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฀Assets฀and฀liabilities฀of฀discontinued฀operations฀are฀as฀fol-
lows฀for฀the฀year฀ended฀December฀31:
฀฀ 2003
Accounts฀receivable,฀net฀ ฀ ฀ $฀ 13.4฀
Inventories฀ ฀ ฀ ฀ 21.4฀
Other฀current฀assets฀ ฀ ฀ ฀ 0.9฀
Property,฀net฀ ฀ ฀ ฀ 13.0
Assets฀of฀discontinued฀operations฀ ฀ ฀ $฀ 48.7
฀
Accounts฀payable฀ ฀ ฀ $฀ 13.2฀
Accrued฀employee฀compensation฀ ฀ ฀ ฀ 6.6฀
Other฀accrued฀liabilities฀ ฀ ฀ ฀ 8.0฀
Other฀liabilities฀ ฀ ฀ ฀ 1.7
Liabilities฀of฀discontinued฀operations฀ ฀ ฀ $฀ 29.5
Note฀3.฀Acquisitions
In฀2002,฀we฀entered฀into฀a฀venture,฀Luna฀Energy,฀L.L.C.฀
(“Luna”),฀in฀which฀we฀had฀a฀40%฀interest฀and฀that฀we฀
accounted฀for฀using฀the฀equity฀method฀of฀accounting.฀In฀
December฀2004,฀we฀acquired฀the฀remaining฀60%฀interest฀in฀
Luna฀for฀$1.0฀million฀in฀cash.฀We฀now฀are฀required฀to฀consoli-
date฀Luna’s฀accounts฀and฀have฀discontinued฀using฀the฀equity฀
method฀of฀accounting฀for฀Luna.฀As฀a฀result฀of฀the฀acquisition,฀
we฀have฀recorded฀approximately฀$19.0฀million฀of฀goodwill฀and฀
$5.5฀million฀of฀intangible฀assets.฀We฀also฀assigned฀$1.8฀million฀
to฀in-process฀research฀and฀development฀that฀was฀written฀off฀
at฀the฀date฀of฀acquisition.฀This฀write-off฀is฀included฀in฀research฀
and฀development฀expenses,฀which฀are฀included฀in฀cost฀of฀reve-
nues฀in฀the฀consolidated฀statement฀of฀operations.฀The฀pur-
chase฀price฀was฀allocated฀based฀on฀the฀fair฀value฀of฀the฀assets฀
acquired฀and฀liabilities฀assumed฀of฀Luna.฀The฀fair฀values฀were฀
determined฀using฀a฀discounted฀cash฀flows฀approach.฀We฀were฀
assisted฀in฀the฀valuation฀of฀Luna฀by฀a฀third฀party.฀Pro฀forma฀
results฀of฀operations฀have฀not฀been฀presented฀because฀the฀
effect฀of฀this฀acquisition฀was฀not฀material฀to฀our฀consolidated฀
financial฀statements.
In฀2003,฀we฀made฀two฀acquisitions฀having฀an฀aggregate฀
purchase฀price฀of฀$16.9฀million,฀of฀which฀$9.5฀million฀was฀
paid฀in฀cash.฀As฀a฀result฀of฀these฀acquisitions,฀we฀recorded฀
approximately฀$3.9฀million฀of฀goodwill฀and฀$9.6฀million฀of฀
intangible฀assets.฀The฀purchase฀price฀was฀allocated฀based฀on฀
the฀fair฀value฀of฀the฀assets฀acquired฀and฀liabilities฀assumed฀in฀
each฀of฀these฀acquisitions.฀Pro฀forma฀results฀of฀operations฀
have฀not฀been฀presented฀because฀the฀effects฀of฀these฀acquisi-
tions฀were฀not฀material฀to฀our฀consolidated฀financial฀state-
ments฀on฀either฀an฀individual฀or฀aggregate฀basis.
In฀2002,฀we฀made฀three฀acquisitions฀having฀an฀aggregate฀
cash฀purchase฀price฀of฀$39.7฀million,฀net฀of฀cash฀acquired.฀As฀
a฀result฀of฀these฀acquisitions,฀we฀recorded฀approximately฀
$28.4฀million฀of฀goodwill.฀The฀purchase฀prices฀were฀allocated฀
based฀on฀the฀fair฀values฀of฀the฀assets฀acquired฀and฀liabilities฀
assumed.฀Pro฀forma฀results฀of฀operations฀have฀not฀been฀pre-
sented฀because฀the฀effects฀of฀these฀acquisitions฀were฀not฀
material฀to฀our฀consolidated฀financial฀statements฀on฀either฀an฀
individual฀or฀aggregate฀basis.
Note฀4.฀Reversal฀Of฀Restructuring฀Charge
In฀2000,฀our฀Board฀of฀Directors฀approved฀a฀plan฀to฀sub-
stantially฀exit฀the฀oil฀and฀natural฀gas฀exploration฀business฀and฀
recorded฀a฀restructuring฀charge฀of฀$29.5฀million.฀Included฀in฀
the฀restructuring฀charge฀was฀$1.1฀million฀for฀a฀contractual฀
obligation฀related฀to฀an฀oil฀and฀natural฀gas฀property฀in฀Angola.฀
The฀property฀was฀sold฀in฀2003฀and฀we฀reversed฀the฀liability฀
related฀to฀this฀contractual฀obligation.
Note฀5.฀Income฀Taxes
The฀provision฀for฀income฀taxes฀on฀income฀from฀continuing฀
operations฀is฀comprised฀of฀the฀following฀for฀the฀years฀ended฀
December฀31:
฀ 2004฀ 2003฀ 2002
Current:฀
฀ United฀States฀ $฀ 53.4฀ $฀ 2.8฀ $฀ 7.3฀
฀ Foreign฀ ฀ 150.5฀ ฀ 164.1฀ ฀ 172.1
Total฀current฀ ฀ 203.9฀ ฀ 166.9฀ ฀ 179.4
Deferred:฀
฀ United฀States฀ ฀ 45.4฀ ฀ (38.1)฀ ฀ 19.5฀
฀ Foreign฀ ฀ 3.0฀ ฀ 18.0฀ ฀ (39.9)
Total฀deferred฀ ฀ 48.4฀ ฀ (20.1)฀ ฀ (20.4)
Provision฀for฀
฀ income฀taxes฀ $฀ 252.3฀ $฀ 146.8฀ $฀ 159.0
The฀geographic฀sources฀of฀income฀from฀continuing฀opera-
tions฀before฀income฀taxes฀are฀as฀follows฀for฀the฀years฀ended฀
December฀31:
฀ 2004฀ 2003฀ 2002
United฀States฀ $฀ 218.5฀ $฀ (134.1)฀ $฀ 53.3฀
Foreign฀ ฀ 562.0฀ ฀ 458.8฀ ฀ 333.5
Income฀from฀continuing฀฀
฀ operations฀before฀฀
฀ income฀taxes฀ $฀ 780.5฀ $฀ 324.7฀ $฀ 386.8
Tax฀benefits฀of฀$12.5฀million,฀$1.5฀million฀and฀$1.4฀mil-
lion฀associated฀with฀the฀exercise฀of฀employee฀stock฀options฀
were฀allocated฀to฀equity฀and฀recorded฀in฀capital฀in฀excess฀of฀
par฀value฀in฀the฀years฀ended฀December฀31,฀2004,฀2003฀and฀
2002,฀respectively.
48฀฀฀฀฀Baker฀Hughes฀Incorporated