Halliburton Company — 2016 Form 10-K
Reporting period: Fiscal year ended December 31, 2016. This is an annual report; fourth-quarter figures are noted separately where relevant. Halliburton provides services and products to the upstream oil and gas industry through Completion and Production (C&P) and Drilling and Evaluation (D&E).
Financial performance
| Metric | 2016 | 2015 |
|---|---|---|
| Revenue | $15.887 billion | $23.633 billion |
| Operating income (loss) | ($6.778 billion) | ($165 million) |
| Net income (loss) | ($5.769 billion) | ($667 million) |
| Diluted loss per share | ($6.69) | ($0.79) |
| Cash from operations | ($1.703 billion) | $2.906 billion |
| Capital expenditures | $798 million | $2.184 billion |
| Cash and equivalents at year-end | $4.009 billion | $10.077 billion |
| Long-term debt, including current maturities | $12.377 billion | $15.346 billion |
- Revenue fell 33%; the reported operating margin was approximately negative 42.7%, and net margin approximately negative 36.3%.
- Revenue declined in both segments: C&P was $8.882 billion, down 35%; D&E was $7.005 billion, down 30%. Segment operating income was $107 million and $794 million, respectively.
- Revenue fell across all reported regions: North America 38%, Latin America 41%, Europe/Africa/CIS 28%, and Middle East/Asia 22%.
- Working capital was $7.654 billion at year-end. Halliburton also had $92 million in fixed-income investments and a fully available $3.0 billion revolving credit facility.
- Fourth-quarter revenue was $4.021 billion, operating income $53 million, and net loss $153 million. The company said North America returned to operating profitability in Q4 after losses in the first three quarters.
Material changes and unusual items
- Halliburton and Baker Hughes terminated their proposed merger on April 30, 2016, primarily citing regulatory approval challenges and deteriorating deal economics. Halliburton paid a $3.5 billion termination fee and recorded $4.057 billion of total Baker Hughes-related costs, including $464 million related to reversing held-for-sale accounting.
- Reported operating results also included $3.357 billion of impairments and other charges, versus $2.177 billion in 2015. These included $2.550 billion of fixed-asset impairments, severance and inventory charges, and a $148 million loss on exchanging Venezuelan receivables for a note.
- Halliburton mandatorily redeemed $2.5 billion of senior notes following the merger termination and repaid another $600 million of notes that matured. It paid $620 million in dividends during 2016.
- Operating cash flow was negative despite a $1.2 billion working-capital improvement and $513 million of U.S. tax refunds; the $3.5 billion termination-fee payment was a principal cash outflow.
Outlook, management commentary, and risks
- Management saw improving oil prices and North American rig activity as signs the downturn may have bottomed there. It expected North American revenue in Q1 2017 to track rig-count changes, but continued to expect pricing pressure as activity and equipment utilization recovered.
- International markets remained weak. Management did not expect an international revenue and margin inflection until later in 2017 and expected continued pressure during the year. Planned 2017 capital spending was approximately $1.0 billion, up from $798 million in 2016.
- The company reported completing a goal of approximately $1 billion in annualized structural cost savings and reducing its workforce by about 14,000 in 2016; year-end employment was approximately 50,000.
- Key exposures include volatile oil and gas prices and customer spending, continued pricing pressure, potential further impairments, geopolitical and currency risks, and collection risk in Venezuela. Venezuelan net trade receivables were $610 million at year-end, of which $409 million was classified as long-term; the company had also exchanged $200 million of receivables for a note and recorded a $148 million loss.
- Macondo-related liabilities were $413 million at year-end, including $369 million expected to be paid in Q1 2017. The settlement remained subject to final court approval and conditions; regulatory notices and appeals were also unresolved. Separately, a securities class-action settlement in principle resulted in a $54 million charge and awaited court approval.
- Other material uncertainties include ongoing U.S. government investigations concerning Angola and Iraq, environmental claims, possible changes to hydraulic-fracturing regulation, customer nonpayment, and execution risks on fixed-price projects. Management stated that cash, operating cash generation, and available credit were expected to provide sufficient liquidity for 2017.
Important facts for investors to verify
- Review the full notes for the composition and cash impact of merger-related costs and the $3.357 billion of impairments and other charges.
- Monitor North American and international activity, service pricing, and whether management’s 2017 recovery expectations are achieved.
- Track Venezuelan receivable collections, the note’s repayment and trading status, and any further change in activity or exposure.
- Confirm final court approval and payment timing for the Macondo and securities settlements, and developments in the BSEE notices and government investigations.
- Assess liquidity and refinancing capacity against $12.377 billion of debt, contractual obligations, planned capital spending, dividends, and expected tax refunds. Ratings were BBB+ (S&P, stable outlook) and Baa1 (Moody’s, negative outlook) at the filing date.
KPMG issued unqualified opinions on the consolidated financial statements and internal control over financial reporting as of December 31, 2016.