Baker Hughes 2015 Annual Report Download - page 88

Baker Hughes Incorporated
Notes to Consolidated Financial Statements
79
arbitration tribunal to extend the suspension of the arbitral proceedings to March 31, 2016, pending ongoing
settlement discussions. No timetable for the conduct of the arbitration has yet been established.
During 2014, we received customer notifications related to a possible equipment failure in a natural gas storage
system in Northern Germany, which includes certain of our products. We are currently investigating the cause of
the possible failure and, if necessary, possible repair and replacement options for our products. Similar products
were utilized in other natural gas storage systems for this and other customers. The customer initiated arbitral
proceedings against us on June 19, 2015, under the rules of the German Institute of Arbitration e.V. (DIS). The
customer alleges damages of approximately $170 million plus interest at an annual rate of prime + 5%. A
procedural schedule for the arbitration has not yet been set. In addition, on September 21, 2015, TRIUVA
Kapitalverwaltungsgesellschaft mbH filed a lawsuit in the United States District Court for the Southern District of
Texas, (Houston Division) against the Company and Baker Hughes Oilfield Operations, Inc. alleging that the plaintiff
is the owner of gas storage caverns in Etzel, Germany in which the Company provided certain equipment in
connection with the development of the gas storage caverns. The plaintiff further alleges that the Company
supplied equipment that was either defectively designed or failed to warn of risks that the equipment posed, and
that these alleged defects caused damage to the plaintiff’s property. The plaintiff seeks recovery of alleged
compensatory and punitive damages of an unspecified amount, in addition to reasonable attorneys’ fees, court
costs and pre-judgment and post-judgment interest. The allegations in this lawsuit are related to the claims made in
the June 19, 2015 German arbitration referenced above. On December 15, 2015, the District Court entered an
order staying the lawsuit in favor of the pending German Arbitration. At this time, we are not able to predict the
outcome of these claims or whether either will have a material impact on our financial position, results of operations
or cash flows.
On August 31, 2015, a customer of one of the Company’s subsidiaries issued a Letter of Claim pursuant to a
Construction and Engineering Contract. The customer has claimed $369 million plus loss of production resulting
from a breach of contract related to five electric submersible pumps installed by the subsidiary in Europe.
Investigation is ongoing as to the merits of the claim. At this time, we are not able to predict the outcome of this
claim or whether it will have a material impact on our financial position, results of operations or cash flows.
On October 30, 2015, Chieftain Sand and Proppant Barron, LLC initiated arbitration against our subsidiary,
Baker Hughes Oilfield Operations, Inc., in the American Arbitration Association. The Claimant alleges that the
Company failed to purchase the required sand tonnage for the contract year 2014-2015 and further alleges that the
Company repudiated its yearly purchase obligations over the remaining contract term. The Claimant alleges
damages of approximately $110 million plus interest, attorneys’ fees and costs. A procedural schedule for the
arbitrations has not yet been set. The Company intends to vigorously defend the claim. At this time, we are not
able to predict the outcome of this claim or whether it will have a material impact on our financial position, results of
operations or cash flows.
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.
On April 30, 2015, a class and collective action lawsuit alleging that we failed to pay a nationwide class of
workers overtime in compliance with the Fair Labor Standards Act and North Dakota law was filed titled Williams et
al. v. Baker Hughes Oilfield Operations, Inc. in the U.S. District Court for the District of North Dakota. We are
evaluating the background facts and at this time are not able to predict the outcome of this lawsuit or whether it will
have a material impact on our financial position, results of operations or cash flows.
On July 31, 2015, Rapid Completions LLC filed a lawsuit in federal court in the Eastern District of Texas against
Baker Hughes Incorporated, Baker Hughes Oilfield Operations, Inc., and others claiming infringement of U.S.
Patent Nos. 6,907,936; 7,134,505; 7,543,634; 7,861,774; and 8,657,009. On August 6, 2015, Rapid Completions
amended its complaint to allege infringement of U.S. Patent No. 9,074,451. On September 17, 2015, Rapid
Completions LLC and Packers Plus Energy Services Inc., sued Baker Hughes Canada Company in the Canada