ITEM 7. 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 consolidated financial statements included in Item 8. Financial Statements and Supplementary Data contained herein.
For management's discussion and analysis of our financial condition and results of operations for fiscal year 2020 as compared to fiscal year 2019 please refer to Part II, Item 7. "Management's discussion and analysis of financial condition and results of operations" on Form 10-K for our fiscal year ended December 31, 2020, filed with the Securities and Exchange Commission ("SEC") on February 25, 2021.
EXECUTIVE SUMMARY
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 operate through our four business segments: Oilfield Services ("OFS"), Oilfield Equipment ("OFE"), Turbomachinery & Process Solutions ("TPS"), and Digital Solutions ("DS"). We sell products and services primarily in the global oil and gas markets, within the upstream, midstream and downstream segments.
As we reflect on the macro environment in 2021, the global economy continued to recover from the impact of the COVID-19 global pandemic. The oil markets experienced increasing levels of demand and continued restraints on supply translating into a strong oil price recovery. For natural gas, a combination of demand and supply factors converged, pushing natural gas and LNG prices to record levels in both Europe and in Asia. The natural gas price spikes also highlighted the fragility of the global energy system as the world transitions to net zero emissions. The effects from variant strains of the COVID-19 virus continued to impact operations in the form of global chip shortages, supply chain challenges, and inflationary pressures in multiple parts of the world.
As we look ahead to 2022, we expect global economic growth to remain strong; however, growth rates are likely to moderate from 2021 levels as central banks are expected to begin tightening monetary policy in order to quell growing inflationary pressures. Despite the expected slowdown in the pace of growth, we believe the expected continuing broader macro recovery will translate into rising energy demand in 2022, with oil demand likely recovering to pre-pandemic levels by the end of the year. We expect continued momentum in the global natural gas markets in 2022, building on a strong 2021. Our positive long-term view on gas is also supported by the recent improvements in policy sentiment in certain parts of the world towards natural gas’ broader role within the energy transition.
Outside of the oil and gas industry, the focus on cleaner energy sources and technology to lower carbon emissions from resource-intensive industries continues to accelerate. In the U.S., Europe, and Asia, various renewables, and green and blue hydrogen projects are moving forward, as well as a number of CCUS projects. On the new energy front, we were active this year in pursuing early-stage technologies in CCUS and in hydrogen. In CCUS, we acquired a position in Electrochaea, a bio-methanation company, and also entered into an exclusive license with SRI International for mixed-salt process technology. In hydrogen, we made an investment in Ekona, a growth stage company developing novel turquoise hydrogen production technology, as well as Nemesys, a technology company focused on a range of early-stage hydrogen technologies.
On the industrial front, we completed the acquisition of ARMS Reliability and an investment in Augury, which will help Baker Hughes continue to build out its industrial asset management platform and deliver an expanded set of asset performance capabilities.
Baker Hughes was successful on many fronts in 2021, with key commercial successes and developments in the LNG and new energy markets, solid margin improvements, as well as strong cash flows from operating activities and free cash flow (a non-GAAP measure defined as cash flows from operating activities less expenditures for capital assets plus the proceeds from disposal of assets). Our strong cash flow performance provides our Company ample flexibility and optionality for our broader capital allocation strategy. As evidence of this, we returned almost $1.2 billion back to shareholders through dividends and buybacks in 2021, while also making multiple acquisitions and investments across the industrial and new energy spaces.
Baker Hughes Company 2021 Form 10-K | 28
In 2021, we generated revenue of $20.5 billion, compared to $20.7 billion in 2020. The decrease in revenue was primarily driven by lower volume in OFS and OFE, partially offset by higher volume in TPS and DS. Income before income taxes was $428 million in 2021, and included restructuring, impairment and other charges of $209 million, separation related costs of $60 million, a loss of $1,085 million related to our investment in C3 AI, partially offset by a gain of $241 million related to our investment in ADNOC Drilling, both recorded in other non-operating income/(loss). Loss before income taxes was $15.2 billion in 2020, and included goodwill impairment charges of $14.8 billion, restructuring, impairment and other charges of $1.9 billion, inventory impairment charges of $246 million, separation related costs of $134 million, and a gain of $1.4 billion related to our investment in C3 AI recorded in other non-operating income.
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.
•North America onshore activity: We expect North American onshore to experience strong growth in 2022, as compared to 2021 should commodity prices remain at current levels.
•International onshore activity: We expect onshore spending outside of North America to continue to improve in 2022 as compared to 2021 should commodity prices remain at current levels.
•Offshore projects: We expect a modest recovery in offshore activity and the number of subsea tree awards to grow in 2022 as compared to 2021.
•LNG projects: We remain optimistic on the LNG market long term and view natural gas as both a transition and a destination fuel. We continue to view the long-term economics of the LNG industry as positive.
We have other segments 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 energy and broader industry, including hydrogen, geothermal, CCUS, 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.
Baker Hughes Company 2021 Form 10-K | 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 year ended December 31, 2021 and 2020, and should be read in conjunction with the 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.
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.
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2021
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2020
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Brent oil prices ($/Bbl) (1)
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$
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70.86
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$
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41.96
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WTI oil prices ($/Bbl) (2)
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68.14
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39.16
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Natural gas prices ($/mmBtu) (3)
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3.89
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2.03
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(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
After a volatile year in 2020, when oil prices dropped due to lower demand, the combination of demand and supply in 2021 resulted in higher oil prices and raised natural gas and LNG prices to record breaking levels.
Outside North America, customer spending is most heavily influenced by Brent oil prices. The average Brent oil prices increased to $70.86/Bbl in 2021 from $41.96/Bbl in 2020 and ranged from a low of $50.37/Bbl in January 2021, to a high of $85.76/Bbl in October 2021.
In North America, customer spending is highly driven by WTI oil prices, which similarly to Brent oil prices, on average increased to $68.14/Bbl in 2021 from $39.16/Bbl in 2020, and ranged from a low of $47.47/Bbl in January 2021, to a high of $85.64/Bbl in October 2021.
In North America, natural gas prices, as measured by the Henry Hub Natural Gas Spot Price, averaged $3.89/mmBtu in 2021, representing a 92% increase over the prior year. Throughout the year, Henry Hub Natural Gas Spot Prices ranged from a high of $23.86/mmBtu in February 2021, to a low of $2.43/mmBtu in April 2021. According to the U.S. Department of Energy, working natural gas in storage at the end of 2021 was 3,226 billion cubic feet ("Bcf"), which was 6.8%, or 234 Bcf, below the corresponding week in 2020.
Baker Hughes Company 2021 Form 10-K | 30
Baker Hughes Rig Count
The Baker Hughes rig counts are an important business barometer for the drilling industry and its suppliers. When drilling rigs are active they consume products and services produced by the oil service industry. Rig count trends are driven by the exploration and development spending by oil and natural gas companies, which in turn is influenced by current and future price expectations for oil and natural gas. The counts may reflect the relative strength and stability of energy prices and overall market activity, however, these counts should not be solely relied on as other specific and pervasive conditions may exist that affect overall energy prices and market activity.
We have been providing rig counts to the public since 1944. We gather all relevant data through our field service personnel, who obtain the necessary data from routine visits to the various rigs, customers, contractors and other outside sources as necessary. We base the classification of a well as either oil or natural gas primarily upon filings made by operators in the relevant jurisdiction. This data is then compiled and distributed to various wire services and trade associations and is published on our website. We believe the counting process and resulting data is reliable, however, it is subject to our ability to obtain accurate and timely information. Rig counts are compiled weekly for the U.S. and Canada and monthly for all international rigs. Published international rig counts do not include rigs drilling in certain locations, such as Russia, the 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.
The rig counts are summarized in the table below as averages for each of the periods indicated.
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2021
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2020
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North America
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610
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522
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International
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756
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827
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Worldwide
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1,366
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1,349
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2021 Compared to 2020
Overall the rig count was 1,366 in 2021, an increase of 1% as compared to 2020 due primarily to an increase in activity in North America partially offset by declines internationally. The rig count in North America increased 17% and the international rig count decreased 9% in 2021 compared to 2020.
Within North America, the increase was primarily driven by the Canadian rig count, which was up 48% on average when compared to the same period last year, and an increase in the U.S. rig count, which was up 10% on average. Internationally, the decrease in the rig count was driven primarily by decreases in the Middle East region, Africa region and Europe region of 21%, 10%, and 10%, respectively.
RESULTS OF OPERATIONS
The discussions below relating to significant line items from our 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 results of operations are evaluated by the Chief Executive Officer on a consolidated basis as well as at the segment level. The performance of our operating segments is evaluated based on segment operating income
Baker Hughes Company 2021 Form 10-K | 31
(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 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.
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
Our statement 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 services activities. For the amounts shown below, we distinguish between “equipment” and “product services,” where product services refers 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 Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Orders: We recognized orders of $21.7 billion and $20.7 billion in 2021 and 2020, respectively. In 2021, equipment orders were up 3% and service orders were up 6%, compared to 2020.
Remaining Performance Obligations ("RPO"): As of December 31, 2021 and 2020, the aggregate amount of the transaction price allocated to the unsatisfied (or partially unsatisfied) performance obligations was $23.6 billion and $23.4 billion, respectively.
Baker Hughes Company 2021 Form 10-K | 32
Revenue and Segment Operating Income Before Tax
Revenue and segment operating income for each of our four operating segments is provided below.
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Year Ended December 31,
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$ Change
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2021
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2020
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From 2020 to 2021
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Revenue:
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Oilfield Services
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$
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9,542
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$
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10,140
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$
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(598)
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Oilfield Equipment
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2,486
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2,844
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(358)
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Turbomachinery & Process Solutions
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6,417
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5,705
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|
|
712
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Digital Solutions
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2,057
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|
2,015
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|
|
42
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Total
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$
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20,502
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$
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20,705
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$
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(203)
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Year Ended December 31,
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$ Change
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2021
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2020
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From 2020 to 2021
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Segment operating income:
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Oilfield Services
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$
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761
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$
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487
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$
|
274
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Oilfield Equipment
|
69
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|
19
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|
50
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Turbomachinery & Process Solutions
|
1,050
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|
805
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|
|
|
245
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Digital Solutions
|
126
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|
193
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(67)
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|
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Total segment operating income
|
2,006
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|
1,504
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|
|
|
|
502
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Corporate
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(429)
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|
(464)
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|
|
|
|
35
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|
|
|
|
Inventory impairment (1)
|
—
|
|
(246)
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|
|
|
|
246
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|
|
|
|
Goodwill impairment
|
—
|
|
(14,773)
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|
|
|
|
14,773
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|
|
|
|
Restructuring, impairment and other
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(209)
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|
(1,866)
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|
|
|
|
1,657
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|
|
|
|
Separation related
|
(60)
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|
(134)
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|
|
|
|
74
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|
|
|
|
Operating income (loss)
|
1,310
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|
(15,978)
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|
|
|
|
17,288
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|
|
|
|
Other non-operating income (loss), net
|
(583)
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|
1,040
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|
|
|
|
(1,623)
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|
|
|
|
Interest expense, net
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(299)
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|
(264)
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|
|
|
|
(35)
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|
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|
Income (loss) before income taxes
|
428
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|
(15,202)
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|
|
|
|
15,630
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|
|
|
|
|
|
|
|
|
|
|
|
|
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Provision for income taxes
|
(758)
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|
(559)
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|
|
|
|
(199)
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|
|
|
|
Net loss
|
$
|
(330)
|
|
$
|
(15,761)
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|
|
|
|
$
|
15,431
|
|
|
|
|
(1)Inventory impairments are reported in "Cost of goods sold" of the consolidated statements of income (loss).
Fiscal Year 2021 to Fiscal Year 2020
Revenue in 2021 was $20,502 million, a decrease of $203 million, or 1%, from 2020. This decrease in revenue was largely a result of decreased activity in OFS and OFE, partially offset by an increase in TPS and DS. OFS decreased $598 million, OFE decreased $358 million, TPS increased $712 million, and DS increased $42 million.
Total segment operating income in 2021 was $2,006 million, an increase of $502 million, or 33%, from 2020. The increase was primarily driven by OFS, which increased $274 million, TPS, which increased $245 million, and OFE, which increased $50 million, partially offset by DS, which decreased $67 million.
Oilfield Services
OFS 2021 revenue was $9,542 million, a decrease of $598 million, or 6%, from 2020, primarily as a result of decreased international activity in 2021 compared to 2020, as evidenced by a decline in the corresponding rig
Baker Hughes Company 2021 Form 10-K | 33
count, and, to a lesser extent, to decreased activity in North America and supply chain constraints in the second half of 2021. North America revenue was $2,773 million in 2021, a decrease of $28 million from 2020. International revenue was $6,769 million in 2021, a decrease of $569 million from 2020, primarily driven by declines in the Middle East, partially offset by growth in Latin America.
OFS 2021 segment operating income was $761 million, compared to $487 million in 2020. The increase was primarily driven by higher cost productivity as a result of cost efficiencies and restructuring actions, and price in certain product lines, partially offset by lower volume and commodity costs inflation.
Oilfield Equipment
OFE 2021 revenue was $2,486 million, a decrease of $358 million, or 13%, from 2020. The decrease was primarily driven by lower volume in the subsea production systems business, the disposition of the surface pressure control flow business in the fourth quarter of 2020, and the removal of subsea drilling systems from 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 2021 segment operating income was $69 million, compared to $19 million in 2020. The increase was primarily driven by higher cost productivity from our cost out programs and favorable business mix.
Turbomachinery & Process Solutions
TPS 2021 revenue was $6,417 million, an increase of $712 million, or 12%, from 2020. The increase was primarily driven by higher equipment and projects revenue, as well as higher services volume. In 2021, equipment revenue represented 45% and services revenue represented 55% of total revenue. Equipment revenue was up 15% year-over-year, and services revenue was up 10% year-over-year.
TPS 2021 segment operating income was $1,050 million, compared to $805 million in 2020. The increase in profitability was driven primarily by higher volume and increased cost productivity, partially offset by unfavorable business mix.
Digital Solutions
DS 2021 revenue was $2,057 million, an increase of $42 million, or 2%, from 2020, mainly driven by higher volume across the Process & Pipeline Services and Waygate Technologies businesses, partially offset by declines in the Nexus Controls business. DS revenue growth was affected by supply chain constraints that impacted product deliveries.
DS 2021 segment operating income was $126 million, compared to $193 million in 2020. The decrease in profitability was primarily driven by lower cost productivity and unfavorable business mix.
Corporate
In 2021, corporate expenses were $429 million, a decrease of $35 million compared to 2020, primarily driven by lower expenses as a result of cost efficiencies and restructuring actions.
Inventory Impairment
There were no inventory impairments during 2021. In 2020, we recorded inventory impairments of $246 million primarily related to our Oilfield Services segment as a result of certain restructuring activities initiated by the Company. Charges for inventory impairments are predominately reported in the "Cost of goods sold" caption of the consolidated statements of income (loss).
Goodwill Impairment
There were no goodwill impairments during 2021. During the first quarter of 2020, the Company’s market capitalization declined significantly driven by current macroeconomic and geopolitical conditions including the
Baker Hughes Company 2021 Form 10-K | 34
decrease in demand caused by the COVID-19 pandemic and collapse of oil prices driven by both surplus production and supply. Based on these events, we concluded that a triggering event occurred and we performed an interim quantitative impairment test as of March 31, 2020. Based upon the results of the impairment test, we recognized a goodwill impairment charge of $14,773 million during the first quarter of 2020. There were no other goodwill impairments during 2020.
Restructuring, Impairment and Other
In 2021, we recognized $209 million in restructuring, impairment and other charges. The charges in 2021 primarily relate to the initiatives in our OFS segment that are the continuation of our overall strategy to right-size our structural costs.
In 2020, we recognized $1,866 million in restructuring, impairment and other charges. These charges primarily related to the restructuring plan announced in the first quarter of 2020, which included product line rationalization actions, headcount reductions in certain geographical locations, and other initiatives to right-size operations for anticipated activity levels and market conditions.
Separation Related
We recorded $60 million of separation related costs in 2021, a decrease of $74 million from the prior year. Costs relate to the ongoing activities for the separation from GE, primarily related to information technology.
Other Non-Operating Income/(Loss), Net
In 2021, we recorded $583 million of other non-operating loss. Costs in 2021 include losses of $1,085 million from marking our investment in C3 AI to fair value, partially offset by a gain of $241 million from marking our investment in ADNOC Drilling to fair value, by the reversal of $121 million of current accruals due to the settlement of certain legal matters, and by income of $121 million for liabilities that are recoverable as they are indemnified under the Tax Matters Agreement with GE. This income from indemnified liabilities has an offset in the "Provision for income taxes" caption in our consolidated statements of income (loss).
In 2020, we recorded $1,040 million of other non-operating income. Included in this amount was a gain of $1,417 million related to marking our investment in C3 AI to fair value, partially offset by losses of $353 million for the sale of the rod lift systems business in OFS, and the sale of the surface pressure control flow business in OFE.
Interest Expense, Net
In 2021, we incurred net interest expense of $299 million, an increase of $35 million from the prior year, primarily driven by higher interest expense, mainly related to $28 million of costs associated with the refinancing of our senior notes due December 2022, and lower interest income.
Income Taxes
In 2021, our income tax expense was $758 million, an increase of $199 million, from $559 million in 2020. The increase was primarily due to tax expense related to unrecognized tax benefits and the geographical mix of earnings. Our 2021 income tax expense includes $121 million that is recoverable as it relates to liabilities indemnified under the Tax Matters Agreement with GE. This tax expense has an offset in the "Other non-operating income (loss), net" caption in our consolidated statements of income (loss).
COMPLIANCE
We, in the conduct of all of our activities, are committed to maintaining the core values of our Company, as well as high safety, ethical, and quality standards as also reported in our Quality Management System ("QMS"). We believe such a commitment is integral to running a sound, successful, and sustainable business. We devote significant resources to maintain a comprehensive global ethics and compliance program ("Compliance Program") which is designed to prevent, detect, and appropriately respond to any potential violations of the law, the Code of Conduct, and other Company policies and procedures.
Baker Hughes Company 2021 Form 10-K | 35
Highlights of our Compliance Program include the following:
•Comprehensive internal policies over such areas as anti-bribery; travel, entertainment, gifts and charitable donations to government officials and other parties; payments to commercial sales representatives; and, the use of non-U.S. police or military organizations for security purposes. In addition, there are policies and procedures to address customs requirements, visa processing risks, export and re-export controls, economic sanctions, anti-money laundering and anti-boycott laws.
•Global and independent structure of Chief Compliance Officer and other compliance professionals providing compliance advice, customized training and governance, as well as investigating concerns across all regions and countries where we do business.
•Comprehensive employee compliance training program that combines instructor-led and web-based training modules tailored to the key risks that employees face on an ongoing basis.
•Due diligence and monitoring procedures for third parties who conduct business on our behalf, including channel partners (sales representatives, distributors, resellers), and administrative service providers.
•Due diligence procedures for acquisition activities.
•Specifically tailored compliance risk assessments and audits focused on country and third party risk.
•Compliance Review Board comprised of senior officers of the Company that meets quarterly to monitor effectiveness of the Compliance Program, as well as product company and regional compliance committees that meet quarterly.
•Technology to monitor and report on compliance matters, including an internal investigations management system, a web-based anti-boycott reporting tool, global trade management systems and comprehensive watch list screening.
•Data privacy compliance policies and procedures to ensure compliance with applicable data privacy requirements.
•A compliance program designed to create an “Open Reporting Environment” where employees are encouraged to report any ethics or compliance matter without fear of retaliation, including a global network of trained employee ombudspersons, and a worldwide, 24-hour business helpline operated by a third party and available in approximately 200 languages.
•Centralized finance organization with company-wide policies.
•Anti-corruption audits of high-risk countries, as well as risk-based compliance audits of third parties.
•We have region-specific processes and procedures for management of HR related issues, including pre-hire screening of employees; a process to screen existing employees prior to promotion into select roles where they may be exposed to finance and/or corruption-related risks; and implementation of a global new hire training module which includes compliance training for all employees.
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. Despite the challenging dynamics that began in 2020 as a result of the COVID-19 pandemic, we continue to maintain solid financial strength and liquidity. At December 31, 2021, we had cash and cash equivalents of $3.9 billion compared to $4.1 billion at December 31, 2020. Our liquidity is further supported by a revolving credit facility of $3 billion, and access to both commercial paper and uncommitted lines of credit. At December 31, 2021, we had no borrowings outstanding under the revolving credit facility, our commercial paper program or our uncommitted lines of credit. Our next debt maturity is December 2023.
Baker Hughes Company 2021 Form 10-K | 36
We held cash and cash equivalents in the U.S. of approximately $1.6 billion and $1.0 billion and outside the U.S. of approximately $2.2 billion and $3.1 billion as of December 31, 2021 and 2020, respectively. A substantial portion of the cash held outside the U.S. at December 31, 2021 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. We have no borrowings under the Credit Agreement.
In addition, we have a commercial paper program under which we may issue from time to time commercial paper with maturities of no more than 397 days. As a result of the repayment of £600 million of our commercial paper on April 30, 2021, originally issued in May of 2020 under the COVID Corporate Financing Facility established by the Bank of England, our authorized commercial paper program was reduced from $3.8 billion to $3 billion.
Certain Senior Notes contain covenants that restrict our ability to take certain actions. See "Note 10. Borrowings" of the Notes to Consolidated Financial Statements in this Annual Report for further details. At December 31, 2021, we were in compliance with all debt covenants.
We continuously review our liquidity and capital resources. If market conditions were to change, for instance due to the uncertainty created by 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 year ended December 31, 2021, we dispersed cash to fund a variety of activities including certain working capital needs, restructuring and GE separation related costs, capital expenditures, the payment of dividends, distributions to noncontrolling interests, repayment of debt, and repurchases of our common stock.
Cash Flows
Cash flows provided by (used in) each type of activity were as follows for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
(In millions)
|
2021
|
2020
|
|
Operating activities
|
$
|
2,374
|
|
$
|
1,304
|
|
|
Investing activities
|
(463)
|
|
(618)
|
|
|
Financing activities
|
(2,143)
|
|
225
|
|
|
Fiscal Year 2021 to Fiscal Year 2020
Operating Activities
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 $2,374 million and $1,304 million for the years ended December 31, 2021 and 2020, respectively. For the year ended December 31, 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). In addition, working capital, which includes contract and other deferred
Baker Hughes Company 2021 Form 10-K | 37
assets, generated $480 million of cash in 2021 primarily due to accounts payable, inventories and contract and other deferred assets partially offset by accounts receivable and progress collections, as we continue to make progress on improving our working capital processes. Restructuring and GE separation related payments were $175 million on a net basis in 2021 and include the proceeds from the disposal of certain facilities, which are reflected below in investing activities.
In 2020, working capital generated $216 million of cash primarily due to receivables and positive progress collections partially offset by accounts payable. Restructuring and GE separation related payments were $670 million in 2020.
Investing Activities
Cash flows from investing activities used cash of $463 million and $618 million for the years ended December 31, 2021 and 2020, respectively.
Our principal recurring investing activity is the funding of capital expenditures to ensure that we have the appropriate levels and types of machinery and equipment in place to generate revenue from operations. Expenditures for capital assets totaled $856 million and $974 million for 2021 and 2020, respectively, partially offset by cash flows from the sale of property, plant and equipment of $315 million and $187 million in 2021 and 2020, respectively. Proceeds from the disposal of assets related to equipment that was lost-in-hole, and to property, machinery and equipment no longer used in operations that was sold throughout the period.
In 2021, we contributed our subsea drilling systems business to create a joint venture and received as consideration 50% of the shares of the joint venture, cash of $70 million, and a promissory note of $80 million. In 2020, we received proceeds of $187 million primarily from the sale of our rod lift systems and our surface pressure control flow businesses.
We invested $179 million during 2021 in adding capabilities to our new energy and industrial asset management offerings through the acquisition of business interests in Augury, Ekona Power and Electrochaea, among others.
In 2021, we sold approximately 2.2 million shares of C3 AI Class A common stock and received proceeds of $145 million, which is reported as other investing activity.
Financing Activities
Cash flows from financing activities used cash of $2,143 million and generated cash of $225 million for the years ended December 31, 2021 and 2020, respectively.
We had net repayments of short-term debt of $41 million and $204 million and long-term debt of $1,313 million and $42 million in 2021 and 2020, respectively. The repayment of long-term debt in 2021 was primarily driven by the early repayment of our 2.773% Senior Notes due December 2022 ("the 2022 Notes") with a principal amount of $1,250 million. In addition, a charge of $28 million related to the early redemption was recorded within "Interest expense, net" in our consolidated statement of income (loss).
In December 2021, we received proceeds from the issuance of $650 million aggregate principal amount of 1.231% Senior Notes due December 2023 and $600 million aggregate principal amount of 2.061% Senior Notes due December 2026. In 2020, we had proceeds from the issuance of $500 million aggregate principal amount of 4.486% Senior Notes due May 2030.
We repaid $832 million (£600 million) of commercial paper in April 2021 originally issued in May 2020 ($737 million at date of issuance) under the COVID Corporate Financing Facility established by the Bank of England.
During 2021, we paid dividends of $592 million to our Class A stockholders, and we made a distribution of $157 million to GE. During 2020, we paid dividends of $488 million to our Class A stockholders, and we made a distribution of $256 million to GE.
Baker Hughes Company 2021 Form 10-K | 38
On July 30, 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. During 2021, the Company and BHH LLC repurchased and canceled 17.6 million shares of Class A common stock and LLC Units, respectively, for a total of $434 million.
Cash Requirements
We believe cash on hand, cash flows from operating activities, the available revolving credit facility, access to both our commercial paper program or our uncommitted lines of credit, and availability under our existing shelf registrations of debt will provide us with sufficient capital resources and liquidity in the short-term and long-term to manage our working capital needs, meet contractual obligations, fund capital expenditures and dividends, repay debt, repurchase our common stock, and support the development of our short-term and long-term operating strategies. When necessary, we issue commercial paper or other short-term debt to fund cash needs in the U.S. in excess of the cash generated in the U.S.
Our capital expenditures can be adjusted and managed by us to match market demand and activity levels. Based on current market conditions, capital expenditures in 2022 will be made at a rate that we estimate 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 also anticipate making income tax payments in the range of $550 million to $650 million in 2022.
Contractual Obligations and Commitments
Our material cash commitments from known contractual and other obligations consist primarily of obligations for long-term debt and related interest, leases for property and equipment, and purchase obligations as part of normal operations. Certain amounts included in our contractual obligations as of December 31, 2021 are based on our estimates and assumptions about these obligations, including their duration, anticipated actions by third parties and other factors.
See “Note 10. Borrowings” of the Notes to Consolidated Financial Statements in Item 8 herein for information regarding scheduled maturities of our long-term debt. See “Note 9. Leases” of the Notes to Consolidated Financial Statements in Item 8 herein for information regarding scheduled maturities of our operating leases.
As of December 31, 2021, we had expected cash payments for estimated interest on our long-term debt and finance lease obligations of $242 million payable within the next twelve months and $3,141 million payable thereafter.
As of December 31, 2021, we had purchase obligations of $1,304 million payable within the next twelve months and $397 million payable thereafter. Our purchase obligations include expenditures for capital assets for 2022 as well as agreements to purchase goods or services or licenses that are enforceable and legally binding and that specify all significant terms, including: fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction.
Due to the uncertainty with respect to the timing of potential future cash outflows associated with our uncertain tax positions, we are unable to make reasonable estimates of the period of cash settlement, if any, to the respective taxing authorities. Therefore, $733 million in uncertain tax positions, including interest and penalties, have been excluded from the contractual obligations discussed above. See "Note 12. Income Taxes" of the Notes to Consolidated Financial Statements in Item 8 herein for further information.
Other factors affecting liquidity
Registration Statements: In May 2021, Baker Hughes filed a universal automatic shelf registration statement on Form S-3ASR with the SEC to have the ability to sell various types of securities including debt securities, Class A common stock, preferred stock, guarantees of debt securities, purchase contracts and units. The specific terms of any securities to be sold would be described in supplemental filings with the SEC. The registration statement will expire in May 2024.
Baker Hughes Company 2021 Form 10-K | 39
In December 2020, BHH LLC, Baker Hughes Netherlands Funding Company B.V., and Baker Hughes Co-Obligor, Inc. filed a shelf registration statement on Form S-3 with the SEC to have the ability to sell up to $3 billion in debt securities in amounts to be determined at the time of an offering. Any such offering, if it does occur, may happen in one or more transactions. The specific terms of any debt securities to be sold would be described in supplemental filings with the SEC. The registration statement will expire in December 2023.
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 from operations. As of December 31, 2021, 13% of our gross customer receivables were from customers in the U.S. and 12% were from customers in Mexico. As of December 31, 2020, 16% of our gross customer receivables were from customers in the U.S. No other country accounted for more than 10% of our gross customer receivables at these dates.
International operations: Our cash that is held outside the U.S. is 57% of the total cash balance as of December 31, 2021. 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 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
An accounting policy is deemed to be critical if the nature of the estimate or assumption it incorporates is subject to a material level of judgment related to matters that are highly uncertain and changes in those estimates and assumptions are reasonably likely to materially impact our consolidated financial statements. These estimates reflect our best judgment about current, and for some estimates, future, economic and market conditions and their potential effects based on information available as of the date of these financial statements. If these conditions change from those expected, it is reasonably possible that the judgments and estimates described below could change, which may result in future impairments of goodwill, or the establishment of valuation allowances on deferred tax assets and increased tax liabilities, among other effects. Also, see "Note 1. Summary of Significant Accounting Policies" of the Notes to Consolidated Financial Statements in Item 8 herein, which discusses our most significant accounting policies.
The Audit Committee of our Board of Directors has reviewed our critical accounting estimates and the disclosure presented below. During the past three fiscal years, we have not made any material changes in the methodology used to establish the critical accounting estimates, and we believe that the following are the critical accounting estimates used in the preparation of our consolidated financial statements for the year ended December 31, 2021. There are other items within our consolidated financial statements that require estimation and judgment but they are not deemed critical as defined above.
Revenue Recognition on Long-Term Product Services Agreements
We have long-term service agreements with our customers predominately within our TPS segment. These agreements typically require us to maintain assets sold to the customer over a defined contract term. These agreements have average contract terms of greater than 10 years. From time to time, these contract terms may be extended through contract modifications or amendments, which may result in revisions to future billing and cost
Baker Hughes Company 2021 Form 10-K | 40
estimates. Revenue recognition on long-term product services agreements requires estimates of both customer payments and the costs to perform required maintenance services over the contract term. We recognize revenue on an overtime basis using input method to measure our progress toward completion at the estimated margin rate of the contract.
To develop our billings estimates, we consider the number of billable events that will occur based on estimated utilization of the asset under contract, over the life of the contract term. This estimated utilization will consider both historical and market conditions, asset retirements and new product introductions, if applicable.
To develop our cost estimates, we consider the timing and extent of maintenance and overhaul events, including the amount and cost of labor, spare parts and other resources required to perform the services. In developing our cost estimates, we utilize a combination of our historical cost experience and expected cost improvements. Cost improvements are only included in future cost estimates after savings have been observed in actual results or proven effective through an extensive regulatory or engineering approval process.
We routinely review the estimates used in our product services agreements and regularly revise them to adjust for changes. These revisions are based on objectively verifiable information that is available at the time of the review.
The difference between the timing of our revenue recognition and cash received from our customers results in either a contract asset (revenue in excess of billings) or a contract liability (billings in excess of revenue). See "Note 7. Contract and Other Deferred Assets" and "Note 8. Progress Collections and Deferred Income" of the Notes to Consolidated Financial Statements in Item 8 herein for further information.
We regularly assess customer credit risk inherent in the carrying amounts of receivables and contract assets and estimated earnings, including the risk that contractual penalties may not be sufficient to offset our accumulated investment in the event of customer termination. We gain insight into expected future utilization and cost trends, as well as credit risk, through our knowledge of the equipment installed and the close interaction with our customers through supplying critical services and parts over extended periods. Revisions to cost or billing estimates may affect a product services agreement’s total estimated profitability resulting in an adjustment of earnings; such adjustments generated earnings of $14 million, $17 million and $(1) million for the three years ended December 31, 2021, 2020 and 2019, respectively. We provide for probable losses when they become evident.
On December 31, 2021, our long-term product service agreements, net of related billings in excess of revenues, of $0.3 billion, represent approximately 2.6% of our total estimated life of contract billings of $10.1 billion. Cash billings collected on these contracts were approximately $0.6 billion during the years ended December 31, 2021 and 2020. Our contracts (on average) are approximately 26% complete based on costs incurred to date and our estimate of future costs. Revisions to our estimates of future revenue or costs that increase or decrease total estimated contract profitability by 1% would increase or decrease the long-term product service agreements balance by $0.06 billion.
Goodwill and Other Identified Intangible Assets
We perform an annual impairment test of goodwill on a qualitative or quantitative basis for each of our reporting units as of July 1, or more frequently when circumstances indicate an impairment may exist at the reporting unit level. When performing the annual impairment test we have the option of first performing a qualitative assessment to determine the existence of events and circumstances that would lead to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If such a conclusion is reached, we would then be required to perform a quantitative impairment assessment of goodwill. A quantitative assessment for the determination of impairment is made by comparing the carrying amount of each reporting unit with its fair value. Determining the fair value of a reporting unit is judgmental in nature and involves the use of significant estimates and assumptions and typically requires analysis of discounted cash flows and other market information, such as trading multiples, and comparable transactions. Cash flow analysis requires judgment regarding many factors, such as management’s projections of future cash flows, weighted-average cost of capital, and long-term growth rates. Market information requires judgmental selection of relevant market comparables. We assess the valuation methodology based upon the relevance and availability of the data at the time the valuation is performed. Our estimates are based upon assumptions believed to be reasonable but which are inherently uncertain, and actual
Baker Hughes Company 2021 Form 10-K | 41
results may differ from those assumed in our analysis. The determination of whether goodwill is impaired involves a significant level of judgment in these assumptions, and changes in our forecasts, business strategy, government regulations, or economic or market conditions could significantly impact these judgments, potentially decreasing the fair value of one or more reporting units. Any resulting impairment charges could have a material impact on our results of operations.
Income Taxes
Our effective tax rate is based on our income, statutory tax rates, and differences between tax laws and U.S. GAAP in various jurisdictions. Tax laws are complex and subject to different interpretations by the taxpayer and respective governmental taxing authorities. Our rate may be further impacted by the repatriation of foreign earnings that are considered indefinitely reinvested to the extent the repatriation would result in additional taxes such as withholding and income taxes. Indefinite reinvestment is determined by management’s judgment and intentions concerning the future operations of the Company. In cases where repatriation would otherwise incur significant withholding or income taxes, these foreign earnings have been indefinitely reinvested in active non-U.S. business operations. Computation of the potential deferred tax liability associated with these undistributed earnings and any other basis differences is not practicable.
Deferred income tax assets represent amounts available to reduce income taxes payable in future years. We evaluate the recoverability of these future tax deductions and credits by assessing the adequacy of future taxable income from all sources, including reversal of taxable temporary differences, forecasted operating earnings and available tax planning strategies. These sources of income rely heavily on estimates. We use our historical experience and short and long range business forecasts to provide insight. We record a valuation allowance when it is more likely than not that some portion or all of the deferred tax assets will not be realized.
Our tax filings routinely are subject to audit by the tax authorities in the jurisdictions where we conduct business. These audits may result in assessments of additional taxes that are resolved with the tax authorities or through the courts. We have provided for the amounts we believe will ultimately result from these proceedings, but settlements of issues raised in these audits may affect our tax rate. We have $531 million of gross unrecognized tax benefits, excluding interest and penalties, at December 31, 2021. We are not able to reasonably estimate in which future periods these amounts ultimately will be settled.
Allowance for Credit Losses
The estimation of anticipated credit losses that may be incurred as we work through the invoice collection process with our customers requires us to make judgments and estimates regarding our customers' ability to pay amounts due to us. We monitor our customers' payment history and current credit worthiness to determine that collectability is reasonably assured. We also consider the overall business climate in which our customers operate. For accounts receivable, a loss allowance matrix is utilized to measure lifetime expected credit losses. The matrix contemplates historical credit losses by age of receivables, adjusted for any forward-looking information and management expectations. At December 31, 2021 and 2020, the allowance for credit losses totaled $400 million and $373 million of total gross accounts receivable, respectively. We believe that our allowance for credit losses is adequate to cover the anticipated credit losses under current conditions; however, uncertainties regarding changes in the financial condition of our customers, either adverse or positive, could impact the amount and timing of any additional credit losses that may be required.
Inventory Reserves
Inventory is a significant component of current assets and is stated at the lower of cost or net realizable value. This requires us to record provisions and maintain reserves for excess, slow moving, and obsolete inventory. To determine these reserve amounts, we regularly review inventory quantities on hand and compare them to estimates of future product demand, market conditions, production requirements, and technological developments. These estimates and forecasts inherently include uncertainties and require us to make judgments regarding potential future outcomes. At December 31, 2021 and 2020, inventory reserves totaled $374 million and $421 million of gross inventory, respectively. We believe that our reserves are adequate to properly value potential excess, slow moving, and obsolete inventory under current conditions. Significant or unanticipated changes to our estimates and
Baker Hughes Company 2021 Form 10-K | 42
forecasts could impact the amount and timing of any additional provisions for excess, slow moving or obsolete inventory that may be required.
NEW ACCOUNTING STANDARDS TO BE ADOPTED
See "Note 1. Summary of Significant Accounting Policies" of the Notes to Consolidated Financial Statements in Item 8 herein for further discussion of accounting standards to be adopted.
RELATED PARTY TRANSACTIONS
See "Note 18. Related Party Transactions" of the Notes to Consolidated Financial Statements in Item 8 herein for further discussion of related party transactions.
FORWARD-LOOKING STATEMENTS
This Form 10-K, including MD&A and certain statements in the Notes to Consolidated Financial Statements, 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"). 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," "endeavor," "seek," "anticipate," "estimate," "overestimate," "underestimate," "believe," "could," "project," "predict," "continue," "target" 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 in the "Risk Factors" section of Part 1 of Item 1A of this Form 10-K 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.
In light of such risks and uncertainties, we caution you not to place undue reliance on these forward-looking statements. These forward-looking statements speak only as of the date of this annual report, or if earlier, as of the date they were made. We do not intend to, and disclaim any obligation to, update or revise any forward-looking statements unless required by securities law.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to certain market risks that are inherent in our financial instruments and arise from changes in interest rates and foreign currency exchange rates. We may enter into derivative financial instrument transactions to manage or reduce market risk but do not enter into derivative financial instrument transactions for speculative purposes. A discussion of our primary market risk exposure in financial instruments is presented below.
Baker Hughes Company 2021 Form 10-K | 43
INTEREST RATE RISK
All of our long-term debt is comprised of fixed rate instruments. We are subject to interest rate risk on our debt and investment portfolio. As of December 31, 2021, we had interest rate swaps with a notional amount of $500 million that converted a portion of our $1,350 million aggregate principal amount of 3.337% fixed rate Senior Notes due 2027 into a floating rate instrument with an interest rate based on a LIBOR index as a hedge of its exposure to changes in fair value that are attributable to interest rate risk. The interest rate swaps are designated and each qualify as a fair value hedging instrument. The interest rate swaps are considered to be effective at achieving offsetting changes in the fair value of the hedged liability, and no ineffectiveness is recognized. The mark-to-market of this fair value hedge was recorded as gain or loss in interest expense and was equally offset by the gain or loss of the underlying debt instrument, which also was recorded in interest expense.
The following table sets forth our fixed rate long-term debt, excluding finance leases, and the related weighted average interest rates by expected maturity dates.
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(In millions)
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2022
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2023
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2024
|
|
2025
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2026
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|
Thereafter
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|
Total (2)
|
As of December 31, 2021
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|
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|
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|
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|
|
Long-term debt (1)
|
$
|
—
|
|
|
$
|
650
|
|
|
$
|
107
|
|
|
$
|
—
|
|
|
$
|
600
|
|
|
$
|
5,106
|
|
|
$
|
6,463
|
|
Weighted average interest rates
|
—
|
%
|
|
1.46
|
%
|
|
4.07
|
%
|
|
—
|
%
|
|
2.20
|
%
|
|
3.84
|
%
|
|
3.46
|
%
|
|
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|
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(1)Fair market value of our fixed rate long-term debt, excluding finance leases, was $7.2 billion at December 31, 2021.
(2)Amounts represent the principal value of our long-term debt outstanding and related weighted average interest rates at the end of the respective period.
FOREIGN CURRENCY EXCHANGE RISK
We conduct our operations around the world in a number of different currencies, and we are exposed to market risks resulting from fluctuations in foreign currency exchange rates. Many of our significant foreign subsidiaries have designated the local currency as their functional currency. As such, future earnings are subject to change due to fluctuations in foreign currency exchange rates when transactions are denominated in currencies other than our functional currencies.
Additionally, we buy, manufacture and sell components and products across global markets. These activities expose us to changes in foreign currency exchange rates, commodity prices and interest rates which can adversely affect revenue earned and costs of our operating businesses. When the currency in which equipment is sold differs from the primary currency of the legal entity and the exchange rate fluctuates, it will affect the revenue earned on the sale. These sales and purchase transactions also create receivables and payables denominated in foreign currencies and exposure to foreign currency gains and losses based on changes in exchange rates. Changes in the price of raw materials used in manufacturing can affect the cost of manufacturing. We use derivatives to mitigate or eliminate these exposures, where appropriate.
We use cash flow hedging primarily to reduce or eliminate the effects of foreign currency exchange rate changes on purchase and sale contracts. Accordingly, most derivative activity in this category consists of currency exchange contracts. We had outstanding foreign currency forward contracts with notional amounts aggregating $3.3 billion and $6.8 billion to hedge exposure to currency fluctuations in various foreign currencies at December 31, 2021 and 2020, respectively. 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.
As of December 31, 2021, the Company estimates that a 1% appreciation or depreciation in the U.S. dollar would result in an impact of less than $10 million to our pre-tax earnings, however, the Company is generally able to mitigate its foreign exchange exposure, where there are liquid financial markets, through use of foreign currency derivative transactions. Also, see "Note 16. Financial Instruments" of the Notes to Consolidated Financial Statements in Item 8 herein, which has additional details on our strategy.
Baker Hughes Company 2021 Form 10-K | 44
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Management's Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over our financial reporting, as such term is defined in Exchange Act Rules 13a-15(f). Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we assessed the effectiveness of our internal control over financial reporting based on the 2013 framework in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our assessment, our principal executive officer and principal financial officer concluded that our internal control over financial reporting was effective as of December 31, 2021. This conclusion is based on the recognition that there are inherent limitations in all systems of internal control. Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
KPMG LLP, the Company's independent registered public accounting firm, has issued an attestation report on the effectiveness of the Company's internal control over financial reporting.
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/s/ LORENZO SIMONELLI
Lorenzo Simonelli
Chairman, President and
Chief Executive Officer
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/s/ BRIAN WORRELL
Brian Worrell
Chief Financial Officer
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/s/ KURT CAMILLERI
Kurt Camilleri
Senior Vice President, Controller and Chief Accounting Officer
|
Houston, Texas
February 11, 2022
Baker Hughes Company 2021 Form 10-K | 45
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors
Baker Hughes Company:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated statements of financial position of Baker Hughes Company and subsidiaries (the Company) as of December 31, 2021 and 2020, the related consolidated statements of income (loss), comprehensive income (loss), changes in equity, and cash flows for each of the years in the three-year period ended December 31, 2021, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2021, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 11, 2022 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Revenue recognition on certain agreements for sales of goods manufactured to unique customer specifications
As discussed in Note 1 to the consolidated financial statements, the Company enters into agreements for sales of goods manufactured to unique customer specifications on an over time basis. Revenue from these types of contracts is recognized to the extent of progress towards completion measured by actual costs incurred relative to total expected costs. The Company provides for potential losses on these types of contracts when it is probable that a loss will be incurred.
We identified revenue recognition for certain contracts from the sales of goods manufactured to unique customer specifications as a critical audit matter. Complex auditor judgment was required in evaluating the Company's long-term estimates of the expected costs to be incurred in order to complete these contracts.
Baker Hughes Company 2021 Form 10-K | 46
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the Company’s revenue recognition process for sales of goods manufactured to unique customer specifications. This included controls pertaining to the Company's estimation of costs expected to be incurred to complete contracts for sales of goods manufactured to unique customer specifications. We evaluated the Company's ability to accurately estimate costs expected to be incurred to complete the contracts for sales of goods manufactured to unique customer specifications. We evaluated the estimated costs expected to be incurred to complete the goods manufactured to unique customer specifications for the contracts by:
–questioning the Company's finance and project managers regarding progress to date based on the latest project reports and the costs expected to still be incurred until completion;
–observing project review meetings performed by the Company or inspecting relevant minutes of those meetings to identify changes in the estimated costs expected to be incurred to complete the contract and related contract margins;
–assessing the remaining estimated costs expected to be incurred by expenditure category by comparing to the actual costs incurred during the current year for the selected project; and
–investigating changes to the contract margin when compared to the prior year's estimated contract margin.
We have served as the Company’s auditor since 2017.
/s/ KPMG LLP
Houston, Texas
February 11, 2022
Baker Hughes Company 2021 Form 10-K | 47
REPORT OF THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors
Baker Hughes Company:
Opinion on Internal Control Over Financial Reporting
We have audited Baker Hughes Company and subsidiaries' (the Company) internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated statements of financial position of the Company as of December 31, 2021 and 2020, the related consolidated statements of income (loss), comprehensive income (loss), changes in equity, and cash flows for each of the years in the three-year period ended December 31, 2021, and the related notes (collectively, the consolidated financial statements), and our report dated February 11, 2022 expressed an unqualified opinion on those consolidated financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ KPMG LLP
Houston, Texas
February 11, 2022
Baker Hughes Company 2021 Form 10-K | 48
BAKER HUGHES COMPANY
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
(In millions, except per share amounts)
|
2021
|
2020
|
2019
|
Revenue:
|
|
|
|
Sales of goods
|
$
|
12,248
|
|
$
|
12,846
|
|
$
|
13,689
|
|
Sales of services
|
8,254
|
|
7,859
|
|
10,149
|
|
Total revenue
|
20,502
|
|
20,705
|
|
23,838
|
|
Costs and expenses:
|
|
|
|
Cost of goods sold
|
10,458
|
|
11,383
|
|
11,798
|
|
Cost of services sold
|
5,995
|
|
6,123
|
|
7,608
|
|
Selling, general and administrative
|
2,470
|
|
2,404
|
|
2,832
|
|
Goodwill impairment
|
—
|
|
14,773
|
|
—
|
|
Restructuring, impairment and other
|
209
|
|
1,866
|
|
342
|
|
Separation related
|
60
|
|
134
|
|
184
|
|
Total costs and expenses
|
19,192
|
|
36,683
|
|
22,764
|
|
Operating income (loss)
|
1,310
|
|
(15,978)
|
|
1,074
|
|
Other non-operating income (loss), net
|
(583)
|
|
1,040
|
|
(84)
|
|
Interest expense, net
|
(299)
|
|
(264)
|
|
(237)
|
|
Income (loss) before income taxes
|
428
|
|
(15,202)
|
|
753
|
|
|
|
|
|
Provision for income taxes
|
(758)
|
|
(559)
|
|
(482)
|
|
Net income (loss)
|
(330)
|
|
(15,761)
|
|
271
|
|
|
|
|
|
Less: Net income (loss) attributable to noncontrolling interests
|
(111)
|
|
(5,821)
|
|
143
|
|
Net income (loss) attributable to Baker Hughes Company
|
$
|
(219)
|
|
$
|
(9,940)
|
|
$
|
128
|
|
|
|
|
|
Per share amounts:
|
|
|
|
Basic & diluted income (loss) per Class A common share
|
$
|
(0.27)
|
|
$
|
(14.73)
|
|
$
|
0.23
|
|
|
|
|
|
|
|
|
|
Cash dividend per Class A common share
|
$
|
0.72
|
|
$
|
0.72
|
|
$
|
0.72
|
|
|
|
|
|
See accompanying Notes to Consolidated Financial Statements
Baker Hughes Company 2021 Form 10-K | 49
BAKER HUGHES COMPANY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
(In millions)
|
2021
|
2020
|
2019
|
Net income (loss)
|
$
|
(330)
|
|
$
|
(15,761)
|
|
$
|
271
|
|
|
|
|
|
Less: Net income (loss) attributable to noncontrolling interests
|
(111)
|
|
(5,821)
|
|
143
|
|
Net income (loss) attributable to Baker Hughes Company
|
(219)
|
|
(9,940)
|
|
128
|
|
Other comprehensive income (loss):
|
|
|
|
Investment securities
|
—
|
|
(2)
|
|
2
|
|
Foreign currency translation adjustments
|
(305)
|
|
175
|
|
53
|
|
Cash flow hedges
|
(16)
|
|
(5)
|
|
12
|
|
Benefit plans
|
170
|
|
(125)
|
|
(75)
|
|
Other comprehensive income (loss)
|
(151)
|
|
43
|
|
(8)
|
|
|
|
|
|
Less: Other comprehensive loss attributable to noncontrolling interests
|
(16)
|
|
—
|
|
(1)
|
|
Other comprehensive income (loss) attributable to Baker Hughes Company
|
(135)
|
|
43
|
|
(7)
|
|
Comprehensive income (loss)
|
(481)
|
|
(15,718)
|
|
263
|
|
|
|
|
|
Less: Comprehensive income (loss) attributable to noncontrolling interests
|
(127)
|
|
(5,821)
|
|
142
|
|
Comprehensive income (loss) attributable to Baker Hughes Company
|
$
|
(354)
|
|
$
|
(9,897)
|
|
$
|
121
|
|
See accompanying Notes to Consolidated Financial Statements
Baker Hughes Company 2021 Form 10-K | 50
BAKER HUGHES COMPANY
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
|
|
|
|
|
|
|
|
|
|
December 31,
|
(In millions, except par value)
|
2021
|
2020
|
ASSETS
|
|
|
Current Assets:
|
|
|
Cash and cash equivalents
|
$
|
3,853
|
|
$
|
4,132
|
|
Current receivables, net
|
5,651
|
|
5,622
|
|
Inventories, net
|
3,979
|
|
4,421
|
|
All other current assets
|
1,582
|
|
2,280
|
|
Total current assets
|
15,065
|
|
16,455
|
|
Property, plant and equipment, less accumulated depreciation
|
4,877
|
|
5,358
|
|
Goodwill
|
5,959
|
|
5,977
|
|
Other intangible assets, net
|
4,131
|
|
4,397
|
|
Contract and other deferred assets
|
1,598
|
|
2,001
|
|
All other assets
|
2,943
|
|
2,866
|
|
Deferred income taxes
|
735
|
|
953
|
|
Total assets
|
$
|
35,308
|
|
$
|
38,007
|
|
LIABILITIES AND EQUITY
|
Current Liabilities:
|
|
|
Accounts payable
|
$
|
3,745
|
|
$
|
3,532
|
|
Short-term debt and current portion of long-term debt
|
40
|
|
889
|
|
Progress collections and deferred income
|
3,232
|
|
3,454
|
|
All other current liabilities
|
2,111
|
|
2,352
|
|
Total current liabilities
|
9,128
|
|
10,227
|
|
Long-term debt
|
6,687
|
|
6,744
|
|
Deferred income taxes
|
127
|
|
186
|
|
Liabilities for pensions and other postretirement benefits
|
1,110
|
|
1,217
|
|
All other liabilities
|
1,510
|
|
1,391
|
|
Equity:
|
|
|
Class A common stock, $0.0001 par value - 2,000 authorized, 909 and 724 issued and outstanding as of December 31, 2021 and 2020, respectively
|
—
|
|
—
|
|
Class B common stock, $0.0001 par value - 1,250 authorized, 117 and 311 issued and outstanding as of December 31, 2021 and 2020, respectively
|
—
|
|
—
|
|
Capital in excess of par value
|
27,375
|
|
24,613
|
|
|
|
|
Retained loss
|
(10,160)
|
|
(9,942)
|
|
Accumulated other comprehensive loss
|
(2,385)
|
|
(1,778)
|
|
Baker Hughes Company equity
|
14,830
|
|
12,893
|
|
Noncontrolling interests
|
1,916
|
|
5,349
|
|
Total equity
|
16,746
|
|
18,242
|
|
Total liabilities and equity
|
$
|
35,308
|
|
$
|
38,007
|
|
See accompanying Notes to Consolidated Financial Statements
Baker Hughes Company 2021 Form 10-K | 51
BAKER HUGHES COMPANY
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions, except per share amounts)
|
Class A and Class B Common Stock
|
Capital in Excess of Par Value
|
|
Retained Earnings (Loss)
|
Accumulated Other Comprehensive Loss
|
Non-controlling Interests
|
Total
|
Balance at December 31, 2018
|
—
|
|
$
|
18,659
|
|
|
$
|
25
|
|
$
|
(1,219)
|
|
$
|
17,548
|
|
$
|
35,013
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss):
|
|
|
|
|
|
|
|
Net income
|
|
|
|
128
|
|
|
143
|
|
271
|
|
Other comprehensive loss
|
|
|
|
|
(7)
|
|
(1)
|
|
(8)
|
|
Dividends on Class A Common Stock ($0.72 per share)
|
|
(241)
|
|
|
(154)
|
|
|
|
(395)
|
|
Distributions to GE
|
|
|
|
|
|
(350)
|
|
(350)
|
|
Effect of exchange of Class B common stock and associated BHH LLC Units for Class A common stock
|
|
4,740
|
|
|
|
(332)
|
|
(4,408)
|
|
—
|
|
Repurchase and cancellation of Class B common stock and associated BHH LLC Units
|
|
107
|
|
|
|
(18)
|
|
(339)
|
|
(250)
|
|
|
|
|
|
|
|
|
|
Stock-based compensation cost
|
|
187
|
|
|
|
|
|
187
|
|
Other
|
|
113
|
|
|
1
|
|
(60)
|
|
(23)
|
|
31
|
|
Balance at December 31, 2019
|
—
|
|
23,565
|
|
|
—
|
|
(1,636)
|
|
12,570
|
|
34,499
|
|
Comprehensive income (loss):
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
(9,940)
|
|
|
(5,821)
|
|
(15,761)
|
|
Other comprehensive income
|
|
|
|
|
43
|
|
|
43
|
|
Dividends on Class A Common Stock ($0.72 per share)
|
|
(488)
|
|
|
|
|
|
(488)
|
|
Distributions to GE
|
|
|
|
|
|
(256)
|
|
(256)
|
|
Effect of exchange of Class B common stock and associated BHH LLC Units for Class A common stock
|
|
1,317
|
|
|
|
(185)
|
|
(1,132)
|
|
—
|
|
|
|
|
|
|
|
|
|
Stock-based compensation cost
|
|
210
|
|
|
|
|
|
210
|
|
Other
|
|
9
|
|
|
(2)
|
|
|
(12)
|
|
(5)
|
|
Balance at December 31, 2020
|
—
|
|
24,613
|
|
|
(9,942)
|
|
(1,778)
|
|
5,349
|
|
18,242
|
|
Comprehensive loss:
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
(219)
|
|
|
(111)
|
|
(330)
|
|
Other comprehensive loss
|
|
|
|
|
(135)
|
|
(16)
|
|
(151)
|
|
Dividends on Class A Common Stock ($0.72 per share)
|
|
(592)
|
|
|
|
|
|
(592)
|
|
Distributions to GE
|
|
|
|
|
|
(157)
|
|
(157)
|
|
Effect of exchange of Class B common stock and associated BHH LLC Units for Class A common stock
|
|
3,584
|
|
|
|
(477)
|
|
(3,107)
|
|
—
|
|
Repurchase and cancellation of Class A common stock
|
|
(418)
|
|
|
|
5
|
|
(21)
|
|
(434)
|
|
Stock-based compensation cost
|
|
205
|
|
|
|
|
|
205
|
|
Other
|
|
(17)
|
|
|
1
|
|
|
(21)
|
|
(37)
|
|
Balance at December 31, 2021
|
—
|
|
$
|
27,375
|
|
|
$
|
(10,160)
|
|
$
|
(2,385)
|
|
$
|
1,916
|
|
$
|
16,746
|
|
See accompanying Notes to Consolidated Financial Statements
Baker Hughes Company 2021 Form 10-K | 52
BAKER HUGHES COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
(In millions)
|
2021
|
2020
|
2019
|
Cash flows from operating activities:
|
|
|
|
Net income (loss)
|
$
|
(330)
|
|
$
|
(15,761)
|
|
$
|
271
|
|
Adjustments to reconcile net income (loss) to net cash flows from operating activities:
|
|
|
|
Depreciation and amortization
|
1,105
|
|
1,317
|
|
1,418
|
|
Loss (gain) on equity securities
|
845
|
|
(1,417)
|
|
—
|
|
Provision for deferred income taxes
|
133
|
|
160
|
|
51
|
|
Property, plant and equipment impairment
|
7
|
|
461
|
|
107
|
|
Goodwill impairment
|
—
|
|
14,773
|
|
—
|
|
Intangible assets impairment
|
—
|
|
729
|
|
—
|
|
Loss on business dispositions
|
—
|
|
353
|
|
138
|
|
Inventory impairment
|
—
|
|
246
|
|
—
|
|
|
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
Current receivables
|
(126)
|
|
680
|
|
(583)
|
|
Inventories
|
170
|
|
(80)
|
|
(200)
|
|
Accounts payable
|
246
|
|
(711)
|
|
249
|
|
Progress collections and deferred income
|
(72)
|
|
396
|
|
1,147
|
|
Contract and other deferred assets
|
262
|
|
(69)
|
|
(60)
|
|
Other operating items, net
|
134
|
|
227
|
|
(412)
|
|
Net cash flows from operating activities
|
2,374
|
|
1,304
|
|
2,126
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
Expenditures for capital assets
|
(856)
|
|
(974)
|
|
(1,240)
|
|
Proceeds from disposal of assets
|
315
|
|
187
|
|
264
|
|
Proceeds from business dispositions
|
70
|
|
187
|
|
77
|
|
|
|
|
|
Net cash paid for business interests
|
(179)
|
|
(26)
|
|
(176)
|
|
Other investing items, net
|
187
|
|
8
|
|
30
|
|
Net cash flows used in investing activities
|
(463)
|
|
(618)
|
|
(1,045)
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
Net repayments of short-term debt
|
(41)
|
|
(204)
|
|
(542)
|
|
Proceeds from the issuance of long-term debt
|
1,250
|
|
500
|
|
525
|
|
Proceeds from (repayment of) commercial paper
|
(832)
|
|
737
|
|
—
|
|
Repayments of long-term debt
|
(1,313)
|
|
(42)
|
|
(570)
|
|
Dividends paid
|
(592)
|
|
(488)
|
|
(395)
|
|
Distributions to GE
|
(157)
|
|
(256)
|
|
(350)
|
|
Repurchase of Class A common stock
|
(434)
|
|
—
|
|
—
|
|
Repurchase of common units from GE by BHH LLC
|
—
|
|
—
|
|
(250)
|
|
|
|
|
|
|
|
|
|
Other financing items, net
|
(24)
|
|
(22)
|
|
48
|
|
Net cash flows from (used in) financing activities
|
(2,143)
|
|
225
|
|
(1,534)
|
|
Effect of currency exchange rate changes on cash and cash equivalents
|
(47)
|
|
(28)
|
|
(21)
|
|
Increase (decrease) in cash and cash equivalents
|
(279)
|
|
883
|
|
(474)
|
|
Cash and cash equivalents, beginning of period
|
4,132
|
|
3,249
|
|
3,723
|
|
Cash and cash equivalents, end of period
|
$
|
3,853
|
|
$
|
4,132
|
|
$
|
3,249
|
|
See "Note 22. Supplementary Information" for additional cash flow disclosures
See accompanying Notes to Consolidated Financial Statements
Baker Hughes Company 2021 Form 10-K | 53
Baker Hughes Company
Notes to 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 88.6% 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 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 annual financial information. The consolidated financial statements include the accounts of Baker Hughes 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.
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 consolidated financial statements for the economic interest held by GE. As of December 31, 2021, GE's economic interest in BHH LLC was 11.4%. See "Note 14. Equity" for further information.
In the Company's consolidated financial statements and notes, certain amounts have been reclassified to conform with the current year presentation. In the notes to the 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
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and judgments that affect the reported amounts of assets and liabilities, disclosure of any contingent assets or liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. We base our estimates and judgments on historical experience and on various other assumptions and information that we believe to be reasonable under the circumstances. Estimates and assumptions about future events and their effects cannot be perceived with certainty, and accordingly, these estimates may change as new events occur, as more experience is acquired, as additional information is obtained and as our operating environment changes. While we believe that the estimates and assumptions used in the preparation of the consolidated financial statements are appropriate, actual results could differ from those estimates. Estimates are used for, but are not limited to, determining the following: allowance for credit losses and inventory valuation reserves; recoverability of long-lived assets, including revenue recognition on long-term contracts; valuation of goodwill; useful lives used in depreciation and amortization; income taxes and related valuation allowances; accruals for contingencies; actuarial assumptions to determine costs and liabilities related to employee benefit plans; stock-based compensation expense; valuation of derivatives; and the fair value of assets acquired and liabilities assumed in acquisitions.
Foreign Currency
Assets and liabilities of non-U.S. operations with a functional currency other than the U.S. dollar have been translated into U.S. dollars using our period end exchange rates, and revenue, expenses, and cash flows have been
Baker Hughes Company 2021 Form 10-K | 54
Baker Hughes Company
Notes to Consolidated Financial Statements
translated at average rates for the respective periods. Any resulting translation gains and losses are included in other comprehensive income (loss).
Gains and losses from foreign currency transactions, such as those resulting from the settlement of receivables or payables in the non-functional currency and those resulting from remeasurements of monetary items of non-U.S. operations where the functional currency is the U.S. dollar, are included in the consolidated statements of income (loss).
Revenue from Sale of Equipment
Performance Obligations Satisfied Over Time
We recognize revenue on agreements for sales of goods manufactured to unique customer specifications including long-term construction projects, on an over time basis utilizing cost inputs as the measurement criteria in assessing the progress toward completion. Our estimate of costs to be incurred to fulfill our promise to a customer is based on our history of manufacturing similar assets for customers and is updated routinely to reflect changes in quantity or pricing of the inputs. We begin to recognize revenue on these contracts when the contract specific inventory becomes customized for a customer, which is reflective of our initial transfer of control of the incurred costs. We provide for potential losses on any of these agreements when it is probable that we will incur the loss.
Our billing terms for these over time contracts vary, but are generally based on achieving specified milestones. The differences between the timing of our revenue recognized (based on costs incurred) and customer billings (based on contractual terms) results in changes to our contract asset or contract liability positions.
Performance Obligations Satisfied at a Point In Time
We recognize revenue for non-customized equipment at the point in time that the customer obtains control of the good. Equipment for which we recognize revenue at a point in time include goods we manufacture on a standardized basis for sale to the market. We use proof of delivery for certain large equipment with more complex logistics associated with the shipment, whereas the delivery of other equipment is generally determined based on historical data of transit times between regions.
On occasion we sell products with a right of return. We use our accumulated experience to estimate and provide for such returns when we record the sale. In situations where arrangements include customer acceptance provisions based on seller or customer-specified objective criteria, we recognize revenue when we have concluded that the customer has control of the goods and that acceptance is likely to occur.
Our billing terms for these point in time equipment contracts vary, but are generally based on shipment of the goods to the customer.
Revenue from Sale of Services
Performance Obligations Satisfied Over Time
We sell product services under long-term product maintenance or extended warranty agreements in our Turbomachinery & Process Solutions and Oilfield Equipment segments. These agreements require us to maintain the customers' assets over the service agreement contract terms, which generally range from 10 to 20 years. In general, these are contractual arrangements to provide services, repairs, and maintenance of a covered unit (gas turbines for mechanical drive or power generation, primarily on LNG applications, drilling rigs). These services are performed at various times during the life of the contract, thus the costs of performing services are incurred on other than a straight-line basis. We recognize related sales based on the extent of our progress toward completion measured by actual costs incurred in relation to total expected costs. We provide for any loss that we expect to incur on any of these agreements when that loss is probable. The Company utilizes historical customer data, prior product performance data, statistical analysis, third-party data, and internal management estimates to calculate contract-specific margins. In certain contracts, the total transaction price is variable based on customer utilization, which is excluded from the contract margin until the period that the customer has utilized to appropriately reflect the
Baker Hughes Company 2021 Form 10-K | 55
Baker Hughes Company
Notes to Consolidated Financial Statements
revenue activity in the period earned. In addition, revenue for certain oilfield services is recognized on an over time basis as performed.
Our billing terms for these contracts are generally based on asset utilization (i.e. usage per hour) or the occurrence of a major maintenance event within the contract. The differences between the timing of our revenue recognized (based on costs incurred) and customer billings (based on contractual terms) results in changes to our contract asset or contract liability positions.
Performance Obligations Satisfied at a Point In Time
We sell certain tangible products, largely spare equipment, through our services business. We recognize revenue for this equipment at the point in time that the customer obtains control of the good, which is at the point in time we deliver the spare part to the customer. Our billing terms for these point in time service contracts vary, but are generally based on shipment of the goods to the customer.
Research and Development
Research and development costs are expensed as incurred and relate to the research and development of new products and services. These costs amounted to $492 million, $595 million and $687 million for the years ended December 31, 2021, 2020 and 2019, respectively. Research and development expenses were reported in cost of goods sold and cost of services sold.
Separation Related
Separation related costs relate to the ongoing activities for the separation from GE including costs for the build-out of certain information technology infrastructures as a result of the separation.
Cash and Cash Equivalents
Short-term investments with original maturities of three months or less are included in cash equivalents unless designated as available-for-sale and classified as investment securities.
As of December 31, 2021 and 2020, we had $601 million and $687 million, respectively, of cash held in bank accounts that cannot be 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.
Allowance for Credit Losses
We monitor our customers' payment history and current credit worthiness to determine that collectability of the related financial assets are reasonably assured. We also consider the overall business climate in which our customers operate. For accounts receivable, a loss allowance matrix is utilized to measure lifetime expected credit losses. The matrix contemplates historical credit losses by age of receivables, adjusted for any forward-looking information and management expectations.
Concentration of Credit Risk
We grant credit to our customers who primarily operate in the oil and natural gas industry. Although this concentration affects our overall exposure to credit risk, our current receivables are spread over a diverse group of customers across many countries, which mitigates this risk. We perform periodic credit evaluations of our customers' financial conditions, including monitoring our customers' payment history and current credit worthiness to manage this risk. We do not generally require collateral in support of our current receivables, but we may require payment in advance or security in the form of a letter of credit or a bank guarantee.
Baker Hughes Company 2021 Form 10-K | 56
Baker Hughes Company
Notes to Consolidated Financial Statements
Inventories
All inventories are stated at the lower of cost or net realizable values and they are measured on a first-in, first-out ("FIFO") basis or average cost basis. As necessary, we record provisions and maintain reserves for excess, slow moving and obsolete inventory. To determine these reserve amounts, we regularly review inventory quantities on hand and compare them to estimates of future product demand, market conditions, production requirements and technological developments.
Property, Plant and Equipment ("PP&E")
Property, plant and equipment is initially stated at cost and is depreciated over its estimated economic life. Subsequently, property, plant and equipment is measured at cost less accumulated depreciation, which is generally provided by using the straight-line method over the estimated economic lives of the individual assets, and impairment losses. We manufacture a substantial portion of our tools and equipment in our OFS segment and the cost of these items, which includes direct and indirect manufacturing costs, is capitalized in inventory and subsequently moved to PP&E.
Other Intangible Assets
We amortize the cost of other intangible assets over their estimated useful lives unless such lives are deemed indefinite. The cost of intangible assets is generally amortized on a straight-line basis over the asset's estimated economic life. Amortizable intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable. In these circumstances, they are tested for impairment based on undiscounted cash flows and, if impaired, written down to fair value based on either discounted cash flows or appraised values. Intangible assets with indefinite lives are tested annually for impairment and written down to fair value as required. Refer to the Impairment of Goodwill and Other Long-Lived Assets accounting policy.
Impairment of Goodwill and Other Long-lived Assets
We perform an annual impairment test of goodwill on a qualitative or quantitative basis for each of our reporting units as of July 1, or more frequently when circumstances indicate an impairment may exist at the reporting unit level. When performing the annual impairment test we have the option of first performing a qualitative assessment to determine the existence of events and circumstances that would lead to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If such a conclusion is reached, we would then be required to perform a quantitative impairment assessment of goodwill. However, if the assessment leads to a determination that it is more likely than not that the fair value of a reporting unit is greater than its carrying amount, then no further assessments are required. A quantitative assessment for the determination of impairment is made by comparing the carrying amount of each reporting unit with its fair value, which is generally calculated using a combination of market, comparable transaction and discounted cash flow approaches. See "Note 6. Goodwill and Other Intangible Assets" for further information on valuation methodology and impairment of goodwill.
We review PP&E, intangible assets and certain other long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable and at least annually for indefinite-lived intangible assets. When testing for impairment, we group our long-lived assets with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities (or asset group). The determination of recoverability is made based upon the estimated undiscounted future net cash flows. The amount of impairment loss, if any, is determined by comparing the fair value, as determined by a discounted cash flow analysis, with the carrying value of the related assets.
Financial Instruments
Our financial instruments include cash and equivalents, current receivables, investments, accounts payables, short and long-term debt, and derivative financial instruments.
Baker Hughes Company 2021 Form 10-K | 57
Baker Hughes Company
Notes to Consolidated Financial Statements
We monitor our exposure to various business risks including commodity prices and foreign currency exchange rates and we regularly use derivative financial instruments to manage these risks. At the inception of a new derivative, we designate the derivative as a hedge or we determine the derivative to be undesignated as a hedging instrument. We document the relationships between the hedging instruments and the hedged items, as well as our risk management objectives and strategy for undertaking various hedge transactions. We assess whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in cash flows of the hedged item at both the inception of the hedge and on an ongoing basis.
We have a program that utilizes foreign currency forward contracts to reduce the risks associated with the effects of certain foreign currency exposures. Under this program, our strategy is to have gains or losses on the foreign currency forward contracts mitigate the foreign currency transaction and translation gains or losses to the extent practical. These foreign currency exposures typically arise from changes in the value of assets (for example, current receivables) and liabilities (for example, current payables) which are denominated in currencies other than the functional currency of the respective entity. We record all derivatives as of the end of our reporting period in our consolidated statement of financial position at fair value. For the forward contracts held as undesignated hedging instruments, we record the changes in fair value of the forward contracts in our consolidated statements of income (loss) along with the change in the fair value, related to foreign exchange movements, of the hedged item. Changes in the fair value of forward contracts designated as cash flow hedging instruments are recognized in other comprehensive income until the hedged item is recognized in earnings.
Fair Value Measurements
For financial assets and liabilities measured at fair value on a recurring basis, fair value is the price we would receive to sell an asset or pay to transfer a liability in an orderly transaction with a market participant at the measurement date. In the absence of active markets for the identical assets or liabilities, such measurements involve developing assumptions based on market observable data and, in the absence of such data, internal information that is consistent with what market participants would use in a hypothetical transaction that occurs at the measurement date.
Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect our market assumptions. Preference is given to observable inputs. These two types of inputs create the following fair value hierarchy:
•Level 1 - Quoted prices for identical instruments in active markets.
•Level 2 - Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.
•Level 3 - Significant inputs to the valuation model are unobservable.
We maintain policies and procedures to value instruments using the best and most relevant data available. In addition, we perform reviews to assess the reasonableness of the valuations. With regard to Level 3 valuations (including instruments valued by third parties), we perform a variety of procedures to assess the reasonableness of the valuations. Such reviews include an evaluation of instruments whose fair value change exceeds predefined thresholds (and/or does not change) and consider the current interest rate, currency and credit environment, as well as other published data, such as rating agency market reports and current appraisals.
Recurring Fair Value Measurements
Derivatives
When we have Level 1 derivatives, which are traded either on exchanges or liquid over-the-counter markets, we use closing prices for valuation. The majority of our derivatives are valued using internal models and are included in Level 2. These internal models maximize the use of market observable inputs including interest rate curves and
Baker Hughes Company 2021 Form 10-K | 58
Baker Hughes Company
Notes to Consolidated Financial Statements
both forward and spot prices for currencies and commodities. Derivative assets and liabilities included in Level 2 primarily represent foreign currency and commodity forward contracts for the Company.
Investments in Debt and Equity Securities
When available, we use quoted market prices to determine the fair value of investment securities, and they are included in Level 1. Level 1 securities primarily include publicly traded equity securities.
For investment securities for which market prices are observable for identical or similar investment securities but not readily accessible for each of those investments individually (that is, it is difficult to obtain pricing information for each individual investment security at the measurement date), we use pricing models that are consistent with what other market participants would use. The inputs and assumptions to the models are derived from market observable sources including: benchmark yields, reported trades, broker/dealer quotes, issuer spreads, benchmark securities, bids, offers, and other market-related data. Thus, certain securities may not be priced using quoted prices, but rather determined from market observable information. These investments are included in Level 2. When we use valuations that are based on significant unobservable inputs we classify the investment securities in Level 3.
Non-Recurring Fair Value Measurements
Certain assets are measured at fair value on a non-recurring basis. These assets are not measured at fair value on an ongoing basis, but are subject to fair value adjustments only in certain circumstances. These assets can include long-lived assets that have been reduced to fair value when they are held for sale, equity securities without readily determinable fair value and equity method investments and long-lived assets that are written down to fair value when they are impaired and the remeasurement of retained investments in formerly consolidated subsidiaries upon a change in control that results in a deconsolidation of a subsidiary, if we sell a controlling interest and retain a noncontrolling stake in the entity. Assets that are written down to fair value when impaired and retained investments are not subsequently adjusted to fair value unless further impairment occurs.
Investments in Equity Securities
Investments in equity securities (of entities in which we do not have either a controlling financial interest or significant influence, most often because we hold a voting interest of 0% to 20%) with readily determinable fair values are measured at fair value with changes in fair value recognized in earnings and reported in "other non- operating income (loss), net" in the consolidated statements of income (loss). Equity securities that do not have readily determinable fair values are recorded at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for identical or similar equity securities of the same issuer. These changes are recorded in "other non-operating income (loss), net" in the consolidated statements of income (loss).
Associated companies are entities in which we do not have a controlling financial interest, but over which we have significant influence, most often because we hold a voting interest of 20% to 50%. Associated companies are accounted for as equity method investments. The results of associated companies are presented in the consolidated statements of income (loss) as follows: (i) if the associated company is integral to our operations, their results are included in "Selling, general and administrative," and (ii) if the associated company is not integral to our operations, their results are included in "Other non-operating income (loss), net." Investments in, and advances to, associated companies are presented on a one-line basis in the caption "All other assets" in our consolidated statement of financial position.
Income Taxes
We file U.S. federal and state income tax returns which primarily includes our distributive share of items of income, gain, loss and deduction of BHH LLC, which is treated as a partnership for U.S. tax purposes. As such, BHH LLC will not itself be subject to U.S. federal income tax under current U.S. tax laws. Non-U.S. current and deferred income taxes owed by the subsidiaries of BHH LLC are reflected in the financial statements.
Baker Hughes Company 2021 Form 10-K | 59
Baker Hughes Company
Notes to Consolidated Financial Statements
We account for taxes under the asset and liability method. Under this method, deferred income taxes are recognized for temporary differences between the financial statement and tax return bases of assets and liabilities based on enacted tax rates expected to be in effect when taxes are actually paid or recovered, as well as for net operating losses and tax credit carryforwards. The effect of a change in tax laws or rates on deferred tax assets and liabilities is recognized in income in the period in which such change is enacted. Future tax benefits are recognized to the extent that realization of such benefits is more likely than not, and a valuation allowance is established for any portion of a deferred tax asset that management believes is not more likely than not to be realized.
We provide U.S. deferred taxes on our outside basis difference in our investment in BHH LLC. In determining this outside basis difference, we exclude non-deductible goodwill and the basis difference related to certain foreign corporations owned by BHH LLC where the undistributed earnings of the foreign corporation have been, or will be, reinvested indefinitely.
Indefinite reinvestment is determined by management’s judgment and intentions concerning the future operations of the Company. In cases where repatriation would incur significant withholding or income taxes, these foreign earnings have been indefinitely reinvested in the Company’s active non-U.S. business operations. Computation of the potential deferred tax liability associated with these undistributed earnings and any other basis difference is not practicable.
Significant judgment is required in determining our tax expense and in evaluating our tax positions, including evaluating uncertainties. Our tax filings are subject to audit by the tax authorities in the jurisdictions where we conduct business. These audits may result in assessments of additional taxes that are resolved with the tax authorities or through the courts. We have provided for the amounts that we believe will ultimately result from these proceedings. We recognize uncertain tax positions that are “more likely than not” to be sustained if the relevant tax authority were to audit the position with full knowledge of all the relevant facts and other information. For those tax positions that meet this threshold, we measure the amount of tax benefit based on the largest amount of tax benefit that has a greater than 50% chance of being realized in a final settlement with the relevant authority. We classify interest and penalties associated with uncertain tax positions as income tax expense. The effects of tax adjustments and settlements from taxing authorities are presented in financial statements in the period they are finalized.
Environmental Liabilities
We are involved in numerous remediation actions to clean up hazardous waste as required by federal and state laws. Liabilities for remediation costs exclude possible insurance recoveries and, when dates and amounts of such costs are not known, are not discounted. When there appears to be a range of possible costs with equal likelihood, liabilities are based on the low end of such range. It is reasonably possible that our environmental remediation exposure will exceed amounts accrued. However, due to uncertainties about the status of laws, regulations, technology and information related to individual sites, such amounts are not reasonably estimable. The determination of the required accruals for remediation costs is subject to uncertainty, including the evolving nature of environmental regulations and the difficulty in estimating the extent and type of remediation activity that is necessary.
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.
Baker Hughes Company 2021 Form 10-K | 60
Baker Hughes Company
Notes to Consolidated Financial Statements
NOTE 2. REVENUE RELATED TO CONTRACTS WITH CUSTOMERS
DISAGGREGATED REVENUE
We disaggregate our revenue from contracts with customers by primary geographic markets.
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenue
|
2021
|
2020
|
2019
|
U.S.
|
$
|
4,497
|
|
$
|
4,638
|
|
$
|
6,188
|
|
Non-U.S.
|
16,005
|
|
16,067
|
|
17,650
|
|
Total
|
$
|
20,502
|
|
$
|
20,705
|
|
$
|
23,838
|
|
REMAINING PERFORMANCE OBLIGATIONS
As of December 31, 2021 and 2020, the aggregate amount of the transaction price allocated to the unsatisfied (or partially unsatisfied) performance obligations was $23.6 billion and $23.4 billion, respectively. As of December 31, 2021, we expect to recognize revenue of approximately 53%, 68% and 89% 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 at December 31:
|
|
|
|
|
|
|
|
|
|
2021
|
2020
|
Customer receivables
|
$
|
4,724
|
|
$
|
4,676
|
|
Related parties
|
481
|
|
429
|
|
Other
|
846
|
|
890
|
|
Total current receivables
|
6,051
|
|
5,995
|
|
Less: Allowance for credit losses
|
(400)
|
|
(373)
|
|
Total current receivables, net
|
$
|
5,651
|
|
$
|
5,622
|
|
Customer receivables are recorded at the invoiced amount. Related parties consists of amounts owed to us by GE. The "Other" category consists primarily of indirect taxes, advance payments to suppliers, other tax receivables and customer retentions.
NOTE 4. INVENTORIES
Inventories, net of reserves of $374 million and $421 million in 2021 and 2020, respectively, are comprised of the following at December 31:
|
|
|
|
|
|
|
|
|
|
2021
|
2020
|
Finished goods
|
$
|
2,228
|
|
$
|
2,337
|
|
Work in process and raw materials
|
1,751
|
|
2,084
|
|
Total inventories, net
|
$
|
3,979
|
|
$
|
4,421
|
|
There were no inventory impairments during 2021. For the year ended December 31, 2020, we recorded inventory impairments of $246 million. Inventory impairments in 2020 are predominantly in our Oilfield Services segment as a result of certain restructuring activities initiated by the Company. Charges for inventory impairments are predominantly reported in the "Cost of goods sold" caption of the consolidated statements of income (loss).
Baker Hughes Company 2021 Form 10-K | 61
Baker Hughes Company
Notes to Consolidated Financial Statements
NOTE 5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are comprised of the following at December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
Useful Life
|
2021
|
2020
|
Land and improvements (1)
|
8 - 20 years (1)
|
$
|
350
|
|
$
|
404
|
|
Buildings, structures and related equipment
|
5 - 40 years
|
2,271
|
|
2,618
|
|
Machinery, equipment and other
|
2 - 20 years
|
7,259
|
|
7,451
|
|
Total cost
|
|
9,880
|
|
10,473
|
|
Less: Accumulated depreciation
|
|
(5,003)
|
|
(5,115)
|
|
Property, plant and equipment, less accumulated depreciation
|
|
$
|
4,877
|
|
$
|
5,358
|
|
(1)Useful life excludes land.
Depreciation expense relating to property, plant and equipment was $852 million, $1,009 million and $1,053 million for the years ended December 31, 2021, 2020 and 2019, respectively. See "Note 20. Restructuring, Impairment and Other" for additional information on property, plant and equipment impairments.
NOTE 6. GOODWILL AND 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, 2019, gross
|
$
|
15,676
|
|
$
|
4,186
|
|
$
|
2,171
|
|
$
|
2,411
|
|
$
|
24,444
|
|
Accumulated impairment at December 31, 2019
|
(2,633)
|
|
(867)
|
|
—
|
|
(254)
|
|
(3,754)
|
|
Balance at December 31, 2019
|
13,043
|
|
3,319
|
|
2,171
|
|
2,157
|
|
20,690
|
|
|
|
|
|
|
|
Impairment
|
(11,484)
|
|
(3,289)
|
|
—
|
|
—
|
|
(14,773)
|
|
Currency exchange and others
|
(20)
|
|
(24)
|
|
63
|
|
41
|
|
60
|
|
Balance at December 31, 2020
|
1,539
|
|
6
|
|
2,234
|
|
2,198
|
|
5,977
|
|
|
|
|
|
|
|
Currency exchange and others
|
10
|
|
(3)
|
|
(62)
|
|
37
|
|
(18)
|
|
Balance at December 31, 2021
|
$
|
1,549
|
|
$
|
3
|
|
$
|
2,172
|
|
$
|
2,235
|
|
$
|
5,959
|
|
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 reportable segments. 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 our market capitalization below our book value, and the magnitude and duration of those declines, if any.
During the third quarter of 2021, we completed our annual impairment test as of July 1 and determined that the fair value was substantially in excess of the carrying value for each reporting unit resulting in no goodwill impairment. Between our annual test date of July 1, 2021 and December 31, 2021, we did not identify any indicators that would lead to a determination that it is more likely than not the fair value of any 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 Company 2021 Form 10-K | 62
Baker Hughes Company
Notes to Consolidated Financial Statements
During the first quarter of 2020, our market capitalization declined significantly. Our closing stock price fell to a historic low of $9.33 on March 23, 2020. Over the same period, the equity value of our peer group companies and the overall U.S. stock market also declined significantly amid market volatility. In addition, the Oilfield Services Index ("OSX"), an indicator of investors’ view of the earnings prospects and cost of capital of the oil and gas services industry, traded at prices that were the lowest in its history. These declines were driven by the uncertainty surrounding the outbreak of the coronavirus ("COVID-19") and other macroeconomic events such as the geopolitical tensions between the Organization of Petroleum Exporting Countries ("OPEC") and Russia, which also resulted in a significant drop in oil prices. Based on these factors, we concluded that a triggering event occurred and, accordingly, an interim quantitative impairment test was performed as of March 31, 2020. Based upon the results of our interim quantitative impairment test, we concluded that the carrying value of the Oilfield Services and Oilfield Equipment reporting units exceeded their estimated fair value as of March 31, 2020, which resulted in goodwill impairment charges of $11,484 million and $3,289 million, respectively. The goodwill impairment was calculated as the amount that the carrying value of the reporting unit, including any goodwill, exceeded its fair value.
OTHER INTANGIBLE ASSETS
Intangible assets are comprised of the following at December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021
|
2020
|
|
Gross
Carrying
Amount
|
Accumulated
Amortization
|
Net
|
Gross
Carrying
Amount
|
Accumulated
Amortization
|
Net
|
Customer relationships
|
$
|
1,922
|
|
$
|
(752)
|
|
$
|
1,170
|
|
$
|
2,261
|
|
$
|
(916)
|
|
$
|
1,345
|
|
Technology
|
1,090
|
|
(747)
|
|
343
|
|
1,127
|
|
(696)
|
|
$
|
431
|
|
Trade names and trademarks
|
292
|
|
(169)
|
|
123
|
|
326
|
|
(181)
|
|
145
|
|
Capitalized software
|
1,311
|
|
(1,057)
|
|
254
|
|
1,294
|
|
(1,041)
|
|
253
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finite-lived intangible assets (1)
|
4,615
|
|
(2,725)
|
|
1,890
|
|
5,008
|
|
(2,834)
|
|
2,174
|
|
Indefinite-lived intangible assets
|
2,241
|
|
—
|
|
2,241
|
|
2,223
|
|
—
|
|
2,223
|
|
Total intangible assets
|
$
|
6,856
|
|
$
|
(2,725)
|
|
$
|
4,131
|
|
$
|
7,231
|
|
$
|
(2,834)
|
|
$
|
4,397
|
|
(1)For the year ended December 31, 2020, we recorded intangible asset impairments to customer relationships of $481 million, technology of $8 million, and trade names and trademarks of $237 million. See "Note 20. Restructuring, Impairment and Other" for further discussion.
Intangible assets are generally amortized on a straight-line basis with estimated useful lives ranging from 1 to 35 years. Amortization expense was $253 million, $308 million and $365 million for the years ended December 31, 2021, 2020 and 2019, respectively.
Estimated amortization expense for each of the subsequent five fiscal years is expected to be as follows:
|
|
|
|
|
|
Year
|
Estimated Amortization Expense
|
2022
|
$
|
216
|
|
2023
|
204
|
|
2024
|
187
|
|
2025
|
142
|
|
2026
|
95
|
|
Baker Hughes Company 2021 Form 10-K | 63
Baker Hughes Company
Notes to Consolidated Financial Statements
NOTE 7. CONTRACT AND OTHER DEFERRED ASSETS
The majority of 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 at December 31:
|
|
|
|
|
|
|
|
|
|
2021
|
2020
|
Long-term product service agreements
|
$
|
589
|
|
$
|
660
|
|
Long-term equipment contracts (1)
|
825
|
|
1,160
|
|
Contract assets (total revenue in excess of billings)
|
1,414
|
|
1,820
|
|
Deferred inventory costs
|
156
|
|
138
|
|
Non-recurring engineering costs
|
28
|
|
43
|
|
Contract and other deferred assets
|
$
|
1,598
|
|
$
|
2,001
|
|
(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 year ended December 31, 2021 and 2020 from performance obligations satisfied (or partially satisfied) in previous years related to our long-term service agreements was $14 million and $17 million, 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 8. 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 at December 31:
|
|
|
|
|
|
|
|
|
|
2021
|
2020
|
Progress collections
|
$
|
3,108
|
|
$
|
3,352
|
|
Deferred income
|
124
|
|
102
|
|
Progress collections and deferred income (contract liabilities)
|
$
|
3,232
|
|
$
|
3,454
|
|
Revenue recognized during the year ended December 31, 2021 and 2020 that was included in the contract liabilities at the beginning of the year was $2,398 million and $1,962 million, respectively.
Baker Hughes Company 2021 Form 10-K | 64
Baker Hughes Company
Notes to Consolidated Financial Statements
NOTE 9. LEASES
Our leasing activities primarily consist of operating leases for administrative offices, manufacturing facilities, research centers, service centers, sales offices and certain equipment.
The following table presents operating lease expense:
|
|
|
|
|
|
|
|
|
|
|
|
Operating Lease Expense
|
2021
|
2020
|
2019
|
Long-term fixed lease
|
$
|
255
|
|
$
|
288
|
|
$
|
233
|
|
Long-term variable lease
|
32
|
|
25
|
|
48
|
|
Short-term lease (1)
|
440
|
|
477
|
|
706
|
|
Total operating lease expense
|
$
|
727
|
|
$
|
790
|
|
$
|
987
|
|
(1)Leases with a term of one year or less, including leases with a term of one month or less.
Cash flows used in operating activities for operating leases approximates our expense for the years ended December 31, 2021, 2020 and 2019.
As of December 31, 2021, maturities of our operating lease liabilities are as follows:
|
|
|
|
|
|
|
Year
|
Operating Leases
|
|
2022
|
$
|
216
|
|
|
2023
|
156
|
|
|
2024
|
117
|
|
|
2025
|
94
|
|
|
2026
|
81
|
|
|
Thereafter
|
315
|
|
|
Total lease payments
|
979
|
|
|
Less: imputed interest
|
159
|
|
|
Total
|
$
|
820
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized in the consolidated statement of financial position for operating leases are as follows:
|
|
|
|
|
|
|
|
|
|
2021
|
2020
|
All other current liabilities
|
$
|
196
|
|
$
|
218
|
|
All other liabilities
|
624
|
|
591
|
|
|
|
|
|
|
|
Total
|
$
|
820
|
|
$
|
809
|
|
Right-of-use assets of $822 million and $802 million as of December 31, 2021 and 2020, respectively, were included in "All other assets" in our consolidated statements of financial position. The weighted-average remaining lease term for our operating leases was approximately 9 years and 8 years for the years ended December 31, 2021 and 2020, respectively. The weighted-average discount rate used to determine the operating lease liability as of December 31, 2021 and 2020 was 3.3% and 3.7%, respectively.
Baker Hughes Company 2021 Form 10-K | 65
Baker Hughes Company
Notes to Consolidated Financial Statements
NOTE 10. BORROWINGS
Short-term and long-term borrowings are comprised of the following at December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021
|
2020
|
|
Amount
|
Effective Interest
Rate (1)
|
Amount
|
Effective Interest
Rate (1)
|
Short-term borrowings
|
|
|
|
|
|
|
|
|
|
Commercial paper
|
$
|
—
|
|
n/a
|
$
|
801
|
|
0.5
|
%
|
Short-term borrowings from GE
|
—
|
|
n/a
|
45
|
|
n/a
|
Other borrowings
|
40
|
|
4.5
|
%
|
43
|
|
4.2
|
%
|
Total short-term borrowings
|
40
|
|
|
889
|
|
|
|
|
|
|
|
Long-term borrowings
|
|
|
|
|
|
|
|
|
|
2.773% Senior Notes due December 2022
|
—
|
|
—
|
%
|
1,247
|
|
2.9
|
%
|
1.231% Senior Notes due December 2023
|
647
|
|
1.5
|
%
|
—
|
|
—
|
|
8.55% Debentures due June 2024 (2)
|
118
|
|
4.1
|
%
|
123
|
|
4.1
|
%
|
2.061% Senior Notes due December 2026
|
597
|
|
2.2
|
%
|
—
|
|
—
|
|
3.337% Senior Notes due December 2027
|
1,335
|
|
3.2
|
%
|
1,344
|
|
3.4
|
%
|
6.875% Notes due January 2029 (2)
|
279
|
|
4.0
|
%
|
284
|
|
3.9
|
%
|
3.138% Senior Notes due November 2029
|
522
|
|
3.2
|
%
|
522
|
|
3.2
|
%
|
4.486% Senior Notes due May 2030
|
497
|
|
4.6
|
%
|
497
|
|
4.6
|
%
|
5.125% Senior Notes due September 2040 (2)
|
1,292
|
|
4.2
|
%
|
1,297
|
|
4.2
|
%
|
4.080% Senior Notes due December 2047
|
1,337
|
|
4.1
|
%
|
1,337
|
|
4.1
|
%
|
Other long-term borrowings
|
63
|
|
2.9
|
%
|
93
|
|
3.0
|
%
|
|
|
|
|
|
Total long-term borrowings
|
6,687
|
|
|
6,744
|
|
|
Total borrowings
|
$
|
6,727
|
|
|
$
|
7,633
|
|
|
(1)Effective interest rate is based on the carrying value including issuance costs and step-up adjustments, as applicable, recorded for certain Senior Notes and Debentures assumed in connection with the acquisition of BHI.
(2)Represents long-term fixed rate debt obligations assumed in connection with the acquisition of BHI.
In December 2021, BHH LLC issued $1,250 million aggregate principal amount of Senior Notes, consisting of $650 million aggregate principal amount of 1.231% Senior Notes due December 2023 and $600 million aggregate principal amount of 2.061% Senior Notes due December 2026 (collectively, "the Notes"). BHH LLC will pay interest on each series of Notes semi-annually on June 15 and December 15 of each year, beginning on June 15, 2022. These Notes are presented net of issuance costs in our consolidated statements of financial position.
On December 9, 2021, BHH LLC issued a notice to redeem the entire principal amount outstanding of its 2.773% Senior Notes due December 2022 ("the 2022 Notes") using the proceeds from the offering of the Notes. As a result, as of December 31, 2021, we incurred a $28 million charge related to the early redemption, which was recorded within "Interest expense, net" in our consolidated statement of income (loss). On January 10, 2022, the 2022 Notes were redeemed using funds irrevocably deposited in trust with the trustee on December 16, 2021.
In May 2020, BHH LLC issued $500 million aggregate principal amount of 4.486% Senior Notes due May 2030. BHH LLC pays interest on these Senior Notes semi-annually on May 15 and November 15 of each year, which began on November 15, 2020. These Senior Notes are presented net of issuance costs in our consolidated statements of financial position.
Baker Hughes Company 2021 Form 10-K | 66
Baker Hughes Company
Notes to Consolidated Financial Statements
The estimated fair value of total borrowings at December 31, 2021 and 2020 was $7,328 million and $8,502 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.
Maturities of debt for each of the five years in the period ending December 31, 2026, and in the aggregate thereafter, are listed in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2022
|
2023
|
2024
|
2025
|
2026
|
Thereafter
|
Total debt
|
$
|
40
|
|
$
|
649
|
|
$
|
151
|
|
$
|
14
|
|
$
|
597
|
|
$
|
5,276
|
|
BHH LLC has 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, 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. During 2021 and 2020, there were no borrowings under the Credit Agreement.
We have a commercial paper program under which we may issue from time to time commercial paper with maturities of no more than 397 days. As a result of the repayment of our commercial paper that matured on April 30, 2021, our authorized commercial paper program was reduced from $3.8 billion to $3 billion.
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 December 31, 2021, Baker Hughes Co-Obligor, Inc. is a co-obligor of our long-term debt securities totaling $6,624 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 December 31, 2021, we were in compliance with all debt covenants.
See "Note 18. Related Party Transactions" for additional information on the short-term borrowings with GE.
NOTE 11. EMPLOYEE BENEFIT PLANS
DEFINED BENEFIT PLANS
Certain of our employees are covered by company sponsored pension plans. Our primary pension plans in 2021 included four U.S. plans and seven non-U.S. pension plans, primarily in the UK, Germany, and Canada, all with pension assets or obligations greater than $20 million. We use a December 31 measurement date for these plans. These defined benefit plans generally provide benefits to employees based on formulas recognizing length of service and earnings; however, the majority of these plans are either frozen or closed to new entrants. We also provide certain postretirement health care benefits, through unfunded plans, to a closed group of U.S. employees who retire and meet certain age and service requirements. The accumulated postretirement benefit obligation related to these plans was $50 million and $62 million at December 31, 2021 and 2020, respectively.
Funded Status
The funded status position represents the difference between the benefit obligation and the plan assets. The projected benefit obligation ("PBO") for pension benefits represents the actuarial present value of benefits attributed to employee services and compensation and includes an assumption about future compensation levels. The accumulated benefit obligation ("ABO") is the actuarial present value of pension benefits attributed to employee
Baker Hughes Company 2021 Form 10-K | 67
Baker Hughes Company
Notes to Consolidated Financial Statements
service to date at present compensation levels. The ABO differs from the PBO in that the ABO does not include any assumptions about future compensation levels.
Below is the reconciliation of the beginning and ending balances of benefit obligations, fair value of plan assets and the funded status of our pension plans.
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
2021
|
2020
|
|
|
Change in benefit obligation:
|
|
|
|
|
Benefit obligation at beginning of year
|
$
|
3,806
|
|
$
|
3,451
|
|
|
|
Service cost
|
27
|
|
27
|
|
|
|
Interest cost
|
64
|
|
77
|
|
|
|
|
|
|
|
|
Actuarial (gain) loss (1)
|
(154)
|
|
393
|
|
|
|
Benefits paid
|
(111)
|
|
(101)
|
|
|
|
Curtailments
|
(9)
|
|
(3)
|
|
|
|
Settlements
|
(33)
|
|
(79)
|
|
|
|
|
|
|
|
|
Other
|
2
|
|
1
|
|
|
|
Foreign currency translation adjustments
|
(42)
|
|
40
|
|
|
|
Benefit obligation at end of year
|
3,550
|
|
3,806
|
|
|
|
|
|
|
|
|
Change in plan assets:
|
|
|
|
|
Fair value of plan assets at beginning of year
|
3,202
|
|
3,004
|
|
|
|
Actual return on plan assets
|
83
|
|
347
|
|
|
|
Employer contributions
|
28
|
|
20
|
|
|
|
Benefits paid
|
(111)
|
|
(101)
|
|
|
|
Settlements
|
(33)
|
|
(79)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
(22)
|
|
11
|
|
|
|
Fair value of plan assets at end of year
|
3,147
|
|
3,202
|
|
|
|
|
|
|
|
|
Funded status - underfunded at end of year
|
$
|
(403)
|
|
$
|
(604)
|
|
|
|
|
|
|
|
|
Accumulated benefit obligation
|
$
|
3,497
|
|
$
|
3,755
|
|
|
|
(1)The actuarial (gain) loss was primarily related to a change in the discount rate used to measure the benefit obligation for our plans in 2021 and 2020.
The amounts recognized in the consolidated statements of financial position consist of the following at December 31:
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
2021
|
2020
|
|
|
Noncurrent assets
|
$
|
109
|
|
$
|
14
|
|
|
|
Current liabilities
|
(17)
|
|
(18)
|
|
|
|
Noncurrent liabilities
|
(495)
|
|
(600)
|
|
|
|
Net amount recognized
|
$
|
(403)
|
|
$
|
(604)
|
|
|
|
Baker Hughes Company 2021 Form 10-K | 68
Baker Hughes Company
Notes to Consolidated Financial Statements
Information for the plans with ABOs and PBOs in excess of plan assets is as follows at December 31:
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
2021
|
2020
|
|
|
Projected benefit obligation
|
$
|
1,476
|
|
$
|
3,390
|
|
|
|
Accumulated benefit obligation
|
$
|
1,423
|
|
$
|
3,340
|
|
|
|
Fair value of plan assets
|
$
|
964
|
|
$
|
2,772
|
|
|
|
We have a U.S. non-qualified supplemental pension plan (“BH SPP”) for certain employees which are included in the benefit obligations and funded status in the tables above. In order to meet a portion of our obligations of the BH SPP, we have established a trust comprised primarily of mutual fund assets. The value of these assets were $45 million and $44 million as of December 31, 2021 and 2020, respectively. These assets are not included as plan assets or in the funded status amounts in the tables above and below.
Net Periodic Cost
The components of net periodic cost are as follows:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
2021
|
2020
|
2019
|
|
|
|
|
|
|
Service cost
|
$
|
27
|
|
$
|
27
|
|
$
|
21
|
|
|
|
|
|
|
|
Interest cost
|
64
|
|
77
|
|
90
|
|
|
|
|
|
|
|
Expected return on plan assets
|
(130)
|
|
(121)
|
|
(122)
|
|
|
|
|
|
|
|
Amortization of prior service credit
|
1
|
|
1
|
|
1
|
|
|
|
|
|
|
|
Amortization of net actuarial loss
|
40
|
|
34
|
|
17
|
|
|
|
|
|
|
|
Curtailment / settlement loss
|
2
|
|
10
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic cost
|
$
|
4
|
|
$
|
28
|
|
$
|
16
|
|
|
|
|
|
|
|
The service cost component of the net periodic cost is included in "operating income (loss)" and all other components are included in "Other non-operating income (loss), net" caption of the consolidated statements of income (loss).
Assumptions Used in Benefit Calculations
Accounting requirements necessitate the use of assumptions to reflect the uncertainties and the length of time over which the pension obligations will be paid. The actual amount of future benefit payments will depend upon when participants retire, the amount of their benefit at retirement and how long they live. To reflect the obligation in today’s dollars, we discount the future payments using a rate that matches the time frame over which the payments are expected to be made. We also need to assume a long-term rate of return that will be earned on investments used to fund these payments.
Another assumption used is the interest crediting rate for our U.S. qualified cash balance plan. Under the provisions of this pension plan, a hypothetical cash balance account has been established for each participant. Such accounts receive quarterly interest credits based on a prescribed formula.
Weighted average assumptions used to determine benefit obligations for these plans are as follows:
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|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
2021
|
2020
|
|
|
Discount rate
|
2.15
|
%
|
1.66
|
%
|
|
|
Rate of compensation increase
|
3.21
|
%
|
3.25
|
%
|
|
|
Interest crediting rate
|
2.60
|
%
|
2.60
|
%
|
|
|
|
|
|
|
|
Baker Hughes Company 2021 Form 10-K | 69
Baker Hughes Company
Notes to Consolidated Financial Statements
Weighted average assumptions used to determine net periodic cost for these plans are as follows:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
2021
|
2020
|
2019
|
|
|
|
Discount rate
|
1.66
|
%
|
2.34
|
%
|
3.43
|
%
|
|
|
|
Expected long-term return on plan assets
|
4.07
|
%
|
4.20
|
%
|
5.48
|
%
|
|
|
|
Interest crediting rate
|
2.60
|
%
|
2.60
|
%
|
3.15
|
%
|
|
|
|
We determine the discount rate using a bond matching model, whereby the weighted average yields on high-quality fixed-income securities have maturities consistent with the timing of benefit payments. Lower discount rates increase the size of the benefit obligations and pension expense in the following year; higher discount rates reduce the size of the benefit obligation and subsequent-year pension expense. The compensation assumption is used in our active plans to estimate the annual rate at which the pay for plan participants will grow. If the rate of growth assumed increases, the size of the pension obligations will increase.
The expected return on plan assets is the estimated long-term rate of return that will be earned on the investments used to fund the pension obligations. To determine this rate, we consider the current and target composition of plan investments, our historical returns earned, and our expectations about the future.
Accumulated Other Comprehensive Loss
The amount recorded before-tax in accumulated other comprehensive loss related to our pension plans consists of the following at December 31:
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
2021
|
2020
|
|
|
Net actuarial loss
|
$
|
365
|
|
$
|
527
|
|
|
|
Net prior service cost
|
17
|
|
18
|
|
|
|
Total
|
$
|
382
|
|
$
|
545
|
|
|
|
Plan Assets
We have investment committees that meet regularly to review portfolio returns and to determine asset-mix targets based on asset/liability studies. Third-party investment consultants assist these committees in developing asset allocation strategies to determine our expected rates of return and expected risk for various investment portfolios. The investment committees considered these strategies in the formal establishment of the current asset-mix targets based on the projected risk and return levels for all major asset classes.
Baker Hughes Company 2021 Form 10-K | 70
Baker Hughes Company
Notes to Consolidated Financial Statements
The table below presents the fair value of the pension assets at December 31:
|
|
|
|
|
|
|
|
|
|
2021
|
2020
|
Debt securities
|
|
|
Fixed income and cash investment funds
|
$
|
1,890
|
|
$
|
1,807
|
|
|
|
|
Equity securities
|
|
|
Global equity securities (1)
|
250
|
|
346
|
|
U.S. equity securities (1)
|
222
|
|
299
|
|
Insurance contracts
|
112
|
|
120
|
|
Real estate
|
59
|
|
85
|
|
Private equities
|
48
|
|
52
|
|
Other investments (2)
|
566
|
|
493
|
|
Total plan assets
|
$
|
3,147
|
|
$
|
3,202
|
|
(1)Include direct investments and investment funds.
(2)Consists primarily of asset allocation fund investments.
Plan assets valued using Net Asset Value ("NAV") as a practical expedient amounted to $3,028 million and $3,072 million as of December 31, 2021 and 2020, respectively. The percentages of plan assets valued using NAV by investment fund type for equity securities, fixed income and cash, and alternative investments were 16%, 62%, and 22% as of December 31, 2021, respectively, and 21%, 59%, and 20% as of December 31, 2020, respectively. Those investments that were measured at fair value using NAV as a practical expedient were excluded from the fair value hierarchy. The practical expedient was not applied for investments with a fair value of $119 million and $130 million as of December 31, 2021 and 2020, respectively. There were investments classified within Level 3 of $112 million and $120 million for non U.S. insurance contracts as of December 31, 2021 and 2020, respectively.
Funding Policy
The funding policy for our Pension Benefits is to contribute amounts sufficient to meet minimum funding requirements as set forth in employee benefit and tax laws plus such additional amounts as we may determine to be appropriate. In 2021, we contributed approximately $28 million. We anticipate we will contribute between approximately $30 million to $35 million to our pension plans in 2022.
The following table presents the expected benefit payments for Pension Benefits over the next 10 years. For company sponsored pension plans, the benefit payments are made by the respective pension trust funds.
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|
|
|
|
|
|
|
|
|
|
Year
|
|
Pension Benefits
|
|
|
2022
|
|
$
|
161
|
|
|
|
|
|
2023
|
|
132
|
|
|
|
|
|
2024
|
|
135
|
|
|
|
|
|
2025
|
|
137
|
|
|
|
|
|
2026
|
|
142
|
|
|
|
|
|
2027-2031
|
|
744
|
|
|
|
|
|
DEFINED CONTRIBUTION PLANS
Our primary defined contribution plan during 2021 was the Company-sponsored U.S. 401(k) plan ("401(k) Plan"). The 401(k) Plan allows eligible employees to contribute portions of their eligible compensation to an investment trust. The Company matches employee contributions at the rate of $1.00 per $1.00 employee contribution for the first 5% of the employee's eligible compensation, and such contributions vest immediately. In
Baker Hughes Company 2021 Form 10-K | 71
Baker Hughes Company
Notes to Consolidated Financial Statements
addition, we make cash contributions for all eligible employees of 4% of their eligible compensation and such contributions are fully vested after three years of employment. The 401(k) Plan provides several investment options, for which the employee has sole investment discretion; however, the 401(k) Plan does not offer the Company's common stock as an investment option. Our costs for the 401(k) Plan and several other U.S. and non-U.S. defined contribution plans amounted to $194 million and $236 million, in 2021 and 2020, respectively.
We have two non-qualified defined contribution plans that are invested through trusts. The assets and corresponding liabilities were $322 million and $314 million at December 31, 2021 and 2020, respectively, and are included in the captions "All other assets" and "Liabilities for pensions and other postretirement benefits," respectively, in our consolidated statements of financial position.
NOTE 12. INCOME TAXES
In response to the COVID-19 pandemic, many governments have enacted or are contemplating measures to provide aid and economic stimulus. These measures may include deferring the due dates of tax payments or other changes to their income and non-income-based tax laws. The Coronavirus Aid, Relief, and Economic Security Act ("CARES Act"), which was enacted on March 27, 2020 in the U.S., contained measures to assist companies, including allowing net operating losses originating in 2018, 2019, or 2020 to be carried back up to five years. During 2020, we elected to carry back losses to 2014 and accordingly recognized a $117 million tax benefit. As of December 31, 2021, we have received the cash refunds related to that benefit.
The provision for income taxes is comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
2021
|
2020
|
2019
|
Current:
|
|
|
|
U.S.
|
$
|
11
|
|
$
|
(59)
|
|
$
|
(12)
|
|
Foreign
|
614
|
|
458
|
|
443
|
|
Total current
|
625
|
|
399
|
|
431
|
|
Deferred:
|
|
|
|
U.S.
|
(24)
|
|
11
|
|
(12)
|
|
Foreign
|
157
|
|
149
|
|
63
|
|
Total deferred
|
133
|
|
160
|
|
51
|
|
Provision for income taxes
|
$
|
758
|
|
$
|
559
|
|
$
|
482
|
|
The geographic sources of income (loss) before income taxes are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
2021
|
2020
|
2019
|
U.S.
|
$
|
(724)
|
|
$
|
(14,288)
|
|
$
|
(693)
|
|
Foreign
|
1,152
|
|
(914)
|
|
1,446
|
|
Income (loss) before income taxes
|
$
|
428
|
|
$
|
(15,202)
|
|
$
|
753
|
|
Baker Hughes Company 2021 Form 10-K | 72
Baker Hughes Company
Notes to Consolidated Financial Statements
The provision for income taxes differs from the amount computed by applying the U.S. statutory income tax rate to the loss or income before income taxes for the reasons set forth below for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
2021
|
2020
|
2019
|
Income (loss) before income taxes
|
$
|
428
|
|
$
|
(15,202)
|
|
$
|
753
|
|
|
|
|
|
Taxes at the U.S. federal statutory income tax rate
|
90
|
|
(3,192)
|
|
158
|
|
Impact of goodwill impairment
|
—
|
|
3,102
|
|
—
|
|
Effect of foreign operations
|
216
|
|
148
|
|
84
|
|
Tax expense (benefit) due to unrecognized tax benefits (1)
|
201
|
|
35
|
|
(24)
|
|
Tax impact of partnership structure
|
137
|
|
(33)
|
|
17
|
|
|
|
|
|
|
|
|
|
Change in valuation allowances
|
70
|
|
494
|
|
241
|
|
CARES Act
|
—
|
|
(117)
|
|
—
|
|
|
|
|
|
Other - net
|
44
|
|
122
|
|
6
|
|
Provision for income taxes
|
$
|
758
|
|
$
|
559
|
|
$
|
482
|
|
Actual income tax rate
|
177.1
|
%
|
(3.7)
|
%
|
64.0
|
%
|
(1)For December 31, 2021, $119 million of this amount is indemnified under the Tax Matters Agreement with GE.
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, as well as operating loss and tax credit carryforwards.
The tax effects of our temporary differences and carryforwards are as follows at December 31:
|
|
|
|
|
|
|
|
|
|
2021
|
2020
|
Deferred tax assets:
|
|
|
Operating loss carryforwards
|
$
|
2,255
|
|
$
|
2,249
|
|
Tax credit carryforwards
|
1,183
|
|
1,083
|
|
Investment in partnership
|
457
|
|
160
|
|
Property
|
156
|
|
127
|
|
Employee benefits
|
116
|
|
138
|
|
Goodwill and other intangibles
|
97
|
|
143
|
|
Receivables
|
72
|
|
53
|
|
Inventory
|
61
|
|
51
|
|
Other
|
153
|
|
264
|
|
Total deferred income tax asset
|
4,550
|
|
4,268
|
|
Valuation allowances
|
(3,928)
|
|
(3,472)
|
|
Total deferred income tax asset after valuation allowance
|
622
|
|
796
|
|
Deferred tax liabilities:
|
|
|
Other
|
(14)
|
|
(29)
|
|
Total deferred income tax liability
|
(14)
|
|
(29)
|
|
Net deferred tax asset
|
$
|
608
|
|
$
|
767
|
|
At December 31, 2021, we had approximately $419 million of non-U.S. tax credits which may be carried forward indefinitely under applicable foreign law, $563 million of U.S. foreign tax credits and $201 million of other U.S. credits, the majority of which will expire after tax year 2027 under U.S. tax law. Additionally, we had $2,255 million of net operating loss carryforwards ("NOLs"), of which approximately $321 million will expire within five years, $479 million will expire between 6 years and 20 years, and the remainder can be carried forward indefinitely.
Baker Hughes Company 2021 Form 10-K | 73
Baker Hughes Company
Notes to Consolidated Financial Statements
We record a valuation allowance when it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of the deferred tax assets depends on the ability to generate sufficient taxable income of the appropriate character in the future and in the appropriate taxing jurisdictions. At December 31, 2021, $3,928 million of valuation allowances are recorded against various deferred tax assets, including foreign NOLs of $1,687 million, U.S. NOLs of $220 million, U.S. foreign and non-U.S. tax credit carryforwards of $979 million, other tax credit carryforwards of $191 million, and certain other U.S. and foreign deferred tax assets of $851 million. There are $348 million of deferred tax assets related primarily to foreign NOLs without a valuation allowance as we expect that the deferred tax assets will be realized within the carryforward period.
Indefinite reinvestment is determined by management’s intentions concerning the future operations of the Company. In cases where repatriation would otherwise incur significant withholding or income taxes, these earnings have been indefinitely reinvested in the Company's active non-U.S. business operations. As of December 31, 2021, the cumulative amount of undistributed foreign earnings is approximately $4.4 billion. Computation of the potential deferred tax liability associated with these undistributed earnings and any other basis differences is not practicable.
At December 31, 2021, we had $531 million of tax liabilities for total gross unrecognized tax benefits related to uncertain tax positions. In addition to these uncertain tax positions, we had $153 million and $49 million related to interest and penalties, respectively, for total liabilities of $733 million for uncertain positions. If we were to prevail on all uncertain positions, the net effect would result in an income tax benefit of approximately $646 million. The remaining $87 million is comprised of $63 million for deferred tax assets that represent tax benefits that would be received in different taxing jurisdictions or in a different character and $24 million increased valuation allowances. As of December 31, 2021 and 2020, the Company had $170 million and $53 million, respectively, of current receivables related to uncertain tax positions, including interest and penalties of $87 million and $25 million, respectively, that are indemnified pursuant to the Tax Matters Agreement with GE.
The following table presents the changes in our gross unrecognized tax benefits included in the consolidated statements of financial position.
|
|
|
|
|
|
|
|
|
Asset / (Liability)
|
2021
|
2020
|
Balance at beginning of year
|
$
|
(483)
|
|
$
|
(451)
|
|
Additions for tax positions of the current year
|
(32)
|
|
(71)
|
|
Additions for tax positions of prior years
|
(166)
|
|
(31)
|
|
Reductions for tax positions of prior years
|
42
|
|
35
|
|
Settlements with tax authorities
|
95
|
|
12
|
|
Lapse of statute of limitations
|
13
|
|
23
|
|
Balance at end of year
|
$
|
(531)
|
|
$
|
(483)
|
|
It is expected that the amount of unrecognized tax benefits will change in the next twelve months due to expiring statutes, audit activity, tax payments, and competent authority proceedings related to transfer pricing or final decisions in matters that are the subject of litigation in various taxing jurisdictions in which we operate. At December 31, 2021, we had approximately $63 million of tax liabilities related to uncertain tax positions, each of which are individually insignificant, and each of which are reasonably possible of being settled within the next twelve months.
We conduct business in more than 120 countries and are subject to income taxes in most taxing jurisdictions in which we operate, each of which may have multiple open years subject to examination. All Internal Revenue Service examinations have been completed and closed through 2016 for the most significant U.S. returns. We believe that we have made adequate provision for all income tax uncertainties.
Baker Hughes Company 2021 Form 10-K | 74
Baker Hughes Company
Notes to Consolidated Financial Statements
NOTE 13. STOCK-BASED COMPENSATION
The Company has a 2021 Long-Term Incentive Plan ("LTI Plan") under which we may grant restricted stock units ("RSU"), performance share units ("PSU"), stock options and other equity-based awards to employees and non-employee directors providing services to the Company and our subsidiaries. A total of up to 29.5 million shares of Class A common stock are reserved and available for issuance pursuant to awards granted under the LTI Plan over its term which expires on the date of the annual meeting of the Company in 2031. A total of 31.7 million shares of Class A common stock are available for issuance as of December 31, 2021. This amount includes 29.2 million shares remaining from the initial reserve and 2.5 million shares added due to forfeitures, cancellations, and shares withheld to pay the employee's taxes, subject to the adjustments as provided in the LTI Plan.
Stock-based compensation cost was $205 million, $210 million and $187 million for the years ended December 31, 2021, 2020 and 2019, respectively. We recorded a tax benefit of approximately $16 million in 2021 on our stock-based compensation cost. Stock-based compensation cost is measured at the date of grant based on the calculated fair value of the award and is generally recognized on a straight-line basis over the vesting period of the equity grant. The compensation cost is determined based on awards ultimately expected to vest; therefore, we have reduced the cost for estimated forfeitures based on historical forfeiture rates. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods to reflect actual forfeitures. There were no stock-based compensation costs capitalized as the amounts were not material.
Restricted Stock
We may grant to our officers, directors and key employees restricted stock units ("RSU"), where each unit represents the right to receive, at the end of a stipulated period, one unrestricted share of stock with no exercise price. Certain RSUs are subject to cliff or graded vesting, generally ranging over a period of 3 years, or over a one year period for non-employee directors. Cash dividend equivalents are accumulated on RSUs and are payable upon vesting of the awards. We determine the fair value of RSUs based on the market price of our common stock on the date of grant.
The following table presents the changes in RSUs outstanding and related information (in thousands, except per unit prices):
|
|
|
|
|
|
|
|
|
|
Number of
Units
|
Weighted Average
Grant Date Fair
Value Per Unit
|
Unvested balance at December 31, 2020
|
14,292
|
|
$
|
23.70
|
|
Granted
|
9,357
|
|
20.64
|
|
Vested
|
(6,439)
|
|
25.10
|
|
Forfeited
|
(1,175)
|
|
21.98
|
|
Unvested balance at December 31, 2021
|
16,035
|
|
$
|
21.50
|
|
In 2021, the total intrinsic value of RSUs vested (defined as the value of shares awarded based on the price of our common stock at vesting date) was $141 million and unvested RSUs was $386 million. The total grant date fair value of RSUs vested in 2021 was $162 million. As of December 31, 2021, there was $185 million of total unrecognized compensation cost related to unvested RSUs, which is expected to be recognized over a weighted average period of 1.86 years.
Performance Share Units
We may grant performance share units ("PSUs") to certain officers and key employees. The PSUs are stock-based awards tied to predefined company metrics and total shareholder return ("TSR"). PSUs generally cliff vest after a service period of 3 years. Cash dividend equivalents are accumulated on certain PSUs and are payable upon vesting of the awards. The fair value of the awards determined for the predefined company metrics are based on the market price of our common stock on the date of grant. The fair value of the TSR awards are determined based on a Monte Carlo simulation method.
Baker Hughes Company 2021 Form 10-K | 75
Baker Hughes Company
Notes to Consolidated Financial Statements
The following table presents the changes in PSUs outstanding and related information (in thousands, except per unit prices):
|
|
|
|
|
|
|
|
|
|
Number of
Units
|
Weighted Average
Grant Date Fair
Value Per Unit
|
Unvested balance at December 31, 2020
|
3,161
|
|
$
|
25.39
|
|
Granted
|
1,352
|
|
22.14
|
|
Vested
|
(637)
|
|
35.16
|
|
Forfeited
|
(174)
|
|
24.43
|
|
Unvested balance at December 31, 2021
|
3,702
|
|
$
|
22.57
|
|
The total intrinsic value of PSUs vested and unvested, (defined as the value of the shares awarded at the year-end market price) was $15 million and $89 million, respectively, as of December 31, 2021. The total grant date fair value of PSUs vested in 2021 was $22 million. Total unrecognized compensation cost related to unvested PSUs, which is expected to be recognized over a weighted average period of 1.95 years, was $35 million as of December 31, 2021.
Stock Options
We previously granted stock options to our officers, directors and key employees. Stock options generally vest in equal amounts over a vesting period of 3 years provided that the employee has remained continuously employed by the Company through such vesting date. The fair value of each stock option granted is estimated using the Black-Scholes option pricing model. Our 2019 option assumptions were as follows: expected life - 6 years, risk free interest rate - 2.6%, volatility - 36.5%, dividend yield - 3.1%, and the weighted average fair value per share at grant date was $6.37. We have not granted stock options to officers, directors, or key employees since 2019.
The following table presents the changes in stock options outstanding and related information (in thousands, except per option prices):
|
|
|
|
|
|
|
|
|
|
Number of
Options
|
Weighted Average
Exercise Price
Per Option
|
Outstanding at December 31, 2020
|
7,285
|
|
$
|
32.63
|
|
|
|
|
Exercised
|
(438)
|
|
22.48
|
|
Forfeited
|
(11)
|
|
26.42
|
|
Expired
|
(1,587)
|
|
40.13
|
|
Outstanding at December 31, 2021
|
5,249
|
|
$
|
31.25
|
|
Exercisable at December 31, 2021
|
4,719
|
|
$
|
32.18
|
|
The weighted average remaining contractual term for options outstanding and options exercisable at December 31, 2021 were 4.4 years and 4.1 years, respectively. The maximum contractual term of options outstanding is 7.1 years.
There were 850 thousand, 1,553 thousand and 867 thousand options that vested in 2021, 2020 and 2019, respectively. The total fair value of options vested was $7 million, $14 million and $10 million, in 2021, 2020 and 2019, respectively. Unrecognized compensation cost related to unvested stock options was immaterial as of December 31, 2021. Generally, all stock options outstanding will be fully vested and exercisable by the end of the first quarter of 2022.
The total intrinsic value of stock options exercised (defined as the amount by which the market price of our common stock on the date of exercise exceeds the exercise price of the option) in 2021 was $1 million. The total intrinsic value of stock options outstanding and options exercisable at December 31, 2021 was $2 million. The
Baker Hughes Company 2021 Form 10-K | 76
Baker Hughes Company
Notes to Consolidated Financial Statements
intrinsic value of stock options outstanding is calculated as the amount by which the quoted price of $24.06 of our common stock as of the end of 2021 exceeds the exercise price of the options.
Employee Stock Purchase Plan
The Employee Stock Purchase Plan ("ESPP") provides for eligible employees to purchase shares of Class A common stock quarterly on an after-tax basis in an amount between 1% and 20% of their annual pay on March 31, June 30, September 30 and December 31 of each year at a 15% discount of the fair market value of our Class A common stock on March 31, June 30, September 30 and December 31. An employee may not purchase more than $3,000 in any of the three-month measurement periods described above or $12,000 annually.
A total of 21.5 million shares of Class A common stock are authorized for issuance, and at December 31, 2021, there were 12.5 million shares of Class A common stock reserved for future issuance.
NOTE 14. 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 of Class A common stock and Class B common stock outstanding at December 31, 2021 is 909 million and 117 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 and any assets in the event of liquidation of the Company. GE is entitled through BHH LLC Units ("LLC Units") to receive distributions on an equal per share amount of any dividend paid by the Company.
In 2020, GE launched a program to divest of its ownership interest in us, at its discretion, in a series of transactions over approximately three years, subject to market conditions and other factors. As of December 31, 2021, GE’s economic interest in BHH LLC was 11.4%.
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. In 2021, the Company and BHH LLC repurchased and canceled 17.6 million shares of Class A common stock and LLC Units, respectively, each for $434 million. As of December 31, 2021, the Company and BHH LLC had authorization remaining to repurchase up to approximately $1.6 billion of its Class A common stock and LLC Units, respectively.
Baker Hughes Company 2021 Form 10-K | 77
Baker Hughes Company
Notes to Consolidated Financial Statements
The following table presents the changes in the number of shares outstanding (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021
|
2020
|
|
Class A Common Stock
|
Class B Common Stock
|
Class A Common Stock
|
Class B Common Stock
|
Balance at beginning of year
|
723,999
|
|
311,433
|
|
650,065
|
|
377,428
|
|
Issue of shares upon vesting of restricted stock units (1)
|
4,968
|
|
—
|
|
3,548
|
|
—
|
|
Issue of shares on exercises of stock options (1)
|
408
|
|
—
|
|
13
|
|
—
|
|
Issue of shares for employee stock purchase plan
|
2,510
|
|
—
|
|
4,378
|
|
—
|
|
Exchange of Class B common stock for Class A common stock (2)
|
194,885
|
|
(194,885)
|
|
65,995
|
|
(65,995)
|
|
Repurchase and cancellation of Class A common stock
|
(17,628)
|
|
—
|
|
—
|
|
—
|
|
Balance at end of year
|
909,142
|
|
116,548
|
|
723,999
|
|
311,433
|
|
(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.
During 2021 and 2020, the Company declared and paid aggregate regular dividends of $0.72 per share to holders of record of the Company's Class A common stock.
ACCUMULATED OTHER COMPREHENSIVE LOSS ("AOCL")
The following table presents the changes in accumulated other comprehensive loss, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment Securities
|
Foreign Currency Translation Adjustments
|
Cash Flow Hedges
|
Benefit Plans
|
Accumulated Other Comprehensive Loss
|
Balance at December 31, 2019
|
$
|
1
|
|
$
|
(1,436)
|
|
$
|
6
|
|
$
|
(207)
|
|
$
|
(1,636)
|
|
Other comprehensive income (loss) before reclassifications
|
(2)
|
|
175
|
|
(2)
|
|
(181)
|
|
(10)
|
|
Amounts reclassified from accumulated other comprehensive loss
|
—
|
|
—
|
|
(4)
|
|
51
|
|
47
|
|
Deferred taxes
|
—
|
|
—
|
|
1
|
|
5
|
|
6
|
|
Other comprehensive income (loss)
|
(2)
|
|
175
|
|
(5)
|
|
(125)
|
|
43
|
|
Less: Other comprehensive income (loss) attributable to noncontrolling interests
|
(1)
|
|
40
|
|
(2)
|
|
(37)
|
|
—
|
|
Less: Reallocation of AOCL based on change in ownership of BHH LLC Units
|
—
|
|
163
|
|
—
|
|
22
|
|
185
|
|
|
|
|
|
|
|
Balance at December 31, 2020
|
—
|
|
(1,464)
|
|
3
|
|
(317)
|
|
(1,778)
|
|
Other comprehensive income (loss) before reclassifications
|
—
|
|
(344)
|
|
(11)
|
|
135
|
|
(220)
|
|
Amounts reclassified from accumulated other comprehensive loss
|
—
|
|
39
|
|
(7)
|
|
38
|
|
70
|
|
Deferred taxes
|
—
|
|
—
|
|
2
|
|
(3)
|
|
(1)
|
|
Other comprehensive income (loss)
|
—
|
|
(305)
|
|
(16)
|
|
170
|
|
(151)
|
|
Less: Other comprehensive income (loss) attributable to noncontrolling interests
|
—
|
|
(38)
|
|
(3)
|
|
25
|
|
(16)
|
|
Less: Reallocation of AOCL based on change in ownership of BHH LLC Units
|
—
|
|
394
|
|
—
|
|
78
|
|
472
|
|
|
|
|
|
|
|
Balance at December 31, 2021
|
$
|
—
|
|
$
|
(2,125)
|
|
$
|
(10)
|
|
$
|
(250)
|
|
$
|
(2,385)
|
|
Baker Hughes Company 2021 Form 10-K | 78
Baker Hughes Company
Notes to Consolidated Financial Statements
The amounts reclassified from accumulated other comprehensive loss during the years ended December 31, 2021 and 2020 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 (see "Note 11. Employee Benefit Plans" for additional details), and (iii) the release of foreign currency translation adjustments for certain restructured product lines (see "Note 20. 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 December 31, 2021 and 2020, GE owned approximately 11.4% and 30.1%, respectively, of BHH LLC and this represents the majority of the noncontrolling interest balance reported within equity.
|
|
|
|
|
|
|
|
|
|
2021
|
2020
|
GE's interest in BHH LLC
|
$
|
1,777
|
|
$
|
5,216
|
|
Other noncontrolling interests
|
139
|
|
133
|
|
Total noncontrolling interests
|
$
|
1,916
|
|
$
|
5,349
|
|
NOTE 15. EARNINGS PER SHARE
Basic and diluted net income (loss) per share of Class A common stock is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
(In millions, except per share amounts)
|
2021
|
2020
|
2019
|
Net income (loss)
|
$
|
(330)
|
|
$
|
(15,761)
|
|
$
|
271
|
|
|
|
|
|
Less: Net income (loss) attributable to noncontrolling interests
|
(111)
|
|
(5,821)
|
|
143
|
|
Net income (loss) attributable to Baker Hughes Company
|
$
|
(219)
|
|
$
|
(9,940)
|
|
$
|
128
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
Class A basic
|
824
|
|
675
|
|
555
|
|
Class A diluted
|
824
|
|
675
|
|
557
|
|
Net income (loss) per share attributable to common stockholders:
|
|
|
|
Class A basic
|
$
|
(0.27)
|
|
$
|
(14.73)
|
|
$
|
0.23
|
|
Class A diluted
|
$
|
(0.27)
|
|
$
|
(14.73)
|
|
$
|
0.23
|
|
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 were 215 million, 359 million, and 479 million for the years ended December 31, 2021, 2020 and 2019, respectively. The basic weighted average shares outstanding for both our Class A and Class B common stock combined were 1,039 million, 1,034 million, and 1,034 million for the years ended December 31, 2021, 2020 and 2019, 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 years ended December 31, 2021, 2020 and 2019, such exchange is not reflected in diluted net income (loss) per share as the assumed exchange is not dilutive.
Baker Hughes Company 2021 Form 10-K | 79
Baker Hughes Company
Notes to Consolidated Financial Statements
For the years ended December 31, 2021 and 2020, we excluded all outstanding equity awards from the computation of diluted net loss per share because their effect is antidilutive. For the year ended December 31, 2019, Class A diluted shares included the dilutive impact of equity awards except for approximately 6 million options that were excluded because the exercise price exceeded the average market price of the Class A common stock and is therefore antidilutive.
NOTE 16. 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021
|
2020
|
|
Level 1
|
Level 2
|
Level 3
|
Net Balance
|
Level 1
|
Level 2
|
Level 3
|
Net Balance
|
Assets
|
|
|
|
|
|
|
|
|
Derivatives
|
$
|
—
|
|
$
|
29
|
|
$
|
—
|
|
$
|
29
|
|
$
|
—
|
|
$
|
118
|
|
$
|
—
|
|
$
|
118
|
|
Investment securities
|
1,033
|
|
—
|
|
8
|
|
1,041
|
|
1,502
|
|
—
|
|
30
|
|
1,532
|
|
Total assets
|
1,033
|
|
29
|
|
8
|
|
1,070
|
|
1,502
|
|
118
|
|
30
|
|
1,650
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Derivatives
|
—
|
|
(49)
|
|
—
|
|
(49)
|
|
—
|
|
(52)
|
|
—
|
|
(52)
|
|
Total liabilities
|
$
|
—
|
|
$
|
(49)
|
|
$
|
—
|
|
$
|
(49)
|
|
$
|
—
|
|
$
|
(52)
|
|
$
|
—
|
|
$
|
(52)
|
|
There were no transfers between Level 1, 2 and 3 during 2021.
The following table provides a reconciliation of recurring Level 3 fair value measurements for investment securities:
|
|
|
|
|
|
|
|
|
|
2021
|
2020
|
Balance at beginning of year
|
$
|
30
|
|
$
|
259
|
|
Purchases
|
—
|
|
12
|
|
Proceeds at maturity
|
(22)
|
|
(239)
|
|
Unrealized gains (losses) recognized in other comprehensive loss
|
—
|
|
(2)
|
|
Balance at end of year
|
$
|
8
|
|
$
|
30
|
|
The most significant unobservable input used in the valuation of our Level 3 instruments is the discount rate. Discount rates are determined based on inputs that market participants would use when pricing investments, including credit and liquidity risk. An increase in the discount rate would result in a decrease in the fair value of our investment securities. There are no unrealized gains or losses recognized in the consolidated statement of income (loss) on account of any Level 3 instrument still held at the reporting date.
Baker Hughes Company 2021 Form 10-K | 80
Baker Hughes Company
Notes to Consolidated Financial Statements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021
|
2020
|
|
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)
|
$
|
8
|
|
$
|
—
|
|
$
|
—
|
|
$
|
8
|
|
$
|
30
|
|
$
|
—
|
|
$
|
—
|
|
$
|
30
|
|
Equity securities (2)
|
579
|
|
455
|
|
(1)
|
|
1,033
|
|
76
|
|
1,431
|
|
(5)
|
|
1,502
|
|
Total
|
$
|
587
|
|
$
|
455
|
|
$
|
(1)
|
|
$
|
1,041
|
|
$
|
106
|
|
$
|
1,431
|
|
$
|
(5)
|
|
$
|
1,532
|
|
(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 $(843) million, $1.4 billion and $2 million for the years ended December 31, 2021, 2020, and 2019, respectively.
As of December 31, 2021, our equity securities with readily determinable fair values are comprised primarily of our investment in C3.ai, Inc. ("C3 AI") of $270 million and ADNOC Drilling of $741 million. As of December 31, 2020, our equity securities with readily determinable fair values are comprised primarily of our investment in C3 AI of $1,500 million. We measured our investments to fair value based on quoted prices in active markets.
During 2021, we sold approximately 2.2 million of our C3 AI shares and received proceeds of $145 million. At December 31, 2021, our investment in C3 AI consists of 8,650,476 shares. For the year ended December 31, 2021 and 2020, we recorded a loss of $1,085 million and a gain of $1,417 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 consolidated statements of income (loss). See “Note 18. Related Party Transactions” for further details on our agreements with C3 AI.
Our original investment in ADNOC Drilling from 2018 consists of a five percent investment, or $500 million, and did not have a recurring readily determinable fair value until October 4, 2021 when ADNOC Drilling became publicly traded, at which point the investment was transferred to investment securities with a readily determinable fair value. At December 31, 2021, our investment in ADNOC Drilling consists of 800,000,000 shares. For the year ended December 31, 2021, we recorded a gain of $241 million 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 consolidated statements of income (loss).
As of December 31, 2021 and 2020, $1,041 million and $1,514 million of total investment securities are recorded in "All other current assets" and nil and $18 million are recorded in "All other assets" of the consolidated statements of financial position, respectively.
FAIR VALUE DISCLOSURE OF FINANCIAL INSTRUMENTS
Our financial instruments include cash and equivalents, current receivables, 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 at December 31, 2021 and 2020 approximates their carrying value as reflected in our consolidated financial statements. For further information on the fair value of our debt, see "Note 10. Borrowings."
Baker Hughes Company 2021 Form 10-K | 81
Baker Hughes Company
Notes to 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021
|
2020
|
|
Assets
|
(Liabilities)
|
Assets
|
(Liabilities)
|
Derivatives accounted for as hedges
|
|
|
|
|
Currency exchange contracts
|
$
|
—
|
|
$
|
(3)
|
|
$
|
5
|
|
$
|
—
|
|
Interest rate swap contracts
|
—
|
|
(10)
|
|
—
|
|
—
|
|
|
|
|
|
|
Derivatives not accounted for as hedges
|
|
|
|
|
Currency exchange contracts and other
|
29
|
|
(36)
|
|
113
|
|
(52)
|
|
Total derivatives
|
$
|
29
|
|
$
|
(49)
|
|
$
|
118
|
|
$
|
(52)
|
|
Derivatives are classified in the consolidated statements of financial position depending on their respective maturity date. As of December 31, 2021 and 2020, $28 million and $115 million of derivative assets are recorded in "All other current assets" and $1 million and $3 million are recorded in "All other assets" of the consolidated statements of financial position, respectively. As of December 31, 2021 and 2020, $39 million and $48 million of derivative liabilities are recorded in "All other current liabilities" and $10 million and $4 million are recorded in "All other liabilities" of the 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 14. Equity" for further information on activity in AOCI for cash flow hedges. The maximum term of cash flow hedges that hedge forecasted transactions was one year at December 31, 2021 and 2020.
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 December 31, 2021, we had interest rate swaps with a notional amount of $500 million that converted a portion of our $1,350 million aggregate principal amount of 3.337% fixed rate Senior Notes due 2027 into a floating rate instrument with an interest rate based on a LIBOR index as a hedge of its exposure to changes in fair value that are attributable to interest rate risk. We concluded that the interest rate swap met the criteria necessary to qualify for the short-cut method of hedge accounting, and as such, an assumption is made that the change in the fair value of the hedged debt, due to changes in the benchmark rate, exactly offsets the change in the fair value of the interest rate swaps. Therefore, the derivative is considered to be effective at achieving offsetting changes in the fair value of the hedged liability, and no ineffectiveness is recognized. The mark-to-market of this fair value hedge is recorded as gains or losses in interest expense and is equally offset by the gain or loss of the underlying debt instrument, which also is recorded in interest expense.
Baker Hughes Company 2021 Form 10-K | 82
Baker Hughes Company
Notes to 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 consolidated statements of income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments
|
Consolidated statement of income caption
|
2021
|
2020
|
2019
|
Currency exchange contracts (1)
|
Cost of goods sold
|
$
|
(9)
|
|
$
|
59
|
|
$
|
(13)
|
|
Currency exchange contracts
|
Cost of services sold
|
5
|
|
62
|
|
(15)
|
|
Commodity derivatives
|
Cost of goods sold
|
1
|
|
2
|
|
2
|
|
Other derivatives
|
Other non-operating income (loss), net
|
—
|
|
8
|
|
2
|
|
Total (2)
|
|
$
|
(3)
|
|
$
|
131
|
|
$
|
(24)
|
|
(1)Excludes gains of $7 million and losses of $14 million and $7 million on embedded derivatives for the years ended December 31, 2021, 2020 and 2019, 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 $3.9 billion and $7.0 billion at December 31, 2021 and 2020, 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.
OTHER EQUITY INVESTMENTS
As of December 31, 2021 and 2020, the carrying amount of equity securities without readily determinable fair values was $56 million and $554 million, respectively. These investments are recorded in "All other assets" of the consolidated statements of financial position. Our balance as of December 31, 2020 included $500 million related to our five percent investment in ADNOC Drilling.
Baker Hughes Company 2021 Form 10-K | 83
Baker Hughes Company
Notes to Consolidated Financial Statements
NOTE 17. SEGMENT INFORMATION
Our reportable segments, which are the same as our operating segments, are organized based on the nature of markets and customers. We report our operating results through our four operating segments that consist of similar products and services within each segment. Our operating results are reviewed regularly by the chief operating decision maker, who is our Chief Executive Officer, in deciding how to allocate resources and assess performance. These products and services operate across upstream oil and gas and broader energy and industrial markets.
OILFIELD SERVICES
Oilfield Services provides discrete products and services, as well as integrated well services for onshore and offshore operations across the lifecycle of a well, ranging from drilling, evaluation, completion, production and intervention. Products and services include drilling services, including directional drilling, measurement while drilling & logging while drilling, diamond and tri-cone drill bits, drilling and completions fluids, wireline services, downhole completion tools and systems, wellbore intervention tools and services, pressure pumping, oilfield and industrial chemicals and artificial lift technologies, including electrical submersible pumps and surface pumping systems.
OILFIELD EQUIPMENT
Oilfield Equipment provides a broad portfolio of products and services required to facilitate the safe and reliable control and flow of hydrocarbons from the wellhead to the production facilities. The Oilfield Equipment portfolio has solutions for the subsea, offshore surface, and onshore operating environments. Products and services include subsea and surface wellheads, pressure control and production systems and services, flexible pipe systems for offshore and onshore applications, and life-of-field solutions including well intervention and decommissioning solutions, covering the entire life cycle of a field.
TURBOMACHINERY & PROCESS SOLUTIONS
Turbomachinery & Process Solutions 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 segments, as well as lower carbon solutions to broader energy and industrial sectors. The Turbomachinery & Process Solutions portfolio includes drivers (aero-derivative gas turbines, heavy-duty gas turbines and synchronous and induction electric motors), compressors (centrifugal and axial, direct drive high speed, integrated, subsea compressors, turbo expanders and reciprocating), turnkey solutions (industrial modules and waste heat recovery), pumps, valves, and compressed natural gas ("CNG") and small-scale LNG solutions.
DIGITAL SOLUTIONS
Digital Solutions provides equipment, software, and services for a wide range of industries, including oil and gas, power generation, aerospace, metals, and transportation. The offerings include a number of products and solutions that provide industrial asset management capabilities, including sensor-based process measurement, machine health and condition monitoring, asset strategy and management, control systems, as well as non-destructive testing and inspection, and pipeline integrity solutions.
SEGMENT RESULTS
Segment revenue and profit are determined based on the internal performance measures used by the Company to assess the performance of each segment in a financial period. Summarized financial information is shown in the following tables. Consistent accounting policies have been applied by all segments within the Company, for all reporting periods.
Baker Hughes Company 2021 Form 10-K | 84
Baker Hughes Company
Notes to Consolidated Financial Statements
|
|
|
|
|
|
|
|
|
|
|
|
Segment revenue
|
2021
|
2020
|
2019
|
Oilfield Services
|
$
|
9,542
|
|
$
|
10,140
|
|
$
|
12,889
|
|
Oilfield Equipment
|
2,486
|
|
2,844
|
|
2,921
|
|
Turbomachinery & Process Solutions
|
6,417
|
|
5,705
|
|
5,536
|
|
Digital Solutions
|
2,057
|
|
2,015
|
|
2,492
|
|
Total
|
$
|
20,502
|
|
$
|
20,705
|
|
$
|
23,838
|
|
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, separation related costs, goodwill impairment and certain gains and losses not allocated to the operating segments.
|
|
|
|
|
|
|
|
|
|
|
|
Segment income (loss) before income taxes
|
2021
|
2020
|
2019
|
Oilfield Services
|
$
|
761
|
|
$
|
487
|
|
$
|
917
|
|
Oilfield Equipment
|
69
|
|
19
|
|
55
|
|
Turbomachinery & Process Solutions
|
1,050
|
|
805
|
|
719
|
|
Digital Solutions
|
126
|
|
193
|
|
343
|
|
Total segment
|
2,006
|
|
1,504
|
|
2,035
|
|
Corporate
|
(429)
|
|
(464)
|
|
(433)
|
|
Inventory impairment (1)
|
—
|
|
(246)
|
|
—
|
|
Goodwill impairment
|
—
|
|
(14,773)
|
|
—
|
|
Restructuring, impairment and other
|
(209)
|
|
(1,866)
|
|
(342)
|
|
Separation related
|
(60)
|
|
(134)
|
|
(184)
|
|
Other non-operating income (loss), net
|
(583)
|
|
1,040
|
|
(84)
|
|
Interest expense, net
|
(299)
|
|
(264)
|
|
(237)
|
|
Income (loss) before income taxes
|
$
|
428
|
|
$
|
(15,202)
|
|
$
|
753
|
|
(1)Charges for inventory impairments are predominantly reported in the "Cost of goods sold" caption of the consolidated statements of income (loss).
The following table presents total assets by segment at December 31:
|
|
|
|
|
|
|
|
|
Segment assets
|
2021
|
2020
|
Oilfield Services
|
$
|
15,454
|
|
$
|
15,482
|
|
Oilfield Equipment
|
2,616
|
|
3,344
|
|
Turbomachinery & Process Solutions
|
7,692
|
|
8,951
|
|
Digital Solutions
|
3,897
|
|
3,948
|
|
Total segment
|
29,659
|
|
31,725
|
|
Corporate and eliminations (1)
|
5,649
|
|
6,282
|
|
Total
|
$
|
35,308
|
|
$
|
38,007
|
|
(1)The assets in Corporate and eliminations consist primarily of cash, the Baker Hughes trade name, our investment in C3 AI, certain facilities, and certain other noncurrent assets. It also includes adjustments to eliminate intercompany investments and receivables reflected within the total assets of each of our reportable segments.
Baker Hughes Company 2021 Form 10-K | 85
Baker Hughes Company
Notes to Consolidated Financial Statements
The following table presents depreciation and amortization by segment:
|
|
|
|
|
|
|
|
|
|
|
|
Segment depreciation and amortization
|
2021
|
2020
|
2019
|
Oilfield Services
|
$
|
771
|
|
$
|
926
|
|
$
|
985
|
|
Oilfield Equipment
|
103
|
|
146
|
|
175
|
|
Turbomachinery & Process Solutions
|
120
|
|
118
|
|
116
|
|
Digital Solutions
|
88
|
|
98
|
|
103
|
|
Total Segment
|
1,082
|
|
1,288
|
|
1,379
|
|
Corporate
|
23
|
|
29
|
|
39
|
|
Total
|
$
|
1,105
|
|
$
|
1,317
|
|
$
|
1,418
|
|
The following table presents capital expenditures by segment:
|
|
|
|
|
|
|
|
|
|
|
|
Segment capital expenditures
|
2021
|
2020
|
2019
|
Oilfield Services
|
$
|
590
|
|
$
|
669
|
|
$
|
926
|
|
Oilfield Equipment
|
69
|
|
74
|
|
120
|
|
Turbomachinery & Process Solutions
|
126
|
|
137
|
|
118
|
|
Digital Solutions
|
56
|
|
59
|
|
56
|
|
Total Segment
|
841
|
|
939
|
|
1,220
|
|
Corporate
|
15
|
|
35
|
|
20
|
|
Total
|
$
|
856
|
|
$
|
974
|
|
$
|
1,240
|
|
The following table presents net property, plant and equipment by its geographic location at December 31:
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment - net
|
2021
|
2020
|
2019
|
U.S.
|
$
|
1,651
|
|
$
|
2,007
|
|
$
|
2,594
|
|
Non-U.S.
|
3,226
|
|
3,351
|
|
3,646
|
|
Total
|
$
|
4,877
|
|
$
|
5,358
|
|
$
|
6,240
|
|
NOTE 18. RELATED PARTY TRANSACTIONS
RELATED PARTY TRANSACTIONS WITH GE
We have continuing involvement with GE primarily through their remaining interest in us and BHH LLC, ongoing purchases and sales of products and services, transition services that they provide, as well as an aeroderivative joint venture ("Aero JV") we formed with GE in 2019. During the fourth quarter of 2021, GE’s voting power of our outstanding common stock, which includes both Class A and B common stock, fell below 20%, which terminated GE’s right to designate one person for nomination to our Board of Directors. Our Conflicts Committee waived the obligation of the GE designee serving on our Board of Directors to deliver his resignation and such designee will therefore continue as a member of the Board of Directors but not as a designee of GE. At December 31, 2021, GE's economic interest in BHH LLC through their ownership of Class B common stock and associated LLC Units was 11.4%.
The Aero JV is jointly controlled by GE and us, and therefore, we do not consolidate the JV. We had purchases with GE and its affiliates, including the Aero JV, of $1,319 million, $1,446 million and $1,498 million during the years ended December 31, 2021, 2020 and 2019, respectively. In addition, we sold products and services to GE and its affiliates for $191 million, $216 million and $337 million during the years ended December 31, 2021, 2020 and 2019, respectively.
The Company has $278 million and $356 million of accounts payable and $481 million and $429 million of current receivables at December 31, 2021 and 2020, respectively, for goods and services provided by, or to, GE in
Baker Hughes Company 2021 Form 10-K | 86
Baker Hughes Company
Notes to Consolidated Financial Statements
the ordinary course of business and includes amounts owed to, or from, GE for certain tax matters indemnified pursuant to the Tax Matters Agreement.
We had a promissory note with GE that represented certain cash that we were holding on GE's behalf due to the restricted nature of the cash. During 2021, the promissory note was repaid in full. As of December 31, 2020, of the $45 million due to GE, $44 million was held in the form of cash and $1 million was held in the form of investment securities. A corresponding liability was reported in short-term debt in the consolidated statements of financial position.
RELATED PARTY TRANSACTIONS WITH C3 AI
The Company has agreements with C3 AI under which, among other things, we received a subscription (which we refer to below as "direct subscription fees") to use certain C3 AI offerings for internal use and the development of applications on the C3 AI Suite, as well as the right to resell C3 AI offerings worldwide on an exclusive basis in the oil and gas market and, with C3 AI's prior consent, non-exclusively in other markets, in each case subject to certain exceptions and conditions. The Company and C3 AI revised these agreements in October 2021. As part of these revisions, the Company and C3 AI agreed to extend the term by an additional year with an expiration date of April 30, 2025, and to modify the amount of the Company's revenue commitments to $85 million in 2023, $110 million in 2024, and $125 million in 2025, which includes the Company's direct subscription fees. These annual commitments will be reduced by any revenue that we generate from certain customers. We have exceeded the annual minimum revenue commitments for each of C3 AI's fiscal years through 2022. Lorenzo Simonelli, Chief Executive Officer of Baker Hughes, served as a member of the board of directors of C3 AI until December 17, 2021. See “Note 16. Financial Instruments” for further discussion of our investment in C3 AI.
NOTE 19. COMMITMENTS AND CONTINGENCIES
LITIGATION
We are subject to legal proceedings arising in the ordinary course of our business. Because legal proceedings are inherently uncertain, we are unable to predict the ultimate outcome of such matters. We record a liability for those contingencies where the incurrence of a loss is probable and the amount can be reasonably estimated. Based on the opinion of management, we do not expect the ultimate outcome of currently pending legal proceedings to have a material adverse effect on our results of operations, financial position or cash flows. However, there can be no assurance as to the ultimate outcome of these matters.
In January 2013, INEOS and Naphtachimie initiated expertise proceedings in Aix-en-Provence, France arising out of a fire at a chemical plant owned by INEOS in Lavera, France, which resulted in a 15-day plant shutdown and destruction of a steam turbine, which was part of a compressor train owned by Naphtachimie. The most recent quantification of the alleged damages is €250 million. Two of the Company's subsidiaries (and 17 other companies) were notified to participate in the proceedings. The proceedings are ongoing, and at this time, there is no indication that the Company's subsidiaries were involved in the incident. Although the outcome of the claims remains uncertain, our insurer has accepted coverage and is defending the Company in the expertise proceeding.
On July 31, 2018, International Engineering & Construction S.A. ("IEC") initiated arbitration proceedings in New York administered by the International Center for Dispute Resolution ("ICDR") against the Company and its subsidiaries arising out of a series of sales and service contracts entered between IEC and the Company’s subsidiaries for the sale and installation of LNG plants and related power generation equipment in Nigeria ("Contracts"). Prior to the filing of the IEC Arbitration, the Company’s subsidiaries made demands for payment due under the Contracts. On August 15, 2018, the Company’s subsidiaries initiated a separate demand for ICDR arbitration against IEC for claims of additional costs and amounts due under the Contracts. On October 10, 2018, IEC filed a Petition to Compel Arbitration in the United States District Court for the Southern District of New York against the Company seeking to compel non-signatory Baker Hughes entities to participate in the arbitration filed by IEC. The complaint is captioned International Engineering & Construction S.A. et al. v. Baker Hughes, a GE company, LLC, et al. No. 18-cv-09241 ("S.D.N.Y 2018"); this action was dismissed by the Court on August 13, 2019. In the arbitration, IEC alleges breach of contract and other claims against the Company and its subsidiaries and seeks recovery of alleged compensatory damages, in addition to reasonable attorneys' fees, expenses and
Baker Hughes Company 2021 Form 10-K | 87
Baker Hughes Company
Notes to Consolidated Financial Statements
arbitration costs. On March 15, 2019, IEC amended its request for arbitration to alleged damages of $591 million of lost profits plus unspecified additional costs based on alleged non-performance of the contracts in dispute. The arbitration hearing was held from December 9, 2019 to December 20, 2019. On March 3, 2020, IEC amended their damages claim to $700 million of alleged loss cash flow or, in the alternative, $244.9 million of lost profits and various costs based on alleged non-performance of the contracts in dispute, and in addition $4.8 million of liquidated damages, $58.6 million in take-or-pay costs of feed gas, and unspecified additional costs of rectification and take-or-pay future obligations, plus unspecified interest and attorneys' fees. On May 3, 2020, the arbitration panel dismissed IEC's request for take-or-pay damages. On May 29, 2020, IEC quantified their claim for legal fees at $14.2 million and reduced their alternative claim from $244.9 million to approximately $235 million. The Company and its subsidiaries have contested IEC’s claims and are pursuing claims for compensation under the contracts. On October 31, 2020, the ICDR notified the arbitration panel’s final award, which dismissed the majority of IEC’s claims and awarded a portion of the Company’s claims. On January 27, 2021, IEC filed a petition to vacate the arbitral award in the Supreme Court of New York, County of New York. On March 5, 2021, the Company filed a petition to confirm the arbitral award, and on March 8, 2021, the Company removed the matter to the United States District Court for the Southern District of New York. On November 16, 2021, the court granted the Company's petition to confirm the award and denied IEC's petition to vacate. On February 3, 2022, IEC initiated another arbitration proceeding in New York administered by the ICDR against certain of the Company’s subsidiaries arising out of the same project which formed the basis of the first arbitration. At this time, we are not able to predict the outcome of this proceeding.
On March 15, 2019 and March 18, 2019, the City of Riviera Beach Pension Fund and Richard Schippnick, respectively, filed in the Delaware Court of Chancery shareholder derivative lawsuits for and on the Company’s behalf against GE, the then-current members of the Board of Directors of the Company and the Company as a nominal defendant, related to the decision to (i) terminate the contractual prohibition barring GE from selling any of the Company’s shares before July 3, 2019; (ii) repurchase $1.5 billion in the Company’s stock from GE; (iii) permit GE to sell approximately $2.5 billion in the Company’s stock through a secondary offering; and (iv) enter into a series of other agreements and amendments that will govern the ongoing relationship between the Company and GE (collectively, the “2018 Transactions”). The complaints in both lawsuits allege, among other things, that GE, as the Company’s controlling stockholder, and the members of the Company’s Board of Directors breached their fiduciary duties by entering into the 2018 Transactions. The relief sought in the complaints includes a request for a declaration that the defendants breached their fiduciary duties, that GE was unjustly enriched, disgorgement of profits, an award of damages sustained by the Company, pre- and post-judgment interest, and attorneys’ fees and costs. On March 21, 2019, the Chancery Court entered an order consolidating the Schippnick and City of Riviera Beach complaints under consolidated C.A. No. 2019-0201-AGB, styled in re Baker Hughes, a GE company derivative litigation. On May 10, 2019, Plaintiffs voluntarily dismissed their claims against the members of the Company’s Conflicts Committee, and on May 15, 2019, Plaintiffs voluntarily dismissed their claims against former Baker Hughes director Martin Craighead. On June 7, 2019, the defendants and nominal defendant filed a motion to dismiss the lawsuit on the ground that the derivative plaintiffs failed to make a demand on the Company’s Board of Directors to pursue the claims itself, and GE and the Company’s Board of Directors filed a motion to dismiss the lawsuit on the ground that the complaint failed to state a claim on which relief can be granted. The Chancery Court denied the motions on October 8, 2019, except granted GE’s motion to dismiss the unjust enrichment claim against it. On October 31, 2019, the Company’s Board of Directors designated a Special Litigation Committee and empowered it with full authority to investigate and evaluate the allegations and issues raised in the derivative litigation. The Special Litigation Committee filed a motion to stay the derivative litigation during its investigation. On December 3, 2019, the Chancery Court granted the motion and stayed the derivative litigation until June 1, 2020. On May 20, 2020, the Chancery Court granted an extension of the stay to October 1, 2020, and on September 29, 2020, the Court granted a further extension of the stay to October 15, 2020. On October 13, 2020, the Special Litigation Committee filed its report with the Court. At this time, we are not able to predict the outcome of these claims.
On August 13, 2019, Tri-State Joint Fund filed in the Delaware Court of Chancery, a shareholder class action lawsuit for and on the behalf of itself and all similarly situated public stockholders of Baker Hughes Incorporated ("BHI") against the General Electric Company ("GE"), the former members of the Board of Directors of BHI, and certain former BHI Officers alleging breaches of fiduciary duty, aiding and abetting, and other claims in connection with the combination of BHI and the oil and gas business ("GE O&G") of GE ("the Transactions"). On October 28, 2019, City of Providence filed in the Delaware Court of Chancery a shareholder class action lawsuit for and on
Baker Hughes Company 2021 Form 10-K | 88
Baker Hughes Company
Notes to Consolidated Financial Statements
behalf of itself and all similarly situated public shareholders of BHI against GE, the former members of the Board of Directors of BHI, and certain former BHI Officers alleging substantially the same claims in connection with the Transactions. The relief sought in these complaints include a request for a declaration that Defendants breached their fiduciary duties, an award of damages, pre- and post-judgment interest, and attorneys’ fees and costs. The lawsuits have been consolidated, and plaintiffs filed a consolidated class action complaint on December 17, 2019 against certain former BHI officers alleging breaches of fiduciary duty and against GE for aiding and abetting those breaches. The December 2019 complaint omitted the former members of the Board of Directors of BHI, except for Mr. Craighead who also served as President and CEO of BHI. Mr. Craighead and Ms. Ross, who served as Senior Vice President and Chief Financial Officer of BHI, remain named in the December 2019 complaint along with GE. The relief sought in the consolidated complaint includes a declaration that the former BHI officers breached their fiduciary duties and that GE aided and abetted those breaches, an award of damages, pre- and post-judgment interest, and attorneys’ fees and costs. On or around February 12, 2020, the defendants filed motions to dismiss the lawsuit on the grounds that the complaint failed to state a claim on which relief could be granted. On or around October 27, 2020, the Chancery Court granted GE’s motion to dismiss, and granted in part the motion to dismiss filed by Mr. Craighead and Ms. Ross, thereby dismissing all of the claims against GE and Ms. Ross, and all but one of the claims against Mr. Craighead. At this time, we are not able to predict the outcome of the remaining claim.
On December 11, 2019, BMC Software, Inc. (“BMC”) filed a lawsuit in federal court in the Southern District of Texas against Baker Hughes, a GE company, LLC alleging trademark infringement, unfair competition, and unjust enrichment, arising out of the Company’s use of its new logo and affiliated branding. On January 1, 2020, BMC amended its complaint to add Baker Hughes Company. The relief sought in the complaint includes a request for injunctive relief, an award of damages (including punitive damages), pre- and post-judgment interest, and attorneys’ fees and costs. At this time, we are not able to predict the outcome of these claims.
In December 2020, the Company received notice that the SEC is conducting a formal investigation that the Company understands is related to its books and records and internal controls regarding sales of its products and services in projects impacted by U.S. sanctions. The Company is cooperating with the SEC and providing requested information. The Company has also initiated an internal review with the assistance of external legal counsel regarding internal controls and compliance related to U.S. sanctions requirements. While the Company's review remains ongoing, in September 2021, the Company voluntarily informed the Office of Foreign Assets Control ("OFAC") that non-U.S. Baker Hughes affiliates in two foreign countries appear to have received payments, involving U.S. touchpoints, that are subject to debt restrictions pursuant to applicable U.S. sanctions laws. Although the value of the payments in connection with the identified transactions is immaterial, the Company is unable to determine at this time if any remedial or other actions may be taken by OFAC. The Company provided a copy of the letter to the SEC, and, as the SEC investigation is ongoing, the Company cannot anticipate the timing, outcome or possible impact of the investigation or review, financial or otherwise.
We insure against risks arising from our business to the extent deemed prudent by our management and to the extent insurance is available, but no assurance can be given that the nature and amount of that insurance will be sufficient to fully indemnify us against liabilities arising out of pending or future legal proceedings or other claims. Most of our insurance policies contain deductibles or self-insured retentions in amounts we deem prudent and for which we are responsible for payment. In determining the amount of self-insurance, it is our policy to self-insure those losses that are predictable, measurable and recurring in nature, such as claims for automobile liability, general liability and workers compensation.
ENVIRONMENTAL MATTERS
Item 103 of SEC Regulation S-K requires disclosure of certain environmental matters when a governmental authority is a party to the proceedings and such proceedings involve potential monetary sanctions that the Company reasonably believes will exceed a specified threshold. The Company uses a threshold of $1 million for such proceedings. Applying this threshold, there are no environmental matters to disclose for this period.
Estimated remediation costs are accrued using currently available facts, existing environmental permits, technology and enacted laws and regulations. Our cost estimates are developed based on internal evaluations and are not discounted. Accruals are recorded when it is probable that we will be obligated to pay for environmental site evaluation, remediation or related activities, and such costs can be reasonably estimated. As additional information
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Notes to Consolidated Financial Statements
becomes available, accruals are adjusted to reflect current cost estimates. Ongoing environmental compliance costs, such as obtaining or renewing environmental permits, installation of pollution control equipment and waste disposal are expensed as incurred. Where we have been identified as a potentially responsible party in a U.S. federal or state Comprehensive Environmental Response, Compensation and Liability Act ("Superfund") site, we accrue our share, if known, of the estimated remediation costs of the site. This share is based on the ratio of the estimated volume of waste we contributed to the site to the total volume of waste disposed at the site.
OTHER
In the normal course of business with customers, vendors and others, we have entered into off-balance sheet arrangements, such as surety bonds for performance, letters of credit and other bank issued guarantees. We also provide guarantees to GE Capital on behalf of a customer who has entered into financing arrangements with GE Capital. Total off-balance sheet arrangements were approximately $4.5 billion at December 31, 2021. It is not practicable to estimate the fair value of these financial instruments. None of the off-balance sheet arrangements either has, or is likely to have, a material effect on our financial position, results of operations or cash flows. We also had commitments outstanding for purchase obligations for each of the five years in the period ending December 31, 2026 of $1,304 million, $119 million, $127 million, $46 million and $40 million, respectively, and $65 million in the aggregate thereafter.
We sometimes enter into consortium or similar arrangements for certain projects primarily in our Oilfield Equipment segment. Under such arrangements, each party is responsible for performing a certain scope of work within the total scope of the contracted work, and the obligations expire when all contractual obligations are completed. The failure or inability, financially or otherwise, of any of the parties to perform their obligations could impose additional costs and obligations on us. These factors could result in unanticipated costs to complete the project, liquidated damages or contract disputes.
NOTE 20. RESTRUCTURING, IMPAIRMENT AND OTHER
In 2021, we recorded restructuring, impairment and other charges totaling $209 million. Charges incurred are primarily related to the continuation of our overall strategy to restructure our business, which is designed to optimize our structural costs for the year-over-year change in activity levels and market conditions.
In 2020, in response to the impact on our business from the COVID-19 pandemic and the significant decline in oil and gas prices, we recorded restructuring, impairment and other charges totaling $1,866 million, and inventory impairments of $246 million, see "Note 4. Inventories" for further discussion. Charges incurred are primarily related to rationalizing certain product lines and restructuring our business to right-size our operations and to address the challenging market conditions in the upstream oil and gas market.
In 2019, we recorded restructuring, impairment and other charges of $342 million. Charges incurred are primarily related to the consolidation of certain manufacturing and service facilities and reduction in headcount across various functions.
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Notes to Consolidated Financial Statements
RESTRUCTURING AND IMPAIRMENT
The following table presents the restructuring and impairment charges by the impacted segment, however, these charges are not included in the reported segment results.
|
|
|
|
|
|
|
|
|
|
|
|
|
2021
|
2020
|
2019
|
Oilfield Services
|
$
|
121
|
|
$
|
675
|
|
$
|
211
|
|
Oilfield Equipment
|
—
|
|
125
|
|
18
|
|
Turbomachinery & Process Solutions
|
9
|
|
35
|
|
48
|
|
Digital Solutions
|
2
|
|
54
|
|
15
|
|
Corporate
|
6
|
|
14
|
|
22
|
|
Total
|
$
|
138
|
|
$
|
903
|
|
$
|
314
|
|
Restructuring and impairment charges were primarily related to employee termination expenses from reducing our headcount in certain geographical locations, and product line rationalization, including facility closures and related expenses such as property, plant and equipment impairments, and contract termination fees. The table below includes any gains on the dispositions of certain property, plant and equipment previously impaired as a consequence of exit activities. Details of these charges are as follows:
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|
|
|
|
|
|
|
|
|
|
|
2021
|
2020
|
2019
|
Property, plant and equipment
|
$
|
7
|
|
$
|
385
|
|
$
|
107
|
|
Employee-related termination expenses
|
99
|
|
464
|
|
179
|
|
Asset relocation costs
|
20
|
|
15
|
|
4
|
|
|
|
|
|
Contract termination fees
|
2
|
|
23
|
|
12
|
|
Other incremental costs
|
10
|
|
16
|
|
12
|
|
Total
|
$
|
138
|
|
$
|
903
|
|
$
|
314
|
|
OTHER CHARGES
Other charges included in "Restructuring, impairment and other" caption in the consolidated statements of income (loss) were $71 million, $963 million, and $28 million for the years ended December 31, 2021, 2020 and 2019, respectively.
In 2021, such charges were primarily related to certain litigation matters in our TPS segment and the release of foreign currency translation adjustments for certain restructured product lines in our DS segment.
In 2020, such charges were comprised of intangible asset impairments of $605 million driven by our decision to exit certain businesses primarily in our OFS segment, other long-lived asset impairments of $216 million ($124 million of intangible assets, $77 million of property, plant and equipment and $15 million of other assets) in our OFE segment, other charges of $73 million driven by certain litigation matters and the impairment of an equity method investment primarily in corporate and the OFE segment, and charges related to corporate facility rationalization.
In 2019, such charges primarily relate to currency devaluations in our OFS segment.
NOTE 21. BUSINESS DISPOSITIONS
We completed several product line dispositions over the past three years as described below. Any gain or loss on a business disposition is reported in the "Other non-operating income (loss), net" caption of the consolidated statements of income (loss).
•In October 2021, we closed a transaction with Akastor ASA to create a joint venture company ("JV Company") to deliver global offshore drilling solutions. We contributed our subsea drilling systems business, a division of our OFE segment, to the JV Company and received as consideration 50% of the shares of the JV Company, cash of $70 million, and a promissory note of $80 million. The transaction
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Notes to Consolidated Financial Statements
resulted in an immaterial gain. The Company's interest in the JV Company is accounted for as an equity method investment. Our ongoing operations in the JV Company are not integral to our operations and, therefore, our share of the income or loss from the JV will be reported as non-operating income (loss).
•In October 2020, we completed the sale of our surface pressure control flow business, a non-strategic product line in our OFE segment that provided surface wellhead and surface tree systems for the onshore market. The sale resulted in a loss before income taxes of $137 million.
•In June 2020, we completed the sale of our rod lift systems ("RLS") business. RLS was part of our OFS segment and provided rod lift products, technologies, services and solutions to the oil and gas industry. The sale resulted in a loss before income taxes of $216 million.
•In July 2019, we completed the sale of our high-speed reciprocating compression ("Recip") business. Recip was part of our TPS segment and provided high-speed reciprocating compression equipment and aftermarket parts and services for oil and gas production, gas processing, gas distribution and independent power industries. The sale resulted in a loss before income taxes of $138 million.
NOTE 22. SUPPLEMENTARY INFORMATION
ALL OTHER CURRENT LIABILITIES
All other current liabilities as of December 31, 2021 and 2020 include $955 million and $910 million, respectively, of employee related liabilities.
ALLOWANCE FOR CREDIT LOSSES
The change in allowance for credit losses is as follows:
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|
|
|
|
|
|
|
|
|
2021
|
2020
|
Balance at beginning of year
|
$
|
373
|
|
$
|
323
|
|
Provision
|
72
|
|
66
|
|
Write-offs & other
|
(45)
|
|
(16)
|
|
|
|
|
Balance at end of year
|
$
|
400
|
|
$
|
373
|
|
CASH FLOW DISCLOSURES
Supplemental cash flow disclosures are as follows for the years ended December 31:
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|
|
|
|
|
|
|
|
|
|
|
2021
|
2020
|
2019
|
Income taxes paid, net of refunds
|
$
|
314
|
|
$
|
441
|
|
$
|
438
|
|
Interest paid
|
$
|
305
|
|
$
|
289
|
|
$
|
285
|
|