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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1994
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
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COMMISSION FILE NUMBER 1-9397
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BAKER HUGHES INCORPORATED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
76-0207995
DELAWARE (I.R.S. EMPLOYER IDENTIFICATION NO.)
(STATE OR OTHER JURISDICTION OF 77027-5177
INCORPORATION OR ORGANIZATION) (ZIP CODE)
3900 ESSEX LANE, HOUSTON, TEXAS
(ADDRESS OF PRINCIPAL EXECUTIVE
OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (713) 439-8600
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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COMMON STOCK, $1 PAR VALUE NEW YORK STOCK EXCHANGE
PACIFIC STOCK EXCHANGE
THE SWISS STOCK EXCHANGE
COMMON STOCK PURCHASE RIGHTS NEW YORK STOCK EXCHANGE
PACIFIC STOCK EXCHANGE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: WARRANTS TO
PURCHASE COMMON STOCK
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 of 15(d) of the Securities Exchange Act of
1934 during the preceeding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.[_]
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At December 7, 1994, the registrant had outstanding 141,005,606 shares of
Common Stock, $1 par value. The aggregate market value of the Common Stock on
such date (based on the closing price on the New York Stock Exchange) held by
nonaffiliates was approximately $2,460,171,175.
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of Registrant's Annual Report to Stockholders for 1994 are
incorporated by reference into Parts I and II.
Portions of Registrant's 1994 Proxy Statement for the Annual Meeting of
Stockholders to be held January 25, 1995 are incorporated by reference into
Part III.
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PART I
ITEM 1. BUSINESS
The Company operates in two industry segments, Oilfield Services and
Equipment and Process Products and Services. In addition to these industry
segments, the Company manufactures and sells other equipment and provides
services to industries not related to either the petroleum or process
industries. Certain of the Company's operations are conducted through joint
ventures or partnerships.
The Company is a Delaware corporation which was formed in connection
with the combination of Baker International Corporation ("Baker") and Hughes
Tool Company ("Hughes") consummated on April 3, 1987 (the "Combination"). Baker
and Hughes were publicly-traded companies registered with the Securities and
Exchange Commission for more than five years. As used herein, the "Company"
refers to Baker Hughes Incorporated and its subsidiaries and the majority-owned
joint ventures and partnerships in which Baker Hughes Incorporated and its
subsidiaries participate, unless the context clearly indicates otherwise.
For additional industry segment information for each of the three
years in the period ended September 30, 1994, see Note 9 of Notes to
Consolidated Financial Statements which is incorporated herein by reference in
Part II, Item 8 hereof ("Notes to Consolidated Financial Statements").
OILFIELD SERVICES AND EQUIPMENT
The Company manufactures and markets a broad range of rolling cutter
and diamond drilling bits, ranging upward from 3-3/4 inches in diameter, which
are designed for drilling in specific types of rock formations. The Company
believes that it is the leading worldwide manufacturer of rock bits and that its
principal competitors are Smith International, Inc. ("Smith"), the Security
Division of Dresser Industries, Inc. ("Dresser"), Reed Tool Company and Hycalog,
operating units of Camco, Incorporated.
The Company also produces and markets drilling fluids (muds) for oil
and gas well drilling, as well as chemical additives and specialty chemicals,
and provides technical services in connection with their formulation and use.
Drilling fluids, which are usually barite and bentonite combined with other
chemicals in a water, chemical or oil base, are used to clean the bottom of a
hole by removing cuttings and transporting them to the surface, to cool the bit
and drill string, to control formation pressures and to seal porous well
formations. The Company also furnishes on-site, around-the-clock laboratory
analysis and examination of circulated and recovered drilling fluids and
recovered drill cuttings to detect the presence of hydrocarbons and identify the
formations penetrated by the drill bit. The Company's principal competitors in
these markets are M-I Drilling Fluids, which is jointly owned by Halliburton
Company ("Halliburton") and Smith, and Baroid Corporation, a subsidiary of
Dresser.
The Company believes it is the industry's leading supplier of
directional and horizontal drilling services, downhole motors, coring services,
subsurface surveying and both directional and formation-evaluation measurement-
while-drilling services. The Company's specialized positive displacement
downhole motors help operators to steer wells into pay zones for conventional
directional drilling, and short, medium and long-radius horizontal drilling. A
full range of measurement-while-drilling systems provided by the Company use
mud-pulse telemetry to deliver real-time downhole information on the drilling
process and the reservoir. The systems are available for every application, from
directional-only service through wireline-replacement real-time logging.
Through the well engineering and planning process, the Company integrates its
high-performance drilling tools with downhole information systems to provide
customers with a total systems approach. In these markets, the Company competes
principally with Halliburton, Sperry-Sun, a subsidiary of Dresser, and Anadrill,
a subsidiary of Schlumberger Ltd.
Other products of the Company related to drilling include surface and
downhole instruments which collect, display and record data regarding various
aspects of the drilling process and the possible accumulation of oil and gas.
After oil and gas wells are drilled, they must be completed and
equipped using production tools, serviced to achieve safety and long-term
productivity, protected against pressure and corrosion damage and stimulated or
repaired during their productive lives. The Company provides a broad range of
production tools and oilfield services to meet many of these needs.
Packers, a major product of the Company, are used to seal the space
between the production tubing and the casing to protect the casing from
reservoir pressures and corrosive formation fluids and also to maintain the
separation of productive zones. The Company believes that it is the leading
worldwide producer of packers, and that its principal competitors are the
Guiberson AVA Division of Dresser and the Otis Division of Halliburton.
The Company manufactures liner hanger tools and equipment used to
suspend and set strings of casing pipe in wells. It also manufactures downhole
electric submersible pumps and variable frequency drive systems for use with
such pumps, and provides related control equipment, electrical cable and repair
services for artificial lift. The Company provides fishing tool services using
specialized tools to locate, dislodge and retrieve twisted off, dropped or
damaged pipe, tools or other objects from the well bore. It also provides
inflatable and mechanical packers which are used in testing the potential of a
well during the drilling phase prior to installation of casing, and under-
reamers, which enlarge the well bore at any point below the surface to form a
production cavity.
Other completion, remedial and production products and services
include specialty chemicals used by the production segments of the petroleum
industry (with Petrolite Corporation being the Company's principal competitor in
the market for completion, remedial and production specialty chemicals) as well
as industrial chemicals used in refining, waste water treatment, mineral
handling and cooling and boiler water processes; control systems for surface and
subsurface safety valves and surface flow lines; and flow regulators and
packers used in secondary recovery waterflood projects. The Company offers
gravel packing, a specialized service which prevents sand from entering the well
bore and reducing productivity, as well as
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other sand control services. It also provides tubing conveyed perforating
services to provide paths through the casing and cement sheath in wells so that
oil and gas can enter the well bore from the formation.
PROCESS EQUIPMENT PRODUCTS AND SERVICES
The Company provides a broad range of solid/liquid separation
equipment and systems to concentrate product or separate and remove waste
material in the mineral, municipal and industrial wastewater and pulp and paper
industries. Product lines include vacuum filters (drum, disc and horizontal
belt), filter presses, belt presses, granular media filters, thickeners,
clarifiers, flotation cells and aeration equipment. Major competitors are Dorr-
Oliver, Otokumpu and Sala in the worldwide minerals and industrial markets,
Envirex and General Filter in municipal markets, and Alstrom is the principal
competitor in the pump and paper market.
The Company manufactures and markets solid bowl, screen bowl and
pusher centrifuges, tilting pan filters and a high speed Bird Young drum filter
for the minerals, chemical and petrochemical sectors where the equipment is used
for dewatering of process flow streams. The tilting pan filter is the preferred
equipment in potash and phosphate fertilizer markets. Principal competitors in
the centrifuge product lines are Alfa-Laval and Klockner-Humbolt-Deutch.
The Company designs and manufactures systems for the treatment of
produced water and its reinjection and treatment of refinery waste streams.
Products include coarse filters, fine filters, flotation units, coalescers,
deaeration towers and electrochlorination cells. Primary competitors are
General Filter and Serck Baker.
The Company provides parts and service for all of its product lines
through a global network of personnel and facilities strategically located to
serve the customer community.
OTHER
On September 30, 1994, the Company sold the EnviroTech Puumpsystems
group of companies to The Weir Group PLC. The sale provided approximately $210
million in proceeds and resulted in a gain of $101 million.
On March 15, 1994, the Company sold the EnviroTech Measurements and
Controls group of companies to Thermo Electron Corporation. The sale provided
approximately $134 million in proceeds and resulted in a gain of $8.6 million.
ENVIRONMENTAL MATTERS
The Company's subsidiaries, divisions and customers are subject to
local, state and federal regulations with regard to air and water quality and
other environmental matters. The Company believes that it is in substantial
compliance with these regulations. Regulation in this area is in the process of
development, and changes in standards of enforcement of existing
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regulations as well as the enactment and enforcement of new legislation may
require the Company, its subsidiaries and divisions, as well as its customers,
to modify, supplement or replace equipment or facilities, or to change or
discontinue present methods of operation.
While making projections of future costs in the environmental area can
be difficult and uncertain, based upon current information, the Company
estimates that during the fiscal year ending September 30, 1995, the Company
will spend approximately $13,600,000 to enable the Company to comply with
federal, state and local provisions which have been enacted or adopted
regulating the discharge of materials into the environment or otherwise relating
to the protection of the environment (collectively, "Environmental
Regulations"). Based upon current information, the Company believes that its
compliance with Environmental Regulations will not have a material adverse
effect upon the capital expenditures, earnings and competitive position of the
Company and its subsidiaries because the Company has adequate reserves for such
compliance expenditures or the cost to the Company for such compliance will be
small when compared to the Company's overall net worth.
In addition to the amounts described in the preceding paragraph, based
upon current information, the Company estimates that it will incur capital
expenditures of approximately $3,030,000 for environmental control equipment
during the fiscal year ending September 30, 1995. Based upon current
information, the Company believes that capital expenditures for environmental
control equipment for the 1995 and 1996 fiscal years, as well as such future
periods as the Company deems relevant, will not have a material adverse effect
upon the financial condition of the Company because the aggregate amount of
these expenditures for such periods is or will be small when compared to the
Company's overall net worth.
The Company and certain of its subsidiaries and divisions have been
identified as a potentially responsible party ("PRP") as a result of substances
which may have been released in the past at various sites more fully discussed
below. The United States Environmental Protection Agency (the "EPA") and
appropriate state agencies are supervising investigative and clean-up activities
at these sites.
(a) The Company's subsidiaries, Hughes Christensen ("HC"), a division
of Baker Hughes Oilfield Operations, Inc. ("BHOO"), Milpark Drilling Fluids
("Milpark") (now known as Baker Hughes INTEQ, a division of BHOO), and a
former subsidiary of the Company, Baker Hughes Tubular Services, Inc.
("BHTS"), have been named as PRPs in the French Limited Superfund Site
which consists of a 15 acre wastepit and a seven acre lagoon located in
Crosby, Texas. The site is on the Superfund National Priorities List. This
site has been in active remediation for five (5) years and is managed by a
task force of PRPs ("FLTG, Inc. Task Force"). $64,700,000 has been spent
to date by FLTG, Inc. Task Force, with additional costs of approximately
$18,500,000 being anticipated by FLTG, Inc. Task Force. The contribution
of the Company's subsidiaries (including BHTS which was sold to ICO on
September 30, 1992) is estimated to be approximately 1.33% of those costs
(such proportion being based upon the ratio that the number of gallons of
waste estimated to be contributed to the site by the Company's subsidiaries
bears to the total number of gallons of waste estimated to have been
disposed of at the site, and being herein sometimes
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referred to as a "Volumetric Calculation"). A portion of the Company's
liability (.77%) is covered by an indemnity from ICO. The Company has
settled that portion of its liability for this site not covered by the
Indemnity Agreement (.56%) for $62,721, and the Company does not anticipate
any additional liability for this site. The Company will continue to
follow the progress of the site through completion.
(b) Baker Performance Chemicals Incorporated ("BPCI"), a subsidiary of
the Company, HC, Milpark, BHTS and Baker Oil Tools ("BOT"), a division of
BHOO, have been named as PRPs in the Sheridan Superfund Site, located in
Hempstead, Texas. The remedial work at this site is being overseen by the
Texas Natural Resource Conservation Commission. A trust formed to
remediate the site and to allocate responsibility for the costs of such
remedial work estimates that the total cost of remediation will be
approximately $30,000,000, with the contribution of the Company's
subsidiaries (including BHTS which was sold to ICO on September 30, 1992)
estimated to be approximately 0.63% of those costs (based upon a Volumetric
Calculation).
(c) BPCI and Centrilift, a division of BHOO, have been named as PRPs
in the Hardage Industrial Waste Disposal Superfund Site, located in Criner,
Oklahoma. It has been estimated that the contribution to the contamination
at this site by the Company's two subsidiaries is approximately 0.005% and
0.19%, respectively, of the total waste at such site (based upon a
Volumetric Calculation). An agreement has been reached to release the
Company and its subsidiaries from liability for a total of $325,000 to be
paid over three years. The first annual installment in the amount of
$108,333, was paid on November 1, 1994.
(d) Centrilift has also been named as a PRP in the Sand Springs
Superfund Site, a former oil refinery operation situated on approximately
200 acres located west of Tulsa, Oklahoma on the Arkansas River. Following
the shutdown of refining operations in 1948, portions of the site were
operated by third parties as a storage and treatment facility for
industrial waste. ARCO, successor in interest to Sinclair, the operator of
the former refinery, has entered into a consent decree with the EPA to
design and construct source control facilities, the total cost of which is
estimated to be approximately $15,000,000, with the contribution of the
Company's subsidiary estimated to be approximately $250,000, or 1.67% of
the total cost.
(e) BPCI, has been named as a PRP in the Odessa Drum Company Superfund
Site located in Odessa, Texas. Total cost of abatement at the site is
currently estimated to be $7,000,000. A de minimis Settlement Agreement
with the PRP group has been signed under which BPCI has agreed to pay
$55,000.
(f) Spectrace Instruments, Inc. ("Spectrace"), a subsidiary of the
Company, has been named as a PRP in the MEW Study Area, an eight square
mile soil and groundwater contamination site located in Mountain View,
California. A group of PRPs estimates that the total cost of remediation
will be
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approximately $80,000,000. The Company's environmental consultants have
conducted extensive investigations of Spectrace's operating facility
located within the MEW Study Area, and have concluded that Spectrace's
activities could not have been the source of any contamination in the soil
or groundwater at and around the MEW Study Area. The Company has had
several meetings with the EPA and the other PRPs and their respective
counsel and consultants in an attempt to resolve this dispute. The EPA has
recently informed the Company that no further work needs to be performed on
Spectrace's site and indicated that the EPA does not believe there is a
contaminant source on the property. The Company continues to believe the
EPA's Administrative Order for Remedial Design and Remedial Action is not
valid with respect to the Company's subsidiary and is diligently seeking
the withdrawal of such Order with respect to the Company's subsidiary.
(g) Hughes Tool Company (now known as Hughes Christensen), Eastman
Teleco Company (now known as Baker Hughes INTEQ, a division of BHOO), and
EIMCO, a subsidiary of the Company, have been named as PRPs in the Marco of
Iota hazardous waste storage and treatment facility located in Iota, Acadia
Parish, Louisiana. In 1991, the Marco facility was abandoned by the owners
and the EPA discovered hazardous substances were being released into the
surrounding environment. EPA records, corroborated by current Company
information, suggest that the contribution to the contamination at this
site by these subsidiaries of the Company is less than .005% of the total
volume of wastes at this site. The hazardous wastes disposed of at this
site have now been removed under the EPA's emergency response authority at
a cost of approximately $6,000,000. A de minimis buyout offer from either
the EPA or the PRP group is anticipated in the future.
(h) BPCI, by virtue of its acquisition of ChemLink, was named in an
administrative action brought by the EPA pursuant to the Toxic Substances
Control Act. The complaint filed by the EPA alleges failure on the part of
ChemLink to properly notify the EPA of the manufacture of a new chemical
substance and asserts a fine against ChemLink in the amount of $280,000.
Contractual indemnities are available to BPCI as a part of the acquisition
of ChemLink which the Company believes cover any liability of BPCI in
connection with this action, including any defense costs.
(i) In May 1987, BPCI entered into an Agreed Administrative Order with
the then Texas Water Commission, now known as the Texas Natural Resource
Conservation Commission ("TNRCC"), with respect to soil and groundwater
contamination at the Odessa - Hillmont site located in Odessa, Texas. This
site was previously used by BPCI as a chemical blending plant. The
contaminated soil has been removed and the site continues in the
groundwater recovery/treatment phase at an annual cost of approximately
$60,000.
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(j) Oil Base, Inc. and Hughes Drilling Fluids (now known as Baker
Hughes INTEQ, a division of BHOO), have been identified as PRPs in the PAB
Superfund Site located in Abbeville, Louisiana. Due to certain issues at
this site, the Company has estimated that the contribution to the
contamination by these entities is approximately 2.0%-5.0% of the total
waste at this site. A Volumetric Calculation is not possible because the
disposal records maintained at this site are incomplete and inaccurate.
The Company's ultimate percentage of liability will depend in part upon the
final allocation of volumes among the participating PRPs. Resolution of
these issues is currently being sought through an ADR process supported by
Region VI of the EPA. The EPA currently estimates the total cost of
remediation at this site will be approximately $20,000,000. The Company is
currently participating with other PRPs to fund certain remedial design
efforts on an interim basis in order to comply with the EPA order, pending
the finalization of the ADR process anticipated to occur within the next
eighteen (18) months.
(k) PA Inc., a former subsidiary of the Company, was identified as a
PRP in the Sonics International Superfund Site, a former hazardous waste
disposal facility located near Ranger, Texas. It is not possible at this
time to quantify the Company's ultimate liability. The Company currently
believes that its former subsidiary is a de minimis PRP at this site based
upon the small amount of waste allegedly contributed to this site by the
Company's former subsidiary (approximately 1.64% based upon a Volumetric
Calculation). The remediation proposed by the PRP group is estimated to
cost $700,000, and the Company anticipates its ultimate liability to be
approximately $25,000.
(l) The Company and Envirotech Corporation (now known as EVT Holdings,
Inc.) have been sued by the Michigan Department of Natural Resources
("MDNR"). The MDNR has alleged that contamination to the residential water
wells in the township of Rock, Michigan was caused in part by a 500 gallon
diesel underground storage tank formerly located (removed in 1992) on real
property acquired by the Company as a result of the acquisition of
Envirotech in 1982. The MDNR has also brought suit against other
potentially responsible parties. The MDNR is demanding partial payment
from the Company and Envirotech (approximately $1,200,000) for a
residential drinking water system installed in response to elevated levels
of petroleum hydrocarbons in residential drinking water wells. The Company
has met with the MDNR regarding the allegations, and after review of the
state's reports and data, as well as the Company's own data, it is the
Company's position that it has no liability.
(m) Milpark (now known as Baker Hughes INTEQ, a division of BHOO) has
been identified as a PRP at the Toups Farm Superfund Site (eligible for
cleanup under the Texas State Cleanup Fund) located two miles north of
South Lake at the intersection of Highway 105 and Highway 326 near
Hallettsville, Texas. The site consists of approximately 21 acres, and was
operated over the years as a municipal landfill, fence post treating
company, and a hog farm. Based on available information, the Company does
not believe it has any liability for contamination at the site.
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(n) The Company and BPCI have been named as PRPs at the former Fike
Chemical Company site located in Nitro, West Virginia. The Company and
BPCI were alleged to be responsible by virtue of business transactions
involving toll chemical processing and raw materials with the site's
operator, Fike Chemical. Contractual indemnities are available to BPCI as
part of the acquisition of Chemlink, which the Company believes cover any
liability of BPCI in connection with this action, including defense costs.
(o) Milpark and Baker Sand Control (now known as Baker Hughes INTEQ, a
division of BHOO) have been named as PRPs at the DL Mud Superfund Site
located in Abbeville, Louisiana. This site was used for the disposal of
used drilling fluids and drilling muds. However, another named PRP is
responsible for over 98% of the waste volume disposed of at this site, and
such PRP has agreed to remediate this site totally. The Company does not
anticipate that it will have any liability for this site.
(p) Milpark (now known as Baker Hughes INTEQ, a division of BHOO) has
been named as a PRP at the Mar Services Superfund site located in Crankton,
Louisiana. It has been estimated that the contribution to this site by the
Company's subsidiary is approximately .08% of the total volume of solids at
the site (based upon a volumetric calculation). The site is now undergoing
investigative studies to determine the remedial action plan, as well as, a
total estimated cost for remediation.
(q) Teleco (now known as Baker Hughes INTEQ, a division of BHOO) has
been named as a PRP at the Solvent Recycling Service of New England
Superfund Site located in Southington, Connecticut. Approximately 1,000
companies have been named as PRPs at this site. Calculations from the PRP
group verified by the Company indicate that Teleco contributed .00006% of
the volume at the site. The total cost of cleanup at the site is currently
estimated to be $3,500,000. A de minimis buyout offer from either the EPA
or the PRP group is anticipated in the future.
While PRPs in Superfund actions have joint and several liability for all
costs of remediation and in many of the sites described above it is not possible
at this time to quantify the Company's ultimate exposure because the project is
either in its early investigative or remediation stage, based upon current
information, the Company does not believe that probable and reasonably possible
expenditures in connection with any of the sites described above are likely to
have a material adverse effect on the Company's financial condition because: (i)
the Company has established adequate reserves to cover what the Company
presently believes will be its ultimate liability with respect to the matter,
(ii) the Company and its subsidiaries have only limited involvement in the sites
based upon a Volumetric Calculation, as described above, (iii) there are other
PRPs who have greater involvement on a Volumetric Calculation basis who have
substantial assets and who may reasonably be expected to pay their share of the
cost of remediation, (iv) where discussed above, the Company has insurance
coverage or contractual indemnities from third parties to cover the ultimate
liability, and (v) the Company's ultimate liability, based upon current
information, is small compared to the Company's overall net worth.
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The Company, through its subsidiaries and/or divisions, is subject to
various other governmental proceedings relating to environmental matters, but
the Company does not believe that any of these matters is likely to have a
material adverse effect on its financial condition.
MARKETING, COMPETITION AND ECONOMIC CONDITIONS
The products of each of the Company's principal industry segments are
marketed primarily through its own sales organizations on a product line basis,
although certain products and services are marketed through supply stores and
independent distributors. Technical and advisory services are ordinarily
provided to assist in the customer's use of the Company's products and services.
Stockpoints and service centers are located in areas of drilling and production
activity throughout the world. The Company markets its products and services in
nearly all of the oil producing countries. In certain foreign areas where
direct product sales efforts are not practicable, the Company utilizes
licensees, sales agents and distributors.
The products of each of the Company's principal industry segments are sold
in highly competitive markets, and its revenues and earnings can be affected by
changes in competitive prices, fluctuations in the level of activity in major
markets, general economic conditions and governmental regulation. The Company
competes with a large number of companies, a few of which have greater resources
and more extensive and diversified operations than the Company. The Company
believes that the principal competitive factors in the industries which it
serves are product and service quality and availability, technical proficiency
and price.
INTERNATIONAL OPERATIONS
Revenues attributable to sales of products and provision of services for
use outside the United States (which, for 1994, consisted of revenues from non-
U.S. operations of $1,233.2 million and export sales from the United States of
$244.6 million) accounted for approximately 59%, 66%, and 66% of the Company's
total revenues for the years ended September 30, 1994, 1993 and 1992,
respectively. These revenues in 1994 were distributed approximately as follows:
Europe, 20%; other Eastern Hemisphere, 21%; and Non-U.S. Western Hemisphere,
18%. See Note 9 of Notes to Consolidated Financial Statements which is
incorporated herein by reference.
The Company's operations are subject to the risks inherent in doing
business in multiple countries with various legal and political policies. Such
risks include war, boycotts, political changes, expropriation, currency
restrictions, taxes and changes in currency exchange rates. Although it is
impossible to predict the likelihood of such occurrences or their effect on the
Company, management believes these risks to be acceptable and, in view of the
diversified nature of the Company's activities, does not consider them a factor
materially adverse to its operations as a whole.
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RESEARCH AND DEVELOPMENT; PATENTS
At September 30, 1994, the equivalent of approximately 429 full-time
employees were engaged in research and development activities directed primarily
toward improvement of existing products and services and design of specialized
products to meet specific customer needs and development of new products and
processes. For information regarding the amounts of research and development
expense for each of the three years in the period ended September 30, 1994, see
Note 11 of Notes to Consolidated Financial Statements which is incorporated
herein by reference.
The Company has followed a policy of seeking patent protection both inside
and outside the U.S. for products and methods which appear to have commercial
significance. The Company believes its patents and trademarks to be adequate
for the conduct of its business, and while it regards patent and trademark
protection important to its business and future prospects, it considers its
established reputation, the reliability of its products and the technical skills
of its personnel to be more important. The Company aggressively pursues
protection of its patents against patent infringement worldwide.
EMPLOYEES
At September 30, 1994, the Company had a total of approximately 14,700
employees, as compared to approximately 18,400 employees at September 30, 1993.
Approximately 680 employees at September 30, 1994 were represented under
collective bargaining agreements which terminate at various times through 1996.
The Company believes that its relations with its employees are satisfactory.
EXECUTIVE OFFICERS
The following table shows as of December 7, 1994, the name of each
executive officer of the Company, together with his age and all offices
presently held with the Company.
NAME OF INDIVIDUAL AGE
- ------------------ ---
James D. Woods 63 Chairman of the Board, President, and Chief Executive
Officer since 1987. Employed 1955.
Max L. Lukens 46 Executive Vice President since 1994 and President,
Baker Hughes Oilfield Operations, since 1993. Employed
1981. Chief Financial Officer, 1984-1989; President,
Baker Hughes Production Tools, 1989-1993; Senior Vice
President from 1987 to 1994.
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Timothy J. Probert 43 Vice President and President of Baker Hughes Process
Equipment Operations since 1994. Employed 1972.
President, Milpark, 1989-1990; President, Eastman
Christensen, 1990-1992; President, Eastman Teleco,
1992-1993; Executive Vice President, Baker Hughes
INTEQ, 1993; Vice President, Drilling & Evaluation
Technology Unit, Baker Hughes INTEQ, 1993-1994.
James E. Braun 35 Controller since 1993. Employed 1993. From 1981-1993,
Deloitte & Touche; Partner from 1991.
Arthur T. Downey 57 Vice President - Government Affairs since 1992.
Employed 1992. Partner, Johnson & Gibbs from 1990-
1992; Partner, Sutherland, Asbill & Brennan, 1977-1990.
George S. Finley 43 Vice President since 1990 and Chief Financial Officer
of Baker Hughes Oilfield Operations since 1993.
Employed 1982. Controller, 1987-1993.
Scott B. Gill 35 Vice President - Investor Relations since 1993.
Employed 1990. Director of Technical Services, Baker
Sand Control, 1990-1992; Integrated Engineering
Services Manager, Baker Sand Control, 1992-1993.
Roger P. Herbert 48 Vice President since 1994 and Vice President -
Technology and Market Development, Baker Hughes
Oilfield Operations, since 1993. Employed 1988.
President, Baker Hughes Drilling Systems, 1988-1990;
President, Baker Hughes MWD, 1990-1991; President,
Develco, 1991-1993.
Eric L. Mattson 43 Senior Vice President since 1994 and Chief Financial
Officer since 1993. Employed 1980. Treasurer from
1983-1994; Vice President from 1988 to 1994.
Franklin Myers 42 Senior Vice President since 1994 and General Counsel
since 1988. Employed 1988. Corporate Secretary from
1988 to 1992; Vice President from 1988 to 1994.
Phillip A. Rice 59 Vice President - Human Resources since 1985. Employed
1980.
There are no family relationships between the executive officers of the
Company.
The Company follows the practice of electing its officers annually
immediately after its Annual Meeting of Stockholders.
11
ITEM 2. PROPERTIES
The Company operates 72 principal manufacturing plants, almost all of which
are owned, ranging in size from approximately 2,000 square feet to approximately
233,000 square feet of manufacturing space and totaling more than 2,967,000
square feet. Of such total, approximately 2,024,000 square feet (68%) are
located in the United States, 301,000 square feet (10%) are located in the
Western Hemisphere exclusive of the United States, 532,000 square feet (18%) are
located in Europe and 110,000 square feet (4%) are located in the Eastern
Hemisphere exclusive of Europe. Principal manufacturing plants by industry
segment and geographic area appear in the table below.
Other Other
Western Eastern
U.S. Hemisphere Europe Hemisphere Total
---- ---------- ------ ---------- -----
Oilfield Services and Equipment 36 8 8 9 61
Process Equipment Products 7 2 2 - 11
and Services
The Company believes that its manufacturing facilities are well maintained.
The Company also has a significant investment in service vehicles, rental tools
and equipment. During 1994 and 1992, the Company recognized permanent
impairments and wrote down to net realizable value certain inventory, property,
plant and equipment. For further information regarding these write-downs, see
Note 3 of Notes to Consolidated Financial Statements which is incorporated
herein by reference. The Company believes it has the capacity to meet increased
demands in each of its industry segments.
ITEM 3. LEGAL PROCEEDINGS
On September 16, 1994, the Company and its insurers settled, for $.8
million, litigation instituted June 30, 1992, by Mission Resources, Inc. - II in
the Superior Court for the State of California for the County of Kern, in
connection with product delivery or service variances on approximately 53 well
stimulation projects performed by the Company's former subsidiary, BJ-Hughes in
Kern County, California. Although the suit did not name the Company as a
defendant, the allegations may have fallen within the Company's agreement, in
connection with the initial public offering by BJ Services Company, to indemnify
it for damages, if any, and costs of litigation arising out of any such claims.
On August 5, 1994, the Company settled, for $7.5 million, a class action
instituted February 15, 1991 by Glyn Snell, et al. on behalf of royalty interest
owners in the 238th Judicial District Court in Midland County, Texas implicating
Dresser, BJ Services Company, the Company and affiliates in damages to a number
of wells in West Texas.
12
On July 18, 1994, the Company settled, for $1 million, a complaint
instituted March 31, 1993 by Chevron USA Inc. in the United States District
Court for the Southern District of Texas, Houston Division alleging a conspiracy
by the Company and three other major producers of tricone rock bits, Reed Tool
Company, Smith and Dresser, in violation of federal antitrust laws regarding
pricing of such rock bits.
The Company is sometimes named as a defendant in litigation relating to the
products and services it provides. The Company insures against these risks to
the extent deemed prudent by its management, but no assurance can be given that
the nature and amount of such insurance will in every case fully indemnify the
Company against liabilities arising out of pending and future legal proceedings
relating to its ordinary business activities. However, the Company is not a
party to any litigation the probable outcome of which, in the opinion of the
Company's management, would have a material adverse effect on the consolidated
financial position of the Company.
See also "Business -- Environmental Matters."
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
13
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Common Stock of the Company is principally traded on The New York Stock
Exchange. At December 7, 1994, there were approximately 59,155 stockholders and
18,155 stockholders of record.
For information regarding quarterly high and low sales prices for the
Company's Common Stock, see page 48 of the 1994 Annual Report to Stockholders
which is incorporated herein by reference.
For information regarding dividends declared on the Company's Common Stock,
see Note 15 of Notes to Consolidated Financial Statements which is incorporated
herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
The information set forth under the caption "Condensed Comparative
Consolidated Financial Information" on page 17 of the 1994 Annual Report to
Stockholders is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The information set forth under the caption "Management's Discussion And
Analysis Of Financial Condition And Results Of Operations" on pages 19 through
25 of the 1994 Annual Report to Stockholders is incorporated herein by
reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following consolidated financial statements of the Company and the
independent auditors' report set forth on pages 26 through 48 of the 1994 Annual
Report to Stockholders are incorporated herein by reference:
Independent Auditors' Report.
Consolidated Statements of Operations for each of the three years in the
period ended September 30, 1994.
Consolidated Statements of Financial Position as of September 30, 1994 and
1993.
14
Consolidated Statements of Stockholders' Equity for each of the three years
in the period ended September 30, 1994.
Consolidated Statements of Cash Flows for each of the three years in the
period ended September 30, 1994.
Notes to Consolidated Financial Statements.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
15
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning the directors of the Company is set forth in the
section entitled "Election of Directors" in the Proxy Statement of the Company
for the Annual Meeting of Stockholders to be held January 25, 1995, which
section is incorporated herein by reference. For information regarding
executive officers of the Company, see pages 10 and 11 hereof.
ITEM 11. EXECUTIVE COMPENSATION
Information for this item is set forth in the section entitled "Executive
Compensation" in the Proxy Statement of the Company for the Annual Meeting of
Stockholders to be held January 25, 1995, which section is incorporated herein
by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Information concerning security ownership of certain beneficial owners and
management is set forth in the sections entitled "Voting Securities" and
"Security Ownership of Management" in the Proxy Statement of the Company for the
Annual Meeting of Stockholders to be held January 25, 1995, which sections are
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
16
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(A) LIST OF DOCUMENTS FILED AS PART OF THIS REPORT
(1) Financial Statements
All financial statements of the Registrant as set forth under Item 8
of this report on Form 10-K.
(2) Financial Statement Schedules:
Schedule Number Description Page Number
--------------- ----------- -----------
IX Short-Term Borrowings 24
(3) Exhibits:
3.1 Restated Certificate of Incorporation (filed as Exhibit 3.1 to
Annual Report of Baker Hughes Incorporated on Form 10-K for the
year ended September 30, 1993 and incorporated herein by
reference).
3.2 By-Laws (filed as Exhibit 3.2 to Annual Report of Baker Hughes
Incorporated on Form 10-K for the year ended September 30, 1992
and incorporated herein by reference).
3.3 Certificate of Designation of Series One Junior Participating
Preferred Stock (filed as Exhibit 3.3 to Annual Report of Baker
Hughes Incorporated on Form 10-K for the year ended September 30,
1993 and incorporated herein by reference).
3.4 Amended Certificate of Designation of Series One Junior
Participating Preferred Stock (filed as Exhibit 3.4 to Annual
Report of Baker Hughes Incorporated on Form 10-K for the year
ended September 30, 1992 and incorporated herein by reference).
3.5 Certificate of Designation of Series I Preferred Stock of Baker
Hughes Incorporated (filed as Exhibit 3.6 to Annual Report of
Baker Hughes Incorporated on Form 10-K for the year ended
September 30, 1989 and incorporated herein by reference).
17
3.6 Certificate of Designation of Series J Preferred Stock of Baker
Hughes Incorporated (filed as Exhibit 3.7 to Annual Report of
Baker Hughes Incorporated on Form 10-K for the year ended
September 30, 1989 and incorporated herein by reference).
3.7 Certificate of Designation of Series K Preferred Stock of Baker
Hughes Incorporated (filed as Exhibit 3.8 to Annual Report of
Baker Hughes Incorporated on Form 10-K for the year ended
September 30, 1989 and incorporated herein by reference).
3.8 Certificate of Designation of Series L Preferred Stock of Baker
Hughes Incorporated (filed as Exhibit 3.8 to Annual Report of
Baker Hughes Incorporated on Form 10-K for the year ended
September 30, 1990 and incorporated herein by reference).
3.9 Certificate of Designation of $3.00 Convertible Preferred Stock
(filed as Exhibit A to Exhibit 2.1 to Form 8-K of Baker Hughes
Incorporated on February 11, 1992 and incorporated herein by
reference).
4.1 Rights of Holders of the Company's Long-Term Debt. The Company
has no long-term debt instrument with regard to which the
securities authorized thereunder equal or exceed 10% of the total
assets of the Company and its subsidiaries on a consolidated
basis. The Company agrees to furnish a copy of its long-term
debt instruments to the Commission upon request.
4.2 Stockholder Rights Agreement dated as of March 23, 1988, between
Baker Hughes Incorporated and Morgan Shareholder Services Trust
Company, as Rights Agent (filed as Exhibit 4.2 to Annual Report
of Baker Hughes Incorporated on Form 10-K for the year ended
September 30, 1993 and incorporated herein by reference).
10.1 Employment Agreement between Baker Hughes Incorporated and James
D. Woods dated December 7, 1994.
10.2 Executive Severance Agreement between Baker Hughes Incorporated
and Eric L. Mattson dated as of May 22, 1991 (filed as Exhibit
10.2 to Annual Report of Baker Hughes Incorporated on Form 10-K
for the year ended September 30, 1993 and incorporated herein by
reference).
10.3 Employment Agreement between Baker Hughes Incorporated and Max L.
Lukens dated as of December 7, 1994.
10.4 Executive Severance Agreement between Baker Hughes Incorporated
and Franklin Myers dated as of May 22, 1991 (filed as Exhibit
10.4 to Annual Report of Baker Hughes Incorporated on Form 10-K
for the year ended September 30, 1991 and incorporated herein by
reference).
18
10.5 Executive Severance Agreement between Baker Hughes Incorporated
and G.S. Finley dated as of May 22, 1991 (filed as Exhibit 10.5
to Annual Report of Baker Hughes Incorporated on Form 10-K for
the year ended September 30, 1993 and incorporated herein by
reference).
10.6 Executive Severance Agreement between Baker Hughes Incorporated
and P. A. Rice dated as of May 22, 1991 (filed as Exhibit 10.6 to
Annual Report of Baker Hughes Incorporated on Form 10-K for the
year ended September 30, 1993 and incorporated herein by
reference).
10.7 Amended and Restated 1991 Employee Stock Bonus Plan of Baker
Hughes Incorporated (filed as Exhibit 10.5 to Annual Report of
Baker Hughes Incorporated on Form 10-K for the year ended
September 30, 1991 and incorporated herein by reference).
10.8 Restated 1987 Stock Option Plan of Baker Hughes Incorporated
(Amended as of October 24, 1990) (filed as Exhibit 10.7 to Annual
Report of Baker Hughes Incorporated on Form 10-K for the year
ended September 30, 1991 and incorporated herein by reference).
10.9 1987 Convertible Debenture Plan of Baker Hughes Incorporated
(Amended as of October 24, 1990) (filed as Exhibit 10.9 to Annual
Report of Baker Hughes Incorporated on Form 10-K for the year
ended September 30, 1991 and incorporated herein by reference).
10.10 Baker Hughes Incorporated Supplemental Retirement Plan (filed as
Exhibit 10.10 to Annual Report of Baker Hughes Incorporated on
Form 10-K for the year ended September 30, 1993 and incorporated
herein by reference).
10.11 Executive Severance Policy (filed as Exhibit 10.11 to Annual
Report of Baker Hughes Incorporated on Form 10-K for the year
ended September 30, 1993 and incorporated herein by reference).
10.12 1993 Stock Option Plan (filed as Exhibit 10.12 to Annual Report
of Baker Hughes Incorporated on Form 10-K for the year ended
September 30, 1993 and incorporated herein by reference).
10.13 1993 Employee Stock Bonus Plan (filed as Exhibit 10.13 to Annual
Report of Baker Hughes Incorporated on Form 10-K for the year
ended September 30, 1993 and incorporated herein by reference).
10.14 1993 Employee Annual Incentive Compensation Plan (filed as
Exhibit 10.14 to Annual Report of Baker Hughes Incorporated on
Form 10-K for the year ended September 30, 1993 and incorporated
herein by reference).
19
10.15 Director Compensation Deferral Plan (filed as Exhibit 10.15 to
Annual Report of Baker Hughes Incorporated on Form 10-K for the
year ended September 30, 1993 and incorporated herein by
reference).
10.16 1995 Employee Annual Incentive Compensation Plan (subject to
stockholder approval).
10.17 1995 Stock Award Plan (subject to stockholder approval).
10.18 Form of Credit Agreement, dated as of September 1, 1994, among
Baker Hughes Incorporated and eighteen banks.
10.19 Warrant Agreement dated as of March 15, 1990 between Baker Hughes
Incorporated and First Chicago Trust Company of New York (filed
as Exhibit 10.15 to Annual Report of Baker Hughes Incorporated on
Form 10-K for the year ended September 30, 1990 and incorporated
herein by reference).
10.20 Purchase Agreement dated as of December 31, 1991 by and between
Sonat Inc. and Baker Hughes Incorporated (filed as Exhibit 2.1 to
Form 8-K of Baker Hughes Incorporated on February 11, 1992 and
incorporated herein by reference).
13 Portions of 1994 Annual Report to Stockholders.
21 Subsidiaries of Registrant.
23 Opinion and Consent of Deloitte & Touche, which is included at
Page 23 of this Annual Report on Form 10-K.
27 Financial Data Schedule (for SEC purposes only)
(B) REPORTS ON FORM 8-K:
None.
20
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) 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 on the 7th day of
December, 1994.
BAKER HUGHES INCORPORATED
By JAMES D. WOODS
-------------------------------------
(James D. Woods, President and
Chief Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
JAMES D. WOODS Chairman of the Board, December 7, 1994
------------------------ President and Chief
(James D. Woods) Executive Officer
(principal executive
officer)
E. L. MATTSON Senior Vice President and December 7, 1994
- -------------------------- Chief Financial Officer
(E. L. Mattson) (principal financial
officer)
JAMES E. BRAUN Controller (principal December 7, 1994
- -------------------------- accounting officer)
(James E. Braun)
Director December , 1994
- --------------------------
(Lester M. Alberthal, Jr.)
GORDON M. ANDERSON Director December 7, 1994
- --------------------------
(Gordon M. Anderson)
21
VICTOR G. BEGHINI Director December 7, 1994
- --------------------------
(Victor G. Beghini)
JACK S. BLANTON Director December 7, 1994
- --------------------------
(Jack S. Blanton)
HARRY M. CONGER Director December 7, 1994
- --------------------------
(Harry M. Conger)
EUNICE M. FILTER Director December 7, 1994
- --------------------------
(Eunice M. Filter)
JOE B. FOSTER Director December 7, 1994
- --------------------------
(Joe B. Foster)
RICHARD D. KINDER Director December 7, 1994
- --------------------------
(Richard D. Kinder)
- --------------------------
(John F. Maher) Director December , 1994
- -------------------------- Director December , 1994
(Dana G. Mead)
DONALD C. TRAUSCHT Director December 7, 1994
- --------------------------
(Donald C. Trauscht)
22
INDEPENDENT AUDITORS' REPORT
Baker Hughes Incorporated:
We have audited the consolidated financial statements of Baker Hughes
Incorporated and its subsidiaries as of September 30, 1994 and 1993, and for
each of the three years in the period ended September 30, 1994, and have issued
our report thereon dated November 16, 1994; such financial statements and report
are included in your 1994 Annual Report to Stockholders and are incorporated
herein by reference. Our audits also included the financial statement schedule
of Baker Hughes Incorporated and its subsidiaries, listed in Item 14. This
financial statement schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion based on our audits. In our
opinion, such financial statement schedule, when considered in relation to the
basic consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Houston, Texas
November 16, 1994
INDEPENDENT AUDITORS' CONSENT
Baker Hughes Incorporated:
We consent to the incorporation by reference in Post-Effective Amendment Nos. 1,
2 and 3 on Form S-8 to Registration Statement No. 33-11074 on Form S-4, in Post-
Effective Amendment No. 1 to Registration Statement No. 33-16094 on Form S-4, in
Post-Effective Amendment Nos. 1 and 2 to Registration Statement No. 33-14803 on
Form S-8, in Registration Statement No. 33-34935 on Form S-3, in Registration
Statement No. 33-39445 on Form S-8, in Registration Statement No. 33-61304 on
Form S-3, in Amendment No. 1 to Registration Statement No. 33-61304 on Form S-3
and in Registration Statement No. 33-52195 on Form S-8 of our reports dated
November 16, 1994, appearing and incorporated by reference in the 1994 Annual
Report on Form 10-K of Baker Hughes Incorporated for the year ended September
30, 1994.
DELOITTE & TOUCHE LLP
Houston, Texas
December 15, 1994
23
BAKER HUGHES INCORPORATED
SCHEDULE IX -- SHORT-TERM BORROWINGS
Weighted Maximum Average Weighted
Average Amount Amount Average
Balance Interest Outstanding Outstanding Interest Rate
at End of Rate at End During the During the During the
(Dollar amounts in thousands) Period of Period Period (1) Period (2) Period (2)
- ----------------------------- ---------- ------------ ------------ ------------ --------------
Fiscal year ended September 30, 1994 $ 863 (4) 24.6%(4) $14,692 $ 803 14.2%
Borrowings (3)
Fiscal year ended September 30, 1993 5,381 10.8 10,361 5,877 13.7
Borrowings (3)
Fiscal year ended September 30, 1992 7,161 13.1 21,701 9,290 16.3
Borrowings (3)
- ----------------------------------
(1) The maximum amount outstanding during the period is determined on the basis
of the amounts outstanding at any month end.
(2) The average amount outstanding during the period and the weighted average
interest rate during the period are computed on the basis of quarterly
balances.
(3) Represents borrowings under uncommitted credit facilities outside of the
U.S. of which a portion is denominated in currencies other than the U.S.
dollar.
(4) Represents borrowings in Chilean pesos.
24