Baker Hughes 2004 Annual Report Download - page 67

2004฀Form฀10-K฀฀฀฀฀17
Notes฀to฀Selected฀Financial฀Data
(1)฀ Discontinued฀operations.฀The฀selected฀financial฀data฀has฀
been฀reclassified฀to฀reflect฀Baker฀Hughes฀Mining฀Tools,฀
BIRD฀Machine,฀EIMCO฀Process฀Equipment฀and฀our฀oil฀pro-
ducing฀operations฀in฀West฀Africa฀as฀discontinued฀opera-
tions.฀See฀Note฀2฀of฀the฀Notes฀to฀Consolidated฀Financial฀
Statements฀in฀Item฀8฀herein฀for฀additional฀information฀
regarding฀discontinued฀operations.
(2)฀ WesternGeco.฀In฀November฀2000,฀we฀formed฀the฀West-
ernGeco฀venture฀with฀Schlumberger฀by฀transferring฀the฀
seismic฀fleets,฀data฀processing฀assets,฀exclusive฀and฀nonex-
clusive฀multiclient฀surveys฀and฀other฀assets฀of฀our฀Western฀
Geophysical฀division.฀We฀own฀30%฀of฀the฀venture฀and฀
Schlumberger฀owns฀70%,฀and฀we฀account฀for฀this฀invest-
ment฀using฀the฀equity฀method฀of฀accounting.
(3)฀ Restructuring฀charges฀(reversals).฀See฀Note฀4฀of฀the฀Notes฀
to฀Consolidated฀Financial฀Statements฀in฀Item฀8฀herein฀฀
for฀a฀description฀of฀the฀restructuring฀charge฀reversal฀in฀
2003.฀During฀2000,฀we฀recorded฀a฀restructuring฀charge฀
of฀$29.5฀million฀related฀to฀our฀plan฀to฀substantially฀exit฀the฀
oil฀and฀natural฀gas฀exploration฀business.฀The฀major฀actions฀
included฀in฀this฀restructuring฀were฀a฀reduction฀in฀work-
force,฀costs฀to฀settle฀contractual฀obligations฀and฀a฀loss฀on฀
the฀write-off฀of฀our฀undeveloped฀exploration฀properties฀in฀
certain฀foreign฀jurisdictions.฀In฀2000,฀we฀also฀recorded฀a฀
$6.0฀million฀restructuring฀charge฀in฀connection฀with฀the฀
formation฀of฀WesternGeco฀and฀recorded฀a฀reversal฀of฀
$28.5฀million฀of฀restructuring฀charges฀recorded฀in฀1999.฀
Included฀in฀the฀costs฀to฀settle฀contractual฀obligations฀was฀
$4.5฀million฀for฀the฀minimum฀amount฀of฀our฀share฀of฀proj-
ect฀costs฀relating฀to฀our฀interest฀in฀an฀oil฀and฀natural฀gas฀
property฀in฀Colombia.฀After฀unsuccessful฀attempts฀to฀
negotiate฀a฀settlement฀with฀our฀joint฀venture฀partner,฀
we฀decided฀to฀abandon฀further฀involvement฀in฀the฀project.฀
Subsequently,฀in฀2001,฀a฀third฀party฀agreed฀to฀assume฀the฀
remaining฀obligation฀in฀exchange฀for฀our฀interest฀in฀the฀
project.฀Accordingly,฀we฀reversed฀$4.2฀million฀related฀to฀
this฀obligation.
(4)฀ (Gain)฀loss฀on฀disposal฀of฀assets.฀During฀2000,฀we฀recorded฀
a฀loss฀of฀$75.5฀million฀on฀the฀sale฀of฀our฀interests฀in฀cer-
tain฀oil฀and฀natural฀gas฀properties฀and฀recorded฀gains฀of฀
$7.6฀million฀on฀the฀sale฀of฀various฀product฀lines.
(5)฀ Cumulative฀effect฀of฀accounting฀change.฀In฀2003,฀we฀
adopted฀Statement฀of฀Financial฀Accounting฀Standards฀
(“SFAS”)฀No.฀143,฀Accounting฀for฀Asset฀Retirement฀Obliga-
tions.฀In฀2002,฀we฀adopted฀SFAS฀No.฀142,฀Goodwill฀and฀
Other฀Intangible฀Assets.฀In฀2001,฀we฀adopted฀SFAS฀No.฀133,฀
Accounting฀for฀Derivative฀Instruments฀and฀Hedging฀Activi-
ties,฀as฀amended฀by฀SFAS฀No.฀137฀and฀138.
ITEM฀7.฀MANAGEMENT’S฀DISCUSSION฀AND฀ANALYSIS฀OF฀
FINANCIAL฀CONDITION฀AND฀RESULTS฀OF฀OPERATIONS
Management’s฀Discussion฀and฀Analysis฀of฀Financial฀Condi-
tion฀and฀Results฀of฀Operations฀(“MD&A”)฀should฀be฀read฀in฀
conjunction฀with฀“Item฀8.฀Financial฀Statements฀and฀Supple-
mentary฀Data”฀contained฀herein.
Executive฀Summary
We฀are฀a฀leading฀provider฀of฀drilling,฀formation฀evaluation,฀
completion฀and฀production฀products฀and฀services฀to฀the฀world-
wide฀oil฀and฀natural฀gas฀industry.฀We฀compete฀as฀one฀of฀the฀
three฀largest฀diversified฀oilfield฀services฀companies.฀Our฀Oilfield฀
segment฀is฀comprised฀of฀seven฀product฀line฀focused฀divisions.฀
Baker฀Hughes฀Drilling฀Fluids฀(drilling฀fluids),฀Hughes฀Christensen฀
(oilfield฀drill฀bits)฀and฀INTEQ฀(drilling฀and฀measurement-while-
drilling)฀provide฀products฀and฀services฀used฀to฀drill฀oil฀and฀nat-
ural฀gas฀wells.฀Baker฀Atlas฀(wireline฀formation฀evaluation)฀and฀
INTEQ฀(formation฀evaluation฀while฀drilling)฀provide฀formation฀
evaluation฀services.฀Baker฀Atlas฀(tubing฀conveyed฀perforating)฀
and฀Baker฀Oil฀Tools฀(completion฀equipment)฀provide฀completion฀
systems.฀Baker฀Petrolite฀(oilfield฀specialty฀chemicals),฀Centrilift฀
(electric฀submersible฀pumps฀and฀progressing฀cavity฀pumps)฀and฀
Baker฀Oil฀Tools฀(workover฀and฀completion฀equipment)฀provide฀
equipment฀and฀services฀used฀during฀the฀production฀phase฀of฀
oil฀and฀natural฀gas฀wells.
Our฀headquarters฀are฀in฀Houston,฀Texas,฀and฀we฀have฀sig-
nificant฀manufacturing฀operations฀in฀various฀countries฀including,฀
but฀not฀limited฀to,฀the฀United฀States฀(Texas,฀Oklahoma,฀and฀
Louisiana),฀Scotland฀(Aberdeen),฀Germany฀(Celle),฀Northern฀
Ireland฀(Belfast)฀and฀Venezuela฀(Maracaibo).฀We฀operate฀in฀
over฀90฀countries฀around฀the฀world฀and฀employ฀approximately฀
26,900฀employees฀–฀about฀one-half฀of฀which฀work฀outside฀
the฀U.S.฀Our฀revenue฀in฀2004฀was฀in฀excess฀of฀$6฀billion฀–฀
approximately฀35%฀of฀which฀came฀from฀providing฀products฀
and฀services฀to฀oil฀and฀natural฀gas฀companies฀operating฀in฀
the฀U.S.
The฀customers฀for฀our฀products฀and฀services฀include฀
the฀super-major฀and฀major฀integrated฀oil฀and฀natural฀gas฀
companies,฀independent฀oil฀and฀natural฀gas฀companies฀and฀
state-owned฀national฀oil฀companies฀(“NOCs”).฀Our฀ability฀to฀
compete฀in฀the฀oilfield฀services฀market฀is฀dependent฀on฀our฀
ability฀to฀differentiate฀our฀product฀and฀service฀offerings฀by฀
technology,฀service฀and฀the฀price฀paid฀for฀the฀value฀we฀deliver.฀
Our฀primary฀competitors฀include฀the฀other฀two฀large฀diversified฀
oilfield฀service฀companies฀–฀Schlumberger฀and฀Halliburton,฀
as฀well฀as฀a฀number฀of฀smaller฀competitors,฀including฀Smith,฀
Weatherford฀and฀Grant฀Prideco.
The฀primary฀driver฀of฀our฀business฀is฀our฀customers’฀capital฀
and฀operating฀expenditures฀dedicated฀to฀exploring,฀drilling,฀
developing,฀and฀producing฀oil฀and฀natural฀gas.฀Our฀business฀is฀
cyclical฀and฀is฀dependent฀upon฀our฀customers’฀forecasts฀of฀
future฀oil฀and฀natural฀gas฀prices,฀future฀economic฀growth฀and฀
hydrocarbon฀demand฀and฀estimates฀of฀future฀oil฀and฀natural฀