Baker Hughes 2004 Annual Report Download - page 112

Download and view the complete annual report

Please find page 112 of the 2004 Baker Hughes annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 128

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128

as฀potential฀liabilities฀to฀governmental฀authorities฀in฀Nigeria.฀
The฀investigation฀in฀Nigeria฀was฀substantially฀completed฀during฀
the฀first฀quarter฀of฀2003฀and,฀based฀upon฀current฀information,฀
we฀do฀not฀expect฀that฀any฀such฀potential฀liabilities฀will฀have฀a฀
material฀adverse฀effect฀on฀our฀consolidated฀financial฀state-
ments.฀The฀internal฀investigations฀in฀Angola฀and฀Kazakhstan฀
were฀substantially฀completed฀in฀the฀third฀quarter฀of฀2004.฀Evi-
dence฀obtained฀during฀the฀course฀of฀the฀investigations฀has฀
been฀provided฀to฀the฀SEC฀and฀DOJ.
The฀Department฀of฀Commerce,฀Department฀of฀the฀Navy฀
and฀DOJ฀(the฀“U.S.฀agencies”)฀are฀investigating฀compliance฀
with฀certain฀export฀licenses฀issued฀to฀Western฀Geophysical฀
from฀1994฀through฀2000฀for฀export฀of฀seismic฀equipment฀
leased฀by฀the฀People’s฀Republic฀of฀China.฀We฀acquired฀West-
ern฀Geophysical฀in฀August฀1998฀and฀subsequently฀transferred฀
related฀assets฀to฀WesternGeco฀in฀December฀2000.฀Under฀the฀
WesternGeco฀formation฀agreement,฀we฀owe฀indemnity฀to฀
WesternGeco฀for฀certain฀matters.฀We฀are฀cooperating฀fully฀
with฀the฀U.S.฀agencies.
We฀have฀received฀a฀subpoena฀from฀a฀grand฀jury฀in฀the฀
Southern฀District฀of฀New฀York฀regarding฀goods฀and฀services฀we฀
delivered฀to฀Iraq฀from฀1995฀through฀2003฀during฀the฀United฀
Nations฀Oil-for-Food฀Program฀(the฀“U.N.฀Program”).฀We฀have฀
also฀received฀a฀request฀from฀the฀SEC฀to฀provide฀a฀written฀state-
ment฀and฀certain฀information฀regarding฀our฀participation฀in฀the฀
U.N.฀Program.฀We฀are฀responding฀to฀both฀the฀subpoena฀and฀
the฀request.฀Other฀companies฀in฀the฀energy฀industry฀are฀
believed฀to฀have฀received฀similar฀subpoenas฀and฀requests.
The฀U.S.฀agencies,฀the฀SEC฀and฀other฀authorities฀have฀
a฀broad฀range฀of฀civil฀and฀criminal฀sanctions฀they฀may฀seek฀
to฀impose฀against฀corporations฀and฀individuals฀in฀appropriate฀
circumstances฀including,฀but฀not฀limited฀to,฀injunctive฀relief,฀
disgorgement,฀fines,฀penalties฀and฀modifications฀to฀business฀
practices฀and฀compliance฀programs.฀During฀2004,฀such฀agen-
cies฀and฀authorities฀entered฀into฀agreements฀with,฀and฀
obtained฀a฀range฀of฀sanctions฀against,฀several฀public฀corpo-
rations฀and฀individuals฀arising฀from฀allegations฀of฀improper฀
payments฀and฀deficiencies฀in฀books฀and฀records฀and฀internal฀
controls,฀whereby฀civil฀and฀criminal฀penalties฀were฀imposed,฀
including฀in฀some฀cases฀multi-million฀dollar฀fines฀and฀other฀
sanctions.฀It฀is฀not฀possible฀to฀accurately฀predict฀at฀this฀time฀
when฀any฀of฀the฀investigations฀related฀to฀the฀Company฀will฀
be฀completed.฀Based฀on฀current฀information,฀we฀cannot฀฀
predict฀the฀outcome฀of฀such฀investigations฀or฀what,฀if฀any,฀
actions฀may฀be฀taken฀by฀the฀U.S.฀agencies,฀the฀SEC฀or฀other฀
authorities฀or฀the฀effect฀it฀may฀have฀on฀our฀consolidated฀
financial฀statements.
On฀May฀10,฀2004,฀the฀District฀Court฀of฀Andrews฀County,฀
Texas฀entered฀a฀judgment฀in฀favor฀of฀LOTUS,฀LLC฀and฀against฀
INTEQ฀in฀the฀amount฀of฀$14.8฀million฀for฀lost฀profits฀resulting฀
from฀a฀breach฀of฀contract฀in฀drilling฀a฀well฀to฀create฀a฀salt฀
cavern฀for฀disposing฀of฀naturally฀occurring฀radioactive฀waste.฀
We฀have฀filed฀an฀appeal฀and฀taken฀other฀actions.฀We฀believe฀
that฀any฀liability฀that฀we฀may฀incur฀as฀a฀result฀of฀this฀litigation฀
would฀not฀have฀a฀material฀adverse฀financial฀effect฀on฀our฀con-
solidated฀financial฀statements.
Environmental฀Matters
Our฀past฀and฀present฀operations฀include฀activities฀which฀
are฀subject฀to฀extensive฀domestic฀(including฀U.S.฀federal,฀
state฀and฀local)฀and฀international฀environmental฀regulations฀
with฀regard฀to฀air฀and฀water฀quality฀and฀other฀environmental฀
matters.฀Our฀environmental฀procedures,฀policies฀and฀practices฀
are฀designed฀to฀ensure฀compliance฀with฀existing฀laws฀and฀
regulations฀and฀to฀minimize฀the฀possibility฀of฀significant฀envi-
ronmental฀damage.
We฀are฀involved฀in฀voluntary฀remediation฀projects฀at฀some฀
of฀our฀present฀and฀former฀manufacturing฀facilities,฀the฀major-
ity฀of฀which฀relate฀to฀properties฀obtained฀in฀acquisitions฀or฀to฀
sites฀no฀longer฀actively฀used฀in฀operations.฀On฀rare฀occasions,฀
remediation฀activities฀are฀conducted฀as฀specified฀by฀a฀govern-
ment฀agency-issued฀consent฀decree฀or฀agreed฀order.฀Reme-
diation฀costs฀are฀accrued฀based฀on฀estimates฀of฀probable฀
exposure฀using฀currently฀available฀facts,฀existing฀environmental฀
permits,฀technology฀and฀presently฀enacted฀laws฀and฀regula-
tions.฀Remediation฀cost฀estimates฀include฀direct฀costs฀related฀
to฀the฀environmental฀investigation,฀external฀consulting฀activi-
ties,฀governmental฀oversight฀fees,฀treatment฀equipment฀and฀
costs฀associated฀with฀long-term฀operation,฀maintenance฀and฀
monitoring฀of฀a฀remediation฀project.
We฀have฀also฀been฀identified฀as฀a฀potentially฀responsible฀
party฀(“PRP”)฀in฀remedial฀activities฀related฀to฀various฀Super-
fund฀sites.฀We฀participate฀in฀the฀process฀set฀out฀in฀the฀Joint฀
Participation฀and฀Defense฀Agreement฀to฀negotiate฀with฀gov-
ernment฀agencies,฀identify฀other฀PRPs,฀determine฀each฀PRP’s฀
allocation฀and฀estimate฀remediation฀costs.฀We฀have฀accrued฀
what฀we฀believe฀to฀be฀our฀pro-rata฀share฀of฀the฀total฀esti-
mated฀cost฀of฀remediation฀and฀associated฀management฀of฀
these฀Superfund฀sites.฀This฀share฀is฀based฀upon฀the฀ratio฀that฀
the฀estimated฀volume฀of฀waste฀we฀contributed฀to฀the฀site฀
bears฀to฀the฀total฀estimated฀volume฀of฀waste฀disposed฀at฀the฀
site.฀Applicable฀United฀States฀federal฀law฀imposes฀joint฀and฀
several฀liability฀on฀each฀PRP฀for฀the฀cleanup฀of฀these฀sites฀leav-
ing฀us฀with฀the฀uncertainty฀that฀we฀may฀be฀responsible฀for฀the฀
remediation฀cost฀attributable฀to฀other฀PRPs฀who฀are฀unable฀to฀
pay฀their฀share.฀No฀accrual฀has฀been฀made฀under฀the฀joint฀and฀
several฀liability฀concept฀for฀those฀Superfund฀sites฀where฀our฀
participation฀is฀minor฀since฀we฀believe฀that฀the฀probability฀that฀
we฀will฀have฀to฀pay฀material฀costs฀above฀our฀volumetric฀share฀
is฀remote.฀We฀believe฀there฀are฀other฀PRPs฀who฀have฀greater฀
involvement฀on฀a฀volumetric฀calculation฀basis,฀who฀have฀sub-
stantial฀assets฀and฀who฀may฀be฀reasonably฀expected฀to฀pay฀
their฀share฀of฀the฀cost฀of฀remediation.฀For฀those฀Superfund฀
sites฀where฀we฀are฀a฀major฀PRP,฀remediation฀costs฀are฀esti-
mated฀to฀include฀recalcitrant฀parties.฀In฀some฀cases,฀we฀have฀
insurance฀coverage฀or฀contractual฀indemnities฀from฀third฀par-
ties฀to฀cover฀the฀ultimate฀liability.
Our฀total฀accrual฀for฀environmental฀remediation฀is฀$13.6฀mil-
lion฀and฀$15.6฀million,฀which฀includes฀accruals฀of฀$3.6฀million฀
and฀$4.3฀million฀for฀the฀various฀Superfund฀sites,฀at฀Decem-
ber฀31,฀2004฀and฀2003,฀respectively.฀The฀determination฀of฀the฀
required฀accruals฀for฀remediation฀costs฀is฀subject฀to฀uncer-
tainty,฀including฀the฀evolving฀nature฀of฀environmental฀regula-
tions฀and฀the฀difficulty฀in฀estimating฀the฀extent฀and฀type฀of฀
62฀฀฀฀฀Baker฀Hughes฀Incorporated