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In฀December฀2004,฀we฀paid฀$1.0฀million฀in฀cash฀for฀the฀
remaining฀60%฀interest฀in฀Luna฀Energy฀L.L.C.฀(“Luna”),฀a฀฀
venture฀we฀entered฀into฀in฀2002.฀During฀2004,฀we฀also฀paid฀
$5.6฀million฀in฀settlement฀of฀the฀final฀purchase฀price฀related฀to฀
an฀acquisition฀completed฀in฀a฀prior฀year฀and฀invested฀an฀addi-
tional฀$7.1฀million฀in฀certain฀of฀our฀investments฀in฀affiliates.
In฀2003,฀we฀made฀two฀acquisitions฀having฀an฀aggregate฀
purchase฀price฀of฀$16.9฀million,฀of฀which฀$9.5฀million฀was฀paid฀
in฀cash.฀In฀addition,฀during฀2003,฀we฀invested฀$38.1฀million฀in฀
affiliates,฀of฀which฀$30.1฀million฀related฀to฀our฀50%฀interest฀in฀
the฀QuantX฀Wellbore฀Instrumentation฀venture,฀which฀is฀
engaged฀in฀the฀permanent฀in-well฀monitoring฀market.
In฀2002,฀we฀made฀three฀acquisitions฀having฀an฀aggregate฀
cash฀purchase฀price฀of฀$39.7฀million,฀net฀of฀cash฀acquired.฀
In฀addition,฀during฀2002,฀we฀invested฀$16.5฀million฀in฀Luna.
In฀2004,฀we฀received฀$58.7฀million฀in฀net฀proceeds฀from฀
the฀sale฀of฀businesses฀and฀our฀interest฀in฀an฀affiliate.฀In฀Janu-
ary,฀we฀completed฀the฀sale฀of฀BIRD฀and฀received฀$5.6฀million฀
in฀proceeds,฀which฀were฀subject฀to฀post-closing฀adjustments฀to฀
the฀purchase฀price.฀During฀the฀second฀quarter,฀we฀made฀a฀net฀
payment฀of฀$6.8฀million฀to฀the฀buyer฀in฀settlement฀of฀the฀final฀
purchase฀price฀adjustments.฀In฀February,฀we฀completed฀the฀
sale฀of฀our฀minority฀interest฀in฀Petreco฀International,฀a฀venture฀
we฀entered฀into฀in฀2001,฀and฀received฀proceeds฀of฀$35.8฀mil-
lion,฀of฀which฀$7.4฀million฀is฀held฀in฀escrow฀pending฀the฀out-
come฀of฀potential฀indemnification฀obligations฀pursuant฀to฀the฀
sales฀agreement.฀A฀portion฀of฀the฀escrow฀will฀be฀released฀in฀
May฀2005,฀with฀the฀remainder฀released฀in฀February฀2006.฀In฀
September,฀we฀also฀completed฀the฀sale฀of฀BHMT฀and฀received฀
proceeds฀of฀$31.5฀million.
In฀2003,฀we฀completed฀the฀sale฀of฀our฀interest฀in฀an฀oil฀
producing฀property฀in฀West฀Africa฀for฀$32.0฀million฀in฀pro-
ceeds.฀We฀received฀a฀deposit฀of฀$10.0฀million฀in฀2002฀and฀
the฀remaining฀$22.0฀million฀in฀2003.฀During฀2002,฀we฀also฀
disposed฀of฀our฀EIMCO฀division฀for฀$48.9฀million฀in฀proceeds.฀
We฀received฀$44.0฀million฀in฀proceeds฀in฀2002,฀with฀the฀
remainder฀of฀the฀sales฀price฀held฀in฀escrow฀pending฀comple-
tion฀of฀final฀adjustments฀of฀the฀purchase฀price.฀In฀2003,฀all฀
purchase฀price฀adjustments฀were฀completed,฀resulting฀in฀the฀
release฀of฀the฀escrow฀balance.฀We฀received฀$2.0฀million฀and฀
$2.9฀million฀was฀returned฀to฀the฀buyer.
Proceeds฀from฀disposal฀of฀assets฀were฀$106.9฀million,฀
$66.8฀million฀and฀$77.7฀million฀for฀2004,฀2003฀and฀2002,฀
respectively.฀These฀disposals฀relate฀to฀rental฀tools฀that฀were฀
lost-in-hole,฀as฀well฀as฀machinery,฀rental฀tools฀and฀equipment฀
no฀longer฀used฀in฀operations฀that฀were฀sold฀throughout฀the฀
year.฀Included฀in฀the฀proceeds฀for฀2004฀was฀$12.2฀million฀
related฀to฀the฀sale฀of฀certain฀real฀estate฀properties฀held฀for฀sale.
Financing฀Activities
We฀had฀net฀borrowings฀(repayments)฀of฀commercial฀paper฀
and฀other฀short-term฀debt฀of฀$35.5฀million,฀$11.2฀million฀and฀
$(162.4)฀million฀in฀2004,฀2003฀and฀2002,฀respectively.฀In฀2004,฀
we฀repaid฀the฀$100.0฀million฀8.0%฀Notes฀due฀May฀2004฀and฀
the฀$250.0฀million฀7.875%฀Notes฀due฀June฀2004.฀In฀2003,฀
we฀repaid฀the฀$100.0฀million฀5.8%฀Notes฀due฀February฀2003.฀
These฀repayments฀were฀funded฀with฀cash฀on฀hand,฀cash฀flows฀
from฀operations฀and฀the฀issuance฀of฀commercial฀paper.
Total฀debt฀outstanding฀at฀December฀31,฀2004฀was฀
$1,162.3฀million,฀a฀decrease฀of฀$322.1฀million฀compared฀
with฀December฀31,฀2003.฀The฀total฀debt฀to฀total฀capitalization฀
(defined฀as฀total฀debt฀plus฀stockholders’฀equity)฀ratio฀was฀
0.23฀at฀December฀31,฀2004฀and฀0.31฀at฀December฀31,฀2003.
At฀different฀times฀during฀2003,฀we฀entered฀into฀three฀฀
separate฀interest฀rate฀swap฀agreements,฀each฀for฀a฀notional฀
amount฀of฀$325.0฀million,฀associated฀with฀our฀6.25%฀Notes฀
due฀January฀2009.฀These฀agreements฀had฀been฀designated฀
and฀had฀qualified฀as฀fair฀value฀hedging฀instruments.฀Due฀to฀
our฀outlook฀for฀interest฀rates,฀we฀terminated฀the฀three฀agree-
ments฀and฀received฀payments฀totaling฀$26.9฀million.฀Each฀of฀
the฀three฀agreements฀was฀terminated฀prior฀to฀entering฀into฀a฀
new฀agreement.฀The฀deferred฀gains฀are฀being฀amortized฀as฀a฀
reduction฀of฀interest฀expense฀over฀the฀remaining฀life฀of฀the฀
underlying฀debt฀security,฀which฀matures฀in฀January฀2009.
During฀2002,฀we฀terminated฀two฀interest฀rate฀swap฀฀
agreements฀that฀had฀been฀entered฀into฀in฀prior฀years.฀These฀
agreements฀had฀been฀designated฀and฀had฀qualified฀as฀fair฀
value฀hedging฀instruments.฀Upon฀termination,฀we฀received฀
proceeds฀of฀$4.8฀million฀and฀$11.0฀million.฀The฀deferred฀
gain฀of฀$4.8฀million฀was฀amortized฀as฀a฀reduction฀of฀interest฀
expense฀over฀the฀remaining฀life฀of฀the฀underlying฀debt฀฀
security,฀which฀matured฀in฀June฀2004.฀The฀deferred฀gain฀of฀
$11.0฀million฀is฀being฀amortized฀as฀a฀reduction฀of฀interest฀
expense฀over฀the฀remaining฀life฀of฀the฀underlying฀debt฀secu-
rity,฀which฀matures฀in฀January฀2009.
We฀received฀proceeds฀of฀$115.9฀million,฀$61.8฀million฀
and฀$38.3฀million฀in฀2004,฀2003฀and฀2002,฀respectively,฀from฀
the฀issuance฀of฀common฀stock฀through฀the฀exercise฀of฀stock฀
options฀and฀our฀employee฀stock฀purchase฀plan.
During฀2002,฀we฀were฀authorized฀by฀our฀Board฀of฀Direc-
tors฀to฀repurchase฀up฀to฀$275.0฀million฀of฀our฀common฀stock.฀
During฀2003,฀we฀repurchased฀6.3฀million฀shares฀at฀an฀average฀
price฀of฀$28.78฀per฀share,฀for฀a฀total฀of฀$181.4฀million.฀During฀
2002,฀we฀repurchased฀1.8฀million฀shares฀at฀an฀average฀price฀
of฀$27.52฀per฀share,฀for฀a฀total฀of฀$49.1฀million.฀Upon฀repur-
chase,฀the฀shares฀were฀retired.฀We฀did฀not฀repurchase฀any฀
shares฀during฀2004.
We฀paid฀dividends฀of฀$153.6฀million,฀$154.3฀million฀and฀
$154.9฀million฀in฀2004,฀2003฀and฀2002,฀respectively.
Available฀Credit฀Facilities
At฀December฀31,฀2004,฀we฀had฀$897.4฀million฀of฀credit฀
facilities฀with฀commercial฀banks,฀of฀which฀$500.0฀million฀is฀a฀
committed฀revolving฀credit฀facility฀(the฀“facility”)฀that฀expires฀
in฀July฀2006.฀The฀facility฀contains฀certain฀covenants฀which,฀
among฀other฀things,฀require฀the฀maintenance฀of฀a฀funded฀
indebtedness฀to฀total฀capitalization฀ratio฀(a฀defined฀formula฀
per฀the฀facility)฀of฀less฀than฀or฀equal฀to฀0.50,฀limit฀the฀amount฀
of฀subsidiary฀indebtedness฀and฀restrict฀the฀sale฀of฀significant฀
assets,฀defined฀as฀10%฀or฀more฀of฀total฀consolidated฀assets.฀
At฀December฀31,฀2004,฀we฀were฀in฀compliance฀with฀all฀the฀
facility฀covenants.฀There฀were฀no฀direct฀borrowings฀under฀the฀
30฀฀฀฀฀Baker฀Hughes฀Incorporated