HAL

Halliburton Company (HAL) - Q3 2001 10-Q Summary

Business Context and Reporting Period

This report covers the quarterly period ended September 30, 2001. Halliburton operates through two primary segments: the Energy Services Group (oilfield services, products, and integrated solutions) and the Engineering and Construction Group (Kellogg Brown & Root). The company also reports results for the Dresser Equipment Group as discontinued operations following its sale in April 2001.

Key Financial Metrics

Note: Debt figures derived from Balance Sheet (Short-term notes payable + Current maturities + Long-term debt). Q3 2000 debt figures are not explicitly provided in the text for the quarter end, but year-end 2000 figures are used for comparison context where available.

Material Changes vs. Prior Period

• Revenue Growth: Consolidated revenues increased 12% in Q3 and 13% for the nine months ended Sept 30, 2001, compared to 2000. This was driven by a 33% increase in the Energy Services Group, offset by a 16% decline in the Engineering and Construction Group due to the completion of large projects in 2000.
• Profitability: Operating income rose 38% in Q3 and 79% for the nine-month period. The Energy Services Group saw operating income more than double (excluding a one-time gain in 2000) due to higher rig counts and improved pricing.
• Discontinued Operations: The company recorded a significant after-tax gain of $299 million in the first nine months of 2001 from the sale of the Dresser Equipment Group. Conversely, Q3 2001 included a $2 million loss from discontinued operations due to asbestos claims, compared to a $27 million gain in Q3 2000.
• Debt Reduction: Total debt decreased significantly from year-end 2000 levels. Proceeds from the Dresser sale ($1.27 billion) and new medium-term notes ($425 million) were used to repay short-term borrowings, reducing the debt-to-capitalization ratio from 40% to 27%.

Outlook, Risks, and Contingencies

• Market Outlook: Management expects U.S. gas-drilling activity to decline into early 2002 due to high gas storage levels and economic uncertainty. However, international deepwater projects and stable oil prices are expected to provide growth opportunities.
• Asbestos Litigation: A material contingency exists regarding asbestos claims. As of Sept 30, 2001, there were approximately 146,000 open claims. The company has accrued a net liability of $125 million ($704 million liability less $579 million estimated insurance recoveries). Significant uncertainty remains regarding the financial ability of former subsidiary Harbison-Walker to indemnify the company and the outcome of litigation with Highlands Insurance Company regarding coverage for construction claims.
• Acquisitions: The company is in the process of acquiring Magic Earth (expected Q4 2001) and has formed a joint venture with DSND Subsea ASA. It also acquired PGS Data Management in March 2001.
• Accounting Changes: The company is evaluating the impact of new FASB standards (SFAS 141, 142, 143, 144) regarding business combinations, goodwill, asset retirement obligations, and impairment of long-lived assets.

Investor Verification Checklist

• Asbestos Reserve Adequacy: Verify the sufficiency of the $125 million net asbestos liability given the ongoing litigation with Harbison-Walker and Highlands Insurance Company.
• U.S. Drilling Activity: Monitor U.S. rig counts and natural gas prices to assess the severity of the expected Q4 2001 and early 2002 revenue decline in the Energy Services Group.
• Discontinued Operations: Confirm the final tax treatment and cash realization of the $299 million gain from the Dresser Equipment Group sale.
• Debt Structure: Review the terms of the new $425 million medium-term notes issued in July 2001 and the company's ability to service debt as short-term borrowings are replaced.
• Engineering Segment Pipeline: Assess the backlog and new award rates for the Engineering and Construction Group to determine if the revenue decline is temporary or structural.