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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 June 30, 1995
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 July 29, 1995
----- ----------------------------
Common Stock, $1.00 par value per share 141,205,600 shares
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BAKER HUGHES INCORPORATED
INDEX
Page
No.
----
Part I - Financial Information:
Consolidated Condensed Statements of Operations - Three
Months and Nine Months ended June 30, 1995 and 1994.............. 2
Consolidated Condensed Statements of Financial
Position - June 30, 1995 and September 30, 1994.................. 4
Consolidated Condensed Statements of Cash Flows - Nine
Months ended June 30, 1995 and 1994.............................. 6
Notes to Consolidated Condensed Financial Statements.................. 7
Management's Discussion and Analysis of Financial
Condition and Results of Operations.............................. 9
Part II - Other Information............................................... 15
-1-
PART I. FINANCIAL INFORMATION
BAKER HUGHES INCORPORATED
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(In thousands)
Three Months Ended Nine Months Ended
June 30, June 30,
1995 1994 1995 1994
-------------------- --------------------
REVENUES:
Sales.......................... $ 459,216 $ 400,324 $1,318,425 $1,287,111
Services and rentals........... 209,188 190,208 609,505 577,999
--------- --------- --------- ---------
Total revenues............. 668,404 590,532 1,927,930 1,865,110
--------- --------- --------- ---------
COSTS AND EXPENSES:
Cost of sales.................. 271,958 231,771 772,307 753,598
Cost of services and rentals... 100,425 96,961 295,364 287,606
Research and engineering....... 20,855 22,641 61,702 70,061
Marketing and field service.... 150,671 138,866 444,752 433,923
General and administrative..... 49,934 45,140 151,538 150,060
Amortization of goodwill and
other intangibles............ 7,149 7,572 22,489 23,037
Unusual credit................. (19,281) (19,281)
Operating income of business
held for sale................ (6,005) (6,005)
--------- --------- --------- ---------
Total costs and expenses... 600,992 517,665 1,748,152 1,692,999
--------- --------- --------- ---------
Operating income.................. 67,412 72,867 179,778 172,111
Interest expense.................. (13,791) (16,170) (38,971) (47,949)
Interest income................... 1,546 501 3,621 2,289
--------- --------- --------- ---------
Income before income taxes........ 55,167 57,198 144,428 126,451
Income taxes...................... (22,925) (22,759) (59,955) (51,845)
--------- --------- --------- ---------
Income before extraordinary loss
and cumulative effect of
accounting changes.............. 32,242 34,439 84,473 74,606
--------- ---------
Extraordinary loss (net of $6,347
income tax benefit)............. (11,788) (11,788)
---------
Cumulative effect of accounting
changes:
Income taxes................... 25,455
Postretirement benefits other
than pensions (net of $37,488
income tax benefit).......... (69,620)
Postemployment benefits (net of
$7,861 income tax benefit)... (14,598)
--------- ---------
Accounting changes - net... (14,598) (44,165)
--------- --------- --------- ---------
Net income........................ $ 32,242 $ 22,651 $ 69,875 $ 18,653
========= ========= ========= =========
See accompanying notes to consolidated condensed financial statements.
-2-
PART I. FINANCIAL INFORMATION
BAKER HUGHES INCORPORATED
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS CONTINUED
Three Months Ended Nine Months Ended
June 30, June 30,
1995 1994 1995 1994
-------------------- --------------------
Per share of Common Stock:
Income before extraordinary loss
and cumulative effect of
accounting changes........... $ .09 $ .22 $ .42 $ .46
Extraordinary loss............. (.08) (.08)
Cumulative effect of accounting
changes...................... (.10) (.32)
--------- --------- --------- ---------
Net income..................... $ .09 $ .14 $ .32 $ .06
========= ========= ========= =========
Cash dividends per share of common
stock........................... $ .115 $ .115 $ .345 $ .345
========= ========= ========= =========
See accompanying notes to consolidated condensed financial statements.
-3-
BAKER HUGHES INCORPORATED
CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL POSITION
(In thousands)
ASSETS
June 30, September 30,
1995 1994
---------- ----------
CURRENT ASSETS:
Cash and cash equivalents...................... $ 13,949 $ 69,179
---------- ----------
Receivables - net.............................. 665,959 612,414
---------- ----------
Inventories:
Finished goods............................. 562,314 508,198
Work in process............................ 59,266 53,644
Raw materials.............................. 74,180 81,204
---------- ----------
Total inventories...................... 695,760 643,046
---------- ----------
Deferred income taxes.......................... 51,143 45,959
---------- ----------
Other current assets........................... 36,740 29,394
---------- ----------
Total current assets................... 1,463,551 1,399,992
---------- ----------
PROPERTY - NET.................................... 563,414 560,084
---------- ----------
OTHER ASSETS:
Property held for disposal..................... 72,201 73,496
Investments.................................... 91,437 89,601
Other assets................................... 95,186 80,054
Excess costs arising from acquisitions - net... 777,351 796,455
---------- ----------
Total other assets..................... 1,036,175 1,039,606
---------- ----------
Total.............................. $ 3,063,140 $ 2,999,682
========== ==========
See accompanying notes to consolidated condensed financial statements.
-4-
BAKER HUGHES INCORPORATED
CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL POSITION
(In thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY
June 30, September 30,
1995 1994
---------- ----------
CURRENT LIABILITIES:
Accounts payable............................... $ 247,144 $ 253,616
Short-term borrowings and current
portion of long-term debt.................... 1,575 15,299
Accrued employee compensation and benefits..... 126,892 113,304
Income taxes................................... 20,503 29,729
Taxes other than income........................ 21,287 20,608
Accrued insurance.............................. 27,748 26,492
Accrued interest............................... 16,410 10,676
Other accrued liabilities...................... 65,725 74,847
---------- ----------
Total current liabilities.............. 527,284 544,571
---------- ----------
LONG-TERM DEBT.................................... 824,667 637,972
---------- ----------
DEFERRED INCOME TAXES............................. 72,106 53,841
---------- ----------
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS....... 97,737 95,951
---------- ----------
POSTEMPLOYMENT BENEFITS........................... 25,747
----------
OTHER LONG-TERM LIABILITIES....................... 30,952 28,875
---------- ----------
STOCKHOLDERS' EQUITY:
Preferred stock................................ 4,000
Common stock................................... 141,205 140,889
Capital in excess of par value................. 1,333,533 1,474,013
Retained earnings.............................. 120,882 125,276
Cumulative foreign currency translation
adjustment................................... (108,319) (102,915)
Unrealized loss on securities available for sale (2,654) (2,791)
---------- ----------
Total stockholders' equity............. 1,484,647 1,638,472
---------- ----------
Total.............................. $ 3,063,140 $ 2,999,682
========== ==========
See accompanying notes to consolidated condensed financial statements.
-5-
BAKER HUGHES INCORPORATED
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
Nine Months Ended
June 30,
1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES: -------- --------
Net income......................................... $ 69,875 $ 18,653
Adjustments to reconcile net income to net
cash flows from operating activities:
Depreciation and amortization of:
Property....................................... 86,796 93,984
Other assets and debt discount................. 30,323 35,052
Deferred income taxes............................ 28,406 23,445
Gain on disposal of assets....................... (2,233) (11,661)
Gain on disposition of EM&C...................... (8,550)
Foreign currency translation loss - net.......... 2,346 80
Cumulative effect of accounting changes.......... 14,598 44,165
Extraordinary loss............................... 11,788
Change in receivables............................ (53,955) (23,157)
Change in inventories............................ (53,917) (75,307)
Change in accounts payable....................... (3,994) (23,334)
Changes in other assets and liabilities.......... (44,808) 29,803
-------- --------
Net cash flows from operating activities........... 73,437 114,961
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property additions............................... (96,629) (77,249)
Proceeds from disposal of assets................. 22,206 28,240
Proceeds from disposition of businesses.......... 128,389
-------- --------
Net cash flows from investing activities........... (74,423) 79,380
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (payments) from commercial paper
and revolving credit facilities................ 74,827 (55,972)
Proceeds from exercised debenture purchase
warrants....................................... 93,000
Net proceeds from issuance of debenture purchase
warrants....................................... 7,026
Redemption of debentures......................... (53,431)
Repurchase of preferred stock.................... (167,000)
Proceeds from exercise of stock options
and stock purchase grants...................... 3,580 717
Dividends........................................ (57,669) (57,457)
-------- --------
Net cash flows from financing activities........... (53,262) (159,117)
-------- --------
Effect of exchange rate changes on cash............ (982) (2,085)
-------- --------
Increase(decrease) in cash and cash equivalents.... (55,230) 33,139
Cash and cash equivalents, beginning of period..... 69,179 6,992
-------- --------
Cash and cash equivalents, end of period........... $ 13,949 $ 40,131
======== ========
Income taxes paid.................................. $ 44,535 $ 35,340
Interest paid...................................... $ 26,110 $ 40,163
See accompanying notes to consolidated condensed financial statements.
-6-
BAKER HUGHES INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Note 1. General
In the opinion of the Company, the unaudited consolidated condensed
financial statements include all adjustments consisting of normal recurring
accruals necessary for a fair presentation of the Company's consolidated
financial position as of June 30, 1995 and its consolidated results of
operations and cash flows for each of the three and nine month periods ended
June 30, 1995 and 1994. 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, 1994 for the most recent
annual financial statements prepared in accordance with generally accepted
accounting principles). Certain balances on the Consolidated Condensed
Statement of Financial Position at September 30, 1994 have been reclassified to
conform to the June 30, 1995 presentation. The results of operations for the
three and nine months ended June 30, 1995 are not necessarily indicative of the
results to be expected for the full year.
Note 2. Income Per Common Share
Net income per common share is based on the weighted average number of
shares outstanding during the respective periods (three months ended
June 30, 1995 and 1994, 141,163,000 and 140,476,000, respectively; nine months
ended June 30, 1995 and 1994, 141,057,000 and 140,454,000, respectively) and
excludes the negligible dilutive effect of shares issuable in connection with
employee stock plans. During the quarter ended June 30, 1995, the Company
repurchased four million shares of its convertible preferred stock for $167.0
million. The estimated fair market value of the shares of convertible
preferred stock was $149.4 million at the date of issuance. The repurchase
price in excess of this amount ($17.6 million) has been deducted from net
income in arriving at net income per share of common stock for the three and
nine months ended June 30, 1995. The $17.6 million excess equates to $.12 per
share of common stock. In addition, the per share amount for the three and
nine months ended June 30, 1995 has been adjusted for dividends on the
preferred stock of $2.0 million and $8.0 million, respectively, and the per
share amount for the three and nine months ended June 30, 1994 has been
adjusted for dividends on the preferred stock of $3.0 million and $9.0 million,
respectively.
Note 3. Postemployment Benefits
The Company provides certain postemployment benefits consisting primarily
of long-term disability income benefits, which are fully funded, and long-term
disability medical benefits, which are unfunded. The Company adopted Statement
of Financial Accounting Standards ("SFAS") No. 112, "Employers' Accounting for
-7-
BAKER HUGHES INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Postemployment Benefits," effective October 1, 1994. The accounting standard
requires the accrual method of accounting rather than cash basis accounting,
which was previously used by the Company. The Company recognized a charge to
income of $14.6 million ($.10 per share), net of an income tax benefit of $7.9
million, as the cumulative effect of the change in accounting principle.
Annual expense under SFAS No. 112 for 1995 is expected to be approximately $2.5
million, which is not significantly different from the actual cash payments.
-8-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
BUSINESS ENVIRONMENT
Oilfield Operations companies manufacture, sell and provide products and
services used in the drilling, completion and maintenance of oil and gas
wells. The business environment of the Company is significantly affected by
worldwide expenditures of the petroleum industry. Important factors
establishing the levels of these expenditures include world economic
conditions, crude oil and natural gas supply and demand balances, the
legislative environment in the United States and other major countries, and
developments in the Middle East and other major petroleum producing regions.
ACTIVITY INDICATORS
Crude oil and natural gas prices are a major determinant of exploration and
development expenditures. (The amounts in the table below are quarter
averages.)
Three Months Ended Nine Months Ended
June 30, June 30,
1995 1994 1995 1994
---------------------------------------------------------------------------
WTI ($/Bbl) 19.31 17.86 18.43 16.32
U.S. Spot Natural Gas ($/mcf) 1.44 1.78 1.42 2.00
Oil prices strengthened year over year. In the third quarter and first
nine months of 1995 oil prices rose $1.45/Bbl or 8.1% and $2.11/Bbl or 12.9%
compared to the same periods a year ago. However, oil prices have recently
fallen to below $18.00/Bbl. The Company expects prices to remain relatively
flat while susceptible to short-term price fluctuations. U.S. natural gas
prices were lower, decreasing 19.1% for the quarter and 29.0% for the nine
months. Higher natural gas production and a mild winter were the major causes
for the price decline. Prices are expected to strengthen slightly in the
remainder of 1995 but will still be lower than prices in 1994.
A more direct indicator of expenditures and drilling activity is the Baker
Hughes rotary rig count. Workover activity, as measured by the U.S. workover
rig count, is also an indicator of expenditure activity. (The amounts in the
table below are quarter averages.)
Three Months Ended Nine Months Ended
June 30, June 30,
1995 1994 1995 1994
---------------------------------------------------------------------------
North American 829 912 990 1,018
Non-North American 760 739 746 756
----- ----- ----- -----
Total Rig Count 1,589 1,651 1,736 1,774
===== ===== ===== =====
U.S. Workover Rig Count 1,310 1,203 1,308 1,347
===== ===== ===== =====
-9-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS CONTINUED
North American Activity
The North American rig count was down 9.1% for the quarter and 2.8% for the
nine months in comparison to the same periods in 1994. The decrease for the
quarter is due to a decline in all three areas of rig activity: 7.2% decline
in the average U.S. land rigs, 11.1% decline in the average U.S. offshore rigs
and 14.6% decline in the Canadian rigs. The decrease for the nine months is
primarily due to the decline in the U.S. rig counts, land - 6.9% and offshore -
2.0%. The Canadian rig activity was up for the nine months by 9.4% reflecting
its strong performance in the first six months of 1995 partially offset by the
third quarter decline. U.S. workover activity increased 8.9% over the prior
year quarter and declined 2.9% over the prior year nine months.
As the Company anticipated, the reduced gas prices and high pipeline
utilization took the edge off Canada's drilling boom. The Canadian activity
for the remainder of the year is expected to remain low falling short of the
1994 levels. In the U.S., the Company is expecting a decrease in gas-directed
drilling to be partially offset by a modest increase in oil-directed drilling.
U.S. workover activity is expected to remain flat over the next year.
Non-North American Activity
Outside North America, activity was up 2.8% for the quarter and down 1.3%
for the nine months. Most regions in the Eastern Hemisphere were flat or down
compared to 1994 activity levels except the North Sea, which increased
slightly. Latin America activity increased 16.2% for the quarter and 20.7% for
the nine months. The Company expects a modest increase in North Sea activity
with little change in activity in the remainder of the Eastern Hemisphere over
the near term as political issues and volatility in crude oil prices will
continue to create uncertainty. In Latin America, the Company expects to see
continued growth in drilling activity over the remainder of 1995 led by
Venezuela, Argentina and Colombia.
OTHER MATTERS
In May 1995, President Clinton issued an executive order prohibiting
virtually all trade transactions between the U.S. and Iran. The exact scope of
the restrictions will not be known until the implementing regulations of the
U.S. Department of Treasury are issued, the timing of which is imminent. At
June 30, 1995, the Company, through its non-U.S. subsidiaries, had receivables
from the National Iranian Oil Company ("NIOC") in an amount of approximately
one percent of stockholders' equity. Such receivables with interest are
currently being paid pursuant to an agreement with the NIOC. It is not
possible to predict with any accuracy how the current state of U.S.-Iran
relations will impact the Company's ability to collect these receivables.
Sales to Iran in the year ended September 30, 1994 and in the nine months ended
June 30, 1995 were not significant.
-10-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS CONTINUED
DISPOSITION
The Company sold the EnviroTech Pumpsystems ("Pumpsystems") group of
companies in September 1994. The decision to divest Pumpsystems was part of a
continuing review of the Company's core product and service competencies. The
Pumpsystems sale provided approximately $210.0 million in proceeds and resulted
in a gain of $101.0 million. Pumpsystems had $96.5 million in the first six
months of 1994.
RESULTS OF OPERATIONS
Revenues
The following table summarizes the impact of the Pumpsystems disposition on
consolidated revenues:
Three Months Ending Nine Months Ending
June 30, June 30,
(In millions) 1995 1994 1995 1994
---------------------------------------------------------------------------
Consolidated Revenues:
Sales $ 459.2 $ 400.3 $1,318.4 $1,287.1
Services and rentals 209.2 190.2 609.5 578.0
------ ------ ------- -------
Total 668.4 590.5 1,927.9 1,865.1
Less Pumpsystems Operations:
Sales 96.5
-------
Revenues from Ongoing Operations:
Sales 459.2 400.3 1,318.4 1,190.6
Services and rentals 209.2 190.2 609.5 578.0
------ ------ ------- -------
Total $ 668.4 $ 590.5 $1,927.9 $1,768.6
====== ====== ======= =======
The results of Pumpsystems have been reported in a manner similar to
discontinued operations since March 1994 which represents the date at which the
decision to divest the business was made.
Revenues from ongoing operations for the third quarter of 1995 were up
13.2%. Oilfield Operations currently represent approximately 87% of
consolidated revenues with the remaining 13% represented by Process Equipment
Operations. Oilfield Operations reported revenues of $574.5 million for the
quarter and $1.68 billion for the nine months, an improvement of 11.6% and 7.5%
from the third quarter and first nine months of 1994, respectively, in spite of
declines in worldwide rig activity. This is a result of a proactive strategy
to improve the amount of revenue and profits per working rig. Our strategy is
to position the Company in the markets that will grow without corresponding
growth in rig activity. Oilfield Operations is well positioned in growing
markets whether these markets are defined by geography (Latin America and North
Sea) or products and services (horizontal and directional drilling, re-entry
and multilateral drilling and completions). Process Equipment Operations
-11-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS CONTINUED
sales, services and rentals revenue increased 24.3% to $93.9 million in the
third quarter of 1995 and increased 20.3% to $245.4 million in the first nine
months of 1995. An improving worldwide economy drove the revenue favorability
in international markets particularly in Southeast Asia, China and Latin
America.
Operating Income
The following table summarizes the effect of the Pumpsystems disposition
and unusual credit on consolidated operating income:
Three Months Ending Nine Months Ending
June 30, June 30,
(In millions) 1995 1994 1995 1994
---------------------------------------------------------------------------
Consolidated Operating Income $ 67.4 $ 72.9 $179.8 $172.1
Less:
Unusual Credit 19.3 19.3
Pumpsystems Operating Income 6.0 13.4
----- ----- ----- -----
Operating Income from Ongoing
Operations $ 67.4 $ 47.6 $179.8 $139.4
===== ===== ===== =====
Consolidated operating income decreased 7.5% in the third quarter of 1995
and increased 4.5% in the first nine months of 1995 when compared to 1994.
Operating income from ongoing operations, which excludes Pumpsystems operating
income and an unusual credit from the cash settlement of a suit against certain
insurance carriers in the Parker & Parsley litigation, increased 41.6% for the
quarter and 29.0% for the nine months compared to the same period in the prior
year. The increases result from improved revenues and the impact of various
cost containment measures, including the ongoing benefits from the
consolidation of several divisions in prior years.
Costs and Expenses
In general, operating expenses have fluctuated within a narrow band as a
percentage of consolidated revenues as the Company manages expenses both in
absolute terms and as a function of revenues.
Cost of sales, cost of services and rentals and marketing and field service
expenses increased for the quarter and nine months ending June 30, 1995,
compared to 1994, in line with the revenue increases. Research and engineering
decreased for the quarter due primarily to the reorganizations and
consolidations at Baker Hughes INTEQ. Research and engineering decreased for
the nine months due primarily to the disposition of Pumpsystems and the Baker
Hughes INTEQ decrease mentioned above. General and administrative expenses,
which are less sensitive to changes in revenue, increased $4.8 million in the
third quarter of 1995 and increased $1.5 million in the first nine months of
1995, compared to 1994. The increase in the third quarter is due primarily to
increases in insurance and legal spending and the termination of a non-U.S.
benefit plan. The increase for the nine months is reflective of the impact of
-12-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS CONTINUED
the Pumpsystems disposition offset by the increase incurred in the second and
third quarter of 1995.
Interest Expense
Interest expense in the third quarter of 1995 decreased $2.4 million from
the same quarter in 1994. In the first nine months of 1995, interest expense
decreased $9.0 million compared to 1994. The decreases are attributable
primarily to the repurchase or defeasance of all the outstanding 6% discount
debentures in the third and fourth quarters of 1994.
CAPITAL RESOURCES AND LIQUIDITY
Financing Activities
Net cash outflows from financing activities were $53.3 million in the first
nine months of 1995 compared to net cash outflows of $159.1 million in the
first nine months of 1994. Total debt outstanding at June 30, 1995 was $826.2
million, compared to $653.3 million at September 30, 1994. The debt to equity
ratio was .557 at June 30, 1995, compared to .399 at September 30, 1994.
In April 1994, the Company issued debenture purchase warrants under
favorable terms for $7.0 million which entitled the holders to purchase $93.0
million of the Company's debentures. In the first quarter of 1995, certain
holders exercised warrants and purchased $78.0 million of debentures. In the
second quarter of 1995, the remaining warrants were exercised and $15.0 million
of debentures were purchased. During the first nine months of 1994, the
Company used the proceeds from the sale of noncore businesses to reduce debt
level.
In June 1995, the Company repurchased the four million shares of its
convertible preferred stock, previously issued to Sonat Inc., for $167.0
million. Existing cash on hand and borrowings from commercial paper and
revolving credit facilities funded the repurchase.
At June 30, 1995, the Company had $627.5 million of credit facilities with
commercial banks, of which $401.1 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 $74.4 million in the first
nine months of 1995 compared to net cash inflows of $79.4 million in the first
nine months of 1994.
Proceeds from the disposal of assets and noncore businesses generated $22.2
million in 1995 and $156.6 million in 1994. Property additions increased in
1995 compared to 1994. The ratio of capital expenditures to depreciation has
increased over the same period from 82.2% to 111.3%. The majority of the
capital expenditures have been in Oilfield Operations where the largest single
-13-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS CONTINUED
item is the expenditure for rental tools and equipment to supplement the rental
fleet. Funds provided from operations and outstanding lines of credit are
expected to be more than adequate to meet future capital expenditure
requirements. The Company expects 1995 capital expenditures to be between
$120.0 million and $140.0 million as it focuses on replacing capital in amounts
comparable to annual depreciation.
Operating Activities
Net cash inflows from operating activities were $73.4 million in the first
nine months of 1995 compared to net cash inflows of $115.0 million in the first
nine months of 1994. The decline in cash inflows is due primarily to an
increase in receivables in line with the increased revenues, an increase in
other operating assets to support the increased operating levels and the
settlement of liabilities.
ACCOUNTING STANDARDS
Postemployment Benefits
In November 1992, the FASB issued SFAS No. 112, "Employers' Accounting for
Postemployment Benefits". The statement requires accrual basis accounting for
such benefits as opposed to cash basis accounting. The Company adopted SFAS
No. 112 effective October 1, 1994 and immediately recognized the cumulative
effect of the change in accounting recording a charge to income of $14.6
million ($.10 per share), net of an income tax benefit of $7.9 million.
Expense under SFAS No. 112 for 1995 related to these benefits is not expected
to be significantly different from actual cash payments.
-14-
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
None.
(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: August 14, 1995 By /s/LAWRENCE O'DONNELL, III
------------------------------------
Vice President, General Counsel
& Corporate Secretary
Date: August 14, 1995 By /s/JAMES E. BRAUN
------------------------------------
Controller
-16-