Halliburton Company — 2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019. The filing is an annual report; fourth-quarter figures are included below where useful. Halliburton provides products and services to the energy industry through Completion and Production and Drilling and Evaluation. Amounts are in U.S. dollars.
Financial results
| Metric | 2019 | 2018 |
|---|---|---|
| Revenue | $22.408 billion | $23.995 billion |
| Operating income (loss) | $(448) million | $2.467 billion |
| Operating margin | Approximately (2.0%) | Approximately 10.3% |
| Net income (loss) attributable to Halliburton | $(1.131) billion | $1.656 billion |
| Diluted earnings (loss) per share | $(1.29) | $1.89 |
| Cash from operating activities | $2.445 billion | $3.157 billion |
| Capital expenditures | $1.530 billion | $2.026 billion |
| Operating cash flow less capital expenditures | $915 million | $1.131 billion |
| Cash and equivalents at year-end | $2.268 billion | $2.008 billion |
| Total debt | $10.327 billion | $10.344 billion |
| Total shareholders’ equity | $8.025 billion | $9.544 billion |
Current assets were $11.212 billion and current liabilities were $4.878 billion at year-end 2019. The company reported $3.5 billion of available capacity under its revolving credit facility, which expires in 2024. It paid $630 million in dividends during 2019 ($0.72 per share); the stated quarterly dividend was $0.18 per share.
Fourth-quarter 2019 revenue was $5.191 billion, operating loss was $1.652 billion, and net loss attributable to Halliburton was $1.653 billion, or $1.88 per share.
Material changes versus 2018
- Revenue fell 7%, chiefly because of lower North America land activity and pricing. North America revenue decreased 18%; international revenue grew 10%.
- Completion and Production revenue declined 12% to $14.031 billion, and segment operating income fell 27% to $1.671 billion. Drilling and Evaluation revenue increased 4% to $8.377 billion, while segment operating income decreased 14% to $642 million.
- The company moved from $2.467 billion of operating income to a $448 million operating loss. The principal unusual item was $2.506 billion of impairments and other charges, compared with $265 million in 2018.
- 2019 charges included $1.603 billion of long-lived asset impairments, $458 million of inventory costs and write-downs, $172 million of severance, $154 million related to joint ventures, and $119 million of other charges. Long-lived asset impairments included $759 million related to hydraulic fracturing equipment.
- Cash from operations declined by $712 million; capital expenditures declined by $496 million. Year-end cash increased by $260 million.
- Adoption of the new lease accounting standard in 2019 added approximately $1.0 billion of operating lease assets and liabilities to the balance sheet; the company said the adoption did not materially affect 2019 operating results.
Outlook, commentary and risks
- Management expected North America customer spending to decline again in 2020, with U.S. land customer capital spending projected to fall approximately 10% from 2019. The company planned to adjust service capacity, continue cost reductions, and pursue growth in non-hydraulic-fracturing businesses.
- Management expected international customer spending to increase slightly for a third consecutive year, with potential for revenue and margin growth. These are expectations, not guarantees.
- 2020 capital expenditures were projected at approximately $1.2 billion, about 20% below 2019. Management said capital allocation could change with market conditions. It intended to maintain the quarterly dividend rate, subject to board approval.
- Key risks include volatile oil and gas prices and customer spending, North America pricing and activity pressure, geopolitical and sanctions exposure, customer collection risk, environmental and hydraulic-fracturing regulation, well incidents, and potential future asset impairments. The Venezuela operating license was set to expire April 22, 2020; absent an extension, Halliburton expected to cease operations there and might be unable to recover remaining assets.
- Receivables included a $776 million allowance for bad debts, primarily a full reserve against receivables from the company’s primary Venezuelan customer. The filing reported $425 million of gross unrecognized tax benefits, excluding penalties and interest.
- Halliburton reported no material off-balance-sheet arrangements. It had approximately $2.1 billion of letters of credit, bank guarantees and surety bonds outstanding; some letters of credit could trigger cash collateralization.
Most important facts for investors to verify
- Whether the large impairment and inventory charges have fully reset asset values, or further write-downs may be needed if market conditions deteriorate.
- Whether North America activity, pricing and customer capital discipline evolve as management expected, and whether international growth translates into margin expansion.
- Whether operating cash flow can support capital spending, dividends and debt obligations; review upcoming maturities, including $697 million due in 2021 and $1.1 billion in 2023.
- The collectability and concentration of receivables, particularly the Venezuela-related reserve, and developments affecting the company’s Venezuela license and assets.
- The assumptions underlying deferred tax asset realizability and impairment valuations; the auditors identified these as critical audit matters. KPMG issued unqualified opinions on the financial statements and internal control over financial reporting.