Brookfield Business Partners L.P.(BBU) - 2021 Q3 - Quarterly Report

Unaudited Interim Condensed Consolidated Financial Statements Consolidated Statements of Financial Position Total assets $53.76 billion, liabilities $42.66 billion, and equity $11.10 billion as of Sep 30, 2021, slightly decreased from year-end 2020 Consolidated Statement of Financial Position (US$ Millions) | Account | Sep 30, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Total Current Assets | $14,219 | $14,493 | | Total Non-Current Assets | $39,541 | $40,253 | | Total Assets | $53,760 | $54,746 | | Total Current Liabilities | $13,336 | $12,133 | | Total Non-Current Liabilities | $29,326 | $31,276 | | Total Liabilities | $42,662 | $43,409 | | Total Equity | $11,098 | $11,337 | | Total Liabilities and Equity | $53,760 | $54,746 | Consolidated Statements of Operating Results Nine-month net income surged to $2.04 billion from $200 million in 2020, driven by a $1.82 billion disposition gain and 20% revenue growth Operating Results Highlights (US$ Millions) | Metric | Q3 2021 | Q3 2020 | 9 Months 2021 | 9 Months 2020 | | :--- | :--- | :--- | :--- | :--- | | Revenues | $12,043 | $10,070 | $33,107 | $27,586 | | Direct operating costs | ($11,155) | ($9,269) | ($30,682) | ($25,526) | | Gain on acquisitions/dispositions, net | $0 | $0 | $1,823 | $179 | | Income before income tax | $288 | $195 | $2,222 | $243 | | Net income (loss) | $300 | $85 | $2,038 | $200 | | Net income (loss) attributable to Limited partners | $46 | ($10) | $277 | ($136) | Consolidated Statements of Comprehensive Income (Loss) Nine-month comprehensive income was $1.94 billion, a reversal from a $348 million loss in 2020, driven by strong net income Comprehensive Income (Loss) (US$ Millions) | Metric | Q3 2021 | Q3 2020 | 9 Months 2021 | 9 Months 2020 | | :--- | :--- | :--- | :--- | :--- | | Net income (loss) | $300 | $85 | $2,038 | $200 | | Other comprehensive income (loss) | ($318) | $192 | ($102) | ($548) | | Comprehensive income (loss) | ($18) | $277 | $1,936 | ($348) | Consolidated Statements of Changes in Equity Total equity decreased by $239 million to $11.10 billion as of Sep 30, 2021, due to distributions and ownership changes offsetting comprehensive income - Total equity decreased by $239 million during the first nine months of 2021, from $11,337 million to $11,098 million[16] - Key drivers of the equity change included a total comprehensive income of $1,936 million, offset by distributions of $1,766 million and ownership changes resulting in a decrease of $1,740 million[16] Consolidated Statements of Cash Flow Nine-month operating cash flow was $1.45 billion, down from $3.07 billion in 2020, resulting in a net $352 million decrease in cash and cash equivalents Cash Flow Summary (US$ Millions) | Activity | 9 Months 2021 | 9 Months 2020 | | :--- | :--- | :--- | | Cash from operating activities | $1,450 | $3,074 | | Cash from (used in) investing activities | ($569) | ($1,767) | | Cash from (used in) financing activities | ($1,233) | ($358) | | Change during the period | ($352) | $949 | | Balance, end of period | $2,371 | $2,815 | Notes to Unaudited Interim Condensed Consolidated Financial Statements This section details accounting policies and financial items, covering acquisitions, dispositions, segment reporting, borrowings, equity, and related party transactions Note 3: Acquisition of Businesses In 2021, the partnership acquired Aldo for $104 million cash and Everise for $80 million cash, resulting in significant goodwill - Acquired Aldo Componentes Eletrônicos LTDA ("Aldo"), a Brazilian solar power solutions distributor, on August 31, 2021. The partnership's economic interest is 35%, with cash consideration of $104 million and contingent consideration of $116 million. The acquisition resulted in $445 million of goodwill[36][37] - Acquired Everise Holdings Pte Ltd. ("Everise"), a business process outsourcing company, on January 8, 2021. The partnership's economic interest is 36%, with cash consideration of $80 million and contingent consideration of $23 million. The acquisition resulted in $290 million of goodwill[41][42] Note 8: Dispositions A net gain on dispositions of $1.82 billion was recognized for the nine months ended Sep 30, 2021, primarily from a $1.76 billion pre-tax gain on graphite electrode operations - A net gain on dispositions of $1,823 million was recognized for the nine months ended Sep 30, 2021, primarily from the partial disposition of the investment in its graphite electrode operations[72] - On March 1, 2021, the sale of additional shares in its graphite electrode operations decreased the partnership's voting interest to 37%, resulting in deconsolidation and a pre-tax gain of $1,764 million[74] Note 16: Borrowings As of Sep 30, 2021, $751 million was drawn on corporate credit facilities, with $1.32 billion available, and non-recourse subsidiary borrowings totaled $21.34 billion Borrowings Summary (US$ Millions) | Borrowing Type | Sep 30, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Corporate borrowings | $751 | $310 | | Non-recourse subsidiary borrowings | $21,338 | $23,166 | - The partnership has a $500 million revolving acquisition credit facility with Brookfield, which remained undrawn as of September 30, 2021. This facility was subsequently increased to $1.0 billion[94] Note 17: Related Party Transactions For the nine months ended Sep 30, 2021, Brookfield received a $65 million base management fee and a $79 million incentive distribution - The base management fee paid to Brookfield was $24 million for Q3 2021 and $65 million for the first nine months of 2021[101] - An incentive distribution of $79 million was paid to Brookfield for the nine months ended September 30, 2021[102] Note 22: Revenues Nine-month revenues reached $33.11 billion, with Business Services contributing $21.61 billion and the United Kingdom being the largest market at $13.46 billion Revenues by Segment - 9 Months Ended Sep 30, 2021 (US$ Millions) | Segment | Revenue | | :--- | :--- | | Business services | $21,612 | | Infrastructure services | $3,185 | | Industrials | $8,310 | | Total | $33,107 | Revenues by Geography - 9 Months Ended Sep 30, 2021 (US$ Millions) | Geography | Revenue | | :--- | :--- | | United Kingdom | $13,460 | | United States of America | $4,661 | | Europe | $4,890 | | Australia | $3,380 | | Canada | $2,845 | | Other | $3,871 | | Total | $33,107 | Note 23: Segment Information Segment reporting was realigned, renaming Company FFO to Adjusted FFO, which totaled $1.18 billion attributable to unitholders for the nine months, with Industrials as the largest contributor - The partnership realigned segment reporting, changing the name of its key performance measure from Company FFO to Adjusted Funds From Operations ("Adjusted FFO"). The calculation method remains unchanged[146] Adjusted FFO by Segment - 9 Months Ended Sep 30, 2021 (US$ Millions) | Segment | Adjusted FFO | | :--- | :--- | | Business services | $272 | | Infrastructure services | $236 | | Industrials | $738 | | Corporate and other | ($69) | | Total attributable to Unitholders | $1,177 | Note 26: Subsequent Events Post-quarter, the partnership acquired DexKo Global Inc. for $3.4 billion and declared a quarterly distribution of $0.0625 per unit - On October 4, 2021, the partnership completed the acquisition of DexKo Global Inc. for $3.4 billion, funding approximately $395 million for a 35% ownership interest[170] - A quarterly distribution of $0.0625 per unit was declared on November 4, 2021, payable on December 31, 2021[171] Management's Discussion and Analysis of Financial Condition and Results of Operations Overview of Our Business Brookfield Business Partners operates high-quality businesses across four segments, with Business Services being the largest by assets ($21.0 billion) and nine-month revenues ($21.6 billion) - The partnership's operations are organized into four segments: - Business services: Includes residential mortgage insurance, healthcare, road fuels, construction, and financial services - Infrastructure services: Includes nuclear technology, offshore oil, and work access services - Industrials: Includes advanced energy storage, graphite electrodes, water/wastewater operations, and natural gas production - Corporate and other: Includes corporate cash and liquidity management[190] Assets and Revenues by Segment (as of Sep 30, 2021, US$ Millions) | Operating Segment | Assets | 9-Month Revenues | | :--- | :--- | :--- | | Business services | $21,025 | $21,612 | | Infrastructure services | $10,353 | $3,185 | | Industrials | $22,274 | $8,310 | | Corporate and other | $108 | $0 | | Total | $53,760 | $33,107 | Developments in Our Business Since June 30, 2021, the partnership acquired Aldo and DexKo, and signed an agreement to acquire Scientific Games' lottery business for approximately $5.8 billion - Completed the acquisition of Aldo, a Brazilian solar power distributor, on August 31, 2021[224] - Completed the acquisition of DexKo, a manufacturer of engineered components, for $3.4 billion on October 4, 2021[225] - Signed an agreement to acquire Scientific Games Lottery business for approximately $5.8 billion, with an expected closing in Q2 2022[226] Consolidated Results of Operations Q3 2021 net income increased to $300 million from $85 million, while nine-month net income surged to $2.04 billion from $200 million, largely due to a $1.82 billion disposition gain and 20% revenue growth - Nine-month net income increased to $2,038 million in 2021 from $200 million in 2020, primarily due to gains recognized on the partial disposals of the graphite electrode operations[236] - Nine-month revenues increased by $5.5 billion (20%) to $33.1 billion in 2021, mainly from higher volumes and prices in road fuels operations and contributions from advanced energy storage operations[238][239] - A net gain on acquisitions/dispositions of $1,823 million was recorded in the first nine months of 2021, compared to $179 million in the same period of 2020[247] Review of Consolidated Financial Position Total assets were $53.8 billion as of Sep 30, 2021, marked by a $1.1 billion decrease in PP&E and a $355 million increase in Goodwill from acquisitions - Property, plant & equipment (PP&E) decreased by $1.1 billion, primarily due to the deconsolidation of the graphite electrode operations[264] - Goodwill increased by $355 million, driven by the acquisitions of the solar power solutions and technology services operations[268] - During the nine months ended September 30, 2021, the partnership repurchased and canceled 1,186,919 LP Units under its normal course issuer bid[272][111] Segment Analysis Q3 2021 Adjusted EBITDA increased to $443 million from $381 million, and Adjusted FFO rose to $276 million from $208 million, with nine-month Adjusted FFO more than doubling to $1.18 billion Adjusted EBITDA and Adjusted FFO (US$ Millions) | Metric | Q3 2021 | Q3 2020 | 9 Months 2021 | 9 Months 2020 | | :--- | :--- | :--- | :--- | :--- | | Adjusted EBITDA | $443 | $381 | $1,211 | $961 | | Adjusted FFO | $276 | $208 | $1,177 | $575 | Business Services Adjusted EBITDA for Business Services increased to $163 million in Q3 2021 from $96 million, driven by strong residential mortgage insurer performance and improved construction operations Business Services Performance (US$ Millions) | Metric | Q3 2021 | Q3 2020 | 9 Months 2021 | 9 Months 2020 | | :--- | :--- | :--- | :--- | :--- | | Adjusted EBITDA | $163 | $96 | $412 | $179 | | Adjusted FFO | $109 | $62 | $272 | $143 | Infrastructure Services Infrastructure Services' Adjusted EBITDA was stable at $140 million for Q3 2021, while Adjusted FFO increased to $91 million from $78 million due to lower interest expenses Infrastructure Services Performance (US$ Millions) | Metric | Q3 2021 | Q3 2020 | 9 Months 2021 | 9 Months 2020 | | :--- | :--- | :--- | :--- | :--- | | Adjusted EBITDA | $140 | $142 | $401 | $446 | | Adjusted FFO | $91 | $78 | $236 | $269 | Industrials Industrials' Adjusted EBITDA increased to $171 million in Q3 2021 from $166 million, driven by advanced energy storage, while nine-month Adjusted FFO surged to $738 million from $205 million due to disposition gains Industrials Performance (US$ Millions) | Metric | Q3 2021 | Q3 2020 | 9 Months 2021 | 9 Months 2020 | | :--- | :--- | :--- | :--- | :--- | | Adjusted EBITDA | $171 | $166 | $488 | $409 | | Adjusted FFO | $101 | $86 | $738 | $205 | Liquidity and Capital Resources The partnership maintains strong liquidity with $27.6 billion total borrowing capacity, $22.1 billion drawn, and a net debt-to-capitalization ratio of 64% Net Debt-to-Capitalization | Metric (US$ Millions) | Sep 30, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Net debt | $19,718 | $21,033 | | Total equity | $11,098 | $11,337 | | Total capital and net debt | $30,816 | $32,370 | | Net debt-to-capitalization ratio | 64% | 65% | - At September 30, 2021, the partnership had $1,324 million available on its bilateral credit facilities and an undrawn $500 million revolving acquisition credit facility with Brookfield[325][326]