Baker Hughes Announces Third Quarter Results

08.11.2006

Baker Hughes announced that income from continuing operations for the third quarter 2006 was $358.6 million or $1.09 per diluted share compared to $220.6 million or $0.64 per diluted share for the third quarter 2005 and $1,395.0 million or $4.14 per diluted share for the second quarter 2006.

Net income for the third quarter 2006 was $358.6 million or $1.09 per diluted share compared to $221.9 million or $0.65 per diluted share for the third quarter 2005 and $1,395.0 million or $4.14 per diluted share for the second quarter 2006.

Operating profit, which is a non-GAAP measure comprised of income from continuing operations excluding the impact of certain identified non- operational items, was $358.6 million or $1.09 per diluted share for the third quarter of 2006 compared to $220.6 million or $0.64 per diluted share for the third quarter 2005 and $359.8 million or $1.07 per diluted share for the second quarter 2006. The non-operational item in the second quarter of 2006 related to the pre-tax gain of $1,743.5 million ($1,035.2 million after tax), recorded as a gain on the sale of our interest in an affiliate, resulting from the sale of our 30% interest in WesternGeco, our seismic joint venture with Schlumberger Limited, to Schlumberger on April 28, 2006 for $2.4 billion in cash. There were no non-operational items in the first or third quarters of 2006 or any quarter of 2005. Income from continuing operations is reconciled to operating profit in the section titled "Reconciliation of GAAP and Operating Profit" in this news release.

Third quarter results include a $0.02 per diluted share tax benefit attributable to the reduction of the company's estimated effective tax rate for the twelve months ending December 31, 2006 due to strong results from the Middle East and Africa.

Revenue for the third quarter 2006 was $2,309.4 million, up 29% compared to $1,784.8 million for the third quarter 2005 and up 5% compared to $2,203.3 million for the second quarter 2006.

Chad C. Deaton, Baker Hughes chairman and chief executive officer, said, "Quarter three was a good quarter for Baker Hughes. Our Drilling and Evaluation segment reported record revenue, record operating profit and record operating profit margins with 44% year-over-year incremental operating profit margins. INTEQ and Hughes Christensen had particularly strong quarters. Baker Atlas' results for the last several quarters reflect our ongoing investment in people and equipment and we expect to see the benefits of accelerating growth in the first half of 2007.

"Our Completion and Production segment had record revenue with year-over- year incremental operating profit margins of 29%. Baker Petrolite, in particular, had an outstanding quarter. We are experiencing some growing pains from several successful quarters of rapid expansion at Baker Oil Tools. Baker Oil Tools' backlog is limiting their ability to respond to short lead time orders which are generally associated with premium pricing. With the capacity additions coming on line in Q4 2006 and Q1 2007, we expect Baker Oil Tools' backlog to return to a more manageable level during the first half of 2007."

Mr. Deaton concluded, "We remain confident in our outlook for continued growth for 2007 and through the end of the decade. We expect the industry to take appropriate actions in the first half of 2007 to rebalance the North America natural gas market and we expect continued growth outside of North America. A series of significant recent contract awards around the world including Brazil, Mexico, Russia and Saudi Arabia support our outlook for continued international expansion. Accordingly, we will continue to invest in manufacturing capacity, make additions to our rental fleets, and hire and train field engineers to support our customers' needs through the end of the decade."

During the third quarter of 2006, debt increased $4.9 million to $1,081.1 million, and cash and short-term investments decreased $631.9 million to $1,341.6 million. In the third quarter of 2006, the company's capital expenditures were $234.4 million, depreciation and amortization was $111.1 million and dividend payments were $42.6 million.

During the third quarter of 2006, the company repurchased 7.5 million shares of common stock at an average price of $72.16 for a total of $537.9 million. During the first nine months of 2006, the company repurchased 20.9 million shares of common stock at an average price of $77.56 for a total of $1.62 billion. As of September 30, 2006, the company had authorization remaining to repurchase approximately $580.3 million in common stock.

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