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FORM 10-Q/A
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------------
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
--- OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
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 (I.R.S. Employer
of incorporation or organization) Identification No.)
3900 Essex Lane, Houston, Texas 77027
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (713) 439-8600
-----------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at May 1, 1998
----- -------------------------------
Common Stock, $1.00 par value per share 169,709,279 shares
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BAKER HUGHES INCORPORATED
Baker Hughes Incorporated hereby amends and restates the following
sections of its Quarterly Report on Form 10Q for the quarterly period ended
March 31, 1998:
Part I - Financial Information
Consolidated Condensed Statement of Financial Position
- March 31, 1998
Part II - Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(10.1) Severance Agreement
(27.1) Financial Data Schedule
In order to facilitate the efficient review of this report, as amended, all
other Items included in the original Quarterly Report on Form 10Q for the
quarterly period ended March 31, 1998 are filed herewith.
INDEX
Page
No.
----
Part I - Financial Information:
Consolidated Condensed Statements of Operations - Three months and
six months ended March 31, 1998 and 1997 2
Consolidated Condensed Statements of Financial Position
- March 31, 1998 and September 30, 1997 4
Consolidated Condensed Statements of Cash Flows - Six months
ended March 31, 1998 and 1997 5
Notes to Consolidated Condensed Financial Statements 6
Management's Discussion and Analysis of Financial Condition and
Results of Operations 10
Part II - Other Information 19
-1-
PART I. FINANCIAL INFORMATION
BAKER HUGHES INCORPORATED
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(In millions, except per share amounts)
Three Months Ended Six Months Ended
March 31, March 31,
1998 1997 1998 1997
-------------------- --------------------
REVENUES:
Sales $ 792.0 $ 553.4 $ 1,565.4 $ 1,105.2
Services and rentals 365.4 296.8 725.4 571.7
--------- --------- --------- ---------
Total revenues 1,157.4 850.2 2,290.8 1,676.9
--------- --------- --------- ---------
COSTS AND EXPENSES:
Costs of sales 492.0 348.4 969.5 696.5
Costs of services and rentals 209.1 172.7 406.5 330.3
Selling, general and
administrative 309.6 216.7 616.0 433.8
Amortization of goodwill
and other intangibles 10.3 7.7 20.6 15.3
--------- --------- --------- ---------
Total costs and expenses 1,021.0 745.5 2,012.6 1,475.9
--------- --------- --------- ---------
Operating income 136.4 104.7 278.2 201.0
Interest expense (17.6) (12.1) (32.1) (23.9)
Interest income 1.1 .3 1.8 .9
--------- --------- --------- ---------
Income before income taxes and
cumulative effect of
accounting change 119.9 92.9 247.9 178.0
Income taxes (40.6) (34.9) (89.2) (68.5)
--------- --------- --------- ---------
Income before cumulative effect
of accounting change 79.3 58.0 158.7 109.5
Cumulative effect of accounting
change - Impairment of long-
lived assets to be disposed of
(net of $6.0 income tax
benefit) (12.1)
--------- --------- --------- ---------
Net income $ 79.3 $ 58.0 $ 158.7 $ 97.4
========= ========= ========= =========
-2-
PART I. FINANCIAL INFORMATION
BAKER HUGHES INCORPORATED
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS CONTINUED
(In millions, except per share amounts)
Three Months Ended Six Months Ended
March 31, March 31,
1998 1997 1998 1997
-------------------- --------------------
Earnings Per Share of Common Stock - Basic:
Income before cumulative
effect of accounting
change $ .47 $ .39 $ .94 $ .74
Cumulative effect of
accounting change (.08)
--------- --------- --------- ---------
Net income $ .47 $ .39 $ .94 $ .66
========= ========= ========= =========
Earnings Per Share of Common Stock - Diluted:
Income before cumulative
effect of accounting
change $ .46 $ .38 $ .91 $ .72
Cumulative effect of
accounting change (.08)
--------- --------- --------- ---------
Net income $ .46 $ .38 $ .91 $ .64
========= ========= ========= =========
Cash dividends per share of
common stock $ .115 $ .115 $ .23 $ .23
========= ========= ========= =========
See accompanying notes to consolidated condensed financial statements.
-3-
BAKER HUGHES INCORPORATED
CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL POSITION
(In millions)
ASSETS
March 31, September 30,
1998 1997
Current Assets: ---------- ----------
Cash and cash equivalents $ 9.3 $ 8.6
Receivables - net 1,105.7 1,047.1
Inventories 1,197.2 1,030.5
Deferred income taxes 75.8 83.8
Other current assets 65.8 50.5
---------- ----------
Total current assets 2,453.8 2,220.5
Property - net 1,129.6 982.9
Other assets 480.4 497.5
Excess costs arising from acquisitions - net 1,069.8 1,055.4
---------- ----------
Total assets $ 5,133.6 $ 4,756.3
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 443.4 $ 499.7
Short-term borrowings and current portion
of long-term debt 219.9 9.6
Accrued employee compensation and benefits 183.3 223.2
Income taxes payable 41.3 48.6
Other accrued liabilities 179.7 155.2
---------- ----------
Total current liabilities 1,067.6 936.3
---------- ----------
Long-term debt 961.8 771.8
---------- ----------
Deferred income taxes 249.0 275.9
---------- ----------
Other long-term liabilities 163.5 167.7
---------- ----------
Stockholders' Equity:
Common stock 169.7 169.1
Capital in excess of par value 2,246.3 2,236.0
Retained earnings 403.4 283.7
Cumulative foreign currency translation
adjustment (159.7) (144.9)
Unrealized gain on securities available for sale 32.0 60.7
---------- ----------
Total stockholders' equity 2,691.7 2,604.6
---------- ----------
Total liabilities and stockholders' $ 5,133.6 $ 4,756.3
========== ==========
See accompanying notes to consolidated condensed financial statements.
-4-
BAKER HUGHES INCORPORATED
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In millions)
Six Months Ended
March 31,
1998 1997
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 158.7 $ 97.4
Adjustments to reconcile net income to net cash
flows from operating activities:
Depreciation and amortization of:
Property 91.4 66.6
Other assets and debt discount 25.8 20.2
Deferred income taxes (4.5) 24.6
Gain on disposal of assets (18.0) (16.2)
Foreign currency translation (gain)loss - net 1.7 (2.6)
Cumulative effect of accounting change 12.1
Change in receivables (47.2) (34.3)
Change in inventories (145.1) (76.3)
Change in accounts payable (57.8) 3.7
Changes in other assets and liabilities (76.6) (19.8)
-------- --------
Net cash flows from operating activities (71.6) 75.4
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property additions (243.5) (122.2)
Proceeds from disposal of assets 35.7 26.9
Cash obtained in stock acquisition 3.3
Acquisition of businesses, net of cash acquired (80.6)
-------- --------
Net cash flows from investing activities (288.4) (92.0)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings from commercial paper and
revolving credit facilities 389.2 25.8
Proceeds from exercise of stock options 10.7 23.4
Dividends (38.9) (33.4)
-------- --------
Net cash flows from financing activities 361.0 15.8
-------- --------
Effect of exchange rate changes on cash (.3) .2
-------- --------
Increase(decrease) in cash and cash equivalents .7 (.6)
Cash and cash equivalents, beginning of period 8.6 7.7
-------- --------
Cash and cash equivalents, end of period $ 9.3 $ 7.1
======== ========
Income taxes paid $ 98.1 $ 32.0
Interest paid $ 26.3 $ 17.7
See accompanying notes to consolidated condensed financial statements.
-5-
BAKER HUGHES INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Note 1. General
In the opinion of Baker Hughes Incorporated (the "Company" or "Baker
Hughes"), the unaudited consolidated condensed financial statements include
all adjustments consisting of normal recurring accruals necessary for a
fair presentation of the Company's consolidated financial position as of
March 31, 1998 and its consolidated results of operations and cash flows
for each of the three and six month periods ended March 31, 1998 and 1997.
Although the Company believes that the disclosures in these financial
statements are adequate to make the information presented not misleading,
certain information and footnote disclosures normally included in annual
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to the rules
and regulations of the Securities and Exchange Commission (see the
Company's Annual Report on Form 10-K for the year ended September 30, 1997
for the most recent annual financial statements prepared in accordance with
generally accepted accounting principles). The results of operations for
the three and six months ended March 31, 1998 are not necessarily
indicative of the results to be expected for the full year. In the Notes
to Consolidated Condensed Financial Statements, all dollar and share
amounts in tabulations are in millions of dollars and shares, respectively,
unless otherwise indicated.
Note 2. Inventories
Inventories are comprised of the following:
March 31, September 30,
1998 1997
----------- ------------
Finished goods $ 910.3 $ 832.3
Work in process 129.0 98.3
Raw materials 157.9 99.9
---------- ----------
Total $ 1,197.2 $ 1,030.5
========== ==========
Note 3. Acquisitions
On October 24, 1997, the Company acquired Oil Dynamics, Inc. ("ODI")
from Franklin Electric Co. Inc. for $34.4 million. ODI is a manufacturer
of electric submersible pumps used to lift crude oil in producing regions
worldwide and has been added to the operations of Centrilift.
On March 3, 1998, the Company acquired the assets of Western Rock Bit
Company Limited ("WRB"). WRB had been the Company's exclusive licensee and
distributor of bits in Canada and will be operated as a separate division
of Hughes Christensen. The purchase price was $31.4 million.
Other acquisitions were made by the Company during the six months ended
March 31, 1998, that were not individually nor in the aggregate material to
the consolidated financial statements of the Company.
-6-
BAKER HUGHES INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS CONTINUED
These acquisitions were accounted for using the purchase method of
accounting. Accordingly, the cost of each acquisition has been allocated
to assets acquired and liabilities assumed based on their estimated fair
market values at the date of the acquisition. The operating results of
these acquisitions are included in the consolidated condensed statement of
operations from their respective acquisition date.
Pro forma results of these acquisitions have not been presented as the
pro forma revenue, income before accounting change and earnings per share
would not be materially different from the Company's actual results.
Note 4. Income Per Common Share
The Company adopted Statement of Financial Accounting Standards
("SFAS") No. 128, "Earnings per Share," which establishes new standards for
computing and presenting earnings per share ("EPS"), in the quarter ended
December 31, 1997.
Reconciliation of the numerators and denominators of the basic and
diluted EPS computations is as follows:
For the Three Months Ended For the Three Months Ended
March 31, 1998 March 31, 1997
Income Shares Income Shares
(Numerator) (Denominator) (Numerator) (Denominator)
--------- ----------- --------- -----------
Basic EPS $ 79.3 169.5 $ 58.0 148.1
Effect of dilutive
securities:
Stock plans 1.2 1.4
Liquid Yield
Option Notes 1.7 7.2 1.5 7.2
----- ----- ----- -----
Diluted EPS $ 81.0 177.9 $ 59.5 156.7
===== ===== ===== =====
For the Six Months Ended For the Six Months Ended
March 31, 1998 March 31, 1997
Income Shares Income Shares
(Numerator) (Denominator) (Numerator) (Denominator)
--------- ----------- --------- -----------
Basic EPS $158.7 169.4 $ 97.4 147.8
Effect of dilutive
securities:
Stock plans 1.4 1.5
Liquid Yield
Option Notes 3.4 7.2 3.1 7.2
----- ----- ----- -----
Diluted EPS $162.1 178.0 $100.5 156.5
===== ===== ===== =====
Options to purchase 3.2 million shares of common stock were not
included in the computation of diluted EPS for the three months and the six
-7-
BAKER HUGHES INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS CONTINUED
months ended March 31, 1998 because the options' exercise price of $47.81
was greater than the average market price of the Company's common stock
during the respective periods.
Note 5. Segment Information
Summarized financial information concerning the Company's reportable
segments is shown in the following table:
Three Months Ended Process
March 31, 1998 Oilfield Chemicals Equipment Other Total
- ------------------ -------- --------- --------- -------- --------
Revenues $ 842.4 $ 185.4 $ 123.3 $ 6.3 $1,157.4
Segment profit(loss) 119.5 24.9 10.0 (34.5) 119.9
Total assets 3,338.4 1,010.9 418.4 365.9 5,133.6
Three Months Ended
March 31, 1997
- ------------------
Revenues $ 677.9 $ 82.9 $ 82.9 $ 6.5 $ 850.2
Segment profit(loss) 95.4 9.0 8.4 (19.9) 92.9
Total assets 2,667.9 298.0 235.8 298.7 3,500.4
Six Months Ended
March 31, 1998
- ------------------
Revenues $1,670.2 $ 361.9 $ 247.4 $ 11.3 $2,290.8
Segment profit(loss) 247.5 45.4 19.0 (64.0) 247.9
Six Months Ended
March 31, 1997
- ------------------
Revenues $1,330.8 $ 159.6 $ 173.1 $ 13.4 $1,676.9
Segment profit(loss) 187.7 15.0 15.3 (40.0) 178.0
The following table presents the details of "Other" segment profit
(loss):
Three Months Ended Six Months Ended
March 31, March 31,
1998 1997 1998 1997
------ ------ ------ ------
Corporate expenses $(17.7) $ (8.7) $(33.5) $(18.4)
Interest expense - net (16.5) (11.8) (30.3) (23.0)
Other (.3) .6 (.2) 1.4
------ ------ ------ ------
Total $(34.5) $(19.9) $(64.0) $(40.0)
====== ====== ====== ======
Note 6. Subsequent Event
On May 10, 1998, Baker Hughes signed a merger agreement (the
"Agreement") with Western Atlas Inc. ("Western Atlas"), which was
-8-
BAKER HUGHES INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS CONTINUED
unanimously approved by each company's board of directors. Western Atlas
is a leading provider of seismic, wireline logging and reservoir
information services worldwide. Upon completion of the transaction,
Western Atlas stockholders will receive 2.4 shares of newly issued Baker
Hughes common stock for each share of Western Atlas common stock provided
that the average Baker Hughes stock price for the 20 trading days ending
five trading days prior to the closing is greater than or equal to $38.25
and less than or equal to $42.75. If the Baker Hughes stock price average
is greater than or equal to $35.00 and less than $38.25, the exchange ratio
adjusts up to keep the value constant at $91.80 per Western Atlas share.
Similarly, if the Baker Hughes stock price average is greater than $42.75
and less than or equal to $44.75, the exchange ratio adjusts down to 2.293.
If the Baker Hughes stock price average is above $44.75, the exchange ratio
remains fixed at 2.293. If the Baker Hughes stock price average is below
$35.00, Baker Hughes has the option to issue additional shares to keep the
value at $91.80. If Baker Hughes does not issue additional shares, Western
Atlas can terminate the Agreement.
Based on Baker Hughes' closing stock price on Friday, May 8, 1998,
($41.125), the Company would issue an additional 131 million shares to
Western Atlas' stockholders. As a result, Baker Hughes would have
approximately 301 million shares outstanding after the merger, with
approximately 56% owned by Baker Hughes' stockholders and 44% owned by
Western Atlas' stockholders.
The transaction is expected to be accounted for as a pooling of
interests and is expected to be tax-free to Western Atlas stockholders.
The transaction is subject to the approval of the stockholders of both
companies and regulatory approvals, including the expiration of the
applicable waiting period under the Hart-Scott-Rodino Act, and other
customary closing conditions. The transaction is expected to be completed
by September 30, 1998. For its most recent fiscal year ended December 31,
1997, Western Atlas had revenues of $1.658 billion.
-9-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results
of Operations ("MD&A") should be read in conjunction with the Company's
Consolidated Condensed Financial Statements and the related notes thereto.
FORWARD-LOOKING STATEMENTS
MD&A includes forward-looking statements within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. The words "anticipate,"
"believe," "expect," "plan," "intend," "estimate," "project," "forecasts,"
"will," "could," "may" and similar expressions are intended to identify
forward-looking statements. No assurance can be given that actual results
may not differ materially from those in the forward-looking statements
herein for reasons including the effect of competition, the level of
petroleum industry exploration and production expenditures, world economic
conditions, prices of, and the demand for, crude oil and natural gas,
drilling activity, weather, the legislative environment in the United
States and other countries, OPEC policy, conflict in the Middle East and
other major petroleum producing or consuming regions, the development of
technology that lowers overall finding and development costs and the
condition of the capital and equity markets.
BUSINESS ENVIRONMENT
Oilfield
Oilfield Operations generated 73% of the Company's consolidated
revenues in the quarter ended March 31, 1998. Oilfield Operations consists
of five business units - Baker Hughes INTEQ, Baker Hughes Solutions, Baker
Oil Tools, Centrilift and Hughes Christensen - 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 the supply and demand for crude oil and natural gas,
energy prices and finding and development costs. Petroleum supply and
demand, pricing and finding and development costs, in turn, are influenced
by numerous factors including, but not limited to, those described above in
"--Forward-Looking Statements".
Three key factors involved in shaping oilfield service markets are:
1) Technology: 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.
2) Outsourcing and Partnering: 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 by working closely with customers in
-10-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS CONTINUED
project planning and in the engineering and integration of several products
and services into solutions that meet client objectives.
3) Growth: Expenditures by the Company's customers for exploration and
production programs are increasing but at a slower rate than previously
anticipated. In turn, the markets for the Company's products and services
are expected to grow as the demand for developing new supplies of
hydrocarbons paces the increasing worldwide demand for energy. Such growth
requires additions to the Company's manufacturing capacity, rental tool
fleet and work force.
Crude oil and natural gas prices and the Baker Hughes rotary rig count
are summarized in the tables below as quarterly averages followed by the
Company's outlook. While reading the Company's outlook set forth below,
caution is advised that the factors described above in "--Forward-Looking
Statements" and "--Business Environment" could negatively impact the
Company's expectations for oil demand, oil and gas prices and drilling
activity.
Oil and Gas Prices Three Months Ended Six Months Ended
March 31, March 31,
1998 1997 1998 1997
- --------------------------------------------------------------------------
WTI ($/bbl) 15.90 23.18 17.89 23.93
U.S. Spot Natural Gas ($/mcf) 2.06 2.49 2.35 2.73
Crude oil prices have experienced downward pressure in the quarter due
to increased supply from renewed Iraqi exports, increased OPEC production,
and a simultaneous slowing of demand growth due to the Asian economic
downturn. The Company expects that crude oil prices will trade between
$14.50 and $17.50 per barrel for the remainder of 1998 and will experience
volatility within this range. The Company anticipates that a sustained low
price environment for crude oil may result in a period of slower than
expected customer spending through the end of 1998.
U.S. natural gas prices have remained strong, above $2.00 per mcf,
indicating tight supply and demand conditions in North America. The
Company believes that natural gas prices at or above $2.00 per mcf will
support continued growth in natural gas exploration and development
drilling activity.
-11-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS CONTINUED
Rotary Rig Count Three Months Ended Six Months Ended
March 31, March 31,
1998 1997 1998 1997
- --------------------------------------------------------------------------
U.S. - Land 830 739 853 738
U.S. - Offshore 136 114 130 111
Canada 459 396 454 357
- --------------------------------------------------------------------------
North America 1,425 1,249 1,437 1,206
- --------------------------------------------------------------------------
Latin America 272 284 276 283
North Sea 60 63 59 59
Other Europe 49 60 50 60
Africa 82 83 81 82
Middle East 165 142 165 140
Asia Pacific 184 177 179 179
- --------------------------------------------------------------------------
International 812 809 810 803
- --------------------------------------------------------------------------
Worldwide 2,237 2,058 2,247 2,009
- --------------------------------------------------------------------------
U.S. Workover 1,298 1,352 1,363 1,352
Outlook
Longer term, the Company anticipates that continued growth in worldwide
demand for hydrocarbons will result in increased spending by oil and gas
companies for the development of the hydrocarbon supply. This increase
remains dependent on continued worldwide economic growth and, in
particular, on economic growth in developing countries which may continue
to be adversely impacted by the recent banking crisis in Asia. The
increased spending is expected to result in increased drilling activity in
most of the major producing regions.
North America: The Company anticipates that the rate of growth in
North American drilling activity will slow in 1998, with offshore activity
expected to remain strong.
International: The Company anticipates that international activity
will remain relatively flat in 1998 with an increase expected in the Middle
East offsetting flat to slightly down activity in Latin America, the North
Sea and Asia Pacific.
Chemicals
Baker Petrolite generated 16% of the Company's consolidated revenues in
the quarter ended March 31, 1998. Baker Petrolite is the sole business
unit reported in this segment and is the result of combining Baker
Performance Chemicals Incorporated and Petrolite Corporation ("Petrolite"),
acquired in July 1997.
-12-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS CONTINUED
Operating in all major oil and gas producing regions of the world,
Baker Petrolite manufactures specialty chemicals for inclusion in the sale
of integrated chemical technology solutions for petroleum production,
transportation and refining. In addition to those business environment
factors discussed above for the oilfield segment, the business environment
for the chemicals segment is significantly influenced by the trend of
continued reduction in the total operating cost of the customer base, which
includes major multi-national, independent and national or state-owned oil
companies. Improvements in chemical technology and its application, as
well as the expanded use of alliance relationships, enable Baker Petrolite
to reduce overall production, transportation and refining costs.
Baker Petrolite also provides chemical technology solutions to other
industrial markets throughout the world including petrochemicals, steel,
fuel additives, plastics, imaging and adhesives. The business environments
for these markets are individually unique but most are influenced by the
general level of gross domestic product.
Process Equipment
Process Equipment generated 11% of the Company's consolidated revenues
in the quarter ended March 31, 1998. Process Equipment consists of four
business units - EIMCO Process Equipment, Bird Machine Company, Baker
Hughes Process Systems and Baker Hughes Industrial Services - that provide
technologies that separate solids from liquids and liquids from liquids
through filtration, sedimentation, centrifugation and flotation processes.
The business environment for Process Equipment and its corresponding
operating results are affected significantly by spending on large capital
projects in the pulp and paper, industrial, refining, chemical and
municipal wastewater treatment markets. Spending on capital projects is
influenced by numerous factors including, but not limited to, commodity
price cycles, especially copper and pulp, the supply and demand for refined
products and chemicals, the expanding Asian populations and economies, as
well as environmental pressures and legislation. Except for the Asian,
pulp and paper, and copper markets, the Company anticipates increased
capital project activity in the refining, chemical, pulp and industrial
markets. In addition, the Company anticipates growth from acquisitions and
new technology.
ACQUISITIONS
Oil Dynamics, Inc.
On October 24, 1997, the Company acquired Oil Dynamics, Inc. ("ODI")
from Franklin Electric Co. Inc. for $34.4 million. ODI is a manufacturer
of electric submersible pumps used to lift crude oil in producing regions
worldwide and will be added to the operations of Centrilift.
On March 3, 1998, the Company acquired the assets of Western Rock Bit
Company Limited ("WRB"). WRB had been the Company's exclusive licensee and
distributor of bits in Canada and will be operated as a separate division
of Hughes Christensen. The purchase price was $31.4 million.
-13-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS CONTINUED
Other acquisitions were made by the Company during the six months ended
March 31, 1998, that were not individually nor in the aggregate material to
the consolidated financial statements of the Company.
PENDING MERGER
On May 10, 1998, Baker Hughes signed a merger agreement (the
"Agreement") with Western Atlas Inc. ("Western Atlas"), which was
unanimously approved by each company's board of directors. Western Atlas
is a leading provider of seismic, wireline logging and reservoir
information services worldwide. Upon completion of the transaction,
Western Atlas stockholders will receive 2.4 shares of newly issued Baker
Hughes common stock for each share of Western Atlas common stock provided
that the average Baker Hughes stock price for the 20 trading days ending
five trading days prior to the closing is greater than or equal to $38.25
and less than or equal to $42.75. If the Baker Hughes stock price average
is greater than or equal to $35.00 and less than $38.25, the exchange ratio
adjusts up to keep the value constant at $91.80 per Western Atlas share.
Similarly, if the Baker Hughes stock price average is greater than $42.75
and less than or equal to $44.75, the exchange ratio adjusts down to 2.293.
If the Baker Hughes stock price average is above $44.75, the exchange ratio
remains fixed at 2.293. If the Baker Hughes stock price average is below
$35.00, Baker Hughes has the option to issue additional shares to keep the
value at $91.80. If Baker Hughes does not issue additional shares, Western
Atlas can terminate the Agreement.
Based on Baker Hughes' closing stock price on Friday, May 8, 1998,
($41.125), the Company would issue an additional 131 million shares to
Western Atlas' stockholders. As a result, Baker Hughes would have
approximately 301 million shares outstanding after the merger, with
approximately 56% owned by Baker Hughes' stockholders and 44% owned by
Western Atlas' stockholders.
The transaction is expected to be accounted for as a pooling of
interests and is expected to be tax-free to Western Atlas stockholders.
The transaction is subject to the approval of the stockholders of both
companies and regulatory approvals, including the expiration of the
applicable waiting period under the Hart-Scott-Rodino Act, and other
customary closing conditions. The transaction is expected to be completed
by September 30, 1998. For its most recent fiscal year ended December 31,
1997, Western Atlas had revenues of $1.658 billion.
RESULTS OF OPERATIONS
Revenues
Consolidated revenues were up 36% and 37% for the three and six months
ended March 31, 1998, respectively, as compared to the same periods in
1997. Sales revenue was up 43% for the quarter and 42% for the six months
compared to the corresponding prior periods. Service and rentals revenue
was up 23% for the quarter and 27% for the six months compared to the
corresponding prior periods.
-14-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS CONTINUED
Oilfield Operations lead the revenue improvement with an increase of
24% for the current quarter and 26% for the current six months compared to
the prior year periods. Revenue increases outpaced rig count increases in
most areas of the world as the Company continues to benefit from the
increased use of its technologies in key geographic regions. In North
America, revenues increased 24% for the current quarter, on rig count
increases of only 14%, and 28% for the six months, on rig count increases
of 19%, in each case, as compared to the prior year periods. Outside of
North America, revenues increased 24% for the current quarter and for the
six months on a less than 1% increase in rig activity for the same periods.
More specifically, European revenues were up 15% and 16% for the current
quarter and six months, respectively, compared to the prior year periods.
Latin American revenues also increased 29% and 32% for the current quarter
and six months, respectively, compared to the same periods a year ago.
Chemical revenues increased $102.5 million to $185.4 million for the
quarter and $202.3 million to $361.9 million for the six months compared to
the prior year periods due to the Petrolite acquisition in July 1997.
Process Equipment revenues increased 49% and 43% for the current
quarter and six months, respectively, compared to the corresponding prior
year periods. The increases are due to acquisitions offset by activity
declines due to the drop in copper prices and the economic problems in Asia
resulting in delays in customers' capital spending.
Costs and Expenses Applicable to Revenues
Costs of sales and costs of services and rentals have increased from
the prior year periods consistent with the related revenue increases.
Gross margin percentages have increased to 39.4% and 39.9% for the three
and six months ended March 31, 1998, respectively, from 38.7% and 38.8% for
the three and six months ended March 31, 1997, respectively.
Selling, General and Administrative19
Selling, general and administrative ("SG&A") expense increased $92.9
million in the second quarter of 1998 from the second quarter of 1997. As
a percent of consolidated revenues, SG&A expense was 26.7% and 25.5% in the
second quarter of 1998 and 1997, respectively. SG&A expense increased
$182.2 million for the six months ended March 31, 1998 compared to the same
period in 1997. As a percent of consolidated revenues, SG&A expense was
26.9% and 25.9% in the first six months of 1998 and 1997, respectively.
SG&A increased due to the Petrolite acquisition, increases in marketing and
sales support costs, higher foreign exchange losses and costs incurred by
the Company's reengineering project.
Amortization Expense
Amortization expense increased $2.6 million and $5.3 million in the
three and six months ended March 31, 1998, respectively, compared to the
same prior year periods due primarily to the Petrolite acquisition in July
1997.
-15-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS CONTINUED
Interest Expense
Interest expense for the three and six months ended March 31, 1998
increased compared to the corresponding periods in 1997 due to higher debt
levels that funded acquisitions and increases in working capital and
capital expenditures.
Income Taxes
The effective income tax rate for the six months ended March 31, 1998
was 36.0%, down from 38.5% in the prior year periods. This was due
primarily to a change in
the mix of foreign earnings and the fixed nature of the nondeductible
goodwill amortization.
CAPITAL RESOURCES AND LIQUIDITY
Financing Activities
Net cash inflows from financing activities were $361.0 million in the
first six months of 1998 compared to $15.8 million for the same period in
1997. The change from the prior year is due to increased borrowings that
funded acquisitions and increases in working capital and capital
expenditures.
Total debt outstanding at March 31, 1998 was $1,181.7 million, compared
to $781.4 million at September 30, 1997. The debt to equity ratio was .44
at March 31, 1998, compared to .30 at September 30, 1997.
Cash dividends increased in the first six months of 1998 compared to
the first six months of 1997 due to an increase in the number of shares of
common stock outstanding resulting primarily from shares issued in
connection with the Petrolite and Drilex International Inc. acquisitions in
1997.
At March 31, 1998, the Company had $702.1 million of credit facilities
with commercial banks, of which $300.0 million was committed. In April
1998, the Company increased the committed credit facilities to $500.0
million. These facilities are subject to normal banking terms and
conditions and do not materially restrict the Company's activities.
At March 31, 1998, the Company classified the outstanding balance on
the 7.625% Notes ($149.8 million) that are due in February 1999 as current
portion of long-term debt.
Investing Activities
Net cash outflows from investing activities were $288.4 million in the
first six months of 1998 compared to $92.0 million in the first six months
of 1997.
Property additions increased significantly in 1998 to $243.5 million
from $122.2 million in the first six months of 1997 as the Company added
-16-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS CONTINUED
capacity to meet the increased market demand. The majority of the capital
expenditures have been in Oilfield Operations where expenditures for rental
tools and machinery and equipment accounted for 40% and 44%, respectively,
of total capital expenditures for the first six months of 1998. Funds
provided from operations and outstanding lines of credit are expected to be
adequate to meet future capital expenditure requirements. The Company
expects 1998 capital expenditures to be in excess of $450 million.
The Company used short term borrowings to purchase ODI in October 1997
for a purchase price, net of cash acquired, of $34.2 million and Western
Rock Bit in March 1998 for $31.4 million. The Company obtained $3.3
million of cash from the stock for stock acquisition of Drilex in 1997.
Operating Activities
Net cash outflows from operating activities were $71.6 million in the
first six months of 1998 compared to cash inflows of $75.4 million in the
first six months of 1997. The primary use of cash by operating activities
was to fund increases in working capital, primarily inventory, due to
increased levels of activity.
ACCOUNTING STANDARDS
Impairment of Long-Lived Assets
The Company adopted Statement of Financial Accounting Standards
("SFAS") No. 121, Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of, effective 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 does not have a significant impact on the consolidated
financial statements, as it relates to impairment of long-lived assets used
in operations. However, 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 method that was previously used by the Company.
The Company recognized a charge to income of $12.1 million ($.08 per
share), net of a tax benefit of $6.0 million, as the cumulative effect of a
change in accounting in the first quarter of 1997.
Comprehensive Income
In June 1997, the Financial Accounting Standards Board issued SFAS No.
130, Reporting Comprehensive Income, which for the Company is effective in
the year ending September 30, 1999. SFAS No. 130 establishes standards for
the reporting and displaying of comprehensive income and its components.
The Company will be analyzing SFAS No. 130 during 1998 to determine what,
if any, additional disclosures will be required.
-17-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS CONTINUED
YEAR 2000 ISSUE
The Year 2000 issue is the result of computer programs that use only
two digits to identify a year rather than four. If not corrected, computer
applications could fail or create erroneous results by or at the Year 2000.
The Company is currently assessing the cost and uncertainties related
to the Year 2000 issue using internal resources. Based on preliminary
information, the Company currently believes that with certain
modifications, upgrades and, in some instances, converting to new software,
compliance with Year 2000 will be achieved with no significant impact on
the Company's operating systems. The estimated costs to assure Year 2000
compliance are not expected to be material to the Company's financial
position, results of operations or liquidity. Additionally, the Company is
not aware of year 2000 issues of its customers or suppliers which would be
material to the Company's financial position, results of operations or
liquidity.
QUANTITATIVE AND QUALITATIVE MARKET RISK DISCLOSURE UPDATE
On May 5, 1998, the interest rate swap agreement for notional amount of
$230.5 million matured. This swap effectively exchanged a fixed interest
rate of 3.5% for a variable interest rate equal to 30-day commercial paper
rates minus 1.96% on the notional amount.
Except for an insignificant amount, holders of the Company's Liquid
Yield Option Notes ("LYONS") did not redeem the LYONS for cash on May 5,
1998.
-18-
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
(10.1) Severance Agreement
(27.1) Financial Data Schedule
(27.2) Restated Financial Data Schedule
(27.3) Restated Financial Data Schedule
(b) Reports on Form 8-K:
None.
-19-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
BAKER HUGHES INCORPORATED
(Registrant)
Date: May 20, 1998 By /s/LAWRENCE O'DONNELL, III
------------------------------------
Lawrence O'Donnell, III
Vice President and General Counsel
Date: May 20, 1998 By /s/JAMES E. BRAUN
------------------------------------
James E. Braun
Vice President and Controller
-20-
SEVERANCE AGREEMENT
THIS AGREEMENT, dated as of December 3, 1997, is made by
and between BAKER HUGHES INCORPORATED, a Delaware corporation (the
"Company"), and DOUGLAS J. WALL (the "Executive").
WHEREAS, the Company considers it essential to the best
interests of its stockholders to foster the continued employment of
key management personnel; and
WHEREAS, the Board recognizes that, as is the case with
many publicly held corporations, the possibility of a Change in
Control exists and that such possibility, and the uncertainty and
questions which it may raise among management, may result in the
departure or distraction of management personnel to the detriment
of the Company and its stockholders; and
WHEREAS, the Board has determined that appropriate steps
should be taken to reinforce and encourage the continued attention
and dedication of members of the Company's management, including
the Executive, to their assigned duties without distraction in the
face of potentially disturbing circumstances arising from the
possibility of a Change in Control;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants herein contained, the Company and the Executive
hereby agree as follows:
1. Defined Terms. The definitions of capitalized terms
used in this Agreement are provided in the last Section hereof.
2. Term of Agreement. Subject to the provisions of
Section 12.2 hereof, the Term of this Agreement shall commence on
the date hereof and shall continue in effect through December 31,
1999; provided, however, that commencing on January 1, 1998 and
each January 1 thereafter (an "Extension Date"), the Term shall
automatically be extended for one additional year (i.e., resulting
in a two-year Term on the Extension Date) unless, not later than
September 30 of the year preceding the Extension Date, the Company
or the Executive shall have given notice not to extend the Term;
and further provided, however, that if a Change in Control shall
have occurred during the Term, the Term shall expire no earlier
than twenty-four (24) months beyond the month in which such Change
in Control occurred.
3. Company's Covenants Summarized. In order to induce
the Executive to remain in the employ of the Company and in
consideration of the Executive's covenants set forth in Section 4
hereof, the Company agrees, under the conditions described herein,
to pay the Executive the Severance Payments and the other payments
and benefits described herein. Except as provided in Section 9.1
hereof, no Severance Payments shall be payable under this Agreement
unless there shall have been (or, under the terms of the second
sentence of Section 6.1 hereof, there shall be deemed to have been)
a termination of the Executive's employment with the Company
following a Change in Control and during the Term. This Agreement
shall not be construed as creating an express or implied contract
of employment and, except as otherwise agreed in writing between
the Executive and the Company, the Executive shall not have any
right to be retained in the employ of the Company.
4. The Executive's Covenants. The Executive agrees
that, subject to the terms and conditions of this Agreement, in the
event of a Potential Change in Control during the Term, the
Executive will remain in the employ of the Company until the
earliest of (i) a date which is six (6) months from the date of
such Potential Change of Control, (ii) the date of a Change in
Control, (iii) the date of termination by the Executive of the
Executive's employment for Good Reason or by reason of death, Dis-
ability or Retirement, or (iv) the termination by the Company of
the Executive's employment for any reason.
5. Compensation Other Than Severance Payments.
5.1 Following a Change in Control and during the Term,
during any period that the Executive fails to perform the
Executive's full-time duties with the Company as a result of
incapacity due to physical or mental illness, the Company shall pay
the Executive's full salary to the Executive at the rate in effect
at the commencement of any such period, together with all com-
pensation and benefits payable to the Executive under the terms of
any compensation or benefit plan, program or arrangement maintained
by the Company during such period, until the Executive's employment
is terminated by the Company for Disability.
5.2 If the Executive's employment shall be terminated
for any reason following a Change in Control and during the Term,
the Company shall pay the Executive's full salary to the Executive
through the Date of Termination at the rate in effect immediately
prior to the Date of Termination or, if higher, the rate in effect
immediately prior to the first occurrence of an event or cir-
cumstance constituting Good Reason, together with all compensation
and benefits payable to the Executive through the Date of Termina-
tion under the terms of the Company's compensation and benefit
plans, programs or arrangements as in effect immediately prior to
the Date of Termination or, if more favorable to the Executive, as
in effect immediately prior to the first occurrence of an event or
circumstance constituting Good Reason.
5.3 If the Executive's employment shall be terminated
for any reason following a Change in Control and during the Term,
the Company shall pay to the Executive the Executive's normal
post-termination compensation and benefits as such payments become
due. Such post-termination compensation and benefits shall be
determined under, and paid in accordance with, the Company's
retirement, insurance and other compensation or benefit plans,
programs and arrangements as in effect immediately prior to the
Date of Termination or, if more favorable to the Executive, as in
effect immediately prior to the occurrence of the first event or
circumstance constituting Good Reason.
5.4 Upon the occurrence of a Change in Control all
options to acquire shares of Company stock, all shares of
restricted Company stock and all other equity or phantom equity
incentives held by the Executive under any plan of the Company
(including, but not limited to, the Company's 1995 Stock Award Plan
(and the Stock Matching Programs thereunder), 1993 Stock Option
Plan, 1993 Stock Bonus Plan and 1991 Stock Bonus Plan) shall become
immediately vested, exercisable and nonforfeitable and all
conditions thereof (including, but not limited to, any required
holding periods) shall be deemed to have been satisfied.
6. Severance Payments.
6.1 If the Executive's employment is terminated
following a Change in Control and during the Term, other than (A)
by the Company for Cause, (B) by reason of death or Disability, or
(C) by the Executive without Good Reason, then, the Company shall
pay the Executive the amounts, and provide the Executive the
benefits, described in this Section 6.1 ("Severance Payments") and
Section 6.2, in addition to any payments and benefits to which the
Executive is entitled under Section 5 hereof. For purposes of this
Agreement, the Executive's employment shall be deemed to have been
terminated following a Change in Control by the Company without
Cause or by the Executive with Good Reason, if (i) the Executive's
employment is terminated by the Company without Cause prior to a
Change in Control (whether or not a Change in Control ever occurs)
and such termination was at the request or direction of a Person
who has entered into an agreement with the Company the consummation
of which would constitute a Change in Control, (ii) the Executive
terminates his employment for Good Reason prior to a Change in
Control (whether or not a Change in Control ever occurs) and the
circumstance or event which constitutes Good Reason occurs at the
request or direction of such Person described in clause (i), or
(iii) the Executive's employment is terminated by the Company
without Cause or by the Executive for Good Reason and such termi-
nation or the circumstance or event which constitutes Good Reason
is otherwise in connection with or in anticipation of a Change in
Control (whether or not a Change in Control ever occurs). For pur-
poses of any determination regarding the applicability of the
immediately preceding sentence, any position taken by the Executive
shall be presumed to be correct unless the Company establishes to
the Committee by clear and convincing evidence that such position
is not correct.
(A) In lieu of any further salary payments to
the Executive for periods subsequent to the Date of
Termination and in lieu of any severance benefit otherwise
payable to the Executive, the Company shall pay to the
Executive a lump sum severance payment, in cash, equal to
three times the sum of (i) the Executive's base salary as in
effect immediately prior to the Date of Termination or, if
higher, in effect immediately prior to the first occurrence of
an event or circumstance constituting Good Reason, and (ii) the
average annual bonus earned by the Executive pursuant to any annual
bonus or incentive plan maintained by the Company in respect of the
three fiscal years ending immediately prior to the fiscal year in
which occurs the Date of Termination or, if higher, immediately
prior to the fiscal year in which occurs the first event or
circumstance constituting Good Reason; provided, that if the
Executive has not participated in an annual bonus or incentive plan
maintained by the Company for the entirety of such three-year
period, the amount referred to in this clause (ii) shall be
calculated using such lesser number of bonuses as have been
actually earned by the Executive in respect of such lesser period.
(B) For the thirty-six (36) month period
immediately following the Date of Termination, the Company shall
arrange to provide the Executive and his dependents life,
disability, accident and health insurance benefits and perquisites
(including, but not limited to, executive life insurance, club
memberships, financial planning and tax preparation, annual
physical examination and charitable contributions), in each case,
substantially similar to those provided to the Executive and his
dependents immediately prior to the Date of Termination or, if more
favorable to the Executive, those provided to the Executive and his
dependents immediately prior to the first occurrence of an event or
circumstance constituting Good Reason, at no greater cost to the
Executive than the cost to the Executive immediately prior to such
date or occurrence; provided, however, that, unless the Executive
consents to a different method (after taking into account the
effect of such method on the calculation of "parachute payments"
pursuant to Section 6.2 hereof), such health insurance benefits
shall be provided through a third-party insurer. Benefits other-
wise receivable by the Executive pursuant to this Section 6.1(B)
shall be reduced to the extent benefits of the same type are
received by or made available to the Executive during the thirty-
six (36) month period following the Executive's termination of
employment (and any such benefits received by or made available to
the Executive shall be reported to the Company by the Executive);
provided, however, that the Company shall reimburse the Executive
for the excess, if any, of the cost of such benefits to the
Executive over such cost immediately prior to the Date of
Termination or, if more favorable to the Executive, the first
occurrence of an event or circumstance constituting Good Reason.
(C) Notwithstanding any provision of the Baker
Hughes Incorporated 1995 Employee Annual Incentive Compensation
Plan (the "Annual Incentive Plan"), the Company shall pay to the
Executive a lump sum amount, in cash, equal to the sum of (i) any
unpaid incentive compensation which has been allocated or awarded
to the Executive for a completed fiscal year or other measuring
period preceding the Date of Termination under the Annual Incentive
Plan and which, as of the Date of Termination, is contingent only
upon the continued employment of the Executive to a subsequent
date, and (ii) a pro rata portion to the Date of Termination of the
aggregate value of all contingent incentive compensation awards to
the Executive for all then uncompleted periods under the Annual
Incentive Plan, calculated as to each such award by multiplying the
award that the Executive would have earned on the last day of the
performance award period, assuming the achievement, at the expected
value target level, of the individual and corporate performance
goals established with respect to such award, by the fraction
obtained by dividing the number of full months and any fractional
portion of a month during such performance award period through the
Date of Termination by the total number of months contained in such
performance award period; provided, however, that if such
termination of employment occurs during the same year in which the
Change in Control occurs, the pro-rata bonus payment referred to in
clause (ii) above shall be offset by any payments received under
the Annual Incentive Plan in connection with such Change in
Control.
(D) In addition to the retirement benefits to which
the Executive is entitled under the Company's Thrift Plan (the
"Thrift Plan") and the Company's Supplemental Retirement Plan (the
"SRP"), the Company shall pay the Executive a lump sum amount, in
cash, equal to the present value of the employer-provided
contributions, deferrals and allocations the Executive would have
received had he continued to participate, after the Date of
Termination, in the Thrift Plan and the SRP for three (3)
additional years, assuming for this purpose that (i) the Executive
earned compensation for purposes of the Thrift Plan and SRP during
such three-year period the amount used to calculate the Executive's
severance payment under subparagraph (A) of this Section 6.1, and
(ii) the percentages of contributions, deferrals and allocations
made under the Thrift Plan and the SRP by or on behalf of the
Executive during such three-year period are the same percentages of
contributions, deferrals and allocations in effect on the date of
the Change in Control or the Date of Termination, whichever is more
favorable to the Executive.
(E) If the Executive would have become entitled to
benefits under the Company's post-retirement health care or life
insurance plans, as in effect immediately prior to the Date of
Termination or, if more favorable to the Executive, as in effect
immediately prior to the first occurrence of an event or
circumstance constituting Good Reason, had the Executive's
employment terminated at any time during the period of thirty-six
(36) months after the Date of Termination, the Company shall
provide such post-retirement health care or life insurance benefits
to the Executive and the Executive's dependents commencing on the
later of (i) the date on which such coverage would have first
become available and (ii) the date on which benefits described in
subsection (B) of this Section 6.1 terminate.
(F) The Company shall provide the Executive with
outplacement services suitable to the Executive's position for a
period of three years or, if earlier, until the first acceptance by
the Executive of an offer of employment.
6.2 (A) Whether or not the Executive becomes entitled
to the Severance Payments, if any of the payments or benefits
received or to be received by the Executive in connection with a
Change in Control or the Executive's termination of employment
(whether pursuant to the terms of this Agreement or any other plan,
arrangement or agreement with the Company, any Person whose actions
result in a Change in Control or any Person affiliated with the
Company or such Person) (such payments or benefits, excluding the
Gross-Up Payment, being hereinafter referred to as the "Total
Payments") will be subject to the Excise Tax, the Company shall pay
to the Executive an additional amount (the "Gross-Up Payment") such
that the net amount retained by the Executive, after deduction of
any Excise Tax on the Total Payments and any federal, state and
local income and employment taxes and Excise Tax upon the Gross-Up
Payment, shall be equal to the Total Payments.
(B) For purposes of determining whether any of the
Total Payments will be subject to the Excise Tax and the amount of
such Excise Tax, (i) all of the Total Payments shall be treated as
"parachute payments" (within the meaning of section 280G(b)(2) of
the Code) unless, in the opinion of tax counsel ("Tax Counsel")
reasonably acceptable to the Executive and selected by the account-
ing firm which was, immediately prior to the Change in Control, the
Company's independent auditor (the "Auditor"), such payments or
benefits (in whole or in part) do not constitute parachute pay-
ments, including by reason of section 280G(b)(4)(A) of the Code,
(ii) all "excess parachute payments" within the meaning of section
280G(b)(l) of the Code shall be treated as subject to the Excise
Tax unless, in the opinion of Tax Counsel, such excess parachute
payments (in whole or in part) represent reasonable compensation
for services actually rendered (within the meaning of section
280G(b)(4)(B) of the Code) in excess of the Base Amount allocable
to such reasonable compensation, or are otherwise not subject to
the Excise Tax, and (iii) the value of any noncash benefits or any
deferred payment or benefit shall be determined by the Auditor in
accordance with the principles of sections 280G(d)(3) and (4) of
the Code. For purposes of determining the amount of the Gross-Up
Payment, the Executive shall be deemed to pay federal income tax at
the highest marginal rate of federal income taxation in the
calendar year in which the Gross-Up Payment is to be made and state
and local income taxes at the highest marginal rate of taxation in
the state and locality of the Executive's residence on the Date of
Termination (or if there is no Date of Termination, then the date
on which the Gross-Up Payment is calculated for purposes of this
Section 6.2), net of the maximum reduction in federal income taxes
which could be obtained from deduction of such state and local tax-
es.
(C) In the event that the Excise Tax is finally
determined to be less than the amount taken into account hereunder
in calculating the Gross-Up Payment, the Executive shall repay to
the Company, within five (5) business days following the time that
the amount of such reduction in the Excise Tax is finally deter-
mined, the portion of the Gross-Up Payment attributable to such
reduction (plus that portion of the Gross-Up Payment attributable
to the Excise Tax and federal, state and local income and em-
ployment taxes imposed on the Gross-Up Payment being repaid by the
Executive, to the extent that such repayment results in a reduction
in the Excise Tax and a dollar-for-dollar reduction in the
Executive's taxable income and wages for purposes of federal, state
and local income and employment taxes, plus interest on the amount
of such repayment at 120% of the rate provided in section
1274(b)(2)(B) of the Code. In the event that the Excise Tax is
determined to exceed the amount taken into account hereunder in
calculating the Gross-Up Payment (including by reason of any pay-
ment the existence or amount of which cannot be determined at the
time of the Gross-Up Payment), the Company shall make an additional
Gross-Up Payment in respect of such excess (plus any interest,
penalties or additions payable by the Executive with respect to
such excess) within five (5) business days following the time that
the amount of such excess is finally determined. The Executive and
the Company shall each reasonably cooperate with the other in
connection with any administrative or judicial proceedings concern-
ing the existence or amount of liability for Excise Tax with
respect to the Total Payments.
6.3 The payments provided in subsections (A), (C) and
(D) of Section 6.1 hereof and in Section 6.2 hereof shall be made
not later than the fifth day following the Date of Termination;
provided, however, that if the amounts of such payments cannot be
finally determined on or before such day, the Company shall pay to
the Executive on such day an estimate, as determined in good faith
by the Executive or, in the case of payments under Section 6.2
hereof, in accordance with Section 6.2 hereof, of the minimum
amount of such payments to which the Executive is clearly entitled
and shall pay the remainder of such payments (together with
interest on the unpaid remainder (or on all such payments to the
extent the Company fails to make such payments when due) at 120% of
the rate provided in section 1274(b)(2)(B) of the Code) as soon as
the amount thereof can be determined but in no event later than the
thirtieth (30th) day after the Date of Termination. In the event
that the amount of the estimated payments exceeds the amount
subsequently determined to have been due, such excess shall
constitute a loan by the Company to the Executive, payable on the
fifth (5th) business day after demand by the Company (together with
interest at 120% of the rate provided in section 1274(b)(2)(B) of
the Code), but only to the extent such amount has not been paid by
the Executive pursuant to Section 6.2(C) above. At the time that
payments are made under this Agreement, the Company shall provide
the Executive with a written statement setting forth the manner in
which such payments were calculated and the basis for such
calculations including, without limitation, any opinions or other
advice the Company has received from Tax Counsel, the Auditor or
other advisors or consultants (and any such opinions or advice
which are in writing shall be attached to the statement).
6.4 The Company also shall pay to the Executive all
legal fees and expenses incurred by the Executive in disputing in
good faith any issue hereunder relating to the termination of the
Executive's employment, in seeking in good faith to obtain or en-
force any benefit or right provided by this Agreement or in con-
nection with any tax audit or proceeding to the extent attributable
to the application of section 4999 of the Code to any payment or
benefit provided hereunder. Such payments shall be made within
five (5) business days after delivery of the Executive's written
requests for payment accompanied with such evidence of fees and ex-
penses incurred as the Company reasonably may require.
7. Termination Procedures and Compensation During
Dispute.
7.1 Notice of Termination. After a Change in Control
and during the Term, any purported termination of the Executive's
employment (other than by reason of death) shall be communicated by
written Notice of Termination from one party hereto to the other
party hereto in accordance with Section 10 hereof. For purposes of
this Agreement, a "Notice of Termination" shall mean a notice which
shall indicate the specific termination provision in this Agreement
relied upon and shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the
Executive's employment under the provision so indicated. Further,
a Notice of Termination for Cause is required to include a copy of
a resolution duly adopted by the affirmative vote of not less than
three-quarters (3/4) of the entire membership of the Board at a
meeting of the Board which was called and held for the purpose of
considering such termination (after reasonable notice to the
Executive and an opportunity for the Executive, together with the
Executive's counsel, to be heard before the Board) finding that, in
the good faith opinion of the Board, the Executive was guilty of
conduct set forth in clause (i) or (ii) of the definition of Cause
herein, and specifying the particulars thereof in detail.
7.2 Date of Termination. "Date of Termination," with
respect to any purported termination of the Executive's employment
after a Change in Control and during the Term, shall mean (i) if
the Executive's employment is terminated for Disability, thirty
(30) days after Notice of Termination is given (provided that the
Executive shall not have returned to the full-time performance of
the Executive's duties during such thirty (30) day period), and
(ii) if the Executive's employment is terminated for any other
reason, the date specified in the Notice of Termination (which, in
the case of a termination by the Company, shall not be less than
thirty (30) days (except in the case of a termination for Cause)
and, in the case of a termination by the Executive, shall not be
less than fifteen (15) days nor more than sixty (60) days,
respectively, from the date such Notice of Termination is given).
7.3 Dispute Concerning Termination. If within fifteen
(15) days after any Notice of Termination is given, or, if later,
prior to the Date of Termination (as determined without regard to
this Section 7.3), the party receiving such Notice of Termination
notifies the other party that a dispute exists concerning the
termination, the Date of Termination shall be extended until the
earlier of (i) the date on which the Term ends or (ii) the date on
which the dispute is finally resolved, either by mutual written
agreement of the parties or by a final judgment, order or decree of
an arbitrator or a court of competent jurisdiction (which is not
appealable or with respect to which the time for appeal therefrom
has expired and no appeal has been perfected); provided, however,
that the Date of Termination shall be extended by a notice of
dispute given by the Executive only if such notice is given in good
faith and the Executive pursues the resolution of such dispute with
reasonable diligence.
7.4 Compensation During Dispute. If a purported
termination occurs following a Change in Control and during the
Term and the Date of Termination is extended in accordance with
Section 7.3 hereof, the Company shall continue to pay the Executive
the full compensation in effect when the notice giving rise to the
dispute was given (including, but not limited to, salary) and
continue the Executive as a participant in all compensation,
benefit and insurance plans in which the Executive was
participating when the notice giving rise to the dispute was given
or those plans in which the Executive was participating immediately
prior to the first occurrence of an event or circumstance giving
rise to the Notice of Termination, if more favorable to the
Executive, until the Date of Termination, as determined in
accordance with Section 7.3 hereof. Amounts paid under this
Section 7.4 are in addition to all other amounts due under this
Agreement (other than those due under Section 5.2 hereof) and shall
not be offset against or reduce any other amounts due under this
Agreement.
8. No Mitigation. The Company agrees that, if the
Executive's employment with the Company terminates during the Term,
the Executive is not required to seek other employment or to
attempt in any way to reduce any amounts payable to the Executive
by the Company pursuant to Sections 5, 6 or 7.4 hereof. Further,
the amount of any payment or benefit provided for in this Agreement
(other than Section 6.1(B) hereof but including (but not limited
to) Section 7.4 hereof) shall not be reduced by any compensation
earned by the Executive as the result of employment by another
employer, by retirement benefits, by offset against any amount
claimed to be owed by the Executive to the Company, or otherwise.
9. Successors; Binding Agreement.
9.1 In addition to any obligations imposed by law upon
any successor to the Company, the Company will require any
successor (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the
business and/or assets of the Company to expressly assume and agree
to perform this Agreement in the same manner and to the same extent
that the Company would be required to perform it if no such
succession had taken place. Failure of the Company to obtain such
assumption and agreement prior to the effectiveness of any such
succession shall be a breach of this Agreement and shall entitle
the Executive to compensation from the Company in the same amount
and on the same terms as the Executive would be entitled to
hereunder if the Executive were to terminate the Executive's
employment for Good Reason after a Change in Control, except that,
for purposes of implementing the foregoing, the date on which any
such succession becomes effective shall be deemed the Date of
Termination.
9.2 This Agreement shall inure to the benefit of and be
enforceable by the Executive's personal or legal representatives,
executors, administrators, successors, heirs, distributees,
devisees and legatees. If the Executive shall die while any amount
would still be payable to the Executive hereunder (other than
amounts which, by their terms, terminate upon the death of the
Executive) if the Executive had continued to live, all such
amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of this Agreement to the executors,
personal representatives or administrators of the Executive's
estate.
10. Notices. For the purpose of this Agreement, notices
and all other communications provided for in the Agreement shall be
in writing and shall be deemed to have been duly given when
delivered or mailed by United States registered mail, return
receipt requested, postage prepaid, addressed, if to the Executive,
to the address inserted below the Executive's signature on the
final page hereof and, if to the Company, to the address set forth
below, or to such other address as either party may have furnished
to the other in writing in accordance herewith, except that notice
of change of address shall be effective only upon actual receipt:
To the Company:
3900 Essex Lane
Suite 1200
Houston, Texas 77027
Attention: General Counsel
11. Miscellaneous. Except as otherwise specifically
provided in Section 12.2 below, no provision of this Agreement may
be modified, waived or discharged unless such waiver, modification
or discharge is agreed to in writing and signed by the Executive
and such officer as may be specifically designated by the Board.
No waiver by either party hereto at any time of any breach by the
other party hereto of, or of any lack of compliance with, any
condition or provision of this Agreement to be performed by such
other party shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same or at any prior or subsequent
time. This Agreement supersedes any other agreements or
representations, oral or otherwise, express or implied, with
respect to the subject matter hereof which have been made by either
party; provided, however, that this Agreement shall supersede any
agreement setting forth the terms and conditions of the Executive's
employment with the Company only in the event that the Executive's
employment with the Company is terminated on or following a Change
in Control, by the Company other than for Cause or by the Executive
other than for Good Reason; and provided further that all
agreements otherwise superseded by this Agreement shall be
automatically reinstated with full force and effect to the extent
this Agreement is terminated or otherwise rendered inapplicable or
amended in accordance with Section 12.2 hereof. The validity,
interpretation, construction and performance of this Agreement
shall be governed by the laws of the State of Texas. All
references to sections of the Exchange Act or the Code shall be
deemed also to refer to any successor provisions to such sections.
Any payments provided for hereunder shall be paid net of any
applicable withholding required under federal, state or local law
and any additional withholding to which the Executive has agreed.
The obligations of the Company and the Executive under this
Agreement which by their nature may require either partial or total
performance after the expiration of the Term (including, without
limitation, those under Sections 6 and 7 hereof) shall survive such
expiration.
12. Validity; Pooling.
12.1 Validity. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or
enforceability of any other provision of this Agreement, which
shall remain in full force and effect.
12.2 Pooling. In the event that (A) the Company is
party to a transaction which is otherwise intended to qualify for
"pooling of interests" accounting treatment, (B) such transaction
constitutes a Change in Control within the meaning of Section
15(G)(III) and (C) individuals who satisfy the requirements in
clauses (i) and (ii) below constitute more than two-thirds (2/3) of
the number of directors of the entity surviving such transaction
and the parent thereof, if any: individuals who (i) immediately
prior to such transaction constitute the Board and (ii) on the date
hereof constitute the Board and any new director (other than a
director whose initial assumption of office is in connection with
an actual or threatened election contest relating to the election
of directors of the Company) whose appointment or election by the
Board or nomination for election by the Company's stockholders was
approved or recommended, by a vote of at least two-thirds (2/3) of
the directors then still in office who either were directors on the
date hereof or whose appointment, election or nomination for
election was previously so approved or recommended then (a) this
Agreement shall, to the extent practicable, be interpreted so as to
permit such accounting treatment, and (b) to the extent that the
application of clause (a) of this Section 12.2 does not preserve
the availability of such accounting treatment, then, to the extent
that any provision or combination of provisions of the Agreement
disqualifies the transaction as a "pooling" transaction (including,
if applicable, the entire Agreement), the Board shall have the
right, by sending written notice to the Executive prior to the
Change in Control, to unilaterally amend (without the consent of
the Executive) such provision or provisions if and to the extent
necessary (including declaring such provision or provisions to be
null and void as of the date hereof) so that such transaction may
be accounted for as a "pooling of interests." All determinations
under this Section 12.2 shall be made by the Board prior to the
Change in Control, based upon the advice of the accounting firm
whose opinion with respect to "pooling of interests" is required as
a condition to the consummation of such transaction.
13. Counterparts. This Agreement may be executed in
several counterparts, each of which shall be deemed to be an
original but all of which together will constitute one and the same
instrument.
14. Settlement of Disputes; Arbitration.
14.1 All claims by the Executive for benefits under this
Agreement shall be directed to and determined by the Committee and
shall be in writing. Any denial by the Committee of a claim for
benefits under this Agreement shall be delivered to the Executive
in writing within thirty (30) days after written notice of the
claim is provided to the Company in accordance with Section 10 and
shall set forth the specific reasons for the denial and the
specific provisions of this Agreement relied upon. The Committee
shall afford a reasonable opportunity to the Executive for a review
of the decision denying a claim and shall further allow the
Executive to appeal to the Committee a decision of the Committee
within sixty (60) days after notification by the Committee that the
Executive's claim has been denied.
14.2 Any further dispute or controversy arising under or
in connection with this Agreement shall be settled exclusively by
arbitration in Houston, Texas in accordance with the rules of the
American Arbitration Association then in effect; provided, however,
that the evidentiary standards set forth in this Agreement shall
apply. Judgment may be entered on the arbitrator's award in any
court having jurisdiction. Notwithstanding any provision of this
Agreement to the contrary, the Executive shall be entitled to seek
specific performance of the Executive's right to be paid until the
Date of Termination during the pendency of any dispute or
controversy arising under or in connection with this Agreement.
15. Definitions. For purposes of this Agreement, the
following terms shall have the meanings indicated below:
(A) "Affiliate" shall have the meaning set forth in Rule
12b-2 promulgated under Section 12 of the Exchange Act.
(B) "Auditor" shall have the meaning set forth in
Section 6.2 hereof.
(C) "Base Amount" shall have the meaning set forth in
section 280G(b)(3)of the Code.
(D) Beneficial Owner" shall have the meaning set forth
in Rule 13d-3 under the Exchange Act.
(E) "Board" shall mean the Board of Directors of the
Company.
(F) "Cause" for termination by the Company of the
Executive's employment shall mean (i) the willful and continued
failure by the Executive to substantially perform the Executive's
duties with the Company (other than any such failure resulting from
the Executive's incapacity due to physical or mental illness or any
such actual or anticipated failure after the issuance of a Notice
of Termination for Good Reason by the Executive pursuant to Section
7.1 hereof) after a written demand for substantial performance is
delivered to the Executive by the Board, which demand specifically
identifies the manner in which the Board believes that the
Executive has not substantially performed the Executive's duties,
or (ii) the willful engaging by the Executive in conduct which is
demonstrably and materially injurious to the Company or its
subsidiaries, monetarily or otherwise. For purposes of clauses (i)
and (ii) of this definition, (x) no act, or failure to act, on the
Executive's part shall be deemed "willful" unless done, or omitted
to be done, by the Executive not in good faith and without
reasonable belief that the Executive's act, or failure to act, was
in the best interest of the Company and (y) in the event of a
dispute concerning the application of this provision, no claim by
the Company that Cause exists shall be given effect unless the
Company establishes to the Committee by clear and convincing
evidence that Cause exists.
(G) A "Change in Control" shall be deemed to have
occurred if the event set forth in any one of the following
paragraphs shall have occurred:
(I) any Person is or becomes the Beneficial Owner,
directly or indirectly, of securities of the Company (not including
in the securities beneficially owned by such Person any securities
acquired directly from the Company or its affiliates) representing
20% or more of the combined voting power of the Company's then
outstanding securities, excluding any Person who becomes such a
Beneficial Owner in connection with a transaction described in
clause (i) of paragraph (III) below; or
(II) the following individuals cease for any reason
to constitute a majority of the number of directors then serving:
individuals who, on the date hereof, constitute the Board and any
new director (other than a director whose initial assumption of
office is in connection with an actual or threatened election
contest relating to the election of directors of the Company) whose
appointment or election by the Board or nomination for election by
the Company's stockholders was approved or recommended by a vote of
at least two-thirds (2/3) of the directors then still in office who
either were directors on the date hereof or whose appointment,
election or nomination for election was previously so approved or
recommended; or
(III) there is consummated a merger or
consolidation of the Company or any direct or indirect subsidiary
of the Company with any other corporation, other than (i) a merger
or consolidation which would result in the voting securities of
the Company outstanding immediately prior to such merger or
consolidation continuing to represent (either by remaining
outstanding or by being converted into voting securities of the
surviving entity or any parent thereof), in combination with the
ownership of any trustee or other fiduciary holding securities
under an employee benefit plan of the Company or any subsidiary of
the Company, at least 65% of the combined voting power of the
securities of the Company or such surviving entity or any parent
thereof outstanding immediately after such merger or consolidation,
or (ii) a merger or consolidation effected to implement a
recapitalization of the Company (or similar transaction) in which
no Person is or becomes the Beneficial Owner, directly or
indirectly, of securities of the Company (not including in the
securities Beneficially Owned by such Person any securities
acquired directly from the Company or its Affiliates other than in
connection with the acquisition by the Company or its Affiliates of
a business) representing 20% or more of the combined voting power
of the Company's then outstanding securities; or
(IV) the stockholders of the Company approve a plan
of complete liquidation or dissolution of the Company or there is
consummated an agreement for the sale or disposition by the Company
of all or substantially all of the Company's assets, other than a
sale or disposition by the Company of all or substantially all of
the Company's assets to an entity, at least 65% of the combined
voting power of the voting securities of which are owned by
stockholders of the Company in substantially the same proportions
as their ownership of the Company immediately prior to such sale.
Notwithstanding the foregoing, a "Change in Control" shall not be
deemed to have occurred by virtue of the consummation of any
transaction or series of integrated transactions immediately
following which the record holders of the common stock of the
Company immediately prior to such transaction or series of
transactions continue to have substantially the same proportionate
ownership in an entity which owns all or substantially all of the
assets of the Company immediately following such transaction or
series of transactions.
(H) "Code" shall mean the Internal Revenue Code of 1986,
as amended from time to time.
(I) "Committee" shall mean (i) the individuals (not
fewer than three in number) who, on the date six months before a
Change in Control, constitute the Compensation Committee of the
Board, plus (ii) in the event that fewer than three individuals are
available from the group specified in clause (i) above for any
reason, such individuals as may be appointed by the individual or
individuals so available (including for this purpose any individual
or individuals previously so appointed under this clause (ii));
provided, however, that the maximum number of individuals
constituting the Committee shall not exceed six (6).
(J) "Company" shall mean Baker Hughes Incorporated and,
except in determining under Section 15(G) hereof whether or not any
Change in Control of the Company has occurred, shall include any
successor to its business and/or assets which assumes and agrees to
perform this Agreement by operation of law, or otherwise.
(K) "Date of Termination" shall have the meaning set
forth in Section 7.2 hereof.
(L) "Disability" shall be deemed the reason for the
termination by the Company of the Executive's employment, if, as a
result of the Executive's incapacity due to physical or mental
illness, the Executive shall have been absent from the full-time
performance of the Executive's duties with the Company for a period
of six (6) consecutive months, the Company shall have given the
Executive a Notice of Termination for Disability, and, within
thirty (30) days after such Notice of Termination is given, the
Executive shall not have returned to the full-time performance of
the Executive's duties.
(M) "Exchange Act" shall mean the Securities Exchange
Act of 1934, as amended from time to time.
(N) "Excise Tax" shall mean any excise tax imposed
under section 4999 of the Code.
(O) "Executive" shall mean the individual named in the
first paragraph of this Agreement.
(P) "Extension Date" shall have the meaning set forth
in Section 2 hereof.
(Q) "Good Reason" for termination by the Executive of
the Executive's employment shall mean the occurrence (without the
Executive's express written consent) after any Change in Control,
or prior to a Change in Control under the circumstances described
in clauses (ii) and (iii) of the second sentence of Section 6.1
hereof (treating all references in paragraphs (I) through (VII)
below to a "Change in Control" as references to a "Potential Change
in Control"), of any one of the following acts by the Company, or
failures by the Company to act, unless, in the case of any act or
failure to act described in paragraph (I), (V), (VI) or (VII)
below, such act or failure to act is corrected prior to the Date of
Termination specified in the Notice of Termination given in respect
thereof:
(I) the assignment to the Executive of any duties
inconsistent with the Executive's status as a senior executive
officer of the Company or a substantial adverse alteration in the
nature or status of the Executive's responsibilities from those in
effect immediately prior to the Change in Control;
(II) a reduction by the Company in the Executive's
annual base salary as in effect on the date hereof or as the same
may be increased from time to time except for across-the-board
salary reductions similarly affecting all senior executives of the
Company and all senior executives of any Person in control of the
Company;
(III) the relocation of the Executive's principal
place of employment to a location more than 50 miles from the
Executive's principal place of employment immediately prior to the
Change in Control or the Company's requiring the Executive to be
based anywhere other than such principal place of employment (or
permitted relocation thereof) except for required travel on the
Company's business to an extent substantially consistent with the
Executive's present business travel obligations;
(IV) the failure by the Company to pay to the
Executive any portion of the Executive's current compensation
except pursuant to an across-the-board compensation deferral
similarly affecting all senior executives of the Company and all
senior executives of any Person in control of the Company, or to
pay to the Executive any portion of an installment of deferred
compensation under any deferred compensation program of the
Company, within seven (7) days of the date such compensation is
due;
(V) the failure by the Company to continue in
effect any compensation plan in which the Executive participates
immediately prior to the Change in Control which is material to the
Executive's total compensation, including but not limited to the
Company's 1993 Stock Option Plan, 1993 Employee Stock Bonus Plan,
1991 Employee Stock Bonus Plan, 1995 Stock Award Plan (and the
1995, 1996 and 1997 Stock Matching Programs thereunder and any
subsequent Stock Matching Programs in which the Executive
participates), 1987 Convertible Debenture Plan and 1995 Employee
Annual Incentive Compensation Plan or any substitute plans adopted
prior to the Change in Control, unless an equitable arrangement
(embodied in an ongoing substitute or alternative plan) has been
made with respect to such plan, or the failure by the Company to
continue the Executive's participation therein (or in such
substitute or alternative plan) on a basis not materially less fa-
vorable, both in terms of the amount or timing of payment of bene-
fits provided and the level of the Executive's participation
relative to other participants, as existed immediately prior to the
Change in Control;
(VI) the failure by the Company to continue to
provide the Executive with benefits substantially similar to those
enjoyed by the Executive under any of the Company's pension,
savings, life insurance, medical, health and accident, or
disability plans in which the Executive was participating
immediately prior to the Change in Control (except for across the
board changes similarly affecting all senior executives of the
Company and all senior executives of any Person in control of the
Company), the taking of any other action by the Company which would
directly or indirectly materially reduce any of such benefits or
deprive the Executive of any material fringe benefit or perquisite
enjoyed by the Executive at the time of the Change in Control, or
the failure by the Company to provide the Executive with the number
of paid vacation days to which the Executive is entitled on the
basis of years of service with the Company in accordance with the
Company's normal vacation policy in effect at the time of the
Change in Control; or
(VII) any purported termination of the Executive's
employment which is not effected pursuant to a Notice of
Termination satisfying the requirements of Section 7.1 hereof; for
purposes of this Agreement, no such purported termination shall be
effective.
The Executive's right to terminate the Executive's em-
ployment for Good Reason shall not be affected by the Executive's
incapacity due to physical or mental illness. The Executive's
continued employment shall not constitute consent to, or a waiver
of rights with respect to, any act or failure to act constituting
Good Reason hereunder.
For purposes of any determination regarding the existence
of Good Reason, any claim by the Executive that Good Reason exists
shall be presumed to be correct unless the Company establishes to
the Committee by clear and convincing evidence that Good Reason
does not exist.
(R) "Gross-Up Payment" shall have the meaning set forth
in Section 6.2 hereof.
(S) "Notice of Termination" shall have the meaning set
forth in Section 7.1 hereof.
(T) "Person" shall have the meaning given in Section
3(a)(9) of the Exchange Act, as modified and used in Sections 13(d)
and 14(d) thereof, except that such term shall not include (i) the
Company or any of its subsidiaries, (ii) a trustee or other
fiduciary holding securities under an employee benefit plan of the
Company or any of its Affiliates, (iii) an underwriter temporarily
holding securities pursuant to an offering of such securities,
or (iv) a corporation owned, directly or indirectly, by the
stockholders of the Company in substantially the same proportions
as their ownership of stock of the Company.
(U) "Potential Change in Control" shall be deemed to
have occurred if the event set forth in any one of the following
paragraphs shall have occurred:
(I) the Company enters into an agreement, the
consummation of which would result in the occurrence of a Change in
Control;
(II) the Company or any Person publicly announces
an intention to take or to consider taking actions which, if
consummated, would constitute a Change in Control;
(III) any Person becomes the Beneficial Owner,
directly or indirectly, of securities of the Company representing
15% or more of either the then outstanding shares of common stock
of the Company or the combined voting power of the Company's
then outstanding securities (not including in the securities
beneficially owned by such Person any securities acquired directly
from the Company or its affiliates); or
(IV) the Board adopts a resolution to the effect
that, for purposes of this Agreement, a Potential Change in Control
has occurred.
(V) "Retirement" shall, for purposes of Section 4
hereof, be deemed the reason for the termination by the Executive
of the Executive's employment if such employment is terminated
after completion of ten (10) years of service with the Company and
attainment of age fifty-five (55).
(W) "Severance Payments" shall have the meaning set
forth in Section 6.1 hereof.
(X) "SRP" shall have the meaning set forth in Section
6.1 hereof.
(Y) "Tax Counsel" shall have the meaning set forth in
Section 6.2 hereof.
(Z) "Term" shall mean the period of time described in
Section 2 hereof (including any extension, continuation or
termination described therein).
(AA) "Thrift Plan" shall have the meaning set forth in
Section 6.1 hereof.
(BB) "Total Payments" shall mean those payments so
described in Section 6.2 hereof.
IN WITNESS WHEREOF, the parties hereto have executed
this Agreement as of the date above first written.
BAKER HUGHES INCORPORATED
By: /s/ John F. Maher
------------------------------
John F. Maher
Chairman - Compensation Committee
of the Board of Directors
EXECUTIVE:
----------
/s/ Douglas J. Wall
------------------------------
DOUGLAS J. WALL
Address:
114 North Taylor Pt. Dr.
The Woodlands, Texas 77382
------------------------------
(Please print carefully)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial information extracted from the
Consolidated Statements of Operations and Consolidated Statements of Financial
Position and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> MAR-31-1998
<CASH> 9,300
<SECURITIES> 0
<RECEIVABLES> 1,133,600
<ALLOWANCES> 27,900
<INVENTORY> 1,197,200
<CURRENT-ASSETS> 2,453,800
<PP&E> 2,208,600
<DEPRECIATION> 1,079,000
<TOTAL-ASSETS> 5,133,600
<CURRENT-LIABILITIES> 1,067,600
<BONDS> 961,800
0
0
<COMMON> 169,700
<OTHER-SE> 2,522,000
<TOTAL-LIABILITY-AND-EQUITY> 5,133,600
<SALES> 1,565,400
<TOTAL-REVENUES> 2,290,800
<CGS> 969,500
<TOTAL-COSTS> 1,376,000
<OTHER-EXPENSES> 636,600
<LOSS-PROVISION> 1,000
<INTEREST-EXPENSE> 32,100
<INCOME-PRETAX> 247,900
<INCOME-TAX> 89,200
<INCOME-CONTINUING> 158,700
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 158,700
<EPS-PRIMARY> .94
<EPS-DILUTED> .91
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial information extracted from the
Consolidated Statements of Operations and Consolidated Statements of Financial
Position and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS 12-MOS
<FISCAL-YEAR-END> SEP-30-1997 SEP-30-1997 SEP-30-1997 SEP-30-1997
<PERIOD-END> DEC-31-1996 MAR-31-1997 JUN-30-1997 SEP-30-1997
<CASH> 18,911 7,107 11,534 8,600
<SECURITIES> 0 0 0 0
<RECEIVABLES> 853,985 878,347 915,374 1,071,000
<ALLOWANCES> 21,681 29,538 27,697 23,900
<INVENTORY> 859,110 890,798 917,440 1,030,500
<CURRENT-ASSETS> 1,829,534 1,872,307 1,948,666 2,220,500
<PP&E> 1,611,759 1,645,794 1,703,904 2,012,000
<DEPRECIATION> 959,380 969,800 979,088 1,029,100
<TOTAL-ASSETS> 3,444,592 3,500,376 3,631,372 4,756,300
<CURRENT-LIABILITIES> 614,162 653,574 716,562 936,300
<BONDS> 740,944 714,544 708,705 771,800
0 0 0 0
0 0 0 0
<COMMON> 145,244 145,709 145,875 169,100
<OTHER-SE> 1,635,757 1,668,582 1,741,167 2,435,500
<TOTAL-LIABILITY-AND-EQUITY> 3,444,592 3,500,376 3,631,372 4,756,300
<SALES> 551,761 1,105,203 1,705,924 2,466,700
<TOTAL-REVENUES> 826,642 1,676,865 2,594,097 3,685,400
<CGS> 348,114 646,814 1,077,281 1,573,300
<TOTAL-COSTS> 505,766 1,026,809 1,582,258 2,256,200
<OTHER-EXPENSES> 224,572 449,059 695,087 1,169,300
<LOSS-PROVISION> 1,000 2,000 3,000 9,800
<INTEREST-EXPENSE> 11,805 23,910 35,957 48,600
<INCOME-PRETAX> 85,030 177,960 282,200 213,100
<INCOME-TAX> 33,519 68,471 90,192 104,000
<INCOME-CONTINUING> 51,511 109,489 192,008 109,100
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> (12,079) (12,079) (12,079) (12,100)
<NET-INCOME> 39,432 97,410 179,929 97,000
<EPS-PRIMARY> .27 .66 1.22 .63
<EPS-DILUTED> .26 .64 1.18 .63
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial information extracted from the
Consolidated Statements of Operations and Consolidated Statements of Financial
Position and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS 12-MOS
<FISCAL-YEAR-END> SEP-30-1996 SEP-30-1996 SEP-30-1996 SEP-30-1996
<PERIOD-END> DEC-31-1995 MAR-31-1996 JUN-30-1996 SEP-30-1996
<CASH> 8,026 15,874 6,662 7,714
<SECURITIES> 0 0 0 0
<RECEIVABLES> 778,397 770,274 819,722 816,667
<ALLOWANCES> 23,112 21,963 23,811 22,866
<INVENTORY> 755,953 796,756 806,454 802,194
<CURRENT-ASSETS> 1,650,426 1,690,079 1,735,309 1,716,393
<PP&E> 1,523,025 1,516,394 1,534,274 1,516,329
<DEPRECIATION> 955,026 944,562 947,453 917,379
<TOTAL-ASSETS> 3,223,057 3,271,581 3,281,708 3,297,390
<CURRENT-LIABILITIES> 544,120 564,941 626,088 635,320
<BONDS> 879,802 847,608 739,424 673,588
0 0 0 0
0 0 0 0
<COMMON> 142,426 143,174 144,018 144,553
<OTHER-SE> 1,382,634 1,426,272 1,480,024 1,544,656
<TOTAL-LIABILITY-AND-EQUITY> 3,223,057 3,271,581 3,281,708 3,297,390
<SALES> 464,955 965,231 1,487,256 2,046,850
<TOTAL-REVENUES> 694,697 1,439,519 2,205,371 3,027,730
<CGS> 267,336 560,264 858,616 1,186,843
<TOTAL-COSTS> 568,282 1,172,865 1,792,301 2,451,994
<OTHER-EXPENSES> 55,611 111,790 207,244 269,057
<LOSS-PROVISION> 1,000 2,000 3,000 7,000
<INTEREST-EXPENSE> 15,427 30,228 43,305 55,528
<INCOME-PRETAX> 55,859 126,421 209,481 298,867
<INCOME-TAX> 23,461 52,464 88,651 122,517
<INCOME-CONTINUING> 32,398 73,957 120,830 176,350
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 32,398 73,957 120,830 176,350
<EPS-PRIMARY> .23 .52 .85 1.23
<EPS-DILUTED> .23 .51 .83 1.21
</TABLE>
