Baker Hughes 2014 Annual Report Download - page 82

Baker Hughes Incorporated
Notes to Consolidated Financial Statements
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consolidated balance sheet at fair value. For those forward contracts designated as fair value hedging instruments
or held as undesignated hedging instruments, we record the changes in fair value of the forward contracts in our
consolidated statements of income along with the change in fair value of the hedged item. Changes in the fair value
of forward contracts designated as cash flow hedging instruments are recognized in other comprehensive income
until the hedged item is recognized in earnings. For derivatives designated as a cash flow hedge, the ineffective
portion of that derivative's change in fair value is recognized in earnings. Recognized gains and losses on
derivatives entered into to manage foreign currency exchange risk are included in MG&A expenses in the
consolidated statements of income.
We had outstanding foreign currency forward contracts with notional amounts aggregating $580 million and
$486 million to hedge exposure to currency fluctuations in various foreign currencies at December 31, 2014 and
2013, respectively. Based on quoted market prices as of December 31, 2014 or 2013 for forward contracts with
similar terms and maturity dates, we recorded a loss of $11 million and a gain of $2 million, respectively, to adjust
these forward contracts to their fair market value.
New Accounting Standards Updates
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update ("ASU")
No. 2014-09, Revenue from Contracts with Customers. The ASU will supersede most of the existing revenue
recognition requirements in U.S. GAAP and will require entities to recognize revenue at an amount that reflects the
consideration to which the Company expects to be entitled in exchange for transferring goods or services to a
customer. The new standard also requires significantly expanded disclosures regarding the qualitative and
quantitative information of an entity's nature, amount, timing, and uncertainty of revenue and cash flows arising from
contracts with customers. The pronouncement is effective for annual reporting periods beginning after December
15, 2016, including interim periods within that reporting period and is to be applied retrospectively, with early
application not permitted. We are currently evaluating the impact the pronouncement will have on our consolidated
financial statements and related disclosures.
In April 2014, the FASB issued ASU No. 2014-08, Presentation of Financial Statements and Property, Plant, and
Equipment - Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity, which
amends the definition of a discontinued operation by raising the threshold for a disposal to qualify as discontinued
operations. The ASU will also require entities to provide additional disclosures about discontinued operations as
well as disposal transactions that do not meet the discontinued operations criteria. The pronouncement is effective
prospectively for all disposals (except disposals classified as held for sale before the adoption date) or components
initially classified as held for sale in periods beginning on or after December 15, 2014. Early adoption is permitted.
We adopted the ASU in the second quarter of 2014 and it did not impact our consolidated financial statements or
the notes to our financial statements.
NOTE 2. HALLIBURTON MERGER AGREEMENT
On November 16, 2014, Baker Hughes, Halliburton Company (“Halliburton”) and a wholly owned subsidiary of
Halliburton (“Merger Sub”), entered into an Agreement and Plan of Merger (the “Merger Agreement”), under which
Halliburton will acquire all the outstanding shares of Baker Hughes through a merger of Baker Hughes with and into
Merger Sub (the "Merger"). Subject to certain specified exceptions, at the effective time of the Merger, each share
of Baker Hughes common stock will be converted into the right to receive (i) 1.12 shares of Halliburton common
stock and (ii) $19.00 in cash.
The obligation of the parties to consummate the Merger is subject to customary closing conditions, including,
among others, (i) the approval by Baker Hughes’ stockholders of the Merger Agreement; (ii) the approval by
Halliburton’s stockholders of the issuance of Halliburton common stock to be issued in the Merger (the “Stock
Issuance”); (iii) applicable regulatory approvals, including the termination or expiration of the applicable waiting
period under the U.S. Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended; (iv) the absence of legal
restraints and prohibitions; and (v) other customary closing conditions. Halliburton is required to take all actions
necessary to obtain regulatory approvals (including agreeing to divestitures) unless the assets, businesses or
product lines subject to such actions would account for more than $7.5 billion of 2013 revenue.