Baker Hughes 2003 Annual Report Download

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Leading
technology
performance
reliability
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Baker Hughes Incorporated 2003 Annual Report and Proxy Statement

Table of contents

  • Page 1
    Baker Hughes Incorporated 2003 Annual Report and Proxy Statement Leading technology performance reliability

  • Page 2
    ... oilfield service companies in focusing on our industry. Our six product line focused divisions deliver Best-in-Class technology and are leaders in their chosen market segments. >>> Leading culture. Baker Hughes' leadership is built on a highperformance culture based on our Core Values and Keys to...

  • Page 3
    ...Class Gulf of Mexico Baker Hughes played an important role in major deepwater development projects with PDC bits, the AutoTrak® drilling system, environmentally friendly fluids, wireline logging services, high pressure/high temperature completion systems, and flow assurance chemical programs. North...

  • Page 4
    ...Oil Tools Baker Oil Tools provides completion, workover and fishing technology to assure safe and efficient hydrocarbon production. Custom-engineered completion systems combine liner hangers, safety valves, packers, flow control equipment and screens. The division is a leader in completions for high...

  • Page 5
    ... underlying results of our business. Furthermore management uses operating profit internally as a measure of the performance of the company's operations. 2003 Revenues by Region USA Europe Latin America Asia Pacific M iddle East Africa Canada CIS Total Revenues 2001-2003, by Quarter (In millions...

  • Page 6
    ..., the Baker Hughes senior management team developed and refined a long term strategy for the company, w hich enhanced and validated the company's strategic direction. We also progressed tow ard building our high performance culture by continuing to reinforce the central role of our Core Values in...

  • Page 7
    ... ® rotary steerable system and other new drilling systems developed by INTEQ. Hughes Christensen's ® " Our Reservoir Characterization Instrument SM service saves rig time and delivers quality information to our clients," says Bob Gordon, Product Line M anager, Baker Atlas. " Enhancements...

  • Page 8
    4 | Baker Hughes Incorporated >>> Leading in Technology Générale de Géophysique (CGG), for " Hughes Christensen's Genesis TM PDC drill bits have set drilling performance borehole seismic processing. Baker Atlas implemented a Global Product Initiative to help field operations achieve their ...

  • Page 9
    ... Group (PM G) added " smart-pig" in-line inspection capabilities by acquiring the Cornerstone Pipeline Inspection Group (CPIG). This new service strengthens LWD systems in an integrated drilling/formation evaluation bottomhole assembly. INTEQ applied this complete system successfully in the North...

  • Page 10
    ... the Gulf of M exico, Canada, Egypt and Venezuela, and continued to set records for horizontal sand control completions in Norw ay and the U.K. High Performance Culture For the past three years w e have been building a high performance culture w ithin Baker Hughes based on our Core Values and Keys...

  • Page 11
    ...debt-tocapitalization ratio w as 31% . Cash flow from operations enabled us to retire debt, pay dividends, repurchase stock and make acquisitions in 2003. We use Baker Value Added, our measure of returns relative to our cost of capital, to evaluate equipment and project investments, and w e continue...

  • Page 12
    ... appointed President and Chief Operating Officer of Baker Hughes Incorporated. Rod is a person w ho embodies our Core Values, has great breadth and depth of experience and has a track record of superior performance and leadership. He joined Baker Hughes in 2001 as President of Baker Petrolite. Since...

  • Page 13
    ... (" Company" or " Baker Hughes" ) w ill be held at the offices of the Company, 3900 Essex Lane, Suite 210, Houston, Texas on Wednesday, April 28, 2004, at 9:00 a.m., Central Daylight Time, for the purpose of considering and voting on: 1. Election of three directors to serve for three-year terms...

  • Page 14
    ... Securities Exchange Act of 1934 ...Executive Compensation ...Summary Compensation Table ...Stock Options Granted During 2003 ...Aggregated Option Exercises During 2003 and Option Values at December 31, 2003...Long-Term Incentive Plan Aw ards During 2003 ...Pension Plan Table...Employment, Severance...

  • Page 15
    ...PROXY STATEM ENT This Proxy Statement is furnished in connection w ith the solicitation of proxies by the Board of Directors of Baker Hughes Incorporated, a Delaw are corporation (" Company," " Baker Hughes," " w e," " us" and " our" ), to be voted at the Annual M eeting of Stockholders scheduled to...

  • Page 16
    ... New York Stock Exchange (" NYSE" ) in effect at the time this Proxy Statement w as printed, if you hold your shares through a broker, your broker is permitted to vote your shares on " routine" matters, w hich includes the election of directors and the ratification of the Independent Auditor, even...

  • Page 17
    ... Foreign Affairs from 1985 to 1986. He is a director of Global Industries, Ltd. and Occidental Petroleum. Chairman of the Board of Cooper Industries, Ltd. (diversified manufacturer) since 1996, Chief Executive Officer since 1995 and President since 1992. He w as Executive Vice President, Operations...

  • Page 18
    4 | Baker Hughes Incorporated INFORM ATION CONCERNING DIRECTORS NOT STANDING FOR ELECTION The follow ing table sets forth certain information for those directors w hose present terms w ill continue after the Annual M eeting of Stockholders. The term of each Class II and Class III director expires ...

  • Page 19
    ...and production business. Chairman of the Board and Chief Executive Officer of Baker Hughes since August 2000. He also served as President of Baker Hughes from August 2000 to February 2004. M r. W iley w as President and Chief Operating Officer of Atlantic Richfield Company (integrated energy company...

  • Page 20
    ...listings standards of the NYSE and SEC regulations, as w ell as best practices suggested by recognized governance authorities. The Board has established the Company's Corporate Governance Guidelines (" Governance Guidelines" ) as the principles of conduct of the Company's business affairs to benefit...

  • Page 21
    ...), employee retirement income plans, the employee thrift plan and the employee stock purchase plan; setting bonus goals; approving salary and bonus aw ards to key executives; recommending incentive compensation and stock aw ard plans for approval by stockholders; and review ing management succession...

  • Page 22
    ... to this Proxy Statement. Business Code of Conduct The Company has a Business Code of Conduct that applies to all employees, w hich includes the code of ethics for the Company's principal executive officer, principal financial officer, principal accounting officer or controller and all other persons...

  • Page 23
    ...M ANAGEM ENT Set forth below is certain information w ith respect to beneficial ow nership of the Common Stock as of M arch 3, 2004 by each director and director nominee, the persons named in the Summary Compensation Table below and the directors and executive officers as a group. The table includes...

  • Page 24
    10 | Baker Hughes Incorporated CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Under the Corporate Executive Loan Program, M r. Andrew J. Szescila, retired Senior Vice President and Chief Operating Officer, received a loan from the Company on M arch 29, 1999, in the principal amount of $125,000. In ...

  • Page 25
    ...(1) Other Annual Compensation includes Company contributions to the Baker Hughes Thrift Plan, the Baker Hughes Supplemental Retirement Plan, the Baker Hughes Pension Plan, life insurance premiums, perquisites and other compensation for the named executive officers. Amounts for fiscal year 2003 for...

  • Page 26
    12 | Baker Hughes Incorporated STOCK OPTIONS GRANTED DURING 2003 The follow ing table sets forth certain information regarding stock options granted during fiscal year 2003 to the persons named in the Summary Compensation Table above. The theoretical values on the date of the grant of stock options...

  • Page 27
    ...receive the requisite ranking, so no restricted stock w as aw arded. The Company is currently in the second year for the period ending on December 31, 2004. See the " Compensation Committee Report" for additional information. (2) Under the Company's 2002 Director & Officer Long-Term Incentive Plan...

  • Page 28
    ... the Baker Hughes Pension Plan to each executive named in this Proxy Statement are reflected in the follow ing table. The retirement benefits in the table are calculated based on the assumptions that each executive officer named in the Summary Compensation Table w ill remain an employee until age...

  • Page 29
    ... Officer meets the criteria for payment of severance benefits due to termination of employment follow ing a Change in Control during the term as described above, he w ill receive the follow ing benefits: (a) a lump sum payment equal to three times the sum of the Named Officer's annual base salary...

  • Page 30
    ... under the Company's Annual Incentive Compensation Plan in connection w ith the Change in Control; (e) a lump sum payment equal to the present value of the benefits the Named Officer w ould have received had he continued to participate in the Company's thrift and supplemental retirement plans for an...

  • Page 31
    ... stock or cash aw ards granted pursuant to the Company's Long-Term Incentive Plan and the Baker Hughes Incorporated 2002 Director & Officer Long-Term Incentive Plan. The Company may from time to time pay compensation to its executive officers that may not be deductible. Base Salaries Executive...

  • Page 32
    ...for the mutual benefit of the employees, the Company and stockholders. In 2002, the Compensation Committee approved the Baker Hughes Incorporated 2002 Director and Officer LongTerm Incentive Plan for performance-related aw ards for senior executives in order to maintain a strong link to stockholders...

  • Page 33
    .... The annual incentive plan is designed to evaluate and rew ard for achievement of specific objectives that drive the success of the Company. The long-term incentive aw ards link executives directly to stockholders and rew ard the Company's executives for continuing positive stock performance on...

  • Page 34
    .../Ethics Committee assists the Board of Directors in overseeing matters relating to the accounting and reporting practices of the Company, the adequacy of the Company's disclosure controls and internal controls, the quality and integrity of the quarterly and annual financial statements of the Company...

  • Page 35
    ... Stock, and is included in this Proxy Statement in compliance w ith SEC rules and regulations. Proponent's Statement in Support of Proposal: " RESOLVED: That the stockholders of Baker Hughes Incorporated, assembled in annual meeting in person or by proxy, hereby request that the Board of Directors...

  • Page 36
    .... There are several new and proposed SEC rules including ones that address additional proxy disclosure on board nomination processes and stockholder access to the proxy statement, as w ell as new NYSE listing requirements related to corporate governance. These new disclosure requirements are...

  • Page 37
    ...of Support The Potential of a Tender Offer Can M otivate Our Directors Hectoring directors to act more independently is a poor substitute for the bracing possibility that shareholders could turn on a dime and sell the company out from under its present management. Wall Street Journal, Feb. 24, 2003...

  • Page 38
    ... proxy relating to that meeting. Such proposals should be mailed to Corporate Secretary, c/o Baker Hughes Incorporated 3900 Essex Lane, Suite 1200, Houston, Texas 77027-5177. Nominations of directors by stockholders must be received by the Chairman of the Governance Committee of the Company's Board...

  • Page 39
    ... succession plan for the office of the Chief Executive Officer (" CEO" ) of the Company and other members of senior management • Evaluating the performance of the Board and identifying and recruiting new members for the Board • Review ing and approving long-term business plans • Appointing...

  • Page 40
    ..., to act ethically at all times. No officer of the Company may serve on a board of any company having a present or retired employee on the company's Board. Additionally, officers of the Company may not serve as directors of any other publicly-held companies w ithout the approval of the Governance...

  • Page 41
    ... agencies; and (iii) all matters relating to the ethics of the Company and its subsidiaries; coordinate the Company's compliance w ith inquiries from any government officials concerning legal compliance in the areas covered by the Business Code of Conduct and the Foreign Corrupt Practices Act Policy...

  • Page 42
    ... policy and changes in the rate of dividend; and (iv) budget and long-range plans. In addition the Committee w ill periodically review the Company's activities w ith credit rating agencies, its policy governing approval levels for capital expenditures and funding thereof and its insurance programs...

  • Page 43
    ...that the annual salary, annual bonus and long-term incentive compensation shall be subject to the approval of the Board. Succession Planning - The Board and the Compensation Committee share the responsibility for succession planning. The Committee shall maintain and review w ith the Board a list for...

  • Page 44
    ... Core Values of the Company; vii) Understand basic financial statements; viii) Are independent as defined by the Securities and Exchange Commission (" SEC" ) and the New York Stock Exchange; ix) Support the ideals of the Company's Business Code of Conduct and are not engaged in any activity adverse...

  • Page 45
    ...INDEPENDENCE I. Introduction A member of the Board of Directors (" Board" ) of Baker Hughes Incorporated (" Company" ) shall be deemed independent pursuant to this Policy of the Board, only if the Board affirmatively determines that (1) such director meets the standards set forth in Section II below...

  • Page 46
    ...revenues of such other company employing such executive officer or employee, is not " independent" until three years after falling below such threshold.1 6. The three year period referred to in paragraphs II.1 through II.5 above w ill be applied consistent w ith the New York Stock Exchange's (" NYSE...

  • Page 47
    ... Committee, Audit/Ethics Committee, Compensation Committee, Finance Committee or w ith the non-management directors of the Company as a group, by sending such w ritten communication to the follow ing address: Corporate Secretary c/o Baker Hughes Incorporated 3900 Essex Lane, Suite 1200 Houston, TX...

  • Page 48
    .... Guidelines for Reporting Complaints or concerns regarding accounting, internal accounting controls or auditing matters may be submitted by employees and/or third parties to the Business Help Line or the Chief Compliance Officer (" CCO" ). Concerns received by the Business Help Line, w hich accepts...

  • Page 49
    ...to provide assistance to the Board of Directors in fulfilling its responsibility in matters relating to the accounting and reporting practices of the Company, the adequacy of the Company's internal controls and the quality and integrity of the financial statements of the Company; and (ii) to oversee...

  • Page 50
    ... of the Company's internal controls, including computerized information systems controls, and security. Review the Company's annual internal audit plan, staffing and budget, and receive regular reports on their activities, including significant findings and management's actions. Review annually the...

  • Page 51
    ... relating to the ethics of this Company and its subsidiaries. • Coordinate the Company's compliance w ith inquiries from any government officials concerning legal compliance in the areas covered by the Business Code of Conduct and the Foreign Corrupt Practices Act policy. • Review the Company...

  • Page 52
    ... services may include but not be limited to: tax compliance, planning and tax audit assistance; limited situation projects related to the Company or employee statutory filings, requirements or applications; assignments related to financial statement and internal control risk assessments. The annual...

  • Page 53
    ...the Exchange Act Rule 12b-2). YES x NO The aggregate market value of the voting and non-voting Common Stock held by non-affiliates as of the last business day of the registrant's most recently completed second fiscal quarter (based on the closing price on June 27, 2003 reported by the New York Stock...

  • Page 54
    BAKER HUGHES INCORPORATED INDEX Page PART I Item Item Item Item PART II Item Item Item Item Item Item Item PART III Item Item Item Item Item 1. 2. 3. 4. Business ...Properties ...Legal Proceedings ...Submission of M atters to a ...Vote of Security Holders ... ... ... ... ... ... ... ... ... ......

  • Page 55
    ...combination of Baker International Corporation and Hughes Tool Company. We acquired Western Atlas Inc. in a merger completed on August 10, 1998. As used herein, " Baker Hughes," " Company," " w e," " our" and " us" may refer to Baker Hughes Incorporated or its subsidiaries. The use of these terms is...

  • Page 56
    ... competitors are Schlumberger, Halliburton Company (" Halliburton" ) and Precision Drilling Corporation. Key business drivers for Baker Atlas include the number of drilling and w orkover rigs operating as w ell as the current and expected future price of both oil and natural gas. Baker Oil Tools...

  • Page 57
    ... and consumer markets. Baker Petrolite provides oilfield chemical programs for drilling, w ell stimulation, production, pipeline transportation and maintenance programs. The division's products provide measurable productivity increases, operating and maintenance cost reductions and solutions...

  • Page 58
    ... primary competitors in the oil and natural gas drill bit market are Smith, Halliburton and Grant Prideco, Inc. and in the mining and geothermal bit markets are Sandvik Smith AB and Varel International, Inc. Key business drivers for Hughes Christensen include the number of drilling rigs operating as...

  • Page 59
    .... Our products and services are sold in highly competitive markets, and revenues and earnings can be affected by changes in competitive prices, fluctuations in the level of drilling, w orkover and completion activity in major markets, general economic conditions, foreign exchange fluctuations and...

  • Page 60
    ...We are engaged in research and development activities directed primarily tow ard the improvement of existing products and services, the design of specialized products to meet specific customer needs and the development of new products, processes and services. For information regarding the amounts of...

  • Page 61
    ...Vice President and Controller of the Company since July 1999. Employed as Western Hemisphere Controller of Baker Oil Tools from 1997 to 1999 and Director of Corporate Audit for the Company from 1990 to 1996. Employed by the Company in 1990. Ray A. Ballantyne 54 President and Chief Operating Officer...

  • Page 62
    ...Petrolite) from 1984 to 1989. Employed by the Company in 1975. Douglas J. Wall 51 Vice President of the Company and President of Baker Oil Tools since 2003. President of Hughes Christensen from 1997 to 2003. Served as President and Chief Executive Officer of Western Rock Bit Company Limited, Hughes...

  • Page 63
    ... at approximately 1.7% . (h) In January 2003, Western Atlas International, Inc., its predecessor companies and Baker Hughes Oilfield Operations, Inc. w ere identified as PRPs in the Gulf Nuclear Superfund site in Odessa, Texas. The EP A conducted an emergency removal from the site in 2000. The EP...

  • Page 64
    ...discharge and a resulting change in our liability as a PRP w ith respect to a site. manufacturing plants are located as follow s: United States - Houston, Texas; Tulsa, Oklahoma; Lafayette, Louisiana; South America - various cities in Venezuela and Buenos Aires, Argentina; and Europe - Aberdeen and...

  • Page 65
    ... high and low sales prices on the New York Stock Exchange for our Common Stock during the tw o years ended December 31, 2003 and information regarding dividends declared on our Common Stock during the tw o years ended December 31, 2003, see Note 18 of the Notes to Consolidated Financial Statements...

  • Page 66
    ... except per share amounts) 2003 2002 2001 2000 1999 Revenues Costs and expenses: Cost of revenues Selling, general and administrative Impairment of investment in affiliate M erger related costs Restructuring charges (reversals) (Gain) loss on disposal of assets Total Operating income Equity in...

  • Page 67
    ... Financial Statements in Item 8 herein for additional information regarding discontinued operations. (2) WesternGeco. In November 2000, the Company and Schlumberger Limited (" Schlumberger" ) created the WesternGeco venture into w hich w ere transferred the seismic fleets, data processing assets...

  • Page 68
    ... industry, including drilling, formation evaluation, completion and production of oil and natural gas w ells. We have operations in over 80 countries around the w orld, w ith headquarters in Houston, Texas. Previously w e operated a Process segment, w hich manufactured and sold process equipment for...

  • Page 69
    ... in non-drilling activities including production testing, completion and w orkover, or are not significant consumers of oilfield products and services are not included in the rig count. In some active international areas w here better data is available, a w eekly or daily average of active rigs is...

  • Page 70
    ... decline. Key measures include government and private surveys of natural gas production, company reported • • • • • • production, estimates of reservoir depletion rates and drilling and completion activity. Technological progress - the design and application of new products that...

  • Page 71
    ... spending described above, our outlook for drilling activity, as measured by the Baker Hughes rig count, is as follow s: • The North American rig count is expected to increase approximately 6% to 9% in 2004 compared w ith 2003. • Drilling activity outside of North America is expected to increase...

  • Page 72
    ..." ) survey for 2003. We devote significant resources to the development, maintenance and enforcement of our Business Code of Conduct policy, our Foreign Corrupt Practices Act (the " FCP A" ) policy, our internal control processes and procedures and other compliance related policies. Notw ithstanding...

  • Page 73
    ...long-term forecasts of future revenues and costs related to the assets subject to review. In turn, these forecasts are uncertain in that they require assumptions about demand for our products and services, future market conditions and technological developments. Significant and unanticipated changes...

  • Page 74
    ... reflecting a 16.9% increase in rig counts. Rig counts act as a leading indicator for our revenues because w hen rigs are active, many of our products and services are required. Our products and services are used during drilling operations and then subsequently during completion of the w ells and...

  • Page 75
    ... in the impact of foreign exchange activity of $18.7 million. In 2004, w e anticipate corporate costs w ill continue to trend upw ard primarily due to compliance related expenditures. Reversals of Restructuring Charge In October 2000, our Board of Directors approved a plan to substantially exit the...

  • Page 76
    ... Effect of Accounting Change On January 1, 2003, w e adopted SFAS No. 143, Accounting for Asset Retirement Obligations. SFAS No. 143 addresses financial accounting and reporting for obligations associated w ith the retirement of long-lived assets. SFAS No. 143 requires that the fair value of...

  • Page 77
    ... Our capital planning process is focused on utilizing cash flow s generated from operations in w ays that enhance the value of the Company. In 2003, w e used cash for a mix of activities including w orking capital needs, payment of dividends, repayment of debt, repurchase of common stock and capital...

  • Page 78
    ... million in cash. This w as due to increased activity, increased employee compensation accruals, better management of our accounts payable and increased accruals for our self insurance programs. These changes w ere partially offset by $59.8 million more in income tax payments in 2003 compared w ith...

  • Page 79
    ...share of common stock in 2004. How ever, our Board of Directors is free to change the dividend policy at any time. During 2004, w e estimate that w e w ill contribute approximately $35.0 million to $40.0 million to our pension plans and make benefit payments related to post retirement w elfare plans...

  • Page 80
    ...any financing, liquidity, market or credit risk that could arise if w e had engaged in such financing arrangements. New Accounting Standards Effective January 1, 2003, w e adopted SFAS No. 143, Accounting for Asset Retirement Obligations. SFAS No. 143 addresses financial accounting and reporting for...

  • Page 81
    ...M odernization Act of 2003 (the " Act" ). SFAS No. 106, Employers' Accounting for Postretirement Benefits Other Than Pensions, requires presently enacted changes in law s that w ill take effect in future periods to be taken into account in measuring current period postretirement benefit cost and the...

  • Page 82
    ... all businesses; labor-related actions, including strikes, slow dow ns and facility occupations; the condition of the capital and equity markets in general; adverse foreign exchange fluctuations and adverse changes in the capital markets in international locations w here w e operate; and the timing...

  • Page 83
    ... currency forw ard contracts to their fair market value. This gain offsets designated foreign exchange losses resulting from the underlying exposures and is included in selling, general and administrative expense in the consolidated statement of operations. At December 31, 2002, w e had entered into...

  • Page 84
    ... program to assess compliance w ith the policies included in the Business Code of Conduct. The Board of Directors, through its Audit/Ethics Committee composed solely of nonemployee directors, review s the Company's financial reporting, accounting and ethical practices. In 2003, the Audit/Ethics...

  • Page 85
    ...AUDITORS' REPORT Stockholders of Baker Hughes Incorporated: We have audited the accompanying consolidated balance sheets of Baker Hughes Incorporated and its subsidiaries as of December 31, 2003 and 2002, and the related consolidated statements of operations, stockholders' equity and cash flow s for...

  • Page 86
    34 | Baker Hughes Incorporated CONSOLIDATED STATEM ENTS OF OPERATIONS Year Ended December 31, (In millions, except per share amounts) 2003 2002 2001 Revenues Costs and expenses: Cost of revenues Selling, general and administrative Impairment of investment in affiliate Reversals of ...

  • Page 87
    ... Long-term debt Deferred income taxes Pensions and postretirement benefit obligations Other liabilities Commitments and contingencies Stockholders' equity: Common stock, one dollar par value (shares authorized - 750.0; outstanding - 332.0 at December 31, 2003 and 335.8 at December 31, 2002) Capital...

  • Page 88
    ... in net income due to sale of business Other comprehensive income (net of tax of $0.3 and $5.3, respectively) Total comprehensive income Cash dividends ($0.46 per share) Stock issued pursuant to employee stock plans Repurchase and retirement of common stock Balance, December 31, 2003 See Notes to...

  • Page 89
    ... termination of interest rate sw ap agreements Proceeds from issuance of common stock Repurchase of common stock Dividends Net cash flow s from continuing operations Net cash flow s from discontinued operations Net cash flow s from financing activities Effect of foreign exchange rate changes on cash...

  • Page 90
    ... and provides products and services for drilling, formation evaluation, completion and production of oil and natural gas w ells. Basis of Presentation The consolidated financial statements include the accounts of Baker Hughes and all majority ow ned subsidiaries (the " Company" ). Investments in...

  • Page 91
    ... value, as determined by a discounted cash flow analysis, w ith the carrying value of the related assets. The Company performs its annual impairment test of goodw ill as of October 1, or more frequently if circumstances indicate that impairment may exist. Investments in affiliates are also review...

  • Page 92
    ...25, Accounting for Stock Issued to Employees. Under this method, no compensation expense is recognized w hen the number of shares granted is know n and the exercise price of the stock option at the time of grant is equal to or greater than the market price of the Company's common stock. Reported net...

  • Page 93
    ... average fair values of options granted in 2003, 2002 and 2001 w ere $10.25, $10.24 and $15.04 per share, respectively. New Accounting Standards Effective January 1, 2003, the Company adopted SFAS No. 143, Accounting for Asset Retirement Obligations. SFAS No. 143 addresses financial accounting...

  • Page 94
    ... current year presentation. Note 2. Discontinued Operations In the third quarter of 2003, the Company's Board of Directors approved and management initiated a plan to sell BIRD M achine (" BIRD" ), the remaining division of the former Process segment. In October 2003, the Company signed a definitive...

  • Page 95
    ... through December 31, 2003. The purchase prices are allocated based on fair values of the acquisitions. Pro forma results of operations have not been presented because the effects of these acquisitions w ere not material to the Company's consolidated financial statements on either an individual...

  • Page 96
    44 | Baker Hughes Incorporated The provision for income taxes differs from the amount computed by applying the U.S. statutory income tax rate to income from continuing operations before income taxes for the reasons set forth below for the years ended December 31: 2003 2002 2001 Statutory income ...

  • Page 97
    ... a combination of a market value and discounted cash flow s approach. The Company w as assisted in the determination of the fair value by an independent third party. Included in the caption " Equity in income (loss) of affiliates" for 2002 and 2001 are $90.2 million for the Company's share of a $300...

  • Page 98
    ...monitoring business w ith one of the Company's product lines. The Company accounts for its ow nership in QuantX using the equity method of accounting. During 2002, the Company invested $16.5 million for a 40% interest in Luna Energy, L.L.C. (" Luna Energy" ), a venture formed to develop, manufacture...

  • Page 99
    ...in both the EIM CO and BIRD operating divisions of the Company's former Process segment w as determined to be impaired using a combination of a market value and discounted cash flow s approach to estimate fair value. Accordingly, the Company recognized transitional impairment losses of $42.5 million...

  • Page 100
    48 | Baker Hughes Incorporated In accordance w ith SFAS No. 142, the Company discontinued the amortization of goodw ill and goodw ill associated w ith equity method investments effective January 1, 2002. The pro forma results of operations of the Company, giving effect to SFAS No. 142 as if it w ...

  • Page 101
    ... to their fair market value. This gain offsets designated foreign exchange losses resulting from the underlying exposures and is included in selling, general and administrative expense in the consolidated statement of operations. During 2003 and 2002, the Company entered into foreign currency forw...

  • Page 102
    ... insured limits. The Company periodically assesses the financial condition of the institutions and believes that the risk of any loss is minimal. Note 13. Segment and Related Information The Company operates through six divisions - Baker Atlas, Baker Oil Tools, Baker Petrolite, Centrilift, Hughes...

  • Page 103
    ... Plans The Company has stock option plans that provide for the issuance of incentive and non-qualified stock options to directors, officers and other key employees at an exercise price equal to or greater than the fair market value of the stock at the date of grant. These stock options generally...

  • Page 104
    ...are remaining for issuance under the plan. Employees purchased 0.8 million shares in 2003, 0.8 million shares in 2002 and 0.6 million shares in 2001. The Company has aw arded restricted stock to directors and certain executive officers. The fair value of the restricted stock on the date of the grant...

  • Page 105
    ... value of pension benefits attributed to employee service to date and present compensation levels. The ABO differs from the PBO in that the ABO does not include any assumptions about future compensation levels. The ABO for all U.S. plans w as $174.6 million and $138.4 million at December 31, 2003...

  • Page 106
    54 | Baker Hughes Incorporated Weighted average assumptions used to determine net costs for these plans are as follow s for the years ended December 31: U.S. Pension Benefits 2003 2002 2001 2003 Non-U.S. Pension Benefits 2002 2001 Discount rate Expected return on plan assets Rate of compensation ...

  • Page 107
    ... supplemental retirement plan (" SRP" ) for certain officers and employees w hose benefits under both the Thrift Plan and the Pension Plan are limited by federal tax law. The SRP also allow s the eligible employees to defer a portion of their eligible compensation and provides for employer matching...

  • Page 108
    ... other criteria applicable to such statements, and (II) to maintain accountability for assets. On M arch 25, 2002, a former employee alleging improper activities relating to Nigeria filed a civil complaint against the Company in the 281st District Court in Harris County, Texas, seeking back pay and...

  • Page 109
    ... its present and former manufacturing facilities, the majority of w hich are due to acquisitions made by the Company or sites the Company no longer actively uses in its operations. The estimate of remediation costs for these voluntary remediation projects is developed using currently available facts...

  • Page 110
    ...2003* Revenues Gross profit * * Income (loss) from continuing operations Net income (loss) Basic earnings per share Income (loss) from continuing operations Net income (loss) Diluted earnings per share Income (loss) from continuing operations Net income (loss) Dividends per share Common stock market...

  • Page 111
    ... - Summary Compensation Table," " Corporate Governance - Board of Directors," " Stock Options Granted During 2003," " Aggregated Option Exercises During 2003 and Option Values at December 31, 2003," " Long-Term Incentive Plan Aw ards During 2003," " Pension Plan Table," " Employment, Severance and...

  • Page 112
    ..., 2003 w ith respect to shares of our Common Stock that may be issued under our existing equity compensation plans, including the Baker Hughes Incorporated 1993 Stock Option Plan, the Baker Hughes Incorporated Long-Term Incentive Plan and the Baker Hughes Incorporated 2002 Directors & Officers Long...

  • Page 113
    ... ner's equity); earnings before or after taxes, interest, depreciation and/or amortization; share price (including grow th measures and total shareholder return) and Baker Value Added (a Company metric that measures operating profit after tax less the cost of capital employed). Restricted Stock and...

  • Page 114
    ... Plan, directors may elect to defer income w ith respect to each calendar year. The compensation deferrals may be stock option-related deferrals or cash-based deferrals. The stock option-related deferrals may be either market-priced stock options or discounted stock options. The number of shares...

  • Page 115
    ...2000 (filed as Exhibit 10.7 to Annual Report of Baker Hughes Incorporated on Form 10-K for the year ended December 31, 2000). 10.8* + Form of Change in Control Severance Plan. 10.9+ Form of Baker Hughes Incorporated 2002 Director & Officer Long-Term Incentive Plan (filed as Exhibit 10.2 to Quarterly...

  • Page 116
    ... December 31, 2002). 10.45+ Form of Baker Hughes Incorporated Stock Option Aw ard Agreements, dated January 29, 2003, w ith Terms and Conditions for employees and for directors and officers (filed as Exhibit 10.47 to Annual Report of Baker Hughes Incorporated on Form 10-K for the year ended December...

  • Page 117
    ... Report on Form 10-Q for the quarter ended June 30, 2003). 10.50* +Form of Baker Hughes Incorporated Stock Option Aw ard Agreements, dated January 28, 2004, w ith Terms and Conditions for employees and for directors and officers. 10.51 Baker Hughes Incorporated 2002 Employee Long-Term Incentive Plan...

  • Page 118
    ... duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on the 3rd day of M arch, 2004. BAKER HUGHES INCORPORATED By /s/M ICHAEL E. WILEY (M ichael E. W iley, Chairman of the Board, and Chief Executive Officer) KNOWN ALL PERSONS BY THESE PRESENTS, that each...

  • Page 119
    ...at Beginning (In millions) Additions Charged to Cost and Expenses Reversal of Prior Deductions Write-offs Charged to Other Accounts Balance at End of Period of Period (a) Year ended December 31, 2003: Reserve for doubtful accounts receivable Reserve for inventories Year ended December 31, 2002...

  • Page 120
    ...assistance to the board in overseeing matters related to risk analysis and risk management; • annually review s compliance w ith our Business Code of Conduct and Foreign Corrupt Practices Act policies. The Baker Hughes Business Code of Conduct and Code of Ethical Conduct Certification is available...

  • Page 121
    ...for capital expenditures; periodically review s our policy and controls w ith regard to derivatives and foreign exchange exposure; annually review s our insurance programs. The Governance Committee is comprised of five independent non-employee directors and is responsible for all governance related...

  • Page 122
    .../about/bod/charters/executive.htm Business Code of Conduct ...w w w.bakerhughes.com/investor/about/code_of_conduct.htm Code of Ethical Conduct Certification ...w w w.bakerhughes.com/investor/about/code_certification.htm Stockholder Rights Plan Policy Statement ...w w w.bakerhughes.com/investor...

  • Page 123
    ...Listings Ticker Symbol "BHI" New York Stock Exchange, Inc. Pacific Exchange, Inc. SWX Swiss Exchange Investor Relations Office Gary R. Flaharty Director, Investor Relations Baker Hughes Incorporated P.O. Box 4740 Houston, Texas 77210-4740 [email protected] Form 10-K Additional copies of the company...

  • Page 124
    Baker Hughes Incorporated 3900 Essex Lane Houston, TX 77027 P.O. Box 4740 Houston, TX 77210-4740 713-439-8600 www.bakerhughes.com