Baker Hughes 2004 Annual Report Download - page 82
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Please find page 82 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.Off-BalanceSheetArrangements
Inthenormalcourseofbusinesswithcustomers,vendors
andothers,wehaveenteredintooff-balancesheetarrange-
ments,suchaslettersofcreditandotherbankissuedguaran-
tees,whichtotaledapproximately$312.3millionatDecem-
ber31,2004.Inaddition,atDecember31,2004,wehave
guaranteeddebtandotherobligationsofthirdpartieswitha
maximumpotentialexposureof$7.4million.Noneofthese
off-balancesheetarrangementseitherhas,orislikelytohave,
amaterialeffectonourcurrentorfuturefinancialcondition,
resultsofoperations,liquidityorcapitalresources.
Otherthannormaloperatingleases,wedonothaveany
off-balancesheetfinancingarrangementssuchassecuritiza-
tionagreements,liquiditytrustvehicles,syntheticleasesor
specialpurposeentities.Assuch,wearenotmaterially
exposedtoanyfinancing,liquidity,marketorcreditriskthat
couldariseifwehadengagedinsuchfinancingarrangements.
NewAccountingStandards
InJanuary2003,theFinancialAccountingStandardsBoard
(“FASB”)issuedFASBInterpretationNo.46(“FIN46”),Consoli-
dationofVariableInterestEntities.Anentityissubjecttothe
consolidationrulesofFIN46andisreferredtoasavariable
interestentity(“VIE”)iftheentity’sequityinvestorslackthe
characteristicsofacontrollingfinancialinterestordonothave
sufficientequityatriskfortheentitytofinanceitsoperations
withoutadditionalfinancialsupport.InDecember2003,the
FASBissuedmodificationstoFIN46(“FIN46R”),resultingin
multipleeffectivedatesbasedonthenatureaswellasthecre-
ationdateofaVIE.TheadoptionofFIN46andFIN46Rin
2004hadnoimpactonourconsolidatedfinancialstatements.
InMay2004,theFASBissuedFASBStaffPositionNo.106-2
(“FSP106-2”),AccountingandDisclosureRequirements
RelatedtotheMedicarePrescriptionDrug,Improvementand
ModernizationActof2003,whichprovidesguidanceonthe
accountingfortheeffectsoftheMedicarePrescriptionDrug,
ImprovementandModernizationActof2003foremployers
thatsponsorpostretirementhealthcareplansthatprovide
prescriptiondrugbenefits.WeadoptedtheprovisionsofFSP
106-2inthethirdquarterof2004,resultinginareduction
inouraccumulatedpostretirementbenefitobligationof
$18.8million.Werecognizedareductioninournetperiodic
postretirementbenefitcostsof$2.0millionfor2004asa
resultoftheadoptionofFSP106-2.
InNovember2004,theFASBissuedSFASNo.151,Inven-
toryCosts–anAmendmentofARBNo.43,Chapter4,which
amendstheguidanceinARBNo.43toclarifytheaccounting
forabnormalamountsofidlefacilityexpense,freight,handling
costsandwastedmaterial.SFASNo.151requiresthatthese
itemsberecognizedascurrentperiodcharges.Inaddition,
SFASNo.151requirestheallocationoffixedproductionover-
headstoinventorybasedonthenormalcapacityofthepro-
ductionfacilities.SFASNo.151iseffectiveforinventorycosts
incurredduringfiscalyearsbeginningafterJune15,2005.
WearecurrentlyevaluatingtheprovisionsofSFASNo.151
andwilladoptSFASNo.151onJanuary1,2006.
InDecember2004,theFASBissuedSFASNo.153,
ExchangesofNonmonetaryAssets–anamendmentofAPB
OpinionNo.29,toaddressthemeasurementofexchangesof
nonmonetaryassets.SFASNo.153eliminatestheexception
fromfairvaluemeasurementfornonmonetaryexchangesof
similarproductiveassetsandreplacesitwithageneralexcep-
tionforexchangesofnonmonetaryassetsthatdonothave
commercialsubstance.Anonmonetaryexchangehascom-
mercialsubstanceifthefuturecashflowsoftheentityare
expectedtochangesignificantlyasaresultoftheexchange.
SFASNo.153iseffectivefornonmonetaryexchangesoccur-
ringafterJune30,2005.WewilladoptSFASNo.153on
July1,2005.
InDecember2004,theFASBrevisedSFASNo.123,Share-
BasedPayment(“SFASNo.123R”).SFASNo.123Risarevision
ofSFASNo.123,AccountingforStock-BasedCompensation,
andsupersedesAccountingPrinciplesBoardOpinionNo.25,
AccountingforStockIssuedtoEmployees.SFASNo.123R
requiresapublicentitytomeasurethecostofemployeeser-
vicesreceivedinexchangeforanawardofequityinstruments
basedonthegrant-datefairvalueoftheaward.Thatcostwill
berecognizedovertheperiodinwhichanemployeeis
requiredtoprovideserviceinexchangefortheaward.SFAS
No.123Ralsorequiresapublicentitytoinitiallymeasurethe
costofemployeeservicesrenderedinexchangeforanaward
ofliabilityinstrumentsatitscurrentfairvalue.Thefairvalueof
thatawardistoberemeasuredsubsequentlyateachreporting
datethroughthesettlementdate.Changesinthefairvalue
duringtherequiredserviceperiodaretoberecognizedas
compensationcostoverthatperiod.Wearecurrentlyinthe
processofevaluatingdifferentoptionpricingmodelsandthe
impactofSFASNo.123Ronourconsolidatedfinancialstate-
ments.WewilladoptSFASNo.123RonJuly1,2005.
InDecember2004,theFASBissuedFASBStaffPosition
No.109-1(“FSP109-1”),ApplicationofFASBStatement
No.109,“AccountingforIncomeTaxes”(“SFASNo.109”)to
theTaxDeductiononQualifiedProductionActivitiesProvided
bytheAmericanJobsCreationActof2004,whichprovides
guidanceontherecentlyenactedAmericanJobsCreationAct
of2004(the“Act”).TheActprovidesataxdeductionfor
incomefromqualifieddomesticproductionactivities.FSP109-1
providesforthetreatmentofthedeductionasaspecialdeduc-
tionasdescribedinSFASNo.109.Assuch,thedeductionwill
havenoeffectonexistingdeferredtaxassetsandliabilities.
Theimpactofthedeductionistobereportedintheperiodin
whichthedeductionisclaimedonourU.S.taxreturn.Wedo
notexpectthatthisdeductionwillhaveamaterialimpacton
oureffectivetaxrateinfutureyears.FSP109-1iseffective
prospectivelyasofJanuary1,2005.
InDecember2004,theFASBissuedFASBStaffPosition
No.109-2(“FSP109-2”),AccountingandDisclosureGuidance
fortheForeignRepatriationProvisionwithintheAmerican
JobsCreationActof2004,whichprovidesguidanceunder
SFASNo.109withrespecttorecordingthepotentialimpact
oftherepatriationprovisionsoftheActonacompany’s
incometaxexpenseanddeferredtaxliability.FSP109-2states
32BakerHughesIncorporated