filings.toolsItem 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
169K characters. Original on sec.gov · Markdown
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, 2023. 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.
| /s/ LORENZO SIMONELLI Lorenzo Simonelli Chairman, President and Chief Executive Officer | /s/ NANCY BUESE Nancy Buese Chief Financial Officer | /s/ REBECCA CHARLTON Rebecca Charlton Senior Vice President, Controller and Chief Accounting Officer |
Houston, Texas
February 5, 2024
Baker Hughes Company 2023 Form 10-K | 48
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, 2023 and 2022, 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, 2023, 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, 2023 and 2022, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2023, 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, 2023, 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 5, 2024 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 equipment manufactured to unique customer specifications
As discussed in Note 1 to the consolidated financial statements, the Company enters into agreements for sales of equipment 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 equipment 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 2023 Form 10-K | 49
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 equipment 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 equipment 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 equipment manufactured to unique customer specifications. We evaluated the estimated costs expected to be incurred to complete the equipment 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 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 5, 2024
Baker Hughes Company 2023 Form 10-K | 50
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, 2023, 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, 2023, 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, 2023 and 2022, 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, 2023, and the related notes (collectively, the consolidated financial statements), and our report dated February 5, 2024 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 5, 2024
Baker Hughes Company 2023 Form 10-K | 51
BAKER HUGHES COMPANY
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
| Year Ended December 31, | |||||||||||
| (In millions, except per share amounts) | 2023 | 2022 | 2021 | ||||||||
| Revenue: | |||||||||||
| Sales of goods | $ | 15,617 | $ | 12,236 | $ | 12,248 | |||||
| Sales of services | 9,889 | 8,920 | 8,254 | ||||||||
| Total revenue | 25,506 | 21,156 | 20,502 | ||||||||
| Costs and expenses: | |||||||||||
| Cost of goods sold | 13,309 | 10,445 | 10,458 | ||||||||
| Cost of services sold | 6,946 | 6,311 | 5,995 | ||||||||
| Selling, general and administrative | 2,611 | 2,510 | 2,470 | ||||||||
| Restructuring, impairment and other | 323 | 705 | 269 | ||||||||
| Total costs and expenses | 23,189 | 19,971 | 19,192 | ||||||||
| Operating income | 2,317 | 1,185 | 1,310 | ||||||||
| Other non-operating income (loss), net | 554 | (911) | (583) | ||||||||
| Interest expense, net | (216) | (252) | (299) | ||||||||
| Income before income taxes | 2,655 | 22 | 428 | ||||||||
| Provision for income taxes | (685) | (600) | (758) | ||||||||
| Net income (loss) | 1,970 | (578) | (330) | ||||||||
| Less: Net income (loss) attributable to noncontrolling interests | 27 | 23 | (111) | ||||||||
| Net income (loss) attributable to Baker Hughes Company | $ | 1,943 | $ | (601) | $ | (219) | |||||
| Per share amounts: | |||||||||||
| Basic income (loss) per Class A common share | $ | 1.93 | $ | (0.61) | $ | (0.27) | |||||
| Diluted income (loss) per Class A common share | $ | 1.91 | $ | (0.61) | $ | (0.27) | |||||
| Cash dividend per Class A common share | $ | 0.78 | $ | 0.73 | $ | 0.72 | |||||
See accompanying Notes to Consolidated Financial Statements
Baker Hughes Company 2023 Form 10-K | 52
BAKER HUGHES COMPANY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
| Year Ended December 31, | |||||||||||
| (In millions) | 2023 | 2022 | 2021 | ||||||||
| Net income (loss) | $ | 1,970 | $ | (578) | $ | (330) | |||||
| Less: Net income (loss) attributable to noncontrolling interests | 27 | 23 | (111) | ||||||||
| Net income (loss) attributable to Baker Hughes Company | 1,943 | (601) | (219) | ||||||||
| Other comprehensive income (loss): | |||||||||||
| Foreign currency translation adjustments | 153 | (269) | (305) | ||||||||
| Cash flow hedges | 3 | 2 | (16) | ||||||||
| Benefit plans | 19 | (14) | 170 | ||||||||
| Other comprehensive income (loss) | 175 | (281) | (151) | ||||||||
| Less: Other comprehensive loss attributable to noncontrolling interests | — | (3) | (16) | ||||||||
| Other comprehensive income (loss) attributable to Baker Hughes Company | 175 | (278) | (135) | ||||||||
| Comprehensive income (loss) | 2,145 | (859) | (481) | ||||||||
| Less: Comprehensive income (loss) attributable to noncontrolling interests | 27 | 20 | (127) | ||||||||
| Comprehensive income (loss) attributable to Baker Hughes Company | $ | 2,118 | $ | (879) | $ | (354) |
See accompanying Notes to Consolidated Financial Statements
Baker Hughes Company 2023 Form 10-K | 53
BAKER HUGHES COMPANY
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
| December 31, | ||||||||
| (In millions, except par value) | 2023 | 2022 | ||||||
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash and cash equivalents | $ | 2,646 | $ | 2,488 | ||||
| Current receivables, net | 7,075 | 5,958 | ||||||
| Inventories, net | 5,094 | 4,587 | ||||||
| All other current assets | 1,486 | 1,559 | ||||||
| Total current assets | 16,301 | 14,592 | ||||||
| Property, plant and equipment, less accumulated depreciation | 4,893 | 4,538 | ||||||
| Goodwill | 6,137 | 5,930 | ||||||
| Other intangible assets, net | 4,093 | 4,180 | ||||||
| Contract and other deferred assets | 1,756 | 1,503 | ||||||
| All other assets | 3,043 | 2,781 | ||||||
| Deferred income taxes | 722 | 657 | ||||||
| Total assets | $ | 36,945 | $ | 34,181 | ||||
| LIABILITIES AND EQUITY | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable | $ | 4,471 | $ | 4,298 | ||||
| Short-term and current portion of long-term debt | 148 | 677 | ||||||
| Progress collections and deferred income | 5,542 | 3,822 | ||||||
| All other current liabilities | 2,830 | 2,278 | ||||||
| Total current liabilities | 12,991 | 11,075 | ||||||
| Long-term debt | 5,872 | 5,980 | ||||||
| Deferred income taxes | 176 | 229 | ||||||
| Liabilities for pensions and other postretirement benefits | 978 | 960 | ||||||
| All other liabilities | 1,409 | 1,412 | ||||||
| Equity: | ||||||||
| Class A common stock, $0.0001 par value - 2,000 authorized, 998 and 1,006 issued and outstanding as of December 31, 2023 and 2022, respectively | — | — | ||||||
| Class B common stock, $0.0001 par value - 1,250 authorized, nil issued and outstanding as of December 31, 2023 and 2022 | — | — | ||||||
| Capital in excess of par value | 26,983 | 28,126 | ||||||
| Retained loss | (8,819) | (10,761) | ||||||
| Accumulated other comprehensive loss | (2,796) | (2,971) | ||||||
| Baker Hughes Company equity | 15,368 | 14,394 | ||||||
| Noncontrolling interests | 151 | 131 | ||||||
| Total equity | 15,519 | 14,525 | ||||||
| Total liabilities and equity | $ | 36,945 | $ | 34,181 |
See accompanying Notes to Consolidated Financial Statements
Baker Hughes Company 2023 Form 10-K | 54
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, 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 | |||||||||||||||||
| Comprehensive income (loss): | |||||||||||||||||||||||
| Net income (loss) | (601) | 23 | (578) | ||||||||||||||||||||
| Other comprehensive loss | (278) | (3) | (281) | ||||||||||||||||||||
| Dividends on Class A Common Stock ($0.73 per share) | (726) | (726) | |||||||||||||||||||||
| Distributions to GE | (17) | (17) | |||||||||||||||||||||
| Effect of exchange of Class B common stock and associated BHH LLC Units for Class A common stock | 2,060 | (309) | (1,751) | — | |||||||||||||||||||
| Repurchase and cancellation of Class A common stock | (823) | 1 | (6) | (828) | |||||||||||||||||||
| Stock-based compensation cost | 207 | 207 | |||||||||||||||||||||
| Other | 33 | (31) | 2 | ||||||||||||||||||||
| Balance at December 31, 2022 | — | 28,126 | (10,761) | (2,971) | 131 | 14,525 | |||||||||||||||||
| Comprehensive income (loss): | |||||||||||||||||||||||
| Net income | 1,943 | 27 | 1,970 | ||||||||||||||||||||
| Other comprehensive income | 175 | 175 | |||||||||||||||||||||
| Dividends on Class A Common Stock ($0.78 per share) | (786) | (786) | |||||||||||||||||||||
| Repurchase and cancellation of Class A common stock | (538) | (538) | |||||||||||||||||||||
| Stock-based compensation cost | 197 | 197 | |||||||||||||||||||||
| Other | (16) | (1) | (7) | (24) | |||||||||||||||||||
| Balance at December 31, 2023 | — | $ | 26,983 | $ | (8,819) | $ | (2,796) | $ | 151 | $ | 15,519 |
See accompanying Notes to Consolidated Financial Statements
Baker Hughes Company 2023 Form 10-K | 55
BAKER HUGHES COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
| Year Ended December 31, | |||||||||||
| (In millions) | 2023 | 2022 | 2021 | ||||||||
| Cash flows from operating activities: | |||||||||||
| Net income (loss) | $ | 1,970 | $ | (578) | $ | (330) | |||||
| Adjustments to reconcile net income (loss) to net cash flows from operating activities: | |||||||||||
| Depreciation and amortization | 1,087 | 1,061 | 1,105 | ||||||||
| (Gain) loss on business dispositions | (40) | 451 | — | ||||||||
| (Gain) loss on equity securities | (555) | 265 | 845 | ||||||||
| Stock-based compensation cost | 197 | 207 | 205 | ||||||||
| Property, plant and equipment impairment, net | (1) | 166 | 7 | ||||||||
| (Benefit) provision for deferred income taxes | (59) | 105 | 133 | ||||||||
| Inventory impairment | 35 | 31 | — | ||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Current receivables | (986) | (625) | (126) | ||||||||
| Inventories | (461) | (885) | 170 | ||||||||
| Accounts payable | 61 | 605 | 246 | ||||||||
| Progress collections and deferred income | 1,639 | 1,103 | (72) | ||||||||
| Contract and other deferred assets | (211) | (76) | 262 | ||||||||
| Other operating items, net | 386 | 58 | (71) | ||||||||
| Net cash flows from operating activities | 3,062 | 1,888 | 2,374 | ||||||||
| Cash flows from investing activities: | |||||||||||
| Expenditures for capital assets | (1,224) | (989) | (856) | ||||||||
| Proceeds from disposal of assets | 208 | 217 | 315 | ||||||||
| Proceeds from sale of equity securities | 372 | 26 | 147 | ||||||||
| Proceeds from business dispositions | 293 | — | 70 | ||||||||
| Net cash paid for acquisitions | (301) | (767) | (87) | ||||||||
| Other investing items, net | (165) | (51) | (52) | ||||||||
| Net cash flows used in investing activities | (817) | (1,564) | (463) | ||||||||
| Cash flows from financing activities: | |||||||||||
| Repayment of long-term debt | (651) | — | (1,313) | ||||||||
| Proceeds from the issuance of long-term debt | — | — | 1,250 | ||||||||
| Repayment of commercial paper | — | — | (832) | ||||||||
| Dividends paid | (786) | (726) | (592) | ||||||||
| Repurchase of Class A common stock | (538) | (828) | (434) | ||||||||
| Distributions to GE | — | (17) | (157) | ||||||||
| Other financing items, net | (53) | (21) | (65) | ||||||||
| Net cash flows used in financing activities | (2,028) | (1,592) | (2,143) | ||||||||
| Effect of currency exchange rate changes on cash and cash equivalents | (59) | (97) | (47) | ||||||||
| Increase (decrease) in cash and cash equivalents | 158 | (1,365) | (279) | ||||||||
| Cash and cash equivalents, beginning of period | 2,488 | 3,853 | 4,132 | ||||||||
| Cash and cash equivalents, end of period | $ | 2,646 | $ | 2,488 | $ | 3,853 |
See "Note 22. Supplementary Information" for additional cash flow disclosures
See accompanying Notes to Consolidated Financial Statements
Baker Hughes Company 2023 Form 10-K | 56
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.
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 Securities and Exchange Commission ("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.
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; 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 translated at average rates for the respective periods. Any resulting translation gains and losses are included in other comprehensive income (loss). The impact of remeasurement of monetary assets and liabilities denominated in currencies other than the functional currency of the Company or its subsidiaries is 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 equipment manufactured to unique customer specifications including long-term construction projects, on an over time basis, utilizing cost inputs as the measurement criteria in
Baker Hughes Company 2023 Form 10-K | 57
Baker Hughes Company
Notes to Consolidated Financial Statements
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 includes equipment 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 equipment 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 equipment and that acceptance has or is likely to occur.
Our billing terms for these point in time equipment contracts vary, but are generally based on shipment of the equipment 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 Industrial & Energy Technology segment. 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 liquefied natural gas ("LNG") applications). These services are performed at various times during the life of the contract, thus the costs of performing services are incurred on an other than 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 becomes 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 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 equipment to the customer.
Baker Hughes Company 2023 Form 10-K | 58
Baker Hughes Company
Notes to Consolidated Financial Statements
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 $658 million, $556 million and $492 million for the years ended December 31, 2023, 2022 and 2021, respectively. Research and development expenses were reported in "Cost of goods sold" and "Cost of services sold" in the consolidated statements of income (loss).
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.
Allowance for Credit Losses
We monitor our customers' payment history and current credit worthiness to determine that collectability of the related financial assets 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.
Concentration of Credit Risk
Our current receivables are spread over a broad and diverse group of customers across many countries. We grant credit to our customers and 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.
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
Property, plant and equipment ("PP&E") is initially stated at cost and is depreciated over its estimated economic life. Subsequently, PP&E 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 OFSE 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. Finite-lived 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.
Baker Hughes Company 2023 Form 10-K | 59
Baker Hughes Company
Notes to Consolidated Financial Statements
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, in conjunction with our annual strategic planning process, 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. 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.
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.
We monitor our exposure to various business risks including commodity prices, interest rates, 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 record all derivatives as of the end of our reporting period in our consolidated statements of financial position at fair value. For the forward contracts held as undesignated hedging instruments, we record the changes in fair value 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.
Baker Hughes Company 2023 Form 10-K | 60
Baker Hughes Company
Notes to Consolidated Financial Statements
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 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 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 and observable inputs that are consistent with what other market participants would use and these are included in Level 2. 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. 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 and 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, 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.
Investments in Equity Securities
Investments in equity securities (in which we do not have 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 recognized in earnings and reported in "Other non-operating income (loss), net" in the
Baker Hughes Company 2023 Form 10-K | 61
Baker Hughes Company
Notes to Consolidated Financial Statements
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).
Equity method investments are equity holdings in 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%. At December 31, 2023 and 2022, the aggregate carrying amount of our equity method investments was $979 million and $919 million, respectively. The results of our equity method investments are presented in the consolidated statements of income (loss) as follows: (i) if the investment is integral to our operations, their results are included in "Selling, general and administrative," and (ii) if the investment is not integral to our operations, their results are included in "Other non-operating income (loss), net." Investments in, and advances to, equity method investments are presented on a one-line basis in "All other assets" in the consolidated statements 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 Baker Hughes Holdings LLC ("BHH LLC"), our primary operating company and a wholly owned subsidiary of the Company since December 2022, which was treated as a partnership for U.S. tax purposes until December 30, 2023. Effective December 30, 2023, the Company and various subsidiaries completed a reorganization that resulted in BHH LLC no longer being treated as a partnership for U.S. tax purposes. As a partnership, BHH LLC was not subject to U.S. federal income tax under current U.S. tax laws. However, as of December 31, 2023, BHH LLC will be included and taxed as part of the Company's consolidated U.S. tax return. Non-U.S. current and deferred income taxes owed by the subsidiaries of BHH LLC are reflected in the Company's 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 the tax base 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.
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 the financial statements in the period they are finalized.
Supply Chain Finance Programs
On January 1, 2023, we adopted Financial Accounting Standards Board ("FASB") Accounting Standards Update ("ASU") No. ASU 2022-04, Liabilities – Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations, which enhances the transparency of supplier finance programs and requires certain disclosures for a buyer in a supplier finance program.
Under the supply chain finance ("SCF") programs, administered by a third party, our suppliers are given the opportunity to sell receivables from us to participating financial institutions at their sole discretion at a rate that leverages our credit rating and thus might be more beneficial to our suppliers. Our responsibility is limited to making payment on the terms originally negotiated with our supplier, regardless of whether the supplier sells its receivable
Baker Hughes Company 2023 Form 10-K | 62
Baker Hughes Company
Notes to Consolidated Financial Statements
to a financial institution. The range of payment terms we negotiate with our suppliers is consistent, irrespective of whether a supplier participates in the program.
As of December 31, 2023 and 2022, $332 million and $275 million of SCF program liabilities are recorded in "Accounts payable" in the consolidated statements of financial position, respectively, and reflected in net cash flows from operating activities in the consolidated statements of cash flows when settled.
NEW ACCOUNTING STANDARDS TO BE ADOPTED
In December 2023, the FASB issued ASU 2023-09, "Income Taxes (Topic 740): Improvements to Income Tax Disclosures" ("ASU 2023-09"), which is intended to enhance the transparency and decision usefulness of income tax disclosures. The amendments in ASU 2023-09 provide for enhanced income tax information primarily through changes to the rate reconciliation and income taxes paid information. ASU 2023-09 is effective for the Company prospectively to all annual periods beginning after December 15, 2024. Early adoption is permitted. The Company is currently evaluating the impact of this standard on our disclosures.
In November 2023, the FASB issued ASU 2023-07, "Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures" ("ASU 2023-07"), which enhances the disclosures required for operating segments in the Company's annual and interim consolidated financial statements. ASU 2023-07 is effective retrospectively for fiscal years beginning after December 15, 2023 and for interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company is currently evaluating the impact of this standard on our disclosures.
All other new accounting pronouncements that have been issued, but not yet effective are currently being evaluated and at this time are not expected to have a material impact on our financial position or results of operations.
NOTE 2. CURRENT RECEIVABLES
Current receivables consist of the following at December 31:
| 2023 | 2022 | |||||||
| Customer receivables | $ | 6,033 | $ | 5,083 | ||||
| Other | 1,392 | 1,216 | ||||||
| Total current receivables | 7,425 | 6,299 | ||||||
| Less: Allowance for credit losses | (350) | (341) | ||||||
| Total current receivables, net | $ | 7,075 | $ | 5,958 |
Customer receivables are recorded at the invoiced amount. The "Other" category consists primarily of advance payments to suppliers, indirect taxes, and customer retentions.
NOTE 3. INVENTORIES
Inventories, net of reserves of $389 million and $396 million in 2023 and 2022, respectively, consist of the following at December 31:
| 2023 | 2022 | |||||||
| Finished goods | $ | 2,626 | $ | 2,419 | ||||
| Work in process and raw materials | 2,468 | 2,168 | ||||||
| Total inventories, net | $ | 5,094 | $ | 4,587 |
For the year ended December 31, 2023, we recorded inventory impairments of $35 million primarily in our Oilfield Services & Equipment segment ("OFSE"). For the year ended December 31, 2022, we recorded inventory
Baker Hughes Company 2023 Form 10-K | 63
Baker Hughes Company
Notes to Consolidated Financial Statements
impairments of $31 million, primarily in our Industrial & Energy Technology ("IET") segment. See "Note 20. Restructuring, Impairment, and Other" for further information.
NOTE 4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following at December 31:
| Useful Life | 2023 | 2022 | |||||||||
| Land and improvements (1) | 8 - 10 years (1) | $ | 332 | $ | 347 | ||||||
| Buildings, structures and related equipment | 5 - 40 years | 2,264 | 2,120 | ||||||||
| Machinery, equipment and other | 1 - 20 years | 7,974 | 7,192 | ||||||||
| Total cost | 10,570 | 9,659 | |||||||||
| Less: Accumulated depreciation | (5,678) | (5,121) | |||||||||
| Property, plant and equipment, less accumulated depreciation | $ | 4,893 | $ | 4,538 |
(1)Useful life excludes land.
Depreciation expense relating to property, plant and equipment was $830 million, $839 million and $852 million for the years ended December 31, 2023, 2022 and 2021, respectively. See "Note 20. Restructuring, Impairment and Other" for additional information on property, plant and equipment impairments.
NOTE 5. GOODWILL AND INTANGIBLE ASSETS
GOODWILL
The changes in the carrying value of goodwill are detailed below by segment:
| Oilfield Services & Equipment | Industrial & Energy Technology | Total | |||||||||
| Balance at December 31, 2021, gross | $ | 19,825 | $ | 4,661 | $ | 24,486 | |||||
| Accumulated impairment at December 31, 2021 | (18,273) | (254) | (18,527) | ||||||||
| Balance at December 31, 2021 | 1,552 | 4,407 | 5,959 | ||||||||
| Disposition | (161) | — | (161) | ||||||||
| Acquisitions | 41 | 417 | 458 | ||||||||
| Currency exchange and other | — | (96) | (96) | ||||||||
| Total | 1,432 | 4,728 | 6,160 | ||||||||
| Classified as held for sale (1) | — | (230) | (230) | ||||||||
| Balance at December 31, 2022 | 1,432 | 4,498 | 5,930 | ||||||||
| Acquisitions | 95 | 43 | 138 | ||||||||
| Currency exchange and other | 14 | 55 | 69 | ||||||||
| Balance at December 31, 2023 | $ | 1,541 | $ | 4,596 | $ | 6,137 |
(1)The reduction in IET goodwill reflects a transfer of goodwill to business held for sale related to our Nexus Controls business. See "Note 21. Business Dispositions and Acquisitions" for further information.
As a result of our goodwill impairment assessment performed in the year ended December 31, 2023, there were no goodwill impairments deemed necessary.
Baker Hughes Company 2023 Form 10-K | 64
Baker Hughes Company
Notes to Consolidated Financial Statements
OTHER INTANGIBLE ASSETS
Intangible assets consist of the following at December 31:
| 2023 | 2022 | |||||||||||||||||||
| Gross Carrying Amount | Accumulated Amortization | Net | Gross Carrying Amount | Accumulated Amortization | Net | |||||||||||||||
| Customer relationships | $ | 1,945 | $ | (818) | $ | 1,127 | $ | 1,917 | $ | (729) | $ | 1,189 | ||||||||
| Technology | 1,253 | (899) | 354 | 1,212 | (803) | $ | 409 | |||||||||||||
| Trade names and trademarks | 290 | (186) | 104 | 287 | (175) | 112 | ||||||||||||||
| Capitalized software | 1,413 | (1,107) | 306 | 1,308 | (1,040) | 268 | ||||||||||||||
| Finite-lived intangible assets | 4,901 | (3,010) | 1,891 | 4,725 | (2,747) | 1,978 | ||||||||||||||
| Indefinite-lived intangible assets | 2,202 | — | 2,202 | 2,202 | — | 2,202 | ||||||||||||||
| Total intangible assets | $ | 7,103 | $ | (3,010) | $ | 4,093 | $ | 6,927 | $ | (2,747) | $ | 4,180 |
Finite-lived intangible assets are generally amortized on a straight-line basis with estimated useful lives ranging from 1 to 35 years. Amortization expense was $257 million, $222 million and $253 million for the years ended December 31, 2023, 2022 and 2021, respectively. No impairment for indefinite-lived intangible assets were recorded in 2023.
Estimated amortization expense for each of the subsequent five fiscal years is expected to be as follows:
| Year | Estimated Amortization Expense | ||||
| 2024 | $ | 243 | |||
| 2025 | 201 | ||||
| 2026 | 156 | ||||
| 2027 | 134 | ||||
| 2028 | 115 |
Baker Hughes Company 2023 Form 10-K | 65
Baker Hughes Company
Notes to Consolidated Financial Statements
NOTE 6. CONTRACT AND OTHER DEFERRED ASSETS
Contract assets reflect revenue earned in excess of billings on our long-term contracts to construct technically complex equipment, provide long-term product service and maintenance or extended warranty arrangements and other deferred contract related costs. Our long-term product service agreements are provided by our IET segment. Our long-term equipment contracts are provided by both our IET and OFSE segments. Contract assets consist of the following at December 31:
| 2023 | 2022 | |||||||
| Long-term product service agreements | $ | 418 | $ | 392 | ||||
| Long-term equipment contracts and certain other service agreements | 1,184 | 955 | ||||||
| Contract assets (total revenue in excess of billings) | 1,602 | 1,347 | ||||||
| Deferred inventory costs | 126 | 125 | ||||||
| Other costs to fulfill or obtain a contract (1) | 28 | 31 | ||||||
| Contract and other deferred assets | $ | 1,756 | $ | 1,503 |
(1) Other costs to fulfill or obtain a contract consist primarily of non-recurring engineering costs incurred and expected to be recovered.
Revenue recognized during the years ended December 31, 2023 and 2022 from performance obligations satisfied (or partially satisfied) in previous years related to our long-term service agreements was $15 million and $20 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 7. PROGRESS COLLECTIONS AND DEFERRED INCOME
Contract liabilities include progress collections, which reflects billings in excess of revenue, and deferred income on our long-term contracts to construct technically complex equipment, long-term product maintenance or extended warranty arrangements. Contract liabilities consist of the following at December 31:
| 2023 | 2022 | |||||||
| Progress collections | $ | 5,405 | $ | 3,713 | ||||
| Deferred income | 137 | 109 | ||||||
| Progress collections and deferred income (contract liabilities) | $ | 5,542 | $ | 3,822 |
Revenue recognized during the years ended December 31, 2023 and 2022 that was included in the contract liabilities at the beginning of the year was $2,999 million and $2,185 million, respectively.
NOTE 8. LEASES
Our leasing activities primarily consist of operating leases for administrative offices, manufacturing facilities, research centers, service centers, sales offices and certain equipment.
The following table presents operating lease expense:
| Operating Lease Expense | 2023 | 2022 | 2021 | ||||||||
| Long-term fixed lease | $ | 276 | $ | 254 | $ | 255 | |||||
| Long-term variable lease | 73 | 48 | 32 | ||||||||
| Short-term lease (1) | 503 | 477 | 440 | ||||||||
| Total operating lease expense | $ | 852 | $ | 779 | $ | 727 |
(1)Leases with a term of one year or less, including leases with a term of one month or less.
Baker Hughes Company 2023 Form 10-K | 66
Baker Hughes Company
Notes to Consolidated Financial Statements
Cash flows used in operating activities for operating leases approximates our expense for the years ended December 31, 2023, 2022 and 2021.
As of December 31, 2023, maturities of our operating lease liabilities are as follows:
| Year | Operating Leases | |||||||
| 2024 | $ | 244 | ||||||
| 2025 | 178 | |||||||
| 2026 | 122 | |||||||
| 2027 | 79 | |||||||
| 2028 | 57 | |||||||
| Thereafter | 234 | |||||||
| Total lease payments | 914 | |||||||
| Less: imputed interest | 145 | |||||||
| Total | $ | 769 | ||||||
Amounts recognized in the consolidated statements of financial position for operating leases consist of the following:
| 2023 | 2022 | |||||||
| All other current liabilities | $ | 220 | $ | 189 | ||||
| All other liabilities | 549 | 552 | ||||||
| Total | $ | 769 | $ | 741 |
Right-of-use assets of $769 million and $757 million as of December 31, 2023 and 2022, respectively, are included in "All other assets" in the consolidated statements of financial position. The weighted-average remaining lease term for our operating leases was approximately seven years for the years ended December 31, 2023 and 2022. The weighted-average discount rate used to determine the operating lease liability as of December 31, 2023 and 2022 was 3.3% and 3.1%, respectively.
Baker Hughes Company 2023 Form 10-K | 67
Baker Hughes Company
Notes to Consolidated Financial Statements
NOTE 9. DEBT
The carrying value of our short-term and long-term debt consist of the following at December 31:
| 2023 | 2022 | |||||||||||||
| Amount | Effective Interest Rate (1) | Amount | Effective Interest Rate (1) | |||||||||||
| Short-term and current portion of long-term debt | ||||||||||||||
| 1.231% Senior Notes due December 2023 | $ | — | — | % | $ | 649 | 1.5 | % | ||||||
| 8.55% Debentures due June 2024 (2) | 109 | 4.1 | % | — | — | % | ||||||||
| Other debt | 39 | 4.9 | % | 29 | 2.9 | % | ||||||||
| Total short-term and current portion of long-term debt | 148 | 677 | ||||||||||||
| Long-term debt | ||||||||||||||
| 8.55% Debentures due June 2024 (2) | — | — | % | 114 | 4.1 | % | ||||||||
| 2.061% Senior Notes due December 2026 | 598 | 2.4 | % | 597 | 2.4 | % | ||||||||
| 3.337% Senior Notes due December 2027 | 1,294 | 5.3 | % | 1,277 | 3.8 | % | ||||||||
| 6.875% Notes due January 2029 (2) | 268 | 3.9 | % | 273 | 3.9 | % | ||||||||
| 3.138% Senior Notes due November 2029 | 523 | 3.2 | % | 523 | 3.2 | % | ||||||||
| 4.486% Senior Notes due May 2030 | 498 | 4.6 | % | 497 | 4.6 | % | ||||||||
| 5.125% Senior Notes due September 2040 (2) | 1,281 | 4.2 | % | 1,286 | 4.2 | % | ||||||||
| 4.080% Senior Notes due December 2047 | 1,338 | 4.1 | % | 1,338 | 4.1 | % | ||||||||
| Other long-term debt | 73 | 6.3 | % | 75 | 4.2 | % | ||||||||
| Total long-term debt | 5,872 | 5,980 | ||||||||||||
| Total debt | $ | 6,020 | $ | 6,658 |
(1)Effective interest rate is based on the carrying value including issuance costs, interest rate swaps, and step-up adjustments from the Baker Hughes Incorporated ("BHI") acquisition recorded for certain Senior Notes and Debentures.
(2)Represents long-term fixed rate debt obligations assumed in connection with the acquisition of BHI.
The carrying value of our short-term and long-term debt includes issuance costs, changes in fair value of the debt instrument hedged by interest rate swaps, and step-up adjustments for the BHI acquisition. At December 31, 2023 and 2022, these adjustments resulted in a net increase to the carrying value of our debt totaling $95 million and $91 million, respectively. The estimated fair value of total debt at December 31, 2023 and 2022 was $5,571 million and $5,863 million, respectively. For a majority of our debt the fair value was determined using quoted period-end market prices. Where market prices are not available, we estimate fair values based on valuation methodologies using current market interest rate data adjusted for our non-performance risk.
Maturities of debt for each of the five years in the period ending December 31, 2028, and in the aggregate thereafter, are listed in the table below:
| 2024 | 2025 | 2026 | 2027 | 2028 | Thereafter | |||||||||||||||
| Total debt | $ | 148 | $ | 4 | $ | 614 | $ | 1,308 | $ | — | $ | 3,946 |
In November 2023, BHH LLC entered into a $3 billion committed unsecured revolving credit facility ("the New Credit Agreement") with commercial banks maturing in November 2028. The New Credit Agreement contains certain representations and warranties, certain affirmative covenants and negative covenants, in each case we consider customary. Upon the occurrence of certain events of default, our obligations under the New Credit Agreement may be accelerated. Such events of default include payment defaults to lenders under the New Credit Agreement and other customary defaults. No such events of default have occurred. The New Credit Agreement is
Baker Hughes Company 2023 Form 10-K | 68
Baker Hughes Company
Notes to Consolidated Financial Statements
fully and unconditionally guaranteed on a senior unsecured basis by Baker Hughes. In addition, we have authorization to issue up to $3 billion of commercial paper. At December 31, 2023 and 2022, there were no borrowings under the New Credit Agreement and no outstanding commercial paper.
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, 2023, Baker Hughes Co-Obligor, Inc. is a co-obligor of our long-term debt securities totaling $5,908 million.
Certain Senior Notes contain covenants that restrict our ability to take certain actions, including, but not limited to, the creation of certain liens securing debt, the entry into certain sale-leaseback transactions, and engaging in certain merger, consolidation and asset sale transactions in excess of specified limits. At December 31, 2023, we were in compliance with all debt covenants.
NOTE 10. EMPLOYEE BENEFIT PLANS
DEFINED BENEFIT PLANS
We maintain Company sponsored pension plans for certain of our employees. We also maintain unfunded end-of-service benefit plans that are mandated in certain countries in which we operate. Our primary plans disclosed in 2023 included four U.S. plans and eight non-U.S. plans, primarily in the United Kingdom and Germany, all with plan assets or obligations greater than $20 million. 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 $33 million and $37 million at December 31, 2023 and 2022, respectively.
Funded Status
The funded status position represents the difference between the benefit obligation and the plan assets. Our primary plans consist of seven funded plans and five unfunded plans. 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 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.
Baker Hughes Company 2023 Form 10-K | 69
Baker Hughes Company
Notes to Consolidated Financial Statements
Below is the reconciliation of the beginning and ending balances of benefit obligations, fair value of plan assets and the funded status of our defined benefit plans ("Pension Benefits").
| Pension Benefits | ||||||||||||||
| 2023 | 2022 | |||||||||||||
| Change in benefit obligation: | ||||||||||||||
| Benefit obligation at beginning of year | $ | 2,634 | $ | 3,550 | ||||||||||
| Service cost | 15 | 23 | ||||||||||||
| Interest cost | 116 | 78 | ||||||||||||
| Actuarial gain (1) | (4) | (928) | ||||||||||||
| Benefits paid | (126) | (119) | ||||||||||||
| Settlements | (4) | (24) | ||||||||||||
| Settlement due to plan termination (2) | (246) | — | ||||||||||||
| Acquisition | — | 202 | ||||||||||||
| Foreign currency translation adjustments | 58 | (148) | ||||||||||||
| Benefit obligation at end of year | 2,443 | 2,634 | ||||||||||||
| Change in plan assets: | ||||||||||||||
| Fair value of plan assets at beginning of year | 2,266 | 3,147 | ||||||||||||
| Actual return on plan assets | 121 | (850) | ||||||||||||
| Employer contributions | 18 | 32 | ||||||||||||
| Benefits paid | (126) | (119) | ||||||||||||
| Settlements | (4) | (24) | ||||||||||||
| Settlement due to plan termination (2) | (246) | — | ||||||||||||
| Acquisition | — | 214 | ||||||||||||
| Foreign currency translation adjustments | 51 | (134) | ||||||||||||
| Fair value of plan assets at end of year | 2,080 | 2,266 | ||||||||||||
| Funded status - underfunded at end of year | $ | (363) | $ | (368) | ||||||||||
| Accumulated benefit obligation | $ | 2,399 | $ | 2,595 |
(1)The actuarial gain in 2022 was primarily related to a change in the discount rate used to measure the benefit obligation for our plans.
(2)Plan termination relates to the termination of one of our fully funded frozen U.S. defined benefit plans that was initiated in April 2022.
The amounts recognized in the consolidated statements of financial position consist of the following at December 31:
| Pension Benefits | ||||||||||||||
| 2023 | 2022 | |||||||||||||
| Noncurrent assets | $ | 78 | $ | 58 | ||||||||||
| Current liabilities | (17) | (15) | ||||||||||||
| Noncurrent liabilities | (424) | (411) | ||||||||||||
| Net amount recognized | $ | (363) | $ | (368) |
Baker Hughes Company 2023 Form 10-K | 70
Baker Hughes Company
Notes to Consolidated Financial Statements
Information for the plans with ABOs and PBOs in excess of plan assets consist of the following at December 31:
| Pension Benefits | ||||||||||||||
| 2023 | 2022 | |||||||||||||
| Projected benefit obligation | $ | 1,410 | $ | 1,143 | ||||||||||
| Accumulated benefit obligation | $ | 1,366 | $ | 1,103 | ||||||||||
| Fair value of plan assets | $ | 968 | $ | 717 |
We have a U.S. non-qualified supplemental pension plan ("BH SPP") for certain employees which is 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 established a trust comprised primarily of mutual fund assets. The value of these assets was $36 million and $34 million as of December 31, 2023 and 2022, 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 consist of the following:
| Pension Benefits | |||||||||||||||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||||||||||||||
| Service cost | $ | 15 | $ | 23 | $ | 27 | |||||||||||||||||||||||
| Interest cost | 116 | 78 | 64 | ||||||||||||||||||||||||||
| Expected return on plan assets | (102) | (114) | (130) | ||||||||||||||||||||||||||
| Amortization of prior service credit | 1 | 1 | 1 | ||||||||||||||||||||||||||
| Amortization of net actuarial loss | 19 | 27 | 40 | ||||||||||||||||||||||||||
| Curtailment / settlement loss | (16) | 2 | 2 | ||||||||||||||||||||||||||
| Net periodic cost | $ | 33 | $ | 17 | $ | 4 |
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" in 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:
| Pension Benefits | ||||||||||||||
| 2023 | 2022 | |||||||||||||
| Discount rate | 4.54 | % | 4.89 | % | ||||||||||
| Rate of compensation increase | 3.26 | % | 3.30 | % | ||||||||||
| Interest crediting rate | 3.98 | % | 4.31 | % | ||||||||||
Baker Hughes Company 2023 Form 10-K | 71
Baker Hughes Company
Notes to Consolidated Financial Statements
Weighted average assumptions used to determine net periodic cost for these plans are as follows:
| Pension Benefits | ||||||||||||||||||||
| 2023 | 2022 | 2021 | ||||||||||||||||||
| Discount rate | 4.89 | % | 2.15 | % | 1.66 | % | ||||||||||||||
| Expected long-term return on plan assets | 5.05 | % | 3.85 | % | 4.07 | % | ||||||||||||||
| Interest crediting rate | 4.31 | % | 2.60 | % | 2.60 | % |
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 while higher discount rates reduce the size of the benefit obligation. 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 defined benefit plans consists of the following at December 31:
| Pension Benefits | ||||||||||||||
| 2023 | 2022 | |||||||||||||
| Net actuarial loss | $ | 333 | $ | 348 | ||||||||||
| Net prior service cost | 15 | 15 | ||||||||||||
| Total | $ | 348 | $ | 363 |
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 2023 Form 10-K | 72
Baker Hughes Company
Notes to Consolidated Financial Statements
The table below presents the fair value of the plan assets at December 31:
| 2023 | 2022 | |||||||
| Debt securities | ||||||||
| Fixed income and cash investment funds | $ | 1,122 | $ | 1,482 | ||||
| Equity securities | ||||||||
| Global equity securities (1) | 227 | 180 | ||||||
| U.S. equity securities (1) | 157 | 102 | ||||||
| Insurance contracts | 103 | 100 | ||||||
| Real estate | 34 | 53 | ||||||
| Private equities | 35 | 37 | ||||||
| Other investments (2) | 402 | 313 | ||||||
| Total plan assets | $ | 2,080 | $ | 2,266 |
(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 $1,967 million and $2,157 million as of December 31, 2023 and 2022, respectively. The percentages of plan assets valued using NAV by investment fund type for equity securities, fixed income and cash, and alternative investments were 20%, 57%, and 23% as of December 31, 2023, respectively, and 13%, 69%, and 18% as of December 31, 2022, 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 $113 million and $109 million as of December 31, 2023 and 2022, respectively. There were investments classified within Level 3 of $103 million and $100 million for non U.S. insurance contracts as of December 31, 2023 and 2022, 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 2023, we contributed approximately $18 million, which includes benefit payments made directly to the employee for our unfunded plans. We anticipate we will contribute between approximately $40 million to $45 million to our pension plans in 2024.
The following table presents the expected benefit payments for Pension Benefits over the next 10 years. For funded Company sponsored plans, the benefit payments are made by the respective pension trust funds.
| Year | Pension Benefits | |||||||||||||||||||
| 2024 | $ | 164 | ||||||||||||||||||
| 2025 | 127 | |||||||||||||||||||
| 2026 | 132 | |||||||||||||||||||
| 2027 | 135 | |||||||||||||||||||
| 2028 | 136 | |||||||||||||||||||
| 2029-2033 | 717 |
DEFINED CONTRIBUTION PLANS
Our primary defined contribution plan during 2023 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 2023 Form 10-K | 73
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 $217 million and $212 million in 2023 and 2022, respectively.
We have two non-qualified defined contribution plans that are invested through trusts. The assets and corresponding liabilities were $281 million and $256 million at December 31, 2023 and 2022, respectively, and are included in "All other assets" and "Liabilities for pensions and other postretirement benefits," respectively, in the consolidated statements of financial position.
NOTE 11. INCOME TAXES
The provision for income taxes consists of the following:
| 2023 | 2022 | 2021 | |||||||||
| Current: | |||||||||||
| U.S. | $ | 33 | $ | 6 | $ | 11 | |||||
| Foreign | 711 | 489 | 614 | ||||||||
| Total current | 744 | 495 | 625 | ||||||||
| Deferred: | |||||||||||
| U.S. | (27) | 40 | (24) | ||||||||
| Foreign | (32) | 65 | 157 | ||||||||
| Total deferred | (59) | 105 | 133 | ||||||||
| Provision for income taxes | $ | 685 | $ | 600 | $ | 758 |
On August 16, 2022, the U.S. enacted The Inflation Reduction Act which included a number of additional credits and deductions for businesses and individuals. The Inflation Reduction Act also included the adoption of the Corporate Alternative Minimum Tax in 2023, which is based on financial statement book income of large corporations. In 2023, the Company is not subject to the Corporate Alternative Minimum Tax.
The geographic sources of income before income taxes consist of the following:
| 2023 | 2022 | 2021 | |||||||||
| U.S. | $ | 882 | $ | (698) | $ | (724) | |||||
| Foreign | 1,773 | 720 | 1,152 | ||||||||
| Income before income taxes | $ | 2,655 | $ | 22 | $ | 428 |
Baker Hughes Company 2023 Form 10-K | 74
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 income before income taxes for the reasons set forth below for the years ended December 31:
| 2023 | 2022 | 2021 | |||||||||
| Income before income taxes | $ | 2,655 | $ | 22 | $ | 428 | |||||
| Taxes at the U.S. federal statutory income tax rate | 558 | 5 | 90 | ||||||||
| Effect of foreign operations (2) | 112 | 338 | 216 | ||||||||
| Tax impact of partnership structure | (103) | 6 | 137 | ||||||||
| Change in valuation allowances (1) | 53 | 164 | 70 | ||||||||
| Tax expense (benefit) due to unrecognized tax benefits | (5) | (7) | 201 | ||||||||
| Other - net | 70 | 94 | 44 | ||||||||
| Provision for income taxes (3) | $ | 685 | $ | 600 | $ | 758 | |||||
| Actual income tax rate | 25.8 | % | 2,727.3 | % | 177.1 | % |
(1)For December 31, 2023, this amount was reduced by $81 million that is related to the release of a valuation allowance for certain deferred tax assets.
(2)For December 31, 2022, $140 million of this amount relates to the charges associated with the sale and suspension of our Russia operations.
(3)For December 31, 2021, $121 million of this amount was previously indemnified under the Tax Matters Agreement with General Electric ("GE") of which $119 million was included in tax expense due to unrecognized tax benefits. In December 2022, the Company and GE entered into an agreement to terminate the Tax Matters Agreement.
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.
As a result of an internal reorganization completed on December 30, 2023, BHH LLC became a single member LLC thereby terminating the partnership for U.S. income tax purposes. As of December 31, 2023, U.S. deferred tax assets and liabilities are now recorded based on the inside book basis versus tax basis difference and are no longer recorded based on the Company's outside basis difference in the BHH LLC partnership. As a result, in 2023 the deferred tax asset related to the investment in partnership has been adjusted accordingly and other deferred tax assets and liabilities, including PP&E, intangible assets, and lower tier investment in partnerships & subsidiaries, have been increased to reflect the tax effect of the inside basis difference of those respective assets and liabilities.
Baker Hughes Company 2023 Form 10-K | 75
Baker Hughes Company
Notes to Consolidated Financial Statements
The tax effects of differences that give rise to significant portions of the deferred income tax assets and deferred income tax liabilities as of December 31 consist of the following:
| 2023 | 2022 | |||||||
| Deferred tax assets: | ||||||||
| Operating & capital loss carryforwards | $ | 3,332 | $ | 2,074 | ||||
| Tax credit & other carryforwards | 936 | 1,087 | ||||||
| Investment in partnerships & subsidiaries | 286 | 846 | ||||||
| Property, plant and equipment | 169 | 128 | ||||||
| Employee benefits | 241 | 62 | ||||||
| Goodwill and other intangible assets | 137 | 46 | ||||||
| Receivables | 111 | 94 | ||||||
| Inventory | 73 | 52 | ||||||
| Other | 181 | 163 | ||||||
| Total deferred income tax asset | 5,466 | 4,552 | ||||||
| Valuation allowances | (4,416) | (4,090) | ||||||
| Total deferred income tax asset after valuation allowance | 1,050 | 462 | ||||||
| Deferred tax liabilities: | ||||||||
| Indefinite-lived intangible assets | (380) | — | ||||||
| Fair value of derivative financial instruments | (90) | — | ||||||
| Other | (34) | (34) | ||||||
| Total deferred income tax liability | (504) | (34) | ||||||
| Net deferred tax asset | $ | 546 | $ | 428 |
At December 31, 2023, we had approximately $417 million of non-U.S. tax credits which may be carried forward indefinitely under applicable foreign law, $366 million of U.S. foreign tax credits and $153 million of other U.S. Federal and state tax credits and other carryforwards, the majority of which will expire after tax year 2027 under U.S. Federal and state tax law. Additionally, we had $3,299 million of net operating loss carryforwards ("NOLs"), of which approximately $252 million will expire within five years, $1,862 million will expire between six years and 20 years, and the remainder can be carried forward indefinitely. Lastly, we had $33 million of capital loss carryforwards, the majority of which can be carried forward indefinitely.
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, 2023, $4,416 million of valuation allowances are recorded against various deferred tax assets, primarily related to foreign operating and capital losses of $2,987 million and U.S. foreign and non-U.S. tax credit carryforwards of $770 million.
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, 2023, the cumulative amount of undistributed foreign earnings is approximately $3,708 million. Computation of the potential deferred tax liability associated with these undistributed earnings and any other basis differences is not practicable.
At December 31, 2023, we had $467 million of tax liabilities for total gross unrecognized tax benefits related to uncertain tax positions. In addition to these uncertain tax positions, we had $83 million and $79 million related to interest and penalties, respectively, for total liabilities of $629 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 $559 million. The remaining $71 million is comprised of $41 million for deferred tax assets that represent tax benefits that would be received in different taxing jurisdictions or in a different character and $30 million increased valuation allowances.
Baker Hughes Company 2023 Form 10-K | 76
Baker Hughes Company
Notes to Consolidated Financial Statements
The following table presents the changes in our gross unrecognized tax benefits included in the consolidated statements of financial position.
| Asset / (Liability) | 2023 | 2022 | ||||||
| Balance at beginning of year | $ | (496) | $ | (531) | ||||
| Additions for tax positions of the current year | (15) | (19) | ||||||
| Additions for tax positions of prior years | (50) | (99) | ||||||
| Reductions for tax positions of prior years | 32 | 100 | ||||||
| Settlements with tax authorities | 26 | 24 | ||||||
| Lapse of statute of limitations | 36 | 29 | ||||||
| Balance at end of year | $ | (467) | $ | (496) |
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, 2023, we had approximately $40 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 2015 for the most significant U.S. returns. We believe that we have made adequate provision for all income tax uncertainties in all jurisdictions.
NOTE 12. STOCK-BASED COMPENSATION
The Company has the 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. The Company also provides an Employee Stock Purchase Plan for eligible employees. 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 25.1 million shares of Class A common stock are available for issuance as of December 31, 2023.
Stock-based compensation cost was $197 million, $207 million and $205 million for the years ended December 31, 2023, 2022 and 2021, respectively. 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 RSUs, 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 three years. Non-employee directors are granted RSUs that immediately vest on the grant date. 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.
Baker Hughes Company 2023 Form 10-K | 77
Baker Hughes Company
Notes to Consolidated Financial Statements
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, 2022 | 14,342 | $ | 24.31 | |||||
| Granted | 6,404 | 30.20 | ||||||
| Vested | (7,351) | 23.60 | ||||||
| Forfeited | (1,282) | 26.43 | ||||||
| Unvested balance at December 31, 2023 | 12,113 | $ | 27.70 |
In 2023, 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 $227 million and unvested RSUs was $414 million. The total grant date fair value of RSUs vested in 2023 was $173 million. As of December 31, 2023, there was $178 million of total unrecognized compensation cost related to unvested RSUs, which is expected to be recognized over a weighted average period of 1.76 years.
Performance Share Units
We may grant PSUs to certain officers and key employees. The PSUs are stock-based awards tied to predefined company metrics and contain a payout modifier based on total shareholder return ("TSR"). PSUs generally cliff vest after a service period of three years. Cash dividend equivalents are accumulated on 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 PSU awards is determined based on a Monte Carlo simulation method.
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, 2022 | 3,525 | $ | 25.56 | |||||
| Granted | 1,222 | 30.17 | ||||||
| Vested | (827) | 20.61 | ||||||
| Cancelled (1) | (563) | 21.85 | ||||||
| Forfeited | (529) | 29.06 | ||||||
| Unvested balance at December 31, 2023 | 2,828 | $ | 28.70 |
(1)Includes adjustments based on achievement of predefined company metrics.
The total intrinsic value of PSUs vested and unvested, (defined as the value of the shares awarded at the year-end market price) was $23 million and $97 million, respectively, as of December 31, 2023. The total grant date fair value of PSUs vested in 2023 was $17 million. Total unrecognized compensation cost related to unvested PSUs, which is expected to be recognized over a weighted average period of 1.89 years, was $28 million as of December 31, 2023.
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 three years provided that the employee has remained continuously employed by the Company through such vesting date. We have not granted stock options to officers, directors, or key employees since 2019.
Baker Hughes Company 2023 Form 10-K | 78
Baker Hughes Company
Notes to Consolidated Financial Statements
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, 2022 | 2,907 | $ | 33.02 | |||||
| Exercised | (492) | 26.44 | ||||||
| Expired | (174) | 39.79 | ||||||
| Outstanding and exercisable at December 31, 2023 | 2,241 | $ | 33.92 |
The weighted average remaining contractual term for options outstanding and options exercisable at December 31, 2023 was 3.4 years. The maximum contractual term of options outstanding is 5.1 years.
There were nil, 530 thousand and 850 thousand options that vested in 2023, 2022 and 2021, respectively. The total fair value of options vested was nil, $3 million and $7 million, in 2023, 2022 and 2021, respectively. Unrecognized compensation cost related to unvested stock options was immaterial as of December 31, 2023.
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 2023 was $3 million. The total intrinsic value of stock options outstanding and options exercisable at December 31, 2023 was $6 million. The intrinsic value of stock options outstanding is calculated as the amount by which the quoted price of $34.18 of our common stock as of the end of 2023 exceeds the exercise price of the options.
Employee Stock Purchase Plan
The employee stock purchase plan 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 at a 15% discount of the fair market value of our Class A common stock at the end of each quarterly offering period. 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, 2023, there were 8.7 million shares of Class A common stock reserved for future issuance.
NOTE 13. EQUITY
COMMON STOCK
We are authorized to issue 2 billion shares of Class A common stock, 1.25 billion shares of Class B common stock and 50 million shares of preferred stock each of which have a par value of $0.0001 per share. The number of shares outstanding of Class A and Class B common stock at December 31, 2023 is 998 million and nil, respectively. We have not issued any preferred stock. Each share of Class B common stock and the associated member units of BHH LLC form a paired interest. While each share of Class B common stock has equal voting rights to a share of Class A common stock, it has no economic rights, meaning holders of Class B common stock have no right to dividends or any assets in the event of liquidation of the Company. Our Class B common stock was previously held by GE. As of December 31, 2023 and 2022, there were no shares of Class B common stock issued and outstanding.
We have a share repurchase program which we expect to fund from cash generated from operations, and we expect to make share repurchases from time to time subject to the Company's capital plan, market conditions, and other factors, including regulatory restrictions. The repurchase program may be suspended or discontinued at any time and does not have a specified expiration date. In 2023 and 2022, the Company repurchased and canceled 16.3 million and 29.7 million shares of Class A common stock, each for $538 million and $828 million, representing an average price per share of $33.09 and $27.91, respectively. As of December 31, 2023, the Company had authorization remaining to repurchase up to approximately $2.2 billion of its Class A common stock.
Baker Hughes Company 2023 Form 10-K | 79
Baker Hughes Company
Notes to Consolidated Financial Statements
The following table presents the changes in the number of shares outstanding (in thousands):
| 2023 | 2022 | |||||||||||||
| Class A Common Stock | Class B Common Stock | Class A Common Stock | Class B Common Stock | |||||||||||
| Balance at beginning of year | 1,005,960 | — | 909,142 | 116,548 | ||||||||||
| Issue of shares upon vesting of restricted stock units (1) | 5,738 | — | 6,316 | — | ||||||||||
| Issue of shares on exercise of stock options (1) | 434 | — | 1,632 | — | ||||||||||
| Issue of shares for employee stock purchase plan | 1,846 | — | 2,017 | — | ||||||||||
| Exchange of Class B common stock for Class A common stock (2) | — | — | 116,548 | (116,548) | ||||||||||
| Repurchase and cancellation of Class A common stock | (16,269) | — | (29,694) | — | ||||||||||
| Balance at end of year | 997,709 | — | 1,005,960 | — |
(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 BHH LLC member units ("LLC Units"), were exchanged for shares of Class A common stock, such shares of Class B common stock were canceled.
During 2023 and 2022, the Company declared and paid aggregate regular dividends of $0.78 and $0.73 per share, respectively, to holders of record of the Company's Class A common stock.
ACCUMULATED OTHER COMPREHENSIVE LOSS ("AOCL")
The following tables present the changes in accumulated other comprehensive loss, net of tax:
| Foreign Currency Translation Adjustments | Cash Flow Hedges | Benefit Plans | Accumulated Other Comprehensive Loss | ||||||||||||||
| Balance at December 31, 2021 | $ | (2,125) | $ | (10) | $ | (250) | $ | (2,385) | |||||||||
| Other comprehensive income (loss) before reclassifications | (294) | (1) | 2 | (293) | |||||||||||||
| Amounts reclassified from accumulated other comprehensive loss | 25 | 3 | 27 | 55 | |||||||||||||
| Deferred taxes | — | — | (43) | (43) | |||||||||||||
| Other comprehensive income (loss) | (269) | 2 | (14) | (281) | |||||||||||||
| Less: Other comprehensive loss attributable to noncontrolling interests | (3) | — | — | (3) | |||||||||||||
| Less: Reallocation of AOCL based on change in ownership of BHH LLC Units | 275 | 1 | 32 | 308 | |||||||||||||
| Balance at December 31, 2022 | (2,666) | (9) | (296) | (2,971) | |||||||||||||
| Other comprehensive income (loss) before reclassifications | 153 | 12 | (14) | 151 | |||||||||||||
| Amounts reclassified from accumulated other comprehensive loss | — | (8) | 28 | 20 | |||||||||||||
| Deferred taxes | — | (1) | 5 | 4 | |||||||||||||
| Other comprehensive income (loss) | 153 | 3 | 19 | 175 | |||||||||||||
| Balance at December 31, 2023 | $ | (2,513) | $ | (6) | $ | (277) | $ | (2,796) |
Baker Hughes Company 2023 Form 10-K | 80
Baker Hughes Company
Notes to Consolidated Financial Statements
The amounts reclassified from accumulated other comprehensive loss during the years ended December 31, 2023 and 2022 represent (i) gains (losses) reclassified on cash flow hedges when the hedged transaction occurs, (ii) the amortization of net actuarial gain (loss), prior service credit, settlements, and curtailments which are included in the computation of net periodic pension cost (see "Note 10. Employee Benefit Plans" for additional details), and (iii) the release of foreign currency translation adjustments.
NOTE 14. 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) | 2023 | 2022 | 2021 | ||||||||
| Net income (loss) | $ | 1,970 | $ | (578) | $ | (330) | |||||
| Less: Net income (loss) attributable to noncontrolling interests | 27 | 23 | (111) | ||||||||
| Net income (loss) attributable to Baker Hughes Company | $ | 1,943 | $ | (601) | $ | (219) | |||||
| Weighted average shares outstanding: | |||||||||||
| Class A basic | 1,008 | 987 | 824 | ||||||||
| Class A diluted | 1,015 | 987 | 824 | ||||||||
| Net income (loss) per share attributable to common stockholders: | |||||||||||
| Class A basic | $ | 1.93 | $ | (0.61) | $ | (0.27) | |||||
| Class A diluted | $ | 1.91 | $ | (0.61) | $ | (0.27) |
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 nil, 30 million, and 215 million for the years ended December 31, 2023, 2022 and 2021, respectively. The basic weighted average shares outstanding for both our Class A and Class B common stock combined were 1,008 million, 1,017 million, and 1,039 million for the years ended December 31, 2023, 2022 and 2021, respectively.
For the year ended December 31, 2023, Class A diluted shares include the dilutive impact of equity awards except for approximately 2 million options that were excluded because the exercise price exceeded the average market price of our Class A common stock and is therefore antidilutive. For the years ended December 31, 2022, and 2021, we excluded all outstanding equity awards from the computation of diluted net loss per share because their effect is antidilutive.
NOTE 15. FINANCIAL INSTRUMENTS
RECURRING FAIR VALUE MEASUREMENTS
Our assets and liabilities measured at fair value on a recurring basis consist of derivative instruments and investment securities.
| 2023 | 2022 | |||||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Net Balance | Level 1 | Level 2 | Level 3 | Net Balance | |||||||||||||||||||
| Assets | ||||||||||||||||||||||||||
| Derivatives | $ | — | $ | 34 | $ | — | $ | 34 | $ | — | $ | 18 | $ | — | $ | 18 | ||||||||||
| Investment securities | 1,040 | — | 2 | 1,042 | 748 | — | — | 748 | ||||||||||||||||||
| Total assets | 1,040 | 34 | 2 | 1,076 | 748 | 18 | — | 766 | ||||||||||||||||||
| Liabilities | ||||||||||||||||||||||||||
| Derivatives | — | (76) | — | (76) | — | (86) | — | (86) | ||||||||||||||||||
| Total liabilities | $ | — | $ | (76) | $ | — | $ | (76) | $ | — | $ | (86) | $ | — | $ | (86) |
Baker Hughes Company 2023 Form 10-K | 81
Baker Hughes Company
Notes to Consolidated Financial Statements
| 2023 | 2022 | |||||||||||||||||||||||||
| Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Estimated Fair Value | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Estimated Fair Value | |||||||||||||||||||
| Investment securities (1) | ||||||||||||||||||||||||||
| Non-U.S. debt securities (2) | $ | 66 | $ | 1 | $ | — | $ | 67 | $ | — | $ | — | $ | — | $ | — | ||||||||||
| Equity securities | 527 | 451 | (3) | 975 | 557 | 191 | — | 748 | ||||||||||||||||||
| Total | $ | 593 | $ | 452 | $ | (3) | $ | 1,042 | $ | 557 | $ | 191 | $ | — | $ | 748 |
(1)Gains (losses) recorded to earnings related to these securities were $405 million, $(271) million and $(843) million for the years ended December 31, 2023, 2022, and 2021, respectively.
(2)As of December 31, 2023, our non-U.S. debt securities are classified as available for sale securities and mature within two years.
As of December 31, 2023 and 2022, the balance of our equity securities with readily determinable fair values is $975 million and $748 million, respectively, and is comprised mainly of our investment in ADNOC Drilling, and is recorded primarily in "All other current assets" in the consolidated statements of financial position. We measured our investments at fair value based on quoted prices in active markets.
Gains (losses) recorded to earnings for our equity securities with readily determinable fair values were $435 million, $(264) million, and $(843) million for the years ended December 31, 2023, 2022 and 2021, respectively. Gains (losses) related to our equity securities with readily determinable fair values are reported in "Other non-operating income (loss), net" in the consolidated statements of income (loss).
OTHER EQUITY INVESTMENTS
During the second quarter of 2023, certain equity securities without a readily determinable fair value were remeasured as of the date that an observable transaction occurred, which resulted in the Company recording a gain of $118 million. Gains (losses) related to our equity securities without readily determinable fair values are reported in "Other non-operating income (loss), net" in the consolidated statements of income (loss).
FAIR VALUE DISCLOSURE OF FINANCIAL INSTRUMENTS
Our financial instruments include cash and cash equivalents, current receivables, certain investments, accounts payable, short and long-term debt, and derivative financial instruments. Except for long-term debt, the estimated fair value of these financial instruments at December 31, 2023 and 2022 approximates their carrying value as reflected in our consolidated financial statements. For further information on the fair value of our debt, see "Note 9. Debt."
DERIVATIVES AND HEDGING
We use derivatives to manage our risks and do not use derivatives for speculation. The table below summarizes the fair value of all derivatives, including hedging instruments and embedded derivatives.
| 2023 | 2022 | |||||||||||||
| Assets | (Liabilities) | Assets | (Liabilities) | |||||||||||
| Derivatives accounted for as hedges | ||||||||||||||
| Currency exchange contracts | $ | 10 | $ | (3) | $ | 1 | $ | — | ||||||
| Interest rate swap contracts | — | (52) | — | (69) | ||||||||||
| Derivatives not accounted for as hedges | ||||||||||||||
| Currency exchange contracts and other | 24 | (21) | 17 | (17) | ||||||||||
| Total derivatives | $ | 34 | $ | (76) | $ | 18 | $ | (86) |
Derivatives are classified in the consolidated statements of financial position depending on their respective maturity date. As of December 31, 2023 and 2022, $31 million and $17 million of derivative assets are recorded in
Baker Hughes Company 2023 Form 10-K | 82
Baker Hughes Company
Notes to Consolidated Financial Statements
"All other current assets" and $3 million and $1 million are recorded in "All other assets" in the consolidated statements of financial position, respectively. As of December 31, 2023 and 2022, $23 million and $17 million of derivative liabilities are recorded in "All other current liabilities" and $53 million and $69 million are recorded in "All other liabilities" in the consolidated statements of financial position, respectively.
FORMS OF HEDGING
Cash Flow Hedges
We use cash flow hedging primarily to mitigate the effects of foreign exchange rate changes on purchase and sale contracts. Accordingly, the vast majority of our derivative activity in this category consists of currency exchange contracts. In addition, we are exposed to interest rate risk fluctuations in connection with long-term debt that we issue from time to time to fund our operations. Changes in the fair value of cash flow hedges are recorded in a separate component of equity (referred to as "Accumulated Other Comprehensive Income" or "AOCI") and are recorded in earnings in the period in which the hedged transaction occurs. See "Note 13. Equity" for further information on activity in AOCI for cash flow hedges. The maximum term of cash flow hedges that hedge forecasted transactions was approximately two years and one year at December 31, 2023 and 2022, respectively.
Fair Value Hedges
All of our long-term debt is comprised of fixed rate instruments. We are subject to interest rate risk on our debt portfolio and may use interest rate swaps to manage the economic effect of fixed rate obligations associated with certain debt. Under these arrangements, we agree to exchange, at specified intervals, the difference between fixed and floating interest amounts calculated by reference to an agreed-upon notional principal amount.
As of December 31, 2023 and 2022, 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. As of July 1, 2023, the interest rate changed to be based on a Secured Overnight Financing Rate index. 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.
NOTIONAL AMOUNT OF DERIVATIVES
The notional amount of a derivative is used to determine, along with the other terms of the derivative, the amounts to be exchanged between the counterparties. We disclose the derivative notional amounts on a gross basis to indicate the total counterparty risk but it does not generally represent amounts exchanged by us and the counterparties. A substantial majority of the outstanding notional amount of $4.2 billion and $3.8 billion at December 31, 2023 and 2022, respectively, is related to hedges of anticipated sales and purchases in foreign currency, commodity purchases, changes in interest rates, and contractual terms in contracts that are considered embedded derivatives and for intercompany borrowings in foreign currencies.
COUNTERPARTY CREDIT RISK
Fair values of our derivatives can change significantly from period to period based on, among other factors, market movements and changes in our positions. We manage counterparty credit risk (the risk that counterparties will default and not make payments to us according to the terms of our agreements) on an individual counterparty basis.
Baker Hughes Company 2023 Form 10-K | 83
Baker Hughes Company
Notes to Consolidated Financial Statements
NOTE 16. REVENUE RELATED TO CONTRACTS WITH CUSTOMERS
DISAGGREGATED REVENUE
We disaggregate our revenue from contracts with customers by product line for both our OFSE and IET segments, as we believe this best depicts how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors. In addition, management views revenue from contracts with customers for OFSE by geography based on the location to where the product is shipped or the services are performed.
Effective October 1, 2023, IET began operating through five product lines - Gas Technology Equipment, which will now include the Pumps business; Gas Technology Services; Industrial Solutions, which brings together the Condition Monitoring and PSI businesses, along with IET Digital initiatives; Industrial Products, which brings together the Inspection business merging with the Valves and Gears businesses; and a newly formed product line, Climate Technology Solutions, which will combine our carbon capture, utilization and storage ("CCUS"), hydrogen, clean power and emissions abatement capabilities, that previously was reported in each of the individual IET product lines, into one business focused on serving the energy transition. The financial information for 2022 and 2021 have been recast to conform to the new product line presentation.
The series of tables below present our revenue disaggregated by these categories.
| Total Revenue | 2023 | 2022 | 2021 | ||||||||
| Well Construction | $ | 4,387 | $ | 3,854 | $ | 3,301 | |||||
| Completions, Intervention & Measurements | 4,170 | 3,559 | 3,106 | ||||||||
| Production Solutions | 3,854 | 3,587 | 3,135 | ||||||||
| Subsea & Surface Pressure Systems | 2,950 | 2,230 | 2,486 | ||||||||
| Oilfield Services & Equipment | 15,361 | 13,229 | 12,028 | ||||||||
| Gas Technology Equipment | 4,232 | 2,599 | 3,039 | ||||||||
| Gas Technology Services | 2,600 | 2,440 | 2,696 | ||||||||
| Total Gas Technology | 6,832 | 5,039 | 5,735 | ||||||||
| Industrial Products | 1,962 | 1,697 | 1,598 | ||||||||
| Industrial Solutions | 983 | 884 | 880 | ||||||||
| Controls (1) | 41 | 208 | 217 | ||||||||
| Total Industrial Technology | 2,987 | 2,789 | 2,695 | ||||||||
| Climate Technology Solutions | 326 | 98 | 43 | ||||||||
| Industrial & Energy Technology | 10,145 | 7,926 | 8,473 | ||||||||
| Total | $ | 25,506 | $ | 21,156 | $ | 20,502 |
(1)The sale of Nexus Controls business was completed in April 2023.
| Oilfield Services & Equipment Geographic Revenue | 2023 | 2022 | 2021 | ||||||||
| North America | $ | 4,116 | $ | 3,764 | $ | 2,904 | |||||
| Latin America | 2,761 | 2,099 | 1,681 | ||||||||
| Europe/CIS/Sub-Saharan Africa | 2,655 | 2,483 | 2,865 | ||||||||
| Middle East/Asia | 5,829 | 4,883 | 4,579 | ||||||||
| Oilfield Services & Equipment | $ | 15,361 | $ | 13,229 | $ | 12,028 |
Baker Hughes Company 2023 Form 10-K | 84
Baker Hughes Company
Notes to Consolidated Financial Statements
REMAINING PERFORMANCE OBLIGATIONS
As of December 31, 2023, the aggregate amount of the transaction price allocated to the unsatisfied (or partially unsatisfied) performance obligations was $33.5 billion. As of December 31, 2023, we expect to recognize revenue of approximately 61%, 74% and 90% of the total remaining performance obligations within 2, 5, and 15 years, respectively, and the remaining thereafter. Contract modifications could affect both the timing to complete as well as the amount to be received as we fulfill the related remaining performance obligations.
NOTE 17. SEGMENT INFORMATION
The Company's segments are determined as those operations whose results are reviewed regularly by the chief operating decision maker ("CODM"), who is our Chief Executive Officer, in deciding how to allocate resources and assess performance. We report our operating results through two operating segments, OFSE and IET. Each segment is organized and managed based upon the nature of our markets and customers and consists of similar products and services. These products and services operate across upstream oil and gas and broader energy and industrial markets. The following is a description of each segment's business operations:
Oilfield Services & Equipment provides products and services for onshore and offshore oilfield operations across the lifecycle of a well, ranging from exploration, appraisal, and development, to production, rejuvenation, and decommissioning. OFSE is organized into four product lines: Well Construction, which encompasses drilling services, drill bits, and drilling & completions fluids; Completions, Intervention, and Measurements, which encompasses well completions, pressure pumping, and wireline services; Production Solutions, which spans artificial lift systems and oilfield & industrial chemicals; and Subsea & Surface Pressure Systems, which encompasses subsea projects services and drilling systems, surface pressure control, and flexible pipe systems. Beyond its traditional oilfield concentration, OFSE is expanding its capabilities and technology portfolio to meet the challenges of a net-zero future. These efforts include expanding into new energy areas such as geothermal and CCUS, strengthening its digital architecture and addressing key energy market themes.
Industrial & Energy Technology provides technology solutions and services for mechanical-drive, compression and power-generation applications across the energy industry, including oil and gas, LNG operations, downstream refining and petrochemical markets, as well as lower carbon solutions to broader energy and industrial sectors. IET also provides equipment, software, and services that serve a wide range of industries including petrochemical and refining, nuclear, aviation, automotive, mining, cement, metals, pulp and paper, and food and beverage. IET is organized into five product lines - Gas Technology Equipment, Gas Technology Services, Industrial Products, Industrial Solutions, and Climate Technology Solutions.
Revenue and operating income for each segment are used by the CODM to assess the performance of each segment in a financial period. The performance of our operating segments is evaluated based on segment operating income (loss), which is defined as income (loss) before income taxes before the following: net interest expense, net other non-operating income (loss), corporate expenses, restructuring, impairment and other charges, inventory impairments, and certain gains and losses not allocated to the operating segments. Consistent accounting policies have been applied by all segments within the Company, for all reporting periods. Intercompany revenue and expense amounts have been eliminated within each segment to report on the basis that management uses internally for evaluating segment performance. Summarized financial information for the Company's segments is shown in the following tables.
| Revenue | 2023 | 2022 | 2021 | ||||||||
| Oilfield Services & Equipment | $ | 15,361 | $ | 13,229 | $ | 12,028 | |||||
| Industrial & Energy Technology | 10,145 | 7,926 | 8,473 | ||||||||
| Total | $ | 25,506 | $ | 21,156 | $ | 20,502 |
Baker Hughes Company 2023 Form 10-K | 85
Baker Hughes Company
Notes to Consolidated Financial Statements
| Income before income taxes | 2023 | 2022 | 2021 | ||||||||
| Oilfield Services & Equipment | $ | 1,746 | $ | 1,201 | $ | 830 | |||||
| Industrial & Energy Technology | 1,310 | 1,135 | 1,177 | ||||||||
| Total segment | 3,055 | 2,336 | 2,006 | ||||||||
| Corporate | (380) | (416) | (429) | ||||||||
| Inventory impairment (1) | (35) | (31) | — | ||||||||
| Restructuring, impairment and other | (323) | (705) | (269) | ||||||||
| Other non-operating income (loss), net | 554 | (911) | (583) | ||||||||
| Interest expense, net | (216) | (252) | (299) | ||||||||
| Income (loss) before income taxes | $ | 2,655 | $ | 22 | $ | 428 |
(1)Charges for inventory impairments are reported in "Cost of goods sold" in the consolidated statements of income (loss).
The following table presents total assets at December 31:
| Assets | 2023 | 2022 | ||||||
| Oilfield Services & Equipment | $ | 17,925 | $ | 17,181 | ||||
| Industrial & Energy Technology | 13,781 | 12,286 | ||||||
| Total segment | 31,706 | 29,467 | ||||||
| Corporate and eliminations (1) | 5,239 | 4,714 | ||||||
| Total | $ | 36,945 | $ | 34,181 |
(1)The assets in Corporate and eliminations consist primarily of the Baker Hughes trade name, cash, and tax assets. It also includes adjustments to eliminate intercompany investments and receivables reflected within the total assets of each of our reportable segments.
The following table presents depreciation and amortization:
| Depreciation and amortization | 2023 | 2022 | 2021 | ||||||||
| Oilfield Services & Equipment | $ | 849 | $ | 845 | $ | 874 | |||||
| Industrial & Energy Technology | 217 | 197 | 208 | ||||||||
| Total segment | 1,066 | 1,042 | 1,082 | ||||||||
| Corporate | 21 | 19 | 23 | ||||||||
| Total | $ | 1,087 | $ | 1,061 | $ | 1,105 |
The following table presents capital expenditures:
| Capital expenditures | 2023 | 2022 | 2021 | ||||||||
| Oilfield Services & Equipment | $ | 960 | $ | 791 | $ | 659 | |||||
| Industrial & Energy Technology | 229 | 183 | 182 | ||||||||
| Total segment | 1,189 | 974 | 841 | ||||||||
| Corporate | 35 | 15 | 15 | ||||||||
| Total | $ | 1,224 | $ | 989 | $ | 856 |
Baker Hughes Company 2023 Form 10-K | 86
Baker Hughes Company
Notes to Consolidated Financial Statements
The following table presents consolidated revenue based on the location to where the product is shipped or the services are performed. Other than the U.S., no other country accounted for more than 10% of our consolidated revenue during the periods presented.
| Revenue | 2023 | 2022 | 2021 | ||||||||
| U.S. | $ | 6,557 | $ | 4,942 | $ | 4,497 | |||||
| Non-U.S. | 18,949 | 16,214 | 16,005 | ||||||||
| Total | $ | 25,506 | $ | 21,156 | $ | 20,502 |
The following table presents net property, plant and equipment by its geographic location at December 31:
| Property, plant and equipment - net | 2023 | 2022 | ||||||
| U.S. | $ | 1,579 | $ | 1,554 | ||||
| Non-U.S. | 3,314 | 2,984 | ||||||
| Total | $ | 4,893 | $ | 4,538 |
NOTE 18. RELATED PARTY TRANSACTIONS
We have an aeroderivative joint venture ("Aero JV") we formed with GE in 2019. The Aero JV is jointly controlled by GE and us, each with ownership interest of 50%, and therefore, we do not consolidate the Aero JV. We had purchases from the Aero JV of $517 million, $528 million, and $603 million during the years ended December 31, 2023, 2022 and 2021, respectively. We have $71 million and $110 million of accounts payable at December 31, 2023 and 2022, respectively, for products and services provided by the Aero JV in the ordinary course of business. Sales of products and services and related receivables with the Aero JV were immaterial for the years ended December 31, 2023, 2022 and 2021.
During the second quarter of 2022, GE's ownership interest in the Company and BHH LLC was reduced to less than 5%. As a result, considering all aspects of our relationship with GE, as of June 30, 2022, we no longer considered GE a related party. We had purchases with GE and its affiliates of $293 million during the six months ended June 30, 2022, and $716 million during the year ended December 31, 2021, respectively. In addition, we sold products and services to GE and its affiliates for $83 million during the six months ended June 30, 2022, and $185 million during the year ended December 31, 2021, respectively.
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.
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
Baker Hughes Company 2023 Form 10-K | 87
Baker Hughes Company
Notes to Consolidated Financial Statements
company, LLC, et al. No. 18-cv-09241 ("S.D.N.Y 2018"); this action was dismissed by the Court on August 13, 2019. In the arbitration, IEC alleges breach of contract and other claims against the Company and its subsidiaries and seeks recovery of alleged compensatory damages, in addition to reasonable attorneys' fees, expenses and arbitration costs. On March 15, 2019, IEC amended its request for arbitration to alleged damages of $591 million of lost profits plus unspecified additional costs based on alleged non-performance of the contracts in dispute. The arbitration hearing was held from December 9, 2019 to December 20, 2019. On March 3, 2020, IEC amended their damages claim to $700 million of alleged loss cash flow or, in the alternative, $244.9 million of lost profits and various costs based on alleged non-performance of the contracts in dispute, and in addition $4.8 million of liquidated damages, $58.6 million in take-or-pay costs of feed gas, and unspecified additional costs of rectification and take-or-pay future obligations, plus unspecified interest and attorneys' fees. On May 3, 2020, the arbitration panel dismissed IEC's request for take-or-pay damages. On May 29, 2020, IEC quantified their claim for legal fees at $14.2 million and reduced their alternative claim from $244.9 million to approximately $235 million. The Company and its subsidiaries have contested IEC's claims and are pursuing claims for compensation under the contracts. On October 31, 2020, the ICDR notified the arbitration panel's final award, which dismissed the majority of IEC's claims and awarded a portion of the Company's claims. On January 27, 2021, IEC filed a petition to vacate the arbitral award in the Supreme Court of New York, County of New York. On March 5, 2021, the Company filed a petition to confirm the arbitral award, and on March 8, 2021, the Company removed the matter to the United States District Court for the Southern District of New York. On November 16, 2021, the court granted the Company's petition to confirm the award and denied IEC's petition to vacate. During the second quarter of 2022, IEC paid the amounts owed under the arbitration award, which had an immaterial impact on the Company's financial statements. On February 3, 2022, IEC initiated another arbitration proceeding in New York administered by the ICDR against certain of the Company's subsidiaries arising out of the same project which formed the basis of the first arbitration. On March 25, 2022, the Company's subsidiaries initiated a separate demand for ICDR arbitration against IEC for claims of additional costs and amounts due; such claims against IEC have now been resolved, with any consideration having an immaterial impact on the Company's financial statements. At this time, we are not able to predict the outcome of the proceeding which is pending against the Company's subsidiaries.
On 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. On April 17, 2023, the Court granted the Special Litigation
Baker Hughes Company 2023 Form 10-K | 88
Baker Hughes Company
Notes to Consolidated Financial Statements
Committee's motion to terminate the litigation. On May 16, 2023, the plaintiffs filed a notice of appeal. On February 1, 2024, the Supreme Court of the State of Delaware affirmed the judgment of the Court of Chancery.
On or around February 15, 2023, the lead plaintiff and three additional named plaintiffs in a putative securities class action styled The Reckstin Family Trust, et al., v. C3.ai, Inc., et al., No. 4:22-cv-01413-HSG, filed an amended class action complaint (the "Amended Complaint") in the United States District Court for the Northern District of California. The Amended Complaint names the following as defendants: (i) C3.ai., Inc. ("C3 AI"), (ii) certain of C3 AI's current and/or former officers and directors, (iii) certain underwriters for the C3 AI initial public offering (the "IPO"), and (iv) the Company, and its President and CEO (who formerly served as a director on the board of C3 AI). The Amended Complaint alleges violations of the Securities Act of 1933 and the Securities Exchange Act of 1934 (the "Exchange Act") in connection with the IPO and the subsequent period between December 9, 2020 and December 2, 2021, during which BHH LLC held equity investments in C3 AI. The action seeks unspecified damages and the award of costs and expenses, including reasonable attorneys' fees. At this time, we are not able to predict the outcome of these proceedings.
We insure against risks arising from our business to the extent deemed prudent by our management and to the extent insurance is available, but no assurance can be given that the nature and amount of that insurance will be sufficient to fully indemnify us against liabilities arising out of pending or future legal proceedings or other claims. Most of our insurance policies contain deductibles or self-insured retentions in amounts we deem prudent and for which we are responsible for payment. In determining the amount of self-insurance, it is our policy to self-insure those losses that are predictable, measurable and recurring in nature, such as claims for automobile liability, general liability and workers compensation.
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 becomes available, accruals are adjusted to reflect current cost estimates.
OTHER
In the normal course of business with customers, vendors and others, we have entered into off-balance sheet arrangements, such as surety bonds for performance, letters of credit and other bank issued guarantees. We also provide a guarantee to GE Capital on behalf of a customer who entered into a financing arrangement with GE Capital. Total off-balance sheet arrangements were approximately $5.1 billion at December 31, 2023. It is not practicable to estimate the fair value of these financial instruments. As of December 31, 2023, 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, 2028 of $1,871 million, $366 million, $220 million, $215 million and $47 million, respectively, and $27 million in the aggregate thereafter.
We sometimes enter into consortium or similar arrangements for certain projects primarily in our OFSE segment. Under such arrangements, each party is responsible for performing a certain scope of work within the total scope of the contracted work, and the obligations expire when all contractual obligations are completed. The failure or inability, financially or otherwise, of any of the parties to perform their obligations could impose additional costs and obligations on us. These factors could result in unanticipated costs to complete the project, liquidated damages or contract disputes.
Baker Hughes Company 2023 Form 10-K | 89
Baker Hughes Company
Notes to Consolidated Financial Statements
NOTE 20. RESTRUCTURING, IMPAIRMENT AND OTHER
We recorded restructuring, impairment and other charges of $323 million, $705 million, and $269 million during the years ended December 31, 2023, 2022 and 2021, respectively.
RESTRUCTURING AND IMPAIRMENT CHARGES
In 2023, we recorded restructuring and impairment charges of $313 million. In 2022, we announced a corporate restructuring plan in conjunction with a change in our operating segments (the "2022 Plan"). We continued to incur charges in 2023 related to our 2022 Plan primarily for employee termination expenses. Restructuring charges for 2023 also include costs under a new plan (the "2023 Plan") primarily for employee termination expenses related to exit activities at specific locations in our segments to align with our market outlook and rationalize our manufacturing supply chain footprint. These actions also included inventory impairments of $35 million in 2023, recorded in "Cost of goods sold" in the consolidated statements of income (loss). In the fourth quarter of 2023, we incurred additional costs related to a planned workforce reduction, primarily in OFSE.
In 2022, we recorded restructuring and impairment charges of $196 million. The charges are related to our 2022 Plan and are primarily for employee termination expenses driven by actions taken by the Company to facilitate the reorganization into two segments and corporate restructuring. In addition, PP&E impairments and other costs were recorded related to exit activities at specific locations in the OFSE segment.
In 2021, we recorded restructuring and impairment charges totaling $138 million. Charges incurred were primarily related to the continuation of our overall strategy to restructure our business, which was designed to optimize our structural costs for the year-over-year change in activity levels and market conditions.
The following table presents the restructuring and impairment charges by the impacted segment; however, these net charges are not included in the reported segment results.
| 2023 | 2022 | 2021 | |||||||||
| Oilfield Services & Equipment | $ | 148 | $ | 121 | $ | 121 | |||||
| Industrial & Energy Technology | 98 | 36 | 11 | ||||||||
| Corporate | 67 | 39 | 6 | ||||||||
| Total | $ | 313 | $ | 196 | $ | 138 |
The following table presents restructuring and impairment charges by type, and includes gains on the dispositions of certain property, plant and equipment as a consequence of exit activities:
| 2023 | 2022 | 2021 | |||||||||
| Property, plant and equipment | $ | (2) | $ | 58 | $ | 7 | |||||
| Employee-related termination expenses | 270 | 121 | 99 | ||||||||
| Asset relocation costs | 5 | 3 | 20 | ||||||||
| Contract termination fees | 1 | 1 | 2 | ||||||||
| Other incremental costs | 39 | 13 | 10 | ||||||||
| Total | $ | 313 | $ | 196 | $ | 138 |
OTHER CHARGES
Other charges included in "Restructuring, impairment and other" in the consolidated statements of income (loss) were $10 million, $509 million, and $131 million for the years ended December 31, 2023, 2022 and 2021, respectively.
In 2022, other charges were primarily associated with the discontinuation of our Russia operations. As a result of the conflict between Russia and Ukraine, we took actions to suspend substantially all of our operational activities related to Russia. These actions resulted in other charges of $334 million recorded in the second quarter of 2022
Baker Hughes Company 2023 Form 10-K | 90
Baker Hughes Company
Notes to Consolidated Financial Statements
primarily associated with the suspension of contracts including all our IET LNG contracts, and the impairment of assets consisting primarily of contract assets, PP&E and reserve for accounts receivable. In addition to these charges, we recorded inventory impairments of $31 million primarily in IET as a result of suspending our Russia operations, which are reported in "Cost of goods sold" in the consolidated statements of income (loss).
In 2022, we also recorded other charges of $84 million in our OFSE segment primarily related to the impairment of PP&E and intangibles for the subsea production systems business due to a decrease in the estimated future cash flows driven by a decline in our long-term market outlook for this business, and $68 million in our IET segment primarily related to a write-off of an equity method investment and the release of foreign currency translation adjustments. In 2021, other charges were primarily related to certain litigation matters in our IET segment and the release of foreign currency translation adjustments for certain restructured product lines in our IET segment. The 2022 and 2021 charges also include separation related costs.
NOTE 21. BUSINESS DISPOSITIONS AND ACQUISITIONS
DISPOSITIONS
We completed several business dispositions over the past three years as described below. Any gain or loss on a business disposition is reported in "Other non-operating income (loss), net" in the consolidated statements of income (loss).
During 2023, we completed the sale of businesses and received total cash consideration $293 million. The dispositions consisted primarily of the sale of our Nexus Controls business in the IET segment to GE in April 2023, which resulted in an immaterial gain. Nexus Controls specializes in scalable industrial controls systems, safety systems, hardware, and software cybersecurity solutions and services. GE will continue to provide Baker Hughes with GE's MarkTM controls products currently in the Nexus Controls portfolio, and we will be the exclusive supplier and service provider of such GE products for our oil and gas customers' control needs.
The following table presents financial information related to the assets and liabilities of our Nexus Controls business classified as held for sale and reported in "All other current assets" and "All other current liabilities" in the consolidated statements of financial position as of December 31, 2022.
| Assets and liabilities of business held for sale | Nexus Controls | ||||
| Assets | |||||
| Current receivables | $ | 59 | |||
| Inventories | 36 | ||||
| Property, plant and equipment | 2 | ||||
| Goodwill | 230 | ||||
| Other assets | 10 | ||||
| Total assets of business held for sale | 337 | ||||
| Liabilities | |||||
| Accounts payable | 30 | ||||
| All other current liabilities | 56 | ||||
| Other liabilities | 7 | ||||
| Total liabilities of business held for sale | 93 | ||||
| Total net assets of business held for sale | $ | 244 |
During 2022, we sold part of our OFSE Russia business to local management for a nominal amount, which resulted in a loss before income taxes of $451 million.
During 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
Baker Hughes Company 2023 Form 10-K | 91
Baker Hughes Company
Notes to Consolidated Financial Statements
OFSE 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 resulted in an immaterial gain.
ACQUISITIONS
During 2023, we completed the acquisition of businesses for total cash consideration of $301 million, net of cash acquired, which consisted primarily of the acquisition of Altus Intervention in the OFSE segment in April 2023. Altus Intervention is a leading international provider of well intervention services and downhole technology. The assets acquired and liabilities assumed in these acquisitions were recorded based on preliminary estimates of their fair values as of the acquisition date. As a result of these acquisitions, we recorded $138 million of goodwill and $58 million of intangible assets, subject to final fair value adjustments. Pro forma results of operations for these acquisitions have not been presented because the effects of these acquisitions were not material to our consolidated financial statements.
During 2022, we completed several acquisitions for total cash consideration of $767 million, net of cash acquired of $50 million, subject to the finalization of post-closing working capital adjustments. The transactions have been accounted for using the acquisition method of accounting and accordingly, assets acquired and liabilities assumed were recorded at their fair values as of the acquisition date. As a result of these acquisitions, we recorded $458 million of goodwill and $211 million of intangible assets. Pro forma results of operations for these acquisitions have not been presented because the effects of these acquisitions were not material to our consolidated financial statements.
NOTE 22. SUPPLEMENTARY INFORMATION
ALL OTHER CURRENT LIABILITIES
All other current liabilities as of December 31, 2023 and 2022 include $1,346 million and $837 million, respectively, of employee related liabilities.
ALLOWANCE FOR CREDIT LOSSES
The following table presents the change in allowance for credit losses:
| 2023 | 2022 | |||||||
| Balance at beginning of year | $ | 341 | $ | 400 | ||||
| Provision | 79 | 69 | ||||||
| Write-offs | (26) | (34) | ||||||
| Prior year recoveries | (31) | (44) | ||||||
| Other | (13) | (50) | ||||||
| Balance at end of year | $ | 350 | $ | 341 |
CASH FLOW DISCLOSURES
Supplemental cash flow disclosures consist of the following:
| 2023 | 2022 | 2021 | |||||||||
| Income taxes paid, net of refunds | $ | 595 | $ | 498 | $ | 314 | |||||
| Interest paid | $ | 309 | $ | 291 | $ | 305 |
Baker Hughes Company 2023 Form 10-K | 92
Previous: Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK · Next: Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE