Baker Hughes 2004 Annual Report Download - page 79

Liquidity฀and฀Capital฀Resources
Our฀objective฀in฀financing฀our฀business฀is฀to฀maintain฀฀
adequate฀financial฀resources฀and฀access฀to฀additional฀liquidity.฀
During฀2004,฀cash฀flows฀from฀operations฀and฀short-term฀bor-
rowings฀were฀the฀principal฀sources฀of฀funding.฀We฀anticipate฀
that฀cash฀flows฀from฀operations฀will฀cover฀our฀liquidity฀needs฀
in฀2005.฀We฀also฀have฀a฀$500.0฀million฀committed฀revolving฀
credit฀facility฀that฀provides฀back-up฀liquidity฀in฀the฀event฀of฀an฀
unanticipated฀significant฀demand฀on฀cash฀flows฀that฀could฀not฀
be฀funded฀by฀operations฀or฀short-term฀borrowings.฀This฀facility฀
expires฀in฀July฀2006.
Our฀capital฀planning฀process฀is฀focused฀on฀utilizing฀cash฀
flows฀generated฀from฀operations฀in฀ways฀that฀enhance฀the฀
value฀of฀our฀company.฀In฀2004,฀we฀used฀cash฀for฀a฀variety฀
of฀activities฀including฀working฀capital฀needs,฀payment฀of฀divi-
dends,฀repayments฀of฀indebtedness฀and฀capital฀expenditures.
Cash฀Flows
Cash฀flows฀provided฀(used)฀by฀continuing฀operations฀by฀type฀
of฀activity฀were฀as฀follows฀for฀the฀years฀ended฀December฀31:
฀2004฀ 2003฀ 2002
Operating฀activities฀ $฀ 783.6฀ $฀ 651.6฀ $฀ 620.1฀
Investing฀activities฀ ฀ (196.4)฀ ฀ (361.1)฀ ฀ (280.4)฀
Financing฀activities฀ ฀ (352.2)฀ ฀ (335.8)฀ ฀ (312.3)
Statements฀of฀cash฀flows฀for฀entities฀with฀international฀
operations฀that฀are฀local฀currency฀functional฀exclude฀the฀
effects฀of฀the฀changes฀in฀foreign฀currency฀exchange฀rates฀that฀
occur฀during฀any฀given฀year,฀as฀these฀are฀considered฀to฀be฀
noncash฀changes.฀As฀a฀result,฀changes฀reflected฀in฀certain฀
accounts฀on฀the฀consolidated฀statements฀of฀cash฀flows฀may฀
not฀reflect฀the฀changes฀in฀corresponding฀accounts฀on฀the฀฀
consolidated฀balance฀sheets.
Operating฀Activities
Cash฀flows฀from฀operating฀activities฀have฀been฀steadily฀
increasing฀over฀the฀last฀three฀years฀and฀we฀expect฀this฀trend฀to฀
continue฀in฀2005.฀We฀attribute฀the฀increases฀in฀our฀cash฀flows฀
to฀successful฀management฀of฀working฀capital฀and฀increasing฀
levels฀of฀income฀from฀continuing฀operations฀adjusted฀for฀non-
cash฀items.
Cash฀flows฀from฀operating฀activities฀of฀continuing฀opera-
tions฀increased฀$132.0฀million฀in฀2004฀compared฀with฀2003.฀
This฀increase฀was฀primarily฀due฀to฀increased฀operating฀perfor-
mance,฀which฀is฀directly฀related฀to฀our฀increased฀revenues.฀In฀
addition,฀changes฀in฀working฀capital,฀primarily฀consisting฀of฀
changes฀in฀accounts฀receivable,฀inventories,฀accounts฀payable฀
and฀other฀current฀liabilities,฀provided฀$12.7฀million฀less฀in฀cash฀
flows฀during฀2004฀compared฀with฀2003.
The฀underlying฀drivers฀of฀the฀changes฀in฀working฀capital฀
are฀as฀follows:
•฀ An฀increase฀in฀accounts฀receivable฀used฀$175.3฀million฀in฀
cash฀in฀2004฀compared฀with฀using฀$13.9฀million฀in฀cash฀฀
฀
in฀2003.฀This฀was฀due฀to฀the฀increase฀in฀revenues฀and฀an฀
increase฀in฀days฀sales฀outstanding฀(defined฀as฀the฀average฀
number฀of฀days฀our฀accounts฀receivable฀are฀outstanding)฀
of฀approximately฀two฀days.
•฀ A฀build฀up฀in฀inventory฀in฀anticipation฀of฀increased฀activity฀
used฀$4.5฀million฀in฀cash฀in฀2004฀compared฀with฀providing฀
$20.9฀million฀in฀cash฀in฀2003.฀The฀build฀up฀in฀inventory฀
was฀partially฀offset฀by฀our฀continued฀focus฀on฀improving฀
the฀utilization฀of฀inventory฀on฀hand.
•฀ An฀increase฀in฀accounts฀payable฀and฀other฀current฀liabili-
ties฀provided฀$190.6฀million฀in฀cash฀in฀2004฀compared฀
with฀providing฀$16.5฀million฀in฀cash฀in฀2003.฀This฀was฀due฀
to฀increased฀activity,฀increased฀employee฀compensation฀
accruals,฀better฀management฀of฀our฀accounts฀payable฀and฀
$45.3฀million฀less฀in฀net฀income฀tax฀payments฀in฀2004฀
compared฀with฀2003.฀
Our฀pension฀contributions฀in฀2004฀were฀approximately฀
$110.0฀million,฀an฀increase฀of฀approximately฀$82.0฀million฀com-
pared฀with฀2003,฀due฀to฀our฀decision฀to฀improve฀the฀funded฀
status฀of฀certain฀pension฀plans฀and฀to฀provide฀us฀with฀increased฀
flexibility฀on฀the฀future฀funding฀of฀these฀pension฀plans.
Cash฀flows฀from฀operating฀activities฀of฀continuing฀operations฀
increased฀$31.5฀million฀in฀2003฀compared฀with฀2002฀primarily฀
due฀to฀increased฀operating฀performance฀attributable฀to฀our฀
increased฀revenues.฀In฀addition,฀working฀capital฀decreased฀with฀
the฀effect฀of฀increasing฀cash฀flows฀from฀operating฀activities.
The฀underlying฀drivers฀of฀the฀changes฀in฀working฀capital฀
are฀as฀follows:
•฀ An฀increase฀in฀accounts฀receivable฀in฀2003฀used฀$13.9฀mil-
lion฀in฀cash฀compared฀with฀providing฀$86.4฀million฀in฀
cash฀in฀2002.฀This฀was฀primarily฀due฀to฀the฀increase฀in฀rev-
enues฀offset฀by฀a฀reduction฀in฀days฀sales฀outstanding฀of฀
approximately฀two฀days.
•฀ A฀decrease฀in฀inventory฀in฀2003฀provided฀$20.9฀million฀in฀
cash฀compared฀with฀providing฀$15.4฀million฀in฀cash฀in฀
2002฀as฀we฀increased฀our฀focus฀on฀improving฀the฀utiliza-
tion฀of฀inventory฀on฀hand.
•฀ An฀increase฀in฀accounts฀payable฀and฀other฀current฀liabilities฀
in฀2003฀provided฀$16.5฀million฀in฀cash฀compared฀with฀
using฀$106.2฀million฀in฀cash฀in฀2002.฀This฀was฀due฀to฀
increased฀activity,฀increased฀employee฀compensation฀accru-
als,฀better฀management฀of฀our฀accounts฀payable฀and฀
increased฀accruals฀for฀our฀self฀insurance฀programs.฀Theses฀
changes฀were฀partially฀offset฀by฀an฀increase฀in฀income฀tax฀
payments฀of฀$59.8฀million฀in฀2003฀compared฀with฀2002.
Investing฀Activities
Our฀principal฀recurring฀investing฀activity฀is฀the฀funding฀
of฀capital฀expenditures฀to฀ensure฀that฀we฀have฀the฀appropriate฀
levels฀and฀types฀of฀rental฀tools฀in฀place฀to฀generate฀revenues฀
from฀operations.฀Expenditures฀for฀capital฀assets฀totaled฀
$348.3฀million,฀$404.3฀million฀and฀$355.9฀million฀for฀2004,฀
2003฀and฀2002,฀respectively.฀The฀majority฀of฀these฀expendi-
tures฀were฀for฀rental฀tools,฀including฀wireline,฀and฀machinery฀
and฀equipment.
2004฀Form฀10-K฀฀฀฀฀29