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subject฀to฀additional฀tax฀if฀remitted,฀or฀deemed฀remitted,฀as฀a฀
dividend;฀however,฀it฀is฀not฀practicable฀to฀estimate฀the฀addi-
tional฀amount฀of฀taxes฀payable.
At฀December฀31,฀2004,฀we฀had฀approximately฀$22.2฀mil-
lion฀of฀foreign฀tax฀credits฀and฀$35.1฀million฀of฀general฀busi-
ness฀credits฀available฀to฀offset฀future฀payments฀of฀federal฀
income฀taxes,฀expiring฀in฀varying฀amounts฀between฀2010฀and฀
2025.฀Our฀$19.6฀million฀alternative฀minimum฀tax฀credits฀may฀
be฀carried฀forward฀indefinitely฀under฀current฀U.S.฀law.฀The฀
operating฀loss฀carryforwards฀without฀a฀valuation฀allowance฀
will฀expire฀in฀varying฀amounts฀over฀the฀next฀twenty฀years.
Note฀6.฀Earnings฀Per฀Share
A฀reconciliation฀of฀the฀number฀of฀shares฀used฀for฀the฀basic฀
and฀diluted฀EPS฀computations฀is฀as฀follows฀for฀the฀years฀ended฀
December฀31:
฀ 2004฀ 2003฀ 2002
Weighted฀average฀common฀shares฀
฀ outstanding฀for฀basic฀EPS฀ 333.8฀ 334.9฀ 336.8฀
Effect฀of฀dilutive฀securities฀–฀฀
฀ stock฀plans฀ 1.8฀ 1.0฀ 1.1
Adjusted฀weighted฀average฀฀
฀ common฀shares฀outstanding฀฀
฀ for฀diluted฀EPS฀ 335.6฀ 335.9฀ 337.9
Future฀potentially฀dilutive฀฀
฀ shares฀excluded฀from฀diluted฀EPS:฀
฀ Options฀with฀an฀exercise฀price฀
฀ ฀ greater฀than฀average฀market
฀ ฀ price฀for฀the฀period฀ 4.6฀ 6.8฀ 5.0
Note฀7.฀Inventories
Inventories฀are฀comprised฀of฀the฀following฀at฀December฀31:
฀ 2004฀ 2003
Finished฀goods฀ $฀ 869.5฀ $฀ 858.3฀
Work฀in฀process฀ ฀ 107.6฀ ฀ 98.1฀
Raw฀materials฀ ฀ 58.1฀ ฀ 57.0
Total฀ $฀ 1,035.2฀ $฀ 1,013.4
Note฀8.฀Investments฀in฀Affiliates
We฀have฀investments฀in฀affiliates฀that฀are฀accounted฀for฀
using฀the฀equity฀method฀of฀accounting.฀The฀most฀significant฀
of฀these฀affiliates฀is฀WesternGeco,฀a฀seismic฀venture฀in฀which฀
we฀own฀30%฀and฀Schlumberger฀Limited฀(“Schlumberger”)฀
owns฀70%.
In฀conjunction฀with฀the฀formation฀of฀WesternGeco฀in฀
November฀2000,฀we฀entered฀into฀an฀agreement฀with฀Schlum-
berger฀whereby฀a฀cash฀true-up฀payment฀will฀be฀made฀by฀
either฀of฀the฀parties฀based฀on฀a฀formula฀comparing฀the฀ratio฀
of฀the฀net฀present฀value฀of฀sales฀revenue฀from฀each฀party’s฀
contributed฀multiclient฀seismic฀data฀libraries฀during฀the฀four-
year฀period฀ending฀November฀30,฀2004฀and฀the฀ratio฀of฀the฀
net฀book฀value฀of฀those฀libraries฀as฀of฀November฀30,฀2000.฀
The฀maximum฀payment฀that฀either฀party฀will฀be฀required฀to฀
make฀as฀a฀result฀of฀this฀adjustment฀is฀$100.0฀million.฀We฀฀
currently฀estimate฀that฀Schlumberger฀will฀make฀a฀payment฀to฀
us฀in฀the฀range฀of฀$9.0฀million฀to฀$11.5฀million,฀pending฀final฀
determination฀of฀the฀adjustment.฀When฀received,฀this฀payment฀
will฀be฀recorded฀as฀a฀reduction฀to฀the฀carrying฀value฀of฀our฀
investment฀in฀WesternGeco.฀This฀payment฀will฀be฀taxable฀
when฀paid฀and฀the฀tax฀effect฀will฀be฀recorded฀as฀current฀
income฀tax฀expense.฀In฀November฀2000,฀we฀also฀entered฀into฀
an฀agreement฀with฀WesternGeco฀whereby฀WesternGeco฀sub-
leased฀a฀facility฀from฀us฀for฀a฀period฀of฀ten฀years฀at฀then฀cur-
rent฀market฀rates.฀During฀2004,฀2003฀and฀2002,฀we฀received฀
payments฀of฀$5.5฀million,฀$5.0฀million฀and฀$5.5฀million,฀
respectively,฀from฀WesternGeco฀related฀to฀this฀lease.฀
On฀or฀after฀December฀1,฀2005,฀either฀party฀to฀the฀Western-
Geco฀Master฀Formation฀Agreement฀may฀offer฀to฀sell฀their฀
entire฀interest฀in฀the฀venture฀to฀the฀other฀party฀at฀a฀cash฀pur-
chase฀price฀per฀percentage฀interest฀specified฀in฀an฀offer฀notice.฀
If฀the฀offer฀to฀sell฀is฀not฀accepted,฀the฀offering฀party฀will฀be฀
obligated฀to฀purchase฀the฀entire฀interest฀of฀the฀other฀party฀at฀
the฀same฀price฀per฀percentage฀interest฀as฀the฀price฀specified฀in฀
the฀offer฀notice.
Included฀in฀the฀caption฀“Equity฀in฀income฀(loss)฀of฀affili-
ates”฀in฀our฀consolidated฀statement฀of฀operations฀for฀2003฀
is฀$135.7฀million฀for฀our฀share฀of฀$452.0฀million฀of฀certain฀
impairment฀and฀restructuring฀charges฀taken฀by฀WesternGeco฀
in฀2003.฀The฀charges฀related฀to฀the฀impairment฀of฀Western-
Geco’s฀multiclient฀seismic฀library฀and฀rationalization฀of฀Western-
Geco’s฀marine฀seismic฀fleet.฀In฀addition,฀as฀a฀result฀of฀the฀
continued฀weakness฀in฀the฀seismic฀industry,฀we฀evaluated฀the฀
value฀of฀our฀investment฀in฀WesternGeco฀and฀recorded฀an฀
impairment฀loss฀of฀$45.3฀million฀in฀2003฀to฀write-down฀the฀
investment฀to฀its฀fair฀value.฀The฀fair฀value฀was฀determined฀
using฀a฀combination฀of฀a฀market฀capitalization฀and฀discounted฀
cash฀flows฀approach.฀We฀were฀assisted฀in฀the฀determination฀
of฀the฀fair฀value฀by฀a฀third฀party.฀Included฀in฀the฀caption฀
“Equity฀in฀income฀(loss)฀of฀affiliates”฀for฀2002฀is฀$90.2฀million฀
for฀our฀share฀of฀a฀$300.7฀million฀restructuring฀charge฀related฀
to฀WesternGeco’s฀impairment฀of฀assets,฀reductions฀in฀work-
force,฀closing฀certain฀operations฀and฀reducing฀its฀marine฀seis-
mic฀fleet.
50฀฀฀฀฀Baker฀Hughes฀Incorporated