregate. We
may use interest rate swaps to manage the economic effect of fixed rate obligations associated with certain debt.
There were no outstanding interest rate swap agreements as of December 31, 2015 or 2014. The following table
sets forth our fixed rate long-term debt and the related weighted average interest rates by expected maturity dates.
(In millions) 2016 2017 2018 2019 2020 Thereafter Total (3)
As of December 31, 2015
Long-term debt (1) (2) $ — $ 24 $1,022 $ 22 $ 12 $ 2,838 $3,918
Weighted average interest rates — 7.77% 7.28% 5.94% 5.03% 5.18% 5.79%
As of December 31, 2014
Long-term debt (1) (2) $ 27 $ 20 $1,022 $ 22 $ 12 $ 2,838 $3,941
Weighted average interest rates 8.44% 7.88% 7.28% 5.94% 5.03% 5.18% 5.83%
(1) Amounts do not include any unamortized discounts, premiums or deferred issuance costs on our fixed rate
long-term debt.
(2) Fair market value of our fixed rate long-term debt was $4.17 billion at December 31, 2015 and $4.44 billion
at December 31, 2014.
(3) Amounts represent the principal value of our long-term debt outstanding and related weighted average
interest rates at the end of the respective period.
FOREIGN CURRENCY EXCHANGE RISK
We conduct our operations around the world in a number of different currencies, and we are exposed to market
risks resulting from fluctuations in foreign currency exchange rates. Many of our significant foreign subsidiaries
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 transactions are denominated in currencies other than our
functional 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.
At December 31, 2015 and 2014, we had outstanding foreign currency forward contracts with notional amounts
aggregating $499 million and $580 million, respectively, to hedge exposure to currency fluctuations in various
foreign currencies. These contracts are either undesignated hedging instruments or designated and qualify as fair
value hedging instruments. The notional amounts of our foreign currency forward contracts do not generally
represent amounts exchanged by the parties, and thus are not a measure of the cash requirements related to these
contracts or of any possible loss exposure. The amounts actually exchanged are calculated by reference to the
notional amounts and by other terms of the derivative contracts, such as exchange rates. Based on quoted market
prices as of December 31, 2015 and 2014 for contracts with similar terms and maturity dates, we recorded losses of
$1 million and $11 million, respectively, to adjust these foreign currency forward contracts to their fair market value.
These losses offset designated foreign currency exchange gains resulting from the underlying exposures and are
included in MG&A expenses in the consolidated statements of income (loss).