Halliburton 2015 Annual Report Download - page 26

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indebtedness could have an adverse impact on its earnings and cash flows, which after the acquisition would include the
earnings and cash flows of Baker Hughes, for as long as the indebtedness is outstanding.
The combined enterprise’s increased indebtedness could also have important consequences to holders of our common
stock. For example, it could:
- make it more difficult for the combined enterprise to pay or refinance its debts as they become due during adverse
economic and industry conditions because any decrease in revenues could cause the combined enterprise to not have
sufficient cash flows from operations to make its scheduled debt payments;
- limit the combined enterprise’s flexibility to pursue other strategic opportunities or react to changes in its business
and the industry in which it operates and, consequently, place the combined enterprise at a competitive disadvantage
to its competitors with less debt;
- require a substantial portion of the combined enterprise’s cash flows from operations to be used for debt service
payments, thereby reducing the availability of its cash flow to fund working capital, capital expenditures,
acquisitions, dividend payments and other general corporate purposes;
- result in a downgrade in the rating of our indebtedness, which could limit our ability to borrow additional funds and
increase the interest rates applicable to our indebtedness (after the announcement of the acquisition, Standard &
Poor’s Ratings Services placed all of our ratings on negative watch, and all of Baker Hughes’s ratings on negative
watch, and in October 2015 Moody's placed all of our ratings on review for downgrade);
- result in higher interest expense in the event of increases in interest rates since some of our borrowings are, and will
continue to be, at variable rates of interest; or
- require the combined enterprise to repatriate foreign earnings to meet liquidity demands, resulting in a tax payment
that may not be accrued for.
Based upon current levels of operations, we expect the combined enterprise to be able to generate sufficient cash on a
consolidated basis to make all of the principal and interest payments when such payments are due under our existing credit
facilities, indentures and other instruments governing our outstanding indebtedness, and the indebtedness of Baker Hughes that
may remain outstanding after the acquisition, but there can be no assurance that the combined enterprise will be able to repay or
refinance such borrowings and obligations.
Following the Baker Hughes acquisition, the combined company may encounter difficulties in integrating
Halliburton's and Baker Hughes's businesses and realizing the anticipated benefits of the acquisition.
The acquisition involves the combination of two companies which currently operate as independent public companies.
The combined company will be required to devote management attention and resources to integrating its business practices and
operations, and prior to the acquisition, management attention and resources will be required to plan for such integration.
Potential difficulties the combined company may encounter in the integration process include the following:
- the inability to successfully integrate the respective businesses of the two companies in a manner that permits the
combined company to achieve the cost savings and operating synergies anticipated to result from the acquisition,
which could result in the anticipated benefits of the acquisition not being realized partly or wholly in the time frame
currently anticipated or at all;
- lost sales and customers as a result of certain customers of either or both of the two companies deciding not to do
business with the combined company, or deciding to decrease their amount of business in order to reduce their
reliance on a single company;
- integrating personnel from the two companies while maintaining focus on providing consistent, high quality
products and services;
- potential unknown liabilities and unforeseen increased expenses, delays or regulatory conditions associated with the
acquisition; and
- performance shortfalls at one or both of the two companies as a result of the diversion of management’s attention
caused by completing the acquisition and integrating the companies’ operations.
Liabilities arising out of the Macondo well incident could have a material adverse effect on our liquidity,
consolidated results of operations, and consolidated financial condition.
The semisubmersible drilling rig, Deepwater Horizon, sank on April 22, 2010 after an explosion and fire onboard the
rig that began on April 20, 2010. The Deepwater Horizon was owned by Transocean Ltd. and had been drilling the Macondo
exploration well in the Gulf of Mexico for the lease operator, BP Exploration and Production, Inc. (BP). We performed a variety
of services on that well for BP. There were eleven fatalities and a number of injuries as a result of the Macondo well incident.
Numerous lawsuits relating to the Macondo well incident and alleging damages arising from the blowout were filed
against various parties, including BP, Transocean and us, most of which were consolidated in a Multi-District Litigation (MDL)
proceeding. In addition, the Bureau of Safety and Environmental Enforcement has issued a notification of Incidents of
Noncompliance (INCs) to us relating to the Macondo well incident. We understand that regulations in effect at the time of the
alleged violations provide for fines of up to $35,000 per day per violation.