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, as well as our Annual Report on Form 10-K for the year ended December 31, 2022 ("2022 Annual Report").

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 57,000 employees. We operate through our two business segments: Oilfield Services & Equipment ("OFSE") and Industrial & Energy Technology ("IET"). We sell products and services primarily in the global oil and gas markets, within the upstream, midstream and downstream segments.

EXECUTIVE SUMMARY

Market Conditions

As we look at the second half of 2023, the growing economic uncertainty continues to drive commodity price volatility globally. Despite lower oil prices over the first half of the year, we maintain a constructive outlook for global upstream spending in 2023. We expect strength in international and offshore markets to offset softness in North America.

We continue to believe that the current spending cycle is more durable and less sensitive to commodity price swings relative to prior cycles. This is due to strong balance sheets across the industry and disciplined capital spending focused on returns versus growth. We are seeing this in North America where both major oil companies and large independent exploration and production companies have yet to deviate from their development plans despite the decline in West Texas Intermediate ("WTI") oil prices in the first half of the year.

We also remain optimistic on the LNG outlook despite a significant decline in prices over the first half of the year as we continue to see the shift towards the development of natural gas and LNG. We see solid demand growth this year led by Europe and Asia with solid momentum across the industry for projects reaching final investment decisions. As the world increasingly recognizes the crucial role natural gas is expected to play in the energy transition, serving as both a transition and destination fuel, we believe there is a case for a multi-decade growth opportunity for natural gas.

Financial Results and Key Company Initiatives

In the second quarter of 2023, we generated revenue of $6,315 million compared to $5,047 million in the second quarter of 2022. The increase in revenue was driven by increased activity in our OFSE and IET segments. Income before income taxes was $614 million for the second quarter of 2023 compared to a loss of $655 million in the second quarter of 2022. The increase was driven by higher volume in both the IET and OFSE segments, lower charges relating to the discontinuation of our operations in Russia, which were recognized in the prior year, and a positive effect from the change in fair value on certain equity securities.

Our results in the first half of 2023 were impacted by the discontinuation of our Russia operations that occurred in 2022. Russia represented approximately 1% and 3% of our total revenue in the three and six months ended June 30, 2022, the majority of which was in our OFSE segment.

As we continue our transformation, we are driving actions to optimize our corporate structure and drive higher margins and returns. While reducing costs is one lever, we are also fundamentally redesigning the organization to simplify reporting lines, eliminate duplication, and taking measured steps to enhance our financial reporting systems.

We continue to invest in the Baker Hughes portfolio through strategic acquisitions and early-stage new energy investments. In April 2023, we closed on the acquisition of Altus Intervention, a leading international provider of well intervention services and downhole technology, which will enhance OFSE's existing intervention solutions business and add new technology that can be scaled into new geographic markets. Also in April 2023, we closed on the disposition of our Nexus Controls business to GE.

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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.

• OFSE North America activity: North American activity levels are trending lower due to lower activity from private operators and in gas basins driven by the recent decline in commodity prices.

• OFSE International activity: We expect spending outside of North America to experience strong growth in 2023, as compared to 2022.

• IET LNG projects: We remain optimistic on the LNG market long-term and view natural gas as a transition and destination fuel. We continue to view the long-term economics of the LNG industry as positive.

We have other businesses in our portfolio that are more correlated with various industrial metrics, including global GDP growth. We also have businesses within our portfolio that are exposed to new energy solutions, specifically focused around reducing carbon emissions of the energy and broader industry, including hydrogen, geothermal, carbon capture, utilization and storage, 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 dioxide equivalent 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 2022 Corporate Sustainability Report a 28% reduction in our Scope 1 and 2 carbon dioxide equivalent 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, 2023 and 2022, and should be read in conjunction with the condensed consolidated financial statements and related notes of the Company.

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 their expectations for oil and natural gas prices as a key driver of their cash flows.

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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,
			2023			2022			2023			2022
Brent oil price ($/Bbl) (1)			$	77.99		$	113.84		$	79.58		$	107.20
WTI oil price ($/Bbl) (2)			73.54			108.83			74.73			102.01
Natural gas price ($/mmBtu) (3)			2.16			7.50			2.40			6.08

(1)Energy Information Administration ("EIA") Europe Brent Spot Price per Barrel

(2)EIA Cushing, OK WTI spot price

(3)EIA Henry Hub Natural Gas Spot Price per million British Thermal Unit

Outside North America, customer spending is influenced by Brent oil prices, which decreased from the same quarter last year, ranging from a high of $88.31/Bbl in April 2023 to a low of $71.80/Bbl in June 2023. For the six months ended June 30, 2023, Brent oil prices averaged $79.58/Bbl, which represented a decrease of $27.62/Bbl from the same period last year.

In North America, customer spending is influenced by WTI oil prices, which decreased from the same quarter last year. Overall, WTI oil prices ranged from a high of $83.26/Bbl in April 2023 to a low of $67.08/Bbl in June 2023. For the six months ended June 30, 2023, WTI oil prices averaged $74.73/Bbl, which represented a decrease of $27.28/Bbl from the same period last year.

In North America, natural gas prices, as measured by the Henry Hub Natural Gas Spot Price, averaged $2.16/mmBtu in the second quarter of 2023, representing a 71% decrease from the same quarter in the prior year. Throughout the quarter, Henry Hub Natural Gas Spot Prices ranged from a high of $2.71/mmBtu in late June 2023 to a low of $1.74/mmBtu in early June 2023.

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 do not include rigs drilling in certain locations, such as 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.

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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,
			2023			2022			% Change			2023			2022			% Change
North America			836			827			1		%	909			829			10		%
International			960			816			18		%	938			819			14		%
Worldwide			1,796			1,643			9		%	1,847			1,648			12		%

The worldwide rig count was 1,796 for the second quarter of 2023, an increase of 9% as compared to the same period last year primarily due to an increase internationally. Within North America, the increase was primarily driven by the Canada rig count, which was up 3% when compared to the same period last year, and an increase in the U.S. rig count, which was up 1% when compared to the same period last year. Internationally, the rig count increase was driven primarily by an increase in the Europe, Africa, and Asia Pacific regions of 42%, 24%, and 18%, respectively.

The worldwide rig count was 1,847 for the six months ended June 30, 2023, an increase of 12% as compared to the same period last year primarily due to an increase internationally. Within North America, the increase was driven by both the U.S. and Canada rig counts, which were each up 10% when compared to the same period last year. Internationally, the rig count increase was primarily driven by the Europe, Africa, and Latin America regions of 30%, 17%, and 15%, 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. In addition, the discussions below for revenue and cost of revenue are on a total basis as the business drivers for product sales and services are similar. 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 statements 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.

Our results of operations are evaluated by the Chief Executive Officer on a consolidated basis as well as at the segment level. The performance of our operating segments is primarily 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 income (loss), corporate expenses, restructuring, impairment and other charges, inventory impairments, and certain gains and losses not allocated to the operating segments.

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

Baker Hughes Company 2023 Second Quarter Form 10-Q | 28

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 three months ended June 30, 2023, we recognized total orders of $7.5 billion, an increase of $1.6 billion, or 28%, from the three months ended June 30, 2022.

For the three months ended June 30, 2023, our OFSE segment recognized orders of $4.2 billion, an increase of $0.8 billion, or 24%, and our IET segment recognized orders of $3.3 billion, an increase of $0.8 billion, or 33% compared to the three months ended June 30, 2022. Within IET, Gas Technology Equipment orders were $1.6 billion and Gas Technology Services orders were $0.8 billion for the three months ended June 30, 2023.

For the six months ended June 30, 2023, we recognized total orders of $15.1 billion, an increase of $2.4 billion, or 19%, from the six months ended June 30, 2022.

For the six months ended June 30, 2023, our OFSE segment recognized orders of $8.3 billion, an increase of $1.6 billion, or 24%, and our IET segment recognized orders of $6.8 billion, an increase of $0.8 billion, or 13% compared to the six months ended June 30, 2022. Within IET, Gas Technology Equipment orders were $3.5 billion and Gas Technology Services orders were $1.5 billion for the six months ended June 30, 2023.

Remaining Performance Obligations ("RPO"): As of June 30, 2023, the aggregate amount of the transaction price allocated to the unsatisfied (or partially unsatisfied) performance obligations was $31 billion. As of June 30, 2023, OFSE remaining performance obligations totaled $3.5 billion, and IET remaining performance obligations totaled $27.5 billion.

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Revenue and Operating Income (Loss)

Summarized financial information for the Company's segments is shown in the following tables.

			Three Months Ended June 30,						$ Change			Six Months Ended June 30,						$ Change
			2023			2022			2023			2022
Revenue:
Well Construction			$	1,076		$	936		$	140		$	2,137		$	1,819		$	318
Completions, Intervention & Measurements			1,090			886			204			1,999			1,667			332
Production Solutions			959			866			92			1,897			1,691			205
Subsea & Surface Pressure Systems			752			541			211			1,422			1,070			352
Oilfield Services & Equipment			3,877			3,230			647			7,454			6,247			1,207
Gas Technology - Equipment			999			556			444			1,826			1,099			727
Gas Technology - Services			658			542			116			1,249			1,123			126
Total Gas Technology			1,658			1,098			559			3,075			2,222			853
Condition Monitoring			154			133			21			294			259			36
Inspection			318			257			61			572			469			103
Pumps, Valves & Gears			217			194			23			418			415			3
PSI & Controls			92			135			(43)			216			270			(54)
Total Industrial Technology			780			718			62			1,501			1,413			88
Industrial & Energy Technology			2,438			1,816			621			4,576			3,635			941
Total			$	6,315		$	5,047		$	1,268		$	12,030		$	9,882		$	2,148

The following table presents Oilfield Services & Equipment revenue by geographic region:

			Three Months Ended June 30,						$ Change			Six Months Ended June 30,						$ Change
			2023			2022			2023			2022
North America			$	1,042		$	925		$	117		$	2,033		$	1,748		$	285
Latin America			698			509			189			1,358			950			408
Europe/CIS/Sub-Saharan Africa (1)			672			660			12			1,253			1,320			(67)
Middle East/Asia			1,465			1,136			329			2,810			2,230			580
Oilfield Services & Equipment			$	3,877		$	3,230		$	647		$	7,454		$	6,247		$	1,207
North America			$	1,042		$	925		$	117		$	2,033		$	1,748		$	285
International			2,835			2,305			530			5,421			4,499			922

(1)Impacted by the discontinuation of our Russia operations that occurred in 2022.

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The following table presents segment operating income through to net income (loss) for the Company.

			Three Months Ended June 30,						$ Change			Six Months Ended June 30,						$ Change
			2023			2022			2023			2022
Segment operating income:
Oilfield Services & Equipment			$	417		$	249		$	169		$	789		$	461		$	328
Industrial & Energy Technology			311			236			75			552			476			76
Total segment operating income			728			485			244			1,341			938			403
Corporate			(97)			(108)			11			(197)			(213)			16
Inventory impairment			(15)			(31)			16			(33)			(31)			(2)
Restructuring, impairment and other			(102)			(371)			269			(158)			(441)			283
Operating income (loss)			514			(25)			539			952			253			699
Other non-operating income (loss), net			158			(570)			728			544			(597)			1,141
Interest expense, net			(58)			(60)			2			(122)			(124)			2
Income (loss) before income taxes			614			(655)			1,269			1,374			(468)			1,842
Provision for income taxes			(200)			(182)			(18)			(379)			(289)			(90)
Net income (loss)			$	414		$	(837)		$	1,251		$	995		$	(757)		$	1,752

Segment Revenues and Segment Operating Income

Second Quarter of 2023 Compared to the Second Quarter of 2022

Revenue increased $1,268 million, or 25%, driven by increased activity in OFSE and IET. OFSE increased $647 million and IET increased $621 million. Total segment operating income increased $244 million, driven by growth in OFSE and IET.

Oilfield Services & Equipment

OFSE revenue of $3,877 million increased $647 million, or 20%, in the second quarter of 2023 compared to the second quarter of 2022, primarily as a result of increased activity as evidenced by an increase in the global rig count. North America revenue was $1,042 million in the second quarter of 2023, an increase of $117 million from the second quarter of 2022. International revenue was $2,835 million in the second quarter of 2023, an increase of $530 million from the second quarter of 2022, driven by volume growth in all regions, primarily Middle East/Asia and Latin America regions, partially offset by lower Russia volume.

OFSE segment operating income was $417 million in the second quarter of 2023 compared to $249 million in the second quarter of 2022. The increase in operating income was primarily driven by higher volume and price, partially offset by decreased cost productivity and cost inflation.

Industrial & Energy Technology

IET revenue of $2,438 million increased $621 million, or 34%, in the second quarter of 2023 compared to the second quarter of 2022. The increase was primarily driven by higher volume in Gas Technology Equipment and, to a lesser extent, in Gas Technology Services and Industrial Technology.

IET segment operating income was $311 million in the second quarter of 2023 compared to $236 million in the second quarter of 2022. The operating income performance in the second quarter of 2023 was driven by higher volume and pricing actions in certain product lines, partially offset by unfavorable business mix, decreased cost productivity, inflationary pressure, and higher research and development costs related to new energy investments.

Corporate

In the second quarter of 2023, corporate expenses were $97 million compared to $108 million in the second quarter of 2022. The decrease of $11 million was driven by savings related to our corporate optimization process.

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Inventory Impairment

In the second quarter of 2023, we recorded inventory impairments of $15 million, predominately in the OFSE segment related to exit activities at specific locations. In the second quarter of 2022, we recorded inventory impairments of $31 million, primarily in the IET segment as part of suspending our Russia operations. Charges for inventory impairments are reported in the "Cost of goods sold" caption in the condensed consolidated statements of income (loss).

Restructuring, Impairment and Other

In the second quarter of 2023, we recognized $102 million of restructuring, impairment, and other charges, compared to $371 million in the second quarter of 2022. In the third quarter of 2022, we announced a restructuring plan in conjunction with a change in our operating segments. As a result, we continued to incur charges in the second quarter of 2023 primarily related to employee termination expenses driven by actions taken to facilitate our reorganization into two segments and to optimize our corporate structure. In addition, costs were incurred related to exit activities at specific locations in our segments to align with our current market outlook and to rationalize our manufacturing supply chain footprint. The charges in the second quarter of 2022 primarily related to the suspension of substantially all of our operations in Russia.

Other Non-Operating Income (loss), Net

In the second quarter of 2023, we incurred $158 million of other non-operating income. Included in this amount was a net gain of $148 million from the change in fair value for certain equity investments. For 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 OFSE Russia business, which was classified as held for sale during the second quarter of 2022, and a loss of $123 million from the change in fair value for certain equity investments.

Interest Expense, Net

In the second quarter of 2023, we incurred interest expense, net of interest income, of $58 million, which decreased $2 million compared to the second quarter of 2022.

Income Taxes

In the second quarter of 2023, the provision for income taxes was $200 million. The difference between the U.S. statutory tax rate of 21% and the effective tax rate is primarily related to income in jurisdictions with tax rates higher than in the U.S., which is partially offset by tax benefits related to uncertain tax positions.

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 income in jurisdictions with tax rates higher than in the U.S.

The First Six Months of 2023 Compared to the First Six Months of 2022

Revenue increased $2,148 million, or 22%, driven by increased activity in OFSE and IET. OFSE increased $1,207 million and IET increased $941 million. Total segment operating income increased $403 million, primarily driven by OFSE.

Oilfield Services & Equipment

OFSE revenue of $7,454 million increased $1,207 million, or 19%, in the first six months of 2023 compared to the first six months of 2022, as a result of increased activity as evidenced by an increase in the global rig count. North America revenue was $2,033 million in the first six months of 2023, an increase of $285 million from the first six months of 2022. International revenue was $5,421 million in the first six months of 2023, an increase of $922 million from the first six months of 2022, driven by the Middle East/Asia and Latin America regions, partially offset by declines in the Europe/CIS/Sub-Saharan Africa region, driven by lower Russia volume.

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OFSE segment operating income was $789 million in the first six months of 2023 compared to $461 million in the first six months of 2022. The increase in operating income was primarily driven by higher volume and price, partially offset by cost inflation and decreased cost productivity.

Industrial & Energy Technology

IET revenue of $4,576 million increased $941 million, or 26%, in the first six months of 2023 compared to the first six months of 2022. The increase was primarily driven by higher volume in Gas Technology Equipment and, to a lesser extent, in Gas Technology Services and Industrial Technology, partially offset by unfavorable foreign currency translation impact.

IET segment operating income was $552 million in the first six months of 2023 compared to $476 million in the first six months of 2022. The operating income performance in the first six months of 2023 was driven by higher volume and pricing actions in certain product lines, partially offset by unfavorable business mix and cost productivity, inflationary pressure, higher research and development costs related to new energy investments, and unfavorable foreign currency translation impact.

Corporate

In the first six months of 2023, corporate expenses were $197 million compared to $213 million in the first six months of 2022. The decrease of $16 million was driven by savings related to our corporate optimization process.

Inventory Impairment

In the first six months of 2023, we recorded inventory impairments of $33 million, predominately in the OFSE segment related to exit activities at specific locations. In the first six months of 2022, we recorded inventory impairments of $31 million, primarily in the IET segment as part of suspending our Russia operations. Charges for inventory impairments are reported in the "Cost of goods sold" caption in the condensed consolidated statements of income (loss).

Restructuring, Impairment and Other

In the first six months of 2023, we recognized $158 million of restructuring, impairment, and other charges, compared to $441 million in the first six months of 2022. In the third quarter of 2022, we announced a restructuring plan in conjunction with a change in our operating segments. As a result, we continued to incur charges in the first six months of 2023 primarily related to employee termination expenses driven by actions taken to facilitate the reorganization into two segments and to optimize our corporate structure. In addition, costs were incurred related to exit activities at specific locations in our segments to align with our current market outlook and to rationalize our manufacturing supply chain footprint. The charges in the first six months of 2022 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.

Other Non-Operating Income (loss), Net

In the first six months of 2023, we incurred $544 million of other non-operating income. Included in this amount was a gain of $540 million from the change in fair value for certain equity investments. For 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 OFSE Russia business, which was classified as held for sale at the end of the second quarter of 2022, and a loss of $112 million from the change in fair value for certain equity investments.

Interest Expense, Net

In the first six months of 2023, we incurred interest expense, net of interest income, of $122 million, which decreased $2 million compared to the first six months of 2022.

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Income Taxes

In the first six months of 2023, the provision for income taxes was $379 million. The difference between the U.S. statutory tax rate of 21% and the effective tax rate is primarily related to income in jurisdictions with tax rates higher than in the U.S., which is partially offset by tax benefits related to uncertain tax positions. Further, the tax rate is also partially reduced by income subject to U.S. tax at an effective rate less than 21% due to valuation allowances.

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 income in jurisdictions with tax rates higher than in the U.S.

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, 2023, we had cash and cash equivalents of $2.8 billion compared to $2.5 billion at December 31, 2022.

In the U.S. we held cash and cash equivalents of approximately $0.7 billion and $0.6 billion and outside the U.S. of approximately $2.1 billion and $1.9 billion as of June 30, 2023 and December 31, 2022, respectively. A substantial portion of the cash held outside the U.S. at June 30, 2023 has been reinvested in active non-U.S. business operations. If we decide at a later date to repatriate certain cash to the U.S., we may incur other additional taxes that would not be significant to the total tax provision.

As of June 30, 2023 and December 31, 2022, we had $623 million and $605 million, respectively, of cash held in countries with currency controls that limit the flow of cash out of the jurisdiction or limit our ability to transfer funds without potentially incurring substantial costs. These funds are available to fund operations and growth in their respective jurisdictions, and we do not currently anticipate a need to transfer these funds to the U.S.

We have a $3 billion committed unsecured revolving credit facility ("the Credit Agreement") with commercial banks maturing in December 2024. The Credit Agreement contains certain customary representations and warranties, certain customary affirmative covenants and certain customary negative covenants. Upon the occurrence of certain events of default, our obligations under the Credit Agreement may be accelerated. Such events of default include payment defaults to lenders under the Credit Agreement and other customary defaults. No such events of default have occurred. 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, 2023 and December 31, 2022, 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 8. Debt" of the Notes to Unaudited Condensed Consolidated Financial Statements in this Quarterly Report for further details. At June 30, 2023, we were in compliance with all debt covenants. Our next debt maturity is December 2023, and we will most likely refinance this debt in the second half of 2023 based on market conditions.

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, 2023, we dispersed cash to fund a variety of activities including certain working capital needs, capital expenditures, business acquisitions, the payment of dividends, and repurchases of our common stock.

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Cash Flows

Cash flows provided by (used in) each type of activity were as follows for the six months ended June 30:

(In millions)			2023			2022
Operating activities			$	1,320		$	393
Investing activities			(414)			(430)
Financing activities			(550)			(868)

Operating Activities

Cash flows from operating activities generated cash of $1,320 million and $393 million for the six months ended June 30, 2023 and 2022, respectively.

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.

For the six months ended June 30, 2023, cash generated from operating activities were primarily driven by net income adjusted for certain noncash items (including depreciation, amortization, gain on equity securities, stock-based compensation cost, deferred tax provision, and the impairment of certain assets). Net working capital cash generation was $176 million for the six months ended June 30, 2023, mainly due to strong progress collections on equipment contracts, partially offset by an increase in receivables and inventory as we continue to build for growth.

For the six months ended June 30, 2022, cash generated from operating activities were primarily driven by net losses adjusted for certain noncash items (including depreciation, amortization, loss on assets held for sale, loss on equity securities, stock-based compensation costs, deferred tax provision, 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.

Investing Activities

Cash flows from investing activities used cash of $414 million and $430 million for the six months ended June 30, 2023 and 2022, respectively.

Our principal recurring investing activity is the funding of capital expenditures including property, plant and equipment ("PP&E") and software, to support and generate revenue from operations. Expenditures for capital assets were $587 million and $494 million for the six months ended June 30, 2023 and 2022, respectively, partially offset by cash flows from the disposal of PP&E of $87 million and $143 million for the six months ended June 30, 2023 and 2022, respectively. Proceeds from the disposal of assets are primarily related to equipment that was lost-in-hole, predominantly in OFSE, and to PP&E no longer used in operations that was sold throughout the period.

During the six months ended June 30, 2023, we completed the acquisition of businesses for total cash consideration of $282 million, net of cash acquired, which consisted primarily of the acquisition of Altus Intervention in the OFSE segment. We also completed the sale of businesses and received total cash consideration of $293 million, which consisted primarily of the sale of our Nexus Controls business in the IET segment.

Financing Activities

Cash flows from financing activities used cash of $550 million and $868 million for the six months ended June 30, 2023 and 2022, respectively.

We paid dividends of $384 million and $354 million to our Class A shareholders during the six months ended June 30, 2023 and 2022, respectively.

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We repurchased and canceled 3.6 million shares of Class A common stock for a total of $99 million during the six months ended June 30, 2023. During the six months ended June 30, 2022, we repurchased and canceled 14.8 million shares of Class A common stock for a total of $462 million.

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 2023 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 $500 million to $550 million in 2023.

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 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 14% and in Mexico 11% as of June 30, 2023. 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 74% of the total cash balance as of June 30, 2023. 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.

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 2022 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 2022 Annual Report and those set forth from time-to-time in other filings by

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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.