UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the quarterly period ended March 31, 2023
OR
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the transition period from_________to__________
Commission File Number 1-09397
(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):
| Large accelerated filer | ☐ | 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 13, 2023, the registrant had outstanding 1,012,362,186 common units. None of the common units are publicly traded.
Baker Hughes Holdings LLC
Table of Contents
Page No. | ||||||||
Baker Hughes Holdings LLC 2023 First Quarter Form 10-Q | i
PART I — FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
Baker Hughes Holdings LLC
Condensed Consolidated Statements of Income (Loss)
(Unaudited)
| Three Months Ended March 31, | ||||||||
| (In millions, except per unit amounts) | 2023 | 2022 | ||||||
| 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 | ||||||||
| Total costs and expenses | ||||||||
| Operating income | ||||||||
| Other non-operating income (loss), net | ( | |||||||
| Interest expense, net | ( | ( | ||||||
| Income before income taxes | ||||||||
| Provision for income taxes | ( | ( | ||||||
| Net income | ||||||||
| Less: Net income attributable to noncontrolling interests | ||||||||
| Net income attributable to Baker Hughes Holdings LLC | $ | $ | ||||||
| Cash distribution per common unit | $ | $ | ||||||
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
Baker Hughes Holdings LLC 2023 First Quarter Form 10-Q | 1
Baker Hughes Holdings LLC
Condensed Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)
| Three Months Ended March 31, | ||||||||
| (In millions) | 2023 | 2022 | ||||||
| Net income | $ | $ | ||||||
| Less: Net income attributable to noncontrolling interests | ||||||||
| Net income attributable to Baker Hughes Holdings LLC | ||||||||
| Other comprehensive income (loss): | ||||||||
| Foreign currency translation adjustments | ( | |||||||
| Cash flow hedges | ( | |||||||
| Benefit plans | ||||||||
| Other comprehensive income (loss) | ( | |||||||
| Less: Other comprehensive loss attributable to noncontrolling interests | ( | |||||||
| Other comprehensive income (loss) attributable to Baker Hughes Holdings LLC | ( | |||||||
| Comprehensive income | ||||||||
| Less: Comprehensive income attributable to noncontrolling interests | ||||||||
| Comprehensive income attributable to Baker Hughes Holdings LLC | $ | $ | ||||||
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
Baker Hughes Holdings LLC 2023 First Quarter Form 10-Q | 2
Baker Hughes Holdings LLC
Condensed Consolidated Statements of Financial Position
(Unaudited)
(In millions) | March 31, 2023 | December 31, 2022 | ||||||
| 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 | $ | $ | ||||||
| Short-term and 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 | ||||||||
| Members' Equity: | ||||||||
Members' capital, common units, | ||||||||
| Retained loss | ( | ( | ||||||
| Accumulated other comprehensive loss | ( | ( | ||||||
| Baker Hughes Holdings LLC equity | ||||||||
| Noncontrolling interests | ||||||||
| Total equity | ||||||||
| Total liabilities and equity | $ | $ | ||||||
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
Baker Hughes Holdings LLC 2023 First Quarter Form 10-Q | 3
Baker Hughes Holdings LLC
Condensed Consolidated Statements of Changes in Members' Equity
(Unaudited)
(In millions, except per unit amounts) | Members' Capital | Retained Loss | Accumulated Other Comprehensive Loss | Non- controlling Interests | Total Equity | ||||||||||||
| Balance at December 31, 2022 | $ | $ | ( | $ | ( | $ | $ | ||||||||||
| Comprehensive income (loss): | |||||||||||||||||
| Net income | |||||||||||||||||
| Other comprehensive loss | ( | ( | |||||||||||||||
Regular cash distribution to Members ($ | ( | ( | |||||||||||||||
| Baker Hughes stock-based compensation cost | |||||||||||||||||
| Other | ( | ( | |||||||||||||||
| Balance at March 31, 2023 | $ | $ | ( | $ | ( | $ | $ | ||||||||||
(In millions, except per unit amounts) | Members' Capital | Retained Loss | Accumulated Other Comprehensive Loss | Non- controlling Interests | Total Equity | ||||||||||||
| Balance at December 31, 2021 | $ | $ | ( | $ | ( | $ | $ | ||||||||||
| Comprehensive income: | |||||||||||||||||
| Net income | |||||||||||||||||
| Other comprehensive income (loss) | (1) | ||||||||||||||||
Regular cash distribution to Members ($ | ( | ( | |||||||||||||||
| Repurchase and cancellation of common units | ( | ( | |||||||||||||||
| Baker Hughes stock-based compensation cost | |||||||||||||||||
| Other | ( | ||||||||||||||||
| Balance at March 31, 2022 | $ | $ | ( | $ | ( | $ | $ | ||||||||||
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
Baker Hughes Holdings LLC 2023 First Quarter Form 10-Q | 4
Baker Hughes Holdings LLC
Condensed Consolidated Statements of Cash Flows
(Unaudited)
| Three Months Ended March 31, | ||||||||
| (In millions) | 2023 | 2022 | ||||||
| Cash flows from operating activities: | ||||||||
| Net income | $ | $ | ||||||
| Adjustments to reconcile net income to net cash flows from operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Gain on equity securities | ( | ( | ||||||
| Provision for deferred income taxes | ||||||||
| Stock-based compensation cost | ||||||||
| Inventory impairment | ||||||||
| 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 | ( | ( | ||||||
| Distributions to Members | ( | ( | ||||||
| Repurchase of common units | ( | |||||||
| Other financing items, net | ( | ( | ||||||
| Net cash flows used in financing activities | ( | ( | ||||||
| Effect of currency exchange rate changes on cash and cash equivalents | ( | |||||||
| 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 Holdings LLC 2023 First Quarter Form 10-Q | 5
Baker Hughes Holdings LLC
Notes to Unaudited Condensed Consolidated Financial Statements
NOTE 1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF THE BUSINESS
Baker Hughes Holdings LLC, a Delaware limited liability company ("the Company", "BHH LLC", "we", "us", or "our") and the successor to Baker Hughes Incorporated ("BHI"), is an energy technology company with a diversified portfolio of technologies and services that span the energy and industrial value chain. 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, 2022 (the "2022 Annual Report").
In the opinion of management, the condensed consolidated financial statements reflect all adjustments (consisting of normal recurring adjustments) considered necessary by management to fairly state our results of operations, financial position and cash flows of the Company and its subsidiaries for the periods presented and are not indicative of the results that may be expected for a full year. The Company's financial statements have been prepared on a consolidated basis. The condensed consolidated financial statements include the accounts of BHH LLC and all of its subsidiaries and affiliates which it controls or variable interest entities for which we have determined that we are the primary beneficiary. 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 common unit amounts in tabulations are in millions of dollars and units, 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 2022 Annual Report for the discussion of our significant accounting policies.
Cash and Cash Equivalents
As of March 31, 2023 and December 31, 2022, we had $549 million and $605 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.
Supply Chain Finance Programs
On January 1, 2023, we adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) No. ASU 2022-04, Liabilities – Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations, which enhances the transparency of supplier finance programs and requires certain disclosures for a buyer in a supplier finance program.
Baker Hughes Holdings LLC 2023 First Quarter Form 10-Q | 6
Baker Hughes Holdings LLC
Notes to Unaudited Condensed Consolidated Financial Statements
Under the supply chain finance (“SCF”) 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.
As of March 31, 2023 and December 31, 2022, $316 million and $275 million of SCF program liabilities are recorded in “Accounts payable” in our condensed consolidated statements of financial position, respectively, and reflected as cash flow from operating activities in our condensed consolidated statements of cash flows when settled.
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. CURRENT RECEIVABLES
Current receivables are comprised of the following:
| March 31, 2023 | December 31, 2022 | |||||||
| Customer receivables | $ | $ | ||||||
| Other | ||||||||
| Total current receivables | ||||||||
| Less: Allowance for credit losses | ( | ( | ||||||
| Total current receivables, net | $ | $ | ||||||
Customer receivables are recorded at the invoiced amount. The "Other" category consists primarily of advance payments to suppliers, indirect taxes, related parties, and customer retentions.
NOTE 3. INVENTORIES
Inventories, net of reserves of $383 million and $396 million as of March 31, 2023 and December 31, 2022, respectively, are comprised of the following:
| March 31, 2023 | December 31, 2022 | |||||||
| Finished goods | $ | $ | ||||||
| Work in process and raw materials | ||||||||
| Total inventories, net | $ | $ | ||||||
During the three months ended March 31, 2023, we recorded inventory impairments of $18 million, predominately in our Oilfield Services & Equipment ("OFSE") segment. Charges for inventory impairments are reported in the "Cost of goods sold" caption in the condensed consolidated statements of income (loss). See "Note 16. Restructuring, Impairment, and Other" for further information.
Baker Hughes Holdings LLC 2023 First Quarter Form 10-Q | 7
Baker Hughes Holdings LLC
Notes to Unaudited Condensed Consolidated Financial Statements
NOTE 4. GOODWILL AND OTHER INTANGIBLE ASSETS
GOODWILL
The changes in the carrying value of goodwill are detailed below by segment:
| Oilfield Services & Equipment | Industrial & Energy Technology | Total | |||||||||
| Balance at December 31, 2021, gross | $ | $ | $ | ||||||||
| Accumulated impairment at December 31, 2021 | ( | ( | ( | ||||||||
| Balance at December 31, 2021 | |||||||||||
| Disposition | ( | ( | |||||||||
| Acquisitions | |||||||||||
| Currency exchange, impairment and other | ( | ( | |||||||||
| Total | |||||||||||
Classified as held for sale (1) | ( | ( | |||||||||
| Balance at December 31, 2022 | |||||||||||
| Currency exchange and other | ( | ( | |||||||||
| Balance at March 31, 2023 | $ | $ | $ | ||||||||
(1)The reduction in Industrial & Energy Technology ("IET") goodwill relates to transferring our IET Nexus Controls business to held for sale. See "Note 17. Business Held for Sale" for further information.
We perform our annual goodwill impairment test for each of our reporting units as of July 1 of each fiscal year, in conjunction with our annual strategic planning process. We also test goodwill for impairment whenever events or circumstances occur which, in our judgment, could more likely than not reduce the fair value of one or more reporting units below its carrying value. Potential impairment indicators include, but are not limited to, (i) the results of our most recent annual or interim impairment testing, in particular the magnitude of the excess of fair value over carrying value observed, (ii) downward revisions to internal forecasts, and the magnitude thereof, if any, and (iii) declines in Baker Hughes' market capitalization below its book value, and the magnitude and duration of those declines, if any.
During the first quarter of 2023, we completed a review to assess whether indicators of impairment existed. As a result of this assessment, we concluded that no indicators existed that would lead to a determination that it is more likely than not that the fair value of each reporting unit is less than its carrying value. There can be no assurances that future sustained declines in macroeconomic or business conditions affecting our industry will not occur, which could result in goodwill impairment charges in future periods.
Baker Hughes Holdings LLC 2023 First Quarter Form 10-Q | 8
Baker Hughes Holdings LLC
Notes to Unaudited Condensed Consolidated Financial Statements
OTHER INTANGIBLE ASSETS
Intangible assets are comprised of the following:
| March 31, 2023 | December 31, 2022 | |||||||||||||||||||
| 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, 2023 and 2022 was $63 million and $55 million, respectively.
Estimated amortization expense for the remainder of 2023 and each of the subsequent five fiscal years is expected to be as follows:
| Year | Estimated Amortization Expense | ||||
| Remainder of 2023 | $ | ||||
| 2024 | |||||
| 2025 | |||||
| 2026 | |||||
| 2027 | |||||
| 2028 | |||||
NOTE 5. CONTRACT AND OTHER DEFERRED ASSETS
Contract assets reflect revenue earned in excess of billings on our long-term contracts to construct technically complex equipment, provide long-term product service and maintenance or extended warranty arrangements and other deferred contract related costs. Our long-term product service agreements are provided by our IET segment. Our long-term equipment contracts are provided by both our IET and OFSE segments. Contract assets are comprised of the following:
| March 31, 2023 | December 31, 2022 | |||||||
| Long-term product service agreements | $ | $ | ||||||
| Long-term equipment contracts and certain other service agreements | ||||||||
| Contract assets (total revenue in excess of billings) | ||||||||
| Deferred inventory costs | ||||||||
Other costs to fulfill or obtain a contract (1) | ||||||||
| Contract and other deferred assets | $ | $ | ||||||
(1) Other costs to fulfill or obtain a contract consist primarily of non-recurring engineering costs incurred and expected to be recovered.
Baker Hughes Holdings LLC 2023 First Quarter Form 10-Q | 9
Baker Hughes Holdings LLC
Notes to Unaudited Condensed Consolidated Financial Statements
NOTE 6. PROGRESS COLLECTIONS AND DEFERRED INCOME
Contract liabilities include progress collections, which reflects billings in excess of revenue, and deferred income on our long-term contracts to construct technically complex equipment, long-term product maintenance or extended warranty arrangements. Contract liabilities are comprised of the following:
| March 31, 2023 | December 31, 2022 | |||||||
| Progress collections | $ | $ | ||||||
| Deferred income | ||||||||
| Progress collections and deferred income (contract liabilities) | $ | $ | ||||||
Revenue recognized during the three months ended March 31, 2023 and 2022 that was included in the contract liabilities at the beginning of the period was $962 million and $739 million, respectively.
NOTE 7. 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 | 2023 | 2022 | ||||||
| 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, 2023 and 2022.
The weighted-average remaining lease term as of March 31, 2023 and December 31, 2022 was approximately seven years 3.2 % and 3.1 %, respectively.
Baker Hughes Holdings LLC 2023 First Quarter Form 10-Q | 10
Baker Hughes Holdings LLC
Notes to Unaudited Condensed Consolidated Financial Statements
NOTE 8. DEBT
The carrying value of our short-term and long-term debt are comprised of the following:
| March 31, 2023 | December 31, 2022 | |||||||
| Short-term and current portion of long-term debt | ||||||||
| $ | $ | |||||||
| Other debt | ||||||||
| Total short-term and current portion of long-term debt | ||||||||
| Long-term debt | ||||||||
| Other long-term debt | ||||||||
| Total long-term debt | ||||||||
| Total debt | $ | $ | ||||||
The estimated fair value of total debt at March 31, 2023 and December 31, 2022 was $6,040 million and $5,863 million, respectively. For a majority of our debt the fair value was determined using quoted period-end market prices. Where market prices are not available, we estimate fair values based on valuation methodologies using current market interest rate data adjusted for our non-performance risk.
BHH LLC has a $3 billion committed unsecured revolving credit facility ("the Credit Agreement") with commercial banks maturing in December 2024. In addition, we have a commercial paper program with authorization up to $3 billion under which we may issue from time to time commercial paper with maturities of no more than 397 days. 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, BHH LLC's 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. At March 31, 2023 and December 31, 2022, 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, 2023, Baker Hughes Co-Obligor, Inc. is a co-obligor of our long-term debt securities totaling $6,560 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, 2023, we were in compliance with all debt covenants.
Baker Hughes Holdings LLC 2023 First Quarter Form 10-Q | 11
Baker Hughes Holdings LLC
Notes to Unaudited Condensed Consolidated Financial Statements
NOTE 9. INCOME TAXES
For the three months ended March 31, 2023, the provision for income taxes was $141 million. The difference between the U.S. statutory tax rate of 21% and the effective tax rate is primarily related to income subject to U.S. tax at an effective rate less than 21% due to valuation allowances, which is partially offset by 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 impacts associated with U.S. income or losses are recognized by our Members and not reflected in our tax expense.
For the three months ended March 31, 2022, the provision for income taxes was $95 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 income in jurisdictions with tax rates higher than the U.S., partially offset by tax benefits related to uncertain tax positions.
NOTE 10. MEMBERS' EQUITY
COMMON UNITS
The BHH LLC Agreement provides that initially there is one class of common units ("Units"), which are currently held by the Members. If Baker Hughes issues a share of Class A common stock, including in connection with an equity incentive or similar plan, we will also issue a corresponding Unit to Baker Hughes or one of its direct subsidiaries. For the three months ended March 31, 2023 and 2022, we issued 5,920 thousand and 7,730 thousand Units, respectively, to Baker Hughes or one of its direct subsidiaries in connection with the issuance of its Class A common stock. The Members are entitled through their Units to receive distributions on an equal amount of any dividend paid by Baker Hughes to its Class A shareholders.
We have a Unit repurchase program which we expect to fund from cash generated from operations, and we expect to make Unit 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. There were no Units repurchased during the three months ended March 31, 2023. During the three months ended March 31, 2022, we repurchased and canceled 8.1 million Units for a total of $236 million, representing an average price per Unit of $28.96 . As of March 31, 2023, we had authorization remaining to repurchase up to approximately $2.8 billion of our Units.
The following table presents the changes in the number of Units outstanding (in thousands):
| Units Held by Baker Hughes | Units Held by GE | |||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||
| Balance at January 1 | ||||||||||||||
| Issue of Units to Baker Hughes under equity incentive plan | ||||||||||||||
Exchange of Units (1) | ( | |||||||||||||
| Repurchase and cancellation of Units | ( | |||||||||||||
| Balance at March 31 | ||||||||||||||
(1)When shares of Class B common stock, together with associated Units, are exchanged for shares of Class A common stock, such shares of Class B common stock are canceled.
Baker Hughes Holdings LLC 2023 First Quarter Form 10-Q | 12
Baker Hughes Holdings LLC
Notes to Unaudited Condensed Consolidated Financial Statements
ACCUMULATED OTHER COMPREHENSIVE LOSS (AOCL)
The following tables present the changes in accumulated other comprehensive loss, net of tax:
| Foreign Currency Translation Adjustments | Cash Flow Hedges | Benefit Plans | Accumulated Other Comprehensive Loss | |||||||||||
| Balance at December 31, 2022 | $ | ( | $ | ( | $ | ( | $ | ( | ||||||
| Other comprehensive income before reclassifications | ( | ( | ( | |||||||||||
| Amounts reclassified from accumulated other comprehensive loss | ||||||||||||||
| Other comprehensive income (loss) | ( | ( | ( | |||||||||||
| Balance at March 31, 2023 | $ | ( | $ | ( | $ | ( | $ | ( | ||||||
| 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 | ||||||||||||||
| Less: Other comprehensive loss attributable to noncontrolling interests | ( | ( | ||||||||||||
| Balance at March 31, 2022 | $ | ( | $ | ( | $ | ( | $ | ( | ||||||
The amounts reclassified from accumulated other comprehensive loss during the three months ended March 31, 2023 and 2022 represent (i) gains (losses) reclassified on cash flow hedges when the hedged transaction occurs, (ii) the amortization of net actuarial gain (loss), prior service credit, settlements, and curtailments which are included in the computation of net periodic pension cost, and (iii) the release of foreign currency translation adjustments (see "Note 16. Restructuring, Impairment, and Other" for additional details).
Baker Hughes Holdings LLC 2023 First Quarter Form 10-Q | 13
Baker Hughes Holdings LLC
Notes to Unaudited Condensed Consolidated Financial Statements
NOTE 11. FINANCIAL INSTRUMENTS
RECURRING FAIR VALUE MEASUREMENTS
Our assets and liabilities measured at fair value on a recurring basis consists of derivative instruments and investment securities.
| March 31, 2023 | December 31, 2022 | |||||||||||||||||||||||||
| 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 | $ | $ | ( | $ | $ | ( | $ | $ | ( | $ | $ | ( | ||||||||||||||
| March 31, 2023 | December 31, 2022 | |||||||||||||||||||||||||
| Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Estimated Fair Value | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Estimated Fair Value | |||||||||||||||||||
Investment securities (1) | ||||||||||||||||||||||||||
Non-U.S. debt securities (2) | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Equity securities | ||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
(1)Gains recorded to earnings related to these securities were $392 million and $12 million for the three months ended March 31, 2023 and 2022, respectively.
(2)As of March 31, 2023, our non-U.S. debt securities are classified as available for sale securities and mature within one year .
As of March 31, 2023 and December 31, 2022, our equity securities with readily determinable fair values are comprised primarily of our investment in C3.ai, Inc. ("C3 AI") of $232 million and $97 million, respectively, and ADNOC Drilling of $860 million and $649 million, respectively. We measured our investments to fair value based on quoted prices in active markets.
As of March 31, 2023, our investment in C3 AI consists of 6,920,476 1.7 million of C3 AI Shares and received proceeds of $46 million. For the three months ended March 31, 2023 and 2022, we recorded a gain of $181 million and a loss of $74 million, respectively, from the net change in fair value of our investment in C3 AI, which is reported in “Other non-operating income (loss), net” in our condensed consolidated statements of income (loss).
As of March 31, 2023, our investment in ADNOC Drilling consists of 800,000,000 shares. For the three months ended March 31, 2023 and 2022, we recorded a gain of $211 million and $85 million, respectively, from the net change in fair value of our investment in ADNOC Drilling, which is reported in “Other non-operating income (loss), net” in our condensed consolidated statements of income (loss).
As of March 31, 2023 and December 31, 2022, $1,105 million and $748 million, respectively, of total investment securities are recorded in "All other current assets."
Baker Hughes Holdings LLC 2023 First Quarter Form 10-Q | 14
Baker Hughes Holdings LLC
Notes to Unaudited Condensed Consolidated Financial Statements
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, 2023 and December 31, 2022 approximates their carrying value as reflected in our condensed consolidated financial statements. For further information on the fair value of our debt, see "Note 8. Debt."
DERIVATIVES AND HEDGING
We use derivatives to manage our risks and do not use derivatives for speculation. The table below summarizes the fair value of all derivatives, including hedging instruments and embedded derivatives.
| March 31, 2023 | December 31, 2022 | |||||||||||||
| 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, 2023 and December 31, 2022, $26 million and $17 million of derivative assets are recorded in "All other current assets" and $1 million and $1 million are recorded in "All other assets" in the condensed consolidated statements of financial position, respectively. As of March 31, 2023 and December 31, 2022, $29 million and $17 million of derivative liabilities are recorded in "All other current liabilities" and $59 million and $69 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. In addition, we are exposed to interest rate risk fluctuations in connection with long-term debt that we issue from time to time to fund our operations. During the three months ended March 31, 2023, the Company executed interest rate swap contracts designated as cash flow hedges with a notional amount of $375 million in order to hedge the Company's expected exposure in connection with refinancing activities we may undertake in 2023. Changes in the fair value of cash flow hedges are recorded in a separate component of equity (referred to as "Accumulated Other Comprehensive Income" or "AOCI") and are recorded in earnings in the period in which the hedged transaction occurs. See "Note 10. Members' Equity" for further information on activity in AOCI for cash flow hedges. As of March 31, 2023 and December 31, 2022, the maximum term of derivative instruments that hedge forecasted transactions was approximately 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.
Baker Hughes Holdings LLC 2023 First Quarter Form 10-Q | 15
Baker Hughes Holdings LLC
Notes to Unaudited Condensed Consolidated Financial Statements
As of March 31, 2023 and December 31, 2022, we had interest rate swaps with a notional amount of $500 1,350 3.337
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 statements of income (loss) caption | Three Months Ended March 31, | |||||||||
| 2023 | 2022 | ||||||||||
Currency exchange contracts (1) | Cost of goods sold | $ | $ | ( | |||||||
| Currency exchange contracts | Cost of services sold | ||||||||||
| Commodity derivatives | Cost of goods sold | ||||||||||
Total (2) | $ | $ | |||||||||
(1)Excludes losses of nil and gains of $1 million on embedded derivatives for the three months ended March 31, 2023 and 2022, respectively, as embedded derivatives are not considered to be hedging instruments in our economic hedges.
(2)The effect on earnings of derivatives not designated as hedges is substantially offset by the change in fair value of the economically hedged items in the current and future periods.
NOTIONAL AMOUNT OF DERIVATIVES
The notional amount of a derivative is the number of units of the underlying. A substantial majority of the outstanding notional amount of $4.3 billion and $3.8 billion at March 31, 2023 and December 31, 2022, respectively, is related to hedges of anticipated sales and purchases in foreign currency, commodity purchases, changes in interest rates, and contractual terms in contracts that are considered embedded derivatives and for intercompany borrowings in foreign currencies. We generally disclose derivative notional amounts on a gross basis to indicate the total counterparty risk. Where we have gross purchase and sale derivative contracts for a particular currency, we look to execute these contracts with the same counterparty to reduce our exposure. The notional amount of these derivative instruments do not generally represent cash amounts exchanged by us and the counterparties, but rather the nominal amount upon which changes in the value of the derivatives are measured.
COUNTERPARTY CREDIT RISK
Fair values of our derivatives can change significantly from period to period based on, among other factors, market movements and changes in our positions. We manage counterparty credit risk (the risk that counterparties will default and not make payments to us according to the terms of our agreements) on an individual counterparty basis.
Baker Hughes Holdings LLC 2023 First Quarter Form 10-Q | 16
Baker Hughes Holdings LLC
Notes to Unaudited Condensed Consolidated Financial Statements
NOTE 12. REVENUE RELATED TO CONTRACTS WITH CUSTOMERS
DISAGGREGATED REVENUE
We disaggregate our OFSE and IET segment revenue from contracts with customers by product lines. See "Note 13. Segment Information" for further details.
| Three Months Ended March 31, | ||||||||
| Total Revenue | 2023 | 2022 | ||||||
| Well Construction | $ | $ | ||||||
| Completions, Intervention & Measurements | ||||||||
| Production Solutions | ||||||||
| Subsea & Surface Pressure Systems | ||||||||
| Oilfield Services & Equipment | ||||||||
| Gas Technology - Equipment | ||||||||
| Gas Technology - Services | ||||||||
| Total Gas Technology | ||||||||
| Condition Monitoring | ||||||||
| Inspection | ||||||||
| Pumps, Valves & Gears | ||||||||
| PSI & Controls | ||||||||
| Total Industrial Technology | ||||||||
| Industrial & Energy Technology | ||||||||
| Total | $ | $ | ||||||
In addition, management views OFSE segment revenue from contracts with customers by geographic region:
| Three Months Ended March 31, | ||||||||
| Oilfield Services & Equipment Geographic Revenue | 2023 | 2022 | ||||||
| North America | $ | $ | ||||||
| Latin America | ||||||||
| Europe/CIS/Sub-Saharan Africa | ||||||||
| Middle East/Asia | ||||||||
| Oilfield Services & Equipment | $ | $ | ||||||
REMAINING PERFORMANCE OBLIGATIONS
As of March 31, 2023, the aggregate amount of the transaction price allocated to the unsatisfied (or partially unsatisfied) performance obligations was $29.6 billion. As of March 31, 2023, we expect to recognize revenue of approximately 60 %, 72 % and 90 % of the total remaining performance obligations within 2 , 5 , and 15 years, respectively, and the remaining thereafter. Contract modifications could affect both the timing to complete as well as the amount to be received as we fulfill the related remaining performance obligations.
Baker Hughes Holdings LLC 2023 First Quarter Form 10-Q | 17
Baker Hughes Holdings LLC
Notes to Unaudited Condensed Consolidated Financial Statements
NOTE 13. SEGMENT INFORMATION
The Company's segments are determined as those operations whose results are reviewed regularly by the chief operating decision maker ("CODM"), who is our Chief Executive Officer, in deciding how to allocate resources and assess performance. We report our operating results through two operating segments, Oilfield Services & Equipment and Industrial & Energy Technology. Each segment is organized and managed based upon the nature of our markets and customers and consists of similar products and services. These products and services operate across upstream oil and gas and broader energy and industrial markets.
OILFIELD SERVICES & EQUIPMENT ("OFSE")
Oilfield Services & Equipment provides products and services for onshore and offshore oilfield operations across the lifecycle of a well, ranging from exploration, appraisal, and development, to production, rejuvenation, and decommissioning. OFSE is organized into four product lines: Well Construction, which encompasses drilling services, drill bits, and drilling & completions fluids; Completions, Intervention, and Measurements, which encompasses well completions, pressure pumping, and wireline services; Production Solutions, which spans artificial lift systems and oilfield & industrial chemicals; and Subsea & Surface Pressure Systems, which encompasses subsea projects services and drilling systems, surface pressure control, and flexible pipe systems. Beyond its traditional oilfield concentration, OFSE is expanding its capabilities and technology portfolio to meet the challenges of a net-zero future. These efforts include expanding into new energy areas such as geothermal and CCUS, strengthening its digital architecture and addressing key energy market themes.
INDUSTRIAL & ENERGY TECHNOLOGY ("IET")
Industrial & Energy Technology provides technology solutions and services for mechanical-drive, compression and power-generation applications across the energy industry, including oil and gas, liquefied natural gas ("LNG") operations, downstream refining and petrochemical markets, as well as lower carbon solutions to broader energy and industrial sectors. IET also provides equipment, software, and services that serve a wide range of industries including petrochemical and refining, nuclear, aviation, automotive, mining, cement, metals, pulp and paper, and food and beverage. IET is organized into six product lines - Gas Technology Equipment and Gas Technology Services, collectively referred to as Gas Technology, and Condition Monitoring, Inspection, Pumps Valves & Gears, and PSI & Controls, collectively referred to as Industrial Technology.
Revenue and operating income for each segment are determined based on the internal performance measures used by the CODM to assess the performance of each segment in a financial period. The performance of our operating segments is evaluated based on segment operating income (loss), which is defined as income (loss) before income taxes before the following: net interest expense, net other non-operating income (loss), corporate expenses, restructuring, impairment and other charges, inventory impairments, and certain gains and losses not allocated to the operating segments. Consistent accounting policies have been applied by all segments within the Company, for all reporting periods. Intercompany revenue and expense amounts have been eliminated within each segment to report on the basis that management uses internally for evaluating segment performance.
Summarized financial information for the Company's segments is shown in the following tables.
| Three Months Ended March 31, | ||||||||
| Revenue | 2023 | 2022 | ||||||
| Oilfield Services & Equipment | $ | $ | ||||||
| Industrial & Energy Technology | ||||||||
| Total | $ | $ | ||||||
Baker Hughes Holdings LLC 2023 First Quarter Form 10-Q | 18
Baker Hughes Holdings LLC
Notes to Unaudited Condensed Consolidated Financial Statements
| Three Months Ended March 31, | ||||||||
| Income before income taxes | 2023 | 2022 | ||||||
| Oilfield Services & Equipment | $ | $ | ||||||
| Industrial & Energy Technology | ||||||||
| Total segment | ||||||||
| Corporate | ( | ( | ||||||
| Inventory impairment | ( | |||||||
| Restructuring, impairment and other | ( | ( | ||||||
| Other non-operating income (loss), net | ( | |||||||
| Interest expense, net | ( | ( | ||||||
| Income before income taxes | $ | $ | ||||||
The following table presents depreciation and amortization by segment:
| Three Months Ended March 31, | ||||||||