Baker Hughes Company — 2022 Form 10-K
Business context and reporting period. This annual report covers the fiscal year ended December 31, 2022. Baker Hughes is an energy technology company operating globally through Oilfield Services & Equipment (OFSE) and Industrial & Energy Technology (IET). The company reorganized its former four segments into these two segments effective October 1, 2022; prior-year segment results were recast.
Key financial metrics
| Metric | 2022 | 2021 |
|---|---|---|
| Revenue | $21.156 billion | $20.502 billion |
| Operating income | $1.185 billion | $1.310 billion |
| Operating margin | Approximately 5.6% | Approximately 6.4% |
| Net loss attributable to Baker Hughes | $601 million | $219 million |
| Operating cash flow | $1.888 billion | $2.374 billion |
| Capital expenditures | $989 million | $856 million |
| Cash and cash equivalents at year-end | $2.488 billion | $3.853 billion |
| Total borrowings at year-end | $6.658 billion | $6.727 billion |
| Remaining performance obligations | $27.8 billion | $23.6 billion |
2022 total segment operating income increased 16% to $2.336 billion. OFSE revenue was $13.229 billion, up 10%, and segment operating income rose to $1.201 billion from $830 million. IET revenue declined 6% to $7.926 billion and segment operating income was $1.135 billion, down from $1.177 billion. The company reported a $578 million consolidated net loss; income before tax was only $22 million, while income tax expense was $600 million. The filing reports an effective tax rate of 2,727.3%, reflecting the very small pretax income denominator.
Year-end current assets were $14.592 billion and current liabilities were $11.075 billion. The company had a $3 billion revolving credit facility and a $3 billion commercial paper program, with no borrowings under either at year-end. Debt covenants were met. Cash less borrowings was approximately negative $4.2 billion. Cash from operations less capital expenditures was approximately $899 million.
Material changes and unusual items
- Revenue increased 3%, mainly from higher OFSE activity; higher volume and pricing supported OFSE profitability. IET was affected by lower gas technology volumes, foreign exchange, supply-chain delays, R&D spending and inflation.
- Operating income fell $125 million despite higher segment income, principally because restructuring, impairment and other charges rose to $682 million from $209 million.
- Other non-operating loss was $911 million, including a $451 million loss on the sale of part of the Russia OFSE business and $265 million of unrealized losses on investments in C3 AI and ADNOC Drilling. The Russia-related sale and suspension actions also contributed materially to restructuring and other charges.
- Operating cash flow decreased $486 million. The filing cites working-capital movements, including increased receivables and inventory, partially offset by progress collections and accounts payable.
- Dividends paid were $726 million; the quarterly dividend rose to $0.19 per share in the fourth quarter. The company and BHH LLC repurchased and canceled 29.7 million shares and LLC units for $828 million in 2022.
- Orders rose to $26.8 billion from $21.7 billion. IET orders were $12.7 billion and OFSE orders $14.1 billion; total RPO increased to $27.8 billion, of which $25.3 billion was IET.
Outlook, commentary, risks and contingencies
- Management expected North American OFSE spending to improve and international spending to grow strongly in 2023, conditional on commodity prices remaining near then-current levels. It was positive on LNG and expected continued growth in new-energy solutions, while emphasizing that outlook assumptions were subject to changing market conditions.
- Management described 2023 capital expenditures as potentially up to 5% of annual revenue and anticipated income tax payments of $500–$550 million. It expected approximately $100 million of additional restructuring charges in 2023, with the plan expected to conclude by year-end.
- Russia operations were substantially suspended; part of the OFSE Russia business was sold in November 2022. Russia represented approximately 2% of 2022 revenue, versus 5% in each of 2021 and 2020. Sanctions, contract suspensions and geopolitical uncertainty remain relevant exposures.
- Other principal risks include commodity-price and customer-spending volatility, inflation and supply-chain constraints, execution of the restructuring and energy-transition strategy, weather and climate impacts, cybersecurity, foreign exchange, customer credit, and legal, regulatory and environmental exposures.
- Environmental remediation accruals were $63 million at year-end. Off-balance-sheet arrangements were approximately $4.5 billion; the company said none was expected to materially affect financial position, results or cash flows. An IEC arbitration relating to a Nigerian project remained unresolved, and management said its outcome could not then be predicted. Management did not expect pending legal proceedings overall to materially adversely affect results, financial position or cash flows.
- KPMG issued unqualified opinions on the financial statements and internal controls. The auditor identified revenue recognition for certain customized-equipment contracts as a critical audit matter, particularly the judgment involved in estimating costs to complete.
Investor facts to verify
- Whether OFSE growth and IET order/RPO levels convert into revenue, margins and cash flow as anticipated.
- The cash and earnings effects of Russia-related suspensions, asset sales, sanctions and remaining contractual obligations.
- Whether restructuring delivers expected efficiencies, and the remaining implementation charges and impairment exposure.
- Working-capital trends, capital spending, dividend and repurchase levels, and the approaching December 2023 debt maturity.
- The resolution and potential financial impact of the IEC arbitration and other disclosed contingencies.
- Assumptions underlying long-term contract cost estimates, tax valuation allowances and the company’s stated 2023 outlook.