Market Overview

Baker Hughes, a GE company Announces Second Quarter 2018 Results

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  • Orders of $6.0 billion for the quarter, up 15% sequentially and up
    9% year-over-year on a combined business basis*
  • Revenue of $5.5 billion for the quarter, up 3% sequentially and up
    2% year-over-year on a combined business basis
  • GAAP operating income of $78 million for the quarter, increased
    $119 million sequentially and increased $223 million year-over-year on
    a combined business basis
  • Adjusted operating income (a non-GAAP measure) of $289 million for
    the quarter, up 27% sequentially and up favorably year-over-year on a
    combined business basis
  • GAAP diluted loss per share of $(0.05) for the quarter which
    included $0.15 per share of adjusting items. Adjusted diluted earnings
    per share (a non-GAAP measure) were $0.10. Adjusted diluted earnings
    per share includes a loss of $(0.03) related to BJ Services.
  • Cash flows generated from operating activities were $139 million
    for the quarter. Free cash flow (a non-GAAP measure) for the quarter
    was $(22) million. Included in free cash flow is a cash usage of $110
    million relating to restructuring and merger-related payments.

*On July 3, 2017, we closed our previously announced
transaction to combine the Oil & Gas business of General Electric
Company ("GE Oil & Gas") and Baker Hughes Incorporated ("Baker Hughes").
The Company presents its financial results in accordance with GAAP which
includes the results of Baker Hughes and GE Oil & Gas from the
transaction closing date of July 3, 2017. However, management believes
that using additional non-GAAP measures on a "Combined Business Basis"
will enhance the evaluation of the profitability of the Company and its
ongoing operations. Combined business results combine the results of GE
Oil & Gas with Baker Hughes as if the closing date had occurred on the
first day of all periods presented. The business combination impacts
only the Oilfield Services and Digital Solutions segments. Accordingly,
no reconciliation is presented for our other segments, Oilfield
Equipment and Turbomachinery & Process Solutions. All combined business
results presented in this News Release are unaudited. Such combined
business results are not prepared in accordance with Article 11 of
Regulation S-X. See Exhibit 99.2 in our Current Report on Form 8-K filed
with the Securities and Exchange Commission ("SEC") on October 20, 2017,
which includes a reconciliation of the combined business information
from financial results prepared in accordance with GAAP, and see Exhibit
99.1 in our Current Report on Form 8-K filed with the SEC on April 5,
2018 for the impact of Accounting Standards Codification Topic 606,
Revenue from Contracts with Customers.

Please see Tables 1a, 1b and 1c for a reconciliation of GAAP to
non-GAAP financial measures.

Baker Hughes, a GE company (NYSE:BHGE) ("BHGE" or the "Company")
announced results today for the second quarter of 2018.

       
Three Months Ended
        Combined
Business
Basis Variance

 

June 30, March 31, June 30,     Year-over-

(in millions except per share amounts)

    2018     2018     2017 Sequential     year
Orders $ 6,036 $ 5,238 $ 5,557 15% 9%
Revenue 5,548 5,399 5,416 3% 2%
Operating income (loss) 78 (41 ) (145 ) F F
Adjusted operating income (non-GAAP)* 289 228 119 27% F
Net income (loss) attributable to BHGE (19 ) 70

N/A

U N/A
Adjusted net income (non-GAAP) attributable to BHGE* 41 38

N/A

7% N/A
EPS attributable to Class A shareholders (0.05 ) 0.17

N/A

U N/A
Adjusted EPS (non-GAAP) attributable to Class A shareholders* 0.10 0.09

N/A

9% N/A
Cash flow from operating activities 139 294

N/A

(53)% N/A
Free cash flow (non-GAAP)*     (22 )     226      

N/A

      U     N/A

*These are non-GAAP financial measures. See section
entitled "Charges and Credits" for a reconciliation from GAAP.

 

"F" is used in most instances when variance is above 100%.
Additionally, "U" is used in most instances when variance is below
(100)%.

 

Prior period information has been restated for the
adoption of Accounting Standards Codification (ASC) Topic 606,
Revenue from Contracts with Customers and Accounting Standards
Update No. 2017-07, Improving the Presentation of Net Periodic
Postretirement Benefit Cost, which we adopted on January 1, 2018.

"Twelve months ago, we created BHGE to deliver differentiated solutions
for our customers and provide a unique investment opportunity for our
shareholders. Since closing, we have executed on the integration,
secured important commercial wins and delivered superior performance for
our customers. We also made progress on our priorities of gaining market
share, increasing margin rates and delivering strong free cash flow,"
said Lorenzo Simonelli, BHGE Chairman and Chief Executive Officer.

"In the second quarter, we delivered $6.0 billion in orders and $5.5
billion in revenues. Adjusted operating income in the quarter was $289
million. In the first half of the year we delivered $204 million of free
cash flow. We delivered $189 million of synergies in the quarter and are
on track to achieve the $700 million target for the year.

"In Oilfield Services (OFS), margins were up more than 550 basis points
year-over-year. We remain committed to gaining share in key markets and
product lines, and delivering high quality service to our customers. In
the second quarter, we outperformed the market in the North Sea, Sub
Saharan Africa and Asia Pacific. Completions and Artificial Lift product
lines both showed strong growth, and in North America we grew Drilling
Services well in excess of the rig count.

"In our Oilfield Equipment (OFE) segment, we had our largest orders
quarter since 2015, winning significant subsea production awards across
six different projects. Our book-to-bill ratio in the quarter was 1.7, a
clear sign of our ability to win big projects with a collaborative
partnership approach and our leading gas technology.

"In our Turbomachinery & Process Solutions (TPS) segment, our priorities
are centered on LNG leadership, services capability, growth in the
industrial space and cost-out. In the quarter, we secured important
commercial wins in LNG and on-and-offshore production, two of the
largest drivers of our TPS segment. We also advanced our cost-out
initiatives and expect these to materialize into improved margins in
2019.

"In our Digital Solutions (DS) segment, strong execution led to solid
revenue growth and over 450 basis points of margin expansion
year-over-year. We are seeing increased interest from customers in our
sensor, inspection and software offerings, and we are gaining traction
with our Predictive Corrosion Management software to support the growing
corrosion market.

"The macro outlook continues to be favorable. North American production
is increasing as operators grow rig and well counts, and we are seeing
signs of increasing international activity in some geomarkets. Our
portfolio mix positions us well for short and long-term growth as the
market improves and the next wave of customer projects come into view.

"We made a tremendous amount of progress in our first year as BHGE and
our team has delivered some great wins, but we know there is more work
to do. I would like to thank the employees of BHGE for their hard work
and dedication over the past year. Going forward, we remain focused on
what matters most - delivering for our customers and for our
shareholders," concluded Simonelli.

Quarter Highlights

Customer Wins

BHGE's Oilfield Services segment secured an important integrated well
services contract to support a large proportion of Equinor's drilling
and well construction activities in the Norwegian sector of the North
Sea. BHGE will be the main drilling and well services provider for the
eight rigs developing Troll, Oseberg and Grane - three of the most
prolific and active fields in the Norwegian Continental Shelf.

In the quarter, Upstream Chemicals was awarded a multi-million dollar
contract for flow assurance technology in the Sub-Saharan Africa region,
displacing a competitor. The Downstream Chemicals business was awarded
three sole source contracts, capturing market share in both North
America and Norway.

BHGE was awarded substantial subsea production and completions contracts
by Chevron Australia for phase two of the Gorgon project in Western
Australia, one of the largest gas projects in the world. BHGE will
supply 13 subsea trees and other subsea equipment, including manifolds,
wellheads, and production control systems, helping to maintain gas
supply to the downstream LNG plant. BHGE will also provide completion
equipment and services from its OFS segment.

The Company also secured an award for phase two of POSCO DAEWOO
Corporation's Shwe gas field development, a continuation of its
successful technical partnership with McDermott. BHGE will supply eight
Medium-water Horizontal Christmas Trees (MHXT), eight subsea production
control systems and distribution equipment, and topside controls.

BHGE's Turbomachinery & Process Solutions segment will provide
turbomachinery equipment for a third train at Cheniere's LNG facility in
Corpus Christi consisting of six gas turbines and various compressors.
This project represents the first FID on new liquefaction capacity in
the United States since 2015 and the fifth order for BHGE equipment for
Cheniere through Bechtel.

The Company was also selected by Global LNG Services (GLS) to provide
technology and services, including its high-efficiency LM9000 gas
turbine for the Main Pass Energy Hub, currently in development offshore
Louisiana. BHGE will work collaboratively with GLS as they move toward
final investment decision. This award is further proof that the LM9000
gas turbine is a key technology component to increase power output with
a smaller footprint.

BHGE gained traction in on-and-offshore production, one of the key
pillars of its TPS business. Building on its previous award for the
Sepia FPSO in Brazil, BHGE was selected to provide gas turbines for the
Mero 1 FPSO, the first FPSO in the Libra field. This will be the largest
FPSO in the country at a capacity of up to 180,000 barrels per day.

BHGE's Digital Solutions segment announced a Strategic Alliance
Agreement with SGS - the largest player in inspection services for the
joint deployment and commercialization of Predictive Corrosion
Management (PCM). PCM enables asset owners to scale monitoring and
predict corrosion issues using advanced sensors and the analysis of real
time data. This alliance enables BHGE to increase the pace of adoption
of PCM, not only in oil and gas but also in other industrial sectors.

Technology and Innovation

BHGE continues to invest in innovation. In the quarter, BHGE
expanded the capabilities of its Energy Innovation Center in Oklahoma
City from traditional research and development to an innovation
accelerator that will offer new commercial pathways for BHGE technology
through incubator or "start-up" models and external partnerships. This
new approach will provide customers with faster access to new ideas that
aim to reduce costs and increase productivity.

The Company's OFE business is creating a Center of Excellence in
Northeast Scotland dedicated to subsea equipment manufacturing, research
and development and workforce training to support the global oil and gas
industry. R&D activities will focus on bringing new technologies to
market that reduce costs, enhance productivity and lower the carbon
footprint.

Executing for Customers

BHGE Drilling Services continues to deliver superior performance in
challenging drilling environments across North America. In the quarter,
the team reduced the number of average drilling days for a key customer
by nearly 20%, setting Delaware Basin drilling records for both medium
and long lateral sections. Based on the superior performance and
differentiated technology, the customer awarded 100% of its drilling
work on six rigs to BHGE, displacing a competitor.

BHGE's TPS team completed the assembly and load out of the first two of
five gas turbine generator (GTG) modules to be installed at the Tengiz
oil field in Kazakhstan. As part of the project, BHGE also secured an
order for installation services at the site. In total, BHGE will provide
five 130MW gas turbine generator modules.

Consolidated Results by Reporting Segment*

 

Consolidated Orders by Reporting Segment

 
    Three Months Ended    
        Combined
Business
(in millions) Basis Variance
June 30, March 31, June 30,     Year-over-
Consolidated segment orders     2018     2018     2017 Sequential     year
Oilfield Services $ 2,866 $ 2,640 $ 2,530 9 % 13 %
Oilfield Equipment 1,035 499 797 F 30 %
Turbomachinery & Process Solutions 1,498 1,450 1,556 3 % (4 )%
Digital Solutions     637     649     674     (2 )%     (6 )%
Total     $ 6,036     $ 5,238     $ 5,557     15 %     9 %
 

Orders for the quarter were $6,036 million, up 15% sequentially and 9%
year-over-year. This sequential increase was driven by strong order
intake in Oilfield Equipment and Oilfield Services. Compared to the
first quarter of 2018, equipment orders were up 30% and service orders
were up 7%.

The year-over-year growth was driven by strong performance in Oilfield
Equipment and Oilfield Services, partially offset with lower Digital
Solutions and Turbomachinery & Process Solutions orders. Year-over-year
equipment orders were up 7% and service orders were up 10%.

The Company's total book-to-bill ratio in the quarter was 1.1; equipment
book-to-bill ratio in the quarter was 1.2.

Remaining Performance Obligations (RPO) in the second quarter ended at
$20.9 billion, a decrease of $0.4 billion or 2% from the first quarter
of 2018 primarily driven by the impact of foreign exchange. Equipment
RPO was $5.5 billion, up 1% sequentially. Services RPO was $15.4
billion, down 3% sequentially.

 

Consolidated Revenue by Reporting Segment

 

    Three Months Ended    
        Combined
Business
(in millions) Basis Variance
June 30, March 31, June 30,     Year-over-
Consolidated segment revenue     2018     2018     2017 Sequential     year
Oilfield Services $ 2,884 $ 2,678 $ 2,529 8 % 14 %
Oilfield Equipment 617 664 681 (7 )% (9 )%
Turbomachinery & Process Solutions 1,385 1,460 1,586 (5 )% (13 )%
Digital Solutions     662       598       620       11 %     7 %
Total     $ 5,548       $ 5,399       $ 5,416       3 %     2 %
 

Revenue for the quarter was $5,548 million, an increase of $148 million,
or 3%, sequentially. The increase was driven primarily by higher volume
in the shorter cycle businesses of Digital Solutions and Oilfield
Services, which were up 11% and 8% respectively, partially offset by
lower volume in Oilfield Equipment and Turbomachinery & Process
Solutions which were down 7% and 5% respectively.

Compared to the same quarter last year, revenue was up 2%. Oilfield
Services was up 14% and Digital Solutions was up 7%, partially offset by
Turbomachinery & Process Solutions which was down 13%, and Oilfield
Equipment which was down 9%.

 

Consolidated Operating Income (Loss) by Reporting Segment

 
    Three Months Ended    
        Combined
Business
(in millions) Basis Variance
June 30, March 31, June 30,     Year-over-
Segment operating income (loss)     2018     2018     2017 Sequential year
Oilfield Services $ 189 $ 141 $ 26 34 % F
Oilfield Equipment (12 ) (6 ) 17 (84 )% U
Turbomachinery & Process Solutions 113 119 122 (5 )% (7 )%
Digital Solutions     96       73       62       33 %     56 %
Total segment operating income 387 327 227 19 % 71 %
Corporate (98 ) (98 ) (107 ) % 9 %
Inventory impairment (15 ) (61 ) (4 ) 75 % U
Restructuring, impairment & other charges (146 ) (162 ) (126 ) 10 % (16 )%
Merger and related costs     (50 )     (46 )     (134 )     (9 )%     63 %
Operating income (loss)     78       (41 )     (145 )     F       F  
Adjusted operating income*     $ 289       $ 228       $ 119       27 %     F  

*Non-GAAP measure (see Table 1a in the section entitled
"Charges and Credits" for a reconciliation from GAAP).

 

"F" is used in most instances when variance is above 100%.
Additionally, "U" is used in most instances when variance is below
(100)%.

On a GAAP basis, operating income for the second quarter of 2018 was $78
million. Operating income increased $119 million sequentially and $223
million year-over-year. Total segment operating income was $387 million
for the second quarter of 2018, up 19% sequentially and up 71%
year-over-year.

Adjusted operating income (a non-GAAP measure) for the second quarter of
2018 was $289 million, which excludes adjustments totaling $211 million
before tax, mainly related to restructuring charges, merger and related
costs, and inventory impairments. A complete list of the adjusting items
and associated reconciliation from GAAP has been provided in Table 1a in
the section entitled "Charges and Credits". Adjusted operating income
for the second quarter was up $61 million, or 27%, sequentially,
primarily driven by margin expansion in Oilfield Services and Digital
Solutions, partially offset by reduction in Oilfield Equipment and
Turbomachinery & Process Solutions. Adjusted operating income was up
$170 million year-over-year driven by Oilfield Services and Digital
Solutions, partially offset by Oilfield Equipment and Turbomachinery &
Process Solutions. Included in operating income is a one-time charge of
$30 million to remediate quality issues specific to a long-term
equipment project.

Depreciation and amortization for the second quarter of 2018 was $392
million.

Corporate costs were $98 million in the second quarter of 2018, flat
sequentially and down $9 million year-over-year.

Other Financial Items

Income tax expense in the second quarter of 2018 was $62 million.

GAAP diluted loss per share was $(0.05). Adjusted diluted earnings per
share were $0.10. Excluded from adjusted earnings per share were all
items listed in Table 1a in the section entitled "Charges and Credits"
as well as the "other adjustments (non-operating)" found in Table 1b.
The other adjustments (non-operating) were driven by a $37 million gain
on a business sale. Adjusted diluted EPS includes a $(0.03) loss related
to BJ Services.

Cash flows generated from operating activities were $139 million for the
second quarter of 2018. Free cash flow (a non-GAAP measure) for the
quarter was $(22) million. Free cash flow included $110 million of
merger and restructuring-related cash payments. A reconciliation from
GAAP has been provided in Table 1c in the section entitled "Charges and
Credits."

Capital expenditures, net of proceeds from disposal of assets, were $161
million for the second quarter of 2018.

During the second quarter of 2018, we repurchased approximately $500
million of the Company's common stock, consisting of approximately $187
million of Class A common stock and approximately $313 million of Class
B common stock including the paired units in BHGE LLC from GE. The
buyback was completed on a pro-rata basis and did not result in a change
of GE's approximately 62.5% interest in BHGE LLC.

Results by Reporting Segment

The following segment discussions and variance explanations are
intended to reflect management's view of the relevant comparisons of
financial results on a sequential or year-over-year basis, depending on
the business dynamics of the reporting segments.

 

Oilfield Services

 
    Three Months Ended    
        Combined
Business
(in millions) Basis Variance
June 30, March 31, June 30,    
Oilfield Services     2018     2018     2017 Sequential     Year-over-year
Revenue $ 2,884 $ 2,678 $ 2,529 8 % 14 %
Operating income $ 189 $ 141 $ 26 34 % F
Operating income margin 6.6 % 5.3 % 1.0 %

1.3

pts

5.5

pts

 

Oilfield Services (OFS) revenue of $2,884 million for the second quarter
increased by $206 million, or 8%, sequentially.

North America revenue was $1,174 million, up 7% sequentially.
International revenue was $1,710 million, an increase of 8%
sequentially, with growth in all regions driven by Europe, Asia Pacific
and Sub-Saharan Africa. From a product line perspective, the sequential
increase of 8% in OFS was driven primarily by Completions, Drilling
Services, Artificial Lift and Pressure Pumping.

Segment operating income before tax for the quarter was $189 million.
Operating income for the second quarter of 2018 was up $48 million, or
34%, sequentially, primarily driven by volume increases and synergy
benefits.

 

Oilfield Equipment

 
(in millions)     Three Months Ended     Variance
Oilfield Equipment June 30, 2018     March 31, 2018     June 30, 2017 Sequential     Year-over-year
Orders $ 1,035 $ 499 $ 797 F 30 %
Revenue $ 617 $ 664 $ 681 (7 )% (9 )%
Operating income (loss) $ (12 ) $ (6 ) $ 17 (84 )% U
Operating income (loss) margin (1.9 )% (0.9 )% 2.5 %

(0.9

)pts

(4.4

)pts

 

Oilfield Equipment (OFE) orders were up $238 million, or 30%,
year-over-year. Equipment orders were up 38% driven by higher orders in
the Subsea Production Systems business, partially offset by lower order
intake in the Flexible Pipe and Surface Pressure Control businesses. The
equipment book-to-bill ratio in the quarter was 2.1. Services orders
were up 10% driven by higher order intake in the Subsea Services
businesses.

OFE revenue of $617 million for the quarter decreased $64 million, or
9%, year-over-year. The decrease was driven by the lower RPO in the
Subsea Production Systems business, as well as lower volume in the
Drilling Systems and Subsea Services businesses. These declines were
partially offset by higher volume in the Surface Pressure Control and
Flexible Pipe businesses.

Segment operating loss before tax for the quarter was $12 million, an
unfavorable decline versus the prior year. The loss was driven by lower
volume and lower cost productivity.

 

Turbomachinery & Process Solutions

 
(in millions)     Three Months Ended     Variance
Turbomachinery & Process June 30,     March 31,     June 30,    
Solutions     2018     2018     2017 Sequential     Year-over-year
Orders $ 1,498 $ 1,450 $ 1,556 3 % (4 )%
Revenue $ 1,385 $ 1,460 $ 1,586 (5 )% (13 )%
Operating income $ 113 $ 119 $ 122 (5 )% (7 )%
Operating income margin 8.2 % 8.2 % 7.7 % -

0.5

pts

 

Turbomachinery & Process Solutions (TPS) orders were down 4%
year-over-year. Equipment orders were down 29% primarily driven by lower
new units volume. Service orders were up 15% driven primarily by higher
transactional and contractual services, partially offset by lower
upgrades.

TPS revenue of $1,385 million for the quarter decreased $201 million, or
13%, year-over-year. The decrease was driven by lower new units and
contractual services volume in the upstream business, partially offset
by an increase in transactional services and revenue in the downstream
business. Equipment revenue in the quarter represented 38% of total
revenue, and Service revenue represented 62% of total revenue.

Segment operating income before tax for the quarter was $113 million,
down $9 million, or 7%, year-over-year. The decline was driven primarily
by lower volume and a one-time charge of $30 million to remediate
quality issues specific to a long-term equipment project.

 

Digital Solutions

 
    Three Months Ended    
        Combined
Business

(in millions)

Basis Variance
June 30, March 31, June 30,    
Digital Solutions     2018     2018     2017 Sequential     Year-over-year
Orders $ 637 $ 649 $ 674 (2 )% (6 )%
Revenue $ 662 $ 598 $ 620 11 % 7 %
Operating income $ 96 $ 73 $ 62 33 % 56 %
Operating income margin 14.6 % 12.2 % 10.0 %

2.4

pts

4.6

pts

 

Digital Solutions (DS) orders were down 6% year-over-year, driven by
lower orders in the Bently & Controls businesses specifically in the
power end market, partially offset by higher orders in the Measurement &
Sensing, Inspection Technologies, and Pipeline and Process Solutions
businesses.

DS revenue of $662 million for the quarter increased 7% year-over-year,
mainly driven by the Inspection Technologies and Pipeline and Process
Solutions businesses.

Segment operating income before tax for the quarter was $96 million, up
56% year-over-year. The increase year-over-year was driven by higher
volume and increased cost productivity, as well as synergy realization
in the Pipeline and Process Solutions business.

Charges & Credits*

 

Table 1a. Reconciliation of GAAP and Adjusted Operating
Income/(Loss)

 
    Three Months Ended
        Combined Business
Basis
(in millions)     June 30, 2018     March 31, 2018     June 30, 2017
Operating income (loss) (GAAP)     $ 78       $ (41 )     $ (145 )
Merger-related costs 23 18 98
Integration costs 26 28 36
Litigation settlements 67
Restructuring & other 146 162 59
Inventory impairment     15       61       4  
Total operating income adjustments     211       269       264  
Adjusted operating income (non-GAAP)     $ 289       $ 228       $ 119  
 

Table 1a reconciles operating income (loss), which is the directly
comparable financial result determined in accordance with Generally
Accepted Accounting Principles (GAAP), to adjusted operating income
(loss) (a non-GAAP financial measure). Adjusted operating income
excludes the impact of certain identified items.

 

Table 1b. Reconciliation of GAAP and Non-GAAP Net
Income/(Loss)

 
    Three Months Ended
(in millions, except per share amounts)     June 30, 2018     March 31, 2018
Net income (loss) attributable to BHGE (GAAP)     $ (19 )     $ 70  
Total operating income adjustments (identified items) 211     269
Other adjustments (non-operating) (1) (37 ) (124 )
Tax on total adjustments     (14 )     (24 )
Total adjustments, net of income tax 160 121
Less: adjustments attributable to noncontrolling interests     100       153  
Adjustments attributable to BHGE     60       (32 )
Adjusted net income attributable to BHGE (non-GAAP)     $ 41       $ 38  
 
 
Denominator:
Weighted-average shares of Class A common stock outstanding diluted     414       422  
Adjusted earnings per Class A share— diluted (non-GAAP)     $ 0.10       $ 0.09  

(1)

   

2Q'18: Driven by a $37 million gain on a business sale.
1Q'18: Driven by US tax reform.

Table 1b reconciles net income attributable to BHGE, which is the
directly comparable financial result determined in accordance with GAAP,
to adjusted net income attributable to BHGE (a non-GAAP financial
measure). Adjusted net income attributable to BHGE excludes the impact
of certain identified items.

 

Table 1c. Reconciliation of Cash Flow From Operating
Activities to Free Cash Flow

 
    Three Months Ended

(in millions)

    June 30, 2018     March 31, 2018
Cash flow from operating activities (GAAP) $ 139     $ 294
Add: cash used in capital expenditures, net of proceeds from
disposal of assets
    (161 )     (69 )
Free cash flow (non-GAAP)     $ (22 )     $ 226  
 

Table 1c reconciles net cash flows from operating activities, which is
the directly comparable financial result determined in accordance with
GAAP, to free cash flow (a non-GAAP financial measure). Free cash flow
is defined as net cash flows from (used in) operating activities less
expenditures for capital assets plus proceeds from disposal of assets.

Management provides non-GAAP financial measures in Tables 1a, 1b, and 1c
because it believes such measures are widely accepted financial
indicators used by investors and analysts to analyze and compare
companies on the basis of operating performance and liquidity, and that
these measures may be used by investors to make informed investment
decisions.

*Certain columns and rows may not sum up due to the use of rounded
numbers.

Financial Tables (GAAP)

 
Condensed Consolidated and Combined Statements of Income (Loss)

(Unaudited)

 
    Three Months Ended     Six Months Ended
June 30,     June 30,
(In millions, except per share amounts)     2018     2017     2018     2017
Revenue $ 5,548     $ 3,015 $ 10,947     $ 6,079
Costs and expenses:
Cost of revenue 4,612 2,476 9,170 4,854
Selling, general and administrative expenses 662 461 1,336 953
Restructuring, impairment and other 146 59 308 101
Merger and related costs     50       85       96       151  
Total costs and expenses     5,470       3,081       10,910       6,059  
Operating income (loss) 78 (66 ) 37 20
Other non operating income, net 43 50 45 58
Interest expense, net     (63 )     (14 )     (109 )     (34 )
Income (loss) before income taxes and equity in loss of affiliate 58 (30 ) (27 ) 44
Equity in loss of affiliate (34 ) (54 )
Benefit (provision) for income taxes     (62 )     10       24       2  
Net income (loss) (38 ) (20 ) (57 ) 46
Less: Net income (loss) attributable to GE Oil & Gas pre-merger (26 ) 42
Less: Net income (loss) attributable to noncontrolling interests     (19 )     6       (108 )     4  
Net income (loss) attributable to BHGE     $ (19 )     $       $ 51       $  
 
Per share amounts:
Basic earnings per Class A common stock $ (0.05 ) $ 0.12
Diluted earnings per Class A common stock (0.05 ) 0.12
 
Weighted average shares:
Basic 414 417
Diluted 414 419
 
Cash dividend per Class A common stock $ 0.18 $ 0.36

Prior period information has been restated for the
adoption of Accounting Standards Codification (ASC) Topic 606,
Revenue from Contracts with Customers and Accounting Standards
Update No. 2017-07, Improving the Presentation of Net Periodic
Postretirement Benefit Cost, which we adopted on January 1, 2018.

 
Condensed Consolidated and Combined Statements of Financial
Position

(Unaudited)

 
(In millions)     June 30, 2018     December 31, 2017
ASSETS        
Current assets:
Cash, cash equivalents and restricted cash (1) $ 4,879 $ 7,030
Current receivables, net 6,038 6,015
Inventories, net 4,675 4,507
All other current assets     850       872
Total current assets     16,442       18,424
Property, plant and equipment - less accumulated depreciation 6,335 6,959
Goodwill 20,758 19,927
Other intangible assets, net 5,973 6,358
Contract and other deferred assets 1,911 2,044
All other assets     2,671       2,788
Total assets (1)     $ 54,090       $ 56,500
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable $ 3,574 $ 3,377
Short-term debt and current portion of long-term debt (1) 1,067 2,037
Progress collections and deferred income 1,630 1,775
All other current liabilities     2,362       2,038
Total current liabilities     8,633       9,227
Long-term debt 6,319 6,312
Liabilities for pensions and other postretirement benefits 1,100 1,172
All other liabilities 1,221 1,379
Equity     36,817       38,410
Total liabilities and equity     $ 54,090       $ 56,500
(1)    

Total assets include $939 million and $1,124 million of
assets held on behalf of GE, of which $783 million and $997
million is cash and cash equivalents and $156 million and $127
million is investment securities at June 30, 2018 and December 31,
2017, respectively, and a corresponding amount of liability is
reported in short term borrowings.

Prior period information has been restated for the adoption of
Accounting Standards Codification (ASC) Topic 606, Revenue from
Contracts with Customers and Accounting Standards Update No. 2017-07,
Improving the Presentation of Net Periodic Postretirement Benefit Cost,
which we adopted on January 1, 2018.

 
Condensed Consolidated and Combined Statements of Cash Flows

(Unaudited)

 
    Six Months Ended
June 30,
(In millions)     2018     2017
Cash flows from operating activities:    
Net income (loss) $ (57 ) $ 46
Adjustments to reconcile net income (loss) to net cash flows from
operating activities:
Depreciation and amortization 780 290
Working capital and other operating items, net     (290 )     (725 )
Net cash flows from (used in) operating activities     433       (389 )
Cash flows from investing activities:
Expenditures for capital assets (411 ) (143 )
Proceeds from disposal of assets 181 12
Other investing items, net     68       1  
Net cash flows used in investing activities     (162 )     (130 )
Cash flows from financing activities:
Repayment of long-term debt (648 )
Dividends paid (150 )
Distributions to noncontrolling interest (253 )
Repurchase of Class A common stock (387 )
Repurchase of GE common units by BHGE LLC (638 )
Net transfer from Parent 1,575
Other financing items, net     (296 )     (31 )
Net cash flows from (used in) financing activities     (2,372 )     1,544  
Effect of currency exchange rate changes on cash, cash equivalents
and restricted cash
    (50 )     17  
Increase (decrease) in cash, cash equivalents and restricted cash (2,151 ) 1,041
Cash, cash equivalents and restricted cash, beginning of period     7,030       981  
Cash, cash equivalents and restricted cash, end of period     $ 4,879       $ 2,021  

Prior period information has been restated for the
adoption of Accounting Standards Codification (ASC) Topic 606,
Revenue from Contracts with Customers and Accounting Standards
Update No. 2017-07, Improving the Presentation of Net Periodic
Postretirement Benefit Cost, which we adopted on January 1, 2018.

Supplemental Financial Information

Supplemental financial information can be found on the Company's website
at: investors.bhge.com in the Financial Information section under
Quarterly Results.

Conference Call and Webcast

The Company has scheduled an investor conference call to discuss
management's outlook and the results reported in today's earnings
announcement. The call will begin at 9:30 a.m. Eastern time, 8:30 a.m.
Central time on Friday, July 20, 2018, 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 call
will also be posted to the Company's website and available for real-time
viewing at investors.bhge.com. The conference call will be broadcast
live via a webcast and can be accessed by visiting the Events and
Presentations page on the Company's website at: investors.bhge.com. An
archived version of the webcast will be available on the website for one
month following the webcast.

Forward-Looking Statements

This news release (and oral statements made regarding the subjects of
this release) may 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 annual period ended December 31, 2017; the Company's subsequent
quarterly report on Form 10-Q for the quarterly period ended March 31,
2018; 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.investors.bhge.com
or through the SEC's Electronic Data Gathering and Analysis Retrieval
("EDGAR") system 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, along with the following risk factors and the timing of any of
these risk factors:

Integration activities - the ability to successfully integrate Baker
Hughes with GE Oil & Gas, including operations, technologies, products
and services.

Economic and political conditions - the impact of worldwide economic
conditions; the effect that declines in credit availability may have on
worldwide economic growth and demand for hydrocarbons; foreign currency
exchange fluctuations and changes in the capital markets in locations
where we operate; and the impact of government disruptions.

Dependence on GE - any failure by GE to supply products and services to
us in accordance with applicable contractual terms could have a material
effect on our business.

Orders and RPO - our ability to execute on orders and RPO and convert
those orders and RPO to revenue and cash.

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; liquefied natural gas 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;
potentially burdensome taxation, expropriation of assets by governmental
action; cybersecurity risks and cyber incidents or attacks; epidemic
outbreaks.

Baker Hughes, a GE company (NYSE:BHGE) is the world's first and only
fullstream provider of integrated oilfield products, services and
digital solutions. We deploy minds and machines to enhance customer
productivity, safety and environmental stewardship, while minimizing
costs and risks at every step of the energy value chain. With operations
in over 120 countries, we infuse over a century of experience with the
spirit of a startup - inventing smarter ways to bring energy to the
world. For more information on Baker Hughes, a GE company visit: www.bhge.com.

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