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) | 2024 | 2023 | 2024 | 2023 | ||||||||||
| Revenue: | ||||||||||||||
| Sales of goods | $ | 4,552 | $ | 3,793 | $ | 8,550 | $ | 7,276 | ||||||
| Sales of services | 2,587 | 2,522 | 5,007 | 4,754 | ||||||||||
| Total revenue | 7,139 | 6,315 | 13,557 | 12,030 | ||||||||||
| Costs and expenses: | ||||||||||||||
| Cost of goods sold | 3,780 | 3,255 | 7,182 | 6,237 | ||||||||||
| Cost of services sold | 1,869 | 1,749 | 3,607 | 3,332 | ||||||||||
| Selling, general and administrative | 643 | 695 | 1,261 | 1,351 | ||||||||||
| Restructuring, impairment and other | 14 | 102 | 21 | 158 | ||||||||||
| Total costs and expenses | 6,306 | 5,801 | 12,071 | 11,078 | ||||||||||
| Operating income | 833 | 514 | 1,486 | 952 | ||||||||||
| Other non-operating income, net | 38 | 158 | 67 | 544 | ||||||||||
| Interest expense, net | (47) | (58) | (88) | (122) | ||||||||||
| Income before income taxes | 824 | 614 | 1,465 | 1,374 | ||||||||||
| Provision for income taxes | (243) | (200) | (421) | (379) | ||||||||||
| Net income | 581 | 414 | 1,044 | 995 | ||||||||||
| Less: Net income attributable to noncontrolling interests | 2 | 4 | 10 | 10 | ||||||||||
| Net income attributable to Baker Hughes Company | $ | 579 | $ | 410 | $ | 1,034 | $ | 985 | ||||||
| Per share amounts: | ||||||||||||||
| Basic income per Class A common stock | $ | 0.58 | $ | 0.41 | $ | 1.04 | $ | 0.98 | ||||||
| Diluted income per Class A common stock | $ | 0.58 | $ | 0.40 | $ | 1.03 | $ | 0.97 | ||||||
| Cash dividend per Class A common stock | $ | 0.21 | $ | 0.19 | $ | 0.42 | $ | 0.38 |
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
Baker Hughes Company 2024 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) | 2024 | 2023 | 2024 | 2023 | ||||||||||
| Net income | $ | 581 | $ | 414 | $ | 1,044 | $ | 995 | ||||||
| Less: Net income attributable to noncontrolling interests | 2 | 4 | 10 | 10 | ||||||||||
| Net income attributable to Baker Hughes Company | 579 | 410 | 1,034 | 985 | ||||||||||
| Other comprehensive income (loss): | ||||||||||||||
| Foreign currency translation adjustments | (128) | 231 | (192) | 169 | ||||||||||
| Cash flow hedges | (4) | 11 | (2) | 11 | ||||||||||
| Benefit plans | 6 | (10) | 9 | (4) | ||||||||||
| Other comprehensive income (loss) | (126) | 232 | (185) | 176 | ||||||||||
| Less: Other comprehensive income (loss) attributable to noncontrolling interests | — | — | — | — | ||||||||||
| Other comprehensive income (loss) attributable to Baker Hughes Company | (126) | 232 | (185) | 176 | ||||||||||
| Comprehensive income | 455 | 646 | 859 | 1,171 | ||||||||||
| Less: Comprehensive income attributable to noncontrolling interests | 2 | 4 | 10 | 10 | ||||||||||
| Comprehensive income attributable to Baker Hughes Company | $ | 453 | $ | 641 | $ | 849 | $ | 1,162 |
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
Baker Hughes Company 2024 Second Quarter Form 10-Q | 2
Baker Hughes Company
Condensed Consolidated Statements of Financial Position
(Unaudited)
| (In millions, except par value) | June 30, 2024 | December 31, 2023 | ||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 2,284 | $ | 2,646 | ||||
| Current receivables, net | 7,051 | 7,075 | ||||||
| Inventories, net | 5,126 | 5,094 | ||||||
| All other current assets | 1,469 | 1,486 | ||||||
| Total current assets | 15,930 | 16,301 | ||||||
| Property, plant and equipment (net of accumulated depreciation of $5,940 and $5,678) | 4,951 | 4,893 | ||||||
| Goodwill | 6,105 | 6,137 | ||||||
| Other intangible assets, net | 4,019 | 4,093 | ||||||
| Contract and other deferred assets | 1,868 | 1,756 | ||||||
| All other assets | 3,107 | 3,043 | ||||||
| Deferred income taxes | 676 | 722 | ||||||
| Total assets | $ | 36,656 | $ | 36,945 | ||||
| LIABILITIES AND EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 4,649 | $ | 4,471 | ||||
| Short-term and current portion of long-term debt | 34 | 148 | ||||||
| Progress collections and deferred income | 5,506 | 5,542 | ||||||
| All other current liabilities | 2,397 | 2,830 | ||||||
| Total current liabilities | 12,586 | 12,991 | ||||||
| Long-term debt | 5,861 | 5,872 | ||||||
| Deferred income taxes | 156 | 176 | ||||||
| Liabilities for pensions and other postretirement benefits | 984 | 978 | ||||||
| All other liabilities | 1,348 | 1,409 | ||||||
| Equity: | ||||||||
| Class A Common Stock, $0.0001 par value - 2,000 authorized, 993 and 998 issued and outstanding as of June 30, 2024 and December 31, 2023, respectively | — | — | ||||||
| Class B Common Stock, $0.0001 par value - 1,250 authorized, nil issued and outstanding as of June 30, 2024 and December 31, 2023 | — | — | ||||||
| Capital in excess of par value | 26,340 | 26,983 | ||||||
| Retained loss | (7,785) | (8,819) | ||||||
| Accumulated other comprehensive loss | (2,981) | (2,796) | ||||||
| Baker Hughes Company equity | 15,574 | 15,368 | ||||||
| Noncontrolling interests | 147 | 151 | ||||||
| Total equity | 15,721 | 15,519 | ||||||
| Total liabilities and equity | $ | 36,656 | $ | 36,945 |
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
Baker Hughes Company 2024 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, 2023 | $ | — | $ | 26,983 | $ | (8,819) | $ | (2,796) | $ | 151 | $ | 15,519 | ||||||||
| Comprehensive income (loss): | ||||||||||||||||||||
| Net income | 1,034 | 10 | 1,044 | |||||||||||||||||
| Other comprehensive loss | (185) | (185) | ||||||||||||||||||
| Dividends on Class A common stock ($0.42 per share) | (419) | (419) | ||||||||||||||||||
| Repurchase and cancellation of Class A common stock | (324) | (324) | ||||||||||||||||||
| Stock-based compensation cost | 101 | 101 | ||||||||||||||||||
| Other | (1) | (14) | (15) | |||||||||||||||||
| Balance at June 30, 2024 | $ | — | $ | 26,340 | $ | (7,785) | $ | (2,981) | $ | 147 | $ | 15,721 |
| (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, 2024 | $ | — | $ | 26,610 | $ | (8,364) | $ | (2,855) | $ | 159 | $ | 15,550 | ||||||||
| Comprehensive income (loss): | ||||||||||||||||||||
| Net income | 579 | 2 | 581 | |||||||||||||||||
| Other comprehensive loss | (126) | (126) | ||||||||||||||||||
| Dividends on Class A common stock ($0.21 per share) | (209) | (209) | ||||||||||||||||||
| Repurchase and cancellation of Class A common stock | (166) | (166) | ||||||||||||||||||
| Stock-based compensation cost | 50 | 50 | ||||||||||||||||||
| Other | 55 | (14) | 41 | |||||||||||||||||
| Balance at June 30, 2024 | $ | — | $ | 26,340 | $ | (7,785) | $ | (2,981) | $ | 147 | $ | 15,721 |
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
Baker Hughes Company 2024 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, 2022 | $ | — | $ | 28,126 | $ | (10,761) | $ | (2,971) | $ | 131 | $ | 14,525 | ||||||||
| Comprehensive income: | ||||||||||||||||||||
| Net income | 985 | 10 | 995 | |||||||||||||||||
| Other comprehensive income | 176 | 176 | ||||||||||||||||||
| Dividends on Class A common stock ($0.38 per share) | (384) | (384) | ||||||||||||||||||
| Repurchase and cancellation of Class A common stock | (99) | (99) | ||||||||||||||||||
| Stock-based compensation cost | 98 | 98 | ||||||||||||||||||
| Other | (45) | (4) | (49) | |||||||||||||||||
| Balance at June 30, 2023 | $ | — | $ | 27,696 | $ | (9,776) | $ | (2,795) | $ | 137 | $ | 15,262 |
| (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, 2023 | $ | — | $ | 27,925 | $ | (10,185) | $ | (3,026) | $ | 135 | $ | 14,849 | ||||||||
| Comprehensive income: | ||||||||||||||||||||
| Net income | 410 | 4 | 414 | |||||||||||||||||
| Other comprehensive income | 232 | 232 | ||||||||||||||||||
| Dividends on Class A common stock ($0.19 per share) | (192) | (192) | ||||||||||||||||||
| Repurchase and cancellation of Class A common stock | (99) | (99) | ||||||||||||||||||
| Stock-based compensation cost | 49 | 49 | ||||||||||||||||||
| Other | 13 | (1) | (1) | (2) | 9 | |||||||||||||||
| Balance at June 30, 2023 | $ | — | $ | 27,696 | $ | (9,776) | $ | (2,795) | $ | 137 | $ | 15,262 |
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
Baker Hughes Company 2024 Second Quarter Form 10-Q | 5
Baker Hughes Company
Condensed Consolidated Statements of Cash Flows
(Unaudited)
| Six Months Ended June 30, | ||||||||
| (In millions) | 2024 | 2023 | ||||||
| Cash flows from operating activities: | ||||||||
| Net income | $ | 1,044 | $ | 995 | ||||
| Adjustments to reconcile net income to net cash flows from operating activities: | ||||||||
| Depreciation and amortization | 566 | 545 | ||||||
| Stock-based compensation cost | 101 | 98 | ||||||
| Gain on equity securities | (71) | (540) | ||||||
| Provision for deferred income taxes | 33 | 110 | ||||||
| Inventory impairment | — | 33 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Current receivables | (5) | (323) | ||||||
| Inventories | (124) | (332) | ||||||
| Accounts payable | 227 | (156) | ||||||
| Progress collections and deferred income | 17 | 1,223 | ||||||
| Contract and other deferred assets | (151) | (236) | ||||||
| Other operating items, net | (505) | (97) | ||||||
| Net cash flows from operating activities | 1,132 | 1,320 | ||||||
| Cash flows from investing activities: | ||||||||
| Expenditures for capital assets | (625) | (587) | ||||||
| Proceeds from disposal of assets | 101 | 87 | ||||||
| Proceeds from business dispositions | — | 293 | ||||||
| Net cash paid for acquisitions | — | (282) | ||||||
| Other investing items, net | (6) | 75 | ||||||
| Net cash flows used in investing activities | (530) | (414) | ||||||
| Cash flows from financing activities: | ||||||||
| Repayment of long-term debt | (125) | — | ||||||
| Dividends paid | (419) | (384) | ||||||
| Repurchase of Class A common stock | (324) | (99) | ||||||
| Other financing items, net | (61) | (67) | ||||||
| Net cash flows used in financing activities | (929) | (550) | ||||||
| Effect of currency exchange rate changes on cash and cash equivalents | (35) | (39) | ||||||
| Increase (decrease) in cash and cash equivalents | (362) | 317 | ||||||
| Cash and cash equivalents, beginning of period | 2,646 | 2,488 | ||||||
| Cash and cash equivalents, end of period | $ | 2,284 | $ | 2,805 | ||||
| Supplemental cash flows disclosures: | ||||||||
| Income taxes paid, net of refunds | $ | 336 | $ | 323 | ||||
| Interest paid | $ | 150 | $ | 157 |
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
Baker Hughes Company 2024 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.
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 pursuant to the rules and regulations of the Securities and Exchange Commission 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, 2023 (the "2023 Annual Report").
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 with 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 2023 Annual Report for the discussion of our significant accounting policies.
Supply Chain Finance Programs
As of June 30, 2024 and December 31, 2023, $448 million and $332 million of supply chain finance program liabilities are recorded in "Accounts payable" in our condensed consolidated statements of financial position, respectively, and reflected in net cash flows from operating activities in our condensed consolidated statements of cash flows when settled.
NEW ACCOUNTING STANDARDS TO BE ADOPTED
In December 2023, the FASB issued ASU 2023-09, "Income Taxes (Topic 740): Improvements to Income Tax Disclosures" ("ASU 2023-09"), which is intended to enhance the transparency and decision usefulness of income tax disclosures. The amendments in ASU 2023-09 provide for enhanced income tax information primarily through changes to the rate reconciliation and income taxes paid information. ASU 2023-09 is effective for the Company prospectively to all annual periods beginning after December 15, 2024. Early adoption is permitted. The Company is continuing to evaluate the impact of this standard on our disclosures.
Baker Hughes Company 2024 Second Quarter Form 10-Q | 7
Baker Hughes Company
Notes to Unaudited Condensed Consolidated Financial Statements
In November 2023, the FASB issued ASU 2023-07, "Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures" ("ASU 2023-07"), which enhances the disclosures required for operating segments in the Company's annual and interim consolidated financial statements. ASU 2023-07 is effective retrospectively for fiscal years beginning after December 15, 2023 and for interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company is currently evaluating the impact of this standard on our disclosures.
All other 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. CURRENT RECEIVABLES
Current receivables consist of the following:
| June 30, 2024 | December 31, 2023 | |||||||
| Customer receivables | $ | 6,042 | $ | 6,033 | ||||
| Other | 1,347 | 1,392 | ||||||
| Total current receivables | 7,389 | 7,425 | ||||||
| Less: Allowance for credit losses | (338) | (350) | ||||||
| Total current receivables, net | $ | 7,051 | $ | 7,075 |
Customer receivables are recorded at the invoiced amount. The "Other" category consists primarily of advance payments to suppliers and indirect taxes.
NOTE 3. INVENTORIES
Inventories, net of reserves of $403 million and $389 million as of June 30, 2024 and December 31, 2023, respectively, consist of the following:
| June 30, 2024 | December 31, 2023 | |||||||
| Finished goods | $ | 2,624 | $ | 2,626 | ||||
| Work in process and raw materials | 2,502 | 2,468 | ||||||
| Total inventories, net | $ | 5,126 | $ | 5,094 |
During the three and six months ended June 30, 2023, we recorded inventory impairments of $15 million and $33 million, respectively, primarily in our Oilfield Services & Equipment ("OFSE") segment related to exit activities at specific locations. See "Note 17. Restructuring, Impairment, and Other" for further information.
Baker Hughes Company 2024 Second Quarter Form 10-Q | 8
Baker Hughes Company
Notes to Unaudited Condensed Consolidated Financial Statements
NOTE 4. OTHER INTANGIBLE ASSETS
Intangible assets consist of the following:
| June 30, 2024 | December 31, 2023 | |||||||||||||||||||
| Gross Carrying Amount | Accumulated Amortization | Net | Gross Carrying Amount | Accumulated Amortization | Net | |||||||||||||||
| Customer relationships | $ | 1,932 | $ | (850) | $ | 1,082 | $ | 1,945 | $ | (818) | $ | 1,127 | ||||||||
| Technology | 1,254 | (940) | 314 | 1,253 | (899) | 354 | ||||||||||||||
| Trade names and trademarks | 290 | (191) | 99 | 290 | (186) | 104 | ||||||||||||||
| Capitalized software | 1,461 | (1,139) | 322 | 1,413 | (1,107) | 306 | ||||||||||||||
| Finite-lived intangible assets | 4,937 | (3,120) | 1,817 | 4,901 | (3,010) | 1,891 | ||||||||||||||
| Indefinite-lived intangible assets | 2,202 | — | 2,202 | 2,202 | — | 2,202 | ||||||||||||||
| Total intangible assets | $ | 7,139 | $ | (3,120) | $ | 4,019 | $ | 7,103 | $ | (3,010) | $ | 4,093 |
Amortization expense for the three months ended June 30, 2024 and 2023 was $66 million and $63 million, respectively, and $133 million and $126 million for the six months ended June 30, 2024 and 2023, respectively.
Estimated amortization expense for the remainder of 2024 and each of the subsequent five fiscal years is expected to be as follows:
| Year | Estimated Amortization Expense | ||||
| Remainder of 2024 | $ | 129 | |||
| 2025 | 222 | ||||
| 2026 | 177 | ||||
| 2027 | 154 | ||||
| 2028 | 132 | ||||
| 2029 | 110 |
Baker Hughes Company 2024 Second Quarter Form 10-Q | 9
Baker Hughes Company
Notes to Unaudited Condensed Consolidated Financial Statements
NOTE 5. CONTRACT AND OTHER DEFERRED ASSETS
Contract assets reflect revenue earned in excess of billings on our long-term contracts to construct technically complex equipment, provide long-term product service and maintenance or extended warranty arrangements and other deferred contract related costs. Our long-term product service agreements are provided by our Industrial & Energy Technology ("IET") segment. Our long-term equipment contracts are provided by both our IET and OFSE segments. Contract assets consist of the following:
| June 30, 2024 | December 31, 2023 | |||||||
| Long-term product service agreements | $ | 395 | $ | 418 | ||||
| Long-term equipment contracts and certain other service agreements | 1,324 | 1,184 | ||||||
| Contract assets (total revenue in excess of billings) | 1,719 | 1,602 | ||||||
| Deferred inventory costs | 128 | 126 | ||||||
| Other costs to fulfill or obtain a contract | 21 | 28 | ||||||
| Contract and other deferred assets | $ | 1,868 | $ | 1,756 |
Revenue recognized during the three months ended June 30, 2024 and 2023 from performance obligations satisfied (or partially satisfied) in previous periods related to our long-term service agreements was $(3) million and $13 million, respectively, and $(4) million and $14 million during the six months ended June 30, 2024 and 2023, respectively. This includes revenue recognized from revisions to cost or billing estimates that may affect a contract's total estimated profitability.
NOTE 6. 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 consist of the following:
| June 30, 2024 | December 31, 2023 | |||||||
| Progress collections | $ | 5,359 | $ | 5,405 | ||||
| Deferred income | 147 | 137 | ||||||
| Progress collections and deferred income (contract liabilities) | $ | 5,506 | $ | 5,542 |
Revenue recognized during the three months ended June 30, 2024 and 2023 that was included in the contract liabilities at the beginning of the period was $1,392 million and $507 million, respectively, and $2,868 million and $1,468 million during the six months ended June 30, 2024 and 2023, respectively.
NOTE 7. LEASES
Our leasing activities primarily consist of operating leases for administrative offices, manufacturing facilities, service centers, sales offices and certain equipment.
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||
| Operating Lease Expense | 2024 | 2023 | 2024 | 2023 | ||||||||||
| Long-term fixed lease | $ | 73 | $ | 68 | $ | 146 | $ | 137 | ||||||
| Long-term variable lease | 21 | 19 | 45 | 34 | ||||||||||
| Short-term lease | 129 | 124 | 270 | 251 | ||||||||||
| Total operating lease expense | $ | 223 | $ | 210 | $ | 461 | $ | 422 |
Cash flows used in operating activities for operating leases approximates our expense for the three and six months ended June 30, 2024 and 2023.
Baker Hughes Company 2024 Second Quarter Form 10-Q | 10
Baker Hughes Company
Notes to Unaudited Condensed Consolidated Financial Statements
The weighted-average remaining lease term as of June 30, 2024 and December 31, 2023 was approximately seven years for our operating leases. The weighted-average discount rate used to determine the operating lease liability as of June 30, 2024 and December 31, 2023 was 4.1% and 3.9%, respectively.
NOTE 8. DEBT
The carrying value of our short-term and long-term debt consists of the following:
| June 30, 2024 | December 31, 2023 | |||||||
| Short-term and current portion of long-term debt | ||||||||
| 8.55% Debentures due June 2024 | $ | — | $ | 109 | ||||
| Other debt | 34 | 39 | ||||||
| Total short-term and current portion of long-term debt | 34 | 148 | ||||||
| Long-term debt | ||||||||
| 2.061% Senior Notes due December 2026 | 598 | 598 | ||||||
| 3.337% Senior Notes due December 2027 | 1,292 | 1,294 | ||||||
| 6.875% Notes due January 2029 | 265 | 268 | ||||||
| 3.138% Senior Notes due November 2029 | 523 | 523 | ||||||
| 4.486% Senior Notes due May 2030 | 498 | 498 | ||||||
| 5.125% Senior Notes due September 2040 | 1,278 | 1,281 | ||||||
| 4.080% Senior Notes due December 2047 | 1,338 | 1,338 | ||||||
| Other long-term debt | 69 | 73 | ||||||
| Total long-term debt | 5,861 | 5,872 | ||||||
| Total debt | $ | 5,895 | $ | 6,020 |
The estimated fair value of total debt at June 30, 2024 and December 31, 2023 was $5,254 million and $5,571 million, respectively. For a majority of our debt 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.
We have a $3.0 billion committed unsecured revolving credit facility ("the Credit Agreement") with commercial banks maturing in November 2028. The Credit Agreement contains certain representations and warranties, certain affirmative covenants and negative covenants, in each case we consider customary. No related events of default have occurred. The Credit Agreement is fully and unconditionally guaranteed on a senior unsecured basis by Baker Hughes. At June 30, 2024 and December 31, 2023, there were no borrowings under the Credit Agreement.
Baker Hughes Co-Obligor, Inc. is a co-obligor, jointly and severally with Baker Hughes Holdings LLC ("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, 2024, Baker Hughes Co-Obligor, Inc. is a co-obligor of certain debt securities totaling $5.8 billion.
Certain Senior Notes contain covenants that restrict our 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, 2024, we were in compliance with all debt covenants.
Baker Hughes Company 2024 Second Quarter Form 10-Q | 11
Baker Hughes Company
Notes to Unaudited Condensed Consolidated Financial Statements
NOTE 9. INCOME TAXES
For the three and six months ended June 30, 2024, the provision for income taxes was $243 million and $421 million, respectively. 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. and losses with no tax benefit due to valuation allowances, partially offset by income subject to U.S. tax at an effective rate less than 21% due to valuation allowances.
For the three and six months ended June 30, 2023, the provision for income taxes was $200 million and $379 million, respectively. 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, for the six months ended June 30, 2023, 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.
NOTE 10. 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 has a par value of $0.0001 per share. As of June 30, 2024 and December 31, 2023, there were no shares of Class B common stock issued and outstanding. We have not issued any preferred stock.
We have a share repurchase program which we expect to fund 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, 2024, the Company repurchased and canceled 5.1 million and 10.5 million shares of Class A common stock for $166 million and $324 million, representing an average price per share of $32.19 and $30.72, respectively. During the three and six months ended June 30, 2023, the Company repurchased and canceled 3.6 million shares of Class A common stock for $99 million, representing an average price per share of $27.66. As of June 30, 2024, the Company had authorization remaining to repurchase up to approximately $1.9 billion of its Class A common stock.
The following table presents the changes in the number of shares outstanding (in thousands):
| Class A Common Stock | ||||||||||||||
| 2024 | 2023 | |||||||||||||
| Balance at January 1 | 997,709 | 1,005,960 | ||||||||||||
| Issue of shares upon vesting of restricted stock units (1) | 4,831 | 5,535 | ||||||||||||
| Issue of shares on exercise of stock options (1) | 21 | 203 | ||||||||||||
| Issue of shares for employee stock purchase plan | 919 | 959 | ||||||||||||
| Repurchase and cancellation of Class A common stock | (10,539) | (3,596) | ||||||||||||
| Balance at June 30 | 992,941 | 1,009,061 |
(1)Share amounts reflected above are net of shares withheld to satisfy the employee's tax withholding obligation.
Baker Hughes Company 2024 Second Quarter Form 10-Q | 12
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, 2023 | $ | (2,513) | $ | (6) | $ | (277) | $ | (2,796) | |||||||||
| Other comprehensive income (loss) before reclassifications | (192) | (3) | — | (195) | |||||||||||||
| Amounts reclassified from accumulated other comprehensive loss | — | — | 9 | 9 | |||||||||||||
| Deferred taxes | — | 1 | — | 1 | |||||||||||||
| Other comprehensive income (loss) | (192) | (2) | 9 | (185) | |||||||||||||
| Balance at June 30, 2024 | $ | (2,705) | $ | (8) | $ | (268) | $ | (2,981) |
| Foreign Currency Translation Adjustments | Cash Flow Hedges | Benefit Plans | Accumulated Other Comprehensive Loss | ||||||||||||||
| Balance at December 31, 2022 | $ | (2,666) | $ | (9) | $ | (296) | $ | (2,971) | |||||||||
| Other comprehensive loss before reclassifications | 169 | 11 | (13) | 167 | |||||||||||||
| Amounts reclassified from accumulated other comprehensive loss | — | 2 | 7 | 9 | |||||||||||||
| Deferred taxes | — | (2) | 2 | — | |||||||||||||
| Other comprehensive income (loss) | 169 | 11 | (4) | 176 | |||||||||||||
| Balance at June 30, 2023 | $ | (2,497) | $ | 1 | $ | (299) | $ | (2,795) |
The amounts reclassified from accumulated other comprehensive loss during the six months ended June 30, 2024 and 2023 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, settlements, and curtailments which are included in the computation of net periodic pension cost, and (iii) the release of foreign currency translation adjustments.
NOTE 11. EARNINGS PER SHARE
Basic and diluted net income 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) | 2024 | 2023 | 2024 | 2023 | ||||||||||
| Net income | $ | 581 | $ | 414 | $ | 1,044 | $ | 995 | ||||||
| Less: Net income attributable to noncontrolling interests | 2 | 4 | 10 | 10 | ||||||||||
| Net income attributable to Baker Hughes Company | $ | 579 | $ | 410 | $ | 1,034 | $ | 985 | ||||||
| Weighted average shares outstanding: | ||||||||||||||
| Class A basic | 996 | 1,010 | 997 | 1,010 | ||||||||||
| Class A diluted | 1,001 | 1,015 | 1,002 | 1,016 | ||||||||||
| Net income per share attributable to common stockholders: | ||||||||||||||
| Class A basic | $ | 0.58 | $ | 0.41 | $ | 1.04 | $ | 0.98 | ||||||
| Class A diluted | $ | 0.58 | $ | 0.40 | $ | 1.03 | $ | 0.97 |
Baker Hughes Company 2024 Second Quarter Form 10-Q | 13
Baker Hughes Company
Notes to Unaudited Condensed Consolidated Financial Statements
For the three and six months ended June 30, 2024 and 2023, Class A diluted shares include the dilutive impact of equity awards except for approximately 1 million and 2 million options, respectively, that were excluded because the exercise price exceeded the average market price of our Class A common stock and is therefore antidilutive.
NOTE 12. FINANCIAL INSTRUMENTS
RECURRING FAIR VALUE MEASUREMENTS
Our assets and liabilities measured at fair value on a recurring basis consist of derivative instruments and investment securities.
| June 30, 2024 | December 31, 2023 | |||||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Net Balance | Level 1 | Level 2 | Level 3 | Net Balance | |||||||||||||||||||
| Assets | ||||||||||||||||||||||||||
| Derivatives | $ | — | $ | 15 | $ | — | $ | 15 | $ | — | $ | 34 | $ | — | $ | 34 | ||||||||||
| Investment securities | 1,044 | — | 2 | 1,046 | 1,040 | — | 2 | 1,042 | ||||||||||||||||||
| Total assets | 1,044 | 15 | 2 | 1,061 | 1,040 | 34 | 2 | 1,076 | ||||||||||||||||||
| Liabilities | ||||||||||||||||||||||||||
| Derivatives | — | (64) | — | (64) | — | (76) | — | (76) | ||||||||||||||||||
| Total liabilities | $ | — | $ | (64) | $ | — | $ | (64) | $ | — | $ | (76) | $ | — | $ | (76) |
| June 30, 2024 | December 31, 2023 | |||||||||||||||||||||||||
| 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) | $ | 7 | $ | — | $ | — | $ | 7 | $ | 66 | $ | 1 | $ | — | $ | 67 | ||||||||||
| Equity securities | 537 | 502 | — | 1,039 | 527 | 451 | (3) | 975 | ||||||||||||||||||
| Total | $ | 544 | $ | 502 | $ | — | $ | 1,046 | $ | 593 | $ | 452 | $ | (3) | $ | 1,042 |
(1)Gains (losses) recorded to earnings related to these securities were $19 million and $(1) million for the three months ended June 30, 2024 and 2023, respectively, and $45 million and $391 million for the six months ended June 30, 2024 and 2023, respectively.
(2)As of June 30, 2024, our non-U.S. debt securities are classified as available for sale securities and mature within two years.
As of June 30, 2024 and December 31, 2023, the balance of our equity securities with readily determinable fair values is $1,039 million and $975 million, respectively, and is comprised mainly of our investment in ADNOC Drilling, and is recorded primarily in "All other current assets" in the condensed consolidated statements of financial position. We measured our investments at fair value based on quoted prices in active markets.
Gains recorded to earnings for our equity securities with readily determinable fair values were $19 million and $29 million for the three months ended June 30, 2024 and 2023, respectively, and $71 million and $421 million for the six months ended June 30, 2024 and 2023, respectively. Gains (losses) related to our equity securities with readily determinable fair values are reported in "Other non-operating income (loss), net" in the condensed consolidated statements of income (loss).
Baker Hughes Company 2024 Second Quarter Form 10-Q | 14
Baker Hughes Company
Notes to Unaudited Condensed Consolidated Financial Statements
OTHER EQUITY INVESTMENTS
During the second quarter of 2023, certain equity securities without a readily determinable fair value were remeasured as of the date that an observable transaction occurred, which resulted in the Company recording a gain of $118 million. Gains (losses) related to our equity securities without readily determinable fair values are reported in "Other non-operating income (loss), net" in our condensed consolidated statements of income (loss).
FAIR VALUE DISCLOSURE OF FINANCIAL INSTRUMENTS
Our financial instruments include cash and cash equivalents, 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, 2024 and December 31, 2023 approximates their carrying value as reflected in our condensed consolidated financial statements. For further information on the fair value of our debt, see "Note 8. Debt."
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, 2024 | December 31, 2023 | |||||||||||||
| Assets | Liabilities | Assets | Liabilities | |||||||||||
| Derivatives accounted for as hedges | ||||||||||||||
| Currency exchange contracts | $ | 8 | $ | (1) | $ | 10 | $ | (3) | ||||||
| Interest rate swap contracts | — | (55) | — | (52) | ||||||||||
| Derivatives not accounted for as hedges | ||||||||||||||
| Currency exchange contracts and other | 7 | (8) | 24 | (21) | ||||||||||
| Total derivatives | $ | 15 | $ | (64) | $ | 34 | $ | (76) |
Derivatives are classified in the condensed consolidated statements of financial position depending on their respective maturity date. As of June 30, 2024 and December 31, 2023, $14 million and $31 million of derivative assets are recorded in "All other current assets" and $1 million and $3 million are recorded in "All other assets" in the condensed consolidated statements of financial position, respectively. As of June 30, 2024 and December 31, 2023, $9 million and $23 million of derivative liabilities are recorded in "All other current liabilities" and $55 million and $53 million are recorded in "All other liabilities" in the condensed consolidated statements of financial position, respectively.
In January 2024, we issued a credit default swap ("CDS") for a notional amount of $261 million to a third-party financial institution. The CDS relates to a secured borrowing provided by the financial institution to a customer in Mexico that was utilized to pay certain of our outstanding receivables. The notional amount of the CDS will reduce on a monthly basis over its 26-month term. As of June 30, 2024, the fair value of this derivative liability was not material.
FORMS OF HEDGING
Cash Flow Hedges
We use cash flow hedging primarily to mitigate 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. In addition, we are exposed to interest rate risk fluctuations in connection with long-term debt that we issue from time to time to fund our operations. 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 10. Equity" for further
Baker Hughes Company 2024 Second Quarter Form 10-Q | 15
Baker Hughes Company
Notes to Unaudited Condensed Consolidated Financial Statements
information on activity in AOCI for cash flow hedges. As of June 30, 2024 and December 31, 2023, the maximum term of cash flow hedges that hedge forecasted transactions was approximately one year and two years, respectively.
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, 2024 and December 31, 2023, 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 Secured Overnight Financing Rate index. We concluded that the interest rate swap met the criteria necessary to qualify for hedge accounting, and as such, the changes in this fair value hedge are recorded as gains or losses in interest expense and are equally offset by the gains or losses of the underlying debt instrument, which are also recorded in interest expense.
NOTIONAL AMOUNT OF DERIVATIVES
The notional amount of a derivative is used to determine, along with the other terms of the derivative, the amounts to be exchanged between the counterparties. We disclose the derivative notional amounts on a gross basis to indicate the total counterparty risk but it does not generally represent amounts exchanged by us and the counterparties. A substantial majority of the outstanding notional amount of $4.3 billion and $4.2 billion at June 30, 2024 and December 31, 2023, 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.
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.
Baker Hughes Company 2024 Second Quarter Form 10-Q | 16
Baker Hughes Company
Notes to Unaudited Condensed Consolidated Financial Statements
NOTE 13. REVENUE RELATED TO CONTRACTS WITH CUSTOMERS
DISAGGREGATED REVENUE
We disaggregate our revenue from contracts with customers by product line for both our OFSE and IET segments, as we believe this best depicts how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors. In addition, management views revenue from contracts with customers for OFSE by geography based on the location to where the product is shipped or the services are performed.
The series of tables below present our revenue disaggregated by these categories.
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||
| Total Revenue | 2024 | 2023 | 2024 | 2023 | ||||||||||
| Well Construction | $ | 1,090 | $ | 1,076 | $ | 2,151 | $ | 2,137 | ||||||
| Completions, Intervention & Measurements | 1,118 | 1,090 | 2,123 | 1,999 | ||||||||||
| Production Solutions | 958 | 959 | 1,903 | 1,897 | ||||||||||
| Subsea & Surface Pressure Systems | 845 | 752 | 1,617 | 1,422 | ||||||||||
| Oilfield Services & Equipment | 4,011 | 3,877 | 7,794 | 7,454 | ||||||||||
| Gas Technology Equipment | 1,539 | 968 | 2,749 | 1,799 | ||||||||||
| Gas Technology Services | 691 | 658 | 1,305 | 1,249 | ||||||||||
| Total Gas Technology | 2,230 | 1,626 | 4,054 | 3,048 | ||||||||||
| Industrial Products | 509 | 506 | 971 | 929 | ||||||||||
| Industrial Solutions | 262 | 242 | 526 | 464 | ||||||||||
| Controls (1) | — | 1 | — | 41 | ||||||||||
| Total Industrial Technology | 770 | 749 | 1,498 | 1,435 | ||||||||||
| Climate Technology Solutions | 128 | 62 | 211 | 93 | ||||||||||
| Industrial & Energy Technology | 3,128 | 2,438 | 5,763 | 4,576 | ||||||||||
| Total | $ | 7,139 | $ | 6,315 | $ | 13,557 | $ | 12,030 |
(1)The sale of our controls business was completed in April 2023.
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||
| Oilfield Services & Equipment Geographic Revenue | 2024 | 2023 | 2024 | 2023 | ||||||||||
| North America | $ | 1,023 | $ | 1,042 | $ | 2,013 | $ | 2,033 | ||||||
| Latin America | 663 | 698 | 1,300 | 1,358 | ||||||||||
| Europe/CIS/Sub-Saharan Africa | 827 | 672 | 1,577 | 1,253 | ||||||||||
| Middle East/Asia | 1,498 | 1,465 | 2,903 | 2,810 | ||||||||||
| Oilfield Services & Equipment | $ | 4,011 | $ | 3,877 | $ | 7,794 | $ | 7,454 |
REMAINING PERFORMANCE OBLIGATIONS
As of June 30, 2024, the aggregate amount of the transaction price allocated to the unsatisfied (or partially unsatisfied) performance obligations was $33.5 billion. As of June 30, 2024, we expect to recognize revenue of approximately 63%, 75% and 91% 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.
Baker Hughes Company 2024 Second Quarter Form 10-Q | 17
Baker Hughes Company
Notes to Unaudited Condensed Consolidated Financial Statements
NOTE 14. SEGMENT INFORMATION
The Company's segments are determined as those operations whose results are reviewed regularly by the chief operating decision maker ("CODM"), who is our Chief Executive Officer, in deciding how to allocate resources and assess performance. We report our operating results through two operating segments, OFSE and IET. Each segment is organized and managed based upon the nature of our markets and customers and consists of similar products and services. These products and services operate across upstream oil and gas and broader energy and industrial markets.
OILFIELD SERVICES & EQUIPMENT
OFSE provides products and services for onshore and offshore oilfield operations across the lifecycle of a well, ranging from exploration, appraisal, and development, to production, rejuvenation, and decommissioning. OFSE is organized into four product lines: Well Construction, which encompasses drilling services, drill bits, and drilling & completions fluids; Completions, Intervention, and Measurements, which encompasses well completions, pressure pumping, and wireline services; Production Solutions, which spans artificial lift systems and oilfield & industrial chemicals; and Subsea & Surface Pressure Systems, which encompasses subsea projects services and drilling systems, surface pressure control, and flexible pipe systems. Beyond its traditional oilfield concentration, OFSE is expanding its capabilities and technology portfolio to meet the challenges of a net-zero future. These efforts include expanding into new energy areas such as geothermal and carbon capture, utilization and storage, strengthening its digital architecture and addressing key energy market themes.
INDUSTRIAL & ENERGY TECHNOLOGY
IET 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 markets, as well as lower carbon solutions to broader energy and industrial sectors. IET also provides equipment, software, and services that serve a wide range of industries including petrochemical and refining, nuclear, aviation, automotive, mining, cement, metals, pulp and paper, and food and beverage. IET is organized into five product lines - Gas Technology Equipment, Gas Technology Services, Industrial Products, Industrial Solutions, and Climate Technology Solutions.
Revenue and operating income for each segment are used by the CODM to assess the performance of each segment in a financial period. 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 income (loss), corporate expenses, significant restructuring plans, impairment and other charges, inventory impairments, and certain gains and losses not allocated to the operating segments. Accounting policies have been applied consistently by all segments within the Company for all reporting periods. Intercompany revenue and expense amounts have been eliminated within each segment to report on the basis that management uses internally for evaluating segment performance.
Summarized financial information for the Company's segments is shown in the following tables.
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||
| Revenue | 2024 | 2023 | 2024 | 2023 | ||||||||||
| Oilfield Services & Equipment | $ | 4,011 | $ | 3,877 | $ | 7,794 | $ | 7,454 | ||||||
| Industrial & Energy Technology | 3,128 | 2,438 | 5,763 | 4,576 | ||||||||||
| Total | $ | 7,139 | $ | 6,315 | $ | 13,557 | $ | 12,030 |
Baker Hughes Company 2024 Second Quarter Form 10-Q | 18
Baker Hughes Company
Notes to Unaudited Condensed Consolidated Financial Statements
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||
| Income before income taxes | 2024 | 2023 | 2024 | 2023 | ||||||||||
| Oilfield Services & Equipment | $ | 493 | $ | 417 | $ | 915 | $ | 789 | ||||||
| Industrial & Energy Technology | 442 | 311 | 772 | 552 | ||||||||||
| Total segment | 935 | 728 | 1,687 | 1,341 | ||||||||||
| Corporate | (88) | (97) | (180) | (197) | ||||||||||
| Inventory impairment (1) | — | (15) | — | (33) | ||||||||||
| Restructuring, impairment and other | (14) | (102) | (21) | (158) | ||||||||||
| Other non-operating income, net | 38 | 158 | 67 | 544 | ||||||||||
| Interest expense, net | (47) | (58) | (88) | (122) | ||||||||||
| Income before income taxes | $ | 824 | $ | 614 | $ | 1,465 | $ | 1,374 |
(1)Charges for inventory impairments are reported in "Cost of goods sold" in the condensed consolidated statements of income (loss).
The following table presents depreciation and amortization:
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||
| Depreciation and amortization | 2024 | 2023 | 2024 | 2023 | ||||||||||
| Oilfield Services & Equipment | $ | 223 | $ | 219 | $ | 445 | $ | 426 | ||||||
| Industrial & Energy Technology | 55 | 52 | 111 | 109 | ||||||||||
| Total segment | 278 | 271 | 556 | 535 | ||||||||||
| Corporate | 6 | 5 | 10 | 10 | ||||||||||
| Total | $ | 283 | $ | 276 | $ | 566 | $ | 545 |
NOTE 15. RELATED PARTY TRANSACTIONS
We have an aeroderivative joint venture ("Aero JV") we formed with General Electric Company ("GE") in 2019. As of June 30, 2024, the Aero JV was jointly controlled by GE Vernova Inc. and us, each with ownership interest of 50%, and therefore, we do not consolidate the Aero JV. As a result of GE's spin-off of GE Vernova Inc., GE has transferred its interest in the Aero JV to GE Vernova Inc. in the second quarter of 2024. We had purchases from the Aero JV of $173 million and $131 million during the three months ended June 30, 2024 and 2023, respectively, and $276 million and $245 million during the six months ended June 30, 2024 and 2023, respectively. We have $73 million and $71 million of accounts payable at June 30, 2024 and December 31, 2023, respectively, for products and services provided by the Aero JV in the ordinary course of business.
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.
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
Baker Hughes Company 2024 Second Quarter Form 10-Q | 19
Baker Hughes Company
Notes to Unaudited Condensed Consolidated Financial Statements
("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; such claims against IEC have now been resolved, with any consideration having an immaterial impact on the Company's financial statements. At this time, we are not able to predict the outcome of the proceeding which is pending against the Company's subsidiaries.
On or around February 15, 2023, the lead plaintiff and three additional named plaintiffs in a putative securities class action styled The Reckstin Family Trust, et al., v. C3.ai, Inc., et al., No. 4:22-cv-01413-HSG, filed an amended class action complaint (the "Amended Complaint") in the United States District Court for the Northern District of California. The Amended Complaint names the following as defendants: (i) C3.ai., Inc. ("C3 AI"), (ii) certain of C3 AI's current and/or former officers and directors, (iii) certain underwriters for the C3 AI initial public offering (the "IPO"), and (iv) the Company, and its President and CEO (who formerly served as a director on the board of C3 AI). The Amended Complaint alleges violations of the Securities Act of 1933 and the Securities Exchange Act of 1934 (the "Exchange Act") in connection with the IPO and the subsequent period between December 9, 2020 and December 2, 2021, during which BHH LLC held equity investments in C3 AI. The action seeks unspecified damages and the award of costs and expenses, including reasonable attorneys' fees. On February 22, 2024, the Court dismissed the claims against the Company. However, on April 4, 2024, the plaintiffs filed an amended complaint, reasserting their claims against the Company under the Securities Act of 1933 and the Exchange Act. At this time, we are not able to predict the outcome of these proceedings.
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.
Baker Hughes Company 2024 Second Quarter Form 10-Q | 20
Baker Hughes Company
Notes to Unaudited Condensed Consolidated Financial Statements
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 Vernova Inc. on behalf of a customer who entered into a financing arrangement with GE Vernova Inc. Total off-balance sheet arrangements were approximately $5.3 billion at June 30, 2024. It is not practicable to estimate the fair value of these financial instruments. As of June 30, 2024, 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 OFSE 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 $14 million and $21 million during the three and six months ended June 30, 2024, respectively, and $102 million and $158 million during the three and six months ended June 30, 2023, respectively.
RESTRUCTURING AND IMPAIRMENT CHARGES
We recorded restructuring and impairment charges of $2 million during the three and six months ended June 30, 2024.
The charges during three and six months ended June 30, 2023 primarily relate to employee termination expenses driven by actions taken by the Company to facilitate the reorganization into two segments and corporate restructuring. In addition, under a new plan (the "2023 Plan") we incurred costs related to exit activities at specific locations in our segments to align with our current market outlook and rationalize our manufacturing supply chain footprint. These actions also included inventory impairments of $15 million and $33 million for the three and six months ended June 30, 2023, respectively, recorded in "Cost of goods sold" in our condensed consolidated statements of income (loss).
The following table presents restructuring and impairment charges by the impacted segment:
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||
| Segments | 2024 | 2023 | 2024 | 2023 | ||||||||||
| Oilfield Services & Equipment | $ | — | $ | 26 | $ | — | $ | 41 | ||||||
| Industrial & Energy Technology (1) | — | 52 | — | 66 | ||||||||||
| Corporate | 2 | 17 | 2 | 45 | ||||||||||
| Total | $ | 2 | $ | 96 | $ | 2 | $ | 152 |
(1)For the three and six months ended June 30, 2024, $6 million of additional restructuring charges are included within segment operating income and reported in “Selling, general and administrative” in the condensed consolidated statements of income (loss).
Baker Hughes Company 2024 Second Quarter Form 10-Q | 21
Baker Hughes Company
Notes to Unaudited Condensed Consolidated Financial Statements
The following table presents the total restructuring and impairment charges by type, and includes gains on the dispositions of certain property, plant and equipment ("PP&E") previously impaired as a consequence of exit activities:
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||
| Charges by Type | 2024 | 2023 | 2024 | 2023 | ||||||||||
| Property, plant & equipment, net | $ | — | $ | (1) | $ | — | $ | 14 | ||||||
| Employee-related termination costs | 8 | 80 | 8 | 110 | ||||||||||
| Other incremental costs | — | 17 | — | 28 | ||||||||||
| Total | $ | 8 | $ | 96 | $ | 8 | $ | 152 |
OTHER CHARGES
We recorded other charges of $12 million and $19 million for the three and six months ended June 30, 2024, respectively, and $6 million for the three and six months ended June 30, 2023.
NOTE 18. BUSINESS ACQUISITIONS AND DISPOSITIONS
We had no business acquisitions or dispositions during the six months ended June 30, 2024.
ACQUISITIONS
During the first six months of 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 in April 2023. Altus Intervention is a leading international provider of well intervention services and downhole technology. The assets acquired and liabilities assumed in these acquisitions were recorded based on preliminary estimates of their fair values as of the acquisition date. As a result of these acquisitions, we recorded $113 million of goodwill and $31 million of intangible assets, subject to final fair value adjustments. Pro forma results of operations for these acquisitions have not been presented because the effects of these acquisitions were not material to our consolidated financial statements.
DISPOSITIONS
During the first six months of 2023, we completed the sale of businesses and received total cash consideration of $293 million. The dispositions consisted primarily of the sale of our Nexus Controls business in the IET segment to GE in April 2023, which resulted in an immaterial gain. Nexus Controls specializes in scalable industrial controls systems, safety systems, hardware, and software cybersecurity solutions and services.
Baker Hughes Company 2024 Second Quarter Form 10-Q | 22
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