Baker Hughes 2007 Annual Report Download - page 118

2007 Form 10-K 35
combinations for which the acquisition date is on or after the
beginning of the first annual reporting period beginning on
or after December 15, 2008. We will adopt SFAS 141R on
January 1, 2009 for acquisitions on or after this date.
RELATED PARTY TRANSACTIONS
In November 2000, we entered into an agreement with
WesternGeco, whereby WesternGeco subleases a facility from
us for a period of ten years at then current market rates. In
2006, we entered into an extension of the sublease for five
additional years with rent to be determined based on mar-
ket rates in 2010. During 2006 and 2005, we received pay-
ments of $5.6 million and $6.5 million, respectively, from
WesternGeco related to this lease. On April 28, 2006, we sold
our 30% interest in WesternGeco for $2.4 billion in cash and
recorded a pre-tax gain of $1,743.5 million ($1,035.2 million,
after-tax). Beginning in 2007, WesternGeco is no longer con-
sidered a related party.
During 2006 and 2005, we received distributions of
$59.6 million and $30.0 million, respectively, from WesternGeco,
which were recorded as reductions in the carrying value of
our investment.
During 2005, we received $13.3 million from Schlumberger
related to a true-up payment associated with revenues earned
by WesternGeco during the four year period ending November
2004 from each party’s contributed multiclient seismic data
libraries. We recorded $13.0 million as a reduction in the
carrying value of our investment in WesternGeco and $0.3 mil-
lion as interest income. The income tax effect of $3.3 million
related to this payment is included in our provision for income
taxes for the year ended December 31, 2005.
There were no other significant related party transactions.
FORWARD-LOOKING STATEMENTS
MD&A and certain statements in the Notes to Consolidated
Financial Statements include forward-looking statements
within the meaning of Section 27A of the Securities Act and
Section 21E of the Exchange Act (each a “forward-looking
statement”). The words “anticipate,” “believe,” “ensure,”
“expect,” “if,” “intend,” “estimate,” “probable,” “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. Our forward-looking statements are based on
assumptions that we believe to be reasonable but that may
not prove to be accurate. The statements do not include the
potential impact of future transactions, such as an acquisition,
disposition, merger, joint venture or other transaction that
could occur. We undertake no obligation to publicly update or
revise any forward-looking statement. Our expectations regard-
ing our business outlook, including changes in revenue, pricing,
capital spending, profitability, strategies for our operations,
impact of any common stock repurchases, oil and natural gas
market 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.
All of our forward-looking information is subject to risks
and uncertainties that could cause actual results to differ
materially from the results expected. Although it is not possi-
ble to identify all factors, these risks and uncertainties include
the risk factors and the timing of any of those risk factors
identified in the “Risk Factors Related to the Worldwide Oil
and Natural Gas Industry” and “Risk Factors Related to Our
Business” sections contained in Item 1A. Risk Factors and
those set forth from time to time in our filings with the SEC.
These documents are available through our website or
through the SEC’s Electronic Data Gathering and Analysis
Retrieval System (“EDGAR”) at http://www.sec.gov.
Risk Factors Related to the Worldwide
Oil and Natural Gas Industry
For discussion of our risk factors and cautions regarding
forward-looking statements, see the “Risk Factors Related to
the Worldwide Oil and Natural Gas Industry” in Item 1A. Risk
Factors and in the “Forward-Looking Statements” section in
Item 7, both contained herein. The risk factors discussed there
are not intended to be all inclusive.
Risk Factors Related to Our Business
For discussion of our risk factors and cautions regarding
forward-looking statements, see the “Risk Factors Related to
Our Business” in Item 1A. Risk Factors and in the “Forward-
Looking Statements” section, both contained herein. This list
of risk factors is not intended to be all inclusive.
ITEM 7A. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
We are exposed to certain market risks that are inherent
in our financial instruments and arise from changes in interest
rates and foreign currency exchange rates. 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.
INTEREST RATE RISK AND 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 vari-
able interest rates similar to the interest rates we receive on
our short-term investments. 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.
At December 31, 2007 and at December 31, 2006, there
were no interest rate swap agreements in effect.