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Baker Hughes Announces Fourth Quarter and Annual Results

January 21, 2014

-Record revenue of $5.9 billion for the quarter and $22.4 billion for the year

HOUSTON, Jan. 21, 2014 /PRNewswire/ — Baker Hughes Incorporated (NYSE: BHI) announced today results for the fourth quarter of 2013 are as follows:

                         Q4               Q3                Q4
                        2013              2013              2012
                       -----            -----             -----

    Revenue
     (millions)               $5,860            $5,787            $5,325

    Adjusted net
     income (non-
     GAAP, millions)     277               358               214

    Net income (GAAP,
     millions)           248               341               214

    Adjusted net
     income per
     diluted share
     (non-GAAP)         0.62              0.81              0.49

    Net income per
     diluted share
     (GAAP)             0.56              0.77              0.49

Adjusted net income for the fourth quarter of 2013 excludes after-tax severance charges of $29 million ($0.06 per diluted share), but includes after-tax losses of $79 million ($0.18 per diluted share) in Iraq. The losses in Iraq are primarily related to the significant disruption of operations previously announced during the quarter, expenses associated with personnel movements and security measures, and other nonrecurring items. Adjusted net income for the third quarter of 2013 and the fourth quarter of 2012 include after-tax charges of $42 million ($0.09 per diluted share) and $63 million ($0.14 per diluted share), respectively, for bad debt provisions in Latin America. Please see Table 1 for a reconciliation of GAAP to non-GAAP Financial Measures.

Revenue for the year 2013 was a record $22.36 billion up 5% compared to $21.36 billion for the year 2012. Adjusted net income for the year 2013 was $1.17 billion ($2.62 per diluted share) compared to $1.35 billion ($3.07 per diluted share) for the year 2012.

“In 2013, we posted record revenue driven largely by the Eastern Hemisphere where our operations grew by 14% compared to 2012,” said Martin Craighead, Baker Hughes Chairman and Chief Executive Officer. “This success can largely be attributed to meaningful share gains in high growth markets such as the Middle East and Africa. In our Middle East/Asia Pacific segment, we grew revenue 24% during the year, with solid improvement in profitability compared to last year. In Latin America, we realigned our business to drive better profitability ending the year with 12% operating profit margins. In the U.S., we achieved four consecutive quarters of improved profit margins in our Pressure Pumping product line.

“During the year, we generated $1.5 billion of free cash flow, a record for Baker Hughes. This was the result of our ongoing commitment to maintain capital discipline, as well as solid progress on key initiatives to improve working capital. Based on this and a positive outlook for our business, we repurchased $350 million of Baker Hughes shares during the fourth quarter.

“Looking forward, we project increased activity in all of our operational segments in 2014, led by 10% rig count growth in international markets and 5% well count growth in the U.S. By increasing the pace of innovation, we are delivering new products and unique solutions that are helping our customers meet their drilling and production challenges.”

Cash increased by $31 million to $1.40 billion as of December 31, 2013, compared to $1.37 billion at September 30, 2013. Compared to December 31, 2012, cash increased by $384 million. Debt decreased by $194 million to $4.38 billion compared to September 30, 2013 and decreased by $535 million compared to December 31, 2012.

Capital expenditures were $533 million, depreciation and amortization expense was $436 million and dividend payments were $67 million in the fourth quarter of 2013. For the year 2013, capital expenditures were $2.1 billion, which is down $825 million or 28% compared to the year 2012. Depreciation and amortization expense for the year 2013 was $1.70 billion, and dividend payments were $267 million.

Adjusted EBITDA (a non-GAAP measure) in the fourth quarter of 2013 was $955 million, a decrease of $63 million compared to the third quarter of 2013. For the year 2013, adjusted EBITDA was $3.73 billion. 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 Tables 5a and 5b. Free cash flow is defined as net cash flow from operating activities less disbursements for capital expenditures plus proceeds from disposal of assets.

    Consolidated Condensed Statements of Income

                                         Three Months Ended
                                         ------------------

                                       December                September
                                              31,                      30,
                                          ---------                --------

    (In millions,
     except per share
     amounts)                     2013              2012               2013
    -----------------             ----              ----               ----

    Revenue                             $5,860            $5,325             $5,787

    Costs and
     expenses:

    Cost of revenue              4,886             4,441              4,750

    Research and
     engineering                   156               127                142

    Marketing,
     general and
     administrative                336               317                319
    ---------------                ---               ---                ---

    Total costs and
     expenses                    5,378             4,885              5,211
    ---------------              -----             -----              -----

    Operating income               482               440                576

    Interest expense,
     net                           (61)             (57)                (58)
    -----------------              ---               ---                ---

    Income before
     income taxes                  421               383                518

    Income taxes                 (171)             (168)              (178)
    ------------                  ----              ----               ----

    Net income                     250               215                340

    Net (income) loss
     attributable to
     noncontrolling
     interests                      (2)               (1)                 1
    -----------------              ---               ---                ---

    Net income
     attributable to
     Baker Hughes                         $248              $214               $341
    ================                      ====              ====               ====

    Basic earnings
     per share
     attributable to
     Baker Hughes                        $0.56             $0.49              $0.77

    Diluted earnings
     per share
     attributable to
     Baker Hughes                        $0.56             $0.49              $0.77

    Weighted average
     shares
     outstanding,
     basic                         442               440                444

    Weighted average
     shares
     outstanding,
     diluted                       444               441                445

    Depreciation and
     amortization
     expense                              $436              $417               $423

    Capital
     expenditures                         $533              $727               $511

    Consolidated Condensed Statements of Income

                                       Year Ended
                                      December 31,
                                     -------------

    (In millions, except per
     share amounts)                2013               2012
    ------------------------       ----               ----

    Revenue                              $22,364            $21,361

    Costs and expenses:

    Cost of revenue              18,553              17,356

    Research and engineering        556                497

    Marketing, general and
     administrative               1,306              1,316
    ----------------------        -----              -----

    Total costs and expenses     20,415              19,169
    ------------------------     ------              ------

    Operating income              1,949              2,192

    Interest expense, net          (234)             (210)
    ---------------------          ----               ----

    Income before income taxes    1,715              1,982

    Income taxes                   (612)             (665)
    ------------                   ----               ----

    Net income                    1,103              1,317

    Net income attributable to
     noncontrolling interests        (7)                (6)
    --------------------------      ---                ---

    Net income attributable to
     Baker Hughes                         $1,096             $1,311
    ==========================            ======             ======

    Basic earnings per share
     attributable to Baker
     Hughes                                $2.47              $2.98

    Diluted earnings per share
     attributable to Baker
     Hughes                                $2.47              $2.97

    Weighted average shares
     outstanding, basic             443                440

    Weighted average shares
     outstanding, diluted           444                441

    Depreciation and
     amortization expense                 $1,698             $1,568

    Capital expenditures                  $2,085             $2,910

    Consolidated Condensed Balance Sheets

                                  December             December
                                     31,                  31,

    (In millions)                     2013                2012
    -------------                     ----                ----

    ASSETS

    Current Assets:

    Cash and cash equivalents                 $1,399              $1,015

    Accounts receivable -less
     allowance for doubtful
     accounts                        5,138               4,815

    (2013 - $238,  2012 - $308)

    Inventories, net                 3,884               3,781

    Other current assets               874                 806
    --------------------               ---                 ---

    Total current assets            11,295               10,417
    --------------------            ------               ------

    Property, plant and
     equipment, net                  9,076               8,707

    Goodwill                         5,966               5,958

    Intangible assets, net             883                 993

    Other assets                       714                 614
    ------------                       ---                 ---

    Total assets                             $27,934             $26,689
    ============                             =======             =======

    LIABILITIES AND EQUITY

    Current Liabilities:

    Accounts payable                          $2,574              $1,737

    Short-term debt and
     current portion of long-
     term debt                         499               1,079

    Accrued employee
     compensation                      778                 646

    Other accrued liabilities          727                 662
    -------------------------          ---                 ---

    Total current liabilities        4,578               4,124
    -------------------------        -----               -----

    Long-term debt                   3,882               3,837

    Deferred income taxes and
     other tax liabilities             821                 745

    Long-term liabilities              741                 715

    Equity                          17,912               17,268
    ------                          ------               ------

    Total liabilities and
     equity                                  $27,934             $26,689
    =====================                    =======             =======

    Consolidated Condensed Statements of Cash Flows

                                        Year Ended
                                         December
                                                31,
                                           -----------

    (In millions)                    2013               2012
    ------------                     ----               ----

    Cash flows from operating
     activities:

    Net income                              $1,103             $1,317

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

    Depreciation and
     amortization                   1,698              1,568

    Other, primarily working
     capital                          360               (1,050)
    ------------------------          ---              ------

    Net cash flows provided by
     operating activities           3,161              1,835
    --------------------------      -----              -----

    Cash flows from investing
     activities:

    Expenditures for capital
     assets                        (2,085)              (2,910)

    Proceeds from disposal of
     assets                           455                389

    Other                             (33)                -
    -----                             ---               ---

    Net cash flows used in
     investing activities          (1,663)              (2,521)
    ----------------------         ------              ------

    Cash flows from financing
     activities:

    Net (repayments) proceeds
     from issuance of debt           (571)               847

    Repurchase of common stock       (350)                -

    Dividends                        (267)             (263)

    Other                              85                 62
    -----                             ---                ---

    Net cash flows (used in)
     provided by financing
     activities                    (1,103)               646
    ------------------------       ------                ---

    Effect of foreign exchange
     rate changes on cash and
     cash equivalents                 (11)                 5
    --------------------------        ---                ---

    Increase (decrease) in cash
     and cash equivalents             384               (35)

    Cash and cash equivalents,
     beginning of period            1,015              1,050
    --------------------------      -----              -----

    Cash and cash equivalents,
     end of period                          $1,399             $1,015
    ==========================              ======             ======

    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 and fourth quarters of 2013. There were no identified items requiring adjustment for the fourth quarter of 2012.



                      Three Months                   Three Months
                          Ended                          Ended
                      December 31,                   September 30,
                              2013                               2013
                         -------------                      -------------

    (In
     millions,
     except
     per
     share
     amounts)      Net          Diluted           Net          Diluted
                  Income        Earnings                       Earnings
                                   Per           Income           Per
                                  Share                            Share
    ---                          ------          -----          ------

    Net
     income
     attributable
     to
     Baker
     Hughes
     (GAAP)               $248             $0.56             $341             $0.77

     Identified
     item:

     Severance
     charges5         29              0.06               17              0.04
                     ---              ----              ---              ----

     Adjusted
     net
     income
     (non-
     GAAP)(1)             $277             $0.62             $358             $0.81
     ========             ====             =====             ====             =====

                        Year Ended                     Year Ended
                        December 31,                   December 31,
                                2013                                2012
                          -------------                        -------------

     (In
     millions,
     except
     per
     share
     amounts)      Net            Diluted           Net           Diluted
                  Income           Earnings                         Earnings
                                     Per           Income             Per
                                    Share                             Share
    ---                            ------         -----            ------

     Net
     income
     attributable
     to
     Baker
     Hughes
     (GAAP)               $1,096             $2.47            $1,311            $2.97

     Identified
     items:

     Information
     technology
     charges(2)        -                  -              28                0.07

     Facility
     closure(3)        -                  -              15                0.03

     Devaluation
     of
     Venezuelan
     currency4        23                0.05              -                  -

     Severance
     charges5         46                0.10              -                  -
     ---------       ---                ----            ---                ---

     Adjusted
     net
     income
     (non-
     GAAP)(1)             $1,165             $2.62            $1,354            $3.07
     ========               ====             =====              ====            =====

    (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.

    (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   Foreign exchange loss of $23
          million before and after-
          tax due to the devaluation
          of Venezuela's currency
          from the prior exchange
          rate of 4.3 Bolivars
          Fuertes per U.S. Dollar to
          6.3 Bolivars Fuertes per
          U.S. Dollar, which applied
          to our local currency
          denominated balances in the
          first quarter of 2013.

      5   Severance charges of $37
          million before-tax ($29
          million after-tax) were
          incurred during the fourth
          quarter of 2013 and $19
          million before-tax ($17
          million after-tax) during
          the third quarter of 2013.

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

                                           Three Months
                                               Ended
                                          -------------

                                      December              September
                                             31,                    30,
                                          --------              --------

    (In millions)                2013             2012              2013
    ------------                 ----             ----              ----

    Net income
     attributable to
     Baker Hughes                       $248             $214               $341

    Net income (loss)
     attributable to
     noncontrolling
     interests                      2                1                (1)

    Income taxes                  171              168               178
    ------------                  ---              ---               ---

    Income before income
     taxes                        421              383               518

    Interest expense,
     net                           61               57                58
    -----------------             ---              ---               ---

    Earnings before
     interest and taxes
     (EBIT)                       482              440               576

    Depreciation and
     amortization
     expense                      436              417               423
    ----------------              ---              ---               ---

    Earnings before
     interest, taxes,
     depreciation and             918              857               999

    amortization
     (EBITDA)

    Adjustments to
     EBITDA:

    Severance charges(2)           37               -                19

    Adjusted EBITDA                     $955             $857             $1,018
    ===============                     ====             ====             ======

                                                                                 Year Ended
                                                                                  December
                                                                                         31,
                                                                                    -----------

    (In millions)                                                            2013              2012
    ------------                                                             ----              ----

    Net income attributable to Baker Hughes                                        $1,096           $1,311

    Net income attributable to noncontrolling interests                         7                 6

    Income taxes                                                              612               665
    ------------                                                              ---               ---

    Income before income taxes                                              1,715             1,982

    Interest expense, net                                                     234               210
    ---------------------                                                     ---               ---

    Earnings before interest and taxes (EBIT)                               1,949             2,192

    Depreciation and amortization expense                                   1,698             1,568
    -------------------------------------                                   -----             -----

    Earnings before interest, taxes, depreciation and amortization (EBITDA) 3,647             3,760

    Adjustments to EBITDA:

    Severance charges(2)                                                       56                -

    Devaluation of Venezuelan currency(3)                                      23                -

    Information technology charges4                                             -                43

    Facility closure5                                                           -                20
    -----------------                                                         ---

    Adjusted EBITDA                                                                $3,726           $3,823
    ===============                                                                  ====             ====

    (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)   Severance charges of $37
          million before-tax ($29
          million after-tax) were
          incurred during the fourth
          quarter of 2013 and $19
          million before-tax ($17
          million after-tax) during
          the third quarter of 2013.

    (3)   Foreign exchange loss of $23
          million before and after-
          tax due to the devaluation
          of Venezuela's currency
          from the prior exchange
          rate of 4.3 Bolivars
          Fuertes per U.S. Dollar to
          6.3 Bolivars Fuertes per
          U.S. Dollar, which applied
          to our local currency
          denominated balances in the
          first quarter of 2013.

      4   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.

      5   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.

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

                                                         Three Months Ended
                                                         ------------------

                                                     December 31,                 September
                                                                                          30,
                                                          ------------            --------

    (In
     millions)                                           2013                 2012                 2013
    ----------                                           ----                 ----                 ----

    Segment
     Revenue

    North
     America                                           $2,744               $2,559               $2,854

    Latin
     America                                      603                  639                  557

    Europe/
     Africa/
     Russia
     Caspian                                    1,046                  950                  984

    Middle East/
     Asia
     Pacific                                    1,121                  882                1,064

    Industrial
     Services                                     346                  295                  328
    ----------                                    ---                  ---                  ---

    Total
     Operations                                        $5,860               $5,325               $5,787
    ===========                                          ====                 ====               ======

    Profit
     Before Tax

    North
     America                                             $227                 $222                 $295

    Latin
     America                                       58                    8                 (23)

    Europe/
     Africa/
     Russia
     Caspian                                      156                  173                  170

    Middle East/
     Asia
     Pacific                                       91                   81                  156

    Industrial
     Services                                      34                   27                   38
    ----------                                    ---                  ---                  ---

    Total
     Operations                                          $566                 $511                 $636
    -----------                                          ----                 ----                 ----

    Corporate
     and Other
     Profit
     Before Tax

    Corporate
     and other                                    (84)                (71)                 (60)

    Interest
     expense,
     net                                          (61)                (57)                 (58)
    ---------                                     ---                  ---                  ---

    Corporate,
     net
     interest
     and other                                  (145)                (128)                (118)
    ----------                                   ----                 ----                 ----

    Profit
     Before Tax                                          $421                 $383                 $518
    ===========                                          ====                 ====                 ====

    Profit
     Before Tax
     Margin(1)

    North
     America                                        8%                   9%                  10%

    Latin
     America                                       10%                   1%                 (4%)

    Europe/
     Africa/
     Russia
     Caspian                                       15%                  18%                  17%

    Middle East/
     Asia
     Pacific                                        8%                   9%                  15%

    Industrial
     Services                                      10%                   9%                  12%
    ----------                                    ---                  ---                  ---

    Total
     Operations                                    10%                  10%                  11%
    ===========                                   ===                  ===                  ===

    (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.

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

                                                       Year Ended
                                                      December 31,
                                                     -------------

    (In millions)                                         2013                  2012
    ------------                                          ----                  ----

    Segment Revenue

    North America                                      $10,878               $10,836

    Latin America                               2,307                 2,399

    Europe/Africa/Russia Caspian                3,850                 3,634

    Middle East/Asia Pacific                    4,050                 3,275

    Industrial Services                         1,279                 1,217
    -------------------                         -----                 -----

    Total Operations                                   $22,364               $21,361
    ================                                     =====                 =====

    Profit Before Tax

    North America                                         $968                $1,268

    Latin America                                  66                   197

    Europe/Africa/Russia Caspian                  570                   586

    Middle East/Asia Pacific                      478                   313

    Industrial Services                           135                   131
    -------------------                           ---                   ---

    Total Operations                                    $2,217                $2,495
    ----------------                                    ------                ------

    Corporate and Other Profit
     Before Tax

    Corporate and other                         (268)                 (303)

    Interest expense, net                       (234)                 (210)
    ---------------------                        ----                  ----

    Corporate, net interest and
     other                                      (502)                 (513)
    ---------------------------                  ----                  ----

    Profit Before Tax                                   $1,715                $1,982
    =================                                   ======                ======

    Profit Before Tax Margin(1)

    North America                                   9%                   12%

    Latin America                                   3%                    8%

    Europe/Africa/Russia Caspian                   15%                   16%

    Middle East/Asia Pacific                       12%                   10%

    Industrial Services                            11%                   11%
    -------------------                           ---                   ---

    Total Operations                               10%                   12%
    ================                              ===                   ===

    (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.

    Table 4: Adjustments to Operating Profit Before Tax(1)

    (In millions)                                  Three         Three
                                                  Months        Months
                                                   Ended         Ended
                                                 December      September
                                                    31,            30,
                                                 2013(2)         2013(2)
    ---                                         --------        --------

    Adjustments to Operating Profit Before Tax

    North America                                          $14          $   -

    Latin America                                      13              19

    Europe/Africa/Russia Caspian                        6              -

    Middle East/Asia Pacific                            3              -

    Industrial Services                                 1              -
    -------------------                               ---            ---

    Total Operations                                       $37            $19
    ================                                       ===            ===

    (In millions)                                 Year         Year
                                                  Ended       Ended
                                                December     December
                                                   31,          31,
                                                2013(3)        20124
    ---                                        --------      --------

    Adjustments to Operating Profit Before Tax

    North America                                        $14           $33

    Latin America                                     55             7

    Europe/Africa/Russia Caspian                       6            11

    Middle East/Asia Pacific                           3            10

    Industrial Services                                1             2
    -------------------                              ---           ---

    Total Operations                                     $79           $63
    ================                                     ===           ===

    (1)   There were no items
          identified requiring
          adjustment in the fourth
          quarter of 2012.

    (2)   Severance charges of $37
          million before-tax were
          incurred during the fourth
          quarter of 2013, as well
          as, severance charges of
          $19 million before-tax
          related to restructuring in
          Latin America during the
          third quarter of 2013.

    (3)   Includes severance charges
          incurred in the third and
          fourth quarters of 2013
          (see note 2 above) and
          foreign exchange loss of
          $23 million before-tax
          incurred in the first
          quarter of 2013 due to the
          devaluation of Venezuela's
          currency from the prior
          exchange rate of 4.3
          Bolivars Fuertes per U.S.
          Dollar to 6.3 Bolivars
          Fuertes per U.S. Dollar,
          which applied to our local
          currency denominated
          balances.

    4     Charges of $43 million
          before-tax related to
          internally developed
          software and other
          information technology
          assets in the third quarter
          of 2012.  Charges of $20
          million before-tax
          associated with the closure
          of a chemical manufacturing
          facility in the United
          Kingdom 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.

    Table 5a: 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 severance charges in the third and fourth quarter of 2013 (see Table 4). There were no items requiring adjustment for the fourth quarter of 2012.



                              Three Months Ended
                              ------------------

                          December 31,                 September
                                                               30,
                               ------------            --------

    (In millions)             2013                 2012                 2013
    ------------              ----                 ----                 ----

    Segment Revenue

    North America           $2,744               $2,559               $2,854

    Latin America      603                  639                  557

    Europe/Africa/
     Russia Caspian  1,046                  950                  984

    Middle East/Asia
     Pacific         1,121                  882                1,064

    Industrial
     Services          346                  295                  328
    ----------         ---                  ---                  ---

    Total Operations        $5,860               $5,325               $5,787
    ================          ====                 ====               ======

    Operating Profit
     Before Tax(1)

    North America             $241                 $222                 $295

    Latin America(2)    71                    8                   (4)

    Europe/Africa/
     Russia Caspian    162                  173                  170

    Middle East/Asia
     Pacific(3)         94                   81                  156

    Industrial
     Services           35                   27                   38
    ----------         ---                  ---                  ---

    Total Operations          $603                 $511                 $655
    ================          ====                 ====                 ====

    Operating Profit
     Before Tax
     Margin(1)

    North America        9%                   9%                  10%

    Latin America(2)    12%                   1%                 (1%)

    Europe/Africa/
     Russia Caspian     15%                  18%                  17%

    Middle East/Asia
     Pacific(3)          8%                   9%                  15%

    Industrial
     Services           10%                   9%                  12%
    ----------         ---                  ---                  ---

    Total Operations    10%                  10%                  11%
    ================   ===                  ===                  ===

    (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)   Latin America operating
          profit before tax and
          operating profit before
          tax margin include
          before-tax bad debt
          provisions of $42
          million and $63 million
          in the third quarter of
          2013 and fourth quarter
          of 2012, respectively.

    (3)   Middle East/Asia Pacific
          operating profit before
          tax and operating profit
          before tax margin
          include costs of $79
          million in Iraq related
          to the significant
          disruption of
          operations, expenses
          associated with
          personnel movements and
          security measures, and
          other nonrecurring
          items.

    Table 5b: 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 severance charges recorded in the third and fourth quarter of 2013, the charge for the devaluation of the Venezuelan currency recorded in the first quarter of 2013, and charges related to information technology and the closure of a chemical manufacturing facility recorded in the third quarter of 2012 (see Table 4).



                                                 Year Ended
                                                December 31,
                                               -------------

    (In millions)                                   2013               2012
    ------------                                    ----               ----

    Segment Revenue

    North America                                $10,878            $10,836

    Latin America                         2,307              2,399

    Europe/Africa/Russia Caspian          3,850              3,634

    Middle East/Asia Pacific              4,050              3,275

    Industrial Services                   1,279              1,217
    -------------------                   -----              -----

    Total Operations                             $22,364            $21,361
    ================                               =====              =====

    Operating Profit Before Tax(1)

    North America                                   $982             $1,301

    Latin America(2)                        121                204

    Europe/Africa/Russia Caspian            576                597

    Middle East/Asia Pacific(3)             481                323

    Industrial Services                     136                133
    -------------------                     ---                ---

    Total Operations                              $2,296             $2,558
    ================                              ======             ======

    Operating Profit Before Tax Margin(1)

    North America                             9%                12%

    Latin America(2)                          5%                 9%

    Europe/Africa/Russia Caspian             15%                16%

    Middle East/Asia Pacific(3)              12%                10%

    Industrial Services                      11%                11%
    -------------------                     ---                ---

    Total Operations                         10%                12%
    ================                        ===                ===

    (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)   Latin America operating
          profit before tax and
          operating profit before
          tax margin include
          before-tax bad debt
          provisions of $62
          million in 2013 ($20
          million in the second
          quarter and $42 million
          in the third quarter)
          and $85 million in 2012
          ($22 million in the
          third quarter and $63
          million in the fourth
          quarter).

    (3)   Middle East/Asia Pacific
          operating profit before
          tax and operating profit
          before tax margin
          include costs of $79
          million in Iraq during
          the fourth quarter
          related to the
          significant disruption
          of operations, expenses
          associated with
          personnel movements and
          security measures, and
          other nonrecurring
          items.

Baker Hughes Operational Highlights

In the fourth quarter, Statoil awarded Baker Hughes a major, multiyear contract for the provision of completions services in Norway, including cased-hole and intelligent well systems. The award covers the majority of Statoil’s fields and represents a significant increase for our completions business in Norway, solidifying our position as the market leader for completions systems in the North Sea.

During the fourth quarter, Baker Hughes was awarded a three-year contract in the Colombian foothills region to provide drilling and completions services for a development project, expanding our share in that market. The project will occur in a highly challenging drilling and completions environment where Baker Hughes’ technology and operational capabilities will be key to success.

The AutoTrak(TM) Curve rotary steerable system continues to reduce drilling time and is expanding geographically. The system allows the operator to drill the vertical, curve, and lateral sections of the wellbore in one smooth, fast run. Leveraging the remarkable success achieved with this system since its commercial launch in 2011, Baker Hughes recently deployed the system in the Utica Shale on an 11-well, horizontal drilling program, saving an operator 1.5 to 2 days per well of rig time. Additionally, in Egypt, the first horizontal well drilled using the AutoTrak Curve system was successful, reducing drilling times from an average of 4 days to less than 1 day.

The Baker Hughes FASTrak(TM) LWD fluid analysis sampling and testing service continues to gain share in deepwater markets around the world. This service provides key petrophysical information in real time during the drilling operation to help predict and optimize reservoir behavior during production. Throughout the year, the system has gained acceptance in offshore markets in Norway, the UK, Gulf of Mexico, Nigeria, and East Africa. During the fourth quarter, it expanded into new deepwater markets with successful deployments in Mexico, Vietnam, and the UAE.

During the fourth quarter, Baker Hughes set a record for the longest lateral section drilled in the Permian Basin with its AutoTrak(TM) X-treme(TM) drilling system. The lateral section was drilled in a single run to a target length of more than 12,000 feet, 2,250 feet longer than the previous record lateral, reducing drilling time from the planned 18 to 11 days.

During the fourth quarter, Baker Hughes successfully introduced the FracPoint(TM) multistage fracturing system in the Vaca Muerta field of Argentina. The system incorporated IN-Tallic(TM) disintegrating frac balls to eliminate the need for post-stimulation well intervention. Completion of the well was executed flawlessly, and a new efficiency record was set by fracturing four of the seven stages in a single day. Due to the success of this operation, the same client recently awarded Baker Hughes two additional FracPoint completions.

Baker Hughes successfully tripled daily oil production, reaching record cumulative oil production in a section of Mexico’s Corralillo field as part of a three and a half year field lab project. Baker Hughes managed the drilling and completion of 30 wells and deployed a total of 19 new and innovative technologies to achieve record production. Building on the success of the Corralillo project, Baker Hughes recently started the transition period to a new 35-year production and exploration contract in the Soledad field, representing Baker Hughes’ first long-term field management project in Mexico.

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 a conference call and webcast 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 Tuesday, January 21, 2014, 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 at www.bakerhughes.com/investor. To access the conference call, please call the conference call operator at: 800-446-1671 in the U.S., or 847-413-3362 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 Tuesday, February 4, 2014. The number for the replay is: 888-843-7419 in the U.S., or 630-652-3042 for international calls, and the access code is: 36234681. To access the webcast, go to our Events and Presentations page on the Company’s website at: 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,” “foresee,” “forecasts,” “predict,” “outlook,” “aim,” “will,” “could,” “should,” “potential,” “would,” “may,” “probable,” “likely,” and similar expressions, and the negative thereof, are intended to identify forward-looking statements. There are many risks and uncertainties that could cause actual results to differ materially from our forward-looking statements. These forward-looking statements are also affected by the risk factors described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012, Baker Hughes’ subsequent quarterly report on Form 10-Q for the quarterly periods ended March 31, June 30, 2013, and September 30, 2013; 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: www.bakerhughes.com/investor or through the SEC’s Electronic Data Gathering and Analysis Retrieval System (“EDGAR”) at: 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 and political 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; foreign currency exchange fluctuations and changes in the capital markets in locations where we operate; and the impact of government disruptions such as a U.S. government shutdown. 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.

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 59,000-plus employees today work in more than 80 countries helping customers find, evaluate, drill, produce, transport and process hydrocarbon resources. For more information about Baker Hughes, visit: www.bakerhughes.com.

Investor Contacts:
Trey Clark, +1.713.439.8039, trey.clark@bakerhughes.com
Eric Holcomb, +1.713.439.8822, eric.s.holcomb@bakerhughes.com

Media Contact:
Christine Mathers, +1.713.439.8738, christine.mathers@bakerhughes.com

SOURCE Baker Hughes Incorporated


Source: PR Newswire



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