Baker Hughes 2007 Annual Report Download - page 134

2007 Form 10-K 51
NOTE 5. SALE OF INTEREST AND INVESTMENTS
IN AFFILIATES
We have investments in affiliates that are accounted for
using the equity method of accounting. The most significant
of these affiliates was our 30% interest in WesternGeco, a
seismic venture jointly owned with Schlumberger Limited
(“Schlumberger”). On April 28, 2006, we sold our 30% inter-
est in WesternGeco to Schlumberger for $2.4 billion in cash.
We recorded a pre-tax gain of $1,743.5 million ($1,035.2 mil-
lion, after-tax). Prior to our sale, during 2006 and 2005, we
received distributions of $59.6 million and $30.0 million,
respectively, from WesternGeco, which were recorded as
reductions in the carrying value of our investment.
During 2005, we received $13.3 million from Schlumberger
related to a true-up payment associated with revenues earned
by WesternGeco during the four year period ending Novem-
ber 2004 from each party’s contributed multiclient seismic
data libraries. We recorded $13.0 million as a reduction in the
carrying value of our investment in WesternGeco and $0.3 mil-
lion as interest income. The income tax effect of $3.3 million
related to this payment is included in our provision for income
taxes for the year ended December 31, 2005.
In November 2000, we entered into an agreement with
WesternGeco, whereby WesternGeco subleases a facility from
us for a period of ten years at then current market rates. In
2006, we entered into an extension of the sublease for five
additional years with rent to be determined based on market
rates in 2010. During 2007, 2006 and 2005, we received pay-
ments of $8.2 million, $5.6 million and $6.5 million, respec-
tively, from WesternGeco related to this lease.
The following table includes summarized unaudited com-
bined financial information for the affiliates in which we
account for our interests using the equity method of account-
ing. Included in the table for 2006 are the operating and
financial position results for WesternGeco through March 31,
2006, the most recent date for which information is available.
All other information for affiliates is as of December 31.
2007 2006 2005
Combined operating results:
Revenues $ 13.8 $ 582.9 $ 1,700.7
Operating income 5.1 166.1 327.3
Net income 4.3 145.2 279.7
2007 2006
Combined financial position:
Current assets $ 11.4 $ 1,229.4
Noncurrent assets 11.8 1,116.1
Total assets $ 23.2 $ 2,345.5
Current liabilities $ 6.8 $ 546.0
Noncurrent liabilities – 89.1
Stockholders’ equity 16.4 1,710.4
Total liabilities and
stockholders’ equity $ 23.2 $ 2,345.5
As of December 31, 2007 and 2006, the excess of our
investments as recorded on our balance sheet over our pro-
rata share of the shareholders’ equity as reported by the
affiliates was $4.7 million and $8.4 million, respectively.
NOTE 6. INCOME TAXES
The provision for income taxes on income from continuing
operations is comprised of the following for the years ended
December 31:
2007 2006 2005
Current:
United States $ 365.8 $ 861.5 $ 146.3
Foreign 380.7 371.1 251.1
Total current 746.5 1,232.6 397.4
Deferred:
United States 19.0 97.9 7.0
Foreign (22.7) 7.7 0.4
Total deferred (3.7) 105.6 7.4
Provision for
income taxes $ 742.8 $ 1,338.2 $ 404.8
The geographic sources of income from continuing oper-
ations before income taxes are as follows for the years ended
December 31:
2007 2006 2005
United States $ 876.5 $ 1,917.3 $ 409.6
Foreign 1,380.2 1,819.5 869.6
Income from continuing
operations before
income taxes $ 2,256.7 $ 3,736.8 $ 1,279.2
Tax benefits of $17.1 million, $19.4 million and $19.8 mil-
lion associated with the exercise of employee stock options
were allocated to equity and recorded in capital in excess of
par value in the years ended December 31, 2007, 2006 and
2005, respectively.