e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
|
|
|
þ |
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2011
OR
|
|
|
o |
|
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
(State or other jurisdiction
of incorporation or organization)
|
|
76-0207995
(I.R.S. Employer Identification No.) |
|
|
|
2929 Allen Parkway, Suite 2100, Houston, Texas
(Address of principal executive offices)
|
|
77019-2118
(Zip Code) |
Registrants 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 þ NO o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate website, if any, every Interactive Data File required to be submitted and posted pursuant
to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for
such shorter period that the registrant was required to submit and post such files). YES þ NO o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
(Check one):
|
|
|
|
|
|
|
Large accelerated filer þ
|
|
Accelerated filer o
|
|
Non-accelerated filer o
|
|
Smaller reporting company o |
|
|
|
|
(Do not check if a smaller reporting company) |
|
|
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). YES o NO þ
As of
July 26, 2011, the registrant has outstanding 436,198,379 shares of Common Stock, $1
par value per share.
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Baker Hughes Incorporated
Consolidated Condensed Statements of Operations
(In millions, except per share amounts)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
|
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales |
|
$ |
1,557 |
|
|
$ |
1,357 |
|
|
$ |
2,990 |
|
|
$ |
2,610 |
|
Services and rentals |
|
|
3,184 |
|
|
|
2,017 |
|
|
|
6,276 |
|
|
|
3,303 |
|
|
Total revenue |
|
|
4,741 |
|
|
|
3,374 |
|
|
|
9,266 |
|
|
|
5,913 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales |
|
|
1,266 |
|
|
|
1,013 |
|
|
|
2,432 |
|
|
|
1,956 |
|
Cost of services and rentals |
|
|
2,452 |
|
|
|
1,649 |
|
|
|
4,783 |
|
|
|
2,618 |
|
Research and engineering |
|
|
114 |
|
|
|
112 |
|
|
|
220 |
|
|
|
206 |
|
Marketing, general and administrative |
|
|
292 |
|
|
|
312 |
|
|
|
574 |
|
|
|
617 |
|
Acquisition-related costs |
|
|
|
|
|
|
56 |
|
|
|
|
|
|
|
66 |
|
|
Total costs and expenses |
|
|
4,124 |
|
|
|
3,142 |
|
|
|
8,009 |
|
|
|
5,463 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
617 |
|
|
|
232 |
|
|
|
1,257 |
|
|
|
450 |
|
Interest expense, net |
|
|
(54 |
) |
|
|
(30 |
) |
|
|
(106 |
) |
|
|
(54 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
563 |
|
|
|
202 |
|
|
|
1,151 |
|
|
|
396 |
|
Income taxes |
|
|
228 |
|
|
|
109 |
|
|
|
432 |
|
|
|
174 |
|
|
Net income |
|
|
335 |
|
|
|
93 |
|
|
|
719 |
|
|
|
222 |
|
Net income (loss) attributable to noncontrolling interests |
|
|
(3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Baker Hughes |
|
$ |
338 |
|
|
$ |
93 |
|
|
$ |
719 |
|
|
$ |
222 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income per share attributable to Baker Hughes |
|
$ |
0.78 |
|
|
$ |
0.23 |
|
|
$ |
1.65 |
|
|
$ |
0.63 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income per share attributable to Baker Hughes |
|
$ |
0.77 |
|
|
$ |
0.23 |
|
|
$ |
1.64 |
|
|
$ |
0.62 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends per share |
|
$ |
0.15 |
|
|
$ |
0.15 |
|
|
$ |
0.30 |
|
|
$ |
0.30 |
|
See accompanying notes to unaudited consolidated condensed financial statements.
2
Baker Hughes Incorporated
Consolidated Condensed Balance Sheets
(In millions)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2011 |
|
|
2010 |
|
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
937 |
|
|
$ |
1,456 |
|
Short-term investments |
|
|
|
|
|
|
250 |
|
Accounts receivable less allowance for doubtful accounts
(2011 - $225; 2010 $162) |
|
|
4,434 |
|
|
|
3,942 |
|
Inventories, net |
|
|
2,939 |
|
|
|
2,594 |
|
Deferred income taxes |
|
|
254 |
|
|
|
234 |
|
Other current assets |
|
|
248 |
|
|
|
231 |
|
|
Total current assets |
|
|
8,812 |
|
|
|
8,707 |
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net |
|
|
6,700 |
|
|
|
6,310 |
|
Goodwill |
|
|
5,953 |
|
|
|
5,869 |
|
Intangible assets, net |
|
|
1,524 |
|
|
|
1,569 |
|
Other assets |
|
|
565 |
|
|
|
531 |
|
|
Total assets |
|
$ |
23,554 |
|
|
$ |
22,986 |
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
1,588 |
|
|
$ |
1,496 |
|
Short-term borrowings and current portion of long-term debt |
|
|
59 |
|
|
|
331 |
|
Accrued employee compensation |
|
|
586 |
|
|
|
589 |
|
Income taxes payable |
|
|
75 |
|
|
|
219 |
|
Other accrued liabilities |
|
|
519 |
|
|
|
504 |
|
|
Total current liabilities |
|
|
2,827 |
|
|
|
3,139 |
|
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
|
3,549 |
|
|
|
3,554 |
|
Deferred income taxes and other tax liabilities |
|
|
1,316 |
|
|
|
1,360 |
|
Liabilities for pensions and other postretirement benefits |
|
|
507 |
|
|
|
483 |
|
Other liabilities |
|
|
165 |
|
|
|
164 |
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders Equity: |
|
|
|
|
|
|
|
|
Common stock |
|
|
436 |
|
|
|
432 |
|
Capital in excess of par value |
|
|
7,167 |
|
|
|
7,005 |
|
Retained earnings |
|
|
7,672 |
|
|
|
7,083 |
|
Accumulated other comprehensive loss |
|
|
(337 |
) |
|
|
(420 |
) |
|
Baker Hughes stockholders equity |
|
|
14,938 |
|
|
|
14,100 |
|
Noncontrolling interest |
|
|
252 |
|
|
|
186 |
|
|
Total stockholders equity |
|
|
15,190 |
|
|
|
14,286 |
|
|
Total liabilities and stockholders equity |
|
$ |
23,554 |
|
|
$ |
22,986 |
|
|
See accompanying notes to unaudited consolidated condensed financial statements.
3
Baker Hughes Incorporated
Consolidated Condensed Statements of Cash Flows
(In millions)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
2011 |
|
|
2010 |
|
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net income |
|
$ |
719 |
|
|
$ |
222 |
|
Adjustments to reconcile net income to net cash flows from operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
646 |
|
|
|
450 |
|
Stock-based compensation costs |
|
|
53 |
|
|
|
41 |
|
Provision (benefit) for deferred income taxes |
|
|
(52 |
) |
|
|
(63 |
) |
Gain on disposal of assets |
|
|
(90 |
) |
|
|
(49 |
) |
Provision for doubtful accounts |
|
|
76 |
|
|
|
11 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
(512 |
) |
|
|
(258 |
) |
Inventories |
|
|
(314 |
) |
|
|
(124 |
) |
Accounts payable |
|
|
57 |
|
|
|
123 |
|
Accrued employee compensation and other accrued liabilities |
|
|
(25 |
) |
|
|
(37 |
) |
Income taxes payable |
|
|
(160 |
) |
|
|
(15 |
) |
Other |
|
|
(1 |
) |
|
|
(143 |
) |
|
Net cash flows from operating activities |
|
|
397 |
|
|
|
158 |
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Expenditures for capital assets |
|
|
(1,023 |
) |
|
|
(539 |
) |
Proceeds from maturities of short-term investments |
|
|
250 |
|
|
|
|
|
Proceeds from disposal of assets |
|
|
142 |
|
|
|
89 |
|
Acquisition of businesses, net of cash acquired |
|
|
(5 |
) |
|
|
(834 |
) |
|
Net cash flows from investing activities |
|
|
(636 |
) |
|
|
(1,284 |
) |
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Net (payments) borrowings of commercial paper and other short-term debt |
|
|
(21 |
) |
|
|
555 |
|
Repayment of long-term debt |
|
|
(250 |
) |
|
|
|
|
Proceeds from issuance of common stock |
|
|
115 |
|
|
|
28 |
|
Dividends |
|
|
(130 |
) |
|
|
(111 |
) |
Other financing items, net |
|
|
(9 |
) |
|
|
1 |
|
|
Net cash flows from financing activities |
|
|
(295 |
) |
|
|
473 |
|
|
|
|
|
|
|
|
|
|
|
Effect of foreign exchange rate changes on cash |
|
|
15 |
|
|
|
(23 |
) |
|
Increase (decrease) in cash and cash equivalents |
|
|
(519 |
) |
|
|
(676 |
) |
Cash and cash equivalents, beginning of period |
|
|
1,456 |
|
|
|
1,595 |
|
|
Cash and cash equivalents, end of period |
|
$ |
937 |
|
|
$ |
919 |
|
|
Supplemental cash flows disclosures: |
|
|
|
|
|
|
|
|
Income taxes paid, net of refunds |
|
$ |
647 |
|
|
$ |
342 |
|
Interest paid |
|
$ |
121 |
|
|
$ |
75 |
|
Supplemental disclosure of noncash investing activities: |
|
|
|
|
|
|
|
|
Capital expenditures included in accounts payable |
|
$ |
33 |
|
|
$ |
26 |
|
See accompanying notes to unaudited consolidated condensed financial statements.
4
Baker Hughes Incorporated
Notes to Unaudited Consolidated Condensed Financial Statements
NOTE 1. GENERAL
Nature of Operations
Baker Hughes Incorporated (Company, we, our or us) is engaged in the oilfield services
industry. We are a leading supplier of wellbore-related products and technology services and
provide products and services for drilling, pressure pumping, formation evaluation, completion and
production, and reservoir development services to the worldwide oil and natural gas industry. We
also provide products and services to the downstream refining and process and pipeline industries.
Basis of Presentation
Our unaudited consolidated condensed financial statements included herein have been prepared
in accordance with generally accepted accounting principles in the United States of America and
pursuant to the rules and regulations of the Securities and Exchange Commission for interim
financial information. Accordingly, certain information and disclosures normally included in our
annual financial statements have been condensed or omitted. These unaudited consolidated condensed
financial statements should be read in conjunction with our audited consolidated financial
statements included in our Annual Report on Form 10-K/A for the year ended December 31, 2010 (2010
Annual Report). We believe the unaudited consolidated condensed financial statements included
herein reflect all adjustments (consisting of normal recurring adjustments) necessary for a fair
presentation of the interim periods. 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.
Accounting Standards Updates
In May 2011, the Financial Accounting Standards Board (FASB) issued an update to Accounting
Standards Codification (ASC) 820, Fair Value Measurement. The Accounting Standards Update
(ASU) conforms certain sections of ASC 820 to International Financial Reporting Standards in
order to provide a single converged guidance on the measurement of fair value. This update also
expands the existing disclosure requirements for fair value measurements. This ASU is effective
for interim and annual periods beginning after December 15, 2011. We will adopt this ASU
prospectively in the first quarter of 2012. We have not yet determined the impact, if any, on our
consolidated condensed financial statements.
In June 2011, the FASB issued an update to ASC 220, Comprehensive Income. This ASU requires
entities to present components of comprehensive income in either a continuous statement of
comprehensive income or two separate but consecutive statements that would include reclassification
adjustments for items that are reclassified from other comprehensive income to net income on the
face of the financial statements. This ASU is effective for fiscal years, and interim periods
within those years, beginning after December 15, 2011. We will adopt the new presentation
requirements of this ASU retrospectively in the first quarter of 2012.
NOTE 2. ACQUISITIONS
ACQUISITION OF BJ SERVICES
On April 28, 2010, we acquired 100% of the outstanding common stock of BJ Services Company
(BJ Services) in a cash and stock transaction valued at $6,897 million. BJ Services is a leading
provider of pressure pumping and other oilfield services and was acquired to expand the product
offerings of the Company. Total consideration consisted of $793 million in cash, 118 million
shares valued at $6,048 million, and Baker Hughes options with a fair value of $56 million in
exchange for BJ Services options. We also assumed all outstanding stock options held by BJ
Services employees and directors.
Recording of Assets Acquired and Liabilities Assumed
The transaction has been accounted for using the acquisition method of accounting and
accordingly assets acquired and liabilities assumed were recorded at their fair values as of the
acquisition date. The excess of the consideration transferred over those fair values totaling
$4,406 million was recorded as goodwill. The following table summarizes the amounts recognized for
assets acquired and liabilities assumed.
5
Baker Hughes Incorporated
Notes to Unaudited Consolidated Condensed Financial Statements (continued)
|
|
|
|
|
|
|
Fair Values |
|
|
Assets: |
|
|
|
|
Cash and cash equivalents |
|
$ |
113 |
|
Accounts receivable |
|
|
951 |
|
Inventories |
|
|
419 |
|
Other current assets |
|
|
125 |
|
Property, plant and equipment |
|
|
2,745 |
|
Intangible assets |
|
|
1,404 |
|
Goodwill |
|
|
4,406 |
|
Other long-term assets |
|
|
109 |
|
|
Liabilities: |
|
|
|
|
Liabilities for change in control and transaction fees |
|
|
210 |
|
Current liabilities |
|
|
776 |
|
Deferred income taxes and other tax liabilities |
|
|
1,428 |
|
Long-term debt |
|
|
531 |
|
Pension and other postretirement liabilities |
|
|
154 |
|
Other long-term liabilities |
|
|
29 |
|
Noncontrolling interests |
|
|
247 |
|
|
Net assets acquired |
|
$ |
6,897 |
|
|
During
the quarter ended March 31, 2011, we increased our step-up
adjustment related to noncontrolling
interests in certain BJ Services entities by $68 million to
$202 million and reduced our step-up adjustment related to deferred
tax liabilities and other taxes by $21 million to $1,262 million as part of the acquisition
accounting related to fair market value adjustments for acquired intangible assets and property,
plant and equipment (PP&E) as well as for uncertain tax positions taken in prior years.
Pro Forma Impact of the Acquisition
The following unaudited supplemental pro forma results present consolidated information as if
the acquisition had been completed as of January 1, 2010. The pro forma results include: (i) the
amortization associated with an estimate of the acquired intangible assets, (ii) interest expense
associated with debt used to fund a portion of the acquisition and reduced interest income
associated with cash used to fund a portion of the acquisition, (iii) the impact of certain fair
value adjustments such as additional depreciation expense for adjustments to PP&E and reduction to
interest expense for adjustments to debt, and (iv) costs directly related to acquiring BJ Services.
The pro forma results do not include any potential synergies, cost savings or other expected
benefits of the acquisition. Accordingly, the pro forma results should not be considered
indicative of the results that would have occurred if the acquisition and related borrowings had
been consummated as of January 1, 2010, nor are they indicative of future results.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, 2010 |
|
|
June 30, 2010 |
|
|
|
Pro Forma |
|
|
Pro Forma |
|
|
Revenue |
|
$ |
3,745 |
|
|
$ |
7,402 |
|
Net income |
|
$ |
98 |
|
|
$ |
231 |
|
Basic net income per share |
|
$ |
0.23 |
|
|
$ |
0.54 |
|
Diluted net income per share |
|
$ |
0.23 |
|
|
$ |
0.53 |
|
NOTE 3. SEGMENT INFORMATION
Baker Hughes has ten operating segments that have been aggregated into the following five reportable
segments:
|
|
|
North America (U.S. and Canada) |
|
|
|
|
Latin America |
|
|
|
|
Europe/Africa/Russia Caspian |
|
|
|
|
Middle East/Asia Pacific |
|
|
|
Industrial Services and Other (downstream chemicals and reservoir development services) |
6
Baker Hughes Incorporated
Notes to Unaudited Consolidated Condensed Financial Statements (continued)
We have aggregated our operating segments within each reportable segment because they have
similar economic characteristics and because the long-term financial performance of the segments is
affected by similar economic conditions. The performance of our segments is evaluated based on
profit before tax, which is defined as income before income taxes, interest expense, interest
income, and certain gains and losses not allocated to the segments. The financial results of BJ
Services are included in each of the five reportable segments from the date of acquisition on April
28, 2010.
Summarized financial information is shown in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Three Months Ended |
|
|
|
June 30, 2011 |
|
|
June 30, 2010 |
|
Segments |
|
Revenue |
|
|
Profit (loss) |
|
|
Revenue |
|
|
Profit (loss) |
|
|
North America |
|
$ |
2,368 |
|
|
$ |
440 |
|
|
$ |
1,486 |
|
|
$ |
204 |
|
Latin America |
|
|
542 |
|
|
|
71 |
|
|
|
384 |
|
|
|
13 |
|
Europe/Africa/Russia Caspian |
|
|
806 |
|
|
|
47 |
|
|
|
736 |
|
|
|
69 |
|
Middle East/Asia Pacific |
|
|
701 |
|
|
|
88 |
|
|
|
545 |
|
|
|
40 |
|
Industrial Services and Other |
|
|
324 |
|
|
|
34 |
|
|
|
223 |
|
|
|
18 |
|
|
Total Operations |
|
|
4,741 |
|
|
|
680 |
|
|
|
3,374 |
|
|
|
344 |
|
Corporate and Other |
|
|
|
|
|
|
(63 |
) |
|
|
|
|
|
|
(56 |
) |
Interest expense, net |
|
|
|
|
|
|
(54 |
) |
|
|
|
|
|
|
(30 |
) |
Acquisition-related costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(56 |
) |
|
Total |
|
$ |
4,741 |
|
|
$ |
563 |
|
|
$ |
3,374 |
|
|
$ |
202 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, 2011 |
|
|
June 30, 2010 |
|
Segments |
|
Revenue |
|
|
Profit (loss) |
|
|
Revenue |
|
|
Profit (loss) |
|
|
North America |
|
$ |
4,720 |
|
|
$ |
900 |
|
|
$ |
2,405 |
|
|
$ |
345 |
|
Latin America |
|
|
1,015 |
|
|
|
134 |
|
|
|
656 |
|
|
|
22 |
|
Europe/Africa/Russia Caspian |
|
|
1,577 |
|
|
|
138 |
|
|
|
1,456 |
|
|
|
149 |
|
Middle East/Asia Pacific |
|
|
1,360 |
|
|
|
167 |
|
|
|
984 |
|
|
|
70 |
|
Industrial Services and Other |
|
|
594 |
|
|
|
48 |
|
|
|
412 |
|
|
|
35 |
|
|
Total Operations |
|
|
9,266 |
|
|
|
1,387 |
|
|
|
5,913 |
|
|
|
621 |
|
Corporate and Other |
|
|
|
|
|
|
(130 |
) |
|
|
|
|
|
|
(105 |
) |
Interest expense, net |
|
|
|
|
|
|
(106 |
) |
|
|
|
|
|
|
(54 |
) |
Acquisition-related costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(66 |
) |
|
Total |
|
$ |
9,266 |
|
|
$ |
1,151 |
|
|
$ |
5,913 |
|
|
$ |
396 |
|
|
NOTE 4. EARNINGS PER SHARE
A reconciliation of the number of shares used for the basic and diluted earnings per share
(EPS) computations is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
|
Weighted average common shares outstanding for basic EPS |
|
|
436 |
|
|
|
398 |
|
|
|
435 |
|
|
|
355 |
|
Effect of dilutive securities stock plans |
|
|
2 |
|
|
|
1 |
|
|
|
3 |
|
|
|
1 |
|
|
Adjusted weighted average common shares outstanding for
diluted EPS |
|
|
438 |
|
|
|
399 |
|
|
|
438 |
|
|
|
356 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Future potentially dilutive shares excluded from diluted EPS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options with an exercise price greater than the average
market price for the period |
|
|
2 |
|
|
|
6 |
|
|
|
3 |
|
|
|
6 |
|
|
7
Baker Hughes Incorporated
Notes to Unaudited Consolidated Condensed Financial Statements (continued)
NOTE 5. INVENTORIES
Inventories, net of reserves, are comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2011 |
|
|
2010 |
|
|
Finished goods |
|
$ |
2,590 |
|
|
$ |
2,283 |
|
Work in process |
|
|
208 |
|
|
|
181 |
|
Raw materials |
|
|
141 |
|
|
|
130 |
|
|
Total |
|
$ |
2,939 |
|
|
$ |
2,594 |
|
|
NOTE 6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2011 |
|
|
2010 |
|
|
Land |
|
$ |
193 |
|
|
$ |
191 |
|
Buildings and improvements |
|
|
1,762 |
|
|
|
1,605 |
|
Machinery and equipment |
|
|
6,908 |
|
|
|
6,409 |
|
Rental tools and equipment |
|
|
2,669 |
|
|
|
2,472 |
|
|
Subtotal |
|
|
11,532 |
|
|
|
10,677 |
|
Less: Accumulated depreciation |
|
|
4,832 |
|
|
|
4,367 |
|
|
Total |
|
$ |
6,700 |
|
|
$ |
6,310 |
|
|
NOTE 7. GOODWILL AND INTANGIBLE ASSETS
The changes in the carrying amount of goodwill are detailed below by reportable segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe/ |
|
|
Middle |
|
|
Industrial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Africa/ |
|
|
East/ |
|
|
Services |
|
|
|
|
|
|
North |
|
|
Latin |
|
|
Russia |
|
|
Asia |
|
|
and |
|
|
|
|
|
|
America |
|
|
America |
|
|
Caspian |
|
|
Pacific |
|
|
Other |
|
|
Total |
|
|
Balance as of December 31, 2010 |
|
$ |
2,731 |
|
|
$ |
879 |
|
|
$ |
936 |
|
|
$ |
895 |
|
|
$ |
428 |
|
|
$ |
5,869 |
|
Purchase price adjustments for previous
Acquisitions |
|
|
314 |
|
|
|
(293 |
) |
|
|
86 |
|
|
|
(42 |
) |
|
|
12 |
|
|
|
77 |
|
Acquisitions |
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5 |
|
Other adjustments |
|
|
1 |
|
|
|
|
|
|
|
1 |
|
|
|
1 |
|
|
|
(1 |
) |
|
|
2 |
|
|
Balance as of June 30, 2011 |
|
$ |
3,051 |
|
|
$ |
586 |
|
|
$ |
1,023 |
|
|
$ |
854 |
|
|
$ |
439 |
|
|
$ |
5,953 |
|
|
Intangible assets are comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2011 |
|
|
December 31, 2010 |
|
|
|
Gross |
|
|
Less: |
|
|
|
|
|
|
Gross |
|
|
Less: |
|
|
|
|
|
|
Carrying |
|
|
Accumulated |
|
|
|
|
|
|
Carrying |
|
|
Accumulated |
|
|
|
|
|
|
Amount |
|
|
Amortization |
|
|
Net |
|
|
Amount |
|
|
Amortization |
|
|
Net |
|
|
Definite lived intangibles: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Technology |
|
$ |
767 |
|
|
$ |
208 |
|
|
$ |
559 |
|
|
$ |
760 |
|
|
$ |
181 |
|
|
$ |
579 |
|
Contract-based |
|
|
17 |
|
|
|
8 |
|
|
|
9 |
|
|
|
20 |
|
|
|
11 |
|
|
|
9 |
|
Trade names |
|
|
81 |
|
|
|
16 |
|
|
|
65 |
|
|
|
84 |
|
|
|
18 |
|
|
|
66 |
|
Customer relationships |
|
|
497 |
|
|
|
57 |
|
|
|
440 |
|
|
|
495 |
|
|
|
39 |
|
|
|
456 |
|
|
Subtotal |
|
|
1,362 |
|
|
|
289 |
|
|
|
1,073 |
|
|
|
1,359 |
|
|
|
249 |
|
|
|
1,110 |
|
|
Indefinite lived intangibles: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade name |
|
|
360 |
|
|
|
|
|
|
|
360 |
|
|
|
360 |
|
|
|
|
|
|
|
360 |
|
In-process research and
development |
|
|
91 |
|
|
|
|
|
|
|
91 |
|
|
|
99 |
|
|
|
|
|
|
|
99 |
|
|
Total |
|
$ |
1,813 |
|
|
$ |
289 |
|
|
$ |
1,524 |
|
|
$ |
1,818 |
|
|
$ |
249 |
|
|
$ |
1,569 |
|
|
8
Baker Hughes Incorporated
Notes to Unaudited Consolidated Condensed Financial Statements (continued)
Intangible assets are amortized either on a straight-line basis with estimated useful lives
ranging from 2 to 20 years, or on a basis that reflects the pattern in which the economic benefits
of the intangible assets are expected to be realized, which range from 15 to 30 years.
Amortization expense for intangible assets included in net income for the three months and six
months ended June 30, 2011 was $24 million and $46 million, respectively, and is estimated to be
$90 million for the full fiscal year 2011. Estimated amortization expense for each of the
subsequent five fiscal years is expected to be as follows: 2012 $95 million; 2013 $94 million;
2014 $93 million; 2015 $88 million; and 2016 $87 million.
NOTE 8. FINANCIAL INSTRUMENTS
Fair Value of Financial Instruments
Our financial instruments include cash and cash equivalents and short-term investments,
accounts receivable, accounts payable, debt, foreign currency forward contracts and interest rate
swaps. Except as described below, the estimated fair value of such financial instruments at June
30, 2011 and December 31, 2010 approximates their carrying value as reflected in our consolidated
condensed balance sheets. The fair value of our debt, foreign currency forward contracts and
interest rate swaps has been estimated based on quoted period end market prices.
Short-term Investments
During the year ended December 31, 2010, we purchased short-term investments consisting of
$250 million in U.S. Treasury Bills, which matured in May 2011 and were used to repay the $250
million principal amount of our 5.75% notes that matured in June 2011.
Debt
The estimated fair value of total debt at June 30, 2011 and December 31, 2010, was $4,045
million and $4,298 million, respectively, which differs from the carrying amount of $3,608 million
and $3,885 million, respectively, included in our consolidated condensed balance sheets.
Foreign Currency Forward Contracts
We conduct our business in over 80 countries around the world, and we are exposed to market
risks resulting from fluctuations in foreign currency exchange rates. A number of our significant
foreign subsidiaries have designated the local currency as their functional currency. We transact
in various foreign currencies and have established a program that primarily utilizes foreign
currency forward contracts to reduce the risks associated with the effects of certain foreign
currency exposures. Under this program, our strategy is to have gains or losses on the foreign
currency forward contracts mitigate the foreign currency transaction gains or losses to the extent
practical. These foreign currency exposures typically arise from changes in the value of assets
and liabilities which are denominated in currencies other than the functional currency. Our
foreign currency forward contracts generally settle in less than 180 days. We do not use these
forward contracts for trading or speculative purposes. We designate these forward contracts as
fair value hedging instruments and, accordingly, we record the fair value of these contracts as of
the end of our reporting period to our consolidated condensed balance sheet with changes in fair
value recorded in our consolidated condensed statement of operations along with the change in fair
value of the hedged item.
We had outstanding foreign currency forward contracts with notional amounts aggregating $150
million and $156 million to hedge exposure to currency fluctuations in various foreign currencies
at June 30, 2011 and December 31, 2010, respectively. These contracts are designated and qualify
as fair value hedging instruments. The fair value was determined using a model with Level 2 inputs
including quoted market prices for contracts with similar terms and maturity dates.
Interest Rate Swaps
We are subject to interest rate risk on our debt and investment of cash and cash equivalents
arising in the normal course of our business, as we do not engage in speculative trading
strategies. We maintain an interest rate management strategy, which primarily uses a mix of fixed
and variable rate debt that is intended to mitigate the exposure to changes in interest rates in
the aggregate for our investment portfolio. In addition, we are currently using interest rate swaps to manage the
economic effect of fixed rate obligations associated with certain debt so that the interest payable
on this debt effectively becomes linked to variable rates. Our interest rate
9
Baker Hughes Incorporated
Notes to Unaudited Consolidated Condensed Financial Statements (continued)
swaps are designated
and each qualifies as a fair value hedging instrument. The fair value of our interest rate swaps
was determined using a model with Level 2 inputs including quoted market prices for contracts with
similar terms and maturity dates.
Fair Value of Derivative Instruments
The fair values of derivative instruments included in our consolidated condensed balance
sheets were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value |
|
Derivative |
|
Balance Sheet Location |
|
|
June 30, 2011 |
|
|
December 31, 2010 |
|
|
Foreign Currency Forward Contracts |
|
Other current assets |
|
$ |
1 |
|
|
$ |
|
|
Foreign Currency Forward Contracts |
|
Other accrued liabilities |
|
$ |
1 |
|
|
$ |
2 |
|
Interest Rate Swaps |
|
Other assets |
|
$ |
24 |
|
|
$ |
24 |
|
The effects of derivative instruments in our consolidated condensed statements of operations
were as follows (amounts exclude any income tax effects):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (Loss) Recognized in Income |
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
Statement of |
|
|
June 30, |
|
|
June 30, |
|
Derivative |
|
Operations Location |
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
|
Foreign
Currency Forward |
|
Marketing, general and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contracts |
|
administrative |
|
$ |
(2 |
) |
|
$ |
(4 |
) |
|
$ |
(3 |
) |
|
$ |
(9 |
) |
Interest Rate Swaps |
|
Interest expense |
|
$ |
3 |
|
|
$ |
3 |
|
|
$ |
6 |
|
|
$ |
10 |
|
NOTE 9. INDEBTEDNESS
In June 2011, we repaid $250 million principal amount of our 5.75% notes using proceeds from
U.S. Treasury Bills that matured in May 2011.
At June 30, 2011, we had $1.7 billion of committed revolving credit facilities with commercial
banks. There were no direct borrowings under the committed revolving credit facilities during the
six months ended June 30, 2011. We also have a commercial paper program under which we may issue
up to $1.0 billion in commercial paper with maturity of no more than 270 days. To the extent we
have outstanding commercial paper, our ability to borrow under the facilities is reduced. At June
30, 2011, we had no outstanding commercial paper.
NOTE 10. EMPLOYEE BENEFIT PLANS
We have both funded and unfunded noncontributory defined benefit pension plans (Pension
Benefits) covering certain employees primarily in the U.S., Canada, the U.K., Germany and several
countries in the Middle East and Asia Pacific region. We also provide certain postretirement
health care benefits (other postretirement benefits), through an unfunded plan, to substantially
all U.S. employees who retire and have met certain age and service requirements.
The components of net periodic cost are as follows for the three months ended June 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Pension Benefits |
|
|
Non-U.S. Pension Benefits |
|
|
Other Postretirement Benefits |
|
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
|
Service cost |
|
$ |
9 |
|
|
$ |
8 |
|
|
$ |
2 |
|
|
$ |
2 |
|
|
$ |
2 |
|
|
$ |
2 |
|
Interest cost |
|
|
5 |
|
|
|
5 |
|
|
|
8 |
|
|
|
7 |
|
|
|
2 |
|
|
|
3 |
|
Expected return on plan assets |
|
|
(8 |
) |
|
|
(7 |
) |
|
|
(8 |
) |
|
|
(6 |
) |
|
|
|
|
|
|
|
|
Amortization of prior service
cost (benefit) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
(1 |
) |
|
|
|
|
Amortization of net loss |
|
|
2 |
|
|
|
3 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic cost (benefit) |
|
$ |
8 |
|
|
$ |
9 |
|
|
$ |
3 |
|
|
$ |
4 |
|
|
$ |
3 |
|
|
$ |
5 |
|
|
10
Baker Hughes Incorporated
Notes to Unaudited Consolidated Condensed Financial Statements (continued)
The components of net periodic cost are as follows for the six months ended June 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Postretirement |
|
|
|
U.S. Pension Benefits |
|
|
Non-U.S. Pension Benefits |
|
|
Benefits |
|
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
|
Service cost |
|
$ |
18 |
|
|
$ |
16 |
|
|
$ |
4 |
|
|
$ |
3 |
|
|
$ |
4 |
|
|
$ |
4 |
|
Interest cost |
|
|
10 |
|
|
|
11 |
|
|
|
16 |
|
|
|
12 |
|
|
|
4 |
|
|
|
6 |
|
Expected return on plan assets |
|
|
(16 |
) |
|
|
(14 |
) |
|
|
(16 |
) |
|
|
(10 |
) |
|
|
|
|
|
|
|
|
Amortization of prior service cost (benefit) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2 |
) |
|
|
1 |
|
Amortization of net loss |
|
|
4 |
|
|
|
6 |
|
|
|
2 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
Net periodic cost (benefit) |
|
$ |
16 |
|
|
$ |
19 |
|
|
$ |
6 |
|
|
$ |
7 |
|
|
$ |
6 |
|
|
$ |
11 |
|
|
We invest the plan assets of our U.S. and Non-U.S. pension plans in investments according to
the policies developed by our investment committees. The changes in the fair value of our U.S. and
Non-U.S. pension plans assets using Level 3 unobservable inputs for the three months and six
months ended June 30, 2011 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2011 |
|
|
|
U.S. |
|
|
|
|
|
|
Non-U.S. |
|
|
Non-U.S. |
|
|
|
|
|
|
Property |
|
|
Hedge |
|
|
Property |
|
|
Insurance |
|
|
|
|
|
|
Fund |
|
|
Funds |
|
|
Fund |
|
|
Contracts |
|
|
Total |
|
|
Ending balance at March 31, 2011 |
|
$ |
14 |
|
|
$ |
98 |
|
|
$ |
20 |
|
|
$ |
16 |
|
|
$ |
148 |
|
Unrealized gains |
|
|
1 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
3 |
|
Transfers from Level 2 to Level 3 |
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
2 |
|
|
Ending balance at June 30, 2011 |
|
$ |
15 |
|
|
$ |
102 |
|
|
$ |
20 |
|
|
$ |
16 |
|
|
$ |
153 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2011 |
|
|
|
U.S. |
|
|
|
|
|
|
Non-U.S. |
|
|
Non-U.S. |
|
|
|
|
|
|
Property |
|
|
Hedge |
|
|
Property |
|
|
Insurance |
|
|
|
|
|
|
Fund |
|
|
Funds |
|
|
Fund |
|
|
Contracts |
|
|
Total |
|
|
Ending balance at December 31, 2010 |
|
$ |
14 |
|
|
$ |
|
|
|
$ |
19 |
|
|
$ |
16 |
|
|
$ |
49 |
|
Unrealized gains |
|
|
1 |
|
|
|
4 |
|
|
|
1 |
|
|
|
|
|
|
|
6 |
|
Transfers from Level 2 to Level 3 |
|
|
|
|
|
|
98 |
|
|
|
|
|
|
|
|
|
|
|
98 |
|
|
Ending balance at June 30, 2011 |
|
$ |
15 |
|
|
$ |
102 |
|
|
$ |
20 |
|
|
$ |
16 |
|
|
$ |
153 |
|
|
Beginning in 2011, the U.S. pension plan began purchasing shares in three hedge funds, which
the Company deems to be Level 3 investments. These hedge funds take long and short positions in
equities, fixed income securities, currencies and derivative contracts.
NOTE 11. COMMITMENTS AND CONTINGENCIES
LITIGATION
We are involved in litigation or proceedings that have arisen in our ordinary business
activities. We insure against these risks to the extent deemed prudent by our management and to
the extent insurance is available, but no assurance can be given that the nature and amount of that
insurance will be sufficient to fully indemnify us against liabilities arising out of pending and
future legal proceedings. Many of these insurance policies contain deductibles or self-insured
retentions in amounts we deem prudent and for which we are responsible for payment. In determining
the amount of self-insurance, it is our policy to self-insure those losses that are predictable,
measurable and recurring in nature, such as claims for automobile liability, general liability and
workers compensation. The accruals for losses are calculated by estimating losses for claims using
historical claim data, specific loss development factors and other information as necessary.
We were among several unrelated companies who received a subpoena from the Office of the New
York Attorney General, dated June 17, 2011. The subpoena received by the Company seeks information
and documents relating to, among other things, natural gas
development and hydraulic fracturing. We are reviewing the subpoena and discussing its
contents with the New York Attorney Generals office in anticipation of our responding as
appropriate.
11
Baker Hughes Incorporated
Notes to Unaudited Consolidated Condensed Financial Statements (continued)
In July 2011, the Company settled the previously reported customer claim against BJ Services
relating to the move of a stimulation vessel out of the North Sea market. The settlement did not
have a material effect on our consolidated condensed financial statements.
OTHER
In the normal course of business with customers, vendors and others, we have entered into
off-balance sheet arrangements, such as surety bonds for performance, letters of credit and other
bank issued guarantees, which totaled approximately $1.2 billion at June 30, 2011. None of the
off-balance sheet arrangements either has, or is likely to have, a material effect on our
consolidated condensed financial statements.
NOTE 12. STOCKHOLDERS EQUITY
The following tables summarize our stockholders equity activity.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital |
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
in Excess |
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
Common |
|
|
of |
|
|
Retained |
|
|
Comprehensive |
|
|
Noncontrolling |
|
|
|
|
|
|
Stock |
|
|
Par Value |
|
|
Earnings |
|
|
Loss |
|
|
Interest |
|
|
Total |
|
|
Balance at December 31, 2010 |
|
$ |
432 |
|
|
$ |
7,005 |
|
|
$ |
7,083 |
|
|
$ |
(420 |
) |
|
$ |
186 |
|
|
$ |
14,286 |
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
719 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
83 |
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
802 |
|
Issuance of common stock pursuant to
employee stock plans |
|
|
4 |
|
|
|
103 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
107 |
|
Tax provision on stock plans |
|
|
|
|
|
|
7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7 |
|
Stock-based compensation costs |
|
|
|
|
|
|
53 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
53 |
|
Cash dividends ($0.30 per share) |
|
|
|
|
|
|
|
|
|
|
(130 |
) |
|
|
|
|
|
|
|
|
|
|
(130 |
) |
Purchase of
subsidiary shares of noncontrolling interests |
|
|
|
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1 |
) |
Dividends paid to noncontrolling interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4 |
) |
|
|
(4 |
) |
Capital contribution from noncontrolling
interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4 |
|
|
|
4 |
|
Change in noncontrolling interest
associated
with purchase price adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66 |
|
|
|
66 |
|
|
Balance at June 30, 2011 |
|
$ |
436 |
|
|
$ |
7,167 |
|
|
$ |
7,672 |
|
|
$ |
(337 |
) |
|
$ |
252 |
|
|
$ |
15,190 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital |
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
in Excess |
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
Common |
|
|
of |
|
|
Retained |
|
|
Comprehensive |
|
|
Noncontrolling |
|
|
|
|
|
|
Stock |
|
|
Par Value |
|
|
Earnings |
|
|
Loss |
|
|
Interest |
|
|
Total |
|
|
Balance at December 31, 2009 |
|
$ |
312 |
|
|
$ |
874 |
|
|
$ |
6,512 |
|
|
$ |
(414 |
) |
|
$ |
|
|
|
$ |
7,284 |
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
222 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(120 |
) |
|
|
|
|
|
|
|
|
Defined benefit pension plans, net of tax
of $(4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21 |
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
123 |
|
Issuance of common stock pursuant to
employee stock plans |
|
|
1 |
|
|
|
20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21 |
|
Issuance of common stock to acquire BJ
Services |
|
|
118 |
|
|
|
5,986 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,104 |
|
Tax provision on stock plans |
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2 |
|
Stock-based compensation costs |
|
|
|
|
|
|
41 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41 |
|
Cash dividends ($0.30 per share) |
|
|
|
|
|
|
|
|
|
|
(111 |
) |
|
|
|
|
|
|
|
|
|
|
(111 |
) |
|
Balance at June 30, 2010 |
|
$ |
431 |
|
|
$ |
6,923 |
|
|
$ |
6,623 |
|
|
$ |
(513 |
) |
|
$ |
|
|
|
$ |
13,464 |
|
|
12
Baker Hughes Incorporated
Notes to Unaudited Consolidated Condensed Financial Statements (continued)
Total accumulated other comprehensive loss, net of tax, consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
June 30, 2011 |
|
|
December 31, 2010 |
|
|
Foreign currency translation adjustments |
|
$ |
(178 |
) |
|
$ |
(261 |
) |
Pension and other postretirement benefits |
|
|
(159 |
) |
|
|
(159 |
) |
|
Total accumulated other comprehensive loss |
|
$ |
(337 |
) |
|
$ |
(420 |
) |
|
13
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Managements Discussion and Analysis of Financial Condition and Results of Operations (MD&A)
should be read in conjunction with our consolidated condensed financial statements and the related
notes thereto, as well as our Annual Report on Form 10-K/A for the year ended December 31, 2010
(2010 Annual Report). Phrases such as Company, we, us, and our intend to refer to Baker
Hughes Incorporated when used.
EXECUTIVE SUMMARY
We are a leading supplier of oilfield services, products, technology and systems to the
worldwide oil and natural gas industry. We provide products and services for:
|
|
|
drilling and evaluation of oil and gas wells; |
|
|
|
|
completion and production of oil and gas wells; and |
|
|
|
|
other industries, including downstream refining and process and pipeline industries; and
reservoir development services. |
We operate our business primarily through geographic regions that have been aggregated into five reportable segments: North
America, Latin America, Europe/Africa/Russia Caspian (EARC), Middle East/Asia Pacific (MEAP)
and Industrial Services and Other. The four geographical segments represent our oilfield
operations.
Within our oilfield operations, the primary driver of our businesses is our customers capital
and operating expenditures dedicated to oil and natural gas exploration, field development and
production. Our business is cyclical and is dependent upon our customers expectations for future
oil and natural gas prices, economic growth, hydrocarbon demand and estimates of current and future
oil and natural gas production.
For the second quarter of 2011, we generated revenue of $4.74 billion, an increase of $1.37
billion or 41% compared to the same quarter a year ago. For the first six months of 2011, revenue
was $9.27 billion, an increase of $3.35 billion or 57% compared to the first six months of 2010.
The increase in revenue was due to the significant improvement in activity primarily in North
America, driven by oil-directed drilling mainly in unconventional reservoirs and the acquisition of
BJ Services Company (BJ Services) during the second quarter of 2010.
Net income attributable to Baker Hughes was $338 million for the second quarter of 2011,
compared to $93 million for the same quarter a year ago; and was $719 million for the first six
months of 2011, compared to $222 million for the same period a year ago. The increase in net
income was primarily due to the improved profitability in North America and to a lesser extent
internationally as well as the acquisition of BJ Services. The
increase was partially offset by a charge of $70 million recognized in the second quarter of 2011
associated with increasing the allowance for doubtful accounts and reserves for inventory and
certain other assets in Libya, where our operations have currently ceased, pending resolution of
the conflict.
At June 30, 2011, we had approximately 54,000 employees compared to approximately 53,100
employees at December 31, 2010.
BUSINESS ENVIRONMENT
Global economic growth and the resultant demand for oil and natural gas are the primary
drivers of our customers expenditures to develop and produce oil and gas. The expansion of the
global economy, following the recession of 2008/2009, continued through 2010 and into 2011.
Increasing economic activity, particularly in the emerging economies in Asia and the Middle East,
and expectations for continued economic growth supported expectations for increasing demand for oil
and natural gas. Spending by oil and natural gas exploration and production companies, which is
dependent upon their forecasts regarding the expected future supply and future demand for oil and
natural gas products and their estimates of costs to find, develop, and produce reserves, increased
in the first half of 2011 compared to the first half of 2010. Changes in oil and natural gas
exploration and production spending result in increased demand for our products and services, which
is reflected in the rig count and other measures.
In North America, customer spending on oil projects increased in 2011, resulting in a 75%
increase in the North America oil-directed rig count in the second quarter of 2011 compared to the
same period a year ago. The increase in oil-directed drilling reflected the global price of oil,
which is trading at a premium, on a Btu-equivalent basis, relative to natural gas in North America.
Gas-directed drilling activity declined 8% as decreased activity in unconventional shale gas plays
with relatively little associated natural gas liquids (dry gas) was partially offset by increased
activity in the unconventional liquid-rich shale gas plays with relatively high volumes of
associated natural gas liquids (wet gas). Despite relatively weak natural gas prices, spending on
gas-directed projects in
14
the second quarter of 2011 was supported by: (1) associated production of natural gas liquids
and crude oil in certain basins; (2) hedges on production made in prior periods when future prices
were higher; (3) the need of companies to drill and produce natural gas to hold leases acquired in
earlier periods; and (4) the influx of equity from companies interested in developing a position in
the unconventional shale resource plays.
Outside of North America, customer spending is most heavily influenced by oil prices, which
were more than 50% higher in the second quarter of 2011 compared to the second quarter of 2010, as
the economic recovery continued. In response to higher oil prices and expectations that the
expanding economy would support prices well in excess of $80/Bbl, our customers spending
increased. This was reflected in a 5% increase in the rig count outside of North America.
Oil and Natural Gas Prices
Oil (Bloomberg West Texas Intermediate (WTI) Cushing Crude Oil Spot Price and Bloomberg
Dated Brent (Brent)) and natural gas (Bloomberg Henry Hub Natural Gas Spot Price) prices are
summarized in the table below as averages of the daily closing prices during each of the periods
indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
|
|
|
|
WTI oil prices ($/Bbl) |
|
$ |
102.34 |
|
|
$ |
77.88 |
|
|
$ |
98.50 |
|
|
$ |
78.35 |
|
Brent oil prices ($/Bbl) |
|
|
116.81 |
|
|
|
78.63 |
|
|
|
110.96 |
|
|
|
77.71 |
|
Natural gas prices ($/mmBtu) |
|
|
4.38 |
|
|
|
4.33 |
|
|
|
4.29 |
|
|
|
4.71 |
|
WTI oil prices averaged $102.34/Bbl in the second quarter of 2011. Prices ranged from a high
of $113.93/Bbl in April 2011 to a low of $90.61/Bbl in June 2011. Oil prices weakened throughout
the second quarter of 2011 driven by expectations of a slowdown of the worldwide economic recovery
and energy demand growth, particularly in Europe. The International Energy Agency (IEA)
estimated in its July 2011 Oil Market Report that worldwide demand would increase 1.2 million
barrels per day or 1.4% to 89.5 million barrels per day in 2011, up from 88.3 million barrels per
day in 2010.
Natural gas prices averaged $4.38/mmBtu in the second quarter of 2011. Natural gas prices
traded in a range between $4.847/mmBtu and $4.041/mmBtu in the second quarter of 2011. At the end
of the quarter, working natural gas in storage was 2,432 Bcf, which was 9% or 252 Bcf below the
corresponding week in 2010.
Rig Counts
Baker Hughes has been providing rig counts to the public since 1944. We gather all relevant
data through our field service personnel, who obtain the necessary data from routine visits to the
various rigs, customers, contractors and/or other outside sources. This data is then compiled and
distributed to various wire services and trade associations and is published on our website. Rig
counts are compiled weekly for the U.S. and Canada and monthly for all international and U.S.
workover rigs. Published international rig counts do not include rigs drilling in certain
locations, such as Russia, the Caspian and onshore China, because this information is not readily
available.
Rigs in the U.S. are counted as active if, on the day the count is taken, the well being
drilled has been started but drilling has not been completed and the well is anticipated to be of
sufficient depth to be a potential consumer of our drill bits. Rigs in Canada are counted as
active if data obtained by the Canadian Association of Oilwell Drillers and Contractors indicates
that drilling operations have occurred during the week and we are able to verify this information.
In most international areas, rigs are counted as active if drilling operations have taken place for
at least 15 days during the month; however, in certain international areas where better data is
available, we compute a weekly or daily average of active rigs. In international areas where there
is poor availability of data, the rig counts are estimated from third-party data. The rig count
does not include rigs that are in transit from one location to another, rigging up, being used in
non-drilling activities, including production testing, completion and workover, and are not
expected to be significant consumers of drill bits.
15
Our rig counts are summarized in the table below as averages for each of the periods
indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
% |
|
|
Six Months Ended June 30, |
|
|
% |
|
|
|
2011 |
|
|
2010 |
|
|
Change |
|
|
2011 |
|
|
2010 |
|
|
Change |
|
|
|
| | | |
|
| | |
U.S. land and inland waters |
|
|
1,795 |
|
|
|
1,464 |
|
|
|
23 |
% |
|
|
1,745 |
|
|
|
1,385 |
|
|
|
26 |
% |
U.S. offshore |
|
|
31 |
|
|
|
42 |
|
|
|
(26 |
)% |
|
|
28 |
|
|
|
44 |
|
|
|
(36 |
)% |
Canada |
|
|
187 |
|
|
|
163 |
|
|
|
15 |
% |
|
|
379 |
|
|
|
310 |
|
|
|
22 |
% |
|
|
|
|
|
North America |
|
|
2,013 |
|
|
|
1,669 |
|
|
|
21 |
% |
|
|
2,152 |
|
|
|
1,739 |
|
|
|
24 |
% |
|
|
mm |
|
|
Latin America |
|
|
417 |
|
|
|
384 |
|
|
|
9 |
% |
|
|
413 |
|
|
|
381 |
|
|
|
8 |
% |
North Sea |
|
|
38 |
|
|
|
45 |
|
|
|
(16 |
)% |
|
|
41 |
|
|
|
44 |
|
|
|
(7 |
)% |
Continental Europe |
|
|
74 |
|
|
|
51 |
|
|
|
45 |
% |
|
|
74 |
|
|
|
48 |
|
|
|
54 |
% |
Africa |
|
|
76 |
|
|
|
85 |
|
|
|
(11 |
)% |
|
|
79 |
|
|
|
82 |
|
|
|
(4 |
)% |
Middle East |
|
|
291 |
|
|
|
256 |
|
|
|
14 |
% |
|
|
287 |
|
|
|
258 |
|
|
|
11 |
% |
Asia Pacific |
|
|
251 |
|
|
|
267 |
|
|
|
(6 |
)% |
|
|
262 |
|
|
|
262 |
|
|
|
|
|
|
|
|
|
|
Outside North America |
|
|
1,147 |
|
|
|
1,088 |
|
|
|
5 |
% |
|
|
1,156 |
|
|
|
1,075 |
|
|
|
8 |
% |
|
|
|
|
|
Worldwide |
|
|
3,160 |
|
|
|
2,757 |
|
|
|
15 |
% |
|
|
3,308 |
|
|
|
2,814 |
|
|
|
18 |
% |
|
|
|
|
|
Second Quarter of 2011 Compared to the Second Quarter of 2010
The rig count in North America increased 21% reflecting a 75% increase in the oil-directed rig
count partially offset by an 8% decrease in the U.S. gas-directed rig count, and a 26% increase in
the oil-directed rig count and a 1% increase in gas-directed rig count in Canada. Outside North
America the rig count increased 5%. The rig count in Latin America increased primarily due to
higher activity in Brazil, Colombia and Venezuela, while partially offset by lower activity in
Argentina and Mexico. The increase in the Continental Europe geomarket was led by Turkey, Poland
and Germany. The rig count in Africa decreased primarily due to the shutdown of activity in Libya
partially offset with stronger activity in Algeria and Gabon. The rig count increased in the
Middle East primarily due to higher activity in Kuwait, Egypt and Abu Dhabi, partially offset by
declines in activity in Yemen and Pakistan. In the Asia Pacific region, activity decreased
primarily in Indonesia, Malaysia and Vietnam while activity increased in India and Thailand.
RESULTS OF OPERATIONS
The discussions below relating to significant line items from our consolidated condensed
statements of operations are based on available information and represent our analysis of
significant changes or events that impact the comparability of reported amounts. Where
appropriate, we have identified specific events and changes that affect comparability or trends
and, where possible and practical, have quantified the impact of such items. We acquired BJ
Services on April 28, 2010; therefore, our results of operations for the three and six months ended
June 30, 2010 include the results of its operations from that date. In addition, the discussion
below for revenue and cost of revenue is on a total basis as the business drivers for the
individual components of product sales and services are similar. All dollar amounts in tabulations
in this section are in millions of dollars, unless otherwise stated.
Revenue and Profit Before Tax
The performance of our segments is evaluated based on segment profit before tax, which is
defined as income before income taxes, interest expense, interest income, and certain gains and
losses not allocated to the segments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
|
|
|
|
|
|
June 30, |
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase |
|
|
|
|
|
|
2011 |
|
|
2010 |
|
|
(decrease) |
|
|
% Change |
|
|
2011 |
|
|
2010 |
|
|
(decrease) |
|
|
% Change |
|
|
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America |
|
$ |
2,368 |
|
|
$ |
1,486 |
|
|
$ |
882 |
|
|
|
59 |
% |
|
$ |
4,720 |
|
|
$ |
2,405 |
|
|
$ |
2,315 |
|
|
|
96 |
% |
Latin America |
|
|
542 |
|
|
|
384 |
|
|
|
158 |
|
|
|
41 |
% |
|
|
1,015 |
|
|
|
656 |
|
|
|
359 |
|
|
|
55 |
% |
Europe/Africa/Russia Caspian |
|
|
806 |
|
|
|
736 |
|
|
|
70 |
|
|
|
10 |
% |
|
|
1,577 |
|
|
|
1,456 |
|
|
|
121 |
|
|
|
8 |
% |
Middle East/Asia Pacific |
|
|
701 |
|
|
|
545 |
|
|
|
156 |
|
|
|
29 |
% |
|
|
1,360 |
|
|
|
984 |
|
|
|
376 |
|
|
|
38 |
% |
Industrial Services and Other |
|
|
324 |
|
|
|
223 |
|
|
|
101 |
|
|
|
45 |
% |
|
|
594 |
|
|
|
412 |
|
|
|
182 |
|
|
|
44 |
% |
|
Total |
|
$ |
4,741 |
|
|
$ |
3,374 |
|
|
$ |
1,367 |
|
|
|
41 |
% |
|
$ |
9,266 |
|
|
$ |
5,913 |
|
|
$ |
3,353 |
|
|
|
57 |
% |
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
|
|
|
|
|
|
June 30, |
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase |
|
|
|
|
|
|
2011 |
|
|
2010 |
|
|
(decrease) |
|
|
% Change |
|
|
2011 |
|
|
2010 |
|
|
(decrease) |
|
|
% Change |
|
|
Profit Before Tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America |
|
$ |
440 |
|
|
$ |
204 |
|
|
|
236 |
|
|
$ |
116 |
% |
|
$ |
900 |
|
|
$ |
345 |
|
|
$ |
555 |
|
|
|
161 |
% |
Latin America |
|
|
71 |
|
|
|
13 |
|
|
|
58 |
|
|
|
446 |
% |
|
|
134 |
|
|
|
22 |
|
|
|
112 |
|
|
|
509 |
% |
Europe/Africa/Russia Caspian |
|
|
47 |
|
|
|
69 |
|
|
|
(22 |
) |
|
|
(32 |
)% |
|
|
138 |
|
|
|
149 |
|
|
|
(11 |
) |
|
|
(7 |
)% |
Middle East/Asia Pacific |
|
|
88 |
|
|
|
40 |
|
|
|
48 |
|
|
|
120 |
% |
|
|
167 |
|
|
|
70 |
|
|
|
97 |
|
|
|
139 |
% |
Industrial Services and Other |
|
|
34 |
|
|
|
18 |
|
|
|
16 |
|
|
|
89 |
% |
|
|
48 |
|
|
|
35 |
|
|
|
13 |
|
|
|
37 |
% |
|
Total |
|
$ |
680 |
|
|
$ |
344 |
|
|
$ |
336 |
|
|
|
98 |
% |
|
$ |
1,387 |
|
|
$ |
621 |
|
|
$ |
766 |
|
|
|
123 |
% |
|
Second Quarter of 2011 Compared to Second Quarter of 2010
Revenue for the second quarter of 2011 increased $1.37 billion or 41% compared to the second
quarter of 2010. Excluding BJ Services, revenue was up 23%. The primary drivers of the change
included increased activity and improved pricing in the U.S. Land and Canada markets and to a
lesser extent, increased activity in our international segments.
Profit before tax for the second quarter of 2011 increased $336 million or 98% compared to the
second quarter of 2010. Excluding BJ Services, profit before tax was up 73%. These increases were
primarily due to worldwide cost management initiatives as well as strong activity in the North
America segment where increased service intensity in the unconventional markets has led to
increased efficiency and utilization, and pricing improvement.
North America
North America revenue increased 59% in the second quarter of 2011 compared with the second
quarter of 2010. Excluding BJ Services, revenue increased 33%. Revenue and pricing increases were
supported by a 23% increase in the U.S. land and inland waters rig count and a 15% increase in the
Canada rig count. The unconventional reservoirs are demanding our best technology to deliver
longer horizontals, complex completions, increasing hydraulic fracturing (frac) horsepower and
more frac stages resulting in improved pricing and higher revenue. Revenue in the Gulf of Mexico
was essentially unchanged compared to the second quarter of 2010. Revenue in Canada is up compared
to second quarter of 2010 but is down sequentially from the first quarter of 2011 due to the
seasonal spring thaw.
North America profit before tax increased 116% in the second quarter of 2011 compared with the
second quarter of 2010. Excluding BJ Services, profit before tax increased 98%. In addition to
increased revenue, the primary drivers of the increased profitability included improved tool
utilization, improved absorption of manufacturing and other overhead, and higher pricing. This
improvement was partially offset by a decline in our profitability in the Gulf of Mexico directly
attributable to the slow pace of re-permitting following the lifting of the drilling moratorium.
Latin America
Latin America revenue increased 41% in the second quarter of 2011 compared with the second
quarter of 2010 outpacing the 9% increase in the
Latin America rig count. The primary drivers included increased activity and commensurate revenue
increases for drilling services and completions in the Brazil geomarket and artificial lift and
drilling fluids in the Andean geomarket.
Latin America profit before tax increased $58 million in the second quarter of 2011 compared
to the second quarter of 2010 primarily due to the increased revenue from the Brazil and Andean
geomarkets.
Europe/Africa/Russia Caspian
EARC revenue increased 10% in the second quarter of 2011 compared to the second quarter of
2010. The primary drivers of the increase were sales of completions systems and fluids in the
Norway geomarket and directional drilling and wireline sales in the Continental Europe geomarket,
partially offset by the impact of decreased sales in Libya where our operations have currently
ceased, pending resolution of the conflict.
EARC profit before tax decreased 32% or $22 million in the second quarter of 2011 compared to
the second quarter of 2010. Improved profit before tax in the Europe and Africa regions resulting
from higher activity was more than offset by expenses of $70
million, before and after-tax, due to the civil unrest in Libya. These expenses were
associated with increasing the allowance for doubtful accounts and reserves for inventory and
certain other assets in Libya.
17
Middle East/Asia Pacific
Middle East/Asia Pacific revenue increased 29% in the second quarter of 2011 compared to the
second quarter of 2010. The increase in this segment was attributable to higher activity in
various product lines and share gains from the Iraq, Saudi Arabia, Southeast Asia and Gulf
geomarkets.
Middle East/Asia Pacific profit before tax increased 120% or $48 million in the second quarter
of 2011 compared to the second quarter of 2010 primarily due to increased revenue in the Gulf,
Southeast Asia, Saudi Arabia and Iraq geomarkets.
Industrial Services and Other
Industrial Services and Other revenue increased 45% in the second quarter of 2011 compared to
the second quarter of 2010. Excluding BJ Services, revenue increased 29%. Industrial Services and
Other profit before tax increased 89% or $16 million in the second quarter of 2011 compared to the
second quarter of 2010. Excluding BJ Services, profit before tax increased 29%.
Six months ended June 30, 2011 compared to six months ended June 30, 2010
Revenue for the six months ended June 30, 2011 increased $3.35 billion or 57% compared to the
six months ended June 30, 2010. Excluding BJ Services, revenue was up 19%. The primary drivers of
the change included increased activity and improved pricing in the U.S. Land and Canada markets and
to a lesser extent, increased activity in our international segments.
Profit before tax for the six months ended June 30, 2011 increased $766 million or 123%
compared to the six months ended June 30, 2010. Excluding BJ Services, profit before tax was up
70% primarily due to strong activity in the North America segment where increased activity has led
to increased utilization, improved absorption of manufacturing and other overhead costs, and
realized pricing improvement, and to a lesser extent, higher profits in the Latin America and
Middle East/Asia Pacific segments as a result of cost management, improvements in operational
efficiency and improved absorption of fixed costs.
Costs and Expenses
The table below details certain consolidated condensed statement of operations data and their
percentage of revenue for the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
|
|
|
|
2010 |
|
|
Revenue |
|
$ |
4,741 |
|
|
|
100 |
% |
|
$ |
3,374 |
|
|
|
100 |
% |
|
$ |
9,266 |
|
|
|
100 |
% |
|
$ |
5,913 |
|
|
|
100 |
% |
Cost of revenue |
|
|
3,718 |
|
|
|
78 |
% |
|
|
2,662 |
|
|
|
79 |
% |
|
|
7,215 |
|
|
|
78 |
% |
|
|
4,574 |
|
|
|
77 |
% |
Research and engineering |
|
|
114 |
|
|
|
2 |
% |
|
|
112 |
|
|
|
3 |
% |
|
|
220 |
|
|
|
2 |
% |
|
|
206 |
|
|
|
3 |
% |
Marketing, general and administrative |
|
|
292 |
|
|
|
6 |
% |
|
|
312 |
|
|
|
9 |
% |
|
|
574 |
|
|
|
6 |
% |
|
|
617 |
|
|
|
10 |
% |
Cost of Revenue
Cost of revenue as a percentage of revenue was 78% and 79% for the three months ended June 30,
2011 and 2010, respectively; and was 78% and 77% for the six months ended June 30, 2011 and 2010,
respectively. The decrease for the three months was due primarily to improved pricing, efficiency
and cost management initiatives partially offset by the $70 million charge in Libya where our
operations have ceased, pending resolution of the conflict. The increase for the six months was
primarily due to the impacts of civil unrest in North Africa, including the charge
related to Libya.
Research and Engineering
Research and engineering expenses increased 2% and 7% for the three and six months ended June
30, 2011, respectively, compared to the same periods a year ago. The increases were primarily due
to the acquisition of BJ Services in the second quarter of 2010. We continue to be committed to
developing and commercializing new technologies as well as investing in our core product offerings.
18
Marketing, General and Administrative
Marketing, general and administrative (MG&A) expenses decreased 6% and 7% for the three and
six months ended June 30, 2011, respectively, compared to the same periods a year ago. Excluding
BJ Services, MG&A for the three and six months ended June 30, 2011 decreased 11% and 17%,
respectively. These decreases resulted primarily from a reduction in costs associated with finance
redesign efforts, which were completed during 2010. In addition, during the first six months of
2011, we benefited from reductions in expenses as a result of cost cutting measures implemented in
the latter half of 2010 and synergies we are realizing as we continue to integrate BJ Services into
our operations.
Interest Expense, net
Interest expense, net of interest income increased $24 million and $52 million for the three
months and six months ended June 30, 2011, respectively, compared to the same periods a year ago.
These increases were primarily due to the issuance of $1.5 billion of debt in August 2010 and the
assumption of $500 million of debt associated with the acquisition of BJ Services in April 2010.
Income Taxes
Total income tax expense was $228 million and $432 million for the three months and six months
ended June 30, 2011, respectively. Our effective tax rate on operating profits for the three
months and six months ended June 30, 2011 was 40.5% and 37.5%, respectively, which is higher than
the U.S. statutory income tax rate of 35% due to the $70 million
charge in Libya for
which there was no tax benefit, higher effective tax rates on certain international operations and
state income taxes.
Our tax filings for various periods are subject to audit by the tax authorities in most
jurisdictions where we conduct business. These audits may result in assessment of additional taxes
that are resolved with the authorities or through the courts. We believe these assessments may
occasionally be based on erroneous and even arbitrary interpretations of local tax law. We have
received tax assessments from various taxing authorities and are currently at varying stages of
appeals and/or litigation regarding these matters. We believe we have substantial defenses to the
questions being raised and will pursue all legal remedies should an unfavorable outcome result.
Resolution of any tax matter involves uncertainties and there are no assurances that the outcomes
will be favorable.
OUTLOOK
This section should be read in conjunction with the factors described in Part II, Item 1A.
Risk Factors and in the Forward-Looking Statements section in this Part I, Item 2, both
contained herein. These factors could impact, either positively or negatively, our expectation
for: oil and natural gas demand; oil and natural gas prices; exploration and development spending
and drilling activity; and production spending.
Our industry is cyclical, and past cycles have been driven primarily by alternating periods of
ample supply or shortage of oil and natural gas relative to demand. As an oilfield services
company, our revenue is dependent on spending by our customers for oil and natural gas
exploration, field development and production. This spending is dependent on a number of factors,
including our customers forecasts of future energy demand, their expectations for future energy
prices, their access to resources to develop and produce oil and gas, the impact of new government
regulations and their ability to fund their capital programs.
Our outlook for exploration and development spending is based upon our expectations for
customer spending in the markets in which we operate, and is driven primarily by our perception of
industry expectations for oil and natural gas prices and their likely impact on customer capital
and operating budgets as well as other factors that could impact the economic return oil and gas
companies expect for developing oil and gas reserves. Our forecasts are based on our analysis of
information provided by our customers as well as market research and analyst reports including the
Short Term Energy Outlook (STEO) published by the Energy Information Administration (EIA) of
the U.S. Department of Energy (DOE), the Oil Market Report published by the IEA and the Monthly
Oil Market Report published by Organization of the Petroleum Exporting Countries (OPEC). Our
outlook for economic growth is based on our analysis of information published by a number of
sources including the International Monetary Fund (IMF), the Organization for Economic
Cooperation and Development (OECD) and the World Bank.
The primary drivers impacting the 2011 business environment include the following:
|
|
|
Worldwide Economic Growth The global economy is continuing its expansion following
the recession of 2008/2009. Economic growth has been strongest in China and the other
emerging and developing countries outside the OECD. While important in terms of total
consumption, the developed economies of OECD countries are expected to experience
relatively modest economic growth and will not contribute meaningfully to incremental oil
or natural gas demand. In |
19
|
|
|
contrast, the emerging and developing countries outside the
OECD are expected to drive most of the worlds incremental energy demand. The risks to
the global economic recovery continue to be the sovereign and financial troubles within
the Euro area and policies to redress fiscal imbalances in the advanced economies in
general. |
|
|
|
|
Demand for Hydrocarbons The IEA in its July 2011 Oil Market Report said that it expects global demand for oil to increase 1.2 million barrels per day in
2011 relative to 2010. While forecasts by IEA, EIA and OPEC have been revised modestly
lower in the past few months, primarily as a reaction to higher oil prices and
uncertainty regarding the strength of the economic recovery, the expected increase in
demand for hydrocarbons is expected to support increased spending to develop oil and
natural gas resources. |
|
|
|
|
Production of Hydrocarbons Global spare production capacity is relatively limited
and is proving to be inadequate to decouple oil prices from geopolitical supply
disruptions throughout North Africa and the Middle East. Several key OPEC countries
have announced plans to increase their exploration and development efforts to develop
resources to meet the expected increase in global demand. In response to higher oil
prices, certain OPEC countries have committed to increasing production. In the second
quarter, the IEA announced a coordinated release of strategic oil reserves to bridge
between the current tight market and increased OPEC production. |
|
|
|
|
Oil and Natural Gas Prices With oil prices trading between $90/Bbl and $115/Bbl
most resource plays will provide adequate returns to encourage incremental investment.
In North America, natural gas prices are lower, on a Btu-equivalent basis, but are
supporting attractive returns in those conventional and unconventional resource plays
with relatively high portions of associated crude oil or natural gas production. |
Activity and Spending Outlook for North America - Overall customer spending in North America
is expected to increase in the second half of 2011 compared to the first half of 2011. Resource
plays with crude oil and natural gas liquids content are attracting incremental investment while
investment in dry gas plays has declined. Service intensity has increased in North America as
customers are demanding advanced directional drilling, more complex completion systems and pressure
pumping to develop the unconventional shale resource plays. The demand for these key technologies
has grown faster than the industrys ability to produce them supporting higher prices. Activity in
Canada is expected to increase sequentially in the third and fourth quarters, recovering from its
seasonally low second quarter and building to a seasonally high peak in the first quarter. In the
Gulf of Mexico, activity on the continental shelf has remained steady, while the second quarter saw
an increase in deep water permits and subsequently deep water drilling. The level of activity in
the deep water Gulf of Mexico remains well below pre-moratorium levels; however, the pace of permit
issuance we experienced early in the second quarter has not been sustained. Operators plans to
increase drilling activity are dependent on the issuance of new drilling permits. We are investing
in our people and processes to ensure that we will be fully compliant with the new and more
stringent regulatory requirements in the Gulf of Mexico, which costs will continue over the next
several quarters.
Activity and Spending Outlook Outside North America - International activity is driven
primarily by the price of oil which is high enough to provide attractive economic returns in almost
every region. Customers are expected to increase spending to develop new resources and offset
declines from existing developed resources. Areas that are expected to see increased spending in
the second half of 2011 include: the Middle East, in particular Saudi Arabia and Abu Dhabi, which
have announced significant increases to their spending plans; the Brazil geomarket with the
investment in the pre-salt resources; and the Andean geomarket.
Capital Expenditures - Our capital expenditures, excluding acquisitions, are expected to be
between $2.3 billion and $2.7 billion for 2011. A significant portion of our planned capital
expenditures can be adjusted to reflect changes in our expectations for future customer spending.
We will manage our capital expenditures to match market demand.
LIQUIDITY AND CAPITAL RESOURCES
Our objective in financing our business is to maintain adequate financial resources and access
to sufficient liquidity. At June 30, 2011, we had cash and cash equivalents of $937 million and
$1.7 billion available for borrowing under committed revolving credit facilities with commercial
banks.
Our capital planning process is focused on utilizing cash flows generated from operations in
ways that enhance the value of our company. In the six months ended June 30, 2011, we used cash to
fund a variety of activities including working capital needs, capital
expenditures, repayment of debt and dividends.
20
Cash Flows
Cash flows provided (used) by continuing operations, by type of activity, were as follows for
the six months ended June 30:
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
Operating activities |
|
$ |
397 |
|
|
$ |
158 |
|
Investing activities |
|
|
(636 |
) |
|
|
(1,284 |
) |
Financing activities |
|
|
(295 |
) |
|
|
473 |
|
Statements of cash flows for our entities with international operations that are local
currency functional exclude the effects of the changes in foreign currency exchange rates that
occur during any given period, as these are noncash charges. As a result, changes reflected in
certain accounts on the consolidated condensed statements of cash flows may not reflect the changes
in corresponding accounts on the consolidated condensed balance sheets.
Operating Activities
Cash flows from operating activities provided cash of $397 million and $158 million in the six
months ended June 30, 2011 and 2010, respectively. This increase in cash flows of $239 million was
primarily due to an increase in net income of $497 million partially offset by a change in net
operating assets and liabilities, which used more cash in the six months ended June 30, 2011
compared to the same period in 2010.
The underlying drivers of the significant changes in net operating assets and liabilities were
as follows:
|
|
|
An increase in accounts receivable used cash of $512 million and $258 million in the
six months ended June 30, 2011 and 2010, respectively, resulting from revenue growth. |
|
|
|
|
Inventory used cash of $314 million and $124 million in the six months ended June 30, 2011 and
2010, respectively, driven by higher inventory levels required to support anticipated
increases in production volume. |
|
|
|
|
An increase in accounts payable provided cash of $57 million and $123 million in the
six months ended June 30, 2011 and 2010, respectively, resulting from an increase in operating
assets to support increased activity. |
|
|
|
|
A decrease in income taxes payable used cash of $160 million and $15 million in the
six months ended June 30, 2011 and 2010, respectively. This change is due primarily to an increase in
income taxes paid of $305 million partially offset by the increase in the provision for
income taxes in the first six months of 2011 compared to the same period in 2010. |
Investing Activities
Our principal recurring investing activity was the funding of capital expenditures to ensure
that we have the appropriate levels and types of rental tools and machinery and equipment in place
to generate revenue from operations. Expenditures for capital assets totaled $1,023 million and
$539 million in the six months ended June 30, 2011 and 2010, respectively. While the majority of
these expenditures were for rental tools and machinery and equipment, we have continued our
spending on new facilities, expansions of existing facilities and other infrastructure projects.
Proceeds from the disposal of assets were $142 million and $89 million in the six months ended
June 30, 2011 and 2010, respectively. These disposals related to rental tools that were lost-in-hole, and property, machinery and equipment no longer used in operations that
was sold during the period.
We received proceeds from maturities of short-term investments consisting of $250 million in
U.S. Treasury Bills that matured in May 2011.
We routinely evaluate potential acquisitions of businesses of third parties that may enhance
our current operations or expand our operations into new markets or product lines. In the second
quarter of 2010, we paid cash of $680 million, net of cash acquired of $113 million, related to the
BJ Services acquisition. We also paid $154 million for two other acquisitions that occurred during
the second quarter of 2010.
Financing Activities
We had net repayments of commercial paper and other short-term debt of $21 million compared to
net borrowings of $555 million in the six months ended June 30, 2011 and 2010, respectively. In
addition, we repaid $250 million of long-term debt related to our 5.75% notes that matured in June
2011. Total debt outstanding at June 30, 2011 was $3.61 billion and $3.89 billion at
21
December 31,
2010. The total debt to total capitalization (defined as total debt plus stockholders equity)
ratio was 19% at June 30, 2011 and 21% December 31, 2010.
We received proceeds of $115 million and $28 million in the six months ended June 30, 2011 and
2010, respectively, from the issuance of common stock through the exercise of stock options and the employee stock purchase plan.
Our Board of Directors has authorized a program to repurchase our common stock from time to
time. In the six months ended June 30, 2011 and 2010, we did not repurchase any shares of our
common stock. At June 30, 2011, we had authorization remaining to repurchase up to a total of $1.2
billion of our common stock.
We paid dividends of $130 million and $111 million in the six months ended June 30, 2011 and
2010, respectively.
Available Credit Facilities
At June 30, 2011, we had $1.7 billion of committed revolving credit facilities with commercial
banks. These facilities contain certain covenants which, among other things, require the
maintenance of a funded indebtedness to total capitalization ratio (a defined formula per each
agreement), restrict certain merger transactions or the sale of all or substantially all of our
assets or a significant subsidiary and limit the amount of subsidiary indebtedness. Upon the
occurrence of certain events of default, our obligations under the facilities may be accelerated.
Such events of default include payment defaults to lenders under the facilities, covenant defaults
and other customary defaults. At June 30, 2011, we were in compliance with all of the facilities
covenants. There were no direct borrowings under the committed credit facilities during the six
months ended June 30, 2011. We also have a commercial paper program under which we may issue up to
$1.0 billion in commercial paper with maturity of no more than 270 days. To the extent we have
outstanding commercial paper our ability to borrow under the facilities is reduced. At June 30,
2011, we had no outstanding commercial paper.
If market conditions were to change and revenue was to be significantly reduced or operating
costs were to increase, our cash flows and liquidity could be reduced. Additionally, it could
cause the rating agencies to lower our credit rating. There are no ratings triggers that would
accelerate the maturity of any borrowings under our committed credit facilities. However, a
downgrade in our credit ratings could increase the cost of borrowings under the facilities and
could also limit or preclude our ability to issue commercial paper. Should this occur, we would
seek alternative sources of funding, including borrowing under the facilities.
We believe our current credit ratings would allow us to obtain interim financing over and
above our existing credit facilities for any currently unforeseen significant needs or growth
opportunities. We also believe that such interim financings could be funded with subsequent
issuances of long-term debt or equity, if necessary.
Cash Requirements
In 2011, we believe cash on hand and operating cash flows will provide us with sufficient
capital resources and liquidity to manage our working capital needs, meet contractual obligations,
fund capital expenditures, and support the development of our short-term and long-term operating
strategies. We may issue commercial paper or other short-term debt to fund cash needs in the U.S.
in excess of the cash generated in the U.S.
In 2011, we expect capital expenditures to be between $2.3 billion and $2.7 billion, excluding
any amount related to acquisitions. The expenditures are expected to be used primarily for normal,
recurring items necessary to support the growth of our business and operations. A significant
portion of our capital expenditures can be adjusted based on future activity of our customers. We
will manage our capital expenditures to match market demand.
In
2011, we expect to make interest payments of between
$215 million and $225 million, based
on our current expectations of debt levels. We anticipate making income tax payments of between
$1.1 billion and $1.2 billion in 2011.
We may repurchase our common stock depending on market conditions, applicable legal
requirements, our liquidity and other considerations. We anticipate paying dividends of between
$260 million and $270 million in 2011; however, the Board of Directors can change the dividend
policy at any time.
For all pension plans, we make annual contributions to the plans in amounts equal to or
greater than amounts necessary to meet minimum governmental funding requirements. In 2011, we
expect to contribute between $65 million and $85 million to our defined benefit pension plans. We
also expect to make benefit payments related to postretirement welfare plans of between $16 million
and $18 million, and we estimate we will contribute between $190 million and $205 million to our
defined contribution plans.
22
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, ensure, expect, if,
intend, estimate, probable, project, forecasts, predict, outlook, aim, will,
could, should, would, may, probable, likely and similar expressions, and the negative
thereof, are intended to identify forward-looking statements. Our forward-looking statements are
based on assumptions that we believe to be reasonable but that may not prove to be accurate. The
statements do not include the potential impact of future transactions, such as an acquisition,
disposition, merger, joint venture or other transaction that could occur. We undertake no
obligation to publicly update or revise any forward-looking statement. Our expectations regarding
our business outlook and business plans; the business plans of our customers; oil and natural gas
market conditions; costs and availability of resources; the on-going integration of BJ Services;
economic, legal and regulatory conditions and other matters are only our forecasts regarding these
matters.
All of our forward-looking information is subject to risks and uncertainties that could cause
actual results to differ materially from the results expected. Although it is not possible to
identify all factors, these risks and uncertainties include the risk factors and the timing of any
of those risk factors identified in Part II, Item 1A. Risk Factors section contained herein, as
well as the risk factors described in our 2010 Annual Report, this filing and those set forth from
time to time in our filings with the SEC. These documents are available through our web site or
through the SECs Electronic Data Gathering and Analysis Retrieval System (EDGAR) at
http://www.sec.gov.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We conduct operations around the world in a number of different currencies. A number of our
significant foreign subsidiaries have designated the local currency as their functional currency.
As such, future earnings are subject to change due to changes in foreign currency exchange rates
when transactions are denominated in currencies other than our functional currencies. To minimize
the need for foreign currency forward contracts to hedge this exposure, our objective is to manage
foreign currency exposure by maintaining a minimal consolidated net asset or net liability position
in a currency other than the functional currency.
Foreign Currency Forward Contracts
At June 30, 2011, we had outstanding foreign currency forward contracts with notional amounts
aggregating $150 million to hedge exposure to currency fluctuations in various foreign currencies.
These contracts are designated and qualify as fair value hedging instruments. The fair value of
the contracts outstanding at June 30, 2011, based on quoted market prices as of June 30, 2011, for
contracts with similar terms and maturity dates, was $1 million included in other current assets
and $1 million included in other accrued liabilities in the consolidated condensed balance sheet.
The effect of foreign currency forward contracts on the consolidated condensed statement of
operations for the three months and six months ended June 30, 2011 was $2 million and $3 million,
respectively, of foreign exchange losses, which were included in marketing, general and
administrative expenses. These net losses offset designated foreign exchange net gains resulting
from the underlying exposures of the hedged items.
Interest Rate Swaps
We are subject to interest rate risk on our debt and investment of cash and cash equivalents
arising in the normal course of our business, as we do not engage in speculative trading
strategies. We maintain an interest rate management strategy, which primarily uses a mix of fixed
and variable rate debt that is intended to mitigate the exposure to changes in interest rates in
the aggregate for our investment portfolio. In addition, we are currently using interest rate
swaps to manage the economic effect of fixed rate obligations associated with our senior notes so
that the interest payable on the senior notes effectively becomes linked to variable rates. Our
interest rate swaps are designated and each qualifies as a fair value hedging instrument. The fair
value of our interest rate swaps was determined using a model with Level 2 inputs including quoted
market prices for contracts with similar terms and maturity dates. The fair value of the swap
agreements at June 30, 2011, was $24 million and was included in other assets in the consolidated
condensed balance sheet. The effect of interest rate swaps on the consolidated condensed statement
of operations for the three months and six months ended June 30, 2011 was a reduction in interest
expense of $3 million and $6 million, respectively.
23
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this quarterly report, we have evaluated the
effectiveness of the design and operation of our disclosure controls and procedures pursuant to
Rule 13a-15 of the Exchange Act of 1934, as amended (the Exchange Act). This evaluation was
carried out under the supervision and with the participation of our management, including our
principal executive officer and principal financial officer. Based on this evaluation, these
officers have concluded that, as of June 30, 2011, our disclosure controls and procedures, as
defined by Rule 13a-15(e) of the Exchange Act, are effective at a reasonable assurance level.
There has been no change in our internal controls over financial reporting during the quarter ended
June 30, 2011 that has materially affected, or is reasonably likely to materially affect, our
internal controls over financial reporting.
Disclosure controls and procedures are our controls and other procedures that are designed to
ensure that information required to be disclosed by us in the reports that we file or submit under
the Exchange Act, such as this quarterly report, is recorded, processed, summarized and reported
within the time periods specified in the SECs rules and forms. Disclosure controls and procedures
include, without limitation, controls and procedures designed to ensure that information required
to be disclosed by us in the reports that we file under the Exchange Act is accumulated and
communicated to our management, including our principal executive officer and principal financial
officer, as appropriate, to allow timely decisions regarding required disclosure.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are subject to a number of lawsuits, investigations and claims (some of which involve
substantial amounts) arising out of the conduct of our business. See a further discussion of
litigation matters in Note 11 of Notes to Unaudited Consolidated Condensed Financial Statements.
For additional discussion of legal proceedings see also, Item 3 of Part I of our 2010 Annual
Report and Note 14 of the Notes to the Consolidated Financial Statements included in Item 8 of our
2010 Annual Report.
ITEM 1A. RISK FACTORS
As of the date of this filing, the Company and its operations continue to be subject to the
risk factors previously disclosed in our Risk Factors in the 2010 Annual Report and the Form 10-Q
for the period ended March 31, 2011 as well as the following risk factor:
Our business is subject to geopolitical, terrorism risks and other threats.
Geopolitical and terrorism risks continue to grow in several key countries where we do
business. Geopolitical and terrorism risks could lead to, among other things, a loss of our
investment in the country, impair the safety of our employees and impair our ability to conduct our
operations. During the first six months of 2011, there was political unrest in North Africa, and
in particular Libya, where our operations have currently ceased pending resolution of the conflict.
During the quarter ended June 30, 2011, we incurred expenses of $70 million associated with
increasing the allowance for doubtful accounts, and reserves for inventory and certain other assets
in Libya. As of June 30, 2011, we have assets remaining in Libya totaling approximately $80
million.
24
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The following table contains information about our purchases of equity securities during the
three months ended June 30, 2011.
Issuer Purchases of Equity Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maximum |
|
|
|
|
|
|
|
|
|
|
|
Total Number |
|
|
|
|
|
|
|
|
|
|
Number (or |
|
|
|
|
|
|
|
|
|
|
|
of Shares |
|
|
|
|
|
|
|
|
|
|
Approximate |
|
|
|
|
|
|
|
|
|
|
|
Purchased as |
|
|
|
|
|
|
|
|
|
|
Dollar Value) of |
|
|
|
|
|
|
|
|
|
|
|
Part of a |
|
|
|
|
|
|
Total Number |
|
|
Shares that May |
|
|
|
Total Number |
|
|
Average Price |
|
|
Publicly |
|
|
Average Price |
|
|
of Shares |
|
|
Yet Be Purchased |
|
|
|
of Shares |
|
|
Paid Per Share |
|
|
Announced |
|
|
Paid Per Share |
|
|
Purchased in |
|
|
Under the |
|
Period |
|
Purchased(1) |
|
|
(1) |
|
|
Program(2) |
|
|
(2) |
|
|
the Aggregate |
|
|
Program(3) |
|
|
April 1-30, 2011 |
|
|
31,378 |
|
|
$ |
72.36 |
|
|
|
|
|
|
$ |
|
|
|
|
31,378 |
|
|
$ |
|
|
May 1-31, 2011 |
|
|
3,140 |
|
|
|
74.55 |
|
|
|
|
|
|
|
|
|
|
|
3,140 |
|
|
|
|
|
June 1-30, 2011 |
|
|
293 |
|
|
|
72.34 |
|
|
|
|
|
|
|
|
|
|
|
293 |
|
|
|
|
|
|
Total |
|
|
34,811 |
|
|
$ |
72.56 |
|
|
|
|
|
|
$ |
|
|
|
|
34,811 |
|
|
$ |
1,197,127,803 |
|
|
|
|
|
(1) |
|
Represents shares purchased from employees to pay the option exercise price related to
stock-for-stock exchanges in option exercises or to satisfy the tax withholding obligations in
connection with the vesting of restricted stock awards and restricted stock units. |
|
(2) |
|
There were no share repurchases during the three months ended June 30, 2011. |
|
(3) |
|
Our Board of Directors has authorized a plan to repurchase our common stock from time to time.
During the three months ended June 30, 2011, we did not repurchase shares of our common stock. We
had authorization remaining to repurchase up to a total of approximately $1.2 billion of our common
stock. |
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. [REMOVED AND RESERVED]
ITEM 5. OTHER INFORMATION
Our barite mining operations, in support of our drilling fluids products and services
business, are subject to regulation by the federal Mine Safety and Health Administration under the
Federal Mine Safety and Health Act of 1977. Information concerning mine safety violations or other
regulatory matters required by section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer
Protection Act and the recently proposed Item 106 of Regulation S-K (17 CFR 229.106) is included in
Exhibit 99.1 to this quarterly report.
The following events occurred subsequent to the period covered by this Form 10-Q and is reportable under Form 8-K:
Item 5.02 Departure of Directors or Certain Officers; Election of Directors;
Appointment of Certain Officers; Compensatory Arrangements of Certain Officers
On July 28, 2011, the Board of Directors of the Company appointed Martin S.
Craighead to serve on the Board of Directors of the Company, effective August 1,
2011. His term will expire at the Annual Stockholders Meeting in 2012. Mr.
Craighead is the current President and Chief Operating Officer of the Company and
will assume the role of Chief Executive Officer on January 1, 2012 in addition to
his role as President.
Item 5.03 Amendments to Articles of Incorporation or
Bylaws; Change in Fiscal Year
On July 28, 2011, our Board of Directors amended
and restated the Bylaws of the Company effective as of August 1, 2011. The
amended and restated Bylaws changed Article III, Section 1 to require the size of
the Board of Directors to increase from 11 to 12 directors.
Item 5.07 Submission of Matters to a Vote of Security Holders
At our Annual Meeting of Stockholders held on April 28, 2011, our stockholders voted on, among other matters,
a proposal regarding the frequency of future advisory votes on executive compensation (say on pay). As previously
reported on our Form 8-K filed on May 3, 2011, a majority of the votes cast on the frequency proposal were cast in
favor of holding an advisory vote on
25
executive compensation on an annual basis. Following consideration of the
stockholder advisory vote on the frequency proposal, our Board of Directors decided at a meeting held on
July 28, 2011, that we will hold an annual advisory vote on executive compensation in its future proxy materials
until the next stockholder vote on the frequency of these votes.
ITEM 6. EXHIBITS
Each exhibit identified below is filed as a part of this report. Exhibits designated with an
* are filed as an exhibit to this Quarterly Report on Form 10-Q. Exhibit designated with a +
is identified as a compensatory arrangement.
|
|
|
3.1*
|
|
Restated Bylaws of Baker Hughes Incorporated dated August 1,
2011. |
|
|
|
4.1
|
|
Fifth Supplemental Indenture, dated June 21, 2011, between BJ Services Company LLC,
as company, Western Atlas Inc., as successor company, and Wells Fargo Bank, N.A., as
trustee, with respect to the 6% Senior Notes due 2018 (filed as Exhibit 4.4 to Current
Report of Baker Hughes Incorporated on Form 8-K filed June 23, 2011). |
|
|
|
4.2
|
|
Restated Bylaws of Baker Hughes
Incorporated dated August 1, 2011 (filed as Exhibit 3.1 to this Quarterly Report on
Form 10-Q). |
|
10.1+
|
|
Restated and Superseding Employment Agreement between Chad C. Deaton and Baker
Hughes Incorporated dated April 28, 2011 (filed as Exhibit 10.1 to Current Report of Baker
Hughes Incorporated on Form 8-K filed May 3, 2011). |
|
31.1*
|
|
Certification of Chad C. Deaton, Chief Executive Officer, furnished pursuant to Rule
13a-14(a) of the Securities Exchange Act of 1934, as amended. |
|
31.2*
|
|
Certification of Peter A. Ragauss, Chief Financial Officer, furnished pursuant to
Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended. |
|
32* |
|
Statement of Chad C. Deaton, Chief Executive Officer, and Peter A. Ragauss, Chief
Financial Officer, furnished pursuant to Rule 13a-14(b) of the Securities Exchange Act of
1934, as amended. |
|
99.1*
|
|
Mine Safety Disclosure. |
|
**101.INS
|
|
XBRL Instance Document |
|
**101.SCH
|
|
XBRL Schema Document |
|
**101.CAL
|
|
XBRL Calculation Linkbase Document |
|
**101.LAB
|
|
XBRL Label Linkbase Document |
|
**101.PRE
|
|
XBRL Presentation Linkbase Document |
|
**101.DEF
|
|
XBRL Definition Linkbase Document |
|
|
|
** |
|
Furnished with this Form 10-Q, not filed |
26
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
|
BAKER HUGHES INCORPORATED
(Registrant)
|
|
Date: August 1, 2011 |
By: |
/s/ PETER A. RAGAUSS
|
|
|
|
Peter A. Ragauss |
|
|
|
Senior Vice President and Chief Financial Officer |
|
|
|
|
|
Date: August 1, 2011 |
By: |
/s/ ALAN J. KEIFER
|
|
|
|
Alan J. Keifer |
|
|
|
Vice President and Controller |
|
|
27
exv3w1
Exhibit 3.1
BYLAWS
OF
BAKER HUGHES INCORPORATED
Restated as of
August 1, 2011
Table of Contents
|
|
|
|
|
|
|
Page No. |
ARTICLE I Offices |
|
|
1 |
|
|
|
|
|
|
Section 1. Registered Office |
|
|
1 |
|
Section 2. Other Offices |
|
|
1 |
|
|
|
|
|
|
ARTICLE II Meetings of Stockholders |
|
|
1 |
|
|
|
|
|
|
Section 1. Place of Meetings |
|
|
1 |
|
Section 2. Annual Meeting of Stockholders |
|
|
1 |
|
Section 3. Quorum; Adjourned Meetings and Notice Thereof |
|
|
1 |
|
Section 4. Proxies |
|
|
2 |
|
Section 5. Special Meetings |
|
|
2 |
|
Section 6. Notice of Stockholders Meetings |
|
|
4 |
|
Section 7. Waiver of Notice |
|
|
4 |
|
Section 8. Maintenance and Inspection of Stockholder List |
|
|
5 |
|
Section 9. Stockholder Action by Written Consent Without a Meeting |
|
|
5 |
|
Section 10. Inspectors of Election |
|
|
5 |
|
Section 11. Procedure for Stockholders Meetings |
|
|
5 |
|
Section 12. Order of Business |
|
|
6 |
|
Section 13. Procedures for Bringing Business before an Annual Meeting |
|
|
6 |
|
Section 14. Procedures for Nominating Directors |
|
|
8 |
|
|
|
|
|
|
ARTICLE III Directors |
|
|
13 |
|
|
|
|
|
|
Section 1. Number and Qualification of Directors |
|
|
13 |
|
Section 2. Election and Term of Office |
|
|
13 |
|
Section 3. Resignation and Removal of Directors |
|
|
13 |
|
Section 4. Vacancies and Newly Created Directorships |
|
|
14 |
|
Section 5. Powers |
|
|
14 |
|
Section 6. Place of Directors Meetings |
|
|
15 |
|
Section 7. Regular Meetings |
|
|
15 |
|
Section 8. Special Meetings |
|
|
15 |
|
Section 9. Quorum |
|
|
15 |
|
Section 10. Action Without Meeting |
|
|
15 |
|
Section 11. Telephonic Meetings |
|
|
15 |
|
Section 12. Meetings and Action of Committees |
|
|
16 |
|
Section 13. Special Meetings of Committees |
|
|
16 |
|
Section 14. Minutes of Committee Meetings |
|
|
16 |
|
Section 15. Compensation of Directors |
|
|
17 |
|
Section 16. Indemnification |
|
|
17 |
|
|
|
|
|
|
- i -
|
|
|
|
|
|
|
|
Page No. |
|
|
|
|
|
ARTICLE IV Officers |
|
|
20 |
|
|
|
|
|
|
Section 1. Officers |
|
|
20 |
|
Section 2. Election of Officers |
|
|
20 |
|
Section 3. Subordinate Officers |
|
|
20 |
|
Section 4. Removal and Resignation of Officers |
|
|
20 |
|
Section 5. Vacancies in Offices |
|
|
20 |
|
Section 6. Chairman of the Board |
|
|
20 |
|
Section 7. Chief Executive Officer |
|
|
20 |
|
Section 8. President |
|
|
21 |
|
Section 9. Chief Operating Officer |
|
|
21 |
|
Section 10. Vice Presidents |
|
|
21 |
|
Section 11. Secretary |
|
|
21 |
|
Section 12. Chief Financial Officer |
|
|
22 |
|
Section 13. Treasurer and Controller |
|
|
22 |
|
Section 14. Delegation of Authority |
|
|
22 |
|
|
|
|
|
|
ARTICLE V Certificate of Stock |
|
|
22 |
|
|
|
|
|
|
Section 1. Certificates |
|
|
22 |
|
Section 2. Signatures on Certificates |
|
|
23 |
|
Section 3. Statement of Stock Rights, Preferences, Privileges |
|
|
23 |
|
Section 4. Lost, Stolen or Destroyed Certificates |
|
|
23 |
|
Section 5. Transfers of Stock |
|
|
23 |
|
Section 6. Fixing Record Date |
|
|
23 |
|
Section 7. Registered Stockholders |
|
|
24 |
|
|
|
|
|
|
ARTICLE VI General Provisions |
|
|
24 |
|
|
|
|
|
|
Section 1. Dividends |
|
|
24 |
|
Section 2. Payment of Dividends |
|
|
24 |
|
Section 3. Checks |
|
|
24 |
|
Section 4. Corporate Contracts and Instruments |
|
|
24 |
|
Section 5. Fiscal Year |
|
|
25 |
|
Section 6. Manner of Giving Notice |
|
|
25 |
|
Section 7. Waiver of Notice |
|
|
25 |
|
|
|
|
|
|
ARTICLE VII Amendments |
|
|
25 |
|
|
|
|
|
|
Section 1. Amendment by Directors |
|
|
25 |
|
Section 2. Amendment by Stockholders |
|
|
25 |
|
|
|
|
|
|
- ii -
|
BYLAWS
OF
BAKER HUGHES INCORPORATED
ARTICLE I
Offices
Section 1. Registered Office. The registered office shall be in the City of
Wilmington, County of New Castle, State of Delaware.
Section 2. Other Offices. The Corporation may also have offices at such other places
both within and without the State of Delaware as the Board of Directors may from time to time
determine or the business of the Corporation may require.
ARTICLE II
Meetings of Stockholders
Section 1. Place of Meetings. All meetings of the stockholders shall be held at such
place, if any, either within or without the State of Delaware as shall be designated from time to
time by the Board of Directors and stated in the notice of the meeting.
Section 2. Annual Meetings of Stockholders. An annual meeting of stockholders shall
be held at such date and time as may be determined from time to time by resolution adopted by the
Board of Directors, for the purpose of electing the directors of the Corporation, and transacting
such business as may properly be brought before the meeting.
Section 3. Quorum; Adjourned Meetings and Notice Thereof. A majority of the stock
issued and outstanding and entitled to vote at any meeting of stockholders, the holders of which
are present in person or represented by proxy, without regard to class or series, shall constitute
a quorum for the transaction of business except as otherwise provided by law, by the Certificate of
Incorporation, or by these Bylaws. If a separate vote by a class or classes or series is required,
a majority of the outstanding shares of such class or classes or series present in person or
represented by proxy shall constitute a quorum entitled to take action with respect to that vote on
that matter. A quorum, once established, shall not be broken by the withdrawal of enough votes to
leave less than a quorum and the votes present may continue to transact business until adjournment.
If, however, such quorum shall not be present or represented at any meeting of the stockholders, a
majority of the voting stock represented in person or by proxy or the chairman of the meeting may
adjourn the meeting from time to time, without notice other than announcement at the meeting, until
a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be
present or represented, any business may be transacted which might have been transacted at the
meeting as originally noticed. If the adjournment is for more than 30 days, or if after the
adjournment a new record date is fixed for the adjourned
meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to
vote thereat.
Section 4. Proxies. At each meeting of the stockholders, each stockholder having the
right to vote may vote in person or may authorize another person or persons to act for him by proxy
authorized by an instrument in writing or by a transmission, including by telephone and electronic
transmission, permitted by law filed in accordance with the procedure established for the meeting.
Any copy, facsimile telecommunication or other reliable reproduction of the writing or transmission
created pursuant to this Section may be substituted or used in lieu of the original writing or
transmission for any and all purposes for which the original writing or transmission could be used,
provided that such copy, facsimile telecommunication or other reproduction shall be a complete
reproduction of the entire original writing or transmission. Each stockholder shall have one vote
for each share of stock having voting power, registered in his name on the books of the Corporation
on the record date set by the Board of Directors as provided in Article V, Section 6 hereof.
Section 5. Special Meetings. (1) Special meetings of the stockholders, for any
purpose or purposes, unless otherwise prescribed by law or by the Certificate of Incorporation, may
be called at any time by (i) the Board of Directors (ii) an authorized committee of the Board of
Directors, or (iii) the Secretary of the Corporation following the Secretarys receipt of written
requests to call a meeting from the holders of 25% of the voting power (the Required Percentage)
of the capital stock outstanding and entitled to vote on the business proposed to be conducted (the
Voting Stock) who have delivered such requests in accordance with this bylaw. Except as required
by law or provided by the terms of any class or series of Preferred Stock, special meetings of
stockholders of the Corporation may not be called by any other person or persons.
(2) A stockholder may not submit a written request to call a special meeting unless such
stockholder is a holder of record of Voting Stock on the record date fixed to determine the
stockholders entitled to request the call of a special meeting. A stockholder seeking to call a
special meeting to transact business shall, by written notice to the Secretary, demand that the
Board of Directors fix a record date if such a record date has not been established. A written
demand to fix a record date shall include all of the information that must be included in a written
request to call a special meeting (including information that would not be required if the
demanding stockholder was a Solicited Stockholder) as set forth in the succeeding paragraph (3) of
this bylaw. The Board of Directors may, within ten days of the Secretarys receipt of a demand to
fix a record date, fix a record date to determine the stockholders entitled to request the call of
a special meeting, which date shall not precede, and shall not be more than ten days after, the
date upon which the resolution fixing the record date is adopted. If a record date is not fixed by
the Board of Directors, the record date shall be the date that the first written request to call a
special meeting is received by the Secretary with respect to the proposed business to be conducted
at a special meeting. Notwithstanding anything in these bylaws to the contrary, no record date
shall be fixed or otherwise occur if (i) the Board of Directors determines that the written
requests to call a special meeting that would otherwise be submitted after such record date could
not comply with any of clauses (ii) through (v) of paragraph (4) of this bylaw, or (ii) the
stockholder making the written demand to fix a record date has withdrawn such demand.
- 2 -
(3) Each written request to call a special meeting shall include the following: (i) the
signature of the stockholder of record signing such request and the date such request was signed,
(ii) a brief description of the business desired to be brought before the meeting and the reasons
for conducting such business at the meeting, and (iii) for each written request submitted by a
person or entity other than a Solicited Stockholder, as to the record stockholder signing such
request and the beneficial owner (if any) on whose behalf such request is made (each, a party):
(A) the name and address of such party;
(B) the class, series and number of shares of the Corporation that are owned beneficially and
of record, directly or indirectly, by such party;
(C) all other ownership interests related or with respect to the Corporation, including but
not limited to, derivatives, hedged positions, synthetic and temporary ownership techniques, swaps,
securities loans, timed purchases and other economic and voting interests directly or indirectly
owned beneficially by such party;
(D) any other information relating to each such party that would be required to be disclosed
in a proxy statement or other filings required to be made in connection with solicitations of
proxies for the proposal in a contested election pursuant to Section 14 of the Exchange Act;
(E) any material interest of such party in one or more of the items of business proposed to be
transacted at the special meeting (including, but not limited to, any interest that such party may
have in the proposal or any benefits that such party may derive from the outcome of the proposal);
and
(F) a statement whether or not any such party will solicit, directly or indirectly, a form of
proxy from the holders of at least the percentage of voting power of all of the shares of capital
stock of the Corporation required under applicable law to carry the proposal (such statement, a
Solicitation Statement).
For purposes of this bylaw, Solicited Stockholder means any stockholder that has provided a
request to call a special meeting in response to a solicitation made pursuant to, and in accordance
with, Section 14(a) of the Exchange Act by way of a solicitation statement filed on Schedule 14A.
A stockholder may revoke a request to call a special meeting by written revocation delivered
to the Secretary at any time prior to the special meeting; provided, however, that if any such
revocation(s) are received by the Secretary after the Secretarys receipt of written requests from
the holders of the Required Percentage of Voting Stock, and as a result of such revocation(s),
there no longer are unrevoked requests to call a special meeting from the Required Percentage of
Voting Stock, the Board of Directors shall have the discretion to determine whether or not to
proceed with the special meeting. A business proposal shall not be presented for stockholder
action at any special meeting if any stockholder or beneficial owner who has provided a
Solicitation Statement with respect to such proposal does not act in accordance with the
representations set forth therein.
- 3 -
(4) The Secretary shall not accept, and shall consider ineffective, a written request from a
stockholder to call a special meeting (i) that does not comply with the preceding provisions of
this bylaw, (ii) that relates to an item of business that is not a proper subject for stockholder
action under applicable law or that did not appear in the demand delivered in accordance with
paragraph (2) of this bylaw that resulted in the record date for determining who is entitled to
deliver a written request to call the special meeting, (iii) if such request is delivered between
the time beginning on the 61st day after the earliest date of signature on a written request that
has been delivered to the Secretary relating to an identical or substantially similar item (such
item, a Similar Item) and ending on the one-year anniversary of such earliest date, (iv) if a
Similar Item will be submitted for stockholder approval at any stockholder meeting to be held on or
before the 90th day after the Secretary receives such written request, or (v) if a Similar Item has
been presented at the most recent annual meeting or at any special meeting held within one year
prior to receipt by the Secretary of such request to call a special meeting. In addition, no
written request to call a special meeting shall be accepted or considered effective by the
Secretary unless it is delivered to the Corporation within 60 days of the record date for
determining who is entitled to submit such written request.
(5) The Board of Directors shall determine in good faith whether the requirements set forth in
subparagraphs (4)(ii) through (v) have been satisfied. Either the Secretary or the Board of
Directors shall determine in good faith whether all other requirements set forth in this bylaw have
been satisfied. Any determination made pursuant to this paragraph shall be binding on the
Corporation and its stockholders.
(6) The Board of Directors shall determine the place, and fix the date and time, of any
special meeting called at the request of one or more stockholders, and, with respect to all other
special meetings, the date and time of a special meeting shall be determined by the person or body
calling the meeting. The Board of Directors may submit its own proposal or proposals for
consideration at a special meeting called by an authorized committee of the Board of Directors or
called at the request of one or more stockholders. The record date or record dates for a special
meeting shall be fixed in accordance with Section 213 (or its successor provision) of the Delaware
General Corporation Law. Business transacted at any special meeting shall be limited to the
purposes stated in the notice of such meeting.
Section 6. Notice of Stockholders Meetings. If mailed, notice to
stockholders shall be deemed given when deposited in the mail, postage prepaid, directed to the
stockholder at such stockholders address as it appears on the records of the Corporation. Without
limiting the manner by which notice otherwise may be given effectively to stockholders, any notice
to stockholders may be given by electronic transmission in the manner provided in, and subject to
the provisions of, Section 232 of the Delaware General Corporation Law (or any successor provision
thereof).
Section 7. Waiver of Notice. Attendance of a person at a meeting shall constitute a
waiver of notice to such person of such meeting, except when the person attends the meeting for the
express purpose of objecting at the beginning of the meeting to the transaction of any business
because the meeting is not lawfully called or convened.
- 4 -
Section 8. Maintenance and Inspection of Stockholder List. The officer or agent who
has charge of the stock ledger of the Corporation shall prepare and make, at least 10 days before
every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting,
arranged in alphabetical order, and showing the address of each stockholder and the number of
shares registered in the name of each stockholder. Such list shall be open to the examination of
any stockholder, for any purpose germane to the meeting, for a period of at least ten days prior to
the meeting, in the manner provided by law. The list shall also be produced and kept at the time
and place of the meeting during the whole time thereof, and may be inspected by any stockholder who
is present. The stock ledger of the Corporation shall be the only evidence as to who are the
stockholders entitled to examine such list or to vote at any meetings of stockholders.
Section 9. Stockholder Action by Written Consent Without a Meeting. No action shall
be taken by stockholders except at an annual or special meeting of stockholders, and stockholders
may not act by written consent.
Section 10. Inspectors of Election. Before any meeting of stockholders, the Board of
Directors may, and to the extent required by law, shall appoint inspectors to act at the meeting or
its adjournment and make written report thereof. The Corporation may designate one or more persons
as alternate inspectors to replace any inspector who fails to act. The number of inspectors shall
be either one or three. If no inspector or alternate is able to act at the meeting, the chairman
of the meeting may, and to the extent required by law, shall, appoint one or more inspectors to act
at the meeting. Each inspector, before entering upon the discharge of the duties of inspector,
shall take and sign an oath to faithfully execute the duties of inspector with strict impartiality
and to the best of such inspectors ability.
The duties of these inspectors shall be as follows:
(a) To ascertain the number of shares outstanding and the voting power of each;
(b) To determine the shares represented at a meeting and the validity of proxies and
ballots;
(c) To count all votes and ballots;
(d) To determine and retain for a reasonable period a record of the disposition of
any challenges made to any determination by the inspectors; and
(e) To certify their determination of the number of shares represented at the
meeting and their count of all votes and ballots.
Section 11. Procedure for Stockholders Meetings. Meetings of the stockholders shall
be presided over by the Chairman of the Board of Directors, or in his absence, by the Chief
Executive Officer, the President or by any Vice President, or, in the absence of any of such
officers, by a chairman to be chosen by a majority of the stockholders entitled to vote at the
- 5 -
meeting who are present in person or by proxy. The Secretary, or, in his absence, any person
appointed by the chairman, shall act as secretary of all meetings of the stockholders.
Section 12. Order of Business. The order of business at all meetings of stockholders
shall be as determined by the chairman of the meeting. The chairman shall also determine the
procedure at the meeting, including such regulation of the manner of voting and the conduct of
discussion as seem to him or her in order. The chairman of the meeting shall have the power to
adjourn the meeting to another place, if any, date and time. The date and time of the opening and
closing of the polls for each matter upon which the stockholders will vote at the meeting shall be
announced at the meeting.
Section 13. Procedures for Bringing Business before an Annual Meeting.
1. Generally.
At an annual meeting of the stockholders, only such business shall be conducted as shall have
been properly brought before the meeting. To be properly brought before an annual meeting,
business must be (1) specified in the notice of such meeting (or any supplement thereto), (2)
properly brought before the meeting by or at the direction of the Board, or (3) otherwise properly
brought before the meeting by a stockholder of record of the Corporation at the time of the giving
of notice required in this Section 13, who is entitled to vote at the meeting and who complies with
the notice procedures set forth in this Section 13. For the avoidance of doubt, clause (3) above
shall be the exclusive means for a stockholder to propose business (other than business included in
the Corporations proxy materials pursuant to Rule 14a-8 under the Securities and Exchange Act of
1934, as amended (such act, and the rules and regulations promulgated thereunder, the Exchange
Act)) before an annual meeting of stockholders.
2. Advance Notice of Stockholder Proposals Required.
For business to be properly brought before an annual meeting by a stockholder, the stockholder
must have given timely notice thereof in writing to the Secretary of the Corporation (a Business
Proposal Notice), and any such business must be a proper matter for stockholder action under
Delaware law. The Business Proposal Notice must be in strict compliance with the requirements set
forth as follows or it will not be accepted by the Corporation.
3. Deadline for Submitting a Business Proposal Notice.
A. If an annual meeting was held in the previous year: A Business Proposal Notice must be
received by the Secretary not less than 120 days, nor more than 150 days, before the one year
anniversary of the date on which the Corporations proxy statement was released to stockholders in
connection with the previous years annual meeting of stockholders. Notwithstanding the foregoing,
if the date of the annual meeting has been changed by more than 30 days from the one year
anniversary of the date of the preceding years annual meeting, a Business Proposal Notice must be
received by the time set forth in subsection C below.
- 6 -
B. If no annual meeting was held in the previous year: A Business Proposal Notice must be
received by the Secretary not later than the close of business on the later of (i) the 90th day
prior to such annual meeting or (ii) the tenth day following the day on which such notice of the
date of the annual meeting was mailed or a public announcement announcing such meeting date was
made.
C. If the date of the annual meeting has been changed by more than 30 days from the one year
anniversary of the date of the preceding years annual meeting: A Business Proposal Notice must be
received by the Secretary not later than the close of business on the later of (i) the 90th day
prior to such annual meeting or (ii) the tenth day following the day on which such notice of the
date of the annual meeting was mailed or a public announcement announcing such meeting date was
made. If a meeting date has been changed by less than 30 days from the one year anniversary of the
date of the preceding years annual meeting, the Business Proposal Notice must be received as set
forth in subsection A above.
D. Timing in case of adjournments: An adjournment of an annual meeting shall not affect the
timing requirements of the Business Notice Proposal. Thus, if an annual meeting is adjourned to a
later date, such Business Proposal Notice must still be received as set forth above without regard
to any adjournment that may occur.
4. Contents of a Business Proposal
Notice.
All of the following information must be included in a Business Proposal Notice:
A. Description of Business Proposed. A Business Proposal Notice shall set forth as to each
matter the stockholder proposes to bring before the annual meeting:
(i) a brief description of the business desired to be brought before the annual meeting,
(ii) the reasons for conducting such business at the annual meeting, and
(iii) any material interest in such business of (1) the record stockholder giving the Business
Proposal Notice, and (2) the beneficial owner, if any, on whose behalf the proposal is made (each,
a proposing party).
B. Name and Address of Each Proposing Party. A Business Proposal Notice shall set forth the
name and record address of each proposing party.
C. Description of Ownership Interests of Each Proposing Party. A Business Proposal Notice
shall set forth:
(i) the class, series and number of shares of the Corporation
- 7 -
which are owned beneficially and of record, directly or indirectly, by each proposing party;
and
(ii) all other related ownership interests, including, but not limited to, derivatives, hedged
positions, synthetic and temporary ownership techniques, swaps, securities loans, timed purchases
and other economic and voting interests directly or indirectly owned beneficially by each proposing
party.
D. Description of Interests in Proposed Business. A Business Proposal Notice shall set forth
any interest of each proposing party in the business the proposing party is seeking to propose,
including, but not limited to, any interest that each proposing party may have in the proposal or
any benefits that each proposing party may derive from the outcome of the proposal.
5. Chairman of Meeting Must Ultimately Determine
if Business Was Properly Brought.
The chairman of an annual meeting shall, if the facts warrant, determine and declare to the
meeting that business was not properly brought before the meeting in accordance with the provisions
of this Section 13, and if he should so determine, he shall so declare to the meeting and any such
business not properly brought before the meeting shall not be transacted.
6. Exchange Act Requirements Also Must Be
Complied With.
Notwithstanding the foregoing provisions of this Section 13, a stockholder shall also comply
with all applicable requirements of the Exchange Act and the rules and regulations thereunder with
respect to matters set forth in this Section 13. Nothing in this Section 13 shall be deemed to
affect any rights of stockholders to request inclusion of proposals in the Corporations proxy
statement pursuant to Rule 14a-8 under the Exchange Act.
7. Definition of Public Announcement.
For purposes of these Bylaws, public announcement shall mean disclosure in a press release
reported by the Dow Jones News Service, Associated Press or a comparable national news service or
in a document publicly filed by the Corporation with the Securities and Exchange Commission
pursuant to Section 13, 14 or 15(d) of the Exchange Act.
Section 14. Procedures for Nominating Directors.
1. Generally.
Notwithstanding anything in these Bylaws to the contrary, only persons who are
nominated in accordance with the procedures hereinafter set forth in this Section 14 shall be
eligible for election as directors of the Corporation. Nominations of persons for election to the
Board of Directors of the Corporation may be made at the annual meeting of stockholders only (1) by
or at the direction of the Board of Directors or (2) by any stockholder of record of the
- 8 -
Corporation at the time of the giving of notice required in this Section 14, who is entitled to
vote for the election of directors at the meeting and who complies with the notice procedures set
forth in this Section 14.
2. Advance Notice of Stockholder Nominations Required.
For nominations to be properly brought before an annual meeting by a stockholder, such
nominations shall be made pursuant to timely notice in writing to the Secretary of the Corporation
(a Nomination Notice). The Nomination Notice must be in strict compliance with the requirements
set forth as follows or it will not be accepted by the Corporation.
3. Deadline for Submitting a Nomination Notice.
A. If an annual meeting was held in the previous year: A Nomination Notice must be received
by the Secretary not less than 120 days, nor more than 150 days, before the one year anniversary of
the date on which the Corporations proxy statement was released to stockholders in connection with
the previous years annual meeting of stockholders. Notwithstanding the foregoing, if the date of
the annual meeting has been changed by more than 30 days from the one year anniversary of the date
of the preceding years annual meeting, a Nomination Notice must be received by the time set forth
in subsection C below.
B. If no annual meeting was held in the previous year: A Nomination Notice must be received
by the Secretary not later than the close of business on the later of (i) the 90th day prior to
such annual meeting or (ii) the tenth day following the day on which such notice of the date of the
annual meeting was mailed or a public announcement announcing such meeting date was made.
C. If the date of the annual meeting has been changed by more than 30 days from the one year
anniversary of the date of the preceding years annual meeting: A Nomination Notice must be
received by the Secretary not later than the close of business on the later of (i) the 90th day
prior to such annual meeting or (ii) the tenth day following the day on which such notice of the
date of the annual meeting was mailed or a public announcement announcing such meeting date was
made. If a meeting date has been changed by less than 30 days from the one year
anniversary of the date of the preceding years annual meeting, the Nomination Notice must be
received as set forth in subsection A above.
D. Timing in case of adjournments. An adjournment of an annual meeting shall not affect the
timing requirements of the Nomination Notice. Thus, if an annual meeting is adjourned to a later
date, such Nomination Notice must still be received as set forth above without regard to any
adjournment that may occur.
E. Timing if board size increased close to meeting date. In the event that the number of
directors to be elected to the Board of Directors is increased and there is no public announcement
naming all of the nominees for director or specifying the size of the increased Board of Directors
made by the Corporation at least ten days prior to the date on which
- 9 -
a stockholder would otherwise be required to timely give a Nomination Notice as set forth
above, a Nomination Notice with respect to nominees for any new positions created by such increase
must be received by the Secretary not later than the close of business on the tenth day following
the day on which such public announcement announcing the Board increase or naming all of the
nominees for director is first made by the Corporation.
4. Contents of the Nomination Notice.
All of the following information must be included in a Nomination Notice:
A. Information about Each Proposed Nominee. A Nomination Notice shall set forth as to each
person whom the stockholder proposes to nominate for election or re-election as a director:
(i) all information relating to such person that is required to be disclosed in solicitations
of proxies for election of directors, or as otherwise required, in each case pursuant to Regulation
14A under the Exchange Act (including such persons written consent to be named in the proxy
statement as a nominee and to serve as a director if elected), and
(ii) such persons independence, any voting commitments and/or other obligations such person
will be bound by as a director, and any material relationships between such person and (1) the
nominating stockholder, or (2) the beneficial owner, if any, on whose behalf the nomination is made
(each nominating party and each beneficial owner, a nominating party), including compensation and
financial transactions.
B. Name and Address of Nominating Parties. The Nomination Notice shall set forth the name and
record address of each nominating party.
C. Description of Ownership and Voting Interests of Nominating Parties. The Nomination Notice
shall set forth:
(i) the class, series and number of shares of the Corporation that are owned beneficially and
of record, directly or indirectly, by each nominating party;
(ii) all other related ownership interests, including, but not limited to, derivatives, hedged
positions, synthetic and temporary ownership techniques, swaps, securities loans, timed purchases
and other economic and voting interests directly or indirectly owned beneficially by each
nominating party; and
(iii) any interest of each nominating party in such nomination, including but not limited to
any interest that each nominating party may have in the nomination or any benefits that each
nominating party may derive from the outcome of the nomination.
- 10 -
5. Information Required for Board
Nominees.
At the request of the Board of Directors, any person nominated by the Board of Directors for
election as a director shall furnish to the Secretary of the Corporation that information required
to be set forth in a stockholders Nomination Notice that pertains to the nominee.
6. Nominations at a Special Meeting.
A. Generally.
Nominations of persons for election to the Board of Directors may be made at a special meeting
of stockholders at which directors are to be elected pursuant to the Corporations notice of
meeting (i) by or at the direction of the Board of Directors or (ii) by any stockholder of record
of the Corporation who is a stockholder of record at the time of the giving of notice, who shall be
entitled to vote at the meeting and who complies with the notice procedures set forth in the
following paragraphs. A person shall not be eligible for election or reelection as a director at a
special meeting unless the person is nominated in accordance with this paragraph.
B. Advance Notice of Stockholder Nominations Required.
For nominations to be properly brought before a special meeting by a stockholder, such
nominations shall be made pursuant to timely notice in writing to the Secretary of the Corporation
(a Special Meeting Notice). The Special Meeting Notice must be in strict compliance with the
requirements set forth as follows or it will not be accepted by the Corporation.
C. Deadline for Submitting a
Special Meeting Notice.
(i) Generally: Nominations by stockholders of persons for election to the Board of Directors
may be made at such a special meeting of stockholders if the Special Meeting Notice shall be
received by the Secretary not later than the close of business on the later of the 90th day prior
to such special meeting or the tenth day following the day on which public announcement is first
made that announces the date of the special meeting and the nominees proposed by the Board of
Directors to be elected at such meeting.
(ii) Timing in case of adjournments: An adjournment of the special meeting shall not affect
the timing requirements of the Special Meeting Notice. Thus, if a special meeting is adjourned to a
later date, such Special Meeting Notice must still be received as set forth above without regard to
any adjournment that may occur.
(iii) Timing if board size increased close to meeting date: In the event that the number of
directors to be elected to the Board of Directors is increased and there is no public announcement
naming all of the nominees for director or specifying the size of the increased Board of Directors
made by the Corporation at least ten days prior to the date on
- 11 -
which a stockholder would otherwise be required to timely give a Special Meeting Notice as set
forth above, a Special Meeting Notice with respect to nominees for any new positions created by
such increase must be received by the Secretary not later than the close of business on the tenth
day following the day on which such public announcement announcing the Board increase or naming all
of the nominees for director is first made by the Corporation.
D. Contents of Special Meeting Notice.
All of the following information must be included in a Special Meeting Notice:
(i) Description of Proposed Nominee. A Special Meeting Notice shall set forth as
to each person whom the stockholder proposes to nominate for election or re-election as a director:
(a) all information relating to such person that is required to be disclosed in solicitations
of proxies for election of directors, or is otherwise required, in each case pursuant to Regulation
14A under the Exchange Act (including such persons written consent to be named in the proxy
statement as a nominee and to serve as a director if elected), and
(b) such persons independence, any voting commitments and/or other obligations such person
will be bound by as a director, and any material relationships between such person and (1) the
nominating stockholder, or (2) the beneficial owner, if any, on whose behalf the nomination is made
(each nominating stockholder and each beneficial owner, a nominating party), including
compensation and financial transactions.
(ii) Name and Address of Nominating Parties. A Special Meeting Notice shall set forth the
name and record address of each nominating party.
(iii) Description of Ownership and Voting Interests of Nominating Parties. A Special
Meeting Notice shall set forth:
(a) the class, series and number of shares of the Corporation that are owned beneficially and
of record, directly or indirectly, by each nominating party;
(b) all other related ownership interests, including, but not limited to, derivatives, hedged
positions, synthetic and temporary ownership techniques, swaps, securities loans, timed purchases
and other economic and voting interests directly or indirectly owned beneficially by each
nominating party; and
(c) any interest of each nominating party in such nomination, including but not limited to any
interest that each nominating party may have in the
- 12 -
nomination or any benefits that each nominating party may derive from the outcome of the
nomination.
7. Chairman of Meeting Must Ultimately Determine
if Nomination Was Properly Brought.
The chairman of the meeting shall, if the facts warrant, determine and declare to the meeting
that a nomination was not made in accordance with the procedures prescribed by this Section 14, and
if he should so determine, he shall so declare to the meeting and the defective nomination shall be
disregarded.
8. Definition of Public Announcement.
For purposes of these Bylaws, public announcement shall mean disclosure in a press release
reported by the Dow Jones News Service, Associated Press or a comparable national news service or
in a document publicly filed by the Corporation with the Securities and Exchange Commission
pursuant to Section 13, 14 or 15(d) of the Exchange Act.
ARTICLE III
Directors
Section 1. Number and Qualification of Directors. The Board of Directors shall
consist of 12 directors. No officer of the Corporation may serve on a board of directors of any
company having a present or retired employee on the Corporations Board of Directors. No person
associated with an organization whose services are contracted by the Corporation shall serve on the
Corporations Board of Directors; provided, however, that a majority of the Whole Board may waive
this prohibition if the Board in its judgment determines that such waiver would be in the best
interest of the Corporation. The term Whole Board, where
used in these Bylaws, refers to the 12
authorized directorships constituting the Board of Directors whether or not there exist any
vacancies.
Section 2. Election and Term of Office. Each Director shall be elected for a term of
one year and shall hold office until such directors successor is elected and qualified or until
his earlier death, retirement, resignation or removal.
Section 3. Resignation and Removal of Directors. No person who is concurrently a
director and an employee of the Corporation shall be qualified to serve as a director of the
Corporation from and after the time of any diminution in such persons duties or responsibilities
as an officer, the time they leave the employ of the Corporation for any reason or their 72nd
birthday; provided, however, that if any such person resigns from the Board of Directors upon such
event, such person shall thereafter be deemed qualified to serve as a director of the Corporation
for so long as such person is otherwise qualified to so serve pursuant to the following sentence.
No person shall be qualified to serve as a director of the corporation on or after the date of the
annual meeting of stockholders following: (i) his 72nd birthday or (ii) any
- 13 -
fiscal year in which he has failed to attend at least 66% of the meetings of the Board of Directors
and any committees of the Board of Directors on which such director serves, provided that such a
person shall be deemed to be qualified to serve as a director if so determined by a majority of the
Whole Board (excluding the director whose resignation would otherwise be required) if the Board of
Directors in its judgment determines that such waiver would be in the best interest of the
Corporation.
Any nominee for director in an uncontested election who receives a withhold vote
representing a majority of the votes cast for his or her election would be required to submit a
letter of resignation to the Governance Committee of the Board of Directors. The Governance
Committee would consider all of the relevant facts and circumstances and recommend to the Board of
Directors whether or not the resignation should be accepted. For the purposes of this Section, an
uncontested election shall mean an election in which the number of nominees as of the record date
for the meeting at which directors are to be elected does not exceed the number of directors to be
elected at such meeting.
Any director may be removed with or without cause by the holders of a majority of the shares
of the Corporation entitled to vote in the election of directors. The Board of Directors may not
remove any director with or without cause, and no recommendation by the Board of Directors that a
director be removed with or without cause may be made to the stockholders except by the affirmative
vote of not less than 75% of the Whole Board.
Section 4. Vacancies and Newly Created Directorships. Subject to the rights of the
holders of any series of preferred stock then outstanding and except as otherwise provided by
statute or the Certificate of Incorporation, (i) in the case of any increase in the number of
directors, such additional director or directors shall be elected by a majority vote of the
directors then in office, although less than a quorum, or by a sole remaining director (and not by
stockholders), or (ii) in the case of any vacancy in the Board of Directors, however created, the
vacancy or vacancies shall be filled by a majority vote of the directors then in office, although
less than a quorum, or by a sole remaining director (and not by stockholders). Notwithstanding the
preceding sentence of this Article III, Section 4, if, by the affirmative vote of a majority of the
directors then in office the Board determines that a newly created directorship or vacancy should
be filled by the stockholders, the stockholders shall elect a nominee to fill such newly created
directorship or vacancy. In the event one or more directors shall resign, effective at a future
date, such vacancy or vacancies shall be filled by a majority of the directors then in office,
including those who have so resigned, the vote thereon to take effect when such resignation or
resignations shall become effective. A director chosen or elected pursuant to this Section 4 shall
hold office until the annual meeting next following his election or until his successor is elected
and qualified or until his earlier death, retirement, resignation or removal.
In the event of any decrease in the authorized number of directors, each director then serving
as such shall nevertheless continue as a director until the expiration of his current term, or his
prior death, retirement, resignation or removal.
Section 5. Powers. The business and affairs of the Corporation shall be managed by or
under the direction of its Board of Directors. In addition to the powers and
- 14 -
authorities by these Bylaws expressly conferred upon them, the Board may exercise all such powers
of the Corporation and do all such lawful acts and things as are not by statute, by the Certificate
of Incorporation or by these Bylaws directed or required to be exercised or done by the
stockholders.
Section 6. Place of Directors Meetings. The directors may hold their meetings and
have one or more offices, and keep the books of the Corporation outside the State of Delaware.
Section 7. Regular Meetings. Regular meetings of the Board of Directors may be held
without notice at such time and place as shall from time to time be determined by the Board.
Except as otherwise provided by statute, any business may be transacted at any regular meeting of
the Board of Directors.
Section 8. Special Meetings. Special meetings of the Board of Directors may be called
by the Chairman of the Board or the Chief Executive Officer on at least 24 hours notice, or such
shorter period as the person calling deems appropriate, to each director. Special meetings shall
be called by the Chairman of the Board, the Chief Executive Officer or the Secretary in like manner
and on like notice on the written request of a majority of the Whole Board. Unless otherwise
indicated in the notice thereof, any and all business may be transacted at a special meeting.
Section 9. Quorum. At all meetings of the Board of Directors a majority of the Whole
Board shall be necessary and sufficient to constitute a quorum for the transaction of business, and
the vote of a majority of the directors present at any meeting at which there is a quorum, shall be
the act of the Board of Directors, except as may be otherwise specifically provided by statute, by
the Certificate of Incorporation or by these Bylaws. If a quorum shall not be present at any
meeting of the Board of Directors, the directors present thereat may adjourn the meeting from time
to time, without notice other than announcement at the meeting, until a quorum shall be present.
If only one director is authorized, such sole director shall constitute a quorum. A meeting at
which a quorum is initially present may continue to transact business notwithstanding the
withdrawal of directors, if any action is approved by at least a majority of the required quorum
for such meeting.
Section 10. Action Without Meeting. Unless otherwise restricted by statute, the
Certificate of Incorporation or these Bylaws, any action required or permitted to be taken at any
meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if
all members of the Board or committee, as the case may be, consent thereto in writing or by
electronic transmission, and the writing or writings or electronic transmission or transmissions
are filed with the minutes of proceedings of the Board or committee. Such filing shall be in paper
form if the minutes are maintained in paper form and shall be in electronic form if the minutes are
maintained in electronic form.
Section 11. Telephonic Meetings. Unless otherwise restricted by the Certificate of
Incorporation or these Bylaws, members of the Board of Directors, or any committee designated by
the Board of Directors, may participate in a meeting of the Board of Directors, or
- 15 -
any committee, by means of conference telephone or similar communications equipment by
means of which all persons participating in a meeting can hear each other, and such participation
in a meeting shall constitute presence in person at such meeting.
Section 12. Meetings and Action of Committees. The Board of Directors may from time
to time designate committees of the Board of Directors, with such lawfully delegable powers and
duties as it thereby confers, to serve at the pleasure of the Board of Directors and shall, for
those committees and any others provided for herein, elect a director or directors to serve as the
member or members, designating, if it desires, other directors as alternate members who may replace
any absent or disqualified member at any meeting of the committee. In the absence or
disqualification of any member of any committee and any alternate member in his or her place, the
member or members of the committee present at the meeting and not disqualified from voting, whether
or not he or she or they constitute a quorum, may by unanimous vote appoint another member of the
Board of Directors to act at the meeting in the place of the absent or disqualified member. The
Board of Directors shall, by resolution passed by a majority of the Whole Board, designate one
member of each committee as chairman of such committee. Each such chairman shall hold such office
for a period not in excess of five years, and shall upon surrender of such chairmanship resign from
membership on such committee. Any such committee, to the extent provided in the resolution of the
Board of Directors, shall have and may exercise all the powers and authority of the Board of
Directors in the management of the business and affairs of the Corporation, and may authorize the
seal of the corporation to be affixed to all papers which may require it; but no such committee
shall have the power or authority in reference to the following matters: (i) approving or
adopting, or recommending to the stockholders, any action or matter expressly required by the
Delaware General Corporation Law (other than the election of directors) to be submitted to
stockholders for approval or (ii) adopting, amending or repealing any bylaw of the Corporation.
Section 13. Special Meetings of Committees. Special meetings of committees may be
called by the Chairman of such committee, the Chairman of the Board or the Chief Executive Officer,
on at least 24 hours notice, or such shorter period as the person calling deems appropriate, to
each member. Alternate members shall have the right to attend all meetings of the committee. The
Board of Directors may adopt rules of the government of any committee not inconsistent with the
provisions of these Bylaws. If a committee is comprised of an odd number of members, a quorum
shall consist of a majority of that number. If the committee is comprised of an even number of
members, a quorum shall consist of 1/2 of that number. If a committee is comprised of two members,
a quorum shall consist of both members; all matters shall be determined by a majority vote of the
members present. Action may be taken by any committee without a meeting if all the members thereof
consent thereto in writing or by electronic transmission, and the writing or writings or electronic
transmission or transmissions are filed with the minutes of the proceedings of such committee.
Such filing shall be in paper form if the minutes are maintained in paper form and shall be
electronic form if the minutes are maintained in electronic form.
Section 14. Minutes of Committee Meetings. Each Committee shall keep regular minutes
of its meetings and report the same to the Board of Directors when requested.
- 16 -
Section 15. Compensation of Directors. Unless otherwise restricted by the Certificate
of Incorporation or these Bylaws, the Board of Directors shall have the authority to fix the
compensation of directors. The directors may be paid their expenses, if any, of attendance at each
meeting of the Board of Directors and may be paid a fixed sum for attendance at each meeting of the
Board of Directors or a stated salary as director. No such payment shall preclude any director
from serving the Corporation in any other capacity and receiving compensation therefor. Members of
special or standing committees may be allowed like compensation for attending committee meetings.
Section 16. Indemnification. (a) The Corporation shall indemnify every person who is
or was a party or is or was threatened to be made a party to any threatened, pending or completed
action, suit, or proceeding, whether civil, criminal, administrative or investigative (other than
an action by or in the right of the Corporation), by reason of the fact that he is or was a
director, officer or employee of the Corporation or any of its direct or indirect wholly owned
subsidiaries or, while a director, officer or employee of the Corporation or any of its direct or
indirect wholly owned subsidiaries, is or was serving at the request of the Corporation or any of
its direct or indirect wholly owned subsidiaries, as a director, officer or employee, of another
corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, against
expenses (including counsel fees), judgments, fines, and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or proceeding, to the full extent
permitted by applicable law; provided that the Corporation shall not be obligated to indemnify any
such person against any such action, suit or proceeding which is brought by such person against the
Corporation or any of its direct or indirect wholly owned subsidiaries or the directors of the
Corporation or any of its direct or indirect wholly owned subsidiaries, other than an action
brought by such person to enforce his rights to indemnification hereunder, unless a majority of the
Board of Directors of the Corporation shall have previously approved the bringing of such action,
suit or proceeding, and provided further that the Corporation shall not be obligated to indemnify
any such person against any action, suit or proceeding arising out of any adjudicated criminal,
dishonest or fraudulent acts, errors or omissions of such person or any adjudicated willful,
intentional or malicious acts, errors or omissions of such person.
(b) The Corporation shall indemnify every person who is or was a party or is or was threatened
to be made a party to any threatened, pending or completed action, suit, or proceeding, whether
civil, criminal, administrative or investigative, by reason of the fact that he is or was licensed
to practice law and an employee (including an employee who is or was an officer) of the Corporation
or any of its direct or indirect wholly owned subsidiaries and, while acting in the course of such
employment committed or is alleged to have committed any negligent acts, errors or omissions in
rendering professional legal services at the request of the Corporation or pursuant to his
employment (including, without limitation, rendering written or oral legal opinions to third
parties) against expenses (including counsel fees), judgments, fines, and amounts paid in
settlement actually and reasonably incurred by him in connection with such action, suit or
proceeding, to the full extent permitted by applicable law; provided that the Corporation shall not
be obligated to indemnify any such person against any action, suit or proceeding arising out of any
adjudicated criminal, dishonest or fraudulent acts, errors or omissions of such person or any
adjudicated willful, intentional or malicious acts, errors or omissions of such person.
- 17 -
(c) The Corporation shall indemnify every person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action or suit by or in the right of the
Corporation to procure a judgment in its favor by reason of the fact that he is or was a director,
officer, or employee of the Corporation, or any of its direct or indirect wholly owned subsidiaries
or, while a director, officer, or employee of the Corporation or any of its direct or indirect
wholly owned subsidiaries, is or was serving at the request of the Corporation or any of its direct
or indirect wholly owned subsidiaries, as a director, officer, or employee of another corporation,
partnership, joint venture, trust, employee benefit plan, or other enterprise against expenses
(including attorneys fees) actually and reasonably incurred by him in connection with the defense
or settlement of such action or suit if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the Corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as to which such person
shall have been adjudged to be liable to the Corporation unless and only to the extent that the
Court of Chancery or the court in which such action or suit was brought shall determine upon
application that, despite the adjudication of liability but in view of all the circumstances of the
case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court
of Chancery or such other court shall deem proper.
(d) To the extent that a director, officer, or employee of the Corporation, or any of its
direct or indirect wholly owned subsidiaries, has been successful on the merits or otherwise in
defense of any action, suit or proceeding referred to in subsections (a), (b) and (c) of this
section, or in defense of any claim, issue or matter therein, he shall be indemnified against
expenses (including attorneys fees) actually and reasonably incurred by him in connection
therewith.
(e) Any indemnification under subsections (a), (b) and (c) of this section (unless ordered by
a court) shall be made by the Corporation only as authorized in the specific case upon a
determination that indemnification of the director, officer, or employee is proper in the
circumstances because he has met the applicable standard of conduct set forth in subsections (a),
(b) and (c) of this section. Such determination shall be made (1) by a majority vote of the
directors who were not parties to such action, suit or proceeding, (2) by a committee or such
directors designated by majority vote of such directors even though less than a quorum, or (3) if
there are no such directors, or if such directors so direct, by independent legal counsel in a
written opinion, or (4) by the stockholders. If a claim under this Section 16 is not paid in full
by the Corporation within 60 days after a written claim has been received by the Corporation,
except in the case of a claim for an advancement of expenses, in which case the applicable period
shall be 20 days, the indemnitee may at any time thereafter bring suit against the Corporation to
recover the unpaid amount of the claim. If successful in whole or in part in any such suit, or in
a suit brought by the Corporation to recover an advancement of expenses pursuant to the terms of an
undertaking, the indemnitee shall be entitled to be paid also the expense of prosecuting or
defending such suit. In (i) any suit brought by the indemnitee to enforce a right to
indemnification hereunder (but not in a suit brought by the indemnitee to enforce a right to an
advancement of expenses) it shall be a defense that, and (ii) in any suit brought by the
Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the
Corporation shall be entitled to recover such expenses upon a final adjudication that, the
indemnitee has not met any applicable standard for indemnification set
- 18 -
forth in the Delaware General Corporation Law. Neither the failure of the Corporation (including
its directors who are not parties to such action, a committee of such directors, independent legal
counsel, or its stockholders) to have made a determination prior to the commencement of such suit
that indemnification of the indemnitee is proper in the circumstances because the indemnitee has
met the applicable standard of conduct set forth in the Delaware General Corporation Law, nor an
actual determination by the Corporation (including its directors who are not parties to such
action, a committee of such directors, independent legal counsel, or its stockholders) that the
indemnitee has not met such applicable standard of conduct, shall create a presumption that the
indemnitee has not met the applicable standard of conduct or, in the case of such a suit brought by
the indemnitee, be a defense to such suit. In any suit brought by the indemnitee to enforce a
right to indemnification or to an advancement of expenses hereunder, or brought by the Corporation
to recover an advancement of expenses pursuant to the terms of an undertaking, the burden of
proving that the indemnitee is not entitled to be indemnified, or to such advancement of expenses,
under this Section 16 or otherwise shall be on the Corporation.
(f) Expenses (including attorneys fees) incurred by an present or former officer or director
of the Corporation or any of its direct or indirect wholly owned subsidiaries in defending a civil,
criminal, administrative or investigative action, suit or proceeding shall be paid by the
Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of
an undertaking by or on behalf of such director or officer to repay such amount if it shall
ultimately be determined that he is not entitled to be indemnified by the Corporation as authorized
in this Section 16. Such expenses incurred by other employees and agents may be so paid upon such
terms and conditions, if any, as the Board of Directors deems appropriate.
(g) The indemnification and advancement of expenses provided by, or granted pursuant to, this
Section 16 shall not be deemed exclusive of any other rights to which those seeking indemnification
or advancement of expenses may be entitled under any provision of law, the Corporations
Certificate of Incorporation, the Certificate of Incorporation or Bylaws or other governing
documents of any direct or indirect wholly owned subsidiary of the Corporation, or any agreement,
vote of stockholders or disinterested directors or otherwise, both as to action in his official
capacity and as to action in another capacity while holding any of the positions or having any of
the relationships referred to in this Section 16.
(h) The indemnification and advancement of expenses provided by, or granted pursuant to, this
Section 16 shall, unless otherwise provided when authorized or ratified, continue as to a person
who has ceased to be a director, officer or employee and shall inure to the benefit of the heirs,
executors and administrators of such a person.
(i) Any amendment, alteration or repeal of this Section 16 that adversely affects any right of
an indemnitee or its successors shall be prospective only and shall not limit or eliminate any such
right with respect to any proceeding involving any occurrence or alleged occurrence of any action
or omission to act that took place prior to such amendment or repeal.
- 19 -
ARTICLE IV
Officers
Section 1. Officers. The officers of the Corporation shall be a Chairman of the
Board, a Chief Executive Officer, a President, a Chief Financial Officer, a Vice President, a
Secretary, a Treasurer and a Controller. The Corporation may also have, at the discretion of the
Board of Directors, a Chief Operating Officer, one or more additional Vice Presidents, and such
other officers as may be appointed in accordance with the provisions of Section 3 of this Article.
Any two (2) or more offices may be held by the same person.
Section 2. Election of Officers. The officers of the Corporation, except such
officers as may be appointed in accordance with the provisions of Section 3 or Section 5 of this
Article, shall be chosen by the Board of Directors, and each shall serve at the pleasure of the
Board, subject to the rights, if any, of any officer under any contract of employment.
Section 3. Subordinate Officers. The Board of Directors may appoint, and may empower
the Chief Executive Officer to appoint, such other officers as the business of the Corporation may
require, each of whom shall hold office for such period, have such authority and perform such
duties as are provided in the Bylaws or as the Board of Directors may from time to time determine.
Section 4. Removal and Resignation of Officers. Any officer may be removed, either
with or without cause, by the Board of Directors, at any regular or special meeting thereof, or
except in case of an officer chosen by the Board of Directors, by any officer upon whom such power
of removal may be conferred by the Board of Directors, provided that such removal shall not
prejudice the remedy of such officer for breach of any contract of employment.
Any officer may resign at any time by giving written notice to the Corporation. Any such
resignation shall take effect on receipt of such notice or at any later time specified therein.
Unless otherwise specified therein, the acceptance of such resignation shall not be necessary to
make it effective. Any such resignation is without prejudice to the rights, if any, of the
Corporation under any contract to which the officer is a party.
Section 5. Vacancies in Offices. A vacancy in any office because of death,
resignation, removal, disqualification or any other cause shall be filled in the manner prescribed
in these Bylaws for regular appointments to such office.
Section 6. Chairman of the Board. The Chairman of the Board shall, if present,
preside at all meetings of the Board of Directors and of the stockholders, and shall exercise and
perform such other powers and duties as may be from time to time assigned to him by the Board of
Directors or prescribed by the Bylaws. In the absence of the Chairman of the Board, the Lead
Director shall preside at all meetings of the stockholders and the Board of Directors.
Section 7. Chief Executive Officer. The Chief Executive Officer shall, subject to the
control of the Board of Directors, have general supervision, direction and control of the
- 20 -
business and officers, other than the Chairman of the Board of the Corporation with all such powers
as may be reasonably incident to such responsibilities. He shall perform all other duties normally
incident to the office of Chief Executive Officer, and shall have such other powers and perform
such other duties as may be prescribed by the Board of Directors or the Bylaws.
Section 8. President. The President shall be the Chief Operating Officer of the
Corporation and shall, subject to the control of the Chief Executive Officer and the Board of
Directors, have general supervision, direction and control of the business and the officers, other
than the Chairman of the Board, of the Corporation. In the absence of the Chairman of the Board
and the Chief Executive Officer, the President shall preside at all meetings of the stockholders
and the Board of Directors. He shall have the general powers and duties of management usually
vested in the office of President of a corporation, and shall have such other powers and duties as
may be prescribed by the Chief Executive Officer, the Board of Directors or the Bylaws.
Unless otherwise directed by the Board of Directors, the President or any officer of the
Corporation authorized by the President shall have power to vote and otherwise act on behalf of the
Corporation, in person or by proxy, at any meeting of stockholders of or with respect to any action
of stockholders of any other corporation in which this Corporation may hold securities and
otherwise to exercise any and all rights and powers which this Corporation may possess by reason of
its ownership of securities in such other corporation.
Section 9. Chief Operating Officer. The Chief Operating Officer of the Corporation
shall have general management of the business unit operations of the Corporation, subject to the
direction and control of the Chief Executive Officer and the Board of Directors. The Chief
Operating Officer shall sign all papers and documents to which such officers signature may be
necessary or appropriate in connection with the operations of the Corporation, make reports to the
Board of Directors or the Chief Executive Officer and have such further powers and duties as may,
from time to time, be prescribed by the Board of Directors or the Chief Executive Officer.
Section 10. Vice Presidents. If there be more than one Vice President, the Board of
Directors may designate one or more of them as Executive Vice President or Senior Vice President
among the Vice Presidents and may also grant to such officers and other Vice Presidents such titles
as shall be descriptive of their respective functions or indicative of their relative seniority.
In the absence or disability of the President, the Vice Presidents, if any, in order of their rank
as fixed by the Board of Directors, or if not ranked, the Vice President designated by the
President, shall perform all the duties of the President, and when so acting shall have all the
powers of, and be subject to all the restrictions upon, the President. The Vice Presidents shall
have such other powers and perform such other duties as from time to time may be prescribed for
them respectively by the Board of Directors, these Bylaws or the President.
Section 11. Secretary. The Secretary shall keep or cause to be kept, at the principal
office or such other place as the Board of Directors may order, a book of minutes of all meetings
and actions of directors, committees of directors and stockholders, with the time and place of
holding, whether regular or special, and, if special, how authorized, the notice thereof
- 21 -
given, the names of those present at directors and committee meetings, the number of shares
present or represented at stockholders meetings, and the proceedings thereof.
The Secretary shall keep, or cause to be kept, at the principal office or at the office of the
Corporations transfer agent or registrar, a share register, or a duplicate share register, showing
the names of all stockholders and their addresses, the number and classes of shares held by each,
the number and date of certificates issued for the same, and the number and date of cancellation of
every certificate surrendered for cancellation.
The Secretary shall give, or cause to be given, notice of all meetings of the stockholders and
of the Board of Directors required by these Bylaws or by law to be given, and he shall keep the
seal of the Corporation, if one be adopted, in safe custody, and shall have such other powers and
perform such other duties as may be prescribed by the Board of Directors or by the Bylaws.
Section 12. Chief Financial Officer. The Chief Financial Officer shall keep and
maintain, or cause to be kept and maintained, adequate and correct books and records of accounts of
the properties and business transactions of the Corporation, including accounts of its assets,
liabilities, receipts, disbursements, gains, losses, capital, retained earnings and shares. The
books of account shall be open at all times to inspection by any director.
The Chief Financial Officer shall deposit all moneys and other valuables in the name and to
the credit of the Corporation with such depositories as may be designated by the Board of
Directors. He shall disburse the funds of the Corporation as may be ordered by the Board of
Directors, shall render to the Chief Executive Officer, President and Directors, whenever they
request it, an account of all of his transactions as Chief Financial Officer and of the financial
condition of the Corporation, and shall have other powers and perform such other duties as may be
prescribed by the Board of Directors or the Bylaws.
Section 13. Treasurer and Controller. The Treasurer and the Controller shall each
have such powers and perform such duties as from time to time may be prescribed for him by the
Board of Directors, the President or these Bylaws.
Section 14. Delegation of Authority. The Board of Directors may from time to time delegate the powers or duties of any officer to any other officers or agents, notwithstanding
any provision hereof.
ARTICLE V
Certificate of Stock
Section 1. Certificates. Shares of the stock of the Corporation may be represented by
certificates or the Board of Directors may provide by resolution or resolutions that some or all of
any class or classes or series of stock shall be uncertificated shares. Owners of shares of the
stock of the Corporation shall be recorded in the share register of the Corporation, and ownership
of such shares shall be evidenced by a certificate or book-entry
- 22 -
notation in the share register of the Corporation. Any certificates representing such shares shall
be signed by, or in the name of the Corporation by, the Chairman of the Board of Directors, or the
President or a Vice President, and by the Secretary or any Assistant Secretary, if one be
appointed, or the Treasurer or an Assistant Treasurer of the Corporation, certifying the number of
shares represented by the certificate owned by such stockholder in the Corporation.
Section 2. Signature on Certificates. Any or all of the signatures on the certificate
may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose
facsimile signature has been placed upon a certificate shall have ceased to be such officer,
transfer agent or registrar before such certificate is issued, it may be issued by the Corporation
with the same effect as if he were such officer, transfer agent or registrar at the date of issue.
Section 3. Statement of Stock Rights, Preferences, Privileges. If the Corporation
shall be authorized to issue more than one class of stock or more than one series of any class, the
powers, designations, preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualification, limitations or restrictions of such
preferences and/or rights shall be set forth in full or summarized on the face or back of the
certificate which the Corporation shall issue to represent such class or series of stock, provided
that, except as otherwise provided by statute, in lieu of the foregoing requirements, there may be
set forth on the face or back of the certificate which the Corporation shall issue to represent
such class or series of stock, a statement that the Corporation will furnish without charge to each
stockholder who so requests the powers, designations, preferences and relative, participating,
optional or other special rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights.
Section 4. Lost, Stolen or Destroyed Certificates. The Board of Directors, the
Secretary and the Treasurer each may direct a new certificate or certificates to be issued in place
of any certificate or certificates theretofore issued by the Corporation alleged to have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the owner of such certificate,
or his legal representative. When authorizing such issue of a new certificate or certificates, the
Board of Directors may, in its discretion and as a condition precedent to the issuance thereof,
require the owner of such lost, stolen or destroyed certificate or certificates, or his legal
representative, to advertise the same in such manner as it shall require and/or to furnish the
Corporation a bond in such form and substance and with such surety as it may direct as indemnity
against any claim that may be made against the Corporation with respect to the certificate alleged
to have been lost, stolen or destroyed.
Section 5. Transfers of Stock. Upon surrender to the Corporation, or the transfer
agent of the Corporation, of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignation or authority to transfer, it shall be the duty of the
Corporation to issue a new certificate or other evidence of such new shares to the person entitled
thereto, cancel the old certificate and record the transaction upon its books. Uncertificated
shares shall be transferred in the share register of the Corporation upon the written instruction
originated by the appropriate person to transfer the shares.
Section 6. Fixing Record Date. In order that the Corporation may determine
- 23 -
the stockholders entitled to notice of or to vote at any meeting of the stockholders, or any
adjournment thereof, or entitled to receive payment of any dividend or other distribution or
allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or
exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix a
record date which shall not be more than 60 nor less than 10 days before the date of such meeting,
nor more than 60 days prior to any other action. A determination of stockholders of record
entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned
meeting.
Section 7. Registered Stockholders. The Corporation shall be entitled to treat the
holder of record of any share or shares of stock as the holder in fact thereof and, accordingly,
shall not be bound to recognize any equitable or other claim or interest in such share on the part
of any other person, whether or not it shall have express or other notice thereof, save as
expressly provided by the laws of the State of Delaware.
ARTICLE VI
General Provisions
Section 1. Dividends. Dividends upon the capital stock of the Corporation, subject to
the provisions of the Certificate of Incorporation, if any, may be declared by the Board of
Directors at any regular or special meeting, pursuant to law. Dividends may be paid in cash, in
property or in shares of the Corporations capital stock, subject to the provisions of the
Certificate of Incorporation.
Section 2. Payment of Dividends. Before declaration of any dividend, there may be set
aside out of any funds of the Corporation available for dividends such sum or sums as the Board of
Directors from time to time, in its absolute discretion, thinks proper as a reserve fund to meet
contingencies, or for equalizing dividends, or for repairing or maintaining any property of the
Corporation, or for such other purpose as the Board of Directors shall think conducive to the
interests of the Corporation, and the Board of Directors may thereafter abolish any such reserve in
its absolute discretion.
Section 3. Checks. All checks, drafts or other orders for payment of money, notes or
other evidences of indebtedness, issued in the name of or payable to the Corporation shall be
signed by such officer or officers as the Board of Directors or the President or any Vice
President, acting jointly, may from time to time designate.
Section 4. Corporate Contracts and Instruments. The Chief Executive Officer, the
President, any Vice President, the Secretary or the Treasurer may enter into contracts and execute
instruments on behalf of the Corporation. The Board of Directors, the President or any Vice
President may authorize any officer or officers, and any employee or employees or agent or agents
of the Corporation or any of its subsidiaries, to enter into any contract or execute any instrument
in the name of and on behalf of the Corporation, and such authority may be general or confined to
specific instances.
- 24 -
Section 5. Fiscal Year. The fiscal year of the Corporation shall be January 1 through
December 31, unless otherwise fixed by resolution of the Board of Directors.
Section 6. Manner of Giving Notice. Whenever, under the provisions of the statutes,
the Certificate of Incorporation or these Bylaws, notice is required to be given to any director,
it shall not be construed to require personal notice, but such notice may be given in writing, by
mail, addressed to such director, at his address as it appears on the records of the Corporation
(unless prior to mailing of such notice he shall have filed with the Secretary a written request
that notices intended for him be mailed to some other address, in which case such notice shall be
mailed to the address designated in the request) with postage thereon prepaid, and such notice
shall be deemed to be given at the time when the same shall be deposited in the United States mail;
provided, however, that, in the case of notice of a special meeting of the Board of Directors, if
such meeting is to be held within seven calendar days after the date of such notice, notice shall
be deemed given as of the date such notice shall be accepted for delivery by a courier service that
provides opening of business next day delivery, so long as at least one attempt shall have been
made, on or before the date such notice is accepted for delivery by such courier service, to
provide notice by telephone to each director at his principal place of business and at his
principal residence. Notice to directors may also be given by telegram, by personal delivery, by
telephone, by facsimile or by other electronic transmission.
Section 7. Waiver of Notice. Whenever any notice is required to be given under the
provisions of the statutes, the Certificate of Incorporation or these Bylaws, a waiver thereof in
writing, signed by the person or persons entitled to said notice, or waiver by electronic
transmission by such person, whether before or after the time stated therein, shall be deemed
equivalent thereto.
ARTICLE VII
Amendments
Section 1. Amendment by Directors. Except any amendment to this Article VII and to
Article II, Section 5, Article II, Section 9, Article III, Section 1 (as it relates to changes in
the number of directors), Article III, Section 2, the last sentence of Article III, Section 3 (as
it relates to removal of directors), Article III, Section 4, Article III, Section 16 and Article
VI, Section 6 of these Bylaws, or any of such provisions, which shall require approval by the
affirmative vote of directors representing at least 75% of the Whole Board, the directors, by the
affirmative vote of a majority of the Whole Board and without the assent or vote of the
stockholders, may at any meeting, make, repeal, alter, amend or rescind any of these Bylaws,
provided that the substance of the proposed amendment or other action shall have been stated in a
notice of the meeting.
Section 2. Amendment by Stockholders. These Bylaws shall not be made, repealed,
altered, amended or rescinded by the stockholders of the Corporation except by the vote of the
holders of not less than a majority of the stock issued and outstanding and entitled to vote in the
election of directors, considered for such purpose as one class.
- 25 -
exv31w1
Exhibit 31.1
CERTIFICATION
I, Chad C. Deaton, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Baker Hughes Incorporated;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial information included in
this report, fairly present in all material respects the financial condition, results of operations
and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and
internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to
the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrants disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrants internal control over financial
reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth
fiscal quarter in the case of an annual report) that has materially affected, or is reasonably
likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrants auditors and the audit
committee of the registrants board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal
control over financial reporting which are reasonably likely to adversely affect the registrants
ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrants internal control over financial reporting.
|
|
|
|
|
|
|
Date: August 1, 2011
|
|
By:
|
|
/s/ Chad C. Deaton
Chad C. Deaton
|
|
|
|
|
|
|
Chairman of the Board and |
|
|
|
|
|
|
Chief Executive Officer |
|
|
exv31w2
Exhibit 31.2
CERTIFICATION
I, Peter A. Ragauss, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Baker Hughes Incorporated;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial information included in
this report, fairly present in all material respects the financial condition, results of operations
and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and
internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to
the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrants disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrants internal control over financial
reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth
fiscal quarter in the case of an annual report) that has materially affected, or is reasonably
likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrants auditors and the audit
committee of the registrants board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal
control over financial reporting which are reasonably likely to adversely affect the registrants
ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrants internal control over financial reporting.
|
|
|
|
|
|
|
Date: August 1, 2011
|
|
By:
|
|
/s/ Peter A. Ragauss
Peter A. Ragauss
Senior Vice President
and Chief Financial Officer
|
|
|
exv32
Exhibit 32
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Baker Hughes Incorporated (the Company) on Form 10-Q
for the period ended June 30, 2011, as filed with the Securities and Exchange Commission on the
date hereof (the Report), the undersigned, Chad C. Deaton, Chief Executive Officer of the
Company, and Peter A. Ragauss, the Chief Financial Officer of the Company, each of the undersigned
hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that:
|
(i) |
|
The Report fully complies with the requirements of Section 13(a) or 15(d) of the
Securities Exchange Act of 1934; and |
|
|
(ii) |
|
The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company as of the
dates and for the periods expressed in the Report. |
The certification is given to the knowledge of the undersigned.
|
|
|
|
|
|
|
|
|
|
|
/s/ Chad C. Deaton
|
|
|
|
|
Name:
|
|
Chad C. Deaton |
|
|
|
|
Title:
|
|
Chief Executive Officer |
|
|
|
|
Date:
|
|
August 1, 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Peter A. Ragauss
|
|
|
|
|
Name:
|
|
Peter A. Ragauss |
|
|
|
|
Title:
|
|
Chief Financial Officer |
|
|
|
|
Date:
|
|
August 1, 2011 |
|
|
exv99w1
EXHIBIT 99.1
Mine Safety Disclosure
Under the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), each
operator of a mine is required to include certain mine safety results in its periodic reports filed
with the U.S. Securities and Exchange Commission (SEC). Our mining operations are subject to
regulation by the federal Mine Safety and Health Administration (MSHA) under the Federal Mine
Safety and Health Act of 1977 (Mine Act). Below, we present the following items regarding
certain mining safety and health matters for the three months ended June 30, 2011:
|
|
|
total number of violations of mandatory health or safety standards that could
significantly and substantially contribute to the cause and effect of a mine safety or
health hazard under section 104 of the Mine Act for which we have received a citation from
MSHA; |
|
|
|
|
total number of orders issued under section 104(b) of the Mine Act, which covers
violations that had previously been cited under section 104(a) that, upon follow-up
inspection by MSHA, are found not to have been totally abated within the prescribed time
period, which results in the issuance of an order requiring the mine operator to
immediately withdraw all persons (except certain authorized persons) from the mine; |
|
|
|
|
total number of citations and orders for unwarrantable failure of the mine operator to
comply with mandatory health or safety standards under section 104(d) of the Mine Act; |
|
|
|
|
total number of flagrant violations (i.e., reckless or repeated failure to make
reasonable efforts to eliminate a known violation of a mandatory health or safety standard
that substantially and proximately caused, or reasonably could have been expected to cause,
death or serious bodily injury) under section 110(b)(2) of the Mine Act; |
|
|
|
|
total number of imminent danger orders (i.e., the existence of any condition or practice
in a mine which could reasonably be expected to cause death or serious physical harm before
such condition or practice can be abated) issued under section 107(a) of the Mine Act; |
|
|
|
|
total dollar value of proposed assessments from MSHA under the Mine Act; |
|
|
|
|
total number of mining-related fatalities; and |
|
|
|
|
total number of pending legal actions before the Federal Mine Safety and Health Review
Commission involving such mine. |
BAKER HUGHES INCORPORATED
Mine Safety Disclosure
Three Months Ended June 30, 2011
(Unaudited)
(Whole dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Section |
|
Section |
|
104(d) |
|
Section |
|
Section |
|
Proposed |
|
|
|
|
|
Pending |
|
|
104 |
|
104(b) |
|
Citations |
|
110(b)(2) |
|
107(a) |
|
MSHA |
|
|
|
|
|
Legal |
Operation(1) |
|
Citations |
|
Orders |
|
and Orders |
|
Violations |
|
Orders |
|
Assessments(2) |
|
Fatalities |
|
Actions |
Battle Mountain, NV |
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,403 |
|
|
|
|
|
|
|
|
|
Morgan City, LA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corpus Christi, TX |
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,403 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The definition of mine under section 3 of the Mine Act includes the mine, as well
as other items used in, or to be used in, or resulting from, the work of extracting
minerals, such as land, structures, facilities, equipment, machines, tools, and preparation
facilities. Unless otherwise indicated, any of these other items associated with a single
mine have been aggregated in the totals for that mine. |
|
(2) |
|
Amounts included are the total dollar value of proposed or outstanding assessments
received from MSHA on or before June 30, 2011 regardless of whether the assessment has been
challenged or appealed, for citations and orders occurring during the three month period
ended June 30, 2011. |
In addition, as required by the reporting requirements regarding mine safety included in
section 1503(a)(2) of the Dodd-Frank Act, the following is a list for the three months ended
June 30, 2011, of each mine of which we or a subsidiary of ours is an operator, that has received
written notice from MSHA of:
|
a) |
|
a pattern of violations of mandatory health or safety standards that are of such nature
as could have significantly and substantially contributed to the cause and effect of mine
health or safety hazards under section 104(e) of the Mine Act: |
|
|
|
|
None; |
|
|
|
|
or |
|
|
b) |
|
the potential to have such a pattern: |
|
|
|
|
None. |
Citations and orders can be contested and appealed, and as part of that process, are sometimes
reduced in severity and amount, and are sometimes dismissed. The number of citations, orders, and
proposed assessments vary by inspector and also vary depending on the size and type of the
operation.
The SEC recently proposed Item 106 of Regulation S-K (17 CFR 229.106) to implement section
1503(a) of the Dodd-Frank Act regarding mine safety reporting. It is possible that the final rule
adopted by the SEC will require disclosures to be presented in a manner that differs from this
presentation.