Baker Hughes Company — 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021; comparisons are primarily with 2020. Baker Hughes is a global energy technology company operating in more than 120 countries through Oilfield Services (OFS), Oilfield Equipment (OFE), Turbomachinery & Process Solutions (TPS), and Digital Solutions (DS). GE held an 11.4% economic interest in Baker Hughes Holdings LLC at year-end.
Financial performance and liquidity
| Metric | 2021 | 2020 |
|---|---|---|
| Revenue | $20.502 billion | $20.705 billion |
| Operating income (loss) | $1.310 billion | $(15.978) billion |
| Income (loss) before taxes | $428 million | $(15.202) billion |
| Net income (loss) attributable to Baker Hughes Company | $(219) million | $(9.940) billion |
| Basic and diluted EPS, Class A | $(0.27) | $(14.73) |
| Cash from operating activities | $2.374 billion | $1.304 billion |
- Revenue and segment results: Revenue declined 1%. Segment operating income rose 33% to $2.006 billion. OFS revenue fell 6% to $9.542 billion, while OFE revenue fell 13% to $2.486 billion. TPS revenue rose 12% to $6.417 billion; DS revenue rose 2% to $2.057 billion.
- Cash flow and investment: Capital expenditures were $856 million; asset-disposal proceeds were $315 million. Applying the filing’s stated free-cash-flow definition—operating cash flow less capital expenditures plus disposal proceeds—implies approximately $1.833 billion of free cash flow. Dividends paid were $592 million; the Company and BHH LLC repurchased shares and units for a combined $434 million.
- Cash, debt and liquidity: Cash and equivalents were $3.853 billion, versus $4.132 billion a year earlier. Total borrowings were $6.727 billion. The company reported no borrowings under its $3 billion revolving credit facility or commercial paper program at year-end; its next debt maturity was December 2023. Current assets were $15.065 billion and current liabilities $9.128 billion.
- Other indicators: Orders were $21.7 billion and remaining performance obligations (RPO) were $23.6 billion, compared with $20.7 billion and $23.4 billion, respectively, in 2020. Research and development spending was $492 million. The annual dividend remained $0.72 per Class A share.
Material changes and unusual items
- Results improved substantially from 2020, when Baker Hughes recorded a $14.773 billion goodwill impairment, $1.866 billion of restructuring, impairment and other charges, and $246 million of inventory impairments. There were no goodwill or inventory impairments in 2021; restructuring, impairment and other charges were $209 million.
- 2021 income before taxes included a net $583 million other non-operating loss. This included a $1.085 billion fair-value loss on the C3 AI investment, partly offset by a $241 million gain on ADNOC Drilling, a $121 million reversal of legal accruals, and $121 million of income related to GE-indemnified tax liabilities. The C3 AI and ADNOC Drilling valuation movements contributed to earnings volatility.
- OFS and OFE faced lower activity and supply constraints; TPS benefited from higher equipment, project and service volumes. DS operating income declined to $126 million from $193 million, reflecting weaker productivity and mix.
- The company refinanced debt in December 2021, issuing $1.25 billion of notes due in 2023 and 2026, and repaid its $1.25 billion notes due in 2022 early. A $28 million early-redemption charge was recorded in interest expense.
Outlook, risks and contingencies
- Management expected continued economic and energy-demand recovery in 2022, with North American and international onshore activity improving and a modest offshore recovery, provided commodity prices remained at then-current levels. It expected continued LNG-market momentum and growth in lower-carbon offerings, including hydrogen, geothermal, CCUS and energy storage. These are market-dependent expectations, not guaranteed results.
- 2022 capital expenditures were expected to be up to 5% of annual revenue; expected income tax payments were $550 million to $650 million. Management said cash, operating cash flow and available credit facilities should support operating needs, investment, dividends and debt repayment.
- Key operating and market risks include oil and gas price and activity volatility, COVID-19 effects, inflation and supply-chain constraints (including electronic components), raw-material availability and cost, competition, contract execution and customer credit risk, geopolitical events, foreign exchange, and the pace and execution of the energy-transition strategy.
- The filing describes an ongoing SEC investigation relating to books and records and internal controls for sales in projects affected by U.S. sanctions. Baker Hughes also reported voluntarily notifying OFAC about payments involving non-U.S. affiliates in two countries that appeared subject to U.S. sanctions debt restrictions; the company said the transaction value was immaterial but could not predict any outcome or remedial action.
- Other legal matters include a new February 2022 arbitration initiated by IEC concerning the same project as an earlier proceeding. The company could not predict the outcome. It reported a $67 million environmental-remediation accrual at year-end and approximately $4.5 billion of off-balance-sheet arrangements, which it said were not expected to materially affect its financial position, results or cash flows.
- Management reported effective disclosure controls and internal control over financial reporting as of December 31, 2021. KPMG issued unqualified opinions on the financial statements and internal controls; its critical audit matter concerned estimates of costs to complete certain customer-specific manufactured-goods contracts.
Investor verification priorities
- Track whether RPO converts into revenue on expected schedules and assess the effect of customer cancellation rights and contract modifications.
- Review the drivers and sensitivity of C3 AI and other investment fair values, and distinguish those non-operating movements from underlying segment performance and cash generation.
- Monitor supply-chain availability, inflation and activity levels against management’s conditional 2022 outlook and capital-spending expectations.
- Assess debt maturities, cash availability (including funds held outside the U.S.), working-capital trends and the sustainability of operating cash flow and shareholder distributions.
- Follow developments in the SEC and OFAC matters, the IEC arbitration, and other legal and environmental contingencies for potential financial or operational effects.