UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||||||
For the quarterly period ended March 31, 2022
OR
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||||||
Commission File Number 1-38143
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction | (I.R.S. Employer Identification No.) | ||||||||||
| of incorporation or organization) | |||||||||||
| (Address of principal executive offices) | (Zip Code) | ||||||||||
Registrant's telephone number, including area code: (713 ) 439-8600
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol | Name of each exchange on which registered | ||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer" "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
| ☑ | Accelerated filer | ☐ | Non-accelerated filer | ☐ | Smaller reporting company | Emerging growth company | |||||||||||||||||||||||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☑
As of April 14, 2022, the registrant had outstanding 984,576,063 shares of Class A Common Stock, $0.0001 par value per share and 40,590,890 shares of Class B Common Stock, $0.0001 par value per share.
Baker Hughes Company
Table of Contents
Page No. | ||||||||
Baker Hughes Company 2022 First Quarter Form 10-Q | i
PART I — FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
Baker Hughes Company
Condensed Consolidated Statements of Income (Loss)
(Unaudited)
| Three Months Ended March 31, | ||||||||
| (In millions, except per share amounts) | 2022 | 2021 | ||||||
| Revenue: | ||||||||
| Sales of goods | $ | $ | ||||||
| Sales of services | ||||||||
| Total revenue | ||||||||
| Costs and expenses: | ||||||||
| Cost of goods sold | ||||||||
| Cost of services sold | ||||||||
| Selling, general and administrative | ||||||||
| Restructuring, impairment and other | ||||||||
| Separation related | ||||||||
| Total costs and expenses | ||||||||
| Operating income | ||||||||
| Other non-operating loss, net | ( | ( | ||||||
| Interest expense, net | ( | ( | ||||||
| Income (loss) before income taxes | ( | |||||||
| Provision for income taxes | ( | ( | ||||||
| Net income (loss) | ( | |||||||
| Less: Net income (loss) attributable to noncontrolling interests | ( | |||||||
| Net income (loss) attributable to Baker Hughes Company | $ | $ | ( | |||||
| Per share amounts: | ||||||||
| Basic & diluted income (loss) per Class A common stock | $ | $ | ( | |||||
| Cash dividend per Class A common stock | $ | $ | ||||||
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
Baker Hughes Company 2022 First Quarter Form 10-Q | 1
Baker Hughes Company
Condensed Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)
| Three Months Ended March 31, | ||||||||
| (In millions) | 2022 | 2021 | ||||||
| Net income (loss) | $ | $ | ( | |||||
| Less: Net income (loss) attributable to noncontrolling interests | ( | |||||||
| Net income (loss) attributable to Baker Hughes Company | ( | |||||||
| Other comprehensive income (loss): | ||||||||
| Foreign currency translation adjustments | ( | |||||||
| Cash flow hedges | ||||||||
| Benefit plans | ||||||||
| Other comprehensive income (loss) | ( | |||||||
| Less: Other comprehensive income (loss) attributable to noncontrolling interests | ( | |||||||
| Other comprehensive income (loss) attributable to Baker Hughes Company | ( | |||||||
| Comprehensive income (loss) | ( | |||||||
| Less: Comprehensive income (loss) attributable to noncontrolling interests | ( | |||||||
| Comprehensive income (loss) attributable to Baker Hughes Company | $ | $ | ( | |||||
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
Baker Hughes Company 2022 First Quarter Form 10-Q | 2
Baker Hughes Company
Condensed Consolidated Statements of Financial Position
(Unaudited)
(In millions, except par value) | March 31, 2022 | December 31, 2021 | ||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Current receivables, net | ||||||||
| Inventories, net | ||||||||
| All other current assets | ||||||||
| Total current assets | ||||||||
Property, plant and equipment (net of accumulated depreciation of $ | ||||||||
| Goodwill | ||||||||
| Other intangible assets, net | ||||||||
| Contract and other deferred assets | ||||||||
| All other assets | ||||||||
| Deferred income taxes | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Current portion of long-term debt | ||||||||
| Progress collections and deferred income | ||||||||
| All other current liabilities | ||||||||
| Total current liabilities | ||||||||
| Long-term debt | ||||||||
| Deferred income taxes | ||||||||
| Liabilities for pensions and other postretirement benefits | ||||||||
| All other liabilities | ||||||||
| Equity: | ||||||||
Class A Common Stock, $ | ||||||||
Class B Common Stock, $ | ||||||||
Capital in excess of par value | ||||||||
| Retained loss | ( | ( | ||||||
| Accumulated other comprehensive loss | ( | ( | ||||||
| Baker Hughes Company equity | ||||||||
| Noncontrolling interests | ||||||||
| Total equity | ||||||||
| Total liabilities and equity | $ | $ | ||||||
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
Baker Hughes Company 2022 First Quarter Form 10-Q | 3
Baker Hughes Company
Condensed Consolidated Statements of Changes in Equity
(Unaudited)
(In millions, except per share amounts) | Class A and Class B Common Stock | Capital in Excess of Par Value | Retained Loss | Accumulated Other Comprehensive Loss | Non- controlling Interests | Total Equity | ||||||||||||||
| Balance at December 31, 2021 | $ | $ | $ | ( | $ | ( | $ | $ | ||||||||||||
| Comprehensive income: | ||||||||||||||||||||
| Net income | ||||||||||||||||||||
| Other comprehensive income | ||||||||||||||||||||
Dividends on Class A common stock ($ | ( | ( | ||||||||||||||||||
| Distributions to GE | ( | ( | ||||||||||||||||||
| Effect of exchange of Class B common stock and associated BHH LLC Units for Class A common stock | ( | ( | ||||||||||||||||||
| Repurchase and cancellation of Class A common stock | ( | ( | ( | |||||||||||||||||
| Stock-based compensation cost | ||||||||||||||||||||
| Other | ( | ( | ( | |||||||||||||||||
| Balance at March 31, 2022 | $ | $ | $ | ( | $ | ( | $ | $ | ||||||||||||
(In millions, except per share amounts) | Class A and Class B Common Stock | Capital in Excess of Par Value | Retained Loss | Accumulated Other Comprehensive Loss | Non- controlling Interests | Total Equity | ||||||||||||||
| Balance at December 31, 2020 | $ | $ | $ | ( | $ | ( | $ | $ | ||||||||||||
| Comprehensive loss: | ||||||||||||||||||||
| Net loss | ( | ( | ( | |||||||||||||||||
| Other comprehensive loss | ( | ( | ( | |||||||||||||||||
Dividends on Class A common stock ($ | ( | ( | ||||||||||||||||||
| Distributions to GE | ( | ( | ||||||||||||||||||
| Effect of exchange of Class B common stock and associated BHH LLC Units for Class A common stock | ( | ( | ||||||||||||||||||
| Stock-based compensation cost | ||||||||||||||||||||
| Other | ( | ( | ( | |||||||||||||||||
| Balance at March 31, 2021 | $ | $ | $ | ( | $ | ( | $ | $ | ||||||||||||
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
Baker Hughes Company 2022 First Quarter Form 10-Q | 4
Baker Hughes Company
Condensed Consolidated Statements of Cash Flows
(Unaudited)
| Three Months Ended March 31, | ||||||||
| (In millions) | 2022 | 2021 | ||||||
| Cash flows from operating activities: | ||||||||
| Net income (loss) | $ | $ | ( | |||||
| Adjustments to reconcile net income (loss) to net cash flows from operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| (Gain) loss on equity securities | ( | |||||||
| Changes in operating assets and liabilities: | ||||||||
| Current receivables | ( | |||||||
| Inventories | ( | |||||||
| Accounts payable | ( | |||||||
| Progress collections and deferred income | ( | |||||||
| Contract and other deferred assets | ( | |||||||
| Other operating items, net | ( | ( | ||||||
| Net cash flows from operating activities | ||||||||
| Cash flows from investing activities: | ||||||||
| Expenditures for capital assets | ( | ( | ||||||
| Proceeds from disposal of assets | ||||||||
| Other investing items, net | ( | |||||||
| Net cash flows used in investing activities | ( | ( | ||||||
| Cash flows from financing activities: | ||||||||
| Net repayments of debt and other borrowings | ( | ( | ||||||
| Dividends paid | ( | ( | ||||||
| Distributions to GE | ( | ( | ||||||
| Repurchase of Class A common stock | ( | |||||||
| Other financing items, net | ( | ( | ||||||
| Net cash flows used in financing activities | ( | ( | ||||||
| Effect of currency exchange rate changes on cash and cash equivalents | ||||||||
| Increase (decrease) in cash and cash equivalents | ( | |||||||
| Cash and cash equivalents, beginning of period | ||||||||
| Cash and cash equivalents, end of period | $ | $ | ||||||
| Supplemental cash flows disclosures: | ||||||||
| Income taxes paid, net of refunds | $ | $ | ||||||
| Interest paid | $ | $ | ||||||
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
Baker Hughes Company 2022 First Quarter Form 10-Q | 5
Baker Hughes Company
Notes to Unaudited Condensed Consolidated Financial Statements
NOTE 1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF THE BUSINESS
Baker Hughes Company ("Baker Hughes", "the Company", "we", "us", or "our") is an energy technology company with a diversified portfolio of technologies and services that span the energy and industrial value chain. We are a holding company and have no material assets other than our 96 % ownership interest in our operating company, Baker Hughes Holdings LLC ("BHH LLC"), and certain intercompany and tax related balances. BHH LLC is a Securities and Exchange Commission ("SEC") Registrant with separate filing requirements with the SEC and its separate financial information can be obtained from www.sec.gov.
BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S." and such principles, "U.S. GAAP") and pursuant to the rules and regulations of the SEC for interim financial information. Accordingly, certain information and disclosures normally included in our annual financial statements have been condensed or omitted. Therefore, these unaudited condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2021 ("2021 Annual Report").
We hold a majority economic interest in BHH LLC and conduct and exercise full control over all activities of BHH LLC without the approval of any other member. Accordingly, we consolidate the financial results of BHH LLC and report a noncontrolling interest in our condensed consolidated financial statements for the economic interest held by General Electric ("GE"). As of March 31, 2022, GE's economic interest in BHH LLC was 4 %. See "Note 11. Equity" for further information.
In the opinion of management, the condensed consolidated financial statements reflect all adjustments (consisting of normal recurring adjustments) considered necessary by management to fairly state our results of operations, financial position and cash flows of the Company and its subsidiaries for the periods presented and are not indicative of the results that may be expected for a full year. The Company's financial statements have been prepared on a consolidated basis. Under this basis of presentation, our financial statements consolidate all of our subsidiaries (entities in which we have a controlling financial interest, most often because we hold a majority voting interest). All intercompany accounts and transactions have been eliminated.
In the Company's financial statements and notes, certain prior year amounts have been reclassified to conform to the current year presentation. In the notes to the unaudited condensed consolidated financial statements, all dollar and share amounts in tabulations are in millions of dollars and shares, respectively, unless otherwise indicated. Certain columns and rows in our financial statements and notes thereto may not add due to the use of rounded numbers.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Please refer to "Note 1. Basis of Presentation and Summary of Significant Accounting Policies," to our consolidated financial statements from our 2021 Annual Report for the discussion of our significant accounting policies.
Cash and Cash Equivalents
As of March 31, 2022 and December 31, 2021, we had $619 million and $601 million, respectively, of cash held in bank accounts that cannot be readily released, transferred or otherwise converted into a currency that is regularly transacted internationally, due to lack of market liquidity, capital controls or similar monetary or exchange limitations limiting the flow of capital out of the jurisdiction. These funds are available to fund operations and growth in these jurisdictions, and we do not currently anticipate a need to transfer these funds to the U.S.
Baker Hughes Company 2022 First Quarter Form 10-Q | 6
Baker Hughes Company
Notes to Unaudited Condensed Consolidated Financial Statements
NEW ACCOUNTING STANDARDS TO BE ADOPTED
New accounting pronouncements that have been issued but not yet effective are currently being evaluated and at this time are not expected to have a material impact on our financial position or results of operations.
NOTE 2. REVENUE RELATED TO CONTRACTS WITH CUSTOMERS
DISAGGREGATED REVENUE
We disaggregate our revenue from contracts with customers by primary geographic markets.
| Three Months Ended March 31, | ||||||||
| Total Revenue | 2022 | 2021 | ||||||
| U.S. | $ | $ | ||||||
| Non-U.S. | ||||||||
| Total | $ | $ | ||||||
REMAINING PERFORMANCE OBLIGATIONS
As of March 31, 2022 and 2021, the aggregate amount of the transaction price allocated to the unsatisfied (or partially unsatisfied) performance obligations was $25.8 billion and $23.2 billion, respectively. As of March 31, 2022, we expect to recognize revenue of approximately 53 %, 68 % and 87 % of the total remaining performance obligations within 2 , 5 , and 15 years, respectively, and the remaining thereafter. Contract modifications could affect both the timing to complete as well as the amount to be received as we fulfill the related remaining performance obligations.
NOTE 3. CURRENT RECEIVABLES
Current receivables are comprised of the following:
| March 31, 2022 | December 31, 2021 | |||||||
| Customer receivables | $ | $ | ||||||
| Related parties | ||||||||
| Other | ||||||||
| Total current receivables | ||||||||
| Less: Allowance for credit losses | ( | ( | ||||||
| Total current receivables, net | $ | $ | ||||||
Customer receivables are recorded at the invoiced amount. Related parties consists of amounts owed to us primarily by GE. The "Other" category consists primarily of indirect taxes, advance payments to suppliers, and customer retentions.
NOTE 4. INVENTORIES
Inventories, net of reserves of $384 million and $374 million as of March 31, 2022 and December 31, 2021, respectively, are comprised of the following:
| March 31, 2022 | December 31, 2021 | |||||||
| Finished goods | $ | $ | ||||||
| Work in process and raw materials | ||||||||
| Total inventories, net | $ | $ | ||||||
Baker Hughes Company 2022 First Quarter Form 10-Q | 7
Baker Hughes Company
Notes to Unaudited Condensed Consolidated Financial Statements
NOTE 5. GOODWILL AND OTHER INTANGIBLE ASSETS
GOODWILL
The changes in the carrying value of goodwill are detailed below by segment:
| Oilfield Services | Oilfield Equipment | Turbo- machinery & Process Solutions | Digital Solutions | Total | |||||||||||||
| Balance at December 31, 2020, gross | $ | $ | $ | $ | $ | ||||||||||||
| Accumulated impairment at December 31, 2020 | ( | ( | ( | ( | |||||||||||||
| Balance at December 31, 2020 | |||||||||||||||||
Currency exchange and others | ( | ( | ( | ||||||||||||||
| Balance at December 31, 2021 | |||||||||||||||||
| Currency exchange and others | ( | ||||||||||||||||
| Balance at March 31, 2022 | $ | $ | $ | $ | $ | ||||||||||||
We perform our annual goodwill impairment test for each of our reporting units as of July 1 of each fiscal year, in conjunction with our annual strategic planning process. Our reporting units are the same as our four
During the first quarter of 2022, we completed a review to assess whether indicators of impairment existed. As a result of this assessment, we concluded that no indicators existed that would lead to a determination that it is more likely than not that the fair value of each reporting unit is less than its carrying value. There can be no assurances that future sustained declines in macroeconomic or business conditions affecting our industry will not occur, which could result in goodwill impairment charges in future periods.
OTHER INTANGIBLE ASSETS
Intangible assets are comprised of the following:
| March 31, 2022 | December 31, 2021 | |||||||||||||||||||
| Gross Carrying Amount | Accumulated Amortization | Net | Gross Carrying Amount | Accumulated Amortization | Net | |||||||||||||||
| Customer relationships | $ | $ | ( | $ | $ | $ | ( | $ | ||||||||||||
| Technology | ( | ( | ||||||||||||||||||
| Trade names and trademarks | ( | ( | ||||||||||||||||||
| Capitalized software | ( | ( | ||||||||||||||||||
| Finite-lived intangible assets | ( | ( | ||||||||||||||||||
| Indefinite-lived intangible assets | — | — | ||||||||||||||||||
| Total intangible assets | $ | $ | ( | $ | $ | $ | ( | $ | ||||||||||||
Intangible assets are generally amortized on a straight-line basis with estimated useful lives ranging from 1 to 35 years. Amortization expense for the three months ended March 31, 2022 and 2021 was $55 million and $69 million, respectively.
Baker Hughes Company 2022 First Quarter Form 10-Q | 8
Baker Hughes Company
Notes to Unaudited Condensed Consolidated Financial Statements
Estimated amortization expense for the remainder of 2022 and each of the subsequent five fiscal years is expected to be as follows:
| Year | Estimated Amortization Expense | ||||
| Remainder of 2022 | $ | ||||
| 2023 | |||||
| 2024 | |||||
| 2025 | |||||
| 2026 | |||||
| 2027 | |||||
NOTE 6. CONTRACT AND OTHER DEFERRED ASSETS
Our long-term product service agreements relate to our Turbomachinery & Process Solutions segment. Contract assets reflect revenue earned in excess of billings on our long-term contracts to construct technically complex equipment, long-term product maintenance or extended warranty arrangements and other deferred contract related costs. Contract assets are comprised of the following:
| March 31, 2022 | December 31, 2021 | |||||||
| Long-term product service agreements | $ | $ | ||||||
Long-term equipment contracts (1) | ||||||||
| Contract assets (total revenue in excess of billings) | ||||||||
| Deferred inventory costs | ||||||||
| Non-recurring engineering costs | ||||||||
| Contract and other deferred assets | $ | $ | ||||||
(1)Reflects revenue earned in excess of billings on our long-term contracts to construct technically complex equipment and certain other service agreements.
Revenue recognized during the three months ended March 31, 2022 and 2021 from performance obligations satisfied (or partially satisfied) in previous periods related to our long-term service agreements was $(4 ) million and nil , respectively. This includes revenue recognized from revisions to cost or billing estimates that may affect a contract’s total estimated profitability resulting in an adjustment of earnings.
NOTE 7. PROGRESS COLLECTIONS AND DEFERRED INCOME
Contract liabilities include progress collections, which reflects billings in excess of revenue, and deferred income on our long-term contracts to construct technically complex equipment, long-term product maintenance or extended warranty arrangements. Contract liabilities are comprised of the following:
| March 31, 2022 | December 31, 2021 | |||||||
| Progress collections | $ | $ | ||||||
| Deferred income | ||||||||
| Progress collections and deferred income (contract liabilities) | $ | $ | ||||||
Revenue recognized during the three months ended March 31, 2022 and 2021 that was included in the contract liabilities at the beginning of the period was $739 million and $878 million, respectively.
Baker Hughes Company 2022 First Quarter Form 10-Q | 9
Baker Hughes Company
Notes to Unaudited Condensed Consolidated Financial Statements
NOTE 8. LEASES
Our leasing activities primarily consist of operating leases for administrative offices, manufacturing facilities, research centers, service centers, sales offices and certain equipment.
| Three Months Ended March 31, | ||||||||
| Operating Lease Expense | 2022 | 2021 | ||||||
| Long-term fixed lease | $ | $ | ||||||
| Long-term variable lease | ||||||||
| Short-term lease | ||||||||
| Total operating lease expense | $ | $ | ||||||
Cash flows used in operating activities for operating leases approximates our expense for the three months ended March 31, 2022 and 2021.
The weighted-average remaining lease term as of March 31, 2022 and December 31, 2021 was approximately nine years 3.3
NOTE 9. BORROWINGS
The Company's borrowings are comprised of the following:
| March 31, 2022 | December 31, 2021 | |||||||
| Current borrowings | ||||||||
| Other borrowings | $ | $ | ||||||
| Long-term borrowings | ||||||||
| Other long-term borrowings | ||||||||
| Total long-term borrowings | ||||||||
| Total borrowings | $ | $ | ||||||
The estimated fair value of total borrowings at March 31, 2022 and December 31, 2021 was $6,732 million and $7,328 million, respectively. For a majority of our borrowings the fair value was determined using quoted period-end market prices. Where market prices are not available, we estimate fair values based on valuation methodologies using current market interest rate data adjusted for our non-performance risk.
BHH LLC has a $3 billion committed unsecured revolving credit facility ("the Credit Agreement") with commercial banks maturing in December 2024. In addition, we have a commercial paper program with authorization up to $3 billion under which we may issue from time to time commercial paper with maturities of no
Baker Hughes Company 2022 First Quarter Form 10-Q | 10
Baker Hughes Company
Notes to Unaudited Condensed Consolidated Financial Statements
more than 397 days. At March 31, 2022 and December 31, 2021, there were no
Baker Hughes Co-Obligor, Inc. is a co-obligor, jointly and severally with BHH LLC on our long-term debt securities. This co-obligor is a 100 %-owned finance subsidiary of BHH LLC that was incorporated for the sole purpose of serving as a corporate co-obligor of long-term debt securities and has no assets or operations other than those related to its sole purpose. As of March 31, 2022, Baker Hughes Co-Obligor, Inc. is a co-obligor of our long-term debt securities totaling $6,594 million.
Certain Senior Notes contain covenants that restrict BHH LLC's ability to take certain actions, including, but not limited to, the creation of certain liens securing debt, the entry into certain sale-leaseback transactions, and engaging in certain merger, consolidation and asset sale transactions in excess of specified limits. At March 31, 2022, we were in compliance with all debt covenants.
NOTE 10. INCOME TAXES
For the three months ended March 31, 2022, the provision for income taxes was $107 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 earnings in jurisdictions with tax rates higher than the U.S., partially offset by tax benefits related to uncertain tax positions.
For the three months ended March 31, 2021, the provision for income taxes was $69 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.
NOTE 11. EQUITY
COMMON STOCK
We are authorized to issue 2 billion shares of Class A common stock, 1.25 billion shares of Class B common stock and 50 million shares of preferred stock each of which have a par value of $0.0001 per share. The number of shares outstanding of Class A and Class B common stock as of March 31, 2022 is 985 million and 41 million, respectively. We have not issued any preferred stock. GE owns all the issued and outstanding Class B common stock. Each share of Class A and Class B common stock and the associated membership interest in BHH LLC form a paired interest. While each share of Class B common stock has equal voting rights to a share of Class A common stock, it has no economic rights, meaning holders of Class B common stock have no right to dividends or any assets in the event of liquidation of the Company. GE is entitled through their ownership of BHH LLC common units ("LLC Units") to receive distributions on an equal amount of any dividend paid by the Company.
In 2021, our Board of Directors authorized each of the Company and BHH LLC to repurchase up to $2 billion of its Class A common stock and LLC Units, respectively. We expect to fund the repurchase program from cash generated from operations, and we expect to make share repurchases from time to time subject to the Company's capital plan, market conditions, and other factors, including regulatory restrictions. The repurchase program may be suspended or discontinued at any time and does not have a specified expiration date. During the three months ended March 31, 2022, the Company and BHH LLC repurchased and canceled 8.1 million shares of Class A common stock and LLC Units, respectively, each for $236 million, representing an average price per share of $28.96 . This includes 0.4 million shares totaling $11 million that were repurchased in December 2021 but not settled and cancelled until January 2022. At March 31, 2022, the Company and BHH LLC had authorization remaining to repurchase up to approximately $1.3 billion of its Class A common stock and LLC Units, respectively.
Baker Hughes Company 2022 First Quarter Form 10-Q | 11
Baker Hughes Company
Notes to Unaudited Condensed Consolidated Financial Statements
The following table presents the changes in the number of shares outstanding (in thousands):
| Class A Common Stock | Class B Common Stock | |||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||
| Balance at January 1 | ||||||||||||||
Issue of shares upon vesting of restricted stock units (1) | ||||||||||||||
Issue of shares on exercises of stock options (1) | ||||||||||||||
| Issue of shares for employee stock purchase plan | ||||||||||||||
Exchange of Class B common stock for Class A common stock (2) | ( | ( | ||||||||||||
| Repurchase and cancellation of Class A common stock | ( | |||||||||||||
| Balance at March 31 | ||||||||||||||
(1)Share amounts reflected above are net of shares withheld to satisfy the employee's tax withholding obligation.
(2)When shares of Class B common stock, together with associated LLC Units, are exchanged for shares of Class A common stock pursuant to the Exchange Agreement, such shares of Class B common stock are canceled.
ACCUMULATED OTHER COMPREHENSIVE LOSS (AOCL)
The following tables present the changes in accumulated other comprehensive loss, net of tax:
| Foreign Currency Translation Adjustments | Cash Flow Hedges | Benefit Plans | Accumulated Other Comprehensive Loss | |||||||||||
| Balance at December 31, 2021 | $ | ( | $ | ( | $ | ( | $ | ( | ||||||
| Other comprehensive income (loss) before reclassifications | ( | ( | ||||||||||||
| Amounts reclassified from accumulated other comprehensive loss | ||||||||||||||
| Deferred taxes | ( | ( | ||||||||||||
| Other comprehensive income (loss) | ||||||||||||||
Less: Other comprehensive income (loss) attributable to noncontrolling interests | ||||||||||||||
| Less: Reallocation of AOCL based on change in ownership of LLC Units | ||||||||||||||
| Balance at March 31, 2022 | $ | ( | $ | ( | $ | ( | $ | ( | ||||||
Baker Hughes Company 2022 First Quarter Form 10-Q | 12
Baker Hughes Company
Notes to Unaudited Condensed Consolidated Financial Statements
| Foreign Currency Translation Adjustments | Cash Flow Hedges | Benefit Plans | Accumulated Other Comprehensive Loss | |||||||||||
| Balance at December 31, 2020 | $ | ( | $ | $ | ( | $ | ( | |||||||
| Other comprehensive income (loss) before reclassifications | ( | ( | ( | |||||||||||
| Amounts reclassified from accumulated other comprehensive loss | ( | |||||||||||||
| Deferred taxes | ( | |||||||||||||
| Other comprehensive income (loss) | ( | ( | ||||||||||||
| Less: Other comprehensive income (loss) attributable to noncontrolling interests | ( | ( | ||||||||||||
| Less: Reallocation of AOCL based on change in ownership of LLC Units | ||||||||||||||
| Balance at March 31, 2021 | $ | ( | $ | $ | ( | $ | ( | |||||||
The amounts reclassified from accumulated other comprehensive loss during the three months ended March 31, 2022 and 2021 represent (i) gains (losses) reclassified on cash flow hedges when the hedged transaction occurs, (ii) the amortization of net actuarial gain (loss), prior service credit, and curtailments which are included in the computation of net periodic pension cost, and (iii) the release of foreign currency translation adjustments (see "Note 17. Restructuring, Impairment, and Other" for additional details).
NONCONTROLLING INTEREST
Noncontrolling interests represent the portion of net assets in consolidated entities that are not owned by the Company. As of March 31, 2022 and December 31, 2021, GE owned approximately 4 % and 11.4 %, respectively, of BHH LLC and this represents the majority of the noncontrolling interest balance reported within equity.
| March 31, 2022 | December 31, 2021 | |||||||
| GE's interest in BHH LLC | $ | $ | ||||||
| Other noncontrolling interests | ||||||||
| Total noncontrolling interests | $ | $ | ||||||
NOTE 12. EARNINGS PER SHARE
Basic and diluted net income (loss) per share of Class A common stock is presented below:
| Three Months Ended March 31, | ||||||||
| (In millions, except per share amounts) | 2022 | 2021 | ||||||
| Net income (loss) | $ | $ | ( | |||||
| Less: Net income (loss) attributable to noncontrolling interests | ( | |||||||
| Net income (loss) attributable to Baker Hughes Company | $ | $ | ( | |||||
| Weighted average shares outstanding: | ||||||||
| Class A basic | ||||||||
| Class A diluted | ||||||||
| Net income (loss) per share attributable to common stockholders: | ||||||||
| Class A basic & diluted | $ | $ | ( | |||||
Baker Hughes Company 2022 First Quarter Form 10-Q | 13
Baker Hughes Company
Notes to Unaudited Condensed Consolidated Financial Statements
Shares of our Class B common stock do not share in earnings or losses of the Company and are not considered in the calculation of basic or diluted earnings per share ("EPS") above. As such, separate presentation of basic and diluted EPS of Class B under the two class method has not been presented. The basic weighted average shares outstanding for our Class B common stock for the three months ended March 31, 2022 and 2021 were 88 million and 300 million, respectively. The basic weighted average shares outstanding for both our Class A and Class B common stock combined for the three months ended March 31, 2022 and 2021 were 1,026 million and 1,039 million, respectively.
Under the Exchange Agreement between GE and us, GE is entitled to exchange its holding in our Class B common stock, and associated LLC Units, for Class A common stock on a one -for-one basis (subject to adjustment in accordance with the terms of the Exchange Agreement) or, at the option of Baker Hughes, an amount of cash equal to the aggregate value (determined in accordance with the terms of the Exchange Agreement) of the shares of Class A common stock that would have otherwise been received by GE in the exchange. In computing the dilutive effect, if any, that the aforementioned exchange would have on net income (loss) per share, net income (loss) attributable to holders of Class A common stock would be adjusted due to the elimination of the noncontrolling interests associated with the Class B common stock (including any tax impact). For the three months ended March 31, 2022 and 2021, such exchange is not reflected in diluted net income (loss) per share as the assumed exchange is not dilutive.
For the three months ended March 31, 2022, Class A diluted shares include the dilutive impact of equity awards except for approximately 2 million options that were excluded because the exercise price exceeded the average market price of the Class A common stock and is therefore antidilutive. For the three months ended March 31, 2021, we excluded all outstanding equity awards from the computation of diluted net loss per share because their effect is antidilutive.
NOTE 13. FINANCIAL INSTRUMENTS
RECURRING FAIR VALUE MEASUREMENTS
| March 31, 2022 | December 31, 2021 | |||||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Net Balance | Level 1 | Level 2 | Level 3 | Net Balance | |||||||||||||||||||
| Assets | ||||||||||||||||||||||||||
Derivatives | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Investment securities | ||||||||||||||||||||||||||
| Total assets | ||||||||||||||||||||||||||
| Liabilities | ||||||||||||||||||||||||||
| Derivatives | ( | ( | ( | ( | ||||||||||||||||||||||
| Total liabilities | $ | $ | ( | $ | $ | ( | $ | $ | ( | $ | $ | ( | ||||||||||||||
There were no transfers to, or from, Level 3 during the three months ended March 31, 2022.
The following table provides a reconciliation of recurring Level 3 fair value measurements for investment securities:
| 2022 | 2021 | |||||||
| Balance at January 1 | $ | $ | ||||||
| Proceeds at maturity | ( | |||||||
| Balance at March 31 | $ | $ | ||||||
Baker Hughes Company 2022 First Quarter Form 10-Q | 14
Baker Hughes Company
Notes to Unaudited Condensed Consolidated Financial Statements
| March 31, 2022 | December 31, 2021 | |||||||||||||||||||||||||
| Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Estimated Fair Value | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Estimated Fair Value | |||||||||||||||||||
| Investment securities | ||||||||||||||||||||||||||
Non-U.S. debt securities (1) | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
Equity securities (2) | ( | |||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | ( | $ | |||||||||||||||||
(1)All of our investment securities are classified as available for sale instruments. Non-U.S. debt securities mature within one year
(2)Gains (losses) recorded to earnings related to these securities were $12 million and $(786 ) million for the three months ended March 31, 2022 and 2021, respectively.
As of March 31, 2022 and December 31, 2021, our equity securities with readily determinable fair values are comprised primarily of our investment in C3.ai, Inc. ("C3 AI") of $196 million and $270 million, respectively, and ADNOC Drilling of $825 million and $741 million, respectively. We measured our investments to fair value based on quoted prices in active markets.
As of March 31, 2022 and December 31, 2021, our investment in C3 AI consists of 8,650,476 no C3 AI Shares sold during the three months ended March 31, 2022. For the three months ended March 31, 2022 and 2021, we recorded a loss of $74 million and $788 million, respectively, from the net change in fair value of our investment in C3 AI, which is reported in “Other non-operating loss, net” in our condensed consolidated statements of income (loss).
As of March 31, 2022 and December 31, 2021, our investment in ADNOC Drilling consists of 800,000,000 85 million from the net change in fair value of our investment in ADNOC Drilling, which is reported in “Other non-operating loss, net” in our condensed consolidated statements of income (loss).
As of March 31, 2022 and December 31, 2021, $1,050 million and $1,041 million of total investment securities are recorded in "All other current assets," respectively.
FAIR VALUE DISCLOSURE OF FINANCIAL INSTRUMENTS
Our financial instruments include cash and cash equivalents, current receivables, certain investments, accounts payable, short and long-term debt, and derivative financial instruments. Except for long-term debt, the estimated fair value of these financial instruments as of March 31, 2022 and December 31, 2021 approximates their carrying value as reflected in our condensed consolidated financial statements. For further information on the fair value of our debt, see "Note 9. Borrowings."
Baker Hughes Company 2022 First Quarter Form 10-Q | 15
Baker Hughes Company
Notes to Unaudited Condensed Consolidated Financial Statements
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.
| March 31, 2022 | December 31, 2021 | |||||||||||||
| Assets | Liabilities | Assets | Liabilities | |||||||||||
| Derivatives accounted for as hedges | ||||||||||||||
| Currency exchange contracts | $ | $ | ( | $ | $ | ( | ||||||||
| Interest rate swap contracts | ( | ( | ||||||||||||
| Derivatives not accounted for as hedges | ||||||||||||||
| Currency exchange contracts and other | ( | ( | ||||||||||||
| Total derivatives | $ | $ | ( | $ | $ | ( | ||||||||
Derivatives are classified in the condensed consolidated statements of financial position depending on their respective maturity date. As of March 31, 2022 and December 31, 2021, $36 million and $28 million of derivative assets are recorded in "All other current assets" and $1 million and $1 million are recorded in "All other assets" of the condensed consolidated statements of financial position, respectively. As of March 31, 2022 and December 31, 2021, $29 million and $39 million of derivative liabilities are recorded in "All other current liabilities" and $38 million and $10 million are recorded in "All other liabilities" of the condensed consolidated statements of financial position, respectively.
FORMS OF HEDGING
Cash Flow Hedges
We use cash flow hedging primarily to reduce or eliminate the effects of foreign exchange rate changes on purchase and sale contracts. Accordingly, the vast majority of our derivative activity in this category consists of currency exchange contracts. Changes in the fair value of cash flow hedges are recorded in a separate component of equity (referred to as "Accumulated Other Comprehensive Income", or "AOCI") and are recorded in earnings in the period in which the hedged transaction occurs. See "Note 11. Equity" for further information on activity in AOCI for cash flow hedges. As of March 31, 2022 and December 31, 2021, the maximum term of derivative instruments that hedge forecasted transactions was one year
Fair Value Hedges
All of our long-term debt is comprised of fixed rate instruments. We are subject to interest rate risk on our debt portfolio and may use interest rate swaps to manage the economic effect of fixed rate obligations associated with certain debt. Under these arrangements, we agree to exchange, at specified intervals, the difference between fixed and floating interest amounts calculated by reference to an agreed-upon notional principal amount.
As of March 31, 2022 and December 31, 2021, we had interest rate swaps with a notional amount of $500 1,350 3.337
Baker Hughes Company 2022 First Quarter Form 10-Q | 16
Baker Hughes Company
Notes to Unaudited Condensed Consolidated Financial Statements
Economic Hedges
These derivatives are not designated as hedges from an accounting standpoint (and therefore we do not apply hedge accounting to the relationship) but otherwise serve the same economic purpose as other hedging arrangements. Economic hedges are marked to fair value through earnings each period.
The following table summarizes the gains (losses) from derivatives not designated as hedges in the condensed consolidated statements of income (loss):
| Derivatives not designated as hedging instruments | Condensed consolidated statement of income caption | Three Months Ended March 31, | |||||||||
| 2022 | 2021 | ||||||||||
Currency exchange contracts (1) | Cost of goods sold | $ | ( | $ | |||||||
| Currency exchange contracts | Cost of services sold | ||||||||||