01—Abstract
Summary
Summary of the 10-K filed February 5, 2016. Cited figures are marked; the original filing is the authoritative source.
Halliburton Company's 2015 annual report shows a sharp downturn.
Revenue fell to $23.6 billiona from $32.9 billion in 2014, a 28% decrease, and the company reported an operating loss of $165 million versus operating income of $5.1 billion in 2014. The results reflect depressed crude oil prices (WTI fell from a high of $108 per barrel in June 2014 to a low of $27 per barrel in January 2016) and $2.2 billion of impairments and other charges, along with $308 million of Baker Hughes acquisition-related costs. Net loss attributable to the company was $671 million, or $(0.79) per diluted share.
North America revenue declined 39%, and management expects 2016 to be another challenging year with further reductions in activity, pricing and revenue. Capital expenditures for 2016 are estimated at $1.6 billionb, a 27% reduction from 2015. The pending acquisition of Baker Hughes remains the central strategic item.
The companies have agreed to extend the deadline for regulatory approvals to no later than April 30, 2016. The U.S. Department of Justice and the European Commission have raised competition concerns, and the company has presented an enhanced divestiture package, but no agreement with regulators has been reached. A $3.5 billionc termination fee could be payable to Baker Hughes in certain circumstances.
To fund the cash portion of the deal, Halliburton issued $7.5 billiond of senior notes in November 2015, and $2.5 billion of those notes must be redeemed at 101% if the acquisition is not completed. Balance sheet liquidity remains substantial. Cash and equivalents were $10.1 billion at year-end 2015, up from $2.3 billion, total long-term debt including current maturities was $15.3 billion, and the company has a $3.0 billion revolving credit facility, rising to $4.5 billion upon closing of the acquisition.
Operating cash flow was $2.9 billion, and the quarterly dividend was $0.18 per share. The company also reported a 25% global headcount reduction since the beginning of 2015 and recorded a $199 million foreign exchange loss in Venezuela.
02—Key points
Key Highlights
- Revenue declined 28% to $23.6 billion in 2015 from $32.9 billion in 2014, with North America revenue down 39%.
- Operating loss of $165 million in 2015 compared with operating income of $5.1 billion in 2014, driven by $2.2 billion of impairments and other charges.
- Net loss attributable to company of $671 million, or $(0.79) per diluted share, versus net income of $3.5 billion in 2014.
- Pending Baker Hughes acquisition: regulatory approvals deadline extended to April 30, 2016; DOJ and European Commission concerns remain unresolved; $3.5 billion termination fee may apply.
- Cash and equivalents of $10.1 billion at December 31, 2015, supported by $7.4 billion of net debt proceeds from the November 2015 senior notes issuance; long-term debt of $15.3 billion.
- 2016 capital budget reduced to an estimated $1.6 billion, a 27% decline from 2015, and management expects continued activity reductions and pricing pressure in 2016.
- Quarterly dividend maintained at $0.18 per share, with $614 million paid to shareholders in 2015; no share repurchases were made under the $5.7 billion authorization in 2015.
03—One dollar
Follow one dollar
For each $1.00 of revenue in FY2015, Halliburton lost $0.03.
- Revenue$23.63B100.0%
- Cost of revenue−$5.10B21.6%
- Gross profit$18.53B78.4%
- Operating costs−$18.70B79.1%
- Operating income−$165.0M0.7%
- Interest, other & tax−$506.0M2.1%
- Net income−$671.0M2.8%
04—Financials
Financial Highlights
Figures from 10-KFY2015filed February 5, 2016Financial Statements
FY2015 against FY2014
| Line item | FY2015FY2014 | Change |
|---|---|---|
| Revenue | $23.63B$32.87B | −28.1% |
| Cost of Revenue | $5.10B$6.48B | −21.3% |
| Gross Profit | $18.53B$26.39B | −29.8% |
| R&D Expenses | $487.00M$601.00M | −19.0% |
| Operating Expenses | $23.80B$27.77B | −14.3% |
| Operating Income | -$165.00M$5.10B | −103.2% |
| Net Income | -$671.00M$3.50B | −119.2% |
| EPS (Basic) | $-0.79$4.13 | −119.1% |
| EPS (Diluted) | $-0.79$4.11 | −119.2% |
| Shares Outstanding (Basic) | 853.00M848.00M | +0.6% |
| Shares Outstanding (Diluted) | 853.00M852.00M | +0.1% |
05—Questions
Frequently Asked Questions
Why did Halliburton report an operating loss in 2015?
The company attributes the loss to a decline in activity and pricing across most product service lines, particularly U.S. land stimulation activity, as crude oil prices fell. It also recorded $2.2 billion of impairments and other charges, including fixed asset impairments of $760 million, inventory write-downs of $484 million, and severance costs of $352 million, plus $308 million of Baker Hughes acquisition-related costs.
What is the status of the Baker Hughes acquisition?
The acquisition has not yet received all required regulatory approvals. The DOJ informed the company in December 2015 that its proposed divestitures were insufficient, and the European Commission entered Phase II review in January 2016. The company has presented an enhanced divestiture package, but there is no agreement with the DOJ or EC. The parties have extended the regulatory approval deadline to April 30, 2016.
What happens if the Baker Hughes deal fails?
The company could be required to pay Baker Hughes a $3.5 billion termination fee in certain circumstances where termination relates to failure to obtain regulatory clearances. It would also be required to redeem $2.5 billion of the November 2015 senior notes at 101% of principal, and it would recognize additional non-cash expenses, including $103 million of capitalized divestiture costs.
How strong is Halliburton's liquidity position?
At December 31, 2015, the company held $10.1 billion of cash and equivalents, with $3.0 billion of available committed bank credit under its revolving credit facility. Operating cash flow was $2.9 billion in 2015. The company reports no financial covenants or material adverse change provisions in its bank agreements. Credit ratings were A2 from Moody's and A from S&P, with Moody's having placed the ratings on review for downgrade in October 2015.
What is the outlook for 2016?
Management anticipates 2016 will be another challenging year, with a continued reduction in activity, pricing pressure, and corresponding reductions in revenue and operating performance. It expects all international regions to experience activity and price declines, with the Middle East/Asia region expected to be the most resilient. The 2016 capital expenditure budget is about $1.6 billion.
06—Continue