Baker Hughes 2004 Annual Report Download - page 68

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gas฀production.฀In฀2004,฀our฀customers’฀spending฀directed฀to฀
both฀worldwide฀oil฀and฀North฀American฀oil฀and฀natural฀gas฀
projects฀increased.฀These฀increases฀were฀driven฀by฀the฀per-
ceived,฀multi-year฀requirement฀to฀produce฀more฀hydrocarbons฀
to฀meet฀the฀growth฀in฀demand,฀offset฀production฀declines,฀
increase฀inventory฀levels฀and฀rebuild฀excess฀productive฀capacity.฀
The฀increases฀were฀supported฀by฀historically฀high฀oil฀and฀natu-
ral฀gas฀prices.฀Our฀customers’฀spending฀on฀oil฀projects฀is฀
expected฀to฀continue฀to฀grow฀in฀2005฀and฀in฀the฀near฀future,฀
with฀a฀bias฀towards฀those฀projects฀in฀the฀Middle฀East,฀Russia฀
and฀the฀Caspian฀region฀and฀Africa.฀Spending฀in฀North฀America฀
is฀dominated฀by฀spending฀on฀natural฀gas฀projects.฀In฀North฀
America,฀customer฀activity฀is฀expected฀to฀grow฀modestly฀in฀
2005฀compared฀with฀2004฀levels,฀which฀were฀the฀highest฀in฀
over฀two฀decades.
In฀2004,฀we฀reported฀revenues฀of฀$6,103.8฀million,฀a฀
16.2%฀increase฀compared฀with฀2003.฀Income฀from฀continu-
ing฀operations฀for฀2004฀was฀$528.2฀million฀compared฀with฀
$177.9฀million฀in฀2003.฀Included฀in฀income฀from฀continuing฀
operations฀for฀2003฀are฀charges,฀net฀of฀tax,฀of฀$105.9฀million฀
related฀to฀our฀share฀of฀a฀WesternGeco฀restructuring฀charge฀
and฀$45.3฀million฀related฀to฀the฀impairment฀of฀our฀investment฀
in฀WesternGeco.฀Both฀our฀revenues฀and฀operating฀profits฀set฀
all฀time฀records฀in฀2004.
During฀2004,฀the฀Baker฀Hughes฀rig฀count฀rose฀to฀its฀high-
est฀level฀since฀1986,฀as฀oil฀and฀natural฀gas฀companies฀around฀
the฀world฀recognized฀the฀need฀to฀increase฀productive฀capacity฀
to฀meet฀the฀growing฀demand฀for฀hydrocarbons.฀Oil฀and฀natu-
ral฀gas฀prices฀were฀at฀historic฀highs฀in฀2004,฀reflecting฀strong฀
demand฀and฀relatively฀low฀inventories.฀The฀lack฀of฀excess฀pro-
ductive฀capacity฀and฀several฀geopolitical฀and฀weather฀events฀
also฀contributed฀to฀higher฀and฀more฀volatile฀commodity฀prices฀
in฀2004.฀In฀2004,฀our฀revenues฀increased฀16.2%฀compared฀
with฀2003,฀outpacing฀the฀10.1%฀increase฀in฀the฀worldwide฀
average฀rig฀count฀for฀2004฀compared฀with฀2003.฀In฀North฀
America,฀our฀2004฀revenues฀increased฀14.4%฀compared฀with฀
2003,฀while฀the฀rig฀count฀increased฀10.9%฀for฀2004฀compared฀
with฀2003,฀driven฀primarily฀by฀land-based฀drilling฀for฀natural฀
gas.฀Outside฀North฀America,฀our฀2004฀revenues฀increased฀
17.5%฀compared฀with฀2003,฀while฀the฀rig฀count฀increased฀
8.6%฀for฀2004฀compared฀with฀2003.฀Revenue฀growth฀was฀
particularly฀noteworthy฀in฀Russia฀and฀the฀Caspian฀region,฀Latin฀
America,฀the฀Middle฀East,฀Africa฀and฀Asia.฀Our฀European฀reve-
nues฀in฀2004฀were฀up฀modestly฀compared฀with฀2003,฀despite฀
a฀15.2%฀drop฀in฀the฀North฀Sea฀rig฀count.
The฀critical฀success฀factors฀for฀our฀business฀are฀embodied฀
in฀our฀long-term฀strategy,฀which฀we฀call฀our฀Strategic฀Frame-
work.฀This฀strategy฀includes฀the฀development฀and฀mainte-
nance฀of฀a฀high฀performance฀culture฀founded฀on฀our฀Core฀
Values฀and฀Keys฀to฀Success;฀our฀product฀line฀focused฀organiza-
tion฀and฀our฀focus฀on฀best-in-class฀opportunities;฀maintaining฀
our฀financial฀flexibility฀and฀financial฀discipline;฀and฀execution฀
of฀our฀strategies฀for฀product฀development฀and฀commercializa-
tion,฀manufacturing฀quality฀and฀service฀quality.
Our฀ongoing฀effort฀to฀develop฀and฀maintain฀a฀high฀perfor-
mance฀culture฀starts฀with฀our฀Core฀Values฀of฀integrity,฀team-
work,฀performance฀and฀learning฀and฀with฀our฀Keys฀to฀Success.฀
We฀employ฀succession฀planning฀efforts฀to฀develop฀leaders฀
across฀all฀our฀businesses฀that฀embody฀these฀Core฀Values฀and฀
represent฀the฀diversity฀of฀our฀customer฀base.฀We฀hire฀and฀train฀
employees฀from฀around฀the฀world฀to฀ensure฀that฀we฀have฀a฀
well-trained฀workforce฀in฀place฀to฀support฀our฀business฀plans.฀
Our฀focus฀on฀best-in-class฀opportunities฀starts฀with฀our฀
product฀line฀focused฀organization฀structure.฀We฀believe฀that฀
through฀our฀product฀line฀focused฀divisions,฀we฀develop฀the฀
technologies฀that฀deliver฀best-in-class฀value฀to฀our฀customers.฀
As฀an฀enterprise,฀we฀are฀also฀focused฀on฀those฀markets฀that฀
we฀believe฀provide฀best-in-class฀opportunities฀for฀growth.฀Our฀
management฀team฀has฀identified฀markets฀for฀immediate฀focus฀
including฀Russia฀and฀the฀Caspian฀region฀and฀NOCs.
Our฀focus฀on฀financial฀flexibility฀and฀financial฀discipline฀is฀
the฀backbone฀of฀our฀effort฀to฀deliver฀differential฀growth฀at฀
superior฀margins฀while฀earning฀an฀acceptable฀return฀on฀our฀
investments฀throughout฀the฀business฀cycle.฀Investments฀are฀
given฀priority฀and฀funded฀depending฀on฀their฀ability฀to฀provide฀
risk-adjusted฀returns฀in฀excess฀of฀our฀cost฀of฀capital.฀Our฀effort฀
to฀obtain฀the฀best฀price฀we฀can฀for฀our฀products฀and฀services฀
begins฀with฀our฀approach฀to฀capital฀discipline.฀Over฀the฀past฀
few฀years,฀we฀have฀invested฀for฀growth฀in฀our฀business,฀repaid฀
debt,฀paid฀dividends฀and฀repurchased฀stock,฀and฀we฀expect฀to฀
maintain฀the฀flexibility฀to฀be฀able฀to฀undertake฀such฀activities฀
in฀the฀future.
The฀last฀element฀of฀our฀Strategic฀Framework฀focuses฀on฀
our฀ability฀to฀identify,฀develop฀and฀commercialize฀new฀prod-
ucts฀and฀services฀that฀will฀lead฀to฀differential฀growth฀at฀supe-
rior฀margins฀in฀our฀business.฀The฀effort฀extends฀to฀every฀phase฀
of฀our฀operations,฀including฀continuous฀improvement฀pro-
grams฀in฀our฀manufacturing฀facilities฀and฀field฀operations฀
that฀support฀our฀goal฀of฀flawless฀execution฀at฀the฀well฀site.
The฀execution฀of฀our฀2005฀business฀plan฀and฀the฀ability฀
to฀meet฀our฀2005฀financial฀objectives฀are฀dependent฀on฀a฀
number฀of฀factors.฀These฀factors฀include,฀but฀are฀not฀limited฀
to,฀our฀ability฀to:฀manage฀raw฀material฀and฀component฀costs฀
(especially฀steel฀alloys,฀copper฀and฀chemicals)฀which฀are฀
expected฀to฀increase฀in฀2005฀compared฀with฀2004;฀continue฀
to฀make฀ongoing฀improvements฀in฀the฀productivity฀of฀our฀
manufacturing฀organization;฀recruit,฀train฀and฀retain฀the฀skilled฀
and฀diverse฀workforce฀necessary฀to฀meet฀our฀business฀needs;฀
expand฀our฀business฀in฀areas฀that฀are฀growing฀rapidly฀(such฀as฀
Russia฀and฀the฀Caspian฀region)฀with฀customers฀whose฀spend-
ing฀is฀expected฀to฀increase฀the฀most฀rapidly฀(such฀as฀NOCs),฀
and฀in฀areas฀in฀which฀we฀are฀underrepresented฀(such฀as฀the฀
Middle฀East);฀and฀realize฀price฀increases฀commensurate฀with฀
the฀value฀we฀provide฀to฀our฀customers.฀For฀a฀full฀discussion฀
of฀risk฀factors฀and฀forward-looking฀statements,฀please฀see฀
the฀“Risk฀Factors฀Related฀to฀the฀Worldwide฀Oil฀and฀Natural฀
Gas฀Industry”,฀“Risk฀Factors฀Related฀to฀Our฀Business”฀and฀
“Forward-Looking฀Statements”฀sections฀contained฀herein.
18฀฀฀฀฀Baker฀Hughes฀Incorporated