Baker Hughes Co (BKR)

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") should be read in conjunction with the consolidated financial statements included in Item 8. Financial Statements and Supplementary Data contained herein.

EXECUTIVE SUMMARY

Market Conditions

We are an energy technology company with a broad and diversified portfolio of technologies and services that span the energy and industrial value chain. We operate through our two business segments: OFSE and IET. We sell products and services primarily in the global oil and gas markets, within the upstream, midstream and downstream segments, as well as broader industrial and new energy markets.

During 2024, Baker Hughes continued to deliver significant improvement across the company and in our financial results over 2023. We capitalized on market tailwinds to deliver substantial IET revenue growth, navigated an uneven market to deliver modest OFSE revenue growth, and realized widening benefits from our transformation efforts across the company. We also maintained strong order momentum in IET, led by significant growth in new energy and non-LNG equipment orders.

As we look to 2025, we see a muted outlook for global upstream spending due to recent oil price volatility and an oil market that looks well supplied in the near term, which might affect activity across our OFSE portfolio. Continued discipline from the world's largest producers and the pace of oil demand growth will remain important factors to monitor. Geopolitics remain another element of uncertainty across the oil and gas markets affecting macroeconomic conditions and upstream spending.

We are seeing customer spending trends shift more towards natural gas and low-carbon solutions, and we expect this trend to continue in 2025, which will continue to support strength across our IET portfolio. We remain optimistic on the LNG outlook, supporting the shift towards the development of natural gas and LNG. As a result, the global LNG project pipeline remains strong. Additionally, robust orders over the past few years are set to drive significant growth in our equipment installed base, which will underpin steady growth in Gas Technology Service over the coming years. Continued signs of tightness in the aeroderivative supply chain will remain an important factor to monitor.

Financial Results and Key Company Initiatives

In 2024, the Company generated revenues of $27.8 billion, compared to $25.5 billion in 2023, increasing $2.3 billion or 9%. The increase in revenue was driven principally by IET. IET revenue increased $2.1 billion, primarily driven by Gas Technology Equipment revenue. OFSE revenue increased $0.3 billion driven by international revenue. Operating income was $3.1 billion compared to $2.3 billion in 2023, increasing $0.8 billion. The increase to operating income was driven by higher volume primarily from higher proportionate growth in Gas Technology Equipment ("GTE") and Subsea & Surface Pressure Systems ("SSPS") and price in both segments, and structural cost-out initiatives across the company, partially offset by cost inflation.

As our journey of transformation continues, we have made progress in our efforts to improve efficiencies and modernize how the business operates. The business has undertaken significant structural changes and we see the operating benefits coming through in the margin performance.

Baker Hughes remains committed to a flexible capital allocation policy that balances returning cash to shareholders and investing in growth opportunities. We increased our quarterly dividend in the first quarter of 2024 by one cent to $0.21 per share. For the full year of 2024, we returned a total of $1.3 billion to shareholders in the form of dividends and share repurchases.

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Outlook

Our business is exposed to a number of macro factors, which influence our outlook and expectations given the current volatile conditions in the industry. All of our outlook expectations are purely based on the market as we see it today and are subject to changing conditions in the industry.

•OFSE North America activity: In 2025, we expect a second consecutive year of lower E&P spending due to recent commodity price volatility and E&P consolidation.

•OFSE International activity: We expect spending outside of North America to be at similar or slightly lower levels in 2025 compared to 2024.

•IET outlook: We see continued strength in LNG, Floating Production Storage and Offloading ("FPSO"), gas infrastructure, and new energy, as well as increasing opportunities to leverage our versatile portfolio to enhance IET's position across industrial and distributed power markets.

We have other businesses in our portfolio that are more correlated with various industrial metrics, including global GDP growth. We also have businesses within our portfolio that are exposed to new energy solutions, specifically focused around reducing carbon emissions of the energy and broader industry, including: hydrogen; geothermal; CCUS; energy storage; clean power; and emissions abatement solutions. We expect to see continued growth in these global businesses as new energy solutions become a more prevalent part of the broader energy mix.

Overall, we believe our portfolio is well positioned to compete across the energy value chain and deliver comprehensive solutions for our customers. Over time, we believe the world's demand for energy will continue to rise, and that hydrocarbons will play a major role in meeting the world's energy needs for the foreseeable future. As such, we remain focused on delivering innovative, low-emission, and cost-effective solutions that deliver step changes in operating and economic performance for our customers.

BUSINESS ENVIRONMENT

The following discussion and analysis summarize the significant factors affecting our results of operations, financial condition and liquidity position as of and for the years ended December 31, 2024, 2023, and 2022, and should be read in conjunction with our consolidated financial statements and related notes.

Our revenue is predominately generated from the sale of products and services to major, national, and independent oil and natural gas companies worldwide, and is dependent on spending by our customers for oil and natural gas exploration, field development and production. This spending is driven by a number of factors, including our customers' forecasts of future energy demand and supply, their access to resources to develop and produce oil and natural gas, their ability to fund their capital programs, the impact of new government regulations, and their expectations for oil and natural gas prices as a key driver of their cash flows.

Oil and Natural Gas Prices

Outside North America, customer spending is influenced by Brent oil prices. In North America, customer spending is influenced by WTI oil prices and natural gas prices are measured by the Henry Hub Natural Gas Spot Price.

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Oil and natural gas prices are summarized in the table below as averages of the daily closing prices during each of the periods indicated.

(1)Energy Information Administration ("EIA") Europe Brent Spot Price per Barrel

(2)EIA Cushing, OK West Texas Intermediate ("WTI") spot price

(3)EIA Henry Hub Natural Gas Spot Price per million British Thermal Unit

Rig Count

Rig counts are an important business barometer for the drilling industry and its suppliers. When drilling rigs are active they consume products and services produced by the oil service industry. Therefore, rig counts may act as a leading indicator of market activity and reflect the relative strength of energy prices however, these counts should not be solely relied on as other specific and pervasive conditions may exist that affect overall energy prices and market activity.

Rig counts are compiled weekly for the U.S. and Canada and monthly for all international rigs. Published international rig counts do not include rigs drilling in certain locations such as onshore China because this information is not readily available.

The rig counts are summarized in the table below as averages for each of the periods indicated.

RESULTS OF OPERATIONS

The discussions below relating to significant line items from our consolidated statements of income (loss) are based on available information and represent our analysis of significant changes or events that impact the comparability of reported amounts. Where appropriate, we have identified specific events and changes that affect comparability or trends and, where reasonably practicable, have quantified the impact of such items. In addition, the discussions below for revenue and cost of revenue are on a total basis as the business drivers for product sales and services are similar. All dollar amounts in tabulations in this section are in millions of dollars, unless otherwise stated. Certain columns and rows may not add due to the use of rounded numbers.

Our consolidated statements of income (loss) displays sales and costs of sales in accordance with SEC regulations under which "goods" is required to include all sales of tangible products and "services" must include all other sales, including other service activities. For the amounts shown below, we distinguish between "equipment" and "product services," where product services refer to sales under product services agreements, including sales of both goods (such as spare parts and equipment upgrades) and related services (such as monitoring, maintenance and repairs), which is an important part of our operations. We refer to "product services" simply as "services" within Management's Discussion and Analysis of Financial Condition and Results of Operations.

Our results of operations are evaluated by the Chief Executive Officer on a consolidated basis as well as at the segment level. The performance of our operating segments is primarily evaluated based on segment operating income (loss), which is defined as income (loss) before income taxes and 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.

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In evaluating the performance, we primarily use the following:

Volume: Volume is defined as the increase or decrease in products and/or services sold period-over-period excluding the impact of foreign exchange and price. The volume impact on profit is calculated by multiplying the prior period profit rate by the change in revenue volume between the current and prior period. Volume also includes price, which is defined as the change in sales price for a comparable product or service period-over-period and is calculated as the period-over-period change in sales prices of comparable products and services.

Foreign Exchange ("FX"): FX measures the translational foreign exchange impact, or the translation impact of the period-over-period change on sales and costs directly attributable to change in the foreign exchange rate compared to the U.S. dollar. FX impact is calculated by multiplying the functional currency amounts (revenue or profit) with the period-over-period FX rate variance, using the average exchange rate for the respective period.

(Inflation)/Deflation: (Inflation)/deflation is defined as the increase or decrease in direct and indirect costs of the same type for an equal amount of volume. It is calculated as the year-over-year change in cost (i.e. price paid) of direct material, compensation and benefits, and overhead costs.

Productivity: Productivity is measured by the remaining variance in profit, after adjusting for the period-over-period impact of volume and price, foreign exchange, and (inflation)/deflation as defined above. Improved or lower period-over-period cost productivity is the result of cost efficiencies or inefficiencies, such as cost decreasing or increasing more than volume, or cost increasing or decreasing less than volume, or changes in sales mix among segments. This also includes the period-over-period variance of transactional foreign exchange, aside from those foreign currency devaluations that are reported separately for business evaluation purposes.

Orders and Remaining Performance Obligations

Summarized orders information for our segments are shown in the following table.

(1)The sale of our controls business was completed in April 2023.

(2)For the years ended December 31, 2024, 2023 and 2022, total new energy orders incorporates CTS in IET of $1.0 billion, $0.6 billion, and $0.4 billion, respectively.

The RPO relate to the aggregate amount of the transaction price allocated to the unsatisfied (or partially unsatisfied) performance obligations. As of December 31, 2024, RPO totaled $33.1 billion, of which OFSE totaled $3.0 billion and IET totaled $30.1 billion.

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Fiscal Year 2024 to Fiscal Year 2023

Revenue increased $2,323 million, or 9%, to $27.8 billion. OFSE increased $268 million and IET increased $2,055 million.

Selling, general and administrative cost decreased $153 million, or 6%, to $2,458 million, and our Corporate costs, which are primarily reported within this financial measure, decreased $17 million, or 5%, to $363 million. These decreases were driven primarily by a continued focus on cost optimization, partially offset by inflationary pressure.

Restructuring, impairment, and other charges were $301 million in 2024, primarily related to streamlining of the OFSE operating model. In 2023, restructuring, impairment, and other charges were $323 million reflecting costs to align the business with the Company's market outlook.

Operating income increased $763 million, or 33%, to $3,081 million, driven primarily by: increased volume primarily from higher proportionate growth in GTE and SSPS, favorable price, cost optimization, and, to a lesser extent, FX, partially offset by inflationary pressure.

We recorded other non-operating income of $382 million in 2024, which included a net gain of $367 million from the change in fair value for certain equity investments. In 2023, we recorded $554 million of other non-operating income. Included in this amount was a net gain of $555 million from the change in fair value for certain equity investments.

Net interest expense incurred in 2024 was $198 million, which includes interest income of $93 million. Net interest expense decreased $18 million compared to 2023, with higher interest income primarily driven by higher average cash on deposit.

We recorded income taxes in 2024 and 2023 of $257 million and $685 million, respectively. The difference between the U.S. statutory tax rate of 21% and the effective tax rate is primarily impacted by the $664 million reversal of a valuation allowance in 2024, with the rate in both years also reflecting income generated in jurisdictions with tax rates higher than in the U.S. and losses with no tax benefit due to valuation allowances. The valuation allowance on the associated deferred tax assets has been released as a result of the U.S. moving into a cumulative three-year profit position, which is supported by an increasing pattern of profitability, recent demonstration of tax credit utilization, and the forecasted continuation of profitability in the U.S.

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Segment Revenues and Segment Operating Income

Oilfield Services & Equipment

(1)Operating margin is defined as operating income divided by revenue.

OFSE revenue of $15,628 million increased $268 million, or 2%, in 2024 compared to 2023, driven by SSPS. From a geographical perspective, international revenue was $11,673 million, an increase of $428 million from 2023, primarily driven by the Europe/CIS/Sub-Saharan Africa regions, partially offset by the Latin America and Middle East/Asia regions. North America revenue was $3,955 million in 2024, a decrease of $161 million from 2023.

OFSE segment operating income was $1,988 million in 2024 compared to $1,746 million in 2023. The improved performance in 2024 was a result of higher price, cost-out initiatives, and, to a lesser extent, volume with higher proportionate growth in SSPS, partially offset by inflationary pressure.

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Industrial & Energy Technology

(1)The sale of our controls business was completed in April 2023.

(2)Operating margin is defined as operating income divided by revenue.

IET revenue of $12,201 million increased $2,055 million, or 20%, in 2024 compared to 2023. The increase was primarily in GTE, and, to a lesser extent, in Gas Technology Services, CTS and Industrial Technology.

IET segment operating income was $1,830 million in 2024 compared to $1,310 million in 2023. The improved performance in 2024 was driven by higher volume primarily from higher proportionate growth in GTE, price, and cost-out initiatives, partially offset by inflationary pressure.

Fiscal Year 2023 to Fiscal Year 2022

Revenue increased $4,350 million, or 21%, to $25.5 billion. OFSE increased $2,131 million and IET increased $2,219 million.

Selling, general and administrative cost increased $101 million, or 4%, to $2,611 million, and our Corporate costs, which are primarily reported within this financial measure, decreased $36 million, or 9%, to $380 million. These decreases were driven primarily by cost optimization initiatives, partially offset by inflationary pressure.

In 2023, restructuring, impairment, and other charges were $323 million reflecting costs to align the business with the Company's market outlook. In 2022, restructuring, impairment, and other charges were $705 million primarily associated with the discontinuation of our Russia operations, and costs to facilitate the reorganization into two segments.

Operating income increased $1,133 million, or 96%, to $2,317 million, driven primarily by: increased volume primarily from higher proportionate growth in GTE and SSPS, favorable price, and continued benefit of cost optimization initiatives, partially offset by inflationary pressure.

We recorded other non-operating income of $554 million in 2023, which included a net gain of $555 million from the change in fair value for certain equity investments. In 2022, we recorded $911 million of other non-operating losses primarily due to the loss of $451 million from the sale of part of the OFSE business in Russia and a loss of

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$265 million from the change in fair value for certain equity investments. Additionally, in December 2022, the Company, Baker Hughes Holdings, LLC ("BHH LLC") and GE entered into an agreement which resulted in the termination of the Tax Matters Agreement, and as a result, we incurred a charge of $81 million.

Net interest expense incurred in 2023 was $216 million, which includes interest income of $84 million. Net interest expense decreased $36 million compared to 2022, primarily driven by higher interest income.

We recorded income taxes in 2023 and 2022 of $685 million and $600 million, respectively. The difference between the statutory tax rate and the effective tax rate in both years was impacted by income in jurisdictions with tax rates higher than in the U.S. and losses with no tax benefit due to valuation allowances. In addition, the above noted impact to the effective tax rate in 2023 was partially offset by income subject to U.S. tax at an effective rate less than 21% due to valuation allowances while the effective rate in 2022 was further impacted by restructuring charges for which a majority had no tax benefit.

Segment Revenues and Segment Operating Income

Oilfield Services & Equipment

(1)Operating margin is defined as operating income divided by revenue.

OFSE revenue of $15,361 million increased $2,131 million, or 16%, in 2023 compared to 2022, as a result of increased activity as evidenced by an increase in the global rig count. From a geographical perspective, international revenue was $11,245 million, an increase of $1,779 million from 2022, primarily driven by the Middle East/Asia and Latin America regions, partially offset by lower volume due to the discontinuation of our Russia operations that occurred in 2022. North America revenue was $4,116 million in 2023, an increase of $352 million from 2022.

OFSE segment operating income was $1,746 million in 2023 compared to $1,201 million in 2022. The improved performance in 2023 was primarily driven by higher volume, price and cost-out initiatives, partially offset by inflationary pressure and lower cost productivity.

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Industrial & Energy Technology

(1)The sale of our controls business was completed in April 2023.

(2)Operating margin is defined as operating income divided by revenue.

IET revenue of $10,145 million increased $2,219 million, or 28%, in 2023 compared to 2022. The increase was primarily due to higher volume in Gas Technology Equipment and, to a lesser extent, in CTS, Industrial Technology and Gas Technology Services.

IET segment operating income was $1,310 million in 2023 compared to $1,135 million in 2022. The improved performance in 2023 was driven by higher volume primarily from higher proportionate growth in GTE, price and cost-out initiatives, partially offset by unfavorable cost productivity, inflationary pressure, and higher research and development costs related to new energy investments.

COMPLIANCE

In the conduct of all of our activities, we are committed to maintaining the core values of our Company, as well as high safety, ethical, and quality standards as also reported in our Quality Management System. We believe such a commitment is integral to running a sound, successful, and sustainable business. We devote significant resources to maintain a comprehensive global ethics and compliance program ("Compliance Program") which is designed to prevent, detect, and appropriately respond to any potential violations of the law, the Code of Conduct, and other Company policies and procedures.

Highlights of our Compliance Program include the following:

•Comprehensive internal policies over such areas as anti-bribery; travel, entertainment, gifts and charitable donations to government officials and other parties; payments to commercial sales representatives; and, the use of non-U.S. police or military organizations for security purposes. In addition, there are policies and procedures to address customs requirements, visa processing risks, export and re-export controls, economic sanctions, anti-money laundering and anti-boycott laws.

•Global and independent structure of Chief Compliance Officer and other compliance professionals providing compliance advice, customized training and governance, as well as investigating allegations across all regions and countries where we do business.

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•Comprehensive employee compliance training program that combines instructor-led and web-based training modules tailored to the key risks that employees face on an ongoing basis.

•Due diligence and monitoring procedures for third parties who conduct business on our behalf, including channel partners (sales representatives, distributors, resellers), and administrative service providers.

•Due diligence procedures for acquisition activities.

•Specifically tailored compliance risk assessments and audits focused on country and third party risk.

•Compliance Review Board comprised of senior officers of the Company that meets quarterly to monitor effectiveness of the Compliance Program, as well as segment compliance review boards that meet quarterly.

•Technology to monitor and report on compliance matters, including an internal investigations management system, a conflict of interest reporting and management system, a web-based anti-boycott reporting tool, global trade management systems and comprehensive watch list screening.

•Data privacy compliance policies and procedures to ensure compliance with applicable data privacy requirements.

•A compliance program designed to create an "Open Reporting Environment" where employees are encouraged to report any ethics or compliance matter without fear of retaliation, including a global network of trained employee ombudspersons, and a worldwide, 24-hour business helpline operated by a third party and available in approximately 200 languages.

•Centralized finance organization with company-wide policies.

•Anti-corruption audits of high-risk countries, as well as risk-based compliance audits of third parties.

•We have region-specific processes and procedures for management of HR related issues, including pre-hire screening of employees; a process to screen existing employees prior to promotion into select roles where they may be exposed to finance and/or corruption-related risks; and implementation of a global new hire training module which includes compliance training for all employees.

LIQUIDITY AND CAPITAL RESOURCES

Our objective in financing our business is to maintain sufficient liquidity, adequate financial resources, and financial flexibility in order to fund the requirements of our business. We continue to maintain solid financial strength and sufficient liquidity. At December 31, 2024, we had cash and cash equivalents of $3.4 billion compared to $2.6 billion at December 31, 2023.

In the U.S. we held cash and cash equivalents of approximately $0.6 billion as of December 31, 2024 and 2023, and outside the U.S. of approximately $2.8 billion and $2.0 billion as of December 31, 2024 and 2023, respectively. A substantial portion of the cash held outside the U.S. at December 31, 2024 has been reinvested in active non-U.S. business operations. If we decide at a later date to repatriate certain cash to the U.S., we may incur other additional taxes that would not be significant to the total tax provision.

We have a $3 billion committed unsecured revolving credit facility ("the Credit Agreement") with commercial banks maturing in November 2028. The Credit Agreement contains certain representations and warranties, certain affirmative covenants and negative covenants, in each case we consider 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.

Certain Senior Notes contain covenants that restrict our ability to take certain actions. See "Note 9. Debt" of the Notes to Consolidated Financial Statements in this Annual Report for further details. At December 31, 2024, we were in compliance with all debt covenants. Our next debt maturity is December 2026.

We continuously review our liquidity and capital resources. If market conditions were to change, for instance due to the uncertainty created by geopolitical events, a global pandemic, or a significant decline in oil and gas

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prices, and our revenue was reduced significantly or operating costs were to increase significantly, our cash flows and liquidity could be negatively impacted. Additionally, it could cause the rating agencies to lower our credit ratings. There are no ratings triggers that would accelerate the maturity of any borrowings under our committed credit facility; however, a downgrade in our credit ratings could increase the cost of borrowings under the credit facility. Should this occur, we could seek alternative sources of funding, including borrowing under the credit facility.

During the year ended December 31, 2024, we dispersed cash to fund a variety of activities including certain working capital needs, capital expenditures, the payment of dividends, repayment of long-term debt, and repurchases of our common stock.

Cash Flows

Cash flows provided by (used in) each type of activity were as follows for the years ended December 31:

Operating Activities

Cash flows provided by operating activities were $3,332 million, $3,062 million, and $1,888 million for the years ended December 31, 2024, 2023, and 2022, respectively.

Our largest source of operating cash is payments from customers, of which the largest component is collecting cash related to our sales of products and services, including advance payments or progress collections for work to be performed. The primary use of operating cash is to pay our suppliers, employees, tax authorities, and others for a wide range of goods and services.

Cash from operating activities is primarily generated from net income or loss adjusted for certain noncash items (including depreciation, amortization, gain or loss on equity securities, stock-based compensation cost, deferred tax benefit or provision, and the impairment of certain assets).

In 2024, net working capital cash generation was $7 million, mainly due to progress collections mostly offset by an increase in receivables, inventory, and contract assets as the business continues to expand. Included in the cash flows from operating activities in 2024 are payments of $217 million made primarily for employee severance as a result of our restructuring activities.

In 2023, net working capital cash generation was $42 million, mainly due to strong progress collections on equipment contracts, mostly offset by an increase in receivables and inventory due to expansion of the business.

In 2022, net working capital cash generation was $122 million primarily due to strong progress collections on equipment contracts and an increase in accounts payable, partially offset by the increase in receivables and inventory due to growth of the business.

Investing Activities

Cash flows used in investing activities were $1,016 million, $817 million, and $1,564 million for the years ended December 31, 2024, 2023, and 2022, respectively.

Our principal recurring investing activity is the funding of capital expenditures including property, plant and equipment ("PP&E") and software, to support and generate revenue from operations. Expenditures for capital assets were $1,278 million, $1,224 million, and $989 million for 2024, 2023, and 2022, respectively, partially offset by cash flows from the disposal of PP&E of $203 million, $208 million, and $217 million in 2024, 2023, and 2022, respectively. Proceeds from the disposal of assets are primarily related to equipment that was lost-in-hole, predominantly in OFSE, and PP&E no longer used in operations that was sold throughout the period.

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We had proceeds from the sale of certain equity securities of $92 million, $372 million, and $26 million in 2024, 2023, and 2022, respectively.

In 2023, we completed the acquisition of businesses for total cash consideration of $301 million, net of cash acquired, which consisted primarily of the acquisition of Altus Intervention in the OFSE segment. We also completed the sale of businesses and received total cash consideration of $293 million, which consisted primarily of the sale of our Nexus Controls business in the IET segment. In 2022, we completed the acquisition of businesses for total cash consideration of $767 million, net of cash acquired, including BRUSH Power Generation, Quest Integrity, AccessESP, and Mosaic Materials.

The Central Bank of Argentina maintains currency controls that limit our ability to access U.S. dollars and remit cash from our Argentine operations. There is an indirect foreign exchange mechanism known as a Blue Chip Swap that enables companies to transfer U.S. dollars out of and into Argentina, effectively at a parallel U.S. dollar exchange rate. In 2024 and 2023, we entered into transactions in order to remit cash from our Argentine operations resulting in a net loss and a net cash outflow of $7 million and $66 million, respectively, which is included in other investing activities.

Financing Activities

Cash flows used in financing activities were $1,527 million, $2,028 million, and $1,592 million for the years ended December 31, 2024, 2023, and 2022, respectively.

In 2024, we repaid long-term debt of $143 million primarily related to debentures that matured in the second quarter of 2024. In 2023, we repaid long-term debt of $651 million primarily related to certain senior notes that matured in December of 2023. Additionally, we increased our quarterly dividend by one cent to $0.21 per share during the first quarter of 2024. We paid dividends of $836 million, $786 million, and $726 million to our Class A stockholders in 2024, 2023, and 2022, respectively.

We repurchased and canceled 15.2 million, 16.3 million, and 29.7 million shares of Class A common stock for a total of $484 million, $538 million, and $828 million, for the years ended December 31, 2024, 2023, and 2022, respectively.

Cash Requirements

We believe cash on hand, cash flows from operating activities, the available revolving credit facility, access to our uncommitted lines of credit, and availability under our existing shelf registrations of debt will provide us with sufficient capital resources and liquidity in the short-term and long-term to manage our working capital needs, meet contractual obligations, fund capital expenditures and dividends, repay debt, repurchase our common stock, and support the development of our short-term and long-term operating strategies.

Our capital expenditures can be adjusted and managed by us to match market demand and activity levels. Based on current market conditions, capital expenditures in 2025 will be made at a rate that we estimate would equal up to 5% of annual revenue. The expenditures are expected to be used primarily for normal, recurring items necessary to support our business.

Based on our current outlook, we anticipate making income tax payments in the range of $1.0 billion to $1.1 billion in 2025.

Contractual Obligations and Commitments

Our material cash commitments from known contractual and other obligations consist primarily of obligations for long-term debt and related interest, leases for property and equipment, and purchase obligations as part of normal operations. Certain amounts included in our contractual obligations as of December 31, 2024 are based on our estimates and assumptions about these obligations, including their duration, anticipated actions by third parties and other factors.

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See "Note 9. Debt" of the Notes to Consolidated Financial Statements in Item 8 herein for information regarding scheduled maturities of our long-term debt. See "Note 8. Leases" of the Notes to Consolidated Financial Statements in Item 8 herein for information regarding scheduled maturities of our operating leases.

As of December 31, 2024, we had expected cash payments for estimated interest on our long-term debt and finance lease obligations of $249 million payable within the next twelve months and $2,468 million payable thereafter.

As of December 31, 2024, we had purchase obligations of $1,855 million payable within the next twelve months and $679 million payable thereafter. Our purchase obligations include expenditures for capital assets for 2025 as well as agreements to purchase goods or services or licenses that are enforceable and legally binding and that specify all significant terms, including: fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction.

Due to the uncertainty with respect to the timing of potential future cash outflows associated with our uncertain tax positions, we are unable to make reasonable estimates of the period of cash settlement, if any, to the respective taxing authorities. Therefore, $602 million in uncertain tax positions, including interest and penalties, have been excluded from the contractual obligations discussed above. See "Note 11. Income Taxes" of the Notes to Consolidated Financial Statements in Item 8 herein for further information.

Other Factors Affecting Liquidity

Registration Statement: In December 2023, Baker Hughes, together with BHH LLC and Baker Hughes Co-Obligor, Inc. filed a universal automatic shelf registration statement on Form S-3ASR with the SEC to have the ability to sell various types of securities including debt securities, Class A common stock, preferred stock, guarantees of debt securities, purchase contracts and units. The specific terms of any securities to be sold will be described in supplemental filings with the SEC. There were no sales of such securities during the year ended December 31, 2024. The registration statement will expire in December 2026.

Customer receivables: In line with industry practice, we may bill our customers for services provided in arrears dependent upon contractual terms. In a challenging economic environment, we may experience delays in the payment of our invoices due to customers' lower cash flow from operations or their more limited access to credit markets. While historically there have not been material non-payment events, we attempt to mitigate this risk through working with our customers to restructure their debts. With regard to our primary customer in Mexico, there have not historically been any material losses due to uncollectible accounts receivable, nor are any such balances currently in dispute. 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 our primary 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.

A customer's failure or delay in payment could have a material adverse effect on our short-term liquidity and results of operations. 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.

International operations: Our cash that is held outside the U.S. is 82% of the total cash balance as of December 31, 2024. Depending on the jurisdiction or country where this cash is held, we may not be able to use this cash quickly and efficiently due to exchange or cash controls that could make it challenging. As a result, our cash balance may not represent our ability to quickly and efficiently use this cash.

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Guarantor Financial Information

We guarantee various senior unsecured notes and senior unsecured debentures (collectively, the "Debt Securities") outstanding with an aggregate principal amount of $5,797 million as of December 31, 2024, with maturities ranging from 2026 to 2047. The Debt Securities constitute debt obligations of BHH LLC, an indirect, 100% owned subsidiary and the primary operating company of Baker Hughes, and Baker Hughes Co-Obligor, Inc, a 100% owned finance subsidiary of BHH LLC (together with BHH LLC, the "Issuers") that was incorporated for the sole purpose of serving as a corporate co-obligor of debt securities. The Debt Securities are fully and unconditionally guaranteed on a senior unsecured basis by the Company and rank equally in right of payment with all of the Company's other senior and unsecured debt obligations. However, because these obligations are not secured, they would be effectively subordinated to any existing or future secured indebtedness of Baker Hughes and the Issuers.

As required under SEC Rule 13-01, we have included summarized financial information for the Issuers because the combined assets, liabilities, and results of operations of the Issuers are materially different than the corresponding amounts in our consolidated financial statements due to the release of a valuation allowance for certain deferred tax assets.

CRITICAL ACCOUNTING ESTIMATES

An accounting policy is deemed to be critical if the nature of the estimate or assumption it incorporates is subject to a material level of judgment related to matters that are highly uncertain and changes in those estimates and assumptions are reasonably likely to materially impact our consolidated financial statements. These estimates reflect our best judgment about current, and for some estimates, future, economic and market conditions and their potential effects based on information available as of the date of these financial statements. If these conditions change from those expected, it is reasonably possible that the judgments and estimates described below could change, which may result in future impairments of goodwill, or the establishment of valuation allowances on deferred tax assets and increased tax liabilities, among other effects. Also, see "Note 1. Summary of Significant Accounting Policies" of the Notes to Consolidated Financial Statements in Item 8 herein, which discusses our most significant accounting policies.

The Audit Committee of the Board has reviewed our critical accounting estimates and the disclosure presented below. During the past three fiscal years, we have not made any material changes in the methodology used to establish the critical accounting estimates, and we believe that the following are the critical accounting estimates used in the preparation of our consolidated financial statements for the year ended December 31, 2024. There are other items within our consolidated financial statements that require estimation and judgment, but they are not deemed critical as defined above.

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Revenue Recognition on Long-Term Product Services Agreements

We have long-term service agreements with our customers, primarily within our IET segment. These agreements typically require us to maintain assets sold to the customer over a defined contract term. These agreements have an average contract term of greater than 10 years. From time to time, these contract terms may be extended through contract modifications or amendments, which may result in revisions to future billing and cost estimates. Revenue recognition on long-term product services agreements requires estimates of both customer payments and the costs to perform required maintenance services over the contract term. We recognize revenue on an over time basis using input methods to measure our progress toward completion at the estimated margin rate of the contract.

To develop our billing estimates, we consider the number of billable events that will occur based on estimated utilization of the asset under contract, over the life of the contract term. This estimated utilization will consider both historical and market conditions, asset retirements and new product introductions, if applicable.

To develop our cost estimates, we consider the timing and extent of maintenance and overhaul events, including the amount and cost of labor, spare parts and other resources required to perform the services. In developing our cost estimates, we utilize a combination of our historical cost experience and expected cost improvements. Cost improvements are only included in future cost estimates after savings have been observed in actual results or proven effective through an extensive regulatory or engineering approval process.

We routinely review the estimates used in our product services agreements and regularly revise them to adjust for changes. These revisions are based on objectively verifiable information that is available at the time of the review. We gain insight into expected future utilization and cost trends, as well as credit risk, through our knowledge of the equipment installed and the close interaction with our customers through supplying critical services and parts over extended periods.

Revisions to cost or billing estimates may affect a product services agreement's total estimated profitability resulting in an adjustment of earnings; such adjustments generated earnings of $(11) million, $15 million and $20 million for the three years ended December 31, 2024, 2023 and 2022, respectively. We provide for potential losses on any of these agreements when it is probable that we will incur the loss. Cash billings collected on these contracts were approximately $0.6 billion during the years ended December 31, 2024 and 2023. Our contracts (on average) are approximately 11% complete based on costs incurred to date and our estimate of future costs.

Revenue Recognition on Sale of Customized Equipment

We recognize revenue on agreements for sales of equipment manufactured to unique customer specifications including long-term construction projects, on an over time basis utilizing cost inputs as the measurement criteria in assessing the progress toward completion. Our estimation of the total costs required to fulfill our promise to a customer is generally based on our history of manufacturing similar assets for customers. This estimation of cost is critical to our revenue recognition process and is updated routinely to reflect changes in quantity or cost of the inputs. In certain projects, the underlying technology or promise to the customer is unique to what we have historically promised, and reliably estimating the total cost to fulfill the promise to the customer requires a significant level of judgment. We provide for potential losses on any of these agreements when it is probable that we will incur the loss. The total revenue recognized for the sale of equipment on an over time basis during the twelve months ended December 31, 2024, 2023 and 2022 was $8.5 billion, $6.1 billion, and $4.2 billion, respectively.

Goodwill and Other Long-Lived Assets

We perform an annual impairment test of goodwill for each of our reporting units as of July 1, or more frequently when circumstances indicate an impairment may exist at the reporting unit level. When performing the annual impairment test, we have the option of first performing a qualitative assessment to determine the existence of events and circumstances that would lead to a determination that it is more likely than not that the fair value of a reporting unit is greater than its carrying amount. If, after assessing the existence of events and circumstances, we determine it is more likely than not that the fair value of a reporting unit is greater than its carrying amount, there is no need to perform any further testing. However, if we conclude otherwise, we would be required to perform a quantitative impairment assessment of goodwill, which involves the use of significant estimates and assumptions

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and typically requires analysis of discounted cash flows and other market information, such as trading multiples, and comparable transactions.

Other long-lived assets, including property, plant and equipment and identifiable finite-lived intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable, and at least annually for indefinite-lived intangible assets. When testing for impairment, we group our long-lived assets with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. The determination of recoverability is made based upon the estimated undiscounted future net cash flows, which involves significant estimates and judgments on the part of management.

The determination of whether goodwill and other long-lived assets are impaired involves a significant level of judgment and estimation, and changes in our forecasts, business strategy, government regulations, or economic or market conditions, among other things, could significantly impact these judgments, potentially decreasing the fair value of one or more reporting units or long-lived assets. Any resulting impairment charges could have a material impact on our results of operations.

Income Taxes

Our effective tax rate is based on our income, statutory tax rates, and differences between tax laws and U.S. GAAP in various jurisdictions. Tax laws are complex and subject to different interpretations by the taxpayer and respective governmental taxing authorities. Our rate may be further impacted by the repatriation of foreign earnings that are considered indefinitely reinvested to the extent the repatriation would result in additional taxes such as withholding and income taxes. Indefinite reinvestment is determined by management’s judgment and intentions concerning the future operations of the Company. In cases where repatriation would otherwise incur significant withholding or income taxes, these foreign earnings have been indefinitely reinvested in active non-U.S. business operations. Computation of the potential deferred tax liability associated with these undistributed earnings and any other basis differences is not practicable.

Deferred income tax assets represent amounts available to reduce income taxes payable in future years. We routinely assess the recoverability of such assets, weighing available positive and negative evidence and recording a valuation allowance when it is more likely than not that some portion or all of the assets will not be realized. In undertaking such assessment, we first look to objective and verifiable evidence, the nature and severity of cumulative pretax losses, if any, based on a rolling three-year period, recent earnings history and associated trends or changes, and the nature of temporary differences, including predictability of reversal patterns and duration of carryforward. We then also evaluate other evidence such as projected financial results, sensitivity of such results to external factors or changes in assumptions, and prudent and readily available tax planning strategies that may alter the timing of reversal of the temporary differences. While we consider all available positive and negative evidence, certain objectively verifiable categories of evidence carry more weight in the analysis. For example, concluding that a valuation allowance is not required is difficult when there is significant negative evidence that is objective and verifiable, such as cumulative losses in recent years. While this would not be the sole determinate of the need for a valuation allowance, it does carry greater weight within the broader assessment when alongside other, more subjective evidence, including projections for future growth.

Our tax filings routinely are subject to audit by the tax authorities in the jurisdictions where we conduct business. These audits may result in assessments of additional taxes that are resolved with the tax authorities or through the courts. We have provided for the amounts we believe will ultimately result from these proceedings, but settlements of issues raised in these audits may affect our tax rate. We have $455 million of gross unrecognized tax benefits, excluding interest and penalties, at December 31, 2024. We are not able to reasonably estimate in which future periods these amounts ultimately will be settled.

Allowance for Credit Losses

The estimation of anticipated credit losses that may be incurred as we work through the invoice collection process with our customers requires us to make judgments and estimates regarding our customers' ability to pay amounts due to us. We monitor our customers' payment history and current creditworthiness to determine that collectability is reasonably assured. We also consider the overall business climate in which our customers operate.

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For accounts receivable, a loss allowance matrix is utilized to measure lifetime expected credit losses. The matrix contemplates historical credit losses by age of receivables, adjusted for any forward-looking information and management expectations. At December 31, 2024 and 2023, the allowance for credit losses totaled $232 million and $350 million of total gross accounts receivable, respectively. We believe that our allowance for credit losses is adequate to cover the anticipated credit losses under current conditions; however, uncertainties regarding changes in the financial condition of our customers, either adverse or positive, could impact the amount and timing of any additional credit losses that may be required.

NEW ACCOUNTING STANDARDS TO BE ADOPTED

See "Note 1. Summary of Significant Accounting Policies" of the Notes to Consolidated Financial Statements in Item 8 herein for further discussion of accounting standards to be adopted.

RELATED PARTY TRANSACTIONS

See "Note 18. Related Party Transactions" of the Notes to Consolidated Financial Statements in Item 8 herein for further discussion of related party transactions.

FORWARD-LOOKING STATEMENTS

This Form 10-K, including MD&A and certain statements in the Notes to Consolidated Financial Statements, contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act of 1934, as amended, (each a "forward-looking statement"). All statements, other than historical facts, including statements regarding the presentation of the Company's operations in future reports and any assumptions underlying any of the foregoing, are forward-looking statements. Forward-looking statements concern future circumstances and results and other statements that are not historical facts and are sometimes identified by the words "may," "will," "should," "potential," "intend," "expect," "would," "seek," "anticipate," "estimate," "overestimate," "underestimate," "believe," "could," "project," "predict," "continue," "target," "goal" or other similar words or expressions. Forward-looking statements are based upon current plans, estimates and expectations that are subject to risks, uncertainties and assumptions. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those indicated or anticipated by such forward-looking statements. The inclusion of such statements should not be regarded as a representation that such plans, estimates or expectations will be achieved. Important factors that could cause actual results to differ materially from such plans, estimates or expectations include, among others, the risk factors identified in the "Risk Factors" section of Part 1 of Item 1A of this Form 10-K and those set forth from time-to-time in other filings by the Company with the SEC. These documents are available through our website or through the SEC's Electronic Data Gathering and Analysis Retrieval (EDGAR) system at http://www.sec.gov.

Any forward-looking statements speak only as of this Annual Report. The Company does not undertake any obligation to update any forward-looking statements, whether as a result of new information or developments, future events or otherwise, except as required by law. Readers are cautioned not to place undue reliance on any of these forward-looking statements.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") should be read in conjunction with the consolidated financial statements included in Item 8. Financial Statements and Supplementary Data contained herein.

For management's discussion and analysis of our financial condition and results of operations for fiscal year 2022 as compared to fiscal year 2021 please refer to Part II, Item 7. "Management's discussion and analysis of financial condition and results of operations" on Form 10-K for our fiscal year ended December 31, 2022, filed with the Securities and Exchange Commission ("SEC") on February 14, 2023.

EXECUTIVE SUMMARY

We are an energy technology company with a broad and diversified portfolio of technologies and services that span the energy and industrial value chain. We operate through our two business segments: OFSE and IET. We sell products and services primarily in the global oil and gas markets, within the upstream, midstream and downstream segments, as well as broader industrial and new energy markets.

During 2023, Baker Hughes built strong momentum across the Company with significant improvement in our financial results over 2022. In OFSE, we saw key commercial successes and solid margin improvements, and in IET, we benefited from robust growth in LNG orders, driving RPO to levels that provides meaningful revenue visibility. Overall, we capitalized on market tailwinds to deliver strong revenue growth across both segments, began realizing the full benefits of our cost-out initiatives, and continued to transform how we operate. We also achieved significant growth in new energy orders compared to 2022 as we continue to experience growing demand for decarbonization solutions across the Company's IET and OFSE portfolios.

As we look to 2024, we remain balanced on the oil and gas outlook but continue to see areas of strength across our portfolio despite persisting economic uncertainty. We continue to believe in a multiyear upstream spending cycle, which, we believe, will be more durable and less sensitive to commodity price swings relative to prior cycles and led by international and offshore markets. Continued discipline from the world's largest producers and the pace of oil demand growth in the face of economic uncertainty, will remain important factors to monitor as we look into 2024. Oil and gas prices have experienced volatility in the fourth quarter of 2023 and beginning of 2024, and this will likely have some influence on upstream development plans, particularly for shorter-cycle spending budgets.

Additionally, the conflict in the Middle East has added another element of uncertainty across the oil and gas markets. While this conflict has not had a material impact on our operations, a further escalation in geopolitical tensions across the region could impact the Company. We will continue to monitor and assess the impact of the conflict in the Middle East on our business. Furthermore, in IET, the aeroderivative supply chain continues to show signs of tightness, which we will continue to manage operationally.

We also remain optimistic on the LNG outlook, seeing a continued shift towards the development of natural gas and LNG. As a result, the LNG project pipeline remains strong, both in the U.S. and internationally. As the world increasingly recognizes the crucial role natural gas is expected to play in the energy transition, serving as both a transition and destination fuel, we believe it will be fundamental in satisfying the world's energy needs for many decades to come.

Financial Results

In 2023, the Company generated revenue of $25.5 billion, compared to $21.2 billion in 2022, increasing $4.4 billion or 21%. The increase in revenue was primarily driven by higher volume in IET on Gas Technology Equipment project backlog execution and stronger activity in OFSE. Income before tax was $2,655 million in 2023 compared to $22 million in 2022, increasing $2,633 million. The increase in income before tax was driven by higher volume and price in both segments and structural cost-out initiatives, positive effect from the change in fair value on certain equity securities, and lower restructuring and impairment charges.

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Our journey of transformation continues. The business has undertaken significant structural changes, and we see the cost-out performance coming through our operating results. We have made significant progress; however, there is still more work to do to further identify areas to simplify and create efficiencies and modernize how the business operates, including actions launched in OFSE to remove duplication and further streamline the business.

Baker Hughes remains committed to a flexible capital allocation policy that balances returning cash to shareholders and investing in growth opportunities. We increased our quarterly dividend in the third quarter of 2023 by one cent to $0.20 per share. For the full year of 2023, we returned a total of $1.3 billion to shareholders in the form of dividends and share repurchases. We continue to invest in the Baker Hughes portfolio through strategic acquisitions. In 2023, we completed the acquisition of Altus Intervention, a leading international provider of well intervention services and downhole technology, which significantly enhances OFSE's existing portfolio. We also completed the sale of the Nexus Controls business in April 2023.

Outlook

Our business is exposed to a number of macro factors, which influence our outlook and expectations given the current volatile conditions in the industry. All of our outlook expectations are purely based on the market as we see it today and are subject to changing conditions in the industry.

•OFSE North America activity: After trending lower most of 2023 due to lower activity from private exploration & production operators and in gas basins, North American activity has recently stabilized. However, we see a slow start to 2024 and anticipate only a modest recovery in activity during the second half of 2024.

•OFSE International activity: We expect spending outside of North America to experience moderate growth in 2024, as compared to 2023.

•IET LNG projects: We remain optimistic on the LNG market long-term and view natural gas as a transition and destination fuel. We continue to view the long-term economics of the LNG industry as positive.

We have other businesses in our portfolio that are more correlated with various industrial metrics, including global GDP growth. We also have businesses within our portfolio that are exposed to new energy solutions, specifically focused around reducing carbon emissions of the energy and broader industry, including hydrogen, geothermal, CCUS, energy storage, clean power and emissions abatement solutions. We expect to see continued growth in these businesses as new energy solutions become a more prevalent part of the broader energy mix.

Overall, we believe our portfolio is well positioned to compete across the energy value chain and deliver comprehensive solutions for our customers. We remain optimistic about the long-term economics of the oil and gas industry, but we are continuing to operate with flexibility. Over time, we believe the world's demand for energy will continue to rise, and that hydrocarbons will play a major role in meeting the world's energy needs for the foreseeable future. As such, we remain focused on delivering innovative, low-emission, and cost-effective solutions that deliver step changes in operating and economic performance for our customers.

BUSINESS ENVIRONMENT

The following discussion and analysis summarizes the significant factors affecting our results of operations, financial condition and liquidity position as of and for the years ended December 31, 2023 and 2022, and should be read in conjunction with the consolidated financial statements and related notes of the Company.

Our revenue is predominately generated from the sale of products and services to major, national, and independent oil and natural gas companies worldwide, and is dependent on spending by our customers for oil and natural gas exploration, field development and production. This spending is driven by a number of factors, including our customers' forecasts of future energy demand and supply, their access to resources to develop and produce oil and natural gas, their ability to fund their capital programs, the impact of new government regulations, and their expectations for oil and natural gas prices as a key driver of their cash flows.

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Oil and Natural Gas Prices

Oil and natural gas prices are summarized in the table below as averages of the daily closing prices during each of the periods indicated.

(1)Energy Information Administration ("EIA") Europe Brent Spot Price per Barrel

(2)EIA Cushing, OK West Texas Intermediate ("WTI") spot price

(3)EIA Henry Hub Natural Gas Spot Price per million British Thermal Unit

Outside North America, customer spending is influenced by Brent oil prices. The average Brent oil prices decreased to $82.49/Bbl in 2023 from $100.93/Bbl in 2022 and ranged from a low of $71.03/Bbl in March 2023, to a high of $97.10/Bbl in September 2023.

In North America, customer spending is influenced by WTI oil prices, which similarly to Brent oil prices, on average decreased to $77.58/Bbl in 2023 from $94.90/Bbl in 2022, and ranged from a low of $66.61/Bbl in March 2023, to a high of $93.67/Bbl in September 2023.

In North America, natural gas prices, as measured by the Henry Hub Natural Gas Spot Price, averaged $2.53/mmBtu in 2023, representing a 61% decrease over the prior year. Throughout the year, Henry Hub Natural Gas Spot Prices ranged from a high of $3.78/mmBtu in January 2023, to a low of $1.74/mmBtu in June 2023. According to the U.S. Department of Energy, working natural gas in storage at the end of 2023 was 3,476 billion cubic feet ("Bcf"), which was 20%, or 585 Bcf, below the corresponding week in 2022.

Baker Hughes Rig Count

The Baker Hughes rig counts are an important business barometer for the drilling industry and its suppliers. When drilling rigs are active they consume products and services produced by the oil service industry. Rig count trends are driven by the exploration and development spending by oil and natural gas companies, which in turn is influenced by current and future price expectations for oil and natural gas. The counts may reflect the relative strength and stability of energy prices and overall market activity; however, these counts should not be solely relied on as other specific and pervasive conditions may exist that affect overall energy prices and market activity.

We have been providing rig counts to the public since 1944. We gather all relevant data through our field service personnel, who obtain the necessary data from routine visits to the various rigs, customers, contractors and other outside sources as necessary. We base the classification of a well as either oil or natural gas primarily upon filings made by operators in the relevant jurisdiction. This data is then compiled and distributed to various wire services and trade associations and is published on our website. We believe the counting process and resulting data is reliable; however, it is subject to our ability to obtain accurate and timely information. Rig counts are compiled weekly for the U.S. and Canada and monthly for all international rigs. Published international rig counts do not include rigs drilling in certain locations, such as onshore China because this information is not readily available.

Rigs in the U.S. and Canada are counted as active if, on the day the count is taken, the well being drilled has been started but drilling has not been completed and the well is anticipated to be of sufficient depth to be a potential consumer of our drill bits. In international areas, rigs are counted on a weekly basis and deemed active if drilling activities occurred during the majority of the week. The weekly results are then averaged for the month and published accordingly. The rig count does not include rigs that are in transit from one location to another, rigging up, being used in non-drilling activities including production testing, completion and workover, and are not expected to be significant consumers of drill bits.

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The rig counts are summarized in the table below as averages for each of the periods indicated.

2023 Compared to 2022

The worldwide rig count was 1,812 in 2023, an increase of 4% as compared to 2022 primarily due to an increase in activity internationally partially offset by a decline in North America. The rig count in North America decreased 4% and the international rig count increased 11% in 2023 compared to 2022.

Within North America, the decrease was primarily driven by the U.S. rig count, which was down 5% on average when compared to the same period last year, partially offset by an increase in the Canada rig count, which was up 1% on average. Internationally, the increase in the rig count was driven by increases in the Africa, Europe, Asia-Pacific, Middle East, and Latin America regions of 24%, 22%, 11%, 8%, and 6%, respectively.

RESULTS OF OPERATIONS

The discussions below relating to significant line items from our consolidated statements of income (loss) are based on available information and represent our analysis of significant changes or events that impact the comparability of reported amounts. Where appropriate, we have identified specific events and changes that affect comparability or trends and, where reasonably practicable, have quantified the impact of such items. In addition, the discussions below for revenue and cost of revenue are on a total basis as the business drivers for product sales and services are similar. All dollar amounts in tabulations in this section are in millions of dollars, unless otherwise stated. Certain columns and rows may not add due to the use of rounded numbers.

Our results of operations are evaluated by the Chief Executive Officer on a consolidated basis as well as at the segment level. The performance of our operating segments is primarily evaluated based on segment operating income (loss), which is defined as income (loss) before income taxes and before the following: net interest expense, net other non-operating income (loss), corporate expenses, restructuring, impairment and other charges, inventory impairments, and certain gains and losses not allocated to the operating segments.

In evaluating the segment performance, the Company primarily uses the following:

Volume: Volume is defined as the increase or decrease in products and/or services sold period-over-period excluding the impact of foreign exchange and price. The volume impact on profit is calculated by multiplying the prior period profit rate by the change in revenue volume between the current and prior period. Volume also includes price, which is defined as the change in sales price for a comparable product or service period-over-period and is calculated as the period-over-period change in sales prices of comparable products and services.

Foreign Exchange ("FX"): FX measures the translational foreign exchange impact, or the translation impact of the period-over-period change on sales and costs directly attributable to change in the foreign exchange rate compared to the U.S. dollar. FX impact is calculated by multiplying the functional currency amounts (revenue or profit) with the period-over-period FX rate variance, using the average exchange rate for the respective period.

(Inflation)/Deflation: (Inflation)/deflation is defined as the increase or decrease in direct and indirect costs of the same type for an equal amount of volume. It is calculated as the year-over-year change in cost (i.e. price paid) of direct material, compensation and benefits, and overhead costs.

Productivity: Productivity is measured by the remaining variance in profit, after adjusting for the period-over-period impact of volume and price, foreign exchange and (inflation)/deflation as defined above. Improved or lower period-over-period cost productivity is the result of cost efficiencies or inefficiencies, such as cost decreasing or increasing more than volume, or cost increasing or decreasing less than volume, or changes in sales mix among segments. This also includes the period-over-period variance of transactional foreign exchange, aside from those foreign currency devaluations that are reported separately for business evaluation purposes.

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Orders and Remaining Performance Obligations

Our consolidated statements of income (loss) displays sales and costs of sales in accordance with SEC regulations under which "goods" is required to include all sales of tangible products and "services" must include all other sales, including other services activities. For the amounts shown below, we distinguish between "equipment" and "product services," where product services refers to sales under product services agreements, including sales of both goods (such as spare parts and equipment upgrades) and related services (such as monitoring, maintenance and repairs), which is an important part of our operations. We refer to "product services" simply as "services" within Management's Discussion and Analysis of Financial Condition and Results of Operations.

Orders: We recognized orders of $30.5 billion and $26.8 billion in 2023 and 2022, respectively. We recognized OFSE orders of $16.3 billion and $14.1 billion, and IET orders of $14.2 billion and $12.7 billion in 2023 and 2022, respectively. Within IET, Gas Technology orders were $10.4 billion and $9.2 billion, Industrial Technology orders were $3.2 billion and $3.1 billion, and CTS orders were $0.6 billion and $0.4 billion in 2023 and 2022, respectively. References to total new energy orders incorporates CTS in IET of $0.6 billion and OFSE of $0.2 billion.

Remaining Performance Obligations ("RPO"): As of December 31, 2023, the aggregate amount of the transaction price allocated to the unsatisfied (or partially unsatisfied) performance obligations was $33.5 billion. As of December 31, 2023, OFSE remaining performance obligations totaled $3.5 billion, and IET remaining performance obligations totaled $29.9 billion.

Revenue and Operating Income

Summarized financial information for the Company's segments is shown in the following tables.

(1)The sale of our controls business was completed in April 2023.

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The following table presents Oilfield Services & Equipment revenue by geographic region:

(1)Impacted by the discontinuation of our Russia operations that occurred in 2022.

The following table presents segment operating income through to net income (loss) for the Company.

(1)Charges for inventory impairments are reported in "Cost of goods sold" in the consolidated statements of income (loss).

Fiscal Year 2023 to Fiscal Year 2022

Revenue increased $4,350 million, or 21%, driven by increased activity across both segments. OFSE increased $2,131 million and IET increased $2,219 million. Total segment operating income increased $719 million, primarily driven by OFSE and to a lesser extent IET.

Oilfield Services & Equipment

OFSE revenue of $15,361 million increased $2,131 million, or 16%, in 2023 compared to 2022, as a result of increased activity as evidenced by an increase in the global rig count. International revenue was $11,245 million in 2023, an increase of $1,779 million from 2022, primarily driven by the Middle East/Asia and Latin America regions, partially offset by lower volume due to the discontinuation of our Russia operations that occurred in 2022. North America revenue was $4,116 million in 2023, an increase of $352 million from 2022.

OFSE segment operating income was $1,746 million in 2023 compared to $1,201 million in 2022. The increase in operating income was primarily driven by higher volume, price and cost-out initiatives, partially offset by inflationary pressure and lower cost productivity.

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Industrial & Energy Technology

IET revenue of $10,145 million increased $2,219 million, or 28%, in 2023 compared to 2022. The increase was primarily driven by higher volume in Gas Technology Equipment and, to a lesser extent, in CTS, Industrial Technology and Gas Technology Services.

IET segment operating income was $1,310 million in 2023 compared to $1,135 million in 2022. The operating income performance in 2023 was driven by higher volume, price and cost-out initiatives, partially offset by unfavorable business mix and cost productivity, inflationary pressure, and higher research and development costs related to new energy investments.

Corporate

In 2023, corporate expenses were $380 million compared to $416 million in 2022. The decrease of $36 million was driven by savings related to our corporate optimization process.

Inventory Impairment

In 2023, we recorded inventory impairments of $35 million, predominately in the OFSE segment related to exit activities at specific locations. In 2022, we recorded inventory impairments of $31 million, primarily in the IET segment as part of suspending our Russia operations. Charges for inventory impairments are reported in "Cost of goods sold" in the consolidated statements of income (loss).

Restructuring, Impairment and Other

In 2023, we recognized $323 million of restructuring, impairment, and other charges. We continued to incur charges in 2023 related to our plan initiated in 2022 that consisted primarily of employee termination expenses driven by actions taken to facilitate our reorganization into two segments and to optimize our corporate structure. Restructuring charges for 2023 also include costs related to exit activities at specific locations in our segments to align with the current market outlook and to rationalize our manufacturing supply chain footprint. In the fourth quarter of 2023, we incurred additional costs related to a planned workforce reduction, primarily in OFSE.

In 2022, we recognized $705 million of restructuring, impairment, and other charges primarily related to the suspension of substantially all of our operations in Russia, and the impairment of certain long-lived assets in the OFSE segment for the subsea production systems business due to a decrease in the estimated future cash flows driven by a decline in our long-term market outlook for this business.

Other Non-Operating Income (Loss), Net

In 2023, we incurred $554 million of other non-operating income. Included in this amount was a gain of $555 million from the change in fair value for certain equity investments.

In 2022, we incurred $911 million of other non-operating losses primarily due to the loss of $451 million from the sale of part of the OFSE business in Russia and a loss of $265 million from the change in fair value for certain equity investments. Additionally, in December 2022, the Company, Baker Hughes Holdings, LLC ("BHH LLC") and GE entered into an agreement which resulted in the termination of the Tax Matters Agreement ("TMA"), and as a result, we incurred a charge of $81 million, of which $21 million was a cash payment to GE as a net settlement of claims asserted under the TMA. The TMA governed the administration and allocation between the parties of tax liabilities and benefits arising prior to, as a result of, and subsequent to the merger in 2017, including the respective rights, responsibilities, and obligations of the parties with respect to various other tax matters.

Interest Expense, Net

In 2023, we incurred net interest expense of $216 million, which includes interest income of $84 million. Net interest expense decreased $36 million compared to 2022, primarily driven by higher interest income.

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Income Taxes

In 2023, the provision for income taxes was $685 million. The difference between the U.S. statutory tax rate of 21% and the effective tax rate is primarily related to income in jurisdictions with tax rates higher than in the U.S. and losses with no tax benefit due to valuation allowances, partially offset by income subject to U.S. tax at an effective rate less than 21% due to valuation allowances.

In 2022, the provision for income taxes was $600 million. The difference between the U.S. statutory tax rate of 21% and the effective tax rate is primarily related to losses with no tax benefit due to valuation allowances, restructuring charges for which a majority has no tax benefit, and earnings in jurisdictions with tax rates higher than in the U.S.

In 2021, as part of the Organization for Economic Co-operation and Development's ("OECD") Inclusive Framework, 140 member countries agreed to the implementation of the Pillar Two Global Minimum Tax ("Pillar Two") of 15%. The OECD continues to release additional guidance, including administrative guidance on how Pillar Two rules should be interpreted and applied by jurisdictions as they adopt Pillar Two. A number of countries have utilized the administrative guidance as a starting point for legislation that is effective January 1, 2024. Baker Hughes is continuing to evaluate the potential impact on future periods of Pillar Two, pending legislative adoption by individual countries.

COMPLIANCE

In the conduct of all of our activities, we are committed to maintaining the core values of our Company, as well as high safety, ethical, and quality standards as also reported in our Quality Management System. We believe such a commitment is integral to running a sound, successful, and sustainable business. We devote significant resources to maintain a comprehensive global ethics and compliance program ("Compliance Program") which is designed to prevent, detect, and appropriately respond to any potential violations of the law, the Code of Conduct, and other Company policies and procedures.

Highlights of our Compliance Program include the following:

•Comprehensive internal policies over such areas as anti-bribery; travel, entertainment, gifts and charitable donations to government officials and other parties; payments to commercial sales representatives; and, the use of non-U.S. police or military organizations for security purposes. In addition, there are policies and procedures to address customs requirements, visa processing risks, export and re-export controls, economic sanctions, anti-money laundering and anti-boycott laws.

•Global and independent structure of Chief Compliance Officer and other compliance professionals providing compliance advice, customized training and governance, as well as investigating allegations across all regions and countries where we do business.

•Comprehensive employee compliance training program that combines instructor-led and web-based training modules tailored to the key risks that employees face on an ongoing basis.

•Due diligence and monitoring procedures for third parties who conduct business on our behalf, including channel partners (sales representatives, distributors, resellers), and administrative service providers.

•Due diligence procedures for acquisition activities.

•Specifically tailored compliance risk assessments and audits focused on country and third party risk.

•Compliance Review Board comprised of senior officers of the Company that meets quarterly to monitor effectiveness of the Compliance Program, as well as segment compliance review boards that meet quarterly.

•Technology to monitor and report on compliance matters, including an internal investigations management system, a conflict of interest reporting and management system, a web-based anti-boycott reporting tool, global trade management systems and comprehensive watch list screening.

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•Data privacy compliance policies and procedures to ensure compliance with applicable data privacy requirements.

•A compliance program designed to create an "Open Reporting Environment" where employees are encouraged to report any ethics or compliance matter without fear of retaliation, including a global network of trained employee ombudspersons, and a worldwide, 24-hour business helpline operated by a third party and available in approximately 200 languages.

•Centralized finance organization with company-wide policies.

•Anti-corruption audits of high-risk countries, as well as risk-based compliance audits of third parties.

•We have region-specific processes and procedures for management of HR related issues, including pre-hire screening of employees; a process to screen existing employees prior to promotion into select roles where they may be exposed to finance and/or corruption-related risks; and implementation of a global new hire training module which includes compliance training for all employees.

LIQUIDITY AND CAPITAL RESOURCES

Our objective in financing our business is to maintain sufficient liquidity, adequate financial resources, and financial flexibility in order to fund the requirements of our business. We continue to maintain solid financial strength and liquidity. At December 31, 2023, we had cash and cash equivalents of $2.6 billion compared to $2.5 billion at December 31, 2022.

In the U.S. we held cash and cash equivalents of approximately $0.6 billion as of December 31, 2023 and 2022, and outside the U.S. of approximately $2.0 billion and $1.9 billion as of December 31, 2023 and 2022, respectively. A substantial portion of the cash held outside the U.S. at December 31, 2023 has been reinvested in active non-U.S. business operations. If we decide at a later date to repatriate certain cash to the U.S., we may incur other additional taxes that would not be significant to the total tax provision.

As of December 31, 2023 and 2022, we had $637 million and $605 million, respectively, of cash held in countries with currency controls that limit the flow of cash out of the jurisdiction or limit our ability to transfer funds without potentially incurring substantial costs. These funds are available to fund operations and growth in their respective jurisdictions, and we do not currently anticipate a need to transfer these funds to the U.S.

In November 2023, BHH LLC entered into a $3 billion committed unsecured revolving credit facility ("the New Credit Agreement") with commercial banks maturing in November 2028. The New Credit Agreement contains certain representations and warranties, certain affirmative covenants and negative covenants, in each case we consider customary. Upon the occurrence of certain events of default, our obligations under the New Credit Agreement may be accelerated. Such events of default include payment defaults to lenders under the New Credit Agreement and other customary defaults. No such events of default have occurred. The New Credit Agreement is fully and unconditionally guaranteed on a senior unsecured basis by Baker Hughes. In addition, we have authorization to issue up to $3 billion of commercial paper. At December 31, 2023 and 2022, there were no borrowings under the New Credit Agreement and no outstanding commercial paper.

Certain Senior Notes contain covenants that restrict our ability to take certain actions. See "Note 9. Debt" of the Notes to Consolidated Financial Statements in this Annual Report for further details. At December 31, 2023, we were in compliance with all debt covenants. Our next debt maturity is June 2024.

We continuously review our liquidity and capital resources. If market conditions were to change, for instance due to the uncertainty created by geopolitical events, a global pandemic or a significant decline in oil and gas prices, and our revenue was reduced significantly or operating costs were to increase significantly, our cash flows and liquidity could be negatively impacted. Additionally, it could cause the rating agencies to lower our credit ratings. There are no ratings triggers that would accelerate the maturity of any borrowings under our committed credit facility; however, a downgrade in our credit ratings could increase the cost of borrowings under the credit facility and could also limit or preclude our ability to issue commercial paper. Should this occur, we could seek alternative sources of funding, including borrowing under the credit facility.

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During the year ended December 31, 2023, we dispersed cash to fund a variety of activities including certain working capital needs, capital expenditures, business acquisitions, the payment of dividends, repayment of long-term debt, and repurchases of our common stock.

Cash Flows

Cash flows provided by (used in) each type of activity were as follows for the years ended December 31:

Operating Activities

Cash flows from operating activities generated cash of $3,062 million and $1,888 million for the years ended December 31, 2023 and 2022, respectively.

Our largest source of operating cash is payments from customers, of which the largest component is collecting cash related to our sales of products and services including advance payments or progress collections for work to be performed. The primary use of operating cash is to pay our suppliers, employees, tax authorities, and others for a wide range of goods and services.

In 2023, cash generated from operating activities were primarily driven by net income adjusted for certain noncash items (including depreciation, amortization, gain on equity securities, stock-based compensation cost, deferred tax benefit, and the impairment of certain assets). Net working capital cash generation was $42 million mainly due to strong progress collections on equipment contracts, mostly offset by an increase in receivables and inventory as we continue to build for growth. Included in our 2023 cash flows from operating activities are payments of $142 million made primarily for employee severance as a result of our restructuring activities.

In 2022, cash generated from operating activities were primarily driven by net losses adjusted for certain noncash items (including depreciation, amortization, loss on business dispositions, stock-based compensation cost, deferred tax provision, loss on equity securities, and the impairment of certain assets). Working capital, which includes contract and other deferred assets, generated cash of $122 million in 2022 mainly due to strong progress collections on equipment contracts and an increase in accounts payable, partially offset by the increase in receivables and inventory as we build for revenue growth.

Investing Activities

Cash flows from investing activities used cash of $817 million and $1,564 million for the years ended December 31, 2023 and 2022, respectively.

Our principal recurring investing activity is the funding of capital expenditures including property, plant and equipment ("PP&E") and software, to support and generate revenue from operations. Expenditures for capital assets were $1,224 million and $989 million for 2023 and 2022, respectively, partially offset by cash flows from the disposal of PP&E of $208 million and $217 million in 2023 and 2022, respectively. Proceeds from the disposal of assets are primarily related to equipment that was lost-in-hole, predominantly in OFSE, and PP&E no longer used in operations that was sold throughout the period.

We had proceeds from the sale of certain equity securities of $372 million and $26 million in 2023 and 2022, respectively. In addition, in 2023, we completed the acquisition of businesses for total cash consideration of $301 million, net of cash acquired, which consisted primarily of the acquisition of Altus Intervention in the OFSE segment. We also completed the sale of businesses and received total cash consideration of $293 million, which consisted primarily of the sale of our Nexus Controls business in the IET segment.

The Central Bank of Argentina maintains currency controls that limit our ability to access U.S. dollars and remit cash from our Argentine operations. There is an indirect foreign exchange mechanism known as a Blue Chip Swap

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that enables companies to transfer U.S. dollars out of and into Argentina, effectively at a parallel U.S. dollar exchange rate. In 2023, we entered into transactions in order to remit cash from our Argentine operations resulting in a net loss and a net cash outflow of $66 million, which is included in other investing activities.

In 2022, we completed the acquisition of businesses for total cash consideration of $767 million, net of cash acquired, including BRUSH Power Generation, Quest Integrity, AccessESP, and Mosaic Materials.

Financing Activities

Cash flows from financing activities used cash of $2,028 million and $1,592 million for the years ended December 31, 2023 and 2022, respectively.

In 2023, we repaid long-term debt of $651 million primarily related to certain senior notes that matured in December. Additionally, we increased our quarterly dividend by one cent to $0.20 per share during the third quarter of 2023. We paid dividends of $786 million and $726 million to our Class A stockholders, and we made distributions of nil and $17 million to GE in 2023 and 2022, respectively.

In 2023, we repurchased and canceled 16.3 million shares of Class A common stock for a total of $538 million. In 2022, we repurchased and canceled 29.7 million shares of Class A common stock for a total of $828 million.

Cash Requirements

We believe cash on hand, cash flows from operating activities, the available revolving credit facility, access to both commercial paper and our uncommitted lines of credit, and availability under our existing shelf registrations of debt will provide us with sufficient capital resources and liquidity in the short-term and long-term to manage our working capital needs, meet contractual obligations, fund capital expenditures and dividends, repay debt, repurchase our common stock, and support the development of our short-term and long-term operating strategies.

Our capital expenditures can be adjusted and managed by us to match market demand and activity levels. Based on current market conditions, capital expenditures in 2024 will be made at a rate that we estimate would equal up to 5% of annual revenue. The expenditures are expected to be used primarily for normal, recurring items necessary to support our business. We also anticipate making income tax payments in the range of $800 million to $850 million in 2024.

Contractual Obligations and Commitments

Our material cash commitments from known contractual and other obligations consist primarily of obligations for long-term debt and related interest, leases for property and equipment, and purchase obligations as part of normal operations. Certain amounts included in our contractual obligations as of December 31, 2023 are based on our estimates and assumptions about these obligations, including their duration, anticipated actions by third parties and other factors.

See "Note 9. Debt" of the Notes to Consolidated Financial Statements in Item 8 herein for information regarding scheduled maturities of our long-term debt. See "Note 8. Leases" of the Notes to Consolidated Financial Statements in Item 8 herein for information regarding scheduled maturities of our operating leases.

As of December 31, 2023, we had expected cash payments for estimated interest on our long-term debt and finance lease obligations of $253 million payable within the next twelve months and $2,687 million payable thereafter.

As of December 31, 2023, we had purchase obligations of $1,871 million payable within the next twelve months and $875 million payable thereafter. Our purchase obligations include expenditures for capital assets for 2024 as well as agreements to purchase goods or services or licenses that are enforceable and legally binding and that specify all significant terms, including: fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction.

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Due to the uncertainty with respect to the timing of potential future cash outflows associated with our uncertain tax positions, we are unable to make reasonable estimates of the period of cash settlement, if any, to the respective taxing authorities. Therefore, $629 million in uncertain tax positions, including interest and penalties, have been excluded from the contractual obligations discussed above. See "Note 11. Income Taxes" of the Notes to Consolidated Financial Statements in Item 8 herein for further information.

Other Factors Affecting Liquidity

Registration Statement: In December 2023, Baker Hughes, together with BHH LLC and Baker Hughes Co-Obligor, Inc. filed a universal automatic shelf registration statement on Form S-3ASR with the SEC to have the ability to sell various types of securities including debt securities, Class A common stock, preferred stock, guarantees of debt securities, purchase contracts and units. The specific terms of any securities to be sold will be described in supplemental filings with the SEC. The registration statement will expire in December 2026.

Customer receivables: In line with industry practice, we may bill our customers for services provided in arrears dependent upon contractual terms. In a challenging economic environment, we may experience delays in the payment of our invoices due to customers' lower cash flow from operations or their more limited access to credit markets. While historically there have not been material non-payment events, we attempt to mitigate this risk through working with our customers to restructure their debts. A customer's failure or delay in payment could have a material adverse effect on our short-term liquidity and results of operations. 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. As of December 31, 2022, 15% 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.

International operations: Our cash that is held outside the U.S. is 75% of the total cash balance as of December 31, 2023. Depending on the jurisdiction or country where this cash is held, we may not be able to use this cash quickly and efficiently due to exchange or cash controls that could make it challenging. As a result, our cash balance may not represent our ability to quickly and efficiently use this cash.

Guarantor Information

Baker Hughes has senior unsecured notes and senior unsecured debentures (collectively the "Debt Securities") outstanding with an aggregate principal amount of $5,908 million as of December 31, 2023, with maturities ranging from 2024 to 2047. The Debt Securities constitute debt obligations of BHH LLC, an indirect, 100% owned subsidiary and the primary operating company of Baker Hughes, and Baker Hughes Co-Obligor, Inc, a 100%-owned finance subsidiary of BHH LLC (the "Issuers") that was incorporated for the sole purpose of serving as a corporate co-obligor of debt securities. The Debt Securities are fully and unconditionally guaranteed on a senior unsecured basis by Baker Hughes and rank equally in right of payment with all of the Company's other senior and unsecured debt obligations.

As permitted under Rule 13-01(a)(4)(vi) of Regulation S-X, we have excluded summarized financial information for the Issuers because the combined assets, liabilities, and results of operations of the Issuers are not materially different than the corresponding amounts in Baker Hughes Company's consolidated financial statements and management believes such summarized financial information would be repetitive and would not provide incremental value to investors.

CRITICAL ACCOUNTING ESTIMATES

An accounting policy is deemed to be critical if the nature of the estimate or assumption it incorporates is subject to a material level of judgment related to matters that are highly uncertain and changes in those estimates and assumptions are reasonably likely to materially impact our consolidated financial statements. These estimates reflect our best judgment about current, and for some estimates, future, economic and market conditions and their potential effects based on information available as of the date of these financial statements. If these conditions change from those expected, it is reasonably possible that the judgments and estimates described below could change, which may result in future impairments of goodwill, or the establishment of valuation allowances on deferred tax assets and increased tax liabilities, among other effects. Also, see "Note 1. Summary of Significant

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Accounting Policies" of the Notes to Consolidated Financial Statements in Item 8 herein, which discusses our most significant accounting policies.

The Audit Committee of the Board has reviewed our critical accounting estimates and the disclosure presented below. During the past three fiscal years, we have not made any material changes in the methodology used to establish the critical accounting estimates, and we believe that the following are the critical accounting estimates used in the preparation of our consolidated financial statements for the year ended December 31, 2023. There are other items within our consolidated financial statements that require estimation and judgment, but they are not deemed critical as defined above.

Revenue Recognition on Long-Term Product Services Agreements

We have long-term service agreements with our customers within our IET segment. These agreements typically require us to maintain assets sold to the customer over a defined contract term. These agreements have average contract terms of greater than 10 years. From time to time, these contract terms may be extended through contract modifications or amendments, which may result in revisions to future billing and cost estimates. Revenue recognition on long-term product services agreements requires estimates of both customer payments and the costs to perform required maintenance services over the contract term. We recognize revenue on an over time basis using input method to measure our progress toward completion at the estimated margin rate of the contract.

To develop our billings estimates, we consider the number of billable events that will occur based on estimated utilization of the asset under contract, over the life of the contract term. This estimated utilization will consider both historical and market conditions, asset retirements and new product introductions, if applicable.

To develop our cost estimates, we consider the timing and extent of maintenance and overhaul events, including the amount and cost of labor, spare parts and other resources required to perform the services. In developing our cost estimates, we utilize a combination of our historical cost experience and expected cost improvements. Cost improvements are only included in future cost estimates after savings have been observed in actual results or proven effective through an extensive regulatory or engineering approval process.

We routinely review the estimates used in our product services agreements and regularly revise them to adjust for changes. These revisions are based on objectively verifiable information that is available at the time of the review. We gain insight into expected future utilization and cost trends, as well as credit risk, through our knowledge of the equipment installed and the close interaction with our customers through supplying critical services and parts over extended periods.

Revisions to cost or billing estimates may affect a product services agreement's total estimated profitability resulting in an adjustment of earnings; such adjustments generated earnings of $15 million, $20 million and $14 million for the three years ended December 31, 2023, 2022 and 2021, respectively. We provide for probable losses when they become evident. Cash billings collected on these contracts were approximately $0.6 billion and $0.7 billion during the years ended December 31, 2023 and 2022, respectively. Our contracts (on average) are approximately 11% complete based on costs incurred to date and our estimate of future costs.

Revenue Recognition on Sale of Customized Equipment

We recognize revenue on agreements for sales of equipment manufactured to unique customer specifications including long-term construction projects, on an over time basis utilizing cost inputs as the measurement criteria in assessing the progress toward completion. Our estimation of the total costs required to fulfill our promise to a customer is generally based on our history of manufacturing similar assets for customers. This estimation of cost is critical to our revenue recognition process and is updated routinely to reflect changes in quantity or cost of the inputs. In certain projects, the underlying technology or promise to the customer is unique to what we have historically promised and reliably estimating the total cost to fulfill the promise to the customer requires a significant level of judgment. We provide for potential losses on any of these agreements when it is probable that we will incur the loss. The total revenue recognized for the sale of equipment on an over time basis during the twelve months ended December 31, 2023, 2022 and 2021 was $6.1 billion, $4.2 billion, and $4.8 billion, respectively.

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Goodwill and Other Long-lived Assets

We perform an annual impairment test of goodwill for each of our reporting units as of July 1, or more frequently when circumstances indicate an impairment may exist at the reporting unit level. When performing the annual impairment test, we have the option of first performing a qualitative assessment to determine the existence of events and circumstances that would lead to a determination that it is more likely than not that the fair value of a reporting unit is greater than its carrying amount. If, after assessing the existence of events and circumstances, we determine it is more likely than not that the fair value of a reporting unit is greater than its carrying amount, there is no need to perform any further testing. However, if we conclude otherwise, we would be required to perform a quantitative impairment assessment of goodwill, which involves the use of significant estimates and assumptions and typically requires analysis of discounted cash flows and other market information, such as trading multiples, and comparable transactions.

Other long-lived assets, including property, plant and equipment and identifiable finite-lived intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable and at least annually for indefinite-lived intangible assets. When testing for impairment, we group our long-lived assets with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. The determination of recoverability is made based upon the estimated undiscounted future net cash flows, which involves significant estimates and judgments on the part of management.

The determination of whether goodwill and other long-lived assets are impaired involves a significant level of judgment and estimation, and changes in our forecasts, business strategy, government regulations, or economic or market conditions, among other things, could significantly impact these judgments, potentially decreasing the fair value of one or more reporting units or long-lived assets. Any resulting impairment charges could have a material impact on our results of operations.

Income Taxes

Our effective tax rate is based on our income, statutory tax rates, and differences between tax laws and U.S. GAAP in various jurisdictions. Tax laws are complex and subject to different interpretations by the taxpayer and respective governmental taxing authorities. Our rate may be further impacted by the repatriation of foreign earnings that are considered indefinitely reinvested to the extent the repatriation would result in additional taxes such as withholding and income taxes. Indefinite reinvestment is determined by management’s judgment and intentions concerning the future operations of the Company. In cases where repatriation would otherwise incur significant withholding or income taxes, these foreign earnings have been indefinitely reinvested in active non-U.S. business operations. Computation of the potential deferred tax liability associated with these undistributed earnings and any other basis differences is not practicable.

Deferred income tax assets represent amounts available to reduce income taxes payable in future years. When evaluating the recoverability of these deferred tax assets, all positive and negative evidence is analyzed including existing cumulative earnings or loss, forecasted taxable income from the reversal of taxable temporary differences, future forecasted operating earnings, and available tax planning strategies. The sources of this evidence rely heavily on estimates. Hence, we use our historical experience and short and long range business forecasts to provide additional insight. We record a valuation allowance when it is more likely than not that some portion or all of the deferred tax assets will not be realized. Further, a change to realizability of our deferred tax assets is recognized in the Company's tax provision in the period in which the change occurs.

Our tax filings routinely are subject to audit by the tax authorities in the jurisdictions where we conduct business. These audits may result in assessments of additional taxes that are resolved with the tax authorities or through the courts. We have provided for the amounts we believe will ultimately result from these proceedings, but settlements of issues raised in these audits may affect our tax rate. We have $467 million of gross unrecognized tax benefits, excluding interest and penalties, at December 31, 2023. We are not able to reasonably estimate in which future periods these amounts ultimately will be settled.

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Allowance for Credit Losses

The estimation of anticipated credit losses that may be incurred as we work through the invoice collection process with our customers requires us to make judgments and estimates regarding our customers' ability to pay amounts due to us. We monitor our customers' payment history and current credit worthiness to determine that collectability is reasonably assured. We also consider the overall business climate in which our customers operate. For accounts receivable, a loss allowance matrix is utilized to measure lifetime expected credit losses. The matrix contemplates historical credit losses by age of receivables, adjusted for any forward-looking information and management expectations. At December 31, 2023 and 2022, the allowance for credit losses totaled $350 million and $341 million of total gross accounts receivable, respectively. We believe that our allowance for credit losses is adequate to cover the anticipated credit losses under current conditions; however, uncertainties regarding changes in the financial condition of our customers, either adverse or positive, could impact the amount and timing of any additional credit losses that may be required.

NEW ACCOUNTING STANDARDS TO BE ADOPTED

See "Note 1. Summary of Significant Accounting Policies" of the Notes to Consolidated Financial Statements in Item 8 herein for further discussion of accounting standards to be adopted.

RELATED PARTY TRANSACTIONS

See "Note 18. Related Party Transactions" of the Notes to Consolidated Financial Statements in Item 8 herein for further discussion of related party transactions.

FORWARD-LOOKING STATEMENTS

This Form 10-K, including MD&A and certain statements in the Notes to Consolidated Financial Statements, contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act of 1934, as amended, (each a "forward-looking statement"). All statements, other than historical facts, including statements regarding the presentation of the Company's operations in future reports and any assumptions underlying any of the foregoing, are forward-looking statements. Forward-looking statements concern future circumstances and results and other statements that are not historical facts and are sometimes identified by the words "may," "will," "should," "potential," "intend," "expect," "endeavor," "seek," "anticipate," "estimate," "overestimate," "underestimate," "believe," "could," "project," "predict," "continue," "target," "goal" or other similar words or expressions. Forward-looking statements are based upon current plans, estimates and expectations that are subject to risks, uncertainties and assumptions. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those indicated or anticipated by such forward-looking statements. The inclusion of such statements should not be regarded as a representation that such plans, estimates or expectations will be achieved. Important factors that could cause actual results to differ materially from such plans, estimates or expectations include, among others, the risk factors identified in the "Risk Factors" section of Part 1 of Item 1A of this Form 10-K and those set forth from time-to-time in other filings by the Company with the SEC. These documents are available through our website or through the SEC's Electronic Data Gathering and Analysis Retrieval (EDGAR) system at http://www.sec.gov.

In light of such risks and uncertainties, we caution you not to place undue reliance on these forward-looking statements. These forward-looking statements speak only as of the date of this Annual Report, or if earlier, as of the date they were made. We do not intend to, and disclaim any obligation to, update or revise any forward-looking statements unless required by securities law.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") should be read in conjunction with the consolidated financial statements included in Item 8. Financial Statements and Supplementary Data contained herein.

We are an energy technology company with a broad and diversified portfolio of technologies and services that span the energy and industrial value chain. We operate through our two business segments: Oilfield Services & Equipment ("OFSE") and Industrial & Energy Technology ("IET"). We sell products and services primarily in the global oil and gas markets, within the upstream, midstream, and downstream segments.

EXECUTIVE SUMMARY

Baker Hughes was successful in 2022, with key commercial successes and solid margin improvements in OFSE. Commercially in IET, orders performance in LNG and new energy hit new highs and are poised to remain strong into 2023. In 2022, we had a record year for LNG equipment orders, and achieved significant growth in new energy orders compared to 2021. Within OFSE, Subsea & Surface Pressure Systems also achieved a strong orders year compared to 2021.

Operationally, our performance for 2022 was mixed. During the year, we experienced several operational challenges across our organization most notably cost inflation, supply chain delays, impact of foreign exchange, and the suspension of our activities in Russia. Our performance improved over the second half of 2022 as supply chain challenges moderated, we saw increased activity primarily in OFSE, and we were able to achieve price improvements that collectively more than offset these operational challenges.

In 2022, we generated revenue of $21.2 billion, compared to $20.5 billion in 2021. The increase in revenue was primarily driven by higher volume in OFSE. Operating income in 2022 was $1,185 million compared to $1,310 million in 2021. The decrease in operating income was driven by higher restructuring, impairment and other charges, partially offset by higher segment operating income in OFSE. Income before income taxes was $22 million in 2022, and included other non-operating losses of $911 million and net interest expense of $252 million. Included in our other non-operating loss was a $451 million loss from the sale of part of the OFSE Russia business, and $265 million of unrealized net losses from marking our investments in ADNOC Drilling and C3 AI to fair value.

In the third quarter of 2022, we announced a reorganization of the Company to create two operating segments, OFSE and IET. This has kicked off a major transformation effort across the organization, including key management changes, which will fundamentally improve the way the Company operates. This reorganization is designed to simplify and streamline our organizational structure, and create better flexibility and economies of scale across the two operating segments. For OFSE, one area of focus will be right sizing OFSE through facility rationalization, removing management layers, and integrating multiple functions and capabilities. For IET, we expect commercial and technological benefits from closer integration as well as the benefit of cost out programs. We expect these changes to improve the long-term optionality and growth opportunities for Baker Hughes as our markets and customers continue to evolve.

Baker Hughes remains committed to a flexible capital allocation policy that balances returning cash to shareholders and investing in growth opportunities. We increased our quarterly dividend in the fourth quarter of 2022 by one cent to $0.19 per share. For the full year of 2022, we returned a total of $1.6 billion to shareholders in the form of dividends and share repurchases. We continue to invest in the Baker Hughes portfolio through strategic acquisitions and early-stage new energy investments. In 2022, we made several strategic acquisitions that will complement our current portfolio. Such acquisitions include the Power Generation division of BRUSH Group (“BRUSH”). BRUSH is an established equipment manufacturer that specializes in electric power generation and management for the industrial and energy sectors, which will complement the IET existing portfolio. Other transactions include the acquisitions of Quest Integrity, which will enhance our inspection capabilities, and AccessESP, which broadens our electrical submersible pump ("ESP") technology portfolio. New energy investments include Mosaic Materials and NET Power. In 2022, we entered into an agreement to acquire Altus Intervention, a leading international provider of well intervention services and downhole technology, which will enhance OFSE's existing portfolio. The Altus transaction is expected to close in the first half of 2023. We also

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reached an agreement with GE for the sale of our Nexus Controls business. GE will continue to provide Baker Hughes with GE’s MarkTM controls products currently in the Nexus Controls portfolio, and we will be the exclusive supplier and service provider of such GE products for our oil and gas customers’ control needs. The transaction is expected to close in mid-2023.

The invasion of Ukraine by Russia and the sanctions imposed in response to this crisis have increased the level of economic and political uncertainty. As we announced in March 2022, we suspended any new investments for our Russia operations. Over the course of 2022, changes to sanctions continued to make ongoing operations increasingly complex and significantly more challenging. As a result, we took actions to suspend substantially all of our operational activities related to Russia across the Company including suspending work on equipment and service contracts in Russia, and we completed the sale of part of our OFSE Russia business to local management in the fourth quarter of 2022. Russia represented approximately 2%, 5%, and 5% of our total revenue in 2022, 2021, and 2020, respectively.

As we look ahead to 2023, the global economy is expected to experience some challenges under the weight of inflationary pressures and tightening monetary conditions. Despite recessionary pressures in some of the world’s largest economies, we maintain a positive outlook for the energy sector. With years of under investment now being amplified by recent geopolitical factors, global spare capacity for oil and gas has deteriorated and will likely require years of investment growth to meet forecasted future demand. For this reason, we continue to believe that we are in the early stages of a multi-year upturn in global activity and are poised to see a second consecutive year of strong growth in global upstream spending in 2023.

We remain positive on the near term and long term prospects for the natural gas and LNG investment cycle. Near term, we believe that the likely reopening of China, combined with Europe’s need to refill gas storage supplies, will play a critical role in keeping global gas and LNG markets tight. Longer term, we remain optimistic on the structural growth outlook for natural gas and LNG as the world looks to lower emissions and displace the consumption of coal. In addition to the strong growth in traditional oil and gas spending, we also believe that the Inflation Reduction Act in the U.S. and potential new legislation in Europe will support significant growth opportunities in new energy in 2023 and beyond.

OUTLOOK

Our business is exposed to a number of macro factors, which influence our outlook and expectations given the current volatile conditions in the industry. All of our outlook expectations are purely based on the market as we see it today, and are subject to changing conditions in the industry.

•OFSE North America activity: We expect North American spending to continue to improve in 2023, as compared to 2022, should commodity prices remain at current levels.

•OFSE International activity: We expect spending outside of North America to experience strong growth in 2023, as compared to 2022, should commodity prices remain at current levels.

•IET LNG projects: We remain optimistic on the LNG market long-term and view natural gas as a transition and destination fuel. We continue to view the long-term economics of the LNG industry as positive.

We have other businesses in our portfolio that are more correlated with various industrial metrics, including global GDP growth. We also have businesses within our portfolio that are exposed to new energy solutions, specifically focused around reducing carbon emissions of energy and broader industry, including hydrogen, geothermal, carbon capture, utilization and storage, and energy storage. We expect to see continued growth in these businesses as new energy solutions become a more prevalent part of the broader energy mix.

Overall, we believe our portfolio is well positioned to compete across the energy value chain and deliver comprehensive solutions for our customers. We remain optimistic about the long-term economics of the oil and gas industry, but we are continuing to operate with flexibility. Over time, we believe the world’s demand for energy will continue to rise, and that hydrocarbons will play a major role in meeting the world's energy needs for the foreseeable future. As such, we remain focused on delivering innovative, low-emission, and cost-effective solutions that deliver step changes in operating and economic performance for our customers.

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BUSINESS ENVIRONMENT

The following discussion and analysis summarizes the significant factors affecting our results of operations, financial condition and liquidity position as of and for the years ended December 31, 2022, 2021, and 2020, and should be read in conjunction with the consolidated financial statements and related notes of the Company.

Our revenue is predominately generated from the sale of products and services to major, national, and independent oil and natural gas companies worldwide, and is dependent on spending by our customers for oil and natural gas exploration, field development and production. This spending is driven by a number of factors, including our customers' forecasts of future energy demand and supply, their access to resources to develop and produce oil and natural gas, their ability to fund their capital programs, the impact of new government regulations and most importantly, their expectations for oil and natural gas prices as a key driver of their cash flows.

Oil and Natural Gas Prices

Oil and natural gas prices are summarized in the table below as averages of the daily closing prices during each of the periods indicated.

(1)Energy Information Administration ("EIA") Europe Brent Spot Price per Barrel

(2)EIA Cushing, OK WTI ("West Texas Intermediate") spot price

(3)EIA Henry Hub Natural Gas Spot Price per million British Thermal Unit

Oil and natural gas prices increased during 2022 largely driven by supply constraints which has also been amplified as a result of recent geopolitical events.

Outside North America, customer spending is most heavily influenced by Brent oil prices. The average Brent oil prices increased to $100.93/Bbl in 2022 from $70.86/Bbl in 2021 and ranged from a low of $76.02/Bbl in December 2022, to a high of $133.18/Bbl in March 2022. The average Brent oil prices increased to $70.86/Bbl in 2021 from $41.96/Bbl in 2020 and ranged from a low of $50.37/Bbl in January 2021, to a high of $85.76/Bbl in October 2021.

In North America, customer spending is highly driven by WTI oil prices, which similarly to Brent oil prices, on average increased to $94.90/Bbl in 2022 from $68.14/Bbl in 2021, and ranged from a low of $71.05/Bbl in December 2022, to a high of $123.64/Bbl in March 2022. WTI oil prices on average increased to $68.14/Bbl in 2021 from $39.16/Bbl in 2020, and ranged from a low of $47.47/Bbl in January 2021, to a high of $85.64/Bbl in October 2021.

In North America, natural gas prices, as measured by the Henry Hub Natural Gas Spot Price, averaged $6.45/mmBtu in 2022, representing a 66% increase over the prior year. Throughout the year, Henry Hub Natural Gas Spot Prices ranged from a high of $9.85/mmBtu in August 2022, to a low of $3.46/mmBtu in November 2022. According to the U.S. Department of Energy, working natural gas in storage at the end of 2022 was 2,891 billion cubic feet ("Bcf"), which was 9.5%, or 304 Bcf, below the corresponding week in 2021. Henry Hub Natural Gas Spot Price averaged $3.89/mmBtu in 2021, representing a 92% increase over the prior year. Throughout the year, Henry Hub Natural Gas Spot Prices ranged from a high of $23.86/mmBtu in February 2021, to a low of $2.43/mmBtu in April 2021. According to the U.S. Department of Energy, working natural gas in storage at the end of 2021 was 3,226 billion cubic feet ("Bcf"), which was 6.8%, or 234 Bcf, below the corresponding week in 2020.

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Baker Hughes Rig Count

The Baker Hughes rig counts are an important business barometer for the drilling industry and its suppliers. When drilling rigs are active they consume products and services produced by the oil service industry. Rig count trends are driven by the exploration and development spending by oil and natural gas companies, which in turn is influenced by current and future price expectations for oil and natural gas. The counts may reflect the relative strength and stability of energy prices and overall market activity, however, these counts should not be solely relied on as other specific and pervasive conditions may exist that affect overall energy prices and market activity.

We have been providing rig counts to the public since 1944. We gather all relevant data through our field service personnel, who obtain the necessary data from routine visits to the various rigs, customers, contractors and other outside sources as necessary. We base the classification of a well as either oil or natural gas primarily upon filings made by operators in the relevant jurisdiction. This data is then compiled and distributed to various wire services and trade associations and is published on our website. We believe the counting process and resulting data is reliable, however, it is subject to our ability to obtain accurate and timely information. Rig counts are compiled weekly for the U.S. and Canada and monthly for all international rigs. Published international rig counts do not include rigs drilling in certain locations, such as onshore China because this information is not readily available.

Rigs in the U.S. and Canada are counted as active if, on the day the count is taken, the well being drilled has been started, but drilling has not been completed and the well is anticipated to be of sufficient depth to be a potential consumer of our drill bits. In international areas, rigs are counted on a weekly basis and deemed active if drilling activities occurred during the majority of the week. The weekly results are then averaged for the month and published accordingly. The rig count does not include rigs that are in transit from one location to another, rigging up, being used in non-drilling activities including production testing, completion and workover, and are not expected to be significant consumers of drill bits.

The rig counts are summarized in the table below as averages for each of the periods indicated.

2022 Compared to 2021

Overall the rig count was 1,749 in 2022, an increase of 28% as compared to 2021 due to an increase in activity in North America and internationally. The rig count in North America increased 47% and the international rig count increased 13% in 2022 compared to 2021.

Within North America, the increase was primarily driven by the U.S. rig count, which was up 51% on average when compared to the same period last year, and an increase in the Canada rig count, which was up 32% on average. Internationally, the increase in the rig count was driven by increases in the Latin America region, Africa region, Middle East region, and Asia-Pacific region of 22%, 19%, 16%, and 8%, respectively.

2021 Compared to 2020

Overall the rig count was 1,366 in 2021, an increase of 1% as compared to 2020 due primarily to an increase in activity in North America partially offset by declines internationally. The rig count in North America increased 17% and the international rig count decreased 9% in 2021 compared to 2020.

Within North America, the increase was primarily driven by the Canadian rig count, which was up 48% on average when compared to the same period last year, and an increase in the U.S. rig count, which was up 10% on average. Internationally, the decrease in the rig count was driven primarily by decreases in the Middle East region, Africa region, and Europe region of 21%, 10%, and 10%, respectively.

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RESULTS OF OPERATIONS

The discussions below relating to significant line items from our consolidated statements of income (loss) are based on available information and represent our analysis of significant changes or events that impact the comparability of reported amounts. Where appropriate, we have identified specific events and changes that affect comparability or trends and, where reasonably practicable, have quantified the impact of such items. In addition, the discussions below for revenue and cost of revenue are on a total basis as the business drivers for product sales and services are similar. All dollar amounts in tabulations in this section are in millions of dollars, unless otherwise stated. Certain columns and rows may not add due to the use of rounded numbers.

Our results of operations are evaluated by the Chief Executive Officer on a consolidated basis as well as at the segment level. The performance of our operating segments is primarily evaluated based on segment operating income (loss), which is defined as income (loss) before income taxes and before the following: net interest expense, net other non-operating income (loss), corporate expenses, restructuring, impairment and other charges, goodwill and inventory impairments, separation related costs, and certain gains and losses not allocated to the operating segments.

In evaluating the segment performance, the Company uses the following:

Volume: Volume is the increase or decrease in products and/or services sold period-over-period excluding the impact of foreign exchange and price. The volume impact on profit is calculated by multiplying the prior period profit rate by the change in revenue volume between the current and prior period. It also includes price, defined as the change in sales price for a comparable product or service period-over-period and is calculated as the period-over-period change in sales prices of comparable products and services.

Foreign Exchange ("FX"): FX measures the translational foreign exchange impact, or the translation impact of the period-over-period change on sales and costs directly attributable to change in the foreign exchange rate compared to the U.S. dollar. FX impact is calculated by multiplying the functional currency amounts (revenue or profit) with the period-over-period FX rate variance, using the average exchange rate for the respective period.

(Inflation)/Deflation: (Inflation)/deflation is defined as the increase or decrease in direct and indirect costs of the same type for an equal amount of volume. It is calculated as the year-over-year change in cost (i.e. price paid) of direct material, compensation and benefits, and overhead costs.

Productivity: Productivity is measured by the remaining variance in profit, after adjusting for the period-over-period impact of volume and price, foreign exchange and (inflation)/deflation as defined above. Improved or lower period-over-period cost productivity is the result of cost efficiencies or inefficiencies, such as cost decreasing or increasing more than volume, or cost increasing or decreasing less than volume, or changes in sales mix among segments. This also includes the period-over-period variance of transactional foreign exchange, aside from those foreign currency devaluations that are reported separately for business evaluation purposes.

Orders and Remaining Performance Obligations

Our consolidated statements of income (loss) displays sales and costs of sales in accordance with SEC regulations under which “goods” is required to include all sales of tangible products and “services” must include all other sales, including other services activities. For the amounts shown below, we distinguish between “equipment” and “product services,” where product services refers to sales under product services agreements, including sales of both goods (such as spare parts and equipment upgrades) and related services (such as monitoring, maintenance and repairs), which is an important part of our operations. We refer to “product services” simply as “services” within Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Orders: We recognized orders of $26.8 billion, $21.7 billion, and $20.7 billion in 2022, 2021, and 2020, respectively. We recognized OFSE orders of $14.1 billion, $11.8 billion, and $12.3 billion and IET orders of $12.7 billion, $9.9 billion, and $8.4 billion in 2022, 2021 and 2020, respectively. Within IET, Gas Technology Equipment orders were $6.4 billion, $3.9 billion, $3.0 billion, and Gas Technology Services orders were $3.0 billion, $2.9 billion, and $2.6 billion in 2022, 2021 and 2020, respectively.

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Remaining Performance Obligations ("RPO"): As of December 31, 2022 and 2021, the aggregate amount of the transaction price allocated to the unsatisfied (or partially unsatisfied) performance obligations was $27.8 billion and $23.6 billion, respectively. As of December 31, 2022 and 2021, OFSE remaining performance obligations totaled $2.6 billion and $2.0 billion, and IET remaining performance obligations totaled $25.3 billion and $21.5 billion, respectively.

Revenue and Operating Income

Summarized financial information for the Company's segments is shown in the following tables.

The following table presents Oilfield Services & Equipment revenue by geographic region:

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The following table presents segment operating income through to net loss for the Company.

(1)Inventory impairments are reported in "Cost of goods sold" of the consolidated statements of income (loss).

Fiscal Year 2022 to Fiscal Year 2021

Revenue in 2022 was $21,156 million, an increase of $654 million, or 3%, from 2021. This increase in revenue was largely a result of increased activity in OFSE, partially offset by a decline in IET. OFSE increased $1,201 million and IET decreased $547 million.

Total segment operating income in 2022 was $2,336 million, an increase of $330 million, or 16%, from 2021. The increase was primarily driven by OFSE, which increased $371 million, partially offset by IET which decreased $42 million.

Oilfield Services & Equipment

OFSE 2022 revenue was $13,229 million, an increase of $1,201 million, or 10%, from 2021, primarily as a result of increased activity in North America and internationally, as evidenced by an increase in the global rig count. North America revenue was $3,764 million in 2022, an increase of $860 million from 2021. International revenue was $9,465 million in 2022, an increase of $341 million from 2021, primarily driven by growth in Latin America and the Middle East, partially offset by declines in the Russia Caspian and Europe regions. The year-over-year revenue was reduced by the removal of the subsea drilling systems ("SDS") business from the consolidated OFSE operations in the fourth quarter of 2021 due to the formation of a joint venture.

OFSE 2022 segment operating income was $1,201 million, compared to $830 million in 2021. The increase was primarily driven by higher volume and price, partially offset by logistics and commodity cost inflation.

Industrial & Energy Technology

IET 2022 revenue was $7,926 million, a decrease of $547 million, or 6%, from 2021. The decrease was primarily driven by lower volume in both Gas Technology Equipment and Gas Technology Services, the impact from foreign currency translation, and supply chain delays in Gas Technology Services, partially offset by higher volume in Industrial Technology.

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IET 2022 segment operating income was $1,135 million, compared to $1,177 million in 2021. The decrease in profitability was driven by lower volume, unfavorable foreign currency translation impact, higher research and development costs, and inflationary pressure, partially offset by favorable business mix and higher pricing in certain product lines.

Corporate

In 2022, corporate expenses were $416 million, a decrease of $13 million compared to 2021, primarily driven by cost efficiencies and past restructuring actions.

Inventory Impairment

In 2022, we recorded inventory impairments of $31 million primarily in IET as part of suspending our Russia operations. Inventory impairments are reported in the "Cost of goods sold" caption of the consolidated statements of income (loss). There were no inventory impairments during 2021.

Restructuring, Impairment and Other

In 2022, we recognized $682 million of restructuring, impairment and other charges, primarily related to the suspension of substantially all of our operations in Russia, as well as, costs incurred to facilitate our reorganization into two segments and the implementation of certain projects in our OFSE segment to optimize their global footprint. In addition, we impaired certain long-lived assets in our OFSE segment for the subsea production systems ("SPS") business due to a decrease in the estimated future cash flows driven by a decline in our long-term market outlook for this business. In 2021, we recognized $209 million in restructuring, impairment and other charges. The charges in 2021 primarily related to the initiatives in our OFSE segment that were the continuation of our overall strategy to right-size our structural costs.

Separation Related

We recorded $23 million of separation related costs in 2022, a decrease of $37 million from the prior year. Costs relate to the activities for the separation from GE, primarily related to information technology. Separation activities were substantially completed by the end of 2022.

Other Non-Operating Loss, Net

In 2022, we recorded $911 million of other non-operating loss, an increase of $328 million from the prior year, primarily due to the loss of $451 million from the sale of part of the OFSE business in Russia. We also recorded $265 million of unrealized losses related to marking our investments in C3 AI and ADNOC to fair value. Additionally, in December 2022, the Company, BHH LLC and GE entered into an agreement which resulted in the termination of the Tax Matters Agreement ("TMA"), and as a result, we recorded a charge of $81 million, of which $21 million was a cash payment to GE as a net settlement of claims asserted under the TMA. See "Note 11. Income Taxes" for further information.

Interest Expense, Net

In 2022, we incurred interest expense, net of interest income, of $252 million, a decrease of $47 million from the prior year, driven primarily by higher interest income, and lower interest expense due to $28 million of non-recurring costs in 2021 associated with the refinancing of our senior notes.

Income Taxes

In 2022, our provision for income taxes was $600 million. The difference between the U.S. statutory tax rate of 21% and the effective tax rate is primarily related to losses with no tax benefit due to valuation allowances, restructuring charges for which a majority has no tax benefit, and earnings in jurisdictions with tax rates higher than the U.S.

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In 2021, our provision for income taxes was $758 million. The difference between the U.S. statutory tax rate of 21% and the effective tax rate is primarily related to losses with no tax benefit due to valuation allowances and changes in unrecognized tax benefits related to uncertain tax positions.

Fiscal Year 2021 to Fiscal Year 2020

Revenue in 2021 was $20,502 million, a decrease of $203 million, or 1%, from 2020. This decrease in revenue was largely a result of decreased activity in OFSE, partially offset by an increase in IET. OFSE decreased $956 million and IET increased $754 million.

Total segment operating income in 2021 was $2,006 million, an increase of $502 million, or 33%, from 2020. The increase was driven by OFSE, which increased $324 million, and IET, which increased $178 million.

Oilfield Services & Equipment

OFSE 2021 revenue was $12,028 million, a decrease of $956 million, or 7%, from 2020, primarily as a result of decreased international activity in 2021 compared to 2020, as evidenced by a decline in the corresponding rig count, and, to a lesser extent, decreased activity in North America, and supply chain constraints that occurred in the second half of 2021. International revenue was $9,124 million in 2021, a decrease of $753 million from 2020, primarily driven by declines in the Middle East, partially offset by growth in Latin America. North America revenue was $2,904 million in 2021, a decrease of $203 million from 2020. The decrease in revenue was also driven by the disposition of the surface pressure control flow business in the fourth quarter of 2020, and the removal of SDS from consolidated OFSE operations in the fourth quarter of 2021 due to the formation of a joint venture.

OFSE 2021 segment operating income was $830 million, compared to $506 million in 2020. The increase was primarily driven by higher cost productivity as a result of cost efficiencies and restructuring actions. Additional drivers were increases in price in certain product lines, partially offset by lower volume.

Industrial & Energy Technology

IET 2021 revenue was $8,473 million, an increase of $754 million, or 10%, from 2020. The increase was primarily driven by higher volume for both Gas Technology Equipment and Gas Technology Services, partially offset by supply chain constraints that impacted product deliveries, mainly in the Industrial Technology product lines.

IET 2021 segment operating income was $1,177 million, compared to $998 million in 2020. The increase in profitability was driven primarily by higher volume, price, and productivity, partially offset by unfavorable business mix.

Corporate

In 2021, corporate expenses were $429 million, a decrease of $35 million compared to 2020, primarily driven by lower expenses as a result of cost out programs and restructuring actions.

Inventory Impairment

There were no inventory impairments during 2021. In 2020, we recorded inventory impairments of $246 million primarily related to our OFSE segment as a result of certain restructuring activities initiated by the Company. Charges for inventory impairments are reported in the "Cost of goods sold" caption of the consolidated statements of income (loss).

Goodwill Impairment

There were no goodwill impairments during 2021. During the first quarter of 2020, the Company’s market capitalization declined significantly driven by current macroeconomic and geopolitical conditions including the decrease in demand caused by the COVID-19 pandemic and collapse of oil prices driven by both surplus production and supply. Based on these events, we concluded that a triggering event occurred and we performed an interim quantitative impairment test as of March 31, 2020. Based upon the results of the impairment test, we recognized a

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goodwill impairment charge of $14,773 million during the first quarter of 2020. There were no other goodwill impairments during 2020.

Restructuring, Impairment and Other

In 2021, we recognized $209 million in restructuring, impairment and other charges. The charges in 2021 primarily relate to the initiatives in our OFSE segment that are the continuation of our overall strategy to right-size our structural costs. In 2020, we recognized $1,866 million in restructuring, impairment and other charges. These charges primarily related to the restructuring plan announced in the first quarter of 2020, which included product line rationalization actions, headcount reductions in certain geographical locations, and other initiatives to right-size operations for anticipated activity levels and market conditions.

Separation Related

We recorded $60 million of separation related costs in 2021, a decrease of $74 million from the prior year, largely driven by a reduction in the ongoing activities for the separation from GE, primarily related to information technology.

Other Non-Operating Income/(Loss), Net

In 2021, we recorded $583 million of other non-operating loss. Costs in 2021 include an unrealized loss of $1,085 million from marking our investment in C3 AI to fair value, partially offset by an unrealized gain of $241 million from marking our investment in ADNOC Drilling to fair value, by the reversal of $121 million of current accruals due to the settlement of certain legal matters, and by income of $121 million for liabilities previously expected to be recoverable as they were indemnified under the TMA with GE. This income from indemnified liabilities has an offset in the "Provision for income taxes" caption in our consolidated statements of income (loss).

In 2020, we recorded $1,040 million of other non-operating income. Included in this amount was an unrealized gain of $1,417 million related to marking our investment in C3 AI to fair value, partially offset by losses of $353 million for the sale of two product lines in OFSE, the rod lift systems business and the surface pressure control flow business.

Interest Expense, Net

In 2021, we incurred net interest expense of $299 million, an increase of $35 million from the prior year, primarily driven by higher interest expense, mainly related to $28 million of costs associated with the refinancing of our senior notes due December 2022, and lower interest income.

Income Taxes

In 2021, our income tax expense was $758 million, an increase of $199 million, from $559 million in 2020. The increase was primarily due to tax expense related to unrecognized tax benefits and the geographical mix of earnings. Our 2021 income tax expense included $121 million that we previously expected to be recoverable as it related to liabilities indemnified under the TMA with GE. This tax expense has an offset in the "Other non-operating income (loss), net" caption in our consolidated statements of income (loss).

COMPLIANCE

In the conduct of all of our activities, we are committed to maintaining the core values of our Company, as well as high safety, ethical, and quality standards as also reported in our Quality Management System ("QMS"). We believe such a commitment is integral to running a sound, successful, and sustainable business. We devote significant resources to maintain a comprehensive global ethics and compliance program ("Compliance Program") which is designed to prevent, detect, and appropriately respond to any potential violations of the law, the Code of Conduct, and other Company policies and procedures.

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Highlights of our Compliance Program include the following:

•Comprehensive internal policies over such areas as anti-bribery; travel, entertainment, gifts and charitable donations to government officials and other parties; payments to commercial sales representatives; and, the use of non-U.S. police or military organizations for security purposes.  In addition, there are policies and procedures to address customs requirements, visa processing risks, export and re-export controls, economic sanctions, anti-money laundering and anti-boycott laws.

•Global and independent structure of Chief Compliance Officer and other compliance professionals providing compliance advice, customized training and governance, as well as investigating allegations across all regions and countries where we do business.

•Comprehensive employee compliance training program that combines instructor-led and web-based training modules tailored to the key risks that employees face on an ongoing basis.

•Due diligence and monitoring procedures for third parties who conduct business on our behalf, including channel partners (sales representatives, distributors, resellers), and administrative service providers.

•Due diligence procedures for acquisition activities.

•Specifically tailored compliance risk assessments and audits focused on country and third party risk.

•Compliance Review Board comprised of senior officers of the Company that meets quarterly to monitor effectiveness of the Compliance Program, as well as segment compliance review boards that meet quarterly.

•Technology to monitor and report on compliance matters, including an internal investigations management system, a conflict of interest reporting and management system, a web-based anti-boycott reporting tool, global trade management systems and comprehensive watch list screening.

•Data privacy compliance policies and procedures to ensure compliance with applicable data privacy requirements.

•A compliance program designed to create an “Open Reporting Environment” where employees are encouraged to report any ethics or compliance matter without fear of retaliation, including a global network of trained employee ombudspersons, and a worldwide, 24-hour business helpline operated by a third party and available in approximately 200 languages.

•Centralized finance organization with company-wide policies.

•Anti-corruption audits of high-risk countries, as well as risk-based compliance audits of third parties.

•We have region-specific processes and procedures for management of HR related issues, including pre-hire screening of employees; a process to screen existing employees prior to promotion into select roles where they may be exposed to finance and/or corruption-related risks; and implementation of a global new hire training module which includes compliance training for all employees.

LIQUIDITY AND CAPITAL RESOURCES

Our objective in financing our business is to maintain sufficient liquidity, adequate financial resources, and financial flexibility in order to fund the requirements of our business. We continue to maintain solid financial strength and liquidity. At December 31, 2022, we had cash and cash equivalents of $2.5 billion compared to $3.9 billion at December 31, 2021.

In the U.S. we held cash and cash equivalents of approximately $0.6 billion and $1.6 billion and outside the U.S. of approximately $1.9 billion and $2.2 billion as of December 31, 2022 and 2021, respectively. A substantial portion of the cash held outside the U.S. at December 31, 2022 has been reinvested in active non-U.S. business operations. If we decide at a later date to repatriate those funds to the U.S., we may incur other additional taxes that would not be significant to the total tax provision.

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We have a $3 billion committed unsecured revolving credit facility ("the Credit Agreement") with commercial banks maturing in December 2024. The Credit Agreement contains certain customary representations and warranties, certain customary affirmative covenants and certain customary negative covenants. Upon the occurrence of certain events of default, our obligations under the Credit Agreement may be accelerated. Such events of default include payment defaults to lenders under the Credit Agreement and other customary defaults. No such events of default have occurred. In addition, we have a commercial paper program with authorization up to $3 billion under which we may issue from time to time commercial paper with maturities of no more than 397 days. At December 31, 2022 and 2021, there were no borrowings under the Credit Agreement or the commercial paper program.

Certain Senior Notes contain covenants that restrict our ability to take certain actions. See "Note 9. Borrowings" of the Notes to Consolidated Financial Statements in this Annual Report for further details. At December 31, 2022, we were in compliance with all debt covenants. Our next debt maturity is December 2023.

We continuously review our liquidity and capital resources. If market conditions were to change, for instance due to the uncertainty created by geopolitical events, a global pandemic or a significant decline in oil and gas prices, and our revenue was reduced significantly or operating costs were to increase significantly, our cash flows and liquidity could be negatively impacted. Additionally, it could cause the rating agencies to lower our credit ratings. There are no ratings triggers that would accelerate the maturity of any borrowings under our committed credit facility; however, a downgrade in our credit ratings could increase the cost of borrowings under the credit facility and could also limit or preclude our ability to issue commercial paper. Should this occur, we could seek alternative sources of funding, including borrowing under the credit facility.

During the year ended December 31, 2022, we dispersed cash to fund a variety of activities including certain working capital needs, capital expenditures, the payment of dividends, repurchases of our common stock, and distributions to noncontrolling interests.

Cash Flows

Cash flows provided by (used in) each type of activity were as follows for the years ended December 31:

Operating Activities

Cash flows from operating activities generated cash of $1,888 million, $2,374 million, and $1,304 million for the years ended December 31, 2022, 2021, and 2020, respectively.

Our largest source of operating cash is payments from customers, of which the largest component is collecting cash related to our sales of products and services including advance payments or progress collections for work to be performed. The primary use of operating cash is to pay our suppliers, employees, tax authorities and others for a wide range of goods and services.

In 2022, cash generated from operating activities were primarily driven by net losses adjusted for certain noncash items (including depreciation, amortization, loss on business dispositions, stock based compensation cost, loss on equity securities, and the impairment of certain assets). Working capital, which includes contract and other deferred assets, generated cash of $122 million in 2022 primarily due to strong progress collections on equipment contracts and an increase in accounts payable, partially offset by the increase in receivables and inventory as we build for revenue growth.

In 2021, working capital generated $480 million of cash primarily due to accounts payable, inventories and contract and other deferred assets partially offset by accounts receivable and progress collections, as we continued to make progress on improving our working capital processes. Restructuring and GE separation related payments

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were $175 million on a net basis in 2021 and included the proceeds from the disposal of certain facilities, which are reflected below in investing activities.

In 2020, working capital generated $216 million of cash primarily due to receivables and positive progress collections partially offset by accounts payable. Restructuring and GE separation related payments were $670 million in 2020.

Investing Activities

Cash flows from investing activities used cash of $1,564 million, $463 million, and $618 million for the years ended December 31, 2022, 2021, and 2020, respectively.

Our principal recurring investing activity is the funding of capital expenditures to ensure that we have the appropriate levels and types of machinery and equipment in place to generate revenue from operations. Expenditures for capital assets totaled $989 million, $856 million, and $974 million for 2022, 2021, and 2020, respectively, partially offset by cash flows from the sale of property, plant and equipment of $217 million, $315 million, and $187 million in 2022, 2021, and 2020, respectively. Proceeds from the disposal of assets are primarily related to equipment that was lost-in-hole, predominantly in OFSE, and to property, machinery and equipment no longer used in operations that was sold throughout the period.

In 2022, we paid $845 million for both acquisitions and investments in business interests. We completed several acquisitions during 2022 including BRUSH Power Generation, Quest Integrity, AccessESP, and Mosaic Materials. The total cash paid, net of cash acquired, for acquisitions was $767 million, and we used cash on hand to fund these transactions.

In 2021, we contributed our SDS business to create a joint venture and received as consideration 50% of the shares of the joint venture, cash of $70 million, and a promissory note of $80 million. In 2020, we received proceeds of $187 million primarily from the sale of our rod lift systems and our surface pressure control flow businesses.

In 2021, we invested $266 million to add capabilities to our new energy and industrial asset management offerings through the acquisition of business interests in Augury, Ekona Power, Electrochaea, and the acquisition of ARMS Reliability, among others. Also in 2021, we sold approximately 2.2 million C3 AI Shares and received proceeds of $145 million, which is included in other investing activities.

Financing Activities

Cash flows from financing activities used cash of $1,592 million, $2,143 million, and generated cash of $225 million for the years ended December 31, 2022, 2021, and 2020, respectively.

We had net repayments of short-term debt of $28 million, $41 million, and $204 million and long-term debt of nil, $1,313 million, and $42 million in 2022, 2021, and 2020, respectively. The repayment of long-term debt in 2021 was primarily driven by the early repayment of our 2.773% Senior Notes due December 2022 ("the 2022 Notes") with a principal amount of $1,250 million. In addition, a charge of $28 million related to the early redemption was recorded within "Interest expense, net" in our consolidated statements of income (loss).

In 2022, we increased our quarterly dividend by one cent to $0.19 per share during the fourth quarter. We paid dividends of $726 million, $592 million, and $488 million to our Class A stockholders, and we made distributions of $17 million, $157 million, and $256 million to GE in 2022, 2021, and 2020, respectively.

In 2022, our Board of Directors authorized an increase to our repurchase program of $2 billion of additional Class A common stock and LLC units for each of the Company and BHH LLC, respectively, increasing its existing repurchase authorization of $2 billion to $4 billion. During 2022, the Company and BHH LLC repurchased and canceled 29.7 million shares of Class A common stock and LLC Units, respectively, for a total of $828 million.

In 2021, we received proceeds from the issuance of $650 million aggregate principal amount of 1.231% Senior Notes due December 2023 and $600 million aggregate principal amount of 2.061% Senior Notes due December

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2026. In 2020, we had proceeds from the issuance of $500 million aggregate principal amount of 4.486% Senior Notes due May 2030.

In 2021, we repaid $832 million (£600 million) of commercial paper originally issued in 2020 ($737 million at date of issuance) under the COVID Corporate Financing Facility established by the Bank of England.

During 2021, the Company and BHH LLC repurchased and canceled 17.6 million shares of Class A common stock and LLC Units, respectively, for a total of $434 million.

Cash Requirements

We believe cash on hand, cash flows from operating activities, the available revolving credit facility, access to both our commercial paper program or our uncommitted lines of credit, and availability under our existing shelf registrations of debt will provide us with sufficient capital resources and liquidity in the short-term and long-term to manage our working capital needs, meet contractual obligations, fund capital expenditures and dividends, repay debt, repurchase our common stock, and support the development of our short-term and long-term operating strategies. When necessary, we issue commercial paper or other short-term debt to fund cash needs in the U.S. in excess of the cash generated in the U.S.

Our capital expenditures can be adjusted and managed by us to match market demand and activity levels. Based on current market conditions, capital expenditures in 2023 will be made at a rate that we estimate would equal up to 5% of annual revenue. The expenditures are expected to be used primarily for normal, recurring items necessary to support our business. We also anticipate making income tax payments in the range of $500 million to $550 million in 2023.

Contractual Obligations and Commitments

Our material cash commitments from known contractual and other obligations consist primarily of obligations for long-term debt and related interest, leases for property and equipment, and purchase obligations as part of normal operations. Certain amounts included in our contractual obligations as of December 31, 2022 are based on our estimates and assumptions about these obligations, including their duration, anticipated actions by third parties and other factors.

See “Note 9. Borrowings” of the Notes to Consolidated Financial Statements in Item 8 herein for information regarding scheduled maturities of our long-term debt. See “Note 8. Leases” of the Notes to Consolidated Financial Statements in Item 8 herein for information regarding scheduled maturities of our operating leases.

As of December 31, 2022, we had expected cash payments for estimated interest on our long-term debt and finance lease obligations of $267 million payable within the next twelve months and $2,936 million payable thereafter.

As of December 31, 2022, we had purchase obligations of $1,584 million payable within the next twelve months and $907 million payable thereafter. Our purchase obligations include expenditures for capital assets for 2023 as well as agreements to purchase goods or services or licenses that are enforceable and legally binding and that specify all significant terms, including: fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction.

Due to the uncertainty with respect to the timing of potential future cash outflows associated with our uncertain tax positions, we are unable to make reasonable estimates of the period of cash settlement, if any, to the respective taxing authorities. Therefore, $665 million in uncertain tax positions, including interest and penalties, have been excluded from the contractual obligations discussed above. See "Note 11. Income Taxes" of the Notes to Consolidated Financial Statements in Item 8 herein for further information.

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Other factors affecting liquidity

Customer receivables: In line with industry practice, we may bill our customers for services provided in arrears dependent upon contractual terms. In a challenging economic environment, we may experience delays in the payment of our invoices due to customers' lower cash flow from operations or their more limited access to credit markets. While historically there have not been material non-payment events, we attempt to mitigate this risk through working with our customers to restructure their debts. A customer's failure or delay in payment could have a material adverse effect on our short-term liquidity and results from operations. As of December 31, 2022, 15% of our gross customer receivables were from customers in the U.S. and 11% were from customers in Mexico. As of December 31, 2021, 13% of our gross customer receivables were from customers in the U.S and 12% were from customers in Mexico.

International operations: Our cash that is held outside the U.S. is 77% of the total cash balance as of December 31, 2022. We may not be able to use this cash quickly and efficiently due to exchange or cash controls that could make it challenging. As a result, our cash balance may not represent our ability to quickly and efficiently use this cash.

Supply chain finance programs: Under supply chain finance programs, administered by a third party, our suppliers are given the opportunity to sell receivables from us to participating financial institutions at their sole discretion at a rate that leverages our credit rating and thus might be more beneficial to our suppliers. Our responsibility is limited to making payment on the terms originally negotiated with our supplier, regardless of whether the supplier sells its receivable to a financial institution. The range of payment terms we negotiate with our suppliers is consistent, irrespective of whether a supplier participates in the program. These liabilities continue to be presented as accounts payable in our consolidated statements of financial position and reflected as cash flow from operating activities when settled. We do not believe that changes in the availability of supply chain financing programs would have a material impact on our liquidity.

CRITICAL ACCOUNTING ESTIMATES

An accounting policy is deemed to be critical if the nature of the estimate or assumption it incorporates is subject to a material level of judgment related to matters that are highly uncertain and changes in those estimates and assumptions are reasonably likely to materially impact our consolidated financial statements. These estimates reflect our best judgment about current, and for some estimates, future, economic and market conditions and their potential effects based on information available as of the date of these financial statements. If these conditions change from those expected, it is reasonably possible that the judgments and estimates described below could change, which may result in future impairments of goodwill, or the establishment of valuation allowances on deferred tax assets and increased tax liabilities, among other effects. Also, see "Note 1. Summary of Significant Accounting Policies" of the Notes to Consolidated Financial Statements in Item 8 herein, which discusses our most significant accounting policies.

The Audit Committee of our Board of Directors has reviewed our critical accounting estimates and the disclosure presented below. During the past three fiscal years, we have not made any material changes in the methodology used to establish the critical accounting estimates, and we believe that the following are the critical accounting estimates used in the preparation of our consolidated financial statements for the year ended December 31, 2022. There are other items within our consolidated financial statements that require estimation and judgment, but they are not deemed critical as defined above.

Revenue Recognition on Long-Term Product Services Agreements

We have long-term service agreements with our customers within our IET segment. These agreements typically require us to maintain assets sold to the customer over a defined contract term. These agreements have average contract terms of greater than 10 years. From time to time, these contract terms may be extended through contract modifications or amendments, which may result in revisions to future billing and cost estimates. Revenue recognition on long-term product services agreements requires estimates of both customer payments and the costs to perform required maintenance services over the contract term. We recognize revenue on an over time basis using input method to measure our progress toward completion at the estimated margin rate of the contract.

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To develop our billings estimates, we consider the number of billable events that will occur based on estimated utilization of the asset under contract, over the life of the contract term. This estimated utilization will consider both historical and market conditions, asset retirements and new product introductions, if applicable.

To develop our cost estimates, we consider the timing and extent of maintenance and overhaul events, including the amount and cost of labor, spare parts and other resources required to perform the services. In developing our cost estimates, we utilize a combination of our historical cost experience and expected cost improvements. Cost improvements are only included in future cost estimates after savings have been observed in actual results or proven effective through an extensive regulatory or engineering approval process.

We routinely review the estimates used in our product services agreements and regularly revise them to adjust for changes. These revisions are based on objectively verifiable information that is available at the time of the review. We gain insight into expected future utilization and cost trends, as well as credit risk, through our knowledge of the equipment installed and the close interaction with our customers through supplying critical services and parts over extended periods.

Revisions to cost or billing estimates may affect a product services agreement’s total estimated profitability resulting in an adjustment of earnings; such adjustments generated earnings of $20 million, $14 million and $17 million for the three years ended December 31, 2022, 2021 and 2020, respectively. We provide for probable losses when they become evident. Cash billings collected on these contracts were approximately $0.7 billion and $0.6 billion during the years ended December 31, 2022 and 2021, respectively. Our contracts (on average) are approximately 18% complete based on costs incurred to date and our estimate of future costs.

Revenue Recognition on Sale of Customized Equipment

We recognize revenue on agreements for sales of equipment manufactured to unique customer specifications including long-term construction projects, on an over time basis utilizing cost inputs as the measurement criteria in assessing the progress toward completion. Our estimation of the total costs required to fulfill our promise to a customer is generally based on our history of manufacturing similar assets for customers. This estimation of cost is critical to our revenue recognition process and is updated routinely to reflect changes in quantity or cost of the inputs. In certain projects, the underlying technology or promise to the customer is unique to what we have historically promised and reliably estimating the total cost to fulfill the promise to the customer requires a significant level of judgment. We provide for potential losses on any of these agreements when it is probable that we will incur the loss.  The total revenue recognized for the sale of equipment on an over time basis during the twelve months ended December 31, 2022, 2021, and 2020 was $4.2 billion, $4.8 billion, and $4.6 billion, respectively.

Goodwill and Other Identified Intangible Assets

We perform an annual impairment test of goodwill on a qualitative or quantitative basis for each of our reporting units as of July 1, or more frequently when circumstances indicate an impairment may exist at the reporting unit level. When performing the annual impairment test we have the option of first performing a qualitative assessment to determine the existence of events and circumstances that would lead to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If such a conclusion is reached, we would then be required to perform a quantitative impairment assessment of goodwill. A quantitative assessment for the determination of impairment is made by comparing the carrying amount of each reporting unit with its fair value. Determining the fair value of a reporting unit is judgmental in nature and involves the use of significant estimates and assumptions and typically requires analysis of discounted cash flows and other market information, such as trading multiples, and comparable transactions. Cash flow analysis requires judgment regarding many factors, such as management’s projections of future cash flows, weighted-average cost of capital, and long-term growth rates. Market information requires judgmental selection of relevant market comparables. We assess the valuation methodology based upon the relevance and availability of the data at the time the valuation is performed. Our estimates are based upon assumptions believed to be reasonable but which are inherently uncertain, and actual results may differ from those assumed in our analysis. The determination of whether goodwill is impaired involves a significant level of judgment in these assumptions, and changes in our forecasts, business strategy, government regulations, or economic or market conditions could significantly impact these judgments, potentially decreasing the fair value of one or more reporting units. Any resulting impairment charges could have a material impact on our results of operations.

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Income Taxes

Our effective tax rate is based on our income, statutory tax rates, and differences between tax laws and U.S. GAAP in various jurisdictions. Tax laws are complex and subject to different interpretations by the taxpayer and respective governmental taxing authorities. Our rate may be further impacted by the repatriation of foreign earnings that are considered indefinitely reinvested to the extent the repatriation would result in additional taxes such as withholding and income taxes. Indefinite reinvestment is determined by management’s judgment and intentions concerning the future operations of the Company. In cases where repatriation would otherwise incur significant withholding or income taxes, these foreign earnings have been indefinitely reinvested in active non-U.S. business operations. Computation of the potential deferred tax liability associated with these undistributed earnings and any other basis differences is not practicable.

Deferred income tax assets represent amounts available to reduce income taxes payable in future years. We evaluate the recoverability of these future tax deductions and credits by assessing the adequacy of future taxable income from all sources, including reversal of taxable temporary differences, forecasted operating earnings and available tax planning strategies. These sources of income rely heavily on estimates. We use our historical experience and short and long range business forecasts to provide insight. We record a valuation allowance when it is more likely than not that some portion or all of the deferred tax assets will not be realized.

Our tax filings routinely are subject to audit by the tax authorities in the jurisdictions where we conduct business. These audits may result in assessments of additional taxes that are resolved with the tax authorities or through the courts. We have provided for the amounts we believe will ultimately result from these proceedings, but settlements of issues raised in these audits may affect our tax rate. We have $496 million of gross unrecognized tax benefits, excluding interest and penalties, at December 31, 2022. We are not able to reasonably estimate in which future periods these amounts ultimately will be settled.

Allowance for Credit Losses

The estimation of anticipated credit losses that may be incurred as we work through the invoice collection process with our customers requires us to make judgments and estimates regarding our customers' ability to pay amounts due to us. We monitor our customers' payment history and current credit worthiness to determine that collectability is reasonably assured. We also consider the overall business climate in which our customers operate. For accounts receivable, a loss allowance matrix is utilized to measure lifetime expected credit losses. The matrix contemplates historical credit losses by age of receivables, adjusted for any forward-looking information and management expectations. At December 31, 2022 and 2021, the allowance for credit losses totaled $341 million and $400 million of total gross accounts receivable, respectively. We believe that our allowance for credit losses is adequate to cover the anticipated credit losses under current conditions; however, uncertainties regarding changes in the financial condition of our customers, either adverse or positive, could impact the amount and timing of any additional credit losses that may be required.

Inventory Reserves

Inventory is a significant component of current assets and is stated at the lower of cost or net realizable value. This requires us to record provisions and maintain reserves for excess, slow moving, and obsolete inventory. To determine these reserve amounts, we regularly review inventory quantities on hand and compare them to estimates of future product demand, market conditions, production requirements, and technological developments. These estimates and forecasts inherently include uncertainties and require us to make judgments regarding potential future outcomes. At December 31, 2022 and 2021, inventory reserves totaled $396 million and $374 million of gross inventory, respectively. We believe that our reserves are adequate to properly value potential excess, slow moving, and obsolete inventory under current conditions. Significant or unanticipated changes to our estimates and forecasts could impact the amount and timing of any additional provisions for excess, slow moving or obsolete inventory that may be required.

NEW ACCOUNTING STANDARDS TO BE ADOPTED

See "Note 1. Summary of Significant Accounting Policies" of the Notes to Consolidated Financial Statements in Item 8 herein for further discussion of accounting standards to be adopted.

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RELATED PARTY TRANSACTIONS

See "Note 18. Related Party Transactions" of the Notes to Consolidated Financial Statements in Item 8 herein for further discussion of related party transactions.

FORWARD-LOOKING STATEMENTS

This Form 10-K, including MD&A and certain statements in the Notes to Consolidated Financial Statements, contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act of 1934, as amended, (each a "forward-looking statement"). Forward-looking statements concern future circumstances and results and other statements that are not historical facts and are sometimes identified by the words "may," "will," "should," "potential," "intend," "expect," "endeavor," "seek," "anticipate," "estimate," "overestimate," "underestimate," "believe," "could," "project," "predict," "continue," "target" or other similar words or expressions. Forward-looking statements are based upon current plans, estimates and expectations that are subject to risks, uncertainties and assumptions. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those indicated or anticipated by such forward-looking statements. The inclusion of such statements should not be regarded as a representation that such plans, estimates or expectations will be achieved. Important factors that could cause actual results to differ materially from such plans, estimates or expectations include, among others, the risk factors in the "Risk Factors" section of Part 1 of Item 1A of this Form 10-K and those set forth from time-to-time in other filings by the Company with the SEC. These documents are available through our website or through the SEC's Electronic Data Gathering and Analysis Retrieval ("EDGAR") system at http://www.sec.gov.

In light of such risks and uncertainties, we caution you not to place undue reliance on these forward-looking statements. These forward-looking statements speak only as of the date of this annual report, or if earlier, as of the date they were made. We do not intend to, and disclaim any obligation to, update or revise any forward-looking statements unless required by securities law.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") should be read in conjunction with the consolidated financial statements included in Item 8. Financial Statements and Supplementary Data contained herein.

For management's discussion and analysis of our financial condition and results of operations for fiscal year 2020 as compared to fiscal year 2019 please refer to Part II, Item 7. "Management's discussion and analysis of financial condition and results of operations" on Form 10-K for our fiscal year ended December 31, 2020, filed with the Securities and Exchange Commission ("SEC") on February 25, 2021.

EXECUTIVE SUMMARY

We are an energy technology company with a broad and diversified portfolio of technologies and services that span the energy and industrial value chain. We operate through our four business segments: Oilfield Services ("OFS"), Oilfield Equipment ("OFE"), Turbomachinery & Process Solutions ("TPS"), and Digital Solutions ("DS"). We sell products and services primarily in the global oil and gas markets, within the upstream, midstream and downstream segments.

As we reflect on the macro environment in 2021, the global economy continued to recover from the impact of the COVID-19 global pandemic. The oil markets experienced increasing levels of demand and continued restraints on supply translating into a strong oil price recovery. For natural gas, a combination of demand and supply factors converged, pushing natural gas and LNG prices to record levels in both Europe and in Asia. The natural gas price spikes also highlighted the fragility of the global energy system as the world transitions to net zero emissions. The effects from variant strains of the COVID-19 virus continued to impact operations in the form of global chip shortages, supply chain challenges, and inflationary pressures in multiple parts of the world.

As we look ahead to 2022, we expect global economic growth to remain strong; however, growth rates are likely to moderate from 2021 levels as central banks are expected to begin tightening monetary policy in order to quell growing inflationary pressures. Despite the expected slowdown in the pace of growth, we believe the expected continuing broader macro recovery will translate into rising energy demand in 2022, with oil demand likely recovering to pre-pandemic levels by the end of the year. We expect continued momentum in the global natural gas markets in 2022, building on a strong 2021. Our positive long-term view on gas is also supported by the recent improvements in policy sentiment in certain parts of the world towards natural gas’ broader role within the energy transition.

Outside of the oil and gas industry, the focus on cleaner energy sources and technology to lower carbon emissions from resource-intensive industries continues to accelerate. In the U.S., Europe, and Asia, various renewables, and green and blue hydrogen projects are moving forward, as well as a number of CCUS projects. On the new energy front, we were active this year in pursuing early-stage technologies in CCUS and in hydrogen. In CCUS, we acquired a position in Electrochaea, a bio-methanation company, and also entered into an exclusive license with SRI International for mixed-salt process technology. In hydrogen, we made an investment in Ekona, a growth stage company developing novel turquoise hydrogen production technology, as well as Nemesys, a technology company focused on a range of early-stage hydrogen technologies.

On the industrial front, we completed the acquisition of ARMS Reliability and an investment in Augury, which will help Baker Hughes continue to build out its industrial asset management platform and deliver an expanded set of asset performance capabilities.

Baker Hughes was successful on many fronts in 2021, with key commercial successes and developments in the LNG and new energy markets, solid margin improvements, as well as strong cash flows from operating activities and free cash flow (a non-GAAP measure defined as cash flows from operating activities less expenditures for capital assets plus the proceeds from disposal of assets). Our strong cash flow performance provides our Company ample flexibility and optionality for our broader capital allocation strategy. As evidence of this, we returned almost $1.2 billion back to shareholders through dividends and buybacks in 2021, while also making multiple acquisitions and investments across the industrial and new energy spaces.

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In 2021, we generated revenue of $20.5 billion, compared to $20.7 billion in 2020. The decrease in revenue was primarily driven by lower volume in OFS and OFE, partially offset by higher volume in TPS and DS. Income before income taxes was $428 million in 2021, and included restructuring, impairment and other charges of $209 million, separation related costs of $60 million, a loss of $1,085 million related to our investment in C3 AI, partially offset by a gain of $241 million related to our investment in ADNOC Drilling, both recorded in other non-operating income/(loss). Loss before income taxes was $15.2 billion in 2020, and included goodwill impairment charges of $14.8 billion, restructuring, impairment and other charges of $1.9 billion, inventory impairment charges of $246 million, separation related costs of $134 million, and a gain of $1.4 billion related to our investment in C3 AI recorded in other non-operating income.

OUTLOOK

Our business is exposed to a number of macro factors, which influence our outlook and expectations given the current volatile conditions in the industry. All of our outlook expectations are purely based on the market as we see it today, and are subject to changing conditions in the industry.

•North America onshore activity: We expect North American onshore to experience strong growth in 2022, as compared to 2021 should commodity prices remain at current levels.

•International onshore activity: We expect onshore spending outside of North America to continue to improve in 2022 as compared to 2021 should commodity prices remain at current levels.

•Offshore projects: We expect a modest recovery in offshore activity and the number of subsea tree awards to grow in 2022 as compared to 2021.

•LNG projects: We remain optimistic on the LNG market long term and view natural gas as both a transition and a destination fuel. We continue to view the long-term economics of the LNG industry as positive.

We have other segments in our portfolio that are more correlated with various industrial metrics, including global GDP growth, such as our Digital Solutions segment.

We also have businesses within our portfolio that are exposed to new energy solutions, specifically focused around reducing carbon emissions of energy and broader industry, including hydrogen, geothermal, CCUS, and energy storage. We expect to see continued growth in these businesses as new energy solutions become a more prevalent part of the broader energy mix.

Overall, we believe our portfolio is well positioned to compete across the energy value chain and deliver comprehensive solutions for our customers. We remain optimistic about the long-term economics of the oil and gas industry, but we are continuing to operate with flexibility. Over time, we believe the world’s demand for energy will continue to rise, and that hydrocarbons will play a major role in meeting the world's energy needs for the foreseeable future. As such, we remain focused on delivering innovative, low-emission, and cost-effective solutions that deliver step changes in operating and economic performance for our customers.

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BUSINESS ENVIRONMENT

The following discussion and analysis summarizes the significant factors affecting our results of operations, financial condition and liquidity position as of and for the year ended December 31, 2021 and 2020, and should be read in conjunction with the consolidated financial statements and related notes of the Company.

Our revenue is predominately generated from the sale of products and services to major, national, and independent oil and natural gas companies worldwide, and is dependent on spending by our customers for oil and natural gas exploration, field development and production. This spending is driven by a number of factors, including our customers' forecasts of future energy demand and supply, their access to resources to develop and produce oil and natural gas, their ability to fund their capital programs, the impact of new government regulations and most importantly, their expectations for oil and natural gas prices as a key driver of their cash flows.

Oil and Natural Gas Prices

Oil and natural gas prices are summarized in the table below as averages of the daily closing prices during each of the periods indicated.

(1)Energy Information Administration ("EIA") Europe Brent Spot Price per Barrel

(2)EIA Cushing, OK WTI ("West Texas Intermediate") spot price

(3)EIA Henry Hub Natural Gas Spot Price per million British Thermal Unit

After a volatile year in 2020, when oil prices dropped due to lower demand, the combination of demand and supply in 2021 resulted in higher oil prices and raised natural gas and LNG prices to record breaking levels.

Outside North America, customer spending is most heavily influenced by Brent oil prices. The average Brent oil prices increased to $70.86/Bbl in 2021 from $41.96/Bbl in 2020 and ranged from a low of $50.37/Bbl in January 2021, to a high of $85.76/Bbl in October 2021.

In North America, customer spending is highly driven by WTI oil prices, which similarly to Brent oil prices, on average increased to $68.14/Bbl in 2021 from $39.16/Bbl in 2020, and ranged from a low of $47.47/Bbl in January 2021, to a high of $85.64/Bbl in October 2021.

In North America, natural gas prices, as measured by the Henry Hub Natural Gas Spot Price, averaged $3.89/mmBtu in 2021, representing a 92% increase over the prior year. Throughout the year, Henry Hub Natural Gas Spot Prices ranged from a high of $23.86/mmBtu in February 2021, to a low of $2.43/mmBtu in April 2021. According to the U.S. Department of Energy, working natural gas in storage at the end of 2021 was 3,226 billion cubic feet ("Bcf"), which was 6.8%, or 234 Bcf, below the corresponding week in 2020.

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Baker Hughes Rig Count

The Baker Hughes rig counts are an important business barometer for the drilling industry and its suppliers. When drilling rigs are active they consume products and services produced by the oil service industry. Rig count trends are driven by the exploration and development spending by oil and natural gas companies, which in turn is influenced by current and future price expectations for oil and natural gas. The counts may reflect the relative strength and stability of energy prices and overall market activity, however, these counts should not be solely relied on as other specific and pervasive conditions may exist that affect overall energy prices and market activity.

We have been providing rig counts to the public since 1944. We gather all relevant data through our field service personnel, who obtain the necessary data from routine visits to the various rigs, customers, contractors and other outside sources as necessary. We base the classification of a well as either oil or natural gas primarily upon filings made by operators in the relevant jurisdiction. This data is then compiled and distributed to various wire services and trade associations and is published on our website. We believe the counting process and resulting data is reliable, however, it is subject to our ability to obtain accurate and timely information. Rig counts are compiled weekly for the U.S. and Canada and monthly for all international rigs. Published international rig counts do not include rigs drilling in certain locations, such as Russia, the Caspian region and onshore China because this information is not readily available.

Rigs in the U.S. and Canada are counted as active if, on the day the count is taken, the well being drilled has been started but drilling has not been completed and the well is anticipated to be of sufficient depth to be a potential consumer of our drill bits. In international areas, rigs are counted on a weekly basis and deemed active if drilling activities occurred during the majority of the week. The weekly results are then averaged for the month and published accordingly. The rig count does not include rigs that are in transit from one location to another, rigging up, being used in non-drilling activities including production testing, completion and workover, and are not expected to be significant consumers of drill bits.

The rig counts are summarized in the table below as averages for each of the periods indicated.

2021 Compared to 2020

Overall the rig count was 1,366 in 2021, an increase of 1% as compared to 2020 due primarily to an increase in activity in North America partially offset by declines internationally. The rig count in North America increased 17% and the international rig count decreased 9% in 2021 compared to 2020.

Within North America, the increase was primarily driven by the Canadian rig count, which was up 48% on average when compared to the same period last year, and an increase in the U.S. rig count, which was up 10% on average. Internationally, the decrease in the rig count was driven primarily by decreases in the Middle East region, Africa region and Europe region of 21%, 10%, and 10%, respectively.

RESULTS OF OPERATIONS

The discussions below relating to significant line items from our consolidated statements of income (loss) are based on available information and represent our analysis of significant changes or events that impact the comparability of reported amounts. Where appropriate, we have identified specific events and changes that affect comparability or trends and, where reasonably practicable, have quantified the impact of such items. In addition, the discussions below for revenue and cost of revenue are on a total basis as the business drivers for product sales and services are similar. All dollar amounts in tabulations in this section are in millions of dollars, unless otherwise stated. Certain columns and rows may not add due to the use of rounded numbers.

Our results of operations are evaluated by the Chief Executive Officer on a consolidated basis as well as at the segment level. The performance of our operating segments is evaluated based on segment operating income

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(loss), which is defined as income (loss) before income taxes and before the following: net interest expense, net other non-operating income (loss), corporate expenses, restructuring, impairment and other charges, goodwill and inventory impairments, separation-related costs, and certain gains and losses not allocated to the operating segments.

In evaluating the segment performance, the Company uses the following:

Volume: Volume is the increase or decrease in products and/or services sold period-over-period excluding the impact of foreign exchange and price. The volume impact on profit is calculated by multiplying the prior period profit rate by the change in revenue volume between the current and prior period. It also includes price, defined as the change in sales price for a comparable product or service period-over-period and is calculated as the period-over-period change in sales prices of comparable products and services.

Foreign Exchange ("FX"): FX measures the translational foreign exchange impact, or the translation impact of the period-over-period change on sales and costs directly attributable to change in the foreign exchange rate compared to the U.S. dollar. FX impact is calculated by multiplying the functional currency amounts (revenue or profit) with the period-over-period FX rate variance, using the average exchange rate for the respective period.

(Inflation)/Deflation: (Inflation)/deflation is defined as the increase or decrease in direct and indirect costs of the same type for an equal amount of volume. It is calculated as the year-over-year change in cost (i.e. price paid) of direct material, compensation and benefits, and overhead costs.

Productivity: Productivity is measured by the remaining variance in profit, after adjusting for the period-over-period impact of volume and price, foreign exchange and (inflation)/deflation as defined above. Improved or lower period-over-period cost productivity is the result of cost efficiencies or inefficiencies, such as cost decreasing or increasing more than volume, or cost increasing or decreasing less than volume, or changes in sales mix among segments. This also includes the period-over-period variance of transactional foreign exchange, aside from those foreign currency devaluations that are reported separately for business evaluation purposes.

Orders and Remaining Performance Obligations

Our statement of income (loss) displays sales and costs of sales in accordance with SEC regulations under which “goods” is required to include all sales of tangible products and “services” must include all other sales, including other services activities. For the amounts shown below, we distinguish between “equipment” and “product services,” where product services refers to sales under product services agreements, including sales of both goods (such as spare parts and equipment upgrades) and related services (such as monitoring, maintenance and repairs), which is an important part of our operations. We refer to “product services” simply as “services” within Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Orders: We recognized orders of $21.7 billion and $20.7 billion in 2021 and 2020, respectively. In 2021, equipment orders were up 3% and service orders were up 6%, compared to 2020.

Remaining Performance Obligations ("RPO"): As of December 31, 2021 and 2020, the aggregate amount of the transaction price allocated to the unsatisfied (or partially unsatisfied) performance obligations was $23.6 billion and $23.4 billion, respectively.

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Revenue and Segment Operating Income Before Tax

Revenue and segment operating income for each of our four operating segments is provided below.

(1)Inventory impairments are reported in "Cost of goods sold" of the consolidated statements of income (loss).

Fiscal Year 2021 to Fiscal Year 2020

Revenue in 2021 was $20,502 million, a decrease of $203 million, or 1%, from 2020. This decrease in revenue was largely a result of decreased activity in OFS and OFE, partially offset by an increase in TPS and DS. OFS decreased $598 million, OFE decreased $358 million, TPS increased $712 million, and DS increased $42 million.

Total segment operating income in 2021 was $2,006 million, an increase of $502 million, or 33%, from 2020. The increase was primarily driven by OFS, which increased $274 million, TPS, which increased $245 million, and OFE, which increased $50 million, partially offset by DS, which decreased $67 million.

Oilfield Services

OFS 2021 revenue was $9,542 million, a decrease of $598 million, or 6%, from 2020, primarily as a result of decreased international activity in 2021 compared to 2020, as evidenced by a decline in the corresponding rig

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count, and, to a lesser extent, to decreased activity in North America and supply chain constraints in the second half of 2021. North America revenue was $2,773 million in 2021, a decrease of $28 million from 2020. International revenue was $6,769 million in 2021, a decrease of $569 million from 2020, primarily driven by declines in the Middle East, partially offset by growth in Latin America.

OFS 2021 segment operating income was $761 million, compared to $487 million in 2020. The increase was primarily driven by higher cost productivity as a result of cost efficiencies and restructuring actions, and price in certain product lines, partially offset by lower volume and commodity costs inflation.

Oilfield Equipment

OFE 2021 revenue was $2,486 million, a decrease of $358 million, or 13%, from 2020. The decrease was primarily driven by lower volume in the subsea production systems business, the disposition of the surface pressure control flow business in the fourth quarter of 2020, and the removal of subsea drilling systems from consolidated OFE operations in the fourth quarter of 2021 due to the formation of a joint venture, partially offset by higher volume in the services and flexible pipe businesses.

OFE 2021 segment operating income was $69 million, compared to $19 million in 2020. The increase was primarily driven by higher cost productivity from our cost out programs and favorable business mix.

Turbomachinery & Process Solutions

TPS 2021 revenue was $6,417 million, an increase of $712 million, or 12%, from 2020. The increase was primarily driven by higher equipment and projects revenue, as well as higher services volume. In 2021, equipment revenue represented 45% and services revenue represented 55% of total revenue. Equipment revenue was up 15% year-over-year, and services revenue was up 10% year-over-year.

TPS 2021 segment operating income was $1,050 million, compared to $805 million in 2020. The increase in profitability was driven primarily by higher volume and increased cost productivity, partially offset by unfavorable business mix.

Digital Solutions

DS 2021 revenue was $2,057 million, an increase of $42 million, or 2%, from 2020, mainly driven by higher volume across the Process & Pipeline Services and Waygate Technologies businesses, partially offset by declines in the Nexus Controls business. DS revenue growth was affected by supply chain constraints that impacted product deliveries.

DS 2021 segment operating income was $126 million, compared to $193 million in 2020. The decrease in profitability was primarily driven by lower cost productivity and unfavorable business mix.

Corporate

In 2021, corporate expenses were $429 million, a decrease of $35 million compared to 2020, primarily driven by lower expenses as a result of cost efficiencies and restructuring actions.

Inventory Impairment

There were no inventory impairments during 2021. In 2020, we recorded inventory impairments of $246 million primarily related to our Oilfield Services segment as a result of certain restructuring activities initiated by the Company. Charges for inventory impairments are predominately reported in the "Cost of goods sold" caption of the consolidated statements of income (loss).

Goodwill Impairment

There were no goodwill impairments during 2021. During the first quarter of 2020, the Company’s market capitalization declined significantly driven by current macroeconomic and geopolitical conditions including the

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decrease in demand caused by the COVID-19 pandemic and collapse of oil prices driven by both surplus production and supply. Based on these events, we concluded that a triggering event occurred and we performed an interim quantitative impairment test as of March 31, 2020. Based upon the results of the impairment test, we recognized a goodwill impairment charge of $14,773 million during the first quarter of 2020. There were no other goodwill impairments during 2020.

Restructuring, Impairment and Other

In 2021, we recognized $209 million in restructuring, impairment and other charges. The charges in 2021 primarily relate to the initiatives in our OFS segment that are the continuation of our overall strategy to right-size our structural costs.

In 2020, we recognized $1,866 million in restructuring, impairment and other charges. These charges primarily related to the restructuring plan announced in the first quarter of 2020, which included product line rationalization actions, headcount reductions in certain geographical locations, and other initiatives to right-size operations for anticipated activity levels and market conditions.

Separation Related

We recorded $60 million of separation related costs in 2021, a decrease of $74 million from the prior year. Costs relate to the ongoing activities for the separation from GE, primarily related to information technology.

Other Non-Operating Income/(Loss), Net

In 2021, we recorded $583 million of other non-operating loss. Costs in 2021 include losses of $1,085 million from marking our investment in C3 AI to fair value, partially offset by a gain of $241 million from marking our investment in ADNOC Drilling to fair value, by the reversal of $121 million of current accruals due to the settlement of certain legal matters, and by income of $121 million for liabilities that are recoverable as they are indemnified under the Tax Matters Agreement with GE. This income from indemnified liabilities has an offset in the "Provision for income taxes" caption in our consolidated statements of income (loss).

In 2020, we recorded $1,040 million of other non-operating income. Included in this amount was a gain of $1,417 million related to marking our investment in C3 AI to fair value, partially offset by losses of $353 million for the sale of the rod lift systems business in OFS, and the sale of the surface pressure control flow business in OFE.

Interest Expense, Net

In 2021, we incurred net interest expense of $299 million, an increase of $35 million from the prior year, primarily driven by higher interest expense, mainly related to $28 million of costs associated with the refinancing of our senior notes due December 2022, and lower interest income.

Income Taxes

In 2021, our income tax expense was $758 million, an increase of $199 million, from $559 million in 2020. The increase was primarily due to tax expense related to unrecognized tax benefits and the geographical mix of earnings. Our 2021 income tax expense includes $121 million that is recoverable as it relates to liabilities indemnified under the Tax Matters Agreement with GE. This tax expense has an offset in the "Other non-operating income (loss), net" caption in our consolidated statements of income (loss).

COMPLIANCE

We, in the conduct of all of our activities, are committed to maintaining the core values of our Company, as well as high safety, ethical, and quality standards as also reported in our Quality Management System ("QMS"). We believe such a commitment is integral to running a sound, successful, and sustainable business. We devote significant resources to maintain a comprehensive global ethics and compliance program ("Compliance Program") which is designed to prevent, detect, and appropriately respond to any potential violations of the law, the Code of Conduct, and other Company policies and procedures.

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Highlights of our Compliance Program include the following:

•Comprehensive internal policies over such areas as anti-bribery; travel, entertainment, gifts and charitable donations to government officials and other parties; payments to commercial sales representatives; and, the use of non-U.S. police or military organizations for security purposes.  In addition, there are policies and procedures to address customs requirements, visa processing risks, export and re-export controls, economic sanctions, anti-money laundering and anti-boycott laws.

•Global and independent structure of Chief Compliance Officer and other compliance professionals providing compliance advice, customized training and governance, as well as investigating concerns across all regions and countries where we do business.

•Comprehensive employee compliance training program that combines instructor-led and web-based training modules tailored to the key risks that employees face on an ongoing basis.

•Due diligence and monitoring procedures for third parties who conduct business on our behalf, including channel partners (sales representatives, distributors, resellers), and administrative service providers.

•Due diligence procedures for acquisition activities.

•Specifically tailored compliance risk assessments and audits focused on country and third party risk.

•Compliance Review Board comprised of senior officers of the Company that meets quarterly to monitor effectiveness of the Compliance Program, as well as product company and regional compliance committees that meet quarterly.

•Technology to monitor and report on compliance matters, including an internal investigations management system, a web-based anti-boycott reporting tool, global trade management systems and comprehensive watch list screening.

•Data privacy compliance policies and procedures to ensure compliance with applicable data privacy requirements.

•A compliance program designed to create an “Open Reporting Environment” where employees are encouraged to report any ethics or compliance matter without fear of retaliation, including a global network of trained employee ombudspersons, and a worldwide, 24-hour business helpline operated by a third party and available in approximately 200 languages.

•Centralized finance organization with company-wide policies.

•Anti-corruption audits of high-risk countries, as well as risk-based compliance audits of third parties.

•We have region-specific processes and procedures for management of HR related issues, including pre-hire screening of employees; a process to screen existing employees prior to promotion into select roles where they may be exposed to finance and/or corruption-related risks; and implementation of a global new hire training module which includes compliance training for all employees.

LIQUIDITY AND CAPITAL RESOURCES

Our objective in financing our business is to maintain sufficient liquidity, adequate financial resources, and financial flexibility in order to fund the requirements of our business. Despite the challenging dynamics that began in 2020 as a result of the COVID-19 pandemic, we continue to maintain solid financial strength and liquidity. At December 31, 2021, we had cash and cash equivalents of $3.9 billion compared to $4.1 billion at December 31, 2020. Our liquidity is further supported by a revolving credit facility of $3 billion, and access to both commercial paper and uncommitted lines of credit. At December 31, 2021, we had no borrowings outstanding under the revolving credit facility, our commercial paper program or our uncommitted lines of credit. Our next debt maturity is December 2023.

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We held cash and cash equivalents in the U.S. of approximately $1.6 billion and $1.0 billion and outside the U.S. of approximately $2.2 billion and $3.1 billion as of December 31, 2021 and 2020, respectively. A substantial portion of the cash held outside the U.S. at December 31, 2021 has been reinvested in active non-U.S. business operations. If we decide at a later date to repatriate those funds to the U.S., we may incur other additional taxes that would not be significant to the total tax provision.

We have a $3 billion committed unsecured revolving credit facility ("the Credit Agreement") with commercial banks maturing in December 2024. The Credit Agreement contains certain customary representations and warranties, certain customary affirmative covenants and certain customary negative covenants. Upon the occurrence of certain events of default, our obligations under the Credit Agreement may be accelerated. Such events of default include payment defaults to lenders under the Credit Agreement and other customary defaults. No such events of default have occurred. We have no borrowings under the Credit Agreement.

In addition, we have a commercial paper program under which we may issue from time to time commercial paper with maturities of no more than 397 days. As a result of the repayment of £600 million of our commercial paper on April 30, 2021, originally issued in May of 2020 under the COVID Corporate Financing Facility established by the Bank of England, our authorized commercial paper program was reduced from $3.8 billion to $3 billion.

Certain Senior Notes contain covenants that restrict our ability to take certain actions. See "Note 10. Borrowings" of the Notes to Consolidated Financial Statements in this Annual Report for further details. At December 31, 2021, we were in compliance with all debt covenants.

We continuously review our liquidity and capital resources. If market conditions were to change, for instance due to the uncertainty created by a global pandemic or a significant decline in oil and gas prices, and our revenue was reduced significantly or operating costs were to increase significantly, our cash flows and liquidity could be negatively impacted. Additionally, it could cause the rating agencies to lower our credit ratings. There are no ratings triggers that would accelerate the maturity of any borrowings under our committed credit facility; however, a downgrade in our credit ratings could increase the cost of borrowings under the credit facility and could also limit or preclude our ability to issue commercial paper. Should this occur, we could seek alternative sources of funding, including borrowing under the credit facility.

During the year ended December 31, 2021, we dispersed cash to fund a variety of activities including certain working capital needs, restructuring and GE separation related costs, capital expenditures, the payment of dividends, distributions to noncontrolling interests, repayment of debt, and repurchases of our common stock.

Cash Flows

Cash flows provided by (used in) each type of activity were as follows for the years ended December 31:

Fiscal Year 2021 to Fiscal Year 2020

Operating Activities

Our largest source of operating cash is payments from customers, of which the largest component is collecting cash related to our sales of products and services including advance payments or progress collections for work to be performed. The primary use of operating cash is to pay our suppliers, employees, tax authorities and others for a wide range of goods and services.

Cash flows from operating activities generated cash of $2,374 million and $1,304 million for the years ended December 31, 2021 and 2020, respectively. For the year ended December 31, 2021, cash generated from operating activities were primarily driven by net losses adjusted for certain noncash items (including depreciation, amortization and loss on equity securities). In addition, working capital, which includes contract and other deferred

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assets, generated $480 million of cash in 2021 primarily due to accounts payable, inventories and contract and other deferred assets partially offset by accounts receivable and progress collections, as we continue to make progress on improving our working capital processes. Restructuring and GE separation related payments were $175 million on a net basis in 2021 and include the proceeds from the disposal of certain facilities, which are reflected below in investing activities.

In 2020, working capital generated $216 million of cash primarily due to receivables and positive progress collections partially offset by accounts payable. Restructuring and GE separation related payments were $670 million in 2020.

Investing Activities

Cash flows from investing activities used cash of $463 million and $618 million for the years ended December 31, 2021 and 2020, respectively.

Our principal recurring investing activity is the funding of capital expenditures to ensure that we have the appropriate levels and types of machinery and equipment in place to generate revenue from operations. Expenditures for capital assets totaled $856 million and $974 million for 2021 and 2020, respectively, partially offset by cash flows from the sale of property, plant and equipment of $315 million and $187 million in 2021 and 2020, respectively. Proceeds from the disposal of assets related to equipment that was lost-in-hole, and to property, machinery and equipment no longer used in operations that was sold throughout the period.

In 2021, we contributed our subsea drilling systems business to create a joint venture and received as consideration 50% of the shares of the joint venture, cash of $70 million, and a promissory note of $80 million. In 2020, we received proceeds of $187 million primarily from the sale of our rod lift systems and our surface pressure control flow businesses.

We invested $179 million during 2021 in adding capabilities to our new energy and industrial asset management offerings through the acquisition of business interests in Augury, Ekona Power and Electrochaea, among others.

In 2021, we sold approximately 2.2 million shares of C3 AI Class A common stock and received proceeds of $145 million, which is reported as other investing activity.

Financing Activities

Cash flows from financing activities used cash of $2,143 million and generated cash of $225 million for the years ended December 31, 2021 and 2020, respectively.

We had net repayments of short-term debt of $41 million and $204 million and long-term debt of $1,313 million and $42 million in 2021 and 2020, respectively. The repayment of long-term debt in 2021 was primarily driven by the early repayment of our 2.773% Senior Notes due December 2022 ("the 2022 Notes") with a principal amount of $1,250 million. In addition, a charge of $28 million related to the early redemption was recorded within "Interest expense, net" in our consolidated statement of income (loss).

In December 2021, we received proceeds from the issuance of $650 million aggregate principal amount of 1.231% Senior Notes due December 2023 and $600 million aggregate principal amount of 2.061% Senior Notes due December 2026. In 2020, we had proceeds from the issuance of $500 million aggregate principal amount of 4.486% Senior Notes due May 2030.

We repaid $832 million (£600 million) of commercial paper in April 2021 originally issued in May 2020 ($737 million at date of issuance) under the COVID Corporate Financing Facility established by the Bank of England.

During 2021, we paid dividends of $592 million to our Class A stockholders, and we made a distribution of $157 million to GE. During 2020, we paid dividends of $488 million to our Class A stockholders, and we made a distribution of $256 million to GE.

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On July 30, 2021, our Board of Directors authorized each of the Company and BHH LLC to repurchase up to $2 billion of its Class A common stock and LLC Units, respectively. During 2021, the Company and BHH LLC repurchased and canceled 17.6 million shares of Class A common stock and LLC Units, respectively, for a total of $434 million.

Cash Requirements

We believe cash on hand, cash flows from operating activities, the available revolving credit facility, access to both our commercial paper program or our uncommitted lines of credit, and availability under our existing shelf registrations of debt will provide us with sufficient capital resources and liquidity in the short-term and long-term to manage our working capital needs, meet contractual obligations, fund capital expenditures and dividends, repay debt, repurchase our common stock, and support the development of our short-term and long-term operating strategies. When necessary, we issue commercial paper or other short-term debt to fund cash needs in the U.S. in excess of the cash generated in the U.S.

Our capital expenditures can be adjusted and managed by us to match market demand and activity levels. Based on current market conditions, capital expenditures in 2022 will be made at a rate that we estimate would equal up to 5% of annual revenue. The expenditures are expected to be used primarily for normal, recurring items necessary to support our business. We also anticipate making income tax payments in the range of $550 million to $650 million in 2022.

Contractual Obligations and Commitments

Our material cash commitments from known contractual and other obligations consist primarily of obligations for long-term debt and related interest, leases for property and equipment, and purchase obligations as part of normal operations. Certain amounts included in our contractual obligations as of December 31, 2021 are based on our estimates and assumptions about these obligations, including their duration, anticipated actions by third parties and other factors.

See “Note 10. Borrowings” of the Notes to Consolidated Financial Statements in Item 8 herein for information regarding scheduled maturities of our long-term debt. See “Note 9. Leases” of the Notes to Consolidated Financial Statements in Item 8 herein for information regarding scheduled maturities of our operating leases.

As of December 31, 2021, we had expected cash payments for estimated interest on our long-term debt and finance lease obligations of $242 million payable within the next twelve months and $3,141 million payable thereafter.

As of December 31, 2021, we had purchase obligations of $1,304 million payable within the next twelve months and $397 million payable thereafter. Our purchase obligations include expenditures for capital assets for 2022 as well as agreements to purchase goods or services or licenses that are enforceable and legally binding and that specify all significant terms, including: fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction.

Due to the uncertainty with respect to the timing of potential future cash outflows associated with our uncertain tax positions, we are unable to make reasonable estimates of the period of cash settlement, if any, to the respective taxing authorities. Therefore, $733 million in uncertain tax positions, including interest and penalties, have been excluded from the contractual obligations discussed above. See "Note 12. Income Taxes" of the Notes to Consolidated Financial Statements in Item 8 herein for further information.

Other factors affecting liquidity

Registration Statements: In May 2021, Baker Hughes filed a universal automatic shelf registration statement on Form S-3ASR with the SEC to have the ability to sell various types of securities including debt securities, Class A common stock, preferred stock, guarantees of debt securities, purchase contracts and units. The specific terms of any securities to be sold would be described in supplemental filings with the SEC. The registration statement will expire in May 2024.

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In December 2020, BHH LLC, Baker Hughes Netherlands Funding Company B.V., and Baker Hughes Co-Obligor, Inc. filed a shelf registration statement on Form S-3 with the SEC to have the ability to sell up to $3 billion in debt securities in amounts to be determined at the time of an offering. Any such offering, if it does occur, may happen in one or more transactions. The specific terms of any debt securities to be sold would be described in supplemental filings with the SEC. The registration statement will expire in December 2023.

Customer receivables: In line with industry practice, we may bill our customers for services provided in arrears dependent upon contractual terms. In a challenging economic environment, we may experience delays in the payment of our invoices due to customers' lower cash flow from operations or their more limited access to credit markets. While historically there have not been material non-payment events, we attempt to mitigate this risk through working with our customers to restructure their debts. A customer's failure or delay in payment could have a material adverse effect on our short-term liquidity and results from operations. As of December 31, 2021, 13% of our gross customer receivables were from customers in the U.S. and 12% were from customers in Mexico. As of December 31, 2020, 16% of our gross customer receivables were from customers in the U.S. No other country accounted for more than 10% of our gross customer receivables at these dates.

International operations: Our cash that is held outside the U.S. is 57% of the total cash balance as of December 31, 2021. We may not be able to use this cash quickly and efficiently due to exchange or cash controls that could make it challenging. As a result, our cash balance may not represent our ability to quickly and efficiently use this cash.

Supply chain finance programs: Under supply chain finance programs, administered by a third party, our suppliers are given the opportunity to sell receivables from us to participating financial institutions at their sole discretion at a rate that leverages our credit rating and thus might be more beneficial to our suppliers. Our responsibility is limited to making payment on the terms originally negotiated with our supplier, regardless of whether the supplier sells its receivable to a financial institution. The range of payment terms we negotiate with our suppliers is consistent, irrespective of whether a supplier participates in the program. These liabilities continue to be presented as accounts payable in our consolidated statements of financial position and reflected as cash flow from operating activities when settled. We do not believe that changes in the availability of supply chain financing programs would have a material impact on our liquidity.

CRITICAL ACCOUNTING ESTIMATES

An accounting policy is deemed to be critical if the nature of the estimate or assumption it incorporates is subject to a material level of judgment related to matters that are highly uncertain and changes in those estimates and assumptions are reasonably likely to materially impact our consolidated financial statements. These estimates reflect our best judgment about current, and for some estimates, future, economic and market conditions and their potential effects based on information available as of the date of these financial statements. If these conditions change from those expected, it is reasonably possible that the judgments and estimates described below could change, which may result in future impairments of goodwill, or the establishment of valuation allowances on deferred tax assets and increased tax liabilities, among other effects. Also, see "Note 1. Summary of Significant Accounting Policies" of the Notes to Consolidated Financial Statements in Item 8 herein, which discusses our most significant accounting policies.

The Audit Committee of our Board of Directors has reviewed our critical accounting estimates and the disclosure presented below. During the past three fiscal years, we have not made any material changes in the methodology used to establish the critical accounting estimates, and we believe that the following are the critical accounting estimates used in the preparation of our consolidated financial statements for the year ended December 31, 2021. There are other items within our consolidated financial statements that require estimation and judgment but they are not deemed critical as defined above.

Revenue Recognition on Long-Term Product Services Agreements

We have long-term service agreements with our customers predominately within our TPS segment. These agreements typically require us to maintain assets sold to the customer over a defined contract term. These agreements have average contract terms of greater than 10 years. From time to time, these contract terms may be extended through contract modifications or amendments, which may result in revisions to future billing and cost

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estimates. Revenue recognition on long-term product services agreements requires estimates of both customer payments and the costs to perform required maintenance services over the contract term. We recognize revenue on an overtime basis using input method to measure our progress toward completion at the estimated margin rate of the contract.

To develop our billings estimates, we consider the number of billable events that will occur based on estimated utilization of the asset under contract, over the life of the contract term. This estimated utilization will consider both historical and market conditions, asset retirements and new product introductions, if applicable.

To develop our cost estimates, we consider the timing and extent of maintenance and overhaul events, including the amount and cost of labor, spare parts and other resources required to perform the services. In developing our cost estimates, we utilize a combination of our historical cost experience and expected cost improvements. Cost improvements are only included in future cost estimates after savings have been observed in actual results or proven effective through an extensive regulatory or engineering approval process.

We routinely review the estimates used in our product services agreements and regularly revise them to adjust for changes. These revisions are based on objectively verifiable information that is available at the time of the review.

The difference between the timing of our revenue recognition and cash received from our customers results in either a contract asset (revenue in excess of billings) or a contract liability (billings in excess of revenue). See "Note 7. Contract and Other Deferred Assets" and "Note 8. Progress Collections and Deferred Income" of the Notes to Consolidated Financial Statements in Item 8 herein for further information.

We regularly assess customer credit risk inherent in the carrying amounts of receivables and contract assets and estimated earnings, including the risk that contractual penalties may not be sufficient to offset our accumulated investment in the event of customer termination. We gain insight into expected future utilization and cost trends, as well as credit risk, through our knowledge of the equipment installed and the close interaction with our customers through supplying critical services and parts over extended periods. Revisions to cost or billing estimates may affect a product services agreement’s total estimated profitability resulting in an adjustment of earnings; such adjustments generated earnings of $14 million, $17 million and $(1) million for the three years ended December 31, 2021, 2020 and 2019, respectively. We provide for probable losses when they become evident.

On December 31, 2021, our long-term product service agreements, net of related billings in excess of revenues, of $0.3 billion, represent approximately 2.6% of our total estimated life of contract billings of $10.1 billion.  Cash billings collected on these contracts were approximately $0.6 billion during the years ended December 31, 2021 and 2020.  Our contracts (on average) are approximately 26% complete based on costs incurred to date and our estimate of future costs. Revisions to our estimates of future revenue or costs that increase or decrease total estimated contract profitability by 1% would increase or decrease the long-term product service agreements balance by $0.06 billion.

Goodwill and Other Identified Intangible Assets

We perform an annual impairment test of goodwill on a qualitative or quantitative basis for each of our reporting units as of July 1, or more frequently when circumstances indicate an impairment may exist at the reporting unit level. When performing the annual impairment test we have the option of first performing a qualitative assessment to determine the existence of events and circumstances that would lead to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If such a conclusion is reached, we would then be required to perform a quantitative impairment assessment of goodwill. A quantitative assessment for the determination of impairment is made by comparing the carrying amount of each reporting unit with its fair value. Determining the fair value of a reporting unit is judgmental in nature and involves the use of significant estimates and assumptions and typically requires analysis of discounted cash flows and other market information, such as trading multiples, and comparable transactions. Cash flow analysis requires judgment regarding many factors, such as management’s projections of future cash flows, weighted-average cost of capital, and long-term growth rates. Market information requires judgmental selection of relevant market comparables. We assess the valuation methodology based upon the relevance and availability of the data at the time the valuation is performed. Our estimates are based upon assumptions believed to be reasonable but which are inherently uncertain, and actual

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results may differ from those assumed in our analysis. The determination of whether goodwill is impaired involves a significant level of judgment in these assumptions, and changes in our forecasts, business strategy, government regulations, or economic or market conditions could significantly impact these judgments, potentially decreasing the fair value of one or more reporting units. Any resulting impairment charges could have a material impact on our results of operations.

Income Taxes

Our effective tax rate is based on our income, statutory tax rates, and differences between tax laws and U.S. GAAP in various jurisdictions. Tax laws are complex and subject to different interpretations by the taxpayer and respective governmental taxing authorities. Our rate may be further impacted by the repatriation of foreign earnings that are considered indefinitely reinvested to the extent the repatriation would result in additional taxes such as withholding and income taxes. Indefinite reinvestment is determined by management’s judgment and intentions concerning the future operations of the Company. In cases where repatriation would otherwise incur significant withholding or income taxes, these foreign earnings have been indefinitely reinvested in active non-U.S. business operations. Computation of the potential deferred tax liability associated with these undistributed earnings and any other basis differences is not practicable.

Deferred income tax assets represent amounts available to reduce income taxes payable in future years. We evaluate the recoverability of these future tax deductions and credits by assessing the adequacy of future taxable income from all sources, including reversal of taxable temporary differences, forecasted operating earnings and available tax planning strategies. These sources of income rely heavily on estimates. We use our historical experience and short and long range business forecasts to provide insight. We record a valuation allowance when it is more likely than not that some portion or all of the deferred tax assets will not be realized.

Our tax filings routinely are subject to audit by the tax authorities in the jurisdictions where we conduct business. These audits may result in assessments of additional taxes that are resolved with the tax authorities or through the courts. We have provided for the amounts we believe will ultimately result from these proceedings, but settlements of issues raised in these audits may affect our tax rate. We have $531 million of gross unrecognized tax benefits, excluding interest and penalties, at December 31, 2021. We are not able to reasonably estimate in which future periods these amounts ultimately will be settled.

Allowance for Credit Losses

The estimation of anticipated credit losses that may be incurred as we work through the invoice collection process with our customers requires us to make judgments and estimates regarding our customers' ability to pay amounts due to us. We monitor our customers' payment history and current credit worthiness to determine that collectability is reasonably assured. We also consider the overall business climate in which our customers operate. For accounts receivable, a loss allowance matrix is utilized to measure lifetime expected credit losses. The matrix contemplates historical credit losses by age of receivables, adjusted for any forward-looking information and management expectations. At December 31, 2021 and 2020, the allowance for credit losses totaled $400 million and $373 million of total gross accounts receivable, respectively. We believe that our allowance for credit losses is adequate to cover the anticipated credit losses under current conditions; however, uncertainties regarding changes in the financial condition of our customers, either adverse or positive, could impact the amount and timing of any additional credit losses that may be required.

Inventory Reserves

Inventory is a significant component of current assets and is stated at the lower of cost or net realizable value. This requires us to record provisions and maintain reserves for excess, slow moving, and obsolete inventory. To determine these reserve amounts, we regularly review inventory quantities on hand and compare them to estimates of future product demand, market conditions, production requirements, and technological developments. These estimates and forecasts inherently include uncertainties and require us to make judgments regarding potential future outcomes. At December 31, 2021 and 2020, inventory reserves totaled $374 million and $421 million of gross inventory, respectively. We believe that our reserves are adequate to properly value potential excess, slow moving, and obsolete inventory under current conditions. Significant or unanticipated changes to our estimates and

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forecasts could impact the amount and timing of any additional provisions for excess, slow moving or obsolete inventory that may be required.

NEW ACCOUNTING STANDARDS TO BE ADOPTED

See "Note 1. Summary of Significant Accounting Policies" of the Notes to Consolidated Financial Statements in Item 8 herein for further discussion of accounting standards to be adopted.

RELATED PARTY TRANSACTIONS

See "Note 18. Related Party Transactions" of the Notes to Consolidated Financial Statements in Item 8 herein for further discussion of related party transactions.

FORWARD-LOOKING STATEMENTS

This Form 10-K, including MD&A and certain statements in the Notes to Consolidated Financial Statements, contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act of 1934, as amended, (each a "forward-looking statement"). Forward-looking statements concern future circumstances and results and other statements that are not historical facts and are sometimes identified by the words "may," "will," "should," "potential," "intend," "expect," "endeavor," "seek," "anticipate," "estimate," "overestimate," "underestimate," "believe," "could," "project," "predict," "continue," "target" or other similar words or expressions. Forward-looking statements are based upon current plans, estimates and expectations that are subject to risks, uncertainties and assumptions. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those indicated or anticipated by such forward-looking statements. The inclusion of such statements should not be regarded as a representation that such plans, estimates or expectations will be achieved. Important factors that could cause actual results to differ materially from such plans, estimates or expectations include, among others, the risk factors in the "Risk Factors" section of Part 1 of Item 1A of this Form 10-K and those set forth from time-to-time in other filings by the Company with the SEC. These documents are available through our website or through the SEC's Electronic Data Gathering and Analysis Retrieval ("EDGAR") system at http://www.sec.gov.

In light of such risks and uncertainties, we caution you not to place undue reliance on these forward-looking statements. These forward-looking statements speak only as of the date of this annual report, or if earlier, as of the date they were made. We do not intend to, and disclaim any obligation to, update or revise any forward-looking statements unless required by securities law.