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, 1998
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)
75-2677995
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, 1998 - 439,653,499
HALLIBURTON COMPANY
Index
Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Quarterly Condensed Consolidated Financial Statements
o Statements of Income for the three and nine months ended September 30, 1998 and 1997 2
o Balance Sheets at September 30, 1998 and December 31, 1997 3
o Statements of Cash Flows for the nine months ended September 30, 1998 and 1997 4
o Notes to Financial Statements
1. Management representations 5
2. Acquisitions and dispositions 5
3. Business segment information 6
4. Inventories 7
5. Dresser financial information 7
6. Commitments and contingencies 7
7. Income per share 8
8. Comprehensive income 8
9. Special charges 9
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9
PART II. OTHER INFORMATION
Item 6. Listing of Exhibits and Reports on Form 8-K 17
Signatures 19
Exhibits: Financial data schedules for the nine months ended September 30, 1998 (included only in
the copy of this report filed electronically with the Commission)
1
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
HALLIBURTON COMPANY
Condensed Consolidated Statements of Income
(Unaudited)
(Millions of dollars except per share data)
Three Months Nine Months
Ended September 30 Ended September 30
------------------------------- -------------------------------
1998 1997 1998 1997
- --------------------------------------------------------------------------------------------------------------------------------
Revenues:
Services $ 2,938.4 $ 2,909.8 $ 9,204.3 $ 8,196.3
Sales 1,231.1 1,229.2 3,692.4 3,467.5
Equity in earnings of unconsolidated affiliates 54.5 38.0 167.3 117.6
- --------------------------------------------------------------------------------------------------------------------------------
Total revenues $ 4,224.0 $ 4,177.0 $ 13,064.0 $ 11,781.4
- --------------------------------------------------------------------------------------------------------------------------------
Operating costs and expenses:
Cost of services $ 2,762.7 $ 2,612.3 $ 8,361.3 $ 7,447.6
Cost of sales 983.7 1,048.4 3,102.5 2,945.1
General and administrative 110.0 125.8 435.4 434.1
Special charges 945.1 18.3 945.1 18.3
- --------------------------------------------------------------------------------------------------------------------------------
Total operating costs and expenses 4,801.5 3,804.8 12,844.3 10,845.1
- --------------------------------------------------------------------------------------------------------------------------------
Operating income (loss) (577.5) 372.2 219.7 936.3
Interest expense (34.6) (30.1) (95.9) (80.2)
Interest income 7.2 5.0 21.4 15.8
Foreign currency losses (7.9) (1.5) (9.7) (3.7)
Other nonoperating income (expense) net 3.3 (0.2) 2.7 0.4
- --------------------------------------------------------------------------------------------------------------------------------
Income (loss) before taxes and minority interest (609.5) 345.4 138.2 868.6
Benefit (provision) for income taxes 96.6 (130.0) (184.1) (325.0)
Minority interest in net income of subsidiaries (14.1) (12.8) (34.5) (29.2)
- --------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ (527.0) $ 202.6 $ (80.4) $ 514.4
- --------------------------------------------------------------------------------------------------------------------------------
Income (loss) per share:
Basic $ (1.20) $ 0.47 $ (0.18) $ 1.20
Diluted $ (1.20) $ 0.47 $ (0.18) $ 1.19
Cash dividends per share * $ 0.125 $ 0.125 $ 0.375 $ 0.375
Weighted average common shares outstanding:
Basic 439.1 428.9 438.6 429.0
Diluted 439.1 433.5 438.6 432.9
<FN>
* Amounts represent Halliburton Company prior to the merger with Dresser.
See notes to quarterly financial statements.
</FN>
2
HALLIBURTON COMPANY
Condensed Consolidated Balance Sheets
(Unaudited)
(Millions of dollars and shares except per share data)
September 30 December 31
----------------- ---------------
1998 1997
- -------------------------------------------------------------------------------------------------------------------------
Assets
Current assets:
Cash and equivalents $ 228.5 $ 384.1
Receivables:
Notes and accounts receivable 3,498.0 2,980.4
Unbilled work on uncompleted contracts 497.1 407.2
- -------------------------------------------------------------------------------------------------------------------------
Total receivables 3,995.1 3,387.6
Inventories 1,437.1 1,299.2
Deferred income taxes, current 435.3 202.6
Other current assets 201.0 169.7
- -------------------------------------------------------------------------------------------------------------------------
Total current assets 6,297.0 5,443.2
Property, plant and equipment:
Less accumulated depreciation of $3,995.2 and $3,879.6 2,971.6 2,766.4
Equity in and advances to related companies 521.6 659.0
Excess of cost over net assets acquired 1,131.2 1,126.8
Deferred income taxes, noncurrent 250.0 273.0
Other assets 470.6 433.4
- -------------------------------------------------------------------------------------------------------------------------
Total assets $ 11,642.0 $ 10,701.8
- -------------------------------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Current liabilities:
Short-term notes payable $ 572.3 $ 50.5
Current maturities of long-term debt 8.4 7.4
Accounts payable 1,122.6 1,132.4
Accrued employee compensation and benefits 494.9 516.1
Advance billings on uncompleted contracts 523.2 638.3
Income taxes payable 264.5 335.2
Accrued warranty cost 50.9 56.6
Deferred revenues 36.1 38.4
Accrued special charges 922.1 -
Other current liabilities 704.7 685.4
- -------------------------------------------------------------------------------------------------------------------------
Total current liabilities 4,699.7 3,460.3
Long-term debt 1,284.9 1,296.9
Employee compensation and benefits 984.9 1,013.7
Other liabilities 450.5 450.6
Minority interest in consolidated subsidiaries 173.9 163.4
- -------------------------------------------------------------------------------------------------------------------------
Total liabilities and minority interest 7,593.9 6,384.9
- -------------------------------------------------------------------------------------------------------------------------
Shareholders' equity:
Common shares, par value $2.50 per share -
Authorized 600.0 shares, issued 445.7 and 453.7 shares 1,114.2 1,134.3
Paid-in capital in excess of par value - 123.9
Accumulated other comprehensive income (146.1) (131.1)
Retained earnings 3,183.6 3,563.4
- -------------------------------------------------------------------------------------------------------------------------
4,151.7 4,690.5
Less 6.3 and 15.8 shares of treasury stock, at cost 103.6 373.6
- -------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 4,048.1 4,316.9
- -------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 11,642.0 $ 10,701.8
- -------------------------------------------------------------------------------------------------------------------------
<FN>
See notes to quarterly financial statements.
</FN>
3
HALLIBURTON COMPANY
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(Millions of dollars)
Nine Months
Ended September 30
--------------------------------
1998 1997
- -----------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income (loss) $ (80.4) $ 514.4
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization 441.5 419.3
Benefit for deferred income taxes (201.8) (7.7)
Distributions from (advances to) related companies, net of
equity in (earnings) or losses (76.5) (90.5)
Accrued special charges 922.1 -
Other non-cash items 43.1 32.7
Other changes, net of non-cash items:
Receivables (380.8) (401.3)
Inventories (125.1) (113.1)
Accounts payable 12.0 (71.7)
Other working capital, net (246.9) (7.8)
Other, net 6.4 44.2
- -----------------------------------------------------------------------------------------------------------------------
Total cash flows from operating activities 313.6 318.5
- -----------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Capital expenditures (687.0) (613.7)
Sales of property, plant and equipment 61.4 189.3
Sales (purchases) of businesses, net of cash (disposed) acquired (32.2) (150.6)
Other investing activities (3.6) (30.9)
- -----------------------------------------------------------------------------------------------------------------------
Total cash flows from investing activities (661.4) (605.9)
- -----------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Borrowings of long-term debt 1.4 300.8
Payments on long-term debt (13.1) (14.8)
Net borrowings (repayments) of short-term debt 426.7 (67.5)
Payments of dividends to shareholders (199.3) (184.4)
Proceeds from exercises of stock options 45.0 61.9
Payments to reacquire common stock (18.5) (43.0)
Other financing activities (6.4) 2.5
- -----------------------------------------------------------------------------------------------------------------------
Total cash flows from financing activities 235.8 55.5
- -----------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash (5.8) 2.7
- -----------------------------------------------------------------------------------------------------------------------
Decrease in cash and equivalents (117.8) (229.2)
Cash and equivalents at beginning of year 346.3 * 446.0
- -----------------------------------------------------------------------------------------------------------------------
Cash and equivalents at end of period $ 228.5 $ 216.8
- -----------------------------------------------------------------------------------------------------------------------
Supplemental disclosure of cash flow information: Cash payments during the
period for:
Interest $ 109.5 $ 82.1
Income taxes $ 395.9 $ 215.1
Non-cash investing and financing activities:
Liabilities assumed in acquisitions of businesses $ 34.1 $ 337.3
Liabilities disposed of in dispositions of businesses $ 0.2 $ 211.5
<FN>
* To conform Dresser's fiscal year to Halliburton's calendar year, Dresser's
cash flows are measured from December 31, 1997, rather than from the October 31,
1997 balances included on the condensed consolidated balance sheets.
See notes to quarterly financial statements.
</FN>
4
HALLIBURTON COMPANY
Notes to Quarterly Financial Statements
(Unaudited)
Note 1. Management Representations
The Company employs accounting policies that are in accordance with
generally accepted accounting principles in the United States. The preparation
of financial statements in conformity with generally accepted accounting
principles requires Company management to make estimates and assumptions that
affect the reported amounts of assets and liabilities 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.
The accompanying unaudited condensed consolidated financial statements
present information in accordance with generally accepted accounting principles
for interim financial information and the instructions to Form 10-Q and
applicable rules of Regulation S-X. Accordingly, they do not include all
information or footnotes required by generally accepted accounting principles
for complete financial statements and should be read in conjunction with the
Company's 1997 supplemental annual financial statements on Form 8-K/A filed
October 23, 1998.
In the opinion of the Company, the condensed consolidated financial
statements include all adjustments necessary to present fairly the Company's
financial position as of September 30, 1998, and the results of its operations
for the three and nine months ended September 30, 1998 and 1997 and its cash
flows for the nine months then ended. The results of operations for the three
and nine months ended September 30, 1998 and 1997 may not be indicative of
results for the full year. Certain prior year amounts have been reclassified to
conform with the current year presentation.
Note 2. Acquisitions and Dispositions
On September 29, 1998 the Company completed the acquisition of Dresser
Industries, Inc. (the Merger), by converting the outstanding Dresser common
stock into an aggregate of approximately 176 million shares of Common Stock of
the Company. The Company has also reserved approximately 7.3 million shares of
common stock for outstanding Dresser stock options and other employee and
directors plans. The Merger qualified as a tax-free exchange to Dresser's
shareholders for U.S. federal income tax purposes and was accounted for using
the pooling of interests method of accounting for business combinations.
Accordingly, the Company's financial statements have been restated to include
the results of Dresser for all periods presented. See Note 2 to the supplemental
annual financial statements on Form 8-K/A filed October 23, 1998. Beginning in
1998, Dresser's year-end of October 31 has been conformed to Halliburton's
calendar year-end. Periods through December 1997 contain Dresser's information
on a fiscal year-end basis combined with Halliburton's information on a calendar
year-end basis. For the two months ended December 31, 1997, Dresser had revenues
of $1,110.2 million, operating income of $53.2 million, and net income of $35.8
million. Operating income for the two-month period includes a pretax special
charge of $30.2 million ($12.0 million after tax and minority interest) related
to Dresser's share of profit improvement initiatives at the Dresser-Rand and
Ingersoll-Dresser Pump joint ventures. Results for the two-month period have
been included in retained earnings and dividends of $33.2 million paid in
December, 1997 have been deducted from retained earnings in the condensed
consolidated balance sheets at September 30, 1998. In addition, for the period
between October 31, 1997 and December 31, 1997 the change to Dresser's
cumulative translation adjustment account was $14.8 million. There were no
material transactions between Halliburton and Dresser prior to the Merger.
The Company sold its 36% ownership interest in M-I L.L.C. to Smith
International, Inc. on August 31, 1998. This transaction completed Halliburton's
commitment to the United States Department of Justice to sell its M-I interest
in connection with the Merger. The purchase price of $265 million was paid by
Smith in the form of a non-interest bearing promissory note due April, 1999. All
of M-I's debt remains an obligation of M-I. In connection with the Merger, the
Company entered into a consent decree with the United States Department of
Justice requiring divestiture of Halliburton's current worldwide
logging-while-drilling (LWD) business. In 1997 the affected business had
revenues of less than $50 million, or approximately 0.4% of the combined
revenues of Halliburton and Dresser. Halliburton's existing directional drilling
service line and Dresser's Sperry-Sun division are not impacted by the decree.
While Halliburton agreed in the consent decree to divest one-half of its sonic
LWD tools, it will continue to provide customers with sonic LWD services using
its existing sonic technologies. The consent decree requires Halliburton to
divest such LWD business by March 28, 1999.
The results of operations for Halliburton and Dresser as of the Merger
and the combined amounts are presented in the consolidated financial statements
below:
5
Three Months Nine Months
Ended September 30 Ended September 30
--------------------------------- ---------------------------------
Millions of dollars 1998 1997 1998 1997
-----------------------------------------------------------------------------------------------------------
Revenues:
Halliburton $ 2,213.6 $ 2,304.7 $ 7,044.5 $ 6,433.3
Dresser 2,010.4 1,872.3 6,019.5 5,348.1
------------------------------------------------------------------------------------------------------------
Combined $ 4,224.0 $ 4,177.0 $ 13,064.0 $ 11,781.4
------------------------------------------------------------------------------------------------------------
Net income:
Halliburton $ 105.0 $ 121.1 $ 359.3 $ 306.0
Dresser 90.0 81.5 282.3 208.4
1998 Special charge, net of tax (722.0) - (722.0) -
------------------------------------------------------------------------------------------------------------
Combined $ (527.0) $ 202.6 $ (80.4) $ 514.4
------------------------------------------------------------------------------------------------------------
Note 3. Business Segment Information
The Company has three business segments. The Energy Services Group
includes pressure pumping equipment and services, logging and perforating,
drilling systems and services, drilling fluids systems, drill bits, specialized
completion and production equipment and services and well control. Also included
in the Energy Services Group are upstream oil and gas engineering, construction
and maintenance services, integrated exploration and production information
systems and professional services to the petroleum industry. The Engineering and
Construction Group provides engineering, procurement, construction, project
management, and facilities operation and maintenance for hydrocarbon processing
and other industrial and governmental customers. The Dresser Equipment Group
designs, manufactures and markets highly engineered products and systems for oil
and gas producers, transporters, processors, distributors and petroleum users
throughout the world.
The Company's equity in pretax income or losses of related companies is
included in revenues and operating income of each applicable segment.
Intersegment revenues included in the revenues of the other business segments
are immaterial.
Three Months Nine Months
Ended September 30 Ended September 30
--------------------------------- ---------------------------------
Millions of dollars 1998 1997 1998 1997
-----------------------------------------------------------------------------------------------------------------
Revenues:
Energy Services Group $ 2,163.4 $ 2,220.8 $ 6,828.9 $ 6,080.7
Engineering and Construction Group 1,379.4 1,268.6 4,164.5 3,722.2
Dresser Equipment Group 681.2 687.6 2,070.6 1,978.5
-----------------------------------------------------------------------------------------------------------------
Total $ 4,224.0 $ 4,177.0 $ 13,064.0 $ 11,781.4
-----------------------------------------------------------------------------------------------------------------
Operating income:
Energy Services Group $ 262.7 $ 287.0 $ 850.1 $ 705.4
Engineering and Construction Group 54.0 53.2 187.3 152.6
Dresser Equipment Group 71.0 66.6 187.1 148.0
Special charges (945.1) (18.3) (945.1) (18.3)
General corporate (20.1) (16.3) (59.7) (51.4)
-----------------------------------------------------------------------------------------------------------------
Total $ (577.5) $ 372.2 $ 219.7 $ 936.3
-----------------------------------------------------------------------------------------------------------------
6
Note 4. Inventories
September 30 December 31
--------------- ----------------
Millions of dollars 1998 1997
---------------------------------------------------------------------
Finished products and parts $ 731.9 $ 670.9
Raw materials and supplies 264.7 213.7
Work in process 624.8 535.8
Progress payments (184.3) (121.2)
---------------------------------------------------------------------
Total $ 1,437.1 $ 1,299.2
---------------------------------------------------------------------
The cost of certain U.S. inventories is determined 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 $109.7
million and $100.8 million higher than reported at September 30, 1998 and
December 31, 1997, respectively.
Note 5. Dresser Financial Information
Dresser has ceased filing periodic reports with the Securities and
Exchange Commission. The Company has fully guaranteed Dresser's 8% senior notes
due 2003 (the Notes). As long as the Notes remain outstanding, summarized
financial information of Dresser will be presented in periodic reports filed by
the Company.
Dresser Industries, Inc.
Financial Position September 30 Year-end
--------------- ----------------
Millions of dollars 1998 1997
- -----------------------------------------------------------------------------------
Current assets $ 2,469.9 $ 2,471.6
Noncurrent assets 2,671.3 2,627.2
- -----------------------------------------------------------------------------------
Total $ 5,141.2 $ 5,098.8
- -----------------------------------------------------------------------------------
Current liabilities $ 1,597.2 $ 1,687.4
Noncurrent liabilities 1,661.6 1,679.2
Shareholders' equity 1,882.4 1,732.2
- -----------------------------------------------------------------------------------
Total $ 5,141.2 $ 5,098.8
- -----------------------------------------------------------------------------------
Dresser Industries, Inc.
Operating Results Third Quarter First Nine Months
--------------------------------- --------------------------------
Millions of dollars 1998 1997 1998 1997
- --------------------------------------------------------------------------------------------------------------------
Revenues $ 2,010.4 $ 1,872.3 $ 6,019.5 $ 5,348.1
- --------------------------------------------------------------------------------------------------------------------
Operating income $ 176.6 $ 155.2 $ 531.4 $ 398.6
- --------------------------------------------------------------------------------------------------------------------
Income before taxes and minority interest $ 158.3 $ 139.3 $ 478.9 $ 350.0
Income taxes (56.7) (48.7) (172.4) (122.5)
Minority interest (11.6) (9.1) (24.2) (19.1)
- --------------------------------------------------------------------------------------------------------------------
Net income $ 90.0 $ 81.5 $ 282.3 $ 208.4
- --------------------------------------------------------------------------------------------------------------------
Note 6. Commitments and Contingencies
Asbestosis Litigation. The Company has approximately 63,000 pending
claims with approximately 26,000 new claims filed and approximately 29,000
claims resolved during the current year. Certain settlements previously
reported, covering approximately 14,900 claims, are carried as pending until
releases are signed. The settlements reached during the year are consistent with
the Company's historical experience and management continues to believe that
provisions recorded are adequate to cover the estimated loss from asbestosis
litigation.
Environmental. 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
7
quantify the potential impact of compliance with environmental protection laws,
management of the Company believes that any liability of the Company with
respect to all but one of such sites will not have a material adverse effect on
the results of operations of the Company. With respect to a site in Jasper
County, Missouri (Jasper County Superfund Site), sufficient information has not
been developed to permit management to make such a determination and management
believes the process of determining the nature and extent of remediation at this
site and the total costs thereof will be lengthy. Brown & Root, Inc. (Brown &
Root), 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). In
addition to the superfund issues, the State of Missouri has indicated that it
may pursue natural resource damage claims against the PRPs. At the present time
Brown & Root cannot determine the extent of its liability, if any, for
remediation costs or natural resource damages on any reasonably practicable
basis.
Merger Litigation. In connection with the Merger, Dresser and its
directors have been named as defendants in three lawsuits filed in late February
of 1998 and early March of 1998 in the Delaware Court of Chancery. The lawsuits
each purport to be a class action filed on behalf of Dresser's stockholders and
allege that the consideration to be paid to Dresser's stockholders in the Merger
is inadequate and does not reflect the true value of Dresser. The complaints
also each allege that the directors of Dresser have breached their fiduciary
duties in approving the Merger. One of the actions further alleges self-dealing
on the part of the individual defendants and assert that the directors are
obliged to conduct an auction to assure that stockholders receive the maximum
realizable value for their shares. All three actions seek preliminary and
permanent injunctive relief as well as damages. On June 10, 1998 the court
issued an order consolidating the three lawsuits which requires the plaintiffs
to file an amended consolidated complaint "as soon as practicable." To date,
plaintiffs have not filed an amended complaint. The Company believes that the
lawsuits are without merit and intends to defend the lawsuits vigorously.
Other. The Company and its subsidiaries are parties to various other
legal proceedings. Although the ultimate dispositions of such proceedings are
not presently determinable, in the opinion of the Company any liability that may
ensue will not be material in relation to the consolidated financial position
and results of operations of the Company.
Note 7. Income Per Share
Basic income per share amounts are based on the weighted average number
of common shares outstanding during the period. Diluted income per share
includes additional common shares that would have been outstanding if potential
common shares with a dilutive effect had been issued. Options to purchase 1.2
million shares of common stock which were outstanding during the nine months
ended September 30, 1998 were not included in the computation of diluted net
income per share because the option exercise price was greater than the average
market price of the common shares.
Note 8. Comprehensive Income
Three Months Nine Months
Ended September 30 Ended September 30
---------------------------- ------------------------------
Millions of dollars 1998 1997 1998 1997
--------------------------------------------------------------------------------------------------
Net income (loss) $ (527.0) $ 202.6 $ (80.4) $ 514.4
Cumulative translation
adjustment, net of tax 15.8 (22.1) (0.2) (48.5)
--------------------------------------------------------------------------------------------------
Total comprehensive income (loss) $ (511.2) $ 180.5 $ (80.6) $ 465.9
--------------------------------------------------------------------------------------------------
The cumulative translation adjustment of certain foreign entities and
minimum pension liability are the only comprehensive income adjustments recorded
by the Company. Adjustments to the minimum pension liability are typically made
once a year in the fourth quarter.
Accumulated other comprehensive income at September 30, 1998 and
December 31, 1997 consisted of the following:
8
September 30 December 31
--------------- ------------------
Millions of dollars 1998 1997
-----------------------------------------------------------------------------------
Cumulative translation adjustment $ (142.2) $ (127.2)
Minimum pension liability (3.9) (3.9)
-----------------------------------------------------------------------------------
Total accumulated other comprehensive income $ (146.1) $ (131.1)
-----------------------------------------------------------------------------------
Note 9. Special Charges
The third quarter of 1998 financial results include a pretax special
charge of $945 million ($722 million after tax) to provide for consolidation,
restructuring and merger related expenses. Components of the pretax special
charge include $509 million of asset related writeoffs, writedowns and charges;
$205 million related to personnel reduction costs (covering approximately 8,100
employees); $121 million of facility consolidation charges; $64 million of
merger transaction costs; and $46 million of other merger related costs.
Approximately 2,700 terminations at a severance cost of $23 million took place
as a part of these actions in the third quarter of 1998.
The third quarter of 1997 financial results include a pretax special
charge of $18.3 million. The Company recorded charges of $9.7 million ($6.3
million after tax) and $8.6 million ($8.6 million after tax), related to the
loss on sale of certain assets of the Company's Subsea business and transaction
costs associated with the NUMAR acquisition, respectively.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
BUSINESS ENVIRONMENT
The Company operates in over 120 countries around the world to provide
a variety of energy services, energy equipment and engineering and construction
services to energy, industrial and governmental customers. The industries served
by the Company are highly competitive with many substantial competitors.
Operations in some countries may be affected by unsettled political conditions,
expropriation or other governmental actions, exchange controls and currency
devaluations. The Company believes the geographic diversification of its
business activities reduces the risk that loss of its operations in any one
country would be material to its consolidated results of operations.
The majority of the Company's revenues are derived from the sale of
services and products, including construction activities, to the energy
industry. The Company offers a comprehensive range of integrated and discrete
services and products as well as project management for oil and natural gas
activities throughout the world. The decline in oil prices during 1998 caused a
decrease in the worldwide average rotary drilling rig count and hesitation on
the part of some customers of the Company to commit to longer-term projects. In
response to potentially weakening markets in some areas of the world, the
Company is implementing plans to reduce the number of employees in those
geographic areas where activity levels are lower than anticipated at the
beginning of 1998, to scale back discretionary spending on capital expenditures
and to curtail discretionary travel and other expenses. The Company recognized a
pretax special charge of $945.1 million ($722 million after tax or $1.64 per
diluted share) in the third quarter of 1998. The special charge was recorded to
provide for consolidation, restructuring and Merger related expenses. See Note 9
for additional information on the special charge.
RESULTS OF OPERATIONS - 1998 COMPARED TO 1997
Third Quarter of 1998 Compared with the Third Quarter of 1997
REVENUES Third Quarter Increase
-------------------------------
Millions of dollars 1998 1997 (decrease)
- -----------------------------------------------------------------------------------------------------
Energy Services Group $ 2,163.4 $ 2,220.8 $ (57.4)
Engineering and Construction Group 1,379.4 1,268.6 110.8
Dresser Equipment Group 681.2 687.6 (6.4)
- -----------------------------------------------------------------------------------------------------
Total revenues $ 4,224.0 $ 4,177.0 $ 47.0
- -----------------------------------------------------------------------------------------------------
Consolidated revenues increased 1% to $4,224.0 million in the third
quarter of 1998 compared with $4,177.0 million in the same quarter of the prior
year. International revenues for the quarter increased approximately 12%
compared to the prior year third quarter.
9
Energy Services Group revenues were $2,163.4 million reflecting a 3%
decrease for the third quarter of 1998 over the same quarter of the prior year
while drilling activity as measured by the worldwide rotary rig count decreased
21%. Activities for pressure pumping were lower than the prior year in domestic
markets, including the Gulf of Mexico shelf and in Venezuela. Activities in
other international areas remained relatively stable. Revenues from upstream oil
and gas engineering services, particularly floating production and engineering,
procurement and construction projects, showed an increase over the prior year
quarter. The Company began reporting its interest in the Bredero-Shaw joint
venture, which was fully consolidated in 1997, under the equity method beginning
in 1998. After adjusting for the effect of deconsolidating Bredero-Shaw,
revenues for the Energy Services Group for the third quarter of 1998 were flat
compared to the prior year quarter. International revenues were 72% of total
Energy Services Group revenues for the quarter compared to 66% for the prior
year quarter.
Engineering and Construction Group revenues increased to $1,379.4
million in the third quarter of 1998 compared to $1,268.6 million in the same
quarter of the prior year. Revenues increased 9% due to active projects in
Algeria, Norway, Qatar, and the United States, offset by lower revenues from
projects that are nearing completion. Revenues were negatively impacted by the
sale of the environmental services business in December 1997.
Dresser Equipment Group revenues decreased slightly to $681.2 million
for the third quarter of 1998 as compared to $687.6 million for the third
quarter of 1997. Most product lines had flat or lower revenues for the third
quarter of 1998 compared to the prior year quarter.
OPERATING INCOME Third Quarter Increase
-------------------------------
Millions of dollars 1998 1997 (decrease)
- ------------------------------------------------------------------------------------------------------
Energy Services Group $ 262.7 $ 287.0 $ (24.3)
Engineering and Construction Group 54.0 53.2 0.8
Dresser Equipment Group 71.0 66.6 4.4
General corporate (20.1) (16.3) (3.8)
- ------------------------------------------------------------------------------------------------------
Operating income before special charges 367.6 390.5 (22.9)
Special charges (945.1) (18.3) (926.8)
- ------------------------------------------------------------------------------------------------------
Operating income (loss) $ (577.5) $ 372.2 $ (949.7)
- ------------------------------------------------------------------------------------------------------
Consolidated operating income for the third quarter of 1998 was a loss
of $577.5 million after recognizing a special charge of $945.1 million to
provide for consolidation, restructuring and Merger related expense.
Consolidated operating income excluding special charges decreased 6% to $367.6
million in the third quarter of 1998 compared with $390.5 million in the same
quarter of the prior year. Approximately 64% of the Company's operating income
before special charges was from international activities in the third quarter of
1998 as compared to 56% from the prior year quarter.
See Note 9 for information on the special charge.
Energy Services Group operating income decreased 8% to $262.7 million
in the third quarter of 1998 compared with $287.0 million in the same quarter of
the prior year. After adjusting for the effect of deconsolidating Bredero-Shaw,
operating income decreased 7% for the third quarter compared to the prior year
quarter. The operating margin for the third quarter of 1998 was 12.1% compared
to the prior year third quarter operating margin of 12.9%. Operating income from
upstream oil and gas engineering activities increased approximately 17% over the
prior year third quarter. However, operating income was negatively impacted by
tropical storms in the Gulf of Mexico in the third quarter. In addition,
pressure pumping in North America was lower due to market conditions and
slightly increased discounts compared to the third quarter of 1997.
Engineering and Construction Group operating income increased slightly
to $54.0 million in the third quarter of 1998 compared to $53.2 million in the
third quarter of the prior year. Operating margins were 3.9% in the third
quarter of 1998 compared to 4.2% in the prior year third quarter. The decrease
in operating margin was due partly to high levels of procurement related
revenues which carry relatively lower margins than engineering revenues within
Kellogg-Brown & Root. Included in third quarter operating income are improved
results from construction and engineering services for the chemicals and
refining lines of business.
Dresser Equipment Group operating income for the third quarter was
$71.0 million, an increase of 7% over the prior year third quarter of $66.6
million. The benefits of the Dresser-Rand restructuring initiatives begun in
late 1997, contributed to improved results for the compression and pumping
product line. Operating income for the power systems product line was up
slightly as compared to the prior year quarter as a result of cost control
efforts. Measurement product line earnings for the quarter were lower than the
10
prior year due to weakness in the gas meter business as a result of gas
utilities working off excess inventories. Earnings improvements from flow
control energy valve products were offset by lower process control and
industrial valve earnings which were impacted by delays in refinery and power
plant maintenance projects.
NONOPERATING ITEMS
Interest expense increased to $34.6 million in the third quarter of
1998 compared to $30.1 million in the same quarter of the prior year due
primarily to increased short-term borrowings and the Company's issuance of debt
under the Company's medium-term note program in 1997 for working capital,
capital expenditures and acquisitions.
Interest income in the third quarter of 1998 increased to $7.2 million
from $5.0 million in the third quarter of 1997 primarily due to higher levels of
invested cash.
The effective income tax rate excluding special charges increased
slightly to 37.7% for the third quarter of 1998 from 36.7% for the third quarter
of 1997.
Minority interest in net income of consolidated subsidiaries for the
third quarter of 1998 increased to $14.1 million compared to $12.8 million for
the third quarter of 1997 primarily driven by improvements from Dresser-Rand.
Net income excluding special charges in the third quarter of 1998
decreased 10% to $195.0 million, or $0.44 per diluted share, compared with
$217.6 million, or $0.50 per diluted share, in the same quarter of the prior
year. After recording the special charges, the Company incurred a net loss of
$527.0 million or $1.20 per diluted share in the third quarter of 1998 compared
to net income of $202.6 million or $0.47 per diluted share in the prior year
quarter.
First Nine Months of 1998 Compared with the First Nine Months of 1997
REVENUES Nine Months Increase
-------------------------------
Millions of dollars 1998 1997 (decrease)
- -------------------------------------------------------------------------------------------------------
Energy Services Group $ 6,828.9 $ 6,080.7 $ 748.2
Engineering and Construction Group 4,164.5 3,722.2 442.3
Dresser Equipment Group 2,070.6 1,978.5 92.1
- -------------------------------------------------------------------------------------------------------
Total revenues $ 13,064.0 $ 11,781.4 $ 1,282.6
- -------------------------------------------------------------------------------------------------------
Consolidated revenues increased 11% to $13,064.0 million in the first
nine months of 1998 compared with $11,781.4 million in the same period of the
prior year. Approximately 63% of consolidated revenues were from international
activities in the first nine months of 1998 compared to 58% in the prior year
period.
Energy Services Group revenues increased 12% for the first nine months
of 1998 over the same period of the prior year compared with a 7% decrease in
drilling activity as measured by the worldwide rotary rig count. A majority of
the increase in revenues was from upstream oil and gas engineering services with
pressure pumping, drilling fluids and drilling systems also reporting increased
revenues primarily related to activities in the first half of the year.
International revenues were about 70% of the group's total revenues for the
period compared to approximately 66% for the prior year nine month period.
Engineering and Construction Group revenues increased 12% to $4,164.5
million in the first nine months of 1998 compared with $3,722.2 million in the
same nine month period of the prior year. Active projects include major LNG
projects in Asia and Africa, an enhanced oil recovery project in Africa and a
major ethylene project in Singapore and increased revenues in Asia/Pacific from
Kinhill, which was acquired in the third quarter of 1997. Revenues were
negatively impacted by the sale of the environmental services business in
December 1997, lower activity in the pulp and paper industry and lower activity
levels for repair and refitting services for the British Royal Navy's fleet of
submarines and surface ships.
Dresser Equipment Group revenues of $2,070.6 million in the first nine
months of 1998 were about 5% higher than 1997 revenues of $1,978.5 million.
About half of the increase in revenues came from the compression and pumping
product line. The flow control and measurement product lines also reported
increased revenues as compared to the first nine months of 1997. The flow
control increase is a result of increased demand for pipeline valve products
whereas the increase within the measurement product line was driven by
strengthened demand for fuel dispensing systems.
11
OPERATING INCOME Nine Months Increase
------------------------------
Millions of dollars 1998 1997 (decrease)
- ------------------------------------------------------------------------------------------------------
Energy Services Group $ 850.1 $ 705.4 $ 144.7
Engineering and Construction Group 187.3 152.6 34.7
Dresser Equipment Group 187.1 148.0 39.1
General corporate (59.7) (51.4) (8.3)
- ------------------------------------------------------------------------------------------------------
Operating income before special charges 1,164.8 954.6 210.2
Special charges (945.1) (18.3) (926.8)
- ------------------------------------------------------------------------------------------------------
Operating income $ 219.7 $ 936.3 $ (716.6)
- ------------------------------------------------------------------------------------------------------
Consolidated operating income for the first nine months of 1998 was
$219.7 million after recognizing a special charge of $945.1 million to provide
for consolidation, restructuring and Merger related expense. Consolidated
operating income before special charges increased 22% to $1,164.8 million in the
first nine months of 1998 compared with $954.6 million in the same period of the
prior year.
Energy Services Group operating income increased 21% to $850.1 million
in the first nine months of 1998 compared with $705.4 million in the same period
of the prior year. The operating margin for the first nine months of 1998 was
12.4% compared operating margin of 11.6% for the same period of the prior year.
The improvement in operating income was due largely to increased activities in
the first half of the current year in pressure pumping, drilling fluids and
drilling services, improved margins on sales of completion products and
increased upstream oil and gas engineering services in Europe and North America.
Engineering and Construction Group operating income for the first nine
months of 1998 increased 23% to $187.3 million compared to 1997 operating income
of $152.6 million for the same period. Operating margins improved to 4.5% for
the first nine months of 1998 from 4.1% for the same period in 1997. Operating
income for the first nine months of 1998 include improved results from
construction and engineering services for the chemicals and refining lines of
business resulting from activities from major LNG projects in Asia and Africa,
an enhanced oil recovery project in Africa and a major ethylene project in
Singapore. Operating income includes settlement of a claim on a Middle Eastern
construction project. Excluding this settlement, operating margins for the first
nine months of 1998 for the Group were about 4.1%.
Dresser Equipment Group operating income was $187.1 million for the
first nine months of 1998 for an increase of 26% compared to $148.0 million
operating income for the first nine months of 1997. Except for power systems,
operating profit for the nine months increased in virtually all product lines,
due to the restructuring initiatives and increased revenues at Dresser-Rand;
cost improvements, better product mix, and increased volume at flow control; and
successful product introductions in the United States, Europe and South America
within the measurement product line.
NONOPERATING ITEMS
Interest expense increased to $95.9 million in the first nine months of
1998 compared to $80.2 million in the same period of the prior year due
primarily to increased short-term borrowings and the Company's issuance of debt
under the Company's medium-term note program in 1997 for working capital,
capital expenditures and acquisitions.
Interest income in the first nine months of 1998 increased to $21.4
million from $15.8 million in the same period of 1997 primarily due to higher
levels of invested cash.
The effective income tax rate before special charges was 37.6% for the
first nine months of 1998 and 37.0% for the same period of 1997. The effective
tax rate, excluding special charges, is expected to remain approximately 38%
during 1998.
Net income before special charges in the first nine months of 1998
increased 21% to $641.6 million, or $1.46 per diluted share, compared with
$529.4 million, or $1.22 per diluted share, in the same period of the prior
year. After recording special charges, the Company incurred a net loss of $80.4
million or $0.18 per diluted share compared to net income of $514.4 million or
$1.19 per diluted share in the first nine months of 1997.
12
LIQUIDITY AND CAPITAL RESOURCES
The Company ended the third quarter of 1998 with cash and equivalents
of $228.5 million, a decrease of $117.8 million from the end of 1997. To conform
Dresser's fiscal year-end to Halliburton's calendar year-end, Dresser's cash
flows are measured from December 31, 1997, rather than from the October 31, 1997
balances included on the condensed consolidated balance sheets.
Operating activities. Cash flows from operating activities provided
$313.6 million in the first nine months of 1998, as compared to $318.5 million
in the first nine months of 1997. Special charges for personnel reductions
required approximately $23 million of cash in the first nine months of the
current year.
Investing activities. Capital expenditures were $687.0 million for the
first nine months of 1998, an increase of 12% over the same period of the prior
year. The increase in capital spending primarily reflects investments in
equipment and infrastructure for the Energy Services Group which includes
strategic investments in oil and gas projects. The Company also continued its
planned investments in its enterprise-wide information system.
During March 1997, DML, which is 51% owned by the Company, completed
the acquisition of Devonport Royal Dockyard plc, which owns and operates the
Government of the United Kingdom's Royal Dockyard in Plymouth, England, for
approximately $64.9 million. Concurrent with the acquisition of the Royal
Dockyard, the Company's ownership interest in DML increased from about 30% to
51% and DML borrowed $56.3 million under term loans (the Dockyard Loans) bearing
interest at approximately LIBOR plus 0.75% payable in semi-annual installments
through March 2004. Pursuant to certain terms of the Dockyard Loans, the Company
was required to provide a compensating balance of $28.7 million which is
restricted as to use by the Company. The compensating balance amount decreases
in proportion to the outstanding debt related to the Dockyard Loans and earns
interest at a rate equal to that of the Dockyard Loans. The compensating balance
was $17.3 million at September 30, 1998.
During April 1997, the Company completed its acquisition of the
outstanding common stock of OGC International plc (OGC) for approximately $118.3
million. OGC is engaged in providing a variety of engineering, operations and
maintenance services, primarily to the North Sea oil and gas production
industry.
Also in April 1997, the Company purchased a 26% ownership interest in
Petroleum Engineering Services (PES) for approximately $33.6 million. PES
provides specialist well completions and interventions, completion services and
completion solutions.
During July 1997, the Company acquired all of the outstanding common
stock of Kinhill Holdings Limited (Kinhill) for approximately $34 million.
Kinhill, headquartered in Australia, provides engineering services in mining and
minerals processing, petroleum and chemicals, water and wastewater,
transportation and commercial and civil infrastructure. Kinhill markets its
services primarily in Australia, Indonesia, Thailand, Singapore, India and the
Philippines.
Financing activities. Cash flows from financing activities were $235.8
million in the first nine months of 1998 compared to cash flows of $55.5 million
in the first nine months of 1997. The Company borrowed $426.7 million in
short-term funds consisting of commercial paper and bank loans in the first nine
months of 1998. Proceeds from exercises of stock options provided cash flows of
$45.0 million in the first nine months of 1998 compared to $61.9 million in the
same period of the prior year.
In the first nine months of 1997, the Company borrowed $67.5 million in
short-term funds net of repayments consisting of commercial paper and bank
loans. Also in the first nine months of 1997, the Company issued $300.0 million
principal amount of notes under the Company's medium-term note program.
The Company believes it has sufficient borrowing capacity to fund its
working capital requirements and investing activities. The Company's combined
short-term notes payable and long-term debt was 32% of total capitalization at
September 30, 1998 compared to 24% at December 31, 1997. The Company's
outstanding corporate credit and senior debt rating was upgraded by Standard &
Poor's from A+ to AA - in October, 1998.
FINANCIAL INSTRUMENT MARKET RISK
The Company is currently exposed to market risk from changes in foreign
currency exchange rates, and to a lesser extent, to changes in interest rates.
To mitigate market risk, the Company selectively hedges its foreign currency
exposure through the use of currency derivative instruments. The objective of
such hedging is to protect the Company's cash flows from fluctuations in
currency rates of sales or purchases of goods or services. Inherent in the use
of derivative instruments are certain types of market risk: volatility of the
currency rates, tenor (time horizon) of the derivative instruments, market
cycles and the type of derivative instruments used. The Company does not use
derivative instruments for trading purposes.
13
The Company uses a statistical model to estimate the potential loss
related to derivative instruments used to hedge the market risk of its foreign
exchange exposure. The model utilizes historical price and volatility patterns
to estimate the change in value of the derivative instruments which could occur
from adverse movements in foreign exchange rates for a specified time period at
a specified confidence interval. The model is an undiversified calculation based
on the variance-covariance statistical modeling technique and includes all
foreign exchange derivative instruments outstanding at September 30, 1998. The
resulting value at risk of $3.4 million estimates with a 95% confidence interval
the potential loss the Company could incur in a one-day period from foreign
exchange derivative instruments due to adverse foreign exchange rate changes.
The Company's interest rate exposures at September 30, 1998 were not
materially changed from December 31, 1997.
ENVIRONMENTAL MATTERS
The Company is involved as a potentially responsible party in remedial
activities to clean up several "Superfund" sites under applicable federal law
which imposes joint and several liability, if the harm is indivisible, on
certain persons without regard to fault, the legality of the original disposal
or ownership of the site. Although it is very difficult to quantify the
potential impact of compliance with environmental protection laws, management of
the Company believes that any liability of the Company with respect to all but
one of such sites will not have a material adverse effect on the results of
operations of the Company. See Note 6 to the condensed consolidated financial
statements for additional information on the one site.
YEAR 2000 READINESS STATEMENT
The Year 2000 (Y2K) issue is the risk that systems, products and
equipment utilizing date-sensitive software or computer chips with two-digit
date fields will fail to properly recognize the Year 2000. Such failures by the
Company's software and hardware or that of government entities, service
providers, suppliers and customers could result in interruptions of the
Company's business which could have a material adverse impact on the Company.
In response to the Y2K issue, the Company has implemented an
enterprise-wide Y2K Program designed to identify, assess and address significant
Y2K issues in the Company's key business operations, including products and
services, suppliers, business and engineering applications, information
technology systems, facilities and infrastructure and joint venture projects.
The Y2K Program is a comprehensive, integrated, multi-phase process
covering information technology systems and hardware as well as equipment and
products with embedded computer chip technology. The primary phases of the
program are: (1) inventorying existing equipment and systems; (2) assessment of
equipment and systems to identify those which are not Y2K ready and to
prioritize critical items; (3) remediating, repairing or replacing non-Y2K ready
equipment and systems; (4) testing to verify Y2K readiness has been achieved;
and (5) deployment and certification.
At the end of the third quarter of 1998, the Company completed most of
its inventory and assessment phases which should be completed by the end of
1998. The Company estimates that it will complete the majority of its
remediation phase by the third quarter of 1999.
Overall the Company estimates that it is approximately 30% to 35%
complete with its Y2K Program and anticipates having its products and
mission-critical systems and equipment Y2K ready during the third quarter of
1999. The balance of 1999 will be focused on deployment, certification,
testing and implementation of new and modified programs as required.
Through September 30, 1998 the Company has incurred approximately $20
million in costs related to its Y2K Program. The Company estimates that prior to
January 1, 2000 it will have spent approximately $60-$65 million to address the
Y2K issue. These estimates do not include the costs associated with the
installation of the Company's enterprise-wide information system project
discussed below. Costs associated with the Y2K Program are being treated as
period costs and expensed as incurred.
The Y2K issue is a pervasive problem for most companies due to the
interdependence of computer systems. Therefore the Company is continually
assessing the risks surrounding this issue and its potential impact on the
Company. This includes the initial phases of business continuity planning,
audits by customers and meetings with its material customers and suppliers.
Meetings and presentations with suppliers to date have indicated that there are
no identified suppliers who expect significant interruption of services or
supplies to the Company. Failure to address Y2K issues could result in business
disruption that could materially affect the Company's operations. In an effort
to minimize business interruptions, the Company is currently in the process of
developing contingency plans in the event circumstances prevent the
14
Company from meeting any portion of its current program schedule. These
contingency plans will be complete and in place by the end of the first quarter
of 1999.
Independent of, but concurrent with, the Company's Y2K review, the
Company is installing an enterprise-wide business information system which is
scheduled to replace some of the Company's key finance, administrative and
marketing software systems by the end of 1999 and is Y2K ready. In addition, the
Company is in the process of replacing its desktop computing equipment and
software and updating its communications infrastructure to be Y2K ready. This
replacement/update program will be completed by the end of 1999.
ACCOUNTING PRONOUNCEMENTS
In February 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits." This standard revises
existing requirements for employers' disclosures for pensions and other
postretirement benefit plans. The standard does not change measurement or
recognition standards for these plans. The Company plans to present the revised
disclosure requirements in its 1998 Annual Report.
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position No. 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use" (SOP 98-1). SOP 98-1 provides
guidelines for companies to capitalize or expense costs incurred to develop or
obtain internal use software. The guidelines set forth in SOP 98-1 do not differ
significantly from the Company's current accounting policy for internal use
software and therefore the Company does not expect a material impact on its
results of operations or financial position from the adoption of SOP 98-1. The
Company plans to adopt SOP 98-1 effective January 1, 1999.
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5, "Reporting on the Costs of Start-Up
Activities" (SOP 98-5). SOP 98-5 requires costs of start-up activities and
organization costs to be expensed as incurred. The Company is evaluating when it
will adopt SOP 98-5 and is currently analyzing the impact on its results of
operations from the adoption of SOP 98-5.
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and for Hedging Activities" (SFAS 133). 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.
SFAS 133 is effective for the Company beginning July 1, 1999. The Company is
currently evaluating SFAS 133 to identify implementation and compliance methods
and has not yet determined the effect, if any, on its results of operations or
financial position.
FORWARD-LOOKING INFORMATION
In accordance with the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995, the Company cautions that the statements in this
quarterly report and elsewhere, which are forward-looking and which provide
other than historical information, involve risks and uncertainties that may
impact the Company's actual results of operations. While such forward-looking
information reflects the Company's best judgment based on current information,
it involves a number of risks and uncertainties and there can be no assurance
that other factors will not affect the accuracy of such forward-looking
information. While it is not possible to identify all factors, the Company
continues to face many risks and uncertainties that could cause actual results
to differ from those forward-looking statements. Such factors include:
litigation; unsettled political conditions, war, civil unrest, currency controls
and governmental actions in over 100 countries of operation; trade restrictions
and economic embargoes imposed by the United States and other countries;
environmental laws, including those that require emission performance standards
for new and existing facilities; the magnitude of governmental spending for
military and logistical support of the type provided by the Company; operations
in countries with significant amounts of political risk, including, without
limitation, Algeria and Nigeria; technological and structural changes in the
industries served by the Company; computer software and hardware and other
equipment utilizing computer technology used by governmental entities, service
providers, vendors, customers and the Company which may be impacted by the Y2K
issue; integration of acquired businesses, including Dresser and its
subsidiaries, into the Company; the risk inherent in the use of derivative
instruments which could cause a change in value of the derivative instruments
from adverse movements in foreign exchange rates; changes in the price of oil
and natural gas; changes in the price of commodity chemicals used by the
Company; changes in capital spending by customers in the hydrocarbon industry
for exploration, development, production, processing, refining and pipeline
delivery networks; increased competition in the hiring and retention of
employees in certain areas coupled with an announced reduction-in-force in other
15
areas; changes in capital spending by customers in the wood pulp and paper
industries for plants and equipment; risks from entering into fixed fee
engineering, procurement and construction projects where failure to meet
schedule, cost estimates or performance targets could result in non-reimbursable
costs which cause the project not to meet expected profit margins; and changes
in capital spending by governments for infrastructure. In addition, future
trends for pricing, margins, revenues and profitability remain difficult to
predict in the industries served by the Company.
16
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
* 3 By-laws of Halliburton Company, as amended and restated effective
September 29, 1998.
* 10(a) Employment Agreement and amendment thereto.
* 10(b) Employment Agreement and amendment thereto.
* 27 Financial data schedules for the nine months ended September 30,
1998.
* Filed with this Form 10-Q
(b) Reports on Form 8-K
During the third quarter of 1998:
A Current Report on Form 8-K dated June 25, 1998, was filed reporting on
Item 5. Other Events, regarding a press release dated June 25, 1998
announcing the results of the Company's special shareholders' meeting.
A Current Report on Form 8-K dated July 6, 1998, was filed reporting on Item
5. Other Events, regarding a press release dated July 6, 1998 announcing the
proposed merger of the Company and Dresser was cleared by the European
Commission.
A Current Report on Form 8-K dated July 7, 1998, was filed reporting on Item
5. Other Events, regarding a press release dated July 7, 1998 announcing the
Company's Halliburton Energy Services business unit was awarded a contract
to provide zonal isolation and pumping services to Phillips Petroleum
Norway.
A Current Report on Form 8-K dated July 9, 1998, was filed reporting on Item
5. Other Events, regarding a press release dated July 9, 1998 announcing
receipt of an Advance Ruling Certificate from the Canadian Bureau of
Competition Policy clearing the merger of the Company and Dresser.
A Current Report on Form 8-K dated July 16, 1998, was filed reporting on
Item 5. Other Events, regarding a press release dated July 16, 1998
announcing declaration of the third quarter dividend.
A Current Report on Form 8-K dated July 22, 1998, was filed reporting on
Item 5. Other Events, regarding a press release dated July 22, 1998
announcing 1998 second quarter earnings.
A Current Report on Form 8-K dated August 21, 1998, was filed reporting on
Item 5. Other Events, regarding a press release dated August 21, 1998
announcing the impending sale of the Company's interest in M-I L.L.C.
A Current Report on Form 8-K dated August 31, 1998, was filed reporting on
Item 5. Other Events, regarding a press release dated August 31, 1998
announcing the completion of the sale of the Company's interest in M-I
L.L.C.
17
During the fourth quarter of 1998 to the date hereof:
A Current Report on Form 8-K dated September 29, 1998, was filed reporting
on Item 5. Other Events, regarding a press release dated September 29, 1998
announcing the completion of the merger between the Company and Dresser
Industries, Inc.
A Current Report on Form 8-K dated September 29, 1998, was filed reporting
on Item 2. Acquisition or Disposition of Assets, regarding the acquisition
of Dresser Industries, Inc., pursuant to the plan of merger dated as of
February 25, 1998.
A Current Report on Form 8-K/A dated September 29, 1998, was filed reporting
on Item 2. Acquisition or Disposition of Assets, regarding the acquisition
of Dresser Industries, Inc., and included supplemental financial statements
for Halliburton Company for the three years ended December 31, 1997 and six
months ended June 30, 1998.
A Current Report on Form 8-K dated October 29, 1998, was filed reporting on
Item 5. Other Events, regarding a press release dated October 29, 1998,
announcing third quarter earnings.
A Current Report on Form 8-K dated October 30, 1998, was filed reporting on
Item 5. Other Events, regarding a press release dated October 30, 1998
announcing fourth quarter dividend.
18
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 hereunto duly authorized.
HALLIBURTON COMPANY
Date November 16, 1998 By: /s/ Gary V. Morris
--------------------- ---------------------------------
Gary V. Morris
Executive Vice President and
Chief Financial Officer
/s/ R. Charles Muchmore, Jr.
---------------------------------
R. Charles Muchmore, Jr.
Vice President and Controller
(Principal Accounting Officer)
19
Index to exhibits filed with this quarterly report.
Exhibit
Number Description
- -------- --------------------------
3 By-laws of Halliburton Company, as amended and restated effective
September 29, 1998.
10(a) Employment Agreement and amendment thereto.
10(b) Employment Agreement and amendment thereto.
27 Financial data schedules for the nine months ended September 30,
1998.