Goodwill and Other Intangible Assets

9 Months Ended

Sep. 30, 2020

Goodwill and Intangible Assets Disclosure [Abstract]

GOODWILL AND OTHER INTANGIBLE ASSETS

GOODWILL

The changes in the carrying value of goodwill are detailed below by segment:


	Oilfield Services		Oilfield Equipment		Turbo- machinery & Process Solutions		Digital Solutions		Total
Balance at December 31, 2018, gross	$	15,382	$	4,177	$	2,186	$	2,432	$	24,177
Accumulated impairment at December 31, 2018	(2,633)		(867)		—		(254)		(3,754)
Balance at December 31, 2018	12,749		3,310		2,186		2,178		20,423
Currency exchange and others	—		9		(15)		(21)		(27)
Balance at December 31, 2019	12,749		3,319		2,171		2,157		20,396
Impairment	(11,428)		(3,289)		—		—		(14,717)
Currency exchange and others	(20)		(24)		43		7		6
Balance at September 30, 2020	$	1,301	$	6	$	2,214	$	2,164	$	5,685

We perform our annual goodwill impairment test for each of our reporting units as of July 1 of each fiscal year, in conjunction with our annual strategic planning process. Our reporting units are the same as our four reportable segments. We also test goodwill for impairment whenever events or circumstances occur which, in our judgment, could more likely than not reduce the fair value of one or more reporting units below its carrying value. Potential impairment indicators include, but are not limited to, (i) the results of our most recent annual or interim impairment testing, in particular the magnitude of the excess of fair value over carrying value observed, (ii) downward revisions to internal forecasts, and the magnitude thereof, if any, and (iii) declines in Baker Hughes' market capitalization below book value, and the magnitude and duration of those declines, if any.

During the first quarter of 2020, Baker Hughes' market capitalization declined significantly compared to the fourth quarter of 2019. Baker Hughes' closing stock price fell to a historic low of $9.33 on March 23, 2020. Over the same period, the equity value of Baker Hughes' peer group companies and the overall U.S. stock market also declined significantly amid market volatility. In addition, the Oilfield Services Index (OSX), an indicator of investors’ view of the earnings prospects and cost of capital of the oil and gas services industry, traded at prices that were the lowest in its history. These declines were driven by the uncertainty surrounding the outbreak of the coronavirus (COVID-19) and other macroeconomic events such as the geopolitical tensions between OPEC and Russia, which also resulted in a significant drop in oil prices. Based on these factors, we concluded that a triggering event occurred and, accordingly, an interim quantitative impairment test was performed as of March 31, 2020 (“testing date”).

In performing the interim quantitative impairment test and consistent with our prior practice, we determined the fair value of each of our reporting units using a combination of the income approach and the market approach by assessing each of these valuation methodologies based upon availability and relevance of comparable company data and determining the appropriate weighting.

Under the income approach, the fair value for each of our reporting units was determined based on the present value of estimated future cash flows, discounted at an appropriate risk-adjusted rate. We used our internal forecasts, updated for recent events, to estimate future cash flows with cash flows beyond the specific operating plans estimated using a terminal value calculation, which incorporates historical and forecasted trends, including an estimate of long-term future growth rates, based on our most recent views of the long-term outlook for each reporting unit. Our internal forecasts include assumptions about future commodity pricing and expected demand for our goods and services. Due to the inherent uncertainties involved in making estimates and assumptions, actual results may differ from those assumed in our forecasts.

We derived our discount rates using a capital asset pricing model and analyzing published rates for industries relevant to our reporting units to estimate the cost of equity financing. We used discount rates that are commensurate with the risks and uncertainties inherent in the respective businesses and in our internally developed forecasts, updated for recent events.

Valuations using the market approach were derived from metrics of publicly traded companies or historically completed transactions of comparable businesses. The selection of comparable businesses was based on the markets in which the reporting units operate giving consideration to risk profiles, size, geography, and diversity of products and services.

Based upon the results of our interim quantitative impairment test performed during the first quarter of 2020, we concluded that the carrying value of the Oilfield Services (OFS) and Oilfield Equipment (OFE) reporting units exceeded their estimated fair value as of the testing date, which resulted in goodwill impairment charges of $11,428 million and $3,289 million, respectively. The goodwill impairment was calculated as the amount that the carrying value of the reporting unit, including any goodwill, exceeded its fair value. As of March 31, 2020, the carrying value of our OFS and OFE reporting units equaled their fair value upon completion of the goodwill impairment test whereas our other reporting units still maintained a headroom that was substantially in excess of their carrying values.

During the third quarter of 2020, we completed our annual impairment test for each reporting unit. As a result of this assessment, we concluded that no indicators existed that would lead to a determination that it is more likely than not that the fair value of each reporting unit is less than its carrying value. There can be no assurances that future sustained declines in macroeconomic or business conditions affecting our industry will not occur, which could result in goodwill impairment charges in future periods.

OTHER INTANGIBLE ASSETS

Intangible assets are comprised of the following:


	September 30, 2020										December 31, 2019
	Gross Carrying Amount		Accumulated Amortization		Net		Gross Carrying Amount		Accumulated Amortization		Net
Customer relationships ⁽¹⁾	$	2,243	$	(888)	$	1,355	$	3,027	$	(1,045)	$	1,982
Technology ⁽¹⁾	1,097		(663)		434		1,075		(626)		449
Trade names and trademarks⁽¹⁾	325		(178)		147		696		(254)		442
Capitalized software ⁽¹⁾	1,253		(1,005)		248		1,193		(928)		265

Other	—		—		—		3		(2)		1
Finite-lived intangible assets	4,918		(2,734)		2,184		5,994		(2,855)		3,139
Indefinite-lived intangible assets	2,193		—		2,193		2,242		—		2,242
Total intangible assets	$	7,111	$	(2,734)	$	4,377	$	8,236	$	(2,855)	$	5,381

⁽¹⁾During the three months ended September 30, 2020, we recorded $4 million of intangible asset impairments to customer relationships. During the nine months ended September 30, 2020, we recorded intangible asset impairments to customer relationships of $480 million, technology of $8 million, trade names and trademarks of $236 million, and capitalized software of $3 million. See "Note 17. Restructuring, Impairment and Other" for further discussion.

Intangible assets are generally amortized on a straight-line basis with estimated useful lives ranging from 1 to 30 years. Amortization expense for the three months ended September 30, 2020 and 2019 was $75 million and $85 million, respectively, and $231 million and $278 million for the nine months ended September 30, 2020 and 2019, respectively.

Estimated amortization expense for the remainder of 2020 and each of the subsequent five fiscal years is expected to be as follows:


Year	Estimated Amortization Expense
Remainder of 2020	$	70
2021	245
2022	205
2023	192
2024	175
2025	137