01—Abstract
Summary
Summary of the 10-K filed February 24, 2015. Cited figures are marked; the original filing is the authoritative source.
Halliburton Company's 2014 Form 10-K reports revenue of $32.9 billiona, up $3.5 billion, or 12%, from 2013, with operating income of $5.1 billion (a 16% operating margin) and net income attributable to the company of $3.5 billion, or $4.11 per diluted share.
Growth was driven mainly by stimulation activity in the United States land market and strong growth across the Eastern Hemisphere. Management, however, expects 2015 to be a challenging year, anticipating a significant drop-off in activity, pricing pressure, and corresponding reductions in revenue and operating margins, along with further material restructuring charges. The pending acquisition of Baker Hughes Incorporated, announced November 16, 2014, is the dominant transaction in the filing.
Halliburton will issue about 490 million shares and pay approximately $8.3 billionb in cash, with closing expected in the second half of 2015. The filing says former Baker Hughes stockholders are expected to hold approximately 37% of the combined company's common stock, and the acquisition is not expected to be accretive to earnings per share until the end of the second calendar year after closing. The company has an $8.6 billion bridge financing commitment, and its total liabilities of $15.9 billion at year-end 2014 would increase with the acquisition debt.
A termination fee of $1.5 billionc, or $3.5 billion in certain regulatory-failure cases, could apply. The Macondo well incident remains a significant liability. The loss contingency stood at $805 million at December 31, 2014, and the company made a first installment of $395 million on its approximately $1.1 billion MDL Settlement, subject to court approval.
The MDL court's Phase One Ruling apportioned fault at 3% to Halliburton, and BP has appealed that ruling. Halliburton reported $1.0 billiond in cash and equivalents-related liquidity constraints are not stated; instead, cash and equivalents were $2.3 billion at year-end, and the company had a $3.0 billion revolving credit facility fully available.
02—Key points
Key Highlights
- Revenue rose 12% to $32.9 billion in 2014, with Completion and Production revenue up 16% and Drilling and Evaluation revenue up 6%.
- Operating income reached $5.1 billion in 2014, up from $3.1 billion in 2013, which included a $1.0 billion Macondo-related charge; the company described 2014 operating income as a total company record.
- Diluted income per share was $4.11 in 2014, compared with $2.36 in 2013, and cash flow from operating activities was $4.1 billion.
- The pending Baker Hughes acquisition involves about 490 million Halliburton shares and approximately $8.3 billion in cash, with closing expected in the second half of 2015 and an $8.6 billion bridge facility commitment.
- Management expects 2015 to be a challenging year, with a significant drop-off in activity, pricing pressure, reduced revenue and operating margins, and further material restructuring charges.
- The Macondo loss contingency was $805 million at December 31, 2014, including a $733 million liability for the MDL Settlement, and BP has appealed the Phase One Ruling that assigned 3% of fault to Halliburton.
- Quarterly dividends increased to $0.18 per share in the fourth quarter of 2014, and $800 million of shares were repurchased during 2014, leaving approximately $5.7 billion authorized.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2014, Halliburton kept $0.11.
- Revenue$32.87B100.0%
- Cost of revenue−$6.48B19.7%
- Gross profit$26.39B80.3%
- Operating costs−$21.29B64.8%
- Operating income$5.10B15.5%
- Interest, other & tax−$1.60B4.9%
- Net income$3.50B10.6%
Where FY2014 revenue went
$32.87B- Other operating costs: $20.69B, 63% of revenue
- Cost of revenue: $6.48B, 20% of revenue
- Net income: $3.50B, 11% of revenue
- R&D: $601.0M, 1.8% of revenue
- Interest, other & tax: $1.60B, 4.9% of revenue
Kept 11% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2014filed February 24, 2015Financial Statements
FY2014 against FY2013
| Line item | FY2014FY2013 | Change |
|---|---|---|
| Revenue | $32.87B$29.40B | +11.8% |
| Cost of Revenue | $6.48B$5.97B | +8.5% |
| Gross Profit | $26.39B$23.43B | +12.6% |
| R&D Expenses | $601.00M$588.00M | +2.2% |
| Operating Expenses | $27.77B$26.26B | +5.7% |
| Operating Income | $5.10B$3.14B | +62.4% |
| Net Income | $3.50B$2.13B | +64.7% |
| EPS (Basic) | $4.13$2.37 | +74.3% |
| EPS (Diluted) | $4.11$2.36 | +74.2% |
| Shares Outstanding (Basic) | 848.00M898.00M | −5.6% |
| Shares Outstanding (Diluted) | 852.00M902.00M | −5.5% |
05—Questions
Frequently Asked Questions
What is the Baker Hughes acquisition and when is it expected to close?
Halliburton agreed on November 16, 2014 to acquire all outstanding shares of Baker Hughes in a stock and cash transaction. Each Baker Hughes share will convert into 1.12 Halliburton shares and $19.00 in cash, with closing expected in the second half of 2015, subject to stockholder approvals and regulatory clearances.
How much debt will the combined company carry?
Halliburton's total liabilities were approximately $15.9 billion at December 31, 2014, including $7.8 billion of long-term debt, and Baker Hughes's total liabilities were approximately $10.1 billion, including $3.9 billion of long-term debt. Halliburton expects to incur additional debt to finance the cash portion of the merger consideration, so the combined enterprise's indebtedness will be greater than Halliburton's existing debt.
What is the outlook for 2015?
Management anticipates a significant drop-off in activity, pricing pressures, and corresponding reductions in revenue and operating margins in 2015, as customers reduce operating and capital budgets after the decline in crude oil prices. The company also expects to record further material restructuring charges, including severance costs.
What is the remaining exposure from the Macondo well incident?
The loss contingency was $805 million at December 31, 2014, comprising $367 million current and $439 million non-current. The MDL Settlement of approximately $1.1 billion is subject to court approval and conditions, and $805 million remained payable at year-end. BP has appealed the Phase One Ruling, and insurers have said they will not reimburse approximately $200 million of the settlement.
Is the company returning cash to shareholders?
Yes. Halliburton paid $533 million in dividends and repurchased approximately 13.3 million shares for $800 million in 2014. The Board raised the quarterly dividend to $0.18 per share in October 2014, and approximately $5.7 billion remained authorized for share repurchases at year-end.
06—Continue