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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, 1996
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 (No fee required) For the transition period from to
Commission File Number 1-3492
HALLIBURTON COMPANY
(Exact name of registrant as specified in its charter)
Delaware 75-2677995
(State or other jurisdiction of (I.R.S. Employer
incorporation of organization) Identification No.)
3600 Lincoln Plaza, 500 N. Akard St., Dallas, Texas 75201
(Address of principal executive offices)
Telephone Number - Area code (214) 978-2600
Securities registered pursuant to Section 12(b) of the Act:
Name of each Exchange on
Title of each class which registered
Common Stock par value $2.50 per share New York Stock Exchange
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 March 5,
1997, determined using the per share closing price on the New York Stock
Exchange Composite tape of $66.88 on that date was approximately $8,429,100,000.
As of March 5, 1997, there were 126,359,189 shares of Halliburton Company Common
Stock $2.50 par value per share outstanding.
Portions of the Halliburton Company Proxy Statement dated March 25, 1997, are
incorporated by reference into Part III of this report.
PART I
Item 1. Business.
General Development of Business. Halliburton Company's predecessor was
established in 1919, incorporated under the laws of the state of Delaware in
1924 and reorganized under the laws of the State of Delaware in 1996.
Halliburton Company (the Company) provides energy services and engineering and
construction services. Information related to acquisitions and dispositions is
set forth in Note 15 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.
The Energy Group business segment 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. The Energy Group operates
worldwide, serving major oil companies, independent operators and national oil
companies. The segment includes Halliburton Energy Services, which offers
drilling systems and services, pressure pumping equipment and services, logging
and perforating products and services, specialized completion and production
equipment and services and well control products and services; Brown & Root
Energy Services, which provides upstream oil and gas engineering, construction,
project management and maintenance activities, subsea construction, fabrication
and installation of subsea pipelines, offshore platforms, and production
platforms, marine engineering and other marine related projects; Landmark
Graphics Corporation, which provides integrated exploration and production
information systems and professional services; and Halliburton Energy
Development, which has been formed to create business opportunities for the
development, production and operation of customers' oil and gas fields.
The Engineering and Construction Group provides conceptual design, process
design, detailed engineering, procurement, project and construction management,
construction of chemical and petrochemical plants, refineries, pulp and paper
mills, metal processing plants, highways and bridges, technical and economic
feasibility studies, site evaluation, 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 customers have indicated a preference for integrated
services and solutions. These integrated solutions, in the case of the Energy
Group, relate to all phases of exploration and production of oil and gas, and,
in the case of the Engineering and Construction group, relate to all phases of
design, procurement, construction, project management and maintenance of a
facility. Demand for these types of integrated 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 the Energy Group's 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. In 1996, 1995 and 1994, respectively, 73%, 78% and
78% 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 projects at December 31, 1996 and 1995:
1996 1995
-------------- -------------
(In millions)
Firm orders $ 4,555 $ 3,961
Government orders firm but not yet funded 262 634
Letters of intent and contracts
awarded but not signed 23 6
-------------- -------------
Total $ 4,840 $ 4,601
- --------------------------------------------------------------------------------
It is estimated that nearly 65% of the backlog existing at December 31,
1996 will be completed during 1997. The Company's backlog excludes contracts for
recurring hardware and software maintenance and support services. The Company
does not believe that 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.
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. The
Company is also licensed under patents owned by others. The Company does not
consider a particular patent or group of patents to be material to the Company's
business.
Seasonality. Weather and natural phenomena can temporarily affect the
performance of the Company's services. Winter months in the Northern Hemisphere
tend to affect operations negatively, but the widespread geographical locations
of the Company's services serve to mitigate the seasonal nature of the Company's
business.
Employees. At December 31, 1996 the Company employed approximately 60,000
people of which 23,500 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.
The Energy Group owns manufacturing facilities covering approximately
3,300,000 square feet. Principal locations of these manufacturing facilities are
Davis and Duncan, Oklahoma; Alvarado, Amarillo, Carrollton, Fort Worth, Garland
and Houston, Texas; Arbroath, Scotland; and Reynosa, Mexico. The manufacturing
facilities at Davis, Amarillo, and one of four locations in Houston were idle at
the end of 1996. The manufacturing facility in Mansfield, Texas was sold in 1996
and the manufacturing facility in Garland, Texas will be leased to another
company in 1997. The Energy Group also leases manufacturing facilities covering
approximately 118,000 square feet. Principal locations of these facilities are
Houston, Texas; Jurong, Singapore; Basingstoke, England; and Kilwinning,
Scotland. The facility in Basingstoke, England was idle at the end of 1996.
Research, development and engineering activities are carried out in owned
facilities covering approximately 469,000 square feet in Duncan, Oklahoma; and
Houston, Austin and Carrollton, Texas; and in leased facilities covering
approximately 84,000 square feet in Englewood and Denver, Colorado; and
3
Leiderdorp, Holland. One of two facilities in Houston was idle at the end of
1996. The Energy Group also owns marine fabrication facilities covering
approximately 523 acres in Belle Chasse, Louisiana; Greens Bayou, Texas; and
Nigg and Wick, Scotland. The Belle Chasse, Louisiana facility consisting of
approximately 165 acres is idle. The facility in Nigg, Scotland is leased to
another company. The Group sold its 35% owned marine fabrication facility in
Sundra Strait, Indonesia during 1996. 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.
The Engineering and Construction Group owns fabricating 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 design, project management and procurement services activities are carried
out in owned facilities covering approximately 3,600,000 square feet in Houston,
Texas; Edmonton, Canada; Leatherhead, England; and Aberdeen, Scotland. These
activities are also carried out at leased facilities covering approximately
1,100,000 square feet in Mobile, Alabama; Alhambra, California; Gaithersburg,
Maryland; Pittsburg, Pennsylvania; Aiken, South Carolina; Eastleigh and London,
England; Kuala Lumpur, Malaysia; Stavanger, Norway; Singapore; Aberdeen,
Scotland; Al Khobar, Saudi Arabia; and Bahrain. In addition, project offices,
field camps, laboratories, service centers, and sales offices are operated at
approximately 60 locations in the United States, almost all of which are leased
by the Company, and at approximately 30 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. and owns an 85,000 square foot
mainframe data processing center in Arlington, Texas which is leased to another
company.
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 1996.
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 56) 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
Jerry H. Blurton Vice President and Treasurer, since July 1996
(Age 52) Vice President-Finance & Administration of
Halliburton Energy Services, August 1995 to
July 1996
Vice President-Finance, 1991 to August 1995
Lester L. Coleman Executive Vice President and General Counsel, since
(Age 54) 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 60) Vice Chairman, since October 1995
President, June 1989 to October 1995
* David J. Lesar Executive Vice President and Chief Financial
(Age 43) Officer, since August 1995
President and Chief Executive Officer of Brown &
Root, Inc., since September 1996
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 the
(Age 61) Halliburton Energy Group, since September 1996
President and Chief Executive Officer of Halliburton
Energy Services, March 1994 to September 1996
President and Chief Operating Officer of Halliburton
Energy Services, May 1993 to March 1994
President and Chief Executive Officer of Halliburton
Services, December 1989 to May 1993
Gary V. Morris Senior Vice President - Finance, since February 1997
(Age 44) Senior Vice President, May 1996 to February 1997
Vice President - Finance of Brown & Root, Inc.,
June 1995 to May 1996
Vice President - Finance of Halliburton Energy
Services, December 1993 to June 1995
Controller, December 1991 to December 1993
R. Charles Muchmore Vice President and Controller, since August 1996
(Age 43) Finance & Administration Director - Europe/Africa of
Halliburton Energy Services, September 1995 to
August 1996
Regional Finance & Administration Manager - Europe/
Africa of Halliburton Energy Services, December
1989 to September 1995
Lewis W. Powers Senior Vice President, since May 1996
(Age 50) Vice President - Europe/Africa of Halliburton
Energy Services, April 1993 to May 1996
Senior Vice President of Operations of Otis
Engineering, June 1989 to April 1993
* 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 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
36 of this Annual Report. At December 31, 1996, there were approximately 14,900
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 33 and
34 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 10 of this Annual
Report.
Item 8. Financial Statements and Supplementary Data.
Page No.
Responsibility for Financial Reporting............................... 11
Report of Arthur Andersen LLP, Independent Public Accountants........ 12
Consolidated Statements of Income for the Years Ended
December 31, 1996, 1995 and 1994................................ 13
Consolidated Balance Sheets at December 31, 1996 and 1995............ 14
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1996, 1995 and 1994................................ 15
Consolidated Statements of Shareholders' Equity for the
Years Ended December 31, 1996, 1995 and 1994.................... 16
Notes to Financial Statements........................................ 17 to 32
Quarterly Data and Market Price Information.......................... 36
The related financial statement schedules are included under Part IV, Item 14 of
this Annual Report.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
BUSINESS ENVIRONMENT AND OUTLOOK
The Company operates in over 100 countries around the world to provide a
variety of energy services and engineering and construction services to energy,
industrial and governmental customers. Operations in some countries may be
affected by unsettled political conditions, expropriation or other governmental
actions, and exchange control and currency devaluations. The Company believes
the geographic diversification of its business activities reduces the risk that
loss of its operations in any one country would be material to its consolidated
results of operations. However, United States law imposes a variety of trade
sanctions restricting the ability of the Company, and in some cases its foreign
subsidiaries, to conduct business in some countries where there are markets for
the Company's goods and services. In the future, certain of these trade
sanctions may adversely affect the ability of the Company to conduct business
with foreign customers having activities in certain countries such as Cuba, Iran
or Libya which are targeted by the United States, including restrictions on the
Company's ability to do business with such customers in unrelated countries.
Currently, discussions are ongoing in the United States Congress and
Administration concerning imposition of further trade sanctions affecting
countries such as Algeria, Nigeria, Colombia and Myanmar. Many of these
countries are important markets for the Company and new trade restrictions which
impair the ability of the Company and/or its customers to conduct business in
these countries could adversely affect the results of the Company's operations
in some future period.
Energy Group. In 1996, the energy industry experienced a year of strong
growth, as customers worldwide expanded their petroleum exploration, development
and production activities. Customer activities increased in response to a
combination of factors including higher crude oil and natural gas prices,
improvement in the long-term demand growth outlook for the petroleum industry
and available investment opportunities with desirable economic potential.
Customer economics are also being enhanced by increased utilization of
integrated solutions, partnering and alliance arrangements designed to reduce
the per barrel cost of finding, developing and producing hydrocarbons. Although
customers have given early indications they plan to increase their spending in
1997, recent crude oil and natural gas price declines may constrain their
anticipated cash flow which may, in turn, reduce or defer some planned
activities.
Engineering and Construction Group. Opportunities are good; however, those
opportunities are increasingly complex and competition remains intense. The key
drivers of improved margins will be partnering on larger jobs, accepting more
risk through gain sharing or fixed price contract arrangements, broadening the
service base in core competencies, acquiring proprietary knowledge and managing
costs.
Landmark acquisition. On October 4, 1996, the Company completed its
acquisition of all of the outstanding common stock of Landmark Graphics
Corporation in exchange for approximately 10.2 million shares of Halliburton
Company Common Stock. See Note 13 to the financial statements.
Realignment of product and service lines. During 1996, prior to the fourth
quarter, the Company operated through two business segments, Energy Services and
Engineering and Construction Services. Beginning with the fourth quarter of
1996, the Company realigned the business units making up these two segments in
order to better meet the needs of its customers and capitalize on the synergy
between business units. The Company's two business segments are now called the
Energy Group and the Engineering and Construction Group. The Energy Group
business segment consists of Halliburton Energy Services, which offers drilling
systems and services, pressure pumping equipment and services, logging and
perforating products and services, specialized completion and production
equipment and services and well control products; Brown & Root Energy Services,
which includes upstream oil and gas engineering, construction, project
management and maintenance activities; Landmark Graphics Corporation, which
includes integrated exploration and production information systems and
professional services; and Halliburton Energy Development, which has been formed
to create business opportunities for the development, production and operation
of customers' oil and gas fields.
The Engineering and Construction Group consists of two business units
offering engineering, construction, project management, facilities operation and
maintenance and environmental services. To more closely align with its
customers, one business unit will focus on delivering engineering and
construction services to commercial customers and the other will focus on
servicing government customers at all levels. The cost of implementing this
program, along with the combination of various administrative support functions
into combined shared services for the Company, is reflected in the 1996 third
quarter $65.3 million pre-tax charge. See Note 16 to the financial statements.
7
RESULTS OF OPERATIONS
Revenues for 1996 were $7,385.1 million, an increase of 26% over 1995
revenues of $5,882.9 million and an increase of 30% over 1994 revenues of
$5,661.1 million. Approximately 55% of the Company's consolidated revenues were
derived from international activities in 1996 compared with 51% in 1995 and 45%
in 1994.
Energy Group 1996 revenues were $4,286.3 million, an increase of 19% over
1995 revenues of $3,604.0 and an increase of 27% over 1994 revenues of $3,364.0
million. The Energy Group's increase in revenues compares to an 8% increase in
the worldwide rotary rig count for 1996 compared to 1995 and a 3% increase in
the worldwide rotary rig count for 1996 compared to 1994. Approximately 67%, 67%
and 63% of the Energy Group's revenues were derived from international
activities for 1996, 1995 and 1994, respectively.
Engineering and Construction Group revenues were $3,098.8 million for 1996,
an increase of 36% over 1995 revenues of $2,278.9 million and an increase of 35%
over 1994 revenues of $2,297.1 million. The increase in revenues is due
primarily to higher levels of activity in the Group's pulp and paper and
chemical operations as well as a service contract with the U.S. Department of
Defense to provide technical and logistical support for military peacekeeping
operations in Bosnia.
Operating income was $417.9 million for 1996 compared to $400.9 million for
1995 and $239.8 million for 1994. Excluding special charges of $85.8 million,
$8.4 million and $16.6 million during 1996, 1995 and 1994, respectively,
operating income for 1996 increased by 23% over 1995 and by 96% over 1994 as
shown in the following table. See Note 16 to the financial statements.
Millions of dollars 1996 1995 1994
- ------------------------------------------------------------------ -- --------- -- -- ---------- -- -- ---------
Operating income before special charges $ 503.7 $ 409.3 $ 256.4
Landmark write off of acquired in process research
and development (11.3) (3.7) -
Merger costs associated with Landmark acquisition (12.4) - -
Realignment of products and service lines and support services (61.2) - -
Landmark restructuring and merger costs (0.9) (4.7) (16.6)
-- --------- -- -- ---------- -- -- ---------
Operating income $ 417.9 $ 400.9 $ 239.8
- ------------------------------------------------------------------ -- --------- -- -- ---------- -- -- ---------
Approximately 66% of the Company's consolidated operating income was
derived from international activities in 1996 compared to 65% for 1995 and 40%
for 1994. Consolidated international operating margins were 8%, 9% and 4% for
1996, 1995 and 1994, respectively.
Energy Group operating income in 1996 was $484.4 million in 1996, an
increase of 22% over 1995 operating income of $398.2 million and 83% over 1994
operating income of $264.1 million. Operating margins were 11% in 1996 compared
with 11% for 1995 and 8% for 1994. Approximately 62%, 66% and 41% of the Energy
Group's operating income was derived from international activities for 1996,
1995 and 1994, respectively. Operating income growth for Halliburton Energy
Services in 1996 is due primarily to substantially increased services provided
in North America and Europe and, to a lesser degree, increases in Latin America
and the Middle East. Margin increases were strongest in the pressure pumping
business. Lower operating margins in 1994 were due to decreased activity levels
in the North Sea, Middle East, and Asia, market disturbances in Nigeria and
Yemen, unsettled political and business conditions in the Commonwealth of
Independent States, and pricing pressures in the United States. Energy Group
results for 1996 include $35 million of gain sharing revenue on the Brown & Root
Energy Services' portion of the cost savings realized on the BP Andrew alliance.
The alliance completed the project seven months ahead of the scheduled
production of oil and achieved a $125 million savings compared with the targeted
cost. The effect of the gain sharing was offset by a $20.7 million reduction in
operating income due to lower activity levels by its 50% owned joint venture,
European Marine Contractors, Limited.
Engineering and Construction Group operating income for 1996 increased 20%
over 1995 and 253% over 1994 to $53.7 million. Operating margins were 2%, 2% and
1% for 1996, 1995 and 1994, respectively. During 1996, operating income
increases in petroleum and chemical services as well as income from technical
and logistical support services for military peacekeeping operations in Bosnia
were partially offset by a $17.1 million charge for the impairment of Brown &
Root's investment in the Dulles Greenway toll road extension project. The
Group's contract to provide services in Bosnia ends in 1997.
8
Consolidated general and administrative expenses for 1996 were $236.6
million compared to $221.7 million and $232.1 million for 1995 and 1994,
respectively.
The Company sold its natural gas compression business, geophysical products
and services business and workover platform business in 1994.
Interest expense decreased to $24.1 million for 1996 from $47.1 million in
1995 and $48.1 million in 1994 due to the redemption of the Company's zero
coupon convertible subordinated debentures in September 1995 and the redemption
of its $42.0 million term loan in December 1995.
Interest income decreased to $14.2 million for 1996 from $32.0 million in
1995 and $19.8 million in 1994 due to lower amounts of invested cash resulting
from the debt redeemed in 1995.
Foreign currency gains (losses) netted to a loss of $3.9 million in 1996
compared to a $1.4 million gain in 1995 and a $16.3 million loss in 1994.
Current year losses are due primarily to the devaluation of the Venezuelan
bolivar. The loss in 1994 related primarily to devaluations in Brazil and
Venezuela.
Provision for income taxes was lower in 1996 than in 1995 and 1994. The
effective income tax rate was 26% in 1996, compared with 36% in 1995 and 41% in
1994. The lower effective income tax rate and provision for 1996 are due to
credits of $43.7 million recorded during the third quarter to recognize certain
net operating loss carryforwards and the settlement of various issues with the
Internal Revenue Service. Excluding the tax benefits recorded in 1996, the
effective income tax rate was 36%. See Note 16 to the financial statements.
Income from continuing operations for 1996, 1995 and 1994 of $300.4
million, $249.2 million and $175.4 million, respectively, resulted in income per
share from continuing operations of $2.38, $2.00 and $1.41, respectively.
Discontinued operations in 1995 and 1994 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.
LIQUIDITY AND CAPITAL RESOURCES
The Company ended 1996 with cash and equivalents of $213.6 million compared
with $239.6 million in 1995 and $441.3 million in 1994. The decrease in cash and
equivalents from 1994 is due to the redemption of debt during 1995 of $432.7
million, partially offset by increased cash flows from operations.
Cash flows from operating activities were $452.0 million for 1996 compared
to $667.4 million and $439.0 million for 1995 and 1994, respectively. The
primary use of cash by operating activities was to fund increased working
capital requirements related to increased revenues.
Cash flows used in investing activities were $409.4 million for 1996
compared to $267.3 million used in 1995 and $183.4 million provided in 1994. The
increase in cash used for investing activities during 1996 is due primarily to
an increase in capital expenditures of 30% over 1995 and $41.3 million related
to the Company's share of the purchase price of a subsidiary acquired by the
Company's 36% owned affiliate, M-I Drilling Fluids Company, L.L.C. 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 in financing activities were $65.8 million for 1996
compared to $599.0 million and $254.7 million for 1995 and 1994, respectively.
Cash used for financing activities during 1996 consisted primarily of dividend
payments of $117.5 million offset by net short term borrowings of $38.3 million
and proceeds from the exercise of stock options of $25.6 million. In 1995, the
increased amount of cash used by financing activities is due primarily to the
redemption of the Company's $390.7 million zero coupon convertible debentures
and $42.0 million term loan. 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 its geophysical
business. Total debt was 10%, 10% and 25% of total capitalization at the end of
1996, 1995 and 1994, respectively.
During January 1997, the Company announced that it had offered to purchase
all of the outstanding shares of OGC International plc for approximately $117.9
million. See Note 15 to the financial statements.
9
On February 6, 1997, the Company issued $125.0 million principal amount of
6.75% notes due February 1, 2027; however, each holder of the notes has the
right to require the Company to repay such holder's notes, in whole or in part,
on February 1, 2007. The additional funds will be used for general corporate
purposes which may include repayment of debt, acquisitions, and loans and
advances to and/or investments in subsidiaries of the Company for working
capital, repayment of debt and capital expenditures. 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, notes payable and long-term debt.
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.
FORWARD LOOKING INFORMATION
In accordance with the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995, the Company notes that the statements in this
annual report and elsewhere, which are forward looking and which provide other
than historical information, involve risks and uncertainties that may impact the
Company's actual results of operations. The Company continues to face many risks
and uncertainties including: unsettled political conditions, war, civil unrest,
currency controls and governmental actions in countries of operation; trade
restrictions and economic embargoes; environmental laws, including those that
require emission performance standards for new and existing facilities; the
magnitude of governmental spending for military and logistical support of the
type provided by the Company; operations in high risk countries; technological
and structural changes in the industries served by the Company; changes in the
price of oil and natural gas; changes in capital spending by customers in the
hydrocarbon industry for exploration, development, production, processing,
refining and pipeline delivery networks; changes in capital spending by
customers in the wood pulp and paper industries for plants and equipment; and
changes in capital spending by governments for infrastructure. In addition,
future trends for revenues and profitability remain difficult to predict in the
industries served by the Company.
10
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 current or former officers or employees of the Company, provides
oversight to the financial reporting process.
There are inherent limitations in the effectiveness of any system of
internal control, including the possibility of human error and the circumvention
or overriding of controls. Accordingly, even an effective internal control
system can provide only reasonable assurance with respect to financial statement
preparation. Furthermore, the effectiveness of an internal control system may
change over time.
The Company assessed its internal control system in relation to criteria
for effective internal control over financial reporting described in "Internal
Control-Integrated Framework" issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based upon that assessment, the
Company believes that, as of December 31, 1996, its system of internal control
over financial reporting met those criteria.
HALLIBURTON COMPANY
by /s/ Dick Cheney by /s/ David J. Lesar
------------------------ ------------------------
Dick Cheney David J. Lesar
Chairman of the Board, President Executive Vice President
and Chief Executive Officer and Chief Financial Officer
11
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,
1996 and 1995, and the related consolidated statements of income, cash flows and
shareholders' equity for each of the three years in the period ended December
31, 1996. 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, 1996 and 1995, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1996, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Dallas, Texas,
January 22, 1997
12
Consolidated Statements of Income
Years ended December 31
Millions of dollars and shares except per share data 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------
Revenues
Energy Group $ 4,286.3 $ 3,604.0 $ 3,364.0
Engineering and Construction Group 3,098.8 2,278.9 2,297.1
--------------------------------------------
Total revenues 7,385.1 5,882.9 5,661.1
--------------------------------------------
Operating costs and expenses
Cost of revenues 6,644.8 5,251.9 5,172.6
General and administrative 236.6 221.7 232.1
Special charges 85.8 8.4 16.6
--------------------------------------------
Total operating costs and expenses 6,967.2 5,482.0 5,421.3
--------------------------------------------
Operating income 417.9 400.9 239.8
Interest expense (24.1) (47.1) (48.1)
Interest income 14.2 32.0 19.8
Foreign currency gains (losses) (3.9) 1.4 (16.3)
Gain on sale of compression services - - 102.0
Other nonoperating income, net 0.1 0.6 0.6
--------------------------------------------
Income from continuing operations before income taxes and
minority interests 404.2 387.8 297.8
Provision for income taxes (103.3) (137.7) (122.2)
Minority interest in net income of consolidated subsidiaries (0.5) (0.9) (0.2)
--------------------------------------------
Income from continuing operations 300.4 249.2 175.4
Income (loss) from discontinued operations - (65.5) 5.5
--------------------------------------------
Net income $ 300.4 $ 183.7 $ 180.9
- ---------------------------------------------------------------------------------------------------------------------------
Income (loss) per share
Continuing operations $ 2.38 $ 2.00 $ 1.41
Discontinued operations - (0.53) 0.04
--------------------------------------------
Net income 2.38 1.47 1.45
- ---------------------------------------------------------------------------------------------------------------------------
Average common shares outstanding 126.1 124.7 124.2
See notes to financial statements.
13
Consolidated Balance Sheets
December 31
Millions of dollars and shares except per share data 1996 1995
- --------------------------------------------------------------------------------------------------------------------
Assets
Current assets:
Cash and equivalents $ 213.6 $ 239.6
Receivables:
Notes and accounts receivable (less allowance for bad debts of $43.6 and $38.1) 1,413.4 1,215.4
Unbilled work on uncompleted contracts 288.9 233.7
------------------------------
Total receivables 1,702.3 1,449.1
Inventories 292.2 256.3
Deferred income taxes, current 108.7 141.4
Other current assets 81.2 99.6
------------------------------
Total current assets 2,398.0 2,186.0
Property, plant and equipment:
At cost 3,560.8 3,422.3
Less accumulated depreciation 2,269.2 2,264.4
------------------------------
Net property, plant and equipment 1,291.6 1,157.9
Equity in and advances to related companies 234.9 115.4
Excess of cost over net assets acquired (net of accumulated amortization
of $42.7 and $34.0) 233.9 225.6
Deferred income taxes, noncurrent 98.6 3.0
Other assets 179.6 174.1
------------------------------
Total assets $ 4,436.6 $ 3,862.0
- --------------------------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Current liabilities:
Short-term notes payable $ 46.3 $ 4.8
Current maturities of long-term debt 0.1 5.2
Accounts payable 452.1 373.0
Accrued employee compensation and benefits 193.7 155.2
Advance billings on uncompleted contracts 336.3 301.8
Income taxes payable 135.8 97.3
Deferred maintenance fees 18.9 12.1
Other current liabilities 321.5 248.7
------------------------------
Total current liabilities 1,504.7 1,198.1
Long-term debt 200.0 200.0
Employee compensation and benefits 281.1 263.2
Other liabilities 291.6 280.5
------------------------------
Total liabilities 2,277.4 1,941.8
------------------------------
Shareholders' equity:
Common stock, par value $2.50 per share - authorized 200.0 shares,
issued 129.3 and 129.1 shares 323.3 322.7
Paid-in capital in excess of par value 322.2 302.9
Cumulative translation adjustment (12.4) (28.0)
Retained earnings 1,656.3 1,473.4
------------------------------
2,289.4 2,071.0
Less 4.0 and 4.6 shares treasury stock, at cost 130.2 150.8
------------------------------
Total shareholders' equity 2,159.2 1,920.2
------------------------------
Total liabilities and shareholders' equity $ 4,436.6 $ 3,862.0
- --------------------------------------------------------------------------------------------------------------------
See notes to financial statements.
14
Consolidated Statements of Cash Flows
Years ended December 31
Millions of dollars 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $ 300.4 $ 183.7 $ 180.9
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization 267.9 259.8 271.3
Provision (benefit) for deferred income taxes (23.8) 46.0 86.0
Distributions from (advances to) related companies, net of equity in
(earnings) or losses (65.9) (20.5) (0.6)
Appreciation of zero coupon bonds - 15.0 21.6
Gain on sale of compression services - - (102.0)
Net (income) loss from discontinued operations - 65.5 (5.5)
Other non-cash items 8.9 (8.2) (8.5)
Other changes, net of non-cash items:
Receivables (218.2) (91.6) 100.4
Inventories (46.0) 17.6 90.0
Accounts payable 63.7 76.5 (54.3)
Other working capital, net 251.5 192.1 (78.6)
Other, net (86.5) (68.5) (61.7)
-----------------------------------------
Total cash flows from operating activities 452.0 667.4 439.0
-----------------------------------------
Cash flows from investing activities:
Capital expenditures (395.7) (303.3) (245.0)
Sales of property, plant and equipment 49.8 36.0 65.6
Acquisitions of businesses, net of cash acquired (31.6) (10.3) (23.5)
Dispositions of businesses, net of cash disposed 21.6 25.9 400.2
Other investing activities (53.5) (15.6) (13.9)
-----------------------------------------
Total cash flows from investing activities (409.4) (267.3) 183.4
-----------------------------------------
Cash flows from financing activities:
Net payments on long-term borrowings (5.1) (465.4) (74.4)
Net borrowings (payments) of short-term debt 38.3 (27.0) (65.3)
Payments of dividends to shareholders (117.5) (114.3) (117.8)
Proceeds from exercises of stock options 25.6 9.7 3.1
Payments to reacquire common stock (7.1) (2.2) (1.3)
Other financing activities - 0.2 1.0
-----------------------------------------
Total cash flows from financing activities (65.8) (599.0) (254.7)
-----------------------------------------
Effect of exchange rate changes on cash (2.8) (2.8) (5.8)
-----------------------------------------
Increase (decrease) in cash and equivalents (26.0) (201.7) 361.9
Cash and equivalents at beginning of year 239.6 441.3 79.4
-----------------------------------------
Cash and equivalents at end of year $ 213.6 $ 239.6 $ 441.3
- -----------------------------------------------------------------------------------------------------------------------------
Supplemental disclosure of cash flow information: Cash payments (refunds) during
the period for:
Interest $ 24.9 $ 26.2 $ 29.9
Income taxes 35.5 29.9 (15.4)
Non-cash investing and financing activities:
Liabilities assumed in acquisitions of businesses $ 24.8 $ 4.1 $ -
Liabilities disposed of in dispositions of businesses 9.8 14.6 69.9
See notes to financial statements.
15
Consolidated Statements of Shareholders' Equity
Years ended December 31
Millions of dollars except share data 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------
Common stock (number of shares in thousands):
Balance at beginning of year 129,064 128,846 128,586
Shares issued (forfeited) under restricted stock plans, net 382 175 28
Cancellation of treasury stock (130) - -
Common stock issued in connection with acquisition - 43 -
Conversion of performance units - - 232
---------------------------------------------------
Balance at end of year 129,316 129,064 128,846
- -----------------------------------------------------------------------------------------------------------------------
Common stock (dollars):
Balance at beginning of year $ 322.7 $ 322.1 $ 321.5
Shares issued (forfeited) under restricted stock plans, net 0.9 0.5 0.1
Cancellation of treasury stock (0.3) - -
Common stock issued in connection with acquisition - 0.1 -
Conversion of performance units - - 0.5
---------------------------------------------------
Balance at end of year $ 323.3 $ 322.7 $ 322.1
- -----------------------------------------------------------------------------------------------------------------------
Paid-in capital in excess of par value:
Balance at beginning of year $ 302.9 $ 298.4 $ 283.6
Shares issued (forfeited) under restricted stock plans, net 22.9 4.5 5.9
Cancellation of treasury stock (3.6) - -
Conversion of performance units - - 8.0
Contribution of undistributed S Corporation earnings - - 0.9
---------------------------------------------------
Balance at end of year $ 322.2 $ 302.9 $ 298.4
- -----------------------------------------------------------------------------------------------------------------------
Cumulative translation adjustment:
Balance at beginning of year $ (28.0) $ (23.1) $ (24.8)
Other changes net of tax of $3.7 in 1996, $(0.5)
in 1995 and $1.1 in 1994 15.6 (4.9) 3.8
Sale of geophysical business - - (2.1)
---------------------------------------------------
Balance at end of year $ (12.4) $ (28.0) $ (23.1)
- -----------------------------------------------------------------------------------------------------------------------
Retained earnings:
Balance at beginning of year $ 1,473.4 $ 1,656.6 $ 1,611.3
Net income 300.4 183.7 180.9
Cash dividends paid ($1.00 per share) (includes S Corporation
distributions by pooled entity of $(3.8) in 1994) (117.5) (114.3) (117.8)
Spin-off of Highlands Insurance Group, Inc. - (268.6) -
Net change in unrealized gains (losses) on investments
held by discontinued operation - 16.3 (16.9)
Common stock issued in connection with acquisition - (0.3) -
Contribution of undistributed S Corporation earnings - - (0.9)
---------------------------------------------------
Balance at end of year $ 1,656.3 $ 1,473.4 $ 1,656.6
- -----------------------------------------------------------------------------------------------------------------------
Treasury stock (number of shares in thousands):
Balance at beginning of year 4,582 4,990 5,119
Shares issued under restricted stock plans, net (670) (469) (171)
Purchase of common stock 172 61 42
Cancellation of treasury stock (130) - -
---------------------------------------------------
Balance at end of year 3,954 4,582 4,990
- -----------------------------------------------------------------------------------------------------------------------
Treasury stock (dollars):
Balance at beginning of year $ 150.8 $ 163.8 $ 168.1
Shares issued under restricted stock plans, net (23.8) (15.2) (5.6)
Purchase of common stock 7.1 2.2 1.3
Cancellation of treasury stock (3.9) - -
---------------------------------------------------
Balance at end of year $ 130.2 $ 150.8 $ 163.8
- -----------------------------------------------------------------------------------------------------------------------
See notes to financial statements.
16
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. As discussed
in Note 13, the Company completed the acquisition of Landmark Graphics
Corporation (Landmark) on October 4, 1996. The Company's financial statements
for 1996 and prior periods have been restated to reflect the combined results of
the two companies under the pooling of interests method. Prior to the
acquisition, Landmark had a fiscal year end of June 30, which has subsequently
been changed to conform to the Company's fiscal year end. In addition, the
financial statements have been restated to reflect the realignment of Brown &
Root's energy services operations into the Energy Group (see Note 9). In
connection with the discontinuance of the Company's insurance segment, as
described in Note 14, 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.
Post-contract customer support agreements are recorded as deferred maintenance
fees and recognized as revenue ratably over the contract period. Training and
consulting service revenue is recognized as the services are performed.
Research and Development. Research and development expenses are charged to
income as incurred. Such charges were $133.3 million in 1996, $113.1 million in
1995, and $127.8 million in 1994.
Software Development Costs. Costs of developing software for sale are
charged to expense when incurred as research and development until technological
feasibility has been established for the product. Thereafter, software
development costs are capitalized until the software is ready for general
release to customers. The Company capitalized software development costs of
$12.9 million in 1996, $8.8 million in 1995, and $9.7 million in 1994.
Amortization expense related to these costs was $12.5 million, $10.3 million and
$10.5 million for 1996, 1995 and 1994, respectively. Once the software is ready
for release, amortization of the software development costs begins. Capitalized
software development costs are not amortized over periods which exceed three
years.
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, 1996 include $24.9 million ($17.8
million at December 31, 1995) due from customers in accordance with applicable
retainage provisions of engineering and construction contracts, which will
become billable upon future deliveries or completion of such contracts. This
amount is expected to be collected during 1997. Additionally, other noncurrent
assets include $6.7 million ($4.5 million at December 31, 1995) of such
retainage which is expected to be collected in years subsequent to 1997.
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 forty
percent of all sales items are valued on a last-in, first-out (LIFO) basis.
17
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,
including amortization of the excess of cost over the fair value of net assets
acquired, for financial reporting purposes is calculated 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 or trading
purposes. Derivative financial transactions are generally carried at fair value
with the resulting gains and losses reflected in the results of operations.
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
Inventories at December 31, 1996 and 1995 are comprised of the following:
Millions of dollars 1996 1995
- -------------------------------------------------------------------------------------
Sales items $ 104.3 $ 90.1
Supplies and parts 136.3 121.5
Work in process 30.4 27.2
Raw materials 21.2 17.5
------------------------
Total $ 292.2 $ 256.3
- -------------------------------------------------------------------------------------
If the average cost method had been in use for inventories on the LIFO
basis, total inventories would have been about $13.0 million and $18.3 million
higher than reported at December 31, 1996 and 1995, respectively.
Note 3. Property, Plant and Equipment
Millions of dollars 1996 1995
- -------------------------------------------------------------------------------------
Land $ 63.9 $ 63.7
Buildings and property improvements 568.2 555.7
Machinery and equipment 2,653.8 2,560.3
Other 274.9 242.6
--------------------------
Total $ 3,560.8 $ 3,422.3
- -------------------------------------------------------------------------------------
18
Note 4. Related Companies
The Company conducts some of its operations through various joint ventures,
which are in partnership, corporate and other business forms, which are
principally accounted for using the equity method. Included in the Company's
revenues for 1996, 1995 and 1994 are equity in income of related companies of
$105.5 million, $88.4 million and $93.0 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. Such deferred
gains included in the Company's other liabilities were $3.7 million and $10.1
million at December 31, 1996 and 1995, 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 1996 1995 1994
- --------------------------------------------------------------------------------------
European Marine Contractors
Revenues $ 246.5 $ 361.8 $ 439.3
- --------------------------------------------------------------------------------------
Operating income $ 65.5 $ 106.9 $ 142.4
- --------------------------------------------------------------------------------------
Net income $ 43.7 $ 72.6 $ 94.4
- --------------------------------------------------------------------------------------
Other Affiliates
Revenues $ 2,276.4 $ 1,767.2 $ 1,542.2
- ---------------------------------------------------------------------------------------
Operating income $ 197.7 $ 92.9 $ 81.3
- ---------------------------------------------------------------------------------------
Net income $ 158.8 $ 63.0 $ 66.2
- ---------------------------------------------------------------------------------------
COMBINED FINANCIAL POSITION
Millions of dollars 1996 1995
- -----------------------------------------------------------------------------------------
European Marine
Contractors
Current assets $ 263.1 $ 238.4
Noncurrent assets 25.6 40.6
---------------------------
Total $ 288.7 $ 279.0
- -----------------------------------------------------------------------------------------
Current liabilities $ 226.4 $ 182.1
Noncurrent liabilities 3.8 18.1
Shareholders' equity 58.5 78.8
---------------------------
Total $ 288.7 $ 279.0
- -----------------------------------------------------------------------------------------
Other Affiliates
Current assets $ 871.3 $ 752.5
Noncurrent assets 615.2 476.1
---------------------------
Total $ 1,486.5 $ 1,228.6
- -----------------------------------------------------------------------------------------
Current liabilities $ 572.9 $ 418.4
Noncurrent liabilities 284.0 403.7
Shareholders' equity 629.6 406.5
---------------------------
Total $ 1,486.5 $ 1,228.6
- -----------------------------------------------------------------------------------------
19
Note 5. Income Taxes
The components of the (provision) benefit for income taxes are:
Millions of dollars 1996 1995 1994
- ------------------------------------------------------------------------------------------------
Current income taxes
Federal $ (21.5) $ (6.4) $ 9.2
Foreign (102.7) (79.9) (43.5)
State (2.9) (5.4) (1.9)
-------------------------------------
Total (127.1) (91.7) (36.2)
-------------------------------------
Deferred income taxes
Federal 58.2 (11.2) (55.3)
Foreign and state (34.4) (34.8) (30.7)
-------------------------------------
Total 23.8 (46.0) (86.0)
-------------------------------------
Total $ (103.3) $ (137.7) $ (122.2)
- ------------------------------------------------------------------------------------------------
Included in income taxes are foreign tax credits of $63.7 million in 1996
and $35.2 million in 1995. The U.S. and foreign components of income from
continuing operations before income taxes and minority interests are as follows:
Millions of dollars 1996 1995 1994
- ------------------------------------------------------------------------------------------------
U.S. $ 217.2 $ 234.6 $ 200.9
Foreign 187.0 153.2 96.9
-------------------------------------
Total $ 404.2 $ 387.8 $ 297.8
- ------------------------------------------------------------------------------------------------
The primary components of the Company's deferred tax assets and liabilities
and the related valuation allowances are as follows:
Millions of dollars 1996 1995
- ----------------------------------------------------------------------------------
Gross deferred tax assets
Employee benefit plans $ 95.2 $ 86.0
Accrued liabilities 71.9 55.3
Net operating loss carryforwards 62.8 89.2
Construction contract accounting methods 38.6 88.9
Intercompany profit 34.2 26.8
Insurance accruals 30.0 20.9
Foreign tax credits 29.8 13.1
Alternative minimum tax carryforward 19.3 15.0
All other 82.2 61.5
----------------------
Total 464.0 456.7
----------------------
Gross deferred tax liabilities
Depreciation and amortization 56.7 75.4
Unrepatriated foreign earnings 34.1 34.0
Safe harbor leases 12.0 13.0
All other 83.6 117.0
----------------------
Total 186.4 239.4
----------------------
Valuation allowances
Net operating loss carryforwards 36.3 53.2
All other 34.0 19.7
----------------------
Total 70.3 72.9
----------------------
Net deferred income tax asset $ 207.3 $ 144.4
- ----------------------------------------------------------------------------------
20
The Company has foreign tax credits which expire in 1999 of $1.0 million
and in 2000 of $28.8 million. The Company has net operating loss carryforwards
which expire as follows: 1997, $8.9 million; 1998, $18.0 million; 1999, $20.7
million; 2000 through 2010, $41.3 million; and indefinite, $87.4 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 1996 1995 1994
- ------------------------------------------------------------------------------------------------
Benefit (provision) computed at
statutory rate $ (141.5) $ (135.7) $ (104.3)
Reductions (increases) in taxes resulting from:
Tax differentials on
foreign earnings 3.7 (35.4) (18.4)
State income taxes, net of
Federal income tax benefit (2.9) (5.1) (1.9)
Net operating losses 23.0 48.6 0.4
Federal income tax settlement 16.1 - -
Other items, net (1.7) (10.1) 2.0
-------------------------------------
Total $ (103.3) $ (137.7) $ (122.2)
- ------------------------------------------------------------------------------------------------
The Company has received statutory notices of deficiency for the 1990 and
1991 tax years from the Internal Revenue Service (IRS) of $92.9 million and
$16.8 million, respectively, excluding any penalties or interest. The Company
believes it has meritorious defenses and does not expect that any liability
resulting from the 1990 or 1991 tax years will result in a material adverse
effect on its results of operations or financial position. In 1996, the Company
reached settlements with the IRS for certain matters including the 1989 taxable
year. As a result of the settlement for the 1989 taxable year, the Company
recognized tax benefits and net income was increased by $16.1 million in 1996
(see Note 16).
Note 6. Lines of Credit, Notes Payable, and Long-Term Debt
At December 31, 1996, the Company had committed short-term lines of credit
totaling $185.0 million available and unused, and other short-term lines of
credit totaling $275.0 million, under which $25.0 million in borrowings were
outstanding with several U.S. banks. The interest rate on these borrowings was
5.65%. In addition, the Company had $21.3 million of other short-term debt
outstanding at December 31, 1996, primarily consisting of commercial paper with
an interest rate of 5.85%. The $100.0 million revolving credit agreement
maintained by Landmark prior to the merger (see Note 13) was terminated on
October 7, 1996.
Long-term debt at December 31, 1996 and 1995 consists of the following:
Millions of dollars 1996 1995
- ------------------------------------------------------------------------------------
8.75% debentures due February 15, 2021 $ 200.0 $ 200.0
Other notes with varying interest rates 0.1 5.2
------------------------
200.1 205.2
Less current portion (0.1) 5.2
------------------------
Total $ 200.0 $ 200.0
- ------------------------------------------------------------------------------------
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 its zero coupon convertible subordinated debentures
due March 13, 2006 for $390.7 million in cash, which represented the original
issue price plus accrued original issue discount to the redemption date. In
addition, in December 1995, the Company redeemed all of its $42.0 million term
loan at LIBOR plus 0.45%. Long-term debt of $0.1 million matures during 1997 and
there are no other maturities due for the succeeding four years.
21
On February 6, 1997, the Company issued $125.0 million principal amount
6.75% notes due February 1, 2027 under the Company's medium-term note program.
The notes were priced at 99.78%, to yield 6.78% to maturity. The notes are not
redeemable prior to maturity and have no sinking fund requirements. Each holder
of the notes has the right to require the Company to repay such holder's notes,
in whole or in part, on February 1, 2007. The Company intends to use the net
proceeds from the sale of the notes for general corporate purposes which may
include repayment of debt, acquisitions, and loans and advances to and/or
investments in subsidiaries of the Company for working capital, repayment of
debt and capital expenditures.
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, 1996,
0.3 million shares were available for future grants under the 1993 Plan. In
connection with the acquisition of Landmark, the stock option plans maintained
by Landmark were assumed by the Company. Stock option transactions summarized
below include amounts for the 1993 Plan and the Landmark plans using the
acquisition exchange rate of .574 shares for each Landmark share.
Exercise Weighted Average
Number of Price per Exercise Price
Shares Share Per Share
- ---------------------------------------------------------------------------------------------------
Outstanding at December 31, 1993 2,016,941 1.05 - 44.86 29.27
Granted 1,373,358 29.62 - 59.45 33.42
Exercised (145,926) 1.05 - 41.38 23.37
Forfeited (129,552) 17.42 - 49.65 29.21
- ---------------------------------------------------------------------------------------------------
Outstanding at December 31, 1994 3,114,821 1.05 - 59.45 31.38
- ---------------------------------------------------------------------------------------------------
Granted 1,983,357 31.36 - 50.63 41.06
Exercised (350,774) 1.05 - 41.81 27.61
Forfeited (132,597) 17.42 - 57.53 34.54
- ---------------------------------------------------------------------------------------------------
Outstanding at December 31, 1995 4,614,807 5.80 - 59.45 35.74
- ---------------------------------------------------------------------------------------------------
Granted 1,799,670 28.96 - 59.13 55.40
Exercised (997,287) 5.80 - 47.04 31.15
Forfeited (222,830) 17.42 - 56.18 37.62
- ---------------------------------------------------------------------------------------------------
Outstanding at December 31, 1996 5,194,360 6.97 - 59.45 43.34
- ---------------------------------------------------------------------------------------------------
Options outstanding at December 31, 1996 is composed of the following:
Outstanding Exercisable
------------------------------------------------ --------------------------------
Weighted
Number of Average Weighted Number of Weighted
Shares at Remaining Average Shares at Average
Range of December 31, Contractual Exercise December 31, Exercise
Exercise Prices 1996 Life Price 1996 Price
- -----------------------------------------------------------------------------------------------------------
6.97 - 17.86 101,266 5.42 17.68 101,266 17.68
18.29 - 28.75 201,932 4.65 24.33 195,117 24.32
28.96 - 44.86 2,438,743 6.61 35.55 1,631,513 35.40
45.19 - 59.45 2,452,419 9.10 53.73 301,664 45.87
- -----------------------------------------------------------------------------------------------------------
6.97 - 59.45 5,194,360 7.69 43.34 2,229,560 35.04
- -----------------------------------------------------------------------------------------------------------
22
All stock options under the 1993 Plan are granted at the fair market value
of the Common Stock at the grant date. Landmark, prior to its acquisition by the
Company, had provisions in its plans that allowed Landmark to set option
exercise prices at a defined percentage below fair market value. The weighted
average fair value of the stock options granted during 1996 was $20.48. 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 1996: risk-free interest rate of 5.9%; expected
dividend yield of 1.6%; expected life of five years; and expected volatility of
39.72%. The weighted average fair value of the stock options granted during 1995
was $14.32. The following weighted average assumptions were used for grants in
1995: risk-free interest rate of 6.2%; expected dividend yield of 1.6%; expected
life of five years; and expected volatility of 38.36%. Stock options generally
expire ten years from the grant date. Stock options vest over a three-year
period, with one-third of the shares becoming exercisable on each of the first,
second and third anniversaries of the grant date.
The Company accounts for the 1993 Plan in accordance with Accounting
Principles Board Opinion No. 25, under which no compensation cost has been
recognized for stock option awards. Had compensation cost for the 1993 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 for 1996 and 1995 would have been $292.4 million and $181.6 million,
respectively, resulting in earnings per share of $2.32 and $1.45, 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 1996, 1995 and 1994 were
90,450, 206,350 and 80,600, respectively. The shares awarded are net of
forfeitures of 11,750, 4,900 and 5,000 shares in 1996, 1995 and 1994,
respectively. The weighted average fair market value per share at the date of
grant of shares granted in 1996 and 1995 was $54.73 and $40.88, respectively.
The Company's Restricted Stock Plan for Non-Employee Directors (Restricted
Stock Plan) allows for each non-employee director to receive an annual award of
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 1,800, 1,600 and 1,800 restricted shares in 1996, 1995 and
1994, respectively under this plan. The weighted average fair market value per
share at the date of grant of shares granted in 1996 and 1995 was $53.13 and
$40.75, respectively.
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 4,200 and 900 restricted shares were forfeited in
1996 and 1995, respectively. No awards were made in 1996 and no further grants
are being made under this plan. The weighted average fair market value per share
at the date of grant for 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, 1996, 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 1996, 1995 and 1994 were $6.9 million, $7.0 million and
$7.1 million, respectively. At December 31, 1996, the unamortized amount is
$22.9 million.
Note 8. Series A Junior Participating Preferred Stock
The Company has previously declared a dividend of one preferred stock
purchase right (a Right) on each outstanding share of Common Stock. Each Right
entitles 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, upon the terms and
subject to the conditions set forth in the Rights Agreement entered into with
ChaseMellon Shareholder Services, L.L.C. as Rights Agent. The Rights do not have
any voting rights and are not entitled to dividends.
The Rights become exercisable in certain limited circumstances involving a
potential business combination. Following certain other events after the Rights
become exercisable, each Right will entitle its holder to an amount of Common
23
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 1996 made
the Rights exercisable.
Note 9. Business Segment Information
In the fourth quarter of 1996, the Company realigned its two business
segments in order to better meet the growing customer needs for complete arrays
of integrated energy services. Under the new structure, the upstream oil and gas
services business unit of the former Engineering and Construction Services
segment and Landmark, a leading supplier of integrated exploration and
production information systems and professional services to the petroleum
industry, are included in the Energy Group. The Energy Group also includes the
product and service lines of the former Energy Services segment, including
drilling systems and services, pressure pumping equipment and services, logging
and perforating, specialized completion and production equipment and services,
and well control. The Engineering and Construction Group provides engineering,
construction, project management, facilities operation and maintenance, and
environmental services for industrial and governmental customers. Amounts for
prior years have been restated to conform to the new organization structure.
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
corporate assets are primarily comprised of cash and equivalents and certain
other investments.
OPERATIONS BY BUSINESS SEGMENT
Years ended December 31
Millions of dollars 1996 1995 1994
- -----------------------------------------------------------------------------------------------------
Operating income:
Energy Group $ 484.4 $ 398.2 $ 264.1
Engineering and Construction Group 53.7 44.6 15.2
General corporate and special charges (120.2) (41.9) (39.5)
-----------------------------------------
Total $ 417.9 $ 400.9 $ 239.8
- -----------------------------------------------------------------------------------------------------
Capital expenditures:
Energy Group $ 313.8 $ 248.1 $ 207.1
Engineering and Construction Group 70.5 55.1 37.5
General corporate 11.4 0.1 0.4
-----------------------------------------
Total $ 395.7 $ 303.3 $ 245.0
- -----------------------------------------------------------------------------------------------------
Depreciation and amortization:
Energy Group $ 228.4 $ 220.2 $ 224.9
Engineering and Construction Group 38.2 38.3 43.8
General corporate 1.3 1.3 2.6
-----------------------------------------
Total $ 267.9 $ 259.8 $ 271.3
- -----------------------------------------------------------------------------------------------------
Identifiable assets:
Energy Group $ 2,899.8 $ 2,445.1 $ 2,524.8
Engineering and Construction Group 986.3 873.6 750.0
General corporate 550.5 543.3 636.0
Net assets of discontinued operations 286.6
- -
-----------------------------------------
Total $ 4,436.6 $ 3,862.0 $ 4,197.4
- -----------------------------------------------------------------------------------------------------
24
OPERATIONS BY GEOGRAPHIC AREA
Years ended December 31
Millions of dollars 1996 1995 1994
- ------------------------------------------------------------------------------------------------------
Revenues:
United States $ 3,953.2 $ 3,255.6 $ 3,327.7
Europe 1,711.1 1,117.7 963.9
Latin America 557.4 529.9 405.1
Other areas 1,163.4 979.7 964.4
------------------------------------------
Total $ 7,385.1 $ 5,882.9 $ 5,661.1
- ------------------------------------------------------------------------------------------------------
Operating income (loss):
United States $ 397.5 $ 231.4 $ 166.3
Europe 62.3 3.3 (12.1)
Latin America 24.7 64.9 35.8
Other areas 53.6 134.8 72.7
General corporate and special charges (120.2) (33.5) (22.9)
------------------------------------------
Total $ 417.9 $ 400.9 $ 239.8
- ------------------------------------------------------------------------------------------------------
Identifiable assets:
United States $ 1,994.7 $ 1,872.0 $ 1,742.3
Europe 695.0 528.0 576.5
Latin America 347.3 279.7 272.3
Other areas 849.1 639.0 683.7
General corporate 550.5 543.3 636.0
Net assets of discontinued operations 286.6
- -
------------------------------------------
Total $ 4,436.6 $ 3,862.0 $ 4,197.4
- ------------------------------------------------------------------------------------------------------
Note 10. Commitments and Contingencies
Leases. At December 31, 1996, the Company was obligated under noncancelable
operating leases, expiring on various dates to 2020, principally for the use of
land, offices, equipment and field facilities. Aggregate rentals charged to
operations for such leases totaled $70.8 million in 1996, $73.7 million in 1995
and $108.2 million in 1994. Future aggregate rentals on noncancelable operating
leases are as follows: 1997, $55.7 million; 1998, $41.2 million; 1999, $30.0
million; 2000, $16.4 million; 2001, $11.3 million; and thereafter, $72.5
million.
Environmental. The Company is involved as a potentially responsible party
(PRP) in remedial activities to clean up various "Superfund" sites under
applica 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, due to various delays,
is not expected to be completed until the fourth quarter of 1997. 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
25
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
practica 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 Management
Foreign Exchange Risk. Techniques in managing foreign exchange risk
include, but are not limited to, foreign currency borrowing and investing and
the use of currency derivative instruments. The Company hedges significant
exposures to potential foreign exchange losses considering current market
conditions, future operating activities and the cost of hedging the exposure in
relation to the perceived risk of loss. The purpose of the Company's foreign
currency hedging activities is to protect the Company from the risk that the
eventual dollar cash flows resulting from the sale and purchase of products in
foreign currencies will be adversely affected by changes in exchange rates. The
Company does not hold or issue derivative financial instruments for trading or
speculative purposes.
The Company hedges its currency exposure through the use of currency
derivative instruments. Such contracts generally have an expiration date of 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 identifia 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. Forward exchange contracts and foreign
exchange option contracts (which convey the right, but not the obligation, to
sell or buy a specified amount of foreign currency at a specified price) are
generally used to hedge foreign currency commitments with an indeterminable
maturity date. These contracts are marked to market monthly with the resulting
gains or losses included in current period foreign exchange gains (losses). None
of the forward or option contracts are exchange traded.
While hedging instruments are subject to fluctuations in value, such
fluctuations are generally offset by the value of the underlying exposures being
hedged. The use of some contracts may limit the Company's ability to benefit
from favora fluctuations in foreign exchange rates. The notional amounts of
open forward contracts and options were $161.1 million and $111.5 million at
December 31, 1996 and 1995, respectively. The notional amounts of the Company's
foreign exchange contracts do not generally represent amounts exchanged by the
parties, and thus, are not a measure of the exposure of the Company or of the
cash requirements relating to these contracts. The amounts exchanged are
calculated by reference to the notional amounts and by other terms of the
derivatives, such as exchange rates. The Company actively monitors its foreign
currency exposure (net position) and adjusts the amounts hedged as appropriate.
Exposures to certain currencies are generally not hedged due primarily to
the lack of availa markets or cost considerations (non-traded currencies).
The Company attempts to manage its working capital position to minimize foreign
currency commitments in non-traded currencies and recognizes that pricing for
the services and products offered in such countries should cover the cost of
exchange rate devaluations. The Company has historically incurred transaction
losses in non-traded currencies. 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.
Credit Risk. Financial instruments which potentially subject the Company to
concentrations of credit risk are primarily cash equivalents, investments and
trade receiva s. 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 receiva s are generated from a broad and diverse group
of customers. There are concentrations of receiva s in the United States and
the United Kingdom. The Company maintains an allowance for losses based upon the
expected collectibility of all trade accounts receiva . There are no
significant concentrations of credit risk with any individual counterparty or
groups of counterparties related to the Company's derivative contracts.
Counterparties are selected by the Company based on creditworthiness, which the
Company continually monitors, and on the counterparties' ability to perform
their obligations under the terms of the transactions. The Company does not
expect any counterparties to fail to meet their obligations under these
contracts given their high credit ratings and, as such, considers the credit
risk associated with its derivative contracts to be minimal.
26
Fair Value of Financial Instruments. The estimated fair value of long-term
debt at December 31, 1996 and 1995 was $229.6 and $247.9 million, respectively,
as compared to the carrying amount of $200.0 million at December 31, 1996 and
1995. 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, receiva s and certain 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 ss than
$2.5 million at December 31, 1996 and 1995, based upon third party quotes.
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 $114.2 million, $95.1 million and $98.7 million in
1996, 1995 and 1994, 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 siza reductions 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.
These plans are funded to operate on an actuarially sound basis. Plan assets are
primarily invested in equity and fixed income securities of entities domiciled
in the country of the Plan's operation. Assumed long-term rates of return on
plan assets, discount rates for estimating benefit obligations and rates of
compensation increases vary for the different plans according to the local
economic conditions. The rates used are as follows:
Percentages 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------
Return on plan assets:
United States plans 8% to 8.5% 8.5% 8.5%
International plans 9% 6.5% to 9% 7% to 9%
Discount rate:
United States plans 7% to 7.75% 7% to 7.25% 8.5%
International plans 7% to 8.5% 4% to 8.5% 4% to 8.5%
Compensation increase:
United States plans 4.5% 4% 5%
International plans 4.3% to 6% 1% to 6% 1% to 6%
- ----------------------------------------------------------------------------------------------------------------------
The net periodic pension cost for defined benefit plans is as follows:
Millions of dollars 1996 1995 1994
- ------------------------------------------------------------------------------------------------
Service cost - benefits earned during period $ 15.8 $ 9.6 $ 9.5
Interest cost on projected benefit obligation 29.9 27.5 26.6
Actual return on plan assets (61.0) (46.8) (8.5)
Net amortization and deferral 13.7 12.7 (26.7)
------------------------------------
Net periodic pension cost (benefit) $ (1.6) $ 3.0 $ 0.9
- ------------------------------------------------------------------------------------------------
27
The reconciliation of the funded status for defined benefit plans where
assets exceed accumulated benefits is as follows:
Millions of dollars 1996 1995
- ------------------------------------------------------------------------------------
Actuarial present value of benefit obligations:
Vested $ (351.9) $ (300.3)
- ------------------------------------------------------------------------------------
Accumulated benefit obligation $ (358.4) $ (309.0)
- ------------------------------------------------------------------------------------
Projected benefit obligation $ (388.6) $ (345.6)
Plan assets at fair value 522.0 423.7
-------------------------
Funded status 133.4 78.1
Unrecognized prior service cost 2.7 5.5
Unrecognized net gain (109.3) (81.3)
Unrecognized net transition asset (3.9) (4.5)
-------------------------
Net pension liability $ 22.9 $ (2.2)
- ------------------------------------------------------------------------------------
The reconciliation of the funded status for defined benefit plans where
accumulated benefits exceed assets is as follows:
Millions of dollars 1996 1995
- ------------------------------------------------------------------------------------
Actuarial present value of benefit obligations:
Vested $ (2.5) $ (3.4)
- ------------------------------------------------------------------------------------
Accumulated benefit obligation $ (6.3) $ (8.1)
- ------------------------------------------------------------------------------------
Projected benefit obligation $ (6.9) $ (9.1)
Plan assets at fair value - 2.2
-------------------------
Funded status (6.9) (6.9)
Unrecognized net gain (6.0) (1.8)
Unrecognized net transition asset - (1.0)
Adjustment required to recognize minimum liability - (3.4)
-------------------------
Net pension liability $ (12.9) $ (13.1)
- ------------------------------------------------------------------------------------
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. 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 7.75% in 1996, 7% in 1995 and 8% in 1994.
Net periodic postretirement benefit cost included the following components:
Millions of dollars 1996 1995 1994
- ------------------------------------------------------------------------------------------------------
Service cost - benefits attributed to service during the period $ 0.5 $ 0.5 $ 0.8
Interest cost on accumulated postretirement benefit obligation 1.6 2.1 2.3
Net amortization and deferral (1.2) (1.0) (0.9)
-------------------------------------
Net periodic postretirement cost $ 0.9 $ 1.6 $ 2.2
- ------------------------------------------------------------------------------------------------------
28
Postretirement medical benefits are funded by the Company when incurred.
The Company's postretirement medical plan's funded status reconciled with the
amounts included in the Company's Consolidated Balance Sheets at December 31,
1996 and 1995 is as follows:
Millions of dollars 1996 1995
- -----------------------------------------------------------------------------------------
Accumulated postretirement benefit obligation:
Retirees and related beneficiaries $ 12.7 $ 15.6
Fully eligible active plan participants 2.4 2.4
Other active plan participants not fully eligible 6.4 6.7
------------------------
Accumulated postretirement benefit obligation 21.5 24.7
Unrecognized prior service cost 7.4 8.3
Unrecognized gain 9.1 7.0
------------------------
Net postretirement liability $ 38.0 $ 40.0
- -----------------------------------------------------------------------------------------
Note 13. Landmark Acquisition
On October 4, 1996, the Company completed the acquisition of Landmark
Graphics Corporation (Landmark) through the merger of Landmark with and into a
subsidiary of the Company, the conversion of the outstanding Landmark common
stock into an aggregate of approximately 10.2 million shares of Common Stock of
the Company and the assumption by the Company of the outstanding Landmark stock
options (for the exercise of which the Company has reserved an aggregate of
approximately 1.5 million shares of Common Stock of the Company). The merger
qualified as a tax free exchange and was accounted for using the "pooling of
interests" method of accounting for business combinations. Accordingly, the
Company's financial statements have been restated to include the results of
Landmark for all periods presented.
Prior to the merger, Landmark had a fiscal year-end of June 30. Landmark
results have been restated to conform with Halliburton's calendar year-end.
Combined and separate results of Halliburton and Landmark during periods
preceding the merger were as follows:
Nine Months
Ended
September 30 Years Ended December 31
------------------------------------
Millions of dollars 1996 1995 1994
- ---------------------------------------------------------------------------------------------
Revenues:
Halliburton $ 5,251.5 $ 5,698.7 $ 5,510.2
Landmark 143.9 184.2 150.9
---------------------------------------------------------
Combined $ 5,395.4 $ 5,882.9 $ 5,661.1
- ---------------------------------------------------------------------------------------------
Net Income:
Halliburton $ 201.2 $ 168.3 $ 177.8
Landmark (8.4) 15.4 3.1
---------------------------------------------------------
Combined $ 192.8 $ 183.7 $ 180.9
- ---------------------------------------------------------------------------------------------
Landmark, together with its subsidiaries, designs, markets and supports
sophisticated computer-aided exploration and computer-aided reservoir management
software and systems. Geologists, geophysicists, petrophysicists and engineers
in more than 70 countries use Landmark products in exploration for and
production of oil and gas.
Landmark offers an extensive line of integrated software applications for
seismic processing, three dimensional and two dimensional seismic
interpretation, geologic and petrophysical interpretation, mapping and modeling,
well log and production analysis, drilling and production engineering and data
management. Through its service consulting business, Landmark provides software
training, on-site support and assistance in designing computer networks and
integrating applications and data. In addition to providing software products,
Landmark is a value-added reseller of workstations and other hardware and
29
provides a range of services, including software and systems support and
training, systems configuration and network design and data loading and
management.
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.
The following summarizes the results of operations of the discontinued
operations:
Millions of dollars 1995 1994
- -------------------------------------------------------------------------------------------
Revenues $ 252.6 $ 290.3
- -------------------------------------------------------------------------------------------
Loss before income taxes $ (126.3) $ (0.6)
Benefit for income taxes 67.5 6.1
Loss on disposition (7.6)
-
Benefit for income taxes 0.9
-
-------------------------------
Net income (loss) from discontinued operations $ (65.5) $ 5.5
- -------------------------------------------------------------------------------------------
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:
Income (loss)
before income Net income
Millions of dollars 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 an actuarial study and HIGI management's best estimates using facts and
trends currently known, taking into consideration the current legislative and
legal environment. Developed case law and adequate claim history do not exist
for such claims. Estimates of the liability were reviewed and updated
continually. Due to the significant uncertainties related to these types of
claims, past claim experience may not be representative of future claim
experience.
The Company also realized a valuation allowance for deferred tax assets
primarily related to HIGI's insurance claim loss reserves. The Company had
provided a valuation allowance for all temporary differences related to HIGI
based upon its intent announced in 1992 that it was pursuing the sale of HIGI. A
taxable transaction would have made it more likely than not that the related
benefit or future deductibility would not be realized. The spin-off transaction
was tax-free and allows HIGI to retain its tax basis and the value of its
deferred tax asset.
Note 15. Acquisitions and Dispositions
See Note 13 regarding the acquisition of Landmark.
See Note 14 regarding the disposition of the Company's insurance segment.
30
In the second quarter of 1996, M-I Drilling Fluids Company, L.L.C., a 36%
owned joint venture, purchased Anchor Drilling Fluids. The Company's share of
the purchase price was $41.3 million and is included in cash flows from other
investing activities.
In 1995, Landmark acquired two software companies for a total of $5.8
million and 0.6 million shares of its common stock, equivalent to 0.3 million
shares of Halliburton Company Common Stock. In 1994, Landmark acquired two
software companies for a total of $13.3 million and 0.4 million shares of its
common stock, equivalent to 0.2 million shares of Halliburton Company Common
Stock.
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
million, or 52 cents per share after tax. The business unit sold, owned and
operated a large natural gas compressor rental fleet in the United States and
Canada. The compressors were used to assist in the production, transportation
and storage of natural gas.
On March 25, 1994, Landmark issued 2.6 million shares of its common stock,
equivalent to 1.5 million shares of Halliburton Company Common Stock, in
exchange for all of the outstanding common shares of Advance Geophysical
Corporation (Advance). Advance provides software which allows seismic processors
and interpreters to manipulate raw seismic data and to condense it into a form
that is ready for interpretation. The acquisition of Advance was accounted for
as a pooling of interests, and the financial statements for periods prior to the
Advance merger have been restated to reflect the financial position and results
of operations of the combined companies.
In January 1994, the Company sold substantially all of the assets of its
geophysical services and products business to Western Atlas International, Inc.
(Western Atlas) 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 discontinuing certain geophysical operations,
including the cost of personnel reductions, leases of geophysical marine vessels
and the closing of duplicate facilities. The final payment on these notes was
made in February 1996.
In January 1997, the Company announced that it has offered to purchase all
of the outstanding shares of OGC International plc (OGC) for approximately
$117.9 million. OGC is engaged in providing a variety of engineering, operations
and maintenance services, primarily to the North Sea oil and gas production
industry. As of February 28, 1997, approximately 93% of such shares were
tendered to the Company and it is expected that the acquisition of all of such
shares will be completed in the second quarter of 1997.
In February 1997, the Company announced that Devonport Management Limited
(DML), which was 30% owned by the Company at December 31, 1996, has agreed to
purchase Devonport Royal Dockyard Limited, which owns and operates the Devonport
Royal Dockyard in Plymouth, England, from the government of the United Kingdom
for approximately $66.1 million. Concurrent with the purchase, the Company
increased its ownership of DML to 51%. The dockyard principally provides repair
and refitting services for the British Royal Navy's fleet of submarines and
surface ships.
Note 16. Special Charges
In September 1996, the Company recognized special charges to operating
income of $65.3 million ($42.7 million after tax) related to the reorganization
of the Engineering and Construction Group, severance costs for combining general
support functions throughout the Company, and certain other business structure
costs, including $4.1 million ($3.5 million after tax) for costs associated with
the acquisition of Landmark.
The Company recognized severance costs of $41.0 million to provide for the
termination of approximately one thousand employees related to reorganization
efforts at the Engineering and Construction Group and plans to combine various
administrative support functions into combined shared services for the Company.
The terminations impact mostly middle and senior management levels within
business unit operations, business unit support, and general and administrative
areas. Approximately $3.5 million was charged against the reorganization
liability for the termination of approximately 200 employees during the fourth
quarter of 1996. The remaining terminations are to occur primarily during 1997.
The Company also recognized $20.2 million of costs associated with restructuring
certain Engineering and Construction Group businesses, providing for excess
lease space and other items.
The above charges to net income were offset by tax credits during the third
quarter of $43.7 million due to the recognition of net operating loss
carryforwards and the settlement during the quarter of various issues with the
Internal Revenue Service (IRS). The Company reached agreement with the IRS and
recognized net operating loss carryforwards of $62.5 million ($22.5 million in
tax benefits) from the 1989 tax year. The net operating loss carryforwards are
31
expected to be utilized in the 1996 and 1997 tax years. In addition, the Company
also reached agreement with the IRS on issues related to intercompany pricing of
goods and services for the tax years 1989 through 1992 and entered into an
advanced pricing agreement for the tax years 1993 through 1998. As a result of
these agreements with the IRS, the Company recognized tax benefits of $16.1
million. The Company also recognized net operating loss carryforwards of $14.0
million ($5.1 million in tax benefits) in certain foreign areas due to improving
profitability and restructuring of foreign operations.
In September 1996, Landmark also recorded special charges related to the
merger with and into a subsidiary of the Company of $8.3 million ($7.6 million
after tax). In March 1996, Landmark recorded special charges of $12.2 million
($8.7 million after tax) for the write-off of in-process research and
development activities acquired in connection with the purchase by Landmark of
certain assets and the assumption of certain liabilities of Western Atlas
International, Inc. and the write-off of redundant assets and activities.
In 1995 and 1994, Landmark recorded special charges of $8.4 million and
$16.6 million, respectively. These amounts were primarily for the write-off of
research and development activities of acquired companies, merger costs and
restructuring charges.
32
Halliburton Company
Selected Financial Data (a)
Millions of dollars and shares except per share and employee data
Years ended December 31
--------------------------------------------------------------
1996 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------
Operating results
Net revenues
Energy Group $ 4,286.3 $ 3,604.0 $ 3,364.0 $ 3,765.1
Engineering and Construction Group 3,098.8 2,278.9 2,297.1 2,459.6
Total revenues $ 7,385.1 $ 5,882.9 $ 5,661.1 $ 6,224.7
- ----------------------------------------------------------------------------------------------------------------
Operating income (loss)
Energy Group $ 484.4 $ 398.2 $ 264.1 $ 253.1
Engineering and Construction Group 53.7 44.6 15.2 13.3
Special charges (b) (85.8) (8.4) (16.6) (321.8)
General corporate (34.4) (33.5) (22.9) (22.0)
- ----------------------------------------------------------------------------------------------------------------
Total operating income (loss) (b) 417.9 400.9 239.8 (77.4)
Nonoperating income (expense), net (13.7) (13.1) 58.0 (55.0)
- ----------------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations
before income taxes and minority interest 404.2 387.8 297.8 (132.4)
Benefit (provision) for income taxes (c) (103.3) (137.7) (122.2) 3.0
Minority interest in net (income) loss of
consolidated subsidiaries (0.5) (0.9) (0.2) 1.5
Income (loss) from continuing operations $ 300.4 $ 249.2 $ 175.4 $ (127.9)
- ----------------------------------------------------------------------------------------------------------------
Income (loss) per share
Continuing operations $ 2.38 $ 2.00 $ 1.41 $ (1.06)
Net income (loss) 2.38 1.47 1.45 (1.23)
Cash dividends per share 1.00 1.00 1.00 1.00
Return on shareholders' equity 13.9 % 9.6 % 8.7 % (7.3) %
- ----------------------------------------------------------------------------------------------------------------
Financial position
Net working capital $ 893.3 $ 987.9 $ 1,366.5 $ 1,217.7
Total assets 4,436.6 3,862.0 4,197.4 4,318.6
Property, plant and equipment 1,291.6 1,157.9 1,117.4 1,189.3
Long-term debt 200.1 205.2 655.7 637.4
Shareholders' equity 2,159.2 1,920.2 2,090.2 2,023.5
Total capitalization 2,405.6 2,130.2 2,776.6 2,752.9
Shareholders' equity per share 17.23 15.42 16.87 16.38
Average common shares outstanding 126.1 124.7 124.2 121.0
- ----------------------------------------------------------------------------------------------------------------
Other financial data
Cash flow from operating activities $ 452.0 $ 667.4 $ 439.0 $ 293.0
Capital expenditures 395.7 303.3 245.0 270.5
Long-term borrowings (repayments) (5.1) (465.4) (74.4) (44.7)
Depreciation and amortization expense 267.9 259.8 271.3 459.8
Payroll and employee benefits 3,112.7 2,775.0 2,878.8 3,141.9
Number of employees (d) 60,000 58,400 57,300 64,600
33
Halliburton Company
Selected Financial Data (a)
Millions of dollars and shares except per share and employee data
Years ended December 31
-----------------------------------------------
1992 1991 1990
- -------------------------------------------------------------------------------------------------
Operating results
Net revenues
Energy Group $ 3,536.9 $ 3,652.4 $ 3,551.0
Engineering and Construction Group 2,848.1 3,124.6 3,105.4
Total revenues $ 6,385.0 $ 6,777.0 $ 6,656.4
- -------------------------------------------------------------------------------------------------
Operating income (loss)
Energy Group $ 205.1 $ 233.9 $ 327.6
Engineering and Construction Group (19.3) 9.7 33.8
Special charges (b) (272.9) (118.5) -
General corporate (21.0) (21.8) (19.9)
- -------------------------------------------------------------------------------------------------
Total operating income (loss) (b) (108.1) 103.3 341.5
Nonoperating income (expense), net (37.2) (0.7) 17.1
- -------------------------------------------------------------------------------------------------
Income (loss) from continuing operations
before income taxes and minority interest (145.3) 102.6 358.6
Benefit (provision) for income taxes 1.1 (76.5) (167.0)
Minority interest in net (income) loss of
consolidated subsidiaries 1.7 (2.6) (2.6)
Income (loss) from continuing operations $ (142.5) $ 23.5 $ 189.0
- -------------------------------------------------------------------------------------------------
Income (loss) per share
Continuing operations $ (1.24) $ 0.21 $ 1.66
Net income (loss) (1.27) 0.35 1.79
Cash dividends per share 1.00 1.00 1.00
Return on shareholders' equity (7.4) % 1.8 % 8.8 %
- -------------------------------------------------------------------------------------------------
Financial position
Net working capital $ 1,150.0 $ 1,304.6 $ 1,154.0
Total assets 126.1 4,185.3 4,480.6 3,971.7
Property, plant and equipment 126.1 1,214.6 1,204.6 1,028.2
Long-term debt 126.1 657.8 654.9 192.0
Shareholders' equity .1 1,982.8 2,248.6 2,316.7
Total capitalization 2,641.3 2,914.3 2,514.6
Shareholders' equity per share 17.24 19.6 20.25
Average common shares outstanding 115.0 114.6 114.3
- -------------------------------------------------------------------------------------------------
Other financial data
Cash flow from operating activities $ 449.9 $ 294.7 $ 127.0
Capital expenditures 322.8 430.1 342.9
Long-term borrowings (repayments) (16.3) 440.6 (9.0)
Depreciation and amortization expense 366.9 300.2 254.4
Payroll and employee benefits 3,373.3 3,286.8 3,043.4
Number of employees (d) 69,000 72,700 76,600
34
(a) Prior years' information has been restated to include the effect of the
acquisition of Landmark Graphics Corporation (Landmark) on October 4, 1996,
which was accounted for as a pooling of interests.
(b) Operating income (loss) includes the following special charges: in 1996 and
1995, $85.8 million and $8.4 million, respectively, related to merger and
restructuring costs, including severance costs, and the write-off of
acquired in-process research and development activities; in 1994, $16.6
million related to merger and restructuring costs; in 1993, $321.8 million
related to loss on sale of geophysical business and employee severance
costs; in 1992, $272.9 million related to restructuring/reorganization
costs and consolidation of certain support functions; in 1991, $118.5
million related to restructuring costs.
(c) Benefit (provision) for income taxes in 1996 includes tax benefits of $43.7
million due to the recognition of net operating loss carryforwards and the
settlement of various issues with the Internal Revenue Service.
(d) Does not include employees of 50% or less owned affiliated companies.
35
Quarterly Data and Market Price Information
Millions of dollars except per share data
(unaudited) First Second Third Fourth Year
((unaudited)
- -----------------------------------------------------------------------------------------------------------------------
1996 (1)
Revenues $ 1,704.7 $ 1,830.8 $ 1,859.9 $ 1,989.7 $ 7,385.1
Operating income 71.6 115.7 57.3 173.3 417.9
Net income
Continuing operations 45.5 71.8 75.5 107.6 300.4
Net income 45.5 71.8 75.5 107.6 300.4
Earnings per share
Continuing operations 0.36 0.57 0.60 0.85 2.38
Net income 0.36 0.57 0.60 0.85 2.38
Cash dividends paid per share 0.25 0.25 0.25 0.25 1.00
Quarterly common stock prices (2)
High 58.38 58.75 57.25 62.88 62.88
Low 45.75 50.00 50.75 51.88 45.75
1995 (1)
Revenues $ 1,318.9 $ 1,446.8 $ 1,529.6 $ 1,587.6 $ 5,882.9
Operating income 65.1 103.8 110.5 121.5 400.9
Net income (loss)
Continuing operations 41.5 60.3 69.1 78.3 249.2
Discontinued operations 0.8 1.4 (67.7) - (65.5)
Net income 42.3 61.7 1.4 78.3 183.7
Earnings (loss) per share
Continuing operations 0.34 0.48 0.55 0.63 2.00
Discontinued operations - 0.01 (0.54) - (0.53)
Net income 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 (2)
High 38.88 39.50 45.25 50.63 50.63
Low 33.50 35.50 35.13 39.75 33.50
(1) The first three quarters of 1996 and the quarters of and total year 1995
have been restated to reflect the acquisition of Landmark Graphics
Corporation accounted for using the pooling of interests method of
accounting for combinations.
(2) New York Stock Exchange - composite transactions high and low closing stock prices.
36
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
25, 1997, 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 25, 1997, under the captions "Compensation Committee
Report on Executive Compensation," "Comparison of Five-Year Cumulative Total
Return," "Summary Compensation Table," "Option Grants in Last Fiscal Year,"
"Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values," "Retirement Plan," "Employment Contracts and Termination of Employement
and Change-in-Control Arrangements" 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 25, 1997, under the caption "Stock Ownership of
Certain Beneficial Owners and Management."
Item 12(b). Security Ownership of Management.
This information is incorporated by reference to the Halliburton Company
Proxy Statement dated March 25, 1997, under the caption "Stock Ownership of
Certain Beneficial Owners and Management."
Item 12(c). Changes in Control.
Not applicable.
Item 13. Certain Relationships and Related Transactions.
Not applicable.
37
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 12 through 32 of this Annual Report. See index on
page 6.
2. Financial Statement Schedules:
Note: All schedules not filed herein for which provision is made under
rules of Regulation S-X have been omitted as not applicable or not
required or the information required therein has been included in the
notes to financial statements.
3. Exhibits:
Exhibit
Number Exhibits
2 Agreement and Plan of Reorganization dated as of December 11,
1996 among Halliburton Company, now known as Halliburton
Energy Services, Inc. (the "Predecessor"), Halliburton Hold
Co., now known as Halliburton Company (the "Company"), and
Halliburton Merge Co. (incorporated by reference to Exhibit
1.1 of the Company's Registration Statement on Form 8-B dated
December 12, 1996, File No.
1-03492).
3(a) Certificate of Incorporation of the Company, as amended
(incorporated by reference to Exhibit 3.1 of the Company's
Registration Statement on Form 8-B dated December 12, 1996,
File No. 1-03492).
3(b) By-laws of the Company, as amended (incorporated by reference
to Exhibit 3.2 of the Company's Registration Statement on Form
8-B dated December 12, 1996, File No. 1-03492).
4(a) Subordinated Indenture dated as of January 2, 1991 between the
Predecessor and Texas Commerce Bank National Association, as
Trustee (incorporated by reference to Exhibit 4(c) to the
Predecessor's Registration Statement on Form S-3 (File No.
33-38394) originally filed with the Securities and Exchange
Commission on December 21, 1990), as supplemented and amended
by the First Supplemental Indenture dated as of December 12,
1996 among the Predecessor, the Company and the Trustee
(incorporated by reference to Exhibit 4.3 of the Company's
Registration Statement on Form 8-B dated December 12, 1996,
File No. 1-03492).
4(b) Form of debt security of 8.75% Debentures due February 12,
2021 (incorporated by reference to Exhibit 4(a) to the
Predecessor's Form 8-K dated as of February 20, 1991).
4(c) Senior Indenture dated as of January 2, 1991 between the
Predecessor and Texas Commerce Bank National Association, as
Trustee (incorporated by reference to Exhibit 4(b) to the
Predecessor's Registration Statement on Form S-3 (File No.
33-38394) originally filed with the Securities and Exchange
Commission on December 21, 1990), as supplemented and amended
by the First Supplemental Indenture dated as of December 12,
1996 among the Predecessor, the Company and the Trustee
(incorporated by reference to Exhibit 4.1 of the Company's
Registration Statement on Form 8-B dated December 12, 1996,
File No. 1-03492).
4(d) Resolutions of the Predecessor's Board of Directors adopted at
a meeting held on February 11, 1991 and of the special pricing
committee of the Board of Directors of the Predecessor adopted
at a meeting held on February 11, 1991 and the special pricing
committee's consent in lieu of meeting dated February 12, 1991
(incorporated by reference to Exhibit 4(c) to the
Predecessor's Form 8-K dated as of February 20, 1991).
38
3. Exhibits:
Exhibit
Number Exhibits
4(e) Form of debt security of 6-3/4% Notes due February 1, 2027
(incorporated by reference to Exhibit 4.1 to the Company's
Form 8-K dated as of February 11, 1997).
4(f) Second Senior Indenture dated as of December 1, 1996 between
the Predecessor and Texas Commerce Bank National Association,
as Trustee (incorporated by reference to Exhibit 4.4 to the
Predecessor's Registration Statement on Form S-3 (File No.
33-65772) originally filed with the Securities and Exchange
Commission on July 9, 1993 and as post effectively amended on
December 5, 1996), as supplemented and amended by the First
Supplemental Indenture dated as of December 5, 1996 between
the Predecessor and the Trustee and the Second Supplemental
Indenture dated as of December 12, 1996 among the Predecessor,
the Company and the Trustee (incorporated by reference to
Exhibit 4.2 of the Company's Registration Statement on Form
8-B dated December 12, 1996, File No. 1-03492).
4(g)* Resolutions of the Company's Board of Directors adopted by
unanimous consent dated December 5, 1996.
4(h)* Certificate of Designation, Rights and Preferences related to
the authorization of the Company's Junior Participating
Preferred Stock, Series A, filed December 11, 1996 with the
Secretary of State of Delaware.
4(i) Rights Agreement dated as of December 1, 1996 between the
Company and ChaseMellon Shareholder Services, L.L.C.
(incorporated by reference to Exhibit 4.4 of the Company's
Registration Statement on Form 8-B dated December 12, 1996,
File No. 1-03492).
4(j) Copies of instruments which define the rights of holders of
miscellaneous long-term notes of the Registrant and its
subsidiaries, totaling $0.1 million in the aggregate at
December 31, 1996, have not been filed with the Commission.
The Registrant agrees herewith to furnish copies of such
instruments upon request.
10(a) Halliburton Company Career Executive Incentive Stock Plan as
amended November 15, 1990 (incorporated by reference to
Exhibit 10(a) to the Predecessor's Annual Report on Form 10-K
for the year ended December 31, 1992).
10(b) Retirement Plan for the Directors of Halliburton Company
adopted and effective January 1, 1990 (incorporated by
reference to Exhibit 10(c) to the Predecessor's Annual Report
on Form 10-K for the year ended December 31, 1992).
10(c)* Halliburton Company Directors' Deferred Compensation Plan as
amended and restated effective May 1, 1994.
10(d) Summary Plan Description of the Executive Split-Dollar Life
Insurance Plan (incorporated by reference to Exhibit 10(g) to
the Predecessor's Annual Report on Form 10-K for the year
ended December 31, 1992).
10(e)* Halliburton Company 1993 Stock and Long-Term Incentive Plan,
as amended and restated May 21, 1996.
39
3. Exhibits:
Exhibit
Number Exhibits
10(f) Agreement and Plan of Merger between the Predecessor,
Halliburton Acq. Company and Landmark Graphics Corporation,
dated as of June 30, 1996 (incorporated by reference to
Appendix A of the Predecessor's Registration Statement on Form
S-4, filed on August 30, 1996).
10(g) Halliburton Company Restricted Stock Plan for Non-Employee
Directors (incorporated by reference to Appendix B of the
Predecessor's proxy statement dated March 23, 1993).
10(h)* Halliburton Elective Deferral Plan, as amended and restated
effective January 1, 1997.
10(i) Employment agreement (incorporated by reference to Exhibit 10
to the Predecessor's Form 10-Q for the quarterly period ended
September 30, 1995).
10(j)* Halliburton Company Senior Executives' Deferred Compensation
Plan, as amended and restated effective January 1, 1996.
10(k)* Halliburton Company Annual Performance Plan, as amended and
restated effective January 1, 1997.
10(l) Employment agreement (incorporated by reference to Exhibit 10
(n) to the Predecessor's Form 10-K for the year ended December
31, 1995).
10(m)* Early retirement agreement.
10(n) The financial statements of European Marine Contractors
incorporated by reference from item 14 of the Company's Annual
Report on Form 10-K for the year ended December 31, 1995.
11* Computation of Earnings per share.
21* Subsidiaries of the Registrant.
23(a)* Consent of Arthur Andersen LLP.
23(b)* Consent of Ernst & Young chartered accountants.
24* Powers of attorney signed in February 1997, for the following
directors:
Anne L. Armstrong
Richard B. Cheney
Lord Clitheroe
Robert L. Crandall
W. R. Howell
Dale P. Jones
Delano E. Lewis
C. J. Silas
Roger T. Staubach
Richard J. Stegemeier
E. L. Williamson
27* Financial data schedules for the Registrant (filed
electronically).
* Filed with this Annual Report
40
(b) Reports on Form 8-K:
A Current Report was filed on Form 8-K dated October 8, 1996, reporting on
Item 5. Other Events, regarding a press release dated October 4, 1996
announcing the completion of the acquisition of Landmark Graphics
Corporation.
A Current Report was filed on Form 8-K dated October 24, 1996, reporting
on Item 5. Other Events, regarding a press release dated October 22, 1996
announcing third quarter results.
A Current Report was filed on Form 8-K dated November 18, 1996, reporting
on Item 5. Other Events, regarding a press release dated November 15, 1997
announcing the fourth quarter dividend.
A Current Report was filed on Form 8-K dated December 11, 1996, reporting
on Item 5. Other Events, regarding a press release dated December 9, 1997
announcing the Company's intent to reorganize its legal structure.
A Current Report was filed on Form 8-K dated December 12, 1996, reporting
on Item 5. Other Events, regarding a press release dated December 12, 1996
announcing the completion of the reorganization of the Company's legal
structure.
A Current Report was filed on Form 8-K dated December 20, 1996, reporting
on Item 5. Other Events, regarding a press release dated December 19, 1996
announcing the award of Terra Nova Contract to the Grand Banks Alliance.
A Current Report was filed on Form 8-K dated December 24, 1996, reporting
on Item 5. Other Events, regarding a press release dated December 24, 1996
reporting supplemental selected financial data restated for the
acquisition of Landmark Graphics Corporation.
A Current Report was filed on Form 8-K dated December 27, 1996, reporting
on Item 5. Other Events, regarding a press release dated December 23, 1996
announcing the potential acquisition of OGC International plc.
During the first quarter of 1997 to the date hereof:
A Current Report was filed on Form 8-K dated January 14, 1997, reporting
on Item 5. Other Events, regarding press releases dated January 11, 1997
announcing the Sangu agreement and plan approval.
A Current Report was filed on Form 8-K dated January 23, 1997, reporting
on Item 5. Other Events, regarding a press release dated January 22, 1997
announcing fourth quarter earnings.
A Current Report was filed on Form 8-K dated January 31, 1997, reporting
on Item 5. Other Events, regarding a press release dated January 29, 1997
announcing an offer to acquire OGC International plc.
A Current Report was filed on Form 8-K dated February 10, 1997, reporting
on Item 5. Other Events, regarding a press release dated February 6, 1997
announcing $125 million notes offering.
A Current Report was filed on Form 8-K dated February 12, 1997, reporting
on Item 5. Other Events, regarding a press release dated February 11, 1997
announcing purchase of Davenport Royal Dockyard.
A Current Report was filed on Form 8-K dated February 14, 1997, reporting
on Item 7. Financial Statements and Exhibits, regarding filing of
Distribution Agreement, Terms Agreement, and Form of Note.
A Current Report was filed on Form 8-K dated February 21, 1997, reporting
on Item 5. Other Events, regarding a press release dated February 20, 1997
announcing annual meeting and quarterly dividend.
A Current Report was filed on Form 8-K dated March 4, 1997, reporting on
Item 5. Other Events, regarding a press release dated March 3, 1997
announcing unconditional tender offer to purchase outstanding shares of
OGC International plc.
41
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 11th day of March,
1997.
HALLIBURTON COMPANY
By /s/ *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 11th day of March, 1997.
Signature Title
/s/ Richard B. Cheney
- -------------------------------- Chairman of the Board, President and
Richard B. Cheney Chief Executive Officer and Director
/s/ David J. Lesar
- -------------------------------- Executive Vice President and
David J. Lesar Chief Financial Officer
/s/ R. Charles Muchmore
- -------------------------------- Vice President and Controller and
R. Charles Muchmore Principal Accounting Officer
42
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
43