- ---------------------------------------------------------------------------
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
-----------------------------
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
--- OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
--- OF THE SECURITIES EXCHANGE ACT OF 1934
-----------------------------
Commission file number 1-9397
-----------------------------
BAKER HUGHES INCORPORATED
(Exact name of registrant as specified in its charter)
Delaware 76-0207995
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
3900 Essex Lane, Houston, Texas 77027
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (713) 439-8600
-----------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 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 the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at May 4, 1996
----- --------------------------
Common Stock, $1.00 par value per share 143,581,100 shares
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BAKER HUGHES INCORPORATED
INDEX
Page
No.
----
Part I - Financial Information:
Consolidated Condensed Statements of Operations - Three Months and
Six Months Ended March 31, 1996 and 1995 2
Consolidated Condensed Statements of Financial Position
- March 31, 1996 and September 30, 1995 3
Consolidated Condensed Statements of Cash Flows - Six Months
Ended March 31, 1996 and 1995 5
Notes to Consolidated Condensed Financial Statements 6
Management's Discussion and Analysis of Financial Condition and
Results of Operations 7
Part II - Other Information 14
-1-
PART I. FINANCIAL INFORMATION
BAKER HUGHES INCORPORATED
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
Three Months Ended Six Months Ended
March 31, March 31,
1996 1995 1996 1995
REVENUES: -------------------- --------------------
Sales $ 500,276 $ 447,302 $ 965,231 $ 859,209
Services and rentals 244,546 205,307 474,288 400,317
--------- --------- --------- ---------
Total revenues 744,822 652,609 1,439,519 1,259,526
--------- --------- --------- ---------
COSTS AND EXPENSES:
Cost of sales 292,928 258,533 560,264 500,349
Cost of services and rentals 126,311 99,880 244,610 194,939
Research and engineering 21,206 20,760 42,614 40,847
Marketing and field service 164,138 149,132 325,377 294,081
General and administrative 48,725 57,288 96,943 101,604
Amortization of goodwill
and other intangibles 7,454 7,463 14,847 15,340
--------- --------- --------- ---------
Total costs and expenses 660,762 593,056 1,284,655 1,147,160
--------- --------- --------- ---------
Operating income 84,060 59,553 154,864 112,366
Interest expense (14,801) (13,701) (30,228) (25,180)
Interest income 1,303 1,268 1,785 2,075
--------- --------- --------- ---------
Income before income taxes 70,562 47,120 126,421 89,261
Income taxes (29,003) (19,120) (52,464) (37,030)
--------- --------- --------- ---------
Income before cumulative
effect of accounting change 41,559 28,000 73,957 52,231
Cumulative effect of accounting
change - Postemployment
benefits (net of $7,861
income tax benefit) (14,598)
--------- --------- --------- ---------
Net income $ 41,559 $ 28,000 $ 73,957 $ 37,633
========= ========= ========= =========
Per share of Common Stock:
Income before cumulative
effect of accounting
change $ .29 $ .18 $ .52 $ .33
Cumulative effect of
accounting change (.10)
--------- --------- --------- ---------
Net income $ .29 $ .18 $ .52 $ .23
========= ========= ========= =========
Cash dividends per share of
common stock $ .115 $ .115 $ .23 $ .23
========= ========= ========= =========
See accompanying notes to consolidated condensed financial statements.
-2-
BAKER HUGHES INCORPORATED
CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL POSITION
(In thousands)
ASSETS
March 31, September 30,
1996 1995
---------- ----------
CURRENT ASSETS:
Cash and cash equivalents $ 15,874 $ 6,817
---------- ----------
Receivables - net 748,311 709,588
---------- ----------
Inventories:
Finished goods 656,895 595,417
Work in process 71,249 61,622
Raw materials 68,612 70,743
---------- ----------
Total inventories 796,756 727,782
---------- ----------
Deferred income taxes 94,348 92,550
---------- ----------
Other current assets 34,790 28,078
---------- ----------
Total current assets 1,690,079 1,564,815
---------- ----------
PROPERTY - NET 571,832 575,059
---------- ----------
OTHER ASSETS:
Investments 97,412 92,474
Property held for disposal 57,364 58,544
Other assets 98,003 103,321
Excess costs arising from acquisitions - net 756,891 772,378
---------- ----------
Total other assets 1,009,670 1,026,717
---------- ----------
Total $ 3,271,581 $ 3,166,591
========== ==========
See accompanying notes to consolidated condensed financial statements.
-3-
BAKER HUGHES INCORPORATED
CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL POSITION
(In thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY
March 31, September 30,
1996 1995
---------- ----------
CURRENT LIABILITIES:
Accounts payable $ 281,766 $ 304,689
Short-term borrowings and current portion
of long-term debt 665 2,898
Accrued employee compensation and benefits 129,699 133,135
Income taxes 45,991 28,445
Taxes other than income 19,071 25,176
Accrued insurance 25,012 27,475
Accrued interest 16,600 11,978
Other accrued liabilities 46,137 46,335
---------- ----------
Total current liabilities 564,941 580,131
---------- ----------
LONG-TERM DEBT 847,608 798,352
---------- ----------
DEFERRED INCOME TAXES 134,981 118,350
---------- ----------
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS 98,028 97,187
---------- ----------
OTHER LONG-TERM LIABILITIES 56,577 58,965
---------- ----------
STOCKHOLDERS' EQUITY:
Common stock 143,174 142,237
Capital in excess of par value 1,360,750 1,342,317
Retained earnings 181,310 140,106
Cumulative foreign currency translation
adjustment (116,634) (107,689)
Unrealized gain(loss) on securities
available for sale 846 (3,365)
---------- ----------
Total stockholders' equity 1,569,446 1,513,606
---------- ----------
Total $ 3,271,581 $ 3,166,591
========== ==========
See accompanying notes to consolidated condensed financial statements.
-4-
BAKER HUGHES INCORPORATED
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
Six Months Ended
March 31,
1996 1995
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 73,957 $ 37,633
Adjustments to reconcile net income to net cash
flows from operating activities:
Depreciation and amortization of:
Property 58,777 57,443
Other assets and debt discount 20,204 20,542
Gain on disposal of assets (13,557) (1,439)
Foreign currency translation loss - net 3,595 70
Cumulative effect of accounting change 14,598
Change in receivables (45,003) (37,505)
Change in inventories (69,942) (19,180)
Change in accounts payable (20,014) (13,313)
Changes in other assets and liabilities 13,483 (25,650)
-------- --------
Net cash flows from operating activities 21,500 33,199
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property additions (86,312) (58,524)
Proceeds from disposal of assets 46,085 20,154
-------- --------
Net cash flows from investing activities (40,227) (38,370)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings from commercial paper and
revolving credit facilities 44,640 10,539
Proceeds from exercised debenture purchase
warrants 93,000
Proceeds from exercise of stock options
and stock purchase grants 16,621 1,272
Dividends (32,753) (38,434)
-------- --------
Net cash flows from financing activities 28,508 66,377
-------- --------
Effect of exchange rate changes on cash (724) (1,539)
-------- --------
Increase in cash and cash equivalents 9,057 59,667
Cash and cash equivalents, beginning of period 6,817 69,179
-------- --------
Cash and cash equivalents, end of period $ 15,874 $ 128,846
======== ========
Income taxes paid $ 20,565 $ 30,433
Interest paid $ 21,250 $ 15,408
See accompanying notes to consolidated condensed financial statements.
-5-
BAKER HUGHES INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Note 1. General
In the opinion of the Company, the unaudited consolidated condensed
financial statements include all adjustments consisting of normal recurring
accruals necessary for a fair presentation of the Company's consolidated
financial position as of March 31, 1996 and its consolidated results of
operations and cash flows for each of the three and six month periods ended
March 31, 1996 and 1995. Although the Company believes that the
disclosures in these financial statements are adequate to make the
information presented not misleading, certain information and footnote
disclosures normally included in annual financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted pursuant to the rules and regulations of the
Securities and Exchange Commission (See the Company's Annual Report on Form
10-K for the year ended September 30, 1995 for the most recent annual
financial statements prepared in accordance with generally accepted
accounting principles). The results of operations for the three and six
months ended March 31, 1996 are not necessarily indicative of the results
to be expected for the full year.
Note 2. Income Per Common Share
Net income per common share is based on the weighted average number of
shares outstanding during the respective periods (three months ended March
31, 1996 and 1995, 142,654,000 and 141,032,000, respectively; six months
ended March 31, 1996 and 1995, 142,467,000 and 141,005,000, respectively)
and excludes the negligible dilutive effect of shares issuable in
connection with employee stock plans. Net income per common share has been
adjusted for dividends on preferred stock of $3.0 million and $6.0 million
for the three months and six months ended March 31, 1995, respectively.
Note 3. Stockholder Rights Agreement
In April 1996, the Company exercised its option to redeem all of the
rights to purchase one one-hundredth of a share of the Company's Series One
Junior Participating Preferred Stock for the redemption price of $0.03 per
right, in accordance with the Company's Stockholder Rights Agreement.
-6-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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 88% of the Company's consolidated
revenues; 84% of sales revenue and 97% of services and rentals revenue.
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. These divisions provide filtration,
sedimentation, centrifugation and flotation process equipment and systems
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 emerging that
are altering 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 quarterly 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.
-7-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS CONTINUED
Oil and Gas Prices Three Months Ended Six Months Ended
March 31, March 31,
1996 1995 1996 1995
----------------------------------------------------------------------
WTI ($/Bbl) 19.79 18.35 18.98 18.00
U.S. Spot Natural Gas ($/mcf) 2.75 1.34 2.33 1.42
Barring any significant change in OPEC policy, the Company expects
crude oil to trade between $17 and $21/Bbl over the next twelve months
while remaining susceptible to short-term price fluctuations as the growth
in worldwide demand is met by increased production by non-OPEC producing
countries. Uncertainty as to the impact of Iraqi oil exports contributes
to the potential for volatility in crude oil prices. U.S. natural gas
prices are expected to remain above $2.00/mcf 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 Three Months Ended Six Months Ended
March 31, March 31,
1996 1995 1996 1995
----------------------------------------------------------------------
U.S. - Land 607 607 633 663
U.S. - Offshore 102 98 104 101
Canada 339 325 283 308
----- ----- ----- -----
North American 1,048 1,030 1,020 1,072
----- ----- ----- -----
Latin America 282 266 277 260
North Sea 50 39 51 39
Other Europe 70 63 70 64
Africa 77 66 73 65
Middle East 131 128 132 122
Asia Pacific 167 187 169 188
----- ----- ----- -----
International 777 749 772 738
----- ----- ----- -----
Worldwide 1,825 1,779 1,792 1,810
----- ----- ----- -----
U.S. Workover 1,253 1,242 1,270 1,308
----------------------------------------------------------------------
North America
In the U.S., the Company anticipates drilling activity to continue to
strengthen and to be above prior year levels. This increase in drilling
activity is expected to be led by offshore and gas-directed drilling being
partially offset by a modest decline in oil-directed drilling. Canadian
activity is expected to lag from 1995 levels for the remainder of 1996 as
natural gas exports are bottlenecked.
-8-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS CONTINUED
International
The Company is optimistic that most areas internationally will continue
to post an increasing rig count for the remainder of 1996. The Company is
forecasting increases in Latin America, the North Sea, West Africa and Asia
Pacific while activity in the Middle East is forecasted to be flat.
RESULTS OF OPERATIONS
Revenues Three Months Ended
March 31, $ %
(In millions) 1996 1995 Change Change
-----------------------------------------------------------------------
Oilfield Operations $ 655.6 $ 570.2 $ 85.4 15.0%
Process Equipment Operations 89.2 82.4 6.8 8.3%
------- ------- -------
Total Consolidated Revenues $ 744.8 $ 652.6 $ 92.2 14.1%
======= ======= =======
Six Months Ended
March 31, $ %
(In millions) 1996 1995 Change Change
-----------------------------------------------------------------------
Oilfield Operations $ 1,267.8 $ 1,108.0 $ 159.8 14.4%
Process Equipment Operations 171.7 151.5 20.2 13.3%
------- ------- -------
Total Consolidated Revenues $ 1,439.5 $ 1,259.5 $ 180.0 14.3%
======= ======= =======
Sales revenue was up 11.8% and 12.3% for the three months and six
months ended March 31, 1996, respectively. Service and rentals revenue was
up 19.1% and 18.5% for the three months and six months ended March 31,
1996, respectively. Changes in the mix of the worldwide rig count 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 ancillary benefits in situations like these because of
the wide breadth of products and services offered by the Company. The
Oilfield Operations' operating income for the three and six months ended
March 31, 1996 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,
revenue increased 15% for the quarter and 24% for the six months. The
revenue improvement was driven by an increase in drilling activity in
-9-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS CONTINUED
Venezuela. Oilfield Operations saw revenue increases in the Gulf of Mexico
as horizontal drilling remained strong. Revenue in Europe was up 27.1% for
the quarter and 29.0% for the six months due in large part to growing
integrated solutions business resulting in the larger percentage increase
in service and rentals revenue. The successful introduction of new
technology also made a significant contribution to the first and second
quarter results. The new GT roller cone and Gold Series drill bits
manufactured by Hughes Christensen division drove strong bit sales. Baker
Hughes INTEQ continues to grow revenues with the new Navi Drill Ultra
Series downhole motors, which is exceeding expectations in performance and
market acceptance. Strong performance in these areas was partially offset
by the continuing difficulties for the Company's customers in the former
Soviet Union ("FSU") in obtaining project financing. Revenues in the FSU
were $16.4 million in the first six months of 1996 compared to
$32.8 million in the first six months of 1995.
Process Equipment Operations' continues to benefit from the growth in
the minerals processing industry, specifically copper, and the pulp and
paper industry.
Operating Income Three Months Ended
March 31, $ %
(In millions) 1996 1995 Change Change
-----------------------------------------------------------------------
Oilfield Operations $ 86.1 $ 66.2 $ 19.9 30.0%
Process Equipment Operations 7.5 6.8 .7 10.3%
------- ------- -------
Operating Income from
Operations $ 93.6 $ 73.0 $ 20.6 28.2%
======= ======= =======
Six Months Ended
March 31, $ %
(In millions) 1996 1995 Change Change
-----------------------------------------------------------------------
Oilfield Operations $ 160.6 $ 122.5 $ 38.1 31.1%
Process Equipment Operations 13.2 10.5 2.7 25.7%
------- ------- -------
Operating Income from
Operations $ 173.8 $ 133.0 $ 40.8 30.7%
======= ======= =======
Consolidated operating income for the second quarter of 1996 increased
41.2% from the same quarter a year ago. Consolidated operating income
increased 37.8% for the six months ended March 31, 1996 compared to the
prior year. The increase results 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 typically fluctuate within a narrow band as a
percentage of consolidated revenues as the Company manages expenses both in
-10-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS CONTINUED
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 remained relatively flat at 81.2% for the three months ended
March 31, 1996 compared to 81.0% in the same period of the prior year.
Individually, cost of sales, cost of services and rentals, research and
engineering expense and marketing and field service expense increased for
the quarter and six months in line with the revenue increase.
General and administrative expenses, which are less sensitive to
changes in revenue, decreased $8.6 million for the quarter and $4.7 million
for the six months. The decrease for the quarter is due primarily to
certain nonrecurring charges that occurred in the second quarter of 1995
including the settlement of certain litigation and foreign exchange losses.
As it relates to the six months, the decrease in the second quarter of 1996
is offset by foreign exchange losses of $3.0 million in the first quarter
of 1996 due primarily to the Venezuelan bolivar devaluation. Amortization
of goodwill and intangibles has remained relatively flat as no significant
acquisitions or dispositions were made.
Interest Expense
Interest expense increased $1.1 million and $5.0 million for the three
and six months ended March 31, 1996, respectively. The increases are
attributable to the increased debt levels resulting from the repurchase of
convertible preferred stock in June 1995 and higher working capital levels.
Net Income Per Share of Common Stock
Net income is adjusted for dividends on preferred stock of $3.0 million
and $6.0 million for the three and six months ended March 31, 1995,
respectively. In June 1995, the Company repurchased all outstanding shares
of its convertible preferred stock.
CAPITAL RESOURCES AND LIQUIDITY
Financing Activities
Net cash inflows from financing activities were $28.5 million in the
first six months of 1996 compared to $66.4 million in the first six months
of 1995.
Total debt outstanding at March 31, 1996 was $848.3 million, compared
to $801.3 million at September 30, 1995. The debt to equity ratio was .540
at March 31, 1996, compared to .529 at September 30, 1995. The Company
increased total debt to fund an increase in working capital and other
investing needs.
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 1996 due to the repurchase.
-11-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS CONTINUED
At March 31, 1996, the Company had $595.3 million of credit facilities with
commercial banks, of which $310.7 million is committed. These facilities
are subject to normal banking terms and conditions and do not materially
restrict the Company's activities.
Investing Activities
Net cash outflows from investing activities were $40.2 million in the
first six months of 1996 compared to $38.4 million in the first six months
of 1995.
Proceeds from the disposal of assets generated $46.1 million in the
first six months of 1996 compared to $20.2 million in the first six months
of 1995. Property additions increased to $86.3 million compared to
$58.5 million in 1995. The increase is in line with the Company's
objective of replacing capital to increase productivity and ensure that the
necessary capacity is available to meet increased market demand.
Likewise, the ratio of capital expenditures to depreciation has
increased from 101.9% to 146.8%. 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.
In April 1996, Varco International, Inc. ("Varco") filed a registration
statement covering the sale of 6.3 million shares of Varco common stock
owned by the Company. At current price levels, the Company would expect to
receive approximately $90 million in proceeds from the sale. The carrying
value for accounting purposes in the shares is approximately $8.00 per
share. The proceeds from the sale, if consummated, would be used to repay
borrowings. The Company's investment in Varco is accounted for on the
equity method.
Operating Activities
Net cash inflows from operating activities were $21.5 million and
$33.2 million in 1996 and 1995, respectively.
The decrease of $11.7 million in 1996 was due primarily to the build up
of working capital in Oilfield Operations to support increased activity, in
particular the increase in Latin America and Europe. These uses of cash
were offset by an increase in net income adjusted for noncash items.
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 March 31, 1996, the Company, through its non-U.S.
-12-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS CONTINUED
subsidiaries, had receivables from the National Iranian Oil Company
("NIOC") in an amount equal to less than 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 three and six
months ended March 31, 1996 and 1995 were not significant.
In April 1996, the Company consummated an agreement with Tuboscope
Vetco International Corporation ("Tuboscope") which exchanged the 100,000
shares of Tuboscope Series A Convertible Preferred Stock held by the
Company since October 1991, for 1.5 million shares of Tuboscope common
stock and a warrant to purchase up to 1.25 million shares of Tuboscope
common stock. The warrants will have an exercise price of $10.00 per share
and expire on December 31, 2000.
ACCOUNTING STANDARDS
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 estimates the impact of the adoption of this
aspect of SFAS No. 121 as of October 1, 1996 will be a charge to income
between $10.0 million and $13.0 million, net of tax, to be recorded in the
first quarter of 1997 as the cumulative effect of the change in accounting.
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.
-13-
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
-14-
PART II. OTHER INFORMATION CONTINUED
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
None.
(b) Reports on Form 8-K:
A report on Form 8-K was filed with the Commission on April 25,
1996, reporting that the Company exercised its option to redeem all of the
rights to purchase one one-hundredth of a share of Baker Hughes Series One
Junior Participating Preferred Stock for the redemption price of $0.03 per
Right, in accordance with the Company's Stockholder Rights Agreement.
-15-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
BAKER HUGHES INCORPORATED
(Registrant)
Date: May 13, 1996 By /s/LAWRENCE O'DONNELL, III
------------------------------------
Vice President, General Counsel
and Corporate Secretary
Date: May 13, 1996 By /s/JAMES E. BRAUN
------------------------------------
Controller
-16-
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<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> MAR-31-1996
<CASH> 15,874
<SECURITIES> 0
<RECEIVABLES> 770,274
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0
0
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<CGS> 560,264
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<INCOME-TAX> 52,464
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<EPS-PRIMARY> .52
<EPS-DILUTED> .52
</TABLE>
