Halliburton Company — 2009 Form 10-K
Reporting period: Fiscal year ended December 31, 2009. This is an annual report, not a standalone fourth-quarter filing; quarterly figures below are included in the filing. Halliburton provides oilfield products and services through Completion and Production and Drilling and Evaluation, operating in approximately 70 countries.
Financial performance
| Metric | 2009 | 2008 |
|---|---|---|
| Revenue | $14.675 billion | $18.279 billion |
| Operating income | $1.994 billion | $4.010 billion |
| Operating margin | 13.6% | 21.9% |
| Income from continuing operations | $1.164 billion | $2.638 billion |
| Net income attributable to Halliburton | $1.145 billion | $2.224 billion |
| Diluted EPS | $1.27 | $2.45 |
| Cash from operations | $2.406 billion | $2.674 billion |
| Capital expenditures | $1.864 billion | $1.824 billion |
Cash from operations less capital expenditures was approximately $542 million. Fourth-quarter 2009 revenue was $3.686 billion, operating income $428 million, net income attributable to Halliburton $243 million, and diluted EPS $0.27; fourth-quarter 2008 figures were $4.910 billion, $1.163 billion, $468 million, and $0.52, respectively.
At year-end, cash and equivalents were $2.082 billion and marketable securities $1.312 billion. Total debt was $4.574 billion, including $750 million due in 2010; cash and securities therefore exceeded near-term debt but were below total debt. Current assets were $8.638 billion and current liabilities $2.889 billion. The $1.2 billion revolving credit facility was undrawn.
Changes versus prior year
- Revenue fell 20% and operating income fell 50%, primarily from recession-related reductions in customer spending, activity, pricing, and margins.
- North America was most affected: regional revenue declined 32%; rig counts fell sharply, and lower natural-gas prices and record storage contributed to margin compression. International rig count declined approximately 8%; Halliburton reported continued international pricing pressure.
- Completion and Production revenue declined 23% and segment operating income 56%; Drilling and Evaluation revenue declined 16% and segment operating income 40%.
- Net income comparisons also reflect unusual and accounting items: 2008 included a $423 million discontinued-operations loss, largely related to FCPA settlements and indemnity estimates. Adoption of convertible-debt accounting in 2009 retroactively changed prior-period results, including increasing 2008 continuing income and diluted EPS.
Outlook, risks, and unusual items
- Management described the near-term outlook as uncertain. It expected international margins to remain under pressure in 2010 and North American improvement to depend on sustained gas-drilling activity, storage levels, and industrial demand. No specific 2010 revenue or earnings guidance was provided.
- 2010 capital spending was expected to be approximately $2.0 billion. Management intended to repay $750 million of 5.5% notes at October 2010 maturity and anticipated quarterly dividends totaling approximately $80 million, subject to Board approval.
- Halliburton issued $2 billion of senior notes in 2009, at 6.15% due 2019 and 7.45% due 2039. Interest expense rose $130 million, primarily due to the new debt.
- It paid $417 million in 2009 related to DOJ and SEC FCPA settlements and KBR indemnities; another $142 million was scheduled in equal installments over the next three quarters. Other foreign investigations and indemnity exposure remained, with potential future payments not estimable.
- The Petrobras Barracuda-Caratinga bolt arbitration remained unresolved; Petrobras claimed $220 million plus interest, and a final hearing on liability and damages was scheduled for May 2010. Halliburton’s KBR indemnity liability was recorded, but the filing does not state its specific amount in the supplied text.
- Venezuela risks included delayed customer payments, $236 million net investment, $380 million in related surety bonds, and a January 2010 currency devaluation. Halliburton estimated a first-quarter 2010 loss of approximately $30 million from the devaluation.
- Other material exposures include environmental liabilities ($53 million accrued), customer collection risk, political and currency risks, and potential regulation of hydraulic fracturing. The company reported no material off-balance-sheet arrangements other than operating leases.
- Management and KPMG reported effective internal control over financial reporting; KPMG issued unqualified opinions on the financial statements and controls.
Key facts for investors to verify
- Whether the late-2009 activity rebound translated into sustained 2010 North American demand and improved service pricing.
- Debt repayment, liquidity and cash generation after planned capital spending, dividends, and settlement payments.
- Outcome and potential cost of remaining foreign FCPA-related investigations and the Barracuda-Caratinga arbitration.
- Collection progress and exposure to Venezuelan customer, currency, and guarantee risks.
- Effects of accounting changes when comparing 2008 reported earnings and EPS with 2009.