Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) should be read in conjunction with the condensed consolidated financial statements and the related notes included in Item 1 thereto. EXECUTIVE SUMMARY We are an energy technology company with a broad and diversified portfolio of technologies and services that span the energy and industrial value chain. We conduct business in more than 120 countries and employ approximately 54,000 employees. We operate through our four business segments: Oilfield Services (OFS), Oilfield Equipment (OFE), Turbomachinery & Process Solutions (TPS), and Digital Solutions (DS). We sell products and services primarily in the global oil and gas markets, within the upstream, midstream and downstream segments. In 2020, the industry experienced multiple factors which drove expectations for global oil and gas related spending to be lower. The COVID-19 pandemic lowered global demand for hydrocarbons, as social distancing and travel restrictions were implemented across the world. The health and safety of our employees continues to be a top priority. Throughout the COVID-19 pandemic, we have utilized remote working where possible, limited travel, and implemented rigorous safety protocols at our sites including pre-entry screenings, social distancing, and face coverings. As conditions improve in certain locations, we are starting to return additional employees to offices/worksites and enabling opportunities for more in-person engagements where it is safe to do so. We are also closely monitoring the evolving dynamics and vaccine situation, and will adjust our protocols as needed to continue protecting our employees and delivering for our customers, in alignment with all associated requirements. As we look at the macro environment in 2021 and into 2022, the global economy continues to recover from the impact of the global pandemic. However, the pace of growth is being constrained by effects from variant strains of the COVID-19 virus, global chip shortages, supply chain challenges, and energy supply constraints in multiple parts of the world. Despite these headwinds, global growth appears to be on relatively solid footing, underpinning a favorable outlook for the oil market, aided by continued spending discipline by the world's largest producers. In the natural gas and liquefied natural gas (LNG) markets, fundamentals remain strong with a combination of solid demand growth and extremely tight supply in many parts of the world. We anticipate future demand improving as governments around the world accelerate the transition towards cleaner sources of energy. Outside of the oil and gas industry, the focus on cleaner energy sources and technology to decarbonize resource-intensive industries continue to accelerate. In theU.S. ,Europe , andAsia , various projects around wind, solar, and green and blue hydrogen are moving forward, as well as a number of carbon capture projects. In the third quarter of 2021, we took steps to accelerate our strategy and to view our company in two broad business areas: Oilfield Services & Equipment and Industrial Energy Technology to better positionBaker Hughes for today and in the coming years. We believe that focusing on two major business areas with close alignment will enhance our flexibility, improve execution, and provide long-term optionality as the energy markets evolve. On the Oilfield Services & Equipment side of the Company, we have a technology-leading global enterprise with core strengths in drilling services, high-end completion tools, flexible pipe, artificial lift, and production and downstream chemicals. Oilfield Services & Equipment is poised to benefit from cyclical growth in the coming years as we believe that we are in the early stages of a broad based, multi-year recovery that will be characterized by longer term investments into the core OPEC+ countries. Industrial Energy Technology is our TPS and DS businesses. Both product companies have compelling portfolios that are beginning to see significant secular growth opportunities, particularly in areas such as hydrogen and carbon capture, utilization and storage (CCUS). With core competencies across a number of offerings like power generation, compression, and condition monitoring, as well as a growing presence in flow control, industrial asset management and digital, we have a strong foundation on which to build an even more comprehensive presence in the broad industrial energy technology markets.Baker Hughes Company 2021 Third Quarter Form 10-Q
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In the third quarter of 2021, we generated revenue of$5,093 million compared to$5,049 million in the third quarter of 2020. The increase in revenue was driven by higher volume in the OFS, TPS and DS segments, partially offset by lower activity in the OFE segment. Income before income taxes was$209 million for the third quarter of 2021, which included restructuring, impairment and other charges of$14 million and separation related costs of$11 million . In the third quarter of 2020, loss before income taxes was$264 million , which included the write-down of assets held for sale of$129 million , restructuring, impairment and other charges of$209 million , separation related costs of$32 million , and inventory impairments of$42 million . OUTLOOK Our business is exposed to a number of different macro factors, which influence our outlook and expectations given the volatile conditions in the industry. All of our outlook expectations are purely based on the market as we see it today, and are subject to changing conditions in the industry. •North America onshore activity: we expectNorth America onshore activity to continue to improve in the fourth quarter of 2021 as compared to the third quarter of 2021 along with further growth in 2022 should commodity prices remain at current levels. •International onshore activity: we expect international activity to continue to improve in the fourth quarter of 2021 across a broad range of markets compared to the third quarter of 2021 with further growth in 2022 should commodity prices remain at current levels. •Offshore projects: we expect the offshore markets to stabilize in 2021 and for the number of tree awards in the market to remain stable or grow modestly compared to 2020 levels. Looking ahead to 2022, we expect a modest recovery in offshore activity. •LNG projects: we remain optimistic on the LNG market long-term and view natural gas as a transition and destination fuel. We continue to view the long-term economics of the LNG industry as positive. We have other segments in our portfolio that are more correlated with various industrial metrics, including GDP, such as our Digital Solutions segment. We also have segments within our portfolio that are exposed to new energy solutions, specifically focused around decarbonization of energy and industry, including hydrogen, geothermal, CCUS, and energy storage. We expect to see continued growth in these segments as new energy solutions become a more prevalent part of the broader energy mix. Overall, we believe our portfolio is well positioned to compete across the energy value chain and deliver comprehensive solutions for our customers. We remain optimistic about the long-term economics of the industry, but we are continuing to operate with flexibility given our expectations for volatility and changing activity levels in the near term. While governments may change or discontinue incentives for renewable energy additions, we do not anticipate any significant impacts to our business in the foreseeable future. Over time, we believe the world's demand for energy will continue to rise, and that hydrocarbons will play a major role in meeting the world's energy needs for the foreseeable future. As such, we remain focused on delivering innovative, cost-efficient solutions that deliver step changes in operating and economic performance for our customers. BUSINESS ENVIRONMENT The following discussion and analysis summarizes the significant factors affecting our results of operations, financial condition and liquidity position as of and for the three and nine months endedSeptember 30, 2021 and 2020, and should be read in conjunction with the condensed consolidated financial statements and related notes of the Company. We operate in more than 120 countries helping customers find, evaluate, drill, produce, transport and process hydrocarbon resources. Our revenue is predominately generated from the sale of products and services to major, national, and independent oil and natural gas companies worldwide, and is dependent on spending by our customers for oil and natural gas exploration, field development and production. This spending is driven by a number of factors, including our customers' forecasts of future energy demand and supply, their access to resourcesBaker Hughes Company 2021 Third Quarter Form 10-Q
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to develop and produce oil and natural gas, their ability to fund their capital programs, the impact of new government regulations and most importantly, their expectations for oil and natural gas prices as a key driver of their cash flows. Oil and Natural Gas Prices Oil and natural gas prices are summarized in the table below as averages of the daily closing prices during each of the periods indicated. Three Months EndedSeptember 30 ,
Nine Months Ended
2021 2020 2021 2020 Brent oil price ($/Bbl) (1) $ 73.51$ 42.91 $ 67.89$ 41.15 WTI oil price ($/Bbl) (2) 70.58 40.89 65.05 38.04 Natural gas price ($/mmBtu) (3) 4.35 2.00 3.61 1.87 (1)Energy Information Administration (EIA) Europe Brent Spot Price per Barrel (2)EIACushing, OK WTI (West Texas Intermediate) spot price (3)EIA Henry Hub Natural Gas Spot Price per million British Thermal Unit Oil and natural gas prices increased during the three and nine months endedSeptember 30, 2021 largely driven by increased demand as a result of the global recovery from the COVID-19 pandemic which has outpaced a constrained supply.Outside North America , customer spending is most heavily influenced by Brent oil prices, which increased from the same quarter last year, ranging from a low of$65.51 /Bbl inAugust 2021 to a high of$78.85 /Bbl inSeptember 2021 . For the nine months endedSeptember 30, 2021 , Brent oil prices averaged$67.89 /Bbl, which represented an increase of$26.74 /Bbl from the same period last year. InNorth America , customer spending is highly driven by WTI oil prices, which increased from the same quarter last year. Overall, WTI oil prices ranged from a low of$62.25 /Bbl inAugust 2021 to a high of$75.54 /Bbl inSeptember 2021 . For the nine months endedSeptember 30, 2021 , WTI oil prices averaged$65.05 /Bbl, which represented an increase of$27.01 /Bbl from the same period last year. InNorth America , natural gas prices, as measured by theHenry Hub Natural Gas Spot Price, averaged$4.35 /mmBtu in the third quarter of 2021, representing a 118% increase from the same quarter in the prior year. Throughout the quarter, Henry Hub Natural Gas Spot Prices ranged from a low of$3.56 /mmBtu inJuly 2021 to a high of$5.94 /mmBtu inSeptember 2021 . Baker Hughes Rig Count The Baker Hughes rig counts are an important business barometer for the drilling industry and its suppliers. When drilling rigs are active they consume products and services produced by the oil service industry. Rig count trends are driven by the exploration and development spending by oil and natural gas companies, which in turn is influenced by current and future price expectations for oil and natural gas. The counts may reflect the relative strength and stability of energy prices and overall market activity; however, these counts should not be solely relied on as other specific and pervasive conditions may exist that affect overall energy prices and market activity. We have been providing rig counts to the public since 1944. We gather all relevant data through our field service personnel, who obtain the necessary data from routine visits to the various rigs, customers, contractors and other outside sources as necessary. We base the classification of a well as either oil or natural gas primarily upon filings made by operators in the relevant jurisdiction. This data is then compiled and distributed to various wire services and trade associations and is published on our website. We believe the counting process and resulting data is reliable; however, it is subject to our ability to obtain accurate and timely information. Rig counts are compiled weekly for theU.S. andCanada and monthly for all international rigs. Published international rig counts Baker Hughes Company 2021 Third Quarter Form 10-Q | 31
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do not include rigs drilling in certain locations, such asRussia , theCaspian region, and onshoreChina because this information is not readily available. Rigs in theU.S. andCanada are counted as active if, on the day the count is taken, the well being drilled has been started but drilling has not been completed and the well is anticipated to be of sufficient depth to be a potential consumer of our drill bits. In international areas, rigs are counted on a weekly basis and deemed active if drilling activities occurred during the majority of the week. The weekly results are then averaged for the month and published accordingly. The rig count does not include rigs that are in transit from one location to another, rigging up, being used in non-drilling activities including production testing, completion and workover, and are not expected to be significant consumers of drill bits. The rig counts are summarized in the table below as averages for each of the periods indicated. Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 % Change 2021 2020 % Change North America 647 301 115 % 570 566 1 % International 770 729 6 % 735 877 (16) % Worldwide 1,417 1,030 38 % 1,305 1,443 (10) % The worldwide rig count was 1,417 for the third quarter of 2021, an increase of 38% as compared to the same period last year due primarily to an increase inNorth America . WithinNorth America , the increase was primarily driven by theCanada rig count, which was up 220% when compared to the same period last year, and an increase in theU.S. rig count, which was up 95% when compared to the same period last year. Internationally, the rig count increase was driven by increases in theLatin America andAfrica regions of 78% and 28%, respectively. The worldwide rig count was 1,305 for the nine months endedSeptember 30, 2021 , a decrease of 10% as compared to the same period last year. WithinNorth America , the rig count was relatively flat primarily driven by the land rig count, which was up 1%, and a decrease in the offshore rig count of 19%. Internationally, the rig count decline was driven by decreases in theMiddle East andAfrica regions of 29% and 21%, respectively. RESULTS OF OPERATIONS The discussions below relating to significant line items from our condensed consolidated statements of income (loss) are based on available information and represent our analysis of significant changes or events that impact the comparability of reported amounts. Where appropriate, we have identified specific events and changes that affect comparability or trends and, where reasonably practicable, have quantified the impact of such items. All dollar amounts in tabulations in this section are in millions of dollars, unless otherwise stated. Certain columns and rows may not add due to the use of rounded numbers. Our condensed consolidated statement of income (loss) displays sales and costs of sales in accordance withSEC regulations under which "goods" is required to include all sales of tangible products and "services" must include all other sales, including other service activities. For the amounts shown below, we distinguish between "equipment" and "product services", where product services refer to sales under product services agreements, including sales of both goods (such as spare parts and equipment upgrades) and related services (such as monitoring, maintenance and repairs), which is an important part of our operations. We refer to "product services" simply as "services" within the Business Environment section of Management's Discussion and Analysis. The performance of our operating segments is evaluated based on segment operating income (loss), which is defined as income (loss) before income taxes and before the following: net interest expense, net other non-operating income (loss), corporate expenses, restructuring, impairment and other charges, goodwill impairments, inventory impairments, separation related costs, and certain gains and losses not allocated to the operating segments. Baker Hughes Company 2021 Third Quarter Form 10-Q
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In evaluating the segment performance, the Company primarily uses the following: Volume: Volume is the increase or decrease in products and/or services sold period-over-period excluding the impact of foreign exchange and price. The volume impact on profit is calculated by multiplying the prior period profit rate by the change in revenue volume between the current and prior period. It also includes price, defined as the change in sales price for a comparable product or service period-over-period and is calculated as the period-over-period change in sales prices of comparable products and services. Foreign Exchange (FX): FX measures the translational foreign exchange impact, or the translation impact of the period-over-period change on sales and costs directly attributable to change in the foreign exchange rate compared to theU.S. dollar. FX impact is calculated by multiplying the functional currency amounts (revenue or profit) with the period-over-period FX rate variance, using the average exchange rate for the respective period. (Inflation)/Deflation: (Inflation)/deflation is defined as the increase or decrease in direct and indirect costs of the same type for an equal amount of volume. It is calculated as the year-over-year change in cost (i.e. price paid) of direct material, compensation & benefits and overhead costs. Productivity: Productivity is measured by the remaining variance in profit, after adjusting for the period-over-period impact of volume & price, foreign exchange and (inflation)/deflation as defined above. Improved or lower period-over-period cost productivity is the result of cost efficiencies or inefficiencies, such as cost decreasing or increasing more than volume, or cost increasing or decreasing less than volume, or changes in sales mix among segments. This also includes the period-over-period variance of transactional foreign exchange, aside from those foreign currency devaluations that are reported separately for business evaluation purposes. Orders and Remaining Performance Obligations Orders: For the nine months endedSeptember 30, 2021 , we recognized orders of$15.0 billion , a decrease of$0.5 billion , or 3%, from the nine months endedSeptember 30, 2020 . For the three months endedSeptember 30, 2021 , we recognized orders of$5.4 billion , an increase of$0.3 billion , or 5%, from the three months endedSeptember 30, 2020 . Service orders were up 18% and equipment orders were down 7%. The increase in orders was driven by OFE, OFS and DS, partially offset by TPS. Remaining Performance Obligations (RPO): As ofSeptember 30, 2021 , the aggregate amount of the transaction price allocated to the unsatisfied (or partially unsatisfied) performance obligations was$23.5 billion . Revenue and Operating Income (Loss) Revenue and operating income (loss) for each of our four operating segments is provided below. Three Months Ended Nine Months Ended September 30, September 30, 2021 2020 $ Change 2021 2020 $ Change Segment revenue: Oilfield Services$ 2,419 $ 2,308 $ 111 $ 6,976 $ 7,858 $ (882) Oilfield Equipment 603 726 (123) 1,867 2,133 (266) Turbomachinery & Process Solutions 1,562 1,513 49 4,675 3,759 916 Digital Solutions 510 503 7 1,499 1,460 39 Total$ 5,093 $ 5,049 $ 44 $ 15,017 $ 15,210 $ (193) Baker Hughes Company 2021 Third Quarter Form 10-Q | 33
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Three Months Ended September Nine Months Ended September 30, 30, 2021 2020 $ Change 2021 2020 $ Change Segment operating income (loss): Oilfield Services $ 190$ 93 $ 97 $ 505$ 345 $ 160 Oilfield Equipment 14 19 (5) 45 (4) 49 Turbomachinery & Process Solutions 278 191 87 705 473 232 Digital Solutions 26 46 (20) 75 117 (42) Total segment operating income 508 349 159 1,330 931 399 Corporate (105) (115) 10 (324) (353) 29 Goodwill impairment - - - - (14,773) 14,773 Inventory impairment - (42) 42 - (218) 218 Restructuring, impairment and other (14) (209) 195 (219) (1,637) 1,418 Separation related (11) (32) 21 (53) (110) 57 Operating income (loss) 378 (49) 427 736 (16,160) 16,896 Other non-operating loss, net (102) (149) 47 (791) (367) (424) Interest expense, net (67) (66) (1) (205) (195) (10) Income (loss) before income taxes 209 (264) 473 (260) (16,722) 16,462 Benefit (provision) for income taxes (193) (6) (187) (406) 10 (416) Net income (loss) $ 16$ (270) $ 286 $ (666)$ (16,712) $ 16,046 Segment Revenues and Segment Operating Income (Loss) Third Quarter of 2021 Compared to the Third Quarter of 2020 Revenue increased$44 million , or 1%, driven by higher volume in OFS, TPS and DS, partially offset by lower volume in OFE. OFS increased$111 million , TPS increased$49 million and DS increased$7 million , partially offset by OFE which decreased$123 million . Total segment operating income increased$159 million . The increase was driven by OFS which increased$97 million and TPS which increased$87 million , partially offset by DS which decreased$20 million and OFE which decreased$5 million . Oilfield Services OFS revenue of$2,419 million increased$111 million , or 5%, in the third quarter of 2021 compared to the third quarter of 2020, as a result of increased activity inNorth America , as evidenced by an increase in theNorth America rig count.North America revenue was$714 million in the third quarter of 2021, an increase of$155 million from the third quarter of 2020. International revenue was$1,705 million in the third quarter of 2021, a decrease of$44 million from the third quarter of 2020, mainly driven by theMiddle East region. OFS revenue growth was affected by Hurricane Ida and supply chain-related shipment delays in the quarter. OFS segment operating income was$190 million in the third quarter of 2021 compared to$93 million in the third quarter of 2020, primarily driven by higher volume and increased cost productivity as a result of cost efficiencies and restructuring actions, partially offset by commodity cost inflation. Oilfield Equipment OFE revenue of$603 million decreased$123 million , or 17%, in the third quarter of 2021 compared to the third quarter of 2020. The decrease was primarily driven by lower volume in the subsea production systems and surface pressure control projects businesses, and from the disposition of the surface pressure control flow business in the fourth quarter of 2020, partially offset by higher volume in the services and flexible pipe businesses. Baker Hughes Company 2021 Third Quarter Form 10-Q
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OFE segment operating income was$14 million in the third quarter of 2021 compared to segment operating income of$19 million in the third quarter of 2020. The decrease in income was primarily driven by lower volume. Turbomachinery & Process Solutions TPS revenue of$1,562 million increased$49 million , or 3%, in the third quarter of 2021 compared to the third quarter of 2020. The increase was driven by higher equipment and services volume. Equipment revenue was up 2% and service revenue was up 4% when compared to the prior year. Equipment revenue in the quarter represented 45% and service revenue represented 55% of total segment revenue. TPS segment operating income was$278 million in the third quarter of 2021 compared to$191 million in the third quarter of 2020. The increase in income was driven primarily by higher volume and increased cost productivity. Digital Solutions DS revenue of$510 million increased$7 million , or 1%, in the third quarter of 2021 compared to the third quarter of 2020, mainly driven by higher volume across the Process & Pipeline Services and Waygate Technologies businesses, partially offset by declines in the Nexus Control andBently Nevada businesses. DS revenue growth was affected by supply chain constraints that impacted product deliveries. DS segment operating income was$26 million in the third quarter of 2021 compared to$46 million in the third quarter of 2020. The decrease in profitability was primarily driven by lower cost productivity and unfavorable business mix. Corporate In the third quarter of 2021, corporate expenses were$105 million compared to$115 million in the third quarter of 2020. The decrease of$10 million was primarily driven by lower expenses related to cost efficiencies and restructuring actions. Restructuring, Impairment and Other In the third quarter of 2021, we recognized$14 million of restructuring, impairment and other items, compared to$209 million in the third quarter of 2020. The charges in the third quarter of 2021 primarily relate to initiatives in our OFS segment that are the continuation of our overall strategy to right-size our structural costs. The charges in the third quarter of 2020 primarily related to the continuation of activities from our first quarter 2020 restructuring plan. Other Non-Operating Loss, Net In the third quarter of 2021, we incurred$102 million of other non-operating losses. Included in this amount was a loss of$140 million related to marking our investment in C3.ai to fair value. For the third quarter of 2020, we incurred$149 million of other non-operating losses. Included in this amount was a loss of$129 million related to the disposition of our surface pressure control flow business. Interest Expense, Net In the third quarter of 2021, we incurred interest expense, net of interest income, of$67 million , which increased$1 million compared to the third quarter of 2020, primarily driven by lower interest income. Income Taxes In the third quarter of 2021, the provision for income taxes was$193 million . The difference between theU.S. statutory tax rate of 21% and the effective tax rate is primarily related to losses with no tax benefit due to valuation allowances and changes in unrecognized tax benefits related to uncertain tax positions.Baker Hughes Company 2021 Third Quarter Form 10-Q | 35
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In the third quarter of 2020, the income tax expense was$6 million . The difference between theU.S. statutory tax rate of 21% and the effective tax rate is primarily related to losses with no tax benefit due to valuation allowance, partially offset by the impact of theU.S. Coronavirus Aid, Relief, and Economic Security Act (CARES Act). The First Nine Months of 2021 Compared to the First Nine Months of 2020 Revenue decreased$193 million , or 1%, primarily driven by lower volume in OFS and OFE, partially offset by higher volume in TPS and DS. OFS decreased$882 million and OFE decreased$266 million , partially offset by TPS which increased$916 million and DS which increased$39 million . Total segment operating income increased$399 million . The increase was driven by TPS which increased$232 million , OFS which increased$160 million , and OFE which increased$49 million , partially offset by DS which decreased$42 million . Oilfield Services OFS revenue of$6,976 million decreased$882 million , or 11%, in the first nine months of 2021 compared to the first nine months of 2020, as a result of decreased activity internationally and inNorth America as evidenced by the decrease in the worldwide rig count.North America revenue was$2,031 million in the first nine months of 2021, a decrease of$150 million from the first nine months of 2020. International revenue was$4,945 million in the first nine months of 2021, a decrease of$732 million from the first nine months of 2020, mainly driven by theMiddle East region. OFS segment operating income was$505 million in the first nine months of 2021 compared to$345 million in the first nine months of 2020. The increase in income was primarily driven by increased cost productivity as a result of cost efficiencies and restructuring actions, partially offset by lower volume and unfavorable business mix. Oilfield Equipment OFE revenue of$1,867 million decreased$266 million , or 12%, in the first nine months of 2021 compared to the first nine months of 2020. The decrease was primarily driven by lower volume in the subsea drilling systems and surface pressure control projects businesses, and from the disposition of the surface pressure control flow business in the fourth quarter of 2020, partially offset by higher volume in the flexible pipe business. OFE segment operating income was$45 million in the first nine months of 2021 compared to segment operating loss of$4 million in the first nine months of 2020. The increase in income was primarily driven by increased cost productivity from our cost-out programs. Turbomachinery & Process Solutions TPS revenue of$4,675 million increased$916 million , or 24%, in the first nine months of 2021 compared to the first nine months of 2020. The increase was primarily driven by higher equipment volume. Equipment revenue was up 50% and service revenue was up 8% when compared to the prior year. Equipment revenue in the period represented 47% and service revenue represented 53% of total segment revenue. TPS segment operating income was$705 million in the first nine months of 2021 compared to$473 million in the first nine months of 2020. The increase in income was driven primarily by higher volume and increased cost productivity, partially offset by unfavorable business mix. Digital Solutions DS revenue of$1,499 million increased$39 million , or 3%, in the first nine months of 2021 compared to the first nine months of 2020, mainly driven by volume increases in Process & Pipeline Services and Waygate Technologies, partially offset by declines in the Nexus Controls business. DS segment operating income was$75 million in the first nine months of 2021 compared to$117 million in the first nine months of 2020. The decrease in profitability was primarily driven by decreased cost productivity.Baker Hughes Company 2021 Third Quarter Form 10-Q
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Corporate
In the first nine months of 2021, corporate expenses were$324 million compared to$353 million in the first nine months of 2020. The decrease of$29 million was primarily driven by lower expenses related to cost efficiencies and restructuring actions. Goodwill Impairment In the first quarter of 2020, the Company's market capitalization declined significantly driven by macroeconomic and geopolitical conditions including the decrease in demand caused by the COVID-19 pandemic and collapse of oil prices driven by both surplus production and supply. Based on these events, we performed an interim quantitative impairment test as ofMarch 31, 2020 . Based upon the results of the impairment test, we recognized a goodwill impairment charge of$14,773 million during the first quarter of 2020. Restructuring, Impairment and Other In the first nine months of 2021, we recognized$219 million of restructuring, impairment and other charges, primarily related to initiatives in our OFS segment that are the continuation of our overall strategy to right-size our structural costs. For the first nine months of 2020, we recognized$1,637 million of restructuring, impairment and other charges, primarily related to product line rationalization and headcount reductions in certain geographical locations to align our workforce with expected activity levels and market conditions. Other Non-Operating Loss, Net In the first nine months of 2021, we incurred$791 million of other non-operating losses. Included in this amount were losses of$955 million related to marking our investment in C3.ai to fair value, partially offset by the reversal of current accruals of$121 million due to the settlement of certain legal matters. For the first nine months of 2020, we incurred$367 million of other non-operating losses. Included in this amount was a loss of$217 million related to the sale of our rod lift systems business in the second quarter of 2020, and a loss of$129 million related to the disposition of our surface pressure control flow business. Interest Expense, Net In the first nine months of 2021, we incurred interest expense, net of interest income, of$205 million , which increased$10 million compared to the first nine months of 2020, driven by lower interest income. Income Taxes In the first nine months of 2021, the provision for income taxes was$406 million . The difference between theU.S. statutory tax rate of 21% and the effective tax rate is primarily related to losses with no tax benefit due to valuation allowances and changes in unrecognized tax benefits related to uncertain tax positions. In the first nine months of 2020, the income tax benefit was$10 million . The difference between theU.S. statutory tax rate of 21% and the effective tax rate is primarily related to non-deductible goodwill impairment, the geographical mix of earnings and losses with no tax benefit due to valuation allowances, partially offset by the impact of the CARES act. LIQUIDITY AND CAPITAL RESOURCES Our objective in financing our business is to maintain sufficient liquidity, adequate financial resources and financial flexibility in order to fund the requirements of our business. Despite the challenging dynamics since the first quarter of 2020, we continue to maintain solid financial strength and liquidity. AtSeptember 30, 2021 , we had cash and cash equivalents of$3.9 billion compared to$4.1 billion atDecember 31, 2020 . Our liquidity is further supported by a revolving credit facility of$3 billion , and access to both commercial paper and uncommitted lines of credit. AtSeptember 30, 2021 , we had no borrowings outstanding under the revolving credit facility, our commercial paper program or our uncommitted lines of credit. Our next debt maturity isDecember 2022 .Baker Hughes Company 2021 Third Quarter Form 10-Q
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Cash and cash equivalents includes$11 million and$44 million of cash held on behalf ofGE atSeptember 30, 2021 andDecember 31, 2020 , respectively. Excluding cash held on behalf ofGE , ourU.S. subsidiaries held approximately$1.2 billion and$1 billion while our foreign subsidiaries held approximately$2.7 billion and$3.1 billion of our cash and cash equivalents as ofSeptember 30, 2021 andDecember 31, 2020 , respectively. A substantial portion of the cash held by foreign subsidiaries atSeptember 30, 2021 has been reinvested in active non-U.S. business operations. If we decide at a later date to repatriate those funds to theU.S. , they will generally be free ofU.S. federal tax but may incur other taxes such as withholding or state taxes. We have a$3 billion committed unsecured revolving credit facility (the Credit Agreement) with commercial banks maturing inDecember 2024 . The Credit Agreement contains certain customary representations and warranties, certain customary affirmative covenants and certain customary negative covenants. Upon the occurrence of certain events of default, our obligations under the Credit Agreement may be accelerated. Such events of default include payment defaults to lenders under the Credit Agreement and other customary defaults. No such events of default have occurred. We have no borrowings under the Credit Agreement. In addition, we have a commercial paper program under which we may issue from time to time commercial paper with maturities of no more than 397 days. As a result of the repayment of £600 million of our commercial paper onApril 30, 2021 , originally issued in May of 2020 under the COVID Corporate Financing Facility established by theBank of England , our authorized commercial paper program was reduced from$3.8 billion to$3 billion . Certain Senior Notes contain covenants that restrict our ability to take certain actions. See Note 9. "Borrowings" of the Notes to Unaudited Condensed Consolidated Financial Statements in this Quarterly Report for further details. AtSeptember 30, 2021 , we were in compliance with all debt covenants. We continuously review our liquidity and capital resources. If market conditions were to change, for instance due to the uncertainty created by a global pandemic or a significant decline in oil and gas prices, and our revenue was reduced significantly or operating costs were to increase significantly, our cash flows and liquidity could be negatively impacted. Additionally, it could cause the rating agencies to lower our credit ratings. There are no ratings triggers that would accelerate the maturity of any borrowings under our committed credit facility; however, a downgrade in our credit ratings could increase the cost of borrowings under the credit facility and could also limit or preclude our ability to issue commercial paper. Should this occur, we could seek alternative sources of funding, including borrowing under the credit facility. During the nine months endedSeptember 30, 2021 , we dispersed cash to fund a variety of activities including certain working capital needs, restructuring andGE separation related costs, capital expenditures, the payment of dividends and distributions to noncontrolling interests, and repurchases of our common stock. We believe that cash on hand, cash flows generated from operating and financing activities, and the available credit facility will provide sufficient liquidity to manage our global cash needs. Cash Flows Cash flows provided by (used in) each type of activity were as follows for the nine months endedSeptember 30 : (In millions) 2021 2020 Operating activities$ 1,600 $ 927 Investing activities (212) (551) Financing activities (1,585) 494 Operating Activities Our largest source of operating cash is payments from customers, of which the largest component is collecting cash related to our sales of products and services including advance payments or progress collections for work to be performed. The primary use of operating cash is to pay our suppliers, employees, tax authorities, and others for a wide range of material and services. Cash flows from operating activities generated cash of$1,600 million and$927 million for the nine months endedSeptember 30, 2021 and 2020, respectively. Baker Hughes Company 2021 Third Quarter Form 10-Q
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For the nine months endedSeptember 30, 2021 , cash generated from operating activities were primarily driven by net losses adjusted for certain noncash items (including depreciation, amortization, and loss on equity securities) and working capital, which includes contract and other deferred assets. Net working capital cash generation was$470 million for the nine months endedSeptember 30, 2021 , mainly due to receivables, inventory, and contract assets, partially offset by progress collections, as we continue to improve our working capital processes. Restructuring andGE separation related payments were$210 million for the nine months endedSeptember 30, 2021 . For the nine months endedSeptember 30, 2020 , cash generated from operating activities were primarily driven by net losses adjusted for certain noncash items (including depreciation, amortization, impairments, loss on sale of business, and write-down of assets held for sale) and working capital, which includes contract and other deferred assets. Net working capital generation was$255 million for the nine months endedSeptember 30, 2020 , mainly due to positive customer progress collections, partially offset by higher inventory to deliver the volume for TPS equipment contracts in the second half of the year. We also used working capital from net negative receivables and payables as a result of lower revenues. Restructuring andGE separation related payments were$480 million for the nine months endedSeptember 30, 2020 . Investing Activities Cash flows from investing activities used cash of$212 million and$551 million for the nine months endedSeptember 30, 2021 and 2020, respectively. Our principal recurring investing activity is the funding of capital expenditures including property, plant and equipment and software, to support and generate revenue from operations. Expenditures for capital assets were$590 million and$801 million for the nine months endedSeptember 30, 2021 and 2020, respectively. Proceeds from the sale of property, plant and equipment were$178 million and$141 million for the nine months endedSeptember 30, 2021 and 2020, respectively. During the nine months endedSeptember 30, 2021 , we sold approximately 2.2 million shares of C3.ai Class A common stock and received proceeds of$145 million , which is reported as an other investing activity. Financing Activities Cash flows from financing activities used cash of$1,585 million and generated cash of$494 million for the nine months endedSeptember 30, 2021 and 2020, respectively. We had net repayments of debt and other borrowings of$60 million and$170 million for the nine months endedSeptember 30, 2021 and 2020, respectively. In addition, inApril 2021 we repaid$832 million (£600 million) of commercial paper originally issued inMay 2020 under the COVID Corporate Financing Facility established by theBank of England . InMay 2020 , we received proceeds from the issuance of$500 million aggregate principal amount of 4.486% Senior Notes dueMay 2030 . We paid dividends of$436 million to our Class A shareholders, and we made a distribution of$127 million toGE during the nine months endedSeptember 30, 2021 . We paid dividends of$359 million to our Class A shareholders, and we made a distribution of$199 million toGE during the nine months endedSeptember 30, 2020 . OnJuly 30, 2021 , our Board of Directors authorized each of the Company andBHH LLC to repurchase up to$2 billion of its Class A common stock and LLC Units, respectively. During the three months endedSeptember 30, 2021 , the Company andBHH LLC repurchased and canceled 4.4 million shares of Class A common stock and LLC Units, respectively, for a total of$106 million . Cash Requirements For the remainder of 2021, we believe cash on hand, cash flows from operating activities, the available revolving credit facility, and the availability to issue debt under our existing shelf registrations will provide us with sufficient capital resources and liquidity to manage our working capital needs, meet contractual obligations, fund capital expenditures, dividends and repurchases of our common stock, and support the development of our short-Baker Hughes Company 2021 Third Quarter Form 10-Q
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term and long-term operating strategies. When necessary, we issue commercial paper or other short-term debt to fund cash needs in theU.S. in excess of the cash generated in theU.S. Our capital expenditures can be adjusted and managed by us to match market demand and activity levels. Based on current market conditions, capital expenditures, net of proceeds from disposal of assets, in 2021 are expected to be below 2020 levels. The expenditures are expected to be used primarily for normal, recurring items necessary to support our business. We currently anticipate making income tax payments in the range of$350 million to$450 million in 2021. Other Factors Affecting Liquidity Registration Statements: InMay 2021 , Baker Hughes filed a universal shelf registration statement on Form S-3ASR (Automatic Shelf Registration) with theSEC to have the ability to sell various types of securities including debt securities, Class A common stock, preferred stock, guarantees of debt securities, purchase contracts and units. The specific terms of any securities to be sold would be described in supplemental filings with theSEC . The registration statement will expire inMay 2024 . InDecember 2020 ,BHH LLC ,Baker Hughes Netherlands Funding Company B.V. , andBaker Hughes Co-Obligor, Inc. filed a shelf registration statement on Form S-3 with theSEC to have the ability to sell up to$3 billion in debt securities in amounts to be determined at the time of an offering. Any such offering, if it does occur, may happen in one or more transactions. The specific terms of any debt securities to be sold would be described in supplemental filings with theSEC . The registration statement will expire inDecember 2023 . Customer receivables: In line with industry practice, we may bill our customers for services provided in arrears dependent upon contractual terms. In a challenging economic environment, we may experience delays in the payment of our invoices due to customers' lower cash flow from operations or their more limited access to credit markets. While historically there have not been material non-payment events, we attempt to mitigate this risk through working with our customers to restructure their debts. A customer's failure or delay in payment could have a material adverse effect on our short-term liquidity and results from operations. As ofSeptember 30, 2021 , no single customer accounted for more than 10% of our gross trade receivables. International operations: Our cash that is held outside theU.S. is 70% of the total cash balance as ofSeptember 30, 2021 . We may not be able to use this cash quickly and efficiently due to exchange or cash controls that could make it challenging. As a result, our cash balance may not represent our ability to quickly and efficiently use this cash. Supply chain finance programs: Under supply chain finance programs, administered by a third party, our suppliers are given the opportunity to sell receivables from us to participating financial institutions at their sole discretion at a rate that leverages our credit rating and thus might be more beneficial to our suppliers. Our responsibility is limited to making payment on the terms originally negotiated with our supplier, regardless of whether the supplier sells its receivable to a financial institution. The range of payment terms we negotiate with our suppliers is consistent, irrespective of whether a supplier participates in the program. These liabilities continue to be presented as accounts payable in our condensed consolidated statements of financial position and reflected as cash flow from operating activities when settled. We do not believe that changes in the availability of supply chain financing programs would have a material impact on our liquidity. FORWARD-LOOKING STATEMENTS This Quarterly Report on Form 10-Q, contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act of 1934, as amended, (each a "forward-looking statement"). All statements, other than historical facts, including statements regarding the presentation of the Company's operations in future reports and any assumptions underlying any of the foregoing, are forward-looking statements. Forward-looking statements concern future circumstances and results and other statements that are not historical facts and are sometimes identified by the words "may," "will," "should," "potential," "intend," "expect," "would," "seek," "anticipate," "estimate," "overestimate," "underestimate," "believe," "could," "project," "predict," "continue," "target", "goal" or other similar words or expressions. Forward-looking statements are based upon current plans, estimates and expectations that are subject to risks, uncertainties and assumptions. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect,Baker Hughes Company 2021 Third Quarter Form 10-Q
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actual results may vary materially from those indicated or anticipated by such forward-looking statements. The inclusion of such statements should not be regarded as a representation that such plans, estimates or expectations will be achieved. Important factors that could cause actual results to differ materially from such plans, estimates or expectations include, among others, the risk factors identified in the "Risk Factors" section of Part I of Item 1A of our 2020 Annual Report and those set forth from time-to-time in other filings by the Company with theSEC . These documents are available through our website or through theSEC's Electronic Data Gathering and Analysis Retrieval (EDGAR) system at http://www.sec.gov. Any forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q. The Company does not undertake any obligation to update any forward-looking statements, whether as a result of new information or developments, future events or otherwise, except as required by law. Readers are cautioned not to place undue reliance on any of these forward-looking statements.
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