Baker Hughes 2009 Annual Report Download - page 100

26 Baker Hughes Incorporated
• A build up in inventory related to increased activity used
$371 million in cash in 2008 compared with using $142 mil-
lion in cash in 2007.
• An increase in accounts payable provided $242 million in
cash in 2008 compared with providing $26 million in cash in
2007. This increase in accounts payable was primarily due to
an increase in operating assets to support increased activity.
• Accrued employee compensation and other accrued liabili-
ties provided $90 million in cash in 2008 compared with
using $139 million in cash in 2007. The increase in cash was
primarily due to payments made in 2007 that were greater
than payments made in 2008 including payments related to
employee bonuses, non-income tax liabilities and the pay-
ment of $44 million related to the settlement of the investi-
gations by the SEC and DOJ.
• Our contributions to our defined benefit pension plans in
2008 were $15 million compared to 2007 contributions of
$21 million, a decrease of $6 million driven primarily by the
change in exchange rates in non-U.S. locations.
Investing Activities
Our principal recurring investing activity is the funding of
capital expenditures to support the appropriate levels and types
of rental tools we have in place to generate revenues from
operations. Expenditures for capital assets totaled $1,086 mil-
lion, $1,303 million and $1,127 million for 2009, 2008 and
2007, respectively. While the majority of these expenditures
were for rental tools, including wireline tools, and machinery
and equipment, we have also increased our spending on new
facilities, expansions of existing facilities and other infrastruc-
ture projects.
Proceeds from disposal of assets were $163 million,
$222 million and $179 million for 2009, 2008 and 2007,
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.
We routinely evaluate potential acquisitions of businesses
of third parties that may enhance our current operations or
expand our operations into new markets or product lines.
We may also from time to time sell business operations that
are not considered part of our core business. During 2009, we
paid $47 million, net of cash acquired of $4 million, for several
acquisitions and as a result, recorded $9 million of goodwill
and $22 million of intangible assets. We also paid $11 million
for additional purchase price consideration for past acquisitions.
In 2008, we paid an aggregate of $120 million for acquisi-
tions of businesses, the most significant of which were the
acquisitions for our reservoir technology and consulting group,
in which we paid cash of $72 million, including $4 million of
direct transaction costs and net of cash acquired of $5 million.
As a result of these acquisitions, we recorded $45 million of
goodwill and $45 million of intangible assets.
In 2008, we sold the assets associated with the Comple-
tion and Production segment’s Surface Safety Systems product
line and received cash proceeds of $31 million.
Prior to September 2007, we invested in auction rate secu-
rities. We limited our investments in auction rate securities
(“ARS”) to non mortgage-backed securities that, at the time
of the initial investment, carried an AAA (or equivalent) rating
from a recognized rating agency. In December 2008, we
recorded an impairment loss of $25 million on these invest-
ments. In December 2009, we sold the ARS for $15 million
and recorded a gain of $4 million.
In 2007, we received $10 million in proceeds from the
sale of our equity investment in Toyo Petrolite Company Ltd.
Financing Activities
We had net repayments of commercial paper and other
short-term debt of $16 million in 2009, and net borrowing
of commercial paper and short-term debt of $15 million and
$14 million in 2008 and 2007, respectively. In addition, in the
first quarter of 2009, we repaid $525 million of maturing
long-term debt. Total debt outstanding at December 31, 2009
was $1.80 billion, a decrease of $533 million compared with
December 31, 2008. The total debt to total capitalization
(defined as total debt plus stockholders’ equity) ratio was
0.20 at December 31, 2009 and 0.25 at December 31, 2008.
On October 28, 2008, we sold $500 million of 6.50%
Senior Notes that will mature November 15, 2013, and
$750 million of 7.50% Senior Notes that will mature Novem-
ber 15, 2018 (collectively, the “Notes”). Net proceeds from the
offering were $1,235 million after deducting the underwriting
discounts and expenses of the offering. We used a portion of
the net proceeds to repay outstanding commercial paper, as
well as to repay $325 million aggregate principal amount of our
outstanding 6.25% notes, which matured on January 15, 2009,
and $200 million aggregate principal amount of our outstand-
ing 6.00% notes, which matured on February 15, 2009. We
used the remaining net proceeds from the offering for general
corporate purposes. The Notes are senior unsecured obliga-
tions and rank equal in right of payment to all of our existing
and future senior indebtedness; senior in right of payment to
any future subordinated indebtedness; and effectively junior to
our future secured indebtedness, if any, and to all existing and
future indebtedness of our subsidiaries. We may redeem, at
our option, all or part of the Notes at any time, at the applica-
ble make-whole redemption prices plus accrued and unpaid
interest to the date of redemption.
We received proceeds of $51 million, $87 million and
$67 million in 2009, 2008 and 2007, respectively, from the
issuance of common stock through the exercise of stock
options and the employee stock purchase plan.
Our Board of Directors has authorized a program to repur-
chase our common stock from time to time. During 2007, we
repurchased 6 million shares of common stock at an average
price of $81.25 per share for a total of $521 million. During
2008, we repurchased 9 million shares of our common stock at
an average price of $68.12 per share for a total of $627 million.
During 2009, we did not repurchase any shares of common
stock. We had authorization remaining to repurchase approxi-
mately $1.2 billion in common stock at the end of 2009.
We paid dividends of $185 million, $173 million and
$167 million in 2009, 2008 and 2007, respectively.