UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 (Fee required) For the fiscal year ended December 31, 19971998
[ ] Transition Report Pursuant to Section 13 or 15(d)of the Securities Exchange
Act of 1934 (No fee required) For the transition period from _______ to _______
Commission File Number 1-3492
HALLIBURTON COMPANY
(Exact name of registrant as specified in its charter)
Delaware 75-2677995
(State or other jurisdiction of (I.R.S. Employer
incorporation of organization) Identification No.)
3600 Lincoln Plaza, 500 N. Akard St., Dallas, Texas 75201
(Address of principal executive offices)
Telephone Number - Area code (214) 978-2600
Securities registered pursuant to Section 12(b) of the Act:
Name of each Exchange on
Title of each class which registered
------------------- ----------------
Common Stock par value $2.50 per share New York Stock Exchange
Baroid Corporation 8% Guaranteed Senior Notes due 2003 New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No___
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of Common Stock held by nonaffiliates on January 30,
1998,29,
1999, determined using the per share closing price on the New York Stock
Exchange Composite tape of $44.94$29.69 on that date was approximately
$11,764,500,000.$13,028,800,000.
As of January 30, 1998,29, 1999, there were 262,492,885440,201,382 shares of Halliburton Company
Common Stock $2.50 par value per share outstanding.
Portions of the Halliburton Company Proxy Statement dated March 24, 1998,25, 1999, are
incorporated by reference into Part III of this report.
1
PART I
Item 1. Business.
General Development of Business. Halliburton Company's predecessor was
established in 1919 and incorporated under the laws of the State of Delaware in
1924 and reorganized under the laws of the State of Delaware in 1996.1924. Halliburton Company (the Company) provides energy services, and engineering
and construction services.services and manufactures products for the energy industry.
Information related to acquisitions and dispositions is set forth in Note 1514 to
the financial statements of this annual report.
Financial Information About Business Segments. The Company is comprised
of twothree business segments. See consolidated statement of income on page 15 and Note 102 to the financial statements of this
annual report for financial information about these twothree business segments.
Description of Services and Products. The following is a summary which
briefly describes the Company's services and products for each business segment.
The Energy Services Group business segment provides a wide range of services and
products to provide both discrete services and products and integrated solutions
to customers in the exploration, development and production of oil and natural
gas. The Energy Services Group operates worldwide, serving major oil companies,
independent operators and national oil companies. The segment includes
Halliburton Energy Services (HES), which offers pressure pumping equipment and
services, logging and perforating products and services, drilling systems and
services, drilling fluid systems, drill bits, specialized completion and
production equipment and services and well control products and services; Brown
& Root Energy Services, which provides upstream oil and gas engineering,
procurement and construction, project management and production services, subsea
construction, fabrication and installation of onshore and offshore pipelines,
offshore and production platforms, marine engineering and other marine related
projects; Landmark Graphics Corporation, which provides integrated exploration
and production information systems and professional services; and Halliburton
Energy Development (HED), which creates business opportunities for the
development, production and operation of oil and gas fields in conjunction with
the Company's customers. In March 1999, HED was combined with HES.
The Engineering and Construction Group segment provides: conceptual
design, process design, detailed engineering, procurement, project and
construction management; construction of chemical and petrochemical plants,
refineries, liquefied natural gas (LNG) and gas processing facilities, pulp and
paper mills, metal processing plants, highways and bridges, airports, water and wastewater systems;
technical and economic feasibility studies; site evaluation; repair and
refitting of submarines and surface ships; operations and maintenance services,
and engineering, logistics and wastewater management services for commercial
industry, utilities and government customers.
The Company plans to exit certain
highwayDresser Equipment Group segment designs, manufactures and paving activities over time. On December 31, 1997,markets
highly engineered products and systems for oil and gas producers, transporters,
processors, distributors and users throughout the environmental
business which performed environmental remediation related consulting,
engineering, designworld. Products and construction was sold.systems of
this segment include compressors, turbines, generators, electric motors, pumps,
engines and power systems, valves and controls, instruments, meters and pipe
couplings, blowers and gasoline dispensing systems.
Markets and Competition. The Company is one of the world's largest
diversified energy services and engineering and construction services companies.
The Company's services and products are sold in highly competitive markets
throughout the world. Competitive factors impacting sales of the Company's
services and products are: price, service (including the ability to deliver
services and products on an "as needed, where needed" basis), product quality,
warranty and technical proficiency. A growing number of customers are now
indicating a preference for integrated services and solutions. These integrated
services and solutions, in the case of the Energy Services Group, relate to
all phases of exploration, development and production of oil and gas, and in
the case of the Engineering and Construction Group, relate to all phases of
design, procurement, construction project management and maintenance of a
facility. Demand for these types of integrated services and solutions is based
primarily upon quality of service, technical proficiency and value created.
The Company conducts business worldwide in over 100120 countries. Since
the markets for the Company's services and products are so large and cross many
geographic lines, a meaningful estimate of the number of competitors cannot be
made. These markets are, however, highly competitive with many substantial
companies operating in each market. Generally, the Company's services and
products are marketed through its own servicing and sales organizations. A small
1
percentage of sales of the Energy Service Group's and Dresser Equipment Group's
products is made by supply stores and third-party representatives.
Operations in some countries may be adversely affected by unsettled
political conditions, expropriation or other governmental actions, and exchange
control and currency problems. The Company believes the geographic
diversification of its business activities reduces the risk that loss of its
operations in any one country would be material to the conduct of its operations
taken as a whole. Information regarding the Company's exposures to foreign
currency fluctuations, risk concentration and financial instruments used to
minimize risk is included in management's discussion and analysis of financial
condition and results of operations under the caption "Financial Instrument
Market Risk" and in Note 1215 to the financial statements of this annual report.
2
Customers and Backlog. In 1998, 1997, and 1996, respectively, 85%, 84%
and 1995, respectively, 79%, 73% and
78%81% of the Company's revenues were derived from the sale of products and
services to, including construction for, the energy industry. Approximately 10%
of the total backlog at December 31, 1998 was for equipment manufacturing
contracts. The following schedule summarizes the backlog of engineering and
construction projects and equipment manufacturing contracts at December 31, 19971998
and 1996:1997:
Millions of dollars 1998 1997 1996
-
--------------------------------------------------------------------------------
Firm orders $ 6,313 $ 4,555$10,472 $12,087
Government orders firm but not yet funded,
445 262
Lettersletters of intent and contracts awarded but
not signed 146 23
-------------- -------------705 591
--------------------------------------------------------------------------------
Total $ 6,904 $ 4,840
-$11,177 $12,678
--------------------------------------------------------------------------------
It is estimated that nearly 64%65% of the backlog existing at December 31, 19971998
will be completed during 1998.1999. The Company's backlog excludes contracts for
recurring hardware and software maintenance and support services. Backlog is not
necessarily indicative of future operating results because backlog figures are
subject to substantial fluctuations. Arrangements included in backlog are in
many instances extremely complex, nonrepetitive in nature and may fluctuate in
contract value. Many contracts do not provide for a fixed amount of work to be
performed and are subject to modification or termination by the customer. Due to
the size of certain contracts, the termination or modification of any one or
more contracts or the addition of other contracts may have a substantial and
immediate effect on backlog.
Raw Materials. Raw materials essential to the Company's business are
normally readily available. Where the Company is dependent on a single supplier
for any materials essential to its business, the Company is confident that it
could make satisfactory alternative arrangements in the event of an interruption
in the supply of such materials.
Research, Development and Patents. The Company maintains an active
research and development program to assist in the improvement of existing
products and processes, the development of new products and processes and the
improvement of engineering standards and practices that serve the changing needs
of its customers. Information relating to expenditures for research and
development is included in Note 1 and Note 102 to the financial statements of this
annual report.
The Company owns a large number of patents and has pending a
substantial number of patent applications covering various products and
processes. The Company is also licensed under patents owned by others. The
Company does not consider a particular patent or group of patents to be material
to the Company's business.
Seasonality. Weather and natural phenomena can temporarily affect the
performance of the Company's services. Winter months in the Northern Hemisphere
tend to affect operations negatively, but the widespread geographical locations
of the Company's operations serve to mitigate the seasonal nature of the
Company's business.
Employees. At December 31, 1997,1998, the Company employed approximately
70,750
people, of which about one-half were located outside the United States.107,800 people.
Regulation. The Company is subject to various environmental laws and
regulations. Compliance with such requirements has not substantially increased
capital expenditures, adversely affected the Company's competitive position or
2
materially affected the Company's earnings. The Company does not anticipate any
material adverse effects in the foreseeable future as a result of existing
environmental laws and regulations. Note 1110 to the financial statements of
this annual report discusses the Company's involvement as a potentially
responsible party in the remedial activities to clean up several "Superfund"
sites.
Item 2. Properties.
Information relating to lease payments is included in Note 1110 to the
financial statements of this annual report. The Company's owned and leased
facilities, as described below, are suitable and adequate for their intended use.
Energy Services Group manufacturing facilities owned by the Company
cover approximately 3,100,0004.9 million square feet. Principal locations of these
manufacturing facilities are DavisTulsa and Duncan, Oklahoma; Alvarado, Amarillo,
Carrollton, Dallas, Fort Worth, Garland, Longview, and Houston, Texas; Colorado
Springs, Colorado; Arbroath, Scotland; Reynosa, Mexico; Newcastle and
Reynosa, Mexico. The
manufacturing facilities at DavisManchester, England, and Amarillo were idle at the end of 1997.Maturin Mongas, Venezuela. An idle facility in HoustonDavis,
Oklahoma was sold in 1997.1998. The facility in Amarillo is idle. The manufacturing
facility in Garland, Texas wasis leased to another company in 1997.company. The Energy Services
Group also leases manufacturing facilities covering approximately 160,000608,000 square
feet. Principal locations of these facilities are Malvern, Pennsylvania;
Houston, Texas; Jurong, Singapore; Panama City, Florida;
Basingstoke, England; and Kilwinning, Scotland.Calgary, Alberta, Canada. The facilityfacilities in
Basingstoke, England was idle at the end of 1997.are subleased to another company.
Research, development and engineering activities are carried out in owned
facilities covering approximately 375,000460,000 square feetfeet. The major sites are in Duncan, Oklahoma; Malvern,
Pennsylvania;
Houston, Austin and Carrollton, Texas; Duncan, Oklahoma; and Aberdeen, Scotland;
and in leased facilities covering approximately 150,000300,000 square feet in Houston,
Texas; Englewood and Denver, Colorado; Leatherhead and Dorking, England;
Leiderdorp, HollandLeiderdrop, Holland; and Singapore. The facility in Dorking, England was idle
at the end of 1998. The Energy Services Group marine fabrication facilities
owned by the Company cover 3
approximately 546550 acres in Belle Chasse, Louisiana;
Greens Bayou, Texas; and Nigg and Wick, Scotland. The Belle Chasse, Louisiana, facility consisting of
approximately 151 acres is
idle. Theleased to another company and the facility in Nigg, Scotland is leased to a
joint venture of the Company. The Energy Services Group has 13 grinding
facilities owned or leased by the Company. The Energy Services Group also has
mineral rights to proven and prospective reserves of barite and bentonite.
Such rights included leaseholds and mining claims and property owned in
fee. Based on the number of tons of each of the above minerals consumed
in fiscal 1998, the Company estimates its reserves, which it considers to be
proven, to be sufficient for operations for the foreseeable future. In
addition, service centers, sales offices and field warehouses are operated at
approximately 175290 locations in the United States, almost all of which are
owned, and at approximately 290360 locations outside the United States in both the
Eastern and Western Hemispheres.
Engineering and Construction Group fabricating facilities cover
approximately 441,000468,000 square feet in Houston, Texas and Edmonton, Canada, of
which 388,000 square feet in Houston is leased to another company. Engineering
and design, project management and procurement services activities are carried
out in owned facilities covering approximately 3,494,000650,000 square feet. Major sites
of these activities are in Houston Baytown and Hurst,Baytown, Texas; Edmonton, Canada; Leatherhead, England; and Bundaberg
and Emerald, Australia.Australia; Plymouth and Greenford, England. These activities are
also carried out at leased facilities covering approximately 1,100,0001.4 million square
feet. Major sites are in Mobile, Alabama; Alhambra, California; Surrey and London,
England; Al Khobar, Saudi Arabia; and Parkside, Victoria Park, Milton and Melbourne, Australia. The
Engineering and Construction Group operates dockyard facilities owned by a 51%
owned subsidiary of the Company covering approximately 191155 acres in Plymouth,
England. Approximately 27 acres of this facility are subleased. In addition,
project offices, field camps, service centers, and sales offices are operated at
approximately 2010 locations in the United States, almost all of which are
leased
by the Company,owned, and at approximately 15 foreign locations outside the United States in both
the Eastern and Western Hemispheres.
Dresser Equipment Group owns approximately 9.9 million square feet of
manufacturing facilities. Major sites are in Austin, Stafford and Houston,
Texas; Broken Arrow, Oklahoma; Painted Post, Olean and Wellsville, New York;
Minneapolis, Minnesota; Stratford, Connecticut; Berea, Kentucky; Bradford,
Pennsylvania; Salisbury, Maryland; Waukesha, Wisconsin; Avon, Massachusettes;
Connersville, Indiana; Einbeck, Germany; Naples and Voghera, Italy; Malmo,
Sweden; LeHavre and Conde, France; Huddersfield, England; Bonnyrigg and
Petreavie, Scotland; and Rio de Janeiro, Brazil. Dresser Equipment Group
leases approximately 1.4 million square feet of manufacturing facilities. The
major sites are in Houston, Texas; Shanghai, China; Kongsberg, Norway; and
Salisbury, Maryland. In addition, service centers, sales offices and field
warehouses are operated at approximately 75 locations in the United States,
almost all of which are owned, and at approximately 65 locations outside the
United States in both the Eastern and Western Hemispheres.
3
General Corporate operates from leased facilities in Dallas, Texas
covering approximately 25,000 square feet. The Company also leases approximately
5,500 square feet of space in Washington, D.C., The Company owns approximately
1 million square feet of office and owns an 85,000 square foot
mainframe data processing centercampus space in Arlington,Houston, Texas which is
occupied by multiple business units and shared services groups who conduct
administrative, procurement, and engineering design activities. These activities
are carried on in leased facilities covering approximately 100,000 square feet
in Surrey and Eastleigh, England. The Company also owns approximately 203,000
square feet of office and campus space in Leatherhead, England where multiple
business units and shared services groups conduct administrative, procurement
and engineering design activities.
Due to another
company.the acquisition (the Merger) of Dresser Industries, Inc.
(Dresser), and in response to the industry downturn due to declining oil and gas
prices, the Company has certain manufacturing, administrative and service
support facilities that are no longer fully utilized. The Company has enacted
plans to vacate facilities that are now considered excess. In 1998, the Company
recorded facility consolidation charges of $126.2 million to provide for the
costs to dispose of owned properties or exit leased facilities. See Note 7 to
the annual consolidated financial statements for additional information on the
facility consolidations.
Item 3. Legal Proceedings.
Information relating to various commitments and contingencies is
described in Note 1110 to the financial statements of this annual report.
Item 4. Submission of Matters to a Vote of Security Holders.
There were no matters submitted to a vote of security holders during
the fourth quarter of 1997.1998.
4
Executive Officers of the Registrant.
The following table indicates the names and ages at December 31, 1998
of the executive officers of the registrant along with a listing of all offices
held by each during the past five years:
Name and Age Offices Held and Term of Office
*Richard B. Cheney- ------------ -------------------------------
* William E. Bradford Chairman of the Board, since JanuarySeptember 1998
(Age 63) Director of Registrant, since September 1998
Chairman of the Board of Dresser Industries,
Inc., December 1996 to September 1998
Chief Executive Officer of Dresser Industries,
Inc., November 1995 to September 1998
President of Dresser Industries, Inc., March 1992
to December 1996
Chief Operating Officer of Dresser Industries,
Inc., March 1992 to November 1995
Jerry H. Blurton Vice President and Treasurer, since July 1996
(Age 57)54) Vice President - Finance & Administration of
Halliburton Energy Services, August 1995 to
July 1996
Vice President - Finance, 1991 to August 1995
* Richard B. Cheney Chief Executive Officer, since October 1995
(Age 57) Director of Registrant, since October 1995
Chairman of the Board, January 1996 to September
1998
President, October 1995 to May 1997
Senior Fellow, American Enterprise Institute,
1993 to October 1995
Secretary, U.S. Department of Defense, 1989
to 1993
Jerry H. Blurton Vice President and Treasurer, since July 1996
(Age 53) Vice President - Finance & Administration of
Halliburton Energy Services, August 1995 to
July 1996
Vice President - Finance, 1991 to August 1995
Lester L. Coleman Executive Vice President and General Counsel,
(Age 55)56) since May 1993
President of Energy Services Group, September
1991 to May 1993
*Dale P. Jones Director of Registrant, since December 1988
(Age 61) Vice Chairman of Registrant, since October 1995
President, June 1989 to October 1995
*David* David J. Lesar President and Chief Operating Officer, since
May
(Age 44)45) May 1997
President and Chief Executive Officer of Brown &
Root, Inc., since September 1996
Executive Vice President and Chief Financial
Officer, August 1995 to May 1997
Executive Vice President of Finance and
Administration of Halliburton Energy
Services, November 1993 to August 1995
Partner, Arthur Andersen LLP, 1988 to November
1993
*Kenneth R. LeSuer Vice Chairman of Registrant, since May 1997
(Age 62) President and Chief Executive Officer of the
Halliburton Energy Group, September 1996 to May
1997
President and Chief Executive Officer of
Halliburton Energy Services, March 1994 to
September 1996
President and Chief Operating Officer of
Halliburton Energy Services, May 1993 to March
1994
President and Chief Executive Officer of
Halliburton Services, December 1989 to May
1993
Gary V. Morris Executive Vice President and Chief Financial
(Age 45) Officer, since May 1997
Senior Vice President - Finance, February 1997
to May 1997
Senior Vice President, May 1996 to February 1997
Vice President - Finance of Brown & Root, Inc.,
June 1995 to May 1996
Vice President - Finance of Halliburton Energy
Services, December 1993 to June 1995
Controller, December 1991 to December 1993
R. Charles Muchmore, Jr. Vice President and Controller, since August 1996
(Age 44)45) Finance & Administration Director - Europe/Africa
of Halliburton Energy Services, September
1995 to August 1996
Regional Finance & Administration Manager -
Europe/Africa of Halliburton Energy Services,
December 1989 to September 1995
5
Executive Officers of the Registrant (continued).
Name and Age Offices Held and Term of Office
- ------------ -------------------------------
Lewis W. Powers Senior Vice President, since May 1996
(Age 51)52) Vice President - Europe/Africa of Halliburton
Energy Services, April 1993 to May 1996
Senior Vice President of Operations of Otis
Engineering, June 1989 to April 1993
Louis A. Raspino Shared Services Vice President - Finance,
(Age 46) effective March 1999
Senior Vice President - Strategic Planning &
Business Development, Burlington Resources,
Inc. (oil and gas exploration and
production), October 1997 to June 1998
Senior Vice President and Chief Financial
Officer, Louisiana Land & Exploration Company
(oil and gas exploration, production and
refining), September 1995 to October 1997
Treasurer, Louisiana Land & Exploration Company,
1992 to September 1995
* Donald C. Vaughn Vice Chairman, since September 1998
(Age 62) President and Chief Operating Officer of Dresser
Industries, Inc., December 1996 to
September 1998
Executive Vice President, Dresser Industries,
Inc., November 1995 to December 1996
Senior Vice President - Operations, Dresser
Industries, Inc., January 1992 to
November 1995
Chairman, President and Chief Executive Officer
of M. W. Kellogg, Inc., June 1995 to
June 1996
Chairman and Chief Executive Officer of The M. W.
Kellogg Company, September 1986 to June 1996
President of The M. W. Kellogg Company, November
1983 to June 1995
* Members of the Executive Committee of the registrant.
There are no family relationships between the executive officers of the
registrant.
56
PART II
Item 5. Market5.Market for the Registrant's Common Stock and Related Stockholder Matters.
The Company's common stock is traded on the New York Stock Exchange and
the Swiss Exchange. Information relating to market prices of common stock and
quarterly dividend paymentsdivided payment is included under the caption "Quarterly Data and
Market Price Information" on page 4255 of this annual report. Cash dividends on
common stock for 1997 and 1998 were paid in March, June, September and December
of each such year. The board of directors of Halliburton (the Board) intends
to consider the payment of quarterly dividends on the outstanding shares of
Halliburton common stock. The declaration and payment of future dividends,
however, will be at the discretion of the Board and will depend upon, among
other things, future earnings of Halliburton, its general financial condition,
the success of its business activities, its capital requirements and general
business conditions. At December 31, 1997,1998, there were approximately 14,40027,665
shareholders of record. In calculating the number of shareholders, the Company
considers clearing agencies and security position listings as one shareholder
for each agency or listing.
Item 6. Selected Financial Data.
Information relating to selected financial data is included on pages
3952 through 4154 of this annual report.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Information relating to management's discussion and analysis of
financial condition and results of operations is included on pages 79 through
1218 of this annual report.
Item 7(a). Quantitative and Qualitative Disclosures About Market Risk.
Information relating to market risk is included in management's
discussion and analysis of financial condition and results of operations under
the caption "Financial Instrument Market Risk" on pages 10 and 1114 through 15 of this
annual report.
7
Item 8. Financial Statements and Supplementary Data.
Page No.
- --------------------------------------------------------------------------------
Responsibility for Financial Reporting........................ 13
Report of Arthur Andersen LLP, Independent Public Accountants. 14Accountants 19
Responsibility for Financial Reporting 20
Consolidated Statements of Income for the Years Endedyears ended
December 31, 1998, 1997 and 1996 and 1995......................... 1521
Consolidated Balance Sheets at December 31, 1998 and 1997 and 1996..... 1622
Consolidated Statements of Cash Flows for the Years Endedyears ended
December 31, 1998, 1997 and 1996 and 1995......................... 1723
Consolidated Statements of Shareholders' Equity for the
Years Endedyears ended December 31, 1998, 1997 and 1996 and 1995............. 1824-25
Notes to Financial Statements................................. 19-38Statements
1. Significant accounting policies 26
2. Business segment information 28
3. Inventories 30
4. Property, plant and equipment 30
5. Related companies 30
6. Income taxes 32
7. Special charges and credits 34
8. Lines of credit, notes payable and long-term debt 37
9. Dresser financial information 38
10. Commitments and contingencies 38
11. Income per share 41
12. Common stock 41
13. Series A junior participating preferred stock 43
14. Acquisitions and dispositions 44
15. Financial instruments and risk management 46
16. Retirement plans 47
Quarterly Data and Market Price Information................... 42Information 55
The related financial statement schedules are included under Part IV,
Item 14 of this annual report.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
68
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONSHALLIBURTON COMPANY
Management's Discussion and Analysis of Financial Condition and
Results of Operations
HALLIBURTON / DRESSER MERGER
On September 29, 1998, the acquisition (the Merger) of Dresser
Industries, Inc. (Dresser) by the Company was completed. The Merger was
accounted for using the pooling of interests method of accounting for business
combinations. Accordingly, the Company's financial statements have been restated
to include the results of Dresser for all periods presented. See Note 14 to the
annual consolidated financial statements. Prior to the Merger, Dresser was a
diversified company with operations in three business segments: Petroleum
Products and Services; Engineering Services; and Energy Equipment. Prior to the
Merger, the Company operated in two business segments, the Energy Group and the
Engineering and Construction Group. Following the Merger, the Company is
organized around three business segments: Energy Services Group; Engineering and
Construction Group; and Dresser Equipment Group.
Management of the Company believes the Merger provides the Company with
the opportunity to better meet customer needs, to improve its technology, to
strengthen its product service lines, to cut costs, and to position the Company
for the future.
BUSINESS ENVIRONMENT AND OUTLOOK
The Company operates in over 100120 countries around the world to provide
a variety of oilfieldenergy services, energy equipment and engineering and construction
services to the
petroleum industry and other energy, industrial and governmental customers. The marketsindustries served
by the Company are highly competitive, with many substantial competitors.
Operations in some countries may be adversely affected by unsettled political conditions,
expropriation or other governmental actions, exchange controls and currency
devaluation.fluctuations. The Company believes the geographic diversification of its
business activities reduces the risk that loss of its operations in any one
country would be material to its consolidated results of operations.
The majority of the Company's revenues are derived from the sale of
services and products, including construction activities, to the energy
industry. The Company offers a comprehensive range of integrated and discrete
services and products, as well as project management for oil and natural gas
activities throughout the world. The decline in oil and gas prices in 1998
caused a decrease in the worldwide average rotary drilling rig count and sharply
reduced demand for some of the Company's products and services. In response to
weakening demand in some areas of the world, the Company has only moderate exposureimplemented plans
to reduce the number of employees in those geographic areas where activity
levels have declined, to scale back discretionary spending on capital
expenditures and to curtail discretionary travel and other expenses. The Company
has also taken steps to reduce its workforce and rationalize assets to eliminate
duplicate resources in connection with the Merger.
Oil and gas prices, global and regional economic growth rates and the
resulting demand for products created from hydrocarbons affect the spending
decisions of the Company's customers. Despite the current economic
uncertainties, over the long term the Company believes steadily rising
population and greater industrialization efforts will continue to propel global
growth, particularly in developing nations. These factors will also cause
increasing demand for oil and natural gas to supply growing needs for refined
products, petrochemicals, fertilizers, and power.
Energy Services Group. During 1998, particularly in the Asia Pacific region
which, including Australia, represents about 7%second half of
1997 revenues, 5% of 1997
operating income and 3% of backlog at December 31, 1997.
Energy Group. In 1997, the oilfield servicesyear, the energy industry experienced a year of
exceptional growth with customers worldwide expanding their petroleum
exploration, development and production activities. This increase was in
response todownturn brought about by a
combination of factors including relatively higherthat began in late 1997. Decreased demand in Asia for
crude oil, increases in production from OPEC producers, added production
increases from Iraq and unseasonably warm winters in North America during 1997
and 1998 all contributed to the industry downturn experienced during 1998.
Throughout 1998, crude oil prices varied from $4 to $8 per barrel lower than
1997. Equally important, oil prices were less than $15 per barrel for most of
1998, particularly during the second half of the year, making many drilling
programs economically infeasible. Natural gas prices within the U.S., although
significantly lower than 1997 levels, remained above $2 per million BTU until
the third quarter of 1998. During the third quarter of 1998, natural gas prices
began a decline which, combined with additional declines in crude oil prices,
resulted in further reductions in demand for hydrocarbon exploration and
9
development. These factors negatively impacted the industry and the Company.
Overall, the industry fundamentals in 1998 were significantly weaker than 1997.
Integrated business solutions, long term overseas contracts and
engineering and construction backlog benefited the Company's revenues throughout
1998 when compared to the industry fundamentals and worldwide rig counts.
Continued interest in deepwater drilling in the Gulf of Mexico and projects in
the North Sea, combined with U.S. natural gas prices above $2 per million BTU
benefited the industry during the first and second quarters of 1998. As industry
indicators began to significantly weaken in the third quarter of 1998, the
Company started implementing actions to properly align its resources to
projected industry conditions.
Although 1998 was a difficult year and 1999 will also be difficult, the
Company believes that long term industry fundamentals will prevail. Demand for
oil and natural gas prices early in 1997, an expectation by customersworldwide should recover and grow. Over time, the
accelerating depletion of continued
improvementexisting production and the need for technologies that
make exploration and production economically feasible in the long-term demand for petroleumpresence of low oil
and the availability of
investment opportunities with good economic potential.gas prices will provide growth opportunities. The Company believes that its
customers will continue to seek opportunities to lower the overall cost of
exploring, developing and enhancing the recovery of hydrocarbons through
increased utilization of integrated solutions, application of new technology and
partnering and alliance arrangements as well as the application of new technology. According to the
annual Salomon Smith Barney Survey and Analysis of 1998 Worldwide Oil and Gas
Exploration and Production Expenditures, spending during 1998 by survey
respondents is predicted to grow by 10.9%. While this growth will represent the
second highest growth rate in the past decade, it is somewhat slower than the
estimated 18.7% growth experienced during 1997. Included within this predicted
1998 growth is a high level of interest by survey respondents in the deep water
Gulf of Mexico, with some survey respondents planning spending increases there
of up to 20%. This outlook is based on West Texas Intermediate crude oil prices
of $19.23/bbl and United States gas prices of $2.19/mcf. Although crude oil and
natural gas price declines beginning late in 1997 and continuing into the first
quarter of 1998 could potentially affect the short-term outlook for the oilfield
services industry by delaying customer spending, the Company believes that
long-term hydrocarbon supply and demand fundamentals will tend to counterbalance
any short-term spending delays.arrangements. The Company believes the long-term outlook for the oilfield services
industry is positive due to expected growth in world demand for energy combined
with production declines in existing oil and gas reserves. Although the growth
experienced by the oilfield services industry in 1997 will be difficult to
repeat in 1998, the Company believes that it has good
opportunities to expand its revenuerevenues and profit through greater participation in
larger projects that allow it to utilize its project management and integrated services
capabilities. However, uncertainty exists within the industry into the
foreseeable future.
Engineering and Construction Group. EngineeringWhile the Company has seen projects
delayed and construction industry
marketing reports indicatecancelled in many of the areas that global demand for engineering and construction
services during 1998 may be less robust than during 1997 due in part to
uncertainty in the Asia Pacific region. However,it serves, the Company expects
to see demand for suchits engineering and construction services continue to increase
over time in Latin America, Africa and the Middle East.long term. The Company believes the keyskey to increasingincrease its revenuerevenues and
improvingimprove profit margins in slower growing marketsthe current environment will be its ability to provide
total customer satisfaction. Today's competitive environment demands flexibility
and innovation. To bring more value to its customers, the Company must
demonstrate its ability to partner with other service and equipment suppliers
and customers on larger projects, acceptance ofaccept more project success risk through gain sharingtotal
project responsibility or fixed price contracts, broadeningbroaden its core competencies,
acquiringacquire and fully utilizingutilize proprietary technology and managingmanage costs. The Group's improved operating
results in 1997 were the result of focusing on these key factors. During 1997,
the Engineering and Construction Group reexamined its core competencies and
decided to exit certain markets that do not offer sufficient opportunity to
achieve the Company's profit objectives. This refocusing prompted the
diversiture of the environmental services business unit at the end of 1997 and a
decision to exit certain highway and paving activities over time. The Grouphas
determined it will
now focus on key marketsdemand in the liquefied natural gas (LNG),
fertilizer, petroleum, chemical and forest products industries in the United
States and international locations. The Company also sees an expanding marketdemand
for its government services capabilities in the United States and the United
Kingdom as governmental agencies, including local government units, continue to
expand their use of outsourcing to improve service levels and manage costs.
7
AcquisitionsDresser Equipment Group. Dresser Equipment Group's business activity is
primarily determined by activity levels within the energy industry. Products and
dispositions. During 1997,systems of Dresser Equipment Group include compressors, turbines, generators,
electric motors, pumps, engines and power systems, valves, instruments, meters
and pipe couplings, blowers and fuel dispensing systems. Demand for these
products is directly affected by global economic activity, which influences
demand for transportation fuels, petrochemicals, plastics, fertilizers,
chemicals and by-products of oil and gas. The conditions for sales of Dresser
Equipment Group products is highly competitive and its sales and earnings can be
affected by changes in competitive prices, fluctuations in the level of activity
in major industry areas, and general economic conditions. The group strives to
be the low cost provider in this competitive environment.
Because of the impact of economic and political conditions, and
uncertainty in many parts of the world, several initiatives are in place to
reduce capacity costs and improve operating performance. The Company believes
strong demand still exists for products and services of Dresser Equipment Group.
The key to achieving favorable operating results over the course of the year,
particularly in light of industry conditions, will rely to a great extent on the
ability of the group to leverage the customers currently served and leverage off
of the products and service offerings of other Halliburton companies to be able
to provide integrated solutions to the expanded customer base.
In the near term, activity levels remain uncertain. In the long term
the Company acquired NUMAR
Corporation, which was accountedbelieves the demand for as a poolingthe products and systems of interests, in exchange for
approximately 8.2 million shares of the Company's Common Stock, acquired OGC
International plc for approximately $118.3 million, purchased a 26% equity
interest in PES (International) Limited for approximately $33.6 million,
acquired Kinhill Holdings Limited for approximately $34 million,Dresser
Equipment Group will increase due to rising population and increased
its ownership of Devonport Management Limited from approximately 30% to 51%.
These acquisitions are expected to expand the Company's ability to offer quality
services and products in its core competencies and to further strengthen its
technologicalan expanding
industrial base.
Also in 1997, the Company sold its environmental services
business for approximately $32 million. See Note 15 to the financial statements
for additional information.10
RESULTS OF OPERATIONS - 1998 COMPARED TO 1997 AND 1996
REVENUES
Millions of dollars 1998 1997 1996
- -------------------------------------------------------------------------------------
Energy Services Group $ 9,009.5 $ 8,504.7 $ 6,515.4
Engineering and Construction Group 5,494.8 4,992.8 4,720.7
Dresser Equipment Group 2,848.8 2,779.0 2,710.5
- -------------------------------------------------------------------------------------
Total revenues $ 17,353.1 $ 16,276.5 $ 13,946.6
- -------------------------------------------------------------------------------------
Revenues for 19971998 were $8,818.6$17,353.1 million, an increase of 19%7% over 19961997
revenues of $7,385.1$16,276.5 million and an increase of 50%24% over 19951996 revenues of
$5,882.9$13,946.6 million. Approximately 58%65% of the Company's consolidated revenues were
derived from international activities in 19971998 compared with 55%60% in 19961997 and 51%59%
in 1995.1996.
Energy Services Group revenues were $5,756.4$9,009.5 million for 1997,1998, an
increase of 34%6% over 19961997 revenues of $4,286.3$8,504.7 million and an increase of 60%38%
over 19951996 revenues of $3,604.0$6,515.4 million. The Energy Group's increaseRevenues in revenues outpaced the 15%
increasefirst half of 1998 were
higher than comparable periods of the prior two years. Revenues in the second
half of 1998 were impacted by the steep decline in activity as measured by the
worldwide average rotary rig count for 1997 compared to 1996 and
the 23% increase in thecount. The yearly average worldwide average rotary rig
count for 1997fell 13% in 1998 compared to 1995. Approximately two-thirds1997 (including a third quarter comparative
decline of 21% and a fourth quarter comparative decline of 30%) as customers of
the Energy Services Group reacted to reduced prices for their products. Revenues
for pressure pumping activities in 1998 were lower than 1997 but increased
compared to 1996. The decrease in pressure pumping activities for 1998 compared
to 1997 occurred in the second half of 1998. Other product and service lines
experienced similar results in this time period. The revenue declines in 1998
compared to 1997 were more pronounced in North America, including the Gulf of
Mexico shelf, and Venezuela. Revenues from upstream oil and gas engineering
services increased in 1998 compared to 1997 and 1996, benefiting from activities
in subsea product lines and from large engineering projects. Revenues for
integrated exploration and production information systems reached record high
levels in 1998. Approximately 67% of the Energy Services Group's revenues were
derived from international activities each year in 1998, 1997 1996 and 1995.1996.
Engineering and Construction Group revenues were $3,062.2$5,494.8 million for
1997,
a decrease1998, an increase of 1%10% from 19961997 revenues of $3,098.8$4,992.8 million and an increase
of 34%16% over 19951996 revenues of $2,278.9$4,720.7 million. The increase in revenues in 1998
reflects LNG activities in Asia and Africa, an enhanced oil recovery project in
Africa, and a major ethylene project in Singapore as well as increased revenues
in Asia/Pacific from Kinhill, which was acquired in the third quarter of 1997.
See Note 14 to the annual consolidated financial statements for additional
information. For 1998 compared to 1997, revenues were negatively impacted by the
sale of the environmental services business in December 1997 and lower activity
levels for repair and refitting services for the British Royal Navy's fleet of
submarines and surface ships. For 1997 compared to 1996, revenues were aided by
the consolidation of Devonport Management Limited as a result of the Company's
increased ownership percentage in that subsidiary. See Note 14. Lower levels of
activity under service contracts with the U.S. Department of Defense to provide
technical and logistical support for military peacekeeping operations in Bosnia
resulted in revenue reductions of approximately $294$290.0 million in 1997 compared
to 1996.
This
reductionDresser Equipment Group revenues were $2,848.8 million in 1998, an
increase of 3% over 1997 revenues of $2,779.0 million, and an increase of 5%
over 1996 revenues of $2,710.5 million. The compression and pumping and flow
control product lines experienced small increases in revenues was mostly offset bywhile the
consolidation of Devonport
Management Limitedmeasurement and power systems product lines reported a slight decline in
revenues as a resultfor 1998 compared to 1997. Most of the Company's increased ownership
percentageincrease in that subsidiary. See Note 151997 compared to
1996 came from the financial statements for
additional information.compressor joint venture with Ingersoll-Rand and the
measurement product lines.
11
OPERATING INCOME
Millions of dollars 1998 1997 1996
- --------------------------------------------------------------------------------------------------------
Energy Services Group $ 971.0 $ 1,019.4 $ 698.0
Engineering and Construction Group 237.2 219.0 134.0
Dresser Equipment Group 247.8 248.3 229.3
General corporate (79.4) (71.8) (72.3)
- --------------------------------------------------------------------------------------------------------
Operating income before special charges and credits $ 1,376.6 $ 1,414.9 $ 989.0
- --------------------------------------------------------------------------------------------------------
Special charges and credits:
Asset related $ (509.4) $ (9.7) $ (0.9)
Personnel reductions (234.7) (5.6) (41.0)
Facility consolidations (126.2) (34.0) (20.2)
Merger transaction costs (64.0) (8.6) (12.4)
Other costs and credits (45.8) 41.7 (11.3)
- --------------------------------------------------------------------------------------------------------
Total special charges and credits $ (980.1) $ (16.2) $ (85.8)
- --------------------------------------------------------------------------------------------------------
Operating income $ 396.5 $ 1,398.7 $ 903.2
- --------------------------------------------------------------------------------------------------------
Operating income was $798.1$396.5 million for 1998 compared to $1,398.7
million for 1997 compared to $417.9and $903.2 million for 1996 and $400.9 million for 1995.1996. Excluding special charges of
$8.6$980.1 million, $16.2 million and $85.8 million during 1998, 1997 and $8.4 million during 1997, 1996, and 1995,
respectively, operating income for 1998 decreased by 3% from 1997 and increased
by 60%39% over 1996 and by 97% over 1995 as shown in the followingpreceding table. See Note 167 to the annual
consolidated financial statements for additional information on the special
charges.
Millions of dollars 1997 1996 1995
- -------------------------------------------------------------------- ------------ ------------ -----------
Operating income before special charges $ 806.7 $ 503.7 $ 409.3
Merger costs associated with NUMAR acquisition (8.6)
Landmark write-off of acquired in process research
and development - (11.3) (3.7)
Merger costs associated with Landmark acquisition - (12.4) -
Realignment of products and service lines and support services - (61.2) -
Landmark restructuring and merger costs - (0.9) (4.7)
------------ ------------ -----------
Operating income $ 798.1 $ 417.9 $ 400.9
- -------------------------------------------------------------------- ----------- ------------ -----------
Approximately 53% of the Company's consolidated operating income was
derived from international activities in 1997 compared to 66% for 1996 and 65%
for 1995. Consolidated international operating margins were 8% in 1997 and 1996
and 9% for 1995.credits.
Energy Services Group operating income in 1998 was $971.0 million, a
decrease of 5% from 1997 was $706.4operating income of $1,019.4 million and an increase of
46%39% over 1996 operating income of $484.4 million and an increase of 77% over
1995 operating income of $398.2$698.0 million. Operating margins were 12%10.8%
in 1998 compared with 12.0% in 1997 compared with 11%and 10.7% in both 1996 and 1995. Approximately 53%, 62% and 66%1996. Most of the decline in
operating margins in 1998 compared to 1997 can be attributed to declines in the
completion products and pressure pumping lines, to lower activities in North
America and Venezuela, and to additional job loss provisions recorded in the
fourth quarter of 1998. Approximately 54%, 59% and 63% of the Energy Services
Group's operating income was derived from international activities for 1998,
1997 and 1996, respectively. Operating income for pressure pumping in 1998 was
about 10% lower than 1997 as activity levels were reduced in response to lower
oil and 1995, respectively.gas prices. Other product and service lines were also impacted by
reduced activity levels with only the drilling related lines having
significantly better operating results in 1998 over 1997. Operating income in
1997 for the group's
largest business unit, Halliburton Energy Services, increased substantially due
primarily togroup benefited from increased activity levels and increased prices
charged to customers, especially for pressure pumping services in North America.
Operating income for drilling fluids increased in 1997 over 1996 due to the
growth of more technically demanding wells being drilled, particularly in the
Gulf of Mexico. Operating income for Halliburtonupstream oil and gas engineering activities
in 1998 was about the same as 1997 results even after providing additional
provisions for project losses in the North Sea, North Africa and Latin America
related to variation orders for ongoing projects which the Company does not feel
will be accepted by the customer due to current industry conditions. Energy
Services in 1996 over 1995 was due primarily to substantially
increased services provided in North America and Europe and, to a lesser degree,
increases in Latin America and the Middle East. Energy Group results for 1996 8
include $35$35.0 million of gain sharing revenue on
the group's second largest
business unit, Brown & Root Energy Services,its portion of the cost savings realized on the BP Andrew alliance. The alliance
completed the project seven months ahead of the scheduled production of oil and
achieved a $125$125.0 million savings compared with the targeted cost. The effect of the gain sharing was
offset by a $20.7 million reductionOperating
income from pipecoating activities were substantially improved in operating income1997 compared
to 1996 due to lowerhigher activity levels in 1996 compared to 1995 by Brown & Root Energy Services' 50% owned joint
venture, European Marine Contractors, Limited.the Far East, Middle East and the
United States.
Engineering and Construction Group operating income for 1998 of $237.2
million increased 8% over 1997 increased 149%and 77% over 1996 and 200% over 1995 to $133.9 million.1996. Operating margins were 4%4.3% in
1998 compared with 4.4% for 1997 and 2%2.8% for 19961996. Operating income in 1998
includes a favorable settlement of a claim on a Middle Eastern construction
project. Excluding this settlement, operating margins for 1998 were 4.0%.
Operating income and 1995, respectively.margins in 1998 were negatively affected by losses in the
fourth quarter on existing highway and paving business and for selected projects
which were impacted by the economic downturn in Asia. The Engineering and
Construction Group has not started any new significant jobs in Asia. Improvement
12
in operating income in 1997 over 1996 was realized through overhead reductions,
a focus on higher margin business lines and the consolidation of Devonport
Management Limited as a result of the Company's increased ownership percentage
in that subsidiary. See Note 1514 to the annual consolidated financial statements.
IncreasedThe 1997 operating income improvements over 1996 were aided by LNG activities
and oil recovery work in Africa together with engineering services for the
fertilizer industry in Latin America. Operating income in 1996 compared
to 1995 from petroleum and chemical services as well as increased operating
income from support services in Bosnia were partially offset byincluded a $17.1
million charge for the impairment of Brown & Root'sthe Engineering and Construction Group's
investment in the Dulles Greenway toll road extension project.
Dresser Equipment Group operating income in 1998 was $247.8 million or
almost unchanged compared to 1997 operating income of $248.3 million. Operating
income for 1998 increased 8% over 1996 operating income of $229.3 million.
Operating income was negatively impacted in 1998 by $17 million of fourth
quarter merger related expenses. Operating income in 1998 for the compression
and pumping product line increased compared to 1997 due to restructuring
initiatives instituted in late 1997 and increased revenues. Operating income for
the flow control product line improved in 1998 over 1997 from cost improvements,
better product mix, and increased volume. Operating income for the measurement
product line decreased in 1998 due to weakness in the gas metering business as
gas utilities continued to work off their excess inventory. The power systems
product line operating income declined in 1998 compared to 1997 due to
customers' reduced capital spending caused by softer demand in the gas
compression and refining markets. Operating income increased in 1997 compared to
1996 primarily from the Ingersoll-Dresser Pump joint venture (profit improvement
initiatives started in prior years); Wayne fuel dispensing systems (introduction
of new technologies) and Energy Valve (improved margins and product mix).
General and administrativecorporate expenses for 19971998 were $248.1 million compared
to $236.6$79.4 million and $221.7 millioninclude
expenses through the transition after the Merger for 1996 and 1995, respectively. General
and administrative expenses have increased at a substantially slower rate than
overall growth in consolidated revenues, andoperating Dresser's
corporate offices as well as Halliburton's corporate offices. As a percent of
consolidated revenues, have
declinedgeneral corporate expenses were 0.5% in 1998 compared to
2.8%0.4% in 1997 from 3.2%and 0.5% in 1996 and 3.8% in 1995.1996.
NONOPERATING ITEMS
Interest expense was $42.7$136.8 million for 19971998 compared to $24.1$111.3 million
in 19961997 and $47.1$84.6 million in 1995.1996. The increase in 1998 over 1997 is due to the
increased level of short-term borrowings outstanding during 1998. These
borrowings, which carry a lower interest rate than the Company's long-term debt,
were used for working capital, capital expenditures and acquisitions. The
increase in 1997 over 1996 is due to the issuance of debt under the Company's
medium-term note program in 1997. The
decrease1997 and a full year's interest on $300.0 million of
long-term debentures issued in August 1996 asat a higher interest rate than the
previous short-term debt.
Interest income increased to $27.8 million in 1998 compared to 1995 was due to the redemption$21.9
million in 1997 and $26.9 million in 1996. Interest income is typically a factor
of the Company's
$390.7 million of zero coupon convertible subordinated debentures in September
1995 and the redemption of its $42 million term loan in December 1995.
Interest income decreased to $11.7 million for 1997 from $14.2 million in
1996 and $32.0 million in 1995. The decrease for 1996 compared to 1995 is due to
lower amountslevels of invested cash resulting from debt redeemed during 1995.maintained by the Company and its subsidiaries.
Foreign currency gains (losses) netted to a loss of $0.9$12.4 million in
1998 compared to $0.7 million in 1997 compared to a $3.9and $19.1 million loss in 1996 and a $1.4 million gain in 1995. Losses
in 1997 are due primarily to1996. The losses in
western European1998 occurred mainly in Asia/Pacific currencies. The 1996 losses were primarily
due to devaluations of the Venezuelan bolivar and costs of hedging foreign
exchange exposures of an Italian subsidiary.
Provision for income taxes was $244.4 million in 1998. The provision
for income taxes in 1998 includes a benefit of $234.1 million for special charge
items that are tax deductible. Nondeductible special charge items of $109.0
million include merger transaction costs and nondeductible goodwill which was
determined to be impaired. Excluding the special charge and applicable tax
benefits in 1998, the effective tax rate was 38.0%. The 1997 provision of $491.4
million was higher than the 1996 provision of $248.4 million due in 1997 than in 1996 and 1995 duepart to
improved earnings. The effective income tax rate was 39%37.4% in 1997, compared
with 26%29.9% in 1996 and 36% in 1995.1996. The lower effective income tax rate and provision for 1996
are due to credits of $43.7 million recorded during the third quarter of 1996 to
recognize certain net operating loss carryforwards and the settlement of various
issues with the Internal Revenue Service. Excluding the tax benefits recorded in
1996, the effective income tax rate for 1996 was 36%35.2%. See Note 166 to the annual
consolidated financial statements.
Minority interest in net income of consolidated subsidiaries increasedwas $49.1
million in 1998 compared to $11.9$49.3 million in 1997 as compared to $0.5and $24.7 million in 1996 and $0.9 million1996. The
increase in 1995. The increase1997 over 1996 is due primarily to Dresser Equipment Group's
13
ownership interests in Dresser-Rand and the Company'sEngineering and Construction Group's
ownership interestinterests in Devonport Management Limited, which increased from
approximately 30% to 51% during March 1997.
Income from continuing operationsNet income (loss) for 1998 was a loss of $14.7 million for a $0.03
diluted loss per share. In 1997 1996 and 1995net income of $454.4$772.4 million $300.4 million and $249.2 million, respectively, resulted inyielded $1.77
diluted income per share from continuing operationswhile 1996 net income of $1.75, $1.19 and $1.00,
respectively.
Discontinued operations in 1995 consists of the Company's Insurance
Services Group. The Company declared a dividend on December 26, 1995 and
subsequently distributed its property and casualty insurance subsidiary,
Highlands Insurance Group, Inc. (HIGI), to its shareholders in a tax-free
spin-off on January 23, 1996. The operations of the Insurance Services Group
have been classified as discontinued operations. During 1995, HIGI increased its
reserves for claim losses and related expenses and provisions for certain legal
matters which together with certain other provisions associated with the
Company's complete exit from the insurance industry resulted in a $67.2$557.9 million charge against net earnings. See Note 14 to the financial statements.yielded $1.29
diluted income per share.
LIQUIDITY AND CAPITAL RESOURCES
The Company ended 19971998 with cash and equivalents of $221.3$202.6 million
compared with $213.6$384.1 million in 19961997 and $239.6$446.0 million in 1995.
9
1996. To conform
Dresser's fiscal year-end to Halliburton's calendar year-end, Dresser's cash
flows are measured from December 31, 1997, rather than from the October 31, 1997
balances included on the consolidated balance sheets.
Cash flows from operating activities were $548.2$454.1 million for 1998
compared to $833.1 million for 1997 compared
to $452.0 million and $667.4$864.2 million for 1996 and 1995, respectively.1996. In 1997,1998, the
primary use of cash byfor operating activities was to fund increased working
capital requirements related to increased revenues.requirements.
Cash flows used in investing activities were $686.7$846.1 million for 1998,
$873.3 million for 1997 compared to $409.4and $759.1 million used in 1996 and $267.3 million used in 1995.for 1996. The increase inmajority of cash used
for investing activities during 1998 was for capital expenditures. Capital
expenditures in 1998 increased slightly over 1997 is due primarily to
an increase in capital expenditures of 46% over 1996 and 90% over 1995. While
increased capital expenditures during 1997 were due in part to investments in
capital equipment and deployment of new technologies, increased capital
expenditures also reflect certain strategic investments in oil and gas
developments and inas the Company's infrastructure. In 1997, the Company invested
$97.8 millioncontinued
investment in oil and gas developments, with the most significant development
being its 25% share of the Sangu gas field twenty-five miles offshore Bangladesh
in the Bay of Bengal. The Company plans similar investments during 1998 as the
Company identifies opportunities that allow it to use its unique set of core
competencies and which provide adequate returns. The Company also invested $49.5
million in an enterprise-wide information systems initiative.initiative offset declines
in other capital spending. Cash used in investing activities in 1997 also
includes the acquisitionacquisitions of OGC of approximately $118.3 million, and Kinhill of
approximately $34.0 million, and an interest in PES (International) Limited of
approximately $33.6 million, offset by the sale of the Company's environmental
business for about $32.0 million. In 1996, investing activities included a $41.3
million expenditure for the Company's share of the purchase price of a
subsidiary acquired by the Company's former 36% owned affiliate, M-I Drilling Fluids Company, L.L.C. Also
in 1996, several other acquisitions were made which used $32.2 million of cash.
Cash flows from financing activities provided $151.6$253.7 million forin 1998
and used $20.6 million in 1997 comparedand $148.4 million in 1996. The Company issued
$150.0 million of long-term debt under its medium-term note program in 1998.
Also in 1998, the Company had net borrowings of short-term debt of $369.3
million and proceeds from exercise of stock options of $49.1 million. Dividends
to useshareholders used $254.2 million of cash of $65.8 million and $599.0 million for 1996 and 1995,
respectively. Cashin 1998. During 1997, cash was
provided by proceeds from debt issued under the Company's medium-term note
program of $300.0 million plus $3.2 million of other long-term borrowings and
proceeds from the exercise of stock options of $49.5 million offset by$71.5 million. Offsetting these
inflows were payments on long-term debt of $17.7 million, net repayments on
short-term borrowings of $54.6$85.8 million, payments to reacquire common stock of
$44.1 million, and dividend payments of $127.3$250.3 million. Cash used for financing
activities during 1996 consisted primarily of dividend payments of $117.5$239.6
million and payments to reacquire common stock of $235.2 million offset by
net
short-termproceeds from long-term borrowings of $38.3$295.6 million and proceeds from the
exercise of stock options of $25.6$42.6 million. In 1995, the increased amount of cash used by
financing activities was due primarily to the redemption of theThe Company's $390.7
million zero coupon convertible debenturescombined short-term
notes payable and a $42.0 million term loan. Totallong-term debt was 18%32%, 10%24% and 10%23% of total capitalization at
the end of 1998, 1997 1996 and 1995,1996, respectively.
The Company has the ability to borrow additional short-term and
long-term funds if necessary. See Note 68 to the annual consolidated financial
statements regarding the Company's various short-term lines of credit, notes
payable and long-term debt.
FINANCIAL INSTRUMENT MARKET RISK
The Company is currently exposed to market risk from changes in foreign
currency exchange rates, and to a lesser extent, to changes in interest rates.
To mitigate market risk, the Company selectively hedges its foreign currency
exposure through the use of currency derivative instruments. The objective of
such hedging is to protect the Company's dollar cash flows from fluctuations in
currency rates of foreign denominatedrelated to sales or
purchases of goods or services.services from fluctuations in currency rates. Inherent in
the use of derivative instruments are certain types of market risk: volatility
of the currency rates, tenor (time horizon)time horizon of the derivative instruments, market cycles
and the type of derivative instruments used. The Company does not use derivative
instruments for trading purposes. See Note 1 to the annual consolidated
financial statements for additional information on the Company's accounting
policies on derivative instruments. See Note 1215 to the annual consolidated
financial statements for additional disclosures related to derivative
instruments.
14
Foreign exchange. While the Company operates in over 100120 countries, the
Company hedges only foreign currencies that are highly liquid and selects
derivative instruments or a combination of instruments whose fluctuation in
value is offset by the fluctuation in value to the underlying exposure. These
hedges generally have expiration dates that do not exceed two years. Exposures
to certain currencies are generally not hedged due primarily to the lack of
available markets or cost considerations (non-traded currencies). The Company
manages its foreign exchange hedging activities through a control system which
includes daily monitoring of cash balances in traded currencies, analytical techniques
such as value at risk estimations, and other procedures.
Interest rates. The Company currently has exposure to interest rate
risk from its long-term debt with interest based on LIBOR for the U.K. pound
sterling (GBP) plus 0.75% which was incurred in connection with its acquisition
of the Royal Dockyard in Plymouth, England (the Dockyard Loans). This risk is
partially offset by a compensating balance of approximately one-half of the
outstanding debt amount which earns interest at a rate equal to that of the
Dockyard Loans. The compensating balance is restricted as to use by the Company
and is included in other assets on the Company's consolidated balance sheet.sheets.
See Note 68 to the annual consolidated financial statements for additional
discussion of the Dockyard Loans.
10
Value at risk. The Company uses a statistical model to assessestimate the
potential loss related to derivative instruments used to hedge the market risk
of its foreign exchange exposure. The model utilizes historical price and
volatility patterns to predictestimate the change in value of the derivative
instruments which could occur from adverse movements in foreign exchange rates
for a specified time period at a specified confidence level.interval. The model is an
undiversified calculation based on the variance-covariance statistical modeling
technique and includes all foreign exchange derivative instruments outstanding
at December 31, 1997.1998. The resulting value at risk of $0.8$2.8 million estimates,
with a 95% confidence interval, the potential loss the Company could incur in a
one-day period with a 95% confidence level from foreign exchange derivative instruments due to adverse
foreign exchange rate changes.
Interest rate exposures. The following table below represents principal
(or notional)
amounts at December 31, 1998, and related weighted average interest rates by
year of maturity for the Company's restricted cash and long-term debt
obligations. Other notes of $0.1
million with varying interest rates of $10.2 million as shown
in Note 68 to the annual consolidated financial statements are excluded from the
table below.following table.
Expected maturity date Fair
US $ Equivalent --------- ---------- ---------- ---------- ---------- -----------
in millions 1998------------------------------------------------------------------
Millions of dollars 1999 2000 2001 2002 2003 Thereafter Total Value
- ----------------------------------------- --------- ---------- ---------- ---------- ---------- ----------- --------- -----------------------------------------------------------------------------------------------------------------------------------
AssetsAssets:
Restricted cash - British
pound sterling 3.6 4.2 4.2 4.2 4.2 2.4 22.8 22.84.1 4.1 4.1 2.6 - - 14.9 14.9
Average variable rate 8.45% 8.07% 7.83% 7.69% 7.58% 7.51% 8.03%6.38% 6.17% 6.04% 5.93% - - 6.22%
Long-term debt:
USU.S. dollar - 50.0 -300.0 - 75.0 375.0 500.0 554.0138.6 825.0 1,388.6 1,538.0
Average fixed rate - 6.27% -6.25% - 6.30% 7.83% 7.77%8.0% 7.58% 7.56%
British pound sterling
(Dockyard Loans) 7.1 8.4 8.3 8.3 8.3 5.5 45.9 45.98.1 8.1 8.1 5.1 - - 29.4 29.4
Average variable rate 8.45% 8.07% 7.83% 7.69% 7.58% 7.51% 8.03%6.38% 6.17% 6.04% 5.93% - ----------------------------------------- --------- ---------- ---------- ---------- ---------- ----------- --------- ------------- 6.22%
- -----------------------------------------------------------------------------------------------------------------------
Weighted average variable rates are based on implied forward rates in
the yield curve at December 31, 1997.1998. These implied forward rates should not be
viewed as predictions of actual future interest rates. Restricted cash and the
Dockyard Loans earn interest at LIBOR (GBP) plus 0.75%. Instruments that are
denominated in currencies other than the USU.S. dollar reporting currency are
subject to foreign exchange rate risk as well as interest rate risk.
15
1998 SPECIAL CHARGES
The third quarter of 1998 financial results include a pretax charge of
$945.1 million ($722.0 million after tax) to provide for consolidation,
restructuring and merger related expenses related to the merger with Dresser and
the industry downturn. Components of the charge include $509.4 million of asset
related writeoffs, writedowns and charges; $204.7 million for personnel
reduction costs covering approximately 8,100 employees; $121.2 million of
facility consolidation charges; $64.0 million of merger transaction costs; and
$45.8 million of other costs. During the fourth quarter, an additional charge of
$35.0 million ($24.0 million after tax) was taken to provide $30.0 million for
additional personnel reduction costs covering approximately 2,750 employees and
$5.0 million for additional facility consolidations.
Approximately 45% of the special charge of $980.1 million either has
resulted or will result in cash outflows. During 1998, cash outflows of
approximately $110.0 million pertained to special charge items, primarily
severance and merger transaction costs, while the remainder will be incurred in
1999.
The Company expects to incur additional merger related incremental
costs of between $120.0 million and $130.0 million through the end of 1999 that
do not qualify as a special charge under the accounting rules. These costs
include the relocation of personnel, inventory and equipment as part of facility
consolidation efforts; implementing a company-wide common information technology
infrastructure; merging engineering work practices; harmonizing employee benefit
programs; and developing common policies and procedures to provide best
practices. Approximately $24.0 million of such costs were incurred during the
fourth quarter of 1998. During 1999, approximately $70.0 million will be
expensed during the first and second quarters. See Note 7 to the annual
consolidated financial statements for additional information on special charges
incurred in 1998.
ENVIRONMENTAL MATTERS
The Company is involved as a potentially responsible party in remedial
activities to clean up several "Superfund" sites under applicable federal law
which imposes joint and several liability, if the harm is indivisible, on
certain persons without regard to fault, the legality of the original disposal
or ownership of the site. Although it is very difficult to quantify the
potential impact of compliance with environmental protection laws, management of
the Company believes that any liability of the Company with respect to all but
one of such sites will not have a material adverse effect on the results of
operations of the Company. See Note 1110 to the annual consolidated financial
statements.statements for additional information on the one site.
YEAR 2000 ISSUE
The Year 2000 (Y2K) issue is the risk that systems, products and
equipment utilizing date-sensitive software or computer programs usingchips with two-digit
date fields will fail to properly recognize the year 2000, with the result being
business interruptions due to computer systemYear 2000. Such failures by the
Company's software and hardware or that of government entities, service
providers, vendorssuppliers and customers.customers could result in interruptions of the
Company's business which could have a material adverse impact on the Company.
In response to the Year 2000Y2K issue, the Company has formedimplemented an
enterprise-wide Year 2000 Program designed to identify, assess and address
significant Y2K issues in the Company's key business operations, including
products and services, suppliers, business and engineering applications,
information technology systems, facilities, infrastructure and joint venture
projects.
The Year 2000 Program is a cross-functional task force responsiblecomprehensive, integrated, multi-phase
process covering information technology systems and hardware as well as
equipment and products with embedded computer chip technology. The primary
phases of the program are: (1) inventorying existing equipment and systems; (2)
assessing equipment and systems to identify those which are not Y2K ready and to
prioritize critical items; (3) remediating, repairing or replacing non-Y2K ready
equipment and systems; (4) testing to verify Y2K readiness has been achieved;
and (5) deploying and certifying.
At the end of 1998, the Company completed its inventory and assessment
of all mission critical items. The Company estimates that it will complete the
majority of its remediation phase by the end of the third quarter of 1999.
16
In the fourth quarter of 1998, Landmark Graphics Corporation, a
wholly-owned subsidiary of the Company, released its Year 2000 tested version of
its integrated solutions software product.
Overall the Company estimates that it is approximately 50% complete
with its Year 2000 Program and anticipates having its products and
mission-critical systems and equipment Y2K ready during the third quarter of
1999. The balance of 1999 will be focused on deployment, certification, testing
and implementation of new and modified programs as required.
The Y2K issue is a pervasive problem for most companies due to the
interdependence of computer systems. Therefore, the Company is continually
assessing the Company's Year 2000
readiness. The task force has developed a comprehensive planrisks surrounding this issue and its potential impact on the
Company. This includes the initial phases of business continuity planning,
audits by customers and meetings with its material customers and suppliers.
Meetings and presentations with key suppliers to assessdate have not identified any
key suppliers who expect significant Y2K interruption of services or supplies to
the Company. Failure to address Y2K issues could result in business disruption
that could materially affect the Company's Year 2000 risk andoperations. In an effort to minimize
business interruptions, the Company is currently in the process of performingdeveloping
contingency plans in the event circumstances prevent the Company from meeting
any portion of its review.current program schedule. These contingency plans are
expected to be completed by April 1999.
Through 1998, the Company has incurred approximately $22.0 million in
costs related to its Year 2000 Program. The Company anticipatesestimates that certain softwareprior to
January 1, 2000 it will require replacement or
modification.have spent approximately $50.0 million to address the
Y2K issue. These estimates do not include the costs associated with the Company
initiatives discussed below. Costs associated with the Year 2000 Program are
being treated as period costs and expensed as incurred.
Independent of, but concurrent with, the Company's Year 2000Y2K review, the
Company is installing an enterprise-wide business information system. This information system which is
scheduled to replace approximately two-thirdssome of the Company's key finance, administrative and
marketing software systems beforeby the end of 1999 and is Year 2000 compliant. BasedY2K ready. In addition, and
as a separate activity, the Company is in the process of replacing and
standardizing its desktop computing equipment and software and updating its
communications infrastructure. A third party is updating the communications
infrastructure. The replacement of desktop equipment and software is an internal
program based on the Company's reviewcommon office environment initiative that has
been expanded to date, itinclude Dresser. Both of these programs will be completed by
the end of 1999. All hardware and software installed as a part of these programs
are Y2K ready.
ACCOUNTING PRONOUNCEMENTS
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position No. 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use" (SOP 98-1). SOP 98-1 provides
guidelines for companies to capitalize or expense costs incurred to develop or
obtain internal use software. The guidelines set forth in SOP 98-1 do not differ
significantly from the Company's current accounting policy for internal use
software and therefore the Company does not expect a material impact on its
results of operations or financial position from the costadoption of software replacement or modification not
currently included inSOP 98-1. The
Company adopted SOP 98-1 effective January 1, 1999.
In April 1998, the Company's enterprise-wide information systemAmerican Institute of Certified Public Accountants
issued Statement of Position 98-5, "Reporting on the Costs of Start-Up
Activities" (SOP 98-5). SOP 98-5 requires costs of start-up activities and
organization costs to be materialexpensed as incurred. The Company adopted SOP 98-5
effective January 1, 1999 and expects to its financial positionrecord expense of approximately $30
million pretax or results$0.04 after-tax per diluted share from the adoption of operations.
11
ACCOUNTING PRONOUNCEMENTSSOP
98-5 as the cumulative effect of an accounting change. Estimated annual expense
for 1998 under SOP 98-5 would not have been materially different from the amount
expensed under the current accounting treatment.
In June 1997,1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive Income," which133, "Accounting for Derivative
Instruments and for Hedging Activities" (SFAS 133). This standard requires
presentationentities to recognize all derivatives on the statement of total nonownerfinancial position as
assets or liabilities and to measure the instruments at fair value. Accounting
for gains and losses from changes in equity for all periods
displayed. The Company plans to adopt this statementthose fair values are specified in the
standard depending on the intended use of the derivative and other criteria.
SFAS 133 is effective for the year ending
December 31, 1998, and is evaluating alternative disclosure formats suggested by
the standard.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information." This standard defines reporting
requirements for operating segments and related information about products and
services, geographic areas and reliance on major customers.Company beginning January 1, 2000. The Company is
currently evaluating SFAS 133 to identify implementation and compliance methods
and has not yet determined the impact of this statementeffect, if any, on its current reporting and expects to
adopt the new standard for its year ending December 31, 1998, with interim
reporting beginning in 1999.
FORWARD LOOKINGresults of operations or
financial position.
17
FORWARD-LOOKING INFORMATION
In accordance withAs provided by the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995, theHalliburton Company cautions that the statements
in this annual report and elsewhere, which are forward lookingforward-looking and which provide
other than historical information, involve risks and uncertainties that may
impact theHalliburton Company's actual results of operations. While such
forward-looking information reflects theHalliburton Company's best judgmentjudgement based
on current information, it involves a number of risks and uncertainties and
there can be no assurance that other factors will not affect the accuracy of
such forward-looking information. While it is not possible to identify all
factors, theHalliburton Company continues to face many risks and uncertainties that
could cause actual results to differ from those forward looking statements. Such factors include:forward-looking statements
including:
- litigation, including, for example, asbestosis litigation and
environmental litigation;
- unsettled political conditions, war, civil unrest, currency controls
and governmental actions in over 100the numerous countries of operation;Halliburton
Company conducts operations;
- trade restrictions and economic embargoes imposed by the United
States and other countries;
- environmental laws, including those that require emission
performance standards for new and existing facilities;
- the magnitude of governmental spending for military and logistical
support of the type provided by theHalliburton Company;
- operations in countries with significant amounts of political risk,
including, without limitation, Algeria and Nigeria;
- the effects of severe weather conditions on operations, including
for example, hurricanes shutting down operations on offshore
platforms;
- the impact of prolonged mild weather conditions on the demand for
and price of oil and natural gas;
- technological and structural changes in the industries served by
theHalliburton Company;
- computer software and hardware and other equipment utilizing
computer technology used by governmental entities, service
providers, vendors, customers and theHalliburton Company which may be
impacted by the Year 2000Y2K issue;
- integration of acquired businesses, including Dresser and its
subsidiaries, into Halliburton Company;
- the Company;risk inherent in the use of derivative instruments of the sort
used by Halliburton Company which could cause a change in value of
the derivative instruments as a result of adverse movements in
foreign exchange rates;
- changes in the price of oil and natural gas;
- changes in the price of commodity chemicals used by theHalliburton
Company;
- changes in capital spending by customers in the hydrocarbon
industry for exploration, development, production, processing,
refining and pipeline delivery networks;
- increased competition in the hiring and retention of employees;employees in
certain areas coupled with ongoing reductions-in-force in other
areas;
- changes in capital spending by customers in the wood pulp and paper
industries for plants and equipment;
- risks that result from entering into fixed fee engineering,
procurement and construction projects of the types provided by
Halliburton Company where failure to meet schedules, cost
estimates or performance targets could result in non-reimbursable
costs which cause the project not to meet expected profit margins;
and
- changes in capital spending by governments for infrastructure.infrastructure
projects of the sort provided by Halliburton Company.
In addition, future trends for pricing, margins, revenues and
profitability remain difficult to predict in the industries served by
Halliburton Company.
18
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Company.
12Shareholders and Board of Directors
Halliburton Company:
We have audited the accompanying consolidated balance sheets of
Halliburton Company (a Delaware corporation) and subsidiary companies as of
December 31, 1998 and 1997, and the related consolidated statements of income,
cash flows and shareholders' equity for each of the three years in the period
ended December 31, 1998. We did not audit the consolidated balance sheet of
Dresser Industries, Inc., a company acquired during 1998 in a transaction
accounted for as a pooling of interests, as of December 31, 1997, and the
related consolidated statements of income, cash flows and shareholders' equity
for each of the two years in the period ended December 31, 1997, as discussed in
Note 14. Such statements are included in the consolidated financial statements
of Halliburton Company and reflect total assets of 48% for the year ended
December 31, 1997, and total revenue of 46% and 47% for the years ended December
31, 1997 and 1996, respectively, of the related consolidated totals. These
statements were audited by other auditors whose report has been furnished to us,
and our opinion, insofar as it relates to amounts included for Dresser
Industries, Inc. is based solely upon the report of the other auditors. These
financial statements are the responsibility of Halliburton Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based upon our audits and the report of other auditors,
the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Halliburton Company and subsidiary
companies as of December 31, 1998 and 1997, and the results of their operations
and their cash flows for each of the three years ended December 31, 1998, in
conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
-------------------------------
ARTHUR ANDERSEN LLP
Dallas, Texas,
January 25, 1999
19
RESPONSIBILITY FOR FINANCIAL REPORTING
Halliburton Company is responsible for the preparation and integrity of
its published financial statements. The financial statements have been prepared
in accordance with accounting principles generally accepted in the United States
and, as such, include amounts based on judgments and estimates made by
management. The Company also prepared the other information included in the
annual report and is responsible for its accuracy and consistency with the
financial statements.
The financial statements have been audited by the independent
accounting firm, Arthur Andersen LLP, which was given unrestricted access to all
financial records and related data, including minutes of all meetings of
stockholders, the Board of Directors and committees of the Board.
The Company maintains a system of internal control over financial
reporting, which is intended to provide reasonable assurance to the Company's
management and Board of Directors regarding the preparation of financial
statements. The system includes a documented organizational structure and
division of responsibility, established policies and procedures, including a
code of conduct to foster a strong ethical climate which areis communicated
throughout the Company, and the careful selection, training and development of
our people. Internal auditors monitor the operation of the internal control
system and report findings and recommendations to management and the Board of
Directors, and correctiveDirectors. Corrective actions are taken to address control deficiencies and
other opportunities for improving the system as they are identified. The Board,
operating through its audit committee,Audit Committee, which is composed entirely of Directors
who are not current or former officers or employees of the Company, provides
oversight to the financial reporting process.
There are inherent limitations in the effectiveness of any system of
internal control, including the possibility of human error and the circumvention
or overriding of controls. Accordingly, even an effective internal control
system can provide only reasonable assurance with respect to financial statement
preparation. Furthermore, the effectiveness of an internal control system may
change over time.
The Company assessed its internal control system in relation to
criteria for effective internal control over financial reporting described in
"Internal Control-Integrated Framework" issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based upon that assessment, the
Company believes that, as of December 31, 1997,1998, its system of internal control
over financial reporting met those criteria.
HALLIBURTON COMPANY
by
Dick/s/ Richard B. Cheney /s/ Gary V. Morris
- ----------------------------- -----------------------------
Richard B. Cheney Gary V. Morris
Chairman of the Board andChief Executive Officer Exeuctive Vice President and
Chief Executive Officer Chief Financial Officer
1320
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors,
Halliburton Company:
We have audited the accompanying consolidated balance sheets of Halliburton
Company (a Delaware corporation) and subsidiary companies as of December 31,
1997 and 1996, and the related consolidated statements of income, cash flows and
shareholders' equity for each of the three years in the period ended December
31, 1997. These financial statements are the responsibility of Halliburton
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Halliburton
Company and subsidiary companies as of December 31, 1997 and 1996, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1997, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Dallas, Texas,
January 22, 1998
14
HALLIBURTON COMPANY
Consolidated Statements of Income
(Millions of dollars except per share data)
Years ended December 31
Millions of dollars except per share data------------------------------------------------
1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------
Revenues
Energy GroupRevenues:
Services $ 5,756.412,089.4 $ 4,286.311,256.3 $ 3,604.0
Engineering and Construction Group 3,062.2 3,098.8 2,278.9
------------------------------------------------9,461.1
Sales 5,069.9 4,857.0 4,351.7
Equity in earnings of unconsolidated affiliates 193.8 163.2 133.8
- -----------------------------------------------------------------------------------------------------------------------------
Total revenues $ 8,818.617,353.1 $ 7,385.116,276.5 $ 5,882.913,946.6
- -----------------------------------------------------------------------------------------------------------------------------
Operating costs and expenses:
Cost of services $ 11,058.8 $ 10,163.9 $ 8,708.0
Cost of sales 4,317.6 4,032.7 3,628.3
General and administrative 600.1 665.0 621.3
Special charges and credits 980.1 16.2 85.8
- -----------------------------------------------------------------------------------------------------------------------------
Total operating costs and expenses 16,956.6 14,877.8 13,043.4
- -----------------------------------------------------------------------------------------------------------------------------
Operating income Energy Group $ 706.4 $ 484.4 $ 398.2
Engineering and Construction Group 133.9 53.7 44.6
Special charges (8.6) (85.8) (8.4)
General corporate (33.6) (34.4) (33.5)
------------------------------------------------
Total operating income 798.1 417.9 400.9396.5 1,398.7 903.2
Interest expense (42.7) (24.1) (47.1)(136.8) (111.3) (84.6)
Interest income 11.7 14.2 32.027.8 21.9 26.9
Foreign currency gains (losses) (0.9) (3.9) 1.4losses (12.4) (0.7) (19.1)
Other nonoperating income, net 0.1 0.1 0.6
------------------------------------------------3.7 4.5 4.6
- -----------------------------------------------------------------------------------------------------------------------------
Income from continuing operations before income taxes and minority interest 766.3 404.2 387.8278.8 1,313.1 831.0
Provision for income taxes (300.0) (103.3) (137.7)(244.4) (491.4) (248.4)
Minority interest in net income of consolidated subsidiaries (11.9) (0.5) (0.9)
------------------------------------------------
Income from continuing operations 454.4 300.4 249.2
Loss from discontinued operations(49.1) (49.3) (24.7)
- - (65.5)
-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 454.4(14.7) $ 300.4$772.4 $ 183.7557.9
- -----------------------------------------------------------------------------------------------------------------------------
Income (loss) per common share:
- -----------------------------------------------------------------------------------------------------------------------------
Basic income (loss) per share
Continuing operations $ 1.78(0.03) $ 1.201.79 $ 1.00
Discontinued operations - - (0.26)
------------------------------------------------
Net income $ 1.78 $ 1.20 $ 0.741.30
- -----------------------------------------------------------------------------------------------------------------------------
Diluted income (loss) per share
Continuing operations $ 1.75(0.03) $ 1.191.77 $ 1.00
Discontinued operations - - (0.26)
------------------------------------------------
Net income $ 1.75 $ 1.19 $ 0.741.29
- -----------------------------------------------------------------------------------------------------------------------------
Weighted average common shares outstanding:
Basic 438.8 431.1 429.2
Diluted 438.8 436.1 432.1
See notes to annual financial statements.
1521
HALLIBURTON COMPANY
Consolidated Balance Sheets
(Millions of dollars and shares except per share data)
Consolidated Balance Sheets
December 31
Millions of dollars and shares except per share data--------------------------------
1998 1997 1996
- --------------------------------------------------------------------------------------------------------------------
Assets
Current assets:
Cash and equivalents $ 221.3202.6 $ 213.6384.1
Receivables:
Notes and accounts receivable (less allowance for bad debts of $38.4$76.6 and $43.6) 1,815.8 1,413.4$58.6) 3,345.5 2,980.4
Unbilled work on uncompleted contracts 390.0 288.9
--------------------------------514.9 407.2
- --------------------------------------------------------------------------------------------------------------------
Total receivables 2,205.8 1,702.33,860.4 3,387.6
Inventories 326.9 292.21,301.8 1,299.2
Deferred income taxes, current 106.6 108.7432.2 202.6
Other current assets 111.0 81.2
--------------------------------286.1 169.7
- --------------------------------------------------------------------------------------------------------------------
Total current assets 2,971.6 2,398.06,083.1 5,443.2
Property, plant and equipment:
At cost 3,988.0 3,560.86,850.1 6,646.0
Less accumulated depreciation 2,325.3 2,269.2
--------------------------------3,928.5 3,879.6
- --------------------------------------------------------------------------------------------------------------------
Net property, plant and equipment 1,662.7 1,291.62,921.6 2,766.4
Equity in and net advances to related companies 338.7 234.9587.0 761.2
Excess of cost over net assets acquired (net of accumulated amortization
of $56.2$240.1 and $42.7) 323.1 233.9$205.7) 770.2 1,024.6
Deferred income taxes, noncurrent 91.3 98.6336.9 273.0
Other assets 215.6 179.6
--------------------------------413.2 433.4
- --------------------------------------------------------------------------------------------------------------------
Total assets $ 5,603.011,112.0 $ 4,436.610,701.8
- --------------------------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Current liabilities:
Short-term notes payable $ 2.7 $ 46.3
Currentand current maturities of long-term debt 7.1 0.1$ 573.5 $ 57.9
Accounts payable 586.5 452.11,008.5 1,132.4
Accrued employee compensation and benefits 262.3 193.7402.2 516.1
Advance billings on uncompleted contracts 303.7 336.3513.3 638.3
Income taxes payable 213.1 135.8
Deferred revenues 38.4 18.9245.6 335.2
Accrued special charges 426.4 13.1
Other current liabilities 359.1 321.5
--------------------------------834.2 767.3
- --------------------------------------------------------------------------------------------------------------------
Total current liabilities 1,772.9 1,504.74,003.7 3,460.3
Long-term debt 538.9 200.01,369.7 1,296.9
Employee compensation and benefits 323.6 281.11,006.6 1,013.7
Other liabilities 363.2 290.2500.6 450.6
Minority interest in consolidated subsidiaries 19.7 1.4
--------------------------------170.2 163.4
- --------------------------------------------------------------------------------------------------------------------
Total liabilities and minority interest 3,018.3 2,277.47,050.8 6,384.9
- --------------------------------------------------------------------------------------------------------------------
Shareholders' equity:
Common stock,shares, par value $2.50 per share - authorized 400.0600.0 shares,
issued 268.8 (post-split)445.9 and 129.3 (pre-split)453.7 shares 672.0 323.31,114.7 1,134.3
Paid-in capital in excess of par value 87.2 322.2
Cumulative translation adjustment (15.0) (12.4)8.2 168.2
Deferred compensation (50.6) (44.3)
Accumulated other comprehensive income (148.8) (131.1)
Retained earnings 1,947.6 1,656.3
--------------------------------
2,691.8 2,289.43,236.0 3,563.4
- --------------------------------------------------------------------------------------------------------------------
4,159.5 4,690.5
Less 6.5 (post-split)5.9 and 4.0 (pre-split)15.8 shares treasury stock, at cost 107.1 130.2
--------------------------------98.3 373.6
- --------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 2,584.7 2,159.2
--------------------------------4,061.2 4,316.9
- --------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 5,603.011,112.0 $ 4,436.610,701.8
- --------------------------------------------------------------------------------------------------------------------
See notes to annual financial statements.
1622
HALLIBURTON COMPANY
Consolidated Statements of Cash Flows
(Millions of dollars)
Years ended December 31
Millions of dollars-----------------------------------------
1998 1997 1996
1995
- -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income (loss) $ 454.4(14.7) $ 300.4772.4 $ 183.7557.9
Adjustments to reconcile net income (loss) to net cash from operating
activities:
Depreciation and amortization 309.5 267.9 259.8587.0 564.3 497.7
Provision (benefit) for deferred income taxes 9.4 (23.8) 46.0(293.4) 2.6 (13.4)
Distributions from (advances to) related companies, net of equity in
(earnings) or losses (64.7) (65.9) (20.5)
Appreciation of zero coupon bonds - - 15.0
Net loss from discontinued operations - - 65.5(22.5) (84.6) (57.2)
Accrued special charges 413.3 (44.6) 57.7
Other non-cash items 21.8 8.9 (8.2)272.2 59.2 33.1
Other changes, net of non-cash items:
Receivables (300.9) (218.2) (91.6)(279.9) (408.8) (363.5)
Inventories (14.1) (46.0) 17.6(66.3) (117.1) (147.5)
Accounts payable (41.6) 63.7 76.5(45.3) (49.7) 98.8
Other working capital, net 93.7 251.5 192.1(142.5) 39.9 286.9
Other, net 80.7 (86.5) (68.5)
----------------------------------------46.2 99.5 (86.3)
- ----------------------------------------------------------------------------------------------------------------------------
Total cash flows from operating activities 548.2 452.0 667.4
----------------------------------------454.1 833.1 864.2
- ----------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Capital expenditures (577.1) (395.7) (303.3)(914.3) (880.1) (731.1)
Sales of property, plant and equipment 44.9 49.8 36.0100.0 180.6 64.4
Acquisitions of businesses, net of cash acquired (157.9) (31.6) (10.3)(40.4) (161.5) (60.5)
Dispositions of businesses, net of cash disposed 7.7 37.6 21.6 25.9
Other investing activities (34.2)0.9 (49.9) (53.5)
(15.6)
----------------------------------------- ----------------------------------------------------------------------------------------------------------------------------
Total cash flows from investing activities (686.7) (409.4) (267.3)
----------------------------------------(846.1) (873.3) (759.1)
- ----------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Borrowings of long-term debt 301.5 0.1 -150.0 303.2 295.6
Payments on long-term debt (26.7) (17.7) (5.2) (465.4)(8.2)
Net borrowings (payments) of short-term debt (54.6) 38.3 (27.0)369.3 (85.8) (7.3)
Payments of dividends to shareholders (127.3) (117.5) (114.3)(254.2) (250.3) (239.6)
Proceeds from exercises of stock options 49.5 25.6 9.749.1 71.5 42.6
Payments to reacquire common stock (2.2) (7.1) (2.2)(19.9) (44.1) (235.2)
Other financing activities 2.4(13.9) 2.6 3.7
- 0.2
--------------------------------------------------------------------------------------------------------------------------------------------------------------------
Total cash flows from financing activities 151.6 (65.8) (599.0)
----------------------------------------253.7 (20.6) (148.4)
- ----------------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash (5.4) (2.8) (2.8)
----------------------------------------
Increase (decrease)(1.1) 1.0
- ----------------------------------------------------------------------------------------------------------------------------
Decrease in cash and equivalents 7.7 (26.0) (201.7)(143.7) (61.9) (42.3)
Cash and equivalents at beginning of year 213.6 239.6 441.3
----------------------------------------* 346.3 446.0 488.3
- ----------------------------------------------------------------------------------------------------------------------------
Cash and equivalents at end of year $ 221.3202.6 $ 213.6384.1 $ 239.6446.0
- ----------------------------------------------------------------------------------------------------------------------------
Supplemental disclosure of cash flow information: Cash payments during the
period for:
Interest $ 35.2137.0 $ 24.9106.1 $ 26.276.1
Income taxes 165.2 35.5 29.9534.8 307.4 191.1
Non-cash investing and financing activities:
Liabilities assumed in acquisitions of businesses $ 336.55.4 $ 24.8337.1 $ 4.139.4
Liabilities disposed of in dispositions of businesses 11.923.6 205.5 9.8
14.6
* Cash balance at the beginning of 1998 does not agree to the prior year ending
cash balance in order to conform Dresser's fiscal year to Halliburton's calendar
year.
See notes to annual financial statements.
1723
HALLIBURTON COMPANY
Consolidated Statements of Shareholders' Equity
(Millions of dollars and shares except per share data)
Years ended December 31
Millions of dollars and shares except per share data-----------------------------------------------------
1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------
Common stock (number of shares):
Balance at beginning of year 129.3 129.1 128.8453.7 221.7 221.3
Shares issued (forfeited) under incentive stock plans, net of forfeitures 1.1 1.3 0.3 0.2
Cancellation of treasury stock (8.9) - (0.1) -
Shares issued in connection with acquisition - 8.2 - 0.1
Two-for-one common stock split 130.0- 222.5 -
Shares issued pursuant to stock warrant agreement - - -----------------------------------------------------0.2
- -----------------------------------------------------------------------------------------------------------------------
Balance at end of year 268.8 129.3 129.1445.9 453.7 221.7
- -----------------------------------------------------------------------------------------------------------------------
Common stock (dollars):
Balance at beginning of year $ 323.31,134.3 $ 322.7554.3 $ 322.1553.3
Shares issued (forfeited) under incentive stock plans, net of forfeitures 2.7 3.2 0.9 0.5
Cancellation of treasury stock (22.3) - (0.3) -
Shares issued in connection with acquisition - 20.5 - 0.1
Two-for-one common stock split 325.0- 556.3 -
Shares issued pursuant to stock warrant agreement - - -----------------------------------------------------0.4
- -----------------------------------------------------------------------------------------------------------------------
Balance at end of year $ 672.01,114.7 $ 323.31,134.3 $ 322.7554.3
- -----------------------------------------------------------------------------------------------------------------------
Paid-in capital in excess of par value:value
Balance at beginning of year $ 322.2168.2 $ 302.9615.1 $ 298.4593.9
Shares issued (forfeited) under incentive stock plans, net 53.4 22.9 4.5of forfeitures 43.0 51.4 18.3
Cancellation of treasury stock (209.3) - (3.6) -
Shares issued in connection with acquisition 36.6 - -
Two-for-one common stock split (325.0) - -
-----------------------------------------------------
Balance at end of year $ 87.2 $ 322.2 $ 302.9
- -----------------------------------------------------------------------------------------------------------------------
Cumulative translation adjustment:
Balance at beginning of year $ (12.4) $ (28.0) $ (23.1)
Changes net of tax of ($0.3) in 1997, $3.7
in 1996 and ($0.5) in 1995 (2.6) 15.6 (4.9)
-----------------------------------------------------
Balance at end of year $ (15.0) $ (12.4) $ (28.0)
- -----------------------------------------------------------------------------------------------------------------------
Retained earnings:
Balance at beginning of year $ 1,656.3 $ 1,473.4 $ 1,656.6
Net income 454.4 300.4 183.7
Cash dividends paid ($0.50 per share post-split; $1.00 per
share pre-split) (127.3) (117.5) (114.3)
Spin-off of Highlands Insurance Group, Inc. - - (268.6)
Net change in unrealized gains (losses) on investments
held by discontinued operation - - 16.3
Pooling of interests acquisition (35.8) - -employee compensation plans 6.3 21.4 (1.0)
Shares issued in connection with acquisition - 36.6 -
(0.3)
-----------------------------------------------------Two-for-one common stock split - (556.3) -
Shares issued pursuant to stock warrant agreement - - 7.5
- -----------------------------------------------------------------------------------------------------------------------
Balance at end of year $ 1,947.68.2 $ 1,656.3168.2 $ 1,473.4615.1
- -----------------------------------------------------------------------------------------------------------------------
Deferred compensation
Balance at beginning of year $ (44.3) $ (22.9) $ (23.9)
Current year awards, net (6.3) (21.4) 1.0
- -----------------------------------------------------------------------------------------------------------------------
Balance at end of year $ (50.6) $ (44.3) $ (22.9)
- -----------------------------------------------------------------------------------------------------------------------
Accumulated other comprehensive income
Cumulative translation adjustment $ (141.4) $ (127.2) $ (93.9)
Pension liability adjustment (7.4) (3.9) (6.9)
- -----------------------------------------------------------------------------------------------------------------------
Balance at end of year $ (148.8) $ (131.1) $ (100.8)
- -----------------------------------------------------------------------------------------------------------------------
Cumulative translation adjustment
Balance at beginning of year $ (127.2) $ (93.9) $ (104.7)
Conforming fiscal years (14.8) - -
Sale of M-I L.L.C. 9.4 - -
Current year changes, net of tax (8.8) (33.3) 10.8
- -----------------------------------------------------------------------------------------------------------------------
Balance at end of year $ (141.4) $ (127.2) $ (93.9)
- -----------------------------------------------------------------------------------------------------------------------
See notes to annual financial statements.
24
HALLIBURTON COMPANY
Consolidated Statements of Shareholders' Equity
(continued)
(Millions of dollars and shares except per share data)
Years ended December 31
-----------------------------------------------------
1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------
Pension liability adjustment
Balance at beginning of year $ (3.9) $ (6.9) $ (7.0)
Current year adjustment (3.5) 3.0 0.1
- -----------------------------------------------------------------------------------------------------------------------
Balance at end of year $ (7.4) $ (3.9) $ (6.9)
- -----------------------------------------------------------------------------------------------------------------------
Retained earnings
Balance at beginning of year $ 3,563.4 $ 3,077.1 $ 2,758.8
Net income (loss) (14.7) 772.4 557.9
Cash dividends paid (254.2) (250.3) (239.6)
Cancellation of treasury stock (61.1) - -
Pooling of interests acquisition - (35.8) -
Conforming fiscal years 2.6 - -
- -----------------------------------------------------------------------------------------------------------------------
Balance at end of year $ 3,236.0 $ 3,563.4 $ 3,077.1
- -----------------------------------------------------------------------------------------------------------------------
Treasury stock (number of shares):
Balance at beginning
Beginning of year 4.0 4.6 5.015.8 8.6 5.6
Shares issued under benefit, dividend reinvestment plan and
incentive stock plans, net (0.8) (0.7) (0.5)
Purchase of common stock - 0.2(1.1) (1.5) (1.2)
Shares purchased 0.1 0.7 4.3
Cancellation of treasury stock (8.9) - (0.1) -
Two-for-one common stock split 3.3- 8.0 -
- ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Balance at end of year 6.5 4.0 4.65.9 15.8 8.6
- -----------------------------------------------------------------------------------------------------------------------
Treasury stock (dollars):
Balance at beginning
Beginning of year $ 130.2373.6 $ 150.8381.4 $ 163.8193.4
Shares issued under benefit, dividend reinvestment plan and
incentive stock plans, net (25.3) (23.8) (15.2)
Purchase of common stock 2.2 7.1 2.2(8.5) (51.9) (43.3)
Shares purchased 3.5 44.1 235.2
Cancellation of treasury stock (270.3) - (3.9)
- ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Balance at end of year $ 107.198.3 $ 130.2373.6 $ 150.8381.4
- -----------------------------------------------------------------------------------------------------------------------
Comprehensive income
Net income (loss) $ (14.7) $ 772.4 $ 557.9
Translation rate changes, net of tax (8.8) (33.3) 10.8
Current year adjustment to minimum pension liability (3.5) 3.0 0.1
- -----------------------------------------------------------------------------------------------------------------------
Total comprehensive income $ (27.0) $ 742.1 $ 568.8
- -----------------------------------------------------------------------------------------------------------------------
See notes to annual financial statements.
See notes25
HALLIBURTON COMPANY
Notes to financial statements.
18
NOTES TO FINANCIAL STATEMENTSAnnual Financial Statements
Note 1. Significant Accounting Policies
The Company employs accounting policies that are in accordance with
generally accepted accounting principles in the United States. The preparation
of financial statements in conformity with generally accepted accounting
principles requires Company management to make estimates and assumptions that
affect the reported amounts of assets and liabilities the disclosedand disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Ultimate results could differ from those estimates.
Basis of presentation. On September 29, 1998, the Company completed the
acquisition of Dresser Industries, Inc. (Dresser) pursuant to the Agreement and
Plan of Merger (the Merger) dated as of February 25, 1998. The Merger was
accounted for using the pooling of interests method of accounting for business
combinations. Accordingly, the Company's financial statements have been restated
to include the accounts of Dresser for all periods presented. Prior to the
Merger, Dresser had a fiscal year-end of October 31. Beginning in 1998,
Dresser's fiscal year-end of October 31 has been conformed to Halliburton's
calendar year-end. Periods through December 31, 1997 contain Dresser's
information on a fiscal year-end basis combined with Halliburton's information
on a calendar year-end basis. Dresser's operating results for November and
December of 1997 are presented within the consolidated statements of
shareholders' equity as "conforming fiscal years."
Principles of Consolidation. The consolidated financial statements
include the accounts of the Company and all majority-owned subsidiaries. All
material intercompany accounts and transactions are eliminated. Investments in
other affiliated companies in which the Company has at least 20% ownership and
does not have management control are accounted for on the equity method. Certain
prior year amounts have been reclassified to conform with the current year
presentation.
Revenues and Income Recognition. The Company recognizes revenues as
services are rendered or products are shipped. The distinction between services
and product sales is based upon the overall business intentactivity of the particular business
operation. Revenues from engineering and construction contracts are reported on
the percentage of completion method of accounting using measurements of progress
towardtowards completion appropriate for the work performed. All known or anticipated
losses on contracts are provided for currently. Claims for additional
compensation are recognized during the period such claims are resolved. Post-contract customer support
agreements are recorded as deferred revenues and recognized as revenue ratably
over the contract periods of generally one yearyear's duration. Training and
consulting service revenue isrevenues are recognized as the services are performed.
Research and Development. Research and development expenses are charged
to income as incurred. Such charges were $164.7$308.1 million in 1998, $259.2 million
in 1997 $133.3and $218.0 million in 1996 and $113.1 million in 1995.1996.
Software Development Costs. Costs of developing software for sale are
charged to expense when incurred, as research and development, until
technological feasibility has been established for the product. Thereafter,
software development costs are capitalized until the software is ready for
general release to customers. The Company capitalized costs of $13.4 million in
1998, $14.5 million in 1997 and $12.9 million in 1996 and $8.8 million in 1995 related to software
developed for resale. Amortization expense related to these costs was $15.0$17.5
million $12.5
million and $10.3for 1998, $15.0 million for 1997 1996 and 1995, respectively.$12.5 million for 1996. Once the
software is ready for release, amortization of the software development costs
begins. Capitalized software development costs are amortized over periods which
do not exceed three years.
Income Per Share. Basic income per share amounts are based on the
weighted average number of common shares outstanding during the year. Diluted
income per share includes additional common shares that would have been
outstanding if potential common shares with a dilutive effect had been issued.
See Note 811 for a reconciliation of basic and diluted income per share from
continuing operations. Prior year amounts have been adjusted for the two-for-one
common stock split declared on June 9, 1997, and effected in the form of a stock
dividend and paid on July 21, 1997.
26
Cash Equivalents. The Company considers all highly liquid investments
with an original maturity of three months or less to be cash equivalents.
Receivables. The Company's receivables are generally not
collateralized. Notes and accounts receivable at December 31, 19971998 include $30.4$33.2
million ($24.930.8 million at December 31, 1996)1997) due from customers in accordance
with applicable retainage provisions of engineering and construction contracts,
which will become billable upon future deliveries or completion of such
contracts. This amount is expected to be collected during 1998.1999. Additionally,
other noncurrent assets include $7.3$7.1 million ($6.77.3 million at December 31, 1996)1997)
of such retainage which is expected to be collected in years subsequent to 1998.1999.
Unbilled work on uncompleted contracts generally represents work currently
billable and such work is usually billed during normal billing processes in the
next month. At December 31, 1997,1998, notes of $9.5$295.9 million ($14.634.4 million at
December 31, 1996)1997) with varying interest rates are included in notes and
accounts receivable. See Note 5 for information on the note receivable generated
by the sale of M-I L.L.C. (M-I).
Inventories. Inventories are stated at the lower of cost or market.
Cost represents invoice or production cost for new items and original cost less
allowance for condition for used material returned to stock. Production cost
includes material, labor and manufacturing overhead. About forty-two percentThe cost of all sales items are valued on amost
inventories is determined using either the first-in, first-out (FIFO) method or
the average cost method although the cost of U.S. manufacturing and U.S. field
service inventories is determined using the last-in, first-out (LIFO) basis.method.
Inventories of sales items owned by foreign subsidiaries and inventories of
operating supplies and parts are generally valued at average cost.
19
Property, Plant and Equipment. Property, plant and equipment is
reported at cost less accumulated depreciation, which is generally provided on
the straight-line method over the estimated useful lives of the assets. Certain
assets are depreciated on accelerated methods. Accelerated depreciation methods
are also used for tax purposes, wherever permitted. Expenditures for maintenance
and repairs are expensed; expenditures for renewals and improvements are
generally capitalized. Upon sale or retirement of an asset, the related costs
and accumulated depreciation are removed from the accounts and any gain or loss
is recognized. When events or changes in circumstances indicate that assets may
be impaired, an evaluation is performed comparing the estimated future
undiscounted cash flows associated with the asset to the asset's carrying amount
to determine if a write-down to market value or discounted cash flow value is
required. The Company follows the successful efforts method of accounting for
oil and gas properties. At December 31, 1997,1998, there were no significant oil and
gas properties in the production stage of development. The Company is
implementing an enterprise-wide information system. External direct costs of
materials and services and payroll-related costs of employees working solely on
development of the software system portion of the project are capitalized.
Capitalized costs of the project will be amortized over periods of three to ten
years beginning when the system is placed in service. Training costs and costs
to reengineer business processes are expensed as incurred.
Excess of cost over net assets acquired.Cost Over Net Assets Acquired. The excess of cost over net
assets acquired is amortized on a straight-line basis over periods not exceeding
40 years. Excess of cost over net assets acquired that is identified with
impaired assets, if any, will be evaluated using undiscounted future cash flows
as the basis for determining if impairment exists. To the extent impairment is
indicated to exist, an impairment loss will be recognized based on fair value.
Income Taxes. A valuation allowance is provided for deferred tax assets
if it is more likely than not these items will either expire before the Company
is able to realize their benefit, or that future deductibility is prohibited or uncertain.
Deferred tax assets and liabilities are recognized for the expected future tax
consequences of events that have been realized in the financial statements or
tax returns.
Derivative Instruments. The Company primarily enters into derivative
financial transactions to hedge existing or projected exposures to changing
foreign exchange rates and from time to time enters into derivatives to hedge
exposures to interest rates or commodity prices. The Company does not enter into
derivative transactions for speculative or trading purposes. Derivative
financial instruments to hedge exposure with an indeterminable maturity date are
generally carried at fair value with the resulting gains and losses reflected in
the results of operations. Gains or losses on hedges of identifiable commitments
are deferred and recognized when the offsetting gains or losses on the related
hedged items are recognized. Deferred gains or losses for hedges which are
terminated prior to the transaction date are recognized currently. In the event
27
an identifiable commitment is no longer expected to be realized, any deferred
gains or losses on hedges associated with the commitment are recognized
currently. Costs associated with entering into such contracts are presented in
other assets, while deferred gains or losses are included in other liabilities
or other assets, respectively, on the consolidated balance sheets. Recognized
gains or losses on derivatives entered into to manage foreign exchange risk are
included in foreign currency gains and losses on the consolidated statements of
income, while gains or losses on interest rate derivatives and commodity
derivatives are included in interest expense and operating income, respectively.
During the years ended December 31, 1998, 1997 1996 and 1995,1996, the Company did not
enter into any significant transactions to hedge interest rates or commodity
prices.
Foreign Currency Translation. Foreign entities whose functional
currency is the U.S. dollar translate monetary assets and liabilities at
year-end exchange rates and non-monetary items are translated at historical
rates. Income and expense accounts are translated at the average rates in effect
during the year, except for depreciation and cost of product sales which are
translated at historical rates. Gains or losses from changes in exchange rates
are recognized in consolidated income in the year of occurrence. Foreign
entities whose functional currency is the local currency translate net assets at
year-end rates and income and expense accounts at average exchange rates.
Adjustments resulting from these translations are reflected in the consolidated
statements of shareholders' equity section of the
consolidated balance sheets titled "cumulative translation adjustment."
20Note 2. Business Segment Information
The Company has three business segments. These segments are organized
around the products and services provided to the customers they serve. The
business units within each segment are evaluated on operating income, operating
margins and cash value added.
The Energy Services Group segment provides pressure pumping equipment
and services, logging and perforating, drilling systems and services, drilling
fluids systems, drill bits, specialized completion and production equipment and
services and well control. Also included in the Energy Services Group are
upstream oil and gas engineering, construction and maintenance services,
specialty pipe coating, insulation, underwater engineering services, integrated
exploration and production information systems and professional services to the
petroleum industry. The Energy Services Group has four business units:
Halliburton Energy Services, Brown & Root Energy Services, Landmark Graphics,
and Halliburton Energy Development. (In March 1999, Halliburton Energy
Development became a part of Halliburton Energy Services.) The long term
performance for these business units is linked to the long term demand for
hydrocarbons. The products and services the group provides are designed to help
discover, develop and produce hydrocarbons. The customers for this segment are
major oil companies, national oil companies and independent oil and gas
companies.
The Engineering and Construction Group segment provides engineering,
procurement, construction, project management, and facilities operation and
maintenance for hydrocarbon processing and other industrial and governmental
customers. The Engineering and Construction Group has two business units:
Kellogg-Brown & Root and Brown & Root Services. Both business units are engaged
in the delivery of engineering and construction services.
The Dresser Equipment Group segment designs, manufactures and markets
highly engineered products and systems for oil and gas producers, transporters,
processors, distributors and petroleum users throughout the world. Dresser
Equipment Group operates as one business unit.
The Company's equity in pretax income or losses of related companies is
included in revenues and operating income of the applicable segment.
Intersegment revenues included in the revenues of the other business segments
and sales between geographic areas are immaterial. General corporate assets not
included in a business segment are primarily comprised of receivables, deferred
tax assets, and certain other investments including the investment in the
Company's enterprise-wide information system.
The tables below represent the Company's adoption of Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information."
28
Operations by Business Segment
Years ended December 31
-----------------------------------------
Millions of dollars 1998 1997 1996
- -----------------------------------------------------------------------------------------------------
Revenues:
Energy Services Group $ 9,009.5 $ 8,504.7 $ 6,515.4
Engineering and Construction Group 5,494.8 4,992.8 4,720.7
Dresser Equipment Group 2,848.8 2,779.0 2,710.5
- -----------------------------------------------------------------------------------------------------
Total $ 17,353.1 $ 16,276.5 $ 13,946.6
- -----------------------------------------------------------------------------------------------------
Operating income:
Energy Services Group $ 971.0 $ 1,019.4 $ 698.0
Engineering and Construction Group 237.2 219.0 134.0
Dresser Equipment Group 247.8 248.3 229.3
Special charges and credits (980.1) (16.2) (85.8)
General corporate (79.4) (71.8) (72.3)
- -----------------------------------------------------------------------------------------------------
Total $ 396.5 $ 1,398.7 $ 903.2
- -----------------------------------------------------------------------------------------------------
Capital expenditures:
Energy Services Group $ 707.6 $ 682.9 $ 493.9
Engineering and Construction Group 33.5 61.5 105.6
Dresser Equipment Group 72.9 76.4 119.0
General corporate 100.3 59.3 12.6
- -----------------------------------------------------------------------------------------------------
Total $ 914.3 $ 880.1 $ 731.1
- -----------------------------------------------------------------------------------------------------
Depreciation and amortization:
Energy Services Group $ 405.4 $ 395.0 $ 338.5
Engineering and Construction Group 48.8 63.3 58.7
Dresser Equipment Group 86.8 98.6 92.8
General corporate 46.0 7.4 7.7
- -----------------------------------------------------------------------------------------------------
Total $ 587.0 $ 564.3 $ 497.7
- -----------------------------------------------------------------------------------------------------
Total assets:
Energy Services Group $ 6,618.1 $ 6,050.5 $ 4,999.2
Engineering and Construction Group 1,404.7 1,645.8 1,490.7
Dresser Equipment Group 1,944.2 2,115.3 2,126.8
General corporate 1,145.0 890.2 970.1
- -----------------------------------------------------------------------------------------------------
Total $ 11,112.0 $ 10,701.8 $ 9,586.8
- -----------------------------------------------------------------------------------------------------
Research and development:
Energy Services Group $ 220.0 $ 173.8 $ 150.1
Engineering and Construction Group 3.9 2.1 4.0
Dresser Equipment Group 84.2 83.3 63.9
- -----------------------------------------------------------------------------------------------------
Total $ 308.1 $ 259.2 $ 218.0
- -----------------------------------------------------------------------------------------------------
Special charges and credits:
Energy Services Group $ 721.1 $ (13.8) $ 43.1
Engineering and Construction Group 39.6 2.8 42.7
Dresser Equipment Group 21.1 27.2 -
General corporate 198.3 - -
- -----------------------------------------------------------------------------------------------------
Total $ 980.1 $ 16.2 $ 85.8
- -----------------------------------------------------------------------------------------------------
29
Operations by Geographic Area
Years ended December 31
------------------------------------------
Millions of dollars 1998 1997 1996
- ------------------------------------------------------------------------------------------------------
Revenues:
United States $ 6,132.2 $ 6,506.5 $ 5,730.0
United Kingdom 2,246.7 2,315.0 1,504.6
Other areas (over 120 countries) 8,974.2 7,455.0 6,712.0
- ------------------------------------------------------------------------------------------------------
Total $ 17,353.1 $ 16,276.5 $ 13,946.6
- ------------------------------------------------------------------------------------------------------
Long-lived assets:
United States $ 2,433.4 $ 2,518.9 $ 2,432.9
United Kingdom 609.9 775.0 626.9
Other areas (numerous countries) 1,055.0 982.8 956.6
- ------------------------------------------------------------------------------------------------------
Total $ 4,098.3 $ 4,276.7 $ 4,016.4
- ------------------------------------------------------------------------------------------------------
Note 2.3. Inventories
Inventories at December 31, 19971998 and 19961997 are comprised of the
following:
Millions of dollars 1998 1997
1996
- ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Sales items $ 114.9 $ 104.3
SuppliesFinished products and parts 158.1 136.3$ 638.3 $ 670.9
Raw materials and supplies 250.3 213.7
Work in process 29.3 30.4
Raw materials 24.6 21.2
-------------------------561.4 535.8
Progress payments (148.2) (121.2)
- -----------------------------------------------------------------------------------------
Total $ 326.91,301.8 $ 292.21,299.2
- ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Inventories on the last-in, first-out (LIFO) method were $167.9 million and
$195.9 million at December 31, 1998 and December 31, 1997, respectively. If the
average cost methodor FIFO methods had been in use for inventories on the LIFO basis,
total inventories would have been about $3.4$110.6 million and $13.0$100.8 million higher
than reported at December 31, 19971998 and 1996,1997, respectively.
Note 3.4. Property, Plant and Equipment
Property, plant and equipment at December 31, 19971998 and 19961997 is
comprised of the following:
Millions of dollars 1998 1997
1996
- ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Land $ 62.7142.2 $ 63.9136.0
Buildings and property improvements 624.0 568.21,131.6 1,055.9
Machinery, equipment and equipment 2,768.0 2,653.8
Other 533.3 274.9
-------------------------other 5,576.3 5,454.1
- -----------------------------------------------------------------------------------------
Total $ 3,988.06,850.1 $ 3,560.86,646.0
- ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
At December 31, 1998 and 1997, machinery, equipment and 1996, other property
includes oil and gas investments of approximately $223.7 million and $101.7
million, and $5.9 millionrespectively and software developed for internal usethe Company's enterprise wide
information system of $132.7 million and $59.5 million, and $10.0 million, respectively.
21
Note 4.5. Related Companies
The Company conducts some of its operations through various joint
ventures which are in partnership, corporate and other business forms, which are
principally accounted for using the equity method.
Included in the Company's
revenues for 1997, 1996 and 1995 are equity in income of related companies of
$124.4 million, $105.5 million and $88.4 million, respectively. Summarized
financial statements for30
The larger unconsolidated entities include European Marine Contractors,
Limited a(EMC), Bredero-Shaw and Ingersoll-Dresser Pump (IDP). EMC which is 50%
owned companyby a subsidiary of the Company and a part of the Energy Services Group, which
specializes in engineering, procurement and construction of marine pipelines, and for the remaining combined
jointly owned operations which are not consolidated are as follows:
COMBINED OPERATING RESULTS
Millions of dollars 1997 1996 1995
- -------------------------------------------------------------------------------------------
European Marine Contractors
Revenues $ 436.1 $ 246.5 $ 361.8
- -------------------------------------------------------------------------------------------
Operating income $ 75.9 $ 65.5 $ 106.9
- -------------------------------------------------------------------------------------------
Net income $ 48.5 $ 43.7 $ 72.6
- -------------------------------------------------------------------------------------------
Other Affiliates
Revenues $ 2,441.4 $ 2,276.4 $ 1,767.2
- -------------------------------------------------------------------------------------------
Operating income $ 247.2 $ 197.7 $ 92.9
- -------------------------------------------------------------------------------------------
Net income $ 202.5 $ 158.8 $ 63.0
- -------------------------------------------------------------------------------------------
COMBINED FINANCIAL POSITION
Millions of dollars 1997 1996
- -----------------------------------------------------------------------------------------
European Marine
Contractors
Current assets $ 214.6 $ 263.1
Noncurrent assets 31.7 25.6
---------------------------
Total $ 246.3 $ 288.7
- -----------------------------------------------------------------------------------------
Current liabilities $ 219.9 $ 226.4
Noncurrent liabilities 6.2 3.8
Shareholders' equity 20.2 58.5
---------------------------
Total $ 246.3 $ 288.7
- -----------------------------------------------------------------------------------------
Other Affiliates
Current assets $ 887.2 $ 871.3
Noncurrent assets 670.4 615.2
---------------------------
Total $ 1,557.6 $ 1,486.5
- -----------------------------------------------------------------------------------------
Current liabilities $ 450.6 $ 572.9
Noncurrent liabilities 303.4 277.4
Minority interests 8.1 6.6
Shareholders' equity 795.5 629.6
---------------------------
Total $ 1,557.6 $ 1,486.5
- -----------------------------------------------------------------------------------------
In the second quarter of 1997, Halliburton Energy Services,pipelines.
Bredero-Shaw, which is 50% owned by a subsidiary of the Company and part of the
Energy Services Group, acquiredspecializes in pipe coating. Effective February 29, 1996,
a 26% ownership interestsubsidiary of the Company entered into an agreement to form a joint venture
with Shaw Industries Ltd. (Shaw) by contributing its Bredero Price assets and
Shaw contributing its Shaw Pipe Protection assets on a worldwide basis. During
the fourth quarter of 1997, the Company and Shaw agreed to a long-term extension
of their strategic pipe coating alliance, Bredero-Shaw. In connection with the
new agreement, Shaw agreed to pay a subsidiary of the Company $50 million over a
four-year period. This transaction resulted in PES (International)
Limited (PES) for approximately $33.6a fourth quarter pretax gain of
$41.7 million which includes approximately $30.0
million excess of cost over net assets acquired to be amortized over thirty
years. The purchase price is included in acquisitions of businessesreported in the consolidated statements of cash flows.
22
income in the
caption "special charges and credits." For balance sheet purposes, at year-end
1997 the subsidiary of the Company deconsolidated Bredero-Shaw and accounted for
its 50% interest in the joint venture as an equity investment. The subsidiary of
the Company includes its share of equity earnings in the results of operations
beginning January 1, 1998 under the equity method. IDP which is 49% owned by a
subsidiary of the Company and part of the Dresser Equipment Group, manufactures
a broad range of pump products and services.
In the second quarter of 1996, M-I, Drilling Fluids Company, L.L.C.,formerly a 36% owned joint venture,
purchased Anchor Drilling Fluids. The Company's share of the purchase price was
$41.3 million and is included in cash flows from other investing activities. The
Company sold its 36% ownership interest in M-I to Smith International, Inc.
(Smith) on August 31, 1998. This transaction completed Halliburton's commitment
to the U.S. Department of Justice to sell its M-I interest in connection with
its merger with Dresser. The purchase price of $265 million was paid by Smith in
the form of a non-interest bearing promissory note due April 1999. This
receivable is included in "notes and accounts receivable" on the consolidated
balance sheets. All of M-I's debt remains an obligation of M-I.
Summarized financial statements for all combined jointly-owned
operations which are not consolidated are as follows:
Combined Operating Results
Millions of dollars 1998 1997 1996
- ----------------------------------------------------------------------------------------------
Revenues $ 5,244.0 $ 3,958.9 $ 3,505.5
- ----------------------------------------------------------------------------------------------
Operating income $ 478.3 $ 407.3 $ 325.7
- ----------------------------------------------------------------------------------------------
Net income $ 341.0 $ 316.2 $ 236.3
- ----------------------------------------------------------------------------------------------
Combined Financial Position
Millions of dollars 1998 1997
- ---------------------------------------------------------------------------
Current assets $ 1,854.2 $ 1,779.5
Noncurrent assets 322.3 576.0
- ---------------------------------------------------------------------------
Total $ 2,176.5 $ 2,355.5
- ---------------------------------------------------------------------------
Current liabilities $ 1,074.6 $ 859.6
Noncurrent liabilities 118.2 245.3
Minority interests 3.9 8.1
Shareholders' equity 979.8 1,242.5
- ---------------------------------------------------------------------------
Total $ 2,176.5 $ 2,355.5
- ---------------------------------------------------------------------------
31
Note 5.6. Income Taxes
The components of the (provision) benefit for income taxes are:
Millions of dollars 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------
Current income taxes
Federal $ (104.7)(301.8) $ (21.5)(167.2) $ (6.4)(82.0)
Foreign (178.7) (102.7) (79.9)(228.5) (306.1) (169.8)
State (7.2) (2.9) (5.4)
------------------------------------(7.5) (15.5) (10.0)
- ------------------------------------------------------------------------------------------------
Total (290.6) (127.1) (91.7)
------------------------------------(537.8) (488.8) (261.8)
- ------------------------------------------------------------------------------------------------
Deferred income taxes
Federal (1.3) 58.2 (11.2)291.8 5.4 61.2
Foreign and state (8.1) (34.4) (34.8)
------------------------------------1.6 (8.0) (47.8)
- ------------------------------------------------------------------------------------------------
Total (9.4) 23.8 (46.0)
------------------------------------293.4 (2.6) 13.4
- ------------------------------------------------------------------------------------------------
Total $ (300.0)(244.4) $ (103.3)(491.4) $ (137.7)(248.4)
- ------------------------------------------------------------------------------------------------
Included in federal income taxes are foreign tax credits of $88.4$182.2
million in 1998, $154.0 million in 1997 $63.7and $109.2 million in 1996 and $35.2 million in 1995.1996. The United
States and foreign components of income from continuing operations(loss) before income taxes and minority
interests are as follows:
Millions of dollars 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------
United States $ 461.4(306.4) $ 217.2736.8 $ 234.6484.2
Foreign 304.9 187.0 153.2
------------------------------------585.2 576.3 346.8
- ------------------------------------------------------------------------------------------------
Total $ 766.3278.8 $ 404.21,313.1 $ 387.8831.0
- ------------------------------------------------------------------------------------------------
2332
The primary components of the Company's deferred tax assets and
liabilities and the related valuation allowances are as follows:
Millions of dollars 1998 1997 1996
- ----------------------------------------------------------------------------------
Gross deferred tax assets
Employee benefit plans $ 120.0314.9 $ 95.2334.4
Special charges 135.3 -
Accrued liabilities 67.8 71.993.5 79.4
Insurance accruals 74.8 71.5
Construction contract accounting methods 50.4 38.693.0 70.6
Inventory 59.8 37.4
Intercompany profit 38.5 39.3 34.2
Insurance accruals 38.4 30.0
Net operating loss carryforwards 35.8 62.838.5 46.7
Intangibles 30.5 -
Foreign tax credits - 21.2 29.8
Alternative minimum tax carryforward 15.1 19.315.1
All other 75.7 82.2
----------------------125.7 80.1
- ----------------------------------------------------------------------------------
Total 463.7 464.0
----------------------1,019.6 795.7
- ----------------------------------------------------------------------------------
Gross deferred tax liabilities
Depreciation and amortization 76.1 56.785.0 124.5
Unrepatriated foreign earnings 25.5 35.6 34.1
Safe harbor leases 10.4 11.0 12.0
All other 99.6 85.0
83.6
----------------------- ----------------------------------------------------------------------------------
Total 207.7 186.4
----------------------220.5 256.1
- ----------------------------------------------------------------------------------
Valuation allowances
Net operating loss carryforwards 24.8 36.326.3 30.7
All other 3.7 33.3
34.0
----------------------- ----------------------------------------------------------------------------------
Total 58.1 70.3
----------------------30.0 64.0
- ----------------------------------------------------------------------------------
Net deferred income tax asset $ 197.9 $207.3769.1 $ 475.6
- ----------------------------------------------------------------------------------
The Company has provided for the potential repatriation of certain
undistributed earnings of its foreign subsidiaries and considers earnings above
the amounts on which tax has been provided to be permanently reinvested. While
these additional earnings could become subject to additional tax if repatriated,
such a repatriation is not anticipated. Any additional amount of tax is not
practicable to estimate.
24
The Company has foreign tax credits which expire in 2000 of $21.2 million.
The Company has net operating loss carryforwards which expire as
follows: 1998,
$13.11999 through 2003, $49.3 million; 1999, $15.32004 through 2008, $18.8 million;
2000, $9.6 million; 2001 through 2005, $16.1
million; 20062009 through 2010, $10.6$1.9 million. The Company also has net operating loss
carryforwards of $40.6$43.6 million with indefinite expiration dates. Reconciliations
between the actual provision for income taxes and that computed by applying the
U.S. statutory rate to income from continuing operations before income taxes and
minority interest are as follows:
33
Millions of dollars 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------
Provision computed at statutory rate $ (268.2)(97.6) $ (141.5)(459.6) $ (135.7)(290.9)
Reductions (increases) in taxes resulting from:
Tax differentials on foreign earnings (19.5) 3.7 (35.4)(19.8) (4.3) 14.2
State income taxes, net of federal income tax benefit (6.6) (2.9) (5.1)(7.8) (12.0) (7.0)
Net operating losses - 23.0 48.6- 22.7
Special charges (109.0) (3.0) (3.0)
Federal income tax settlement - - 16.1
-
Nondeductible meals and entertainment (5.4) (4.8) (5.0)goodwill (12.2) (12.5) (8.9)
Other items, net (0.3) 3.1 (5.1)
------------------------------------2.0 - 8.4
- ------------------------------------------------------------------------------------------------
Total $ (300.0)(244.4) $ (103.3)(491.4) $ (137.7)(248.4)
- ------------------------------------------------------------------------------------------------
The Company has received statutory notices of deficiency for the 1990
and 1991 tax years from the Internal Revenue Service (IRS) of $92.9 million and
$16.8 million, respectively, excluding any penalties or interest. The Company
believes it has meritorious defenses and does not expect that any liability
resulting from the 1990 or 1991 tax years will result in a material adverse
effect on its results of operations or financial position. In 1996, the Company
reached settlements with the IRS for certain matters including the 1989 taxable
year. As a result of the settlement for the 1989 taxable year, the Company
recognized tax benefits and net income was increased by $16.1 million in 1996.
Note 7. Special Charges and Credits
The Company has incurred various non-recurring transactions resulting
from acquisitions, profit initiatives, and industry downturns as summarized
below:
Asset Related Charges. Asset related charges include impairments and
write-offs of intangible assets and excess and/or duplicate machinery,
equipment, inventory and capitalized software. Charges also include write-offs
and lease cancellation costs related to acquired information technology
equipment replaced with the Company's standard common office equipment and exit
costs on other leased assets.
Personnel Charges. Personnel charges include severance and related
costs incurred to action announced employee reductions and personnel costs
related to change of control.
Facility Consolidation Charges. Facility consolidation charges include
costs to dispose of owned properties or exit leased facilities.
Merger Transaction Charges. Merger transaction costs include investment
banking, filing fees, legal and professional fees and other merger related
costs.
Other Charges. Other charges include eliminating duplicate agents,
contract cancellation costs and eliminating other duplicate capabilities.
34
Asset Facility Merger
Related Personnel Consolidation Transaction Other
Millions of dollars Charges Charges Charges Charges Charges Total
- -----------------------------------------------------------------------------------------------------------------------
1998 Charges to Expense
Business Segment
Energy Services Group $ 452.7 $ 156.7 $ 93.3 $ - $ 18.4 $ 721.1
Engineering & Construction Group 7.9 19.1 7.9 - 4.7 39.6
Dresser Equipment Group 18.1 1.4 1.6 - - 21.1
General corporate 30.7 57.5 23.4 64.0 22.7 198.3
- -----------------------------------------------------------------------------------------------------------------------
Total $ 509.4 $ 234.7 $ 126.2 $ 64.0 $ 45.8 $ 980.1
Utilized $ (442.3) $ (44.3) $ (3.4) $ (59.5) $ (4.2) $ (553.7)
- -----------------------------------------------------------------------------------------------------------------------
Balance - December 31, 1998 $ 67.1 $ 190.4 $ 122.8 $ 4.5 $ 41.6 $ 426.4
- -----------------------------------------------------------------------------------------------------------------------
The third quarter of 1998 financial results include a pretax charge of
$945.1 million ($722.0 million after tax) to provide for costs associated with
the Merger and industry downturn due to declining oil and gas prices. During the
fourth quarter, an additional charge of $35.0 million ($24.0 million after tax)
was taken to provide $30.0 million for additional personnel reduction costs
covering approximately 2,750 employees within the Energy Services Group and $5.0
million for additional facility consolidations within the Energy Services Group.
As a result of the Merger, Halliburton and Dresser's completion
products operations and its formation evaluation businesses have been combined,
excluding Halliburton's logging-while-drilling (LWD) business and a portion of
its measurement-while-drilling business which were required to be disposed of in
connection with a Department of Justice consent decree. See Note 14. Based on
the change in strategic direction, the outlook for the industry, the decision to
standardize equipment product offerings and the expected loss on the disposition
of the LWD business, the Company recorded impairments based upon anticipated
future cash flows in accordance with FAS 121. This resulted in write-downs of
excess of cost over net assets acquired of $254.2 million related to directional
drilling and formation evaluation assets acquired in 1993 from Smith
International Inc., formation evaluation assets acquired in the 1988 acquisition
of Gearhart Industries, Inc., and completion products assets acquired in
conjunction with the acquisitions of Mono Pumps and AVA in 1990 and 1992,
respectively. In addition, $162.5 million of excess and duplicated machinery,
equipment and inventory related to formation evaluation and completion products
have been written down.
Additional asset related charges within the Energy Services Group
include excess and redundant equipment, software, inventory and excess of cost
over net assets acquired of $36.0 million related to other product lines which
are combinations of Halliburton and Dresser operations. The remaining asset
related charges include $26.0 million of write-downs of redundant or impaired
equipment, software and inventory in the Engineering and Construction and
Dresser Equipment Groups, plus $30.7 million for write-downs of information
technology equipment to be replaced with standard equipment and other duplicated
shared services assets applicable to all segments. The majority of the asset
related balance of $67.1 million at December 31, 1998 represents the write-downs
to fair value less disposal costs at the expected disposal date. The majority of
the balance will be utilized during the first and second quarters of 1999 in
connection with planned activities.
Personnel charges in 1998 reflect announced headcount reductions of
10,850 affecting all segments, corporate and shared service functions. In total,
approximately 75% of the reductions will occur within the Energy Services Group.
During 1998, the Company reduced employment levels, primarily operations
personnel by approximately 5,000 (approximately 3,000 within North America and
1,100 within Latin America), including 4,700 within the Energy Services Group.
The remainder will be incurred over the balance of 1999, primarily during the
first and second quarter of the year.
35
As a result of the Merger and the industry downturn, the Company plans
to vacate, sell or close over 400 service, manufacturing and administrative
facilities throughout the world. Until the properties included in the facility
consolidation charges are vacated, the Company plans to continue its normal
depreciation, lease costs and operating expenses which will be charged against
the Company's results of operations. The majority of these facilities are within
the Energy Services Group. During the fourth quarter of 1998, the Company sold
or returned 33 service and administrative facilities. As of December 31, 1998,
the Company had an additional 100 vacated properties which it is in the process
of selling, subleasing or returning to the owner.
Halliburton and Dresser merger transaction costs amounted to $64.0
million. At December 31, 1998, $4.5 million in estimated merger transaction
costs remain to be paid.
Other charges of $45.8 million include the estimated contract exit
costs associated with the elimination of duplicate agents and suppliers in
various countries throughout the world. These costs will occur during 1999 in
connection with the Company's renegotiation of these contractual agreements.
At December 31, 1998, no adjustments or reversals to the remaining
accrued special charges are planned.
In the third quarter of 1997, a subsidiary of the Company sold certain
assets of its SubSea operations to Global Industries, Inc. for $102.0 million
cash. The Company recognized a loss of $9.7 million ($6.3 million after tax) on
the sale. Also in the third quarter of 1997, the Company recorded merger
transaction charges of $8.6 million (also $8.6 million after tax) for costs
incurred by the Company and NUMAR to complete the NUMAR acquisition.
In the fourth quarter of 1997, the Company recorded several
nonrecurring transactions. The Company recognized a pretax charge of $21.6
million ($14.0 million after tax) to provide $9.6 million within the Energy
Services Group and $6.4 million within the Dresser Equipment Group for various
asset related charges whose carrying value has been impaired and $5.6 million
for early retirement incentives. A subsidiary of the Company, along with its
joint venture partner Ingersoll-Rand Company, approved profit initiatives at
Dresser-Rand Company and Ingersoll-Dresser Pump Company. The Company's share of
these initiatives included facility consolidation charges of $18.0 million ($7.5
million after tax and minority interest) for the closure of a Dresser-Rand
facility in Europe, consolidation of repair and service operations and the
discontinuance of certain product lines. A subsidiary of the Company and Shaw
Industries, Ltd. agreed to a long-term extension of their strategic pipe coating
alliance. See Note 5. This transaction resulted in a pretax gain of $41.7
million.
Additionally, the Company recorded its share of personnel reduction
charges of $30.2 million recorded during the two-month period ended December 31,
1997 to reduce employment levels by approximately 1,000 at Dresser-Rand and
Ingersoll-Dresser Pump. These costs have been recorded in the consolidated
statements of shareholders' equity as part of conforming the fiscal year of
Dresser to Halliburton's calendar year. See Note 1.
During the first quarter of 1996, (seeLandmark recorded asset related
charges of $12.2 million ($8.7 million after tax) for the write-off of
in-process research and development activities acquired in connection with the
purchase by Landmark of certain assets and the assumption of certain liabilities
of Western Atlas International, Inc. and the write-off of related redundant
assets and activities.
During the third quarter of 1996, the Company recorded special charges
of $73.6 million ($50.3 million after tax), which included $41.0 million of
personnel charges to terminate approximately 1,000 employees related to
reorganization efforts within the Engineering and Construction Group and plans
to combine various administrative support functions throughout the Company into
shared services; $20.2 million of facility charges for restructuring certain
Engineering and Construction Group businesses, provide for excess lease space
and other items; and $12.4 million for merger transaction costs incurred in
relation to the merger with Landmark.
The special charges to net income in the third quarter of 1996 were
offset by tax credits during the same quarter of $43.7 million due to the
recognition of net operating loss carryforwards and the settlement during the
quarter of various issues with the Internal Revenue Service (IRS). The Company
reached agreement with the IRS and recognized net operating loss carryforwards
of $62.5 million ($22.5 million in tax benefits) from the 1989 tax year. The net
operating loss carryforwards were utilized in the 1996 tax year. In addition,
the Company also reached agreement with the IRS on issues related to
intercompany pricing of goods and services for the tax years 1989 through 1992
and entered into an advanced pricing agreement for the tax years 1993 through
1998. As a result of these agreements with the IRS, the Company recognized tax
36
benefits of $16.1 million. The Company also recognized net operating loss
carryforwards of $14.0 million ($5.1 million in tax benefits) in certain foreign
areas due to improving profitability and restructuring of foreign operations.
Note 16).
25
Note 6.8. Lines of Credit, Notes Payable and Long-Term Debt
Short-term notes payable and current maturities consists of:
Millions of dollars 1998 1997
- ------------------------------------------------------------------------------------
Short-term notes payable $ 515.0 $ 50.5
Current maturities of long-term debt 58.5 7.4
- ------------------------------------------------------------------------------------
Total $ 573.5 $ 57.9
- ------------------------------------------------------------------------------------
At December 31, 1997,year-end 1998, the Company had committed short-term lines of credit
totaling $200.0$550.0 million available and unused, and other short-term lines of
credit totaling $275.0 million with several U.S. banks. No$315.0 million. There were no borrowings were outstanding under these
facilities at December 31, 1997. In addition, the
Company had $2.7 million of otherfacilities. The remaining short-term debt outstanding at December 31,
1997,consists primarily consisting of foreign bank overdrafts with an average interest
rate of 7.31%. At December 31, 1996, the Company had committed short-term lines
of credit totaling $185.0 million available and unused, and other short-term
lines of credit totaling $275.0 million, under which $25.0$462.9 million
in borrowings
was outstanding with several U.S. banks. The interest rate on these borrowings
was 5.65%. In addition, the Company had $21.3 million of other short-term debt
outstanding at December 31, 1996, primarily consisting of commercial paper with an effective interest rate of 5.85%.5.30% and $52.1 million
in foreign bank loans and overdraft facilities with varying rates of interest.
Long-term debt at December 31,the end of 1998 and 1997 and 1996 consists of the following:
Millions of dollars 1998 1997 1996
- ------------------------------------------------------------------------------------
6.25% notes due June 2000 $ 300.0 $ 300.0
7.6% debentures due August 2096 300.0 300.0
8.75% debentures due February 15, 2021 $ 200.0 $ 200.0
8% senior notes due April 2003 138.6 149.5
Medium-term notes due February 1,1999 through 2027 125.0 -
Medium-term notes due May 12, 2017 50.0 -
Medium-term notes due July 8, 1999 50.0 -
Medium-term notes due August 5, 2002 75.0 -450.0 300.0
Term loans at LIBOR (GBP) plus 0.75% payable in
semi-annual installments through March 20042002 29.4 45.9 -
Other notes with varying interest rates 0.1 0.1
------------------------
546.0 200.110.2 8.9
- ------------------------------------------------------------------------------------
1,428.2 1,304.3
Less current portion 7.1 0.1
------------------------58.5 7.4
- ------------------------------------------------------------------------------------
Total long-term debt $ 538.91,369.7 $ 200.01,296.9
- ------------------------------------------------------------------------------------
The Company's 8.75% debentures due February 15, 2021 do not have sinking
fund requirements and are not redeemable prior to maturity. During 1997, the
Company has issued notes under its medium-term note program as
follows:
Amount Issue Date Due Rate Prices Yield
----------------- ---------------- ----------------- ------------- -------------- -----------------------------------------------------------------------------------------------------------------------
$ 125 million 02/11/97 02/01/2027 6.75% 99.78% 6.78%
$ 50 million 05/12/97 05/12/2017 7.53% Par 7.53%
$ 50 million 05/12/07/08/97 05/12/2017 7.53%07/08/1999 6.27% Par 7.53%6.27%
$ 5075 million 07/08/05/97 07/08/1999 6.27%05/2002 6.30% Par 6.27%6.30%
$ 75150 million 08/05/97 08/05/2002 6.30% Par 6.30%11/24/98 12/01/2008 5.63% 99.97% 5.63%
-----------------------------------------------------------------------------------------------------------
The Company's 8.75% debentures due February 2021 do not have sinking
fund requirements and are not redeemable prior to maturity. The medium-term
notes may not be redeemed at the option of the Company prior to maturity. There
is no sinking fund applicable to the notes. Each holder of the 6.75% medium-term
notes has the right to require the Company to repay such holder's notes, in
whole or in part, on February 1, 2007. The net proceeds from the sale of the
notes were used for general corporate purposes.
During March 1997, a subsidiary of the Company incurred $56.3 million
of term loans in connection with the acquisition of the Royal Dockyard in
Plymouth, England (the Dockyard Loans). The Dockyard Loans are denominated in
Sterling37
GBP and bear interest at LIBOR (GBP) plus 0.75% payable in semi-annual
installments through March 2004.2002. Pursuant to certain terms of the Dockyard
Loans, a subsidiary of the Company was initially required to provide initially a
compensating balance of $28.7 million which is restricted as to use by the
Company.subsidiary. The compensating balance amount decreases in equal
installments overproportion to the
term ofoutstanding debt related to the Dockyard Loans and earns interest at a rate
equal to that of the Dockyard Loans. At December 31, 1997,1998, the compensating
balance of $22.8$14.9 million is included in other assets in the consolidated balance
sheets.
Long-term debt matures over the next five years as follows: $7.1 million in
1998; $58.4$58.5
million in 1999; $8.3$308.3 million in 2000; $8.3 million in 2001; and
$83.3$85.3 million in
2002.
262002; and $138.8 million in 2003.
Note 9. Dresser Financial Information
Dresser Industries Inc. has ceased filing periodic reports with the
Securities and Exchange Commission. Dresser's 8% senior notes (the Notes) remain
outstanding and the Notes are fully guaranteed by the Company. See Note 8. As
long as the Notes remain outstanding, summarized financial information of
Dresser will be presented in periodic reports filed by the Company on Form 10-K
and Form 10-Q. The Company has not presented separate financial statements and
other disclosures concerning Dresser because management has determined such
information is not material to holders of the Notes.
In January 1999, as part of the legal reorganization associated with
the Merger, Halliburton Delaware, Inc., a first tier holding company subsidiary,
was merged into Dresser Industries, Inc. As a result of this action, the
majority of the operating assets and activities of the combined company in 1999
will be included within the legal structure of Dresser Industries, Inc.
Dresser Industries, Inc.
Financial Position December 31 October 31
- -------------------------------------------------------------------------------------------------
Millions of dollars 1998 1997
- -------------------------------------------------------------------------------------------------
Current assets $ 2,417.2 $ 2,471.6
Noncurrent assets 2,613.7 2,627.2
- -------------------------------------------------------------------------------------------------
Total $ 5,030.9 $ 5,098.8
- -------------------------------------------------------------------------------------------------
Current liabilities $ 1,388.6 $ 1,687.4
Noncurrent liabilities 1,544.4 1,535.5
Minority interest 153.5 143.7
Shareholders' equity 1,944.4 1,732.2
- -------------------------------------------------------------------------------------------------
Total $ 5,030.9 $ 5,098.8
- -------------------------------------------------------------------------------------------------
Twelve months ended
Dresser Industries, Inc. -----------------------------------------------------------
Operating Results December 31 October 31 October 31
- ----------------------------------------------------------------------------------------------------------------------
Millions of dollars 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------------
Revenues $ 8,135.7 $ 7,457.9 $ 6,561.5
- ----------------------------------------------------------------------------------------------------------------------
Operating income $ 677.1 $ 600.6 $ 485.3
- ----------------------------------------------------------------------------------------------------------------------
Net income $ 343.8 $ 318.0 $ 257.5
- ----------------------------------------------------------------------------------------------------------------------
Note 10. Commitments and Contingencies
Leases. At year end 1998, the Company and its subsidiaries were
obligated under noncancelable operating leases, expiring on various dates
through 2021, principally for the use of land, offices, equipment, field
facilities, and warehouses. Aggregate rentals charged to operations for such
leases totaled $207.1 million in 1998, $202.8 million in 1997 and $177.8 million
in 1996. Future aggregate rentals on noncancelable operating leases are as
follows: 1999, $147.3 million; 2000, $121.0 million; 2001, $96.6 million; 2002,
$83.1 million; 2003, $60.9 million; and thereafter, $150.7 million.
38
Asbestosis Litigation. Since 1976, Dresser and its former divisions or
subsidiaries have been involved in litigation resulting from allegations that
third parties had sustained injuries and damage from the inhalation of asbestos
fibers contained in certain products manufactured by Dresser and its former
divisions or subsidiaries or companies acquired by Dresser.
Over the last 20 years approximately 183,000 claims have been filed
against Dresser and its former divisions or subsidiaries. Claims continue to be
filed with 29,400 new claims filed in 1998. Dresser and its former divisions or
subsidiaries have entered into agreements with insurance carriers which cover,
in whole or in part, indemnity payments, legal fees and expenses for certain
categories of claims. Dresser and its former divisions or subsidiaries are in
negotiation with carriers over coverage for the remaining categories of claims.
Because these agreements are governed by exposure dates, payment type and the
product involved, the covered amount varies by individual claim. In addition,
lawsuits are pending against several carriers seeking to recover additional
amounts related to these claims.
Since 1976, Dresser and its former divisions and subsidiaries have
settled or disposed of 120,000 claims for a gross cost of approximately $89.1
million with insurance carriers paying all but $37.0 million. Provision has been
made for the estimated exposure, based on historical experience and expected
recoveries from insurance carriers, related to the 63,400 claims which were open
at the end of 1998 including 14,000 for which settlements are pending.
Management has no reason to believe that the insurance carriers will not be able
to meet their share of future obligations under the agreements.
Pursuant to an agreement entered into at the time of the spin-off,
Global Industrial Technologies, Inc. ("Global" formerly INDRESCO, Inc.) assumed
liability for asbestos related claims filed against Dresser after July 31, 1992
relating to refractory products manufactured or marketed by the Harbison-Walker
Refractories Division of Dresser Industries, Inc. These asbestos claims are
subject to certain agreements with insurance carriers that cover expense and
indemnity payments. Global now disputes that it assumed responsibility for any
of such asbestos claims based on negligence. Global also now asserts certain
other claims relating to the insurance coverage responding to asbestos claims.
In order to resolve these assertions, Global has invoked the dispute resolution
provisions of the 1992 agreement, which require binding arbitration. On February
19, 1999 Dresser filed suit in the Delaware Chancery Court seeking an injunction
to restrain such arbitration as being barred by the Delaware statute of
limitations. The Company believes that these new assertions by Global are
without merit and intends to vigorously defend itself against them.
Management recognizes the uncertainties of litigation and the
possibility that a series of adverse rulings could materially impact operating
results. However, based upon Dresser's historical experience with similar
claims, the time elapsed since Dresser and its former divisions or subsidiaries
discontinued sale of products containing asbestos, and management's
understanding of the facts and circumstances that gave rise to such claims,
management believes that the pending asbestos claims will be resolved without
material effect on Halliburton's financial position or results of operations.
Environmental. The Company is involved through its subsidiaries as a
potential responsible party (PRP) in remedial activities to clean up various
"Superfund" sites under applicable federal law which imposes joint and several
liability, if the harm is indivisible, on certain persons without regard to
fault, the legality of the original disposal, or ownership of the site. Although
it is very difficult to quantify the potential impact of compliance with
environmental protection laws, management of the Company believes that any
liability of the Company with respect to all but one of such sites will not have
a material adverse effect on the results of operations of the Company.
With respect to a site in Jasper County, Missouri (Jasper County
Superfund Site), sufficient information that would enable management to quantify
the Company's potential liability has not been developed and management believes
the process of determining the nature and extent of remediation at this site and
the total costs thereof will be lengthy. Brown & Root, Inc., now Kellogg Brown &
Root, Inc. (KBR), a subsidiary of the Company, has been named as a PRP with
respect to the Jasper County Superfund Site by the Environmental Protection
Agency (EPA). The Jasper County Superfund Site includes areas of mining activity
that occurred from the 1800s through the mid 1950s in the southwestern portion
of Missouri. The site contains lead and zinc mine tailings produced from mining
activities. KBR is one of nine participating PRPs that have agreed to perform a
Remedial Investigation/Feasibility Study (RI/FS), which, due to various delays,
is not expected to be completed until late 1999. Although the entire Jasper
39
County Superfund Site comprises 237 square miles as listed on the National
Priorities List, in the RI/FS scope of work, the EPA has only identified seven
areas, or subsites, within this area that need to be studied and then possibly
remediated by the PRPs. Additionally, the Administrative Order on Consent for
the RI/FS only requires KBR to perform RI/FS work at one of the subsites within
the site, the Neck/Alba subsite, which only comprises 3.95 square miles. KBR's
share of the cost of such a study is not expected to be material. In addition to
the Superfund issues, the State of Missouri has indicated that it may pursue
natural resource damage claims against the PRPs. At the present time KBR cannot
determine the extent of its liability, if any, for remediation costs or natural
resource damages on any reasonably practicable basis.
General Litigation. The purchasers of Dresser's former hand tool
division sued Dresser for fraud in connection with the October 1983 transaction.
In May 1994, the jury returned a verdict awarding the plaintiffs $4.0 million in
compensatory damages and $50.0 million in punitive damages. On October 13, 1994,
the Court ordered a reduction of damages from $54.0 to $12.0 million. On October
15, 1996, the Court of Appeals issued its decision reversing the trial court's
decision as to compensatory and punitive damages and remanding the case for a
new trial on damages. On remand, the trial court ordered that the new trial
contemplated by the appellate decision be limited to compensatory damages only,
despite the express statement that punitive damages were also reversed, and
decided that the court would review the original punitive damages verdict after
the retrial on compensatory damages.
As of October, 1998 the trial was held on compensatory damages and
concluded with a jury award of $1. Following that, a hearing was held in
January, at which the judge reduced the punitive damage award from $50 million
to $650,000. The sum of $650,001 was paid during the first week of February
1999, and this case is now concluded.
Merger. In connection with the Merger, Dresser and its directors have
been named as defendants in three lawsuits filed in late February of 1998 and
early March of 1998 in the Delaware Court of Chancery. The lawsuits each purport
to be a class action filed on behalf of Dresser's stockholders and allege that
the consideration to be paid to Dresser's stockholders in the Merger is
inadequate and does not reflect the true value of Dresser. The complaints also
each allege that the directors of Dresser have breached their fiduciary duties
in approving the Merger. One of the actions further alleges self-dealing on the
part of the individual defendants and asserts that the directors are obliged to
conduct an auction to assure that stockholders receive the maximum realizable
value for their shares. All three actions seek preliminary and permanent
injunctive relief as well as damages. On June 10, 1998 the court issued an order
consolidating the three lawsuits which requires the plaintiffs to file an
amended consolidated complaint "as soon as practicable." To date, plaintiffs
have not filed an amended complaint. The Company believes that the lawsuits are
without merit and intends to defend the lawsuits vigorously.
Other. The Company and its subsidiaries are parties to various other
legal proceedings. Although the ultimate dispositions of such proceedings are
not presently determinable, in the opinion of the Company any liability that may
ensue will not be material in relation to the consolidated financial position
and results of operations of the Company.
40
Note 7.11. Income Per Share
Millions of dollars and shares
except per share data 1998 1997 1996
- ----------------------------------------------------------------------------------------
Net income (loss) $ (14.7) $ 772.4 $ 557.9
- -----------------------------------------------------------------------------------------
Basic weighted average shares 438.8 431.1 429.2
Effect of common stock equivalents - 5.0 2.9
- -----------------------------------------------------------------------------------------
Diluted weighted average shares 438.8 436.1 432.1
- -----------------------------------------------------------------------------------------
Income (loss) per common share:
Basic $ (0.03) $ 1.79 $ 1.30
- -----------------------------------------------------------------------------------------
Diluted $ (0.03) $ 1.77 $ 1.29
- -----------------------------------------------------------------------------------------
Basic income per share amounts are based on the weighted average number
of common shares outstanding during the period. Diluted income per share
includes additional common shares that would have been outstanding if potential
common shares with a dilutive effect had been issued. Diluted earnings per share
for 1998 excludes 3.3 million potential common shares which were antidilutive
for earnings per share purposes. Also excluded from the computation of diluted
earnings per share are options to purchase 1.4 million shares of common stock in
1998; 1.1 million shares in 1997; and 2.6 million shares in 1996. These options
were outstanding during these respective years, but were excluded because the
option exercise price was greater than the average market price of the common
shares.
Note 12. Common Stock
On June 25, 1998, the Company's shareholders voted to increase the
Company's number of authorized shares from 400.0 million to 600.0 million.
On May 20, 1997, the Company's shareholders voted to increase the
Company's number of authorized shares from 200.0 million shares to 400.0 million
shares. On June 9, 1997, the Company's Board of Directors approved a two-for-one
stock split effected in the form of a stock dividend distributed on July 21,
1997 to shareholders of record on June 26, 1997. The par value of the Company's
common stock of $2.50 per share remained unchanged. As a result of the stock
split, $325.0$556.3 million was transferred from paid-in capital in excess of par
value to common stock. Historical share and per share amounts presented on the
supplemental consolidated statements of income and in the discussion below
concerning stock options and restricted stock have been restated to reflect the
stock split.
The Company's 1993 Stock and Long-Term Incentive Plan (1993 Plan)
provides for the grant of any or all of the following types of awards: (1) stock
options, including incentive stock options and non-qualified stock options; (2)
stock appreciation rights, in tandem with stock options or freestanding; (3)
restricted stock; (4) performance share awards; and (5) stock value equivalent
awards. Under the terms of the 1993 Plan as amended, 27 million shares of the
Company's Common Stock have been reserved for issuance to key employees. At
December 31, 1997, 14.81998, 14.6 million shares were available for future grants under
the 1993 Plan.
In connection with the acquisitions of Dresser, Landmark Graphics
Corporation (Landmark) and NUMAR Corporation (NUMAR) (see Note 15)14), outstanding
stock options under the stock option plans maintained by Dresser, Landmark and
NUMAR were assumed by the Company. Stock option transactions summarized below
include amounts for the 1993 Plan, the Dresser plans using the acquisition
exchange rate of 1 share for each Dresser share, the Landmark plans using the
acquisition exchange rate of 1.148 shares for each Landmark share, and the NUMAR
plans using the acquisition exchange rate of .9664 shares for each NUMAR share.
The period from December 1997 to December 1998 includes Dresser's activities
from its fiscal year-end of October 1997 to December 1997 in order to conform
Dresser's fiscal year-end to Halliburton's calendar year-end.
41
Exercise Weighted Average
Number of Price per Exercise Price
Stock Options Shares Share per Share
- ---------------------------------------------------------------------------------------------------
Outstanding at December 31, 1994 6,229,6421995 12,289,650 $ 0.532.90 - 29.73 $ 15.6918.53
- ---------------------------------------------------------------------------------------------------
Granted 3,966,714 15.68 - 25.32 20.53
Exercised (701,548) 0.53 - 20.91 13.81
Forfeited (265,194) 8.71 - 28.77 17.27
- ---------------------------------------------------------------------------------------------------
Outstanding at December 31, 1995 9,229,614 2.90 - 29.73 17.87
- ---------------------------------------------------------------------------------------------------
Granted 3,599,3404,295,409 14.48 - 29.57 27.7027.49
Exercised (1,994,574)(2,722,828) 2.90 - 23.52 15.5823.88 16.72
Forfeited (445,660) 8.71 - 28.09 18.81
- ---------------------------------------------------------------------------------------------------
Outstanding at December 31, 1996 10,388,72013,416,571 3.49 - 29.73 21.6721.77
- ---------------------------------------------------------------------------------------------------
Options assumed in acquisition 854,050 3.10 - 22.12 12.22
Granted 1,263,600 30.882,194,972 30.69 - 61.50 52.1946.18
Exercised (2,765,247)(3,684,923) 3.10 - 29.56 16.8217.95
Forfeited (325,573)(395,833) 9.15 - 35.13 21.5639.88 22.69
- ---------------------------------------------------------------------------------------------------
Outstanding at December 31, 1997 9,415,55012,384,837 3.10 - 61.50 26.55
- ---------------------------------------------------------------------------------------------------
Granted 4,273,368 26.19 - 46.50 33.07
Exercised (2,435,393) 3.10 - 37.88 20.84
Forfeited (397,610) 5.40 - 54.50 33.64
- ---------------------------------------------------------------------------------------------------
Outstanding at December 31, 1998 13,825,202 $ 3.10 - 61.50 $ 26.3529.37
- ---------------------------------------------------------------------------------------------------
27
Options outstanding at December 31, 19971998 are composed of the following:
Outstanding Exercisable
------------------------------------------------ --------------------------------
Weighted
Number of Average Weighted Number of Weighted
Shares at Remaining Average Shares at Average
Range of December 31, Contractual Exercise December 31, Exercise
Exercise Prices 19971998 Life Price 19971998 Price
- ---------------------- ----------------- -------------- --------------- ---------------- --------------------------------------------------------------------------------------------------------------------------
$ 3.10 - 11.11 351,453 4.8714.38 354,189 3.81 $ 7.20 345,65710.36 354,189 $ 7.13
11.2510.36
14.48 - 18.13 2,309,203 6.93 16.35 1,957,596 16.281,806,304 6.12 16.68 1,660,940 16.71
18.24 - 29.19 3,002,268 7.21 22.75 1,792,155 22.115,519,919 7.88 25.28 2,943,534 23.11
29.56 - 61.50 3,752,626 9.22 37.18 808,284 29.566,144,790 8.30 37.87 2,885,151 35.46
- ---------------------- ----------------- -------------- --------------- ---------------- --------------------------------------------------------------------------------------------------------------------------
$ 3.10 - 61.50 9,415,550 7.8513,825,202 7.73 $ 26.35 4,903,69229.37 7,843,814 $ 19.9625.72
- ---------------------- ----------------- -------------- --------------- ---------------- --------------------------------------------------------------------------------------------------------------------------
There were 4.56.9 million options exercisable with a weighted average
exercise price of $17.52$21.17 at December 31, 1996,1997, and 2.66.5 million options
exercisable with a weighted average exercise price of $15.64$18.57 at December 31,
1995.1996.
All stock options under the 1993 Plan, including options granted to
employees of Dresser, Landmark and NUMAR since the acquisition of such
companies, are granted at the fair market value of the Common Stock at the grant
date. Landmark, prior to its acquisition by the Company, had provisions in its
plans that allowed Landmark to set option exercise prices at a defined
percentage below fair market value.
The fair value of options at the date of grant was estimated using the
Black-Scholes option pricing model. The weighted average assumptions and
resulting fair values of options granted are as follows:
42
Assumptions ------------------------------------------------------------------- Weighted Average
---------------------------------------------------------------------
Risk-Free Expected Expected Expected Fair Value of
Interest Rate Dividend Yield Life (in years) Volatility Options Granted
- -------------------- ----------------- ----------------- ----------------- ------------- -------------------------------------------------------------------------------------------------------------------------------------
1998 4.3 - 5.3% 1.2 - 2.7% 5 - 6.5 20.1 - 38.0% $ 11.63
1997 6.0% 1.0%6.0 - 6.4% 1.0 - 2.7% 5 - 6.5 22.8 - 43.3% $ 22.7117.29
1996 5.8 - 5.9% 1.6%1.6 - 2.7% 5 - 6.5 23.1 - 39.7% $ 10.24
1995 6.2% 1.6% 5 38.4% $ 7.169.44
- -------------------- ----------------- ----------------- ----------------- ------------- -------------------------------------------------------------------------------------------------------------------------------------
Stock options generally expire ten years from the grant date. Stock
options vest over a three-year period, with one-third of the shares becoming
exercisable on each of the first, second and third anniversaries of the grant
date.
The Company accounts for the 1993 Planits option plans in accordance with Accounting
Principles Board Opinion No. 25, under which no compensation cost has been
recognized for stock option awards. Had compensation cost for the 1993 PlanCompany's
stock option programs been determined consistent with Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS
123), the Company's pro forma net income (loss) for 1998, 1997 1996 and 19951996 would
have been $437.6$(42.6) million, $292.4$750.3 million and $181.6$547.1 million, respectively,
resulting in diluted earnings (loss) per share of $1.69, $1.16$(0.10), $1.72 and $0.73,$1.27,
respectively. Because the SFAS 123 method of
accounting has not been applied to options granted prior to January 1, 1995, the
resulting pro forma compensation cost may not be representative of that to be
expected in future years.
Restricted shares awarded under the 1993 Plan for 1998, 1997 and 1996
were 414,510; 515,650; and 1995 were
515,650; 363,800; and 412,700,363,800, respectively. The shares awarded are net of
forfeitures of 136,540; 34,900; 34,600; and 9,80034,600 shares in 1998, 1997 1996 and 1995,1996,
respectively. The weighted average fair market value per share at the date of
grant of shares granted in 1998, 1997 and 1996 was $34.77, $45.29 and 1995 was $45.29, $28.24, and $20.44,
respectively.
The Company's Restricted Stock Plan for Non-Employee Directors
(Restricted Stock Plan) allows for each non-employee director to receive an
annual award of 400 restricted shares of Common Stock as a part of compensation.
The Company reserved 100,000 shares of Common Stock for issuance to non-employee
directors. The Company issued 3,200; 3,6003,200 and 3,2003,600 restricted shares in 1998,
1997 1996 and 1995,1996, respectively, under this plan. At December 31, 1997, 17,2001998, 20,400
shares have been issued to non-employee directors under this plan. The weighted
average fair market value per share at the date of grant of shares granted in
1998, 1997 and 1996 was $36.31, $46.06 and 1995 was $46.06, $26.57, and $20.38, respectively.
28
The Company's Employees' Restricted Stock Plan was established for
employees who are not officers, for which 200,000 shares of Common Stock have
been reserved. The Company awarded 3,500 restrictedAt December 31, 1998, 170,300 shares in 1995.(net of 26,700 shares
forfeited) have been issued. Forfeitures were 14,600;1,900; 14,600 and 8,400 in 1998,
1997 and 1,800 in 1997, 1996, and 1995, respectively. No awards
were made in 1997 or 1996respectively, and no further grants are being made under this
plan.
At December 31, 1997, 172,200 shares (net of 24,800 shares forfeited) have been
issued. The weighted average fair market value per share at the date of grant
for shares granted in 1995 was $17.50.
Under the terms of the Company's Career Executive Incentive Stock Plan,
15 million shares of the Company's Common Stock were reserved for issuance to
officers and key employees at a purchase price not to exceed par value of $2.50
per share. At December 31, 1997,1998, 11.7 million shares (net of 2.12.2 million shares
forfeited) have been issued under the plan. No further grants will be made under
the Career Executive Incentive Stock Plan.
Restricted shares issued under the 1993 Plan, Restricted Stock Plan,
Employees' Restricted Stock Plan and the Career Executive Incentive Stock Plan
are limited as to sale or disposition with such restrictions lapsing
periodically over an extended period of time not exceeding ten years. The fair
market value of the stock, on the date of issuance, is being amortized and
charged to income (with similar credits to paid-in capital in excess of par
value) generally over the average period during which the restrictions lapse.
Compensation costs recognized in income for 1998, 1997 and 1996 and 1995 were $7.6
million, $7.1 million $6.9 million and $7.0$6.9 million, respectively. At December 31, 1997,1998, the
unamortized amount is $44.3$50.6 million.
Note 8. Income per share
The Company has adopted Statement of Financial Accounting Standards No.
128, "Earnings per Share," which is effective for periods ending after December
15, 1997. The table below reconciles basic and diluted income from continuing
operations. For the years presented, diluted earnings per share were equivalent
to primary earnings per share previously reported pursuant to Accounting
Principles Board Opinion No. 15.
Millions of dollars and shares except per share data 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------
Income from continuing operations $ 454.4 $ 300.4 $ 249.2
- ---------------------------------------------------------------------------------------------------------
Basic weighted average shares 255.4 249.9 248.3
Effect of common stock equivalents 4.1 2.3 1.1
- ---------------------------------------------------------------------------------------------------------
Diluted weighted average shares 259.5 252.2 249.4
- ---------------------------------------------------------------------------------------------------------
Per share income from continuing operations:
Basic $ 1.78 $ 1.20 $ 1.00
- ---------------------------------------------------------------------------------------------------------
Diluted $ 1.75 $ 1.19 $ 1.00
- ---------------------------------------------------------------------------------------------------------
Options to purchase 1.1 million, 2.6 million and 0.9 million shares of common
stock were outstanding during 1997, 1996 and 1995, respectively, but were not
included in the computation of diluted earnings per share because the option
exercise price was greater than the average market price of the common shares.
During 1995, there were 6.6 million weighted average shares and $12.5 million in
income related to the conversion of the zero coupon convertible debentures that
were excluded from the computation because they were antidilutive.
Note 9.13. Series A Junior Participating Preferred Stock
The Company has previously declared a dividend of one preferred stock
purchase right (a Right) on each outstanding share of Common Stock. This
dividend is also applicable to each share of Halliburton Common Stock that was
issued subsequent to adoption of the Rights Agreement entered into with
ChaseMellon Shareholder Services, L.L.C. (the Rights Agent). Each Right entitles
theits holder thereof to buy one two-hundredth of a share of the Company's Series A Junior
43
Participating Preferred Stock, without par value, at an exercise price of $75,$75.
These Rights are subject to certain antidilution adjustments, upon the terms and
subject to the conditionswhich have been
set forthout in the Rights Agreement entered into with ChaseMellon Shareholder Services, L.L.C. asthe Rights Agent. The Rights
do not have any voting rights and are not entitled to dividends.
The Rights become exercisable in certain limited circumstances
involving a potential business combination. Following certain other events afterAfter the Rights become exercisable,
each Right will entitle its holder to an amount of Common 29
Stock of the Company,
or in certain circumstances, securities of the acquirer, having in the
aggregate, a then-current market value ofequal to two times the exercise price of the Right.
The Rights are redeemable at the Company's option at any time before they become
exercisable. The Rights expire on December 15, 2005. No event during 19971998 made
the Rights exercisable.
Note 10. Business Segment Information14. Acquisitions and Dispositions
Dresser Merger. On September 29, 1998 the Company completed the
acquisition of Dresser Industries, Inc. (the Merger), by converting the
outstanding Dresser common stock into an aggregate of approximately 176 million
shares of Common Stock of the Company. The Energy GroupCompany has also reserved
approximately 7.3 million shares of common stock for outstanding Dresser stock
options and other employee and directors plans. The Merger qualified as a
tax-free exchange to Dresser's shareholders for U.S. federal income tax purposes
and was accounted for using the pooling of interests method of accounting for
business combinations. Accordingly, the Company's financial statements have been
restated to include the results of Dresser for all periods presented. Beginning
in 1998, Dresser's year-end of October 31 has been conformed to Halliburton's
calendar year-end. Periods through December 1997 contain Dresser's information
on a fiscal year-end basis combined with Halliburton's information on a calendar
year-end basis. For the two months ended December 31, 1997, Dresser had revenues
of $1,110.2 million, operating income of $53.2 million, and net income of $35.8
million. Operating income for the two-month period includes pressure pumping equipmenta pretax special
charge of $30.2 million ($12.0 million after tax and services, loggingminority interest) related
to Dresser's share of profit improvement initiatives at the Dresser-Rand and
perforating, drilling systemsIngersoll-Dresser Pump joint ventures.
Results for the two-month period have been included in retained
earnings, and services, specialized completiondividends of $33.2 million paid in December 1997 have been
deducted from retained earnings in the consolidated statements of shareholders'
equity at December 31, 1998 as conforming fiscal years. The change to Dresser's
cumulative translation adjustment account for the period between October 31,
1997 and production equipment and services and well control. AlsoDecember 31, 1997 of $14.8 million is also included in the consolidated
statements of shareholders' equity as conforming fiscal years. There were no
material transactions between Halliburton and Dresser prior to the Merger.
Combined and separate companies results of Halliburton and Dresser for
the periods preceding the merger are as follows:
Nine Months
Ended Years ended
September 30 December 31
--------------------------------------------------
Millions of dollars 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------
Revenues:
Halliburton $ 7,044.5 $ 8,818.6 $ 7,385.1
Dresser 6,019.5 7,457.9 6,561.5
- ---------------------------------------------------------------------------------------------------------------
Combined $ 13,064.0 $ 16,276.5 $ 13,946.6
- ---------------------------------------------------------------------------------------------------------------
Net income (loss):
Halliburton $ 359.3 $ 454.4 $ 300.4
Dresser 282.3 318.0 257.5
1998 Special charge, net of tax (722.0) - -
- ---------------------------------------------------------------------------------------------------------------
Combined $ (80.4) $ 772.4 $ 557.9
- ---------------------------------------------------------------------------------------------------------------
LWD Divestiture. In January 1999, in accordance with the consent decree
Halliburton entered into with the U.S. Department of Justice on September 29,
1998, an agreement was reached with W-H Energy Group are upstreamServices, Inc. (W-H) for the sale
44
of Halliburton's logging-while-drilling (LWD) and related measurement-while-
drilling (MWD) business known as PathFinder and currently a part of the Energy
Services Group.
Completion of the sale of the PathFinder business was approved by the
Department of Justice on March 3, 1999. The Company expects to incur a loss on
the sale which is expected to be completed in March 1999. Halliburton will
provide separate LWD services through its Sperry Sun business unit, which was
acquired as part of the merger with Dresser and is now a part of Halliburton
Energy Services. In addition, Halliburton will continue to provide sonic LWD
services using its existing technologies, which it will share with PathFinder.
M-I L.L.C. Drilling Divestiture. In August 1998, the Company sold its
36% interest in M-I L.L.C. (M-I) with no significant effect on net income for
the year. M-I was previously a part of the Energy Services Group. See Note 5.
Acquisition of Devonport Royal Dockyard. During March 1997, the
Devonport management consortium, Devonport Management Limited (DML), which is
51% owned by a subsidiary of the Company, completed the acquisition of Devonport
Royal Dockyard plc, which owns and operates the Government of the United
Kingdom's Royal Dockyard in Plymouth, England, for approximately $64.9 million.
Concurrent with the acquisition of the Royal Dockyard, the Company's ownership
interest in DML increased from about 30% to 51% and DML borrowed $56.3 million
under term loans. The dockyard principally provides repair and refitting
services for the British Royal Navy's fleet of submarines and surface ships. DML
is a part of the Engineering and Construction Group.
Acquisition of OGC International and Kinhill. During April 1997, the
Company completed its acquisition of the outstanding common stock of OGC
International plc (OGC) for approximately $118.3 million. OGC is engaged in
providing a variety of engineering, operations and maintenance services,
primarily to the North Sea oil and gas production industry and is a part of the
Energy Services Group.
During July 1997, the Company acquired all of the outstanding common
stock and convertible debentures of Kinhill Holdings Limited (Kinhill) for
approximately $34 million. Kinhill, headquartered in Australia, provides
engineering constructionin mining and maintenanceminerals processing, petroleum and chemicals, water
and wastewater, transportation and commercial and civil infrastructure. Kinhill
markets its services integrated explorationprimarily in Australia, Indonesia, Thailand, Singapore,
India and production information systems and
professional services to the petroleum industry. ThePhilippines. Kinhill is a part of the Engineering and Construction
Group provides engineering, construction, project management,
facilities operationGroup.
In 1997, the Company recorded approximately $99.1 million excess of
cost over net assets acquired primarily related to the purchase acquisitions of
OGC and maintenance,Kinhill.
Acquisition of NUMAR. On September 30, 1997, the Company completed its
acquisition of NUMAR through the merger of a subsidiary of the Company with and
into NUMAR, the conversion of the outstanding NUMAR common stock into an
aggregate of approximately 8.2 million shares of common stock of the Company and
the assumption by the Company of the outstanding NUMAR stock options (for the
exercise of which the Company has reserved an aggregate of approximately 0.9
million shares of common stock of the Company). The merger qualified as a
tax-free exchange and was accounted for using the pooling of interests method of
accounting for business combinations. The Company has not restated its financial
statements to include NUMAR's historical operating results because they were not
material to the Company.
NUMAR's assets and liabilities on September 30, 1997 were included in
the Company's accounts of the same date, resulting in an increase in net assets
of $21.3 million. Headquartered in Malvern, Pennsylvania, NUMAR designs,
manufactures and markets the Magnetic Resonance Imaging Logging (MRIL(R)) tool
which utilizes magnetic resonance imaging technology to evaluate subsurface rock
formations in newly drilled oil and gas wells. NUMAR is a part of the Energy
Services Group.
SubSea Asset Sale. In June 1997, a subsidiary of the Company sold
certain assets of its SubSea operations to Global Industries, Ltd. for $102.0
million and recognized a loss of $6.3 million (net of tax of $3.4 million) on
the sale. SubSea is a part of the Energy Services Group.
Environmental Services Divestiture. On December 31, 1997, a subsidiary
of the Company sold its environmental services business to Tetra Tech, Inc. for
industrialapproximately $32 million. The sale was prompted by the Company's desire to
divest non-core businesses and governmental customers.had no significant effect on the net income for
the year. The environmental services business was sold in
December 1997.
The Company's equity in income or losses of related companies is included
in revenues and operating income of each applicable segment. Intersegment
revenues included in the revenuespreviously a part of the
other business segments are immaterial.
Sales between geographic areasEngineering and export sales are also immaterial. General and
administrative expenses were $248.1 million in 1997, $236.6 million inConstruction Group.
Landmark Graphics. In October 1996, and
$221.7 million in 1995. General corporate assets are primarily comprised of cash
and equivalents and certain other investments.
30
OPERATIONS BY BUSINESS SEGMENT
Years ended December 31
Millions of dollars 1997 1996 1995
- -----------------------------------------------------------------------------------------------------
Capital expenditures:
Energy Group $ 466.7 $ 313.8 $ 248.1
Engineering and Construction Group 52.3 70.5 55.1
General corporate 58.1 11.4 0.1
-----------------------------------------
Total $ 577.1 $ 395.7 $ 303.3
- -----------------------------------------------------------------------------------------------------
Depreciation and amortization:
Energy Group $ 267.6 $ 228.4 $ 220.2
Engineering and Construction Group 40.7 38.2 38.3
General corporate 1.2 1.3 1.3
-----------------------------------------
Total $ 309.5 $ 267.9 $ 259.8
- -----------------------------------------------------------------------------------------------------
Identifiable assets:
Energy Group $ 3,985.6 $ 2,899.8 $ 2,445.1
Engineering and Construction Group 1,080.8 986.3 873.6
General corporate 536.6 550.5 543.3
-----------------------------------------
Total $ 5,603.0 $ 4,436.6 $ 3,862.0
- -----------------------------------------------------------------------------------------------------
Research and development:
Energy Group $ 163.6 $ 130.7 $ 111.6
Engineering and Construction Group 1.1 2.6 1.5
-----------------------------------------
Total $ 164.7 $ 133.3 $ 113.1
- -----------------------------------------------------------------------------------------------------
OPERATIONS BY GEOGRAPHIC AREA
Years ended December 31
Millions of dollars 1997 1996 1995
- ------------------------------------------------------------------------------------------------------
Revenues:
United States $ 4,238.7 $ 3,953.2 $ 3,255.6
Europe 2,443.2 1,711.1 1,117.7
Latin America 677.0 557.4 529.9
Other areas 1,459.7 1,163.4 979.7
------------------------------------------
Total $ 8,818.6 $ 7,385.1 $ 5,882.9
- ------------------------------------------------------------------------------------------------------
Operating income (loss):
United States $ 617.1 $ 397.5 $ 231.4
Europe 101.2 62.3 3.3
Latin America 37.1 24.7 64.9
Other areas 84.9 53.6 134.8
General corporate and special charges (42.2) (120.2) (33.5)
------------------------------------------
Total $ 798.1 $ 417.9 $ 400.9
- ------------------------------------------------------------------------------------------------------
Identifiable assets:
United States $ 2,238.5 $ 1,994.7 $ 1,872.0
Europe 1,282.4 695.0 528.0
Latin America 456.8 347.3 279.7
Other areas 1,088.7 849.1 639.0
General corporate 536.6 550.5 543.3
------------------------------------------
Total $ 5,603.0 $ 4,436.6 $ 3,862.0
- ------------------------------------------------------------------------------------------------------
31
Note 11. Commitments and Contingencies
Leases. At December 31, 1997, the Company was obligated under noncancelable
operating leases, expiring on various dates to 2020, principally forcompleted its
acquisition of Landmark through the usemerger of land, offices, equipmentLandmark with and field facilities. Aggregate rentals charged to
operations for such leases totaled $78.5 million in 1997, $70.8 million in 1996
and $73.7 million in 1995. Future aggregate rentals on noncancelable operating
leases are as follows: 1998, $42.7 million; 1999, $25.3 million; 2000, $16.2
million; 2001, $11.0 million; 2002, $9.2 million; and thereafter, $54.0 million.
Environmental. The Company is involved as a potentially responsible party
(PRP) in remedial activities to clean up several "Superfund" sites under
applicable federal law which imposes joint and several liability, if the harm is
indivisible, on certain persons without regard to fault, the legality of the
original disposal, or ownership of the site. Although it is very difficult to
quantify the potential impact of compliance with environmental protection laws,
management of the Company believes that any liability of the Company with
respect to all but one of such sites will not have a material adverse effect on
the results of operations of the Company. With respect to a site in Jasper
County, Missouri (Jasper County Superfund Site), sufficient information has not
been developed to permit management to make such a determination and management
believes the process of determining the nature and extent of remediation at this
site and the total costs thereof will be lengthy. Brown & Root, Inc. (Brown &
Root),into a
subsidiary of the Company, has been named as a PRP with respect to the Jasper County Superfund Site by the Environmental Protection Agency (EPA). The
Jasper County Superfund Site includes areas of mining activity that occurred
from the 1800s through the mid 1950s in the southwestern portion of Missouri.
The site contains lead and zinc mine tailings produced from mining activity.
Brown & Root is one of nine participating PRPs which have agreed to perform a
Remedial Investigation/Feasibility Study (RI/FS), which, due to various delays,
is not expected to be completed until the fourth quarter of 1998. Although the
entire Jasper County Superfund Site comprises 237 square miles as listed on the
National Priorities List, in the RI/FS scope of work, the EPA has only
identified seven areas, or subsites, within this area that need to be studied
and then possibly remediated by the PRPs. Additionally, the Administrative Order
on Consent for the RI/FS only requires Brown & Root to perform RI/FS work at oneconversion of the subsites within the site, the Neck/Alba subsite, which only comprises
3.95 square miles. Brown & Root's shareoutstanding Landmark common
45
stock into an aggregate of the costapproximately 20.4 million shares of such a study is not
expected to be material. In addition to the superfund issues, the State of
Missouri has indicated that it may pursue natural resource damage claims against
the PRPs. At the present time Brown & Root cannot determine the extent of its
liability, if any, for remediation costs or natural resource damages on any
reasonably practicable basis.
Other. The Company and its subsidiaries are parties to various other legal
proceedings. Although the ultimate dispositions of such proceedings are not
presently determinable, in the opinioncommon stock of
the Company any liability that may
ensue will not be material in relation(after giving effect to the consolidatedCompany's two-for-one stock split) and
the assumption by the Company of the outstanding Landmark stock options. The
merger qualified as a tax-free exchange and was accounted for using the pooling
of interests method of accounting for business combinations. The Company's
financial position
andstatements have been restated to include the results of operationsLandmark for
all periods presented prior to the date of completion. Landmark is a part of the
Company.Energy Services Group.
Prior to its acquisition by Halliburton, Landmark had a fiscal year-end
of June 30. Landmark's results have been restated to conform with Halliburton
Company's calendar year-end. Combined and separate results of Halliburton and
Landmark for the periods preceding the merger are as follows:
Nine Months
Ended
--------------------
Millions of dollars September 30, 1996
- ---------------------------------------------------------------------
Revenues:
Halliburton $ 5,251.5
Landmark 143.9
- ---------------------------------------------------------------------
Combined $ 5,395.4
- ---------------------------------------------------------------------
Net income:
Halliburton $ 201.2
Landmark (8.4)
- ---------------------------------------------------------------------
Combined $ 192.8
- ---------------------------------------------------------------------
The Company acquired other businesses in 1998, 1997 and 1996 for $42.0
million, $3.6 million and $32.2 million, respectively. These businesses did not
have a significant effect on revenues or earnings.
Note 12.15. Financial Instruments and Risk Management
Foreign Exchange Risk. Techniques in managing foreign exchange risk
include, but are not limited to, foreign currency borrowing and investing and
the use of currency derivative instruments. The Company selectively hedges
significant exposures to potential foreign exchange losses considering current
market conditions, future operating activities and the cost of hedging the
exposure in relation to the perceived risk of loss. The purpose of the Company's
foreign currency hedging activities is to protect the Company from the risk that
the eventual dollar cash flows resulting from the sale and purchase of products
in foreign currencies will be adversely affected by changes in exchange rates.
The Company does not hold or issue derivative financial instruments for trading
or speculative purposes.
The Company hedges its currency exposure through the use of currency
derivative instruments. Such contracts generally have an expiration date of two
years or less. Forward exchange contracts (commitments to buy or sell a
specified amount of a foreign currency at a specified price and time) are
generally used to hedge identifiable foreign currency commitments. Losses of
$2.6$1.4 million for identifiable foreign currency commitments were deferred at
December 31, 1997.1998. Forward exchange contracts and foreign exchange option
contracts (which convey the right, but not the obligation, to sell or buy a
specified amount of foreign currency at a specified price) are generally used to
hedge foreign currency commitments with an indeterminable maturity date. None of
the forward or option contracts are exchange traded.
32
While hedging instruments are subject to fluctuations in value, such
fluctuations are generally offset by the value of the underlying exposures being
hedged. The use of some contracts may limit the Company's ability to benefit
from favorable fluctuations in foreign exchange rates. The notional amounts of
open forward contracts and options were $331.8$595.9 million and $161.1$697.2 million at
December 31,year-end 1998 and 1997, and 1996, respectively. The notional amounts of the Company's
foreign exchange contracts do not generally represent amounts exchanged by the
parties, and thus, are not a measure of the exposure of the Company or of the
46
cash requirements relating to these contracts. The amounts exchanged are
calculated by reference to the notional amounts and by other terms of the
derivatives, such as exchange rates. The Company actively monitors its foreign
currency exposure and adjusts the amounts hedged as appropriate.
Exposures to certain currencies are generally not hedged due primarily
to the lack of available markets or cost considerations (non-traded currencies).
The Company attempts to manage its working capital position to minimize foreign
currency commitments in non-traded currencies and recognizes that pricing for
the services and products offered in such countries should cover the cost of
exchange rate devaluations. The Company has historically incurred transaction
losses in non-traded currencies.
Credit Risk. Financial instruments whichthat potentially subject the Company
to concentrations of credit risk are primarily cash equivalents, investments and
trade receivables. It is the Company's practice to place its cash equivalents
and investments in high quality securities with various investment institutions.
The Company derives the majority of its revenues from sales and services to,
including engineering and construction for, the energy industry. Within the
energy industry, trade receivables are generated from a broad and diverse group
of customers. There are concentrations of receivables in the United States and
the United Kingdom. The Company maintains an allowance for losses based upon the
expected collectibility of all trade accounts receivable.
There are no significant concentrations of credit risk with any
individual counterparty or groups of counterparties related to the Company's
derivative contracts. Counterparties are selected by the Company based on
creditworthiness, which the Company continually monitors, and on the
counterparties' ability to perform their obligations under the terms of the
transactions. The Company does not expect any counterparties to fail to meet
their obligations under these contracts given their high credit ratings and, as
such, considers the credit risk associated with its derivative contracts to be
minimal.
Fair Value of Financial Instruments. The estimated fair value of
long-term debt at December 31,year-end 1998 and 1997 and 1996 was $600.0$1,577.6 million and $229.6$1,380.8
million, respectively, as compared to the carrying amount of $546.0$1,428.2 million at
December
31, 1997year-end 1998 and $200.1$1,304.3 million at December 31, 1996.year-end 1997. The fair value of fixed
rate long-term debt is based on quoted market prices for those or similar
instruments. The carrying amount of variable rate long-term debt and restricted
cash (see Note 6)8) approximates fair value because such instruments reflect
market changes to interest rates. The carrying amount of short-term financial
instruments (cash and equivalents, receivables, short-term notes payable and
accounts payable) as reflected in the consolidated balance sheets approximates
fair value due to the short maturities of these instruments. The fair value of
currency derivative instruments which generally approximates thetheir carrying
amount was $6.4 million and $27.3 million payable and $8.2 million and $28.7
million receivable at December 31, 1997 and 1996, respectively, based upon third party quotes.quotes was $4.4 million receivable and $4.7
million payable at December 31, 1998.
Note 13.16. Retirement Plans
Retirement Plans. The Company hasand its subsidiaries have various retirement plans which cover a
significant number of itstheir employees. The major retirementThese plans areinclude defined contribution
plans, which provide retirement contributions in return for services rendered,
provide an individual account for each participant and have terms that specify
how contributions to the participant's account are to be determined rather than
the amount of pension benefits the participant is to receive. Contributions to
these plans are based on pre-tax income and/or discretionary amounts determined
on an annual basis. The Company's expense for the defined contribution plans
totaled $166.7$151.8 million, $114.2$213.2 million, and $95.1$156.0 million in 1998, 1997 1996 and
1995, respectively.1996. Other retirement plans include defined benefit plans, which define an
amount of pension benefit to be provided, usually as a function of one or more factors such as age, years of
service or compensation. As a result of sizable reductions in the number of employees in
1995, curtailment gains of $1.3 million are reflected in the net amortization
and deferral component of net periodic pension cost for 1995. These plans are funded to operate on an actuarially
sound basis. Plan assets are primarily invested in cash, short-term investments,
real estate, equity and fixed income securities of entities domiciled in the
country of the plan's operation.
47
1998 1997
----------------------------------- ----------------------------------
Millions of dollars U.S. International U.S. International
- ----------------------------------------------------------------------------------- ----------------------------------
Change in benefit obligation
Benefit obligation at beginning of year $ 377.6 $ 1,569.9 $ 386.6 $ 1,361.8
Service cost 5.4 57.3 8.1 44.6
Interest cost 27.3 111.2 29.1 102.7
Plan participants' contributions - 14.0 - 12.7
Effect of business combinations - 20.7 - -
Amendments 13.6 - (16.6) -
Settlements/curtailments (2.3) (9.2) - (1.9)
Currency fluctuations - (1.7) - (1.6)
Actuarial gain/(loss) 37.8 (5.2) 1.9 88.0
Benefits paid (29.1) (41.2) (31.5) (36.4)
- ----------------------------------------------------------------------------------- ----------------------------------
Benefit obligation at end of year $ 430.3 $ 1,715.8 $ 377.6 $ 1,569.9
- ----------------------------------------------------------------------------------- ----------------------------------
Change in plan assets
Fair value of plan assets at beginning of year $ 421.4 $ 1,775.4 $ 351.0 $ 1,617.6
Actual return on plan assets 38.8 28.4 81.8 158.6
Employer contribution 17.4 25.2 20.1 25.5
Settlements (3.0) - - (1.9)
Plan participants' contributions - 14.0 - 12.7
Effect of business combinations - 20.7 - -
Currency fluctuations - (5.1) - (0.7)
Benefits paid (29.1) (41.2) (31.5) (36.4)
- ----------------------------------------------------------------------------------- ----------------------------------
Fair value of plan assets at end of year $ 445.5 $ 1,817.4 $ 421.4 $ 1,775.4
- ----------------------------------------------------------------------------------- ----------------------------------
Funded status $ 15.2 $ 101.6 $ 43.8 $ 205.5
Unrecognized transition obligation 3.0 (8.1) 0.9 (10.2)
Unrecognized actuarial (gain)/loss 5.1 (59.2) (34.9) (162.7)
Unrecognized prior service cost 1.1 1.5 (17.0) 4.1
- ----------------------------------------------------------------------------------- ----------------------------------
Net amount recognized $ 24.4 $ 35.8 $ (7.2) $ 36.7
- ----------------------------------------------------------------------------------- ----------------------------------
The Company recognized an additional minimum pension liability for
underfunded defined benefit plans. The additional minimum liability is equal to
the excess of the accumulated benefit obligation over plan assets and accrued
liabilities. A corresponding amount is recognized as either an intangible asset
or a reduction of shareholders' equity.
1998 1997
----------------------------------- ----------------------------------
Millions of dollars U.S. International U.S. International
- ----------------------------------------------------------------------------------- ----------------------------------
Amounts recognized in the consolidated
balance sheets consist of:
Prepaid benefit cost $ 30.9 $ 67.4 $ 21.2 $ 73.7
Accrued benefit liability (33.7) (33.1) (38.2) (38.3)
Intangible asset 17.0 0.4 4.4 0.7
Deferred tax asset 3.7 0.2 1.9 0.2
Accumulated other comprehensive income 6.5 0.9 3.5 0.4
- ----------------------------------------------------------------------------------- ----------------------------------
Net amount recognized $ 24.4 $ 35.8 $ (7.2) $ 36.7
- ----------------------------------------------------------------------------------- ----------------------------------
48
Assumed long-term rates of return on plan
33
assets, discount rates for
estimating benefit obligations and rates of compensation increases vary for the
different plans according to the local economic conditions. The rates used are
as follows:
PercentagesWeighted-average assumptions as of December 31 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------
ReturnExpected return on plan assets:
United States plans 8.5% 8% to 9.0% 8.5% 8.5%to 9.0% 8.0% to 9.0%
International plans 7% 9% 6.5%7.0% to 9%11.0% 7.0% to 13.5% 7.0% to 13.5%
Discount rate:
United States plans 7.25% 7% to 7.75% 7%8.0% 7.25% to 7.25%8.0% 7.0% to 8.0%
International plans 7%2.0% to 7.5% 7%12.5% 7.0% to 8.5% 4%12.5% 7.0% to 8.5%
Compensation12.5%
Rate of compensation increase:
United States plans 4.5% 4.5% 4%to 5.0% 4.0% to 5.5% 4.0% to 5.5%
International plans 4.25%2.0% to 5% 4.3%11.0% 4.0% to 6% 1%11.0% 4.0% to 6%11.0%
- ----------------------------------------------------------------------------------------------------------------------
The
1998 1997
-----------------------------------------------------------------------
Millions of dollars U.S. International U.S. International
- -----------------------------------------------------------------------------------------------------------------------
Components of net periodic benefit cost
Service cost $ 5.4 $ 57.3 $ 8.1 $ 44.6
Interest cost 27.3 111.2 29.1 102.7
Expected return on plan assets (30.0) (123.0) (31.4) (127.6)
Transition amount 0.6 (1.9) (0.7) (1.8)
Amortization of prior service cost (4.0) (7.1) (1.1) (7.1)
Settlements/curtailments loss/(gain) (3.9) (2.1) 0.4 -
Recognized actuarial (gain)/loss 0.2 0.1 (0.5) (1.8)
- -----------------------------------------------------------------------------------------------------------------------
Net periodic benefit cost $ (4.4) $ 34.5 $ 3.9 $ 9.0
- -----------------------------------------------------------------------------------------------------------------------
In 1996 the pension plans had net service cost of $31.3 million; net
interest cost of $73.5 million; net actual return on plan assets of ($109.8
million); and net amortization and deferral of $10.0 million, resulting in net
periodic pension cost (benefit)of $5 million.
The projected benefit obligation, accumulated benefit obligation, and
fair value of plan assets for defined benefitthe pension plans is as
follows:
Millions of dollars 1997 1996 1995
- ------------------------------------------------------------------------------------------------
Service cost - benefits earned during period $ 35.3 $ 15.8 $ 9.6
Interest cost on projected benefit obligation 85.1 29.9 27.5
Actual return on plan assets (207.3) (61.0) (46.8)
Net amortization and deferral 92.4 13.7 12.7
------------------------------------
Net periodic pension cost (benefit) $ 5.5 $ (1.6) $ 3.0
- ------------------------------------------------------------------------------------------------
The reconciliation of the funded status for defined benefit plans where
assets exceedwith accumulated benefits is as follows:
Millions of dollars 1997 1996
- --------------------------------------------------------------------------------------
Actuarial present value of benefit obligations:
Vested $ (1,216.5) $ (351.9)
- --------------------------------------------------------------------------------------
Accumulated benefit obligation $ (1,224.1) $ (358.4)
- --------------------------------------------------------------------------------------
Projected benefit obligation $ (1,331.1) $ (388.6)
Plan assets at fair value 1,481.6 522.0
--------------------------
Funded status 150.5 133.4
Unrecognized prior service cost 2.3 2.7
Unrecognized net gain (148.6) (133.2)
Unrecognized net transition (asset) obligation (2.4) (3.9)
--------------------------
Net prepaid (accrued) pension cost $ 1.8 $ (1.0)
- --------------------------------------------------------------------------------------
Included in the 1997 reconciliation of the funded status for defined
benefit plans where assets exceed accumulated benefits are the benefit
obligations andin excess of plan assets associated with Devonport Management Limited, the
Company's 51% owned subsidiary. See Note 15.
34
The reconciliationwere $201 million, $193 million, and $123
million, respectively, as of the funded status for defined benefit plans where
accumulated benefits exceed assets isDecember 31, 1998, and $103 million, $97 million,
and $51 million, respectively, as follows:
Millions of dollars 1997 1996
- ------------------------------------------------------------------------------------
Actuarial present value of benefit obligations:
Vested $ (4.3) $ (2.5)
- ------------------------------------------------------------------------------------
Accumulated benefit obligation $ (7.1) $ (6.3)
- ------------------------------------------------------------------------------------
Projected benefit obligation $ (7.8) $ (6.9)
------------------------
Funded status (7.8) (6.9)
Unrecognized net gain (5.5) (6.0)
------------------------
Net accrued pension cost $ (13.3) $ (12.9)
- ------------------------------------------------------------------------------------
of December 31, 1997.
Postretirement Medical Plan. The Company offers a postretirement medical
planplans to certain employees that qualify for retirement and, oneligible employees. In some plans the last day of
active employment, are enrolled as participants in the Company's active employee
medical plan. The Company's liability is
limited to a fixed contribution amount for each participant or dependent. The
plan participants share the total cost for all benefits provided above the fixed
Company contribution and participants' contributions are adjusted as required to
cover benefit payments. The Company has made no commitment to adjust the amount
of its contributions; therefore, the computed accumulated postretirement benefit
obligation amount is not affected by the expected future healthcare cost
inflation rate.
The weighted average
discount rate used in determiningOther postretirement medical plans are contributory but the Company
generally absorbs the majority of the costs. In these plans the Company may
elect to adjust the amount of its contributions. As a result the computed
accumulated postretirement benefit obligation was 7.25%amount is affected by the expected
future healthcare cost inflation rate. These plans have assumed healthcare
trend rates (weighted based on the current year benefit obligation) for 1998 of
7% which are expected to decline to 5% by 2002.
During 1997, the Company adopted amendments to eliminate certain
postretirement medical benefit programs. These amendments resulted in 1997, 7.75% in 1996 and 7% in 1995.
Net periodic postretirement benefit cost is as follows:a
curtailment gain of $11.2 million.
49
Millions of dollars 1998 1997
1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Change in benefit obligation
Benefit obligation at beginning of year $ 373.0 $ 394.6
Service cost - benefits attributed to service during the period $ 0.5 $ 0.5 $ 0.53.9 4.5
Interest cost on accumulated postretirement benefit28.4 29.3
Plan participants' contributions 12.0 13.8
Amendments (4.4) 3.0
Settlements/curtailments (6.3) -
Actuarial gain/(loss) 36.8 (30.1)
Benefits paid (40.3) (42.1)
- -----------------------------------------------------------------------------------------------------
Benefit obligation 1.5 1.6 2.1at end of year $ 403.1 $ 373.0
- -----------------------------------------------------------------------------------------------------
Change in plan assets
Fair value of plan assets at beginning of year $ - $ -
Employer contribution 28.3 28.3
Plan participants' contributions 12.0 13.8
Benefits paid (40.3) (42.1)
- -----------------------------------------------------------------------------------------------------
Fair value of plan assets at end of year $ - $ -
- -----------------------------------------------------------------------------------------------------
Funded status $ (403.1) $ (373.0)
Unrecognized actuarial (gain)/loss (66.0) (98.7)
Unrecognized prior service cost (5.4) (6.3)
Unamortized gains from plan amendments (140.2) (155.5)
- -----------------------------------------------------------------------------------------------------
Net amortization and deferral (1.3) (1.2) (1.0)
--------------------------------
Net periodic postretirement costamount recognized $ 0.7(614.7) $ 0.9 $ 1.6(633.5)
- ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Postretirement medical benefits are funded by the Company when incurred.
The Company's postretirement medical plan's funded status reconciled with the
amounts included in the Company's consolidated balance sheets at December 31,
1997 and 1996 is as follows:
Millions of dollars 1998 1997
1996
- ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Accumulated postretirementAmounts recognized in the consolidated
balance sheets consist of:
Accrued benefit obligation:
Retirees and related beneficiaries $ 12.3 $ 12.7
Fully eligible active plan participants 2.6 2.4
Other active plan participants not fully eligible 7.5 6.4
------------------------
Accumulated postretirement benefit obligation 22.4 21.5
Unrecognized prior service cost 6.3 7.4
Unrecognized gain 7.4 9.1
------------------------
Net postretirement liability $ 36.1(614.7) $ 38.0(633.5)
- ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Net amount recognized $ (614.7) $ (633.5)
- -----------------------------------------------------------------------------------------------------
35
Note 14. Discontinued Operations
On January 23, 1996, the Company spun-off its property and casualty
insurance subsidiary, Highlands Insurance Group, Inc. (HIGI), in a tax-free
distribution to holders of Halliburton Company Common Stock. Each common
shareholder of the Company received one share of common stock of HIGI for every
ten (pre-split) shares of Halliburton Company Common Stock. Approximately 11.4
million common shares of HIGI were issued in conjunction with the spin-off.
The following summarizes the results of operations of the discontinued
operations:
Weighted-average assumptions as of December 31 1998 1997
- ----------------------------------------------------------------------------------------------------- -
Discount rate 7.0% to 8.0% 7.25% to 8.0%
Expected return on plan assets N/A N/A
Rate of compensation increase 5.0% 5.0%
Millions of dollars 1998 1997
- -----------------------------------------------------------------------------------------------------
Components of net periodic benefit cost
Service cost $ 3.9 $ 4.5
Interest cost 28.4 29.3
Amortization of prior service cost (10.3) (10.2)
Settlements/curtailments loss/(gain) - (11.2)
Recognized actuarial (gain)/loss (7.8) (8.8)
- -----------------------------------------------------------------------------------------------------
Net periodic benefit cost $ 14.2 $ 3.6
- -----------------------------------------------------------------------------------------------------
50
In 1996 the postretirement medical plans had net service cost of $4.7
million; net interest cost of $30.9 million; and net amortization and deferral
of ($20.4 million), resulting in net periodic postretirement medical cost of
$15.2 million.
Assumed healthcare cost trend rates have a significant effect on the
amounts reported for the total of the healthcare plans. A one-percentage-point
change in assumed healthcare cost trend rates would have the following effects:
1-Percentage-Point 1-Percentage-Point
Millions of dollars Increase Decrease
- -------------------------------------------------------------------------------------------------------
Effect on total of service and interest cost components $ 2.7 $ (2.5)
Effect on the postretirement benefit obligation 28.5 (26.9)
- -------------------------------------------------------------------------------------------------------
51
HALLIBURTON COMPANY
Selected Financial Data(a)
Millions of dollars and shares except per share and employee data
Years ended December 31
--------------------------------------------------------------
1998 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Revenues
Operating results
Net revenues
Energy Services Group $ 252.69,009.5 $ 8,504.7 $ 6,515.4 $ 5,307.7
Engineering and Construction Group 5,494.8 4,992.8 4,720.7 3,736.5
Dresser Equipment Group 2,848.8 2,779.0 2,710.5 2,467.4
- ---------------------------------------------------------------------------
Loss-----------------------------------------------------------------------------------------------------------------
Total revenues $ 17,353.1 $ 16,276.5 $ 13,946.6 $ 11,511.6
- -----------------------------------------------------------------------------------------------------------------
Operating income
Energy Services Group $ 971.0 $ 1,019.4 $ 698.0 $ 544.5
Engineering and Construction Group 237.2 219.0 134.0 96.6
Dresser Equipment Group 247.8 248.3 229.3 200.7
Special charges and credits (b) (980.1) (16.2) (85.8) (8.4)
General corporate (79.4) (71.8) (72.3) (70.8)
- -----------------------------------------------------------------------------------------------------------------
Total operating income (b) 396.5 1,398.7 903.2 762.6
Nonoperating income (expense), net (117.7) (85.6) (72.2) (32.6)
- -----------------------------------------------------------------------------------------------------------------
Income from continuing operations
before income taxes $ (126.3)
Benefitand minority interest 278.8 1,313.1 831.0 730.0
Provision for income taxes 67.5
Loss(d) (244.4) (491.4) (248.4) (247.0)
Minority interest in net income of
consolidated subsidiaries (49.1) (49.3) (24.7) (20.7)
- -----------------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations $ (14.7) $ 772.4 $ 557.9 $ 462.3
- -----------------------------------------------------------------------------------------------------------------
Basic income (loss) per common share
Continuing operations $ (0.03) $ 1.79 $ 1.30 $ 1.07
Net income (loss) (0.03) 1.79 1.30 0.88
Diluted income (loss) per share
Continuing operations (0.03) 1.77 1.29 1.07
Net income (loss) (0.03) 1.77 1.29 0.88
Cash dividends per share (e), (f) 0.50 0.50 0.50 0.50
Return on disposition (7.6)
Benefitaverage shareholders' equity (0.35%) 19.17% 15.25% 10.43%
- -----------------------------------------------------------------------------------------------------------------
Financial position
Net working capital $ 2,079.4 $ 1,982.9 $ 1,501.0 $ 1,476.7
Total assets 11,112.0 10,701.8 9,586.8 8,569.4
Property, plant and equipment, net 2,921.6 2,766.4 2,554.0 2,285.0
Long-term debt (including current maturities) 1,428.2 1,304.3 958.0 666.8
Shareholders' equity 4,061.2 4,316.9 3,741.4 3,577.0
Total capitalization 6,004.4 5,671.7 4,830.1 4,377.9
Shareholders' equity per share (e) 9.23 9.86 8.78 8.29
Average common shares outstanding (basic) (e) 438.8 431.1 429.2 431.1
Average common shares outstanding (diluted) (e) 438.8 436.1 432.1 432.3
- -----------------------------------------------------------------------------------------------------------------
Other financial data
Cash flows from operating activities $ 454.1 $ 833.1 $ 864.2 $ 1,094.6
Capital expenditures 914.3 880.1 731.1 591.5
Long-term borrowings (repayments), net 123.3 285.5 287.4 (482.2)
Depreciation and amortization expense 587.0 564.3 497.7 466.4
Payroll and employee benefits 5,880.1 5,478.9 4,674.3 4,188.0
Number of employees (g) 107,800 102,000 93,000 89,800
- -----------------------------------------------------------------------------------------------------------------
52
HALLIBURTON COMPANY
Selected Financial Data (a)
Millions of dollars and shares except per share and employee data
Years ended December 31
----------------------------------------------------------------------------
1994 1993 1992 1991 1990
- -------------------------------------------------------------------------------------------------------------------------
Operating results
Net revenues
Energy Services Group $ 4,977.5 $ 5,470.5 $ 5,038.6 $ 5,155.5 $ 4,894.5
Engineering and Construction Group 3,562.3 3,674.9 4,409.6 4,721.2 4,596.8
Dresser Equipment Group 2,452.0 2,281.6 1,660.1 1,760.3 1,622.4
- --------------------------------------------------------------------------------------------------------------------------
Total revenues $ 10,991.8 $ 11,427.0 $ 11,108.3 $ 11,637.0 $ 11,113.7
- --------------------------------------------------------------------------------------------------------------------------
Operating income
Energy Services Group $ 405.8 $ 413.8 $ 303.3 $ 377.8 $ 473.0
Engineering and Construction Group 71.0 76.0 32.2 47.9 50.9
Dresser Equipment Group 198.1 208.4 168.5 163.7 155.1
Special charges and credits (b) (24.6) (426.9) (342.9) (144.7) -
General corporate (56.2) (63.5) (58.3) (56.2) (48.9)
- --------------------------------------------------------------------------------------------------------------------------
Total operating income (b) 594.1 207.8 102.8 388.5 630.1
Nonoperating income (expense), net (c) 323.1 (63.5) (60.7) (20.5) 11.9
- --------------------------------------------------------------------------------------------------------------------------
Income from continuing operations
before income taxes and minority interest 917.2 144.3 42.1 368.0 642.0
Provision for income taxes 0.9
---------------
Loss(346.9) (95.8) (78.3) (182.5) (269.4)
Minority interest in net income of
consolidated subsidiaries (33.1) (42.8) (8.6) (18.5) (16.6)
- --------------------------------------------------------------------------------------------------------------------------
Income (loss) from discontinuedcontinuing operations $ (65.5)537.2 $ 5.7 $ (44.8) $ 167.0 $ 356.0
- -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Basic income (loss) per common share
Continuing operations $ 1.25 $ 0.01 $ (0.11) $ 0.41 $ 0.89
Net income (loss) 1.26 (0.04) (1.18) 0.45 1.11
Diluted income (loss) per share
Continuing operations 1.24 0.01 (0.11) 0.41 0.89
Net income (loss) 1.26 (0.04) (1.18) 0.45 1.11
Cash dividends per share (e), (f) 0.50 0.50 0.50 0.50 0.50
Return on average shareholders' equity 15.47% (0.45%) (12.75%) 4.15% 10.29%
- --------------------------------------------------------------------------------------------------------------------------
Financial position
Net working capital $ 2,196.7 $ 1,562.9 $ 1,423.0 $ 1,775.1 $ 1,905.5
Total assets 8,521.0 8,764.2 8,087.2 8,265.5 7,813.0
Property, plant and equipment, net 2,047.0 2,154.7 2,128.2 1,891.7 1,766.9
Long-term debt (including current maturities) 1,119.8 1,130.9 873.3 928.1 611.7
Shareholders' equity 3,722.5 3,295.7 3,276.6 4,314.8 4,426.0
Total capitalization 4,905.9 4,748.1 4,179.5 5,266.8 5,063.2
Shareholders' equity per share (e), (f) 8.63 7.70 7.99 10.61 11.03
Average common shares outstanding (basic) (e) 430.6 421.9 408.4 405.4 397.8
Average common shares outstanding (diluted) (e) 431.5 422.2 408.7 405.7 398.1
- --------------------------------------------------------------------------------------------------------------------------
Other financial data
Cash flows from operating activities $ 793.1 $ 468.0 $ 624.9 $ 595.2 $ 437.7
Capital expenditures 432.1 463.5 457.5 633.6 494.6
Long-term borrowings (repayments), net (120.8) 192.4 (187.4) 459.5 83.1
Depreciation and amortization expense 487.6 671.6 516.1 440.7 375.5
Payroll and employee benefits 4,222.3 4,428.9 4,590.3 4,660.8 4,415.4
Number of employees (g) 86,500 90,500 96,400 104,500 109,700
- --------------------------------------------------------------------------------------------------------------------------
53
(a) Prior year information presented has been restated for the Merger. Beginning
in 1998, Dresser's year-end of October 31 has been conformed to Halliburton's
calendar year-end. Periods through December 1997 contain Dresser's information
on a fiscal year-end basis combined with Halliburton's information on a calendar
year-end basis.
(b) Operating income includes the following special charges and credits:
1998 - $980.1 million: asset related charges ($509.4 million), personnel
reductions ($234.7 million), facility consolidations ($126.2 million),
merger transaction costs ($64.0 million), and other related costs ($45.8
million).
1997 - $16.2 million: acquisition costs ($8.6 million), restructuring of
joint ventures ($18.0 million), write-downs on impaired assets and early
retirement incentives ($21.6 million), losses from the sale of assets ($9.7
million), and gain on extension of joint venture ($41.7 million).
1996 - $85.8 million: merger costs ($12.4 million), restructuring, merger
and severance costs ($62.1 million), and write-off of acquired in-process
research and development costs ($11.3 million).
1995 - $8.4 million: restructuring costs ($4.7 million) and write-off of
acquired in-process research and development costs ($3.7 million).
1994 - $24.6 million: merger costs ($27.3 million), restructuring costs
($6.2 million), litigation ($9.5 million), and litigation and insurance
recoveries ($18.4 million).
1993 - $426.9 million: loss on sale of business ($321.8 million), merger
costs ($31.0 million), restructuring ($13.2 million), litigation ($65.0
million), and gain on curtailment of medical plan ($4.1 million).
1992 - $342.9 million: merger costs ($272.9 million) and restructuring and
severance ($70.0 million).
1991 - $144.7 million: restructuring ($123.4 million) and loss on sale of
business ($21.3 million).
(c) Nonoperating income in 1994 includes a gain of $275.7 million from the sale
of an interest in Western Atlas International, Inc. and a gain of $102.0 million
from the sale of the Company's natural gas compression business.
(d) Provision for income taxes in 1996 includes tax benefits of $43.7 million
due to the recognition of net operating loss carryforwards and the settlement of
various issues with the Internal Revenue Service.
(e) Weighted average shares, cash dividends paid per share and shareholders'
equity per share have been restated to reflect the two-for-one common stock
split declared on June 9, 1997, and effected in the form of a stock dividend
paid on July 21, 1997.
(f) Represents Halliburton Company amounts prior to the merger with Dresser.
(g) Does not include employees of 50% or less owned affiliated companies.
In the third quarter54
HALLIBURTON COMPANY
Quarterly Data and Market Price Information
(Unaudited)
(Millions of 1995, HIGI conducted an extensive review of its
loss and loss adjustment expense reserves to assess HIGI's reserve position. The
review process consisted of gathering new information and refining prior
estimates and primarily focused on assumed reinsurance and overall environmental
and asbestos exposure. As a result of such review, HIGI increased its reserves
for loss and loss adjustment expenses and certain legal matters and the Company
also recognized the estimated expenses related to the spin-off transaction and
additional compensation costs and other regulatory and legal provisions directly
associated with discontinuing the insurance services business segment as
follows:dollars except per share data)
Income (Loss)
before Income Net Income
Millions of dollars Taxes (Loss)Quarter
--------------------------------------------------------
First Second Third Fourth Year
- ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Additional claim loss reserves
1998 (1)
Revenues $ 4,254.8 $ 4,585.2 $ 4,224.0 $ 4,289.1 $ 17,353.1
Operating income (loss) 361.1 436.1 (577.5) 176.8 396.5
Net income (loss) (7), (8) 203.4 243.2 (527.0) 65.7 (14.7)
Earnings per share:
Basic net income (loss) per share (7), (8) 0.46 0.55 (1.20) 0.15 (0.03)
Diluted net income (loss) per share (7), (8) 0.46 0.55 (1.20) 0.15 (0.03)
Cash dividends paid per share (3) 0.125 0.125 0.125 0.125 0.50
Common stock prices (3), (4)
High 52.44 56.63 45.00 38.56 56.63
Low 42.38 42.06 26.25 26.19 26.19
- ---------------------------------------------------------------------------------------------------------------------
1997 (1)
Revenues $ 3,602.0 $ 4,002.4 $ 4,177.0 $ 4,495.1 $ 16,276.5
Operating income (5), (6) 242.5 321.6 372.2 462.4 1,398.7
Net income (5), (6) 135.1 176.7 202.6 258.0 772.4
Earnings per share: (2)
Basic net income per share (5), (6) 0.32 0.41 0.47 0.59 1.79
Diluted net income per share (5), (6) 0.31 0.41 0.47 0.58 1.77
Cash dividends paid per share (3) 0.125 0.125 0.125 0.125 0.50
Common stock prices (2), (3), (4)
High 36.69 41.00 52.88 62.69 62.69
Low 30.00 32.06 42.00 47.25 30.00
- ---------------------------------------------------------------------------------------------------------------------
(1) Amounts for environmentalrevenues, operating income, net income, and asbestos exposure and other exposures $ (117.0) $ (76.4)
Realization of deferred income tax valuation allowance - 25.9
Provisions for legal matters (8.0) (5.2)
Expenses relatedearnings per share
have been restated to reflect the spin-off transaction (7.6) (6.7)
Other insurance services expenses (7.4) (4.8)
---------------------------------
Total charges $ (140.0) $ (67.2)
- ---------------------------------------------------------------------------------------------
In the third quarter of 1995, the review of the insurance policies and
reinsurance agreements was based upon an actuarial study and HIGI management's
best estimates using facts and trends currently known, taking into consideration
the current legislative and legal environment. Developed case law and adequate
claim history do not exist for such claims. Estimates of the liability were
reviewed and updated continually. Due to the significant uncertainties related
to these types of claims, past claim experience may not be representative of
future claim experience.
The Company also realized a valuation allowance for deferred tax assets
primarily related to HIGI's insurance claim loss reserves. The Company had
provided a valuation allowance for all temporary differences related to HIGI
based upon its intent announced in 1992 that it was pursuing the sale of HIGI. A
taxable transaction would have made it more likely than not that the related
benefit or future deductibility would not be realized. The spin-off transaction
was tax-free and allowed HIGI to retain its tax basis and the value of its
deferred tax asset.
Note 15. Acquisitions and Dispositions
See Note 14 regarding the disposition of the Company's insurance segment.
During March 1997, the Devonport management consortium, Devonport
Management Limited (DML),merger with Dresser which is 51% owned by the Company, completed the
acquisition of Devonport Royal Dockyard plc, which owns and operates the
Government of the United Kingdom's Royal Dockyard in Plymouth, England, for
approximately $64.9 million. Concurrent with the acquisition of the Royal
36
Dockyard, the Company's ownership interest in DML increased from about 30% to
51% and DML borrowed $56.3 million under term loans. The dockyard principally
provides repair and refitting services for the British Royal Navy's fleet of
submarines and surface ships.
During April 1997, the Company completed its acquisition of the outstanding
common stock of OGC International plc (OGC) for approximately $118.3 million.
OGC is engaged in providing a variety of engineering, operations and maintenance
services, primarily to the North Sea oil and gas production industry.
During July 1997, the Company acquired all of the outstanding common stock
and convertible debentures of Kinhill Holdings Limited (Kinhill) for
approximately $34 million. Kinhill, headquartered in Australia, provides
engineering in mining and minerals processing, petroleum and chemicals, water
and wastewater, transportation and commercial and civil infrastructure. Kinhill
markets its services primarily in Australia, Indonesia, Thailand, Singapore,
India and the Philippines.
In 1997, the Company recorded approximately $99.1 million excess of cost
over net assets acquired primarily related to the purchase acquisitions of OGC
and Kinhill.
On September 30, 1997, the Company completed its acquisition of NUMAR
through the merger of a subsidiary of the Company with and into NUMAR, the
conversion of the outstanding NUMAR common stock into an aggregate of
approximately 8.2 million shares of common stock of the Company and the
assumption by the Company of the outstanding NUMAR stock options (for the
exercise of which the Company has reserved an aggregate of approximately 0.9
million shares of common stock of the Company). The merger qualified as a tax-
free exchange and was accounted
for using the pooling of interests method of accounting for business
combinations. The Company has not restated its financial
statements to include NUMAR's historical operating results because they were not
material to the Company. NUMAR's assets and liabilities on September 30, 1997
were included in the Company's accounts of the same date, resulting in an
increase in net assets of $21.3 million. Headquartered in Malvern, Pennsylvania,
NUMAR designs, manufactures and markets the Magnetic Resonance Imaging Logging
(MRIL(R)) tool which utilizes magnetic resonance imaging technology to evaluate
subsurface rock formations in newly drilled oil and gas wells.
In October 1997, the Company announced it had reached an agreement to sell
its environmental services business to Tetra Tech, Inc. for approximately $32
million. The transaction was completed on December 31, 1997. The sale was
prompted by the Company's desire to divest non-core businesses and had no
significant effect on net income for the year.
In October 1996, the Company completed its acquisition of Landmark through
the merger of Landmark with and into a subsidiary of the Company, the conversion
of the outstanding Landmark common stock into an aggregate of approximately 20.4
million shares of common stock of the Company (after giving effect to the
Company's two-for-one stock split) and the assumption by the Company of the
outstanding Landmark stock options. The merger qualified as a tax-free exchange
and was accounted for using the pooling of interests method of accounting for
business combinations. The Company's financial statements have been restated to
include the results of Landmark for all periods presented prior to the date of
acquisition.
Prior to the merger, Landmark had a fiscal year-end of June 30. Landmark's
results have been restated to conform with Halliburton Company's calendar
year-end. Combined and separate results of Halliburton and Landmark for the
periods preceding the merger were as follows:
Nine Months Ended Twelve Months Ended
Millions of dollars September 30, 1996 December 31, 1995
- --------------------------------------------------------------------------------------------------
Revenues:
Halliburton $ 5,251.5 $ 5,698.7
Landmark 143.9 184.2
-------------------------------------------
Combined $ 5,395.4 $ 5,882.9
- -----------------------------------------------------------------------------------------------
Net Income:
Halliburton $ 201.2 $ 168.3
Landmark (8.4) 15.4
-------------------------------------------
Combined $ 192.8 $ 183.7
- -----------------------------------------------------------------------------------------------
37
Note 16. Special Charges
In September 1997, the Company recorded special charges of $8.6 million
(also $8.6 million after tax) for transaction costs incurred by the Company and
NUMAR to complete the merger of a subsidiary of the Company with and into NUMAR.
The Company settled these obligations during the fourth quarter of 1997 with
funds provided by operations.
During September 1996, the Company recorded special charges of $65.3
million ($42.7 million after tax), which included provisions of $41.0 million to
terminate approximately one thousand employees related to reorganization efforts
by the Engineering and Construction Group and plans to combine various
administrative support functions into combined shared services for the Company;
$20.2 million to restructure certain Engineering and Construction Group
businesses, provide for excess lease space and other items; and $4.1 million
($3.5 million after tax) for costs related to the acquisition of Landmark. The
Company has substantially completed its reorganization plans initiated during
the third quarter of 1996. Approximately $57.6 million has been charged or
allocated to this reserve with the remaining amount to be charged over the
remaining term of excess leases through August 2003.
In September 1996, Landmark recorded special charges of $8.3 million ($7.6
million after tax) for costs incurred for merging with the Company. During March
1996, Landmark recorded special charges of $12.2 million ($8.7 million after
tax) for the write-off of in-process research and development activities
acquired in connection with the purchase by Landmark of certain assets and the
assumption of certain liabilities of Western Atlas International, Inc.
and the write-off of related redundant assets and activities.
The special charges to net income in the third quarter of 1996 were offset
by tax credits during the same quarter of $43.7 million due to the recognition
of net operating loss carryforwards and the settlement during the quarter of
various issues with the Internal Revenue Service (IRS). The Company reached
agreement with the IRS and recognized net operating loss carryforwards of $62.5
million ($22.5 million in tax benefits) from the 1989 tax year. The net
operating loss carryforwards were utilized in the 1996 tax year. In addition,
the Company also reached agreement with the IRS on issues related to
intercompany pricing of goods and services for the tax years 1989 through 1992
and entered into an advanced pricing agreement for the tax years 1993 through
1998. As a result of these agreements with the IRS, the Company recognized tax
benefits of $16.1 million. The Company also recognized net operating loss
carryforwards of $14.0 million ($5.1 million in tax benefits) in certain foreign
areas due to improving profitability and restructuring of foreign operations.
In 1995, Landmark recorded special charges of $8.4 million, primarily for
the write-off of research and development activities of acquired companies,
merger costs and restructuring charges.
38
Halliburton Company
Selected Financial Data
Millions of dollars and shares except per share and employee data
Years ended December 31
-------------------------------------------------------------
1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------
Operating results
Net revenues
Energy Group $ 5,756.4 $ 4,286.3 $ 3,604.0 $ 3,364.0
Engineering and Construction Group 3,062.2 3,098.8 2,278.9 2,297.1
- ------------------------------------------------------------------------------------------------------------------
Total revenues $ 8,818.6 $ 7,385.1 $ 5,882.9 $ 5,661.1
- ------------------------------------------------------------------------------------------------------------------
Operating income (loss)
Energy Group $ 706.4 $ 484.4 $ 398.2 $ 264.1
Engineering and Construction Group 133.9 53.7 44.6 15.2
Special charges (a) (8.6) (85.8) (8.4) (16.6)
General corporate (33.6) (34.4) (33.5) (22.9)
- ------------------------------------------------------------------------------------------------------------------
Total operating income (loss) (a) 798.1 417.9 400.9 239.8
Nonoperating income (expense), net (31.8) (13.7) (13.1) 58.0
- ------------------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations
before income taxes and minority interest 766.3 404.2 387.8 297.8
Benefit (provision) for income taxes (b) (300.0) (103.3) (137.7) (122.2)
Minority interest in net (income) loss of
consolidated subsidiaries (11.9) (0.5) (0.9) (0.2)
- ------------------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations $ 454.4 $ 300.4 $ 249.2 $ 175.4
- ------------------------------------------------------------------------------------------------------------------
Basic income (loss) per share
Continuing operations $ 1.78 $ 1.20 $ 1.00 $ 0.71
Net income (loss) 1.78 1.20 0.74 0.73
Diluted income (loss) per share
Continuing operations 1.75 1.19 1.00 0.71
Net income (loss) 1.75 1.19 0.74 0.73
Cash dividends per share (c) 0.50 0.50 0.50 0.50
Return on average shareholders' equity 19.2% 14.7% 9.2% 8.8%
- ------------------------------------------------------------------------------------------------------------------
Financial position
Net working capital $ 1,198.7 $ 893.3 $ 987.9 $ 1,366.5
Total assets 5,603.0 4,436.6 3,862.0 4,197.4
Property, plant and equipment 1,662.7 1,291.6 1,157.9 1,117.4
Long-term debt (including current maturities) 546.0 200.1 205.2 655.7
Shareholders' equity 2,584.7 2,159.2 1,920.2 2,090.2
Total capitalization 3,133.4 2,405.6 2,130.2 2,776.6
Shareholders' equity per share (c) 9.85 8.62 7.71 8.44
Average common shares outstanding (basic) (c) 255.4 249.9 248.3 247.8
Average common shares outstanding (diluted) (c) 259.5 252.2 249.4 248.4
- ------------------------------------------------------------------------------------------------------------------
Other financial data
Cash flows from operating activities $ 548.2 $ 452.0 $ 667.4 $ 439.0
Capital expenditures 577.1 395.7 303.3 245.0
Long-term borrowings (repayments), net 283.8 (5.1) (465.4) (74.4)
Depreciation and amortization expense 309.5 267.9 259.8 271.3
Payroll and employee benefits 3,785.7 3,112.7 2,775.0 2,878.8
Number of employees (d) 70,750 60,000 58,400 57,300
39
Halliburton Company
Selected Financial Data
Millions of dollars and shares except per share and employee data
Years ended December 31
--------------------------------------------------------------
1993 1992 1991 1990
- ----------------------------------------------------------------------------------------------------------------
Operating results
Net revenues
Energy Group $ 3,765.1 $ 3,536.9 $ 3,652.4 $ 3,551.0
Engineering and Construction Group 2,459.6 2,848.1 3,124.6 3,105.4
- -----------------------------------------------------------------------------------------------------------------
Total revenues $ 6,224.7 $ 6,385.0 $ 6,777.0 $ 6,656.4
- -----------------------------------------------------------------------------------------------------------------
Operating income (loss)
Energy Group $ 253.1 $ 205.1 $ 233.9 $ 327.6
Engineering and Construction Group 13.3 (19.3) 9.7 33.8
Special charges (a) (321.8) (272.9) (118.5) -
General corporate (22.0) (21.0) (21.8) (19.9)
- -----------------------------------------------------------------------------------------------------------------
Total operating income (loss) (a) (77.4) (108.1) 103.3 341.5
Nonoperating income (expense), net (55.0) (37.2) (0.7) 17.1
- -----------------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations
before income taxes and minority interest (132.4) (145.3) 102.6 358.6
Benefit (provision) for income taxes 3.0 1.1 (76.5) (167.0)
Minority interest in net (income) loss of
consolidated subsidiaries 1.5 1.7 (2.6) (2.6)
- -----------------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations $ (127.9) $ (142.5) $ 23.5 $ 189.0
- -----------------------------------------------------------------------------------------------------------------
Basic income (loss) per share
Continuing operations $ (0.53) $ (0.62) $ 0.10 $ 0.83
Net income (loss) (0.61) (0.63) 0.17 0.89
Diluted income (loss) per share
Continuing operations (0.53) (0.62) 0.10 0.83
Net income (loss) (0.61) (0.63) 0.17 0.89
Cash dividends per share (c) 0.50 0.50 0.50 0.50
Return on average shareholders' equity (7.4)% (6.9)% 1.7% 9.1%
- -----------------------------------------------------------------------------------------------------------------
Financial position
Net working capital $ 1,217.7 $ 1,150.0 $ 1,304.6 $ 1,154.0
Total assets 4,318.6 4,185.3 4,480.6 3,971.7
Property, plant and equipment 1,189.3 1,214.6 1,204.6 1,028.2
Long-term debt (including current maturities) 637.4 657.8 654.9 192.0
Shareholders' equity 2,023.5 1,982.8 2,248.6 2,316.7
Total capitalization 2,752.9 2,641.3 2,914.3 2,514.6
Shareholders' equity per share (c) 8.19 8.62 9.80 10.12
Average common shares outstanding (basic) (c) 241.5 230.0 229.2 228.6
Average common shares outstanding (diluted) (c) 241.5 230.0 229.2 228.6
- -----------------------------------------------------------------------------------------------------------------
Other financial data
Cash flows from operating activities $ 293.0 $ 449.9 $ 294.7 $ 127.0
Capital expenditures 270.5 322.8 430.1 342.9
Long-term borrowings (repayments), net (44.7) (16.3) 440.6 (9.0)
Depreciation and amortization expense 459.8 366.9 300.2 254.4
Payroll and employee benefits 3,141.9 3,373.3 3,286.8 3,043.4
Number of employees (d) 64,600 69,000 72,700 76,600
40
(a) Operating income (loss) includes the following special charges: in 1997,
$8.6 million related to acquisition costs; in 1996 and 1995, $85.8 million
and $8.4 million, respectively, related to merger and restructuring costs,
including severance costs, and the write-off of acquired in-process
research and development activities; in 1994, $16.6 million related to
merger and restructuring costs; in 1993, $321.8 million related to loss on
sale of geophysical business and employee severance costs; in 1992, $272.9
million related to restructuring/reorganization costs and consolidation of
certain support functions; in 1991, $118.5 million related to restructuring
costs.
(b) Benefit (provision) for income taxes in 1996 includes tax benefits of $43.7
million due to the recognition of net operating loss carryforwards and the
settlement of various issues with the Internal Revenue Service.
(c) Weighted average shares, cash dividends paid per share and shareholders'
equity per share have been restated to reflect the two-for-one common stock
split declared on June 9, 1997, and effected in the form of a stock
dividend and paid on July 21, 1997.
(d) Does not include employees of 50% or less owned affiliated companies.
41
Quarterly Data and Market Price Information
Quarter
Millions of dollars except per share data -----------------------------------------------------
(unaudited) First Second Third Fourth Year
- -----------------------------------------------------------------------------------------------------------------------
1997
Revenues $ 1,897.5 $ 2,231.1 $ 2,304.7 $ 2,385.3 $ 8,818.6
Operating income 138.7 182.0 217.0 260.4 798.1
Net income 83.0 101.9 121.1 148.4 454.4
Earnings per share: (1), (2)
Basic net income per share 0.33 0.40 0.48 0.57 1.78
Diluted net income per share 0.32 0.40 0.47 0.56 1.75
Cash dividends paid per share (2) 0.125 0.125 0.125 0.125 0.50
Common stock prices (2), (3)
High 36.69 41.00 52.88 62.69 62.69
Low 30.00 32.06 42.00 47.25 30.00
1996
Revenues $ 1,704.7 $ 1,830.8 $ 1,859.9 $ 1,989.7 $ 7,385.1
Operating income 71.6 115.7 57.3 173.3 417.9
Net income 45.5 71.8 75.5 107.6 300.4
Earnings per share: (1), (2)
Basic net income per share 0.18 0.29 0.30 0.43 1.20
Diluted net income per share 0.18 0.29 0.30 0.43 1.19
Cash dividends paid per share (2) 0.125 0.125 0.125 0.125 0.50
Common stock prices (2), (3)
High 29.19 29.38 28.63 31.44 31.44
Low 22.88 25.00 25.38 25.94 22.88
(1) Presented in accordance with Statement of Financial Accounting Standards No. 128.
(2) Amounts presented reflect the two-for-one common stock split declared on
June 9, 1997, and effected in the form of a stock dividend and paid on July 21,
1997.
(3) Represents Halliburton Company amounts prior to the merger with Dresser.
(4) New York Stock Exchange - composite transactions high and low closing
stock prices.price.
(5) Includes pretax special charge $18.3 million ($14.9 million after tax or
$0.03 per diluted share) in the third quarter of 1997.
(6) Includes pretax special charge net gain of $2.1 million ($5.6 million after
tax and minority interest or $0.01 per diluted share) in the fourth quarter
of 1997.
(7) Includes pretax special charge of $945.1 million ($722.0 million after tax
or $1.64 per diluted share) in the third quarter of 1998.
(8) Includes pretax special charge of $35.0 million ($24.0 million after tax or
$0.05 per diluted share) million in the fourth quarter of 1998.
4255
PART III
Item 10. Directors and Executive Officers of Registrant.
The information required for the directors of the registrantRegistrant is
incorporated by reference to the Halliburton Company Proxy Statement dated March
24, 1998,25, 1999, under the caption "Election of Directors." The information required
for the executive officers of the registrantRegistrant is included under Part I under the
caption "Executive Officers of the Registrant" on pagepages
5 and 6 of this annual report.Annual Report.
Item 11. Executive Compensation.
This information is incorporated by reference to the Halliburton
Company Proxy Statement dated March 24, 1998,25, 1999, under the captions "Compensation
Committee Report on Executive Compensation," "Comparison of Five-Year Cumulative
Total Return," "Summary Compensation Table," "Option Grants in Last Fiscal
Year," "Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End
Option Values," "Retirement Plan,Plans," "Employment Contracts and Termination of
Employment and Change-in-Control Arrangements" and "Directors' Compensation,
Restricted Stock Plan and Retirement Plan."
Item 12.12(a). Security Ownership of Certain Beneficial Owners and Management.
This information is incorporated by reference to the Halliburton
Company Proxy Statement dated March 24, 1998,25, 1999, under the caption "Stock Ownership
of Certain Beneficial Owners and Management."
Item 12(b). Security Ownership of Management.
This information is incorporated by reference to the Halliburton
Company Proxy Statement dated March 25, 1999, under the caption "Stock Ownership
of Certain Beneficial Owners and Management."
Item 12(c). Changes in Control.
Not applicable.
Item 13. Certain Relationships and Related Transactions.
Not applicable.
43This information is incorporated by reference to the Halliburton
Company Proxy Statement dated March 25, 1999, under the caption "Certain
Relationships and Related Transactions."
56
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) 1.Financial1. Financial Statements:
The report of Arthur Andersen LLP, independent public accountants,Independent Public Accountants,
and the financial statements of the Company as required by Part II,
Item 8, are included on pages 1419 through 3851 of this annual report.Annual Report.
See index on page 6.
2.Financial8.
2. Financial Statement Schedules: Page No.
Report on supplemental schedule of Arthur Andersen LLP.............49LLP 65
Schedule II - Valuation and qualifying accounts for
the three years ended December 31, 1997................................501998 66
Note: All schedules not filed herein for which provision is made
under rules of Regulation S-X have been omitted as not applicable
or not required or the information required therein has been
included in the notes to financial statements.
3. Exhibits:
Exhibit
Number Exhibits
2 Agreement and Plan of Reorganization dated as of December 11,
1996 among Halliburton Company, now known as Halliburton
Energy Services, Inc. (the "Predecessor"), Halliburton Hold
Co., now known as Halliburton Company (the "Company"), and
Halliburton Merge Co. (incorporated by reference to Exhibit
1.1 of the Company's Registration Statement on Form 8-B dated
December 12, 1996, File No. 1-03492).
3(a)3.1 Restated Certificate of Incorporation of the Company filed
with the Secretary of State of Delaware on July 23, 1998
(incorporated by reference to Exhibit 3(a) to the
Company's Registration
StatementQuarterly Report on Form S-3 File No. 333-32731 filed with10-Q for the Securities and Exchange Commission on August 1, 1997)quarterly
period ended June 30, 1998).
3(b)3.2 By-laws of the Company, as amended and restated effective
September 29, 1998 (incorporated by reference to Exhibit 3
to the Company's Registration StatementQuarterly Report on Form S-3 File No.
333-32731 filed with10-Q for the
Securities and Exchange Commission on
August 1, 1997)quarterly period ended September 30, 1998).
4(a)4.1 Subordinated Indenture dated as of January 2, 1991 between
Halliburton Company, now known as Halliburton Energy
Services, Inc. (the Predecessor)"Predecessor") and Texas Commerce Bank
National Association, as Trusteetrustee (incorporated by
reference to Exhibit 4(c) to the Predecessor's
Registration Statement on Form S-3 (File No. 33-38394)
originally filed with the Securities and Exchange
Commission on December 21, 1990), as supplemented and
amended by the First Supplemental Indenture dated as of
December 12, 1996 among the Predecessor, the Company and
the Trustee (incorporated by reference to Exhibit 4.3 of
the Company's Registration Statement on Form 8-B dated
December 12, 1996, File No. 1-03492).
4(b)4.2 Form of debt security of 8.75% Debentures due February 12,
2021 (incorporated by reference to Exhibit 4(a) to the
Predecessor's Form 8-K dated as of February 20, 1991).
4(c)4.3 Senior Indenture dated as of January 2, 1991 between the
Predecessor and Texas Commerce Bank National Association,
as Trusteetrustee (incorporated by reference to Exhibit 4(b) to
the Predecessor's Registration Statement on Form S-3 (File
No. 33-38394) originally filed with the Securities and
Exchange Commission on December 21, 1990), as supplemented
57
and amended by the First Supplemental Indenture dated as
of December 12, 1996 among the Predecessor, the Company
and the Trustee (incorporated by reference to Exhibit 4.1
of the Company's Registration Statement on Form 8-B dated
December 12, 1996, File No. 1-03492).
44
3. Exhibits: (continued)
Exhibit
Number Exhibits
4(d)4.4 Resolutions of the Predecessor's Board of Directors
adopted at a meeting held on February 11, 1991 and of the
special pricing committee of the Board of Directors of the
Predecessorpredecessor adopted at a meeting held on February 11, 1991
and the special pricing committee's consent in lieu of
meeting dated February 12, 1991 (incorporated by reference
to Exhibit 4(c) to the Predecessor's Form 8-K dated as of
February 20, 1991).
4(e)4.5 Form of debt security of 6.75% Notes due February 1, 2027
(incorporated by reference to Exhibit 4.1 to the Company's
Form 8-K dated as of February 11, 1997).
4(f)4.6 Second Senior Indenture dated as of December 1, 1996
between the Predecessor and Texas Commerce Bank National
Association, as Trustee,trustee, as supplemented and amended by
the First Supplemental Indenture dated as of December 5,
1996 between the Predecessor and the Trusteetrustee and the
Second Supplemental Indenture dated as of December 12,
1996 among the Predecessor, the Company and the Trustee
(incorporated by reference to Exhibit 4.2 of the Company's
Registration Statement on Form 8-B dated December 12,
1996, File No. 1-03492).
4(g)* 4.7 Third Supplemental Indenture dated as of August 1, 1997
between the Company and Texas Commerce Bank National
Association, as Trustee, to the Second Senior Indenture
dated as of December 1, 1996.
* 4.8 Fourth Supplemental Indenture dated as of September 29,
1998 between the Company and Chase Bank of Texas, National
Association (formerly Texas Commerce Bank National
Association), as Trustee, to the Second Senior Indenture
dated as of December 1, 1996.
4.9 Resolutions of the Company's Board of Directors adopted by
unanimous consent dated December 5, 1996.
4(h)1996 (incorporated by
reference to Exhibit 4(g) of the Company's Annual Report
on Form 10-K for the year ended December 31, 1996).
* 4.10 Resolutions of the Company's Board of Directors adopted at
a special meeting held on September 28, 1998.
4.11 Restated Rights Agreement dated as of December 1, 1996
between the Company and ChaseMellon Shareholder Services,
L.L.C. (incorporated by reference to Exhibit 4.4 of the
Company's Registration Statement on Form 8-B dated
December 12, 1996, File No. 1-03492).
4(i)4.12 Copies of instruments whichthat define the rights of holders of
miscellaneous long-term notes of the RegistrantCompany and its
subsidiaries, totaling $46.0$39.6 million in the aggregate at
December 31, 1997,1998, have not been filed with the
Commission. The registrantCompany agrees herewith to furnish copies
of such instruments upon request.
4(j)4.13 Form of debt security of 7.53% Notes due May 12, 2017
(incorporated by reference to Exhibit 4.4 to the Company's
Form 10-Q for the quarterly period ended March 31, 1997).
4(k)58
4.14 Form of debt security of 6.27% Notes due July 8, 1999
(incorporated by reference to Exhibit 4.1 to the Company's
Form 8-K dated as of July 8, 1997).
4(l)4.15 Form of debt security of 6.30% Notes due August 5, 2002
(incorporated by reference to Exhibit 4.1 to the Company's
Form 8-K dated as of August 5, 1997).
10(a)4.16 Form of debt security of 5.63% Notes due December 1, 2008
(incorporated by reference to Exhibit 4.1 to the Company's
Form 8-K dated as of November 24, 1998).
4.17 Form of Indenture, between Dresser Industries, Inc.
("Dresser") and NationsBank of Texas, N.A., as Trustee,
for unsecured debentures, notes and other evidences of
indebtedness (incorporated by reference to Exhibit 4.1 to
Dresser's Registration Statement on Form S-3, Registration
No. 33-59562).
4.18 Form of Indenture, between Baroid Corporation and Texas
Commerce Bank National Association, as trustee, for 8%
Senior Notes due 2003 (incorporated by reference to
Exhibit 4.01 to the Registration Statement on Form S-3,
Registration No. 33-60174), as supplemented and amended by
Form of Supplemental Indenture, between Dresser, Baroid
Corporation and Texas Commerce Bank N.A. as Trustee, for
8% Guaranteed Senior Notes due 2003 (incorporated by
reference to Exhibit 4.3 to Registration Statement on Form
S-4 filed by Baroid Corporation, Registration No.
33-53077).
* 4.19 Second Supplemental Indenture dated October 30, 1997
between Dresser and Texas Commerce Bank National
Association, as Trustee, for 8% Senior Notes due 2003.
* 4.20 Third Supplemental Indenture dated September 29, 1998
between Dresser, the Company, as Guarantor, and Chase Bank
of Texas, National Association, as Trustee, for 8% Senior
Notes due 2003.
4.21 Form of Indenture, between Dresser and Texas Commerce Bank
National Association, as Trustee, for 7.60% Debentures due
2096 (incorporated by reference to Exhibit 4 to the
Registration Statement on Form S-3 as amended,
Registration No. 333-01303), as supplemented and amended
by Form of Supplemental Indenture, between Dresser and
Texas Commerce Bank National Association, Trustee, for
7.60% Debentures due 2096 (incorporated by reference to
Exhibit 4.1 to Dresser's Form 8-K filed on August 9,
1996).
10.1 Halliburton Company Career Executive Incentive Stock Plan
as amended November 15, 1990 (incorporated by reference to
Exhibit 10(a) to the Predecessor's Annual Report on Form
10-K for the year ended December 31, 1992).
10(b)10.2 Retirement Plan for the Directors of Halliburton Company
adopted and effective January 1, 1990 (incorporated by
reference to Exhibit 10(c) to the Predecessor's Annual
Report on Form 10-K for the year ended December 31, 1992).
10(c)10.3 Halliburton Company Directors' Deferred Compensation Plan
as amended and restated effective May 1, 1994
(incorporated by reference to Exhibit 10(c) to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1996).
45
3. Exhibits: (continued)
Exhibit
Number Exhibits
10(d) Summary Plan Description of the Executive Split-Dollar Life
Insurance Plan (incorporated by reference to Exhibit 10(g) to
the Predecessor's Annual Report on Form 10-K for the year
ended December 31, 1992).
10(e)* 10.4 Halliburton Company 1993 Stock and Long-Term Incentive
Plan, as amended and restated July 22, 1997.
10(f) Agreement and Plan of Merger between the Predecessor,
Halliburton Acq. Company and Landmark Graphics Corporation,
dated as of June 30, 1996 (incorporated by reference to
Appendix A of the Predecessor's Registration Statement on Form
S-4, filed on August 30, 1996).
10(g)February 19, 1998.
59
10.5 Halliburton Company Restricted Stock Plan for Non-Employee
Directors (incorporated by reference to Appendix B of the
Predecessor's proxy statement dated March 23, 1993).
10(h)10.6 Halliburton Elective Deferral Plan, as amended and
restated effective January 1, 19971998 (incorporated by
reference to Exhibit 10(h)10(a) to the Company's AnnualQuarterly
Report on Form 10-K10-Q for the yearquarterly period ended December 31, 1996)June
30, 1998).
10(i)10.7 Employment agreement (incorporated by reference to Exhibit
10 to the Predecessor's Form 10-Q for the quarterly period
ended September 30, 1995).
10(j)* 10.8 Halliburton Company Senior Executives' Deferred
Compensation Plan, as amended and restated effective
January 1, 1996
(incorporated by reference to Exhibit 10(j) to the Company's
Annual Report on Form 10-K for the year ended December 31,
1996).
10(k)1999.
10.9 Halliburton Company Annual Performance Pay Plan, as
amended and restated effective January 1, 1997
(incorporated by reference to Exhibit 10(k) to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1996).
10(l)10.10 Employment agreement (incorporated by reference to Exhibit
10(n) to the Predecessor's Form 10-K for the year ended
December 31, 1995).
10(m) Early retirement agreement10.11 Halliburton Company 1993 Stock and Long-Term Incentive
Plan, as amended and restated February 19, 1998
(incorporated by reference to Exhibit 10(m)10(n) to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1996)1997).
10(n)10.12 Agreement and Plan of Merger, dated as of February 25,
1998, by and among the Company, Halliburton N.C., Inc. and
Dresser (incorporated by reference to Exhibit C to the
Company's Schedule 13D filed on March 9, 1998).
10.13 Stock Option Agreement, dated as of February 25, 1998, by
and between the Company and Dresser (incorporated by
reference to Exhibit B to the Company's Schedule 13D filed
on March 9, 1998).
10.14 Employment agreement and amendment thereto (incorporated
by reference to Exhibit 10(a) to the Company's Quarterly
Report on Form 10-Q for the quarterly period ended
September 30, 1998).
10.15 Employment agreement and amendment thereto (incorporated
by reference to Exhibit 10(b) to the Company's Quarterly
Report on Form 10-Q for the quarterly period ended
September 30, 1998).
* Halliburton Company 199310.16 Employment agreement.
* 10.17 Employment agreement.
* 10.18 Employment agreement.
* 10.19 Employment agreement.
* 10.20 Early retirement agreement.
60
* 10.21 Early retirement agreement.
10.22 Dresser Industries, Inc. Deferred Compensation Plan
(incorporated by reference to Exhibit A to Dresser's Proxy
Statement dated February 11, 1966, filed pursuant to
Regulation 14A, File No. 1-4003).
10.23 Dresser Industries, Inc. 1982 Stock and Long-Term IncentiveOption Plan
(incorporated by reference to Exhibit A to Dresser's Proxy
Statement dated February 12, 1982, filed pursuant to
Regulation 14A, File No. 1-4003).
10.24 ERISA Excess Benefit Plan for Dresser Industries, Inc. as
amended and restated effective June 1, 1995 (incorporated
by reference to Exhibit 10.7 to Dresser's Form 10-K for
the year ended October 31, 1995).
10.25 ERISA Compensation Limit Benefit Plan for Dresser
Industries, Inc., as amended and restated effective June
1, 1995 (incorporated by reference to Exhibit 10.8 to
Dresser's Form 10-K for the year ended October 31, 1995).
10.26 Supplemental Executive Retirement Plan of Dresser
Industries, Inc., as amended and restated effective
January 1, 1998 (incorporated by reference to Exhibit 10.9
to Dresser's Form 10-K for the period ended October 31,
1997).
10.27 Stock Based Compensation Arrangement of Non-Employee
Directors (incorporated by reference to Exhibit 4.4 to
Dresser's Registration Statement on Form S-8, Registration
No. 333-40829).
10.28 Dresser Industries, Inc. Deferred Compensation Plan for
Non-employee Directors, as restated and amended effective
November 1, 1997 (incorporated by reference to Exhibit
4.5 to Dresser's Registration Statement on Form S-8,
Registration No. 333-40829).
10.29 Dresser Industries, Inc. 1989 Restricted Incentive Stock
Plan (incorporated by reference to Exhibit A to Dresser's
Proxy Statement dated February 19, 1998.
11* Computation10, 1989, filed pursuant to
Regulation 14A, File No. 1-4003).
10.30 Long-Term Performance Plan for Selected Employees of earnings per share.
21*The
M. W. Kellogg Company (incorporated by reference to
Exhibit 10(r) to Dresser's Form 10-K for the year ended
October 31, 1991).
10.31 Dresser Industries, Inc. 1992 Stock Compensation Plan
(incorporated by reference to Exhibit A to Dresser's Proxy
Statement dated February 7, 1992, filed pursuant to
Regulation 14A, File No. 1-4003).
10.32 Amendments No. 1 and 2 to Dresser Industries, Inc. 1992
Stock Compensation Plan (incorporated by reference to
Exhibit A to Dresser's Proxy Statement dated February 6,
1995, filed pursuant to Regulation 14A, File No. 1-4003).
10.33 Dresser Industries, Inc. 1995 Executive Incentive
Compensation Plan (incorporated by reference to Exhibit B
to Dresser's Proxy Statement dated February 6, 1995, filed
pursuant to Regulation 14A, File No. 1-4003).
61
10.34 Special 1997 Restricted Incentive Stock Grant
(incorporated by reference to Exhibit 10.26 to Dresser's
Form 10-K for the year ended October 31, 1996).
10.35 Form of Executive Life Insurance Agreement (individual as
beneficiary) (incorporated by reference to Exhibit 10.22
to Dresser's Form 10-K for the period ended October 31,
1997).
10.36 Form of Executive Life Insurance Agreement (trust as
beneficiary) (incorporated by reference to Exhibit 10.23
to Dresser's Form 10-K for the period ended October 31,
1997).
10.37 Amendment No. 3 to the Dresser Industries, Inc. 1992 Stock
compensation Plan (incorporated by reference to Exhibit
10.25 to Dresser's Form 10-K for the period ended October
31, 1997).
10.38 The Dresser Industries, Inc. 1998 Executive Incentive
Compensation Plan (incorporated by reference to Exhibit B
to Dresser's Proxy Statement dated February 10, 1998,
filed pursuant to Regulation 14A, File No. 1-4003).
10.39 Form of Waiver of Rights Under the Dresser Industries,
Inc. Long-Term Incentive and Retention Plan (incorporated
by reference to Exhibit 10.5 to Dresser's Form 10-Q for
the period ended January 31, 1998).
10.40 Amendment No. 1 to the Supplemental Executive Retirement
Plan of Dresser Industries, Inc. (incorporated by
reference to Exhibit 10.1 to Dresser's Form 10-Q for the
period ended April 30, 1998).
* 21 Subsidiaries of the registrant.
23*Registrant.
* 23.1 Consent of Arthur Andersen LLP.
46
3. Exhibits: (continued)
Exhibit
Number Exhibits
24(a)* 23.2 Consent of PricewaterhouseCoopers LLP.
24.1 Powers of attorney for the following directors signed in
February, 1997 (incorporated by reference to Exhibit 24 to
the Company's Annual Report on Form 10-K for the year
ended December 31, 1996):
Anne L. Armstrong
Richard B. Cheney
Lord Clitheroe
Robert L. Crandall
W. R. Howell
Dale P. Jones
Delano E. Lewis
C. J. Silas
Roger T. Staubach
Richard J. Stegemeier
24(b)*24.2 Power of attorney signed in December 1997 for Charles J.
DiBona.
27*DiBona (incorporated by reference to Exhibit 24(b) to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1997).
62
* 24.3 Powers of attorney for the following directors signed in
October, 1998:
William E. Bradford
Lawrence S. Eagleburger
Ray L. Hunt
J. Landis Martin
Jay A. Precourt
* 27 Financial data schedulesschedule for the registrantRegistrant (filed
electronically).
* 99.1 Report of independent accountants, PriceWaterhouseCoopers
LLP.
* Filed with this annual report
47
Form 10-K
- --------------------------------------------------------------------------------
(b) Reports on Form 8-K:
During the fourth quarter of 1997:1998:
A Current Report on Form 8-K dated September 29, 1998, was filed reporting on
Item 5. Other Events, regarding a press release dated September 29, 1998
announcing the completion of the Merger between the Company and Dresser
Industries, Inc.
A Current Report on Form 8-K dated September 29, 1998, was filed reporting on
Item 2. Acquisition or Disposition of Assets, regarding the acquisition of
Dresser Industries, Inc., pursuant to the plan of merger dated as of February
25, 1998.
A Current Report on Form 8-K/A dated September 29, 1998, was filed reporting on
Item 2. Acquisition or Disposition of Assets, regarding the acquisition of
Dresser Industries, Inc., and included supplemental financial statements for
Halliburton Company for the three years ended December 31, 1997 and six months
ended June 30, 1998.
A Current Report on Form 8-K dated October 20, 1997,29, 1998, was filed reporting on Item
5. Other Events, regarding a press release dated October 20, 1997,
announcing the agreement to sell the environmental services business.
A Current Report on Form 8-K dated October 22, 1997, was filed reporting
on Item 5. Other Events, regarding a press release dated October 22, 1997,29, 1998, announcing
third quarter earnings.
A Current Report on Form 8-K dated October 30, 1997,1998, was filed reporting on Item
5. Other Events, regarding a press release dated October 30, 1997,1998 announcing
the fourth quarter dividend.
A Current Report on Form 8-K dated October 30, 1997, was filed reporting
on Item 5. Other Events, regarding a press release dated October 30, 1997,
announcing award of a pipeline construction contract to a joint venture of
the Company's Brown & Root Energy Services unit.
A Current Report on Form 8-K dated November 19, 1997,1998, was filed reporting on
Item 5. Other Events, regarding a press release dated November 19, 1997,1998
announcing officer appointment at its Halliburton Energy Services
business unit.Company $150 million notes offering.
A Current Report on Form 8-K dated November 24, 1998, was filed reporting on
Item 5. Other Events, regarding the $150 million notes offering and the filing
of the final copy of the Terms Agreement and the form of Note.
A Current Report on Form 8-K dated November 30, 1998, was filed reporting on
Item 5. Other Events, regarding a press release dated November 30, 1998
announcing Dresser Industries, Inc. Change of Control Offer to purchase all
outstanding and guaranteed senior notes of Baroid Corporation.
63
(b) Reports on Form 8-K (continued):
A Current Report on Form 8-K dated December 8, 1997,28, 1998, was filed reporting on
Item 5. Other Events, regarding a press release dated December 8, 199728, 1998
announcing a $35 million pretax special charge in the election1998 fourth quarter to
provide for reduction of a member to its Board of Directors.
A Current Report on Form 8-K dated December 31, 1997, was filed reporting
on Item 5. Other Events, regarding a press release dated December 31,
1997, announcing the completion of the sale of its environmental services
unit.personnel.
During the first quarter of 19981999 to the date hereof:date:
A Current Report on Form 8-K dated January 22, 1998,1999, was filed reporting on Item
5. Other Events, regarding a press release dated January 22, 1998,1999 announcing
that the Company has entered into an agreement with W-H Energy Services, Inc.
for the sale of the Company's logging-while-drilling (LWD) and related
measurement-while-drilling (MWD) business.
A Current Report on Form 8-K dated January 25, 1999, was filed reporting on Item
5. Other Events, regarding a press release dated January 25, 1999 announcing
fourth quarter earnings.
A Current Report on Form 8-K dated February 17, 1998, was filed reporting
on Item 5. Other Events, regarding two press releases dated February 17,
1998, announcing it will provide a wide range of services as part of the
Terra Nova Alliance for Petro-Canada and the Terra Nova development and an
alliance agreement at Elk Hills between two of its business units with
Occidental.
A Current Report on Form 8-K dated February 19, 1998,18, 1999, was filed reporting on
Item 5. Other Events, regarding a press release dated February 19,
1998,18, 1999
announcing declaration of the first quarter 1998 dividend declaration and shareholders
annual meeting.
48dividend.
64
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SUPPLEMENTAL SCHEDULE
To Halliburton Company:
We have audited in accordance with generally accepted auditing
standards, the consolidated financial statements included in this Form 10-K, and
have issued our report thereon dated January 22, 1998.25, 1999. Our audits were made for
the purpose of forming an opinion on the basic consolidated financialthose statements taken as a whole. The
supplemental schedule (Schedule II) is the responsibility of Halliburton
Company's management and is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in ourthe audits of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
/s/ Arthur Andersen LLP
------------------------------
ARTHUR ANDERSEN LLP
Dallas, Texas,
January 22, 1998
4925, 1999
65
HALLIBURTON COMPANY
Schedule II - Valuation and Qualifying Accounts
(Millions of Dollars)
HALLIBURTON COMPANY
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(MILLIONS OF DOLLARS)
Additions
-------------------------------------------------------------
Balance at Charged to Charged to Balance at
Beginning Costs and Other Deductions End of
Descriptions of Period Expenses Accounts Deductions (A) Period
- ----------------------------------------- ---------------- ----------------- ------------ ------------------ -------------------------------------------------------------------------------------------------------------------------------------------
Year ended December 31, 1997:1998:
Deducted from accounts and notes receivable:
Allowance for bad debts $ 43.658.6 $ 8.726.5 $ - $ 13.9(8.5) $ 38.476.6
- ----------------------------------------- ---------------- ----------------- ------------ ------------------ -------------------------------------------------------------------------------------------------------------------------------------------
Accrued special charges $ 13.1 $ 1,010.3 (B) $ - $ (597.0) $ 426.4
- --------------------------------------------------------------------------------------------------------------------------
Year ended December 31, 1997:
Deducted from accounts and notes receivable:
Allowance for bad debts $ 65.3 $ 13.7 $ - $ (20.4) $ 58.6
- --------------------------------------------------------------------------------------------------------------------------
Accrued special charges $ 57.7 $ 16.2 $ - $ (60.8) $ 13.1
- --------------------------------------------------------------------------------------------------------------------------
Year ended December 31, 1996:
Deducted from accounts and notes receivable:
Allowance for bad debts $ 38.162.7 $ 12.615.8 $ - $ 7.1(13.2) $ 43.665.3
- -------------------------------------------------------------------------------------------- ------------ ---------------- ------------------------------ ------------- ------------
------------------ -----------------
Year ended December 31, 1995:
Allowance for bad debtsAccrued special charges $ 36.40.0 $ 7.985.8 $ - $ 6.2(28.1) $ 38.157.7
- -------------------------------------------------------------------------------------------- ------------ ---------------- ------------------------------ ------------- ------------ ------------------ -----------------
(A) Receivable write-offs and reclassifications, net of recoveries.
(B) Includes $980.1 million during the calendar year ended December 31, 1998
and $30.2 million during Dresser's two-month period ended December 31,
1997. See Note 14.
5066
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, on this 23rd22nd day of February, 1998.March,
1999.
HALLIBURTON COMPANY
By /s/ RICHARD B. CHENEY
---------------------------
Richard B. Cheney
Chairman of the Board and------------------------------------
Richard B. Cheney
Chief Executive Officer
and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons in the capacities indicated on
this 23rd22nd day of February, 1998.March, 1999.
Signature Title
- ------------ -----------
/s/ RICHARDRichard B. CHENEY Chairman of the Board and
- -----------------------------Cheney Chief Executive Officer and Director
- -------------------------------
Richard B. Cheney
/s/ GARYGary V. MORRISMorris Executive Vice President and
- ------------------------------------------------------------ Chief Financial Officer
Gary V. Morris
/s/ R. CHARLES MUCHMORE, JR.Charles Muchmore, Jr. Vice President and Controller and
- ------------------------------------------------------------ Principal Accounting Officer
R. Charles Muchmore, Jr.
5167
Signature Title
/s/ *ANNE- ------------ -----------
* ANNE L. ARMSTRONG Director
- ------------------------------------------------------------
Anne L. Armstrong
/s/ *LORD* WILLIAM E. BRADFORD Chairman of the Board and Director
- -------------------------------
William E. Bradford
* LORD CLITHEROE Director
- ------------------------------------------------------------
Lord Clitheroe
/s/
*ROBERT L. CRANDALL Director
- ------------------------------------------------------------
Robert L. Crandall
/s/ *CHARLES* CHARLES J. DIBONA Director
- ------------------------------------------------------------
Charles J. DiBona
/s/ *W.* LAWRENCE S. EAGLEBURGER Director
- -------------------------------
Lawrence S. Eagleburger
* W. R. HOWELL Director
- ------------------------------------------------------------
W. R. Howell
/s/ *DALE P. JONES Vice Chairman and* RAY L. HUNT Director
- -----------------------------
Dale P. Jones
/s/-------------------------------
Ray L. Hunt
*DELANO E. LEWIS Director
- ------------------------------------------------------------
Delano E. Lewis
/s/ *C.* J. LANDIS MARTIN Director
- -------------------------------
J. Landis Martin
* JAY A. PRECOURT Director
- -------------------------------
Jay A. Precourt
* C. J. SILAS Director
- ------------------------------------------------------------
C. J. Silas
/s/ *ROGER T. STAUBACH Director
- -----------------------------
Roger T. Staubach
/s/ *RICHARD* RICHARD J. STEGEMEIER Director
- ------------------------------------------------------------
Richard J. Stegemeier
* /s/* SUSAN S. KEITH
- ---------------------------------------------------------------------
Susan S. Keith, Attorney-in-fact
52
Index to Exhibits filed with this annual report.
Exhibit
Number Exhibits
- -------- --------
10(e) Halliburton Company 1993 Stock and Long-Term Incentive Plan,
as amended and restated July 22, 1997.
10(n) Halliburton Company 1993 Stock and Long-Term Incentive Plan,
as amended and restated February 19, 1998.
11 Computation of earnings per share.
21 Subsidiaries of the registrant.
23 Consent of Arthur Andersen LLP.
24(b) Power of attorney signed in December 1997 for Charles J.
DiBona.
27 Financial data schedule.
53
68