Halliburton Company — 2011 Form 10-K
Reporting period: Fiscal year ended December 31, 2011. The filing is an annual report, not a standalone fourth-quarter filing; selected fourth-quarter results are shown below. Halliburton provides oilfield services and products through its Completion and Production and Drilling and Evaluation segments.
Financial performance
Amounts are in U.S. dollars; financial statement amounts are in millions unless otherwise indicated.
| Metric | FY 2011 | FY 2010 | Change |
|---|---|---|---|
| Revenue | $24,829 | $17,973 | +38% |
| Operating income | $4,737 | $3,009 | +57% |
| Operating margin | 19.1% | 16.7% | +2.4 percentage points |
| Income from continuing operations attributable to Halliburton | $3,005 | $1,795 | |
| Net income attributable to Halliburton | $2,839 | $1,835 | |
| Diluted EPS | $3.08 | $2.01 | |
| Operating cash flow | $3,684 | $2,212 | |
| Capital expenditures | $2,953 | $2,069 |
Operating cash flow less capital expenditures was approximately $731 million in 2011. Revenue growth was led by North America, where revenue rose 63% and operating income excluding corporate costs more than doubled. Completion and Production revenue increased 51% and segment operating income 84%; Drilling and Evaluation revenue increased 21% and operating income 16%. International revenue increased 14%, but international operating income declined 16%, reflecting competitive pricing and regional disruptions.
| Fourth-quarter metric | Q4 2011 | Q4 2010 |
|---|---|---|
| Revenue | $7,064 | $5,160 |
| Operating income | $1,430 | $980 |
| Net income | $907 | $607 |
| Diluted EPS | $0.98 | $0.66 |
Liquidity, debt and capital allocation
- Year-end cash and equivalents were $2.698 billion, versus $1.398 billion a year earlier; marketable securities were $150 million. Working capital was $7.456 billion.
- Long-term debt was $4.820 billion, up from $3.824 billion. Halliburton issued $1 billion of senior notes in November 2011; the reported debt had no maturities before 2017. The company also had a fully available $2 billion revolving credit facility, with no financial covenants or material adverse change provisions disclosed.
- Capital spending was $2.953 billion; dividends paid were $330 million. The Multi-Chem acquisition and other acquisitions used approximately $880 million in 2011.
- Management expected 2012 capital spending of $3.5–$4.0 billion and, subject to board approval, quarterly dividends of approximately $83 million. Approximately $1.7 billion remained under the share repurchase authorization; no shares were repurchased under that program in 2011.
Outlook and management commentary
- Management cited long-term energy-demand growth and increasingly complex resource development as supports for oilfield-service demand. It expected gradual international margin improvement in 2012 as activity rose and new technologies were introduced.
- North American activity was supported by growth in horizontal, oil- and liquids-directed drilling. Management cautioned that natural-gas drilling would remain under pressure until oversupply eased, and that cost inflation and logistical constraints could moderate North American margins.
- Gulf of Mexico activity recovered as permits resumed; fourth-quarter revenue exceeded pre-suspension levels. Management did not expect Gulf margins to return to pre-suspension levels until the second half of 2012, given new regulations and customer adjustment.
- Management said Libya activity remained limited and a meaningful recovery depended on customers reestablishing operations; it expected activity there to remain below pre-2011 levels until late 2012 or 2013.
Material risks, contingencies and unusual items
- Macondo/Deepwater Horizon: Halliburton faced hundreds of pollution claims, personal-injury suits, cross-claims and ongoing investigations, including DOJ scrutiny. The company had not accrued a liability at year-end because it could not conclude a loss was probable or reasonably estimate a loss range; it warned that any eventual liabilities could materially affect liquidity, results and financial condition. BSEE issued regulatory notices of noncompliance, which Halliburton appealed; no amount was accrued for them.
- A January 2012 court order, after the reporting date, held that BP must indemnify Halliburton for certain third-party compensatory pollution claims, even in the event of gross negligence, but not punitive damages or Clean Water Act civil penalties. Other indemnity issues remained unresolved. Halliburton reported $600 million of general liability insurance and approximately $76 million of covered Macondo legal fees incurred through January 2012.
- KBR/Barracuda-Caratinga: A $201 million arbitration award against KBR was recorded as a liability under Halliburton’s indemnity agreement and drove a $163 million after-tax discontinued-operations charge in 2011.
- Duncan, Oklahoma environmental matter: Halliburton accrued $35 million for initial response, property damage and remediation estimates. Total environmental reserves were $81 million at year-end. Related lawsuits were at an early stage.
- Other exposures include an SEC/DOJ inquiry concerning alleged Angola compliance issues; a securities class action certified in January 2012 and appealed; Venezuela payment delays and currency risk; political disruption, customer spending and commodity-price volatility; hydraulic-fracturing regulation; and raw-material, labor and service-pricing pressures.
- Reported net income includes the discontinued-operations loss and should be distinguished from continuing-operations earnings. The effective tax rate on continuing operations was 32.3%, versus 32.1% in 2010.
Most important facts for investors to verify
- Developments in Macondo litigation, investigations, BSEE proceedings, BP indemnification and insurance coverage, including any change to the company’s loss assessment or accruals.
- Whether the 2012 capital-spending plan and expected operating cash generation remain consistent with liquidity needs and contingent exposures.
- North American pricing, cost and logistics trends, and whether international margins and Gulf of Mexico activity recover as management anticipated.
- Collection of Venezuelan receivables, the adequacy of environmental reserves, and outcomes of the Angola and securities-related proceedings.
- The audited financial statements received unqualified opinions from KPMG; the auditor also issued an unqualified opinion on internal control over financial reporting as of December 31, 2011.