Baker Hughes Posts 4Q Revenue of $3.19B, Up 16% from 2007

Baker Hughes has announced that net income for the fourth quarter 2008 was $432 million or $1.41 per diluted share compared to $401 million or $1.26 per diluted share for the fourth quarter 2007 and $429 million or $1.39 per diluted share for the third quarter 2008. Net income for the year 2008 was $1.64 billion or $5.30 per diluted share, compared to $1.51 billion or $4.73 per diluted share for the year 2007.

Revenue for the fourth quarter 2008 was $3.19 billion, up 16% compared to $2.74 billion for the fourth quarter 2007 and up 6% compared to $3.01 billion for the third quarter 2008. Revenue for the year 2008 was $11.86 billion, up 14% compared to $10.43 billion for the year 2007. Revenue from North America increased 17% and revenue from outside North America increased 12% for the year 2008 compared to the year 2007.

Results for the fourth quarter 2008 include an impairment of auction rate securities of $25 million after-tax ($0.08 per diluted share).
Chad C. Deaton, Baker Hughes chairman, president and chief executive officer said, "Fourth quarter results were particularly strong in the Western Hemisphere despite the global economic slowdown and eroding commodity prices. In North America, service-intensive horizontal drilling remained strong and our completion and production business posted solid results. Revenue increases in Brazil and Colombia led a strong quarter in Latin America. In the Europe Africa Russia Caspian region, weakening of local currencies against the US dollar, a declining Russian market, as well as weather- and project- related delays in the North Sea and Nigeria impacted our results. Sequentially, Middle East Asia Pacific region revenue increases were led by strong results from Saudi Arabia, Indonesia, and Egypt. For the company as a whole, operating margins were stable and in line with the previous quarters of 2008.

"Looking forward, the outlook for 2009 has continued to deteriorate. The global economic recession, lower oil prices, and reduced access to credit will negatively impact customer spending globally. Many of our international customers are trimming their exploration plans, giving priority to spending on production & development. In North America, where the US rig count has already fallen 25% from peak, customers are continuing to reduce their budgets to address an oversupplied gas market. The depth and duration of the cycle remains uncertain, dependent in part on the timing of the recovery of the global economy.

"We continue to believe that in the long-term the industry will be challenged to offset production declines. When the economy recovers, we expect the demand for energy and the demand for our technology and services will recover in parallel. We will continue to invest in research and engineering, employee development, and in the infrastructure we will need to exit this cycle a stronger competitor in all our markets. That said, we have taken actions to address this downturn and will make further adjustments to our cost structure as conditions dictate."

During the fourth quarter 2008, debt increased $703 million to $2.33 billion and cash and short-term investments increased $828 million to $1.96 billion as compared to the third quarter 2008. The company issued $1.25 billion in long-term debt and repaid approximately $500 million in commercial paper in the fourth quarter 2008. In the first quarter 2009, the company intends to repay approximately $525 million of maturing long-term debt. The next maturities of long-term debt amounting to $500 million are due in November 2013. In the fourth quarter 2008, the company's capital expenditures were $463 million, depreciation and amortization expense was $177 million and dividend payments were $47 million. For the year 2008, capital expenditures were $1.30 billion and depreciation and amortization expense was $637 million compared to $1.13 billion and $521 million in 2007, respectively.

During the fourth quarter 2008, the company repurchased 380,000 shares of common stock at an average price of $42.67 per share for a total of $16 million. At the end of 2008, the company had authorization remaining to repurchase approximately $1.20 billion in common stock.

Oilfield Operations

Oilfield Operations revenue was up 16% in the fourth quarter 2008 compared to the fourth quarter 2007, and was up 6% compared to the third quarter 2008. Profit before tax was up 7% compared to the fourth quarter 2007 and up 6% sequentially compared to the third quarter 2008. The pre-tax operating margin in the fourth quarter 2008 was 22% compared to 24% in the fourth quarter 2007 and 22% in the third quarter 2008.

For the year 2008 compared to the year 2007, revenue increased 14% and operating profit before tax increased 7%. The pre-tax operating margin for 2008 was 23% compared to 24% for 2007.

Drilling and Evaluation

Drilling and Evaluation revenue was up 15% in the fourth quarter 2008 compared to the fourth quarter 2007, and up 1% sequentially compared to the third quarter 2008. Profit before tax in the fourth quarter 2008 was down 4% compared to the fourth quarter 2007 and down 3% compared to the third quarter 2008. The pre-tax operating margin in the fourth quarter 2008 was 21% compared to 25% in the fourth quarter 2007 and 22% in the third quarter 2008.

For the year 2008 compared to the year 2007, revenue increased 14% and operating profit before tax was flat. The pre-tax operating margin for 2008 was 23% compared to 26% for 2007.

Completion and Production

Completion and Production revenue was up 18% in the fourth quarter 2008 compared to the fourth quarter 2007 and up 11% sequentially compared to the third quarter 2008. Profit before tax in the fourth quarter 2008 was up 19% compared to the fourth quarter 2007 and up 16% compared to the third quarter 2008. The pre-tax operating margin in the fourth quarter 2008 and the fourth quarter 2007 was 23%, and was 22% for the third quarter 2008.

For the year 2008 compared to the year 2007, revenue increased 13% and operating profit before tax increased 15%. The pre-tax operating margin for both 2008 and 2007 was 22%.

North America

North America revenue increased 25% in the fourth quarter 2008 compared to the fourth quarter 2007 and increased 8% compared to the third quarter 2008. In North America, comparing the fourth quarter 2008 to the fourth quarter 2007, revenue from our US operations increased 26% compared to a rig count which increased 6%; and revenue from our Canada operations increased 18% compared to a 15% increase in the rig count. Comparing the fourth quarter 2008 to the third quarter 2008, revenue from our US operations increased 7% compared to a rig count decrease of 4% and revenue from our Canada operations increased 7% compared to a rig count which decreased 5%.

The growth in revenue in the fourth quarter 2008 compared to the fourth quarter 2007 was led by sales of completion equipment in the Gulf of Mexico and artificial lift systems on land. Increased horizontal drilling activity for unconventional gas drove growth for high temperature and conventional directional drilling, measurement-while-drilling, logging-while-drilling and FracPoint completion systems compared to the fourth quarter 2007. Sequential improvement in the fourth quarter 2008 compared to the third quarter 2008 was driven by the recovery of activity in the Gulf of Mexico following the third quarter 2008 hurricanes, as well as our completion, wireline, directional drilling and drilling fluids product lines and was supported by steady performance from our production-oriented production chemicals and artificial lift product lines.

Profit before tax in the fourth quarter 2008 was up 14% compared to the fourth quarter 2007 and up 5% compared to the third quarter 2008. The pre-tax operating margin in the fourth quarter 2008 was 23% compared to 26% in the fourth quarter 2007 and 24% in the third quarter 2008.

For the year 2008 compared to the year 2007, revenue increased 17% and operating profit before tax increased 9%. The pre-tax operating margin for 2008 was 25% compared to 27% in 2007.

Latin America

Latin America revenue increased 42% in the fourth quarter 2008 compared to the fourth quarter 2007 and compared to a 12% increase in the rig count, and increased 20% in the fourth quarter 2008 compared to the third quarter 2008 and compared to a 3% increase in the rig count.

Profit before tax in the fourth quarter 2008 was up 35% compared to the fourth quarter 2007 and up 42% compared to the third quarter 2008. The pre- tax operating margin in the fourth quarter 2008 was 21% compared to 22% in the fourth quarter 2007 and 18% in the third quarter 2008.

The improvement in revenue in the fourth quarter 2008 compared to the fourth quarter 2007 was led by sales of artificial lift systems in Brazil and Colombia; directional drilling, measurement-while-drilling and logging-while- drilling services in Brazil; completion systems in Venezuela and Mexico and drilling fluids in Colombia. Comparing the fourth quarter 2008 to the third quarter 2008, improvement was led by seasonal sales of artificial lift systems in Brazil and Colombia and strong sales of completion and production equipment in Venezuela, Colombia and Mexico. Operating profit in the quarter was impacted by incremental start-up costs in Brazil and Mexico.

For the year 2008 compared to the year 2007, revenue increased 25% and operating profit before tax increased 22%. The pre-tax operating margin for both 2008 and 2007 was 19%.

Europe Africa Russia Caspian

Europe Africa Russia Caspian region revenue increased 5% in the fourth quarter 2008 compared to the fourth quarter 2007, and decreased 3% sequentially compared to the third quarter 2008. Russia and Caspian area revenue decreased 11% in the fourth quarter 2008 compared to the fourth quarter 2007, and increased 4% sequentially compared to the third quarter 2008. Europe revenue was down 5% in the fourth quarter 2008 compared to the fourth quarter 2007 and compared to an increase of 14% in the North Sea rig count, and down 15% compared to the third quarter 2008 and compared to a flat North Sea rig count. Africa revenue was up 41% in the fourth quarter 2008 compared to the fourth quarter 2007 and compared to a 12% decrease in the rig count, and up 11% compared to the third quarter 2008 and compared to a 4% decrease in the rig count.

Profit before tax in the fourth quarter 2008 was down 4% compared to the fourth quarter 2007 and down 15% compared to the third quarter 2008. The pre- tax operating margin in the fourth quarter 2008 was 20% compared to 22% in the fourth quarter 2007 and 23% in the third quarter 2008.

Fourth quarter 2008 results were impacted by weakening of local currencies against the US dollar and the slowdown of drilling activity in Russia. We also experienced weather- and project-related activity delays in the North Sea and Nigeria. Compared to the fourth quarter 2007, revenue improvement in North Africa, Angola and Germany offset decreased revenue from the UK sector of the North Sea. Compared to the third quarter 2008, revenue increases in Angola, Libya and Denmark were more than offset by decreased activity in the UK, Norway and Nigeria.

For the year 2008 compared to the year 2007, revenue increased 10% and operating profit before tax increased 7%. The pre-tax operating margin for both 2008 and 2007 was 22%.

Middle East Asia Pacific

Middle East Asia Pacific region revenue increased 5% in the fourth quarter 2008 compared to the fourth quarter 2007 and increased 10% sequentially compared to the third quarter 2008. Middle East revenue was up 5% in the fourth quarter 2008 compared to the fourth quarter 2007 and compared to a 5% increase in the rig count. Revenue increased 16% in the fourth quarter 2008 compared to the third quarter 2008. Asia Pacific revenue was up 4% in the fourth quarter 2008 compared to the fourth quarter 2007 and compared to a flat rig count; and up 3% compared to the third quarter 2008 and compared to a decrease of 4% in the rig count.

Profit before tax in the fourth quarter 2008 was down 5% compared to the fourth quarter 2007 and up 33% compared to the third quarter 2008. The pre- tax operating margin in the fourth quarter 2008 was 23% compared to 25% in the fourth quarter 2007 and 19% in the third quarter 2008.

Revenue growth in the fourth quarter 2008 compared to the fourth quarter 2007 was driven by increased sales to Indonesia and the UAE, offset by reduced revenue from Saudi Arabia relative to the fourth quarter 2007. Sequentially, compared to the third quarter 2008, fourth quarter 2008 revenue increases were driven by increased directional drilling, measurement-while-drilling, logging- while-drilling, completions and oilfield chemicals revenue primarily in Saudi Arabia, Indonesia and Egypt.

For the year 2008 compared to the year 2007, revenue increased 8% and operating profit before tax decreased 6%. The pre-tax operating margin for 2008 was 20% compared to 23% for 2007.
 

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