Baker Hughes Announces Third Quarter Results
- Revenue of
$2.4 billion for the quarter, down 2% sequentially and 38% year-over-year - Operating losses were
$321 million for the quarter, a sequential improvement of$249 million , or 44% - GAAP net loss per share of
$1.00 for the quarter includes$0.85 per share of adjusting items - Cash flows from operating activities were
$119 million for the quarter
“Our third quarter results demonstrate the progress we have made on our commitment to improve financial performance by reducing operational costs, optimizing our capital structure, and strengthening our full-service model while building broader sales channels for our products and technology,” said
“Revenue for the third quarter declined 2% sequentially, primarily as a result of steep activity reductions and project delays in our Gulf of
“Looking ahead, in the fourth quarter of 2016 we expect activity in
“While we expect the market conditions to remain challenging near term, the structural changes we implemented in the past six months have created a stronger foundation for delivering on our objectives and positioning the company for growth. I am pleased with our progress and, while we have more work ahead of us, I am confident that we have the right people, technology, and strategy to grow profitably and maximize return on invested capital.”
2016 Third Quarter Results
Revenue for the quarter was
On a GAAP basis, net loss attributable to
Adjusted net loss (a non-GAAP measure) for the quarter was
Adjusted EBITDA (a non-GAAP measure) was
Cash flows provided by operating activities were
For the quarter, capital expenditures were
Corporate costs were
Income tax expense was
In the third quarter we repurchased approximately 5.3 million shares on the open market, totaling
Operating loss before tax for the third quarter was
Adjusted operating loss before tax (a non-GAAP measure), which excludes the inventory-related adjustments, was
Operating profit before tax for the third quarter was
Adjusted operating profit before tax (a non-GAAP measure), which excludes the inventory adjustments, was
Operating profit before tax for the third quarter was
Adjusted operating profit before tax (a non-GAAP measure), which excludes the inventory adjustments, was
Operating profit before tax for the third quarter was
Adjusted operating profit before tax (a non-GAAP measure), which excludes the inventory adjustments, was
Industrial Services
Industrial Services revenue of
Operating profit before tax for the third quarter was
Adjusted operating profit before tax (a non-GAAP measure), which excludes the inventory adjustments, was
___________________________________________________________________________________________
Please see Tables 1a and 1b for a reconciliation of GAAP to non-GAAP financial measures. A reconciliation of net income (loss) attributable to
|
Consolidated Condensed Statements of Income (Loss)1 |
||||||||||||
| Three Months Ended | ||||||||||||
| September 30, | June 30, | |||||||||||
| (In millions, except per share amounts) | 2016 | 2015 | 2016 | |||||||||
| Revenue | $ | 2,353 | $ | 3,786 | $ | 2,408 | ||||||
| Costs and expenses: | ||||||||||||
| Cost of revenue | 2,059 | 3,375 | 3,112 | |||||||||
| Research and engineering | 91 | 110 | 99 | |||||||||
| Marketing, general and administrative | 203 | 211 | 222 | |||||||||
| Impairment and restructuring charges | 304 | 98 | 1,126 | |||||||||
| Goodwill impairment | 17 | — | 1,841 | |||||||||
| Merger and related costs | — | 93 | 78 | |||||||||
| Merger termination fee | — | — | (3,500 | ) | ||||||||
| Total costs and expenses | 2,674 | 3,887 | 2,978 | |||||||||
| Operating loss | (321 | ) | (101 | ) | (570 | ) | ||||||
| Loss on early extinguishment of debt | — | — | (142 | ) | ||||||||
| Interest expense, net | (39 | ) | (55 | ) | (48 | ) | ||||||
| Loss before income taxes | (360 | ) | (156 | ) | (760 | ) | ||||||
| Income taxes | (70 | ) | — | (152 | ) | |||||||
| Net loss | (430 | ) | (156 | ) | (912 | ) | ||||||
| Net (income) loss attributable to noncontrolling interests | 1 | (3 | ) | 1 | ||||||||
| Net loss attributable to Baker Hughes | $ | (429 | ) | $ | (159 | ) | $ | (911 | ) | |||
| Basic and diluted loss per share attributable to Baker Hughes | $ | (1.00 | ) | $ | (0.36 | ) | $ | (2.08 | ) | |||
| Weighted average shares outstanding, basic and diluted | 430 | 439 | 438 | |||||||||
| Depreciation and amortization expense | $ | 262 | $ | 432 | $ | 305 | ||||||
| Capital expenditures | $ | 70 | $ | 178 | $ | 70 | ||||||
|
1 |
Beginning in 2016, all merger and related costs are presented in a separate line item in the consolidated condensed statement of income (loss). Prior-year merger and related costs were reclassified to conform to the current year presentation. | |
|
Consolidated Condensed Statements of Income (Loss)1 |
||||||||
| Nine Months Ended September 30, | ||||||||
| (In millions, except per share amounts) | 2016 | 2015 | ||||||
| Revenue | $ | 7,431 | $ | 12,348 | ||||
| Costs and expenses: | ||||||||
| Cost of revenue | 7,829 | 11,301 | ||||||
| Research and engineering | 292 | 366 | ||||||
| Marketing, general and administrative | 632 | 749 | ||||||
| Impairment and restructuring charges | 1,590 | 747 | ||||||
| Goodwill impairment | 1,858 | — | ||||||
| Merger and related costs | 180 | 204 | ||||||
| Merger termination fee | (3,500 | ) | — | |||||
| Total costs and expenses | 8,881 | 13,367 | ||||||
| Operating loss | (1,450 | ) | (1,019 | ) | ||||
| Loss on early extinguishment of debt | (142 | ) | — | |||||
| Interest expense, net | (142 | ) | (162 | ) | ||||
| Loss before income taxes | (1,734 | ) | (1,181 | ) | ||||
| Income taxes | (589 | ) | 242 | |||||
| Net loss | (2,323 | ) | (939 | ) | ||||
| Net loss attributable to noncontrolling interests | 2 | 3 | ||||||
| Net loss attributable to Baker Hughes | $ | (2,321 | ) | $ | (936 | ) | ||
| Basic and diluted loss per share attributable to Baker Hughes | $ | (5.31 | ) | $ | (2.13 | ) | ||
| Weighted average shares outstanding, basic and diluted | 437 | 438 | ||||||
| Depreciation and amortization expense | $ | 921 | $ | 1,326 | ||||
| Capital expenditures | $ | 226 | $ | 751 | ||||
|
1 |
Beginning in 2016, all merger and related costs are presented in a separate line item in the consolidated condensed statement of income (loss). Prior-year merger and related costs were reclassified to conform to the current year presentation. | |
|
Consolidated Condensed Balance Sheets |
||||||
| September 30, | December 31, | |||||
| (In millions) | 2016 | 2015 | ||||
|
ASSETS |
||||||
| Current assets: | ||||||
| Cash and cash equivalents | $ | 3,736 | $ | 2,324 | ||
| Accounts receivable - less allowance for doubtful accounts
(2016 - $558, 2015 - $383) |
2,207 | 3,217 | ||||
| Inventories, net | 1,966 | 2,917 | ||||
| Other current assets | 1,093 | 810 | ||||
| Total current assets | 9,002 | 9,268 | ||||
| Property, plant and equipment, net | 4,874 | 6,693 | ||||
| Goodwill | 4,216 | 6,070 | ||||
| Intangible assets, net | 407 | 583 | ||||
| Other assets | 992 | 1,466 | ||||
| Total assets | $ | 19,491 | $ | 24,080 | ||
| LIABILITIES AND EQUITY | ||||||
| Current liabilities: | ||||||
| Accounts payable | $ | 951 | $ | 1,409 | ||
| Short-term debt and current portion of long-term debt | 127 | 151 | ||||
| Accrued employee compensation | 466 | 690 | ||||
| Other accrued liabilities | 680 | 525 | ||||
| Total current liabilities | 2,224 | 2,775 | ||||
| Long-term debt | 2,895 | 3,890 | ||||
| Deferred income taxes and other tax liabilities | 382 | 252 | ||||
| Long-term liabilities | 753 | 781 | ||||
| Equity | 13,237 | 16,382 | ||||
| Total liabilities and equity | $ | 19,491 | $ | 24,080 | ||
|
Consolidated Condensed Statements of Cash Flows |
||||||||
| Nine Months Ended September 30, | ||||||||
| (In millions) | 2016 | 2015 | ||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | (2,323 | ) | $ | (939 | ) | ||
| Adjustments to reconcile net loss to net cash flows from operating activities: | ||||||||
| Depreciation and amortization | 921 | 1,326 | ||||||
| Impairment of assets | 1,241 | 265 | ||||||
| Goodwill impairment | 1,858 | — | ||||||
| Other noncash items | 1,184 | (8 | ) | |||||
| Other, primarily working capital | 716 | 621 | ||||||
| Net cash flows provided by operating activities | 3,597 | 1,265 | ||||||
| Cash flows from investing activities: | ||||||||
| Expenditures for capital assets | (226 | ) | (751 | ) | ||||
| Proceeds from disposal of assets | 199 | 269 | ||||||
| Proceeds from maturities of investment securities | 307 | — | ||||||
| Purchases of investment securities | (308 | ) | (217 | ) | ||||
| Other | — | (14 | ) | |||||
| Net cash flows used in investing activities | (28 | ) | (713 | ) | ||||
| Cash flows from financing activities: | ||||||||
| Net repayments of short-term debt and other borrowings | (57 | ) | (38 | ) | ||||
| Repayment of long-term debt | (1,135 | ) | — | |||||
| Repurchase of common stock | (763 | ) | — | |||||
| Dividends | (221 | ) | (222 | ) | ||||
| Other | 17 | 21 | ||||||
| Net cash flows used in financing activities | (2,159 | ) | (239 | ) | ||||
| Effect of foreign exchange rate changes on cash and cash equivalents | 2 | (10 | ) | |||||
| Increase in cash and cash equivalents | 1,412 | 303 | ||||||
| Cash and cash equivalents, beginning of period | 2,324 | 1,740 | ||||||
| Cash and cash equivalents, end of period | $ | 3,736 | $ | 2,043 | ||||
Table 1a: Reconciliation of GAAP and Non-GAAP Net Loss
The following table reconciles net loss attributable to
| Three Months Ended | ||||||||||||
| September 30, | June 30, | |||||||||||
| (In millions, except per share amounts) | 2016 | 2015 | 2016 | |||||||||
| Net loss attributable to Baker Hughes (GAAP) | $ | (429 | ) | $ | (159 | ) | $ | (911 | ) | |||
| Identified item: | ||||||||||||
| Impairment and restructuring charges2 | 304 | 98 | 1,126 | |||||||||
| Goodwill impairment3 | 17 | — | 1,841 | |||||||||
| Merger and related costs4 | — | 93 | 78 | |||||||||
| Merger termination fee5 | — | — | (3,500 | ) | ||||||||
| Inventory adjustments6 | (34 | ) | — | 621 | ||||||||
| Loss on early extinguishment of debt7 | — | — | 142 | |||||||||
| Loss on firm purchase commitment8 | — | — | (51 | ) | ||||||||
| Litigation settlements9 | 41 | — | — | |||||||||
| Total identified items | 328 | 191 | 257 | |||||||||
| Income taxes on identified items10 | 37 | (54 | ) | 262 | ||||||||
| Identified items, net of income taxes | 365 | 137 | 519 | |||||||||
| Adjusted net loss (non-GAAP)1 | $ | (64 | ) | $ | (22 | ) | $ | (392 | ) | |||
| Basic and diluted loss per share attributable to Baker Hughes (GAAP) | $ | (1.00 | ) | $ | (0.36 | ) | $ | (2.08 | ) | |||
| Adjusted basic and diluted loss per share attributable to Baker Hughes (non-GAAP) | $ | (0.15 | ) | $ | (0.05 | ) | $ | (0.90 | ) | |||
|
1 |
Adjusted net loss is a non-GAAP measure comprised of net loss attributable to Baker Hughes, excluding the impact of certain identified items. The Company believes that adjusted net loss 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 as a measure of the performance of the Company’s operations. | |
|
2 |
Impairment and restructuring charges associated with asset impairments, workforce reductions, facility closures, and contract terminations. | |
|
3 |
Goodwill impairment in two of the operating segments: North America for $19 million and $1,530 million before-tax and Industrial Services for ($2) million and $311 million before-tax during the third and second quarters of 2016, respectively. | |
|
4 |
Merger and related costs recorded in 2016 and 2015 included amounts under our retention programs and obligations for minimum incentive compensation, which based on meeting eligibility criteria, have been treated as merger and related expenses. | |
|
5 |
Merger termination fee paid by Halliburton on May 4, 2016, representing the termination fee required to be paid pursuant to the Merger Agreement. | |
|
6 |
Inventory adjustments include costs to write off and dispose of certain excess inventory. | |
|
7 |
Loss on early extinguishment of debt associated with the purchase of outstanding bonds of $1 billion of face value. | |
|
8 |
During the second quarter of 2016, we reached a settlement with a third party on a firm purchase commitment resulting in a reversal of the loss recorded in the first quarter of 2016. | |
|
9 |
Costs related to litigation settlements were recorded in Corporate during the third quarter of 2016. | |
|
10 |
Represents the tax effect of the aggregate identified items, generally based on statutory tax rates, offset by valuation allowances and the benefits of certain tax credits. | |
Table 1b: Reconciliation of GAAP and Non-GAAP Financial Measures
The following table reconciles net cash flows provided by operating activities, which is the directly comparable financial result determined in accordance with Generally Accepted Accounting Principles (GAAP), to free cash flow (a non-GAAP financial measure). Free cash flow is defined as net cash flows provided by (used in) operating activities less expenditures for capital assets plus proceeds from disposal of assets. Management is providing this measure because it believes that such measure is a widely accepted financial indicator used by investors and analysts to analyze and compare companies on the basis of liquidity. Free cash flow does not represent the residual cash flow available for discretionary expenditures.
| Three Months Ended | ||||||||||||
| September 30, | June 30, | |||||||||||
| (In millions) | 2016 | 2015 | 2016 | |||||||||
| Cash flows from operating activities: | ||||||||||||
| Net loss | $ | (430 | ) | $ | (156 | ) | $ | (912 | ) | |||
| Adjustments to reconcile net loss to net cash flows from operating activities: | ||||||||||||
| Depreciation and amortization | 262 | 432 | 305 | |||||||||
| Impairment of assets | 186 | — | 937 | |||||||||
| Goodwill impairment | 17 | — | 1,841 | |||||||||
| Other noncash items | 25 | 58 | 755 | |||||||||
| Other, primarily working capital | 59 | 94 | 651 | |||||||||
| Net cash flows provided by operating activities (GAAP) | 119 | 428 | 3,577 | |||||||||
| Expenditures for capital assets | (70 | ) | (178 | ) | (70 | ) | ||||||
| Proceeds from disposal of assets | 60 | 98 | 57 | |||||||||
| Free cash flow (Non-GAAP) | $ | 109 | $ | 348 | $ | 3,564 | ||||||
|
Table 2: Calculation of EBIT, EBITDA, and Adjusted EBITDA1 |
||||||||||||
| Three Months Ended | ||||||||||||
| September 30, | June 30, | |||||||||||
| (In millions) | 2016 | 2015 | 2016 | |||||||||
| Net loss attributable to Baker Hughes | $ | (429 | ) | $ | (159 | ) | $ | (911 | ) | |||
| Net income (loss) attributable to noncontrolling interests | (1 | ) | 3 | (1 | ) | |||||||
| Income taxes | 70 | — | 152 | |||||||||
| Loss before income taxes | (360 | ) | (156 | ) | (760 | ) | ||||||
| Interest expense, net | 39 | 55 | 48 | |||||||||
| Loss before interest and taxes (EBIT)1 | (321 | ) | (101 | ) | (712 | ) | ||||||
| Depreciation and amortization expense | 262 | 432 | 305 | |||||||||
| Earnings (loss) before interest, taxes, depreciation and
amortization (EBITDA)1 |
(59 | ) | 331 | (407 | ) | |||||||
| Adjustments to EBITDA: | ||||||||||||
| Impairment and restructuring charges2 | 304 | 98 | 1,126 | |||||||||
| Goodwill impairment3 | 17 | — | 1,841 | |||||||||
| Merger and related costs4 | — | 93 | 78 | |||||||||
| Merger termination fee5 | — | — | (3,500 | ) | ||||||||
| Inventory adjustments6 | (34 | ) | — | 621 | ||||||||
| Loss on early extinguishment of debt7 | — | — | 142 | |||||||||
| Loss on firm purchase commitment8 | — | — | (51 | ) | ||||||||
| Litigation settlements9 | 41 | — | — | |||||||||
| Adjusted EBITDA1 | $ | 269 | $ | 522 | $ | (150 | ) | |||||
| Nine Months Ended | ||||||||
| September 30, | ||||||||
| (In millions) | 2016 | 2015 | ||||||
| Net loss attributable to Baker Hughes | $ | (2,321 | ) | $ | (936 | ) | ||
| Net loss attributable to noncontrolling interests | (2 | ) | (3 | ) | ||||
| Income taxes | 589 | (242 | ) | |||||
| Loss before income taxes | (1,734 | ) | (1,181 | ) | ||||
| Interest expense, net | 142 | 162 | ||||||
| Loss before interest and taxes (EBIT)1 | (1,592 | ) | (1,019 | ) | ||||
| Depreciation and amortization expense | 921 | 1,326 | ||||||
| Earnings (loss) before interest, taxes, depreciation and amortization (EBITDA)1 |
(671 | ) | 307 | |||||
| Adjustments to EBITDA: | ||||||||
| Impairment and restructuring charges2 | 1,590 | 747 | ||||||
| Goodwill impairment3 | 1,858 | — | ||||||
| Merger and related costs4 | 180 | 204 | ||||||
| Merger termination fee5 | (3,500 | ) | — | |||||
| Inventory adjustments6 | 587 | 194 | ||||||
| Loss on early extinguishment of debt7 | 142 | — | ||||||
| Litigation settlements9 | 41 | (13 | ) | |||||
| Adjusted EBITDA1 | $ | 227 | $ | 1,439 | ||||
|
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 |
Impairment and restructuring charges associated with asset impairments, workforce reductions, facility closures, and contract terminations. | |
|
3 |
Goodwill impairment in two of the operating segments: North America for $19 million and $1,530 million before-tax and Industrial Services for ($2) million and $311 million before and after-tax during the third and second quarters of 2016, respectively. | |
|
4 |
Merger and related costs recorded in 2016 and 2015 included amounts under our retention programs and obligations for minimum incentive compensation, which based on meeting eligibility criteria, have been treated as merger and related expenses. | |
|
5 |
Merger termination fee paid by Halliburton on May 4, 2016, representing the termination fee required to be paid pursuant to the Merger Agreement. | |
|
6 |
Inventory adjustments include costs to write off and dispose of certain excess inventory. | |
|
7 |
Loss on early extinguishment of debt associated with the purchase of outstanding bonds of $1 billion of face value. | |
|
8 |
During the second quarter of 2016, we reached a settlement with a third party on a firm purchase commitment resulting in a reversal of the loss recorded in the first quarter of 2016. | |
|
9 |
Costs related to litigation settlements were recorded in Corporate during the third quarter of 2016. In the second quarter of 2015, a reversal was recorded in Corporate as the amount of claims made under a settlement agreement was less than originally expected. | |
|
Table 3a: Segment Revenue, Operating Profit (Loss) Before Tax, and Operating Profit Before Tax Margin1 |
||||||||||||
| Three Months Ended | ||||||||||||
| September 30, | June 30, | |||||||||||
| (In millions) | 2016 | 2015 | 2016 | |||||||||
|
Segment Revenue |
||||||||||||
| North America | $ | 674 | $ | 1,368 | $ | 668 | ||||||
| Latin America | 243 | 439 | 235 | |||||||||
| Europe/Africa/Russia Caspian | 519 | 791 | 581 | |||||||||
| Middle East/Asia Pacific | 649 | 849 | 651 | |||||||||
| Industrial Services | 268 | 339 | 273 | |||||||||
| Total Operations | $ | 2,353 | $ | 3,786 | $ | 2,408 | ||||||
| Operating Profit (Loss) Before Tax2 | ||||||||||||
| North America | $ | (65 | ) | $ | (153 | ) | $ | (311 | ) | |||
| Latin America | 20 | 51 | (243 | ) | ||||||||
| Europe/Africa/Russia Caspian | 22 | 98 | (257 | ) | ||||||||
| Middle East/Asia Pacific | 71 | 76 | (142 | ) | ||||||||
| Industrial Services | 30 | 44 | (43 | ) | ||||||||
| Total Operations | 78 | 116 | (996 | ) | ||||||||
| Corporate and Other Profit (Loss) Before Tax | ||||||||||||
| Corporate2 | (78 | ) | (26 | ) | (29 | ) | ||||||
| Loss on early extinguishment of debt | — | — | (142 | ) | ||||||||
| Interest expense, net | (39 | ) | (55 | ) | (48 | ) | ||||||
| Impairment and restructuring charges | (304 | ) | (98 | ) | (1,126 | ) | ||||||
| Goodwill impairment | (17 | ) | — | (1,841 | ) | |||||||
| Merger and related costs2 | — | (93 | ) | (78 | ) | |||||||
| Merger termination fee | — | — | 3,500 | |||||||||
| Corporate, net interest and other | (438 | ) | (272 | ) | 236 | |||||||
| Loss Before Income Tax | $ | (360 | ) | $ | (156 | ) | $ | (760 | ) | |||
| Operating Profit Before Tax Margin1,2 | ||||||||||||
| North America | (9.6 | %) | (11.2 | %) | (46.6 | %) | ||||||
| Latin America | 8.2 | % | 11.6 | % | (103.4 | %) | ||||||
| Europe/Africa/Russia Caspian | 4.2 | % | 12.4 | % | (44.2 | %) | ||||||
| Middle East/Asia Pacific | 10.9 | % | 9.0 | % | (21.8 | %) | ||||||
| Industrial Services | 11.2 | % | 13.0 | % | (15.8 | %) | ||||||
| Total Operations | 3.3 | % | 3.1 | % | (41.4 | %) | ||||||
| 1 | Operating profit before tax margin is a non-GAAP measure defined as operating profit (loss) before tax divided by revenue. Management uses the operating 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. | |
| 2 | Beginning in 2016, we excluded merger and related costs from our operating segments. These costs are now presented as a separate line item in the consolidated condensed statement of income (loss). Prior-year merger and related costs have been reclassified to conform to the current year presentation. | |
|
Table 3b: Segment Revenue, Operating Profit (Loss) Before Tax, and Operating Profit Before Tax Margin1 |
||||||||
| Nine Months Ended September 30, | ||||||||
| (In millions) | 2016 | 2015 | ||||||
| Segment Revenue | ||||||||
| North America | $ | 2,161 | $ | 4,872 | ||||
| Latin America | 755 | 1,371 | ||||||
| Europe/Africa/Russia Caspian | 1,711 | 2,555 | ||||||
| Middle East/Asia Pacific | 2,018 | 2,621 | ||||||
| Industrial Services | 786 | 929 | ||||||
| Total Operations | $ | 7,431 | $ | 12,348 | ||||
| Operating Profit (Loss) Before Tax2 | ||||||||
| North America | $ | (601 | ) | $ | (512 | ) | ||
| Latin America | (289 | ) | 129 | |||||
| Europe/Africa/Russia Caspian | (254 | ) | 135 | |||||
| Middle East/Asia Pacific | (22 | ) | 198 | |||||
| Industrial Services | (17 | ) | 86 | |||||
| Total Operations | (1,183 | ) | 36 | |||||
| Corporate and Other Profit (Loss) Before Tax | ||||||||
| Corporate2 | (139 | ) | (104 | ) | ||||
| Loss on early extinguishment of debt | (142 | ) | — | |||||
| Interest expense, net | (142 | ) | (162 | ) | ||||
| Impairment and restructuring charges | (1,590 | ) | (747 | ) | ||||
| Goodwill impairment | (1,858 | ) | — | |||||
| Merger and related costs2 | (180 | ) | (204 | ) | ||||
| Merger termination fee | 3,500 | — | ||||||
| Corporate, net interest and other | (551 | ) | (1,217 | ) | ||||
| Loss Before Income Tax | $ | (1,734 | ) | $ | (1,181 | ) | ||
| Operating Profit Before Tax Margin1,2 | ||||||||
| North America | (27.8 | %) | (10.5 | %) | ||||
| Latin America | (38.3 | %) | 9.4 | % | ||||
| Europe/Africa/Russia Caspian | (14.8 | %) | 5.3 | % | ||||
| Middle East/Asia Pacific | (1.1 | %) | 7.6 | % | ||||
| Industrial Services | (2.2 | %) | 9.3 | % | ||||
| Total Operations | (15.9 | %) | 0.3 | % | ||||
| 1 | Operating profit before tax margin is a non-GAAP measure defined as operating profit (loss) before tax divided by revenue. Management uses the operating 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. | |
| 2 | Beginning in 2016, we excluded merger and related costs from our operating segments. These costs are now presented as a separate line item in the consolidated condensed statement of income (loss). Prior-year merger and related costs have been reclassified to conform to the current year presentation. | |
|
Table 4: Adjustments to Segment Operating Profit (Loss) Before Tax1 |
|||||||||
| Three Months Ended | |||||||||
| September 30, | June 30, | ||||||||
| (In millions) |
20162,4 |
20162,3 |
|||||||
|
Adjustments to Operating Profit (Loss) Before Tax1 |
|||||||||
| North America | $ | (9 | ) | $ | 158 | ||||
| Latin America | (4 | ) | 88 | ||||||
| Europe/Africa/Russia Caspian | (9 | ) | 152 | ||||||
| Middle East/Asia Pacific | (8 | ) | 125 | ||||||
| Industrial Services | (4 | ) | 47 | ||||||
| Total Operations | (34 | ) | 570 | ||||||
| Corporate | 41 | — | |||||||
| Total | $ | 7 | $ | 570 | |||||
| Nine Months Ended September 30, | ||||||
| (In millions) |
20162,4 |
20152,4 | ||||
| Adjustments to Operating Profit (Loss) Before Tax1 | ||||||
| North America | $ | 200 | $ | 182 | ||
| Latin America | 84 | 12 | ||||
| Europe/Africa/Russia Caspian | 143 | — | ||||
| Middle East/Asia Pacific | 117 | — | ||||
| Industrial Services | 43 | — | ||||
| Total Operations | $ | 587 | $ | 194 | ||
| Corporate | 41 | (13) | ||||
| Total | $ | 628 | $ | 181 | ||
|
1 |
The company believes that adjusting these identified items from the segment operating profit (loss) before tax provides investors and analysts a measure to compare companies more consistently on the basis of operating performance. | |
|
2 |
Inventory adjustments to write off and dispose of certain excess inventory of ($34) million and $621 million during the third and second quarters of 2016, respectively, across all the segments. In 2015 we also recorded inventory adjustments of $194 million with $171 million during the first quarter and $23 million in the second quarter. | |
|
3 |
During the second quarter of 2016, we reached a settlement with a third party on a firm purchase commitment resulting in a reversal of the loss recorded in the first quarter of 2016 in North America for $51 million. | |
|
4 |
Costs related to litigation settlements were recorded in Corporate during the third quarter of 2016. In the second quarter of 2015, a reversal was recorded in Corporate as the amount of claims made under a settlement agreement was less than originally expected. | |
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) | 2016 | 2015 | 2016 | |||||||||
| Segment Revenue | ||||||||||||
| North America |
$ |
674 |
$ | 1,368 | $ | 668 | ||||||
| Latin America | 243 | 439 | 235 | |||||||||
| Europe/Africa/Russia Caspian | 519 | 791 | 581 | |||||||||
| Middle East/Asia Pacific | 649 | 849 | 651 | |||||||||
| Industrial Services | 268 | 339 | 273 | |||||||||
| Total Operations | $ | 2,353 | $ | 3,786 | $ | 2,408 | ||||||
| Adjusted Operating Profit (Loss) Before Tax1,2 | ||||||||||||
| North America | $ | (74 | ) | $ | (153 | ) | $ | (153 | ) | |||
| Latin America | 16 | 51 | (155 | ) | ||||||||
| Europe/Africa/Russia Caspian | 13 | 98 | (105 | ) | ||||||||
| Middle East/Asia Pacific | 63 | 76 | (17 | ) | ||||||||
| Industrial Services | 26 | 44 | 4 | |||||||||
| Total Operations | 44 | 116 | (426 | ) | ||||||||
| Corporate | (37 | ) | (26 | ) | (29 | ) | ||||||
| Total | $ | 7 | $ | 90 | $ | (455 | ) | |||||
| Adjusted Operating Profit Before Tax Margin1,2 | ||||||||||||
| North America | (11.0 | %) | (11.2 | %) | (22.9 | %) | ||||||
| Latin America | 6.6 | % | 11.6 | % | (66.0 | %) | ||||||
| Europe/Africa/Russia Caspian | 2.5 | % | 12.4 | % | (18.1 | %) | ||||||
| Middle East/Asia Pacific | 9.7 | % | 9.0 | % | (2.6 | %) | ||||||
| Industrial Services | 9.7 | % | 13.0 | % | 1.5 | % | ||||||
| Total Operations | 1.9 | % | 3.1 | % | (17.7 | %) | ||||||
|
1 |
Adjusted operating profit (loss) before tax is a non-GAAP measure defined as profit (loss) before income tax less interest expense and identified items as shown on Table 1a. 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. | |
|
2 |
Beginning in 2016, we excluded merger and related costs from our operating segments. These costs are now presented as a separate line item in the consolidated condensed statement of income (loss). Prior-year merger and related costs have been reclassified to conform to the current year presentation. | |
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) | 2016 | 2015 | ||||||
| Segment Revenue | ||||||||
| North America | $ | 2,161 | $ | 4,872 | ||||
| Latin America | 755 | 1,371 | ||||||
| Europe/Africa/Russia Caspian | 1,711 | 2,555 | ||||||
| Middle East/Asia Pacific | 2,018 | 2,621 | ||||||
| Industrial Services | 786 | 929 | ||||||
| Total Operations | $ | 7,431 | $ | 12,348 | ||||
| Adjusted Operating Profit (Loss) Before Tax1,2 | ||||||||
| North America | $ | (401 | ) | $ | (330 | ) | ||
| Latin America | (205 | ) | 141 | |||||
| Europe/Africa/Russia Caspian | (111 | ) | 135 | |||||
| Middle East/Asia Pacific | 95 | 198 | ||||||
| Industrial Services | 26 | 86 | ||||||
| Total Operations | (596 | ) | 230 | |||||
| Corporate | (98 | ) | (117 | ) | ||||
| Total | $ | (694 | ) | $ | 113 | |||
| Adjusted Operating Profit Before Tax Margin1,2 | ||||||||
| North America | (18.6 | %) | (6.8 | %) | ||||
| Latin America | (27.2 | %) | 10.3 | % | ||||
| Europe/Africa/Russia Caspian | (6.5 | %) | 5.3 | % | ||||
| Middle East/Asia Pacific | 4.7 | % | 7.6 | % | ||||
| Industrial Services | 3.3 | % | 9.3 | % | ||||
| Total Operations | (8.0 | %) | 1.9 | % | ||||
|
1 |
Adjusted operating profit (loss) before tax is a non-GAAP measure defined as profit (loss) before income tax less interest expense and identified items as shown on Table 1a. 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. | |
|
2 |
Beginning in 2016, we excluded merger and related costs from our operating segments. These costs are now presented as a separate line item in the consolidated condensed statement of income (loss). Prior-year merger and related costs have been reclassified to conform to the current year presentation. | |
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
Baker Hughes Process and Pipeline Services (PPS) collaborates with Wireline Services to open a new market — Offshore Riser Inspection. Working together, Baker Hughes PPS and Wireline Services engineered a new solution to help a major Gulf of
Super-major extends chemicals contract with
Major operator extends chemicals contract with
________________________________________________________________________________________
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.
Conference Call and Webcast
The Company has scheduled an investor conference call to discuss management’s outlook and the results reported in today’s earnings announcement. The call will begin at 8:30 a.m. Eastern time, 7:30 a.m. Central time on
Forward-Looking Statements
This news release (and oral statements made regarding the subjects of this release, including on the conference call announced herein) 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,” “target,” “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/A for the year ended
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, along with the following risk factors and the timing of any of these risk factors:
Restructuring activities - the ability to successfully implement and adjust the restructuring activities and achieve their 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, coupled with their liquidity constraints; foreign currency exchange fluctuations and changes in the capital markets in locations where we operate; and the impact of government disruptions. In addition, market conditions, such as the trading prices for our stock, as well as the terms of any stock purchase plans may impact stock repurchases. At our discretion, we may engage in or discontinue stock repurchases at any time.
Impact of Britain’s vote to leave the
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/or 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 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 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
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Source:
Baker Hughes Incorporated
Investor Contact:
Alondra Oteyza, +1-713-439-8822
alondra.oteyza@bakerhughes.com
or
Media Contact:
Melanie Kania, +1-713-439-8303
melanie.kania@bakerhughes.com