BAKER HUGHES NET LOSS $911 MLN
Baker Hughes Incorporated (NYSE:BHI) announced today results for the second quarter of 2016.
"Our second quarter results reflect the actions we have taken to strengthen our business in light of the difficult conditions our industry faces. During the quarter, we made significant progress in our plan to reduce costs, optimize our capital structure, and build on our strength as a product innovator that solves customers' toughest challenges through leading technology," said Martin Craighead, Baker Hughes Chairman and Chief Executive Officer.
"After we outlined our path forward in early May, we took swift and decisive measures to improve our financial and competitive performance. We simplified our organizational structure to closely align with our commercial strategy and fortified our core operations, while laying the groundwork to develop a broader range of sales channels for our products. We took steps to right-size our asset base and implemented cost reductions that put us on track to achieve our $500 million annualized savings target by year end. We also are well down the path in our plan to optimize our capital structure. During the quarter, we completed debt purchases of $1 billion, repurchased shares of $500 million—one-third of our announced buyback program, and refinanced our $2.5 billion credit facility. I am extremely pleased with our progress and, while we have more work ahead of us, the Baker Hughes team is focused on execution and delivering on our commitments to customers and shareholders.
"In the midst of these structural changes, and while we are facing an extremely tough market environment, I am encouraged to see that our second quarter revenue declined only 10% sequentially despite a 19% drop in the global rig count. The decrease in revenue is driven primarily by a continued steep decline in activity and pricing pressure, mainly in the Eastern Hemisphere. Operational losses for the quarter increased sequentially as a result of inventory write-downs, provisions for doubtful accounts—primarily in Ecuador, and valuation allowances on indirect taxes. Cash flows from operating activities for the quarter were $3.6 billion, largely as a result of collecting the merger termination fee.
"In the second half of 2016, excluding the seasonality in Canada, we do not expect activity in North America to meaningfully increase, as our customer community requires a more sustained oil price improvement before committing to any material increase in spending. On the other hand, activity internationally is expected to continue to decline in most countries, with a steeper decline in markets with higher lifting costs. As a consequence of this outlook, we expect pricing to remain challenging. Margins across all of our segments are expected to improve sequentially as we begin to see the full benefit of the restructuring actions taken this quarter.
"Although we expect the market dynamics to remain challenging near term, the structural changes we implemented this quarter have created a stronger foundation for delivering on our strategy. We have made significant progress in a short amount of time, and we remain focused on accelerating our momentum. We are more confident than ever that we have the right people, technology, and commercial strategy, and we remain steadfast in our efforts to increase returns through a disciplined approach to capital investment."
2016 Second Quarter Results
Revenue for the quarter was $2.4 billion, a decrease of $262 million, or 10% sequentially. Compared to the same quarter last year, revenue is down $1.6 billion, or 39%. Revenue for the quarter continued to be impacted by activity declines in the market and increasing pricing pressures.
On a GAAP basis, net loss attributable to Baker Hughes for the second quarter was $911 million, or $2.08 per diluted share, compared to $981 million, or $2.22 per diluted share, in the first quarter of 2016. The second quarter includes charges related to goodwill impairment, asset impairments, restructuring, and inventory, almost entirely offset by the merger termination fee paid to the Company by Halliburton as a result of the termination of the Merger Agreement on April 30, 2016.
Adjusted net loss (a non-GAAP measure) for the quarter was $392 million, or $0.90 per diluted share. Adjusted net loss excludes adjustments totaling $519 million after-tax ($1.18 per diluted share), which are net of the ($3.5) billion merger termination fee. A complete list of the adjusting items and associated reconciliation has been provided in Table 1a.
Adjusted EBITDA (a non-GAAP measure) was ($150) million for the quarter, a decline of $258 million, or 239% sequentially, and down $609 million, or 133% compared to the second quarter of 2015. In addition to the decline from activity and pricing, adjusted EBITDA was negatively impacted by $166 million of provisions for doubtful accounts primarily in Ecuador—a $119 million sequential increase—and $45 million related to valuation allowances on indirect taxes.
Cash flows provided by operating activities were $3.6 billion for the quarter, an increase of $3.7 billion sequentially and $3.0 billion year-over-year. Free cash flow (a non-GAAP measure) for the quarter was $3.6 billion, an increase of $3.7 billion sequentially and $3.2 billion year-over-year. These increases are driven primarily by Halliburton's payment of the $3.5 billion termination fee.
For the quarter, capital expenditures were $70 million, a decrease of $16 million, or 19% sequentially, and down $188 million, or 73% compared to the second quarter of 2015. The reduction in capital expenditures is attributable to reduced activity levels and our continued focus on capital discipline. Depreciation and amortization expense for the quarter was $305 million, a decline of $49 million, or 14% sequentially, and down $129 million, or 30% compared to the same quarter last year. The decline in depreciation and amortization expense is primarily driven by asset impairments.
Corporate costs were $29 million, compared to $32 million in the prior quarter and $42 million in the second quarter of 2015. The year-over-year reduction in corporate costs is mainly due to workforce reductions and lower spending.
Income tax expense was $152 million for the quarter, an effective tax rate of (20%) compared to (59.8%) in the first quarter of 2016. As a result of geographic mix of earnings/losses, including the merger termination fee, goodwill impairment, asset impairment and restructuring charges, and other discrete tax items, our tax rate has been, and will continue to be, volatile until the market stabilizes.
Consolidated Condensed Statements of Income (Loss)1
|Three Months Ended|
|June 30,||March 31,|
|(In millions, except per share amounts)||2016||2015||2016|
|Costs and expenses:|
|Cost of revenue||3,112||3,584||2,658|
|Research and engineering||99||118||102|
|Marketing, general and administrative||222||264||207|
|Impairment and restructuring charges||1,126||76||160|
|Merger and related costs||78||83||102|
|Merger termination fee||(3,500||)||—||—|
|Total costs and expenses||2,978||4,112||3,229|
|Loss on early extinguishment of debt||(142||)||—||—|
|Interest expense, net||(48||)||(53||)||(55||)|
|Loss before income taxes||(760||)||(197||)||(614||)|
|Net loss attributable to noncontrolling interests||1||2||—|
|Net loss attributable to Baker Hughes||$||(911||)||$||(188||)||$||(981||)|
|Basic and diluted loss per share attributable to Baker Hughes||$||(2.08||)||$||(0.43||)||$||(2.22||)|
|Weighted average shares outstanding, basic and diluted||438||438||442|
|Depreciation and amortization expense||$||305||$||434||$||354|
|Beginning in 2016, all merger and related costs are presented in a separate line item in the consolidated condensed statement of income (loss). Prior-year merger and related costs were reclassified to conform to the current year presentation.|
|March, 16, 10:40:00|
|March, 16, 10:35:00|
|March, 16, 10:30:00|
|March, 16, 10:25:00|
|March, 16, 10:20:00|
|March, 16, 10:15:00|
BLOOMBERG - While Europe as a whole gets more than a third of its gas from Russia, that share is lower in the U.K., which receives the bulk of its fuel from North Sea fields and Norway. Still, Moscow-based Gazprom PJSC was the second-biggest supplier to major industrial consumers in the U.K. last year, according to Britain’s energy regulator Ofgem.
FT - of the six LNG tankers that have made deliveries into the UK so far in 2018 three have carried cargoes originally from Russia, leading to questions about whether Moscow was gaining a foothold in the UK gas market after starting up the Yamal LNG facility in Siberia late last year.
REUTERS - So far this year, two Yamal cargoes unloaded at British terminals for domestic consumption, accounting for about a third of Britain’s 2018 LNG imports after typical supplier Qatar pre-sold the bulk of its winter output to Asia last year.
REUTERS - U.S. West Texas Intermediate (WTI) crude futures CLc1 were at $60.77 a barrel at 0753 GMT, up 6 cents, or 0.1 percent, from their previous settlement. Brent crude futures LCOc1 were at $64.62 per barrel, down just 2 cents from their last close.