Business context and reporting period
Halliburton’s Form 10-K covers the fiscal year ended December 31, 2015; it is an annual filing, not a standalone fourth-quarter report. Halliburton provides oilfield services and products through Completion and Production and Drilling and Evaluation. The fourth-quarter figures below are unaudited quarterly data included in the filing. All amounts are U.S. dollars.
Financial performance and liquidity
| Metric | 2015 | 2014 |
|---|---|---|
| Revenue | $23.6 billion | $32.9 billion |
| Operating income (loss) | $(165) million | $5.1 billion |
| Net income (loss) attributable to Halliburton | $(671) million | $3.5 billion |
| Diluted earnings (loss) per share | $(0.79) | $4.11 |
| Operating cash flow | $2.9 billion | $4.1 billion |
| Capital expenditures | $2.2 billion | $3.3 billion |
| Cash and equivalents at year-end | $10.1 billion | $2.3 billion |
| Long-term debt, including current maturities | $15.3 billion | $7.8 billion |
Operating cash flow less capital expenditures was approximately $722 million in 2015, versus $779 million in 2014. Year-end working capital was $16.3 billion. Halliburton reported $3.0 billion of available committed revolving credit at year-end; the facility was to increase to $4.5 billion upon the Baker Hughes acquisition’s closing. The reported operating margin was approximately negative 0.7%, compared with 15.5% in 2014.
Fourth-quarter 2015 revenue was $5.1 billion, versus $8.8 billion in fourth-quarter 2014. Operating income was $86 million, versus $1.3 billion; net loss was $26 million, versus net income of $905 million.
Material changes versus prior periods
- Full-year revenue fell 28%; operating results swung from $5.1 billion income to a $165 million loss. Halliburton attributed the decline to lower activity and pricing amid the oil-market downturn, particularly reduced North American stimulation activity.
- Completion and Production revenue declined 32% to $13.7 billion; Drilling and Evaluation revenue declined 21% to $10.0 billion. North American revenue fell 39% overall, while Middle East/Asia revenue declined 6%.
- Halliburton recorded $2.177 billion of impairments and other charges, including fixed-asset impairments, inventory write-downs, severance, intangible-asset impairments and facility or country closures. It also recorded $308 million of Baker Hughes acquisition-related costs.
- Cash increased substantially mainly following $7.4 billion of net debt issuance proceeds. Debt rose by approximately $7.6 billion year over year; 2015 dividends were $614 million.
- Halliburton reduced worldwide headcount by approximately 25% during 2015. Year-end employment was approximately 65,000, compared with more than 80,000 a year earlier.
Outlook, risks and unusual items
- Management expected 2016 to remain challenging, with further customer budget cuts, lower activity and pricing pressure. It forecast capital expenditures of approximately $1.6 billion, down 27% from 2015, and planned continued cost management.
- The Baker Hughes acquisition remained subject to regulatory clearances, including DOJ and European Commission review. The companies extended the approval deadline to April 30, 2016; proposed divestitures had not been agreed with regulators or buyers. The contemplated consideration was approximately 492 million Halliburton shares and $8.3 billion in cash. Halliburton warned of possible near-term EPS dilution and integration risks.
- If the transaction fails in certain regulatory-related circumstances, Halliburton could owe Baker Hughes a $3.5 billion termination fee. It also may have to redeem $2.5 billion of notes at 101% of principal; certain capitalized divestiture costs could be expensed and the held-for-sale accounting reassessed.
- Macondo-related liabilities were $472 million at year-end, including $400 million expected to be paid in 2016. Settlement effectiveness and appeals remained subject to conditions; Halliburton also pursued approximately $118 million of disputed insurance recovery not recognized in the accounts.
- Venezuela exposure included $704 million of trade receivables, more than 10% of gross trade receivables, with collection delays; $175 million was classified as long-term. The company recorded a $199 million currency loss after adopting the SIMADI exchange rate.
- Other material risks include sustained low oil prices and potential further impairments, customer payment defaults, environmental and regulatory liabilities, geopolitical and currency risks, and ongoing FCPA-related investigations concerning Angola and Iraq.
Important facts for investors to verify
- Whether the Baker Hughes acquisition received regulatory approval, closed, or was terminated, and the ultimate divestiture terms, costs and financing consequences.
- Whether the expected $400 million Macondo payment was made and whether settlement conditions, appeals, regulatory claims or insurance recovery changed.
- Collections and recoverability of Venezuelan receivables, subsequent currency controls or devaluations, and any related charges.
- Whether low activity and pricing led to further impairment charges, and how closely 2016 capital spending and operating performance tracked management’s expectations.
- Changes in debt, credit ratings, liquidity and any financing needs following the acquisition developments.