Halliburton Company — Q2 2017 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2017. Halliburton provides oilfield services and products through Completion and Production and Drilling and Evaluation. Results remained highly exposed to customer spending, commodity prices and rig activity.
Financial performance
| Metric | Q2 2017 | Q2 2016 | Six months 2017 | Six months 2016 |
|---|---|---|---|---|
| Revenue | $4.957B | $3.835B | $9.236B | $8.033B |
| Operating income (loss) | $146M | ($3.880B) | $349M | ($6.959B) |
| Net income (loss) attributable to Halliburton | $28M | ($3.208B) | ($4M) | ($5.620B) |
| Diluted EPS | $0.03 | ($3.73) | Approximately $0 | ($6.54) |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $351M | ($3.803B) |
Q2 operating margin was approximately 2.9% (operating income divided by revenue), including a $262M Venezuela-related charge. Six-month operating margin was approximately 3.8%, also including that charge. Segment operating income in Q2 was $397M for Completion and Production and $125M for Drilling and Evaluation.
At June 30, cash and equivalents were $2.139B, down from $4.009B at year-end 2016. Total debt carrying value was $11.152B ($336M short-term/current and $10.816B long-term), versus $12.384B at year-end. Current assets were $10.260B and current liabilities $4.068B. The company also had $3.0B available under its revolving credit facility and $102M in fixed-income investments. Six-month capital expenditures were $592M; dividends paid were $312M.
Changes versus prior comparable periods
- Q2 revenue rose 29% year over year, driven primarily by North American pressure-pumping activity, utilization and pricing. North America revenue rose 83%; Europe/Africa/CIS fell 15% and Middle East/Asia fell 5%.
- Completion and Production Q2 revenue rose 48% to $3.132B and operating income was $397M, versus a $32M loss. Drilling and Evaluation revenue rose 6% to $1.825B, but operating income declined 19% to $125M, reflecting international pricing and activity pressure.
- Six-month revenue rose 15%, while Drilling and Evaluation operating income fell 37% to $247M. International markets remained weak relative to North America.
- The prior-year periods included a $3.5B merger termination fee in Q2 2016 and substantial impairment and other charges. Comparisons of operating results and losses are therefore affected by unusual prior-year items.
- Cash declined mainly amid debt repayments, the final Macondo settlement payments, capital spending, dividends and increased working capital. The company redeemed $1.4B of senior notes early in Q1.
Outlook, risks and unusual items
- Management expected further North American margin improvement in the second half of 2017, citing customer demand, equipment utilization and structural cost savings. It believed demand for completions equipment exceeded supply.
- Management expected international revenue and margins to remain under pressure through 2017, with no significant growth until markets stabilized. Customer budget constraints, project deferrals and pricing pressure were key headwinds.
- 2017 capital spending was expected to be approximately $1.3B. The company expected to pay approximately $630M in Q3 for three acquisitions completed in July, and expected a U.S. tax refund of approximately $480M in the second half. Quarterly dividends were $0.18 per share; continuation remained subject to board approval.
- Venezuela remained a significant collection and political risk. Net trade receivables were $399M at June 30, including $186M classified as long-term. Halliburton recorded a $262M charge on an expected exchange of $375M of receivables for a promissory note; execution could be delayed or prevented by sanctions. An existing $200M-par note had a $98M carrying value. Management believed amounts were collectible but warned adverse developments could require further adjustments or result in losses.
- The company recorded a $29M loss contingency for an SEC investigation settlement concerning Angola-related FCPA books-and-records and internal-controls matters; the SEC approved the settlement in July, and it includes an independent compliance consultant. The DOJ said it would take no action. Halliburton had completed its Macondo settlement payments and reported no additional material exposure expected.
- Other exposures included a securities class-action settlement fund of $100M, of which Halliburton paid approximately $54M (final court approval remained pending); $46M in environmental reserves, which could be exceeded; and approximately $2.0B in letters of credit, guarantees and surety bonds, some of which could require cash collateralization.
Important facts for investors to verify
- Whether Venezuelan receivables are collected and the expected promissory-note exchange is completed, especially given political conditions and sanctions.
- Whether North American utilization and pricing gains translate into sustained margins, and whether international pricing pressure persists.
- Actual cash generation and funding needs for capital spending, acquisitions, dividends and other obligations; confirm receipt of the expected tax refund.
- Final outcomes and payments for the SEC and securities matters, and any change in environmental or other contingent liabilities.