01—Abstract
Summary
Summary of the 10-K filed February 22, 2008. Cited figures are marked; the original filing is the authoritative source.
Halliburton Company's 2007 Form 10-K, signed February 22, 2008, reports that after the April 2007 separation of KBR, Inc. the company now operates as a pure-play oilfield services company through two segments, Completion and Production and Drilling and Evaluation.
Revenue from continuing operations was $15.26 billiona in 2007, up from $12.96 billion in 2006, and operating income was $3.50 billion, up from $3.25 billion. Net income was $3.50 billion, including income from discontinued operations of $975 million, driven mainly by a roughly $933 million net gain on the KBR disposition. Revenue grew 18% overall, with North America pricing pressure in well stimulation and Canada weakness noted as offsets to strong international growth; the eastern hemisphere revenue rose 27% to $6.3 billion.
Management's outlook is generally favorable, citing rising international demand and more complex reservoirs. The company expects average United States land stimulation pricing to decline in the mid- to upper-single digits in the first quarter of 2008 versus the fourth quarter of 2007, and it flags downside risk to margins if pricing erodes or natural gas prices fall. Capital spending for 2008 is expected at $1.7 billion to $1.8 billionb, mainly directed to eastern hemisphere operations.
Cash and equivalents ended the year at $1.85 billionc, operating cash flow was $2.73 billion, and $1.4 billion of stock was repurchased during 2007, leaving $2.3 billion under the $5.0 billion authorization. The filing's largest risk disclosure concerns the SEC and DOJ investigations into alleged improper payments to Nigerian officials related to the Bonny Island project.
Halliburton says it cannot estimate probable loss directly, but it has indemnified KBR for certain FCPA-related liabilities, and the company recorded $190 milliond of indemnity and guarantee fair value as a reduction of the KBR disposition gain. Other material matters include the Barracuda-Caratinga arbitration with Petrobras, which claims $220 million plus interest, and the Dirt, Inc. litigation, where a $108 million trial-court judgment is under appeal and about $10 million is accrued for the company's 50% portion of remediation.
02—Key points
Key Highlights
- Revenue from continuing operations rose to $15.26 billion in 2007 from $12.96 billion in 2006, an 18% increase, and operating income rose 8% to $3.50 billion.
- Net income was $3.50 billion ($3.68 diluted EPS), boosted by $975 million from discontinued operations, mainly the approximately $933 million net gain on the KBR separation.
- The eastern hemisphere was the growth engine, with revenue up 27% to $6.3 billion; international revenue was 56% of consolidated revenue in 2007.
- North America pricing pressure in well stimulation and Canadian activity declines were headwinds; management expects a mid- to upper-single-digit decline in U.S. land stimulation pricing in Q1 2008.
- Capital spending is expected at $1.7 to $1.8 billion in 2008, primarily for eastern hemisphere operations, and quarterly dividends are expected to total about $80 million.
- Cash and equivalents fell to $1.85 billion from $2.92 billion, and the company repurchased about $1.4 billion of stock in 2007 with $2.3 billion of authorization remaining.
- The SEC and DOJ FCPA investigations into Nigerian Bonny Island payments remain open, and the company cannot estimate its probable loss directly; the Barracuda-Caratinga arbitration with Petrobras claims $220 million plus interest.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2007, Halliburton kept $0.23.
- Revenue$15.26B100.0%
- Cost of revenue−$3.36B22.0%
- Gross profit$11.91B78.0%
- Operating costs−$8.41B55.1%
- Operating income$3.50B22.9%
- Interest, other & tax−$12.0M0.1%
- Net income$3.49B22.8%
Where FY2007 revenue went
$15.26B- Operating costs: $8.41B, 55% of revenue
- Net income: $3.49B, 23% of revenue
- Cost of revenue: $3.36B, 22% of revenue
Kept 23% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2007filed February 22, 2008Financial Statements
| Revenue | $15.26B |
| Cost of Revenue | $3.36B |
| Gross Profit | $11.91B |
| Operating Expenses | $11.77B |
| Operating Income | $3.50B |
| Interest Expense | -$168.00M |
| Net Income | $3.49B |
| EPS (Basic) | $3.79 |
| EPS (Diluted) | $3.65 |
| Shares Outstanding (Basic) | 919.00M |
| Shares Outstanding (Diluted) | 955.00M |
05—Questions
Frequently Asked Questions
What did Halliburton's KBR separation mean for the 2007 financial results?
On April 5, 2007, Halliburton exchanged its 135.6 million KBR shares for 85.3 million Halliburton shares. KBR operations were reclassified as discontinued operations, and the company recorded a gain of approximately $933 million, net of tax and indemnity fair value, in the second quarter. Continuing operations now consist only of the Completion and Production and Drilling and Evaluation segments.
How significant are the FCPA investigations for Halliburton investors?
The SEC is conducting a formal investigation, and the DOJ is conducting a related criminal investigation, into whether improper payments were made to Nigerian officials on the Bonny Island project. The company says it is unable to estimate a probable loss directly, but it has indemnified KBR for certain FCPA liabilities and recorded $190 million for those indemnities and guarantees as a reduction of the KBR gain. The filing also notes that violations could bring fines and possibly a monitor.
What is the outlook for pricing and demand?
Management describes the outlook as generally favorable, with demand supported by rising hydrocarbon consumption and more complex reservoirs. However, it expects United States land stimulation prices to fall in the mid- to upper-single digits in the first quarter of 2008 versus the fourth quarter of 2007, and it sees downside risk to operating margins if pricing erodes or natural gas prices decline significantly.
How is Halliburton returning cash to shareholders?
In 2007 the company paid $314 million in dividends and repurchased about 39 million shares for approximately $1.4 billion at an average of $34.93. The quarterly dividend was raised to $0.09 per share in May 2007, and $2.3 billion remained available under the $5.0 billion repurchase authorization as of December 31, 2007.
What are the largest near-term liquidity considerations?
The 3.125% convertible senior notes become redeemable on or after July 15, 2008, and the $1.2 billion principal must be settled in cash if redeemed or converted. Total contractual obligations are $8.15 billion, with $1.80 billion due in 2008. Capital spending is expected at $1.7 to $1.8 billion for 2008, and the company had $2.2 billion of letters of credit, surety bonds, or guarantees outstanding, including $1.1 billion related to KBR.
06—Continue