Baker Hughes 2015 Annual Report Download - page 66

Baker Hughes Incorporated
Notes to Consolidated Financial Statements
57
2016, as permitted under the Merger Agreement, though the parties would proceed with closing prior to such date if
all relevant competition approvals have been obtained. If review by the relevant competition authorities extends
beyond April 30, 2016, the Merger Agreement does not terminate automatically; the parties may continue to seek
relevant competition approvals or either of the parties may terminate the Merger Agreement. Baker Hughes cannot
predict with certainty when, or if, the Merger will be completed because completion of the Merger is subject to
conditions beyond the control of Baker Hughes.
Baker Hughes and Halliburton each made customary representations, warranties and covenants in the Merger
Agreement, including, among others, covenants by each of Baker Hughes and Halliburton to, subject to certain
exceptions, conduct its business in the ordinary course. In particular, among other restrictions and subject to
certain exceptions, Baker Hughes agreed to generally refrain from acquiring new businesses, incurring new
indebtedness, repurchasing shares, issuing new common stock or equity awards (other than equity awards granted
to employees, officers and directors materially consistent with historical long-term incentive awards granted), or
entering into new material contracts or commitments outside the normal course of business, without the consent of
Halliburton, during the period between the execution of the Merger Agreement and the consummation of the
Merger. With respect to equity awards granted after the Merger Agreement to officers and employees, such awards
will not vest solely as a result of the Merger but will be converted to an equivalent Halliburton equity award.
However, they will vest entirely if an officer or employee is terminated within one year following the closing of the
Merger with Halliburton. Baker Hughes and Halliburton are each permitted to pay regular quarterly cash dividends
during such period. In addition, under the terms of the Merger Agreement, Halliburton and Baker Hughes have
agreed to coordinate the declaration and payment of dividends in respect of each party's common stock including
record dates and payment dates relating thereto, which we expect to be in the third month of each quarter. Under
the Merger Agreement, we have agreed not to increase the quarterly dividend while the Merger is pending.
In the event the Merger Agreement is terminated by (i) either party as a result of the failure of the Merger to
occur on or before the end date (as it may be extended) due to the failure to achieve certain specified antitrust-
related approvals when all other closing conditions (other than receipt of antitrust and other specified regulatory
approvals and conditions that by their nature cannot be satisfied until the closing but subject to such conditions
being capable of being satisfied if the closing date were the date of termination) have been satisfied, (ii) either party
as a result of any antitrust-related final, non-appealable order or injunction prohibiting the closing, or (iii) Baker
Hughes as a result of Halliburton’s material breach of its obligations to obtain regulatory approval such that the
antitrust-related condition to closing is incapable of being satisfied, then in each case Halliburton would be required
to pay Baker Hughes a termination fee of $3.5 billion.
Baker Hughes incurred costs related to the Merger of $295 million during 2015, including costs under our
retention program and obligations for minimum incentive compensation costs, which, based on meeting eligibility
criteria, have been treated as Merger related expenses.
NOTE 3. IMPAIRMENT AND RESTRUCTURING CHARGES
IMPAIRMENT CHARGES
We conduct impairment tests on long-lived assets whenever events or changes in circumstances indicate that
the carrying value may not be recoverable based on estimated future cash flows. In the fourth quarter of 2015,
negative market sentiment increased and oil prices fell to a seven year low. Additionally, the current market outlook
is for a prolonged recovery. We considered these events to be possible impairment indicators and performed
testing of long-lived assets for impairment.
As a result of our testing, certain machinery and equipment, with a total carrying value of $1.64 billion, was
written down to its estimated fair value, resulting in an impairment charge of $1.05 billion. Additionally, certain
intangible assets, comprised of customer relationships and trade names, with a total carrying value of $178 million,
were written down to their estimated fair values, resulting in an impairment charge of $116 million. Total impairment
charges for 2015 were $1.16 billion. The majority of the machinery and equipment and intangible assets impaired
related to our pressure pumping business in North America. The estimated fair values for these assets were
determined using discounted future cash flows. The significant level 3 unobservable inputs used in the