filings.toolsItem 1. FINANCIAL STATEMENTS (UNAUDITED)
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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 Class B Common Stock | Capital in Excess of Par Value | Retained Loss | Accumulated Other Comprehensive Loss | Non- controlling Interests | Total Equity | ||||||||||||||
| Balance at December 31, 2021 | $ | — | $ | 27,375 | $ | (10,160) | $ | (2,385) | $ | 1,916 | $ | 16,746 | ||||||||
| Comprehensive loss: | ||||||||||||||||||||
| Net income (loss) | (767) | 10 | (757) | |||||||||||||||||
| Other comprehensive loss | (118) | (2) | (120) | |||||||||||||||||
| Dividends on Class A common stock ($0.36 per share) | (354) | (354) | ||||||||||||||||||
| Distributions to GE | (15) | (15) | ||||||||||||||||||
| Effect of exchange of Class B common stock and associated BHH LLC Units for Class A common stock | 1,947 | (287) | (1,660) | — | ||||||||||||||||
| Repurchase and cancellation of Class A common stock | (458) | 1 | (5) | (462) | ||||||||||||||||
| Stock-based compensation cost | 102 | 102 | ||||||||||||||||||
| Other | (14) | (40) | (54) | |||||||||||||||||
| Balance at June 30, 2022 | $ | — | $ | 28,598 | $ | (10,927) | $ | (2,789) | $ | 204 | $ | 15,086 |
| (In millions, except per share amounts) | Class A and Class B Common Stock | Capital in Excess of Par Value | Retained Loss | Accumulated Other Comprehensive Loss | Non- controlling Interests | Total Equity | ||||||||||||||
| Balance at March 31, 2022 | $ | — | $ | 28,351 | $ | (10,088) | $ | (2,559) | $ | 743 | $ | 16,447 | ||||||||
| Comprehensive loss: | ||||||||||||||||||||
| Net income (loss) | (839) | 2 | (837) | |||||||||||||||||
| Other comprehensive loss | (144) | (2) | (146) | |||||||||||||||||
| Dividends on Class A common stock ($0.18 per share) | (182) | (182) | ||||||||||||||||||
| Distributions to GE | (1) | (1) | ||||||||||||||||||
| Effect of exchange of Class B common stock and associated BHH LLC Units for Class A common stock | 590 | (86) | (504) | — | ||||||||||||||||
| Repurchase and cancellation of Class A common stock | (225) | (1) | (226) | |||||||||||||||||
| Stock-based compensation cost | 50 | 50 | ||||||||||||||||||
| Other | 14 | (33) | (19) | |||||||||||||||||
| Balance at June 30, 2022 | $ | — | $ | 28,598 | $ | (10,927) | $ | (2,789) | $ | 204 | $ | 15,086 |
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
Baker Hughes Company 2022 Second Quarter Form 10-Q | 4
Baker Hughes Company
Condensed Consolidated Statements of Changes in Equity
(Unaudited)
| (In millions, except per share amounts) | Class A and Class B Common Stock | Capital in Excess of Par Value | Retained Loss | Accumulated Other Comprehensive Loss | Non- controlling Interests | Total Equity | ||||||||||||||
| Balance at December 31, 2020 | $ | — | $ | 24,613 | $ | (9,942) | $ | (1,778) | $ | 5,349 | $ | 18,242 | ||||||||
| Comprehensive loss: | ||||||||||||||||||||
| Net loss | (520) | (162) | (682) | |||||||||||||||||
| Other comprehensive income | 121 | 28 | 149 | |||||||||||||||||
| Dividends on Class A common stock ($0.36 per share) | (280) | (280) | ||||||||||||||||||
| Distributions to GE | (95) | (95) | ||||||||||||||||||
| Effect of exchange of Class B common stock and associated BHH LLC Units for Class A common stock | 1,845 | (245) | (1,600) | — | ||||||||||||||||
| Stock-based compensation cost | 102 | 102 | ||||||||||||||||||
| Other | (27) | 1 | (10) | (36) | ||||||||||||||||
| Balance at June 30, 2021 | $ | — | $ | 26,253 | $ | (10,462) | $ | (1,901) | $ | 3,510 | $ | 17,400 |
| (In millions, except per share amounts) | Class A and Class B Common Stock | Capital in Excess of Par Value | Retained Loss | Accumulated Other Comprehensive Loss | Non- controlling Interests | Total Equity | ||||||||||||||
| Balance at March 31, 2021 | $ | — | $ | 25,357 | $ | (10,394) | $ | (1,920) | $ | 4,381 | $ | 17,424 | ||||||||
| Comprehensive loss: | ||||||||||||||||||||
| Net loss | (68) | (9) | (77) | |||||||||||||||||
| Other comprehensive income | 153 | 39 | 192 | |||||||||||||||||
| Dividends on Class A common stock ($0.18 per share) | (149) | (149) | ||||||||||||||||||
| Distributions to GE | (39) | (39) | ||||||||||||||||||
| Effect of exchange of Class B common stock and associated BHH LLC Units for Class A common stock | 988 | (134) | (854) | — | ||||||||||||||||
| Stock-based compensation cost | 52 | 52 | ||||||||||||||||||
| Other | 5 | (8) | (3) | |||||||||||||||||
| Balance at June 30, 2021 | $ | — | $ | 26,253 | $ | (10,462) | $ | (1,901) | $ | 3,510 | $ | 17,400 |
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
Baker Hughes Company 2022 Second Quarter Form 10-Q | 5
Baker Hughes Company
Condensed Consolidated Statements of Cash Flows
(Unaudited)
| Six Months Ended June 30, | ||||||||
| (In millions) | 2022 | 2021 | ||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | (757) | $ | (682) | ||||
| Adjustments to reconcile net loss to net cash flows from operating activities: | ||||||||
| Depreciation and amortization | 551 | 570 | ||||||
| Loss on assets held for sale | 426 | — | ||||||
| Loss on equity securities | 112 | 815 | ||||||
| Property, plant and equipment impairment, net | 41 | 22 | ||||||
| Inventory impairment | 31 | — | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Current receivables | (360) | 267 | ||||||
| Inventories | (408) | 119 | ||||||
| Accounts payable | 185 | 71 | ||||||
| Progress collections and deferred income | 624 | 2 | ||||||
| Contract and other deferred assets | (122) | 112 | ||||||
| Other operating items, net | 70 | (112) | ||||||
| Net cash flows from operating activities | 393 | 1,184 | ||||||
| Cash flows from investing activities: | ||||||||
| Expenditures for capital assets | (494) | (392) | ||||||
| Proceeds from disposal of assets | 143 | 91 | ||||||
| Other investing items, net | (79) | 171 | ||||||
| Net cash flows used in investing activities | (430) | (130) | ||||||
| Cash flows from financing activities: | ||||||||
| Net repayments of debt and other borrowings | (15) | (45) | ||||||
| Repayment of commercial paper | — | (832) | ||||||
| Dividends paid | (354) | (280) | ||||||
| Distributions to GE | (15) | (95) | ||||||
| Repurchase of Class A common stock | (462) | — | ||||||
| Other financing items, net | (22) | (33) | ||||||
| Net cash flows used in financing activities | (868) | (1,285) | ||||||
| Effect of currency exchange rate changes on cash and cash equivalents | (20) | 12 | ||||||
| Decrease in cash and cash equivalents | (925) | (219) | ||||||
| Cash and cash equivalents, beginning of period | 3,853 | 4,132 | ||||||
| Cash and cash equivalents, end of period | $ | 2,928 | $ | 3,913 | ||||
| Supplemental cash flows disclosures: | ||||||||
| Income taxes paid, net of refunds | $ | 282 | $ | 48 | ||||
| Interest paid | $ | 140 | $ | 157 |
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
Baker Hughes Company 2022 Second Quarter Form 10-Q | 6
Baker Hughes Company
Notes to Unaudited Condensed Consolidated Financial Statements
NOTE 1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF THE BUSINESS
Baker Hughes Company ("Baker Hughes", "the Company", "we", "us", or "our") is an energy technology company with a diversified portfolio of technologies and services that span the energy and industrial value chain. We are a holding company and have no material assets other than our 99.3% ownership interest in our operating company, Baker Hughes Holdings LLC ("BHH LLC"), and certain intercompany and tax related balances. BHH LLC is a Securities and Exchange Commission ("SEC") Registrant with separate filing requirements with the SEC and its separate financial information can be obtained from www.sec.gov.
BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S." and such principles, "U.S. GAAP") and pursuant to the rules and regulations of the SEC for interim financial information. Accordingly, certain information and disclosures normally included in our annual financial statements have been condensed or omitted. Therefore, these unaudited condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2021 ("2021 Annual Report").
We hold a majority economic interest in BHH LLC and conduct and exercise full control over all activities of BHH LLC without the approval of any other member. Accordingly, we consolidate the financial results of BHH LLC and report a noncontrolling interest in our condensed consolidated financial statements for the economic interest held by General Electric ("GE"). As of June 30, 2022, GE's economic interest in BHH LLC was 0.7%. See "Note 11. Equity" for further information.
In the opinion of management, the condensed consolidated financial statements reflect all adjustments (consisting of normal recurring adjustments) considered necessary by management to fairly state our results of operations, financial position and cash flows of the Company and its subsidiaries for the periods presented and are not indicative of the results that may be expected for a full year. The Company's financial statements have been prepared on a consolidated basis. Under this basis of presentation, our financial statements consolidate all of our subsidiaries (entities in which we have a controlling financial interest, most often because we hold a majority voting interest). All intercompany accounts and transactions have been eliminated.
In the Company's financial statements and notes, certain prior year amounts have been reclassified to conform to the current year presentation. In the notes to the unaudited condensed consolidated financial statements, all dollar and share amounts in tabulations are in millions of dollars and shares, respectively, unless otherwise indicated. Certain columns and rows in our financial statements and notes thereto may not add due to the use of rounded numbers.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Please refer to "Note 1. Basis of Presentation and Summary of Significant Accounting Policies," to our consolidated financial statements from our 2021 Annual Report for the discussion of our significant accounting policies.
Cash and Cash Equivalents
As of June 30, 2022 and December 31, 2021, we had $664 million and $601 million, respectively, of cash held in bank accounts that cannot be readily released, transferred or otherwise converted into a currency that is regularly transacted internationally, due to lack of market liquidity, capital controls or similar monetary or exchange limitations limiting the flow of capital out of the jurisdiction. These funds are available to fund operations and growth in these jurisdictions, and we do not currently anticipate a need to transfer these funds to the U.S.
Baker Hughes Company 2022 Second Quarter Form 10-Q | 7
Baker Hughes Company
Notes to Unaudited Condensed Consolidated Financial Statements
NEW ACCOUNTING STANDARDS TO BE ADOPTED
New accounting pronouncements that have been issued but not yet effective are currently being evaluated and at this time are not expected to have a material impact on our financial position or results of operations.
NOTE 2. REVENUE RELATED TO CONTRACTS WITH CUSTOMERS
DISAGGREGATED REVENUE
We disaggregate our revenue from contracts with customers by primary geographic markets.
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||
| Total Revenue | 2022 | 2021 | 2022 | 2021 | ||||||||||
| U.S. | $ | 1,221 | $ | 1,085 | $ | 2,325 | $ | 2,138 | ||||||
| Non-U.S. | 3,826 | 4,057 | 7,557 | 7,786 | ||||||||||
| Total | $ | 5,047 | $ | 5,142 | $ | 9,882 | $ | 9,924 |
REMAINING PERFORMANCE OBLIGATIONS
As of June 30, 2022 and 2021, the aggregate amount of the transaction price allocated to the unsatisfied (or partially unsatisfied) performance obligations was $24.3 billion and $23.8 billion, respectively. As of June 30, 2022, we expect to recognize revenue of approximately 54%, 67% and 86% of the total remaining performance obligations within 2, 5, and 15 years, respectively, and the remaining thereafter. Contract modifications could affect both the timing to complete as well as the amount to be received as we fulfill the related remaining performance obligations.
NOTE 3. CURRENT RECEIVABLES
Current receivables are comprised of the following:
| June 30, 2022 | December 31, 2021 | |||||||
| Customer receivables | $ | 4,692 | $ | 4,724 | ||||
| Related parties | 19 | 481 | ||||||
| Other | 1,215 | 846 | ||||||
| Total current receivables | 5,926 | 6,051 | ||||||
| Less: Allowance for credit losses | (354) | (400) | ||||||
| Total current receivables, net | $ | 5,572 | $ | 5,651 |
Customer receivables are recorded at the invoiced amount. Related parties as of December 31, 2021 consists of amounts owed to us primarily by GE. As of June 30, 2022, GE is no longer considered a related party. See "Note 15. Related Party Transactions" for further information. The "Other" category consists primarily of advance payments to suppliers, indirect taxes, amounts owed from GE for certain tax matters indemnified pursuant to the Tax Matters Agreement, and customer retentions.
Baker Hughes Company 2022 Second Quarter Form 10-Q | 8
Baker Hughes Company
Notes to Unaudited Condensed Consolidated Financial Statements
NOTE 4. INVENTORIES
Inventories, net of reserves of $415 million and $374 million as of June 30, 2022 and December 31, 2021, respectively, are comprised of the following:
| June 30, 2022 | December 31, 2021 | |||||||
| Finished goods | $ | 2,156 | $ | 2,228 | ||||
| Work in process and raw materials | 1,896 | 1,751 | ||||||
| Total inventories, net | $ | 4,052 | $ | 3,979 |
NOTE 5. 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, 2020, gross | $ | 15,656 | $ | 4,162 | $ | 2,234 | $ | 2,452 | $ | 24,504 | |||||||
| Accumulated impairment at December 31, 2020 | (14,117) | (4,156) | — | (254) | (18,527) | ||||||||||||
| Balance at December 31, 2020 | 1,539 | 6 | 2,234 | 2,198 | 5,977 | ||||||||||||
| Currency exchange and others | 10 | (3) | (62) | 37 | (18) | ||||||||||||
| Balance at December 31, 2021 | 1,549 | 3 | 2,172 | 2,235 | 5,959 | ||||||||||||
| Currency exchange and others | 4 | — | (57) | (4) | (57) | ||||||||||||
| Total | 1,553 | 3 | 2,115 | 2,231 | 5,902 | ||||||||||||
| Classified as held for sale (1) | (161) | — | — | — | (161) | ||||||||||||
| Balance at June 30, 2022 | $ | 1,392 | $ | 3 | $ | 2,115 | $ | 2,231 | $ | 5,741 |
(1)The reduction in Oilfield Services ("OFS") goodwill relates to transferring our OFS Russia business to held for sale. See "Note 18. Business Held for Sale" for more information.
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 our market capitalization below our book value, and the magnitude and duration of those declines, if any.
During the second quarter of 2022, we completed a review to assess whether indicators of impairment existed. 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.
Baker Hughes Company 2022 Second Quarter Form 10-Q | 9
Baker Hughes Company
Notes to Unaudited Condensed Consolidated Financial Statements
OTHER INTANGIBLE ASSETS
Intangible assets are comprised of the following:
| June 30, 2022 | December 31, 2021 | |||||||||||||||||||
| Gross Carrying Amount | Accumulated Amortization | Net | Gross Carrying Amount | Accumulated Amortization | Net | |||||||||||||||
| Customer relationships | $ | 1,887 | $ | (759) | $ | 1,128 | $ | 1,922 | $ | (752) | $ | 1,170 | ||||||||
| Technology | 1,110 | (763) | 347 | 1,090 | (747) | 343 | ||||||||||||||
| Trade names and trademarks | 290 | (173) | 117 | 292 | (169) | 123 | ||||||||||||||
| Capitalized software | 1,312 | (1,057) | 255 | 1,311 | (1,057) | 254 | ||||||||||||||
| Finite-lived intangible assets | 4,599 | (2,752) | 1,847 | 4,615 | (2,725) | 1,890 | ||||||||||||||
| Indefinite-lived intangible assets | 2,202 | — | 2,202 | 2,241 | — | 2,241 | ||||||||||||||
| Total intangible assets | $ | 6,801 | $ | (2,752) | $ | 4,049 | $ | 6,856 | $ | (2,725) | $ | 4,131 |
Intangible assets are generally amortized on a straight-line basis with estimated useful lives ranging from 1 to 35 years. Amortization expense for the three months ended June 30, 2022 and 2021 was $55 million and $65 million, respectively, and $110 million and $134 million for the six months ended June 30, 2022 and 2021, respectively.
Estimated amortization expense for the remainder of 2022 and each of the subsequent five fiscal years is expected to be as follows:
| Year | Estimated Amortization Expense | ||||
| Remainder of 2022 | $ | 110 | |||
| 2023 | 210 | ||||
| 2024 | 196 | ||||
| 2025 | 155 | ||||
| 2026 | 108 | ||||
| 2027 | 85 |
Baker Hughes Company 2022 Second Quarter Form 10-Q | 10
Baker Hughes Company
Notes to Unaudited Condensed Consolidated Financial Statements
NOTE 6. CONTRACT AND OTHER DEFERRED ASSETS
Our long-term product service agreements relate to our Turbomachinery & Process Solutions segment. Contract assets reflect revenue earned in excess of billings on our long-term contracts to construct technically complex equipment, long-term product maintenance or extended warranty arrangements and other deferred contract related costs. Contract assets are comprised of the following:
| June 30, 2022 | December 31, 2021 | |||||||
| Long-term product service agreements | $ | 435 | $ | 589 | ||||
| Long-term equipment contracts (1) | 952 | 825 | ||||||
| Contract assets (total revenue in excess of billings) | 1,387 | 1,414 | ||||||
| Deferred inventory costs | 128 | 156 | ||||||
| Non-recurring engineering costs | 32 | 28 | ||||||
| Contract and other deferred assets | $ | 1,547 | $ | 1,598 |
(1)Reflects revenue earned in excess of billings on our long-term contracts to construct technically complex equipment and certain other service agreements.
Revenue recognized during the three months ended June 30, 2022 and 2021 from performance obligations satisfied (or partially satisfied) in previous periods related to our long-term service agreements was $17 million and $9 million, respectively, and $13 million and $9 million during the six months ended June 30, 2022 and 2021, respectively. This includes revenue recognized from revisions to cost or billing estimates that may affect a contract’s total estimated profitability resulting in an adjustment of earnings.
NOTE 7. PROGRESS COLLECTIONS AND DEFERRED INCOME
Contract liabilities include progress collections, which reflects billings in excess of revenue, and deferred income on our long-term contracts to construct technically complex equipment, long-term product maintenance or extended warranty arrangements. Contract liabilities are comprised of the following:
| June 30, 2022 | December 31, 2021 | |||||||
| Progress collections | $ | 3,173 | $ | 3,108 | ||||
| Deferred income | 116 | 124 | ||||||
| Progress collections and deferred income (contract liabilities) | $ | 3,289 | $ | 3,232 |
Revenue recognized during the three months ended June 30, 2022 and 2021 that was included in the contract liabilities at the beginning of the period was $513 million and $708 million, respectively, and $1,253 million and $1,585 million during the six months ended June 30, 2022 and 2021, respectively.
NOTE 8. LEASES
Our leasing activities primarily consist of operating leases for administrative offices, manufacturing facilities, research centers, service centers, sales offices and certain equipment.
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||
| Operating Lease Expense | 2022 | 2021 | 2022 | 2021 | ||||||||||
| Long-term fixed lease | $ | 63 | $ | 65 | $ | 126 | $ | 128 | ||||||
| Long-term variable lease | 13 | 8 | 22 | 16 | ||||||||||
| Short-term lease | 114 | 110 | 224 | 210 | ||||||||||
| Total operating lease expense | $ | 190 | $ | 183 | $ | 372 | $ | 354 |
Baker Hughes Company 2022 Second Quarter Form 10-Q | 11
Baker Hughes Company
Notes to Unaudited Condensed Consolidated Financial Statements
Cash flows used in operating activities for operating leases approximates our expense for the three and six months ended June 30, 2022 and 2021.
The weighted-average remaining lease term as of June 30, 2022 and December 31, 2021 was approximately nine years for our operating leases. The weighted-average discount rate used to determine the operating lease liability as of June 30, 2022 and December 31, 2021 was 3.2% and 3.3%, respectively.
NOTE 9. BORROWINGS
The Company's borrowings are comprised of the following:
| June 30, 2022 | December 31, 2021 | |||||||
| Current borrowings | ||||||||
| Other borrowings | $ | 34 | $ | 40 | ||||
| Long-term borrowings | ||||||||
| 1.231% Senior Notes due December 2023 | 648 | 647 | ||||||
| 8.55% Debentures due June 2024 | 116 | 118 | ||||||
| 2.061% Senior Notes due December 2026 | 597 | 597 | ||||||
| 3.337% Senior Notes due December 2027 | 1,294 | 1,335 | ||||||
| 6.875% Notes due January 2029 | 276 | 279 | ||||||
| 3.138% Senior Notes due November 2029 | 522 | 522 | ||||||
| 4.486% Senior Notes due May 2030 | 497 | 497 | ||||||
| 5.125% Senior Notes due September 2040 | 1,289 | 1,292 | ||||||
| 4.080% Senior Notes due December 2047 | 1,337 | 1,337 | ||||||
| Other long-term borrowings | 49 | 63 | ||||||
| Total long-term borrowings | 6,625 | 6,687 | ||||||
| Total borrowings | $ | 6,659 | $ | 6,727 |
The estimated fair value of total borrowings at June 30, 2022 and December 31, 2021 was $6,109 million and $7,328 million, respectively. For a majority of our borrowings the fair value was determined using quoted period-end market prices. Where market prices are not available, we estimate fair values based on valuation methodologies using current market interest rate data adjusted for our non-performance risk.
BHH LLC has 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.
Baker Hughes Co-Obligor, Inc. is a co-obligor, jointly and severally with BHH LLC on our long-term debt securities. This co-obligor is a 100%-owned finance subsidiary of BHH LLC that was incorporated for the sole purpose of serving as a corporate co-obligor of long-term debt securities and has no assets or operations other than those related to its sole purpose. As of June 30, 2022, Baker Hughes Co-Obligor, Inc. is a co-obligor of our long-term debt securities totaling $6,577 million.
Certain Senior Notes contain covenants that restrict BHH LLC's ability to take certain actions, including, but not limited to, the creation of certain liens securing debt, the entry into certain sale-leaseback transactions, and engaging in certain merger, consolidation and asset sale transactions in excess of specified limits. At June 30, 2022, we were in compliance with all debt covenants.
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Baker Hughes Company
Notes to Unaudited Condensed Consolidated Financial Statements
NOTE 10. INCOME TAXES
For the three and six months ended June 30, 2022, the provision for income taxes was $182 million and $289 million, respectively. 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.
For the three and six months ended June 30, 2021, the provision for income taxes was $143 million and $213 million, respectively. 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.
NOTE 11. EQUITY
COMMON STOCK
We are authorized to issue 2 billion shares of Class A common stock, 1.25 billion shares of Class B common stock and 50 million shares of preferred stock each of which have a par value of $0.0001 per share. The number of shares outstanding of Class A and Class B common stock as of June 30, 2022 is 1,012 million and 7 million, respectively. We have not issued any preferred stock. GE owns all the issued and outstanding Class B common stock. Each share of Class A and Class B common stock and the associated membership interest in BHH LLC form a paired interest. While each share of Class B common stock has equal voting rights to a share of Class A common stock, it has no economic rights, meaning holders of Class B common stock have no right to dividends or any assets in the event of liquidation of the Company. GE is entitled through their ownership of BHH LLC common units ("LLC Units") to receive distributions on an equal amount of any dividend paid by the Company.
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. We expect to fund the repurchase program from cash generated from operations, and we expect to make share repurchases from time to time subject to the Company's capital plan, market conditions, and other factors, including regulatory restrictions. The repurchase program may be suspended or discontinued at any time and does not have a specified expiration date. During the three and six months ended June 30, 2022, the Company and BHH LLC repurchased and canceled 6.7 million and 14.8 million shares of Class A common stock and LLC Units, each for $226 million and $462 million, representing an average price per share of $33.77 and $31.13, respectively. For the three months ended June 30, 2022, this includes 0.2 million shares totaling $8 million that were repurchased in March 2022 but not settled and cancelled until April 2022. At June 30, 2022, the Company and BHH LLC had authorization remaining to repurchase up to approximately $1.1 billion of its Class A common stock and LLC Units, respectively.
The following table presents the changes in the number of shares outstanding (in thousands):
| Class A Common Stock | Class B Common Stock | |||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||
| Balance at January 1 | 909,142 | 723,999 | 116,548 | 311,433 | ||||||||||
| Issue of shares upon vesting of restricted stock units (1) | 6,057 | 4,881 | — | — | ||||||||||
| Issue of shares on exercises of stock options (1) | 1,427 | 261 | — | — | ||||||||||
| Issue of shares for employee stock purchase plan | 986 | 1,315 | — | — | ||||||||||
| Exchange of Class B common stock for Class A common stock (2) | 109,548 | 97,406 | (109,548) | (97,406) | ||||||||||
| Repurchase and cancellation of Class A common stock | (14,825) | — | — | — | ||||||||||
| Balance at June 30 | 1,012,335 | 827,863 | 7,000 | 214,027 |
(1)Share amounts reflected above are net of shares withheld to satisfy the employee's tax withholding obligation.
(2)When shares of Class B common stock, together with associated LLC Units, are exchanged for shares of Class A common stock pursuant to the Exchange Agreement, such shares of Class B common stock are canceled.
Baker Hughes Company 2022 Second Quarter Form 10-Q | 13
Baker Hughes Company
Notes to Unaudited Condensed Consolidated Financial Statements
ACCUMULATED OTHER COMPREHENSIVE LOSS (AOCL)
The following tables present the changes in accumulated other comprehensive loss, net of tax:
| Foreign Currency Translation Adjustments | Cash Flow Hedges | Benefit Plans | Accumulated Other Comprehensive Loss | ||||||||||||||
| Balance at December 31, 2021 | $ | (2,125) | $ | (10) | $ | (250) | $ | (2,385) | |||||||||
| Other comprehensive income (loss) before reclassifications | (188) | (1) | 27 | (162) | |||||||||||||
| Amounts reclassified from accumulated other comprehensive loss | 35 | 2 | 12 | 49 | |||||||||||||
| Deferred taxes | — | — | (7) | (7) | |||||||||||||
| Other comprehensive income (loss) | (153) | 1 | 32 | (120) | |||||||||||||
| Less: Other comprehensive income (loss) attributable to noncontrolling interests | (2) | — | — | (2) | |||||||||||||
| Less: Reallocation of AOCL based on change in ownership of LLC Units | 255 | 1 | 30 | 286 | |||||||||||||
| Balance at June 30, 2022 | $ | (2,531) | $ | (10) | $ | (248) | $ | (2,789) |
| Foreign Currency Translation Adjustments | Cash Flow Hedges | Benefit Plans | Accumulated Other Comprehensive Loss | ||||||||||||||
| Balance at December 31, 2020 | $ | (1,464) | $ | 3 | $ | (317) | $ | (1,778) | |||||||||
| Other comprehensive income (loss) before reclassifications | 107 | (5) | 30 | 132 | |||||||||||||
| Amounts reclassified from accumulated other comprehensive loss | — | (6) | 21 | 15 | |||||||||||||
| Deferred taxes | — | — | 2 | 2 | |||||||||||||
| Other comprehensive income (loss) | 107 | (11) | 53 | 149 | |||||||||||||
| Less: Other comprehensive income (loss) attributable to noncontrolling interests | 20 | (2) | 10 | 28 | |||||||||||||
| Less: Reallocation of AOCL based on change in ownership of LLC Units | 202 | (1) | 43 | 244 | |||||||||||||
| Balance at June 30, 2021 | $ | (1,579) | $ | (5) | $ | (317) | $ | (1,901) |
The amounts reclassified from accumulated other comprehensive loss during the six months ended June 30, 2022 and 2021 represent (i) gains (losses) reclassified on cash flow hedges when the hedged transaction occurs, (ii) the amortization of net actuarial gain (loss), prior service credit, and curtailments which are included in the computation of net periodic pension cost, and (iii) the release of foreign currency translation adjustments (see "Note 17. Restructuring, Impairment, and Other" for additional details).
Baker Hughes Company 2022 Second Quarter Form 10-Q | 14
Baker Hughes Company
Notes to Unaudited Condensed Consolidated Financial Statements
NOTE 12. EARNINGS PER SHARE
Basic and diluted net income (loss) per share of Class A common stock is presented below:
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||
| (In millions, except per share amounts) | 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) | ||||||
| Weighted average shares outstanding: | ||||||||||||||
| Class A basic & diluted | 1,001 | 806 | 970 | 773 | ||||||||||
| Net loss per share attributable to common stockholders: | ||||||||||||||
| Class A basic & diluted | $ | (0.84) | $ | (0.08) | $ | (0.79) | $ | (0.67) | ||||||
Shares of our Class B common stock do not share in earnings or losses of the Company and are not considered in the calculation of basic or diluted earnings per share ("EPS") above. As such, separate presentation of basic and diluted EPS of Class B under the two class method has not been presented. The basic weighted average shares outstanding for our Class B common stock for the three months ended June 30, 2022 and 2021 were 21 million and 236 million, respectively, and 54 million and 267 million for the six months ended June 30, 2022 and 2021, respectively. The basic weighted average shares outstanding for both our Class A and Class B common stock combined for the three months ended June 30, 2022 and 2021 were 1,022 million and 1,042 million, respectively, and 1,024 million and 1,041 million for the six months ended June 30, 2022 and 2021, respectively.
Under the Exchange Agreement between GE and us, GE is entitled to exchange its holding in our Class B common stock, and associated LLC Units, for Class A common stock on a one-for-one basis (subject to adjustment in accordance with the terms of the Exchange Agreement) or, at the option of Baker Hughes, an amount of cash equal to the aggregate value (determined in accordance with the terms of the Exchange Agreement) of the shares of Class A common stock that would have otherwise been received by GE in the exchange. In computing the dilutive effect, if any, that the aforementioned exchange would have on net income (loss) per share, net income (loss) attributable to holders of Class A common stock would be adjusted due to the elimination of the noncontrolling interests associated with the Class B common stock (including any tax impact). For the three and six months ended June 30, 2022 and 2021, such exchange is not reflected in diluted net income (loss) per share as the assumed exchange is not dilutive.
For the three and six months ended June 30, 2022 and 2021, we excluded all outstanding equity awards from the computation of diluted net loss per share because their effect is antidilutive.
Baker Hughes Company 2022 Second Quarter Form 10-Q | 15
Baker Hughes Company
Notes to Unaudited Condensed Consolidated Financial Statements
NOTE 13. FINANCIAL INSTRUMENTS
RECURRING FAIR VALUE MEASUREMENTS
Our assets and liabilities measured at fair value on a recurring basis consists of derivative instruments and investment securities.
| June 30, 2022 | December 31, 2021 | |||||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Net Balance | Level 1 | Level 2 | Level 3 | Net Balance | |||||||||||||||||||
| Assets | ||||||||||||||||||||||||||
| Derivatives | $ | — | $ | 39 | $ | — | $ | 39 | $ | — | $ | 29 | $ | — | $ | 29 | ||||||||||
| Investment securities | 952 | 6 | 7 | 965 | 1,033 | — | 8 | 1,041 | ||||||||||||||||||
| Total assets | 952 | 45 | 7 | 1,004 | 1,033 | 29 | 8 | 1,070 | ||||||||||||||||||
| Liabilities | ||||||||||||||||||||||||||
| Derivatives | — | (91) | — | (91) | — | (49) | — | (49) | ||||||||||||||||||
| Total liabilities | $ | — | $ | (91) | $ | — | $ | (91) | $ | — | $ | (49) | $ | — | $ | (49) |
There were no transfers to, or from, Level 3 during the six months ended June 30, 2022.
The following table provides a reconciliation of recurring Level 3 fair value measurements for investment securities:
| 2022 | 2021 | |||||||
| Balance at January 1 | $ | 8 | $ | 30 | ||||
| Proceeds at maturity | (1) | (22) | ||||||
| Balance at June 30 | $ | 7 | $ | 8 |
The most significant unobservable input used in the valuation of our Level 3 instruments is the discount rate. Discount rates are determined based on inputs that market participants would use when pricing investments, including credit and liquidity risk. An increase in the discount rate would result in a decrease in the fair value of our investment securities. There are no unrealized gains or losses recognized in the condensed consolidated statement of income (loss) on account of any Level 3 instrument still held at the reporting date.
| June 30, 2022 | December 31, 2021 | |||||||||||||||||||||||||
| Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Estimated Fair Value | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Estimated Fair Value | |||||||||||||||||||
| Investment securities (1) | ||||||||||||||||||||||||||
| Non-U.S. debt securities (2) | $ | 60 | $ | — | $ | (7) | $ | 53 | $ | 8 | $ | — | $ | — | $ | 8 | ||||||||||
| Equity securities | 569 | 344 | (1) | 912 | 579 | 455 | (1) | 1,033 | ||||||||||||||||||
| Total | $ | 629 | $ | 344 | $ | (8) | $ | 965 | $ | 587 | $ | 455 | $ | (1) | $ | 1,041 |
(1)Losses recorded to earnings related to these securities were $130 million and $26 million for the three months ended June 30, 2022 and 2021, respectively, and $118 million and $813 million for the six months ended June 30, 2022 and 2021, respectively.
(2)As of June 30, 2022, $46 million is classified as trading securities and $7 million is classified as available for sale securities and mature within one year. As of December 31, 2021 our non-U.S. debt securities are classified as available for sale securities and mature within one year.
As of June 30, 2022 and December 31, 2021, our equity securities with readily determinable fair values are comprised primarily of our investment in C3.ai, Inc. ("C3 AI") of $158 million and $270 million, respectively, and
Baker Hughes Company 2022 Second Quarter Form 10-Q | 16
Baker Hughes Company
Notes to Unaudited Condensed Consolidated Financial Statements
ADNOC Drilling of $741 million. We measured our investments to fair value based on quoted prices in active markets.
As of June 30, 2022 and December 31, 2021, our investment in C3 AI consists of 8,650,476 shares, of C3 AI Class A common stock ("C3 AI Shares"). There were no C3 AI Shares sold during the three and six months ended June 30, 2022. During the three and six months ended June 30, 2021, we sold approximately 2.2 million of C3 AI Shares and received proceeds of $145 million. For the three months ended June 30, 2022 and 2021, we recorded a loss of $38 million and $27 million, respectively, and for the six months ended June 30, 2022 and 2021, we recorded a loss of $112 million and $815 million, respectively, from the net change in fair value of our investment in C3 AI, which is reported in “Other non-operating loss, net” in our condensed consolidated statements of income (loss).
As of June 30, 2022 and December 31, 2021, our investment in ADNOC Drilling consists of 800,000,000 shares. For the three and six months ended June 30, 2022, we recorded a loss of $85 million and nil, respectively, from the net change in fair value of our investment in ADNOC Drilling, which is reported in “Other non-operating loss, net” in our condensed consolidated statements of income (loss).
As of June 30, 2022 and December 31, 2021, $965 million and $1,041 million of total investment securities are recorded in "All other current assets," respectively.
FAIR VALUE DISCLOSURE OF FINANCIAL INSTRUMENTS
Our financial instruments include cash and cash equivalents, current receivables, certain investments, accounts payable, short and long-term debt, and derivative financial instruments. Except for long-term debt, the estimated fair value of these financial instruments as of June 30, 2022 and December 31, 2021 approximates their carrying value as reflected in our condensed consolidated financial statements. For further information on the fair value of our debt, see "Note 9. Borrowings."
DERIVATIVES AND HEDGING
We use derivatives to manage our risks and do not use derivatives for speculation. The table below summarizes the fair value of all derivatives, including hedging instruments and embedded derivatives.
| June 30, 2022 | December 31, 2021 | |||||||||||||
| Assets | Liabilities | Assets | Liabilities | |||||||||||
| Derivatives accounted for as hedges | ||||||||||||||
| Currency exchange contracts | $ | — | $ | (3) | $ | — | $ | (3) | ||||||
| Interest rate swap contracts | — | (51) | — | (10) | ||||||||||
| Derivatives not accounted for as hedges | ||||||||||||||
| Currency exchange contracts and other | 39 | (37) | 29 | (36) | ||||||||||
| Total derivatives | $ | 39 | $ | (91) | $ | 29 | $ | (49) |
Derivatives are classified in the condensed consolidated statements of financial position depending on their respective maturity date. As of June 30, 2022 and December 31, 2021, $39 million and $28 million of derivative assets are recorded in "All other current assets" and nil and $1 million are recorded in "All other assets" in the condensed consolidated statements of financial position, respectively. As of June 30, 2022 and December 31, 2021, $40 million and $39 million of derivative liabilities are recorded in "All other current liabilities" and $51 million and $10 million are recorded in "All other liabilities" of the condensed consolidated statements of financial position, respectively.
Baker Hughes Company 2022 Second Quarter Form 10-Q | 17
Baker Hughes Company
Notes to Unaudited Condensed Consolidated Financial Statements
FORMS OF HEDGING
Cash Flow Hedges
We use cash flow hedging primarily to reduce or eliminate the effects of foreign exchange rate changes on purchase and sale contracts. Accordingly, the vast majority of our derivative activity in this category consists of currency exchange contracts. Changes in the fair value of cash flow hedges are recorded in a separate component of equity (referred to as "Accumulated Other Comprehensive Income", or "AOCI") and are recorded in earnings in the period in which the hedged transaction occurs. See "Note 11. Equity" for further information on activity in AOCI for cash flow hedges. As of June 30, 2022 and December 31, 2021, the maximum term of derivative instruments that hedge forecasted transactions was one year.
Fair Value Hedges
All of our long-term debt is comprised of fixed rate instruments. We are subject to interest rate risk on our debt portfolio and may use interest rate swaps to manage the economic effect of fixed rate obligations associated with certain debt. Under these arrangements, we agree to exchange, at specified intervals, the difference between fixed and floating interest amounts calculated by reference to an agreed-upon notional principal amount.
As of June 30, 2022 and December 31, 2021, we had interest rate swaps with a notional amount of $500 million that converted a portion of our $1,350 million aggregate principal amount of 3.337% fixed rate Senior Notes due 2027 into a floating rate instrument with an interest rate based on a LIBOR index as a hedge of its exposure to changes in fair value that are attributable to interest rate risk. We concluded that the interest rate swap met the criteria necessary to qualify for the short-cut method of hedge accounting, and as such, an assumption is made that the change in the fair value of the hedged debt, due to changes in the benchmark rate, exactly offsets the change in the fair value of the interest rate swaps. Therefore, the derivative is considered to be effective at achieving offsetting changes in the fair value of the hedged liability, and no ineffectiveness is recognized. The mark-to-market of this fair value hedge is recorded as gains or losses in interest expense and is equally offset by the gain or loss of the underlying debt instrument, which also is recorded in interest expense.
Economic Hedges
These derivatives are not designated as hedges from an accounting standpoint (and therefore we do not apply hedge accounting to the relationship) but otherwise serve the same economic purpose as other hedging arrangements. Economic hedges are marked to fair value through earnings each period.
The following table summarizes the gains (losses) from derivatives not designated as hedges in the condensed consolidated statements of income (loss):
| Derivatives not designated as hedging instruments | Condensed consolidated statement of income caption | Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||
| Currency exchange contracts (1) | Cost of goods sold | $ | (8) | $ | (3) | $ | (10) | $ | 9 | ||||||||
| Currency exchange contracts | Cost of services sold | 11 | (11) | 14 | (8) | ||||||||||||
| Commodity derivatives | Cost of goods sold | (6) | 3 | 3 | 5 | ||||||||||||
| Other derivatives | Other non-operating loss, net | 2 | — | 2 | — | ||||||||||||
| Total (2) | $ | (1) | $ | (11) | $ | 9 | $ | 6 |
(1)Excludes losses of $1 million and nil on embedded derivatives for the three months ended June 30, 2022 and 2021, respectively, and nil and a gain of $3 million during the six months ended June 30, 2022 and 2021, respectively, as embedded derivatives are not considered to be hedging instruments in our economic hedges.
(2)The effect on earnings of derivatives not designated as hedges is substantially offset by the change in fair value of the economically hedged items in the current and future periods.
Baker Hughes Company 2022 Second Quarter Form 10-Q | 18
Baker Hughes Company
Notes to Unaudited Condensed Consolidated Financial Statements
NOTIONAL AMOUNT OF DERIVATIVES
The notional amount of a derivative is the number of units of the underlying. A substantial majority of the outstanding notional amount of $4.3 billion and $3.9 billion at June 30, 2022 and December 31, 2021, respectively, is related to hedges of anticipated sales and purchases in foreign currency, commodity purchases, changes in interest rates, and contractual terms in contracts that are considered embedded derivatives and for intercompany borrowings in foreign currencies. We generally disclose derivative notional amounts on a gross basis to indicate the total counterparty risk. Where we have gross purchase and sale derivative contracts for a particular currency, we look to execute these contracts with the same counterparty to reduce our exposure. The notional amount of these derivative instruments do not generally represent cash amounts exchanged by us and the counterparties, but rather the nominal amount upon which changes in the value of the derivatives are measured.
COUNTERPARTY CREDIT RISK
Fair values of our derivatives can change significantly from period to period based on, among other factors, market movements and changes in our positions. We manage counterparty credit risk (the risk that counterparties will default and not make payments to us according to the terms of our agreements) on an individual counterparty basis.
NOTE 14. SEGMENT INFORMATION
Our reportable segments, which are the same as our operating segments, are organized based on the nature of markets and customers. We report our operating results through our four operating segments that consist of similar products and services within each segment. These products and services operate across upstream oil and gas and broader energy and industrial markets.
OILFIELD SERVICES ("OFS")
Oilfield Services provides discrete products and services, as well as integrated well services for onshore and offshore operations across the lifecycle of a well, ranging from drilling, evaluation, completion, production and intervention. Products and services include drilling services, including directional drilling, measurement while drilling & logging while drilling, diamond and tri-cone drill bits, drilling and completions fluids, wireline services, downhole completion tools and systems, wellbore intervention tools and services, pressure pumping, oilfield and industrial chemicals and artificial lift technologies, including electrical submersible pumps and surface pumping systems.
OILFIELD EQUIPMENT ("OFE")
Oilfield Equipment provides a broad portfolio of products and services required to facilitate the safe and reliable control and flow of hydrocarbons from the wellhead to the production facilities. The Oilfield Equipment portfolio has solutions for the subsea, offshore surface, and onshore operating environments. Products and services include subsea and surface wellheads, pressure control and production systems and services, flexible pipe systems for offshore and onshore applications, and life-of-field solutions including well intervention and decommissioning solutions, covering the entire life cycle of a field.
TURBOMACHINERY & PROCESS SOLUTIONS ("TPS")
Turbomachinery & Process Solutions provides technology solutions and services for mechanical-drive, compression and power-generation applications across the energy industry, including oil and gas, liquefied natural gas ("LNG") operations, downstream refining and petrochemical segments, as well as lower carbon solutions to broader energy and industrial sectors. The Turbomachinery & Process Solutions portfolio includes drivers (aero-derivative gas turbines, heavy-duty gas turbines and synchronous and induction electric motors), compressors (centrifugal and axial, direct drive high speed, integrated, subsea compressors, turbo expanders and reciprocating), turnkey solutions (industrial modules and waste heat recovery), pumps, valves, and compressed natural gas ("CNG") and small-scale LNG solutions.
Baker Hughes Company 2022 Second Quarter Form 10-Q | 19
Baker Hughes Company
Notes to Unaudited Condensed Consolidated Financial Statements
DIGITAL SOLUTIONS ("DS")
Digital Solutions provides equipment, software, and services for a wide range of industries, including oil and gas, power generation, aerospace, metals, and transportation. The offerings include a number of products and solutions that provide industrial asset management capabilities, including sensor-based process measurement, machine health and condition monitoring, asset strategy and management, control systems, as well as non-destructive testing and inspection, and pipeline integrity solutions.
SEGMENT RESULTS
Segment revenue and profit are determined based on the internal performance measures used by the Company to assess the performance of each segment in a financial period. Summarized financial information is shown in the following tables. Consistent accounting policies have been applied by all segments within the Company, for all reporting periods.
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||
| Segment revenue | 2022 | 2021 | 2022 | 2021 | ||||||||||
| Oilfield Services | $ | 2,689 | $ | 2,358 | $ | 5,178 | $ | 4,558 | ||||||
| Oilfield Equipment | 541 | 637 | 1,070 | 1,264 | ||||||||||
| Turbomachinery & Process Solutions | 1,293 | 1,628 | 2,637 | 3,113 | ||||||||||
| Digital Solutions | 524 | 520 | 997 | 989 | ||||||||||
| Total | $ | 5,047 | $ | 5,142 | $ | 9,882 | $ | 9,924 |
The performance of our operating segments is evaluated based on segment operating income (loss), which is defined as income (loss) before income taxes before the following: net interest expense, net other non-operating loss, corporate expenses, restructuring, impairment and other charges, inventory impairments, separation related costs and certain gains and losses not allocated to the operating segments.
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||
| Segment income (loss) before income taxes | 2022 | 2021 | 2022 | 2021 | ||||||||||
| Oilfield Services | $ | 261 | $ | 171 | $ | 482 | $ | 315 | ||||||
| Oilfield Equipment | (12) | 28 | (20) | 32 | ||||||||||
| Turbomachinery & Process Solutions | 218 | 220 | 443 | 427 | ||||||||||
| Digital Solutions | 18 | 25 | 33 | 49 | ||||||||||
| Total segment | 485 | 444 | 938 | 824 | ||||||||||
| Corporate | (108) | (111) | (213) | (219) | ||||||||||
| Inventory impairment (1) | (31) | — | (31) | — | ||||||||||
| Restructuring, impairment and other | (362) | (125) | (423) | (205) | ||||||||||
| Separation related | (9) | (15) | (18) | (42) | ||||||||||
| 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) |
(1)Charges for inventory impairments are reported in the "Cost of goods sold" caption of the condensed consolidated statements of income (loss).
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The following table presents depreciation and amortization by segment:
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||
| Segment depreciation and amortization | 2022 | 2021 | 2022 | 2021 | ||||||||||
| Oilfield Services | $ | 201 | $ | 195 | $ | 402 | $ | 396 | ||||||
| Oilfield Equipment | 20 | 26 | 41 | 58 | ||||||||||
| Turbomachinery & Process Solutions | 29 | 30 | 58 | 60 | ||||||||||
| Digital Solutions | 20 | 22 | 41 | 43 | ||||||||||
| Total segment | 270 | 273 | 542 | 558 | ||||||||||
| Corporate | 5 | 5 | 9 | 12 | ||||||||||
| Total | $ | 275 | $ | 278 | $ | 551 | $ | 570 |
NOTE 15. RELATED PARTY TRANSACTIONS
RELATED PARTY TRANSACTIONS WITH GE
We have had continuing involvement with GE primarily through their ownership interest in us and BHH LLC, ongoing purchases and sales of products and services, and transition services that they provide. During the second quarter of 2022, their ownership interest in us and BHH LLC was reduced to 4.4% from 11.4% in the first quarter of 2022. As a result, considering all aspects of our relationship with GE, as of June 30, 2022, we no longer consider GE a related party. Below we provide our disclosures for purchases and sales with GE through June 30, 2022.
During the three months ended June 30, 2022 and 2021, we had purchases with GE and its affiliates of $149 million and $179 million, respectively, and $293 million and $335 million during the six months ended June 30, 2022 and 2021, respectively. In addition, during the three months ended June 30, 2022 and 2021, we sold products and services to GE and its affiliates for $47 million and $37 million, respectively, and $83 million and $86 million during the six months ended June 30, 2022 and 2021, respectively.
OTHER RELATED PARTIES
We have an aeroderivative joint venture ("Aero JV") we formed with GE in 2019. The Aero JV is jointly controlled by GE and us, each with ownership interest of 50%, and therefore, we do not consolidate the JV nor does GE. We had purchases with the Aero JV of $145 million and $128 million during the three months ended June 30, 2022 and 2021, respectively, and $253 million and $287 million during the six months ended June 30, 2022 and 2021, respectively. We have $58 million and $86 million of accounts payable at June 30, 2022 and December 31, 2021, respectively, for goods and services provided by the Aero JV in the ordinary course of business. Sales of products and services and related receivables with the Aero JV were immaterial for the three and six months ended June 30, 2022 and 2021.
NOTE 16. COMMITMENTS AND CONTINGENCIES
LITIGATION
We are subject to legal proceedings arising in the ordinary course of our business. Because legal proceedings are inherently uncertain, we are unable to predict the ultimate outcome of such matters. We record a liability for those contingencies where the incurrence of a loss is probable and the amount can be reasonably estimated. Based on the opinion of management, we do not expect the ultimate outcome of currently pending legal proceedings to have a material adverse effect on our results of operations, financial position or cash flows. However, there can be no assurance as to the ultimate outcome of these matters.
In January 2013, INEOS and Naphtachimie initiated expertise proceedings in Aix-en-Provence, France arising out of a fire at a chemical plant owned by INEOS in Lavera, France, which resulted in a 15-day plant shutdown and destruction of a steam turbine, which was part of a compressor train owned by Naphtachimie. The most recent
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Notes to Unaudited Condensed Consolidated Financial Statements
quantification of the alleged damages is €250 million. Two of the Company's subsidiaries (and 17 other companies) were notified to participate in the proceedings. The proceedings are ongoing, and at this time, there is no indication that the Company's subsidiaries were involved in the incident. Although the outcome of the claims remains uncertain, our insurer has accepted coverage and is defending the Company in the expertise proceeding.
On July 31, 2018, International Engineering & Construction S.A. ("IEC") initiated arbitration proceedings in New York administered by the International Center for Dispute Resolution ("ICDR") against the Company and its subsidiaries arising out of a series of sales and service contracts entered between IEC and the Company’s subsidiaries for the sale and installation of LNG plants and related power generation equipment in Nigeria ("Contracts"). Prior to the filing of the IEC Arbitration, the Company’s subsidiaries made demands for payment due under the Contracts. On August 15, 2018, the Company’s subsidiaries initiated a separate demand for ICDR arbitration against IEC for claims of additional costs and amounts due under the Contracts. On October 10, 2018, IEC filed a Petition to Compel Arbitration in the United States District Court for the Southern District of New York against the Company seeking to compel non-signatory Baker Hughes entities to participate in the arbitration filed by IEC. The complaint is captioned International Engineering & Construction S.A. et al. v. Baker Hughes, a GE company, LLC, et al. No. 18-cv-09241 ("S.D.N.Y 2018"); this action was dismissed by the Court on August 13, 2019. In the arbitration, IEC alleges breach of contract and other claims against the Company and its subsidiaries and seeks recovery of alleged compensatory damages, in addition to reasonable attorneys' fees, expenses and arbitration costs. On March 15, 2019, IEC amended its request for arbitration to alleged damages of $591 million of lost profits plus unspecified additional costs based on alleged non-performance of the contracts in dispute. The arbitration hearing was held from December 9, 2019 to December 20, 2019. On March 3, 2020, IEC amended their damages claim to $700 million of alleged loss cash flow or, in the alternative, $244.9 million of lost profits and various costs based on alleged non-performance of the contracts in dispute, and in addition $4.8 million of liquidated damages, $58.6 million in take-or-pay costs of feed gas, and unspecified additional costs of rectification and take-or-pay future obligations, plus unspecified interest and attorneys' fees. On May 3, 2020, the arbitration panel dismissed IEC's request for take-or-pay damages. On May 29, 2020, IEC quantified their claim for legal fees at $14.2 million and reduced their alternative claim from $244.9 million to approximately $235 million. The Company and its subsidiaries have contested IEC’s claims and are pursuing claims for compensation under the contracts. On October 31, 2020, the ICDR notified the arbitration panel’s final award, which dismissed the majority of IEC’s claims and awarded a portion of the Company’s claims. On January 27, 2021, IEC filed a petition to vacate the arbitral award in the Supreme Court of New York, County of New York. On March 5, 2021, the Company filed a petition to confirm the arbitral award, and on March 8, 2021, the Company removed the matter to the United States District Court for the Southern District of New York. On November 16, 2021, the court granted the Company's petition to confirm the award and denied IEC's petition to vacate. During the second quarter of 2022, IEC paid the amounts owed under the arbitration award, which had an immaterial impact on the Company’s financial statements. On February 3, 2022, IEC initiated another arbitration proceeding in New York administered by the ICDR against certain of the Company’s subsidiaries arising out of the same project which formed the basis of the first arbitration. On March 25, 2022, the Company's subsidiaries initiated a separate demand for ICDR arbitration against IEC for claims of additional costs and amounts due. At this time, we are not able to predict the outcome of this proceeding.
On March 15, 2019 and March 18, 2019, the City of Riviera Beach Pension Fund and Richard Schippnick, respectively, filed in the Delaware Court of Chancery shareholder derivative lawsuits for and on the Company’s behalf against GE, the then-current members of the Board of Directors of the Company and the Company as a nominal defendant, related to the decision to (i) terminate the contractual prohibition barring GE from selling any of the Company’s shares before July 3, 2019; (ii) repurchase $1.5 billion in the Company’s stock from GE; (iii) permit GE to sell approximately $2.5 billion in the Company’s stock through a secondary offering; and (iv) enter into a series of other agreements and amendments that will govern the ongoing relationship between the Company and GE (collectively, the “2018 Transactions”). The complaints in both lawsuits allege, among other things, that GE, as the Company’s controlling stockholder, and the members of the Company’s Board of Directors breached their fiduciary duties by entering into the 2018 Transactions. The relief sought in the complaints includes a request for a declaration that the defendants breached their fiduciary duties, that GE was unjustly enriched, disgorgement of profits, an award of damages sustained by the Company, pre- and post-judgment interest, and attorneys’ fees and costs. On March 21, 2019, the Chancery Court entered an order consolidating the Schippnick and City of Riviera Beach complaints under consolidated C.A. No. 2019-0201-AGB, styled in re Baker Hughes, a GE company derivative litigation. On May 10, 2019, Plaintiffs voluntarily dismissed their claims against the members of the Company’s Conflicts Committee, and on May 15, 2019, Plaintiffs voluntarily dismissed their claims against former
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Notes to Unaudited Condensed Consolidated Financial Statements
Baker Hughes director Martin Craighead. On June 7, 2019, the defendants and nominal defendant filed a motion to dismiss the lawsuit on the ground that the derivative plaintiffs failed to make a demand on the Company’s Board of Directors to pursue the claims itself, and GE and the Company’s Board of Directors filed a motion to dismiss the lawsuit on the ground that the complaint failed to state a claim on which relief can be granted. The Chancery Court denied the motions on October 8, 2019, except granted GE’s motion to dismiss the unjust enrichment claim against it. On October 31, 2019, the Company’s Board of Directors designated a Special Litigation Committee and empowered it with full authority to investigate and evaluate the allegations and issues raised in the derivative litigation. The Special Litigation Committee filed a motion to stay the derivative litigation during its investigation. On December 3, 2019, the Chancery Court granted the motion and stayed the derivative litigation until June 1, 2020. On May 20, 2020, the Chancery Court granted an extension of the stay to October 1, 2020, and on September 29, 2020, the Court granted a further extension of the stay to October 15, 2020. On October 13, 2020, the Special Litigation Committee filed its report with the Court. At this time, we are not able to predict the outcome of these claims.
On August 13, 2019, Tri-State Joint Fund filed in the Delaware Court of Chancery, a shareholder class action lawsuit for and on the behalf of itself and all similarly situated public stockholders of Baker Hughes Incorporated ("BHI") against the General Electric Company ("GE"), the former members of the Board of Directors of BHI, and certain former BHI Officers alleging breaches of fiduciary duty, aiding and abetting, and other claims in connection with the combination of BHI and the oil and gas business ("GE O&G") of GE ("the Transactions"). On October 28, 2019, City of Providence filed in the Delaware Court of Chancery a shareholder class action lawsuit for and on behalf of itself and all similarly situated public shareholders of BHI against GE, the former members of the Board of Directors of BHI, and certain former BHI Officers alleging substantially the same claims in connection with the Transactions. The relief sought in these complaints include a request for a declaration that Defendants breached their fiduciary duties, an award of damages, pre- and post-judgment interest, and attorneys’ fees and costs. The lawsuits have been consolidated, and plaintiffs filed a consolidated class action complaint on December 17, 2019 against certain former BHI officers alleging breaches of fiduciary duty and against GE for aiding and abetting those breaches. The December 2019 complaint omitted the former members of the Board of Directors of BHI, except for Mr. Craighead who also served as President and CEO of BHI. Mr. Craighead and Ms. Ross, who served as Senior Vice President and Chief Financial Officer of BHI, remain named in the December 2019 complaint along with GE. The relief sought in the consolidated complaint includes a declaration that the former BHI officers breached their fiduciary duties and that GE aided and abetted those breaches, an award of damages, pre- and post-judgment interest, and attorneys’ fees and costs. On or around February 12, 2020, the defendants filed motions to dismiss the lawsuit on the grounds that the complaint failed to state a claim on which relief could be granted. On or around October 27, 2020, the Chancery Court granted GE’s motion to dismiss, and granted in part the motion to dismiss filed by Mr. Craighead and Ms. Ross, thereby dismissing all of the claims against GE and Ms. Ross, and all but one of the claims against Mr. Craighead. At this time, we are not able to predict the outcome of the remaining claim.
On December 11, 2019, BMC Software, Inc. (“BMC”) filed a lawsuit in federal court in the Southern District of Texas against Baker Hughes, a GE company, LLC alleging trademark infringement, unfair competition, and unjust enrichment, arising out of the Company’s use of its new logo and affiliated branding. On January 1, 2020, BMC amended its complaint to add Baker Hughes Company. The relief sought in the complaint includes a request for injunctive relief, an award of damages (including punitive damages), pre- and post-judgment interest, and attorneys’ fees and costs. At this time, we are not able to predict the outcome of these claims.
In December 2020, the Company received notice that the SEC is conducting a formal investigation that the Company understands is related to its books and records and internal controls regarding sales of its products and services in projects impacted by U.S. sanctions. The Company is cooperating with the SEC and providing requested information. The Company has also initiated an internal review with the assistance of external legal counsel regarding internal controls and compliance related to U.S. sanctions requirements. While the Company’s review remains ongoing, in September 2021, the Company voluntarily informed the Office of Foreign Assets Control ("OFAC") that non-U.S. Baker Hughes affiliates in two foreign countries appear to have received payments, involving U.S. touchpoints, that are subject to debt restrictions pursuant to applicable U.S. sanctions laws. In February 2022, OFAC informed the Company that it has issued a cautionary letter and that it will not pursue a civil monetary penalty or further enforcement action. The cautionary letter reflects OFAC’s final enforcement response to the Company’s voluntary self-disclosure. The Company provided copies of its correspondence with OFAC to the
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Notes to Unaudited Condensed Consolidated Financial Statements
SEC. As the SEC investigation is ongoing, the Company cannot anticipate the timing, outcome or possible impact of the SEC investigation or review, financial or otherwise.
We insure against risks arising from our business to the extent deemed prudent by our management and to the extent insurance is available, but no assurance can be given that the nature and amount of that insurance will be sufficient to fully indemnify us against liabilities arising out of pending or future legal proceedings or other claims. Most of our insurance policies contain deductibles or self-insured retentions in amounts we deem prudent and for which we are responsible for payment. In determining the amount of self-insurance, it is our policy to self-insure those losses that are predictable, measurable and recurring in nature, such as claims for automobile liability, general liability and workers compensation.
OTHER
In the normal course of business with customers, vendors and others, we have entered into off-balance sheet arrangements, such as surety bonds for performance, letters of credit and other bank issued guarantees. We also provide a guarantee to GE Capital on behalf of a customer who entered into a financing arrangement with GE Capital. Total off-balance sheet arrangements were approximately $4.5 billion at June 30, 2022. It is not practicable to estimate the fair value of these financial instruments. As of June 30, 2022, none of the off-balance sheet arrangements either has, or is likely to have, a material effect on our financial position, results of operations or cash flows.
We sometimes enter into consortium or similar arrangements for certain projects primarily in our Oilfield Equipment segment. Under such arrangements, each party is responsible for performing a certain scope of work within the total scope of the contracted work, and the obligations expire when all contractual obligations are completed. The failure or inability, financially or otherwise, of any of the parties to perform their obligations could impose additional costs and obligations on us. These factors could result in unanticipated costs to complete the project, liquidated damages or contract disputes.
NOTE 17. RESTRUCTURING, IMPAIRMENT AND OTHER
We recorded restructuring, impairment and other charges of $362 million and $423 million during the three and six months ended June 30, 2022, respectively, and $125 million and $205 million during the three and six months ended June 30, 2021, respectively.
RESTRUCTURING AND IMPAIRMENT
We recorded restructuring and impairment charges of $25 million and $29 million for the three and six months ended June 30, 2022, respectively. These charges were predominantly in our OFS segment primarily for employee-related termination expenses from reducing our headcount and include any gains on the dispositions of certain property, plant and equipment ("PP&E") previously impaired as a consequence of exit activities.
We recorded restructuring and impairment charges of $65 million and $130 million for the three and six months ended June 30, 2021, respectively. These charges were predominately in our OFS and TPS segments and related primarily to employee termination expenses from reducing our headcount, and product line rationalization, including facility closures and related expenses such as PP&E impairments, partially offset by any gains on the dispositions of certain property, PP&E previously impaired as a consequence of exit activities.
OTHER
Other charges included in "Restructuring, impairment and other" of the condensed consolidated statements of income (loss) were $337 million and $395 million for the three and six months ended June 30, 2022, respectively, and $60 million and $75 million for the three and six months ended June 30, 2021, respectively.
Other charges for the three and six months ended June 30, 2022 were primarily associated with our Russia operations. As a result of the ongoing conflict between Russia and Ukraine that began in February of 2022, governments in the U.S., United Kingdom, European Union, and other countries enacted sanctions against Russia
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Notes to Unaudited Condensed Consolidated Financial Statements
and certain Russian interests. As previously announced on March 19, 2022, we suspended any new investments in our Russia operations but attempted to continue to fulfill our contractual obligations while complying with all applicable laws and regulations.
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 Oilfield Services Russia business. See “Note 18. Business Held for Sale” for further information. Given that some of our activities are prohibited under applicable sanctions and almost all of our activities are unsustainable in the current environment, we took actions to suspend substantially all of our operational activities related to Russia. These actions resulted in other charges of $334 million primarily associated with the suspension of contracts including all our TPS LNG contracts, and the impairment of assets consisting primarily of contract assets, PP&E and reserve for accounts receivable. In addition to these charges, we recorded inventory impairments of $31 million primarily in TPS as part of suspending our Russia operations, which are reported in the “Cost of goods sold” caption in the consolidated condensed statement of income (loss). After these actions, we have an immaterial amount of net assets remaining in Russia.
Other charges for the three and six months ended June 30, 2021 were primarily related to certain litigation matters in our TPS segment and the release of foreign currency translation adjustments for certain restructured product lines in our DS segment.
NOTE 18. BUSINESS HELD FOR SALE
The Company classifies assets and liabilities as held for sale (“disposal group”) when management commits to a plan to sell the disposal group and concludes that it meets the relevant criteria. Assets held for sale are measured at the lower of their carrying value or fair value less costs to sell. Any loss resulting from the measurement is recognized in the period the held for sale criteria are met. Conversely, gains are not recognized until the date of sale.
As of June 30, 2022, the OFS Russia business met the criteria to be classified as held for sale and was measured and reported at the lower of the carrying value or fair value less cost to sell which resulted in the recognition of a loss of $426 million, which includes foreign currency translation adjustment gains partially offset by costs associated with selling the business, and is recorded in “Other non-operating loss, net” in our condensed consolidated statements of income (loss). We expect to complete the sale by the end of 2022 subject to regulatory approval.
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Notes to Unaudited Condensed Consolidated Financial Statements
The following table presents financial information related to the assets and liabilities of our OFS Russia business that was classified as held for sale and reported in “All other current assets” and “All other current liabilities” in our condensed consolidated statement of financial position as of June 30, 2022.
| Assets and liabilities of business held for sale | June 30, 2022 | ||||
| Assets | |||||
| Current receivables | $ | 88 | |||
| Inventories | 76 | ||||
| Property, plant and equipment | 171 | ||||
| Goodwill | 161 | ||||
| Other assets | 22 | ||||
| Loss on net assets of business held for sale | (426) | ||||
| Total assets of business held for sale | 92 | ||||
| Liabilities | |||||
| Accounts payable | 65 | ||||
| Other liabilities | 27 | ||||
| Total liabilities of business held for sale | 92 | ||||
| Total net assets of business held for sale | $ | — |
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