Baker Hughes 2007 Annual Report Download - page 106

2007 Form 10-K 23
Our rig counts are summarized in the table below as
averages for each of the periods indicated.
2007 2006 2005(1)
U.S. – land and inland waters 1,695 1,559 1,290
U.S. – offshore 73 90 93
Canada 343 471 455
North America 2,111 2,120 1,838
Latin America 355 324 316
North Sea 48 49 43
Other Europe 29 28 27
Africa 66 58 50
Middle East 265 238 190
Asia Pacific 241 228 225
Outside North America 1,004 925 851
Worldwide 3,115 3,045 2,689
(1) Restated to exclude rig counts for Iran and Sudan, which counts were discon-
tinued as of December 31, 2005.
The U.S. land and inland waters rig count increased 8.7%
in 2007 compared with 2006, due to increased natural gas
drilling activity. The U.S. offshore rig count decreased 18.9%
in 2007 compared with 2006, reflecting the ongoing migration
of rigs out of the Gulf of Mexico to more attractive markets
and weather-related disruptions. The Canadian rig count
decreased 27.2% over 2006 levels due to lower activity result-
ing from less-favorable economics for natural gas producers.
Outside North America, the rig count increased 8.5% in
2007 compared with 2006. The rig count in Latin America
increased 9.6% in 2007 compared with 2006, driven primarily
by activity increases in Colombia, Brazil and Mexico. The North
Sea rig count was down slightly in 2007 compared with 2006.
The rig count in Africa increased by 13.8% in 2007 compared
with 2006. Activity in 2007 in the Middle East increased 11.3%
compared with 2006, driven primarily by activity increases in
Saudi Arabia, Egypt and Oman. The rig count in the Asia Pacific
region was up 5.7% in 2007 compared with 2006, with modest
increases in multiple countries across the region.
RESULTS OF OPERATIONS
The discussions below relating to significant line items
from our consolidated statements of operations are based on
available information and represent our analysis of significant
changes or events that impact the comparability of reported
amounts. Where appropriate, we have identified specific events
and changes that affect comparability or trends and, where
possible and practical, have quantified the impact of such items.
The discussions are based on our consolidated financial results,
as individual segments do not contribute disproportionately to
our revenues, profitability or cash requirements. In addition, the
discussions below for revenues and cost of revenues are on a
combined basis as the business drivers for the individual com-
ponents of product sales and service and rentals are similar.
During the fourth quarter of 2007, we began classifying
certain expenses as cost of sales and cost of services and rentals
that were previously classified as selling, general and admin-
istrative expenses. The change was the result of an internal
review to improve management reporting. The reclassified
expenses relate to selling and field service costs which are
closely related to operating activities. In addition, we have
renamed selling, general and administrative expenses on the
statement of operations to marketing, general and administra-
tive expenses to more accurately describe the costs included
therein. The impact of these reclassifications is to increase cost
of sales by $366.1 million, $318.6 million and $276.2 million
for the years ended December 31, 2007, 2006 and 2005,
respectively; increase cost of services and rentals by $123.9 mil-
lion, $114.3 million and $104.7 million for the years ended
December 31, 2007, 2006 and 2005, respectively; and decrease
marketing, general and administrative expense by $490.0 million,
$432.9 million and $380.9 million for the years ended Decem-
ber 31, 2007, 2006 and 2005, respectively. These reclassifica-
tions had no impact on total costs and expenses as these changes
offset one another. All prior periods have been reclassified to
conform to this new presentation.
The table below details certain consolidated statement of
operations data and their percentage of revenues for 2007,
2006 and 2005 (dollar amounts in millions).
Revenues
Revenues for 2007 increased 15.5% compared with 2006,
primarily due to increases in activity in certain geographic areas
and, to a lesser extent, improvement in price. Revenues in
North America, which accounted for 41.8% of total revenues,
increased 9.0% in 2007 compared with 2006. Revenues from
our U.S. land operations increased 15.4% compared to a rig
count that increased 8.7%, which reflects a continued increase
in gas-directed horizontal drilling. Revenue from the U.S. off-
shore market increased 2.9% compared to a rig count that
decreased 18.9%. These increases more than offset an 8.6%
decline in Canadian revenue where the rig count declined 27.2%.
Revenues outside North America, which accounted for 58.2%
of total revenues, increased 20.7% in 2007 compared with
2006. This increase reflects the improvement in international
drilling activity, as evidenced by the 8.5% increase in the rig
count outside North America, particularly in Latin America, Africa,
the Middle East and Asia Pacific region, coupled with improve-
ments in certain markets and product lines and price increases.
Revenues for 2006 increased 25.6% compared with 2005,
primarily due to increases in activity, as evidenced by a 13.2%
increase in the worldwide rig count, pricing improvements of
2007 2006 2005
$ % $ % $ %
Revenues $ 10,428.2 100.0% $ 9,027.4 100.0% $ 7,185.5 100.0%
Cost of revenues 6,845.6 65.6% 5,876.4 65.1% 5,023.7 69.9%
Research and engineering 372.0 3.6% 338.9 3.8% 299.6 4.2%
Marketing, general and administrative 932.8 8.9% 877.8 9.7% 628.8 8.8%