FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended September 30, 1995
OR
[ ] 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
(a Delaware Corporation)
73-0271280
3600 Lincoln Plaza
500 N. Akard
Dallas, Texas 75201
Telephone Number - Area Code (214) 978-2600
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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common stock, par value $2.50 per share:
Outstanding at October 31, 1995 114,387,423
INDEX
Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at September 30, 1995 2
and December 31, 1994
Condensed Consolidated Statements of Income for the three and
nine months ended September 30, 1995 and 1994 3
Condensed Consolidated Statements of Cash Flows for the 4
nine months ended September 30, 1995 and 1994
Notes to Condensed Consolidated Financial Statements 5 - 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9 - 11
PART II. OTHER INFORMATION
Item 6. Listing of Exhibits and Reports on Form 8-K 12 - 13
Signatures 14
Exhibits: By-laws of the Company, as amended through September 14, 1995
to be effective October 1, 1995 15 - 32
Employment agreement 33 - 59
Computation of earnings per common share for the three and
nine months ended September 30, 1995 and 1994 60
Financial data schedule for the quarter ended September 30,
1995 (included only in the copy of this report filed
electronically with the Commission). 61
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
HALLIBURTON COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30 December 31
1995 1994
------------ ------------
Millions of dollars and shares
ASSETS
Cash and equivalents $ 70.8 $ 375.3
Receivables:
Notes and accounts receivable 1,124.3 1,101.8
Unbilled work on uncompleted contracts 223.3 173.4
Refundable Federal income taxes - 13.4
------------ ------------
Total receivables 1,347.6 1,288.6
Inventories 277.4 268.9
Assets held for sale - 26.3
Deferred income taxes 94.3 64.7
Other current assets 103.9 95.2
------------ ------------
Total current assets 1,894.0 2,119.0
Property, plant and equipment,
less accumulated depreciation of $2,254.2 and $2,334.9 1,074.5 1,074.8
Equity in and advances to related companies 123.8 94.6
Deferred income taxes 26.9 55.8
Net assets of discontinued operations 264.3 295.8
Other assets 374.7 374.6
------------ ------------
Total assets $ 3,758.2 $ 4,014.6
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Short-term notes payable $ 24.0 $ 30.7
Current maturities of long-term debt 20.7 20.1
Accounts payable 319.1 251.4
Accrued employee compensation and benefits 110.2 159.4
Advance billings on uncompleted contracts 229.7 163.3
Other current liabilities 298.7 235.6
------------ ------------
Total current liabilities 1,002.4 860.5
Long-term debt 231.5 623.0
Reserve for employee compensation and benefits 265.5 242.3
Deferred credits and other liabilities 290.2 346.6
------------ ------------
Total liabilities 1,789.6 2,072.4
------------ ------------
Commitments and contingencies
Shareholders' equity:
Common stock, par value $2.50 per share -
authorized 200.0 shares, issued 119.1 shares 297.6 297.7
Paid-in capital in excess of par value 201.2 201.7
Cumulative translation adjustment (26.5) (23.1)
Retained earnings 1,653.0 1,629.7
------------ ------------
2,125.3 2,106.0
Less 4.8 and 5.0 shares of treasury stock, at cost 156.7 163.8
------------ ------------
Total shareholders' equity 1,968.6 1,942.2
------------ ------------
Total liabilities and shareholders' equity $ 3,758.2 $ 4,014.6
============ ============
<FN>
See notes to condensed consolidated financial statements.
</FN>
HALLIBURTON COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Three Months Nine Months
Ended September 30 Ended September 30
--------------------------- ----------------------------
1995 1994 1995 1994
----------- ----------- ----------- -----------
Millions of dollars except per share data
Revenues
Energy services $ 683.0 $ 642.8 $ 1,881.6 $ 1,847.4
Engineering and construction services 806.8 704.8 2,279.7 2,185.1
----------- ----------- ----------- -----------
Total revenues $ 1,489.8 $ 1,347.6 $ 4,161.3 $ 4,032.5
Operating income
Energy services $ 88.2 $ 81.9 $ 211.5 $ 95.2
Engineering and construction services 31.2 20.2 80.2 45.8
General corporate expenses (8.3) (5.5) (21.9) (17.6)
----------- ----------- ----------- -----------
Total operating income 111.1 96.6 269.8 123.4
Interest expense (15.0) (12.6) (40.1) (33.6)
Interest income 10.0 2.7 24.2 8.4
Foreign currency (losses) gains (2.5) (1.7) 0.6 (15.2)
Other nonoperating income, net 0.3 (0.8) 0.5 0.4
----------- ----------- ----------- -----------
Income from continuing operations before
income taxes and minority interest 103.9 84.2 255.0 83.4
Provision for income taxes (34.9) (35.0) (92.1) (33.3)
Minority interest in net income (loss) of subsidiaries (0.2) 0.3 (1.0) -
----------- ----------- ----------- -----------
Income from continuing operations 68.8 49.5 161.9 50.1
Income (loss) from discontinued operations, net of
income taxes (67.7) 2.2 (65.5) 0.2
----------- ----------- ----------- -----------
Net income $ 1.1 $ 51.7 $ 96.4 $ 50.3
=========== =========== =========== ===========
Average number of common and common share
equivalents outstanding 114.6 114.2 114.4 114.2
Income (loss) per share
Continuing operations $ 0.60 $ 0.43 $ 1.41 $ 0.44
Discontinued operations (0.59) 0.02 (0.57) -
----------- ----------- ----------- -----------
Net income $ 0.01 $ 0.45 $ 0.84 $ 0.44
=========== =========== =========== ===========
Cash dividends paid per share 0.25 0.25 0.75 0.75
<FN>
See notes to condensed consolidated financial statements.
</FN>
HALLIBURTON COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months
Ended September 30
-------------------------------
1995 1994
------------ ------------
Millions of dollars
Cash flows from operating activities:
Net income $ 96.4 $ 50.3
Adjustments to reconcile net income to net cash
from operating activities:
Depreciation and amortization 182.7 194.1
Provision for deferred income taxes 7.7 46.4
Net (income) loss from discontinued operations 65.5 (0.2)
Other non-cash items (22.8) 12.7
Other changes, net of non-cash items:
Receivables (38.5) 106.1
Inventories (8.2) 45.1
Accounts payable 27.9 (76.8)
Other working capital, net 72.6 180.3
Other, net (30.3) (274.0)
------------ ------------
Total cash flows from operating activities 353.0 284.0
------------ ------------
Cash flows from investing activities:
Capital expenditures (186.8) (153.3)
Sales of property, plant and equipment 25.6 40.2
Sales of subsidiary companies 11.9 185.1
Other investing activities (8.8) (6.4)
------------ ------------
Total cash flows from investing activities (158.1) 65.6
------------ ------------
Cash flows from financing activities:
Payments on long-term borrowings (405.9) (68.3)
Borrowings (repayments) of short-term debt (7.5) (73.7)
Payments of dividends to shareholders (85.7) (85.6)
Other financing activities 1.0 (0.5)
------------ ------------
Total cash flows from financing activities (498.1) (228.1)
------------ ------------
Effect of exchange rate changes on cash (1.3) (3.2)
------------ ------------
Increase (decrease) in cash and equivalents (304.5) 118.3
Cash and equivalents at beginning of year 375.3 7.5
------------ ------------
Cash and equivalents at end of period $ 70.8 $ 125.8
============ ============
Cash payments (refunds) during the period for:
Interest $ 26.6 $ 25.8
Income taxes 21.5 (38.2)
<FN>
See notes to condensed consolidated financial statements.
</FN>
HALLIBURTON COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Management Representation
In the opinion of the Company, the accompanying unaudited condensed
consolidated financial statements include all adjustments necessary to present
fairly the Company's financial position as of September 30, 1995, and the
results of its operations for the three and nine months ended September 30, 1995
and 1994 and its cash flows for the nine months then ended. The results of
operations for the three and nine months ended September 30, 1995 and 1994 may
not be indicative of results for the full year. In connection with the
discontinuance of the Company's insurance segment, the Company has adopted a
classified balance sheet format. Certain prior year amounts have been
reclassified to conform with the current year presentation.
Note 2. Inventories
Consolidated inventories consisted of the following:
September 30 December 31
1995 1994
----------- -----------
Millions of dollars
Sales items $ 96.6 $ 97.2
Supplies and parts 128.0 128.8
Work in process 34.1 23.9
Raw materials 18.7 19.0
----------- -----------
Total $ 277.4 $ 268.9
=========== ===========
About one-half of all sales items (including related work in process and
raw materials) are valued using the last-in, first-out (LIFO) method. If the
average cost method had been in use for inventories on the LIFO basis, total
inventories would have been about $19.7 million and $21.9 million higher than
reported at September 30, 1995, and December 31, 1994, respectively.
Note 3. General and Administrative Expenses
General and administrative expenses were $33.8 million and $42.1 million
for the three months ended September 30, 1995 and 1994, respectively. General
and administrative expenses were $112.7 million and $142.6 million for the nine
months ended September 30, 1995 and 1994, respectively.
Note 4. Income Per Share
Income per share amounts are based upon the average number of common and
common share equivalents outstanding. Common share equivalents included in the
computation represent shares issuable upon assumed exercise of stock options
which have a dilutive effect.
Note 5. Related Companies
The Company conducts some of its operations through various joint venture
and other partnership forms which are accounted for using the equity method.
European Marine Contractors, Limited, (EMC) which is 50% owned by the Company
and part of Engineering and Construction Services, specializes in engineering,
procurement and construction of marine pipelines. Summarized operating results
for 100% of the operations of EMC are as follows:
Three Months Nine Months
Ended September 30 Ended September 30
-------------------------- ---------------------------
1995 1994 1995 1994
----------- ----------- ----------- -----------
Millions of dollars
Revenues $ 119.9 $ 131.5 $ 295.2 $ 321.1
=========== =========== =========== ===========
Operating income $ 33.4 $ 43.9 $ 87.3 $ 104.0
=========== =========== =========== ===========
Net income $ 21.7 $ 31.6 $ 56.7 $ 69.1
=========== =========== =========== ===========
Included in the Company's revenues for the three and nine months ended
September 30, 1995 are equity in income of related companies of $18.0 million
and $42.8 million, respectively. The amounts included in revenues for the three
and nine months ended September 30, 1994 are $26.5 million and $66.0 million,
respectively.
Note 6. Discontinued Operations
On October 11, 1995, the Company announced its intent to spin-off its
property and casualty insurance subsidiary, Highlands Insurance Group, Inc.
(HIGI), in a tax-free distribution to holders of Halliburton Company common
stock. Each common shareholder of the Company will receive one share of common
stock of HIGI for every ten shares of Halliburton Company common stock. The
record and distribution dates for the spin-off will be set later in 1995 when
the necessary regulatory reviews and approvals have been obtained.
After the spin-off transaction, HIGI will issue $60.0 million of
convertible subordinated debentures due December 31, 2005 with detachable Series
A and B Common Stock Purchase Warrants to Insurance Partners, L.P. and Insurance
Partners Offshore (Bermuda), L.P. (IP). .
Over the past three years, the Company has reviewed various divestiture
alternatives of HIGI in order to allow HIGI to pursue its strategies independent
of the core business segments of the Company. The spin-off of HIGI will
accomplish both objectives and allow the Company to exit the insurance services
business and focus on its core business segments of energy services and
engineering and construction services.
The following summarizes the results of operations of the discontinued
operations:
Three Months Nine Months
Ended September 30 Ended September 30
---------------------------- ----------------------------
1995 1994 1995 1994
------------ ------------ ------------ ------------
Millions of dollars
Revenues $ 65.7 $ 74.8 $ 203.5 $ 218.7
============ ============ ============ ============
Income (loss) before income taxes $ (130.1) $ 1.5 $ (126.3) $ 0.4
Benefit (provision) for income taxes 69.1 0.7 67.5 (0.2)
Loss on disposition (7.6) - (7.6) -
Benefit for income taxes 0.9 - 0.9 -
------------ ------------ ------------ ------------
Net income (loss) from
discontinued operations $ (67.7) $ 2.2 $ (65.5) $ 0.2
============ ============ ============ ============
In the third quarter of 1995, HIGI conducted an extensive review of its
loss and loss adjustment expense reserves to assess HIGI's reserve position in
light of actions taken by other major property and casualty insurers to increase
loss and loss adjustment expense reserves, particularly with regard to
environmental and asbestos claims. As a result of such review, HIGI increased
its reserves for loss and loss adjustment expenses and certain legal matters and
the Company also recognized the estimated expenses related to the spin-off
transaction and additional compensation costs and other regulatory and legal
provisions directly associated with discontinuing the insurance services
business segment as follows:
Income (loss)
before income Net income
taxes (loss)
-------------- -------------
Millions of dollars
Additional claim loss reserves for environmental
and asbestos exposure and other exposures $ (117.0) $ (76.4)
Realization of deferred income tax valuation allowance - 25.9
Provisions for legal matters (8.0) (5.2)
Expenses related to the spin-off transaction (7.6) (6.7)
Other insurance services expenses (7.4) (4.8)
-------------- -------------
Total charges $ (140.0) $ (67.2)
============== =============
The review of the insurance policies and reinsurance agreements was based
upon a recent actuarial study and HIGI management's best estimates using facts
and trends currently known, taking into consideration the current legislative
and legal environment. Developed case law and adequate claim history do not
exist for such claims. Estimates of the liability
are reviewed and updated
continually. Due to the significant uncertainties related to these type of
claims, past claim experience may not be representative of future claim
experience.
The Company also realized a valuation allowance for deferred tax assets
primarily related to HIGI's insurance claim loss reserves. The Company had
provided a valuation allowance for all temporary differences related to HIGI
based upon its intent announced in 1992 that it was pursuing the sale of HIGI. A
taxable transaction would have made it more likely than not that the related
benefit or future deductibility would not be realized. The spin-off transaction
will be tax-free and allows HIGI to retain its tax basis and the value of its
deferred tax asset.
The convertible subordinated debentures to be issued to IP will be
convertible into common stock of HIGI after one year from issuance at the option
of IP. HIGI can redeem the debentures at any time on or after December 31, 2002.
The number of conversion shares will be determined prior to the spin-off
transaction. Based upon shares of Halliburton outstanding on October 18, 1995,
IP would receive approximately 3.7 million shares of HIGI, or approximately 24%
ownership interest in HIGI, if all of the debentures are converted into common
stock of HIGI at a conversion price of $16.18 per share. Interest on the
debentures is payable semi-annually in cash at 10% per annum.
The detachable Series A Common Stock Purchase Warrants (Series A Warrants)
enable IP to purchase HIGI common stock at an exercise price of $14.71 per
share, equal to an additional ownership interest of approximately 20% after
giving effect to the assumed conversion of the debentures and the exercise of
the Series A Warrants. If all of the Series A Warrants were exercised, IP would
receive approximately 3.8 million shares of HIGI. The exercise price and the
number of shares of HIGI common stock into which the Series A Warrants are
exercisable will be subject to adjustment in certain circumstances. These
warrants expire on December 31, 2005.
The detachable Series B Common Stock Purchase Warrants (Series B Warrants)
enable IP to purchase shares of HIGI common stock at an exercise price of
$14.71, equal to an additional ownership interest of 5% after giving effect to
the assumed conversion of the debentures and the exercise of the Series A and B
Warrants. The Series B Warrants become exercisable by IP in the event that the
average closing market price of HIGI common stock exceeds 1.61 times the
exercise price for any 30 consecutive trading days prior to December 31, 2000
but after December 31, 1998. If all of the Series B Warrants were exercised, IP
would receive approximately 1.0 million additional shares of HIGI. The exercise
price and the number of shares of HIGI common stock into which the Series A
Warrants are exercisable will be subject to adjustment in certain circumstances.
The detachable Series B Warrants expire on December 31, 2005.
If the debentures are converted into common stock of HIGI and the Series A
and B Warrants are utilized by IP to purchase common stock of HIGI, IP will own
approximately 43% of HIGI.
The net assets and liabilities of HIGI relating to the spin-off transaction
have been segregated on the consolidated balance sheets from their historic
classifications to separately identify them as discontinued operations. Such
amounts are summarized as follows:
September 30 December 31
1995 1994
------------ ------------
ASSETS
Cash and equivalents $ 50.7 $ 52.8
Investments 642.6 630.2
Premiums receivable 214.9 207.9
Receivables from reinsurers 654.8 561.5
Receivables from affiliates 50.5 26.6
Deferred income taxes 30.4 -
Other assets 65.4 60.4
------------ ------------
Total assets $ 1,709.3 $ 1,539.4
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable and accrued liabilities $ 42.1 $ 15.9
Loss and loss adjustment expense reserves 1,320.2 1,149.2
Unearned premiums 53.7 51.2
Other liabilities 29.0 27.3
------------ ------------
Total liabilities 1,445.0 1,243.6
Shareholders' equity 264.3 295.8
------------ ------------
Total liabilities and shareholders' equity $ 1,709.3 $ 1,539.4
============ ============
Note 7. Long-term debt
During the first nine months of 1995, the Company redeemed the entire
outstanding principal amount of zero coupon convertible subordinated debentures
of $390.7 million and $15.0 million of its 4% notes. The Company redeemed $43.8
million of its 4% notes and $23.8 million principal amount of its 10.2%
debentures in the first nine months of 1994.
Note 8. Commitments and Contingencies
The Company is involved as a potentially responsible party (PRP) in
remedial activities to clean up various "Superfund" sites under applicable
Federal law which imposes joint and several liability, if the harm is
indivisible, on certain persons without regard to fault, the legality of the
original disposal, or ownership of the site. Although it is very difficult to
quantify the potential impact of compliance with environmental protection laws,
management of the Company believes that any liability of the Company with
respect to all but two of such sites will not have a material adverse effect on
the results of operations of the Company. With respect to a site in Jasper
County, Missouri (Jasper County Superfund Site), and a site in Nitro, West
Virginia (Fike/Artel Chemical Superfund Site), sufficient information has not
been developed to permit management to make such a determination and management
believes the process of determining the nature and extent of remediation at each
site and the total costs thereof will be lengthy.
Brown & Root, Inc. (Brown & Root), a subsidiary of the Company, has been
named as a PRP with respect to the Jasper County Superfund Site by the
Environmental Protection Agency (EPA). The Jasper County Superfund Site includes
areas of mining activity that occurred from the 1800's through the mid 1950's in
the Southwestern portion of Missouri. The site contains lead and zinc mine
tailings produced from mining activity. Brown & Root is one of nine
participating PRPs which have agreed to perform a Remedial
Investigation/Feasibility Study (RI/FS), which is not expected to be completed
until the third quarter of 1996. Although the entire Jasper County Superfund
Site comprises 237 square miles as listed on the National Priorities List, in
the RI/FS scope of work, the EPA has only identified seven areas, or subsites,
within this area that need to be studied and then possibly remediated by the
PRPs. Additionally, the Administrative Order on Consent for the RI/FS only
requires Brown & Root to perform RI/FS work at one of the subsites within the
site, the Neck/Alba subsite, which only comprises 3.95 square miles. Brown &
Root's share of the cost of such a study is not expected to be material. Brown &
Root cannot determine the extent of its liability, if any, for remediation costs
on any reasonably practicable basis.
The Company is one of 32 companies that have been designated as PRPs at
the Fike/Artel Chemical Superfund Site. The six "Operable Units" previously
established by the EPA in connection with remediation activities for the site
have been consolidated into four Operable Units and a Cooperative Sewage
Treatment facility ("CST"). On October 6, 1995, all but five of the PRPs signed
a settlement "in principle" with the EPA and the Department of Defense which
settled allocation percentages for each PRP for each operable unit and the CST.
A consent decree among all the PRPs, which will reconcile all of the issues, is
expected to be negotiated and executed by the end of the first quarter of 1996.
Based upon the settled allocation percentages and the most recent available
estimates, the Company's estimate of its share of remediation costs for this
site range in the aggregate from approximately $2.5 million to $4.9 million. All
of the PRPs appear to be financially capable of paying their portion of
remediation costs. Although the liability estimates associated with this site
could possibly change due to expanded or more expensive clean-up methodologies
elected and could significantly impact the results of operations of some future
reporting period, management believes, based on current knowledge, that its
share of costs at this site is unlikely to have a material adverse impact on the
Company's consolidated financial condition.
The Company and its subsidiaries are parties to various other legal
proceedings. Although the ultimate disposition of such proceedings is not
presently determinable, in the opinion of the Company any liability that might
ensue would not be material in relation to the consolidated financial position
of the Company.
Note 9. Acquisitions and Dispositions
The Company sold its natural gas compression business unit in November
1994 for $205 million in cash. The sale resulted in a pretax gain of $102
million, or 56 cents per share after tax in 1994. The business unit sold owns
and operates a large natural gas compressor rental fleet in the United States
and Canada. The compressors are used to assist in the production,
transportation, and storage of natural gas.
In January 1994, the Company sold substantially all of the assets of its
geophysical services and products business to Western Atlas International, Inc.
for $190.0 million in cash and notes subject to certain adjustments. The notes
of $90.0 million were sold for cash in the first quarter of 1994. In addition,
the Company issued $73.8 million in notes to Western Atlas to cover some of the
costs of reducing certain geophysical operations, including the cost of
personnel reductions, leases of geophysical marine vessels and closing of
duplicate facilities. The Company's notes to Western Atlas are payable over two
years at a rate of interest of 4%. An initial installment of $33.8 million was
made in February 1994, and quarterly installments of $5 million have been made
thereafter.
The Company is in the process of obtaining regulatory approvals to sell
certain remaining assets and settle certain liabilities of the geophysical
business. The Company does not believe it will incur any material loss from the
disposition or liquidation of these remaining assets or settlement of the
remaining liabilities.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
BUSINESS ENVIRONMENT
The Company (often through foreign subsidiaries) operates in over 100
countries, including several upon which the United States government has imposed
varying degrees of restrictions on trade and commerce. These countries include
Iran and Libya. The Company believes the embargo on U.S. trade with Iran will
not have a material effect on current results of operations or financial
condition of the Company, although it will limit the Company from competing for
future business in Iran. If additional restrictions were to be established for
these or other countries, such restrictions might impair the ability of the
Company to obtain the benefit of its assets in such countries and the ability to
collect amounts owed to the Company by their government and private entities.
The Company cannot predict whether more stringent restrictions will be adopted
or, if adopted, the impact they might have on its results of operations.
RESULTS OF OPERATIONS
Third Quarter of 1995 Compared with the Third Quarter of 1994
Revenues
Consolidated revenues increased 11% to $1,489.8 million in the third
quarter of 1995 compared with $1,347.6 million in the same quarter of the prior
year. Approximately 50% of the Company's consolidated revenues were derived from
international activities in the third quarter of 1995 compared to 46% in the
third quarter of 1994. Consolidated international revenues increased 20% in the
third quarter of 1995 over the third quarter of 1994. Consolidated United States
revenues increased by 3% in the third quarter of 1995 compared to the third
quarter of 1994.
Energy Services revenues increased by 6% compared with a 3% decline in
drilling activity as measured by the worldwide rotary rig count for the same
quarter of the prior year. Excluding businesses included in 1994 results but
subsequently sold, revenues for the third quarter increased 9% . International
revenues increased by 18%, reflecting growth in well stimulation, cementing,
logging and drilling services in the Latin America, Europe/Africa and Asia
Pacific markets. The increase in international revenues was partially offset by
an 8% decline in United States revenues. Excluding the revenues of businesses
sold in 1994, United States revenues declined by 2%. The United States rig count
declined 4% from the same quarter of the prior year.
Engineering and Construction Services revenues increased 14% to $806.8
million compared with $704.8 million in the same quarter of the prior year due
primarily to higher activity levels in subsea construction and fabrication in
the North Sea, highway construction in the United States, military logistical
support services and communication facility construction in Asia Pacific.
Operating income
Consolidated operating income increased 15% to $111.1 million in the third
quarter of 1995 compared with $96.6 million in the same quarter of the prior
year. Approximately 71% of the Company's consolidated operating income was
derived from international activities in the third quarter of 1995 compared to
33% in the third quarter of 1994. Consolidated international operating margins
were 11% in the third quarter of 1995 compared to 5% in the third quarter of
1994.
Energy Services operating income increased 8% to $88.2 million in the
third quarter of 1995 compared with $81.9 million in the same quarter of the
prior year. The operating margin for the third quarter of 1995 was 12.9%
compared to a prior year operating margin of 12.8%. The increased operating
income is primarily related to growth in activities in Latin America,
Europe/Africa and Asia Pacific, and reductions in indirect costs.
Engineering and Construction Services operating income and operating
margins increased 54% to $31.2 million and 3.9%, respectively, compared with
results in the same quarter of the prior year of $20.2 million and 2.9%,
respectively. The increase in operating income is primarily related to improved
performance in marine construction activities in Latin America and subsea
construction and fabrication activities in the North Sea.
Nonoperating items
Interest expense increased to $15.0 million in the third quarter of 1995
compared to $12.6 million in the same quarter of the prior year due primarily to
$4.6 million in debt issue costs related to the redemption of the zero coupon
convertible subordinated debentures.
Interest income increased in 1995 primarily due to higher levels of
invested cash and $3.1 million relating to an excise tax recoverable and other
matters.
Net income
Net income from continuing operations in the third quarter of 1995
increased 39% to $68.8 million, or 60 cents per share, compared with $49.5
million, or 43 cents per share, in the same quarter of the prior year.
First Nine Months of 1995 Compared with the First Nine Months of 1994
Revenues
Consolidated revenues for the first nine months of 1995 were $4,161.3
million , a 3% increase, compared to $4,032.6 million in the first nine months
of 1994. Approximately 51% of the Company's consolidated revenues were derived
from international activities in the first nine months of 1995 compared to 44%
in the first nine months of 1994. Consolidated international revenues increased
22% in the first nine months of 1995 over the first nine months of 1994.
Energy Services revenues increased by 2% to $1,881.6 million compared to
$1,847.4 million in the first nine months of 1994. Excluding revenues from
businesses sold subsequent to the first nine months of 1994, Energy Services
revenues increased 5% between the two periods primarily due to increases in
Latin America, Europe/Africa and Asia Pacific, partially offset by a decline in
North America.
Engineering and Construction Services revenues increased by 4% to $2,279.7
million in the first nine months of 1995 compared to $2,185.2 million in the
first nine months of 1994 due primarily to higher marine construction activities
in Latin America, Middle East and Europe/Africa and higher logistical support
activities with the United Nations and NATO.
Operating income
Consolidated operating income was $269.8 million in the first nine months
of 1995 compared with $123.4 million in the first nine months of 1994. Excluding
severance costs included in 1994 results, consolidated operating income
increased by 63% in the first nine months of 1995 compared to $166.0 million in
the first nine months of 1994. Approximately 67% of the Company's consolidated
operating income was derived from international activities in the first nine
months of 1995 compared to 27% in the first nine months of 1994. Consolidated
international operating margins were 8% in the first nine months of 1995
compared to 2% in the first nine months of 1994.
Energy Services operating income during the nine months of 1995 and 1994
was $211.5 million and $95.2 million, respectively. Excluding severance costs,
operating income in the first nine months of 1995 increased 53% compared to the
1994 period of $137.8 million. Operating income increased in all regions.
Operating margins during the 1995 and 1994 periods were 11.2% and 7.5%,
respectively. 1995 margins were benefited by growth in Latin America,
Europe/Africa and Asia Pacific and lower indirect costs. Lower margins in 1994
were due primarily to decreased activities in the North Sea, Middle East and
Asia Pacific, market disturbances in Nigeria and Yemen, unsettled economic,
political and business conditions in the CIS and pricing pressures in North
America.
Engineering and Construction Services operating income in the first nine
months of 1995 and 1994 was $80.2 million and $45.8 million, respectively. 1995
operating income increases are primarily due to improved performance in marine
construction activities in Latin America, Middle East and Europe/Africa and
petrochemical engineering and construction activities in the Middle East.
Operating income in 1994 included a $5.0 million gain on the sale of an
environmental remediation subsidiary.
Nonoperating items
Interest expense increased from $33.6 million in 1994 to $40.1 million in
1995 due primarily to $4.6 million in debt issue costs related to the redemption
of the zero coupon convertible subordinated debentures and the reversal of an
accrual during the first quarter of 1994 for interest payable on income tax
settlements.
Interest income increased from $8.4 million in 1994 to $24.2 million in
1995 primarily due to higher levels of invested cash and $3.1 million relating
to an excise tax recoverable and other matters.
The Company had foreign currency gains of $600 thousand during the first
nine months of 1995 compared with losses of $15.2 million during the same period
in 1994. Gains in 1995 relate primarily to a first quarter gain from the
devaluation of the Nigerian Naira offset by losses in other currencies,
particularly the Mexican peso. Losses in 1994 relate primarily to Brazil and
Venezuela.
The effective income tax rate for the Company declined to 36% in 1995 from
39% in 1994. The decline in the effective income tax rate primarily represents
improved international earnings and a resulting reduction in losses unable to be
utilized.
Net income
Net income from continuing operations for the first nine months of 1995
increased by 223% to $161.9 million, or $1.41 per share, compared to $50.1
million, or 44 cents per share, during the same period in 1994. Excluding
severance costs in 1994, net income was $77.8 million, or 68 cents per share.
LIQUIDITY AND CAPITAL RESOURCES
The Company ended the third quarter of 1995 with cash and equivalents of
$70.8 million, a decrease of $304.5 million from the end of 1994.
Operating activities
Cash flows from operations increased by 24% in 1995 to $353.0 million
compared to $284.0 million for the first nine months of 1994. The increase in
net income for the 1995 period was partially offset by higher receivables due to
increased activity levels and increased advances to Engineering and Construction
joint ventures.
Investing activities
Cash flows from investing activities used $158.1 million during the first
nine months of 1995 compared to $65.6 million in cash provided during the same
period of 1994. Capital expenditures increased in 1995 by 22% over 1994 mostly
representing investments in new technologies such as logging while drilling and
multi-lateral completions. The 1994 cash flows reflect the proceeds from the
sale of geophysical services and two small subsidiaries.
Financing activities
Cash flows used for financing activities were $498.1 million in the first
nine months of 1995 compared to $228.1 million in the first nine months of 1994.
The increase in outflows is due to higher payments of long-term indebtedness.
The Company redeemed the entire outstanding principal amount of zero coupon
convertible subordinated debentures during the third quarter of 1995 of $390.7
million with available cash resources (see Note 7 of notes to the condensed
consolidated financial statements). In 1994 the Company redeemed the remaining
10.2% debentures and made a $43.8 million installment on the note issued by the
Company to the buyer of geophysical services.
The Company has the ability to borrow additional short-term and long-term
funds if necessary.
DISCONTINUED OPERATIONS
The Company announced in October 1995 that it will distribute the
Company's property and casualty insurance subsidiary, Highlands Group Insurance,
Inc., to its shareholders in a tax-free spin-off by as early as the end of 1995.
The operations of the Insurance Services Group have been classified as
discontinued operations. Additionally, during the third quarter the Company
increased its reserves for claim losses and related expenses and provisions for
certain legal matters. These provisions, together with certain other provisions
associated with the Company's complete exit from the insurance industry resulted
in a $67.2 million third quarter charge against earnings. The increase in the
claim loss reserves, which was required primarily for areas such as
environmental and asbestos claims, was based upon a recent actuarial study and
management's current best estimate. Estimates of this liability are reviewed and
updated continually. See Note 6 of notes to the condensed consolidated financial
statements for further information.
ENVIRONMENTAL MATTERS
The Company is involved as a potentially responsible party in remedial
activities to clean up various "Superfund" sites under applicable Federal law
which imposes joint and several liability, if the harm is indivisible, on
certain persons without regard to fault, the legality of the original disposal,
or ownership of the site. Although it is very difficult to quantify the
potential impact of compliance with environmental protection laws, management of
the Company believes that any liability of the Company with respect to all but
two of such sites will not have a material adverse effect on the results of
operations of the Company. See Note 8 to the financial statements for additional
information on these two sites.
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(3) By-laws of the Company, as amended through September 14, 1995 to be
effective October 1, 1995
(10) Employment agreement
(11) Statement regarding computation of earnings per share.
(27) Financial data schedule for the quarter ended September 30, 1995
(included only in the copy of this report filed electronically
with the Commission).
(b) Reports on Form 8-K
During the third quarter of 1995:
A Current Report was filed on Form 8-K dated July 14, 1995, reporting on
Item 5. Other Events, regarding a press release dated July 14, 1995,
announcing agreements to settle export investigation.
A Current Report was filed on Form 8-K dated July 17, 1995, reporting on
Item 5. Other Events, regarding a press release dated July 14, 1995,
announcing the signing of an agreement to provide engineering and
construction services on a new ethylene plant in Kuwait.
A Current Report was filed on Form 8-K dated July 20, 1995, reporting on
Item 5. Other Events, regarding a press release dated July 20, 1995,
announcing the declaration of the third quarter dividend, the calling of
zero coupon convertible subordinated debentures and that David J. Lesar
was named executive vice president and chief financial officer.
A Current Report was filed on Form 8-K dated July 25, 1995, reporting on
Item 5. Other Events, regarding a press release dated July 20, 1995,
announcing second quarter results.
A Current Report was filed on Form 8-K dated July 31, 1995, reporting on
Item 5. Other Events, regarding the final settlement of export case
pleadings.
A Current Report was filed on Form 8-K dated August 11, 1995, reporting on
Item 5. Other Events, regarding a press release dated August 10, 1995,
announcing that Dick Cheney had been named Chief Executive Officer.
A Current Report was filed on Form 8-K dated August 23, 1995, reporting on
Item 5. Other Events, regarding a press release dated August 22, 1995
announcing the retirement of Vice Chairman W. Bernard (Ber) Pieper.
(b) Reports on Form 8-K (cont'd)
During the fourth quarter of 1995 to the date hereof:
A Current Report was filed on Form 8-K dated October 12, 1995, reporting
on Item 5. Other Events, regarding a press release dated October 11, 1995,
announcing the spin-off of the Company's Insurance Unit.
A Current Report was filed on Form 8-K dated October 27, 1995, reporting
on Item 5. Other Events, regarding a press release dated October 24, 1995,
announcing third quarter results.
A Current Report was filed on Form 8-K dated November 8, 1995, reporting
on Item 5. Other Events, regarding a press release dated November 8, 1995,
announcing a fourth quarter dividend.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HALLIBURTON COMPANY
(Registrant)
Date November 13, 1995 By /s/ Thomas H. Cruikshank
-------------------------- ----------------------------
Thomas H. Cruikshank
Chairman of the Board
Date November 13, 1995 By /s/ David J. Lesar
-------------------------- ----------------------------
David J. Lesar
Executive Vice President
Chief Financial Officer
Date November 13, 1995 By /s/ Scott R. Willis
-------------------------- ----------------------------
Scott R. Willis
Controller
Principal Accounting Officer