Halliburton Company — 2013 Form 10-K Summary
Business context and reporting period
This annual report covers the fiscal year ended December 31, 2013; it is not a quarterly filing. Halliburton provides oilfield services and products in approximately 80 countries through Completion and Production and Drilling and Evaluation. The fourth quarter is summarized separately below where quarterly data is provided.
Financial results and liquidity
| Metric | 2013 | 2012 |
|---|---|---|
| Revenue | $29.402 billion | $28.503 billion |
| Operating income | $3.138 billion | $4.159 billion |
| Operating margin | 11% (reported, rounded) | 14.6% (calculated) |
| Net income attributable to Halliburton | $2.125 billion | $2.635 billion |
| Diluted earnings per share | $2.36 | $2.84 |
| Cash flow from operations | $4.447 billion | $3.654 billion |
| Capital expenditures | $2.934 billion | $3.566 billion |
- Fourth quarter: Revenue was $7.639 billion, operating income $1.144 billion, net income $795 million, and diluted EPS $0.93. In Q4 2012, these were $7.290 billion, $981 million, $672 million, and $0.72, respectively.
- Segments: Completion and Production revenue was $17.506 billion and operating income $2.875 billion; Drilling and Evaluation revenue was $11.896 billion and operating income $1.770 billion.
- Cash and liquidity: Year-end cash and equivalents were $2.356 billion, fixed-income investments $373 million, and working capital $8.678 billion. A $3.0 billion revolving credit facility was fully available and matures in 2018.
- Debt: Long-term debt was $7.816 billion, up from $4.820 billion. The increase principally followed issuance of $3.0 billion in senior notes. Credit ratings were A2 from Moody’s and A from S&P.
- Capital returns: Halliburton repurchased approximately 93 million shares for $4.356 billion and paid $465 million in dividends. The quarterly dividend rose to $0.15 per share in Q4; approximately $1.7 billion remained under the repurchase authorization.
Material changes versus prior comparable periods
- Annual revenue increased 3%, driven mainly by international growth and Gulf of Mexico activity. Revenue outside North America rose to 48% of consolidated revenue from 44%.
- Operating income fell 25%, largely because the Macondo-related loss contingency was $1.0 billion in 2013 versus $300 million in 2012. Other 2013 items included $92 million in restructuring charges and a $55 million charitable contribution.
- Completion and Production revenue edged up 1%, but operating income declined 9%, principally due to U.S. hydraulic-fracturing pricing pressure and lower Canadian activity. Drilling and Evaluation revenue rose 7% and operating income rose 6%, with strength in the Eastern Hemisphere partly offset by Latin American costs.
- Net income attributable to the company declined to $2.125 billion from $2.635 billion. The effective tax rate decreased to 23.5% from 32.3%, partly offsetting lower operating income.
- Operating cash flow increased, while capital expenditures decreased. The company also paid $219 million under a guarantee relating to the legacy Barracuda-Caratinga project.
Outlook, management commentary, risks, and unusual items
- Management expected 2014 capital spending of approximately $3.0 billion and believed operating cash flow could fund planned capital expenditures, working-capital needs, and dividends. It anticipated international growth from new contracts, projects, technology, and selected pricing and cost recovery.
- Management expected North American pricing pressure to persist, while efficiency improvements and the shift toward horizontal drilling and multi-well pads could support activity. Latin America was expected to be challenging in 2014, particularly due to Mexico project transitions and reduced Brazilian activity.
- Macondo exposure is the principal contingency: The $1.3 billion reserve at year-end was identified as probable and reasonably estimable, but the company said further reasonably possible losses could not be reasonably estimated. MDL rulings, additional claims, potential punitive damages, civil penalties, and the scope or enforceability of BP indemnification remained uncertain. Halliburton’s subsidiary pleaded guilty to a misdemeanor involving deletion of computer files, paid a $0.2 million fine, and received three years’ probation; the DOJ agreed not to pursue further criminal prosecution of the company for Macondo-related conduct.
- Other risks include delayed Venezuelan collections and currency controls, oil-and-gas spending volatility, offshore and hydraulic-fracturing regulation, environmental liability, geopolitical conditions, customer payment risk, and ongoing FCPA-related investigations in Angola and Iraq. Venezuelan trade receivables were $486 million, including $183 million classified as long-term.
- Management described long-term energy demand and more complex resource development as supportive fundamentals, while emphasizing macroeconomic and geopolitical uncertainty. The filing does not provide a formal earnings or revenue forecast.
Important facts for investors to verify
- Developments in the Macondo MDL, including rulings on fault, sanctions, damages, indemnification, and any reserve revisions or settlement.
- Whether Venezuelan receivables are collected as expected, and any effects of currency devaluation, restrictions, or government action.
- Whether international activity and margins offset North American pricing pressure and the forecast Latin American slowdown.
- Execution and funding of the approximately $3.0 billion 2014 capital-spending plan, alongside dividends and remaining share repurchases.
- Outcomes of the Angola and Iraq compliance investigations and the DOJ antitrust inquiry regarding pressure-pumping services.