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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, 1996
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)
DELAWARE 76-0207995
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
77027-5177
3900 ESSEX LANE, HOUSTON, TEXAS (ZIP CODE)
(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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<CAPTION>
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
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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 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.[X]
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At December 4, 1996, the registrant had outstanding 145,149,834 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 $5,255,879,585.
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of Registrant's Annual Report to Stockholders for 1996 are
incorporated by reference into Parts I and II.
Portions of Registrant's 1996 Proxy Statement for the Annual Meeting of
Stockholders to be held January 22, 1997 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, partnerships or alliances.
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, 1996, 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.
The Company believes that it is a leading supplier of directional and
horizontal drilling services, downhole motors, coring services, subsurface
surveying and measurement-while-drilling services to the oil and gas industry.
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
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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, 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-Services and Dresser Oil Tools. Tubing conveyed
perforating competitors include Schlumberger (Well Testing division),
Halliburton Energy Services, Dresser Oil Tools and Western Atlas Inc.
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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 Svedala; 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-
Deutz 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. Companies that
participate in this area include Serck Baker.
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,
independent distributors or sales representatives. Technical and advisory
services are ordinarily provided to assist in the customer's use of the
Company's 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 representatives 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.
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Further information concerning Marketing, Competition and Economic
Conditions is contained under the captions "Business Environment" and "Operating
Environment" in "Management's Discussion and Analysis of Financial Condition and
Results of Operations" in the 1996 Annual Report to Stockholders and is
incorporated herein by reference.
INTERNATIONAL OPERATIONS
Revenues attributable to sales of products and provision of services
for use outside the United States (which, for 1996, consisted of revenues from
non-United States operations of $1,696.3 million and export sales from the
United States of $276.2 million) accounted for approximately 65%, 63%, and 63%
of the Company's total revenues for the years ended September 30, 1996, 1995 and
1994, respectively. These revenues in 1996 were distributed approximately as
follows: Europe, 25%; 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, 1996, the equivalent of approximately 302 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,
1996, see Note 11 of Notes to Consolidated Financial Statements.
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.
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BUSINESS DEVELOPMENTS
OILFIELD OPERATIONS
Baker Hughes Oilfield Operations consist of six operating divisions: Baker
Hughes INTEQ, Baker Hughes Solutions, Baker Oil Tools, Baker Performance
Chemicals Incorporated ("BPCI"), Centrilift and Hughes Christensen. Business
developments over the past five years have positioned these divisions as market
leaders in providing products, services and technologies in the drilling,
completion and production processes.
In April 1992, the Company purchased Teleco Oilfield Services Incorporated, the
leading provider of directional measurement-while-drilling technology. Also,
during 1992, the Company combined Baker Service Tools with Baker Oil Tools, to
streamline the Company's ability to market its completion, remedial and workover
products and services.
In 1993, in an effort to create a more efficient operating structure and to meet
the needs of its clients, Baker Hughes INTEQ was formed by combining five of the
Company's oilfield divisions. The formation of Baker Hughes INTEQ continued the
Company's ongoing goal to pursue the directional and horizontal drilling,
measurement-while-drilling, drilling fluids and sand control completions markets
and to combine a full range of technologies into optimum integrated solutions.
In September 1996, due in part to the rapid growth of its integrated services
business, the Company formed a new division, Baker Hughes Solutions,
specifically devoted to integrated solutions and project management. The
Company also moved the sand control completions business operated by Baker
Hughes INTEQ to Baker Oil Tools to unify the Company's approach within the
completions sector.
In September 1996, Schlumberger Limited ("Schlumberger") and the Company signed
a letter of intent calling for the establishment of strategic alliances between
several of their product lines. Assuming definitive agreements are reached,
Baker Oil Tools will become the preferred supplier of completion technology and
services to certain Schlumberger divisions. Schlumberger will become the
preferred supplier of coiled tubing services and downhole monitoring devices to
Baker Oil Tools. In addition, subject to negotiation of definitive agreements,
the two companies anticipate a joint investment of approximately $50 million
over the next few years to jointly develop and commercialize proprietary
Intelligent Completion Systems. These systems are expected to provide remote
reservoir monitoring and control to improve operation and enhance recovery from
deepwater and extended reach wells.
Also in September 1996, BPCI purchased BASF AG's oilfield chemical business to
increase BPCI's international presence and to provide BPCI with access to BASF's
technology, manufacturing and research capabilities.
PROCESS EQUIPMENT OPERATIONS
Baker Hughes Process Equipment Company consists of three operating divisions:
Baker Hughes Process Systems, Bird Machine and EIMCO. These three divisions
provide separation technologies for the petroleum, municipal, continuous process
and mining industries.
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In March and September of 1994, the operations of EnviroTech Measurements and
Controls and EnviroTech Pumpsystems were sold. In 1996, the Company purchased
Vortoil Separation Systems and Ketema Process Equipment Company to expand its
product lines of liquid/solid and liquid/liquid separation equipment and
increase the size of its process equipment operations.
During the preceding five years, the Company acquired and disposed of several
additional businesses, none of which, individually or in the aggregate, had a
material effect on the Company's results of operations.
EMPLOYEES
At September 30, 1996, the Company had a total of approximately 16,800
employees, as compared to approximately 15,200 employees at September 30, 1995.
Approximately 1,747 employees at September 30, 1996 were represented under
collective bargaining agreements that terminate at various times through 1998.
The Company believes that its relations with its employees are satisfactory.
EXECUTIVE OFFICERS
The following table shows as of December 4, 1996, the name of each
executive officer of the Company, together with his age and all offices
presently held with the Company.
NAME OF INDIVIDUAL AGE
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James D. Woods 65 Chairman of the Board of the Company since 1989.
Employed 1955. President of Baker, 1986 to 1987;
President of the Company, 1987 to October 1995; and
Chief Executive Officer of the Company, 1987 to October
1996.
Max L. Lukens 48 President of the Company since October 1995; and
Chief Executive Officer of the Company since October
1996. Employed 1981. Vice President and Chief
Financial Officer of Baker, 1984-1987; Senior 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; President,
Baker Hughes Oilfield Operations, 1993-1995; and Chief
Operating Officer of the Company, 1995-1996.
M. Glen Bassett 58 Vice President of the Company since 1995; and President
of Baker Performance Chemicals Incorporated since 1983.
Employed 1980.
Joseph F. Brady 50 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.
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James E. Braun 37 Controller of the Company since 1993. Employed
1993. From 1981-1993, Deloitte & Touche LLP;
Partner of Deloitte & Touche LLP from 1991.
Matthew G. Dick 53 Vice President of the Company; and President of
Baker Hughes Process Equipment Company since 1996.
Employed 1975. Vice President - Western
Hemisphere, Hughes Christensen Company, 1991-1993;
Vice President -Oilfield Tricones, Hughes
Christensen Company, 1993-1994; and Vice
President -Eastern Hemisphere, Baker Hughes INTEQ
1994-1996.
George S. Finley 45 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 50 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 49 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 45 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 39 Vice President and General Counsel of the Company
since 1995. Employed 1991. Deputy General Counsel
of the Company, 1991-1995; Vice President and
General Counsel, Baker Hughes Oilfield Operations,
1994-1995; and Corporate Secretary of the Company,
1992-1996.
Timothy J. Probert 45 Vice President of the Company since 1994; and
President of Baker Hughes INTEQ since 1996.
Employed 1972. President, Milpark, 1989-1990;
President, Eastman Christensen, 1990-1992;
President, Eastman Teleco, 1992-1993; Executive
Vice President, Baker Hughes INTEQ, 1993; Vice
President, Drilling & Evaluation Technology Unit,
Baker Hughes INTEQ, 1993-1994; and President,
Baker Hughes Process Equipment Company, 1994-1996.
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Andrew J. Szescila 49 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 50 Vice President of the Company since 1995; and
President of Baker Hughes Solutions since 1996.
Employed 1978. President, Baker Sand Control, 1990-
1993; and President, Baker Hughes INTEQ, 1993-1996.
There are no family relationships between the executive officers of the
Company.
The Company follows the practice of electing its officers annually in
October.
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, 1997, the Company will spend
approximately $13,782,000 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 $3,197,000 for environmental control equipment
during the fiscal year ending September 30, 1997. Based upon current
information, the Company believes that capital expenditures for environmental
control equipment for the 1997 and 1998 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.
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.
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(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 seven years
and is managed by a task force of PRPs ("FLTG, Inc."). During September
1996, the Company and BHTS negotiated a deminimus party buyout agreement
with the major PRPs, FLTG, Inc., which provides liability protection under
United States and state environmental laws, up to the projected costs of
the remediation. Although the buyout agreement does contain a "reopener"
provision, in the case of the discovery of new facts associated with the
site, the Company would be responsible for its proportional share (0.56%)
of the increased costs. However, the Company, as well as FLTG, Inc.,
judges this very remote, and the Company expects no further expense
associated with this site.
(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) 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.
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(d) BPCI 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 BPCI to properly update the
EPA of the volume of Toxic Substance Control Act listed substances
manufactured. The EPA has proposed a fine against BPCI in the amount of
$104,000.
(e) 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 $35,000.
(f) 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 $7,000,000. The
Company is currently participating with other PRPs to fund certain remedial
design efforts on an interim basis to comply with the EPA Administrative
Order.
(g) 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.
(h) 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.
(i) 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, associated with the
acquisition of Chemlink, have been executed and are in
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place, acknowledged by the EPA and the Department of Justice (Environmental
Division), that protect the Company and BPCI from liability (and associated
defense costs, if any) associated with this site.
(j) 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 a majority of the
waste volume disposed at this site. The PRP is presently engaged in the
remediation of the site. To date neither the PRP nor the EPA have produced
any substantive waste disposal or transportation documentation linking the
Company or its subsidiaries or divisions to the environmental conditions at
the site. The Company does not anticipate that it will have any liability
for this site.
(k) 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 0.08% 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.
(l) 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 0.00006% of the volume at
the site. The total cost of cleanup at the site is currently estimated to
be $3,500,000. A deminimis 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.
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.
-11-
<PAGE>
ITEM 2. PROPERTIES
The Company operates 61 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 2,846,000
square feet. Of such total, approximately 1,963,000 square feet (69%) are
located in the United States, 156,000 square feet (6%) are located in the
Western Hemisphere exclusive of the United States, 636,000 square feet (22%) 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 26 6 9 9 50
Process equipment products 7 2 2 11
and services
</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 1996 and 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.
See also " Item 1. Business -- Environmental Matters."
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
-12-
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Common Stock, $1.00 par value per share (the "Common Stock"), of
the Company 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 4, 1996, there were approximately 53,489 stockholders and 16,489
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, 1996 and information regarding dividends declared on the Common
Stock during the two-years ended September 30, 1996, 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 1996 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 1996
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 1996 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, 1996.
Consolidated Statements of Financial Position as of September 30, 1996 and
1995.
Consolidated Statements of Stockholders' Equity for each of the three years
in the period ended September 30, 1996.
Consolidated Statements of Cash Flows for each of the three years in the
period ended September 30, 1996.
Notes to Consolidated Financial Statements.
-13-
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
-14-
<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 22, 1997,
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 22, 1997, 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 22, 1997, 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 22, 1997, which sections are
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
-15-
<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 L Preferred Stock of Baker
Hughes Incorporated.
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 SEC upon request.
4.2 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).
4.3 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).
4.4 Certificate of Designation of Series L Preferred Stock of Baker
Hughes Incorporated.
-16-
<PAGE>
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).
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).
-17-
<PAGE>
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 Form of Nonqualified Stock Option Agreement for directors.
10.17 Form of Nonqualified Stock Option Agreement for employees.
10.18 Form of Incentive Stock Option Agreement for employees.
11.1 Statement of Computation of Earnings per Common Share.
13.1 Portions of 1996 Annual Report to Stockholders.
21.1 Subsidiaries of Registrant.
23.1 Consent of Deloitte & Touche LLP.
27.1 Financial Data Schedule (for SEC purposes only).
(B) REPORTS ON FORM 8-K:
None.
-18-
<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
10th day of December, 1996.
BAKER HUGHES INCORPORATED
By /s/ Max L. Lukens
---------------------------------------
(Max L. Lukens, 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/ MAX L. LUKENS President and Chief Executive December 10, 1996
- ---------------------------- Officer
(Max L. Lukens)
/s/ E. L. MATTSON Senior Vice President and December 10, 1996
- ---------------------------- Chief Financial Officer
(E. L. Mattson) (principal financial officer)
/s/ JAMES E. BRAUN Controller (principal December 10, 1996
- ---------------------------- accounting officer)
(James E. Braun)
/s/ JAMES D. WOODS Chairman of the Board December 10, 1996
- ----------------------------
(James D. Woods)
/s/ LESTER M. ALBERTHAL, JR Director December 10, 1996
- ----------------------------
(Lester M. Alberthal, Jr.)
/s/ VICTOR G. BEGHINI Director December 10, 1996
- ----------------------------
(Victor G. Beghini)
-19-
<PAGE>
/s/ JACK S. BLANTON Director December 10, 1996
- ----------------------------
(Jack S. Blanton)
/s/ HARRY M. CONGER Director December 10, 1996
- ----------------------------
(Harry M. Conger)
/s/ EUNICE M. FILTER Director December 10, 1996
- ----------------------------
(Eunice M. Filter)
/s/ JOE B. FOSTER Director December 10, 1996
- ----------------------------
(Joe B. Foster)
/s/ RICHARD D. KINDER Director December 10, 1996
- ----------------------------
(Richard D. Kinder)
/s/ JOHN F. MAHER Director December 10, 1996
- ----------------------------
(John F. Maher)
/s/ JAMES F. McCALL Director December 10, 1996
- ----------------------------
(James F. McCall)
- ---------------------------- Director December __, 1996
(Dana G. Mead)
/s/ DONALD C. TRAUSCHT Director December 10, 1996
- ----------------------------
(Donald C. Trauscht)
-20-
<PAGE>
EXHIBIT 3.3
CERTIFICATE OF DESIGNATION
OF SERIES L 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 5, 1990, 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
<PAGE>
to determine the designation thereof, or any of them; and
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, of which Nineteen Thousand One-Hundred Thirty-
seven (19,137) 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 Sixty-two Thousand, One Hundred Eighty-one
(62,181) shares have been issued; and
WHEREAS, the Board of Directors of this Corporation has
previously authorized a series of One Hundred Seventy-seven Thousand,
Eight Hundred Sixty-six (177,866) shares of Preferred Stock designated
as Series K Preferred Stock, no shares of which 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 twelfth series
of preferred stock into which such debentures are convertible (such
twelfth series hereinafter referred to as the "Series L Preferred
Stock") and the number of
<PAGE>
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 L Preferred Stock; that the number of shares of such
series shall be One Hundred Seventy-Nine Thousand Eight Hundred Eight
(179,808); and that the preferences and relative, optional and other
special rights of the Series L 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 $2.15 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 $28.50
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 L Preferred Stock to be redeemed, by certified mail
with postage prepaid, addressed to each holder at his address as shown
on the records
<PAGE>
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 L 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 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 L 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 L 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
<PAGE>
Corporation, before any distribution of any asset shall be made to the
holders of Common Stock or other shares junior to the Series L Preferred
Stock as to distribution of assets, an amount which shall be equal to
$28.50 per share plus an amount equal to declared but unpaid dividends
thereon. After the holders of Series L 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 L Preferred Stock, and any other series of preferred stock of the
Corporation ranking equally as to distribution of assets with the shares
of Series L Preferred Stock, are entitled to receive in such events are
not paid, or deposited in trust, in full, the shares of Series L
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 L 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 L
Preferred Stock shall have conversion rights as follows:
(a) The shares of Series L 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 L Preferred Stock being taken at $28.50 for the
purposes of such conversion. The price at which shares of Common Stock
shall be deliverable upon conversion of shares of Series L Preferred
Stock of any series (herein called the "conversion price"),
<PAGE>
shall be initially $28.50 per share of Series L Preferred Stock, i.e.,
upon conversion, each share of Series L 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 L Preferred Stock surrendered for conversion. In case of the
call for redemption of any shares of Series L 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 L 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 L 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 L
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 L 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.
<PAGE>
(c) The conversion price of Series L 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 L
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 have been issued or sold upon the
declaration of such dividend or the making of such other distribution or
the date of the
<PAGE>
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 or 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 L Preferred Stock
notice of such adjustment, which notice shall set forth a brief statement of the
facts requiring such adjustment.
<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 L 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 L 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 L 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 L 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
<PAGE>
(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 L Preferred Stock or any security
convertible into Series L 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.
(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 L Preferred Stock such number of shares of Common Stock as
shall then be deliverable upon the conversion of all outstanding or potentially
issuable Series L 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 L 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
<PAGE>
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 L 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 L 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 L 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 L 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 L 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 L 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, 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
<PAGE>
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 5th day of December,
1990.
BAKER HUGHES INCORPORATED
By: THOMAS CASON
-----------------------------
Thomas Cason
Senior Vice President
ATTEST:
By: LINDA J. SMITH
---------------------------
Linda J. Smith
Assistant Secretary
<PAGE>
EXHIBIT 4.4
CERTIFICATE OF DESIGNATION
OF SERIES L 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 5, 1990, 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
<PAGE>
to determine the designation thereof, or any of them; and
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, of which Nineteen Thousand One-Hundred Thirty-
seven (19,137) 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 Sixty-two Thousand, One Hundred Eighty-one
(62,181) shares have been issued; and
WHEREAS, the Board of Directors of this Corporation has
previously authorized a series of One Hundred Seventy-seven Thousand,
Eight Hundred Sixty-six (177,866) shares of Preferred Stock designated
as Series K Preferred Stock, no shares of which 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 twelfth series
of preferred stock into which such debentures are convertible (such
twelfth series hereinafter referred to as the "Series L Preferred
Stock") and the number of
<PAGE>
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 L Preferred Stock; that the number of shares of such
series shall be One Hundred Seventy-Nine Thousand Eight Hundred Eight
(179,808); and that the preferences and relative, optional and other
special rights of the Series L 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 $2.15 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 $28.50
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 L Preferred Stock to be redeemed, by certified mail
with postage prepaid, addressed to each holder at his address as shown
on the records
<PAGE>
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 L 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 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 L 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 L 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
<PAGE>
Corporation, before any distribution of any asset shall be made to the
holders of Common Stock or other shares junior to the Series L Preferred
Stock as to distribution of assets, an amount which shall be equal to
$28.50 per share plus an amount equal to declared but unpaid dividends
thereon. After the holders of Series L 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 L Preferred Stock, and any other series of preferred stock of the
Corporation ranking equally as to distribution of assets with the shares
of Series L Preferred Stock, are entitled to receive in such events are
not paid, or deposited in trust, in full, the shares of Series L
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 L 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 L
Preferred Stock shall have conversion rights as follows:
(a) The shares of Series L 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 L Preferred Stock being taken at $28.50 for the
purposes of such conversion. The price at which shares of Common Stock
shall be deliverable upon conversion of shares of Series L Preferred
Stock of any series (herein called the "conversion price"),
<PAGE>
shall be initially $28.50 per share of Series L Preferred Stock, i.e.,
upon conversion, each share of Series L 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 L Preferred Stock surrendered for conversion. In case of the
call for redemption of any shares of Series L 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 L 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 L 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 L
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 L 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.
<PAGE>
(c) The conversion price of Series L 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 L
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 have been issued or sold upon the
declaration of such dividend or the making of such other distribution or
the date of the
<PAGE>
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 or 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 L Preferred Stock
notice of such adjustment, which notice shall set forth a brief statement of the
facts requiring such adjustment.
<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 L 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 L 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 L 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 L 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
<PAGE>
(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 L Preferred Stock or any security
convertible into Series L 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.
(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 L Preferred Stock such number of shares of Common Stock as
shall then be deliverable upon the conversion of all outstanding or potentially
issuable Series L 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 L 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
<PAGE>
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 L 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 L 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 L 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 L 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 L 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 L 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, 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
<PAGE>
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 5th day of December,
1990.
BAKER HUGHES INCORPORATED
By: THOMAS CASON
-----------------------------
Thomas Cason
Senior Vice President
ATTEST:
By: LINDA J. SMITH
---------------------------
Linda J. Smith
Assistant Secretary
<PAGE>
EXHIBIT 10.16
BAKER HUGHES INCORPORATED
NONQUALIFIED STOCK OPTION AGREEMENT
- ------- --------------
Grantee Shares Granted
Pursuant to action by the Compensation Committee for administration of the Baker
Hughes Incorporated ("Company") 1993 Stock Option Plan ("Plan"), the above
Grantee is hereby granted a nonqualified stock option to purchase the above
number of shares of the Company's $1 par value common stock at the exercise
price of (Price) for each share subject to this option, payable at the time of
exercise. Subject to the terms of the Plan regarding exercise, this option will
be exercisable during the period beginning one year from the date of grant set
forth below and ending seven years from such date, provided that the Grantee
remains a member of the Board of Directors of the Company. This option may not
be exercised after (Date).
Cashless exercise, in accordance with the terms of the Plan, shall be available
to Grantee for the shares subject to this option.
To the extent the exercise of this option results in taxable income to Grantee,
the Company is authorized to withhold from any remuneration payable to Grantee
any tax required to be withheld by reason of such taxable income.
This option is granted under and is subject to all of the provisions of the
Plan. This option is not transferable by the Grantee otherwise than by will or
by the laws of descent and distribution, and is exercisable during the Grantee's
lifetime only by the Grantee.
Date of Grant: (Date)
BAKER HUGHES INCORPORATED
By _____________________________________
(Name)
(Title)
<PAGE>
EXHIBIT 10.17
BAKER HUGHES INCORPORATED
NONQUALIFIED STOCK OPTION AGREEMENT
- ------- --------------
Grantee Shares Granted
Pursuant to action taken by the Compensation Committee of the Board of Directors
of Baker Hughes Incorporated, a Delaware corporation (the "Company"), for the
purposes of administration of the Baker Hughes Incorporated 1993 Stock Option
Plan (the "Plan"), the above-named Grantee is hereby granted a nonqualified
stock option to purchase the above number of shares of the Company's $1 par
value per share common stock at the exercise price of (Price) for each share
subject to this option, payable at the time of exercise. Subject to the terms
of the Plan regarding exercise, (i) twenty percent (20%) of the shares subject
to this option are immediately vested and this option is exercisable with
respect thereto on the date of grant, and this option will be exercisable with
respect to subsequent increments of twenty percent (20%) of the shares subject
to this option on each of the next four (4) anniversaries of the grant date, and
(ii) if the closing price of the Company Common Stock on the New York Stock
Exchange increases to at least $50.00 per share and thereafter the closing price
of the Company Common Stock on the New York Stock Exchange averages $50.00 per
share or above for a period of ten consecutive trading days, any unvested
portion of this option shall immediately vest in its entirety; in each case,
provided the Grantee remains in the employment of the Company. This option may
not be exercised after (Date).
The following provisions will apply in the event of Grantee's termination of
employment:
1. If Grantee's employment is terminated for any reason (other than
death, retirement or disability pursuant to paragraphs 4 and 5 below),
this option will wholly and completely terminate on the date of termination
of employment, to the extent it is not then exercisable.
2. If Grantee's employment is terminated because of fraud, theft or
embezzlement committed against the Company or one of its subsidiaries, or
for conflict of interest as provided in the Plan, this option will wholly
and completely terminate on the date of termination of employment.
3. If Grantee's employment is terminated for any reason other than
death, retirement, disability, fraud, theft, embezzlement or conflict of
interest as provided in the Plan, Grantee shall have three months from the
date of termination of employment to exercise this option, to the extent
then exercisable (but in no event later than (Date)).
4. In the event of the retirement (such that the Grantee's age plus
years of service with the Company equals or exceeds 65) or disability of
the Grantee, all granted but unvested options shall immediately vest upon
the Grantee's retirement or disability. The Grantee shall have three years
from the date of termination of employment due to retirement or disability
to exercise this option (but in no event later than (Date)).
5. Upon the death of the Grantee in active service, all granted but
unvested options shall immediately vest upon the Grantee's death and
otherwise shall be exercisable for a period of one year following Grantee's
death (but in no event later than (Date)).
Cashless exercise, in accordance with the terms of the Plan, shall be available
to Grantee for the shares subject to this option.
To the extent the exercise of this option results in taxable income to Grantee,
the Company is authorized to withhold from any remuneration payable to Grantee
any tax required to be withheld by reason of such taxable income.
This option is granted under and is subject to all of the provisions of the
Plan. This option is not transferable by the Grantee otherwise than by will or
by the laws of descent and distribution, and is exercisable during the Grantee's
lifetime only by the Grantee.
Date of Grant: (Date)
BAKER HUGHES INCORPORATED
_________________________________
(NAME)
(TITLE)
<PAGE>
EXHIBIT 10.18
BAKER HUGHES INCORPORATED
INCENTIVE STOCK OPTION AGREEMENT
_______ --------------
Grantee Shares Granted
Pursuant to action taken by the Compensation Committee of the Board of Directors
of Baker Hughes Incorporated, a Delaware corporation (the "Company"), for the
purposes of administration of the Baker Hughes Incorporated 1993 Stock Option
Plan (the "Plan"), the above-named Grantee is hereby granted an incentive stock
option (within the meaning of Section 422(b) of the Internal Revenue Code) to
purchase the above number of shares of the Company's $1 par value per share
common stock at the exercise price of (Price) for each share subject to this
option, payable at the time of exercise. Subject to the terms of the Plan
regarding exercise, (i) twenty percent (20%) of the shares subject to this
option are immediately vested and this option is exercisable with respect
thereto on the date of grant, and this option will be exercisable with respect
to subsequent increments of twenty percent (20%) of the shares subject to this
option on each of the next four (4) anniversaries of the grant date, and (ii) if
the closing price of the Company Common Stock on the New York Stock Exchange
increases to at least $50.00 per share and thereafter the closing price of the
Company Common Stock on the New York Stock Exchange averages $50.00 per share or
above for a period of ten consecutive trading days, any unvested portion of this
option shall immediately vest in its entirety; in each case, provided the
Grantee remains in the employment of the Company. This option may not be
exercised after (Date).
The following provisions will apply in the event of Grantee's termination of
employment:
1. If Grantee's employment is terminated for any reason (other than
death, retirement or disability pursuant to paragraphs 4 and 5 below),
this option will wholly and completely terminate on the date of termination
of employment, to the extent it is not then exercisable.
2. If Grantee's employment is terminated because of fraud, theft or
embezzlement committed against the Company or one of its subsidiaries, or
for conflict of interest as provided in the Plan, this option will wholly
and completely terminate on the date of termination of employment.
3. If Grantee's employment is terminated for any reason other than
death, retirement, disability, fraud, theft, embezzlement or conflict of
interest as provided in the Plan, Grantee shall have three months from the
date of termination of employment to exercise this option, to the extent
then exercisable (but in no event later than (Date)).
4. In the event of the retirement (such that the Grantee's age plus
years of service with the Company equals or exceeds 65) or disability of
the Grantee, all granted but unvested options shall immediately vest upon
the Grantee's retirement or disability. The Grantee shall have three years
from the date of termination of employment due to retirement or disability
to exercise this option (but in no event later than (Date)).
5. Upon the death of the Grantee in active service, all granted but
unvested options shall immediately vest upon the Grantee's death and
otherwise shall be exercisable for a period of one year following Grantee's
death (but in no event later than (Date)).
Cashless exercise, in accordance with the terms of the Plan, shall be available
to Grantee for the shares subject to this option.
To the extent the exercise of this option results in taxable income to Grantee,
the Company is authorized to withhold from any remuneration payable to Grantee
any tax required to be withheld by reason of such taxable income.
This option is granted under and is subject to all of the provisions of the
Plan. This option is not transferable by the Grantee otherwise than by will or
by the laws of descent and distribution, and is exercisable during the Grantee's
lifetime only by the Grantee.
Date of Grant: (Date)
BAKER HUGHES INCORPORATED
_________________________________
(NAME)
(TITLE)
<PAGE>
Exhibit 11.1
COMPUTATION OF EARNINGS PER COMMON SHARE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Years Ended September 30,
-------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
PRIMARY EARNINGS (NOTE A:)
Income before extraordinary loss and cumulative effect of
accounting changes $176,350 $119,983 $131,142
Dividends on preferred stock (8,000) (12,000)
Repurchase of preferred stock (17,600)
-------- ------- --------
Subtotal 176,350 94,383 119,142
Extraordinary loss (44,320)
Accounting changes (14,598) (44,165)
-------- -------- --------
Net income applicable to common stock $176,350 $ 79,785 $ 30,657
======== ======== ========
Shares:
- -------
Weighted average number of common shares outstanding 143,256 141,215 140,532
Assuming conversion of dilutive stock options 1,150 111 90
-------- -------- --------
Weighted average number of common shares outstanding as
adjusted 144,406 141,326 140,622
======== ======== ========
Primary earnings per common share:
- ----------------------------------
Income before extraordinary loss and cumulative effect of
accounting changes $ 1.22 $ .66 $ .85
Extraordinary loss (.31)
Accounting changes (.10) (.32)
-------- -------- --------
Net income $ 1.22 $ .56 $ .22
======== ======== ========
FULLY DILUTED EARNINGS (NOTE A:)
Net income applicable to common stock $176,350 $ 79,785 $ 30,657
Interest expense, net of tax, related to dilutive convertible
debt
-------- -------- --------
Net income as adjusted $176,350 $ 79,785 $ 30,657
======== ======== ========
Shares:
- -------
Weighted average number of common shares outstanding 143,256 141,215 140,532
Assuming conversion of dilutive convertible debt
Assuming conversion of dilutive stock options 1,502 128 90
-------- -------- --------
Weighted average number of common shares outstanding
as adjusted 144,758 141,343 140,622
======== ======== ========
Fully diluted earnings per common share:
- ----------------------------------------
Income before extraordinary loss and cumulative effect of
accounting changes $ 1.22 $ .66 $ .85
Extraordinary loss (.31)
Accounting changes (.10) (.32)
-------- -------- --------
Net income $ 1.22 $ .56 $ .22
======== ======== ========
</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
Baker Hughes Incorporated
CONDENSED COMPARATIVE CONSOLIDATED FINANCIAL INFORMATION
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total revenues $3,027,730 $2,637,464 $2,504,758 $2,701,697 $2,538,515
- ----------------------------------------------------------------------------------------------------------------------------
Costs and expenses:
Costs and expenses applicable to
revenues 2,451,994 2,148,788 2,082,745 2,262,545 2,132,928
General and administrative 229,446 232,787 214,788 238,238 232,407
Unusual charge - net 39,611 31,829 42,000 79,190
Operating income of business sold (10,488)
- ----------------------------------------------------------------------------------------------------------------------------
Total 2,721,051 2,381,575 2,318,874 2,542,783 2,444,525
- ----------------------------------------------------------------------------------------------------------------------------
Operating income 306,679 255,889 185,884 158,914 93,990
Interest expense (55,528) (55,595) (63,835) (64,703) (68,112)
Interest income 3,421 4,806 3,067 5,840 6,078
Gain on sale of Varco stock 44,295
Gain on sale of Pumpsystems 101,000
- ----------------------------------------------------------------------------------------------------------------------------
Income before income taxes,
extraordinary loss and cumulative
effect of accounting changes 298,867 205,100 226,116 100,051 31,956
Income taxes (122,517) (85,117) (94,974) (41,195) (26,925)
- ----------------------------------------------------------------------------------------------------------------------------
Income before extraordinary loss and
cumulative effect of accounting changes 176,350 119,983 131,142 58,856 5,031
Extraordinary loss (44,320)
Cumulative effect of accounting changes (14,598) (44,165)
- ----------------------------------------------------------------------------------------------------------------------------
Net income $ 176,350 $ 105,385 $ 42,657 $ 58,856 $ 5,031
============================================================================================================================
Per share of common stock:
Income before extraordinary loss and
cumulative effect of accounting
changes $ 1.23 $ .67 $ .85 $ .34 $ .00
Net income 1.23 .57 .22 .34 .00
Dividends .46 .46 .46 .46 .46
Financial position:
Cash and cash equivalents $ 7,714 $ 6,817 $ 69,179 $ 6,992 $ 6,692
Working capital 1,081,073 984,684 855,421 920,969 715,472
Total assets 3,297,390 3,166,591 2,999,682 3,143,340 3,212,938
Long-term debt 673,588 798,352 637,972 935,846 812,465
Stockholders' equity 1,689,209 1,513,606 1,638,472 1,610,648 1,645,522
</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
acquisitions and dispositions discussed in Note 2 of Notes to Consolidated
Financial Statements, the Company acquired Teleco Oilfield Services Inc. in
1992. The Company sold Baker Hughes Tubular Services ("BHTS") in 1992. See
Note 3 of Notes to Consolidated Financial Statements for a description of the
unusual charge-net in 1996 and 1994. The unusual charge-net in 1993 consisted
primarily of litigation settlements. The unusual charge-net in 1992 consisted
primarily of restructurings in Oilfield Operations and litigation claims offset
by the gain on the disposition of BHTS. See Note 4 of Notes to Consolidated
Financial Statements for a description of the extraordinary loss in 1994.
1
<PAGE>
Baker Hughes Incorporated
MANAGEMENT REPORT OF FINANCIAL RESPONSIBILITIES
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 Company's 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, 1996, 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.
[SIGNATURE OF [SIGNATURE OF [SIGNATURE OF
MAX L. LUKENS ERIC L. MATTSON JAMES E. BRAUN
APPEARS HERE] APPEARS HERE] APPEARS HERE]
Max L. Lukens Eric L. Mattson James E. Braun
President and Chief Senior Vice President and Chief Controller
Executive Officer Financial Officer
2
<PAGE>
Baker Hughes Incorporated
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of
Operations should be read in conjunction with the Company's Consolidated
Financial Statements for the years ended September 30, 1996, 1995 and 1994 and
the related Notes to Consolidated Financial Statements.
BUSINESS ENVIRONMENT
Baker Hughes provides products and services to the worldwide oilfield
services and continuous process industries. Oilfield services generate
approximately 87% of the Company's consolidated revenues.
Baker Hughes Oilfield Operations consist of six 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 affected significantly
by petroleum industry exploration and production expenditures. These
expenditures are influenced strongly by oil company expectations about energy
prices and the supply and demand for crude oil and natural gas. Petroleum
supply and pricing, in turn, are influenced by numerous factors. These include,
but are not limited to, world economic conditions, weather, the legislative
environment in the United States and other countries, OPEC policy and conflict
in the Middle East and other major petroleum producing regions.
Baker Hughes Process Equipment Company ("BHPEC") has three divisions that
serve a broad range of process industries around the world. BHPEC's technology
separates solids from liquids and liquids from liquids through filtration,
sedimentation, centrifugation and flotation processes. The business environment
for BHPEC is affected significantly by worldwide economic conditions and the
economic health of the specific markets where it participates.
OPERATING ENVIRONMENT
FOR OILFIELD OPERATIONS
Two key trends are altering the oilfield service market place: the impact of
technology and the growth in outsourcing and partnering. Advances in the design
and application of the Company's products and services allow oil and gas
operators to drill and complete wells at a lower overall cost. At the same
time, this technology helps accelerate hydrocarbon production and enhance
reserve recovery.
Similarly, oil companies have increased their levels of outsourcing to and
partnering with service companies because this approach has proven to be
effective in lowering finding and development costs. The Company continues to
expand and develop its involvement in project management. Baker Hughes works
closely with client companies in project planning, and in the engineering and
integration of several products and services into solutions that meet client
objectives.
Worldwide crude oil demand, 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 demand,
oil and gas prices and drilling activity.
WORLDWIDE OIL DEMAND
Fiscal Year (In millions) 1996 1995 1994
- ----------------------------------------------------
OECD Oil Demand 40.9 40.2 39.9
Non-OECD Oil Demand 30.4 29.6 28.7
- ----------------------------------------------------
Worldwide
Oil Demand (Bbls/day) 71.3 69.8 68.6
====================================================
OECD - Organization for Economic Cooperation and Development (developed
countries)
3
<PAGE>
Baker Hughes Incorporated
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
According to the International Energy Agency, the demand for crude oil is
expected to grow 1.4 million to 2.0 million barrels per day per year through
the end of the century. Three-quarters of the incremental demand are expected
to be driven by relatively low energy prices, low but increasing energy
consumption per capita, population growth and economic growth in non-OECD
countries, particularly in Asia and Latin America.
OIL AND GAS PRICES
Fiscal Year 1996 1995 1994
- -------------------------------------------------------------
WTI ($/bbl) 20.51 18.29 16.87
U.S. Spot Natural Gas ($/mcf) 2.21 1.42 1.88
The Company expects crude oil to trade between $18 and $22 per barrel in
1997 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 moderate in 1996 with the
return of "normal" weather and limited pipeline de-bottlenecking. Natural gas
prices are expected to average above $2/mcf. The Company believes that natural
gas prices at or above $2/mcf will sustain the current natural gas exploration
and development drilling activity.
ROTARY RIG COUNT
Fiscal Year 1996 1995 1994
- -------------------------------------------------------------
U.S. - Land 652 638 684
U.S. - Offshore 107 100 101
Canada 247 247 245
- -------------------------------------------------------------
North America 1,006 985 1,030
- -------------------------------------------------------------
Latin America 279 266 223
North Sea 53 42 42
Other Europe 69 66 67
Africa 76 65 66
Middle East 138 123 135
Asia Pacific 173 186 214
- -------------------------------------------------------------
International 788 748 747
- -------------------------------------------------------------
Worldwide 1,794 1,733 1,777
- -------------------------------------------------------------
U.S. Workover 1,306 1,298 1,336
NORTH AMERICA The company anticipates a moderate increase in U.S. drilling
activity. Offshore activity will remain strong; however, the worldwide shortage
of offshore drilling rigs will limit future growth. Canadian activity is
expected to increase from 1996 levels.
INTERNATIONAL The Company is optimistic that most international areas will
post an increasing rig count in 1997. 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.
RESULTS OF OPERATIONS
REVENUES
Consolidated revenues for 1996 increased $390.3 million, or 14.8%, from 1995
lead by Baker Hughes Oilfield Operations where most all regions of the world
reported an increase. Activity was particularly strong in several key oilfield
regions of the world including the North Sea, Gulf of Mexico and Nigeria where
revenues were up $93.4 million, $56.8 million and $30.1 million, respectively.
These areas provide the Company with higher margins because of the more
difficult and complex drilling conditions that require the premium products and
services offered by the Company. In addition, operators in these areas apply
many of the Company's leading technologies including horizontal drilling
techniques and multilateral completions. Strong drilling activity drove a $35.5
million increase in Venezuelan revenues. The strong performance in these and
other areas was offset by a decrease of revenues in the former Soviet Union
("FSU"). Revenues in the FSU declined $10.9 million to $42.4 million as the
lack of financing slowed activity in this region.
In 1996, Baker Hughes Process Equipment Company reported a revenue increase
of $38.6 million, or 11.1% from 1995. The growth in the minerals processing and
pulp and paper industry slowed from the prior year. In addition, two 1996
acquisitions account for $21.5 million of the increase.
4
<PAGE>
Consolidated revenues for 1995 increased $132.8 million, or 5.3%, from 1994.
Adjusting for the disposition of EnviroTech Pumpsystems ("Pumpsystems") in
1994, consolidated revenues increased 9.5%, or $229.3 million.
Baker Hughes Oilfield Operations accounted for $177.6 million of the
increase. Latin America saw a revenue increase of $94.3 million as the national
oil companies of Venezuela and Argentina increased their drilling programs.
Acceptance and growth of horizontal drilling technology in Oman and the Gulf of
Mexico resulted in revenue growth of $11.7 million and $33.5 million,
respectively. Revenues in the FSU declined $21.3 million to $53.3 million as
the lack of financing had a significant effect on activity in this region.
In 1995, Baker Hughes Process Equipment Company reported a revenue increase
of $51.0 million, or 17.1% from 1994. The minerals processing industry,
specifically copper, and the pulp and paper industry experienced significant
growth during 1995 benefiting Baker Hughes Process Equipment Company.
OPERATING INCOME
(In millions) 1996 1995 1994
- ------------------------------------------------------------
Consolidated
Operating Income $306.7 $255.9 $185.9
Plus Unusual Charge-net 39.6 31.8
Less Operating
Income of Pumpsystems (17.9)
- ------------------------------------------------------------
Operating Income from
Ongoing Operations $346.3 $255.9 $199.8
============================================================
Consolidated operating income in 1996 increased 19.8% from 1995 levels and
in 1995 increased 37.7% from 1994 levels. Operating income from ongoing
operations increased 35.3% in 1996 and 28.1% in 1995.
COST AND EXPENSES
Operating expenses, excluding unusual charges, typically fluctuate within a
narrow band as a percentage of consolidated revenues as the Company manages
these expenses both in absolute terms and as a function of revenues.
The increase in 1996 of cost of sales and cost of services and rentals is in
line with the increase in the related revenue. Research and engineering and
marketing and field service expenses also increased due to higher revenues
although, as a percent of revenue, they decreased slightly because these costs
tend to be more fixed in nature. In total, as a percent of consolidated
revenues, costs and expenses applicable to revenues decreased from 81.5% in
1995 to 81.0% in 1996.
For 1995, 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, in
part, the realization of cost reductions from the Company's ongoing quality
programs. Research and engineering decreased for the year due primarily to the
reorganization of the research 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, decreased $3.0 million, or 1.5% in 1996. The decrease is due primarily
to the non-recurrence of the 1995 items discussed below, offset by foreign
currency translation losses of $10.5 million related to the devaluation of the
Venezuelan bolivar recognized in 1996. The increase in 1995 from 1994 is due to
the resolution
5
<PAGE>
Baker Hughes Incorporated
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
of certain legal matters during 1995, 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 all three years as no significant acquisitions or
dispositions have been made in recent years.
UNUSUAL CHARGE-NET
1996: During the third quarter of 1996, the Company recorded an unusual
charge of $39.6 million. The charge consisted primarily of the write-off of
$8.5 million of Baker Hughes Oilfield Operations patents that no longer
protected commercially significant technology, a $5.0 million impairment of a
Latin America joint venture due to changing market conditions in the region in
which it operates and restructuring charges totaling $24.1 million. The
restructuring charges include the downsizing of Baker Hughes INTEQ's Singapore
and Paris operations, a reorganization of Baker Hughes Process Equipment
Company's Italian operations and the consolidation of certain Baker Oil Tools
manufacturing operations.
Noncash provisions of the charge totaled $25.3 million and consist primarily
of the write-down of assets to net realizable value. The remaining $14.3
million of the charge represents future cash expenditures related to severance
under existing benefit arrangements, the relocation of people and equipment and
abandoned leases. The Company spent $4.2 million of the cash during 1996 and
expects to spend substantially all of the remaining $10.1 million by the end of
1997. Such expenditures relate to specific plans and clearly defined actions
and will be funded from operations and available credit facilities. The actions
taken are expected to favorably impact future operating results and liquidity
as the reduction of headcount and the downsizing of operations will reduce
future operating costs without significantly impacting the pricing of the
products and services and market share. Annual cost savings are expected to be
between $7.0 million and $9.0 million.
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 totaled $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 $1.8 million in 1996, $11.2 million in 1995 and $3.1 million in 1994.
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.
INTEREST EXPENSE
Interest expense in 1996 remained comparable to 1995 as slightly higher
average debt balances were offset by a slightly lower weighted average interest
rate. 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.
6
<PAGE>
INTEREST INCOME
Interest income decreased $1.4 million in 1996. The decrease was due to
lower levels of short-term investments during the year. Interest income
increased $1.7 million in 1995 due to an increase in the average short-term
investments during the year.
GAIN ON SALE OF VARCO STOCK
In May 1996, the Company sold 6.3 million shares of Varco International,
Inc. ("Varco") common stock, representing its entire investment in Varco. The
Company received net proceeds of $95.5 million and recognized a pretax gain of
$44.3 million. The Company's investment in Varco was accounted for using the
equity method. Equity income included in the Consolidated Statements of
Operations for 1996, 1995 and 1994 was $1.8 million, $3.2 million and $2.1
million, respectively.
INCOME TAXES
The effective income tax rate for 1996 was 41.0% as compared to 41.5% in
1995 and 42.0% in 1994. The effective rates differ from the federal statutory
rate due primarily to taxes on foreign operations and nondeductible goodwill
amortization. The decrease in the rate over the three year period is due to the
fixed nature of the nondeductible goodwill amortization and a change in the mix
of foreign earnings.
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.
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 and $12.0
million in 1994.
CAPITAL RESOURCES AND LIQUIDITY
FINANCING ACTIVITIES
Net cash outflows from financing activities were $152.2 million in 1996
compared to $95.5 million and $429.8 million in 1995 and 1994, respectively.
Total debt outstanding at September 30, 1996 was $675.4 million, compared to
$801.3 million at September 30, 1995 and $653.3 million at September 30, 1994.
The debt to equity ratio was .400 at September 30, 1996, compared to .529 at
September 30, 1995 and .399 at September 30, 1994.
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.
7
<PAGE>
Baker Hughes Incorporated
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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 over the three year period due to the
repurchase.
In 1996, the Company used $108.4 million of cash to repay the 4.125% Swiss
Franc Bonds that matured. The proceeds from the sale of Varco common stock
funded the retirement. In addition, the price of the Company's common stock
increased significantly during 1996 resulting in $43.7 million of capital
raised through employee stock plans.
At September 30, 1996, the Company had $590.7 million of credit facilities
with commercial banks, of which $300.0 million is committed. These facilities
are subject to normal banking terms and conditions and do not materially
restrict the Company's activities.
During 1996, the U.S. dollar strengthened slightly against most currencies
in which the Company has a significant net asset position. During 1995, the
U.S. dollar was relatively flat against most European currencies where the
Company has a significant net asset position. However, the Company was impacted
by the devaluation of the Mexican peso resulting in an increase of $4.8 million
in the cumulative foreign currency translation adjustment account.
INVESTING ACTIVITIES
Net cash outflows from investing activities were $40.9 million in 1996
compared to cash outflows of $94.1 million in 1995 and cash inflows of $258.4
million in 1994.
Proceeds from the disposal of assets and noncore businesses generated $78.5
million in 1996, $44.8 million in 1995 and $367.1 million in 1994. Property
additions increased in 1996 to $182.2 million from $138.9 million in 1995. In
1994, property additions were $108.6 million. The increase in 1996 and 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.
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 1997 capital expenditures to be
in excess of $200.0 million.
OPERATING ACTIVITIES
Net cash inflows from operating activities were $194.7 million, $127.3
million and $230.8 million in 1996, 1995 and 1994, respectively.
The increase of $67.4 million in 1996 was due to an increase in net income
adjusted for noncash items and a decrease in the growth of working capital from
the prior year due primarily to the settlement of liabilities in 1995 as
explained below. 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 emerging
markets, 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.
8
<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, 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.
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.
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 was 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 adoption of SFAS No. 121, as it
relates to impairment of long-lived assets used in operations, does not have a
significant impact on the consolidated financial statements. SFAS No. 121 also
addresses the accounting for long-lived assets to be disposed of and requires
these assets to be carried at the lower of cost or fair market value, rather
than the lower of cost or net realizable value, the Company's current accounting
policy. The impact of this aspect of SFAS No. 121 on the consolidated financial
statements will be a charge to income of $12.1 million, net of a tax benefit of
$5.9 million, which will be recorded in the first quarter of 1997 as the
cumulative effect of a change in accounting.
STOCK BASED COMPENSATION
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation," which was 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 will 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 1997 consolidated
financial statements as if the fair value based method of accounting had been
applied.
9
<PAGE>
Baker Hughes Incorporated
INDEPENDENT AUDITORS' REPORT
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, 1996 and 1995, and
the related consolidated statements of operations, stockholders' equity and
cash flows for each of the three years in the period ended September 30, 1996.
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, 1996 and 1995, and the results of its
operations and its cash flows for each of the three years in the period ended
September 30, 1996 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.
/s/ Deloitte & Touche LLP
November 13, 1996
Houston, Texas
10
<PAGE>
Baker Hughes Incorporated
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Years ended September 30, 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES:
Sales $2,046,850 $1,805,108 $1,727,734
Services and rentals 980,880 832,356 777,024
- ------------------------------------------------------------------------------------------------------------
Total 3,027,730 2,637,464 2,504,758
- ------------------------------------------------------------------------------------------------------------
COSTS AND EXPENSES:
Costs of sales 1,186,843 1,045,672 1,015,458
Cost of services and rentals 496,026 418,342 389,605
Research and engineering 87,033 83,546 91,011
Marketing and field service 682,092 601,228 586,671
General and administrative 199,894 202,903 184,013
Amortization of goodwill and other intangibles 29,552 29,884 30,775
Unusual charge - net 39,611 31,829
Operating income of business sold (10,488)
- ------------------------------------------------------------------------------------------------------------
Total 2,721,051 2,381,575 2,318,874
- ------------------------------------------------------------------------------------------------------------
Operating income 306,679 255,889 185,884
Interest expense (55,528) (55,595) (63,835)
Interest income 3,421 4,806 3,067
Gain on sale of Varco stock 44,295
Gain on sale of Pumpsystems 101,000
- ------------------------------------------------------------------------------------------------------------
Income before income taxes, extraordinary loss
and cumulative effect of accounting changes 298,867 205,100 226,116
Income taxes (122,517) (85,117) (94,974)
- ------------------------------------------------------------------------------------------------------------
Income before extraordinary loss and cumulative
effect of accounting changes 176,350 119,983 131,142
- ------------------------------------------------------------------------------------------------------------
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 $ 176,350 $ 105,385 $ 42,657
============================================================================================================
PER SHARE OF COMMON STOCK:
Income before extraordinary loss and cumulative
effect of accounting changes $ 1.23 $ .67 $ .85
Extraordinary loss (.31)
Cumulative effect of accounting changes (.10) (.32)
- ------------------------------------------------------------------------------------------------------------
Net income $ 1.23 $ .57 $ .22
============================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements
11
<PAGE>
Baker Hughes Incorporated
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(In thousands, except share amounts)
<TABLE>
<CAPTION>
September 30, 1996 1995
- -----------------------------------------------------------------------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 7,714 $ 6,817
- ------------------------------------------------------------------------------
Receivables-less allowance for doubtful accounts:
1996, $22,866; 1995, $24,809 793,801 709,588
- ------------------------------------------------------------------------------
Inventories:
Finished goods 665,715 595,417
Work in process 70,609 61,622
Raw materials 65,870 70,743
- ------------------------------------------------------------------------------
Total inventories 802,194 727,782
- ------------------------------------------------------------------------------
Deferred income taxes 78,680 92,550
- ------------------------------------------------------------------------------
Other current assets 34,004 28,078
- ------------------------------------------------------------------------------
Total current assets 1,716,393 1,564,815
- ------------------------------------------------------------------------------
PROPERTY:
Land 27,277 35,393
Buildings 290,735 314,184
Machinery and equipment 577,159 607,061
Rental tools and equipment 621,158 570,279
- ------------------------------------------------------------------------------
Total property 1,516,329 1,526,917
Accumulated depreciation (917,379) (951,858)
- ------------------------------------------------------------------------------
Property-net 598,950 575,059
- ------------------------------------------------------------------------------
OTHER ASSETS:
Investments 68,992 92,474
Property held for disposal 57,666 58,544
Other assets 98,104 103,321
Excess costs arising from acquisitions -
less accumulated amortization:
1996, $156,937; 1995, $136,174 757,285 772,378
- ------------------------------------------------------------------------------
Total other assets 982,047 1,026,717
- ------------------------------------------------------------------------------
Total $3,297,390 $3,166,591
==============================================================================
</TABLE>
See Notes to Consolidated Financial Statements
12
<PAGE>
Baker Hughes Incorporated
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(In thousands, except share amounts)
<TABLE>
<CAPTION>
September 30, 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable-trade $ 330,138 $ 304,689
Short-term borrowings 1,612 2,130
Current portion of long-term debt 247 768
Accrued employee compensation and benefits 155,310 133,135
Income taxes payable 32,925 28,445
Taxes other than income 26,600 25,176
Accrued insurance 28,052 27,475
Accrued interest 10,324 11,978
Other accrued liabilities 50,112 46,335
- --------------------------------------------------------------------------------
Total current liabilities 635,320 580,131
- --------------------------------------------------------------------------------
LONG-TERM DEBT 673,588 798,352
- --------------------------------------------------------------------------------
DEFERRED INCOME TAXES 150,460 118,350
- --------------------------------------------------------------------------------
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS 97,635 97,187
- --------------------------------------------------------------------------------
OTHER LONG-TERM LIABILITIES 51,178 58,965
- --------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $1 par value (authorized
400,000,000 shares; outstanding
144,553,000 shares in 1996 and
142,237,000 shares in 1995) 144,553 142,237
Capital in excess of par value 1,393,580 1,342,317
Retained earnings 250,567 140,106
Cumulative foreign currency
translation adjustment (118,766) (107,689)
Unrealized gain (loss) on
securities available for sale 19,275 (3,365)
- --------------------------------------------------------------------------------
Total stockholders' equity 1,689,209 1,513,606
- --------------------------------------------------------------------------------
Total $3,297,390 $3,166,591
================================================================================
</TABLE>
See Notes to Consolidated Financial Statements
13
<PAGE>
Baker Hughes Incorporated
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Cumulative Unrealized
Foreign Gain (Loss)
Capital Currency on Securities
For the three years ended Preferred Common In Excess Retained Translation Available
September 30, 1996 Stock Stock of Par Value Earnings Adjustment for Sale Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
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 $3.00 convertible
preferred stock (4,000) (145,400) (17,600) (167,000)
Unrealized loss adjustment (574) (574)
Stock issued pursuant to
employee stock plans 1,348 13,704 15,052
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, September 30, 1995 142,237 1,342,317 140,106 (107,689) (3,365) 1,513,606
Net income 176,350 176,350
Cash dividends on common
stock ($.46 per share) (65,889) (65,889)
Foreign currency
translation adjustment (11,077) (11,077)
Unrealized gain adjustment,
net of $12,191 tax charge 22,640 22,640
Stock issued pursuant to
employee stock plans 2,316 46,180 48,496
Tax benefit related to employee
stock plans 5,083 5,083
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE, SEPTEMBER 30, 1996 $144,553 $1,393,580 $ 250,567 $(118,766) $19,275 $1,689,209
====================================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements
14
<PAGE>
Baker Hughes Incorporated
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Years ended September 30, 1996 1995 1994
- --------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 176,350 $ 105,385 $ 42,657
Adjustments to reconcile net income to
net cash flows from operating activities:
Depreciation and amortization of:
Property 115,920 114,170 122,812
Other assets and debt discount 39,927 40,368 46,526
Deferred tax provision 30,145 44,783 47,366
Noncash portion of unusual charge-net 25,269 47,988
Gain on sale of Varco stock (44,295)
Gain on disposal of assets (31,716) (18,313) (18,034)
Gain on disposition of businesses (109,550)
Foreign currency translation loss-net 8,863 1,948 1,892
Cumulative effect of accounting changes 14,598 44,165
Extraordinary loss 44,320
Change in receivables (84,044) (94,660) (22,740)
Change in inventories (73,836) (79,937) (58,035)
Change in accounts payable-trade 22,623 51,734 24,890
Changes in other assets and liabilities 9,471 (52,805) 16,520
- --------------------------------------------------------------------------------
Net cash flows from operating activities 194,677 127,271 230,777
- --------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property additions (182,157) (138,876) (108,639)
Proceeds from sale of Varco stock 95,476
Proceeds from disposal of assets 78,463 44,786 38,664
Acquisition of businesses, net of
cash acquired (32,681)
Proceeds from disposition of businesses 328,389
- --------------------------------------------------------------------------------
Net cash flows from investing activities (40,899) (94,090) 258,414
- --------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (payments) from commercial
paper and revolving credit facilities (21,662) 42,674 (162,590)
Retirement of debentures (205,497)
Repayment of indebtedness (108,401)
Proceeds from exercise of debenture
purchase warrants 93,000
Net proceeds from issuance of debenture
purchase warrants 7,026
Repurchase of preferred stock (167,000)
Proceeds from exercise of stock options
and stock purchase grants 43,734 9,773 7,900
Dividends (65,889) (73,955) (76,658)
- --------------------------------------------------------------------------------
Net cash flows from financing activities (152,218) (95,508) (429,819)
- --------------------------------------------------------------------------------
Effect of exchange rate changes on cash (663) (35) 2,815
- --------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 897 (62,362) 62,187
Cash and cash equivalents, beginning of year 6,817 69,179 6,992
- --------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 7,714 $ 6,817 $ 69,179
================================================================================
See Notes to Consolidated Financial Statements
15
<PAGE>
Baker Hughes Incorporated
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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. All significant
intercompany accounts and transactions have been eliminated in consolidation.
USE OF ESTIMATES: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
REVENUE RECOGNITION: Revenue from product sales are recognized upon
delivery of products to the customer. Revenue 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: 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 Statement of Financial Accounting Standards
("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. 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.
16
<PAGE>
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 Postemployment 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: Net income per common share is based on the weighted
average number of shares outstanding during the respective periods and excludes
the negligible dilutive effect of shares issuable in connection with employee
stock, stock option and similar plans.
The following table presents information necessary to calculate net income
per common share for the periods indicated:
(In thousands) 1996 1995 1994
- --------------------------------------------------------------------------------
Net income $ 176,350 $ 105,385 $ 42,657
Less: Preferred stock
dividends (8,000) (12,000)
Effect of preferred
stock repurchase (17,600)
- --------------------------------------------------------------------------------
Net income applicable
to common stock $ 176,350 $ 79,785 $ 30,657
================================================================================
Weighted average
shares outstanding 143,256 141,215 140,532
================================================================================
STATEMENTS OF CASH FLOWS: The Company considers all highly liquid
investments with an original maturity of three months or less at the time of
purchase to be cash equivalents.
1997 ACCOUNTING CHANGE: In March 1995, the Financial Accounting Standards
Board issued SFAS No.121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of," which was 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
adoption of SFAS No.121, as it relates to impairment of long-lived assets used
in operations, does not have a significant impact on the consolidated financial
statements. SFAS No.121 also addresses the accounting for long-lived assets to
be disposed
17
<PAGE>
Baker Hughes Incorporated
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
of and requires these assets to be carried at the lower of cost or fair
market value, rather than the lower of cost or net realizable value, the
Company's current accounting policy. The impact of this aspect of SFAS No.121
on the consolidated financial statements will be a charge to income of $12.1
million, net of a tax benefit of $5.9 million, which will be recorded in the
first quarter of 1997 as the cumulative effect of a change in accounting.
NOTE 2
ACQUISITIONS AND DISPOSITIONS
1996
In April 1996, the Company purchased the assets and stock of a business
operating as Vortoil Separation Systems, and certain related oil/water
separation technology, for $18.8 million. In June 1996, the Company purchased
the stock of KTM Process Equipment, Inc., a centrifuge company, for $14.1
million. These acquisitions are now a part of Baker Hughes Process Equipment
Company and have been accounted for using the purchase method of accounting.
Accordingly, the costs of the acquisitions have been allocated to assets
acquired and liabilities assumed based on their estimated fair market values at
the dates of acquisition. The operating results are included in the 1996
consolidated statement of operations from the respective acquisition dates. Pro
forma results reflecting these two acquisitions have not been presented as the
pro forma revenue, net income and earnings per share would not be materially
different from the Company's actual results.
In April 1996, the Company exchanged the 100,000 shares of Tuboscope Vetco
International Corporation ("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 1.25 million shares of Tuboscope common
stock. The warrants are exercisable at $10.00 per share and expire on December
31, 2000.
In May 1996, the Company sold 6.3 million shares of Varco International,
Inc. ("Varco") common stock, representing its entire investment in Varco. The
Company received net proceeds of $95.5 million and recognized a pretax gain of
$44.3 million. The Company's investment in Varco was accounted for using the
equity method. Equity income included in the consolidated statements of
operations for 1996, 1995 and 1994 was $1.8 million, $3.2 million and $2.1
million, respectively.
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.
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.
18
<PAGE>
NOTE 3
UNUSUAL CHARGE-NET
1996
During 1996, the Company recognized a $39.6 million unusual charge
consisting of the following:
(In thousands)
- --------------------------------------------------------------------------------
Patent write-off $ 8,481
Impairment of joint venture 5,000
Restructurings:
Severance for 360 employees under
existing benefit arrangements 7,145
Relocation of people and equipment 2,332
Abandoned leases 2,765
Inventory write-down 1,500
Write-down of assets
to net realizable value 10,388
Other 2,000
- --------------------------------------------------------------------------------
Unusual charge $ 39,611
================================================================================
The Company has certain oilfield operations patents which no longer protect
commercially significant technology resulting in the write-off of $8.5 million.
A $5.0 million impairment of a Latin America joint venture was recorded due to
changing market conditions in the region in which it operates. The Company
recorded a $24.1 million restructuring charge including the downsizing of Baker
Hughes INTEQ's Singapore and Paris operations, a reorganization of Baker Hughes
Process Equipment Company's Italian operations and the consolidation of certain
Baker Oil Tools manufacturing operations. Cash provisions of the charge totaled
$14.3 million. The Company spent $4.2 million in 1996 and expects to spend
substantially all of the remaining $10.1 million in 1997.
1994
During 1994, the Company recognized a net unusual charge of $31.8 million
consisting of the following items:
(In thousands)
- --------------------------------------------------------------------------------
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
Write-down of assets to
net realizable value 18,650
Abandoned leases 2,082
Other 3,731
- --------------------------------------------------------------------------------
Unusual charge-net $ 31,829
================================================================================
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 1993 Parker &
Parsley litigation.
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 totaled $16.1 million. The Company
spent $1.8 million in 1996, $11.2 million in 1995 and $3.1 million in 1994.
19
<PAGE>
Baker Hughes Incorporated
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4
INDEBTEDNESS
Long-term debt at September 30, 1996 and 1995 consisted of the following:
(In thousands) 1996 1995
- --------------------------------------------------------------------------------
Commercial Paper with an average
interest rate of 5.25% at
September 30, 1996 $ 44,000 $ 15,000
Revolving Credit Facilities due
through 1999 with an average
interest rate of 8.14% at
September 30, 1996 32,972 81,961
Liquid Yield Option Notes (LYONS)
due May 2008 with a yield to
maturity of 3.5% per annum, net of
unamortized discount of $131,380
($140,505 in 1995) 253,870 244,745
7.625% Notes due February 1999
with an effective interest rate of
7.73%, net of unamortized discount
of $669 ($938 in 1995) 149,331 149,062
4.125% Swiss Franc 200 million
Bonds repaid in June 1996 107,896
8% Notes due May 2004 with an
effective interest rate of 8.08%,
net of unamortized discount of
$1,054 ($1,175 in 1995) 98,946 98,825
Debentures with an effective interest
rate of 8.59%, due January 2000 93,000 93,000
Other 1,716 8,631
- --------------------------------------------------------------------------------
Total debt 673,835 799,120
Less current maturities 247 768
- --------------------------------------------------------------------------------
Long-term debt $ 673,588 $ 798,352
================================================================================
At September 30, 1996, the Company had $590.7 million of credit facilities with
commercial banks, of which $300 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 $36.08 per share, calculated as of November 5, 1996, 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.
In June 1996, the Company used $108.4 million of cash to repay the 4.125%
Swiss Franc Bonds ("SFr Bonds"). The SFr Bonds were hedged through a foreign
currency swap agreement and a foreign currency option, both of which expired in
June 1996. These instruments converted the Company's Swiss Franc denominated
principal and interest obligations under the SFr Bonds into U.S. dollar
denominated obligations.
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.
Maturities of long-term debt for the next five years are as follows:
1997-$0.2 million; 1998-$.1 million; 1999-$226.6 million; 2000-$93.1 million
and 2001-$1.0 million.
20
<PAGE>
NOTE 5
FINANCIAL INSTRUMENTS
At September 30, 1996, the Company had $314.8 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 $221.8 million, respectively. The
interest rate swaps settle semi-annually with respect to the $93.0 million
notional amount and upon maturity (2000) with respect to the $221.8 million
notional amount. At September 30, 1996 and 1995, the Company had recorded an
asset of $3.3 million and $3.8 million, respectively, related to the interest
rate swap agreements. 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.
Except as described below, the estimated fair values of the Company's
financial instruments at September 30, 1996 and 1995 approximate their carrying
value as reflected in the consolidated statements 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, 1996 and
1995 was $704.8 million and $886.5 million, respectively, which differs from
the carrying amounts of $675.4 million and $801.3 million, respectively,
included in the consolidated statements of financial position. The fair value
of the Company's interest rate swaps and forward foreign currency contracts at
September 30, 1996 and 1995 was $0.1 million and $68.7 million, respectively.
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) in connection with an 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 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.
21
<PAGE>
Baker Hughes Incorporated
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 1996, 1995 and 1994 was as
follows:
Number of Shares 1996 1995 1994
- --------------------------------------------------------------------------------
(In thousands)
Stock options outstanding,
beginning of year 5,015 4,879 2,890
Granted (per share):
1996 $19.63 1,145
1995 $19.13 to $20.50 1,349
1994 $20.13 to $21.88 2,291
Exercised (per share):
1996 $13.38 to $28.50 (1,774)
1995 $13.38 to $21.95 (153)
1994 $10.25 to $15.38 (31)
Expired (203) (1,060) (271)
- --------------------------------------------------------------------------------
Stock options outstanding,
end of year (per share:
$19.13 to $28.50 at
September 30, 1996) 4,183 5,015 4,879
================================================================================
At September 30, 1996, options were exercisable for 1.3 million shares, and
3.2 million shares were available for future option grants.
The Company has an Employee Stock Purchase Plan (the "Plan") under which
there remain authorized and available for sale to employees, at a discount of
15%, an aggregate of 1.6 million 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 418,000 shares will be purchased in July 1997. Under the
Plan, 427,000, 414,000 and 421,000 shares were issued at $18.81, $17.96 and
$17.96 per share during 1996, 1995 and 1994, 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, 1996 are as follows:
(In thousands) 1996 1995 1994
- --------------------------------------------------------------------------------
United States $ 116,363 $ 128,273 $ 139,940
Foreign 182,504 76,827 86,176
- --------------------------------------------------------------------------------
Total $ 298,867 $ 205,100 $ 226,116
================================================================================
The provision for income taxes for the three years ended September 30, 1996
are as follows:
(In thousands) 1996 1995 1994
- --------------------------------------------------------------------------------
Current:
United States $ 40,144 $ 3,730 $ 10,875
Foreign 52,228 36,604 36,733
- --------------------------------------------------------------------------------
Total current 92,372 40,334 47,608
- --------------------------------------------------------------------------------
Deferred:
United States 20,669 42,106 46,433
Foreign 9,476 2,677 933
- --------------------------------------------------------------------------------
Total deferred 30,145 44,783 47,366
- --------------------------------------------------------------------------------
Provision for
income taxes $ 122,517 $ 85,117 $ 94,974
================================================================================
The provision for income taxes differs from the amount computed by applying
the U.S. statutory income tax rate to income before income taxes, extraordinary
loss and cumulative effect of accounting changes for the reasons set forth
below:
(In thousands) 1996 1995 1994
- --------------------------------------------------------------------------------
Statutory income tax $ 104,603 $ 71,785 $ 79,141
Incremental effect of
foreign operations 12,529 24,828 21,591
Goodwill amortization 5,347 4,155 5,653
State income taxes -
net of U.S. tax benefit 2,098 995 2,940
Operating loss and
credit carryforwards (3,276) (13,103) (12,662)
Other-net 1,216 (3,543) (1,689)
- --------------------------------------------------------------------------------
Provision for
income taxes $ 122,517 $ 85,117 $ 94,974
================================================================================
22
<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, 1996 and 1995 are as follows:
(In thousands) 1996 1995
- --------------------------------------------------------------------------------
Deferred tax liabilities:
Property $ 62,300 $ 54,500
Other assets 57,700 60,650
Excess costs arising
from acquisitions 64,000 59,800
Undistributed earnings
of foreign subsidiaries 41,280 34,150
Other 37,400 21,600
- --------------------------------------------------------------------------------
Total 262,680 230,700
- --------------------------------------------------------------------------------
Deferred tax assets:
Receivables 4,100 3,200
Inventory 72,400 66,800
Employee benefits 44,000 47,400
Other accrued expenses 20,200 32,500
Operating loss carryforwards 16,600 27,000
Tax credit carryforwards 30,800 32,100
Other 15,900 11,800
- --------------------------------------------------------------------------------
Subtotal 204,000 220,800
Valuation allowance (13,100) (15,900)
- --------------------------------------------------------------------------------
Total 190,900 204,900
- --------------------------------------------------------------------------------
Net deferred tax liability $ 71,780 $ 25,800
================================================================================
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.
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, 1996, the Company had approximately $30.8 million of
alternative minimum tax and foreign tax credits available to offset future
payments of federal income taxes with foreign tax credits expiring in varying
amounts between 1997 and 2002.
23
<PAGE>
Baker Hughes Incorporated
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 in the drilling, completion, production and maintenance of oil
and gas wells. The principle markets for this segment include all major oil and
gas producing regions of the world including North America, Latin America,
Europe, Africa and Far East. Customers include major multi-national,
independent and national or state-owned oil companies.
PROCESS INDUSTRY: Manufacture and sale of process equipment for separating
solids from liquids and liquids from liquids through filtration, sedimentation,
centrifugation and flotation processes. The principle markets for this segment
include all regions of the world where there are significant industrial and
municipal wastewater applications and base metals activity. Customers include
municipalities, contractors, engineering companies and pulp and paper,
minerals, industrial and oil and gas producers. 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 charge-net), but
before deduction of general corporate expenses totaling $43.6 million
(including an unusual charge of $5.0 million), $35.0 million and $32.8 million
in 1996, 1995 and 1994, 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 $194.5 million, $253.6 million and $281.3 million at September
30, 1996, 1995 and 1994, respectively.
The 1996 industry segment information contains unusual charges of $30.9
million and $3.7 million in Oilfield and Process, respectively. The 1994
unusual charge-net was related in its entirety to Oilfield. Geographic area
operating profit information for 1995 and 1994 has been restated to conform to
the 1996 presentation. The information is presented on a legal entity, or
statutory basis rather than on a management reporting basis. This change
results in an increase in the profitability of the U.S. area and a decrease in
the profitability of the non-U.S. areas.
Summarized financial information concerning the industry segments and
geographic areas in which the Company operated at September 30, 1996, 1995 and
1994 and for each of the years then ended is shown in the following tables:
24
<PAGE>
<TABLE>
<CAPTION>
Disposed
(In thousands) Oilfield Process Businesses Eliminations Total
OPERATIONS BY INDUSTRY SEGMENT:
<S> <C> <C> <C> <C> <C>
1996
REVENUES FROM UNAFFILIATED CUSTOMERS:
SALES $1,686,655 $360,195 $2,046,850
SERVICES AND RENTALS 953,233 27,647 980,880
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL REVENUES 2,639,888 387,842 3,027,730
OPERATING PROFIT (LOSS) 320,093 30,471 $ (241) 350,323
IDENTIFIABLE ASSETS 2,819,081 284,014 767 $ (935) 3,102,927
CAPITAL EXPENDITURES 174,109 6,660 1,388 182,157
DEPRECIATION AND AMORTIZATION 135,985 7,146 2,341 145,472
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 (loss) 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
</TABLE>
25
<PAGE>
Baker Hughes Incorporated
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<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:
1996
REVENUES FROM UNAFFILIATED CUSTOMERS:
SALES $1,013,487 $332,201 $444,114 $257,048 $2,046,850
SERVICES AND RENTALS 317,980 162,378 310,998 189,524 980,880
TRANSFERS BETWEEN GEOGRAPHIC AREAS 343,352 10,900 85,725 5,933 $(445,910)
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL REVENUES 1,674,819 505,479 840,837 452,505 (445,910) 3,027,730
OPERATING PROFIT 188,609 44,488 139,056 7,110 (28,940) 350,323
IDENTIFIABLE ASSETS 1,675,523 417,639 880,554 470,096 (340,885) 3,102,927
EXPORT SALES OF U.S. COMPANIES 103,786 17,664 154,790 276,240
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 177,848 41,416 75,545 20,775 (24,703) 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 89,437 47,040 65,869 41,246 (24,942) 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
</TABLE>
26
<PAGE>
NOTE 10
EMPLOYEE BENEFIT PLANS
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company provides postretirement health care benefits for substantially
all U.S. employees. 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,
1996 and 1995:
(In thousands) 1996 1995
- --------------------------------------------------------------------------------
Accumulated postretirement
benefit obligation ("APBO"):
Retirees $ (70,757) $ (70,885)
Fully eligible active
plan participants (9,994) (9,568)
Other active plan
participants (16,625) (17,683)
- --------------------------------------------------------------------------------
Total (97,376) (98,136)
Unrecognized net gain (9,759) (8,740)
- --------------------------------------------------------------------------------
Accrued postretirement
benefit cost $ (107,135) $ (106,876)
================================================================================
Postretirement benefit expense includes the following components:
(In thousands) 1996 1995 1994
- --------------------------------------------------------------------------------
Cost of benefits earned $ 1,137 $ 1,300 $ 1,300
Interest cost on APBO 7,077 8,200 7,500
- --------------------------------------------------------------------------------
Postretirement
benefit expense $ 8,214 $ 9,500 $ 8,800
================================================================================
The assumed health care cost trend rate used in measuring the APBO as of
September 30, 1996 was 7.5% for 1997 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 as of
September 30, 1996 by approximately 5% and the aggregate of the service and
interest cost components of the 1996 net periodic postretirement benefit cost
by approximately 6%. 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. Generally, the Company makes
annual contributions to the plans in amounts necessary to meet minimum
governmental funding requirements.
Net pension expense includes the following components:
(In thousands) 1996 1995 1994
- --------------------------------------------------------------------------------
Cost of benefits earned $ 1,384 $ 1,375 $ 954
Interest cost on
projected benefit
obligation 2,545 2,406 2,329
Actual return on assets (6,619) (4,793) (1,710)
Net amortization and
deferral 3,718 2,391 (216)
- --------------------------------------------------------------------------------
Net pension expense $ 1,028 $ 1,379 $ 1,357
================================================================================
The weighted average assumptions used in the accounting for the defined
benefit plans were:
1996 1995 1994
- --------------------------------------------------------------------------------
Discount rate 7.1% 7.3% 7.7%
Rates of increase in
compensation levels 3.0% 3.0% 3.5%
Expected long-term rate
of return on assets 8.6% 8.5% 8.6%
27
<PAGE>
Baker Hughes Incorporated
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table sets forth the funded status and amounts recognized in
the Company's consolidated statements of financial position at September 30,
1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
-----------------------------------------------------------------------
Overfunded Underfunded Overfunded Underfunded
(In thousands) Plans Plans Plans Plans
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation $ (25,245) $ (9,925) $ (21,906) $ (9,316)
====================================================================================================================================
Accumulated benefit obligation (25,668) (10,779) (22,826) (9,995)
====================================================================================================================================
Projected benefit obligation (28,127) (12,934) (24,050) (11,752)
Plan assets at fair value 37,945 3,166 30,828 3,324
- ------------------------------------------------------------------------------------------------------------------------------------
Projected benefit obligation (in excess of) less than
plan assets 9,818 (9,768) 6,778 (8,428)
Unrecognized prior service cost 492 371
Unrecognized net (gain) loss (5,272) 1,064 (2,922) (251)
Unrecognized net liability at transition 12 272 7 327
- ------------------------------------------------------------------------------------------------------------------------------------
Prepaid pension cost (pension liability) $ 5,050 $ (8,432) $ 4,234 $ (8,352)
====================================================================================================================================
Pension plan assets are primarily mortgages, private placements, bonds and common stocks.
</TABLE>
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 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 $30.0 million, $27.5 million and $26.3
million in 1996, 1995 and 1994, respectively.
POSTEMPLOYMENT BENEFITS
The Company provides certain postemployment benefits to substantially all
former or inactive U.S. employees following employment but before retirement.
The continuation of medical, life insurance and Thrift Plan benefits while on
disability and service related salary continuance benefits ("Continuation
Benefits") are provided through a nonqualified, unfunded plan. Expense for
Continuation Benefits in 1996 and 1995 include the following components
(Expense in 1994 was $2.0 million prior to the adoption of SFAS No. 112.):
(In thousands) 1996 1995
- --------------------------------------------------------------------------------
Cost of benefits earned $ 987 $ 979
Interest cost on projected
benefit obligation 1,901 1,843
- --------------------------------------------------------------------------------
Postemployment benefit expense $ 2,888 $ 2,822
================================================================================
28
<PAGE>
An additional plan provides for disability income benefits ("Disability
Benefits"), available at the date of hire, through a qualified plan which has
been funded by contributions from the Company and employees. Because of the
overfunded status of the plan, Company contributions are not currently
required. Employees will not be required to make contributions effective
January 1, 1997. The primary asset of the plan is a guaranteed insurance
contract with an insurance company which currently earns interest at 6%. The
actuarially determined obligation, is calculated at a discount rate of 7%.
Disability Benefits income was $.1 million and $1.5 million in 1996 and 1995,
respectively. Expense for these benefits was $2.0 million in 1994, prior to the
adoption of SFAS No. 112.
The following table sets forth the funded status and amounts recognized in
the Company's consolidated statements of financial position at September 30,
1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
-----------------------------------------------------------------------------
Disability Continuation Disability Continuation
(In thousands) Benefits Benefits Benefits Benefits
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Actuarial present value of accumulated benefit
obligation $ (9,546) $ (30,552) $ (10,181) $ (27,792)
Plan assets at fair value 18,637 18,594
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulated benefit obligation (in excess of)
less than plan assets 9,091 (30,552) 8,413 (27,792)
Unrecognized net (gain) loss 3,143 (825)
- ------------------------------------------------------------------------------------------------------------------------------------
Prepaid postemployment cost (postemployment
liability) $ 9,091 $ (27,409) $ 8,413 $ (28,617)
====================================================================================================================================
</TABLE>
Health care cost assumptions used to measure the Continuation Benefits
obligation are similar to the assumptions used in determining the obligation
for postretirement health care benefits. Additional assumptions used in the
accounting for Continuation Benefits in 1996 and 1995 were a discount rate of
7.0% and increases in compensation of 5.0%.
NOTE 11
STOCKHOLDER RIGHTS AGREEMENT
AND OTHER MATTERS
The Company had a Stockholder Rights Agreement (SRA) to protect against
coercive takeover tactics. During 1996, the Company exercised its option to
redeem all of the rights to purchase from the Company .01 of a share of the
Series One Junior Participating Preferred Stock for the redemption price of
$.03 per right in accordance with the SRA. The cash distribution of $.115 per
share of common stock in the third quarter of 1996 includes the redemption
price.
Supplemental consolidated statement of operations information is as follows :
(In thousands) 1996 1995 1994
- --------------------------------------------------------------------------------
Rental expense
(generally transportation
equipment and
warehouse facilities) $ 41,509 $ 36,952 $ 30,089
Research and development 44,019 37,423 37,393
Income taxes paid 78,114 49,276 39,397
Interest paid 49,636 45,206 55,488
At September 30, 1996, 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, 2001 are $37.0
million, $25.0 million, $16.8 million, $11.2 million and $9.3 million,
respectively, and $57.3 million in the aggregate thereafter. The Company has not
entered into any significant capital leases.
29
<PAGE>
Baker Hughes Incorporated
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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
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, 1996 and 1995, the Company had accrued approximately $8.3
million and $13.3 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 that 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.
30
<PAGE>
NOTE 14
QUARTERLY DATA (UNAUDITED):
Summarized quarterly financial data for the years ended September 30, 1996
and 1995 are shown in the table below:
<TABLE>
<CAPTION>
(In thousands, First Second Third Fourth Fiscal Year
except per share amounts) Quarter Quarter Quarter Quarter Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FISCAL YEAR 1996:*
Revenues $ 694,697 $ 744,822 $ 765,852 $ 822,359 $ 3,027,730
Gross Profit** 126,415 140,239 146,416 162,666 575,736
Net income 32,398 41,559 46,873 55,520 176,350
Net income per share .23 .29 .33 .38 1.23
Dividends per share .115 .115 .115 .115 .46
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
* See Notes 1, 2 and 3 for information regarding accounting changes and earnings per share calculation, acquisitions
and dispositions and unusual charge-net, 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.
</TABLE>
STOCK PRICES BY QUARTER
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 40 _______________________________________________________________________________________________________________________________
$35 5/8
$ 35 _______________________________________________________________________________________________________________________________
$34 1/4
$ 30 _______________________________________________________________________________________________________________________________
$29 3/4
$28 $28 7/8
$ 25 _______________________________________________________________________________________________________________________________
$23 3/4 $23 3/8 $24 7/8
$20 7/8 $22 3/4
$ 20 ________________$20 3/4________________________$20_____________________________________________________________________________
$19 7/8
$17 $16 3/4 $18 3/8
$ 15 _______________________________________________________________________________________________________________________________
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter 1st QUARTER 2nd QUARTER 3rd QUARTER 4th QUARTER
_______________________________________________________ ________________________________________________________
1995 1996
</TABLE>
31
<PAGE>
CORPORATE INFORMATION
BOARD OF DIRECTORS
LESTER M. ALBERTHAL, JR. MAX L. LUKENS **
Chairman and Chief Executive President and Chief Executive
Officer of EDS Officer of Baker Hughes
Incorporated
VICTOR G. BEGHINI
Vice Chairman - Marathon Group, JOHN F. MAHER
USX Corporation and President President and Chief Executive
of Marathon Oil Company Officer of Great Western Financial
Corporation
JACK S. BLANTON
President of Eddy JAMES F. McCALL
Refining Company Lt. General, U.S. Army (Retired)
Executive Director of the
HARRY M. CONGER * American Society of
Chairman of the Board Military Comptrollers
of Homestake Mining Company
DANA G. MEAD
EUNICE M. FILTER Chairman and Chief Executive
Vice President, Secretary and Officer of Tenneco Inc.
Treasurer of Xerox Corporation
H. JOHN RILEY, JR. ***
JOE B. FOSTER Chairman, President
Chairman and Chief Executive and Chief Executive Officer
Officer of Newfield Exploration of Cooper Industries, Inc.
Company
DONALD C. TRAUSCHT
RICHARD D. KINDER Chairman of BW Capital
President and Chief Operating Corporation
Officer of Enron Corp.
JAMES D. WOODS *
Chairman of the Board of
Baker Hughes Incorporated
CORPORATE INFORMATION
TRANSFER AGENT AND REGISTRAR: ANNUAL MEETING:
First Chicago Trust Company The Company's Annual Meeting
of New York of Stockholders will be held at
Telephone: 201/324-1644 11:00 a.m. on January 22, 1997
at the offices of the Company,
INDEPENDENT ACCOUNTANTS: 3900 Essex Lane, Suite 210,
Deloitte & Touche LLP Houston, Texas
Houston, Texas
BAKER HUGHES INCORPORATED
STOCK EXCHANGE LISTINGS:
Ticker Symbol "BHI" CORPORATE OFFICE LOCATION:
New York Stock Exchange, 3900 Essex Lane
Pacific Stock Exchange, Houston, Texas 77027
The Swiss Stock Exchange Telephone: 713/439-8600
FORM 10-K: CORPORATE OFFICE MAILING ADDRESS:
A copy of the Company's Annual P.O. Box 4740
Report to the Securities and Houston, Texas 77210-4740
Exchange Commission (Form
10-K) is available by writing to: Baker Hughes Information System
Scott B. Gill, Vice President, 1-800-969-7447
Investor Relations,
Baker Hughes Incorporated, Baker Hughes on The World Wide
P.O. Box 4740 Web: http://www.BHI-Net.com
Houston, Texas 77210-4740
* Will retire at the Annual Meeting
of Stockholders to be held
January 22, 1997.
** Will be named Chairman of
Baker Hughes Incorporated on
January 22, 1997.
*** Nominee to be an addition
in Class I directors.
CORPORATE ORGANIZATION
CORPORATE OFFICERS
JAMES D. WOODS LINDA J. SMITH
Chairman of the Board Corporate Secretary
MAX L. LUKENS M. GLEN BASSETT
President and Chief Vice President and President,
Executive Officer Baker Performance Chemicals,
Incorporated
ERIC L. MATTSON
Senior Vice President JOSEPH F. BRADY
and Chief Financial Officer Vice President and President,
Centrilift
G. STEPHEN FINLEY
Senior Vice President and MATTHEW G. DICK
Chief Administrative Officer Vice President and President,
Baker Hughes Process Equipment
ARTHUR T. DOWNEY Company
Vice President, Government Affairs
EDWIN C. HOWELL
SCOTT B. GILL Vice President and President,
Vice President, Investor Relations Baker Oil Tools
R. PAT HERBERT TIMOTHY J. PROBERT
Vice President, Market Vice President and President,
Development & Technology Baker Hughes INTEQ
LAWRENCE O'DONNELL, III ANDREW J. SZESCILA
Vice President and General Counsel Vice President and President,
Hughes Christensen Company
JAMES E. BRAUN
Controller JAY P. TRAHAN
Vice President and President,
DOUGLAS C. DOTY Baker Hughes Solutions
Treasurer
32
<PAGE>
BAKER HUGHES INCORPORATED - EXHIBIT 21.1
<TABLE>
<CAPTION>
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 (1)
..Baker Hughes Canada Inc. Canada 100%
....Baker Hughes Industrial Chile Limitada Chile (2)
....Baker Hughes INTEQ Operating Division ---
....Baker Hughes Mining Tools Operating Division ---
....Baker Hughes Wyoming LLC Wyoming (3)
....Baker Industrial Chemicals Operating Division ---
....Baker Oil Tools Canada Operating Division ---
....Baker Performance Chemicals Operating Division ---
....Baker Supply Products Operating Division ---
....Bird Machine of Canada Operating Division ---
....Canada Intermediates/Aquaness Trade Name ---
....Centrilift Canada 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 ---
....Ramsey Comercio Industria Ltd. Brazil (4)
BAKER HUGHES AUSTRALIA HOLDING, INC. DELAWARE (5)
..Baker Hughes Australia Pty. Limited Australia (6)
....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 (7)
BAKER HUGHES DO BRASIL LTDA. BRAZIL (8)
..Baker Hughes Equipamentos Ltda. Operating Division ---
Page 1
</TABLE>
<PAGE>
BAKER HUGHES INCORPORATED - EXHIBIT 21.1
<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 Participacoes Ltda. Brazil (9)
..Centrilift Brazil Operating Division ---
..Exploration Logging Brazil Operating Division ---
..Hughes Tool do Brazil Operating Division ---
BAKER HUGHES EQUIPAMENTOS LTDA. BRAZIL (10)
BAKER HUGHES FINANCE, INC. DELAWARE 100%
..Baker Hughes French Actions Co. Delaware (11)
..Baker Hughes France S.A. France 100%
....Baker International S.A. 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 (12)
......CECA, U.A.E. Abu Dhabi 100%
......CKS Drilling Fluids Services, Inc. Delaware 100%
......CKS Espanola S.A. Spain (13)
......Hughes Christensen France Operating Division ---
......Malaysia Mud Chemicals Sdn. Bhd. Malaysia (14)
......Milpark Nigeria Ltd. Nigeria (15)
....Eimco Wemco S.A. France 100%
..Baker Hughes FSC Inc. Barbados 100%
..JDI International Leasing, Inc. Delaware 100%
BAKER HUGHES HOLDING COMPANY DELAWARE 100%
..Baker Hughes Argentina, S.A. Argentina (16)
....Centrilift/Kobe Operating Division ---
....Hughes Christensen Operating Division ---
....Hughes Tool Company Chile Ltda. Chile (17)
....Lufkin Argentina S.A. Argentina (18)
..Baker Hughes Oilfield Operations, Inc. California 100%
....Baker Eastern S.A. Panama 100%
......Baker Eastern S.A. Operating Division ---
......Baker Nigeria Ltd. Nigeria (19)
....Baker Far East Ltd. Bermuda 100%
Page 2
</TABLE>
<PAGE>
BAKER HUGHES INCORPORATED - EXHIBIT 21.1
<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 International Holdings, Inc. Delaware (20)
......Baker Hughes Indonesia Co. Delaware (21)
........P.T. Eastman Christensen Indonesia Indonesia (22)
........Tri-State Oil Tool S.A. Panama 100%
......Baker Hughes Nederland B.V. The Netherlands (23)
........Baker Hughes Denmark A/S Denmark 100%
..........Baker Hughes INTEQ Operating Division ---
..........Baker Oil Tools Denmark Operating Division ---
........Baker Hughes INTEQ Cameroon Cameroon 100%
..........Baker Service Tools B.V. The Netherlands 100%
............Centrilift Netherlands Operating Division ---
........Baker Hughes INTEQ Operating Division ---
........Baker Hughes INTEQ (China) Limited Guernsey 100%
........Baker Oil Tools Operating Division ---
........Baker Performance Chemicals Operating Division ---
........Ferranti Eastman Survey GmbH Switzerland (24)
........Hughes Christensen Co. Holland Operating Division ---
........Tracor Europa B.V. The Netherlands 100%
..........Tracor Europa N.V. Belgium (25)
..........Tracor France S.A.R.L. France 100%
......Baker Hughes (U.K.) Ltd. England 100%
........BFCC Ltd. England 100%
........Baker Hughes (BJ) Limited Scotland 100%
........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 ---
..........Eimco/Wemco G.B. Operating Division ---
..........Hughes Christensen Operating Division ---
Page 3
</TABLE>
<PAGE>
BAKER HUGHES INCORPORATED - EXHIBIT 21.1
<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 (UK) Limited England 100%
........Baker Production Services (UK) Limited England 100%
........Eastman Christensen de Espana, S.A. Spain 100%
........Eimco Process Equipment Limited England 100%
........Hughes Tool Company Limited England 100%
........Lombard Baker Leasing Co. England Partnership (26)
........Technical Oilfield Services Ltd. England 100%
........Tri-State Oil Tool (U.K.) Limited England 100%
........Vortoil Separation Systems Limited England 100%
......Spiral Precision Sdn. Bhd. Malaysia 100%
........Baker (Malaysia) Sdn. Bhd. Malaysia (27)
..........Baker Hughes INTEQ (M) Sdn. Bhd. Malaysia (28)
............Baker Oil Tools Malaysia Operating Division ---
....Baker Hughes (C.I.) Ltd. Cayman Islands 100%
......Baker Hughes INTEQ International, Ltd. Bermuda (29)
........Eastman Whipstock (China) Ltd. Hong Kong 100%
........EXLOG Egypt Operating Division ---
........EXLOG International-Asia Pacific Operating Division ---
........EXLOG International-Papua New Guinea Operating Division ---
........Milchem International (Nigeria) Ltd. Nigeria 100%
........Milpark Kuwait for Drilling Fluids Company Kuwait (30)
........Milchem Libya Co. Ltd. Libya (31)
........P. T. Milchem Indonesia Indonesia (32)
........PT Sarana Indonesia Operating Division ---
......Baker Hughes Singapore Pte. Singapore (33)
........Baker Hughes INTEQ Operating Division ---
........Baker Hughes Process Systems Operating Division ---
........Baker Oil Tools Asia Pacific Operating Division ---
........Bird Machine Operating Division ---
........Eimco Process Equipment Operating Division ---
........Hughes Christensen/Singapore Operating Division ---
....Baker Hughes de Mexico, S. de R.L. de C.V. Mexico (34)
Page 4
</TABLE>
<PAGE>
BAKER HUGHES INCORPORATED - EXHIBIT 21.1
<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 Services de Mexico S.A. de C.V. Mexico (35)
....Baker Hughes Drilling Systems (Bolivia) Ltda. Bolivia 100%
....Baker Hughes Immobilaria Mexico (36)
....Baker Hughes INTEQ Operating Division ---
....Baker Hughes S.A. Venezuela 100%
....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 International, Inc. Delaware 100%
......Baker Hughes Azerbaijan Operation Division ---
....Baker Hughes S.p.A. Italy (37)
......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 (38)
....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 Division ---
....Baker Oil Tools (Brunei) Sdn. Bhd. Brunei (39)
....Baker Performance Chemicals Incorporated California 100%
......Alamex, Inc. Delaware 100%
......Aquaness Chemicals Operating Division ---
......Aquaness Industrias de Venezuela, S.A. Venezuela (40)
Page 5
</TABLE>
<PAGE>
BAKER HUGHES INCORPORATED - EXHIBIT 21.1
<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE
JURISDICTION OR OWNED BY OWNED BY
NAME OF SUBSIDIARIES AND SUB-SUBSIDIARIES ORGANIZATION REGISTRANT SUBSIDIARY
<S> <C> <C> <C>
........Baker Quimicas de Venezuela S.A. Venezuela 100%
......Baker Pipeline Products Operating Division ---
......Baker Industrial Chemicals Operating Division ---
......Magna Herbicide D/B/A ---
......Magna International Limited Bermuda 100%
......Oreprep D/B/A ---
......P.T. Elnusa Chemlink Indonesia (41)
......South Kern Industrial Partnership California Partnership (42)
....Baker Production Services, Inc. Texas 100%
......BHT Products Texas Partnership (43)
....Baker Production Services (Bermuda) Ltd. Bermuda 100%
....Baker Production Technology International Inc. Nevada 100%
......Baker Hughes (Deutschland) Holding GmbH Germany 100%
........Baker Hughes (Deutschland) GmbH Germany 100%
..........Baker Oil Tools Germany Operating Division ---
..........Centrilift Germany Operating Division ---
..........Eimco Operating Division ---
........Baker Hughes INTEQ GmbH Germany 100%
..........Gummiwerk Christensen-Netzsch GmbH Germany (44)
..........Hughes Christensen Operating Division ---
......Lynes International Services Inc. Panama 100%
....Baker Quimica de Colombia S.A. Colombia (45)
......Eimco-Wemco de Colombia S.A. Colombia (46)
....Baker Real Estate Operating Division ---
....Baker RTC International Ltd. Bermuda (47)
....Baker Sand Control Services Pte. Ltd. Singapore 100%
....Baker Sand Control Servicios Tecnicos, Ltda. Brazil (48)
....Baker Transworld, Inc. y Compania Limitada Chile Chile (49)
....Bakerline Services Ltd. Cayman Islands 100%
....CCIP Security Association, Inc. Texas 100%
....Centrilift-U.S. Operating Division ---
......Baker Hughes Production Services Operating Division ---
Page 6
</TABLE>
<PAGE>
BAKER HUGHES INCORPORATED - EXHIBIT 21.1
<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE
JURISDICTION OR OWNED BY OWNED BY
NAME OF SUBSIDIARIES AND SUB-SUBSIDIARIES ORGANIZATION REGISTRANT SUBSIDIARY
<S> <C> <C> <C>
......Field Management Systems Operating Division ---
....Centrilift-Peru Operating Division ---
....Christensen-Netzsch Rubber, Inc. Oklahoma (50)
....Christensen Gulf Services Limited Liability Company Dubai (51)
....ChuanShi Christensen Diamond Bit Company, Ltd. China (52)
....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 (Malaysia) Sdn. Bhd. Malaysia 100%
....EXLOG Overseas, Inc. Panama 100%
....EXLOG S.A. Nevada 100%
....EXLOG de Venezuela S.A. Venezuela 100%
....Exploration Logging Arabian Gulf Limited Jersey (53)
....Exploration Logging Espanola S.A. Spain 100%
....Fluidos de Perforacion Milchem Guatemala S.A. Guatemala 100%
....Holtex, Inc. Delaware 100%
....Hughes Christensen Operating Division ---
......Hughes MPD Operating Division ---
......Baker Hughes Mining Tools Operating Division ---
....Hughes Services Middle East Company Delaware 100%
....Hughes Tool (C.I.) Ltd. Cayman Islands 100%
......Abunayyan-Hughes Tool S.A. Ltd. Co. Saudi Arabia (54)
....International Mud Services Inc. Panama 100%
....Lynes, Inc. Texas 100%
....Milchem Gabon S.A.R.L. Gabon 100%
....Milpark de Venezuela, S.A. Venezuela 100%
......Milpark Caribe, C.A. Venezuela 100%
....Milpark International Limited Bahamas 100%
....Milpark Western Hemisphere Incorporated Delaware 100%
....Plumayen Holdings Inc. Panama 100%
Page 7
</TABLE>
<PAGE>
BAKER HUGHES INCORPORATED - EXHIBIT 21.1
<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE
JURISDICTION OR OWNED BY OWNED BY
NAME OF SUBSIDIARIES AND SUB-SUBSIDIARIES ORGANIZATION REGISTRANT SUBSIDIARY
<S> <C> <C> <C>
......Plumayen do Brazil Ltda. Brazil 100%
....Productos Industriales Mineros S.A. (Prima) Colombia 100%
......E.P.E.C.-Colombia Prima Operating Division ---
....Productos Centrilift S.A. Venezuela 100%
....Pump-Teq Operating Division ---
....Reed Rock do Brazil Industrial Ltda. Brazil (55)
....Servicios Y Herramientas Petroleras S.A. de C.V. Mexico (56)
......Baker Hughes Immobiliaria Mexico 100%
....Supply Products Operating Division ---
....Teleco Inc. Delaware 100%
....Teleco Oilfield Services International Ltd. Cayman Islands 100%
......Teleco Oilfield Services Offshore Ltd. Cayman Islands 100%
....Teleco Oilfield Services Sdn. Bhd. Malaysia (57)
....TOTCO de Venezuela C.A. Venezuela 100%
....Tri-State Oil Tool (Egypt) S.A. Panama 100%
....Tri-State Oil Tool (M) Sdn. Bhd. Malaysia (58)
....Tri-State Oil Tool (Thailand) Ltd. Cayman Islands 100%
..Baker Hughes Ventures, Inc. Delaware 100%
..BH Russia Operations, Inc. Delaware 100%
..Eimco Sweden AB Sweden 100%
..Camcor-Chem, Inc. Delaware 100%
..EVT Holdings, Inc. Delaware 100%
....Baker Hughes Process Equipment Company Operating Division ---
....Baker Hughes Process Systems, Inc. Delaware 100%
......Bird Municipal Company Operating Division ---
......Eimco Municipal Company Operating Division ---
....Baker International Limited England 100%
....Eimco Process Equipment Company Operating Division ---
....Reminto (Proprietary) Limited South Africa 100%
..Hughes Tool Company (Far East) Pte. Ltd. Singapore 100%
..Milchem Venezuela Corporation Delaware 100%
....Milchem Venezuela Corporation, C.A. Venezuela 100%
Page 8
</TABLE>
<PAGE>
BAKER HUGHES INCORPORATED - EXHIBIT 21.1
<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE
JURISDICTION OR OWNED BY OWNED BY
NAME OF SUBSIDIARIES AND SUB-SUBSIDIARIES ORGANIZATION REGISTRANT SUBSIDIARY
<S> <C> <C> <C>
..Tri-State Oil Tools Company Texas 100%
BAKER HUGHES INTEQ SDN. BHD. BRUNEI (59)
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 USA, INC. DELAWARE 100%
..Baker Hughes South Africa (Proprietary) Ltd. South Africa 100%
....Baker Hughes Mining Tools (Proprietary) Limited South Africa 100%
..Hughes Christensen South Africa (Proprietary) Limited South Africa 100%
BAKER INTERNATIONAL (ESPANA), S.A. SPAIN 100%
BAKER OIL TOOLS (ESPANA) S.A. SPAIN 100%
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 (60)
CTC INTERNATIONAL CORPORATION TEXAS 100%
..COMPLETION TECHNOLOGY CENTER, INC. TEXAS 100%
..COMPLETION TOOL COMPANY SINGAPORE PRIVATE LIMITED SINGAPORE 100%
..CTC OVERSEAS, INC. TEXAS 100%
OIL BASE DE VENEZUELA, C.A. VENEZUELA 100%
</TABLE>
The Exhibit 21.1 represents ownership of Baker Hughes Incorporated and its
subsidiaries. Should a subsidiary be owned by more than one Baker company, it
will be listed under one of the Baker companies owning shares with a footnote
designation in the "Percentage Owned" column. The footnotes reference the name
of the shareholders and the percentage held by each.
PAGE 9
<PAGE>
<TABLE>
<CAPTION>
BAKER HUGHES INCORPORATED - FOOTNOTES TO EXHIBIT 21.1
FOOTNOTES ENTITY ENTITY OWNERSHIP
<C> <C> <S>
(1) Baker Canada Holding, Inc. Baker Hughes Incorporated - 18%
Baker Hughes International Branches, Inc. - 12%
Baker Hughes Oilfield Operations, Inc. - 25%
Baker Hughes USA, Inc. - 3%
Baker Performance Chemicals Incorporated - 7%
EVT Holdings, Inc. - 7%
Lynes, Inc. - 28%
(2) Baker Hughes Industrial Chile Limitada Baker Hughes Canada, Inc. - .5%
EVT Holdings, Inc. - 99.5%
(3) Baker Hughes Wyoming LLC Baker Hughes Canada, Inc. - 99%
Baker Hughes Oilfield Operations, Inc. - 1%
(4) Ramsey Comercio Industria Ltd. Baker Hughes Canada, Inc. - 50%
Baker Hughes USA, Inc. - 50%
(5) Baker Hughes Australia Holding, Inc. Baker Hughes Incorporated - 5.07%
Baker Hughes International Holdings, Inc. - 6.73%
Baker Hughes Oilfield Operations, Inc. - 61.68%
Baker Hughes USA, Inc. - 6.84%
Baker Production Technology International, Inc. - 11.58%
EVT Holdings, Inc. - 8.10%
(6) Baker Hughes Australia Pty. Limited Baker Hughes Australia Holding, Inc. - 99%
Peter Boesenberg - 1%
(7) Baker Hughes PNG Pty. Ltd. Baker Hughes Australia Holding, Inc. - 99.9%
Gabow Nominees Pty. Ltd. - .1%
(8) Baker Hughes do Brasil Ltda. Baker Hughes Incorporated - 99%
EVT Holdings, Inc. - 1%
Page 1
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
BAKER HUGHES INCORPORATED - FOOTNOTES TO EXHIBIT 21.1
FOOTNOTES ENTITY ENTITY OWNERSHIP
<C> <C> <S>
(9) Baker Hughes Participacoes Ltda. Baker Hughes do Brasil Ltda. -99%
Raymunda Cunha - 1%
(10) Baker Hughes Equipamentos Ltda. Baker Hughes Incorporated - 99%
EXLOG S.A. - 1%
(11) Baker Hughes French Actions Co. Baker Hughes Finance, Inc. - 14%
Baker Hughes International Holdings, Inc. - 15%
Baker Hughes Oilfield Operations, Inc. - 73%
(12) 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%
(13) CKS Espanola S.A. Baker Hughes INTEQ-France S.A. - 80%
Non Baker Hughes ownership - 20%
(14) Malaysia Mud and Chemicals Sdn. Bhd. Baker Hughes INTEQ-France S.A. - 50%
Delcomm Sdn. Bhd. - 10%
Sabahebat Sdn. Bhd. - 40%
(15) Milpark Nigeria Ltd. Baker Hughes INTEQ-France S.A. - 60%
Non Baker Hughes ownership - 20%
(16) Baker Hughes Argentina, S.A. Baker Hughes Holding Company - 99%
EXLOG S.A. - 1%
(17) Hughes Tool Company Chile Ltda. Baker Hughes Argentina S.A. - 95%
Cuatro de Mayo Saagi - 5%
</TABLE>
Page 2
<PAGE>
<TABLE>
<CAPTION>
BAKER HUGHES INCORPORATED - FOOTNOTES TO EXHIBIT 21.1
FOOTNOTES ENTITY ENTITY OWNERSHIP
<C> <C> <S>
(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) 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%
(20) Baker Hughes International Holdings, Inc. Baker Hughes Oilfield Operations, Inc. - 86%
EVT Holdings, Inc. - 14%
(21) Baker Hughes Indonesia Co. Baker Hughes Oilfield Operations, Inc. - 85%
Baker Hughes International Holdings, Inc. - 15%
(22) P.T. Eastman Christensen Indonesia Baker Hughes Indonesia Co. owns rights in agreement with
Lucidna Widjaya 20% owner, Toto Setio Utomo 5%, and Rayanusin
Widjaya 75% owner, local agents
(23) Baker Hughes Nederland B.V. Baker Hughes International Holdings, Inc. - 87.46%
Baker Hughes Nederland B.V. - 12.54%
(24) Ferranti Eastman Survey GmbH Baker Hughes Nederland B.V. - 49%
Ferranti Eastman Survey GmbH - 51%
(25) Tracor Europa N.V. Baker Hughes Nederland B.V. - 95%
Tracor Europa B.V. - 5%
(26) Lombard Baker Leasing Co. Eimco Process Equipment Ltd. - 8%
Baker Hughes (U.K.) Ltd. - 41%
Lombard North Central Leasing Ltd. - 44.46%
Goldman Sachs International Corp. - 4.90%
Goldman Sachs Limited - 1.64%
</TABLE>
Page 3
<PAGE>
<TABLE>
<CAPTION>
BAKER HUGHES INCORPORATED - FOOTNOTES TO EXHIBIT 21.1
FOOTNOTES ENTITY ENTITY OWNERSHIP
<C> <C> <S>
(27) Baker (Malaysia) Sdn. Bhd. J. C. Smith - .02%
Spiral Precision Sdn. Bhd. - 49%
Tiram Permata Sdn. Bhd. - 51%
(28) Baker Hughes INTEQ (M) Sdn. Bhd. Baker (Malaysia) Sdn. Bhd. - 95%
Tunku Shahabuddin B.T.B. Burhanuddin - 5%
(29) Baker Hughes INTEQ International Ltd. Baker Hughes (C.I.) Ltd. - 1%
Hughes Tool (C.I.) Ltd. - 99%
Baker Hughes Oilfield Operations, Inc. - 1%
(30) Milpark Kuwait for Drilling Baker Hughes INTEQ International Ltd. - 49%
Fluids Company Badr Nasir Hamad Al Falah - 3%
Jamal Nasir Hamad Al Falah - 3%
Exim Trading Company - 45%
(31) Milchem Libya Co., Ltd. Baker Hughes INTEQ International Ltd. - 49%
Non Baker Hughes ownership - 51%
(32) P.T. Milchem Indonesia Baker Hughes INTEQ International Ltd. - 75%
Non Baker Hughes ownership - 25%
(33) Baker Hughes Singapore Pte. Hughes Tool (C.I.) Ltd. - 99%
Baker Hughes (C.I.) Ltd. - 1%
(34) Baker Hughes de Mexico, Baker Hughes Oilfield Operations, Inc. - 91%
S. de R.L. de C.V. Baker Hughes Holding Company - 9%
(35) Baker Hughes Services Baker Hughes Oilfield Operations, Inc. - 99%
de Mexico S.A. de C.V. Baker Hughes de Mexico, S. de R.L. de C.V. - 1%
(36) Baker Hughes Immobiliaria Servicios y Herramientas Petroleras S.A. de C.V. - 98%
Baker Hughes Oilfield Operations, Inc. - 2%
</TABLE>
Page 4
<PAGE>
<TABLE>
<CAPTION>
BAKER HUGHES INCORPORATED - FOOTNOTES TO EXHIBIT 21.1
FOOTNOTES ENTITY ENTITY OWNERSHIP
<C> <C> <S>
(37) Baker Hughes S.p.A. Baker Hughes Oilfield Operations, Inc. - 99.9%
Baker Hughes Incorporated - .1%
(38) Baker International Baker Hughes Oilfield Operations, Inc. - 99.5%
Cote D'Ivoire S.a.r.l. Baker Hughes International Holdings, Inc. - .5%
(39) Baker Oil Tools (Brunei) Sdn. Bhd. Baker Hughes Oilfield Operations, Inc. - 50%
Yam Pengiran Indera Setia Diraja Pengiran Anak ID - 50%
(40) Aquaness Industrias de Venezuela S.A. Baker Performance Chemicals Incorporated - 55%
Quimicas Maracay S.A. - 49%
(41) P.T. Elnusa Chemlink Baker Performance Chemicals Incorporated - 49%
P.T. Elektronika Nusantara - 51%
(42) South Kern Industrial Partnership Baker Performance Chemicals Incorporated - 80%
South Lake Corporation - 20%
(43) BHT Products Baker Production Services, Inc. - 50%
Camcor-Chem, Inc. - 50%
(44) Gummiwerk Christensen-Netzsch GmbH Baker Hughes INTEQ GmbH - 50%
Netzsch Mohnopumpen GmbH - 50%
(45) Baker Quimica de Colombia S.A. Baker Hughes Incorporated - .2%
Baker Hughes Oilfield Operations, Inc. - .1%
Baker Performance Chemicals Incorporated - 99.7%
(46) Eimco-Wemco de Colombia S.A. Baker Hughes INTEQ Colombia Branch - 4.03%
Baker Hughes International Branches, Inc. - .81%
Baker Quimica de Colombia S.A. - .81%
Centrilift Colombia Branch - .81%
EVT Holdings, Inc. - 97%
</TABLE>
Page 5
<PAGE>
<TABLE>
<CAPTION>
BAKER HUGHES INCORPORATED - FOOTNOTES TO EXHIBIT 21.1
FOOTNOTES ENTITY ENTITY OWNERSHIP
<C> <C> <S>
(47) Baker RTC International Ltd. Baker Hughes (C.I.) Ltd. - 1%
Hughes Tool (C.I.) Ltd. - 99%
(48) Baker Sand Control Servicios Baker Hughes Incorporated - 1%
Tecnicos, Ltda. Baker Hughes Oilfield Operations, Inc. - 99%
(49) Baker Transworld y Compania Limitada Baker Hughes International Branches, Inc. - 10%
Baker Hughes Oilfield Operations, Inc. - 90%
(50) Christensen-Netzsch Rubber, Inc. Baker Hughes Oilfield Operations, Inc. - 50%
Netzsch, Inc. - 50%
(51) Christensen Gulf Services Limited Baker Hughes Oilfield Operations, Inc. - 40%
Liability Company Oilfield Supply Centre Ltd. - 60%
(52) ChuanShi Christensen Diamond Baker Hughes Oilfield Operations, Inc. - 50%
Bit Company, Ltd. Sichuan Petroleum Administration Bureau - 50%
(53) Exploration Logging Arabian Gulf Limited Baker Hughes Oilfield Operations, Inc. - 45%
Sheikh Sulan Bin Khalid Al Qassini - 51%
Contra Nominees Limited - .00145%
(54) Abunayyan-Hughes Tool S.A. Ltd. Co. Hughes Tool (C.I.) Ltd. - 50%
Ibrahim Abunayyan Organization - 50%
(55) Reed Rock do Brazil Industrial Ltda. Baker Hughes Oilfield Operations, Inc. - 98.6%
Non Baker Hughes ownership - 1.39%
</TABLE>
Page 6
<PAGE>
<TABLE>
<CAPTION>
BAKER HUGHES INCORPORATED - FOOTNOTES TO EXHIBIT 21.1
FOOTNOTES ENTITY ENTITY OWNERSHIP
<C> <C> <S>
(56) 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%
(57) Teleco Oilfield Services Sdn Bhd Baker Hughes Oilfield Operations, Inc. - 49%
Non Baker Hughes ownership - 51%
(58) Tri-State Oil Tool (M) Sdn. Bhd. Baker Hughes Oilfield Operations, Inc. - 55%
Lawrence Phong - 10%
John Arnold - less than 1%
Datin Sharifah Zainak - 35%
(59) Baker Hughes INTEQ Sdn. Bhd. Baker Hughes Incorporated - 51%
Sulaiman Haji Ahai - 49%
(60) Christensen Saudi Arabia Limited Baker Hughes Incorporated - 40%
Olayan Financing Company - 60%
</TABLE>
Page 7
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' 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 report dated November 13, 1996, incorporated by reference in the Annual
Report on Form 10-K of Baker Hughes Incorporated for the year ended September
30, 1996.
DELOITTE & TOUCHE LLP
Houston, Texas
December 10, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> SEP-30-1996
<CASH> 7,714
<SECURITIES> 0
<RECEIVABLES> 816,667
<ALLOWANCES> 22,866
<INVENTORY> 802,194
<CURRENT-ASSETS> 1,716,393
<PP&E> 1,516,329
<DEPRECIATION> 917,379
<TOTAL-ASSETS> 3,297,390
<CURRENT-LIABILITIES> 635,320
<BONDS> 673,588
0
0
<COMMON> 144,553
<OTHER-SE> 1,544,656
<TOTAL-LIABILITY-AND-EQUITY> 3,297,390
<SALES> 2,046,850
<TOTAL-REVENUES> 3,027,730
<CGS> 1,186,843
<TOTAL-COSTS> 2,451,994
<OTHER-EXPENSES> 269,057
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 55,528
<INCOME-PRETAX> 298,867
<INCOME-TAX> 122,517
<INCOME-CONTINUING> 176,350
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 176,350
<EPS-PRIMARY> 1.23
<EPS-DILUTED> 1.23
</TABLE>
