Baker Hughes 2007 Annual Report Download - page 96

2007 Form 10-K 13
manage our manufacturing operations and meet these goals
can have an impact on our business, including our ability to
meet our manufacturing plans and revenue goals, control costs
and avoid shortages of raw materials and component parts.
Raw materials and components of particular concern include
steel alloys (including chromium and nickel), titanium, beryllium,
copper, lead, tungsten carbide, synthetic and natural diamonds,
electronic components and hydrocarbon-based chemical feed
stocks. Our ability to repair or replace equipment damaged
or lost in the well can also impact our ability to service our
customers. A lack of manufacturing capacity could result in
increased backlog, which may limit our ability to respond to
short lead time orders.
People are a key resource to developing, manufacturing
and delivering our products and services to our customers
around the world. Our ability to manage the recruiting, train-
ing and retention of the highly skilled workforce required by
our plans and to manage the associated costs could impact
our business. A well-trained, motivated work force has a posi-
tive impact on our ability to attract and retain business. Rapid
growth presents a challenge to us and our industry to recruit,
train and retain our employees while managing the impact
of wage inflation and potential lack of available qualified
labor in the markets where we operate. Labor-related actions,
including strikes, slowdowns and facility occupations can also
have a negative impact on our business.
The terms and the impact of the settlement with the
Department of Justice (“DOJ”) and SEC may negatively
impact our ongoing operations.
Under the settlements in connection with the previously
disclosed compliance investigations by the DOJ and SEC, we
are subject to ongoing review and regulation of our business
operations, including the review of our operations and compli-
ance program by an independent monitor appointed to assess
our Foreign Corrupt Practices Act (“FCPA”) policies and proce-
dures. The activities of the independent monitor will have a cost
to us and may cause a change in our processes and operations,
the outcome of which we are unable to predict. In addition,
the settlements may impact our operations or result in legal
actions against us in the countries that are the subject of the
settlements. Also, the collateral impact of settlement in the
United States and other countries outside the United States
where we do business that may claim jurisdiction over any
of the matters related to the DOJ and SEC settlements could
be material. These settlements could also result in third-party
claims against us, which may include claims for special, indirect,
derivative or consequential damages. In addition, we could
incur additional taxes as a result of our resolution with the
DOJ and SEC.
Our failure to comply with the terms of our agreements
with the DOJ and SEC would have a negative impact on
our ongoing operations.
Under the settlements with the DOJ and SEC, we are sub-
ject to a two-year deferred prosecution agreement and enjoined
by the federal district court against any further violations of
the FCPA. Accordingly, the settlements reached with the DOJ
and SEC could be substantially nullified and we could be sub-
ject to severe sanctions and civil and criminal prosecution as
well as fines and penalties in the event of a subsequent viola-
tion by us or any of our employees or our failure to meet all of
the conditions contained in the settlements. The impact of the
settlements on our ongoing operations could include limits on
revenue growth and increases in operating costs. Our ability
to comply with the terms of the settlements is dependent on
the success of our ongoing compliance program, including our
ability to continue to manage our agents and business partners
and supervise, train and retain competent employees and the
efforts of our employees to comply with applicable law and
the Baker Hughes Business Code of Conduct.
Compliance with and changes in laws or adverse
positions taken by taxing authorities could be costly
and could affect operating results.
Our operations in the U.S. and over 90 countries can be
impacted by expected and unexpected changes in the legal
and business environments in which we operate. Our ability
to manage our compliance costs will impact our ability to
meet our earnings goals. Compliance related issues could also
limit our ability to do business in certain countries. Changes
that could impact the legal environment include new legisla-
tion, new regulation, new policies, investigations and legal
proceedings and new interpretations of the existing legal rules
and regulations, in particular, changes in export control laws
or exchange control laws, additional restrictions on doing bus-
iness in countries subject to sanctions, and changes in laws
in countries where we operate or intend to operate. Changes
that impact the business environment include changes in
accounting standards, changes in environmental laws, changes
in tax laws or tax rates, the resolution of tax assessments or
audits by various tax authorities, and the ability to fully utilize
our tax loss carryforwards and tax credits. In addition, we may
periodically restructure our legal entity organization. If taxing
authorities were to disagree with our tax positions in connec-
tion with any such restructurings, our effective tax rate could
be materially impacted.
These changes could have a significant financial impact
on our future operations and the way we conduct, or if we
conduct, business in the affected countries.
Uninsured claims and litigation could adversely impact
our operating results.
We could be impacted by the outcome of pending litiga-
tion as well as unexpected litigation or proceedings. We have
insurance coverage against operating hazards, including prod-
uct liability claims and personal injury claims related to our
products, to the extent deemed prudent by our management
and to the extent insurance is available, however, no assurance
can be given that the nature and amount of that insurance
will be sufficient to fully indemnify us against liabilities arising
out of pending and future claims and litigation. This insurance
has deductibles or self-insured retentions and contains certain
coverage exclusions. The insurance does not cover damages from
breach of contract by us or based on alleged fraud or deceptive
trade practices. Whenever possible, we obtain agreements from