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: OFSE and IET. We sell products and services primarily in the global oil and gas and broader energy and industrial markets.
EXECUTIVE SUMMARY
Market Conditions
During 2025, we saw a decline in global upstream capital spending as a result of ongoing geopolitical tensions, uncertainty around international trade policy, and operator concerns about the accelerated return of idled supply from the Organization of the Petroleum Exporting Countries and its allies ("OPEC+").
As we look to 2026, during which we anticipate modestly stronger year-over-year GDP growth, oil prices are likely to reflect evolving market conditions, as markets assess geopolitical uncertainty and its potential impact on supply against rising OPEC+ and offshore production. Taking these macro factors into consideration, we forecast modest declines in global upstream spending. We believe further reduction in idled OPEC+ production, alongside more constructive oil supply-and-demand balances, is required before a broad inflection in oilfield services activity emerges. Longer term, the outlook remains constructive, particularly internationally and offshore, where significant investment will be required to sustain production growth and meet rising global oil demand. We also see continued growth in OpEx-driven upstream investment, as operators focus on enhancing recovery rates and extending the life of existing assets.
Following approximately 7% growth in LNG demand in 2025, we remain optimistic on the global natural gas outlook, supported by increasing demand for LNG and a continued shift towards natural gas developments. We believe the positive fundamentals are less affected by macro uncertainty but are driven by continued long-term energy demand growth, which is being driven by population growth, higher living standards, and accelerating electrification, with AI and data center expansion adding a new structural layer of power demand. Increasingly, natural gas is the source of this power due to its reliable, scalable, and dispatchable nature, coupled with its ability to lower emissions throughout the energy ecosystem.
Financial Results and Key Company Initiatives
In 2025, the Company generated revenues of $27.7 billion, a decrease of $0.1 billion compared to 2024. IET revenue increased $1.2 billion, or 10%, driven by strong growth in Gas Technology Equipment ("GTE") and Gas Technology Services ("GTS"). OFSE revenue decreased $1.3 billion, or 8%, driven by a decline in revenue in all regions. Net income was $2.6 billion, a decrease of $0.4 billion, or 13%, compared to 2024, with a decline in the mark-to-market adjustment for certain equity securities, change in mix, transaction related costs and lower volume, partially offset by cost out initiatives, net productivity and price.
As a part of our anticipated acquisition of Chart, Chart shareholders approved the acquisition of Chart by the Company (the "Chart acquisition") on October 6, 2025. With regulatory reviews still underway in certain jurisdictions, we presently expect closing in the second quarter of 2026, understanding that the timing may evolve as those processes progress. On portfolio management actions, we closed the acquisition of Continental Disc Corporation ("CDC") on August 7, 2025. The sale of Precision Sensors & Instrumentation to Crane Company and the creation of the Surface Pressure Control joint venture with Cactus closed on January 1, 2026.
In the first quarter of 2025, we increased our quarterly dividend by two cents to $0.23 per share. For the full year of 2025, 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 macroeconomic uncertainty and continued 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 outlook: We expect continued soft market conditions through most of 2026, reflecting customer caution amid oil price uncertainty, with the potential for modest improvement later in the year as excess oil supply begins to moderate.
• IET outlook: We see sustained strength in LNG and gas infrastructure, as well as increasing opportunities to leverage our versatile portfolio to enhance IET's position across industrial and distributed power markets, with a growing emphasis on data centers.
We also expect to see continued growth in new energy solutions specifically focused on reducing carbon emissions for the energy and broader industrial sectors. These include hydrogen; geothermal; CCUS; energy storage; clean power; and emissions abatement solutions. Continued signs of tightness in the aeroderivative supply chain, including extended lead times, will remain a factor to monitor and manage operationally.
Overall, we believe our portfolio is uniquely positioned to compete across the energy and industrial value chains and deliver integrated, high-impact solutions for our customers. Over time, we believe global energy demand will continue to rise, supported by durable, secular macroeconomic trends, with hydrocarbons continuing to play a fundamental role in meeting the world's energy needs. As such, we remain focused on delivering innovative, lower-emission, and cost-effective solutions that drive meaningful improvements in operational and financial 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, 2025, 2024, and 2023, and should be read in conjunction with our consolidated financial statements and related notes.
Our revenue is predominantly 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 as measured by the Henry Hub Natural Gas Spot Price.
Oil and natural gas prices are summarized in the table below as averages of the daily closing prices during each of the periods indicated.
Brent oil prices ($/Bbl) (1)
WTI oil prices ($/Bbl) (2)
Natural gas prices ($/mmBtu) (3)
(1) Energy Information Administration ("EIA") Europe Brent ("Brent") Spot Price per Barrel
(2) EIA Cushing, OK West Texas Intermediate ("WTI") Spot Price per Barrel
(3) EIA Henry Hub Natural Gas Spot Price per million British Thermal Unit
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Rig Count
Rig counts are an important business barometer for the drilling industry and its suppliers. When drilling rigs are active or operating, 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 based on our published rig counts on our website at www.bakerhughes.com.
North America
International
Worldwide
RESULTS OF OPERATIONS
The discussions below relating to significant line items from our consolidated statements of income 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 display 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 MD&A.
Our results of operations are evaluated by our chief operating decision maker, who is the Company's Chief Executive Officer, on a consolidated basis as well as at the segment level. The performance of each segment is evaluated based on segment EBITDA, which is defined as income (loss) before income taxes and before the following: net interest expense, costs associated with significant restructuring programs, depreciation and amortization, and unallocated corporate costs and other income (expense).
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 FX 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.
Price: Price 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.
Business Mix: Business mix is defined as period-over-period change in sales mix within segments.
Cost out initiatives: Cost out initiatives, including restructuring programs.
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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 FX 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. 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.
( 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, price, business mix, FX, and (inflation)/deflation as defined above. Improved or lower period-over-period cost productivity is the result of production, schedule and cost efficiencies or inefficiencies.
Orders and Remaining Performance Obligations
Summarized orders information for our segments are shown in the following table.
Year Ended December 31,
$ Change
From 2024 to 2025
From 2023 to 2024
Orders:
Oilfield Services & Equipment
Gas Technology Equipment
Gas Technology Services
Total Gas Technology
Industrial Products
Industrial Solutions
Controls (1)
Total Industrial Technology
Climate Technology Solutions (2)
Industrial & Energy Technology
Total
(1) The sale of our controls business was completed in April 2023.
(2) For the years ended December 31, 2025, 2024, and 2023, total new energy orders incorporates Climate Technology Solutions ("CTS") in IET.
The RPO relate to the aggregate amount of the transaction price allocated to the unsatisfied (or partially unsatisfied) performance obligations. As of December 31, 2025, RPO totaled $35.9 billion, of which OFSE totaled $3.5 billion and IET totaled $32.4 billion.
Fiscal Year 2025 to Fiscal Year 2024
Revenue decreased $0.1 billion to $27.7 billion. OFSE decreased $1.3 billion, or 8%, and IET increased $1.2 billion, or 10%.
Selling, general and administrative costs decreased $71 million, or 3%, to $2,387 million.
Research and development costs decreased $43 million, or 7%, to $600 million.
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Restructuring charges were $215 million in 2025, primarily related to employee termination expenses and footprint consolidation. In 2024, restru cturing charges were $260 million, primarily related to streamlining of the OFSE operating model.
We recorded other expense of $243 million in 2025, which included $107 million of transaction costs related to business acquisition and disposal activities and a net loss of $103 million from the change in fair value of equity securities. In 2024, we recorded $341 million of other income. Included in this amount was a net gain of $367 million from the change in fair value of equity securities.
Net interest expense incurred in 2025 was $222 million, which includes interest income of $82 million. Net interest expense increased $25 million compared to 2024.
We recorded income taxes in 2025 and 2024 of $253 million and $257 million, respectively. The difference between the U.S. statutory tax rate of 21% and the effective tax rate is primarily the net impact of $308 million and $664 million reversal of valuation allowances in 2025 and 2024, respectively, 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 allowances on the associated deferred tax assets have been released as a result of the U.K. and the U.S. moving into and/or maintaining cumulative three-year profit positions, demonstrating an increasing pattern of profitability, along with recent tax credit utilization, and the forecasted continuation of profitability in both jurisdictions.
Net income decreased $0.4 billion, or 13%, to $2.6 billion compared to 2024.
Segment Revenues and Segment EBITDA
Oilfield Services & Equipment
Year Ended December 31,
$ Change
Revenue
Well Construction
Completions, Intervention, and Measurements
Production Solutions
Subsea & Surface Pressure Systems
Total
Cost of goods and services sold
Research and development costs
Selling, general and administrative
Other (income) expense
Less: Depreciation and amortization
Segment EBITDA
OFSE revenue of $14,324 million decreased $1,304 million, or 8%, in 2025 compared to 2024, due to reduced oilfield activity as reflected in the reduced rig count. From a geographical perspective, international revenue was $10,551 million, a decrease of $1,121 million, or 10%, from 2024, down in all regions. North America revenue was $3,773 million in 2025, a decrease of $183 million, or 5%, from 2024.
OFSE segment EBITDA of $2,618 million decreased $263 million, or 9%, in 2025 compared to 2024. The reduction of EBITDA in 2025 was a result of lower volume, change in mix, and inflation, partially offset by cost out initiatives, and overall productivity.
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Industrial & Energy Technology
Year Ended December 31,
$ Change
Revenue
Gas Technology Equipment
Gas Technology Services
Total Gas Technology
Industrial Products
Industrial Solutions
Total Industrial Technology
Climate Technology Solutions
Total
Cost of goods and services sold
Research and development costs
Selling, general and administrative
Other (income) expense
Less: Depreciation and amortization
Segment EBITDA
IET revenue of $13,409 million increased $1,208 million, or 10%, in 2025 compared to 2024, driven by GTE and GTS.
IET segment EBITDA of $2,482 million increased $432 million, or 21%, in 2025 compared to 2024. The improved performance in 2025 was driven by higher volume, price, FX, cost out initiatives, partially offset by inflation, and change in mix.
Fiscal Year 2024 to Fiscal Year 2023
Revenue increased $2.3 billion, or 9%, to $27.8 billion. OFSE increased $0.3 billion, or 2%, and IET increased $2.1 billion, or 20%.
Selling, general and administrative costs decreased $153 million, or 6%, to $2,458 million driven primarily by a continued focus on cost optimization, partially offset by inflationary pressure.
Research and development costs decreased $8 million, or 1%, to $643 million.
Restructuring charges were $260 million in 2024, primarily related to streamlining of the OFSE operating model. In 2023, restructuring charges were $313 million reflecting costs to align the business with the Company's market outlook.
We recorded other income of $341 million and $544 million in 2024 and 2023, respectively, which included a net gain of $367 million and $555 million, respectively, from the change in fair value of equity securities.
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
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valuation allowance on the associated deferred tax assets has been released as a result of the U.S. moving into and maintaining 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.
Net income increased $1 billion, or 53%, to $3 billion compared to 2023.
Segment Revenues and Segment EBITDA
Oilfield Services & Equipment
Year Ended December 31,
$ Change
Revenue
Well Construction
Completions, Intervention, and Measurements
Production Solutions
Subsea & Surface Pressure Systems
Total
Cost of goods and services sold
Research and development costs
Selling, general and administrative
Less: Depreciation and amortization
Segment EBITDA
OFSE revenue of $15,628 million increased $268 million, or 2%, in 2024 compared to 2023, driven by Subsea & Surface Pressure Systems ("SSPS"). From a geographical perspective, international revenue was $11,673 million, an increase of $428 million, or 4%, 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, or 4%, from 2023.
OFSE segment EBITDA of $2,881 million increased $286, or 11%, in 2024 compared to 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
Year Ended December 31,
$ Change
Revenue
Gas Technology Equipment
Gas Technology Services
Total Gas Technology
Industrial Products
Industrial Solutions
Controls (1)
Total Industrial Technology
Climate Technology Solutions
Total
Cost of goods and services sold
Research and development costs
Selling, general and administrative
Less: Depreciation and amortization
Segment EBITDA
(1) The sale of our controls business was completed in April 2023.
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 GTS.
IET segment EBITDA of $2,050 million increased $523, or 34%, in 2024 compared to 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.
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, 2025, we had cash and cash equivalents of $3.7 billion, compared to $3.4 billion at December 31, 2024.
In the U.S. we held cash and cash equivalents of approximately $0.7 billion and $0.6 billion as of December 31, 2025 and 2024, respectively, and outside the U.S. of approximately $3.0 billion and $2.8 billion as of December 31, 2025 and 2024, respectively. A substantial portion of the cash held outside the U.S. at December 31, 2025 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 $3.0 billion committed unsecured revolving credit facility (the "Credit Agreement") with commercial banks maturing in November 2028. The Credit Agreement contains certain representations and warranties, certain affirmative covenants and negative covenants, in each case 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, 2025 and 2024, 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, 2025, we were in compliance with all debt covenants. Our next debt maturity is December 2026.
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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. Should this occur, we could seek alternative sources of funding, including borrowing under the credit facility.
On July 28, 2025, we entered into a definitive agreement to acquire all outstanding shares of Chart's common stock for $210 per share in cash, equivalent to a total enterprise value of approximately $13.6 billion. Our expected sources of funds for the acquisition include cash and cash equivalents to be generated from cash flow from operations, expected asset sales proceeds, and new debt financing. As a result, we entered into a senior unsecured 364-day bridge facility (the "Bridge Facility") and a senior unsecured delayed-draw term loan facility (the "DDTL"). The final structure of the new debt financing will be determined prior to transaction close. The incurrence of new indebtedness would increase our leverage and debt service requirements, which could impact our future financial condition and results of operations.
During the year ended December 31, 2025, we dispersed cash to fund a variety of activities, including certain working capital needs, capital expenditures, business acquisitions, the payment of dividends, 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:
(In millions)
Operating activities
Investing activities
Financing activities
Operating Activities
Cash flows provided by operating activities were $3,810 million, $3,332 million, and $3,062 million for the years ended December 31, 2025, 2024, and 2023, 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, change in fair value of equity securities, stock-based compensation cost, deferred tax benefit or provision, and the impairment of certain assets).
In 2025, net working capital cash generation was $713 million, mainly due to strong collections of receivables and contract assets, partially offset by progress collections.
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 continued to expand.
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.
Included in the cash flows from operating activities in 2025, 2024, and 2023 are payments of $182 million, $217 million, and $142 million, respectively, made primarily for employee severance as a result of our restructuring activities.
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Investing Activities
Cash flows used in investing activities were $2,044 million, $1,016 million, and $817 million for the years ended December 31, 2025, 2024, and 2023, 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 $1,273 million, $1,278 million, and $1,224 million for 2025, 2024, and 2023, respectively, partially offset by cash flows from the disposal of PP&E of $195 million, $203 million, and $208 million in 2025, 2024, and 2023, respectively. Proceeds from the disposal of assets were primarily related to OFSE equipment that was lost-in-hole, and PP&E no longer used in operations that was sold throughout the period.
In 2025, we completed the acquisition of CDC in the IET segment in an all-cash transaction for approximately $543 million.
In 2025, we entered into an agreement to acquire Chart. Under the terms of the agreement, we paid $258 million for the termination fee and the reimbursement of certain expenses on behalf of Chart to Flowserve Corporation ("Flowserve"), as a result of the termination of the merger agreement by and among Chart, Flowserve, and certain subsidiaries of Flowserve.
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.
We had proceeds from the sale of certain equity securities of $1 million, $92 million, and $372 million in 2025, 2024, and 2023, respectively.
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 $1,482 million, $1,527 million, and $2,028 million for the years ended December 31, 2025, 2024, and 2023, respectively.
We increased our quarterly dividend by two cents to $0.23 and one cent to $0.21 per share in 2025 and 2024, respectively. We paid dividends of $910 million, $836 million, and $786 million to our Class A stockholders in 2025, 2024, and 2023, respectively.
We repurchased and canceled 9.8 million, 15.2 million, and 16.3 million shares of Class A common stock for a total of $384 million, $484 million, and $538 million, for the years ended December 31, 2025, 2024, and 2023, 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.
Cash Requirements
We believe cash on hand, cash flows from operating activities, the available revolving credit facility, access to our uncommitted lines of credit, the Bridge Facility, the DDTL, 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
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working capital needs; meet contractual obligations; fund strategic growth initiatives, 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 2026 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 in 2026.
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, 2025 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, 2025, we had expected cash payments for estimated interest on our long-term debt and finance lease obligations of $247 million payable within the next twelve months and $2,223 million payable thereafter.
As of December 31, 2025, we had purchase obligations of $1,840 million payable within the next twelve months and $540 million payable thereafter. Our purchase obligations include expenditures for capital assets for 2026 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, $656 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 Baker Hughes Holdings LLC ("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, 2025. 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 by working with our customers to restructure their debts or utilizing available trade receivable facilities that enable us to manage collection risk. With regard to our primary customer in Mexico, there have not historically been any material losses due to uncollectable accounts receivable, nor are any such balances currently in dispute. During 2025 and 2024, the Company had CDS in the total of $775 million and $553 million, respectively, with third-party financial institutions. The CDS relate to borrowings provided by these financial institutions to our primary customer in Mexico
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who utilized these borrowings to pay certain of the Company's outstanding receivables. The total notional amount remaining on the issued CDS was $287 million and $412 million as of December 31, 2025 and 2024, respectively, which will reduce each month through September 2026 as the customer repays the borrowings. As of December 31, 2025, 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, 2025, 16% of our gross customer receivables were from customers in the U.S. and 10% were from customers in the United Arab Emirates. 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. 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 82% of the total cash balance as of December 31, 2025. 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 Financial Information
We guarantee various senior unsecured notes and senior unsecured debentures (collectively, the "Debt Securities") outstanding with an aggregate principal amount of $5,808 million as of December 31, 2025, 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.
Management has elected to include summarized financial information for the Issuers, notwithstanding that SEC Rule 13‑01 would otherwise permit its omission because the combined assets, liabilities, and results of operations of the Issuers are not materially different from the corresponding amounts presented in Baker Hughes Company's consolidated financial statements. We believe the information will be useful in connection with future debt financing activities associated with the Chart acquisition.
Year Ended
December 31,
Summarized Income Statement data (In millions)
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Costs and expenses
Net income
Net income attributable to Baker Hughes Company
December 31,
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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
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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, 2025. 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, 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 $18 million, $(11) million and $15 million for the three years ended December 31, 2025, 2024 and 2023, 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 $0.7 billion and $0.6 billion during the years ended December 31, 2025 and 2024, respectively. Our contracts (on average) are approximately 13% 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
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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, 2025, 2024, and 2023 was $8.4 billion, $8.5 billion, and $6.1 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 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 evidence that is objective and verifiable, such as cumulative in recent years. While this would not be the sole determinate of the need for a
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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 $525 million of gross unrecognized tax benefits, excluding interest and penalties, at December 31, 2025. We are not able to reasonably estimate in which future periods these amounts ultimately will be settled.
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 and Section 21E of the Exchange Act (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.
