Question-and-Answer Session
[Operator Instructions]. And your first question comes from the line of Rob Mackenzie with FBR Capital Markets.
Peter D. Kinnear - Chairman, President, and Chief Executive Officer
Good morning Rob.
Robert Mackenzie - FBR Capital Markets
I guess first question goes for Bill and it hits back to the foreign currency effects on your backlog and your revenue that you talked about there. Can you give us an idea as to how we should think about how any kind of foreign exchange variation that we've seen obviously in the kroner and the Brazilian Real plunge in effect to dollar. How that affects the value of your backlog going forward and how we should think about that following through the income statement, cardizen [ph] of your hedges that you have?
William H. Schumann, III - Executive Vice President and Chief Financial Officer
Yes. Let me explain our foreign exchange, the whole program. First of all, as you know, we have this significant amount of business in Norway and in Brazil. In those countries, we hedge all our revenues and expenses into the local currency, into the Norwegian kroner for Norway and then the Brazilian Real for Brazil. So, we essentially make sure that our operating profit margins are locked in local currency. And that impacts our backlog, obviously. So, backlog is held in the local currency in the NOK and the Brazilian Real.
As those contracts become executed, turn into revenue and earnings that flows through our income statement and it flows to our income statement at the average exchange rate for that particular quarter. So, we get earnings translation gains and losses if you will from that process. We document those in the Q, you can go in and look and see what the impact on our sales and cost of goods sold and SAR, are quarter-over-quarter in the Q.
For instance in the third quarter of 2008, we actually had a gain in foreign currency translation relative to the third quarter of 2007 of about $0.03, to $0.035 cents. Now, let me talk a little bit about backlog because that's very important for us. The currencies, both the NOK and the Real, weakened significantly from the second quarter of 2008 to the end of the third quarter and that's continued to weaken.
Again the way we record backlog is, we have some backlogs sitting there, denominated in NOK and then denominated in Brazilian Real. Those have declined in value in the third quarter. We include that in our new orders in order to get our backlog to balance. So, our new orders for Subsea were $685 million. We had foreign currency translation of the backlog of negative $290 million. So, our new orders in Subsea appeared to be $395 million. But we want to point out that the new orders were $685 million relatively flat with the first two quarters of the year.
- To read the full transcript on Seeking Alpha, click here »
