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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1995
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
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COMMISSION FILE NUMBER 1-9397
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BAKER HUGHES INCORPORATED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
76-0207995
DELAWARE (I.R.S. EMPLOYER IDENTIFICATION NO.)
(STATE OR OTHER JURISDICTION OF 77027-5177
INCORPORATION OR ORGANIZATION) (ZIP CODE)
3900 ESSEX LANE, HOUSTON, TEXAS
(ADDRESS OF PRINCIPAL EXECUTIVE
OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (713) 439-8600
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
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NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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<S> <C>
COMMON STOCK, $1 PAR VALUE NEW YORK STOCK EXCHANGE
PACIFIC STOCK EXCHANGE
THE SWISS STOCK EXCHANGE
PREFERRED STOCK PURCHASE RIGHTS NEW YORK STOCK EXCHANGE
PACIFIC STOCK EXCHANGE
THE SWISS STOCK EXCHANGE
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: WARRANTS TO
PURCHASE COMMON STOCK
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 of 15(d) of the Securities Exchange Act of
1934 during the preceeding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.[_]
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At December 6, 1995, the registrant had outstanding 142,266,924 shares of
Common Stock, $1 par value. The aggregate market value of the Common Stock on
such date (based on the closing price on the New York Stock Exchange) held by
nonaffiliates was approximately $3,041,203,638.
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of Registrant's Annual Report to Stockholders for 1995 are
incorporated by reference into Parts I and II.
Portions of Registrant's 1995 Proxy Statement for the Annual Meeting of
Stockholders to be held January 24, 1996 are incorporated by reference into
Part III.
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PART I
ITEM 1. BUSINESS
The Company operates in two industry segments, oilfield products and
services and process products and services. In addition to these industry
segments, the Company manufactures and sells other products and provides
services to industries not related to either the petroleum or process
industries. Certain of the Company's operations are conducted through joint
ventures or partnerships.
The Company is a Delaware corporation that was formed in connection with
the combination of Baker International Corporation ("Baker") and Hughes Tool
Company ("Hughes") consummated on April 3, 1987 (the "Combination"). The shares
of each of Baker and Hughes were publicly traded and registered with the
Securities and Exchange Commission for more than five years. As used herein, the
"Company" refers to Baker Hughes Incorporated and its subsidiaries, unless the
context clearly indicates otherwise.
For additional industry segment information for each of the three years
in the three-year period ended September 30, 1995, see Note 9 of Notes to
Consolidated Financial Statements which Notes are incorporated herein by
reference in Part II, Item 8 hereof ("Notes to Consolidated Financial
Statements").
OILFIELD PRODUCTS AND SERVICES
The Company manufactures and markets a broad range of rolling cutter and
diamond drilling bits, ranging upward from 3-3/4 inches in diameter, which are
designed for drilling in specific types of rock formations. The Company believes
that it is the leading worldwide manufacturer of rock bits and that its
principal competitors in this area are Smith International, Inc. ("Smith"), the
Security Division of Dresser Industries, Inc. ("Dresser"), and Reed Tool Company
and Hycalog, each operating units of Camco, Incorporated.
The Company also produces and markets drilling fluids (muds) for oil and
gas well drilling, as well as chemical additives and specialty chemicals, and
provides technical services in connection with their formulation and use.
Drilling fluids, which are usually barite and bentonite combined with other
chemicals in a water, chemical or oil base, are used to clean the bottom of a
hole by removing cuttings and transporting them to the surface, to cool the bit
and drill string, to control formation pressures and to seal porous well
formations. The Company also furnishes on-site, around-the-clock laboratory
analysis and examination of circulated and recovered drilling fluids and
recovered drill cuttings to detect the presence of hydrocarbons and identify the
formations penetrated by the drill bit. The Company's principal competitors with
regard to these products and services are M-I Drilling Fluids, which is jointly
owned by Halliburton Company ("Halliburton") and Smith, and Baroid Corporation,
a subsidiary of Dresser.
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The Company believes that it is the oil and gas industry's leading
supplier of directional and horizontal drilling services, downhole motors,
coring services, subsurface surveying and measurement-while-drilling services.
The Company's specialized positive displacement downhole motors help operators
to steer wells into pay zones for conventional directional drilling and short,
medium and long-radius horizontal drilling. A full range of measurement-while-
drilling systems provided by the Company use mud-pulse telemetry to deliver
real-time downhole information on the drilling process and the reservoir. The
systems are available for every application, from directional-only service
through wireline-replacement real-time logging. Through the well engineering and
planning process, the Company provides integrated solutions to customers who
desire a long-term partnering relationship and a total systems approach. This
approach can encompass virtually all of the Company's oilfield products and
services. With regard to these products and services, the Company competes
principally with Halliburton, Sperry-Sun, a subsidiary of Dresser, and Anadrill,
a subsidiary of Schlumberger Ltd. ("Schlumberger").
Other products of the Company related to drilling include surface and
downhole instruments, which collect, display and record data regarding various
aspects of the drilling process and the possible accumulation of oil and gas.
After oil and gas wells are drilled, they must be completed and
equipped using production tools, serviced to achieve safety and long-term
productivity, protected against pressure and corrosion damage and stimulated or
repaired during their productive lives. The Company provides a broad range of
production tools and oilfield services to meet many of these needs.
Packers, a major product of the Company, are used to seal the space
between the production tubing and the casing to protect the casing from
reservoir pressures and corrosive formation fluids and also to maintain the
separation of productive zones. The Company believes that it is the leading
worldwide producer of packers, and that its principal competitors for sale of
packers are Dresser Oil Tools, an operating unit of Dresser and Halliburton
Energy Services, an operating unit of Halliburton.
The Company manufactures liner hanger tools and equipment used to
suspend and set strings of casing pipe in wells. It also manufactures downhole
electric submersible pumps and variable frequency drive systems for use with
those pumps and provides related control equipment, electrical cable and repair
services for artificial lift. The Company provides fishing tool services using
specialized tools to locate, dislodge and retrieve twisted off, dropped or
damaged pipe, tools or other objects from the well bore. It also provides
inflatable and mechanical packers that are used in testing the potential of a
well during the drilling phase prior to installation of casing, and under-
reamers, which enlarge the well bore at any point below the surface to form a
production cavity.
Other completion, remedial and production products and services provided
by the Company include specialty chemicals used by the production segments of
the petroleum industry (with Petrolite Corporation being the Company's principal
competitor with regard to completion,
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remedial and production specialty chemicals) as well as industrial chemicals
used in refining, waste water treatment, mineral handling and cooling and boiler
water processes; control systems for surface and subsurface safety valves and
surface flow lines; and flow regulators and packers used in secondary recovery
waterflood projects. The Company offers gravel packing, a specialized service
that prevents sand from entering the well bore and reducing productivity, as
well as other sand control services. It also provides tubing conveyed
perforating services to provide paths through the casing and cement sheath in
wells so that oil and gas can enter the well bore from the formation. Major
gravel packing competitors include the Dowell division of Schlumberger,
Halliburton Energy Services, BJ-Western and Dresser Oil Tools. Tubing conveyed
perforating competitors include Schlumberger (Well Testing division),
Halliburton Energy Services, Dresser Oil Tools and Western Atlas.
PROCESS EQUIPMENT PRODUCTS AND SERVICES
The Company provides a broad range of solid/liquid separation equipment
and systems to concentrate product or separate and remove waste material in the
mineral, industrial, pulp and paper and municipal industries. The Company's
product lines include vacuum filters (drum, disc and horizontal belt), filter
presses, belt presses, granular media filters, thickeners, clarifiers, flotation
cells and aeration equipment. The Company's principal competitors for sales for
mineral and industrial applications are Dorr-Oliver, Outokumpu and Sala; the
Company's principal competitors for sales for municipal applications are Envirex
and General Filter; and the Company's principal competitor for sales for pulp
and paper applications is Ahlstrom.
The Company manufactures and markets solid bowl, screen bowl and pusher
centrifuges, tilting pan filters and a high speed Bird Young drum filter for the
minerals, chemical and petrochemical sectors where the equipment is used for
dewatering of process flow streams. The Company's principal competitors with
respect to its centrifuge product lines are Alfa-Laval, Klockner-Humbolt-Deutch
and Kraus Maffei.
The Company designs and manufactures systems for the treatment of
produced water and its reinjection and treatment of refinery waste streams. The
Company's products include coarse filters, fine filters, flotation units,
coalescers, deaeration towers and electrochlorination cells. The Company's
primary competitors in this area are Serck Baker and Vortoil.
The Company provides parts and service for all of its product lines
through a global network of personnel and facilities strategically located to
serve the customer community.
MARKETING, COMPETITION AND ECONOMIC CONDITIONS
The products of each of the Company's principal industry segments are
marketed primarily through its own sales organizations on a product line basis,
although certain products and services are marketed through supply stores and
independent distributors. Technical and advisory services are ordinarily
provided to assist in the customer's use of the Company's
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products and services. Stockpoints and service centers for oilfield products and
services are located in areas of drilling and production activity throughout the
world. The Company markets its oilfield products and services in nearly all of
the oil producing countries. Stockpoints and service centers for process
products and services are located near the Company's customers' operations, and
the Company markets process products and services throughout the world. In
certain foreign areas where direct product sales efforts are not practicable,
the Company utilizes licensees, sales agents and distributors.
The products of each of the Company's principal industry segments are
sold in highly competitive markets, and its revenues and earnings can be
affected by changes in competitive prices, fluctuations in the level of activity
in major markets, general economic conditions and governmental regulation. The
Company competes with a large number of companies, a few of which have greater
resources and more extensive and diversified operations than the Company. The
Company believes that the principal competitive factors in the industries that
it serves are product and service quality and availability, technical
proficiency and price.
INTERNATIONAL OPERATIONS
Revenues attributable to sales of products and provision of services for
use outside the United States (which, for 1995, consisted of revenues from non-
United States operations of $1,424.6 million and export sales from the United
States of $238.8 million) accounted for approximately 63%, 63%, and 66% of the
Company's total revenues for the years ended September 30, 1995, 1994 and 1993,
respectively. These revenues in 1995 were distributed approximately as follows:
Europe, 23%; other Eastern Hemisphere, 20%; and Non-United States Western
Hemisphere, 20%. See Note 9 of Notes to Consolidated Financial Statements.
The Company's operations are subject to the risks inherent in doing
business in multiple countries with various legal and political policies. These
risks include war, boycotts, political changes, expropriation, currency
restrictions, taxes and changes in currency exchange rates. Although it is
impossible to predict the likelihood of such occurrences or their effect on the
Company, management believes these risks to be acceptable. However, there can be
no assurance that an occurrence of any one of these events would not have a
material adverse effect on its operations.
RESEARCH AND DEVELOPMENT; PATENTS
At September 30, 1995, the equivalent of approximately 315 full-time
employees were engaged in research and development activities directed primarily
toward improvement of existing products and services, design of specialized
products to meet specific customer needs and development of new products and
processes. For information regarding the amounts of research and development
expense for each of the three-years in the three-year period ended September 30,
1995, see Note 11 of Notes to Consolidated Financial Statements.
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The Company has followed a policy of seeking patent protection both
inside and outside the United States for products and methods that appear to
have commercial significance. The Company believes its patents and trademarks to
be adequate for the conduct of its business, and while it regards patent and
trademark protection important to its business and future prospects, it
considers its established reputation, the reliability of its products and the
technical skills of its personnel to be more important. The Company aggressively
pursues protection of its patents against patent infringement worldwide.
EMPLOYEES
At September 30, 1995, the Company had a total of approximately 15,200
employees, as compared to approximately 14,700 employees at September 30, 1994.
Approximately 784 employees at September 30, 1995 were represented under
collective bargaining agreements that terminate at various times through 1996.
The Company believes that its relations with its employees are satisfactory.
EXECUTIVE OFFICERS
The following table shows as of December 6, 1995, the name of each
executive officer of the Company, together with his age and all offices
presently held with the Company.
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NAME OF INDIVIDUAL AGE
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James D. Woods 64 Chairman of the Board and Chief
Executive Officer of the Company since
1987. Employed 1955. President of
Baker, 1986 to 1987; and President of
the Company, 1987 to October 1995 .
Max L. Lukens 47 President and Chief Operating Officer
of the Company since October 1995.
Employed 1981. Vice President and Chief
Financial Officer of Baker, 1984-1987;
Vice President and Chief Financial
Officer of the Company, 1987-1989;
President, Baker Hughes Production
Tools, 1989-1993; Senior Vice President
of the Company, 1987-1994; Executive
Vice President, 1994-1995; and
President, Baker Hughes Oilfield
Operations, 1993-1995.
M. Glen Bassett 57 Vice President of the Company since
1995; and President of Baker
Performance Chemicals Incorporated
since 1983. Employed 1980.
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Joseph F. Brady 49 Vice President of the Company since
1995; and President of Centrilift since
1988. Employed 1981. President, Baker
Lift Systems, 1983-1987; and President,
Baker CAC, Inc., 1987-1988.
James E. Braun 36 Controller since 1993. Employed 1993.
From 1981-1993, Deloitte & Touche LLP;
Partner of Deloitte & Touche LLP from
1991.
George S. Finley 44 Senior Vice President and Chief
Administrative Officer of the Company
since 1995. Employed 1982. Controller
of the Company, 1987-1993; Vice
President of the Company, 1990-1995;
and Chief Financial Officer of Baker
Hughes Oilfield Operations, 1993-1995.
Roger P. Herbert 49 Vice President of the Company since
1994; and Vice President-Market
Development and Technology of the
Company since 1995. Employed 1988.
President, Baker Hughes Drilling
Systems, 1988-1990; President, Baker
Hughes MWD, 1990-1991; President,
Develco, 1991-1993; and Vice President-
Technology and Market Development,
Baker Hughes Oilfield Operations, 1993-
1995.
Edwin C. Howell 48 Vice President of the Company since
1995; and President of Baker Oil Tools
since 1992. Employed 1975. President,
Baker Service Tools, 1989-1992.
Eric L. Mattson 42 Senior Vice President of the Company
since 1994; and Chief Financial Officer
of the Company since 1993. Employed
1980. Treasurer of the Company, 1983-
1994; and Vice President of the
Company, 1988 to 1994.
Lawrence O'Donnell, III 37 Vice President and General Counsel of
the Company since 1995; and Corporate
Secretary of the Company since 1992.
Employed 1991. Deputy General Counsel
of the Company, 1991-1995; and Vice
President and General Counsel, Baker
Hughes Oilfield Operations, 1994-1995.
Timothy J. Probert 44 Vice President and President of Baker
Hughes Process Equipment Operations
since 1994. Employed 1972. President,
Milpark, 1989-1990; President, Eastman
Christensen, 1990-1992; President,
Eastman Teleco, 1992-1993; Executive
Vice President, Baker Hughes INTEQ,
1993; and Vice President, Drilling &
Evaluation Technology Unit, Baker
Hughes INTEQ, 1993-1994.
</TABLE>
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Andrew J. Szescila 48 Vice President of the Company since
1995; and President of Hughes
Christensen Company since 1989.
Employed 1973. President, BJ Service
International, 1987-1988; and
President, Baker Service Tools, 1988-
1989.
Jabian P. Trahan 49 Vice President of the Company since
1995; and President of Baker Hughes
INTEQ since 1993. Employed 1978.
President, Baker Sand Control, 1990-
1993.
</TABLE>
There are no family relationships between the executive officers of the
Company.
The Company follows the practice of electing its officers annually
immediately after its Annual Meeting of Stockholders.
ENVIRONMENTAL MATTERS
The Company is subject to local, state and federal regulations with
regard to air and water quality and other environmental matters. The Company
believes that it is in substantial compliance with these regulations. Regulation
in this area is in the process of development, and changes in standards of
enforcement of existing regulations as well as the enactment and enforcement of
new legislation may require the Company, as well as its customers, to modify,
supplement or replace equipment or facilities, or to change or discontinue
present methods of operation.
While making projections of future costs in the environmental area can
be difficult and uncertain, based upon current information, the Company
estimates that during the fiscal year ending September 30, 1996, the Company
will spend approximately $11,508,000 to enable the Company to comply with
federal, state and local provisions which have been enacted or adopted
regulating the discharge of materials into the environment or otherwise relating
to the protection of the environment (collectively, "Environmental
Regulations"). Based upon current information, the Company believes that its
compliance with Environmental Regulations will not have a material adverse
effect upon the capital expenditures, earnings and competitive position of the
Company because the Company has adequate reserves for such compliance
expenditures or the cost to the Company for such compliance will be small when
compared to the Company's overall net worth.
In addition to the amounts described in the preceding paragraph, based upon
current information, the Company estimates that it will incur capital
expenditures of approximately $2,471,000 for environmental control equipment
during the fiscal year ending September 30, 1996. Based upon current
information, the Company believes that capital expenditures for environmental
control equipment for the 1996 and 1997 fiscal years, as well as such future
periods as the Company deems relevant, will not have a material adverse effect
upon the financial condition of the Company because the aggregate amount of
these expenditures for those periods is or will be small when compared to the
Company's overall net worth.
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The Company and certain of its subsidiaries and divisions have been
identified as a potentially responsible party ("PRP") as a result of substances
which may have been released in the past at various sites more fully discussed
below. The United States Environmental Protection Agency (the "EPA") and
appropriate state agencies are supervising investigative and clean-up activities
at these sites.
(a) The Company's subsidiaries, Hughes Christensen ("HC"), a division
of Baker Hughes Oilfield Operations, Inc. ("BHOO"), Milpark Drilling Fluids
("Milpark") (now known as Baker Hughes INTEQ, a division of BHOO
("INTEQ")), and a former subsidiary of the Company, Baker Hughes Tubular
Services, Inc. ("BHTS"), have been named as PRPs in the French Limited
Superfund Site, which consists of a 15 acre wastepit and a seven acre
lagoon located in Crosby, Texas. The site is on the Superfund National
Priorities List. This site has been in active remediation for five years
and is managed by a task force of PRPs ("FLTG, Inc. Task Force").
Approximately $64,700,000 has been spent to date by FLTG, Inc. Task Force,
with additional costs of approximately $18,300,000 being anticipated by
FLTG, Inc. Task Force. The contribution of the Company's subsidiaries
(including BHTS, which was sold to ICO on September 30, 1992) is estimated
to be approximately 1.33% of those costs (such proportion being based upon
the ratio that the number of gallons of waste estimated to be contributed
to the site by the Company's subsidiaries bears to the total number of
gallons of waste estimated to have been disposed of at the site, and being
herein sometimes referred to as a "Volumetric Calculation"). A portion of
the Company's liability (.77%) is covered by an indemnity from ICO. The
Company has settled that portion of its liability for this site not covered
by the indemnity (.56%) for $62,721, and the Company does not anticipate
any additional liability for this site. The Company will continue to
follow the progress of the site through completion.
(b) Baker Performance Chemicals Incorporated ("BPCI"), a subsidiary of
the Company, HC, Milpark, BHTS and Baker Oil Tools ("BOT"), a division of
BHOO, have been named as PRPs in the Sheridan Superfund Site, located in
Hempstead, Texas. The remedial work at this site is being overseen by the
Texas Natural Resource Conservation Commission. A trust formed to
remediate the site and to allocate responsibility for the costs of the
remedial work estimates that the total cost of remediation will be
approximately $30,000,000, with the contribution of the Company's
subsidiaries (including BHTS, which was sold to ICO on September 30, 1992)
estimated to be approximately 0.64% of those costs (based upon a Volumetric
Calculation).
(c) BPCI and Centrilift, a division of BHOO, have been named as PRPs
in the Hardage Industrial Waste Disposal Superfund Site, located in Criner,
Oklahoma. It has been estimated that the contribution to the contamination
at this site by the Company's two subsidiaries is approximately 0.005% and
0.19%, respectively, of the total waste at such site (based upon a
Volumetric Calculation).
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An agreement has been reached to release the Company and its subsidiaries
from liability for a total of $325,000 to be paid over three years. The
second annual installment in the amount of $108,333 was paid in October,
1995.
(d) Spectrace Instruments, Inc. ("Spectrace"), a subsidiary of the
Company, is a named respondent to an EPA Administrative Order associated
with the MEW Study Area, an eight square mile soil and groundwater
contamination site located in Mountain View, California. A group of PRPs
estimates that the total cost of remediation will be approximately
$80,000,000. The Company's environmental consultants have conducted
extensive investigations of Spectrace's operating facility located within
the MEW Study Area and have concluded that Spectrace's activities could not
have been the source of any contamination in the soil or groundwater at and
around the MEW Study Area. The EPA has informed the Company that no
further work needs to be performed on Spectrace's site and indicated that
the EPA does not believe there is a contaminant source on the property.
However, the Company continues to be named in the EPA's Administrative
Order. The Company continues to believe the EPA's Administrative Order for
Remedial Design and Remedial Action is not valid with respect to the
Company's subsidiary and is seeking the withdrawal of the Administrative
Order with respect to the Company's subsidiary.
(e) Hughes Tool Company (now known as Hughes Christensen), Eastman
Teleco Company (now known as INTEQ), and Eimco Process Equipment Company, a
subsidiary of the Company, have been named as PRPs in the Marco of Iota
hazardous waste storage and treatment facility located in Iota, Acadia
Parish, Louisiana. In 1991, the Marco facility was abandoned by the then
existing owners, and the EPA discovered hazardous substances were being
released into the surrounding environment. EPA records, corroborated by
current Company information, suggest that the contribution to the
contamination at this site by these subsidiaries of the Company is less
than .1% of the total volume of wastes at this site. The hazardous wastes
disposed of at this site have now been removed under the EPA's emergency
response authority, and a de minimis buyout offer from the EPA has been
accepted by the Company in the total amount of less than $1,000.
(f) BPCI, by virtue of its acquisition of ChemLink, was named in an
administrative action brought by the EPA pursuant to the Toxic Substances
Control Act, as amended. The complaint filed by the EPA alleges failure on
the part of ChemLink to properly notify the EPA of the manufacture of a new
chemical substance and asserts a fine against ChemLink in the amount of
$280,000. Contractual indemnities are available to BPCI as a part of the
acquisition of ChemLink that the Company believes cover any liability of
BPCI in connection with this action, including any defense costs.
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(g) In May 1987, BPCI entered into an Agreed Administrative Order with
the then Texas Water Commission, now known as the Texas Natural Resource
Conservation Commission ("TNRCC"), with respect to soil and groundwater
contamination at the Odessa - Hillmont site located in Odessa, Texas. This
site was previously used by BPCI as a chemical blending plant. The
contaminated soil has been removed, and the site continues in the
groundwater recovery/treatment phase at an annual cost to the Company of
approximately $40,000.
(h) Oil Base, Inc. and Hughes Drilling Fluids (now known as INTEQ)
have been identified as PRPs in the PAB Superfund Site located in
Abbeville, Louisiana. Due to certain unresolved issues at this site, the
Company has estimated that the contribution to the contamination by these
entities may be from 2.0% to 5.0% of the total waste at this site. A
Volumetric Calculation is not possible because the disposal records
maintained at this site are incomplete and inaccurate. The Company's
ultimate percentage of liability will depend in part upon the final
allocation of volumes among the participating PRPs. Resolution of these
issues is currently being sought through the Company's participation in a
PRP group formed to implement the EPA Order. Current estimates of the
total cost of remediation at this site is approximately $15,000,000. The
Company is currently participating with other PRPs to fund certain remedial
design efforts on an interim basis to comply with the EPA Order.
(i) PA Inc., a former subsidiary of the Company, was identified as a
PRP in the Sonics International Site, a former hazardous waste disposal
facility located near Ranger, Texas. This site is currently being
administered by the TNRCC under the Texas Superfund Statute. The Company
allegedly contributed 1.64% of the waste volume at the site. It is not
possible at this time to quantify the Company's ultimate liability. The
remediation proposed by the TNRCC is estimated to cost $700,000. The PRP
Group assessment of the total remedial costs is approximately $10,000,000.
(j) Milpark (now known as INTEQ) has been identified as a PRP at the
Toups Farm Superfund Site (eligible for cleanup under the Texas State
Cleanup Fund) located two miles north of South Lake at the intersection of
Highway 105 and Highway 326 near Hallettsville, Texas. The site consists
of approximately 21 acres and was operated over the years as a municipal
landfill, fence post treating company and a hog farm. Based on available
information, the Company does not believe that it has any liability for
contamination at the site.
(k) The Company and BPCI have been named as PRPs at the former Fike
Chemical Company site located in Nitro, West Virginia. The Company and
BPCI were alleged to be responsible by virtue of business transactions
involving toll chemical processing and raw materials with the site's
operator, Fike Chemical. Contractual indemnities are available to BPCI as
part of the acquisition
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of ChemLink, which the Company believes cover any liability of BPCI in
connection with this action, including defense costs.
(l) Milpark and Baker Sand Control (now known as INTEQ) have been
named as PRPs at the DL Mud Superfund Site located in Abbeville, Louisiana.
This site was used for the disposal of used drilling fluids and drilling
muds. However, another named PRP is responsible for over 98% of the waste
volume disposed of at this site, and that PRP has agreed to remediate this
site totally. The Company does not anticipate that it will have any
liability for this site.
(m) Milpark (now known as INTEQ) has been named as a PRP at the Mar
Services Superfund site located in Crankton, Louisiana. It has been
estimated that the contribution to this site by the Company's subsidiary is
approximately .08% of the total volume of solids at the site (based upon a
Volumetric Calculation). The site is now undergoing investigative studies
to determine the remedial action plan as well as a total estimated cost for
remediation.
(n) Teleco Oilfield Services, Inc. (now known as INTEQ) has been named
as a PRP at the Solvent Recycling Service of New England Superfund Site
located in Southington, Connecticut. Approximately 1,000 companies have
been named as PRPs at this site. Calculations from the PRP group verified
by the Company, indicate that Teleco contributed .00006% of the volume at
the site. The total cost of cleanup at the site is currently estimated to
be $3,500,000. A de minimis buyout offer from either the EPA or the PRP
group is anticipated in the future.
While PRPs in Superfund actions have joint and several liability for all
costs of remediation and in many of the sites described above it is not possible
at this time to quantify the Company's ultimate exposure because the project is
either in its early investigative or remediation stage, based upon current
information, the Company does not believe that probable and reasonably possible
expenditures in connection with any of the sites described above are likely to
have a material adverse effect on the Company's financial condition because: (i)
the Company has established adequate reserves to cover what the Company
presently believes will be its ultimate liability with respect to the matter,
(ii) the Company and its subsidiaries have only limited involvement in the
sites based upon a Volumetric Calculation, as described above, (iii) there are
other PRPs that have greater involvement on a Volumetric Calculation basis who
have substantial assets and who may reasonably be expected to pay their share of
the cost of remediation, (iv) where discussed above, the Company has insurance
coverage or contractual indemnities from third parties to cover the ultimate
liability, and (v) the Company's ultimate liability, based upon current
information, is small compared to the Company's overall net worth.
11
<PAGE>
The Company is subject to various other governmental proceedings relating
to environmental matters, but the Company does not believe that any of these
matters is likely to have a material adverse effect on its financial condition.
ITEM 2. PROPERTIES
The Company operates 63 manufacturing plants, almost all of which are
owned, ranging in size from approximately 2,000 square feet to approximately
233,000 square feet of manufacturing space and totaling more than 2,888,000
square feet. Of such total, approximately 2,087,000 square feet (72%) are
located in the United States, 170,000 square feet (6%) are located in the
Western Hemisphere exclusive of the United States, 540,000 square feet (19%) are
located in Europe, and 91,000 square feet (3%) are located in the Eastern
Hemisphere exclusive of Europe. These manufacturing plants by industry segment
and geographic area appear in the table below. The Company also owns or leases
and operates various customer service centers and shops, and sales and
administrative offices throughout the geographic areas in which it operates.
<TABLE>
<CAPTION>
Other Other
United Western Eastern
States Hemisphere Europe Hemisphere Total
------ ---------- ------ ---------- -------
<S> <C> <C> <C> <C> <C>
Oilfield products and services 30 6 8 9 53
Process equipment products
and services 6 2 2 - 10
</TABLE>
The Company believes that its manufacturing facilities are well maintained.
The Company also has a significant investment in service vehicles, rental tools
and equipment. During 1994, the Company recognized permanent impairments and
wrote down to net realizable value certain inventory, property, plant and
equipment. For further information regarding these write-downs, see Note 3 of
Notes to Consolidated Financial Statements. The Company believes that it has
the capacity to meet increased demands in each of its industry segments.
ITEM 3. LEGAL PROCEEDINGS
The Company is sometimes named as a defendant in litigation relating to the
products and services it provides. The Company insures against these risks to
the extent deemed prudent by its management, but no assurance can be given that
the nature and amount of such insurance will in every case fully indemnify the
Company against liabilities arising out of pending and future legal proceedings
relating to its ordinary business activities. However, the Company is not a
party to any litigation the probable outcome of which, in the opinion of the
Company's management, would have a material adverse effect on the consolidated
financial position of the Company.
12
<PAGE>
See also " Item 1. Business -- Environmental Matters."
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
13
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Common Stock, $1.00 par value per share, of the Company (together with
the associated Series One Junior Participating Preferred Stock Purchase Rights,
the "Common Stock") is principally traded on The New York Stock Exchange. The
Common Stock is also traded on the Pacific Stock Exchange and the Swiss Stock
Exchange. At December 6, 1995, there were approximately 54,167 stockholders and
16,667 stockholders of record.
For information regarding quarterly high and low sales prices on the New
York Stock Exchange for the Common Stock, during the two-years ended September
30, 1995 and information regarding dividends declared on the Common Stock during
the two-years ended September 30, 1995, see Note 14 of Notes to Consolidated
Financial Statements.
ITEM 6. SELECTED FINANCIAL DATA
The information set forth under the caption "Five Year Summary of Financial
Information" in the 1995 Annual Report to Stockholders is incorporated herein by
reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The information set forth under the caption "Management's Discussion And
Analysis Of Financial Condition And Results Of Operations" in the 1995 Annual
Report to Stockholders is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following consolidated financial statements of the Company and the
independent auditors' report set forth in the 1995 Annual Report to Stockholders
are incorporated herein by reference:
Independent Auditors' Report.
Consolidated Statements of Operations for each of the three years in the
period ended September 30, 1995.
Consolidated Statements of Financial Position as of September 30, 1995 and
1994.
14
<PAGE>
Consolidated Statements of Stockholders' Equity for each of the three years
in the period ended September 30, 1995.
Consolidated Statements of Cash Flows for each of the three years in the
period ended September 30, 1995.
Notes to Consolidated Financial Statements.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
15
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning the directors of the Company is set forth in the
section entitled "Election of Directors" in the Proxy Statement of the Company
for the Annual Meeting of Stockholders to be held January 24, 1996, which
section is incorporated herein by reference. For information regarding
executive officers of the Company, see "Item 1. Business -- Executive Officers."
Additional information regarding compliance by directors and executive officers
with Section 16(a) of the Securities Exchange Act of 1934, as amended, is set
forth under the section entitled "Compliance with Section 16(a) of the
Securities Exchange Act of 1934" in the Proxy Statement for the Annual Meeting
of Stockholders to be held on January 24, 1996, which section is incorporated
herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information for this item is set forth in the section entitled "Executive
Compensation" in the Proxy Statement of the Company for the Annual Meeting of
Stockholders to be held January 24, 1996, which section is incorporated herein
by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Information concerning security ownership of certain beneficial owners and
management is set forth in the sections entitled "Voting Securities" and
"Security Ownership of Management" in the Proxy Statement of the Company for the
Annual Meeting of Stockholders to be held January 24, 1996, which sections are
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
16
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(A) LIST OF DOCUMENTS FILED AS PART OF THIS REPORT
(1) Financial Statements
All financial statements of the Registrant as set forth under Item 8
of this Annual Report on Form 10-K.
(2) Financial Statement Schedules:
Financial statement schedules are omitted because of the absence of
conditions under which they are required or because all material
information required to be reported is included in the consolidated
financial statements and notes thereto.
(3) Exhibits:
3.1 Restated Certificate of Incorporation (filed as Exhibit 3.1 to
Annual Report of Baker Hughes Incorporated on Form 10-K for the
year ended September 30, 1993 and incorporated herein by
reference).
3.2 By-Laws (filed as Exhibit 3.2 to Annual Report of Baker Hughes
Incorporated on Form 10-K for the year ended September 30, 1992
and incorporated herein by reference).
3.3 Certificate of Designation of Series One Junior Participating
Preferred Stock (filed as Exhibit 3.3 to Annual Report of Baker
Hughes Incorporated on Form 10-K for the year ended September 30,
1993 and incorporated herein by reference).
3.4 Amended Certificate of Designation of Series One Junior
Participating Preferred Stock (filed as Exhibit 3.4 to Annual
Report of Baker Hughes Incorporated on Form 10-K for the year
ended September 30, 1992 and incorporated herein by reference).
3.5 Certificate of Designation of Series J Preferred Stock of Baker
Hughes Incorporated.
17
<PAGE>
3.6 Certificate of Designation of Series K Preferred Stock of Baker
Hughes Incorporated.
3.7 Certificate of Designation of Series L Preferred Stock of Baker
Hughes Incorporated (filed as Exhibit 3.8 to Annual Report of
Baker Hughes Incorporated on Form 10-K for the year ended
September 30, 1990 and incorporated herein by reference).
4.1 Rights of Holders of the Company's Long-Term Debt. The Company
has no long-term debt instrument with regard to which the
securities authorized thereunder equal or exceed 10% of the total
assets of the Company and its subsidiaries on a consolidated
basis. The Company agrees to furnish a copy of its long-term
debt instruments to the Commission upon request.
4.2 Stockholder Rights Agreement dated as of March 23, 1988, between
Baker Hughes Incorporated and Morgan Shareholder Services Trust
Company, as Rights Agent (filed as Exhibit 4.2 to Annual Report
of Baker Hughes Incorporated on Form 10-K for the year September
30, 1993 and incorporated herein by reference).
4.3 Restated Certificate of Incorporation (filed as Exhibit 3.1 to
Annual Report of Baker Hughes Incorporated on Form 10-K for the
year ended September 30, 1993 and incorporated herein by
reference).
4.4 By-Laws (filed as Exhibit 3.2 to Annual Report of Baker Hughes
Incorporated on Form 10-K for the year ended September 30, 1992
and incorporated herein by reference).
4.5 Certificate of Designation of Series One Junior Participating
Preferred Stock (filed as Exhibit 3.3 to Annual Report of Baker
Hughes Incorporated on Form 10-K for the year ended September 30,
1993 and incorporated herein by reference).
4.6 Amended Certificate of Designation of Series One Junior
Participating Preferred Stock (filed as Exhibit 3.4 to Annual
Report of Baker Hughes Incorporated on Form 10-K for the year
ended September 30, 1992 and incorporated herein by reference).
4.7 Certificate of Designation of Series J Preferred Stock of Baker
Hughes Incorporated (incorporated herein by reference as Exhibit
3.5 to Annual Report of Baker Hughes Incorporated on Form 10-K
for the year ended September 30, 1995).
4.8 Certificate of Designation of Series K Preferred Stock of Baker
Hughes Incorporated (incorporated herein by reference as Exhibit
3.6 to Annual Report of Baker Hughes Incorporated on Form 10-K
for the year ended September 30, 1995).
18
<PAGE>
4.9 Certificate of Designation of Series L Preferred Stock of Baker
Hughes Incorporated (filed as Exhibit 3.8 to Annual Report of
Baker Hughes Incorporated on Form 10-K for the year ended
September 30, 1990 and incorporated herein by reference).
10.1 Employment Agreement between Baker Hughes Incorporated and James
D. Woods dated December 7, 1994 (filed as Exhibit 10.1 to Annual
Report of Baker Hughes Incorporated on Form 10-K for the year
ended September 30, 1994 and incorporated herein by reference).
10.2 Executive Severance Agreement between Baker Hughes Incorporated
and Eric L. Mattson dated as of May 22, 1991 (filed as Exhibit
10.2 to Annual Report of Baker Hughes Incorporated on Form 10-K
for the year ended September 30, 1993 and incorporated herein by
reference).
10.3 Employment Agreement between Baker Hughes Incorporated and Max L.
Lukens dated as of December 7, 1994 (filed as Exhibit 10.3 to
Annual Report of Baker Hughes Incorporated on Form 10-K for the
year ended September 30, 1994 and incorporated herein by
reference).
10.4 Executive Severance Agreement between Baker Hughes Incorporated
and G.S. Finley dated as of May 22, 1991 (filed as Exhibit 10.5
to Annual Report of Baker Hughes Incorporated on Form 10-K for
the year ended September 30, 1993 and incorporated herein by
reference).
10.5 Amended and Restated 1991 Employee Stock Bonus Plan of Baker
Hughes Incorporated (filed as Exhibit 10.5 to Annual Report of
Baker Hughes Incorporated on Form 10-K for the year ended
September 30, 1991 and incorporated herein by reference).
10.6 Restated 1987 Stock Option Plan of Baker Hughes Incorporated
(Amended as of October 24, 1990) (filed as Exhibit 10.7 to Annual
Report of Baker Hughes Incorporated on Form 10-K for the year
ended September 30, 1991 and incorporated herein by reference).
10.7 1987 Convertible Debenture Plan of Baker Hughes Incorporated
(Amended as of October 24, 1990) (filed as Exhibit 10.9 to Annual
Report of Baker Hughes Incorporated on Form 10-K for the year
ended September 30, 1991 and incorporated herein by reference).
10.8 Baker Hughes Incorporated Supplemental Retirement Plan (filed as
Exhibit 10.10 to Annual Report of Baker Hughes Incorporated on
Form 10-K for the year ended September 30, 1993 and incorporated
herein by reference).
19
<PAGE>
10.9 Executive Severance Policy (filed as Exhibit 10.11 to Annual
Report of Baker Hughes Incorporated on Form 10-K for the year
ended September 30, 1993 and incorporated herein by reference).
10.10 1993 Stock Option Plan (filed as Exhibit 10.12 to Annual Report
of Baker Hughes Incorporated on Form 10-K for the year ended
September 30, 1993 and incorporated herein by reference).
10.11 1993 Employee Stock Bonus Plan (filed as Exhibit 10.13 to
Annual Report of Baker Hughes Incorporated on Form 10-K for the
year ended September 30, 1993 and incorporated herein by
reference).
10.12 Director Compensation Deferral Plan (filed as Exhibit 10.15 to
Annual Report of Baker Hughes Incorporated on Form 10-K for the
year ended September 30, 1993 and incorporated herein by
reference).
10.13 1995 Employee Annual Incentive Compensation Plan (filed as
Exhibit 10.16 to Annual Report of Baker Hughes Incorporated on
Form 10-K for the year ended September 30, 1994 and incorporated
herein by reference).
10.14 1995 Stock Award Plan (filed as Exhibit 10.17 to Annual Report of
Baker Hughes Incorporated on Form 10-K for the year ended
September 30, 1994 and incorporated herein by reference).
10.15 Form of Credit Agreement, dated as of September 1, 1994, among
Baker Hughes Incorporated and eighteen banks (filed as Exhibit
10.18 to Annual Report of Baker Hughes Incorporated on Form 10-K
for the year ended September 30, 1994 and incorporated herein by
reference).
10.16 Warrant Agreement dated as of March 15, 1990 between Baker Hughes
Incorporated and First Chicago Trust Company of New York (filed
as Exhibit 10.15 to Annual Report of Baker Hughes Incorporated on
Form 10-K for the year ended September 30, 1990 and incorporated
herein by reference).
11.1 Statement of Computation of Earnings per Common Share.
13.1 Portions of 1995 Annual Report to Stockholders.
21.1 Subsidiaries of Registrant.
23.1 Consent of Deloitte & Touche LLP.
27.1 Financial Data Schedule (for Securities and Exchange Commission
purposes only).
20
<PAGE>
(B) REPORTS ON FORM 8-K:
Form 8-K filed June 21, 1995, regarding repurchase by Baker Hughes
Incorporated of 4,000,000 shares of its Convertible Preferred Stock, previously
issued to Sonat Inc. in connection with the acquisition of Teleco Oilfield
Services, Inc. by Baker Hughes Incorporated from Sonat, Inc. No Financial
Statements were filed.
21
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized on the
14th day of December, 1995.
BAKER HUGHES INCORPORATED
By /s/ JAMES D. WOODS
-------------------------
(James D. Woods, Chief Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ JAMES D. WOODS Chairman of the Board December 14, 1995
- ------------------------ and Chief Executive
(James D. Woods) Officer (principal
executive officer)
/s/ E. L. MATTSON Senior Vice President December 14, 1995
- ------------------ and Chief Financial
(E. L. Mattson) Officer (principal
financial officer)
/s/ JAMES E. BRAUN Controller (principal December 14, 1995
- ------------------- accounting officer)
(James E. Braun)
/s/ LESTER M. ALBERTHAL, JR. Director December 14, 1995
- -----------------------------
(Lester M. Alberthal, Jr.)
/s/ GORDON M. ANDERSON Director December 14, 1995
- -----------------------
(Gordon M. Anderson)
22
<PAGE>
/s/ VICTOR G. BEGHINI Director December 14, 1995
- ----------------------
(Victor G. Beghini)
/s/ JACK S. BLANTON Director December 14, 1995
- --------------------
(Jack S. Blanton)
/s/ HARRY M. CONGER Director December 14, 1995
- --------------------
(Harry M. Conger)
/s/ EUNICE M. FILER Director December 14, 1995
- --------------------
(Eunice M. Filter)
/s/ JOE B. FOSTER Director December 14, 1995
- ------------------
(Joe B. Foster)
/s/ RICHARD D. KINDER Director December 14, 1995
- ----------------------
(Richard D. Kinder)
/s/ JOHN F. MAHER Director December 14, 1995
- ------------------
(John F. Maher)
- ---------------------- Director December , 1995
(Dana G. Mead)
/s/ DONALD C. TRAUSCHT Director December 14, 1995
- -----------------------
(Donald C. Trauscht)
23
<PAGE>
EXHIBIT 3.5
CERTIFICATE OF DESIGNATION
OF SERIES J PREFERRED STOCK
OF
BAKER HUGHES INCORPORATED
Baker Hughes Incorporated, a corporation organized and existing under the
General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
That, pursuant to authority conferred upon the Board of Directors by the
Restated Certificate of Incorporation of said Corporation, and pursuant to the
provisions of Section 151 of Title 8 of the Delaware Code of 1953, as amended,
said Board of Directors, at a meeting thereof duly and regularly held on
December 7, 1988, adopted recitals and resolutions providing for the powers,
designations, preferences and relative, participating, optional or other rights,
and the qualifications, limitations or restrictions thereof, of certain series
of preferred stock, which recitals and resolutions are as follows:
WHEREAS, the Restated Certificate of Incorporation of this Corporation
provides for a class of shares of preferred stock, par value $1.00 per
share, issuable from time to time in one or more series; and
WHEREAS, the Board of Directors of this Corporation is authorized to
determine or alter the rights, preferences, privileges, and restrictions
granted to or imposed upon any wholly unissued series of preferred stock,
to fix the number of shares constituting any such series, and to determine
the designation thereof, or any of them; and
<PAGE>
WHEREAS, in connection with the combination (the "Combination") of Baker
International Corporation ("Baker") and Hughes Tool Company, pursuant to the
Agreement and Plan of Reorganization, dated October 22, 1986, this Corporation
assumed the obligations of Baker with respect to the convertible subordinated
debentures of Baker issued under Baker's 1982 Convertible Debenture Plan as
amended;
WHEREAS, prior to the consummation of the Combination, the outstanding
debentures were convertible into Series A through H Preferred Stock of Baker;
WHEREAS, pursuant to the Combination, the outstanding debentures are now
convertible into preferred stock of the same designated series of this
Corporation;
WHEREAS, the Board of Directors of this Corporation has previously
authorized a series of One Hundred Thirty-Six Thousand Three Hundred Twenty-Four
(136,324) of Preferred Stock designated as Series I Preferred Stock, no shares
of which have been issued and the Board of Directors of this Corporation
desires, pursuant to its authority as aforesaid, to determine and fix the
rights, preferences, privileges and restrictions relating to the tenth series of
preferred stock into which such debentures are convertible (such tenth series
hereinafter referred to as the "Series J Preferred Stock") and the number of
shares constituting and the designation of such series;
NOW THEREFORE, BE IT RESOLVED, that the Board of Directors hereby fixes and
determines there shall be a series of Preferred Stock designated Series J
Preferred Stock; that the number of shares of such series shall be One Hundred
Seventy-Five Thousand Six Hundred and Seven (175,607); and that the preferences
and relative, optional and other special rights of the Series J Preferred Stock
and the qualifications, limitations or restrictions of such preferences and/or
rights shall be as follows:
1. DIVIDENDS. The holders of record of Preferred Stock shall be entitled to
receive, out of funds legally available therefor, cash
2
<PAGE>
dividends at the rate of $0.80 per share per fiscal year. All dividends payable
hereunder shall be payable quarterly or otherwise as the Board of Directors may
from time to time determine when and as declared by the Board of Directors. The
right to such dividends on Preferred Stock shall not be cumulative and no right
shall accrue to the holders of such shares by reason of the fact that dividend
on such shares are not declared in any prior year. The holders of Preferred
Stock shall be entitled to no other cash dividends in excess of the dividends at
said rate.
2. REDEMPTION. Any series of the Preferred Stock may be redeemed, in whole
or in part, out of funds legally available therefor, at the option of the
Corporation by vote of its Board of Directors, at any time or from time to time,
at the redemption price equal to $13.375 per share, plus an amount equal to all
dividends declared but unpaid at the date fixed for redemption (such price, plus
such dividend, is hereafter referred to as the "redemption price").
In case of the redemption of only a part of any series of the outstanding
Preferred Stock, this Corporation shall designate by lot the shares to be
redeemed or shall effect such redemption pro rata.
Not more than 60 days, but at least 20 days prior to the date fixed for
redemption, a written notice shall be mailed to each holder of record of Series
J Preferred Stock to be redeemed, by certified mail with postage prepaid,
addressed to each holder at his address as shown on the records of the
Corporation (a) notifying each holder of the election of the Corporation to
redeem such shares, (b) stating the date fixed for redemption thereof, (c)
setting forth the redemption price and (d) stating the place at which each
holder may obtain payment of the redemption price upon surrender of his share
certificates.
On or after the date fixed in such notice of redemption, each holder of
Series J Preferred Stock of a series to be redeemed shall present and surrender
his certificate or certificates representing such stock to this
3
<PAGE>
Corporation at a place designated in such notice and thereupon the redemption
price of such shares shall be paid to or on the order of the person whose name
appears on such certificate or certificates as the owner thereof and each
surrendered certificate shall be cancelled. In case less than all of the shares
represented by any such certificate are redeemed, a new certificate shall be
issued representing the unredeemed shares. From and after the date fixed in any
such notice as the date of redemption, unless default is made in the payment of
the redemption price, all rights of the holders thereof as stockholders of the
Corporation, except the right to receive the redemption price, shall cease, and
such shares shall not thereafter be transferred on the books of the Corporation,
and such stock shall not be deemed to be outstanding for any purpose whatsoever.
The Corporation may at its option at any time after such notice of
redemption has been given, deposit a sum sufficient to redeem, on the date fixed
for redemption shares of Series J Preferred Stock called for redemption, and not
yet redeemed with a bank or trust company in the United States, as a trust fund
for the benefit of the respective holders of the shares designated for
redemption, and such deposit, from and after the date fixed for redemption,
shall constitute full payment of the redemption price of the shares to the
holders thereof and shall be conclusive evidence that no default shall be made
in the payment of the redemption price as to such shares.
3. LIQUIDATION PREFERENCE. In the event of any voluntary or involuntary
dissolution, liquidation or winding up the Corporation, the holders of shares of
Series J Preferred Stock outstanding shall be entitled to receive, or to have
deposited in trust for them as provided in Section 2 hereof, out of assets of
the Corporation, before any distribution of any asset shall be made to the
holders of Common Stock or other shares junior to the Series J Preferred Stock
as to distribution of assets, an amount which shall be equal to $13.375 per
share plus an amount equal to declared but unpaid dividends thereon. After the
holders of Series J Preferred Stock shall have
4
<PAGE>
received the foregoing amounts per share plus an equal to declared but unpaid
dividends as aforesaid, they shall not participate in any remaining assets and
surplus funds of the Corporation.
If the amounts which each of the holders of the shares of the Series J
Preferred Stock, and any other series of preferred stock of the Corporation
ranking equally as to Distribution of assets with the shares of Series J
Preferred Stock, are entitled to receive in such events are not paid, or
deposited in trust, in full, the shares of Series J Preferred Stock and of such
other series shall share ratably in any distribution of assets in accordance
with the amounts which would be payable on such distribution if all amounts to
which the holders of the Series J Preferred Stock and of each such series are
entitled were paid, or deposited in trust, in full.
Neither the merger of the Corporation with or into any other corporation
nor the sale of all or substantially all of its assets shall be deemed a
dissolution, liquidation or winding up of the corporation within the meaning of
this Section.
4. CONVERSION RIGHTS. The holders of shares of Series J Preferred Stock
shall have conversion rights as follows:
(a) The shares of Series J Preferred Stock shall be convertible, at the
option of the respective holders thereof, at the office of the Corporation into
fully paid and nonassessable shares (calculated to the nearest 1/100th of a
share, fractions less than 1/100th of a share being disregarded) of Common Stock
of the Corporation, at the conversion price in effect at the time of conversion
determined as hereinafter provided, each share of the Series J Preferred Stock
being taken at $13.375 for the purposes of such conversion. The price at which
shares of Common Stock shall be deliverable upon conversion of shares of Series
J Preferred Stock of any series (herein called the "conversion price"), shall be
initially $13.375 per share of Series J Preferred Stock, i.e., upon conversion,
each share of Series J Preferred Stock will be exchanged for one
5
<PAGE>
share of Common Stock. Such initial conversion price shall be subject to
adjustment from time to time in certain instances, as hereinafter provided. The
Corporation shall make payment or adjustment on account of any dividends
declared but not paid on shares of Series J Preferred Stock surrendered for
conversion. In case of the call for redemption of any shares of Series J
Preferred Stock, such right of conversion shall terminate as to the shares
designated for redemption, at the close of business on the day preceding the day
fixed for redemption, unless default is made in the payment of the redemption
price.
(b) Before any holder of Series J Preferred Stock shall be entitled to
convert the same into shares of Common Stock, he shall surrender the certificate
or certificates therefor, duly endorsed, at the office of the Corporation and
shall give written notice to the Corporation that he elects to convert the same
and shall state in writing therein the name or names in which he wishes the
certificate or certificates for shares of Common Stock to be issued. If the
holder fails to specify the name in which certificates are to be issued, they
shall be issued in his name. The Corporation, as soon as practicable thereafter,
shall issue and deliver at such office to such holder of Series J Preferred
Stock or to his nominee or nominees, certificates for the number of full shares
of Common Stock to which he shall be entitled as aforesaid, together with cash
in lieu of any fraction of a share as hereinafter provided. Such conversion
shall be deemed to have been made as of the date of such surrender of the shares
of Series J Preferred Stock to be converted (or, in the event of a proposed
redemption and if the Corporation so allows, on the date of receipt of
satisfactory notice of conversion if certificates of Series J Preferred Stock so
converted are thereafter delivered to the Corporation within 30 days), and the
person or person entitled to receive the shares of Common Stock issuable upon
such conversion shall be treated for all purposes as the record holder or
holders of such shares of Common Stock on said date.
6
<PAGE>
(c) The conversion price of Series J Preferred Stock shall be subject to
adjustment, at any time or from time to time hereafter, if the Corporation shall
issue or sell any shares of Common Stock, under the circumstances set forth in
subsections 4(d)(l) or 4(f) hereof, for a consideration per share less than the
conversion price of Series J Preferred Stock in effect immediately prior to
such issue or sale ("Current Conversion Price"). In any such event, forthwith
upon such issue or sale, the Current Conversion Price for Preferred Stock in
effect immediately prior to such issue or sale shall be reduced to a price
(calculated to the nearest cent) determined by dividing (i) an amount equal to
the sum of (A) the number of shares of Common Stock outstanding immediately
prior to such issue or sale multiplied by the then existing Current Conversion
Price for Preferred Stock, and (B) the consideration, if any, received by the
Corporation upon such issue or sale, by (ii) the total number of shares of
Common Stock outstanding immediately after such issue or sale. No adjustment of
the Current Conversion Price for Preferred Stock, however, shall be made in an
amount less than $1.00 per share, but any lesser adjustment shall be carried
forward and shall be made at the time of and together with the next subsequent
adjustment which, together with any adjustments so carried forward, shall amount
to $1.00 per share or more.
(d) For the purposes of such adjustments, the following provisions shall be
applicable:
(1) In case at any time the Corporation shall declare a dividend or make
any other distribution upon any stock of the Corporation payable in Common
Stock, any Common Stock issuable in payment of such dividend or distribution
shall be deemed to have been issued or sold without consideration.
(2) In case at any time the Corporation shall take a record of the holders
of Common Stock for the purpose of entitling them to receive a dividend or other
distribution payable in Common Stock, then such record date shall be deemed to
be the date of the issue or sale of the shares of Common Stock deemed to
7
<PAGE>
have been issued or sold upon the declaration of such dividend or the making of
such other distribution or the date of the granting of such right of
subscription or purchase, as the case may be.
(3) The number of shares of Common Stock outstanding at any given time
shall include all shares of Common Stock issuable in respect of script
certificates issued in lieu of fractions of common shares of Common Stock.
(e) In case the Corporation shall, by dividend or otherwise, distribute to
all holders of its Common Stock evidences of its indebtedness or assets
(including securities, but excluding any rights or warrants to purchase Common
Stock and any dividend of distribution paid in cash out of the retained
earnings of the Corporation), the Current Conversion Price shall be adjusted so
that it shall equal the price determined by multiplying the Current Conversion
Price in effect immediately prior to the close of business on the date fixed for
the determination of stockholders entitled to receive such distribution by a
fraction of which the numerator shall be the current market price per share (as
determined by the Board of Directors of the Corporation) of the Common Stock on
the date fixed for such determination less the then fair market value (as
determined by the Board of Directors) of the portion of the assets or evidences
of indebtedness so distributed applicable to one share of Common Stock and the
denominator shall be such current market price per share of the Common Stock,
such adjustment to become effective immediately prior to the opening of business
on the day following the date fixed for the determination of stockholders
entitled to receive such distribution.
(f) In case at any time the Corporation shall subdivide its outstanding
shares of common stock into a greater number of shares, the Current Conversion
Price in effect immediately prior to such subdivision shall be proportionately
reduced and conversely, in
8
<PAGE>
case the outstanding shares of Common Stock of the Corporation, shall be
combined into a smaller number of shares, the Current Conversion Price in effect
immediately prior to such combination shall be proportionately increased.
(g) Whenever the Current Conversion Price is adjusted, as herein provided,
the Corporation shall promptly mail to each holder of Series J Preferred Stock
notice of such adjustment, which notice shall set forth a brief statement of the
facts requiring such adjustment.
(h) In case of any capital reorganization or any reclassification of the
capital stock of the Corporation or in case of the consolidation or merger of
the Corporation with or into another corporation or the conveyance of all or
substantially all of the assets of the Corporation to another corporation, each
share of Series J Preferred Stock shall thereafter be convertible into the
number of shares of stock or other securities or property to which a holder of
the number of shares of Common Stock of the Corporation deliverable upon
conversion of such shares of Series J Preferred Stock would have been entitled
upon such reorganization, reclassification, consolidation, merger or conveyance;
and, in any such case, appropriate adjustment (as determined in good faith by
the Board of Directors) shall be made in the application of the provisions
herein set forth with respect to the rights and interests thereafter of the
holders of the shares of Series J Preferred Stock, to the end that the
provisions set forth herein shall thereafter be applicable, as nearly as
reasonably may be, in relation to any shares of stock or other property
thereafter deliverable upon the conversion of the shares of Series J Preferred
Stock.
(i) In case:
(1) the Corporation shall take a record of the holders of shares of
its Common Stock for the purpose of entitling them to receive a dividend,
or any other distribution, other than ordinary cash dividends; or
9
<PAGE>
(2) the Corporation shall take a record of the holders of shares of its
Common Stock for the purpose of entitling them to subscribe for or purchase any
shares of stock of any class or to receive any other rights; or
(3) of any capital reorganization of the Corporation, reclassification of
the capital stock of the Corporation (other than a subdivision or combination of
its outstanding shares of Common Stock), consolidation or merger of the
Corporation with or into another corporation, or conveyance of all or
substantially all of the assets of the Corporation into another corporation; or
(4) of the voluntary or involuntary dissolution, liquidation or winding up
of the Corporation, then the Corporation shall cause to be mailed to the holders
of record of Series J Preferred Stock or any security convertible into Series J
Preferred Stock at their last addresses as they shall appear on the records of
the Corporation, at least 20 days (or 10 days in any case specified in clauses
(1) and (2) above) prior to the applicable record date hereinafter specified, a
notice stating (1) the date on which a record is to be taken for the purpose of
such dividend or distribution of rights, or, if a record is not to be taken, the
date as of which the holders of Common Stock of record would be entitled to such
dividend or distribution of rights, and (2) the date on which such capital
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding up is expected to become effective, and the date as of
which it is expected that the holders of Common Stock of record shall be
entitled to exchange their shares of Common Stock for securities or other assets
deliverable upon such reorganization, reclassification, consolidation, merger,
sale dissolution, liquidation or winding up.
10
<PAGE>
(j) The Corporation will at all times reserve and keep available out of its
authorized Common Stock and/or shares of its Common Stock then owned or held by
or for the account of the Corporation, solely for the purpose of delivery upon
conversion of Series J Preferred Stock such number of shares of Common Stock as
shall then be deliverable upon the conversion of all outstanding or potentially
issuable Series J Preferred Stock. All shares of Common Stock which shall be so
deliverable shall be duly and validly issued and fully paid and nonassessable.
(k) If any shares of Common Stock required to be reserved for purposes of
conversion of Series J Preferred Stock require registration with or approval of
any governmental authority under any federal or state law, or listing upon any
national securities exchange, before such shares may be issued upon conversion,
the Corporation will in good faith and as expeditiously as possible endeavor to
cause such shares to be duly registered, approved or listed, as the case may be.
(l) The Corporation shall pay any and all issue and other taxes that may be
payable in respect of any issue or delivery of shares of Common Stock on
conversion of shares of Series J Preferred Stock pursuant hereto. The
Corporation shall not, however, be required to pay any tax which may be payable
in respect of any transfer involved in the issue and delivery of shares of
Common Stock in a name other than that in which the shares of Series J Preferred
Stock so converted were registered, and no such issue or delivery shall be made
unless and until the person requesting such issue has paid to the Corporation
the amount of any such tax, or has established, to the satisfaction of the
Corporation, that such tax has been paid.
(m) No fractional shares of Common Stock shall be issued upon the
conversion of shares of Series J Preferred Stock. If any fractional interest in
a share of Common Stock would, except for the provisions of this subsection
4(m), be deliverable upon the conversion of any shares of Series J Preferred
11
<PAGE>
Stock, the Corporation shall, in lieu of delivering the fractional share
therefor, adjust such fractional interest by payment to the holder of such
surrendered shares of Series J Preferred Stock of an amount in cash equal
(computed to the nearest cent) to the current market value of such
fractional interest, as determined in good faith by the Board of Directors
of the Corporation. This subsection shall similarly apply to successive
issues, sales, split-ups, combinations, reclassifications or
reorganizations.
5. VOTING RIGHTS. Except as provided by law or as provided above, the
holders of Series J Preferred Stock shall not be entitled to notice of
stockholders' meetings or to vote upon the election of directors or upon
any other matter.
RESOLVED FURTHER, that the Chairman of the Board, the President or any
Vice President, and the Secretary, the Chief Financial Officer, the
Treasurer, or any Assistant Secretary or Assistant Treasurer of this
Corporation are each authorized to execute, verify and file a certificate of
determination of preferences in accordance with Delaware law;
IN WITNESS WHEREOF, said Baker Hughes Incorporated has caused this
certificate to be signed by Max L. Lukens, its Senior Vice President, and
attested by Sandra E. Alford, its Assistant Secretary, this 7th day of
December, 1988.
BAKER HUGHES INCORPORATED
By: /s/ Max L. Lukens
---------------------------------
Max L. Lukens
Senior Vice President
ATTEST:
By: /s/ Sandra E. Alford
--------------------------------
Sandra E. Alford
Assistant Secretary
12
<PAGE>
EXHIBIT 3.6
CERTIFICATE OF DESIGNATION
OF SERIES K PREFERRED STOCK
OF
BAKER HUGHES INCORPORATED
Baker Hughes Incorporated, a corporation organized and existing under the
General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
That, pursuant to authority conferred upon the Board of Directors by the
Restated Certificate of Incorporation of said Corporation, and pursuant to the
provisions of Section 151 of Title 8 of the Delaware Code of 1953, as amended,
said Board of Directors, at a meeting thereof duly and regularly held on
December 6, 1989, adopted recitals and resolutions providing for the powers,
designations, preferences and relative, participating, optional or other rights,
and the qualifications, limitations or restrictions thereof, of certain series
of preferred stock, which recitals and resolutions are as follows:
WHEREAS, the Restated Certificate of Incorporation of this Corporation
provides for a class of shares of preferred stock, par value $1.00 per
share, issuable from time to time in one or more series; and
WHEREAS, the Board of Directors of this Corporation is authorized to
determine or alter the rights, preferences, privileges, and restrictions
granted to or imposed upon any wholly unissued series of preferred stock,
to fix the number of shares constituting any such series, and to determine
the designation thereof, or any of them; and
<PAGE>
WHEREAS, in connection with the combination (the "Combination") of Baker
International Corporation ("Baker") and Hughes Tool Company, pursuant to the
Agreement and Plan of Reorganization, dated October 22, 1986, this Corporation
assumed the obligations of Baker with respect to the convertible subordinated
debentures of Baker issued under Baker's 1982 Convertible Debenture Plan as
amended:
WHEREAS, prior to the consummation of the Combination, the outstanding
debentures were convertible into Series A through H Preferred Stock of Baker;
WHEREAS, pursuant to the Combination, the outstanding debentures are now
convertible into preferred stock of the same designated series of this
Corporation;
WHEREAS, the Board of Directors of this Corporation has previously
authorized a series of One Hundred Thirty-six Thousand, Three Hundred
Twenty-four (136,324) shares of Preferred Stock designated as Series I Preferred
Stock, no shares of which have been issued; and
WHEREAS, the Board of Directors of this Corporation has previously
authorized a series of One Hundred Seventy-five Thousand, Six Hundred Seven
(175,607) shares of Preferred Stock designated as Series J Preferred Stock, of
which Twenty-one Thousand, Four Hundred Seventy-two (21,472) shares have been
issued; and
WHEREAS, the Board of Directors of this Corporation desires, pursuant to
its authority as aforesaid, to determine and fix the rights, preferences,
privileges and restrictions relating to the eleventh series of preferred stock
into which such debentures are convertible (such eleventh series hereinafter
referred to as the "Series K Preferred Stock") and the number of shares
constituting and the designation of such series;
NOW THEREFORE, BE IT RESOLVED, that the Board of Directors hereby fixes and
determines there shall be a series of Preferred Stock designated Series K
Preferred Stock; that the number of shares of such series shall be
2
<PAGE>
One Hundred Seventy-seven Thousand, Eight Hundred Sixty-six (177,866); and that
the preferences and relative, optional and other special rights of the
Series K Preferred Stock and the qualifications, limitations or restrictions of
such preferences and/or rights shall be as follows:
1. DIVIDENDS. The holders of record of Preferred Stock shall be entitled to
receive, out of funds legally available therefor, cash dividends at the rate of
$1.32 per share per fiscal year. All dividends payable hereunder shall be
payable quarterly or otherwise as the Board of Directors may from time to time
determine when and as declared by the Board of Directors. The right to such
dividends on Preferred Stock shall not be cumulative and no right shall accrue
to the holders of such shares by reason of the fact that dividends on such
shares are not declared in any prior year. The holders of Preferred Stock shall
be entitled to no other cash dividends in excess of the dividends at said rate.
2. REDEMPTION. Any series of the Preferred Stock may be redeemed, in whole
or in part, out of funds legally available therefor, at the option of the
Corporation by vote of its Board of Directors, at any time or from time to time,
at the redemption price equal to $21.95 per share, plus an amount equal to all
dividends declared but unpaid at the date fixed for redemption (such price, plus
such dividend, is hereafter referred to as the "redemption price").
In case of the redemption of only a part of any series of the outstanding
Preferred Stock, this Corporation shall designate by lot the shares to be
redeemed or shall effect such redemption pro rata.
Not more than 60 days, but at least 20 days prior to the date fixed for
redemption, a written notice shall be mailed to each holder of record of
Series K Preferred Stock to be redeemed, by certified mail with postage prepaid,
addressed to each holder at his address as shown on the records of the
Corporation (a) notifying each holder of the election of the Corporation to
redeem such shares, (b) stating the date fixed for redemption thereof, (c)
setting forth the redemption price and (d) stating the place at which each
holder may obtain payment of the redemption price upon surrender of his share
certificates.
On or after the date fixed in such notice of redemption, each holder of
Series K Preferred Stock to be redeemed shall present and surrender his
certificate or certificates representing such stock to this Corporation at a
place designated in such notice and thereupon the redemption price of such
shares shall be paid to or on
3
<PAGE>
the order of the person whose name appears on such certificate or certificates
as the owner thereof and each surrendered certificate shall be cancelled. In
case less than all of the shares represented by any such certificate are
redeemed, a new certificate shall be issued representing the unredeemed shares.
From and after the date fixed in any such notice as the date of redemption,
unless default is made in the payment of the redemption price, all rights of the
holders thereof as stockholders of the Corporation, except the right to receive
the redemption price, shall cease, and such shares shall not thereafter be
transferred on the books of the Corporation, and such stock shall not be deemed
to be outstanding for any purpose whatsoever.
The Corporation may at its option at any time after such notice of
redemption has been given, deposit a sum sufficient to redeem, on the date fixed
for redemption shares of Series K Preferred Stock called for redemption, and not
yet redeemed with a bank or trust company in the United States, as a trust fund
for the benefit of the respective holders of the shares designated for
redemption, and such deposit, from and after the date fixed for redemption,
shall constitute full payment of the redemption price of the shares to the
holders thereof and shall be conclusive evidence that no default shall be made
in the payment of the redemption price as to such shares.
3. LIQUIDATION PREFERENCE. In the event of any voluntary or involuntary
dissolution, liquidation or winding up of the Corporation, the holders of shares
of Series K Preferred Stock outstanding shall be entitled to receive, or to have
deposited in trust for them as provided in Section 2 hereof, out of assets of
the Corporation, before any distribution of any asset shall be made to the
holders of Common Stock or other shares junior to the Series K Preferred Stock
as to distribution of assets, an amount which shall be equal to $21.95 per share
plus an amount equal to declared but unpaid dividends thereon. After the holders
of Series K Preferred Stock shall have received the foregoing amounts per share
plus an amount equal to declared but unpaid dividends as aforesaid, they shall
not participate in any remaining assets and surplus funds of the Corporation.
If the amounts which each of the holders of the shares of the
Series K Preferred Stock and any other series of preferred stock of the
Corporation ranking equally as to distribution of assets with the shares of
Series K Preferred Stock, are entitled to receive in such event are not paid, or
deposited in trust, in full, the shares of Series K Preferred Stock and of such
other series shall share ratably in any distribution of assets in accordance
with the amounts which would be payable on
4
<PAGE>
such distribution if all amounts to which the holders of the Series K Preferred
Stock and of each such series are entitled were paid, or deposited in trust, in
full.
Neither the merger of the Corporation with or into any other corporation
nor the sale of all or substantially all of its assets shall be deemed a
dissolution, liquidation or winding up of the Corporation within the meaning of
this Section.
4. CONVERSION RIGHTS. The holders of shares of Series K Preferred Stock
shall have conversion rights as follows:
(a) The shares of Series K Preferred Stock shall be convertible, at the
option of the respective holders thereof, at the office of the Corporation into
fully paid and nonassessable shares (calculated to the nearest 1/100th of a
share, fractions less than 1/100th of a share being disregarded) of Common Stock
of the Corporation, at the conversion price in effect at the time of conversion
determined as hereinafter provided, each share of the Series K Preferred Stock
being taken at $21.95 for the purposes of such conversion. The price at which
shares of Common Stock shall be deliverable upon conversion of shares of Series
K Preferred Stock of any series (herein called the "conversion price") shall be
initially $21.95 per share of Series K Preferred Stock, i.e., upon conversion,
each share of Series K Preferred Stock will be exchanged for one share of Common
Stock. Such initial conversion price shall be subject to adjustment from time to
time in certain instances, as hereinafter provided. The Corporation shall make
payment or adjustment on account of any dividends declared but not paid on
shares of Series K Preferred Stock surrendered for conversion. In case of the
call for redemption of any shares of Series K Preferred Stock, such right of
conversion shall terminate as to the shares designated for redemption, at the
close of business on the day preceding the day fixed for redemption, unless
default is made in the payment of the redemption price.
(b) Before any holder of Series K Preferred Stock shall be entitled to
convert the same into shares of Common Stock, he shall surrender the certificate
or certificates therefor, duly endorsed, at the office of the Corporation and
shall give written notice to the Corporation that he elects to convert the same
and shall state in writing therein the name or names in which he wishes the
certificate or certificates for shares of Common Stock to be issued. If the
holder fails to specify the name in which certificates are to be issued, they
shall be issued in his name. The Corporation, as soon as practicable thereafter,
shall issue and deliver at such office to such holder of Series K Preferred
Stock
5
<PAGE>
or to his nominee or nominees, certificates for the number of full shares of
Common Stock to which he shall be entitled as aforesaid, together with cash in
lieu of any fraction of a share as hereinafter provided. Such conversion shall
be deemed to have been made as of the date of such surrender of the shares of
Series K Preferred Stock to be converted (or, in the event of a proposed
redemption and if the Corporation so allows, on the date of receipt of
satisfactory notice of conversion if certificates of Series K Preferred Stock so
converted are thereafter delivered to the Corporation within 30 days), and the
person or persons entitled to receive the shares of Common Stock issuable upon
such conversion shall be treated for all purposes as the record holder or
holders of such shares of Common Stock on said date.
(c) The conversion price of Series K Preferred Stock shall be subject to
adjustment, at any time or from time to time hereafter, if the Corporation shall
issue or sell any shares of Common Stock, under the circumstances set forth in
subsections 4(d)(1) or 4(f) hereof, for a consideration per share less than the
conversion price of Series K Preferred Stock in effect immediately prior to such
issue or sale ("Current Conversion Price"). In any such event, forthwith upon
such issue or sale, the Current Conversion Price for Preferred Stock in effect
immediately prior to such issue or sale shall be reduced to a price (calculated
to the nearest cent) determined by dividing (i) an amount equal to the sum of
(A) the number of shares of Common Stock outstanding immediately prior to such
issue or sale multiplied by the then existing Current Conversion Price for
Preferred Stock, and (B) the consideration, if any, received by the Corporation
upon such issue or sale, by (ii) the total number of shares of Common Stock
outstanding immediately after such issue or sale. No adjustment of the Current
Conversion Price for Preferred Stock, however, shall be made in an amount less
than $1.00 per share, but any lesser adjustment shall be carried forward and
shall be made at the time of and together with the next subsequent adjustment
which, together with any adjustments so carried forward, shall amount to $1.00
per share or more.
(d) For the purposes of such adjustments, the following provisions shall be
applicable:
(1) In case at any time the Corporation shall declare a dividend or
make any other distribution upon any stock of the Corporation payable in Common
Stock, any Common Stock issuable in payment of such dividend or distribution
shall be deemed to have been issued or sold without consideration.
(2) In case at any time the Corporation shall take a record of the
holders of Common Stock for
6
<PAGE>
the purpose of entitling them to receive a dividend or other distribution
payable in Common Stock, then such record date shall be deemed to be the date of
the issue or sale of the shares of Common Stock deemed to have been issued or
sold upon the declaration of such dividend or the making of such other
distribution or the date of the granting of such right of subscription or
purchase, as the case may be.
(3) The number of shares of Common Stock outstanding at any given time
shall include all shares of Common Stock issuable in respect of script
certificates issued in lieu of fractions of common shares of Common Stock.
(e) In case the Corporation shall, by dividend or otherwise, distribute to
all holders of its Common Stock evidences of its indebtedness or assets
(including securities, but excluding any rights or warrants to purchase Common
Stock and any dividend of distribution paid in cash out of the retained earnings
of the Corporation, the Current Conversion Price shall be adjusted so that it
shall equal the price determined by multiplying the Current Conversion Price in
effect immediately prior to the close of business on the date fixed for the
determination of stockholders entitled to receive such distribution by a
fraction of which the numerator shall be the current market price per share (as
determined by the Board of Directors of the Corporation) of the Common Stock on
the date fixed for such determination less the then fair market value (as
determined by the Board of Directors) of the portion of the assets or evidences
of indebtedness so distributed applicable to one share of Common Stock and the
denominator shall be such current market price per share of the Common Stock,
such adjustment to become effective immediately prior to the opening of business
on the day following the date fixed for the determination of stockholders
entitled to receive such distribution.
(f) In case at any time the Corporation shall subdivide its outstanding
shares of Common Stock into a greater number of shares, the Current Conversion
Price in effect immediately prior to such subdivision shall be proportionately
reduced and conversely, in case the outstanding shares of Common Stock of the
Corporation, shall be combined into a smaller number of shares, the Current
Conversion Price in effect immediately prior to such combination shall be
proportionately increased.
(g) Whenever the Current Conversion Price is adjusted, as herein provided,
the Corporation shall promptly mail to each holder of Series K Preferred Stock
notice of such adjustment, which notice shall set forth a brief statement of the
facts requiring such adjustment.
7
<PAGE>
(h) In case of any capital reorganization or any reclassification of the
capital stock of the Corporation or in case of the consolidation or merger of
the Corporation with or into another corporation or the conveyance of all or
substantially all of the assets of the Corporation to another corporation, each
share of Series K Preferred Stock shall thereafter be convertible into the
number of shares of stock or other securities or property to which a holder of
the number of shares of Common Stock of the Corporation deliverable upon
conversion of such shares of Series K Preferred Stock would have been entitled
upon such reorganization, reclassification, consolidation, merger or conveyance;
and, in any such case, appropriate adjustment (as determined in good faith by
the Board of Directors) shall be made in the application of the provisions
herein set forth with respect to the rights and interests thereafter of the
holders of the shares of Series K Preferred Stock, to the end that the
provisions set forth herein shall thereafter be applicable, as nearly as
reasonably may be, in relation to any shares of stock or other property
thereafter deliverable upon the conversion of the shares of Series K Preferred
Stock.
(i) In case:
(1) the Corporation shall take a record of the holders of shares of
its Common Stock for the purpose of entitling them to receive a dividend, or any
other distribution, other than ordinary cash dividends; or
(2) the Corporation shall take a record of the holders of shares of
its Common Stock for the purpose of entitling them to subscribe for or purchase
any shares of stock of any class or to receive any other rights; or
(3) of any capital reorganization of the Corporation,
reclassification of the capital stock of the Corporation (other than a
subdivision or combination of its outstanding shares of Common Stock),
consolidation or merger of the Corporation with or into another corporation, or
conveyance of all or substantially all of the assets of the Corporation into
another corporation; or
(4) of the voluntary or involuntary dissolution, liquidation or
winding up of the Corporation, then the Corporation shall cause to be mailed to
the holders of record of Series K Preferred Stock or any security convertible
into Series K Preferred Stock at their last addresses as they shall appear on
the records of the Corporation, at least 20 days (or 10 days in any case
specified in clauses (1) and (2) above) prior
8
<PAGE>
to the applicable record date hereinafter specified, a notice stating (1) the
date on which a record is to be taken for the purpose of such dividend or
distribution of rights, or, if a record is not to be taken, the date as of which
the holders of Common Stock of record would be entitled to such dividend or
distribution of rights, and (2) the date on which such capital reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up is expected to become effective, and the date as of which it is
expected that the holders of Common Stock of record shall be entitled to
exchange their shares of Common Stock for securities or other assets deliverable
upon such reorganization, reclassification, consolidation, merger, sale,
dissolution, liquidation or winding up.
(j) The Corporation will at all times reserve and keep available out of its
authorized Common Stock and/or shares of its Common Stock then owned or held by
or for the account of the Corporation, solely for the purpose of delivery upon
conversion of Series K Preferred Stock such number of shares of Common Stock as
shall then be deliverable upon the conversion of all outstanding or potentially
issuable Series K Preferred Stock. All shares of Common Stock which shall be so
deliverable shall be duly and validly issued and fully paid and nonassessable.
(k) If any shares of Common Stock required to be reserved for purposes of
conversion of Series K Preferred Stock require registration with or approval of
any governmental authority under any federal or state law, or listing upon any
national securities exchange, before such shares may be issued upon conversion,
the Corporation will in good faith and as expeditiously as possible endeavor to
cause such shares to be duly registered, approved or listed, as the case may be.
(l) The Corporation shall pay any and all issue and other taxes that may be
payable in respect of any issue or delivery of shares of Common Stock on
conversion of shares of Series K Preferred Stock pursuant hereto. The
Corporation shall not, however, be required to pay any tax which may be payable
in respect of any transfer involved in the issue and delivery of shares of
Common Stock in a name other than that in which the shares of Series K Preferred
Stock so converted were registered, and no such issue or delivery shall be made
unless and until the person requesting such issue has paid to the Corporation
the amount of any such tax, or has established, to the satisfaction of the
Corporation, that such tax has been paid.
(m) No fractional shares of Common Stock shall be issued upon the
conversion of shares of Series K
9
<PAGE>
Preferred Stock. If any fractional interest in a share of Common Stock would,
except for the provisions of this subsection 4(m), be deliverable upon the
conversion of any shares of Series K Preferred Stock, the Corporation shall, in
lieu of delivering the fractional share therefor, adjust such fractional
interest by payment to the holder of such surrendered shares of Series K
Preferred Stock of an amount in cash equal (computed to the nearest cent) to the
current market value of such fractional interest, as determined in good faith by
the Board of Directors of the Corporation. This subsection shall similarly apply
to successive issues, sales, split-ups, combinations, reclassifications or
reorganizations.
5. VOTING RIGHTS. Except as provided by law or as provided above, the
holders of Series K Preferred Stock shall not be entitled to notice of
stockholders' meetings or to vote upon the election of directors or upon any
other matter.
RESOLVED FURTHER, that the Chairman of the Board, the President or any Vice
President, and the Secretary, the Chief Financial Officer, the Treasurer, or any
Assistant Secretary or Assistant Treasurer of this Corporation are each
authorized to execute, verify and file a certificate of determination of
preferences in accordance with Delaware law;
IN WITNESS WHEREOF, said Baker Hughes Incorporated has caused this
certificate to be signed by Thomas Cason, its Senior Vice President, and
attested by Linda J. Smith, its Assistant Secretary, this 6th day of December,
1989.
BAKER HUGHES INCORPORATED
By: /s/ Thomas Cason
-------------------------------------
Thomas Cason
Senior Vice President
ATTEST:
By: /s/ Linda J. Smith
-------------------------------
Linda J. Smith
Assistant Secretary
10
<PAGE>
Exhibit 11.1
COMPUTATION OF EARNINGS PER COMMON SHARE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Years Ended September 30,
------------------------------
<S> <C> <C> <C>
1995 1994 1993
-------- -------- --------
PRIMARY EARNINGS (NOTE A:)
Income before extraordinary loss
and cumulative effect of
accounting changes $119,983 $131,142 $ 58,856
Dividends on preferred stock (8,000) (12,000) (12,000)
Repurchase of preferred stock (17,600)
-------- -------- --------
Subtotal 94,383 119,142 46,856
Extraordinary loss (44,320)
Accounting changes (14,598) (44,165)
-------- -------- --------
Net income applicable to common stock $ 79,785 $ 30,657 $ 46,856
======== ======== ========
Shares:
- -------
Weighted average number of common
shares outstanding 141,215 140,532 139,321
Assuming conversion of dilutive
stock options 111 90 308
-------- -------- --------
Weighted average number of common
shares outstanding as adjusted 141,326 140,622 139,629
======== ======== ========
Primary earnings per common share:
- ----------------------------------
Income before extraordinary loss
and cumulative effect of
accounting changes $ .66 $ .85 $ .34
Extraordinary loss (.31)
Accounting changes (.10) (.32)
-------- -------- --------
Net income $ .56 $ .22 $ .34
======== ======== ========
FULLY DILUTED EARNINGS (NOTE A:)
Net income applicable to common stock $ 79,785 $ 30,657 $ 46,856
Interest expense, net of tax, related to
dilutive convertible debt 2,188
-------- -------- --------
Net income as adjusted $ 79,785 $ 30,657 $ 49,044
======== ======== ========
Shares:
- -------
Weighted average number of common
shares outstanding 141,215 140,532 139,321
Assuming conversion of
dilutive convertible debt 7,165
Assuming conversion of dilutive
stock options 128 90 309
-------- -------- --------
Weighted average number of common
shares outstanding as adjusted 141,343 140,622 146,795
======== ======== ========
Fully diluted earnings per common share:
- ----------------------------------------
Income before extraordinary loss
and cumulative effect of
accounting changes $ .66 $ .85 $ .33
Extraordinary loss (.31)
Accounting changes (.10) (.32)
-------- -------- --------
Net income $ .56 $ .22 $ .33
======== ======== ========
</TABLE>
Note A: This calculation is submitted in accordance with Regulation S-K item
601(b)(11) although not required by footnote 2 to paragraph 14 of APB
Opinion No. 15 because it results in dilution of less than 3%.
<PAGE>
Exhibit 13.1
1995 Financial Statements
<TABLE>
<CAPTION>
<S> <C>
Management Report of Financial Responsibilities 18
Management's Discussion and Analysis of
Financial Condition and Results of Operations 19
Independent Auditors' Report 26
Consolidated Statements of Operations 27
Consolidated Statements of Financial Position 28
Consolidated Statements of Stockholders' Equity 30
Consolidated Statements of Cash Flows 31
Notes to Consolidated Financial Statements 32
Quarterly Stock Prices 47
Five Year Summary of Financial Information 48
</TABLE>
<PAGE>
MANAGEMENT REPORT OF FINANCIAL RESPONSIBILITIES Baker Hughes Incorporated
The management of Baker Hughes Incorporated is responsible for the preparation
and integrity of the accompanying consolidated financial statements and all
other information contained in this Annual Report. The consolidated financial
statements have been prepared in conformity with generally accepted accounting
principles and include amounts that are based on management's informed judgments
and estimates.
In fulfilling its responsibilities for the integrity of financial information,
management maintains and relies on the CompanyOs system of internal control.
This system includes written policies, an organizational structure providing
division of responsibilities, the selection and training of qualified personnel
and a program of financial and operational reviews by a professional staff of
corporate auditors. The system is designed to provide reasonable assurance that
assets are safeguarded, transactions are executed in accordance with
management's authorization and accounting records are reliable as a basis for
the preparation of the consolidated financial statements. Management believes
that, as of September 30, 1995, the Company's internal control system provides
reasonable assurance that material errors or irregularities will be prevented or
detected within a timely period and is cost effective.
Management recognizes its responsibility for fostering a strong ethical climate
so that the Company's affairs are conducted according to the highest standards
of personal and corporate conduct. This responsibility is characterized and
reflected in the Company's Standards of Conduct which is distributed throughout
the Company. Management maintains a systematic program to assess compliance with
the policies included in the code.
The Board of Directors, through its Audit/Ethics Committee composed solely of
nonemployee directors, reviews the Company's financial reporting, accounting and
ethical practices. The Audit/Ethics Committee recommends to the Board of
Directors the selection of independent public accountants and reviews their fee
arrangements. It meets periodically with the independent public accountants,
management and the corporate auditors to review the work of each and the
propriety of the discharge of their responsibilities. The independent public
accountants and the corporate auditors have full and free access to the
Audit/Ethics Committee, without management present, to discuss auditing and
financial reporting matters.
/s/ James D. Woods /s/ Eric L. Mattson /s/ James E. Braun
James D. Woods Eric L. Mattson James E. Braun
Chairman and Chief Senior Vice President and Controller
Executive Officer Chief Financial Officer
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS Baker Hughes Incorporated
BUSINESS ENVIRONMENT
Baker Hughes has eight divisions that provide products and services to two
industry segments worldwide: Oilfield and Process Equipment. Oilfield
Operations generate approximately 87% of the Company's consolidated revenues.
Oilfield Operations consist of five divisions that provide products, services
and solutions used in the drilling, completion, production and maintenance of
oil and gas wells. The business environment for Oilfield Operations and its
corresponding operating results are significantly affected by worldwide
expenditures of the petroleum industry. Important factors establishing the
levels of these expenditures include, but are not limited to, world economic
conditions, crude oil and natural gas supply and demand balances, the
legislative environment in the United States and other major countries, war,
insurrection, weather, OPEC policy and other developments in the Middle East and
other major petroleum producing regions.
Process Equipment Operations consist of three divisions that serve a broad range
of process industries. They are recognized throughout the world as leaders in
filtration, sedimentation, centrifugation and flotation processes for the
separation of solids from liquids, and liquids from liquids. The business
environment for Process Equipment Operations, which also includes Tracor Europa,
a computer peripherals division, is significantly affected by worldwide economic
conditions in the specific markets that they serve.
OPERATING ENVIRONMENT
FOR OILFIELD OPERATIONS
Historically, crude oil and natural gas prices and the number of rotary rigs
operating have been prevalent factors in determining the level of worldwide
exploration and production expenditures. However, the operating environment for
the oilfield service industry has been changing over the past several years.
While prices and rig count are still relevant as an indicator of expenditure
activity, a number of new trends are beginning to emerge that could alter the
oilfield service market place. One key trend is the concept of integrated
solutions, which is to involve the oilfield service company in the planning,
engineering and integrating of several products and services. Another trend is
the application of new technologies aimed at reducing the finding costs for oil
and gas.
Crude oil and natural gas prices and the Baker Hughes rotary rig count are
summarized in the tables below as annual averages followed by the Company's
outlook. While reading the Company's outlook set forth below, caution is advised
that the factors described above in "-Business Environment" could negatively
impact the Company's expectations for oil and gas prices and drilling activity.
Oil and Gas Prices
<TABLE>
<CAPTION>
Fiscal Year 1995 1994 1993
- ----------------------------------------------------
<S> <C> <C> <C>
WTI ($/Bbl) 18.29 16.87 19.49
U.S. Spot Natural Gas ($/mcf) 1.42 1.88 2.04
</TABLE>
Barring any significant change in OPEC policy, the Company expects crude oil to
trade between $17 and $19/Bbl in 1996 while remaining susceptible to short-term
price fluctuations as the growth in worldwide demand is met by increased
production by non-OPEC producing countries. U.S. natural gas prices are expected
to strengthen in 1996 with demand for natural gas expected to grow 2% to 3% per
year. The Company believes that higher natural gas prices and a tightening
market would stimulate exploration and development drilling of natural gas.
Rotary Rig Count
<TABLE>
<CAPTION>
Fiscal Year 1995 1994 1993
- -----------------------------------------------------------
<S> <C> <C> <C>
U.S. - Land 638 684 686
U.S. - Offshore 100 101 72
Canada 247 245 160
----------------
North America 985 1030 918
----------------
Latin America 266 223 205
North Sea 42 42 48
Other Europe 66 67 68
Africa 65 66 69
Middle East 123 135 158
Asia Pacific 186 214 233
----------------
International 748 747 781
----------------
Worldwide 1733 1777 1699
----------------
U.S. Workover 1298 1336 1379
</TABLE>
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS Baker Hughes Incorporated
North America
With the current softness in oil and gas prices, the Company anticipates a
modest decline in North American drilling activity. In the U.S., the Company is
expecting a decrease in gas-directed drilling to be partially offset by a modest
increase in oil-directed drilling resulting in a slight increase in offshore
activity and relatively flat land activity. Canadian activity is expected to
fall short of 1995 levels.
International
The Company is cautiously optimistic that most areas internationally will post
an increasing rig count in 1996. The Company is forecasting increases in Latin
America, the North Sea and West Africa while activity in the Middle East and
Asia Pacific is forecasted to be flat.
<TABLE>
<CAPTION>
RESULTS OF OPERATIONS
- ---------------------------------------------------------------------
Revenues
(In millions) 1995 1994 1993
- ---------------------------------------------------------------------
<S> <C> <C> <C>
Consolidated Revenues:
Sales $1,805.1 $1,727.7 $1,945.8
Services and Rentals 832.4 777.0 755.9
----------------------------
Total 2,637.5 2,504.7 2,701.7
----------------------------
Less Pumpsystems and EM&C Operations:
Sales 96.5 334.5
Services and Rentals 15.7
------------------
Total 96.5 350.2
------------------
Revenues from Ongoing Operations:
Sales 1,805.1 1,631.2 1,611.3
Services and Rentals 832.4 777.0 740.2
----------------------------
Total $2,637.5 $2,408.2 $2,351.5
----------------------------
</TABLE>
Consolidated revenues for 1995 increased 5.3% from 1994. Consolidated revenues
for 1994 decreased 7.3% from 1993. Consolidated revenues were impacted in 1994
and 1993 by the revenues of disposed businesses. EnviroTech Measurements &
Controls ("EM&C") was sold in March 1994 and EnviroTech Pumpsystems
("Pumpsystems") was sold in September 1994. The results of Pumpsystems and EM&C
have been reported in a manner similar to discontinued operations since March
1994 and June 1993, respectively, which represents the date at which the
decisions to divest the businesses were made. As such, consolidated results of
operations for 1994 include six months of Pumpsystems' revenues and expenses.
The last six months of Pumpsystems' net operating results are reflected as a
separate line in the Company's consolidated statement of operations. Nine months
of EM&C revenues and expenses are included in the consolidated results for 1993.
There are no EM&C revenues and expenses included in the consolidated results for
1994. EM&C operated near break even levels from July 1993 to March 1994 with a
small net operating loss offsetting the gain on the sale.
Revenues from ongoing operations were up 9.5% in 1995 from 1994 and 2.4% in 1994
from 1993. In 1995, Oilfield Operations represented approximately 87% of
consolidated revenues ($2,288.2 million) with the remaining 13% represented by
Process Equipment Operations ($349.3 million).
In 1995, the Oilfield Operations experienced revenue growth in spite of
decreases in the Baker Hughes rotary rig count and the U.S. workover rig count.
Sales revenue and service and rentals revenue were both up 8.4%. Changes in the
mix of the worldwide rig count
20
<PAGE>
had a significant impact on the revenue of the Company. Certain areas of the
world, including offshore U.S., North Sea and West Africa, historically provide
more revenue per rig because of the more difficult and complex drilling
conditions. Conditions such as deep water, high pressure and sensitive
environment require the premium products and services offered by the Company.
Additionally, technological advances in the design and application of the
Company's products and services allow oil and gas operators to reach and extract
greater quantities of hydrocarbons from a single drilling rig or wellbore. For
example, from a single offshore drilling rig, multiple wells can be drilled,
completed and produced and, as such, the revenue generating capability of a
single drilling rig increases. The Company enjoys ancilliary benefits in
situations like these because of the wide breadth of products and services
offered by the Company. The Oilfield Operations' 1995 results were favorably
impacted by these two important trends.
Oilfield Operations was well positioned to take advantage of growth
opportunities in a number of key geographic markets. In Latin America, Oilfield
Operations saw its largest revenue growth in 1995 as revenue increased 38%. The
revenue improvement was driven by an increase in drilling activity in Venezuela
and Argentina. Oilfield Operations saw revenue increases in the Gulf of Mexico
as horizontal drilling remained strong. Despite flat rig activity in the North
Sea, revenue in Europe was up 6% due in large part to growing integrated
solutions business. Middle East revenues were up 19% for the year, paced by an
increase in Oman where the Company is the leading provider of horizontal
drilling technology. Strong performance in these areas were partially offset by
a difficult year in Africa and the former Soviet Union ("FSU"). Revenues in the
FSU were $53.3 million in 1995 and $74.6 million in 1994.
Oilfield Operations reported revenues of $2,110.9 million in 1994, up 3.3% from
1993. Sales revenue was up 2.6% and services and rentals revenue was up 4.7%.
Much of the improvement in Oilfield Operations sales, services and rentals
revenue is attributable to increased drilling activity in the Western
Hemisphere, U.S.-Offshore and the Canadian market, fueled in large part by
natural gas drilling. Partially offsetting this trend was a decline in the
average number of workover rigs running in the U.S. However, much of the
improvement in the Western Hemisphere was offset by declines in the European and
West Africa markets, most notably in geographic areas where Oilfield Operations
enjoys significant revenue on a per rig basis.
In 1995, Process Equipment Operations' sales, services and rentals revenue
reported an increase of 17.1% from 1994. The minerals processing industry,
specifically copper, and the pulp and paper industry experienced significant
growth during 1995 benefiting Process Equipment Operations. In 1994, sales,
services and rentals revenue declined 3.4% from 1993 primarily due to project
deferrals and a general weakness in the economic conditions in most markets that
they serve.
<TABLE>
<CAPTION>
Operating Income
(In millions) 1995 1994 1993
- ---------------------------------------------------
<S> <C> <C> <C>
Consolidated Operating
Income $255.9 $185.9 $158.9
Plus Unusual Charges-net 31.8 42.0
Less Operating Income of
Pumpsystems and EM&C (17.9) (23.1)
-----------------------
Operating Income from
Ongoing Operations $255.9 $199.8 $177.8
-----------------------
</TABLE>
Consolidated operating income in 1995 increased 37.7% from 1994 levels and in
1994 increased 17.0% from 1993 levels. Operating income from ongoing operations,
which excludes the net unusual charges and operating income of Pumpsystems and
EM&C, increased 28.1% in 1995 and 12.4% in 1994. Oilfield Operations provided
$269.6 million of operating income in 1995, up 29.0% from 1994 (excluding the
1994 unusual charge) and $209.0 million in 1994, up 16.9% from 1993. Process
Equipment Operations provided $32.3 million of operating income in 1995, up
49.5% from 1994 and $21.6 million in 1994, virtually flat compared to 1993. The
increases year over
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS Baker Hughes Incorporated
year result primarily from improved revenues and the impact of the Company's
ongoing quality programs where, through various actions, increases in efficiency
and productivity produce cost savings.
Cost and Expenses
Operating expenses, excluding unusual charges, typically fluctuate within a
narrow band as a percentage of consolidated revenues as the Company manages
expenses both in absolute terms and as a function of revenues.
The total of cost of sales, cost of services and rentals, research and
engineering and marketing and field service expenses as a percentage of total
revenue decreased from 83.2% in 1994 to 81.5% in 1995 reflecting the realization
of cost reductions as explained above. Individually, cost of sales, cost of
services and rentals and marketing and field service expense increased in 1995
in line with the revenue increase.
Research and engineering ("R&E") decreased for the year due primarily to the
reorganization of the R&E function at two divisions in Oilfield Operations and
the disposition of Pumpsystems in 1994. The reorganizations consisted of
reductions in headcount as well as a change in focus to product related
engineering where costs are now included in cost of sales and marketing and
field service expense. General and administrative expense, which is less
sensitive to changes in revenue, increased $18.9 million in 1995. The increase
in 1995 is due to the resolution of certain legal matters during the year, the
accrual for other claims and the writedown of certain foreign properties held
for disposal to their estimated net realizable value. Amortization of goodwill
and intangibles has remained relatively flat in 1995 compared to 1994 as no
significant acquisitions or dispositions were made in the current year.
In 1994, cost of sales, cost of services and rentals, research and engineering
and marketing and field service expenses decreased in line with the revenue
decreases associated with the dispositions of EM&C and Pumpsystems. General and
administrative expense and amortization of goodwill and other intangibles both
decreased in 1994 also reflective of the impact of the disposed businesses.
Unusual Charges-net
1994: During the fourth quarter of 1994, the Company recorded a $32.4 million
unusual charge related to the restructuring and reorganization of certain
divisions, primarily Baker Hughes INTEQ as part of a continuing effort to
maintain a cost structure appropriate for current and future market conditions.
Noncash provisions of the charge total $16.3 million and consist primarily of
the write-down of excess facilities and operating assets to net realizable
value. The remaining $16.1 million of the charge represents cash expenditures
related to severance under existing benefit arrangements, the relocation of
people, equipment and inventory and abandoned leases. The Company spent $11.2
million in 1995 and $3.1 million in 1994 and expects to spend the remaining $1.8
million in 1996. In addition, an MWD (measurement-while-drilling) product line
was discontinued when it was decided to market and support other MWD products
resulting in the write-off of property and inventory of $15.0 million.
Offsetting these charges was an unusual gain of $19.3 million related to the May
1994 cash settlement of a suit against certain insurance carriers in the Parker
& Parsley litigation discussed below.
1993: During the first quarter of 1993, the Company recognized a charge of
$17.5 million relating to an agreement for the settlement of the civil antitrust
litigation involving the marketing of tricone rockbits. During the second
quarter of 1993, the Company, along with Dresser Industries and Parker & Parsley
Petroleum Development Incorporated, entered into a Memorandum of Understanding
covering the settlement of all outstanding litigation among the parties. In
recognition of the settlement, the Company recorded an unusual charge of $24.5
million. Cash payments totalling $75.0 million were made during the third
quarter of 1993.
22
<PAGE>
Interest Expense
Interest expense decreased $8.2 million in 1995 compared to 1994. The decrease
in 1995 is attributable to the repurchase or defeasance of all the outstanding
6% discount debentures in the last half of 1994. Offsetting interest expense in
1993 is $3.6 million of the reversal of accrued interest expense on certain
Internal Revenue Service issues. Excluding these reversals, interest expense
decreased $4.5 million in 1994. The decrease in 1994 is attributable to lower
average debt outstanding offset by a slightly higher overall effective interest
rate.
Interest Income
Interest income increased $1.7 million in 1995 due to an increase in the average
short-term investments during the year. Interest income decreased $2.8 million
in 1994. The decrease was due to the repayment of notes receivables and a
decrease in short-term investments.
Income Taxes
The effective income tax rate for 1995 was 41.5% as compared to 42.0% in 1994
and 41.2% in 1993. The effective rates differ from the federal statutory rates
due primarily to taxes on foreign operations and nondeductible goodwill
amortization offset by the recognition of loss and credit carryforwards.
Extraordinary Loss
During 1994, the Company recorded an extraordinary loss of $44.3 million, net of
a tax benefit of $23.9 million, in connection with the repurchase or defeasance
of $225.0 million face amount of its outstanding 6% debentures due March 2002.
At September 30, 1995, $45.9 million of the debentures have been considered
extinguished through defeasance.
Net Income Per Share of Common Stock
In June 1995, the Company repurchased all outstanding shares of its convertible
preferred stock for $167.0 million. The fair market value of the preferred stock
was $149.4 million on its date of issuance. The repurchase price in excess of
this amount, $17.6 million, is deducted from net income in arriving at net
income per share of common stock. In addition, net income is adjusted for
dividends on preferred stock of $8.0 million in 1995. Net income is adjusted for
dividends on preferred stock of $12.0 million in 1994 and 1993.
CAPITAL RESOURCES AND LIQUIDITY
Financing Activities
Net cash outflows from financing activities were $95.5 million in 1995 compared
to $429.8 million and $56.0 million in 1994 and 1993, respectively.
Total debt outstanding at September 30, 1995 was $801.3 million, compared to
$653.3 million at September 30, 1994 and $944.3 million at September 30, 1993.
The debt to equity ratio was .529 at September 30, 1995, compared to .399 at
September 30, 1994 and .586 at September 30, 1993.
In 1994, the Company used cash to reduce overall debt levels. A total of $368.1
million was used to reduce borrowings under short-term facilities and repurchase
or defease all of its outstanding 6% discount debentures which had an effective
interest rate of 14.66%. During 1994, the Company also issued debenture purchase
warrants under favorable terms for $7.0 million that entitled the holders to
purchase $93.0 million of the Company's debentures. In the first half of 1995,
all holders exercised their warrants and purchased $93.0 million in debentures.
In June 1995, the Company repurchased all outstanding shares of its convertible
preferred stock for $167.0 million. Existing cash on hand and borrowings from
commercial paper and revolving credit facilities funded the repurchase. Cash
dividends decreased in 1995 due to the repurchase.
In 1993, the Company increased total debt while at the same time taking
advantage of lower interest rates. During 1993, the Company sold $385.3 million
principal amount at maturity of Liquid Yield Option Notes ("LYONS") due May
2008. The net proceeds of $223.9 million were used to repay borrowings from
short-term facilities incurred to fund the 1992 Teleco acquisition, retire
debentures and fund working capital needs.
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS Baker Hughes Incorporated
At September 30, 1995, the Company had $667.1 million of credit facilities with
commercial banks, of which $402.4 million is committed. These facilities are
subject to normal banking terms and conditions and do not materially restrict
the Company's activities.
During 1995, the U.S. dollar was relatively flat against most European
currencies where the Company has a significant net asset position. The Company
was impacted, however, by the devaluation of the Mexican peso resulting in an
increase of $4.8 million in the cumulative foreign currency translation
adjustment account. During 1994, the U.S. dollar weakened against most European
currencies. As a result of this and the sale of EM&C and Pumpsystems, the
cumulative foreign currency translation adjustment account decreased $34.7
million.
Investing Activities
Net cash outflows from investing activities were $94.1 million in 1995 compared
to cash inflows of $258.4 million in 1994 and cash outflows of $76.7 million in
1993.
Proceeds from the disposal of assets and noncore businesses generated $44.8
million in 1995, $367.1 million in 1994 and $50.2 million in 1993. Property
additions increased in 1995 to $138.9 million from $108.6 million in 1994. In
1993 property additions were $126.9 million. The increase in 1995 is in line
with the Company's objective of replacing capital to increase productivity and
ensure that the necessary capacity is available to meet market demand. Part of
the decrease in 1994 is due to the sale of EM&C and Pumpsystems.
Likewise, the ratio of capital expenditures to depreciation has increased from
88.5% in 1994 to 121.6% in 1995. The majority of the capital expenditures have
been in Oilfield Operations where the largest single item is the expenditure for
rental tools and equipment to supplement the rental fleet. Funds provided from
operations and outstanding lines of credit are expected to be more than adequate
to meet future capital expenditure requirements. The Company expects 1996
capital expenditures to be between $170.0 million and $190.0 million.
Operating Activities
Net cash inflows from operating activities were $127.3 million, $230.8 million
and $23.0 million in 1995, 1994 and 1993, respectively.
The decrease of $103.5 million in 1995 was due primarily to the build up of
working capital in Oilfield Operations to support increased activity, in
particular the significant increase in Latin America, and several new emerging
markets (e.g. Vietnam and China), and the reduction in liabilities resulting
from cash payments for costs associated with the disposition of Pumpsystems and
the restructuring accruals recorded in the fourth quarter of 1994. These uses of
cash were offset by an increase in net income adjusted for noncash items.
The increase of $207.8 million in 1994 was due primarily to an increase in net
income, adjusted for noncash items, litigation settlements totalling $75.0
million that were paid in 1993 and a decrease in the build up of working
capital.
OTHER MATTERS
In May 1995, President Clinton signed an Executive Order prohibiting virtually
all transactions between the U.S. and Iran, and in September 1995, the U.S.
Department of Treasury issued implementing regulations. The Order and
regulations generally do not reach to the activities of non-U.S. subsidiaries.
At September 30, 1995, the Company, through its non-U.S. subsidiaries, had
receivables from the National Iranian Oil Company ("NIOC") in an amount of
approximately one percent of stockholders' equity. These receivables are
currently being paid pursuant to an agreement with the NIOC. It is not possible
to predict with any accuracy how the current state of U.S.-Iran relations will
impact the Company's ability to collect these receivables. Sales to Iran in the
year ended September 30, 1995 and 1994 were not significant.
24
<PAGE>
ACCOUNTING STANDARDS
Postemployment Benefits
The Company adopted Statement of Financial Accounting Standard ("SFAS") No. 112,
"Employers' Accounting for Postemployment Benefits," effective October 1, 1994.
The Company recognized a charge to income of $14.6 million ($.10 per share),
net of a $7.9 million tax benefit, in the first quarter of 1995. Expense under
SFAS No. 112 for 1995 was not significantly different from the prior method of
cash basis accounting.
Postretirement Benefits Other Than Pensions
The Company adopted SFAS No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions," effective October 1, 1993. The Company elected
to immediately recognize the cumulative effect of the change in accounting and
recorded a charge of $69.6 million, net of a tax benefit of $37.5 million, in
the first quarter of 1994. Expense under SFAS No. 106 for 1994 was not
significantly different from the prior method of cash basis accounting.
Accounting for Income Taxes
The Company adopted SFAS No. 109, "Accounting for Income Taxes," effective
October 1, 1993, without restatement of prior years and recorded a credit to
income of $25.5 million in the first quarter of 1994. An additional benefit of
$21.9 million was allocated to capital in excess of par value, which reflects
the cumulative tax effect of exercised employee stock options for which the
Company has taken tax deductions in its U.S. federal tax returns.
Investments in Debt and Equity Securities
The Company adopted SFAS No. 115, "Accounting for Certain Investments in Debt
and Equity Securities," effective September 30, 1994, and recorded a charge to a
separate component of stockholders' equity for unrealized losses on securities
available for sale of $2.8 million, net of a tax benefit of $1.5 million. A gain
or loss will be recognized in the consolidated statement of operations when a
security is sold.
Impairment of Long-Lived Assets
In March 1995, the Financial Accounting Standards Board ("FASB") issued SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of," which is effective for the Company on October 1,
1996. The statement sets forth guidance as to when to recognize an impairment of
long-lived assets, including goodwill, and how to measure such an impairment.
The methodology set forth in SFAS No. 121 is not significantly different from
the Company's current policy and, therefore, the Company does not expect the
adoption of SFAS No. 121, as it relates to impairment, to have a significant
impact on the consolidated financial statements. SFAS No. 121 also addresses the
accounting for long-lived assets to be disposed of. The Company has not yet
determined the impact of this aspect of SFAS No. 121 on the consolidated
financial statements.
Stock Based Compensation
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation," which is effective for the Company on October 1, 1996. SFAS No.
123 permits, but does not require, a fair value based method of accounting for
employee stock option plans which results in compensation expense being
recognized in the results of operations when stock options are granted. The
Company plans to continue the use of its current intrinsic value based method of
accounting for such plans where no compensation expense is recognized. However,
as required by SFAS No. 123, the Company will provide pro forma disclosure of
net income and earnings per share in the notes to the consolidated financial
statements as if the fair value based method of accounting had been applied.
25
<PAGE>
INDEPENDENT AUDITORS' REPORT Baker Hughes Incorporated
STOCKHOLDERS OF BAKER HUGHES INCORPORATED:
We have audited the consolidated statements of financial position of Baker
Hughes Incorporated and its subsidiaries as of September 30, 1995 and 1994, and
the related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended September 30, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Baker Hughes Incorporated and its
subsidiaries at September 30, 1995 and 1994, and the results of its operations
and its cash flows for each of the three years in the period ended September 30,
1995 in conformity with generally accepted accounting principles.
As discussed in Note 1, the Company changed its method of accounting for
postemployment benefits effective October 1, 1994 to conform with Statement of
Financial Accounting Standards No. 112. Also as discussed in Note 1, the Company
changed its method of accounting for postretirement benefits other than pensions
and for income taxes effective October 1, 1993 to conform with Statement of
Financial Accounting Standards No. 106 and Statement of Financial Accounting
Standards No. 109, respectively.
/s/ Deloitte & Touche LLP
November 15, 1995
Houston, Texas
26
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS Baker Hughes Incorporated
<TABLE>
<CAPTION>
Years Ended September 30,
(In thousands, except per share amounts) 1995 1994 1993
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Sales $1,805,108 $1,727,734 $1,945,793
Services and rentals 832,356 777,024 755,904
------------------------------------------
Total 2,637,464 2,504,758 2,701,697
------------------------------------------
Costs and expenses:
Costs of sales 1,045,672 1,015,458 1,154,865
Cost of services and rentals 418,342 389,605 395,286
Research and engineering 83,546 91,011 102,057
Marketing and field service 601,228 586,671 610,337
General and administrative 202,903 184,013 201,322
Amortization of goodwill and other
intangibles 29,884 30,775 36,916
Unusual charges - net 31,829 42,000
Operating income of business sold (10,488)
------------------------------------------
Total 2,381,575 2,318,874 2,542,783
------------------------------------------
Operating income 255,889 185,884 158,914
Gain on sale of Pumpsystems 101,000
Interest expense (55,595) (63,835) (64,703)
Interest income 4,806 3,067 5,840
------------------------------------------
Income before income taxes, extraordinary
loss and cumulative effect of
accounting changes 205,100 226,116 100,051
Income taxes (85,117) (94,974) (41,195)
------------------------------------------
Income before extraordinary loss and
cumulative effect of accounting changes 119,983 131,142 58,856
----------
Extraordinary loss (net of $23,865
income tax benefit) (44,320)
----------
Cumulative effect of accounting changes:
Income taxes 25,455
Postretirement benefits other than pensions
(net of $37,488 income tax benefit) (69,620)
Postemployment benefits (net of $7,861
income tax benefit) (14,598)
------------------------------------------
Accounting changes - net (14,598) (44,165)
------------------------------------------
Net income $ 105,385 $ 42,657 $ 58,856
==========================================
Per share of common stock:
Income before extraordinary loss and
cumulative effect of accounting
changes $ 0.67 $ 0.85 $ 0.34
Extraordinary loss (0.31)
Cumulative effect of accounting
changes (0.10) (0.32)
------------------------------------------
Net income $ $0.57 $ 0.22 $ 0.34
==========================================
</TABLE>
See Notes to Consolidated Financial Statements
27
<PAGE>
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION Baker Hughes Incorporated
<TABLE>
<CAPTION>
September 30,
(In thousands) 1995 1994
- -----------------------------------------------------------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 6,817 $ 69,179
------------------------------
Receivables-less allowance
for doubtful accounts:
1995, $24,809; 1994,
$21,405 709,588 612,414
------------------------------
Inventories:
Finished goods 595,417 508,198
Work in process 61,622 53,644
Raw materials 70,743 81,204
------------------------------
Total inventories 727,782 643,046
------------------------------
Deferred income taxes 92,550 45,959
------------------------------
Other current assets 28,078 29,394
------------------------------
Total current assets 1,564,815 1,399,992
------------------------------
Property:
Land 35,393 35,174
Buildings 314,184 294,104
Machinery and equipment 607,061 586,863
Rental tools and equipment 570,279 530,814
------------------------------
Total property 1,526,917 1,446,955
Accumulated depreciation (951,858) (886,871)
------------------------------
Property-net 575,059 560,084
------------------------------
Other assets:
Investments 92,474 89,601
Property held for disposal 58,544 73,496
Other assets 103,321 80,054
Excess costs arising
from acquisitions -
less accumulated
amortization:
1995, $136,174; 1994, $112,008 772,378 796,455
------------------------------
Total other assets 1,026,717 1,039,606
------------------------------
Total $3,166,591 $2,999,682
==============================
</TABLE>
See Notes to Consolidated Financial Statements
28
<PAGE>
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION Baker Hughes Incorporated
<TABLE>
<CAPTION>
September 30,
(In thousands) 1995 1994
- -----------------------------------------------------------------
<S> <C> <C>
Current Liabilities:
Accounts payable-trade $ 304,689 $ 253,616
Short-term borrowings 2,130 863
Current portion of
long-term debt 768 14,436
Accrued employee
compensation and benefits 133,135 113,304
Income taxes payable 28,445 29,729
Taxes other than income 25,176 20,608
Accrued insurance 27,475 26,492
Accrued interest 11,978 10,676
Other accrued liabilities 46,335 74,847
------------------------------
Total current liabilities 580,131 544,571
------------------------------
Long-term debt 798,352 637,972
------------------------------
Deferred income taxes 118,350 53,841
------------------------------
Postretirement benefits
other than pensions 97,187 95,951
------------------------------
Other long-term liabilities 58,965 28,875
------------------------------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $1 par value
(authorized and outstanding
4,000,000 shares in 1994 of $3.00
convertible preferred stock) 4,000
Common stock, $1 par value
(authorized 400,000,000
shares; outstanding 142,237,000
shares in 1995 and 140,889,000
shares in 1994) 142,237 140,889
Capital in excess of par value 1,342,317 1,474,013
Retained earnings 140,106 125,276
Cumulative foreign currency
translation adjustment (107,689) (102,915)
Unrealized loss on securities
available for sale (3,365) (2,791)
------------------------------
Total stockholders' equity 1,513,606 1,638,472
------------------------------
Total $3,166,591 $2,999,682
==============================
</TABLE>
See Notes to Consolidated Financial Statements
29
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Baker Hughes Incorporated
<TABLE>
<CAPTION>
Cumulative Unrealized
Preferred Common Foreign Loss on
For the three years ended Stock Stock Capital Currency Securities
September 30, 1995 ($1 Par ($1 Par In Excess Retained Translation Available
(In thousands) Value) Value of Par Value Earnings Adjustment for Sale Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, September 30, 1992 $ 4,000 $ 138,624 $1,418,857 $ 176,517 $ (92,476) $1,645,522
Net income 58,856 58,856
Cash and accrued
dividends on
$3.00 convertible preferred stock (12,000) (12,000)
Cash dividends on common
stock ($.46 per share) (64,096) (64,096)
Foreign currency
translation adjustment (45,139) (45,139)
Stock issued pursuant to
employee stock plans 1,813 25,692 27,505
----------------------------------------------------------------------------------------------
Balance, September 30, 1993 4,000 140,437 1,444,549 159,277 (137,615) 1,610,648
Net income 42,657 42,657
Cash and accrued
dividends on
$3.00 convertible preferred stock (12,000) (12,000)
Cash dividends on common
stock ($.46 per share) (64,658) (64,658)
Foreign currency
translation adjustment 17,825 17,825
Disposition of
businesses 16,875 16,875
Income tax
accounting change 21,896 21,896
Investment accounting
change $ (2,791) (2,791)
Stock issued pursuant to
employee stock plans 452 7,568 8,020
----------------------------------------------------------------------------------------------
Balance, September 30, 1994 4,000 140,889 1,474,013 125,276 (102,915) (2,791) 1,638,472
Net income 105,385 105,385
Cash and accrued
dividends on
$3.00 convertible preferred stock (8,000) (8,000)
Cash dividends on common
stock ($.46 per share) (64,955) (64,955)
Foreign currency
translation adjustment (4,774) (4,774)
Repurchase of $3.00
convertible preferred
stock (4,000) (145,400) (17,600) (167,000)
Unrealized loss
adjustment (574) (574)
Stock issued pursuant to
employee stock plans 1,348 13,704 15,052
----------------------------------------------------------------------------------------------
Balance, September 30, 1995 $ 142,237 $1,342,317 $ 140,106 $(107,689) $ (3,365) $1,513,606
==============================================================================================
</TABLE>
See Notes to Consolidated Financial Statements
30
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS Baker Hughes Incorporated
<TABLE>
<CAPTION>
Years Ended September 30,
(In thousands) 1995 1994 1993
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating
activities:
Net income $ 105,385 $ 42,657 $ 58,856
Adjustments to reconcile
net income
to net cash flows from
operating activities:
Depreciation and
amortization of:
Property 114,170 122,812 141,699
Other assets and debt discount 40,368 46,526 47,371
Deferred tax provision 44,783 47,366 19,349
Noncash portion of unusual
charges-net 47,988
Gain on disposal of assets (18,313) (18,034) (14,594)
Gain on disposition of businesses (109,550)
Foreign currency translation
loss-net 1,948 1,892 441
Cumulative effect of accounting
changes 14,598 44,165
Extraordinary loss 44,320
Change in receivables (94,660) (22,740) (74,828)
Change in inventories (79,937) (58,035) (50,506)
Change in accounts payable-trade 51,734 24,890 (2,962)
Changes in other assets and
liabilities (52,805) 16,520 (101,859)
---------------------------------------------
Net cash flows from
operating activities 127,271 230,777 22,967
---------------------------------------------
Cash flows from investing
activities:
Property additions (138,876) (108,639) (126,901)
Proceeds from disposal of assets 44,786 38,664 40,928
Proceeds from disposition of
businesses 328,389 9,299
---------------------------------------------
Net cash flows from
investing activities (94,090) 258,414 (76,674)
---------------------------------------------
Cash flows from financing
activities:
Net borrowings
(payments) from commercial
paper and revolving credit
facilities 42,674 (162,590) (95,010)
Retirement of debentures (205,497) (18,197)
Proceeds from exercise of
debenture purchase warrants 93,000
Net proceeds from issuance of
debenture purchase warrants 7,026
Net proceeds from issuance of
notes 223,911
Repurchase of preferred
stock (167,000)
Proceeds from exercise
of stock options and stock
purchase grants 9,773 7,900 21,358
Dividends (73,955) (76,658) (76,096)
---------------------------------------------
Net cash flows from
financing activities (95,508) (429,819) 55,966
---------------------------------------------
Effect of exchange rate
changes on cash (35) 2,815 (1,959)
---------------------------------------------
Increase (decrease) in
cash and cash equivalents (62,362) 62,187 300
Cash and cash equivalents,
beginning of year 69,179 6,992 6,692
---------------------------------------------
Cash and cash equivalents,
end of year $ 6,817 $ 69,179 $ 6,992
=============================================
</TABLE>
See Notes to Consolidated Financial Statements
31
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Baker Hughes Incorporated
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation: The consolidated financial statements include the
accounts of Baker Hughes Incorporated and all majority owned subsidiaries (the
"Company"). Investments in which ownership interest ranges from 20 to 50 percent
and the Company exercises significant influence over operating and financial
policies are accounted for on the equity method. In 1994, the Company changed
its accounting for other investments as explained below. Prior to 1994, other
investments were accounted for under the cost method. All significant
intercompany accounts and transactions have been eliminated in consolidation.
Certain minor reclassifications have been made to the 1994 balances to conform
to the 1995 presentation.
Revenue recognition: Revenue from product sales are recognized upon delivery of
products to the customer. Revenues from services and rentals are recorded when
such services are rendered.
Inventories: Inventories are stated primarily at the lower of average cost or
market.
Property: Property is stated principally at cost less accumulated depreciation,
which is generally provided by using the straight-line method over the estimated
useful lives of individual items. The Company manufactures a substantial portion
of its rental tools and equipment, and the cost of these items includes direct
and indirect manufacturing costs.
Property held for disposal: Property held for disposal is stated at the lower
of cost or estimated net realizable value.
Investments: The Company adopted Statement of Financial Accounting Standards
("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," effective September 30, 1994. Investments in debt and equity
securities, other than those accounted for by the equity method, are reported at
fair value with unrealized gains or losses, net of tax, recorded as a separate
component of stockholders' equity.
Excess costs arising from acquisitions: Excess costs arising from acquisitions
of businesses ("Goodwill") are amortized on the straight-line method over the
lesser of expected useful life or forty years. The carrying amount of
unamortized Goodwill is reviewed for potential impairment loss when events or
changes in circumstances indicate that the carrying amount of Goodwill may not
be recoverable. An impairment loss of Goodwill is recorded in the period in
which it is determined that it is not recoverable. The determination of
recoverability is made based upon the estimated undiscounted future net cash
flows, excluding interest expense, of the business unit to which the Goodwill
relates.
Income taxes: The Company adopted SFAS No. 109, "Accounting for Income Taxes,"
effective October 1, 1993, without restatement of prior years. The cumulative
effect of adopting SFAS No. 109 was a credit to income of $25.5 million ($.18
per share). An additional benefit of $21.9 million was allocated to capital in
excess of par value, which reflects the cumulative tax effect of exercised
employee stock options for which the Company has taken tax deductions in its
U.S. federal tax returns.
32
<PAGE>
Deferred income taxes are determined utilizing an asset and liability approach.
This method gives consideration to the future tax consequences associated with
differences between the financial accounting and tax basis of assets and
liabilities.
Environmental matters: Remediation costs are accrued based on estimates of
known environmental remediation exposure. Such accruals are recorded even if
significant uncertainties exist over the ultimate cost of the remediation.
Ongoing environmental compliance costs, including maintenance and monitoring
costs, are expensed as incurred.
Postretirement benefits other than pensions: The Company adopted SFAS No. 106,
"Employers' Accounting for Postretirement Benefits Other than Pensions,"
effective October 1, 1993. The standard requires that the estimated cost of
postretirement benefits other than pensions be accrued over the period earned
rather than expensed in the period the benefits are paid. The cumulative effect
of adopting SFAS No. 106 on the immediate recognition basis was a charge to
income of $69.6 million ($.50 per share), net of a tax benefit of $37.5 million.
Postemployment benefits: The Company adopted SFAS No. 112, "Employers'
Accounting for Postem -ployment Benefits," effective October 1, 1994. The
standard requires that the cost of benefits provided to former or inactive
employees after employment, but before retirement, be accrued when it is
probable that a benefit will be provided, or in the case of service related
benefits, over the period earned. The cost of providing these benefits was
previously recognized as a charge to income in the period the benefits were
paid. The cumulative effect of adopting SFAS No. 112 was a charge to income of
$14.6 million ($.10 per share), net of a tax benefit of $7.9 million.
Foreign currency translation: Gains and losses resulting from balance sheet
translation of foreign operations where a foreign currency is the functional
currency are included as a separate component of stockholders' equity. Gains and
losses resulting from balance sheet translation of foreign operations where the
U.S. dollar is the functional currency are included in the consolidated
statements of operations.
Financial Instruments: The Company uses forward exchange contracts and currency
swaps to hedge certain firm commitments and transactions denominated in foreign
currencies. Gains and losses on forward contracts are deferred and offset
against foreign exchange gains or losses on the underlying hedged item. The
Company uses interest rate swaps to manage interest rate risk. The interest
differentials from interest rate swaps are recognized as an adjustment to
interest expense. The Company's policies do not permit financial instrument
transactions for speculative purposes.
Income per share: Income per share amounts are based on the weighted average
number of shares outstanding during the respective years (141,215,000 in 1995,
140,532,000 in 1994, and 139,321,000 in 1993) and exclude the negligible
dilutive effect of shares issuable in connection with employee stock plans. Net
income is adjusted for dividends on preferred stock. Per share amounts in 1995
are also reduced by $17.6 million related to the repurchase of the Company's
convertible preferred stock.
Statements of cash flows: The Company considers all highly liquid investments
with an original maturity of three months or less to be cash equivalents.
33
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Baker Hughes Incorporated
NOTE 2 DISPOSITIONS
1994
In September 1994, the Company sold the EnviroTech Pumpsystems ("Pumpsystems")
group of companies. The decision to divest Pumpsystems was part of a continuing
review of the Company's core product and service competencies. The sale provided
approximately $210.0 million in proceeds and resulted in a gain of $101.0
million. Pumpsystems' operating revenues and expenses have been reported in a
manner similar to discontinued operations since March 1994. As such, the first
six months of Pumpsystems' revenues and expenses are included in the
consolidated results for 1994 and the last six months net operating results are
reflected as a separate line in the Company's consolidated statement of
operations.
In July 1993, the Company announced that the EnviroTech Measurements & Controls
("EM&C") group of companies would no longer be considered part of its core
business. EM&C operating revenues and expenses have been reported in a manner
similar to discontinued operations since June 1993. As such, there are no EM&C
revenues and expenses included in the consolidated results for 1994 and nine
months of EM&C revenues and expenses are included in the consolidated results
for 1993. EM&C operated near break even levels from July 1993 to March 1994 with
a small net operating loss offsetting the gain on the sale. In March 1994, the
Company completed the sale of EM&C which provided $134.0 million in proceeds and
resulted in a gain of $8.6 million.
NOTE 3 UNUSUAL CHARGES-NET
1994
During 1994, the Company recognized $31.8 million of net unusual charges
consisting of the following items:
<TABLE>
<CAPTION>
(In thousands)
- --------------------------------------------------
<S> <C>
Insurance recovery in the
Parker & Parsley litigation $(19,281)
Discontinued product line 15,005
Oilfield restructurings:
Severance under existing
benefit arrangements 5,869
Relocation of property,
inventory and people 5,773
Writedown of assets to
net realizable value 18,650
Abandoned leases 2,082
Other 3,731
--------
Unusual charges-net $ 31,829
========
</TABLE>
In May 1994, the Company realized a gain of $19.3 million from the cash
settlement of a suit against certain insurance carriers in the Parker & Parsley
litigation described below.
During the fourth quarter of 1994, the Company discontinued an MWD (measurement-
while-drilling) product line when it decided to market and support other MWD
products resulting in the write-off of property and inventory of $15.0 million.
In addition, the Company recorded a $32.4 million charge related to the
restructuring and reorganization of certain divisions, primarily Baker Hughes
INTEQ. Cash provisions of the charge totalled $16.1 million. The Company spent
$11.2 million in 1995, $3.1 million in 1994 and expects to spend the remaining
$1.8 million in 1996.
34
<PAGE>
1993
During the first quarter of 1993, the Company recognized an unusual charge of
$17.5 million in connection with reaching an agreement with representatives of
the class plaintiffs for the settlement of a class action civil antitrust
lawsuit concerning the marketing of tricone rock bits. A cash payment of $17.5
million was made in April 1993.
During the second quarter of 1993, the Company, along with Dresser Industries
and Parker & Parsley Petroleum Development Incorporated, settled all outstanding
litigation among the parties over alleged intentional product delivery or
service variance on a number of well stimulation projects. In recognition of
settlement, the Company recorded an unusual charge of $24.5 million. A cash
payment of $57.5 million was made for the Company's portion in May 1993.
NOTE 4 INDEBTEDNESS
Long-term debt at September 30, 1995 and 1994 consisted of the following:
<TABLE>
<CAPTION>
(In thousands) 1995 1994
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Commercial Paper with an average interest rate of 6.85% at September 30, 1995 $ 15,000
Revolving Credit Facilities due through 1999 with an average
interest rate of 8.84% at September 30, 1995 81,961 $ 47,693
Liquid Yield Option Notes ("LYONS") due May 2008 with a yield to maturity of 3.5%
per annum, net of unamortized discount of $140,505 ($149,329 in 1994) 244,745 235,921
7.625% Notes due February 1999 with an effective interest rate of 7.73%,
net of unamortized discount of $938 ($1,198 in 1994) 149,062 148,802
4.125% Swiss Franc 200 million Bonds due June 1996 with an effective interest rate of 7.82% 107,896 107,222
8% Notes due May 2004 with an effective interest rate of 8.08%,
net of unamortized discount of $1,175 ($1,292 in 1994) 98,825 98,708
Debentures with an effective interest rate of 8.59%, due January 2000 93,000
Other indebtedness with an average interest rate of 6.73% at September 30, 1995 8,631 14,062
Total debt 799,120 652,408
-------- --------
Less current maturities 768 14,436
-------- --------
Long-term debt $798,352 $637,972
======== ========
</TABLE>
At September 30, 1995, the Company had $667.1 million of credit facilities with
commercial banks, of which $402.4 million is committed. The majority of these
facilities expire in 1999. The Company's policy is to classify commercial paper
and borrowings under revolving credit facilities as long-term debt since the
Company has the ability under certain credit agreements, and the intent, to
maintain these obligations for longer than one year. These facilities are
subject to normal banking terms and conditions and do not materially restrict
the Company's activities.
The LYONS are convertible into the Company's common stock at a conversion price
of $34.85 per share, calculated as of November 5, 1995 and increases at an
annual rate of 3.5%. At the option of the Company, the LYONS may be redeemed for
cash at any time on or after May 5, 1998, at a redemption price equal to the
issue price plus accrued original issue discount through the date of redemption.
At the option of the holder, the LYONS may be redeemed for cash on May 5, 1998,
or on May 5, 2003, for a redemption price equal to the issue price plus accrued
original issue discount through the date of redemption.
35
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Baker Hughes Incorporated
In May through September 1994, the Company repurchased or defeased all of its
outstanding 6% discount debentures for $205.5 million and generated an
extraordinary loss of $44.3 million ($.31 per share), net of a tax benefit of
$23.9 million. At September 30, 1995, $45.9 million of the debentures have been
considered extinguished through defeasance.
In April 1994, the Company issued debenture purchase warrants for $7.0 million
that entitled the holders to purchase $93.0 million of the Company's debentures.
In October 1994 through January 1995, all warrants were exercised and $93.0
million of debentures were purchased.
Maturities of long-term debt for the next five years are as follows: 1996-$108.7
million; 1997-$4.5 million; 1998-$.1 million; 1999-$190.1 million and 2000-
$149.2 million. At September 30, 1995, the 4.125% Swiss Franc 200.0 million
Bonds ("SFrBonds") were classified as long-term as the Company has the intent
and the ability to refinance them on a long-term basis through available credit
facilities.
NOTE 5 FINANCIAL INSTRUMENTS
At September 30, 1995, the Company had $306.5 million aggregate notional amount
interest rate swap agreements outstanding maturing in 1998 and 2000. These swaps
effectively exchange a weighted average fixed interest rate of 5.0% for variable
interest rates on the notional amount. The variable interest rate is six-month
LIBOR plus 2% and 30-day commercial paper rates minus 1.96% on notional amounts
of $93.0 million and $213.5 million, respectively. In the unlikely event that
the counterparties fail to meet the terms of an interest rate swap agreement,
the Company's exposure is limited to the interest rate differential.
The SFrBonds are hedged through a foreign currency swap agreement and a foreign
currency option. These instruments convert the Company's Swiss Franc denominated
principal and interest obligations under the SFrBonds into U.S. dollar
denominated obligations. In the unlikely event of nonperformance by the
counterparty, the Company's credit exposure at September 30, 1995 is represented
by the fair value of the contract of $66.2 million.
Except as described below, the estimated fair values of the Company's financial
instruments at September 30, 1995 and 1994 approximate their carrying value as
reflected in the consolidated statement of financial position. The Company's
financial instruments include cash and short-term investments, receivables,
investments, payables, debt and interest rate and foreign currency contracts.
The fair value of such financial instruments has been estimated based on quoted
market prices and the Black-Scholes pricing model.
The estimated fair value of the Company's debt, at September 30, 1995 and 1994
was $886.5 million and $673.6 million, respectively, which differs from the
carrying amounts of $801.3 million and $653.3 million, respectively, included in
the consolidated statement of financial position. The fair value of the
Company's interest rate and currency contracts at September 30, 1995 and 1994,
which are designated as hedges to the Company's debt and related interest cost,
was $68.7 million and $28.0 million, respectively, which should be considered a
reduction to the fair value of the debt mentioned above.
36
<PAGE>
NOTE 6 PREFERRED STOCK
In April 1992, the Company issued four million shares of $3.00 convertible
preferred stock ($1 par value per share and $50 liquidation preference per
share) to Sonat, Inc. in connection with the Teleco acquisition. The preferred
stock was convertible at the option of the holder at any time into the Company's
common stock at a conversion price of $32.50 per share.
The preferred stock was redeemable at any time, in whole or in part, at the
option of the Company on at least thirty and not more than sixty days notice at
$50 per share, plus accrued dividends. Dividends on the preferred stock were
cumulative at the rate of $3.00 per share per annum. Such dividends were payable
quarterly as declared by the Board of Directors.
In June 1995, the Company repurchased all outstanding shares of its convertible
preferred stock for $167.0 million. The fair market value of the preferred stock
was $149.4 million on its original date of issuance. The repurchase price in
excess of this amount, $17.6 million, is deducted from net income in arriving at
net income per share of common stock.
NOTE 7 EMPLOYEE STOCK PLANS
The Company has stock option plans that provide for granting of options for the
purchase of common stock to directors, officers and other key employees. These
stock options may be granted subject to terms ranging from one to ten years at a
price equal to the fair market value of the stock at the date of grant.
Stock option activity for the Company during 1995, 1994 and 1993 was as follows:
<TABLE>
<CAPTION>
Number of Shares (In thousands) 1995 1994 1993
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Stock options outstanding, beginning of year 4,879 2,890 2,726
Granted (per share):
1995 $19.13 to $20.50 1,349
1994 $20.13 to $21.88 2,291
1993 $23.00 1,001
Exercised (per share):
1995 $13.38 to $21.95 (153)
1994 $10.25 to $15.38 (31)
1993 $10.25 to $28.50 (721)
Expired (1,060) (271) (116)
----------------------
Stock options outstanding, end of year (per share:
$13.38 to $28.50 at September 30, 1995) 5,015 4,879 2,890
======================
</TABLE>
At September 30, 1995, options were exercisable for 2.2 million shares, and 4.2
million shares were available for future option grants.
The Company has a plan that provides for the sale of convertible debentures to
certain officers and key employees. An aggregate of $30.0 million principal
amount of debentures may be issued under the plan, which are convertible into
shares of common stock after one year. At September 30, 1995, a total of $5.9
million principal amount of debentures are outstanding and convertible into
257,000 shares of common stock at $13.38 to $28.50 per share.
The Company has an Employee Stock Purchase
37
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Baker Hughes Incorporated
Plan (the "Plan") under which there remain authorized and available for sale to
employees, at a discount of 15%, an aggregate of 2,068,000 shares of the
Company's common stock. Based on the market price of common stock on the date of
grant, the Company estimates that approximately 450,000 shares will be purchased
in July 1996. Under the Plan, 414,000, 421,000 and 521,000 shares were issued
at $17.96, $17.96 and $19.02 per share during 1995, 1994 and 1993,
respectively.
NOTE 8 INCOME TAXES
The geographical sources of income before income taxes, extraordinary loss and
cumulative effect of accounting changes for the three years ended September 30,
1995 are as follows:
<TABLE>
<CAPTION>
(In thousands) 1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
United States $128,273 $139,940 $ 41,024
Foreign 76,827 86,176 59,027
----------------------------
Income before income taxes, extraordinary loss
and cumulative effect of accounting changes $205,100 $226,116 $100,051
============================
</TABLE>
The provision for income taxes for the three years ended September 30, 1995 are
as follows:
<TABLE>
<CAPTION>
(In thousands) 1995 1994 1993
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Currently payable:
United States $ 3,730 $ 10,875 $ 2,552
Foreign 36,604 36,733 19,294
----------------------------
Total currently payable 40,334 47,608 21,846
----------------------------
Deferred:
United States 42,106 46,433 (1,053)
Foreign 2,677 933 20,402
----------------------------
Total deferred 44,783 47,366 19,349
----------------------------
Total provision for income taxes $ 85,117 $ 94,974 $ 41,195
============================
</TABLE>
The provision for income taxes differs from the amount computed by applying the
U.S. statutory income tax rates to income before income taxes, extraordinary
loss and cumulative effect of accounting changes for the reasons set forth
below:
<TABLE>
<CAPTION>
(In thousands) 1995 1994 1993
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory income tax $ 71,785 $ 79,141 $ 34,818
Incremental effect of foreign operations 24,828 21,591 22,812
Goodwill amortization 4,155 5,653 6,903
State income taxes - net of U.S. tax benefit 995 2,940 1,701
Operating loss and credit carryforwards (13,103) (12,662) (26,714)
Other-net (3,543) (1,689) 1,675
------------------------------
Provision for income taxes $ 85,117 $ 94,974 $ 41,195
==============================
</TABLE>
38
<PAGE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes, and operating loss and
tax credit carryforwards. The tax effects of the Company's temporary differences
and carryforwards at September 30, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
(In thousands) 1995 1994
- ------------------------------------------------------------------------
Deferred tax liabilities:
<S> <C> <C>
Property $ 54,500 $ 56,100
Other assets 60,650 33,900
Excess costs arising from acquisitions 59,800 44,400
Undistributed earnings of foreign subsidiaries 34,150 29,600
Other 21,600 15,700
-------------------
Total 230,700 179,700
-------------------
Deferred tax assets:
Receivables 3,200 4,900
Inventory 66,800 48,600
Employee benefits 47,400 36,750
Other accrued expenses 32,500 28,300
Operating loss carryforwards 27,000 27,400
Tax credit carryforwards 32,100 46,960
Other 11,800 7,750
-------------------
Subtotal 220,800 200,660
Valuation allowance (15,900) (28,840)
-------------------
Total 204,900 171,820
-------------------
Net deferred tax liability $ 25,800 $ 7,880
===================
</TABLE>
A valuation allowance is recorded when it is more likely than not that some
portion or all of the deferred tax assets will not be realized. The ultimate
realization of the deferred tax assets depends on the ability to generate
sufficient taxable income of the appropriate character in the future. The
Company has reserved the operating loss carryforwards in certain non-U.S.
jurisdictions where its operations have decreased, currently ceased or the
Company has withdrawn entirely. At September 30, 1994, the Company had fully
reserved the U.S. credit portion of all its foreign tax credit ("FTC")
carryforwards based on a recent historical pattern of expiring foreign tax
credits and the lack of taxable income in amounts sufficient to utilize the
foreign tax credit carryforwards. At September 30, 1995, the Company determined
that a valuation allowance was no longer required for the U.S. credit portion of
its FTC carryforwards based on the expected utilization of FTC carryforwards in
1995 and expectations that taxable income will be generated during the
carryforward period in amounts sufficient to utilize the FTC carryforwards. In
addition, changes in the Company's profitability in Latin America resulted in a
change in the valuation allowance for certain non-U.S. operating loss
carryforwards. These changes in circumstances reduced the valuation allowance by
$8.3 million in 1995.
39
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Baker Hughes Incorporated
Provision has been made for U.S. and additional foreign taxes for the
anticipated repatriation of certain earnings of foreign subsidiaries of the
Company. The Company considers the undistributed earnings of its foreign
subsidiaries above the amount already provided to be permanently reinvested.
These additional foreign earnings could become subject to additional tax if
remitted, or deemed remitted, as a dividend; however, the additional amount of
taxes payable is not practicable to estimate.
At September 30, 1995, the Company had approximately $32.1 million of general
business, alternative minimum tax and foreign tax credits available to offset
future payments of federal income taxes expiring in varying amounts between 1996
and 2008. At September 30, 1995, the Company had approximately $8.4 million of
U.S. capital loss carryforwards, which expire in varying amounts between 1998
and 2000.
NOTE 9 INDUSTRY SEGMENT AND GEOGRAPHIC INFORMATION
The Company operates principally in two industry segments - oilfield and
process.
Oilfield Industry: Manufacture and sale of equipment and provision of services
used during and subsequent to the drilling of oil and gas wells to achieve
safety and long-term productivity, to provide structural integrity to protect
against pressure and corrosion damage and to stimulate or rework wells during
their productive lives by chemical, mechanical or other stimulation means.
Process Industry: Manufacture and sale of process equipment for separating and
treating liquids, solids and slurries for environmental and other process
industries. The process industry also includes the results of Tracor Europa, a
computer peripherals operation.
Disposed Businesses: The disposed businesses segment information includes the
results of significant operations that have been disposed of in prior years.
The Company maintains worldwide manufacturing plants and service locations to
serve these industry segments. Intersegment sales and transfers between
geographic areas are priced at the estimated fair value of the products or
services negotiated between the selling and receiving units. Operating profit is
total revenues less costs and expenses (including unusual charges-net) but
before deduction of general corporate expenses totalling $35.0 million, $32.8
million and $35.6 million in 1995, 1994 and 1993, respectively. Identifiable
assets are those assets that are used by the Company's operations in each
industry segment or are identified with the Company's operations in each
geographic area. Corporate assets consist principally of cash, assets held for
disposal, investments and notes receivable which amount to $253.6 million,
$281.3 million and $231.2 million at September 30, 1995, 1994 and 1993,
respectively.
40
<PAGE>
Summarized financial information concerning the industry segments and geographic
areas in which the Company operated at September 30, 1995, 1994 and 1993 and for
each of the years then ended is shown in the following tables:
<TABLE>
<CAPTION>
Disposed
(In thousands) Oilfield Process Businesses Eliminations Total
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operations by Industry Segment:
1995
Revenues from unaffiliated
customers:
Sales $1,481,969 $323,139 $1,805,108
Services and rentals 806,254 26,102 832,356
Intersegment sales 9 7 $ (16)
--------------------------------------------------------------------------------
Total revenues 2,288,232 349,248 (16) 2,637,464
Operating profit 269,630 32,334 $ (11,083) 290,881
Identifiable assets 2,695,050 211,304 6,923 (318) 2,912,959
Capital expenditures 132,189 5,142 1,545 138,876
Depreciation and amortization 136,311 5,589 2,154 144,054
1994
Revenues from unaffiliated
customers:
Sales $1,366,555 $264,725 $ 96,454 $1,727,734
Services and rentals 744,086 32,938 777,024
Intersegment sales 297 589 4,678 $ (5,564)
--------------------------------------------------------------------------------
Total revenues 2,110,938 298,252 101,132 (5,564) 2,504,758
Operating profit 157,906 21,628 39,116 218,650
Identifiable assets 2,504,512 188,265 30,594 (4,939) 2,718,432
Capital expenditures 100,514 4,188 2,713 1,224 108,639
Depreciation and amortization 141,369 7,260 4,053 1,513 154,195
1993
Revenues from unaffiliated
customers:
Sales $1,332,407 $278,849 $ 334,537 $1,945,793
Services and rentals 710,725 29,479 15,700 755,904
Intersegment sales 359 522 5,154 $ (6,035)
--------------------------------------------------------------------------------
Total revenues 2,043,491 308,850 355,391 (6,035) 2,701,697
Operating profit 178,776 21,820 (6,130) 194,466
Identifiable assets 2,461,070 167,891 285,465 (2,330) 2,912,096
Capital expenditures 106,562 6,059 13,548 732 126,901
Depreciation and amortization 154,304 7,786 15,071 1,457 178,618
</TABLE>
41
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Baker Hughes Incorporated
<TABLE>
<CAPTION>
Western Hemisphere Eastern Hemisphere
----------------------- ------------------
(In thousands) United States Other Europe Other Eliminations Total
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Operations by Geographic Area:
1995
Revenues from unaffiliated
customers:
Sales $ 952,836 $290,317 $ 349,374 $ 212,581 $1,805,108
Services and rentals 260,032 155,650 248,521 168,153 832,356
Transfers between geographic
areas 210,032 28,639 43,534 25,576 $ (307,781)
----------------------------------------------------------------------------------
Total revenues 1,422,900 474,606 641,429 406,310 (307,781) 2,637,464
Operating profit 67,038 77,305 99,914 46,624 290,881
Identifiable assets 1,901,670 348,850 528,454 319,159 (185,174) 2,912,959
Export sales of U.S. companies 89,314 10,414 139,111 238,839
1994
Revenues from unaffiliated
customers:
Sales $ 870,023 $253,834 $ 362,994 $ 240,883 $1,727,734
Services and rentals 308,106 108,282 209,875 150,761 777,024
Transfers between geographic
areas 180,345 23,177 36,588 23,433 $ (263,543)
----------------------------------------------------------------------------------
Total revenues 1,358,474 385,293 609,457 415,077 (263,543) 2,504,758
Operating profit 33,439 59,688 65,077 60,446 218,650
Identifiable assets 1,631,374 278,109 552,104 411,317 (154,472) 2,718,432
Export sales of U.S. companies 77,219 14,883 152,478 244,580
1993
Revenues from unaffiliated
customers:
Sales $ 929,943 $254,678 $ 371,346 $ 389,826 $1,945,793
Services and rentals 281,844 95,325 195,224 183,511 755,904
Transfers between geographic
areas 175,411 23,039 48,252 28,183 $ (274,885)
----------------------------------------------------------------------------------
Total revenues 1,387,198 373,042 614,822 601,520 (274,885) 2,701,697
Operating profit (20,640) 43,077 65,606 106,423 194,466
Identifiable assets 1,689,377 298,381 663,132 402,428 (141,222) 2,912,096
Export sales of U.S. companies 79,236 14,503 197,607 291,346
</TABLE>
42
<PAGE>
NOTE 10 EMPLOYEE BENEFIT PLANS
Postretirement Benefits Other Than Pensions
The Company provides postretirement health care benefits for substantially all
U.S. employees. Expense recognized in 1995 and 1994 under SFAS No. 106 was $9.5
million and $8.8 million, respectively. In 1993, the Company recognized $9.5
million as expense for postretirement health care benefits under the cash basis
method. The Company's postretirement plans are not funded.
The following table sets forth the funded status and amounts recognized in the
Company's consolidated statements of financial position at September 30, 1995
and 1994:
<TABLE>
<CAPTION>
(In thousands) 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Accumulated postretirement benefit obligation ("APBO"):
Retirees $ (70,885) $ (83,449)
Fully eligible active plan participants (9,568) (9,856)
Other active plan participants (17,683) (19,920)
---------------------
Total (98,136) (113,225)
Unrecognized net (gain) loss (8,740) 7,595
---------------------
Accrued postretirement benefit cost $(106,876) $(105,630)
======================
Net periodic postretirement benefit cost (in thousands):
Service cost of benefits earned $ 1,300 $ 1,300
Interest cost on APBO 8,200 7,500
----------------------
Net periodic postretirement benefit cost $ 9,500 $ 8,800
======================
</TABLE>
The assumed health care cost trend rate used in measuring the APBO as of
September 30, 1995 was 8.0% for 1996 declining gradually each successive year
until it reaches 5% in 2002, after which it remains constant. A 1% increase in
the trend rate for health care costs would have increased the APBO by
approximately 5% and the aggregate of the service and interest cost components
of the net periodic postretirement benefit cost by approximately 5%. The assumed
discount rate used in determining the APBO was 7.5%.
Defined Benefit Pension Plans
The Company has several noncontributory defined benefit pension plans covering
various domestic and foreign employees. Pension expense for these plans was $1.4
million, $1.4 million and $1.3 million in 1995, 1994 and 1993, respectively.
Generally, the Company makes annual contributions to the plans in amounts
necessary to meet minimum governmental funding requirements.
43
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Baker Hughes Incorporated
Net pension expense includes the following components:
<TABLE>
<CAPTION>
(In thousands) 1995 1994 1993
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost - benefits earned during the period $ 1,375 $ 954 $ 1,413
Interest cost on projected benefit obligation 2,406 2,329 3,348
Actual return on assets (4,793) (1,710) (3,545)
Net amortization and deferral 2,391 (216) 126
---------------------------
Net pension expense $ 1,379 $ 1,357 $ 1,342
===========================
</TABLE>
The weighted average assumptions used in the accounting for the defined benefit
plans were:
<TABLE>
<CAPTION>
1995 1994 1993
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Discount rate 7.3% 7.7% 7.3%
Rates of increase in compensation levels 3.0% 3.5% 4.5%
Expected long-term rate of return on assets 8.5% 8.6% 8.8%
</TABLE>
The following table sets forth the funded status and amounts recognized in the
Company's consolidated statements of financial position at September 30, 1995
and 1994:
<TABLE>
<CAPTION>
1995 1994
# Overfunded Underfunded Overfunded Underfunded
(In thousands) Plans Plans Plans Plans
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation $(21,906) $ (9,316) $(15,309) $(12,922)
=================================================
Accumulated benefit obligation $(22,826) $ (9,995) $(15,518) $(13,848)
=================================================
Projected benefit obligation $(24,050) $(11,752) $(16,812) $(16,185)
Plan assets at fair value 30,828 3,324 22,159 7,387
-------------------------------------------------
Projected benefit obligation (in excess of) less than plan assets 6,778 (8,428) 5,347 (8,798)
Unrecognized prior service cost 371 259 98
Unrecognized net (gain) loss (2,922) (251) (2,024) 239
Unrecognized net liability at transition 7 327 320 97
-------------------------------------------------
Prepaid pension cost (pension liability) $ 4,234 $ (8,352) $ 3,902 $ (8,364)
=================================================
</TABLE>
Pension plan assets are primarily mortgages, private placements, bonds and
common stocks.
Thrift Plan
Virtually all U.S. employees not covered under one of the Company's pension
plans are eligible to participate in the Company sponsored Thrift Plan. The
Thrift Plan allows eligible employees to elect to contribute from 2% to 15% of
their salaries to an investment trust. Employee contributions are matched by the
Company at the rate of $1.00 per $1.00 employee contribution for the first 2%
and $.50 per $1.00 employee contribution for the next 4% of the employee's
salary. In addition, the Company contributes for
44
<PAGE>
all eligible employees between 2% and 5% of their salary depending on the
employee's age as of January 1 each year with such contributions becoming fully
vested to the employee after five years of employment. The Company's
contribution to the Thrift Plan and other defined contribution plans amounted to
$27.5 million, $26.3 million and $23.6 million in 1995, 1994 and 1993,
respectively.
Postemployment Benefits
The Company provides certain postemployment benefits to substantially all
domestic former or inactive employees following employment but before
retirement. Net postemployment expense in 1995 under SFAS No. 112 was $2.8
million, which consisted of service and interest cost of $1.0 million and $1.8
million, respectively. Expense in 1994 and 1993 was $2.0 million and $2.2
million, respectively. Certain disability income benefits are provided through a
qualified plan which is funded by contributions from the Company and employees.
The primary asset of the plan is a guaranteed insurance contract with an
insurance company. At September 30, 1995, the disability income obligation was
$10.2 million assuming a discount rate of 7% and the guaranteed insurance
contract had a contract value of $18.6 million. Certain additional benefits,
primarily the continuation of medical benefits while on disability, are provided
through a nonqualified, unfunded plan. At September 30, 1995, the plan has an
accumulated benefit obligation of $27.8 million assuming a discount rate of 7%.
NOTE 11 STOCKHOLDER RIGHTS AGREEMENT AND OTHER MATTERS
The Company has a Stockholder Rights Agreement to protect against coercive
takeover tactics. Pursuant to the agreement, the Company distributed to its
stockholders one Right for each outstanding share of common stock. Each Right
entitles the holder to purchase from the Company .01 of a share of the Series
One Junior Participating Preferred Stock and, under certain circumstances,
securities of the Company or an acquiring entity at 1/2 market value. The Rights
are exercisable only if a person or group either acquires 20% or more of the
Company's outstanding common stock or makes a tender offer for 30% or more of
the Company's common stock. The Rights may be redeemed by the Company at a price
of $.03 per Right at any time prior to a person or group acquiring 20% or more
of the Company's common stock. The Rights will expire on March 23, 1998.
Supplemental consolidated statement of operations information is as follows:
<TABLE>
<CAPTION>
(In thousands) 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating leases (generally transportation equipment and warehouse facilities) $32,952 $30,089 $36,500
Research and development 37,423 37,393 41,067
Income taxes paid 49,672 39,397 43,112
Interest paid 45,206 55,488 65,673
</TABLE>
At September 30, 1995, the Company had long-term operating leases covering
certain facilities and equipment on which minimum annual rental commitments for
each of the five years in the period ending September 30, 2000 are $28.7
million, $19.3 million, $12.2 million, $8.1 million and $7.0 million,
respectively, and $46.6 million in the aggregate thereafter. The Company has not
entered into any significant capital leases.
45
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Baker Hughes Incorporated
NOTE 12 LITIGATION
Glyn Snell
In August 1994, the Company made a payment of $7.5 million to settle a class
action suit on behalf of Glyn Snell and other royalty interest owners
implicating Dresser Industries, BJ Services Company USA, Inc., the Company and
affiliates in damages to the same wells included in the Parker & Parsley
litigation.
TRW Inc.
In January 1994, the Company paid $10.4 million to TRW Inc. ("TRW") to satisfy a
judgment TRW had obtained in connection with a damage suit filed against the
Company and affiliates in connection with the sale of certain disc and decanter
machines by the affiliates prior to the Company's acquisition of the affiliates
in 1989.
Other
See Note 3 for additional litigation matters that have been resolved. The
Company is sometimes named as a defendant in litigation relating to the products
and services it provides. The Company insures against these risks to the extent
deemed prudent by its management, but no assurance can be given that the nature
and amount of such insurance will in every case fully indemnify the Company
against liabilities arising out of pending and future legal proceedings relating
to its ordinary business activities.
NOTE 13 ENVIRONMENTAL MATTERS
The Company's past and present operations include activities which are subject
to extensive federal and state environmental regulations.
The Company has been identified as a potentially responsible party ("PRP") in
remedial activities related to various "Superfund" sites. Applicable federal law
imposes joint and several liability on each PRP for the cleanup of these sites
leaving the Company with the uncertainty that it may be responsible for the
remediation cost attributable to other PRPs who are unable to pay their share of
the remediation costs. Generally, the Company has determined its share of such
total cost based on the ratio that the number of gallons of waste estimated to
be contributed to the site by the Company bears to the total number of gallons
of waste estimated to have been disposed at the site. The Company has accrued
what it believes to be its share of the total cost of remediation of these
Superfund sites. No accrual has been made under the joint and several liability
concept since the Company believes that the probability that it will have to pay
material costs above its share is remote due to the fact that the other PRPs
have substantial assets available to satisfy their obligation.
At September 30, 1995 and 1994, the Company had accrued approximately $13.3
million and $18.8 million, respectively, for remediation costs, including the
Superfund sites referred to above. The measurement of the accruals for
remediation costs is subject to uncertainties, including the evolving nature of
environmental regulations and the difficulty in estimating the extent and remedy
of agreements may be available to the Company to mitigate the remediation costs,
such amounts have not been considered in measuring the remediation accrual. The
Company believes that the likelihood of material losses in excess of those
amounts recorded is remote.
46
<PAGE>
NOTE 14 QUARTERLY DATA (UNAUDITED):
Summarized quarterly financial data for the years ended September 30, 1995 and
1994 are shown in the table below:
<TABLE>
<CAPTION>
(In thousands of dollars, First Second Third Fourth Fiscal Year
except per share amounts) Quarter Quarter Quarter Quarter Total
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Fiscal Year 1995: *
Revenues $ 606,917 $ 652,609 $ 668,404 $ 709,534 $2,637,464
Gross Profit ** 105,006 124,304 124,495 134,871 488,676
Income before cumulative
effect
of accounting change 24,231 28,000 32,242 35,510 119,983
Net income 9,633 28,000 32,242 35,510 105,385
Per share of common stock:
Income before
cumulative effect
of accounting change .15 .18 .09 .25 .67
Net income .05 .18 .09 .25 .57
Dividends per share .115 .115 .115 .115 .46
Fiscal Year 1994: *
Revenues $ 624,562 $ 650,016 $ 590,532 $ 639,648 $2,504,758
Gross Profit ** 104,882 114,747 100,293 102,091 422,013
Income before
extraordinary loss and
cumulative effect of
accounting changes 16,879 23,288 34,439 56,536 131,142
Net income (loss) (27,286) 23,288 22,651 24,004 42,657
Per share of common stock:
Income before
extraordinary loss and
cumulative effect of
accounting changes .10 .14 .22 .39 .85
Net income (loss) (.22) .14 .14 .16 .22
Dividends per share .115 .115 .115 .115 .46
</TABLE>
* See Notes 1, 2, 3 and 4 for information regarding accounting changes and
earnings per share calculation, dispositions, unusual charges-net and the
extraordinary loss, respectively.
** Represents revenues less (i) cost of sales, (ii) cost of services and
rentals, (iii) research and engineering expense and (iv) marketing and field
service expense.
Stock Prices by Quarter
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
30
25
$24 3/4 $23 3/4 $23 3/8
$22 1/8 $22 $22 1/8 $19 7/8 $20
20 $18 7/8 $18 3/8 $20 7/8 $20 3/4
$17 $17 1/4 $17 $16 3/4
15
10
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
--------------------------------------------------------- ---------------------------------------------------------
1994 1995
</TABLE>
47
<PAGE>
FIVE YEAR SUMMARY OF FINANCIAL INFORMATION Baker Hughes Incorporated
<TABLE>
<CAPTION>
(In thousands, except per share amounts) 1995 1994 1993 1992 1991
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total revenues $2,637,464 $2,504,758 $2,701,697 $2,538,515 $2,828,357
-----------------------------------------------------------------------------------------
Costs and expenses:
Costs and expenses applicable
to revenues 2,148,788 2,082,745 2,262,545 2,132,928 2,283,064
General and administrative 232,787 214,788 238,238 232,407 249,833
Unusual charges - net 31,829 42,000 79,190 62,946
Operating income of business sold (10,488)
-----------------------------------------------------------------------------------------
Total 2,381,575 2,318,874 2,542,783 2,444,525 2,595,843
-----------------------------------------------------------------------------------------
Operating income 255,889 185,884 158,914 93,990 232,514
Gain on sale of Pumpsystems 101,000
Gain on sale of subsidiary stock 56,103
Interest expense (55,595) (63,835) (64,703) (68,112) (83,561)
Interest income 4,806 3,067 5,840 6,078 7,295
-----------------------------------------------------------------------------------------
Income before income taxes,
extraordinary loss and cumulative
effect of accounting changes 205,100 226,116 100,051 31,956 212,351
Income taxes (85,117) (94,974) (41,195) (26,925) (38,893)
-----------------------------------------------------------------------------------------
Income before extraordinary loss and
cumulative effect of accounting
changes 119,983 131,142 58,856 5,031 173,458
Extraordinary loss (44,320)
Cumulative effect of accounting changes (14,598) (44,165)
-----------------------------------------------------------------------------------------
Net income $ 105,385 $ 42,657 $ 58,856 $ 5,031 $ 173,458
=========================================================================================
Per share of common stock:
Income before extraordinary loss and
cumulative effect of accounting
changes $ .67 $ .85 $ .34 $ .00 $ 1.26
Net income .57 .22 .34 .00 1.26
Dividends .46 .46 .46 .46 .46
Financial Position:
Cash and cash equivalents $ 6,817 $ 69,179 $ 6,992 $ 6,692 $ 51,709
Working capital 984,684 855,421 920,969 715,472 652,404
Total assets 3,166,591 2,999,682 3,143,340 3,212,938 2,905,602
Long-term debt 798,352 637,972 935,846 812,465 545,242
Stockholders' equity 1,513,606 1,638,472 1,610,648 1,645,522 1,545,361
</TABLE>
See Note 1 of Notes to Consolidated Financial Statements for a discussion of the
adoption of new accounting standards in 1995 and 1994. In addition to the
dispositions discussed in Note 2 of Notes to Consolidated Financial Statements,
the Company acquired Teleco Oilfield Services Inc. in 1992 and ChemLink Group,
Inc. in 1991. The Company also sold Baker Hughes Tubular Services ("BHTS") in
1992 and the TOTCO division of Exlog, Inc. and the remaining 29% of BJ Services
Company in 1991. See Note 3 of Notes to Consolidated Financial Statements for a
description of the unusual charges-net in 1994 and 1993. The unusual charges-net
in 1992 consisted primarily of restructurings in Oilfield Operations and
litigation claims offset by the gain on the disposition of BHTS. The unusual
charges-net in 1991 consisted primarily of the restructuring of Hughes
Christensen Company and litigation and insurance claims offset by the gain on
the disposition of TOTCO. See Note 4 of Notes to Consolidated Financial
Statements for a description of the extraordinary loss in 1994.
48
<PAGE>
<TABLE>
<CAPTION>
Baker Hughes Incorporated-Exhibit 21.1
PERCENTAGE PERCENTAGE
JURISDICTION OR OWNED BY OWNED BY
NAME OF SUBSIDIARIES AND SUB-SUBSIDIARIES ORGANIZATION REGISTRANT SUBSIDIARY
<S> <C> <C> <C>
Azimuth Sales Ltd. Cayman Islands 100%
Baker Canada Holding, Inc. Delaware (6)
Baker Hughes Canada Inc. Canada 100%
Baker Hughes INTEQ Operating Division ---
Baker Hughes Mining Tools Operating Division ---
Baker Hughes Wyoming LLC Wyoming (20)
Baker Oil Tools Canada Operating Division ---
Baker Performance Chemicals Operating Division ---
Baker Supply Products Operating Division ---
Bird Machine of Canada Operating Division ---
Canada Intermediates/CHEM-LINK Trade Name ---
Centrilift Canada Operating Division ---
Chem-Link Operating Division ---
Christensen Diamond Products del Peru S.A. Peru 100%
Econolift Systems Canada Operating Division ---
Eimco Fluid Process International Operating Division ---
Eimco Process Equipment Operating Division ---
Eimco-Wemco Chile Ltda. Chile (19)
Ramsey Comercio Industria Ltd. Brazil (8)
Baker Holdings (U.S.), Inc. Nevada 100%
Baker Hughes (U.K.) Ltd. England (2)
BFCC Ltd. England 100%
Baker Hughes (BJ) Limited Scotland 100%
Baker Hughes France S.A. France (1)
Baker Hughes INTEQ S.A. Gabon (27)
Baker Hughes INTEQ Administrative Services S.A.R.L. France 100%
Baker Hughes INTEQ-France S.A. France 100%
Baker Hughes INTEQ Congo S.A.R.L. Congo 100%
Baker Hughes INTEQ S.A. Gabon (27)
CECA, U.A.E. Abu Dhabi 100%
CKS Drilling Fluids Services, Inc. Delaware 100%
CKS Espanola S.A. Spain 80%
Drilling Fluids Services (Far East) Sdn. Bhd. Malaysia 70%
Malaysia Mud and Chemicals Sdn. Bhd. Malaysia 50%
EXLOG Samega S.N.C. France 100%
Hughes Christensen France Operating Division ---
Milpark - CKS de Angola Angola 100%
Milpark Nigeria Ltd. Nigeria 60%
Baker International S.A. France 100%
Baker Hughes INTEQ S.A. Gabon (27)
Eimco Wemco S.A. France 100%
Baker Hughes (M) Sdn. Bhd. Malaysia 49%
Baker Hughes Limited England 100%
Baker Hughes INTEQ Operating Division ---
Baker Hughes Process Systems Operating Division ---
Baker Oil Tools U.K. Operating Division ---
Baker Performance Chemicals Operating Division ---
Aquaness Assumed Name ---
Centrilift U.K. Operating Division ---
Hughes Christensen Operating Division ---
Wemco G.B. Operating Division ---
Baker Oil Tools (UK) Limited England 100%
</TABLE>
Page 1
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE
JURISDICTION OR OWNED BY OWNED BY
NAME OF SUBSIDIARIES AND SUB-SUBSIDIARIES ORGANIZATION REGISTRANT SUBSIDIARY
<S> <C> <C> <C>
Baker Production Services (UK) Limited England 100%
Eastman Christensen de Espana, S.A. Spain 100%
Eimco Process Equipment Limited England 100%
Hughes Tool Company of Australia Limited Delaware (28)
Hughes Tool Company Limited England 100%
Baker Service Tools B.V. The Netherlands 100%
Centrilift Netherlands Operating Division ---
Lombard Baker Leasing Co. England Partnership 49%
P.T. Eastman Christensen Indonesia Indonesia (26)
Technical Oilfield Services Ltd. England 100%
Tri-State Oil Tool (U.K.) Limited England 100%
Baker Quimica de Colombia S.A. Colombia (13)
Eimco-Wemco de Colombia S.A. Colombia (21)
Baker Hughes Australia Holding, Inc. Delaware (4)
Baker Hughes Australia Pty. Limited Australia (30)
BHA Superannuation (Nominees) Pty. Limited Australia 100%
Baker Hughes INTEQ Operating Division ---
Baker Hughes Mining Tools of Australia Operating Division ---
Baker Oil Tools Australia Operating Division ---
Centrilift-Australia Operating Division ---
Eastman Christensen (Australia) Pty. Limited Australia 100%
Hughes Christensen Operating Division ---
Teleco Oilfield Services Pty. Limited Western Australia 100%
Baker Hughes PNG Pty. Ltd. New Guinea (24)
Baker Hughes do Brasil Ltda. Brazil (9)
Baker Hughes Equipamentos Ltda. Operating Division ---
Centrilift Brazil Operating Division ---
Exploration Logging Brazil Operating Division ---
Hughes Tool do Brazil Operating Division ---
Baker Hughes Equipamentos Ltda. Brazil (5)
Baker Hughes Finance, Inc. Delaware 100%
Baker Hughes Environmental Services, Inc. Delaware 100%
Baker Hughes France S.A. France (1)
Baker Hughes INTEQ S.A. Gabon (27)
Baker Hughes INTEQ Administrative Services S.A.R.L. France 100%
Baker Hughes INTEQ-France S.A. France 100%
Baker Hughes INTEQ Congo S.A.R.L. Congo 100%
Baker Hughes INTEQ S.A. Gabon (27)
CECA, U.A.E. Abu Dhabi 100%
CKS Drilling Fluids Services, Inc. Delaware 100%
CKS Espanola S.A. Spain 80%
Drilling Fluids Services (Far East) Sdn. Bhd. Malaysia 70%
Malaysia Mud and Chemicals Sdn. Bhd. Malaysia 50%
EXLOG Samega S.N.C. France 100%
Hughes Christensen France Operating Division ---
Milpark - CKS de Angola Angola 100%
Milpark Nigeria Ltd. Nigeria 60%
Baker International S.A. France 100%
Baker Hughes INTEQ S.A. Gabon (27)
Eimco Wemco S.A. France 100%
Baker Hughes FSC Inc. Barbados 100%
</TABLE>
Page 2
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE
JURISDICTION OR OWNED BY OWNED BY
NAME OF SUBSIDIARIES AND SUB-SUBSIDIARIES ORGANIZATION REGISTRANT SUBSIDIARY
<S> <C> <C> <C>
Baker Hughes Holding Company Delaware 100%
Baker Hughes Argentina, S.A. Argentina (35)
Centrilift/Kobe Operating Division ---
Hughes Christensen Operating Division ---
Hughes Tool Company Chile Ltda. Chile 95%
Lufkin Argentina S.A. Argentina (18)
Baker Hughes Oilfield Operations, Inc. California 100%
Baker Canada Holding, Inc. Delaware (6)
Baker Hughes Canada Inc. Canada 100%
Baker Hughes INTEQ Operating Division ---
Baker Hughes Mining Tools Operating Division ---
Baker Hughes Wyoming LLC Wyoming (20)
Baker Oil Tools Canada Operating Division ---
Baker Performance Chemicals Operating Division ---
Baker Supply Products Operating Division ---
Bird Machine of Canada Operating Division ---
Canada Intermediates/CHEM-LINK Trade Name ---
Centrilift Canada Operating Division ---
Chem-Link Operating Division ---
Christensen Diamond Products del Peru S.A. Peru 100%
Econolift Systems Canada Operating Division ---
Eimco Fluid Process International Operating Division ---
Eimco Process Equipment Operating Division ---
Eimco-Wemco Chile Ltda. Chile (19)
Ramsey Comercio Industria Ltd. Brazil (8)
Baker Eastern S.A. Panama 100%
Baker Hughes de Venezuela S.A. Venezuela (36)
Baker Sand Control Venezuela Operating Division ---
Baker Eastern S.A. Operating Division ---
Baker Nigeria Ltd. Nigeria (11)
Baker Far East Ltd. Bermuda 100%
Baker Hughes Australia Holding, Inc. Delaware (4)
Baker Hughes Australia Pty. Limited Australia (30)
BHA Superannuation (Nominees) Pty. Limited Australia 100%
Baker Hughes INTEQ Operating Division ---
Baker Hughes Mining Tools of Australia Operating Division ---
Baker Oil Tools Australia Operating Division ---
Centrilift-Australia Operating Division ---
Eastman Christensen (Australia) Pty. Limited Australia 100%
Hughes Christensen Operating Division ---
Teleco Oilfield Services Pty. Limited Western Australia 100%
Baker Hughes PNG Pty. Ltd. New Guinea (24)
Baker Hughes (C.I.) Ltd. Cayman Islands 100%
Baker Hughes Singapore Pte. Singapore (33)
Baker Hughes INTEQ Operating Division ---
Baker Hughes Process Systems Operating Division ---
Baker Oil Tools Asia Pacific Operating Division ---
Baker Sand Control Operating Division ---
Bird Machine Operating Division ---
Centrilift Operating Division ---
Eastman Teleco Operating Division ---
Eimco Process Equipment Operating Division ---
EXLOG Operating Division ---
</TABLE>
Page 3
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE
JURISDICTION OR OWNED BY OWNED BY
NAME OF SUBSIDIARIES AND SUB-SUBSIDIARIES ORGANIZATION REGISTRANT SUBSIDIARY
<S> <C> <C> <C>
Hughes Christensen/Singapore Operating Division ---
Milpark Drilling Fluids Operating Division ---
Tri-State Oil Tools Singapore Operating Division ---
Baker Hughes de Mexico, S. de R.L. de C.V. Mexico (7)
Baker Hughes Services de Mexico S.A. de C.V. Mexico (31)
Proveedores Para Operaciones Energeticas S.A. de C.V. Mexico (12)
Baker Hughes de Venezuela S.A. Venezuela (36)
Baker Sand Control Venezuela Operating Division ---
Baker Hughes Drilling Systems (Bolivia) Ltda. Bolivia 100%
Baker Hughes INTEQ Operating Division ---
Baker Hughes INTEQ Cameroon Cameroon 100%
Baker Hughes INTEQ S.A. Gabon (27)
Baker Hughes INTEQ de Venezuela S.A. Venezuela 100%
Bank Sand Control Venezuela Operating Division ---
Baker Hughes INTEQ International Branches, Inc. Delaware 100%
Baker Hughes Australia Holding, Inc. Delaware (4)
Baker Hughes Australia Pty. Limited Australia (30)
BHA Superannuation (Nominees) Pty. Limited Australia 100%
Baker Hughes INTEQ Operating Division ---
Baker Hughes Mining Tools of Australia Operating Division ---
Baker Oil Tools Australia Operating Division ---
Centrilift-Australia Operating Division ---
Eastman Christensen (Australia) Pty. Limited Australia 100%
Hughes Christensen Operating Division ---
Teleco Oilfield Services Pty. Limited Western Australia 100%
Baker Hughes PNG Pty. Ltd. New Guinea (24)
Baker Hughes INTEQ International Ltd. Bermuda 100%
Eastman Whipstock (China) Ltd. Hong Kong 100%
Baker Hughes Mining Tools Peru, S.A. Peru 100%
Baker Hughes Norge A/S Norway 100%
Baker Hughes INTEQ Operating Division ---
Baker Oil Tools Operating Division ---
Centrilift Operating Division ---
Hughes Christensen Norway Operating Division ---
Baker Hughes Services de Mexico S.A. de C.V. Mexico (31)
Baker Hughes Services International, Inc. Delaware 100%
Baker Hughes S.p.A. Italy (14)
Baker Hughes INTEQ Operating Division ---
Baker Oil Tools Operating Division ---
Eimco Operating Division ---
Hughes Christensen Operating Division ---
Baker Hughes Thailand Co., Ltd. Thailand 100%
Baker International Cote D'Ivoire S.A.R.L. Ivory Coast (10)
Baker (Malaysia) Sdn. Bhd. Malaysia 100%
Baker Oil Tools Malaysia Operating Division ---
Baker Nigeria Ltd. Nigeria (11)
Baker Oil Tools Operating Division ---
Baker Oil Tools SPD Operating Division ---
Baker Oil Tools Surface Safety Systems Company D/B/A ---
Elder Oil Tools Operating Division ---
Tri-State Oil Tools Operating Unit ---
Baker Oil Tools (Brunei) Sdn. Bhd. Brunei 50%
Baker Performance Chemicals Incorporated California 100%
Alamex, Inc. Delaware 100%
</TABLE>
Page 4
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE
JURISDICTION OR OWNED BY OWNED BY
NAME OF SUBSIDIARIES AND SUB-SUBSIDIARIES ORGANIZATION REGISTRANT SUBSIDIARY
<S> <C> <C> <C>
Aquaness Chemicals Operating Division ---
Aquaness Industrias de Venezuela, S.A. Venezuela 100%
Aquaness Quimica de Venezuela S.A. Venezuela 55%
Baker Canada Holding, Inc. Delaware (6)
Baker Hughes Canada Inc. Canada 100%
Baker Hughes INTEQ Operating Division ---
Baker Hughes Mining Tools Operating Division ---
Baker Hughes Wyoming LLC Wyoming (20)
Baker Oil Tools Canada Operating Division ---
Baker Performance Chemicals Operating Division ---
Baker Supply Products Operating Division ---
Bird Machine of Canada Operating Division ---
Canada Intermediates/CHEM-LINK Trade Name ---
Centrilift Canada Operating Division ---
Chem-Link Operating Division ---
Christensen Diamond Products del Peru S.A. Peru 100%
Econolift Systems Canada Operating Division ---
Eimco Fluid Process International Operating Division ---
Eimco Process Equipment Operating Division ---
Eimco-Wemco Chile Ltda. Chile (19)
Ramsey Comercio Industria Ltd. Brazil (8)
Baker Pipeline Products Operating Division ---
Baker Quimica de Colombia S.A. Colombia (13)
Eimco-Wemco de Colombia S.A. Colombia (21)
ChemLink Operating Division ---
Magna Herbicide D/B/A ---
Magna International Limited Bermuda 100%
Oreprep D/B/A ---
P.T. Elnusa Chemlink Indonesia 49%
South Kern Industrial Partnership California Partnership (37)
Baker Production Services, Inc. Texas 100%
BHT Products Texas Partnership (29)
Baker Production Services (Bermuda) Ltd. Bermuda 100%
Baker Mira Saudi Arabia Limited Saudi Arabia (32)
Baker Hughes de Venezuela S.A. Venezuela (36)
Baker Sand Control Venezuela Operating Division ---
Baker Production Technology International Inc. Nevada 100%
Baker Hughes Australia Holding, Inc. Delaware (4)
Baker Hughes Australia Pty. Limited Australia (30)
BHA Superannuation (Nominees) Pty. Limited Australia 100%
Baker Hughes INTEQ Operating Division ---
Baker Hughes Mining Tools of Australia Operating Division ---
Baker Oil Tools Australia Operating Division ---
Centrilift-Australia Operating Division ---
Eastman Christensen (Australia) Pty. Limited Australia 100%
Hughes Christensen Operating Division ---
Teleco Oilfield Services Pty. Limited Western Australia 100%
Baker Hughes PNG Pty. Ltd. New Guinea (24)
Baker Hughes (Deutschland) Holding GmbH Germany 100%
Baker Hughes (Deutschland) GmbH Germany 100%
Baker Hughes INTEQ GmbH Germany 100%
Gummiwerk Christensen-Netzsch GmbH Germany 50%
Hughes Christensen Operating Division ---
</TABLE>
Page 5
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE
JURISDICTION OR OWNED BY OWNED BY
NAME OF SUBSIDIARIES AND SUB-SUBSIDIARIES ORGANIZATION REGISTRANT SUBSIDIARY
<S> <C> <C> <C>
Baker Oil Tools Germany Operating Division ---
Centrilift Germany Operating Division ---
Eimco Operating Division ---
Lynes International Services Inc. Panama 100%
Baker Quimica de Colombia S.A. Colombia (13)
Eimco-Wemco de Colombia S.A. Colombia (21)
Baker Real Estate Operating Division ---
Baker RTC (Delaware), Inc. Delaware 100%
Baker Canada Holding, Inc. Delaware (6)
Baker Hughes Canada Inc. Canada 100%
Baker Hughes INTEQ Operating Division ---
Baker Hughes Mining Tools Operating Division ---
Baker Hughes Wyoming LLC Wyoming (20)
Baker Oil Tools Canada Operating Division ---
Baker Performance Chemicals Operating Division ---
Baker Supply Products Operating Division ---
Bird Machine of Canada Operating Division ---
Canada Intermediates/CHEM-LINK Trade Name ---
Centrilift Canada Operating Division ---
Chem-Link Operating Division ---
Christensen Diamond Products del Peru S.A. Peru 100%
Econolift Systems Canada Operating Division ---
Eimco Fluid Process International Operating Division ---
Eimco Process Equipment Operating Division ---
Eimco-Wemco Chile Ltda. Chile (19)
Ramsey Comercio Industria Ltd. Brazil (8)
Baker Hughes Australia Holding, Inc. Delaware (4)
Baker Hughes Australia Pty. Limited Australia (30)
BHA Superannuation (Nominees) Pty. Limited Australia 100%
Baker Hughes INTEQ Operating Division ---
Baker Hughes Mining Tools of Australia Operating Division ---
Baker Oil Tools Australia Operating Division ---
Centrilift-Australia Operating Division ---
Eastman Christensen (Australia) Pty. Limited Australia 100%
Hughes Christensen Operating Division ---
Teleco Oilfield Services Pty. Limited Western Australia 100%
Baker Hughes PNG Pty. Ltd. New Guinea (24)
Baker Canada Holding, Inc. Delaware (6)
Baker Hughes Canada Inc. Canada 100%
Baker Hughes INTEQ Operating Division ---
Baker Hughes Mining Tools Operating Division ---
Baker Hughes Wyoming LLC Wyoming (20)
Baker Oil Tools Canada Operating Division ---
Baker Performance Chemicals Operating Division ---
Baker Supply Products Operating Division ---
Bird Machine of Canada Operating Division ---
Canada Intermediates/CHEM-LINK Trade Name ---
Centrilift Canada Operating Division ---
Chem-Link Operating Division ---
Christensen Diamond Products del Peru S.A. Peru 100%
Econolift Systems Canada Operating Division ---
Eimco Fluid Process International Operating Division ---
Eimco Process Equipment Operating Division ---
</TABLE>
Page 6
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE
JURISDICTION OR OWNED BY OWNED BY
NAME OF SUBSIDIARIES AND SUB-SUBSIDIARIES ORGANIZATION REGISTRANT SUBSIDIARY
<S> <C> <C> <C>
Eimco-Wemco Chile Ltda. Chile (19)
Ramsey Comercio Industria Ltd. Brazil (8)
Baker RTC International Limited Bermuda 100%
Baker Hughes Services de Venezuela C.A. Venezuela 100%
Centrilift Colombia/Ecuador Operating Division ---
Productos Centrilift S.A. Venezuela 100%
Reed Rock do Brazil Industrial Ltda. Brazil 99%
Baker Sand Control Limited Bermuda 100%
Baker Hughes de Venezuela S.A. Venezuela (36)
Baker Sand Control Venezuela Operating Division ---
Baker Sand Control Services Pte. Ltd. Singapore 100%
Baker Sand Control Servicios Tecnicos, Ltda. Brazil (15)
Baker Transworld, Inc. California 100%
Baker Canada Holding, Inc. Delaware (6)
Baker Hughes Canada Inc. Canada 100%
Baker Hughes INTEQ Operating Division ---
Baker Hughes Mining Tools Operating Division ---
Baker Hughes Wyoming LLC Wyoming (20)
Baker Oil Tools Canada Operating Division ---
Baker Performance Chemicals Operating Division ---
Baker Supply Products Operating Division ---
Bird Machine of Canada Operating Division ---
Canada Intermediates/CHEM-LINK Trade Name ---
Centrilift Canada Operating Division ---
Chem-Link Operating Division ---
Christensen Diamond Products del Peru S.A. Peru 100%
Econolift Systems Canada Operating Division ---
Eimco Fluid Process International Operating Division ---
Eimco Process Equipment Operating Division ---
Eimco-Wemco Chile Ltda. Chile (19)
Ramsey Comercio Industria Ltd. Brazil (8)
Baker International Cote D'Ivoire S.A.R.L. Ivory Coast (10)
Baker Transworld, Inc. y Compania Limitada Chile Chile (17)
Eimco-Wemco de Colombia S.A. Colombia (21)
Baker Transworld, Inc. y Compania Limitada Chile Chile (17)
Bakerline Far East, Inc. Delaware 100%
Bakerline Services Ltd. Cayman Islands 100%
Centrilift-U.S. Operating Division ---
Baker Hughes Production Services Operating Division ---
Centrilift-Peru Operating Division ---
Christensen-Netzsch Rubber, Inc. Oklahoma 50%
Christensen Gulf Services Limited Liability Company Dubai 40%
ChuanShi Christensen Diamond Bit Company, Ltd. China 50%
Clays Pump Service Operating Division ---
Eastman Whipstock (Cameroon) S.A.R.L. Cameroon 100%
Eisenman Chemical Company Delaware 100%
EXLOG (A.G.) Limited Jersey 100%
EXLOG International, Inc. Panama 100%
EXLOG Egypt Operating Division ---
EXLOG International-Asia Pacific Operating Division ---
EXLOG International-Papua New Guinea Operating Division ---
PT Sarana Indonesia Operating Division ---
EXLOG (Malaysia) Sdn. Bhd. Malaysia 100%
</TABLE>
Page 7
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE
JURISDICTION OR OWNED BY OWNED BY
NAME OF SUBSIDIARIES AND SUB-SUBSIDIARIES ORGANIZATION REGISTRANT SUBSIDIARY
<S> <C> <C> <C>
EXLOG Overseas, Inc. Panama 100%
EXLOG S.A. Nevada 100%
Baker Hughes Argentina S.A. Argentina (35)
Centrilift/Kobe Operating Division ---
Hughes Christensen Operating Division ---
Hughes Tool Company Chile Ltda. Chile 95%
Lufkin Argentina S.A. Argentina (18)
Baker Hughes Equipamentos Ltda. Brazil (5)
Baker Hughes INTEQ S.A. Argentina 100%
EXLOG de Venezuela S.A. Venezuela 100%
Exploration Logging Arabian Gulf Limited Jersey 49%
Exploration Logging Espanola S.A. Spain 100%
Fluidos de Perforacion Milchem Guatemala S.A. Guatemala 100%
Holtex, Inc. Delaware 100%
Proveedores Para Operaciones Energeticas S.A. de C.V. Mexico (12)
Precision Mecanica, S.A. de C.V. Mexico 100%
Baker Hughes de Mexico, S. de R.L. de C.V. Mexico (7)
Proveedores Para Operaciones Energeticas S.A. de C.V. Mexico (12)
Hughes Christensen Operating Division ---
Baker Hughes Mining Tools Operating Division ---
Hughes Services Middle East Company Delaware 100%
Mid-East Drill Bit Manufacturing Co. Ltd. Saudi Arabia 50%
Hughes Tool (C.I.) Ltd. Cayman Islands 100%
Abunayyan-Hughes Tool S.A. Ltd. Co. Saudi Arabia 50%
Baker Hughes Singapore Pte. Singapore (33)
Baker Hughes INTEQ Operating Division ---
Baker Hughes Process Systems Operating Division ---
Baker Oil Tools Asia Pacific Operating Division ---
Centrilift Operating Division ---
Eimco Process Equipment Operating Division ---
Hughes Christensen/Singapore Operating Division ---
Tri-State Oil Tools Singapore Operating Division ---
Bird Machine Operating Division ---
Hughes Tool Co. S.A. Delaware 100%
Hughes Tool Company of Australia Ltd. Delaware (28)
International Mud Services Inc. Panama 100%
Kobe WHTC California 100%
Lufkin Argentina S.A. Argentina (18)
Lynes, Inc. Texas 100%
Baker Canada Holding, Inc. Delaware (6)
Baker Hughes Canada Inc. Canada 100%
Baker Hughes INTEQ Operating Division ---
Baker Hughes Mining Tools Operating Division ---
Baker Hughes Wyoming LLC Wyoming (20)
Baker Oil Tools Canada Operating Division ---
Baker Performance Chemicals Operating Division ---
Baker Supply Products Operating Division ---
Bird Machine of Canada Operating Division ---
Canada Intermediates/CHEM-LINK Trade Name ---
Centrilift Canada Operating Division ---
Chem-Link Operating Division ---
Christensen Diamond Products del Peru S.A. Peru 100%
Econolift Systems Canada Operating Division ---
</TABLE>
Page 8
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE
JURISDICTION OR OWNED BY OWNED BY
NAME OF SUBSIDIARIES AND SUB-SUBSIDIARIES ORGANIZATION REGISTRANT SUBSIDIARY
<S> <C> <C> <C>
Eimco Fluid Process International Operating Division ---
Eimco Process Equipment Operating Division ---
Eimco-Wemco Chile Ltda. Chile (19)
Ramsey Comercio Industria Ltd. Brazil (8)
Milchem Gabon S.A. Gabon 100%
Milpark de Venezuela, S.A. Venezuela 100%
Milpark Caribe, C.A. Venezuela 100%
Milpark International Limited Bahamas 100%
Milchem International (Nigeria) Ltd. Nigeria 100%
Milpark Kuwait for Drilling Fluids Company Kuwait 49%
Milchem Libya Co., Ltd. Libya 49%
P. T. Milchem Indonesia Indonesia 75%
Milpark Western Hemisphere Incorporated Delaware 100%
Plumayen Holdings Inc. Panama 100%
Plumayen do Brazil Ltda. Brazil 100%
Productos Industriales Mineros S.A. (Prima) Colombia 100%
E.P.E.C.-Colombia Prima Operating Division ---
Pump-Teq Operating Division ---
Servicios Y Herramientas Petroleras S.A. de C.V. Mexico (22)
Baker Hughes Immobiliaria Mexico 100%
Supply Products Operating Division ---
Teleco Inc. Delaware 100%
Teleco Oilfield Services International Ltd. Cayman 100%
Teleco Oilfield Services Offshore Ltd. Cayman 100%
Teleco Oilfield Services Sdn. Bhd. Malaysia 49%
TOTCO de Venezuela C.A. Venezuela 100%
Tri-State Oil Tool (Egypt) S.A. Panama 100%
Tri-State Oil Tool (M) Sdn. Bhd. Malaysia 100%
Tri-State Oil Tool de Mexico, S.A. de C.V. Mexico (16)
Tri-State Oil Tool S.A. Panama 100%
Tri-State Oil Tool (Thailand) Ltd. Cayman Islands 100%
Baker Hughes Ventures, Inc. Delaware 100%
BH Russia Operations, Inc. Delaware 100%
Camcor-Chem, Inc. Delaware 100%
BTH Products Texas Partnership (29)
EnviroTech Controls Incorporated Delaware 100%
EVT Holdings, Inc. Delaware 100%
Baker Canada Holding, Inc. Delaware (6)
Baker Hughes Canada Inc. Canada 100%
Baker Hughes INTEQ Operating Division ---
Baker Hughes Mining Tools Operating Division ---
Baker Hughes Wyoming LLC Wyoming (20)
Baker Oil Tools Canada Operating Division ---
Baker Performance Chemicals Operating Division ---
Baker Supply Products Operating Division ---
Bird Machine of Canada Operating Division ---
Canada Intermediates/CHEM-LINK Trade Name ---
Centrilift Canada Operating Division ---
Chem-Link Operating Division ---
Christensen Diamond Products del Peru S.A. Peru 100%
Econolift Systems Canada Operating Division ---
Eimco Fluid Process International Operating Division ---
Eimco Process Equipment Operating Division ---
</TABLE>
Page 9
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE
JURISDICTION OR OWNED BY OWNED BY
NAME OF SUBSIDIARIES AND SUB-SUBSIDIARIES ORGANIZATION REGISTRANT SUBSIDIARY
<S> <C> <C> <C>
Eimco-Wemco Chile Ltda. Chile (19)
Ramsey Comercio Industria Ltd. Brazil (8)
Baker Hughes Australia Holding, Inc. Delaware (4)
Baker Hughes Australia Pty. Limited Australia (30)
BHA Superannuation (Nominees) Pty. Limited Australia 100%
Baker Hughes INTEQ Operating Division ---
Baker Hughes Mining Tools of Australia Operating Division ---
Baker Oil Tools Australia Operating Division ---
Centrilift-Australia Operating Division ---
Eastman Christensen (Australia) Pty. Limited Australia 100%
Hughes Christensen Operating Division ---
Teleco Oilfield Services Pty. Limited Western Australia 100%
Baker Hughes PNG Pty. Ltd. New Guinea (24)
Baker Hughes do Brasil Ltda. Brazil (9)
Baker Hughes Equipamentos Ltda. Operating Division ---
Centrilift Brazil Operating Division ---
Exploration Logging Brazil Operating Division ---
Hughes Tool do Brazil Operating Division ---
Baker Hughes (U.K.) Ltd. England (2)
BFCC Ltd. England 100%
Baker Hughes (BJ) Limited Scotland 100%
Baker Hughes France S.A. France (1)
Baker Hughes INTEQ S.A. Gabon (27)
Baker Hughes INTEQ Administrative Services S.A.R.L. France 100%
Baker Hughes INTEQ-France S.A. France 100%
Baker Hughes INTEQ Congo S.A.R.L. Congo 100%
Baker Hughes INTEQ S.A. Gabon (27)
CECA, U.A.E. Abu Dhabi 100%
CKS Drilling Fluids Services, Inc. Delaware 100%
CKS Espanola S.A. Spain 80%
Drilling Fluids Services (Far East) Sdn. Bhd. Malaysia 70%
Malaysia Mud and Chemicals Sdn. Bhd. Malaysia 50%
EXLOG Samega S.N.C. France 100%
Hughes Christensen France Operating Division ---
Milpark - CKS de Angola Angola 100%
Milpark Nigeria Ltd. Nigeria 60%
Baker International S.A. France 100%
Baker Hughes INTEQ S.A. Gabon (27)
Eimco Wemco S.A. France 100%
Baker Hughes (M) Sdn. Bhd. Malaysia 49%
Baker Hughes Limited England 100%
Baker Hughes INTEQ Operating Division ---
Baker Hughes Process Systems Operating Division ---
Baker Oil Tools U.K. Operating Division ---
Baker Performance Chemicals Operating Division ---
Aquaness Assumed Name ---
Centrilift U.K. Operating Division ---
Hughes Christensen Operating Division ---
Wemco G.B. Operating Division ---
Baker Oil Tools (UK) Limited England 100%
Baker Production Services (UK) Limited England 100%
</TABLE>
Page 10
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE
JURISDICTION OR OWNED BY OWNED BY
NAME OF SUBSIDIARIES AND SUB-SUBSIDIARIES ORGANIZATION REGISTRANT SUBSIDIARY
<S> <C> <C> <C>
Eastman Christensen de Espana, S.A. Spain 100%
Eimco Process Equipment Limited England 100%
Hughes Tool Company of Australia Limited Delaware (28)
Hughes Tool Company Limited England 100%
Baker Service Tools B.V. The Netherlands 100%
Centrilift Netherlands Operating Division ---
Lombard Baker Leasing Co. England Partnership 49%
P.T. Eastman Christensen Indonesia Indonesia (26)
Technical Oilfield Services Ltd. England 100%
Tri-State Oil Tool (U.K.) Limited England 100%
Baker International Limited England 100%
Baker Process Technology de Mexico S.A. de C.V. Mexico 100%
Baker Hughes Mining Tools Mexico Operating Division ---
Eimco Process Equipment Company Operating Division ---
Eimco S.A. Chile 100%
Eimco-Wemco de Colombia S.A. Colombia (21)
Eimco-Wemco Chile Ltda. Chile (19)
Reminto (Proprietary) Limited South Africa 100%
Wemco Operating Division ---
Wemco Products Assumed Name ---
Hughes Tool Company (Far East) Pte. Ltd. Singapore 100%
Milchem Venezuela Corporation Delaware 100%
Milchem Venezuela Corporation, C.A. Venezuela 100%
Servicios Y Herramientas Petroleras, S.A. de C.V. Mexico (22)
Tri-State Oil Tool de Mexico, S.A. de C.V. Mexico (16)
Baker Hughes INTEQ International, Ltd. Bermuda 100%
Eastman Whipstock (China) Ltd. Hong Kong 100%
Baker Hughes INTEQ Sdn. Bhd. Brunei 51%
Baker Hughes RO, Inc. Delaware 100%
Baker Hughes Russia, Inc. Delaware 100%
Baker Hughes (Cyprus) Limited Cyprus 100%
Baker Hughes JSC Russia 100%
Centrilift Operating Division ---
Baker Hughes Kazakhstan Ltd. Republic of Kazakhstan 100%
Baker Hughes S.p.A. Italy (14)
Baker Hughes INTEQ Operating Division ---
Baker Oil Tools Operating Division ---
Eimco Operating Division ---
Hughes Christensen Operating Division ---
Baker Hughes (U.K.) Ltd. England (2)
BFCC Ltd. England 100%
Baker Hughes (BJ) Limited Scotland 100%
Baker Hughes France S.A. France (1)
Baker Hughes INTEQ S.A. Gabon (27)
Baker Hughes INTEQ Administrative Services S.A.R.L. France 100%
Baker Hughes INTEQ-France S.A. France 100%
Baker Hughes INTEQ Congo S.A.R.L. Congo 100%
Baker Hughes INTEQ S.A. Gabon (27)
CECA, U.A.E. Abu Dhabi 100%
CKS Drilling Fluids Services, Inc. Delaware 100%
</TABLE>
Page 11
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE
JURISDICTION OR OWNED BY OWNED BY
NAME OF SUBSIDIARIES AND SUB-SUBSIDIARIES ORGANIZATION REGISTRANT SUBSIDIARY
<S> <C> <C> <C>
CKS Espanola S.A. Spain 80%
Drilling Fluids Services (Far East) Sdn. Bhd. Malaysia 70%
Malaysia Mud and Chemicals Sdn. Bhd. Malaysia 50%
EXLOG Samega S.N.C. France 100%
Hughes Christensen France Operating Division ---
Milpark - CKS de Angola Angola 100%
Milpark Nigeria Ltd. Nigeria 60%
Baker International S.A. France 100%
Baker Hughes INTEQ S.A. Gabon (27)
Baker Sand Control France Operating Division ---
Eimco Wemco S.A. France 100%
Baker Hughes (M) Sdn. Bhd. Malaysia 49%
Baker Hughes Limited England 100%
Baker Hughes INTEQ Operating Division ---
Baker Hughes Process Systems Operating Division ---
Baker Oil Tools U.K. Operating Division ---
Baker Performance Chemicals Operating Division ---
Aquaness Assumed Name ---
Centrilift U.K. Operating Division ---
Hughes Christensen Operating Division ---
Wemco G.B. Operating Division ---
Baker Oil Tools (UK) Limited England 100%
Baker Production Services (UK) Limited England 100%
Baker Oil Treating India (Private) Ltd. India (25)
Eimco Process Equipment Limited England 100%
Hughes Tool Company Limited England 100%
Baker Service Tools B.V. The Netherlands 100%
Centrilift Netherlands Operating Division ---
Eastman Christensen de Espana, S.A. Spain 100%
Hughes Tool Company of Australia Limited Delaware (28)
Lombard Baker Leasing Co. England Partnership 49%
P.T. Eastman Christensen Indonesia Indonesia (26)
Technical Oilfield Services Ltd. England 100%
Tri-State Oil Tool (U.K.) Limited England 100%
Baker Hughes Nederland B.V. The Netherlands 100%
Baker Hughes Denmark A/S Denmark 100%
Baker Hughes INTEQ Operating Division ---
Baker Oil Tools Denmark Operating Division ---
Baker Hughes INTEQ Operating Division ---
Baker Hughes INTEQ (China) Limited Guernsey 100%
Baker Oil Tools Operating Division ---
Baker Performance Chemicals Operating Division ---
Bird Machine Operating Division ---
Ferranti Eastman Survey GmbH Switzerland 49%
Hughes Christensen Co. Holland Operating Division ---
Milchem Nederland B.V. The Netherlands 100%
Societe Camerounaise de Broyage Minerai Petroliers Cameroon 65%
Tekchem B.V. The Netherlands 100%
Tracor Europa B.V. The Netherlands 100%
Tracor Europa N.V. Belgium (34)
Tracor France S.A.R.L. France 100%
Tracor Europa N.V. Belgium (34)
Baker Hughes USA, Inc. Delaware 100%
Baker Canada Holding, Inc. Delaware (6)
</TABLE>
Page 12
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE
JURISDICTION OR OWNED BY OWNED BY
NAME OF SUBSIDIARIES AND SUB-SUBSIDIARIES ORGANIZATION REGISTRANT SUBSIDIARY
<S> <C> <C> <C>
Baker Hughes Canada Inc. Canada 100%
Baker Hughes INTEQ Operating Division ---
Baker Hughes Mining Tools Operating Division ---
Baker Hughes Wyoming LLC Wyoming (20)
Baker Oil Tools Canada Operating Division ---
Baker Performance Chemicals Operating Division ---
Baker Supply Products Operating Division ---
Bird Machine of Canada Operating Division ---
Canada Intermediates/CHEM-LINK Trade Name ---
Centrilift Canada Operating Division ---
Chem-Link Operating Division ---
Christensen Diamond Products del Peru S.A. Peru 100%
Econolift Systems Canada Operating Division ---
Eimco Fluid Process International Operating Division ---
Eimco Process Equipment Operating Division ---
Eimco-Wemco Chile Ltda. Chile (19)
Ramsey Comercio Industria Ltd. Brazil (8)
Baker Hughes Australia Holding, Inc. Delaware (4)
Baker Hughes Australia Pty. Limited Australia (30)
BHA Superannuation (Nominees) Pty. Limited Australia 100%
Baker Hughes INTEQ Operating Division ---
Baker Hughes Mining Tools of Australia Operating Division ---
Baker Oil Tools Australia Operating Division ---
Centrilift-Australia Operating Division ---
Eastman Christensen (Australia) Pty. Limited Australia 100%
Hughes Christensen Operating Division ---
Teleco Oilfield Services Pty. Limited Western Australia 100%
Baker Hughes PNG Pty. Ltd. New Guinea (24)
Tri-State Oil Tools Company Texas 100%
Baker Hughes South Africa (Proprietary) Ltd. South Africa 100%
Baker Hughes Mining Tools Operating Division ---
Hughes Christensen South Africa (Proprietary) Limited South Africa 100%
Mangueras Industriales Schiaffino S.A. Chile 99.9%
Ramsey Comercio Industria Ltd. Brazil (8)
Baker International (Espana), S.A. Spain 100%
Baker Oil Tools (Espana) S.A. Spain 100%
Baker Quimica de Colombia S.A. Colombia (13)
Eimco-Wemco de Colombia S.A. Colombia (21)
Baker Sand Control Servicios Tecnicos, Ltda. Brazil (15)
Bird Machine Company, Inc. Delaware 100%
Bird Machine International, Inc. Massachusetts 100%
BW-Hughes Tool Stock Corporation Delaware 100%
Christensen Saudi Arabia Limited Saudi Arabia 40%
CTC International Corporation Texas 100%
Completion Technology Center, Inc. Texas 100%
Completion Tool Company Singapore Private Limited Singapore 100%
CTC Foreign Sales Corp. Barbados 100%
CTC Overseas, Inc. Texas 100%
Oil Base de Venezuela, C.A. Venezuela 100%
Varco International, Inc. Delaware 20%
</TABLE>
Page 13
<PAGE>
BAKER HUGHES INCORPORATED--FOOTNOTES TO EXHIBIT 21
<TABLE>
<CAPTION>
FOOTNOTES ENTITY ENTITY OWNERSHIP
<S> <C> <C>
(1) Baker Hughes France S.A. Baker Hughes Finance, Inc. - 44%
Baker Hughes (U.K.) Ltd. - 55%
Baker Oil Tools (UK) Limited*
Hughes Tool Company Limited*
George Reekie*
Jean Paul E. Pradal*
Peter J. Woolley*
--------------
* Total of 1% (Held in trust for Baker Hughes (U.K.) Ltd.
(2) Baker Hughes (U.K.) Ltd. Baker Holdings (U.S.), Inc. - 48%
Baker Hughes Incorporated - 38%
EVT Holdings, Inc. - 14%
(3) Baker Oil Tools India (Private) Limited Baker Oil Tools Division of Baker Hughes Limited - 40%
Khushalani Group - 60%
(4) Baker Hughes Australia Holding, Inc. Baker Hughes Incorporated - 5.07%
Baker Hughes INTEQ International Branches, Inc. - 6.73%
Baker Hughes Oilfield Operations, Inc. - 56.99%
Baker Hughes USA, Inc. - 6.84%
Baker Production Technology International, Inc. - 11.59%
Baker RTC (Delaware), Inc. - 4.69%
EVT Holdings, Inc. - 8.10%
(5) Baker Hughes Equipamentos Ltda. Baker Hughes Incorporated - 99%
EXLOG S.A. - 1%
</TABLE>
Page 14
<PAGE>
BAKER HUGHES INCORPORATED--FOOTNOTES TO EXHIBIT 21
<TABLE>
<CAPTION>
FOOTNOTES ENTITY ENTITY OWNERSHIP
<S> <C> <C>
(6) Baker Canada Holding, Inc. Baker Hughes Incorporated - 18%
Baker Hughes Oilfield Operations, Inc. - 13%
Baker Hughes USA, Inc. - 3%
Baker Performance Chemicals Incorporated - 7%
Baker RTC (Delaware), Inc. - 12%
Baker Transworld, Inc. - 12%
EVT Holdings, Inc. - 7%
Lynes, Inc. - 28%
(7) Baker Hughes de Mexico, S. de R.L. Baker Hughes Oilfield Operations, Inc. - 97%
de C.V. Precision Mecanica, S.A. de C.V. - 2%
Giuseppe Castiglioni*
Alfredo Freyssinier*
Emilio Paulon Gasparini*
Eugenio Perez Gil*
Manuel Garcia Ramos*
-------------
* Total of 1%
(8) Ramsey Comercio Industria Ltd. Baker Hughes Canada, Inc. - 50%
Baker Hughes USA, Inc. - 50%
</TABLE>
Page 15
<PAGE>
BAKER HUGHES INCORPORATED--FOOTNOTES TO EXHIBIT 21
<TABLE>
<CAPTION>
FOOTNOTES ENTITY ENTITY OWNERSHIP
<S> <C> <C>
(9) Baker Hughes do Brasil Ltda. Baker Hughes Incorporated - 99%
EVT Holdings, Inc. - 1%
(10) Baker International Cote D' Ivoire Baker Hughes Oilfield Operations, Inc. - 99.5%
S.a.r.l. Baker Transworld, Inc. - .5%
(11) Baker Nigeria Ltd. Baker Eastern S.A. (Panama Company) - 1%
Baker Hughes Oilfield Operations, Inc. - 59%
Nigerian National Petroleum Corporation - 35%
Baker Nigeria Ltd. Employees - 5%
(12) Proveedores Para Operaciones Baker Hughes de Mexico, S. de R.L. de C.V. - 31%
Energeticas S.A. de C.V.
Holtex, Inc. - 49%
Ing. Alejandro Herce Caro - .50%
Ing. Pedro Herce Berassin - 19%
Lic. Relipe Septien Flores - .50%
(13) Baker Quimica de Colombia S.A. Baker Holdings (U.S.), Inc. - .1%
Baker Hughes Incorporated - .1%
Baker Hughes Oilfield Operations, Inc. - .1%
Baker Performance Chemicals Incorporated (Ca. Company)- 99.7%
(14) Baker Hughes S.p.A. Baker Hughes Oilfield Operations, Inc. - 99.9%
Baker Hughes Incorporated - .1%
</TABLE>
Page 16
<PAGE>
BAKER HUGHES INCORPORATED--FOOTNOTES TO EXHIBIT 21
<TABLE>
<CAPTION>
FOOTNOTES ENTITY ENTITY OWNERSHIP
<S> <C> <C>
(15) Baker Sand Control Servicios Tecnicos, Baker Hughes Incorporated - 1%
Ltda. Baker Hughes Oilfield Operations, Inc. - 99%
(16) Tri-State Oil Tool de Mexico, S.A. Fixed Capital Stock
de C.V. Baker Hughes Oilfield Operations, Inc. - 99.98%
Baker Hughes Holding Company - .02%
Variable Capital Stock
Baker Hughes Oilfield Operations, Inc. - 100%
(17) Baker Transworld y Compania Limitada Baker Hughes Oilfield Operations, Inc. - 90%
Baker Transworld, Inc. - 10%
(18) Lufkin Argentina S.A. Lufkin Industries, Inc. - 50%
Baker Hughes Argentina S.A. - 31.09%
Baker Hughes Oilfield Operations, Inc. - 18.90%
Andy Szescila - .01%
(19) Envirotech Chile Ltda. Baker Hughes Canada, Inc. - .5%
EVT Holdings, Inc. - 99.5%
(20) Baker Hughes Wyoming LLC Baker Hughes Canada, Inc. - 99%
Baker Hughes Oilfield Operations, Inc. - 1%
(21) Eimco-Wemco de Colombia S.A. EVT Holdings, Inc. - 97%
Exploration Logging de Colombia (Branch) - .81%
Baker Transworld, Inc. - .81%
Baker Quimica de Colombia S.A. - .81%
Milpark de Colombia (Branch) - .81%
</TABLE>
Page 17
<PAGE>
BAKER HUGHES INCORPORATED--FOOTNOTES TO EXHIBIT 21
<TABLE>
<CAPTION>
FOOTNOTES ENTITY ENTITY OWNERSHIP
<S> <C> <C>
(22) Servicios Y Herramientas Petroleras Series B Fixed Capital
S.A. de C.V. Baker Hughes Oilfield Operations, Inc. - 99%
Baker Hughes Holding Company - 1%
Series B Variable Capital
Baker Hughes Oilfield Operations, Inc. - 100%
(23) Baker Sand Control Cameroon S.a.r.l. Baker Hughes Incorporated - 99%
Baker Hughes Oilfield Operations, Inc. - 1%
(24) Baker Hughes PNG Pty. Ltd. Baker Hughes Australia Holding, Inc. - 99.9%
Gabow Nominees Pty. Ltd. - .1%
(25) (Left Blank)
(26) P.T. Eastman Christensen Indonesia Baker Hughes (U.K.) Ltd. owns rights in agreement with
R. Widjaya 75% owner and B. Sastromulyono 25% owner, local
agents
(27) Baker Hughes INTEQ S.A. Baker Hughes INTEQ-France S.A. 1%
Baker International S.A. - 87%
Baker Hughes Oilfield Operations, Inc. - 2%
Gabonese Government - 10%
</TABLE>
Page 18
<PAGE>
BAKER HUGHES INCORPORATED--FOOTNOTES TO EXHIBIT 21
<TABLE>
<CAPTION>
FOOTNOTES ENTITY ENTITY OWNERSHIP
<S> <C> <C>
(28) Hughes Tool Company of Australia Limited Baker Hughes Oilfield Operations, Inc. - 60%
Baker Hughes (U.K.) Ltd. - 40%
(29) BHT Products, Texas General Partnership Baker Production Services, Inc. - 50%
Camcor-Chem, Inc. - 50%
(30) Baker Hughes Australia Pty. Limited Baker Hughes Australia Holding, Inc. - 99%
Peter Boesenberg - 1%
(31) Baker Hughes Services de Mexico Series B Variable
S.A. de C.V. Baker Hughes Oilfield Operations, Inc. - 99%
Baker Hughes de Mexico, S. de R.L. de C.V. - 1%
(32) Baker Mira Saudi Arabia Limited Percentage of ownership not available. Owned by Baker
Production Services (Bermuda) Ltd. and Mira Brothers
(33) Baker Hughes Singapore Pte. Hughes Tool (C.I.) Ltd. - 99%
Baker Hughes (C.I.) Ltd. - 1%
(34) Tracor Europa N.V. Baker Hughes Nederland B.V. - 95%
Tracor Europa B.V. - 5%
(35) Baker Hughes Argentina S.A. Baker Hughes Holding Company - 99%
EXLOG, S.A. - 1%
</TABLE>
Page 19
<PAGE>
BAKER HUGHES INCORPORATED--FOOTNOTES TO EXHIBIT 21
<TABLE>
<CAPTION>
FOOTNOTES ENTITY ENTITY OWNERSHIP
<S> <C> <C>
(36) Baker Hughes de Venezuela S.A. Baker Hughes Oilfield Operations Inc. - 99.19%
Baker Eastern S.A. - .41%
Baker Production Services (Bermuda) Ltd. - .20%
Baker Sand Control Ltd. - .20%
(37) South Kern Industrial Partnership Baker Performance Chemicals Incorporated - 80%
South Lake Corporation - 20%
</TABLE>
Page 20
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITOR'S CONSENT
Baker Hughes Incorporated:
We consent to the incorporation by reference in Post-Effective Amendment Nos. 1,
2 and 3 on Form S-8 to Registration Statement No. 33-11074 on Form S-4, in
Post-Effective Amendment No. 1 to Registration Statement No. 33-16094 on Form
S-4, in Post-Effective Amendment Nos. 1 and 2 to Registration Statement No.
33-14803 on Form S-8, in Registration Statement No. 33-34935 on Form S-3, in
Registration Statement No. 33-39445 on Form S-8, in Registration Statement No.
33-61304 on Form S-3, in Amendment No. 1 to Registration Statement No. 33-61304
on Form S-3, in Registration Statement No. 33-52195 on Form S-8, in Registration
Statement No. 33-57759 on Form S-8 and in Registration Statement No. 33-63375
on Form S-3 of our reports dated November 15, 1995, appearing and incorporated
by reference in the 1995 Annual Report on Form 10-K of Baker Hughes Incorporated
for the year ended September 30, 1995.
DELOITTE & TOUCHE LLP
Houston, Texas
December 14, 1995
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-01-1994
<PERIOD-END> SEP-30-1995
<CASH> 6,817
<SECURITIES> 0
<RECEIVABLES> 709,588
<ALLOWANCES> 24,809
<INVENTORY> 727,782
<CURRENT-ASSETS> 1,564,815
<PP&E> 575,059
<DEPRECIATION> 951,858
<TOTAL-ASSETS> 3,166,591
<CURRENT-LIABILITIES> 580,131
<BONDS> 798,352
<COMMON> 142,237
0
0
<OTHER-SE> 1,371,369
<TOTAL-LIABILITY-AND-EQUITY> 3,166,591
<SALES> 1,805,108
<TOTAL-REVENUES> 2,637,464
<CGS> 1,045,672
<TOTAL-COSTS> 2,148,788
<OTHER-EXPENSES> 232,787
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 55,595
<INCOME-PRETAX> 205,100
<INCOME-TAX> 85,117
<INCOME-CONTINUING> 119,983
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (14,598)
<NET-INCOME> 105,385
<EPS-PRIMARY> .56
<EPS-DILUTED> .56
</TABLE>
