We recorded restructuring, impairment and other charges of $23056 million and $65370 million during the three and nine months ended September 30, 2022, respectively, and $14 million and $219 million during the three and nine months ended September 30, 2021, respectively.
Baker Hughes Holdings LLC 2022 Third Quarter Form 10-Q | 24
Baker Hughes Holdings LLC
Notes to Unaudited Condensed Consolidated Financial Statements
March 31, 2023 and 2022, respectively.RESTRUCTURING AND IMPAIRMENT CHARGES
We recorded restructuring and impairment charges of $146 million and $174 million for the three and nine 56 million for the three months ended September 30, 2022, respectively. The charges relateMarch 31, 2023. In the third quarter of 2022, we announced a restructuring plan in conjunction with a change in our operating segments that was effective October 1, 2022 (the "2022 Plan"). As a result, we continued to incur charges in the first quarter of 2023 related to the 2022 Plan primarily tofor employee termination expenses driven by actions taken by the Company to facilitate the reorganization into two segments that is effective October 1, 2022and corporate restructuring. In addition, property, plantunder a and equipmentnew plan ("PP&Ethe "2023 Plan") impairments and otherwe incurred costs were recorded related to exit activities at specific locations in our OFE and OFS segments to align with our current market outlook and rationalize our manufacturing supply chain footprint. See "Note 13. Segment Information" for further information on the change in segments.
We recorded restructuring and impairmentThese actions also included inventory impairments of $18 million recorded in "Cost of goods sold" in our condensed consolidated statements of income (loss). We expect to incur additional charges of approximately $14145 million and $144 million for the three and nine months ended September 30, 2021, respectively. These charges were predominately in our OFS segment and related primarily to employee termination expenses, and product line rationalization, including facility closures and related expenses such as PP&E impairments, and includes any gains on the dispositionsin 2023 in connection with these restructuring plans, and currently expect these plans to be substantially completed by the end of certain PP&E impaired as a consequence2023, with the majority of previous exit activitiescharges incurred within the first half of 2023.
The following table presents restructuring and impairment charges by the impacted segment, however, these charges are not included in the reported segment results:
| | | | | | | | | | | | | | |
| Three Months Ended September 30March 31, | Nine Months Ended September 30, |
| Segments | 2022 | 20212023 | 2022 | 2021 | |
| Oilfield Services & Equipment | $ | 4015 | | $ | 2 | | | |
| Industrial & Energy Technology | 14 | | $ | (611 ) | | $ | 119 | |
| Oilfield EquipmentCorporate | 62 | | 3 | | 58 | | 4 | |
Turbomachinery & Process Solutions | 6 | | (3) | | 8 | | 11 | |
Digital Solutions | 19 | | — | | 20 | | 3 | |
| Corporate | 19 | | — | | 27 | | 7 | |
| Total | $ | 14627 | | 3 | | | |
| Total | $ | 56 | | $ | 14 | | $ | 174 | | $ | 144 4 | | | |
The following table presents restructuring and impairment charges by type, and includes gains on the dispositions of certain property, plant and equipment previously impaired as a consequence of exit activities:
| | | | | | | | | | | | | | |
| Three Months Ended September 30March 31, | Nine Months Ended September 30, |
| Charges by Type | 2022 | 20212023 | 2022 | 2021 | |
| Property, plant & equipment, net | $ | 6515 | | $ | (1) | | $ | 59 | | $ | 21 9) | | | |
| Employee-related termination costs | 7731 | | 18 | | 106 | | 94 | |
| | | | |
| | | | |
| | | | |
| Other incremental costs | 410 | | 14 | | 9 | | 29 5 | | | |
| Total | $ | 14656 | | $ | 14 | | $ | 174 | | $ | 144 4 | | | |
OTHER CHARGES
We recorded other charges of $84nil million and $47866 million for the three and nine months ended September 30,March 31, 2023 and 2022, respectively.
Other charges for the three months ended September 30March 31, 2022, were related to the impairment of certain long-lived assets, primarily PP&E of $62 million and intangibles of $17 million, in our OFE segment for the subsea production systems ("SPS") business due to a decrease in the estimated future cash flows driven by a decline in our long-term market outlook for this business.
Other charges for the nine months ended September 30, 2022, were primarily associated with our Russia operations that were recorded in the second quarter of 2022. As a result of the ongoing conflict between Russia and Ukraine that began in February of 2022, governments in the U.S., United Kingdom, European Union, and other were predominately in our IET segment for
Baker Hughes Holdings LLC 2022 Third2023 First Quarter Form 10-Q | 2522
Baker Hughes Holdings LLC
Notes to Unaudited Condensed Consolidated Financial Statements
countries enacted sanctions against Russia and certain Russian interests. On March 19, 2022, we suspended any new investments in our Russia operations but attempted to continue to fulfill our contractual obligations while complying with all applicable laws and regulations. Over the course of the second quarter of 2022, we closely monitored the developments in Ukraine and Russia and changes to sanctions all of which continued to make ongoing operations increasingly complex and significantly more challenging. As a result, in the second quarter of 2022, we committed to a plan to sell our Oilfield Services Russia business. See “Note 17. Businesses Held for Sale” for further information. In addition, given that some of our activities are prohibited under applicable sanctions and almost all of our activities are unsustainable in the current environment, we took actions to suspend substantially all of our operational activities related to Russia. These actions resulted in other charges of $334 million recorded in the second quarter of 2022 primarily associated with the suspension of contracts including all our TPS LNG contracts, and the impairment of assets consisting primarily of contract assets, PP&E and reserve for accounts receivable. In addition to these charges, we recorded inventory impairments in the second quarter of 2022 of $31 million primarily in TPS as part of suspending our Russia operations, which are reported in the “Cost of goods sold” caption in the condensed consolidated statement of income (loss).
During the three months ended September 30, 2021, there were no other charges incurred. During the nine months ended September 30, 2021, we incurred other charges of $75 million primarily related to certain litigation matters in our TPS segment and the release of foreign currency translation adjustmentsa write-off of an equity method investment and the release of foreign currency translation adjustments. for certain restructured product lines in our DS segment.The 2022 charges also include separation related costs.
NOTE 17. BUSINESSESBUSINESS HELD FOR SALE
The Company classifies assets and liabilities as held for sale (“disposal group”) when management commits to a plan to sell the disposal group and concludes that it meets the relevant criteria. Assets held for sale are measured at the lower of their carrying value or fair value less costs to sell. Any loss resulting from the measurement is recognized in the period the held for sale criteria are met. Conversely, gains are not recognized until the date of sale.
During the second quarter of 2022, the OFS Russia business met the criteria to be classified as held for sale and was measured and reported at the lower of its carrying value or fair value less costs to sell, which resulted in the recognition of a loss of $426 million, which included foreign currency translation adjustment gains partially offset by costs associated with selling the business. The loss was recorded in “Other non-operating loss, net” in our condensed consolidated statements of income (loss). On August 1, 2022, we entered into an agreement to sell our OFS Russia business to our local management. As of September 30, 2022, the OFS Russia business continues to meet the criteria to be classified as held for sale. We expect to complete the sale by the end of 2022 subject to regulatory approval.
In July 2022, we entered into an agreement with GE to sell our Nexus Controls business, a product line in our Digital SolutionsIn July 2022, we entered into an agreement with GE to sell our Nexus Controls business, a product line in our IET segment, specializing in scalable industrial controls systems, safety systems, hardware, and software cybersecurity solutions and services. Based on preliminary estimates, the carrying value is expected to approximate the fair value of the business, less costs to sell. We expect to complete, and on April 3, 2023, we completed the sale resulting in mid-2023 subject to customary conditions, including regulatory approvals.
Baker Hughes Holdings LLC 2022 Third Quarter Form 10-Q | 26
Baker Hughes Holdings LLC
Notes to Unaudited Condensed Consolidated Financial Statements
an immaterial gain.The following table presents financial information related to the assets and liabilities of the businessesour Nexus Controls business classified as held for sale and reported in “All other current assets” and “All other current liabilities” in our condensed consolidated statementstatements of financial position as of SeptemberMarch 3031, 20222023.
| | | | | | | | | | | |
| Assets and liabilities of business held for sale | OFS Russia | DS Nexus Controls | TotalNexus Controls |
| Assets | | | |
| Current receivables | $ | 57 | | $ | 49 | | $ | 106 | |
| | 48 |
| |
| Inventories | 76 | | 36 | | 11240 | |
| Property, plant and equipment | 161 | | 3 | | 1642 | |
| Goodwill | 161 | | 231 | | 392230 | |
| Other assets | 18 | | 8 | | 26 | |
| Loss on net assets of business held for sale | (426) | | — | | (426)9 | |
| |
| Total assets of business held for sale | 47 | | 327 | | 374 | |
| | 329 |
| |
| Liabilities | | | |
| |
| |
| Accounts payable | 4218 | |
| 33 | Progress collections and deferred income | 7539 | |
| All other current liabilities | 4 | | 56 | | 6019 | |
| Other liabilities | 1 | | 8 | | 97 | |
| Total liabilities of business held for sale | 47 | | 97 | | 14483 | |
| Total net assets of business held for sale | $ | — | | $ | 230 | | $ | 230246 | |
Baker Hughes Holdings LLC 2022 Third2023 First Quarter Form 10-Q | 2723
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") should be read in conjunction with the condensed consolidated financial statements and the related notes included in Item 1 thereto.
EXECUTIVE SUMMARY, 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 5556,000 employees. Through September 30, 2022, we operatedWe operate through our fourtwo business segments: Oilfield Services ("OFS"), Oilfield& Equipment ("OFEOFSE"), Turbomachinery and Industrial & Process Solutions ("TPS"), and Digital Solutions ("DSEnergy Technology ("IET"). We sell products and services primarily in the global oil and gas markets, within the upstream, midstream and downstream segments.
As we look to the fourth quarter of 2022 and intoEXECUTIVE SUMMARY
Market Conditions
As we look at 2023, the macro outlook has grown increasingly uncertain. The global economy is dealing with strong inflationary pressures, aenvironment remains volatile with elevated recession risk for rising interest rate environment, and fluctuations in global currenciesmajor developed economies. Despite these economic challenges, we remain constructive on the outlook for oilexpect the supply-demand balance in the global oil markets to gradually tighten over the course of the year. Factors driving this include China’s economy recovering, demand continuing to grow in countries outside the Organization for Economic Cooperation and gasDevelopment, and believe that underlying fundamentals remain supportive of a multi-year upturn in global upstream spending. In the oil market, we expect continued price volatility as demand growth likely softens under the weight of higher interest rates and inflationary pressures. However, we expect supply constraints and production discipline to largely offset any demand weakness.
In the natural gas and LNG markets, prices remain elevated, as a multitude of factors increase tensions on an already stressed global gas market. Europe’s surging demand for LNG has redirected cargos from other regions and created a tight global market that could get even tighter in 2023. This situation has resulted in record high LNG prices but has also slowed down switching from coal-to-gas in some developing countries. the Organization of the Petroleum Exporting Countries (OPEC+) remaining proactive in maintaining adequate and stable oil price levels. We expect this macro backdrop to still support a double-digit increase in global upstream spending in 2023, with multiple international projects being executed and the offshore development pipeline growing.
We believe that significant investmentthe current spending cycle is still required over the next five to ten years to ensuremore durable and less sensitive to commodity price swings relative to prior cycles. Factors driving this extended cycle include financially strong operator balance sheets, disciplined capital spending focused on returns versus growth, and both independent oil companies and national oil companies balancing modest production growth with longer-term investments in new energy.
Another notable characteristic of this cycle is the continued shift towards the development of natural gas’ position as and LNG. aAs keythe part ofworld increasingly recognizes the crucial role natural gas is expected to play in the energy transition. However, while the current price environment is attractive for new projects, this is also a pivotal time for the industry, with price-related demand destruction occurring in some markets and LNG developers facing inflationary pressures and a higher cost of capital for new projects.
Given the dynamic macro backdrop, we are focused on preparing for a range of scenarios and executing on what, serving as both a transition and destination fuel, the case for a multi-decade growth opportunity in gas is within our control. During the third quarter of 2022, we announced a restructuring and re-segmentation of the Company into two reporting segments, OFSE and IET, effective October 1, 2022. This re-segmentation is designed to simplify and streamline our organizational structure, and create better flexibility and economies of scale across the two business segments. For OFSE, one area of focus will be right sizing OFE through facility rationalization, removing management layers, and integrating multiple functions and capabilities with OFS. For IET, we expect commercial and technological benefits from closer integration as well as the benefit of cost out programs. We expect these changes to improve the long-term optionality and growth opportunities for Baker Hughes as our markets and customers continue to evolvesteadily improving. This is driving operators of all sizes to dedicate more spending towards natural gas development, as well as LNG projects and associated infrastructure.
In parallel, we continue to invest in the Baker Hughes portfolio through early-stage new energy investments and strategic acquisitions. In the third quarter of 2022, we announced several strategic acquisitions that will complement our current portfolio and enhance our strategic position. On October 7, 2022, the Company closed on an agreement to acquire the Power Generation division of BRUSH Group (“BRUSH”). BRUSH is an established equipment manufacturer that specializes in electric power generation and management for the industrial and energy sectors, which will compliment TPS’ existing portfolio. Other transactions announced include the acquisitions of Quest Integrity and AccessESP, which will enhance our inspection capabilities and broadens our electrical submersible pump ("ESP") technology portfolio.Financial Results and Key Company Initiatives
In the thirdfirst quarter of 20222023, we generated revenue of $5,369716 million compared to $54,093835 million in the thirdfirst quarter of 20212022. The increase in revenue was driven primarily by increased activity in theour OFS and DS segments, partially offset by lower volume in the TPS and OFEOFSE and IET segments. Operating income in the thirdfirst quarter of 20222023 was $269438 million compared to $378279 million in the thirdfirst quarter of 20212022. The decreaseincrease in operating income was driven by higher restructuring, impairment and other charges, partially offsetprimarily by higher segment operating income infrom OFS.
Baker Hughes Holdings LLC 2022 Third Quarter Form 10-Q | 28
Income before income taxes was $144OFSE. Income before income taxes was $760 million for the thirdfirst quarter of 20222023, which included restructuring, impairment and other charges of $230 million, and a loss of $52a gain of $392 million from the change in fair value on certain equity securities, recorded as other non-operating lossinvestments. In the thirdfirst quarter of 20212022, income before income taxes was $209187 million, which included restructuring, impairment and other chargesa gain of $1411 million, and also included a $140 million loss from the change in fair value on certain equity securities, recorded as other non-operating lossinvestments.
The invasion of UkraineOur results in the first quarter of 2023 were impacted by Russia and the sanctions imposed in response to this crisis have increased the level of economic and political uncertainty. As we announced on March 19, 2022, we suspended any new investments forthe discontinuation of our Russia operations. Over the course of the second quarter of 2022, changes to sanctions continued to make ongoing operations increasingly complex and significantly more challenging. As a result, we committed to a plan to sell our OFS Russia business, and we took actions to suspend substantially all of our operational activities related to Russia across the Company including suspending work on equipment and service contracts in Russia. During the third quarter of 2022, we announced we entered into an agreement to sell our OFS Russia business to local managementthat occurred in 2022. Russia represented approximately 1% and 2% of our total revenue for the three and nine months ended September 30, 2022, respectively4% of our total revenue in the first quarter of 2022, the majority of which was in our OFSE segment.
In 2022, we announced a reorganization of the Company from four to two operating segments, OFSE and IET. To date, we have made great progress on this transformation, which is designed to create a leaner, more simplified organization which we expect to enable faster decision making and better position the Company for the future of the energy markets.
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
Baker Hughes Holdings LLC 2023 First Quarter Form 10-Q | 24
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. GE will continue to provide Baker Hughes with GE’s MarkTM controls products currently in the Nexus Controls portfolio.
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 onshore activity: weWe expect North America onshore activityAmerican spending to level offcontinue to improve in the fourth quarter of 20222023, as compared to the third quarter of 2022. Looking ahead to 2023, we expect growth in North America onshore activity2022, should commodity prices remain at current levels.
•OFSE International onshore activity: weWe expect international activityspending outside of North America to continue to improve in the fourth quarter of 2022 across a broad range of markets compared to the third quarter of 2022 with furtherexperience strong growth in 2023, as compared to 2022, should commodity prices remain at current levels.
•Offshore projects: we expect a recovery in offshore activity and the number of subsea tree awards to grow in 2022 as compared to 2021. Looking ahead to 2023, we expect continued recovery offshore as activity in several basins is set to further strengthen.
•LNG projects: weIET 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, such as our Digital Solutions segment.
. We also have businesses within our portfolio that are exposed to new energy solutions, specifically focused around reducing carbon emissions of 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 RESPONSIBILITYCorporate 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 2021 Corporate Responsibility report a 23% reduction in our Scope 1 and 2 carbon dioxide equivalent emissions compared to our 2019 base year.
Baker Hughes Holdings LLC 2022 Third Quarter Form 10-Q | 29
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 nine months ended September 30March 31, 20222023 and 20212022, 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 most importantly, their expectations for oil and natural gas prices as a key driver of their cash flows.
Baker Hughes Holdings LLC 2023 First Quarter Form 10-Q | 25
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 September 30March 31, | Nine Months Ended September 30, |
| 2022 | 20212023 | 2022 | 2021 | |
Brent oil price ($/Bbl) (1) | $ | 10081.7114 | | $ | 73100.5187 | | $ | 105.00 | | $ | 67.89 | |
WTI oil price ($/Bbl) (2) | 9376.0600 | | 7095.5818 | | 98.96 | | 65.05 | |
Natural gas price ($/mmBtu) (3) | 82.0362 | | 4.3567 | | 6.74 | | 3.61 | |
(1)Energy Information Administration (EIA) Europe Brent Spot Price per Barrel
(2)EIA Cushing, OK WTI (West Texas Intermediate) spot price
(3)EIA Henry Hub Natural Gas Spot Price per million British Thermal Unit
Oil and natural gas prices increased during the three and nine months ended September 30, 2022 largely driven by supply constraints which has also been amplified as a result of recent geopolitical events.
Outside North America, customer spending is most heavily influenced by Brent oil prices, which increaseddecreased from the same quarter last year, ranging from a high of $12187.8054/Bbl in July 2022January 2023 to a low of $8271.5503/Bbl in September 2022March 2023. For the ninethree months ended September 30March 31, 20222023, Brent oil prices averaged $10581.0014/Bbl, which represented an increasea decrease of $3719.1173/Bbl from the same period last year.
In North America, customer spending is highly driven by WTI oil prices, which increaseddecreased from the same quarter last year. Overall, WTI oil prices ranged from a high of $11081.3062/Bbl in July 2022January 2023 to a low of $7766.1761/Bbl in September 2022March 2023. For the ninethree months ended September 30March 31, 20222023, WTI oil prices averaged $9876.9600/Bbl, which represented an increasea decrease of $3319.9118/Bbl from the same period last year.
In North America, natural gas prices, as measured by the Henry Hub Natural Gas Spot Price, averaged $82.0362/mmBtu in the thirdfirst quarter of 20222023, representing a 8544% increasedecrease from the same quarter in the prior year. Throughout the quarter, Henry Hub Natural Gas Spot Prices ranged from a high of $3.78/mmBtu in January 2023 to a low of $51.6593/mmBtu in July 2022 to a high of $9.85/mmBtu in August 2022March 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.
Baker Hughes Holdings LLC 2022 Third Quarter Form 10-Q | 30
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 the Russia Caspian region, and onshore China because this information is not readily available.
Rigs in the U.S. and Canada are counted as active if, on the day the count is taken, the well being drilled has been started but drilling has not been completed and the well is anticipated to be of sufficient depth to be a potential consumer of our drill bits. In international areas, rigs are counted on a weekly basis and deemed active if drilling activities occurred during the majority of the week. The weekly results are then averaged for the month and published accordingly. The rig count does not include rigs that are in transit from one location to another, rigging up, being used in non-drilling activities including production testing, completion and workover, and are not expected to be significant consumers of drill bits.
Baker Hughes Holdings LLC 2023 First Quarter Form 10-Q | 26
The rig counts are summarized in the table below as averages for each of the periods indicated.
| | | | | | | | | | | | | | |
| | Three Months Ended March 31, | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, | |
| 2023 | 2022 | 2021 | % Change | 2022 | 2021 | % Change |
| North America | 960982 | | 647831 | | 4818 | % | 876 | | 570 | | 54 | % | | |
| International | 857915 | | 770823 | | 11 | % | 832 | | 735 | | 13 | % | | |
| Worldwide | 1,817897 | | 1,417654 | | 2815 | % | 1,708 | | 1,305 | | 31 | % | | |
The worldwide rig count was 1,817897 for the thirdfirst quarter of 20222023, an increase of 2815% as compared to the same period last year primarily due to an increase in North America.
Within North America, the increase was primarily driven by the U.S. rig count, which was up 5320% when compared to the same period last year, and an increase in the Canada rig count, which was up 3211% when compared to the same period last year. Internationally, the rig count increase was driven primarily by an increase in the Europe, Latin America, and Middle East regions of 25% and 17%, respectively.
The worldwide rig count was 1,708 for the nine months ended September 30, 2022, an increase of 31% as compared to the same period last year primarily due to an increase in North America. Within North America, the increase was primarily driven by the U.S. rig count, which was up 58% when compared to the same period last year, and an increase in the Canada rig count, which was up 40% when compared to the same period last year. Internationally, the rig count increase was driven primarily by an increase in the Africa and Latin America regions of 25% and 2419%, 13%, and 10%, 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 statementstatements 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.
Baker Hughes Holdings LLC 2022 Third Quarter FormOur results of operations are evaluated by the 10-Q | 31
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, goodwill and inventory impairments, separation-related costs, 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 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.
Baker Hughes Holdings LLC 2023 First Quarter Form 10-Q | 27
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 ninethree months ended September 30March 31, 20222023, we recognized total orders of $187.86 billion, an increase of $30.78 billion, or 2512%, from the nine months ended September 30, 2021. For the three months ended September 30, 2022, weMarch 31, 2022.
For the three months ended March 31, 2023, our OFSE segment recognized orders of $64.1 billion, an increase of $0.78 billion, or 13%, from the 25% and our IET segment recognized orders of $3.5 billion, a decrease of $35 million, or 1% compared to the three months ended September 30March 31, 2021.2022. Within IET, Gas Technology Equipment orders were up $01.59 billion, or 20%, and serviceGas Technology Services orders were up $0.27 billion, or 7%. The increase in orders was driven by higher order intake in all segments for the three months ended March 31, 2023.
Remaining Performance Obligations ("RPO"): As of SeptemberMarch 3031, 20222023, the aggregate amount of the transaction price allocated to the unsatisfied (or partially unsatisfied) performance obligations was $24.7obligations was $29.6 billion. As of March 31, 2023, OFSE remaining performance obligations totaled $3.1 billion, and IET remaining performance obligations totaled $26.5 billion.
Revenue and Operating Income (Loss)Income
Revenue and operating income (loss)Summarized financial information for each of our four operatingthe Company's segments is provided belowshown in the following tables.
| | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30March 31, | $ Change | Nine Months Ended September 30, | $ Change |
| 2022 | 20212023 | 2022 | 2021 | |
| Segment revenueRevenue: | | | | | | |
| Oilfield ServicesWell Construction | $ | 21,842061 | | $ | 2,419883 | | $ | 423178 | | | | |
| Completions, Intervention & Measurements | 909 | | $ | 8,019781 | | $128 | | | | |
| Production Solutions | 6,976938 | | $825 | | 1,043 113 | | | | |
| Oilfield EquipmentSubsea & Surface Pressure Systems | 561 | | 603 | | (42) | | 1,630 | | 1,867 | | (237) | |
| Turbomachinery & Process Solutions | 1,438 | | 1,562 | | (124) | | 4,076 | | 4,675 | | (599) | |
| Digital Solutions670 | | 528 | | 510 | | 19 | | 1,526142 | | | | |
| Oilfield Services & Equipment | 3,577 | | 3,017 | | 560 | | | | |
| Gas Technology - Equipment | 827 | | 543 | | 284 | | | | |
| Gas Technology - Services | 591 | | 581 | | 10 | | | | |
| Total Gas Technology | 1,418 | | 1,124 | | 1,499 | | 27 294 | | | | |
| Condition Monitoring | 140 | | 126 | | 14 | | | | |
| Inspection | 254 | | 212 | | 42 | | | | |
| Pumps, Valves & Gears | 201 | | 221 | | (20) | | | | |
| PSI & Controls | 125 | | 136 | | (11) | | | | |
| Total Industrial Technology | 721 | | 694 | | 27 | | | | |
| Industrial & Energy Technology | 2,138 | | 1,818 | | 320 | | | | |
| Total | $ | 5,369716 | | $ | 5,0934,835 | | $ | 276881 | | $ | 15,251 | | $ | 15,017 | | $ | 234 | | |
Baker Hughes Holdings LLC 2022 Third2023 First Quarter Form 10-Q | 3228
The following table presents Oilfield Services & Equipment revenue by geographic region:
| | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30March 31, | $ Change | Nine Months Ended September 30 | |
| 2023 | 2022 | | |
| North America | $ | 992 | | $ | 823 | | $ | 169 | | | | |
| Latin America | 661 | | 440 | | 221 | | | | |
Europe/CIS/Sub-Saharan Africa (1) | 581 | | 660 | | (79) | | | | |
| Middle East/Asia | 1,345 | | 1,094 | | 251 | | | | |
| Oilfield Services & Equipment | $ | 3,577 | | $ | 3,017 | | $ | 560 | | | | |
| | | | | | |
| North America | $ | 992 | | $ | 823 | | $ | 169 | | | | |
| International | 2,586 | | 2,194 | | 392 | | | | |
(1)Impacted by the discontinuation of our Russia operations that occurred in 2022.
The following table presents segment operating income through to net income for the Company.
| | | | | | | | | | | | | | |
| Three Months Ended March 31, | $ Change | | |
| 2022 | 20212023 | 2022 | 2021 | |
| Segment operating income (loss): | | | | | | |
| Oilfield Services & Equipment | $ | 330371 | | $ | 190213 | | $ | 140 | | $ | 812 | | $ | 505 | | $ | 307 | |
| Oilfield Equipment | (6) | | 14 | | (20) | | (26) | | 45 | | (71) | |
| Turbomachinery & Process Solutions | 262 | | 278 | | (16) | | 705 | | 705 | | — | |
| Digital Solutions | 20 | | 26 | | (6) | | 53 | | 75 | | (22)158 | | | | |
| Industrial & Energy Technology | 241 | | 241 | | — | | | | |
| Total segment operating income | 606612 | | 508453 | | 98159 | | 1,544 | | 1,330 | | 214 | | |
| Corporate | (103100) | | (105) | | 25 | | (316) | | (324) | | 8 | | |
| | | | | | |
| Inventory impairment | — | | — | | — | | (31(18) | | — | | (31)18) | | | | |
| Restructuring, impairment and other | (23056) | | (1470) | | (216) | | (653) | | (219) | | (434) | |
| Separation related | (5) | | (11) | | 6 | | (23) | | (53) | | 30 14 | | | | |
| Operating income | 269438 | | 378279 | | (109) | | 522160 | | 736 | | (214) | | |
| Other non-operating income (loss), net | (60) | | (102) | | 42386 | | (65728) | | (791)414 | | 134 | | |
| Interest expense, net | (6564) | | (6764) | | 2— | | (188) | | (205) | | 17 | | |
| Income (loss) before income taxes | 144760 | | 209187 | | (65)573 | | (323) | | (260) | | (63) | | |
| | | | | | |
| Provision for income taxes | (145141) | | (189) | | 44 | | (42295) | | (42246) | | — | | |
| Net income (loss) | $ | (1) | | 619$ | 20 | | $ | (21)92 | | $ | (745)527 | | $ | (682) | | $ | (63) | | |
Segment Revenues and Segment Operating Income (Loss)
ThirdFirst Quarter of 20222023 Compared to the ThirdFirst Quarter of 20212022
Revenue increased $276881 million, or 518%, driven by higher volumeincreased activity in OFS and DS, partially offset by lower volume in TPS and OFE. OFSOFSE and IET. OFSE increased $423560 million and DSIET increased $19 million, partially offset by TPS which decreased $124 million and OFE which decreased $42 million.
320 million. Total segment operating income increased $98159 million. The increase was driven by OFS which increased $140 million, partially offset by OFE which decreased $20 million, TPS which decreased $16 million, and DS which decreased $6 million, driven by OFSE.
Oilfield Services & Equipment
OFS revenue of $2OFSE revenue of $3,842577 million increased $423560 million, or 1719%, in the thirdfirst quarter of 20222023 compared to the thirdfirst quarter of 2021, 2022, as a result of increased activity in North America and internationally, as evidenced by an increase in the global rig count. North America revenue was $942 million in the third quarter of 2022, an increase of $229 million from the third quarter of 2021. International revenue was $1,899 million in the third quarter of 2022, an increase of $194 million from the third quarter of 2021, driven by the North America revenue was $992 million in the first quarter of 2023, an increase of $169 million from the first quarter of 2022. International revenue was $2,586 million in the first quarter of 2023, an increase of $392 million from the first quarter of 2022, driven by the Latin America and Middle East, Latin America, Sub-Sahara Africa and Asia Pacific/Asia regions, partially offset by declines in the Europe/CIS/Sub-Saharan Africa region, driven by lower Russia Caspian and Europe regionsvolume.
OFSOFSE segment operating income was $330income was $371 million in the thirdfirst quarter of 20222023 compared to $190213 million in the thirdfirst quarter of 2021. The increase in2022. The increase in operating income was primarily driven by higher volume and price, partially offset by logisticscost inflation and commodity cost inflation.
Oilfield Equipment
OFE revenue of $561 million decreased $42 million, or 7%, in the third quarter of 2022 compared to the third quarter of 2021. The decrease was primarily driven by lower volume in the subsea production systems and from the removal of subsea drilling systems business from the consolidated OFE operations in the fourth quarter of 2021 due to the formation of a joint venture, partially offset by higher volume in the flexible pipe, services and surface pressure control projects businessesunfavorable cost productivity.
Baker Hughes Holdings LLC 2022 Third2023 First Quarter Form 10-Q | 3329
OFE segment operating loss was $6Industrial & Energy Technology
IET revenue of $2,138 million increased $320 million, or 18%, in the thirdfirst quarter of 2023 compared to the first quarter of 2022 compared to segment operating income of $14 million in the third quarter of 2021. The decrease in income. The increase was primarily driven by lowerhigher volume, inflationary pressure, and decreased cost productivity.
Turbomachinery & Process Solutions
TPS revenue of $1,438 million decreased $124 million, or 8%, in the third quarter of 2022 compared to the third quarter of 2021. The decrease was primarily driven by lower equipment and projects revenue, and in Gas Technology Equipment and, to a lesser extent, in Gas Technology Services and Industrial Technology, partially offset by unfavorable foreign currency translation impact. When compared to the prior year, equipment revenue was down 17%, and service revenue was flat. Equipment revenue in the quarter represented 41% and service revenue represented 59% of total segment revenue.
TPSIET segment operating income was $262241 million in the third quarter of 2022 compared to $278 million in the third quarter of 2021. The decrease in income was primarily driven by lower volume and cost inflation, partially offset by favorable business mix.
Digital Solutions
DS revenue of $528 million increased $19 million, or 4%, in the third quarter of 2022 compared to the thirdfirst quarter of 2023, flat when compared to the first quarter of 2021,2022. The operating income performance in the first quarter of 2023 was driven by higher volume across all businesses.
DS segment operating income was $20 million in the third quarter of 2022 compared to $26 million in the third quarter of 2021. The decrease in profitability was primarily driven by lower cost productivity and inflationary pressure as we continue to work through electronics shortages, partiallyand pricing actions in certain product lines, offset by increased volumeinflationary pressure, unfavorable business mix, higher research and development costs related to new energy investments, and unfavorable foreign currency translation impact.
Corporate
In the thirdfirst quarter of 20222023, corporate expenses were $103100 million compared to $105 million in the thirdfirst quarter of 2021.2022. The decrease of $25 million was primarily driven by cost efficiencies and past restructuring actions.
Inventory Impairment
In the first quarter of 2023, we recorded inventory impairments of $18 million, predominately in our OFSE segment. 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 thirdfirst quarter of 20222023, we recognized $23056 million of restructuring, impairment, and other charges, compared to $1470 million in the third quarter of 2021. The charges in the third the first 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 first quarter of 2023 primarily related to employee termination expenses driven by actions taken to facilitate the reorganization into two segments. 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 quarter of 2022 relate primarily to employee termination expenses and PP&E impairments driven by actions taken by the Company to facilitate its reorganization into two segments, as well as global footprint optimization projects in certain OFS and OFE businesses. In addition, we impaired certain long-lived assets in OFE for the SPS business due to a decrease in the estimated future cash flows driven byprimarily a decline in our long-term market outlook for this business. The charges in the third quarter of 2021 primarily related to initiatives in related to our OFSIET segment that were the continuation of our overall strategy to right-size our structural costsfor a write-off of an equity method investment and the release of foreign currency translation adjustments for this segmentcertain restructured product lines.
Other Non-Operating LossIncome (loss), Net
In the thirdfirst quarter of 20222023, we incurred $60386 million of other non-operating lossesincome. Included in this amount was a lossgain of $52392 million from the change in fair value in our C3 AI and ADNOCfor certain equity investments. For the thirdfirst quarter of 20212022, we incurred $10228 million of other non-operating losses. Included in this amount was a lossgain of $14011 million from the change in fair value in our C3 AI investmentfor certain equity investments.
Interest Expense, Net
In the thirdfirst quarter of 20222023, we incurred interest expense, net of interest income, of $6564 million, which decreased $2 millionwas flat compared to the thirdfirst quarter of 2021. The reduction was primarily driven by higher interest income2022.
Income Taxes
In the thirdfirst quarter of 20222023, the provision for income taxes was $145141 million. The difference between the U.S. statutory tax rate of 21% and the effective tax rate is primarily related to losses with noincome subject to U.S. tax benefit due to valuation
Baker Hughes Holdings LLC 2022 Third Quarter Form 10-Q | 34
allowances, restructuring charges for at an effective rate less than 21% due to valuation allowances, which a majority hasis partially offset no tax benefit, and earningsby income in jurisdictions with tax rates higher than in the U.S. In addition, since we are a partnership for U.S. federal tax purposes, any tax benefitsimpacts associated with U.S. income or losses are recognized by our Members and not reflected in our tax expense.
In the thirdfirst quarter of 20212022, the provision for income taxes was $18995 million. The difference between the U.S. statutory tax rate of 21% and the effective tax rate is primarily related to losses with no tax benefit due to valuation allowances and changes in unrecognized tax benefits related to uncertain tax positions.
The First Nine Months of 2022 Compared to the First Nine Months of 2021
Revenue increased $234 million, primarily driven by higher volume in OFS and, to a lesser extent, DS, partially offset by lower volume in TPS and OFE. OFS increased $1,043 million and DS increased $27 million, partially offset by TPS which decreased $599 million and OFE which decreased $237 million.
Total segment operating income increased $214 million. The increase was driven by OFS which increased $307 million, partially offset by OFE which decreased $71 million and DS which decreased $22 million.
Oilfield Services
OFS revenue of $8,019 million increased $1,043 million, or 15%, in the first nine months of 2022 compared to the first nine months of 2021, as a result of increased activity in North America and internationally, as evidenced by an increase in the global rig count. North America revenue was $2,585 million in the first nine months of 2022, an increase of $554 million from the first nine months of 2021. International revenue was $5,434 million in the first nine months of 2022, an increase of $489 million from the first nine months of 2021, driven by the Middle East, Latin America, Sub-Sahara Africa, and Asia Pacific regions, partially offset by declines in the Russia Caspian and Europe regions.
OFS segment operating income was $812 million in the first nine months of 2022 compared to $505 million in the first nine months of 2021. The increase in income was primarily driven by higher volume and price, partially offset by logistics and commodity cost inflation.
Oilfield Equipment
OFE revenue of $1,630 million decreased $237 million, or 13%, in the first nine months of 2022 compared to the first nine months of 2021. The decrease was primarily driven by lower volume in the subsea production systems and surface pressure control projects businesses, and from the removal of subsea drilling systems business from the consolidated OFE operations in the fourth quarter of 2021 due to the formation of a joint venture, partially offset by higher volume in the services and flexible pipe businesses.
OFE segment operating loss was $26 million in the first nine months of 2022 compared to segment operating income of $45 million in the first nine months of 2021. The decrease in income was primarily driven by lower volume, cost inflation, and decreased cost productivity.
Turbomachinery & Process Solutions
TPS revenue of $4,076 million decreased $599 million, or 13%, in the first nine months of 2022 compared to the first nine months of 2021. The decrease was primarily driven by lower equipment and projects revenue, partially offset by higher volume in industrial valves, pumps and gears. Equipment revenue was down 25% and service revenue was down 2% when compared to the prior year. Equipment revenue in the first nine months of 2022 represented 41% and service revenue represented 59% of total segment revenue.
TPS segment operating income was $705 million for the first nine months of 2022 and 2021. The income performance in 2022 was driven by favorable business mix and increased cost productivity, offset by lower volume, unfavorable foreign currency translation impact, and inflationary pressure.
Baker Hughes Holdings LLC 2022 Third Quarter Form 10-Q | 35
Digital Solutions
DS revenue of $1,526 million increased $27 million, or 2%, in the first nine months of 2022 compared to the first nine months of 2021, mainly driven by volume increases in Precision Sensors and Instrumentation, Waygate Technologies, and Process & Pipeline Services, partially offset by declines in the Bently Nevada and Nexus Controls businesses.
DS segment operating income was $53 million in the first nine months of 2022 compared to $75 million in the first nine months of 2021. The decrease in profitability was primarily driven by lower cost productivity and inflationary pressure, as the segment continues to work through electronic shortages, partially offset by higher volume.
Corporate
In the first nine months of 2022, corporate expenses were $316 million compared to $324 million in the first nine months of 2021. The decrease of $8 million was primarily driven by cost efficiencies and past restructuring actions.
Restructuring, Impairment and Other
In the first nine months of 2022, we recognized $653 million of restructuring, impairment and other charges, primarily related to the suspension of substantially all of our operations in Russia in the second quarter of 2022 as well as charges for employee terminations and PP&E impairments driven by actions taken by the Company to facilitate its reorganization into two segments, and global footprint optimization projects in certain OFS and OFE businesses. In addition, we impaired certain long-lived assets in our OFE segment for the SPS business due to a decrease in the estimated future cash flows driven by a decline in our long-term market outlook for this business. In the first nine months of 2021, we recognized $219 million in restructuring, impairment and other charges, primarily related to initiatives in our OFS segment that were the continuation of our overall strategy to right-size our structural costs in this segment.
Other Non-Operating Loss, Net
In the first nine months of 2022, we incurred $657 million of other non-operating losses. Included in this amount was a loss of $426 million related to the OFS business in Russia, which was classified as held for sale in the second quarter, and a loss of $164 million related to marking our investments in C3 AI and ADNOC to fair value. For the first nine months of 2021, we incurred $791 million of other non-operating losses. Included in this amount were net losses of $955 million related to marking our investment in C3 AI to fair value, partially offset by the reversal of current accruals of $121 million due to the settlement of certain legal matters.
Interest Expense, Net
In the first nine months of 2022, we incurred interest expense, net of interest income, of $188 million, which decreased $17 million compared to the first nine months of 2021, primarily driven by higher interest income.
Income Taxes
In the first nine months of 2022, the provision for income taxes was $422 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 for which a majority has no tax benefit, and earnings in jurisdictions with tax rates higher than the U.S.
In the first nine months of 2021, the provision for income taxes was $422 million. The difference between the U.S. statutory tax rate of 21% and the effective tax rate is primarily related to losses with no tax benefit due to valuation allowances and changes in unrecognizedincome in jurisdictions with tax rates higher than the U.S., partially offset by tax benefits related to uncertain tax positions.
Baker Hughes Holdings LLC 2023 First Quarter Form 10-Q | 30
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
Baker Hughes Holdings LLC 2022 Third Quarter Form 10-Q | 36
and liquidity. At Septemberand liquidity. At March 3031, 20222023, we had cash and cash equivalents of $2.84 billion compared to $32.85 billion at December 31, 20212022.
In the U.S. we held cash and cash equivalents of approximately $0.87 billion and $10.6 billion and outside the U.S. of approximately $21.17 billion and $21.29 billion as of SeptemberMarch 3031, 20222023 and December 31, 20212022, respectively. A substantial portion of the cash held outside the U.S. at SeptemberMarch 3031, 20222023 has been reinvested in active non-U.S. business operations. If we decide at a later date to repatriate those funds to the U.S., we may incur other additional taxes that would not be significant to the total tax provision.
We have a $3 billion committed unsecured revolving credit facility ("the Credit Agreement") with commercial banks maturing in December 2024. 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 SeptemberMarch 3031, 20222023 and December 31, 20212022, 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 98. BorrowingsDebt" of the Notes to Unaudited Condensed Consolidated Financial Statements in this Quarterly Report for further details. At SeptemberMarch 3031, 20222023, we were in compliance with all debt covenants. Our next debt maturity is December 2023.
We continuously review our liquidity and capital resources. If market conditions were to change, for instance due to the uncertainty created by geopolitical events, a global pandemic or a significant decline in oil and gas prices, and our revenue was reduced significantly or operating costs were to increase significantly, our cash flows and liquidity could be negatively impacted. Additionally, it could cause the rating agencies to lower our credit ratings. There are no ratings triggers that would accelerate the maturity of any borrowings under our committed credit facility; however, a downgrade in our credit ratings could increase the cost of borrowings under the credit facility and could also limit or preclude our ability to issue commercial paper. Should this occur, we could seek alternative sources of funding, including borrowing under the credit facility.
During the ninethree months ended September 30March 31, 20222023, we dispersed cash to fund a variety of activities including certain working capital needs, capital expenditures, and distributions to Members, and repurchases of our Units.
Cash Flows
Cash flows provided by (used in) each type of activity were as follows for the ninethree months ended September 30March 31:
| | | | | | | | |
| (In millions) | 20222023 | 20212022 |
| Operating activities | $ | 997462 | | $ | 1,59878 | |
| Investing activities | (580229) | | (212266) | |
| Financing activities | (1,297250) | | (1,585469) | |
Operating Activities
Cash flows from operating activities generated cash of $462 million and $78 million for the three months ended March 31, 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.
Cash flows from operating activities generated cash of $997 million and $1,598 Baker Hughes Holdings LLC 2023 First Quarter Form 10-Q | 31
For the three months ended March 31, 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 usage was $132 million for the ninethree months ended September 30, 2022 and 2021, respectivelyMarch 31, 2023, mainly due to the increase in receivables, and inventory as we continue to build for revenue growth, partially offset by strong progress collections on equipment contracts.
For the ninethree months ended September 30March 31, 2022, cash generated from operating activities were primarily driven by net income adjusted for certain noncash items (including depreciation, amortization, loss on assets held for sale, lossgain on equity securities, and the impairment of certain assetsstock-based compensation costs, and deferred tax provision). Net working capital cash usage was $261153 million for the nine three months ended September 30March 31, 2022, mainly due to the increase in receivables, driven primarily by lower collections, and inventory as we buildbuilt for revenue growth, partially offset by strong progress collections on equipment contracts.
Baker Hughes Holdings LLC 2022 Third Quarter Form 10-Q | 37
For the nine months ended September 30, 2021, cash generated from operating activities were primarily driven by net losses adjusted for certain noncash items (including depreciation, amortization, and loss on equity securities) and working capital, which includes contract and other deferred assets. Net working capital generation was $481 million for the nine months ended September 30, 2021, mainly due to receivables, inventory, and contract assets, partially offset by progress collections, as we continued to improve our working capital processes.
Investing Activities
Cash flows from investing activities used cash of $580229 million and $212266 million for the ninethree months ended September 30March 31, 20222023 and 20212022, respectively.
Our principal recurring investing activity is the funding of capital expenditures including property, plant and equipment and software, to support and generate revenue from operations. Expenditures for capital assets were $720310 million and $590268 million for the ninethree months ended September 30March 31, 20222023 and 20212022, respectively. Proceeds, partially offset by cash flows from the sale of property, plant and equipment were("PP&E") of $18946 million and $17891 million for the ninethree months ended September 30March 31, 20222023 and 2021, respectively.
There were no C3 AI Shares2022, 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 during the nine months ended September 30, 2022. During the nine months ended September 30, 2021, we sold approximately 2.2 million of C3 AI Shares and received proceeds of $145 million, which is included in other investing activitiesthroughout the period.
Financing Activities
Cash flows from financing activities used cash of $1,297250 million and $1,585469 million for the ninethree months ended September 30March 31, 20222023 and 2021, respectively.
We had net repayments of debt and other borrowings of $22 million and $60 million for the nine months ended September 30, 2022 and 2021, respectively. In April 2021, we repaid $832 million (£600 million) of commercial paper originally issued in May 2020 under the COVID Corporate Financing Facility established by the Bank of England2022, respectively.
We made distributions to our Members of $552192 million and $563185 million during the ninethree months ended September 30March 31, 20222023 and 20212022, respectively.
In 2021, Baker Hughes' Board of Directors authorized us to repurchase up to $2 billion of our Units. ForThere were no Units repurchased during the ninethree months ended September 30March 31, 2023. During the three months ended March 31, 2022, we repurchased and canceled 258.51 million Units for a total of $727236 million. ForAs the nine months ended September 30, 2021of March 31, 2023, we repurchased and canceled 4.4 million Units for a totalhad authorization remaining to repurchase up to approximately $2.8 billion of $106 millionour Units.
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 distributions, repay debt, repurchase our common units, 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 20222023 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 $525500 million to $625550 million in 20222023.
Baker Hughes Holdings LLC 2022 Third2023 First Quarter Form 10-Q | 3832
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 1416% and in Mexico 13% as of SeptemberMarch 30, 2022. In Mexico, our gross customer receivables were 11% as of September 30, 202231, 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 7273% of the total cash balance as of SeptemberMarch 3031, 20222023. We may not be able to use this cash quickly and efficiently due to exchange or cash controls that could make it challenging. As a result, our cash balance may not represent our ability to quickly and efficiently use this cash.
Supply chain finance programs: Under supply chain finance programs, administered by a third party, our suppliers are given the opportunity to sell receivables from us to participating financial institutions at their sole discretion at a rate that leverages our credit rating and thus might be more beneficial to our suppliers. Our responsibility is limited to making payment on the terms originally negotiated with our supplier, regardless of whether the supplier sells its receivable to a financial institution. The range of payment terms we negotiate with our suppliers is consistent, irrespective of whether a supplier participates in the program. These liabilities continue to be presented as accounts payable in our condensed consolidated statements of financial position and reflected as cash flow from operating activities when settled. We do not believe that changes in the availability of supply chain financing programs would have a material impact on our liquidity.
CRITICAL ACCOUNTING ESTIMATES
Our critical accounting estimation processes are consistent with those described in Item 7 of Part II, "Management's discussion and analysis of financial condition and results of operations" of our 20212022 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 20212022 Annual Report and those set forth from time-to-time in other filings by the Company with the SEC. These documents are available through our website or through the SEC's Electronic Data Gathering and Analysis Retrieval (EDGAR) system at http://www.sec.gov.
Any forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q. The Company does not undertake any obligation to update any forward-looking statements, whether as a result of new information or developments, future events or otherwise, except as required by law. Readers are cautioned not to place undue reliance on any of these forward-looking statements.
Baker Hughes Holdings LLC 2022 Third Quarter Form 10-Q | 39
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
For quantitative and qualitative disclosures about market risk affecting us, see Item 7A. “Quantitative and Qualitative Disclosures about Market Risk,” in our 20212022 Annual Report. Our exposure to market risk has not changed materially since December 31, 20212022.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of disclosure controls and procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation,
Baker Hughes Holdings LLC 2023 First Quarter Form 10-Q | 33
the Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures (as defined in Rule 15d-15(e) of the Exchange Act) were effective at a reasonable assurance level.
There has been no change in our internal controls over financial reporting during the quarter ended SeptemberMarch 3031, 20222023 that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.
Baker Hughes Holdings LLC 2022 Third2023 First Quarter Form 10-Q | 4034
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See discussion of legal proceedings in "Note 15. Commitments Andand Contingencies" of the Notes to Unaudited Condensed Consolidated Financial Statements in this Quarterly Report, Item 3 of Part I of our 20212022 Annual Report and Note 17 of the Notes to Consolidated Financial Statements included in Item 8 of our 20212022 Annual Report.
ITEM 1A. RISK FACTORS
As of the date of this filing, the Company and its operations continue to be subject to the risk factors previously discussed in the "Risk Factors" sections contained in the 20212022 Annual Report and our Quarterly Report on Form 10-Q for the quarter ended March 31, 2022.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
We have no mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K to report for the current quarter.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
Each exhibit identified below is filed as a part of this report. Exhibits designated with an "*" are filed as an exhibit to this Quarterly Report on Form 10-Q and Exhibits designated with an "**" are furnished as an exhibit to this Quarterly Report on Form 10-Q. Exhibits designated with a "+" are identified as management contracts or compensatory plans or arrangements. Exhibits previously filed are incorporated by reference.
| | | | | | | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| 101.INS* | | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
| 101.SCH* | | XBRL Schema Document |
| 101.CAL* | | XBRL Calculation Linkbase Document |
| 101.DEF* | | XBRL Definition Linkbase Document |
| 101.LAB* | | XBRL Label Linkbase Document |
| 101.PRE* | | XBRL Presentation Linkbase Document |
| 104* | | Cover Page Interactive Data File (Embedded within the Inline XBRL document and included in Exhibit 101) |
Baker Hughes Holdings LLC 2022 Third2023 First Quarter Form 10-Q | 4135
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | | | | | | | | | | |
| | Baker Hughes Holdings LLC (Registrant) |
| | | |
| Date: | October 20April 19, 20222023 | By: | /s/ BRIAN WORRELLNANCY BUESE |
| | Brian WorrellNancy Buese |
| | Chief Financial Officer |
| | | |
| Date: | October 20April 19, 20222023 | By: | /s/ KURT CAMILLERI |
| | Kurt Camilleri |
| | Senior Vice President, Controller and Chief Accounting Officer |
Baker Hughes Holdings LLC 2022 Third2023 First Quarter Form 10-Q | 4236