Baker Hughes Announces Second Quarter Results

Jul 20, 2012, 06:00 ET from Baker Hughes

HOUSTON, July 20, 2012 /PRNewswire/ -- Baker Hughes Incorporated (NYSE: BHI) announced today net income of $439 million for the second quarter of 2012.  Diluted earnings per share was $1.00, which compares to $0.77 for the second quarter of 2011 and $0.86 for the first quarter of 2012.    

Revenue for the second quarter of 2012 was $5.33 billion, up 12% compared to $4.74 billion for the second quarter of 2011 and down 0.5% compared to $5.36 billion for the first quarter of 2012.

"Baker Hughes delivered improved results in the second quarter," said Martin Craighead, Baker Hughes President and Chief Executive Officer.  "We achieved 2 percent sequential growth in operating income despite challenging market conditions in North America.  The impact on margins from the seasonal slowdown in Canada was mostly offset by improved results in onshore U.S. The initiatives to improve our Pressure Pumping business helped stabilize its results this quarter by offsetting the higher costs for certain raw materials and the weaker market conditions for Pressure Pumping.  Our International business delivered improved revenue and operating profit, driven primarily by outstanding performance in Europe and the Middle East. "

"We are cautiously optimistic about the market outlook for the remainder of the year.  If commodity prices remain at current levels, we believe activity in onshore U.S. should remain stable.  In the Gulf of Mexico and International, we expect continuing improvement as these markets expand," Craighead added.

Debt increased by $514 million to $5.03 billion compared to the first quarter of 2012.  Cash increased by $12 million to $792 million compared to the first quarter of 2012.

The effective tax rate for the second quarter of 2012 was favorably impacted by the settlement of certain tax audits and other matters.  The Company continues to expect the full year 2012 effective tax rate to be between 33% and 34%.

Capital expenditures were $771 million, depreciation and amortization expense was $380 million, and dividend payments were $66 million in the second quarter of 2012.

EBITDA (a non-GAAP measure) in the second quarter 2012 was $1.02 billion, up $29 million sequentially.  A reconciliation of net income attributable to Baker Hughes to EBITDA is provided in Table 2.

 

Consolidated Condensed Statements of Income

(Unaudited)

Three Months Ended

June 30,

March 31,

(In millions, except per share amounts)

2012

2011

2012

Revenue

$  5,326

$  4,741

$  5,355

Costs and Expenses:

Cost of revenue

4,254

3,718

4,265

Research and engineering

128

114

124

Marketing, general and administrative

305

292

339

Total costs and expenses

4,687

4,124

4,728

Operating income

639

617

627

Interest expense, net

(50)

(54)

(54)

Income before income taxes

589

563

573

Income taxes

(151)

(228)

(193)

Net income

438

335

380

Net loss (income) attributable to noncontrolling interests

1

3

(1)

Net income attributable to Baker Hughes

$    439

$    338

$    379

Basic earnings per share attributable to Baker Hughes

$   1.00

$   0.78

$   0.86

Diluted earnings per share attributable to Baker Hughes

$   1.00

$   0.77

$   0.86

Weighted average shares outstanding, basic

439

436

439

Weighted average shares outstanding, diluted

440

438

440

Depreciation and amortization expense

$    380

$    331

$    363

Capital expenditures

$    771

$    594

$    671

 

Consolidated Condensed Statements of Income

(Unaudited)

Six Months Ended June 30,

(In millions, except per share amounts)

2012

2011

Revenue

$  10,681

$  9,266

Costs and Expenses:

Cost of revenue

8,519

7,215

Research and engineering

252

220

Marketing, general and administrative

644

574

Total costs and expenses

9,415

8,009

Operating income

1,266

1,257

Interest expense, net

(104)

(106)

Income before income taxes

1,162

1,151

Income taxes

(344)

(432)

Net income

818

719

Net loss (income) attributable to noncontrolling interests

Net income attributable to Baker Hughes

$      818

$      719

Basic earnings per share attributable to Baker Hughes

$     1.86

$     1.65

Diluted earnings per share attributable to Baker Hughes

$     1.86

$     1.64

Weighted average shares outstanding, basic

439

435

Weighted average shares outstanding, diluted

440

438

Depreciation and amortization expense

$      743

$      646

Capital expenditures

$   1,442

$   1,023

 

Consolidated Condensed Balance Sheets

(Unaudited)

June 30,

December 31,

(In millions)

2012

2011

ASSETS

Current Assets:

Cash and cash equivalents

$      792

$    1,050

Accounts receivable, net

4,985

4,878

Inventories, net

3,811

3,222

Other current assets

859

647

Total current assets

10,447

9,797

Property, plant and equipment, net

8,111

7,415

Goodwill

5,957

5,956

Intangible assets, net

1,076

1,143

Other assets

597

536

Total assets

$   26,188

$   24,847

LIABILITIES AND EQUITY

Current Liabilities:

Accounts payable

$    1,859

$    1,810

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

1,191

224

Accrued employee compensation

535

704

Other accrued liabilities

652

764

Total current liabilities

4,237

3,502

Long-term debt

3,841

3,845

Deferred income taxes and other tax liabilities

667

810

Long-term liabilities

684

726

Equity

16,759

15,964

Total liabilities and equity

$   26,188

$   24,847

 

 

Consolidated Condensed Statements of Cash Flows

(Unaudited)

Six Months Ended June 30,

(In millions)

2012

2011

Cash flows from operating activities:

Net income

$   818

$   719

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

Depreciation and amortization

743

646

Other, primarily working capital

(1,437)

(968)

Net cash flows from operating activities

124

397

Cash flows from investing activities:

Expenditures for capital assets

(1,442)

(1,023)

Other

203

387

Net cash flows from investing activities

(1,239)

(636)

Cash flows from financing activities:

Net proceeds (payments) of debt

962

(271)

Dividends

(131)

(130)

Other

24

106

Net cash flows from financing activities

855

(295)

Effect of foreign exchange rate changes on cash

2

15

Decrease in cash and cash equivalents

(258)

(519)

Cash and cash equivalents, beginning of period

1,050

1,456

Cash and cash equivalents, end of period

$   792

$   937

 

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

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, which excludes an identified item (a non-GAAP financial measure) with respect to the second quarter of 2011. There were no identified items requiring adjustment for the first or second quarters of 2012.

Three Months Ended June 30, 2011

(Unaudited)

(In millions, except per share amounts)

Net

Income

Diluted

Earnings

Per Share

Net income attributable to Baker Hughes (GAAP)

$                   338

$                            0.77

Identified Item:

Expenses related to Libya(2)

70

0.16

Adjusted net income (non-GAAP)

$                  408

$                           0.93

(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)

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

Three Months Ended

June 30,

March 31,

(In millions)

2012

2011

2012

Net income attributable to Baker Hughes

$    439

$    338

$    379

Net (loss) income attributable to noncontrolling interests

(1)

(3)

1

Income taxes

151

228

193

Income before income taxes

589

563

573

Interest expense, net

50

54

54

Earnings before interest and taxes (EBIT)

639

617

627

Depreciation and amortization expense

380

331

363

Earnings before interest, taxes, depreciation and

amortization (EBITDA)

1,019

948

990

Adjustments to EBITDA:

Expenses related to Libya(2)

70

Adjusted EBITDA

$   1,019

$   1,018

$    990

Six Months Ended June 30,

(In millions)

2012

2011

Net income attributable to Baker Hughes

$    818

$    719

Income taxes

344

432

Income before income taxes

1,162

1,151

Interest expense, net

104

106

Earnings before interest and taxes (EBIT)

1,266

1,257

Depreciation and amortization expense

743

646

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

2,009

1,903

Adjustments to EBITDA:

Expenses related to Libya(2)

70

Adjusted EBITDA

$   2,009

$   1,973

(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)

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

June 30,

March 31,

(In millions)

2012

2011(3)

2012

Segment Revenue

North America

$   2,672

$   2,372

$   2,863

Latin America

604

544

573

Europe/Africa/Russia Caspian

925

817

893

Middle East/Asia Pacific

804

713

745

Industrial Services

321

295

281

Total Operations

$   5,326

$   4,741

$   5,355

Profit Before Tax

North America

$     357

$     434

$     401

Latin America

77

71

67

Europe/Africa/Russia Caspian(2)

156

44

153

Middle East/Asia Pacific

87

87

75

Industrial Services

44

44

22

Total Operations

$     721

$     680

$     718

Corporate and Other Profit Before Tax

Interest expense, net

(50)

(54)

(54)

Corporate and other

(82)

(63)

(91)

Corporate, net interest and other

(132)

(117)

(145)

Profit Before Tax

$      589

$     563

$     573

Profit Before Tax Margin(1)

North America

13%

18%

14%

Latin America

13%

13%

12%

Europe/Africa/Russia Caspian(2)

17%

5%

17%

Middle East/Asia Pacific

11%

12%

10%

Industrial Services

14%

15%

8%

Total Operations

14%

14%

13%

(1)

Profit before tax margin is a non-GAAP measure defined as profit before tax ("income 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)

Includes 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.

(3)

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 three 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.

 

 

Table 4: 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 expenses related to Libya recorded in the second quarter of 2011 (see Table 3). There were no items requiring adjustment for the first or second quarters of 2012.

Three Months Ended

June 30,

March 31,

(In millions)

2012

2011(2)

2012

Segment Revenue

North America

$   2,672

$   2,372

$   2,863

Latin America

604

544

573

Europe/Africa/Russia Caspian

925

817

893

Middle East/Asia Pacific

804

713

745

Industrial Services

321

295

281

Total Operations

$   5,326

$   4,741

$   5,355

Operating Profit Before Tax(1)

North America

$     357

$     434

$     401

Latin America

77

71

67

Europe/Africa/Russia Caspian

156

114

153

Middle East/Asia Pacific

87

87

75

Industrial Services

44

44

22

Total Operations

$     721

$   750

$     718

Operating Profit Before Tax Margin(1)

North America

13%

18%

14%

Latin America

13%

13%

12%

Europe/Africa/Russia Caspian

17%

14%

17%

Middle East/Asia Pacific

11%

12%

10%

Industrial Services

14%

15%

8%

Total Operations

14%

16%

13%

(1)

Operating profit before tax is a non-GAAP measure defined as profit before tax ("income 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 profit before tax for the three 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.

Baker Hughes Operational Highlights

North America Since being introduced a year ago, Baker Hughes AutoTrak™ Curve has drilled over one million feet in the United States. By comparison, the previous generation AutoTrak™ system took three years to achieve the one million foot milestone globally.

Upstream Chemicals recently won a five-year contract as sole provider of process, de-oiling, and water treatment specialty chemicals and associated technical support services for a major steam-assisted gravity drainage (SAGD) operator in Canada's oil sands.

Latin America Baker Hughes recently set a record in Mexico by drilling faster and farther with the first run of a Kymera™ hybrid drill bit powered by an X-treme™ LS motor. This performance, 74 percent better than the longest offset run in this geologic interval, cut almost two days of drilling time.

Baker Hughes recently received two significant contracts for Completions Systems in offshore Mexico. Baker Hughes will provide liner hanger equipment for new and workover wells, in addition to EZ-CASE™ drill shoe and EZ-REAM™ shoe drilling accessories.

Europe/Africa/Russia Caspian Upstream Chemicals opened a new chemical supply base in Aberdeen to service production enhancement and flow assurance in the North Sea.  Baker Hughes delivered three separate, successful trials with green chemistry demulsifiers at three separate offshore customer facilities.

Baker Hughes Drilling Services drilled the two longest, extended-reach wells on the Russian mainland. Both wells were in the remote Yamal Peninsula above the Arctic Circle extending below the Kara Sea. The well construction enabled production without the costly construction of building an island or moving in an offshore rig.

Middle East/Asia Pacific Baker Hughes was awarded a long-term Engineering, Project Management and Integrated Operations drilling contract by Saudi Aramco for turn-key delivery of over 75 wells in the Shaybah field. The scope of work awarded to Baker Hughes comprises project management, provision of three drilling rigs and well engineering and all associated services, including Drill Bits, Drilling and Completion Fluids, Directional Drilling and Logging While Drilling services, Wireline, Cementing and Pressure Pumping, gyro surveys and slickline services, as well as completion equipment and services.

Baker Hughes Integrated Operations achieved an accelerated startup in Iraq and is currently operating six rigs. The first well has been delivered, and two more wells are on schedule to be delivered before the end of July. A chemicals blend plant is now operational in country.

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 8:00 a.m. Eastern time, 7:00 a.m. Central time, on Friday, July 20, 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, or 706-634-7270 for international calls, 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, August 3, 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 period ended March 31, 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



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