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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, 2016

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 25, 2016, there were 861,102,509 shares of Halliburton Company common stock, $2.50 par value per share, 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
2016
2015
2016
2015
Revenue:
 
 
 
 
Services
$
2,640

$
4,271

$
5,625

$
9,461

Product sales
1,195

1,648

2,408

3,508

Total revenue
3,835

5,919

8,033

12,969

Operating costs and expenses:
 

 

 

 

Cost of services
2,777

3,971

5,733

8,794

Cost of sales
955

1,262

1,924

2,724

Baker Hughes related costs and termination fee
3,519

83

4,057

122

Impairments and other charges
423

306

3,189

1,514

General and administrative
41

43

89

109

Total operating costs and expenses
7,715

5,665

14,992

13,263

Operating income (loss)
(3,880
)
254

(6,959
)
(294
)
Interest expense, net of interest income of $10, $4, $20 and $7
(196
)
(106
)
(361
)
(212
)
Other, net
(31
)
(23
)
(78
)
(247
)
Income (loss) from continuing operations before income taxes
(4,107
)
125

(7,398
)
(753
)
Income tax benefit (provision)
902

(71
)
1,777

170

Income (loss) from continuing operations
(3,205
)
54

(5,621
)
(583
)
Loss from discontinued operations, net
—

(1
)
(2
)
(5
)
Net income (loss)
$
(3,205
)
$
53

$
(5,623
)
$
(588
)
Net (income) loss attributable to noncontrolling interest
(3
)
1

3

(1
)
Net income (loss) attributable to company
$
(3,208
)
$
54

$
(5,620
)
$
(589
)
Amounts attributable to company shareholders:
 

 

 

 

Income (loss) from continuing operations
$
(3,208
)
$
55

$
(5,618
)
$
(584
)
Loss from discontinued operations, net
—

(1
)
(2
)
(5
)
Net income (loss) attributable to company
$
(3,208
)
$
54

$
(5,620
)
$
(589
)
Basic income (loss) per share attributable to company shareholders:
 

 

 

 

Income (loss) from continuing operations
$
(3.73
)
$
0.06

$
(6.54
)
$
(0.69
)
Loss from discontinued operations, net
—

—

—

(0.01
)
Net income (loss) per share
$
(3.73
)
$
0.06

$
(6.54
)
$
(0.70
)
Diluted income (loss) per share attributable to company shareholders:
 

 

 

 

Income (loss) from continuing operations
$
(3.73
)
$
0.06

$
(6.54
)
$
(0.69
)
Loss from discontinued operations, net
—

—

—

(0.01
)
Net income (loss) per share
$
(3.73
)
$
0.06

$
(6.54
)
$
(0.70
)
 
 
 
 
 
Cash dividends per share
$
0.18

$
0.18

$
0.36

$
0.36

Basic weighted average common shares outstanding
860

852

859

851

Diluted weighted average common shares outstanding
860

854

859

851

     See notes to condensed consolidated financial statements.
 
 
 
 

1
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
2016
2015
2016
2015
Net income (loss)
$
(3,205
)
$
53

$
(5,623
)
$
(588
)
Other comprehensive income (loss), net of income taxes:
 

 

 

 

Unrealized gain on cash flow hedges
$
—

$
106

$
—

$
106

Other
3

(2
)
2

(5
)
Other comprehensive income, net of income taxes
3

104

2

101

Comprehensive income (loss)
$
(3,202
)
$
157

$
(5,621
)
$
(487
)
Comprehensive (income) loss attributable to noncontrolling interest
(3
)
1

3

(1
)
Comprehensive income (loss) attributable to company shareholders
$
(3,205
)
$
158

$
(5,618
)
$
(488
)
     See notes to condensed consolidated financial statements.
 
 
 
 


2
Table of Contents


HALLIBURTON COMPANY
Condensed Consolidated Balance Sheets
(Unaudited)

Millions of dollars and shares except per share data
June 30,
2016
December 31,
2015
Assets
Current assets:
 
 
Cash and equivalents
$
3,108

$
10,077

Receivables (net of allowances for bad debts of $193 and $145)
4,725

5,317

Inventories
2,650

2,993

Prepaid income taxes
1,099

527

Other current assets
998

1,156

Total current assets
12,580

20,070

Property, plant and equipment (net of accumulated depreciation of $10,847 and $11,576)
8,961

12,117

Goodwill
2,383

2,385

Deferred income taxes
1,856

552

Other assets
1,957

1,818

Total assets
$
27,737

$
36,942

Liabilities and Shareholders’ Equity
Current liabilities:
 

 

Accounts payable
$
1,490

$
2,019

Current maturities of long-term debt
763

659

Accrued employee compensation and benefits
549

862

Liabilities for Macondo well incident
367

400

Other current liabilities
1,309

1,397

Total current liabilities
4,478

5,337

Long-term debt
12,158

14,687

Employee compensation and benefits
449

479

Other liabilities
875

944

Total liabilities
17,960

21,447

Shareholders’ equity:
 

 

Common shares, par value $2.50 per share (authorized 2,000 shares,
issued 1,070 and 1,071 shares)
2,675

2,677

Paid-in capital in excess of par value
253

274

Accumulated other comprehensive loss
(361
)
(363
)
Retained earnings
14,595

20,524

Treasury stock, at cost (210 and 215 shares)
(7,428
)
(7,650
)
Company shareholders’ equity
9,734

15,462

Noncontrolling interest in consolidated subsidiaries
43

33

Total shareholders’ equity
9,777

15,495

Total liabilities and shareholders’ equity
$
27,737

$
36,942

     See notes to condensed consolidated financial statements.
 
 


3
Table of Contents

HALLIBURTON COMPANY
Condensed Consolidated Statements of Cash Flows
(Unaudited)


 
Six Months Ended
June 30
Millions of dollars
2016
2015
Cash flows from operating activities:
 
 
Net loss
$
(5,623
)
$
(588
)
Adjustments to reconcile net loss to cash flows from operating activities:
 

 

Impairments and other charges
3,189

1,514

Deferred income tax benefit, continuing operations
(1,516
)
(523
)
Depreciation, depletion and amortization
742

1,016

Other changes:
 

 

Accounts payable
(510
)
(557
)
Receivables
369

1,540

Inventories
213

(117
)
Other
(667
)
(290
)
Total cash flows provided by (used in) operating activities
(3,803
)
1,995

Cash flows from investing activities:
 

 

Capital expenditures
(447
)
(1,223
)
Proceeds from sales of property, plant and equipment
114

83

Other investing activities
(60
)
(95
)
Total cash flows used in investing activities
(393
)
(1,235
)
Cash flows from financing activities:
 

 

Payments on long-term borrowings
(2,525
)
(8
)
Dividends to shareholders
(309
)
(306
)
Other financing activities
102

71

Total cash flows used in financing activities
(2,732
)
(243
)
Effect of exchange rate changes on cash
(41
)
(48
)
Increase (decrease) in cash and equivalents
(6,969
)
469

Cash and equivalents at beginning of period
10,077

2,291

Cash and equivalents at end of period
$
3,108

$
2,760

Supplemental disclosure of cash flow information:
 

 

Cash payments during the period for:
 

 

Interest
$
344

$
191

Income taxes
$
280

$
330

     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 2015 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, 2016, the results of our operations for the three and six months ended June 30, 2016 and 2015, and our cash flows for the six months ended June 30, 2016 and 2015. 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, 2016 may not be indicative of results for the full year.

Note 2. Acquisitions and Dispositions
    
Termination of Baker Hughes acquisition
In November 2014, we entered into a merger agreement with Baker Hughes to acquire all outstanding shares of Baker Hughes in a stock and cash transaction. On April 30, 2016, we and Baker Hughes mutually terminated our merger agreement primarily because of the challenges in obtaining remaining regulatory approvals and general industry conditions that severely damaged deal economics.

In April 2015, we had announced our decision to market for sale our Fixed Cutter and Roller Cone Drill Bits, our Directional Drilling, and our Logging-While-Drilling/Measurement-While-Drilling businesses in connection with the anticipated Baker Hughes transaction. Accordingly, beginning in April 2015, the assets and liabilities for these businesses, which are included within our Drilling and Evaluation operating segment, were classified as held for sale and the corresponding depreciation and amortization expense ceased at that time. Since our proposed divestitures no longer met the assets held for sale accounting criteria at March 31, 2016, we reclassified these businesses to assets held and used in the accompanying condensed consolidated balance sheets for both periods presented. We recorded corresponding charges during the first quarter of 2016 totaling $464 million within "Baker Hughes related costs and termination fee" in our condensed consolidated statements of operations, which included $329 million of accumulated unrecognized depreciation and amortization expense for these businesses during the period the associated assets were classified as held for sale, including the first quarter of 2016, along with $135 million of capitalized and other divestiture-related costs incurred during the first quarter. Beginning April 1, 2016, all depreciation and amortization expense associated with these businesses were included in operating costs and expenses on our condensed consolidated statements of operations.

In conjunction with the termination of our merger agreement, we paid Baker Hughes a termination fee of $3.5 billion in May 2016 and recognized this expense during the second quarter. The termination also triggered a mandatory redemption of $2.5 billion of the senior notes we had issued in November 2015 in contemplation of the transaction. We redeemed those notes in May 2016 using cash on hand at a price of 101% of their principal amount, plus accrued and unpaid interest. The notes redeemed included the $1.25 billion of 2.7% senior notes due in 2020 and $1.25 billion of 3.375% senior notes due in 2022. The redemption resulted in $41 million of fees and associated expenses included in interest expense on our condensed consolidated statements of operations for the second quarter of 2016.


5
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 at least annually, and more frequently 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.

Market conditions continued to negatively impact our business in the second quarter of 2016. The average rig count continued to decline in the second quarter, in the face of continued depressed commodity prices, which created further widespread pricing pressure and activity reductions for our products and services on a global basis. As a result of these conditions and their corresponding impact on our business outlook, during the three and six months ended June 30, 2016, 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. We assessed the fair value of our long-lived assets based on a discounted cash flow analysis, which required the use of significant unobservable inputs such as management’s short-term and long-term forecast of operating performance, including revenue growth rates and expected profitability margins, and a discount rate based on our weighted average cost of capital.

Over the last four years, we have been systematically converting our pressure pumping fleet in North America over to the Frac of the Future design. As such, we impaired or wrote off a large portion of our older equipment, primarily during the first quarter of 2016. Additionally, current market conditions required us to take other actions to reduce some of our infrastructure and further reduce our global workforce in an effort to mitigate the impact of the industry downturn and better align our workforce with anticipated activity levels in the near-term. This resulted in a headcount reduction of another 5,000 during the second quarter of 2016, bringing our total reduction for the first half of the year to almost 12,000. Severance costs relating to these terminations were recognized during the three and six months ended June 30, 2016. We also determined that the cost of some of our inventory exceeded its market value, resulting in associated write-downs of its carrying value during the three and six months ended June 30, 2016.

We executed a financing agreement with our primary customer in Venezuela during the second quarter of 2016 in an effort to actively manage outstanding receivables in the country, resulting in an exchange of $200 million of outstanding trade receivables for an interest-bearing promissory note. We recorded the note at its fair market value at the date of exchange based on available pricing data points for similar assets in an illiquid market, which resulted in a $148 million pre-tax loss on exchange during the second quarter. For additional information, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Business Environment and Results of Operations.”

As a result of the events described above, we recorded a total of $423 million in impairments and other charges during the second quarter of 2016 and approximately $3.2 billion in such charges during the first six months of 2016, compared to $306 million during the second quarter of 2015 and approximately $1.5 billion during the first six months of 2015. Total impairments and other charges consisted of fixed asset impairments and write-offs, severance costs, impairments of intangible assets, inventory write-downs, country and facility closures, a loss on exchange for the Venezuela promissory note, and other items.




6
Table of Contents

The following table presents various charges we recorded during the three and six months ended June 30, 2016 and 2015 as a result of the downturn in the energy industry and other matters, all of which were recorded within "Impairments and other charges" on our condensed consolidated statements of operations:
 
Three Months Ended
Six Months Ended
Millions of dollars
June 30, 2016
June 30, 2015
June 30, 2016
June 30, 2015
Industry downturn:
 
 
 
 
Severance costs
$
126

$
78

$
261

$
212

Fixed asset impairments
92

177

2,537

494

Inventory write-downs
64

39

130

346

Intangible asset impairments
—

8

87

172

Other
9

—

40

152

Other matters:
 
 
 
 
Venezuela promissory note loss
148

—

148

—

Country closures
—

2

2

77

Other
(16
)
2

(16
)
61

Total impairments and other charges
$
423

$
306

$
3,189

$
1,514



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 within cost of services on our statements of operations, which is part of 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
2016
2015
2016
2015
Revenue:
 
 
 
 
Completion and Production
$
2,114

$
3,444

$
4,438

$
7,690

Drilling and Evaluation
1,721

2,475

3,595

5,279

Total revenue
$
3,835

$
5,919

$
8,033

$
12,969

Operating income (loss):
 
 
 
 
Completion and Production
$
(32
)
$
313

$
(2
)
$
775

Drilling and Evaluation
154

400

395

706

Total operations
122

713

393

1,481

Corporate and other (a)
(3,579
)
(153
)
(4,163
)
(261
)
Impairments and other charges (b)
(423
)
(306
)
(3,189
)
(1,514
)
Total operating income (loss)
$
(3,880
)
$
254

$
(6,959
)
$
(294
)
Interest expense, net of interest income (c)
(196
)
(106
)
(361
)
(212
)
Other, net
(31
)
(23
)
(78
)
(247
)
Income (loss) from continuing operations before income taxes
$
(4,107
)
$
125

$
(7,398
)
$
(753
)
(a) Corporate and other includes certain expenses not attributable to a particular business segment such as costs related to support functions and corporate executives and Baker Hughes-related costs for all periods presented, including the $3.5 billion termination fee recognized during the second quarter of 2016.
(b) Impairments and other charges are as follows:
-For the three months ended June 30, 2016, includes $290 million attributable to Completion and Production, $129 million attributable to Drilling and Evaluation, and $4 million attributable to Corporate and other.
-For the six months ended June 30, 2016, includes $2.0 billion attributable to Completion and Production, $1.1 billion attributable to Drilling and Evaluation, and $8 million attributable to Corporate and other.
-For the three months ended June 30, 2015, 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 six 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.
(c) Includes $41 million of debt redemption fees and associated expenses related to the $2.5 billion of debt mandatorily redeemed during the second quarter of 2016, as well as additional interest resulting from the senior notes issued in late 2015, in the three and six months ended June 30, 2016.

Receivables
As of June 30, 2016, 21% of our gross trade receivables were from customers in the United States and 11% were from customers in Mexico. As of December 31, 2015, 26% of our gross trade receivables were from customers in the United States. Other than the United States, Mexico, and Venezuela, as further discussed below, 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 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, resulting in a foreign currency devaluation loss of $199 million. During the first quarter of 2016, the Venezuelan government created a new exchange rate system, replacing the SIMADI with the DICOM, which is intended to be a free floating system. The DICOM had a market rate of 276 Bolívares per United States dollar at March 31, 2016 and 617 Bolívares per United States dollar at June 30, 2016. We are utilizing the DICOM to remeasure our net monetary assets denominated in Bolívares, and the revised system and continued devaluation did not materially affect our financial statements for the three and six months ended June 30, 2016.     


8
Table of Contents

We have continued to experience delays in collecting payments 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. During the second quarter of 2016, we executed a financing agreement with our primary customer in Venezuela in an effort to actively manage these customer receivables, resulting in an exchange of $200 million of outstanding trade receivables for an interest-bearing promissory note. For additional information about the promissory note exchange and Venezuela currency system, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Business Environment and Results of Operations.”

Subsequent to the promissory note exchange, our total outstanding net trade receivables in Venezuela were $581 million as of June 30, 2016, compared to $704 million as of December 31, 2015, which represents 13% and 14% of total company trade receivables for the respective periods. The majority of our Venezuela receivables are United States dollar-denominated receivables. Of the $581 million of receivables in Venezuela as of June 30, 2016, $134 million have been classified as long-term and included within “Other assets” on our condensed consolidated balance sheets. Of the $704 million of receivables in Venezuela as of December 31, 2015, $175 million have been classified as long-term and included within “Other assets” on our condensed consolidated balance sheets. As a result of current conditions in Venezuela and the continued delays in collecting payments on our receivables in the country, we began curtailing activity in Venezuela during the first quarter of 2016.

Note 5. Income Taxes

During the three months ended June 30, 2016, we recorded a total income tax benefit of $902 million on pre-tax losses of $4.1 billion, resulting in an effective tax rate of 22.0%. The primary items impacting our effective tax rate during this period were as follows:
- $390 million of deferred tax expenses on approximately $3.3 billion of cumulative undistributed foreign earnings. As a result of the payment of the Baker Hughes termination fee and the general market conditions, we reviewed the financial requirements of our U.S. companies and our foreign subsidiaries during the second quarter of 2016, together with the overall capital structure of the global organization. As a result of this review, we concluded that we no longer intend to permanently reinvest a portion of our cumulative undistributed foreign earnings outside of the United States and recorded corresponding U.S. federal income tax expenses during the second quarter;
- $96 million of tax expenses associated with our inability to utilize certain domestic manufacturing deductions as a result of the carryback of net operating losses to prior tax periods;
- tax effects of the $423 million of impairments and other charges recorded during the second quarter of 2016, some of which are taxed at lower income tax rates in certain foreign jurisdictions; and
- second quarter taxable losses recognized in our United States operations in which we recorded tax benefits at the U.S. statutory rate, offset by second quarter taxable income in our foreign operations in which the corresponding tax expenses are applied at lower income tax rates in certain foreign jurisdictions.

Note 6. 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 $110 million as of June 30, 2016 and $138 million as of December 31, 2015. If the average cost method had been used, total inventories would have been $18 million higher than reported as of both June 30, 2016 and December 31, 2015. The cost of the remaining inventory was recorded using the average cost method. Inventories consisted of the following:
Millions of dollars
June 30,
2016
December 31,
2015
Finished products and parts
$
1,662

$
1,992

Raw materials and supplies
885

879

Work in process
103

122

Total
$
2,650

$
2,993


As a result of the continued downturn in the oil and gas industry and its corresponding impact on our business outlook, we recorded inventory write-downs as the cost of some of our inventory exceeded its market value. See Note 3 for further information about impairments and other charges.


9
Table of Contents

Finished products and parts are reported net of obsolescence reserves of $247 million as of June 30, 2016 and $251 million as of December 31, 2015.

Note 7. 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, 2015
$
15,495

$
15,462

$
33

Payments of dividends to shareholders
(309
)
(309
)
—

Stock plans
244

244

—

Other
(32
)
(45
)
13

Comprehensive loss
(5,621
)
(5,618
)
(3
)
Balance at June 30, 2016
$
9,777

$
9,734

$
43

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


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, 2016. From the inception of this program in February 2006 through June 30, 2016, we repurchased approximately 201 million shares of our common stock for a total cost of approximately $8.4 billion. There were no repurchases made under the program during the six months ended June 30, 2016.
        
Accumulated other comprehensive loss consisted of the following:
Millions of dollars
June 30,
2016
December 31,
2015
Defined benefit and other postretirement liability adjustments
$
(220
)
$
(221
)
Cumulative translation adjustments
(79
)
(78
)
Other
(62
)
(64
)
Total accumulated other comprehensive loss
$
(361
)
$
(363
)

Note 8. 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

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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. The Court has issued a preliminary approval, with the hearing for the final approval set for November 2016. 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 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. During the second quarter of 2016, we made a legal fees payment of $33 million in accordance with our MDL Settlement. Accordingly, as of June 30, 2016, our remaining loss contingency liability related to the Macondo well incident was $439 million, consisting of a current portion of $367 million related to our MDL Settlement and a non-current portion of $72 million unrelated to that settlement. Our loss contingency liability has not been reduced for potential recoveries from our insurers. See below for information regarding amounts that we could potentially recover from insurance.

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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. Through June 30, 2016, we have incurred approximately $1.5 billion of expenses related to the MDL Settlement, legal fees, and other settlement-related costs, of which $409 million has been reimbursed or is expected to be reimbursed under our insurance program. Some of the insurance carriers that issued policies covering the final layer of insurance coverage relating to the Macondo well incident notified us that they would not reimburse us with respect to our MDL Settlement; however, we have settled with several of them and those settlement recoveries are included in the $409 million discussed above. We have initiated arbitration proceedings to pursue recovery of the remaining balance of approximately $100 million. Due to the uncertainty surrounding such recovery, no related amounts have been recognized in the condensed consolidated financial statements as of June 30, 2016.

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.

In September 2007, the Fund filed a motion for class certification, and our response was filed in November 2007. The district court 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.


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In December 2014, the district court held a hearing to consider whether there was an impact on our stock price from the alleged misrepresentations. On July 27, 2015, the district court denied certification for the plaintiff class with respect to five of the six dates upon which the plaintiffs claimed that disclosures correcting previously misleading statements had been made that resulted in an impact to the stock price. However, the district court certified the class with respect to a disclosure made on December 7, 2001 regarding an adverse jury verdict in an asbestos case that plaintiffs alleged was corrective. The ruling was based on the district court's conclusion that the court was required to assume at class certification that a disclosure was actually corrective. We do not agree with that conclusion and have filed a petition with the Fifth Circuit seeking to appeal the ruling. The Fifth Circuit accepted our petition. The matter has now been fully briefed and is before the Fifth Circuit for review. The Fifth Circuit has set the matter for oral argument on August 31, 2016. 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 Foreign Corrupt Practices Act (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. Our accrued liabilities for environmental matters were $51 million as of June 30, 2016 and $50 million as of December 31, 2015. 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

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eventually be well in excess of the amount accrued. Our total liability related to environmental matters covers numerous properties.

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, 2016, those eight sites accounted for approximately $4 million of our $51 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 $1.9 billion of letters of credit, bank guarantees, or surety bonds were outstanding as of June 30, 2016. Some of the outstanding letters of credit have triggering events that would entitle a bank to require cash collateralization.

Note 9. 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. Antidilutive securities represent potentially dilutive securities which are excluded from the computation of diluted income or loss per share as their impact would be antidilutive.

A reconciliation of the number of shares used for the basic and diluted income per share computations is as follows:
 
Three Months Ended
June 30
Six Months Ended
June 30
Millions of shares
2016
2015
2016
2015
Basic weighted average common shares outstanding
860

852

859

851

Dilutive effect of awards granted under our stock incentive plans
—

2

—

—

Diluted weighted average common shares outstanding
860

854

859

851

 
 
 
 
 
Antidilutive shares:
 
 
 
 
Options with exercise price greater than the average market price
11

5

14

7

Options which ordinarily would be considered dilutive if not for being in net loss position
2

—

1

2

Total antidilutive shares
13

5

15

9


Note 10. Fair Value of Financial Instruments

At June 30, 2016, we held $101 million of investments in fixed income securities with maturities ranging from less than one year to May 2019, of which $63 million are classified as “Other current assets” and $38 million are classified as “Other assets” on our condensed consolidated balance sheets. At December 31, 2015, we held $96 million of investments in fixed income securities, of which $63 million are classified as “Other current assets” and $33 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 based on quoted prices for identical assets in less active markets (Level 2).

During the second quarter of 2016, we executed a financing agreement with our primary customer in Venezuela, resulting in an exchange of $200 million of outstanding trade receivables for an interest-bearing promissory note. We recorded the note at its fair market value at the date of exchange, resulting in a $148 million pre-tax loss on exchange. As of June 30, 2016, the fair value of this promissory note was $52 million, which is based on pricing data points for similar assets in an illiquid market (Level 3) and is classified as “Other assets” on our condensed consolidated balance sheets. We intend on holding this note to maturity, in which case the value would be accreted back to its par value, into earnings, using an effective interest method as it matures.


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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 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. 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, 2016 and December 31, 2015. 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).

We have no financial instruments measured at fair value based on quoted prices in active markets (Level 1). 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, including current maturities, is as follows:
 
June 30, 2016
 
December 31, 2015
Millions of dollars
Level 1
Level 2
Total fair value
Carrying value
 
Level 1
Level 2
Total fair value
Carrying value
Long-term debt
$
1,402

$
13,074

$
14,476

$
12,921

 
$
1,009

$
14,947

$
15,956

$
15,346


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).

Note 11. New Accounting Pronouncements
    
Standards adopted in 2016

Consolidation
On January 1, 2016, we adopted an accounting standards update issued by the Financial Accounting Standards Board (FASB) related to the consolidation analysis, which amended the guidelines for determining whether certain legal entities should be consolidated. This update eliminated the presumption that a general partner should consolidate a limited partnership and modified the evaluation of whether limited partnerships are variable interest entities or voting interest entities. The adoption of this update did not materially impact our condensed consolidated financial statements.

Business Combinations
On January 1, 2016, we adopted an accounting standards update issued by the FASB which simplifies the accounting for measurement-period adjustments for an acquirer in a business combination. The update requires an acquirer to recognize any adjustments to provisional amounts of the initial accounting for a business combination with a corresponding adjustment to goodwill in the reporting period in which the adjustments are determined in the measurement period, as opposed to revising prior periods presented in financial statements. Thus, an acquirer shall adjust its financial statements as needed, including recognizing in its current-period earnings the full effect of changes in depreciation, amortization, or other income effects, by line item, if any, as a result of the change to the provisional amounts calculated as if the accounting had been completed at the acquisition date. The adoption of this update did not impact our condensed consolidated financial statements.


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Standards not yet adopted

Revenue Recognition
In May 2014, the 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.

In August 2015, the FASB issued an accounting standards update for a one-year deferral of the revenue recognition standard's effective date for all entities, which changed the effectiveness to annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. 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.

Inventory
In July 2015, the FASB issued an accounting standards update to simplify the measurement of inventory, which requires inventory measured using the first in, first out (FIFO) or average cost methods to be subsequently measured at the lower of cost and net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable cost of completion, disposal and transportation. Currently, these inventory methods are required to be subsequently measured at the lower of cost or market. "Market" could be replacement cost, net realizable value, or net realizable value less an approximately normal profit margin. This update will be effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years, and will be applied prospectively. Early adoption is permitted. We are currently evaluating the impact that this update will have on our consolidated financial statements.

Leases
In February 2016, the FASB issued an accounting standards update related to accounting for leases, which requires the assets and liabilities that arise from leases to be recognized on the balance sheet. Currently only capital leases are recorded on the balance sheet. This update will require the lessee to recognize a lease liability equal to the present value of the lease payments and a right-of-use asset representing its right to use the underlying asset for the lease term for all leases longer than 12 months. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and liabilities and recognize the lease expense for such leases generally on a straight-line basis over the lease term. This update will be effective for fiscal periods beginning after December 15, 2018, including interim periods within that reporting period. Early adoption is permitted. We are currently evaluating the impact that this update will have on our consolidated financial statements.

Stock-Based Compensation
In March 2016, the FASB issued an accounting standards update to simplify several aspects of accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and the classification on the statement of cash flows. In addition, an entity can make an entity-wide accounting policy election to either estimate the number of awards that are expected to vest, which is the current U.S. GAAP practice, or account for forfeitures when they occur.  This update will be effective for fiscal periods beginning after December 15, 2016, including interim periods within that reporting period.  Early adoption is permitted. We are currently evaluating the impact that this update will have on our consolidated financial statements.


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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, intervention, pressure control, specialty chemicals, artificial lift, and completion products and services. The segment consists of Production Enhancement, Cementing, Completion Tools, Production Solutions, Pipeline and Process Services, 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 50,000 employees, we operate in approximately 70 countries around the world, and our corporate headquarters are in Houston, Texas and Dubai, United Arab Emirates.

Termination of Baker Hughes acquisition
In November 2014, we entered into a merger agreement with Baker Hughes to acquire all outstanding shares of Baker Hughes in a stock and cash transaction. On April 30, 2016, primarily because of the challenges in obtaining remaining regulatory approvals and general industry conditions that severely damaged deal economics, we and Baker Hughes mutually terminated our merger agreement. As a result, we paid Baker Hughes a termination fee of $3.5 billion in May 2016 and recognized the tax-deductible expense in the second quarter of 2016. In addition, we mandatorily redeemed $2.5 billion of senior notes during the second quarter of 2016. See Note 2 to the condensed consolidated financial statements and further information.

Financial results
Market conditions continued to negatively impact our business during the second quarter of 2016 marked by lower activity levels and continued pricing pressure around the globe. The North America market continues to face activity and pricing challenges, with the United States land rig count at June 30, 2016 having declined almost 80% from the peak in November 2014, which resulted in our recognition of second quarter operating losses in the region. However, crude prices have increased significantly since the low point in February 2016 and the North American rig count has shown improvement since a low point in May 2016, signaling that we may have hit the bottom of the industry downturn and can begin to look ahead for a potential market recovery. The North American rig count is expected to improve modestly in the second half of the year.

We generated $3.8 billion of revenue during the second quarter of 2016, a 35% decrease from the $5.9 billion of revenue generated in the second quarter of 2015. This decrease resulted from activity and pricing reductions in all of our product services lines, most notably stimulation activity in the United States land market.     We reported an operating loss of $3.9 billion in the second quarter of 2016, driven by the $3.5 billion Baker Hughes termination fee, $423 million of company-wide impairments and other charges, and $124 million of operating losses recognized in North America as profitability deteriorated in the face of market challenges. This compares to operating income of $254 million in the second quarter of 2015, which also included $306 million of company-wide impairments and other charges. Additionally, we recorded $7.0 billion of operating losses during the first half of 2016 as compared to $294 million of operating losses during the first half of 2015. These results were negatively impacted by $3.2 billion and $1.5 billion of impairments and other charges recorded in the first half of 2016 and 2015, respectively. The first half of 2016 was also impacted by Baker Hughes-related costs, which were $4.1 billion, including the merger termination fee and charges resulting from our reversal of assets held for sale accounting, compared to $122 million of Baker Hughes-related costs during the first half of 2015.

During the second quarter, we continued to take actions to reduce our global workforce in an effort to address current market conditions and better align our workforce with anticipated activity levels in the near-term. Personnel expense is one of

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the largest cost categories for us and, therefore, we continued to execute cost containment measures as they related to employees and their work location. We reduced our global headcount by an additional 5,000 during the second quarter of 2016, bringing our total reduction for the first half of 2016 to almost 12,000. We have reduced our global workforce by approximately 40% since the beginning of 2015 to help mitigate the downturn in the industry. See Note 3 to the condensed consolidated financial statements for further information about our impairments and other charges.

Business outlook
The past several quarters have continued to be extremely challenging for us, as the impact of reduced commodity prices created widespread pricing pressure and activity reductions on a global basis. We have taken actions since late 2014 to help mitigate the effect on our business from the downturn in the energy market, and we will continue to evaluate our cost structure and make further adjustments as required. However, with commodity price improvements from first quarter lows and the recent uptick in North America rig count, there are signs of a potential market recovery which we are well positioned to benefit from given our delivery platform and cost containment strategies.

               In North America, we continued to experience substantial pricing pressure, which has deteriorated our margins, across all of our product service lines. Revenue in North America declined 43% in the second quarter of 2016 as compared to the second quarter of 2015, outperforming a 53% decline in the average North America rig count year over year. While we anticipate the remainder of 2016 to continue to be challenging, the recent uptick in commodity pricing and North America rig count is producing signs of optimism in the industry for a potential market recovery. During this down cycle, we have made structural changes to our delivery platform, eliminating management layers and consolidating roles and locations. As a result of these savings, we believe North America margins can begin to recover in the third quarter and anticipate our North America revenue will continue to outperform the rig count for the remainder of the year.

The international markets have been more resilient than North America, with modest headwinds around pricing and activity in the Eastern Hemisphere. We have continued to work with customers during this downturn to improve project economics through technology and improved operating efficiency, but expect margins to continue to be negatively impacted by lower activity levels and pricing pressure for the remainder of 2016. In Latin America, rig activity in both Brazil and Mexico is at 20-year lows, while Venezuela continues to experience significant political and economic turmoil. Although we may see some end-of-year sales, Latin America is expected to remain our most challenged region throughout the international down cycle, and we do not expect to see a fundamental improvement for the remainder of 2016. We also anticipate Eastern Hemisphere activity to decline over the remainder of the year, but expect margins to remain relatively flat in the third quarter due to the structural cost controls we have been taking.

We have adjusted to market conditions and reduced our capital expenditures to $447 million in first half of 2016, a reduction of over 60% from the first half of 2015. As a result of the actions we have taken over the past 18 months, we believe we are well positioned for the potential market recovery and will scale up our delivery platform by addressing our product service lines one step at a time through a combination of organic growth, investment, and selective acquisitions. We are continuing to execute the following strategies in 2016:
- 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;
-
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; and
- collaborating with our customers to maximize production at the lowest cost per barrel of oil equivalent (BOE).

Our operating performance and business outlook are described in more detail in “Business Environment and Results of Operations.”


18
Table of Contents

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 conjunction with the termination of the Baker Hughes transaction, we paid a $3.5 billion termination fee and mandatorily redeemed $2.5 billion of debt that we issued in late 2015, closing the second quarter of 2016 at $3.1 billion of cash and equivalents. We also have $3.0 billion available under our revolving credit facility which, with our cash balance, we believe provides us with sufficient liquidity to address the challenges and opportunities of the current market. For additional information on market conditions and termination of the merger agreement with Baker Hughes, see “Liquidity and Capital Resources,” “Business Environment and Results of Operations,” and Note 2 to the condensed consolidated financial statements.


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Table of Contents

LIQUIDITY AND CAPITAL RESOURCES

As of June 30, 2016, we had $3.1 billion of cash and equivalents, compared to $10.1 billion at December 31, 2015. Additionally, at June 30, 2016, we held $101 million of investments in fixed income securities held by our foreign subsidiaries compared to $96 million at December 31, 2015. These securities are reflected in "Other current assets" and "Other assets" in our condensed consolidated balance sheets. Approximately $1.8 billion of our total cash position as of June 30, 2016 was held by our foreign subsidiaries, a substantial portion of which is available to be repatriated into the United States to fund our U.S. operations or for general corporate purposes, with a portion subject to certain country-specific restrictions. See Note 5 for further discussion on U.S. federal income taxes we recorded during the second quarter of 2016 on approximately $3.3 billion of cumulative undistributed foreign earnings where we have determined that such earnings are not indefinitely reinvested.

Significant sources and uses of cash
- Operating cash flows was a negative $3.8 billion during the first six months of 2016, mainly driven by the $3.5 billion termination fee paid to Baker Hughes during the period.
- We redeemed $2.5 billion of the senior notes issued in late 2015 at a price of 101% plus accrued and unpaid interest. See Note 2 to the condensed consolidated financial statements for further information.
- Capital expenditures were $447 million in the first six months of 2016, a reduction of over 60% from the first six months of 2015 as we continue to adapt to market conditions. These capital expenditures were predominantly made in our Production Enhancement, Sperry Drilling, Cementing, Baroid, and Wireline and Perforating product service lines.
- During the first six months of 2016, our primary components of working capital (receivables, inventories, and accounts payable) decreased by a net $72 million, primarily due to decreased business activity driven by current market conditions.
- We paid $309 million in dividends to our shareholders during the first six months of 2016.

Future sources and uses of cash
We manufacture our own equipment, which allows us flexibility to increase or decrease our capital expenditures based on market conditions. Capital spending for the full year 2016 is currently expected to be approximately $850 million, a reduction of over 60% from the $2.2 billion of capital expenditures in 2015, which demonstrates our commitment to live within our cash flows during this challenging period for the industry. The capital expenditures plan for the remainder of the year is primarily directed toward our Production Enhancement, Sperry Drilling, Production Solutions, Wireline and Perforating and Cementing 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. In the second quarter of 2016, we made a $33 million payment in accordance with our MDL Settlement. Our total Macondo-related loss contingency liability as of June 30, 2016 was $439 million, of which $367 million is expected to be paid in 2016. See Note 8 to the condensed consolidated financial statements for further information.

Currently, our dividend rate is $0.18 per common share, or approximately $155 million per quarter. Subject to the approval of our Board of Directors, our intention is to continue paying dividends at our current rate. We also have $600 million senior notes that mature in August 2016, which we intend to fully repay with cash on hand. Additionally, we expect a $400 million United States tax refund in the second half of 2016.

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, 2016 and may be used for open market and other share purchases. There were no repurchases made under the program during the six months ended June 30, 2016.

Other factors affecting liquidity
Financial position in current market. As of June 30, 2016, we had $3.1 billion of cash and equivalents, $101 million in fixed income investments, and a total of $3.0 billion of available committed bank credit under our revolving credit facility. 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. We believe our cash on hand, cash flows generated from operations and our available credit facility will provide sufficient liquidity to address the challenges and opportunities of the current market and manage our global cash needs for the remainder of 2016, including capital expenditures, scheduled debt maturities, working capital investments, dividends, if any, and contingent liabilities.


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Table of Contents

Guarantee agreements. In the normal course of business, we have agreements with financial institutions under which approximately $1.9 billion of letters of credit, bank guarantees, or surety bonds were outstanding as of June 30, 2016. Some of the outstanding letters of credit have triggering events that would entitle a bank to require cash collateralization.

Credit ratings. During the second quarter of 2016, in conjunction with the termination of our merger agreement with Baker Hughes and as a result of general market conditions, Standard & Poor’s (S&P) changed our long-term credit rating from A to A-, while placing it on CreditWatch with negative implications, and changed our short-term credit rating from A-1 to A-2. On July 29, 2016, S&P resolved the CreditWatch status by changing our long-term credit rating to BBB+ with stable outlook. Additionally, during the second quarter of 2016, Moody’s Investors Service (Moody's) changed our long-term credit rating from A2 to Baa1, while placing it on negative outlook, and changed our short-term credit rating from P-1 to P-2.
 
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 receivables from our primary customer in Venezuela.

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Table of Contents

BUSINESS ENVIRONMENT AND RESULTS OF OPERATIONS

We operate in approximately 70 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 2016, based upon the location of the services provided and products sold, 39% of our consolidated revenue was from the United States, compared to 46% of consolidated revenue from the United States in the first six months of 2015. This decline reflects the impact our North America operations are experiencing from the downturn in the energy market. 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, changes in foreign currency exchange rates, 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. Lower oil and natural gas prices usually translate into lower exploration and production budgets. Our financial performance is significantly affected by well count in North America, as well as 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
 
2016
2015
2015
Oil price - WTI (1)
$
45.41

$
57.85

$
48.69

Oil price - Brent (1)
45.52

61.69

52.36

Natural gas price - Henry Hub (2)
2.14

2.75

2.63

 
 
 
 
(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
2016
2015
2016
2015
United States:
 
 
 
 
Land
398

876

458

1,115

Offshore (incl. Gulf of Mexico)
24

31

25

40

Total
422

907

483

1,155

Canada:
 

 

 

 

Land
47

95

106

203

Offshore
1

3

2

3

Total
48

98

108

206

International (excluding Canada):
 

 

 

 

Land
719

882

754

912

Offshore
224

287

225

303

Total
943

1,169

979

1,215

Worldwide total
1,413

2,174

1,570

2,576

Land total
1,164

1,853

1,318

2,230

Offshore total
249

321

252

346

 
 
 
 
 
 
Three Months Ended
June 30
Six Months Ended
June 30
Oil vs. Natural Gas
2016
2015
2016
2015
United States (incl. Gulf of Mexico):
 

 

 
 

Oil
335

683

386

897

Natural gas
87

224

97

258

Total
422

907

483

1,155

Canada:
 

 

 

 

Oil
17

37

48

92

Natural gas
31

61

60

114

Total
48

98

108

206

International (excluding Canada):
 

 

 

 

Oil
720

918

745

960

Natural gas
223

251

234

255

Total
943

1,169

979

1,215

Worldwide total
1,413

2,174

1,570

2,576

Oil total
1,072

1,638

1,179

1,949

Natural gas total
341

536

391

627

 
Three Months Ended
June 30
Six Months Ended
June 30
Drilling Type
2016
2015
2016
2015
United States (incl. Gulf of Mexico):
 
 
 
 
Horizontal
326

701

378

878

Vertical
51

92

56

111

Directional
45

114

49

166

Total
422

907

483

1,155


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Table of Contents

WTI oil spot prices declined significantly towards the second half of 2014 from a high of $108 per barrel in June 2014, and continued to decline throughout 2015, ranging from a high of $61 per barrel in June 2015 to a low of $35 per barrel in December 2015. WTI oil spot prices declined further into February 2016 to a low of $26 per barrel, a level which has not been experienced since 2002. Brent crude oil spot prices declined from a high of $115 per barrel in June 2014, and continued to decline throughout 2015, ranging from a high of $66 per barrel in May 2015 to a low of $35 per barrel in December 2015, and declined further to $26 per barrel in January 2016. Commodity prices have increased from the low point experienced in early 2016 to highs of $51 per barrel and $50 per barrel for WTI and Brent crude oil spot prices, respectively, in June 2016, although prices have come down since then. We believe this price improvement could signal the beginning of a turning point in the market. Although crude oil prices continue to be lower than their 2014 and 2015 highs, growing domestic and global consumption has contributed to rising prices.

Brent and WTI crude oil spot prices each had a monthly average in June 2016 of $48 per barrel. In June 2016, significant outages of global oil supply contributed to rising oil prices, which increased $10 per barrel, or 26%, from the monthly average in March 2016. However, prices are expected to remain relatively unchanged for the remainder of 2016 as significant economic and geopolitical events are expected to affect market participants' expectations and demand growth. Crude oil production in the United States averaged an estimated 8.6 million barrels per day in June 2016 and is projected to remain at those levels for the remainder of 2016.

In the United States Energy Information Administration (EIA) July 2016 "Short Term Energy Outlook," the EIA projects that Brent and WTI prices will average $44 per barrel in 2016. The EIA also notes that price projections are highly uncertain due to the current values of futures and options contracts. Although there are no signs that point to an immediate rebalance of the market, the International Energy Agency's (IEA) July 2016 "Oil Market Report" forecasts the 2016 global demand to average approximately 96.1 million barrels per day, which is up 1% from 2015, driven by an increase in the Asia Pacific region, while all other regions remain approximately the same.

For the second quarter of 2016, the average Henry Hub natural gas price in the United States decreased approximately 22% from the second quarter of 2015. The Henry Hub natural gas spot price averaged $2.59 per MMBtu in June 2016, an increase of $0.86 per MMBtu, or 50%, from March 2016. Production decline and increased demand for natural gas to fuel electricity generation contributed to higher natural gas prices. The EIA July 2016 “Short Term Energy Outlook” projects Henry Hub natural gas prices to average $2.36 per MMBtu in 2016. Over the long term, the EIA expects natural gas consumption to increase primarily in the electric power sector and to a lesser extent in the industrial sector as new fertilizer and chemical projects become available.

North America operations
During the second quarter of 2016, North America oil directed rig count declined 368 rigs, or 51%, from the second quarter of 2015, while the natural gas-directed rig count in North America decreased 167 rigs, or 59%, during the same period. In the United States land market during the second quarter of 2016, there was a decline of 55% in the average rig count compared to the second quarter of 2015.

The United States land rig count has dropped 78% since its peak in November 2014. Price erosion for our services continued during the second quarter of 2016, specifically in North America, and we believe pricing pressure will continue until activity stabilizes. The rig count has shown improvement since its low point in May 2016 and is expected to improve modestly during the second half of the year. As a result of the structural changes to our delivery platform we made during this down cycle, we believe North America margins can begin to recover in the second half of the year and anticipate our North America revenue will continue to outperform the rig count for the remainder of the year. 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 create higher demand in fluid chemistry and other technologies required for these complex reservoirs, which will have positive implications for our operations when the energy market ultimately recovers.

In the Gulf of Mexico, the average offshore rig count for the second quarter of 2016 was down 23% compared to the second quarter of 2015. Activity in the Gulf of Mexico is dependent on, among the factors described above and other things, governmental approvals for permits, our customers' actions, and the entry and exit of deepwater rigs in the market.


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Table of Contents

International operations
The average international rig count for the second quarter of 2016 decreased by 19% compared to the second quarter of 2015. Declining crude oil prices have caused many of our customers to reduce their budgets and defer several new projects; however, we have continued to work with our customers to improve project economics through technology and improved operating efficiency. Although the international markets have continued to be more resilient than North America, they are not immune to the impacts of the lower commodity price environment. In Latin America, rig activity in both Brazil and Mexico is at 20-year lows, while Venezuela continues to experience significant political and economic turmoil. Latin America is expected to remain our most challenged region throughout the international down cycle, and we do not expect to see a fundamental improvement for the remainder of 2016.

Venezuela. In February 2015, the Venezuelan government created a three-tier foreign exchange rate system, which included the National Center of Foreign Commerce official rate of 6.3 Bolívares per United States dollar, the SICAD, and the SIMADI. During the first quarter of 2015, we began utilizing the SIMADI floating rate mechanism to remeasure our net monetary assets denominated in Bolívares, with an initial market rate of 192 Bolívares per United States dollar, resulting in a foreign currency loss of $199 million recorded during the first quarter of 2015.

In February 2016, the Venezuelan government revised the three-tier exchange rate system to a new dual-rate system designed to streamline access to dollars for production and essential imports as well as combat inflation. The dual-rate exchange mechanisms are as follows: (i) the DIPRO, which replaced and devalued the official rate from 6.3 to 10.0 Bolívares per United States dollar, and represents a protected rate made available for vital imports such as food, medicine, and raw materials for production; and (ii) the DICOM, which replaces the SIMADI and which is intended to be a free floating system that will fluctuate according to market supply and demand. The DICOM had a market rate of 276 Bolívares per United States dollar at March 31, 2016 and 617 Bolívares per United States dollar at June 30, 2016. We are utilizing the DICOM to remeasure our net monetary assets denominated in Bolívares, and the revised system and continued devaluation did not materially affect our financial statements for the three and six months ended June 30, 2016.

As of June 30, 2016, our total net investment in Venezuela was approximately $755 million, with only $25 million of net monetary assets denominated in Bolívares, and we had an additional $27 million of surety bond guarantees outstanding relating to our Venezuelan operations at June 30, 2016.

We have continued to experience delays in collecting payments 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. During the second quarter of 2016, we executed a financing agreement with our primary customer in Venezuela in an effort to actively manage these customer receivables, resulting in an exchange of $200 million of outstanding trade receivables for an interest-bearing promissory note. We recorded the note at its fair market value at the date of exchange, which resulted in a $148 million pre-tax loss on exchange recorded within "Impairments and other charges" on our condensed consolidated statements for the three and six months ended June 30, 2016. This instrument provides a more defined schedule around the timing of payments, while generating a return while we await payment. Our current intent is to hold this note to maturity and we expect to collect 100% of the principal, in which case the value would be accreted back to its par value, into earnings, using an effective interest method as it matures.

Subsequent to the promissory note exchange, our total outstanding net trade receivables in Venezuela were $581 million as of June 30, 2016, compared to $704 million as of December 31, 2015, which represents 13% and 14% of total company trade receivables for the respective periods. The majority of our Venezuela receivables are United States dollar-denominated receivables. Of the $581 million receivables in Venezuela as of June 30, 2016, $134 million has been classified as long-term and included within “Other assets” on our condensed consolidated balance sheets. As a result of current conditions in Venezuela and the continued delays in collecting payments on our receivables in the country, we began curtailing activity in Venezuela during the first quarter of 2016.

For additional information, see Part I, Item 1(a), “Risk Factors” in our 2015 Annual Report on Form 10-K.


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Table of Contents

RESULTS OF OPERATIONS IN 2016 COMPARED TO 2015

Three Months Ended June 30, 2016 Compared with Three Months Ended June 30, 2015
REVENUE:
Three Months Ended
June 30
Favorable
Percentage
Millions of dollars
2016
2015
(Unfavorable)
Change
Completion and Production
$
2,114

$
3,444

$
(1,330
)
(39
)%
Drilling and Evaluation
1,721

2,475

(754
)
(30
)
Total revenue
$
3,835

$
5,919

$
(2,084
)
(35
)%
 
 
 
 
 
By geographic region:
 
 
 
 
North America
$
1,516

$
2,671

$
(1,155
)
(43
)%
Latin America
476

767

(291
)
(38
)
Europe/Africa/CIS
795

1,095

(300
)
(27
)
Middle East/Asia
1,048

1,386

(338
)
(24
)
Total revenue
$
3,835

$
5,919

$
(2,084
)
(35
)%

OPERATING INCOME:
Three Months Ended
June 30
Favorable
Percentage
Millions of dollars
2016
2015
(Unfavorable)
Change
Completion and Production
$
(32
)
$
313

$
(345
)
(110
)%
Drilling and Evaluation
154

400

(246
)
(62
)
Total
122

713

(591
)
(83
)
Corporate and other
(3,579
)
(153
)
(3,426
)
(2,239
)
Impairments and other charges
(423
)
(306
)
(117
)
(38
)
Total operating income (loss)
$
(3,880
)
$
254

$
(4,134
)
(1,628
)%
 
 
 
 
 
By geographic region:
 
 
 
 
North America
$
(124
)
$
130

$
(254
)
(195
)%
Latin America
22

112

(90
)
(80
)
Europe/Africa/CIS
64

164

(100
)
(61
)
Middle East/Asia
160

307

(147
)
(48
)
Total
$
122

$
713

$
(591
)
(83
)%

Consolidated revenue was $3.8 billion in the second quarter of 2016, a decrease of $2.1 billion, or 35%, as compared to the second quarter of 2015, associated with widespread pricing pressure and activity reductions on a global basis, primarily attributable to pressure pumping in North America. Revenue outside of North America was 60% of consolidated revenue in the second quarter of 2016, compared to 55% of consolidated revenue in the second quarter of 2015, which reflects the greater impact our North America operations are experiencing as it relates to the downturn in the energy market.

Consolidated operating loss was $3.9 billion during the second quarter of 2016 compared to operating income of $254 million in the second quarter of 2015. In conjunction with the termination of Baker Hughes merger agreement, we paid a $3.5 billion termination fee in the second quarter of 2016. Our operating results were also negatively impacted by $423 million and $306 million of impairments and other charges recorded in the three months ended June 30, 2016 and 2015, respectively. Also contributing to our operating results were significant declines in pressure pumping activity and pricing declines in North America as a result of the global downturn in the energy market. See Note 2 to the condensed consolidated financial statements for further discussion of the Baker Hughes transaction and financial statement impact of terminating our merger agreement and Note 3 to the condensed consolidated financial statements for further information about impairments and other charges.

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Table of Contents

OPERATING SEGMENTS

Completion and Production
Completion and Production (C&P) revenue in the second quarter of 2016 was $2.1 billion, a decrease of $1.3 billion, or 39%, from the second quarter of 2015, due to a decline in activity and pricing in all of our product services lines, particularly North America pressure pumping services which drove the majority of the C&P revenue decline. International revenue also declined as a result of reduced pressure pumping services.

C&P operating loss in the second quarter of 2016 was $32 million, a decrease of $345 million, or 110%, compared to the second quarter of 2015, with decreased profitability across all regions as a result of global activity and pricing reductions, primarily in North America stimulation activity.

Drilling and Evaluation
Drilling and Evaluation (D&E) revenue in the second quarter of 2016 was $1.7 billion, a decrease of $754 million, or 30%, from the second quarter of 2015. Reductions were seen across a majority of product service lines due to the historically low rig count, lower pricing and customer budget constraints worldwide. Logging, drilling and fluid activity drove the declines.

D&E operating income in the second quarter of 2016 was $154 million, a decrease of $246 million, or 62%, compared to the second quarter of 2015, driven by a decline in activity and pricing across all regions, particularly drilling activity in the United States and Brazil, which was partially offset by fluid services in the Middle East. Second quarter of 2016 results were also impacted by depreciation expense from assets previously classified as held for sale.

GEOGRAPHIC REGIONS

North America
North America revenue in the second quarter of 2016 was $1.5 billion, a 43% decline compared to the second quarter of 2015, relative to a 53% decline in average North America rig count. We had an operating loss of $124 million, a substantial reduction from the $130 million of operating income reported in the second quarter of 2015. These declines were driven by reduced activity and pricing pressure throughout the United States land market.

Latin America
Latin America revenue in the second quarter of 2016 was $476 million, a 38% reduction compared to the second quarter of 2015, with operating income of $22 million, an 80% decline from the second quarter of 2015, primarily as a result of reduced activity in Mexico, Brazil and Colombia, as well as our decision to curtail activity in Venezuela. From a product service line perspective, Cementing, Sperry Drilling and Baroid experienced the largest declines in both revenue and operating income. 

Europe/Africa/CIS
Europe/Africa/CIS revenue in the second quarter of 2016 was $795 million, a decline of 27% compared to the second quarter of 2015, with operating income of $64 million, a 61% decrease compared to the second quarter of 2015. The decreases during the quarter were driven by a sharp reduction of activity in the North Sea, Angola, Nigeria and Congo, along with lower drilling activity, pressure pumping services and completion tools sales throughout the region.

Middle East/Asia
Middle East/Asia revenue in the second quarter of 2016 was $1.0 billion, a reduction of 24% compared to the second quarter of 2015, with operating income of $160 million, a 48% decrease from the second quarter of 2015. This was the result of reduced activity for pressure pumping services in Saudi Arabia, a decline in consulting services in India, and a decline in drilling activity in Malaysia and Indonesia, along with pricing concessions across the region.


OTHER OPERATING ITEMS

Corporate and other expenses increased to $3.6 billion in the second quarter of 2016, compared to $153 million of expenses in the second quarter of 2015, primarily due to the $3.5 billion termination fee paid to Baker Hughes. See Note 2 to the condensed consolidated financial statements for further discussion of the Baker Hughes transaction and the financial statement impact of terminating our merger agreement. Partially offsetting these costs were savings from the cost containment measures we undertook to align ourselves with the current market.


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Table of Contents

Impairments and other charges. We recorded a total of approximately $423 million in company-wide charges during the second quarter of 2016, primarily related to severance costs and asset impairments and write-offs, as we continue to right-size our cost structure. Also included in this amount is a $148 million loss on exchange for a promissory note in Venezuela. This compares to $306 million of charges recorded in the second quarter of 2015 related to severance costs, fixed asset impairments and inventory write-downs. See Note 3 to the condensed consolidated financial statements for further information.

NONOPERATING ITEMS

Interest expense, net increased $90 million in the second quarter of 2016, compared to the second quarter of 2015, primarily due to additional interest resulting from the senior notes issued in November 2015 and $41 million of redemption fees and associated costs related to the $2.5 billion debt mandatorily redeemed during the second quarter of 2016, which was recorded through interest expense.

Effective tax rate. During the quarter ended June 30, 2016, we recorded a total income tax benefit of $902 million on pre-tax losses of $4.1 billion, resulting in an effective tax rate of 22.0%. See Note 5 to the condensed consolidated financial statements for significant drivers of this effective tax rate.


28
Table of Contents

Six Months Ended June 30, 2016 Compared with Six Months Ended June 30, 2015
REVENUE:
Six Months Ended
June 30
Favorable
Percentage
Millions of dollars
2016
2015
(Unfavorable)
Change
Completion and Production
$
4,438

$
7,690

$
(3,252
)
(42
)%
Drilling and Evaluation
3,595

5,279

(1,684
)
(32
)
Total revenue
$
8,033

$
12,969

$
(4,936
)
(38
)%
 
 
 
 
 
By geographic region:
 
 
 
 
North America
$
3,310

$
6,213

$
(2,903
)
(47
)%
Latin America
1,017

1,716

(699
)
(41
)
Europe/Africa/CIS
1,573

2,192

(619
)
(28
)
Middle East/Asia
2,133

2,848

(715
)
(25
)
Total revenue
$
8,033

$
12,969

$
(4,936
)
(38
)%

OPERATING INCOME:
Six Months Ended
June 30
Favorable
Percentage
Millions of dollars
2016
2015
(Unfavorable)
Change
Completion and Production
$
(2
)
$
775

$
(777
)
(100
)%
Drilling and Evaluation
395

706

(311
)
(44
)
Total
393

1,481

(1,088
)
(73
)
Corporate and other
(4,163
)
(261
)
(3,902
)
(1,495
)
Impairments and other charges
(3,189
)
(1,514
)
(1,675
)
(111
)
Total operating loss
$
(6,959
)
$
(294
)
$
(6,665
)
(2,267
)%
 
 
 
 
 
By geographic region:
 
 
 
 
North America
$
(163
)
$
409

$
(572
)
(140
)%
Latin America
70

234

(164
)
(70
)
Europe/Africa/CIS
121

250

(129
)
(52
)
Middle East/Asia
365

588

(223
)
(38
)
Total
$
393

$
1,481

$
(1,088
)
(73
)%

Consolidated revenue was $8.0 billion in the first six months of 2016, a decrease of $4.9 billion, or 38%, as compared to the first six months of 2015, associated with pricing declines and activity reductions on a global basis, primarily attributable to pressure pumping in North America. Revenue outside of North America was 59% of consolidated revenue in the first six months of 2016, compared to 52% of consolidated revenue in the first six months of 2015, which reflects the greater impact our North America operations are experiencing as it relates to the downturn in the energy market.

Consolidated operating loss was $7.0 billion in the first six months of 2016 compared to an operating loss of $294 million during the first six months of 2015. The results were negatively impacted by $3.2 billion and $1.5 billion of impairments and other charges recorded in the six months ended June 30, 2016 and 2015, respectively. Additionally, we incurred $4.1 billion of Baker Hughes-related costs during the first six months of 2016, primarily due to the $3.5 billion termination fee and $464 million of charges resulting from our reversal of assets held for sale accounting, compared to $122 million of Baker Hughes-related costs during the first six months of 2015. Also contributing to these operating results were significant declines in pressure pumping activity and pricing declines in North America as a result of the global downturn in the energy market. See Note 2 to the condensed consolidated financial statements for further discussion of the Baker Hughes transaction and financial statement impact of terminating our merger agreement and Note 3 to the condensed consolidated financial statements for further information about impairments and other charges.


29
Table of Contents

OPERATING SEGMENTS

Completion and Production
Completion and Production (C&P) revenue in the first six months of 2016 was $4.4 billion, a decrease of $3.3 billion, or 42%, from the first six months of 2015, due to a decline in activity and pricing in most of our product services lines, particularly North America pressure pumping services which drove the majority of the C&P revenue decline. International revenue declined as a result of reductions in pressure pumping activity and completion tools sales in all regions.

C&P operating loss in the first six months of 2016 was $2 million, compared to $775 million of operating income in the first six months of 2015, with decreased profitability across all regions as a result of global activity and pricing reductions, primarily in North America pressure pumping services.

Drilling and Evaluation
Drilling and Evaluation (D&E) revenue in the first six months of 2016 was $3.6 billion, a decrease of $1.7 billion, or 32%, from the first six months of 2015. Reductions were seen across all product service lines due to the low rig count, lower pricing and customer budget constraints worldwide.

D&E operating income in the first six months of 2016 was $395 million, a decrease of $311 million, or 44%, compared to the first six months of 2015, driven by a decline in activity and pricing across all regions, particularly drilling and offshore activity in North America, as well as reduced drilling services and consulting and project management activity in Latin America, decreased drilling activity in the Europe/Africa/CIS region, and lower drilling and logging activity in the Middle East/Asia region.

GEOGRAPHIC REGIONS

North America
North America revenue in the first six months of 2016 was $3.3 billion, a 47% decline compared to the first six months of 2015, relative to a 57% decline in average North America rig count. We had an operating loss of $163 million, a substantial reduction from the $409 million of operating income reported in the first six months of 2015. These declines were driven by reduced activity and pricing pressure throughout the United States land market, specifically relating to pressure pumping services.

Latin America
Latin America revenue in the first six months of 2016 was $1.0 billion, a 41% reduction compared to the first six months of 2015, with operating income of $70 million, a 70% decline from the first six months of 2015. These reductions were primarily related to currency weakness and our decision to curtail activity in Venezuela, reduced activity across all product service lines in Mexico, and lower drilling activity in Brazil and Colombia.

Europe/Africa/CIS
Europe/Africa/CIS revenue in the first six months of 2016 was $1.6 billion, which declined by 28% compared to the first six months of 2015, with operating income of $121 million, a 52% decrease compared to the first six months of 2015. These decreases were driven by a sharp reduction of activity in the North Sea, Angola, Nigeria and Congo, along with lower drilling activity, pressure pumping services and completion tools sales throughout the region.

Middle East/Asia
Middle East/Asia revenue in the first six months of 2016 was $2.1 billion, a reduction of 25% compared to the first six months of 2015, with operating income of $365 million, a 38% decrease from the first six months of 2015. This was the result of reduced activity for pressure pumping services in Saudi Arabia and Australia, and a decline in drilling and logging activity in India, Indonesia, and Malaysia, along with pricing concessions across the region.


OTHER OPERATING ITEMS

Corporate and other expenses were $4.2 billion in the first six months of 2016 compared to $261 million in the first six months of 2015, primarily due to Baker Hughes-related costs during the first six months of 2016, driven by the $3.5 billion termination fee and $464 million of charges resulting from our reversal of assets held for sale accounting. See Note 2 to the condensed consolidated financial statements for further discussion of the Baker Hughes transaction and the financial statement impact of terminating our merger agreement.


30
Table of Contents

Impairments and other charges. Primarily as a result of the downturn in the energy market and its corresponding impact on the company’s business outlook, we recorded a total of approximately $3.2 billion in company-wide charges during the first half of 2016, which consisted of fixed asset impairments and write-offs, inventory write-downs, impairments of intangible assets, severance costs, facility closures, a loss on exchange for a promissory note in Venezuela, and other charges. This compares to $1.5 billion of impairments and other charges recorded in the first half of 2015 related to asset impairments and severance costs. See Note 3 to the condensed consolidated financial statements for further information.

NONOPERATING ITEMS

Interest expense, net increased $149 million in the first six months of 2016, as compared to the first six months of 2015, primarily due to additional interest resulting from the senior notes issued in November 2015 and $41 million of redemption fees and associated costs related to the $2.5 billion debt mandatorily redeemed during the the second quarter of 2016, which was recorded through interest expense.

Other, net was a $78 million loss in the first six months of 2016, as compared to a $247 million loss in the first six months of 2015, 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 currency exchange mechanism to remeasure net monetary assets in the country. See "Business Environment and Results of Operations" for further information.




31
Table of Contents

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 8 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 2015 Annual Report on Form 10-K. Our exposure to market risk has not changed materially since December 31, 2015.

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, 2016 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 quarter ended June 30, 2016 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

32
Table of Contents

PART II. OTHER INFORMATION
 
Item 1. Legal Proceedings

Information related to Item 1. Legal Proceedings is included in Note 8 to the condensed consolidated financial statements.

Item 1(a). Risk Factors

The statements in this section describe the known material risks to our business and should be considered carefully. As of June 30, 2016, 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, 2015.

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, 2016.
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
45,780

$35.74
—
$5,700,004,373
May 1 - 31
558,050

$39.57
—
$5,700,004,373
June 1 - 30
265,009

$41.95
—
$5,700,004,373
Total
868,839

$40.10
—
 

(a)
All of the 868,839 shares purchased during the three-month period ended June 30, 2016 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, 2016. From the inception of this program in February 2006 through June 30, 2016, 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

None.


33
Table of Contents

Item 6. Exhibits

*†
10.1
Executive Agreement (Eric Carre).
 
 
 
*
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.
 
†
Management contracts or compensatory plans or arrangements

34
Table of Contents

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/ Mark A. McCollum
/s/ Charles E. Geer, Jr.
Mark A. McCollum
Charles E. Geer, Jr.
Executive Vice President and
Vice President and
Chief Financial Officer
Corporate Controller


Date: August 1, 2016


35
Exhibit



Exhibit 10.1

AMENDED AND RESTATED EXECUTIVE AGREEMENT

This Amended and Restated Executive Agreement (“Agreement”) is entered into by and between Eric Carre (“Employee”) and Halliburton Company, for and on behalf of itself, its subsidiaries, and its affiliated companies (collectively, “Employer” or “Company”), as of May 12, 2014 (the “Effective Date”).

RECITALS

WHEREAS, Employer and Employee have previously entered into that certain Executive Agreement, effective as of January 7, 2009 (the “2009 Executive Agreement”);

WHEREAS, Employer desires to continue to employ Employee pursuant to the terms and conditions and for the consideration set forth in this Agreement, which shall amend and restate the 2009 Executive Agreement in its entirety, and Employee desires to continue to be employed by Employer pursuant to such terms and conditions and for such consideration as provided in this Agreement; and

NOW THEREFORE, for and in consideration of the mutual promises, covenants, and obligations contained herein, Employer and Employee agree as follows:

ARTICLE 1: EMPLOYMENT AND DUTIES:
    
1.1    Employer agrees to continue to employ Employee, and Employee agrees to continue to be employed by Employer, as of the Effective Date and continuing until the date of termination of Employee’s employment pursuant to the provisions of Article 3, subject to the terms and conditions of this Agreement.

1.2    As of the Effective Date, Employee is employed as Senior Vice President - Drilling & Evaluation. Employee agrees to serve in the assigned position or in such other executive capacities as may be requested from time to time by Employer and to perform diligently and to the best of Employee's abilities the duties and services appertaining to such position as reasonably determined by Employer, as well as such additional or different duties and services appropriate to such positions which Employee from time to time may be reasonably directed to perform by Employer.

1.3    Employee shall at all times comply with and be subject to such policies and procedures as Employer may establish from time to time, including, without limitation, the Halliburton Company Code of Business Conduct (the “Code of Business Conduct”), Company Policy 3-90020, “Director and Executive Compensation Administration” (with respect to the prohibition of discretionary payments in certain situations), Company Policy 3-90040, “Recoupment of Incentive Compensation”, and Company Policy 3-90050, “Termination of Officers Who Participate in Violations or Disregard Supervisory Responsibilities”, all of which have been made available to Employee and are available under “COBC” or “Policies” as posted on Halworld located at http://halworld.corp.halliburton.com, as well as Section 32(a) of the Halliburton Company By-Laws (with respect to the limitations on the advancement of legal expenses), a copy of which has been made available to Employee. By signing this Agreement, Employee hereby represents and warrants that he has read, understood and agrees to the terms and conditions contained in such Code of Business Conduct, policies, and By-Laws.

1.4    Employee shall, during the period of Employee's employment by Employer, devote Employee's full business time, energy, and best efforts to the business and affairs of Employer. Employee may not engage, directly or indirectly, in any other business, investment, or activity that interferes with




Employee's performance of Employee's duties hereunder, is contrary to the interest of Employer or any of its affiliated companies (collectively, the “Halliburton Entities” or, individually, a “Halliburton Entity”), or requires any significant portion of Employee's business time. The foregoing notwithstanding, the parties recognize and agree that Employee may engage in passive personal investments and other business activities which do not conflict with the business and affairs of the Halliburton Entities or interfere with Employee's performance of his duties hereunder. Employee may not serve on the board of directors of any entity other than a Halliburton Entity while employed by Employer without the approval thereof in accordance with Employer’s policies and procedures regarding such service. Employee shall be permitted to retain any compensation received for approved service on any unaffiliated corporation’s board of directors to the extent permitted under a Halliburton Entity’s policies and procedures.

1.5    Employee acknowledges and agrees that Employee owes a fiduciary duty of loyalty, fidelity and allegiance to act at all times in the best interests of the Employer and the other Halliburton Entities and to do no act which would, directly or indirectly, injure any such entity's business, interests, or reputation. It is agreed that any direct or indirect interest in, connection with, or benefit from any outside activities, particularly commercial activities, which interest might in any way adversely affect Employer, or any Halliburton Entity, involves a possible conflict of interest. In keeping with Employee's fiduciary duties to Employer, Employee agrees that Employee shall not knowingly become involved in a conflict of interest with Employer or the Halliburton Entities, or upon discovery thereof, allow such a conflict to continue. Moreover, Employee shall not engage in any activity that might involve a possible conflict of interest without first obtaining approval in accordance with the applicable Halliburton Entity's policies and procedures.

1.6    Nothing contained herein shall be construed to preclude the transfer of Employee's employment to another Halliburton Entity (“Subsequent Employer”) as of, or at any time after, the Effective Date and no such transfer shall be deemed to be a termination of employment for purposes of Article 3 hereof; provided, however, that, effective with such transfer, all of Employer's obligations hereunder shall be assumed by and be binding upon, and all of Employer's rights hereunder shall be assigned to, such Subsequent Employer and the defined term "Employer" as used herein shall thereafter be deemed amended to mean such Subsequent Employer. Except as otherwise provided above, all of the terms and conditions of this Agreement, including without limitation, Employee's rights and obligations, shall remain in full force and effect following such transfer of employment.

ARTICLE 2: COMPENSATION AND BENEFITS:

2.1    Employee's base salary as of the Effective Date is Five Hundred Twenty Thousand, Five Hundred U.S. Dollars ($520,500) per annum, which shall be paid in accordance with the Employer's standard payroll practice for its executives. Employee’s base salary may thereafter be increased from time to time with the approval of Halliburton Company’s Board of Directors (the “Board of Directors”), its Compensation Committee (the “Compensation Committee”), or its delegate, as applicable. Such increased base salary shall become the minimum base salary under this Agreement and may not be decreased thereafter without the written consent of Employee, unless comparable reductions in salary are effective for all similarly situated executives of Employer.

2.2    Employee shall participate in the Annual Performance Pay Plan, or any successor annual incentive plan approved by the Compensation Committee; provided, however, that all determinations relating to Employee's participation, including, without limitation, those relating to the performance goals applicable to Employee and Employee's level of participation and payout opportunity, shall be made in the sole discretion of the person or committee to whom such authority has been granted pursuant to such plan's terms.





2.3    Employee shall be nominated for participation in the Performance Unit Program, or any similar successor long-term incentive program approved by the Compensation Committee; provided, however, that all determinations relating to Employee’s participation, including, without limitation, those relating to the performance goals applicable to Employee and Employee’s level of participation and incentive opportunity shall be made in accordance with applicable guidelines in place at the time of nomination, and Employee’s participation shall further be subject to such other terms and conditions as set forth in the Performance Unit Program Terms and Conditions and other underlying documentation.

2.4    Employer shall pay or reimburse Employee for all actual, reasonable and customary expenses incurred by Employee in the course of his employment; including, but not limited to, travel, entertainment, subscriptions and dues associated with Employee's membership in professional, business and civic organizations; provided that such expenses are incurred and accounted for in accordance with Employer's applicable policies and procedures. Any reimbursement provided hereunder during one calendar year shall not affect the amount or availability of reimbursements in another calendar year. Any reimbursement provided hereunder shall be paid no later than the earlier of (i) the time prescribed under Employer's applicable policies and procedures, or (ii) the last day of the calendar year following the calendar year in which Employee incurred the reimbursable expense.

2.5    Employee shall be allowed to participate, on the same basis generally as other executive employees of Employer, in all general employee benefit plans and programs, including improvements or modifications of the same, which on the Effective Date or thereafter are made available by Employer to all or substantially all of Employer's similarly situated executive employees. Such benefits, plans, and programs may include, without limitation, medical, health, and dental care, life insurance, disability protection, and qualified and non‑qualified retirement plans. Except as specifically provided herein, nothing in this Agreement is to be construed or interpreted to increase or alter in any way the rights, participation, coverage, or benefits under such benefit plans or programs than provided to similarly-situated executive employees pursuant to the terms and conditions of such benefit plans and programs. While employed by Employer, Employee shall be eligible to receive awards under the Halliburton Company Stock and Incentive Plan (“SIP”) or any successor stock-related plan adopted by the Board of Directors. As soon as administratively practicable following the Effective Date, subject to the terms and conditions of the SIP and the applicable award agreements, Employee shall be nominated for an award of 25,000 shares of Halliburton Company restricted stock to vest 100% after a five year period. Employee agrees that the foregoing shall not be construed as a guarantee with respect to the type, amount or frequency of future awards, if any, such decisions being solely within the discretion of the Compensation Committee, or its delegate, as applicable.

2.6    Employer shall not, by reason of this Article 2, be obligated to institute, maintain, or refrain from changing, amending or discontinuing, any incentive compensation, employee benefit or stock or stock option program or plan, so long as such actions are similarly applicable to covered employees generally.

2.7    Employer may withhold from any compensation, benefits, or amounts payable under this Agreement all federal, state, city, or other taxes as may be required pursuant to any law or governmental regulation or ruling.

ARTICLE 3:
TERMINATION OF EMPLOYMENT AND EFFECTS OF SUCH TERMINATION:

3.1    Employee's employment with Employer shall be terminated (i) upon the death of Employee, (ii) upon Employee's Retirement (as defined below), (iii) upon Employee's Permanent Disability (as defined below), or (iv) at any time by Employer upon written notice to Employee, or by Employee upon thirty (30) calendar days' written notice to Employer, for any or no reason. This Agreement may be terminated by Employer at any time upon one hundred and eighty (180) calendar days’ written notice to Employee and no




such termination of this Agreement shall be deemed a termination of employment for purposes of this Article 3.

3.2    If Employee's employment is terminated by reason of any of the following circumstances, Employee shall not be entitled to receive the benefits set forth in Section 3.4 hereof:

(i)    Death.

(ii)
Retirement. “Retirement” shall mean either (a) Employee's retirement at or after normal retirement age (either voluntarily or pursuant to the applicable Halliburton Entity's retirement policy) or (b) the voluntary termination of Employee's employment by Employee in accordance with Employer's early retirement policy for other than Good Reason (as defined below).

(iii)
Permanent Disability. “Permanent Disability” shall mean Employee's physical or mental incapacity to perform his usual duties with such condition likely to remain continuously and permanently as reasonably determined by a qualified physician selected by Employer.

(iv)
Voluntary Termination. “Voluntary Termination” shall mean a termination of employment in the sole discretion and at the election of Employee for other than Good Reason. “Good Reason” shall mean a termination of employment by Employee because of a material breach by Employer of any material provision of this Agreement, provided that (i) Employee provides written notice to Employer, as provided in Section 6.2 hereof, of the circumstances Employee claims constitute “Good Reason” within ninety (90) calendar days of the first to occur of such circumstances, (ii) such breach remains uncorrected for thirty (30) calendar days following written notice, and (iii) Employee’s termination occurs within one hundred eighty (180) calendar days after the date that the circumstances Employee claims constitute “Good Reason” first occurred.

(v)
Termination for Cause. Termination of Employee's employment by Employer for Cause. “Cause” shall mean any of the following: (a) Employee's gross negligence or willful misconduct in the performance of the duties and services required of Employee pursuant to this Agreement; (b) Employee's final conviction of a felony; (c) a material violation of the Code of Business Conduct or (d) Employee's material breach of any material provision of this Agreement which remains uncorrected for thirty (30) calendar days following written notice of such breach to Employee by Employer. Determination as to whether or not Cause exists for termination of Employee's employment will be made by the Compensation Committee, or its delegate, acting in good faith.

(vi)
Termination for Substantial Participation in a Significant Violation or Failure to Supervise. Termination of Employee’s employment by Employer following a determination, in accordance with the procedures set out in Company Policy 3-90050, that (a) in connection with the performance of Employee’s duties as an officer, Employee Substantially Participated in a Significant Violation or both (A) had direct supervisory responsibility over an employee who Substantially Participated in such a violation and (B) Recklessly disregarded Employee’s own supervisory responsibilities, and (b) Employee’s conduct warrants termination.

3.3    In the event Employee's employment is terminated under any of the circumstances described in Section 3.2, all future compensation to which Employee is otherwise entitled and all future benefits for which Employee is eligible shall cease and terminate as of the date of termination. Employee, or his estate




in the case of Employee's death, shall be entitled to pro rata base salary through the date of such termination, payment for any properly documented but unreimbursed business expenses, and, except as may be prohibited by Company policy, shall be entitled to any individual annual incentive compensation not yet paid but earned and payable under Employer's plans for the year prior to the year of Employee's termination of employment, but shall not be entitled to any annual incentive compensation for the year in which he terminates employment or any other payments or benefits by or on behalf of Employer, except for those which may be payable pursuant to the terms of Employer's or Halliburton Entity’s employee benefit plans (as defined in Section 3.5(b)), stock, stock option or incentive plans, or the applicable agreements underlying such plans.

3.4    If Employee's employment is terminated by Employee for Good Reason or by Employer for any reason other than as set forth in Section 3.2 above, Employee shall be entitled to (A) the payment provided for in (i) below, subject to the provisions of Section 3.5, and (B) the payment provided for in (ii) below, as additional consideration for Employee’s post-employment covenants under Article 5, subject to the provisions of (iii) below:

(i)
A single lump sum cash payment equal to two (2) years of Employee's base salary as in effect at the date of Employee's termination of employment. Such benefit shall be paid as soon as administratively practicable, but no later than the sixtieth (60th) calendar day following Employee's termination of employment.

(ii)
A single lump sum cash payment equal to the value of Employee’s unvested shares of Halliburton Company restricted stock in accordance with the table below and based on the closing price quoted for Halliburton Company common stock on the New York Stock Exchange on the date of Employee’s termination of employment or the last business day immediately preceding the date of Employee’s termination of employment, with such payment, if due Employee, to be paid on the sixtieth (60th) calendar day following the second anniversary of Employee’s termination of employment. (For example, if Employee holds 50,000 shares of unvested restricted stock on the date of termination of employment, has at least five (5) years of service, but less than seven (7) years of service, and the closing price of Halliburton Company common stock on that date is $40 per share, the value for purposes of calculating the amount of the payment in this (ii) would be equal to [(50,000 shares X 0.50) X $40 per share] or [25,000 shares X $40 per share] or $1,000,000.) All remaining shares will be forfeited.

Consecutive Years of Service
Vested Percentage
Less than two years
0%
At least two, but less than five years
25%
At least five, but less than seven years
50%
At least seven, but less than ten years
75%
Ten or more years
100%

(iii)
Employee understands and agrees that his right to all or any portion of the payment provided for in Section 3.4(ii), and Employer’s obligation to make payment of the entire amount or any portion thereof, are dependent and conditioned on Employee’s compliance in full with all provisions contained in Article 5. Any failure on the part of Employee to comply with each provision, including any attempt by or on behalf of Employee to have any such provision declared unenforceable in whole or in part by an arbitrator or court, shall excuse Employer forever from the obligation to make the payment, in whole or in part, provided for in Section 3.4(ii).





3.5    (a)    The benefits paid to Employee pursuant to Section 3.4(i) shall be in consideration of Employee’s continuing obligations hereunder after such termination, including, without limitation, Employee's obligations under Article 4. Further, as a condition to the receipt of such benefits, Employer, in its sole discretion, shall require Employee to first execute a release, in the form established by Employer, releasing Employer and all other Halliburton Entities, and their officers, directors, employees, and agents, from any and all claims and from any and all causes of action of any kind or character, including, but not limited to, all claims and causes of action arising out of Employee's employment with Employer and any other Halliburton Entities or the termination of such employment. The release must be executed by Employee within a period designated by Employer, which shall begin no earlier than the date of Employee’s termination of employment and will end no later than the date that is fifty (50) calendar days after the date of Employee’s termination of employment. The performance of Employer's obligations under Section 3.4(i) and the receipt of the benefits provided thereunder by Employee shall constitute full settlement of all such claims and causes of action. Such release shall also include the restrictions contained in Sections 3.6 - 3.9. Employee shall not be under any duty or obligation to seek or accept other employment following a termination of employment pursuant to which a benefit payment under Section 3.4(i) is owing and the amounts due Employee pursuant to Section 3.4(i) shall not be reduced or suspended if Employee accepts subsequent employment or earns any amounts as a self-employed individual. Employee's rights under Section 3.4(i) are Employee's sole and exclusive rights against the Employer or its affiliates and the Employer's sole and exclusive liability to Employee under this Agreement, in contract, tort, under statute or otherwise, for the termination of his employment relationship with Employer.

(b)    Employee agrees that all disputes relating to Employee’s termination of employment, including, without limitation, any dispute as to the occurrence of the events listed in Section 3.2, and any claims or demands against Employer based upon Employee’s employment for any monies other than those specified in Section 3.4(i), shall be resolved through the Halliburton Company Dispute Resolution Plan (“Dispute Resolution Plan”) as provided in Section 6.6 hereof; provided, however, that decisions as to whether any of the events listed in Section 3.2 have occurred, will be made by the Board of Directors, the Compensation Committee, or its delegate, as required under the applicable Company policy, and in any dispute by Employee with any such determination, the arbitrator’s decision shall be limited to whether the Board of Directors, the Compensation Committee, or its delegate, reached such decision in good faith. Nothing contained in this Article 3 shall be construed to be a waiver by Employee of any benefits accrued for or due Employee under any employee benefit plan (as such term is defined in the Employee Retirement Income Security Act of 1974, as amended) maintained by Employer except that Employee shall not be entitled to any severance benefits pursuant to any severance plan or program of the Employer.

3.6    In consideration of the access to the confidential information contained in Article 4, Employee agrees that, for a period of two (2) years following separation of employment, the Employee will not directly or indirectly (a) solicit, induce to terminate or reduce its business, or (b) agree to provide products and/or services that compete directly with the material products and services provided, marketed, and/or under development by the Employer at any time during the three (3) years preceding the Employee’s separation from employment with Employer for any person or entity who paid or engaged Employer for products and/or services, or who received the benefit of Employer’s products and/or services, or with whom the Employee had any substantial dealings, while Employee was employed by Employer, during the three (3) years preceding the Employee’s separation from employment with Employer. However, this restriction applies only to those products and/or services that the Employee was personally involved in.

3.7    Employee further agrees that Employee will not, during the two (2) year period following separation of employment, solicit, directly or indirectly, or cause or permit others to solicit, directly or




indirectly, any person (i) formerly employed by Employer during the six (6) month period immediately preceding or following Employee’s termination of employment (“Former Employee”) or (ii) employed by Employer (“Current Employee”). The term “solicit” includes, but is not limited to, the following (regardless of whether done directly or indirectly): (a) requesting that a Former or Current Employee change employment; (b) informing a Former or Current Employee that an opening exists elsewhere; (c) assisting a Former or Current Employee in finding employment elsewhere; (d) inquiring if a Former or Current Employee “knows of anyone who might be interested” in a position elsewhere; (e) inquiring if a Former or Current Employee might have an interest in employment elsewhere; (f) informing others of the name or status of, or other information about, a Former or Current Employee; or (g) any other similar conduct, the intended or actual effect of which is that a Former Employee affiliates with another employer or a Current Employee leaves the employment of Employer.

3.8    (a) In consideration of the access to confidential information and so as to enforce the confidentiality obligations contained in Article 4, the Employee specifically agrees that, for a period of two (2) years following separation of employment, except as permitted by Section 3.8(b) below, Employee will not engage, directly or indirectly, either as proprietor, stockholder, partner, officer, member, employee, consultant, or otherwise, in any existing or future business or in any existing or future division or unit of a commercially diverse business enterprise, that is owned in whole or in part or effectively controlled by any of the following companies:

Baker Hughes Inc.; Cameron International Corporation; Diamond Offshore Drilling, Inc.; Ensco International, Inc.; Exterran Holdings, Inc.; General Electric; Helmerich & Payne, Inc.; Nabors Industries, Ltd.; National Oilwell Varco, Inc.; Noble Corporation; Oceaneering International, Inc.; Rowan Companies; Schlumberger Ltd.; Tidewater Inc.; Transocean, Ltd.; Weatherford International, Ltd.

(b) The above Section 3.8(a) notwithstanding, nothing in this Section 3.8 shall prohibit Employee and his affiliates from owning, as passive investors, in the aggregate not more than five percent of equity securities of any of the companies listed in such Section 3.8(a).

3.9    Termination of the employment relationship, regardless of reason or circumstances, does not terminate those obligations imposed by this Agreement which are continuing obligations, including, without limitation, Employee's obligations under Articles 3.6 - 3.9 and 4.

ARTICLE 4:
OWNERSHIP AND PROTECTION OF INTELLECTUAL PROPERTY AND CONFIDENTIAL INFORMATION:
4.1    All information, ideas, concepts, improvements, discoveries, works of authorship, and inventions, whether patentable or copyrightable or not, which are conceived, reduced to practice, authored, made, developed or acquired by Employee, individually or in conjunction with others, in the scope of Employee's employment by Employer or any of its affiliates, and/or during the term of Employee’s employment (whether during business hours or otherwise and whether on Employer's premises or otherwise) which relate to the business, products or services of Employer or its affiliates (including, without limitation, all such information relating to any corporate opportunities, research, financial and sales data, pricing and trading terms, evaluations, opinions, interpretations, acquisition prospects, the identity of customers or their requirements, the identity of key contacts within the customer's organizations or within the organization of acquisition prospects, or marketing and merchandising techniques, prospective names, and marks), and all documents, things, writings and items of any type or in any media embodying any of the foregoing (collectively, “Developments”), and any and all proprietary rights of any kind thereto, including without limitation all rights relating to patents, copyrights, trade secrets, and trademarks, shall be the sole and exclusive property of Employer or its affiliates, as the case may be. Employee hereby assigns to Employer any and




all rights Employee might otherwise have in and to any such Developments, and any and all proprietary rights of any kind thereto, including without limitation all rights relating to patents, copyrights, trade secrets, and trademarks.
4.2    In connection with its employment of Employee, Employer shall provide to Employee such Confidential Information of Employer as is reasonably necessary for Employee to perform Employee’s obligations hereunder. Employee agrees that “Confidential Information” as used herein shall include, without limitation, Employer’s trade secrets, confidential information concerning the businesses of Employer and its affiliates, and their strategies, methods, products, software, books, records, data and technical information concerning their products, equipment, services, and processes, procurement procedures and pricing techniques, and the names of and other information (such as credit and financial data) concerning their vendors, customers and business affiliates. Employee agrees that such Confidential Information constitutes valuable, special, and unique assets which Employer or its affiliates use in their business to obtain a competitive advantage over their competitors. Employee further agrees that protection of such Confidential Information against unauthorized disclosure and use is of critical importance to Employer and its affiliates in maintaining their competitive position. Employee shall not, at any time during or after the term of employment, use or disclose any Confidential Information of Employer or its affiliates, except to the extent needed to carry out Employee’s obligations hereunder. Confidential Information shall not include information in the public domain (but only if the same becomes part of the public domain through a means other than a use or disclosure prohibited hereunder). The above notwithstanding, a disclosure shall not be unauthorized to the extent (i) it is required by law or by a court of competent jurisdiction or (ii) it is required in connection with any judicial, arbitration, dispute resolution or other legal proceeding in which Employee's legal rights and obligations as an employee or under this Agreement are at issue; provided, however, that Employee shall, to the extent practicable and lawful in any such event, give prior notice to Employer of Employee’s intent to disclose any such confidential business information in such context so as to allow Employer or its affiliates an opportunity (which Employee will not oppose) to obtain such protective orders or similar relief with respect thereto as may be deemed appropriate, and that Employee shall limit any such disclosure to that required by the foregoing circumstances.
4.3    All written and electronic materials, records, and other documents and information made by, or coming into the possession of, Employee during the term of Employee’s employment that contain or disclose any Confidential Information of Employer or its affiliates, and any and all proprietary rights of any kind thereto, including without limitation all rights relating to patents, copyrights, trade secrets, and trademarks, shall be and remain the sole and exclusive property of Employer, or its affiliates, as the case may be. Upon termination of Employee’s employment for any reason, Employee promptly shall deliver the same, and all copies thereof, to Employer.
4.4    For purposes of this Article 4, “affiliates” shall mean entities in which Employer has a 20% or more direct or indirect equity interest.
ARTICLE 5: POST-EMPLOYMENT COVENANTS
5.1    In consideration of the access to the Confidential Information (as described in Article 4) provided by Employer, and in consideration of the payment made under Section 3.4(ii) to protect Employer’s Confidential Information, and the goodwill, customer base, and contractual relationships of Employer, Employee agrees to the provisions of Sections 5.2, 5.3 and 5.4. Employee further agrees that the provisions in Sections 5.2, 5.3 and 5.4, and the provisions in Article 4, shall survive the termination of Employee’s employment regardless of the reason for or circumstances of such termination (and regardless of whether such termination of employment is voluntary or involuntary on Employee’s part).




5.2    Employee agrees that, for a period of two (2) years following the termination of Employee’s employment for any reason, Employee shall not, anywhere in the world, directly or indirectly, either (a) solicit, encourage, or induce to terminate or reduce its business with Employer, any person or entity who paid or engaged Employer for products and/or services, or who received the benefit of Employer’s products and/or services, or with whom the Employee had any substantial dealings while Employee was employed by Employer, during the three (3) years preceding the termination of Employee’s employment, or (b) provide any products and/or services, that compete directly with products and/or services provided, marketed, and/or under development by Employer at any time during the three (3) years preceding the termination of Employee’s employment, to any person or entity who paid or engaged Employer for products and/or services, or who received the benefit of Employer’s products and/or services, or with whom the Employee had any substantial dealings while Employee was employed by Employer, during the three (3) years preceding the termination of Employee’s employment; provided, however, that the foregoing restrictions in Section 5.2(b) apply only to those products and/or services of Employer with respect to which the Employee was directly involved or knowledgeable.
5.3    Employee further agrees that, for a period of two (2) years following the termination of Employee’s employment for any reason, Employee shall not, anywhere in the world, solicit, directly or indirectly, or cause or permit others to solicit, directly or indirectly, any Former or Current Employee. The term “solicit” as used in this Section 5.3 shall have the same meaning provided for such term in Section 3.7 above.
5.4    Employee further agrees that, for a period of two (2) years following the termination of Employee’s employment for any reason, Employee shall not, anywhere in the world, engage, directly or indirectly, either as proprietor, stockholder, partner, officer, member, employee, consultant, or otherwise, in any business, or in any division or unit of a commercially diverse business enterprise listed in Section 3.8(a) above, except as qualified by Section 3.8(b) above.
5.5    Employee agrees that (a) the covenants contained in Sections 5.2, 5.3 and 5.4 hereof are necessary for the protection of Employer’s business, goodwill and Confidential Information, and (b) the compensation and other consideration received by Employee, including access to Confidential Information, are based on the parties’ agreement to such covenants. Employee represents and warrants that the time, scope of activity and geographic area restricted by Sections 5.2, 5.3 and 5.4 are reasonable, especially in view of the worldwide scope of the business operations of Employer and the nature of the Confidential Information, that the enforcement of those restrictions contained in Sections 5.2, 5.3 and 5.4 would not be unduly burdensome to or impose any undue hardship on Employee, and that Employee will be able to earn a reasonable living while abiding by such covenants. Employee agrees that the restraints and provisions of Sections 5.2, 5.3 and 5.4 are no greater than necessary, and are as narrowly drafted as reasonably possible, to protect the legitimate interests of Employer, including the Confidential Information of Employer, including without limitation its trade secrets. Employee irrevocably waives all defenses to the strict enforcement of the covenants contained in Sections 5.2, 5.3 and 5.4, and agrees that the breach or violation, or threat thereof, of the obligations and covenants set forth in any of such Sections shall entitle Employer, as a matter of right, to an injunction without the requirement of a bond, restraining any further or continued breach or violation of said obligations and covenants. The parties agree and acknowledge that the nature of Employer’s business, including the locations of its projects, vendors, customers, and potential customers, is global in nature. Accordingly, the parties expressly agree that the foregoing restrictions on Employee need to be global in territorial scope to adequately protect Employer’s Confidential Information and goodwill, and that such global territorial restriction is reasonable in view of Employer’s business, Employee’s position and responsibilities with Employer, and Employee’s access to the Confidential Information of Employer. If the scope of any restriction contained in Sections 5.2, 5.3 or 5.4 is deemed by a court to be broader than reasonable,




which the parties agree should not be the case, then such restriction shall be enforced to the maximum extent permitted by law, and Employee and Employer hereby agree that such scope may be judicially modified accordingly in any proceeding brought to enforce such restriction.
5.6    Employee agrees that the terms and conditions of this Agreement shall remain confidential as between the parties and he shall not disclose them to any other person. Without limiting the generality of the foregoing, Employee will not respond to or in any way participate in or contribute to any public discussion, notice or other publicity concerning, or in any way relating to, execution of this Agreement or its terms and conditions. Employee further agrees that he shall not make, directly or indirectly, whether in writing, orally or electronically, any negative, derogatory or other comment that could reasonably be expected to be detrimental to the Halliburton Entities, their business or operations or any of their current or former employees, officers or directors. The foregoing notwithstanding, Employee may disclose the terms of this Agreement to his immediate family, attorneys and financial advisors provided he informs them of this confidentiality provision and they agree to abide by it.
ARTICLE 6: MISCELLANEOUS:

6.1    Except as otherwise provided in Section 4.4 hereof, for purposes of this Agreement, the terms “affiliate” or “affiliated” means an entity who directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with a Halliburton Entity or in which a Halliburton Entity has a 50% or more equity interest.

6.2    For purposes of this Agreement, notices and all other communications provided for herein shall be in writing and shall be deemed to have been duly given when received by or tendered to Employee or Employer, as applicable, by pre-paid courier or by United States registered or certified mail, return receipt requested, postage prepaid, addressed as follows:

If to Employer, to Halliburton Company at 3000 North Sam Houston Parkway East, Houston, Texas 77032, to the attention of the General Counsel, or to such other address as Employee shall receive notice thereof.

If to Employee, to his last known personal residence.

6.3    This Agreement shall be governed by and construed and enforced, in all respects in accordance with the law of the State of Texas, without regard to principles of conflicts of law, unless preempted by federal law, in which case federal law shall govern; provided, however, that the Dispute Resolution Plan and the Federal Arbitration Act shall govern in all respects with regard to the resolution of disputes hereunder. Employee and Employer further agree that any lawsuit, arbitration, or other proceeding arising out of or related in any way to this Agreement or their relationship shall be commenced and maintained only in the federal or state courts or before an arbitrator in Harris County, Texas, and each party waives any current or future objection to such venue and hereby further agrees to submit to the jurisdiction of any duly authorized court or arbitrator in Harris County, Texas with respect to any such proceeding.

6.4    No failure by either party hereto at any time to give notice of any breach by the other party of, or to require compliance with, any condition or provision of this Agreement shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time.

6.5    It is a desire and intent of the parties that the terms, provisions, covenants, and remedies contained in this Agreement shall be enforceable to the fullest extent permitted by law. If any such term, provision, covenant, or remedy of this Agreement or the application thereof to any person, association, or




entity or circumstances shall, to any extent, be construed to be invalid or unenforceable in whole or in part, then such term, provision, covenant, or remedy shall be construed in a manner so as to permit its enforceability under the applicable law to the fullest extent permitted by law. In any case, the remaining provisions of this Agreement or the application thereof to any person, association, or entity or circumstances other than those to which they have been held invalid or unenforceable, shall remain in full force and effect.

6.6    It is the mutual intention of the parties to have any dispute concerning this Agreement resolved out of court. Accordingly, the parties agree that any such dispute shall, as the sole and exclusive remedy, be submitted for resolution through the Dispute Resolution Plan; provided, however, that the Employer, on its own behalf and on behalf of any of the Halliburton Entities, shall be entitled to seek a restraining order or injunction in any court of competent jurisdiction to prevent any breach or the continuation of any breach of the provisions of Articles 3.6 through 3.9, 4 and/or 5 pending initiation or completion of proceedings under the Dispute Resolution Plan. Employee hereby consents that such restraining order or injunction may be granted without the necessity of the Employer posting any bond. The parties agree that the resolution of any such dispute through such plan shall be final and binding. A copy of the Dispute Resolution Plan, as currently in effect, has been made available to Employee and is available on Halworld under “DRP” located at http://halworld.corp.halliburton.com. Halliburton Company reserves the right to amend, or discontinue such plan, in accordance with, and subject to, the plan’s provisions regarding same. By signing this Agreement, Employee hereby represents and warrants that he has read, understood and agrees to the terms and conditions contained in such Dispute Resolution Plan. THE PARTIES ACKNOWLEDGE THAT, BY SIGNING THIS AGREEMENT, THEY ARE KNOWINGLY AND VOLUNTARILY WAIVING ANY RIGHT THAT THEY MAY HAVE TO A JURY TRIAL.

6.7    This Agreement shall be binding upon and inure to the benefit of Employer, to the extent herein provided, Halliburton Entity and any other person, association, or entity which may hereafter acquire or succeed to all or substantially all of the business or assets of Employer by any means whether direct or indirect, by purchase, merger, consolidation, or otherwise. Employee's rights and obligations under this Agreement are personal and such rights, benefits, and obligations of Employee shall not be voluntarily or involuntarily assigned, alienated, or transferred, whether by operation of law or otherwise, without the prior written consent of Employer, other than in the case of death or incompetence of Employee.

6.8    This Agreement replaces and merges any previous agreements, understandings and discussions pertaining to the subject matter covered herein and therein. This Agreement constitutes the entire agreement of the parties with regard to the terms of Employee's employment, termination of employment and severance benefits, and contains all of the covenants, promises, representations, warranties, and agreements between the parties with respect to such matters. Each party to this Agreement acknowledges that no representation, inducement, promise, or agreement, oral or written, has been made by either party with respect to the foregoing matters which is not embodied herein, and that no agreement, statement, or promise relating to the employment of Employee by Employer that is not contained in this Agreement shall be valid or binding. Any modification of this Agreement will be effective only if it is in writing and signed by each party whose rights hereunder are affected thereby, provided that any such modification must be authorized or approved by the Compensation Committee or its delegate, as appropriate.

6.9    Notwithstanding any provision of the Agreement to the contrary, the following provisions shall apply for purposes of complying with Section 409A of the Internal Revenue Code and applicable Treasury authorities (“Section 409A”):

(i)
If Employee is a “specified employee,” as such term is defined in Section 409A, any payments or benefits that are deferred compensation under Section 409A and are payable or provided as a result of Employee’s termination of employment shall be payable on the date that is the




earlier of (a) the date that is six months and one day after Employee’s termination, (b) the date of Employee’s death, or (c) the date that otherwise complies with the requirements of Section 409A.
(ii)
It is intended that the provisions of this Agreement satisfy the requirements of Section 409A and that the Agreement be operated in a manner consistent with such requirements to the extent applicable. Therefore, the Employer and Employee agree to construe the provisions of the Plan in accordance with the requirements of Section 409A.

    
[SIGNATURE PAGE FOLLOWS]











































Signature Page for
Amended and Restated Executive Agreement
Eric Carre and Halliburton Company

IN WITNESS WHEREOF, Employer and Employee have duly executed this Agreement in multiple originals to be effective on the Effective Date.

HALLIBURTON COMPANY



By: /s/ Lawrence J. Pope

Name:    Lawrence J. Pope

Title:    Executive Vice President - Administration &
Chief Human Resources Officer


                    
EMPLOYEE



/s/ Eric Carre

Name: Eric Carre











Exhibit


    
Exhibit 12.1

HALLIBURTON COMPANY
Computation of Ratio of Earnings to Fixed Charges
(Unaudited)
(Millions of dollars, except ratios)


 
Six Months Ended June 30, 2016
Year Ended December 31
 
2015
2014
2013
2012
2011
Earnings available for fixed charges:
 
 
 
 
 
 
Income (loss) from continuing operations before income taxes
$
(7,398
)
$
(936
)
$
4,712

$
2,764

$
3,822

$
4,449

Add:
 
 
 
 
 
 
Distributed earnings from equity in unconsolidated affiliates
16

11

16

19

4

13

Fixed charges
467

634

554

511

445

384

Subtotal
(6,915
)
(291
)
5,282

3,294

4,271

4,846

Less:
 
 
 
 
 
 
Equity in earnings of unconsolidated affiliates
13

28

15

9

14

20

Total earnings (loss) available for fixed charges
$
(6,928
)
$
(319
)
$
5,267

$
3,285

$
4,257

$
4,826

 
 
 
 
 
 
 
Fixed charges:
 
 
 
 
 
 
Interest expense
$
381

$
463

$
396

$
339

$
305

$
268

Rental expense representative of interest
86

171

158

172

140

116

Total fixed charges
$
467

$
634

$
554

$
511

$
445

$
384

 
 
 
 
 
 
 
Ratio of earnings to fixed charges
(a)

(a)

9.5

6.4

9.6

12.6

(a) Total earnings (loss) available for fixed charges for the six months ended June 30, 2016 and year ended December 31, 2015 were inadequate to cover fixed charges by $7.4 billion and $953 million, respectively. Reported losses during the periods were primarily due to Baker Hughes termination fee and associated costs of $4.1 billion and impairments and other charges of $3.2 billion for the six months ended June 30, 2016 and impairments and other charges of $2.2 billion for the year ended December 31, 2015.
    




Exhibit
Exhibit 31.1

Section 302 Certification
 
 
I, David J. Lesar, certify that:
 
1.    I have reviewed this quarterly report on Form 10-Q for the quarter ended June 30, 2016 of Halliburton Company;

2.    Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.    Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.    The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)    Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)    Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)    Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)    Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.    The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)    All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)    Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


Date: August 1, 2016

/s/ David J. Lesar
David J. Lesar
Chief Executive Officer
Halliburton Company

Exhibit
Exhibit 31.2

Section 302 Certification


I, Mark A. McCollum, certify that:

1.    I have reviewed this quarterly report on Form 10-Q for the quarter ended June 30, 2016 of Halliburton Company;

2.    Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.    Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.    The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)    Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)    Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)    Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)    Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.    The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)    All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)    Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


Date: August 1, 2016

/s/ Mark A. McCollum
Mark A. McCollum
Chief Financial Officer
Halliburton Company

Exhibit
Exhibit 32.1

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002



This certification is provided pursuant to § 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. § 1350, and accompanies the Quarterly Report on Form 10-Q for the period ended June 30, 2016 of Halliburton Company (the “Company”) as filed with the Securities and Exchange Commission on the date hereof (the “Report”).

I, David J. Lesar, Chief Executive Officer of the Company, certify that:

(1)
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.



/s/ David J. Lesar
David J. Lesar
Chief Executive Officer

Date: August 1, 2016


Exhibit
Exhibit 32.2

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002



This certification is provided pursuant to § 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. § 1350, and accompanies the Quarterly Report on Form 10-Q for the period ended June 30, 2016 of Halliburton Company (the “Company”) as filed with the Securities and Exchange Commission on the date hereof (the “Report”).

I, Mark A. McCollum, Chief Financial Officer of the Company, certify that:

(1)
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.



/s/ Mark A. McCollum
Mark A. McCollum
Chief Financial Officer

Date: August 1, 2016
 


Exhibit


Exhibit 95
Mine Safety Disclosures
Under the Dodd-Frank Wall Street Reform and Consumer Protection Act, each operator of a mine is required to include certain mine safety results in its periodic reports filed with the SEC. The operation of our mines is subject to regulation by the federal Mine Safety and Health Administration (MSHA) under the Federal Mine Safety and Health Act of 1977 (Mine Act). Below, we present the following items regarding certain mining safety and health matters for the quarter ended June 30, 2016:
▪
total number of violations of mandatory health or safety standards that could significantly and substantially contribute to the cause and effect of a mine safety or health hazard under section 104 of the Mine Act for which we have received a citation from MSHA;
▪
total number of orders issued under section 104(b) of the Mine Act, which covers violations that had previously been cited under section 104(a) that, upon follow-up inspection by MSHA, are found not to have been totally abated within the prescribed time period, which results in the issuance of an order requiring the mine operator to immediately withdraw all persons (except certain authorized persons) from the mine;
▪
total number of citations and orders for unwarrantable failure of the mine operator to comply with mandatory health or safety standards under Section 104(d) of the Mine Act;
▪
total number of flagrant violations (i.e., reckless or repeated failure to make reasonable efforts to eliminate a known violation of a mandatory health or safety standard that substantially and proximately caused, or reasonably could have been expected to cause, death or serious bodily injury) under section 110(b)(2) of the Mine Act;
▪
total number of imminent danger orders (i.e., the existence of any condition or practice in a mine which could reasonably be expected to cause death or serious physical harm before such condition or practice can be abated) issued under section 107(a) of the Mine Act;
▪
total dollar value of proposed assessments from MSHA under the Mine Act;
▪
total number of mining-related fatalities; and
▪
total number of pending legal actions before the Federal Mine Safety and Health Review Commission involving such mine.
HALLIBURTON COMPANY
Mine Safety Disclosures
Three Months Ended June 30, 2016
(Unaudited)
(Whole dollars)
 
Operation/ MSHA Identification Number(1)
Section 104 Citations
Section 104(b) Orders
104(d)Citations and Orders
Section 110(b)(2) Violations
Section 107(a) Orders
Proposed MSHA Assessments(2)
Fatalities
Pending Legal Actions
BPM Colony Mill/4800070
2

—

—

—

—

$
3,314

—

—

BPM Colony Mine/4800889
—

—

—

—

—

—

—

—

BPM Lovell Mill/4801405
—

—

—

—

—

—

—

—

BPM Lovell Mine/4801016
—

—

—

—

—

—

—

—

Corpus Christi Grinding Plant/4104010
—

—

—

—

—

—

—

—

Dunphy Mill/2600412
—

—

—

—

—

—

—

—

Lake Charles Plant/1601032
—

—

—

—

—

—

—

—

Larose Grinding Plant/1601504
—

—

—

—

—

—

—

—

Rossi Jig Plant/2602239
—

—

—

—

—

—

—

—

Total
2

—

—

—

—

$
3,314

—

—

(1)
The definition of a mine under section 3 of the Mine Act includes the mine, as well as other items used in, or to be used in, or resulting from, the work of extracting minerals, such as land, structures, facilities, equipment, machines, tools, and preparation facilities. Unless otherwise indicated, any of these other items associated with a single mine have been aggregated in the totals for that mine.
(2)
Amounts included are the total dollar value of proposed or outstanding assessments received from MSHA on or before July 1, 2016 regardless of whether the assessment has been challenged or appealed, for citations and orders occurring during the quarter ended June 30, 2016.

In addition, as required by the reporting requirements regarding mine safety included in §1503(a)(2) of the Dodd-Frank Act, the following is a list for the quarter ended June 30, 2016, of each mine of which we or a subsidiary of ours is an operator, that has received written notice from MSHA of:

(a) a pattern of violations of mandatory health or safety standards that are of such nature as could have significantly and substantially contributed to the cause and effect of mine health or safety hazards under
§104(e) of the Mine Act:
None; or
(b) the potential to have such a pattern:
None.

Citations and orders can be contested and appealed, and as part of that process, are sometimes reduced in severity and amount, and are sometimes dismissed. The number of citations, orders, and proposed assessments vary by inspector and also vary depending on the size and type of the operation.