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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 (Fee required) For the fiscal year ended December 31, 1995
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 (No fee required) For the transition period from to
Commission File Number 1-3492
HALLIBURTON COMPANY
(Exact name of registrant as specified in its charter)
Delaware 73-0271280
(State or other jurisdiction of (I.R.S. Employer
incorporation of organization) Identification No.)
3600 Lincoln Plaza, Dallas, Texas 75201
(Address of principal executive offices)
Telephone Number - Area code (214) 978-2600
Securities registered pursuant to Section 12(b) of the Act:
Name of each Exchange on
Title of each class which registered
Common Stock par value $2.50 per share New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
The aggregate market value of Common Stock held by nonaffiliates on February 15,
1996, determined using the per share closing price on the New York Stock
Exchange Composite tape of $54.00 on that date was approximately $6,192,100,000.
As of February 15, 1996, there were 114,668,223 shares of Halliburton Company
Common Stock $2.50 par value per share outstanding.
Portions of the Halliburton Company Proxy Statement dated March 26, 1996, are
incorporated by reference into Part III of this report.
PART I
Item 1. Business.
General Development of Business. Halliburton Company (the Company) was
established in 1919 and incorporated under the laws of the state of Delaware in
1924. The Company provides energy services and engineering and construction
services. Information related to acquisitions and dispositions is set forth in
Note 13 to the financial statements of this Annual Report.
Financial Information About Business Segments. The Company is comprised of
two business segments. See Note 9 to the financial statements of this Annual
Report for financial information about these two business segments.
Description of Services and Products. The following is a summary which
briefly describes the Company's services and products for each business segment.
Halliburton Energy Services (Energy Services) provides a wide range of
services and products to provide integrated solutions to customers in the
exploration, development and production of oil and natural gas. Energy Services
operates worldwide serving major oil companies, independent operators and
national oil companies. The services and products provided by Energy Services
include cementing, casing equipment and water control services; completion and
production products; directional drilling systems, measurement while drilling,
logging while drilling and mud logging services; open and cased hole logging and
perforating services and logging and perforating products; well testing,
reservoir description and evaluation services, tubing conveyed well completion
systems and reservoir engineering services; stimulation, sand control services
and coiled tubing services; and wellhead pressure control equipment, well
control, hydraulic workover and downhole video services.
Engineering and Construction Services (Brown & Root) includes services for
both land and marine activities. Included are technical and economic feasibility
studies, site evaluation, licensing, conceptual design, process design, detailed
engineering, procurement, project and construction management, construction and
start-up assistance of electric utility plants, chemical and petrochemical
plants, refineries, pulp and paper mills, metal processing plants, highways and
bridges, subsea construction, fabrication and installation of subsea pipelines,
offshore platforms, production platform facilities, marine engineering and other
marine related projects, contract maintenance and operations and maintenance
services for both industry and government, engineering and environmental
consulting and waste management services for industry, utilities and government,
and remedial engineering and construction services for hazardous waste sites.
Markets and Competition. The Company is one of the world's largest
diversified energy services and engineering and construction services companies.
The Company's services and products are sold in highly competitive markets
throughout the world. Competition in both services and products is based upon a
combination of price, service (including the ability to deliver services and
products on an "as needed where needed" basis), product quality, warranty and
technical proficiency. Some Energy Services' and Engineering and Construction
Services' customers have indicated a preference for integrated services and
solutions. These integrated solutions, in the case of Energy Services, relate to
all phases of exploration and production of oil and gas, and, in the case of
Engineering and Construction Services, relate to all phases of design,
procurement, construction, project management and maintenance of a facility.
Demand for these types of integrated solutions is based primarily upon quality
of service, technical proficiency and overall price.
The Company conducts business worldwide in over 100 countries. Since the
market for the Company's services and products is so large and crosses many
geographic lines, a meaningful estimate of the number of competitors cannot be
made. The markets are, however, highly competitive with many substantial
companies operating in each market. Generally, the Company's services and
products are marketed through its own servicing and sales organizations. A small
percentage of sales of Energy Services' products is made by supply stores and
third-party representatives.
Operations in some countries may be affected by unsettled political
conditions, expropriation or other governmental actions, and exchange control
and currency problems. The Company believes the geographic diversification of
its business activities reduces the risk that loss of its operations in any one
country would be material to the conduct of its operations taken as a whole.
Information regarding the Company's exposures to foreign currency fluctuations,
risk concentration and financial instruments used to minimize risk is included
in Note 11 to the financial statements of this Annual Report.
2
Customers and Backlog. Substantially all of the Company's Energy Services
and a significant portion of Engineering and Construction Services are related
to the energy industry. In 1995, 1994, and 1993, respectively, 78%, 78% and 79%
of the Company's revenues were derived from the sale of products and services
to, including construction for, the energy industry. The following schedule
summarizes the backlog of engineering and construction projects at December 31,
1995 and 1994:
1995 1994
------ ------
(In millions)
Firm orders $3,961 $3,780
Government orders firm but not yet funded 634 828
Letters of intent and contracts
awarded but not signed 6 84
------ ------
Total $4,601 $4,692
====== ======
It is estimated that nearly 65% of the backlog existing at December 31,
1995 will be completed during 1996. The Company does not believe that
engineering and construction backlog should necessarily be relied on as an
indication of future operating results since such backlog figures are subject to
substantial fluctuations. Arrangements included in backlog are in many instances
extremely complex, nonrepetitive in nature and may fluctuate in contract value.
Many contracts do not provide for a fixed amount and are subject to modification
or termination by the customer. Due to the size of certain contracts, the
termination or modification of any one or more contracts or the addition of
other contracts may have a substantial and immediate effect on backlog. Orders
for Energy Services are generally placed by customers on the basis of current
need. Therefore, backlog of orders for these services and products are not
material.
Raw Materials. Raw materials essential to the Company's business are
normally readily available. Where the Company is dependent on a single supplier
for any materials essential to its business, the Company is confident that it
could make satisfactory alternative arrangements in the event of interruption in
the supply of such materials.
Research, Development and Patents. The Company maintains an active research
and development program to assist in the improvement of existing products and
processes, the development of new products and processes and the improvement of
engineering standards and practices that serve the changing needs of its
customers. Information relating to expenditures for research and development is
included in Note 1 to the financial statements of this Annual Report.
The Company owns a large number of patents and has pending a substantial
number of patent applications covering various products and processes. It is
also licensed under patents owned by others. The Company does not consider a
particular patent or group of patents to be material to the Company's business.
Seasonality. Weather and natural phenomena can temporarily affect the
performance of the Company's services. Winter months in the Northern Hemisphere
tend to affect operations negatively, but the widespread geographical locations
of the Company's services serve to mitigate the seasonal nature of the Company's
business.
Employees. At December 31, 1995 the Company employed approximately 57,300
people of which 23,300 were located outside the United States.
Regulation. The Company is subject to various environmental laws and
regulations. Compliance with such requirements has neither substantially
increased capital expenditures or adversely affected the Company's competitive
position, nor materially affected the Company's earnings. The Company does not
anticipate any such material adverse effects in the foreseeable future as a
result of such existing laws and regulations. Note 10 to the financial
statements of this Annual Report discusses the Company's involvement as a
potentially responsible party in remedial activities to clean up various
"Superfund" sites.
Item 2. Properties.
Information relating to lease payments is included in Note 10 to the
financial statements of this Annual Report. The Company's owned and leased
facilities, as described below, are suitable and adequate for their intended
use.
Energy Services owns manufacturing facilities covering approximately
3,400,000 square feet. Principal locations of these manufacturing facilities are
Davis and Duncan, Oklahoma; Alvarado, Amarillo, Carrollton, Fort Worth, Garland,
Houston and Mansfield, Texas; Arbroath, Scotland; Reynosa, Mexico; and Jurong,
Singapore. The manufacturing facilities at Davis, Amarillo, and one of four
locations in Houston were idle at the end of 1995. The manufacturing facility in
Cisco, Texas was sold in 1995. The manufacturing facility in Mansfield, Texas is
leased to another company. Energy Services also leases manufacturing facilities
covering approximately 96,000 square feet. Principal locations of these
facilities are Jurong, Singapore; Basingstoke, England; and Kilwinning,
Scotland. Research, development and engineering activities are carried out in
owned facilities covering approximately 440,000 square feet in Duncan, Oklahoma;
Houston and Carrollton, Texas; and Aberdeen, Scotland; and leased facilities
covering approximately 41,000 square feet in Bedford, England; and Leiderdorp,
3
Holland. One of two facilities in Houston was idle at the end of 1995. In
addition, service centers, sales offices and field warehouses are operated at
approximately 200 locations in the United States, almost all of which are owned,
and at approximately 270 locations outside the United States in both the Eastern
and Western Hemispheres.
Engineering and Construction Services owns manufacturing facilities
covering approximately 441,000 square feet in Houston, Texas, and Edmonton,
Canada of which 388,000 square feet in Houston is leased to another Company.
Engineering and Construction Services also owns marine fabrication facilities
covering approximately 640 acres in Belle Chasse, Louisiana; Greens Bayou,
Texas; Sunda Strait, Indonesia (35% owned); and Nigg and Wick, Scotland. The
Belle Chasse, Louisiana facility consisting of approximately 165 acres is idle.
Engineering and design, project management and procurement services activities
are carried out in owned facilities covering approximately 4,800,000 square feet
in Houston, Texas; Edmonton, Canada; Leatherhead, England; and Aberdeen,
Scotland. Approximately 1,000,000 square feet of the Aberdeen facility was
leased to another company and 400,000 square feet was idle at the end of 1995.
These activities are also carried out at leased facilities covering
approximately 2,000,000 square feet in Mobile, Alabama; Alhambra, California;
Gaithersburg, Maryland; Aiken, South Carolina; Eastleigh and London, England;
Kuala Lumpur, Malaysia; Stavanger, Norway; Singapore; Aberdeen, Scotland; Plzen,
Czech Republic; Al Khobar, Saudi Arabia; and Bahrain. In addition, laboratories,
service centers, and sales offices are operated at approximately 30 locations in
the United States, almost all of which are leased by the Company, and at
approximately 10 foreign locations in both the Eastern and Western Hemispheres.
General Corporate operates from leased facilities in Dallas, Texas covering
approximately 55,000 square feet. The Company also leases approximately 5,500
square feet of space in Washington, D.C. In connection with outsourcing of the
computer and data processing services, the 85,000 square foot mainframe
processing center in Arlington, Texas has been leased to another company which
has the exclusive right to purchase the facility until April, 1996.
Item 3. Legal Proceedings.
Information relating to various commitments and contingencies is described
in Note 10 to the financial statements of this Annual Report.
Item 4. Submission of Matters to a Vote of Security Holders.
There were no matters submitted to a vote of security holders during the
fourth quarter of 1995.
4
Item 4(A). Executive Officers of the Registrant.
The following table indicates the names and ages of the executive officers
of the registrant along with a listing of all offices held by each during the
past five years:
Name and Age Offices Held and Term of Office
* Richard B. Cheney Director of Registrant, since October 1995.
(Age 55) Chairman of the Board, since January 1996
President and Chief Executive Officer, since
October 1995
Senior Fellow, American Enterprise Institute,
1993 to October 1995
Secretary, U.S. Department of Defense, 1989 to 1992
Lester L. Coleman Executive Vice President and General Counsel,
(Age 53) since May 1993
President of Energy Services Group, September 1991
to May 1993
Executive Vice President of Finance and Corporate
Development, January 1988 to September 1991
* Dale P. Jones Director of Registrant, since December 1988
(Age 59) Vice Chairman, since October 1995
President, June 1989 to October 1995
* Tommy E. Knight President and Chief Executive Officer of
(Age 57) Brown & Root, Inc., since May 1992
Executive Vice President - Operations of
Brown & Root, Inc, January 1990 to May 1992
* David J. Lesar Executive Vice President and Chief Financial
(Age 42) Officer, since August 1995
Executive Vice President of Finance and
Administration of Halliburton Energy Services,
November 1993 to August 1995
Partner, Arthur Andersen LLP, 1988 to November 1993
* Kenneth R. LeSuer President and Chief Executive Officer of Halliburton
(Age 60) Energy Services, since March 1994
President and Chief Operating Officer of Halliburton
Energy Services, May 1993 to March 1994
President and Chief Executive Officer of Halliburton
Services, December 1989 to May 1993
* Members of the Executive Committee of the registrant.
There are no family relationships between the executive officers of the
registrant.
5
PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholder
Matters.
The Company's common stock is traded on the New York Stock Exchange, the
Stock Exchange of London, and the Swiss Stock Exchanges at Zurich, Geneva, Basel
and Lausanne. Information relating to market prices of common stock and
quarterly dividend payments is included under the caption "Quarterly Data and
Market Price Information" on page 30 of this Annual Report. At December 31,
1995, there were approximately 16,200 shareholders of record. In calculating the
number of shareholders, the Company considers clearing agencies and security
position listings as one shareholder for each agency or listing.
Item 6. Selected Financial Data.
Information relating to selected financial data is included on page 31 of
this Annual Report.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Information relating to management's discussion and analysis of financial
condition and results of operations is included on pages 7 to 9 of this Annual
Report.
Item 8. Financial Statements and Supplementary Data.
Page No.
Responsibility for Financial Reporting............................ 10
Report of Arthur Andersen LLP, Independent Public Accountants..... 11
Consolidated Statements of Income for the Years Ended
December 31, 1995, 1994 and 1993............................. 12
Consolidated Balance Sheets at December 31, 1995 and 1994......... 13
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1995, 1994 and 1993............................. 14
Consolidated Statements of Shareholders' Equity for the
Years Ended December 31, 1995, 1994 and 1993................. 15
Notes to Financial Statements..................................... 16 to 29
Quarterly Data and Market Price Information....................... 30
The related financial statement schedules are included under Part IV, Item 14 of
this Annual Report.
6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
BUSINESS ENVIRONMENT AND OUTLOOK Approximately 80% of the Company's
revenues are derived from services and products delivered to the energy
industry. The Company operates in over 100 countries around the world to provide
a variety of energy services and engineering and construction services.
Operations in some countries may be affected by unsettled political conditions,
expropriation or other governmental actions, and exchange control and currency
problems. The Company believes the geographic diversification of its business
activities reduces the risk that loss of its operations in any one country would
be material to the conduct of its operations as a whole.
The energy industry. The energy industry has experienced declining selling
prices per barrel of oil equivalent, adjusted for inflation, during the past ten
years. Per barrel costs of finding, developing and producing hydrocarbons have
also declined. This is the result of several factors. Energy companies have
restructured to reduce costs. Technological advances such as horizontal
drilling, geosteering, logging while drilling, multi-lateral completions, 3-D
seismic and coiled tubing applications are decreasing costs, improving well
productivity and optimizing the ultimate recovery of hydrocarbon reserves. In
addition, there is a trend toward incentive contracts between energy companies
and their suppliers, alliances, contracts to produce, outsourcing arrangements
and integrated solution approaches in order to reduce costs and share risks and
gains from efficiencies. Although in early stages of development, the Company
expects that the integrated solutions approach will be a major future growth
area. The current outlook based upon published sources is that demand for oil
and natural gas will increase with economic growth and that prices for oil and
natural gas will be stable near term and increase moderately longer term. One
major uncertainty is the potential negative impact on oil prices should Iraq
reenter the market. Significant market areas with increasing exploration and
development activities include international and the Gulf of Mexico.
Services to the energy industry. The operations of the Company devoted to
the energy industry are impacted by changes in oil and natural gas development
activities in major producing areas throughout the world. These activities are
sensitive to government actions in major producing countries, oil and natural
gas prices and capital spending for hydrocarbon exploration, development,
production, processing and pipeline delivery networks. In response to customer
efforts to reduce costs and increase production, the Company has reorganized its
operations to reduce its overall service and product delivery costs through
increased productivity and cost efficiencies. The Company has the capability to
provide a wide range of services needed to operate an existing oil and natural
gas field or a new field and to handle all phases of bringing energy to market,
including drilling and completing wells, building pipelines and other means of
transportation and building refineries. The Company provides project management,
development planning, well construction, production enhancement and production
maintenance services to the energy industry through its Energy Services and
Engineering and Construction Services segments. Based upon the outlook for the
energy industry, the Company expects revenue growth in 1996 with some
improvement in operating margins.
Other industries served. The remaining 20% of the Company's revenues are
derived from engineering, construction, maintenance, environmental services and
logistical support services to governmental and industrial customers worldwide.
According to published sources, these markets are expected to grow 15% to 20% in
1996. These markets are sensitive to changes in the economies of the world,
government actions in the major economies and capital spending by industries and
governments throughout the world.
The Company's outlook. The Company's outlook could be negatively impacted
by any of the factors noted above including significant changes in oil and gas
prices, world economic and political conditions, and new or modified embargoes
against oil and gas producing countries such as Iran, Iraq, Libya and Nigeria.
RESULTS OF OPERATIONS
Revenues in 1995 were $5,698.7 million, an increase of 3% over 1994
revenues of $5,510.2 million but a 6% decrease from 1993 revenues of $6,094.1
million. Excluding the revenues of businesses sold in 1994, revenues in 1995
increased by 5% over 1994 revenues and by 1% over 1993 revenues. Approximately
51% of the Company's consolidated revenues were derived from international
activities in 1995 compared to 45% in 1994 and 43% in 1993. Consolidated
international revenues increased 17% in 1995 over 1994 and 19% over 1993. Energy
Services 1995 revenues increased by 4% to $2,623.4 million in 1995 compared to
1994 but declined by 11% from 1993 revenues. Excluding the revenues of
businesses sold in 1994, Energy Services 1995 revenues increased by 7% over 1994
and 6% over 1993 primarily due to higher international activity levels,
partially offset by a decline in the United States. Energy Services revenues per
rotary rig, excluding the revenues of businesses sold in 1994, were up by 11% in
1995 over 1994 and up by 6% over 1993. The increases in revenues per rotary rig
were accomplished at the same time the rotary rig count declined by 3% in 1995
compared to 1994 and was the same as 1993. International revenues per rotary rig
increased 15% in 1995 over 1994 and 10% over 1993. United States revenues per
rotary rig increased 5% in 1995 over 1994 but was down about 1% from 1993.
Engineering and Construction Services 1995 revenues increased by 3% to $3,075.3
million in 1995 compared to 1994, but decreased by 2% compared to 1993.
7
Operating income was $383.2 million in 1995 compared to $236.1 million in
1994 and an operating loss of $91.5 million in 1993. Excluding the special items
and businesses sold in 1994 as described below, 1995 operating income increased
by 54% over 1994 operating income of $248.4 million and by 68% over 1993
operating income of $227.7 million. Approximately 63% of the Company's
consolidated operating income was derived from international activities in 1995
compared to 46% in 1994 and 60% in 1993. Consolidated international operating
margins were 8% in 1995 compared to 5% in 1994 and 6% in 1993. Energy Services
operating income in 1995 was $313.7 million, compared to $191.8 million in 1994
and a loss of $148.4 million in 1993. Excluding the special items and businesses
sold in 1994 as described below, operating income in 1995 increased 54% over
1994 and 84% over 1993. Operating income increased in all geographic regions
worldwide. Operating margins during 1995, 1994 and 1993 were 12%, 8% and 7%,
respectively. The increase in 1995 margins was due to lower indirect costs and
international revenue growth. 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 the United States. Engineering
and Construction Services operating income in 1995 increased 53% over 1994 and
31% over 1993 to $103.0 million. The increase in 1995 operating income is
primarily due to improved performance in international marine construction
activities and petrochemical engineering and construction activities in the
Middle East. Operating income in 1994 includes a $5.0 million gain on the sale
of an environmental remediation subsidiary.
1994 1993
------------------------------ ------------------------------
Energy Energy
Millions of dollars Consolidated Services Consolidated Services
-------------- -------------- -------------- --------------
Operating income before special items
and businesses sold in 1994 $ 248.4 $ 204.1 $ 227.7 $ 170.8
Businesses sold in 1994 30.3 30.3 2.6 2.6
-------------- -------------- -------------- --------------
278.7 234.4 230.3 173.4
Employee severance costs (42.6) (42.6) (20.0) (20.0)
Loss on sale of geophysical business - - (301.8) (301.8)
-------------- -------------- -------------- --------------
Operating income (loss) $ 236.1 $ 191.8 $ (91.5) $ (148.4)
============== ============== ============== ==============
Businesses sold in 1994 were the geophysical products and services
business, natural gas compression business and the workover platform business.
Special items recognized in 1994 and 1993 are as follows: In 1994, the
Company sold its natural gas compression business and recognized a $102.0
million gain in other nonoperating income ($64.3 million net of income taxes).
In addition, the Company recognized a $42.6 million charge against Energy
Services operating income ($27.7 million net of income taxes) to recognize
severance costs for the termination of about 2,700 employees. The terminations
mostly impacted middle and senior management levels and various product line
support and general and administrative employees. In 1993, the Company
recognized a $301.8 million charge against Energy Services operating income
($263.8 million net of income taxes) to reflect the net realizable value of the
Company's geophysical operations which were disposed of in January 1994. The
Company also provided a $20.0 million charge in 1993 ($13.0 million net of
income taxes) related to Energy Services non-geophysical employee severance
costs. The provision for income taxes in 1993 was reduced by $40.4 million due
to a settlement with the Internal Revenue Service relating to tax assessments
for the 1980 - 1987 years and also reduced by $6.4 million due to changes in
Federal income tax laws. See Note 5 to the financial statements.
Interest income increased in 1995 to $27.8 million from $16.1 million in
1994 and $14.0 million in 1993 due primarily to higher levels of invested cash.
Foreign currency gains (losses) netted to a gain of $1.5 million in 1995
compared to losses of $16.0 million in 1994 and $20.8 million in 1993. Included
in the 1995 results were gains from devaluations of the Nigerian Naira and the
Venezuelan Bolivar offset by losses in other currencies, particularly the
Mexican Peso. Losses in 1994 and 1993 related primarily to Brazil and Venezuela.
Losses in 1993 also included losses from certain African currency exposures. The
Company routinely hedges its exposures to currency fluctuations using simple
currency derivative instruments. See Note 11 to the financial statements for a
description of such exposures and derivative instruments.
Provision for income taxes was higher in 1995 than in 1994 and 1993 due to
increased income. The effective income tax rates, excluding the businesses sold
in 1994 and the special items outlined above, declined to 36% in 1995 from 42%
in 1994 and 47% in 1993. The declines in the effective income tax rate were due
primarily to the decrease in losses not currently benefited and increased
realization of available net operating losses.
8
Millions of dollars 1994 1993
------- -------
Income from continuing operations before special items
and businesses sold in 1994 $ 116.0 $ 95.0
Businesses sold in 1994 19.7 (5.5)
------- -------
135.7 89.5
Gain on sale of natural gas compression business 64.3 -
Employee severance costs (27.7) (13.0)
Loss on sale of geophysical business - (263.8)
Internal Revenue Service settlement - 40.4
Change in Federal income tax laws - 6.4
------- -------
Income (loss) from continuing operations $ 172.3 $(140.5)
======= =======
DISCONTINUED OPERATIONS consists of the Company's Insurance Services Group.
The Company declared a dividend on December 26, 1995 and subsequently
distributed its property and casualty insurance subsidiary, Highlands Insurance
Group, Inc. (HIGI), to its shareholders in a tax-free spin-off on January 23,
1996. The operations of the Insurance Services Group have been classified as
discontinued operations. During 1995, HIGI increased its reserves for claim
losses and related expenses and provisions for certain legal matters which
together with certain other provisions associated with the Company's complete
exit from the insurance industry resulted in a $67.2 million charge against net
earnings. See Note 14 to the financial statements for further information.
LIQUIDITY AND CAPITAL RESOURCES
The Company ended the year 1995 with cash and equivalents of $174.9 million
compared with $375.3 million in 1994 and $7.5 million in 1993. The decrease in
cash and equivalents is primarily due to the prepayment of debt of $432.7
million, partially offset by increased cash flows from operating activities. The
Company's cash return on gross invested capital, consistent with the Company's
Cash Value Added performance measurement, adopted in 1994, was 13% in 1995
compared to 9% in 1994 and 5% in 1993. This is due to improved operating cash
flows, dispositions of businesses and unproductive assets, the prepayment of
debt and the spin-off of HIGI.
CASH FLOWS FROM OPERATING ACTIVITIES were $632.0 million in 1995 compared
to $415.4 million in 1994 and $269.6 million in 1993. The increases are
attributable primarily to increased income and, in 1995, reductions in working
capital.
CASH FLOWS FROM INVESTING ACTIVITIES used $238.3 million in 1995 compared
to $210.9 million in cash provided in 1994 and $323.4 million of cash used in
1993. Capital expenditures increased in 1995 by 24% over 1994 and 18% over 1993
mostly representing investments in new technologies such as logging while
drilling and multi-lateral completions. The Company's capital expenditures are
expected to continue to increase in 1996 as new technologies will continue to be
developed and deployed. In 1994, the Company sold substantially all of the
assets of its geophysical services and products business for $190.0 million and
its natural gas compression business for $205.0 million.
CASH FLOWS USED FOR FINANCING ACTIVITIES were $591.3 million in 1995
compared to $252.7 million in 1994 and $81.0 million in 1993. The increase in
outflows is due to higher payments of long-term indebtedness. In 1995, the
entire outstanding principal amounts of the zero coupon convertible subordinated
debentures of $390.7 million and the $42.0 million term loan were redeemed with
available cash resources. See Note 6 to the financial statements. In 1994, the
Company redeemed the remaining $23.8 million of its 10.2% debentures and made
$48.8 million in installments on the $73.8 million note issued by the Company to
the buyer of the geophysical business. In 1993, the Company redeemed $56.5
million principal amount of its debentures. Total debt was 11%, 26% and 27% of
total capitalization at the end of 1995, 1994 and 1993, respectively. The
Company has the ability to borrow additional short-term and long-term funds if
necessary. See Note 6 to the financial statements regarding the Company's
various short-term lines of credit. In 1993, in connection with the acquisition
of the drilling systems business, the Company issued 6,857,000 shares of Common
Stock previously held as treasury stock valued at approximately $247 million.
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
one of such sites will not have a material adverse effect on the results of
operations of the Company. See Note 10 to the financial statements for
additional information on the one site.
9
RESPONSIBILITY FOR FINANCIAL REPORTING
Halliburton Company is responsible for the preparation and integrity of its
published financial statements. The financial statements have been prepared in
accordance with accounting principles generally accepted in the United States
and, as such, include amounts based on judgments and estimates made by
management. The Company also prepared the other information included in the
annual report and is responsible for its accuracy and consistency with the
financial statements.
The financial statements have been audited by the independent accounting
firm, Arthur Andersen LLP, which was given unrestricted access to all financial
records and related data, including minutes of all meetings of stockholders, the
board of directors and committees of the board.
The Company maintains a system of internal control over financial
reporting, which is intended to provide reasonable assurance to the Company's
management and board of directors regarding the preparation of financial
statements. The system includes a documented organizational structure and
division of responsibility, established policies and procedures including codes
of conduct to foster a strong ethical climate, which are communicated throughout
the Company, and the careful selection, training and development of our people.
Internal auditors monitor the operation of the internal control system and
report findings and recommendations to management and the board of directors,
and corrective actions are taken to address control deficiencies and other
opportunities for improving the system as they are identified. The board,
operating through its audit committee, which is composed entirely of directors
who are not officers or employees of the Company, provides oversight to the
financial reporting process.
There are inherent limitations in the effectiveness of any system of
internal control, including the possibility of human error and the circumvention
or overriding of controls. Accordingly, even an effective internal control
system can provide only reasonable assurance with respect to financial statement
preparation. Furthermore, the effectiveness of an internal control system may
change over time.
The Company assessed its internal control system in relation to criteria
for effective internal control over financial reporting described in "Internal
Control-Integrated Framework" issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based upon that assessment, the
Company believes that, as of December 31, 1995, its system of internal control
over financial reporting met those criteria.
HALLIBURTON COMPANY
by (Dick Cheney) by (David J. Lesar)
Dick Cheney David J. Lesar
Chairman of the Board, President Executive Vice President
and Chief Executive Officer and Chief Financial Officer
10
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Shareholders and Board of
Directors,
Halliburton Company:
We have audited the accompanying consolidated balance sheets of Halliburton
Company (a Delaware corporation) and subsidiary companies as of December 31,
1995 and 1994, and the related consolidated statements of income, cash flows and
shareholders' equity for each of the three years in the period ended December
31, 1995. These financial statements are the responsibility of Halliburton
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Halliburton
Company and subsidiary companies as of December 31, 1995 and 1994, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1995, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Dallas, Texas
January 23, 1996
11
Consolidated Statements of Income
Years ended December 31
Millions of dollars and shares except per share data 1995 1994 1993
----------- ----------- -----------
Revenues
Energy services $ 2,623.4 $ 2,514.0 $ 2,953.4
Engineering and construction services 3,075.3 2,996.2 3,140.7
----------- ----------- -----------
Total revenues $ 5,698.7 $ 5,510.2 $ 6,094.1
=========== =========== ===========
Operating income (loss)
Energy services $ 313.7 $ 191.8 $ (148.4)
Engineering and construction services 103.0 67.2 78.9
General corporate (33.5) (22.9) (22.0)
----------- ----------- -----------
Total operating income (loss) 383.2 236.1 (91.5)
Interest expense (46.2) (47.1) (50.1)
Interest income 27.8 16.1 14.0
Foreign currency gains (losses) 1.5 (16.0) (20.8)
Gain on sale of compression services - 102.0 -
Other nonoperating income, net 0.3 0.4 0.7
----------- ----------- -----------
Income (loss) from continuing operations before income taxes and
minority interests 366.6 291.5 (147.7)
(Provision) benefit for income taxes (131.9) (119.0) 5.7
Minority interest in net (income) loss of consolidated subsidiaries (0.9) (0.2) 1.5
----------- ----------- -----------
Income (loss) from continuing operations 233.8 172.3 (140.5)
Income (loss) from discontinued operations (65.5) 5.5 (20.5)
----------- ----------- -----------
Net income (loss) $ 168.3 $ 177.8 $ (161.0)
=========== =========== ===========
Income (loss) per share
Continuing operations $ 2.04 $ 1.51 $ (1.25)
Discontinued operations (0.57) 0.05 (0.18)
Net income (loss) 1.47 1.56 (1.43)
Average common shares outstanding 114.5 114.2 112.5
See notes to financial statements.
12
Consolidated Balance Sheets
December 31
Millions of dollars and shares 1995 1994
------------ ----------
Assets
Current assets:
Cash and equivalents $ 174.9 $ 375.3
Receivables:
Notes and accounts receivable (less allowance for bad debts of $36.4 and $34.8) 1,157.3 1,101.8
Unbilled work on uncompleted contracts 233.7 173.4
Refundable Federal income taxes - 13.4
------------ ----------
Total receivables 1,391.0 1,288.6
Inventories 251.5 268.9
Deferred income taxes 137.5 64.7
Other current assets 95.0 121.5
------------ ----------
Total current assets 2,049.9 2,119.0
Property, plant and equipment:
At cost 3,337.0 3,409.7
Less accumulated depreciation 2,225.8 2,334.9
------------ ----------
Net property, plant and equipment 1,111.2 1,074.8
Equity in and advances to related companies 115.4 94.6
Excess of cost over net assets acquired (net of accumulated amortization
of $31.8 and $37.4) 207.5 213.3
Deferred income taxes 5.6 55.8
Net assets of discontinued operations - 286.6
Other assets 157.0 161.3
------------ ----------
Total assets $ 3,646.6 $ 4,005.4
============ ==========
Liabilities and Shareholders' Equity
Current liabilities:
Short-term notes payable $ 4.8 $ 30.7
Current maturities of long-term debt 5.2 20.1
Accounts payable 357.3 242.2
Accrued employee compensation and benefits 151.8 159.4
Advance billings on uncompleted contracts 301.8 163.3
Income taxes payable 95.8 46.7
Other current liabilities 239.4 188.9
------------ ----------
Total current liabilities 1,156.1 851.3
Long-term debt 200.0 623.0
Employee compensation and benefits 262.8 242.3
Other liabilities 277.9 346.6
------------ ----------
Total liabilities 1,896.8 2,063.2
------------ ----------
Shareholders' equity:
Common stock, par value $2.50 per share- authorized 200.0 shares, 297.6 297.7
issued 119.1 shares
Paid-in capital in excess of par value 199.4 201.7
Cumulative translation adjustment (28.0) (23.1)
Retained earnings 1,431.4 1,629.7
------------ ----------
1,900.4 2,106.0
Less 4.6 and 5.0 shares treasury stock, at cost 150.6 163.8
------------ ----------
Total shareholders' equity 1,749.8 1,942.2
------------ ----------
Total liabilities and shareholders' equity $ 3,646.6 $ 4,005.4
============ ==========
See notes to financial statements.
13
Consolidated Statements of Cash Flows
Years ended December 31
Millions of dollars 1995 1994 1993
--------- ---------- --------
Cash flows from operating activities
Net income (loss) $ 168.3 $ 177.8 $ (161.0)
Adjustments to reconcile net income (loss) to net cash from operating activities:
Depreciation and amortization 244.1 260.2 450.4
Provision (benefit) for deferred income taxes 47.9 86.0 (17.5)
Distributions from (advances to) related companies, net of equity in
(earnings) or losses (20.5) (0.6) 4.7
Appreciation of zero coupon bonds 15.0 21.6 20.3
Gain on sale of compression services - (102.0) -
Net (income) loss from discontinued operations 65.5 (5.5) 20.5
Other non-cash items (11.5) (19.2) 15.1
Other changes, net of non-cash items:
Receivables (83.8) 100.7 (55.6)
Inventories 17.7 92.0 1.9
Accounts payable 69.9 (54.4) (109.1)
Other working capital, net 189.2 (78.0) (169.1)
Other, net (69.8) (63.2) 269.0
--------- ---------- --------
Total cash flows from operating activities 632.0 415.4 269.6
--------- ---------- --------
Cash flows from investing activities
Capital expenditures (288.7) (233.7) (245.3)
Sales of property, plant and equipment 36.0 65.4 29.7
Acquisitions of businesses, net of cash acquired (1.4) (10.7) (27.9)
Dispositions of businesses, net of cash disposed 25.9 400.2 1.2
Other investing activities (10.1) (10.3) (81.1)
--------- ---------- --------
Total cash flows from investing activities (238.3) 210.9 (323.4)
--------- ---------- --------
Cash flows from financing activities
Net payments on long-term borrowings (452.9) (72.9) (57.0)
Net borrowings (payments) of short-term debt (27.0) (65.3) 91.3
Payments of dividends to shareholders (114.3) (114.0) (112.2)
Other financing activities 2.9 (0.5) (3.1)
--------- ---------- --------
Total cash flows from financing activities (591.3) (252.7) (81.0)
--------- ---------- --------
Effect of exchange rate changes on cash (2.8) (5.8) (4.1)
--------- ---------- --------
Increase (decrease) in cash and equivalents (200.4) 367.8 (138.9)
Cash and equivalents at beginning of year 375.3 7.5 146.4
--------- ---------- --------
Cash and equivalents at end of year $ 174.9 $ 375.3 $ 7.5
========= ========== ========
Supplemental disclosure of cash flow information
Cash payments (refunds) during the period for:
Interest $ 25.3 $ 29.1 $ 31.2
Income taxes 28.0 (18.5) 56.7
Non-cash investing and financing activities:
Liabilities assumed in acquisitions of business $ - $ - $ 20.8
Liabilities disposed of in dispositions of businesses 14.6 69.9 3.8
See notes to financial statements.
14
Consolidated Statements of Shareholders' Equity
Years ended December 31
Millions of dollars except share data 1995 1994 1993
----------- ----------- -----------
Common stock (number of shares):
Balance at beginning of year 119,086,591 119,207,996 119,251,366
Shares forfeited under restricted stock plans, net (33,812) (121,405) (43,370)
----------- ----------- -----------
Balance at end of year 119,052,779 119,086,591 119,207,996
=========== =========== ===========
Common stock (dollars):
Balance at beginning of year $ 297.7 $ 298.0 $ 298.1
Shares forfeited under restricted stock plans, net (0.1) (0.3) (0.1)
----------- ----------- -----------
Balance at end of year $ 297.6 $ 297.7 $ 298.0
=========== =========== ===========
Paid-in capital in excess of par value:
Balance at beginning of year $ 201.7 $ 199.8 $ 138.8
Shares issued (forfeited) under restricted stock plans, net (2.3) 1.9 5.2
Shares issued for the acquisition of drilling systems business - - 55.8
----------- ----------- -----------
Balance at end of year $ 199.4 $ 201.7 $ 199.8
=========== =========== ===========
Cumulative translation adjustment:
Balance at beginning of year $ (23.1) $ (24.8) $ (15.6)
Sale of geophysical business - (2.1) -
Other changes net of tax of $(.5) in 1995, $1.1
in 1994 and $3.6 in 1993 (4.9) 3.8 (9.2)
----------- ----------- -----------
Balance at end of year $ (28.0) $ (23.1) $ (24.8)
=========== =========== ===========
Retained earnings:
Balance at beginning of year $ 1,629.7 $ 1,582.8 $ 1,848.5
Net income (loss) 168.3 177.8 (161.0)
Net change in unrealized gains (losses) on investments
held by discontinued operation 16.3 (16.9) 7.5
Spin-off of Highlands Insurance Group, Inc. (268.6) - -
Cash dividends paid ($1.00 per share) (114.3) (114.0) (112.2)
----------- ----------- -----------
Balance at end of year $ 1,431.4 $ 1,629.7 $ 1,582.8
=========== =========== ===========
Treasury stock (number of shares):
Balance at beginning of year 4,989,513 5,119,298 12,118,663
Shares issued under restricted stock plans, net (449,682) (171,150) (249,400)
Purchase of common stock 37,802 41,365 107,035
Shares issued for the acquisition of drilling systems business - - (6,857,000)
----------- ----------- -----------
Balance at end of year 4,577,633 4,989,513 5,119,298
=========== =========== ===========
Treasury stock (dollars):
Balance at beginning of year $ 163.8 $ 168.1 $ 362.5
Shares issued under restricted stock plans, net (14.6) (5.6) (6.2)
Purchase of common stock 1.4 1.3 3.0
Shares issued for the acquisition of drilling systems business - - (191.2)
----------- ----------- -----------
Balance at end of year $ 150.6 $ 163.8 $ 168.1
=========== =========== ===========
See notes to financial statements.
15
NOTES TO FINANCIAL STATEMENTS
Note 1. Significant Accounting Policies
The Company employs accounting policies that are in accordance with
generally accepted accounting principles in the United States. The preparation
of financial statements in conformity with generally accepted accounting
principles requires Company management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenues and expenses during the reporting period.
Ultimate results could differ from those estimates.
Principles of Consolidation. The consolidated financial statements include
the accounts of the Company and all majority-owned subsidiaries. All material
intercompany accounts and transactions are eliminated. Investments in other
affiliated companies in which the Company has at least 20% ownership and does
not have management control are accounted for on the equity method. 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 current year presentation.
Revenues and Income Recognition. The Company recognizes revenues as
services are rendered or products are shipped. The distinction between services
and product sales is based upon the overall business intent of the particular
business operation. Revenues from construction contracts are reported on the
percentage of completion method of accounting using measurements of progress
toward completion appropriate for the work performed. All known or anticipated
losses on any contracts are provided for currently. Claims for additional
compensation are recognized during the period such claims are resolved.
Research and Development. Research and development expenses are charged to
income as incurred. Such charges were $88.5 million in 1995, $109.5 million in
1994 and $126.5 million in 1993. In addition, the Company capitalized software
development costs related primarily to integrated information technologies and
project management of $3.9 million in 1995, $6.4 million in 1994 and $39.8
million in 1993.
Income Per Share. Income per share is based on the weighted average number
of common shares and common share equivalents outstanding during each year.
Common share equivalents included in the computation represent shares issuable
upon assumed exercise of stock options which have a dilutive effect.
Cash Equivalents. The Company considers all highly liquid investments with
an original maturity of three months or less to be cash equivalents.
Receivables. The Company's receivables are generally not collateralized.
Notes and accounts receivable at December 31, 1995 include $22.3 million ($30.1
million at December 31, 1994) due from customers in accordance with applicable
retainage provisions of engineering and construction contracts, which will
become billable upon future deliveries or completion of such contracts. Of the
December 31, 1995 amount, approximately $17.8 million is expected to be
collected during 1996 and the remainder is due in subsequent years. Unbilled
work on uncompleted contracts generally represents work currently billable and
such work is usually billed during normal billing processes in the next month.
Inventories. Inventories are stated at cost which is not in excess of
market. Cost represents invoice or production cost for new items and original
cost less allowance for condition for used material returned to stock.
Production cost includes material, labor and manufacturing overhead. About
one-third of all sales items (including related work in process and raw
materials) are valued on a last-in, first-out (LIFO) basis. Inventories of sales
items owned by foreign subsidiaries and inventories of operating supplies and
parts are generally valued at average cost.
Depreciation, Amortization and Maintenance. Depreciation and amortization
for financial reporting purposes is provided primarily on the straight-line
method over the estimated useful lives of the assets not exceeding 40 years.
Expenditures for maintenance and repairs are expensed; expenditures for renewals
and improvements are generally capitalized. Upon sale or retirement of an asset,
the related cost and accumulated depreciation or amortization are removed from
the accounts and any gain or loss is recognized. In the event that facts and
circumstances indicate that assets may be impaired, an evaluation of
recoverability would be performed. If an evaluation is required, the estimated
future undiscounted cash flows associated with the asset would be compared to
the asset's carrying amount to determine if a write-down to market value or
discounted cash flow value is required.
Income Taxes. A valuation allowance is provided for deferred tax assets if
it is more likely than not these items will either expire before the Company is
able to realize their benefit, or that future deductibility is prohibited or
uncertain. Deferred tax assets and liabilities are recognized for the expected
future tax consequences of events that have been realized in the financial
statements or tax returns.
Derivative Instruments. The Company enters into derivative financial
transactions to hedge existing or projected exposures to changing foreign
exchange rates, interest rates, security prices, or commodity prices. The
Company does not enter into derivative transactions for speculative purposes.
Hedges of derivative financial transactions are generally carried at fair value
with the resulting gains and losses reflected in the results of operations.
16
Foreign Currency Translation. Foreign entities whose functional currency is
the U.S. dollar translate monetary assets and liabilities at year-end exchange
rates and non-monetary items are translated at historical rates. Income and
expense accounts are translated at the average rates in effect during the year,
except for depreciation and cost of product sales which are translated at
historical rates. Gains or losses from changes in exchange rates are recognized
in consolidated income in the year of occurrence. Foreign entities whose
functional currency is the local currency translate net assets at year-end rates
and income and expense accounts at average exchange rates. Adjustments resulting
from these translations are reflected in the Shareholders' Equity section titled
"Cumulative translation adjustment".
Note 2. Inventories
About one-third of all sales items (including related work in process and
raw materials) are valued using the LIFO method. If the average cost method had
been in use for inventories on the LIFO basis, total inventories would have been
about $18.3 million and $21.9 million higher than reported at December 31, 1995
and 1994, respectively.
Millions of dollars 1995 1994
--------- --------
Sales items $ 85.2 $ 97.2
Supplies and parts 121.7 128.8
Work in process 27.1 23.9
Raw materials 17.5 19.0
--------- --------
Total $ 251.5 $ 268.9
========= ========
Note 3. Property, Plant and Equipment
Millions of dollars 1995 1994
--------- ---------
Land $ 56.6 $ 50.1
Buildings and property improvements 534.4 546.3
Machinery and equipment 2,560.1 2,606.6
Other 185.9 206.7
--------- ---------
Total $ 3,337.0 $ 3,409.7
========= =========
Note 4. Related Companies
The Company conducts some of its operations through various joint venture
and other partnership forms which are principally accounted for using the equity
method. Included in the Company's revenues for 1995, 1994 and 1993 are equity in
income of related companies of $88.4 million, $93.0 million and $76.3 million,
respectively. When the Company sells or transfers assets to an affiliated
company that is accounted for using the equity method and the affiliated company
records the assets at fair value, the excess of the fair value of the assets
over the Company's net book value is deferred and amortized over the expected
lives of the assets. Deferred gains included in the Company's other liabilities
were $10.1 million and $19.4 million at December 31, 1995 and 1994,
respectively. Summarized financial statements for European Marine Contractors,
Limited, a 50% owned company which specializes in engineering, procurement and
construction of marine pipelines, and for the remaining combined jointly owned
operations which are not consolidated are as follows:
COMBINED OPERATING RESULTS
Millions of dollars 1995 1994 1993
---------- --------- ---------
European Marine Contractors
Revenues $ 361.8 $ 439.3 $ 296.1
========== ========= =========
Operating income $ 106.9 $ 142.4 $ 85.4
========== ========= =========
Net income $ 72.6 $ 94.4 $ 57.8
========== ========= =========
Other Affiliates
Revenues $ 1,767.2 $ 1,542.2 $ 1,476.4
========== ========= =========
Operating income $ 92.9 $ 81.3 $ 64.9
========== ========= =========
Net income $ 63.0 $ 66.2 $ 49.9
========== ========= =========
17
COMBINED FINANCIAL POSITION
Millions of dollars 1995 1994
--------- ---------
European Marine
Contractors
Current assets $ 238.4 $ 272.1
Noncurrent assets 40.6 58.5
--------- ---------
Total $ 279.0 $ 330.6
========= =========
Current liabilities $ 182.1 $ 233.3
Noncurrent liabilities 18.1 13.9
Shareholders' equity 78.8 83.4
--------- ---------
Total $ 279.0 $ 330.6
========= =========
Other Affiliates
Current assets $ 752.5 $ 725.0
Noncurrent assets 476.1 378.5
--------- ---------
Total $ 1,228.6 $ 1,103.5
========= =========
Current liabilities $ 418.4 $ 230.1
Noncurrent liabilities 403.7 509.1
Shareholders' equity 406.5 364.3
--------- ---------
Total $ 1,228.6 $ 1,103.5
========= =========
Note 5. Income Taxes
The components of the (provision) benefit for income taxes are:
Millions of dollars 1995 1994 1993
--------- --------- ---------
Current income taxes
Federal $ - $ 12.4 $ 55.8
Foreign (78.9) (43.5) (61.5)
State (5.1) (1.9) (6.1)
--------- --------- ---------
Total (84.0) (33.0) (11.8)
--------- --------- ---------
Deferred income taxes
Federal (13.4) (55.3) 27.1
Foreign and state (34.5) (30.7) (9.6)
--------- --------- ---------
Total (47.9) (86.0) 17.5
--------- --------- ---------
Total $ (131.9) $ (119.0) $ 5.7
========= ========= =========
Included in deferred income taxes are foreign tax credits of $31.6 million
in 1995 and $18.4 million in 1994. The U.S. and foreign components of income
(loss) from continuing operations before income taxes and minority interests are
as follows:
Millions of dollars 1995 1994 1993
--------- --------- ---------
U.S. $ 216.7 $ 192.8 $ (138.8)
Foreign 149.9 98.7 (8.9)
--------- --------- ---------
Total $ 366.6 $ 291.5 $ (147.7)
========= ========= =========
18
The primary components of the Company's deferred tax assets and liabilities
and the related valuation allowances are as follows:
Millions of dollars 1995 1994
--------- ---------
Gross deferred tax assets
Net operating loss carryforwards $ 89.2 $ 48.7
Construction contract accounting methods 88.9 34.4
Employee benefit plans 85.6 84.0
Accrued liabilities 54.7 53.6
Intercompany profit 26.8 41.1
Insurance accruals 20.9 25.4
Alternative minimum tax carryforward 15.0 1.5
Foreign tax credits 11.5 14.0
All other 57.8 84.9
--------- ---------
Total 450.4 387.6
--------- ---------
Gross deferred tax liabilities
Depreciation and amortization 68.5 58.5
Unrepatriated foreign earnings 33.2 33.2
Safe harbor leases 13.0 13.9
All other 121.7 119.2
--------- ---------
Total 236.4 224.8
--------- ---------
Valuation allowances
Net operating loss carryforwards 53.2 29.3
All other 17.7 13.0
--------- ---------
Total 70.9 42.3
--------- ---------
Net deferred income tax asset $ 143.1 $ 120.5
========= =========
The Company has foreign tax credits which expire in 2000 of $11.5 million.
The Company has net operating loss carryforwards which expire as follows: 1996,
$11.5 million; 1997, $19.3 million; 1998, $27.0 million; 1999, $30.2 million;
2000 through 2010, $108.7 million; and indefinite, $64.6 million.
Reconciliations between the actual benefit (provision) for income taxes and that
computed by applying the U.S. statutory rate to income or loss from continuing
operations before income taxes and minority interests are as follows:
Millions of dollars 1995 1994 1993
--------- --------- ---------
Benefit (provision) computed at
statutory rate $ (128.3) $ (102.0) $ 51.7
Reductions (increases) in taxes
resulting from:
Tax differentials on
foreign earnings (36.4) (18.1) (35.8)
State income taxes, net of
Federal income tax benefit (5.1) (1.9) (6.1)
Loss on sale of geophysical
operations - - (66.5)
Net operating losses 46.6 0.4 9.1
Federal income tax refund - - 40.4
Change in Federal income tax laws - - 6.4
Other items, net (8.7) 2.6 6.5
--------- --------- --------
Total $ (131.9) $ (119.0) $ 5.7
========= ========= ========
The Company has received statutory notices of deficiency for the 1989, 1990
and 1991 tax years from the Internal Revenue Service (IRS) of $51.8 million,
$92.9 million and $16.8 million, respectively, excluding any penalties or
interest. The Company believes it has meritorious defenses and does not expect
that any liability resulting from the 1989, 1990 or 1991 tax years will result
in a material adverse effect on its results of operations or financial position.
In 1993, the Company reached a settlement with the IRS for the 1980-1987 taxable
years. As a result of the settlement, as well as significant prepayments of
19
taxes in prior years, the Company received a refund and net income was increased
by $40.4 million in 1993.
Note 6. Lines of Credit and Long-Term Debt
Millions of dollars 1995 1994
--------- ---------
8.75% debentures due February 15, 2021 $ 200.0 $ 200.0
Zero coupon convertible subordinated debentures - 375.7
Term loan at LIBOR plus .45% - 42.0
Other notes with varying interest rates 5.2 25.4
--------- ---------
205.2 643.1
Less current portion 5.2 20.1
--------- ---------
Total $ 200.0 $ 623.0
========= =========
The Company has short-term lines of credit totaling $125.0 million with
several U.S. banks. No borrowings were outstanding at December 31, 1995 under
these credit facilities. At December 31, 1995, $4.8 million of other short-term
debt was outstanding. The Company's 8.75% debentures due February 15, 2021 do
not have sinking fund requirements and are not redeemable prior to maturity. In
September 1995, the Company redeemed all of the zero coupon convertible
subordinated debentures due March 13, 2006 for $390.7 million in cash, which
represents the original issue price plus accrued original issue discount to the
redemption date. In addition, in December 1995, the Company redeemed all of the
$42.0 million term loan. The remaining $23.8 million of the 10.2% sinking fund
debentures were redeemed in 1994. Long-term debt of $5.2 million matures during
1996 and there are no maturities due for the succeeding four years.
Note 7. Common Stock
The Company's 1993 Stock and Long-Term Incentive Plan (1993 Plan) provides
for the grant of any or all of the following types of awards: (1) stock options,
including incentive stock options and non-qualified stock options; (2) stock
appreciation rights, in tandem with stock options or freestanding; (3)
restricted stock; (4) performance share awards; and (5) stock value equivalent
awards. Under the terms of the 1993 Plan, 5.5 million shares of the Company's
Common Stock were reserved for issuance to key employees. At December 31, 1995,
2.0 million shares were available for future grants. Stock option transactions
are summarized as follows:
Exercise Weighted Average
Number of Price per Exercise Price
Shares Share Per Share
--------- --------------- ----------------
Granted during 1993 698,500 $30.50 - $40.25 35.06
1994:
Granted 1,039,000 $30.88 - $33.13 32.36
Forfeited (39,000) $30.50 30.50
---------
Outstanding at December 31, 1994 1,698,500 33.52
---------
1995:
Granted 1,356,500 $36.25 - $50.63 42.39
Exercised (130,082) $30.50 - $40.25 32.02
Forfeited (41,667) $30.88 - $40.25 35.16
---------
Outstanding at December 31, 1995 2,883,251 37.74
=========
All stock options are granted at fair market value of the Common Stock at
the grant date. The weighted average fair value of the stock options granted
during 1995 was $13.20. The fair value of each stock option grant is estimated
on the date of grant using the Black-Scholes option pricing model with the
following weighted average assumptions used for grants in 1995: risk-free
interest rate of 6.22%; expected dividend yield of 2.38%; expected life of five
years; and expected volatility of 32.11%. Stock options generally expire ten
years from the grant date or three years after date of retirement, if earlier.
Stock options vest over a three year period, with one-third of the shares
becoming exercisable on each of the first three anniversaries of the grant date.
The outstanding stock options at December 31, 1995 have a weighted average
contractual life of 8.92 years. The number of stock option shares exercisable at
December 31, 1995 was 745,744. These stock options have a weighted average
exercise price of $34.31 per share.
The Company accounts for the 1993 Plan in accordance with Accounting
Principles Board Opinion No. 25, under which no compensation cost has been
20
recognized for stock option awards. Had compensation cost for the 1993 Plan been
determined consistent with Statement of Financial Accounting Standards No. 123,
"Accounting for Stock - Based Compensation" (SFAS 123), the Company's pro forma
net income and earnings per share for 1995 would have been $164.5 million and
$1.44, respectively. Because the SFAS 123 method of accounting has not been
applied to options granted prior to January 1, 1995, the resulting pro forma
compensation cost may not be representative of that to be expected in future
years.
Restricted shares awarded under the 1993 Plan for 1995, 1994 and 1993 were
206,350, 80,600 and 107,000, respectively. The shares awarded are net of
forfeitures of 4,900 and 5,000 shares in 1995 and 1994, respectively. The
weighted average fair market value per share at the date of grant of shares
granted in 1995 was $40.88. The Company's Restricted Stock Plan for Non-Employee
Directors (Restricted Stock Plan) allows for each non-employee director to
receive an annual award of 200 restricted shares of Common Stock as a part of
compensation. The Company reserved 50,000 shares of Common Stock for issuance to
non-employee directors. The Company issued 1,600 restricted shares in 1995 and
1,800 restricted shares in both 1994 and 1993 under this plan. The weighted
average fair market value per share at the date of grant of shares granted in
1995 was $40.75.
The Company's Employees' Restricted Stock Plan was established for
employees who are not officers, for which 100,000 shares of Common Stock have
been reserved. The Company awarded 1,750 and 96,750 restricted shares in 1995
and 1994, respectively, and 900 restricted shares were forfeited in 1995. The
weighted average fair market value per share at the date of grant of shares
granted in 1995 was $35.00.
Under the terms of the Company's career executive incentive stock plan, 7.5
million shares of the Company's Common Stock were reserved for issuance to
officers and key employees at a purchase price not to exceed par value of $2.50
per share. At December 31, 1995, 5.9 million shares (net of 1.0 million shares
forfeited) have been issued under the plan. No further grants will be made
under the career executive incentive stock plan.
Restricted shares issued under the 1993 Plan, Restricted Stock Plan,
Employees' Restricted Stock Plan and the career executive incentive stock plan
are limited as to sale or disposition with such restrictions lapsing
periodically over an extended period of time. The fair market value of the
stock, on the date of issuance, is being amortized and charged to income (with
similar credits to paid-in capital in excess of par value) generally over the
average period during which the restrictions lapse. Compensation costs
recognized in income for 1995 was $7.0 million. At December 31, 1995, the
unamortized amount is $23.9 million.
Note 8. Series A Junior Participating Preferred Stock
In 1986, the Company declared a dividend of one preferred stock purchase
right (a Right) on each outstanding share of common stock, terms of which were
subsequently modified as of February 15, 1990 and December 15, 1995 (the Amended
Rights Agreement). Pursuant to the Amended Rights Agreement, each Right will
entitle the holder thereof to buy one one-hundredth of a share of the Company's
Series A Junior Participating Preferred Stock, without par value, at an exercise
price of $150, subject to certain antidilution adjustments. The Rights do not
have any voting rights and are not entitled to dividends.
The Rights become exercisable in certain limited circumstances involving a
potential business combination. Following certain other events after the Rights
become exercisable, each Right will entitle its holder to an amount of common
stock of the Company, or, in certain circumstances, securities of the acquiror,
having a then-current market value of two times the exercise price of the Right.
The Rights are redeemable at the Company's option at any time before they become
exercisable. The Rights expire on December 15, 2005. No event during 1995 made
the Rights exercisable.
Note 9. Business Segment Information
The Company operates in two segments - Energy Services and Engineering and
Construction Services. Energy Services' products and services include drilling
systems and services, pressure pumping equipment and services, logging and
perforating, specialized completion and production equipment and services, and
well control. Engineering and Construction Services provides engineering,
construction, project management, facilities operation and maintenance, and
environmental services for industrial and governmental customers.
The Company's equity in income or losses of related companies is included
in revenues and operating income of each applicable segment. Intersegment
revenues included in the revenues of the other business segments are immaterial.
Sales between geographic areas and export sales are also immaterial. General and
administrative expenses were $157.8 million, $182.0 million and $195.9 million
for the years ended December 31, 1995, 1994 and 1993, respectively. Depreciation
and amortization expenses were increased in 1993 by the loss for the sale of the
geophysical business in 1994 discussed in Note 13 by $128.9 million. General
corporate assets are primarily comprised of cash and equivalents and certain
other investments.
21
OPERATIONS BY BUSINESS SEGMENT
Years ended December 31
Millions of dollars 1995 1994 1993
--------- --------- ---------
Capital expenditures:
Energy services $ 232.3 $ 188.8 $ 197.8
Engineering and construction services 56.3 44.5 45.9
General corporate 0.1 0.4 1.6
--------- --------- ---------
Total $ 288.7 $ 233.7 $ 245.3
========= ========= =========
Depreciation and amortization:
Energy services $ 189.9 $ 204.4 $ 395.8
Engineering and construction services 52.8 53.3 51.6
General corporate 1.4 2.5 3.0
--------- --------- ---------
Total $ 244.1 $ 260.2 $ 450.4
========= ========= =========
Identifiable assets:
Energy services $ 2,081.4 $ 2,129.1 $ 2,567.6
Engineering and construction services 1,086.5 1,019.7 936.3
General corporate 478.7 570.0 357.4
Net assets of discontinued operations - 286.6 278.3
--------- --------- ---------
Total $ 3,646.6 $ 4,005.4 $ 4,139.6
========= ========= =========
OPERATIONS BY GEOGRAPHIC AREA
Years ended December 31
Millions of dollars 1995 1994 1993
--------- ---------- ---------
Revenues:
United States $ 3,109.4 $ 3,197.6 $ 3,581.3
Europe 1,093.3 949.4 927.1
Latin America 527.0 404.2 377.5
Other areas 969.0 959.0 1,208.2
--------- ---------- ---------
Total $ 5,698.7 $ 5,510.2 $ 6,094.1
========= ========== =========
Operating income (loss):
United States $ 217.3 $ 163.1 $ 16.8
Europe 1.0 (12.5) (26.7)
Latin America 64.6 35.8 (2.6)
Other areas 133.8 72.6 (57.0)
General corporate (33.5) (22.9) (22.0)
--------- ---------- ---------
Total $ 383.2 $ 236.1 $ (91.5)
========= ========== =========
Identifiable assets:
United States $ 1,743.7 $ 1,629.6 $ 1,885.8
Europe 514.4 569.3 619.8
Latin America 276.8 271.9 291.0
Other areas 633.1 678.0 707.3
General corporate 478.6 570.0 357.4
Net assets of discontinued operations - 286.6 278.3
--------- ---------- ---------
Total $ 3,646.6 $ 4,005.4 $ 4,139.6
========= ========== =========
Note 10. Commitments and Contingencies
Leases. At December 31, 1995, the Company was obligated under noncancelable
operating leases, expiring on various dates to 2108, principally for the use of
land, offices, equipment and field facilities. Aggregate rentals charged to
operations for such leases totaled $70.4 million in 1995, $105.3 million in
1994, and $130.8 million in 1993. Future aggregate rentals on noncancelable
operating leases are as follows: 1996, $50.3 million; 1997, $41.8 million; 1998,
$31.7 million; 1999, $23.0 million; 2000, $14.0 million; and thereafter, $94.2
million.
22
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
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). 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. At the
present time Brown & Root cannot determine the extent of its liability, if any,
for remediation costs on any reasonably practicable basis.
Other. The Company and its subsidiaries are parties to various other legal
proceedings. Although the ultimate dispositions of such proceedings are not
presently determinable, in the 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 11. Financial Instruments and Risk Concentration
Foreign Exchange Risk. The Company operates in over 100 countries around
the world and has exposures to currency fluctuations in approximately 80 foreign
currencies. These exposures subject the Company to the risk that the eventual
dollar net cash flows from sales to customers and purchases from suppliers could
be adversely affected by changes in exchange rates. Some currencies have
established markets that facilitate the active exchange of one currency for
another (traded currencies), but most currencies are not widely traded and are
actively controlled by their respective governments (non-traded currencies). It
is the Company's policy to hedge significant exposures to potential foreign
exchange losses considering current market conditions, future operating
activities and the cost of hedging the exposure in relation to the perceived
risk of loss. Techniques in managing foreign exchange risk include, but are not
limited to, foreign currency borrowing, investing, and the use of currency
derivative instruments. Foreign currency transactions for speculative purposes
are not permitted.
Market Risk. As part of the Company's efforts to minimize market risk
associated with foreign currency exchange rate volatility, the Company hedges
its exposure in traded currencies through the use of currency derivative
instruments, specifically, forward exchange contracts and foreign exchange
option contracts. Such contracts generally have an expiration date of one year
or less. Forward exchange contracts (commitments to buy or sell a specified
amount of a foreign currency at a specified price and time) are generally used
to hedge identifiable foreign currency commitments. Gains or losses on such
contracts are deferred and recognized when the offsetting gains and losses are
recognized on the related hedged items. Foreign exchange option contracts (which
convey the right, but not the obligation, to sell or buy a specified amount of
foreign currency at a specified price) are generally used to hedge foreign
currency commitments with an indeterminable maturity date. The use of some
contracts may limit the Company's ability to benefit from favorable fluctuations
in foreign exchange rates. Forward and option contracts associated with foreign
currency commitments having indeterminable maturity dates are marked to market
monthly with the resulting gains or losses included in current period income.
While hedging instruments are subject to fluctuations in value, such
fluctuations are generally offset by the value of the underlying exposures being
hedged. The forward or option contracts utilized are all purchased from a
selected group of highly rated banks. None of the forward or option contracts
are exchange traded. At December 31, 1995, the Company held foreign currency
forward contracts with net notional amounts totaling $12.4 million, in which the
Company was the buyer of $3.4 million and the seller of $15.8 million of foreign
currencies, and foreign currency option contracts with net notional amounts
totaling $54.1 million in which the Company was the buyer of $18.1 million and
the seller of $72.2 million of foreign currencies. At December 31, 1994, the
Company held foreign currency forward contracts with net notional amounts
totaling $11.8 million, in which the Company was the buyer of $5.1 million and
the seller of $16.9 million of foreign currencies, and foreign currency option
contracts with net notional amounts totaling $12.2 million, in which the Company
was the buyer of $26.0 million and the seller of $38.2 million of foreign
currencies. The Company actively monitors its foreign currency exposure (net
23
position) and adjusts the amounts hedged as appropriate. The table below
summarizes the Company's net assets (liabilities) exposed to currency
fluctuations at December 31, 1995, in traded (other than U.S. dollar) and
non-traded foreign currencies as well as the net notional amounts of the related
hedging contracts held.
Net Contract/ Net Assets
Net Assets Notional (Liabilities)
Millions of dollars (Liabilities) Amount Hedged Not Hedged
------------- ------------- -----------
Traded currencies:
UK pound sterling $ 10.7 $ 27.9 $ (17.2)
Canadian dollar 7.9 9.2 (1.3)
Norwegian krone 3.3 8.8 (5.5)
Italian lira 8.8 7.2 1.6
Other currencies 14.5 13.4 1.1
Non-traded currencies (32.7) - (32.7)
------------- ------------- -----------
Totals $ 12.5 $ 66.5 $ (54.0)
============= ============= ===========
Exposures to non-traded currencies are generally not hedged due primarily
to lack of available markets or cost considerations. The Company attempts to
manage its working capital position to minimize foreign currency commitments in
non-traded currencies and recognizes that pricing for the services and products
offered in such countries should cover the cost of exchange rate devaluations.
The Company has historically incurred transaction losses in non-traded
currencies. The risk of loss is primarily due to the magnitude of currency
devaluations experienced in those currencies rather than the size of the foreign
currency exposures. Net assets subject to currency exposure resulting from the
use of functional currencies other than the U.S. dollar in which exchange
movements affect shareholders' equity were $143.0 million in 1995.
Credit Risk. Financial instruments which potentially subject the Company to
concentrations of credit risk are primarily cash equivalents, investments and
trade receivables. It is the Company's practice to place its cash equivalents
and investments in high quality securities with various investment institutions.
The Company derives the majority of its revenues from sales and services to,
including engineering and construction for, the energy industry. Within the
energy industry, trade receivables are generated from a broad and diverse group
of customers. There are concentrations of receivables in the United States and
the United Kingdom. The Company maintains an allowance for losses based upon the
expected collectibility of all trade accounts receivable. The notional amounts
of the Company's foreign exchange contracts do not generally represent amounts
exchanged by the parties, and thus, are not a measure of the exposure of the
Company or of the cash requirements relating to these contracts. The credit
exposure of the Company on foreign exchange contracts is represented by the
carrying amount of such contracts. Counterparties are selected by the Company
based on creditworthiness, which the Company continually monitors, and on the
counterparties' ability to perform their obligations under the terms of the
transactions. There are no significant concentrations of credit risk with any
individual counterparty or groups of counterparties related to the Company's
derivative contracts. The Company does not expect any counterparties to fail to
meet their obligations under these contracts given their high credit ratings
and, as such, considers the credit risk associated with its derivative contracts
to be minimal.
Fair Value of Financial Instruments. The estimated fair value of long-term
debt at December 31, 1995 and 1994 was $247.9 million and $626.1 million,
respectively, as compared to the carrying amount of $200.0 million and $643.1
million at December 31, 1995 and 1994, respectively. The fair value of long-term
debt is based on quoted market prices for those or similar instruments. The
carrying amount of short-term financial instruments (cash and equivalents,
receivables, and certain other liabilities) as reflected in the consolidated
balance sheets approximates fair value due to the short maturities of these
instruments. The fair value of currency derivative instruments, which generally
approximates the carrying amount, was less than $2.5 million at December 31,
1995 and 1994.
Note 12. Retirement Plans
Retirement Plans. The Company has various retirement plans which cover a
significant number of its employees. The major pension plans are defined
contribution plans, which provide pension benefits in return for services
rendered, provide an individual account for each participant, and have terms
that specify how contributions to the participant's account are to be determined
rather than the amount of pension benefits the participant is to receive.
Contributions to these plans are based on pre-tax income and/or discretionary
amounts determined on an annual basis. The Company's expense for the defined
contribution plans totaled $94.2 million, $98.0 million and $54.6 million in
1995, 1994 and 1993, respectively. Other pension plans include defined benefit
plans, which define an amount of pension benefit to be provided, usually as a
function of one or more factors such as age, years of service, or compensation.
As a result of the sizable reduction in the number of employees, curtailment
gains of $1.3 million and $8.9 million are reflected in the net amortization and
deferral component of net periodic pension cost for 1995 and 1994, respectively.
24
These plans are funded to operate on an actuarially sound basis. Assumed
long-term rates of return on plan assets, discount rates in estimating benefit
obligations and rates of compensation increases vary for the different plans
according to the local economic conditions. Plan assets are primarily invested
in equity and fixed income securities of entities domiciled in the country of
the plan's operation. The rates used are as follows:
Percentages 1995 1994 1993
----------- ---------- ----------
Return on plan assets:
United States plans 8.5% 8.5% 8.5%
International plans 6.5% to 9% 7% to 9% 9%
Discount rate:
United States plans 7% to 7.25% 8.5% 7.5%
International plans 4% to 8.5% 4% to 8.5% 4% to 8.5%
Compensation increase:
United States plans 4% 5% 4.25%
International plans 1% to 6% 1% to 6% 1% to 6%
The net periodic pension cost for defined benefit plans is as follows:
Millions of dollars 1995 1994 1993
--------- --------- ---------
Service cost - benefits earned during period $ 9.6 $ 9.5 $ 42.3
Interest cost on projected benefit obligation 27.5 26.6 25.7
Actual return on plan assets (46.8) (8.5) (78.0)
Net amortization and deferral 12.7 (26.7) 56.3
--------- --------- ---------
Net periodic pension cost $ 3.0 $ 0.9 $ 46.3
========= ========= =========
The reconciliation of the funded status for defined benefit plans where
assets exceed accumulated benefits is as follows:
Millions of dollars 1995 1994
--------- ---------
Actuarial present value of benefit obligations:
Vested $ (300.3) $ (278.2)
========= =========
Accumulated benefit obligation $ (309.0) $ (285.9)
========= =========
Projected benefit obligation $ (345.6) $ (334.3)
Plan assets at fair value 423.7 371.4
--------- ---------
Funded status 78.1 37.1
Unrecognized prior service cost 5.5 5.4
Unrecognized net gain (81.3) (57.2)
Unrecognized net transition asset (4.5) (4.7)
--------- ---------
Net pension liability $ (2.2) $ (19.4)
========= =========
25
The reconciliation of the funded status for defined benefit plans where
accumulated benefits exceed assets is as follows:
Millions of dollars 1995 1994
--------- ---------
Actuarial present value of benefit obligations:
Vested $ (3.4) $ (2.6)
========= =========
Accumulated benefit obligation $ (8.1) $ (7.5)
========= =========
Projected benefit obligation $ (9.1) $ (10.1)
Plan assets at fair value 2.2 -
--------- ---------
Funded status (6.9) (10.1)
Unrecognized net gain (1.8) (4.5)
Unrecognized net transition asset (1.0) (1.1)
Adjustment required to recognize minimum liability (3.4) -
--------- ---------
Net pension liability $ (13.1) $ (15.7)
========= =========
Postretirement Medical Plan. The Company offers a postretirement medical
plan to certain employees that qualify for retirement and, on the last day of
active employment, are enrolled as participants in the Company's active employee
medical plan. The Company's liability is limited to a fixed contribution amount
for each participant or dependent. Effective in September 1993, coverage under
this plan ceases when the participant reaches age 65. However, those
participants aged 65 or over on January 1, 1994, have the option to participate
in an expanded prescription drug program in lieu of the medical coverage. The
plan participants share the total cost for all benefits provided above the fixed
Company contribution and participants' contributions are adjusted as required to
cover benefit payments. The Company has made no commitment to adjust the amount
of its contributions; therefore, the computed accumulated postretirement benefit
obligation amount is not affected by the expected future healthcare cost
inflation rate. The weighted average discount rate used in determining the
accumulated postretirement benefit obligation was 7% in 1995, 8% in 1994 and 7%
in 1993.
Net periodic postretirement benefit cost included the following components:
Millions of dollars 1995 1994 1993
--------- -------- --------
Service cost - benefits attributed to service during the period $ 0.5 $ 0.8 $ 0.9
Interest cost on accumulated postretirement benefit obligation 2.1 2.3 3.1
Net amortization and deferral (1.0) (0.9) (0.3)
--------- -------- --------
Net periodic postretirement cost $ 1.6 $ 2.2 $ 3.7
========= ======== ========
Non-pension postretirement benefits are funded by the Company when
incurred. The Company's postretirement medical plan's funded status reconciled
with the amounts included in the Company's Consolidated Balance Sheets at
December 31, 1995 and 1994 is as follows:
Millions of dollars 1995 1994
--------- --------
Accumulated postretirement benefit obligation:
Retirees and related beneficiaries $ 15.6 $ 15.2
Fully eligible active plan participants 2.4 5.3
Other active plan participants not fully eligible 6.7 7.7
--------- --------
Accumulated postretirement benefit obligation 24.7 28.2
Unrecognized prior service cost 8.3 9.3
Unrecognized gain 7.0 4.4
--------- --------
Net postretirement liability $ 40.0 $ 41.9
========= ========
Note 13. Acquisitions and Dispositions
See Note 14 as to the disposition of the Company's insurance segment.
The Company sold its natural gas compression business unit in November 1994
for $205.0 million in cash. The sale resulted in a pretax gain of $102.0
26
million, or 56 cents per share after tax. 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 the 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 $5.0 million have been made
thereafter. The Company recognized a $301.8 million charge ($263.8 million after
tax) in 1993 related to the sale of its geophysical business. This charge
includes $120.7 million for the write-down to the net realizable value of
equipment and other assets; $54.0 million for anticipated operating and contract
losses through the dates of disposition or completion; $43.4 million for marine
vessel leases and mobilization; $35.1 million for facility leases and closures;
$34.4 million for personnel and severance; and $14.2 million for transition
costs and other related matters. Services and products provided through the
geophysical business include seismic data collection and data processing
services for both land and marine seismic exploration activities and
manufacturing and sales of seismic equipment. The revenues, operating loss and
net loss of the geophysical operations, excluding the charge in 1993, were
$404.4 million, $20.1 million, and $20.3 million, respectively.
In March 1993, the Company acquired the assets of Smith International,
Inc.'s Directional Drilling Systems and Services business for 6,857,000 shares
of Halliburton Company Common Stock previously held as treasury stock, valued at
approximately $247 million. The Company recorded $135.8 million as excess of
cost over net assets acquired. The excess of cost over net assets acquired will
be amortized over 40 years.
Note 14. Discontinued Operations
On January 23, 1996, the Company spun-off its property and casualty
insurance subsidiary, Highlands Insurance Group, Inc. (HIGI), in a tax-free
distribution to holders of Halliburton Company common stock. Each common
shareholder of the Company received one share of common stock of HIGI for every
ten shares of Halliburton Company common stock. Approximately 11.4 million
common shares of HIGI were issued in conjunction with the spin-off.
After the spin-off transaction, HIGI issued $62.9 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) and to certain members of HIGI
management.
The convertible subordinated debentures issued are convertible into common
stock of HIGI after one year from issuance at the option of the holders. HIGI
can redeem the debentures at any time after December 31, 2002. The holders would
receive approximately 3.9 million shares of HIGI, or approximately 25% ownership
interest in HIGI, if all of the debentures are converted into common stock of
HIGI at a conversion price of $16.16 per share. Interest on the debentures is
payable semiannually in cash at 10% per annum.
The detachable Series A Common Stock Purchase Warrants (Series A Warrants)
enable the holders to purchase HIGI common stock at an exercise price of $14.69
per share, equal to an additional ownership interest of approximately 21% 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 4.0 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 the holders to purchase shares of HIGI common stock at an exercise price
of $14.69, 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 the holders 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, the holders 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 the holders to purchase common stock of HIGI, the
holders will own approximately 44% of HIGI.
27
The following summarizes the results of operations and consolidated balance
sheets of the discontinued operations. Such amounts are summarized as follows:
Millions of dollars 1995 1994 1993
--------- --------- ---------
Revenues $ 252.6 $ 290.3 $ 324.5
========= ========= =========
Income (loss) before income taxes $ (126.3) $ (0.6) $ (41.5)
Benefit (provision) for income taxes 67.5 6.1 21.0
Loss on disposition (7.6) - -
Benefit for income taxes 0.9 - -
--------- --------- ---------
Net income (loss) from discontinued operations $ (65.5) $ 5.5 $ (20.5)
========= ========= =========
Millions of dollars 1995 1994
---------- ----------
ASSETS
Cash and equivalents $ 85.2 $ 52.8
Investments 635.6 630.2
Premiums receivable 187.3 207.9
Receivables from reinsurers 592.4 561.5
Receivables from affiliates 47.3 26.6
Deferred income taxes 28.1 -
Other assets 54.9 60.4
---------- ----------
Total assets $ 1,630.8 $ 1,539.4
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable and accrued liabilities $ 36.3 $ 15.9
Loss and loss adjustment expense reserves 1,243.7 1,149.2
Unearned premiums 52.6 51.2
Other liabilities 29.6 27.3
---------- ----------
Total liabilities 1,362.2 1,243.6
Shareholders' equity 268.6 295.8
---------- ----------
Total liabilities and shareholders' equity $ 1,630.8 $ 1,539.4
========== ==========
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. The
review process consisted of gathering new information and refining prior
estimates and primarily focused on assumed reinsurance and overall environmental
and asbestos exposure. As a result of such review, HIGI increased its reserves
for loss and loss adjustment expenses and certain legal matters and the Company
also recognized the estimated expenses related to the spin-off transaction and
additional compensation costs and other regulatory and legal provisions directly
associated with discontinuing the insurance services business segment as
follows:
Millions of dollars Income (loss)
before Net income
income taxes (loss)
------------- -------------
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
28
continually. Due to the significant uncertainties related to these types of
claims, past claim experience may not be representative of future claim
experience.
The Company also realized a valuation allowance for deferred tax assets
primarily related to HIGI's insurance claim loss reserves. The Company had
provided a valuation allowance for all temporary differences related to HIGI
based upon its intent announced in 1992 that it was pursuing the sale of HIGI. A
taxable transaction would have made it more likely than not that the related
benefit or future deductibility would not be realized. The spin-off transaction
was tax-free and allows HIGI to retain its tax basis and the value of its
deferred tax asset.
29
Quarterly Data and Market Price Information
Millions of dollars except per share data
(unaudited) First Second Third Fourth Year
--------- --------- --------- --------- ---------
1995
Revenues $ 1,273.9 $ 1,397.6 $ 1,489.8 $ 1,537.4 $ 5,698.7
Operating income 61.7 97.0 111.1 113.4 383.2
Net income (loss)
Continuing operations 38.3 54.8 68.8 71.9 233.8
Discontinued operations 0.8 1.4 (67.7) - (65.5)
Net income (loss) 39.1 56.2 1.1 71.9 168.3
Earnings (loss) per share
Continuing operations 0.33 0.48 0.60 0.63 2.04
Discontinued operations 0.01 0.01 (0.59) - (0.57)
Net income (loss) 0.34 0.49 0.01 0.63 1.47
Cash dividends paid per share 0.25 0.25 0.25 0.25 1.00
Quarterly common stock prices (3)
High 38.88 39.50 45.25 50.63 50.63
Low 33.50 35.50 35.13 39.75 33.50
1994
Revenues $ 1,315.2 $ 1,369.7 $ 1,347.6 $ 1,477.7 $ 5,510.2
Operating income (loss) (1) 42.1 (15.3) 96.6 112.7 236.1
Net income (loss)
Continuing operations (1) (2) 17.3 (16.7) 49.5 122.2 172.3
Discontinued operations 0.5 (2.5) 2.2 5.3 5.5
Net income (loss) (1) (2) 17.8 (19.2) 51.7 127.5 177.8
Earnings (loss) per share
Continuing operations (1) (2) 0.16 (0.15) 0.43 1.07 1.51
Discontinued operations 0.00 (0.02) 0.02 0.05 0.05
Net income (loss) (1) (2) 0.16 (0.17) 0.45 1.12 1.56
Cash dividends paid per share 0.25 0.25 0.25 0.25 1.00
Quarterly common stock prices (3)
High 34.13 34.75 34.88 37.00 37.00
Low 29.25 28.25 29.13 31.13 28.25
(1) Second quarter 1994 operating income (loss) and net income (loss) includes
severance costs of $42.6 million and $27.7 million, respectively, or 24
cents per share, to provide for the termination of about 2,700 Energy
Services' employees.
(2) Fourth quarter 1994 net income (loss) includes a gain on the sale of the
natural gas compression business of $64.3 million, or 56 cents per share.
(3) New York Stock Exchange - composite transactions high and low closing stock
prices.
30
FIVE YEAR FINANCIAL RECORD
Years ended December 31
Millions of dollars and shares except
per share data and employees 1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ----------
Operating results
Net revenues
Energy services $ 2,623.4 $ 2,514.0 $ 2,953.4 $ 2,726.3 $ 2,939.0
Engineering and construction services 3,075.3 2,996.2 3,140.7 3,563.7 3,728.0
---------- ---------- ---------- ---------- ----------
Total revenues $ 5,698.7 $ 5,510.2 $ 6,094.1 $ 6,290.0 $ 6,667.0
========== ========== ========== ========== ==========
Operating income (loss)
Energy services* $ 313.7 $ 191.8 $ (148.4) $ (64.1) $ 35.2
Engineering and construction services* 103.0 67.2 78.9 (12.5) 73.1
General corporate (33.5) (22.9) (22.0) (21.0) (21.8)
---------- ---------- ---------- ---------- ----------
Total operating income (loss) 383.2 236.1 (91.5) (97.6) 86.5
Nonoperating income (expense), net (16.6) 55.4 (56.2) (37.5) (2.1)
---------- ---------- ---------- ---------- ----------
Income (loss) before income taxes and
minority interest 366.6 291.5 (147.7) (135.1) 84.4
Benefit (provision) for income taxes (131.9) (119.0) 5.7 (0.3) (71.3)
Minority interest in net (income) loss of
consolidated subsidiaries (0.9) (0.2) 1.5 1.7 (2.6)
---------- ---------- ---------- ---------- ----------
Income (loss) from continuing operations $ 233.8 $ 172.3 $ (140.5) $ (133.7) $ 10.5
========== ========== ========== ========== ==========
Income (loss) per share:
Continuing operations $ 2.04 $ 1.51 $ (1.25) $ (1.24) $ 0.10
Net income (loss) 1.47 1.56 (1.43) (1.28) 0.25
Cash dividends per share 1.00 1.00 1.00 1.00 1.00
Return on shareholders' equity 9.6% 9.2% (8.5)% (7.2)% 1.2%
========== ========== ========== ========== ==========
Financial position
Net working capital $ 893.8 $ 1,267.7 $ 1,116.5 $ 1,109.0 $ 1,246.5
Total assets 3,646.6 4,005.4 4,139.6 4,089.5 4,384.5
Property, plant and equipment 1,111.2 1,074.8 1,149.5 1,194.3 1,186.9
Long-term debt 205.2 643.1 623.9 656.7 653.2
Shareholders' equity 1,749.8 1,942.2 1,887.7 1,907.3 2,164.6
Total capitalization 1,959.8 2,616.0 2,603.6 2,564.7 2,828.6
Shareholders' equity per share 15.28 17.02 16.55 17.80 20.24
Average common shares outstanding 114.5 114.2 112.5 107.1 106.9
========== ========== ========== ========== ==========
Other financial data
Cash flow from operating activities $ 632.0 $ 415.4 $ 269.6 $ 435.0 $ 286.3
Capital expenditures 288.7 233.7 245.3 313.4 422.8
Long-term borrowings (repayments) (452.9) (72.9) (57.0) (15.8) 441.1
Depreciation and amortization expense 244.1 260.2 450.4 357.9 292.4
Payroll and employee benefits 2,713.4 2,826.8 3,100.9 3,336.3 3,256.7
Number of employees** 57,300 56,500 64,000 68,400 72,100
* Energy Services operating income (loss) in 1993 includes a loss on the sale
of the geophysical business and employee severance costs of $321.8 million
and in 1992 and 1991 includes special charges of $182.0 million and $118.5
million, respectively. Engineering and Construction Services 1992 operating
income (loss) includes special charges of $82.6 million.
** Does not include employees of 50% or less owned affiliated companies.
31
EUROPEAN MARINE CONTRACTORS LIMITED
COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1995
These financial statements are presented in pounds sterling. The exchange rate
was 1.54 U.S. dollars to the pound sterling at the balance sheet date of
December 31, 1995.
EUROPEAN MARINE CONTRACTORS LIMITED
- --------------------------------------------------------------------------------
INDEX
1 Auditors' Report
2 Group Profit and Loss Account
3 Group Statement of Total Recognised Gains and Losses
4 Group Balance Sheet
5 Group Statement of Cashflows
6 - 17 Notes to the Financial Statements
32
- --------------------------------------------------------------------------------
To the Board of Directors
European Marine Contractors Limited
We have audited the accompanying consolidated balance sheets of European Marine
Contractors Limited as of December 31, 1995 and 1994, and the related
consolidated statements of income, total recognised gains and losses and
cashflows for the each of the three years in the period ended December 31, 1995.
These financial statements are the responsibility of the company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audits in accordance with United Kingdom auditing standards
which do not differ in any significant respect from United States generally
accepted auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurances about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by the management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
European Marine Contractors Limited at December 31, 1995 and 1994, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 1995 in conformity with accounting
principles generally accepted in the United Kingdom
ERNST & YOUNG
Chartered Accountants
Registered Auditor
London, England
15 February 1996
33
EUROPEAN MARINE CONTRACTORS LIMITED
GROUP PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31 DECEMBER 1995
- --------------------------------------------------------------------------------
1995 1994 1993
Notes (in thousands of pounds sterling)
Turnover 2,3 229,000 282,870 201,766
Cost of sales (151,828) (200,888) (151,273)
------- ------- -------
GROSS PROFIT 3 77,172 81,982 50,493
Administrative expenses (6,643) (5,863) (4,569)
Other operating costs (9,448) (12,024) (7,639)
------- ------- -------
61,081 64,095 38,285
Other operating income 175 125 436
------- ------- -------
OPERATING PROFIT 4 a) 61,256 64,220 38,721
Interest receivable and similar income 1,218 1,221 1,071
------- ------- -------
62,474 65,441 39,792
Interest payable and similar charges 5 (79) (91) (121)
------- ------- -------
PROFIT ON ORDINARY
ACTIVITIES BEFORE TAXATION 62,395 65,350 39,671
Tax on profit on ordinary activities 6 (22,685) (26,090) (20,315)
------- ------- -------
PROFIT ON ORDINARY
ACTIVITIES AFTER TAXATION 39,710 39,260 19,356
======= ======= =======
AMOUNT WITHDRAWN FROM/(SET ASIDE TO) RESERVES 18 10,290 (9,260) 15,644
======= ======= =======
DIVIDENDS (50,000) (30,000) (35,000)
======= ======= =======
34
EUROPEAN MARINE CONTRACTORS LIMITED
GROUP STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
FOR THE YEAR ENDED 31 DECEMBER 1995
- --------------------------------------------------------------------------------
1995 1994 1993
(in thousands of pounds sterling)
Profit on ordinary activities after taxation 39,710 39,260 19,356
Exchange differences on retranslation of net assets of
subsidiary undertaking 161 45 (47)
Unrealised surplus on revaluation of fixed assets - - 54,886
------ ------ ------
Total recognised gains and losses relating to the year 39,871 39,305 74,195
====== ====== ======
RECONCILIATION OF SHAREHOLDERS' FUNDS
Total recognised gains and losses 39,871 39,305 74,195
Dividends (50,000) (30,000) (35,000)
------ ------ ------
Total movements during the year (10,129) (9,305) 39,195
Shareholders' funds at 1 January 67,890 58,585 19,390
------ ------ ------
Shareholders' funds at 31 December 57,761 67,890 58,585
====== ====== ======
35
EUROPEAN MARINE CONTRACTORS LIMITED
BALANCE SHEETS AT 31 DECEMBER 1995
- --------------------------------------------------------------------------------
1995 1994
Notes (in thousands of pounds sterling)
FIXED ASSETS
Tangible assets 9 36,972 48,319
Investments 10 - -
------- -------
36,972 48,319
------- -------
CURRENT ASSETS
Stocks 11 9,927 8,965
Debtors 12 124,218 133,335
Cash at bank and in hand 13 20,516 32,135
------- -------
154,661 174,435
CREDITORS - amounts
falling due within one year 14 122,150 142,314
------- -------
NET CURRENT ASSETS 32,511 32,121
------- -------
TOTAL ASSETS LESS CURRENT LIABILITIES 69,483 80,440
PROVISIONS FOR LIABILITIES AND
CHARGES 15 11,722 12,550
------- -------
57,761 67,890
======= =======
CAPITAL AND RESERVES
Called up share capital 17 14,000 14,000
Revaluation reserve 18 23,156 30,874
Profit and loss account 18 20,605 23,016
------- -------
57,761 67,890
======= =======
36
EUROPEAN MARINE CONTRACTORS LIMITED
GROUP STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 1995
- --------------------------------------------------------------------------------
1995 1994 1993
Notes (in thousands of pounds sterling)
NET CASH INFLOW FROM OPERATING
ACTIVITIES 4 b) 61,048 72,304 34,278
------ ------ ------
RETURNS ON INVESTMENTS AND
SERVICING OF FINANCE
Interest received 1,363 945 1,429
Interest paid (76) (98) (383)
Dividends paid (50,000) (30,000) (35,000)
------ ------ ------
NET CASH OUTFLOW FROM RETURNS ON
INVESTMENTS AND SERVICING OF FINANCE
(48,713) (29,153) (33,954)
------ ------ ------
TAXATION
Paid for transfer of losses (11,064) - -
Corporation tax paid (10,997) (12,643) (12,640)
Overseas tax paid (242) (6,132) (5,473)
------ ------ ------
NET TAX PAID (22,303) (18,775) (18,113)
------ ------ ------
INVESTING ACTIVITIES
Payments to acquire tangible fixed assets (1,651) (2,451) (2,969)
------ ------ ------
NET CASH OUTFLOW FROM
INVESTING ACTIVITIES (1,651) (2,451) (2,969)
------ ------ ------
(DECREASE)/ INCREASE IN CASH 13 (11,619) 21,925 (20,758)
====== ====== ======
37
EUROPEAN MARINE CONTRACTORS LIMITED
NOTES TO THE FINANCIAL STATEMENTS AT 31 DECEMBER 1995
- --------------------------------------------------------------------------------
1 ACCOUNTING POLICIES
Accounting Convention
The financial statements are prepared under the historical cost convention
as modified to include the revaluation of certain fixed assets and in
accordance with applicable United Kingdom accounting standards.
Basis of Consolidation
The group financial statements consolidate the financial statements of
European Marine Contractors Limited and EMC Nederland BV drawn up to 31
December each year.
Joint Ventures
The company's share of the results of unincorporated joint ventures is
proportionally consolidated in the group profit and loss account and
balance sheet.
Goodwill
Purchased goodwill is amortised through the profit and loss account over
the directors' original estimate of its useful life.
Depreciation
Depreciation is provided at rates calculated to write off the cost less the
expected residual value of each fixed asset over its expected useful life
as follows:
Marine floating equipment - at 25% per annum on a reducing balance basis
Buildings and leasehold
improvements - over 3-15 years on a straight line basis
Plant & Machinery:-
Other marine equipment - over 2-5 years on a straight line basis
Office equipment - over 4-5 years on a straight line basis
Depreciation on assets under construction is provided when assets are
partially brought into use during the year, at the appropriate rate above.
Equipment Maintenance
The marine floating equipment is dry-docked for major repairs in accordance
with statutory requirements. Other maintenance works are carried out on a
yearly basis. Provisions towards meeting both these costs are being made
each year based on an estimate of costs to be incurred and the future
utilisation programmes.
Stocks
Stocks are valued at the lower of cost and net realisable value.
Foreign Currency
The financial statements of consolidated undertakings are translated at the
rate of exchange prevailing at the balance sheet date.
The exchange adjustments arising on re-translating the opening net assets
are taken directly to reserves.
38
EUROPEAN MARINE CONTRACTORS LIMITED
NOTES TO THE FINANCIAL STATEMENTS AT 31 DECEMBER 1995
- --------------------------------------------------------------------------------
Operating Leases
Rentals paid in respect of operating leases are charged to the profit and
loss account on a straight line basis over the term of the lease.
Pensions
Pension scheme contributions are made in accordance with actuarial advice
and are charged to the profit and loss account so as to spread the pension
cost over the anticipated period of service of scheme members.
Government Grants
Government Grants on capital expenditure are credited to a deferral account
and are released to revenue over the expected useful life of the relevant
asset by equal annual amounts.
Long Term Contracts
Profit on long term contracts is taken as the work is carried out if the
final outcome can be assessed with reasonable certainty. The profit
included is calculated on a basis to reflect the proportion of the work
carried out at the year end, by recording turnover and related costs as
contract activity progresses. Turnover is calculated on that proportion of
total contract value which costs incurred to date bear to total expected
costs for that contract. Revenues derived from variations on contracts are
recognised only when they have been accepted by the customer. Full
provision is made for losses on all contracts in the year in which they are
first foreseen.
Deferred Taxation
Deferred taxation is provided under the liability method on all timing
differences which are expected to reverse in the future without being
replaced, calculated at the rate at which it is estimated that tax will be
payable. Deferred tax assets are recognised only where recovery is
reasonably certain.
2 TURNOVER
Turnover comprises that part of each contract value represented by work
completed at the balance sheet date. Turnover excludes applicable VAT.
39
EUROPEAN MARINE CONTRACTORS LIMITED
NOTES TO THE FINANCIAL STATEMENTS AT 31 DECEMBER 1995
- --------------------------------------------------------------------------------
3 ANALYSIS OF TURNOVER AND OPERATING PROFIT/(LOSS) BETWEEN ACTIVITIES AND GEOGRAPHICAL MARKETS
1995 1994 1993
Operating Operating Operating
Profit Profit Profit
Turnover /(Loss) Turnover /(Loss) Turnover /(Loss)
(in thousands of pounds sterling)
Business Segments
Pipelay 226,213 60,824 281,672 65,288 200,130 38,798
Charters 1,743 287 336 (486) 873 105
Sundry 1,044 145 862 (582) 763 (182)
------- ------ ------- ------ ------- ------
229,000 61,256 282,870 64,220 201,766 38,721
======= ====== ======= ====== ======= ======
1995 1994 1993
Operating Operating Operating
Profit Profit Profit
Turnover /(Loss) Turnover /(Loss) Turnover /(Loss)
(in thousands of pounds sterling)
Geographical Markets
North Sea 185,560 55,754 179,139 44,640 160,063 28,878
Mediterranean 1,722 524 14,407 3,538 29,436 9,843
Other Waters 41,718 4,978 89,324 16,042 12,267 -
------- ------ ------- ------ ------- ------
229,000 61,256 282,870 64,220 201,766 38,721
======= ====== ======= ====== ======= ======
Included in turnover is (pound)1,722,000 (1994: (pound)14,407,000, 1993:
(pound)29,346,000) in respect of sales to related undertakings which
constitute the shareholders of European Marine Contractors Limited and
their group undertakings.
Turnover by destination is not materially different.
The net assets of the group are substantially located in the North Sea and
temporarily in the Middle East.
The profit analysis for prior years has been restated on the basis of
operating profit.
4 a) OPERATING PROFIT
Operating profit is stated after charging/(crediting):
1995 1994 1993
(in thousands of pounds sterling)
Depreciation of tangible fixed assets 12,851 16,325 20,780
Operating leases : Property 856 1,081 1,335
: Plant and machinery 16,323 28,617 20,156
Auditors' remuneration : Audit services 69 63 54
: Other services 76 87 6
Amortisation of goodwill - - 75
Amortisation of grant (6) (14) (13)
Loss on foreign exchange 15 255 42
====== ====== ======
40
EUROPEAN MARINE CONTRACTORS LIMITED
NOTES TO THE FINANCIAL STATEMENTS AT 31 DECEMBER 1995
- --------------------------------------------------------------------------------
4 b) RECONCILIATION OF OPERATING PROFIT TO NET CASH INFLOW FROM OPERATING
ACTIVITIES
1995 1994 1993
(pound)000 (pound)000 (pound)000
Operating profit 61,256 64,220 38,721
Depreciation charges 12,851 16,325 20,780
Amortisation of goodwill - - 75
Amortisation of grant (6) (12) (14)
Foreign exchange differences 984 572 (506)
(Decrease)/Increase in provisions for liabilities and charges (828) 7,059) 404
Decrease/(Increase) in stocks (962) (661) (894)
Decrease/(Increase) in debtors 11,788 (35,047) (71,631)
(Decrease)/Increase in creditors (24,035) 19,848) 47,343
------- ------ ------
Net cash inflow from operating activities 61,048 72,304 34,278
====== ====== ======
5 INTEREST PAYABLE AND SIMILAR CHARGES
1995 1994 1993
(in thousands of pounds sterling)
Bank loans and overdrafts 35 40 51
Other charges 44 51 70
--- --- ---
79 91 121
=== === ===
6 TAX ON PROFIT ON ORDINARY ACTIVITIES
The tax charge is made up as follows:-
1995 1994 1993
Based on profit for the year: (in thousands of pounds sterling)
UK corporation tax at 33% 25,390 29,979 16,832
Deferred tax (2,816) (3,940) 953
------ ------ ------
22,574 26,039 17,785
Double taxation relief (12,294) (9,682) (6,409)
------ ------ ------
10,280 16,357 11,376
Overseas taxation 12,338 9,733 6,465
------ ------ ------
22,618 26,090 17,841
Tax underprovided in previous years 67 - 2,474
------ ------ ------
22,685 26,090 20,315
====== ====== ======
If full provision had been made for deferred taxation for the year, the
taxation charge would have been reduced /(increased) by (pound)2m (1994:
(pound)(0.3)m, 1993: Nil), as follows:
1995 1994 1993
(in thousands of pounds sterling)
Depreciation in advance of capital allowances 1,259 (560) -
Other timing differences 779 306 -
----- ---- ---
2,038 (254) -
===== ==== ===
41
EUROPEAN MARINE CONTRACTORS LIMITED
NOTES TO THE FINANCIAL STATEMENTS AT 31 DECEMBER 1995
- --------------------------------------------------------------------------------
7 EMOLUMENTS OF DIRECTORS
1995 1994 1993
(in thousands of pounds sterling)
Salaries (including pension contributions) 114 222 144
=== === ===
The emoluments (excluding pension contributions) of the directors of the
company are detailed as follows:-
1995 1994 1993
(in thousands of pounds sterling)
Chairman - - -
Highest paid director 102 116 53
=== === ==
Directors including above in scale:
Number
1995 1994 1993
(pound) nil -(pound)5,000 5 5 6
(pound)35,001 -(pound)40,000 - - 1
(pound)50,001 -(pound)55,000 - - 2
(pound)100,001 -(pound)105,000 - - -
(pound)105,001 -(pound)110,000 1 1 -
(pound)115,001 -(pound)120,000 - 1 -
8 STAFF COSTS
The average number of persons employed by the group (and their costs)
during the year, including directors, was as follows:-
1995 1994 1993
Number Number Number
Number employed:
Onshore 158 168 139
Offshore 35 44 44
--- --- ---
193 212 183
=== === ===
1995 1994 1993
(in thousands of pounds sterling)
Staff costs:
Wages and salaries 6,821 7,174 6,111
Social security 650 574 549
Pension contributions 479 406 332
----- ----- -----
7,950 8,154 6,992
===== ===== =====
In addition the group has used the services on average of 519 (1994: 601,
1993: 568) persons who were directly employed by the shareholders of
European Marine Contractors Limited, their group undertakings and third
party agencies.
42
EUROPEAN MARINE CONTRACTORS LIMITED
NOTES TO THE FINANCIAL STATEMENTS AT 31 DECEMBER 1995
- --------------------------------------------------------------------------------
9 TANGIBLE FIXED ASSETS
Leasehold Plant Marine Under Leasehold
Land and and Floating Constr- Improve-
Building M'chnry Equip -uction -ments Total
1993 (in thousands of pounds sterling)
Cost or Valuation:
At 1 January 1993 1,426 3,044 61,638 844 1,664 68,616
Surplus on revaluation - - 24,574 - - 24,574
Additions 196 27 - 2,384 - 2,607
Transfers - 1,881 1,111 (2,992) - -
Exchange adjustment (52) (4) - - (61) (117)
----- ----- ------ ------ ----- ------
At 31 December 1993 1,570 4,948 87,323 236 1,603 95,680
===== ===== ====== ====== ===== ======
Depreciation:
At 1 January 1993 1,323 1,647 38,770 - 1,344 43,084
Surplus on revaluation - - (30,312) - - (30,312)
Provided during the year 71 919 19,716 - 74 20,780
Exchange adjustment (65) (3) - - (50) (118)
----- ----- ------- ------- ----- -------
At 31 December 1993 1,329 2,563 28,174 - 1,368 33,434
===== ===== ======= ======= ===== =======
Net book value at:
31 December 1993 241 2,385 59,149 236 235 62,246
===== ===== ======= ======= ===== =======
1994
Cost or Valuation:
At 1 January 1994 1,570 4,948 87,323 236 1,603 95,680
Additions 87 5 - 2,288 - 2,380
Transfers - 1,083 305 (1,411) 23 -
Exchange adjustment 54 5 - - 54 113
----- ----- ------- ------- ----- -------
At 31 December 1994 1,711 6,041 87,628 1,113 1,680 98,173
===== ===== ======= ======= ===== =======
Depreciation:
At 1 January 1994 1,329 2,563 28,174 - 1,368 33,434
Provided during the year 97 1,047 14,862 239 80 16,325
Exchange adjustment 45 4 - - 46 95
----- ----- ------- ------- ----- -------
At 31 December 1994 1,471 3,614 43,036 239 1,494 49,854
===== ===== ======= ======= ===== =======
Net book value at:
31 December 1994 240 2,427 44,592 874 186 48,319
===== ===== ======= ======= ===== =======
43
EUROPEAN MARINE CONTRACTORS LIMITED
NOTES TO THE FINANCIAL STATEMENTS AT 31 DECEMBER 1995
- --------------------------------------------------------------------------------
9 Tangible Fixed Assets (continued)
Leasehold Plant Marine Under Leasehold
Land and and Floating Constr- Improve-
Building M'chnry Equip -uction -ments Total
1995 (in thousands of pounds sterling)
Cost or Valuation:
At 1 January 1995 1,711 6,041 87,628 1,113 1,680 98,173
Additions 91 75 - 1,289 - 1,455
Transfers - 846 238 (1,084) - -
Disposals - (4) - - - (4)
Exchange adjustment 185 16 - - 182 383
----- ----- ------ ----- ----- -------
At 31 December 1995 1,987 6,974 87,866 1,318 1,862 100,007
===== ===== ====== ===== ===== =======
Depreciation:
At 1 January 1995 1,471 3,614 43,036 239 1,494 49,854
Provided during the year 96 1,162 11,209 291 93 12,851
Disposals - (4) - - - (4)
Exchange adjustment 158 12 - - 164 334
----- ----- ------ ----- ----- -------
At 31 December 1995 1,725 4,784 54,245 530 1,751 63,035
----- ----- ------ ----- ----- -------
Net book value at:
31 December 1995 262 2,190 33,621 788 111 36,972
===== ===== ====== ===== ===== =======
The assets under construction mainly consist of barge enhancements in
progress at the year end.
The historical cost of the vessels included in marine floating equipment is
as follows:
1995 1994
Cost: (in thousands of pounds sterling)
At 1 January 62,374 62,069
====== ======
At 31 December 62,612 62,374
====== ======
Cumulative depreciation based on cost:
At 1 January 48,657 44,085
====== ======
At 31 December 52,146 48,657
====== ======
The vessels will be revalued in three years' time, unless market conditions
change to an extent that necessitates an earlier revaluation.
The increase in the depreciation charge in the year as a result of
revaluation is (pound)7.25m (1994: (pound)10.3m).
44
EUROPEAN MARINE CONTRACTORS LIMITED
NOTES TO THE FINANCIAL STATEMENTS AT 31 DECEMBER 1995
- --------------------------------------------------------------------------------
10 INVESTMENTS
Joint Venture
The company has a 50% interest in Saipem SpA/EMC Ltd J.V., an
unincorporated joint venture, which is based in Bangkok, Thailand.
The remaining interest in the above joint venture is held by the other
joint venture partner, Saipem SpA, which is a fellow group undertaking of
Saipem UK Limited, a shareholder of the company.
This undertaking is managed jointly through management committees comprised
of a representative from each joint venturer.
11 STOCKS
1995 1994
(in thousands of pounds sterling)
Catering supplies 258 301
Fuel and lubricants 392 948
Spares and supplies for marine equipment 9,277 7,716
----- -----
9,927 8,965
===== =====
In the directors' opinion the replacement value of stocks is approximately
(pound)13.1m ((pound)15.7m in 1994).
45
EUROPEAN MARINE CONTRACTORS LIMITED
NOTES TO THE FINANCIAL STATEMENTS AT 31 DECEMBER 1995
- --------------------------------------------------------------------------------
12 DEBTORS
1995 1994
(in thousands of pounds sterling)
Trade debtors 22,222 6,168
Amounts recoverable on long term contracts 3,799 15,171
Amounts due from subsidiary undertaking - -
Amounts due from group undertakings 85,174 100,035
Prepayments and accrued income 11,023 10,570
Other debtors 1,687 1,391
Advances to Joint Venture 313 -
------- -------
124,218 133,335
======= =======
Included in prepayments and accrued income is a deferred tax asset of
(pound)8,431,000 (1994: (pound)5,615,000) due after more than one year.
Further details are disclosed in note 16.
13 CASH
Analysis of balances as shown in the group balance sheet and changes during
the current and previous years:
Change
1995 1994 in Year
(in thousands of pounds sterling)
Cash at bank and in hand 20,516 32,135 (11,619)
====== ====== ======
Change
1995 1994 in Year
(in thousands of pounds sterling)
Cash at bank and in hand 32,135 10,210 21,925
====== ====== ======
Change
1993 1992 in Year
(in thousands of pounds sterling)
Cash at bank and in hand 10,210 30,998 (20,788)
Bank overdraft - (30) 30
------ ------ ------
Balance at 31 December 10,210 30,968 (20,758)
====== ====== ======
14 CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR
1995 1994
(in thousands of pounds sterling)
Trade creditors 1,191 2,380
Amount due to subsidiary undertaking - -
Amounts due to group undertakings 12,254 12,325
Advances from joint venture - -
Accruals and deferred income 78,977 98,291
Corporation Tax 23,469 29,303
Advance Corporation Tax 6,250 -
Deferred investment grants 9 15
------- -------
122,150 142,314
======= =======
The amounts shown under Accruals and deferred income as at 31 December 1994
have been restated in accordance with the provision restatement in note 15.
46
EUROPEAN MARINE CONTRACTORS LIMITED
NOTES TO THE FINANCIAL STATEMENTS AT 31 DECEMBER 1995
- --------------------------------------------------------------------------------
15 PROVISIONS FOR LIABILITIES AND CHARGES
Provision is made for the periodic dry-docking and major planned
maintenance expenditure of marine floating equipment. The provision shown
as at 31 December 1994 has been restated to include amounts shown under
Creditors in the 1994 Accounts due to a change in the planned maintenance
schedule.
1995 1994 1993
(in thousands of pounds sterling)
At 1 January 12,550 5,491 5,087
Charge for the year 3,587 7,480 613
Utilisation (4,415) (421) (209)
------ ------ -----
At 31 December 11,722 12,550 5,491
====== ====== =====
16 DEFERRED TAXATION
The deferred tax asset included under debtors represents:
Provided
1995 1994
(in thousands of pounds sterling)
Capital allowances (655) 387
Other timing differences 9,086 5,228
----- -----
8,431 5,615
===== =====
The deferred tax amounts not provided are as follows:
Unprovided
1995 1994
(in thousands of pounds sterling)
Capital allowances 1,359 100
Other timing differences 3,428 2,649
----- -----
4,787 2,749
===== =====
The potential tax charge of (pound)7.6m (1994: (pound)10.2m) which would
arise on the sale of the revalued vessels has not been provided for as it
is not the intention of the directors to dispose of these assets.
17 SHARE CAPITAL
Allotted, called
Authorised up and fully paid
1995 1994 1995 1994
(in thousands of pounds sterling)
'A' Ordinary shares of(pound)1 each 10,000 10,000 7,000 7,000
'B' Ordinary shares of(pound)1 each 10,000 10,000 7,000 7,000
------ ------ ------ ------
20,000 20,000 14,000 14,000
====== ====== ====== ======
Number of Shares
1995 1994
Shareholders: (in thousands)
Saipem UK Limited - 'A' Ordinary Shares 7,000 7,000
Brown & Root Limited - 'B' Ordinary Shares 7,000 7,000
------ ------
14,000 14,000
====== ======
47
EUROPEAN MARINE CONTRACTORS LIMITED
NOTES TO THE FINANCIAL STATEMENTS AT 31 DECEMBER 1995
- --------------------------------------------------------------------------------
18 RESERVES
1995 1994 1993
Reval- Profit and Reval- Profit and Reval- Profit and
uation Loss uation Loss uation Loss
Reserve Account Reserve Account Reserve Account
(in thousands of pounds sterling)
At 1 January 30,874 23,016 41,465 3,420 - 5,390
Surplus on revaluation - - - - 54,886 -
Depreciation on revaluation surplus (7,718) 7,718 (10,291) 10,291 (13,721) 13,721
Foreign exchange gain/(loss) on
consolidation - 161 - 45 - (47)
(Deficit)/Surplus for the year - (10,290) - 9,260 - (15,644)
------ ------- ------ ------ ------ ------
At 31 December 23,156 20,605 30,874 23,016 41,165 3,420
====== ======= ====== ====== ====== ======
19 PENSIONS
One hundred and thirty eight (1994: 122, 1993: 92) of the group's UK
employees are members of a pension scheme operated by Brown & Root Limited,
which controls the overall administration of the scheme. This scheme is of
the defined benefit type. Contributions amounting to (pound)352,461 (1994:
(pound)315,524, 1993: (pound)248,698) were charged to the profit and loss
account during the year. The scheme includes employee contributions at a
percentage of pensionable salaries. The pension cost is assessed in
accordance with the advice of independent qualified actuaries and the
latest actuarial assessment of the scheme was 1 January 1993. Further
details of the Brown & Root scheme are included in the Brown & Root Limited
accounts.
Eight (1994: 8, 1993: 7) other UK employees are members of the Merchant
Navy Officers' Pension Fund, which was set up in July 1992. Contributions
to this fund amounting to (pound)24,551 (1994: (pound)15,932, 1993:
(pound)12,129) were made during the year.
A further twenty three (1994: 21, 1993: 21) of the group's employees are
members of the EMC Nederland BV pension scheme. The charge to the profit
and loss account of (pound)102,451 (1994: (pound)74,550, 1993:
(pound)52,195), in respect of this scheme has been determined in accordance
with best local practice.
20 CAPITAL COMMITMENTS
The board of directors has authorised capital expenditure of
(pound)3,626,000 (1994: (pound)12,816,000) mainly in connection with the
modification of vessels. Approximately (pound)1,321,000 (1994:
(pound)172,000) of this authorised expenditure has already been contracted.
21 CONTINGENT LIABILITIES
There are no contingent liabilities in existence as at the date on which
the financial statements are approved that would have a material impact
upon the financial position of the company other than those disclosed
below.
Performance bonds have been issued in the ordinary course of business by
bankers and supported by the shareholders to the value of (pound)96.6
million (1994: (pound)85.9 million). No liabilities are expected to arise
from these other than those provided for in the financial statements.
48
EUROPEAN MARINE CONTRACTORS LIMITED
NOTES TO THE FINANCIAL STATEMENTS AT 31 DECEMBER 1995
- --------------------------------------------------------------------------------
22 LEASING COMMITMENTS
Amounts payable in the following year on operating leases which expire:
1995 1994
Land Land
& &
Buildings Other Buildings Other
(in thousands of pounds sterling)
i) Within 1 year - 5,436 - 10,193
ii) In 2-5 years - 116 - 149
iii) Over 5 years 656 - 493 -
=== ===== === ======
Other leases relate primarily to the charter of support vessels.
49
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
PART III
Item 10. Directors and Executive Officers of Registrant.
The information required for the directors of the Registrant is
incorporated by reference to the Halliburton Company Proxy Statement dated March
26, 1996, under the caption "Election of Directors." The information required
for the executive officers of the Registrant is included under Part I, Item
4(A), page 5 of this Annual Report.
Item 11. Executive Compensation.
This information is incorporated by reference to the Halliburton Company
Proxy Statement dated March 26, 1996, under the captions "Compensation Committee
Report on Executive Compensation," "Comparison of Five Year and Three Year
Cumulative Total Return," "Summary Compensation Table," "Option Grants in Last
Fiscal Year," "Aggregated Option Exercises in Last Fiscal Year and Fiscal
Year-End Option Values," "Retirement Plan" and "Directors' Compensation,
Restricted Stock Plan and Retirement Plan."
Item 12(a). Security Ownership of Certain Beneficial Owners.
This information is incorporated by reference to the Halliburton Company
Proxy Statement dated March 26, 1996, under the caption "Stock Ownership of
Certain Beneficial Owners and Management."
Item 12(b). Security Ownership of Management.
This information is incorporated by reference to the Halliburton Company
Proxy Statement dated March 26, 1996, under the caption "Stock Ownership of
Certain Beneficial Owners and Management."
Item 12(c). Changes in Control.
Not applicable.
Item 13. Certain Relationships and Related Transactions.
This information is incorporated by reference to the Halliburton Company
Proxy Statement dated March 26, 1996, under the caption "Certain Transactions."
50
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) 1. Financial Statements:
The report of Arthur Andersen LLP, Independent Public Accountants, and the
financial statements of the Company as required by Part II, Item 8, are
included on pages 11 through 29 of this Annual Report. See index on page 6.
2. Financial Statement Schedules:
The financial statements of European Marine Contractors, Limited (EMC),
the investment in which is accounted for on the equity method, follow
the Five Year Financial Record. The EMC financial statements were
prepared in accordance with accounting principles generally accepted in
the United Kingdom. Certain parent company adjustments were included in
the selected financial data presented in Note 4 to the Company's
financial statements in order to conform with generally accepted
accounting principles in the United States.
Note: All schedules not filed herein for which provision is made under
rules of Regulation S-X have been omitted as not applicable or not
required or the information required therein has been included in the
notes to financial statements.
51
3. Exhibits:
Exhibit
Number Exhibits
3* By-laws of the Company, as amended through February 15, 1996.
4(a) Resolutions of the Board of Directors of the registrant
adopted at a meeting held on February 11, 1991 and of the
special pricing committee of the Board of Directors of the
registrant adopted at a meeting held on March 6, 1991
incorporated by reference to Exhibit 4(c) to the Company's
Form 8-K dated as of March 13, 1991.
4(b) Subordinated Indenture dated as of January 2, 1991 between the
Company and Texas Commerce Bank National Association, as
Trustee, incorporated by reference to Exhibit 4(b) to the
Company's Form 8-K dated as of March 13, 1991.
4(c) Form of debt security of 8.75% Debentures due February 15,
2021 incorporated by reference to Exhibit 4(a) to the
Company's Form 8-K dated as of February 20, 1991.
4(d) Senior Indenture dated as of January 2, 1991 between the
Company and Texas Commerce Bank National Association, as
Trustee, incorporated by reference to Exhibit 4(b) to the
Company's Form 8-K dated as of February 20, 1991.
4(e) Resolutions of the Company's Board of Directors adopted at a
meeting held on February 11, 1991 and of the special pricing
committee of the Board of Directors of the Registrant adopted
at a meeting held on February 11, 1991 and the special pricing
committee's consent in lieu of meeting dated February 12,
1991, incorporated by reference to Exhibit 4(c) to the
Company's Form 8-K dated as of February 20, 1991.
4(f) Composite Certificate of Incorporation filed May 26, 1987 with
the Secretary of State of Delaware and that certain
Certificate of Designation, Rights and Preferences related to
the authorization of the Company's Junior Participating
Preferred Stock, Series A, incorporated by reference to
Exhibit 4(d) to the Company's Registration Statement on Form
S-3 dated as of December 21, 1990.
4(g) Copies of instruments which define the rights of holders of
miscellaneous long-term notes of the Registrant and its
subsidiaries, totaling $0.2 million in the aggregate at
December 31, 1995, have not been filed with the Commission.
The Registrant agrees herewith to furnish copies of such
instruments upon request.
4(h) Copies of the instruments which define the rights of the
holder of the 4.0% notes payable totaling $5.0 million at
December 31, 1995, have not been filed with the Commission.
The Registrant agrees herewith to furnish copies of such
instruments upon request.
4(i) Amended and Restated Rights Agreement dated as of December 15,
1995, between the Company and Chemical Mellon Shareholders,
L.L.C., as Rights Agent, which includes the form of Right
Certificate as Exhibit A, incorporated by reference to Exhibit
2.1 to the Company's Form 8-A/A dated January 16, 1996.
10(a) Halliburton Company Career Executive Incentive Stock Plan as
amended November 15, 1990, incorporated by reference to
Exhibit 10(a) to the Company's Annual Report on Form 10-K for
the year ended December 31, 1992.
10(b) Retirement Plan for the Directors of Halliburton Company
adopted and effective January 1, 1990, incorporated by
reference to Exhibit 10(c) to the Company's Annual Report on
Form 10-K for the year ended December 31, 1992.
52
Exhibit
Number Exhibits
10(c) Halliburton Company Directors' Deferred Compensation Plan as
amended and restated effective May 15, 1990, incorporated by
reference to Exhibit 10(d) to the Company's Annual Report on
Form 10-K for the year ended December 31, 1992.
10(d) Summary Plan Description of the Executive Split-Dollar Life
Insurance Plan, incorporated by reference to Exhibit 10(g) to
the Company's Annual Report on Form 10-K for the year ended
December 31, 1992.
10(e) Halliburton Company 1993 Stock and Long-Term Incentive Plan
incorporated by reference to Appendix A of the Company's proxy
statement dated March 23, 1993.
10(f) Asset acquisition agreement between Smith and the Company
dated as of January 14, 1993 incorporated by reference to the
Second Amendment of the Company's Registration Statement on
Form S-3 dated as of March 29, 1993.
10(g) Halliburton Company Restricted Stock Plan for Non-Employee
Directors, incorporated by reference to Appendix B of the
Company's proxy statement dated March 23, 1993.
10(h) Halliburton Elective Deferral Plan effective January 1, 1995,
incorporated by reference to Exhibit 10(k) to the Company's
Annual Report on Form 10-K for the year ended December 31,
1994.
10(i) Employment agreement, incorporated by reference to Exhibit 10
to the Company's Form 10-Q for the quarterly period ended
September 30, 1995.
10(j)* Halliburton Company Senior Executives' Deferred Compensation
Plan as amended and restated effective January 1, 1995.
10(k)* Halliburton Company Annual Reward Plan
10(l)* First Amendment to the Senior Executives' Deferred
Compensation Plan, effective January 1, 1996.
10(m)* Second Amendment to the Senior Executives' Deferred
Compensation Plan, effective January 1, 1996.
10(n)* Employment agreement
10(o)* First Amendment to the Halliburton Elective Deferral Plan,
effective November 1, 1995.
10(p)* Second Amendment to the Halliburton Elective Deferral Plan,
effective January 1, 1996.
10(q)* Third Amendment to the Halliburton Elective Deferral Plan,
effective January 1, 1996.
11* Computation of Earnings per share.
21* Subsidiaries of the Registrant.
53
Exhibit
Number Exhibits
24* Form of power of attorney signed in February 1996, for the
following directors:
Anne L. Armstrong
Richard B. Cheney
Lord Clitheroe
Robert L. Crandall
W. R. Howell
Dale P. Jones
C. J. Silas
Roger T. Staubach
Richard J. Stegemeier
E. L. Williamson
27* Financial data schedules for the Registrant (filed
electronically).
* Filed with this Annual Report
- --------------------------------------------------------------------------------
(b) Reports on Form 8-K:
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 Highlands Insurance Group, Inc.
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 the fourth quarter dividend.
A Current Report was filed on Form 8-K dated December 8, 1995, reporting
on Item 5. Other Events, regarding a press release dated December 7, 1995
announcing the renewal and ten-year extension of the Shareholders Rights
Plan.
A Current Report was filed on Form 8-K dated December 28, 1995, reporting
on Item 5. Other Events, regarding a press release dated December 26, 1995
announcing the record and distribution dates for the distribution of
Highlands Insurance Group, Inc. common stock.
During the first quarter of 1996 to the date hereof:
A Current Report was filed on Form 8-K dated January 24, 1996, reporting
on Item 5. Other Events, regarding press releases dated January 23, 1996
announcing the completion of the spin-off of Highlands Insurance Group,
Inc. and fourth quarter 1995 earnings.
A Current Report was filed in Form 8-K dated February 16, 1996, reporting
on Item 5. Other Events, regarding a press release dated February 15, 1996
announcing the first quarter dividend.
54
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, on this 8th day of March,
1996.
HALLIBURTON COMPANY
By *Richard B. Cheney
Richard B. Cheney,
Chairman of the Board, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons in the capacities indicated on
this 8th day of March, 1996.
Signature Title
Richard B. Cheney Chairman of the Board, President
Richard B. Cheney and Chief Executive Officer and Director
David J. Lesar Executive Vice President and
David J. Lesar Chief Financial Officer
Scott R. Willis Controller and Principal
Scott R. Willis Accounting Officer
55
Signature Title
*ANNE L. ARMSTRONG Director
Anne L. Armstrong
*LORD CLITHEROE Director
Lord Clitheroe
*ROBERT L. CRANDALL Director
Robert L. Crandall
*W. R. HOWELL Director
W. R. Howell
*DALE P. JONES Vice Chairman and Director
Dale P. Jones
*C. J. SILAS Director
C. J. Silas
*ROGER T. STAUBACH Director
Roger T. Staubach
*RICHARD J. STEGEMEIER Director
Richard J. Stegemeier
*E. L. WILLIAMSON Director
E. L. Williamson
*SUSAN S. KEITH
Susan S. Keith, Attorney-in-fact
56