Baker Expects Big Loss in Quarter; Write-Downs Cited
Reflecting harsh times in the oil industry, Baker International said Wednesday that it had an estimated loss of $270 million in its second fiscal quarter ended March 31, due primarily to the write-down of assets.
The expected quarterly loss represents a 27% reduction in Baker’s net worth and compares to net income of $20.9 million in the second quarter last year. But the oil services company said it had “nominal operating income” in the latest quarter before the effect of the huge write-downs. The company said it plans to issue its formal earnings report for the quarter on April 23.
Better Shape Than Competitors
In the year ended last Sept. 30, Baker had net income of $87.7 million, up 24% from $70.6 million the year before.
Securities analysts noted that by keeping its operations nominally in the black last quarter, Orange-based Baker is in better shape than many of its competitors. “They have earned profits while other companies have lost money in the past two years,” said M. Craig Schwerdt, senior vice president at Morgan, Olmstead, Kennedy & Gardner in Los Angeles.
Max Lukens, Baker’s chief financial officer, said Baker decided to take the latest write-off after watching the number of operating oil rigs in United States drop almost 45% in 1986, compared to the year before, as companies that normally buy Baker’s drilling equipment have sharply pulled back on exploration and production.
Lukens said the announced write-down affects inventories, plants and equipment. In addition, he said, the company is writing off the cost of restructuring operations, shutting down plants and corporate “goodwill”--which represents the intangible value assigned to an asset above its normal book value.
Lukens said most of the write-downs were taken on domestic assets, where the cutbacks in oil production have been most severe.
Baker has responded to its shrinking market by consolidating operations, mothballing some manufacturing plants and laying off personnel. In the last 90 days, Baker laid off 2,000 workers, including some in its corporate group in Orange, leaving a total worldwide work force of 17,500. Lukens said the layoffs will save Baker $50 million to $60 million a year in payroll and associated costs.
For the fiscal quarter ended Dec. 31, 1985, the company had an 8.4% decline in earnings to $16.3 million from $17.8 million a year earlier. “Markets did not materialize as we expected in 1985 (and) intense competition will erode profits even further,” Baker President James D. Woods warned shareholders at their annual meeting in January.
