Business context and reporting period
Halliburton Company’s Form 10-K covers the fiscal year ended December 31, 2017, with comparisons to 2016 and 2015. Halliburton provides oilfield services and products worldwide through Completion and Production and Drilling and Evaluation. The recovery in 2017 was led by stronger North American activity, utilization and pricing; international markets remained more subdued.
Financial results
Amounts below are in U.S. dollars; billions except per-share figures.
| Metric | 2017 | 2016 | Change or context |
|---|---|---|---|
| Revenue | $20.62 | $15.89 | Up 30% |
| Operating income (loss) | $1.36 | $(6.78) | Reported operating margin was approximately 6.6% in 2017 |
| Net loss attributable to Halliburton | $(463) million | $(5.76) billion | 2017 included significant tax and Venezuela-related charges |
| Diluted loss per share | $(0.53) | $(6.69) | |
| Cash from operating activities | $2.47 | $(1.70) | Included a $478 million U.S. tax refund |
| Capital expenditures | $1.37 | $0.80 | Up 72% |
| Cash and equivalents at year-end | $2.34 | $4.01 | |
| Total debt, including current maturities | $10.94 | $12.38 | Debt reduction included early redemption of $1.4 billion principal |
Revenue rose in both segments: Completion and Production increased 47% to $13.08 billion, with operating income of $1.62 billion; Drilling and Evaluation increased 8% to $7.54 billion, while operating income decreased 10% to $718 million. North America revenue increased 71% to $11.56 billion; Europe/Africa/CIS and Middle East/Asia revenue declined 7% and 2%, respectively.
Year-end current assets were $10.78 billion and current liabilities $4.86 billion. Halliburton also had a $3.0 billion revolving credit facility available, with no borrowings reported against it. Cash less capital expenditures was approximately $1.10 billion; this simple measure is not a company-reported free-cash-flow figure.
Material changes versus the prior period
- Revenue and operating performance rebounded from the 2016 downturn, principally on North American pressure-pumping, completion and drilling activity, improved utilization and pricing.
- The 2016 operating loss included $4.06 billion in merger-related costs, primarily a $3.5 billion termination fee and $464 million of charges related to reversing held-for-sale accounting, as well as $3.36 billion of impairments and other charges. Corresponding 2017 amounts were nil for merger-related costs and $647 million for impairments and other charges.
- Halliburton recorded a $1.13 billion income-tax provision in 2017, including a provisional $770 million expense related to U.S. tax reform. This contributed to a full-year net loss despite positive operating income.
- Cash declined by $1.67 billion during 2017, reflecting debt repayments, capital spending, acquisitions, dividends, working-capital investment and Macondo settlement payments.
Outlook, risks and unusual items
- Management expressed optimism about 2018 and expected international activity to improve gradually, while cautioning that international pricing pressure and customer concessions would take time to reverse. In North America, management emphasized utilization, cost control and pricing.
- 2018 capital expenditures were expected to be approximately $1.7 billion. Management intended to maintain the quarterly dividend of $0.18 per share, subject to board approval, and planned to repay $400 million of notes maturing in August 2018 with cash on hand.
- Venezuela: Halliburton recorded $647 million of 2017 charges, including a fair-value adjustment to its promissory note and a full reserve against other receivables from its primary customer. The note’s carrying value was $32 million versus $175 million par; net trade receivables in Venezuela were $117 million. A January 2018 foreign-exchange system change could prompt further write-downs of its approximately $202 million net investment there. U.S. sanctions and payment delays add uncertainty.
- Tax reform accounting was provisional; the company expected to complete its detailed analysis by the fourth quarter of 2018. The effective tax rate was 165.8%, reflecting tax reform and Venezuela-related items, among other factors.
- Other key exposures include volatile oil and gas prices and customer spending, geopolitical and sanctions risks, environmental and hydraulic-fracturing regulation, catastrophic well incidents, cybersecurity, foreign-exchange restrictions, customer credit and collection risk, and possible asset impairments.
- Halliburton made a final $335 million Macondo settlement installment and paid $33 million in related legal fees during 2017. Environmental liabilities accrued were $48 million; actual obligations could exceed accruals. The company reported approximately $1.8 billion of letters of credit, bank guarantees and surety bonds, some of which could require cash collateralization.
- The independent auditor issued unqualified opinions on the financial statements and internal control over financial reporting. The internal-control assessment excluded Summit ESP, acquired in 2017.
Important facts for investors to verify
- Whether the operating recovery and pricing gains—particularly in North America—persist and translate into sustained margins and cash generation.
- Collection prospects and remaining exposure in Venezuela, including the promissory note, reserved receivables, sanctions and currency-system changes.
- The final effect of U.S. tax reform on tax expense, deferred tax assets, foreign earnings and cash repatriation.
- Funding of the planned 2018 capital expenditures, the August 2018 debt maturity, dividends and other capital-allocation decisions against liquidity and operating cash flow.
- Whether international activity improves and pricing concessions are recovered, and whether customer spending remains resilient to commodity-price changes.
- Potential future environmental, legal, regulatory, cybersecurity and operational liabilities, and any resulting impairment or cash requirements.