01—Abstract
Summary
Summary of the 10-K filed February 16, 2012. Cited figures are marked; the original filing is the authoritative source.
Halliburton Company's 2011 annual report describes a company that provides services and products to the energy industry through two segments, Completion and Production and Drilling and Evaluation, operating in approximately 80 countries.
Revenue rose to $24.8 billiona in 2011 from $18.0 billion in 2010, and operating income rose to $4.7 billion from $3.0 billion, with the filing attributing the growth mainly to higher customer capital spending, unconventional drilling activity and pricing improvements in North America. Net income attributable to the company was $2.84 billion, compared with $1.84 billion in 2010, and cash flows from operating activities were $3.7 billion. Capital expenditures were $3.0 billion, and the company acquired Multi-Chem for approximately $880 million in cash in 2011 (together with other 2011 acquisitions).
The dominant risk discussed is the Macondo well incident in the Gulf of Mexico, in which the company performed cementing and other services for BP Exploration. The company is a defendant in more than 400 complaints, faces ongoing investigations including a DOJ criminal inquiry, and has received Incidents of Noncompliance from BSEE. The filing states that the company has not accrued any amounts for this matter because a loss is not considered probable and estimable, and that liabilities could have a material adverse effect on liquidity, results and financial condition.
Other exposures include a Duncan, Oklahoma lawsuit matter for which $35 millionb is accrued, a securities class action in which class certification was granted in January 2012, an internal Angola investigation, and political and currency risks in international operations, including Venezuela. For investors, the filing shows strong 2011 operating momentum, a balance sheet with $2.7 billion of cash and equivalents against $4.8 billion of long-term debt, and a $1.7 billion remaining share repurchase authorization. The main uncertainty is the open-ended legal and regulatory exposure from Macondo, which management says it cannot currently estimate.
02—Key points
Key Highlights
- Total revenue was $24.8 billion in 2011, up from $17.97 billion in 2010, with the filing attributing the increase largely to higher North America activity and pricing.
- Operating income was $4.74 billion in 2011 versus $3.01 billion in 2010, and net income attributable to the company was $2.84 billion versus $1.84 billion.
- Completion and Production segment revenue reached $15.14 billion in 2011, compared with $9.997 billion in 2010, while Drilling and Evaluation revenue reached $9.69 billion versus $7.98 billion.
- Cash flows from operating activities were $3.68 billion in 2011, and capital expenditures were $2.95 billion; 2012 capital spending is expected to be between $3.5 and $4.0 billion.
- Cash and equivalents were $2.7 billion at year-end 2011, and long-term debt was $4.82 billion after issuing $1.0 billion of senior notes in November 2011.
- The Macondo well incident remains the principal legal exposure, with more than 400 complaints, ongoing DOJ criminal investigation, BSEE Incidents of Noncompliance, and no amount accrued because a loss cannot yet be estimated.
- Quarterly dividends of $0.09 per share were paid in 2011, and approximately $1.7 billion remained available under the share repurchase authorization at year-end.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2011, Halliburton kept $0.11.
- Revenue$24.83B100.0%
- Cost of revenue−$4.38B17.6%
- Gross profit$20.45B82.4%
- Operating costs−$15.71B63.3%
- Operating income$4.74B19.1%
- Interest, other & tax−$1.90B7.6%
- Net income$2.84B11.4%
Where FY2011 revenue went
$24.83B- Other operating costs: $15.31B, 62% of revenue
- Cost of revenue: $4.38B, 18% of revenue
- Net income: $2.84B, 11% of revenue
- R&D: $401.0M, 1.6% of revenue
- Interest, other & tax: $1.90B, 7.6% of revenue
Kept 11% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2011filed February 16, 2012Financial Statements
FY2011 against FY2010
| Line item | FY2011FY2010 | Change |
|---|---|---|
| Revenue | $24.83B$17.97B | +38.1% |
| Cost of Revenue | $4.38B$3.51B | +24.8% |
| Gross Profit | $20.45B$14.46B | +41.4% |
| R&D Expenses | $401.00M$366.00M | +9.6% |
| Operating Expenses | $20.09B$14.96B | +34.3% |
| Operating Income | $4.74B$3.01B | +57.4% |
| Net Income | $2.84B$1.83B | +54.7% |
| EPS (Basic) | $3.09$2.02 | +53.0% |
| EPS (Diluted) | $3.08$2.01 | +53.2% |
| Shares Outstanding (Basic) | 918.00M908.00M | +1.1% |
| Shares Outstanding (Diluted) | 922.00M911.00M | +1.2% |
05—Questions
Frequently Asked Questions
What drove the increase in Halliburton's 2011 results?
The filing attributes the increase in revenue and operating income mainly to higher customer capital spending during 2011, led by increased drilling activity in unconventional oil and natural gas basins and pricing improvements in North America. North America revenue rose to $14.41 billion from $8.83 billion.
How large is the Macondo well exposure, and has it been accrued?
The company is named in more than 400 complaints, most alleged class actions, along with personal injury suits, and BP Exploration has filed claims seeking contribution. Management states it is unable to estimate the impact and has not accrued any amounts because it has not determined that a loss is probable and reasonably estimable. The filing also notes that a federal grand jury has been convened in Louisiana and that the DOJ has not yet commenced criminal proceedings against the company.
What indemnity protection does Halliburton have from BP for Macondo claims?
In January 2012 the MDL court held that BP must indemnify Halliburton for third-party compensatory claims arising from pollution that did not originate from Halliburton's property above the surface, even if Halliburton is found grossly negligent. The court held BP does not owe indemnity for punitive damages or Clean Water Act civil penalties, and deferred rulings on other issues, including OCSLA penalties. The filing cautions that these rulings may not bind other courts and that BP's financial capacity is uncertain, though the company considers a BP bankruptcy remote.
How are the company's international operations and cash position affected by risk?
About 45% of 2011 consolidated revenue was from outside the United States, and the filing identifies political instability, expropriation, currency controls and Venezuelan receivable delays as risks. Of $2.7 billion in cash, $502 million was held by foreign subsidiaries that would be subject to tax if repatriated, and management states it intends to reinvest those funds outside the United States.
What are the company's dividend and share repurchase plans?
Cash dividends of $0.09 per share were paid quarterly in 2011 and 2010, totaling $0.36 per share, and the company expects to pay about $83 million in quarterly dividends during 2012, subject to Board approval. No shares were repurchased under the program in 2011, leaving approximately $1.7 billion of authorization available.
06—Continue