Acquisitions and Dispositions

Pending acquisition of Baker Hughes

In November 2014, we and Baker Hughes entered into a merger agreement under which, subject to the conditions set forth in the merger agreement, we will acquire all the outstanding shares of Baker Hughes in a stock and cash transaction. Baker Hughes is a leading supplier of oilfield services, products, technology and systems to the worldwide oil and natural gas industry. Under the terms of the merger agreement, at the effective time of the acquisition, each share of Baker Hughes common stock will be converted into the right to receive 1.12 shares of our common stock and $19.00 in cash. The merger agreement has been unanimously approved by both companies' Board of Directors, our stockholders have approved the issuance of shares necessary to complete the acquisition of Baker Hughes, and Baker Hughes’ stockholders have adopted the merger agreement and thereby approved the acquisition. The closing of the transaction is subject to receipt of certain regulatory approvals and other conditions specified in the merger agreement.

Because the exchange ratio was fixed at the time of the merger agreement and the market value of our common stock will continue to fluctuate, the total value of the consideration exchanged will not be determinable until the closing date. The number of shares to be issued will not fluctuate based upon changes in the price of shares of our common stock or shares of Baker Hughes common stock prior to the closing date, but the exact number of Halliburton shares to be issued with respect to Baker Hughes stock awards will not be determinable until the closing of the transaction. We have estimated the total consideration expected to be issued and paid to Baker Hughes stockholders in the acquisition to consist of approximately 492 million shares of our common stock and approximately $8.3 billion to be paid in cash.

In November 2015, we issued $7.5 billion aggregate principal amount of senior notes to be used for general corporate purposes, including to finance a portion of the cash consideration for the acquisition. If the Baker Hughes acquisition is not consummated, we are required to redeem $2.5 billion of the senior notes issued at a price of 101% of their principal amount. See Note 8 for further information on the debt issuance and mandatory redemption features. We may finance the remainder of the cash portion of the consideration for the acquisition with cash on hand, additional debt financing, or a combination thereof. We have $1.1 billion remaining under the senior unsecured bridge facility commitment we obtained for the acquisition, although we may obtain other debt financings in lieu of utilizing all or a portion of the bridge facility.

In December 2015, we announced that our timing agreement with the DOJ expired without reaching a settlement or the DOJ initiating litigation. The DOJ informed us that they do not believe that our previously announced proposed divestitures are sufficient to address their concerns, but acknowledged that they would assess further proposals. In January 2016, the EC entered into Phase II of its investigation, and issued a report detailing initial concerns about the competition-related implications of the acquisition.

Also, in January 2016, we presented to the DOJ an enhanced set of proposed divestitures in order to seek their approval of the transaction. We also informally notified the EC and other jurisdictions about the enhanced divestitures package. The sales process for the planned divestitures is continuing, but there is no agreement to date with any buyer or an agreement with the DOJ or EC as to the adequacy of the proposed divestitures. Our conversations with the DOJ, the EC and other enforcement authorities continue with the desire to resolve their competition-related concerns as soon as possible.

We remain committed to completing this transaction, despite the extended time required to obtain regulatory approvals. We agreed with Baker Hughes to extend the period to obtain required regulatory approvals to no later than April 30, 2016, as permitted under the merger agreement, though we would proceed with closing prior to such date if all relevant regulatory 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 regulatory approvals or either of the parties may terminate the merger agreement. Under the merger agreement, we could be required in certain circumstances, where the termination of the merger agreement is related to failures to obtain regulatory clearances, to pay Baker Hughes a termination fee of $3.5 billion. See "Assets Held for Sale" below for additional expenses we would recognize if the merger agreement is terminated.

Assets Held for Sale

In April 2015, we announced our decision to market for sale our Fixed Cutter and Roller Cone Drill Bits, our Directional Drilling, and our Logging-While-Drilling/Measurement-While-Drilling businesses in connection with the pending Baker Hughes acquisition. The assets and liabilities for these businesses, which are included within our Drilling and Evaluation operating segment, were classified as held for sale beginning in the second quarter of 2015 and, therefore, the corresponding depreciation and amortization expense was ceased at that time. These anticipated divestitures are not presented as discontinued operations in our consolidated statements of operations, because they do not represent a strategic shift in our business, as we will continue operating similar businesses of Baker Hughes after the acquisition.

During the years ended December 31, 2015, 2014, and 2013, we generated revenue from these assets of $2.6 billion, $3.6 billion, and $3.6 billion. Additionally, during the years ended December 31, 2015, 2014, and 2013, we recognized operating income from these assets, consistent with our business segments presentation in Note 4, of $460 million, $391 million, and $422 million. These amounts reflect the impact of ceasing the recording of depreciation and amortization expense for these businesses subsequent to their held for sale reclassification in 2015; the recording of such expenses would have reduced operating income by $244 million during the year ended December 31, 2015. If the merger agreement for the pending Baker Hughes acquisition is terminated, and therefore these businesses are no longer considered held for sale, we would reclassify the assets as held and used at the lower of fair value or carrying value less ceased depreciation and amortization expense as of that date. Additionally, we recorded $103 million of capitalized divestiture costs within "Other current assets" on our consolidated balance sheets as of December 31, 2015, which we would record as an expense in our statement of operations if the acquisition is not consummated.

When an asset is classified as held for sale, the asset’s book value is evaluated and adjusted to the lower of its carrying amount or fair value less cost to sell. As of December 31, 2015, we determined the fair value less cost to sell exceeded the carrying amount of our assets held for sale.

A summary of the carrying amounts of assets and liabilities held for sale on our consolidated balance sheet as of December 31, 2015 related to the anticipated divestitures discussed above is detailed below.



Millions of dollars	December 31, 2015
Assets
Property, plant, and equipment	$	1,206
Inventories	576
Goodwill	276
Patents and other intangibles	57
Total assets	$	2,115
Liabilities
Employee benefit liabilities (a)	$	46
Total liabilities	$	46
(a) Liabilities held for sale are classified within “Other current liabilities” on our consolidated balance sheet as of December 31, 2015.

In the third quarter of 2015, we announced that we also intended to divest our expandable liner hangers business in connection with the pending Baker Hughes acquisition, but the anticipated divestiture did not meet all of the requirements for classification as assets held for sale. We have recently proposed a revised and enhanced divestiture package to the DOJ, which no longer includes our expandable liner hangers business.

The final sale of each of the businesses described above, as well as any other businesses disposed of in connection with the Baker Hughes acquisition, will be subject to the ability to negotiate acceptable terms and conditions, each company's Board of Directors approval, as applicable, and final approval of the Baker Hughes acquisition by competition authorities. We anticipate that each company would complete the sale of divested businesses concurrent with the closing of the Baker Hughes acquisition.