UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE QUARTERLY PERIOD ENDED SeptemberJune 30, 20192020
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number 1-12317
NATIONAL OILWELL VARCO, INC.
(Exact name of registrant as specified in its charter)
Delaware | 76-0475815 | |
(State or other jurisdiction of incorporation or organization) | ( Identification No.) |
7909 Parkwood Circle Drive
Houston, Texas
77036-6565
(Address of principal executive offices)
(713) 346-7500
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock, par value $.01 per share | NOV | New York Stock Exchange |
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 ☒ 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). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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.
Large accelerated filer | ☑ |
| Accelerated filer | ☐ | Non-accelerated filer | ☐ |
Smaller reporting company | ☐ |
| Emerging growth 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. ☐
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 October 18, 2019July 17, 2020 the registrant had 385,832,119388,283,695 shares of common stock, par value $0.01 per share, outstanding.
PART I - FINANCIAL INFORMATION
Item 1. | Financial Statements |
NATIONAL OILWELL VARCO, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In millions, except share data)
|
| September 30, |
|
| December 31, |
|
| June 30, |
|
| December 31, |
| |||||
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
| |||||
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Cash and cash equivalents |
| $ | 1,313 |
|
| $ | 1,427 |
|
| $ | 1,447 |
|
| $ | 1,171 |
| |
Receivables, net |
|
| 1,799 |
|
|
| 2,101 |
|
|
| 1,502 |
|
|
| 1,855 |
| |
Inventories, net |
|
| 2,537 |
|
|
| 2,986 |
|
|
| 1,929 |
|
|
| 2,197 |
| |
Contract assets |
|
| 615 |
|
|
| 565 |
|
|
| 508 |
|
|
| 643 |
| |
Prepaid and other current assets |
|
| 251 |
|
|
| 200 |
|
|
| 204 |
|
|
| 247 |
| |
Total current assets |
|
| 6,515 |
|
|
| 7,279 |
|
|
| 5,590 |
|
|
| 6,113 |
| |
Property, plant and equipment, net |
|
| 2,361 |
|
|
| 2,797 |
|
|
| 2,010 |
|
|
| 2,354 |
| |
Lease right-of-use assets, operating |
|
| 437 |
|
|
| — |
|
|
| 398 |
|
|
| 444 |
| |
Lease right-of-use assets, financing |
|
| 236 |
|
|
| — |
|
|
| 207 |
|
|
| 230 |
| |
Deferred income taxes |
|
| — |
|
|
| 11 |
| |||||||||
Goodwill |
|
| 3,236 |
|
|
| 6,264 |
|
|
| 1,493 |
|
|
| 2,807 |
| |
Intangibles, net |
|
| 866 |
|
|
| 3,020 |
|
|
| 525 |
|
|
| 852 |
| |
Investment in unconsolidated affiliates |
|
| 291 |
|
|
| 301 |
|
|
| 66 |
|
|
| 282 |
| |
Other assets |
|
| 63 |
|
|
| 124 |
|
|
| 158 |
|
|
| 67 |
| |
Total assets |
| $ | 14,005 |
|
| $ | 19,796 |
|
| $ | 10,447 |
|
| $ | 13,149 |
| |
LIABILITIES AND STOCKHOLDERS' EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Accounts payable |
| $ | 716 |
|
| $ | 722 |
|
| $ | 556 |
|
| $ | 715 |
| |
Accrued liabilities |
|
| 983 |
|
|
| 1,088 |
|
|
| 815 |
|
|
| 949 |
| |
Contract liabilities |
|
| 455 |
|
|
| 458 |
|
|
| 408 |
|
|
| 427 |
| |
Current portion of lease liabilities |
|
| 113 |
|
|
| 7 |
|
|
| 115 |
|
|
| 114 |
| |
Accrued income taxes |
|
| 9 |
|
|
| 66 |
|
|
| 60 |
|
|
| 42 |
| |
Total current liabilities |
|
| 2,276 |
|
|
| 2,341 |
|
|
| 1,954 |
|
|
| 2,247 |
| |
Lease liabilities |
|
| 673 |
|
|
| 222 |
|
|
| 637 |
|
|
| 674 |
| |
Long-term debt |
|
| 2,484 |
|
|
| 2,482 |
|
|
| 2,029 |
|
|
| 1,989 |
| |
Deferred income taxes |
|
| 174 |
|
|
| 564 |
|
|
| 71 |
|
|
| 140 |
| |
Other liabilities |
|
| 269 |
|
|
| 298 |
|
|
| 223 |
|
|
| 253 |
| |
Total liabilities |
|
| 5,876 |
|
|
| 5,907 |
|
|
| 4,914 |
|
|
| 5,303 |
| |
Commitments and contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Stockholders’ equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Common stock - par value $.01; 1 billion shares authorized; 385,850,007 and 383,426,654 shares issued and outstanding at September 30, 2019 and December 31, 2018 |
|
| 4 |
|
|
| 4 |
| |||||||||
Common stock - par value $.01; 1 billion shares authorized; 388,265,636 and 385,886,682 shares issued and outstanding at June 30, 2020 and December 31, 2019 |
|
| 4 |
|
|
| 4 |
| |||||||||
Additional paid-in capital |
|
| 8,483 |
|
|
| 8,390 |
|
|
| 8,543 |
|
|
| 8,507 |
| |
Accumulated other comprehensive loss |
|
| (1,524 | ) |
|
| (1,437 | ) |
|
| (1,613 | ) |
|
| (1,423 | ) | |
Retained earnings |
|
| 1,094 |
|
|
| 6,862 |
| |||||||||
Retained earnings (deficit) |
|
| (1,474 | ) |
|
| 690 |
| |||||||||
Total Company stockholders' equity |
|
| 8,057 |
|
|
| 13,819 |
|
|
| 5,460 |
|
|
| 7,778 |
| |
Noncontrolling interests |
|
| 72 |
|
|
| 70 |
|
|
| 73 |
|
|
| 68 |
| |
Total stockholders’ equity |
|
| 8,129 |
|
|
| 13,889 |
|
|
| 5,533 |
|
|
| 7,846 |
| |
Total liabilities and stockholders’ equity |
| $ | 14,005 |
|
| $ | 19,796 |
|
| $ | 10,447 |
|
| $ | 13,149 |
|
See notes to unaudited consolidated financial statements.
NATIONAL OILWELL VARCO, INC.
CONSOLIDATED STATEMENTS OF INCOME (LOSS) (UNAUDITED)
(In millions, except per share data)
|
| Three Months Ended |
|
| Nine Months Ended |
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||||||||||||
|
| September 30, |
|
| September 30, |
|
| June 30, |
|
| June 30, |
| ||||||||||||||||||||
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||||
Revenue |
| $ | 2,126 |
|
| $ | 2,154 |
|
| $ | 6,198 |
|
| $ | 6,055 |
|
| $ | 1,496 |
|
| $ | 2,132 |
|
| $ | 3,379 |
|
| $ | 4,072 |
|
Cost of revenue |
|
| 1,975 |
|
|
| 1,761 |
|
|
| 5,729 |
|
|
| 5,020 |
|
|
| 1,359 |
|
|
| 2,070 |
|
|
| 3,018 |
|
|
| 3,754 |
|
Gross profit |
|
| 151 |
|
|
| 393 |
|
|
| 469 |
|
|
| 1,035 |
|
|
| 137 |
|
|
| 62 |
|
|
| 361 |
|
|
| 318 |
|
Selling, general and administrative |
|
| 293 |
|
|
| 320 |
|
|
| 1,014 |
|
|
| 911 |
|
|
| 237 |
|
|
| 417 |
|
|
| 520 |
|
|
| 721 |
|
Goodwill and indefinite-lived intangible asset impairment |
|
| — |
|
|
| — |
|
|
| 3,186 |
|
|
| — |
|
|
| — |
|
|
| 3,186 |
|
|
| 1,378 |
|
|
| 3,186 |
|
Long-lived asset impairment |
|
| 12 |
|
|
| — |
|
|
| 2,199 |
|
|
| — |
|
|
| — |
|
|
| 2,187 |
|
|
| 513 |
|
|
| 2,187 |
|
Operating profit (loss) |
|
| (154 | ) |
|
| 73 |
|
|
| (5,930 | ) |
|
| 124 |
| ||||||||||||||||
Operating loss |
|
| (100 | ) |
|
| (5,728 | ) |
|
| (2,050 | ) |
|
| (5,776 | ) | ||||||||||||||||
Interest and financial costs |
|
| (25 | ) |
|
| (24 | ) |
|
| (75 | ) |
|
| (71 | ) |
|
| (22 | ) |
|
| (25 | ) |
|
| (44 | ) |
|
| (50 | ) |
Interest income |
|
| 4 |
|
|
| 6 |
|
|
| 16 |
|
|
| 18 |
|
|
| 2 |
|
|
| 6 |
|
|
| 5 |
|
|
| 12 |
|
Equity loss in unconsolidated affiliates |
|
| (4 | ) |
|
| (2 | ) |
|
| (6 | ) |
|
| (1 | ) |
|
| (6 | ) |
|
| (2 | ) |
|
| (239 | ) |
|
| (2 | ) |
Other income (expense), net |
|
| (10 | ) |
|
| (20 | ) |
|
| (36 | ) |
|
| (70 | ) |
|
| (8 | ) |
|
| (8 | ) |
|
| (11 | ) |
|
| (26 | ) |
Income (loss) before income taxes |
|
| (189 | ) |
|
| 33 |
|
|
| (6,031 | ) |
|
| — |
| ||||||||||||||||
Loss before income taxes |
|
| (134 | ) |
|
| (5,757 | ) |
|
| (2,339 | ) |
|
| (5,842 | ) | ||||||||||||||||
Provision (benefit) for income taxes |
|
| 60 |
|
|
| 29 |
|
|
| (323 | ) |
|
| 37 |
|
|
| (47 | ) |
|
| (373 | ) |
|
| (203 | ) |
|
| (383 | ) |
Net income (loss) |
|
| (249 | ) |
|
| 4 |
|
|
| (5,708 | ) |
|
| (37 | ) | ||||||||||||||||
Net income (loss) attributable to noncontrolling interests |
|
| (5 | ) |
|
| 3 |
|
|
| 2 |
|
|
| 6 |
| ||||||||||||||||
Net income (loss) attributable to Company |
| $ | (244 | ) |
| $ | 1 |
|
| $ | (5,710 | ) |
| $ | (43 | ) | ||||||||||||||||
Net loss |
|
| (87 | ) |
|
| (5,384 | ) |
|
| (2,136 | ) |
|
| (5,459 | ) | ||||||||||||||||
Net loss attributable to noncontrolling interests |
|
| 6 |
|
|
| 5 |
|
|
| 4 |
|
|
| 7 |
| ||||||||||||||||
Net loss attributable to Company |
| $ | (93 | ) |
| $ | (5,389 | ) |
| $ | (2,140 | ) |
| $ | (5,466 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Company per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Net loss attributable to Company per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Basic |
| $ | (0.64 | ) |
| $ | 0.00 |
|
| $ | (14.95 | ) |
| $ | (0.11 | ) |
| $ | (0.24 | ) |
| $ | (14.11 | ) |
| $ | (5.57 | ) |
| $ | (14.35 | ) |
Diluted |
| $ | (0.64 | ) |
| $ | 0.00 |
|
| $ | (14.95 | ) |
| $ | (0.11 | ) |
| $ | (0.24 | ) |
| $ | (14.11 | ) |
| $ | (5.57 | ) |
| $ | (14.35 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends per share |
| $ | 0.05 |
|
| $ | 0.05 |
|
| $ | 0.15 |
|
| $ | 0.15 |
|
| $ | - |
|
| $ | 0.05 |
|
| $ | 0.05 |
|
| $ | 0.10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
| 382 |
|
|
| 379 |
|
|
| 382 |
|
|
| 378 |
|
|
| 385 |
|
|
| 382 |
|
|
| 384 |
|
|
| 381 |
|
Diluted |
|
| 382 |
|
|
| 383 |
|
|
| 382 |
|
|
| 378 |
|
|
| 385 |
|
|
| 382 |
|
|
| 384 |
|
|
| 381 |
|
See notes to unaudited consolidated financial statements.
NATIONAL OILWELL VARCO, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
(In millions)
|
| Three Months Ended |
|
| Nine Months Ended |
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||||||||||||
|
| September 30, |
|
| September 30, |
|
| June 30, |
|
| June 30, |
| ||||||||||||||||||||
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||||
Net income (loss) |
| $ | (249 | ) |
| $ | 4 |
|
| $ | (5,708 | ) |
| $ | (37 | ) | ||||||||||||||||
Net loss |
| $ | (87 | ) |
| $ | (5,384 | ) |
| $ | (2,136 | ) |
| $ | (5,459 | ) | ||||||||||||||||
Currency translation adjustments |
|
| (118 | ) |
|
| (32 | ) |
|
| (80 | ) |
|
| (219 | ) |
|
| 9 |
|
|
| 18 |
|
|
| (171 | ) |
|
| 38 |
|
Changes in derivative financial instruments, net of tax |
|
| (14 | ) |
|
| 2 |
|
|
| (7 | ) |
|
| 1 |
|
|
| 33 |
|
|
| 3 |
|
|
| (19 | ) |
|
| 7 |
|
Comprehensive loss |
|
| (381 | ) |
|
| (26 | ) |
|
| (5,795 | ) |
|
| (255 | ) |
|
| (45 | ) |
|
| (5,363 | ) |
|
| (2,326 | ) |
|
| (5,414 | ) |
Comprehensive income (loss) attributable to noncontrolling interest |
|
| (5 | ) |
|
| 3 |
|
|
| 2 |
|
|
| 6 |
| ||||||||||||||||
Comprehensive income attributable to noncontrolling interest |
|
| 6 |
|
|
| 5 |
|
|
| 4 |
|
|
| 7 |
| ||||||||||||||||
Comprehensive loss attributable to Company |
| $ | (376 | ) |
| $ | (29 | ) |
| $ | (5,797 | ) |
| $ | (261 | ) |
| $ | (51 | ) |
| $ | (5,368 | ) |
| $ | (2,330 | ) |
| $ | (5,421 | ) |
See notes to unaudited consolidated financial statements.
NATIONAL OILWELL VARCO, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In millions)
|
| Nine Months Ended |
|
| Six Months Ended |
| ||||||||||
|
| September 30, |
|
| June 30, |
| ||||||||||
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
| ||||
Cash flows from operating activities: |
|
|
|
|
|
| ||||||||||
Net loss |
| $ | (5,708 | ) |
| $ | (37 | ) |
| $ | (2,136 | ) |
| $ | (5,459 | ) |
Adjustments to reconcile net loss to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 433 |
|
|
| 519 |
|
|
| 187 |
|
|
| 331 |
|
Provision for inventory losses |
|
| 592 |
|
|
| 41 |
|
|
| 152 |
|
|
| 327 |
|
Deferred income taxes |
|
| (367 | ) |
|
| 15 |
|
|
| (64 | ) |
|
| (369 | ) |
Equity loss in unconsolidated affiliates |
|
| 239 |
|
|
| 2 |
| ||||||||
Goodwill and indefinite-lived intangible asset impairment |
|
| 3,186 |
|
|
| — |
|
|
| 1,378 |
|
|
| 3,186 |
|
Long-lived asset impairment |
|
| 2,199 |
|
|
| — |
|
|
| 513 |
|
|
| 2,187 |
|
Other, net |
|
| 125 |
|
|
| 89 |
|
|
| 71 |
|
|
| 73 |
|
Change in operating assets and liabilities, net of acquisitions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables |
|
| 338 |
|
|
| 37 |
|
|
| 356 |
|
|
| 144 |
|
Inventories |
|
| (169 | ) |
|
| (193 | ) |
|
| 123 |
|
|
| (193 | ) |
Contract assets |
|
| (42 | ) |
|
| 12 |
|
|
| 127 |
|
|
| (20 | ) |
Prepaid and other current assets |
|
| (49 | ) |
|
| 3 |
|
|
| 42 |
|
|
| (29 | ) |
Accounts payable |
|
| (20 | ) |
|
| 152 |
|
|
| (160 | ) |
|
| (33 | ) |
Accrued liabilities |
|
| (182 | ) |
|
| (239 | ) |
|
| (174 | ) |
|
| (172 | ) |
Contract liabilities |
|
| (7 | ) |
|
| 50 |
|
|
| (20 | ) |
|
| (3 | ) |
Income taxes payable |
|
| (58 | ) |
|
| (81 | ) |
|
| 18 |
|
|
| (66 | ) |
Other assets/liabilities, net |
|
| (30 | ) |
|
| (68 | ) |
|
| (235 | ) |
|
| (17 | ) |
Net cash provided by operating activities |
|
| 241 |
|
|
| 300 |
| ||||||||
Net cash provided by (used in) operating activities |
|
| 417 |
|
| $ | (111 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property, plant and equipment |
|
| (166 | ) |
|
| (173 | ) |
|
| (124 | ) |
|
| (97 | ) |
Business acquisitions, net of cash acquired |
|
| (180 | ) |
|
| (280 | ) |
|
| — |
|
|
| (65 | ) |
Other |
|
| 78 |
|
|
| 61 |
|
|
| 13 |
|
|
| 6 |
|
Net cash used in investing activities |
| $ | (268 | ) |
| $ | (392 | ) |
| $ | (111 | ) |
| $ | (156 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings against lines of credit and other debt |
|
| 25 |
|
|
| — |
| ||||||||
Cash dividends paid |
|
| (58 | ) |
|
| (57 | ) |
|
| (19 | ) |
|
| (38 | ) |
Other |
|
| (15 | ) |
|
| 45 |
|
|
| (33 | ) |
|
| (1 | ) |
Net cash used in financing activities |
|
| (73 | ) |
|
| (12 | ) |
|
| (27 | ) |
|
| (39 | ) |
Effect of exchange rates on cash |
|
| (14 | ) |
|
| (40 | ) |
|
| (3 | ) |
|
| — |
|
Decrease in cash and cash equivalents |
|
| (114 | ) |
|
| (144 | ) | ||||||||
Increase (decrease) in cash and cash equivalents |
|
| 276 |
|
|
| (306 | ) | ||||||||
Cash and cash equivalents, beginning of period |
|
| 1,427 |
|
|
| 1,437 |
|
|
| 1,171 |
|
|
| 1,427 |
|
Cash and cash equivalents, end of period |
| $ | 1,313 |
|
| $ | 1,293 |
|
| $ | 1,447 |
|
| $ | 1,121 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash payments during the period for: |
|
|
|
|
|
|
|
| ||||||||
Cash payments (refunds) during the period for: |
|
|
|
|
|
|
|
| ||||||||
Interest |
| $ | 53 |
|
| $ | 48 |
|
| $ | 42 |
|
| $ | 41 |
|
Income taxes |
| $ | 81 |
|
| $ | 61 |
|
| $ | (63 | ) |
| $ | 70 |
|
See notes to unaudited consolidated financial statements.
NATIONAL OILWELL VARCO, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)
(In millions)
|
| Common Stock |
|
| Additional Paid in Capital |
|
| Accumulated Other Comprehensive Income (Loss) |
|
| Retained Earnings (Loss) |
|
| Total Company Stockholders' Equity |
|
| Noncontrolling Interests |
|
| Total Stockholders' Equity |
|
| Common Stock |
|
| Additional Paid in Capital |
|
| Accumulated Other Comprehensive Income (Loss) |
|
| Retained Earnings (Loss) |
|
| Total Company Stockholders' Equity |
|
| Noncontrolling Interests |
|
| Total Stockholders' Equity |
| ||||||||||||||
Balance at December 31, 2018 |
| $ | 4 |
|
| $ | 8,390 |
|
| $ | (1,437 | ) |
| $ | 6,862 |
|
| $ | 13,819 |
|
| $ | 70 |
|
| $ | 13,889 |
| ||||||||||||||||||||||||||||
Balance at December 31, 2019 |
| $ | 4 |
|
| $ | 8,507 |
|
| $ | (1,423 | ) |
| $ | 690 |
|
| $ | 7,778 |
|
| $ | 68 |
|
| $ | 7,846 |
| ||||||||||||||||||||||||||||
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2,047 | ) |
|
| (2,047 | ) |
|
| (2 | ) |
|
| (2,049 | ) | ||||||||||||||||||||||||||||
Other comprehensive loss |
|
| — |
|
|
| — |
|
|
| (232 | ) |
|
| — |
|
|
| (232 | ) |
|
| — |
|
|
| (232 | ) | ||||||||||||||||||||||||||||
Cash dividends, $0.05 per common share |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (19 | ) |
|
| (19 | ) |
|
| — |
|
|
| (19 | ) | ||||||||||||||||||||||||||||
Adoption of new accounting standard |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (5 | ) |
|
| (5 | ) |
|
| — |
|
|
| (5 | ) | ||||||||||||||||||||||||||||
Noncontrolling interest |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2 |
|
|
| 2 |
| ||||||||||||||||||||||||||||
Stock-based compensation |
|
| — |
|
|
| 27 |
|
|
| — |
|
|
| — |
|
|
| 27 |
|
|
| — |
|
|
| 27 |
| ||||||||||||||||||||||||||||
Withholding taxes |
|
| — |
|
|
| (18 | ) |
|
| — |
|
|
| — |
|
|
| (18 | ) |
|
| — |
|
|
| (18 | ) | ||||||||||||||||||||||||||||
Balance at March 31, 2020 |
| $ | 4 |
|
| $ | 8,516 |
|
| $ | (1,655 | ) |
| $ | (1,381 | ) |
| $ | 5,484 |
|
| $ | 68 |
|
| $ | 5,552 |
| ||||||||||||||||||||||||||||
Net income (loss) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (77 | ) |
|
| (77 | ) |
|
| 2 |
|
|
| (75 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (93 | ) |
|
| (93 | ) |
|
| 6 |
|
|
| (87 | ) |
Other comprehensive income |
|
| — |
|
|
| — |
|
|
| 24 |
|
|
| — |
|
|
| 24 |
|
|
| — |
|
|
| 24 |
|
|
| — |
|
|
| — |
|
|
| 42 |
|
|
| — |
|
|
| 42 |
|
|
| — |
|
|
| 42 |
|
Cash dividends, $0.05 per common share |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (19 | ) |
|
| (19 | ) |
|
| — |
|
|
| (19 | ) | ||||||||||||||||||||||||||||
Noncontrolling interest |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3 |
|
|
| 3 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1 | ) |
|
| (1 | ) |
Stock-based compensation |
|
| — |
|
|
| 12 |
|
|
| — |
|
|
| — |
|
|
| 12 |
|
|
| — |
|
|
| 12 |
|
|
| — |
|
|
| 27 |
|
|
| — |
|
|
| — |
|
|
| 27 |
|
|
| — |
|
|
| 27 |
|
Common stock issued |
|
| — |
|
|
| 6 |
|
|
| — |
|
|
| — |
|
|
| 6 |
|
|
| — |
|
|
| 6 |
| ||||||||||||||||||||||||||||
Balance at March 31, 2019 |
| $ | 4 |
|
|
| 8,408 |
|
|
| (1,413 | ) |
|
| 6,766 |
|
|
| 13,765 |
|
|
| 75 |
|
|
| 13,840 |
| ||||||||||||||||||||||||||||
Net income (loss) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (5,389 | ) |
|
| (5,389 | ) |
|
| 5 |
|
|
| (5,384 | ) | ||||||||||||||||||||||||||||
Other comprehensive income |
|
| — |
|
|
| — |
|
|
| 21 |
|
|
| — |
|
|
| 21 |
|
|
| — |
|
|
| 21 |
| ||||||||||||||||||||||||||||
Cash dividends, $0.05 per common share |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (19 | ) |
|
| (19 | ) |
|
| — |
|
|
| (19 | ) | ||||||||||||||||||||||||||||
Noncontrolling interest |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (4 | ) |
|
| (4 | ) | ||||||||||||||||||||||||||||
Stock-based compensation |
|
| — |
|
|
| 32 |
|
|
| — |
|
|
| — |
|
|
| 32 |
|
|
| — |
|
|
| 32 |
| ||||||||||||||||||||||||||||
Common stock issued |
|
| — |
|
|
| 1 |
|
|
| — |
|
|
| — |
|
|
| 1 |
|
|
| — |
|
|
| 1 |
| ||||||||||||||||||||||||||||
Balance at June 30, 2019 |
| $ | 4 |
|
| $ | 8,441 |
|
| $ | (1,392 | ) |
| $ | 1,358 |
|
| $ | 8,411 |
|
| $ | 76 |
|
| $ | 8,487 |
| ||||||||||||||||||||||||||||
Net income (loss) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (244 | ) |
|
| (244 | ) |
|
| (5 | ) |
|
| (249 | ) | ||||||||||||||||||||||||||||
Other comprehensive loss |
|
| — |
|
|
| — |
|
|
| (132 | ) |
|
| — |
|
| $ | (132 | ) |
|
| — |
|
| $ | (132 | ) | ||||||||||||||||||||||||||||
Cash dividends, $0.05 per common share |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (20 | ) |
|
| (20 | ) |
|
| — |
|
|
| (20 | ) | ||||||||||||||||||||||||||||
Noncontrolling interest |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1 |
|
|
| 1 |
| ||||||||||||||||||||||||||||
Stock-based compensation |
|
| — |
|
|
| 41 |
|
|
| — |
|
|
| — |
|
|
| 41 |
|
|
| — |
|
|
| 41 |
| ||||||||||||||||||||||||||||
Common stock issued |
|
| — |
|
|
| 1 |
|
|
| — |
|
|
| — |
|
|
| 1 |
|
|
| — |
|
|
| 1 |
| ||||||||||||||||||||||||||||
Balance at September 30, 2019 |
| $ | 4 |
|
| $ | 8,483 |
|
| $ | (1,524 | ) |
| $ | 1,094 |
|
| $ | 8,057 |
|
| $ | 72 |
|
| $ | 8,129 |
| ||||||||||||||||||||||||||||
Balance at June 30, 2020 |
| $ | 4 |
|
| $ | 8,543 |
|
| $ | (1,613 | ) |
| $ | (1,474 | ) |
| $ | 5,460 |
|
| $ | 73 |
|
| $ | 5,533 |
|
|
| Common Stock |
|
| Additional Paid in Capital |
|
| Accumulated Other Comprehensive Income (Loss) |
|
| Retained Earnings (Loss) |
|
| Total Company Stockholders' Equity |
|
| Noncontrolling Interests |
|
| Total Stockholders' Equity |
|
| Common Stock |
|
| Additional Paid in Capital |
|
| Accumulated Other Comprehensive Income (Loss) |
|
| Retained Earnings (Loss) |
|
| Total Company Stockholders' Equity |
|
| Noncontrolling Interests |
|
| Total Stockholders' Equity |
| ||||||||||||||
Balance at December 31, 2017 |
| $ | 4 |
|
| $ | 8,234 |
|
| $ | (1,110 | ) |
| $ | 6,965 |
|
| $ | 14,093 |
|
| $ | 66 |
|
| $ | 14,159 |
| ||||||||||||||||||||||||||||
Balance at December 31, 2018 |
| $ | 4 |
|
| $ | 8,390 |
|
| $ | (1,437 | ) |
| $ | 6,862 |
|
| $ | 13,819 |
|
| $ | 70 |
|
| $ | 13,889 |
| ||||||||||||||||||||||||||||
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (68 | ) |
|
| (68 | ) |
|
| 2 |
|
|
| (66 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (77 | ) |
|
| (77 | ) |
|
| 2 |
|
|
| (75 | ) |
Other comprehensive income |
|
| — |
|
|
| — |
|
|
| 49 |
|
|
| — |
|
|
| 49 |
|
|
| — |
|
|
| 49 |
|
|
| — |
|
|
| — |
|
|
| 24 |
|
|
| — |
|
|
| 24 |
|
|
| — |
|
|
| 24 |
|
Cash dividends, $0.05 per common share |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (19 | ) |
|
| (19 | ) |
|
| — |
|
|
| (19 | ) | ||||||||||||||||||||||||||||
Adoption of new accounting standards |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 4 |
|
|
| 4 |
|
|
| — |
|
|
| 4 |
| ||||||||||||||||||||||||||||
Noncontrolling interest |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1 |
|
|
| 1 |
| ||||||||||||||||||||||||||||
Stock-based compensation |
|
| — |
|
|
| 19 |
|
|
| — |
|
|
| — |
|
|
| 19 |
|
|
| — |
|
|
| 19 |
| ||||||||||||||||||||||||||||
Common stock issued |
|
| — |
|
|
| 3 |
|
|
| — |
|
|
| — |
|
|
| 3 |
|
|
| — |
|
|
| 3 |
| ||||||||||||||||||||||||||||
Balance at March 31, 2018 |
| $ | 4 |
|
| $ | 8,256 |
|
| $ | (1,061 | ) |
| $ | 6,882 |
|
| $ | 14,081 |
|
| $ | 69 |
|
| $ | 14,150 |
| ||||||||||||||||||||||||||||
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 24 |
|
|
| 24 |
|
|
| 1 |
|
|
| 25 |
| ||||||||||||||||||||||||||||
Other comprehensive loss |
|
| — |
|
|
| — |
|
|
| (237 | ) |
|
| — |
|
|
| (237 | ) |
|
| — |
|
|
| (237 | ) | ||||||||||||||||||||||||||||
Cash dividends, $0.05 per common share |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (19 | ) |
|
| (19 | ) |
|
| — |
|
|
| (19 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (19 | ) |
|
| (19 | ) |
|
| — |
|
|
| (19 | ) |
Noncontrolling interest |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3 |
|
|
| 3 |
|
Stock-based compensation |
|
| — |
|
|
| 30 |
|
|
| — |
|
|
| — |
|
|
| 30 |
|
|
| — |
|
|
| 30 |
|
|
| — |
|
|
| 33 |
|
|
| — |
|
|
| — |
|
|
| 33 |
|
|
| — |
|
|
| 33 |
|
Common stock issued |
|
| — |
|
|
| 20 |
|
|
| — |
|
|
| — |
|
|
| 20 |
|
|
| — |
|
|
| 20 |
|
|
| — |
|
|
| 3 |
|
|
| — |
|
|
| — |
|
|
| 3 |
|
|
| — |
|
|
| 3 |
|
Balance at June 30, 2018 |
| $ | 4 |
|
| $ | 8,306 |
|
| $ | (1,298 | ) |
| $ | 6,887 |
|
| $ | 13,899 |
|
| $ | 70 |
|
| $ | 13,969 |
| ||||||||||||||||||||||||||||
Withholding taxes |
|
| — |
|
|
| (18 | ) |
|
| — |
|
|
| — |
|
|
| (18 | ) |
|
| — |
|
|
| (18 | ) | ||||||||||||||||||||||||||||
Balance at March 31, 2019 |
| $ | 4 |
|
| $ | 8,408 |
|
| $ | (1,413 | ) |
| $ | 6,766 |
|
| $ | 13,765 |
|
| $ | 75 |
|
| $ | 13,840 |
| ||||||||||||||||||||||||||||
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1 |
|
|
| 1 |
|
|
| 3 |
|
|
| 4 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (5,389 | ) |
|
| (5,389 | ) |
|
| 5 |
|
|
| (5,384 | ) |
Other comprehensive loss |
|
| — |
|
|
| — |
|
|
| (30 | ) |
|
|
|
|
|
| (30 | ) |
|
| — |
|
|
| (30 | ) | ||||||||||||||||||||||||||||
Other comprehensive income |
|
| — |
|
|
| — |
|
|
| 21 |
|
|
| — |
|
|
| 21 |
|
|
| — |
|
|
| 21 |
| ||||||||||||||||||||||||||||
Cash dividends, $0.05 per common share |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (19 | ) |
|
| (19 | ) |
|
| — |
|
|
| (19 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (19 | ) |
|
| (19 | ) |
|
| — |
|
|
| (19 | ) |
Noncontrolling interest |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (3 | ) |
|
| (3 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (4 | ) |
|
| (4 | ) |
Stock-based compensation |
|
| — |
|
|
| 26 |
|
|
| — |
|
|
| — |
|
|
| 26 |
|
|
| — |
|
|
| 26 |
|
|
| — |
|
|
| 32 |
|
|
| — |
|
|
| — |
|
|
| 32 |
|
|
| — |
|
|
| 32 |
|
Common stock issued |
|
| — |
|
|
| 29 |
|
|
| — |
|
|
| — |
|
|
| 29 |
|
|
| — |
|
|
| 29 |
|
|
| — |
|
|
| 1 |
|
|
| — |
|
|
| — |
|
|
| 1 |
|
|
| — |
|
|
| 1 |
|
Balance at September 30, 2018 |
| $ | 4 |
|
| $ | 8,361 |
|
| $ | (1,328 | ) |
| $ | 6,869 |
|
| $ | 13,906 |
|
| $ | 70 |
|
| $ | 13,976 |
| ||||||||||||||||||||||||||||
Balance at June 30, 2019 |
| $ | 4 |
|
| $ | 8,441 |
|
| $ | (1,392 | ) |
| $ | 1,358 |
|
| $ | 8,411 |
|
| $ | 76 |
|
| $ | 8,487 |
|
See notes to unaudited consolidated financial statements.
NATIONAL OILWELL VARCO, INC.
Notes to Consolidated Financial Statements (Unaudited)
1. | Basis of Presentation |
The preparation of financial statements in conformity with generally accepted accounting principles (“GAAP”) in the United States requires management to make estimates and assumptions that affect reported and contingent amounts of assets and liabilities as of the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
The accompanying unaudited consolidated financial statements of National Oilwell Varco, Inc. (“NOV” or the “Company”“the Company”) present information in accordance with GAAP in the United States for interim financial information and the instructions to Form 10-Q and applicable rules of Regulation S-X. They do not include all information or footnotes required by GAAP in the United States for complete consolidated financial statements and should be read in conjunction with the Company’s 20182019 Annual Report on Form 10-K.
In management’s opinion, the consolidated financial statements include all adjustments, which are of a normal recurring nature unless otherwise disclosed, necessary for a fair presentation of the results for the interim periods. Certain reclassifications have been made to the prior period financial statements in order for them to conform with the current presentation, including the reclassification of $229 million from the December 31, 2018 debt balance to lease liabilities. The results of operations for the three and ninesix months ended SeptemberJune 30, 20192020 are not necessarily indicative of the results to be expected for the full year.
The fair values of cash and cash equivalents, receivables and payables waswere approximately the same as their presented carrying values because of the short maturities of these instruments. The fair value of long-term debt is provided in Note 8, and the fair values of derivative financial instruments are provided in Note 11.
2. | Inventories, net |
Inventories consist of (in millions):
|
| September 30, |
|
| December 31, |
|
| June 30, |
|
| December 31, |
| ||||
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
| ||||
Raw materials and supplies |
| $ | 676 |
|
| $ | 614 |
|
| $ | 478 |
|
| $ | 577 |
|
Work in process |
|
| 512 |
|
|
| 501 |
|
|
| 334 |
|
|
| 364 |
|
Finished goods and purchased products |
|
| 2,396 |
|
|
| 2,505 |
|
|
| 1,860 |
|
|
| 2,099 |
|
|
|
| 3,584 |
|
|
| 3,620 |
|
|
| 2,672 |
|
|
| 3,040 |
|
Less: Inventory reserve |
|
| (1,047 | ) |
|
| (634 | ) |
|
| (743 | ) |
|
| (843 | ) |
Total |
| $ | 2,537 |
|
| $ | 2,986 |
|
| $ | 1,929 |
|
| $ | 2,197 |
|
3. | Accrued Liabilities |
Accrued liabilities consist of (in millions):
|
| September 30, |
|
| December 31, |
|
| June 30, |
|
| December 31, |
| ||||
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
| ||||
Compensation |
| $ | 256 |
|
| $ | 331 |
|
| $ | 158 |
|
| $ | 270 |
|
Vendor costs |
|
| 117 |
|
|
| 127 |
|
|
| 110 |
|
|
| 121 |
|
Taxes (non-income) |
|
| 101 |
|
|
| 124 |
|
|
| 109 |
|
|
| 112 |
|
Warranties |
|
| 97 |
|
|
| 105 |
|
|
| 84 |
|
|
| 90 |
|
Insurance |
|
| 58 |
|
|
| 57 |
| ||||||||
Fair value of derivatives |
|
| 38 |
|
|
| 23 |
|
|
| 49 |
|
|
| 24 |
|
Interest |
|
| 27 |
|
|
| 7 |
|
|
| 7 |
|
|
| 8 |
|
Other |
|
| 347 |
|
|
| 371 |
|
|
| 240 |
|
|
| 267 |
|
Total |
| $ | 983 |
|
| $ | 1,088 |
|
| $ | 815 |
|
| $ | 949 |
|
4. | Accumulated Other Comprehensive |
The components of accumulated other comprehensive loss are as follows (in millions):
|
|
|
|
|
| Derivative |
|
| Defined |
|
|
|
|
|
|
|
|
|
| Derivative |
|
| Defined |
|
|
|
|
| ||||
|
| Currency |
|
| Financial |
|
| Benefit |
|
|
|
|
|
| Currency |
|
| Financial |
|
| Benefit |
|
|
|
|
| ||||||
|
| Translation |
|
| Instruments, |
|
| Plans, |
|
|
|
|
|
| Translation |
|
| Instruments, |
|
| Plans, |
|
|
|
|
| ||||||
|
| Adjustments |
|
| Net of Tax |
|
| Net of Tax |
|
| Total |
|
| Adjustments |
|
| Net of Tax |
|
| Net of Tax |
|
| Total |
| ||||||||
Balance at December 31, 2018 |
| $ | (1,396 | ) |
| $ | (14 | ) |
| $ | (27 | ) |
| $ | (1,437 | ) | ||||||||||||||||
Balance at December 31, 2019 |
| $ | (1,403 | ) |
| $ | (4 | ) |
| $ | (16 | ) |
| $ | (1,423 | ) | ||||||||||||||||
Accumulated other comprehensive income (loss) before reclassifications |
|
| (80 | ) |
|
| (13 | ) |
|
| — |
|
|
| (93 | ) |
|
| (171 | ) |
|
| (33 | ) |
|
| — |
|
|
| (204 | ) |
Amounts reclassified from accumulated other comprehensive income (loss) |
|
| — |
|
|
| 6 |
|
|
| — |
|
|
| 6 |
|
|
| — |
|
|
| 14 |
|
|
| — |
|
|
| 14 |
|
Balance at September 30, 2019 |
| $ | (1,476 | ) |
| $ | (21 | ) |
| $ | (27 | ) |
| $ | (1,524 | ) | ||||||||||||||||
Balance at June 30, 2020 |
| $ | (1,574 | ) |
| $ | (23 | ) |
| $ | (16 | ) |
| $ | (1,613 | ) |
The components of amounts reclassified from accumulated other comprehensive income (loss) are as follows (in millions):
|
| Three Months Ended September 30, |
|
| Three Months Ended June 30, |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||
|
| Currency |
|
| Derivative |
|
| Defined |
|
|
|
|
|
| Currency |
|
| Derivative |
|
| Defined |
|
|
|
|
|
| Currency |
|
| Derivative |
|
| Defined |
|
|
|
|
|
| Currency |
|
| Derivative |
|
| Defined |
|
|
|
|
| ||||||||||||
|
| Translation |
|
| Financial |
|
| Benefit |
|
|
|
|
|
| Translation |
|
| Financial |
|
| Benefit |
|
|
|
|
|
| Translation |
|
| Financial |
|
| Benefit |
|
|
|
|
|
| Translation |
|
| Financial |
|
| Benefit |
|
|
|
|
| ||||||||||||
|
| Adjustments |
|
| Instruments |
|
| Plans |
|
| Total |
|
| Adjustments |
|
| Instruments |
|
| Plans |
|
| Total |
|
| Adjustments |
|
| Instruments |
|
| Plans |
|
| Total |
|
| Adjustments |
|
| Instruments |
|
| Plans |
|
| Total |
| ||||||||||||||||
Revenue |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 1 |
|
| $ | — |
|
| $ | 1 |
|
| $ | — |
|
| $ | 2 |
|
| $ | — |
|
| $ | 2 |
|
| $ | — |
|
| $ | 1 |
|
| $ | — |
|
| $ | 1 |
|
Cost of revenue |
|
| — |
|
|
| 4 |
|
|
| — |
|
|
| 4 |
|
|
| — |
|
|
| 2 |
|
|
| — |
|
|
| 2 |
|
|
| — |
|
|
| 10 |
|
|
| — |
|
|
| 10 |
|
|
| — |
|
|
| 2 |
|
|
| — |
|
|
| 2 |
|
Other income (expense), net |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 6 |
|
|
| — |
|
|
| — |
|
|
| 6 |
| ||||||||||||||||||||||||||||||||
Tax effect |
|
| — |
|
|
| (1 | ) |
|
| — |
|
|
| (1 | ) |
|
| — |
|
|
| (1 | ) |
|
| — |
|
|
| (1 | ) |
|
| — |
|
|
| (2 | ) |
|
| — |
|
|
| (2 | ) |
|
| — |
|
|
| (1 | ) |
|
| — |
|
|
| (1 | ) |
|
| $ | — |
|
| $ | 3 |
|
| $ | — |
|
| $ | 3 |
|
| $ | 6 |
|
| $ | 2 |
|
| $ | — |
|
| $ | 8 |
|
| $ | — |
|
| $ | 10 |
|
| $ | — |
|
| $ | 10 |
|
| $ | — |
|
| $ | 2 |
|
| $ | — |
|
| $ | 2 |
|
|
| Nine Months Ended September 30, |
|
| Six Months Ended June 30, |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||
|
| Currency |
|
| Derivative |
|
| Defined |
|
|
|
|
|
| Currency |
|
| Derivative |
|
| Defined |
|
|
|
|
|
| Currency |
|
| Derivative |
|
| Defined |
|
|
|
|
|
| Currency |
|
| Derivative |
|
| Defined |
|
|
|
|
| ||||||||||||
|
| Translation |
|
| Financial |
|
| Benefit |
|
|
|
|
|
| Translation |
|
| Financial |
|
| Benefit |
|
|
|
|
|
| Translation |
|
| Financial |
|
| Benefit |
|
|
|
|
|
| Translation |
|
| Financial |
|
| Benefit |
|
|
|
|
| ||||||||||||
|
| Adjustments |
|
| Instruments |
|
| Plans |
|
| Total |
|
| Adjustments |
|
| Instruments |
|
| Plans |
|
| Total |
|
| Adjustments |
|
| Instruments |
|
| Plans |
|
| Total |
|
| Adjustments |
|
| Instruments |
|
| Plans |
|
| Total |
| ||||||||||||||||
Revenue |
| $ | — |
|
| $ | 1 |
|
| $ | — |
|
| $ | 1 |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 2 |
|
| $ | — |
|
| $ | 2 |
|
| $ | — |
|
| $ | 1 |
|
| $ | — |
|
| $ | 1 |
|
Cost of revenue |
|
| — |
|
|
| 7 |
|
|
| — |
|
|
| 7 |
|
|
| — |
|
|
| (3 | ) |
|
| — |
|
|
| (3 | ) |
|
| — |
|
|
| 15 |
|
|
| — |
|
|
| 15 |
|
|
| — |
|
|
| 3 |
|
|
| — |
|
|
| 3 |
|
Other income (expense), net |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 6 |
|
|
| — |
|
|
| — |
|
|
| 6 |
| ||||||||||||||||||||||||||||||||
Tax effect |
|
| — |
|
|
| (2 | ) |
|
| — |
|
|
| (2 | ) |
|
| — |
|
|
| 1 |
|
|
| — |
|
|
| 1 |
|
|
| — |
|
|
| (3 | ) |
|
| — |
|
|
| (3 | ) |
|
| — |
|
|
| (1 | ) |
|
| — |
|
|
| (1 | ) |
|
| $ | — |
|
| $ | 6 |
|
| $ | — |
|
| $ | 6 |
|
| $ | 6 |
|
| $ | (2 | ) |
| $ | — |
|
| $ | 4 |
|
| $ | — |
|
| $ | 14 |
|
| $ | — |
|
| $ | 14 |
|
| $ | — |
|
| $ | 3 |
|
| $ | — |
|
| $ | 3 |
|
The Company’s reporting currency is the U.S. dollar. A majority of the Company’s international entities in which there is a substantial investment have the local currency as their functional currency. As a result, currency translation adjustments resulting from the process of translating the entities’ financial statements into the reporting currency are reported in other comprehensive income (loss). The Company recorded lossesincome of $118$9 million and $80a loss of $171 million for the three and ninesix months ended SeptemberJune 30, 2019,2020, respectively and lossesincome of $32$18 million and $219$38 million for the three and ninesix months ended SeptemberJune 30, 2018,2019, respectively.
The effect of changes in the fair values of derivatives designated as cash flow hedges are accumulated in other comprehensive income (loss), net of tax, until the underlying transactions are realized. The movement in other comprehensive income (loss) from period to period will be the result of the combination ofof: 1) changes in fair value of open derivatives of $23 million and ($33) million during the three and six months ended June 30, 2020; and, 2) the outflow of other comprehensive income (loss) related to cumulative changes in the fair value of derivatives that have settled in the current period. The accumulated effect was other comprehensive loss ofperiod ($10 million and $14 million (net of tax of $4 million) and $7 million (net of tax of $2 million) forduring the three and ninesix months ended SeptemberJune 30, 2019, respectively. The accumulated effect was other comprehensive loss of $2 million (net of tax of $0 million) and $1 million (net of tax of $0 million) for the three and nine months ended September 30, 2018, respectively.2020).
5. | Segments |
Financial results by operating segment are as follows (in millions):
|
| Three Months Ended |
|
| Nine Months Ended |
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||||||||||||
|
| September 30, |
|
| September 30, |
|
| June 30, |
|
| June 30, |
| ||||||||||||||||||||
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||||
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wellbore Technologies |
| $ | 793 |
|
| $ | 847 |
|
| $ | 2,450 |
|
| $ | 2,351 |
|
| $ | 442 |
|
| $ | 850 |
|
| $ | 1,133 |
|
| $ | 1,657 |
|
Completion & Production Solutions |
|
| 728 |
|
|
| 735 |
|
|
| 1,972 |
|
|
| 2,143 |
|
|
| 611 |
|
|
| 663 |
|
|
| 1,286 |
|
|
| 1,244 |
|
Rig Technologies |
|
| 649 |
|
|
| 637 |
|
|
| 1,923 |
|
|
| 1,771 |
|
|
| 476 |
|
|
| 671 |
|
|
| 1,033 |
|
|
| 1,274 |
|
Eliminations |
|
| (44 | ) |
|
| (65 | ) |
|
| (147 | ) |
|
| (210 | ) |
|
| (33 | ) |
|
| (52 | ) |
|
| (73 | ) |
|
| (103 | ) |
Total revenue |
| $ | 2,126 |
|
| $ | 2,154 |
|
| $ | 6,198 |
|
| $ | 6,055 |
|
| $ | 1,496 |
|
| $ | 2,132 |
|
| $ | 3,379 |
|
| $ | 4,072 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wellbore Technologies |
| $ | 42 |
|
|
| 40 |
|
| $ | (3,234 | ) |
| $ | 90 |
|
| $ | (67 | ) |
|
| (3,295 | ) |
| $ | (730 | ) |
| $ | (3,276 | ) |
Completion & Production Solutions |
|
| (24 | ) |
|
| 46 |
|
|
| (1,991 | ) |
|
| 102 |
|
|
| 42 |
|
|
| (1,932 | ) |
|
| (971 | ) |
|
| (1,967 | ) |
Rig Technologies |
|
| (110 | ) |
|
| 58 |
|
|
| (501 | ) |
|
| 138 |
|
|
| (25 | ) |
|
| (422 | ) |
|
| (227 | ) |
|
| (391 | ) |
Eliminations and corporate costs |
|
| (62 | ) |
|
| (71 | ) |
|
| (204 | ) |
|
| (206 | ) |
|
| (50 | ) |
|
| (79 | ) |
|
| (122 | ) |
|
| (142 | ) |
Total operating profit (loss) |
| $ | (154 | ) |
| $ | 73 |
|
| $ | (5,930 | ) |
| $ | 124 |
|
| $ | (100 | ) |
| $ | (5,728 | ) |
| $ | (2,050 | ) |
| $ | (5,776 | ) |
Sales from one segment to another generally are priced at estimated equivalent commercial selling prices; however, segments originating an external sale are credited with the full profit to the Company. Eliminations include intercompany transactions conducted between the 3 reporting segments that are eliminated in consolidation. Intrasegment transactions are eliminated within each segment.
|
| Three Months Ended |
|
| Nine Months Ended |
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||||||||||||
|
| September 30, |
|
| September 30, |
|
| June 30, |
|
| June 30, |
| ||||||||||||||||||||
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||||
Other Significant Items: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wellbore Technologies |
| $ | 41 |
|
| $ | — |
|
| $ | 3,384 |
|
| $ | (3 | ) |
| $ | 62 |
|
| $ | 3,345 |
|
| $ | 777 |
|
| $ | 3,343 |
|
Completion & Production Solutions |
|
| 79 |
|
|
| — |
|
|
| 2,029 |
|
|
| 3 |
|
|
| 12 |
|
|
| 1,939 |
|
|
| 1,066 |
|
|
| 1,950 |
|
Rig Technologies |
|
| 194 |
|
|
| — |
|
|
| 670 |
|
|
| 6 |
|
|
| 20 |
|
|
| 474 |
|
|
| 258 |
|
|
| 476 |
|
Eliminations and corporate costs |
|
| — |
|
|
| — |
|
|
| 11 |
|
|
| (18 | ) |
|
| 8 |
|
|
| 11 |
|
|
| 24 |
|
|
| 11 |
|
For the three months ended September 30, 2019,Second quarter 2020 operating profit (loss) includes pre-tax charges for severance, inventory impairments, facility closures and other items ($102 million). First quarter 2020 operating profit (loss) includes pre-tax charges ($265 million);for impairment of goodwill, indefinite-lived and finite-lived intangible and long-lived tangible assets ($121,891 million); inventory charges ($114 million); and, severance, facility closureclosures and other items ($3718 million). For the nine months ended September 30,
Second quarter 2019 operating profit (loss) includes pre-tax charges for impairment of goodwill, indefinite-lived and finite-lived intangible and long-lived tangible assets ($5,3855,373 million); inventory charges ($571302 million); a Voluntary Early Retirement Program ($8789 million); and, severance, facility closures and other items ($515 million). For the nine months ended September 30, 2018,First quarter 2019 operating profit (loss) includes a pre-tax net creditcharges for severance, facility closures and reserve adjustmentsother items ($1211 million).
6. | Revenue |
Disaggregation of Revenue
The following table disaggregates the Company’s revenue by major geographic and market segment destination. In the table, North America includes the U.S. and Canada (in millions):
|
| Three Months Ended September 30, |
|
| Three Months Ended June 30, |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
| Completion |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Completion |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Completion |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Completion |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
| Wellbore |
|
| & Production |
|
| Rig |
|
|
|
|
|
|
|
|
|
| Wellbore |
|
| & Production |
|
| Rig |
|
|
|
|
|
|
|
|
|
| Wellbore |
|
| & Production |
|
| Rig |
|
|
|
|
|
|
|
|
|
| Wellbore |
|
| & Production |
|
| Rig |
|
|
|
|
|
|
|
|
| ||||||||||||
|
| Technologies |
|
| Solutions |
|
| Technologies |
|
| Elims. |
|
| Total |
|
| Technologies |
|
| Solutions |
|
| Technologies |
|
| Elims. |
|
| Total |
|
| Technologies |
|
| Solutions |
|
| Technologies |
|
| Elims. |
|
| Total |
|
| Technologies |
|
| Solutions |
|
| Technologies |
|
| Elims. |
|
| Total |
| ||||||||||||||||||||
North America |
| $ | 422 |
|
| $ | 295 |
|
| $ | 113 |
|
| $ | — |
|
| $ | 830 |
|
| $ | 469 |
|
| $ | 343 |
|
| $ | 189 |
|
| $ | — |
|
| $ | 1,001 |
|
| $ | 183 |
|
| $ | 181 |
|
| $ | 53 |
|
| $ | — |
|
| $ | 417 |
|
| $ | 461 |
|
| $ | 282 |
|
| $ | 127 |
|
| $ | — |
|
| $ | 870 |
|
International |
|
| 355 |
|
|
| 420 |
|
|
| 521 |
|
|
| — |
|
|
| 1,296 |
|
|
| 362 |
|
|
| 372 |
|
|
| 419 |
|
|
| — |
|
|
| 1,153 |
|
|
| 246 |
|
|
| 419 |
|
|
| 414 |
|
|
| — |
|
|
| 1,079 |
|
|
| 375 |
|
|
| 364 |
|
|
| 523 |
|
|
| — |
|
|
| 1,262 |
|
Eliminations |
|
| 16 |
|
|
| 13 |
|
|
| 15 |
|
|
| (44 | ) |
|
| — |
|
|
| 16 |
|
|
| 20 |
|
|
| 29 |
|
|
| (65 | ) |
|
| — |
|
|
| 13 |
|
|
| 11 |
|
|
| 9 |
|
|
| (33 | ) |
|
| — |
|
|
| 14 |
|
|
| 17 |
|
|
| 21 |
|
|
| (52 | ) |
|
| — |
|
|
| $ | 793 |
|
| $ | 728 |
|
| $ | 649 |
|
| $ | (44 | ) |
| $ | 2,126 |
|
| $ | 847 |
|
| $ | 735 |
|
| $ | 637 |
|
| $ | (65 | ) |
| $ | 2,154 |
|
| $ | 442 |
|
| $ | 611 |
|
| $ | 476 |
|
| $ | (33 | ) |
| $ | 1,496 |
|
| $ | 850 |
|
| $ | 663 |
|
| $ | 671 |
|
| $ | (52 | ) |
| $ | 2,132 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land |
| $ | 616 |
|
| $ | 479 |
|
| $ | 151 |
|
| $ | — |
|
| $ | 1,246 |
|
| $ | 707 |
|
| $ | 521 |
|
| $ | 206 |
|
| $ | — |
|
| $ | 1,434 |
|
| $ | 296 |
|
| $ | 345 |
|
| $ | 113 |
|
| $ | — |
|
| $ | 754 |
|
| $ | 679 |
|
| $ | 456 |
|
| $ | 171 |
|
| $ | — |
|
| $ | 1,306 |
|
Offshore |
|
| 161 |
|
|
| 236 |
|
|
| 483 |
|
|
| — |
|
|
| 880 |
|
|
| 124 |
|
|
| 194 |
|
|
| 402 |
|
|
| — |
|
|
| 720 |
|
|
| 133 |
|
|
| 255 |
|
|
| 354 |
|
|
| — |
|
|
| 742 |
|
|
| 157 |
|
|
| 190 |
|
|
| 479 |
|
|
| — |
|
|
| 826 |
|
Eliminations |
|
| 16 |
|
|
| 13 |
|
|
| 15 |
|
|
| (44 | ) |
|
| — |
|
|
| 16 |
|
|
| 20 |
|
|
| 29 |
|
|
| (65 | ) |
|
| — |
|
|
| 13 |
|
|
| 11 |
|
|
| 9 |
|
|
| (33 | ) |
|
| — |
|
|
| 14 |
|
|
| 17 |
|
|
| 21 |
|
|
| (52 | ) |
|
| — |
|
|
| $ | 793 |
|
| $ | 728 |
|
| $ | 649 |
|
| $ | (44 | ) |
| $ | 2,126 |
|
| $ | 847 |
|
| $ | 735 |
|
| $ | 637 |
|
| $ | (65 | ) |
| $ | 2,154 |
|
| $ | 442 |
|
| $ | 611 |
|
| $ | 476 |
|
| $ | (33 | ) |
| $ | 1,496 |
|
| $ | 850 |
|
| $ | 663 |
|
| $ | 671 |
|
| $ | (52 | ) |
| $ | 2,132 |
|
|
| Nine Months Ended September 30, |
|
| Six Months Ended June 30, |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
| Completion |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Completion |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Completion |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Completion |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
| Wellbore |
|
| & Production |
|
| Rig |
|
|
|
|
|
|
|
|
|
| Wellbore |
|
| & Production |
|
| Rig |
|
|
|
|
|
|
|
|
|
| Wellbore |
|
| & Production |
|
| Rig |
|
|
|
|
|
|
|
|
|
| Wellbore |
|
| & Production |
|
| Rig |
|
|
|
|
|
|
|
|
| ||||||||||||
|
| Technologies |
|
| Solutions |
|
| Technologies |
|
| Elims. |
|
| Total |
|
| Technologies |
|
| Solutions |
|
| Technologies |
|
| Elims. |
|
| Total |
|
| Technologies |
|
| Solutions |
|
| Technologies |
|
| Elims. |
|
| Total |
|
| Technologies |
|
| Solutions |
|
| Technologies |
|
| Elims. |
|
| Total |
| ||||||||||||||||||||
North America |
| $ | 1,343 |
|
| $ | 846 |
|
| $ | 381 |
|
| $ | — |
|
| $ | 2,570 |
|
| $ | 1,333 |
|
| $ | 977 |
|
| $ | 467 |
|
| $ | — |
|
| $ | 2,777 |
|
| $ | 544 |
|
| $ | 406 |
|
| $ | 130 |
|
| $ | — |
|
| $ | 1,080 |
|
| $ | 921 |
|
| $ | 551 |
|
| $ | 268 |
|
| $ | — |
|
| $ | 1,740 |
|
International |
|
| 1,061 |
|
|
| 1,080 |
|
|
| 1,487 |
|
|
| — |
|
|
| 3,628 |
|
|
| 970 |
|
|
| 1,104 |
|
|
| 1,204 |
|
|
| — |
|
|
| 3,278 |
|
|
| 559 |
|
|
| 856 |
|
|
| 884 |
|
|
| — |
|
|
| 2,299 |
|
|
| 706 |
|
|
| 660 |
|
|
| 966 |
|
|
| — |
|
|
| 2,332 |
|
Eliminations |
|
| 46 |
|
|
| 46 |
|
|
| 55 |
|
|
| (147 | ) |
|
| — |
|
|
| 48 |
|
|
| 62 |
|
|
| 100 |
|
|
| (210 | ) |
|
| — |
|
|
| 30 |
|
|
| 24 |
|
|
| 19 |
|
|
| (73 | ) |
|
| — |
|
|
| 30 |
|
|
| 33 |
|
|
| 40 |
|
|
| (103 | ) |
|
| — |
|
|
| $ | 2,450 |
|
| $ | 1,972 |
|
| $ | 1,923 |
|
| $ | (147 | ) |
| $ | 6,198 |
|
| $ | 2,351 |
|
| $ | 2,143 |
|
| $ | 1,771 |
| �� | $ | (210 | ) |
| $ | 6,055 |
|
| $ | 1,133 |
|
| $ | 1,286 |
|
| $ | 1,033 |
|
| $ | (73 | ) |
| $ | 3,379 |
|
| $ | 1,657 |
|
| $ | 1,244 |
|
| $ | 1,274 |
|
| $ | (103 | ) |
| $ | 4,072 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land |
| $ | 1,960 |
|
| $ | 1,340 |
|
| $ | 537 |
|
| $ | — |
|
| $ | 3,837 |
|
| $ | 1,950 |
|
| $ | 1,476 |
|
| $ | 586 |
|
| $ | — |
|
| $ | 4,012 |
|
| $ | 825 |
|
| $ | 761 |
|
| $ | 264 |
|
| $ | — |
|
| $ | 1,850 |
|
| $ | 1,344 |
|
| $ | 861 |
|
| $ | 386 |
|
| $ | — |
|
| $ | 2,591 |
|
Offshore |
|
| 444 |
|
|
| 586 |
|
|
| 1,331 |
|
|
| — |
|
|
| 2,361 |
|
|
| 353 |
|
|
| 605 |
|
|
| 1,085 |
|
|
| — |
|
|
| 2,043 |
|
|
| 278 |
|
|
| 501 |
|
|
| 750 |
|
|
| — |
|
|
| 1,529 |
|
|
| 283 |
|
|
| 350 |
|
|
| 848 |
|
|
| — |
|
|
| 1,481 |
|
Eliminations |
|
| 46 |
|
|
| 46 |
|
|
| 55 |
|
|
| (147 | ) |
|
| — |
|
|
| 48 |
|
|
| 62 |
|
|
| 100 |
|
|
| (210 | ) |
|
| — |
|
|
| 30 |
|
|
| 24 |
|
|
| 19 |
|
|
| (73 | ) |
|
| — |
|
|
| 30 |
|
|
| 33 |
|
|
| 40 |
|
|
| (103 | ) |
|
| — |
|
|
| $ | 2,450 |
|
| $ | 1,972 |
|
| $ | 1,923 |
|
| $ | (147 | ) |
| $ | 6,198 |
|
| $ | 2,351 |
|
| $ | 2,143 |
|
| $ | 1,771 |
|
| $ | (210 | ) |
| $ | 6,055 |
|
| $ | 1,133 |
|
| $ | 1,286 |
|
| $ | 1,033 |
|
| $ | (73 | ) |
| $ | 3,379 |
|
| $ | 1,657 |
|
| $ | 1,244 |
|
| $ | 1,274 |
|
| $ | (103 | ) |
| $ | 4,072 |
|
Performance Obligations
Net revenue recognized from performance obligations partially satisfied in previous periods was $54 million and $56$8 million for the ninethree months ended SeptemberJune 30, 2019 and September 30, 2018, respectively,2020 primarily due to change orders.
Remaining performance obligations represents the transaction price of firm orders for all revenue streams for which work has not been performed on contracts with original expected duration of one year or more. The Company doesWe do not disclose the remaining performance obligations of royalty contracts, service contracts for which there is a right to invoice, and short-term contracts that are expected to have a duration of one year or less. As of SeptemberJune 30, 2019,2020, the aggregate amount of the transaction price allocated to remaining performance obligations was $2,603$3,919 million. The Company expects to recognize approximately 12 percent of$591 million in revenue for the remaining performance obligations in the fourth quarter of 20192020 and the remainder$3,328 million in 2021 and thereafter.
Contract Assets and Liabilities
Contract assets include unbilled amounts when revenue recognized exceeds the amount billed to the customer under contracts where revenue is recognized over-time. Contract liabilities consist of customer billings in excess of revenue recognized under over-time contracts, customer advance payments and deferred revenue.
The changes in the carrying amount of contract assets and contract liabilities are as follows (in millions):
|
| Contract Assets |
|
| Contract Liabilities |
|
| Contract Assets |
|
| Contract Liabilities |
| ||||
Balance at December 31, 2018 |
| $ | 565 |
|
| $ | 458 |
| ||||||||
Balance at December 31, 2019 |
| $ | 643 |
|
| $ | 427 |
| ||||||||
Provision |
|
| (4 | ) |
|
| — |
| ||||||||
Billings |
|
| (591 | ) |
|
| 548 |
|
|
| (373 | ) |
|
| 598 |
|
Revenue recognized |
|
| 661 |
|
|
| (560 | ) |
|
| 253 |
|
|
| (609 | ) |
Currency translation adjustments and other |
|
| (20 | ) |
|
| 9 |
|
|
| (11 | ) |
|
| (8 | ) |
Balance at September 30, 2019 |
| $ | 615 |
|
| $ | 455 |
| ||||||||
Balance at June 30, 2020 |
| $ | 508 |
|
| $ | 408 |
|
There were 0 impairment losses recorded on contract assets for each of the periods ending September 30, 2019 or 2018.
7. | Leases |
Effective January 1, 2019 the Company adopted the new US GAAP accounting rules in ASC Topic 842, Leases (ASC 842), using the modified retrospective method. The Company elected to follow the package of practical expedients provided under the transition guidance within ASC 842, the practical expedient to account for lease and non-lease components as a single lease, and to not include leases with an initial term of less than 12 months in lease assets and liabilities.
At adoption of ASC 842, the Company had lease right-of-use assets of $786 million ($537 million operating and $249 million financing) and lease liabilities of $839 million ($554 million operating and $285 million financing). The adoption had no material effect on retained earnings.
The Company leases certain facilities and equipment to support its operations around the world. These leases generally require the Company to pay maintenance, insurance, taxes and other operating costs in addition to rent. Renewal options are common in longer term leases; however, it is rare that the Company initially intends to exercisethat a lease option at inceptionwill be exercised due to the cyclical nature of the Company’s business. Residual value guarantees are not typically part of the Company’s leases. Occasionally, the Company sub-leases excess facility space, generally at terms similar to the source lease. The Company reviews new agreements at inception to determine if they include a lease and, when they do, uses its incremental borrowing rate to determine the present value of the future lease payments as most do not include implicit interest rates.
At adoption of ASC 842, for those existing leases that included a periodic rent adjustment based on an index (or a similar variable rate), the asset and liability balances were updated with the January 1, 2019 index. Going forward, new such leases are initially valued at the index rate in effect on the lease commencement date. For all continuing such leases, subsequent changes in variable rates will be recorded to expense.
Components of leases are as follows (in millions):
|
| September 30, |
|
| December 31, |
|
| June 30, |
|
| December 31, |
| ||||
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
| ||||
Current portion of lease liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating |
| $ | 83 |
|
| $ | — |
|
| $ | 84 |
|
| $ | 84 |
|
Financing |
|
| 30 |
|
|
| 7 |
|
|
| 31 |
|
|
| 30 |
|
Total |
| $ | 113 |
|
| $ | 7 |
|
| $ | 115 |
|
| $ | 114 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| September 30, |
|
| December 31, |
|
| June 30, |
|
| December 31, |
| ||||
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
| ||||
Long-term portion of lease liability: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating |
| $ | 418 |
|
| $ | — |
|
| $ | 391 |
|
| $ | 424 |
|
Financing |
|
| 255 |
|
| $ | 222 |
|
|
| 246 |
|
| $ | 250 |
|
Total |
| $ | 673 |
|
| $ | 222 |
|
| $ | 637 |
|
| $ | 674 |
|
8. | Debt |
ComponentsDebt consists of lease expense were as follows (in millions):
|
| Three Months Ended |
|
| Nine Months Ended |
| ||
|
| September 30, 2019 |
|
| September 30, 2019 |
| ||
Lease cost |
|
|
|
|
|
|
|
|
Finance lease cost |
|
|
|
|
|
|
|
|
Amortization of right-of-use assets |
| $ | 7 |
|
| $ | 24 |
|
Interest on lease liabilities |
|
| 3 |
|
|
| 10 |
|
Operating lease cost |
|
| 28 |
|
|
| 88 |
|
Short-term lease cost |
|
| 19 |
|
|
| 52 |
|
Sub-lease income |
|
| (3 | ) |
|
| (8 | ) |
Total |
| $ | 54 |
|
| $ | 166 |
|
|
| June 30, |
|
| December 31, |
| ||
|
| 2020 |
|
| 2019 |
| ||
$1.1 billion in Senior Notes, interest at 3.95% payable semiannually, principal due on December 1, 2042 |
| $ | 1,089 |
|
| $ | 1,088 |
|
$0.5 billion in Senior Notes, interest at 3.60% payable semiannually, principal due on December 1, 2029 |
|
| 493 |
|
|
| 493 |
|
$0.4 billion in Senior Notes, interest at 2.60% payable semiannually, principal due on December 1, 2022 |
|
| 399 |
|
|
| 399 |
|
Other debt |
|
| 48 |
|
|
| 9 |
|
Total |
| $ | 2,029 |
|
| $ | 1,989 |
|
Supplemental information related to the Company’s leases is as follows (in millions):
|
| Three Months Ended |
|
| Nine Months Ended |
| ||
|
| September 30, 2019 |
|
| September 30, 2019 |
| ||
Other information: |
|
|
|
|
|
|
|
|
Cash paid for amounts included in the measurement of lease liabilities: |
|
|
|
|
|
|
|
|
Operating cash flows from finance leases |
| $ | 3 |
|
| $ | 10 |
|
Operating cash flows from operating leases |
|
| 28 |
|
|
| 88 |
|
Financing cash flows from finance leases |
|
| 7 |
|
|
| 22 |
|
Right-of-use assets obtained in exchange for new: |
|
|
|
|
|
|
|
|
Operating lease liabilities |
|
| 10 |
|
|
| 41 |
|
Finance lease liabilities |
| $ | — |
|
| $ | 11 |
|
|
|
|
|
|
|
|
|
|
Weighted average remaining lease term at September 30, 2019: |
|
|
|
|
|
|
|
|
Operating leases |
|
|
|
|
| 10 years |
| |
Finance leases |
|
|
|
|
| 16 years |
| |
Weighted average discount rate at September 30, 2019: |
|
|
|
|
|
|
|
|
Operating leases |
|
|
|
|
|
| 5.02 | % |
Finance leases |
|
|
|
|
|
| 5.41 | % |
Future minimum lease commitments for leases with initial or remaining terms of one year or more at September 30, 2019, are payable as follows (in millions):
|
| Operating |
|
| Finance |
| ||
2019 |
| $ | 35 |
|
| $ | 14 |
|
2020 |
|
| 110 |
|
|
| 47 |
|
2021 |
|
| 87 |
|
|
| 39 |
|
2022 |
|
| 67 |
|
|
| 28 |
|
2023 |
|
| 50 |
|
|
| 20 |
|
Thereafter |
|
| 282 |
|
|
| 253 |
|
Total lease payments |
|
| 631 |
|
|
| 401 |
|
Less: Interest |
|
| (130 | ) |
|
| (116 | ) |
Present value of lease liabilities |
| $ | 501 |
|
| $ | 285 |
|
8.Debt
|
| September 30, |
|
| December 31, |
| ||
|
| 2019 |
|
| 2018 |
| ||
$1.4 billion in Senior Notes, interest at 2.60% payable semiannually, principal due on December 1, 2022 |
| $ | 1,395 |
|
| $ | 1,394 |
|
$1.1 billion in Senior Notes, interest at 3.95% payable semiannually, principal due on December 1, 2042 |
|
| 1,089 |
|
|
| 1,088 |
|
Total |
| $ | 2,484 |
|
| $ | 2,482 |
|
The Company has a $3.0$2.0 billion, five-year unsecured revolving credit facility, which expires on June 27, 2022.October 30, 2024. The Company has the right to increase the commitments under this agreement to an aggregate amount of up to $4.0$3.0 billion upon the consent of only those lenders holding any such increase. Interest under the multicurrency facility is based upon LIBOR, NIBOR or CDOR plus 1.125% subject to a ratings-based grid or the U.S. prime rate. The credit facility contains a financial covenant regarding maximum debt-to-capitalization ratio of 60%. As of SeptemberJune 30, 2019,2020, the Company was in compliance with a debt-to-capitalization ratio of 25.4%.
The Company has a commercial paper program under which borrowings are classified as long-term since the program is supported by the $3.0 billion, five-year credit facility. At September 30, 2019, there were 0 commercial paper borrowings29.4% and had 0 outstanding letters of credit issued under the facility, resulting in $3.0$2.0 billion of funds available funds.
Additionally, the Company has a $150 million bank line of credit for the construction of a facility in Saudi Arabia. Interest under thisthe bank line of credit facility.is based upon LIBOR plus 1.40%. The bank line of credit contains a financial covenant regarding maximum debt-to-equity ratio of 75%. As of June 30, 2020, the Company was in compliance. Other debt at June 30, 2020 included $17 million on the books of consolidated joint ventures due to the minority interest partner.
The Company had $456$524 million of outstanding letters of credit at SeptemberJune 30, 2019,2020, primarily in the U.S. and Norway, that are under various bilateral letter of credit facilities. Letters of credit are issued as bid bonds, advanced payment bonds and performance bonds.
At SeptemberJune 30, 20192020 and December 31, 2018,2019, the fair value of the Company’s unsecured Senior Notes approximated $2,422$1,833 million and $2,211$1,947 million, respectively. The fair value of the Company’s debt is estimated using Level 2 inputs in the fair value hierarchy and is based on quoted prices for those of similar instruments. At June 30, 2020 and December 31, 2019, the carrying value of the Company’s unsecured Senior Notes approximated $1,981 million and $1,980 million, respectively.
9. | Income Taxes |
The provision (benefit) for income taxeseffective tax rate for the three and ninesix months ended SeptemberJune 30, 2019 were $60 million2020 was 35.1% and ($323) million,8.7%, respectively, compared to $29 million6.5% and $37 million6.6% for the same periods in 2018.2019. The Company’s abilitycompany’s 2019 and 2020 effective tax rates are negatively impacted by incremental valuation allowances primarily on net operating loss and tax attributes available in those years and the impairment of nondeductible goodwill. Furthermore, the Company revised its estimated income tax benefit related to realize deferredthe Coronavirus Aid, Relief, and Economic Security Act (CARES Act) that was enacted on March 27, 2020 allowing net operating losses originating in 2018, 2019 or 2020 to be carried back five years. The Company recorded an income tax assets is limitedbenefit of $123 million in the three months ended March 31, 2020 in anticipation of filing a refund claim to items supported by reversing deferredcarryback its 2019 United States net operating loss to its 2014 tax liabilities asyear. The Company refined its estimated income tax benefit during the three months ended June 30, 2020, resulting in a resultreduction to the income tax benefit from $123 million to $100 million. The Company received a cash refund of recent losses.$94 million in June 2020 and anticipates receiving an additional refund upon the filing of the final 2019 United States income tax return and final net operating loss carryback claim to 2014. The change inCompany will complete these computations during the three months ended September 30, 2020. In addition, the effective tax rate from 2018 to 2019in the three months and six months ended June 30, 2020 was favorably impacted by an income tax benefit of $90 million related to the Company’s decision to amend its 2016 United States income tax return in order to deduct foreign taxes paid rather than to claim foreign tax credits which would carryforward and be expected to expire unused in 2026. The resulting net operating loss in 2016 will be carried back to the Company’s 2014 tax return and will result in a changenet income tax refund of $90 million. The income tax receivable of $90 million is recorded in jurisdictional mix of income betweenOther Assets on the two periods and 2019 was negatively impacted by the impairment of nondeductible goodwill and the establishment of additional valuation allowance. This was partially offset by the reduction in uncertain tax positions due to a settlement.
For the three and nine months ended September 30, 2018,balance sheet as the Company utilizedbelieves the discrete-period method to compute its interim tax provision due to significant variations in the relationship between income tax expense and pre-tax accounting income or loss. For the three and nine months ended September 30, 2019, the Company estimated and recorded tax based on a full-year effective tax rate.refund will not be received within twelve months.
10. | Stock-Based Compensation |
On May 20, 2020, the Company granted 99,696 restricted stock awards with a fair value of $13.00 per share. The awards were granted to non-employee members of the board of directors and vest on the first anniversary of the grant date.
Total expense for all stock-based compensation arrangements was $41$28 million and $104$55 million for the three and ninesix months ended SeptemberJune 30, 2019,2020, respectively and $30 million and $88$63 million for the three and ninesix months ended SeptemberJune 30, 2018,2019, respectively.
The total income tax benefit recognized in the Consolidated Statements of Income (Loss) for all stock-based compensation arrangements was $5nil for the three and six months ended June 30, 2020 and $4 million and $13$8 million for the three and ninesix months ended SeptemberJune 30, 2019, respectively, and $6 million and $12 million for the three and nine months ended September 30, 2018, respectively.
11. | Derivative Financial Instruments |
The Company uses derivative financial instruments to manage its foreignforward currency exchange rate risk. Forward currency contracts are executed to manage the foreign currency exchange rate risk on forecasted revenues and expenses denominated in currencies other than the functional currency of the operating unit (cash flow hedge). The Company also executes forward currency contracts to manage the foreign currency exchange rate risk on recognized nonfunctional currency monetary accounts (non-designated hedge).
The fair value of these derivative financial instruments are determined using level 2 inputs (inputs other than quoted prices in active markets for identical assets and liabilities that are observable either directly or indirectly for substantially the full term of the asset or liability) in the fair value hierarchy as the fair value is based on publicly available foreign exchange and interest rates at each financial reporting date.
Forward currency contracts consist of (in millions):
|
| Currency Denomination |
|
| Currency Denomination |
| ||||||||||||||
|
| September 30, |
|
| December 31, |
|
| June 30, |
|
| December 31, |
| ||||||||
Foreign Currency |
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
| ||||||||
South Korean Won |
| KRW |
| 17,600 |
|
| KRW |
| — |
|
| KRW |
| 17,600 |
|
| KRW |
| 17,600 |
|
Norwegian Krone |
| NOK |
| 3,845 |
|
| NOK |
| 5,229 |
|
| NOK |
| 4,873 |
|
| NOK |
| 5,377 |
|
Russian Ruble |
| RUB |
| 1,042 |
|
| RUB |
| 1,012 |
| ||||||||||
U.S. Dollar |
| USD |
| 635 |
|
| USD |
| 631 |
|
| USD |
| 419 |
|
| USD |
| 686 |
|
Mexican Peso |
| MXN |
| 407 |
|
| MXN |
| 115 |
| ||||||||||
Euro |
| EUR |
| 167 |
|
| EUR |
| 172 |
|
| EUR |
| 207 |
|
| EUR |
| 188 |
|
Japanese Yen |
| JPY |
| 191 |
|
| JPY |
| 36 |
| ||||||||||
South African Rand |
| ZAR |
| 124 |
|
| ZAR |
| 124 |
|
| ZAR |
| 124 |
|
| ZAR |
| 124 |
|
Mexican Peso |
| MXN |
| 119 |
|
| MXN |
| 204 |
| ||||||||||
Japanese Yen |
| JPY |
| 113 |
|
| JPY |
| 121 |
| ||||||||||
British Pound Sterling |
| GBP |
| 38 |
|
| GBP |
| 20 |
| ||||||||||
Singapore Dollar |
| SGD |
| 38 |
|
| SGD |
| — |
|
| SGD |
| 16 |
|
| SGD |
| 42 |
|
British Pound Sterling |
| GBP |
| 26 |
|
| GBP |
| 12 |
| ||||||||||
Danish Krone |
| DKK |
| 16 |
|
| DKK |
| 35 |
|
| DKK |
| 8 |
|
| DKK |
| 21 |
|
Canadian Dollar |
| CAD |
| 2 |
|
| CAD |
| — |
|
| CAD |
| 1 |
|
| CAD |
| 3 |
|
Cash Flow Hedging Strategy
To protect against the volatility of forecasted foreign currency cash flows resulting from forecasted revenues and expenses, the Company instituted a cash flow hedging program. For derivative instruments that are designated and qualify as a cash flow hedge, the gain or loss on the derivative instrument is recorded in accumulated other comprehensive income (loss) and reclassified into earnings in the same line item associated with the forecasted transaction and in the same period or periods during which the hedged transaction affects earnings (e.g., in “revenues” when the hedged transactions are cash flows associated with forecasted revenues). The Company includes time value in hedge relationships.
The Company expects $20$15 million of the accumulated other comprehensive income (loss) will be reclassified into earnings within the next twelve months.
Non-designated Hedging Strategy
The Company enters into forward exchange contracts to hedge certain nonfunctional currency monetary accounts. The gain or loss on the derivative instrument is recognized in earnings in other income (expense), together with the changes in the hedged nonfunctional monetary accounts.
The amount of gain (loss) recognized in other income (expense), net was ($7)$5 million and ($10)38) million for the three and ninesix months ended SeptemberJune 30, 2019,2020, respectively, and ($3)7) million and ($11)3) million for the three and ninesix months ended SeptemberJune 30, 2018,2019, respectively.
The Company has the following fair values of its derivative instruments and their balance sheet classifications (in millions):
|
| Asset Derivatives |
|
| Liability Derivatives |
|
| Asset Derivatives |
|
| Liability Derivatives |
| ||||||||||||||||||||||||||||
|
|
|
| Fair Value |
|
|
|
| Fair Value |
|
|
|
| Fair Value |
|
|
|
| Fair Value |
| ||||||||||||||||||||
|
| Balance Sheet |
| September 30, |
|
| December 31, |
|
| Balance Sheet |
| September 30, |
|
| December 31, |
|
| Balance Sheet |
| June 30, |
|
| December 31, |
|
| Balance Sheet |
| June 30, |
|
| December 31, |
| ||||||||
|
| Location |
| 2019 |
|
| 2018 |
|
| Location |
| 2019 |
|
| 2018 |
|
| Location |
| 2020 |
|
| 2019 |
|
| Location |
| 2020 |
|
| 2019 |
| ||||||||
Derivatives designated as hedging instruments under ASC Topic 815 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts |
| Prepaid and other current assets |
| $ | 3 |
|
| $ | 2 |
|
| Accrued liabilities |
| $ | 29 |
|
| $ | 17 |
|
| Prepaid and other current assets |
| $ | 3 |
|
| $ | 5 |
|
| Accrued liabilities |
| $ | 35 |
|
| $ | 18 |
|
Foreign exchange contracts |
| Other Assets |
|
| — |
|
|
| — |
|
| Other liabilities |
|
| 9 |
|
|
| 11 |
|
| Other Assets |
|
| 5 |
|
|
| 4 |
|
| Other liabilities |
|
| 7 |
|
|
| 2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives designated as hedging instruments under ASC Topic 815 |
|
|
| $ | 3 |
|
| $ | 2 |
|
|
|
| $ | 38 |
|
| $ | 28 |
|
|
|
| $ | 8 |
|
| $ | 9 |
|
|
|
| $ | 42 |
|
| $ | 20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments under ASC Topic 815 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts |
| Prepaid and other current assets |
| $ | 1 |
|
| $ | 4 |
|
| Accrued liabilities |
| $ | 9 |
|
| $ | 6 |
|
| Prepaid and other current assets |
| $ | 6 |
|
| $ | 8 |
|
| Accrued liabilities |
| $ | 14 |
|
| $ | 6 |
|
Foreign exchange contracts |
| Other Assets |
|
| 1 |
|
|
| — |
|
| Other Liabilities |
|
| — |
|
|
| 2 |
|
| Other Assets |
|
| 1 |
|
|
| 1 |
|
| Other Liabilities |
|
| — |
|
|
| — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives not designated as hedging instruments under ASC Topic 815 |
|
|
| $ | 2 |
|
| $ | 4 |
|
|
|
| $ | 9 |
|
| $ | 8 |
|
|
|
| $ | 7 |
|
| $ | 9 |
|
|
|
| $ | 14 |
|
| $ | 6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives |
|
|
| $ | 5 |
|
| $ | 6 |
|
|
|
| $ | 47 |
|
| $ | 36 |
|
|
|
| $ | 15 |
|
| $ | 18 |
|
|
|
| $ | 56 |
|
| $ | 26 |
|
12. | Net Income (Loss) Attributable to Company Per Share |
The following table sets forth the computation of weighted average basic and diluted shares outstanding (in millions, except per share data):
| Three Months Ended |
|
| Nine Months Ended |
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||||||||||||
| September 30, |
|
| September 30, |
| June 30, |
|
| June 30, |
| ||||||||||||||||||||
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||||
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Company | $ | (244 | ) |
| $ | 1 |
|
| $ | (5,710 | ) |
| $ | (43 | ) | |||||||||||||||
Net loss attributable to Company | $ | (93 | ) |
| $ | (5,389 | ) |
| $ | (2,140 | ) |
| $ | (5,466 | ) | |||||||||||||||
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic—weighted average common shares outstanding |
| 382 |
|
|
| 379 |
|
|
| 382 |
|
|
| 378 |
|
| 385 |
|
|
| 382 |
|
|
| 384 |
|
|
| 381 |
|
Dilutive effect of employee stock options and other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
unvested stock awards |
| — |
|
|
| 4 |
|
|
| — |
|
|
| — |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Diluted outstanding shares |
| 382 |
|
|
| 383 |
|
|
| 382 |
|
|
| 378 |
|
| 385 |
|
|
| 382 |
|
|
| 384 |
|
|
| 381 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Company per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Net loss attributable to Company per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Basic | $ | (0.64 | ) |
| $ | 0.00 |
|
| $ | (14.95 | ) |
| $ | (0.11 | ) | $ | (0.24 | ) |
| $ | (14.11 | ) |
| $ | (5.57 | ) |
| $ | (14.35 | ) |
Diluted | $ | (0.64 | ) |
| $ | 0.00 |
|
| $ | (14.95 | ) |
| $ | (0.11 | ) | $ | (0.24 | ) |
| $ | (14.11 | ) |
| $ | (5.57 | ) |
| $ | (14.35 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends per share | $ | 0.05 |
|
| $ | 0.05 |
|
| $ | 0.15 |
|
| $ | 0.15 |
| $ | — |
|
| $ | 0.05 |
|
| $ | 0.05 |
|
| $ | 0.10 |
|
Companies with unvested participating securities are required to utilize a two-class method for the computation of net income attributable to Company per share. The two-class method requires a portion of net income attributable to Company to be allocated to participating securities, which are unvested awards of share-based payments with non-forfeitable rights to receive dividends or dividend equivalents if declared. Net income (loss) attributable to Company allocated to participating securities was immaterial for each of the three and ninesix months ended SeptemberJune 30, 20192020 and 2018,2019, respectively.
The Company had stock options outstanding that were anti-dilutive totaling 25 million and 2128 million shares for the three and ninesix months ended SeptemberJune 30, 2019,2020, respectively, compared to 1125 million and 1721 million shares for each of the three and ninesix months ended SeptemberJune 30, 2018,2019, respectively.
13. | Cash Dividends |
On May 29, 2019, the Company announced that its Board of Directors declared a cash dividend of $0.05 per share. The cash dividend was paid on September 27, 2019, to each stockholder of record on September 13, 2019. Cash dividends were $20 millionnil and $58$19 million for the three and ninesix months ended SeptemberJune 30, 20192020 compared to $19 million and $57$38 million for the three and ninesix months ended SeptemberJune 30, 2018.2019. The declaration and payment of future dividends is at the discretion of the Company’s Board of Directors and will be dependent upon the Company’s results of operations, financial condition, capital requirements and other factors deemed relevant by the Company’s Board of Directors.
14. | Asset Impairments |
Goodwill and Other Indefinite-Lived Intangible Assets
The Company tests intangible assets for impairment annually, or more frequently if events or circumstances indicate they could be impaired. Potential impairment indicators include, (butbut are not limited to)to: a sustained increase in worldwide inventories of oil or gas, or sustained reductions in: worldwide oil and gas prices or drilling activity; the profitability or cash flow of oil and gas companies or drilling contractors; available financing or other capital investment for oil and gas companies or drilling contractors; the market capitalization of the Company or its customers; or, capital investments by drilling companies and oil and gas companies.
The global oil and gas market downturn that began in 2014 has repeatedly exhibited signs of recovery that subsequently faded. During the secondfirst quarter of 2019, several2020 the coronavirus (COVID-19) outbreak rapidly spread across the world, driving sharp demand destruction for crude oil as whole economies ordered curtailed activity. Members of the Organization of the Petroleum Exporting Countries and other producing countries (OPEC+), including Russia, increased production into the already oversupplied market, indicators hit new decade-lows, consistent with a more prolonged downturn fordecimating oil prices. The result was the industry and diminished probability of a stronger near-term recovery. The Company’s stock price reachedreaching a fourteen-yearnew low during the quarter and its market capitalization wasfalling below its carrying value. Also, duringWest Texas Intermediate (WTI), a key benchmark for the quarter, the Oil Services Index (OSX), an indicatorUS oil market, fell more than $40 per barrel from January 1, 2020 to March 31, 2020 (losing two thirds of the healthits value in 90 days) to its lowest level in nearly two decades. As travel restrictions and the cost of capital of the oil and gas services industry (and of the Company’s primary customer base), hit a low not seen since 2004. The OSX tradedgovernment directives to shut down approximately 14 percent from the first quarterbusinesses increased, demand was expected to continue declining in the second quarter of 2019, reflecting a policy of capital discipline adopted by oil and gas producers during the quarter, diminished access to capital, and a higher cost of capital to oilfield services firms.2020. Management reduced its outlookforecast accordingly.
In the Company’s view, falling rig count levels in the secondfirst quarter and a depressed outlook provided tangible proofevidence to the equity markets that oil and gas producers were committed to reduced levels of capital investment in drilling, which will lead to reducedfurther reduce levels of demand for capital equipment and oilfield services and to reduced levels of demand for the capital equipment that the Company sells to its oilfield services customers. Additionally,Also, due to the second quarter saw the number of oilfield services firms declaring bankruptcy increase, including oneprolonged poor market conditions, capital availability to many of the Company’s large-cap peerscustomers became even more limited and substantial customers.is unlikely to improve near-term. In management’s judgement the current facts and circumstances including those described above constituted a triggering event in the secondfirst quarter which indicated the Company’s goodwill and other long-lived assets may be impaired. The Company performed a detailed Step 1 analysis under ASC 350, incorporating this refined outlook, which determined that the fair values were less than the respective carrying values for all of the following reporting units: Rig Equipment, Marine Construction, Downhole, ReedHycalog, IntelliServ, Grant Prideco, Tuboscope, Wellsite Services, Intervention & Stimulation Equipment, Floating Production Systems, XL Systems, Subsea Production Systems, Fiberglass Systems and Process & Flow TechnologiesCompany’s business units (“Reporting Units”).
The Company primarily uses the discounted cash flow method to estimate the fair value of its Reporting Units when conducting the impairment test, but also considers the comparable companies and representative transaction methods to validate the test result and management’s forecast and other expectations, where possible. The valuation techniques used in the test were consistent with those used during previous testing. Fair value of the reporting unitReporting Unit is determined using significant unobservable inputs, or level 3 in the fair value hierarchy. These inputs are based on internal management estimates, forecasts and judgments,judgements, using discounted cash flow. The inputs used in the test were updated to reflect management’s judgement, current market conditions and forecasts.
The discounted cash flow was based on management’s forecast of operating performance for each reporting unit.Reporting Unit. The two main assumptions used, which bear the risk of change and could impact the test result, include the forecast cash flow from operations from each of the Company’s Reporting Units and their respective weighted average cost of capital. The starting point for each of the reporting unit’sReporting Unit’s cash flow from operations was the detailed mid-year plan,forecast, modified to incorporate our revised outlook, as appropriate. The reporting unitReporting Unit carrying values were adjusted based on the long-lived asset impairment assessment noted below. Cash flows beyond the plan or forecast were estimated using a terminal value calculation which incorporated historical and forecasted financial cyclical trends for each reporting unitReporting Unit and considered long-term earnings growth rates. Financial and credit market volatility directly impacts our fair value measurement through the weighted average cost of capital used to determine a discount rate. During times of volatility, significant judgmentjudgement must be applied to determine whether credit changes are a short-term or long-term trend.
DuringFor the secondfirst quarter of 2019,2020, the Company recorded a $3,099$1,295 million in impairment chargecharges to goodwill and an $87$83 million chargein charges to indefinite-lived intangible assets.
DuringFollowing the third quarter, the Company combined twoimpairment charges, several Reporting Units within the Completion & Production Solutions segment, Floating Production and Process & Flow Technologies. The restructuring better aligns operations with the current and anticipated market environments and reduces administrative burden. The Company tested the two Reporting Units for goodwill impairment prior to, and after, combining them and concluded 0 impairment charge was necessary.
Also, during the third quarter, the Company’s Wellbore Technologies segment reorganized 2 of its Reporting Units. The Company performeddid not have a goodwill impairment analysis prior and subsequent to the restructuring and concluded that the calculated fair values of these Reporting Units werevalue substantially in excess of their carrying value, with the exception of Wellsite Services which has a goodwill balance of $174 million at September 30, 2019.book value. Further deterioration of market conditions, in management’s judgement, couldbeyond those incorporated into the extended forecast by management, will likely result in additional impairment.impairment charges. The restructuring did not effect Wellbore Technologies’ consolidated financial positionremaining goodwill balance for these Reporting Units at June 30, 2020 is as follows: Rig Equipment ($661 million), Marine Construction ($51 million), ReedHycalog ($124 million), M/D Totco ($10 million), Wellsite ($174 million), XL Systems ($64 million), Fiberglass Systems ($346 million), and results of operations.Process and Flow Technologies ($63 million).
At SeptemberJune 30, 2019,2020, the Company has approximately $3.2$1.49 billion of goodwill, by segment, as follows (in millions):
|
| Wellbore Technologies |
|
| Completion & Production Solutions |
|
| Rig Technologies |
|
| Total |
|
| Wellbore Technologies |
|
| Completion & Production Solutions |
|
| Rig Technologies |
|
| Total |
| ||||||||
Balance at December 31, 2018 |
| $ | 3,011 |
|
| $ | 2,041 |
|
| $ | 1,212 |
|
| $ | 6,264 |
| ||||||||||||||||
Balance at December 31, 2019 |
| $ | 843 |
|
| $ | 1,054 |
|
| $ | 910 |
|
| $ | 2,807 |
| ||||||||||||||||
Impairment |
|
| (1,866 | ) |
|
| (1,013 | ) |
|
| (220 | ) |
|
| (3,099 | ) |
|
| (517 | ) |
|
| (580 | ) |
|
| (198 | ) |
|
| (1,295 | ) |
Additions |
|
| 11 |
|
|
| 58 |
|
|
| 14 |
|
|
| 83 |
|
|
| 4 |
|
|
| — |
|
|
| — |
|
|
| 4 |
|
Currency translation adjustments and other |
|
| 1 |
|
|
| (8 | ) |
|
| (5 | ) |
|
| (12 | ) |
|
| (22 | ) |
|
| (1 | ) |
|
| — |
|
|
| (23 | ) |
Balance at September 30, 2019 |
| $ | 1,157 |
|
| $ | 1,078 |
|
| $ | 1,001 |
|
| $ | 3,236 |
| ||||||||||||||||
Balance at June 30, 2020 |
| $ | 308 |
|
| $ | 473 |
|
| $ | 712 |
|
| $ | 1,493 |
|
Accumulated goodwill impairment was $5,556$7,261 million at SeptemberJune 30, 2019. Additions during the third quarter 2019 were $55 million.2020.
Impairment of Long-Lived Assets (Excluding Goodwill and Other Indefinite-Lived Intangible Assets)
Long-lived assets, which include property, plant and equipment, right of use, and identified intangible assets, comprise a significant amount of the Company’s total assets. The Company makes judgments and estimates in conjunction with the carrying value of these assets, including amounts to be capitalized, depreciation and amortization methods and estimated useful lives.
The Company identified its Reporting Units as individual asset groups. The carrying values of these asset groups are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. An impairment loss is recorded in the period in which it is determined that the carrying amount of the asset is not recoverable based on estimated future undiscounted cash flows. We estimate the fair value of these intangible and fixed assets using an income approach that requires the Company to make long-term forecasts of its future revenues and costs related to the assets subject to review. These forecasts require assumptions about demand for the Company’s products and services, future market conditions and technological developments. The forecasts are dependent upon assumptions including those regarding oil and gas prices, the general outlook for the global oil and gas industry, available financing for the Company’s customers, political stability in major oil and gas producing areas, and the potential obsolescence of various types of equipment we sell, among other factors. Financial and credit market volatility directly impacts our fair value measurement through our income forecast. Changes to these assumptions, including, but not limited to: sustained declines in worldwide rig counts below current analysts’ forecasts; collapse of spot and futures prices for oil and gas; significant deterioration of external financing for our customers; higher risk premiums or higher cost of equity; or any other significant adverse economic news could require a provision for impairment.
During the secondfirst quarter of 2019,2020, the results of the Company's test for impairment of goodwill and indefinite-lived intangible assets, and the other negative market indicators described above, were a triggering event that indicated that its long-lived tangible assets and definite-livedfinite-lived intangible assets were impaired. Recoverability testing was performed at certain asset groups and yielded an estimated undiscounted net cash flow below the carrying amount of the related assets, and impairment was indicated.
Impairment testing performed as of June 1, 2019in the first quarter resulted in the determination that certain long-lived assets associated with most of the Company’s asset groups were not recoverable. The estimated fair value of these asset groups was below the carrying value and as a result, during the secondfirst quarter of 2019,2020, the Company recorded an impairment chargecharges of $1,901$209 million to customer relationships, patents, trademarks, tradenames, and other finite-lived intangible assets, $230$262 million to property, plant and equipment, and $56$42 million for right-of-use assets. During the third quarter of 2019,Additionally, the Company recorded a $12$224 million impairment charge to property, plant and equipment ($5 millionon its equity investment in the Wellbore Technologies segment and $7 million in the Completion & Production Solutions segment).unconsolidated affiliates.
At September 30, 2019, theThe Company has approximately $866$525 million of identified intangible assets, by segment, as follows (in millions):
|
| Wellbore Technologies |
|
| Completion & Production Solutions |
|
| Rig Technologies |
|
| Total |
|
| Wellbore Technologies |
|
| Completion & Production Solutions |
|
| Rig Technologies |
|
| Total |
| ||||||||
Balance at December 31, 2018 |
| $ | 1,735 |
|
| $ | 1,005 |
|
| $ | 280 |
|
| $ | 3,020 |
| ||||||||||||||||
Balance at December 31, 2019 |
| $ | 326 |
|
| $ | 275 |
|
| $ | 251 |
|
| $ | 852 |
| ||||||||||||||||
Impairment |
|
| (1,298 | ) |
|
| (690 | ) |
|
| — |
|
|
| (1,988 | ) |
|
| (78 | ) |
|
| (214 | ) |
|
| — |
|
|
| (292 | ) |
Additions |
|
| 6 |
|
|
| — |
|
|
| — |
|
|
| 6 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Amortization |
|
| (90 | ) |
|
| (51 | ) |
|
| (22 | ) |
|
| (163 | ) |
|
| (6 | ) |
|
| (7 | ) |
|
| (14 | ) |
|
| (27 | ) |
Currency translation adjustments and other |
|
| (7 | ) |
|
| — |
|
|
| (2 | ) |
|
| (9 | ) |
|
| (3 | ) |
|
| (4 | ) |
|
| (1 | ) |
|
| (8 | ) |
Balance at September 30, 2019 |
| $ | 346 |
|
| $ | 264 |
|
| $ | 256 |
|
| $ | 866 |
| ||||||||||||||||
Balance at June 30, 2020 |
| $ | 239 |
|
| $ | 50 |
|
| $ | 236 |
|
| $ | 525 |
|
15. | Commitments and Contingencies |
Our business is affectedgoverned by governmental laws and regulations relatingpromulgated by U.S. federal and state governments and regulatory agencies, as well as international governmental authorities in the many countries in which we conduct business, including those related to the oilfield service industry, including, health, safety,industry. In the United States these governmental authorities include: the U.S. Department of Labor, the Occupational Safety and Health Administration (“OSHA”), the Environmental Protection Agency, the Bureau of Land Management, the Department of Treasury, Office of Foreign Asset Controls, state and international environmental customsagencies and trade.many others. We have not incurredare unaware of any known, material unreserved liabilities in connection with our compliance with such laws. New laws, regulations and enforcement policies may result in additional, presently unquantifiable or unknown, costs or liabilities.
The Company is exposed to customs and regulatory risk in the countries in which we do business or to which we transport goods. For example, the effects of the United Kingdom’s withdrawal from the European Union, known as Brexit, may have a negative impact on our results from operations. Uncertainty concerning the legal and regulatory risks of Brexit, include: (i) supply chain risks resulting from lack of trade agreements, potential changes in customs administrations or tariffs; (ii) revenue risk, loss of customers or increased costs; (iii) delays in delivery of materials to the Company or delay in delivery by the Company; and (iv) the need for renegotiation of agreements; and other business disruptions. In addition, trade regulations and laws may adversely impact our ability to do business in certain countries, e.g.: Iran, Syria, Russia and Venezuela. Such trade regulations can be complex and present compliance challenges which could result in future liabilities.
The Company is involved in various claims, regulatory agency audits and pending or threatened legal actions involving a variety of matters. The Company maintains insurance that covers many of the claims arising from risks associated with the business activities of the Company, including claims for premises liability, product liability and other such claims. The Company carries substantial insurance to cover such risks above a self-insured retention. The Company believes, and the Company’s experience has been, that such insurance has been sufficientenough to cover such risks. See Item 1A. Risk Factors.
The Company is also a party to claims, threatened and actual litigation, private arbitration, internal investigations of potential regulatory and compliance matters arising from ordinary day-to-day business activities in which parties, including government authorities, assert claims against the Company for a broad spectrum of potential claims and theories of liability, including: individual employment law claims, collective actions or class actions under employment laws, intellectual property claims, (such as alleged patent infringement, and/or misappropriation of trade secrets), premises liability claims, environmental, product liability claims, warranty claims, personal injury claims arising from allegedly defective products, negligence or other theories of liability, alleged regulatory violations, alleged violations of anti-corruption and anti-bribery laws and other commercial claims seeking recovery for alleged actual or exemplary damages or fines and penalties. For many suchsome contingent claims, the Company’s insurance coverage is inapplicable or an exclusion to coverage may apply. In such instances, settlement or other resolution of such contingent claims could have a material financial or reputational impact on the Company.
Asof SeptemberJune 30, 2019,2020, the Company recorded reserves in an amount believed to be sufficient, given the range of potential outcomes, for contingent liabilities representing all contingencies believed to be probable. These reserves include all costs expected for reclamation of a closed barite mine and product liability claims, as well as other circumstances involving material claims.
The Company has assessed the potential for additional losses above the amounts accrued as well as potential losses for matters that are not probable but are reasonably possible. The litigation process as well as the final outcome of regulatory oversight is inherently uncertain, and our best judgmentjudgement concerning the probable outcome of litigation or regulatory enforcement matters may prove to be incorrect in some instances. The total potential loss on these matters cannot be determined; however, in our opinion, any ultimate liability, to the extent not otherwise provided for, will not materially affect our financial position, cash flow or results of operations. These estimated liabilities are based on the Company’s assessment of the nature of these matters, their progress toward resolution, the advice of legal counsel and outside experts as well as management’s experience. Of course, because of uncertainty and risk inherent to litigation and arbitration, the actual liabilities incurred may exceed our estimated liabilities and reserves, which could have a material financial or reputational impact on the Company. In many instances, the Company’s products and services embody or incorporate trade secrets or patented inventions. From time to time, we are engaged in disputes concerning protection of trade secrets and confidential information, patents and other intellectual property rights. Such disputes frequently involve complex, factual, technical and/or legal issues which result in high costs to adjudicate our rights and difficulty in predicting the ultimate outcome. Because of the importance of the Company’s intellectual property to the Company’s performance, an adverse result in such disputes could materially and adversely impact our financial performance.
Further, in some instances, direct or indirect consumers of our products and services, entities providing financing for purchases of our products and services or members of the supply chain for our products and services have become involved in governmental investigations, internal investigations, political or other enforcement matters. In such circumstances, such investigations may adversely impact the ability of consumers of our products, entities providing financial support to such consumers or entities in the supply chain to timely perform their business plans or to timely perform under agreements with us. We may, from time to time, become involved in these investigations, at substantial cost to the Company. We also are subject to trade regulations and other regulatory compliance in which the laws and regulations of different jurisdictions conflict or trade regulations may conflict with contractual terms. In such circumstances, our compliance with U.S. laws and regulations may subject us to risk of fines, penalties or contractual liability in other jurisdictions. Our efforts to actively manage such risks may not always be successful which could lead to negative impacts on revenue or earnings.
16.New Accounting Pronouncements
Recently Adopted Accounting Standards
In August 2017,The Company is exposed to customs and regulatory risk in the FASB issued Accounting Standard Update No. 2017-12 “Derivatives and Hedging – Targeted Improvementscountries in which we do business or to Accounting for Hedging Activities” (ASU 2017-12). This update improveswhich we transport goods. For example, the financial reporting of hedging relationships and simplifies the applicationeffects of the hedge accounting guidance. ASU 2017-12 is effectiveUnited Kingdom’s withdrawal from the European Union, known as Brexit, may have a negative impact on our results from operations. Uncertainty concerning the legal and regulatory risks of Brexit, include: (i) supply chain risks resulting from lack of trade agreements, potential changes in customs administrations or tariffs; (ii) revenue risk, loss of customers or increased costs; (iii) delays in delivery of materials to the Company or delay in delivery by the Company; and (iv) the need for fiscal periods beginning after December 15, 2018,renegotiation of agreements; and other business disruptions. In addition, trade regulations and laws may adversely impact our ability to do business in certain countries, e.g.: Iran, Syria, Russia, China and Venezuela. Such trade regulations can be complex and present compliance challenges which could result in future liabilities.
As a result of the recent COVID-19 pandemic, the Company may be exposed to additional liabilities and risks. “Shelter-in-Place” and other governmental orders and restrictions in response to the COVID-19 pandemic have resulted in a severe slowdown in economic activity, and a sharp reduction in oil activity and a corresponding decline in demand for oil. This has and will lead to a sharp reduction in drilling activity in North America and reduction of activity internationally. The persistence of this supply/demand imbalance caused oil prices to drop precipitously, to the lowest prices in decades. The COVID-19 pandemic continues to adversely impact many jurisdictions and continues to disrupt normal economic activities. As a result, the demand for energy continues to be constrained with continued adverse consequences for our customers and for interim periods within those fiscal years. the Company.
As a result of these market conditions, demand for our products and services has declined. Our customers may attempt to cancel or delay projects, cancel contracts or may invoke force majure clauses. Our customers may also seek to delay or may default on their payments to us. Further, we have seen, and expect to see, an increasing number of energy companies filing bankruptcy. Our collection of receivables could be materially delayed and/or impaired.
The Company adopted this updatealso may be exposed to liabilities resulting from operational delays due to supply chain disruption and closure or limitations imposed on January 1, 2019, with no material impact.
In March 2016,our facilities and work force, from “shelter in place” orders around the FASB issued ASC Topic 842, “Leases” (ASC Topic 842), which supersedesworld. The Company���s ability to perform services could also be impaired and the lease requirementsCompany could be exposed to liabilities resulting from interruption in ASC Topic No. 840 “Leases”its ability to perform due to limited manpower and most industry-specific guidance. This update increases transparencytravel restrictions. These potential operational and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. ASC Topic 842 is effective for fiscal years beginning after December 15, 2018, and for interim periods within those fiscal years. The Company adopted ASU Topic 842 on January 1, 2019. Refer to Note 7, Leases, for the impact of this adoption on the Company’s financial statements.
In February 2018, the FASB issued ASU 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which allows for a reclassification from accumulated other comprehensive income (AOCI) to retained earnings for stranded tax effectsservice delays resulting from the U.S. Tax Cuts and Jobs Act (the “Tax Act”). The Company adopted ASU Topic 2018-02COVID-19 pandemic could result in contractual or other legal claims from our customers. At this time, it is not possible to quantify these risks, but the combination of these factors could have a material impact on January 1, 2019 and elected not to reclassify stranded tax effects caused by tax reform from AOCI to retained earnings.our financial results.
16. | New Accounting Pronouncements |
Recently IssuedAdopted Accounting Standards
In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (ASC Topic 326): Measurement of Credit Losses on Financial Instruments. This update improves financial reporting by requiring earlier recognition of credit losses on financing receivables and other financial assets in scope. ASU 2016-13 is effective for fiscal periods beginning after December 15, 2019, including interim periods within those fiscal years. The Company adopted this update on January 1, 2020, with no material impact. The Company estimates its reserves using information about past events, current conditions and risk characteristics of each customer, and reasonable and supportable forecasts relevant to assessing risk associated with the collectability of Trade Accounts Receivables, Contract Assets, Unbilled Accounts Receivables, and Long-Term Receivables. The Company’s customer base, mostly in the oil and gas industry, have generally similar collectability risk characteristics, although larger and state-owned customers may have lower risk than smaller independent customers. As of June 30, 2020, allowance for bad debts and contract assets totaled $117 million.
Recently Issued Accounting Standards
In December 2019, the FASB issued ASU 2019-12, “Simplifying the Accounting for Income Taxes.” This ASU eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. It also clarifies and simplifies other aspects of accounting for income taxes. ASU 2019-12 is effective for interim and annual reporting periods beginning after December 15, 2020, with early adoption permitted. Management is currently evaluatingassessing the effectimpact of adopting this standard.ASU 2019-12 on the company’s financial position, results of operations and cash flows.
In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848)” This ASU applies only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The expedients and exceptions provided by the amendments do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022, that an entity has elected certain optional expedients for and that are retained through the end of the hedging relationship. Management is currently assessing the impact of adopting ASU 2020-04 on the company’s financial position, results of operations and cash flows.
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
Introduction
National Oilwell Varco, Inc. (the “Company”) is a leading independent provider of equipment and technology to the upstream oil and gas industry. The Company designs, manufactures, sells and services a comprehensive line of drilling and well servicing equipment; sells and rents drilling motors, specialized downhole tools, and rig instrumentation; performs inspection and internal coating of oilfield tubular products; provides drill cuttings separation, management and disposal systems and services; and provides expendables and spare parts used in conjunction with the Company’s large installed base of equipment. The Company also manufactures coiled tubing and high-pressure fiberglass and composite tubing, and sells and rents advanced in-line inspection equipment to makers of oil country tubular goods. The Company has a long tradition of pioneering innovations which improve the cost-effectiveness, efficiency, safety, and environmental impact of oil and gas operations.
Unless indicated otherwise, results of operations are presented in accordance with accounting principles generally accepted in the United States (“GAAP”). Certain reclassifications have been made to prior period financial information in order to conform with current period presentation. The Company discloses Adjusted EBITDA (defined as Operating Profit excluding Depreciation, Amortization and, when applicable, Other Items) in its periodic earnings press releases and other public disclosures to provide investors additional information about the results of ongoing operations. See Non-GAAP Financial Measures and Reconciliations in Results of Operations for an explanation of our use of non-GAAP financial measures and reconciliations to their corresponding measures calculated in accordance with GAAP.
Wellbore Technologies
The Company’s Wellbore Technologies segment designs, manufactures, rents, and sells a variety of equipment and technologies used to perform drilling operations, and offers services that optimize their performance, including: solids control and waste management equipment and services; drilling fluids; portable power generation; premium drill pipe; wired pipe; drilling optimization and automation services; tubular inspection, repair and coating services; rope access inspection; instrumentation; measuring and monitoring; downhole and fishing tools; steerable technologies; hole openers; and drill bits.
Wellbore Technologies focuses on oil and gas companies and supports drilling contractors, oilfield service companies, and oilfield equipment rental companies. Demand for the segment’s products and services depends on the level of oilfield drilling activity by oil and gas companies, drilling contractors, and oilfield service companies.
Completion & Production Solutions
The Company’s Completion & Production Solutions segment integrates technologies for well completions and oil and gas production. The segment designs, manufactures, and services equipment and technologies needed for hydraulic fracture stimulation, including downhole multistage fracturing tools, pressure pumping trucks, blenders, sanders, hydration units, injection units, flowline, and manifolds; well intervention, including coiled tubing units, coiled tubing, and wireline units and tools; well construction, including premium connections and liner hangers; onshore production, including composite pipe, surface transfer and progressive cavity pumps, and artificial lift systems, wellstream processing and sand control systems; and, offshore production, including fluid processing and sand control systems, mooring and fluid transfer systems, and subsea production technologies.
Completion & Production Solutions supports service companies and oil and gas companies. Demand for the segment’s products depends on the level of oilfield completions and workover activity by oilfield service companies and drilling contractors, and capital spending plans by oil and gas companies and oilfield service companies.
Rig Technologies
The Company’s Rig Technologies segment makes and supports the capital equipment and integrated systems needed to drill oil and gas wells on land and offshore as well as other marine-based markets, including offshore wind vessels. The segment designs, manufactures and sells land rigs, offshore drilling equipment packages, including installation and commissioning services, and drilling rig components that mechanize and automate the drilling process and rig functionality. Equipment and technologies the segment brings to customers include: substructures, derricks, and masts; cranes; jacking systems; pipe lifting, racking, rotating, and assembly systems; fluid transfer technologies, such as mud pumps; pressure control equipment, including blowout preventers; power transmission systems, including drives and generators; rig instrumentation and control systems; mooring, anchor, and deck handling machinery; and pipelay and construction systems. The segment also provides spare parts, repair, and rentals as well as comprehensive remote equipment monitoring, technical support, field service, and customer training through an extensive network of aftermarket service and repair facilities strategically located in major areas of drilling operations around the world.
Rig Technologies supports land and offshore drillers. Demand for the segment’s products depends on drilling contractors’ and oil and gas companies’ capital spending plans, specifically capital expenditures on rig construction and refurbishment; and secondarily on the overall level of oilfield drilling activity, which drives demand for spare parts, service, and repair for the segment’s large installed base of equipment.
Critical Accounting Policies and Estimates
In our annual report on Form 10-K for the year ended December 31, 2018,2019, we identified our most critical accounting policies. In preparing the financial statements, we make assumptions, estimates and judgments that affect the amounts reported. We periodically evaluate our estimates and judgments that are most critical in nature which are related to revenue recognition; allowance for doubtful accounts; inventory reserves; impairment of long-lived assets (excluding goodwill and other indefinite-lived intangible assets); goodwill and other indefinite-lived intangible assets; purchase price allocation of acquisitions; warranties; and income taxes. Our estimates are based on historical experience and on our future expectations that we believe are reasonable. The combination of these factors forms the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results are likely to differ from our current estimates and those differences may be material.
EXECUTIVE SUMMARY
For the thirdsecond quarter ended SeptemberJune 30, 2019,2020, the Company generated revenues of $2.13$1.50 billion, compared to $1.88 billion for the first quarter of 2020 and $2.13 billion for the second quarter of 2019 and $2.15 billion for the third quarter of 2018.2019. Operating loss for the thirdsecond quarter of 20192020 was $154$100 million, and net loss was $244$93 million. Operating loss and net loss include non-cash, pre-tax charges (“other items”, see Other Corporate Items for additional detail) of $314$102 million. Adjusted EBITDA (operating profit excluding depreciation, amortization, and other items) increased $67decreased $94 million sequentially to $262$84 million, or 12.35.6 percent of sales. Other items included inventory charges, impairment charges, severance accruals, and restructuring costs.
Segment Performance
Wellbore Technologies
Wellbore Technologies generated revenues of $793$442 million in the thirdsecond quarter of 2019,2020, a decrease of seven36 percent from the first quarter of 2020 and a decrease of 48 percent from the second quarter of 20192019. The sequential decline in revenue was driven primarily by the severe fall in global drilling activity, particularly in North America and a decreaseLatin America. Operating loss was $67 million, or -15.2 percent of six percent from the third quarter of 2018. Softening demand for the segment’s short-cycle products and services in a contracting North American market, coupled with reduced drillpipe deliveries, drove the sequential revenue decline. Operating profit was $42 millionsales, and included $41$62 million of other items. Adjusted EBITDA was $133decreased 59 percent sequentially to $42 million, or 16.89.5 percent of sales, as the benefits of the segment’s cost-savings initiatives helped limit decremental leverage (the change in adjusted EBITDA divided by the change in revenue) to 2%.sales.
Completion & Production Solutions
Completion & Production Solutions generated revenues of $728$611 million in the thirdsecond quarter of 2019, an increase2020, a decrease of 10nine percent from the first quarter of 2020 and a decrease of eight percent from the second quarter of 2019 and a decrease2019. Operating profit was $42 million, or 6.9 percent of one percent from the third quarter of 2018. The second straight quarter of double-digit top-line improvement was driven by increased shipments of fiberglass pipe, processing equipment, and subsea flexible pipe, predominantly for international and offshore markets. Operating loss was $24 millionsales, and included $79$12 million in other items. Deteriorating conditions in the global completions market and logistical disruptions from COVID-19-related restrictions were partially offset by strong execution on existing backlog. Adjusted EBITDA increased 58decreased four percent sequentially to $82$68 million, or 11.311.1 percent of sales, as realized cost-cutting benefits were boosted by favorable project closures and improved absorption in eastern hemisphere facilities. Sequential Adjusted EBITDA leverage was 46%.sales.
New orders booked during the quarter totaled $535$196 million, representing a book-to-bill of 12451 percent when compared to the $431$388 million of orders shipped from backlog. At SeptemberJune 30, 2019,2020, backlog for capital equipment orders for Completion & Production Solutions was $1.30$1.0 billion.
Rig Technologies
Rig Technologies generated revenues of $649$476 million in the thirdsecond quarter of 2019,2020, a decrease of three15 percent from the first quarter of 2020 and a decrease of 29 percent from the second quarter of 2019 and an increase of two percent from the third quarter of 2018. Incremental contributions from the segment’s Aftermarket business, which continues to benefit from improved offshore rig tendering activity, were more than offset by a decline in capital equipment sales into the North American land market during the quarter.2019. Operating loss was $110$25 million, or -5.3 percent of sales, and included $194$20 million of other items. Adjusted EBITDA increased 42decreased 75 percent sequentially to $105$14 million, or 16.22.9 percent of sales, benefiting from positive project closeout variances, a more favorable shiftsales. Declining global rig activity combined with COVID-19-related logistics issues, which were particularly acute in product mix,the aftermarket business, drove the sequential decline in revenue and strong progress on cost savings initiatives.profitability.
New orders booked during the quarter totaled $221$74 million, representing a book-to-bill of 9034 percent when compared to the $246$219 million of orders shipped from backlog. At SeptemberJune 30, 2019,2020, backlog for capital equipment orders for Rig Technologies was $3.14$2.79 billion.
Oil & Gas Equipment and Services Market and Outlook
Following approximately two and a half years of steady improvements in oil prices and global drilling activity levels, commodity prices declined sharply during the fourth quarter of 2018 due to stronger than expected growth in U.S. oil production and concerns regarding the global economy. These developments, along with pressure from investors on North American exploration and production companies to reduce investments and generate free cash flow, led to uncertainty in 2019 capital budgets and caused certain customers to accelerate deliveries of equipment prior to year-end. As a result NOV reported improved operations during the fourth quarter of 2018,reduced budgets, and despite oila modest recovery in commodity prices, that fell over 40 percent latedrilling activity levels in the year.
The uncertainty surroundingU.S. declined throughout 2019 budgets, and the pull-forward of equipment deliveries into 2018, led to a sharp reduction in NOV’s first quarter of 2019 revenues; however, commodity prices increased, and the Company’s bookings improved allowing each of the Company’s three operating segments to realize a sequential improvementresulting in the second quarter.
Duringfirst double digit percentage decrease in the second quarteraverage annual rig count since 2016. While the North American market deteriorated, the new-found capital austerity and fiscal discipline exhibited by U.S. operators along with declining production from underinvestment in overseas markets and rapidly growing demand for LNG inspired greater levels of 2019, several market indicators hit new decade-lows, consistent with a more prolonged downturn for the industry and diminished probability of a stronger near-term recovery. The Oil Services Index (OSX), an indicator of the health and the cost of capital of theconfidence from international oil and gas servicescompanies. The industry (and of the Company’s primary customer base), hit a new low not seen since 2004, reflecting a policy of capital discipline adopted by oil and gas producers during the quarter, diminished access to, and aentered 2020 anticipating higher cost of, capital to oilfield services firms. In the Company’s view, falling rig count levels in the second quarter provided tangible proof to the equity markets that oil and gas producers were committed to reduced levels of capital investment in drilling, which will lead to reduced levels of demand for oilfield services, which will lead to reduced levels of demand for the capital equipment that the Company sells to its oilfield services customers. Management reduced its outlook accordingly, resulting in a significant impairment of goodwill, intangibles, and other assets in the second quarter (See Note 14).
The third quarter of 2019 saw further depressed industry activity in North America, with some positive signs offshore and internationally. Management continued evaluating the Company’s structure, footprint and strategies against the evolving market, resulting in inventory charges ($265 million); impairment of long-lived tangible assets ($12 million); and severance, facility closure and other costs ($37 million) in the third quarter. Slowly improving activity in international and offshore markets, and growing market share for certain of NOV’s products and services, are expected to partiallyactivity levels would mostly offset the continuingongoing effects of capital austerity in the North American land marketplace. Longer-term,marketplace, where a meaningful recovery was not expected before 2021.
During the Company remains optimistic regarding improvements infirst quarter of 2020, the coronavirus (COVID-19) outbreak rapidly spread across the world, driving sharp demand destruction for crude oil as whole economies ordered curtailed activity. In response to declining demand for crude oil, members of the Organization of the Petroleum Exporting Countries and other producing countries (OPEC+), including Russia, increased production into the already oversupplied market, fundamentals as existingdecimating oil prices and rapidly filling worldwide storage facilities. In April 2020, OPEC+ began to reduce production, which had a muted positive effect on oil prices due to market concerns that the cuts were significantly less than the demand destructions caused by COVID-19. As a result, companies across the industry responded with severe capital spending budget cuts, cost cuts, personnel layoffs, facility closures and bankruptcy filings. The COVID-19 virus continued to spread during the second quarter of 2020, extending depressed demand, uncertainty and spending constraint by the entire oil and gas fields continueindustry even as oil prices recovered and appeared to depletestabilize near $40 bbl.
In response to the economic destruction caused by the COVID-19 pandemic, many governments implemented stimulus programs to aid individuals and numerous major projectsbusinesses. The size, method and effectiveness of these programs varies greatly and, although generally helpful to replenish supplythe target economies, they have been deferred or canceled while globalnot fully restored prior levels of demand continuesfor oil and gas.
Management expects industry activity levels and spending by customers to grow. Notwithstanding this optimism,remain depressed throughout the market outlookremainder of 2020 as demand destruction from COVID-19 continues. NOV remains uncertain and NOV is committed to streamlining its operations and improving organizational efficiencies while continuing to investfocusing on investing in developing and acquiring newinnovative products and services, including environmentally friendly technologies, that are responsive to the longer-term needs of our customers. We believe this strategy will further advance the Company’s competitive position, regardless of the market environment.
Operating Environment Overview
The Company’s results are dependent on, among other things, the level of worldwide oil and gas drilling, well remediation activity, the prices of crude oil and natural gas, capital spending by other oilfield service companies and drilling contractors, and worldwide oil and gas inventory levels. Key industry indicators for the third quarter of 2019 and 2018, and the second quarter of 2020 and 2019, and the first quarter of 2020 include the following:
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Active Drilling Rigs: |
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U.S. |
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| 989 |
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| 396 |
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| 989 |
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| 784 |
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Canada |
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| 132 |
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| 208 |
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| 83 |
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| 59.0 | % |
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| 25 |
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| 196 |
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International |
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| 1,145 |
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| 1,003 |
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| 1,138 |
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| 14.2 | % |
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| 0.6 | % |
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| 834 |
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| 1,138 |
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| 1,073 |
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| (26.7 | %) |
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Worldwide |
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| 2,197 |
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| 2,262 |
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| 2,210 |
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| (0.6 | %) |
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| 1,255 |
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| 2,210 |
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| 2,053 |
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West Texas Intermediate Crude Prices (per barrel) |
| $ | 56.37 |
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| $ | 69.76 |
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| $ | 59.78 |
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| $ | 27.81 |
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Natural Gas Prices ($/mmbtu) |
| $ | 2.34 |
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| $ | 2.90 |
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| $ | 2.51 |
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| $ | 1.67 |
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* | Averages for the quarters indicated. See sources below. |
The following table details the U.S., Canadian, and international rig activity and West Texas Intermediate Crude Oil prices for the past nine quarters ended SeptemberJune 30, 2019,2020, on a quarterly basis:
Industry Trends Rig Counts and Oil Prices Total Number of Rigs 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 $140.00 $120.00 $100.00 $80.00 $60.00 $40.00 $20.00 $ West Texas Int. (Price per Barrel) 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 Total Rings 2,110 2,262 2,260 2,260 2,210 2,197 2,071 2,053 1,255 Canada 105 208 177 185 83 132 139 196 25 US 1,037 1,051 1,072 1,046 989 920 821 784 396 International 968 1,003 1,011 1,029 1,138 1,145 1,111 1,073 834 W.TX Int. ($) $68.03 $69.76 $59.08 $54.83 $59.78 $56.37 $56.92 $45.99 $27.81
Source: Rig count: Baker Hughes, Inc. (www.bakerhughes.com); West Texas Intermediate Crude Oil and Natural Gas Prices: Department of Energy, Energy Information Administration (www.eia.doe.gov).
The worldwide quarterly average rig count decreased one39 percent (from 2,2102,053 to 2,197)1,255), and the U.S. decreased seven49 percent (from 989784 to 920)396), in the third quarter of 2019 compared to the second quarter of 2019.2020 compared to the first quarter of 2020. The average per barrel price of West Texas Intermediate Crude Oil decreased six40 percent (from $59.78$45.99 per barrel to $56.37$27.81 per barrel) and natural gas prices decreased seven11 percent (from $2.51$1.88 per mmbtu to $2.34$1.67 per mmbtu) in the thirdsecond quarter of 20192020 compared to the secondfirst quarter of 2019.2020.
At October 18, 2019,July 17, 2020, there were 994285 rigs actively drilling in North America, which decreased six32 percent from the thirdsecond quarter average of 1,052421 rigs. The price for West Texas Intermediate Crude Oil was $53.78$40.59 per barrel at October 18, 2019, a decreaseJuly 17, 2020, an increase of five46 percent from the thirdsecond quarter of 20192020 average. The price for natural gas was $2.32$1.72 per mmbtu at October 18, 2019, a decreaseJuly 17, 2020, an increase of onethree percent from the thirdsecond quarter of 20192020 average.
Results of Operations
Financial results by operating segment are as follows (in millions):
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| Three Months Ended |
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| Nine Months Ended |
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| Three Months Ended |
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| Six Months Ended |
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| 2019 |
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| 2018 |
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Revenue: |
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Wellbore Technologies |
| $ | 793 |
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| $ | 847 |
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| $ | 2,450 |
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| $ | 2,351 |
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| $ | 442 |
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| $ | 850 |
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| $ | 1,133 |
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| $ | 1,657 |
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Completion & Production Solutions |
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| 728 |
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| 735 |
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| 1,972 |
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| 2,143 |
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| 611 |
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| 663 |
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| 1,286 |
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| 1,244 |
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Rig Technologies |
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| 649 |
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| 637 |
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| 1,923 |
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| 1,771 |
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| 476 |
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| 671 |
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| 1,033 |
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| 1,274 |
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Eliminations |
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| (44 | ) |
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| (65 | ) |
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| (147 | ) |
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| (210 | ) |
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| (33 | ) |
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| (52 | ) |
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| (73 | ) |
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| (103 | ) |
Total revenue |
| $ | 2,126 |
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| $ | 2,154 |
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| $ | 6,198 |
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| $ | 6,055 |
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| $ | 1,496 |
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| $ | 2,132 |
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| $ | 3,379 |
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| $ | 4,072 |
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Operating profit (loss): |
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Wellbore Technologies |
| $ | 42 |
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| 40 |
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| $ | (3,234 | ) |
| $ | 90 |
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| $ | (67 | ) |
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| (3,295 | ) |
| $ | (730 | ) |
| $ | (3,276 | ) |
Completion & Production Solutions |
|
| (24 | ) |
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| 46 |
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| (1,991 | ) |
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| 102 |
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|
| 42 |
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|
| (1,932 | ) |
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| (971 | ) |
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| (1,967 | ) |
Rig Technologies |
|
| (110 | ) |
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| 58 |
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|
| (501 | ) |
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| 138 |
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|
| (25 | ) |
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| (422 | ) |
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| (227 | ) |
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| (391 | ) |
Eliminations and corporate costs |
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| (62 | ) |
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| (71 | ) |
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| (204 | ) |
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| (206 | ) |
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| (50 | ) |
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| (79 | ) |
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| (122 | ) |
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| (142 | ) |
Total operating profit (loss) |
| $ | (154 | ) |
| $ | 73 |
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| $ | (5,930 | ) |
| $ | 124 |
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| $ | (100 | ) |
| $ | (5,728 | ) |
| $ | (2,050 | ) |
| $ | (5,776 | ) |
Wellbore Technologies
Three and ninesix months ended SeptemberJune 30, 20192020 and 2018.2019. Revenue from Wellbore Technologies was $793$442 million for the three months ended SeptemberJune 30, 2019,2020, compared to $847$850 million for the three months ended SeptemberJune 30, 2018,2019, a decrease of $54$408 million or six48 percent. For the ninesix months ended SeptemberJune 30, 2019,2020, revenue from Wellbore Technologies was $2,450$1,133 million compared to $2,351$1,657 million for the ninesix months ending SeptemberJune 30, 2018, an increase2019, a decrease of $99$524 million or four32 percent.
Operating profitloss from Wellbore Technologies was $42$67 million for the three months ended SeptemberJune 30, 20192020 compared to operating profit of $40$3,295 million for the three months ended SeptemberJune 30, 2018,2019, an increase of $2$3,228 million. For the ninesix months ended SeptemberJune 30, 2019,2020, operating loss from Wellbore Technologies was $3,234$730 million compared to operating profit of $90$3,276 million for the ninesix months ending SeptemberJune 30, 2018, a decrease2019, an increase of $3,324$2,546 million primarily due to the impairment of certain assets.
Completion & Production Solutions
Three and ninesix months ended SeptemberJune 30, 20192020 and 2018.2019. Revenue from Completion & Production Solutions was $728$611 million for the three months ended SeptemberJune 30, 2019,2020, compared to $735$663 million for the three months ended SeptemberJune 30, 2018,2019, a decrease of seven$52 million dollars or oneeight percent. For the ninesix months ended SeptemberJune 30, 2019,2020, revenue from Completion & Production Solutions was $1,972$1,286 million compared to $2,143$1,244 million for the ninesix months ending SeptemberJune 30, 2018, a decrease2019, an increase of $171$42 million or eightthree percent.
Operating lossprofit from Completion & Production Solutions was $24$42 million for the three months ended SeptemberJune 30, 20192020 compared to an operating profitloss of $46$1,932 million for the three months ended SeptemberJune 30, 2018, a decrease2019, an increase of $70$1,974 million. For the ninesix months ended SeptemberJune 30, 2019,2020, operating loss from Completion & Production Solutions was $1,991$971 million compared to operating profit of $102$1,967 million for the ninesix months ending SeptemberJune 30, 2018, a decrease2019, an increase of $2,093$996 million primarily due to the impairment of certain assets.
The Completion & Productions Solutions segment monitors its capital equipment backlog to plan its business. New orders are added to backlog only when the Company receives a firm written order for major completion and production components or a contract related to a construction project. The capital equipment backlog was $1.30$1.0 billion at SeptemberJune 30, 2019, an increase2020, a decrease of $418$215 million, or 4818 percent from backlog of $880$1.22 million at SeptemberJune 30, 2018.2019. Numerous factors may affect the timing of revenue out of backlog. Considering these factors, the Company reasonably expects approximately 3467 percent of backlog to become revenue during the rest of 20192020 and the remainder thereafter. At SeptemberJune 30, 2019,2020, approximately 6663 percent of the capital equipment backlog was for offshore products and approximately 8590 percent of the capital equipment backlog was destined for international markets.
Rig Technologies
Three and ninesix months ended SeptemberJune 30, 20192020 and 20182019. Revenue from Rig Technologies was $649$476 million for the three months ended SeptemberJune 30, 2019,2020, compared to $637$671 million for the three months ended SeptemberJune 30, 2018, an increase2019, a decrease of $12$195 million or two29 percent. For the ninesix months ended SeptemberJune 30, 2019,2020, revenue from Rig Technologies was $1,923$1,033 million compared to $1,771$1,274 million for the ninesix months ending SeptemberJune 30, 2018, an increase2019, a decrease of $152$241 million or nine19 percent.
Operating loss from Rig Technologies was $110$25 million for the three months ended SeptemberJune 30, 20192020 compared to operating profit of $58$422 million for the three months ended SeptemberJune 30, 2018, a decrease2019, an increase of $168$397 million. For the ninesix months ended SeptemberJune 30, 2019,2020, operating loss from Rig Technologies was $501$227 million compared to operating profit of $138$391 million for the ninesix months ending SeptemberJune 30, 2018, a decrease2019, an increase of $639$164 million, primarily due to asset impairments.
The Rig Technologies segment monitors its capital equipment backlog to plan its business. New orders are added to backlog only when the Company receives a firm written order for major drilling rig components or a signed contract related to a construction project. The capital equipment backlog was $3.14$2.79 billion at SeptemberJune 30, 2019,2020, a decrease of $258$381 million, or eight12 percent, from backlog of $3.40$3.17 billion at SeptemberJune 30, 2018.2019. Numerous factors may affect the timing of revenue out of backlog. Considering these factors, the Company reasonably expects approximately nine12 percent of backlog to become revenue during the rest of 20192020 and the remainder thereafter. At SeptemberJune 30, 2019,2020, approximately 3326 percent of the capital equipment backlog was for offshore products and approximately 93 percent of the capital equipment backlog was destined for international markets.
Eliminations and corporate costs
Eliminations and corporate costs were $62$50 million and $204$122 million for the three and ninesix months ended SeptemberJune 30, 2019,2020, respectively, compared to $71$79 million and $206$142 million for the three and ninesix months ended SeptemberJune 30, 2018.2019. Sales from one segment to another generally are priced at estimated equivalent commercial selling prices; however, segments originating an external sale are credited with the full profit to the company. Eliminations include intercompany transactions conducted between the three reporting segments that are eliminated in consolidation. Intrasegment transactions are eliminated within each segment.
Other income (expense), net
Other income (expense), net were expenses of $10$8 million and $36$11 million for the three and ninesix months ended SeptemberJune 30, 2019,2020, respectively, compared to expenses of $20$8 million and $70$26 million for the three and ninesix months ended SeptemberJune 30, 2018,2019, respectively. The change in expense was primarily due to the fluctuations in foreign currencies.
Provision for income taxes
The provision (benefit) for income taxeseffective tax rate for the three and ninesix months ended SeptemberJune 30, 2019 were $60 million2020 was 35.1% and $(323) million,8.7%, respectively, compared to $29 million6.5% and $37 million6.6% for the same periods in 2018.2019. The Company’s abilitycompany’s 2019 and 2020 effective tax rates are negatively impacted by incremental valuation allowances primarily on net operating loss and tax attributes available in those years and the impairment of nondeductible goodwill. Furthermore, the Company revised its estimated income tax benefit related to realize deferredthe Coronavirus Aid, Relief, and Economic Security Act (CARES Act) that was enacted on March 27, 2020 allowing net operating losses originating in 2018, 2019 or 2020 to be carried back five years. The Company recorded an income tax assets is limitedbenefit of $123 million in the three months ended March 31, 2020 in anticipation of filing a refund claim to items supported by reversing deferredcarryback its 2019 United States net operating loss to its 2014 tax liabilities asyear. The Company refined its estimated income tax benefit during the three months ended June 30, 2020, resulting in a resultreduction to the income tax benefit from $123 million to $100 million. The Company received a cash refund of recent losses.$94 million in June 2020 and anticipates receiving an additional refund upon the filing of the final 2019 United States income tax return and final net operating loss carryback claim to 2014. The change inCompany will finalize these computations during the three months ended September 30, 2020. In addition, the effective tax rate from 2018 to 2019in the three months and six months ended June 30, 2020 was favorably impacted by an income tax benefit of $90 million related to the Company’s decision to amend its 2016 United States income tax return in order to deduct foreign taxes paid rather than to claim foreign tax credits which would carryforward and be expected to expire unused in 2026. The resulting net operating loss in 2016 will be carried back to the Company’s 2014 tax return and will result in a changenet income tax refund of $90 million. The income tax receivable of $90 million is recorded in jurisdictional mix of income betweenOther Assets on the two periods and 2019 was negatively impacted by the impairment of nondeductible goodwill and the establishment of additional valuation allowance. This was partially offset by the reduction in uncertain tax positions due to a settlement.
For the three and nine months ended September 30, 2018,balance sheet as the Company utilizedbelieves the discrete-period method to compute its interim tax provision due to significant variations in the relationship between income tax expense and pre-tax accounting income or loss. For the three and nine months ended September 30, 2019, the Company estimated and recorded tax based on a full-year effective tax rate.refund will not be received within twelve months.
Non-GAAP Financial Measures and Reconciliations
The Company discloses Adjusted EBITDA (defined as Operating Profit excluding Depreciation, Amortization and, when applicable, Other Items) in its periodic earnings press releases and other public disclosures to provide investors additional information about the results of ongoing operations. The Company uses Adjusted EBITDA internally to evaluate and manage the business. Adjusted EBITDA is not intended to replace GAAP financial measures, such as Net Income. Other items include impairment charges for Goodwill, indefinite and finite-lived intangible assets, long-lived tangible assets, restructure costs for facility closures, inventory write downs, severance payments and adjustments of certain reserves.
The following tables set forth the reconciliation of Adjusted EBITDA to its most comparable GAAP financial measure (in millions):
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| Three Months Ended |
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| Nine Months Ended |
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| Three Months Ended |
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| Six Months Ended |
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| June 30, |
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| September 30, |
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| June 30, |
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| March 31, |
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| June 30, |
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| 2019 |
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| 2018 |
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| 2019 |
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| 2019 |
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| 2018 |
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| 2020 |
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| 2019 |
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| 2020 |
|
| 2020 |
|
| 2019 |
| ||||||||||
Operating profit (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wellbore Technologies |
| $ | 42 |
|
| $ | 40 |
|
| $ | (3,295 | ) |
| $ | (3,234 | ) |
| $ | 90 |
|
| $ | (67 | ) |
| $ | (3,295 | ) |
| $ | (663 | ) |
| $ | (730 | ) |
| $ | (3,276 | ) |
Completion & Production Solutions |
|
| (24 | ) |
|
| 46 |
|
|
| (1,932 | ) |
|
| (1,991 | ) |
|
| 102 |
|
|
| 42 |
|
|
| (1,932 | ) |
|
| (1,013 | ) |
|
| (971 | ) |
|
| (1,967 | ) |
Rig Technologies |
|
| (110 | ) |
|
| 58 |
|
|
| (422 | ) |
|
| (501 | ) |
|
| 138 |
|
|
| (25 | ) |
|
| (422 | ) |
|
| (202 | ) |
|
| (227 | ) |
|
| (391 | ) |
Eliminations and corporate costs |
|
| (62 | ) |
|
| (71 | ) |
|
| (79 | ) |
|
| (204 | ) |
|
| (206 | ) |
|
| (50 | ) |
|
| (79 | ) |
|
| (72 | ) |
|
| (122 | ) |
|
| (142 | ) |
Total operating profit (loss) |
| $ | (154 | ) |
| $ | 73 |
|
| $ | (5,728 | ) |
| $ | (5,930 | ) |
| $ | 124 |
| ||||||||||||||||||||
Total operating loss |
| $ | (100 | ) |
| $ | (5,728 | ) |
| $ | (1,950 | ) |
| $ | (2,050 | ) |
| $ | (5,776 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other items: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wellbore Technologies |
| $ | 41 |
|
| $ | — |
|
| $ | 3,345 |
|
| $ | 3,384 |
|
| $ | (3 | ) |
| $ | 62 |
|
| $ | 3,345 |
|
| $ | 715 |
|
| $ | 777 |
|
| $ | 3,343 |
|
Completion & Production Solutions |
|
| 79 |
|
|
| — |
|
|
| 1,939 |
|
|
| 2,029 |
|
|
| 3 |
|
|
| 12 |
|
|
| 1,939 |
|
|
| 1,054 |
|
|
| 1,066 |
|
|
| 1,950 |
|
Rig Technologies |
|
| 194 |
|
|
| — |
|
|
| 474 |
|
|
| 670 |
|
|
| 6 |
|
|
| 20 |
|
|
| 474 |
|
|
| 238 |
|
|
| 258 |
|
|
| 476 |
|
Corporate |
|
| — |
|
|
| — |
|
|
| 11 |
|
|
| 11 |
|
|
| (18 | ) |
|
| 8 |
|
|
| 11 |
|
|
| 16 |
|
|
| 24 |
|
|
| 11 |
|
Total other items |
| $ | 314 |
|
| $ | — |
|
| $ | 5,769 |
|
| $ | 6,094 |
|
| $ | (12 | ) |
| $ | 102 |
|
| $ | 5,769 |
|
| $ | 2,023 |
|
| $ | 2,125 |
|
| $ | 5,780 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation & amortization: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wellbore Technologies |
| $ | 50 |
|
| $ | 95 |
|
| $ | 84 |
|
| $ | 234 |
|
| $ | 284 |
|
| $ | 47 |
|
| $ | 84 |
|
| $ | 51 |
|
| $ | 98 |
|
| $ | 184 |
|
Completion & Production Solutions |
|
| 27 |
|
|
| 53 |
|
|
| 45 |
|
|
| 124 |
|
|
| 161 |
|
|
| 14 |
|
|
| 45 |
|
|
| 30 |
|
|
| 44 |
|
|
| 97 |
|
Rig Technologies |
|
| 21 |
|
|
| 20 |
|
|
| 22 |
|
|
| 66 |
|
|
| 63 |
|
|
| 19 |
|
|
| 22 |
|
|
| 20 |
|
|
| 39 |
|
|
| 45 |
|
Corporate |
|
| 4 |
|
|
| 4 |
|
|
| 3 |
|
|
| 9 |
|
|
| 11 |
|
|
| 2 |
|
|
| 3 |
|
|
| 4 |
|
|
| 6 |
|
|
| 5 |
|
Total depreciation & amortization |
| $ | 102 |
|
| $ | 172 |
|
| $ | 154 |
|
| $ | 433 |
|
| $ | 519 |
|
| $ | 82 |
|
| $ | 154 |
|
| $ | 105 |
|
| $ | 187 |
|
| $ | 331 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wellbore Technologies |
| $ | 133 |
|
| $ | 135 |
|
| $ | 134 |
|
| $ | 384 |
|
| $ | 371 |
|
| $ | 42 |
|
| $ | 134 |
|
| $ | 103 |
|
| $ | 145 |
|
| $ | 251 |
|
Completion & Production Solutions |
|
| 82 |
|
|
| 99 |
|
|
| 52 |
|
|
| 162 |
|
|
| 266 |
|
|
| 68 |
|
|
| 52 |
|
|
| 71 |
|
|
| 139 |
|
|
| 80 |
|
Rig Technologies |
|
| 105 |
|
|
| 78 |
|
|
| 74 |
|
|
| 235 |
|
|
| 207 |
|
|
| 14 |
|
|
| 74 |
|
|
| 56 |
|
|
| 70 |
|
|
| 130 |
|
Eliminations and corporate costs |
|
| (58 | ) |
|
| (67 | ) |
|
| (65 | ) |
|
| (184 | ) |
|
| (213 | ) |
|
| (40 | ) |
|
| (65 | ) |
|
| (52 | ) |
|
| (92 | ) |
|
| (126 | ) |
Total Adjusted EBITDA |
| $ | 262 |
|
| $ | 245 |
|
| $ | 195 |
|
| $ | 597 |
|
| $ | 631 |
|
| $ | 84 |
|
| $ | 195 |
|
| $ | 178 |
|
| $ | 262 |
|
| $ | 335 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of Adjusted EBITDA: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP net income (loss) attributable to Company |
| $ | (244 | ) |
| $ | 1 |
|
| $ | (5,389 | ) |
| $ | (5,710 | ) |
| $ | (43 | ) | ||||||||||||||||||||
GAAP net loss attributable to Company |
| $ | (93 | ) |
| $ | (5,389 | ) |
| $ | (2,047 | ) |
| $ | (2,140 | ) |
| $ | (5,466 | ) | ||||||||||||||||||||
Noncontrolling interests |
|
| (5 | ) |
|
| 3 |
|
|
| 5 |
|
|
| 2 |
|
|
| 6 |
|
|
| 6 |
|
|
| 5 |
|
|
| (2 | ) |
|
| 4 |
|
|
| 7 |
|
Provision (benefit) for income taxes |
|
| 60 |
|
|
| 29 |
|
|
| (373 | ) |
|
| (323 | ) |
|
| 37 |
| ||||||||||||||||||||
Benefit for income taxes |
|
| (47 | ) |
|
| (373 | ) |
|
| (156 | ) |
|
| (203 | ) |
|
| (383 | ) | ||||||||||||||||||||
Interest expense |
|
| 25 |
|
|
| 24 |
|
|
| 25 |
|
|
| 75 |
|
|
| 71 |
|
|
| 22 |
|
|
| 25 |
|
|
| 22 |
|
|
| 44 |
|
|
| 50 |
|
Interest income |
|
| (4 | ) |
|
| (6 | ) |
|
| (6 | ) |
|
| (16 | ) |
|
| (18 | ) |
|
| (2 | ) |
|
| (6 | ) |
|
| (3 | ) |
|
| (5 | ) |
|
| (12 | ) |
Equity (income) loss in unconsolidated affiliate |
|
| 4 |
|
|
| 2 |
|
|
| 2 |
|
|
| 6 |
|
|
| 1 |
| ||||||||||||||||||||
Equity loss in unconsolidated affiliate |
|
| 6 |
|
|
| 2 |
|
|
| 233 |
|
|
| 239 |
|
|
| 2 |
| ||||||||||||||||||||
Other (income) expense, net |
|
| 10 |
|
|
| 20 |
|
|
| 8 |
|
|
| 36 |
|
|
| 70 |
|
|
| 8 |
|
|
| 8 |
|
|
| 3 |
|
|
| 11 |
|
|
| 26 |
|
Depreciation and amortization |
|
| 102 |
|
|
| 172 |
|
|
| 154 |
|
|
| 433 |
|
|
| 519 |
|
|
| 82 |
|
|
| 154 |
|
|
| 105 |
|
|
| 187 |
|
|
| 331 |
|
Other items |
|
| 314 |
|
|
| — |
|
|
| 5,769 |
|
|
| 6,094 |
|
|
| (12 | ) |
|
| 102 |
|
|
| 5,769 |
|
|
| 2,023 |
|
|
| 2,125 |
|
|
| 5,780 |
|
Total Adjusted EBITDA |
| $ | 262 |
|
| $ | 245 |
|
| $ | 195 |
|
| $ | 597 |
|
| $ | 631 |
|
| $ | 84 |
|
| $ | 195 |
|
| $ | 178 |
|
| $ | 262 |
|
| $ | 335 |
|
Liquidity and Capital Resources
Overview
At SeptemberJune 30, 2019,2020, the Company had cash and cash equivalents of $1,313$1,447 million compared to $1,427 million atand total debt of $2,029 million. At December 31, 2018. Of our current2019, cash and cash equivalents balance,were $1,171 million and total debt was $1,989 million. As of June 30, 2020, approximately $922$849 million of the $1,447 million of cash and cash equivalents was held by our foreign subsidiaries and the earnings associated with this cash werecould be subject to foreign withholding taxes and incremental U.S. taxation. If opportunities to invest in the U.S. are greater than available cash balances that are not subject to income tax, rather than repatriating cash, wethe Company may choose to borrow against ourits revolving credit facility.
The Company has a $2.0 billion, five-year unsecured revolving credit facility, which expires on October 30, 2024. The Company has the right to increase the commitments under this agreement to an aggregate amount of up to $3.0 billion upon the consent of only those lenders holding any such increase. Interest under the multicurrency facility is based upon LIBOR, NIBOR or utilize its commercial paper program.
At SeptemberCDOR plus 1.125% subject to a ratings-based grid or the U.S. prime rate. The credit facility contains a financial covenant regarding maximum debt-to-capitalization ratio of 60%. As of June 30, 2019, there were no commercial paper borrowings,2020, the Company was in compliance with a debt-to-capitalization ratio of 29.4% and there werehad no outstanding letters of credit issued under the credit facility, resulting in $3.0$2.0 billion of funds available funds.
The Company also has a $150 million bank line of credit for the construction of a facility in Saudi Arabia. Interest under thisthe bank line of credit facility.is based upon LIBOR plus 1.40%. The bank line of credit contains a financial covenant regarding maximum debt-to-equity ratio of 75%. As of June 30, 2020, the Company was in compliance.
From time to time, we participate in factoring arrangements to sell accounts receivable to third-party financial institutions. Our factoring transactions are recognized as sales, and the proceeds are included as operating cash flows in our Condensed Consolidated Statements of Cash Flows.
Our outstanding debt at June 30, 2020 was $2,029 million and lease liabilities at September 30, 2019consisted primarily of $3,270 million consisted of $1,395$399 million in 2.60% Senior Notes, $1,089 million in 3.95% Senior Notes, $493 million in 3.60% Senior Notes, and lease liabilitiesother debt of $786$48 million. We wereThe Company was in compliance with all covenants at SeptemberJune 30, 2019.2020. Lease liabilities totaled $752 million at June 30, 2020.
We had $456$524 million of outstanding letters of credit at SeptemberJune 30, 2019,2020, primarily in the U.S. and Norway, that are under various bilateral letter of credit facilities. Letters of credit are issued as bid bonds, advanced payment bonds and performance bonds.
The following table summarizes our net cash provided by continuing operating activities, continuing investing activities and continuing financing activities for the periods presented (in millions):
|
| Nine Months Ended |
|
| Six Months Ended |
| ||||||||||
|
| September 30, |
|
| June 30, |
| ||||||||||
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
| ||||
Net cash provided by operating activities |
| $ | 241 |
|
| $ | 300 |
| ||||||||
Net cash provided by (used in) operating activities |
| $ | 417 |
|
| $ | (111 | ) | ||||||||
Net cash used in investing activities |
|
| (268 | ) |
|
| (392 | ) |
|
| (111 | ) |
|
| (156 | ) |
Net cash used in financing activities |
|
| (73 | ) |
|
| (12 | ) |
|
| (27 | ) |
|
| (39 | ) |
Significant sources and uses of cash during the first ninesix months of 20192020
| • | Cash flows provided by operating activities was |
| • | We |
|
|
| • | Capital expenditures were |
| • | We paid |
Oil and Gas Market Downturn and COVID-19 Pandemic
Since the oil and gas market downturn began in late 2014, the Company has maintained a continuous process of actively managing its strategy, structure and resources to the changing market conditions and new realities. The Company has closed or realigned hundreds of facilities, reduced headcount, sharply lowered costs and reviewed all product lines for acceptable returns in the evolved market. Additionally, the Company has proactively reduced the balances and extended the maturity profile of its debt. In the fall of 2019, the Company retired $1 billion of notes due 2022 for cash, issued $500 million of notes due 2029 and extended the maturity of its undrawn credit facility to 2024. While aggressively matching size and spend to the market, and protecting its balance sheet, the Company has continued investing in new products and technologies that enable its customers to improve their operational efficiencies.
When the COVID-19 global pandemic and OPEC+ actions further depressed oil prices and industry activity beginning in March of 2020, the Company’s prior prudent actions helped ensure adequate available resources. Management intends to continue managing the business to the market realities to ensure the Company’s access to capital remains sufficient. – See Item 1A Risk Factors.
Other
The effect of the change in exchange rates on cash flows was a decrease of $14$3 million and $40 million$0 for the first ninesix months of 20192020 and 2018,2019, respectively.
We believe that cash on hand, cash generated from operations and amounts available under our credit facilities and from other sources of debt will be sufficient to fund operations, lease payments, working capital needs, capital expenditure requirements, dividends and financing obligations.
We intend to pursue additional acquisition candidates, but the timing, size or success of any acquisition effort and the related potential capital commitments cannot be predicted. We continue to expect to fund future cash acquisitions primarily with cash flow from operations and borrowings, including the unborrowed portion of the revolving credit facility or new debt issuances, but may also issue additional equity either directly or in connection with acquisitions. There can be no assurance that additional financing for acquisitions will be available at terms acceptable to us.
New Accounting Pronouncements
See Note 16 for recently adopted and recently issued accounting standards.
Forward-Looking Statements
Some of the information in this document contains, or has incorporated by reference, forward-looking statements. Statements that are not historical facts, including statements about our beliefs and expectations, are forward-looking statements. Forward-looking statements typically are identified by use of terms such as “may,” “expect,” “anticipate,” “estimate,” and similar words, although some forward-looking statements are expressed differently. All statements herein regarding expected merger synergies are forward-looking statements. You should be aware that our actual results could differ materially from results anticipated in the forward-looking statements due to a number of factors, including but not limited to changes in oil and gas prices, customer demand for our products, difficulties encountered in integrating mergers and acquisitions, and worldwide economic activity. You should also consider carefully the statements under “Risk Factors,” as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2018,2019, which address additional factors that could cause our actual results to differ from those set forth in the forward-looking statements. Given these uncertainties, current or prospective investors are cautioned not to place undue reliance on any such forward-looking statements. We undertake no obligation to update any such factors or forward-looking statements to reflect future events or developments.
Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
We are exposed to changes in foreign currency exchange rates and interest rates. Additional information concerning each of these matters follows:
Foreign Currency Exchange Rates
We have extensive operations in foreign countries. The net assets and liabilities of these operations are exposed to changes in foreign currency exchange rates, although such fluctuations generally do not affecthave a muted effect on net income since theirthe functional currency for the majority of them is typically the local currency. These operations also have net assets and liabilities not denominated in the functional currency, which exposes us to changes in foreign currency exchange rates that impact income. We recorded a foreign exchange loss in our income statement of approximately $17$3 million in the first ninesix months of 2019,2020, compared to approximately $30$12 million in the same period of the prior year. The gains and losses are primarily due to exchange rate fluctuations related to monetary asset balances denominated in currencies other than the functional currency and adjustments to our hedged positions as a result of changes in foreign currency exchange rates. Currency exchange rate fluctuations may create losses in future periods to the extent we maintain net monetary assets and liabilities not denominated in the functional currency of the countries using the local currency as their functional currency.
Some of our revenues in foreign countries are denominated in U.S. dollars, and therefore, changes in foreign currency exchange rates impact our earnings to the extent that costs associated with those U.S. dollar revenues are denominated in the local currency. Similarly, some of our revenues are denominated in foreign currencies, but have associated U.S. dollar costs, which also give rise to foreign currency exchange rate exposure. In order to mitigate that risk, we may utilize foreign currency forward contracts to better match the currency of our revenues and associated costs. We do not use foreign currency forward contracts for trading or speculative purposes.
The Company had other financial market risk sensitive instruments denominated in foreign currencies for transactional exposures totaling $78$357 million and translation exposures totaling $177$122 million as of SeptemberJune 30, 20192020 excluding trade receivables and payables, which approximate fair value. These market-risk sensitive instruments consisted of cash balances and overdraft facilities. The Company estimates that a hypothetical 10 percent movement of all applicable foreign currency exchange rates on the transactional exposures financial market risk sensitive instruments could affect net income by $6$28 million and the translational exposures financial market risk sensitive instruments could affect the future fair value by $18$12 million.
The counterparties to forward contracts are major financial institutions. The credit ratings and concentration of risk of these financial institutions are monitored on a continuing basis. In the event that the counterparties fail to meet the terms of a foreign currency contract, our exposure is limited to the foreign currency rate differential.
Interest Rate Risk
At SeptemberJune 30, 2019,2020, long term borrowings consisted $1,395of $399 million in 2.60% Senior Notes, and $1,089 million in 3.95% Senior Notes, and $493 million in 3.60% Senior Notes. At SeptemberJune 30, 2019,2020, there were no commercial paper borrowings and no outstanding letters of credit issued under the credit facility, resulting in $3.0$2.0 billion of funds available under this credit facility.funds. Occasionally a portion of borrowings under our credit facility could be denominated in multiple currencies which could expose us to market risk with exchange rate movements. These instruments carry interest at a pre-agreed upon percentage point spread from either LIBOR, NIBOR or CDOR, or at the U.S. prime rate. Under our credit facility, we may, at our option, fix the interest rate for certain borrowings based on a spread over LIBOR, NIBOR or CDOR for 30 days to six months. Our objective is to maintain a portion of our debt in variable rate borrowings for the flexibility obtained regarding early repayment without penalties and lower overall cost as compared with fixed-rate borrowings.
Item 4. | Controls and Procedures |
As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. The Company’s disclosure controls and procedures are designed to provide reasonable assurance that the information required to be disclosed by the Company in the reports it files under the Exchange Act is accumulated and communicated to the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures and is recorded, processed, summarized and reported within the time period specified in the rules and forms of the Securities and Exchange Commission. Based upon that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective as of the end of the period covered by this report at a reasonable assurance level.
There has been no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
Item 1A. | Risk Factors |
As of the date of this filing, the Company and its operations continue to be subject to the risk factors previously disclosed in Part I, Item 1A “Risk Factors” in our 20182019 Annual Report on Form 10-K. The risk factor below updates our risk factors previously discussed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019.
The recent COVID-19 pandemic and related economic repercussions have had, and are expected to continue to have, a significant impact on our business, and depending on the duration of the pandemic and its effect on the oil and gas industry, could have a material adverse effect on our business, liquidity, consolidated results of operations and consolidated financial condition.
As a result of the recent COVID-19 pandemic, the Company may be exposed to additional liabilities and risks created by this unprecedented crisis. The COVID-19 pandemic has resulted in unprecedented governmental actions ordering citizens in the United States and countries around the world to “shelter in place,” and issuing “stay at home orders,” which curtail travel and commerce. In the United States alone, over 26 million have filed for unemployment benefits during the sharp decline in economic activity resulting from governmental orders.
Oil demand has significantly deteriorated as a result of the virus outbreak and corresponding preventative measures taken around the world to mitigate the spread of the virus. At the same time, aggressive increases in production of oil by Saudi Arabia and Russia created a significant surplus in the supply of oil. Physical markets became distressed as spot prices were negatively impacted by a lack of available storage capacity. WTI oil spot prices decreased from a high of $63 per barrel in early January 2020 to a low of $14 per barrel in late March 2020 and briefly negative in April, before partially recovering to near $40 in June. While OPEC+ agreed in April to cut production (with subsequent plans announced to reduce the cuts over time), commodity prices remain low.
The forced shutdown of economic activity, has directly affected our business and has exacerbated the potential negative impact from many of the risks described in our Form 10-K for the year ended December 31, 2019, including those relating to our customers’ capital spending and sharply reduced oil and natural gas prices. Demand for our products and services is declining as our customers continue to revise their capital budgets downwards and swiftly adjust their operations in response to lower commodity prices.
The nature, scale, and scope of the above-described events combined with the uncertain duration and extent of governmental actions prevent us from identifying all potential risks to our business. We believe that the well-known impacts described above and other potential impacts include, but are not limited to, the following:
• | Disruption to our supply chain for materials essential to our business, including restrictions on importing and exporting products; |
• | Customers may attempt to cancel of delay projects or may attempt to invoke force majeure clauses in certain contracts resulting in a decreased on delayed demand for our products and services; |
• | Customers may also seek to delay payments, may default on payment obligations and/or seek bankruptcy protection that could delay or prevent collections of certain accounts receivable; |
• | A credit rating downgrade of our corporate debt and potentially higher borrowing costs in the future; |
• | A need to preserve liquidity; |
• | Reduction of our global workforce to adjust to market conditions, including severance payments, retention issues, and an inability to hire employees when market conditions improve; |
• | Liabilities resulting from operational delays due to decreased productivity resulting from stay-at-home orders affecting its work force or facility closures resulting from the COVID-19 pandemic; |
• | Liabilities resulting from an inability to perform services due to limited manpower availability or an inability to travel to perform the services; |
• | Other contractual or other legal claims from our customers resulting from the COVID-19 pandemic; |
• | Costs associated with rationalization of our portfolio of real estate facilities, including possible exit of leases and facility closures to align with expected activity and workforce capacity; |
• | Additional asset impairments, including an impairment of the carrying value of our goodwill, along with other accounting charges as demand for our services and products decreases; and, |
• | Infections and quarantining of our employees and the personnel of our customers, suppliers and other third parties. |
Item 2. | Purchases of Equity Securities by the Issuer and Affiliated Purchasers |
Period | Total number of shares purchased* | Average price paid per share | Total number of shares purchased as part of publicly announced plans or programs | Approximate dollar value of shares that may yet be purchased under the plans or programs* | ||||||||||||
April 1 through April 30, 2020 | — | — | — | — | ||||||||||||
May 1 through May 31, 2020 | — | — | — | — | ||||||||||||
June 1 through June 30, 2020 | — | — | — | — | ||||||||||||
Total | — | $ | - | — |
Item 4. | Mine Safety Disclosures |
Information regarding mine safety and other regulatory actions at our mines is included in Exhibit 95 to this Form 10-Q.
Item 6. | Exhibits |
Reference is hereby made to the Exhibit Index commencing on page 31-32.32-33.
INDEX TO EXHIBITS
(a) | Exhibits |
* | Compensatory plan or arrangement for management or others. |
(1) | Filed as an Exhibit to our Quarterly Report on Form 10-Q filed on August 5, 2011. |
(2) | |||
| Filed as an Exhibit to our Current Report on Form 8-K filed on |
(3) | Filed as an Exhibit to our Current Report on Form 8-K filed on June 28, |
(4) | Filed as an Exhibit to our Current Report on Form 8-K filed on November 4, 2019. |
| (5) | Filed as Appendix I to our Proxy Statement filed on April | |
9, 2020. |
| Filed as an Exhibit to our Current Report on Form 8-K filed on February 23, 2006. |
| (7) | Filed as an Exhibit to our Current Report on Form 8-K filed on March 27, 2007. |
| (8) | Filed as an Exhibit to our Current Report on Form 8-K filed on March 27, 2013. |
| (9) | Filed as an Exhibit to our Current Report on Form 8-K |
| (10) | Filed as an Exhibit to our Current Report on Form 8-K |
| (11) | Filed as an Exhibit to our Quarterly Report on Form 10-Q filed on April 26, 2019. |
(12) | Filed as an Exhibit to our Quarterly Report on Form 10-Q filed on April 28, 2020. |
We hereby undertake, pursuant to Regulation S-K, Item 601(b), paragraph (4) (iii), to furnish to the U.S. Securities and Exchange Commission, upon request, all constituent instruments defining the rights of holders of our long-term debt not filed herewith.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: | By: |
| /s/ Scott K. Duff |
| Scott K. Duff | ||
| Vice President, Corporate Controller & Chief Accounting Officer | ||
| (Duly Authorized Officer, Principal Accounting Officer) |
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