Baker Hughes Announces Fourth Quarter and Annual Results

HOUSTON, Jan. 23, 2013 /PRNewswire/ -- Baker Hughes Incorporated (NYSE: BHI) announced today income from continuing operations attributable to Baker Hughes for the fourth quarter of 2012 of $211 million or $0.48 per diluted share, including an after-tax charge of $63 million ($0.14 per diluted share) for bad debt provisions in Latin America.  These results compare to adjusted income from continuing operations (a non-GAAP measure) of $526 million or $1.20 per diluted share for the fourth quarter of 2011, and $308 million or $0.70 per diluted share for the third quarter of 2012.  Third quarter of 2012 results included an after-tax charge of $27 million ($0.06 per diluted share) for bad debt provisions in Latin America and Europe.

Adjusted income from continuing operations for the year 2012 was $1.32 billion or $3.00 per diluted share, compared to $1.81 billion, or $4.14 per diluted share for the year 2011.

Revenue for the fourth quarter of 2012 was $5.22 billion, down 1% compared to $5.30 billion for the fourth quarter of 2011 and flat compared to $5.23 billion for the third quarter of 2012.  Revenue for the year 2012 was a record $20.93 billion, up 8% compared to $19.43 billion for the year 2011.

On a GAAP basis, income from continuing operations attributable to Baker Hughes for the fourth quarter of 2012 was $211 million or $0.48 per diluted share compared to $0.76 per diluted share for the fourth quarter of 2011, and $0.60 per diluted share for the third quarter of 2012.  Income from continuing operations attributable to Baker Hughes for the year 2012 was $1.28 billion or $2.90 per diluted share, compared to $3.96 per diluted share for the year 2011.  Please see Table 1 for a reconciliation of GAAP to non-GAAP Financial Measures.

"In 2012 we posted record revenue, with growth coming from all operating segments," said Martin Craighead, Baker Hughes President and Chief Executive Officer.  "Our international operations increased revenue by 11%, despite only a 2% rise in the international rig count during the year.  We've built a strong position in many of the world's offshore markets and significantly expanded our Integrated Operations business in the Middle East.  In North America, our business grew by 5%, based largely on the successful introduction of several well construction technologies, and strong demand for our production product lines in the growing unconventional market."

Craighead added, "We are very pleased with our performance in the Gulf of Mexico where our business expanded more than 30% for the year, based on a rebound in deepwater activity, share gains in drilling and wireline services, and modest improvements in price.  Looking ahead, we see a favorable mix of development work building, and this will play well to our strength in completions and production."

Craighead continued, "Our fourth quarter results reflect the challenges faced by the industry as North American activity declined sharply towards the end of the year, and we continue to deal with unfavorable pricing conditions in the pressure pumping market.  As a result, we experienced a decline in North America revenues and margins this quarter.  The revenue declines were almost entirely offset by gains in our international business, driven by record revenues in all of our international segments during the quarter."

Craighead added, "During the quarter, our balance sheet improved, with receivables and inventories being reduced by nearly $400 million combined.  Maintaining a strong balance sheet and capital discipline will remain a theme, and we intend to reduce our capital expenditures by approximately 30% in 2013."

Cash was $1.02 billion as of December 31, 2012, compared to $1.01 billion at September 30, 2012.  Debt decreased by $229 million to $4.92 billion compared to the third quarter of 2012. 

Capital expenditures were $714 million, depreciation and amortization expense was $406 million, and dividend payments were $66 million during the fourth quarter 2012.  For the year 2012, capital expenditures were $2.87 billion, depreciation and amortization expense was $1.53 billion, and dividend payments were $263 million.

Adjusted EBITDA (a non-GAAP measure) in the fourth quarter of 2012 was $841 million, down $83 million compared to the third quarter of 2012.  For the full year, Adjusted EBITDA was $3.73 billion.  A reconciliation of income from continuing operations attributable to Baker Hughes to Adjusted EBITDA is provided in Table 2.  Supplemental financial information for revenue and adjusted operating profit before tax (a non-GAAP measure) is provided in Tables 5a and 5b.

 

Consolidated Condensed Statements of Income

(Unaudited)




Three Months Ended


December 31,


September 30,

(In millions, except per share amounts)

2012


2011


2012

Revenue

$

5,221



$

5,295



$

5,228


Costs and expenses:






Cost of revenue

4,351



4,047



4,305


Research and engineering

126



125



117


Marketing, general and administrative

309



296



344


Impairment of trade names



280




Total costs and expenses

4,786



4,748



4,766


Operating income

435



547



462


Interest expense, net

(57)



(57)



(49)


Income from continuing operations before income taxes

378



490



413


Income taxes

(166)



(155)



(143)


Income from continuing operations

212



335



270


Income (loss) from discontinued operations, net of tax

3



(17)



14


Net income

215



318



284


Net (income) attributable to noncontrolling interests

(1)



(4)



(5)


Net income attributable to Baker Hughes

$

214



$

314



$

279








Amounts attributable to Baker Hughes:






Income from continuing operations

$

211



$

331



$

265


Income (loss) from discontinued operations

3



(17)



14


Net income attributable to Baker Hughes

$

214



$

314



$

279








Basic earnings per share:






Income from continuing operations

$

0.48



$

0.76



$

0.60


Income (loss) from discontinued operations

0.01



(0.04)



0.03


Basic earnings per share attributable to Baker Hughes

$

0.49



$

0.72



$

0.63








Diluted earnings per share:






Income from continuing operations

$

0.48



$

0.76



$

0.60


Income (loss) from discontinued operations

0.01



(0.04)



0.03


Diluted earnings per share attributable to Baker Hughes

$

0.49



$

0.72



$

0.63








Weighted average shares outstanding, basic

440



438



440


Weighted average shares outstanding, diluted

441



439



441


Depreciation and amortization expense

$

406



$

334



$

399


Capital expenditures

$

714



$

802



$

732


 

Consolidated Condensed Statements of Income

(Unaudited)




Year Ended December 31,

(In millions, except per share amounts)

2012


2011

Revenue

$

20,929



$

19,431


Costs and expenses:




Cost of revenue

17,011



14,947


Research and engineering

492



456


Marketing, general and administrative

1,284



1,158


Impairment of trade names



280


Total costs and expenses

18,787



16,841


Operating income

2,142



2,590


Interest expense, net

(210)



(221)


Loss on early extinguishment of debt



(40)


Income from continuing operations before income taxes

1,932



2,329


Income taxes

(645)



(589)


Income from continuing operations

1,287



1,740


Income from discontinued operations, net of tax

30



3


Net income

1,317



1,743


Net (income) attributable to noncontrolling interests

(6)



(4)


Net income attributable to Baker Hughes

$

1,311



$

1,739






Amounts attributable to Baker Hughes:




Income from continuing operations

$

1,281



$

1,736


Income from discontinued operations

30



3


Net income attributable to Baker Hughes

$

1,311



$

1,739






Basic earnings per share:




Income from continuing operations

$

2.91



$

3.98


Income from discontinued operations

0.07



0.01


Basic earnings per share attributable to Baker Hughes

$

2.98



$

3.99






Diluted earnings per share:




Income from continuing operations

$

2.90



$

3.96


Income from discontinued operations

0.07



0.01


Diluted earnings per share attributable to Baker Hughes

$

2.97



$

3.97






Weighted average shares outstanding, basic

440



436


Weighted average shares outstanding, diluted

441



438


Depreciation and amortization expense

$

1,528



$

1,285


Capital expenditures

$

2,874



$

2,426


 

Consolidated Condensed Balance Sheets

(Unaudited)








December 31,


December 31,

(In millions)


2012


2011

ASSETS





Current Assets:





Cash and cash equivalents


$

1,015



$

1,050


Accounts receivable - less allowance for doubtful accounts

(2012 - $305, 2011 - $226)


4,720



4,794


Inventories, net


3,771



3,211


Other current assets


802



644


Assets of discontinued operations


682



646


Total current assets


10,990



10,345


Property, plant and equipment, net


8,530



7,245


Goodwill


5,612



5,637


Intangible assets, net


944



1,086


Other assets


613



534


Total assets


$

26,689



$

24,847


LIABILITIES AND EQUITY





Current Liabilities:





Accounts payable


$

1,698



$

1,774


Short-term debt and current portion of long-term debt


1,079



224


Accrued employee compensation


638



695


Other accrued liabilities


661



752


Liabilities of discontinued operations


51



56


Total current liabilities


4,127



3,501


Long-term debt


3,837



3,845


Deferred income taxes and other tax liabilities


745



810


Long-term liabilities


712



727


Equity


17,268



15,964


Total liabilities and equity


$

26,689



$

24,847


 

Consolidated Condensed Statements of Cash Flows

(Unaudited)




Year Ended December 31,

(In millions)

2012


2011

Cash flows from operating activities:




Income from continuing operations

$

1,287



$

1,740


Adjustments to reconcile income from continuing operations to net cash flows from operating activities:




Depreciation and amortization

1,528



1,285


Other, primarily working capital

(980)



(1,518)


Net cash flows from operating activities

1,835



1,507


Cash flows from investing activities:




Expenditures for capital assets

(2,874)



(2,426)


Other

353



535


Net cash flows from investing activities

(2,521)



(1,891)


Cash flows from financing activities:




Net proceeds (payments) of debt

847



54


Dividends

(263)



(261)


Other

62



177


Net cash flows from financing activities

646



(30)


Effect of foreign exchange rate changes on cash

5



8


Decrease in cash and cash equivalents

(35)



(406)


Cash and cash equivalents, beginning of period

1,050



1,456


Cash and cash equivalents, end of period

$

1,015



$

1,050


 

Table 1: Reconciliation of GAAP and Non-GAAP Financial Measures

The following tables reconcile income from continuing operations attributable to Baker Hughes, which is the directly comparable financial result determined in accordance with Generally Accepted Accounting Principles (GAAP), to adjusted income from continuing operations1 (a non-GAAP financial measure). These reconciliations exclude certain identified items for the three-month periods ended December 31, 2011 and September 30, 2012 and for the years ended December 31, 2012 and 2011. There were no identified items requiring adjustment for the fourth quarter of 2012.

 


Three Months Ended


December 31,


September 30,


2011


2012

(Unaudited)

(In millions, except per share amounts)

Income from Continuing Operations


Diluted

Earnings

Per Share


Income from Continuing Operations


Diluted

Earnings

Per Share

Income from continuing operations attributable to Baker Hughes (GAAP)

$

331



$

0.76



$

265



$

0.60


Identified Items:








Impairment of trade names2

195



0.44






Information technology charges3





28



0.07


Facility closure4





15



0.03


Adjusted income from continuing operations (non-GAAP)1

$

526



$

1.20



$

308



$

0.70


 


Year Ended December 31,


2012


2011

(Unaudited)

(In millions, except per share amounts)

Income from Continuing Operations


Diluted

Earnings

Per Share


Income from Continuing Operations


Diluted

Earnings

Per Share

Income from continuing operations attributable to Baker Hughes (GAAP)

$

1,281



$

2.90



$

1,736



$

3.96


Identified Items:








Expenses related to Libya5





70



0.16


Tax benefit associated with reorganization6





(214)



(0.49)


Loss on early extinguishment of debt7





26



0.06


Impairment of trade names2





195



0.45


Information technology charges3

28



0.07






Facility closure4

15



0.03






Adjusted income from continuing operations (non-GAAP)1

$

1,324



$

3.00



$

1,813



$

4.14


 

1


Adjusted income from continuing operations is a non-GAAP measure comprised of income from continuing operations attributable to Baker Hughes excluding the impact of certain identified items. The Company believes that adjusted income from continuing operations is useful to investors because it is a consistent measure of the underlying results of the Company's business. Furthermore, management uses adjusted income from continuing operations as a measure of the performance of the Company's operations.

2


Charge of $280 million before-tax ($195 million after-tax), the majority of which relates to the noncash impairment associated with the decision to minimize the use of the BJ Services trade name as part of our overall branding strategy for Baker Hughes.

3


Charge of $43 million before-tax ($28 million after-tax) related to internally developed software and other information technology assets in the third quarter of 2012.

4


Charge of $20 million before-tax ($15 million after-tax) resulting from the closure of a chemical manufacturing facility in the United Kingdom in the third quarter of 2012.

5


Expenses of $70 million (before and after-tax) associated with increasing the allowance for doubtful accounts, and reserves for inventory and certain other assets in the second quarter of 2011 as a result of civil unrest in Libya.

6


Noncash tax benefit of $214 million associated with the reorganization of certain foreign subsidiaries in the third quarter of 2011.

7


Loss of $40 million before-tax ($26 million after-tax) related to the early extinguishment in the third quarter of 2011 of $500 million notes due 2013.

 

Table 2: Calculation of EBIT, EBITDA and Adjusted EBITDA (non-GAAP measures)1




Three Months Ended


December 31,


September 30,

(In millions)

2012


2011


2012

Income from continuing operations attributable to Baker Hughes

$

211



$

331



$

265


Income from continuing operations attributable to

noncontrolling interests

1



4



5


Income taxes

166



155



143


Income from continuing operations before income taxes

378



490



413


Interest expense, net

57



57



49


Earnings before interest and taxes (EBIT)

435



547



462


Depreciation and amortization expense

406



334



399


Earnings before interest, taxes, depreciation and

amortization (EBITDA)

841



881



861


Adjustments to EBITDA:






Information technology charges2





43


Facility closure3





20


Impairment of trade names4



280




Adjusted EBITDA

$

841



$

1,161



$

924