Positive Growth for Baker Hughes: $400M Net Income Q4 '07

Baker Hughes Inc. announced that net income for the fourth quarter 2007 was $400.5 million or $1.26 per diluted share compared to $326.2 million or $1.02 per diluted share for the fourth quarter 2006 and $389.1 million or $1.22 per diluted share for the third quarter 2007. Net income for the year 2007 was $1,513.9 million or $4.73 per diluted share, compared to $2,419.0 million or $7.27 per diluted share for the year 2006.

Operating profit was $1,513.9 million for the year 2007 compared to $1,363.4 million for the year 2006. Operating profit per diluted share increased 15% to $4.73 per diluted share for the year 2007 from $4.10 per diluted share for the year 2006. There were no identified items in 2007. The only identified item in 2006 relates to the pre-tax gain of $1,743.5 million ($1,035.2 million after-tax) from the sale of its 30% interest in WesternGeco to Schlumberger on April 28, 2006 for $2.4 billion in cash.

Revenue for the fourth quarter 2007 was $2,740.3 million, up 12% compared to $2,452.7 million for the fourth quarter 2006 and up 2% compared to $2,677.6 million for the third quarter 2007. Revenue for the year 2007 was $10,428.2 million, up 16% compared to $9,027.4 million for the year 2006. Revenue from North America increased 9% and revenue from outside North America increased 21% for the year 2007 compared to the year 2006.

"Our completion and production segment reported good results with strong incremental margins in the fourth quarter," Chad C. Deaton, Baker Hughes chairman and chief executive officer said. "Baker Petrolite and Centrilift benefited from their greater exposure to production-oriented expenditures, despite a softer than expected North American market and Baker Oil Tools had a strong quarter, particularly in the Eastern Hemisphere. Our drilling and evaluation segment reported decreased profits as lower than expected activity in the Gulf of Mexico, a more competitive market in North America, and a labor disruption in Algeria affected results.

"The global fundamentals of our long-term outlook have not changed. For the foreseeable future, the world will need more hydrocarbons to satisfy its growing energy demand and oil and gas companies will work to fill that need by increasing their spending on exploration, development and production.

"In North America we expect no more than moderate increases in spending in 2008 because strong drilling activity has brought natural gas production growth roughly into balance with demand growth. In this environment, we expect our Completion and Production segment to benefit, as customers seek to optimize production.

"Outside of North America, we expect growth to continue in 2008, but at a somewhat slower pace than in recent years. In this environment, we have not changed our strategy and will continue to invest in infrastructure, technology and people to service the demand we see continuing well past the end of the decade."

During the fourth quarter of 2007, debt increased $9.9 million to $1,084.8 million, and cash and short-term investments increased $146.4 million to $1,054.4 million compared to the third quarter of 2007. In the fourth quarter 2007, the company's capital expenditures were $315.9 million, depreciation and amortization expense was $140.9 million and dividend payments were $41.7 million. For the year 2007, capital expenditures were $1,127.0 million and depreciation and amortization expense was $521.2 million compared to $922.2 million and $433.7 million in 2006, respectively.

During the fourth quarter 2007, the company repurchased 3.0 million shares of common stock at an average price of $81.75 per share for a total of $241.5 million. During 2007, the company repurchased 6.4 million shares of common stock at an average price of $81.25 per share for a total of $521.5 million. At the end of 2007, the company had authorization remaining to repurchase approximately $824.0 million in common stock.

Oilfield operations revenue was up 12% in the fourth quarter 2007 compared to the fourth quarter 2006, and up 2% sequentially compared to the third quarter 2007. Operating profit before tax was up 9% compared to the fourth quarter of 2006 and was up 3% sequentially compared to the third quarter of 2007. The quarterly year-over-year incremental pre-tax margin was 20%. The pre-tax operating margin in the fourth quarter 2007 was 24% compared to 25% in the fourth quarter 2006 and 24% in the third quarter 2007.

For the year 2007 compared to the year 2006, revenue increased 16%; operating profit before tax increased 15%; and the year-over-year incremental pre-tax margin was 23% (25% excluding the $21.2 million favorable impact of the fourth quarter 2006 change in accounting procedures related to certain inventory at Baker Atlas). The pre-tax operating margin for both 2007 and 2006 was 24%.

Drilling and evaluation revenue was up 9% in the fourth quarter 2007 compared to the fourth quarter 2006, and up 1% sequentially compared to the third quarter of 2007. Operating profit before tax in the fourth quarter 2007 was down 2% compared to the fourth quarter of 2006 and down 3% compared to the third quarter 2007. Excluding the $21.2 million favorable impact of the fourth quarter 2006 change in accounting, profit increased $12.8 million and the quarterly year-over-year incremental pre-tax margin was 11%. The pre-tax operating margin in the fourth quarter 2007 was 25% compared to 28% in the fourth quarter 2006 and 26% in the third quarter 2007.

For the year 2007 compared to the year 2006, revenue increased 14%; operating profit before tax increased 12%; and the year-over-year incremental pre-tax margin was 24% (28% excluding the $21.2 million favorable impact of the fourth quarter 2006 change in accounting). The pre-tax operating margin for 2007 was 26% compared to 27% in 2006.

Completion and production revenue was up 14% in the fourth quarter 2007 compared to the fourth quarter 2006 and up 4% sequentially compared to the third quarter 2007. Operating profit before tax in the fourth quarter 2007 was up 26% compared to the fourth quarter 2006 and up 10% compared to the third quarter 2007. The quarterly year-over-year incremental pre-tax margin was 38%. The pre-tax operating margin in the fourth quarter 2007 was 23% compared to 21% in the fourth quarter 2006 and 22% in the third quarter 2007.

For the year 2007 compared to the year 2006, revenue increased 18%; operating profit before tax increased 18%; and the year-over-year incremental pre-tax margin was 22%. The pre-tax operating margin for both 2007 and 2006 was 22%.

Corporate and other expense was down $2.4 million in the fourth quarter of 2007 compared to the fourth quarter of 2006 and up $1.8 million from the third quarter 2007.

Outside of North America revenue increased 16% in the fourth quarter 2007 compared to the fourth quarter 2006 and increased 4% sequentially compared to the third quarter 2007. North America revenue increased 7% in the fourth quarter 2007 compared to the fourth quarter 2006 and was flat sequentially compared to the third quarter 2007.

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