<PAGE> 1
- --------------------------------------------------------------------------------
FORM 10-Q
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 June 30, 1998
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
--- OF THE SECURITIES EXCHANGE ACT OF 1934
-----------------------------
Commission file number 1-9397
-----------------------------
BAKER HUGHES INCORPORATED
(Exact name of registrant as specified in its charter)
Delaware 76-0207995
(State or other jurisdiction (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 August 1, 1998
----- -------------------------------
Common Stock, $1.00 par value per share 170,534,900 shares
- --------------------------------------------------------------------------------
<PAGE> 2
BAKER HUGHES INCORPORATED
INDEX
Page
No.
----
Part I - Financial Information:
Consolidated Condensed Statements of Operations - Three months and
nine months ended June 30, 1998 and 1997 2
Consolidated Condensed Statements of Financial Position
- June 30, 1998 and September 30, 1997 4
Consolidated Condensed Statements of Cash Flows - Nine months
ended June 30, 1998 and 1997 5
Notes to Consolidated Condensed Financial Statements 6
Management's Discussion and Analysis of Financial Condition and
Results of Operations 11
Part II - Other Information 21
-1-
<PAGE> 3
PART I. FINANCIAL INFORMATION
BAKER HUGHES INCORPORATED
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(In millions, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
1998 1997 1998 1997
-------------------- --------------------
<S> <C> <C> <C> <C>
REVENUES:
Sales $ 766.6 $ 600.7 $ 2,332.0 $ 1,705.9
Services and rentals 346.4 316.5 1,071.8 888.2
--------- --------- --------- ---------
Total revenues 1,113.0 917.2 3,403.8 2,594.1
--------- --------- --------- ---------
COSTS AND EXPENSES:
Costs of sales 478.6 380.8 1,448.2 1,077.3
Costs of services and rentals 202.2 174.7 608.6 505.0
Selling, general and
administrative 280.6 239.0 896.5 672.7
Amortization of goodwill
and other intangibles 10.0 7.0 30.7 22.3
--------- --------- --------- ---------
Total costs and expenses 971.4 801.5 2,984.0 2,277.3
--------- --------- --------- ---------
Operating income 141.6 115.7 419.8 316.8
Interest expense (19.7) (12.0) (51.8) (36.0)
Interest income .1 .5 1.9 1.4
--------- --------- --------- ---------
Income before income taxes and
cumulative effect of
accounting change 122.0 104.2 369.9 282.2
Income taxes (40.2) (21.7) (129.5) (90.2)
--------- --------- --------- ---------
Income before cumulative effect
of accounting change 81.8 82.5 240.4 192.0
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 $ 81.8 $ 82.5 $ 240.4 $ 179.9
========= ========= ========= =========
</TABLE>
-2-
<PAGE> 4
PART I. FINANCIAL INFORMATION
BAKER HUGHES INCORPORATED
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS CONTINUED
(In millions, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
1998 1997 1998 1997
-------------------- --------------------
<S> <C> <C> <C> <C>
Earnings Per Share of Common
Stock - Basic:
Income before cumulative
effect of accounting
change $ .48 $ .56 $ 1.42 $ 1.30
Cumulative effect of
accounting change (.08)
--------- --------- --------- ---------
Net income $ .48 $ .56 $ 1.42 $ 1.22
========= ========= ========= =========
Earnings Per Share of Common
Stock - Diluted:
Income before cumulative
effect of accounting
change $ .46 $ .54 $ 1.38 $ 1.26
Cumulative effect of
accounting change (.08)
--------- --------- --------- ---------
Net income $ .46 $ .54 $ 1.38 $ 1.18
========= ========= ========= =========
Cash dividends per share of
common stock $ .115 $ .115 $ .345 $ .345
========= ========= ========= =========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
-3-
<PAGE> 5
BAKER HUGHES INCORPORATED
CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL POSITION
(In millions)
ASSETS
<TABLE>
<CAPTION>
June 30, September 30,
1998 1997
---------- -------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 11.6 $ 8.6
Receivables - net 1,081.4 1,047.1
Inventories 1,187.7 1,030.5
Deferred income taxes 88.2 83.8
Other current assets 66.8 50.5
---------- -------------
Total current assets 2,435.7 2,220.5
Property - net 1,187.2 982.9
Other assets 504.4 497.5
Excess costs arising from acquisitions - net 1,079.0 1,055.4
---------- -------------
Total assets $ 5,206.3 $ 4,756.3
========== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 390.4 $ 499.7
Short-term borrowings and current portion
of long-term debt 203.7 9.6
Accrued employee compensation and benefits 182.4 223.2
Income taxes payable 55.4 48.6
Other accrued liabilities 180.0 155.2
---------- -------------
Total current liabilities 1,011.9 936.3
---------- -------------
Long-term debt 964.0 771.8
---------- -------------
Deferred income taxes 303.0 275.9
---------- -------------
Other long-term liabilities 167.1 167.7
---------- -------------
Stockholders' Equity:
Common stock 169.8 169.1
Capital in excess of par value 2,249.0 2,236.0
Retained earnings 465.6 283.7
Cumulative foreign currency translation
adjustment (162.7) (144.9)
Unrealized gain on securities available for sale 38.6 60.7
---------- -------------
Total stockholders' equity 2,760.3 2,604.6
---------- -------------
Total liabilities and stockholders' equity $ 5,206.3 $ 4,756.3
========== =============
</TABLE>
See accompanying notes to consolidated condensed financial statements.
-4-
<PAGE> 6
BAKER HUGHES INCORPORATED
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In millions)
<TABLE>
<CAPTION>
Nine Months Ended
June 30,
1998 1997
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 240.4 $ 179.9
Adjustments to reconcile net income to net cash
flows from operating activities:
Depreciation and amortization of:
Property 141.0 103.6
Other assets and debt discount 38.3 29.7
Deferred income taxes 32.4 20.5
Gain on disposal of assets (32.2) (18.1)
Foreign currency translation gain - net (.2) (4.6)
Cumulative effect of accounting change 12.1
Change in receivables (26.3) (70.7)
Change in inventories (138.9) (105.2)
Change in accounts payable (112.3) 22.2
Changes in other assets and liabilities (63.2) 3.7
-------- --------
Net cash flows from operating activities 79.0 173.1
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property additions (349.2) (206.1)
Proceeds from disposal of assets 56.4 40.7
Cash obtained in stock acquisition 3.3
Acquisition of businesses, net of cash acquired (119.6)
-------- --------
Net cash flows from investing activities (412.4) (162.1)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings from commercial paper and
revolving credit facilities 381.7 16.6
Proceeds from exercise of stock options 13.5 26.9
Dividends (58.6) (50.1)
-------- --------
Net cash flows from financing activities 336.6 (6.6)
-------- --------
Effect of exchange rate changes on cash (.2) (.6)
-------- --------
Increase in cash and cash equivalents 3.0 3.8
Cash and cash equivalents, beginning of period 8.6 7.7
-------- --------
Cash and cash equivalents, end of period $ 11.6 $ 11.5
======== ========
Income taxes paid $ 82.9 $ 41.0
Interest paid $ 39.4 $ 26.0
</TABLE>
See accompanying notes to consolidated condensed financial statements.
-5-
<PAGE> 7
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 June 30,
1998, its consolidated results of operations for the three and nine month
periods ended June 30, 1998 and 1997 and its consolidated cash flows for the
nine months ended June 30, 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 nine months ended June 30, 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:
<TABLE>
<CAPTION>
June 30, September 30,
1998 1997
----------- -------------
<S> <C> <C>
Finished goods $ 952.9 $ 832.3
Work in process 117.9 98.3
Raw materials 116.9 99.9
---------- -------------
Total $ 1,187.7 $ 1,030.5
========== =============
</TABLE>
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 nine months ended
June 30, 1998, that were not individually nor in the aggregate material to the
consolidated financial statements of the Company.
-6-
<PAGE> 8
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:
<TABLE>
<CAPTION>
For the Three Months Ended For the Three Months Ended
June 30, 1998 June 30, 1997
Income Shares Income Shares
(Numerator) (Denominator) (Numerator) (Denominator)
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Basic EPS $ 81.8 169.7 $ 82.5 148.4
Effect of dilutive
securities:
Stock plans 1.3 1.2
Liquid Yield
Option Notes 1.5 7.2 1.7 7.2
------ ------ ------ ------
Diluted EPS $ 83.3 178.2 $ 84.2 156.8
====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
For the Nine Months Ended For the Nine Months Ended
June 30, 1998 June 30, 1997
Income Shares Income Shares
(Numerator) (Denominator) (Numerator) (Denominator)
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Basic EPS $240.4 169.5 $179.9 148.0
Effect of dilutive
securities:
Stock plans 1.3 1.4
Liquid Yield
Option Notes 5.0 7.2 4.8 7.2
------ ------ ------ ------
Diluted EPS $245.4 178.0 $184.7 156.6
====== ====== ====== ======
</TABLE>
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
-7-
<PAGE> 9
BAKER HUGHES INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS CONTINUED
nine months ended June 30, 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:
<TABLE>
<CAPTION>
Three Months Ended Process
June 30, 1998 Oilfield Chemicals Equipment Other Total
- ------------------ ---------- ---------- --------- -------- ----------
<S> <C> <C> <C> <C> <C>
Revenues $ 804.4 $ 176.0 $ 127.4 $ 5.2 $ 1,113.0
Segment profit(loss) 113.5 28.1 9.5 (29.1) 122.0
Total assets 3,373.4 1,019.1 445.0 368.8 5,206.3
Three Months Ended
June 30, 1997
- ------------------
Revenues $ 746.3 $ 80.5 $ 85.6 $ 4.8 $ 917.2
Segment profit(loss) 108.5 8.7 7.1 (20.1) 104.2
Total assets 2,774.4 297.4 247.4 312.2 3,631.4
Nine Months Ended
June 30, 1998
- ------------------
Revenues $ 2,474.5 $ 538.0 $ 374.9 $ 16.4 $ 3,403.8
Segment profit(loss) 361.0 73.6 28.5 (93.2) 369.9
Nine Months Ended
June 30, 1997
- ------------------
Revenues $ 2,077.1 $ 240.1 $ 258.7 $ 18.2 $ 2,594.1
Segment profit(loss) 296.2 23.7 22.4 (60.1) 282.2
The following table presents the details of "Other" segment profit (loss):
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
1998 1997 1998 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
Corporate expenses $ (9.8) $ (9.1) $(43.3) $(27.5)
Interest expense - net (19.6) (11.5) (49.9) (34.6)
Other .3 .5 2.0
------ ------ ------ ------
Total $(29.1) $(20.1) $(93.2) $(60.1)
====== ====== ====== ======
</TABLE>
-8-
<PAGE> 10
BAKER HUGHES INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS CONTINUED
Note 6. Merger with Western Atlas Inc.
On August 10, 1998, Baker Hughes completed the merger with Western Atlas
Inc. ("Western Atlas"). Under the terms of the merger agreement, each
outstanding share of Western Atlas common stock has been converted into the
right to receive 2.7 shares of Baker Hughes common stock. In the aggregate,
Baker Hughes is issuing approximately 148.6 million shares of Baker Hughes
common stock to Western Atlas shareholders. In addition, as part of the merger,
Baker Hughes is issuing up to 7.7 million shares of Baker Hughes common stock in
exchange for certain rights relating to Western Atlas employee stock options.
Western Atlas, the common stock of which was previously publicly traded, is
a leading supplier of oilfield services and reservoir information technologies
for the worldwide oil and gas industry. It specializes in land, marine and
transition-zone seismic data acquisition and processing services; well-logging
and completion services; and reservoir characterization and project management
services.
The following table sets forth certain unaudited pro forma condensed
combined financial information for Baker Hughes giving effect to the merger with
Western Atlas accounted for as a pooling of interests.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues $1,659.7 $1,335.7 $4,880.7 $3,776.7
Income from continuing
operations 118.0 99.1 342.1 243.5
Net income 118.0 (84.5) 344.9 77.3
Income from continuing
operations per share:
Basic .37 .34 1.08 .83
Diluted .36 .33 1.05 .82
Net income per share:
Basic .37 (.29) 1.09 .26
Diluted .36 (.27) 1.06 .26
</TABLE>
<TABLE>
<CAPTION>
June 30, 1998 September 30, 1997
------------- ------------------
<S> <C> <C>
Current assets $ 3,075.4 $ 2,813.0
Current liabilities 1,983.5 1,414.6
Total assets 8,157.2 7,087.0
Long-term debt 1,671.1 1,473.3
Shareholders' equity 3,728.1 3,491.5
</TABLE>
In May 1997, the Western Atlas Board of Directors approved, in principle, a
plan to distribute (the "Spin-off") to Western Atlas shareholders all of the
outstanding common stock of UNOVA, Inc. ("UNOVA"), a wholly owned subsidiary of
Western Atlas. In connection with the Spin-off, the consolidated financial
statements of Western Atlas were restated
-9-
<PAGE> 11
BAKER HUGHES INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS CONTINUED
to present the operations of UNOVA as discontinued operations. The UNOVA results
of operations for the three and nine months ended June 30, 1997 include a $203.0
million charge related to acquired in-process research and development
activities related to UNOVA's acquisition of United Barcode Industries in April
1997.
-10-
<PAGE> 12
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 72% of the Company's consolidated revenues in
the quarter ended June 30, 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".
Four key factors which currently influence the worldwide crude oil market
and therefore current and future expenditures for exploration and development by
our customers are:
1) The degree to which certain large producing countries, in particular
Saudi Arabia, Venezuela, and Mexico, are willing and able to restrict production
and exports of crude oil.
2) The increasing rate of depletion of known hydrocarbon reserves.
Technological advances are resulting in accelerated decline rates and shorter
well lives. In general, accelerated decline rates require additional customer
spending to hold production level.
-11-
<PAGE> 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS CONTINUED
3) The economic growth in certain key areas of the world, particularly
developing Asia, where the linkage between energy demand and economic growth is
particularly strong.
4) The amount of crude oil in storage relative to historic levels.
These four factors, together with oil and gas company projections for future
energy price movement, influence overall levels of expenditures for exploration
and development by our customers.
More specifically, two key factors influence the level of exploration and
development spending:
1) Technology: Advances in the design and application of the Company's
products and services allow oil and gas companies to drill fewer wells, place
the wells they drill more precisely in the higher yielding or more easily
produced hydrocarbon zones of the reservoir and allow operators to drill,
complete and operate wells at lower overall costs.
2) Price Volatility: Changes in hydrocarbon markets create uncertainty in
the future price of hydrocarbons and therefore create uncertainty about the
aggregate level of customer spending. Multi-year projects, such as deep-water
exploration and drilling, are the least likely to be impacted by price
volatility. Projects with relatively short payback periods or low profit
margins, such as workover activity or the extraction of heavy oil, are more
likely to be impacted.
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.
<TABLE>
<CAPTION>
Oil and Gas Prices Three Months Ended Nine Months Ended
June 30, June 30,
1998 1997 1998 1997
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C>
WTI ($/bbl) 14.51 19.93 16.77 22.53
U.S. Spot Natural Gas ($/mcf) 2.10 2.04 2.26 2.50
</TABLE>
Crude oil prices experienced downward pressure in the third quarter of 1998
due to increased supply from renewed Iraqi exports, increased OPEC production,
higher inventories (particularly in North America) and a simultaneous slowing of
demand growth due to the Asian economic downturn.
U.S. natural gas prices remained strong during most of the quarter ended
June 30, 1998, averaging above $2.00 per mcf, reflecting relatively tight
supply and demand conditions in North America. Since June 30, 1998, gas
prices have averaged below $2.00 per mcf which could impact natural gas
drilling.
-12-
<PAGE> 14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS CONTINUED
<TABLE>
<CAPTION>
Rotary Rig Count Three Months Ended Nine Months Ended
June 30, June 30,
1998 1997 1998 1997
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. - Land 732 811 812 762
U.S. - Offshore 132 122 131 115
Canada 175 253 361 322
- --------------------------------------------------------------------------
North America 1,039 1,186 1,304 1,199
- --------------------------------------------------------------------------
Latin America 261 277 271 279
North Sea 59 60 59 59
Other Europe 45 52 49 57
Africa 83 82 81 82
Middle East 167 158 166 146
Asia Pacific 183 183 180 181
- --------------------------------------------------------------------------
International 798 812 806 804
- --------------------------------------------------------------------------
Worldwide 1,837 1,998 2,110 2,003
- --------------------------------------------------------------------------
U.S. Workover 1,122 1,422 1,282 1,416
</TABLE>
Outlook
The Company expects oil prices to trade between $12.00 and $15.50 per barrel
for the remainder of 1998 as production cuts balance the impact of weakened
demand and inventories stabilize. The Company believes 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 and into 1999. In 1999, the
willingness and ability by certain countries, particularly Saudi Arabia,
Venezuela and Mexico, to restrict production and exports, as well as increasing
depletion rates, could result in inventories that approach normal levels and
ultimately rising oil prices. In the long-term, the economic rebound of
developing Asia is expected to result in demand growth approximating the
long-term trend of 2 to 2-1/2% per year.
North America: The Company anticipates that North American activity will
continue to decline through the remainder of the year relative to the prior
year. Offshore activity is expected to weaken temporarily as high day-rate rigs
are recontracted at lower rates.
International: The Company expects that activity in Latin America will
decrease over the remainder of the year as budget cuts in Mexico and Venezuela
impact activity levels. Eastern Hemisphere activity is expected to weaken if
oil prices remain at current depressed levels.
-13-
<PAGE> 15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS CONTINUED
Chemicals
Baker Petrolite generated 16% of the Company's consolidated revenues in the
quarter ended June 30, 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.
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 June 30, 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, oil
and gas, 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, oil and gas, 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, oil and gas and copper
markets, the Company anticipates increased capital project activity in the
refining, chemical 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
-14-
<PAGE> 16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS CONTINUED
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.
Other acquisitions were made by the Company during the nine months ended
June 30, 1998, that were not individually nor in the aggregate material to the
consolidated financial statements of the Company.
RESULTS OF OPERATIONS
Revenues
Consolidated revenues were up 21% and 31% for the three and nine months
ended June 30, 1998, respectively, as compared to the same periods in 1997.
Sales revenue was up 28% and 37% for the three and nine months ended June
30, 1998, respectively, compared to the corresponding periods in 1997.
Service and rentals revenue was up 9% and 21% for the three and nine
months ended June 30, 1998, respectively, compared to the corresponding
periods in 1997. In the discussion below, the "current quarter" refers to the
three months ended June 30, 1998 and the "nine months" refers to the nine months
ended June 30, 1998.
Oilfield Operations
Revenue for Oilfield Operations increased in most areas of the world in
spite of lower rig count activity as the Company continues to benefit from the
increased use of its technologies in key geographic regions. Outside North
America, revenues increased 12% for the current quarter and 19% for the nine
months compared to the same periods in the prior year, while in North America,
revenues remained flat for the current quarter, but increased 19% for the nine
months compared to the same periods in the prior year. The lower percentage
increases in the current quarter ended June 30, 1998, are reflective of the
recent decline of oilfield activity in several key geographic areas, in
particular North America and Venezuela, resulting from lower customer
spending due to continuing low oil prices.
In North America, U.S. revenues increased 1% in the current quarter compared
to the prior year, while revenues in Canada declined 8% for the current quarter
compared to the prior year. Revenues in Latin America were down 1% in the
current quarter compared to the same quarter in 1997 led by Venezuela where
revenues declined 13%.
In Europe, revenues were up 17% in the current quarter compared to the same
period in the prior year. Revenues in the North Sea increased 20% for the
current quarter as compared to the same period in the prior year led by the
United Kingdom where revenues increased 38%.
-15-
<PAGE> 17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS CONTINUED
Revenues in Africa were up 3% in the current quarter compared to the same
quarter in 1997. The revenue improvements in Algeria and Gabon were partially
offset by the revenue declines in Nigeria and Cameroon.
In the Middle East revenues were up 12% in the current quarter compared to
the same quarter in the prior year led by Oman where revenues increased 10%.
Revenues in Asia Pacific posted the largest increase of all regions, up 25%
in the current quarter compared to the same period in the prior year. China and
Malaysia were the primary contributors to the revenue growth.
Chemicals
Chemical revenues increased $95.5 million to $176.0 million for the current
quarter and $297.9 million to $538.0 million for the nine months compared to the
same periods in the prior year due to the Petrolite acquisition in July 1997.
Process Equipment
Process Equipment revenues increased 49% and 45% for the current quarter and
nine months, respectively, compared to the same periods in the prior year. 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. The gross
margin percentages were 38.8% and 39.4% for the three months ended June
30, 1998 and 1997, respectively. The decline is due primarily to pricing
pressures and less favorable revenue mix in North America and Venezuela. The
gross margin percentages were 39.6% and 39.0% for the nine months ended
June 30, 1998 and 1997, respectively.
Selling, General and Administrative
Selling, general and administrative ("SG&A") expense increased $41.6 million
in the third quarter of 1998 from the third quarter of 1997. As a percent of
consolidated revenues, SG&A expense was 25.2% and 26.1% in the third quarter of
1998 and 1997, respectively. SG&A expense increased $223.8 million for the nine
months ended June 30, 1998 compared to the same period in 1997. As a percent of
consolidated revenues, SG&A expense was 26.3% and 25.9% in the first nine months
of 1998 and 1997, respectively. SG&A increased due to the Petrolite acquisition
and increases in marketing and sales support costs than those incurred in the
prior year periods.
Amortization expense increased $3.0 million and $8.4 million in the three
and nine months ended June 30, 1998, respectively, compared to the
-16-
<PAGE> 18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS CONTINUED
same prior year periods due primarily to the Petrolite acquisition in July
1997.
Interest Expense
Interest expense for the three and nine months ended June 30, 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 nine months ended June 30, 1998 was
35.0%, up from 32.0% for the nine months ended June 30, 1997 due to the
settlement with the Internal Revenue Service ("IRS") in 1997, as explained
below.
In the third quarter of 1997, the Company reached an agreement with the IRS
to close the audit of its 1992 and 1993 U.S. consolidated income tax returns.
The principal issue in the examination related to inter-company pricing on the
transfer of goods and services between U.S. and non-U.S. subsidiary companies.
As a result of the agreement, the Company recognized a tax benefit through the
reversal of deferred income taxes previously provided of $11.4 million
(approximately $0.08 per share) in the quarter ended June 30, 1997.
CAPITAL RESOURCES AND LIQUIDITY
Financing Activities
Net cash inflows from financing activities were $336.6 million in the first
nine months of 1998 compared to net cash outflows of $6.6 million for the same
period in 1997. The change from the prior year period is due to increased
borrowings from commercial paper and revolving credit facilities that
funded acquisitions and increases in working capital and capital expenditures.
Total debt outstanding at June 30, 1998 was $1,167.7 million, compared to
$781.4 million at September 30, 1997. The debt to equity ratio was .42 at June
30, 1998, compared to .30 at September 30, 1997.
Cash dividends increased in the first nine months of 1998 compared to the
first nine 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
1997 acquisitions of Petrolite and Drilex International Inc.
At June 30, 1998, the Company had $889.0 million of credit facilities with
commercial banks, of which $500.0 million was committed. These facilities are
subject to normal banking terms and conditions and do not materially restrict
the Company's activities.
-17-
<PAGE> 19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS CONTINUED
Investing Activities
Net cash outflows from investing activities were $412.4 million in the first
nine months of 1998 compared to $162.1 million in the first nine months of 1997.
Property additions increased significantly in the first nine months of 1998
to $349.2 million from $206.1 million in the first nine months of 1997 as the
Company added capacity to meet the increased market demand. The majority of the
capital expenditures have been in Oilfield Operations. Expenditures for rental
tools and machinery and equipment accounted for 39% and 42%, respectively, of
total capital expenditures for the Company for the first nine months of 1998. In
light of the recent activity decline, the Company is reviewing significant
capital projects and expects the rate of capital spending to slow. Funds
provided from operations and outstanding lines of credit are expected to be
adequate to meet future capital expenditure requirements.
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 inflows from operating activities were $79.0 million in the first
nine months of 1998 compared to cash inflows of $173.1 million in the first nine
months of 1997. The primary use of cash by operating activities was to fund
increases in working capital, primarily inventory and the reduction of
liabilities, primarily trade payables.
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.
-18-
<PAGE> 20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS CONTINUED
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.
Derivative and Hedge Accounting
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133
establishes accounting and reporting standards for derivative instruments and
hedging activities that require an entity to recognize all derivatives as an
asset or liability measured at its fair value. Depending on the intended use of
the derivative, changes in its fair value will be reported in the period of
change as either a component of earnings or a component of other comprehensive
income.
SFAS No. 133 is effective for all fiscal quarters of fiscal years beginning
after June 15, 1999. Retroactive application to periods prior to adoption is not
allowed. The Company has not quantified the impact of adoption on its
consolidated financial statements or the date it intends to adopt.
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 before, during and after the
Year 2000.
The Company is currently assessing the cost and uncertainties related to the
Year 2000 issue using internal and external resources. Based on preliminary
information, the Company currently believes that with certain modifications,
upgrades and, in some instances, converting to new software, the Company will
have substantially addressed the Year 2000 issues with respect to its software,
hardware and products without significant impact on its operating systems. The
estimated costs for the Company to substantially address these Year 2000 issues
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 that 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.
-19-
<PAGE> 21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS CONTINUED
MERGER WITH WESTERN ATLAS
On August 10, 1998, Baker Hughes completed the merger with Western Atlas
Inc. ("Western Atlas"). Under the terms of the merger agreement, each
outstanding share of Western Atlas common stock has been converted into the
right to receive 2.7 shares of Baker Hughes common stock. In the aggregate,
Baker Hughes is issuing approximately 148.6 million shares of Baker Hughes
common stock to Western Atlas shareholders. In addition, as part of the merger,
Baker Hughes is issuing up to 7.7 million shares of Baker Hughes common stock in
exchange for certain rights relating to Western Atlas employee stock options.
Western Atlas, the common stock of which was previously publicly traded, is
a leading supplier of oilfield services and reservoir information technologies
for the worldwide oil and gas industry. It specializes in land, marine and
transition-zone seismic data acquisition and processing services; well-logging
and completion services; and reservoir characterization and project management
services.
-20-
<PAGE> 22
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
(3)(ii) Bylaws as amended on July 22, 1998
(27.1) Financial Data Schedule
(b) Reports on Form 8-K:
A report on Form 8-K was filed with the Commission on May 20, 1998,
reporting that the Company had entered into an agreement and plan of merger with
Western Atlas Inc.
-21-
<PAGE> 23
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: August 14, 1998 By /s/LAWRENCE O'DONNELL, III
------------------------------------
Lawrence O'Donnell, III
Vice President and General Counsel
Date: August 14, 1998 By /s/JAMES E. BRAUN
------------------------------------
James E. Braun
Vice President and Controller
-22-
<PAGE> 24
INDEX TO EXHIBITS
Exhibits:
(3)(ii) Bylaws as amended on July 22, 1998
(27.1) Financial Data Schedule
<PAGE> 1
EXHIBIT 3(ii)
BYLAWS
OF
BAKER HUGHES INCORPORATED
As Amended
July 22, 1998
<PAGE> 2
Table of Contents
<TABLE>
<CAPTION>
Page No.
--------
<S> <C> <C>
ARTICLE I - Offices 1
Section 1. Registered Office ...............................................................1
Section 2. Other Offices ...................................................................1
ARTICLE II - Meetings of Stockholders ..........................................................1
Section 1. Place of Meetings...............................................................1
Section 2. Annual Meeting of Stockholders..................................................1
Section 3. Quorum; Adjourned Meetings and Notice Thereof ..................................1
Section 4. Voting .........................................................................2
Section 5. Proxies.........................................................................2
Section 6. Special Meetings ...............................................................2
Section 7. Notice of Stockholders' Meetings ...............................................2
Section 8. Waiver of Notice ...............................................................2
Section 9. Maintenance and Inspection of Stockholder List .................................3
Section 10. Stockholder Action by Written Consent Without a Meeting ........................3
Section 11. Inspectors of Election .........................................................3
Section 12. Procedure for Stockholders' Meetings............................................4
Section 13. Order of Business ..............................................................4
Section 14. Procedures for Bringing Business before an Annual Meeting ......................4
Section 15. Procedures for Nominating Directors ............................................5
ARTICLE III - Directors ........................................................................5
Section 1. Number and Qualification of Directors ..........................................5
Section 2. Election and Term of Office ....................................................6
Section 3. Resignation and Removal of Directors ...........................................6
Section 4. Vacancies ......................................................................7
Section 5. Powers .........................................................................7
Section 6. Place of Directors' Meetings ...................................................7
Section 7. Regular Meetings ...............................................................7
Section 8. Special Meetings ...............................................................7
Section 9. Quorum .........................................................................8
Section 10. Action Without Meeting .........................................................8
Section 11. Telephonic Meetings ............................................................8
Section 12. Meetings and Action of Committees ..............................................8
Section 13. Special Meetings of Committees .................................................9
Section 14. Minutes of Committee Meetings ..................................................9
Section 15. Compensation of Directors ......................................................9
Section 16. Indemnification ................................................................9
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C> <C>
ARTICLE IV - Officers .........................................................................11
Section 1. Officers ......................................................................11
Section 2. Election of Officers ..........................................................11
Section 3. Subordinate Officers ..........................................................11
Section 4. Removal and Resignation of Officers ...........................................12
Section 5. Vacancies in Offices ..........................................................12
Section 6. Chairman of the Board .........................................................12
Section 7. Vice Chairman of the Board ....................................................12
Section 8. President .....................................................................12
Section 9. Vice Presidents ...............................................................12
Section 10. Secretary .....................................................................12
Section 11. Chief Financial Officer .......................................................13
Section 12. Treasurer and Controller .....................................................13
ARTICLE V - Certificate of Stock ..............................................................13
Section 1. Certificates ...................................................................13
Section 2. Signatures on Certificates .....................................................13
Section 3. Statement of Stock Rights, Preferences, Privileges..............................14
Section 4. Lost Certificates ..............................................................14
Section 5. Transfers of Stock .............................................................14
Section 6. Fixing Record Date .............................................................14
Section 7. Registered Stockholders ........................................................15
ARTICLE VI - General Provisions - Dividends ...................................................15
Section 1. Dividends ......................................................................15
Section 2. Payment of Dividends; Directors' Duties.........................................15
Section 3. Checks .........................................................................15
Section 4. Corporate Contracts and Instruments ............................................15
Section 5. Fiscal Year ....................................................................15
Section 6. Manner of Giving Notice ........................................................16
Section 7. Waiver of Notice ...............................................................16
Section 8. Annual Statement ...............................................................16
ARTICLE VII - Amendments ......................................................................16
Section 1. Amendment by Directors .........................................................16
Section 2. Amendment by Stockholders ......................................................17
</TABLE>
-ii-
<PAGE> 4
BYLAWS
OF
BAKER HUGHES INCORPORATED
ARTICLE I
Offices
Section 1. The registered office shall be in the City of Wilmington,
County of New Castle, State of Delaware.
Section 2. The Corporation may also have offices at such other places
both within and without the State of Delaware as the Board of Directors may from
time to time determine or the business of the Corporation may require.
ARTICLE II
Meetings of Stockholders
Section 1. All meetings of the stockholders shall be held at such place
either within or without the State of Delaware as shall be designated from time
to time by the Board of Directors and stated in the notice of the meeting.
Section 2. An annual meeting of stockholders shall be held on the
fourth Wednesday in January in each year, if not a legal holiday, and if a legal
holiday, then on the next business day following, at 2:00 p.m. or at such other
date and time as may be determined from time to time by resolution adopted by
the Board of Directors, for the purpose of electing, subject to Article III,
Section 17 hereof, one class of the directors of the Corporation, and
transacting such other business as may properly be brought before the meeting.
Section 3. A majority of the stock issued and outstanding and entitled
to vote at any meeting of stockholders, the holders of which are present in
person or represented by proxy, without regard to class or series, shall
constitute a quorum for the transaction of business except as otherwise provided
by law, by the Certificate of Incorporation, or by these Bylaws. A quorum, once
established, shall not be broken by the withdrawal of enough votes to leave less
than a quorum and the votes present may continue to transact business until
adjournment provided that any action taken (other than adjournment) is approved
by at least a majority of the shares required to constitute a quorum. If,
however, such quorum shall not be present or represented at any meeting of the
stockholders, a majority of the voting stock represented in person or by proxy
may adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present or represented. At
such adjourned meeting at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the meeting as
originally noticed. If the adjournment is for more than thirty (30) days, or if
after the adjournment a new record date is fixed for the adjourned meeting, a
notice of the adjourned meeting shall be given to each stockholder of record
entitled to vote thereat.
<PAGE> 5
Section 4. When a quorum is present at any meeting, the vote of the
holders of a majority of the stock having voting power present in person or
represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which by express provision of the statutes or
the Certificate of Incorporation or these Bylaws, a different vote is required
in which case such express provision shall govern and control the decision of
such question.
Section 5. At each meeting of the stockholders, each stockholder having
the right to vote may vote in person or may authorize another person or persons
to act for him by proxy appointed by an instrument in writing subscribed by such
stockholder and bearing a date not more than three years prior to said meeting,
unless said instrument provides for a longer period. All proxies must be filed
with the Secretary of the Corporation at the beginning of each meeting in order
to be counted in any vote at the meeting. A proxy shall be deemed signed if the
stockholder's name is placed on the proxy (whether by manual signature,
telegraphic transmission or otherwise) by the stockholder or the stockholder's
attorney in fact. Each stockholder shall have one vote for each share of stock
having voting power, registered in his name on the books of the Corporation on
the record date set by the Board of Directors as provided in Article V, Section
6 hereof.
Section 6. Special meetings of the stockholders, for any purpose, or
purposes, unless otherwise prescribed by statute or by the Certificate of
Incorporation, may be called at any time by the Board of Directors or by a
committee of the Board of Directors which has been duly designated by the Board
of Directors and whose powers and authority, as provided in a resolution of the
Board of Directors or in these Bylaws, include the power to call such meetings.
Special meetings of stockholders of the Corporation may not be called by any
other person or persons. Business transacted at any special meeting of
stockholders shall be limited to the purposes stated in the notice.
Section 7. Any notice requested to be given to stockholders by statute,
the Certificate of Incorporation or these Bylaws, including notice of any
meeting of stockholders, shall be given personally, by first-class mail or by
telegraphic communication, charges prepaid, addressed to the stockholder at the
address of such stockholder appearing on the books of the Corporation or given
by the stockholder to the Corporation for the purpose of notice. If no such
address appears on the Corporation's books or has been so given, notice shall be
deemed to have been given if sent by first-class mail or telegraphic
communication to the Corporation's principal executive office, or if published
at least once in a newspaper of general circulation in the county where such
principal executive office is located. Notice shall be deemed to have been given
at the time when delivered personally or deposited in the mail or sent by
telegram.
If any notice addressed to a stockholder at the address of such
stockholder appearing on the books of a Corporation is returned to the
Corporation by the United States Postal Service marked to indicate that the
United States Postal Service is unable to deliver the notice to the stockholder
at such address, all further notices shall be deemed to have been duly given
without further mailing if the same shall be available to the stockholder upon
written demand of the stockholder at the principal executive office of the
Corporation for a period of one year from the date of the giving of such notice.
Section 8. Attendance of a person at a meeting shall constitute a
waiver of notice to such person of such meeting, except when the person objects
at the beginning of the meeting to the transaction of any business because the
meeting is not lawfully called or convened, or objects to the consideration of
matters not included in the notice of the meeting.
-2-
<PAGE> 6
Section 9. The officer or agent who has charge of the stock ledger of
the Corporation shall prepare and make, at least ten days before every meeting
of stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, either at a place within the city where their
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept open at the time and place of the
meeting during the whole time thereof, and may be inspected by any stockholder
who is present. The stock ledger of the Corporation shall be the only evidence
as to who are the stockholders entitled to examine such list or to vote at any
meetings of stockholders.
Section 10. No action shall be taken by stockholders except at an
annual or special meeting of stockholders, and stockholders may not act by
written consent.
Section 11. Before any meeting of stockholders, the Board of Directors
may appoint any persons other than nominees for office to act as inspectors of
election at the meeting or its adjournment. If no inspectors of election are so
appointed, the chairman of the meeting may, and on the request of any
stockholder or a stockholder's proxy shall, appoint inspectors of election at
the meeting. The number of inspectors shall be either one or three. If
inspectors are appointed at a meeting on the request of one or more stockholders
or proxies, the holders of a majority of shares or their proxies present at the
meeting shall determine whether one or three inspectors are to be appointed. If
any person appointed as inspector fails to appear or fails or refuses to act,
the chairman of the meeting may, and upon the request of any stockholder or a
stockholder's proxy shall, appoint a person to fill such vacancy.
The duties of these inspectors shall be as follows:
(a) Determine the number of shares outstanding and the voting
power of each, the shares represented at the meeting, the existence of
a quorum, and the authenticity, validity and effect of proxies;
(b) Receive votes or ballots;
(c) Hear and determine all challenges and questions in any way
arising in connection with the right to vote;
(d) Count and tabulate all votes;
(e) Determine when the polls shall close;
(f) Determine the results; and
(g) Do any other acts that may be proper to conduct the
election or vote with fairness to all stockholders.
-3-
<PAGE> 7
Section 12. Meetings of the stockholders shall be presided over by the
Chairman of the Board of Directors, or in his absence, by the Vice Chairman, the
President or by any Vice President, or, in the absence of any of such officers,
by a chairman to be chosen by a majority of the stockholders entitled to vote at
the meeting who are present in person or by proxy. The Secretary, or, in his
absence, any person appointed by the chairman, shall act as secretary of all
meetings of the stockholders.
Section 13. The order of business at all meetings of stockholders shall
be as determined by the chairman of the meeting.
Section 14. Notwithstanding anything in these Bylaws to the contrary,
no business shall be conducted at an annual meeting of the stockholders except
in accordance with the procedures hereinafter set forth in this Section 14;
provided, however, that nothing in this Section 14 shall be deemed to preclude
discussion by any stockholder of any business properly brought before the annual
meeting in accordance with said procedures.
At an annual meeting of the stockholders, only such business shall be
conducted as shall have been properly brought before the meeting. To be properly
brought before an annual meeting, business must be (1) specified in the notice
of meeting (or any supplement thereto) given by or at the direction of the
Board, (2) otherwise properly brought before the meeting by or at the direction
of the Board, or (3) otherwise properly brought before the meeting by a
stockholder. In addition to any other applicable requirements, for business to
be properly brought before an annual meeting by a stockholder, the stockholder
must have given timely notice thereof in writing to the Secretary of the
Corporation. To be timely, a stockholder's notice must be delivered to or mailed
and received at the principal executive offices of the Corporation not less than
one hundred twenty (120) days in advance of the first annual anniversary of the
date of the Corporation's proxy statement released to stockholders in connection
with the previous year's annual meeting of stockholders, except that if no
annual meeting was held in the previous year or the date of the annual meeting
has been changed by more than thirty (30) calendar days from the date
contemplated at the time of the previous year's proxy statement, notice by the
stockholder to be timely must be so received not later than the close of
business on the tenth (10th) day following the day on which such notice of the
date of the annual meeting was mailed or such public disclosure was made. Any
adjournment(s) or postponement(s) of the original meeting whereby the meeting
will reconvene within 30 days from the original date shall be deemed for
purposes of notice to be a continuation of the original meeting and no business
may be brought before any such reconvened meeting unless timely notice of such
business was given to the Secretary of the Corporation for the meeting as
originally scheduled. A stockholder's notice to the Secretary shall set forth as
to each matter the stockholder proposes to bring before the annual meeting (i) a
brief description of the business desired to be brought before the annual
meeting and their reasons for conducting such business at the annual meeting,
(ii) the name and record address of the stockholder proposing such business,
(iii) the class and number of shares of the Corporation which are beneficially
owned by the stockholders, and (iv) any material interest of the stockholder in
such business.
The Chairman of an annual meeting shall, if the facts warrant,
determine and declare to the meeting that business was not properly brought
before the meeting in accordance with the provisions of this Section 14, and if
he should so determine, he shall so declare to the meeting and any such business
not properly brought before the meeting shall not be transacted.
-4-
<PAGE> 8
Section 15. Notwithstanding anything in these Bylaws to the contrary,
only persons who are nominated in accordance with the procedures hereinafter set
forth in this Section 15 shall be eligible for election as directors of the
Corporation.
Nominations of persons for election to the Board of Directors of the
Corporation may be made at a meeting of stockholders only (1) by or at the
direction of the Board of Directors or (2) by any stockholder of the Corporation
entitled to vote for the election of directors at the meeting who complies with
the notice procedures set forth in this Section 15. Such nominations, other than
those made by or at the direction of the Board of Directors, shall be made
pursuant to timely notice in writing to the Secretary of the Corporation. To be
timely, a stockholder's notice shall be delivered to or mailed and received at
the principal executive offices of the Corporation not less than 120 days, nor
more than 150 days, in advance of the first annual anniversary of the date of
the Corporation's proxy statement released to stockholders in connection with
the previous year's annual meeting of stockholders, except that if no annual
meeting was held in the previous year or the date of the annual meeting has been
changed by more than 30 calendar days from the date contemplated at the time of
the previous year's proxy statement, notice by the stockholder to be timely must
be so received not later than the close of business on the tenth day following
the day on which such notice of the date of the annual meeting was mailed or
such public disclosure was made. Any adjournment(s) or postponement(s) of the
original meeting whereby the meeting will reconvene within thirty (30) days from
the original date shall be deemed for purposes of notice to be a continuation of
the original meeting and no nominations by a shareholder of persons to be
elected directors of the Corporation may be made at any such reconvened meeting
other than pursuant to a notice that was timely for the meeting on the date
originally scheduled. Such stockholder's notice shall set forth: (i) as to each
person whom the stockholder proposes to nominate for election or re-election as
a director, all information relating to such person that is required to be
disclosed in solicitations of proxies for election of directors, or is otherwise
required, in each case pursuant to Regulation 14A under the Securities Exchange
Act of 1934, as amended, or any successor regulation thereto (including such
person's written consent to being named in the proxy statement as a nominee and
to serving as a director if elected); and (ii) as to the stockholder giving
notice (A) the name and address, as they appear on the Corporation's books, of
such stockholder, and (B) the class and number of shares of the Corporation
which are beneficially owned by such stockholder. At the request of the Board of
Directors, any person nominated by the Board of Directors for election as a
director shall furnish to the Secretary of the Corporation that information
required to be set forth in a stockholder's notice of nomination which pertains
to the nominee.
The Chairman of the meeting shall, if the facts warrant, determine and
declare to the meeting that a nomination was not made in accordance with the
procedures prescribed by this Section 15, and if he should so determine, he
shall so declare to the meeting and the defective nomination shall be
disregarded.
ARTICLE III
Directors
Section 1. The Board of Directors shall consist of a minimum of twelve
(12) and a maximum of sixteen (16) directors. The number of directors shall be
fixed from time to time within the minimum and the maximum number established by
the then elected Board of Directors. The number of directors until changed by
the Board shall be twelve (12). The maximum number of directors may not be
increased by the Board of Directors
-5-
<PAGE> 9
to exceed sixteen without the affirmative vote of 75% of the members of the
entire Board. The directors need not be stockholders. No officer of the
Corporation may serve on a board of directors of any company having a present or
retired employee on the Corporation's Board of Directors. No person may stand
for election as a director if within the previous one (1) year he has resigned
from the Board as a result of the tenure provisions of Article III, Section 3
hereof regarding service for more than ten (10), eleven (11) or twelve (12)
consecutive years on the Board. No person associated with an organization whose
services are contracted by the Corporation shall serve on the Corporation's
Board of Directors; provided, however, that this prohibition may be waived by a
majority of the members of the whole Board if the Board in its judgment
determines that such waiver would be in the best interest of the Corporation.
Section 2. The Board of Directors shall be divided into three classes,
Class I, Class II and Class III. The number of directors in each class shall be
the whole number contained in the quotient arrived at by dividing the authorized
number of directors by three, and if a fraction is also contained in such
quotient then if such fraction is one-third (1/3), the extra director shall be a
member of Class III, and if the fraction is two-thirds (2/3), one of the extra
directors shall be a member of Class III and the other a member of Class II.
Each director shall serve for a term ending on the date of the third annual
meeting following the annual meeting at which such director was elected;
provided, however, that the directors initially appointed to Class I shall serve
for a term ending on the date of the first annual meeting next following
September 30, 1988, the directors initially appointed to Class II shall serve
for a term ending on the date of the second annual meeting next following
September 30, 1988, and the directors initially appointed to Class III shall
serve for a term ending on the date of the third annual meeting next following
September 30, 1988. One class of the directors shall be elected at each annual
meeting of the stockholders. If any such annual meeting is not held or the
directors are not elected thereat, the directors may be elected at any special
meeting of stockholders held for that purpose. All directors shall hold office
until their respective successors are elected and qualified or until their
earlier death, resignation or removal.
Section 3. Directors who are employees of the Corporation must resign
from the Board of Directors at the time of any diminution in their duties or
responsibilities as an officer, at the time they leave the employ of the
Corporation for any reason or on their 70th birthday. A director's term of
office shall automatically terminate on the date of the annual meeting of
stockholders following: (i) his seventieth (70th) birthday; (ii) the third
anniversary of his retirement from his principal occupation; (iii) unless he is
an officer of the Corporation, the date on which he has served on the
Corporation's Board of Directors a total of ten (10) complete years; (iv) any
fiscal year in which he has failed to attend at least sixty-six percent (66%) of
the meetings of the Board of Directors and any committees of the Board of
Directors on which such director serves; or (v) the first anniversary of any
change in his employment (other than a promotion or lateral movement within the
same organization). The requirements of Section 3(i) through Section 3(v) of
Article III may be waived by a majority of the members of the whole Board
(excluding the director whose resignation would otherwise be required) if the
Board in its judgment determines that such waiver would be in the best interest
of the Corporation. Any director may be removed for cause by the holders of a
majority of the shares of the Corporation entitled to vote in the election of
directors; stockholders may not remove any director without cause. The Board of
Directors may not remove any director for or without cause, and no
recommendation by the Board of Directors that a director be removed for cause
may be made to the stockholders except by the affirmative vote of not less than
seventy-five percent (75%) of the members of the whole Board; provided that the
Board may remove any director who fails to resign as required by the provisions
of these Bylaws.
-6-
<PAGE> 10
Section 4. Except as otherwise provided by statute or the Certificate
of Incorporation, in the case of any increase in the number of directors, such
additional director or directors shall be proposed for election to terms of
office that will most nearly result in each class of directors containing
one-third (1/3) of the entire number of members of the whole Board, and, unless
such position is to be filled by a vote of the stockholders at an annual or
special meeting, shall be elected by a majority vote of the directors in such
class or classes, voting separately by class. In the case of any vacancy in the
Board of Directors, however created, the vacancy or vacancies shall be filled by
majority vote of the directors remaining in the class in which the vacancy
occurs or, if only one such director remains, by such director. In the event one
or more directors shall resign, effective at a future date, such vacancy or
vacancies shall be filled as provided herein. Directors so chosen or elected
shall hold office for the remaining term of the directorship to which appointed.
Any director elected or chosen as provided herein shall serve for the unexpired
term of office or until his successor is elected and qualified or until his
earlier death, resignation or removal.
In the event of any decrease in the authorized number of directors, (a)
each director then serving as such shall nevertheless continue as a director of
the class of which he is a member until the expiration of this current term, or
his prior death, resignation or removal, and (b) the newly eliminated
directorships resulting from such decrease shall be apportioned by the Board of
Directors to such class or classes as shall, so far as possible, bring the
number of directors in the respective classes into conformity with the formula
in Section 2 hereof as applied to the newly authorized number of directors.
Section 5. The property and business of the Corporation shall be
managed by or under the direction of its Board of Directors. In addition to the
powers and authorities by these Bylaws expressly conferred upon them, the Board
may exercise all such powers of the Corporation and do all such lawful acts and
things as are not by statute, by the Certificate of Incorporation or by these
Bylaws directed or required to be exercised or done by the stockholders.
Meetings of the Board of Directors
Section 6. The directors may hold their meetings and have one or more
offices, and keep the books of the Corporation outside the State of Delaware.
Section 7. Regular meetings of the Board of Directors may be held
without notice at such time and place as shall from time to time be determined
by the Board. Except as otherwise provided by statute, any business may be
transacted at any regular meeting of the Board of Directors.
Section 8. Special meetings of the Board of Directors may be called by
the Chairman of the Board, the Vice Chairman or the President on at least
twenty-four hours' notice, or such shorter period as the person calling deems
appropriate, to each director. Special meetings shall be called by the President
or the Secretary in like manner and on like notice on the written request of any
two directors unless the Board consists of only one director, in which case
special meetings shall be called by the President or Secretary in like manner
and on like notice on the written request of the sole director.
-7-
<PAGE> 11
Section 9. At all meetings of the Board of Directors a majority of the
authorized number of directors shall be necessary and sufficient to constitute a
quorum for the transaction of business, and the vote of a majority of the
directors present at any meeting at which there is a quorum, shall be the act of
the Board of Directors, except as may be otherwise specifically provided by
statute, by the Certificate of Incorporation or by these Bylaws. If a quorum
shall not be present at any meeting of the Board of Directors, the directors
present thereat may adjourn the meeting from time to time, without notice other
than announcement at the meeting, until a quorum shall be present. If only one
director is authorized, such sole director shall constitute a quorum. A meeting
at which a quorum is initially present may continue to transact business
notwithstanding the withdrawal of directors, if any action is approved by at
least a majority of the required quorum for such meeting.
Section 10. Unless otherwise restricted by statute, the Certificate of
Incorporation or these Bylaws, any action required or permitted to be taken at
any meeting of the Board of Directors or of any committee thereof may be taken
without a meeting, if all members of the Board or committee, as the case may be,
consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the Board or committee.
Section 11. Unless otherwise restricted by the Certificate of
Incorporation or these Bylaws, members of the Board of Directors, or any
committee designated by the Board of Directors, may participate in a meeting of
the Board of Directors, or any committee, by means of conference telephone or
similar communications equipment by means of which all persons participating in
a meeting can hear each other, and such participation in a meeting shall
constitute presence in person at such meeting.
Committees of Directors
Section 12. The Board of Directors may, by resolution passed by a
majority of the whole Board, designate one or more committees, each such
committee to consist of one or more of the directors of the Corporation. The
Board may designate one or more directors as alternate members of any committee,
who may replace any absent or disqualified member at any meeting of the
committee. If no alternate members have been appointed, the committee member or
members thereof present at any meeting and not disqualified from voting, whether
or not he or they constitute a quorum, may unanimously appoint another member of
the Board of Directors to act at the meeting in the place of any absent or
disqualified member. The Board of Directors shall, by resolution passed by a
majority of the whole Board, designate one member of each committee as chairman
of such committee. Each such chairman shall hold such office for a period not in
excess of five years, and shall upon surrender of such chairmanship resign from
membership on such committee. Any such committee, to the extent provided in the
resolution of the Board of Directors, shall have and may exercise all the powers
and authority of the Board of Directors in the management of the business and
affairs of the Corporation, but no such committee shall have the power or
authority to authorize an amendment to the Certificate of Incorporation (except
that a committee may, to the extent authorized in the resolution or resolutions
providing for the issuance of shares of stock adopted by the Board of Directors,
fix the designations and any of the preferences or rights of such shares
relating to dividends, redemption, dissolution, any distribution of assets of
the Corporation or the conversion into, or the exchange of such shares for,
shares of any other class or classes or any other series of the same or any
other class or classes of stock of the Corporation, or fix the number or shares
of any series of stock or authorize the increase or decrease of the shares of
any series), adopt an agreement of merger or consolidation, recommend to the
stockholders the sale, lease or exchange of all
-8-
<PAGE> 12
or substantially all of the Corporation's property and assets, recommend to the
stockholders a dissolution of the Corporation or a revocation of a dissolution,
or amend the Bylaws of the Corporation; and, unless the resolution or the
Certificate of Incorporation expressly so provide, no such committee shall have
the power or authority to declare a dividend, to authorize the issuance of stock
or to adopt a certificate of ownership and merger.
Section 13. Special meetings of committees may be called by the
Chairman of such committee, the Chairman of the Board or the President, on at
least forty-eight (48) hours notice to each member and alternate member.
Alternate members shall have the right to attend all meetings of the committee.
The Board of Directors may adopt rules of the government of any committee not
inconsistent with the provisions of these Bylaws. If a committee is comprised of
an odd number of members, a quorum shall consist of a majority of that number.
If the committee is comprised of an even number of members, a quorum shall
consist of one-half (1/2) of that number. If a committee is comprised of two
members, a quorum shall consist of both members.
Section 14. Each Committee shall keep regular minutes of its meetings
and report the same to the Board of Directors when requested.
Compensation of Directors
Section 15. Unless otherwise restricted by the Certificate of
Incorporation or these Bylaws, the Board of Directors shall have the authority
to fix the compensation of directors. The directors may be paid their expenses,
if any, of attendance at each meeting of the Board of Directors and may be paid
a fixed sum for attendance at each meeting of the Board of Directors or a stated
salary as director. No such payment shall preclude any director from serving the
Corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like compensation for attending
committee meetings.
Indemnification
Section 16. (a) The Corporation shall indemnify every person who is or
was a party or is or was threatened to be made a party to any threatened,
pending or completed action, suit, or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of the
Corporation), by reason of the fact that he is or was a director, officer or
employee of the Corporation or any of its direct or indirect wholly-owned
subsidiaries or, while a director, officer or employee of the Corporation or any
of its direct or indirect wholly-owned subsidiaries, is or was serving at the
request of the Corporation or any of its direct or indirect wholly-owned
subsidiaries, as a director, officer or employee, of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise,
against expenses (including counsel fees), judgments, fines, and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding, to the full extent permitted by applicable law;
provided that the Corporation shall not be obligated to indemnify any such
person against any such action, suit or proceeding which is brought by such
person against the Corporation or any of its direct or indirect wholly-owned
subsidiaries or the directors of the Corporation or any of its direct or
indirect wholly-owned subsidiaries, other than an action brought by such person
to enforce his rights to indemnification hereunder, unless a majority of the
Board of Directors of the Corporation shall have previously approved the
bringing of such action, suit or proceeding, and provided further that the
Corporation
-9-
<PAGE> 13
shall not be obligated to indemnify any such person against any action, suit or
proceeding arising out of any adjudicated criminal, dishonest or fraudulent
acts, errors or omissions of such person or any adjudicated willful, intentional
or malicious acts, errors or omissions of such person.
(b) The Corporation shall indemnify every person who is or was a party
or is or was threatened to be made a party to any threatened, pending or
completed action, suit, or proceeding, whether civil, criminal, administrative
or investigative, by reason of the fact that he is or was licensed to practice
law and an employee (including an employee who is or was an officer) of the
Corporation or any of its direct or indirect wholly-owned subsidiaries and,
while acting in the course of such employment committed or is alleged to have
committed any negligent acts, errors or omissions in rendering professional
legal services at the request of the Corporation or pursuant to his employment
(including, without limitation, rendering written or oral legal opinions to
third parties) against expenses (including counsel fees), judgments, fines, and
amounts paid in settlement actually and reasonably incurred by him in connection
with such action, suit or proceeding, to the full extent permitted by applicable
law; provided that the Corporation shall not be obligated to indemnify any such
person against any action, suit or proceeding arising out of any adjudicated
criminal, dishonest or fraudulent acts, errors or omissions of such person or
any adjudicated willful, intentional or malicious acts, errors or omissions of
such person.
(c) The Corporation shall indemnify every person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the Corporation to procure a judgment in
its favor by reason of the fact that he is or was a director, officer, or
employee of the Corporation, or any of its direct or indirect wholly-owned
subsidiaries or, while a director, officer, or employee of the Corporation or
any of its direct or indirect wholly-owned subsidiaries, is or was serving at
the request of the Corporation or any of its direct or indirect wholly-owned
subsidiaries, as a director, officer, or employee of another corporation,
partnership, joint venture, trust, employee benefit plan, or other enterprise
against expenses (including attorneys' fees) actually and reasonably incurred by
him in connection with the defense or settlement of such action or suit if he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the Corporation
unless and only to the extent that the Court of Chancery or the court in which
such action or suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery or such other court shall deem proper.
(d) To the extent that a director, officer, or employee of the
Corporation, or any of its direct or indirect wholly-owned subsidiaries, has
been successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in subsections (a), (b) and (c) of this section, or in
defense of any claim, issue or matter therein, he shall be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection therewith.
(e) Any indemnification under subsections (a), (b) and (c) of this
section (unless ordered by a court) shall be made by the Corporation only as
authorized in the specific case upon a determination that indemnification of the
director, officer, or employee is proper in the circumstances because he has met
the applicable standard of
-10-
<PAGE> 14
conduct set forth in subsections (a), (b) and (c) of this section. Such
determination shall be made (1) by the Board of Directors by a majority vote of
a quorum consisting of Directors who were not parties to such action, suit or
proceeding, or (2) if such a quorum is not obtainable, or, even if obtainable a
quorum of disinterested directors so directs, by independent legal counsel in a
written opinion, or (3) by the stockholders.
(f) Expenses (including attorneys' fees) incurred by an officer or
director of the Corporation or any of its direct or indirect wholly-owned
subsidiaries in defending a civil, criminal, administrative or investigative
action, suit or proceeding shall be paid by the Corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such amount if
it shall ultimately be determined that he is not entitled to be indemnified by
the Corporation as authorized in this Section 16. Such expenses incurred by
other employees and agents may be so paid upon such terms and conditions, if
any, as the Board of Directors deems appropriate.
(g) The indemnification and advancement of expenses provided by, or
granted pursuant to, this Section 16 shall not be deemed exclusive of any other
rights to which those seeking indemnification or advancement of expenses may be
entitled under any provision of law, the Corporation's Certificate of
Incorporation, the Certificate of Incorporation or Bylaws or other governing
documents of any direct or indirect wholly-owned subsidiary of the Corporation,
or any agreement, vote of stockholders or disinterested directors or otherwise,
both as to action in his official capacity and as to action in another capacity
while holding any of the positions or having any of the relationships referred
to in this Section 16.
(h) The indemnification and advancement of expenses provided by, or
granted pursuant to, this Section 16 shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a director,
officer or employee and shall inure to the benefit of the heirs, executors and
administrators of such a person.
ARTICLE IV
Officers
Section 1. The officers of the Corporation shall be a Chairman of the
Board, a Vice Chairman of the Board, a President, a Chief Financial Officer, a
Vice President, a Secretary, a Treasurer and a Controller. The Corporation may
also have, at the discretion of the Board of Directors, one or more additional
Vice Presidents, and such other officers as may be appointed in accordance with
the provisions of Section 3 of this Article.
Section 2. The officers of the Corporation, except such officers as may
be appointed in accordance with the provisions of Section 3 or Section 5 of this
Article, shall be chosen by the Board of Directors, and each shall serve at the
pleasure of the Board, subject to the rights, if any, of any officer under any
contract of employment.
Section 3. The Board of Directors may appoint, and may empower the
President to appoint, such other officers as the business of the Corporation may
require, each of whom shall hold office for such period, have such authority and
perform such duties as are provided in the Bylaws or as the Board of Directors
may from time to time determine.
-11-
<PAGE> 15
Section 4. Any officer may be removed, either with or without cause, by
the Board of Directors, at any regular or special meeting thereof, or except in
case of an officer chosen by the Board of Directors, by any officer upon whom
such power of removal may be conferred by the Board of Directors, provided that
such removal shall not prejudice the remedy of such officer for breach of any
contract of employment.
Any officer may resign at any time by giving written notice to the
Corporation. Any such resignation shall take effect on receipt of such notice or
at any later time specified therein. Unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective. Any
such resignation is without prejudice to the rights, if any, of the Corporation
under any contract to which the officer is a party.
Section 5. A vacancy in any office because of death, resignation,
removal, disqualification or any other cause shall be filled in the manner
prescribed in these Bylaws for regular appointments to such office.
Section 6. The Chairman of the Board shall, if present, preside at all
meetings of the Board of Directors and of the stockholders, and shall exercise
and perform such other powers and duties as may be from time to time assigned to
him by the Board of Directors or prescribed by the Bylaws.
Section 7. The Vice Chairman of the Board shall exercise and perform
such powers and duties as may be from time to time assigned to him by the Board
of Directors or prescribed in these Bylaws. In the absence of the Chairman of
the Board, the Vice Chairman of the Board shall preside at all meetings of the
stockholders and the Board of Directors.
Section 8. The President shall be the chief executive officer of the
Corporation and shall, subject to the control of the Board of Directors, have
general supervision, direction and control of the business and the officers of
the Corporation. In the absence of the Chairman of the Board and the Vice
Chairman of the Board, the President shall preside at all meetings of the
stockholders and the Board of Directors. He shall have the general powers and
duties of management usually vested in the office of President of a corporation,
and shall have such other powers and duties as may be prescribed by the Board of
Directors or the Bylaws.
Section 9. In the absence or disability of the President, the Vice
Presidents, if any, in order of their rank as fixed by the Board of Directors,
or if not ranked, the Vice President designated by the President, shall perform
all the duties of the President, and when so acting shall have all the powers
of, and be subject to all the restrictions upon, the President. The Vice
Presidents shall have such other powers and perform such other duties as from
time to time may be prescribed for them respectively by the Board of Directors,
these Bylaws or the President.
Section 10. The Secretary shall keep or cause to be kept, at the
principal office or such other place as the Board of Directors may order, a book
of minutes of all meetings and actions of directors, committees of directors and
stockholders, with the time and place of holding, whether regular or special,
and, if special, how authorized, the notice thereof given, the names of those
present at directors' and committee meetings, the number of shares present or
represented at stockholders' meetings, and the proceedings thereof.
-12-
<PAGE> 16
The Secretary shall keep, or cause to be kept, at the principal office
or at the office of the Corporation's transfer agent or registrar, a share
register, or a duplicate share register, showing the names of all stockholders
and their addresses, the number and classes of shares held by each, the number
and date of certificates issued for the same, and the number and date of
cancellation of every certificate surrendered for cancellation.
The Secretary shall give, or cause to be given, notice of all meetings
of the stockholders and of the Board of Directors required by these Bylaws or by
law to be given, and he shall keep the seal of the Corporation, if one be
adopted, in safe custody, and shall have such other powers and perform such
other duties as may be prescribed by the Board of Directors or by the Bylaws.
Section 11. The Chief Financial Officer shall keep and maintain, or
cause to be kept and maintained, adequate and correct books and records of
accounts of the properties and business transactions of the Corporation,
including accounts of its assets, liabilities, receipts, disbursements, gains,
losses, capital, retained earnings and shares. The books of account shall be
open at all times to inspection by any director.
The Chief Financial Officer shall deposit all moneys and other
valuables in the name and to the credit of the Corporation with such
depositories as may be designated by the Board of Directors. He shall disburse
the funds of the Corporation as may be ordered by the Board of Directors, shall
render to the President and Directors, whenever they request it, an account of
all of his transactions as Chief Financial Officer and of the financial
condition of the Corporation, and shall have other powers and perform such other
duties as may be prescribed by the Board of Directors or the Bylaws.
Section 12. The Treasurer and the Controller shall each have such
powers and perform such duties as from time to time may be prescribed for him by
the Board of Directors, the President or these Bylaws.
ARTICLE V
Certificate of Stock
Section 1. Shares of the stock of the Corporation may be represented by
certificates or uncertificated. Owners of shares of the stock of the Corporation
shall be recorded in the share register of the Corporation, and ownership of
such shares shall be evidenced by a certificate or book-entry notation in the
share register of the Corporation. Any certificates representing such shares
shall be signed by, or in the name of the Corporation by, the Chairman or Vice
Chairman of the Board of Directors, or the President or a Vice President, and by
the Secretary or any Assistant Secretary, if one be appointed, or the Treasurer
or an Assistant Treasurer of the Corporation, certifying the number of shares
represented by the certificate owned by such stockholder in the Corporation.
Section 2. Any or all of the signatures on the certificate may be a
facsimile. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent or registrar before such certificate is
issued, it may be issued by the Corporation with the same effect as if he were
such officer, transfer agent or registrar at the date of issue.
-13-
<PAGE> 17
Section 3. If the Corporation shall be authorized to issue more than
one class of stock or more than one series of any class, the powers,
designations, preferences and relative, participating, optional or other special
rights of each class of stock or series thereof and the qualification,
limitations or restrictions of such preferences and/or rights shall be set forth
in full or summarized on the face or back of the certificate which the
Corporation shall issue to represent such class or series of stock, provided
that, except as otherwise provided by statute, in lieu of the foregoing
requirements, there may be set forth on the face or back of the certificate
which the Corporation shall issue to represent such class or series of stock, a
statement that the Corporation will furnish without charge to each stockholder
who so requests the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights.
Lost, Stolen or Destroyed Certificates
Section 4. The Board of Directors, the Secretary and the Treasurer each
may direct a new certificate or certificates to be issued in place of any
certificate or certificates theretofore issued by the Corporation alleged to
have been lost, stolen or destroyed, upon the making of an affidavit of that
fact by the owner of such certificate, or his legal representative. When
authorizing such issue of a new certificate or certificates, the Board of
Directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed certificate or
certificates, or his legal representative, to advertise the same in such manner
as it shall require and/or to furnish the Corporation a bond in such form and
substance and with such surety as it may direct as indemnity against any claim
that may be made against the Corporation with respect to the certificate alleged
to have been lost, stolen or destroyed.
Transfers of Stock
Section 5. Upon surrender to the Corporation, or the transfer agent of
the Corporation, of a certificate for shares duly endorsed or accompanied by
proper evidence of succession, assignation or authority to transfer, it shall be
the duty of the Corporation to issue a new certificate or other evidence of such
new shares to the person entitled thereto, cancel the old certificate and record
the transaction upon its books. Uncertificated shares shall be transferred in
the share register of the Corporation upon the written instruction originated by
the appropriate person to transfer the shares.
Fixing Record Date
Section 6. In order that the Corporation may determine the stockholders
entitled to notice of or to vote at any meeting of the stockholders, or any
adjournment thereof, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix a record date which shall
not be more than 60 nor less than 10 days before the date of such meeting, nor
more than 60 days prior to any other action. A determination of stockholders of
record entitled to notice of or to vote at a meeting of stockholders shall apply
to any adjournment of the meeting; provided, however, that the Board of
Directors may fix a new record date for the adjourned meeting.
-14-
<PAGE> 18
Registered Stockholder
Section 7. The Corporation shall be entitled to treat the holder of
record of any share or shares of stock as the holder in fact thereof and,
accordingly, shall not be bound to recognize any equitable or other claim or
interest in such share on the part of any other person, whether or not it shall
have express or other notice thereof, save as expressly provided by the laws of
the State of Delaware.
ARTICLE VI
General Provisions
Dividends
Section 1. Dividends upon the capital stock of the Corporation, subject
to the provisions of the Certificate of Incorporation, if any, may be declared
by the Board of Directors at any regular or special meeting, pursuant to law.
Dividends may be paid in cash, in property or in shares of the Corporation's
capital stock, subject to the provisions of the Certificate of Incorporation.
Section 2. Before declaration of any dividend, there may be set aside
out of any funds of the Corporation available for dividends such sum or sums as
the Board of Directors from time to time, in its absolute discretion, thinks
proper as a reserve fund to meet contingencies, or for equalizing dividends, or
for repairing or maintaining any property of the Corporation, or for such other
purpose as the Board of Directors shall think conducive to the interests of the
Corporation, and the Board of Directors may thereafter abolish any such reserve
in its absolute discretion.
Checks
Section 3. All checks, drafts or other orders for payment of money,
notes or other evidences of indebtedness, issued in the name of or payable to
the Corporation shall be signed by such officer or officers as the Board of
Directors or the President or any Vice President, acting jointly, may from time
to time designate.
Section 4. The President, any Vice President, the Secretary or the
Treasurer may enter into contracts and execute instruments on behalf of the
Corporation. The Board of Directors, the President or any Vice President may
authorize any officer or officers, and any employee or employees or agent or
agents of the Corporation or any of its subsidiaries, to enter into any contract
or execute any instrument in the name of and on behalf of the Corporation, and
such authority may be general or confined to specific instances.
Fiscal Year
Section 5. The fiscal year of the Corporation shall be October 1
through September 30, unless otherwise fixed by resolution of the Board of
Directors.
-15-
<PAGE> 19
Notices
Section 6. Whenever, under the provisions of the statutes, the
Certificate of Incorporation or these Bylaws, notice is required to be given to
any director, it shall not be construed to require personal notice, but such
notice may be given in writing, by mail, addressed to such director, at his
address as it appears on the records of the Corporation (unless prior to mailing
of such notice he shall have filed with the Secretary a written request that
notices intended for him be mailed to some other address, in which case such
notice shall be mailed to the address designated in the request) with postage
thereon prepaid, and such notice shall be deemed to be given at the time when
the same shall be deposited in the United States mail; provided, however, that,
in the case of notice of a special meeting of the Board of Directors, if such
meeting is to be held within seven calendar days after the date of such notice,
notice shall be deemed given as of the date such notice shall be accepted for
delivery by a courier service that provides "opening of business next day"
delivery, so long as at least one attempt shall have been made, on or before the
date such notice is accepted for delivery by such courier service, to provide
notice by telephone to each director at his principal place of business and at
his principal residence. Notice to directors may also be given by telegram, by
personal delivery, by telephone or by facsimile.
Section 7. Whenever any notice is required to be given under the
provisions of the statutes, the Certificate of Incorporation or these Bylaws, a
waiver thereof in writing, or by telegraph, cable or other written form of
recorded communication, signed by the person or persons entitled to said notice,
whether before or after the time stated therein, shall be deemed equivalent
thereto.
Annual Statement
Section 8. The Board of Directors shall present at each annual meeting,
and at any special meeting of the stockholders when called for by vote of the
stockholders, a full and clear statement of the business and condition of the
Corporation.
ARTICLE VII
Amendments
Section 1. Except any amendment to this Article VII and to Article II,
Section 6, Article II, Section 10, Article III, Section 1 (as it relates to
increases in the number of directors), Article III, Section 2, the last sentence
of Article III, Section 3 (as it relates to removal of directors), Article III,
Section 4, Article III, Section 16 and Article VI, Section 6 of these Bylaws, or
any of such provisions, which shall require approval by the affirmative vote of
directors representing at least seventy-five percent (75%) of the number of
directors provided for in accordance with Article III, Section 1, and except as
otherwise expressly provided in a bylaw adopted by the stockholders as
hereinafter provided, the directors, by the affirmative vote of a majority of
the whole Board and without the assent or vote of the stockholders, may at any
meeting, make, repeal, alter, amend or rescind any of these Bylaws, provided the
substance of the proposed amendment or other action shall have been stated in a
notice of the meeting.
-16-
<PAGE> 20
Section 2. These Bylaws may not be altered, amended or rescinded, and
new Bylaws may not be adopted, by the stockholders of the Corporation except by
the vote of the holders of not less than seventy-five percent (75%) of the total
voting power of all shares of stock of the Corporation entitled to vote in the
election of directors, considered for such purpose as one class.
-17-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> JUN-30-1998
<CASH> 11,600
<SECURITIES> 0
<RECEIVABLES> 1,107,700
<ALLOWANCES> 26,300
<INVENTORY> 1,187,700
<CURRENT-ASSETS> 2,435,700
<PP&E> 2,302,100
<DEPRECIATION> 1,114,900
<TOTAL-ASSETS> 5,206,300
<CURRENT-LIABILITIES> 1,011,900
<BONDS> 964,000
0
0
<COMMON> 169,800
<OTHER-SE> 2,590,500
<TOTAL-LIABILITY-AND-EQUITY> 5,206,300
<SALES> 2,332,000
<TOTAL-REVENUES> 3,403,800
<CGS> 1,448,200
<TOTAL-COSTS> 2,056,800
<OTHER-EXPENSES> 927,200
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 51,800
<INCOME-PRETAX> 369,900
<INCOME-TAX> 129,500
<INCOME-CONTINUING> 240,400
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 240,400
<EPS-PRIMARY> 1.42
<EPS-DILUTED> 1.38
</TABLE>
