UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 | |||||
For the quarterly period ended June 30, 2020
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
(a Delaware corporation)
(Address of Principal Executive Offices)
Telephone Number – Area Code (281 ) 871-2699
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol | Name of each exchange on which registered | ||||||
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.
| ☒ | No | ☐ | |||||||||
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).
| ☒ | No | ☐ | |||||||||
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| ☒ | Accelerated Filer | ☐ | ||||||||||||
| Non-accelerated Filer | ☐ | Emerging Growth Company | ||||||||||||
| Smaller Reporting Company | ||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
| Yes | ☐ | No | ☐ | ||||||||
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
| Yes | No | ☒ | |||||||||
As of July 17, 2020, there were 878,470,401 shares of Halliburton Company common stock, $2.50 par value per share, outstanding.
HALLIBURTON COMPANY
Index
| Page No. | ||||||||
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 | 2020 | 2019 | 2020 | 2019 | ||||||||||
| Revenue: | ||||||||||||||
| Services | $ | $ | $ | $ | ||||||||||
| Product sales | ||||||||||||||
| Total revenue | ||||||||||||||
| Operating costs and expenses: | ||||||||||||||
| Cost of services | ||||||||||||||
| Cost of sales | ||||||||||||||
| Impairments and other charges | ||||||||||||||
| General and administrative | ||||||||||||||
| Total operating costs and expenses | ||||||||||||||
| Operating income (loss) | ( | ( | ||||||||||||
Interest expense, net of interest income of $ | ( | ( | ( | ( | ||||||||||
| Loss on early extinguishment of debt | ( | |||||||||||||
| Other, net | ( | ( | ( | ( | ||||||||||
| Income (loss) before income taxes | ( | ( | ||||||||||||
| Income tax benefit (provision) | ( | ( | ||||||||||||
| Net income (loss) | $ | ( | $ | $ | ( | $ | ||||||||
| Net (income) loss attributable to noncontrolling interest | ( | ( | ||||||||||||
| Net income (loss) attributable to company | $ | ( | $ | $ | ( | $ | ||||||||
| Basic and diluted net income (loss) per share | $ | ( | $ | $ | ( | $ | ||||||||
| Basic weighted average common shares outstanding | ||||||||||||||
| Diluted weighted average common shares outstanding | ||||||||||||||
| See notes to condensed consolidated financial statements. | ||||||||||||||
HAL Q2 2020 FORM 10-Q | 1
HALLIBURTON COMPANY
Condensed Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)
| Three Months Ended June 30 | Six Months Ended June 30 | |||||||||||||
| Millions of dollars | 2020 | 2019 | 2020 | 2019 | ||||||||||
| Net income (loss) | $ | ( | $ | $ | ( | $ | ||||||||
| Other comprehensive income, net of income taxes | ||||||||||||||
| Comprehensive income (loss) | $ | ( | $ | $ | ( | $ | ||||||||
| Comprehensive (income) loss attributable to noncontrolling interest | ( | ( | ||||||||||||
| Comprehensive income (loss) attributable to company shareholders | $ | ( | $ | $ | ( | $ | ||||||||
| See notes to condensed consolidated financial statements. | ||||||||||||||
HAL Q2 2020 FORM 10-Q | 2
HALLIBURTON COMPANY
Condensed Consolidated Balance Sheets
(Unaudited)
| Millions of dollars and shares except per share data | June 30, 2020 | December 31, 2019 | ||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and equivalents | $ | $ | ||||||
Receivables (net of allowances for credit losses of $ | ||||||||
| Inventories | ||||||||
| Other current assets | ||||||||
| Total current assets | ||||||||
Property, plant and equipment (net of accumulated depreciation of $ | ||||||||
| Goodwill | ||||||||
| Deferred income taxes | ||||||||
| Operating lease right-of-use assets | ||||||||
| Other assets | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and Shareholders’ Equity | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued employee compensation and benefits | ||||||||
| Current portion of operating lease liabilities | ||||||||
| Current maturities of long-term debt | ||||||||
| Other current liabilities | ||||||||
| Total current liabilities | ||||||||
| Long-term debt | ||||||||
| Operating lease liabilities | ||||||||
| Employee compensation and benefits | ||||||||
| Other liabilities | ||||||||
| Total liabilities | ||||||||
| Shareholders’ equity: | ||||||||
Common stock, par value $ issued | ||||||||
| Paid-in capital in excess of par value | ||||||||
| Accumulated other comprehensive loss | ( | ( | ||||||
| Retained earnings | ||||||||
Treasury stock, at cost ( | ( | ( | ||||||
| Company shareholders’ equity | ||||||||
| Noncontrolling interest in consolidated subsidiaries | ||||||||
| Total shareholders’ equity | ||||||||
| Total liabilities and shareholders’ equity | $ | $ | ||||||
| See notes to condensed consolidated financial statements. | ||||||||
HAL Q2 2020 FORM 10-Q | 3
HALLIBURTON COMPANY
Condensed Consolidated Statements of Cash Flows
(Unaudited)
| Six Months Ended June 30 | ||||||||
| Millions of dollars | 2020 | 2019 | ||||||
| Cash flows from operating activities: | ||||||||
| Net income (loss) | $ | ( | $ | |||||
| Adjustments to reconcile net income (loss) to cash flows from operating activities: | ||||||||
| Impairments and other charges | ||||||||
| Depreciation, depletion and amortization | ||||||||
| Deferred income tax benefit, continuing operations | ( | ( | ||||||
| Changes in assets and liabilities: | ||||||||
| Receivables | ( | |||||||
| Accounts payable | ( | ( | ||||||
| Inventories | ( | ( | ||||||
| Other operating activities | ( | ( | ||||||
| Total cash flows provided by (used in) operating activities | ||||||||
| Cash flows from investing activities: | ||||||||
| Capital expenditures | ( | ( | ||||||
| Proceeds from sales of property, plant and equipment | ||||||||
| Other investing activities | ( | ( | ||||||
| Total cash flows provided by (used in) investing activities | ( | ( | ||||||
| Cash flows from financing activities: | ||||||||
| Payments on long-term borrowings | ( | ( | ||||||
| Proceeds from issuance of long-term debt, net | ||||||||
| Dividends to shareholders | ( | ( | ||||||
| Stock repurchase program | ( | ( | ||||||
| Other financing activities | ||||||||
| Total cash flows provided by (used in) financing activities | ( | ( | ||||||
| Effect of exchange rate changes on cash | ( | ( | ||||||
| Decrease in cash and equivalents | ( | ( | ||||||
| Cash and equivalents at beginning of period | ||||||||
| Cash and equivalents at end of period | $ | $ | ||||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash payments during the period for: | ||||||||
| Interest | $ | $ | ||||||
| Income taxes | $ | $ | ||||||
| See notes to condensed consolidated financial statements. | ||||||||
HAL Q2 2020 FORM 10-Q | 4
| Part I. Item 1 | Notes to Condensed Consolidated Financial Statements | |||||
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 2019 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, 2020 and the results of our operations for the three and six months ended June 30, 2020 and 2019, and our cash flows for the six months ended June 30, 2020 and 2019. 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, 2020 may not be indicative of results for the full year.
Note 2. Impairments and Other Charges
The oil and gas industry experienced an unprecedented disruption during the first half of 2020 as a result of a combination of factors, including the substantial decline in global demand for oil caused by the COVID-19 pandemic and subsequent mitigation efforts, and disagreements between the Organization of Petroleum Exporting Countries and other oil producing nations (OPEC+) in February 2020 regarding limits on production of oil. These events created a substantial surplus of oil. WTI oil spot prices decreased from a high of $63 per barrel in early January to a low of negative $37 per barrel in late April, a level which had never been experienced, and then rose to a high of $41 per barrel in early July. The drop to a negative per barrel price for WTI was a short term effect of a combination of forward contracts expiring, coupled with the decrease in demand and the absence of available storage capacity. As a result, global activity declined significantly, with the global rig count sinking to the lowest level since 1973. The U.S. average rig count for the second quarter declined 50 % compared to the first quarter, while the international rig count dropped 22 %.
These market conditions have significantly impacted our business and our outlook globally, with a more severe impact to our North America business in the near-term. Customers continue to revise their capital budgets in order to adjust spending levels in response to the lower commodity prices, and we have experienced significant activity reductions and pricing pressure for our products and services, which we expect to continue. In line with these rapidly changing market conditions, our market capitalization also deteriorated as a result during the first half of 2020. We determined these recent events constituted a triggering event that required us to review the recoverability of our long-lived assets and perform an interim goodwill impairment assessment as of May 1, 2020. We also took actions to rationalize our portfolio of real estate facilities and initiate reductions in our global workforce in an effort to mitigate the impact of market deterioration and better align our workforce and cost structure with anticipated activity levels. As part of our real estate rationalization, we identified owned properties to sell and leased properties to abandon.
HAL Q2 2020 FORM 10-Q | 5
| Part I. Item 1 | Notes to Condensed Consolidated Financial Statements | |||||
We determined the fair value of our long-lived assets based on a discounted cash flow analysis, with the exception of real estate facilities which are classified as held for sale for which fair value was based on third party sales price estimates. We determined the fair value for each reporting unit in our goodwill impairment assessment using both a discounted cash flow analysis and a multiples-based market approach for comparable companies. Given the current volatile market environment, we utilized third-party valuation advisors to assist us with these valuations. These analyses included significant judgment, including management’s short-term and long-term forecast of operating performance, discount rates based on our weighted average cost of capital, revenue growth rates, profitability margins, capital expenditures, the timing of future cash flows based on an eventual recovery of the oil and gas industry, and in the case of long-lived assets, the remaining useful life and service potential of the asset. These impairment assessments incorporate inherent uncertainties, including projected commodity pricing, supply and demand for our services and future market conditions, which are difficult to predict in volatile economic environments and could result in impairment charges in future periods if actual results materially differ from the estimated assumptions utilized in our forecasts.
Based upon our impairment assessments, we determined the carrying amount of some of our long-lived assets exceeded their respective fair values. Therefore, we recorded impairments and other charges of approximately $1.3 billion during the three months ended June 30, 2020 relating to these assets. Long-lived asset impairments include impairments of property, plant and equipment, intangible assets, and real estate facilities. As a result of our goodwill impairment assessment, we determined that the fair value of each reporting unit exceeded its net book value and, therefore, no goodwill impairments were deemed necessary. We will continue to evaluate these reporting units for potential goodwill impairment in the third quarter of 2020 as market conditions evolve.
The following table presents various pre-tax charges we recorded during the three and six months ended June 30, 2020 and 2019, which are reflected within "Impairments and other charges" on our condensed consolidated statements of operations.
| Three Months Ended June 30 | Six Months Ended June 30 | |||||||||||||
| Millions of dollars | 2020 | 2019 | 2020 | 2019 | ||||||||||
| Long-lived asset impairments | $ | $ | $ | $ | ||||||||||
| Inventory costs and write-downs | ||||||||||||||
| Severance costs | ||||||||||||||
| Other | ||||||||||||||
| Total impairments and other charges | $ | $ | $ | $ | ||||||||||
Of the $2.1 billion of impairments and other charges recorded during the three months ended June 30, 2020, approximately $1.4 billion was attributable to our Completion and Production segment and approximately $770 million was attributable to our Drilling and Evaluation segment. The $1.3 billion of long-lived asset impairments consists of the following: $368 million attributable to hydraulic fracturing equipment, the majority of which was located in North America; $281 million related to real estate properties; $122 million related to right-of-use assets, primarily operating leases; $146 million related to well intervention services equipment; $131 million related to intangible assets; and $204 million associated with other fixed asset impairments, including disposals. Inventory costs and write-downs in the table above primarily represent disposal of excess inventory, including drilling fluids and other chemicals, and write-downs in which some of our inventory cost exceeded its market value.
Note 3. Business Segment Information
HAL Q2 2020 FORM 10-Q | 6
| Part I. Item 1 | Notes to Condensed Consolidated Financial Statements | |||||
The following table presents information on our business segments.
| Three Months Ended June 30 | Six Months Ended June 30 | |||||||||||||
| Millions of dollars | 2020 | 2019 | 2020 | 2019 | ||||||||||
| Revenue: | ||||||||||||||
| Completion and Production | $ | $ | $ | $ | ||||||||||
| Drilling and Evaluation | ||||||||||||||
| Total revenue | $ | $ | $ | $ | ||||||||||
| Operating income (loss): | ||||||||||||||
| Completion and Production | $ | $ | $ | $ | ||||||||||
| Drilling and Evaluation | ||||||||||||||
| Total operations | ||||||||||||||
| Corporate and other (a) | ( | ( | ( | ( | ||||||||||
| Impairments and other charges (b) | ( | ( | ( | ( | ||||||||||
| Total operating income (loss) | $ | ( | $ | $ | ( | $ | ||||||||
| Interest expense, net of interest income | ( | ( | ( | ( | ||||||||||
| Loss on early extinguishment of debt (c) | ( | |||||||||||||
| Other, net | ( | ( | ( | ( | ||||||||||
| Income (loss) before income taxes | $ | ( | $ | $ | ( | $ | ||||||||
(a) Includes certain expenses not attributable to a particular business segment, such as costs related to support functions and corporate executives, and also includes amortization expense associated with intangible assets recorded as a result of acquisitions.
(b) For the three months ended June 30, 2020, amount includes approximately $1.4 billion attributable to Completion and Production, $770 million attributable to Drilling and Evaluation, and $25 million attributable to Corporate and other. For the three months ended June 30, 2019, amount includes $77 million attributable to Completion and Production, $142 million attributable to Drilling and Evaluation, and $28 million attributable to Corporate and other. For the six months ended June 30, 2020, amount includes $2.1 billion attributable to Completion and Production, $1.0 billion attributable to Drilling and Evaluation, and $41 million attributable to Corporate and other. For the six months ended June 30, 2019, amount includes $127 million attributable to Completion and Production, $153 million attributable to Drilling and Evaluation, and $28 million attributable to Corporate and other. See Note 2 for further discussion on these impairments and other charges.
(c) For the six months ended June 30, 2020, amount includes a $168 million loss on extinguishment of debt related to the early repurchase of senior notes. See Note 6 for further discussion on this charge.
Note 4. Revenue
Revenue is recognized based on the transfer of control or our customers' ability to benefit from our services and products in an amount that reflects the consideration we expect to receive in exchange for those services and products. The vast majority of our service and product contracts are short-term in nature. In recognizing revenue for our services and products, we determine the transaction price of purchase orders or contracts with our customers, which may consist of fixed and variable consideration. We also assess our customers' ability and intention to pay, which is based on a variety of factors, including our customers' historical payment experience and financial condition. Payment terms and conditions vary by contract type, although terms generally include a requirement of payment within 20 to 60 days. Other judgments involved in recognizing revenue include an assessment of progress towards completion of performance obligations for certain long-term contracts, which involve estimating total costs to determine our progress towards contract completion and calculating the corresponding amount of revenue to recognize.
Disaggregation of revenue
We disaggregate revenue from contracts with customers into types of services or products, consistent with our two reportable segments, in addition to geographical area. Based on the location of services provided and products sold, 41 % and 54 % of our consolidated revenue was from the United States for the six months ended June 30, 2020 and 2019, respectively. No other country accounted for more than 10% of our revenue.
HAL Q2 2020 FORM 10-Q | 7
| Part I. Item 1 | Notes to Condensed Consolidated Financial Statements | |||||
The following table presents information on our disaggregated revenue.
| Millions of dollars | Three Months Ended June 30 | Six Months Ended June 30 | ||||||||||||
| Revenue by segment: | 2020 | 2019 | 2020 | 2019 | ||||||||||
| Completion and Production | $ | $ | $ | $ | ||||||||||
| Drilling and Evaluation | ||||||||||||||
| Total revenue | $ | $ | $ | $ | ||||||||||
| Revenue by geographic region: | ||||||||||||||
| North America | $ | $ | $ | $ | ||||||||||
| Latin America | ||||||||||||||
| Europe/Africa/CIS | ||||||||||||||
| Middle East/Asia | ||||||||||||||
| Total revenue | $ | $ | $ | $ | ||||||||||
Contract balances
We perform our obligations under contracts with our customers by transferring services and products in exchange for consideration. The timing of our performance often differs from the timing of our customer’s payment, which results in the recognition of receivables and deferred revenue. Deferred revenue represents advance consideration received from customers for contracts where revenue is recognized on future performance of service. Deferred revenue, as well as revenue recognized during the period relating to amounts included as deferred revenue at the beginning of the period, was not material to our condensed consolidated financial statements.
Transaction price allocated to remaining performance obligations
Remaining performance obligations represent firm contracts for which work has not been performed and future revenue recognition is expected. We have elected the practical expedient permitting the exclusion of disclosing remaining performance obligations for contracts that have an original expected duration of one year or less. We have some long-term contracts related to software and integrated project management services such as lump sum turnkey contracts. For software contracts, revenue is generally recognized over time throughout the license period when the software is considered to be a right to access our intellectual property. For lump sum turnkey projects, we recognize revenue over time using an input method, which requires us to exercise judgment. Revenue allocated to remaining performance obligations for these long-term contracts is not material.
Receivables
HAL Q2 2020 FORM 10-Q | 8
| Part I. Item 1 | Notes to Condensed Consolidated Financial Statements | |||||
Note 5. Inventories
Inventories consisted of the following:
| Millions of dollars | June 30, 2020 | December 31, 2019 | ||||||
| Finished products and parts | $ | $ | ||||||
| Raw materials and supplies | ||||||||
| Work in process | ||||||||
| Total | $ | $ | ||||||
During the six months ended June 30, 2020, we recorded $494 million of impairment charges related to inventory. See Note 2 for further discussion on impairments and other charges.
Note 6. Debt
Note 7. Income Taxes
During the three months ended June 30, 2020, we recorded a total income tax benefit of $402 million on a pre-tax loss of $2.1 billion, resulting in an effective tax rate of 19.3 %. Our effective tax rate during the three months ended June 30, 2020 was impacted by the geographic mix of our earnings.
During the six months ended June 30, 2020, we recorded a total income tax benefit of $283 million on a pre-tax loss of $3.0 billion, resulting in an effective tax rate of 9.5 %. The effective tax rate for this period was primarily impacted by our first quarter results, which included the impacts of the COVID-19 pandemic and OPEC+ disagreements which created an unprecedented disruption in the oil and gas industry. After evaluating the negative impact that these events are expected to have on our business outlook, we determined that it was more likely than not that certain foreign tax credits would not be realized. Accordingly, we recognized a valuation allowance on our deferred tax assets in the amount of $310 million during the first quarter. Additionally, we recorded $3.2 billion of impairments and other charges and a $168 million loss on extinguishment of debt during the six months ended June 30, 2020, resulting in a $686 million tax benefit recognized during the period. Our effective tax rate during the six months ended June 30, 2020 was also impacted by the geographic mix of our earnings.
HAL Q2 2020 FORM 10-Q | 9
| Part I. Item 1 | Notes to Condensed Consolidated Financial Statements | |||||
Note 8. Shareholders’ Equity
The following tables summarize our shareholders’ equity activity for the three and six months ended June 30, 2020 and June 30, 2019, respectively:
| Millions of dollars | Common Stock | Paid-in Capital in Excess of Par Value | Treasury Stock | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Noncontrolling Interest in Consolidated Subsidiaries | Total | ||||||||||||||||
| Balance at December 31, 2019 | $ | $ | $ | ( | $ | $ | ( | $ | $ | ||||||||||||||
| Comprehensive income (loss): | |||||||||||||||||||||||
| Net income (loss) | ( | ( | |||||||||||||||||||||
| Other comprehensive income | |||||||||||||||||||||||
Cash dividends ($ | ( | ( | |||||||||||||||||||||
| Stock repurchase program | ( | ( | |||||||||||||||||||||
| Stock plans | ( | ||||||||||||||||||||||
| Other | ( | ( | |||||||||||||||||||||
| Balance at March 31, 2020 | $ | $ | $ | ( | $ | $ | ( | $ | $ | ||||||||||||||
| Comprehensive income (loss): | |||||||||||||||||||||||
| Net loss | ( | ( | ( | ||||||||||||||||||||
| Other comprehensive income | |||||||||||||||||||||||
Cash dividends ($ | ( | ( | |||||||||||||||||||||
| Stock plans | ( | ||||||||||||||||||||||
| Other | ( | ( | |||||||||||||||||||||
| Balance at June 30, 2020 | $ | $ | $ | ( | $ | $ | ( | $ | $ | ||||||||||||||
| Millions of dollars | Common Stock | Paid-in Capital in Excess of Par Value | Treasury Stock | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Noncontrolling Interest in Consolidated Subsidiaries | Total | ||||||||||||||||
| Balance at December 31, 2018 | $ | $ | $ | ( | $ | $ | ( | $ | $ | ||||||||||||||
| Comprehensive income (loss): | |||||||||||||||||||||||
| Net income | |||||||||||||||||||||||
| Other comprehensive income | |||||||||||||||||||||||
Cash dividends ($ | ( | ( | |||||||||||||||||||||
| Stock plans | |||||||||||||||||||||||
| Other | ( | ( | |||||||||||||||||||||
| Balance at March 31, 2019 | $ | $ | $ | ( | $ | $ | ( | $ | $ | ||||||||||||||
| Comprehensive income (loss): | |||||||||||||||||||||||
| Net income | |||||||||||||||||||||||
| Other comprehensive income | |||||||||||||||||||||||
Cash dividends ($ | ( | ||||||||||||||||||||||