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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 December 31, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
--- OF THE SECURITIES EXCHANGE ACT OF 1934
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Commission file number 1-9397
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BAKER HUGHES INCORPORATED
(Exact name of registrant as specified in its charter)
Delaware 76-0207995
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
3900 Essex Lane, Houston, Texas 77027
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (713) 439-8600
-----------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at January 31, 1998
----- -------------------------------
Common Stock, $1.00 par value per share 169,477,700 shares
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BAKER HUGHES INCORPORATED
INDEX
Page
No.
----
Part I - Financial Information:
Consolidated Condensed Statements of Operations - Three Months
ended December 31, 1997 and 1996 2
Consolidated Condensed Statements of Financial Position
- December 31, 1997 and September 30, 1997 3
Consolidated Condensed Statements of Cash Flows - Three months
ended December 31, 1997 and 1996 4
Notes to Consolidated Condensed Financial Statements 5
Management's Discussion and Analysis of Financial Condition and
Results of Operations 8
Part II - Other Information 15
-1-
PART I. FINANCIAL INFORMATION
BAKER HUGHES INCORPORATED
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(In millions, except per share amounts)
Three Months Ended
December 31,
1997 1996
REVENUES: --------- ---------
Sales $ 773.4 $ 551.7
Services and rentals 360.0 275.0
--------- ---------
Total revenues 1,133.4 826.7
COSTS AND EXPENSES: --------- ---------
Cost of sales 477.5 348.1
Cost of services and rentals 197.4 157.6
Selling, general and administrative 306.4 217.1
Amortization of goodwill and other intangibles 10.3 7.6
--------- ---------
Total costs and expenses 991.6 730.4
--------- ---------
Operating income 141.8 96.3
Interest expense (14.5) (11.8)
Interest income .7 .5
--------- ---------
Income before income taxes and cumulative effect of
accounting change 128.0 85.0
Income taxes (48.6) (33.5)
--------- ---------
Income before cumulative effect of accounting change 79.4 51.5
Cumulative effect of accounting change -
Impairment of long-lived assets to be disposed of
(net of $6.0 income tax benefit) (12.1)
--------- ---------
Net income $ 79.4 $ 39.4
========= =========
Earnings Per share of Common Stock - Basic:
Income before cumulative effect of accounting
change $ .47 $ .35
Cumulative effect of accounting change (.08)
--------- ---------
Net income $ .47 $ .27
========= =========
Earnings Per Share of Common Stock - Diluted:
Income before cumulative effect of accounting
change $ .46 $ .34
Cumulative effect of accounting change (.08)
--------- ---------
Net income $ .46 $ .26
========= =========
Cash dividends per share of common stock $ .115 $ .115
========= =========
See accompanying notes to consolidated condensed financial statements.
-2-
BAKER HUGHES INCORPORATED
CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL POSITION
(In millions)
ASSETS
December 31, September 30,
1997 1997
Current Assets: ---------- ----------
Cash and cash equivalents $ 8.4 $ 8.6
Receivables - net 1,074.0 1,047.1
Inventories 1,105.6 1,030.5
Deferred income taxes 79.8 83.8
Other current assets 59.5 50.5
---------- ----------
Total current assets 2,327.3 2,220.5
Property - net 1,049.5 982.9
Other assets 476.3 497.5
Excess costs arising from acquisitions - net 1,052.3 1,055.4
---------- ----------
Total assets $ 4,905.4 $ 4,756.3
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 458.0 $ 499.7
Short-term borrowings and current portion
of long-term debt 1.8 9.6
Accrued employee compensation and benefits 175.9 223.2
Income taxes payable 45.7 48.6
Other accrued liabilities 188.5 155.2
---------- ----------
Total current liabilities 869.9 936.3
---------- ----------
Long-term debt 978.2 771.8
---------- ----------
Deferred income taxes 261.8 275.9
---------- ----------
Other long-term liabilities 163.4 167.7
---------- ----------
Stockholders' Equity:
Common stock 169.4 169.1
Capital in excess of par value 2,241.5 2,236.0
Retained earnings 343.6 283.7
Cumulative foreign currency translation
adjustment (160.5) (144.9)
Unrealized gain on securities available for sale 38.1 60.7
---------- ----------
Total stockholders' equity 2,632.1 2,604.6
---------- ----------
Total liabilities and stockholders' $ 4,905.4 $ 4,756.3
========== ==========
See accompanying notes to consolidated condensed financial statements.
-3-
BAKER HUGHES INCORPORATED
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In millions)
Three Months Ended
December 31,
1997 1996
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 79.4 $ 39.4
Adjustments to reconcile net income to net cash
flows from operating activities:
Depreciation and amortization of:
Property 45.1 32.4
Other assets and debt discount 12.8 10.0
Deferred income taxes 3.5 7.2
Gain on disposal of assets (9.7) (7.0)
Foreign currency translation (gain)loss - net (2.0)
Cumulative effect of accounting change 12.1
Change in receivables (21.0) (11.2)
Change in inventories (59.3) (40.8)
Change in accounts payable (47.6) (35.2)
Changes in other assets and liabilities (61.1) (10.0)
-------- --------
Net cash flows from operating activities (59.9) (3.1)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property additions (105.2) (54.7)
Proceeds from disposal of assets 17.5 13.3
Cash obtained in stock acquisition 3.3
Acquisition of business, net of cash acquired (33.1)
-------- --------
Net cash flows from investing activities (120.8) (38.1)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings from commercial paper and
revolving credit facilities 195.9 56.3
Proceeds from exercise of stock options 5.6 12.6
Dividends (19.5) (16.7)
-------- --------
Net cash flows from financing activities 182.0 52.2
-------- --------
Effect of exchange rate changes on cash (1.5) .2
-------- --------
(Decrease)increase in cash and cash equivalents (.2) 11.2
Cash and cash equivalents, beginning of period 8.6 7.7
-------- --------
Cash and cash equivalents, end of period $ 8.4 $ 18.9
======== ========
Income taxes paid $ 48.0 $ 12.9
Interest paid $ 8.8 $ 6.6
See accompanying notes to consolidated condensed financial statements.
-4-
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
December 31, 1997 and its consolidated results of operations and cash flows
for each of the three month periods ended December 31, 1997 and 1996.
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 months ended December 31, 1997 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:
December 31, September 30,
1997 1997
----------- ------------
Finished goods $ 907.2 $ 832.3
Work in process 122.2 98.3
Raw materials 76.2 99.9
---------- ----------
Total $ 1,105.6 $ 1,030.5
========== ==========
Note 3. Acquisition
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. The
acquisition was accounted for using the purchase method of accounting.
Accordingly, the cost of the acquisition has been allocated to assets
acquired and liabilities assumed based on their estimated fair market
values at the date of acquisition, October 24, 1997. The operating results
of ODI are included in the consolidated condensed statement of operations
from the acquisition date. Pro forma results of the acquisition 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.
-5-
BAKER HUGHES INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS CONTINUED
Note 4. Income Per Common Share
The Company adopted Statement of Financial Accounting Standards
("SFAS") No. 128, "Earnings per Share," which establishes new standards for
computing and presenting earnings per share ("EPS"), in the quarter ended
December 31, 1997. Reconciliation of the numerators and denominators of
the basic and diluted EPS computations is as follows:
For the Three Months Ended For the Three Months Ended
December 31, 1997 December 31, 1996
Income Shares Income Shares
(Numerator) (Denominator) (Numerator) (Denominator)
--------- ----------- --------- -----------
Basic EPS $79.4 169.3 $39.4 147.6
Effect of dilutive
securities:
Stock plans 1.5 1.4
Liquid Yield
Option Notes 1.7 7.2 1.6 7.2
---- ----- ---- -----
Diluted EPS $81.1 178.0 $41.0 156.2
==== ===== ==== =====
Options to purchase 3.2 million shares of common stock were not
included in the computation of diluted EPS because the options' exercise
price of $47.81 was greater than the average market price of the Company's
common stock during the quarter.
-6-
BAKER HUGHES INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS CONTINUED
Note 5. Segment Information
Summarized financial information concerning the Company's reportable
segments is shown in the following table:
Three Months Ended Process
December 31, 1997 Oilfield Chemicals Equipment Other Total
- ------------------ -------- --------- --------- -------- --------
Revenues $ 827.8 $ 176.6 $ 124.1 $ 4.9 $1,133.4
Segment profit(loss) 128.0 20.5 9.0 (29.5) 128.0
Total assets 3,175.1 997.3 378.6 354.4 4,905.4
Three Months Ended
December 31, 1996
- ------------------
Revenues $ 652.9 $ 76.7 $ 90.2 $ 6.9 $ 826.7
Segment profit(loss) 92.3 6.0 6.9 (20.2) 85.0
Total assets 2,601.0 294.9 253.5 295.2 3,444.6
The following table presents the details of "Other" segment profit
(loss):
Three Months Ended
December 31,
1997 1996
------ ------
Corporate expenses $(15.8) $ (9.7)
Interest expense - net (13.8) (11.3)
Other .1 .8
------ ------
Total $(29.5) $(20.2)
====== ======
-7-
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," "targeted," "quantified," "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 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". Oilfield
Operations generated 73% of the Company's consolidated revenues in the
quarter ended December 31, 1997.
Three key factors to the oilfield service markets are the impact of
technology, the growth in outsourcing and partnering and the need to expand
operations to keep pace with the demand for the Company's products and
services.
Technology: Advances in the design and application of the Company's
products and services allow oil and gas operators to drill and complete
wells at a lower overall cost. At the same time, this technology helps
accelerate hydrocarbon production and enhance reserve recovery.
-8-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS CONTINUED
Outsourcing and Partnering: Similarly, oil companies have increased
their levels of outsourcing to, and partnering with, service companies
because this approach has proven to be effective in lowering finding and
development costs. The Company continues to expand and develop its
involvement in project management by working closely with customers in
project planning and in the engineering and integration of several products
and services into solutions that meet client objectives.
Growth: Expenditures by the Company's customers for exploration and
production programs are increasing. In turn, the markets for the Company's
products and services are growing as the demand for developing new supplies
of hydrocarbons paces the increasing worldwide demand for energy. Such
growth requires significant additions to the Company's manufacturing
capacity, rental tool fleet and work force.
Crude oil and natural gas prices and the Baker Hughes rotary rig count
are summarized in the tables below as quarterly averages followed by the
Company's outlook. While reading the Company's outlook set forth below,
caution is advised that the factors described above in "--Forward-Looking
Statements" and "--Business Environment" could negatively impact the
Company's expectations for oil demand, oil and gas prices and drilling
activity.
Oil and Gas Prices
Three Months Ended December 31, 1997 1996
- --------------------------------------------------------------------------
WTI ($/bbl) 20.02 24.67
U.S. Spot Natural Gas ($/mcf) 2.72 2.96
The Company expects crude oil to trade between $16 and $21 per barrel
in 1998 while remaining susceptible to short-term price fluctuations and
volatility as the growth in worldwide demand is met by increased
production. U.S. natural gas prices are expected to moderate somewhat in
1998 as increased imports from Canada, increased production from the U.S.
and pipeline de-bottlenecking improve supply availability. Natural gas
prices are expected to average above $2/mcf. The Company believes that
natural gas prices at or above $2/mcf will sustain the current natural gas
exploration and development drilling activity.
-9-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS CONTINUED
Rotary Rig Count
Three Months Ended December 31, 1997 1996
- --------------------------------------------------------------------------
U.S. - Land 873 736
U.S. - Offshore 125 109
Canada 448 318
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North America 1,446 1,163
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Latin America 280 281
North Sea 55 54
Other Europe 56 62
Africa 75 82
Middle East 165 138
Asia Pacific 173 181
- --------------------------------------------------------------------------
International 804 798
- --------------------------------------------------------------------------
Worldwide 2,250 1,961
- --------------------------------------------------------------------------
U.S. Workover 1,427 1,352
The Company anticipates continued growth in the worldwide demand for
hydrocarbons that will result in increased spending by oil and gas
companies for the development of the hydrocarbon supply. The increase is
dependent on continued worldwide economic growth and, in particular,
economic growth in developing countries which may be adversely impacted by
the recent banking crisis in Asia. The increased spending is expected to
result in increased drilling activity in most regions.
North America: The Company anticipates that the rate of growth in
North American drilling activity will slow in 1998. While both offshore
and land based activity will remain strong, growth will be limited by a
shortage of offshore and land based drilling rigs.
International: The Company expects that most international areas will
post an increasing rig count in 1998. The Company is forecasting increases
in Latin America, the Middle East and the North Sea while activity in
Africa and Asia Pacific is forecasted to be flat.
Chemicals
Baker Petrolite is the sole business unit reported in this segment and
is the result of combining Baker Performance Chemicals Incorporated,
previously reported in the oilfield segment, and Petrolite Corporation
("Petrolite"), acquired in July, 1997. Baker Petrolite generated 16% of
the Company's consolidated revenues in the quarter ended December 31, 1997.
-10-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS CONTINUED
Operating in all major oil and gas producing regions of the world,
Baker Petrolite manufactures specialty chemicals for inclusion in the sale
of integrated chemical technology solutions for petroleum production,
transportation and refining. In addition to those business environment
factors discussed above for the oilfield segment, the business environment
for the chemicals segment is significantly influenced by the trend of
continued reduction in the total operating cost of the customer base which
includes major multi-national, independent and national or state-owned oil
companies. Improvements in chemical technology and its application, as
well as the expanded use of alliance relationships, enable Baker Petrolite
to reduce overall production, transportation and refining costs.
Baker Petrolite also provides chemical technology solutions to other
industrial markets throughout the world including petrochemicals, steel,
fuel additives, plastics, imaging and adhesives. The business environments
for these markets are individually unique but most are influenced by the
general level of gross domestic product.
Process Equipment
Process Equipment consists of four business units - EIMCO Process
Equipment, Bird Machine Company, Baker Hughes Process Systems and Baker
Hughes Industrial Services - that provide technologies that separate solids
from liquids and liquids from liquids through filtration, sedimentation,
centrifugation and flotation processes. The business environment for
Process Equipment and its corresponding operating results are affected
significantly by spending on large capital projects in the pulp and paper,
industrial, refining, chemical and municipal wastewater treatment markets.
Spending on capital projects is influenced by numerous factors including,
but not limited to, commodity price cycles, especially copper and pulp, the
supply and demand for refined products and chemicals, the expanding Asian
populations and economies, as well as environmental pressures and
legislation. Except for the Asian 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. Process Equipment generated 11% of the
Company's consolidated revenues in the quarter ended December 31, 1997.
ACQUISITIONS
Oil Dynamics, Inc.
On October 24, 1997, the Company acquired Oil Dynamics, Inc. ("ODI")
from Franklin Electric Co. Inc. ODI is a manufacturer of electric
submersible pumps used to lift crude oil in producing regions worldwide and
will be added to the operations of Centrilift. The purchase price was
$34.4 million.
-11-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS CONTINUED
RESULTS OF OPERATIONS
Revenues
Consolidated revenues for the quarter ended December 31, 1997 were
$1,133.4 million, an increase of 37% over revenues of $826.7 million for
the same quarter a year ago. Sales revenues were up $221.7 million, an
increase of 40%, and service and rentals revenues were up $85.0 million, an
increase of 31%, in each case, over the same quarter a year ago.
Approximately 64% of the Company's consolidated revenues were derived from
international activities.
Oilfield Operations reported revenues for the first quarter of 1998 of
$827.8 million, an increase of 27% over revenues of $652.9 million for the
first quarter of 1997. Revenue growth outpaced rig count increases in most
areas of the world. In particular, revenues in Venezuela increased 68% as
that country continues to work towards its stated goal of significantly
increasing production.
Baker Petrolite revenues increased to $176.6 million in the first
quarter of 1998 compared to $76.7 million in the first quarter of 1997 due
to the Petrolite acquisition in July 1997.
Process Equipment revenues were $124.1 million for the three months
ended December 31, 1997, an increase of 38% over the same quarter a year
ago. Excluding revenues from 1997 acquisitions of $42.5 million, revenues
for the three months ended December 31, 1997 declined 9.5% due primarily to
the decline in copper prices driven by the economic problems in Asia
resulting in delays in customers' capital spending.
Costs and Expenses Applicable to Revenues
Cost of sales and cost of services and rentals have increased from the
prior year quarter consistent with the related revenue increases. Gross
margin percentages have increased from 38.8% in the first quarter of 1997
to 40.5% in the first quarter of 1998.
Selling, General and Administrative
Selling, general and administrative ("SG&A") expense increased $89.3
million in the first quarter of 1998 from the first quarter of 1997. As a
percent of consolidated revenues, SG&A expense was 27.0% and 26.3% in the
first quarter of 1998 and 1997, respectively.
Excluding the impact of acquisitions, the Company added approximately
3,700 employees, a 22% increase in headcount since the first quarter of
1997, to keep pace with the increased activity levels. As a result,
employee training and development efforts have increased compared to the
prior year.
-12-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS CONTINUED
Amortization Expense
Amortization expense in 1998 increased $2.7 million from the first
quarter of 1997 due to the Petrolite acquisition.
Interest Expense
Interest expense in the first quarter of 1998 increased $2.7 million
from the first quarter of 1997 due to higher debt levels during the 1998
quarter as compared to the 1997 quarter.
Income Taxes
The effective income tax rate for the three months ended December 31,
1997 was 38.0%, down from 39.5% in the prior year quarter due primarily to
a change in the mix of foreign earnings and the fixed nature of the
nondeductible goodwill amortization.
CAPITAL RESOURCES AND LIQUIDITY
Financing Activities
Net cash inflows from financing activities were $182.0 million in the
first quarter of 1998 compared to $52.2 million for the same period in
1997. The change from the prior year is due to increased borrowings to
fund higher working capital levels, higher capital spending and the ODI
acquisition.
Total debt outstanding at December 31, 1997 was $980.0 million,
compared to $781.4 million at September 30, 1997. The debt to equity ratio
was .37 at December 31, 1997, compared to .30 at September 30, 1997.
Cash dividends increased in the first quarter of 1998 compared to 1997
due to an increase in the number of shares of common stock outstanding
primarily resulting from shares issued in connection with the Petrolite and
Drilex International Inc. acquisitions in 1997.
At December 31, 1997, the Company had $644.9 million of credit
facilities with commercial banks, of which $300.0 million is committed.
These facilities are subject to normal banking terms and conditions and do
not materially restrict the Company's activities.
Investing Activities
Net cash outflows from investing activities were $120.8 million in the
first quarter of 1998 compared to cash outflows of $38.1 million in the
first quarter of 1997.
Property additions increased significantly in 1998 to $105.2 million
from $54.7 million in the first quarter of 1997 as the Company adds
capacity to meet the increased market demand. The majority of the capital
expenditures have been in Oilfield Operations where expenditures for rental
tools and machinery and equipment accounted for 31% and 47% of total
-13-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS CONTINUED
capital expenditures for the first quarter of 1998. Funds provided from
operations and outstanding lines of credit are expected to be more than
adequate to meet future capital expenditure requirements. The Company
expects 1998 capital expenditures to be in excess of $450 million.
The Company used short term borrowings to purchase ODI in October 1997
for a purchase price, net of cash acquired, of $33.1 million. The Company
obtained $3.3 million of cash from the stock for stock acquisition of
Drilex in 1997.
Operating Activities
Net cash outflows from operating activities were $59.9 million and $3.1
million for the first quarter of 1998 and 1997, respectively. The primary
use of cash by operating activities was to fund increases in working
capital due to increased levels of activity.
ACCOUNTING STANDARDS
Impairment of Long-Lived Assets
The Company adopted SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of, effective
October 1, 1996. The statement sets forth guidance as to when to recognize
an impairment of long-lived assets, including goodwill, and how to measure
such an impairment. The methodology set forth in SFAS No. 121 is not
significantly different from the Company's current policy and, therefore,
the adoption of SFAS No. 121 does not have a significant impact on the
consolidated financial statements, as it relates to impairment of long-
lived assets used in operations. However, SFAS No. 121 also addresses the
accounting for long-lived assets to be disposed of and requires these
assets to be carried at the lower of cost or fair market value, rather than
the lower of cost or net realizable value, the method that was previously
used by the Company. The Company recognized a charge to income of $12.1
million ($.08 per share), net of a tax benefit of $6.0 million, as the
cumulative effect of a change in accounting in the first quarter of 1997.
Comprehensive Income
In June 1997, the FASB 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.
-14-
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 4. Submission of Matters to a Vote of Security Holders
The Company's Annual Meeting of Stockholders was held on January 28,
1998, to elect four Class I members of the Board of Directors, to approve
the Long Term Incentive Plan and to consider a Stockholder proposal to
implement or increase activity on the MacBride Principles with respect to
the Company's operations in Northern Ireland.
The four Class I directors who were so elected are: John F. Maher,
H. John Riley, Jr., Charles L. Watson and Max P. Watson, Jr. The directors
whose term of office continued after the Annual Meeting are: Lester M.
Alberthal, Jr., Victor G. Beghini, Eunice M. Filter, Joe B. Foster, Richard
D. Kinder, Max L. Lukens and James F. McCall. Paul M. Anderson was elected
by the remaining Class II directors, effective March 1, 1998, to fill the
vacancy created by the retirement of Donald C. Trauscht due to the term
limitation contained in the Company's Bylaws. The number of affirmative
votes and the number of votes withheld for the four Class I directors so
elected were:
Number of Number of
Affirmative Votes
Votes Withheld
----------- -----------
John F. Maher 137,716,776 3,948,063
H. John Riley, Jr. 139,119,714 2,545,125
Charles L. Watson, Jr. 139,039,366 2,625,473
Max P. Watson, Jr. 139,034,698 2,630,141
The number of affirmative votes, the number of negative votes, the
number of abstentions and the number of broker non-votes with respect to
the approval of the Long Term Incentive Plan and the stockholder proposal
regarding Northern Ireland were as follows:
Number of Number of
Affirmative Negative Broker
Votes Votes Abstentions Non-Votes
----------- ----------- ----------- -----------
Approval of Long Term
Incentive Plan 128,711,127 12,177,132 776,580 0
Proposal regarding
Northern Ireland 21,577,124 88,078,456 12,176,854 19,832,405
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
(27) Financial Data Schedule
(b) Reports on Form 8-K:
None.
-15-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
BAKER HUGHES INCORPORATED
(Registrant)
Date: February 13, 1998 By /s/LAWRENCE O'DONNELL, III
------------------------------------
Vice President and General Counsel
Date: February 13, 1998 By /s/JAMES E. BRAUN
------------------------------------
Vice President and Controller
-16-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Statements of Operations and Consolidated Statements of Financial
Position and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> DEC-31-1997
<CASH> 8
<SECURITIES> 0
<RECEIVABLES> 1,101
<ALLOWANCES> 27
<INVENTORY> 1106
<CURRENT-ASSETS> 2327
<PP&E> 2104
<DEPRECIATION> 1055
<TOTAL-ASSETS> 4905
<CURRENT-LIABILITIES> 870
<BONDS> 978
0
0
<COMMON> 169
<OTHER-SE> 2463
<TOTAL-LIABILITY-AND-EQUITY> 4905
<SALES> 773
<TOTAL-REVENUES> 1133
<CGS> 478
<TOTAL-COSTS> 675
<OTHER-EXPENSES> 317
<LOSS-PROVISION> 2
<INTEREST-EXPENSE> 15
<INCOME-PRETAX> 128
<INCOME-TAX> 49
<INCOME-CONTINUING> 79
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 79
<EPS-PRIMARY> .47
<EPS-DILUTED> .46
</TABLE>
