Baker Hughes 2007 Annual Report Download - page 139

56 Baker Hughes Incorporated
At December 31, 2007, we had $1,018.5 million of credit
facilities with commercial banks, of which $500.0 million is a
committed revolving credit facility (the “facility”) that expires
in July 2012. The facility provides for a one year extension,
subject to the approval and acceptance by the lenders, among
other conditions. In addition, the facility contains a provision
to allow for an increase in the facility amount of an additional
$500.0 million, subject to the approval and acceptance by the
lenders, among other conditions. 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 0.60, restrict
certain merger transactions or the sale of all or substantially
all of the assets of the Company or a significant subsidiary and
limit the amount of subsidiary indebtedness. Upon the occur-
rence of certain events of default, our obligations under the
facility may be accelerated. Such events of default include pay-
ment defaults to lenders under the facility, covenant defaults
and other customary defaults. At December 31, 2007, we
were in compliance with all of the facility covenants. There
were no direct borrowings under the facility during the year
ended December 31, 2007; however, to the extent we have
outstanding commercial paper, our ability to borrow under
the facility is reduced. At December 31, 2007, we had no
outstanding commercial paper.
In prior years, we terminated various interest rate swap
agreements prior to their scheduled maturities resulting in net
gains. The net gains were deferred and are being amortized as
a net reduction of interest expense over the remaining life of
the underlying debt securities. The unamortized net deferred
gains of $5.3 million and $10.5 million are included in the
6.25% Notes due January 2009 and reported in long-term
debt in the consolidated balance sheets at December 31, 2007
and 2006, respectively.
Maturities of debt at December 31, 2007 are as follows:
2008 – $15.4 million; 2009 – $529.8 million; 2010 – $0.0 mil-
lion; 2011 – $0.0 million; 2012 – $0.0 million; and $539.6 mil-
lion thereafter.
NOTE 12. FINANCIAL INSTRUMENTS
Fair Value of Financial Instruments
Our financial instruments include cash and short-term
investments, noncurrent investments in auction rate securities,
accounts receivable, accounts payable, debt, foreign currency
forward contracts and foreign currency option contracts.
Except as described below, the estimated fair value of such
financial instruments at December 31, 2007 and 2006 approx-
imates their carrying value as reflected in our consolidated bal-
ance sheets. The fair value of our debt and foreign currency
forward contracts has been estimated based on quoted year
end market prices.
The estimated fair value of total debt at December 31,
2007 and 2006 was $1,169.7 million and $1,171.0 million,
respectively, which differs from the carrying amounts of
$1,084.8 million and $1,075.1 million, respectively, included
in our consolidated balance sheets.
Foreign Currency Forward Contracts
At December 31, 2007, we had entered into several foreign
currency forward contracts with notional amounts aggregat-
ing $115.0 million to hedge exposure to currency fluctuations
in various foreign currency denominated accounts payable
and accounts receivable, including the British Pound Sterling,
Norwegian Krone, Euro and the Brazilian Real. These contracts
are designated and qualify as fair value hedging instruments.
Based on quoted market prices as of December 31, 2007 for
contracts with similar terms and maturity dates, we recorded
a gain of $1.1 million to adjust these foreign currency forward
contracts to their fair market value. This gain offsets designated
foreign currency exchange losses resulting from the underlying
exposures and is included in marketing, general and adminis-
trative expense in the consolidated statement of operations.
At December 31, 2007, we had entered into option con-
tracts with notional amounts aggregating $20.0 million as a
hedge of fluctuations in the Russian Ruble exchange rate. The
contracts were not designated as hedging instruments. Based
on quoted market prices as of December 31, 2007 for con-
tracts with similar terms and maturity dates, we recorded a
loss of $0.3 million to adjust the carrying value of these con-
tracts to their fair market value. This loss is included in market-
ing, general and administrative expense in our consolidated
statement of operations.