Baker Hughes, a GE Company — Form 10-Q Summary
Reporting period: Quarter and six months ended June 30, 2017. This filing reports the results of the pre-transaction shell company, not the operating results of Baker Hughes or GE Oil & Gas. The combination closed on July 3, 2017, after the reporting period; its effects are not reflected in the financial statements.
Financial results and position
- Revenue, earnings, and cash flow: The statements show dashes for revenue, expenses, operating income, net income, and cash-flow line items for the reported periods. The company says it conducted no significant activities beyond those incidental to formation and the transaction.
- Assets, liabilities, and liquidity: The balance sheet shows dashes for total assets and liabilities at June 30, 2017 and December 31, 2016. It lists $1 of common stock and a $1 stockholder receivable, leaving reported stockholders’ equity as a dash. The filing provides no operating-company liquidity or debt metrics for the pre-close reporting entity.
- Pro forma revenue: Assuming the transaction had occurred January 1, 2016, combined-business revenue would have been $5.41 billion for Q2 2017 and $10.79 billion for the first six months of 2017, versus $5.73 billion and $11.81 billion, respectively, in 2016. These are illustrative pro forma figures, not reported actual results, and the filing cautions they are not necessarily indicative of actual results.
Transaction and material changes
- On July 3, 2017, Baker Hughes and GE Oil & Gas combined their operating businesses in Baker Hughes, a GE company, LLC (BHGE LLC). GE contributed GE Oil & Gas and $7.4 billion in cash; total purchase consideration was approximately $24.8 billion.
- GE received approximately 62.5% of BHGE LLC; former Baker Hughes shareholders held approximately 37.5% indirectly through Class A shares. Former Baker Hughes shareholders were entitled to a one-time $17.50-per-share cash dividend, funded substantially from GE’s cash contribution.
- On July 3, the company issued approximately 428 million Class A shares to former Baker Hughes shareholders and 717 million Class B shares to GE. The filing identifies GE Oil & Gas as the accounting acquirer; the initial purchase accounting was incomplete, and the company could not yet provide acquired asset and liability values or pro forma earnings.
Outlook, risks, and unusual items
- The filing gives no operating guidance or quantified outlook. It says future quarterly filings will report the combined business, including GE Oil & Gas results for all periods presented and Baker Hughes results from July 3, 2017 onward.
- BHGE LLC is expected to be treated as a flow-through entity for U.S. federal income tax purposes, with no material current or deferred U.S. federal income taxes; foreign subsidiaries are expected to incur foreign income taxes.
- A putative shareholder lawsuit challenging transaction disclosures reached an agreement in principle to settle in exchange for additional disclosures. A dismissal stipulation was filed July 5, 2017 and remained pending before the court; the court was to retain jurisdiction over any attorneys’ fee dispute.
- The company reported no significant market risks during the period because it had not commenced operations. Deloitte’s interim review and independence matters are discussed in the filing; KPMG was engaged as independent accountant for the period beginning July 3, 2017, effective after this 10-Q filing.
Important facts for investors to verify
- Use subsequent combined-company filings for operating performance; this 10-Q’s shell-company statements do not represent the businesses’ operating results.
- Check subsequent filings for completed purchase accounting, acquired asset and liability valuations, pro forma earnings, and the effect of the $7.4 billion contribution and special dividend.
- Review the transaction’s final ownership, governance, financing, tax arrangements, and any updates on the shareholder litigation.
- Confirm whether the illustrative pro forma revenue figures are supplemented or revised in later filings; the filing provides no clear operating margin, debt, or liquidity metrics for the combined business.