Baker Hughes Inc. (BHI) filed Quarterly Report for the period ended 2009-09-30.
Baker Hughes Inc. is engaged in the oilfield and process industries. In addition the company manufactures and sells other products and provides services to industries that are not related to the oilfield or continuous process industries. The company conducts certain of its operations through joint ventures partnerships or alliances. Baker Hughes Inc. has a market cap of $11.94 billion; its shares were traded at around $40.89 with a P/E ratio of 10.2 and P/S ratio of 0.9. The dividend yield of Baker Hughes Inc. stocks is 1.5%. Baker Hughes Inc. had an annual average earning growth of 16.6% over the past 10 years.
Highlight of Business Operations:
During the first three quarters of 2009, as the global economy continued to weaken, many of our customers reduced their 2009 exploration and development spending, and we have seen significant decreases from peak drilling activity, particularly in the U.S. land market and Canada, and a decline in prices for our products and services. In this challenging environment, we generated revenues of $2.23 billion in the third quarter of 2009, which is down $778 million or 26% compared to the third quarter of 2008, and compared to a 39% decrease in the worldwide average rig count for the same time period. Our North American revenues for the third quarter of 2009 were $817 million, a decrease of 38% compared to a 51% decrease in the U.S. rig count and a 57% decrease in the Canadian rig count, which reflects the severe contraction in customer spending and activity. Revenues outside of North America were $1.41 billion, a decrease of 17% compared to the third quarter of 2008. As a result of the decline in activity and contractions in customer spending, we have taken actions to adjust our operating cost base, which consisted primarily of reductions in workforce. In connection with the reductions in workforce, we recorded expenses of $10 million and $75 million in the three months and nine months ended September 30, 2009, respectively, related to employee severance costs. Net income for the third quarter of 2009 was $55 million compared with $429 million in the third quarter of 2008.
On August 30, 2009, the Company and BJ Services entered into a merger agreement to which the Company will acquire 100% of the outstanding common stock of BJ Services. We have estimated the total consideration expected to be issued and paid in the merger to be approximately $6.0 billion, consisting of approximately $0.8 billion to be paid in cash and approximately $5.2 billion to be paid through the issuance of approximately 118 million shares of Baker Hughes common stock valued at the October 7, 2009, closing Baker Hughes share price of $43.67 per share. Subject to satisfaction of conditions to closing, it is anticipated that closing of the transaction will occur in the first quarter of 2010; however, we cannot guarantee when or if the merger will be completed or that, if completed, it will be exactly on the terms as set forth in the merger agreement.
Natural gas prices averaged $3.17/mmBtu in the third quarter of 2009. Natural gas prices ranged from a high of $3.78/mmBtu in early August to a low of $1.83/mmBtu in early September, before strengthening through quarter-end as pipeline maintenance reduced available supply and natural gas powered generation capacity drove higher demand. The near-term outlook for natural gas prices remains subject to many factors including the level of industrial demand, drilling activity and production trends, high levels of natural gas in storage, and the impact of weather on natural gas demand and storage levels.
Cost of revenues as a percentage of consolidated revenues was 79% and 67% for the three months ended September 30, 2009 and 2008, respectively. Cost of revenues as a percentage of consolidated revenues was 76% and 66% for the nine months ended September 30, 2009 and 2008, respectively. The increase in both periods in cost of revenues as a percentage of revenues is primarily due to significant declines in activity worldwide resulting in excess manufacturing capacity, lower utilization of our rental tools and price deterioration, primarily in North America. Additional contributing factors to this increase include costs associated with employee severance of $8 million and $61 million for the three and nine months ended September 30, 2009, respectively; costs associated with increasing our allowance for doubtful accounts of $5 million and $71 million for the three months and nine months ended September 30, 2009, respectively; and a change in the geographic and product mix from the sale of our products and services as we continue to emphasize productivity and cost improvements.
In connection with the settlement of litigation with ReedHycalog, in June 2008, the Company paid ReedHycalog $70 million in royalties for prior use of certain patented technologies, and ReedHycalog paid the Company $8 million in royalties for the license of certain Company patented technologies. The net charge of $62 million for the settlement of this litigation is reflected in the consolidated condensed statement of operations.
Interest expense increased $8 million for the three months ended September 30, 2009 compared with the three months ended September 30, 2008 and increased $45 million in the nine months ended September 30, 2009 compared with the nine months ended September 30, 2008. The increase in both periods is primarily due to higher average debt levels as a result of the long-term debt issuances of $1.25 billion in October 2008.
BHI is in the portfolios of Dodge & Cox, David Dreman of Dreman Value Management, Jean-Marie Eveillard of Arnhold & S. Bleichroeder Advisers, LLC, Richard Pzena of Pzena Investment Management LLC.
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