Baker Hughes Announces Third Quarter Results
"In the third quarter, we delivered increased operating profit sequentially, despite deteriorating market conditions and lower revenue," said
"As our customers focus increasingly on managing cash, we are experiencing a current shift in spend favoring production optimization projects over exploration and development. As such, we are seeing stronger interest in our production offerings, particularly upstream and refinery chemicals, that provide our customers with optimized production from existing wells and increased ultimate recovery. Consistent with our earlier forecast, we expect further activity reductions and pricing pressures to continue across the globe for well construction for the remainder of the year, as our customers adapt their spending to the lower oil price environment.
"In the fourth quarter, we expect activity in
"Regarding the pending merger, I continue to be pleased with the efforts of the teams working on regulatory matters and developing plans for a successful integration. The recently announced plan to divest certain businesses is another important step in the process to complete the transaction. These businesses represent industry leading products and services with extremely proud histories of innovation and value creation for our clients throughout the world.
"Finally, I would like to recognize all of our employees for their hard work, commitment to
2015 Third Quarter Results
Revenue for the quarter was
On a GAAP basis, net loss attributable to
Adjusted EBITDA (a non-GAAP measure) for the third quarter of 2015 was $522 million, an increase of
Adjusted net loss (a non-GAAP measure) for the third quarter of 2015 was
Free cash flow (a non-GAAP measure) for the quarter was
For the quarter, capital expenditures were
Excluding merger-related costs, corporate costs were
Compared to the prior year, revenue declined 57% as a result of a sharp drop in activity, as evident in the 54% year-over-year rig count decline, and deteriorating pricing conditions experienced by the industry since early 2015 as operators adjust their spending to a lower oil price environment. All product lines have been unfavorably impacted by the activity drop, with production chemicals and deepwater operations showing the most resilience. Year-over-year operating margins decreased from 12% in the prior year to (11.2%) in the current year as ongoing cost management efforts helped contain decremental operating margins on reduced activity and pricing to 30%; an improvement from the 35% year-over-year decremental operating margin reported last quarter.
Third quarter revenue for
Adjusted operating profit margin for
Compared to the prior year, revenue decreased 23% primarily driven by activity declines across the region, predominantly in the Andean geomarket where the rig count has declined 46%. Revenue was also negatively impacted by the unfavorable change in foreign exchange rates. Year over year, margins decreased 82 bps. The impact on margins from lower revenue was partially offset by improvements made to the operating cost structure, minimizing year-over-year decremental operating margins to 15%.
Revenue in
Adjusted operating profit margins were 12.4% for the third quarter of 2015, compared to 6.6% for the prior quarter. The improvement in margins is primarily attributable to the result of cost saving initiatives.
Compared to the prior year, revenue declined
In the third quarter, revenue of
Adjusted operating profit margin was 9%, a 194 bps improvement compared to the prior quarter. The improvement in profit margins can be attributed to the benefit of cost saving measures throughout the region, and mobilization costs in the second quarter not repeating in the third quarter. The current quarter includes the unfavorable impact of charges in
Compared to the prior year, revenue decreased
Industrial Services
Revenue for Industrial Services of
Adjusted operating profit margins were 13%, compared to 10.5% in the prior quarter. The improvement in margins can be attributed to the seasonal increase in activity and additional savings from recent cost reduction measures.
Compared to the prior year, revenue increased 2% as revenue related to the acquisition of a pipeline services business late in the third quarter of 2014 was partially offset by reduced activity. Revenue was also impacted by unfavorable changes in foreign exchange rates against the U.S. Dollar. Year-over-year operating profit margins improved 247 bps, due primarily to savings from cost reduction actions.
Please see Table 1 for a reconciliation of GAAP to non-GAAP financial measures. A reconciliation of net (loss) income attributable to
Consolidated Condensed Statements of Income (Loss) |
|||||||||||
Three Months Ended |
|||||||||||
September 30, |
June 30, |
||||||||||
(In millions, except per share amounts) |
2015 |
2014 |
2015 |
||||||||
Revenue |
$ |
3,786 |
$ |
6,250 |
$ |
3,968 |
|||||
Costs and expenses: |
|||||||||||
Cost of revenue |
3,403 |
5,107 |
3,615 |
||||||||
Research and engineering |
115 |
159 |
124 |
||||||||
Marketing, general and administrative |
271 |
323 |
310 |
||||||||
Restructuring charges |
98 |
— |
76 |
||||||||
Litigation settlements |
— |
— |
(13) |
||||||||
Total costs and expenses |
3,887 |
5,589 |
4,112 |
||||||||
Operating (loss) income |
(101) |
661 |
(144) |
||||||||
Interest expense, net |
(55) |
(59) |
(53) |
||||||||
(Loss) income before income taxes |
(156) |
602 |
(197) |
||||||||
Income taxes |
— |
(233) |
7 |
||||||||
Net (loss) income |
(156) |
369 |
(190) |
||||||||
Net (income) loss attributable to noncontrolling interests |
(3) |
6 |
2 |
||||||||
Net (loss) income attributable to Baker Hughes |
$ |
(159) |
$ |
375 |
$ |
(188) |
|||||
Basic (loss) earnings per share attributable to Baker Hughes |
$ |
(0.36) |
$ |
0.86 |
$ |
(0.43) |
|||||
Diluted (loss) earnings per share attributable to Baker Hughes |
$ |
(0.36) |
$ |
0.86 |
$ |
(0.43) |
|||||
Weighted average shares outstanding, basic |
439 |
436 |
438 |
||||||||
Weighted average shares outstanding, diluted |
439 |
438 |
438 |
||||||||
Depreciation and amortization expense |
$ |
432 |
$ |
455 |
$ |
434 |
|||||
Capital expenditures |
$ |
178 |
$ |
425 |
$ |
258 |
Consolidated Condensed Statements of Income (Loss) |
|||||||
Nine Months Ended September 30, |
|||||||
(In millions, except per share amounts) |
2015 |
2014 |
|||||
Revenue |
$ |
12,348 |
$ |
17,916 |
|||
Costs and expenses: |
|||||||
Cost of revenue |
11,360 |
14,572 |
|||||
Research and engineering |
377 |
461 |
|||||
Marketing, general and administrative |
896 |
977 |
|||||
Restructuring charges |
747 |
— |
|||||
Litigation settlements |
(13) |
62 |
|||||
Total costs and expenses |
13,367 |
16,072 |
|||||
Operating (loss) income |
(1,019) |
1,844 |
|||||
Interest expense, net |
(162) |
(175) |
|||||
(Loss) income before income taxes |
(1,181) |
1,669 |
|||||
Income taxes |
242 |
(605) |
|||||
Net (loss) income |
(939) |
1,064 |
|||||
Net loss (income) attributable to noncontrolling interests |
3 |
(8) |
|||||
Net (loss) income attributable to Baker Hughes |
$ |
(936) |
$ |
1,056 |
|||
Basic (loss) earnings per share attributable to Baker Hughes |
$ |
(2.13) |
$ |
2.42 |
|||
Diluted (loss) earnings per share attributable to Baker Hughes |
$ |
(2.13) |
$ |
2.40 |
|||
Weighted average shares outstanding, basic |
438 |
437 |
|||||
Weighted average shares outstanding, diluted |
438 |
440 |
|||||
Depreciation and amortization expense |
$ |
1,326 |
$ |
1,346 |
|||
Capital expenditures |
$ |
751 |
$ |
1,288 |
Consolidated Condensed Balance Sheets |
|||||||
September 30, |
December 31, |
||||||
(In millions) |
2015 |
2014 |
|||||
ASSETS |
|||||||
Current assets: |
|||||||
Cash and cash equivalents |
$ |
2,043 |
$ |
1,740 |
|||
Accounts receivable - less allowance for doubtful accounts (2015 - $366, 2014 - $224) |
3,518 |
5,418 |
|||||
Inventories, net |
3,262 |
4,074 |
|||||
Other current assets |
763 |
813 |
|||||
Total current assets |
9,586 |
12,045 |
|||||
Property, plant and equipment, net |
8,026 |
9,063 |
|||||
Goodwill |
6,075 |
6,081 |
|||||
Intangible assets, net |
729 |
812 |
|||||
Other assets |
1,000 |
826 |
|||||
Total assets |
$ |
25,416 |
$ |
28,827 |
|||
LIABILITIES AND EQUITY |
|||||||
Current liabilities: |
|||||||
Accounts payable |
$ |
1,480 |
$ |
2,807 |
|||
Short-term debt and current portion of long-term debt |
156 |
220 |
|||||
Accrued employee compensation |
795 |
782 |
|||||
Other accrued liabilities |
487 |
828 |
|||||
Total current liabilities |
2,918 |
4,637 |
|||||
Long-term debt |
3,896 |
3,913 |
|||||
Deferred income taxes and other tax liabilities |
324 |
740 |
|||||
Long-term liabilities |
773 |
807 |
|||||
Equity |
17,505 |
18,730 |
|||||
Total liabilities and equity |
$ |
25,416 |
$ |
28,827 |
Consolidated Condensed Statements of Cash Flows |
|||||||
Nine Months Ended September 30, |
|||||||
(In millions) |
2015 |
2014 |
|||||
Cash flows from operating activities: |
|||||||
Net (loss) income |
$ |
(939) |
$ |
1,064 |
|||
Adjustments to reconcile net (loss) income to net cash flows from operating activities: |
|||||||
Depreciation and amortization |
1,326 |
1,346 |
|||||
Other, primarily working capital |
878 |
(656) |
|||||
Net cash flows provided by operating activities |
1,265 |
1,754 |
|||||
Cash flows from investing activities: |
|||||||
Expenditures for capital assets |
(751) |
(1,288) |
|||||
Proceeds from disposal of assets |
269 |
295 |
|||||
Acquisition of businesses, net of cash acquired |
— |
(313) |
|||||
Other |
(231) |
— |
|||||
Net cash flows used in investing activities |
(713) |
(1,306) |
|||||
Cash flows from financing activities: |
|||||||
Net (repayments) proceeds from issuance of debt |
(38) |
51 |
|||||
Repurchase of common stock |
— |
(600) |
|||||
Dividends |
(222) |
(205) |
|||||
Other |
21 |
120 |
|||||
Net cash flows used in financing activities |
(239) |
(634) |
|||||
Effect of foreign exchange rate changes on cash and cash equivalents |
(10) |
(4) |
|||||
Increase (decrease) in cash and cash equivalents |
303 |
(190) |
|||||
Cash and cash equivalents, beginning of period |
1,740 |
1,399 |
|||||
Cash and cash equivalents, end of period |
$ |
2,043 |
$ |
1,209 |
Table 1: Reconciliation of GAAP and Non-GAAP Financial Measures
The following table reconciles net (loss) income attributable to
Three Months Ended |
|||||||||||||||||||||||
September 30, |
June 30, |
||||||||||||||||||||||
2015 |
2014 |
2015 |
|||||||||||||||||||||
(In millions, except per share amounts) |
Net Income |
Diluted |
Net |
Diluted |
Net |
Diluted Earnings |
|||||||||||||||||
Net (loss) income attributable to Baker Hughes (GAAP) |
$ |
(159) |
$ |
(0.36) |
$ |
375 |
$ |
0.86 |
$ |
(188) |
$ |
(0.43) |
|||||||||||
Identified item: |
|||||||||||||||||||||||
Restructuring charges2 |
70 |
0.16 |
— |
— |
59 |
0.13 |
|||||||||||||||||
Merger and related costs3 |
67 |
0.15 |
— |
— |
60 |
0.14 |
|||||||||||||||||
Inventory adjustments4 |
— |
— |
— |
— |
16 |
0.04 |
|||||||||||||||||
Litigation Settlements5 |
— |
— |
— |
— |
(9) |
(0.02) |
|||||||||||||||||
Business restructure in North Africa6 |
— |
— |
58 |
0.13 |
— |
— |
|||||||||||||||||
Impairment of technology investment7 |
— |
— |
14 |
0.03 |
— |
— |
|||||||||||||||||
Adjusted net (loss) income (non-GAAP)1 |
$ |
(22) |
$ |
(0.05) |
$ |
447 |
$ |
1.02 |
$ |
(62) |
$ |
(0.14) |
1 |
Adjusted net (loss) income is a non-GAAP measure comprised of net (loss) income attributable to Baker Hughes excluding the impact of certain identified items. The Company believes that adjusted net (loss) income is useful to investors because it is a consistent measure of the underlying results of the Company's business. Furthermore, management uses adjusted net (loss) income as a measure of the performance of the Company's operations. |
|
2 |
Restructuring charges of $98 million before-tax ($70 million after-tax) and $76 million before-tax ($59 million after-tax) associated primarily with workforce reductions were recorded during the third and second quarters of 2015, respectively. |
|
3 |
Merger and related costs of $93 million before-tax ($67 million after-tax) and $83 million before-tax ($60 million after-tax) were recorded during the third and second quarters of 2015, respectively, including costs under our retention program and obligations for minimum incentive compensation which, based on meeting eligibility criteria in April, have been treated as merger related expenses. Merger and related costs of $55 million and $40 million were recorded in Corporate and $38 million and $43 million were recorded in Operations for the third and second quarters of 2015, respectively. |
|
4 |
Inventory adjustments of $23 million before-tax ($16 million after-tax) were recorded in the second quarter of 2015 to adjust the carrying value of certain U.S. inventory. |
|
5 |
The amount of claims made under a labor claim settlement agreement from the second quarter of 2014 was less than expected and accordingly, the accrual was reduced by $13 million before-tax ($9 million after-tax), which was recorded during the second quarter of 2015. |
|
6 |
Costs related to restructuring the North Africa business of $58 million before and after-tax in the Europe/Africa/Russia Caspian segment during the third quarter of 2014. |
|
7 |
Costs related to an impairment of a technology investment of $14 million before and after-tax recorded in Corporate and Other during the third quarter of 2014. |
Table 2: Calculation of EBIT, EBITDA, and Adjusted EBITDA1
Three Months Ended |
|||||||||||
September 30, |
June 30, |
||||||||||
(In millions) |
2015 |
2014 |
2015 |
||||||||
Net (loss) income attributable to Baker Hughes |
$ |
(159) |
$ |
375 |
$ |
(188) |
|||||
Net (loss) income attributable to noncontrolling interests |
3 |
(6) |
(2) |
||||||||
Income taxes |
— |
233 |
(7) |
||||||||
(Loss) income before income taxes |
(156) |
602 |
(197) |
||||||||
Interest expense, net |
55 |
59 |
53 |
||||||||
(Loss) earnings before interest and taxes (EBIT) |
(101) |
661 |
(144) |
||||||||
Depreciation and amortization expense |
432 |
455 |
434 |
||||||||
Earnings (loss) before interest, taxes, depreciation and |
331 |
1,116 |
290 |
||||||||
Adjustments to EBITDA: |
|||||||||||
Restructuring charges2 |
98 |
— |
76 |
||||||||
Merger and related costs3 |
93 |
— |
83 |
||||||||
Inventory adjustments4 |
— |
— |
23 |
||||||||
Litigation settlements5 |
— |
— |
(13) |
||||||||
Business restructure in North Africa6 |
— |
58 |
— |
||||||||
Impairment of technology investment7 |
— |
14 |
— |
||||||||
Adjusted EBITDA |
$ |
522 |
$ |
1,188 |
$ |
459 |
Nine Months Ended September 30, |
|||||||
(In millions) |
2015 |
2014 |
|||||
Net (loss) income attributable to Baker Hughes |
$ |
(936) |
$ |
1,056 |
|||
Net (loss) income attributable to noncontrolling interests |
(3) |
8 |
|||||
Income taxes |
(242) |
605 |
|||||
(Loss) income before income taxes |
(1,181) |
1,669 |
|||||
Interest expense, net |
162 |
175 |
|||||
(Loss) earnings before interest and taxes (EBIT) |
(1,019) |
1,844 |
|||||
Depreciation and amortization expense |
1,326 |
1,346 |
|||||
(Loss) earnings before interest, taxes, depreciation and amortization (EBITDA) |
307 |
3,190 |
|||||
Adjustments to EBITDA: |
|||||||
Restructuring charges2 |
747 |
— |
|||||
Merger and related costs3 |
204 |
— |
|||||
Inventory adjustments4 |
194 |
— |
|||||
Litigation settlements5 |
(13) |
62 |
|||||
Business restructure in North Africa6 |
— |
58 |
|||||
Impairment of technology investment7 |
— |
14 |
|||||
Venezuela currency devaluation8 |
— |
12 |
|||||
Severance charges9 |
— |
29 |
|||||
Technology royalty agreement10 |
— |
29 |
|||||
Adjusted EBITDA |
$ |
1,439 |
$ |
3,394 |
1 |
EBIT, EBITDA, and Adjusted EBITDA (as defined in the calculations above) are non-GAAP measures. Management is providing these measures because it believes that such measures are widely accepted financial indicators used by investors and analysts to analyze and compare companies on the basis of operating performance. |
|
2 |
Restructuring charges of $98 million before-tax ($70 million after-tax) and $76 million before-tax ($59 million after-tax) were recorded during the third and second quarters of 2015, respectively, and related primarily to workforce reductions. Restructuring charges of $747 million before-tax ($544 million after-tax) were recorded during the nine months ended September 30, 2015 and were associated with workforce reductions, facility closures, asset impairments and contract terminations. |
|
3 |
Merger and related costs of $93 million before-tax ($67 million after-tax) and $83 million before-tax ($60 million after-tax) were recorded during the third and second quarters of 2015, respectively, including costs under our retention program and obligations for minimum incentive compensation which, based on meeting eligibility criteria in April, have been treated as merger related expenses. Merger and related costs of $55 million and $40 million were recorded in Corporate and $38 million and $43 million were recorded in Operations for the third and second quarters of 2015, respectively. Merger and related costs for the nine months ended September 30, 2015 were $204 million before-tax ($147 million after-tax) of which $123 million were recorded in Corporate and $81 million were recorded in Operations. |
|
4 |
Inventory adjustments of $23 million before-tax ($16 million after-tax) were recorded in the second quarter of 2015 to adjust the carrying value of certain U.S. inventory. Inventory adjustments of $171 million before-tax ($122 million after-tax) were recorded in the first quarter of 2015 to adjust the carrying value of certain inventory of which $159 million is in the U.S. and $12 million is in Latin America. |
|
5 |
Costs related to litigation settlements for labor claims of $62 million before-tax ($39 million after-tax) were recorded during the second quarter of 2014. The amount of claims made under the settlement agreement was less than expected and accordingly, the accrual was reduced by $13 million before-tax ($9 million after-tax), which was recorded during the second quarter of 2015. |
|
6 |
Costs related to restructuring the North Africa business of $58 million before and after-tax in the Europe/Africa/Russia Caspian segment during the third quarter of 2014. |
|
7 |
Costs related to an impairment of a technology investment of $14 million before and after-tax recorded in Corporate and Other during the third quarter of 2014. |
|
8 |
Foreign exchange loss of $12 million before and after-tax in Venezuela was recorded in the second quarter of 2014 as a result of changing from the official exchange rate of 6.3 Bolivars Fuertes per U.S. Dollar to the SICAD 2 rate of approximately 50 Bolivars Fuertes per U.S. Dollar. |
|
9 |
Severance charges of $29 million before-tax ($21 million after-tax) were incurred in North America during the first quarter of 2014. |
|
10 |
Costs related to a technology royalty agreement of $29 million before-tax ($20 million after-tax) were incurred during the first quarter of 2014. |
Table 3a: Segment Revenue, Profit (Loss) Before Tax, and Profit Before Tax Margin1
Three Months Ended |
|||||||||||
September 30, |
June 30, |
||||||||||
(In millions) |
2015 |
2014 |
2015 |
||||||||
Segment Revenue |
|||||||||||
North America |
$ |
1,368 |
$ |
3,155 |
$ |
1,498 |
|||||
Latin America |
439 |
571 |
439 |
||||||||
Europe/Africa/Russia Caspian |
791 |
1,114 |
869 |
||||||||
Middle East/Asia Pacific |
849 |
1,077 |
856 |
||||||||
Industrial Services |
339 |
333 |
306 |
||||||||
Total Operations |
$ |
3,786 |
$ |
6,250 |
$ |
3,968 |
|||||
Profit (Loss) Before Tax |
|||||||||||
North America |
$ |
(169) |
$ |
380 |
$ |
(167) |
|||||
Latin America |
48 |
71 |
41 |
||||||||
Europe/Africa/Russia Caspian |
90 |
91 |
47 |
||||||||
Middle East/Asia Pacific |
69 |
155 |
51 |
||||||||
Industrial Services |
40 |
35 |
29 |
||||||||
Total Operations |
$ |
78 |
$ |
732 |
$ |
1 |
|||||
Corporate and Other Profit (Loss) Before Tax |
|||||||||||
Corporate |
(81) |
(71) |
(82) |
||||||||
Interest expense, net |
(55) |
(59) |
(53) |
||||||||
Restructuring charges |
(98) |
— |
(76) |
||||||||
Litigation settlements |
— |
— |
13 |
||||||||
Corporate, net interest and other |
(234) |
(130) |
(198) |
||||||||
Profit (Loss) Before Tax |
$ |
(156) |
$ |
602 |
$ |
(197) |
|||||
Profit Before Tax Margin1 |
|||||||||||
North America |
(12.4 %) |
12.0% |
(11.1%) |
||||||||
Latin America |
10.9% |
12.4% |
9.3% |
||||||||
Europe/Africa/Russia Caspian |
11.4% |
8.2% |
5.4% |
||||||||
Middle East/Asia Pacific |
8.1% |
14.4% |
6.0% |
||||||||
Industrial Services |
11.8% |
10.5% |
9.5% |
||||||||
Total Operations |
2.1% |
11.7% |
—% |
1 |
Profit before tax margin is a non-GAAP measure defined as profit (loss) before tax divided by revenue. Management uses the profit before tax margin because it believes it is a widely accepted financial indicator used by investors and analysts to analyze and compare companies on the basis of operating performance. |
Table 3b: Segment Revenue, Profit (Loss) Before Tax, and Profit Before Tax Margin1
Nine Months Ended September 30, |
|||||||
(In millions) |
2015 |
2014 |
|||||
Segment Revenue |
|||||||
North America |
$ |
4,872 |
$ |
8,774 |
|||
Latin America |
1,371 |
1,645 |
|||||
Europe/Africa/Russia Caspian |
2,555 |
3,269 |
|||||
Middle East/Asia Pacific |
2,621 |
3,241 |
|||||
Industrial Services |
929 |
987 |
|||||
Total Operations |
$ |
12,348 |
$ |
17,916 |
|||
Profit (Loss) Before Tax |
|||||||
North America |
$ |
(545) |
$ |
978 |
|||
Latin America |
122 |
172 |
|||||
Europe/Africa/Russia Caspian |
117 |
421 |
|||||
Middle East/Asia Pacific |
182 |
448 |
|||||
Industrial Services |
79 |
96 |
|||||
Total Operations |
$ |
(45) |
$ |
2,115 |
|||
Corporate and Other Profit (Loss) Before Tax |
|||||||
Corporate |
(240) |
(209) |
|||||
Interest expense, net |
(162) |
(175) |
|||||
Restructuring charges |
(747) |
— |
|||||
Litigation settlements |
13 |
(62) |
|||||
Corporate, net interest and other |
(1,136) |
(446) |
|||||
Profit (Loss) Before Tax |
$ |
(1,181) |
$ |
1,669 |
|||
Profit Before Tax Margin1 |
|||||||
North America |
(11.2%) |
11.1% |
|||||
Latin America |
8.9% |
10.5% |
|||||
Europe/Africa/Russia Caspian |
4.6% |
12.9% |
|||||
Middle East/Asia Pacific |
6.9% |
13.8% |
|||||
Industrial Services |
8.5% |
9.7% |
|||||
Total Operations |
(0.4%) |
11.8% |
1 |
Profit before tax margin is a non-GAAP measure defined as profit (loss) before tax divided by revenue. Management uses the profit before tax margin because it believes it is a widely accepted financial indicator used by investors and analysts to analyze and compare companies on the basis of operating performance. |
Table 4: Adjustments to Profit (Loss) Before Tax
Three Months Ended |
|||||||||||
September 30, |
June 30, |
||||||||||
(In millions) |
20152 |
20145,6 |
20151,2 |
||||||||
Adjustments to Profit (Loss) Before Tax |
|||||||||||
North America |
$ |
16 |
$ |
— |
$ |
40 |
|||||
Latin America |
3 |
— |
4 |
||||||||
Europe/Africa/Russia Caspian |
8 |
58 |
10 |
||||||||
Middle East/Asia Pacific |
7 |
— |
9 |
||||||||
Industrial Services |
4 |
— |
3 |
||||||||
Total Operations |
$ |
38 |
$ |
58 |
$ |
66 |
|||||
Corporate |
55 |
14 |
40 |
||||||||
Total |
$ |
93 |
$ |
72 |
$ |
106 |
Nine Months Ended September 30, |
|||||||
(In millions) |
20151,2 |
20143,4,5,6 |
|||||
Adjustments to Profit (Loss) Before Tax |
|||||||
North America |
$ |
215 |
$ |
42 |
|||
Latin America |
19 |
15 |
|||||
Europe/Africa/Russia Caspian |
18 |
64 |
|||||
Middle East/Asia Pacific |
16 |
6 |
|||||
Industrial Services |
7 |
1 |
|||||
Total Operations |
$ |
275 |
$ |
128 |
|||
Corporate |
123 |
14 |
|||||
Total |
$ |
398 |
$ |
142 |
1 |
Inventory adjustments of $23 million before-tax were recorded in the second quarter of 2015 to adjust the carrying value of certain U.S. inventory. Inventory adjustments of $171 million before-tax were recorded in the first quarter of 2015 to adjust the carrying value of certain inventory of which $159 million is in the U.S. and $12 million is in Latin America. |
|
2 |
Merger and related costs of $93 million before-tax and $83 million before-tax were recorded during the third and second quarters of 2015, respectively, including costs under our retention program and obligations for minimum incentive compensation which, based on meeting eligibility criteria in April, have been treated as merger related expenses. Merger and related costs of $55 million and $40 million were recorded in Corporate and $38 million and $43 million were recorded in Operations for the third and second quarters of 2015, respectively. Merger and related costs for the nine months ended September 30, 2015 were $204 million before-tax of which $123 million were recorded in Corporate and $81 million were recorded in Operations. |
|
3 |
Foreign exchange loss of $12 million before-tax in Venezuela was recorded in the second quarter of 2014 as a result of changing from the official exchange rate of 6.3 Bolivars Fuertes per U.S. Dollar to the SICAD 2 rate of approximately 50 Bolivars Fuertes per U.S. Dollar. |
|
4 |
Severance charges of $29 million before-tax in North America and costs related to a technology royalty agreement of $29 million before-tax were incurred during the first quarter of 2014. The costs associated with the technology royalty agreement pertain to our global operations and have therefore been allocated to all segments. |
|
5 |
Costs related to restructuring the North Africa business of $58 million before-tax in the Europe/Africa/Russia Caspian segment during the third quarter of 2014. |
|
6 |
Costs related to an impairment of a technology investment of $14 million before-tax recorded in Corporate and Other during the third quarter of 2014. |
Table 5a: Supplemental Segment Financial Information Excluding Certain Identified Items
The following table contains non-GAAP measures of adjusted operating profit (loss) before tax and adjusted operating profit before tax margin, which excludes identified items in Table 4:
Three Months Ended |
|||||||||||
September 30, |
June 30, |
||||||||||
(In millions) |
2015 |
2014 |
2015 |
||||||||
Segment Revenue |
|||||||||||
North America |
$ |
1,368 |
$ |
3,155 |
$ |
1,498 |
|||||
Latin America |
439 |
571 |
439 |
||||||||
Europe/Africa/Russia Caspian |
791 |
1,114 |
869 |
||||||||
Middle East/Asia Pacific |
849 |
1,077 |
856 |
||||||||
Industrial Services |
339 |
333 |
306 |
||||||||
Total Operations |
$ |
3,786 |
$ |
6,250 |
$ |
3,968 |
|||||
Adjusted Operating Profit (Loss) Before Tax1 |
|||||||||||
North America |
$ |
(153) |
$ |
380 |
$ |
(127) |
|||||
Latin America |
51 |
71 |
45 |
||||||||
Europe/Africa/Russia Caspian |
98 |
149 |
57 |
||||||||
Middle East/Asia Pacific |
76 |
155 |
60 |
||||||||
Industrial Services |
44 |
35 |
32 |
||||||||
Total Operations |
$ |
116 |
$ |
790 |
$ |
67 |
|||||
Corporate |
(26) |
(57) |
(42) |
||||||||
Total |
$ |
90 |
$ |
733 |
$ |
25 |
|||||
Adjusted Operating Profit Before Tax Margin1 |
|||||||||||
North America |
(11.2%) |
12.0% |
(8.5%) |
||||||||
Latin America |
11.6% |
12.4% |
10.3% |
||||||||
Europe/Africa/Russia Caspian |
12.4% |
13.4% |
6.6% |
||||||||
Middle East/Asia Pacific |
9.0% |
14.4% |
7.0% |
||||||||
Industrial Services |
13.0% |
10.5% |
10.5% |
||||||||
Total Operations |
3.1% |
12.6% |
1.7% |
1 |
Adjusted operating profit (loss) before tax is a non-GAAP measure defined as profit (loss) before tax less interest expense and certain identified costs. Adjusted operating profit before tax margin is a non-GAAP measure defined as adjusted operating profit (loss) before tax divided by revenue. Management uses each of these measures because it believes they are widely accepted financial indicators used by investors and analysts to analyze and compare companies on the basis of operating performance and that these measures may be used by investors to make informed investment decisions. |
Table 5b: Supplemental Segment Financial Information Excluding Certain Identified Items
The following table contains non-GAAP measures of adjusted operating profit (loss) before tax and adjusted operating profit before tax margin, which excludes identified items in Table 4:
Nine Months Ended September 30, |
|||||||
(In millions) |
2015 |
2014 |
|||||
Segment Revenue |
|||||||
North America |
$ |
4,872 |
$ |
8,774 |
|||
Latin America |
1,371 |
1,645 |
|||||
Europe/Africa/Russia Caspian |
2,555 |
3,269 |
|||||
Middle East/Asia Pacific |
2,621 |
3,241 |
|||||
Industrial Services |
929 |
987 |
|||||
Total Operations |
$ |
12,348 |
$ |
17,916 |
|||
Adjusted Operating Profit (Loss) Before Tax1 |
|||||||
North America |
$ |
(330) |
$ |
1,020 |
|||
Latin America |
141 |
187 |
|||||
Europe/Africa/Russia Caspian |
135 |
485 |
|||||
Middle East/Asia Pacific |
198 |
454 |
|||||
Industrial Services |
86 |
97 |
|||||
Total Operations |
$ |
230 |
$ |
2,243 |
|||
Corporate |
(117) |
(195) |
|||||
Total |
$ |
113 |
$ |
2,048 |
|||
Adjusted Operating Profit Before Tax Margin1 |
|||||||
North America |
(6.8%) |
11.6% |
|||||
Latin America |
10.3% |
11.4% |
|||||
Europe/Africa/Russia Caspian |
5.3% |
14.8% |
|||||
Middle East/Asia Pacific |
7.6% |
14.0% |
|||||
Industrial Services |
9.3% |
9.8% |
|||||
Total Operations |
1.9% |
12.5% |
1 |
Adjusted operating profit (loss) before tax is a non-GAAP measure defined as profit (loss) before tax less interest expense and certain identified costs. Adjusted operating profit before tax margin is a non-GAAP measure defined as adjusted operating profit (loss) before tax divided by revenue. Management uses each of these measures because it believes they are widely accepted financial indicators used by investors and analysts to analyze and compare companies on the basis of operating performance and that these measures may be used by investors to make informed investment decisions. |
Innovations to Earnings
The following section provides operational and technical highlights outlining the successes aligned to our strategy.
Optimizing Well Production and Increasing Ultimate Recovery
Supplemental Financial Information
Supplemental financial information can be found on the Company's website at: www.bakerhughes.com/investor in the Financial Information section under Quarterly Results.
Additional Information
As previously announced in
On
Forward-Looking Statements
This news release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, (each a "forward-looking statement"). The words "anticipate," "believe," "ensure," "expect," "if," "intend," "estimate," "project," "foresee," "forecasts," "predict," "outlook," "aim," "will," "could," "should," "potential," "would," "may," "probable," "likely," and similar expressions, and the negative thereof, are intended to identify forward-looking statements. There are many risks and uncertainties that could cause actual results to differ materially from our forward-looking statements. These forward-looking statements are also affected by the risk factors described in the Company's Annual Report on Form 10-K for the year ended December 31, 2014;
Our expectations regarding our business outlook and business plans; the business plans of our customers; oil and natural gas market conditions; cost and availability of resources; economic, legal and regulatory conditions and other matters are only our forecasts regarding these matters.
These forward looking statements, including forecasts, may be substantially different from actual results, which are affected by many risks including the impact of the pending Merger with
Restructuring activities - the ability to successfully implement and adjust the restructuring activities and achieve it's intended results.
Economic and political conditions – the impact of worldwide economic conditions; the effect that declines in credit availability may have on worldwide economic growth and demand for hydrocarbons; the ability of our customers to finance their exploration and development plans; foreign currency exchange fluctuations and changes in the capital markets in locations where we operate; and the impact of government disruptions.
Oil and gas market conditions – the level of petroleum industry exploration, development and production expenditures; the price of, volatility in pricing of, and the demand for crude oil and natural gas; drilling activity; drilling permits for and regulation of the shelf and the deepwater drilling; excess productive capacity; crude and product inventories; LNG supply and demand; seasonal and other adverse weather conditions that affect the demand for energy; severe weather conditions, such as tornadoes and hurricanes, that affect exploration and production activities;
Terrorism and geopolitical risks – war, military action, terrorist activities or extended periods of international conflict, particularly involving any petroleum-producing or consuming regions; labor disruptions, civil unrest or security conditions where we operate; expropriation of assets by governmental action; cybersecurity risks and cyber incidents or attacks; epidemic outbreaks.
Price, market share, contract terms, and customer payments – our ability to obtain market prices for our products and services; the ability of our competitors to capture market share; our ability to retain or increase our market share; changes in our strategic direction; the effect of industry capacity relative to demand for the markets in which we participate; our ability to negotiate acceptable terms and conditions with our customers, especially national oil companies, to successfully execute these contracts, and receive payment in accordance with the terms of our contracts with our customers; our ability to manage warranty claims and improve performance and quality; our ability to effectively manage our commercial agents.
Costs and availability of resources – our ability to manage the costs, availability, distribution and delivery of sufficient raw materials and components (especially steel alloys, chromium, copper, carbide, lead, nickel, titanium, beryllium, barite, synthetic and natural diamonds, sand, gel, chemicals, and electronic components); our ability to manage energy-related costs; our ability to manage compliance-related costs; our ability to recruit, train and retain the skilled and diverse workforce necessary to meet our business needs and manage the associated costs; the effect of manufacturing and subcontracting performance and capacity; the availability of essential electronic components used in our products; the effect of competition, particularly our ability to introduce new technology on a forecasted schedule and at forecasted costs; potential impairment of long-lived assets; unanticipated changes in the levels of our capital expenditures; the need to replace any unanticipated losses in capital assets; labor-related actions, including strikes, slowdowns and facility occupations; our ability to maintain information security.
Litigation and changes in laws or regulatory conditions – the potential for unexpected litigation or proceedings and our ability to obtain adequate insurance on commercially reasonable terms; the legislative, regulatory and business environment in the U.S. and other countries in which we operate; outcome of government and legal proceedings, as well as costs arising from compliance and ongoing or additional investigations in any of the countries where the Company does business; new laws, regulations and policies that could have a significant impact on the future operations and conduct of all businesses; laws, regulations or restrictions on hydraulic fracturing; any restrictions on new or ongoing offshore drilling or permit and operational delays or program reductions as a result of the regulations in the Gulf of
Investor Contact:
Media Contact:
To view the original version on PR Newswire, visit:http://www.prnewswire.com/news-releases/baker-hughes-announces-third-quarter-results-300163614.html
SOURCE