Baker Hughes 2010 Annual Report Download - page 122

40 B a k e r H u g h e s I n c o r p o r a t e d
or state “Superfund” site, we accrue our share of the esti-
mated remediation costs of the site. This share is based on
the ratio of the estimated volume of waste we contributed
to the site to the total volume of waste disposed at the site.
Foreign Currency
A number of our significant foreign subsidiaries have des-
ignated the local currency as their functional currency and, as
such, gains and losses resulting from balance sheet translation
of foreign operations are included as a separate component
of accumulated other comprehensive loss within stockholders’
equity. Gains and losses from foreign currency transactions,
such as those resulting from the settlement of receivables or
payables in the non-functional currency, are included in mar-
keting, general and administrative (“MG&A”) expenses in the
consolidated statements of operations as incurred. For those
foreign subsidiaries that have designated the U.S. Dollar as
the functional currency, gains and losses resulting from bal-
ance sheet remeasurement of foreign operations are also
included in MG&A expense in the consolidated statements
of operations as incurred.
Derivative Financial Instruments
We monitor our exposure to various business risks including
commodity prices, foreign currency exchange rates and interest
rates and occasionally use derivative financial instruments to
manage these risks. Our policies do not permit the use of
derivative financial instruments for speculative purposes. We
use foreign currency forward contracts to hedge certain firm
commitments and transactions denominated in foreign curren-
cies. We use interest rate swaps to manage interest rate risk.
At the inception of any new derivative, we designate the
derivative as a hedge or we determine the derivative to be
undesignated as a hedging instrument as the facts dictate.
We document all relationships between the hedging instru-
ments and the hedged items, as well as our risk management
objectives and strategy for undertaking various hedge transac-
tions. We assess whether the derivatives that are used in hedg-
ing transactions are highly effective in offsetting changes in
cash flows of the hedged item at both the inception of the
hedge and on an ongoing basis.
New Accounting Standards and
Accounting Standards Updates
In October 2009, the Financial Accounting Standards
Board (“FASB”) issued an update to Accounting Standards
Codification (“ASC”) 605, Revenue Recognition – Multiple
Deliverable Revenue Arrangements. This Accounting Standards
Update (“ASU”) addresses accounting for multiple-deliverable
arrangements to enable vendors to account for deliverables
separately. The provision establishes a selling price hierarchy
for determining the selling price of a deliverable. This update
requires expanded disclosures for multiple deliverable revenue
arrangements. The ASU was effective for us for revenue
arrangements entered into or materially modified on or after
June 15, 2010. We adopted the provisions of this update with
no material impact on our consolidated financial statements.
In December 2010, the FASB issued an update to ASC 805,
Business Combinations. This ASU addresses the disclosure of
comparative financial statements and expands on the supple-
mentary pro forma information for business combinations.
We will adopt this ASU prospectively for business combina-
tions occurring on or after December 15, 2010.
NOTE 2. ACQUISITIONS
ACQUISITION OF BJ SERVICES
On April 28, 2010, we acquired 100% of the outstanding
common stock of BJ Services Company (including its successor,
“BJ Services”) in a cash and stock transaction valued at
$6,897 million. BJ Services is a leading provider of pressure
pumping and other oilfield services and was acquired to
expand our suite of service and product offerings. Revenues
and net income of BJ Services from the acquisition date
included in our consolidated statement of operations for
2010 were $3,686 million and $290 million, respectively.
Pursuant to a final agreement with the Antitrust Division
of the U.S. Department of Justice (“DOJ”) in connection
with the governmental approval of the acquisition, we were
required to divest two leased stimulation vessels (the HR
Hughes and Blue Ray) and certain other assets used to per-
form sand control services in the U.S. Gulf of Mexico. Addi-
tionally, pursuant to a Hold Separate Stipulation and Order,
the operation of our U.S. business and the U.S. business of
BJ Services were required to be operated separately until these
assets were divested. On August 30, 2010, we completed the
sale of such assets for approximately $55 million in cash. Upon
the completion of the sale, the Hold Separate Stipulation and
Order terminated, and we commenced integration activities
on a global basis.
Consideration
Under the terms of the acquisition agreement, BJ Services
stockholders received $2.69 per share in cash and 0.40035
Baker Hughes shares of common stock for each BJ Services
share of common stock they owned. In total, we paid
$793 million in cash and issued 118 million shares valued
at $6,048 million (based upon the closing price of our
common stock on the acquisition date of $51.24). We also
assumed all outstanding stock options held by BJ Services
employees and directors.
The BJ Services stock options outstanding at closing were
converted into Baker Hughes options at the conversion ratio.
The estimated fair value associated with the Baker Hughes
options issued in exchange for the BJ Services options was
$58 million based on a Black-Scholes valuation model. All
BJ Services stock options became fully vested and exercisable
in accordance with pre-existing change-in-control provisions.
Accordingly, $56 million of the estimated fair value was
recorded as part of the consideration transferred, with the
remaining $2 million recorded as an expense as of the date
of the acquisition when all options vested and no further
service was required.