Halliburton Company 1997 Annual Report (10-K) Summary
Business Context and Reporting Period
This report covers the fiscal year ended December 31, 1997. Halliburton Company is a global provider of energy services and engineering and construction services, operating in over 100 countries. The company is organized into two primary segments: the Energy Group (oil and gas exploration, development, and production services) and the Engineering and Construction Group (industrial, governmental, and infrastructure projects). In 1997, the company executed a two-for-one stock split and completed several strategic acquisitions, including NUMAR Corporation, OGC International plc, and Kinhill Holdings Limited, while divesting its environmental services business.
Key Financial Metrics
| Metric (Millions of Dollars) | 1997 | 1996 | 1995 |
|---|---|---|---|
| Total Revenues | $8,818.6 | $7,385.1 | $5,882.9 |
| Operating Income | $798.1 | $417.9 | $400.9 |
| Net Income | $454.4 | $300.4 | $183.7 |
| Diluted EPS (Continuing Ops) | $1.75 | $1.19 | $1.00 |
| Cash Flow from Operations | $548.2 | $452.0 | $667.4 |
| Cash and Equivalents (Year End) | $221.3 | $213.6 | $239.6 |
| Total Debt (Long-term + Current) | $546.0 | $200.1 | $205.2 |
| Capital Expenditures | $577.1 | $395.7 | $303.3 |
Margins: Consolidated operating margin was approximately 9.1% in 1997. The Energy Group operating margin improved to 12% in 1997 from 11% in prior years. The Engineering and Construction Group margin improved to 4% in 1997 from 2% in 1996.
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased 19% to $8.82 billion, driven primarily by a 34% surge in Energy Group revenues ($5.76 billion) due to higher global oil and gas exploration activity. Engineering and Construction revenues remained relatively flat (-1%) at $3.06 billion, impacted by reduced U.S. Department of Defense contracts in Bosnia, partially offset by the consolidation of Devonport Management Limited.
- Profitability: Operating income nearly doubled to $798.1 million (up 91% from 1996). Excluding special charges, operating income increased 60% year-over-year. Net income rose 51% to $454.4 million.
- Debt Structure: Long-term debt increased significantly to $546.0 million from $200.1 million in 1996, reflecting the issuance of $300 million in medium-term notes and term loans related to the acquisition of the Royal Dockyard in Plymouth, England.
- Acquisitions & Divestitures: The company acquired NUMAR (pooling of interests), OGC, Kinhill, and increased ownership in Devonport. It sold its environmental services business for approximately $32 million.
Guidance, Outlook, and Risks
Outlook: Management anticipates continued growth in the oilfield services industry for 1998, though at a slower rate than 1997 (predicted 10.9% growth in global E&P spending). The Engineering and Construction sector faces potential headwinds in the Asia Pacific region but expects growth in Latin America, Africa, and the Middle East. The company plans to continue investing in oil and gas developments and enterprise-wide information systems.
Risks and Contingencies:
- Market Risk: Exposure to foreign currency fluctuations and interest rate changes, though hedging strategies are employed. Value at risk for foreign exchange derivatives was estimated at $0.8 million (95% confidence level).
- Environmental Liability: The company is a potentially responsible party (PRP) for several Superfund sites, including the Jasper County site in Missouri. While management believes most liabilities will not be material, the extent of liability for the Jasper County site cannot be determined at this time.
- Year 2000 Issue: The company is assessing risks related to computer systems failing to recognize the year 2000. It does not expect the cost of remediation to be material to financial position.
- Political Risk: Operations in over 100 countries expose the company to political instability, expropriation, and currency controls.
Key Facts for Investor Verification
- Revenue Concentration: Approximately 79% of revenues are derived from the energy industry; 58% of total revenues are from international activities.
- Backlog: Total backlog at year-end was $6.904 billion, with an estimated 64% expected to be completed in 1998.
- Special Charges: 1997 included $8.6 million in special charges related to the NUMAR acquisition. 1996 included $85.8 million in charges for restructuring and merger costs.
- Stock Split: A two-for-one stock split was effected in July 1997; all per-share data in the report has been restated to reflect this.
- Debt Maturity: Significant debt maturities are scheduled for 1999 ($58.4 million) and 2002 ($83.3 million).