8-KEarnings & Results

Baker Hughes Co 8-K Report, Financial Results (Jul 28, 2017)

Filed July 28, 2017For Securities:BKR

Summary

This 8-K filing from Baker Hughes, a GE company (BHGE) on July 28, 2017, primarily provides unaudited condensed combined financial statements for GE Oil & Gas (GE O&G) for the three and six months ended June 30, 2017. These statements reflect GE O&G's historical performance prior to its business combination with Baker Hughes, which was completed on July 3, 2017. The filing indicates that GE O&G experienced a revenue decline of 9.4% and 9.0% for the three and six-month periods, respectively, compared to the prior year, largely attributed to challenging oil and gas industry dynamics, reduced customer activity, and pricing pressures. Despite these headwinds, contract orders showed an increase in the three-month period. Key financial metrics show a net loss attributable to parent of $16 million for the three months ended June 30, 2017, compared to a net earning of $18 million in the prior year. For the six-month period, net earnings attributable to parent were $109 million, down from $159 million in the same period last year. The company highlights ongoing cost rationalization efforts and restructuring charges. The filing also details the mechanics of the business combination, where GE O&G is the accounting acquirer, and notes the significant intercompany financing settlements in anticipation of the merger. Investors should note that these financials are for GE O&G on a standalone basis and do not reflect the combined entity's full financial picture post-merger.

Key Highlights

  • 1Baker Hughes (BHGE) is presenting unaudited financial results for GE Oil & Gas (GE O&G) for the three and six months ended June 30, 2017, as a precursor to the combined entity's reporting.
  • 2The business combination of GE O&G and Baker Hughes was completed on July 3, 2017, with GE O&G acting as the accounting acquirer.
  • 3GE O&G reported a consolidated revenue decrease of 9.4% ($311 million) for the three months ended June 30, 2017, and 9.0% ($607 million) for the six months ended June 30, 2017, compared to the prior year periods, driven by lower customer activity and pricing pressures.
  • 4For the three months ended June 30, 2017, GE O&G recorded a net loss attributable to the parent of $16 million, a significant shift from a net earning of $18 million in the same period of 2016.
  • 5For the six months ended June 30, 2017, net earnings attributable to the parent were $109 million, down from $159 million in the comparable 2016 period.
  • 6The company experienced a significant increase in cash and equivalents ($2,021 million as of June 30, 2017, vs. $981 million at December 31, 2016), primarily due to intercompany financing settlements in anticipation of the business combination.
  • 7Operating cash flows were negative for both the three and six-month periods ending June 30, 2017, indicating cash burn from operations during this standalone GE O&G reporting period.

Frequently Asked Questions

This 8-K filing provides the unaudited condensed combined financial statements for GE Oil & Gas (GE O&G) for the three and six months ended June 30, 2017. It is being filed to present GE O&G's historical financial performance prior to its business combination with Baker Hughes, which officially closed on July 3, 2017.

In the three months ended June 30, 2017, GE O&G reported a revenue of $3,010 million, a decrease of 9.4% from the prior year, and a net loss attributable to the parent of $16 million. For the six months ended June 30, 2017, revenue was $6,122 million (down 9.0% year-over-year), and net earnings attributable to the parent were $109 million, a decrease from $159 million in the prior year. The company cited challenging oil and gas industry conditions, reduced customer activity, and pricing pressures as primary reasons for the performance decline.

The business combination, completed on July 3, 2017, created Baker Hughes, a GE company (BHGE). This filing presents GE O&G's financials before the combination. For accounting purposes, GE O&G is considered the acquirer. Future financial reports, starting with the Q3 2017 10-Q, will reflect the combined entity's results, and the historical financials will represent GE O&G's data. The results of the legacy Baker Hughes business will only be included from the closing date of July 3, 2017.

As of June 30, 2017, GE O&G had $2,021 million in cash and equivalents, a significant increase from $981 million at the end of 2016. This increase was largely due to intercompany financing settlements in preparation for the business combination. However, operating cash flows were negative for the six-month period, indicating cash was used for operations rather than generated. Approximately $1.0 billion of the cash was held in bank accounts with international transfer restrictions.