Baker Hughes 2007 Annual Report Download - page 140

2007 Form 10-K 57
At December 31, 2006, we had entered into several foreign
currency forward contracts with notional amounts aggregating
$105.0 million to hedge exposure to currency fluctuations in
various foreign currency payables and receivables, including
British Pound Sterling, Norwegian Krone, Euro, Indonesian
Rupiah and Brazilian Real. These contracts were designated
and qualified as fair value hedging instruments. Based on
quoted market prices as of December 31, 2006 for contracts
with similar terms and maturity dates, we recorded a loss of
$0.2 million to adjust these foreign currency forward contracts
to their fair market value. This loss offsets designated foreign
currency exchange gains resulting from the underlying expo-
sures and is included in marketing, general and administrative
expense in the consolidated statement of operations.
The counterparties to our foreign currency forward con-
tracts are major financial institutions. The credit ratings and
concentration of risk of these financial institutions are mon-
itored on a continuing basis. In the unlikely event that the
counterparties fail to meet the terms of a foreign currency
contract, our exposure is limited to the foreign currency
exchange rate differential.
Concentration of Credit Risk
We sell our products and services to numerous companies
in the oil and natural gas industry. Although this concentration
could affect our overall exposure to credit risk, we believe that
we are exposed to minimal risk since the majority of our busi-
ness is conducted with major companies within the industry.
We perform periodic credit evaluations of our customers’
financial condition and generally do not require collateral for
our accounts receivable. In some cases, we will require pay-
ment in advance or security in the form of a letter of credit
or bank guarantee.
We maintain cash deposits with major banks that may
exceed federally insured limits. We periodically assess the
financial condition of the institutions and believe that the risk
of any loss is minimal.
NOTE 13. SEGMENT AND RELATED INFORMATION
We are a provider of drilling, formation evaluation, com-
pletion and production products and services to the worldwide
oil and natural gas industry. We report results for our product-
line focused divisions under two segments: the Drilling and
Evaluation segment and the Completion and Production seg-
ment. We have aggregated the divisions within each segment
because they have similar economic characteristics and because
the long-term financial performance of these divisions is affected
by similar economic conditions. They also operate in the same
markets, which includes all of the major oil and natural gas pro-
ducing regions of the world. The results of each segment are
evaluated regularly by our chief operating decision maker in
deciding how to allocate resources and in assessing performance.
The WesternGeco segment consisted of our 30% interest in
WesternGeco, which we sold in April 2006. The accounting
policies of our segments are the same as those described in
Note 1 of Notes to Consolidated Financial Statements.
•฀ The฀Drilling฀and฀Evaluation฀segment฀consists฀of฀the฀Baker฀
Hughes Drilling Fluids (drilling fluids), Hughes Christensen
(oilfield drill bits), INTEQ (drilling, measurement-while-drilling
and logging-while-drilling) and Baker Atlas (wireline forma-
tion evaluation and wireline completion services) divisions.
The Drilling and Evaluation segment provides products and
services used to drill and evaluate oil and natural gas wells.
•฀ The฀Completion฀and฀Production฀segment฀consists฀of฀the฀
Baker Oil Tools (workover, fishing and completion equip-
ment), Baker Petrolite (oilfield specialty chemicals) and
Centrilift (electrical submersible pumps and progressing cav-
ity pumps) divisions and the ProductionQuest (production
optimization and permanent monitoring) business unit. The
Completion and Production segment provides equipment
and services used from the completion phase through the
productive life of oil and natural gas wells.
The performance of our segments is evaluated based on
segment profit (loss), which is defined as income from continu-
ing operations before income taxes, interest expense, interest
and dividend income and accounting changes. The “Corpo-
rate and Other” column includes corporate-related items,
the pre-tax gain on the sale of our interest in WesternGeco
of $1,743.5 million, the financial charge of $46.1 million
recorded in connection with the settlement negotiations with
the SEC and DOJ, results of insignificant operations and, as it
relates to segment profit (loss), income and expense not allo-
cated to the segments. During the fourth quarter of 2007,
we started allocating certain expenses previously reported in
“Corporate and Other”, to the Drilling and Evaluation and
Completion and Production segments. These expenses con-
sist of administrative operations support costs that are more
closely related to operating activities. The impact of this alloca-
tion was a reduction to “Corporate and Other” of $15.4 million,
$12.2 million and $33.1 million for the years ended Decem-
ber 31, 2007, 2006 and 2005, respectively. All prior periods
have been reclassified to conform to this new presentation.