Baker Hughes 2009 Annual Report Download - page 101

2009 Form 10-K 27
Available Credit Facilities
On March 30, 2009, we entered into a credit agreement
(the “2009 Credit Agreement”) for a committed $500 million
revolving credit facility that expires on March 29, 2010, which
we currently expect to extend or replace. In addition to the 2009
Credit Agreement, there is a $500 million committed revolving
credit facility which expires on July 7, 2012. Under a committed
facility, the lender is obligated to advance funds and/or provide
credit to the borrower as per the terms and conditions stipu-
lated in the credit agreement. At December 31, 2009, we had
$1.0 billion of committed revolving credit facilities with com-
mercial banks. Both facilities contain certain covenants which,
among other things, require the maintenance of a funded
indebtedness to total capitalization ratio (a defined formula
per the facility), restrict certain merger transactions or the sale
of all or substantially all of our assets or a significant subsidiary
and limit the amount of subsidiary indebtedness. Upon the
occurrence of certain events of default, our obligations under
the facilities may be accelerated. Such events of default
include payment defaults to lenders under the facilities,
covenant defaults and other customary defaults.
At December 31, 2009, we were in compliance with all
of the facility covenants of both committed credit facilities.
There were no direct borrowings under the committed credit
facilities at the end of 2009. We also have an outstanding
commercial paper program under which we may issue from
time to time up to $1.0 billion in commercial paper with matu-
rity of no more than 270 days. To the extent we have com-
mercial paper outstanding, our ability to borrow under the
committed credit facilities is reduced by a similar amount. At
December 31, 2009, we had no commercial paper outstanding.
If market conditions were to change and revenues were to
be significantly reduced or operating costs were to increase,
our cash flows and liquidity could be reduced. Additionally, it
could cause the rating agencies to lower our credit rating.
There are no ratings triggers that would accelerate the matu-
rity of any borrowings under our committed credit facilities.
However, a downgrade in our credit ratings could increase the
cost of borrowings under the facilities and could also limit or
preclude our ability to issue commercial paper. Should this
occur, we would seek alternative sources of funding, including
borrowing under the facilities.
We believe our current credit ratings would allow us to
obtain interim financing over and above our existing credit
facilities for any currently unforeseen significant needs or
growth opportunities. We also believe that such interim
financings could be funded with subsequent issuances of long-
term debt or equity, if necessary.
Cash Requirements
In 2010, we believe cash on hand and operating cash flows
will provide us with sufficient capital resources and liquidity to
manage our working capital needs, meet contractual obliga-
tions, fund capital expenditures, and support the development
of our short-term and long-term operating strategies. We may
issue commercial paper or other short-term debt to fund cash
needs in the U.S. in excess of the cash generated in the U.S.
The expectations described below exclude any amounts related
to the pending merger with BJ Services.
In 2010, we expect our capital expenditures to be between
$1.1 billion to $1.2 billion, excluding any amount related to
the pending merger with BJ Services and other acquisitions.
The expenditures are expected to be used primarily for normal,
recurring items necessary to support our business and opera-
tions. A significant portion of our capital expenditures can be
adjusted based on future activity of our customers. We expect
to manage our capital expenditures to match market demand.
In 2010, we also expect to make interest payments of
between $129 million and $135 million, based on debt levels
as of December 31, 2009. We anticipate making income tax
payments of between $300 million and $350 million in 2010.
We may repurchase our common stock depending on mar-
ket conditions, applicable legal requirements, our liquidity and
other considerations. We anticipate paying dividends of
between $180 million and $190 million in 2010; however, the
Board of Directors can change the dividend policy at anytime.
For all pension plans, we make annual contributions to the
plans in amounts equal to or greater than amounts necessary
to meet minimum governmental funding requirements.
Although we previously expected to forgo contributions for
a period of five to eight years, due to recent downturns in
investment markets and the decline in the value of the pen-
sion plan assets, we may be required to make contributions
to the U.S. qualified pension plan within the next one to two
years. In 2010, we expect to contribute between $20 million
and $25 million to our U.S. pension plans and between
$15 million and $20 million to the non-U.S. pension plans. In
2010, we also expect to make benefit payments related to post-
retirement welfare plans of between $18 million and $20 mil-
lion, and we estimate we will contribute between $142 million
and $154 million to our defined contribution plans. See Note 14
of the Notes to Consolidated Financial Statements in Item 8
herein for further discussion of our employee benefit plans.
Cash Requirement for Pending Merger
Subject to receipt of all required approvals, we currently
anticipate that the closing of the BJ Services merger will occur
in March of 2010. In order to fund the estimated $794 million
cash portion of the merger consideration, we expect to use
approximately $294 million of our cash on hand and $500 mil-
lion of our financing through available facilities or market issu-
ances of debt securities. In addition, we intend to use such
internal cash resources and financing as well as cash on hand
of BJ Services following the merger, which at December 31, 2009
was $261 million, to pay for the estimated direct merger trans-
action costs and professional services as well as pre-existing
change of control contractual payments to certain BJ Services
employees that as of December 31, 2009 was estimated to
be approximately $280 million. Also, in connection with the
pending merger we will assume approximately $500 million
of long-term debt of BJ Services and various guarantees and
contractual obligations in place in connection with BJ Services’
normal course of business. Following the merger, we may seek
additional sources of funding.