Baker Hughes 2004 Annual Report Download - page 73

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In฀2005,฀we฀modified฀our฀stock฀award฀program฀to฀pro-
vide฀a฀combination฀of฀both฀restricted฀stock฀and฀stock฀option฀
awards.฀Restricted฀stock฀awards฀and฀stock฀option฀awards฀
were฀granted฀in฀January฀and฀stock฀option฀awards฀may฀also฀
be฀granted฀in฀July.฀As฀required฀under฀the฀current฀accounting฀
rules,฀awards฀of฀restricted฀stock฀are฀expensed฀over฀the฀vesting฀
period฀based฀on฀their฀fair฀value฀when฀granted.฀We฀will฀begin฀
expensing฀the฀fair฀value฀of฀stock฀option฀awards฀and฀stock฀
issued฀under฀the฀employee฀stock฀purchase฀plan฀in฀July฀2005,฀
when฀we฀adopt฀the฀revised฀Statement฀of฀Financial฀Accounting฀
Standards฀No.฀123,฀Share-Based฀Payment฀(“SFAS฀No.฀123R”).฀
We฀are฀currently฀in฀the฀process฀of฀evaluating฀different฀option฀
pricing฀models฀and฀the฀impact฀of฀SFAS฀No.฀123R฀on฀our฀con-
solidated฀financial฀statements.฀If฀we฀were฀to฀adopt฀SFAS฀฀
No.฀123R฀in฀July฀2005฀using฀a฀prospective฀application,฀we฀
expect฀that฀income฀from฀continuing฀operations฀per฀diluted฀
share฀will฀be฀reduced฀by฀approximately฀$0.03฀for฀2005.฀For฀
further฀information,฀see฀Note฀1฀of฀the฀Notes฀to฀the฀Consoli-
dated฀Financial฀Statements฀in฀Item฀8฀herein.
Based฀on฀the฀above฀forecasts,฀we฀believe฀that฀income฀from฀
continuing฀operations฀per฀diluted฀share฀in฀2005฀will฀be฀in฀the฀
range฀of฀$1.80฀to฀$1.95,฀which฀includes฀the฀impact฀of฀expens-
ing฀restricted฀stock฀awards฀but฀excludes฀the฀impact฀of฀expens-
ing฀stock฀option฀awards฀and฀stock฀issued฀under฀the฀employee฀
stock฀purchase฀plan.฀Significant฀price฀increases฀or฀significantly฀
better฀than฀expected฀results฀from฀WesternGeco฀could฀cause฀
earnings฀per฀share฀to฀reach฀the฀upper฀end฀of฀this฀range.฀Con-
versely,฀significant฀price฀decreases฀or฀significantly฀worse฀than฀
expected฀results฀at฀WesternGeco฀could฀result฀in฀earnings฀per฀
share฀being฀at฀or฀below฀the฀bottom฀of฀this฀range.฀Our฀ability฀
to฀improve฀pricing฀is฀dependent฀on฀demand฀for฀our฀products฀
and฀services฀and฀our฀competitors฀strategies฀of฀managing฀capac-
ity.฀While฀the฀commercial฀introduction฀of฀new฀technology฀is฀an฀
important฀factor฀in฀realizing฀price฀improvement,฀without฀pricing฀
discipline฀throughout฀the฀industry฀as฀a฀whole,฀meaningful฀
improvements฀in฀our฀prices฀are฀not฀likely฀to฀be฀realized.฀Addi-
tionally,฀significant฀changes฀in฀drilling฀activity฀outside฀our฀expec-
tations,฀as฀well฀as฀changes฀in฀expected฀costs฀of฀raw฀materials,฀
could฀impact฀operating฀results฀positively฀or฀negatively.
We฀do฀business฀in฀approximately฀90฀countries฀including฀
over฀one-half฀of฀the฀35฀countries฀having฀the฀lowest฀scores,฀
which฀indicates฀high฀levels฀of฀corruption,฀in฀Transparency฀฀
International’s฀Corruption฀Perception฀Index฀(“CPI”)฀survey฀
for฀2004.฀We฀devote฀significant฀resources฀to฀the฀development,฀
maintenance฀and฀enforcement฀of฀our฀Business฀Code฀of฀Con-
duct฀policy,฀our฀Foreign฀Corrupt฀Practices฀Act฀(the฀“FCPA”)฀
policy,฀our฀internal฀control฀processes฀and฀procedures฀and฀other฀
compliance฀related฀policies.฀Notwithstanding฀the฀devotion฀of฀
such฀resources,฀and฀in฀part฀as฀a฀consequence฀thereof,฀from฀
time฀to฀time฀we฀discover฀or฀receive฀information฀alleging฀poten-
tial฀violations฀of฀laws฀and฀regulation,฀including฀the฀FCPA฀and฀
our฀policies,฀processes฀and฀procedures.฀We฀conduct฀internal฀
investigations฀of฀these฀potential฀violations฀and฀take฀appropri-
ate฀action฀depending฀upon฀the฀outcome฀of฀the฀investigation.฀
In฀addition,฀U.S.฀government฀agencies฀and฀authorities฀are฀฀
conducting฀investigations฀into฀allegations฀of฀potential฀viola-
tions฀of฀laws.฀We฀anticipate฀that฀the฀devotion฀of฀significant฀
resources฀to฀compliance฀related฀issues,฀including฀the฀necessity฀
for฀investigations,฀will฀continue฀to฀be฀an฀aspect฀of฀doing฀busi-
ness฀in฀a฀number฀of฀the฀countries฀in฀which฀oil฀and฀natural฀gas฀
exploration,฀development฀and฀production฀take฀place฀and฀in฀
which฀we฀are฀requested฀to฀conduct฀operations.฀Compliance฀
related฀issues฀could฀limit฀our฀ability฀to฀do฀business฀in฀these฀
countries.฀In฀order฀to฀provide฀products฀and฀services฀in฀some฀of฀
these฀countries,฀we฀may฀in฀the฀future฀utilize฀ventures฀with฀
third฀parties,฀sell฀products฀to฀distributors฀or฀otherwise฀modify฀
our฀business฀approach฀in฀order฀to฀improve฀our฀ability฀to฀con-
duct฀our฀business฀in฀accordance฀with฀laws฀and฀regulations฀and฀
our฀Business฀Code฀of฀Conduct.
Risk฀Factors฀Related฀to฀Our฀Business
Our฀expectations฀regarding฀our฀business฀outlook,฀including฀
changes฀in฀revenue,฀pricing,฀capital฀spending฀and฀profitability,฀
are฀only฀our฀forecasts฀regarding฀these฀matters.฀These฀forecasts฀
may฀be฀substantially฀different฀from฀actual฀results,฀which฀are฀
affected฀by฀the฀following฀risk฀factors฀and฀the฀timing฀of฀any฀
of฀these฀risk฀factors:
•฀ Oil฀and฀gas฀market฀conditions฀–฀the฀level฀of฀petroleum฀
industry฀E&P฀expenditures;฀drilling฀rig฀and฀oil฀and฀natural฀
gas฀industry฀manpower฀and฀equipment฀availability;฀the฀
price฀of,฀and฀the฀demand฀for,฀crude฀oil฀and฀natural฀gas;฀
drilling฀activity;฀risks฀from฀operating฀hazards;฀seasonal฀and฀
other฀weather฀conditions฀that฀affect฀the฀demand฀for฀
energy;฀severe฀weather฀conditions,฀such฀as฀hurricanes,฀that฀
affect฀exploration฀and฀production฀activities;฀OPEC฀policy฀
and฀the฀adherence฀by฀OPEC฀nations฀to฀their฀OPEC฀produc-
tion฀quotas;฀war,฀military฀action,฀terrorist฀activities฀or฀
extended฀period฀of฀international฀conflict,฀particularly฀
involving฀the฀U.S.,฀Middle฀East฀or฀other฀major฀petroleum-
producing฀or฀consuming฀regions;฀civil฀unrest฀or฀security฀
conditions฀where฀we฀operate;฀expropriation฀of฀assets฀by฀
governmental฀action.
•฀ Pricing,฀market฀share฀and฀contract฀terms฀–฀our฀ability฀to฀
implement฀and฀affect฀price฀increases฀for฀our฀products฀and฀
services;฀receipt฀of฀license฀fees;฀the฀effect฀of฀the฀level฀and฀
sources฀of฀our฀profitability฀on฀our฀tax฀rate;฀the฀ability฀of฀฀
our฀competitors฀to฀capture฀market฀share;฀our฀ability฀to฀
retain฀or฀increase฀our฀market฀share;฀changes฀in฀our฀stra-
tegic฀direction;฀our฀ability฀to฀negotiate฀acceptable฀terms฀
and฀conditions฀with฀our฀customers,฀especially฀NOCs;฀our฀
ability฀to฀manage฀warranty฀claims฀and฀improve฀perfor-
mance฀and฀quality;฀our฀ability฀to฀effectively฀manage฀our฀
commercial฀agents.
•฀ Costs฀and฀availability฀of฀resources฀–฀our฀ability฀to฀manage฀
the฀rising฀costs฀and฀availability฀of฀sufficient฀raw฀materials฀
and฀components฀(especially฀steel฀alloys,฀copper฀and฀chemi-
cals);฀our฀ability฀to฀recruit,฀train฀and฀retain฀the฀skilled฀and฀
diverse฀workforce฀necessary฀to฀meet฀our฀business฀needs;฀
manufacturing฀capacity฀and฀subcontracting฀capacity฀at฀
forecasted฀costs฀to฀meet฀our฀revenue฀goals;฀the฀availability฀
2004฀Form฀10-K฀฀฀฀฀23