Business context and reporting period
Halliburton Company’s Form 10-K covers the fiscal year ended December 31, 2012. It provides annual results and unaudited fourth-quarter data; it is not a standalone quarterly filing. Halliburton provides oilfield services and products worldwide through Completion and Production and Drilling and Evaluation.
Financial performance and liquidity
| Metric | FY 2012 | FY 2011 |
|---|---|---|
| Revenue | $28.503 billion | $24.829 billion |
| Operating income / margin | $4.159 billion / 14.6% | $4.737 billion / 19.1% |
| Net income attributable to Halliburton | $2.635 billion | $2.839 billion |
| Diluted earnings per share | $2.84 | $3.08 |
| Cash provided by operating activities | $3.654 billion | $3.684 billion |
| Capital expenditures | $3.566 billion | $2.953 billion |
Approximate operating cash flow less capital expenditures was $88 million in 2012, versus $731 million in 2011. Year-end cash and equivalents were $2.484 billion; fixed-income investments totaled $398 million. Long-term debt was $4.820 billion, with no material maturities before 2017. The company had a fully available $2.0 billion revolving credit facility and reported net working capital of $8.334 billion. Cash and investments together totaled about $2.9 billion.
Fourth-quarter 2012 revenue was $7.290 billion, operating income $981 million, net income attributable to Halliburton $669 million, and diluted EPS $0.72. In fourth-quarter 2011, these were $7.064 billion, $1.430 billion, $906 million, and $0.98, respectively.
Material changes versus comparable periods
- Full-year revenue increased 15%, supported by growth in both segments and all geographic regions. Revenue outside North America rose to 44% of consolidated revenue from 42%.
- Operating income fell 12%, with margin declining to 14.6% from 19.1%. North American Completion and Production income fell 32%, principally because of pricing pressure in pressure pumping and higher guar gum costs.
- Completion and Production revenue grew 15% to $17.380 billion, but segment operating income declined 16% to $3.144 billion. Drilling and Evaluation revenue grew 15% to $11.123 billion and operating income rose 19% to $1.675 billion.
- Net income attributable to the company declined 7%. The $300 million pre-tax Macondo loss contingency and higher operating costs weighed on results; discontinued operations contributed $58 million, compared with a $166 million loss in 2011.
- Operating cash flow was nearly flat while capital spending rose 21%, sharply reducing cash flow after capital expenditures. Receivables and inventories increased with activity; collections were also delayed in Venezuela.
Outlook, risks, contingencies, and unusual items
- Management expected 2013 capital spending of about $3.0 billion and planned to direct less capital to North America. It anticipated continued North American production-enhancement pricing pressure, gradual international activity and pricing improvements, and potential growth from deepwater and international unconventional projects.
- Halliburton recorded a $300 million liability for a probable, estimable Macondo-related loss. More than 400 complaints and multiple investigations remained ongoing; the company said additional reasonably possible losses could not be reasonably estimated. Its contract with BP provides certain indemnities, but court rulings exclude punitive damages and Clean Water Act civil penalties, and other indemnity issues remained unresolved.
- The company disclosed DOJ scrutiny of post-incident conduct and BSEE notices of alleged regulatory noncompliance, which Halliburton appealed. As of the filing date, the DOJ had not commenced criminal proceedings against Halliburton. BP and Transocean had announced separate settlements with the DOJ.
- Venezuela was a notable liquidity and currency exposure: trade receivables were $491 million, about 9% of gross trade receivables, and net investment was approximately $328 million. Following Venezuela’s February 2013 currency devaluation, Halliburton estimated a roughly $30 million foreign-currency loss in first-quarter 2013.
- Other matters include a $25 million accrual for the Duncan, Oklahoma environmental matter; a $72 million total environmental reserve excluding Macondo; ongoing Angola and Iraq compliance investigations; and the $219 million Barracuda-Caratinga guarantee payment made in January 2013. An $80 million tax benefit related to that guarantee was recorded in 2012 discontinued operations.
- Management cited volatile commodity prices, customer spending, raw-material supply and costs, regulation of offshore drilling and hydraulic fracturing, geopolitical and foreign-exchange risks, customer collections, and environmental liabilities as key risks. It expressed confidence in long-term energy demand but gave no specific earnings or revenue guidance.
Investor facts to verify
- Track Macondo litigation and investigations, the adequacy and possible revision of the $300 million accrual, and the enforceability and scope of BP indemnification and insurance.
- Monitor North American pressure-pumping pricing, guar-related costs, and whether international growth offsets further margin pressure.
- Assess collection and recoverability of Venezuela receivables, the effects of currency controls and further devaluation, and any resulting cash or earnings impact.
- Compare 2013 capital spending and operating cash flow with management’s plans, including the impact on free cash flow and liquidity.
- Follow outcomes of the Angola and Iraq investigations, the Duncan environmental claims, and other contingencies; the filing does not provide a clear estimate for some potential exposures.