Baker Hughes 2015 Annual Report Download - page 42

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Marketing, General and Administrative
Marketing, general and administrative (“MG&A”) expenses decreased 8% in 2015 compared to 2014. The
reduction in MG&A costs is mainly a result of workforce reductions and lower discretionary spending. Included in
MG&A expenses for 2015 are costs of $191 million related to the Merger, which partially offset the impact of the
cost reduction measures.
MG&A expenses decreased 3% in 2014 compared to 2013. MG&A expenses in 2014 includes a net gain of
$34 million recognized on the deconsolidation of a jointly owned legal entity. Cost savings experienced across the
organization were mostly offset by a charge of $14 million related to the impairment of a technology investment and
$11 million of Merger related expenses. Also included in MG&A in 2014 and 2013 are foreign exchange losses of
$12 million and $23 million, respectively, due to the currency devaluation in Venezuela.
Impairment and Restructuring Charges
During 2015, we recorded restructuring charges of $830 million consisting of $436 million for workforce
reduction costs, $121 million for contract termination costs and $273 million for asset impairments related to excess
machinery and equipment and facilities. Total cash paid during 2015 related to these charges was $446 million. In
addition to our restructuring activities, in response to the downturn in the energy market and its impact on our
business outlook, we determined that the carrying amount of a number of our assets exceeded their respective fair
values; therefore, we recorded an impairment charge of $1.16 billion. These charges have been excluded from the
results of our operating segments. For further discussion of these impairment and restructuring charges, see Note
3. “Impairment and Restructuring Charges” of the Notes to Financial Statements in Item 8 herein.
The reduction in costs from eliminating depreciation and reduced employee expenses in 2015 was
approximately $700 million and is expected to be more than $1.6 billion on an annualized basis in 2016.
Litigation Settlement
During the second quarter of 2014, we recorded a charge of $62 million related to previously disclosed litigation
settlements for wage and hour lawsuits. A portion of this settlement was to be paid on a claims made basis and
during the second quarter of 2015, the date passed by which the class members could file a claim under this
provision of the settlement agreement. The amount of claims made was less than estimated and, accordingly, we
reduced the accrual by approximately $13 million, which was recorded as an adjustment for litigation settlements
during the second quarter of 2015.
Interest Expense, Net
Interest expense, net of interest income of $20 million, was $217 million in 2015, a decrease of $15 million
compared to $232 million in 2014. The decrease is due primarily to lower short-term borrowings in Latin America
and an increase in interest income. Interest expense, net of interest income of $13 million, remained relatively flat
in 2014 when compared to $234 million in 2013.
Income Taxes
Total income tax benefit was $639 million in 2015 compared to income tax expense of $896 million and $612
million for 2014 and 2013, respectively. Our effective tax rate on operating profits or losses in 2015, 2014 and 2013
was 24.5%, 34.1% and 35.7%, respectively. The 2015 effective tax rate is lower than the U.S. statutory income tax
rate of 35% due to losses in foreign jurisdictions with no tax benefit and adjustments to prior years’ tax positions,
partially offset by favorable amended returns and other return to accrual adjustments. The 2014 effective tax rate is
lower than the U.S. statutory income tax rate of 35% due to lower rates on certain international operations, partially
offset by state income taxes and adjustments to prior years’ tax positions. The 2013 effective tax rate is higher than
the U.S. statutory income tax rate of 35% due to higher rates on certain international operations, primarily resulting
from foreign losses with no tax benefit, and state income taxes partially offset by adjustments to prior years’ tax
positions.