Halliburton Company 10-Q Summary
Business Context and Reporting Period
This filing is a Quarterly Report on Form 10-Q for the period ended March 31, 1998. Halliburton Company operates in over 100 countries, providing energy services and engineering/construction services to the petroleum industry and other sectors. The company is currently in the process of a definitive merger with Dresser Industries, Inc., announced in February 1998.
Key Financial Metrics
| Metric | Q1 1998 | Q1 1997 |
|---|---|---|
| Total Revenues | $2,355.3 million | $1,897.5 million |
| Operating Income | $204.0 million | $138.7 million |
| Net Income | $117.8 million | $83.0 million |
| Diluted EPS | $0.44 | $0.32 |
| Cash and Equivalents (End of Period) | $93.4 million | $85.4 million |
| Long-Term Debt | $538.3 million | $538.9 million |
| Short-Term Debt | $75.6 million | $2.7 million |
| Operating Cash Flow | ($26.0 million) used | ($88.0 million) used |
| Capital Expenditures | $156.3 million | $112.2 million |
Margins: Energy Group operating margin improved to 11.6% (from 10.5% in Q1 1997). Engineering and Construction Group margin remained flat at 3.8%. The effective income tax rate was 38.8%.
Material Changes vs. Prior Period
- Revenue Growth: Consolidated revenues increased 24% year-over-year, driven primarily by a 42% increase in Energy Group revenues ($1,589.2 million vs. $1,120.3 million). This growth outpaced the 9% increase in the worldwide rotary rig count.
- Profitability: Net income rose 42% to $117.8 million. Operating income increased 47% to $204.0 million.
- Segment Performance: The Engineering and Construction Group saw a 1% revenue decline due to the sale of its environmental services business in late 1997 and reduced activity in the pulp/paper and military support sectors.
- Liquidity: Cash and equivalents decreased by $127.9 million during the quarter, primarily due to working capital requirements and capital expenditures. Short-term borrowings increased significantly to $75.6 million from $2.7 million.
Outlook, Risks, and Unusual Items
- Halliburton/Dresser Merger: A definitive merger agreement was approved for a one-for-one stock exchange. The transaction is subject to regulatory approvals, including a request for additional information from the U.S. Department of Justice. Completion is expected in the fall of 1998.
- Environmental Contingencies: The company is a potentially responsible party (PRP) for various Superfund sites. Specifically, the Jasper County Superfund Site in Missouri involves a lengthy remediation study; management cannot currently determine the extent of liability but does not expect the study costs to be material.
- Year 2000 Issue: The company is assessing Year 2000 readiness and installing a new enterprise-wide information system. Management does not expect remediation costs outside of the new system to be material.
- Forward-Looking Risks: Risks include unsettled political conditions in over 100 countries, currency devaluations, changes in oil and gas prices, and competition for skilled labor.
Investor Verification Checklist
- Verify the status of regulatory approvals for the Dresser Industries merger, specifically the Department of Justice inquiry.
- Monitor the Energy Group's ability to sustain revenue growth rates that significantly exceed the underlying rig count increases.
- Review the impact of the sale of the environmental services business on the Engineering and Construction Group's future revenue baseline.
- Assess the company's liquidity position given the $127.9 million cash decrease and increased short-term debt usage.
- Track the progress of the Jasper County Superfund Site remediation study for potential future liability exposure.