Baker Hughes 2007 Annual Report Download - page 147

64 Baker Hughes Incorporated
We have retained, and the SEC and DOJ have approved, an
independent monitor to assess our FCPA compliance policies
and procedures for the specified three-year period.
On May 4, 2007 and May 15, 2007, The Sheetmetal Work-
ers’ National Pension Fund and Chris Larson, respectively, insti-
tuted shareholder derivative lawsuits for and on the Company’s
behalf against certain current and former members of the Board
of Directors and certain officers, and the Company as a nominal
defendant, following the Company’s settlement with the DOJ
and SEC in April 2007. On August 17, 2007, The Alaska Plumb-
ing and Pipefitting Industry Pension Trust also instituted a share-
holder derivative lawsuit for and on the Company’s behalf
against certain current and former members of the Board of
Directors and certain officers, and the Company as a nominal
defendant. The complaints in all three lawsuits allege, among
other things, that the individual defendants failed to implement
adequate controls and compliance procedures to prevent the
events addressed by the settlement with the DOJ and SEC.
The relief sought in the lawsuits includes a declaration that the
defendants breached their fiduciary duties, an award of dam-
ages sustained by the Company as a result of the alleged breach
and monetary and injunctive relief, as well as attorneys’ and
experts’ fees. The lawsuits brought by the Sheetmetal Workers’
National Pension Fund and The Alaska Plumbing and Pipefitting
Industry Pension Trust are pending in the Houston Division of
the United States District Court for the Southern District of
Texas. These lawsuits have been consolidated and an amended
complaint in the consolidated action was filed on October 15,
2007. The lawsuit brought by Chris Larson is pending in the
215th District Court of Harris County, Texas. We do not expect
these lawsuits to have a material adverse effect on our consoli-
dated financial statements.
On May 12, 2006, Baker Hughes Oilfield Operations, Inc.
(“BHOO”), a subsidiary of the Company, was named as a defen-
dant in a lawsuit in the United States District Court, Eastern
District of Texas brought by Reed Hycalog against BHOO and
other third parties arising out of alleged patent infringement
relating to the sale of certain diamond drill bits utilizing certain
types of polycrystalline diamond cutters sold by our Hughes
Christensen division. Reed Hycalog seeks compensatory dam-
ages and injunctive relief against the defendants, as well as
attorneys’ fees and other costs. On September 11, 2007, the
court issued a ruling regarding the scope of Reed Hycalog’s
patent infringement claims. On January 18, 2008, Reed Hycalog
filed with the court a report claiming an amount of compensa-
tory damages due from Baker Hughes ranging from approxi-
mately $51 million to approximately $226 million. Reed Hycalog
has also claimed they are entitled to enhanced damages and
attorney fees. The Company and BHOO believe they have rea-
sonable defenses to these claims and have asserted counter-
claims for infringement by Reed Hycalog of certain of our
drill bit patents in the lawsuit. We are not able to predict the
outcome of this litigation or its impact on our consolidated
financial statements.
Further information is contained in the “Environmental
Matters” section of Item 1. Business and Item 3. Legal
Proceedings both contained herein.
Environmental Matters
Our past and present operations include activities which are
subject to extensive domestic (including U.S. federal, state and
local) and international environmental regulations with regard to
air, land and water quality and other environmental matters. Our
environmental procedures, policies and practices are designed
to ensure compliance with existing laws and regulations and
to minimize the possibility of significant environmental damage.
We are involved in voluntary remediation projects at some of
our present and former manufacturing locations or other facili-
ties, the majority of which relate to properties obtained in acqui-
sitions or to sites no longer actively used in operations. On rare
occasions, remediation activities are conducted as specified by
a government agency-issued consent decree or agreed order.
Remediation costs are accrued based on estimates of probable
exposure using currently available facts, existing environmental
permits, technology and presently enacted laws and regula-
tions. Remediation cost estimates include direct costs related
to the environmental investigation, external consulting activi-
ties, governmental oversight fees, treatment equipment and
costs associated with long-term operation, maintenance and
monitoring of a remediation project.
We have also been identified as a potentially responsible
party (“PRP”) in remedial activities related to various Superfund
sites. We participate in the process set out in the Joint Partici-
pation and Defense Agreement to negotiate with government
agencies, identify other PRPs, determine each PRP’s allocation
and estimate remediation costs. We have accrued what we
believe to be our pro-rata share of the total estimated cost of
remediation and associated management of these Superfund
sites. This share is based upon the ratio that the estimated
volume of waste we contributed to the site bears to the total
estimated volume of waste disposed at the site. Applicable
United States federal law imposes joint and several liability
on each PRP for the cleanup of these sites leaving us with the
uncertainty that we may be responsible for the remediation
cost attributable to other PRPs who are unable to pay their
share. No accrual has been made under the joint and several
liability concept for those Superfund sites where our partici-
pation is de minimis since we believe that the probability that
we will have to pay material costs above our volumetric share
is remote. We believe there are other PRPs who have greater
involvement on a volumetric calculation basis, who have sub-
stantial assets and who may be reasonably expected to pay
their share of the cost of remediation. For those Superfund
sites where we are a significant PRP, remediation costs are
estimated to include recalcitrant parties. In some cases, we
have insurance coverage or contractual indemnities from
third parties to cover a portion of or the ultimate liability.
Our total accrual for environmental remediation is $16.9 mil-
lion and $17.3 million, which includes accruals of $5.3 million
and $5.9 million for the various Superfund sites, at December 31,
2007 and 2006, respectively. The determination of the required
accruals for remediation costs is subject to uncertainty, includ-
ing the evolving nature of environmental regulations and the
difficulty in estimating the extent and type of remediation
activity that will be utilized. We believe that the likelihood of
material losses in excess of the amounts accrued is remote.