HAL_6.30.2015-10Q
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q

[X]   Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended June 30, 2015

OR

[   ]   Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition period from _____ to _____

Commission File Number 001-03492

HALLIBURTON COMPANY

(a Delaware corporation)
75-2677995

3000 North Sam Houston Parkway East
Houston, Texas  77032
(Address of Principal Executive Offices)

Telephone Number – Area Code (281) 871-2699

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes
[X]
No
[   ]
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
 
Yes
[X]
No
[   ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 
Large accelerated filer
[X]
Accelerated filer
[   ]
 
Non-accelerated filer
[   ]
Smaller reporting company
[   ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes
[   ]
No
[X]

As of July 17, 2015854,749,132 shares of Halliburton Company common stock, $2.50 par value per share, were outstanding.



HALLIBURTON COMPANY

Index

 
 
Page No.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


Table of Contents

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements

HALLIBURTON COMPANY
Condensed Consolidated Statements of Operations
(Unaudited)
 
Three Months Ended
June 30
Six Months Ended
June 30
Millions of dollars and shares except per share data
2015
2014
2015
2014
Revenue:
 
 
 
 
Services
$
4,380

$
6,127

$
9,727

$
11,667

Product sales
1,539

1,924

3,242

3,732

Total revenue
5,919

8,051

12,969

15,399

Operating costs and expenses:
 

 

 

 

Cost of services
3,942

5,151

8,915

9,916

Cost of sales
1,291

1,617

2,603

3,155

Impairments and other charges
306


1,514


Baker Hughes acquisition-related costs
83


122


General and administrative
43

89

109

164

Total operating costs and expenses
5,665

6,857

13,263

13,235

Operating income (loss)
254

1,194

(294
)
2,164

Interest expense, net of interest income of $4, $4, $7 and $7
(106
)
(94
)
(212
)
(187
)
Other, net
(23
)
(24
)
(247
)
(55
)
Income (loss) from continuing operations before income taxes
125

1,076

(753
)
1,922

Income tax benefit (provision)
(71
)
(299
)
170

(528
)
Income (loss) from continuing operations
54

777

(583
)
1,394

Loss from discontinued operations, net of income tax benefit of $1, $1, $3 and $2
(1
)
(2
)
(5
)
(3
)
Net income (loss)
$
53

$
775

$
(588
)
$
1,391

Net (income) loss attributable to noncontrolling interest
1

(1
)
(1
)
5

Net income (loss) attributable to company
$
54

$
774

$
(589
)
$
1,396

Amounts attributable to company shareholders:
 

 

 

 

Income (loss) from continuing operations
$
55

$
776

$
(584
)
$
1,399

Loss from discontinued operations, net
(1
)
(2
)
(5
)
(3
)
Net income (loss) attributable to company
$
54

$
774

$
(589
)
$
1,396

Basic income (loss) per share attributable to company shareholders:
 

 

 

 

Income (loss) from continuing operations
$
0.06

$
0.92

$
(0.69
)
$
1.65

Loss from discontinued operations, net


(0.01
)

Net income (loss) per share
$
0.06

$
0.92

$
(0.70
)
$
1.65

Diluted income (loss) per share attributable to company shareholders:
 

 

 

 

Income (loss) from continuing operations
$
0.06

$
0.91

$
(0.69
)
$
1.64

Loss from discontinued operations, net


(0.01
)

Net income (loss) per share
$
0.06

$
0.91

$
(0.70
)
$
1.64

 
 
 
 
 
Cash dividends per share
$
0.18

$
0.15

$
0.36

$
0.30

Basic weighted average common shares outstanding
852

846

851

847

Diluted weighted average common shares outstanding
854

852

851

853

     See notes to condensed consolidated financial statements.
 
 
 
 

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Table of Contents

HALLIBURTON COMPANY
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)

 
Three Months Ended
June 30
Six Months Ended
June 30
Millions of dollars
2015
2014
2015
2014
Net income (loss)
$
53

$
775

$
(588
)
$
1,391

Other comprehensive income, net of income taxes:
 

 

 

 

Unrealized gain on cash flow hedges
$
106

$

$
106

$

Other
(2
)

(5
)
4

Other comprehensive income (loss), net of income taxes
104


101

4

Comprehensive income (loss)
$
157

$
775

$
(487
)
$
1,395

Comprehensive (income) loss attributable to noncontrolling interest
1

(1
)
(1
)
5

Comprehensive income (loss) attributable to company shareholders
$
158

$
774

$
(488
)
$
1,400

     See notes to condensed consolidated financial statements.
 
 
 
 


2

Table of Contents


HALLIBURTON COMPANY
Condensed Consolidated Balance Sheets

 
June 30,
2015
December 31,
2014
Millions of dollars and shares except per share data
(Unaudited)
 
Assets
Current assets:
 
 
Cash and equivalents
$
2,760

$
2,291

Receivables (net of allowances for bad debts of $166 and $137)
5,633

7,564

Inventories
2,831

3,571

Assets held for sale
2,104


Other current assets
1,896

1,642

Total current assets
15,224

15,068

Property, plant, and equipment (net of accumulated depreciation of $9,340 and $11,007)
11,153

12,475

Goodwill
1,983

2,330

Other assets
2,246

2,367

Total assets
$
30,606

$
32,240

Liabilities and Shareholders’ Equity
Current liabilities:
 

 

Accounts payable
$
2,181

$
2,814

Accrued employee compensation and benefits
809

1,033

Loss contingency for Macondo well incident
367

367

Other current liabilities
1,648

1,669

Total current liabilities
5,005

5,883

Long-term debt
7,838

7,840

Employee compensation and benefits
595

691

Loss contingency for Macondo well incident
439

439

Other liabilities
1,014

1,089

Total liabilities
14,891

15,942

Shareholders’ equity:
 

 

Common shares, par value $2.50 per share (authorized 2,000 shares,
issued 1,071 shares)
2,677

2,679

Paid-in capital in excess of par value
176

309

Accumulated other comprehensive loss
(298
)
(399
)
Retained earnings
20,914

21,809

Treasury stock, at cost (217 and 223 shares)
(7,784
)
(8,131
)
Company shareholders’ equity
15,685

16,267

Noncontrolling interest in consolidated subsidiaries
30

31

Total shareholders’ equity
15,715

16,298

Total liabilities and shareholders’ equity
$
30,606

$
32,240

     See notes to condensed consolidated financial statements.
 
 


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Table of Contents

HALLIBURTON COMPANY
Condensed Consolidated Statements of Cash Flows
(Unaudited)


 
Six Months Ended
June 30
Millions of dollars
2015
2014
Cash flows from operating activities:
 
 
Net income (loss)
$
(588
)
$
1,391

Adjustments to reconcile net income (loss) to net cash flows from operating activities:
 

 

Impairments and other charges
1,514


Depreciation, depletion, and amortization
1,016

1,034

Other changes:
 

 

Receivables
1,540

(594
)
Accounts payable
(557
)
355

Inventories
(117
)
(218
)
Other
(813
)
107

Total cash flows from operating activities
1,995

2,075

Cash flows from investing activities:
 

 

Capital expenditures
(1,223
)
(1,375
)
Purchases of investment securities
(43
)
(115
)
Sales of investment securities
45

204

Other investing activities
(14
)
(234
)
Total cash flows from investing activities
(1,235
)
(1,520
)
Cash flows from financing activities:
 

 

Dividends to shareholders
(306
)
(254
)
Payments to reacquire common stock

(500
)
Other financing activities
63

230

Total cash flows from financing activities
(243
)
(524
)
Effect of exchange rate changes on cash
(48
)
(27
)
Increase in cash and equivalents
469

4

Cash and equivalents at beginning of period
2,291

2,356

Cash and equivalents at end of period
$
2,760

$
2,360

Supplemental disclosure of cash flow information:
 

 

Cash payments during the period for:
 

 

Interest
$
191

$
191

Income taxes
$
330

$
342

     See notes to condensed consolidated financial statements.
 
 


4

Table of Contents

HALLIBURTON COMPANY
Notes to Condensed Consolidated Financial Statements
(Unaudited)

Note 1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements were prepared using generally accepted accounting principles for interim financial information and the instructions to Form 10-Q and Regulation S-X. Accordingly, these financial statements do not include all information or notes required by generally accepted accounting principles for annual financial statements and should be read together with our 2014 Annual Report on Form 10-K.
Our accounting policies are in accordance with United States generally accepted accounting principles. The preparation of financial statements in conformity with these accounting principles requires us to make estimates and assumptions that affect:
-
the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements; and
-
the reported amounts of revenue and expenses during the reporting period.
Ultimate results could differ from our estimates.
In our opinion, the condensed consolidated financial statements included herein contain all adjustments necessary to present fairly our financial position as of June 30, 2015, the results of our operations for the three and six months ended June 30, 2015 and 2014, and our cash flows for the six months ended June 30, 2015 and 2014. Such adjustments are of a normal recurring nature. In addition, certain reclassifications of prior period balances have been made to conform to the current period presentation. The results of our operations for the three and six months ended June 30, 2015 may not be indicative of results for the full year.

Note 2. Acquisitions and Dispositions
Pending acquisition of Baker Hughes
On November 16, 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.
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 490 million shares of our common stock and approximately $8.3 billion to be paid in cash. We intend to finance the cash portion of the acquisition through a combination of cash on hand and debt financing. We have obtained a commitment letter for an $8.6 billion senior unsecured bridge facility, which is greater than the expected cash consideration required upon closing of the Baker Hughes acquisition. We may issue debt securities, obtain bank loans or other debt financings, or use cash on hand in lieu of utilizing all or a portion of the bridge facility.
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. In April 2015, we announced we will market for sale some of our businesses to obtain competition authorities' approvals of the pending transaction. See the section below for further information on these anticipated divestitures. The closing of the transaction is subject to receipt of certain regulatory approvals and other conditions specified in the merger agreement. We are targeting closing the acquisition in late 2015. However, the merger agreement provides that the closing can be extended into 2016, if necessary.


5

Table of Contents

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 as part of the regulatory review of 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. These anticipated divestitures are not presented as discontinued operations in our condensed consolidated statements of operations, as it does not represent a strategic shift in our business. During the three and six months ended June 30, 2015, we generated revenue from these assets of $684 million and $1.5 billion, respectively, as compared to $907 million and $1.8 billion during the three and six months ended June 30, 2014, respectively. Additionally, during the three and six months ended June 30, 2015, we recognized operating income from these assets, consistent with our business segments presentation in Note 4, of $144 million and $220 million, respectively, as compared to $102 million and $209 million during the three and six months ended June 30, 2014, respectively.
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 June 30, 2015, we determined the fair value less cost to sell exceeded the carrying amount of our assets held for sale. In addition, depreciation and amortization on the asset is ceased while it is classified as held for sale.
A summary of the carrying amounts of assets and liabilities held for sale on our condensed consolidated balance sheet as of June 30, 2015 related to the anticipated divestitures discussed above is detailed below.
Millions of dollars
June 30, 2015
Assets
Property, plant, and equipment
$
1,131

Inventories
582

Goodwill
375

Other assets
16

Total assets
$
2,104

Liabilities
Employee benefit liabilities (a)
$
51

Other liabilities (a)
12

Total liabilities
$
63

(a) Liabilities held for sale are classified within “Other current liabilities” on our condensed
consolidated balance sheet as of June 30, 2015.

The final sale of these businesses will be subject to our ability to negotiate acceptable terms and conditions, the approval of our Board of Directors and final approval of the Baker Hughes acquisition by competition authorities. We anticipate that we will complete the sale of these businesses concurrent with the closing of the Baker Hughes acquisition.


6

Table of Contents

Note 3. Impairments and Other Charges
We carry a variety of long-lived assets on our balance sheet including property, plant and equipment, goodwill, and other intangibles. We conduct impairment tests on long-lived assets whenever events or changes in circumstances indicate that the carrying value may not be recoverable. We review the recoverability of the carrying value of our assets based upon estimated future cash flows while taking into consideration assumptions and estimates including the future use of the asset, remaining useful life of the asset, and service potential of the asset. Additionally, inventories are valued at the lower of cost or market.
During the three and six months ended June 30, 2015, as a result of the recent downturn in the energy market and its corresponding impact on our business outlook, we determined the carrying amount of a number of our long-lived assets exceeded their respective fair values due to projected declines in asset utilization, and that the cost of some of our inventory exceeded its market value; therefore, we recorded corresponding impairments and other charges. Additionally, we initiated a company-wide reduction in workforce by approximately 16% during the first half of 2015 intended to reduce costs and better align our workforce with anticipated activity levels in the near-term, which resulted in us recording severance costs relating to termination benefits. We also recorded a write-off of our operations in both Libya and Yemen during the first quarter of 2015 due to our decision to exit our operations in these countries. As part of the anticipated divestitures of certain businesses included in our Drilling and Evaluation operating segment, we are incurring certain non-capitalizable costs which we have included within "other matters" in the table below.
Primarily as a result of the events described above, we recorded a total of $0.3 billion in charges during the second quarter of 2015 and approximately $1.5 billion in charges during the first six months of 2015, which consisted of asset impairments and write-offs, inventory write-downs, impairments of intangible assets, severance costs, country and facility closures, and other items. We also recorded a $199 million foreign currency exchange loss in Venezuela during the first quarter of 2015 as discussed in further detail below.
The following table presents various charges we recorded during the three and six months ended June 30, 2015 as a result of the economic downturn and other matters:
Millions of dollars
Three Months Ended
June 30, 2015
Six Months Ended
June 30, 2015
Income Statement Classification
Economic downturn:
 
 
 
Fixed asset impairments
$
177

$
494

Impairments and other charges
Severance costs
78

212

Impairments and other charges
Inventory write-downs
39

346

Impairments and other charges
Intangible asset impairments
8

172

Impairments and other charges
Other

152

Impairments and other charges
Other matters:
 
 
 
Country closures
2

77

Impairments and other charges
Other
2

61

Impairments and other charges
Total impairments and other charges
$
306

$
1,514


Venezuela currency devaluation loss

199

Other, net
Total charges
$
306

1,713



Additionally, we determined that these recent events constituted a triggering event that would require us to update our goodwill impairment assessment through June 30, 2015. As a result of our analysis, we determined that the fair value of each reporting unit exceeded its net book value and, therefore, no goodwill impairment was necessary as of June 30, 2015. A prolonged period of low oil and natural gas prices may require us to record further asset impairments and other charges, including a potential impairment of the carrying value of our goodwill.
In February 2015, the Venezuelan government created a new foreign exchange rate mechanism, called the Marginal Currency System, or SIMADI. The new mechanism, which is the third system in a three-tier exchange control mechanism, is a floating market rate for the conversion of Bolívares to United States dollars based on supply and demand. We intend to utilize the SIMADI mechanism for liquidity purposes in our Venezuelan operations. Prior to 2015, we had remeasured our net monetary assets denominated in Bolívares using the official exchange rate of 6.3 Bolívares per United States dollar. During the first quarter of 2015, we began utilizing SIMADI to remeasure our net monetary assets denominated in Bolívares with a market rate of 192 Bolívares per United States dollar as of March 31, 2015, which resulted in us recording a foreign currency loss of $199 million during the first quarter of 2015.


7

Table of Contents

Note 4. Business Segment and Geographic Information
We operate under two divisions, which form the basis for the two operating segments we report: the Completion and Production segment and the Drilling and Evaluation segment. Intersegment revenue was immaterial. Our equity in earnings and losses of unconsolidated affiliates that are accounted for by the equity method of accounting are included in revenue and operating income of the applicable segment.
The following table presents information on our business segments.
 
Three Months Ended
June 30
Six Months Ended
June 30
Millions of dollars
2015
2014
2015
2014
Revenue:
 
 
 
 
Completion and Production
$
3,444

$
4,942

$
7,690

$
9,362

Drilling and Evaluation
2,475

3,109

5,279

6,037

Total revenue
$
5,919

$
8,051

$
12,969

$
15,399

Operating income (loss):
 
 
 
 
Completion and Production
$
313

$
887

$
775

$
1,548

Drilling and Evaluation
400

414

706

812

Total operations
713

1,301

1,481

2,360

Corporate and other (a)
(153
)
(107
)
(261
)
(196
)
Impairments and other charges (b)
(306
)

(1,514
)

Total operating income (loss)
$
254

$
1,194

$
(294
)
$
2,164

Interest expense, net of interest income
(106
)
(94
)
(212
)
(187
)
Other, net
(23
)
(24
)
(247
)
(55
)
Income (loss) from continuing operations before income taxes
$
125

$
1,076

$
(753
)
$
1,922

(a) Includes certain expenses not attributable to a particular business segment such as costs related to support functions and corporate executives, as well as costs related to the pending Baker Hughes acquisition incurred during the three and six months ended June 30, 2015.
(b) Includes $211 million attributable to Completion and Production, $89 million attributable to Drilling and Evaluation, and $6 million attributable to Corporate and other for the three months ended June 30, 2015. Includes $720 million attributable to Completion and Production,$727 million attributable to Drilling and Evaluation, and $67 million attributable to Corporate and other for the six months ended June 30, 2015.

Receivables
As of June 30, 2015, 31% of our gross trade receivables were from customers in the United States. As of December 31, 2014, 39% of our gross trade receivables were from customers in the United States. No other country or single customer accounted for more than 10% of our gross trade receivables at these dates.
Venezuela. During the first quarter of 2015, we began utilizing the new SIMADI exchange rate mechanism to remeasure our net monetary assets denominated in Bolívares, at a market rate of 192 Bolívares per United States dollar as compared to the official exchange rate of 6.3 Bolívares per United States dollar we had previously utilized. As a result, the United States dollar value of our trade receivables in Venezuela significantly declined. Our total outstanding trade receivables in Venezuela were $521 million, or approximately 9% of our gross trade receivables, as of June 30, 2015, compared to $670 million, or approximately 9% of our gross trade receivables, as of December 31, 2014. Of the $521 million of receivables in Venezuela as of June 30, 2015, $165 million have been classified as long-term and included within “Other assets” on our condensed consolidated balance sheets. Of the $670 million of receivables in Venezuela as of December 31, 2014, $256 million have been classified as long-term and included within “Other assets” on our condensed consolidated balance sheets. For additional information about the new currency system, see Note 3 and “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Business Environment and Results of Operations.”
    

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Table of Contents

Note 5. Inventories
Inventories are stated at the lower of cost or market value. In the United States, we manufacture certain finished products and parts inventories for drill bits, completion products, bulk materials, and other tools that are recorded using the last-in, first-out method, which totaled $151 million as of June 30, 2015 and $227 million as of December 31, 2014. If the average cost method had been used, total inventories would have been $6 million higher than reported as of June 30, 2015 and $38 million higher than reported as of December 31, 2014. The cost of the remaining inventory was recorded on the average cost method. Inventories consisted of the following:
Millions of dollars
June 30,
2015
December 31,
2014
Finished products and parts
$
2,071

$
2,606

Raw materials and supplies
593

754

Work in process
167

211

Total
$
2,831

$
3,571


We reclassified $582 million of our inventory to assets held for sale as of June 30, 2015. See Note 2 for further information.
During the first six months of 2015, as a result of the recent downturn in the energy market and its corresponding impact on our business outlook, we determined the cost of some of our inventory exceeded its market value; therefore, we recorded corresponding inventory write-downs. See Note 3 for further information about the impairments and other charges taken in the three and six months ended June 30, 2015.
Finished products and parts are reported net of obsolescence reserves of $201 million as of June 30, 2015 and $161 million as of December 31, 2014.

Note 6. Shareholders’ Equity
The following tables summarize our shareholders’ equity activity:
Millions of dollars
Total shareholders' equity
Company shareholders' equity
Noncontrolling interest in consolidated subsidiaries
Balance at December 31, 2014
$
16,298

$
16,267

$
31

Payments of dividends to shareholders
(306
)
(306
)

Stock plans
254

254


Other
(44
)
(42
)
(2
)
Comprehensive income (loss)
(487
)
(488
)
1

Balance at June 30, 2015
$
15,715

$
15,685

$
30

Millions of dollars
Total shareholders' equity
Company shareholders' equity
Noncontrolling interest in consolidated subsidiaries
Balance at December 31, 2013
$
13,615

$
13,581

$
34

Shares repurchased
(500
)
(500
)

Stock plans
357

357


Payments of dividends to shareholders
(254
)
(254
)

Other
(26
)
(22
)
(4
)
Comprehensive income
1,395

1,400

(5
)
Balance at June 30, 2014
$
14,587

$
14,562

$
25


Our Board of Directors has authorized a program to repurchase our common stock from time to time. Approximately $5.7 billion remains authorized for repurchases as of June 30, 2015. From the inception of this program in February 2006 through June 30, 2015, we repurchased approximately 201 million shares of our common stock for a total cost of approximately $8.4 billion.
        

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Accumulated other comprehensive loss consisted of the following:
Millions of dollars
June 30,
2015
December 31,
2014
Defined benefit and other postretirement liability adjustments
$
(318
)
$
(326
)
Accumulated gain on cash flow hedges
106


Cumulative translation adjustments
(75
)
(70
)
Other
(11
)
(3
)
Total accumulated other comprehensive loss
$
(298
)
$
(399
)

Note 7. Commitments and Contingencies
Macondo well incident
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 an affiliate of Transocean Ltd and had been drilling the Macondo exploration well in the Gulf of Mexico for the lease operator, BP Exploration & 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.
Litigation and settlements. 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, in federal and state courts throughout the United States, most of which were consolidated in a Multi District Litigation proceeding (MDL) in the United States Eastern District of Louisiana. The defendants in the MDL proceeding filed a variety of cross claims against each other.
In 2012, BP reached a settlement to resolve the substantial majority of eligible private economic loss and medical claims stemming from the Macondo well incident (BP MDL Settlements). The MDL court has since certified the classes and granted final approval for the BP MDL Settlements, which also provided for the release by participating plaintiffs of compensatory damage claims against us.
The trial for the first phase of the MDL proceeding occurred in February 2013 through April 2013 and covered issues arising out of the conduct and degree of culpability of various parties allegedly relevant to the loss of well control, the ensuing fire and explosion on and sinking of the Deepwater Horizon, and the initiation of the release of hydrocarbons from the Macondo well. In September 2014, the MDL court ruled (Phase One Ruling) that, among other things, (1) in relation to the Macondo well incident, BP’s conduct was reckless, Transocean’s conduct was negligent, and our conduct was negligent, (2) fault for the Macondo blowout, explosion, and spill was apportioned 67% to BP, 30% to Transocean and 3% to us, and (3) the indemnity and release clauses in our contract with BP are valid and enforceable against BP. The MDL court did not find that our conduct was grossly negligent, thereby, subject to any appeals, eliminating our exposure in the MDL for punitive damages. The appeal process for the Phase One Ruling is underway, with various parties filing briefs according to a court-ordered schedule.
In September 2014, prior to the Phase One Ruling, we reached an agreement, subject to court approval, to settle a substantial portion of the plaintiffs’ claims asserted against us relating to the Macondo well incident (our MDL Settlement). Pursuant to our MDL Settlement, we agreed to pay an aggregate of $1.1 billion, which includes legal fees and costs, into a settlement fund in three installments over two years, except that one installment of legal fees will not be paid until all of the conditions to the settlement have been satisfied or waived. Certain conditions must be satisfied before our MDL Settlement becomes effective and the funds are released from the settlement fund. These conditions include, among others, the issuance of a final order of the MDL court, including the resolution of certain appeals. In addition, we have the right to terminate our MDL Settlement if more than an agreed number of plaintiffs elect to opt out of the settlement prior to the expiration of the opt out deadline to be established by the MDL court. Before approving our MDL Settlement, the MDL court must certify the settlement class, the numerous class members must be notified of the proposed settlement, and the court must hold a fairness hearing. We are unable to predict when the MDL court will approve our MDL Settlement.
Our MDL Settlement does not cover claims against us by the state governments of Alabama, Florida, Mississippi, Louisiana, or Texas, claims by our own employees, compensatory damages claims by plaintiffs in the MDL that opted out of or were excluded from the settlement class in the BP MDL Settlements, or claims by other defendants in the MDL or their respective employees. However, these claims have either been dismissed, are subject to dismissal, are subject to indemnification by BP, or are not believed to be material.
On May 20, 2015, we and BP entered into an agreement to resolve all remaining claims against each other, and pursuant to which BP will defend and indemnify us in future trials for compensatory damages. On July 2, 2015, BP announced that it had reached agreements in principle to settle all remaining federal, state and local government claims arising from the Macondo well incident.
Regulatory action. In October 2011, the Bureau of Safety and Environmental Enforcement (BSEE) issued a notification of Incidents of Noncompliance (INCs) to us for allegedly violating federal regulations relating to the failure to take

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measures to prevent the unauthorized release of hydrocarbons, the failure to take precautions to keep the Macondo well under control, the failure to cement the well in a manner that would, among other things, prevent the release of fluids into the Gulf of Mexico, and the failure to protect health, safety, property, and the environment as a result of a failure to perform operations in a safe and workmanlike manner. We have appealed the INCs, but the appeal has been suspended pending certain proceedings in the MDL and potential appeals. The BSEE has announced that the INCs will be reviewed for possible imposition of civil penalties once the appeal has ended. We understand that the regulations in effect at the time of the alleged violations provide for fines of up to $35,000 per day per violation.
Loss contingency. As of June 30, 2015, our remaining loss contingency liability related to the Macondo well incident was $805 million, consisting of a current portion of $366.6 million and a non-current portion of $438.7 million. The $805 million represents a $733 million loss contingency related to our MDL Settlement and a loss contingency of $72 million unrelated to that settlement. Our loss contingency liability does not include potential recoveries from our insurers. See below for information regarding amounts that we could potentially recover from insurance that we are currently unable to classify as probable.
Subject to the satisfaction of the conditions of our MDL Settlement and to the resolution of the appeal of the Phase One Ruling, we believe that the BP MDL Settlement, our MDL Settlement, the Phase One Ruling and our settlement with BP have eliminated any additional material financial exposure to us in relation to the Macondo well incident.
Insurance coverage. We had a general liability insurance program of $600 million at the time of the Macondo well incident. Our insurance was designed to cover claims by businesses and individuals made against us in the event of property damage, injury, or death and, among other things, claims relating to environmental damage, as well as legal fees incurred in defending against those claims. We have received payments from our insurers with respect to covered legal fees incurred in connection with the Macondo well incident. Through June 30, 2015, we have incurred legal fees and related expenses of approximately $324 million, of which $283 million has been reimbursed under our insurance program. With respect to our MDL Settlement, we have collected $93 million under our general liability insurance program.
With regard to the approximately $200 million of remaining insurance coverage relating to the Macondo well incident, most of the insurance carriers for that layer of coverage notified us that they do not intend to reimburse us with respect to our MDL Settlement. During the first quarter of 2015, we settled with one insurance carrier. We have initiated arbitration proceedings to pursue recovery of the remaining balance of approximately $170 million. Due to the uncertainty surrounding such recovery, no related amounts have been recognized in the consolidated financial statements as of June 30, 2015.
Fair Labor Standards Act (FLSA) Claim
In 2014, the U.S. Department of Labor Wage and Hour Division (DOL) commenced an audit to determine whether certain workers have been properly classified by us as exempt under the FLSA. In addition, litigation was commenced against us alleging that certain field professionals were not properly classified. During the first quarter of 2015, upon completion of a detailed analysis of the potential exposure involved and settlement of the pending litigation, we recorded corresponding loss contingency liabilities.
Securities and related litigation
In June 2002, a class action lawsuit was filed against us in federal court alleging violations of the federal securities laws after the Securities and Exchange Commission (SEC) initiated an investigation in connection with our change in accounting for revenue on long-term construction projects and related disclosures. In the weeks that followed, approximately twenty similar class actions were filed against us. Several of those lawsuits also named as defendants several of our present or former officers and directors. The class action cases were later consolidated, and the amended consolidated class action complaint, styled Richard Moore, et al. v. Halliburton Company, et al., was filed and served upon us in April 2003. As a result of a substitution of lead plaintiffs, the case was styled Archdiocese of Milwaukee Supporting Fund (AMSF) v. Halliburton Company, et al. AMSF has changed its name to Erica P. John Fund, Inc. (the Fund). We settled with the SEC in the second quarter of 2004.
In June 2003, the lead plaintiffs filed a motion for leave to file a second amended consolidated complaint, which was granted by the court. In addition to restating the original accounting and disclosure claims, the second amended consolidated complaint included claims arising out of our 1998 acquisition of Dresser Industries, Inc., including that we failed to timely disclose the resulting asbestos liability exposure.
In April 2005, the court appointed new co-lead counsel and named the Fund the new lead plaintiff, directing that it file a third consolidated amended complaint and that we file our motion to dismiss. The court held oral arguments on that motion in August 2005. In March 2006, the court entered an order in which it granted the motion to dismiss with respect to claims arising prior to June 1999 and granted the motion with respect to certain other claims while permitting the Fund to re-plead some of those claims to correct deficiencies in its earlier complaint. In April 2006, the Fund filed its fourth amended consolidated complaint. We filed a motion to dismiss those portions of the complaint that had been re-pled. A hearing was held on that motion in July 2006, and in March 2007 the court ordered dismissal of the claims against all individual defendants other than our Chief Executive Officer (CEO). The court ordered that the case proceed against our CEO and us.

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In September 2007, the Fund filed a motion for class certification, and our response was filed in November 2007. The district court held a hearing in March 2008, and issued an order in November 2008 denying the motion for class certification. The Fifth Circuit Court of Appeals affirmed the district court’s order denying class certification. In June 2011, the United States Supreme Court reversed the Fifth Circuit ruling that the Fund needed to prove loss causation in order to obtain class certification and the case was returned to the lower courts for further consideration.
In January 2012, the district court issued an order certifying the class. In April 2013, the Fifth Circuit issued an order affirming the district court's order.
Our writ of certiorari with the United States Supreme Court was granted and in June 2014 the Supreme Court issued its decision, maintaining the presumption of class member reliance through the “fraud on the market” theory, but holding that we are entitled to rebut that presumption by presenting evidence that there was no impact on our stock price from the alleged misrepresentation. Because the district court and the Fifth Circuit denied us that opportunity, the Supreme Court vacated the Fifth Circuit’s decision and remanded for further proceedings consistent with the Supreme Court decision. In December 2014, the district court held a hearing to consider whether there was an impact on our stock price from the alleged misrepresentations. The court has not yet issued a ruling on class certification. Fact discovery and other pretrial deadlines have been stayed. We cannot predict the outcome or consequences of this case, which we intend to vigorously defend.
    Investigations
We are conducting internal investigations of certain areas of our operations in Angola and Iraq, focusing on compliance with certain company policies, including our Code of Business Conduct (COBC), and the FCPA and other applicable laws.
In December 2010, we received an anonymous e-mail alleging that certain current and former personnel violated our COBC and the FCPA, principally through the use of an Angolan vendor. The e-mail also alleges conflicts of interest, self-dealing, and the failure to act on alleged violations of our COBC and the FCPA. We contacted the DOJ to advise them that we were initiating an internal investigation.
During the second quarter of 2012, in connection with a meeting with the DOJ and the SEC regarding the above investigation, we advised the DOJ and the SEC that we were initiating unrelated, internal investigations into payments made to a third-party agent relating to certain customs matters in Angola and to third-party agents relating to certain customs and visa matters in Iraq.
Since the initiation of the investigations described above, we have participated in meetings with the DOJ and the SEC to brief them on the status of the investigations and produced documents to them both voluntarily and as a result of SEC subpoenas to us and certain of our current and former officers and employees.
We expect to continue to have discussions with the DOJ and the SEC regarding issues relevant to the Angola and Iraq matters described above. We have engaged outside counsel and independent forensic accountants to assist us with these investigations.
Because these investigations are ongoing, we cannot predict their outcome or the consequences thereof.
Environmental
We are subject to numerous environmental, legal, and regulatory requirements related to our operations worldwide. In the United States, these laws and regulations include, among others:
-
the Comprehensive Environmental Response, Compensation, and Liability Act;
-
the Resource Conservation and Recovery Act;
-
the Clean Air Act;
-
the Federal Water Pollution Control Act;
-
the Toxic Substances Control Act; and
-
the Oil Pollution Act.
In addition to the federal laws and regulations, states and other countries where we do business often have numerous environmental, legal, and regulatory requirements by which we must abide. We evaluate and address the environmental impact of our operations by assessing and remediating contaminated properties in order to avoid future liabilities and comply with environmental, legal, and regulatory requirements. Our Health, Safety, and Environment group has several programs in place to maintain environmental leadership and to help prevent the occurrence of environmental contamination. On occasion, in addition to the matters relating to the Macondo well incident described above, we are involved in other environmental litigation and claims, including the remediation of properties we own or have operated, as well as efforts to meet or correct compliance-related matters. We do not expect costs related to those claims and remediation requirements to have a material adverse effect on our liquidity, consolidated results of operations, or consolidated financial position. Excluding our loss contingency for the Macondo well incident, our accrued liabilities for environmental matters were $57 million as of June 30, 2015 and $57 million as of December 31, 2014. Because our estimated liability is typically within a range and our accrued liability may be the amount on the low end of that range, our actual liability could eventually be well in excess of the amount accrued. Our total liability related to environmental matters covers numerous properties.

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Additionally, we have subsidiaries that have been named as potentially responsible parties along with other third parties for eight federal and state Superfund sites for which we have established reserves. As of June 30, 2015, those eight sites accounted for approximately $3 million of our $57 million total environmental reserve. Despite attempts to resolve these Superfund matters, the relevant regulatory agency may at any time bring suit against us for amounts in excess of the amount accrued. With respect to some Superfund sites, we have been named a potentially responsible party by a regulatory agency; however, in each of those cases, we do not believe we have any material liability. We also could be subject to third-party claims with respect to environmental matters for which we have been named as a potentially responsible party.
Guarantee arrangements
In the normal course of business, we have agreements with financial institutions under which approximately $2.0 billion of letters of credit, bank guarantees, or surety bonds were outstanding as of June 30, 2015. Some of the outstanding letters of credit have triggering events that would entitle a bank to require cash collateralization.

Note 8. Income per Share
Basic income or loss per share is based on the weighted average number of common shares outstanding during the period. Diluted income per share includes additional common shares that would have been outstanding if potential common shares with a dilutive effect had been issued. For the three months ended June 30, 2015, and the three and six months ended June 30, 2014, differences between basic and diluted weighted average common shares outstanding resulted from the dilutive effect of awards granted under our stock incentive plans.
Excluded from the computation of diluted income per share are options to purchase five million shares of common stock that were outstanding during the three months ended June 30, 2015 and options to purchase one million shares of common stock that were outstanding during the six months ended June 30, 2014. These options were outstanding but were excluded because they were antidilutive, as the option exercise price was greater than the average market price of the common shares. There were no antidilutive shares outstanding for the three months ended June 30, 2014.
For the six months ended June 30, 2015, we incurred losses from continuing operations attributable to company shareholders and accordingly excluded all potentially dilutive securities from the determination of diluted loss per share as their impact was antidilutive. Antidilutive securities for the six months ended June 30, 2015 totaled nine million shares, which includes options to purchase seven million shares of common stock where the exercise price was greater than the average market price and options to purchase two million shares of common stock which ordinarily would be considered dilutive if not for us being in a net loss position for the six months ended June 30, 2015.

Note 9. Fair Value of Financial Instruments
At June 30, 2015, we held $93 million of investments in fixed income securities with maturities ranging from less than one year to November 2019, of which $58 million are classified as “Other current assets” and $35 million are classified as “Other assets” on our condensed consolidated balance sheets. At December 31, 2014, we held $103 million of investments in fixed income securities, of which $56 million are classified as “Other current assets” and $47 million are classified as “Other assets” on our condensed consolidated balance sheets.
These securities consist primarily of corporate bonds and other debt instruments, are accounted for as available-for-sale and recorded at fair value, and are classified as Level 2 assets. Our Level 2 asset fair values are based on quoted prices for identical assets in less active markets. We have no financial instruments measured at fair value based on quoted prices in active markets (Level 1) or using unobservable inputs (Level 3). The carrying amount of cash and equivalents, receivables, and accounts payable, as reflected in the condensed consolidated balance sheets, approximates fair value due to the short maturities of these instruments.
The carrying amount and fair value of our long-term debt is as follows:
 
June 30, 2015
 
December 31, 2014
Millions of dollars
Level 1
Level 2
Total fair value
Carrying value
 
Level 1
Level 2
Total fair value
Carrying value
Long-term debt
$
412

$
8,389

$
8,801

$
7,838

 
$
4,822

$
4,257

$
9,079

$
7,840


Our Level 1 debt fair values are calculated using quoted prices in active markets for identical liabilities with transactions occurring on the last two days of period-end. Our Level 2 debt fair values are calculated using significant observable inputs for similar liabilities where estimated values are determined from observable data points on our other bonds and on other similarly rated corporate debt or from observable data points of transactions occurring prior to two days from period-end and adjusting for changes in market conditions. Differences between the periods presented in our Level 1 and Level 2 classification of our long-term debt relate to the timing of when transactions are executed. We have no debt measured at fair value using unobservable inputs (Level 3).
We maintain an interest rate management strategy that is intended to mitigate the exposure to changes in interest rates in the aggregate for our debt portfolio. We hold a series of interest rate swaps relating to three of our debt instruments with a

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total notional amount of $1.5 billion in order to effectively convert a portion of our fixed rate debt to floating LIBOR-based rates. These interest rate swaps, which expire when the underlying debt matures, are designated as fair value hedges of the underlying debt and are determined to be highly effective. These derivative instruments are marked to market with gains and losses recognized currently in interest expense to offset the respective gains and losses recognized on changes in the fair value of the hedged debt.  During the second quarter of 2015, we executed forward starting interest rate swaps to manage our exposure to interest rate changes associated with the anticipated issuance of fixed-rate debt in connection with the pending Baker Hughes acquisition. These newly executed swaps, which hedge the variability in cash flows of future interest payments due to changes in LIBOR rates, are designated as cash flow hedges, are determined to be highly effective, and are recorded on the balance sheet at fair value with the effective portion of the change in fair value of the hedging instrument recorded in other comprehensive income. The fair value of our interest rate swaps is included in “Other assets” in our condensed consolidated balance sheets and was immaterial as of June 30, 2015 and December 31, 2014. The fair value of our interest rate swaps was determined using an income approach model with inputs, such as the notional amount, LIBOR rate spread, and settlement terms that are observable in the market or can be derived from or corroborated by observable data (Level 2).

Note 10. New Accounting Pronouncements
Revenue Recognition
In May 2014, the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) issued a comprehensive new revenue recognition standard that will supersede existing revenue recognition guidance under United States generally accepted accounting principles (U.S. GAAP) and International Financial Reporting Standards (IFRS). The issuance of this guidance completes the joint effort by the FASB and the IASB to improve financial reporting by creating common revenue recognition guidance for U.S. GAAP and IFRS.
The core principle of the new guidance is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The standard creates a five-step model that requires companies to exercise judgment when considering the terms of a contract and all relevant facts and circumstances. The standard allows for several transition methods: (a) a full retrospective adoption in which the standard is applied to all of the periods presented, or (b) a modified retrospective adoption in which the standard is applied only to the most current period presented in the financial statements, including additional disclosures of the standard’s application impact to individual financial statement line items.
This standard is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. In July 2015, the FASB approved a one-year deferral of the revenue recognition standard's effective date for all entities, which will change the effectiveness to annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period once the Accounting Standards Update has been issued. We are currently evaluating this standard and our existing revenue recognition policies to determine which contracts in the scope of the guidance will be affected by the new requirements and what impact they would have on our consolidated financial statements upon adoption. We have not yet determined which transition method we will utilize upon adoption on the effective date.

Discontinued Operations
On January 1, 2015, we adopted an accounting standards update issued by the FASB related to discontinued operations, which added criteria providing that only those disposals of a component of an entity or a group of components of an entity that represent a strategic shift in operations should be presented as discontinued operations. The update allows an entity to present a disposal as discontinued operations even when it has continuing cash flows and significant continuing involvement with the disposed component. The update also requires expanded disclosures for discontinued operations and individually significant components of an entity that does not qualify for discontinued operations reporting. The adoption of this update did not impact our condensed consolidated financial statements. This new pronouncement may have a material impact on our consolidated financial statements in connection with the anticipated divestitures related to the pending acquisition of Baker Hughes. The anticipated divestitures discussed in Note 2 will not be presented as discontinued operations under this new standard, as it does not represent a strategic shift in our business.

Debt Issuance Costs
In April 2015, the FASB issued an accounting standards update to simplify the presentation of debt issuance costs. The update will require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts, as opposed to current presentation of an asset on the balance sheet. This update is effective for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years, and may be adopted earlier on a voluntary basis. We intend to adopt this update upon execution of the debt financing for the pending Baker Hughes acquisition. At that time we will apply the change retrospectively for prior period balances of unamortized debt issuance costs within our statement of financial position. We do not expect the adoption of this update to have a material impact on our consolidated financial statements. See Note 2 for further information about the pending acquisition.

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Note 11. Revolving Credit Facility
On July 21, 2015, we entered into a new five-year revolving credit agreement, with an initial capacity of $3.0 billion, increasing to $4.5 billion upon closing of the Baker Hughes acquisition and satisfaction of the conditions provided in the credit agreement. The credit agreement is for general working capital purposes and expires on July 21, 2020. The credit agreement replaced our $3.0 billion five-year revolving credit agreement dated February 22, 2011, as amended, which was terminated on July 21, 2015 in conjunction with entering into the new credit agreement.


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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

EXECUTIVE OVERVIEW

Organization
We are a leading provider of services and products to the energy industry. We serve the upstream oil and natural gas industry throughout the lifecycle of the reservoir, from locating hydrocarbons and managing geological data, to drilling and formation evaluation, well construction and completion, and optimizing production through the life of the field. Activity levels within our operations are significantly impacted by spending on upstream exploration, development, and production programs by major, national, and independent oil and natural gas companies. We report our results under two segments, the Completion and Production segment and the Drilling and Evaluation segment:
-
our Completion and Production segment delivers cementing, stimulation, well intervention, pressure control services, well control and prevention services, pipeline and process services, specialty chemicals, artificial lift, and completion products and services. The segment consists of Production Enhancement, Cementing, Completion Tools, Production Solutions (formerly Boots & Coots), Multi-Chem, and Artificial Lift.
-
our Drilling and Evaluation segment provides field and reservoir modeling, drilling, evaluation, and precise wellbore placement solutions that enable customers to model, measure, drill, and optimize their well construction activities. The segment consists of Baroid, Sperry Drilling, Wireline and Perforating, Drill Bits and Services, Landmark Software and Services, Testing and Subsea, and Consulting and Project Management.
The business operations of our segments are organized around four primary geographic regions: North America, Latin America, Europe/Africa/CIS, and Middle East/Asia. We have significant manufacturing operations in various locations, including the United States, Canada, China, Malaysia, Singapore, and the United Kingdom.
With over 70,000 employees, we operate in approximately 80 countries around the world, and our corporate headquarters are in Houston, Texas and Dubai, United Arab Emirates.
Pending acquisition of Baker Hughes
On November 16, 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. The acquisition is expected to create a leading global oilfield services company and combine the companies’ product and service capabilities to deliver exceptional depth and breadth of solutions to our customers. The closing of the transaction is expected to occur in late 2015. See Note 2 to the condensed consolidated financial statements for further information about the pending acquisition.
Financial results
We experienced a decline in revenue and margins in the second quarter of 2015, as compared to the second quarter of 2014, due to the depressed crude oil pricing environment. Our consolidated revenue for the second quarter of 2015 was $5.9 billion, a decrease of $2.1 billion, or 26%, from the second quarter of 2014, attributable to reduced activity levels and pricing concessions in both North America and Europe/Africa/CIS regions. The industry experienced an unprecedented decline in North America stimulation activity during the first half of 2015, which significantly impacted our financial results. Since November 2014, the United States experienced an approximately 55% decrease in rig count, which in turn has resulted in pricing pressure across the services industry.
During the first six months of 2015, we had an operating loss of $294 million, as compared to operating income of $2.2 billion in the first six months of 2014. The decrease was primarily due to approximately $1.5 billion of impairments and other charges recorded during the first six months of 2015. These charges were recorded primarily as a result of the recent downturn in the energy market, and consisted of asset impairments and write-offs, impairments of intangible assets, inventory write-downs, severance costs, country and facility closures, and other items. We took actions during the first six months of 2015 by reducing our cost structure, including a global headcount reduction of approximately 16%, to help mitigate the current market conditions that we are experiencing. We anticipate that these collective actions will result in additional cost savings in the second half of 2015. See Note 3 to the condensed consolidated financial statements for further information about these charges. Additionally, our operating results were negatively impacted by reduced activity and pricing pressure in most of our product services lines, particularly stimulation activity, in the United States land market.
Business outlook
While the first half of 2015 has been challenging for us, as the impact of reduced commodity prices created widespread pricing pressure on a global basis, the pace of rig count decline has slowed and we have seen activity stabilize. We believe the collective cost reduction initiatives we took during the first half of the year will result in cost savings going forward that will help mitigate current market conditions. We continue to believe in the strength of the long-term fundamentals of our business. Despite the expected worldwide activity declines in 2015, energy demand is still anticipated to increase over the long term.
In North America, we continue to experience pricing pressures, which have impacted our margins. Lower commodity prices have translated into unprecedented reductions in rig count throughout the first six months of the year, which translated

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into competitive pricing pressure across all of our product service lines. The U.S. rig count has dropped approximately 55% from the peak in late November 2014, but recently the pace of decline has slowed significantly. During the second quarter of 2015, the average rig count in North America declined 40%, sequentially, although our North America revenue declined only 25%. Decremental margins in the second quarter were better than previous cycles, demonstrating that our cost reduction initiatives are helping to offset the current market challenges. We believe that our focus on asset utilization and the efficiencies we expect to realize from our low cost service delivery model will also benefit us during these market conditions.
Internationally, the markets have been more resilient than North America, however they are not immune to the impacts of the lower commodity price environment. Although we have experienced some pricing declines in the first half of the year, we are anticipating a greater impact in the second half of the year. We also continue to work with our customers to improve project economics through technology and improved operating efficiency. Lower activity levels persisted internationally during the second quarter of 2015, including in Latin America where lower revenue and profitability were impacted by continued customer budget cuts throughout the region and the negative currency impact of the new exchange rate in Venezuela. We expect to see further impacts as we continue to utilize this new Venezuelan exchange rate for accounting purposes. See "Business Environment and Results of Operations" for further information about recent changes to exchange rates we are using in Venezuela.
While the intensity and duration of the current market downturn is uncertain, we intend to remain focused and look beyond the down cycle by continuing to invest in capital and strategic programs, and we will make further adjustments as required to adjust to market conditions. Manufacturing our own equipment provides us with the utmost flexibility to adjust our capital spend based on our visibility of the market. As such, given the continued decline in activity levels, we are reducing our capital expenditures for 2015 to $2.6 billion, representing a 21% year-over-year decline.
We plan to continue executing the following strategies in 2015:
- directing capital and resources into strategic growth markets, including unconventional plays, mature fields, and deepwater;
-
leveraging our broad technology offerings to provide value to our customers and enabling them to more efficiently drill and complete their wells;
-
exploring additional opportunities for acquisitions that will enhance or augment our current portfolio of services and products, including those with unique technologies or distribution networks in areas where we do not already have significant operations;
-
investing in technology that will help our customers reduce reservoir uncertainty and increase operational efficiency;
-
improving working capital, and managing our balance sheet to maximize our financial flexibility; and
-
continuing to seek ways to be one of the most cost efficient service providers in the industry by maintaining capital discipline and leveraging our scale and breadth of operations.
Our operating performance and business outlook are described in more detail in “Business Environment and Results of Operations.”
Financial markets, liquidity, and capital resources
We believe we have invested our cash balances conservatively and secured sufficient financing to help mitigate any near-term negative impact on our operations from adverse market conditions. In addition, we have committed financing available to finance the cash portion of the consideration for the pending Baker Hughes acquisition. For additional information, see “Liquidity and Capital Resources” and “Business Environment and Results of Operations.”

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LIQUIDITY AND CAPITAL RESOURCES

We had $2.8 billion and $2.3 billion of cash and equivalents at June 30, 2015 and December 31, 2014, respectively. Additionally, at June 30, 2015, we held $93 million of investments in fixed income securities compared to $103 million at December 31, 2014. These securities are reflected in "Other current assets" and "Other assets" in our condensed consolidated balance sheets. As of June 30, 2015, approximately $1.2 billion of the $2.8 billion of cash and equivalents was held by our foreign subsidiaries, of which $654 million would be subject to United States tax if repatriated. However, our intent is to permanently reinvest these funds outside of the United States and our current plans do not suggest a need to repatriate them to fund our United States operations.
Significant sources and uses of cash
Cash flows from operating activities were $2.0 billion in the first six months of 2015.
Capital expenditures were $1.2 billion in the first six months of 2015, and were predominantly made in our Production Enhancement, Cementing, Sperry Drilling, Production Solutions, and Wireline and Perforating product service lines.
During the first six months of 2015, our primary components of working capital (receivables, inventories, and accounts payable) decreased by a net $0.9 billion, primarily due to decreased business activity driven by current market conditions.
We paid $306 million in dividends to our shareholders during the first six months of 2015.    
Future sources and uses of cash
We intend to finance the cash portion of the Baker Hughes acquisition through a combination of cash on hand and debt financing. We have obtained a commitment letter for an $8.6 billion senior unsecured bridge facility, which is greater than the expected cash consideration required upon closing of the Baker Hughes acquisition. We have not drawn any amounts under this commitment as of June 30, 2015. We may issue debt securities, obtain bank loans or pursue other debt financings, or use cash on hand in lieu of utilizing all or a portion of the bridge facility. Additionally, we expect to receive cash proceeds from the sale of the businesses we are currently marketing for sale as part of the regulatory review of the pending Baker Hughes acquisition. See Note 2 to the condensed consolidated financial statements for further information about the pending acquisition and related divestitures.
We manufacture our own equipment, which gives us flexibility to assist in mitigating the impact of market conditions.
Capital spending for 2015 is currently expected to be approximately $2.6 billion, a reduction from the $3.3 billion of capital expenditures in 2014, primarily due to the current market environment. We intend to remain focused and look beyond the down cycle by continuing to invest in capital and strategic programs. The capital expenditures plan for the remainder of the year is primarily directed toward our Production Enhancement, Cementing, Sperry Drilling, Production Solutions, and Wireline and Perforating product service lines.
During 2014, we reached an agreement, subject to court approval, to settle a substantial portion of the plaintiffs' claims asserted against us relating to the Macondo well incident. Our Macondo-related loss contingency liability as of June 30, 2015 is $805 million, of which $367 million is expected to be paid during the second half of 2015. See Note 7 to the condensed consolidated financial statements for further information.
Subject to Board of Directors approval, our intention is to pay dividends representing at least 15% to 20% of our net income on an annual basis. Currently, our dividend rate is $0.18 per common share, or approximately $154 million per quarter.
Our Board of Directors has authorized a program to repurchase our common stock from time to time. Approximately $5.7 billion remains authorized for repurchases as of June 30, 2015 and may be used for open market and other share purchases.
Other factors affecting liquidity
Financial position in current market. As of June 30, 2015, we had $2.8 billion of cash and equivalents, $93 million in fixed income investments, and a total of $3.0 billion of available committed bank credit under our revolving credit facility. In July 2015, we executed a new five-year revolving credit agreement with an initial capacity of $3.0 billion, increasing to $4.5 billion upon closing of the pending Baker Hughes acquisition. See Note 11 to the condensed consolidated financial statements and Part II, Item 5 for further information. Furthermore, we have no financial covenants or material adverse change provisions in our bank agreements, and our debt maturities extend over a long period of time. Although a portion of earnings from our foreign subsidiaries is reinvested outside the United States indefinitely, we do not consider this to have a significant impact on our liquidity. We currently believe that our capital expenditures, working capital investments, and dividends, if any, during the remainder of 2015 can be fully funded through cash from operations.
As a result, we believe we have a reasonable amount of liquidity and, if necessary, additional financing flexibility given the current market environment to fund our potential contingent liabilities, if any.
Guarantee agreements. In the normal course of business, we have agreements with financial institutions under which approximately $2.0 billion of letters of credit, bank guarantees, or surety bonds were outstanding as of June 30, 2015. Some of the outstanding letters of credit have triggering events that would entitle a bank to require cash collateralization.

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Table of Contents

Credit ratings. Credit ratings for our long-term debt remain A2 with Moody’s Investors Service and A with Standard & Poor’s. The credit ratings on our short-term debt remain P-1 with Moody’s Investors Service and A-1 with Standard & Poor’s. After the announcement of the pending Baker Hughes acquisition, Standard & Poor’s placed all of our ratings on negative watch.
Customer receivables. In line with industry practice, we bill our customers for our services in arrears and are, therefore, subject to our customers delaying or failing to pay our invoices. In weak economic environments, we may experience increased delays and failures to pay our invoices due to, among other reasons, a reduction in our customers’ cash flow from operations and their access to the credit markets as well as unsettled political conditions. If our customers delay paying or fail to pay us a significant amount of our outstanding receivables, it could have a material adverse effect on our liquidity, consolidated results of operations, and consolidated financial condition. See “Business Environment and Results of Operations – International operations – Venezuela” for further discussion related to Venezuela.

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Table of Contents

BUSINESS ENVIRONMENT AND RESULTS OF OPERATIONS

We operate in approximately 80 countries throughout the world to provide a comprehensive range of discrete and integrated services and products to the energy industry related to the exploration, development, and production of oil and natural gas. A significant amount of our consolidated revenue is derived from the sale of services and products to major, national, and independent oil and natural gas companies worldwide. The industry we serve is highly competitive with many substantial competitors in each segment of our business. During the first six months of 2015, based upon the location of the services provided and products sold, 46% of our consolidated revenue was from the United States, compared to 51% of consolidated revenue from the United States in the first six months of 2014. No other country accounted for more than 10% of our revenue during these periods.
Operations in some countries may be adversely affected by unsettled political conditions, acts of terrorism, civil unrest, force majeure, war or other armed conflict, sanctions, expropriation or other governmental actions, inflation, foreign currency exchange restrictions, and highly inflationary currencies, as well as other geopolitical factors. We believe the geographic diversification of our business activities reduces the risk that loss of operations in any one country, other than the United States, would be materially adverse to our consolidated results of operations.
Activity within our business segments is significantly impacted by spending on upstream exploration, development, and production programs by our customers. Also impacting our activity is the status of the global economy, which impacts oil and natural gas consumption.
Some of the more significant determinants of current and future spending levels of our customers are oil and natural gas prices, global oil supply, the world economy, the availability of credit, government regulation, and global stability, which together drive worldwide drilling activity. Due to improved drilling and completion efficiencies as more of our customers move to multi-well pad drilling, our financial performance is impacted by well count in the North America market. Additionally, our financial performance is significantly affected by oil and natural gas prices and worldwide rig activity, which are summarized in the tables below.
The following table shows the average oil and natural gas prices for West Texas Intermediate (WTI), United Kingdom Brent crude oil, and Henry Hub natural gas:
 
Three Months Ended
June 30
Year Ended
December 31
 
2015
2014
2014
Oil price - WTI (1)
$
57.85

$
103.31

$
93.37

Oil price - Brent (1)
61.69

109.66

99.04

Natural gas price - Henry Hub (2)
2.75

4.61

4.39

 
 
 
 
(1) Oil price measured in dollars per barrel
(2) Natural gas price measured in dollars per million British thermal units (Btu), or MMBtu


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Table of Contents

The historical average rig counts based on the weekly Baker Hughes Incorporated rig count information were as follows:
 
Three Months Ended
June 30
Six Months Ended
June 30
Land vs. Offshore
2015
2014
2015
2014
United States:
 
 
 
 
Land
876

1,796

1,115

1,760

Offshore (incl. Gulf of Mexico)
31

56

40

56

Total
907

1,852

1,155

1,816

Canada:
 

 

 

 

Land
95

200

203

363

Offshore
3

2

3

2

Total
98

202

206

365

International (excluding Canada):
 

 

 

 

Land
882

1,023

912

1,021

Offshore
287

325

303

321

Total
1,169

1,348

1,215

1,342

Worldwide total
2,174

3,402

2,576

3,523

Land total
1,853

3,019

2,230

3,144

Offshore total
321

383

346

379

 
 
 
 
 
 
Three Months Ended
June 30
Six Months Ended
June 30
Oil vs. Natural Gas
2015
2014
2015
2014
United States (incl. Gulf of Mexico):
 

 

 
 

Oil
683

1,532

897

1,482

Natural gas
224

320

258

334

Total
907

1,852

1,155

1,816

Canada:
 

 

 

 

Oil
37

101

92

220

Natural gas
61

101

114

145

Total
98

202

206

365

International (excluding Canada):
 

 

 

 

Oil
918

1,077

960

1,073

Natural gas
251

271

255

269

Total
1,169

1,348

1,215

1,342

Worldwide total
2,174

3,402

2,576

3,523

Oil total
1,638

2,710

1,949

2,775

Natural gas total
536

692

627

748

 
Three Months Ended
June 30
Six Months Ended
June 30
Drilling Type
2015
2014
2015
2014
United States (incl. Gulf of Mexico):
 
 
 
 
Horizontal
701

1,243

878

1,213

Vertical
92

394

111

391

Directional
114

215

166

212

Total
907

1,852

1,155

1,816


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Table of Contents

Our customers’ cash flows, in most instances, depend upon the revenue they generate from the sale of oil and natural gas. Lower oil and natural gas prices usually translate into lower exploration and production budgets.
During the second quarter of 2015, WTI and Brent crude oil spot prices averaged approximately $58 and $62 per barrel, respectively, as compared to $103 and $110 per barrel, respectively, during the second quarter of 2014. Crude oil prices continue to be negatively affected as the combination of robust world crude oil supply growth and weak global demand contribute to an increase in the rate of global inventory builds. Additionally, stronger economic performance in the United States has led to a strengthening in the U.S. dollar relative to most other currencies, contributing further to the fall in the U.S. dollar value of crude oil.
WTI crude oil spot prices increased throughout the second quarter of 2015, from a monthly average of approximately $48 per barrel in March to $60 per barrel in June, an increase of approximately 25%, led by the perception of tightening United States supply fundamentals sparked from signs of a slowdown in oil production growth following steep drops in the United States rig count and large spending cuts by producers. Brent crude oil spot prices averaged approximately $61 per barrel in June compared to $56 per barrel in March. Crude oil prices fell in early July, primarily due to financial turmoil in Greece, concerns about lower economic growth in China and continued growth in global petroleum inventories.
According to the United States Energy Information Administration (EIA) July 2015 "Short Term Energy Outlook," Brent prices are projected to average $60 per barrel in 2015 and $67 per barrel in 2016. WTI prices in 2015 and 2016 are expected to average $5 per barrel below Brent prices. The EIA also noted that strong global oil inventory builds are expected to moderate in the second half of the year and provide stability to crude oil prices. Although there are no signs that point to an immediate rebalancing of the market, the International Energy Agency's (IEA) July 2015 "Oil Market Report" forecasts the 2015 and 2016 global demand to average approximately 94 million barrels per day and 95.2 million barrels per day, respectively, which is up 2% and 3%, respectively, from 2014, driven by an increase in all regions except for the Commonwealth of Independent States.
For the second quarter of 2015, the average Henry Hub natural gas price in the United States decreased by 40%, compared to the second quarter of 2014, due to higher natural gas storage levels this year as a result of a mild winter. The Henry Hub natural gas spot price averaged $2.78 per MMBtu in June, a decline of $0.05 per MMBtu from March. The EIA's July 2015 "Short Term Energy Outlook" projects that monthly average spot prices will remain at less than $3 per MMBtu through July, and less than $4 per MMBtu through 2016. Over the long term, the EIA expects that increases in drilling efficiency and growth in oil production will continue to support growing natural gas production in the forecast.
North America operations
Volatility in oil and natural gas prices can impact our customers’ drilling and production activities, particularly in North America. For the second quarter of 2015, the average oil directed rig count decreased 56%, while the average natural gas directed rig count decreased 32%, compared to the second quarter of 2014.
The United States rig count has dropped approximately 55% from the peak in late November 2014, but recently the pace of decline has slowed significantly. Price erosion continued in the second quarter of 2015 and we believe pricing will remain fluid until activity stabilizes. Pricing declines, however, appear to be decelerating. Current market conditions aside, in the long run, we believe the shift to unconventional oil and liquids-rich basins in the United States land market will continue to drive increased service intensity and will require higher demand in fluid chemistry and other technologies required for these complex reservoirs which will have beneficial implications for our operations.
In the Gulf of Mexico, the average offshore rig count for second quarter 2015 was down 45% compared to the second quarter of 2014. Activity in the Gulf of Mexico is dependent on, among other things, governmental approvals for permits, our customers' actions, and new deepwater rigs entering the market.
International operations
The average international rig count for the second quarter of 2015 decreased by 13% compared to the second quarter of 2014. Declining crude oil prices have caused several of our customers to reduce their budgets and defer several new projects. Although the international markets have been more resilient than North America, they are not immune to the impacts of the lower commodity price environment and, therefore, our international operations could be further impacted in the second half of the year.
Despite the current market environment, we believe that international unconventional oil and natural gas, mature field, and deepwater projects will contribute to activity improvements over the long term, and we plan to leverage our extensive experience in North America to optimize these opportunities. Consistent with our long-term strategy to grow our operations outside of North America, we also expect to continue to invest in capital equipment for our international operations.
Venezuela. In February 2015, the Venezuelan government created a new foreign exchange rate mechanism, called the Marginal Currency System, or SIMADI. The new mechanism, which is the third system in a three-tier exchange control mechanism, is a floating market rate for the conversion of Bolívares to United States dollars based on supply and demand. The three-tier exchange rate mechanisms are as follows: (i) the National Center of Foreign Commerce official rate of 6.3 Bolívares per United States dollar, which remains unchanged; (ii) the SICAD I, which will continue to hold periodic auctions for specific sectors of the economy with a rate of 12 Bolívares per United States dollar at June 30, 2015; and (iii) the SIMADI, which replaces the SICAD II system with a market rate of 197 Bolívares per United States dollar at June 30, 2015.

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Table of Contents

We intend to utilize the new SIMADI mechanism for liquidity purposes in our Venezuelan operations. During the first quarter of 2015, we began utilizing the SIMADI mechanism to remeasure our net monetary assets denominated in Bolívares, which resulted in us recording a foreign currency loss of $199 million during the first quarter of 2015.
As of June 30, 2015, our total net investment in Venezuela was approximately $618 million, including net monetary assets of $5 million denominated in Bolívares. Also, at June 30, 2015 we had $20 million of surety bond guarantees outstanding relating to our Venezuelan operations. The United States dollar value of our net monetary assets and surety bond guarantees have significantly declined from December 31, 2014 primarily as a result of the currency devaluation in Venezuela.
We are continuing to collect on our receivables from our primary customer in Venezuela. These receivables are not disputed, and we have not historically had material write-offs relating to this customer. Additionally, we routinely monitor the financial stability of our customers. Our total outstanding trade receivables in Venezuela were $521 million, or approximately 9% of our gross trade receivables, as of June 30, 2015, compared to $670 million, or approximately 9% of our gross trade receivables, as of December 31, 2014. This significant decline is primarily driven by the currency devaluation in Venezuela, which more than offset increased activity during the quarter. Of the $521 million receivables in Venezuela as of June 30, 2015, $165 million has been classified as long-term and included within “Other assets” on our condensed consolidated balance sheets.
For additional information, see Part I, Item 1(a), “Risk Factors” in our 2014 Annual Report on Form 10-K.


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Table of Contents

RESULTS OF OPERATIONS IN 2015 COMPARED TO 2014

Three Months Ended June 30, 2015 Compared with Three Months Ended June 30, 2014
REVENUE:
Three Months Ended
June 30
Favorable
Percentage
Millions of dollars
2015
2014
(Unfavorable)
Change
Completion and Production
$
3,444

$
4,942

$
(1,498
)
(30
)%
Drilling and Evaluation
2,475

3,109

(634
)
(20
)
Total revenue
$
5,919

$
8,051

$
(2,132
)
(26
)%
 
 
 
 
 
By geographic region:
 
 
 
 
Completion and Production:
 
 

 

 

North America
$
2,062

$
3,325

$
(1,263
)
(38
)%
Latin America
337

395

(58
)
(15
)
Europe/Africa/CIS
554

634

(80
)
(13
)
Middle East/Asia
491

588

(97
)
(16
)
Total
3,444

4,942

(1,498
)
(30
)
Drilling and Evaluation:
 
 

 

 

North America
609

1,019

(410
)
(40
)
Latin America
430

502

(72
)
(14
)
Europe/Africa/CIS
541

747

(206
)
(28
)
Middle East/Asia
895

841

54

6

Total
2,475

3,109

(634
)
(20
)
Total revenue by region:
 

 

 

 

North America
2,671

4,344

(1,673
)
(39
)
Latin America
767

897

(130
)
(14
)
Europe/Africa/CIS
1,095

1,381

(286
)
(21
)
Middle East/Asia
1,386

1,429

(43
)
(3
)

24

Table of Contents


OPERATING INCOME:
Three Months Ended
June 30
Favorable
Percentage
Millions of dollars
2015
2014
(Unfavorable)
Change
Completion and Production
$
313

$
887

$
(574
)
(65
)%
Drilling and Evaluation
400

414

(14
)
(3
)
Corporate and other
(153
)
(107
)
(46
)
43

Impairments and other charges
(306
)

(306
)
100

Total operating income
$
254

$
1,194

$
(940
)
(79
)%
 
 
 
 
 
By geographic region:
 
 
 
 
Completion and Production:
 
 
 
 
North America
$
73

$
630

$
(557
)
(88
)%
Latin America
55

48

7

15

Europe/Africa/CIS
90

96

(6
)
(6
)
Middle East/Asia
95

113

(18
)
(16
)
Total
313

887

(574
)
(65
)
Drilling and Evaluation:
 

 

 

 

North America
57

160

(103
)
(64
)
Latin America
57

13

44

338

Europe/Africa/CIS
74

90

(16
)
(18
)
Middle East/Asia
212

151

61

40

Total
400

414

(14
)
(3
)
Total operating income by region
 

 

 

 

(excluding Corporate and other):
 
 
 
 
North America
130

790

(660
)
(84
)
Latin America
112

61

51

84

Europe/Africa/CIS
164

186

(22
)
(12
)
Middle East/Asia
307

264

43

16


Consolidated revenue decreased $2.1 billion, or 26%, in the second quarter of 2015, as compared to the second quarter of 2014, associated with pricing declines and reduced activity levels in the majority of our product service lines, primarily attributable to pressure pumping in North America, coupled with lower activity and pricing in the Europe/Africa/CIS region, which more than offset strong activity growth for consulting services in Middle East/Asia. Revenue outside of North America was 55% of consolidated revenue in the second quarter of 2015, compared to 46% of consolidated revenue in the second quarter of 2014.
Consolidated operating income decreased $940 million, or 79%, during the second quarter of 2015, as compared to the second quarter of 2014, driven by a significant decline in pressure pumping activity and pricing declines in North America, coupled with $306 million of impairments and other charges recorded in the second quarter of 2015, which were primarily associated with the recent downturn in the energy market. See Note 3 to the condensed consolidated financial statements for further information about impairments and other charges for the second quarter of 2015.


25

Table of Contents

Completion and Production
Revenue decreased $1.5 billion, or 30%, in the second quarter of 2015, compared to the second quarter of 2014.
North America revenue dropped 38%, as a result of steep rig count declines, pricing concessions, and reduced stimulation activity in the United States land market.
Latin America revenue decreased 15%, mainly due to reduced activity and pricing in Mexico, primarily associated with pressure pumping services. Partially offsetting this reduction was an increase in pipeline and process services activity and pricing in Brazil, coupled with improved activity for artificial lift and production solutions services in Venezuela.
Europe/Africa/CIS revenue decreased 13%, as a result of reduced pipeline and process services activity throughout the region, decreased cementing and completion tools sales in Norway, and lower activity and currency weakness in Russia. Partially offsetting these reductions were increased completion tools sales in Angola and Nigeria.
Middle East/Asia revenue fell 16%, mainly due to decreased pressure pumping services in Australia and a reduction in all product service lines in Malaysia.
Revenue outside of North America was 40% of total segment revenue in the second quarter of 2015, compared to 33% of total segment revenue in the second quarter of 2014.

Operating income was $313 million, a decrease of $574 million, or 65%, compared to the second quarter of 2014.
North America operating income declined 88%, primarily due to the fall in rig counts and pricing pressure impacting stimulation activity and profitability.
Latin America operating income increased by 15%, primarily as a result of improved activity and profitability across most product service lines in Venezuela, but specifically production solutions.
Europe/Africa/CIS operating income decreased by 6%, mainly due to a drop across all product service lines in Egypt, partly offset by improved stimulation services and completion tools sales in Angola.
Middle East/Asia operating income fell by 16%, mainly due to reduced lower margins in Australia and Malaysia related to lower activity.

Drilling and Evaluation
Revenue decreased $634 million, or 20%, in the second quarter of 2015, compared to the second quarter of 2014.
North America revenue dropped 40% due to a drop in activity across all product service lines, primarily as a result of pricing concessions and reduced activity levels for fluid and drilling services.
Latin America revenue decreased 14%, primarily due to reduced activity and pricing of testing services in Brazil, along with a reduction related to the currency impact of the new exchange rate in Venezuela.
Europe/Africa/CIS revenue decreased 28% as a result of decreased pricing for fluid services in Norway and currency weakness in Russia, coupled with a reduction in drilling services in the United Kingdom and Norway.
Middle East/Asia revenue grew 6%, mainly due to strong activity growth across most product service lines in Saudi Arabia, along with increased project management activity in Iraq and Indonesia.
Revenue outside of North America was 75% of total segment revenue in the second quarter of 2015, compared to 67% of total segment revenue in the second quarter of 2014.

Operating income was $400 million, a decrease of $14 million, or 3%, compared to the second quarter of 2014. All regions benefited from the cessation of recognizing depreciation expense on assets held for sale. See Note 2 to the condensed consolidated financial statements for further information.
North America operating income decreased 64%, primarily due to decreased fluid service and logging in the United States land market.
Latin America operating income quadrupled, primarily due to improved profitability for drilling services in Brazil, increased drilling services activity in Venezuela and Mexico, and increased software sales in Mexico. Partially offsetting these increases were reduced profitability in Ecuador and a decline in logging activity in Venezuela.
Europe/Africa/CIS operating income declined 18%, mainly due to decreased fluid pricing in Norway as well as a drop in drilling services in Angola.
Middle East/Asia operating income improved by 40%, driven by strong activity growth across most product service lines in Saudi Arabia, specifically drilling services.

Corporate and other was $153 million of expenses in the second quarter of 2015, compared to $107 million of expenses in the second quarter of 2014, primarily due to $83 million of costs related to the pending Baker Hughes acquisition.
Impairments and other charges. Primarily as a result of the recent downturn in the energy market and its corresponding impact on the company’s business outlook, we recorded a total of approximately $306 million in company-wide charges during the second quarter of 2015 related to asset impairments and write-offs and severance costs. See Note 3 to the condensed consolidated financial statements for further information.

26

Table of Contents


NONOPERATING ITEMS
Interest expense, net of interest income increased $12 million in the second quarter of 2015, as compared to the second quarter of 2014, primarily due to fees associated with the $8.6 billion senior unsecured bridge facility commitment related to the acquisition of Baker Hughes.
Effective tax rate. Our effective tax rate on continuing operations for the quarter ended June 30, 2015 and June 30, 2014 was 56.1% and 27.8%, respectively. The effective tax rates in both periods were positively impacted by lower tax rates in certain foreign jurisdictions. However, the effective tax rate for the quarter ended June 30, 2015 was adversely impacted by the tax effects of the $306 million of impairments and other charges as well as the $83 million of Baker Hughes acquisition-related costs recorded during the period, as certain of these charges were not deductible and thus did not carry a corresponding tax benefit. The effect on our tax rate was exacerbated by our low level of pre-tax income during the period.


27

Table of Contents

Six Months Ended June 30, 2015 Compared with Six Months Ended June 30, 2014
REVENUE:
Six Months Ended
June 30
Favorable
Percentage
Millions of dollars
2015
2014
(Unfavorable)
Change
Completion and Production
$
7,690

$
9,362

$
(1,672
)
(18
)%
Drilling and Evaluation
5,279

6,037

(758
)
(13
)
Total revenue
$
12,969

$
15,399

$
(2,430
)
(16
)%
 
 
 
 
 
By geographic region:
 
 
 
 
Completion and Production:
 
 
 
 

North America
$
4,839

$
6,252

$
(1,413
)
(23
)%
Latin America
731

750

(19
)
(3
)
Europe/Africa/CIS
1,082

1,241

(159
)
(13
)
Middle East/Asia
1,038

1,119

(81
)
(7
)
Total
7,690

9,362

(1,672
)
(18
)
Drilling and Evaluation:
 

 

 

 

North America
1,374

1,993

(619
)
(31
)
Latin America
985

1,006

(21
)
(2
)
Europe/Africa/CIS
1,110

1,439

(329
)
(23
)
Middle East/Asia
1,810

1,599

211

13

Total
5,279

6,037

(758
)
(13
)
Total revenue by region:
 

 

 

 

North America
6,213

8,245

(2,032
)
(25
)
Latin America
1,716

1,756

(40
)
(2
)
Europe/Africa/CIS
2,192

2,680

(488
)
(18
)
Middle East/Asia
2,848

2,718

130

5



28

Table of Contents

OPERATING INCOME:
Six Months Ended
June 30
Favorable
Percentage
Millions of dollars
2015
2014
(Unfavorable)
Change
Completion and Production
$
775

$
1,548

$
(773
)
(50
)%
Drilling and Evaluation
706

812

(106
)
(13
)
Corporate and other
(261
)
(196
)
(65
)
33

Impairments and other charges
(1,514
)

(1,514
)
100

Total operating income (loss)
$
(294
)
$
2,164

$
(2,458
)
(114
)%
 
 
 
 
 
By geographic region:
 
 
 
 
Completion and Production:
 

 

 

 
North America
$
307

$
1,076

$
(769
)
(71
)%
Latin America
120

96

24

25

Europe/Africa/CIS
145

174

(29
)
(17
)
Middle East/Asia
203

202

1


Total
775

1,548

(773
)
(50
)
Drilling and Evaluation:
 

 

 

 

North America
102

316

(214
)
(68
)
Latin America
114

65

49

75

Europe/Africa/CIS
105

158

(53
)
(34
)
Middle East/Asia
385

273

112

41

Total
706

812

(106
)
(13
)
Total operating income by region
 

 

 

 

(excluding Corporate and other):
 
 
 
 
North America
409

1,392

(983
)
(71
)
Latin America
234

161

73

45

Europe/Africa/CIS
250

332

(82
)
(25
)
Middle East/Asia
588

475

113

24


Consolidated revenue decreased $2.4 billion, or 16%, in the first six months of 2015, as compared to the first six months of 2014, associated with pricing declines and reduced activity levels, primarily attributable to stimulation services in the United States land market, as well as lower pricing and activity in all of our product service lines in the Europe/Africa/CIS, which were partially offset by higher consulting services and drilling and fluid services in Middle East/Asia Pacific. Revenue outside of North America was 52% of consolidated revenue in the first six months of 2015, compared to 46% of consolidated revenue in the first six months of 2014.
Consolidated operating income decreased $2.5 billion, or 114%, in the first six months of 2015, as compared to the first six months of 2014, primarily as a result of $1.5 billion of impairments and other charges recorded in the first half of 2015, which were primarily associated with the recent downturn in the energy market. See Note 3 to the condensed consolidated financial statements for further information. Additionally, our consolidated operating income decline was attributable to reduced stimulation activity in the United States land market, partially offset by higher activity and margins experienced in the Middle East/Asia Pacific and Latin America.


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Completion and Production
Revenue decreased $1.7 billion, or 18%, in the first six months of 2015, compared to the first six months of 2014.
North America revenue fell by 23% as a result of decreased stimulation activity in the United States land market related to a significant drop in rig count coupled with pricing declines.
Latin America revenue decreased by 3%, as a decrease in pressure pumping activity in Mexico was partially offset by increased activity levels in the majority of our product service lines in Venezuela.
Europe/Africa/CIS revenue declined by 13%, driven by reduced well completion activity in Norway and lower pressure pumping services in Russia.
Middle East/Asia revenue dropped 7%, primarily due to decreased pressure pumping activity and pricing in Australia and lower completion tools sales in Indonesia and Malaysia, which more than offset improved stimulation activity levels in Saudi Arabia.
Revenue outside of North America was 37% of total segment revenue in the first six months of 2015, compared to 33% of total segment revenue in the first six months of 2014.

Operating income declined by $773 million, or 50%, in the first six months of 2015, compared to the first six months of 2014.
North America operating income decreased 71% as a result of reduced pressure pumping services and price degradation in the United States land market.
Latin America operating income grew 25%, primarily due to higher activity and profitability across most of our product service lines in Venezuela.
Europe/Africa/CIS operating income decreased 17% as a result of declined cementing services in Norway, as well as reduced stimulation activity and well completions in Egypt and Cameroon.
Middle East/Asia operating income remained flat, as increased stimulation activity and completion tools sales in Saudi Arabia and higher profitability and cementing services in Oman and Qatar were offset by declined pressure pumping services in Australia.

Drilling and Evaluation
Revenue decreased $758 million, or 13%, in the first six months of 2015, compared to the first six months of 2014.
North America revenue fell by 31%, due to decreases across the majority of our product service lines in the United States land market.
Latin America revenue decreased 2%, primarily due to a drop in drilling and logging activity in Ecuador and Colombia and a decline in offshore activity in Brazil. These decreases were partially offset by higher activity levels in most of our product service lines in Venezuela, Mexico and Argentina.
Europe/Africa/CIS revenue declined by 23% as a result of reduced fluid activity in Norway, lower drilling and fluid activity in Russia, and decreased drilling and logging activity in Angola.
Middle East/Asia revenue increased 13% as a result of increased activity in all of our product services lines in Saudi Arabia and improved project management services in Indonesia, Iraq, and India, partially offset by lower drilling and fluid services in Malaysia.
Revenue outside of North America was 74% of total segment revenue in the first six months of 2015, compared to 67% of total segment revenue in the first six months of 2014.

Operating income fell $106 million, or 13%, in the first six months of 2015, compared to the first six months of 2014. All regions benefited from the cessation of recognizing depreciation expense on assets held for sale. See Note 2 to the condensed consolidated financial statements for further information.
North America operating income decreased 68% due to a decline in drilling and logging services in the United States land market and continued pricing pressure across all product service lines.
Latin America operating income improved by 75%, mainly due to rising software sales and consulting services in Mexico, higher drilling activity in Venezuela and Brazil, and increased fluid services in Venezuela.
Europe/Africa/CIS operating income fell by 34%, as a result declined drilling and logging activity in Angola, as well as reduced drilling and fluid services in Russia and the United Kingdom.
Middle East/Asia operating income increased 41%, primarily due to an increase across most of our product service lines in Saudi Arabia and higher logging and offshore activity and project management in Iraq.

Corporate and other expenses were $261 million in the first six months of 2015 compared to $196 million in the first six months of 2014. The increase was primarily due to $122 million of costs related to the pending Baker Hughes acquisition.
Impairments and other charges. Primarily as a result of the recent downturn in the energy market and its corresponding impact on the company’s business outlook, we recorded a total of approximately $1.5 billion in company-wide charges during the first six months of 2015, which consisted of asset impairments and write-offs, inventory write-downs, impairments of intangible assets, severance costs, facility closures, and other charges. See Note 3 to the condensed consolidated financial statements for further information.

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NONOPERATING ITEMS
Interest expense, net of interest income increased $25 million in the first six months of 2015, as compared to the first six months of 2014, primarily due to fees associated with the $8.6 billion senior unsecured bridge facility commitment related to the pending acquisition of Baker Hughes.
Other, net was $247 million in the first half of 2015, as compared to $55 million in the first half of 2014, primarily due to a $199 million foreign exchange loss we incurred in Venezuela in the first quarter of 2015 as a result of utilizing the new SIMADI currency exchange mechanism. See Note 3 to the condensed consolidated financial statements and "Business Environment and Results of Operations" for further information.
Effective tax rate. Our effective tax rate was 22.6% for the six months ended June 30, 2015, which includes positive tax effects of the $1.5 billion of impairments and other charges recorded during the first half of the year. Our effective tax rate was 27.5% for the six months ended June 30, 2014. The effective tax rates in both periods were positively affected by lower tax rates in certain foreign jurisdictions.


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ENVIRONMENTAL MATTERS

We are subject to numerous environmental, legal, and regulatory requirements related to our operations worldwide. For information related to environmental matters, see Note 7 to the condensed consolidated financial statements.

FORWARD-LOOKING INFORMATION

The Private Securities Litigation Reform Act of 1995 provides safe harbor provisions for forward-looking information. Forward-looking information is based on projections and estimates, not historical information. Some statements in this Form 10-Q are forward-looking and use words like “may,” “may not,” “believe,” “do not believe,” “plan,” “estimate,” “intend,” “expect,” “do not expect,” “anticipate,” “do not anticipate,” “should,” “likely,” and other expressions. We may also provide oral or written forward-looking information in other materials we release to the public. Forward-looking information involves risk and uncertainties and reflects our best judgment based on current information. Our results of operations can be affected by inaccurate assumptions we make or by known or unknown risks and uncertainties. In addition, other factors may affect the accuracy of our forward-looking information. As a result, no forward-looking information can be guaranteed. Actual events and the results of our operations may vary materially.
We do not assume any responsibility to publicly update any of our forward-looking statements regardless of whether factors change as a result of new information, future events, or for any other reason. You should review any additional disclosures we make in our press releases and Forms 10-K, 10-Q, and 8-K filed with or furnished to the SEC. We also suggest that you listen to our quarterly earnings release conference calls with financial analysts.

Item 3. Quantitative and Qualitative Disclosures About Market Risk
For quantitative and qualitative disclosures about market risk, see Part II, Item 7(a), “Quantitative and Qualitative Disclosures About Market Risk,” in our 2014 Annual Report on Form 10-K. Our exposure to market risk has not changed materially since December 31, 2014.

Item 4. Controls and Procedures
In accordance with the Securities Exchange Act of 1934 Rules 13a-15 and 15d-15, we carried out an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of June 30, 2015 to provide reasonable assurance that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Our disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
There has been no change in our internal control over financial reporting that occurred during the three and six months ended June 30, 2015 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION
 
Item 1. Legal Proceedings
Information related to Item 1. Legal Proceedings is included in Note 7 to the condensed consolidated financial statements.

Item 1(a). Risk Factors
As of June 30, 2015, there have been no material changes from the risk factors previously disclosed in Part I, Item 1(a), of our Annual Report on Form 10-K for the fiscal year ended December 31, 2014.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Following is a summary of our repurchases of our common stock during the three months ended June 30, 2015.
Period
Total Number
of Shares Purchased (a)
Average
Price Paid per Share
Total Number
of Shares
Purchased as
Part of Publicly
Announced Plans or Programs (b)
Maximum
Number (or
Approximate
Dollar Value) of
Shares that may yet
be Purchased Under the Program (b)
April 1 - 30
45,295

$44.98
$5,700,004,373
May 1 - 31
664,586

$46.83
$5,700,004,373
June 1 - 30
107,895

$46.02
$5,700,004,373
Total
817,776

$46.62
 

(a)
All of the 817,776 shares purchased during the three-month period ended June 30, 2015 were acquired from employees in connection with the settlement of income tax and related benefit withholding obligations arising from vesting in restricted stock grants. These shares were not part of a publicly announced program to purchase common stock.
(b)
Our Board of Directors has authorized a program to repurchase our common stock from time to time. Approximately $5.7 billion remains authorized for repurchases as of June 30, 2015. From the inception of this program in February 2006 through June 30, 2015, we repurchased approximately 201 million shares of our common stock for a total cost of approximately $8.4 billion.

Item 3. Defaults Upon Senior Securities
None.

Item 4. Mine Safety Disclosures
Our barite and bentonite mining operations, in support of our fluid services business, are subject to regulation by the federal Mine Safety and Health Administration under the Federal Mine Safety and Health Act of 1977. Information concerning mine safety violations or other regulatory matters required by section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K (17 CFR 229.104) is included in Exhibit 95 to this quarterly report.

Item 5. Other Information
On July 21, 2015, we entered into a new five-year revolving credit agreement, with an initial capacity of $3.0 billion, increasing to $4.5 billion upon closing of the Baker Hughes acquisition and satisfaction of the conditions provided in the credit agreement. The credit agreement is for general working capital purposes and expires on July 21, 2020.  The credit agreement replaced our $3.0 billion five-year revolving credit agreement dated February 22, 2011, as amended, which was terminated on July 21, 2015 in conjunction with entering into the new credit agreement. See Exhibit 10.1 to this quarterly report.



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Item 6. Exhibits

*
10.l
U.S. $4,500,000,000 Five Year Revolving Credit Agreement among Halliburton Company, as Borrower, the Banks party thereto, and Citibank, N.A., as Agent, effective July 21, 2015.
 
 
 
*
12.1
Statement Regarding the Computation of Ratio of Earnings to Fixed Charges.
 
 
 
*
31.1
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
 
*
31.2
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
 
**
32.1
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
 
**
32.2
Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
 
*
95
Mine Safety Disclosures
 
 
 
*
101.INS
XBRL Instance Document
*
101.SCH
XBRL Taxonomy Extension Schema Document
*
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document
*
101.LAB
XBRL Taxonomy Extension Label Linkbase Document
*
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document
*
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document
 
 
 
 
*
Filed with this Form 10-Q
 
**
Furnished with this Form 10-Q

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SIGNATURES


As required by the Securities Exchange Act of 1934, the registrant has authorized this report to be signed on behalf of the registrant by the undersigned authorized individuals.

HALLIBURTON COMPANY

/s/ Christian A. Garcia
/s/ Charles E. Geer, Jr.
Christian A. Garcia
Charles E. Geer, Jr.
Senior Vice President, Finance and
Vice President and
Acting Chief Financial Officer
Corporate Controller


Date: July 24, 2015


35
HAL_6.30.2015-Ex 10.1
Execution Copy

U.S. $4,500,000,000
FIVE YEAR REVOLVING CREDIT AGREEMENT
dated as of July 21, 2015
among
HALLIBURTON COMPANY
as Borrower,
THE ISSUING BANKS NAMED HEREIN
as Issuing Banks,
CITIBANK, N.A.
as Swingline Bank,
THE BANKS NAMED HEREIN
as Banks,
CITIBANK, N.A.
as Administrative Agent,
HSBC SECURITIES (USA) INC.
and
MIZUHO BANK, LTD.
as Co‑Syndication Agents,
and
DEUTSCHE BANK SECURITIES INC.,
JPMORGAN CHASE BANK, N.A.
and
BANK OF AMERICA, N.A.
as Co‑Documentation Agents
    
CITIGROUP GLOBAL MARKETS INC.,
HSBC SECURITIES (USA) INC.,
MIZUHO BANK, LTD.,
DEUTSCHE BANK SECURITIES INC.,
J.P. MORGAN SECURITIES LLC
and
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
Joint Lead Arrangers and Joint Bookrunners

TABLE OF CONTENTS
Page
Article I DEFINITIONS AND ACCOUNTING TERMS1
Section 1.01Certain Defined Terms    1
Section 1.02Computation of Time Periods    18
Section 1.03Accounting Terms; GAAP    18
Section 1.04Miscellaneous    18
Section 1.05Ratings    18
Article II AMOUNTS AND TERMS OF THE ADVANCES19
Section 2.01The Revolving Credit Advances    19
Section 2.02Making the Revolving Credit Advances    22
Section 2.03Issuance of and Drawings and Reimbursement Under Letters of Credit    23
Section 2.04Fees    26
Section 2.05Reduction of Commitments    27
Section 2.06Repayment of Advances; Required Cash Collateral    28
Section 2.07Interest    30
Section 2.08Additional Interest on Eurodollar Rate Advances    31
Section 2.09Interest Rate Determination    32
Section 2.10Optional Prepayments    33
Section 2.11Payments and Computations    33
Section 2.12Increased Costs and Capital Requirements    35
Section 2.13Taxes    36
Section 2.14Sharing of Payments, Etc    40
Section 2.15Illegality    40
Section 2.16Conversion of Advances    41
Section 2.17Replacement or Removal of Bank    41
Section 2.18Evidence of Indebtedness    43
Section 2.19Automatic Increase in the Revolving Credit Commitment    43
Section 2.20Increase in the Aggregate Revolving Credit Commitments    44
Section 2.21New Issuing Banks    46
Section 2.22Extension of Commitments    46
Section 2.23Change in Control    47
Section 2.24Defaulting Bank Provisions    49
Article III CONDITIONS OF LENDING50
Section 3.01Conditions Precedent to Effectiveness    50
Section 3.02Conditions Precedent to each Advance, each Commitment Increase and each Issuance, Renewal and Increase of each Letter of Credit    52
Section 3.03Determinations Under Section 3.01    53
Section 3.04Additional Defaulting Bank Requirements    53
Article IV REPRESENTATIONS AND WARRANTIES53
Section 4.01Representations and Warranties of the Borrower    53
Article V COVENANTS OF THE BORROWER56
Section 5.01Affirmative Covenants    56
Section 5.02Negative Covenants    59
Article VI EVENTS OF DEFAULT63
Section 6.01Events of Default    63
Section 6.02Actions in Respect of the Letters of Credit upon Default    65
Article VII THE AGENT65
Section 7.01Authorization and Action    65
Section 7.02Agent’s Reliance, Etc    66
Section 7.03Exculpatory Provisions    66
Section 7.04Delegation of Duties    67
Section 7.05The Agent and its Affiliates    67
Section 7.06Bank Credit Decision    68
Section 7.07Indemnification    68
Section 7.08Successor Agent    69
Section 7.09Joint Lead Arrangers, Co‑Syndication Agents and Co‑Documentation Agents    69
Section 7.10Defaulting Bank Provisions    70
Article VIII MISCELLANEOUS70
Section 8.01Amendments, Etc    70
Section 8.02Notices, Etc    71
Section 8.03No Waiver; Remedies    74
Section 8.04Expenses; Compensation    74
Section 8.05Right of Set-Off    76
Section 8.06Limitation and Adjustment of Interest    77
Section 8.07Binding Effect    78
Section 8.08Assignments and Participations    78
Section 8.09No Liability of Issuing Banks    81
Section 8.10Execution in Counterparts    81
Section 8.11Judgment    81
Section 8.12Governing Law    82
Section 8.13Jurisdiction; Damages    82
Section 8.14Confidentiality    83
Section 8.15Patriot Act Notice    84
Section 8.16Waiver of Jury Trial    84
Section 8.17No Advisory or Fiduciary Responsibility    84

ANNEX
Annex A
SCHEDULES
Schedule I
-    Commitments
Schedule 1.01(a)    -    Existing Letters of Credit
Schedule 5.02(a)    -    Certain Existing Indebtedness
EXHIBITS
Exhibit A-1
-    Form of Note
Exhibit A-2
-    Form of Swingline Note
Exhibit B-1
-    Form of Notice of Revolving Credit Borrowing
Exhibit B-2
-    Form of Notice of Issuance and Application for Letter of Credit
Exhibit B-3
-    Form of Notice of Swingline Advance
Exhibit C-1
-    Form of Opinion of Bruce A. Metzinger
Exhibit C-2
-    Form of Opinion of Counsel to the Borrower
Exhibit D
-    Form of Assignment and Acceptance


FIVE YEAR REVOLVING CREDIT AGREEMENT
DATED AS OF JULY 21, 2015
Halliburton Company, a Delaware corporation (the “Borrower”), the lenders party hereto and Citibank, N.A. (“Citi”), as Agent hereunder, agree as follows:
Article I

DEFINITIONS AND ACCOUNTING TERMS
Section 1.01    Certain Defined Terms. As used in this Agreement, the terms “Borrower” and “Citi” shall have the meanings set forth above and the following terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined):
Acquired Business” means Baker Hughes Incorporated, a Delaware corporation.
2    Acquisition” means the acquisition by the Borrower of all of the outstanding shares of common stock of the Acquired Business pursuant to the Merger Agreement.
3    Additional Amount” has the meaning specified in Section 2.13(a).
4    Additional Change in Control Commitment Banks” has the meaning specified in Section 2.23(e).
5    Additional Commitment Bank” has the meaning specified in Section 2.22(c).
6    Advance” means a Revolving Credit Advance under Section 2.01(a), a Letter of Credit Advance under Section 2.03 or a Swingline Advance under Section 2.01(c) and refers to a Base Rate Advance or a Eurodollar Rate Advance.
7    Affected Bank” has the meaning specified in Section 2.15.
8    Affiliate” means, as to any Person, any other Person that, directly or indirectly, controls, is controlled by or is under common control with such Person.
9    Agent” or “Administrative Agent” means Citi solely in its capacity as Agent pursuant to Article VII and any successor in such capacity pursuant to Section 7.08.
10    Agent Parties” has the meaning specified in Section 8.02(c).
11    Agent’s Account” means the account of the Agent maintained by the Agent with Citi at its office at 1615 Brett Road OPS III, New Castle, Delaware 19720, Account No. 36852248, Attention: Halliburton Account Officer, or such other account as the Agent shall specify in writing to the Banks.
12    Agreement” means this Five Year Revolving Credit Agreement dated as of July 21, 2015 among the Borrower, the Banks and the Agent, as amended from time to time in accordance with the terms hereof.
13    Anti-Corruption Laws” means the United States Foreign Corrupt Practices Act of 1977, the UK Bribery Act of 2010 and any other similar anti-corruption laws of the European Union or any jurisdiction where the Borrower or any of its Subsidiaries is physically located, organized or resident.
14    Applicable Commitment Fee Rate” has the meaning specified in Annex A.
15    Applicable Lending Office” means, with respect to each Bank, (a) in the case of a Base Rate Advance, such Bank’s Domestic Lending Office, and (b) in the case of a Eurodollar Rate Advance, such Bank’s Eurodollar Lending Office.
16    Applicable Margin” has the meaning specified in Annex A.
17    Assignment and Acceptance” means an assignment and acceptance entered into by a Bank and an Eligible Assignee, and accepted by the Agent, in substantially the form of Exhibit D or any other form approved by the Agent.
18    Assuming Lender” has the meaning specified in Section 2.20(d).
19    Assumption Agreement” has the meaning specified in Section 2.20(d).
20    Automatic Increase” has the meaning specified in Section 2.19(a).
21    Automatic Increase Effectiveness Date” has the meaning specified in Section 2.19(a).
22    Available Amount” of any Letter of Credit means, at any time, the Dollar Equivalent of (a) the maximum amount available to be drawn under such Letter of Credit at such time (assuming compliance at such time with all conditions to drawing) less (b) with respect to any Letter of Credit that has been cash collateralized as a result of an Exercising Bank or a Non-Extending Bank, the amount of such cash collateral.
23    Bank Insolvency Event” means that (i) a Bank or its Parent Company is insolvent, or is generally unable to pay its debts as they become due, or admits in writing its inability to pay its debts as they become due, or makes a general assignment for the benefit of its creditors, or (ii) a Bank or its Parent Company is the subject of a bankruptcy, insolvency, reorganization, liquidation or similar proceeding, or a receiver, trustee, conservator, intervenor or sequestrator or the like has been appointed for such Bank or its Parent Company, or such Bank or its Parent Company has taken any action in furtherance of or indicating its consent to or acquiescence in any such proceeding or appointment; provided that a Bank Insolvency Event shall not exist solely as the result of the acquisition or maintenance of an ownership interest in a Bank or its Parent Company or the exercise of control over a Bank or its Parent Company by a governmental authority or an instrumentality thereof so long as such ownership interest does not result in or provide such Bank with immunity from the jurisdiction of courts within the United States or from the enforcement of judgments or writs of attachment on its assets or permit such Bank (or such governmental authority or instrumentality) to reject, repudiate, disavow or disaffirm any contracts or agreements made with such Bank.
24    Banks” means the Issuing Banks, the Swingline Bank and the other banks and other financial institutions party hereto from time to time as lenders, including each Eligible Assignee that becomes a party hereto pursuant to Section 8.08(a), (b) and (d).
25    Base Rate” means, for any day, a fluctuating interest rate per annum as shall be in effect from time to time which rate per annum shall at all times be equal to the highest of:
(a)    the rate of interest announced publicly by the Agent in New York, New York, from time to time, as its base rate;
(b)    the sum of ½ of one percent per annum plus the Federal Funds Rate in effect from time to time; and
(c)    the sum of one percent per annum plus the Eurodollar Rate for a one month Interest Period commencing on such day (or if such day is not a Business Day, the immediately preceding Business Day).
26    Base Rate Advance” means an Advance which bears interest as provided in Section 2.07(a).
27    BHI Credit Agreement” means that certain Credit Agreement, dated as of September 13,  2011, among the Acquired Business, the lenders party thereto and JP Morgan Chase Bank, N.A., as administrative agent, as amended or otherwise modified from time to time.
28    Borrowing” means a borrowing consisting of Advances of the same Type made on the same day by the Banks pursuant to Section 2.01 and, if such Advances are Eurodollar Rate Advances, having Interest Periods of the same duration.
29    Business Day” means a day of the year on which banks are not required or authorized to close in New York City and, if the applicable Business Day relates to any Eurodollar Rate Advance, on which dealings in Dollar deposits are carried on in the London interbank market.
30    Cash Collateral Account” means the cash collateral deposit account, Account No. 30597952, with Citi, as securities intermediary and depository bank, at its office at One Penns Way, 2nd Floor, New Castle, Delaware 19720, in the name of the Borrower but under the sole control and dominion of the Agent and subject to the terms of this Agreement.
31    Change in Control” means that any Person or group of Persons (within the meaning of Section 13 or Section 14 of the Securities Exchange Act of 1934, as amended) shall have acquired, directly or indirectly, beneficial ownership (with the meaning of Rule 13d‑3 promulgated by the SEC under said Act) of 50% or more of the outstanding shares of equity securities of the Borrower at the time entitled to vote for election of directors (or equivalent governing body) of the Borrower.
32    Co‑Documentation Agents” means each of Deutsche Bank Securities Inc., JPMorgan Chase Bank, N.A. and Bank of America, N.A., solely in its capacity as co‑documentation agent under this Agreement.
33    Co‑Syndication Agents” means each of HSBC Securities (USA) Inc. and Mizuho Bank, Ltd., solely in its capacity as co‑syndication agent under this Agreement.
34    Code” means the Internal Revenue Code of 1986, as amended, or any successor Federal tax code, and the regulations promulgated and rulings issued thereunder, in each case as now or hereafter in effect, and any reference to any statutory provision shall be deemed to be a reference to any successor provision or provisions.
35    Commercial Letter of Credit” means a letter of credit qualifying as a “commercial letter of credit” under 12 C.F.R. Part 3, Appendix A, Section 3(b)(3)(i) or any successor U.S. Comptroller of the Currency regulation.
36    Commitment” means a Revolving Credit Commitment or a Letter of Credit Commitment.
37    Commitment Date” has the meaning specified in Section 2.20(b).
38    Commitment Fee” has the meaning specified in Section 2.04(a).
39    Commitment Increase” has the meaning specified in Section 2.20(a).
40    Communications” has the meaning specified in Section 8.02(c).
41    Company Material Adverse Effect” means with respect to the Acquired Business, any fact, circumstance, occurrence, event, development, change or condition, either individually or together with one or more other contemporaneously existing facts, circumstances, occurrences, events, developments, changes or conditions that is, or would reasonably be expected to be, materially adverse to the business or financial condition of the Acquired Business and the Company Subsidiaries (as defined in the Merger Agreement) considered collectively as a single enterprise; provided, however, that any such fact, circumstance, occurrence, event, development, change or condition (or combination thereof) shall not be considered in determining whether a Company Material Adverse Effect has occurred to the extent it results from (a) a change in Law (as defined in the Merger Agreement), or GAAP or interpretations thereof, (b) general economic, market, oilfield services industry, or political conditions (including acts of terrorism or war or other force majeure events), (c) any change in the Acquired Business’s stock price, trading volume or credit rating (unless due to a circumstance which would separately constitute a Company Material Adverse Effect), (d) the announcement or pendency of the Merger Agreement, any actions taken in compliance with the Merger Agreement or the consummation of the Acquisition, (e) acts of God, earthquakes or similar catastrophes, any weather related event or any outbreak of illness or other public health event, or (f) the failure of the Acquired Business to meet internal or analysts’ expectations, projections or budgets (unless due to a circumstance which would separately constitute a Company Material Adverse Effect); provided, however, that any fact, circumstance, occurrence, effect, development, change or condition referred to in clauses (a), (b) or (e) shall be taken into account for purposes of determining whether a Company Material Adverse Effect has occurred to the extent, but only to the extent, such fact, circumstance, occurrence, effect, development, change or condition adversely affects the Acquired Business in a disproportionate manner as compared to other participants in the oilfield services industry.
42    Consolidated Net Worth” means at any time the consolidated stockholders’ equity of the Borrower and its consolidated subsidiaries calculated on a consolidated basis as of such time (excluding treasury stock), determined in accordance with GAAP.
43    Convert”, “Conversion” and “Converted” each refers to a conversion of Revolving Credit Advances of one Type into Revolving Credit Advances of the other Type pursuant to Section 2.09, 2.15 or 2.16.
44    Deemed Public Information” has the meaning specified in Section 8.02(c).
45    Default” means any event or condition which with notice or lapse of time or both would, unless cured or waived, become an Event of Default.
46    Defaulting Bank” means, subject to Section 2.24(c), (i) any Bank that has failed for two or more Business Days to comply with its obligations under this Agreement to make an Advance, make a payment to an Issuing Bank in respect of a Letter of Credit Advance, make a payment to the Swingline Bank in respect of a Swingline Advance or make any other payment due hereunder (each, a “funding obligation”), unless such Bank has notified the Agent and the Borrower in writing that such failure is the result of such Bank’s good faith determination that one or more conditions precedent to funding has not been satisfied (which conditions precedent, together with the applicable default, if any, will be specifically identified in such writing), (ii) any Bank that has notified the Agent, the Borrower, an Issuing Bank or the Swingline Bank in writing, or has stated publicly, that it does not intend to comply with its funding obligations hereunder, unless such writing or statement states that such position is based on such Bank’s good faith determination that one or more conditions precedent to funding cannot be satisfied (which conditions precedent, together with the applicable default, if any, will be specifically identified in such writing or public statement), (iii) any Bank that has, for three or more Business Days after written request of the Agent or the Borrower, failed to confirm in writing to the Agent and the Borrower that it will comply with its prospective funding obligations hereunder (provided that such Bank will cease to be a Defaulting Bank pursuant to this clause (iii) upon the Agent’s and the Borrower’s receipt of such written confirmation), or (iv) any Bank with respect to which a Bank Insolvency Event has occurred and is continuing with respect to such Bank or its Parent Company (provided, in each case, that neither the reallocation of funding obligations provided for in Section 2.24(a) as a result of a Bank being a Defaulting Bank nor the performance by Non-Defaulting Banks of such reallocated funding obligations will by themselves cause the relevant Defaulting Bank to become a Non-Defaulting Bank). Any determination by the Agent that a Bank is a Defaulting Bank under any of clauses (i) through (iv) above will be conclusive and binding absent manifest error, and such Bank will be deemed to be a Defaulting Bank (subject to Section 2.24(c)) upon notification of such determination by the Agent to the Borrower, the Issuing Banks, the Swingline Bank and the Banks.
47    Defaulting Bank Exposure” means the sum of such Defaulting Bank’s Pro Rata Share of (a) the aggregate Available Amount of all Letters of Credit outstanding at such time, (b) the aggregate principal amount of all Letter of Credit Advances made by the Issuing Banks pursuant to Section 2.03(c) and outstanding at such time and (c) the aggregate principal amount of all Swingline Advances made by the Swingline Bank pursuant to Section 2.01(c) and outstanding at such time.
48    Designated Jurisdiction” means any country or territory to the extent that such country or territory itself is the subject of any Sanction that broadly prohibits trade or investment with that country or territory (as of the date of this Agreement, Crimea, Cuba, Iran, North Korea, Sudan and Syria).
49    Dollar Equivalent” means, on any date, (a) in relation to an amount denominated in a currency other than Dollars, the equivalent in Dollars determined by using the quoted spot rate at which Citi’s principal office in London offers to exchange Dollars for such currency in London prior to 4:00 P.M. (London time) on such date and (b) in relation to an amount denominated in Dollars, such amount.
50    Dollars” and “$” mean lawful money of the United States of America.
51    Domestic Lending Office” means, with respect to any Bank, the office of such Bank specified as its “Domestic Lending Office” as on file with the Agent or in the Assignment and Acceptance pursuant to which it became a Bank, or such other office of such Bank as such Bank may from time to time specify to the Borrower and the Agent.
52    Early Maturity Date” has the meaning specified in Section 2.23(a).
53    Effective Date” has the meaning specified in Section 3.01.
54    Eligible Assignee” means, with the consent of the Agent, the Issuing Banks and the Swingline Bank (which consents shall not be unreasonably withheld or delayed) and, so long as no Event of Default under Section 6.01(a) or 6.01(e) shall have occurred and be continuing, the Borrower (which consent shall not be unreasonably withheld or delayed) (a) any Bank, (b) any Affiliate of any Bank and (c) any other Person not covered by clause (a) or (b) of this definition; provided, however, that no assignment shall be made to (i) the Borrower or any Affiliate of the Borrower, (ii) to any Defaulting Bank, any Potential Defaulting Bank or any of their respective Subsidiaries, or any Person who, upon becoming a Bank hereunder, would constitute any of the foregoing Persons described in this clause (ii), or (iii) to a natural person; and provided further that the Borrower shall be deemed to have consented to any such assignment unless it shall object thereto by written notice to the Agent within five (5) Business Days after having received notice thereof.
55    Equity Interests” means, with respect to any Person, shares of capital stock of (or other ownership or profit interests in) such Person, warrants, options or other rights for the purchase or other acquisition from such Person of shares of capital stock of (or other ownership or profit interests in) such Person, securities convertible into or exchangeable for shares of capital stock of (or other ownership or profit interests in) such Person or warrants, rights or options for the purchase or other acquisition from such Person of such shares (or such other interests), and other ownership or profit interests in such Person (including, without limitation, partnership, member or trust interests therein), whether voting or nonvoting, and whether or not such shares, warrants, options, rights or other interests are authorized or otherwise existing on any date of determination.
56    ERISA” means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations promulgated and rulings issued thereunder, in each case as now or hereafter in effect, and any reference to any statutory provision shall be deemed to be a reference to any successor provision or provisions.
57    ERISA Affiliate” means any Person that for purposes of Title IV of ERISA is a member of the Borrower’s controlled group, or under common control with the Borrower, within the meaning of Section 414(a) or (b) of the Code, and, for purposes of Section 412 of the Code, Section 414(m) of the Code.
58    ERISA Event” means (a) (i) the occurrence of a reportable event, within the meaning of Section 4043 of ERISA, with respect to any Plan unless the 30‑day notice requirement with respect to such event has been waived by the PBGC, or (ii) the requirements of subsection (1) of Section 4043(b) of ERISA (without regard to subsection (2) of such Section) are met with respect to a contributing sponsor, as defined in Section 4001(a)(13) of ERISA, of a Plan, and an event described in paragraph (9), (10), (11), (12) or (13) of Section 4043(c) of ERISA is reasonably expected to occur with respect to such Plan within the following 30 days; (b) the application for a minimum funding waiver with respect to a Plan; (c) the provision by the administrator of any Plan of a notice of intent to terminate such Plan pursuant to Section 4041(a)(2) of ERISA (including any such notice with respect to a plan amendment referred to in Section 4041(e) of ERISA); (d) the cessation of operations at a facility of the Borrower or any ERISA Affiliate in the circumstances described in Section 4062(e) of ERISA; (e) the withdrawal by the Borrower or any ERISA Affiliate from a Multiple Employer Plan during a plan year for which it was a substantial employer, as defined in Section 4001(a)(2) of ERISA; (f) the conditions for the imposition of a lien under Section 303(k) of ERISA (or Section 302(f) of ERISA, for plan years beginning prior to 2007) shall have been met with respect to any Plan; or (g) the institution by the PBGC of proceedings to terminate a Plan pursuant to Section 4042 of ERISA, or the occurrence of any event or condition described in Section 4042 of ERISA that constitutes grounds for the termination of, or the appointment of a trustee to administer, a Plan.
59    Eurocurrency Liabilities” has the meaning assigned to that term in Regulation D of the Federal Reserve Board, as in effect from time to time.
60    Eurodollar Lending Office” means, with respect to any Bank, the office of such Bank specified as its “Eurodollar Lending Office” as on file with the Agent or in the Assignment and Acceptance pursuant to which it became a Bank (or, if no such office is specified, its Domestic Lending Office), or such other office of such Bank as such Bank may from time to time specify to the Borrower and the Agent.
61    Eurodollar Rate” means, for any Interest Period for each Eurodollar Rate Advance comprising part of the same Borrowing, the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) equal to the London Interbank Offered Rate or a comparable or successor rate which rate is approved by the Agent, determined by reference to the ICE Benchmark Administration (“ICE”) (or the successor thereto) appearing at Reuters Reference LIBOR01 page (or on any successor thereto or substitute therefor provided by Reuters, providing rate quotations comparable to those currently provided on such page, as determined by the Agent from time to time, for purposes of providing quotations of interest rates applicable to Dollar deposits in the London interbank market) at 11:00 A.M. (London time) two Business Days before the first day of such Interest Period as the rate for Dollar deposits for a period equal to such Interest Period (provided that, if for any reason the rate specified above in this definition does not so appear at Reuters Reference LIBOR01 page (or any successor thereto or substitute therefor provided by Reuters) as the rate for Dollar deposits, the term “Eurodollar Rate” shall mean, for any Interest Period for all Eurodollar Rate Advances comprising part of the same Borrowing, an interest rate per annum (rounded upward to the nearest whole multiple of 1/100 of 1% per annum, if such rate per annum is not such a multiple) equal to the rate per annum as published by such other commercially available source providing such quotations as may be designated by the Agent from time to time in its reasonable discretion and that has been nominated by ICE or its successor as an authorized information vendor for the purpose of displaying such rates at 11:00 A.M. (London time) two Business Days before the first day of such Interest Period for a period equal to such Interest Period). Notwithstanding the foregoing, if the Eurodollar Rate shall be less than zero, such rate shall be deemed to be zero for purposes of this Agreement.
62    Eurodollar Rate Advance” means an Advance which bears interest as provided in Section 2.07(b).
63    Eurodollar Rate Reserve Percentage” of any Bank for any Interest Period for all Eurodollar Rate Advances comprising part of the same Borrowing means the reserve percentage applicable during such Interest Period (or if more than one such percentage shall be so applicable, the daily average of such percentages for those days in such Interest Period during which any such percentage shall be so applicable) under regulations issued from time to time by the Federal Reserve Board for determining the maximum reserve requirement (including, without limitation, any emergency, supplemental or other marginal reserve requirement) for such Bank with respect to liabilities or assets consisting of or including Eurocurrency Liabilities having a term equal to such Interest Period.
64    Events of Default” has the meaning specified in Section 6.01.
65    Excluded Taxes” has the meaning specified in Section 2.13(a).
66    Exercising Bank” has the meaning specified in Section 2.23(b).
67    Existing Agreement” means the Five Year Revolving Credit Agreement dated as of February 22, 2011 among the Borrower, the lenders party thereto and Citibank, N.A., as agent, as amended by that certain First Amendment to Five Year Revolving Credit Agreement dated as of April 23, 2013.
68    Existing Letters of Credit” means the letters of credit issued under the Existing Agreement and set forth on Schedule 1.01(a).
69    Extending Banks” has the meaning specified in Section 2.22(a).
70    Extension Request Notice” has the meaning specified in Section 2.22(a).
71    FATCA” means Sections 1471 through 1474 of the Code, as of the date of this Agreement (or any amended or successor version that is substantively comparable and not materially more onerous to comply with), any current or future regulations or official interpretations thereof, any agreement entered into pursuant to Section 1471(b)(1) of the Code, any intergovernmental agreements entered into in connection with the implementation of such Sections of the Code and any fiscal or regulatory legislation, rules or practices adopted pursuant to such intergovernmental agreements.
72    Federal Funds Rate” means, for any day, a fluctuating interest rate per annum equal for such day to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day that is a Business Day, the average of the quotations for such day on such transactions received by the Agent from three Federal funds brokers of recognized standing selected by it.
73    Federal Reserve Board” means the Board of Governors of the Federal Reserve System or any successor thereof.
74    Financial Statements” means the consolidated balance sheet and other financial statements of the Borrower and its consolidated subsidiaries dated December 31, 2014 included in the Borrower’s Form 10‑K filed with the SEC for the fiscal year ended December 31, 2014.
75    Foreign Currency” means any lawful currency (other than Dollars) that is freely transferable and convertible into Dollars.
76    GAAP” means generally accepted accounting principles in the United States of America.
77    Increase Date” has the meaning specified in Section 2.20(a).
78    Increasing Lender” has the meaning specified in Section 2.20(b).
79    Indebtedness” means, for any Person, (a) its liabilities for borrowed money or the deferred purchase price of property or services (other than current accounts and salaries payable or accrued in the ordinary course of business), (b) obligations of such Person for borrowed money evidenced by bonds, debentures, notes or other similar instruments, (c) all Indebtedness of others the payment, purchase or other acquisition or obligation of which such Person has assumed, or the payment, purchase or other acquisition or obligation of which such Person has otherwise become directly or contingently liable for and (d) leases of such Person required to be capitalized by such Person, each determined in accordance with GAAP, provided that for the avoidance of doubt, Indebtedness shall not include obligations under letter of credit reimbursement agreements so long as letters of credit issued thereunder remain undrawn.
80    Indemnified Costs” has the meaning specified in Section 7.07.
81    Indemnified Person” has the meaning specified in Section 8.04(c).
82    Initial Extension of Credit” means the earlier to occur of the initial Revolving Credit Borrowing and the initial issuance of a Letter of Credit hereunder.
83    Interest Period” means, for each Eurodollar Rate Advance comprising part of the same Borrowing, the period commencing on the date of such Eurodollar Rate Advance or the date of the Conversion of any Base Rate Advance into such Eurodollar Rate Advance and ending on the last day of the period selected by the Borrower pursuant to the provisions below and, thereafter, with respect to Eurodollar Rate Advances, each subsequent period commencing on the last day of the immediately preceding Interest Period and ending on the last day of the period selected by the Borrower pursuant to the provisions below. The duration of each such Interest Period shall be one, two, three or six months (or such other period as the Borrower and each of the Banks may agree to), in each case as the Borrower may, upon notice received by the Agent not later than 11:00 A.M. (New York City time) on the third Business Day prior to the first day of such Interest Period (or, as to any Interest Period, at such other time as the Borrower and the Banks may agree to for such Interest Period), select; provided, however, that:
(i)    Interest Periods commencing on the same date for Advances comprising part of the same Borrowing shall be of the same duration;
(ii)    (whenever the last day of any Interest Period would otherwise occur on a day other than a Business Day, the last day of such Interest Period shall be extended to occur on the next succeeding Business Day, provided that if such extension would cause the last day of such Interest Period to occur in the next following calendar month, the last day of such Interest Period shall occur on the next preceding Business Day;
(iii)    any Interest Period which begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of the calendar month in which it would have ended if there were a numerically corresponding day in such calendar month; and
(iv)    the Borrower may not select an Interest Period for any Advance if the last day of such Interest Period would be later than the date on which the Advances are then payable in full or if any Event of Default under Section 6.01(a) or Section 6.01(e) shall have occurred and be continuing at the time of selection.
84    Issuing Bank” means (a) each of Citi, HSBC Bank USA, N.A., Mizuho Bank, Ltd., Deutsche Bank AG New York Branch, JPMorgan Chase Bank, N.A. and Bank of America, N.A. and any of their respective Affiliates, in their capacities as initial issuing banks, (b) any Eligible Assignee to which a Letter of Credit Commitment has been assigned pursuant to Section 8.08(f) so long as each such Eligible Assignee expressly agrees to perform in accordance with their terms all the obligations that by the terms of this Agreement are required to be performed by it as an Issuing Bank and notifies the Agent of its Applicable Lending Office and the amount of its Letter of Credit Commitment (which information shall be recorded by the Agent in the Register), and (c) each New Issuing Bank, in each case for so long as such initial Issuing Bank, Eligible Assignee or New Issuing Bank, as the case may be, shall have a Letter of Credit Commitment.
85    Joint Lead Arrangers” means Citigroup Global Markets Inc., HSBC Securities (USA) Inc., Mizuho Bank, Ltd., Deutsche Bank Securities Inc., J.P. Morgan Securities LLC and Merrill Lynch, Pierce, Fenner & Smith Incorporated.
86    Joint Venture Debt” has the meaning specified in Section 5.02(a)(vii).
87    JV Subsidiary” means each Subsidiary of the Borrower (a) that, at any time, directly holds an Equity Interest in any joint venture that is not a Subsidiary of the Borrower and (b) that has no other material assets.
88    L/C Related Documents” has the meaning specified in Section 2.06(b)(ii)(A).
89    Letter of Credit” has the meaning set forth in Section 2.01(b).
90    Letter of Credit Advance” means an Advance made by any Issuing Bank or any Bank pursuant to Section 2.03(c).
91    Letter of Credit Commitment” of any Issuing Bank means, at any time, the amount set forth opposite such Issuing Bank’s name on Schedule I under the heading “Letter of Credit Commitments” or as set forth in the New Issuing Bank Agreement for such Issuing Bank or as reflected for such Issuing Bank in the relevant Assignment and Acceptance to which it is a party, as such amount may be terminated, reduced or increased pursuant to Section 2.05, Section 2.23, Section 6.01 or Section 8.08 or increased pursuant to agreement between the Borrower and such Issuing Bank with the consent of the Agent (which consent shall not be unreasonably withheld).
92    Lien” means any lien, security interest or other charge or encumbrance of any kind, or any other type of preferential arrangement, including, without limitation, the lien or retained security title of a conditional vendor, a statutory deemed trust and any easement, right of way or other encumbrance on title to real property; provided, however, that for the avoidance of doubt, the interest of a Person as owner or lessor under charters or leases of property and the rights of setoff of banks shall not constitute a “Lien” on or in respect of the relevant property.
93    Loan Documents” means this Agreement and the Notes.
94    Material Adverse Effect” means a material adverse effect on (a) the business, condition (financial or otherwise), operations, performance or properties of the Borrower and its Subsidiaries, taken as a whole, (b) the rights and remedies of the Agent or any Bank under any Loan Document or (c) the ability of the Borrower to perform its Obligations under any Loan Document to which it is or is to be a party.
95    Merger Agreement” means that certain Agreement and Plan of Merger, dated as of November 16, 2014, among the Borrower, Red Tiger LLC, and the Acquired Business (together with the schedules and exhibits thereto).
96    Moody’s” means Moody’s Investors Service, Inc. or any successor to its debt ratings business.
97    Multiemployer Plan” means any multiemployer plan, as defined in Section 4001(a)(3) of ERISA, which is maintained by (or to which there is an obligation to contribute of) the Borrower or any ERISA Affiliate.
98    Multiple Employer Plan” means a single employer plan, as defined in Section 4001(a)(15) of ERISA, that (a) is maintained for employees of the Borrower or any ERISA Affiliate and at least one Person other than the Borrower and the ERISA Affiliates or (b) was so maintained and in respect of which the Borrower or any ERISA Affiliate could have liability under Section 4064 or 4069 of ERISA in the event such plan has been or were to be terminated.
99    New Issuing Bank” means any Person that becomes an Issuing Bank pursuant to Section 2.21.
100    New Issuing Bank Agreement” means an agreement between the Borrower and a Person that becomes a New Issuing Bank pursuant to such agreement in accordance with Section 2.21.
101    Non-Defaulting Bank” means, at any time, a Bank that is not a Defaulting Bank or a Potential Defaulting Bank.
102    Non-Extending Bank” has the meaning specified in Section 2.22(a).
103    Note” means a Revolving Note or a Swingline Note.
104    Notice” has the meaning specified in Section 8.02(d).
105    Notice of Issuance and Application for Letter of Credit” has the meaning specified in Section 2.03(a).
106    Notice of Revolving Credit Borrowing” has the meaning specified in Section 2.02(a).
107    Notice of Swingline Advance” has the meaning specified in Section 2.01(c)(ii).
108    Obligation” means, with respect to any Person, any payment, performance or other obligation of such Person of any kind, including, without limitation, any liability of such Person on any claim, whether or not the right of any creditor to payment in respect of such claim is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, disputed, undisputed, legal, equitable, secured or unsecured, and whether or not such claim is discharged, stayed or otherwise affected by any proceeding referred to in Section 6.01(e). Without limiting the generality of the foregoing, the Obligations of the Borrower under the Loan Documents include (a) the obligation to pay principal, interest, Letter of Credit commissions, charges, expenses, fees, attorneys’ fees and disbursements, indemnities and other amounts payable by the Borrower under any Loan Document and (b) the obligation of the Borrower to reimburse any amount in respect of any of the foregoing that any Bank, in its sole discretion, may elect to pay or advance on behalf of the Borrower.
109    OFAC” means the Office of Foreign Assets Control of the United States Department of the Treasury.
110    Other Connection Taxes” means, with respect to the Agent or any Bank, Taxes imposed as a result of a present or former connection between the Agent or such Bank and the jurisdiction imposing such Tax (other than connections arising from the Agent or such Bank having executed, delivered, become a party to, performed its obligations under, received payments under, received or perfected a security interest under, engaged in any other transaction pursuant to or enforced any Loan Document, or sold or assigned an interest in any Advance or Loan Document).
111    Other Taxes” has the meaning specified in Section 2.13(b).
112    Outside Date” means the Termination Date (as defined in the Merger Agreement), subject to automatic extension, without further action by or consent of any parties hereto, to a date no later than April 30, 2016 to the extent such Termination Date is extended or deemed extended pursuant to the terms of the Merger Agreement.
113    Parent Company” means, with respect to a Bank, the bank holding company (as defined in Federal Reserve Board Regulation Y), if any, of such Bank, and/or any Person owning, beneficially or of record, directly or indirectly, a majority of the shares of such Bank.
114    Participant” has the meaning specified in Section 8.08(e).
115    Participant Register” has the meaning specified in Section 8.08(e).
116    Patriot Act” means the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, Pub. L. 107‑56, signed into law October 26, 2001, as amended.
117    PBGC” means the Pension Benefit Guaranty Corporation or any successor thereto.
118    Performance Letter of Credit” means a letter of credit qualifying as a “performance-based standby letter of credit” under 12 C.F.R. Part 3, Appendix A, Section 3(b)(2)(i) or any successor U.S. Comptroller of the Currency regulation.
119    Permitted Non-Recourse Indebtedness” means Indebtedness and other obligations of the Borrower or any Subsidiary incurred in connection with the acquisition, lease, repair, improvement, construction, development or operation by the Borrower or such Subsidiary of any Property with respect to which:
(a)    the documents evidencing such Indebtedness or other obligations provide that holders of such Indebtedness shall have recourse solely to the type of Property described in Section 5.02(a)(iii) securing such Indebtedness, and neither the Borrower nor any Subsidiary (i) provides any direct or indirect credit support, including any undertaking, agreement or instrument that would constitute Indebtedness or (ii) is otherwise directly or indirectly liable for such Indebtedness, other than (A) recourse to any Project Finance Subsidiary generally and recourse to the Property of, and Equity Interests in, such Project Finance Subsidiary, including the income, cash flow or other proceeds deriving from such Property to secure such Indebtedness or other obligations, and (B) recourse to the debtor and indirectly to any Affiliate of the debtor, under any form of assurance, undertaking or support, which recourse is limited to a claim for a breach of an obligation (other than a payment obligation or an obligation to comply or to procure compliance by another Person with any financial ratios or other tests of financial condition), fraud, misappropriation of funds or willful misconduct by the Person against which such recourse is available; and
(b)    no default with respect to such Indebtedness or obligations would cause, or permit (after notice or passage of time or otherwise), according to the terms thereof, any holder (or any representative of such holder) of any other Indebtedness of the Borrower or such Subsidiary to declare a default on such Indebtedness or cause the payment, repurchase, redemption, defeasance or other acquisition or retirement for value thereof to be accelerated or payable prior to any scheduled principal payment, scheduled sinking fund or scheduled maturity.
120    Person” means an individual, partnership, corporation (including a business trust), joint stock company, trust, unincorporated association, joint venture, limited liability company or other entity, or a government or any political subdivision or agency thereof or any trustee, receiver, custodian or similar official.
121    Plan” means a Single Employer Plan or a Multiple Employer Plan.
122    Platform” has the meaning specified in Section 8.02(c).
123    Potential Defaulting Bank” means, at any time, (a) any Bank that has notified, or whose Parent Company or a financial institution