Exhibit 13.1
1995 Financial Statements
Management Report of Financial Responsibilities 18
Management's Discussion and Analysis of
Financial Condition and Results of Operations 19
Independent Auditors' Report 26
Consolidated Statements of Operations 27
Consolidated Statements of Financial Position 28
Consolidated Statements of Stockholders' Equity 30
Consolidated Statements of Cash Flows 31
Notes to Consolidated Financial Statements 32
Quarterly Stock Prices 47
Five Year Summary of Financial Information 48
MANAGEMENT REPORT OF FINANCIAL RESPONSIBILITIES Baker Hughes Incorporated
The management of Baker Hughes Incorporated is responsible for the preparation
and integrity of the accompanying consolidated financial statements and all
other information contained in this Annual Report. The consolidated financial
statements have been prepared in conformity with generally accepted accounting
principles and include amounts that are based on management's informed judgments
and estimates.
In fulfilling its responsibilities for the integrity of financial information,
management maintains and relies on the CompanyOs system of internal control.
This system includes written policies, an organizational structure providing
division of responsibilities, the selection and training of qualified personnel
and a program of financial and operational reviews by a professional staff of
corporate auditors. The system is designed to provide reasonable assurance that
assets are safeguarded, transactions are executed in accordance with
management's authorization and accounting records are reliable as a basis for
the preparation of the consolidated financial statements. Management believes
that, as of September 30, 1995, the Company's internal control system provides
reasonable assurance that material errors or irregularities will be prevented or
detected within a timely period and is cost effective.
Management recognizes its responsibility for fostering a strong ethical climate
so that the Company's affairs are conducted according to the highest standards
of personal and corporate conduct. This responsibility is characterized and
reflected in the Company's Standards of Conduct which is distributed throughout
the Company. Management maintains a systematic program to assess compliance with
the policies included in the code.
The Board of Directors, through its Audit/Ethics Committee composed solely of
nonemployee directors, reviews the Company's financial reporting, accounting and
ethical practices. The Audit/Ethics Committee recommends to the Board of
Directors the selection of independent public accountants and reviews their fee
arrangements. It meets periodically with the independent public accountants,
management and the corporate auditors to review the work of each and the
propriety of the discharge of their responsibilities. The independent public
accountants and the corporate auditors have full and free access to the
Audit/Ethics Committee, without management present, to discuss auditing and
financial reporting matters.
/s/ James D. Woods /s/ Eric L. Mattson /s/ James E. Braun
James D. Woods Eric L. Mattson James E. Braun
Chairman and Chief Senior Vice President and Controller
Executive Officer Chief Financial Officer
18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS Baker Hughes Incorporated
BUSINESS ENVIRONMENT
Baker Hughes has eight divisions that provide products and services to two
industry segments worldwide: Oilfield and Process Equipment. Oilfield
Operations generate approximately 87% of the Company's consolidated revenues.
Oilfield Operations consist of five divisions that provide products, services
and solutions used in the drilling, completion, production and maintenance of
oil and gas wells. The business environment for Oilfield Operations and its
corresponding operating results are significantly affected by worldwide
expenditures of the petroleum industry. Important factors establishing the
levels of these expenditures include, but are not limited to, world economic
conditions, crude oil and natural gas supply and demand balances, the
legislative environment in the United States and other major countries, war,
insurrection, weather, OPEC policy and other developments in the Middle East and
other major petroleum producing regions.
Process Equipment Operations consist of three divisions that serve a broad range
of process industries. They are recognized throughout the world as leaders in
filtration, sedimentation, centrifugation and flotation processes for the
separation of solids from liquids, and liquids from liquids. The business
environment for Process Equipment Operations, which also includes Tracor Europa,
a computer peripherals division, is significantly affected by worldwide economic
conditions in the specific markets that they serve.
OPERATING ENVIRONMENT
FOR OILFIELD OPERATIONS
Historically, crude oil and natural gas prices and the number of rotary rigs
operating have been prevalent factors in determining the level of worldwide
exploration and production expenditures. However, the operating environment for
the oilfield service industry has been changing over the past several years.
While prices and rig count are still relevant as an indicator of expenditure
activity, a number of new trends are beginning to emerge that could alter the
oilfield service market place. One key trend is the concept of integrated
solutions, which is to involve the oilfield service company in the planning,
engineering and integrating of several products and services. Another trend is
the application of new technologies aimed at reducing the finding costs for oil
and gas.
Crude oil and natural gas prices and the Baker Hughes rotary rig count are
summarized in the tables below as annual averages followed by the Company's
outlook. While reading the Company's outlook set forth below, caution is advised
that the factors described above in "-Business Environment" could negatively
impact the Company's expectations for oil and gas prices and drilling activity.
Oil and Gas Prices
Fiscal Year 1995 1994 1993
- ----------------------------------------------------
WTI ($/Bbl) 18.29 16.87 19.49
U.S. Spot Natural Gas ($/mcf) 1.42 1.88 2.04
Barring any significant change in OPEC policy, the Company expects crude oil to
trade between $17 and $19/Bbl in 1996 while remaining susceptible to short-term
price fluctuations as the growth in worldwide demand is met by increased
production by non-OPEC producing countries. U.S. natural gas prices are expected
to strengthen in 1996 with demand for natural gas expected to grow 2% to 3% per
year. The Company believes that higher natural gas prices and a tightening
market would stimulate exploration and development drilling of natural gas.
Rotary Rig Count
Fiscal Year 1995 1994 1993
- -----------------------------------------------------------
U.S. - Land 638 684 686
U.S. - Offshore 100 101 72
Canada 247 245 160
----------------
North America 985 1030 918
----------------
Latin America 266 223 205
North Sea 42 42 48
Other Europe 66 67 68
Africa 65 66 69
Middle East 123 135 158
Asia Pacific 186 214 233
----------------
International 748 747 781
----------------
Worldwide 1733 1777 1699
----------------
U.S. Workover 1298 1336 1379
19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS Baker Hughes Incorporated
North America
With the current softness in oil and gas prices, the Company anticipates a
modest decline in North American drilling activity. 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 resulting in a slight increase in offshore
activity and relatively flat land activity. Canadian activity is expected to
fall short of 1995 levels.
International
The Company is cautiously optimistic that most areas internationally will post
an increasing rig count in 1996. The Company is forecasting increases in Latin
America, the North Sea and West Africa while activity in the Middle East and
Asia Pacific is forecasted to be flat.
RESULTS OF OPERATIONS
- ---------------------------------------------------------------------
Revenues
(In millions) 1995 1994 1993
- ---------------------------------------------------------------------
Consolidated Revenues:
Sales $1,805.1 $1,727.7 $1,945.8
Services and Rentals 832.4 777.0 755.9
----------------------------
Total 2,637.5 2,504.7 2,701.7
----------------------------
Less Pumpsystems and EM&C Operations:
Sales 96.5 334.5
Services and Rentals 15.7
------------------
Total 96.5 350.2
------------------
Revenues from Ongoing Operations:
Sales 1,805.1 1,631.2 1,611.3
Services and Rentals 832.4 777.0 740.2
----------------------------
Total $2,637.5 $2,408.2 $2,351.5
----------------------------
Consolidated revenues for 1995 increased 5.3% from 1994. Consolidated revenues
for 1994 decreased 7.3% from 1993. Consolidated revenues were impacted in 1994
and 1993 by the revenues of disposed businesses. EnviroTech Measurements &
Controls ("EM&C") was sold in March 1994 and EnviroTech Pumpsystems
("Pumpsystems") was sold in September 1994. The results of Pumpsystems and EM&C
have been reported in a manner similar to discontinued operations since March
1994 and June 1993, respectively, which represents the date at which the
decisions to divest the businesses were made. As such, consolidated results of
operations for 1994 include six months of Pumpsystems' revenues and expenses.
The last six months of Pumpsystems' net operating results are reflected as a
separate line in the Company's consolidated statement of operations. Nine months
of EM&C revenues and expenses are included in the consolidated results for 1993.
There are no EM&C revenues and expenses included in the consolidated results for
1994. EM&C operated near break even levels from July 1993 to March 1994 with a
small net operating loss offsetting the gain on the sale.
Revenues from ongoing operations were up 9.5% in 1995 from 1994 and 2.4% in 1994
from 1993. In 1995, Oilfield Operations represented approximately 87% of
consolidated revenues ($2,288.2 million) with the remaining 13% represented by
Process Equipment Operations ($349.3 million).
In 1995, the Oilfield Operations experienced revenue growth in spite of
decreases in the Baker Hughes rotary rig count and the U.S. workover rig count.
Sales revenue and service and rentals revenue were both up 8.4%. Changes in the
mix of the worldwide rig count
20
had a significant impact on the revenue of the Company. Certain areas of the
world, including offshore U.S., North Sea and West Africa, historically provide
more revenue per rig because of the more difficult and complex drilling
conditions. Conditions such as deep water, high pressure and sensitive
environment require the premium products and services offered by the Company.
Additionally, technological advances in the design and application of the
Company's products and services allow oil and gas operators to reach and extract
greater quantities of hydrocarbons from a single drilling rig or wellbore. For
example, from a single offshore drilling rig, multiple wells can be drilled,
completed and produced and, as such, the revenue generating capability of a
single drilling rig increases. The Company enjoys ancilliary benefits in
situations like these because of the wide breadth of products and services
offered by the Company. The Oilfield Operations' 1995 results were favorably
impacted by these two important trends.
Oilfield Operations was well positioned to take advantage of growth
opportunities in a number of key geographic markets. In Latin America, Oilfield
Operations saw its largest revenue growth in 1995 as revenue increased 38%. The
revenue improvement was driven by an increase in drilling activity in Venezuela
and Argentina. Oilfield Operations saw revenue increases in the Gulf of Mexico
as horizontal drilling remained strong. Despite flat rig activity in the North
Sea, revenue in Europe was up 6% due in large part to growing integrated
solutions business. Middle East revenues were up 19% for the year, paced by an
increase in Oman where the Company is the leading provider of horizontal
drilling technology. Strong performance in these areas were partially offset by
a difficult year in Africa and the former Soviet Union ("FSU"). Revenues in the
FSU were $53.3 million in 1995 and $74.6 million in 1994.
Oilfield Operations reported revenues of $2,110.9 million in 1994, up 3.3% from
1993. Sales revenue was up 2.6% and services and rentals revenue was up 4.7%.
Much of the improvement in Oilfield Operations sales, services and rentals
revenue is attributable to increased drilling activity in the Western
Hemisphere, U.S.-Offshore and the Canadian market, fueled in large part by
natural gas drilling. Partially offsetting this trend was a decline in the
average number of workover rigs running in the U.S. However, much of the
improvement in the Western Hemisphere was offset by declines in the European and
West Africa markets, most notably in geographic areas where Oilfield Operations
enjoys significant revenue on a per rig basis.
In 1995, Process Equipment Operations' sales, services and rentals revenue
reported an increase of 17.1% from 1994. The minerals processing industry,
specifically copper, and the pulp and paper industry experienced significant
growth during 1995 benefiting Process Equipment Operations. In 1994, sales,
services and rentals revenue declined 3.4% from 1993 primarily due to project
deferrals and a general weakness in the economic conditions in most markets that
they serve.
Operating Income
(In millions) 1995 1994 1993
- ---------------------------------------------------
Consolidated Operating
Income $255.9 $185.9 $158.9
Plus Unusual Charges-net 31.8 42.0
Less Operating Income of
Pumpsystems and EM&C (17.9) (23.1)
-----------------------
Operating Income from
Ongoing Operations $255.9 $199.8 $177.8
-----------------------
Consolidated operating income in 1995 increased 37.7% from 1994 levels and in
1994 increased 17.0% from 1993 levels. Operating income from ongoing operations,
which excludes the net unusual charges and operating income of Pumpsystems and
EM&C, increased 28.1% in 1995 and 12.4% in 1994. Oilfield Operations provided
$269.6 million of operating income in 1995, up 29.0% from 1994 (excluding the
1994 unusual charge) and $209.0 million in 1994, up 16.9% from 1993. Process
Equipment Operations provided $32.3 million of operating income in 1995, up
49.5% from 1994 and $21.6 million in 1994, virtually flat compared to 1993. The
increases year over
21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS Baker Hughes Incorporated
year result primarily from improved revenues and the impact of the Company's
ongoing quality programs where, through various actions, increases in efficiency
and productivity produce cost savings.
Cost and Expenses
Operating expenses, excluding unusual charges, typically fluctuate 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.
The total of cost of sales, cost of services and rentals, research and
engineering and marketing and field service expenses as a percentage of total
revenue decreased from 83.2% in 1994 to 81.5% in 1995 reflecting the realization
of cost reductions as explained above. Individually, cost of sales, cost of
services and rentals and marketing and field service expense increased in 1995
in line with the revenue increase.
Research and engineering ("R&E") decreased for the year due primarily to the
reorganization of the R&E function at two divisions in Oilfield Operations and
the disposition of Pumpsystems in 1994. The reorganizations consisted of
reductions in headcount as well as a change in focus to product related
engineering where costs are now included in cost of sales and marketing and
field service expense. General and administrative expense, which is less
sensitive to changes in revenue, increased $18.9 million in 1995. The increase
in 1995 is due to the resolution of certain legal matters during the year, the
accrual for other claims and the writedown of certain foreign properties held
for disposal to their estimated net realizable value. Amortization of goodwill
and intangibles has remained relatively flat in 1995 compared to 1994 as no
significant acquisitions or dispositions were made in the current year.
In 1994, cost of sales, cost of services and rentals, research and engineering
and marketing and field service expenses decreased in line with the revenue
decreases associated with the dispositions of EM&C and Pumpsystems. General and
administrative expense and amortization of goodwill and other intangibles both
decreased in 1994 also reflective of the impact of the disposed businesses.
Unusual Charges-net
1994: During the fourth quarter of 1994, the Company recorded a $32.4 million
unusual charge related to the restructuring and reorganization of certain
divisions, primarily Baker Hughes INTEQ as part of a continuing effort to
maintain a cost structure appropriate for current and future market conditions.
Noncash provisions of the charge total $16.3 million and consist primarily of
the write-down of excess facilities and operating assets to net realizable
value. The remaining $16.1 million of the charge represents cash expenditures
related to severance under existing benefit arrangements, the relocation of
people, equipment and inventory and abandoned leases. The Company spent $11.2
million in 1995 and $3.1 million in 1994 and expects to spend the remaining $1.8
million in 1996. In addition, an MWD (measurement-while-drilling) product line
was discontinued when it was decided to market and support other MWD products
resulting in the write-off of property and inventory of $15.0 million.
Offsetting these charges was an unusual gain of $19.3 million related to the May
1994 cash settlement of a suit against certain insurance carriers in the Parker
& Parsley litigation discussed below.
1993: During the first quarter of 1993, the Company recognized a charge of
$17.5 million relating to an agreement for the settlement of the civil antitrust
litigation involving the marketing of tricone rockbits. During the second
quarter of 1993, the Company, along with Dresser Industries and Parker & Parsley
Petroleum Development Incorporated, entered into a Memorandum of Understanding
covering the settlement of all outstanding litigation among the parties. In
recognition of the settlement, the Company recorded an unusual charge of $24.5
million. Cash payments totalling $75.0 million were made during the third
quarter of 1993.
22
Interest Expense
Interest expense decreased $8.2 million in 1995 compared to 1994. The decrease
in 1995 is attributable to the repurchase or defeasance of all the outstanding
6% discount debentures in the last half of 1994. Offsetting interest expense in
1993 is $3.6 million of the reversal of accrued interest expense on certain
Internal Revenue Service issues. Excluding these reversals, interest expense
decreased $4.5 million in 1994. The decrease in 1994 is attributable to lower
average debt outstanding offset by a slightly higher overall effective interest
rate.
Interest Income
Interest income increased $1.7 million in 1995 due to an increase in the average
short-term investments during the year. Interest income decreased $2.8 million
in 1994. The decrease was due to the repayment of notes receivables and a
decrease in short-term investments.
Income Taxes
The effective income tax rate for 1995 was 41.5% as compared to 42.0% in 1994
and 41.2% in 1993. The effective rates differ from the federal statutory rates
due primarily to taxes on foreign operations and nondeductible goodwill
amortization offset by the recognition of loss and credit carryforwards.
Extraordinary Loss
During 1994, the Company recorded an extraordinary loss of $44.3 million, net of
a tax benefit of $23.9 million, in connection with the repurchase or defeasance
of $225.0 million face amount of its outstanding 6% debentures due March 2002.
At September 30, 1995, $45.9 million of the debentures have been considered
extinguished through defeasance.
Net Income Per Share of Common Stock
In June 1995, the Company repurchased all outstanding shares of its convertible
preferred stock for $167.0 million. The fair market value of the preferred stock
was $149.4 million on its date of issuance. The repurchase price in excess of
this amount, $17.6 million, is deducted from net income in arriving at net
income per share of common stock. In addition, net income is adjusted for
dividends on preferred stock of $8.0 million in 1995. Net income is adjusted for
dividends on preferred stock of $12.0 million in 1994 and 1993.
CAPITAL RESOURCES AND LIQUIDITY
Financing Activities
Net cash outflows from financing activities were $95.5 million in 1995 compared
to $429.8 million and $56.0 million in 1994 and 1993, respectively.
Total debt outstanding at September 30, 1995 was $801.3 million, compared to
$653.3 million at September 30, 1994 and $944.3 million at September 30, 1993.
The debt to equity ratio was .529 at September 30, 1995, compared to .399 at
September 30, 1994 and .586 at September 30, 1993.
In 1994, the Company used cash to reduce overall debt levels. A total of $368.1
million was used to reduce borrowings under short-term facilities and repurchase
or defease all of its outstanding 6% discount debentures which had an effective
interest rate of 14.66%. During 1994, the Company also issued debenture purchase
warrants under favorable terms for $7.0 million that entitled the holders to
purchase $93.0 million of the Company's debentures. In the first half of 1995,
all holders exercised their warrants and purchased $93.0 million in debentures.
In June 1995, the Company repurchased all outstanding shares of its convertible
preferred stock for $167.0 million. Existing cash on hand and borrowings from
commercial paper and revolving credit facilities funded the repurchase. Cash
dividends decreased in 1995 due to the repurchase.
In 1993, the Company increased total debt while at the same time taking
advantage of lower interest rates. During 1993, the Company sold $385.3 million
principal amount at maturity of Liquid Yield Option Notes ("LYONS") due May
2008. The net proceeds of $223.9 million were used to repay borrowings from
short-term facilities incurred to fund the 1992 Teleco acquisition, retire
debentures and fund working capital needs.
23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS Baker Hughes Incorporated
At September 30, 1995, the Company had $667.1 million of credit facilities with
commercial banks, of which $402.4 million is committed. These facilities are
subject to normal banking terms and conditions and do not materially restrict
the Company's activities.
During 1995, the U.S. dollar was relatively flat against most European
currencies where the Company has a significant net asset position. The Company
was impacted, however, by the devaluation of the Mexican peso resulting in an
increase of $4.8 million in the cumulative foreign currency translation
adjustment account. During 1994, the U.S. dollar weakened against most European
currencies. As a result of this and the sale of EM&C and Pumpsystems, the
cumulative foreign currency translation adjustment account decreased $34.7
million.
Investing Activities
Net cash outflows from investing activities were $94.1 million in 1995 compared
to cash inflows of $258.4 million in 1994 and cash outflows of $76.7 million in
1993.
Proceeds from the disposal of assets and noncore businesses generated $44.8
million in 1995, $367.1 million in 1994 and $50.2 million in 1993. Property
additions increased in 1995 to $138.9 million from $108.6 million in 1994. In
1993 property additions were $126.9 million. The increase in 1995 is in line
with the Company's objective of replacing capital to increase productivity and
ensure that the necessary capacity is available to meet market demand. Part of
the decrease in 1994 is due to the sale of EM&C and Pumpsystems.
Likewise, the ratio of capital expenditures to depreciation has increased from
88.5% in 1994 to 121.6% in 1995. The majority of the capital expenditures have
been in Oilfield Operations where the largest single item is the expenditure for
rental tools and equipment to supplement the rental fleet. Funds provided from
operations and outstanding lines of credit are expected to be more than adequate
to meet future capital expenditure requirements. The Company expects 1996
capital expenditures to be between $170.0 million and $190.0 million.
Operating Activities
Net cash inflows from operating activities were $127.3 million, $230.8 million
and $23.0 million in 1995, 1994 and 1993, respectively.
The decrease of $103.5 million in 1995 was due primarily to the build up of
working capital in Oilfield Operations to support increased activity, in
particular the significant increase in Latin America, and several new emerging
markets (e.g. Vietnam and China), and the reduction in liabilities resulting
from cash payments for costs associated with the disposition of Pumpsystems and
the restructuring accruals recorded in the fourth quarter of 1994. These uses of
cash were offset by an increase in net income adjusted for noncash items.
The increase of $207.8 million in 1994 was due primarily to an increase in net
income, adjusted for noncash items, litigation settlements totalling $75.0
million that were paid in 1993 and a decrease in the build up of working
capital.
OTHER MATTERS
In May 1995, President Clinton signed an Executive Order prohibiting virtually
all transactions between the U.S. and Iran, and in September 1995, the U.S.
Department of Treasury issued implementing regulations. The Order and
regulations generally do not reach to the activities of non-U.S. subsidiaries.
At September 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. These receivables 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, 1995 and 1994 were not significant.
24
ACCOUNTING STANDARDS
Postemployment Benefits
The Company adopted Statement of Financial Accounting Standard ("SFAS") No. 112,
"Employers' Accounting for Postemployment Benefits," effective October 1, 1994.
The Company recognized a charge to income of $14.6 million ($.10 per share),
net of a $7.9 million tax benefit, in the first quarter of 1995. Expense under
SFAS No. 112 for 1995 was not significantly different from the prior method of
cash basis accounting.
Postretirement Benefits Other Than Pensions
The Company adopted SFAS No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions," effective October 1, 1993. The Company elected
to immediately recognize the cumulative effect of the change in accounting and
recorded a charge of $69.6 million, net of a tax benefit of $37.5 million, in
the first quarter of 1994. Expense under SFAS No. 106 for 1994 was not
significantly different from the prior method of cash basis accounting.
Accounting for Income Taxes
The Company adopted SFAS No. 109, "Accounting for Income Taxes," effective
October 1, 1993, without restatement of prior years and recorded a credit to
income of $25.5 million in the first quarter of 1994. An additional benefit of
$21.9 million was allocated to capital in excess of par value, which reflects
the cumulative tax effect of exercised employee stock options for which the
Company has taken tax deductions in its U.S. federal tax returns.
Investments in Debt and Equity Securities
The Company adopted SFAS No. 115, "Accounting for Certain Investments in Debt
and Equity Securities," effective September 30, 1994, and recorded a charge to a
separate component of stockholders' equity for unrealized losses on securities
available for sale of $2.8 million, net of a tax benefit of $1.5 million. A gain
or loss will be recognized in the consolidated statement of operations when a
security is sold.
Impairment of Long-Lived Assets
In March 1995, the Financial Accounting Standards Board ("FASB") issued SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of," which is effective for the Company on October 1,
1996. The statement sets forth guidance as to when to recognize an impairment of
long-lived assets, including goodwill, and how to measure such an impairment.
The methodology set forth in SFAS No. 121 is not significantly different from
the Company's current policy and, therefore, the Company does not expect the
adoption of SFAS No. 121, as it relates to impairment, to have a significant
impact on the consolidated financial statements. SFAS No. 121 also addresses the
accounting for long-lived assets to be disposed of. The Company has not yet
determined the impact of this aspect of SFAS No. 121 on the consolidated
financial statements.
Stock Based Compensation
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation," which is effective for the Company on October 1, 1996. SFAS No.
123 permits, but does not require, a fair value based method of accounting for
employee stock option plans which results in compensation expense being
recognized in the results of operations when stock options are granted. The
Company plans to continue the use of its current intrinsic value based method of
accounting for such plans where no compensation expense is recognized. However,
as required by SFAS No. 123, the Company will provide pro forma disclosure of
net income and earnings per share in the notes to the consolidated financial
statements as if the fair value based method of accounting had been applied.
25
INDEPENDENT AUDITORS' REPORT Baker Hughes Incorporated
STOCKHOLDERS OF BAKER HUGHES INCORPORATED:
We have audited the consolidated statements of financial position of Baker
Hughes Incorporated and its subsidiaries as of September 30, 1995 and 1994, and
the related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended September 30, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Baker Hughes Incorporated and its
subsidiaries at September 30, 1995 and 1994, and the results of its operations
and its cash flows for each of the three years in the period ended September 30,
1995 in conformity with generally accepted accounting principles.
As discussed in Note 1, the Company changed its method of accounting for
postemployment benefits effective October 1, 1994 to conform with Statement of
Financial Accounting Standards No. 112. Also as discussed in Note 1, the Company
changed its method of accounting for postretirement benefits other than pensions
and for income taxes effective October 1, 1993 to conform with Statement of
Financial Accounting Standards No. 106 and Statement of Financial Accounting
Standards No. 109, respectively.
/s/ Deloitte & Touche LLP
November 15, 1995
Houston, Texas
26
CONSOLIDATED STATEMENTS OF OPERATIONS Baker Hughes Incorporated
Years Ended September 30,
(In thousands, except per share amounts) 1995 1994 1993
- -------------------------------------------------------------------------------------
Revenues:
Sales $1,805,108 $1,727,734 $1,945,793
Services and rentals 832,356 777,024 755,904
------------------------------------------
Total 2,637,464 2,504,758 2,701,697
------------------------------------------
Costs and expenses:
Costs of sales 1,045,672 1,015,458 1,154,865
Cost of services and rentals 418,342 389,605 395,286
Research and engineering 83,546 91,011 102,057
Marketing and field service 601,228 586,671 610,337
General and administrative 202,903 184,013 201,322
Amortization of goodwill and other
intangibles 29,884 30,775 36,916
Unusual charges - net 31,829 42,000
Operating income of business sold (10,488)
------------------------------------------
Total 2,381,575 2,318,874 2,542,783
------------------------------------------
Operating income 255,889 185,884 158,914
Gain on sale of Pumpsystems 101,000
Interest expense (55,595) (63,835) (64,703)
Interest income 4,806 3,067 5,840
------------------------------------------
Income before income taxes, extraordinary
loss and cumulative effect of
accounting changes 205,100 226,116 100,051
Income taxes (85,117) (94,974) (41,195)
------------------------------------------
Income before extraordinary loss and
cumulative effect of accounting changes 119,983 131,142 58,856
----------
Extraordinary loss (net of $23,865
income tax benefit) (44,320)
----------
Cumulative effect of accounting changes:
Income taxes 25,455
Postretirement benefits other than pensions
(net of $37,488 income tax benefit) (69,620)
Postemployment benefits (net of $7,861
income tax benefit) (14,598)
------------------------------------------
Accounting changes - net (14,598) (44,165)
------------------------------------------
Net income $ 105,385 $ 42,657 $ 58,856
==========================================
Per share of common stock:
Income before extraordinary loss and
cumulative effect of accounting
changes $ 0.67 $ 0.85 $ 0.34
Extraordinary loss (0.31)
Cumulative effect of accounting
changes (0.10) (0.32)
------------------------------------------
Net income $ $0.57 $ 0.22 $ 0.34
==========================================
See Notes to Consolidated Financial Statements
27
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION Baker Hughes Incorporated
September 30,
(In thousands) 1995 1994
- -----------------------------------------------------------------
Current Assets:
Cash and cash equivalents $ 6,817 $ 69,179
------------------------------
Receivables-less allowance
for doubtful accounts:
1995, $24,809; 1994,
$21,405 709,588 612,414
------------------------------
Inventories:
Finished goods 595,417 508,198
Work in process 61,622 53,644
Raw materials 70,743 81,204
------------------------------
Total inventories 727,782 643,046
------------------------------
Deferred income taxes 92,550 45,959
------------------------------
Other current assets 28,078 29,394
------------------------------
Total current assets 1,564,815 1,399,992
------------------------------
Property:
Land 35,393 35,174
Buildings 314,184 294,104
Machinery and equipment 607,061 586,863
Rental tools and equipment 570,279 530,814
------------------------------
Total property 1,526,917 1,446,955
Accumulated depreciation (951,858) (886,871)
------------------------------
Property-net 575,059 560,084
------------------------------
Other assets:
Investments 92,474 89,601
Property held for disposal 58,544 73,496
Other assets 103,321 80,054
Excess costs arising
from acquisitions -
less accumulated
amortization:
1995, $136,174; 1994, $112,008 772,378 796,455
------------------------------
Total other assets 1,026,717 1,039,606
------------------------------
Total $3,166,591 $2,999,682
==============================
See Notes to Consolidated Financial Statements
28
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION Baker Hughes Incorporated
September 30,
(In thousands) 1995 1994
- -----------------------------------------------------------------
Current Liabilities:
Accounts payable-trade $ 304,689 $ 253,616
Short-term borrowings 2,130 863
Current portion of
long-term debt 768 14,436
Accrued employee
compensation and benefits 133,135 113,304
Income taxes payable 28,445 29,729
Taxes other than income 25,176 20,608
Accrued insurance 27,475 26,492
Accrued interest 11,978 10,676
Other accrued liabilities 46,335 74,847
------------------------------
Total current liabilities 580,131 544,571
------------------------------
Long-term debt 798,352 637,972
------------------------------
Deferred income taxes 118,350 53,841
------------------------------
Postretirement benefits
other than pensions 97,187 95,951
------------------------------
Other long-term liabilities 58,965 28,875
------------------------------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $1 par value
(authorized and outstanding
4,000,000 shares in 1994 of $3.00
convertible preferred stock) 4,000
Common stock, $1 par value
(authorized 400,000,000
shares; outstanding 142,237,000
shares in 1995 and 140,889,000
shares in 1994) 142,237 140,889
Capital in excess of par value 1,342,317 1,474,013
Retained earnings 140,106 125,276
Cumulative foreign currency
translation adjustment (107,689) (102,915)
Unrealized loss on securities
available for sale (3,365) (2,791)
------------------------------
Total stockholders' equity 1,513,606 1,638,472
------------------------------
Total $3,166,591 $2,999,682
==============================
See Notes to Consolidated Financial Statements
29
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Baker Hughes Incorporated
Cumulative Unrealized
Preferred Common Foreign Loss on
For the three years ended Stock Stock Capital Currency Securities
September 30, 1995 ($1 Par ($1 Par In Excess Retained Translation Available
(In thousands) Value) Value of Par Value Earnings Adjustment for Sale Total
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, September 30, 1992 $ 4,000 $ 138,624 $1,418,857 $ 176,517 $ (92,476) $1,645,522
Net income 58,856 58,856
Cash and accrued
dividends on
$3.00 convertible preferred stock (12,000) (12,000)
Cash dividends on common
stock ($.46 per share) (64,096) (64,096)
Foreign currency
translation adjustment (45,139) (45,139)
Stock issued pursuant to
employee stock plans 1,813 25,692 27,505
----------------------------------------------------------------------------------------------
Balance, September 30, 1993 4,000 140,437 1,444,549 159,277 (137,615) 1,610,648
Net income 42,657 42,657
Cash and accrued
dividends on
$3.00 convertible preferred stock (12,000) (12,000)
Cash dividends on common
stock ($.46 per share) (64,658) (64,658)
Foreign currency
translation adjustment 17,825 17,825
Disposition of
businesses 16,875 16,875
Income tax
accounting change 21,896 21,896
Investment accounting
change $ (2,791) (2,791)
Stock issued pursuant to
employee stock plans 452 7,568 8,020
----------------------------------------------------------------------------------------------
Balance, September 30, 1994 4,000 140,889 1,474,013 125,276 (102,915) (2,791) 1,638,472
Net income 105,385 105,385
Cash and accrued
dividends on
$3.00 convertible preferred stock (8,000) (8,000)
Cash dividends on common
stock ($.46 per share) (64,955) (64,955)
Foreign currency
translation adjustment (4,774) (4,774)
Repurchase of $3.00
convertible preferred
stock (4,000) (145,400) (17,600) (167,000)
Unrealized loss
adjustment (574) (574)
Stock issued pursuant to
employee stock plans 1,348 13,704 15,052
----------------------------------------------------------------------------------------------
Balance, September 30, 1995 $ 142,237 $1,342,317 $ 140,106 $(107,689) $ (3,365) $1,513,606
==============================================================================================
See Notes to Consolidated Financial Statements
30
CONSOLIDATED STATEMENTS OF CASH FLOWS Baker Hughes Incorporated
Years Ended September 30,
(In thousands) 1995 1994 1993
- --------------------------------------------------------------------------------------
Cash flows from operating
activities:
Net income $ 105,385 $ 42,657 $ 58,856
Adjustments to reconcile
net income
to net cash flows from
operating activities:
Depreciation and
amortization of:
Property 114,170 122,812 141,699
Other assets and debt discount 40,368 46,526 47,371
Deferred tax provision 44,783 47,366 19,349
Noncash portion of unusual
charges-net 47,988
Gain on disposal of assets (18,313) (18,034) (14,594)
Gain on disposition of businesses (109,550)
Foreign currency translation
loss-net 1,948 1,892 441
Cumulative effect of accounting
changes 14,598 44,165
Extraordinary loss 44,320
Change in receivables (94,660) (22,740) (74,828)
Change in inventories (79,937) (58,035) (50,506)
Change in accounts payable-trade 51,734 24,890 (2,962)
Changes in other assets and
liabilities (52,805) 16,520 (101,859)
---------------------------------------------
Net cash flows from
operating activities 127,271 230,777 22,967
---------------------------------------------
Cash flows from investing
activities:
Property additions (138,876) (108,639) (126,901)
Proceeds from disposal of assets 44,786 38,664 40,928
Proceeds from disposition of
businesses 328,389 9,299
---------------------------------------------
Net cash flows from
investing activities (94,090) 258,414 (76,674)
---------------------------------------------
Cash flows from financing
activities:
Net borrowings
(payments) from commercial
paper and revolving credit
facilities 42,674 (162,590) (95,010)
Retirement of debentures (205,497) (18,197)
Proceeds from exercise of
debenture purchase warrants 93,000
Net proceeds from issuance of
debenture purchase warrants 7,026
Net proceeds from issuance of
notes 223,911
Repurchase of preferred
stock (167,000)
Proceeds from exercise
of stock options and stock
purchase grants 9,773 7,900 21,358
Dividends (73,955) (76,658) (76,096)
---------------------------------------------
Net cash flows from
financing activities (95,508) (429,819) 55,966
---------------------------------------------
Effect of exchange rate
changes on cash (35) 2,815 (1,959)
---------------------------------------------
Increase (decrease) in
cash and cash equivalents (62,362) 62,187 300
Cash and cash equivalents,
beginning of year 69,179 6,992 6,692
---------------------------------------------
Cash and cash equivalents,
end of year $ 6,817 $ 69,179 $ 6,992
=============================================
See Notes to Consolidated Financial Statements
31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Baker Hughes Incorporated
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation: The consolidated financial statements include the
accounts of Baker Hughes Incorporated and all majority owned subsidiaries (the
"Company"). Investments in which ownership interest ranges from 20 to 50 percent
and the Company exercises significant influence over operating and financial
policies are accounted for on the equity method. In 1994, the Company changed
its accounting for other investments as explained below. Prior to 1994, other
investments were accounted for under the cost method. All significant
intercompany accounts and transactions have been eliminated in consolidation.
Certain minor reclassifications have been made to the 1994 balances to conform
to the 1995 presentation.
Revenue recognition: Revenue from product sales are recognized upon delivery of
products to the customer. Revenues from services and rentals are recorded when
such services are rendered.
Inventories: Inventories are stated primarily at the lower of average cost or
market.
Property: Property is stated principally at cost less accumulated depreciation,
which is generally provided by using the straight-line method over the estimated
useful lives of individual items. The Company manufactures a substantial portion
of its rental tools and equipment, and the cost of these items includes direct
and indirect manufacturing costs.
Property held for disposal: Property held for disposal is stated at the lower
of cost or estimated net realizable value.
Investments: The Company adopted Statement of Financial Accounting Standards
("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," effective September 30, 1994. Investments in debt and equity
securities, other than those accounted for by the equity method, are reported at
fair value with unrealized gains or losses, net of tax, recorded as a separate
component of stockholders' equity.
Excess costs arising from acquisitions: Excess costs arising from acquisitions
of businesses ("Goodwill") are amortized on the straight-line method over the
lesser of expected useful life or forty years. The carrying amount of
unamortized Goodwill is reviewed for potential impairment loss when events or
changes in circumstances indicate that the carrying amount of Goodwill may not
be recoverable. An impairment loss of Goodwill is recorded in the period in
which it is determined that it is not recoverable. The determination of
recoverability is made based upon the estimated undiscounted future net cash
flows, excluding interest expense, of the business unit to which the Goodwill
relates.
Income taxes: The Company adopted SFAS No. 109, "Accounting for Income Taxes,"
effective October 1, 1993, without restatement of prior years. The cumulative
effect of adopting SFAS No. 109 was a credit to income of $25.5 million ($.18
per share). An additional benefit of $21.9 million was allocated to capital in
excess of par value, which reflects the cumulative tax effect of exercised
employee stock options for which the Company has taken tax deductions in its
U.S. federal tax returns.
32
Deferred income taxes are determined utilizing an asset and liability approach.
This method gives consideration to the future tax consequences associated with
differences between the financial accounting and tax basis of assets and
liabilities.
Environmental matters: Remediation costs are accrued based on estimates of
known environmental remediation exposure. Such accruals are recorded even if
significant uncertainties exist over the ultimate cost of the remediation.
Ongoing environmental compliance costs, including maintenance and monitoring
costs, are expensed as incurred.
Postretirement benefits other than pensions: The Company adopted SFAS No. 106,
"Employers' Accounting for Postretirement Benefits Other than Pensions,"
effective October 1, 1993. The standard requires that the estimated cost of
postretirement benefits other than pensions be accrued over the period earned
rather than expensed in the period the benefits are paid. The cumulative effect
of adopting SFAS No. 106 on the immediate recognition basis was a charge to
income of $69.6 million ($.50 per share), net of a tax benefit of $37.5 million.
Postemployment benefits: The Company adopted SFAS No. 112, "Employers'
Accounting for Postem -ployment Benefits," effective October 1, 1994. The
standard requires that the cost of benefits provided to former or inactive
employees after employment, but before retirement, be accrued when it is
probable that a benefit will be provided, or in the case of service related
benefits, over the period earned. The cost of providing these benefits was
previously recognized as a charge to income in the period the benefits were
paid. The cumulative effect of adopting SFAS No. 112 was a charge to income of
$14.6 million ($.10 per share), net of a tax benefit of $7.9 million.
Foreign currency translation: Gains and losses resulting from balance sheet
translation of foreign operations where a foreign currency is the functional
currency are included as a separate component of stockholders' equity. Gains and
losses resulting from balance sheet translation of foreign operations where the
U.S. dollar is the functional currency are included in the consolidated
statements of operations.
Financial Instruments: The Company uses forward exchange contracts and currency
swaps to hedge certain firm commitments and transactions denominated in foreign
currencies. Gains and losses on forward contracts are deferred and offset
against foreign exchange gains or losses on the underlying hedged item. The
Company uses interest rate swaps to manage interest rate risk. The interest
differentials from interest rate swaps are recognized as an adjustment to
interest expense. The Company's policies do not permit financial instrument
transactions for speculative purposes.
Income per share: Income per share amounts are based on the weighted average
number of shares outstanding during the respective years (141,215,000 in 1995,
140,532,000 in 1994, and 139,321,000 in 1993) and exclude the negligible
dilutive effect of shares issuable in connection with employee stock plans. Net
income is adjusted for dividends on preferred stock. Per share amounts in 1995
are also reduced by $17.6 million related to the repurchase of the Company's
convertible preferred stock.
Statements of cash flows: The Company considers all highly liquid investments
with an original maturity of three months or less to be cash equivalents.
33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Baker Hughes Incorporated
NOTE 2 DISPOSITIONS
1994
In September 1994, the Company sold the EnviroTech Pumpsystems ("Pumpsystems")
group of companies. The decision to divest Pumpsystems was part of a continuing
review of the Company's core product and service competencies. The sale provided
approximately $210.0 million in proceeds and resulted in a gain of $101.0
million. Pumpsystems' operating revenues and expenses have been reported in a
manner similar to discontinued operations since March 1994. As such, the first
six months of Pumpsystems' revenues and expenses are included in the
consolidated results for 1994 and the last six months net operating results are
reflected as a separate line in the Company's consolidated statement of
operations.
In July 1993, the Company announced that the EnviroTech Measurements & Controls
("EM&C") group of companies would no longer be considered part of its core
business. EM&C operating revenues and expenses have been reported in a manner
similar to discontinued operations since June 1993. As such, there are no EM&C
revenues and expenses included in the consolidated results for 1994 and nine
months of EM&C revenues and expenses are included in the consolidated results
for 1993. EM&C operated near break even levels from July 1993 to March 1994 with
a small net operating loss offsetting the gain on the sale. In March 1994, the
Company completed the sale of EM&C which provided $134.0 million in proceeds and
resulted in a gain of $8.6 million.
NOTE 3 UNUSUAL CHARGES-NET
1994
During 1994, the Company recognized $31.8 million of net unusual charges
consisting of the following items:
(In thousands)
- --------------------------------------------------
Insurance recovery in the
Parker & Parsley litigation $(19,281)
Discontinued product line 15,005
Oilfield restructurings:
Severance under existing
benefit arrangements 5,869
Relocation of property,
inventory and people 5,773
Writedown of assets to
net realizable value 18,650
Abandoned leases 2,082
Other 3,731
--------
Unusual charges-net $ 31,829
========
In May 1994, the Company realized a gain of $19.3 million from the cash
settlement of a suit against certain insurance carriers in the Parker & Parsley
litigation described below.
During the fourth quarter of 1994, the Company discontinued an MWD (measurement-
while-drilling) product line when it decided to market and support other MWD
products resulting in the write-off of property and inventory of $15.0 million.
In addition, the Company recorded a $32.4 million charge related to the
restructuring and reorganization of certain divisions, primarily Baker Hughes
INTEQ. Cash provisions of the charge totalled $16.1 million. The Company spent
$11.2 million in 1995, $3.1 million in 1994 and expects to spend the remaining
$1.8 million in 1996.
34
1993
During the first quarter of 1993, the Company recognized an unusual charge of
$17.5 million in connection with reaching an agreement with representatives of
the class plaintiffs for the settlement of a class action civil antitrust
lawsuit concerning the marketing of tricone rock bits. A cash payment of $17.5
million was made in April 1993.
During the second quarter of 1993, the Company, along with Dresser Industries
and Parker & Parsley Petroleum Development Incorporated, settled all outstanding
litigation among the parties over alleged intentional product delivery or
service variance on a number of well stimulation projects. In recognition of
settlement, the Company recorded an unusual charge of $24.5 million. A cash
payment of $57.5 million was made for the Company's portion in May 1993.
NOTE 4 INDEBTEDNESS
Long-term debt at September 30, 1995 and 1994 consisted of the following:
(In thousands) 1995 1994
- ------------------------------------------------------------------------------------------------------------------
Commercial Paper with an average interest rate of 6.85% at September 30, 1995 $ 15,000
Revolving Credit Facilities due through 1999 with an average
interest rate of 8.84% at September 30, 1995 81,961 $ 47,693
Liquid Yield Option Notes ("LYONS") due May 2008 with a yield to maturity of 3.5%
per annum, net of unamortized discount of $140,505 ($149,329 in 1994) 244,745 235,921
7.625% Notes due February 1999 with an effective interest rate of 7.73%,
net of unamortized discount of $938 ($1,198 in 1994) 149,062 148,802
4.125% Swiss Franc 200 million Bonds due June 1996 with an effective interest rate of 7.82% 107,896 107,222
8% Notes due May 2004 with an effective interest rate of 8.08%,
net of unamortized discount of $1,175 ($1,292 in 1994) 98,825 98,708
Debentures with an effective interest rate of 8.59%, due January 2000 93,000
Other indebtedness with an average interest rate of 6.73% at September 30, 1995 8,631 14,062
Total debt 799,120 652,408
-------- --------
Less current maturities 768 14,436
-------- --------
Long-term debt $798,352 $637,972
======== ========
At September 30, 1995, the Company had $667.1 million of credit facilities with
commercial banks, of which $402.4 million is committed. The majority of these
facilities expire in 1999. The Company's policy is to classify commercial paper
and borrowings under revolving credit facilities as long-term debt since the
Company has the ability under certain credit agreements, and the intent, to
maintain these obligations for longer than one year. These facilities are
subject to normal banking terms and conditions and do not materially restrict
the Company's activities.
The LYONS are convertible into the Company's common stock at a conversion price
of $34.85 per share, calculated as of November 5, 1995 and increases at an
annual rate of 3.5%. At the option of the Company, the LYONS may be redeemed for
cash at any time on or after May 5, 1998, at a redemption price equal to the
issue price plus accrued original issue discount through the date of redemption.
At the option of the holder, the LYONS may be redeemed for cash on May 5, 1998,
or on May 5, 2003, for a redemption price equal to the issue price plus accrued
original issue discount through the date of redemption.
35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Baker Hughes Incorporated
In May through September 1994, the Company repurchased or defeased all of its
outstanding 6% discount debentures for $205.5 million and generated an
extraordinary loss of $44.3 million ($.31 per share), net of a tax benefit of
$23.9 million. At September 30, 1995, $45.9 million of the debentures have been
considered extinguished through defeasance.
In April 1994, the Company issued debenture purchase warrants for $7.0 million
that entitled the holders to purchase $93.0 million of the Company's debentures.
In October 1994 through January 1995, all warrants were exercised and $93.0
million of debentures were purchased.
Maturities of long-term debt for the next five years are as follows: 1996-$108.7
million; 1997-$4.5 million; 1998-$.1 million; 1999-$190.1 million and 2000-
$149.2 million. At September 30, 1995, the 4.125% Swiss Franc 200.0 million
Bonds ("SFrBonds") were classified as long-term as the Company has the intent
and the ability to refinance them on a long-term basis through available credit
facilities.
NOTE 5 FINANCIAL INSTRUMENTS
At September 30, 1995, the Company had $306.5 million aggregate notional amount
interest rate swap agreements outstanding maturing in 1998 and 2000. These swaps
effectively exchange a weighted average fixed interest rate of 5.0% for variable
interest rates on the notional amount. The variable interest rate is six-month
LIBOR plus 2% and 30-day commercial paper rates minus 1.96% on notional amounts
of $93.0 million and $213.5 million, respectively. In the unlikely event that
the counterparties fail to meet the terms of an interest rate swap agreement,
the Company's exposure is limited to the interest rate differential.
The SFrBonds are hedged through a foreign currency swap agreement and a foreign
currency option. These instruments convert the Company's Swiss Franc denominated
principal and interest obligations under the SFrBonds into U.S. dollar
denominated obligations. In the unlikely event of nonperformance by the
counterparty, the Company's credit exposure at September 30, 1995 is represented
by the fair value of the contract of $66.2 million.
Except as described below, the estimated fair values of the Company's financial
instruments at September 30, 1995 and 1994 approximate their carrying value as
reflected in the consolidated statement of financial position. The Company's
financial instruments include cash and short-term investments, receivables,
investments, payables, debt and interest rate and foreign currency contracts.
The fair value of such financial instruments has been estimated based on quoted
market prices and the Black-Scholes pricing model.
The estimated fair value of the Company's debt, at September 30, 1995 and 1994
was $886.5 million and $673.6 million, respectively, which differs from the
carrying amounts of $801.3 million and $653.3 million, respectively, included in
the consolidated statement of financial position. The fair value of the
Company's interest rate and currency contracts at September 30, 1995 and 1994,
which are designated as hedges to the Company's debt and related interest cost,
was $68.7 million and $28.0 million, respectively, which should be considered a
reduction to the fair value of the debt mentioned above.
36
NOTE 6 PREFERRED STOCK
In April 1992, the Company issued four million shares of $3.00 convertible
preferred stock ($1 par value per share and $50 liquidation preference per
share) to Sonat, Inc. in connection with the Teleco acquisition. The preferred
stock was convertible at the option of the holder at any time into the Company's
common stock at a conversion price of $32.50 per share.
The preferred stock was redeemable at any time, in whole or in part, at the
option of the Company on at least thirty and not more than sixty days notice at
$50 per share, plus accrued dividends. Dividends on the preferred stock were
cumulative at the rate of $3.00 per share per annum. Such dividends were payable
quarterly as declared by the Board of Directors.
In June 1995, the Company repurchased all outstanding shares of its convertible
preferred stock for $167.0 million. The fair market value of the preferred stock
was $149.4 million on its original date of issuance. The repurchase price in
excess of this amount, $17.6 million, is deducted from net income in arriving at
net income per share of common stock.
NOTE 7 EMPLOYEE STOCK PLANS
The Company has stock option plans that provide for granting of options for the
purchase of common stock to directors, officers and other key employees. These
stock options may be granted subject to terms ranging from one to ten years at a
price equal to the fair market value of the stock at the date of grant.
Stock option activity for the Company during 1995, 1994 and 1993 was as follows:
Number of Shares (In thousands) 1995 1994 1993
- -----------------------------------------------------------------------------
Stock options outstanding, beginning of year 4,879 2,890 2,726
Granted (per share):
1995 $19.13 to $20.50 1,349
1994 $20.13 to $21.88 2,291
1993 $23.00 1,001
Exercised (per share):
1995 $13.38 to $21.95 (153)
1994 $10.25 to $15.38 (31)
1993 $10.25 to $28.50 (721)
Expired (1,060) (271) (116)
----------------------
Stock options outstanding, end of year (per share:
$13.38 to $28.50 at September 30, 1995) 5,015 4,879 2,890
======================
At September 30, 1995, options were exercisable for 2.2 million shares, and 4.2
million shares were available for future option grants.
The Company has a plan that provides for the sale of convertible debentures to
certain officers and key employees. An aggregate of $30.0 million principal
amount of debentures may be issued under the plan, which are convertible into
shares of common stock after one year. At September 30, 1995, a total of $5.9
million principal amount of debentures are outstanding and convertible into
257,000 shares of common stock at $13.38 to $28.50 per share.
The Company has an Employee Stock Purchase
37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Baker Hughes Incorporated
Plan (the "Plan") under which there remain authorized and available for sale to
employees, at a discount of 15%, an aggregate of 2,068,000 shares of the
Company's common stock. Based on the market price of common stock on the date of
grant, the Company estimates that approximately 450,000 shares will be purchased
in July 1996. Under the Plan, 414,000, 421,000 and 521,000 shares were issued
at $17.96, $17.96 and $19.02 per share during 1995, 1994 and 1993,
respectively.
NOTE 8 INCOME TAXES
The geographical sources of income before income taxes, extraordinary loss and
cumulative effect of accounting changes for the three years ended September 30,
1995 are as follows:
(In thousands) 1995 1994 1993
- --------------------------------------------------------------------------------
United States $128,273 $139,940 $ 41,024
Foreign 76,827 86,176 59,027
----------------------------
Income before income taxes, extraordinary loss
and cumulative effect of accounting changes $205,100 $226,116 $100,051
============================
The provision for income taxes for the three years ended September 30, 1995 are
as follows:
(In thousands) 1995 1994 1993
- -------------------------------------------------------------------------
Currently payable:
United States $ 3,730 $ 10,875 $ 2,552
Foreign 36,604 36,733 19,294
----------------------------
Total currently payable 40,334 47,608 21,846
----------------------------
Deferred:
United States 42,106 46,433 (1,053)
Foreign 2,677 933 20,402
----------------------------
Total deferred 44,783 47,366 19,349
----------------------------
Total provision for income taxes $ 85,117 $ 94,974 $ 41,195
============================
The provision for income taxes differs from the amount computed by applying the
U.S. statutory income tax rates to income before income taxes, extraordinary
loss and cumulative effect of accounting changes for the reasons set forth
below:
(In thousands) 1995 1994 1993
- -------------------------------------------------------------------------------
Statutory income tax $ 71,785 $ 79,141 $ 34,818
Incremental effect of foreign operations 24,828 21,591 22,812
Goodwill amortization 4,155 5,653 6,903
State income taxes - net of U.S. tax benefit 995 2,940 1,701
Operating loss and credit carryforwards (13,103) (12,662) (26,714)
Other-net (3,543) (1,689) 1,675
------------------------------
Provision for income taxes $ 85,117 $ 94,974 $ 41,195
==============================
38
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes, and operating loss and
tax credit carryforwards. The tax effects of the Company's temporary differences
and carryforwards at September 30, 1995 and 1994 are as follows:
(In thousands) 1995 1994
- ------------------------------------------------------------------------
Deferred tax liabilities:
Property $ 54,500 $ 56,100
Other assets 60,650 33,900
Excess costs arising from acquisitions 59,800 44,400
Undistributed earnings of foreign subsidiaries 34,150 29,600
Other 21,600 15,700
-------------------
Total 230,700 179,700
-------------------
Deferred tax assets:
Receivables 3,200 4,900
Inventory 66,800 48,600
Employee benefits 47,400 36,750
Other accrued expenses 32,500 28,300
Operating loss carryforwards 27,000 27,400
Tax credit carryforwards 32,100 46,960
Other 11,800 7,750
-------------------
Subtotal 220,800 200,660
Valuation allowance (15,900) (28,840)
-------------------
Total 204,900 171,820
-------------------
Net deferred tax liability $ 25,800 $ 7,880
===================
A valuation allowance is recorded when it is more likely than not that some
portion or all of the deferred tax assets will not be realized. The ultimate
realization of the deferred tax assets depends on the ability to generate
sufficient taxable income of the appropriate character in the future. The
Company has reserved the operating loss carryforwards in certain non-U.S.
jurisdictions where its operations have decreased, currently ceased or the
Company has withdrawn entirely. At September 30, 1994, the Company had fully
reserved the U.S. credit portion of all its foreign tax credit ("FTC")
carryforwards based on a recent historical pattern of expiring foreign tax
credits and the lack of taxable income in amounts sufficient to utilize the
foreign tax credit carryforwards. At September 30, 1995, the Company determined
that a valuation allowance was no longer required for the U.S. credit portion of
its FTC carryforwards based on the expected utilization of FTC carryforwards in
1995 and expectations that taxable income will be generated during the
carryforward period in amounts sufficient to utilize the FTC carryforwards. In
addition, changes in the Company's profitability in Latin America resulted in a
change in the valuation allowance for certain non-U.S. operating loss
carryforwards. These changes in circumstances reduced the valuation allowance by
$8.3 million in 1995.
39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Baker Hughes Incorporated
Provision has been made for U.S. and additional foreign taxes for the
anticipated repatriation of certain earnings of foreign subsidiaries of the
Company. The Company considers the undistributed earnings of its foreign
subsidiaries above the amount already provided to be permanently reinvested.
These additional foreign earnings could become subject to additional tax if
remitted, or deemed remitted, as a dividend; however, the additional amount of
taxes payable is not practicable to estimate.
At September 30, 1995, the Company had approximately $32.1 million of general
business, alternative minimum tax and foreign tax credits available to offset
future payments of federal income taxes expiring in varying amounts between 1996
and 2008. At September 30, 1995, the Company had approximately $8.4 million of
U.S. capital loss carryforwards, which expire in varying amounts between 1998
and 2000.
NOTE 9 INDUSTRY SEGMENT AND GEOGRAPHIC INFORMATION
The Company operates principally in two industry segments - oilfield and
process.
Oilfield Industry: Manufacture and sale of equipment and provision of services
used during and subsequent to the drilling of oil and gas wells to achieve
safety and long-term productivity, to provide structural integrity to protect
against pressure and corrosion damage and to stimulate or rework wells during
their productive lives by chemical, mechanical or other stimulation means.
Process Industry: Manufacture and sale of process equipment for separating and
treating liquids, solids and slurries for environmental and other process
industries. The process industry also includes the results of Tracor Europa, a
computer peripherals operation.
Disposed Businesses: The disposed businesses segment information includes the
results of significant operations that have been disposed of in prior years.
The Company maintains worldwide manufacturing plants and service locations to
serve these industry segments. Intersegment sales and transfers between
geographic areas are priced at the estimated fair value of the products or
services negotiated between the selling and receiving units. Operating profit is
total revenues less costs and expenses (including unusual charges-net) but
before deduction of general corporate expenses totalling $35.0 million, $32.8
million and $35.6 million in 1995, 1994 and 1993, respectively. Identifiable
assets are those assets that are used by the Company's operations in each
industry segment or are identified with the Company's operations in each
geographic area. Corporate assets consist principally of cash, assets held for
disposal, investments and notes receivable which amount to $253.6 million,
$281.3 million and $231.2 million at September 30, 1995, 1994 and 1993,
respectively.
40
Summarized financial information concerning the industry segments and geographic
areas in which the Company operated at September 30, 1995, 1994 and 1993 and for
each of the years then ended is shown in the following tables:
Disposed
(In thousands) Oilfield Process Businesses Eliminations Total
- -------------------------------------------------------------------------------------------------------------------
Operations by Industry Segment:
1995
Revenues from unaffiliated
customers:
Sales $1,481,969 $323,139 $1,805,108
Services and rentals 806,254 26,102 832,356
Intersegment sales 9 7 $ (16)
--------------------------------------------------------------------------------
Total revenues 2,288,232 349,248 (16) 2,637,464
Operating profit 269,630 32,334 $ (11,083) 290,881
Identifiable assets 2,695,050 211,304 6,923 (318) 2,912,959
Capital expenditures 132,189 5,142 1,545 138,876
Depreciation and amortization 136,311 5,589 2,154 144,054
1994
Revenues from unaffiliated
customers:
Sales $1,366,555 $264,725 $ 96,454 $1,727,734
Services and rentals 744,086 32,938 777,024
Intersegment sales 297 589 4,678 $ (5,564)
--------------------------------------------------------------------------------
Total revenues 2,110,938 298,252 101,132 (5,564) 2,504,758
Operating profit 157,906 21,628 39,116 218,650
Identifiable assets 2,504,512 188,265 30,594 (4,939) 2,718,432
Capital expenditures 100,514 4,188 2,713 1,224 108,639
Depreciation and amortization 141,369 7,260 4,053 1,513 154,195
1993
Revenues from unaffiliated
customers:
Sales $1,332,407 $278,849 $ 334,537 $1,945,793
Services and rentals 710,725 29,479 15,700 755,904
Intersegment sales 359 522 5,154 $ (6,035)
--------------------------------------------------------------------------------
Total revenues 2,043,491 308,850 355,391 (6,035) 2,701,697
Operating profit 178,776 21,820 (6,130) 194,466
Identifiable assets 2,461,070 167,891 285,465 (2,330) 2,912,096
Capital expenditures 106,562 6,059 13,548 732 126,901
Depreciation and amortization 154,304 7,786 15,071 1,457 178,618
41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Baker Hughes Incorporated
Western Hemisphere Eastern Hemisphere
----------------------- ------------------
(In thousands) United States Other Europe Other Eliminations Total
- -----------------------------------------------------------------------------------------------------------------
Operations by Geographic Area:
1995
Revenues from unaffiliated
customers:
Sales $ 952,836 $290,317 $ 349,374 $ 212,581 $1,805,108
Services and rentals 260,032 155,650 248,521 168,153 832,356
Transfers between geographic
areas 210,032 28,639 43,534 25,576 $ (307,781)
----------------------------------------------------------------------------------
Total revenues 1,422,900 474,606 641,429 406,310 (307,781) 2,637,464
Operating profit 67,038 77,305 99,914 46,624 290,881
Identifiable assets 1,901,670 348,850 528,454 319,159 (185,174) 2,912,959
Export sales of U.S. companies 89,314 10,414 139,111 238,839
1994
Revenues from unaffiliated
customers:
Sales $ 870,023 $253,834 $ 362,994 $ 240,883 $1,727,734
Services and rentals 308,106 108,282 209,875 150,761 777,024
Transfers between geographic
areas 180,345 23,177 36,588 23,433 $ (263,543)
----------------------------------------------------------------------------------
Total revenues 1,358,474 385,293 609,457 415,077 (263,543) 2,504,758
Operating profit 33,439 59,688 65,077 60,446 218,650
Identifiable assets 1,631,374 278,109 552,104 411,317 (154,472) 2,718,432
Export sales of U.S. companies 77,219 14,883 152,478 244,580
1993
Revenues from unaffiliated
customers:
Sales $ 929,943 $254,678 $ 371,346 $ 389,826 $1,945,793
Services and rentals 281,844 95,325 195,224 183,511 755,904
Transfers between geographic
areas 175,411 23,039 48,252 28,183 $ (274,885)
----------------------------------------------------------------------------------
Total revenues 1,387,198 373,042 614,822 601,520 (274,885) 2,701,697
Operating profit (20,640) 43,077 65,606 106,423 194,466
Identifiable assets 1,689,377 298,381 663,132 402,428 (141,222) 2,912,096
Export sales of U.S. companies 79,236 14,503 197,607 291,346
42
NOTE 10 EMPLOYEE BENEFIT PLANS
Postretirement Benefits Other Than Pensions
The Company provides postretirement health care benefits for substantially all
U.S. employees. Expense recognized in 1995 and 1994 under SFAS No. 106 was $9.5
million and $8.8 million, respectively. In 1993, the Company recognized $9.5
million as expense for postretirement health care benefits under the cash basis
method. The Company's postretirement plans are not funded.
The following table sets forth the funded status and amounts recognized in the
Company's consolidated statements of financial position at September 30, 1995
and 1994:
(In thousands) 1995 1994
- --------------------------------------------------------------------------------
Accumulated postretirement benefit obligation ("APBO"):
Retirees $ (70,885) $ (83,449)
Fully eligible active plan participants (9,568) (9,856)
Other active plan participants (17,683) (19,920)
---------------------
Total (98,136) (113,225)
Unrecognized net (gain) loss (8,740) 7,595
---------------------
Accrued postretirement benefit cost $(106,876) $(105,630)
======================
Net periodic postretirement benefit cost (in thousands):
Service cost of benefits earned $ 1,300 $ 1,300
Interest cost on APBO 8,200 7,500
----------------------
Net periodic postretirement benefit cost $ 9,500 $ 8,800
======================
The assumed health care cost trend rate used in measuring the APBO as of
September 30, 1995 was 8.0% for 1996 declining gradually each successive year
until it reaches 5% in 2002, after which it remains constant. A 1% increase in
the trend rate for health care costs would have increased the APBO by
approximately 5% and the aggregate of the service and interest cost components
of the net periodic postretirement benefit cost by approximately 5%. The assumed
discount rate used in determining the APBO was 7.5%.
Defined Benefit Pension Plans
The Company has several noncontributory defined benefit pension plans covering
various domestic and foreign employees. Pension expense for these plans was $1.4
million, $1.4 million and $1.3 million in 1995, 1994 and 1993, respectively.
Generally, the Company makes annual contributions to the plans in amounts
necessary to meet minimum governmental funding requirements.
43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Baker Hughes Incorporated
Net pension expense includes the following components:
(In thousands) 1995 1994 1993
- -----------------------------------------------------------------------------------
Service cost - benefits earned during the period $ 1,375 $ 954 $ 1,413
Interest cost on projected benefit obligation 2,406 2,329 3,348
Actual return on assets (4,793) (1,710) (3,545)
Net amortization and deferral 2,391 (216) 126
---------------------------
Net pension expense $ 1,379 $ 1,357 $ 1,342
===========================
The weighted average assumptions used in the accounting for the defined benefit
plans were:
1995 1994 1993
- -------------------------------------------------------------------------
Discount rate 7.3% 7.7% 7.3%
Rates of increase in compensation levels 3.0% 3.5% 4.5%
Expected long-term rate of return on assets 8.5% 8.6% 8.8%
The following table sets forth the funded status and amounts recognized in the
Company's consolidated statements of financial position at September 30, 1995
and 1994:
1995 1994
# Overfunded Underfunded Overfunded Underfunded
(In thousands) Plans Plans Plans Plans
- -------------------------------------------------------------------------------------------------------------------------
Actuarial present value of benefit obligations:
Vested benefit obligation $(21,906) $ (9,316) $(15,309) $(12,922)
=================================================
Accumulated benefit obligation $(22,826) $ (9,995) $(15,518) $(13,848)
=================================================
Projected benefit obligation $(24,050) $(11,752) $(16,812) $(16,185)
Plan assets at fair value 30,828 3,324 22,159 7,387
-------------------------------------------------
Projected benefit obligation (in excess of) less than plan assets 6,778 (8,428) 5,347 (8,798)
Unrecognized prior service cost 371 259 98
Unrecognized net (gain) loss (2,922) (251) (2,024) 239
Unrecognized net liability at transition 7 327 320 97
-------------------------------------------------
Prepaid pension cost (pension liability) $ 4,234 $ (8,352) $ 3,902 $ (8,364)
=================================================
Pension plan assets are primarily mortgages, private placements, bonds and
common stocks.
Thrift Plan
Virtually all U.S. employees not covered under one of the Company's pension
plans are eligible to participate in the Company sponsored Thrift Plan. The
Thrift Plan allows eligible employees to elect to contribute from 2% to 15% of
their salaries to an investment trust. Employee contributions are matched by the
Company at the rate of $1.00 per $1.00 employee contribution for the first 2%
and $.50 per $1.00 employee contribution for the next 4% of the employee's
salary. In addition, the Company contributes for
44
all eligible employees between 2% and 5% of their salary depending on the
employee's age as of January 1 each year with such contributions becoming fully
vested to the employee after five years of employment. The Company's
contribution to the Thrift Plan and other defined contribution plans amounted to
$27.5 million, $26.3 million and $23.6 million in 1995, 1994 and 1993,
respectively.
Postemployment Benefits
The Company provides certain postemployment benefits to substantially all
domestic former or inactive employees following employment but before
retirement. Net postemployment expense in 1995 under SFAS No. 112 was $2.8
million, which consisted of service and interest cost of $1.0 million and $1.8
million, respectively. Expense in 1994 and 1993 was $2.0 million and $2.2
million, respectively. Certain disability income benefits are provided through a
qualified plan which is funded by contributions from the Company and employees.
The primary asset of the plan is a guaranteed insurance contract with an
insurance company. At September 30, 1995, the disability income obligation was
$10.2 million assuming a discount rate of 7% and the guaranteed insurance
contract had a contract value of $18.6 million. Certain additional benefits,
primarily the continuation of medical benefits while on disability, are provided
through a nonqualified, unfunded plan. At September 30, 1995, the plan has an
accumulated benefit obligation of $27.8 million assuming a discount rate of 7%.
NOTE 11 STOCKHOLDER RIGHTS AGREEMENT AND OTHER MATTERS
The Company has a Stockholder Rights Agreement to protect against coercive
takeover tactics. Pursuant to the agreement, the Company distributed to its
stockholders one Right for each outstanding share of common stock. Each Right
entitles the holder to purchase from the Company .01 of a share of the Series
One Junior Participating Preferred Stock and, under certain circumstances,
securities of the Company or an acquiring entity at 1/2 market value. The Rights
are exercisable only if a person or group either acquires 20% or more of the
Company's outstanding common stock or makes a tender offer for 30% or more of
the Company's common stock. The Rights may be redeemed by the Company at a price
of $.03 per Right at any time prior to a person or group acquiring 20% or more
of the Company's common stock. The Rights will expire on March 23, 1998.
Supplemental consolidated statement of operations information is as follows:
(In thousands) 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------
Operating leases (generally transportation equipment and warehouse facilities) $32,952 $30,089 $36,500
Research and development 37,423 37,393 41,067
Income taxes paid 49,672 39,397 43,112
Interest paid 45,206 55,488 65,673
At September 30, 1995, the Company had long-term operating leases covering
certain facilities and equipment on which minimum annual rental commitments for
each of the five years in the period ending September 30, 2000 are $28.7
million, $19.3 million, $12.2 million, $8.1 million and $7.0 million,
respectively, and $46.6 million in the aggregate thereafter. The Company has not
entered into any significant capital leases.
45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Baker Hughes Incorporated
NOTE 12 LITIGATION
Glyn Snell
In August 1994, the Company made a payment of $7.5 million to settle a class
action suit on behalf of Glyn Snell and other royalty interest owners
implicating Dresser Industries, BJ Services Company USA, Inc., the Company and
affiliates in damages to the same wells included in the Parker & Parsley
litigation.
TRW Inc.
In January 1994, the Company paid $10.4 million to TRW Inc. ("TRW") to satisfy a
judgment TRW had obtained in connection with a damage suit filed against the
Company and affiliates in connection with the sale of certain disc and decanter
machines by the affiliates prior to the Company's acquisition of the affiliates
in 1989.
Other
See Note 3 for additional litigation matters that have been resolved. The
Company is sometimes named as a defendant in litigation relating to the products
and services it provides. The Company insures against these risks to the extent
deemed prudent by its management, but no assurance can be given that the nature
and amount of such insurance will in every case fully indemnify the Company
against liabilities arising out of pending and future legal proceedings relating
to its ordinary business activities.
NOTE 13 ENVIRONMENTAL MATTERS
The Company's past and present operations include activities which are subject
to extensive federal and state environmental regulations.
The Company has been identified as a potentially responsible party ("PRP") in
remedial activities related to various "Superfund" sites. Applicable federal law
imposes joint and several liability on each PRP for the cleanup of these sites
leaving the Company with the uncertainty that it may be responsible for the
remediation cost attributable to other PRPs who are unable to pay their share of
the remediation costs. Generally, the Company has determined its share of such
total cost based on the ratio that the number of gallons of waste estimated to
be contributed to the site by the Company bears to the total number of gallons
of waste estimated to have been disposed at the site. The Company has accrued
what it believes to be its share of the total cost of remediation of these
Superfund sites. No accrual has been made under the joint and several liability
concept since the Company believes that the probability that it will have to pay
material costs above its share is remote due to the fact that the other PRPs
have substantial assets available to satisfy their obligation.
At September 30, 1995 and 1994, the Company had accrued approximately $13.3
million and $18.8 million, respectively, for remediation costs, including the
Superfund sites referred to above. The measurement of the accruals for
remediation costs is subject to uncertainties, including the evolving nature of
environmental regulations and the difficulty in estimating the extent and remedy
of agreements may be available to the Company to mitigate the remediation costs,
such amounts have not been considered in measuring the remediation accrual. The
Company believes that the likelihood of material losses in excess of those
amounts recorded is remote.
46
NOTE 14 QUARTERLY DATA (UNAUDITED):
Summarized quarterly financial data for the years ended September 30, 1995 and
1994 are shown in the table below:
(In thousands of dollars, First Second Third Fourth Fiscal Year
except per share amounts) Quarter Quarter Quarter Quarter Total
- --------------------------------------------------------------------------------------------------------------------------
Fiscal Year 1995: *
Revenues $ 606,917 $ 652,609 $ 668,404 $ 709,534 $2,637,464
Gross Profit ** 105,006 124,304 124,495 134,871 488,676
Income before cumulative
effect
of accounting change 24,231 28,000 32,242 35,510 119,983
Net income 9,633 28,000 32,242 35,510 105,385
Per share of common stock:
Income before
cumulative effect
of accounting change .15 .18 .09 .25 .67
Net income .05 .18 .09 .25 .57
Dividends per share .115 .115 .115 .115 .46
Fiscal Year 1994: *
Revenues $ 624,562 $ 650,016 $ 590,532 $ 639,648 $2,504,758
Gross Profit ** 104,882 114,747 100,293 102,091 422,013
Income before
extraordinary loss and
cumulative effect of
accounting changes 16,879 23,288 34,439 56,536 131,142
Net income (loss) (27,286) 23,288 22,651 24,004 42,657
Per share of common stock:
Income before
extraordinary loss and
cumulative effect of
accounting changes .10 .14 .22 .39 .85
Net income (loss) (.22) .14 .14 .16 .22
Dividends per share .115 .115 .115 .115 .46
* See Notes 1, 2, 3 and 4 for information regarding accounting changes and
earnings per share calculation, dispositions, unusual charges-net and the
extraordinary loss, respectively.
** Represents revenues less (i) cost of sales, (ii) cost of services and
rentals, (iii) research and engineering expense and (iv) marketing and field
service expense.
Stock Prices by Quarter
30
25
$24 3/4 $23 3/4 $23 3/8
$22 1/8 $22 $22 1/8 $19 7/8 $20
20 $18 7/8 $18 3/8 $20 7/8 $20 3/4
$17 $17 1/4 $17 $16 3/4
15
10
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
--------------------------------------------------------- ---------------------------------------------------------
1994 1995
47
FIVE YEAR SUMMARY OF FINANCIAL INFORMATION Baker Hughes Incorporated
(In thousands, except per share amounts) 1995 1994 1993 1992 1991
- -----------------------------------------------------------------------------------------------------------------------------------
Total revenues $2,637,464 $2,504,758 $2,701,697 $2,538,515 $2,828,357
-----------------------------------------------------------------------------------------
Costs and expenses:
Costs and expenses applicable
to revenues 2,148,788 2,082,745 2,262,545 2,132,928 2,283,064
General and administrative 232,787 214,788 238,238 232,407 249,833
Unusual charges - net 31,829 42,000 79,190 62,946
Operating income of business sold (10,488)
-----------------------------------------------------------------------------------------
Total 2,381,575 2,318,874 2,542,783 2,444,525 2,595,843
-----------------------------------------------------------------------------------------
Operating income 255,889 185,884 158,914 93,990 232,514
Gain on sale of Pumpsystems 101,000
Gain on sale of subsidiary stock 56,103
Interest expense (55,595) (63,835) (64,703) (68,112) (83,561)
Interest income 4,806 3,067 5,840 6,078 7,295
-----------------------------------------------------------------------------------------
Income before income taxes,
extraordinary loss and cumulative
effect of accounting changes 205,100 226,116 100,051 31,956 212,351
Income taxes (85,117) (94,974) (41,195) (26,925) (38,893)
-----------------------------------------------------------------------------------------
Income before extraordinary loss and
cumulative effect of accounting
changes 119,983 131,142 58,856 5,031 173,458
Extraordinary loss (44,320)
Cumulative effect of accounting changes (14,598) (44,165)
-----------------------------------------------------------------------------------------
Net income $ 105,385 $ 42,657 $ 58,856 $ 5,031 $ 173,458
=========================================================================================
Per share of common stock:
Income before extraordinary loss and
cumulative effect of accounting
changes $ .67 $ .85 $ .34 $ .00 $ 1.26
Net income .57 .22 .34 .00 1.26
Dividends .46 .46 .46 .46 .46
Financial Position:
Cash and cash equivalents $ 6,817 $ 69,179 $ 6,992 $ 6,692 $ 51,709
Working capital 984,684 855,421 920,969 715,472 652,404
Total assets 3,166,591 2,999,682 3,143,340 3,212,938 2,905,602
Long-term debt 798,352 637,972 935,846 812,465 545,242
Stockholders' equity 1,513,606 1,638,472 1,610,648 1,645,522 1,545,361
See Note 1 of Notes to Consolidated Financial Statements for a discussion of the
adoption of new accounting standards in 1995 and 1994. In addition to the
dispositions discussed in Note 2 of Notes to Consolidated Financial Statements,
the Company acquired Teleco Oilfield Services Inc. in 1992 and ChemLink Group,
Inc. in 1991. The Company also sold Baker Hughes Tubular Services ("BHTS") in
1992 and the TOTCO division of Exlog, Inc. and the remaining 29% of BJ Services
Company in 1991. See Note 3 of Notes to Consolidated Financial Statements for a
description of the unusual charges-net in 1994 and 1993. The unusual charges-net
in 1992 consisted primarily of restructurings in Oilfield Operations and
litigation claims offset by the gain on the disposition of BHTS. The unusual
charges-net in 1991 consisted primarily of the restructuring of Hughes
Christensen Company and litigation and insurance claims offset by the gain on
the disposition of TOTCO. See Note 4 of Notes to Consolidated Financial
Statements for a description of the extraordinary loss in 1994.
48