filings.toolsItem 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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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, 2024. 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 Executive Vice President and Chief Financial Officer | /s/ REBECCA CHARLTON Rebecca Charlton Senior Vice President, Controller and Chief Accounting Officer |
Houston, Texas
February 4, 2025
Baker Hughes Company 2024 Form 10-K | 51
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, 2024 and 2023, 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, 2024, 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, 2024 and 2023, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2024, 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, 2024, 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 4, 2025 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 2024 Form 10-K | 52
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 4, 2025
Baker Hughes Company 2024 Form 10-K | 53
REPORT OF 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, 2024, 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, 2024, 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, 2024 and 2023, 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, 2024, and the related notes (collectively, the consolidated financial statements), and our report dated February 4, 2025 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 4, 2025
Baker Hughes Company 2024 Form 10-K | 54
BAKER HUGHES COMPANY
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
| Year Ended December 31, | |||||||||||
| (In millions, except per share amounts) | 2024 | 2023 | 2022 | ||||||||
| Revenue: | |||||||||||
| Sales of goods | $ | 17,810 | $ | 15,617 | $ | 12,236 | |||||
| Sales of services | 10,019 | 9,889 | 8,920 | ||||||||
| Total revenue | 27,829 | 25,506 | 21,156 | ||||||||
| Costs and expenses: | |||||||||||
| Cost of goods sold | 14,792 | 13,309 | 10,445 | ||||||||
| Cost of services sold | 7,197 | 6,946 | 6,311 | ||||||||
| Selling, general and administrative | 2,458 | 2,611 | 2,510 | ||||||||
| Restructuring, impairment and other | 301 | 323 | 705 | ||||||||
| Total costs and expenses | 24,748 | 23,189 | 19,971 | ||||||||
| Operating income | 3,081 | 2,317 | 1,185 | ||||||||
| Other non-operating income (loss), net | 382 | 554 | (911) | ||||||||
| Interest expense, net | (198) | (216) | (252) | ||||||||
| Income before income taxes | 3,265 | 2,655 | 22 | ||||||||
| Provision for income taxes | (257) | (685) | (600) | ||||||||
| Net income (loss) | 3,008 | 1,970 | (578) | ||||||||
| Less: Net income attributable to noncontrolling interests | 29 | 27 | 23 | ||||||||
| Net income (loss) attributable to Baker Hughes Company | $ | 2,979 | $ | 1,943 | $ | (601) | |||||
| Per share amounts: | |||||||||||
| Basic income (loss) per Class A common share | $ | 3.00 | $ | 1.93 | $ | (0.61) | |||||
| Diluted income (loss) per Class A common share | $ | 2.98 | $ | 1.91 | $ | (0.61) | |||||
| Cash dividend per Class A common share | $ | 0.84 | $ | 0.78 | $ | 0.73 | |||||
See accompanying Notes to Consolidated Financial Statements
Baker Hughes Company 2024 Form 10-K | 55
BAKER HUGHES COMPANY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
| Year Ended December 31, | |||||||||||
| (In millions) | 2024 | 2023 | 2022 | ||||||||
| Net income (loss) | $ | 3,008 | $ | 1,970 | $ | (578) | |||||
| Less: Net income attributable to noncontrolling interests | 29 | 27 | 23 | ||||||||
| Net income (loss) attributable to Baker Hughes Company | 2,979 | 1,943 | (601) | ||||||||
| Other comprehensive income (loss): | |||||||||||
| Foreign currency translation adjustments | (350) | 153 | (269) | ||||||||
| Cash flow hedges | (1) | 3 | 2 | ||||||||
| Benefit plans | (14) | 19 | (14) | ||||||||
| Other comprehensive income (loss) | (365) | 175 | (281) | ||||||||
| Less: Other comprehensive loss attributable to noncontrolling interests | — | — | (3) | ||||||||
| Other comprehensive income (loss) attributable to Baker Hughes Company | (365) | 175 | (278) | ||||||||
| Comprehensive income (loss) | 2,643 | 2,145 | (859) | ||||||||
| Less: Comprehensive income attributable to noncontrolling interests | 29 | 27 | 20 | ||||||||
| Comprehensive income (loss) attributable to Baker Hughes Company | $ | 2,614 | $ | 2,118 | $ | (879) |
See accompanying Notes to Consolidated Financial Statements
Baker Hughes Company 2024 Form 10-K | 56
BAKER HUGHES COMPANY
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
| December 31, | ||||||||
| (In millions, except par value) | 2024 | 2023 | ||||||
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash and cash equivalents | $ | 3,364 | $ | 2,646 | ||||
| Current receivables, net | 7,122 | 7,075 | ||||||
| Inventories, net | 4,954 | 5,094 | ||||||
| All other current assets | 1,771 | 1,486 | ||||||
| Total current assets | 17,211 | 16,301 | ||||||
| Property, plant and equipment, less accumulated depreciation | 5,127 | 4,893 | ||||||
| Goodwill | 6,078 | 6,137 | ||||||
| Other intangible assets, net | 3,951 | 4,093 | ||||||
| Contract and other deferred assets | 1,730 | 1,756 | ||||||
| Deferred income tax assets | 1,284 | 722 | ||||||
| All other assets | 2,982 | 3,043 | ||||||
| Total assets | $ | 38,363 | $ | 36,945 | ||||
| LIABILITIES AND EQUITY | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable | $ | 4,542 | $ | 4,471 | ||||
| Short-term and current portion of long-term debt | 53 | 148 | ||||||
| Progress collections and deferred income | 5,672 | 5,542 | ||||||
| All other current liabilities | 2,724 | 2,830 | ||||||
| Total current liabilities | 12,991 | 12,991 | ||||||
| Long-term debt | 5,970 | 5,872 | ||||||
| Liabilities for pensions and other postretirement benefits | 988 | 978 | ||||||
| Deferred income tax liabilities | 83 | 176 | ||||||
| All other liabilities | 1,276 | 1,409 | ||||||
| Equity: | ||||||||
| Class A common stock, $0.0001 par value - 2,000 authorized, 990 and 998 issued and outstanding as of December 31, 2024 and 2023, respectively | — | — | ||||||
| Class B common stock, $0.0001 par value - 1,250 authorized, nil issued and outstanding as of December 31, 2024 and 2023 | — | — | ||||||
| Capital in excess of par value | 25,896 | 26,983 | ||||||
| Retained loss | (5,840) | (8,819) | ||||||
| Accumulated other comprehensive loss | (3,161) | (2,796) | ||||||
| Baker Hughes Company equity | 16,895 | 15,368 | ||||||
| Noncontrolling interests | 160 | 151 | ||||||
| Total equity | 17,055 | 15,519 | ||||||
| Total liabilities and equity | $ | 38,363 | $ | 36,945 |
See accompanying Notes to Consolidated Financial Statements
Baker Hughes Company 2024 Form 10-K | 57
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, 2021 | — | $ | 27,375 | $ | (10,160) | $ | (2,385) | $ | 1,916 | $ | 16,746 | ||||||||||||
| Comprehensive 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) | |||||||||||||||||||||
| 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 | (48) | (15) | ||||||||||||||||||||
| 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 | |||||||||||||||||
| Comprehensive income (loss): | |||||||||||||||||||||||
| Net income | 2,979 | 29 | 3,008 | ||||||||||||||||||||
| Other comprehensive loss | (365) | (365) | |||||||||||||||||||||
| Dividends on Class A Common Stock ($0.84 per share) | (836) | (836) | |||||||||||||||||||||
| Repurchase and cancellation of Class A common stock | (484) | (484) | |||||||||||||||||||||
| Stock-based compensation cost | 202 | 202 | |||||||||||||||||||||
| Other | 31 | (20) | 11 | ||||||||||||||||||||
| Balance at December 31, 2024 | — | $ | 25,896 | $ | (5,840) | $ | (3,161) | $ | 160 | $ | 17,055 |
See accompanying Notes to Consolidated Financial Statements
Baker Hughes Company 2024 Form 10-K | 58
BAKER HUGHES COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
| Year Ended December 31, | |||||||||||
| (In millions) | 2024 | 2023 | 2022 | ||||||||
| Cash flows from operating activities: | |||||||||||
| Net income (loss) | $ | 3,008 | $ | 1,970 | $ | (578) | |||||
| Adjustments to reconcile net income (loss) to net cash flows from operating activities: | |||||||||||
| Depreciation and amortization | 1,136 | 1,087 | 1,061 | ||||||||
| (Benefit) provision for deferred income taxes | (671) | (59) | 105 | ||||||||
| (Gain) loss on equity securities | (367) | (555) | 265 | ||||||||
| Stock-based compensation cost | 202 | 197 | 207 | ||||||||
| Property, plant and equipment impairment, net | 77 | (1) | 166 | ||||||||
| (Gain) loss on business dispositions | — | (40) | 451 | ||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Current receivables | (159) | (986) | (625) | ||||||||
| Inventories | (102) | (461) | (885) | ||||||||
| Accounts payable | 91 | 61 | 605 | ||||||||
| Progress collections and deferred income | 273 | 1,639 | 1,103 | ||||||||
| Contract and other deferred assets | (96) | (211) | (76) | ||||||||
| Other operating items, net | (60) | 421 | 89 | ||||||||
| Net cash flows provided by operating activities | 3,332 | 3,062 | 1,888 | ||||||||
| Cash flows from investing activities: | |||||||||||
| Expenditures for capital assets | (1,278) | (1,224) | (989) | ||||||||
| Proceeds from disposal of assets | 203 | 208 | 217 | ||||||||
| Proceeds from sale of equity securities | 92 | 372 | 26 | ||||||||
| Proceeds from business dispositions | — | 293 | — | ||||||||
| Net cash paid for acquisitions | — | (301) | (767) | ||||||||
| Other investing items, net | (33) | (165) | (51) | ||||||||
| Net cash flows used in investing activities | (1,016) | (817) | (1,564) | ||||||||
| Cash flows from financing activities: | |||||||||||
| Repayment of long-term debt | (143) | (651) | — | ||||||||
| Dividends paid | (836) | (786) | (726) | ||||||||
| Repurchase of Class A common stock | (484) | (538) | (828) | ||||||||
| Other financing items, net | (64) | (53) | (38) | ||||||||
| Net cash flows used in financing activities | (1,527) | (2,028) | (1,592) | ||||||||
| Effect of currency exchange rate changes on cash and cash equivalents | (71) | (59) | (97) | ||||||||
| Increase (decrease) in cash and cash equivalents | 718 | 158 | (1,365) | ||||||||
| Cash and cash equivalents, beginning of period | 2,646 | 2,488 | 3,853 | ||||||||
| Cash and cash equivalents, end of period | $ | 3,364 | $ | 2,646 | $ | 2,488 | |||||
| Supplemental cash flows disclosures: | |||||||||||
| Income taxes paid, net of refunds | $ | 1,040 | $ | 595 | $ | 498 | |||||
| Interest paid | $ | 298 | $ | 309 | $ | 291 |
See accompanying Notes to Consolidated Financial Statements
Baker Hughes Company 2024 Form 10-K | 59
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 the Company has determined it is 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 the 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. The Company bases its estimates and judgments on historical experience and on various other assumptions and information that it believes 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 the Company's operating environment changes. While the Company believes 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 the Company's 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
The Company recognizes 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
Baker Hughes Company 2024 Form 10-K | 60
Baker Hughes Company
Notes to Consolidated Financial Statements
measurement criteria in assessing the progress toward completion. The Company's estimate of costs to be incurred to fulfill its promise to a customer is based on the Company's history of manufacturing similar assets for customers and is updated routinely to reflect changes in quantity or pricing of the inputs. The Company begins to recognize revenue on these contracts when the contract specific inventory becomes customized for a customer, which is reflective of its initial transfer of control of the incurred costs. The Company provides for potential losses on any of these agreements when it is probable that it will incur the loss.
The Company's billing terms for these over time contracts vary, but are generally based on achieving specified milestones. The differences between the timing of the Company's revenue recognized (based on costs incurred) and customer billings (based on contractual terms) results in changes to its contract asset or contract liability positions.
Performance Obligations Satisfied at a Point In Time
The Company recognizes revenue for non-customized equipment at the point in time that the customer obtains control of the good. Equipment for which the Company recognizes revenue at a point in time includes equipment manufactured on a standardized basis for sale to the market. The Company uses 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 the Company sells equipment with a right of return. The Company uses its accumulated experience to estimate and provide for such returns when it records the sale. In situations where arrangements include customer acceptance provisions based on seller or customer-specified objective criteria, the Company recognizes revenue when it has concluded that the customer has control of the equipment and that acceptance has or is likely to occur.
The Company's 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
The Company sells product services under long-term product maintenance or extended warranty agreements in the Industrial & Energy Technology ("IET") segment. These agreements require the Company 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. The Company recognizes related sales based on the extent of its progress toward completion measured by actual costs incurred in relation to total expected costs. The Company provides for any loss that it expects 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.
The Company's 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 the Company's revenue recognized (based on costs incurred) and customer billings (based on contractual terms) results in changes to its contract asset or contract liability positions.
Baker Hughes Company 2024 Form 10-K | 61
Baker Hughes Company
Notes to Consolidated Financial Statements
Performance Obligations Satisfied at a Point In Time
The Company sells certain tangible products, largely spare equipment, through its services business. The Company recognizes revenue for this equipment at the point in time that the customer obtains control of the good, which is at the point in time the Company delivers the spare part to the customer. The Company's billing terms for these point in time service contracts vary, but are generally based on shipment of the equipment to the customer.
Research and Development
Research and development costs are expensed as incurred and relate to the research and development of new products and services. Research and development costs were $643 million, $651 million, and $552 million for the years ended December 31, 2024, 2023 and 2022, respectively, net of related funding received from third parties. Research and development expenses are 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
The Company monitors its customers' payment history and current creditworthiness to determine that collectability of the related financial assets is reasonably assured. The Company also considers the overall business climate in which its customers operate. The Company does not generally require collateral in support of its current receivables, but it may require payment in advance or security in the form of a letter of credit or a bank guarantee. 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.
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, the Company records provisions and maintains reserves for excess, slow moving and obsolete inventory. To determine these reserve amounts, the Company regularly reviews inventory quantities on hand and compares 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. The Company manufactures a substantial portion of its tools and equipment in the Oilfield Services & Equipment ("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.
Goodwill and Other Long-Lived Assets
The Company performs an annual impairment test of goodwill on a qualitative or quantitative basis for each of the reporting units as of July 1, in conjunction with its 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, the Company has 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, the Company would then be required to perform a quantitative impairment assessment of goodwill. However, if the assessment leads to a determination that
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Notes to Consolidated Financial Statements
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 transactions and discounted cash flow approaches. Potential impairment indicators include, but are not limited to, (i) the results of the Company's 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 the Company's market capitalization below its book value, and the magnitude and duration of those declines, if any.
The Company amortizes 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.
The Company reviews 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, the Company groups its 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.
Leases
The Company enters into various contractual arrangements for the right to use facilities and equipment. At contract inception, management evaluates whether each of these arrangements contains a lease and classifies all identified leases as either operating or finance. If the arrangement is subsequently modified, the classification is re-evaluated. Upon commencement of the lease, management recognizes a lease liability and corresponding right-of-use ("ROU") asset. Lease assets are tested for impairment in the same manner as other long-lived assets.
Financial Instruments
The Company's financial instruments include cash and equivalents, current receivables, investments, accounts payables, short and long-term debt, and derivative financial instruments.
The Company monitors its exposure to various business risks including commodity prices, interest rates, and foreign currency exchange rates, and it regularly uses derivative financial instruments to manage these risks. At the inception of a new derivative, the Company designates the derivative as a hedge, or it determines the derivative to be undesignated as a hedging instrument. The Company documents the relationships between the hedging instruments and the hedged items, as well as its risk management objectives and strategy for undertaking various hedge transactions. The Company assesses 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.
The Company records all derivatives as of the end of its reporting period in the consolidated statements of financial position at fair value. For the forward contracts held as undesignated hedging instruments, the Company records the changes in fair value in the 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 the Company 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,
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Baker Hughes Company
Notes to Consolidated Financial Statements
internal information that is consistent with what market participants would use in a hypothetical transaction that occurs at the measurement date.
Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect our market assumptions. Preference is given to observable inputs and the Company maintains policies and procedures to identify, monitor and assess the reasonableness of these inputs to the valuation. 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.
Recurring Fair Value Measurements
Derivatives
When the Company has Level 1 derivatives, which are traded either on exchanges or liquid markets, the Company uses closing prices for valuation. The majority of the Company's 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, the Company uses 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), the Company uses 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 the Company uses valuations that are based on significant unobservable inputs, it classifies 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 the Company sells a controlling interest and retains a noncontrolling stake in the entity.
Investments in Equity Securities
Investments in equity securities (in which the Company does not have a controlling financial interest or significant influence, most often because it holds 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 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
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Baker Hughes Company
Notes to Consolidated Financial Statements
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 the Company does not have a controlling financial interest, but over which it has significant influence, most often because it holds a voting interest of 20% to 50%. At December 31, 2024 and 2023, the aggregate carrying amount of the Company's equity method investments was $1,080 million and $979 million, respectively. The results of the Company's equity method investments are presented in the consolidated statements of income (loss) as follows: (i) if the investment is integral to the Company's operations, their results are included in "Selling, general and administrative," and (ii) if the investment is not integral to the Company's 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
The Company files U.S. federal and state income tax returns which primarily includes its distributive share of items of income, gain, loss, and deduction of Baker Hughes Holdings LLC ("BHH LLC"), its 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 is 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.
The Company accounts 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 the Company's tax expense and in evaluating its tax positions, including evaluating uncertainties. The Company's tax filings are subject to audit by the tax authorities in the jurisdictions where it conducts business. These audits may result in assessments of additional taxes that are resolved with the tax authorities or through the courts. The Company has provided for the amounts that it believes will ultimately result from these proceedings. The Company recognizes 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, the Company measures 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. The Company classifies 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
Under the supply chain finance ("SCF") programs, administered by a third party, the Company's suppliers are given the opportunity to sell receivables from the Company to participating financial institutions at their sole discretion at a rate that leverages the Company's credit rating and thus might be more beneficial to the Company's suppliers. The Company's responsibility is limited to making payment on the terms originally negotiated with the Company's supplier, regardless of whether the supplier sells its receivable to a financial institution. The range of payment terms the Company negotiates with its suppliers is consistent, irrespective of whether a supplier participates in the program.
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Baker Hughes Company
Notes to Consolidated Financial Statements
As of December 31, 2024 and 2023, $411 million and $332 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. See "Note 22. Supplementary Information" for further information on the changes in the Company's SCF program liabilities.
NEW ACCOUNTING STANDARDS ADOPTED
The Company has adopted ASU 2023-07, "Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures" ("ASU 2023-07"), effective retrospectively for the fiscal year ended December 31, 2024. ASU 2023-07 enhances the disclosures required for operating segments in the Company's annual and interim consolidated financial statements. As a result of this adoption, the Company's segment disclosure now includes significant expense categories. The Company's primary segment measure remains unchanged. See "Note 17. Segment Information" for the enhanced disclosures associated with the adoption of ASU 2023-07.
NEW ACCOUNTING STANDARDS TO BE ADOPTED
In November 2024, the FASB issued ASU 2024-03, "Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures" ("ASU 2024-03"), which enhances the disclosures required for certain expense captions in the Company's annual and interim consolidated financial statements. ASU 2024-03 is effective prospectively or retrospectively for fiscal years beginning after December 15, 2026 and for interim periods beginning after December 15, 2027. Early adoption is permitted. The Company is currently evaluating the impact of this standard on its disclosures.
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, which allows for early adoption, is effective for the Company prospectively to all annual periods beginning after December 15, 2024. The Company continues to evaluate the impact of this standard on its 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 the Company's financial position or results of operations.
NOTE 2. CURRENT RECEIVABLES
Current receivables consist of the following at December 31:
| 2024 | 2023 | |||||||
| Customer receivables | $ | 5,945 | $ | 6,033 | ||||
| Other | 1,409 | 1,392 | ||||||
| Total current receivables | 7,354 | 7,425 | ||||||
| Less: Allowance for credit losses | (232) | (350) | ||||||
| Total current receivables, net | $ | 7,122 | $ | 7,075 |
Customer receivables are recorded at the invoiced amount. The "Other" category consists primarily of advance payments to suppliers and indirect taxes.
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Baker Hughes Company
Notes to Consolidated Financial Statements
The Company's customer receivables are spread over a broad and diverse group of customers across many countries. As of December 31, 2024, 16% of our gross customer receivables were from customers in the U.S. and 10% were from customers in Mexico. As of December 31, 2023, 19% of our gross customer receivables were from customers in the U.S. and 11% were from customers in Mexico. No other country accounted for more than 10% of our gross customer receivables at this date.
See "Note 22. Supplementary Information" for further information on the changes in the allowance for credit losses.
NOTE 3. INVENTORIES
Inventories, net of reserves of $390 million and $389 million in 2024 and 2023, respectively, consist of the following at December 31:
| 2024 | 2023 | |||||||
| Finished goods | $ | 2,494 | $ | 2,626 | ||||
| Work in process and raw materials | 2,460 | 2,468 | ||||||
| Total inventories, net | $ | 4,954 | $ | 5,094 |
For the years ended December 31, 2024 and 2023, the Company recorded inventory impairments of $73 million and $35 million, respectively, primarily in the OFSE 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 | 2024 | 2023 | |||||||||
| Land and improvements | 8 - 10 years (1) | $ | 297 | $ | 332 | ||||||
| Buildings, structures and related equipment | 5 - 40 years | 2,347 | 2,264 | ||||||||
| Machinery, equipment and other | 1 - 20 years | 8,539 | 7,974 | ||||||||
| Total cost | 11,183 | 10,570 | |||||||||
| Less: Accumulated depreciation | (6,056) | (5,678) | |||||||||
| Property, plant and equipment, less accumulated depreciation | $ | 5,127 | $ | 4,893 |
(1)Useful life excludes land.
Depreciation expense relating to property, plant and equipment was $870 million, $830 million and $839 million for the years ended December 31, 2024, 2023 and 2022, respectively. See "Note 20. Restructuring, Impairment and Other" for additional information on property, plant and equipment impairments.
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Notes to Consolidated Financial Statements
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, 2022, gross | $ | 19,708 | $ | 4,752 | $ | 24,460 | |||||
| Accumulated impairment at December 31, 2022 | (18,276) | (254) | (18,530) | ||||||||
| 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 | ||||||||
| Currency exchange and other | 6 | (65) | (59) | ||||||||
| Balance at December 31, 2024 | $ | 1,547 | $ | 4,531 | $ | 6,078 |
As a result of the Company's goodwill impairment assessment performed in the year ended December 31, 2024, there were no goodwill impairments deemed necessary.
OTHER INTANGIBLE ASSETS
Intangible assets consist of the following at December 31:
| 2024 | 2023 | |||||||||||||||||||
| Gross Carrying Amount | Accumulated Amortization | Net | Gross Carrying Amount | Accumulated Amortization | Net | |||||||||||||||
| Customer relationships | $ | 1,921 | $ | (883) | $ | 1,038 | $ | 1,945 | $ | (818) | $ | 1,127 | ||||||||
| Technology | 1,248 | (981) | 267 | 1,253 | (899) | 354 | ||||||||||||||
| Trade names and trademarks | 290 | (196) | 94 | 290 | (186) | 104 | ||||||||||||||
| Capitalized software | 1,522 | (1,172) | 350 | 1,413 | (1,107) | 306 | ||||||||||||||
| Finite-lived intangible assets | 4,981 | (3,232) | 1,749 | 4,901 | (3,010) | 1,891 | ||||||||||||||
| Indefinite-lived intangible assets | 2,202 | — | 2,202 | 2,202 | — | 2,202 | ||||||||||||||
| Total intangible assets | $ | 7,183 | $ | (3,232) | $ | 3,951 | $ | 7,103 | $ | (3,010) | $ | 4,093 |
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 $266 million, $257 million and $222 million for the years ended December 31, 2024, 2023 and 2022, respectively. No impairment for indefinite-lived intangible assets were recorded in 2024.
Estimated amortization expense for each of the subsequent five fiscal years is expected to be as follows:
| Year | Estimated Amortization Expense | ||||
| 2025 | $ | 235 | |||
| 2026 | 192 | ||||
| 2027 | 171 | ||||
| 2028 | 148 | ||||
| 2029 | 122 |
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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 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. The Company's long-term product service agreements are provided by the IET segment. The Company's long-term equipment contracts are provided by both the IET and OFSE segments. Contract assets consist of the following at December 31:
| 2024 | 2023 | |||||||
| Long-term product service agreements | $ | 346 | $ | 418 | ||||
| Long-term equipment contracts and certain other service agreements | 1,247 | 1,184 | ||||||
| Contract assets (total revenue in excess of billings) | 1,593 | 1,602 | ||||||
| Deferred inventory costs | 124 | 126 | ||||||
| Other costs to fulfill or obtain a contract | 13 | 28 | ||||||
| Contract and other deferred assets | $ | 1,730 | $ | 1,756 |
Revenue recognized during the years ended December 31, 2024 and 2023 from performance obligations satisfied (or partially satisfied) in previous years related to long-term service agreements was $(11) million and $15 million, respectively. This includes revenue recognized from revisions to cost or billing estimates that may affect a contract's total estimated profitability.
NOTE 7. PROGRESS COLLECTIONS AND DEFERRED INCOME
Contract liabilities include progress collections, which reflects billings in excess of revenue, and deferred income on 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:
| 2024 | 2023 | |||||||
| Progress collections | $ | 5,550 | $ | 5,405 | ||||
| Deferred income | 122 | 137 | ||||||
| Progress collections and deferred income (contract liabilities) | $ | 5,672 | $ | 5,542 |
Revenue recognized during the years ended December 31, 2024 and 2023 that was included in the contract liabilities at the beginning of the year was $4,398 million and $2,999 million, respectively.
NOTE 8. LEASES
The Company's leasing activities primarily consist of operating leases for service centers, manufacturing facilities, sales and administrative offices, and certain equipment.
The following table presents operating lease expense:
| Operating Lease Expense | 2024 | 2023 | 2022 | ||||||||
| Long-term fixed lease | $ | 292 | $ | 276 | $ | 254 | |||||
| Long-term variable lease | 76 | 73 | 48 | ||||||||
| Short-term lease | 511 | 503 | 477 | ||||||||
| Total operating lease expense | $ | 879 | $ | 852 | $ | 779 |
Cash flows used in operating activities for operating leases approximate lease expense for the years ended December 31, 2024, 2023 and 2022.
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Baker Hughes Company
Notes to Consolidated Financial Statements
As of December 31, 2024, maturities of operating lease liabilities are as follows:
| Year | Operating Leases | |||||||
| 2025 | $ | 221 | ||||||
| 2026 | 147 | |||||||
| 2027 | 99 | |||||||
| 2028 | 72 | |||||||
| 2029 | 54 | |||||||
| Thereafter | 210 | |||||||
| Total lease payments | 803 | |||||||
| Less: imputed interest | 130 | |||||||
| Total | $ | 673 |
Amounts recognized in the consolidated statements of financial position for operating leases consist of the following:
| 2024 | 2023 | |||||||
| All other current liabilities | $ | 198 | $ | 220 | ||||
| All other liabilities | 475 | 549 | ||||||
| Total | $ | 673 | $ | 769 |
Right-of-use assets of $678 million and $769 million as of December 31, 2024 and 2023, respectively, are included in "All other assets" in the consolidated statements of financial position. The weighted-average remaining lease term for the Company's operating leases was approximately seven years for the years ended December 31, 2024 and 2023. The weighted-average discount rate used to determine the operating lease liability as of December 31, 2024 and 2023 was 4.3% and 3.9%, respectively.
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Notes to Consolidated Financial Statements
NOTE 9. DEBT
The carrying value of the Company's short-term and long-term debt consists of the following at December 31:
| 2024 | 2023 | |||||||||||||
| Amount | Effective Interest Rate (1) | Amount | Effective Interest Rate (1) | |||||||||||
| Short-term and current portion of long-term debt | ||||||||||||||
| 8.55% Debentures due June 2024 (2) | $ | — | — | % | $ | 109 | 4.1 | % | ||||||
| Other debt | 53 | 4.6 | % | 39 | 4.9 | % | ||||||||
| Total short-term and current portion of long-term debt | 53 | 148 | ||||||||||||
| Long-term debt | ||||||||||||||
| 2.061% Senior Notes due December 2026 | 599 | 2.4 | % | 598 | 2.4 | % | ||||||||
| 3.337% Senior Notes due December 2027 | 1,302 | 5.4 | % | 1,294 | 5.3 | % | ||||||||
| 6.875% Notes due January 2029 (2) | 262 | 3.9 | % | 268 | 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 | % | 498 | 4.6 | % | ||||||||
| 5.125% Senior Notes due September 2040 (2) | 1,275 | 4.2 | % | 1,281 | 4.2 | % | ||||||||
| 4.080% Senior Notes due December 2047 | 1,338 | 4.1 | % | 1,338 | 4.1 | % | ||||||||
| Other long-term debt | 173 | 4.2 | % | 73 | 6.3 | % | ||||||||
| Total long-term debt | 5,970 | 5,872 | ||||||||||||
| Total debt | $ | 6,023 | $ | 6,020 |
(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 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, 2024 and 2023, these adjustments resulted in a net increase to the carrying value of the Company's debt totaling $91 million and $95 million, respectively. The estimated fair value of total debt at December 31, 2024 and 2023 was $5,409 million and $5,571 million, respectively. For a majority of the Company's debt, the fair value was determined using quoted period-end market prices. Where market prices are not available, the Company estimates fair values based on valuation methodologies using current market interest rate data adjusted for non-performance risk.
Maturities of debt for each of the five years in the period ending December 31, 2029, and in the aggregate thereafter, are listed in the table below:
| 2025 | 2026 | 2027 | 2028 | 2029 | Thereafter | |||||||||||||||
| Total debt | $ | 53 | $ | 607 | $ | 1,310 | $ | — | $ | 885 | $ | 3,169 |
The Company has a $3.0 billion committed unsecured revolving credit facility ("the Credit Agreement") with commercial banks maturing in November 2028. The Credit Agreement contains certain representations and warranties, certain affirmative covenants and negative covenants, in each case considered customary. No related events of default have occurred. The Credit Agreement is fully and unconditionally guaranteed on a senior unsecured basis by Baker Hughes. At December 31, 2024 and 2023, there were no borrowings under the Credit Agreement.
Baker Hughes Co-Obligor, Inc. is a co-obligor, jointly and severally with BHH LLC on the Company's long-term debt securities. This co-obligor is a 100%-owned finance subsidiary of BHH LLC that was incorporated for the sole
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Baker Hughes Company
Notes to Consolidated Financial Statements
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, 2024, Baker Hughes Co-Obligor, Inc. is a co-obligor of certain debt securities totaling $5.8 billion.
Certain Senior Notes contain covenants that restrict the Company's ability to take certain actions, including, but not limited to, the creation of certain liens securing debt, the entry into certain sale-leaseback transactions, and engaging in certain merger, consolidation and asset sale transactions in excess of specified limits. At December 31, 2024, the Company was in compliance with all debt covenants.
NOTE 10. EMPLOYEE BENEFIT PLANS
DEFINED BENEFIT PLANS
The Company maintains Company sponsored pension plans for certain of its employees. The Company also maintains unfunded end-of-service benefit plans that are mandated in certain countries in which it operates. The Company's primary plans disclosed in 2024 included three 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. The Company also provides 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 $28 million and $33 million at December 31, 2024 and 2023, respectively.
Funded Status
The funded status position represents the difference between the benefit obligation and the plan assets. The Company's primary plans consist of six 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.
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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 the Company's defined benefit plans ("Pension Benefits").
| Pension Benefits | ||||||||||||||
| 2024 | 2023 | |||||||||||||
| Change in benefit obligation: | ||||||||||||||
| Benefit obligation at beginning of year | $ | 2,443 | $ | 2,634 | ||||||||||
| Service cost | 16 | 15 | ||||||||||||
| Interest cost | 107 | 116 | ||||||||||||
| Actuarial gain (1) | (148) | (4) | ||||||||||||
| Benefits paid | (92) | (126) | ||||||||||||
| Settlements | (227) | (4) | ||||||||||||
| Settlement due to plan termination (2) | — | (246) | ||||||||||||
| Foreign currency translation adjustments | (15) | 58 | ||||||||||||
| Benefit obligation at end of year | 2,084 | 2,443 | ||||||||||||
| Change in plan assets: | ||||||||||||||
| Fair value of plan assets at beginning of year | 2,080 | 2,266 | ||||||||||||
| Actual return on plan assets | (73) | 121 | ||||||||||||
| Employer contributions | 66 | 18 | ||||||||||||
| Benefits paid | (92) | (126) | ||||||||||||
| Settlements | (227) | (4) | ||||||||||||
| Settlement due to plan termination (2) | — | (246) | ||||||||||||
| Other | (39) | — | ||||||||||||
| Foreign currency translation adjustments | (7) | 51 | ||||||||||||
| Fair value of plan assets at end of year | 1,708 | 2,080 | ||||||||||||
| Funded status - underfunded at end of year | $ | (376) | $ | (363) | ||||||||||
| Accumulated benefit obligation | $ | 2,039 | $ | 2,399 |
(1)The actuarial gain in 2024 was primarily related to a change in the discount rate used to measure the benefit obligation for the Company's plans.
(2)Plan termination relates to the termination of one of the Company's 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 | ||||||||||||||
| 2024 | 2023 | |||||||||||||
| Noncurrent assets | $ | 43 | $ | 78 | ||||||||||
| Current liabilities | (28) | (17) | ||||||||||||
| Noncurrent liabilities | (391) | (424) | ||||||||||||
| Net amount recognized | $ | (376) | $ | (363) |
Baker Hughes Company 2024 Form 10-K | 73
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 | ||||||||||||||
| 2024 | 2023 | |||||||||||||
| Projected benefit obligation | $ | 1,180 | $ | 1,410 | ||||||||||
| Accumulated benefit obligation | $ | 1,135 | $ | 1,366 | ||||||||||
| Fair value of plan assets | $ | 761 | $ | 968 |
The Company has 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 the Company's obligations of the BH SPP, the Company established a trust comprised primarily of mutual fund assets. The value of these assets was $36 million as of December 31, 2024 and 2023, 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 | |||||||||||||||||||||||||||||
| 2024 | 2023 | 2022 | |||||||||||||||||||||||||||
| Service cost | $ | 16 | $ | 15 | $ | 23 | |||||||||||||||||||||||
| Interest cost | 107 | 116 | 78 | ||||||||||||||||||||||||||
| Expected return on plan assets | (118) | (102) | (114) | ||||||||||||||||||||||||||
| Amortization of prior service credit | 1 | 1 | 1 | ||||||||||||||||||||||||||
| Amortization of net actuarial loss | 18 | 19 | 27 | ||||||||||||||||||||||||||
| Curtailment / settlement loss | 20 | (16) | 2 | ||||||||||||||||||||||||||
| Net periodic cost | $ | 44 | $ | 33 | $ | 17 |
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, the Company discounts the future payments using a rate that matches the time frame over which the payments are expected to be made. The Company also needs 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 the Company's 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 | ||||||||||||||
| 2024 | 2023 | |||||||||||||
| Discount rate | 5.22 | % | 4.54 | % | ||||||||||
| Rate of compensation increase | 3.31 | % | 3.26 | % | ||||||||||
| Interest crediting rate | 4.46 | % | 3.98 | % | ||||||||||
Baker Hughes Company 2024 Form 10-K | 74
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 | ||||||||||||||||||||
| 2024 | 2023 | 2022 | ||||||||||||||||||
| Discount rate | 4.54 | % | 4.89 | % | 2.15 | % | ||||||||||||||
| Expected long-term return on plan assets | 5.97 | % | 5.05 | % | 3.85 | % | ||||||||||||||
| Interest crediting rate | 3.98 | % | 4.31 | % | 2.60 | % |
The Company determines 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 the Company's 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, the Company considers 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 the Company's defined benefit plans consists of the following at December 31:
| Pension Benefits | ||||||||||||||
| 2024 | 2023 | |||||||||||||
| Net actuarial loss | $ | 338 | $ | 333 | ||||||||||
| Net prior service cost | 14 | 15 | ||||||||||||
| Total | $ | 352 | $ | 348 |
Plan Assets
The Company has an investment committee that meets regularly to review portfolio returns and to determine asset-mix targets based on asset/liability studies. Third-party investment consultants assist the committee in developing asset allocation strategies to determine the Company's expected rates of return and expected risk for various investment portfolios. The investment committee 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 2024 Form 10-K | 75
Baker Hughes Company
Notes to Consolidated Financial Statements
The table below presents the fair value of the plan assets at December 31:
| 2024 | 2023 | |||||||
| Debt securities | ||||||||
| Fixed income and cash investment funds | $ | 1,253 | $ | 1,122 | ||||
| Equity securities | ||||||||
| Global equity securities (1) | 73 | 227 | ||||||
| U.S. equity securities (1) | 107 | 157 | ||||||
| Insurance contracts | 92 | 103 | ||||||
| Real estate | 3 | 34 | ||||||
| Private equities | 45 | 35 | ||||||
| Other investments (2) | 135 | 402 | ||||||
| Total plan assets | $ | 1,708 | $ | 2,080 |
(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 $1,557 million and $1,967 million as of December 31, 2024 and 2023, respectively. The percentages of plan assets valued using NAV by investment fund type for equity securities, fixed income and cash, and alternative investments were 12%, 80%, and 8% as of December 31, 2024, respectively, and 20%, 57%, and 23% as of December 31, 2023, 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 $151 million and $113 million as of December 31, 2024 and 2023, respectively. There were investments classified within Level 3 of $92 million and $103 million for non U.S. insurance contracts as of December 31, 2024 and 2023, respectively.
Other
In March 2024, the Company initiated the termination of one of its frozen U.S. defined benefit pension plans (the "Plan"), which would result in the full settlement of the Company's Plan obligations, which at December 31, 2024 was $131 million. The distribution of Plan assets from the pension trust fund pursuant to the termination will not be made until the Plan termination satisfies all regulatory requirements, which the Company currently expects to occur by the end of 2025. The Company does not expect the termination to have a material impact on its financial condition, results of operations, or cash flows.
Funding Policy
The funding policy for the Company's 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 it may determine to be appropriate. In 2024, the Company contributed approximately $66 million, which includes benefit payments made directly to the employee for its unfunded plans. The Company anticipates it will contribute between approximately $25 million to $30 million to its pension plans in 2025.
Baker Hughes Company 2024 Form 10-K | 76
Baker Hughes Company
Notes to Consolidated Financial Statements
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 | |||||||||||||||||||
| 2025 | $ | 249 | ||||||||||||||||||
| 2026 | 120 | |||||||||||||||||||
| 2027 | 121 | |||||||||||||||||||
| 2028 | 123 | |||||||||||||||||||
| 2029 | 128 | |||||||||||||||||||
| 2030-2034 | 636 |
DEFINED CONTRIBUTION PLANS
The Company's primary defined contribution plan during 2024 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 addition, the Company makes 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. The Company's costs for the 401(k) Plan and several other U.S. and non-U.S. defined contribution plans amounted to $180 million and $217 million in 2024 and 2023, respectively.
The Company has two non-qualified defined contribution plans that are invested through trusts. The assets and corresponding liabilities were $300 million and $281 million at December 31, 2024 and 2023, 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:
| 2024 | 2023 | 2022 | |||||||||
| Current: | |||||||||||
| U.S. | $ | 39 | $ | 33 | $ | 6 | |||||
| Foreign | 889 | 711 | 489 | ||||||||
| Total current | 928 | 744 | 495 | ||||||||
| Deferred: | |||||||||||
| U.S. | (556) | (27) | 40 | ||||||||
| Foreign | (115) | (32) | 65 | ||||||||
| Total deferred | (671) | (59) | 105 | ||||||||
| Provision for income taxes | $ | 257 | $ | 685 | $ | 600 |
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 2024, the Company is not subject to the Corporate Alternative Minimum Tax.
Baker Hughes Company 2024 Form 10-K | 77
Baker Hughes Company
Notes to Consolidated Financial Statements
The geographic sources of income before income taxes consist of the following:
| 2024 | 2023 | 2022 | |||||||||
| U.S. | $ | 1,099 | $ | 882 | $ | (698) | |||||
| Foreign | 2,166 | 1,773 | 720 | ||||||||
| Income before income taxes | $ | 3,265 | $ | 2,655 | $ | 22 |
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:
| 2024 | 2023 | 2022 | |||||||||
| Income before income taxes | $ | 3,265 | $ | 2,655 | $ | 22 | |||||
| Taxes at the U.S. federal statutory income tax rate | 686 | 558 | 5 | ||||||||
| Effect of foreign operations (2) | 269 | 112 | 338 | ||||||||
| Tax impact of partnership structure | (40) | (103) | 6 | ||||||||
| Change in valuation allowances (1) | (625) | 53 | 164 | ||||||||
| Tax expense (benefit) due to unrecognized tax benefits | 38 | (5) | (7) | ||||||||
| Other - net | (71) | 70 | 94 | ||||||||
| Provision for income taxes | $ | 257 | $ | 685 | $ | 600 | |||||
| Actual income tax rate | 7.9 | % | 25.8 | % | 2,727.3 | % |
(1)For December 31, 2024 and 2023, this amount was reduced by $664 million and $81 million, respectively, 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 the Company's Russia operations.
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. From December 31, 2023, U.S. deferred tax assets and liabilities are 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 2024 Form 10-K | 78
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:
| 2024 | 2023 | |||||||
| Deferred tax assets: | ||||||||
| Operating & capital loss carryforwards | $ | 3,442 | $ | 3,332 | ||||
| Tax credit & other carryforwards | 772 | 936 | ||||||
| Investment in partnerships & subsidiaries | 276 | 286 | ||||||
| Property, plant and equipment | 250 | 168 | ||||||
| Employee benefits | 278 | 241 | ||||||
| Goodwill and other intangible assets | 198 | 137 | ||||||
| Receivables | 150 | 111 | ||||||
| Inventory | 150 | 73 | ||||||
| Other | 376 | 352 | ||||||
| Total deferred income tax asset | 5,892 | 5,636 | ||||||
| Valuation allowances | (3,908) | (4,416) | ||||||
| Total deferred income tax asset after valuation allowance | 1,984 | 1,220 | ||||||
| Deferred tax liabilities: | ||||||||
| Indefinite-lived intangible assets | (377) | (380) | ||||||
| Fair value of derivative financial instruments | (166) | (90) | ||||||
| Other | (240) | (204) | ||||||
| Total deferred income tax liability | (783) | (674) | ||||||
| Net deferred tax asset | $ | 1,201 | $ | 546 |
At December 31, 2024, the Company had approximately $404 million of non-U.S. tax credits and other carryforwards which may be carried forward indefinitely under applicable foreign law, $230 million of U.S. foreign tax credits and $138 million of other U.S. Federal and state tax credits and other carryforwards, the majority of which have expiration dates after tax year 2027 under U.S. Federal and state tax law. Additionally, the Company had $3,413 million of net operating loss carryforwards ("NOLs"), of which approximately $329 million have expiration dates within five years, $1,988 million have expiration dates between six years and 20 years, and the remainder can be carried forward indefinitely. Lastly, the Company had $29 million of capital loss carryforwards, the majority of which can be carried forward indefinitely.
The Company routinely assesses the recoverability of its deferred tax assets, giving consideration to a range of factors including, but not limited to the pattern of historical taxable income generation, current performance, including active contractual arrangements and the forecasted business outlook across operating jurisdictions. The ultimate realization of the deferred tax assets depends on a number of factors including the ability to generate sufficient taxable income of the appropriate character in the future and in the appropriate taxing jurisdictions. A valuation allowance is recorded (or maintained) when it is more likely than not that some portion or all of the deferred tax assets will not be realized. As of December 31, 2024, the Company assessed both positive and negative evidence, with significant weight given to objective and verifiable factors such as recent taxable income levels and credit utilization. Based on this evaluation, including consideration of our projected future taxable earnings, the Company concluded that it is more likely than not that its U.S. deferred tax assets are recoverable. Accordingly, the Company released the associated valuation allowance, resulting in a tax benefit of $664 million (20% impact to the effective tax rate) in 2024.
Baker Hughes Company 2024 Form 10-K | 79
Baker Hughes Company
Notes to Consolidated Financial Statements
At December 31, 2024, $3,908 million of valuation allowances are recorded against various deferred tax assets, primarily related to foreign operating and capital losses of $3,161 million and non-U.S. tax credit carryforwards of $401 million. The following table presents the change in the valuation allowances during the year:
| 2024 | 2023 | |||||||
| Balance at the beginning of the year | $ | 4,416 | $ | 4,090 | ||||
| Release in the U.S., net of current year non-U.S. activity | (625) | 53 | ||||||
| Other | 117 | 273 | ||||||
| Balance at end of year | $ | 3,908 | $ | 4,416 |
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, 2024, the cumulative amount of undistributed foreign earnings is approximately $4,659 million. Computation of the potential deferred tax liability associated with these undistributed earnings and any other basis differences is not practicable.
At December 31, 2024, the Company had $455 million of tax liabilities for total gross unrecognized tax benefits related to uncertain tax positions. In addition to these uncertain tax positions, the Company had $81 million and $66 million related to interest and penalties, respectively, for total liabilities of $602 million for uncertain positions. If the Company were to prevail on all uncertain positions, the net effect would result in an income tax benefit of approximately $534 million. The remaining $68 million is comprised of $42 million for deferred tax assets that represent tax benefits that would be received in different taxing jurisdictions or in a different character and $26 million increased valuation allowances.
The following table presents the changes in the Company's gross unrecognized tax benefits included in the consolidated statements of financial position.
| Asset / (Liability) | 2024 | 2023 | ||||||
| Balance at beginning of year | $ | (467) | $ | (496) | ||||
| Additions for tax positions of the current year | (17) | (15) | ||||||
| Additions for tax positions of prior years | (51) | (50) | ||||||
| Reductions for tax positions of prior years | 28 | 32 | ||||||
| Settlements with tax authorities | 24 | 26 | ||||||
| Lapse of statute of limitations | 28 | 36 | ||||||
| Balance at end of year | $ | (455) | $ | (467) |
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 the Company operates. At December 31, 2024, the Company had approximately $110 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.
The Company conducts business in more than 120 countries and is subject to income taxes in most taxing jurisdictions in which it operates, 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. The Company believes that it has made adequate provision for all income tax uncertainties in all jurisdictions.
Baker Hughes Company 2024 Form 10-K | 80
Baker Hughes Company
Notes to Consolidated Financial Statements
NOTE 12. STOCK-BASED COMPENSATION
The Company has the Long-Term Incentive Plan ("LTI Plan") under which it 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 its 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 19.2 million shares of Class A common stock are available for issuance as of December 31, 2024.
Stock-based compensation cost was $202 million, $197 million and $207 million for the years ended December 31, 2024, 2023 and 2022, 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, the Company has 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
The Company may grant to its 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. The Company determines the fair value of RSUs based on the market price of its common stock on the date of grant.
The following table presents the changes in RSUs outstanding and related information (in thousands, except per unit prices):
| Number of Units | Weighted Average Grant Date Fair Value Per Unit | |||||||
| Unvested balance at December 31, 2023 | 12,113 | $ | 27.70 | |||||
| Granted | 6,724 | 28.78 | ||||||
| Vested | (6,175) | 26.15 | ||||||
| Forfeited | (1,168) | 29.21 | ||||||
| Unvested balance at December 31, 2024 | 11,494 | $ | 29.02 |
In 2024, the total intrinsic value of RSUs vested (defined as the value of shares awarded based on the price of the Company's common stock at vesting date) was $188 million and unvested RSUs was $471 million. The total grant date fair value of RSUs vested in 2024 was $161 million. As of December 31, 2024, there was $179 million of total unrecognized compensation cost related to unvested RSUs, which is expected to be recognized over a weighted average period of 1.81 years.
Performance Share Units
The Company 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 the Company's common stock on the date of grant. The fair value of the PSU awards is determined based on a Monte Carlo simulation method.
Baker Hughes Company 2024 Form 10-K | 81
Baker Hughes Company
Notes to Consolidated Financial Statements
The following table presents the changes in PSUs outstanding and related information (in thousands, except per unit prices):
| Number of Units | Weighted Average Grant Date Fair Value Per Unit | |||||||
| Unvested balance at December 31, 2023 | 2,828 | $ | 28.70 | |||||
| Granted | 869 | 29.73 | ||||||
| Vested | (984) | 34.09 | ||||||
| Forfeited | (171) | 31.26 | ||||||
| Unvested balance at December 31, 2024 | 2,542 | $ | 31.17 |
The total intrinsic value of PSUs vested and unvested, (defined as the value of the shares awarded at the year-end market price) was $31 million and $104 million, respectively, as of December 31, 2024. The total grant date fair value of PSUs vested in 2024 was $34 million. Total unrecognized compensation cost related to unvested PSUs, which is expected to be recognized over a weighted average period of 1.72 years, was $38 million as of December 31, 2024.
Stock Options
The Company previously granted stock options to its 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. The Company has not granted stock options to officers, directors, or key employees since 2019.
The following table presents the changes in stock options outstanding and related information (in thousands, except per option prices):
| Number of Options | Weighted Average Exercise Price Per Option | |||||||
| Outstanding at December 31, 2023 | 2,241 | $ | 33.92 | |||||
| Exercised | (391) | 33.21 | ||||||
| Expired | (425) | 41.10 | ||||||
| Outstanding and exercisable at December 31, 2024 | 1,425 | $ | 31.99 |
The weighted average remaining contractual term for options outstanding and options exercisable at December 31, 2024 was 3.1 years. The maximum contractual term of options outstanding is 4.1 years.
The total intrinsic value of stock options exercised (defined as the amount by which the market price of the Company's common stock on the date of exercise exceeds the exercise price of the option) in 2024 was $3 million. The total intrinsic value of stock options outstanding and options exercisable at December 31, 2024 was $13 million. The intrinsic value of stock options outstanding is calculated as the amount by which the quoted price of $41.02 of the Company's common stock as of the end of 2024 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 the Company's 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.
Baker Hughes Company 2024 Form 10-K | 82
Baker Hughes Company
Notes to Consolidated Financial Statements
A total of 21.5 million shares of Class A common stock are authorized for issuance, and at December 31, 2024, there were 6.9 million shares of Class A common stock reserved for future issuance.
NOTE 13. EQUITY
COMMON STOCK
The Company is 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 has a par value of $0.0001 per share. As of December 31, 2024 and 2023, there were no shares of Class B common stock issued and outstanding. The Company has not issued any preferred stock.
The Company has a share repurchase program which it expects to fund from cash generated from operations, and it expects 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 2024 and 2023, the Company repurchased and canceled 15.2 million and 16.3 million shares of Class A common stock, each for $484 million and $538 million, representing an average price per share of $31.78 and $33.09, respectively. As of December 31, 2024, the Company had authorization remaining to repurchase up to approximately $1.7 billion of its Class A common stock.
The following table presents the changes in the number of shares outstanding (in thousands):
| Class A Common Stock | ||||||||
| 2024 | 2023 | |||||||
| Balance at beginning of year | 997,709 | 1,005,960 | ||||||
| Issue of shares upon vesting of restricted stock units (1) | 4,975 | 5,738 | ||||||
| Issue of shares on exercise of stock options (1) | 389 | 434 | ||||||
| Issue of shares for employee stock purchase plan | 1,814 | 1,846 | ||||||
| Repurchase and cancellation of Class A common stock | (15,241) | (16,269) | ||||||
| Balance at end of year | 989,646 | 997,709 |
(1) Share amounts reflected above are net of shares withheld to satisfy the employee's tax withholding obligation.
During 2024 and 2023, the Company declared and paid aggregate regular dividends of $0.84 and $0.78 per share, respectively, to holders of record of the Company's Class A common stock.
Baker Hughes Company 2024 Form 10-K | 83
Baker Hughes Company
Notes to Consolidated Financial Statements
ACCUMULATED OTHER COMPREHENSIVE LOSS
The following tables present the changes in accumulated other comprehensive loss, net of tax:
| Foreign Currency Translation Adjustments | Cash Flow Hedges | Benefit Plans | Accumulated Other Comprehensive Loss | ||||||||||||||
| Balance at December 31, 2022 | $ | (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 | 153 | 3 | 19 | 175 | |||||||||||||
| Balance at December 31, 2023 | (2,513) | (6) | (277) | (2,796) | |||||||||||||
| Other comprehensive income (loss) before reclassifications | (350) | 9 | (46) | (387) | |||||||||||||
| Amounts reclassified from accumulated other comprehensive loss | — | (11) | 32 | 21 | |||||||||||||
| Deferred taxes | — | 1 | — | 1 | |||||||||||||
| Other comprehensive income (loss) | (350) | (1) | (14) | (365) | |||||||||||||
| Balance at December 31, 2024 | $ | (2,863) | $ | (7) | $ | (291) | $ | (3,161) |
The amounts reclassified from accumulated other comprehensive loss during the years ended December 31, 2024 and 2023 represent (i) gains (losses) reclassified on cash flow hedges when the hedged transaction occurs, and (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).
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) | 2024 | 2023 | 2022 | ||||||||
| Net income (loss) | $ | 3,008 | $ | 1,970 | $ | (578) | |||||
| Less: Net income attributable to noncontrolling interests | 29 | 27 | 23 | ||||||||
| Net income (loss) attributable to Baker Hughes Company | $ | 2,979 | $ | 1,943 | $ | (601) | |||||
| Weighted average shares outstanding: | |||||||||||
| Class A basic | 994 | 1,008 | 987 | ||||||||
| Class A diluted | 1,001 | 1,015 | 987 | ||||||||
| Net income (loss) per share attributable to common stockholders: | |||||||||||
| Class A basic | $ | 3.00 | $ | 1.93 | $ | (0.61) | |||||
| Class A diluted | $ | 2.98 | $ | 1.91 | $ | (0.61) |
For the years ended December 31, 2024 and 2023, Class A diluted shares include the dilutive impact of equity awards except for approximately 1 million and 2 million options, respectively, that were excluded because the exercise price exceeded the average market price of the Company's Class A common stock and is therefore antidilutive. For the year ended December 31, 2022, the Company excluded all outstanding equity awards from the computation of diluted net loss per share because their effect is antidilutive.
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Baker Hughes Company
Notes to Consolidated Financial Statements
NOTE 15. FINANCIAL INSTRUMENTS
RECURRING FAIR VALUE MEASUREMENTS
The Company's assets and liabilities measured at fair value on a recurring basis consist of derivative instruments and investment securities.
| 2024 | 2023 | |||||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Net Balance | Level 1 | Level 2 | Level 3 | Net Balance | |||||||||||||||||||
| Assets | ||||||||||||||||||||||||||
| Derivatives | $ | — | $ | 11 | $ | — | $ | 11 | $ | — | $ | 34 | $ | — | $ | 34 | ||||||||||
| Investment securities | 1,282 | — | 2 | 1,284 | 1,040 | — | 2 | 1,042 | ||||||||||||||||||
| Total assets | 1,282 | 11 | 2 | 1,295 | 1,040 | 34 | 2 | 1,076 | ||||||||||||||||||
| Liabilities | ||||||||||||||||||||||||||
| Derivatives | — | (64) | — | (64) | — | (76) | — | (76) | ||||||||||||||||||
| Total liabilities | $ | — | $ | (64) | $ | — | $ | (64) | $ | — | $ | (76) | $ | — | $ | (76) |
| 2024 | 2023 | |||||||||||||||||||||||||
| 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) | $ | 3 | $ | — | $ | — | $ | 3 | $ | 66 | $ | 1 | $ | — | $ | 67 | ||||||||||
| Equity securities | 544 | 737 | — | 1,281 | 527 | 451 | (3) | 975 | ||||||||||||||||||
| Total | $ | 547 | $ | 737 | $ | — | $ | 1,284 | $ | 593 | $ | 452 | $ | (3) | $ | 1,042 |
(1)Net gains (losses) recorded to earnings related to these securities were $341 million, $405 million and $(271) million for the years ended December 31, 2024, 2023, and 2022, respectively.
(2)As of December 31, 2024, the Company's non-U.S. debt securities are classified as available for sale securities and mature in approximately one year.
As of December 31, 2024 and 2023, the balance of the Company's equity securities with readily determinable fair values is $1,281 million and $975 million, respectively, and is comprised mainly of the Company's investment in Abu Dhabi National Oil Company Drilling, and is recorded primarily in "All other current assets" in the consolidated statements of financial position. The Company measured its investments at fair value based on quoted prices in active markets.
Net gains (losses) recorded to earnings for the Company's equity securities with readily determinable fair values were $366 million, $435 million, and $(264) million for the years ended December 31, 2024, 2023 and 2022, respectively. Gains (losses) related to the Company's 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 2024, no observable transactions occurred on the Company's equity securities without a readily determinable fair value. During 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 the Company's 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
The Company's financial instruments include cash and cash equivalents, receivables, certain investments,
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Baker Hughes Company
Notes to Consolidated Financial Statements
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, 2024 and 2023 approximates their carrying value as reflected in the consolidated financial statements. For further information on the fair value of the Company's debt, see "Note 9. Debt."
DERIVATIVES AND HEDGING
The Company uses derivatives to manage its risks and does not use derivatives for speculation. The table below summarizes the fair value of all derivatives, including hedging instruments and embedded derivatives.
| 2024 | 2023 | |||||||||||||
| Assets | (Liabilities) | Assets | (Liabilities) | |||||||||||
| Derivatives accounted for as hedges | ||||||||||||||
| Currency exchange contracts | $ | 2 | $ | (2) | $ | 10 | $ | (3) | ||||||
| Interest rate swap contracts | — | (45) | — | (52) | ||||||||||
| Derivatives not accounted for as hedges | ||||||||||||||
| Currency exchange contracts and other | 9 | (17) | 24 | (21) | ||||||||||
| Total derivatives | $ | 11 | $ | (64) | $ | 34 | $ | (76) |
Derivatives are classified in the consolidated statements of financial position depending on their respective maturity date. As of December 31, 2024 and 2023, $9 million and $31 million of derivative assets are recorded in "All other current assets" and $3 million and $3 million are recorded in "All other assets" in the consolidated statements of financial position, respectively. As of December 31, 2024 and 2023, $16 million and $23 million of derivative liabilities are recorded in "All other current liabilities" and $50 million and $53 million are recorded in "All other liabilities" in the consolidated statements of financial position, respectively.
During 2024, the Company issued credit default swaps ("CDS") in the total of $553 million to third-party financial institutions. The CDS relate to borrowings provided by these financial institutions to a customer in Mexico who utilized these borrowings to pay certain of the Company's outstanding receivables. The total notional amount remaining on the issued CDS was $412 million as of December 31, 2024, which will reduce each month through September 2026 as the customer repays the borrowings. The fair value of these derivative liabilities is not material.
FORMS OF HEDGING
Cash Flow Hedges
The Company uses cash flow hedging primarily to mitigate the effects of foreign exchange rate changes on purchase and sale contracts. Accordingly, the vast majority of derivative activity in this category consists of currency exchange contracts. In addition, the Company is exposed to interest rate risk fluctuations in connection with long-term debt that it issues from time to time to fund its 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 one year and two years at December 31, 2024 and 2023, respectively.
Fair Value Hedges
All of the Company's long-term debt is comprised of fixed rate instruments. The Company is subject to interest rate risk on its debt portfolio and may use interest rate swaps to manage the economic effect of fixed rate obligations associated with certain debt. Under these arrangements, the Company agrees to exchange, at specified intervals, the difference between fixed and floating interest amounts calculated by reference to an agreed-upon notional principal amount.
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Baker Hughes Company
Notes to Consolidated Financial Statements
As of December 31, 2024 and 2023, the Company had interest rate swaps with a notional amount of $500 million that converted a portion of its $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 Secured Overnight Financing Rate index. The Company concluded that the interest rate swap met the criteria necessary to qualify for hedge accounting, and as such, the changes in this fair value hedge are recorded as gains or losses in interest expense and are equally offset by the gains or losses of the underlying debt instrument, which are also 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. The Company discloses the derivative notional amounts on a gross basis to indicate the total counterparty risk but it does not generally represent amounts exchanged by the Company and the counterparties. A substantial majority of the outstanding notional amount of $4.0 billion and $4.2 billion at December 31, 2024 and 2023, 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 the Company's derivatives can change significantly from period to period based on, among other factors, market movements and changes in the Company's positions. The Company manages counterparty credit risk (the risk that counterparties will default and not make payments according to the terms of the agreements) on an individual counterparty basis.
NOTE 16. REVENUE RELATED TO CONTRACTS WITH CUSTOMERS
DISAGGREGATED REVENUE
The Company disaggregates its revenue from contracts with customers by product line for both the OFSE and IET segments, as the Company believes this best depicts how the nature, amount, timing, and uncertainty of its 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.
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Baker Hughes Company
Notes to Consolidated Financial Statements
The series of tables below present the Company's revenue disaggregated by these categories.
| Total Revenue | 2024 | 2023 | 2022 | ||||||||
| Well Construction | $ | 4,145 | $ | 4,387 | $ | 3,854 | |||||
| Completions, Intervention, and Measurements | 4,154 | 4,170 | 3,559 | ||||||||
| Production Solutions | 3,860 | 3,854 | 3,587 | ||||||||
| Subsea & Surface Pressure Systems | 3,470 | 2,950 | 2,230 | ||||||||
| Oilfield Services & Equipment | 15,628 | 15,361 | 13,229 | ||||||||
| Gas Technology Equipment | 5,693 | 4,232 | 2,599 | ||||||||
| Gas Technology Services | 2,797 | 2,600 | 2,440 | ||||||||
| Total Gas Technology | 8,490 | 6,832 | 5,039 | ||||||||
| Industrial Products | 2,040 | 1,962 | 1,697 | ||||||||
| Industrial Solutions | 1,065 | 983 | 884 | ||||||||
| Controls (1) | — | 41 | 208 | ||||||||
| Total Industrial Technology | 3,105 | 2,987 | 2,789 | ||||||||
| Climate Technology Solutions | 605 | 326 | 98 | ||||||||
| Industrial & Energy Technology | 12,201 | 10,145 | 7,926 | ||||||||
| Total | $ | 27,829 | $ | 25,506 | $ | 21,156 |
(1)The sale of the Company's controls business was completed in April 2023.
| Oilfield Services & Equipment Geographic Revenue | 2024 | 2023 | 2022 | ||||||||
| North America | $ | 3,955 | $ | 4,116 | $ | 3,764 | |||||
| Latin America | 2,609 | 2,761 | 2,099 | ||||||||
| Europe/CIS/Sub-Saharan Africa | 3,250 | 2,655 | 2,483 | ||||||||
| Middle East/Asia | 5,814 | 5,829 | 4,883 | ||||||||
| Oilfield Services & Equipment | $ | 15,628 | $ | 15,361 | $ | 13,229 |
REMAINING PERFORMANCE OBLIGATIONS
As of December 31, 2024, the aggregate amount of the transaction price allocated to the unsatisfied (or partially unsatisfied) performance obligations was $33.1 billion. As of December 31, 2024, the Company expects to recognize revenue of approximately 60%, 74% and 91% 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 the Company fulfills 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 the Company's Chief Executive Officer, in deciding how to allocate resources and assess performance. The Company reports its operating results through two operating segments, OFSE and IET. Each segment is organized and managed based upon the nature of the Company's 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
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Baker Hughes Company
Notes to Consolidated Financial Statements
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 and services, 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 carbon capture, utilization and storage ("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 the 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), unallocated corporate expenses, significant restructuring plans, impairment and other charges, inventory impairments, and certain gains and losses not allocated to the operating segments. The CODM uses segment operating income (loss) as the measure to make resource (including financial or capital resources) allocation decisions for each segment, predominantly in the annual budget and forecasting process. The CODM considers budget-to-actual variances on a quarterly basis when evaluating performance for each segment and making decisions about capital allocation. Accounting policies have been applied consistently 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.
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Baker Hughes Company
Notes to Consolidated Financial Statements
Summarized financial information for the Company's segments is shown in the following tables.
| 2024 | |||||||||||
| OFSE | IET | Total | |||||||||
| Revenue | $ | 15,628 | $ | 12,201 | $ | 27,829 | |||||
| Cost of goods and services sold | (12,448) | (8,738) | (21,186) | ||||||||
| Research and development | (260) | (383) | (643) | ||||||||
| Selling, general and administrative | (932) | (1,250) | (2,182) | ||||||||
| Segment operating income | $ | 1,988 | $ | 1,830 | $ | 3,818 |
| 2023 | |||||||||||
| OFSE | IET | Total | |||||||||
| Revenue | $ | 15,361 | $ | 10,145 | $ | 25,506 | |||||
| Cost of goods and services sold | (12,282) | (7,220) | (19,502) | ||||||||
| Research and development | (278) | (373) | (651) | ||||||||
| Selling, general and administrative | (1,055) | (1,242) | (2,297) | ||||||||
| Segment operating income | $ | 1,746 | $ | 1,310 | $ | 3,055 |
| 2022 | |||||||||||
| OFSE | IET | Total | |||||||||
| Revenue | $ | 13,229 | $ | 7,926 | $ | 21,156 | |||||
| Cost of goods and services sold | (10,789) | (5,342) | (16,131) | ||||||||
| Research and development | (228) | (307) | (535) | ||||||||
| Selling, general and administrative | (1,011) | (1,142) | (2,153) | ||||||||
| Segment operating income | $ | 1,201 | $ | 1,135 | $ | 2,336 |
| Reconciliation of segment operating income to income before income taxes: | 2024 | 2023 | 2022 | ||||||||
| OFSE | $ | 1,988 | $ | 1,746 | $ | 1,201 | |||||
| IET | 1,830 | 1,310 | 1,135 | ||||||||
| Total segment | 3,818 | 3,055 | 2,336 | ||||||||
| Corporate costs (1) | (363) | (380) | (416) | ||||||||
| Inventory impairment (2) | (73) | (35) | (31) | ||||||||
| Restructuring, impairment and other | (301) | (323) | (705) | ||||||||
| Other non-operating income (loss), net | 382 | 554 | (911) | ||||||||
| Interest expense, net | (198) | (216) | (252) | ||||||||
| Income before income taxes | $ | 3,265 | $ | 2,655 | $ | 22 |
(1)Corporate costs of $274 million, $313 million, and $357 million are reported in "Selling, general and administrative" related to general and administrative costs not allocated to the segments in the consolidated statements of income (loss) for the years ended December 31, 2024, 2023 and 2022, respectively. Corporate costs of $89 million, $67 million, and $59 million are reported in "Cost of goods and services sold" primarily related to licensing costs not allocated to the segments in the consolidated statements of income (loss) for the years ended December 31, 2024, 2023 and 2022, respectively.
(2)Charges for inventory impairments are reported in "Cost of goods sold" in the consolidated statements of income (loss).
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Baker Hughes Company
Notes to Consolidated Financial Statements
The following table presents total assets at December 31:
| Assets | 2024 | 2023 | ||||||
| OFSE | $ | 18,781 | $ | 17,925 | ||||
| IET | 13,838 | 13,781 | ||||||
| Total segment | 32,619 | 31,706 | ||||||
| Corporate and eliminations (1) | 5,744 | 5,239 | ||||||
| Total | $ | 38,363 | $ | 36,945 |
(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 the reportable segments.
The following table presents depreciation and amortization for the year ended December 31:
| Depreciation and amortization | 2024 | 2023 | 2022 | ||||||||
| OFSE | $ | 893 | $ | 849 | $ | 845 | |||||
| IET | 220 | 217 | 197 | ||||||||
| Total segment | 1,113 | 1,066 | 1,042 | ||||||||
| Corporate | 23 | 21 | 19 | ||||||||
| Total | $ | 1,136 | $ | 1,087 | $ | 1,061 |
The following table presents capital expenditures for the year ended December 31:
| Capital expenditures | 2024 | 2023 | 2022 | ||||||||
| OFSE | $ | 954 | $ | 960 | $ | 791 | |||||
| IET | 284 | 229 | 183 | ||||||||
| Total segment | 1,238 | 1,189 | 974 | ||||||||
| Corporate | 40 | 35 | 15 | ||||||||
| Total | $ | 1,278 | $ | 1,224 | $ | 989 |
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 the Company's consolidated revenue during the periods presented.
| Revenue | 2024 | 2023 | 2022 | ||||||||
| U.S. | $ | 7,383 | $ | 6,557 | $ | 4,942 | |||||
| Non-U.S. | 20,446 | 18,949 | 16,214 | ||||||||
| Total | $ | 27,829 | $ | 25,506 | $ | 21,156 |
The following table presents net property, plant and equipment by its geographic location at December 31:
| Property, plant and equipment - net | 2024 | 2023 | ||||||
| U.S. | $ | 1,794 | $ | 1,579 | ||||
| Non-U.S. | 3,333 | 3,314 | ||||||
| Total | $ | 5,127 | $ | 4,893 |
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Baker Hughes Company
Notes to Consolidated Financial Statements
NOTE 18. RELATED PARTY TRANSACTIONS
The Company has an aeroderivative joint venture ("Aero JV") it formed with General Electric Company ("GE") in 2019. As of December 31, 2024, the Aero JV was jointly controlled by GE Vernova (NYSE: GEV) and the Company, each with ownership interest of 50%, and therefore, the Company does not consolidate the Aero JV. As a result of GE's spin-off of GE Vernova, GE transferred its interest in the Aero JV to GE Vernova in the second quarter of 2024. The Company had purchases from the Aero JV of $698 million, $517 million, and $528 million during the years ended December 31, 2024, 2023 and 2022, respectively. The Company has $117 million and $71 million of amounts due at December 31, 2024 and 2023, respectively, for products and services provided by the Aero JV in the ordinary course of business.
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 the Company's relationship with GE, as of June 30, 2022, the Company no longer considered GE a related party. The Company had purchases with GE and its affiliates of $293 million during the six months ended June 30, 2022. In addition, the Company sold products and services to GE and its affiliates for $83 million during the six months ended June 30, 2022.
NOTE 19. COMMITMENTS AND CONTINGENCIES
LITIGATION
The Company is subject to legal proceedings arising in the ordinary course of business. Because legal proceedings are inherently uncertain, management is unable to predict the ultimate outcome of such matters. The Company records 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, the Company does not expect the ultimate outcome of currently pending legal proceedings to have a material adverse effect on its 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 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
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Baker Hughes Company
Notes to Consolidated Financial Statements
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, the Company is not able to predict the outcome of the proceeding which is pending against the Company's subsidiaries.
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 ("the Securities Act") 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. On February 22, 2024, the Court dismissed the claims against the Company. However, on April 4, 2024, the plaintiffs filed an amended complaint, reasserting their claims against the Company under the Securities Act and the Exchange Act. At this time, the Company is not able to predict the outcome of these proceedings.
The Company insures against risks arising from its business to the extent deemed prudent by 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 the Company against liabilities arising out of pending or future legal proceedings or other claims. Most of the Company's insurance policies contain deductibles or self-insured retentions in amounts management deems prudent and for which the Company is responsible for payment. In determining the amount of self-insurance, it is the Company's 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. The Company's cost estimates are developed based on internal evaluations and are not discounted. Accruals are recorded when it is probable that the Company 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. The Company's total accrual for environmental remediation was $54 million and $58 million at December 31, 2024 and 2023, respectively.
OTHER
In the normal course of business with customers, vendors and others, the Company has entered into off-balance sheet arrangements, such as surety bonds for performance, letters of credit, and other bank issued guarantees. The Company also provides a guarantee to GE Vernova on behalf of a customer who entered into a financing arrangement with GE Vernova. Total off-balance sheet arrangements were approximately $5.6 billion at December 31, 2024. It is not practicable to estimate the fair value of these financial instruments. As of December 31, 2024, none of the off-balance sheet arrangements either has, or is likely to have, a material effect on the Company's financial position, results of operations or cash flows. The Company also had commitments outstanding for purchase obligations for each of the five years in the period ending December 31, 2029 of $1,855
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Notes to Consolidated Financial Statements
million, $308 million, $240 million, $95 million and $7 million, respectively, and $29 million in the aggregate thereafter.
The Company sometimes enters into a joint and several liability consortium or similar arrangements for certain projects. 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 the Company. These factors could result in unanticipated costs to complete the project, liquidated damages or contract disputes.
NOTE 20. RESTRUCTURING, IMPAIRMENT AND OTHER
The Company recorded restructuring, impairment and other charges of $301 million, $323 million, and $705 million during the years ended December 31, 2024, 2023 and 2022, respectively.
RESTRUCTURING AND ASSOCIATED IMPAIRMENT CHARGES
In 2024, the Company recorded restructuring and associated impairment charges of $260 million. The Company has initiated a streamlining of the OFSE operating model which will also reduce its facility footprint resulting in employee termination expenses and associated impairment of PP&E. These actions also resulted in inventory impairments of $73 million in 2024, recorded in "Cost of goods sold" in the consolidated statements of income (loss).
In 2023, the Company recorded restructuring and associated impairment charges of $313 million. Restructuring charges for 2023 include the finalization of the Company's corporate restructuring plan announced in 2022 (the "2022 Plan"), but are primarily costs recognized under a new plan (the "2023 Plan") for employee termination expenses related to exit activities at specific locations in the Company's segments to align with the Company's market outlook, rationalize the Company's manufacturing supply chain footprint and facilitate further cost efficiency. These actions also resulted in inventory impairments of $35 million in 2023, recorded in "Cost of goods sold" in the consolidated statements of income (loss).
In 2022, the Company recorded restructuring and associated impairment charges of $196 million. The charges related to the Company's 2022 Plan were primarily for employee termination expenses to facilitate the reorganization of the Company 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.
The following table presents the restructuring and associated impairment charges by the impacted segment:
| 2024 | 2023 | 2022 | |||||||||
| Oilfield Services & Equipment | $ | 206 | $ | 148 | $ | 121 | |||||
| Industrial & Energy Technology (1) | 13 | 98 | 36 | ||||||||
| Corporate | 41 | 67 | 39 | ||||||||
| Total | $ | 260 | $ | 313 | $ | 196 |
(1)For the year ended December 31, 2024, $6 million of additional restructuring charges are included within segment operating income and reported in "Selling, general and administrative" in the consolidated statements of income (loss).
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The following table presents restructuring and associated impairment charges by type, and includes gains on the dispositions of certain property, plant and equipment as a consequence of exit activities:
| 2024 | 2023 | 2022 | |||||||||
| Property, plant and equipment | $ | 77 | $ | (2) | $ | 58 | |||||
| Employee-related termination expenses | 153 | 270 | 121 | ||||||||
| Asset relocation costs | — | 5 | 3 | ||||||||
| Contract termination fees | 2 | 1 | 1 | ||||||||
| Other incremental costs | 34 | 39 | 13 | ||||||||
| Total | $ | 266 | $ | 313 | $ | 196 |
OTHER CHARGES
Other charges included in "Restructuring, impairment and other" in the consolidated statements of income (loss) were $41 million, $10 million, and $509 million for the years ended December 31, 2024, 2023 and 2022, respectively.
In 2022, other charges were primarily associated with the discontinuation of the Company's Russia operations. As a result of the conflict between Russia and Ukraine, the Company took actions to suspend substantially all operational activities related to Russia. These actions resulted in other charges of $334 million recorded in the second quarter of 2022 primarily associated with the suspension of contracts including all 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, the Company recorded inventory impairments of $31 million primarily in IET as a result of suspending the Company's Russia operations, which are reported in "Cost of goods sold" in the consolidated statements of income (loss).
In 2022, the Company also recorded other charges of $84 million in the 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 the Company's long-term market outlook for this business, and $68 million in the IET segment primarily related to a write-off of an equity method investment and the release of foreign currency translation adjustments. The charges in 2022 also include separation related costs.
NOTE 21. BUSINESS DISPOSITIONS AND ACQUISITIONS
The Company had no business acquisitions or dispositions for the year ended December 31, 2024.
DISPOSITIONS
The Company completed several business dispositions during 2023 and 2022 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, the Company completed the sale of businesses and received total cash consideration of $293 million. The dispositions consisted primarily of the sale of the 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.
During 2022, the Company sold part of the OFSE Russia business to local management for a nominal amount, which resulted in a loss before income taxes of $451 million.
ACQUISITIONS
During 2023, the Company 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.
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Notes to Consolidated Financial Statements
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, the Company 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 the Company's consolidated financial statements.
During 2022, the Company 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, the Company 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 the Company's consolidated financial statements.
NOTE 22. SUPPLEMENTARY INFORMATION
ALL OTHER CURRENT LIABILITIES
All other current liabilities as of December 31, 2024 and 2023 include $1,237 million and $1,346 million, respectively, of employee related liabilities.
ALLOWANCE FOR CREDIT LOSSES
The following table presents the change in allowance for credit losses:
| 2024 | 2023 | |||||||
| Balance at beginning of year | $ | 350 | $ | 341 | ||||
| Provision | 77 | 79 | ||||||
| Write-offs | (153) | (26) | ||||||
| Prior year recoveries | (35) | (31) | ||||||
| Other | (7) | (13) | ||||||
| Balance at end of year | $ | 232 | $ | 350 |
SUPPLY CHAIN FINANCE PROGRAMS
The following table presents the change in SCF program liabilities:
| 2024 | |||||
| Balance at beginning of year | $ | 332 | |||
| Purchases | 1,484 | ||||
| Payments | (1,405) | ||||
| Balance at end of year | $ | 411 |
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