Baker Hughes 2007 Annual Report Download - page 112

2007 Form 10-K 29
offset by a decrease in the quarterly days sales outstanding
(defined as the average number of days our net trade
receivables are outstanding based on quarterly revenues)
of approximately two days.
•฀ A฀build฀up฀in฀inventory฀in฀anticipation฀of฀and฀related฀to฀
increased activity used $364.9 million in cash in 2006
compared with using $108.7 million in cash in 2005.
•฀ An฀increase฀in฀accounts฀payable,฀accrued฀employee฀com-
pensation and other accrued liabilities provided $173.2 million
in cash in 2006 compared with providing $214.7 million in
cash in 2005. This was due primarily to increased activity
and increased employee compensation accruals.
Investing Activities
Our principal recurring investing activity is the funding
of capital expenditures to ensure that we have the appropri-
ate levels and types of rental tools in place to generate reve-
nues from operations. Expenditures for capital assets totaled
$1,127.0 million, $922.2 million and $478.3 million for 2007,
2006 and 2005, respectively. While the majority of these
expenditures were for rental tools, including wireline tools, and
machinery and equipment, we have also increased our spend-
ing on new facilities, expansions of existing facilities and other
infrastructure projects. The increase in capital assets in 2007
is a result of increased demand for our products and services.
During 2007, we purchased $2,520.7 million of and
received proceeds of $2,838.8 million from maturing auction
rate securities. During 2006, we purchased $3,882.9 million of
and received proceeds of $3,606.2 million from maturing auc-
tion rate securities. During 2005, we purchased $77.0 million
of auction rate securities. Auction rate securities are variable-
rate debt securities. While the underlying security has a long-
term maturity, the interest rate is reset through Dutch auctions
that are typically held every 7, 28 or 35 days.
Cash and cash equivalents at December 31, 2007 were
$1,054.4 million and consisted primarily of commercial paper,
money market funds invested in government securities and
bank time deposits. Our short and long-term investment port-
folios are invested in AAA rated non mortgage-backed auction
rate securities. At December 31, 2007, we held $35.6 million
of auction rate securities that were part of unsuccessful auc-
tions. As a result of the unsuccessful auctions, the interest rate
now resets every 28 days at one month LIBOR plus 50 basis
points and the liquidity of these investments has been dimin-
ished. Based on our ability to access our cash and cash equiva-
lents, our expected operating cash flows, and our other sources
of cash including our credit facilities with commercial banks,
we do not anticipate that the lack of liquidity on these invest-
ments will affect our ability to operate our business. These
investments are classified as available-for-sale securities and
are recorded at cost, which we believe approximates fair mar-
ket value. At December 31, 2007, based on our ability and
intent to hold such investments, all auction rate securities were
classified as noncurrent investments. At December 31, 2006, all
auction rate securities were classified as short-term investments.
In September 2007, we discontinued additional investments in
these types of securities.
Proceeds from disposal of assets were $178.8 million,
$135.4 million and $90.1 million for 2007, 2006 and 2005,
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 2006 was $10.4 million,
related to the sale of certain real estate properties held for sale.
During 2007, we received $9.9 million in proceeds from
the sale of our equity investment in Toyo Petrolite Company
Ltd. During 2006, we sold our 30% interest in WesternGeco
for $2.4 billion in cash. WesternGeco also made a cash distri-
bution of $59.6 million prior to closing. In 2005, we received
distributions of $30.0 million from WesternGeco, which were
recorded as a reduction in the carrying value of our investment.
We also received $13.3 million from Schlumberger related to
the WesternGeco true-up payment, of which $13.0 million
was recorded as a reduction in the carrying value of our
investment and $0.3 million as interest income.
In 2006, we received $46.3 million in net proceeds from
the sale of certain businesses and our interest in an affiliate.
Specifically, in March 2006, we completed the sale of Baker
SPD and received $42.5 million in proceeds, and we received
$3.8 million from the release of the remaining amount held in
escrow related to our sale of Petreco International. In May 2005,
we received $3.7 million from the initial release of this escrow.
During 2006, we paid $66.2 million for acquisitions of busi-
nesses, net of cash acquired. In the first quarter of 2006, we
acquired Nova Technology Corporation (“Nova”) for $55.4 mil-
lion, net of cash acquired of $3.0 million, plus assumed debt. In
the second and third quarters of 2006, we made three acquisi-
tions for $10.8 million, net of cash acquired of $0.7 million.
During 2005, we paid $46.8 million for acquisitions of
businesses, net of cash acquired. In December, we purchased
Zeroth Technology Limited (“Zertech”) for $20.3 million. In
November, we paid $25.5 million, net of cash acquired of
$1.7 million, for the remaining 50% interest in QuantX Well-
bore Instrumentation (“QuantX”). During 2005, we also made
smaller acquisitions having an aggregate purchase price of
$1.0 million.
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.
Financing Activities
We had net (repayments) borrowings of commercial paper
and other short-term debt of $14.2 million, $(8.8) million and
$(71.1) million in 2007, 2006 and 2005, respectively. Total
debt outstanding at December 31, 2007 was $1,084.8 million,
an increase of $9.7 million compared with December 31, 2006.
The total debt to total capitalization (defined as total debt plus
stockholders’ equity) ratio was 0.15 at December 31, 2007
and 0.17 at December 31, 2006.
In April 2004, we entered into an interest rate swap agree-
ment for a notional amount of $325.0 million associated with
our 6.25% Notes due January 2009. The interest rate swap