Baker Hughes 2009 Annual Report Download - page 102

28 Baker Hughes Incorporated
Off-Balance Sheet Arrangements
In the normal course of business with customers, vendors
and others, we have entered into off-balance sheet arrange-
ments, such as letters of credit and other bank issued guarantees,
which totaled approximately $692 million at December 31, 2009.
We also had commitments outstanding for purchase obliga-
tions related to capital expenditures and inventory under pur-
chase orders and contracts of approximately $221 million at
December 31, 2009. It is not practicable to estimate the fair
value of these financial instruments. None of the off-balance
sheet arrangements either has, or is likely to have, a material
effect on our consolidated financial statements.
Other than normal operating leases, we do not have any
off-balance sheet financing arrangements such as securitization
agreements, liquidity trust vehicles, synthetic leases or special
purpose entities. As such, we are not materially exposed to
any financing, liquidity, market or credit risk that could arise
if we had engaged in such financing arrangements.
CRITICAL ACCOUNTING ESTIMATES
The preparation of our consolidated financial statements
requires us to make estimates and judgments that affect the
reported amounts of assets, liabilities, revenues and expenses
and related disclosures and about contingent assets and liabili-
ties. We base these estimates and judgments on historical
experience and other assumptions and information that are
believed to be reasonable under the circumstances. Estimates
and assumptions about future events and their effects cannot
be perceived with certainty, and accordingly, these estimates
may change as new events occur, as more experience is
acquired, as additional information is obtained and as the
business environment in which we operate changes.
We have defined a critical accounting estimate as one that
is both important to the portrayal of either our financial condi-
tion or results of operations and requires us to make difficult,
subjective or complex judgments or estimates about matters
that are uncertain. We have discussed the development and
selection of our critical accounting estimates with the Audit/
Ethics Committee of our Board of Directors and the Audit/Ethics
Committee has reviewed the disclosure presented below. Dur-
ing the past three fiscal years, we have not made any material
changes in the methodology used to establish the critical
accounting estimates discussed below, except as required by
the adoption of ASC 740, Income Taxes. We believe that the
following are the critical accounting estimates used in the
preparation of our consolidated financial statements. In addi-
tion, there are other items within our consolidated financial
statements that require estimation but are not deemed critical
as defined above.
Contractual Obligations
In the table below, we set forth our contractual cash obligations as of December 31, 2009. Certain amounts included in this
table are based on our estimates and assumptions about these obligations, including their duration, anticipated actions by third parties
and other factors. The contractual cash obligations we will actually pay in future periods may vary from those reflected in the table
because the estimates and assumptions are subjective (in millions).
Payments Due by Period
Total Less Than 1 year 2–3 Years 4–5 Years More than 5 Years
Total debt(1) $ 1,815 $ 15 $ – $ 500 $ 1,300
Estimated interest payments(2) 1,352 129 258 224 741
Operating leases(3) 445 126 150 67 102
Purchase obligations(4) 221 219 2 – –
Other long-term liabilities(5) 53 10 17 5 21
Income tax liabilities for uncertain tax positions(6) 339 115 160 43 21
Total $ 4,225 $ 614 $ 587 $ 839 $ 2,185
(1) Amounts represent the expected cash payments for our total debt and do not include any unamortized discounts, deferred issuance costs or net deferred gains on
terminated interest rate swap agreements.
(2) Amounts represent the expected cash payments for interest on our long-term debt.
(3) We enter into operating leases in the normal course of business. Some lease agreements provide us with the option to renew the lease. Our future operating lease
payments as reflected in the table above would change if we exercised these renewal options and if we entered into additional operating lease agreements.
(4) Purchase obligations include agreements to purchase goods or services that are enforceable and legally binding and that specify all significant terms, including: fixed
or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction. Purchase obligations exclude
agreements that are cancelable at anytime without penalty.
(5) Amounts represent other long-term liabilities, including the current portion, reflected in the consolidated balance sheet where both the timing and amount of
payment streams are known. Amounts include: payments for certain environmental remediation liabilities, payments for deferred compensation, payouts under
acquisition agreements and payments for certain asset retirement obligations. Amounts do not include: payments for pension contributions and payments for
various postretirement welfare benefit plans and postemployment benefit plans.
(6) The estimated income tax liabilities for uncertain tax positions will be settled as a result of expiring statutes, audit activity, competent authority proceedings related to
transfer pricing, or final decisions in matters that are the subject of litigation in various taxing jurisdictions in which we operate. The timing of any particular settlement
will depend on the length of the tax audit and related appeals process, if any, or an expiration of a statute. If a liability is settled due to a statute expiring or a favorable
audit result, the settlement of the tax liability would not result in a cash payment.