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 For the fiscal year ended December 31, 2000
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
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 February 28,
2001, determined using the per share closing price on the New York Stock
Exchange Composite tape of $39.82 on that date was approximately
$17,029,000,000.
As of February 28, 2001, there were 428,468,110 shares of Halliburton Company
Common Stock $2.50 par value per share outstanding.
Portions of the Halliburton Company Proxy Statement dated March 20, 2001, are
incorporated by reference into Part III of this report.
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. Halliburton Company provides a variety of services, equipment,
maintenance, and engineering and construction to energy, industrial and
governmental customers. Information related to acquisitions and dispositions is
set forth in Note 2 to the financial statements of this annual report. Financial
information about business segments. We operate in two business segments:
- Energy Services Group; and
- Engineering and Construction Group.
Dresser Equipment Group is currently presented as discontinued operations
resulting from the decision of the Board of Directors to sell Dresser Equipment
Group as it does not fit our core business goals and objectives. See Note 4 to
the financial statements for financial information about our business segments.
Description of services and products. Our ability to mix, bundle or
integrate products and services to meet the varied needs of our customers is of
increasing importance in the highly competitive environment in which we operate.
We believe that, based upon our customers' requirements, our future success will
depend, in part, upon our ability to offer total capabilities and solutions on a
global, industry-encompassing scale as well as discrete services and products.
Our business strategy is focused on continuing to maintain global leadership in
providing our customers discrete services, products, engineering, construction
and maintenance which can be combined with our project management capabilities
to provide our customers a wide range of integrated solutions. This strategy is
dependent upon four key goals: - technological leadership;
- operational excellence;
- innovative business relationships; and
- a dynamic workforce.
We offer a broad suite of products and services through the two business
segments which operate globally as five business units. The following summary
describes our services and products for each business segment and unit.
ENERGY SERVICES GROUP
The Energy Services Group segment consists of Halliburton Energy Services,
Brown & Root Energy Services, and Landmark Graphics. This segment provides a
wide range of discrete services and products and integrated solutions to
customers for the exploration, development and production of oil and gas. The
segment serves independent, integrated, and national oil companies.
Halliburton Energy Services provides discrete products and services and
integrated solutions for oil and gas exploration, development and production
throughout the world. Products and services range from the initial evaluation of
producing formations to drilling, completion, production and well maintenance
for a single well or an entire field. Major product and service line offerings
include:
- pressure pumping, including:
- cementing,
- production enhancement (fracturing and acidizing), and
- tools and testing;
- logging;
- drilling systems;
- drilling fluids systems;
- drill bits; and
- specialized completion and production equipment and services, and
well control products and services.
Cementing is the process used to bond the well and well casing while
isolating fluid zones and maximizing wellbore stability. This is accomplished by
pumping cement and chemical additives to fill the space between the casing and
the side of the wellbore. Our cementing service line also provides casing
equipment and services.
1
Production enhancement optimizes oil and gas reservoirs through a variety
of pressure pumping services, including: fracturing and acidizing, sand control,
coiled tubing, well control, nitrogen services, and specialty services. These
services are used to clean out a formation or to fracture formations to allow
increased oil and gas production.
Tools and testing includes tubing-conveyed perforating products and
services, drill stem and other well testing tools, data acquisition services and
production applications.
Logging products and services include our Magnetic Resonance Imaging
Logging (MRIL(R)), high-temperature logging as well as traditional open-hole and
cased-hole logging tools. MRIL(R) tools apply medical diagnostic magnetic
resonance imaging technology to the evaluation of subsurface rock formations in
newly drilled oil and gas wells. Our high temperature logging tools combine
advanced electronic and mechanical tool designs, quality materials and a
telemetry system to operate in high temperature and high pressure downhole
environments. Open-hole tools provide information on well visualization,
formation evaluation (including resistivity, porosity, lithology and
temperature), rock mechanics and sampling. Cased-hole tools provide cementing
evaluation, reservoir monitoring, pipe evaluation, pipe recovery and
perforating.
Drilling systems and services are provided by Sperry-Sun Drilling Systems.
These services include directional and horizontal drilling,
measurement-while-drilling, logging-while-drilling, multilateral wells and
related completion systems, and rig site information systems.
Drilling fluids systems are provided by Baroid Drilling Fluids. These
services provide fluid systems and performance additives for oil and gas
drilling, completion and workover operations. In addition, Baroid sells products
for a wide variety of industrial customers.
Drill bits, offered by Security DBS, include roller cone rock bits, fixed
cutter bits, coring equipment and services, and other downhole tools used to
drill wells.
Completion products include subsurface safety valves and flow control
equipment, surface safety systems, packers and specialty completion equipment,
production automation, well screens, well control services, and slickline
equipment and services.
Halliburton Energy Services also provides fully integrated oilfield
management and technical expertise in the following areas:
- integrated solutions; and
- reservoir description.
Integrated solutions provides value-added oilfield project management and
solutions to independent, integrated, and national oil companies. Integrated
solutions enhance field deliverability and maximize the customer's return on
investment. These services leverage all Halliburton Energy Services product
service lines and technologies as well as overall project management
capabilities.
Reservoir description is composed of two groups - geoscience and
engineering, and computed products. The geoscience and engineering group
provides a comprehensive suite of products including opportunity assessment,
reservoir characterization, field development planning, production enhancement,
reservoir surveillance, and reservoir management. The computed products group
provides interpretation for wellbore imaging, waveform sonics, cement
evaluation, production, and a variety of open and cased-hole information
evaluation logs. By combining reservoir description with field service
capabilities and technology, Halliburton Energy Services provides complete
reservoir solutions.
Brown & Root Energy Services provides worldwide engineering and
construction services to the upstream oil and gas industry. Projects for our
customers are executed on a cost reimbursable or lump-sum, turnkey basis. Brown
& Root Energy Services offers deepwater and floating production solutions
including deepwater riser solutions, floating production technologies and
project management systems tailored to the specific needs of our customers. The
offshore group integrates capabilities required to plan, engineer, construct and
operate offshore production facilities. The group includes front-end
engineering, detailed engineering, project management, procurement and
construction, fabrication, and production services. Capabilities include the
engineering, procurement and construction of offshore drilling and production
platforms, process skids and modules, subsea components, turret mooring systems
and production manifolds, structural pipe/caissons, semi-drilling rig components
and prefabricated components.
2
Brown & Root Energy Services' divisions provide both onshore and offshore
support to customers.
- Halliburton Subsea provides construction and installation
capabilities, including a comprehensive fleet of semi-submersibles,
remotely-operated vehicles and support vessels. These vehicles and
vessels are used to install subsea manifolds, templates, spools,
fixed risers, dynamic risers, mechanical connections, pilings and
flexible pipelines. Halliburton Subsea also provides trenching and
repair operations.
- Wellstream manufactures and supplies flexible pipe. Flexible pipe
is used primarily in the offshore oil and gas industry for both
topside and subsea applications.
- Fabrication products and services are provided by Brown & Root
Energy Services at one facility and Brown & Root Energy Services
and a joint venture partner at two additional facilities.
- Pipeline services provided by our European Marine Contractors joint
venture includes full turnkey pipeline services to offshore
customers.
- Pipecoating services are provided by our joint venture,
Bredero-Shaw.
- Granherne capabilities include feasibility, conceptual and front-
end engineering and design, detailed engineering, procurement,
construction site management, commissioning, startup and
de-bottlenecking of both onshore and offshore facilities.
Landmark Graphics provides integrated exploration and production software
information systems and professional services. Landmark's software transforms
vast quantities of seismic, well log and other data into detailed computer
models of petroleum reservoirs to optimize exploration, development and
production decisions. Landmark's products and services integrate data workflows
and operational processes across disciplines including geophysics, geology,
drilling, engineering, production, economics, finance and corporate planning,
and key partners and suppliers.
ENGINEERING AND CONSTRUCTION GROUP
The Engineering and Construction Group segment, consisting of Kellogg Brown
& Root and Brown & Root Services, provides a wide range of services to energy
and industrial customers and government entities worldwide.
Kellogg Brown & Root is a global provider of technology-based engineering
and construction services using proprietary processes including project
development, technology licensing and development, consulting, project
management, engineering, procurement, construction, operations and maintenance
services. Projects for our customers are often executed on a lump-sum, turnkey
basis, including:
- engineering, procurement and construction services for:
- liquefied natural gas and gas processing facilities;
- ammonia plant design and technology;
- olefins, polymer and phenol plants; and
- forest products facilities;
- industrial maintenance services to private sector customers; and
- planning, process technologies and engineering, procurement and
construction services in the construction of refineries utilizing
proprietary techniques in fluid catalytic cracking,
hydroprocessing, and residuum processing.
Brown & Root Services is a global provider to the private (primarily
non-energy) and government sectors offering planning, design, construction,
operations, maintenance, asset management and decommissioning of infrastructure,
facilities and installations. The following summarizes the business unit's
product service lines and their distinctive capabilities:
- management and engineering - consulting and civil engineering
services providing master planning and consulting, design,
engineering, project and construction management, and facility
start-up;
- construction - management of large infrastructure and building
projects. Other services include on-call construction and
facilities modification and repair;
3
- operations, maintenance and logistics - operation of government
facilities and installations, including the provisioning of food
and housing services for the life-cycle of large scale projects,
weapons demilitarization, aircraft servicing, fuels handling and
management, refuse collection, equipment maintenance and
operations, public works support, and transportation services; and
- investment management - participation in the design, building,
financing and operation and ownership of toll roads, marine, and
other public sector facilities.
DRESSER EQUIPMENT GROUP
The Dresser Equipment Group, now accounted for as discontinued operations,
is made up of the operating divisions that design, manufacture and market
equipment used by the energy industry to complete the process of finding,
extracting, processing, and delivering petroleum and its related products.
Dresser Equipment Group products are also used by a multitude of other
industries that serve all sectors of the economy.
Product service lines in this segment include:
- compression and pumping;
- measurement;
- flow control; and
- power systems.
The compression and pumping product service line included two joint
ventures: Dresser-Rand and Ingersoll-Dresser Pump. Dresser-Rand manufactures and
services gas turbines; centrifugal, reciprocating and axial compressors; stem
turbines; electric motors and generators. Ingersoll-Dresser Pump provides a wide
range of pumps for use in process and petrochemical industries, power
generation, pulp and paper, water resources, mining, pipeline, marine, general
industry and agriculture. In October 1999, we decided to sell our interests in
Dresser-Rand and Ingersoll-Dresser Pump to Ingersoll-Rand. Ingersoll-Dresser
Pump was sold on December 30, 1999. Dresser-Rand was sold on February 2, 2000.
The measurement product service line includes the DMD-Roots, Instrument and
Wayne Divisions. DMD produces gas meters, electronic products for gas systems,
pipe fittings, couplings and repair devices for gas and water utilities and
other industries. Roots manufactures rotary-lobe and centrifugal air and gas
handling blowers as well as vacuum pumps. Instrument products include gauges,
thermometers, switches, transducers, transmitters and instrument isolators for
pressure and temperature measurement and control. Wayne manufactures and
supplies retail automation control and fuel dispensing systems worldwide.
The flow control product service line includes the Dresser Valve division
which manufactures ball, gate, check, butterfly, plug, safety relief, automated
globe, rotary control and specialty valves; chemical injection pumps;
regulators; surge relievers and actuators.
The power systems product service line includes the Waukesha Engine
Division. Waukesha manufactures spark ignited gaseous fueled engines and
packaged engine-driven generator sets used in field gas compression.
In April 2000, we determined that the remaining parts of our Dresser
Equipment Group business did not closely fit our core businesses and at that
time we announced our intention to sell this business. See Note 3 to the
financial statements for additional information on the sale of our interests in
these activities.
Markets and competition. We are one of the world's largest diversified
energy services and engineering and construction services companies. Our
services and products are sold in highly competitive markets throughout the
world. Competitive factors impacting sales of our services and products include:
price, service (including the ability to deliver services and products on an "as
needed, where needed" basis), product quality, warranty and technical
proficiency. While we provide a wide range of discrete services and products, a
number of customers have indicated a preference for integrated services and
solutions. In the case of the Energy Services Group, integrated services and
solutions relate to all phases of exploration, development and production of oil
and gas. In the case of the Engineering and Construction Group, integrated
services and solutions 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.
We conduct business worldwide in over 120 countries. Since the markets for
our services and products are so large and cross so many geographic lines, a
meaningful estimate of the number of competitors cannot be made. The industries
we serve are highly competitive and we have many substantial competitors.
Generally, our services and products are marketed through our own servicing and
sales organizations. A small percentage of sales of the Energy Service Group's
4
and Dresser Equipment Group's products is made through 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. We believe the geographic diversification of our
business activities reduces the risk that loss of operations in any one country
would be material to the conduct of our operations taken as a whole. Information
regarding our exposures to foreign currency fluctuations, risk concentration,
and financial instruments used to minimize risk is included on page 17 under the
caption "Financial Instrument Market Risk" and in Note 17 to the financial
statements.
Customers and backlog. In 2000, 1999, and 1998, respectively, 84%, 83% and
87% of our revenues from continuing operations were derived from the sale of
products and services to the energy industry. The following schedule summarizes
the backlog from continuing operations of engineering and construction projects
at December 31, 2000 and 1999:
Millions of dollars 2000 1999
----------------------------------------------------------------------------
Firm orders $7,652 $8,829
Government orders firm but not yet funded,
letters of intent and contracts awarded but
not signed 1,751 316
----------------------------------------------------------------------------
Total $9,403 $9,145
----------------------------------------------------------------------------
We estimate that 50% of the total backlog existing at December 31, 2000
will be completed during 2001. Our backlog excludes contracts for recurring
hardware and software maintenance and support services. Backlog does not
indicate what future operating results will be 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 and timing. Many contracts do not provide for a fixed amount of
work to be performed and are subject to modification or termination by the
customer. The termination or modification of any one or more sizeable contracts
or the addition of other contracts may have a substantial and immediate effect
on backlog.
Raw materials. Raw materials essential to our business are normally readily
available. Where we are dependent on a single supplier for materials essential
to our business, we are confident that we could make satisfactory alternative
arrangements in the event of an interruption in supply.
Research, development and patents. We maintain an active research and
development program. The program improves existing products and processes,
develops new products and processes and improves engineering standards and
practices that serve the changing needs of our customers. Information relating
to our expenditures for research and development is included in Note 1 and Note
4 to the financial statements.
We own a large number of patents and have pending a substantial number of
patent applications covering various products and processes. We are also
licensed under patents owned by others. We do not consider a particular patent
or group of patents to be material to our business.
Seasonality. Weather and natural phenomena can temporarily affect the
performance of our services. Winter months in the Northern Hemisphere tend to
affect operations negatively, but the widespread geographical locations of our
operations serve to mitigate the seasonal nature of our business.
Employees. At December 31, 2000, we employed approximately 93,000 people
worldwide including about 9,000 related to discontinued operations. At December
31, 1999, we employed approximately 103,000 people worldwide including about
15,000 related to discontinued operations.
Environmental regulation. We are subject to various environmental laws and
regulations. Compliance with these requirements has not substantially increased
capital expenditures, adversely affected our competitive position or materially
affected our earnings. We do not anticipate any material adverse effects in the
foreseeable future as a result of existing environmental laws and regulations.
See Note 9 to the financial statements.
5
Item 2. Properties.
We own or lease hundreds of properties throughout the world. The following
are the locations of our principal facilities, the facility types and their
square footage for the continuing operations of our industry segments:
Energy Services Group Floor Area Number of
(Sq. Ft.) Facilities
----------------------------------------------
Location Type of Facility Leased Owned Leased Owned
- -------------------------------------------------------------------------------------------------------------------------
Texas Engineering & Design - 10,000 - 1
Mexico, Canada, Scotland, and other foreign
locations Engineering & Design 67,000 281,000 4 4
Texas Manufacturing - 1,736,000 - 9
Oklahoma Manufacturing - 878,000 - 1
Florida, Colorado, Missouri, Louisiana,
and other locations in the U.S. Manufacturing 267,000 103,000 9 2
Colombia, Canada, England, Scotland,
Australia and other foreign locations Manufacturing 158,000 978,000 5 9
Texas Research & Development 70,000 480,000 2 2
Oklahoma Research & Development - 207,000 - 1
Colorado Research & Development 35,000 - 1 -
Netherlands Research & Development 11,000 - 1 -
Texas, Oklahoma and Florida Warehouse & Other 38,000 232,000 2 5
Mexico Warehouse & Other 528,000 - 3 -
Colombia Warehouse & Other 148,000 841,000 2 3
Norway and other foreign locations Warehouse & Other 414,000 78,000 13 2
Texas, Oklahoma and other locations in the U.S. Administrative Center 415,000 998,000 10 7
Algeria Administrative Center 113,000 - 1 -
Norway, Scotland, Germany, England and other
foreign locations Administrative Center 955,000 766,000 51 7
- -------------------------------------------------------------------------------------------------------------------------
Total Energy Services Group 3,219,000 7,588,000 104 53
- -------------------------------------------------------------------------------------------------------------------------
Engineering and Construction Group Floor Area Number of
(Sq. Ft.) Facilities
----------------------------------------------
Location Type of Facility Leased Owned Leased Owned
- -------------------------------------------------------------------------------------------------------------------------
Canada Fabricating - 100,000 - 1
Texas, Alabama and Florida Engineering & Design 899,000 736,000 3 5
Mexico, Canada, England and Australia Engineering & Design 221,000 165,000 19 2
Virginia, Florida, Texas and other locations
in the U.S. Administrative Center 82,000 - 10 -
England, Canada and other foreign locations Administrative Center 16,000 251,000 6 5
- -------------------------------------------------------------------------------------------------------------------------
Total Engineering and Construction Group 1,218,000 1,252,000 38 13
- -------------------------------------------------------------------------------------------------------------------------
(continued on next page)
6
General corporate Floor Area Number of
(Sq. Ft.) Facilities
----------------------------------------------
Location Type of Facility Leased Owned Leased Owned
- -------------------------------------------------------------------------------------------------------------------------
Texas and Washington, D.C. Administrative Center 383,000 984,000 8 10
England and other foreign locations Administrative Center 49,000 - 4 -
- -------------------------------------------------------------------------------------------------------------------------
Total general corporate 432,000 984,000 12 10
- -------------------------------------------------------------------------------------------------------------------------
In addition to the above listed properties, we own or lease:
- marine fabrication facilities covering approximately 790 acres
in Texas, England, and Scotland;
- mineral grinding facilities in Wyoming, Brazil, Colombia, Peru, and
Venezuela covering approximately 660 acres;
- 160 acre employee recreational facility in Oklahoma;
- outdoor storage and undeveloped land covering 134 acres in Texas,
Scotland, Australia, and Algeria; and
- service centers, sales offices and field warehouses at
approximately 220 locations in the United States, almost all of
which are owned, and at approximately 250 locations outside the
United States in both the Eastern and Western Hemispheres.
We also have mineral rights to proven and prospective reserves of barite
and bentonite. These rights include leaseholds, mining claims and property owned
in fee. Based on the number of tons of each of the above minerals consumed in
fiscal 2000, we estimate our proven reserves are sufficient for operations for
the foreseeable future. All properties that we currently occupy are deemed
suitable for their intended use.
Among the properties listed in the tables above that are currently vacant
or sublet:
- 160 acre marine fabrication facility in Nigg, Scotland;
- 408,000 square foot manufacturing facility in Fort Worth, Texas;
- 54,000 square foot office facility in Arlington, Texas; and
- 204,000 square foot administrative facility in Dallas, Texas.
The properties listed in the tables above exclude the discontinued
operations of Dresser Equipment Group.
Item 3. Legal Proceedings.
Information relating to various commitments and contingencies is described
in Note 9 to the financial statements.
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 2000.
7
Executive Officers of the Registrant.
The following table indicates the names and ages of the executive officers
of the registrant as of February 1, 2001, along with a listing of all offices
held by each during the past five years:
Name and Age Offices Held and Term of Office
- ------------ -------------------------------
Jerry H. Blurton Vice President and Treasurer, since July 1996
(Age 56) Vice President - Finance & Administration of
Halliburton Energy Services, August 1995 to
July 1996
Margaret E. Carriere Vice President Human Resources, since August 2000
(Age 49) Vice President and Associate General Counsel of
Halliburton Energy Services, Inc., February
2000 to August 2000
Law Department Manager of Integration &
Development of Halliburton Energy Services,
Inc., October 1998 to February 2000
Region Chief Counsel (London) Europe/Africa Law
Department of Halliburton Energy Services,
Inc., May 1994 to September 1998
Lester L. Coleman Executive Vice President and General Counsel,
(Age 58) since May 1993
Robert F. Heinemann Vice President and Chief Technology Officer,
(Age 47) since February 2000
Vice President of Mobil Technology Company and
General Manager of Mobil Exploration and
Producing Technical Center, 1997 to February
2000
Manager of Surface Engineering and Upstream
Strategic Research of Mobil Technology Company,
1996 to 1997
Manager of Upstream Strategic Research of Mobil
Technology Company, 1995 to 1996
Arthur D. Huffman Vice President and Chief Information Officer,
(Age 48) since August 2000
Chief Information Officer of Group Air Liquide,
1997 to August 2000
Vice President - Information Technology of Air
Liquide America Corporation, 1995 to 1997
John W. Kennedy Executive Vice President - Global Business
(Age 50) Development, since April 2000
Chief Operating Office of Brown & Root Energy
Services, 1998 to April 2000
President of Dresser Enterprises, an internal
marketing group of Dresser Industries, Inc.,
1997 to 1998
President and Chief Operating Officer of Kellogg
Oil & Gas Services Limited, 1995 to 1997
* David J. Lesar Chairman of the Board, President and Chief
(Age 47) Executive Officer, since August 2000
President and Chief Operating Officer, May 1997
to August 2000
Executive Vice President and Chief Financial
Officer, August 1995 to May 1997
President and Chief Executive Officer of Kellogg
Brown & Root, Inc., September 1996 to January
1999
8
Executive Officers of the Registrant (continued)
Name and Age Offices Held and Term of Office
- ------------ -------------------------------
Gary V. Morris Executive Vice President and Chief Financial
(Age 47) 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
R. Charles Muchmore, Jr. Vice President and Controller, since August 1996
(Age 47) Finance & Administration Director - Europe/Africa
of Halliburton Energy Services, September 1995
to August 1996
David A. Reamer Senior Vice President, since May 2000
(Age 48) Senior Vice President-Shared Services Division of
Halliburton Energy Services, Inc., since May
1998
Senior Vice President-Shared Services of
Halliburton Company, May 1998 to October 1998
Senior Vice President-Global Delivery of
Products, Services and Solutions of
Halliburton Energy Services, September 1997 to
May 1998
Vice President-Global Delivery of Products,
Services and Solutions of Halliburton Energy
Services, April 1997 to September 1997
Vice President-Integrated Solutions of
Halliburton Energy Services, August 1995 to
April 1997
* Donald C. Vaughn Vice Chairman, since September 1998
(Age 64) 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
* Members of the Executive Committee of the registrant.
There are no family relationships between the executive officers of the
registrant.
9
PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholder
Matters.
Halliburton 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 payment is included under the caption "Quarterly Data and
Market Price Information" on page 64 of this annual report. Cash dividends on
common stock for 2000 and 1999 were paid in March, June, September and December
of each year. Our board of directors intends to consider the payment of
quarterly dividends on the outstanding shares of our common stock in the future.
The declaration and payment of future dividends, however, will be at the
discretion of the board of directors and will depend upon, among other things,
our:
- future earnings;
- general financial condition;
- success in business activities;
- capital requirements; and
- general business conditions.
At December 31, 2000, there were approximately 25,800 shareholders of
record. In calculating the number of shareholders, we consider 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 61
through 63 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 12 through 20 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 page 17 of this annual report.
10
Item 8. Financial Statements and Supplementary Data.
Page No.
Report of Arthur Andersen LLP, Independent Public Accountants 21
Responsibility for Financial Reporting 22
Consolidated Statements of Income for the years ended December 31, 2000, 1999 and 1998 23
Consolidated Balance Sheets at December 31, 2000 and 1999 24
Consolidated Statements of Shareholders' Equity for the years ended December 31, 2000, 1999 and 1998 25-26
Consolidated Statements of Cash Flows for the years ended December 31, 2000, 1999 and 1998 27
Notes to Financial Statements
1. Significant accounting policies 28
2. Acquisitions and dispositions 30
3. Discontinued operations 31
4. Business segment information 32
5. Inventories 34
6. Property, plant and equipment 34
7. Related companies 34
8. Lines of credit, notes payable and long-term debt 35
9. Commitments and contingencies 36
10. Income per share 39
11. Engineering and construction reorganization 40
12. Special charges and credits 40
13. Change in accounting method 45
14. Income taxes 45
15. Common stock 47
16. Series A junior participating preferred stock 49
17. Financial instruments and risk management 49
18. Retirement plans 50
19. Subsequent event 54
20. Dresser financial information 54
Quarterly Data and Market Price Information (unaudited) 64
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.
11
HALLIBURTON COMPANY
Management's Discussion and Analysis of Financial Condition
and Results of Operations
In this section, we discuss the operating results and general financial
condition of Halliburton Company and its subsidiaries. We explain:
- factors and risks that impact our business;
- why our earnings and expenses for the year 2000 differ from the
years 1999 and 1998;
- capital expenditures;
- factors that impacted our cash flows; and
- other items that materially affect our financial condition or
earnings.
BUSINESS ENVIRONMENT
Our continuing business is organized around two business segments:
- Energy Services Group; and
- Engineering and Construction Group.
We also report the results of a third business segment, Dresser Equipment
Group, as discontinued operations.
As the largest provider of products and services to the petroleum and
energy industries, the majority of the consolidated revenues are derived from
the sale of services and products to large oil and gas companies. We conduct
business in over 120 countries with energy, industrial and governmental
customers. These services and products are used in the earliest phases of
exploration and development of oil and gas reserves through the refining and
distribution process. The industries we serve are highly competitive with many
substantial competitors for each segment.
No country other than the United States or the United Kingdom accounts for
more than 10% of our operations. Unsettled political conditions, expropriation
or other governmental actions, exchange controls and currency devaluations may
result in increased business risk in any one country, including, among others,
Algeria, Angola, Libya, Nigeria, and Russia. We believe the geographic
diversification of our business activities reduces the risk that loss of
business in any one country would be material to our consolidated results of
operations.
Halliburton Company
The year 2000 showed increased activity in the North American energy
services environment. The international recovery from 1999 levels is expected to
materialize in 2001. The engineering and construction business remains hampered
by lower customer commitments; however, we believe the long-term fundamentals
remain sound. Rising populations in many countries and greater
industrialization efforts should continue to propel worldwide economic
expansion, especially in developing nations. We expect these factors to cause
increasing demand for oil and gas needed for refined products, petrochemicals,
fertilizers, power, and other needs.
Energy Services Group
During 2000, the demand for the group's oilfield services and products
recovered from lower levels in 1999 and late 1998. Consistent with past history,
the activity levels in the United States were the first to rebound with
increased demand for products and services and an improved pricing environment.
International activity began to improve in the second half of 2000. Growth in
our business was driven primarily by increased rotary rig count on natural gas
wells in North America. The rotary rig count, which is an indicator of activity,
hit near-term record highs for the third and fourth quarters after a brief drop
in the first half of the year. Some experts project that the average rig count
for 2001 will increase over 20% as compared to 2000. If forecasts prove to be
accurate, this would be the highest level of activity in North America since
1985. This growth should have a favorable impact for the Energy Services Group.
Crude oil prices remained at or near record highs throughout 2000, with
West Texas Intermediate ending the year at over $32 per barrel. Natural gas
prices continued to climb as a result of North America experiencing the coldest
weather in recent years and low volumes of gas in storage. Henry Hub gas prices
averaged $6.20/MCF in the fourth quarter of 2000 and $8.12/MCF for the month of
December with occasional spikes over $10.00/MCF during the month. For the year,
Henry Hub gas prices averaged $4.20/MCF compared to $2.27/MCF in 1999. We
believe the continued high commodity prices bode well for the industry and
should encourage our customers to increase investments in exploration and
production.
12
Internationally, our business activity levels have not increased as much as
in North America, although customers who are focused on oil projects are now
starting to increase their global capital spending. The turnaround in
international rig activity continued in the fourth quarter, with the highest
average rig count since 1998 at 710 rigs working compared to 576 in 1999.
However, we do not expect to see any significant increase in larger
capital-intensive field development projects outside North America until the
second half of 2001. The merger and consolidation activities of a number of
large customers over the past two years have affected the demand for our
products and services. The companies that have merged continue to evaluate their
oil and gas properties, refining and distribution facilities, and organizations.
This evaluation process has translated into a short-term reluctance to undertake
new investments resulting in a lower demand for some of our products and
services in 2000, especially outside North America.
Engineering and Construction Group
Most of the factors that adversely affected the Energy Services Group in
1999 and 1998 also affected the Engineering and Construction Group since over
half of the group's revenues come from customers in the oil and gas industry. We
believe the higher rig counts experienced in the second half of 2000 and
expected for 2001 should positively impact the Engineering and Construction
Group, but much later in the cycle than the Energy Services Group. Customers of
the group are more reluctant to start large capital projects, including
refineries and petrochemical plants, during periods of uncertain oil prices.
Merged customers rationalizing and optimizing their existing capabilities have
further delayed project starts. The group has seen a number of large potential
projects deferred because of uncertain prices for petroleum products. The group
is beginning to experience an increase in inquiries for bids and proposals for
potential new projects, including several large international liquefied natural
gas projects. The Engineering and Construction Group has continued to expand its
services to the military - both in the United States and abroad. The group sees
improving opportunities to provide additional support services to other United
States agencies and to government agencies of other countries, including the
United Kingdom. The demand for these services is expected to grow as governments
at all levels seek to control costs and improve services by outsourcing various
functions.
RESULTS OF OPERATIONS IN 2000 COMPARED TO 1999 AND 1998
REVENUES
Millions of dollars 2000 1999 1998
- -------------------------------------------------------------------------------
Energy Services Group $ 7,916 $ 6,999 $ 9,009
Engineering and Construction Group 4,028 5,314 5,495
- -------------------------------------------------------------------------------
Total revenues $ 11,944 $ 12,313 $ 14,504
- -------------------------------------------------------------------------------
Revenues for 2000 were $11,944 million, a decrease of 3% from 1999 revenues
of $12,313 million and a decrease of 18% from 1998 revenues of $14,504 million.
In regard to 2000 compared to 1999, lower levels of engineering and
construction revenues in both segments were partially offset by increased
oilfield services revenues within the Energy Services Group, particularly in the
United States. In regard to 2000 compared to 1998, the decline was experienced
in both segments. While our oilfield services business recovered substantially
during 2000, activity levels were still about 10% lower than in 1998. The 2000
total engineering and construction activity within both segments was off almost
25% as compared to 1998 as customers continued to postpone most major new
investments. International revenues were 66% of our consolidated revenues in
2000, compared with 70% in 1999 and 68% in 1998.
Energy Services Group revenues were $7,916 million for 2000, an increase of
13% from 1999 revenues of $6,999 million and a decrease of 12% from 1998
revenues of $9,009 million. International revenues were 66% of total segment
revenues in 2000 compared with 71% in 1999 and 67% in 1998. Revenues for the
group were positively impacted in late 1999 and throughout 2000 by increased rig
counts and customer spending, particularly within North America, following
increases in oil and gas prices that began in 1999. Increased demand for natural
gas and increased drilling activity positively benefited our oilfield services
product service lines. The pressure pumping and logging product service lines
achieved revenue growth of 30% and 27%, respectively, compared to 1999. Drilling
fluids increased over 20%, while drill bits and completion products service
lines increased about 14%. Drilling systems service line revenues increased by
7%. Geographically, strong North American activity resulted in revenue growth of
43%, with growth experienced across all product service lines in that region
13
compared to 1999. North America generated 52% of total oilfield service product
service line revenues for 2000 compared to 44% in 1999. Pressure pumping
accounted for approximately 50% of the increase in revenues within North
America, reflecting higher activity levels in all work areas, particularly the
Gulf of Mexico, South Texas, Canada, and Rocky Mountains. Revenues in the Middle
East and Latin America regions increased 16% and 12%, respectively, compared to
1999. Europe/Africa revenues were up slightly while revenues in the Asia Pacific
region declined by 3%. Activity was slower to increase internationally
throughout 2000 despite higher oil and gas prices. The turnaround in
international rig activity, which started late in the second quarter of 2000,
continued into the fourth quarter of 2000 when international rig counts reached
the highest levels since late 1998. Revenues also increased across all regions
outside North America during the fourth quarter of 2000, as customer spending
for exploration and production began to increase outside North America.
Revenues from upstream oil and gas engineering and construction services
declined 2% in 2000 compared to 1999 and about 20% compared to 1998. The
decrease in 2000 reflects the continued delay in engineering and construction
project spending by our customers. Upstream engineering and construction
business revenues benefited in 2000 from deepwater projects in Latin America,
particularly Mexico, and Africa, reflecting the continued shift in work out of
the North Sea and into Latin America, Africa and Asia Pacific. In 1998, revenues
from upstream oil and gas engineering and construction services benefited from
large projects and from activities in the subsea, pipecoating and flexible pipe
product service lines.
Revenues for integrated exploration and production information systems
reached record high levels in 2000, breaking the previous high set in 1998.
Revenues from integrated exploration and production information systems
increased 13% compared to 1999, and increased slightly over 1998. Increases in
software and professional services revenues were partially offset by lower
hardware revenues, which have been de-emphasized. Software sales contributed
just over 19% in revenue growth, while professional services increased over 7%
compared to 1999. In 1999 many customers for our information system product
lines put off software purchases due to customers' consolidations, lower
activity levels and internal focus on Year 2000 issues.
Engineering and Construction Group revenues were $4,028 million for 2000,
down 24% from $5,314 million in 1999 and down 27% from 1998 revenues of $5,495
million. Higher oil and gas prices during 2000 did not translate into customers
proceeding with new awards of large downstream projects. Many other large
projects, primarily gas and liquefied natural gas projects, were also delayed,
continuing a trend that started in 1999. In 1999 the group increased logistics
support services to military peacekeeping efforts in the Balkans and increased
activities at the Devonport Dockyard in the United Kingdom. The logistics
support services to military peacekeeping efforts in the Balkans peaked in the
fourth quarter of 1999 as the main construction and procurement phases of the
contract were completed. These increases partially offset lower revenues from
engineering and construction projects, particularly major projects in Europe and
Africa, which were winding down. Revenues for the group in 1998 reflect higher
liquefied natural gas project revenues in Asia and Africa, an enhanced oil
recovery project in Africa, and a major ethylene project in Singapore.
OPERATING INCOME
Millions of dollars 2000 1999 1998
- --------------------------------------------------------------------------------
Energy Services Group $ 526 $ 222 $ 971
Engineering and Construction Group 14 203 237
General corporate (78) (71) (79)
Special charges and credits - 47 (959)
- --------------------------------------------------------------------------------
Operating income $ 462 $ 401 $ 170
- --------------------------------------------------------------------------------
Operating income was $462 million for 2000 compared to $401 million for
1999 and $170 million for 1998. Business segment results include restructuring
charges of $36 million in 2000 related to the restructuring of the engineering
and construction businesses. See Note 11. Excluding special credits of $47
million in 1999 and special charges of $959 million during 1998, operating
income for 2000 increased by 31% from 1999 and decreased 59% from 1998. See Note
12.
14
Energy Services Group operating income in 2000 was $526 million, an
increase of 137% from 1999 operating income of $222 million and a decrease of
46% compared to 1998 operating income of $971 million. Operating margins were
6.6% in 2000, up from 3.2% in 1999 and down from 10.8% in 1998. Approximately
33% of the Energy Services Group's operating income was derived from
international activities for 2000, compared with 54% in 1999 and 1998. During
2000, strengthening North American drilling and oilfield activity resulted in
increased equipment utilization and improved pricing within the oilfield
services product service lines. Pressure pumping operating income increased
about 135% compared to 1999 levels, which were down about 70% compared to 1998,
while logging services operating income increased by over 200% compared to 1999.
Drilling fluids, drilling systems and completion products were impacted by slow
recovery in international activity. During the fourth quarter of 2000, oilfield
services recorded an $8 million reversal of bad debts related to claims settled
by the United Nations against Iraq dating from the invasion of Kuwait in 1990.
Geographically, strong oil and gas prices throughout 2000 led to higher levels
of deepwater and onshore gas drilling within North America. Activity increases
in the Gulf of Mexico, South Texas, Canada, and Rocky Mountain work areas were
greater than most other areas. Operating income outside North America continued
to lag the performance noted within North America, reflecting continued delays
in international exploration and production for oil and gas. On a positive note,
fourth quarter 2000 operating income increased across all international
geographic regions compared to the third quarter, reflecting increased
international spending by our customers.
Operating income in 2000 for upstream oil and gas engineering and
construction activities declined by 5% compared to 1999 and 73% compared to
1998. Projects and workloads are increasingly shifting from the North Sea to
Latin America, Africa and Asia Pacific. Operating income benefited in 2000 from
a third quarter $88 million gain on sale of two semi-submersible vessels and one
multipurpose support vessel. Lower activity levels in the North Sea,
particularly in the United Kingdom sector, negatively impacted operating income
in 2000 and 1999 through lower utilization of engineering staff, as well as
under utilization of manufacturing and fabricating capacity and subsea equipment
and vessels, which carry large fixed costs. Given the number and technical
complexity of the engineering and construction projects we perform, some project
losses are normal occurrences. However, the environment for negotiations with
customers on claims and change orders has become more difficult in the past few
years. This environment, combined with performance issues on a few large,
technically complex jobs, contributed to unusually high job losses on major
projects of $82 million in 2000, including $48 million in the fourth quarter,
$77 million in 1999 and $99 million in 1998. In addition, the upstream oil and
gas engineering and construction business recorded $11 million of restructuring
charges in 2000.
Operating income from integrated exploration and production information
systems in 2000 increased almost 200% compared to 1999. Operating income in 2000
and 1999 was lower than 1998 due to lower software sales volumes in 1999 and
change in the software license product mix from perpetual license sales for
which income is recognized at the time of sale to annual access licenses where
income is recognized over the license period.
Engineering and Construction Group operating income for 2000 of $14 million
decreased $189 million, or 93% from 1999 and about $223 million, or 94% from
1998. The operating margin was just above zero in 2000 down from 3.8% in 1999
and 4.3% for 1998. Operating margins in 2000 declined both internationally and
in North America due to losses on projects as a result of higher than estimated
costs on selected jobs and claims negotiations on other jobs not progressing as
anticipated. In the fourth quarter of 2000, job losses of $109 million were
recorded as a result of these conditions. At the same time, the group recorded
$25 million of restructuring charges. Lower activity due to the trend in delayed
new projects, which continued through the year, also negatively impacted
operating income. Operating income in 1999 benefited from higher activity levels
supporting United States military peacekeeping efforts in the Balkans, offset by
reduced engineering and construction project profits due to the timing of
project awards and revenue recognition. Operating income in 1998 includes $16
million favorable settlement of a claim on a Middle Eastern construction
project.
Special credits in 1999 are the result of a change in estimate on some
components of the 1998 special charges. We continuously monitor the actual costs
incurred and reexamine our estimates of future costs. In the second quarter of
1999, we concluded that total costs, particularly for severance and facility
exit costs, were lower than previously estimated. Therefore, we reversed $47
million of the $959 million special charge that was originally recorded. See
Note 12.
15
General corporate expenses for 2000 were $78 million, an increase of $7
million from 1999 and down $1 million compared to 1998. In 2000 general
corporate expenses increased primarily as a result of costs related to the early
retirement of our previous chairman and chief executive officer. In 1998 general
corporate expenses of $79 million included expenses for operating Dresser's
corporate offices as well as our corporate offices. As a percent of consolidated
revenues, general corporate expenses were 0.7% in 2000, 0.6% in 1999 and 0.5%
in 1998.
NONOPERATING ITEMS
Interest expense was $146 million for 2000 compared to $141 million in 1999
and $134 million in 1998. Interest expense was up in 2000 due to higher average
interest rates on short-term borrowings and additional short-term debt used to
repurchase $759 million of our common stock under our share repurchase program,
mostly during the fourth quarter. These increases offset the benefits from our
lower borrowings earlier in 2000 due to the use of the proceeds from the sale of
Ingersoll-Dresser Pump and Dresser-Rand to repay short-term debt.
Interest income of $25 million declined $49 million from 1999 and was about
the same as 1998. Interest income in 1999 included settlement of income tax
issues in the United States and United Kingdom and imputed interest income on
the note receivable from the sale of our ownership in M-I L.L.C.
Foreign currency gains (losses) netted to a loss of $5 million, down from
losses of $8 million in 1999 and $10 million in 1998. The losses in 2000 were
primarily in Asia Pacific currencies and the euro. Losses in 1999 occurred
primarily in Russian and Latin American currencies. Losses in 1998 occurred
primarily in Asia Pacific currencies.
Other, net in 2000 was a net loss of $1 million compared to a net loss of
$19 million in 1999 and a net gain of $3 million in 1998. The net loss in 1999
includes a $26 million charge in the second quarter relating to an impairment of
Kellogg Brown & Root's net investment in Bufete Industriale, S.A. de C.V., a
large specialty engineering, procurement and construction company in Mexico.
Provision for income taxes on continuing operations was $129 million for an
effective tax rate of 38.5%, compared to 37.8% in 1999 and 281.8% in 1998.
Excluding our special charges and related taxes, the effective rate was 38.8% in
1999 and 37.8% in 1998.
Minority interest in net income of subsidiaries was $18 million in 2000
compared to $17 million in 1999 and $20 million in 1998.
Income from continuing operations was $188 million in 2000 and $174 million
in 1999. In 1998 continuing operations was a loss of $120 million.
Income from discontinued operations was $98 million in 2000, $124 million
in 1999 and $105 million in 1998.
Gain on disposal of discontinued operations resulting from the sale of our
51% interest in Dresser-Rand was $215 million after-tax or $0.48 per diluted
share in 2000. In 1999 we recorded a gain on the sale of our 49% interest in
Ingersoll-Dresser Pump of $159 million after-tax or $0.36 per diluted share.
Cumulative effect of change in accounting method in 1999 of $19 million
after-tax, or $0.04 per diluted share, reflects our adoption of Statement of
Position 98-5, "Reporting on the Costs of Start-Up Activities." See Note 13.
Net income in 2000 was $501 million or $1.12 per diluted share and in 1999
was $438 million or $0.99 per diluted share. In 1998 the net loss of $15 million
resulted in $0.03 loss per diluted share.
LIQUIDITY AND CAPITAL RESOURCES
We ended 2000 with cash and equivalents of $231 million compared with $466
million in 1999 and $203 million in 1998.
Cash flows from operating activities used $57 million for 2000 compared to
$58 million used for 1999 and provided $150 million for 1998. Working capital
items, which include receivables, inventories, accounts payable and other
working capital, net, used $563 million of cash in 2000 compared to providing $2
million in 1999 and using $533 million in 1998. Included in changes to working
capital and other net changes are special charge usage for personnel reductions,
facility closures, merger transaction costs, and integration costs of $54
million in 2000 and $202 million in 1999 and $112 million in 1998.
16
Cash flows used in investing activities were $411 million for 2000, $107
million for 1999 and $790 million for 1998. Capital expenditures of $578 million
in 2000 were about 11% higher than in 1999 and about 31% lower than in 1998.
Capital spending was mostly for equipment for Halliburton Energy Services, which
included investing in cementing equipment designed to integrate our pumping and
mixing systems with new safety and technological features. Cash flows from
investing activities in 1999 include $254 million collected on the receivables
from the sale of our 36% interest in M-I L.L.C. Imputed interest on this
receivable of $11 million is included in operating cash flows. In 1998, net cash
used for investing activities includes various acquisitions of businesses of
approximately $40 million.
Cash flows from financing activities used $584 million in 2000 and provided
$189 million in 1999 and $267 million in 1998. We repaid $308 million on our
long-term debt in 2000. Net short-term borrowings consisting of commercial paper
and bank loans provided $629 million in 2000. Proceeds from exercises of stock
options provided cash flows of $105 million in 2000 compared to $49 million in
1999 and 1998. Dividends to shareholders used $221 million of cash in 2000 and
1999. In April 2000 our Board of Directors approved a plan to implement a share
repurchase program. As of December 31, 2000 we had repurchased over 20 million
shares at a cost of $759 million. In addition, we repurchased $10 million of
common stock both in 2000 and 1999 and $20 million in 1998 from employees to
settle their income tax liabilities primarily for restricted stock lapses. We
may periodically repurchase our common stock as we deem appropriate.
Cash flows from discontinued operations provided $826 million in 2000 as
compared to $234 million and $235 million in 1999 and 1998, respectively. Cash
flows for 2000 include proceeds from the sale of Dresser-Rand and
Ingersoll-Dresser Pump of approximately $913 million.
Capital resources from internally generated funds and access to capital
markets are sufficient to fund our working capital requirements, share
repurchases and investing activities. Our combined short-term notes payable and
long-term debt was 40%, 35% and 32% of total capitalization at the end of 2000,
1999 and 1998, respectively. In 2000, we reduced our short-term debt with
proceeds from the sales of Ingersoll-Dresser Pump and Dresser-Rand joint
ventures early in the year and increased short-term debt in the fourth quarter
to fund share repurchases. We plan to use proceeds from the Dresser Equipment
Group sale to pay down debt recently incurred for the repurchase of our shares.
This should return the debt-to-capitalization ratio to the 30% to 35% range by
the end of the second quarter of 2001.
FINANCIAL INSTRUMENT MARKET RISK
We are exposed to financial instrument market risk from changes in foreign
currency exchange rates, interest rates and to a limited extent, commodity
prices. We selectively hedge these exposures through the use of derivative
instruments to mitigate our market risk from these exposures. The objective of
our hedging is to protect our cash flows related to sales or purchases of goods
or services from fluctuations in currency rates. Our use of derivative
instruments includes the following types of market risk:
- volatility of the currency rates;
- time horizon of the derivative instruments;
- market cycles; and
- the type of derivative instruments used.
We do not use derivative instruments for trading purposes. We do not
consider any of our hedging activities to be material. See Note 1 for additional
information on our accounting policies on derivative instruments. See Note 17
for additional disclosures related to derivative instruments.
RESTRUCTURING ACTIVITIES
While oil and gas prices have continued to maintain the strength that
provides positive uplift to our oilfield services and integrated exploration and
production information systems businesses, our engineering and construction
businesses continue to experience delays in customer commitments for new
upstream and downstream projects. With the exception of deepwater projects,
short-term prospects for increased engineering and construction activities in
either the upstream or downstream businesses are not positive. The continued
delays of upstream and downstream projects, and the resulting decrease in our
backlog and levels of work, will make it difficult to achieve acceptable margins
in 2001 in our engineering and construction businesses. Accordingly, in the
fourth quarter of 2000 we approved a plan to re-combine all of our engineering
and construction businesses into one business unit. As a result of the
17
reorganization of the engineering and construction businesses, we took actions
to rationalize our operating structure including write-offs of equipment,
engineering reference designs and capitalized software of $20 million and
recorded severance costs of $16 million.
During the third and fourth quarters of 1998, we incurred special charges
totaling $980 million related to the Dresser merger and industry downturn, of
which $21 million has been recorded in discontinued operations. During the
second quarter of 1999, we reversed $47 million of our 1998 special charges
based on our reassessment of total costs to be incurred to complete the actions
covered in the charges.
We have in process a program to exit approximately 500 properties,
including service, administrative and manufacturing facilities. We accrued
expenses to exit approximately 400 of these properties in the 1998 special
charges. Most of these properties are within the Energy Services Group. Through
December 31, 2000 we have vacated 97% of the approximate 500 total facilities.
We have sold or returned to the owner 94% of the vacated properties.
ENVIRONMENTAL MATTERS
We are subject to numerous environmental legal and regulatory requirements
related to our operations worldwide. As a result of those obligations, we are
involved in specific environmental litigation and claims, the clean up of
properties we own or have operated, and efforts to meet or correct
compliance-related matters. See Note 9.
FORWARD-LOOKING INFORMATION
The Private Securities Litigation Reform Act of 1995 provides safe harbor
provisions for forward-looking information. Forward-looking information is based
on projections and estimates, not historical information. Some statements in
this annual report are forward-looking. We may also provide oral or written
forward-looking information in other materials we release to the public.
Forward-looking information involves risks and uncertainties. Forward-looking
information we provide reflects our best judgement based on current information.
Our results of operations can be affected by inaccurate assumptions we make or
by known or unknown risks and uncertainties. In addition, other factors may
affect the accuracy of our forward-looking information. As a result, no
forward-looking information can be guaranteed. Actual events and the results of
operations may vary materially.
While it is not possible to identify all factors, we continue to face many
risks and uncertainties that could cause actual results to differ from our
forward-looking statements including:
Geopolitical and legal.
- trade restrictions and economic embargoes imposed by the United
States and other countries;
- unsettled political conditions, war, civil unrest, currency
controls and governmental actions in the numerous countries in
which we operate;
- operations in countries with significant amounts of political risk,
including, for example, Algeria, Angola, Libya, Nigeria, and
Russia;
- changes in foreign exchange rates;
- changes in governmental regulations in the numerous countries in
which we operate including, for example, regulations that:
- encourage or mandate hiring local contractors; and
- require foreign contractors to employ citizens of, or purchase
supplies from, a particular jurisdiction;
- litigation, including, for example, asbestos litigation and
environmental litigation; and
- environmental laws, including, for example, those that require
emission performance standards for facilities;
Weather related.
- the effects of severe weather conditions, including, for example,
hurricanes and tornadoes, on operations and facilities; and
- the impact of prolonged severe or mild weather conditions on the
demand for and price of oil and natural gas;
18
Customers and vendors.
- the magnitude of governmental spending and outsourcing for military
and logistical support of the type that we provide;
- changes in capital spending by customers in the oil and gas
industry for exploration, development, production, processing,
refining, and pipeline delivery networks;
- changes in capital spending by governments for infrastructure
projects of the sort that we perform;
- consolidation of customers in the oil and gas industry; and
- claim negotiations with engineering and construction customers
on cost variances and change orders on major projects;
Industry.
- technological and structural changes in the industries that we
serve;
- changes in the price of oil and natural gas, including:
- OPEC's ability to set and maintain production levels and prices
for oil;
- the level of oil production by non-OPEC countries;
- the policies of governments regarding exploration for and
production and development of their oil and natural gas
reserves; and
- the level of demand for oil and natural gas;
- changes in the price or the availability of commodities that we
use;
- risks that result from entering into fixed fee engineering,
procurement and construction projects of the types that we
provide where failure to meet schedules, cost estimates or
performance targets could result in non-reimbursable costs
which cause the project not to meet our expected profit margins;
- risks that result from entering into complex business arrangements
for technically demanding projects where failure by one or more
parties could result in monetary penalties; and
- the risk inherent in the use of derivative instruments of the sort
that we use which could cause a change in value of the derivative
instruments as a result of:
- adverse movements in foreign exchange rates, interest rates, or
commodity prices, or
- the value and time period of the derivative being different
than the exposures or cash flows being hedged;
Personnel and mergers/reorganizations/dispositions.
- increased competition in the hiring and retention of employees in
specific areas, including, for example, energy services operations,
accounting and finance;
- integration of acquired businesses into Halliburton, including:
- standardizing information systems or integrating data from
multiple systems;
- maintaining uniform standards, controls, procedures and
policies; and
- combining operations and personnel of acquired businesses with
ours;
- effectively reorganizing operations and personnel within
Halliburton;
- replacing discontinued lines of businesses with acquisitions that
add value and complement our core businesses; and
- successful completion of planned dispositions.
In addition, future trends for pricing, margins, revenues and profitability
remain difficult to predict in the industries we serve. We do not assume any
responsibility to publicly update any of our forward-looking statements
regardless of whether factors change as a result of new information, future
events or for any other reason. We do advise you to review any additional
disclosures we make in our 10-Q, 8-K and 10-K reports to the Securities and
Exchange Commission. We also suggest that you listen to our quarterly earnings
release conference calls with financial analysts.
19
OTHER ISSUES
Conversion to the Euro Currency
On January 1, 1999, some member countries of the European Union established
fixed conversion rates between their existing currencies and the European
Union's common currency (euro). This was the first step towards transition from
existing national currencies to the use of the euro as a common currency. The
transition period for the introduction of the euro ends June 30, 2002. Issues
resulting from the introduction of the euro include converting information
technology systems, reassessing currency risk, negotiating and amending existing
contracts and processing tax and accounting records. We are addressing these
issues and do not expect the euro to have a material effect on our financial
condition or results of operations.
Implementation of SAB 101
The Securities and Exchange Commission (SEC) issued Staff Accounting
Bulletin (SAB) 101, "Revenue Recognition in Financial Statements," in December
1999. The SAB summarizes some of the SEC staff's views in applying generally
accepted accounting principles to revenue recognition in financial statements.
We have completed a thorough review of our revenue recognition policies and
determined that our policies are consistent with SAB 101.
Accounting Change
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and for Hedging Activities," subsequently amended by SFAS No. 137
and SFAS No. 138. This standard requires entities to recognize all derivatives
on the statement of financial position as assets or liabilities and to measure
the instruments at fair value. Accounting for gains and losses from changes in
those fair values are specified in the standard depending on the intended use of
the derivative and other criteria. We have completed our review of contracts for
embedded derivatives and evaluated our accounting policies for derivatives and
hedging activities. We adopted SFAS 133 effective January 2001 and determined
the initial adoption did not have a material effect on our financial condition
or results of operations.
20
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,
2000 and 1999, and the related consolidated statements of income, cash flows,
and shareholders' equity for each of the three years in the period ended
December 31, 2000. These financial statements are the responsibility of the
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 auditing standards generally
accepted in the United States. 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, 2000 and 1999, and the
results of their operations and their cash flows for each of the three years
ended December 31, 2000, in conformity with accounting principles generally
accepted in the United States.
/s/ ARTHUR ANDERSEN LLP
-----------------------
ARTHUR ANDERSEN LLP
Dallas, Texas,
January 30, 2001 (Except with respect to the matters discussed in Notes
9 and 19, as to which the date is March 23, 2001.)
21
RESPONSIBILITY FOR FINANCIAL REPORTING
We are responsible for the preparation and integrity of our published
financial statements. The financial statements have been prepared in accordance
with accounting principles generally accepted in the United States and,
accordingly, include amounts based on judgements and estimates made by our
management. We also prepared the other information included in the annual report
and are responsible for its accuracy and consistency with the financial
statements.
The financial statements have been audited by the independent accounting
firm, Arthur Andersen LLP. Arthur Andersen 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. Halliburton's
Audit Committee of the Board of Directors consists of directors who, in the
business judgement of the Board of Directors, are independent under the New York
Exchange listing standards. The Board, operating through its Audit Committee,
provides oversight to the financial reporting process. Integral to this process
is the Audit Committee's review and discussion with management and the external
auditors of the quarterly and annual financial statements prior to their
respective filing.
We maintain a system of internal control over financial reporting, which is
intended to provide reasonable assurance to our management and Board of
Directors regarding the reliability of our 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 is 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.
Corrective actions are taken to address control deficiencies and other
opportunities for improving the system as they are identified. In accordance
with the Securities and Exchange Commission's new rules to improve the
reliability of financial statements, our interim financial statements are
reviewed by Arthur Andersen LLP.
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 the reliability of
our financial statements. Also, the effectiveness of an internal control system
may change over time.
We have assessed our 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, we believe
that, as of December 31, 2000, our system of internal control over financial
reporting met those criteria.
HALLIBURTON COMPANY
by
/s/ DAVID J. LESAR /s/ GARY V. MORRIS
- -------------------------------- ---------------------------------
David J. Lesar Gary V. Morris
Chairman of the Board, Executive Vice President and
President and Chief Financial Officer
Chief Executive Officer
22
HALLIBURTON COMPANY
Consolidated Statements of Income
(Millions of dollars and shares except per share data)
Years ended December 31
------------------------------------------------
2000 1999 1998
- ----------------------------------------------------------------------------------------------------------------------
Revenues:
Services $ 10,185 $ 10,826 $ 12,089
Sales 1,671 1,388 2,261
Equity in earnings of unconsolidated affiliates 88 99 154
- ----------------------------------------------------------------------------------------------------------------------
Total revenues $ 11,944 $ 12,313 $ 14,504
- ----------------------------------------------------------------------------------------------------------------------
Operating costs and expenses:
Cost of services $ 9,755 $ 10,368 $ 11,127
Cost of sales 1,463 1,240 1,895
General and administrative 352 351 437
Gain on sale of marine vessels (88) - -
Special charges and credits - (47) 875
- ----------------------------------------------------------------------------------------------------------------------
Total operating costs and expenses $ 11,482 $ 11,912 $ 14,334
- ----------------------------------------------------------------------------------------------------------------------
Operating income 462 401 170
Interest expense (146) (141) (134)
Interest income 25 74 26
Foreign currency losses, net (5) (8) (10)
Other, net (1) (19) 3
- ----------------------------------------------------------------------------------------------------------------------
Income from continuing operations before taxes, minority
interest, and change in accounting method 335 307 55
Provision for income taxes (129) (116) (155)
Minority interest in net income of subsidiaries (18) (17) (20)
- ----------------------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations before change in
accounting method 188 174 (120)
- ----------------------------------------------------------------------------------------------------------------------
Discontinued operations:
Income from discontinued operations, net of tax of $60, $98,
and $90 98 124 105
Gain on disposal of discontinued operations, net of tax of $141
and $94 215 159 -
- ----------------------------------------------------------------------------------------------------------------------
Income from discontinued operations 313 283 105
Cumulative effect of change in accounting method, net of tax
benefit of $11 - (19) -
- ----------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 501 $ 438 $ (15)
- ----------------------------------------------------------------------------------------------------------------------
Basic income (loss) per share:
Income (loss) from continuing operations before change in accounting
method $ 0.42 $ 0.40 $ (0.27)
Income from discontinued operations 0.22 0.28 0.24
Gain on disposal of discontinued operations 0.49 0.36 -
Change in accounting method - (0.04) -
- ----------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 1.13 $ 1.00 $ (0.03)
- ----------------------------------------------------------------------------------------------------------------------
Diluted income (loss) per share:
Income (loss) from continuing operations before change in accounting
method $ 0.42 $ 0.39 $ (0.27)
Income from discontinued operations 0.22 0.28 0.24
Gain on disposal of discontinued operations 0.48 0.36 -
Change in accounting method - (0.04) -
- ----------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 1.12 $ 0.99 $ (0.03)
- ----------------------------------------------------------------------------------------------------------------------
Basic average common shares outstanding 442 440 439
Diluted average common shares outstanding 446 443 439
<FN>
See notes to annual financial statements.
</FN>
23
HALLIBURTON COMPANY
Consolidated Balance Sheets
(Millions of dollars and shares except per share data)
December 31
-------------------------
2000 1999
- -------------------------------------------------------------------------------------------------------------
Assets
Current assets:
Cash and equivalents $ 231 $ 466
Receivables:
Notes and accounts receivable (less allowance for bad debts of $125 and $94) 3,029 2,349
Unbilled work on uncompleted contracts 816 625
- --------------------------------------------------------------------------------------------------------------
Total receivables 3,845 2,974
Inventories 723 723
Current deferred income taxes 235 171
Net current assets of discontinued operations 298 793
Other current assets 236 235
- -------------------------------------------------------------------------------------------------------------
Total current assets 5,568 5,362
Net property, plant and equipment 2,410 2,390
Equity in and advances to related companies 400 384
Excess of cost over net assets acquired (net of accumulated amortization of
$231 and $189) 597 505
Noncurrent deferred income taxes 340 398
Net noncurrent assets of discontinued operations 391 310
Other assets 397 290
- -------------------------------------------------------------------------------------------------------------
Total assets $ 10,103 $ 9,639
- -------------------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Current liabilities:
Short-term notes payable $ 1,570 $ 939
Current maturities of long-term debt 8 308
Accounts payable 782 665
Accrued employee compensation and benefits 267 137
Advance billings on uncompleted contracts 288 286
Deferred revenues 98 44
Income taxes payable 113 120
Accrued special charges 6 69
Other current liabilities 694 465
- -------------------------------------------------------------------------------------------------------------
Total current liabilities 3,826 3,033
Long-term debt 1,049 1,056
Employee compensation and benefits 662 672
Other liabilities 600 547
Minority interest in consolidated subsidiaries 38 44
- -------------------------------------------------------------------------------------------------------------
Total liabilities 6,175 5,352
- -------------------------------------------------------------------------------------------------------------
Shareholders' equity:
Common shares, par value $2.50 per share - authorized 600 shares,
issued 453 and 448 shares 1,132 1,120
Paid-in capital in excess of par value 259 68
Deferred compensation (63) (51)
Accumulated other comprehensive income (288) (204)
Retained earnings 3,733 3,453
- -------------------------------------------------------------------------------------------------------------
4,773 4,386
Less 26 and 6 shares of treasury stock, at cost 845 99
- -------------------------------------------------------------------------------------------------------------
Total shareholders' equity 3,928 4,287
- -------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 10,103 $ 9,639
- -------------------------------------------------------------------------------------------------------------
<FN>
See notes to annual financial statements.
</FN>
24
HALLIBURTON COMPANY
Consolidated Statements of Shareholders' Equity
(Millions of dollars and shares)
Years ended December 31
-------------------------------------------
2000 1999 1998
- -------------------------------------------------------------------------------------------------------------
Common stock (number of shares)
Balance at beginning of year 448 446 454
Shares issued under compensation and incentive stock plans,
net of forfeitures 4 2 1
Shares issued for acquisition 1 - -
Cancellation of treasury stock - - (9)
- -------------------------------------------------------------------------------------------------------------
Balance at end of year 453 448 446
- -------------------------------------------------------------------------------------------------------------
Common stock (dollars)
Balance at beginning of year $ 1,120 $ 1,115 $ 1,134
Shares issued under compensation and incentive stock plans,
net of forfeitures 9 5 3
Shares issued for acquisition 3 - -
Cancellation of treasury stock - - (22)
- -------------------------------------------------------------------------------------------------------------
Balance at end of year $ 1,132 $ 1,120 $ 1,115
- -------------------------------------------------------------------------------------------------------------
Paid-in capital in excess of par value
Balance at beginning of year $ 68 $ 8 $ 168
Shares issued under compensation and incentive stock plans,
net of forfeitures 109 47 37
Tax benefit 38 13 12
Shares issued for acquisition 44 - -
Cancellation of treasury stock - - (209)
- -------------------------------------------------------------------------------------------------------------
Balance at end of year $ 259 $ 68 $ 8
- -------------------------------------------------------------------------------------------------------------
Deferred compensation
Balance at beginning of year $ (51) $ (51) $ (45)
Current year awards, net (12) - (6)
- -------------------------------------------------------------------------------------------------------------
Balance at end of year $ (63) $ (51) $ (51)
- -------------------------------------------------------------------------------------------------------------
Accumulated other comprehensive income
Cumulative translation adjustment $ (275) $ (185) $ (142)
Pension liability adjustment (12) (19) (7)
Unrealized gain on investments (1) - -
- -------------------------------------------------------------------------------------------------------------
Balance at end of year $ (288) $ (204) $ (149)
- -------------------------------------------------------------------------------------------------------------
Cumulative translation adjustment
Balance at beginning of year $ (185) $ (142) $ (127)
Conforming fiscal years - - (15)
Sales of subsidiaries 11 (17) 9
Current year changes, net of tax (101) (26) (9)
- -------------------------------------------------------------------------------------------------------------
Balance at end of year $ (275) $ (185) $ (142)
- -------------------------------------------------------------------------------------------------------------
(continued on next page)
<FN>
See notes to annual financial statements.
</FN>
25
HALLIBURTON COMPANY
Consolidated Statements of Shareholders' Equity
(Millions of dollars and shares)
(continued)
Years ended December 31
--------------------------------------------
2000 1999 1998
- --------------------------------------------------------------------------------------------------------------
Pension liability adjustment
Balance at beginning of year $ (19) $ (7) $ (4)
Sale of subsidiary 7 - -
Current year adjustment - (12) (3)
- --------------------------------------------------------------------------------------------------------------
Balance at end of year $ (12) $ (19) $ (7)
- --------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) on investments
Current year unrealized gain (loss) on investments $ (1) $ - $ -
- --------------------------------------------------------------------------------------------------------------
Balance at end of year $ (1) $ - $ -
- --------------------------------------------------------------------------------------------------------------
Retained earnings
Balance at beginning of year $ 3,453 $ 3,236 $ 3,563
Net income (loss) 501 438 (15)
Cash dividends paid (221) (221) (254)
Cancellation of treasury stock - - (61)
Conforming fiscal years - - 3
- --------------------------------------------------------------------------------------------------------------
Balance at end of year $ 3,733 $ 3,453 $ 3,236
- --------------------------------------------------------------------------------------------------------------
Treasury stock (number of shares)
Beginning of year 6 6 16
Shares issued under benefit, dividend reinvestment plan and
incentive stock plans, net - - (1)
Shares purchased 20 - -
Cancellation of treasury stock - - (9)
- --------------------------------------------------------------------------------------------------------------
Balance at end of year 26 6 6
- --------------------------------------------------------------------------------------------------------------
Treasury stock (dollars)
Beginning of year $ 99 $ 98 $ 374
Shares issued under benefit, dividend reinvestment plan and
incentive stock plans, net (23) (9) (26)
Shares purchased 769 10 20
Cancellation of treasury stock - - (270)
- --------------------------------------------------------------------------------------------------------------
Balance at end of year $ 845 $ 99 $ 98
- --------------------------------------------------------------------------------------------------------------
Comprehensive income
Net income (loss) $ 501 $ 438 $ (15)
Translation rate changes, net of tax (101) (26) (9)
Current year adjustment to minimum pension liability - (12) (3)
Unrealized gain (loss) on investments (1) - -
- --------------------------------------------------------------------------------------------------------------
Total comprehensive income $ 399 $ 400 $ (27)
- --------------------------------------------------------------------------------------------------------------
<FN>
See notes to annual financial statements.
</FN>
26
HALLIBURTON COMPANY
Consolidated Statements of Cash Flows
(Millions of dollars)
Years ended December 31
------------------------------------------
2000 1999 1998
- -----------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income (loss) $ 501 $ 438 $ (15)
Adjustments to reconcile net income to net cash from operations:
Income from discontinued operations (313) (283) (105)
Depreciation, depletion and amortization 503 511 500
(Benefit) provision for deferred income taxes (6) 187 (297)
Change in accounting method, net - 19 -
Distributions from (advances to) related companies, net of
equity in (earnings) losses (64) 24 9
Accrued special charges (63) (290) 359
Other non-cash items (22) 19 5
Other changes, net of non-cash items:
Receivables and unbilled work (896) 616 (215)
Inventories 8 (3) (38)
Accounts payable 170 (179) (25)
Other working capital, net 155 (432) (255)
Other, net (30) (685) 227
- -----------------------------------------------------------------------------------------------------------------
Total cash flows from operating activities (57) (58) 150
- -----------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Capital expenditures (578) (520) (841)
Sales of property, plant and equipment 209 118 83
Acquisitions of businesses, net of cash acquired (10) (7) (40)
Dispositions of businesses, net of cash disposed 19 291 7
Other investing activities (51) 11 1
- -----------------------------------------------------------------------------------------------------------------
Total cash flows from investing activities (411) (107) (790)
- -----------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Borrowings of long-term debt - - 150
Payments on long-term borrowings (308) (59) (28)
Net borrowings of short-term debt 629 436 386
Payments of dividends to shareholders (221) (221) (254)
Proceeds from exercises of stock options 105 49 49
Payments to reacquire common stock (769) (10) (20)
Other financing activities (20) (6) (16)
- -----------------------------------------------------------------------------------------------------------------
Total cash flows from financing activities (584) 189 267
- -----------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash (9) 5 (5)
Net cash flows from discontinued operations (1) 826 234 235
- -----------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and equivalents (235) 263 (143)
Cash and equivalents at beginning of year 466 203 346
- -----------------------------------------------------------------------------------------------------------------
Cash and equivalents at end of year $ 231 $ 466 $ 203
- -----------------------------------------------------------------------------------------------------------------
Supplemental disclosure of cash flow information:
Cash payments during the year for:
Interest $ 144 $ 145 $ 137
Income taxes $ 310 $ 98 $ 535
Non-cash investing and financing activities:
Liabilities assumed in acquisitions of businesses $ 95 $ 90 $ 5
Liabilities disposed of in dispositions of businesses $ 499 $ 111 $ 24
<FN>
(1) Net cash flows from discontinued operations in 2000 include proceeds of approximately $913 million from the
sales of Dresser-Rand in 2000 and Ingersoll-Dresser Pump in 1999. See Note 2.
See notes to annual financial statements.
</FN>
27
HALLIBURTON COMPANY
Notes to Annual Financial Statements
Note 1. Significant Accounting Policies
We employ 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 us to make estimates and assumptions that affect:
- the reported amounts of assets and liabilities and 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.
Principles of consolidation. The consolidated financial statements include
the accounts of our company and all of our majority-owned subsidiaries. All
material intercompany accounts and transactions are eliminated. Investments in
other companies in which we own a 20% to 50% interest are accounted for using
the equity method. Specific prior year amounts have been reclassified to conform
to the current year presentation.
Revenues and income recognition. We recognize revenues as services are
rendered or products are shipped. The distinction between services and product
sales is based upon the overall activity 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
towards completion appropriate for the work performed. All known or anticipated
losses on contracts are provided for currently. Claims and change orders which
are in the process of being negotiated with customers, for extra work or changes
in the scope of work are included in revenue when collection is deemed probable.
Post-contract customer support agreements are recorded as deferred revenues and
recognized as revenue ratably over the contract period of generally one year's
duration. Training and consulting service revenues are recognized as the
services are performed. Sales of perpetual software licenses, net of deferred
maintenance fees, are recorded as revenue upon shipment. Sales of use licenses
are recognized as revenue over the license period.
Research and development. Research and development expenses are charged to
income as incurred. See Note 4 for research and development expense by business
segment.
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. Once
technological feasibility is established, software development costs are
capitalized until the software is ready for general release to customers. We
capitalized costs related to software developed for resale of $7 million in
2000, $12 million in 1999 and $13 million in 1998. Amortization expense of
software development costs was $12 million for 2000, $15 million for 1999 and
$18 million for 1998. 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 is 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 10 for a
reconciliation of basic and diluted income per share.
Cash equivalents. We consider all highly liquid investments with an
original maturity of three months or less to be cash equivalents.
Receivables. Our receivables are generally not collateralized. With the
exception of claims and change orders which are in the process of being
negotiated with customers, unbilled work on uncompleted contracts generally
represents work currently billable, and this work is usually billed during
normal billing processes in the next month. These claims and change orders,
included in unbilled receivables, amounted to $113 million and $98 million at
December 31, 2000 and 1999, respectively, and are generally expected to be
collected in the following year.
Included in notes and accounts receivable are notes with varying interest
rates. Notes receivable totaled $38 million at December 31, 2000 and $41 million
at December 31, 1999.
28
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. The cost of most
inventories is determined using either the first-in, first-out method or the
average cost method, although the cost of some United States manufacturing and
field service inventories is determined using the last-in, first-out method.
Inventories of sales items owned by foreign subsidiaries and inventories of
operating supplies and parts are generally valued at average cost.
Property, plant and equipment. Property, plant and equipment are reported
at cost less accumulated depreciation, which is generally provided on the
straight-line method over the estimated useful lives of the assets. Some assets
are depreciated on accelerated methods. Accelerated depreciation methods are
also used for tax purposes, wherever permitted. 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.
The estimated future undiscounted cash flows associated with the asset are
compared to the asset's carrying amount to determine if a write-down to market
value or discounted cash flow value is required. We follow the successful
efforts method of accounting for oil and gas properties.
Maintenance and repairs. Expenditures for maintenance and repairs are
generally expensed; expenditures for renewals and improvements are generally
capitalized. We use the accrue-in-advance method of accounting for major
maintenance and repair costs of marine vessel dry docking expense and major
aircraft overhauls and repairs. Under this method we anticipate the need for
major maintenance and repairs and charge the estimated expense to operations
before the actual work is performed. At the time the work is performed, the
actual cost incurred is charged against the amounts that were previously accrued
with any deficiency or excess charged or credited to operating expense.
Excess of 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. The excess of cost over net assets acquired is continually monitored for
potential impairment. When negative conditions such as significant current or
projected operating losses exist, a review is performed to determine if the
projected undiscounted future cash flows indicate that an impairment exists. If
an impairment exists, the excess of cost over net assets acquired, and, if
appropriate, the associated assets are reduced to reflect the estimated
discounted cash flows to be generated by the underlying business. This is
consistent with methodologies in Statement of Financial Accounting Standards No.
121 "Accounting for the Impairment of Long-lived Assets and for Long-lived
Assets to be Disposed of."
Income taxes. A valuation allowance is provided for deferred tax assets if
it is more likely than not these items will either expire before we are able to
realize their benefit, or that future deductibility is 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. We enter into derivative financial transactions to
hedge existing or projected exposures to changing foreign exchange rates,
interest rates and commodity prices. We do 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 when the underlying
hedged transactions are recognized. In the event 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 these 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. 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,
2000, 1999 and 1998, we did not enter into any significant transactions to hedge
interest rates or commodity prices.
29
Foreign currency translation. Foreign entities whose functional currency is
the United States 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, cost of product sales and revenues and expenses
associated with non-monetary balance sheet accounts 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 titled "cumulative translation adjustment."
Note 2. Acquisitions and Dispositions
PES acquisition. In February 2000, our offer to acquire the remaining 74%
of the shares of PES (International) Limited that we did not already own was
accepted by PES shareholders. PES is based in Aberdeen, Scotland, and has
developed technology that complements Halliburton Energy Services' real-time
reservoir solutions. To acquire the remaining 74% of PES, we issued 1.2 million
shares of Halliburton common stock. We also issued rights that will result in
the issuance of between 850,000 and 2.1 million additional shares of Halliburton
common stock between February 2001 and February 2003. We issued 1 million shares
in February 2001 under the rights. We have preliminarily recorded, subject to
the final valuation of intangible assets and other costs, $115 million of
goodwill which will be amortized over 20 years. PES is part of the Energy
Services Group.
Dresser merger. On September 29, 1998 we completed the acquisition of
Dresser Industries, Inc. by converting the outstanding Dresser common stock into
approximately 176 million shares of our common stock. We also reserved
approximately 7 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 United States federal income tax
purposes and was accounted for using the pooling of interests method of
accounting for business combinations. Financial statements have been restated to
include the results of these Dresser operations for all periods presented.
Combined and separate company results of Halliburton Company and Dresser
Industries, Inc. for the period preceding the merger are as follows:
Nine Months
Ended
September 30
Millions of dollars 1998
- --------------------------------------------------------------------------------------
Revenues:
Halliburton Company $ 7,045
Dresser Industries, Inc. $ 6,019
Amounts reclassified to discontinued operations (2,070) 3,949
--------------------------------
Combined continuing operations $ 10,994
- --------------------------------------------------------------------------------------
Income (loss):
Halliburton Company $ 359
Dresser Industries, Inc. $ 282
Amounts reclassified to discontinued operations (93) 189
-------------
1998 special charges, net of tax (722)
Amounts reclassified to discontinued operations 15 (707)
--------------------------------
Combined continuing operations $ (159)
- --------------------------------------------------------------------------------------
Other acquisitions. We acquired other businesses in 2000, 1999 and 1998 for
$10 million, $13 million and $42 million, respectively. These businesses did not
have a significant effect on revenues or earnings.
Joint venture divestitures. In October 1999, we announced the sales of our
49% interest in the Ingersoll-Dresser Pump joint venture and our 51% interest in
the Dresser-Rand joint venture to Ingersoll-Rand. See Note 3. The sales were
triggered by Ingersoll-Rand's exercise of its option under the joint venture
agreements to cause us to either buy their interests or sell ours. Both joint
ventures were part of the Dresser Equipment Group segment. Our Ingersoll-Dresser
30
Pump interest was sold in December 1999 for approximately $515 million. We
recorded a gain on disposition of discontinued operations of $253 million before
tax, or $159 million after-tax, for a net gain of $0.36 per diluted share in
1999 from the sale of Ingersoll-Dresser Pump. Proceeds from the sale, after
payment of our intercompany balance, were received in the form of a $377 million
promissory note with an annual interest rate of 3.5% which was collected on
January 14, 2000. On February 2, 2000 we completed the sale of our 51% interest
in Dresser-Rand for a price of approximately $579 million. Proceeds from the
sale, net of intercompany amounts payable to the joint venture, were $536
million, resulting in a gain on disposition of discontinued operations of $356
million before tax, or $215 million after-tax, for a net gain of $0.48 per
diluted share in the first quarter of 2000. The proceeds from these sales were
used to repay short-term borrowings and for other general corporate purposes.
LWD divestiture. In March 1999, in connection with the Dresser merger, we
sold the majority of our pre-merger worldwide logging-while-drilling business
and a portion of the pre-merger measurement-while-drilling business. The sale
was in accordance with a consent decree with the United States Department of
Justice. The financial impact of the sale was reflected in the third quarter
1998 special charge. See Note 12. This business was previously part of the
Energy Services Group. We continue to provide separate logging-while-drilling
services through our Sperry-Sun Drilling Systems business line, which was
acquired as part of the merger with Dresser and is now part of the Energy
Services Group. In addition, we will continue to provide sonic
logging-while-drilling services using technologies we had before the merger with
Dresser.
M-I L.L.C. drilling divestiture. In August 1998, we sold our 36% interest
in M-I L.L.C. to Smith International, Inc. for $265 million. Payment was made
in the form of a non-interest-bearing promissory note which was collected in
April 1999. The sale completed our commitment to the United States Department of
Justice to sell our M-I interest in connection with our merger with Dresser. M-I
was previously part of the Energy Services Group. We continue to offer drilling
fluid products and services through our Baroid Drilling Fluids business line
which was acquired as part of the merger with Dresser and is now part of the
Energy Services Group.
Note 3. Discontinued Operations
The Dresser Equipment Group in 1999 was comprised of six operating
divisions and two joint ventures that manufacture and market equipment used
primarily in the energy, petrochemical, power and transportation industries. In
late 1999 we announced our intentions to sell, and have subsequently sold, our
interests in the two joint ventures within this segment. These joint ventures
represented nearly half of the group's revenues and operating profit in 1999.
See Note 2. The sale of our interests in the segment's joint ventures prompted a
strategic review of the remaining businesses within the Dresser Equipment Group
segment. As a result of this review, we determined that these businesses do not
closely fit with our core businesses, long-term goals and strategic objectives.
In April 2000, our Board of Directors approved plans to sell all the remaining
businesses within our Dresser Equipment Group segment. In January 2001, we
signed a definitive agreement and expect to close the sale of these businesses
in the second quarter of 2001. Total consideration under the agreement is $1.55
billion in cash, less assumed liabilities, and is subject to adjustments at
closing for changes in net assets. As part of the terms of the transaction, we
will retain a 5% equity interest in Dresser Equipment Group after closing.
The financial results of the Dresser Equipment Group segment are presented
as discontinued operations in our financial statements. Prior periods are
restated to reflect this presentation.
Income from Operations of Years ended December 31
Discontinued Businesses -------------------------------------------
Millions of dollars 2000 1999 1998
- -----------------------------------------------------------------------
Revenues $ 1,400 $ 2,585 $ 2,849
- -----------------------------------------------------------------------
Operating income $ 158 $ 249 $ 227
Other income and expense - (1) (3)
Taxes (60) (98) (90)
Minority interest - (26) (29)
- -----------------------------------------------------------------------
Net income $ 98 $ 124 $ 105
- -----------------------------------------------------------------------
31
Gain on disposal of discontinued operations reflects the gain on the sale
of Dresser-Rand in February 2000 and the gain on the sale of Ingersoll-Dresser
Pump in December 1999.
Gain on Disposal of Discontinued Operations
Millions of dollars 2000 1999
- -------------------------------------------------------------------------------
Proceeds from sale, less intercompany settlement $ 536 $ 377
Net assets disposed (180) (124)
- -------------------------------------------------------------------------------
Gain before taxes 356 253
Income taxes (141) (94)
- -------------------------------------------------------------------------------
Gain on disposal of discontinued operations $ 215 $ 159
- -------------------------------------------------------------------------------
Net assets of discontinued operations at December 31, 2000 and 1999 are
composed of the following items:
Millions of dollars 2000 1999
- -------------------------------------------------------------------------------
Receivables $ 286 $ 904
Inventories 255 515
Other current assets 22 34
Accounts payable (104) (267)
Other current liabilities (161) (393)
- -------------------------------------------------------------------------------
Net current assets of discontinued operations $ 298 $ 793
- -------------------------------------------------------------------------------
Net property, plant and equipment $ 219 $ 401
Net goodwill 257 263
Other assets 30 74
Employee compensation and benefits (113) (313)
Other liabilities (2) (5)
Minority interest in consolidated subsidiaries - (110)
- -------------------------------------------------------------------------------
Net noncurrent assets of discontinued operations $ 391 $ 310
- -------------------------------------------------------------------------------
Revenues, assets, and liabilities declined from 1999 primarily due to the
sales of Dresser-Rand and Ingersoll-Dresser Pump joint ventures.
Note 4. Business Segment Information
We have two business segments. These segments are organized around the
products and services provided to the customers they serve. See the following
tables for information on our business segments.
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, well control, integrated solutions, and reservoir description. Also
included in the Energy Services Group are upstream oil and gas engineering,
construction and maintenance services, specialty pipecoating, insulation,
underwater engineering services, integrated exploration and production
information systems, and professional services to the petroleum industry. The
Energy Services Group has three business units: Halliburton Energy Services,
Brown & Root Energy Services and Landmark Graphics. The long-term performance
for these business units is linked to the long-term demand for oil and gas. The
products and services the group provides are designed to help discover, develop
and produce oil and gas. 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.
32
Our equity in pretax income or losses for unconsolidated related companies
that are accounted for on the equity method 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 composed of receivables, deferred tax assets and other shared assets,
including the investment in an enterprise-wide information system.
The tables below present information on our continuing operations business
segments.
Operations by Business Segment
Years ended December 31
------------------------------------------
Millions of dollars 2000 1999 1998
- -----------------------------------------------------------------------------------------------------------
Revenues:
Energy Services Group $ 7,916 $ 6,999 $ 9,009
Engineering and Construction Group 4,028 5,314 5,495
- -----------------------------------------------------------------------------------------------------------
Total $11,944 $ 12,313 $ 14,504
- -----------------------------------------------------------------------------------------------------------
Operating income:
Energy Services Group $ 526 $ 222 $ 971
Engineering and Construction Group 14 203 237
Special charges and credits - 47 (959)
General corporate (78) (71) (79)
- -----------------------------------------------------------------------------------------------------------
Total $ 462 $ 401 $ 170
- -----------------------------------------------------------------------------------------------------------
Capital expenditures:
Energy Services Group $ 495 $ 414 $ 707
Engineering and Construction Group 32 34 34
General corporate and shared assets 51 72 100
- -----------------------------------------------------------------------------------------------------------
Total $ 578 $ 520 $ 841
- -----------------------------------------------------------------------------------------------------------
Depreciation and amortization:
Energy Services Group $ 420 $ 421 $ 405
Engineering and Construction Group 36 43 49
General corporate and shared assets 47 47 46
- -----------------------------------------------------------------------------------------------------------
Total $ 503 $ 511 $ 500
- -----------------------------------------------------------------------------------------------------------
Total assets:
Energy Services Group $ 7,148 $ 6,167 $ 6,618
Engineering and Construction Group 1,258 1,282 1,405
Net assets of discontinued operations 689 1,103 950
General corporate and shared assets 1,008 1,087 1,099
- -----------------------------------------------------------------------------------------------------------
Total $10,103 $ 9,639 $ 10,072
- -----------------------------------------------------------------------------------------------------------
(continued on next page)
33
Operations by Business Segment (continued)
Years ended December 31
------------------------------------------
Millions of dollars 2000 1999 1998
- -----------------------------------------------------------------------------------------------------------
Research and development:
Energy Services Group $ 224 $ 207 $ 220
Engineering and Construction Group 7 4 4
- -----------------------------------------------------------------------------------------------------------
Total $ 231 $ 211 $ 224
- -----------------------------------------------------------------------------------------------------------
Special charges and credits:
Energy Services Group $ - $ (45) $ 721
Engineering and Construction Group - - 40
General corporate - (2) 198
- -----------------------------------------------------------------------------------------------------------
Total $ - $ (47) $ 959
- -----------------------------------------------------------------------------------------------------------
Operations by Geographic Area
Years ended December 31
------------------------------------------
Millions of dollars 2000 1999 1998
- -----------------------------------------------------------------------------------------------------------
Revenues:
United States $ 4,073 $ 3,727 $ 4,642
United Kingdom 1,512 1,656 2,153
Other areas (over 120 countries) 6,359 6,930 7,709
- -----------------------------------------------------------------------------------------------------------
Total $11,944 $12,313 $14,504
- -----------------------------------------------------------------------------------------------------------
Long-lived assets:
United States $ 2,068 $ 1,801 $ 1,788
United Kingdom 525 684 579
Other areas (numerous countries) 776 643 920
- -----------------------------------------------------------------------------------------------------------
Total $ 3,369 $ 3,128 $ 3,287
- -----------------------------------------------------------------------------------------------------------
Note 5. Inventories
Inventories to support continuing operations at December 31, 2000 and 1999
are composed of the following:
Millions of dollars 2000 1999
- ------------------------------------------------------------
Finished products and parts $ 486 $ 619
Raw materials and supplies 178 79
Work in process 59 25
- ------------------------------------------------------------
Total $ 723 $ 723
- ------------------------------------------------------------
Inventories on the last-in, first-out method were $66 million at December
31, 2000 and 1999. If the average cost method had been used, total inventories
would have been about $28 million higher than reported at December 31, 2000, and
$35 million higher than reported at December 31, 1999.
Note 6. Property, Plant and Equipment
Property, plant and equipment to support continuing operations at December
31, 2000 and 1999 are composed of the following:
Millions of dollars 2000 1999
- ---------------------------------------------------------------------
Land $ 83 $ 110
Buildings and property improvements 968 959
Machinery, equipment and other 4,509 4,443
- ---------------------------------------------------------------------
Total 5,560 5,512
Less accumulated depreciation 3,150 3,122
- ---------------------------------------------------------------------
Net property, plant and equipment $ 2,410 $ 2,390
- ---------------------------------------------------------------------
At December 31, 2000 and 1999, machinery, equipment and other property
includes oil and gas investments of approximately $363 million and $309 million,
respectively, and software developed for an information system of $223 million
and $197 million, respectively.
Note 7. Related Companies
We conduct some of our operations through various joint ventures which are
in partnership, corporate and other business forms, and are principally
accounted for using the equity method. Information pertaining to related
companies for our continuing operations is set out below.
34
The larger unconsolidated entities include European Marine Contractors,
Limited, and Bredero-Shaw which are both part of the Energy Services Group.
European Marine Contractors, Limited, which is 50%-owned, specializes in
engineering, procurement and construction of marine pipelines. Bredero-Shaw,
which is 50%-owned, specializes in pipecoating.
We sold our 36% ownership interest in M-I to Smith International, Inc. on
August 31, 1998. This transaction completed our commitment to the United States
Department of Justice to sell our M-I interest in connection with our merger
with Dresser Industries, Inc. See Note 2 for further information on the sale of
M-I. Prior to the sale of our interest, we accounted for our interest in M-I on
the equity method.
Combined summarized financial information for all jointly owned operations
which are not consolidated is as follows:
Years ended December 31
Combined Operating Results ----------------------------------------
Millions of dollars 2000 1999 1998
- ---------------------------------------------------------------------------
Revenues $ 3,098 $ 3,215 $ 4,262
- ---------------------------------------------------------------------------
Operating income $ 192 $ 193 $ 398
- ---------------------------------------------------------------------------
Net income $ 169 $ 127 $ 276
- ---------------------------------------------------------------------------
December 31
Combined Financial Position ---------------------------
Millions of dollars 2000 1999
- ---------------------------------------------------------------
Current assets $ 1,604 $ 1,718
Noncurrent assets 1,307 1,455
- ---------------------------------------------------------------
Total $ 2,911 $ 3,173
- ---------------------------------------------------------------
Current liabilities $ 1,238 $ 1,301
Noncurrent liabilities 947 1,135
Minority interests 2 4
Shareholders' equity 724 733
- ---------------------------------------------------------------
Total $ 2,911 $ 3,173
- ---------------------------------------------------------------
Note 8. Lines of Credit, Notes Payable and Long-Term Debt
At December 31, 2000, we had committed short-term lines of credit totaling
$1.85 billion. There were no borrowings outstanding under these lines of credit.
Fees for committed lines of credit were immaterial.
Short-term debt consists primarily of $1.54 billion in commercial paper
with an effective interest rate of 6.6% and $30 million of other facilities with
varying rates of interest.
Long-term debt at the end of 2000 and 1999 consists of the following:
Millions of dollars 2000 1999
- ------------------------------------------------------------------------------------
6.25% notes due June 2000 $ - $ 300
7.6% debentures due August 2096 300 300
8.75% debentures due February 2021 200 200
8% senior notes due April 2003 139 139
Medium-term notes due 2002 through 2027 400 400
Term loans at LIBOR (GBP) plus 0.75% payable in
semiannual installments through March 2002 11 20
Other notes with varying interest rates 7 5
- ------------------------------------------------------------------------------------
Total long-term debt 1,057 1,364
Less current portion 8 308
- ------------------------------------------------------------------------------------
Noncurrent portion of long-term debt $ 1,049 $ 1,056
- ------------------------------------------------------------------------------------
35
We repaid $300 million on our 6.25% notes which came due in June 2000. The
7.6% debentures due 2096, 8.75% debentures due 2021, and 8% senior notes due
2003 may not be redeemed prior to maturity and do not have sinking fund
requirements.
At December 31, 2000, we have outstanding notes under our medium-term note
program as follows:
Amount Due Rate Issue Price
----------------------------------------------------------------
$ 75 million 08/2002 6.30% Par
$ 150 million 12/2008 5.63% 99.97%
$ 50 million 05/2017 7.53% Par
$ 125 million 02/2027 6.75% 99.78%
----------------------------------------------------------------
Each holder of the 6.75% medium-term notes has the right to require us to
repay the holder's notes in whole or in part, on February 1, 2007. We may redeem
the 5.63% medium-term notes in whole or in part at any time. Other notes issued
under the medium-term note program may not be redeemed prior to maturity. The
medium-term notes do not have sinking fund requirements.
Our debt matures as follows: $8 million in 2001; $84 million in 2002; $139
million in 2003; none in 2004 and 2005; and $826 million thereafter.
Note 9. Commitments and Contingencies
Leases. At year end 2000, we were obligated under noncancelable operating
leases, expiring on various dates through 2021, principally for the use of land,
offices, equipment, field facilities, and warehouses. Total rentals charged to
continuing operations for noncancelable leases in 2000, 1999 and 1998 were as
follows:
Millions of dollars 2000 1999 1998
- -----------------------------------------------------------------
Rental expense $ 149 $ 139 $ 156
- -----------------------------------------------------------------
Future total rentals on noncancelable operating leases are as follows: $94
million in 2001; $80 million in 2002; $66 million in 2003; $45 million in 2004;
$32 million in 2005; and $84 million thereafter.
Asbestos litigation. Since 1976, our subsidiary, Dresser Industries, Inc.
and its former divisions or subsidiaries have been involved in litigation
alleging some products they manufactured contained asbestos that injured persons
that inhaled the fibers.
Dresser has entered into agreements with insurance carriers, that cover, in
whole or in part, indemnity payments, legal fees and expenses for specific
categories of claims. Dresser is negotiating with insurance carriers for
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 claim. In addition, lawsuits are pending against several
carriers seeking to recover additional amounts related to these claims.
Our Engineering and Construction Group is also involved in asbestos
litigation. Third parties allege they sustained injuries from the inhalation of
asbestos fibers contained in some of the materials used in various construction
and renovation projects involving our Brown & Root subsidiary, now named Kellogg
Brown & Root, Inc. The insurance coverage for Kellogg Brown & Root for the
applicable periods was written by Highlands Insurance Company. Highlands was a
subsidiary of Halliburton prior to its spin-off to our shareholders in early
1996. Our negotiations with Highlands have not produced an agreement on the
amount of insurance coverage for asbestos and defense costs. On April 5, 2000,
Highlands filed suit in Delaware Chancery Court alleging that, as part of the
spin-off in 1996, Halliburton assumed liability for all asbestos claims filed
against Halliburton after the spin-off. Highlands also alleges that Halliburton
did not adequately disclose to Highlands the existence of Halliburton's
subsidiaries' potential asbestos liability. On August 23, 2000 Highlands issued
a letter denying coverage under the policies based on the claims asserted in the
Delaware action. We believe that Highlands is contractually obligated to provide
insurance coverage for the asbestos claims filed against Kellogg Brown & Root
and that Highlands' lawsuit and its denial of coverage are without merit. We
intend to assert our right to the insurance coverage vigorously. On April 24,
2000, Halliburton filed suit against Highlands in Harris County, Texas, claiming
that Highlands breached its contractual obligation to provide insurance
coverage. We have asked the court to order Highlands to provide coverage for
asbestos claims under the guaranteed cost policies issued by Highlands to
Kellogg Brown & Root.
36
On March 21, 2001 the Delaware Chancery Court ruled that Highlands is not
obligated to provide insurance coverage for asbestos claims filed against
Kellogg Brown & Root because, in the court's opinion, the agreements entered
into by Highlands and Halliburton at the time of the spin-off terminated the
policies previously written by Highlands that would otherwise cover such claims.
This ruling, if it is not reversed on appeal, would eliminate our primary
insurance covering asbestos claims against Kellogg Brown & Root for periods
prior to the spin-off. Most claims filed against Kellogg Brown & Root allege
exposure to asbestos prior to the spin-off and are disposed of for less than the
limits of the Highlands policies. However, we and our legal counsel, Vinson &
Elkins L.L.P., believe the court's ruling is wrong. We intend to appeal the
ruling to the Delaware Supreme Court as soon as possible. Vinson & Elkins has
opined to us that it is very likely that the ruling of the Chancery Court will
be reversed because the ruling clearly contravenes the provisions of the
applicable agreements between Highlands and Halliburton. Vinson & Elkins has
also opined to us that it is likely that we will ultimately prevail in this
ligitation.
Since 1976, approximately 282,000 claims have been filed against various
current and former divisions and subsidiaries. About 25,000 of these claims
relate to Kellogg Brown & Root and the balance of these claims relate to
Dresser, its former divisions and subsidiaries. Approximately 165,000 of these
claims have been settled or disposed of at a gross cost of approximately $124
million, with insurance carriers paying all but approximately $32 million.
Claims continue to be filed, with about 45,000 claims filed in 2000. We have
established an accrual estimating our liability for known asbestos claims. Our
estimate is based on our historical litigation experience, settlements and
expected recoveries from insurance carriers. Our expected insurance recoveries
are based on agreements with carriers or, where agreements are still under
negotiation or litigation, our estimate of recoveries. We believe that the
insurance carriers with which we have signed agreements will be able to meet
their share of future obligations under the agreements. Prior to the Chancery
Court's ruling, Highlands Insurance Group, Inc., the parent of Highlands
Insurance Company, stated in its SEC filings that if it lost the litigation
with us and is required to pay the asbestos claims against Kellogg Brown & Root,
there could be a material adverse impact on Highlands Insurance Group's
financial position. Highlands Incurance Company reported statutory capital
surplus of $152 million to the Texas Insurance Commission in its Quarterly
Statement as of September 30, 2000. On March 12, 2001, Highlands Insurance
Group, Inc. announced that it expected to report a significant loss for the
fourth quarter of 2000 and for the full year 2000. Although we do not know the
extent of the impact of this loss on Highlands Insurance Company, we believe
that Highlands has the ability to pay substantially all of these asbestos claims
when this litigation is resolved in our favor.
At December 31, 2000, there were about 117,000 open claims, including about
23,000 associated with recoveries we expect from Highlands. Open claims at
December 31, 2000 also include 9,000 for which settlements are pending. The
number of open claims at the end of 2000 compares with approximately 107,700
open claims at the end of the prior year. The accrued liabilities for these
claims and corresponding billed and estimated recoveries from carriers are as
follows:
December 31
--------------------------------
Millions of dollars 2000 1999
- -------------------------------------------------------------------------
Accrued liability $ 80 $ 71
Estimated insurance recoveries:
Highlands Insurance Company (39) (28)
Other insurance carriers (12) (18)
- -------------------------------------------------------------------------
Net asbestos liability $ 29 $ 25
- -------------------------------------------------------------------------
As of December 31, 2000, we have accounts receivable from Highlands Insurance
Company of $11 million for payments we have made on asbestos claims. If our
appeal of the Chancery Court's ruling in the Highlands litigation is
unsuccessful, we will be unable to collect this account receivable or the $39
million estimated accrued recovery from Highlands for asbestos claims. This may
have a material adverse impact on the results of our operations and our
financial position at that time.
37
Accounts receivable for billings to other insurance carriers for payments
made on claims were $13 million at December 31, 2000 and $9 million at December
31, 1999.
We recognize the uncertainties of litigation and the possibility that a
series of adverse court rulings or new legislation affecting the claims
settlement process could materially impact the expected resolution of asbestos
related claims. However, based upon:
- our historical experience with similar claims;
- the time elapsed since Dresser and its former divisions or
subsidiaries discontinued sale of products containing asbestos;
- the time elapsed since Kellogg Brown & Root used asbestos in any
construction process; and
- our understanding of the facts and circumstances that gave rise to
asbestos claims,
we believe that the pending asbestos claims will be resolved without material
effect on our financial position or results of operations.
Resolution of dispute with Global Industrial Technologies, Inc. We
previously reported that under an agreement entered into at the time of the
spin-off of Global Industrial Technologies, Inc., formerly INDRESCO, Inc., from
Dresser Industries, Inc., Global assumed liability for all asbestos related
claims filed against Dresser after July 31, 1992 relating to refractory products
manufactured or marketed by the former Harbison-Walker Refractories division of
Dresser. Those business operations were transferred to Global in the spin-off.
These asbestos claims are subject to agreements with Dresser's insurance
carriers that cover expense and indemnity payments. However, the insurance
coverage is incomplete and Global has to-date paid the uncovered portion of
asbestos claims with its own funds.
We also reported that a dispute arose with Global concerning those
agreements, which led to arbitration and litigation proceedings. We have now
resolved the dispute and agreed with Global that:
- the arbitration, and all related litigation, is dismissed;
- Global acknowledges its obligation to assume responsibility for new
asbestos claims filed after the date of the spin-off;
- Global agrees to continue to cooperate with Dresser on Dresser's
remaining refractory claims; and
- Dresser continues to make available its direct insurance program
for the Global assumed asbestos liabilities.
Fort Ord litigation. Brown & Root Services is a defendant in civil
litigation pending in federal court in Sacramento, California. The lawsuit
alleges that Brown & Root Services violated provisions of the False Claims Act
while performing work for the United States Army at Fort Ord in California. This
lawsuit was filed by a former employee in 1997. Brown & Root Services has denied
the allegations and is preparing to defend itself at trial. Further proceedings
in this civil lawsuit have been stayed while the investigation referred to in
the next paragraph is ongoing. We believe that it is remote that this civil
litigation will result in any material amount of damages being assessed against
the company, although the cost of our defense could well exceed $1 million
before the matter is brought to a conclusion.
Although in 1998 the United States Department of Justice declined to join
this litigation, it has advised us that Brown & Root Services is the target of a
federal grand jury investigation regarding the contract administration issues
raised in the civil litigation. Brown & Root Services has been served with grand
jury subpoenas, which required the production of documents relating to the Fort
Ord contract and similar contracts at other locations. We have also been
informed that several current and former employees will be called to testify
before the grand jury. We have retained independent counsel for these employees.
We are cooperating in this investigation. The United States Department of
Justice has not made any specific allegations against Brown & Root Services.
Environmental. We are subject to numerous environmental legal and
regulatory requirements related to our operations worldwide. We take a proactive
approach to evaluating and addressing the environmental impact of our
operations. Each year we assess and remediate contaminated properties in order
to avoid future liabilities and comply with legal and regulatory requirements.
On occasion we are involved in specific environmental litigation and claims,
including the clean-up of properties we own or have operated as well as efforts
to meet or correct compliance-related matters.
38
Some of our subsidiaries and former operating entities are involved as a
potentially responsible party or PRP in remedial activities to clean-up several
"Superfund" sites under United States federal law and comparable state laws.
Kellogg Brown & Root, Inc., one of our subsidiaries, is one of nine PRPs named
at the Tri-State Mining District "Superfund" Site, also known as the Jasper
County "Superfund" Site, which we have reported in the past. Based on our
negotiations with federal regulatory authorities and our evaluation of our
responsibility for remediation at small portions of this site, we do not believe
we will be compelled to make expenditures which will have a material adverse
effect on our financial position or results of operations. However, the United
States Department of the Interior and the State of Missouri have indicated that
they might make a separate claim against Kellogg Brown & Root for natural
resource damages. Discussions with them have not been concluded and we are
unable to make a judgement about the amount of damages they may seek.
We also incur costs related to compliance with ever-changing environmental
legal and regulatory requirements in the jurisdictions where we operate. It is
very difficult to quantify the potential liabilities. We do not expect these
expenditures to have a material adverse effect on our consolidated financial
position or our results of operations.
Our accrued liabilities for environmental matters were $31 million as of
December 31, 2000 and $29 million as of December 31, 1999.
Other. We are a party to various other legal proceedings. We expense the
cost of legal fees related to these proceedings. We believe any liabilities we
may have arising from these proceedings will not be material to our consolidated
financial position or our results of operations.
Note 10. Income Per Share
Millions of dollars and shares
except per share data 2000 1999 1998
- ----------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations before change in
accounting method $ 188 $ 174 $ (120)
- ----------------------------------------------------------------------------------------------------------
Basic weighted average shares 442 440 439
Effect of common stock equivalents 4 3 -
- ----------------------------------------------------------------------------------------------------------
Diluted weighted average shares 446 443 439
- ----------------------------------------------------------------------------------------------------------
Income (loss) per common share from continuing operations
before change in accounting method:
Basic $ 0.42 $ 0.40 $ (0.27)
- ----------------------------------------------------------------------------------------------------------
Diluted $ 0.42 $ 0.39 $ (0.27)
- ----------------------------------------------------------------------------------------------------------
Income per common share from discontinued operations:
Basic $ 0.71 $ 0.64 $ 0.24
- ----------------------------------------------------------------------------------------------------------
Diluted $ 0.70 $ 0.64 $ 0.24
- ----------------------------------------------------------------------------------------------------------
Income per share from discontinued operations includes $0.49 and $0.36
basic and $0.48 and $0.36 diluted from the gain on the sale of discontinued
operations in 2000 and 1999, respectively.
Basic income per share is 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. Included in the computation of
diluted income per share are rights we issued in connection with the PES
acquisition for between 850,000 and 2.1 million shares of Halliburton common
stock. Excluded from the computation of diluted income per share are options to
purchase 1 million shares of common stock in 2000; 2 million shares in 1999; and
1 million shares in 1998. 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. Since we incurred a loss in 1998,
diluted earnings per share for that year excludes 3 million potential common
shares which were antidilutive for earnings per share purposes.
39
Note 11. Engineering and Construction Reorganization
The table below summarizes non-recurring charges of $36 million pretax
recorded in December 2000 related to the reorganization of our engineering and
construction businesses.
Asset
Related Personnel
Millions of dollars Charges Charges Total
- ----------------------------------------------------------------------------------------------------------
2000 Charges to Expense by Business Segment
Energy Services Group $ 2 $ 9 $ 11
Engineering and Construction Group 18 7 25
- ----------------------------------------------------------------------------------------------------------
Total 20 16 36
Utilized in 2000 (20) - (20)
- ----------------------------------------------------------------------------------------------------------
Balance December 31, 2000 $ - $ 16 $ 16
- ----------------------------------------------------------------------------------------------------------
These charges were reflected in the following captions of the consolidated
statements of income:
Year ended
December 31
-----------------------
Millions of dollars 2000
- -----------------------------------------------------------
Cost of services $ 30
General and administrative 6
- -----------------------------------------------------------
Total $ 36
- -----------------------------------------------------------
Asset Related Charges
As a result of the reorganization of the engineering and construction
businesses, we took actions to rationalize our cost structure including
write-offs of equipment, engineering reference designs and capitalized software.
Cost of services includes $20 million of charges for equipment, licenses and
engineering reference designs related to specific projects that were
discontinued as a result of the reorganization. Equipment and licenses with a
net book value of $10 million were abandoned. Engineering reference designs
specific to a project with a net book value of $4 million were written off.
Software developed for internal use with a net book value of $6 million which we
no longer plan to use due to standardization of systems was also written off.
Personnel Charges
Personnel charges of $16 million include severance and related costs
incurred for the planned reduction of approximately 30 senior management
positions, most of which will be terminated in the first quarter of 2001. We
expect payments under the severance arrangements to be completed by mid-2001.
Note 12. Special Charges and Credits
The table below summarizes the 1998 pretax expenses for special charges
and the accrued amounts utilized and adjusted through December 31, 2000.
40
Asset Facility Merger
Related Personnel Consolidation Transaction Other
Millions of dollars Charges Charges Charges Charges Charges Total
- -------------------------------------------------------------------------------------------------------------------------
1998 Charges to Expense by
Business Segment
Energy Services Group $ 453 $ 157 $ 93 $ - $ 18 $ 721
Engineering & Construction Group 8 19 8 - 5 40
Discontinued operations 18 1 2 - - 21
General corporate 30 58 23 64 23 198
- -------------------------------------------------------------------------------------------------------------------------
Total 509 235 126 64 46 980
Utilized in 1998 and 1999 (509) (196) (77) (63) (19) (864)
Adjustments to 1998 charges - (30) (16) (1) - (47)
- -------------------------------------------------------------------------------------------------------------------------
Balance December 31, 1999 $ - $ 9 $ 33 $ - $ 27 $ 69
- -------------------------------------------------------------------------------------------------------------------------
Utilized in 2000 - (9) (28) - (26) (63)
- -------------------------------------------------------------------------------------------------------------------------
Balance December 31, 2000 $ - $ - $ 5 $ - $ 1 $ 6
- -------------------------------------------------------------------------------------------------------------------------
Our 1998 results of operations reflect special charges totaling $980
million to provide for costs associated with the Dresser Industries, Inc. merger
and industry downturn due to declining oil and gas prices. These charges were
reflected in the following captions of the consolidated statements of income:
Year ended
December 31
------------------------
Millions of dollars 1998
- -----------------------------------------------------
Cost of services $ 68
Cost of sales 16
Special charges 875
Discontinued operations 21
- -----------------------------------------------------
Total $ 980
- -----------------------------------------------------
Most restructuring activities accrued for in the 1998 special charges were
completed and expended by the end of 1999. We utilized $63 million in 2000 for
sales of facilities and other actions that were initiated in 1999 but were
concluded in 2000. From inception through December 31, 2000, we used $368
million in cash for items associated with the 1998 special charges. The
unutilized special charge reserve balance at December 31, 2000 is expected to
result in future cash outlays of $6 million. At December 31, 2000, no
adjustments or reversals to the remaining accrued special charges are planned.
During the second quarter of 1999, we reversed $47 million of the 1998
special charge based on our reassessment of total costs to be incurred to
complete the actions covered in our special charges. The components of the
reversal are as follows:
- $30 million in personnel charges primarily due to a reduction in
estimated legal costs associated with employee layoffs, lower than
anticipated average severance per person and fewer than expected
terminations due to voluntary employee resignations;
- $16 million in facility consolidation charges due to fewer than
initially estimated facility exits, resulting in an estimated $7
million reduction in facilities consolidation costs, combined with
other factors including more favorable exit costs than
anticipated; and
- $1 million of merger transaction costs primarily as a result of
lower than previously estimated legal and other professional costs.
41
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 our
standard common office equipment and exit costs on other leased assets.
As a result of the merger, Halliburton Company's and Dresser Industries,
Inc.'s completion products operations and formation evaluation businesses have
been combined. Excluded is Halliburton's logging-while-drilling business and a
portion of our measurement-while-drilling business which were required to be
disposed of in connection with the United States Department of Justice consent
decree. See Note 2. We recorded impairments based upon anticipated future cash
flows in accordance with Statement of Financial Accounting Standards No. 121.
This was 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 logging-while-drilling business. The
following table summarizes the resulting write-downs of excess of cost over net
assets acquired and long-lived assets associated with:
- the directional drilling and formation evaluation businesses
acquired in 1993 from Smith International, Inc.;
- the formation evaluation business acquired in the 1988 acquisition
of Gearhart Industries, Inc.; and
- Mono Pumps and AVA acquired in 1990 and 1992.
Excess of Related
Cost Long-
Over Net Lived
Millions of dollars Assets Assets Total
- ------------------------------------------------------------------------------------------------------
Drilling operations of pre-merger Halliburton Energy Services $ 125 $ 96 $ 221
Logging operations of pre-merger Halliburton Energy Services 51 54 105
Mono Pump industrial and oilfield pump operations of Dresser 43 - 43
AVA completion products business of Dresser Oil Tools 34 3 37
Abandonment of a trademark 1 - 1
- --------------------------------------------------------------------------------- --------------------
Total $ 254 $ 153 $ 407
- ------------------------------------------------------------------------------------------------------
As discussed below, the merger caused management to reevaluate the
realizability of excess cost over net assets acquired and related long-lived
assets of these product service lines. Each business was considered to be
impaired under SFAS No. 121 guidance.
The overall market assumptions on which the impairment computations were
made assumed that 1999 calendar year drilling activity as measured by worldwide
rig count would be 1,900 rigs which was up from the 1,700 level in the third
quarter of 1998. Rig count for calendar year 2000 and beyond was assumed to
increase about 3% per year based upon estimated long-term growth in worldwide
demand for oil and gas. These assumptions were based on market data available at
the time of the merger.
In addition to these assumptions, management utilized a 10-year timeframe
for future projected cash flows, a discount rate that approximates its average
cost of capital, and specific assumptions for the future performance of each
product service line. The most significant assumptions are discussed below. In
each case, these analyses represented management's best estimate of future
results for these product service lines.
Drilling operations of pre-merger Halliburton Energy Services. Our
pre-merger drilling business consisted of logging-while-drilling,
measurement-while-drilling and directional drilling services. The majority of
the pre-merger logging-while-drilling business and a portion of the pre-merger
measurement-while-drilling business were required to be sold under the United
States Department of Justice consent decree. We have integrated the remaining
drilling business with the Sperry-Sun operations of Dresser. Our strategy
focuses generally on operating under the Sperry-Sun name and using Sperry-Sun's
superior technology, tools and industry reputation. Our remaining pre-merger
drilling assets and technology are being de-emphasized as they wear out or
become obsolete. These tools will not be replaced resulting in significant
decreases in future cash flows and an impairment of the excess of cost over net
assets and related long-lived assets.
42
Significant forecast assumptions included a revenue decline in the
remaining pre-merger drilling business due to the measurement-while-drilling
sale in the first year. Related revenue and operating income over the following
10 years were projected to decline due to reduced business opportunities
resulting from our shift in focus toward Sperry-Sun's tools and technologies. We
determined that there was a $125 million impairment of excess of cost over net
assets acquired. In addition, related long-lived asset impairments consisted of
$61 million of property and equipment and $14 million of related spare parts,
the value of which was estimated using the "held for use" model during the
forecast period. An impairment of $3 million was recorded related to property
and equipment and $18 million of spare parts using the "held for sale" model
sold in accordance with the consent decree with the United States Department of
Justice. See Note 2.
Logging operations of pre-merger Halliburton Energy Services. The merger of
Halliburton Company and Dresser Industries, Inc. enabled the acceleration of a
formation evaluation strategy. This strategy takes advantage of Sperry-Sun's
logging-while-drilling competitive position and reputation for reliability
combined with our Magnetic Resonance Imaging Logging (MRIL(R)) technology
acquired with the NUMAR acquisition in 1997. Prior to the merger, we were
focused on growing the traditional logging business while working toward
development of new systems to maximize the MRIL(R) technology. The merger
allowed us to implement the new strategy and place the traditional logging
business in a sustaining mode. This change in focus and strategy resulted in a
shift of operating cash flows away from our traditional logging business. This
created an impairment of the excess of cost over net assets and related
long-lived assets related to our logging business.
Significant forecast assumptions included revenues decreasing slowly over
the 10-year period, reflecting the decline in the traditional logging markets.
Operating income initially was forecasted to increase due to cost cutting
activity, and then decline as revenue decreased due to the significant fixed
costs in this product service line. We calculated $51 million impairment of the
excess of cost over net assets acquired. In addition, related long-lived asset
impairments consisted of $22 million of property and equipment and $32 million
of spare parts which management estimated using the "held for use" model during
the forecast period.
Mono Pump operations of pre-merger Dresser. The amount of the impairment is
$43 million, all of which represents excess of cost over net assets acquired
associated with the business.
Our strategy for Mono Pump is to focus primarily on the oilfield business
including manufacturing power sections for drilling motors. The prior strategy
included emphasis on non-oilfield related applications of their pumping
technology and the majority of Mono Pump revenues were related to non-oilfield
sales. The change in strategy will result in reduced future cash flows resulting
in an impairment of the excess of costs over net assets acquired.
Significant forecast assumptions included stable revenue for several years
and then slowly declining due to decreasing emphasis of industrial market
applications. Operating income was forecasted to initially be even with current
levels but then decline over the period as revenues declined and fixed costs per
unit increased.
AVA operations of Dresser Oil Tools. The amount of the impairment is $37
million of which $34 million relates to excess of costs over net assets
acquired.
The plan for Dresser's AVA business line (which supplies subsurface safety
valves and other completion equipment) was to rationalize product lines which
overlap with our pre-existing completion equipment business line. The vast
majority of the AVA product lines were de-emphasized except for supporting the
installed base of AVA equipment and specific special order requests from
customers. AVA products were generally aimed at the high-end custom completion
products market. Our strategy was to focus on standardized high-end products
based upon pre-merger Halliburton designs thus reducing future AVA cash flows
and impairing its assets and related excess of costs over net assets acquired.
Additional asset related charges. Additional asset related charges include:
- $37 million for various excess fixed assets as a result of merging
similar product lines. We have no future use for these assets and
they have been scrapped;
- $33 million for other assets related to capitalized software, which
became redundant with the merger. Major components included
redundant computer aided design systems and capitalized costs
related to a portion of our enterprise-wide information system
abandoned due to changed requirements of the post merger company.
The redundant computer aided design systems were used in both the
Energy Services Group and the Engineering and Construction Group
43
and were immediately abandoned and replaced by superior systems
required to meet the needs of the merged company;
- $26 million for the inventory charge relates to excess inventory as
a result of merging similar product lines and/or industry downturn.
This included approximately $17 million related to overlapping
product lines and excess inventory in the completion products
business and $9 million related to various Dresser Equipment Group
divisions due to excess inventory related to industry downturn.
Inventory that was overlapping due to the merger was segregated and
has been scrapped. Inventory reserves were increased to cover the
estimated write-down to market for inventory with future use
determined to be excess as a result of the industry downturn. Any
future sales are expected to approximate the new lower carrying
value of the inventory;
- $5 million for the impairment of excess of cost over net assets
acquired related to well construction technology that became
redundant once the merger was complete due to similar but superior
technology offered by Sperry-Sun. This technology will no longer
be used as part of our integrated service offerings, thus reducing
future cash flows. We will, however, continue to market this
technology individually to third parties. An impairment based on a
"held for use" model was calculated using a 10-year discounted
cash flow model with a discount rate which approximates our average
cost of capital; and
- $1 million write-off of excess of cost over net assets acquired
related to the Steamford product line in the Dresser Equipment
Group valve and control division. Management made the strategic
decision to exit this product line.
Asset related charges have been reflected as direct reductions of the
associated asset balances.
Personnel Charges
Personnel charges include severance and related costs incurred for
announced employee reductions of 10,850 affecting all business segments,
corporate and shared service functions. Personnel charges also include personnel
costs related to change of control. In June 1999, management revised the planned
employee reductions to 10,100 due in large part to higher than anticipated
voluntary employee resignations. As of December 31, 2000, terminations of
employees, consultants and contract personnel related to the 1998 special charge
have been completed.
Facility Consolidation Charges
Facility consolidation charges include costs to dispose of owned properties
or exit leased facilities. As a result of the merger with Dresser and the
industry downturn, we recorded a charge for costs to vacate, sell or close
excess and redundant service, manufacturing and administrative facilities
throughout the world. The majority of these facilities are within the Energy
Services Group. Expenses of $126 million included:
- $85 million write-down of owned facilities for anticipated losses
on planned disposals based upon the difference between the assets'
net book values and anticipated future net realizable value based
upon the "to be disposed of" method;
- $37 million lease buyout costs or early lease termination cost
including:
- estimated costs to buy out leases;
- facility refurbishment/restoration expenses as required by the
lease in order to exit property;
- sublease differentials, as applicable; and
- related broker/agent fees to negotiate and close buyouts;
- $4 million facility maintenance costs to maintain vacated
facilities between the abandonment date and the expected
disposition date. Maintenance costs include lease expense,
depreciation, maintenance, utilities, and third-party
administrative costs.
As of December 31, 2000, we have substantially completed the work to
vacate, sell or close the service, manufacturing and administrative facilities
related to the 1998 special charge. The majority of the sold, returned or
vacated properties are located in North America and have been eliminated from
the Energy Services Group. The remaining expenditures will be made as the
remaining properties are vacated and sold.
44
Merger Transaction Charges
Merger transaction costs include investment banking, filing fees, legal and
professional fees and other merger related costs. We estimated our merger
transaction costs to be $64 million.
Other Charges
Other charges of $46 million include the estimated contract exit costs
associated with the elimination of duplicate agents and suppliers in various
countries throughout the world. Through December 31, 2000, we have utilized
substantially all of the estimated amount of other special charge costs.
Note 13. Change in Accounting Method
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5 "Reporting on the Costs of Start-Up
Activities." This Statement requires costs of start-up activities and
organization costs to be expensed as incurred. We adopted Statement of Position
98-5 effective January 1, 1999 and recorded expense of $30 million pretax or $19
million after-tax or $0.04 per diluted share. The components of the $30 million
pretax cost, all contained within the Energy Services Group, that were
previously deferred include:
- $23 million for mobilization costs associated with specific
contracts and for installation of offshore cementing equipment onto
third party marine drilling rigs or vessels; and
- $7 million for costs incurred opening a new manufacturing facility
in the United Kingdom.
Note 14. Income Taxes
The components of the (provision) benefit for income taxes are:
Years ended December 31
------------------------------------------
Millions of dollars 2000 1999 1998
- -----------------------------------------------------------------------------------------
Current income taxes:
Federal $ (16) $ 137 $ (260)
Foreign (114) (64) (185)
State (5) (2) (7)
- -----------------------------------------------------------------------------------------
Total (135) 71 (452)
- -----------------------------------------------------------------------------------------
Deferred income taxes:
Federal (20) (175) 293
Foreign and state 26 (12) 4
- -----------------------------------------------------------------------------------------
Total 6 (187) 297
- -----------------------------------------------------------------------------------------
Continuing operations (129) (116) (155)
- -----------------------------------------------------------------------------------------
Discontinued operations (60) (98) (90)
Disposal of discontinued operations (141) (94) -
Benefit for change in accounting method - 11 -
- -----------------------------------------------------------------------------------------
Total $ (330) $(297) $ (245)
- -----------------------------------------------------------------------------------------
Included in federal income taxes for continuing operations are foreign tax
credits of $113 million in 2000, $52 million in 1999 and $94 million in 1998.
The United States and foreign components of income (loss) from continuing
operations before income taxes and minority interests are as follows:
Years ended December 31
---------------------------------------
Millions of dollars 2000 1999 1998
- ---------------------------------------------------------------
United States $ 128 $ 131 $ (428)
Foreign 207 176 483
- ---------------------------------------------------------------
Total $ 335 $ 307 $ 55
- ---------------------------------------------------------------
The primary components of our deferred tax assets and liabilities and the
related valuation allowances are as follows:
45
December 31
--------------------------
Millions of dollars 2000 1999
- --------------------------------------------------------------------------
Gross deferred tax assets:
Employee benefit plans $ 261 $ 250
Accrued liabilities 118 116
Construction contract accounting methods 117 98
Insurance accruals 109 98
Inventory 43 31
Intercompany profit 42 26
Net operating loss carryforwards 35 34
Basis in joint ventures 33 92
Intangibles 20 28
Special charges 6 25
Alternative minimum tax carryforward - 7
All other 60 69
- --------------------------------------------------------------------------
Total $ 844 $ 874
- --------------------------------------------------------------------------
Gross deferred tax liabilities:
Depreciation and amortization $ 128 $ 135
Unrepatriated foreign earnings 29 29
Safe harbor leases 9 10
All other 66 99
- --------------------------------------------------------------------------
Total 232 273
- --------------------------------------------------------------------------
Valuation allowances:
Net operating loss carryforwards 29 31
All other 8 1
- --------------------------------------------------------------------------
Total 37 32
- --------------------------------------------------------------------------
Net deferred income tax asset $ 575 $ 569
- --------------------------------------------------------------------------
We have accrued for the potential repatriation of undistributed earnings of
our foreign subsidiaries and consider 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, repatriation is not
anticipated. Any additional amount of tax is not practicable to estimate.
We have net operating loss carryforwards of $44 million which expire in
2001 through 2005. We also have net operating loss carryforwards of $75 million
with indefinite expiration dates. Reconciliations between the actual provision
for income taxes and that computed by applying the United States statutory rate
to income from continuing operations before income taxes and minority interest
are as follows:
46
Years ended December 31
---------------------------------------
Millions of dollars 2000 1999 1998
- ---------------------------------------------------------------------------------------------------
Provision computed at statutory rate $ (117) $ (99) $ (13)
Reductions (increases) in taxes resulting from:
Tax differentials on foreign earnings (14) (14) (17)
State income taxes, net of federal income tax benefit (3) (1) (7)
Special charges - - (109)
Nondeductible goodwill (11) (10) (11)
Other items, net 16 8 2
- ---------------------------------------------------------------------------------------------------
Continuing operations (129) (116) (155)
Discontinued operations (60) (98) (90)
Disposal of discontinued operations (141) (94) -
Benefit for change in accounting method - 11 -
- ---------------------------------------------------------------------------------------------------
Total $ (330) $ (297) $ (245)
- ---------------------------------------------------------------------------------------------------
Note 15. Common Stock
On June 25, 1998, our shareholders voted to increase the number of
authorized shares from 400 million to 600 million.
Our 1993 Stock and Long-Term Incentive Plan provides for the grant of any
or all of the following types of awards:
- stock options, including incentive stock options and non-qualified
stock options;
- stock appreciation rights, in tandem with stock options or
freestanding;
- restricted stock;
- performance share awards; and
- stock value equivalent awards.
Under the terms of the 1993 Stock and Long-Term Incentive Plan as amended, 49
million shares of common stock have been reserved for issuance to key employees.
The plan specifies that no more than 16 million shares can be awarded as
restricted stock. At December 31, 2000, 27 million shares were available for
future grants under the 1993 Stock and Long-Term Incentive Plan with 12.7
million shares remaining available for restricted stock awards.
In connection with the acquisition of Dresser in 1998, we assumed the
outstanding stock options under the stock option plans maintained by Dresser.
See Note 2. Stock option transactions summarized below include amounts for the
1993 Stock and Long-Term Incentive Plan and stock plans of Dresser and other
acquired companies. No further awards are being made under the stock plans of
acquired companies.
Number of Exercise Weighted Average
Shares Price per Exercise Price
Stock Options (in millions) Share per Share
- ---------------------------------------------------------------------------------------------
Outstanding at December 31, 1997 12.4 $ 3.10 - 61.50 $ 26.55
- ---------------------------------------------------------------------------------------------
Granted 4.2 26.19 - 46.50 33.07
Exercised (2.4) 3.10 - 37.88 20.84
Forfeited (0.4) 5.40 - 54.50 33.64
- ---------------------------------------------------------------------------------------------
Outstanding at December 31, 1998 13.8 $ 3.10 - 61.50 $ 29.37
- ---------------------------------------------------------------------------------------------
Granted 5.6 28.50 - 48.31 36.46
Exercised (1.7) 3.10 - 54.50 24.51
Forfeited (0.6) 8.28 - 54.50 35.61
- ---------------------------------------------------------------------------------------------
Outstanding at December 31, 1999 17.1 $ 3.10 - 61.50 $ 32.03
- ---------------------------------------------------------------------------------------------
Granted 1.7 34.75 - 54.00 41.61
Exercised (3.6) 3.10 - 45.63 25.89
Forfeited (0.5) 12.20 - 54.50 37.13
- ---------------------------------------------------------------------------------------------
Outstanding at December 31, 2000 14.7 $ 8.28 - 61.50 $ 34.54
- ---------------------------------------------------------------------------------------------
47
Options outstanding at December 31, 2000 are composed of the following:
Outstanding Exercisable
---------------------------------------------- --------------------------------
Weighted
Average Weighted Weighted
Number of Remaining Average Number of Average
Range of Shares Contractual Exercise Shares Exercise
Exercise Prices (in millions) Life Price (in millions) Price
- ------------------------------------------------------------------------------------------------------------
$ 8.28 - 28.13 3.8 5.8 $ 23.60 3.2 $ 22.76
28.50 - 34.75 3.8 7.5 30.58 1.8 29.50
35.00 - 39.50 5.0 8.0 39.08 2.4 38.77
39.56 - 61.50 2.1 7.6 50.42 1.4 50.87
- ------------------------------------------------------------------------------------------------------------
$ 8.28 - 61.50 14.7 7.2 $ 34.54 8.8 $ 32.81
- ------------------------------------------------------------------------------------------------------------
There were 9.5 million options exercisable with a weighted average exercise
price of $28.96 at December 31, 1999, and 7.8 million options exercisable with a
weighted average exercise price of $25.72 at December 31, 1998.
All stock options under the 1993 Stock and Long-Term Incentive Plan,
including options granted to employees of Dresser since its acquisition, are
granted at the fair market value of the common stock at the grant date.
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:
Assumptions
--------------------------------------------------------------------- Weighted Average
Risk-Free Expected Expected Expected Fair Value of
Interest Rate Dividend Yield Life (in years) Volatility Options Granted
- ------------------------------------------------------------------------------------------------------------------
2000 5.2% 1.3% 5 54.0% $ 21.57
1999 5.8% 1.3% 5 56.0% $ 19.77
1998 4.3 - 5.3% 1.2 - 2.7% 5 - 6.5 20.1 - 38.0% $ 11.63
- ------------------------------------------------------------------------------------------------------------------
Stock options generally expire 10 years from the grant date. Stock options
under the 1993 Stock and Long-Term Incentive Plan 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. Other plans have vesting periods
ranging from three to 10 years. Options under the Non-Employee Directors' Plan
vest after six months.
We account for the option plans in accordance with Accounting Principles
Board Opinion No. 25, under which no compensation cost has been recognized for
stock option awards. Compensation cost for the stock option programs calculated
consistent with Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation," is set forth on a pro forma basis below:
Millions of dollars
except per share data 2000 1999 1998
- -----------------------------------------------------------------------------------
Net income:
As reported $ 501 $ 438 $ (15)
Pro forma 460 406 (43)
- -----------------------------------------------------------------------------------
Diluted earnings per share:
As reported $ 1.12 $ 0.99 $ (0.03)
Pro forma 1.03 0.92 (0.10)
- -----------------------------------------------------------------------------------
48
Restricted shares awarded under the 1993 Stock and Long-Term Incentive Plan
were 695,692 in 2000, 352,267 in 1999 and 414,510 in 1998. The shares awarded
are net of forfeitures of 69,402 in 2000, 72,483 in 1999 and 136,540 in 1998.
The weighted average fair market value per share at the date of grant of shares
granted was $42.25 in 2000, $43.41 in 1999 and $34.77 in 1998.
Our Restricted Stock Plan for Non-Employee Directors allows for each
non-employee director to receive an annual award of 400 restricted shares of
common stock as a part of compensation. We reserved 100,000 shares of common
stock for issuance to non-employee directors. Under this plan we issued 3,600
restricted shares in 2000, 4,800 restricted shares in 1999 and 3,200 restricted
shares in 1998. At December 31, 2000, 28,800 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 was $46.81 in 2000, $46.13 in
1999 and $36.31 in 1998.
Our Employees' Restricted Stock Plan was established for employees who are
not officers, for which 200,000 shares of common stock have been reserved. At
December 31, 2000, 152,850 shares (net of 42,550 shares forfeited) have been
issued. Forfeitures were 7,450 in 2000, 8,400 in 1999 and 1,900 in 1998. No
further grants are being made under this plan.
Under the terms of our Career Executive Incentive Stock Plan, 15 million
shares of our 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, 2000, 11.7 million shares (net of 2.2 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 Stock and Long-Term Incentive Plan,
Restricted Stock Plan for Non-Employee Directors, Employees' Restricted Stock
Plan and the Career Executive Incentive Stock Plan are limited as to sale or
disposition. These restrictions lapse periodically over an extended period of
time not exceeding ten years. Restrictions may also lapse for early retirement
and other conditions in accordance with our established policies. 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. At
December 31, 2000, the unamortized amount is $63 million. We recognized
compensation costs in income of $18 million in 2000, $11 million in 1999 and $8
million in 1998.
Note 16. Series A Junior Participating Preferred Stock
We previously declared a dividend of one preferred stock purchase right on
each outstanding share of common stock. The dividend is also applicable to each
share of our common stock that was issued subsequent to adoption of the Rights
Agreement entered into with Mellon Investor Services LLC. Each preferred stock
purchase right entitles its holder to buy one two-hundredth of a share of our
Series A Junior Participating Preferred Stock, without par value, at an exercise
price of $75. These preferred stock purchase rights are subject to antidilution
adjustments, which are described in the Rights Agreement entered into with
Mellon. The preferred stock purchase rights do not have any voting rights and
are not entitled to dividends.
The preferred stock purchase rights become exercisable in limited
circumstances involving a potential business combination. After the preferred
stock purchase rights become exercisable, each preferred stock purchase right
will entitle its holder to an amount of our common stock, or in some
circumstances, securities of the acquirer, having a total market value equal to
two times the exercise price of the preferred stock purchase right. The
preferred stock purchase rights are redeemable at our option at any time before
they become exercisable. The preferred stock purchase rights expire on December
15, 2005. No event during 2000 made the preferred stock purchase rights
exercisable.
Note 17. 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. We selectively hedge 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 our foreign currency
hedging activities is to protect us from the risk that the eventual dollar cash
flows resulting from the sale and purchase of products and services in foreign
currencies will be adversely affected by changes in exchange rates. We do not
hold or issue derivative financial instruments for trading or speculative
purposes.
49
We hedge our currency exposure through the use of currency derivative
instruments. These contracts generally have an expiration date of two years or
less. Forward exchange contracts, which are 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 $1
million for identifiable foreign currency commitments were deferred at December
31, 2000. 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.
While hedging instruments are subject to fluctuations in value, the
fluctuations are generally offset by the value of the underlying exposures being
hedged. The use of some contracts may limit our ability to benefit from
favorable fluctuations in foreign exchange rates. The notional amounts of open
forward contracts and options for continuing operations were $281 million and
$297 million at year-end 2000 and 1999, respectively. Amounts related to
discontinued operations were $61 million and $96 million at December 31, 2000
and 1999, respectively. The notional amounts of our foreign exchange contracts
do not generally represent amounts exchanged by the parties, and thus, are not a
measure of our exposure or of the 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. We actively monitor our
foreign currency exposure and adjust the amounts hedged as appropriate.
Exposures to some currencies are generally not hedged due primarily to
the lack of available markets or cost considerations (non-traded currencies). We
attempt to manage our working capital position to minimize foreign currency
commitments in non-traded currencies and recognize that pricing for the services
and products offered in these countries should cover the cost of exchange rate
devaluations. We have historically incurred transaction losses in non-traded
currencies.
Credit risk. Financial instruments that potentially subject us to
concentrations of credit risk are primarily cash equivalents, investments and
trade receivables. It is our practice to place our cash equivalents and
investments in high-quality securities with various investment institutions. We
derive the majority of our revenues from sales and services, including
engineering and construction, to 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. We maintain 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 our derivative
contracts. We select counterparties based on creditworthiness, which we
continually monitor, and on the counterparties' ability to perform their
obligations under the terms of the transactions. We do not expect any
counterparties to fail to meet their obligations under these contracts given
their high credit ratings. Therefore, we consider the credit risk associated
with our derivative contracts to be minimal.
Fair market value of financial instruments. The estimated fair market
value of long-term debt at year-end 2000 and 1999 was $1,066 million and $1,352
million, respectively, as compared to the carrying amount of $1,057 million at
year-end 2000 and $1,364 million at year-end 1999. The fair market 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 approximates
fair market value because these instruments reflect market changes to interest
rates. See Note 8. 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 market value due
to the short maturities of these instruments. The fair market value of currency
derivative instruments, generally approximates their carrying amount based upon
third-party quotes. The fair market values of derivative instruments used for
fair value hedging and cash flow hedging were immaterial.
Note 18. Retirement Plans
Our company and subsidiaries have various plans which cover a
significant number of their employees. These plans include 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 pretax income and/or discretionary amounts determined
50
on an annual basis. Our expense for the defined contribution plans for both
continuing and discontinued operations totaled $182 million, $146 million, and
$152 million in 2000, 1999 and 1998, respectively. Other retirement plans
include defined benefit plans, which define an amount of pension benefit to be
provided, usually as a function of age, years of service or compensation. 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. Plan assets, expenses and obligations for retirement plans in the
following tables include both continuing and discontinued operations.
2000 1999
---------------------------------- ----------------------------------
Millions of dollars United States International United States International
- ------------------------------------------------------------------------------------ ----------------------------------
Change in benefit obligation
Benefit obligation at beginning of year $ 413 $ 1,747 $ 430 $ 1,716
Service cost 4 53 7 66
Interest cost 20 85 30 96
Plan participants' contributions - 13 - 15
Effect of business combinations - 32 - -
Amendments 5 - 5 11
Divestitures (138) (61) - -
Settlements/curtailments (8) - (3) -
Currency fluctuations - (163) - (44)
Actuarial gain/(loss) 13 (11) (3) (60)
Benefits paid (21) (58) (53) (53)
- --------------------------------------------------------------------------------------------------------------------------
Benefit obligation at end of year $ 288 $ 1,637 $ 413 $ 1,747
- --------------------------------------------------------------------------------------------------------------------------
2000 1999
---------------------------------- ----------------------------------
Millions of dollars United States International United States International
- ------------------------------------------------------------------------------------ ----------------------------------
Change in plan assets
Fair value of plan assets at beginning of year $ 466 $ 2,134 $ 445 $ 1,817
Actual return on plan assets 18 262 65 376
Employer contribution 17 25 22 26
Settlements (14) - (13) -
Plan participants' contributions - 13 - 15
Divestitures (153) (47) - -
Currency fluctuations - (199) - (47)
Benefits paid (21) (58) (53) (53)
- --------------------------------------------------------------------------------------------------------------------------
Fair value of plan assets at end of year $ 313 $ 2,130 $ 466 $ 2,134
- --------------------------------------------------------------------------------------------------------------------------
Funded status $ 25 $ 493 $ 53 $ 387
Unrecognized transition obligation/(asset) (1) 17 - (6)
Unrecognized actuarial (gain)/loss 4 (378) (31) (275)
Unrecognized prior service cost/(benefit) 13 (79) 7 (41)
- --------------------------------------------------------------------------------------------------------------------------
Net amount recognized $ 41 $ 53 $ 29 $ 65
- --------------------------------------------------------------------------------------------------------------------------
We recognized an additional minimum pension liability for the
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.
51
2000 1999
--------------------------------- ----------------------------------
Millions of dollars United States International United States International
- ----------------------------------------------------------------------------------- ----------------------------------
Amounts recognized in the consolidated
balance sheets
Prepaid benefit cost $ 54 $ 93 $ 43 $ 98
Accrued benefit liability (28) (49) (38) (40)
Intangible asset 10 1 11 1
Deferred tax asset 1 - - -
Accumulated other comprehensive income 4 8 13 6
- -------------------------------------------------------------------------------------------------------------------------
Net amount recognized $ 41 $ 53 $ 29 $ 65
- -------------------------------------------------------------------------------------------------------------------------
Assumed long-term rates of return on plan 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:
Weighted-average assumptions 2000 1999 1998
- -------------------------------------------------------------------------------------------------------
Expected return on plan assets:
United States plans 9.0% 9.0% 8.5% to 9.0%
International plans 3.5% to 8.0% 7.25% to 8.0% 7.0% to 11.0%
Discount rate:
United States plans 7.5% 7.5% 7.25% to 8.0%
International plans 4.0% to 5.5% 2.5% to 7.5% 2.0% to 12.5%
Rate of compensation increase:
United States plans 4.5% 4.5% to 5.0% 4.5% to 5.0%
International plans 3.5% to 7.6% 1.0% to 10.5% 2.0% to 11.0%
- -------------------------------------------------------------------------------------------------------
2000 1999 1998
--------------------------- -------------------------- ---------------------------
United United United
Millions of dollars States International States International States International
- ----------------------------------------------------------------------------------------------------------------------------------
Components of net periodic
benefit cost
Service cost $ 4 $ 53 $ 7 $ 66 $ 5 $ 57
Interest cost 20 85 30 96 27 111
Expected return on plan assets (26) (135) (33) (145) (30) (123)
Transition amount - - 1 (2) 1 (2)
Amortization of prior service cost (1) (6) (2) (7) (4) (7)
Settlements/curtailments loss/(gain) 10 - 14 - (4) (2)
Recognized actuarial (gain)/loss - (10) (1) (11) - -
- ----------------------------------------------------------------------------------------------------------------------------------
Net periodic benefit cost $ 7 $ (13) $ 16 $ (3) $ (5) $ 34
- ----------------------------------------------------------------------------------------------------------------------------------
The projected benefit obligation, accumulated benefit obligation, and
fair value of plan assets for the pension plans with accumulated benefit
obligations in excess of plan assets were $172 million, $154 million, and $82
million, respectively, as of December 31, 2000. They were $205 million, $199
million, and $183 million, respectively, as of December 31, 1999.
Postretirement medical plan. We offer postretirement medical plans to
specific eligible employees. For some plans, our 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 our fixed contribution and
participants' contributions are adjusted as required to cover benefit payments.
We have made no commitment to adjust the amount of our contributions; therefore,
the computed accumulated postretirement benefit obligation amount is not
affected by the expected future health care cost inflation rate.
52
Other postretirement medical plans are contributory but we generally
absorb the majority of the costs. We may elect to adjust the amount of our
contributions for these plans. As a result, the expected future health care cost
inflation rate affects the accumulated postretirement benefit obligation amount.
These plans have assumed health care trend rates (weighted based on the current
year benefit obligation) for 2000 of 10% which are expected to decline to 5% by
2005.
Obligations and expenses for postretirement medical plans in the
following tables include both continuing and discontinued operations.
Millions of dollars 2000 1999
- ------------------------------------------------------------------------------------
Change in benefit obligation
Benefit obligation at beginning of year $ 392 $ 403
Service cost 3 5
Interest cost 20 28
Plan participants' contributions 11 8
Amendments - 1
Acquisitions/divestitures, net (110) -
Settlements/curtailments - (1)
Actuarial gain/(loss) 11 (15)
Benefits paid (31) (37)
- ------------------------------------------------------------------------------------
Benefit obligation at end of year $ 296 $ 392
- ------------------------------------------------------------------------------------
Change in plan assets
Fair value of plan assets at beginning of year $ - $ -
Employer contribution 20 29
Plan participants' contributions 11 8
Benefits paid (31) (37)
- ------------------------------------------------------------------------------------
Fair value of plan assets at end of year $ - $ -
- ------------------------------------------------------------------------------------
Funded status $ (296) $(392)
Employer contribution 3 1
Unrecognized actuarial (gain)/loss (20) (72)
Unrecognized prior service cost (78) (98)
- ------------------------------------------------------------------------------------
Net amount recognized $ (391) $(561)
- ------------------------------------------------------------------------------------
Millions of dollars 2000 1999
- ------------------------------------------------------------------------------------
Amounts recognized in the consolidated
balance sheets
Accrued benefit liability $ (391) $(561)
- ------------------------------------------------------------------------------------
Net amount recognized $ (391) $(561)
- ------------------------------------------------------------------------------------
Weighted-average assumptions 2000 1999 1998
- ------------------------------------------------------------------------------------
Discount rate 7.50% 7.50% 7.0% to 8.0%
- ------------------------------------------------------------------------------------
53
Millions of dollars 2000 1999 1998
- -----------------------------------------------------------------------------------
Components of net periodic benefit cost
Service cost $ 3 $ 5 $ 4
Interest cost 20 28 28
Amortization of prior service cost (7) (9) (10)
Settlements/curtailments loss/(gain) - (2) -
Recognized actuarial (gain)/loss (1) (5) (8)
- -----------------------------------------------------------------------------------
Net periodic benefit cost $ 15 $ 17 $ 14
- -----------------------------------------------------------------------------------
Assumed health care cost trend rates have a significant effect on the
amounts reported for the total of the health care plans. A one-percentage-point
change in assumed health care cost trend rates would have the following effects:
One-Percentage-Point
----------------------------------------
Millions of dollars Increase (Decrease)
- ----------------------------------------------------------------------------------------------
Effect on total of service and interest cost $ 2 $ (2)
components
Effect on the postretirement benefit obligation 22 (22)
- ----------------------------------------------------------------------------------------------
Note 19. Subsequent Event
In March 2001 our offer to acquire the PGS Data Management division of
Petroleum Geo-Services ASA (PGS) was accepted by the PGS shareholders. PGS Data
Management has developed cost effective internet enabled storage, browsing and
retrieval of large volumes of exploration and production data and information.
Terms of the agreement include a cash transfer of $175 million prior to working
capital contribution and a contract where Landmark will manage the seismic
library of PGS for three years. PGS Data Management will become part of the
Landmark Graphics business that is included in the Energy Services Group.
Note 20. Dresser Financial Information
Since becoming a wholly owned subsidiary, Dresser Industries, Inc. has
ceased filing periodic reports with the Securities and Exchange Commission.
Dresser's 8% guaranteed senior notes, which were initially issued by Baroid
Corporation, remain outstanding and are fully and unconditionally guaranteed by
Halliburton. 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. The majority of our operating assets and
activities are included in Dresser and its subsidiaries. In August 2000, the
Securities and Exchange Commission released a new rule governing the financial
statements of guarantors and issuers of guaranteed securities registered with
the SEC. The following condensed consolidating financial information presents
Halliburton and our subsidiaries on a stand-alone basis using the equity method
and as if our current organizational structure were in place for all periods
presented.
54
Condensed Consolidating Statements
of Income Non-issuer/ Dresser Halliburton Consolidated
Year ended December 31, 2000 Non-guarantor Industries, Inc. Company Consolidating Halliburton
Millions of dollars Subsidiaries (Issuer) (Guarantor) Adjustments Company
- -----------------------------------------------------------------------------------------------------------------------
Total revenues $ 11,944 $ 374 $ 699 $(1,073) $11,944
Cost of revenues 11,218 - - - 11,218
General and administrative 352 - - - 352
Gain on sale of marine vessels (88) - - - (88)
Interest expense (29) (45) (87) 15 (146)
Interest income 21 18 1 (15) 25
Other, net 3 129 55 (193) (6)
- -----------------------------------------------------------------------------------------------------------------------
Income from continuing operations
before taxes and minority interest 457 476 668 (1,266) 335
Provision for income taxes (163) 8 26 - (129)
Minority interest in net income of
subsidiaries (18) - - - (18)
- -----------------------------------------------------------------------------------------------------------------------
Income from continuing operations 276 484 694 (1,266) 188
Income from discontinued operations 98 - - - 98
Gain on disposal of discontinued
operations, net of tax - 215 - - 215
- -----------------------------------------------------------------------------------------------------------------------
Net income $ 374 $ 699 $ 694 $(1,266) $ 501
- -----------------------------------------------------------------------------------------------------------------------
Condensed Consolidating Statements
of Income Non-issuer/ Dresser Halliburton Consolidated
Year ended December 31, 1999 Non-guarantor Industries, Inc. Company Consolidating Halliburton
Millions of dollars Subsidiaries (Issuer) (Guarantor) Adjustments Company
- -----------------------------------------------------------------------------------------------------------------------
Total revenues $ 12,313 $ 571 $ 654 $(1,225) $12,313
Cost of revenues 11,608 - - - 11,608
General and administrative 351 - - - 351
Special charges and credits (47) - - - (47)
Interest expense (33) (50) (87) 29 (141)
Interest income 77 26 - (29) 74
Other, net (29) 105 183 (286) (27)
- -----------------------------------------------------------------------------------------------------------------------
Income from continuing operations
before taxes, minority interest, and
change in accounting method 416 652 750 (1,511) 307
Provision for income taxes (92) 2 (26) - (116)
Minority interest in net income of
subsidiaries (17) - - - (17)
- -----------------------------------------------------------------------------------------------------------------------
Income from continuing operations
before change in accounting method 307 654 724 (1,511) 174
Income from discontinued operations 124 - - - 124
Gain on disposal of discontinued
operations, net of tax 159 - - - 159
Cumulative effect of change in
accounting method, net of
tax benefit (19) - - - (19)
- -----------------------------------------------------------------------------------------------------------------------
Net income $ 571 $ 654 $ 724 $(1,511) $ 438
- -----------------------------------------------------------------------------------------------------------------------
55
Condensed Consolidating Statements
of Income Non-issuer/ Dresser Halliburton Consolidated
Year ended December 31, 1998 Non-guarantor Industries, Inc. Company Consolidating Halliburton
Millions of dollars Subsidiaries (Issuer) (Guarantor) Adjustments Company
- -----------------------------------------------------------------------------------------------------------------------
Total revenues $ 14,504 $ 158 $ (71) $ (87) $14,504
Cost of revenues 13,022 - - - 13,022
General and administrative 438 (1) - - 437
Special charges and credits 875 - - - 875
Interest expense (20) (225) (52) 163 (134)
Interest income 52 4 133 (163) 26
Other, net (1) (1) (5) - (7)
- -----------------------------------------------------------------------------------------------------------------------
Income from continuing operations
before taxes and minority interest 200 (63) 5 (87) 55
Provision for income taxes (127) (8) (20) - (155)
Minority interest in net income of
subsidiaries (20) - - - (20)
- -----------------------------------------------------------------------------------------------------------------------
Income from continuing operations 53 (71) (15) (87) (120)
Income from discontinued operation 105 - - - 105
- -----------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 158 $ (71) $ (15) $ (87) $ (15)
- -----------------------------------------------------------------------------------------------------------------------
56
Condensed Consolidating
Balance Sheets Non-issuer/ Dresser Halliburton Consolidated
December 31, 2000 Non-guarantor Industries, Inc. Company Consolidating Halliburton
Millions of dollars Subsidiaries (Issuer) (Guarantor) Adjustments Company
- -----------------------------------------------------------------------------------------------------------------------
Assets
Current assets:
Cash and equivalents $ 216 $ 11 $ 4 $ - $ 231
Receivables:
Notes and accounts receivable, net 2,966 63 - - 3,029
Unbilled work on uncompleted contracts 816 - - - 816
- -----------------------------------------------------------------------------------------------------------------------
Total receivables 3,782 63 - - 3,845
Inventories 723 - - - 723
Other current assets 753 1 15 - 769
- -----------------------------------------------------------------------------------------------------------------------
Total current assets 5,474 75 19 - 5,568
Property, plant and equipment, net 2,410 - - - 2,410
Equity in and advances to
unconsolidated affiliates 258 142 - - 400
Intercompany receivable from
consolidated affiliates 68 - 2,138 (2,206) -
Equity in and advances to
consolidated affiliates - 6,558 4,220 (10,778) -
Net goodwill 510 87 - - 597
Other assets 1,109 5 14 - 1,128
- -----------------------------------------------------------------------------------------------------------------------
Total assets $ 9,829 $ 6,867 $ 6,391 $(12,984) $10,103
- -----------------------------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Current liabilities:
Accounts and notes payable $ 756 $ 64 $ 1,540 $ - $ 2,360
Other current liabilities 1,374 36 56 - 1,466
- -----------------------------------------------------------------------------------------------------------------------
Total current liabilities 2,130 100 1,596 - 3,826
Long-term debt 205 444 400 - 1,049
Intercompany payable from
consolidated affiliates - 2,206 - (2,206) -
Other liabilities 1,118 26 118 - 1,262
Minority interest in consolidated
subsidiaries 38 - - - 38
- -----------------------------------------------------------------------------------------------------------------------
Total liabilities 3,491 2,776 2,114 (2,206) 6,175
Shareholders' equity:
Common shares 391 - 1,132 (391) 1,132
Other shareholders' equity 5,947 4,091 3,145 (10,387) 2,796
- -----------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 6,338 4,091 4,277 (10,778) 3,928
- -----------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 9,829 $ 6,867 $ 6,391 $(12,984) $ 10,103
- -----------------------------------------------------------------------------------------------------------------------
57
Condensed Consolidating
Balance Sheets Non-issuer/ Dresser Halliburton Consolidated
December 31, 1999 Non-guarantor Industries, Inc. Company Consolidating Halliburton
Millions of dollars Subsidiaries (Issuer) (Guarantor) Adjustments Company
- -----------------------------------------------------------------------------------------------------------------------
Assets
Current assets:
Cash and equivalents $ 315 $ 44 $ 107 $ - $ 466
Receivables:
Notes and accounts receivable, net 2,282 61 6 - 2,349
Unbilled work on uncompleted contracts 625 - - - 625
- -----------------------------------------------------------------------------------------------------------------------
Total receivables 2,907 61 6 - 2,974
Inventories 723 - - - 723
Other current assets 1,198 - 1 - 1,199
- -----------------------------------------------------------------------------------------------------------------------
Total current assets 5,143 105 114 - 5,362
Property, plant and equipment, net 2,390 - - - 2,390
Equity in and advances to
unconsolidated affiliates 384 - - - 384
Intercompany receivable from
consolidated affiliates - - 2,525 (2,525) -
Equity in and advances to
consolidated affiliates - 6,126 3,308 (9,434) -
Net goodwill 411 94 - - 505
Other assets 993 5 - - 998
- -----------------------------------------------------------------------------------------------------------------------
Total assets $ 9,321 $ 6,330 $ 5,947 $(11,959) $ 9,639
- -----------------------------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Current liabilities:
Accounts and notes payable $ 758 $ 228 $ 926 $ - $ 1,912
Other current liabilities 671 425 25 - 1,121
- -----------------------------------------------------------------------------------------------------------------------
Total current liabilities 1,429 653 951 - 3,033
Long-term debt 213 443 400 - 1,056
Intercompany payable from
consolidated affiliates 628 1,897 - (2,525) -
Other liabilities 1,136 29 54 - 1,219
Minority interest in consolidated
subsidiaries 44 - - - 44
- -----------------------------------------------------------------------------------------------------------------------
Total liabilities 3,450 3,022 1,405 (2,525) 5,352
Shareholders' equity:
Common shares 391 - 1,120 (391) 1,120
Other shareholders' equity 5,480 3,308 3,422 (9,043) 3,167
- -----------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 5,871 3,308 4,542 (9,434) 4,287
- -----------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 9,321 $ 6,330 $ 5,947 $(11,959) $ 9,639
- -----------------------------------------------------------------------------------------------------------------------
58
Condensed Consolidating Statements
of Cash Flows Non-issuer/ Dresser Halliburton Consolidated
Year ended December 31, 2000 Non-guarantor Industries, Inc. Company Consolidating Halliburton
Millions of dollars Subsidiaries (Issuer) (Guarantor) Adjustments Company
- -----------------------------------------------------------------------------------------------------------------------
Net cash flows from operating activities $ (232) $ 114 $ 61 $ - $ (57)
Capital expenditures (578) - - - (578)
Sales of property, plant and equipment 209 - - - 209
Other investing activities (42) - 109 (109) (42)
Payments on long-term borrowings (8) (300) - - (308)
Net borrowings (repayments) of
short-term debt 17 - 612 - 629
Payments of dividends to shareholders - - (221) - (221)
Proceeds from exercises of stock options - - 105 - 105
Payments to reacquire common stock - - (769) - (769)
Other financing activities (282) 153 - 109 (20)
Effect of exchange rate changes on cash (9) - - - (9)
Net cash flows from discontinued
operations 826 - - - 826
- -----------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and
equivalents $ (99) $ (33) $ (103) $ - $ (235)
- -----------------------------------------------------------------------------------------------------------------------
Condensed Consolidating Statements
of Cash Flows Non-issuer/ Dresser Halliburton Consolidated
Year ended December 31, 1999 Non-guarantor Industries, Inc. Company Consolidating Halliburton
Millions of dollars Subsidiaries (Issuer) (Guarantor) Adjustments Company
- -----------------------------------------------------------------------------------------------------------------------
Net cash flows from operating activities $ (203) $ 53 $ 92 $ - $ (58)
Capital expenditures (520) - - - (520)
Sales of property, plant and equipment 118 - - - 118
Other investing activities 295 - (231) 231 295
Payments on long-term borrowings (9) - (50) - (59)
Net borrowings (repayments) of
short-term debt (27) - 463 - 436
Payments of dividends to shareholders - - (221) - (221)
Proceeds from exercises of stock options - - 49 - 49
Payments to reacquire common stock - - (10) - (10)
Other financing activities 237 (12) - (231) (6)
Effect of exchange rate on cash 5 - - - 5
Net cash flows from discontinued
operations 234 - - - 234
- -----------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and
equivalents $ 130 $ 41 $ 92 $ - $ 263
- -----------------------------------------------------------------------------------------------------------------------
59
Condensed Consolidating Statements
of Cash Flows Non-issuer/ Dresser Halliburton Consolidated
Year ended December 31, 1998 Non-guarantor Industries, Inc. Company Consolidating Halliburton
Millions of dollars Subsidiaries (Issuer) (Guarantor) Adjustments Company
- ----------------------------------------------------------------------------------------------------------------------
Net cash flows from operating activities $ 409 $ (337) $ 78 $ - $ 150
Capital expenditures (839) (2) - - (841)
Sales of property, plant and equipment 83 - - - 83
Other investing activities (23) - (634) 625 (32)
Borrowings of long-term debt - - 150 - 150
Payments on long-term borrowings (17) (11) - - (28)
Net borrowings (repayments) of
short-term debt (77) - 463 - 386
Payments of dividends to shareholders - (100) (154) - (254)
Proceeds from exercises of stock options - - 49 - 49
Payments to reacquire common stock - (16) (4) - (20)
Other financing activities 143 466 - (625) (16)
Effect of exchange rate on cash (5) - - - (5)
Net cash flows from discontinued
operations 235 - - - 235
- -----------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and
equivalents $ (91) $ - $ (52) $ - $ (143)
- -----------------------------------------------------------------------------------------------------------------------
60
HALLIBURTON COMPANY
Selected Financial Data
(Unaudited)
We have restated our prior year information to display Dresser Equipment Group
as discontinued operations.
Years ended December 31
Millions of dollars and shares ----------------------------------------------------------------------
except per share and employee data 2000 1999 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------
Operating results
Net revenues
Energy Services Group $ 7,916 $ 6,999 $ 9,009 $ 8,505 $ 6,515
Engineering and Construction Group 4,028 5,314 5,495 4,993 4,721
- ------------------------------------------------------------------------------------------------------------------------
Total revenues $ 11,944 $ 12,313 $ 14,504 $ 13,498 $ 11,236
- ------------------------------------------------------------------------------------------------------------------------
Operating income
Energy Services Group $ 526 $ 222 $ 971 $ 1,019 $ 698
Engineering and Construction Group 14 203 237 219 134
Special charges and credits (1) - 47 (959) 11 (86)
General corporate (78) (71) (79) (71) (72)
- ------------------------------------------------------------------------------------------------------------------------
Total operating income (1) 462 401 170 1,178 674
Nonoperating income (expense), net (2) (127) (94) (115) (82) (70)
- ------------------------------------------------------------------------------------------------------------------------
Income from continuing operations
before income taxes and minority interest 335 307 55 1,096 604
(Provision) benefit for income taxes (3) (129) (116) (155) (406) (158)
Minority interest in net income of consolidated
subsidiaries (18) (17) (20) (30) -
- ------------------------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations $ 188 $ 174 $ (120) $ 660 $ 446
- ------------------------------------------------------------------------------------------------------------------------
Income (loss) from discontinued operations $ 313 $ 283 $ 105 $ 112 $ 112
- ------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 501 $ 438 $ (15) $ 772 $ 558
- ------------------------------------------------------------------------------------------------------------------------
Basic income (loss) per common share
Continuing operations $ 0.42 $ 0.40 $ (0.27) $ 1.53 $ 1.04
Net income (loss) 1.13 1.00 (0.03) 1.79 1.30
Diluted income (loss) per common share
Continuing operations 0.42 0.39 (0.27) 1.51 1.03
Net income (loss) 1.12 0.99 (0.03) 1.77 1.29
Cash dividends per share 0.50 0.50 0.50 0.50 0.50
Return on average shareholders' equity 12.20% 10.49% (0.35%) 19.16% 15.25%
- ------------------------------------------------------------------------------------------------------------------------
Financial position
Net working capital $ 1,742 $ 2,329 $ 2,129 $ 1,985 $ 1,501
Total assets 10,103 9,639 10,072 9,657 8,689
Property, plant and equipment, net 2,410 2,390 2,442 2,282 2,047
Long-term debt (including current maturities) 1,057 1,364 1,426 1,303 957
Shareholders' equity 3,928 4,287 4,061 4,317 3,741
Total capitalization 6,555 6,590 5,990 5,647 4,828
Shareholders' equity per share 9.20 9.69 9.23 9.86 8.78
Average common shares outstanding (basic) 442 440 439 431 429
Average common shares outstanding (diluted) 446 443 439 436 432
- ------------------------------------------------------------------------------------------------------------------------
Other financial data
Capital expenditures $ (578) $ (520) $ (841) $ (804) $ (612)
Long-term borrowings (repayments), net (308) (59) 122 285 286
Depreciation and amortization expense 503 511 500 465 405
Payroll and employee benefits (4) (5,260) (5,647) (5,880) (5,479) (4,674)
Number of employees (4), (5) 93,000 103,000 107,800 102,000 93,000
- ------------------------------------------------------------------------------------------------------------------------
(continued on next page)
61
HALLIBURTON COMPANY
Selected Financial Data
(Unaudited)
(continued)
We have restated our prior year information to display Dresser Equipment Group
as discontinued operations.
Years ended December 31
Millions of dollars and shares ------------------------------------------------------------------------
except per share and employee data 1995 1994 1993 1992 1991
- --------------------------------------------------------------------------------------------------------------------------
Operating results
Net revenues
Energy Services Group $ 5,308 $ 4,978 $ 5,470 $ 5,038 $ 5,156
Engineering and Construction Group 3,737 3,562 3,675 4,410 4,721
- --------------------------------------------------------------------------------------------------------------------------
Total revenues $ 9,045 $ 8,540 $ 9,145 $ 9,448 $ 9,877
- --------------------------------------------------------------------------------------------------------------------------
Operating income
Energy Services Group $ 544 $ 406 $ 414 $ 303 $ 378
Engineering and Construction Group 97 71 76 32 48
Special charges and credits (1) (8) (19) (419) (294) (142)
General corporate (71) (56) (63) (58) (56)
- -------------------------------------------------------------------------------------------------------------------------
Total operating income (1) 562 402 8 (17) 228
Nonoperating income (expense), net (2) (34) 333 (61) (63) (23)
- --------------------------------------------------------------------------------------------------------------------------
Income from continuing operations
before income taxes and minority interest 528 735 (53) (80) 205
(Provision) benefit for income taxes (3) (167) (275) (18) (30) (117)
Minority interest in net income of consolidated
subsidiaries (1) (14) (24) (9) (19)
- --------------------------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations $ 360 $ 446 $ (95) $ (119) $ 69
- --------------------------------------------------------------------------------------------------------------------------
Income (loss) from discontinued operations $ 36 $ 97 $ 81 $ 49 $ 106
- --------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 381 $ 543 $ (14) $ (483) $ 182
- --------------------------------------------------------------------------------------------------------------------------
Basic income (loss) per common share
Continuing operations $ 0.83 $ 1.04 $ (0.23) $ (0.29) $ 0.17
Net income (loss) 0.88 1.26 (0.04) (1.18) 0.45
Diluted income (loss) per common share
Continuing operations 0.83 1.03 (0.23) (0.29) 0.17
Net income (loss) 0.88 1.26 (0.04) (1.18) 0.45
Cash dividends per share 0.50 0.50 0.50 0.50 0.50
Return on average shareholders' equity 10.44% 15.47% (0.43%) (12.72%) 4.16%
- --------------------------------------------------------------------------------------------------------------------------
Financial position
Net working capital $ 1,477 $ 2,197 $ 1,563 $ 1,423 $ 1,775
Total assets 7,723 7,774 8,087 7,480 8,029
Property, plant and equipment, net 1,865 1,631 1,747 1,741 1,754
Long-term debt (including current maturities) 667 1,119 1,129 872 927
Shareholders' equity 3,577 3,723 3,296 3,277 4,315
Total capitalization 4,378 4,905 4,746 4,179 5,266
Shareholders' equity per share 8.29 8.63 7.70 7.99 10.61
Average common shares outstanding (basic) 431 431 422 408 405
Average common shares outstanding (diluted) 432 432 422 408 406
- --------------------------------------------------------------------------------------------------------------------------
Other financial data
Capital expenditures $ (474) $ (358) $ (373) $ (405) $ (572)
Long-term borrowings (repayments), net (481) (120) 192 (187) 460
Depreciation and amortization expense 380 387 574 470 396
Payroll and employee benefits (4) (4,188) (4,222) (4,429) (4,590) (4,661)
Number of employees (4), (5) 89,800 86,500 90,500 96,400 104,500
- --------------------------------------------------------------------------------------------------------------------------
(continued on next page)
62
HALLIBURTON COMPANY
Selected Financial Data
(Unaudited)
(continued)
<FN>
(1) Operating income includes the following special charges and credits:
1999 - $47 million: reversal of a portion of the 1998 special charges.
1998 - $959 million: asset related charges ($491 million), personnel
reductions ($234 million), facility consolidations ($124 million), merger
transaction costs ($64 million), and other related costs ($46 million).
1997 - $11 million: merger costs ($9 million), write-downs on impaired
assets and early retirement incentives ($10 million), losses from the sale
of assets ($12 million), and gain on extension of joint venture ($42
million).
1996 - $86 million: merger costs ($13 million), restructuring, merger and
severance costs ($62 million), and write-off of acquired in-process
research and development costs ($11 million).
1995 - $8 million: restructuring costs ($5 million) and write-off of
acquired in-process research and development costs ($3 million).
1994 - $19 million: merger costs ($27 million), litigation ($10 million),
and litigation and insurance recoveries ($18 million).
1993 - $419 million: loss on sale of business ($322 million), merger costs
($31 million), restructuring ($5 million), litigation ($65 million), and
gain on curtailment of medical plan ($4 million).
1992 - $294 million: merger costs ($273 million) and restructuring and
severance ($21 million).
1991 - $142 million: restructuring ($121 million) and loss on sale of
business ($21 million).
(2) Nonoperating income in 1994 includes a gain of $276 million from the sale
of an interest in Western Atlas International, Inc. and a gain of $102
million from the sale of our natural gas compression business.
(3) Provision for income taxes in 1996 includes tax benefits of $44 million due
to the recognition of net operating loss carryforwards and the settlement
of various issues with the Internal Revenue Service.
(4) Includes employees of Dresser Equipment Group which is accounted for as
discontinued operations.
(5) Does not include employees of 50% or less owned affiliated companies.
</FN>
63
HALLIBURTON COMPANY
Quarterly Data and Market Price Information
(Unaudited)
Quarter
--------------------------------------------------------
Millions of dollars except per share data First Second Third Fourth Year
- -----------------------------------------------------------------------------------------------------------------------------
2000
Revenues $ 2,859 $ 2,868 $ 3,024 $ 3,193 $11,944
Operating income (1) 81 126 248 7 462
Income (loss) from continuing operations 27 52 130 (21) 188
Income from discontinued operations 22 23 27 26 98
Gain on disposal of discontinued operations 215 - - - 215
Net income 264 75 157 5 501
Earnings per share:
Basic income (loss) per common share:
Income (loss) from continuing operations 0.06 0.12 0.29 (0.05) 0.42
Income from discontinued operations 0.05 0.05 0.06 0.06 0.22
Gain on disposal of discontinued operations 0.49 - - - 0.49
Net income 0.60 0.17 0.35 0.01 1.13
Diluted income (loss) per common share:
Income (loss) from continuing operations 0.06 0.12 0.29 (0.05) 0.42
Income from discontinued operations 0.05 0.05 0.06 0.06 0.22
Gain on disposal of discontinued operations 0.48 - - - 0.48
Net income 0.59 0.17 0.35 0.01 1.12
Cash dividends paid per share 0.125 0.125 0.125 0.125 0.50
Common stock prices (2)
High 44.50 51.56 54.69 50.38 54.69
Low 33.69 37.75 41.69 33.38 33.38
- -----------------------------------------------------------------------------------------------------------------------------
1999 (3)
Revenues $ 3,261 $ 3,053 $ 2,973 $ 3,026 $12,313
Operating income (4) 98 143 81 79 401
Income from continuing operations before change
in accounting method (4) 53 55 38 28 174
Income from discontinued operations 28 28 20 48 124
Gain on disposal of discontinued operations - - - 159 159
Change in accounting method (19) - - - (19)
Net income (4) 62 83 58 235 438
Earnings per share:
Basic income per common share:
Income from continuing operations before
change in accounting method (4) 0.12 0.13 0.09 0.06 0.40
Income from discontinued operations 0.06 0.06 0.04 0.11 0.28
Gain on disposal of discontinued operations - - - 0.36 0.36
Change in accounting method (0.04) - - - (0.04)
Net income 0.14 0.19 0.13 0.53 1.00
Diluted income per common share:
Income from continuing operations before
change in accounting method (4) 0.12 0.13 0.09 0.06 0.39
Income from discontinued operations 0.06 0.06 0.04 0.11 0.28
Gain on disposal of discontinued operations - - - 0.36 0.36
Change in accounting method (0.04) - - - (0.04)
Net income 0.14 0.19 0.13 0.53 0.99
Cash dividends paid per share 0.125 0.125 0.125 0.125 0.50
Common stock prices (2)
High 41.19 47.94 51.44 44.13 51.44
Low 28.25 35.00 39.06 33.88 28.25
- -----------------------------------------------------------------------------------------------------------------------------
(continued on next page)
64
HALLIBURTON COMPANY
Quarterly Data and Market Price Information
(Unaudited)
(continued)
<FN>
(1) Includes pretax job losses and severance for engineering and construction
contracts and related restructuring of $193 million ($118 million after-tax
or $0.27 per diluted share) in the fourth quarter of 2000.
(2) New York Stock Exchange - composite transactions high and low closing
price.
(3) Amounts for revenues, operating income, net income, and earnings per share
have been restated to show Dresser Equipment Group as discontinued
operations.
(4) Includes pretax special charge credit of $47 million ($32 million after-tax
or $0.07 per diluted share) in the second quarter of 1999.
</FN>
65
PART III
Item 10. Directors and Executive Officers of Registrant.
The information required for the directors of the Registrant is
incorporated by reference to the Halliburton Company Proxy Statement dated March
20, 2001, under the caption "Election of Directors." The information required
for the executive officers of the Registrant is included under Part I on pages 8
and 9 of this annual report.
Item 11. Executive Compensation.
This information is incorporated by reference to the Halliburton
Company Proxy Statement dated March 20, 2001, 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 Plans," "Employment Contracts and Termination of
Employment and Change-in-Control Arrangements" and "Directors' Compensation,
Restricted Stock Plan and Retirement Plan."
Item 12(a). Security Ownership of Certain Beneficial Owners and Management.
This information is incorporated by reference to the Halliburton
Company Proxy Statement dated March 20, 2001, 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 20, 2001, 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.
This information is incorporated by reference to the Halliburton
Company Proxy Statement dated March 20, 2001, under the caption "Certain
Relationships and Related Transactions."
66
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) 1. Financial Statements:
The report of Arthur Andersen LLP, Independent Public Accountants,
and the financial statements of the Company as required by Part II,
Item 8, are included on pages 21 through 60 and pages 64 and 65 of
this annual report. See index on page 11.
2. Financial Statement Schedules: Page No.
Report on supplemental schedule of Arthur
Andersen LLP 75
Schedule II - Valuation and qualifying accounts
for the three years ended December 31, 2000 76
Note: All schedules not filed with this report required by
Regulation S-X have been omitted as not applicable or not required
or the information required has been included in the notes to
financial statements.
3. Exhibits:
Exhibit
Number Exhibits
3.1 Restated Certificate of Incorporation of Halliburton
Company filed with the Secretary of State of Delaware on
July 23, 1998 (incorporated by reference to Exhibit 3(a)
to Halliburton's Form 10-Q for the quarter ended June
30, 1998).
3.2 By-laws of Halliburton revised effective May 16, 2000
(incorporated by reference to Exhibit 3 to Halliburton's
Form 10-Q for the quarter ended June 30, 2000).
4.1 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).
4.2 Senior Indenture dated as of January 2, 1991 between the
Predecessor and Texas Commerce Bank National Association,
as trustee (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
and amended by the First Supplemental Indenture dated as
of December 12, 1996 among the Predecessor, Halliburton
and the Trustee (incorporated by reference to Exhibit 4.1
of Halliburton's Registration Statement on Form 8-B dated
December 12, 1996, File No. 1-03492).
4.3 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
predecessor 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).
4.4 Form of debt security of 6.75% Notes due February 1, 2027
(incorporated by reference to Exhibit 4.1 to Halliburton's
Form 8-K dated as of February 11, 1997).
67
4.5 Second Senior Indenture dated as of December 1, 1996
between the Predecessor and Texas Commerce Bank National
Association, as Trustee, as supplemented and amended by
the First Supplemental Indenture dated as of December 5,
1996 between the Predecessor and the Trustee and the
Second Supplemental Indenture dated as of December 12,
1996 among the Predecessor, Halliburton and the Trustee
(incorporated by reference to Exhibit 4.2 of Halliburton's
Registration Statement on Form 8-B dated December 12,
1996, File No. 1-03492).
4.6 Third Supplemental Indenture dated as of August 1, 1997
between Halliburton and Texas Commerce Bank National
Association, as Trustee, to the Second Senior Indenture
dated as of December 1, 1996 (incorporated by reference to
Exhibit 4.7 to Halliburton's Form 10-K for the year ended
December 31, 1998).
4.7 Fourth Supplemental Indenture dated as of September 29,
1998 between Halliburton 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 (incorporated by reference to
Exhibit 4.8 to Halliburton's Form 10-K for the year ended
December 31, 1998).
4.8 Resolutions of Halliburton's Board of Directors adopted by
unanimous consent dated December 5, 1996 (incorporated by
reference to Exhibit 4(g) of Halliburton's Form 10-K for
the year ended December 31, 1996).
4.9 Resolutions of Halliburton's Board of Directors adopted at
a special meeting held on September 28, 1998 (incorporated
by reference to Exhibit 4.10 to Halliburton's Form 10-K
for the year ended December 31, 1998).
4.10 Restated Rights Agreement dated as of December 1, 1996
between Halliburton and Mellon Investor Services LLC
(formerly 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).
4.11 Copies of instruments that define the rights of holders of
miscellaneous long-term notes of Halliburton and its
subsidiaries, totaling $18 million in the aggregate at
December 31, 2000, have not been filed with the
Commission. Halliburton agrees to furnish copies of these
instruments upon request.
4.12 Form of debt security of 7.53% Notes due May 12, 2017
(incorporated by reference to Exhibit 4.4 to Halliburton's
Form 10-Q for the quarter ended March 31, 1997).
4.13 Form of debt security of 6.30% Notes due August 5, 2002
(incorporated by reference to Exhibit 4.1 to Halliburton's
Form 8-K dated as of August 5, 1997).
4.14 Form of debt security of 5.63% Notes due December 1, 2008
(incorporated by reference to Exhibit 4.1 to Halliburton's
Form 8-K dated as of November 24, 1998).
68
4.15 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
filed by Baroid Corporation, 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).
4.16 Second Supplemental Indenture dated October 30, 1997
between Dresser and Texas Commerce Bank National
Association, as Trustee, for 8% Senior Notes due 2003
(incorporated by reference to Exhibit 4.19 to
Halliburton's Form 10-K for the year ended December 31,
1998).
4.17 Third Supplemental Indenture dated September 29, 1998
between Dresser, Halliburton, as Guarantor, and Chase Bank
of Texas, National Association, as Trustee, for 8% Senior
Notes due 2003 (incorporated by reference to Exhibit 4.20
to Halliburton's Form 10-K for the year ended December 31,
1998).
4.18 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 Form 10-K for the year
ended December 31, 1992).
10.2 Retirement Plan for the Directors of Halliburton Company
as amended and restated effective May 16, 2000
(incorporated by reference to Exhibit 10.2 to
Halliburton's Form 10-Q for the quarter ended September
30, 2000).
* 10.3 Halliburton Company Directors' Deferred Compensation Plan
as amended and restated effective February 1, 2001.
10.4 Halliburton Company 1993 Stock and Long-Term Incentive
Plan, as amended and restated effective May 16, 2000
(incorporated by reference to Exhibit 10.3 to
Halliburton's Form 10-Q for the quarter ended June 30,
2000).
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).
10.6 Halliburton Elective Deferral Plan, as amended and
restated effective January 1, 2000 (incorporated by
reference to Exhibit 10.1 to Halliburton's Form 10-Q for
the quarter ended March 31, 2000).
10.7 First Amendment to the Elective Deferral Plan
(incorporated by reference to Exhibit 10.4 to
Halliburton's Form 10-Q for the quarter ended September
30, 2000).
69
10.8 Employment agreement (incorporated by reference to Exhibit
10 to the Predecessor's Form 10-Q for the quarter ended
September 30, 1995).
10.9 Halliburton Company Senior Executives' Deferred
Compensation Plan, as amended and restated effective
January 1, 1999 (incorporated by reference to Exhibit 10.8
to Halliburton's Form 10-K for the year ended December 31,
1998).
10.10 Halliburton Company Annual Performance Pay Plan, as
amended and restated effective January 1, 1997
(incorporated by reference to Exhibit 10(k) to
Halliburton's Form 10-K for the year ended December 31,
1996).
10.11 Employment agreement (incorporated by reference to Exhibit
10(n) to the Predecessor's Form 10-K for the year ended
December 31, 1995).
10.12 Employment agreement and amendment thereto (incorporated
by reference to Exhibit 10(b) to Halliburton's Form 10-Q
for the quarter ended September 30, 1998).
10.13 Employment agreement (incorporated by reference to Exhibit
10.16 to Halliburton's Form 10-K for the year ended
December 31, 1998).
10.14 Employment agreement (incorporated by reference to Exhibit
10.17 to Halliburton's Form 10-K for the year ended
December 31, 1998).
10.15 Employment agreement (incorporated by reference to Exhibit
10.19 to Halliburton's Form 10-K for the year ended
December 31, 1998).
* 10.16 Dresser Industries, Inc. Deferred Compensation Plan as
amended and restated effective January 1, 2000.
10.17 Dresser Industries, Inc. 1982 Stock Option 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).
10.18 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).
10.19 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).
10.20 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 year ended October 31,
1997).
10.21 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).
10.22 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).
70
* 10.23 Long-Term Performance Plan for Selected Employees of The
M. W. Kellogg Company, as amended and restated effective
September 1, 1999.
10.24 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).
10.25 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).
10.26 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).
10.27 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).
10.28 Form of Executive Life Insurance Agreement (individual as
beneficiary) (incorporated by reference to Exhibit 10.22
to Dresser's Form 10-K for the year ended October 31,
1997).
10.29 Form of Executive Life Insurance Agreement (trust as
beneficiary) (incorporated by reference to Exhibit 10.23
to Dresser's Form 10-K for the year ended October 31,
1997).
10.30 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 year ended October
31, 1997).
10.31 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).
10.32 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 quarter ended January 31, 1998).
10.33 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
quarter ended April 30, 1998).
10.34 Halliburton Executive Performance Plan effective January
1, 2000 (incorporated by reference to Exhibit 10.2 to
Halliburton's Form 10-Q for the quarter ended March 31,
2000).
10.35 Employment agreement (incorporated by reference to Exhibit
10.1 to Halliburton's Form 10-Q for the quarter ended June
30, 2000).
10.36 Employment agreement (incorporated by reference to Exhibit
10.2 to Halliburton's Form 10-Q for the quarter ended June
30, 2000).
10.37 Employment agreement (incorporated by reference to Exhibit
10.1 to Halliburton's Form 10-Q for the quarter ended
September 30, 2000).
71
10.38 Form of Nonstatutory Stock Option Agreement for
Non-Employee Directors (incorporated by reference to
Exhibit 10.3 to Halliburton's Form 10-Q for the quarter
ended September 30, 2000).
* 10.39 Employment agreement.
10.40 Agreement and Plan of Recapitalization dated as of January
30, 2001 (incorporated by reference to Halliburton's Form
8-K/A dated as of March 6, 2001).
* 21 Subsidiaries of the Registrant.
* 23 Consent of Arthur Andersen LLP.
24.1 Powers of attorney for the following directors signed in
February, 1997 (incorporated by reference to Exhibit 24 to
Halliburton's Form 10-K for the year ended December 31,
1996):
Lord Clitheroe
Robert L. Crandall
W. R. Howell
C. J. Silas
24.2 Power of attorney signed in December, 1997 for Charles J.
DiBona (incorporated by reference to Exhibit 24(b) to
Halliburton's Form 10-K for the year ended December 31,
1997).
24.3 Powers of attorney for the following directors signed in
October, 1998 (incorporated by reference to Exhibit 24.3
to Halliburton's Form 10-K for the year ended December 31,
1998):
Lawrence S. Eagleburger
Ray L. Hunt
J. Landis Martin
Jay A. Precourt
* Filed with this Form 10-K.
(b) Reports on Form 8-K:
Date of
Date Filed Earliest Event Description of Event
- -------------------------------------------------------------------------------------------------------------------
During the fourth quarter of 2000:
October 25, 2000 October 23, 2000 Item 5. Other Events for a press release announcing Brown & Root
Services is a defendant in litigation alleging that Brown & Root
Services violated provisions of the False Claims Act while
performing work for the U.S. Army at Fort Ord, California. The
U.S. Department of Justice has now advised Brown & Root Services
that Brown & Root Services is the target of a federal grand jury
investigation regarding the contract issues raised in the
litigation.
72
Date of
Date Filed Earliest Event Description of Event
- -------------------------------------------------------------------------------------------------------------------
During the fourth quarter of 2000 (continued):
October 27, 2000 October 24, 2000 Item 5. Other Events for a press release announcing 2000 third
quarter earnings.
October 27, 2000 October 26, 2000 Item 5. Other Events for a press release announcing that the
board of directors has declared fourth quarter dividend of 12.5
cents a share on common stock payable December 21, 2000 to
shareholders of record at the close of business on November 30,
2000.
December 22, 2000 December 21, 2000 Item 5. Other Events for a press release announcing Halliburton
concerns regarding the poor near-term market outlook for the
downstream engineering and construction business. The Company
will record approximately $120 million after-tax charges in the
fourth quarter.
During the first quarter of 2001 to date:
January 2, 2001 January 2, 2001 Item 5. Other Events for a press release announcing Halliburton
and Landmark Graphics Corporation, a wholly owned business unit
of Halliburton, have a definitive agreement to acquire PGS Data
Management (PGSDM), a division of Petroleum Geo-Services ASA.
January 3, 2001 January 2, 2001 Item 5. Other Events for a press release announcing that
Halliburton board of directors approved the acquisition of PGS
Data Management division of Petroleum Geo-Services ASA.
Completion of the transaction remains subject to various
regulatory and other approvals, as well as the finalization of
ancillary agreements.
February 2, 2001 January 31, 2001 Item 5. Other Events for a press release announcing Halliburton
has executed a definitive agreement to sell its Dresser Equipment
Group to an investor group consisting of First Reserve
Corporation, Odyssey Investment Partners, LLC and members of the
existing DEG management team. Total consideration for the
transaction is $1.55 billion in cash and assumed liabilities.
Halliburton expects to recognize a pretax gain of about $500
million and after-tax gain of about $300 million upon closing.
Halliburton will receive approximately $1.1 billion in cash after
taxes on the sale of DEG. As part of the terms of the
transaction, Halliburton will retain a five percent equity
interest in DEG after closing.
73
Date of
Date Filed Earliest Event Description of Event
- -------------------------------------------------------------------------------------------------------------------
During the first quarter of 2001 to date (continued):
February 20, 2001 February 15, 2001 Item 5. Other Events for a press release announcing
Halliburton's board of directors declared a first quarter
dividend of 12.5 cents per share on common stock.
March 6, 2001 January 31, 2001 Item 5. Other Events for the Agreement and Plan of Recapitalization
dated January 30, 2001 among Halliburton Company, Dresser B.V. and
DEG Acquisitions, LLC.
March 13, 2001 March 12, 2001 Item 5. Other Events for a press release announcing the acquisition of
PGS Data Management division.
March 23, 2001 March 22, 2001 Item 5. Other Events for a press release announcing Halliburton plans
to appeal the Delaware Chancery Court ruling against Halliburton Company
and its subsidiary, Kellogg Brown & Root, Inc., in litigation involving
Highlands Insurance Group, Inc.
74
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON SUPPLEMENTAL SCHEDULE
To the Shareholders and Board of Directors
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 30, 2001 (except with respect to the matters
discussed in Notes 9 and 19, as to which the date is March 23, 200l). Our audits
were made for the purpose of forming an opinion on those 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 the audits of the basic financial statements and, in our
opinion, is fairly stated in all material respects in relation to the basic
financial statements taken as a whole.
/s/ ARTHUR ANDERSEN LLP
---------------------------
ARTHUR ANDERSEN LLP
Dallas, Texas,
January 30, 2001 (Except with respect to the matters discussed in Notes 9
and 19, as to which the date is March 23, 2001.)
75
HALLIBURTON COMPANY
Schedule II - Valuation and Qualifying Accounts
(Millions of Dollars)
The table below presents valuation and qualifying accounts for continuing
operations.
Additions
------------------------------
Balance at Charged to Charged to Balance at
Beginning Costs and Other End of
Descriptions of Period Expenses Accounts Deductions Period
- -------------------------------------------------------------------------------------------------------------------------------
Year ended December 31, 1998:
Deducted from accounts and notes receivable:
Allowance for bad debts $ 48 $ 25 $ - $ (7) (1) $ 66
- -------------------------------------------------------------------------------------------------------------------------------
Reserve for repairs and maintenance $ 16 $ 3 $ - $ (5) $ 14
- -------------------------------------------------------------------------------------------------------------------------------
Accrued special charges $ - $ 875 $ - $ (518) $ 357
- -------------------------------------------------------------------------------------------------------------------------------
Year ended December 31, 1999:
Deducted from accounts and notes receivable:
Allowance for bad debts $ 66 $ 49 $ - $ (21) (1) $ 94
- -------------------------------------------------------------------------------------------------------------------------------
Reserve for repairs and maintenance $ 14 $ 4 $ - $ (3) $ 15
- -------------------------------------------------------------------------------------------------------------------------------
Accrued special charges $ 357 $ - $ - $ (288) (2) $ 69
- -------------------------------------------------------------------------------------------------------------------------------
Year ended December 31, 2000:
Deducted from accounts and notes receivable:
Allowance for bad debts $ 94 $ 39 $ - $ (8) (1) $ 125
- -------------------------------------------------------------------------------------------------------------------------------
Reserve for repairs and maintenance $ 15 $ 4 $ - $ (5) $ 14
- -------------------------------------------------------------------------------------------------------------------------------
Accrued special charges $ 69 $ - $ - $ (63) (3) $ 6
- -------------------------------------------------------------------------------------------------------------------------------
Accrued reorganization charges $ - $ 36 $ - $ (20) $ 16
- -------------------------------------------------------------------------------------------------------------------------------
<FN>
(1) Receivable write-offs and reclassifications, net of recoveries.
(2) Includes $47 million reversal of special charges taken in 1998 and $14 million for items of a long-term nature reclassified
to employee compensation and benefits in 1999.
(3) Includes $9 million for items of a long-term nature reclassified to other liabilities in 2000.
</FN>
76
SIGNATURES
As required by Section 13 or 15(d) of the Securities Exchange Act of 1934, the
registrant has authorized this report to be signed on its behalf by the
undersigned authorized individuals, on this 27th day of March, 2001.
HALLIBURTON COMPANY
By /s/ David J. Lesar
--------------------------------------
David J. Lesar
Chairman of the Board,
President and Chief Executive Officer
As required by the Securities Exchange Act of 1934, this report has been signed
below by the following persons in the capacities indicated on this 27th day
of March, 2001.
Signature Title
- --------- -----
/s/ David J. Lesar
- --------------------------------------- Chairman of the Board, President and
David J. Lesar Chief Executive Officer
/s/ Gary V. Morris
- --------------------------------------- Executive Vice President and
Gary V. Morris Chief Financial Officer
/s/ R. Charles Muchmore, Jr.
- --------------------------------------- Vice President and Controller and
R. Charles Muchmore, Jr. Principal Accounting Officer
77
Signature Title
- --------- -----
* LORD CLITHEROE Director
- ---------------------------------------
Lord Clitheroe
*ROBERT L. CRANDALL Director
- ---------------------------------------
Robert L. Crandall
* CHARLES J. DIBONA Director
- ---------------------------------------
Charles J. DiBona
* LAWRENCE S. EAGLEBURGER Director
- ---------------------------------------
Lawrence S. Eagleburger
* W. R. HOWELL Director
- ---------------------------------------
W. R. Howell
* RAY L. HUNT Director
- ---------------------------------------
Ray L. Hunt
* J. LANDIS MARTIN Director
- ---------------------------------------
J. Landis Martin
* JAY A. PRECOURT Director
- ---------------------------------------
Jay A. Precourt
* C. J. SILAS Director
- ---------------------------------------
C. J. Silas
* /s/ SUSAN S. KEITH
- ---------------------------------------
Susan S. Keith, Attorney-in-fact
78