Baker Hughes 2009 Annual Report Download - page 80

6 Baker Hughes Incorporated
competitors who may participate in only a few product lines,
for example, Smith International, National Oilwell Varco,
Champion Technologies, Inc., Nalco Holding Company,
and Newpark Resources, Inc.
Our products and services are sold in highly competitive
markets, and revenues and earnings can be affected by
changes in competitive prices, fluctuations in the level of
drilling, workover and completion activity in major markets,
general economic conditions, foreign currency exchange fluc-
tuations and governmental regulations. We believe that the
principal competitive factors in our industries are product and
service quality, availability and reliability, health, safety and
environmental standards, technical proficiency and price.
Further information is set forth in “Item 7. Management’s
Discussion and Analysis of Financial Condition and Results of
Operations” and Note 13 of the Notes to Consolidated Finan-
cial Statements in Item 8 herein.
INTERNATIONAL OPERATIONS
We operate in over 90 countries around the world.
We have manufacturing operations internationally in various
countries including, but not limited, to the United Kingdom,
Germany, Venezuela, Argentina, and the UAE. The business
operations of our two segments are organized around nine
primary geographic regions. In the Western Hemisphere there
are four regions: U.S. Land, Gulf of Mexico, Canada and Latin
America. In the Eastern Hemisphere there are five regions:
Europe, Africa, Russia Caspian, Middle East, and Asia Pacific.
Through this structure, we have placed our management close
to our customers, facilitating stronger customer relationships
and allowing us to react more quickly to local market condi-
tions and needs.
Our operations are subject to the risks inherent in doing
business in multiple countries with various laws and differing
political environments. These risks include the risks identified in
“Item 1A. Risk Factors”. Although it is impossible to predict the
likelihood of such occurrences or their effect on us, we routinely
evaluate these risks and take appropriate actions to mitigate the
risks where possible. However, there can be no assurance that
an occurrence of any one or more of these events would not
have a material adverse effect on our operations.
Further information is set forth in “Item 7. Management’s
Discussion and Analysis of Financial Condition and Results
of Operations”.
RESEARCH AND DEVELOPMENT; PATENTS
We are engaged in research and development activities
directed primarily toward the improvement of existing products
and services, the design of specialized products to meet specific
customer needs and the development of new products, pro-
cesses and services. For information regarding the amounts of
research and development expense in each of the three years
in the period ended December 31, 2009, see Note 1 of the
Notes to Consolidated Financial Statements in Item 8 herein.
We have followed a policy of seeking patent and trade-
mark protection in numerous countries and regions through
out the world for products and methods that appear to have
commercial significance. We believe our patents and trade-
marks to be adequate for the conduct of our business, and
aggressively pursue protection of our patents against patent
infringement worldwide. No single patent or trademark is
considered to be critical to our business.
SEASONALITY
Our operations can be affected by seasonal weather,
which can temporarily affect the delivery and performance
of our products and services, as well as customers’ budgetary
cycles for capital expenditures. The widespread geographic
locations of our operations and the timing of seasonal events
serve to reduce the impact of individual events. Examples
of seasonal events which can impact our business include:
• the severity and duration of the winter in North America can
have a significant impact on gas storage levels and drilling
activity for natural gas;
• the timing and duration of the spring thaw in Canada
directly affects activity levels due to road restrictions;
• hurricanes can disrupt coastal and offshore drilling and
production operations;
• severe weather during the winter months normally results
in reduced activity levels in the North Sea and Russia; and
• large export orders which tend to be sold in the second
half of a calendar year.
RAW MATERIALS
We purchase various raw materials and component parts
for use in manufacturing our products. The principal materials
we purchase are steel alloys (including chromium and nickel),
titanium, beryllium, copper, lead, tungsten carbide, synthetic
and natural diamonds, printed circuit boards and other elec-
tronic components and hydrocarbon-based chemical feed
stocks. These materials are generally available from multiple
sources and may be subject to price volatility. We have not
experienced significant shortages of these materials and nor-
mally do not carry inventories of such materials in excess of
those reasonably required to meet our production schedules.
We do not expect significant interruptions in supply, but there
can be no assurance that there will be no price or supply
issues over the long term.
EMPLOYEES
On December 31, 2009, we had approximately
34,400 employees, as compared with approximately
39,800 employees on December 31, 2008. Approximately
2,900 of these employees are represented under collective
bargaining agreements or similar-type labor arrangements,
of which the majority are outside the U.S. Based upon the
geographic diversification of these employees, we believe
any risk of loss from employee strikes or other collective
actions would not be material to the conduct of our
operations taken as a whole.