Baker Hughes Announces Third Quarter Results

HOUSTON, Oct. 19, 2012 /PRNewswire/ -- Baker Hughes Incorporated (NYSE: BHI) announced today adjusted net income (a non-GAAP measure) for the third quarter of 2012 of $322 million or $0.73 per diluted share.  This compares to adjusted net income of $1.18 per diluted share for the third quarter of 2011, and $1.00 per diluted share for the second quarter of 2012.

Adjusted net income for the third quarter of 2012 excludes an after-tax charge of $28 million ($0.07 per diluted share) related to internally developed software and other information technology assets.  It also excludes an after-tax charge of $15 million ($0.03 per diluted share) related to the closure of a chemical manufacturing facility.

Adjusted net income for the third quarter of 2012 includes after-tax charges of $27 million ($0.06 per diluted share) for bad debt provisions in Latin America and Europe.

Net income attributable to Baker Hughes (a GAAP measure) for the third quarter of 2012 was $279 million or $0.63 per diluted share compared to $1.61 per diluted share for the third quarter of 2011, and $1.00 per diluted share for the second quarter of 2012.  Please see Table 1 for a reconciliation of GAAP to non-GAAP Financial Measures.

Revenue for the third quarter of 2012 was $5.23 billion, up 3% compared to $5.06 billion for the third quarter of 2011 and remained relatively flat compared to $5.21 billion for the second quarter of 2012.

"For the third quarter, Baker Hughes' revenue was flat, despite a drop in U.S. and international rig counts," said Martin Craighead, Baker Hughes' President and Chief Executive Officer.  "However, our margins were impacted by the well-known imbalance in the North American Pressure Pumping business.  Additionally, activity was less than planned in several key geomarkets for Baker Hughes, resulting in an unfavorable mix.  The clearest example is Canada, where the seasonal return of activity was nearly 30 percent less than this time last year.  Internationally, the collective rig count in Brazil, Colombia, and Norway was down 17 percent compared to the last quarter, and these are all meaningful markets for Baker Hughes. In the fourth quarter, activity levels in our International segments are projected to rebound."

Craighead added, "Looking ahead, we are well positioned in growing and emerging markets.  Our share in the Gulf of Mexico - the fastest growing deepwater market in the world - has taken a significant step forward through a series of wins this quarter with several major clients.  In the North Sea, we are mobilizing to provide integrated drilling services for a very large contract.  In the Middle East, we continue to strengthen our Integrated Operations capabilities, and also have been assigned work in the emerging Saudi Arabian unconventional market."

Craighead continued, "We will continue investing in technologies, product lines and regions that strengthen the core of our business and supply chain.  At the same time, we remain focused on increasing returns through a disciplined approach to capital investment."

The Company recently made the decision to sell its Process and Pipeline Services ("PPS") business.  As a result, the Company has reclassified in all prior periods the revenue, expenses, cash flows, assets and liabilities of PPS to discontinued operations.  PPS previously was a component of the Industrial Services segment, which now primarily consists of the Company's downstream chemicals and specialty polymers businesses.

The Company was cash flow positive in the third quarter of 2012, as cash increased by $215 million to $1.01 billion compared to the second quarter of 2012.  Debt increased by $113 million to $5.15 billion compared to the second quarter of 2012.

Capital expenditures were $732 million, depreciation and amortization expense was $399 million, and dividend payments were $66 million in the third quarter of 2012.

Adjusted EBITDA (a non-GAAP measure) in the third quarter of 2012 was $924 million, down $66 million compared to the second quarter of 2012.  A reconciliation of net income 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 Table 5.

Consolidated Condensed Statements of Income

(Unaudited)























Three Months Ended



September 30,


June 30,

(In millions, except per share amounts)


2012


2011


2012

Revenue


$ 5,228


$ 5,064


$ 5,212

Costs and Expenses:







Cost of revenue


4,305


3,843


4,168

Research and engineering


117


115


126

Marketing, general and administrative


344


301


298

Total costs and expenses


4,766


4,259


4,592

Operating income


462


805


620

Interest expense, net


(49)


(58)


(50)

Loss on early extinguishment of debt



(40)


Income from continuing operations before income taxes


413


707


570

Income taxes


(143)


(9)


(144)

Income from continuing operations


270


698


426

Income from discontinued operations, net of tax


14


8


12

Net income


284


706


438

Net (income) loss attributable to noncontrolling interests


(5)



1

Net income attributable to Baker Hughes


$   279


$   706


$   439








Amounts attributable to Baker Hughes:







Income from continuing operations


$   265


$   698


$   427

Income from discontinued operations


14


8


12

Net income attributable to Baker Hughes


$   279


$   706


$   439








Basic earnings per share:







Income from continuing operations


$   0.60


$   1.60


$   0.97

Income from discontinued operations


0.03


0.02


0.03

Basic earnings per share attributable to Baker Hughes


$   0.63


$   1.62


$   1.00








Diluted earnings per share:







Income from continuing operations


$   0.60


$   1.59


$   0.97

Income from discontinued operations


0.03


0.02


0.03

Diluted earnings per share attributable to Baker Hughes


$   0.63


$   1.61


$   1.00








Weighted average shares outstanding, basic


440


437


439

Weighted average shares outstanding, diluted


441


439


440

Depreciation and amortization expense


$    399


$    322


$    370

Capital expenditures


$    732


$    627


$    764

















Consolidated Condensed Statements of Income

(Unaudited)










Nine Months Ended September 30,

(In millions, except per share amounts)

2012


2011

Revenue

$ 15,708


$ 14,136

Costs and Expenses:




Cost of revenue

12,660


10,900

Research and engineering

366


331

Marketing, general and administrative

975


862

Total costs and expenses

14,001


12,093

Operating income

1,707


2,043

Interest expense, net

(153)


(164)

Loss on early extinguishment of debt


(40)

Income from continuing operations before income taxes

1,554


1,839

Income taxes

(479)


(434)

Income from continuing operations

1,075


1,405

Income from discontinued operations, net of tax

27


20

Net income

1,102


1,425

Net (income) attributable to noncontrolling interests

(5)


Net income attributable to Baker Hughes

$  1,097


$  1,425





Amounts attributable to Baker Hughes:




Income from continuing operations

$  1,070


$  1,405

Income from discontinued operations

27


20

Net income attributable to Baker Hughes

$  1,097


$  1,425





Basic earnings per share:




Income from continuing operations

$   2.43


$   3.22

Income from discontinued operations

0.06


0.05

Basic earnings per share attributable to Baker Hughes

$   2.49


$   3.27





Diluted earnings per share:




Income from continuing operations

$   2.43


$   3.21

Income from discontinued operations

0.06


0.04

Diluted earnings per share attributable to Baker Hughes

$   2.49


$   3.25





Weighted average shares outstanding, basic

440


436

Weighted average shares outstanding, diluted

441


438

Depreciation and amortization expense

$  1,122


$   951

Capital expenditures

$  2,160


$  1,624











Consolidated Condensed Balance Sheets

(Unaudited)




September 30,


December 31,

(In millions)


2012


2011

ASSETS





Current Assets:





Cash and cash equivalents


$  1,007


$  1,050

Accounts receivable - less allowance for doubtful accounts

        (2012 - $255, 2011 - $226)


5,003


4,794

Inventories, net


3,879


3,211

Other current assets


684


644

Assets of discontinued operations


707


646

Total current assets


11,280


10,345

Property, plant and equipment, net


8,225


7,245

Goodwill


5,612


5,637

Intangible assets, net


989


1,086

Other assets


650


534

Total assets


$ 26,756


$ 24,847

LIABILITIES AND EQUITY





Current Liabilities:





Accounts payable


$  1,829


$  1,774

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


1,306


224

Accrued employee compensation


661


695

Other accrued liabilities


681


752

Liabilities of discontinued operations


55


56

Total current liabilities


4,532


3,501

Long-term debt


3,839


3,845

Deferred income taxes and other tax liabilities


602


810

Long-term liabilities


712


727

Equity


17,071


15,964

Total liabilities and equity


$ 26,756


$ 24,847





Consolidated Condensed Statements of Cash Flows

(Unaudited)










Nine Months Ended September 30,

(In millions)

2012


2011

Cash flows from operating activities:




Income from continuing operations

$  1,075


$  1,405

Adjustments to reconcile income from continuing operations to

net cash flows from operating activities:




Depreciation and amortization

1,122


951

Other, primarily working capital

(1,250)


(1,674)

Net cash flows from operating activities

947


682

Cash flows from investing activities:




Expenditures for capital assets

(2,160)


(1,624)

Other

264


447

Net cash flows from investing activities

(1,896)


(1,177)

Cash flows from financing activities:




Net proceeds (payments) of debt

1,075


(112)

Dividends

(197)


(195)

Other

24


143

Net cash flows from financing activities

902


(164)

Effect of foreign exchange rate changes on cash

4


6

Decrease in cash and cash equivalents

(43)


(653)

Cash and cash equivalents, beginning of period

1,050


1,456

Cash and cash equivalents, end of period

$  1,007


$   803

 

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


The following table reconciles net income attributable to Baker Hughes, which is the directly comparable financial result determined in accordance with Generally Accepted Accounting Principles (GAAP), to adjusted net income 1 (a non-GAAP financial measure).  This excludes identified items with respect to the third quarter of 2012 and 2011.  There were no identified items requiring adjustment for the second quarter of 2012.












Three Months Ended September 30, 2012

(Unaudited)

(In millions, except per share amounts)


Net

Income


Diluted

Earnings

Per Share

Net income attributable to Baker Hughes (GAAP)


$    279


$    0.63

Identified Items:





Information technology charges 2


28


0.07

Facility closure 3


15


0.03

Adjusted net income (non-GAAP) 1


$    322


$    0.73





Three Months Ended September 30, 2011

(Unaudited)

(In millions, except per share amounts)


Net

Income


Diluted

Earnings

Per Share

Net income attributable to Baker Hughes (GAAP)


$    706


$    1.61

Identified Item:





Tax benefit associated with reorganization 4


(214)


(0.49)

Loss on early extinguishment of debt 5


26


0.06

Adjusted net income (non-GAAP) 1


$    518


$    1.18



1


Adjusted net income is a non-GAAP measure comprised of net income attributable to Baker Hughes excluding the impact of certain identified items.  The Company believes that adjusted net 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 income as a measure of the performance of the Company's operations.  Reconciliation of net income attributable to Baker Hughes, a GAAP measure, to adjusted net income for historical periods can be found in the Supplemental Financial Information on the Company's website at:  www.bakerhughes.com/investor.

2


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.

3


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.

4


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

5


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



September 30,


June 30,

(In millions)


2012


2011


2012

Net income attributable to Baker Hughes


$   279


$   706


$   439

Net income attributable to noncontrolling interests


5



(1)

Income from discontinued operations, net of tax


(14)


(8)


(12)

Income taxes


143


9


144

Income from continuing operations before income taxes


413


707


570

Interest expense, net


49


58


50

Earnings before interest and taxes (EBIT)


462


765


620

Depreciation and amortization expense


399


322


370

Earnings before interest, taxes, depreciation and

amortization (EBITDA)


861


1,087


990

Adjustments to EBITDA:







Information technology charges 2


43





Facility closure 3


20





Loss on early extinguishment of debt 4




40



Adjusted EBITDA


$   924


$  1,127


$   990











Nine Months Ended September 30,

(In millions)


2012


2011

Net income attributable to Baker Hughes


$  1,097


$  1,425

Net income attributable to noncontrolling interests


5


Income from discontinued operations, net of tax


(27)


(20)

Income taxes


479


434

Income from continuing operations before income taxes


1,554


1,839

Interest expense, net


153


164

Earnings before interest and taxes (EBIT)


1,707


2,003

Depreciation and amortization expense


1,122


951

Earnings before interest, taxes, depreciation and amortization (EBITDA)


2,829


2,954

Adjustments to EBITDA:





Information technology charges 2


43



Facility closure 3


20



Expenses related to Libya 5




70

Loss on early extinguishment of debt 4




40

Adjusted EBITDA


$  2,892


$  3,064




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


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.

3


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.

4


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.

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.


 

Table 3: Segment Revenue, Profit Before Tax, and Profit Before Tax Margin 1














Three Months Ended



September 30,


June 30,

(In millions)


2012


20112


2012

Segment Revenue







North America


$   2,742


$   2,721


$   2,672

Latin America


583


570


604

Europe/Africa/Russia Caspian


866


863


925

Middle East/Asia Pacific


844


711


804

Industrial Services 3


193


199


207

Total Operations


$   5,228


$   5,064


$   5,212

Profit Before Tax







North America


$    288


$    602


$   357

Latin America 4


45


71


77

Europe/Africa/Russia Caspian 4


104


103


156

Middle East/Asia Pacific


71


75


87

Industrial Services 3


13


32


25

Total Operations


$    521


$    883


$   702

Corporate and Other Profit Before Tax







Interest expense, net


(49)


(58)


(50)

Loss on early extinguishment of debt



(40)


Corporate and other


(59)


(78)


(82)

Corporate, net interest and other


(108)


(176)


(132)

Profit Before Tax


$    413


$    707


$    570

Profit Before Tax Margin 1







North America


11%


22%


13%

Latin America 4


8%


12%


13%

Europe/Africa/Russia Caspian 4


12%


12%


17%

Middle East/Asia Pacific


8%


11%


11%

Industrial Services 3


7%


16%


12%

Total Operations


10%


17%


13%




1


Profit before tax margin is a non-GAAP measure defined as profit before tax ("income from continuing operations before income taxes") 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.

2


The revenue and profit before tax of Reservoir Development Services was reclassified from the Industrial Services segment into the geographic operating segments at the beginning of 2012.  Quarterly segment revenue and profit before tax for the two years ended December 31, 2011 have been reclassified to reflect this change and are available online at:  www.bakerhughes.com/investor in the financial information section.

3


Quarterly revenue and profit before tax for the Industrial Services segment have been reclassified for all prior periods to exclude the discontinued operations of the Process and Pipeline Services business and are available online at:  www.bakerhughes.com/investor in the financial information section.

4


Profit before tax and profit before tax margin include bad debt provisions of $22 million in Latin America and $7 million in Europe/Africa/Russia Caspian in the third quarter of 2012.

 

Table 4: Charges Associated with Information Technology and Facility Closure 1



Three Months Ended

(In millions)

September, 2012

Adjustments to Operating Profit Before Tax


North America

$     33

Latin America

7

Europe/Africa/Russia Caspian

11

Middle East/Asia Pacific

10

Industrial Services

2

Total Operations

$     63




1


Charges 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.  Charges associated with the closure of a chemical manufacturing facility in the United Kingdom were $20 million before-tax ($15 million after-tax) in the third quarter of 2012.  The information technology assets and manufacturing facility supported our global operations.  Therefore, these costs have been allocated to all segments.  There were no identified items requiring adjustments for operating profit before tax for the second quarter of 2012 or the third quarter of 2011.

 

Table 5:  Supplemental Financial Information Excluding Certain Identified Items


The following table contains non-GAAP measures of operating profit before tax and operating profit before tax margin, excluding charges related to information technology, as well as the closure of a chemical manufacturing facility recorded in the third quarter of 2012 (see Table 4).  There were no items requiring adjustment for the second quarter of 2012 or the third quarter of 2011.















Three Months Ended



September 30,


June 30,

(In millions)


2012


20112


2012

Segment Revenue







North America


$  2,742


$  2,721


$  2,672

Latin America


583


570


604

Europe/Africa/Russia Caspian


866


863


925

Middle East/Asia Pacific


844


711


804

Industrial Services 3


193


199


207

Total Operations


$  5,228


$  5,064


$  5,212

Operating Profit Before Tax 1







North America


$   321


$   602


$   357

Latin America 4


52


71


77

Europe/Africa/Russia Caspian 4


115


103


156

Middle East/Asia Pacific


81


75


87

Industrial Services 3


14


32


25

Total Operations


$   583


$   883


$   702

Operating Profit Before Tax Margin 1







North America


12%


22%


13%

Latin America 4


9%


12%


13%

Europe/Africa/Russia Caspian 4


13%


12%


17%

Middle East/Asia Pacific


10%


11%


11%

Industrial Services 3


7%


16%


12%

Total Operations


11%


17%


13%




1


Operating profit before tax is a non-GAAP measure defined as profit before tax ("income from continuing operations before income taxes") less certain identified costs.  Operating profit before tax margin is a non-GAAP measure defined as operating profit 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


The revenue and profit before tax of Reservoir Development Services was reclassified from the Industrial Services segment into the geographic operating segments at the beginning of 2012.  Quarterly segment revenue and operating profit before tax for the two years ended December 31, 2011, have been reclassified to reflect this change and are available online at: www.bakerhughes.com/investor in the financial information section.

3


Quarterly revenue and profit before tax for the Industrial Services segment have been reclassified for all prior periods to exclude the discontinued operations of the Process and Pipeline Services business and are available online at:  www.bakerhughes.com/investor in the financial information section.

4


Operating profit before tax and operating profit before tax margin include bad debt provisions of $22 million in Latin America and $7 million in Europe/Africa/Russia Caspian in the third quarter of 2012.

Baker Hughes Operational Highlights

Recent contract awards have made Baker Hughes the leading provider of drilling services in the Gulf of Mexico, both in shallow and deep waters.  This reflects Baker Hughes' track record of delivery excellence, having drilled through over 130 miles of salt in the Gulf of Mexico, and advanced technology offering, including OnTrakTM  and TesTrakTM measurement-while-drilling services.  In addition, Baker Hughes successfully ran new wireline formation evaluation technologies, significantly improving data quality and reducing deepwater rig time for multiple clients using GeoExplorer™ high resolution formation imager, our award winning MaxCOR™ rotary sidewall coring tool, and a new service for focused fluid sampling.

Statoil recently awarded Baker Hughes a $500 million two-year contract to provide integrated drilling services in offshore Norway.  This contract will cover the delivery of drill bits, directional drilling, measurement and logging-while-drilling, mud-logging services, remote operations and integrated services for 25 offshore fields in the North Sea, Norwegian Sea and the Barents Sea.

The industry adoption of Baker Hughes' AutoTrak™ Curve rotary steerable system is continuing to gain momentum as reflected in the drilling of over one million feet in the United States during the last four months.  At the end of the third quarter, the cumulative footage drilled with this system since its introduction in March 2011 has exceeded two million feet.

Only two years since the OilPump Service acquisition, Baker Hughes has recently reached a significant milestone of 8,000 wells under well management and leasing contracts in Russia. This  demonstrates Baker Hughes' growing position with key Russian customers in the largest electric submersible pump market in the world.

Baker Hughes' high resolution StarTrak™ logging-while-drilling system recently contributed to significantly improve a large U.S. independent operator's return on investment for 12 wells in the Colorado Wattenberg Basin.  Eliminating the need for time consuming dedicated wireline runs represented an operational efficiency improvement of 35 to 70 hours per well.  The acquired critical borehole data regarding natural fractures offered the opportunity to significantly improve completion design and effectiveness.

Baker Hughes is expanding its presence in the growing East Africa petroleum province.  With estimates of over 100 Tcf of gas in place, this region holds some of the largest global discoveries in recent years.  By opening a new facility in Mozambique and mobilizing directional drilling, logging-while-drilling and wireline services, Baker Hughes is ideally positioned to address this growing deepwater market.

Baker Hughes deployed new generation Bi-Fuel Pressure Pumping units operating on both natural gas and diesel fuel in South Texas, leading to reduced fuel costs and emissions.  This initiative is currently generating a wide interest from operators across the United States and expected to gain traction throughout 2013.

Supplemental Financial Information

Supplemental financial information can be found on our website at: www.bakerhughes.com/investor in the financial information section.

Conference Call

The Company has scheduled a conference call to discuss management's outlook and the results reported in today's earnings announcement.  The call will begin at 8 a.m. Eastern time, 7 a.m. Central time on Friday, October 19, 2012, the content of which is not part of this earnings release.  A slide presentation providing summary financial and statistical information that will be discussed on the conference call will also be posted to the company's website and available for real-time viewing.  To access the call, please call the conference call operator at: 800-374-2469 in the United States, or 706-634-7270 for international calls.  Please call in 20 minutes prior to the scheduled start time and ask for the "Baker Hughes Conference Call."  A replay of the call will be available through Friday, November 2, 2012.  The number for the replay is: 800-585-8367 in the United States, or 404-537-3406 for international calls, and the access code is:  59811229.  To access the webcast, go to:  http://www.bakerhughes.com/investor.

Forward-Looking Statements

This news release (and oral statements made regarding the subjects of this release, including on the conference call announced herein) contain 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," "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, 2011; Baker Hughes' subsequent quarterly report on Form 10-Q for the quarterly periods ended March 31, 2012 and June 30, 2012; and those set forth from time-to-time in other filings with the Securities and Exchange Commission ("SEC").  The documents are available through the company's website at:  http://www.bakerhughes.com/investor or through the SEC's Electronic Data Gathering and Analysis Retrieval System (EDGAR) at:  http://www.sec.gov.  We undertake no obligation to publicly update or revise any forward–looking statement.

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 following risk factors and the timing of any of these risk factors:

Economic conditions – the impact of worldwide economic conditions and sovereign debt crises in Europe; 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; and foreign currency exchange fluctuations and changes in the capital markets in locations where we operate.

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; Organization of Petroleum Exporting Countries ("OPEC") policy and the adherence by OPEC nations to their OPEC production quotas.

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.

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 Mexico and other areas of the world; changes in export control laws or exchange control laws; the discovery of new environmental remediation sites; changes in environmental regulations; the discharge of hazardous materials or hydrocarbons into the environment; restrictions on doing business in countries subject to sanctions; customs clearance procedures; changes in accounting standards; changes in tax laws or tax rates in the jurisdictions in which we operate; resolution of tax assessments or audits by various tax authorities; and the ability to fully utilize our tax loss carry forwards and tax credits.

Baker Hughes is a leading supplier of oilfield services, products, technology and systems to the worldwide oil and natural gas industry.  The company's 58,000-plus employees today work in more than 80 countries helping customers find, evaluate, drill, produce, transport and process hydrocarbon resources.  For more information on Baker Hughes' century-long history, visit: www.bakerhughes.com.

Investor Contact:
Trey Clark, +1.713.439.8039, trey.clark@bakerhughes.com
Eric Holcomb, +1.713.439.8822, eric.s.holcomb@bakerhughes.com
Media Contact:
Teresa Wong, +1.713.439.8110, teresa.wong@bakerhughes.com
Pam Easton, +1.281.209.7050, pamela.easton@bakerhughes.com   

SOURCE Baker Hughes Incorporated



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