Halliburton Company (NYSE: HAL) — Q2 2020 Form 10-Q
Reporting period: Three and six months ended June 30, 2020. Halliburton provides products and services to the energy industry through Completion and Production and Drilling and Evaluation segments. All amounts below are U.S. dollars.
Financial results and liquidity
| Metric | Q2 2020 | Q2 2019 | First half 2020 | First half 2019 |
|---|---|---|---|---|
| Revenue | $3.196 billion | $5.930 billion | $8.233 billion | $11.667 billion |
| Operating income (loss) | $(1.911) billion | $303 million | $(2.482) billion | $668 million |
| Net income (loss) attributable to Halliburton | $(1.676) billion | $75 million | $(2.693) billion | $227 million |
| Diluted earnings (loss) per share | $(1.91) | $0.09 | $(3.07) | $0.26 |
- Revenue and segments: Q2 revenue fell 46% year over year. Completion and Production revenue declined 56% to $1.672 billion; Drilling and Evaluation fell 28% to $1.524 billion. Segment operating income was $159 million and $127 million, respectively, before corporate costs and company-wide impairments.
- Cash flow: First-half operating cash flow was $823 million; capital expenditures were $355 million. Cash and equivalents decreased to $1.811 billion at June 30 from $2.268 billion at year-end 2019.
- Debt and liquidity: Debt carrying value was $9.826 billion, including $188 million of current maturities. The company reported $3.5 billion of available committed revolving credit. Its March debt transactions issued $1.0 billion of 2.92% notes due 2030 and repurchased $1.5 billion of existing notes, producing a $168 million extinguishment loss.
- Balance sheet: Total assets were $21.104 billion, down from $25.377 billion at December 31, 2019; shareholders’ equity was $5.196 billion, down from $8.025 billion.
Material changes and unusual items
- Impairments and other charges totaled $2.147 billion in Q2 and $3.220 billion in the first half, versus $247 million and $308 million in the comparable 2019 periods. Q2 charges included $1.252 billion of long-lived asset impairments, $494 million of inventory costs and write-downs, and $241 million of severance costs.
- The long-lived asset charges reflected impairment of equipment, real estate, right-of-use assets and other assets. Halliburton found no goodwill impairment in its interim assessment but said it would reassess in Q3 as conditions evolved.
- First-half revenue declined 29%. North America revenue fell 68% in Q2 and 47% in the first half; international Q2 revenue declined 18%. The filing attributes the deterioration to pandemic-driven demand weakness, lower oil prices, reduced customer budgets and activity, and OPEC+ supply disruption.
- The first-half tax benefit was $283 million, with a 9.5% effective rate. The company recorded a $310 million valuation allowance on deferred tax assets, citing uncertainty that certain foreign tax credits would be realized.
- The quarterly dividend was reduced during Q2 from $0.18 to $0.045 per share. The company paid $198 million in dividends during the first half and repurchased $100 million of stock, all in Q1.
Outlook, commentary and risks
- Management said it could not predict the duration or full impact of the pandemic and industry disruption. It expected 2020 North American customer spending to be about 50% below 2019, and international activity and spending to decline by a mid-teens percentage.
- Management expected a modest North American completions improvement in Q3, followed by seasonal deceleration, and expected drilling declines to level off in Q3. International drilling was expected to decline modestly, with regional variation.
- Full-year 2020 capital expenditures were expected to be approximately $800 million, 48% below 2019. Management cited workforce reductions, facility consolidation, cost controls and working-capital management as responses to market conditions.
- Key risks include prolonged low commodity prices and activity, customer payment delays or defaults, supply-chain and operational disruption, further workforce or facility actions, additional impairments, and possible reductions or suspension of dividends. Credit ratings were BBB+ (S&P) and Baa1 (Moody’s) for long-term debt, both with negative outlooks.
- About $1.9 billion of letters of credit, bank guarantees and surety bonds were outstanding; some letters of credit may require cash collateral upon triggering events. Halliburton had ceased primary Venezuela operations under updated U.S. sanctions; it said remaining assets could be expropriated but did not expect a material financial effect.
Important facts for investors to verify
- Whether activity, pricing and customer spending recover in line with management’s Q3 and full-year assumptions.
- Whether operating cash flow remains adequate if receivable collections weaken or customers default.
- Whether further asset impairments, including goodwill impairment, or additional restructuring charges are recorded.
- How the lower dividend, planned capital spending and debt maturities affect liquidity and capital allocation.
- Whether the negative credit-rating outlooks, guarantee collateral provisions or Venezuela-related developments change.