01—Abstract
Summary
Summary of the 10-K filed February 17, 2010. Cited figures are marked; the original filing is the authoritative source.
Halliburton Company's 2009 annual report shows a sharp downturn driven by the global recession, lower commodity prices, and severe margin contraction, especially in North America.
Revenue fell $3.6 billiona, or 20%, to $14.7 billion, and operating income fell $2.0 billion, or 50%, to $2.0 billion, leaving a 14% operating margin. Net income attributable to the company was $1.145 billion, compared with $2.224 billion in 2008. North America revenue dropped 32%, and the filing attributes this largely to a rig count decline of roughly 42% to 43% from 2008 highs.
Liquidity remained solid. Cash and equivalents rose to $2.1 billionb from $1.1 billion, and the company held $1.3 billion in U.S. Treasury securities. Operating cash flow was $2.4 billion.
The company issued $2 billionc of senior notes in March 2009, has a $1.2 billion undrawn revolving credit facility, and reports credit ratings of A2 from Moody's and A from S&P. Capital spending was $1.9 billion in 2009, with about $2.0 billion planned for 2010. Management says margins will remain under pressure in 2010 and describes the near-term outlook as uncertain, while noting some signs of rebound in North American rig activity late in 2009.
Investors should also note the legal overhang from the Bonny Island (Nigeria) matters. Halliburton paid $417 milliond to the DOJ and SEC in 2009 under settlements and KBR indemnities, and expects to pay another $142 million in 2010. The filing also discloses ongoing UK Serious Fraud Office inquiries, a pending Barracuda-Caratinga arbitration tied to a KBR indemnity, and shareholder derivative and securities litigation for which no loss accrual has been recorded.
02—Key points
Key Highlights
- Revenue declined $3.6 billion, or 20%, to $14.675 billion in 2009, with North America revenue down 32%.
- Operating income fell $2.016 billion, or 50%, to $1.994 billion; operating margin was 14%.
- Net income attributable to the company was $1.145 billion in 2009, versus $2.224 billion in 2008.
- Cash and equivalents reached $2.082 billion, plus $1.312 billion in marketable securities, with $2.406 billion in operating cash flow.
- Issued $2 billion of senior notes in 2009 ($1 billion at 6.15% due 2019 and $1 billion at 7.45% due 2039); $1.2 billion revolver remained undrawn.
- Paid $417 million to the DOJ and SEC and KBR indemnity in 2009, with $142 million more due in 2010 related to the FCPA settlement.
- Expects 2010 capital spending of approximately $2.0 billion and quarterly dividends of approximately $80 million; $1.8 billion remains under the share repurchase authorization.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2009, Halliburton kept $0.08.
- Revenue$14.68B100.0%
- Cost of revenue−$3.25B22.2%
- Gross profit$11.42B77.8%
- Operating costs−$9.43B64.2%
- Operating income$1.99B13.6%
- Interest, other & tax−$849.0M5.8%
- Net income$1.15B7.8%
Where FY2009 revenue went
$14.68B- Other operating costs: $9.10B, 62% of revenue
- Cost of revenue: $3.25B, 22% of revenue
- Net income: $1.15B, 7.8% of revenue
- R&D: $325.0M, 2.2% of revenue
- Interest, other & tax: $849.0M, 5.8% of revenue
Kept 7.8% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2009filed February 17, 2010Financial Statements
FY2009 against FY2008
| Line item | FY2009FY2008 | Change |
|---|---|---|
| Revenue | $14.68B$18.28B | −19.7% |
| Cost of Revenue | $3.25B$3.97B | −18.0% |
| Gross Profit | $11.42B$14.31B | −20.2% |
| R&D Expenses | $325.00M$326.00M | −0.3% |
| Operating Expenses | $12.68B$14.27B | −11.1% |
| Operating Income | $1.99B$4.01B | −50.3% |
| Interest Expense | -$297.00M-$167.00M | −77.8% |
| Net Income | $1.15B$2.22B | −48.5% |
| EPS (Basic) | $1.27$2.52 | −49.6% |
| EPS (Diluted) | $1.27$2.45 | −48.2% |
| Shares Outstanding (Basic) | 900.00M883.00M | +1.9% |
| Shares Outstanding (Diluted) | 902.00M909.00M | −0.8% |
05—Questions
Frequently Asked Questions
How much did Halliburton's revenue and operating income decline in 2009?
Revenue fell $3.6 billion, or 20%, to $14.7 billion, and operating income fell $2.0 billion, or 50%, to $2.0 billion. The filing attributes the decline to a significant drop in customer capital spending caused by the global recession and lower commodity prices, which led to lower activity, lower pricing, and severe margin contraction.
How exposed is Halliburton to North America and to the United States?
North America revenue fell 32% in 2009 to $5.66 billion, and the U.S. accounted for 36% of consolidated revenue, down from 43% in 2008. The filing notes that the 2009 U.S. land rig count averaged 1,042, compared with 1,812 in 2008. Revenue outside North America was 61% of the total in 2009.
Is Halliburton's balance sheet and liquidity strong enough to weather the downturn?
The company ended 2009 with $2.1 billion of cash, $1.3 billion in short-term Treasury securities, and a $1.2 billion undrawn revolving credit facility with no financial covenants. Its long-term debt was $4.574 billion, up from $2.612 billion, after the 2009 senior note issuance. Credit ratings were A2 (Moody's) and A (S&P).
What are the main legal risks investors should watch?
The Bonny Island (Nigeria) FCPA matters were resolved with the DOJ and SEC in February 2009, but the UK Serious Fraud Office is considering civil or criminal action involving MWKL, and Halliburton's indemnity for penalties is limited to 55%. A Barracuda-Caratinga arbitration with Petrobras claims $220 million, with a final hearing set for May 2010. The company has not accrued amounts for the securities and shareholder derivative litigation because it does not believe a loss is probable.
What does management expect for 2010?
Management said the near-term outlook remains uncertain and that margins will continue to be under pressure in 2010, especially internationally, where pricing concessions from last year's retendering have not yet fully flowed through. Some North American rig activity rebounded in late 2009, but management said a sustained recovery requires increased natural gas drilling. Venezuela's currency devaluation is estimated to cause a loss of about $30 million in the first quarter of 2010.
06—Continue