UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
---------------
Commission File Number 1-9397
---------------
BAKER HUGHES INCORPORATED
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 76-0207995
(State or Other Jurisdiction (IRS Employer
of Incorporation or Organization) Identification No.)
3900 ESSEX LANE, SUITE 1200, HOUSTON, TEXAS
(Address of Principal Executive Offices)
77027
(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.
<Table>
<Caption>
Class Outstanding at May 3, 2002
Common Stock, $1.00 par value per share 337,335,032 shares
</Table>
INDEX
<Table>
<Caption>
PAGE NO.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Statements of Operations - Three months ended
March 31, 2002 and 2001 2
Consolidated Condensed Balance Sheets - March 31, 2002 and December 31, 2001 3
Consolidated Condensed Statements of Cash Flows - Three months ended
March 31, 2002 and 2001 4
Notes to Consolidated Condensed Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations 11
Item 3. Quantitative and Qualitative Disclosures About Market Risk 19
PART II - OTHER INFORMATION 20
</Table>
1
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BAKER HUGHES INCORPORATED
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(In millions, except per share amounts)
(Unaudited)
<Table>
<Caption>
Three Months Ended March 31,
----------------------------
2002 2001
------------ ------------
Revenues $ 1,260.9 $ 1,228.5
------------ ------------
Costs and expenses:
Cost of revenues 916.9 890.0
Selling, general and administrative 214.1 203.2
Unusual charge -- 7.0
------------ ------------
Total 1,131.0 1,100.2
------------ ------------
Operating income 129.9 128.3
Equity in income of affiliates 13.0 10.5
Interest expense (28.4) (34.1)
Interest income 1.2 1.4
------------ ------------
Income before income taxes and cumulative effect of accounting change 115.7 106.1
Income taxes (39.9) (35.8)
------------ ------------
Income before cumulative effect of accounting change 75.8 70.3
Cumulative effect of accounting change, net of tax (42.5) 0.8
------------ ------------
Net income $ 33.3 $ 71.1
============ ============
Basic earnings per share:
Income before cumulative effect of accounting change $ 0.23 $ 0.21
Cumulative effect of accounting change (0.13) --
------------ ------------
Net income $ 0.10 $ 0.21
============ ============
Diluted earnings per share:
Income before cumulative effect of accounting change $ 0.22 $ 0.21
Cumulative effect of accounting change (0.12) --
------------ ------------
Net income $ 0.10 $ 0.21
============ ============
Cash dividends per share $ 0.115 $ 0.115
============ ============
</Table>
See accompanying notes to consolidated condensed financial statements.
2
BAKER HUGHES INCORPORATED
CONSOLIDATED CONDENSED BALANCE SHEETS
(In millions)
<Table>
<Caption>
March 31, December 31,
2002 2001
----------- -----------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 41.5 $ 45.4
Accounts receivable, net 1,321.4 1,365.3
Inventories 1,062.0 1,049.8
Other current assets 238.1 236.7
----------- -----------
Total current assets 2,663.0 2,697.2
----------- -----------
Investment in affiliates 953.3 929.0
Property, net 1,366.9 1,375.8
Goodwill 1,232.2 1,260.4
Intangible assets, net 151.9 154.0
Other assets 247.9 259.8
----------- -----------
Total assets $ 6,615.2 $ 6,676.2
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 539.9 $ 573.0
Short-term borrowings and current portion of long-term debt 13.7 12.2
Accrued employee compensation 210.6 318.8
Other current liabilities 279.6 308.4
----------- -----------
Total current liabilities 1,043.8 1,212.4
----------- -----------
Long-term debt 1,758.9 1,682.4
Deferred income taxes 200.7 210.3
Other long-term liabilities 257.6 243.3
Stockholders' equity:
Common stock 337.3 336.0
Capital in excess of par value 3,151.2 3,119.3
Retained earnings 176.9 182.3
Accumulated other comprehensive loss (311.2) (309.8)
----------- -----------
Total stockholders' equity 3,354.2 3,327.8
----------- -----------
Total liabilities and stockholders' equity $ 6,615.2 $ 6,676.2
=========== ===========
</Table>
See accompanying notes to consolidated condensed financial statements.
3
BAKER HUGHES INCORPORATED
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
<Table>
<Caption>
Three Months Ended March 31,
----------------------------
2002 2001
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 33.3 $ 71.1
Adjustments to reconcile net income to net cash flows from operating
activities:
Depreciation, depletion and amortization 79.1 87.3
Provision (benefit) for deferred income taxes (13.0) 3.8
Cumulative effect of accounting change 42.5 0.8
(Gain) on sale or disposal of assets (9.6) (5.4)
Equity in income of affiliates (13.0) (10.5)
Change in accounts receivable 56.0 51.0
Change in inventories (11.7) (77.2)
Change in accounts payable (36.9) 2.2
Change in accrued employee compensation and other current liabilities (147.0) 1.4
Change in other long-term liabilities (0.1) (1.1)
Changes in other assets and liabilities 32.1 (59.8)
----------- -----------
Net cash flows from operating activities 11.7 63.6
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for capital assets (62.3) (52.7)
Acquisition of businesses, net of cash acquired (30.6) --
Investment in affiliate (11.3) --
Proceeds from sale or disposal of assets 17.4 15.3
----------- -----------
Net cash flows from investing activities (86.8) (37.4)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) of commercial paper and other short-term debt 77.8 (27.3)
Proceeds from issuance of common stock 33.2 42.2
Dividends (38.7) (38.5)
----------- -----------
Net cash flows from financing activities 72.3 (23.6)
----------- -----------
Effect of foreign exchange rate changes on cash (1.1) (1.7)
----------- -----------
Increase (decrease) in cash and cash equivalents (3.9) 0.9
Cash and cash equivalents, beginning of period 45.4 34.6
----------- -----------
Cash and cash equivalents, end of period $ 41.5 $ 35.5
=========== ===========
Income taxes paid $ 36.8 $ 16.1
Interest paid $ 35.6 $ 36.8
</Table>
See accompanying notes to consolidated condensed financial statements.
4
BAKER HUGHES INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
The unaudited consolidated condensed financial statements of Baker Hughes
Incorporated and its subsidiaries (the "Company") included herein have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission. Accordingly, certain information and disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. The Company believes that
the presentations and disclosures herein are adequate to make the information
not misleading. The unaudited consolidated condensed financial statements
reflect all adjustments (consisting of normal recurring adjustments) necessary
for a fair presentation of the interim periods. These unaudited consolidated
condensed financial statements should be read in conjunction with the Company's
audited consolidated financial statements included in its Annual Report on Form
10-K for the year ended December 31, 2001. The results of operations for the
interim periods are not necessarily indicative of the results of operations to
be expected for the full year.
In the notes to the unaudited consolidated condensed financial statements,
all dollar and share amounts in tabulations are in millions of dollars and
shares, respectively, unless otherwise indicated.
NOTE 2. ACQUISITIONS AND INVESTMENT IN AFFILIATE
During the three months ended March 31, 2002, the Company's Oilfield
Operations segment acquired three businesses having an aggregate purchase price
of $49.1 million, net of cash acquired. As a result of these acquisitions, the
Company recorded approximately $34.9 million of goodwill. The purchase prices
were allocated based on estimated fair values at the date of acquisition and may
be subject to change. Pro forma results of operations have not been presented
because the effects of these acquisitions were not material to the Company's
consolidated financial statements on either an individual or aggregate basis.
In February 2002, the Company invested $11.3 million in Luna Energy, L.L.C.
("Luna Energy"), a venture formed to develop, manufacture, commercialize, sell,
market and distribute downhole fiber optic and other sensors for oil and gas
exploration, production, transportation and refining applications. The Company
has a 40% ownership interest in Luna Energy.
NOTE 3. COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss) includes all changes in equity during a period
except those resulting from investments by and distributions to owners. The
components of the Company's comprehensive income (loss), net of related tax, are
as follows:
<Table>
<Caption>
Three Months Ended
March 31,
----------------------------
2002 2001
------------ ------------
Net income $ 33.3 $ 71.1
Other comprehensive loss:
Foreign currency translation adjustments (1.4) (32.6)
Net gain on derivative instruments -- 0.2
------------ ------------
Total comprehensive income $ 31.9 $ 38.7
============ ============
</Table>
5
BAKER HUGHES INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
Total accumulated other comprehensive loss consisted of the following:
<Table>
<Caption>
March 31, December 31,
2002 2001
------------ ------------
Foreign currency translation adjustments $ (299.0) $ (297.6)
Pension adjustment (12.2) (12.2)
------------ ------------
Total accumulated other comprehensive loss $ (311.2) $ (309.8)
============ ============
</Table>
NOTE 4. FINANCIAL INSTRUMENTS
At March 31, 2002, the Company had two interest rate swap agreements that
have been designated and have qualified as fair value hedging instruments. They
were fully effective, resulting in no net gain or loss recorded in the
consolidated condensed statement of operations. The fair value of the swaps at
March 31, 2002 was a $0.3 million liability recognized in the consolidated
condensed balance sheet.
At March 31, 2002, the Company had entered into foreign currency forward
contracts with notional amounts of $15.0 million, $1.0 million and $0.2 million
to hedge exposure to currency fluctuations in the British Pound Sterling , the
Indonesian Rupiah and the Euro, respectively. These contracts are cash flow
hedges. Based on quoted market prices as of March 31, 2002 for contracts with
similar terms and maturity dates, no asset or liability was recorded as the
forward price was substantially the same as the contract price.
NOTE 5. UNUSUAL CHARGE
During the first quarter of 2001, the Company recorded unusual charges of
$7.0 million. The Company accrued cash charges of $6.0 million that consisted of
severance for approximately 100 employees due to the restructuring of the German
operations of BIRD Machine, a division of the Process Operations segment. The
employee groups that are being terminated are comprised of engineering, field
service and support personnel. The amount accrued for severance is based upon
the positions eliminated and the Company's specific or statutory severance plans
in place for these operations and does not include any portion of the employees'
salary through their severance dates. The Company has paid $3.7 million of
accrued severance through March 31, 2002. The noncash portion of the charge was
$1.0 million and related to the loss on the sale of a product line in the
Oilfield Operations segment.
NOTE 6. EARNINGS PER SHARE
A reconciliation of the number of shares used for the basic and diluted
earnings per share ("EPS") calculation is as follows:
<Table>
<Caption>
Three Months Ended
March 31,
---------------------------
2002 2001
------------ ------------
Weighted average common shares outstanding for basic EPS 336.8 335.0
Effect of dilutive securities - stock plans 1.3 2.6
------------ ------------
Adjusted weighted average common shares outstanding for diluted EPS 338.1 337.6
============ ============
Anti-dilutive shares excluded from diluted EPS:
Options with option price greater than market price 5.0 2.3
Liquid Yield Options Notes convertible into common stock -- 7.2
</Table>
6
BAKER HUGHES INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7. INVENTORIES
Inventories are comprised of the following:
<Table>
<Caption>
March 31, December 31,
2002 2001
------------ ------------
Finished goods $ 863.4 $ 856.9
Work in process 86.6 81.7
Raw materials 112.0 111.2
------------ ------------
Total $ 1,062.0 $ 1,049.8
============ ============
</Table>
NOTE 8. GOODWILL AND INTANGIBLE ASSETS
On January 1, 2002, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 142, Goodwill and Other Intangible Assets. SFAS No. 142
addresses the initial recognition and measurement of intangible assets acquired
in a business combination and the accounting for goodwill and other intangible
assets subsequent to their acquisition. SFAS No. 142 provides that intangible
assets with finite useful lives be amortized and tested for potential impairment
whenever events or circumstances indicate that the carrying amounts may not be
recoverable. Goodwill, including goodwill associated with equity method
investments, and intangible assets with indefinite lives are not to be
amortized. Goodwill and intangible assets with indefinite lives will be tested
for impairment annually or more frequently if circumstances indicate that
impairment may exist.
The adoption of SFAS No. 142 required the Company to perform a transitional
impairment test of goodwill in each of its reporting units as of January 1,
2002. The Company's reporting units were based on its organizational and
reporting structure. Corporate and other assets and liabilities were allocated
to the reporting units to the extent that they related to the operations of
those reporting units. Valuations of the reporting units were performed by an
independent third party. The goodwill of the Company's Process Operations
segment was determined to be impaired using a combination of a market value and
discounted cash flows approach to estimate fair value. Accordingly, the Company
recognized a transitional impairment loss of $42.5 million, net of income taxes
of $20.4 million, recorded as the cumulative effect of accounting change in the
consolidated condensed statement of operations.
The changes in the carrying amount of goodwill (net of accumulated
amortization) for the three months ended March 31, 2002 are as follows:
<Table>
<Caption>
Oilfield Process
Operations Operations Total
------------ ------------ ------------
Balance as of December 31, 2001 $ 1,197.5 $ 62.9 $ 1,260.4
Goodwill acquired during the period 34.9 -- 34.9
Transitional impairment loss -- (62.9) (62.9)
Translation adjustments and other (0.2) -- (0.2)
------------ ------------ ------------
Balance as of March 31, 2002 $ 1,232.2 $ -- $ 1,232.2
============ ============ ============
</Table>
7
BAKER HUGHES INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
Intangible assets, which continue to be amortized, are comprised of the
following:
<Table>
<Caption>
March 31, 2002 December 31, 2001
---------------------------------------- ----------------------------------------
Gross Gross
Carrying Accumulated Carrying Accumulated
Amount Amortization Net Amount Amortization Net
----------- ------------ ----------- ----------- ------------ -----------
Technology-based $ 169.5 $ (34.1) $ 135.4 $ 169.7 $ (32.5) $ 137.2
Marketing-related 21.2 (6.0) 15.2 21.2 (5.9) 15.3
Contract-based 7.9 (7.3) 0.6 7.9 (7.1) 0.8
Other 3.5 (2.8) 0.7 3.5 (2.8) 0.7
----------- ----------- ----------- ----------- ----------- -----------
Total $ 202.1 $ (50.2) $ 151.9 $ 202.3 $ (48.3) $ 154.0
=========== =========== =========== =========== =========== ===========
</Table>
The adoption of SFAS No. 142 required the Company to re-evaluate the
remaining useful lives of its intangible assets to determine whether the
remaining useful lives are appropriate. The Company also re-evaluated the
amortization methods of its intangible assets to determine whether the
amortization reflects the pattern in which the economic benefits of the
intangible assets are consumed. In performing these evaluations, the Company
reduced the remaining life of one of its marketing-related intangibles and
changed the method of amortization of one of its technology-based intangibles.
Amortization expense for intangible assets for the three months ended March
31, 2002 was $2.5 million and is estimated to be $10.5 million for 2002.
Estimated amortization expense for each of the subsequent four fiscal years is
expected to be approximately $11.6 million to $12.8 million.
In accordance with SFAS No. 142, the Company discontinued the amortization
of goodwill and goodwill associated with equity method investments effective
January 1, 2002. The unaudited pro forma results of operations of the Company,
giving effect to SFAS No. 142 as if it were adopted on January 1, 2001, are as
follows:
<Table>
<Caption>
Three Months Ended
March 31,
------------ ------------
2002 2001
------------ ------------
Net income:
As reported $ 33.3 $ 71.1
Goodwill amortization -- 11.4
Marketing-related amortization -- 0.1
Transitional impairment loss 42.5 --
------------ ------------
As adjusted $ 75.8 $ 82.6
============ ============
Basic earnings per share:
As reported $ 0.10 $ 0.21
Goodwill amortization -- 0.04
Marketing-related amortization -- --
Transitional impairment loss 0.13 --
------------ ------------
As adjusted $ 0.23 $ 0.25
============ ============
Diluted earnings per share:
As reported $ 0.10 $ 0.21
Goodwill amortization -- 0.04
Marketing-related amortization -- --
Transitional impairment loss 0.12 --
------------ ------------
As adjusted $ 0.22 $ 0.25
============ ============
</Table>
8
BAKER HUGHES INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9. SEGMENT AND RELATED INFORMATION
The Company has eight operating divisions that have separate management
teams and infrastructures that offer different products and services. The
divisions have been aggregated into two reportable segments, "Oilfield
Operations" and "Process Operations".
The Oilfield Operations segment consists of six operating divisions - Baker
Atlas, Baker Hughes INTEQ, Baker Oil Tools, Baker Petrolite, Centrilift and
Hughes Christensen - that manufacture and sell equipment and provide services
used in the drilling, completion, production and maintenance of oil and gas
wells and in reservoir measurement and evaluation. They have been aggregated
because the long-term financial performance of these divisions is affected by
similar economic conditions and the consolidated results are evaluated regularly
by the chief operating decision maker in deciding how to allocate resources and
in assessing performance. The principal markets for this segment include all
major oil and gas producing regions of the world including North America, Latin
America, Europe, Africa, the Middle East and the Far East. Customers include
major multi-national, independent and national or state-owned oil companies. The
Oilfield Operations segment also includes the Company's interests in an oil and
gas property and its investment in WesternGeco.
The Process Operations segment consists of two operating divisions - BIRD
Machine and EIMCO Process Equipment - that manufacture and sell process
equipment for separating solids from liquids and liquids from liquids through
filtration, sedimentation, centrifugation and flotation processes. The principal
markets for this segment include all regions of the world where there are
significant industrial and municipal wastewater applications and base metals
activity. Customers include municipalities, contractors, mineral producers and
engineering, pulp and paper, and industrial companies.
The Company evaluates the performance of its segments based on income
before income taxes, accounting changes, unusual items and interest income and
expense. Intersegment sales and transfers are not significant.
Summarized financial information is shown in the following table. The
"Other" column includes corporate-related items, results of insignificant
operations and, as it relates to segment profit (loss), income and expense not
allocated to reportable segments.
<Table>
<Caption>
Oilfield Process
Operations Operations Other Total
------------ ------------ ------------ ------------
REVENUES
Three months ended March 31, 2002 $ 1,189.1 $ 71.8 $ -- $ 1,260.9
Three months ended March 31, 2001 $ 1,156.2 $ 72.3 $ -- $ 1,228.5
SEGMENT PROFIT (LOSS)
Three months ended March 31, 2002 $ 179.4 $ (1.6) $ (62.1) $ 115.7
Three months ended March 31, 2001 $ 183.1 $ (5.4) $ (71.6) $ 106.1
TOTAL ASSETS
As of March 31, 2002 $ 5,850.7 $ 241.5 $ 523.0 $ 6,615.2
As of December 31, 2001 $ 5,807.6 $ 296.1 $ 572.5 $ 6,676.2
</Table>
9
BAKER HUGHES INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
The following table presents the details of "Other" segment loss:
<Table>
<Caption>
Three Months Ended
March 31,
------------------------------
2002 2001
------------ ------------
Corporate expenses $ (34.9) $ (31.9)
Interest, net (27.2) (32.7)
Unusual charge -- (7.0)
------------ ------------
Total $ (62.1) $ (71.6)
============ ============
</Table>
NOTE 10. NEW ACCOUNTING STANDARDS
Effective January 1, 2002, the Company adopted SFAS No. 144, Accounting for
the Impairment or Disposal of Long-lived Assets. SFAS No. 144 provides updated
guidance concerning the recognition and measurement of an impairment loss for
certain types of long-lived assets and modifies the accounting and reporting of
discontinued operations. The adoption of SFAS No. 144 by the Company did not
have an impact on the consolidated financial statements of the Company.
In June 2001, the Financial Accounting Standards Board issued SFAS No. 143,
Accounting for Asset Retirement Obligations. SFAS No. 143 addresses financial
accounting and reporting for obligations associated with the retirement of
long-lived assets and the associated asset retirement costs. SFAS No. 143
requires that the fair value of a liability associated with an asset retirement
be recognized in the period in which it is incurred if a reasonable estimate of
fair value can be made. The associated retirement costs are capitalized as part
of the carrying amount of the long-lived asset and subsequently depreciated over
the life of the asset. The Company has not completed its analysis of the impact,
if any, of the adoption of SFAS No. 143 on its consolidated financial
statements. The Company will adopt SFAS No. 143 for its fiscal year beginning
January 1, 2003.
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of
Operations ("MD&A") should be read in conjunction with the Company's
consolidated condensed financial statements and the related notes thereto.
FORWARD-LOOKING STATEMENTS
MD&A and certain statements in the Notes to Consolidated Condensed
Financial Statements include forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, (each a "Forward-Looking
Statement"). The words "anticipate," "believe," "expect," "plan," "intend,"
"estimate," "project," "forecasts," "will," "could," "may," "suggest," "likely"
and similar expressions, and the negative thereof, are intended to identify
forward-looking statements. Baker Hughes' expectations about its business
outlook, customer spending, oil and gas prices and the business environment for
the Company and the industry in general are only its forecasts regarding these
matters. These forecasts may be substantially different from actual results,
which are affected by the following risk factors: the effect of competition; the
level of petroleum industry exploration and production expenditures; drilling
rig and oil and gas industry manpower and equipment availability; the Company's
ability to implement and effect price increases for its products and services;
the Company's ability to control its costs; the availability of sufficient
manufacturing capacity and subcontracting capacity at forecasted costs to meet
the Company's revenue goals; the ability of the Company to introduce new
technology on its forecasted schedule and at its forecasted cost; the ability of
the Company's competitors to capture market share; world economic conditions;
price of, and the demand for, crude oil and natural gas; drilling activity;
weather; the legislative environment in the United States and other countries;
Organization of Petroleum Exporting Countries ("OPEC") policy; war or extended
period of conflict involving the United States, the Middle East and other major
petroleum-producing or consuming regions; acts of war or terrorism; the
development of technology that lowers overall finding and development costs; the
condition of the capital and equity markets; the impact of the Enron bankruptcy
(including new laws and regulations that could have a significant impact on the
future operations and conduct of all businesses); and the timing of any of the
foregoing. See "Business Environment" for a more detailed discussion of certain
of these risk factors.
Baker Hughes' expectations regarding its level of capital expenditures
described in "Liquidity and Capital Resources " below are only its forecasts
regarding these matters. In addition to the factors described in the previous
paragraph and in "Business Environment," these forecasts may be substantially
different from actual results, which are affected by the following factors: the
accuracy of the Company's estimates regarding its spending requirements;
regulatory, legal and contractual impediments to spending reduction measures;
the occurrence of any unanticipated acquisition or research and development
opportunities; changes in the Company's strategic direction; and the need to
replace any unanticipated losses in capital assets.
BUSINESS ENVIRONMENT
The Company has eight operating divisions each with separate management
teams and infrastructures that offer different products and services. The
divisions have been aggregated into two reportable segments - "Oilfield
Operations" and "Process Operations".
The Oilfield Operations segment consists of six divisions - Baker Atlas,
Baker Hughes INTEQ, Baker Oil Tools, Baker Petrolite, Centrilift and Hughes
Christensen - that manufacture and sell equipment and provide related services
used in exploring for, developing and producing hydrocarbon reserves. The
Oilfield Operations segment also includes the Company's interests in an oil and
gas property in Nigeria and its investment in WesternGeco.
The Process Operations segment consists of two divisions - EIMCO Process
Equipment and BIRD Machine Company - that manufacture and sell process equipment
for separating solids from liquids and liquids from liquids through filtration,
sedimentation, centrifugation and flotation processes.
11
The business environment for the Company's Oilfield Operations segment and
its corresponding operating results can be significantly affected by the level
of energy industry capital expenditures for the exploration and production of
oil and gas reserves. These expenditures are influenced strongly by oil company
expectations about the supply and demand for crude oil and natural gas products
and by the energy price environment that results from supply and demand
imbalances.
Key risk factors which influence the worldwide crude oil and gas markets
are:
o Production control - the degree to which OPEC nations and other large
producing countries, such as Mexico, Norway, and Russia, are willing and
able to control production and exports of crude oil to reduce supply and
support their targeted oil price while meeting their market share
objectives.
o Global economic growth - particularly the impact of the U.S. and Western
European economies and economic activity in Japan, China, South Korea and
the developing areas of Asia where the correlation between energy demand
and economic growth is strong. During 2001, the U.S. economy went into a
recession that is expected to end in the second quarter of 2002. An
important factor in the global economic growth in 2002 is the timing and
strength of the U.S. economic recovery. In addition, the International
Energy Agency forecasted in March 2002 worldwide oil demand growth of
approximately 0.6% for 2002, compared with the 2.0% averaged for the 10
years ending December 2000.
o Oil and gas storage inventories - relative to historic levels. Inventory
levels offer a measure of the balance between supply and demand.
Specifically, North American natural gas inventories at the beginning of
April 2002 (the start of the 2002 summer injection season) are
significantly higher than previous years suggesting that summer injection
demand will be less than normal, thereby reducing overall demand for
natural gas.
o Ability to produce natural gas - The amount of natural gas that can be
produced is a function of the number of new wells drilled, completed and
connected to pipelines as well as the rate of reservoir depletion. Advanced
technologies, such as horizontal drilling, result in improved total
recovery but also more rapid production decline.
o Technological progress - in the design and application of new products that
allow oil and gas companies to drill fewer wells and to drill, complete and
produce wells faster and at lower cost.
o Maturity of the resource base - of known hydrocarbon reserves in the North
Sea, U.S., Canada and Latin America.
o The pace of new investment - access to capital and the reinvestment of
available cash flow into existing and emerging markets.
o Price volatility - the impact of widely fluctuating commodity prices on the
stability of the market and subsequent impact on customer spending.
o Possible supply disruptions - from key oil exporting countries, including,
but not limited to, Iraq, Saudi Arabia and other Middle Eastern countries
and Venezuela, due to political instability or military activity.
o Weather - the impact of variations in temperatures as compared with normal
weather patterns and the related effect on demand for oil and natural gas.
OIL AND GAS PRICES
Generally, customers' expectations about their prospects from oil and gas
sales and customers' expenditures to explore for or produce oil and gas rise or
fall with corresponding changes in the prices of oil or gas. Accordingly,
changes in these expenditures will normally result in increased or decreased
demand for the Company's products and services in its Oilfield Operations
segment. Crude oil and natural gas prices are summarized in the table below as
averages of the daily closing prices during each of the periods indicated.
12
<Table>
<Caption>
Three Months Ended
March 31,
----------------------------
2002 2001
------- -------
West Texas Intermediate Crude ($/bbl) $ 21.58 $ 28.75
U.S. Spot Natural Gas ($/MMBtu) 2.53 6.45
</Table>
Oil prices averaged $21.58/bbl for the three months ended March 31, 2002,
increasing from a low of $17.97/bbl to a high of $26.31/bbl in March. Slower
economic growth and higher OPEC production levels contributed to an increase in
inventories and a moderation in oil prices, in comparison with the same period
one year ago. Oil prices rose during the quarter as the U.S. and worldwide
economy began to improve and as the potential for a significant supply
disruption increased, driven by the Israeli/Palenstinian crisis, threats of a
possible Iraqi supply disruption and political unrest in Venezuela.
During the three months ended March 31, 2002, U.S. natural gas prices
averaged $2.53/MMBtu, down from the $6.45/MMBtu for the three months ended March
31, 2001. Prices ranged from a high of $3.59/MMbtu to a low of $1.98/MMBtu. The
decline in natural gas prices, when compared with the first quarter of 2001, was
driven by a decrease in demand for natural gas due to slower U.S. economic
growth and milder than normal weather, which was offset only partially by
increased demand from fuel switching from crude oil back to natural gas and a
modest increase in production of natural gas. Although storage levels remain
significantly above year earlier levels, expectations for normal weather,
recovering demand, particularly in the industrial sector, and lowering
production levels resulting from lower rig activity, fueled expectations that
the supply and demand balance would tighten significantly during the 2002/2003
winter.
RIG COUNTS
The Company is engaged in the oilfield service industry providing products
and services that are used in exploring for, developing and producing oil and
gas reservoirs. When drilling or workover rigs are active, they consume the
products and services produced by the oilfield service industry. The rig counts
act as a leading indicator of consumption of products and services used in
drilling, completing, producing and processing hydrocarbons.
Rig count trends are governed by the exploration and development spending
by oil and gas companies, which in turn is influenced by current and future
price expectations for oil and natural gas. Rig counts therefore reflect the
relative strength and stability of energy prices. The Company's rig counts are
summarized in the table below as averages for each of the periods indicated and
are based on weekly rig counts for the U.S. and Canada and monthly rig counts
for all other areas.
<Table>
<Caption>
Three Months Ended
March 31,
---------------------------
2002 2001
------------ ------------
U.S. - Land 693 974
U.S. - Offshore 121 167
Canada 377 510
------------ ------------
North America 1,191 1,651
------------ ------------
Latin America 225 261
North Sea 55 51
Other Europe 39 36
Africa 55 52
Middle East 193 172
Asia Pacific 165 149
------------ ------------
Outside North America 732 721
------------ ------------
Worldwide 1,923 2,372
============ ============
U.S. Workover Rigs 991 1,191
============ ============
</Table>
13
OUTLOOK
Caution is advised that the factors described above in "Forward Looking
Statements" and "Business Environment" could negatively impact the Company's
expectations for oil demand, oil and gas prices and drilling activity.
Oil - Oil prices are expected to average between $20/bbl and $30/bbl in
2002. Sustained oil prices in the range of $20/bbl to $25/bbl and an outlook
that prices are likely to remain in this range or higher are expected to support
the Company's forecast of customer spending. Oil prices are particularly
susceptible to changes in oil supply as oil demand growth in 2002 compared with
2001 is expected to be the lowest year-to-year growth in a decade.
o Prices could average $20/bbl to $22/bbl or less if anticipated
economic growth fails to materialize or if OPEC, Russia or other
non-OPEC producers prove unwilling or unable to control their
production.
o Prices could average $28/bbl to $30/bbl or more if OPEC fails to
increase quotas as required, if supply is disrupted or the market
perceives that a disruption of oil supply is likely.
North America Natural Gas - U.S. natural gas prices are expected to average
between $2.50/MMBtu and $3.75/MMBtu in 2002, ranging from a low of almost
$2.00/MMBtu in the first quarter of 2002 to highs approaching $4.00/MMBtu in the
second half of the year.
o Prices are expected to move toward the top of this range in the second
half of the year if the combined impact of a growing U.S. economy,
particularly in the industrial sector, and production declines
resulting from lower customer spending in the second half of 2001 and
the first half of 2002, increase expectations for supply shortages in
the winter of 2002/2003.
o Prices could move to the bottom of this range if the U.S. economic
recovery is delayed or weaker than expected, if weather is milder than
expected or if low drilling activity does not result in significantly
less gas production in 2002.
Customer Spending - Based upon the Company's discussions with its major
customers and its review of published industry surveys and reports and the
Company's outlook for oil and gas prices described above, the anticipated
customer spending trends are as follows:
o North America - Spending in North America, primarily towards
developing natural gas supplies, is expected to be down 15% to 20% in
2002 compared with 2001.
o Outside North America - Customer spending, primarily directed at
developing oil supplies, is expected to be flat to up 5% in 2002
compared with 2001.
o Total spending is expected to be down 3% to 5% in 2002 compared with
2001.
Drilling Activity - Based upon the Company's outlooks for oil and natural
gas prices and customer spending described above, the Company's outlook for
drilling activity, as measured by the Baker Hughes rig count, is as follows:
o The North American rig count is expected to decline between 20% to 25%
in 2002 compared with 2001.
o Drilling activity outside of North America is expected to increase 3%
to 5% in 2002 compared with 2001.
14
NEW ACCOUNTING STANDARDS
On January 1, 2002, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 142, Goodwill and Other Intangible Assets. SFAS No. 142
addresses the initial recognition and measurement of intangible assets acquired
in a business combination and the accounting for goodwill and other intangible
assets subsequent to their acquisition. SFAS No. 142 provides that intangible
assets with finite useful lives be amortized and tested for potential impairment
whenever events or circumstances indicate that carrying amounts may not be
recoverable. Goodwill, including goodwill associated with equity method
investments, and intangible assets with indefinite lives are not to be
amortized. Goodwill and intangible assets with indefinite lives will be tested
for impairment annually or more frequently if circumstances indicate that
impairment may exist.
The adoption of SFAS No. 142 required the Company to perform a transitional
impairment test of goodwill in each of its reporting units as of January 1,
2002. The Company's reporting units were based on its organizational and
reporting structure. Corporate and other assets and liabilities were allocated
to the reporting units to the extent that they related to the operations of
those reporting units. Valuations of the reporting units were performed by an
independent third party. The goodwill of the Company's Process Operations
segment was determined to be impaired using a combination of a market value and
discounted cash flows approach to estimate fair value. Accordingly, the Company
recognized a transitional impairment loss of $42.5 million, net of income taxes
of $20.4 million, recorded as the cumulative effect of accounting change in the
consolidated condensed statement of operations.
The adoption of SFAS No. 142 required the Company to re-evaluate the
remaining useful lives of its intangible assets to determine whether the
remaining useful lives are appropriate. The Company also re-evaluated the
amortization methods of its intangible assets to determine whether the
amortization reflects the pattern in which the economic benefits of the
intangible assets are consumed. In performing these evaluations, the Company
reduced the remaining life of one of its marketing-related intangibles and
changed the method of amortization of one of its technology-based intangibles.
In accordance with SFAS No. 142, the Company discontinued the amortization
of goodwill and goodwill associated with equity method investments effective
January 1, 2002. Amortization of goodwill and goodwill associated with equity
method investments included in the Company's consolidated condensed statement of
operations for the three months ended March 31, 2001 was $10.8 million and $2.0
million, respectively.
Effective January 1, 2002, the Company adopted SFAS No. 144, Accounting for
the Impairment or Disposal of Long-lived Assets. SFAS No. 144 provides updated
guidance concerning the recognition and measurement of an impairment loss for
certain types of long-lived assets and modifies the accounting and reporting of
discontinued operations. The adoption of SFAS No. 144 by the Company did not
have an impact on the consolidated financial statements of the Company.
In June 2001, the Financial Accounting Standards Board issued SFAS No. 143,
Accounting for Asset Retirement Obligations. SFAS No. 143 addresses financial
accounting and reporting for obligations associated with the retirement of
long-lived assets and the associated asset retirement costs. SFAS No. 143
requires that the fair value of a liability associated with an asset retirement
be recognized in the period in which it is incurred if a reasonable estimate of
fair value can be made. The associated retirement costs are capitalized as part
of the carrying amount of the long-lived asset and subsequently depreciated over
the life of the asset. The Company has not completed its analysis of the impact,
if any, of the adoption of SFAS No. 143 on its consolidated financial
statements. The Company will adopt SFAS No. 143 for its fiscal year beginning
January 1, 2003.
RESULTS OF OPERATIONS
REVENUES
Revenues for the three months ended March 31, 2002 were $1,260.9 million,
an increase of 2.6% compared with the three months ended March 31, 2001.
Oilfield Operations revenues were $1,189.1 million, an increase of 2.8% compared
with the three months ended March 31, 2001. Oilfield Operations revenues in
North America, which account for 40.6%
15
of total Oilfield Operations revenues, decreased 8.7% for the three months ended
March 31, 2002 compared with the three months ended March 31, 2001. This
decrease reflects lower activity in U.S. land operations and Canada, as
evidenced by a 27.9% decrease in the North American rig count, partially offset
by strong performances in the deepwater Gulf of Mexico. Outside North America,
Oilfield Operations revenues increased 12.7% for the three months ended March
31, 2002 compared with the three months ended March 31, 2001. This increase
reflects the improvement in international drilling activity, particularly in the
North Sea, the Middle East and Asia Pacific, partially offset by weaker revenues
in Latin America due to the political and economic environments in Argentina and
Venezuela.
Process Operations revenues for the three months ended March 31, 2002 were
$71.8 million, a 0.7% decrease compared with the three months ended March 31,
2001. The decrease is primarily due to weak demand for replacement and repair
parts and delays associated with a large order.
GROSS MARGIN
Gross margin for the three months ended March 31, 2002 and 2001 was 27.3%
and 27.6%, respectively. Excluding the effects of the $10.8 million of goodwill
amortization included in cost of revenues for the three months ended March 31,
2001, gross margin for the three months ended March 31, 2002 and 2001 was 27.3%
and 28.4%, respectively. The decrease in gross margin is the result of the
Company's strategy not to reduce its work force to match current activity
levels, preserving its ability to service customers following what is expected
to be a short duration downturn, and approximately $10.0 million in costs and
expenses from foreign exchange losses and other charges related to the Company's
operations in Argentina and Venezuela.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative ("SG&A") expenses for the three months
ended March 31, 2002 were $214.1 million, an increase of 5.4% compared with the
three months ended March 31, 2001. SG&A expenses as a percentage of consolidated
revenues for the three months ended March 31, 2002 and 2001, were 17.0% and
16.5%, respectively. This increase in SG&A expense as a percentage of
consolidated revenues is primarily due to increased depreciation of the costs
associated with the now complete Project Renaissance and the Company's
short-term strategy not to reduce its work force to match current activity
levels.
UNUSUAL CHARGE
During 2001, the Company accrued cash charges of $6.0 million that
consisted of severance for approximately 100 employees due to the restructuring
of the German operations of BIRD Machine, a division of the Process Operations
segment. The Company has paid $3.7 million of this accrued severance through
March 31, 2002.
INTEREST EXPENSE
Interest expense for the three months ended March 31, 2002 decreased $5.7
million compared with the three months ended March 31, 2001. The decrease was
primarily due to lower total debt levels resulting from cash flow from
operations coupled with lower average interest rates on the Company's short-term
debt and commercial paper. The approximate average interest rate on short-term
debt and commercial paper was 1.8% for the three months ended March 31, 2002
compared with 5.8% for the three months ended March 31, 2001.
EQUITY IN INCOME OF AFFILIATES
The Company included amortization of goodwill associated with equity method
investments in equity in income of affiliates. In accordance with SFAS No. 142,
the Company discontinued this amortization effective January 1, 2002. Excluding
the effects of the $2.0 million of amortization of goodwill associated with
equity method investments for the three months ended March 31, 2001, equity in
income of affiliates for the three months ended March 31, 2002 increased
16
$0.5 million compared with the three months ended March 31, 2001. The Company's
most significant equity method investment is WesternGeco. The operating results
of WesternGeco were affected by the continuing weakness in the seismic industry
as crew counts remain at historic lows.
INCOME TAXES
The Company's effective tax rates differ from the statutory income tax rate
of 35% due to lower effective rates on international operations offset by
incremental taxes within WesternGeco from unbenefitted foreign losses and taxes
assessed in jurisdictions on a deemed profit basis.
LIQUIDITY AND CAPITAL RESOURCES
The Company's capital requirements have principally related to working
capital needs, payment of dividends, and capital expenditures. These
requirements have been met through a combination of commercial paper borrowings
and internally generated funds.
In the three months ended March 31, 2002, net cash inflows from operating
activities totaled $11.7 million, a decrease of $51.9 million compared with the
three months ended March 31, 2001. This decrease was primarily due to increases
in working capital due to payment of annual employee bonuses.
Expenditures for capital assets totaled $62.3 million and $52.7 million for
the three months ended March 31, 2002 and 2001, respectively. The majority of
these expenditures were for rental tools. During the three months ended March
31, 2002 and 2001, the Company generated proceeds of $17.4 million and $15.3
million, respectively, from the disposal or sale of assets in the normal course
of business.
During the three months ended March 31, 2002, the Company's Oilfield
Operations segment acquired three businesses having an aggregate purchase price
of $49.1 million, net of cash acquired. As a result of these acquisitions, the
Company recorded approximately $34.9 million of goodwill. The purchase prices
were allocated based on estimated fair values at the date of acquisition and may
be subject to change. During the three months ended March 31, 2002, the Company
invested $11.3 million in Luna Energy, L.L.C. ("Luna Energy"), a venture formed
to develop, manufacture, commercialize, sell, market and distribute downhole
fiber optic and other sensors for oil and gas exploration, production,
transportation and refining applications. The Company has a 40% ownership
interest in Luna Energy.
Total debt outstanding at March 31, 2002 was $1,772.6 million, an increase
of $78.0 million compared with December 31, 2001. The increase was primarily due
to increases in short-term debt needed to fund capital expenditures, increased
working capital, dividend payments and acquisitions. The debt to equity ratio
was 0.53 at March 31, 2002 compared with 0.51 at December 31, 2001. The
Company's long-term objective is to maintain a debt to equity ratio between 0.40
and 0.60.
At March 31, 2002, the Company had $1,289.6 million of credit facilities
with commercial banks, of which $800.5 million was committed. There were no
direct borrowings under these facilities during the three months ended March 31,
2002; however, to the extent the Company has outstanding commercial paper,
available borrowings under the committed credit facilities are reduced. At March
31, 2002 and December 31, 2001, the Company had $95.0 million in commercial
paper outstanding, with a weighted average interest rate of 1.8% and 2.0%,
respectively. The committed facilities mature in September and October of 2003.
The Company expects to replace these credit facilities by September 2002. If the
credit facilities are not replaced, the Company would pursue other borrowing
alternatives.
Cash flow from operations and borrowings from short-term debt and
commercial paper are expected to be the principal sources of liquidity in 2002.
The Company believes that cash flow from operations, combined with existing
credit facilities, will provide the Company with sufficient capital resources
and liquidity to manage its operations, meet debt obligations and fund projected
capital expenditures. The Company currently expects 2002 capital expenditures to
be between $300.0 million and $340.0 million, excluding acquisitions. The
expenditures are expected to be used primarily
17
for normal, recurring items necessary to support the growth of the Company.
There are no provisions in the Company's debt or lease agreements that
would accelerate their repayment or require collateral or material changes in
terms due to a reduction in the Company's debt ratings or stock price. Other
than normal operating leases, the Company does not have any off-balance sheet
financing arrangements such as securitization agreements, liquidity trust
vehicles or special purpose entities. As such, the Company is not materially
exposed to any financing, liquidity, market or credit risk that could arise if
the Company had engaged in such financing arrangements.
The words "believes," "will," "may," "expected" and "expects" are intended
to identify Forward-Looking Statements in "Liquidity and Capital Resources". See
"Forward-Looking Statements" and "Business Environment" above for a description
of risk factors related to these Forward-Looking Statements.
18
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's operations are conducted around the world in a number of
different currencies. The majority of the Company's foreign subsidiaries have
designated the local currency as their functional currency. As such, future
earnings are subject to fluctuations due to changes in foreign currency exchange
rates when transactions are denominated in currencies other than the Company's
functional currencies. To minimize the need for foreign currency contracts, the
Company is generally able to manage its foreign currency exposure by maintaining
a minimal consolidated net asset or net liability position in a currency other
than the functional currency.
At March 31, 2002, the Company had entered into foreign currency forward
contracts with notional amounts of $15.0 million, $1.0 million and $0.2 million
to hedge exposure to currency fluctuations in the British Pound Sterling , the
Indonesian Rupiah and the Euro, respectively. These contracts are cash flow
hedges. Based on quoted market prices as of March 31, 2002 for contracts with
similar terms and maturity dates, the Company did not record an asset or
liability as the forward price is substantially the same as the contract price.
The counterparties to the Company's forward contracts are major financial
institutions. The credit ratings and concentration of risk of these financial
institutions are monitored on a continuing basis. In the unlikely event that the
counterparties fail to meet the terms of a foreign currency contract, the
Company's exposure is limited to the foreign currency rate differential.
Certain borrowings of the Company are denominated in currencies other than
its functional currency. At March 31, 2002, these nonfunctional currency
borrowings totaled $9.5 million with exposures between the U.S. Dollar and the
Euro, the Saudi Riyal and the Brazilian Real. A 10% depreciation of the U.S.
Dollar against these currencies would not have a material adverse effect on the
future earnings of the Company.
19
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company has been named as a defendant in a number of shareholder class
action suits filed by purported shareholders shortly after the Company's
December 8, 1999 announcement regarding the accounting issues that the Company
discovered at its Baker Hughes INTEQ division. These suits, which seek
unspecified monetary damages, have been consolidated in the federal district
court for the Southern District of Texas pursuant to the Private Securities
Litigation Reform Act of 1995. The Company filed Motions to Dismiss in both the
shareholder derivative suit and the class action. The federal district court
granted the Company's Motions on both actions. No appeal was filed in the
shareholder derivative suit, but the class action case is currently on appeal at
the U.S. Fifth Circuit Count of Appeals. The Company believes the allegations in
these suits are without merit, and the Company intends to vigorously defend
these lawsuits. Even so, an adverse outcome in this class action litigation
could have an adverse impact on the Company's results of operations or financial
condition.
On March 29, 2002, the Company announced that it had been advised that the
U.S. Securities and Exchange Commission and the Department of Justice are
conducting investigations into allegations of violations of law relating to
Nigeria and other related matters. On March 25, 2002, a former employee
alleging improper activities relating to Nigeria filed a civil complaint against
the Company in the 281st District Court in Harris County, Texas seeking backpay
and damages. Prior to the filing of the complaint, the Company had independently
initiated an investigation regarding its operations in Nigeria and that
investigation is ongoing. The Company is providing full cooperation to the
government in connection with this matter.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's Annual Meeting of Stockholders was held on April 24, 2002 (1)
to elect four Class II members of the Board of Directors to serve for three-year
terms, (2) to ratify Deloitte & Touche LLP as the Company's independent auditors
for fiscal year 2002, (3) to approve the Baker Hughes Incorporated 2002 Director
& Officer Long-Term Incentive Plan, (4) to consider a stockholder proposal to
implement the MacBride Principles with respect to the Company's operations in
Northern Ireland, (5) to consider a stockholder proposal requesting that the
Board of Directors be declassified and (6) to consider a stockholder proposal
requesting simple majority vote on all issues subject to stockholder vote.
The four Class II directors who were so elected are Clarence P. Cazalot,
Jr., Anthony G. Fernandes, Richard D. Kinder and J. Larry Nichols. The number of
affirmative votes and the number of votes withheld for the directors so elected
were:
<Table>
<Caption>
Number of Number of
Names Affirmative Votes Withheld
- ----------------------------------------------------------------------------------------
Clarence P. Cazalot, Jr. 294,693,806 4,679,493
Anthony G. Fernandes. 295,774,057 3,599,242
Richard D. Kinder 256,635,329 42,737,970
J. Larry Nichols 235,595,134 63,778,165
</Table>
The number of affirmative votes, the number of negative votes and the
number of abstentions with respect to the ratification of Deloitte & Touche LLP
as the Company's independent auditors for fiscal 2002 were as follows:
<Table>
<Caption>
Number of Number of
Affirmative Votes Negative Votes Abstentions
--------------------------------------------------------------------------
290,377,561 7,910,411 1,085,327
</Table>
20
The number of affirmative votes, the number of negative votes and the
number of abstentions with respect to the adoption of the Baker Hughes
Incorporated 2002 Director & Officer Long-Term Incentive Plan were as follows:
<Table>
<Caption>
Number of Number of
Affirmative Votes Negative Votes Abstentions
--------------------------------------------------------------------------
250,336,489 47,559,769 1,477,041
</Table>
The number of affirmative votes, the number of negative votes and the
number of abstentions with respect to the approval of the stockholder proposals
were as follows:
<Table>
<Caption>
Number of Number of
Affirmative Negative
Votes Votes Abstentions
- ------------------------------------------------------------------------------------------------------
Proposal regarding Northern
Ireland 29,464,212 232,971,600 13,885,410
Proposal regarding classified
Board 223,630,445 50,782,131 1,908,646
Proposal regarding simple
majority vote 187,839,333 85,564,102 1,917,787
</Table>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
3.1 - Bylaws, as amended on April 24, 2002
4.1 - Bylaws (filed as Exhibit 3.1 to the Quarterly Report on
Form 10-Q for the quarterly period ended March 31, 2002).
(b) Reports on Form 8-K:
A Current Report on Form 8-K was filed with the Commission on April 22,
2002, reporting the issuance of a press release whereby the Company announced
that the U.S. Securities and Exchange Commission and the Department of Justice
were conducting investigations into allegations of violations of law relating to
Nigeria and other related matters.
A Current Report on Form 8-K was filed with the Commission on April 26,
2002, reporting the results of the Company's Annual Meeting of Stockholders
election of certain members of the Board of Directors and stockholder proposals.
A Current Report on Form 8-K was filed with the Commission on April 30,
2002, for purposes of updating the description of the Company's capital stock
for the registration of such capital stock, including but not limited to
registrations of common stock for issuance pursuant to the Company's employee
benefit plans.
21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BAKER HUGHES INCORPORATED
(REGISTRANT)
Date: May 13, 2002 By: /s/ G. STEPHEN FINLEY
--------------------------------------------
Sr. Vice President - Finance and
Administration and Chief Financial Officer
Date: May 13, 2002 By: /s/ ALAN J. KEIFER
--------------------------------------------
Vice President and Controller
22
EXHIBIT INDEX
<Table>
<Caption>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
3.1 Bylaws, as amended on April 24, 2002
4.1 Bylaws (filed as Exhibit 3.1 to the Quarterly Report on
Form 10-Q for the quarterly period ended March 31, 2002).
</Table>