filings.toolsBaker Hughes 10-Q 2022-06-30
Filed 2022-07-21. 8 sections, 165K characters. Original on sec.gov · Markdown · JSON
Cover and table of contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
| ☑ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2022
OR
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number 1-38143
| Baker Hughes Company |
(Exact name of registrant as specified in its charter)
| Delaware | 81-4403168 | ||||||||||
| (State or other jurisdiction | (I.R.S. Employer Identification No.) | ||||||||||
| of incorporation or organization) | |||||||||||
| 17021 Aldine Westfield | |||||||||||
| Houston, | Texas | 77073-5101 | |||||||||
| (Address of principal executive offices) | (Zip Code) |
Registrant's telephone number, including area code: (713) 439-8600
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol | Name of each exchange on which registered | ||||||
| Class A Common Stock, par value $0.0001 per share | BKR | The Nasdaq Stock Market LLC |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer" "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
| Large accelerated filer | ☑ | Accelerated filer | ☐ | Non-accelerated filer | ☐ | Smaller reporting company | ☐ | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☑
As of July 14, 2022, the registrant had outstanding 1,011,754,323 shares of Class A Common Stock, $0.0001 par value per share and 7,000,000 shares of Class B Common Stock, $0.0001 par value per share.
Baker Hughes Company
Table of Contents
Baker Hughes Company 2022 Second Quarter Form 10-Q | i
PART I — FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS (UNAUDITED)
Baker Hughes Company
Condensed Consolidated Statements of Income (Loss)
(Unaudited)
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||
| (In millions, except per share amounts) | 2022 | 2021 | 2022 | 2021 | ||||||||||
| Revenue: | ||||||||||||||
| Sales of goods | $ | 2,817 | $ | 3,078 | $ | 5,626 | $ | 6,014 | ||||||
| Sales of services | 2,230 | 2,064 | 4,256 | 3,910 | ||||||||||
| Total revenue | 5,047 | 5,142 | 9,882 | 9,924 | ||||||||||
| Costs and expenses: | ||||||||||||||
| Cost of goods sold | 2,495 | 2,674 | 4,862 | 5,208 | ||||||||||
| Cost of services sold | 1,582 | 1,492 | 3,081 | 2,882 | ||||||||||
| Selling, general and administrative | 624 | 642 | 1,245 | 1,229 | ||||||||||
| Restructuring, impairment and other | 362 | 125 | 423 | 205 | ||||||||||
| Separation related | 9 | 15 | 18 | 42 | ||||||||||
| Total costs and expenses | 5,072 | 4,948 | 9,629 | 9,566 | ||||||||||
| Operating income (loss) | (25) | 194 | 253 | 358 | ||||||||||
| Other non-operating loss, net | (570) | (63) | (597) | (689) | ||||||||||
| Interest expense, net | (60) | (65) | (124) | (138) | ||||||||||
| Income (loss) before income taxes | (655) | 66 | (468) | (469) | ||||||||||
| Provision for income taxes | (182) | (143) | (289) | (213) | ||||||||||
| Net loss | (837) | (77) | (757) | (682) | ||||||||||
| Less: Net income (loss) attributable to noncontrolling interests | 2 | (9) | 10 | (162) | ||||||||||
| Net loss attributable to Baker Hughes Company | $ | (839) | $ | (68) | $ | (767) | $ | (520) | ||||||
| Per share amounts: | ||||||||||||||
| Basic & diluted loss per Class A common stock | $ | (0.84) | $ | (0.08) | $ | (0.79) | $ | (0.67) | ||||||
| Cash dividend per Class A common stock | $ | 0.18 | $ | 0.18 | $ | 0.36 | $ | 0.36 |
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
Baker Hughes Company 2022 Second Quarter Form 10-Q | 1
Baker Hughes Company
Condensed Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||
| (In millions) | 2022 | 2021 | 2022 | 2021 | ||||||||||
| Net loss | $ | (837) | $ | (77) | $ | (757) | $ | (682) | ||||||
| Less: Net income (loss) attributable to noncontrolling interests | 2 | (9) | 10 | (162) | ||||||||||
| Net loss attributable to Baker Hughes Company | (839) | (68) | (767) | (520) | ||||||||||
| Other comprehensive income (loss): | ||||||||||||||
| Foreign currency translation adjustments | (170) | 158 | (153) | 107 | ||||||||||
| Cash flow hedges | — | (16) | 1 | (11) | ||||||||||
| Benefit plans | 24 | 50 | 32 | 53 | ||||||||||
| Other comprehensive income (loss) | (146) | 192 | (120) | 149 | ||||||||||
| Less: Other comprehensive income (loss) attributable to noncontrolling interests | (2) | 39 | (2) | 28 | ||||||||||
| Other comprehensive income (loss) attributable to Baker Hughes Company | (144) | 153 | (118) | 121 | ||||||||||
| Comprehensive income (loss) | (983) | 115 | (877) | (533) | ||||||||||
| Less: Comprehensive income (loss) attributable to noncontrolling interests | — | 30 | 8 | (134) | ||||||||||
| Comprehensive income (loss) attributable to Baker Hughes Company | $ | (983) | $ | 85 | $ | (885) | $ | (399) |
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
Baker Hughes Company 2022 Second Quarter Form 10-Q | 2
Baker Hughes Company
Condensed Consolidated Statements of Financial Position
(Unaudited)
| (In millions, except par value) | June 30, 2022 | December 31, 2021 | ||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 2,928 | $ | 3,853 | ||||
| Current receivables, net | 5,572 | 5,651 | ||||||
| Inventories, net | 4,052 | 3,979 | ||||||
| All other current assets | 1,647 | 1,582 | ||||||
| Total current assets | 14,199 | 15,065 | ||||||
| Property, plant and equipment (net of accumulated depreciation of $5,082 and $5,003) | 4,531 | 4,877 | ||||||
| Goodwill | 5,741 | 5,959 | ||||||
| Other intangible assets, net | 4,049 | 4,131 | ||||||
| Contract and other deferred assets | 1,547 | 1,598 | ||||||
| All other assets | 2,913 | 2,943 | ||||||
| Deferred income taxes | 773 | 735 | ||||||
| Total assets | $ | 33,753 | $ | 35,308 | ||||
| LIABILITIES AND EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 3,764 | $ | 3,745 | ||||
| Current portion of long-term debt | 34 | 40 | ||||||
| Progress collections and deferred income | 3,289 | 3,232 | ||||||
| All other current liabilities | 2,288 | 2,111 | ||||||
| Total current liabilities | 9,375 | 9,128 | ||||||
| Long-term debt | 6,625 | 6,687 | ||||||
| Deferred income taxes | 191 | 127 | ||||||
| Liabilities for pensions and other postretirement benefits | 996 | 1,110 | ||||||
| All other liabilities | 1,480 | 1,510 | ||||||
| Equity: | ||||||||
| Class A Common Stock, $0.0001 par value - 2,000 authorized, 1,012 and 909 issued and outstanding as of June 30, 2022 and December 31, 2021, respectively | — | — | ||||||
| Class B Common Stock, $0.0001 par value - 1,250 authorized, 7 and 117 issued and outstanding as of June 30, 2022 and December 31, 2021, respectively | — | — | ||||||
| Capital in excess of par value | 28,598 | 27,375 | ||||||
| Retained loss | (10,927) | (10,160) | ||||||
| Accumulated other comprehensive loss | (2,789) | (2,385) | ||||||
| Baker Hughes Company equity | 14,882 | 14,830 | ||||||
| Noncontrolling interests | 204 | 1,916 | ||||||
| Total equity | 15,086 | 16,746 | ||||||
| Total liabilities and equity | $ | 33,753 | $ | 35,308 |
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
Baker Hughes Company 2022 Second Quarter Form 10-Q | 3
Baker Hughes Company
Condensed Consolidated Statements of Changes in Equity
(Unaudited)
| (In millions, except per share amounts) | **Class A and Cla |
Showing the first 8K of 97K characters. Open the full section
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 55,000 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.
As we look to the second half of 2022 and into 2023, the oil markets face an unusual set of circumstances and challenges. Demand outlook for the next 12 to 18 months is deteriorating, as inflation erodes consumer purchasing power and central banks raise interest rates to combat inflation. However, due to years of underinvestment globally and the potential need to replace Russian barrels, broader oil supply constraints can realistically keep commodity prices at elevated levels even in a scenario of lower demand. As a result, we believe the outlook for oil prices remains volatile, but still supportive of strong activity levels as higher spending is required to re-order the global energy map and likely offsets demand destruction in most recessionary scenarios.
In the natural gas market, the re-drawing of the energy map is having an even greater impact, with sustained high prices, higher offtake contracting activity, and a growing pipeline of major LNG projects that seem likely to reach final investment decision. We remain very positive on the outlook for natural gas and its place in the global energy mix. We also believe that a significant increase in natural gas and LNG infrastructure investment is required over the next five to ten years in order to make natural gas a more affordable and reliable baseload fuel source that can be paired with intermittent renewable power sources.
Against this uncertain macro backdrop, Baker Hughes is preparing for all scenarios and will continue to execute on our long-term strategy. If the global economy experiences further turbulence and commodity price volatility, we believe our balanced portfolio of short and long cycle businesses should still enable us to generate strong free cash flow (a non-GAAP measure defined as cash flows from operating activities less expenditures for capital assets plus the proceeds from disposal of assets) and allow us to maintain our policy of returning cash to shareholders. In addition to a strong backlog that affords cash flow visibility, our balance sheet allows us to invest opportunistically, either through share buybacks or strategic acquisition opportunities.
From an operational and strategic perspective, we were active over the first half of the year. We have executed on a number of small scale acquisitions and new energy investments such as Mosaic Materials, NET Power, and HIF Global. We announced an agreement to acquire Altus Intervention, a leading international provider of well intervention services and downhole technology which will complement OFS' existing portfolio. The Altus transaction is expected to close in the second half of the year. We also recently reached an agreement with GE for the sale of our Nexus Controls product line. GE will continue to provide Baker Hughes with GE’s MarkTM controls products currently in the Nexus Controls portfolio, and Baker Hughes will be the exclusive supplier and service provider of such GE products for its oil and gas customers’ control needs. The transaction is expected to close in the second quarter of 2023.
In the second quarter of 2022, we generated revenue of $5,047 million compared to $5,142 million in the second quarter of 2021. The decrease in revenue was driven primarily by lower volume in the TPS and OFE segments, partially offset by increased activity in the OFS segment. Loss before income taxes was $655 million for the second quarter of 2022, which included restructuring, impairment and other charges of $362 million, inventory impairment charges of $31 million, and also included a loss on our OFS Russia business held for sale of $426 million, and a loss of $123 million from the change in fair value on certain equity securities, both recorded as other non-operating loss. In the second quarter of 2021, income before income taxes was $66 million, which included restructuring, impairment and other charges of $125 million, and also included a $27 million loss from the change in fair value on certain equity securities, recorded as other non-operating loss.
Baker Hughes Company 2022 Second Quarter Form 10-Q | 27
The invasion of Ukraine by Russia and the sanctions imposed in response to this crisis have increased the level of economic and political uncertainty. As we announced on March 19, 2022, we suspended any new investments for our Russia operations. Over the course of the second quarter of 2022, we closely monitored the developments in Ukraine and Russia and changes to sanctions all of which have continued to make ongoing operations increasingly complex and significantly more challenging. As a result, in the second quarter of 2022, we committed to a plan to sell our OFS Russia business. Looking ahead, we are required to maintain our operating costs in the country until we reach a resolution for our Russian operations. In addition, we took actions to suspend substantially all of our operational activities related to Russia across the Company including suspending work on equipment and service contracts in Russia. Russia represented approximately 1% and 3% of our total revenue for the three and six months ended June 30, 2022, respectively.
Outlook
Our business is exposed to a number of macro factors, which influence our outlook and expectations given the current 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 expect North American onshore activity to experience strong growth in 2022, as compared to 2021 should commodity prices remain at current levels.
-
International onshore activity: We expect onshore spending outside of North America to continue to improve in 2022 as compared to 2021 in all regions, excluding Russia Caspian, should commodity prices remain at current levels.
-
Offshore projects: We expect a recovery in offshore activity and the number of subsea tree awards to grow in 2022 as compared to 2021.
-
LNG projects: We remain optimistic on the LNG market long term and view natural gas as both a transition and a 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 global GDP growth, such as our Digital Solutions segment.
We also have businesses within our portfolio that are exposed to new energy solutions, specifically focused around reducing carbon emissions of energy and broader industry, including hydrogen, geothermal, carbon capture, utilization and storage ("CCUS"), and energy storage. We expect to see continued growth in these businesses 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 oil and gas industry, but we are continuing to operate with flexibility. 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, low-emission, and cost-effective solutions that deliver step changes in operating and economic performance for our customers.
CORPORATE RESPONSIBILITY
We believe we have an important role to play in society as an industry leader and partner. We view environmental, social, and governance as a key lever to transform the performance of our Company and our industry. In January 2019, we made a commitment to reduce Scope 1 and 2 carbon emissions from our operations by 50% by 2030, achieving net zero emissions by 2050. We continue to make progress on emissions reductions, and reported in our 2021 Corporate Responsibility report a 23% reduction in our Scope 1 and 2 carbon emissions compared to our 2019 base year.
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 six months ended June 30, 2022 and 2021, and should be read in conjunction with the condensed consolidated financial statements and related notes of the Company.
Baker Hughes Company 2022 Second Quarter Form 10-Q | 28
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 resources 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 Ended June 30, | Six Months Ended June 30, | |||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||
| Brent oil price ($/Bbl) (1) | $ | 113.84 | $ | 68.98 | $ | 107.20 | $ | 64.95 | ||||||
| WTI oil price ($/Bbl) (2) | 108.83 | 66.19 | 102.01 | 62.21 | ||||||||||
| Natural gas price ($/mmBtu) (3) | 7.50 | 2.95 | 6.08 | 3.22 |
(1)Energy Information Administration (EIA) Europe Brent Spot Price per Barrel
(2)EIA Cushing, 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 six months ended June 30, 2022 largely driven by supply constraints which has also been amplified as a result of recent geopolitical events.
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 $97.92/Bbl in April 2022 to a high of $129.20/Bbl in June 2022. For the six months ended June 30, 2022, Brent oil prices averaged $107.20/Bbl, which represented an increase of $42.25/Bbl from the same period last year.
In North 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 $94.22/Bbl in April 2022 to a high of $121.94/Bbl in June 2022. For the six months ended June 30, 2022, WTI oil prices averaged $102.01/Bbl, which represented an increase of $39.80/Bbl from the same period last year.
In North America, natural gas prices, as measured by the Henry Hub Natural Gas Spot Price, averaged $7.50/mmBtu in the second quarter of 2022, representing a 154% increase from the same quarter in the prior year. Throughout the quarter, Henry Hub Natural Gas Spot Prices ranged from a low of $5.43/mmBtu in April 2022 to a high of $9.44/mmBtu in May 2022.
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 the U.S. and Canada and monthly for all international rigs. Published international rig counts
Baker Hughes Company 2022 Second Quarter Form 10-Q | 29
do not include rigs drilling in certain locations, such as the Russia Caspian region, and onshore China because this information is not readily available.
Rigs in the U.S. and Canada 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 June 30, | Six Months Ended June 30, | |||||||||||||||||||
| 2022 | 2021 | % Change | 2022 | 2021 | % Change | |||||||||||||||
| North America | 827 | 522 | 58 | % | 829 | 529 | 57 | % | ||||||||||||
| International | 816 | 734 | 11 | % | 819 | 716 | 14 | % | ||||||||||||
| Worldwide | 1,643 | 1,256 | 31 | % | 1,648 | 1,245 | 32 | % |
The worldwide rig count was 1,643 for the second quarter of 2022, an increase of 31% as compared to the same period last year primarily due to an increase in North America. Within North America, the increase was primarily driven by the U.S. rig count, which was up 59% when compared to the same period last year, and an increase in the Canada rig count, which was up 57% when compared to the same period last year. Internationally, the rig count increase was driven primarily by increases in the Africa and Latin America regions of 22% and 20%, respectively.
The worldwide rig count was 1,648 for the six months ended June 30, 2022, an increase of 32% as compared to the same period last year primarily due to an increase in North America. Within North America, the increase was primarily driven by the U.S. rig count, which was up 60% when compared to the same period last year, and an increase in the Canada rig count, which was up 44% when compared to the same period last year. Internationally, the rig count increase was primarily driven by the Africa and Latin America regions of 36% and 24%, 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 with SEC 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 loss, corporate expenses, restructuring, impairment and other charges, goodwill and inventory impairments, separation-related costs, and certain gains and losses not allocated to the operating segments.
Baker Hughes Company 2022 Second Quarter Form 10-Q | 30
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 the U.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 and benefits and overhead costs.
Productivity: Productivity is measured by the remaining variance in profit, after adjusting for the period-over-period impact of volume and 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 six months ended June 30, 2022, we recognized orders of $12.7 billion, an increase of $3.1 billion, or 32%, from the six months ended June 30, 2021. For the three months ended June 30, 2022, we recognized orders of $5.9 billion, an increase of $0.8 billion, or 15%, from the three months ended June 30, 2021. Equipment orders were up $0.4 billion, or 17%, and service orders were up $0.4 billion, or 14%. The increase in orders was driven by higher order intake in all segments.
Remaining Performance Obligations ("RPO"): As of June 30, 2022, the aggregate amount of the transaction price allocated to the unsatisfied (or partially unsatisfied) performance obligations was $24.3 billion. RPO decreased by $1.5 billion from the three months ended March 31, 2022, primarily due to the suspension of contracts in Russia and foreign currency exchange movements.
Revenue and Operating Income (Loss)
Revenue and operating income (loss) for each of our four operating segments is provided below.
| Three Months Ended June 30, | $ Change | Six Months Ended June 30, | $ Change | |||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||||||
| Segment revenue: | ||||||||||||||||||||
| Oilfield Services | $ | 2,689 | $ | 2,358 | $ | 331 | $ | 5,178 | $ | 4,558 | $ | 620 | ||||||||
| Oilfield Equipment | 541 | 637 | (95) | 1,070 | 1,264 | (194) | ||||||||||||||
| Turbomachinery & Process Solutions | 1,293 | 1,628 | (335) | 2,637 | 3,113 | (476) | ||||||||||||||
| Digital Solutions | 524 | 520 | 4 | 997 | 989 | 8 | ||||||||||||||
| Total | $ | 5,047 | $ | 5,142 | $ | (95) | $ | 9,882 | $ | 9,924 | $ | (42) |
Baker Hughes Company 2022 Second Quarter Form 10-Q | 31
| Three Months Ended June 30, | $ Change | Six Months Ended June 30, | $ Change | |||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||||||
| Segment operating income (loss): | ||||||||||||||||||||
| Oilfield Services | $ | 261 | $ | 171 | $ | 90 | $ | 482 | $ | 315 | $ | 167 | ||||||||
| Oilfield Equipment | (12) | 28 | (40) | (20) | 32 | (52) | ||||||||||||||
| Turbomachinery & Process Solutions | 218 | 220 | (2) | 443 | 427 | 16 | ||||||||||||||
| Digital Solutions | 18 | 25 | (7) | 33 | 49 | (16) | ||||||||||||||
| Total segment operating income | 485 | 444 | 41 | 938 | 824 | 114 | ||||||||||||||
| Corporate | (108) | (111) | 3 | (213) | (219) | 6 | ||||||||||||||
| Inventory impairment | (31) | — | (31) | (31) | — | (31) | ||||||||||||||
| Restructuring, impairment and other | (362) | (125) | (237) | (423) | (205) | (218) | ||||||||||||||
| Separation related | (9) | (15) | 6 | (18) | (42) | 24 | ||||||||||||||
| Operating income (loss) | (25) | 194 | (219) | 253 | 358 | (105) | ||||||||||||||
| Other non-operating loss, net | (570) | (63) | (507) | (597) | (689) | 92 | ||||||||||||||
| Interest expense, net | (60) | (65) | 5 | (124) | (138) | 14 | ||||||||||||||
| Income (loss) before income taxes | (655) | 66 | (721) | (468) | (469) | 1 | ||||||||||||||
| Provision for income taxes | (182) | (143) | (39) | (289) | (213) | (76) | ||||||||||||||
| Net loss | $ | (837) | $ | (77) | $ | (760) | $ | (757) | $ | (682) | $ | (75) |
Segment Revenues and Segment Operating Income (Loss)
Second Quarter of 2022 Compared to the Second Quarter of 2021
Revenue decreased $95 million, or 2%, driven by lower volume in TPS and OFE, partially offset by higher volume in OFS and DS. TPS decreased $335 million and OFE decreased $95 million, partially offset by OFS which increased $331 million and DS which increased $4 million.
Total segment operating income increased $41 million. The increase was driven by OFS which increased $90 million, partially offset by OFE which decreased $40 million, DS which decreased $7 million, and TPS which decreased $2 million.
Oilfield Services
OFS revenue of $2,689 million increased $331 million, or 14%, in the second quarter of 2022 compared to the second quarter of 2021, as a result of increased activity in North America and internationally, as evidenced by an increase in the global rig count. North America revenue was $857 million in the second quarter of 2022, an increase of $164 million from the second quarter of 2021. International revenue was $1,832 million in the second quarter of 2022, an increase of $166 million from the second quarter of 2021, driven by the Latin America, Middle East, Sub-Sahara Africa and Asia Pacific regions, partially offset by declines in the Russia Caspian and Europe regions.
OFS segment operating income was $261 million in the second quarter of 2022 compared to $171 million in the second quarter of 2021. The increase in income was primarily driven by higher volume, price and favorable mix, partially offset by logistics and commodity cost inflation, and cost under absorption related to Russia operations.
Oilfield Equipment
OFE revenue of $541 million decreased $95 million, or 15%, in the second quarter of 2022 compared to the second quarter of 2021. The decrease was primarily driven by lower volume in the subsea production systems and surface pressure control projects businesses, and from the removal of subsea drilling systems business from the consolidated OFE operations in the fourth quarter of 2021 due to the formation of a joint venture, partially offset by higher volume in the services and flexible pipe businesses.
Baker Hughes Company 2022 Second Quarter Form 10-Q | 32
OFE segment operating loss was $12 million in the second quarter of 2022 compared to segment operating income of $28 million in the second quarter of 2021. The decrease in income was primarily driven by lower volume and decreased cost productivity.
Turbomachinery & Process Solutions
TPS revenue of $1,293 million decreased $335 million, or 21%, in the second quarter of 2022 compared to the second quarter of 2021. The decrease was primarily driven by lower equipment and projects revenue, and foreign currency translation impact. When compared to the prior year, equipment revenue was down 30%, and service revenue was down 11% driven by suspension of contracts related to Russia. Equipment revenue in the quarter represented 42% and service revenue represented 58% of total segment revenue.
TPS segment operating income was $218 million in the second quarter of 2022 compared to $220 million in the second quarter of 2021. The decrease in income was primarily driven by lower volume and unfavorable FX translation impact, partially offset by price, favorable business mix and increased cost productivity.
Digital Solutions
DS revenue of $524 million increased $4 million, or 1%, in the second quarter of 2022 compared to the second quarter of 2021, primarily driven by higher volume in the Process and Pipeline Services and Waygate Technologies businesses, partially offset by lower volume in the Bently Nevada and Nexus Controls businesses. DS revenue growth continues to be affected by supply chain constraints that impacted product deliveries.
DS segment operating income was $18 million in the second quarter of 2022 compared to $25 million in the second quarter of 2021. The decrease in profitability was primarily driven by lower cost productivity and inflationary pressure.
Corporate
In the second quarter of 2022, corporate expenses were $108 million compared to $111 million in the second quarter of 2021. The decrease of $3 million was primarily driven by cost efficiencies and past restructuring actions.
Restructuring, Impairment and Other
In the second quarter of 2022, we recognized $362 million of restructuring, impairment and other items, compared to $125 million in the second quarter of 2021. The charges in the second quarter of 2022 primarily relate to the suspension of substantially all of our operations in Russia. The charges in the second quarter of 2021 primarily related to initiatives in our OFS segment that were the continuation of our overall strategy to right-size our structural costs.
Other Non-Operating Loss, Net
In the second quarter of 2022, we incurred $570 million of other non-operating losses. Included in this amount was a loss of $426 million related to the OFS Russia business, which was classified as held for sale during the second quarter, and a loss of $123 million from the change in fair value on certain equity securities. For the second quarter of 2021, we incurred $63 million of other non-operating losses. Included in this amount was a non-recurring charge for a loss contingency related to certain tax matters and a loss related to marking our investment in C3 AI to fair value.
Interest Expense, Net
In the second quarter of 2022, we incurred interest expense, net of interest income, of $60 million, which decreased $5 million compared to the second quarter of 2021. The reduction was primarily driven by higher interest income.
Baker Hughes Company 2022 Second Quarter Form 10-Q | 33
Income Taxes
In the second quarter of 2022, the provision for income taxes was $182 million. The difference between the U.S. statutory tax rate of 21% and the effective tax rate is primarily related to losses with no tax benefit due to valuation allowances, restructuring charges related to our Russia operations for which a majority has no tax benefit, and earnings in jurisdictions with tax rates higher than the U.S.
In the second quarter of 2021, the provision for income tax was $143 million. The difference between the U.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.
The First Six Months of 2022 Compared to the First Six Months of 2021
Revenue decreased $42 million, primarily driven by lower volume in TPS and OFE, partially offset by higher volume in OFS and, to a lesser extent, in DS. TPS decreased $476 million and OFE decreased $194 million, partially offset by OFS which increased $620 million and DS which increased $8 million.
Total segment operating income increased $114 million. The increase was driven by OFS which increased $167 million and TPS which increased $16 million, partially offset by OFE which decreased $52 million, and DS which decreased $16 million.
Oilfield Services
OFS revenue of $5,178 million increased $620 million, or 14%, in the first six months of 2022 compared to the first six months of 2021, as a result of increased activity in North America and internationally, as evidenced by an increase in the global rig count. North America revenue was $1,643 million in the first six months of 2022, an increase of $325 million from the first six months of 2021. International revenue was $3,535 million in the first six months of 2022, an increase of $295 million from the first six months of 2021, driven by the Latin America, Middle East, Sub-Sahara Africa, and Asia Pacific regions, partially offset by declines in the Russia Caspian and Europe regions.
OFS segment operating income was $482 million in the first six months of 2022 compared to $315 million in the first six months of 2021. The increase in income was primarily driven by higher volume and price, partially offset by logistics and commodity cost inflation.
Oilfield Equipment
OFE revenue of $1,070 million decreased $194 million, or 15%, in the first six months of 2022 compared to the first six months of 2021. The decrease was primarily driven by lower volume in the subsea production systems and surface pressure control projects businesses, and from the removal of subsea drilling systems business from the consolidated OFE operations in the fourth quarter of 2021 due to the formation of a joint venture, partially offset by higher volume in the services and flexible pipe businesses.
OFE segment operating loss was $20 million in the first six months of 2022 compared to segment operating income of $32 million in the first six months of 2021. The decrease in income was primarily driven by lower volume and decreased cost productivity.
Turbomachinery & Process Solutions
TPS revenue of $2,637 million decreased $476 million, or 15%, in the first six months of 2022 compared to the first six months of 2021. The decrease was primarily driven by lower equipment and projects revenue, partially offset by higher volume in industrial valves, pumps and gears. Equipment revenue was down 29% and service revenue was down 3% when compared to the prior year. Equipment revenue in the first six months of 2022 represented 40% and service revenue represented 60% of total segment revenue.
TPS segment operating income was $443 million in the first six months of 2022 compared to $427 million in the first six months of 2021. The increase in income was driven primarily by favorable business mix and increased cost productivity, partially offset by lower volume and unfavorable FX translation impact.
Baker Hughes Company 2022 Second Quarter Form 10-Q | 34
Digital Solutions
DS revenue of $997 million increased $8 million, or 1%, in the first six months of 2022 compared to the first six months of 2021, mainly driven by volume increases in Precision Sensors and Instrumentation, Waygate Technologies, and Process & Pipeline Services, partially offset by declines in the Bently Nevada and Nexus Controls business.
DS segment operating income was $33 million in the first six months of 2022 compared to $49 million in the first six months of 2021. The decrease in profitability was primarily driven by lower cost productivity and inflationary pressure, partially offset by higher volume and price.
Corporate
In the first six months of 2022, corporate expenses were $213 million compared to $219 million in the first six months of 2021. The decrease of $6 million was primarily driven by cost efficiencies and past restructuring actions.
Restructuring, Impairment and Other
In the first six months of 2022, we recognized $423 million of restructuring, impairment and other charges, primarily related to the suspension of substantially all of our operations in Russia in the second quarter of 2022, and a write-off of an equity method investment and the release of foreign currency translation adjustments for certain restructured product lines in the first quarter of 2022. For the first six months of 2021, we recognized $205 million in restructuring, impairment and other charges, primarily related to initiatives in our OFS segment that were the continuation of our overall strategy to right-size our structural costs.
Other Non-Operating Loss, Net
In the first six months of 2022, we incurred $597 million of other non-operating losses. Included in this amount was a loss of $426 million related to the OFS business in Russia, which was classified as held for sale at the end of the second quarter, and a loss of $112 million related to marking our investment in C3 AI to fair value. For the first six months of 2021, we incurred $689 million of other non-operating losses. Included in this amount were net losses of $815 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.
Interest Expense, Net
In the first six months of 2022, we incurred interest expense, net of interest income, of $124 million, which decreased $14 million compared to the first six months of 2021, primarily driven by higher interest income.
Income Taxes
In the first six months of 2022, the provision for income taxes was $289 million. The difference between the U.S. statutory tax rate of 21% and the effective tax rate is primarily related to losses with no tax benefit due to valuation allowances, restructuring charges related to our Russia operations for which a majority has no tax benefit, and earnings in jurisdictions with tax rates higher than the U.S.
In the first six months of 2021, the provision for income taxes was $213 million. The difference between the U.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.
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. We continue to maintain solid financial strength and liquidity. At June 30, 2022, we had cash and cash equivalents of $2.9 billion compared to $3.9 billion at December 31, 2021.
Baker Hughes Company 2022 Second Quarter Form 10-Q | 35
In the U.S. we held cash and cash equivalents of approximately $1.2 billion and $1.6 billion and outside the U.S. of approximately $1.7 billion and $2.2 billion as of June 30, 2022 and December 31, 2021, respectively. A substantial portion of the cash held outside the U.S. at June 30, 2022 has been reinvested in active non-U.S. business operations. If we decide at a later date to repatriate those funds to the U.S., we may incur other additional taxes that would not be significant to the total tax provision.
We have a $3 billion committed unsecured revolving credit facility ("the Credit Agreement") with commercial banks maturing in December 2024. In addition, we have a commercial paper program with authorization up to $3 billion under which we may issue from time to time commercial paper with maturities of no more than 397 days. At June 30, 2022 and December 31, 2021, there were no borrowings under either the Credit Agreement or the commercial paper program.
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. At June 30, 2022, we were in compliance with all debt covenants. Our next debt maturity is December 2023.
We continuously review our liquidity and capital resources. If market conditions were to change, for instance due to the uncertainty created by geopolitical events, 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 six months ended June 30, 2022, we dispersed cash to fund a variety of activities including certain working capital needs, capital expenditures, the payment of dividends, distributions to noncontrolling interests, and repurchases of our common stock.
Cash Flows
Cash flows provided by (used in) each type of activity were as follows for the six months ended June 30:
| (In millions) | 2022 | 2021 | ||||||
| Operating activities | $ | 393 | $ | 1,184 | ||||
| Investing activities | (430) | (130) | ||||||
| Financing activities | (868) | (1,285) |
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 goods and services.
Cash flows from operating activities generated cash of $393 million and $1,184 million for the six months ended June 30, 2022 and 2021, respectively.
For the six months ended June 30, 2022, cash generated from operating activities were primarily driven by net income adjusted for certain noncash items (including depreciation, amortization, loss on assets held for sale, loss on equity securities, and the impairment of certain assets). Net working capital cash usage was $81 million for the six months ended June 30, 2022, mainly due to the increase in receivables, and inventory as we build for revenue growth, partially offset by strong progress collections on equipment contracts.
For the six months ended June 30, 2021, cash generated from operating activities were primarily driven by net losses adjusted for certain noncash items (including depreciation, amortization, and a loss on equity securities) and working capital, which includes contract and other deferred assets. Net working capital generation was $571 million
Baker Hughes Company 2022 Second Quarter Form 10-Q | 36
for the six months ended June 30, 2021, mainly due to receivables, inventory, and contract assets as we improved our working capital processes. Accounts payable was also a source of cash as volume increased.
Investing Activities
Cash flows from investing activities used cash of $430 million and $130 million for the six months ended June 30, 2022 and 2021, 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 $494 million and $392 million for the six months ended June 30, 2022 and 2021, respectively. Proceeds from the sale of property, plant and equipment were $143 million and $91 million for the six months ended June 30, 2022 and 2021, respectively.
There were no C3 AI Shares sold during the six months ended June 30, 2022. During the six months ended June 30, 2021, we sold approximately 2.2 million of C3 AI Shares and received proceeds of $145 million, which is included in other investing activities.
Financing Activities
Cash flows from financing activities used cash of $868 million and $1,285 million for the six months ended June 30, 2022 and 2021, respectively.
We had net repayments of debt and other borrowings of $15 million and $45 million for the six months ended June 30, 2022 and 2021, respectively. In April 2021, we repaid $832 million (£600 million) of commercial paper originally issued in May 2020 under the COVID Corporate Financing Facility established by the Bank of England.
We paid dividends of $354 million to our Class A shareholders, and we made a distribution of $15 million to GE during the six months ended June 30, 2022. We paid dividends of $280 million to our Class A shareholders, and we made a distribution of $95 million to GE during the six months ended June 30, 2021.
In 2021, our Board of Directors authorized each of the Company and BHH LLC to repurchase up to $2 billion of its Class A common stock and LLC Units, respectively. For the six months ended June 30, 2022, the Company and BHH LLC repurchased and canceled 14.8 million shares of Class A common stock and LLC Units, for a total of $462 million, respectively.
Cash Requirements
We believe cash on hand, cash flows from operating activities, the available revolving credit facility, access to both our commercial paper program or our uncommitted lines of credit, and availability under our existing shelf registrations of debt will provide us with sufficient capital resources and liquidity in the short-term and long-term to manage our working capital needs, meet contractual obligations, fund capital expenditures and dividends, repay debt, repurchase our common stock, and support the development of our short-term and long-term operating strategies. When necessary, we issue commercial paper or other short-term debt to fund cash needs in the U.S. in excess of the cash generated in the U.S.
Our capital expenditures can be adjusted and managed by us to match market demand and activity levels. We continue to believe that based on current market conditions, capital expenditures in 2022 are expected to be made at a rate that would equal up to 5% of annual revenue. 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 $550 million to $650 million in 2022.
Other Factors Affecting Liquidity
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
Baker Hughes Company 2022 Second Quarter Form 10-Q | 37
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 of operations. Our gross customer receivables in the U.S. were 17% as of June 30, 2022. No other country accounted for more than 10% of our gross customer receivables at this date.
International operations: Our cash that is held outside the U.S. is 60% of the total cash balance as of June 30, 2022. 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.
CRITICAL ACCOUNTING ESTIMATES
Our critical accounting estimation processes are consistent with those described in Item 7 of Part II, "Management's discussion and analysis of financial condition and results of operations" of our 2021 Annual Report.
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, 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 II of Item 1A of this report and Part 1 of Item 1A of our 2021 Annual Report and those set forth from time-to-time in other filings by the Company with the SEC. These documents are available through our website or through the SEC'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.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
For quantitative and qualitative disclosures about market risk affecting us, see Item 7A. “Quantitative and Qualitative Disclosures about Market Risk,” in our 2021 Annual Report. Our exposure to market risk has not changed materially since December 31, 2021.
Baker Hughes Company 2022 Second Quarter Form 10-Q | 38
Item 4. CONTROLS AND PROCEDURES
Evaluation of disclosure controls and procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures (as defined in Rule 15d-15(e) of the Exchange Act) were effective at a reasonable assurance level.
There has been no change in our internal controls over financial reporting during the quarter ended June 30, 2022 that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.
Baker Hughes Company 2022 Second Quarter Form 10-Q | 39
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See discussion of legal proceedings in "Note 16. Commitments And Contingencies" of the Notes to Unaudited Condensed Consolidated Financial Statements in this Quarterly Report, Item 3 of Part I of our 2021 Annual Report and Note 19 of the Notes to Consolidated Financial Statements included in Item 8 of our 2021 Annual Report.
Item 1A. RISK FACTORS
As of the date of this filing, the Company and its operations continue to be subject to the risk factors previously discussed in the "Risk Factors" sections contained in the 2021 Annual Report and our Quarterly Report on Form 10-Q for the quarter ended March 31, 2022.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The following table contains information about our purchases of our Class A common stock equity securities during the three months ended June 30, 2022.
| Period | Total Number of Shares Purchased (1) | Average Price Paid Per Share (2) | Total Number of Shares Purchased as Part of a Publicly Announced Program (3)(4) | Maximum Dollar Value of Shares that May Yet Be Purchased Under the Program (3)(4) | |||||||||||||
| April 1-30, 2022 | 2,181,949 | $ | 34.65 | 2,145,623 | $ | 1,266,644,059 | |||||||||||
| May 1-31, 2022 | 2,227,133 | $ | 33.53 | 2,217,465 | $ | 1,192,296,443 | |||||||||||
| June 1-30, 2022 | 2,371,018 | $ | 32.48 | 2,360,818 | $ | 1,115,650,897 | |||||||||||
| Total | 6,780,100 | $ | 33.52 | 6,723,906 |
(1)Represents Class A common stock purchased from employees to satisfy the tax withholding obligations in connection with the vesting of restricted stock units and shares purchased in the open market under our publicly announced program.
(2)Average price paid for Class A common stock purchased from employees to satisfy the tax withholding obligations in connection with the vesting of restricted stock units and shares purchased in the open market under our publicly announced purchase program.
(3)In 2021, our Board of Directors authorized the Company to repurchase up to $2 billion of its Class A common stock. On December 9, 2021, we entered into a purchase plan that complied with Rule 10b5-1 of the Exchange Act (the "10b5-1 Plan"). Under the 10b5-1 Plan, the agent repurchased a number of our Class A common stock determined under the terms of the 10b5-1 Plan each trading day based on the trading price of the stock on that day.
(4)During the three months ended June 30, 2022, we repurchased 6.7 million shares of Class A common stock at an average price of $33.52 per share for a total of $225 million. This includes 0.2 million of Class A common stock totaling $7 million that were repurchased but settlement and cancellation had not occurred as of June 30, 2022.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
We have no mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K to report for the current quarter.
Item 5. OTHER INFORMATION
None.
Baker Hughes Company 2022 Second Quarter Form 10-Q | 40
Item 6. EXHIBITS
Each exhibit identified below is filed as a part of this report. Exhibits designated with an "*" are filed as an exhibit to this Quarterly Report on Form 10-Q and Exhibits designated with an "**" are furnished as an exhibit to this Quarterly Report on Form 10-Q. Exhibits designated with a "+" are identified as management contracts or compensatory plans or arrangements. Exhibits previously filed are incorporated by reference.
| 3.1 | Fourth Amended and Restated Bylaws of Baker Hughes Company dated May 17, 2022. | |||||||
| 31.1** | Certification of Lorenzo Simonelli, President and Chief Executive Officer, furnished pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended. | |||||||
| 31.2** | Certification of Brian Worrell, Chief Financial Officer, furnished pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended. | |||||||
| 32** | Certification of Lorenzo Simonelli, President and Chief Executive Officer, and Brian Worrell, Chief Financial Officer, furnished pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended. | |||||||
| 101.INS* | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | |||||||
| 101.SCH* | XBRL Schema Document | |||||||
| 101.CAL* | XBRL Calculation Linkbase Document | |||||||
| 101.DEF* | XBRL Definition Linkbase Document | |||||||
| 101.LAB* | XBRL Label Linkbase Document | |||||||
| 101.PRE* | XBRL Presentation Linkbase Document |
Baker Hughes Company 2022 Second Quarter Form 10-Q | 41
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| Baker Hughes Company (Registrant) | |||||||||||
| Date: | July 21, 2022 | By: | /s/ BRIAN WORRELL | ||||||||
| Brian Worrell | |||||||||||
| Chief Financial Officer | |||||||||||
| Date: | July 21, 2022 | By: | /s/ KURT CAMILLERI | ||||||||
| Kurt Camilleri | |||||||||||
| Senior Vice President, Controller and Chief Accounting Officer |
Baker Hughes Company 2022 Second Quarter Form 10-Q | 42