National Oilwell Varco 2011 Annual Report Download - page 53

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Index to Financial Statements
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to changes in foreign currency exchange rates and interest rates. Additional information concerning each of these matters follows:
Foreign Currency Exchange Rates
We have extensive operations in foreign countries. The net assets and liabilities of these operations are exposed to changes in foreign currency exchange rates, although such
fluctuations generally do not affect income since their functional currency is typically the local currency. These operations also have net assets and liabilities not denominated
in the functional currency, which exposes us to changes in foreign currency exchange rates that impact income. During the years ended December 31, 2011, 2010 and 2009,
the Company reported foreign currency losses of $10 million, $30 million and $79 million, respectively. Gains and losses are primarily due to exchange rate fluctuations
related to monetary asset balances denominated in currencies other than the functional currency and adjustments to our hedged positions as a result of changes in foreign
currency exchange rates. Strengthening of currencies against the U.S. dollar may create losses in future periods to the extent we maintain net assets and liabilities not
denominated in the functional currency of the countries using the local currency as their functional currency.
Some of our revenues in foreign countries are denominated in U.S. dollars, and therefore, changes in foreign currency exchange rates impact our earnings to the extent that
costs associated with those U.S. dollar revenues are denominated in the local currency. Similarly some of our revenues are denominated in foreign currencies, but have
associated U.S. dollar costs, which also give rise to foreign currency exchange rate exposure. In order to mitigate that risk, we may utilize foreign currency forward contracts
to better match the currency of our revenues and associated costs. We do not use foreign currency forward contracts for trading or speculative purposes.
The following table details the Companys foreign currency exchange risk grouped by functional currency and their expected maturity periods as of December 31, 2011 (in
millions except for rates):
As of December 31, 2011 December 31,
Functional Currency 2012 2013 2014 Total 2010
CAD Buy USD/Sell CAD:
Notional amount to buy (in Canadian dollars) 274 274 267
Average USD to CAD contract rate 1.0315 1.0315 1.0072
Fair Value at December 31, 2011 in U.S. dollars (3) (3) (1)
Sell USD/Buy CAD:
Notional amount to sell (in Canadian dollars) 157 82 239 55
Average USD to CAD contract rate 1.0095 1.0395 1.0196 1.0237
Fair Value at December 31, 2011 in U.S. dollars (2) 1 (1) 1
EUR Buy USD/Sell EUR:
Notional amount to buy (in euros) 10 10 1
Average USD to EUR contract rate 1.4035 1.4035 1.3884
Fair Value at December 31, 2011 in U.S. dollars 1 1
Sell USD/Buy EUR:
Notional amount to buy (in euros) 105 15 120 74
Average USD to EUR contract rate 1.3888 1.3554 1.3846 1.3172
Fair Value at December 31, 2011 in U.S. dollars (10) (1) (11) 1
KRW Buy USD/Sell KRW:
Notional amount to buy (in South Korean won) 124 261 385
Average USD to KRW contract rate 923.7000 918.8186 920.3811
Fair Value at December 31, 2011 in U.S. dollars
Sell USD/Buy KRW:
Notional amount to buy (in South Korean won) 53,128 639 58 53,825 67,657
Average USD to KRW contract rate 1,153.6186 1,020.2488 940.5000 1,151.5509 1,085.6800
Fair Value at December 31, 2011 in U.S. dollars (3)
Sell EUR/Buy KRW:
Notional amount to buy (in South Korean won) 273
Average EUR to KRW contract rate 1,742.5300
Fair Value at December 31, 2011 in U.S. dollars
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