Baker Hughes 2004 Annual Report Download - page 83

that฀a฀company฀is฀allowed฀time฀beyond฀the฀financial฀reporting฀
period฀of฀enactment฀to฀evaluate฀the฀effect฀of฀the฀Act฀on฀its฀
plan฀for฀reinvestment฀or฀repatriation฀of฀foreign฀earnings฀for฀
purposes฀of฀applying฀SFAS฀No.฀109.฀We฀have฀not฀yet฀decided฀
on฀whether,฀and฀to฀what฀extent,฀we฀might฀elect฀to฀repatriate฀฀
foreign฀earnings฀under฀the฀provisions฀in฀the฀Act.฀Any฀such฀
repatriation฀under฀the฀Act฀must฀occur฀by฀December฀31,฀2005.฀
Accordingly,฀our฀consolidated฀financial฀statements฀do฀not฀
reflect฀a฀provision฀for฀taxes฀related฀to฀this฀election.฀The฀maxi-
mum฀amount฀we฀could฀elect฀to฀repatriate฀is฀$500฀million฀as฀
prescribed฀in฀the฀Act.฀Our฀evaluation฀of฀the฀effect฀of฀the฀elec-
tion฀is฀expected฀to฀be฀completed฀by฀the฀end฀of฀the฀second฀
quarter฀of฀2005.
Related฀Party฀Transactions
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฀cur-
rently฀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฀subleased฀a฀facility฀
from฀us฀for฀a฀period฀of฀ten฀years฀at฀then฀current฀market฀
rates.฀During฀2004,฀2003฀and฀2002,฀we฀received฀payments฀
of฀$5.5฀million,฀$5.0฀million฀and฀$5.5฀million,฀respectively,฀
from฀WesternGeco฀related฀to฀this฀lease.
On฀or฀after฀December฀1,฀2005,฀either฀party฀to฀the฀West-
ernGeco฀Master฀Formation฀Agreement฀may฀offer฀to฀sell฀their฀
entire฀interest฀in฀the฀venture฀to฀the฀other฀party฀at฀a฀cash฀pur-
chase฀price฀per฀percentage฀interest฀specified฀in฀an฀offer฀notice.฀
If฀the฀offer฀to฀sell฀is฀not฀accepted,฀the฀offering฀party฀will฀be฀
obligated฀to฀purchase฀the฀entire฀interest฀of฀the฀other฀party฀at฀
the฀same฀price฀per฀percentage฀interest฀as฀the฀price฀specified฀
in฀the฀offer฀notice.฀We฀cannot฀predict฀when,฀or฀if,฀we฀or฀฀
Schlumberger฀may฀exercise฀this฀right.
At฀December฀31,฀2004฀and฀2003,฀net฀accounts฀(payable)฀
receivable฀from฀affiliates฀totaled฀$(1.1)฀million฀and฀$0.7฀mil-
lion,฀respectively.฀There฀were฀no฀other฀significant฀related฀฀
party฀transactions.
Forward-Looking฀Statements
MD&A฀and฀certain฀statements฀in฀the฀Notes฀to฀Consoli-
dated฀Financial฀Statements฀include฀forward-looking฀statements฀
within฀the฀meaning฀of฀Section฀27A฀of฀the฀Securities฀Act฀of฀
1933,฀as฀amended,฀and฀Section฀21E฀of฀the฀Securities฀Exchange฀
Act฀of฀1934,฀as฀amended,฀(each฀a฀“forward-looking฀state-
ment”).฀The฀words฀“anticipate,”฀“believe,”฀“ensure,”฀
“expect,”฀“if,”฀“intend,”฀“estimate,”฀“project,”฀“forecasts,”฀
“predict,”฀“outlook,”฀“aim,”฀“will,”฀“could,”฀“should,”฀
“would,”฀“may,”฀“likely”฀and฀similar฀expressions,฀and฀the฀
negative฀thereof,฀are฀intended฀to฀identify฀forward-looking฀
statements.฀We฀undertake฀no฀obligation฀to฀publicly฀update฀
or฀revise฀any฀forward-looking฀statement.฀Our฀expectations฀
regarding฀our฀business฀outlook,฀including฀changes฀in฀revenue,฀
pricing,฀capital฀spending,฀profitability,฀oil฀and฀natural฀gas฀mar-
ket฀conditions,฀market฀share฀and฀contract฀terms,฀costs฀and฀
availability฀of฀resources,฀economic฀and฀regulatory฀conditions,฀
and฀environmental฀matters฀are฀only฀our฀forecasts฀regarding฀
these฀matters.
These฀forecasts฀may฀be฀substantially฀different฀from฀actual฀
results,฀which฀are฀affected฀by฀those฀risk฀factors฀and฀the฀timing฀
of฀any฀of฀those฀risk฀factors฀identified฀in฀the฀“Environmental฀
Matters”฀section฀in฀Item฀1฀herein฀and฀the฀“Risk฀Factors฀Related฀
to฀the฀Worldwide฀Oil฀and฀Natural฀Gas฀Industry”฀and฀“Risk฀Fac-
tors฀Related฀to฀Our฀Business”฀sections฀contained฀herein.
ITEM฀7A.฀QUANTITATIVE฀AND฀QUALITATIVE฀฀
DISCLOSURES฀ABOUT฀MARKET฀RISK
We฀are฀exposed฀to฀certain฀market฀risks฀that฀are฀inherent฀
in฀our฀financial฀instruments฀that฀arise฀in฀the฀normal฀course฀
of฀business.฀We฀may฀enter฀into฀derivative฀financial฀instrument฀
transactions฀to฀manage฀or฀reduce฀market฀risk฀but฀do฀not฀enter฀
into฀derivative฀financial฀instrument฀transactions฀for฀speculative฀
purposes.฀A฀discussion฀of฀our฀primary฀market฀risk฀exposure฀in฀
financial฀instruments฀is฀presented฀below.
Indebtedness
We฀are฀subject฀to฀interest฀rate฀risk฀on฀our฀long-term฀fixed฀
interest฀rate฀debt.฀Commercial฀paper฀borrowings,฀other฀short-
term฀borrowings฀and฀variable฀rate฀long-term฀debt฀do฀not฀give฀
rise฀to฀significant฀interest฀rate฀risk฀because฀these฀borrowings฀
either฀have฀maturities฀of฀less฀than฀three฀months฀or฀have฀variable฀
interest฀rates.฀All฀other฀things฀being฀equal,฀the฀fair฀market฀value฀
of฀debt฀with฀a฀fixed฀interest฀rate฀will฀increase฀as฀interest฀rates฀fall฀
and฀will฀decrease฀as฀interest฀rates฀rise.฀This฀exposure฀to฀interest฀
rate฀risk฀is฀managed฀by฀borrowing฀money฀that฀has฀a฀variable฀
interest฀rate฀or฀using฀interest฀rate฀swaps฀to฀change฀fixed฀interest฀
rate฀borrowings฀to฀variable฀interest฀rate฀borrowings.
2004฀Form฀10-K฀฀฀฀฀33