Why did Halliburton's revenues and operating margins decline in 1999?

Revenues fell 14% to $14,898 million as lower oil and gas activity, driven by oil price uncertainty and customer consolidation, reduced demand across all three segments. In the Energy Services Group, the average worldwide rotary rig count declined 21% and pricing pressure increased, with pressure pumping operating income about 70% lower than in 1998.

How did the 1998 Dresser merger and special charges affect 1999 results?

The 1998 results included $980 million of special charges tied to the Dresser merger and the industry downturn. In 1999 the company reversed $47 million of those charges after lower-than-expected severance and facility exit costs, which contributed to 1999 operating income of $650 million.

What did Halliburton do with its joint venture interests in 1999 and early 2000?

The company sold its 49% interest in Ingersoll-Dresser Pump on December 30, 1999, for about $515 million, and its 51% interest in Dresser-Rand on February 2, 2000, for about $579 million. Proceeds from the sales were used to reduce short-term borrowings and for other general corporate purposes.

What is the outlook for demand for Halliburton's services?

Management expects oil and gas drilling activity to improve in 2000, with North American natural gas activity continuing at current improved levels. It does not expect a significant increase in larger capital-intensive projects outside North America until the second half of 2000, and it says improvement depends largely on the sustained price of oil.

How strong is Halliburton's balance sheet at the end of 1999?

Shareholders' equity was $4,287 million and total assets were $10,728 million at December 31, 1999. Long-term debt including current maturities was $1,364 million, and short-term notes payable increased to $949 million, while cash and equivalents rose to $466 million.

HAL 10-K FY1999 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed March 14, 2000. Cited figures are marked; the original filing is the authoritative source.

Halliburton Company's 1999 annual report shows a sharp downturn in the oil and gas services market.

Total revenues fell to $14,898 million^a in 1999 from $17,353 million in 1998, and operating income was $650 million compared with $397 million in 1998 and $1,399 million in 1997. Net income was $438 million, or $0.99 per diluted share, versus a net loss of $15 million in 1998. The 1999 results include a $47 million reversal of 1998 special charges and extraordinary gains of $159 million after tax from the sale of the Ingersoll-Dresser Pump interest.

Energy Services Group operating income fell to $222 million^b from $971 million, and management attributes the decline to lower rig counts, excess capacity and severe pricing pressure, particularly in the United States. Cash flow from operations was $233 million, down from $454 million in 1998, and capital expenditures were $593 million. Cash and equivalents rose to $466 million, and short-term notes payable increased to $949 million.

The company reports $10,167 million^c of total backlog at December 31, 1999, and says 50% of that backlog is expected to be completed during 2000. In early 2000, Halliburton sold its 51% interest in Dresser-Rand to Ingersoll-Rand for approximately $579 million, with proceeds used to reduce short-term borrowings. It also agreed to acquire the remaining approximately 74% of PES (International) Ltd. and expects to record about $120 million of goodwill.

Management states that the long-term fundamentals of the oil and gas industry remain sound and expects oil-related activity to improve mainly in the second half of 2000. It also reports that the 1998 restructuring program is expected to reduce costs by an estimated $500 million^d annually. Investors should weigh the continued weakness in international drilling activity and pricing pressure against the company's cost-reduction efforts and divestiture-driven balance sheet changes.

02—Key points

Key Highlights

Total revenues declined to $14,898 million in 1999 from $17,353 million in 1998, with all three business segments reporting lower revenues.
Operating income rose to $650 million from $397 million in 1998, aided by a $47 million reversal of 1998 special charges, while Energy Services Group operating income fell to $222 million from $971 million.
Net income was $438 million, or $0.99 per diluted share, compared with a net loss of $15 million, or $0.03 per diluted share, in 1998.
Extraordinary gain of $159 million after tax from the sale of the 49% interest in Ingersoll-Dresser Pump, and an estimated $215 million after-tax gain expected from the sale of the Dresser-Rand interest in the first quarter of 2000.
Cash flow from operating activities fell to $233 million from $454 million, while capital expenditures decreased to $593 million from $914 million.
Total backlog was $10,167 million at December 31, 1999, versus $11,177 million a year earlier, and management expects 50% of it to be completed during 2000.
Management expects restructuring actions to reduce costs by an estimated $500 million on an annual basis.

03—Questions

Frequently Asked Questions

Why did Halliburton's revenues and operating margins decline in 1999?
Revenues fell 14% to $14,898 million as lower oil and gas activity, driven by oil price uncertainty and customer consolidation, reduced demand across all three segments. In the Energy Services Group, the average worldwide rotary rig count declined 21% and pricing pressure increased, with pressure pumping operating income about 70% lower than in 1998.
How did the 1998 Dresser merger and special charges affect 1999 results?
The 1998 results included $980 million of special charges tied to the Dresser merger and the industry downturn. In 1999 the company reversed $47 million of those charges after lower-than-expected severance and facility exit costs, which contributed to 1999 operating income of $650 million.
What did Halliburton do with its joint venture interests in 1999 and early 2000?
The company sold its 49% interest in Ingersoll-Dresser Pump on December 30, 1999, for about $515 million, and its 51% interest in Dresser-Rand on February 2, 2000, for about $579 million. Proceeds from the sales were used to reduce short-term borrowings and for other general corporate purposes.
What is the outlook for demand for Halliburton's services?
Management expects oil and gas drilling activity to improve in 2000, with North American natural gas activity continuing at current improved levels. It does not expect a significant increase in larger capital-intensive projects outside North America until the second half of 2000, and it says improvement depends largely on the sustained price of oil.
How strong is Halliburton's balance sheet at the end of 1999?
Shareholders' equity was $4,287 million and total assets were $10,728 million at December 31, 1999. Long-term debt including current maturities was $1,364 million, and short-term notes payable increased to $949 million, while cash and equivalents rose to $466 million.

04—Continue

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