Ultimate results could differ from our estimates.

In our opinion, the condensed consolidated financial statements included herein contain all adjustments necessary to present fairly our financial position as of June 30, 20172018, the results of our operations for the three and six months ended June 30, 20172018 and 20162017, and our cash flows for the six months ended June 30, 20172018 and 20162017. Such adjustments are of a normal recurring nature. In addition, certain reclassifications of prior period balances have been made to conform to the current period presentation. The results of our operations for the three and six months ended June 30, 20172018 may not be indicative of results for the full year.

The following table presents information on our business segments.

As of June 30, 2017, 41%2018, 47% of our grossnet trade receivables were from customers in the United States and 9% were from customers in Venezuela.States. As of December 31, 2016, 28%2017, 42% of our grossnet trade receivables were from customers in the United States and 15% were from customers in Venezuela.States. Other than the United States, and Venezuela, no other country or single customer accounted for more than 10% of our gross trade receivables at these dates.

We routinely monitor the financial stability of our customers and employ an extensive process to evaluate the collectability of outstanding receivables. This process, which involves a high degree of judgment utilizing significant assumptions, includes analysis of our customers’ historical time to pay, financial condition and various financial metrics, debt structure, credit agency ratings, and production profile, as well as political and economic factors in countries of operations and other customer-specific factors.

In the second quarter of 2016, we exchanged $200 million of accounts receivables withWe are maintaining our primary customerpresence in Venezuela and have changed our accounting for an interest-bearing promissory noterevenue with all customers in the country to a par value of the same amount. We recognized a pre-tax loss on the exchange of $148 million, representing the difference between the par value and fair market value of the note. We are accreting the carrying amount of the note to its par value, this customer has made all scheduled interest payments, and the carrying amount of this note is $98 million as of June 30, 2017. In addition, we currently expect to exchange an additional $375 million of outstanding accounts receivable with this customer for an interest-bearing promissory note with a par value of the same amount. As such, we recognized a pre-tax loss of $262 millioncash basis, effective April 1, 2018, while carefully managing our exposure. The DICOM floating rate further devalued in the second quarter of 2017 for a fair market value adjustment related to this expected exchange within "Impairments2018, and other charges" on our condensed consolidated statements of operations. Although we recognized these fair value adjustments, we intend to hold both notes to maturity and collect the entire principal amounts. While we made a business decision during the second quarter of 2017 to convert certain accounts receivable to notes, we have the intent and ability to hold all remaining receivables in Venezuela until collection. We do not intend to accept further notes as payment if offered, and we will continue to monitor political and economic conditions in Venezuela.was approximately 115,000 Bolívares per United States dollar at June 30, 2018.

We continue to believe our Venezuela receivables are collectable, with appropriate classification between short-termSee “Management’s Discussion and long-term on our condensed consolidated balance sheets. While we have continued to experience delays in collecting payments on outstanding receivables in Venezuela, we have collected approximately $600 million on receivables in Venezuela since this historic industry downturn began in late 2014. We believe our collectability assumptions to be reasonable according to the current factsAnalysis of Financial Condition and circumstances. However, differences in actual experience or changes in factsResults of Operations - Business Environment and circumstances may materially affect our financial position or resultsResults of operations. Our assumptions and related judgments are sensitive to the political and economic conditions in Venezuela. If conditions in Venezuela worsen or if low commodity prices persist for an extended period of time, we may be required to record adjustments to our receivables balance. Our financial results can be affected by adjustments to these receivables, including any allowance for bad debts, actual write-offs of uncollectable amounts that differ from estimated amounts, fair value adjustments on existing receivables, and potential defaults on the promissory notes we hold.

We also assess our customer’s ability and intention to pay, which is based on a current employeevariety of factors including our customer’s historical payment experience and financial condition. Payment terms and conditions vary by contract type, although terms generally include a requirement of payment within 20 to 60 days. Other judgments involved in recognizing revenue include an assessment of progress towards completion of performance obligations for certain long-term contracts, which involve estimating total costs to determine our progress towards contract completion and calculating the corresponding amount of revenue to recognize.

We disaggregate revenue from contracts with customers into types of services or products, consistent with our two reportable segments, in addition to geographical area. Based on the location of services provided and products sold, 59% and 51% of our primary customerconsolidated revenue was from the United States for the six months ended June 30, 2018 and 2017, respectively. No other country accounted for more than 10% of our revenue. The following table presents information on our disaggregated revenue.

We perform our obligations under contracts with our customers by transferring services and products in Venezuelaexchange for consideration. The timing of our performance often differs from the timing of our customer’s payment, which could delayresults in the recognition of receivables and deferred revenue.

Remaining performance obligations represent firm contracts for which work has not been performed and future revenue recognition is expected. We have elected the practical expedient permitting the exclusion of disclosing remaining performance obligations for contracts that have an original expected duration of one year or preventless. We have some long-term contracts related to software and integrated project management services such as lump sum turnkey contracts. For software contracts, revenue is generally recognized over time throughout the license period when the software is considered to be a right to access our abilityintellectual property. For lump sum turnkey projects, we recognize revenue over time using an input method, which requires us to execute the expected promissory note exchange.exercise judgment. Revenue allocated to remaining performance obligations for these long-term contracts is not material.

The following tables summarize our shareholders’ equity activity:

Accumulated other comprehensive loss consisted of the following:

In addition to the federal laws and regulations, states and other countries where we do business often have numerous environmental, legal, and regulatory requirements by which we must abide. We evaluate and address the environmental impact of our operations by assessing and remediating contaminated properties in order to avoid future liabilities and comply with environmental, legal and regulatory requirements. Our Health, Safety and Environment group has several programs in place to maintain environmental leadership and to help prevent the occurrence of environmental contamination. On occasion, we are involved in environmental litigation and claims, including the remediation of properties we own or have operated, as well as efforts to meet or correct compliance-related matters. We do not expect costs related to those claims and remediation requirements to have a material adverse effect on our liquidity, consolidated results of operations, or consolidated financial position. Our accrued liabilities for environmental matters were $46$44 million as of June 30, 20172018 and $50$48 million as of December 31, 2016.2017. Because our estimated liability is typically within a range and our accrued liability may be the amount on the low end of that range, our actual liability could eventually be well in excess of the amount accrued. Our total liability related to environmental matters covers numerous properties.

Additionally, we have subsidiaries that have been named as potentially responsible parties along with other third parties for eight federal and state Superfund sites for which we have established reserves. As of June 30, 2017,2018, those eight sites accounted for approximately $4$8 million of our $46$44 million total environmental reserve. Despite attempts to resolve these Superfund matters, the relevant regulatory agency may at any time bring suit against us for amounts in excess of the amount accrued. With respect to some Superfund sites, we have been named a potentially responsible party by a regulatory agency; however, in each of those cases, we do not believe we have any material liability. We also could be subject to third-party claims with respect to environmental matters for which we have been named as a potentially responsible party.

In the normal course of business, we have agreements with financial institutions under which approximately $2.0 billion of letters of credit, bank guarantees or surety bonds were outstanding as of June 30, 2017.2018. Some of the outstanding letters of credit have triggering events that would entitle a bank to require cash collateralization. None of these off balance sheet arrangements either has, or is likely to have, a material effect on our condensed consolidated financial statements.

Basic income or loss per share is based on the weighted average number of common shares outstanding during the period. Diluted income per share includes additional common shares that would have been outstanding if potential common shares with a dilutive effect had been issued. Antidilutive shares represent potential common shares which are excluded from the computation of diluted income or loss per share as their impact would be antidilutive.

A reconciliation of the number of shares used for the basic and diluted income per share computations is as follows:

The carrying amount of cash and equivalents, receivables and accounts payable, as reflected in the condensed consolidated balance sheets, approximates fair value due to the short maturities of these instruments.

The carrying amount and fair value of our total debt, including short-term borrowings and current maturities of long-termlong term debt, is as follows:

Our debt categorized within level 1 on the fair value hierarchy is calculated using quoted prices in active markets for identical liabilities with transactions occurring on the last two days of period-end. Our debt categorized within level 2 on the fair value hierarchy is calculated using significant observable inputs for similar liabilities where estimated values are determined from observable data points on our other bonds and on other similarly rated corporate debt or from observable data points of transactions occurring prior to two days from period-end and adjusting for changes in market conditions. Our total fair value and carrying value of debt decreased during the six months ended June 30, 2017 primarily due to the early extinguishment of $1.4 billion of senior notes. Additionally, differencesDifferences between the periods presented in our level 1 and level 2 classification of our long-term debt relate to the timing of when transactions are executed. We have no debt categorized within level 3 on the fair value hierarchy based on unobservable inputs.

On January 1, 2017,2018, we adopted an accounting standards updatethe comprehensive new revenue recognition standard issued by the Financial Accounting Standards Board (FASB) which simplifies several aspects of accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and the classification on the statement of cash flows. In addition, the update allows an entity-wide accounting policy election to either estimate the number of awards that are expected to vest or account for forfeitures when they occur. The element of the update that will have the most impact on our financial statements will be income tax consequences. Excess tax benefits and tax deficiencies on stock-based compensation awards are now included in our tax provision within our condensed consolidated statement of operations as discrete items in the reporting period in which they occur, rather than previous accounting of recording in additional paid-in capital on our condensed consolidated balance sheets. We have also elected to continue our current policy of estimating forfeitures of stock-based compensation awards at the time of grant and revising in subsequent periods to reflect actual forfeitures. We applied the update prospectively beginning January 1, 2017, and the adoption did not have a material impact on our condensed consolidated financial statements.

In February 2016, the FASB issued an accounting standards update related to accounting for leases, which requires the assets and liabilities that arise from leases to be recognized on the balance sheet. Currently only capital leases are recorded on the balance sheet. This update will require the lessee to recognize a lease liability equal to the present value of the lease payments and a right-of-use asset representing its right to use the underlying asset for the lease term for all leases longer than 12 months. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and liabilities and recognize the lease expense for such leases generally on a straight-line basis over the lease term. This updateWe will be effective for fiscal periods beginning after December 15, 2018, including interim periods within that reporting period. Early adoption is permitted.adopt this standard on January 1, 2019, and we are in the process of implementing a new lease system in connection with the adoption. We are currently evaluatingcontinuing to evaluate the impact that this update will have on our condensed consolidated financial statements.

The business operations of our segments are organized around four primary geographic regions: North America, Latin America, Europe/Africa/CIS and Middle East/Asia. We have manufacturing operations in various locations, the most significant of which are located in the United States, Canada, Malaysia, Singapore and the United Kingdom. With over 50,00055,000 employees, we operate in approximately 70more than 80 countries around the world, and our corporate headquarters are in Houston, Texas and Dubai, United Arab Emirates.

Our international revenue during the second quarter of 2018 increased 6% as compared to the second quarter of 2017, driven primarily by increased drilling and pressure pumping activity in the Eastern Hemisphere. While the international markets are improving, pricing pressure remains a challenge. We have seen a large number of tenders in the first half of the year that were competitively bid as service companies vied for market share and our customers sought to capture bottom of the cycle pricing. We have grown our market share in the international markets throughout the downturn because of our strong service quality and willtechnology offerings and our willingness to collaborate with our customers. Our product service lines continue to focus on increasing equipment utilization, managing costsdelivering technology-driven value propositions to help our customers increase production and expandinglower costs.

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

We believe we have invested our cash balances conservatively and secured sufficient financing to help mitigate any near-term negative impact on our operations from adverse market conditions. We closed the second quarterAs of 2017 atJune 30, 2018, we had $2.1 billion of cash and equivalents, which included $225$414 million of proceeds from the issuance of commercial paper during the second quarter in anticipation of acquisitions that closed in July. We also havemarketable securities, and $3.0 billion available under our revolving credit facility, which combined with our cash balance, we believe provides us with sufficient liquidity to address the challenges and opportunities of the current market. For additional information on market conditions, see “Liquidity and Capital Resources” and “Business Environment and Results of Operations.”

As of June 30, 2017,2018, we had $2.1 billion of cash and equivalents, compared to $4.0$2.3 billion at December 31, 2016.2017. Additionally, we held $102$414 million of marketable securities at June 30, 2018, primarily time deposits that mature in July 2018, compared to $70 million of marketable securities and $36 million of long-term investments in fixed income securities at June 30, 2017, compared to $92 million at December 31, 2016. These securities are reflected in "Other current assets"2017, primarily corporate bonds and "Other assets" in our condensed consolidated balance sheets. Approximately $1.3 billion of our total cash position as of June 30, 2017 was held by our foreign subsidiaries, a substantial portion of which is available to be repatriated into the United States to fund our U.S. operations or for general corporate purposes, with a portion subject to certain country-specific restrictions. We have provided for U.S. federal income taxes on cumulative undistributed foreign earnings where we have determined that such earnings are not indefinitely reinvested.other debt instruments.

We manufacture most of our own equipment, which allows us flexibility to increase or decrease our capital expenditures based on market conditions. Capital spending for 2017the full year 2018 is currently expected to be approximately $1.3$2.0 billion.

We expecthave $400 million of senior notes that mature in August 2018, which we intend to receive a United States tax refundrepay with cash on hand. In addition, we are actively evaluating our options and opportunities around uses of cash and are targeting to retire our $500 million 2021 debt maturity in the amount of approximately $480 million during the second half of 2017, primarily related to the carryback of our net operating losses recognized in 2016.this year.

Currently, our quarterly dividend rate is $0.18 per common share, or approximately $156$158 million. Subject to the approval of our Board of Directors approval, our intention is to continue paying dividends at our current rate.

 

Operations in some countries may be adversely affected by unsettled political conditions, acts of terrorism, civil unrest, force majeure, war or other armed conflict, sanctions, expropriation or other governmental actions, inflation, changes in foreign currency exchange rates, foreign currency exchange restrictions and highly inflationary currencies, as well as other geopolitical factors. We believe the geographic diversification of our business activities reduces the risk that loss of operations in any one country, other than the United States, would be materially adverse to our consolidated results of operations.

Activity within our business segments is significantly impacted by spending on upstream exploration, development and production programs by our customers. Also impacting our activity is the status of the global economy, which impacts oil and natural gas consumption.

Some of the more significant determinants of current and future spending levels of our customers are oil and natural gas prices, global oil supply, completions intensity, the world economy, the availability of credit, government regulation and global stability, which together drive worldwide drilling and completions activity. Lower oil and natural gas prices usually translate into lower exploration and production budgets.budgets and lower rig count, while the opposite is true for higher oil and natural gas prices. Our financial performance is therefore significantly affected by oil and natural gas prices and worldwide rig activity, which are summarized in the tables below, and well count in North America.below.

The following table shows the average oil and natural gas prices for West Texas Intermediate (WTI), United Kingdom Brent crude oil, and Henry Hub natural gas:

The historical average rig counts based on the weekly Baker Hughes Incorporated rig count information were as follows:

Consolidated operating income was $789 million during the second quarter of 2018 compared to $146 million duringin the second quarter of 2017, which included a $262 million pre-tax loss for a fair market value adjustment related to an expected exchange of receivables from our primary customer in Venezuela for an interest-bearing promissory note. This compared to an operating loss of $3.9 billion in the second quarter of 2016, which included a $3.5 billion merger termination fee and $423 million of impairments and other charges. Additionally, operatingVenezuela. Operating results improved primarily from increased activity, utilization and pricing associated with pressure pumping services.activity in North America.

Completion and Production revenue in the second quarter of 20172018 was $3.1$4.2 billion, an increase of $1.0 billion, or 48%33%, from the second quarter of 2016.2017. Operating income in the second quarter of 20172018 was $397$669 million, an increase of $429$272 million, compared toor 69%, from the second quarter of 2016. Improved operating results2017. Improvements were primarily related toled by increased activity utilization and pricing associated with pressure pumping services and higher completion tool salesacross all of our product service lines in the United States land market, partially offset bysector, particularly pressure pumping activity and artificial lift. Additionally, results improved due to pressure pumping services in Europe/Africa/CIS, along with increased stimulation and production solutions activity in the Middle East. Offsetting these increases were reduced completion tool sales in our international operations.Europe/Africa/CIS.

Drilling and Evaluation revenue in the second quarter of 20172018 was $1.8$2.0 billion, an increase of $104$158 million, or 6%9%, from the second quarter of 2016. Improved drilling activity and logging services in the United States land market were partially offset by reduced activity and pricing for drilling related services in the Eastern Hemisphere.

Completion and Production revenue in the first six months of 20172018 was $5.7$8.0 billion, an increase of $1.3$2.2 billion, or 29%39%, from the first six months of 2016.2017. Operating income in the first six months of 20172018 was $544 million,$1.2 billion, compared to an operating lossincome of $2$544 million in the first six months of 2016. Improved operating results2017. Improvements were primarily related toled by increased activity utilization and pricingacross all of our product service lines in the United States land sector, primarily associated with pressure pumping services in the United States land market. International revenue declined as a result of reductions in completion tool sales across all regions and artificial lift. Additionally, results improved due to pressure pumping services in Europe/Africa/CIS.CIS, along with increased stimulation and production solutions activity in the Middle East.

Drilling and Evaluation revenue in the first six months of 20172018 was $3.5$3.9 billion, a decreasean increase of $95$416 million, or 3%12%, from the first six months of 2016.2017. Operating income in the first six months of 20172018 was $247$379 million, a decreasean increase of $148 $132

Europe/Africa/CIS revenue in the first six months of 20172018 was $1.3$1.4 billion, an 18% decreasea 12% increase from the first six months of 2016,2017, primarily resulting from a reductiondue to increased activity in well completion services andthe North Sea, particularly pressure pumping and drilling services. These results were partially offset by activity across the region, as well as reductions in drilling services and completion tool sales in Nigeria, and drilling and logging activity in Angola.

Middle East/Asia revenue in the first six months of 20172018 was $2.0$2.2 billion, a 7% decrease9% increase from the first six months of 2016, due to pricing pressure2017, primarily resulting from increases in drilling services and reduced drillingstimulation activity in the Middle East a decrease in activity for the majority of our product service lines in Indonesia, and reduced drillingconsulting and logging activity in Thailand. These decreases were partially offset by improved project management activity in Iraq and higher stimulation activity in the Middle East.India.

The Private Securities Litigation Reform Act of 1995 provides safe harbor provisions for forward-looking information. Forward-looking information is based on projections and estimates, not historical information. Some statements in this Form 10-Q are forward-looking and use words like “may,” “may not,” “believe,” “do not believe,” “plan,” “estimate,” “intend,” “expect,” “do not expect,” “anticipate,” “do not anticipate,” “should,” “likely” and other expressions. We may also provide oral or written forward-looking information in other materials we release to the public. Forward-looking information involves risk and uncertainties and reflects our best judgment based on current information. Our results of operations can be affected by inaccurate assumptions we make or by known or unknown risks and uncertainties. In addition, other factors may affect the accuracy of our forward-looking information. As a result, no forward-looking information can be guaranteed. Actual events and the results of our operations may vary materially.

We do not assume any responsibility to publicly update any of our forward-looking statements regardless of whether factors change as a result of new information, future events or for any other reason. You should review any additional disclosures we make in our press releases and Forms 10-K, 10-Q and 8-K filed with or furnished to the SEC. We also suggest that you listen to our quarterly earnings release conference calls with financial analysts.

Information related to Item 1. Legal Proceedings is included in Note 56 to the condensed consolidated financial statements.

The statements in this section describe the known material risks to our business and should be considered carefully. The risk factor below updates the respective risk factor previously discussed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016.2017. As of June 30, 2017,2018, there have been no other material changes in risk factors previously disclosed.

We believe thereThere are risks associated with our operations in Venezuela, which continues to experience significant political and economic turmoil, including the possibility that the Venezuelan government could assume control over our operations and assets.turmoil. The political and economic conditions have deteriorated further in 2017,continued to deteriorate through the second quarter of 2018, leading to uncertainty in the future business climate, the state of security and governance of the country. This environment increases the risk of civil unrest, armed conflicts, adverse actions by the government of Venezuela, orincluding the possibility that the Venezuelan government could assume control over our operations and assets, and imposition of additional sanctions or other actions by the U.S. and foreign governments that may restrict our ability to continue operations or realize the value of our assets. On July 26,In 2017, the U.S. Government announced sanctions on 13directed at certain Venezuelan individuals including a current employeeand imposed additional economic sanctions around certain categories of trade financing transactions in Venezuela. These sanctions prohibit dealings by our U.S. employees and entities in certain new debt issued by our primary customer in Venezuela. This development could delayVenezuela or prevent our abilitythe Venezuelan government as well as dealings in existing Venezuelan government bonds. In February 2018, the Office of Foreign Assets Control (OFAC) of the U.S. Department of the Treasury issued additional guidance on these sanctions which purports to executeprohibit the promissory note exchange discussed furtheracceptance of late payments beyond the tenor authorized by the sanctions. For debts incurred subsequent to August 25, 2017 related to products and services provided to customers subject to these sanctions, we can no longer accept payment on receivables with a maturity longer than 90 days in Note 2 to the condensed consolidated financial statements. While sanctions have not been imposed against our primary customer, thereabsence of an OFAC license. There can be no assurance that such sanctions,an OFAC license will be granted or that other sanctions affecting our business in Venezuela will not be imposed in the future. Any such sanctionsfuture that may have a material adverse effect on our ability to operate in Venezuela.

We have continued to experience delays in collecting payments on our receivables from our primary customer in Venezuela. IfVenezuela, including recent delays in multiple scheduled payments on our existing promissory note. On January 29, 2018, the Venezuelan government announced that it has changed the existing dual-rate foreign exchange system by eliminating the DIPRO foreign exchange rate, which was 10 Bolívares per United States dollar, and that all future currency transactions would be carried out at the DICOM floating rate, which was approximately 50,000 Bolívares per United States dollar at March 31, 2018. These events regarding foreign exchange and U.S. sanctions, combined with continued deteriorating political and economic conditions continue to worsenin Venezuela and ongoing delayed payments on existing accounts receivable with customers in the country, created significant uncertainties regarding the recoverability of our investment. As such, we determined it was appropriate to write down all of our remaining investment in Venezuela during the first quarter of 2018, which resulted in a $312 million charge, net of tax, in our condensed consolidated statements of operations. The DICOM floating rate further devalued in the second quarter of 2018, and we experience further delays or failure in receiving payment on these receivables, including any default on our current and expected promissory notes, it could have a material adverse effect on our liquidity, consolidated results of operations, and consolidated financial condition.was approximately 115,000 Bolívares per United States dollar at June 30, 2018.

The future results of our Venezuelan operations will be affected by many factors, including the foreign currency exchange rate, actions of the Venezuelan government, and general economic conditions such as continued inflation, andexisting or future sanctions, future customer paymentsspending and spending.the ability of our primary customer to pay its debts. For further information, see Note 2 to the condensed consolidated financial statements and "Management's Discussion and Analysis of Financial Condition and Results of Operations - Business Environment and Results of Operations - International operations - Venezuela."