Halliburton Company — 2014 Form 10-K Summary
Business context and reporting period. This is Halliburton’s annual report for the fiscal year ended December 31, 2014, not a standalone fourth-quarter filing. Halliburton provides oilfield services and products worldwide through Completion and Production and Drilling and Evaluation. The filing also reports fourth-quarter results. All dollar amounts below are in U.S. dollars.
Financial results and liquidity
| Metric | 2014 | 2013 |
|---|---|---|
| Revenue | $32.870 billion | $29.402 billion |
| Operating income | $5.097 billion | $3.138 billion |
| Operating margin | 15.5% (approximately 16%) | 10.7% |
| Net income attributable to Halliburton | $3.500 billion | $2.125 billion |
| Diluted earnings per share | $4.11 | $2.36 |
| Cash from operating activities | $4.062 billion | $4.447 billion |
| Capital expenditures | $3.283 billion | $2.934 billion |
| Cash and equivalents at year-end | $2.291 billion | $2.356 billion |
| Long-term debt, including current maturities | $7.854 billion | $7.816 billion |
- Operating cash flow less capital expenditures was approximately $779 million in 2014. The filing reports a $1.1 billion net working-capital increase, principally associated with higher activity.
- Year-end current assets were $15.068 billion and current liabilities $5.883 billion. Halliburton also had a $3.0 billion revolving credit facility fully available and reported $103 million of fixed-income investments.
- Long-term debt was primarily fixed-rate, with maturities extending over time. Ratings were A2 at Moody’s and A at S&P; S&P placed Halliburton’s ratings on negative watch after the Baker Hughes deal announcement.
- Dividends paid totaled $533 million; the quarterly dividend rose from $0.15 to $0.18 per share in the fourth quarter. Halliburton repurchased approximately 13.3 million shares for $800 million during 2014.
Material changes and fourth-quarter performance
- Annual revenue rose 12%, driven mainly by U.S. land stimulation activity and Eastern Hemisphere growth. Operating income increased 62%; net income increased 65%.
- Completion and Production revenue increased 16% to $20.253 billion and operating income rose 26% to $3.610 billion. Drilling and Evaluation revenue increased 6% to $12.617 billion, while operating income declined 6% to $1.671 billion.
- North America revenue increased 16% to $17.698 billion. Latin America revenue declined 1%; Middle East/Asia revenue rose 15%.
- Fourth-quarter revenue was $8.770 billion, operating income $1.299 billion, and net income $905 million, compared with $7.639 billion, $1.144 billion, and $795 million, respectively, in the fourth quarter of 2013. Diluted EPS was $1.06 versus $0.93.
- Comparability is affected by unusual items: 2014 operating income included a $195 million benefit from Macondo-related adjustments and expected insurance recovery, offset in part by $129 million of restructuring charges and $17 million of Baker Hughes-related costs. 2013 included a $1.0 billion Macondo charge, among other items.
Outlook, risks, and contingencies
- Management characterized 2015 as challenging amid sharply lower oil prices, customer budget cuts, falling activity, and pricing pressure; it expected reductions in revenue and operating margins and further material restructuring charges. Planned 2015 capital spending was expected to be essentially in line with 2014.
- Halliburton had agreed to acquire Baker Hughes for 1.12 Halliburton shares and $19 cash per Baker Hughes share, then expected to close in the second half of 2015 subject to shareholder and regulatory approvals. Estimated consideration was approximately 490 million Halliburton shares and $8.3 billion cash; an $8.6 billion bridge facility commitment had been obtained but not drawn at year-end. The transaction faced antitrust, litigation, integration, financing, dilution, and termination-fee risks; potential termination fees were $1.5 billion or, in specified regulatory circumstances, $3.5 billion.
- Macondo remained a significant contingency. The year-end liability was $805 million, including $367 million current, following a $1.1 billion settlement agreement subject to court approval and other conditions. Appeals, unresolved claims, indemnification questions, and a disputed potential $200 million insurance recovery could affect ultimate exposure.
- Venezuelan trade receivables reached $670 million, about 9% of gross trade receivables, with $256 million classified as long-term. Currency controls and a new exchange mechanism could create losses; management estimated a $156 million loss had the year-end monetary position been remeasured at the cited potential rate.
- Other disclosed risks include oilfield activity and commodity-price volatility, environmental and hydraulic-fracturing regulation, geopolitical and sanctions exposure, customer collection risk, investigations concerning Angola and Iraq, and potential asset or goodwill impairment. Halliburton reported no goodwill impairment at year-end after an updated assessment.
Important facts for investors to verify
- Whether Baker Hughes received all required approvals, whether the transaction closed on expected terms, and the final financing, share issuance, integration costs, and realized synergies.
- How quickly lower oil prices affected customer budgets, rig activity, service pricing, revenue, margins, and restructuring costs in 2015.
- The approval and final cost of the Macondo settlement, the outcome of appeals and remaining claims, and recovery of disputed insurance amounts.
- Collections and currency treatment of Venezuelan receivables, including the impact of exchange controls and remeasurement.
- Whether operating cash flow and liquidity remained sufficient to fund capital spending, dividends, debt service, and contingent obligations. The filing reports audited financial statements and an unqualified audit opinion.