Baker Hughes Company Announces Third Quarter 2020 Results

Baker Hughes Company (NYSE: BKR) ("Baker Hughes" or the "Company") announced results today for the third quarter of 2020.

 

Three Months Ended

 

Variance

(in millions except per share amounts)

September 30,
2020

June 30,
2020

September 30,
2019

 

Sequential

Year-
over-year

Orders

$

5,106

 

$

4,888

 

$

7,783

 

 

4%

(34)%

Revenue

5,049

 

4,736

 

5,882

 

 

7%

(14)%

Operating income (loss)

(49)

 

(52)

 

297

 

 

6%

U

Adjusted operating income (non-GAAP)

234

 

104

 

422

 

 

F

(45)%

Net income (loss) attributable to Baker Hughes

(170)

 

(195)

 

57

 

 

13%

U

Adjusted net income (loss) (non-GAAP) attributable to Baker Hughes

27

 

(31)

 

114

 

 

F

(76)%

EPS attributable to Class A shareholders

(0.25)

 

(0.30)

 

0.11

 

 

15%

U

Adjusted EPS (non-GAAP) attributable to Class A shareholders

0.04

 

(0.05)

 

0.21

 

 

F

(81)%

Cash flow from operating activities

219

 

230

 

360

 

 

(5)%

(39)%

Free cash flow (non-GAAP)

52

 

63

 

161

 

 

(17)%

(68)%

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

“Despite continued uncertainty in global oil and gas markets and the ongoing impact of the COVID-19 pandemic, we produced solid results in the third quarter of 2020. I am pleased with the continued execution on cost-out from our Oilfield Services (OFS) and Oilfield Equipment (OFE) teams, the commercial success and performance from Turbomachinery & Process Solutions (TPS) and Digital Solutions (DS), and our continued free cash flow generation during the quarter. I am proud of our employees and their continued commitment to delivering for our customers and shareholders,” said Lorenzo Simonelli, Baker Hughes Chairman and Chief Executive Officer.

“After significant turmoil during the first half of the year, oil markets have somewhat stabilized. However, demand recovery is beginning to level off and significant excess capacity remains, which could create volatility in the future. The outlook for natural gas is slightly more optimistic as forward prices have improved with strong demand in Asia and lower expected future gas production in the U.S.

“Despite the uncertain macro environment, we are executing on the framework we laid out earlier this year. We are on track to hit our goals of right-sizing the business, generating free cash flow, and achieving $700 million in annualized cost savings by year end.

"As we move forward, we are intensely focused on improving the margin and return profile of Baker Hughes despite the near-term macro volatility, while at the same time executing on our long-term strategy to evolve our portfolio along with the energy landscape. Baker Hughes remains committed to leading the energy transition and becoming a key enabler to decarbonizing oil and gas and other industries,” concluded Simonelli.

Quarter Highlights

Supporting our Customers

The TPS segment secured a major LNG order with longtime partner Qatar Petroleum to supply multiple main refrigerant compressors for Qatar Petroleum’s North Field East (NFE) project, executed by Qatargas. The total award is part of four LNG “mega trains,” representing 33 million tons per annum (MTPA) of additional capacity. As part of Baker Hughes’ commitment to support customers in decarbonizing their operations, the latest compression technology for the NFE project is expected to reduce emissions by ~5% versus previous technologies.

TPS also continued to innovate its FPSO technologies to support sustainable operations. The business was awarded a FPSO contract in Latin America for power generation, compression, and related equipment, including six LM2500+G4 gas turbines and two high pressure compressors for gas reinjection. The contract includes major capital spare parts and services.

The OFS segment delivered 83% of its global drilling services jobs remotely, compared to 72% in the second quarter. OFS remote operations have led to consistently better outcomes for customers at a record pace, and remote drilling increased most prominently in Asia Pacific (APAC) and the Middle East, and 100% of drilling jobs were completed using remote operations in Latin America and the Russia Caspian Region.

In the OFE segment, the Flexible Pipe Systems product line continues to gain traction in China, and was awarded a contract for high temperature subsea flexible jumpers and associated equipment as part of an Engineering, Procurement and Construction (EPC) project.

OFE also secured a major services contract for the supply of conductor casings for all the deep well drilling programs and associated logistics for a customer in the Middle East. The contract affirms OFE's status as the preferred supplier for premium connectors and casings.

The DS segment secured a major three-year frame agreement with Petrobras for multiple solutions from our Bently Nevada, Nexus Controls, and Panametrics product lines to enhance the customer’s operations through risk mitigation and performance standardization and improvements. A broad range of condition monitoring sensors will be deployed including wireless, vibration and motor sensors, as well as plant control systems, and flare flow meters. The agreement is the largest Bently Nevada order ever for Latin America and includes the latest generation Orbit 60 system launched in 2019.

DS also secured several contracts to deliver advanced technologies for LNG, power generation, and pipeline infrastructure. Bently Nevada was awarded a five-year agreement with Sonatrach in Algeria, providing a range of vibration monitoring systems for multiple LNG and liquid petroleum gas plants. Panametrics secured a three-year contract with Snam for ultrasonic flow meters, helping to ensure 32,000+ km of pipelines in Italy remain stable and safe.

Executing on Priorities

Following several consecutive quarters securing large downstream chemicals contracts, the OFS Chemicals product line continued to win contracts in the third quarter including a five-year contract to provide process and fuel treatment products and services to HollyFrontier in North America. OFS will provide hydrocarbon treatment products and services at HollyFrontier’s four U.S. refineries.

OFS also continued to focus on its differentiated portfolio with another consecutive quarter securing multi-year contracts for drilling services, completions, and artificial lift. In Guyana, OFS secured a five-year contract for drilling services, drill bits, and drilling and completion fluids. The Artificial Lift product line was awarded a contract for equipment and services in offshore Qatar, displacing a major competitor.

TPS achieved important execution milestones for LNG projects in the third quarter. In September, TPS completed the successful mechanical and performance tests for one of its largest size expander-compressors for Novatek’s Arctic LNG 2 project. TPS also completed the first phase of the Calcasieu Pass LNG project with Venture Global, shipping the first two equipment modules from Baker Hughes’ facility in Italy to the U.S.

DS continued to drive growth across industrial end markets, including aerospace and automotive. Bently Nevada achieved its first order for the Orbit 60 system outside of the oil and gas sector, signing a contract with an iron ore mining customer in Australia. The Waygate Technologies product line launched a unique high energy CT scanner system and secured a large multi-year inspection service order with a space exploration customer. In China, DS won multiple orders for sensor and inspection technologies with electric vehicle and aerospace OEMs.

Leading with Innovation

Baker Hughes continued to drive advancements in leading technologies while supporting its strategy to lead in the energy transition. TPS successfully tested the world’s first “hybrid” hydrogen turbine designed for a gas network with Snam, paving the way to implement adoption of hydrogen blended with natural gas in Snam’s current transportation network infrastructure. The test used a NovaLT™12 gas turbine with a 10% blend of hydrogen with natural gas. Once installed, the turbine can compress and move hydrogen fuel blends through Snam’s network of pipelines while using the same fuel to power itself, significantly contributing to the reduction of CO2 emissions in Italy.

OFS introduced the Lucida advanced rotary steerable service, which integrates hardware, software, automation, and remote connectivity to help customers drill faster and deliver more precise, higher-quality wells. The service fully complements OFS’ automation and remote operations services. Lucida is designed to maximize directional drilling performance and well productivity by incorporating advanced electronics and near-bit sensors that enable drillers to more precisely guide bottomhole assemblies.

OFE launched the Terminator vessel-deployed subsea wellhead cutting system, using a first-of-its-kind mechanical wellhead removal method to reduce time, fuel consumption and safety risks . Terminator was successfully launched with Wintershall DEA in Norway, cutting a subsea wellhead from an abandoned exploration well in 360 meters of water in only 35 minutes, compared to five or six hours with alternative abrasive cutting methods. Terminator joins the Subsea Connect suite of technologies for OFE and OFS customers, and it is smaller and lighter than previous systems.

DS continued to gain traction with its innovative Flare.IQ technology, securing a five-year contract with a North American customer. A key technology in Baker Hughes’ energy transition portfolio, Flare.IQ helps operators manage their flare assets remotely and can also reduce methane emissions, ensure high-efficiency flare combustion, and reduce steam usage in flare systems using advanced sensors and analytics.

The BakerHughesC3.ai joint venture alliance secured a contract with a customer in the North Sea for BHC3™ Reliability. BHC3 Reliability is a comprehensive software solution that provides reliability engineers, process engineers, and maintenance managers with AI-enabled insights to address process and equipment performance risks. The application delivers value through increased revenue from recovered production, reduced costs of unplanned downtime, extended equipment life, and improved safety in operations.

Consolidated Results by Reporting Segment

Consolidated Orders by Reporting Segment

(in millions)

Three Months Ended

 

Variance

Consolidated segment orders

September 30,
2020

June 30,
2020

September 30,
2019

 

Sequential

Year-
over-year

Oilfield Services

$

2,296

 

$

2,411

 

$

3,354

 

 

(5)

%

(32)

%

Oilfield Equipment

432

 

699

 

1,029

 

 

(38)

%

(58)

%

Turbomachinery & Process Solutions

1,885

 

1,313

 

2,784

 

 

44

%

(32)

%

Digital Solutions

493

 

465

 

616

 

 

6

%

(20)

%

Total

$

5,106

 

$

4,888

 

$

7,783

 

 

4

%

(34)

%

Orders for the quarter were $5,106 million, up 4% sequentially and down 34% year-over-year. The sequential increase was a result of higher order intake in Turbomachinery & Process Solutions and Digital Solutions, partially offset by lower orders in Oilfield Services and Oilfield Equipment. Equipment orders were up 17% sequentially and service orders were down 6%.

Year-over-year, the decline in orders was a result of lower order intake across all segments. Year-over-year equipment orders were down 40% and service orders were down 28%.

The Company's total book-to-bill ratio in the quarter was 1; the equipment book-to-bill ratio in the quarter was 1.1.

Remaining Performance Obligations (RPO) in the third quarter ended at $23.0 billion, an increase of $0.1 billion from the second quarter of 2020. Equipment RPO was $8.3 billion, up 4% sequentially. Services RPO was $14.7 billion, down 1% sequentially.

Consolidated Revenue by Reporting Segment

(in millions)

Three Months Ended

 

Variance

Consolidated segment revenue

September 30,
2020

June 30,
2020

September 30,
2019

 

Sequential

Year-over
-year

Oilfield Services

$

2,308

 

$

2,411

 

$

3,348

 

 

(4)

%

(31)

%

Oilfield Equipment

726

 

696

 

728

 

 

4

%

%

Turbomachinery & Process Solutions

1,513

 

1,161

 

1,197

 

 

30

%

26

%

Digital Solutions

503

 

468

 

609

 

 

7

%

(17)

%

Total

$

5,049

 

$

4,736

 

$

5,882

 

 

7

%

(14)

%

Revenue for the quarter was $5,049 million, an increase of 7%, sequentially. The increase in revenue was driven by Turbomachinery & Process Solutions, Digital Solutions, and Oilfield Equipment, partially offset by Oilfield Services.

Compared to the same quarter last year, revenue was down 14%, driven by lower volume across the Oilfield Services and Digital Solutions segments, partially offset by Turbomachinery & Process Solutions.

Consolidated Operating Income by Reporting Segment

(in millions)

Three Months Ended

 

Variance

Segment operating income

September 30,
2020

June 30,
2020

September 30,
2019

 

Sequential

Year-over-
year

Oilfield Services

$

93

 

$

46

 

$

274

 

 

F

(66)

%

Oilfield Equipment

19

 

(14)

 

14

 

 

F

37

%

Turbomachinery & Process Solutions

191

 

149

 

161

 

 

28

%

18

%

Digital Solutions

46

 

41

 

82

 

 

12

%

(44)

%

Total segment operating income

349

 

221

 

531

 

 

57

%

(34)

%

Corporate

(115)

 

(117)

 

(109)

 

 

2

%

(5)

%

Inventory impairment

(42)

 

(16)

 

 

 

U

U

Restructuring, impairment & other charges

(209)

 

(103)

 

(71)

 

 

U

U

Separation related

(32)

 

(37)

 

(54)

 

 

13

%

41

%

Operating income (loss)

(49)

 

(52)

 

297

 

 

6

%

U

Adjusted operating income*

$

234

 

$

104

 

$

422

 

 

F

(45)

%

*Non-GAAP measure.

"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 loss for the third quarter of 2020 was $49 million. Operating loss decreased $3 million sequentially and increased $346 million year-over-year. Total segment operating income was $349 million for the third quarter of 2020, up 57% sequentially and down 34% year-over-year.

Adjusted operating income (a non-GAAP measure) for the third quarter of 2020 was $234 million, which excludes adjustments totaling $283 million before tax, mainly related to asset impairments, restructuring and separation related charges. 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 third quarter was up 124% sequentially, driven by increased volume and productivity. Adjusted operating income was down 45% year-over-year driven by lower margins in the Oilfield Services, and Digital Solutions segments, partially offset by volume in Turbomachinery & Process Solutions, and margin expansion in Oilfield Equipment.

Depreciation and amortization for the third quarter of 2020 was $315 million.

Corporate costs were $115 million in the third quarter of 2020, down 2% sequentially and up 5% year-over-year.

Other Financial Items

Income tax expense in the third quarter of 2020 was $6 million. Included in income tax is a $42 million benefit related to the CARES Act. This benefit has been excluded from adjusted earnings per share.

Other non-operating loss in the third quarter of 2020 was $149 million. Included in other non-operating loss was a $132 million loss primarily related to the write-down of assets held for sale.

GAAP diluted loss per share was $(0.25). Adjusted diluted earnings per share was $0.04. Excluded from adjusted diluted 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.

Cash flow from operating activities was $219 million for the third quarter of 2020. Free cash flow (a non-GAAP measure) for the quarter was $52 million. 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 $167 million for the third quarter of 2020.

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

(in millions)

Three Months Ended

 

Variance

Oilfield Services

September 30,
2020

June 30,
2020

September 30,
2019

 

Sequential

Year-over-
year

Revenue

$

2,308

 

$

2,411

 

$

3,348

 

 

(4)

%

(31)

%

Operating income

$

93

 

$

46

 

$

274

 

 

F

(66)

%

Operating income margin

4.0

%

1.9

%

8.2

%

 

2.1pts

-4.2pts

 

Oilfield Services (OFS) revenue of $2,308 million for the third quarter decreased by $102 million, or 4%, sequentially.

North America revenue was $559 million, down 7% sequentially. International revenue was $1,749 million, a decrease of 3% sequentially, driven by lower revenues in Sub-Saharan Africa, Asia Pacific, and the Middle East, partially offset by Latin America and Europe.

Segment operating income before tax for the quarter was $93 million. Operating income for the third quarter of 2020 was up $47 million sequentially, primarily driven by productivity as a result of cost efficiencies and restructuring.

Oilfield Equipment

(in millions)

Three Months Ended

 

Variance

Oilfield Equipment

September 30,
2020

June 30,
2020

September 30,
2019

 

Sequential

Year-over-
year

Orders

$

432

 

$

699

 

$

1,029

 

 

(38)

%

(58)

%

Revenue

$

726

 

$

696

 

$

728

 

 

4

%

%

Operating income (loss)

$

19

 

$

(14)

 

$

14

 

 

F

37

%

Operating income margin

2.6

%

(2.1)

%

1.9

%

 

4.7pts

0.7pts

Oilfield Equipment (OFE) orders were down $597 million, or 58%, year-over-year, driven by lower order intake in most segments. Equipment orders were down 69% and services orders were down 31% year-over-year.

OFE revenue of $726 million for the quarter decreased $2 million year-over-year. The decrease was driven by lower volume in the Subsea Services, Offshore, Surface Pressure Control, and Subsea Drilling Systems businesses, offset by higher volume in the Subsea Production Systems and Flexible Pipe business.

Segment operating income before tax for the quarter was $19 million, an increase of $5 million year-over-year. The increase was driven by higher cost productivity.

Turbomachinery & Process Solutions

(in millions)

Three Months Ended

 

Variance

Turbomachinery & Process Solutions

September 30,
2020

June 30,
2020

September 30,
2019

 

Sequential

Year-over-
year

Orders

$

1,885

 

$

1,313

 

$

2,784

 

 

44

%

(32)

%

Revenue

$

1,513

 

$

1,161

 

$

1,197

 

 

30

%

26

%

Operating income

$

191

 

$

149

 

$

161

 

 

28

%

18

%

Operating income margin

12.6

%

12.8

%

13.5

%

 

-0.2pts

-0.9pts

Turbomachinery & Process Solutions (TPS) orders were down 32% year-over-year. Equipment orders were down 39% and service orders were down 17%.

TPS revenue of $1,513 million for the quarter increased $316 million, or 26%, year-over-year. The increase was driven by higher equipment volume. Equipment revenue in the quarter represented 46% of total segment revenue, and service revenue represented 54% of total segment revenue.

Segment operating income before tax for the quarter was $191 million, up $30 million, or 18%, year-over-year. The increase was driven by higher volume and cost productivity, offset partially by higher equipment mix.

Digital Solutions

(in millions)

Three Months Ended

 

Variance

Digital Solutions

September 30,
2020

June 30,
2020

September 30,
2019

 

Sequential

Year-over-
year

Orders

$

493

 

$

465

 

$

616

 

 

6

%

(20)

%

Revenue

$

503

 

$

468

 

$

609

 

 

7

%

(17)

%

Operating income

$

46

 

$

41

 

$

82

 

 

12

%

(44)

%

Operating income margin

9.2

%

8.8

%

13.5

%

 

0.3pts

-4.4pts

Digital Solutions (DS) orders were down 20% year-over-year, driven by lower order intake across all businesses.

DS revenue of $503 million for the quarter decreased 17% year-over-year, driven by lower volume across most businesses.

Segment operating income before tax for the quarter was $46 million, down 44% year-over-year. The decrease year-over-year was primarily driven by lower volume.

Charges & Credits

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

 

Three Months Ended

(in millions)

September 30,
2020

June 30,
2020

September 30,
2019

Operating income (loss) (GAAP)

$

(49)

 

$

(52)

 

$

297

 

Separation related

32

 

37

 

54

 

Restructuring, impairment & other

209

 

103

 

71

 

Inventory impairment

42

 

16

 

 

Total operating income adjustments

283

 

156

 

125

 

Adjusted operating income (non-GAAP)

$

234

 

$

104

 

$

422

 

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 (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

 

Three Months Ended

(in millions, except per share amounts)

September 30,
2020

June 30,
2020

September 30,
2019

Net income (loss) attributable to Baker Hughes (GAAP)

$

(170)

 

$

(195)

 

$

57

 

Total operating income adjustments (identified items)

283

 

156

 

125

 

Other adjustments (non-operating) (1)

90

 

156

 

 

Tax on total adjustments

(54)

 

(11)

 

(15)

 

Total adjustments, net of income tax

319

 

301

 

110

 

Less: adjustments attributable to noncontrolling interests

122

 

138

 

53

 

Adjustments attributable to Baker Hughes

197

 

164

 

57

 

Adjusted net income (loss) attributable to Baker Hughes (non-GAAP)

$

27

 

$

(31)

 

$

114

 

 

 

 

 

 

 

 

 

Denominator:

 

 

 

Weighted-average shares of Class A common stock outstanding diluted

678

 

655

 

541

 

Adjusted earnings per Class A share— diluted (non-GAAP)

$

0.04

 

$

(0.05)

 

$

0.21

 

(1)

3Q'20: Primarily driven by loss on the write-down of assets held for sale partially offset by a tax benefit related to the CARES Act. 2Q'20: Primarily driven by loss on sale of business partially offset by a tax benefit related to the CARES Act.

Table 1b reconciles net income (loss) attributable to Baker Hughes, which is the directly comparable financial result determined in accordance with GAAP, to adjusted net income attributable to Baker Hughes (a non-GAAP financial measure). Adjusted net income attributable to Baker Hughes 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)

September 30,
2020

June 30,
2020

September 30,
2019

Cash flow from operating activities (GAAP)

$

219

 

$

230

 

$

360

 

Add: cash used in capital expenditures, net of proceeds from disposal of assets

(167)

 

(167)

 

(199)

 

Free cash flow (non-GAAP)

$

52

 

$

63

 

$

161

 

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 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.

Financial Tables (GAAP)

Condensed Consolidated Statements of Income (Loss)

(Unaudited)

 

Three Months Ended
September 30,

Nine Months Ended
September 30,

(In millions, except per share amounts)

2020

2019

2020

2019

Revenue

$

5,049

 

$

5,882

 

$

15,210

 

$

17,490

 

Costs and expenses:

 

 

 

 

Cost of revenue

4,292

 

4,781

 

13,020

 

14,352

 

Selling, general and administrative

565

 

679

 

1,830

 

2,083

 

Goodwill impairment

 

 

14,773

 

 

Restructuring, impairment and other

209

 

71

 

1,637

 

183

 

Separation related

32

 

54

 

110

 

128

 

Total costs and expenses

5,098

 

5,585

 

31,370

 

16,746

 

Operating income (loss)

(49)

 

297

 

(16,160)

 

744

 

Other non-operating loss, net

(149)

 

(14)

 

(367)

 

(124)

 

Interest expense, net

(66)

 

(59)

 

(195)

 

(174)

 

Income (loss) before income taxes

(264)

 

224

 

(16,722)

 

446

 

Benefit (provision) for income taxes

(6)

 

(107)

 

10

 

(269)

 

Net income (loss)

(270)

 

117

 

(16,712)

 

177

 

Less: Net income (loss) attributable to noncontrolling interests

(100)

 

60

 

(6,120)

 

97

 

Net income (loss) attributable to Baker Hughes Company

$

(170)

 

$

57

 

$

(10,592)

 

$

80

 

 

 

 

 

 

Per share amounts:

 

 

 

Basic and diluted income (loss) per Class A common share

$

(0.25)

 

$

0.11

 

$

(16.01)

 

$

0.15

 

 

 

 

 

 

Weighted average shares:

 

 

 

 

Class A basic

676

 

538

 

662

 

523

 

Class A diluted

676

 

541

 

662

 

525

 

 

 

 

 

 

Cash dividend per Class A common share

$

0.18

 

$

0.18

 

$

0.54

 

$

0.54

 

 

 

 

 

 

Condensed Consolidated Statements of Financial Position

(Unaudited)

(In millions)

September 30, 2020

December 31, 2019

ASSETS

Current Assets:

 

 

Cash and cash equivalents (1)

$

4,061

 

$

3,249

 

Current receivables, net

5,647

 

6,416

 

Inventories, net

4,469

 

4,608

 

All other current assets

1,031

 

949

 

Total current assets

15,208

 

15,222

 

Property, plant and equipment, less accumulated depreciation

5,536

 

6,240

 

Goodwill

5,923

 

20,690

 

Other intangible assets, net

4,377

 

5,381

 

Contract and other deferred assets

1,971

 

1,881

 

All other assets

4,324

 

3,955

 

Total assets (1)

$

37,339

 

$

53,369

 

LIABILITIES AND EQUITY

Current Liabilities:

 

 

Accounts payable

$

3,482

 

$

4,268

 

Short-term debt and current portion of long-term debt (1)

935

 

321

 

Progress collections and deferred income

3,623

 

2,870

 

All other current liabilities

2,599

 

2,555

 

Total current liabilities

10,639

 

10,014

 

Long-term debt

6,754

 

6,301

 

Liabilities for pensions and other employee benefits

1,147

 

1,079

 

All other liabilities

1,550

 

1,476

 

Equity

17,249

 

34,499

 

Total liabilities and equity

$

37,339

 

$

53,369

 

(1)

Total assets include $111 million and $273 million of assets held on behalf of GE, of which $85 million and $162 million is cash and cash equivalents and $26 million and $111 million is investment securities at September 30, 2020 and December 31, 2019, respectively, and a corresponding amount of liability is reported in short-term debt.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

 

Three Months
Ended
September 30,

Nine Months Ended
September 30,

(In millions)

2020

2020

2019

Cash flows from operating activities:

 

 

 

Net income (loss)

$

(270)

 

$

(16,712)

 

$

177

 

Adjustments to reconcile net income (loss) to net cash flows from operating activities:

 

 

 

Depreciation and amortization

315

 

1,010

 

1,065

 

Goodwill impairment

 

14,773

 

 

Other asset impairments

110

 

1,237

 

 

Loss on sale of business

 

217

 

138

 

Write-down of assets held for sale

129

 

129

 

 

Benefit for deferred income taxes

(109)

 

(265)

 

(46)

 

Working capital

(133)

 

255

 

(86)

 

Other operating items, net

177

 

283

 

(479)

 

Net cash flows from operating activities

219

 

927

 

769

 

Cash flows from investing activities:

 

 

 

Expenditures for capital assets, net of proceeds from disposal of assets

(167)

 

(660)

 

(672)

 

Other investing items, net

53

 

109

 

13

 

Net cash flows used in investing activities

(114)

 

(551)

 

(659)

 

Cash flows from financing activities:

 

 

 

Net repayments of debt and other borrowings

(21)

 

(170)

 

(227)

 

Proceeds from issuance of commercial paper

 

737

 

 

Proceeds from issuance of long-term debt

 

500

 

 

Dividends paid

(123)

 

(359)

 

(278)

 

Distributions to GE

(63)

 

(199)

 

(282)

 

Repurchase of common units from GE by BHH LLC

 

 

(250)

 

Other financing items, net

6

 

(15)

 

41

 

Net cash flows from (used in) financing activities

(201)

 

494

 

(996)

 

Effect of currency exchange rate changes on cash and cash equivalents

25

 

(58)

 

(29)

 

Increase (decrease) in cash and cash equivalents

(71)

 

812

 

(915)

 

Cash and cash equivalents, beginning of period

4,132

 

3,249

 

3,723

 

Cash and cash equivalents, end of period

$

4,061

 

$

4,061

 

$

2,808

 

Supplemental Financial Information

Supplemental financial information can be found on the Company’s website at: investors.bakerhughes.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 9:00 a.m. Eastern time, 8:00 a.m. Central time on Wednesday, October 21, 2020, the content of which is not part of this earnings release. 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.bakerhughes.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, 2019; the Company's subsequent quarterly report of Form 10-Q for quarterly periods ended June 30, 2020 and March 31, 2020; 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.bakerhughes.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:

Restructuring - Our restructuring plans may not be successful and achieve the expected result; continued deterioration of market conditions, whether due to the continued spread of COVID-19 or other events could result in further restructuring costs and impairments.

COVID-19 - The continued spread of the COVID-19 virus and the continuation of the measures to try to contain the virus, such as travel bans and restrictions, quarantines, shelter in place orders, and shutdowns, and the related uncertainties.

GE Separation - The failure to successfully eliminate dependencies on GE or a failure by GE to supply products and services to us in accordance with applicable contractual terms could have a material effect on our business.

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 and sanctions.

Orders and RPO - our ability to execute on orders and RPO in accordance with agreed specifications, terms and conditions 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.

About Baker Hughes:

Baker Hughes (NYSE: BKR) is an energy technology company that provides solutions for energy and industrial customers worldwide. Built on a century of experience and with operations in over 120 countries, our innovative technologies and services are taking energy forward - making it safer, cleaner and more efficient for people and the planet. Visit us at bakerhughes.com