Foreign Exchange Gain/Loss, net

The functional currency of the Company and its subsidiaries located in the Russian Federation, Kazakhstan and Switzerland is the Russian ruble. The functional currency of the Romanian subsidiaries is the Romanian lei and that of TMK Europe and TMK Italia is the Euro. The functional currency of TMK IPSCO, TMK North America and TMK Middle East is the US dollar.

In 2010, ТМК recognised a foreign exchange gain in the amount of U.S.$10 million as compared to U.S.$14 million in 2009. In addition, ТМК recognised foreign exchange losses of U.S.$9 million and U.S.$124 million in 2010 and 2009, respectively, in the statement of other comprehensive income, representing effective portion of foreign exchanges losses on the hedged financial instruments. At the date of acquisition of controlling interests in NS Group, Inc. and IPSCO Tubulars, Inc. the Company hedged its net investment in these operations against foreign currency risk using US dollar denominated borrowings made by the Russian entities of TMK. The aim of the hedging was to eliminate foreign currency risk associated with the repayment of these liabilities resulting from changes in US dollar/ Russian rouble spot rates.

Foreign exchange gains and losses derived mainly from the following captions of statement of financial position: interest-bearing loans and borrowings (including intercompany ones), trade and other receivables and trade and other payables (including intercompany ones) and cash and cash equivalents.

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