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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, 1997
[ ] 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 January 30,
1998, determined using the per share closing price on the New York Stock
Exchange Composite tape of $44.94 on that date was approximately
$11,764,500,000.
As of January 30, 1998, there were 262,492,885 shares of Halliburton Company
Common Stock $2.50 par value per share outstanding.
Portions of the Halliburton Company Proxy Statement dated March 24, 1998, are
incorporated by reference into Part III of this report.
1
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 consolidated statement of income on page 15 and Note
10 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 both discrete services and products and 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 pressure pumping equipment and
services, logging and perforating products and services, drilling systems 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, procurement and construction, project
management and production services, subsea construction, fabrication and
installation of onshore and offshore pipelines, offshore 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 creates business opportunities for the development,
production and operation of oil and gas fields in conjunction with the Company's
customers.
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, airports, water and
wastewater systems; technical and economic feasibility studies; site evaluation;
repair and refitting of submarines and surface ships; operations and maintenance
services, and engineering and wastewater management services for commercial
industry, utilities and government customers. The Company plans to exit certain
highway and paving activities over time. On December 31, 1997, the environmental
business which performed environmental remediation related consulting,
engineering, design and construction was sold.
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. Competitive factors impacting sales of the Company's
services and products are: price, service (including the ability to deliver
services and products on an "as needed, where needed" basis), product quality,
warranty and technical proficiency. A growing number of customers are now
indicating a preference for integrated services and solutions. These integrated
solutions, in the case of the Energy Group, relate to all phases of exploration,
development 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 value created.
The Company conducts business worldwide in over 100 countries. Since the
markets for the Company's services and products are so large and cross many
geographic lines, a meaningful estimate of the number of competitors cannot be
made. These 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 adversely 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 management's discussion and analysis of financial
condition and results of operations under the caption "Financial Instrument
Market Risk" and in Note 12 to the financial statements of this annual report.
2
Customers and Backlog. In 1997, 1996 and 1995, respectively, 79%, 73% 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, 1997 and 1996:
Millions of dollars 1997 1996
- --------------------------------------------------------------------------------
Firm orders $ 6,313 $ 4,555
Government orders firm but not yet funded 445 262
Letters of intent and contracts
awarded but not signed 146 23
-------------- -------------
Total $ 6,904 $ 4,840
- --------------------------------------------------------------------------------
It is estimated that nearly 64% of the backlog existing at December 31,
1997 will be completed during 1998. The Company's backlog excludes contracts for
recurring hardware and software maintenance and support services. Backlog is not
necessarily indicative of future operating results because backlog figures are
subject to substantial fluctuations. Arrangements included in backlog are in
many instances extremely complex, nonrepetitive in nature and may fluctuate in
contract value. Many contracts do not provide for a fixed amount of work to be
performed 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 an 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 and Note 10 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 operations serve to mitigate the seasonal nature of the
Company's business.
Employees. At December 31, 1997, the Company employed approximately 70,750
people, of which about one-half were located outside the United States.
Regulation. The Company is subject to various environmental laws and
regulations. Compliance with such requirements has not substantially increased
capital expenditures, adversely affected the Company's competitive position or
materially affected the Company's earnings. The Company does not anticipate any
material adverse effects in the foreseeable future as a result of existing
environmental laws and regulations. Note 11 to the financial statements of this
annual report discusses the Company's involvement as a potentially responsible
party in remedial activities to clean up several "Superfund" sites.
Item 2. Properties.
Information relating to lease payments is included in Note 11 to the
financial statements of this annual report. The Company's owned and leased
facilities, as described below, are suitable and adequate for their intended
use.
Energy Group manufacturing facilities owned by the Company cover
approximately 3,100,000 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 and Amarillo were idle at the end of 1997. An
idle facility in Houston was sold in 1997. The manufacturing facility in
Garland, Texas, was leased to another company in 1997. The Energy Group also
leases manufacturing facilities covering approximately 160,000 square feet.
Principal locations of these facilities are Malvern, Pennsylvania; Houston,
Texas; Jurong, Singapore; Basingstoke, England; and Kilwinning, Scotland. The
facility in Basingstoke, England, was idle at the end of 1997. Research,
development and engineering activities are carried out in owned facilities
covering approximately 375,000 square feet in Duncan, Oklahoma; Malvern,
Pennsylvania; Houston, Austin and Carrollton, Texas; and Aberdeen, Scotland; and
in leased facilities covering approximately 150,000 square feet in Englewood and
Denver, Colorado; Leatherhead and Dorking, England; Leiderdorp, Holland and
Singapore. Energy Group marine fabrication facilities owned by the Company cover
3
approximately 546 acres in Belle Chasse, Louisiana; Greens Bayou, Texas; and
Nigg and Wick, Scotland. The Belle Chasse, Louisiana, facility consisting of
approximately 151 acres is idle. The facility in Nigg, Scotland, is leased to a
joint venture of the Company. In addition, service centers, sales offices and
field warehouses are operated at approximately 175 locations in the United
States, almost all of which are owned, and at approximately 290 locations
outside the United States in both the Eastern and Western Hemispheres.
Engineering and Construction Group fabricating facilities cover
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 3,494,000 square feet. Major
sites of these activities are in Houston, Baytown and Hurst, Texas; Edmonton,
Canada; Leatherhead, England; and Bundaberg and Emerald, Australia. These
activities are also carried out at leased facilities covering approximately
1,100,000 square feet. Major sites are in Mobile, Alabama; Alhambra, California;
Surrey and London, England; Al Khobar, Saudi Arabia; and Parkside, Victoria
Park, Milton and Melbourne, Australia. The Engineering and Construction Group
operates dockyard facilities owned by a 51% owned subsidiary of the Company
covering approximately 191 acres in Plymouth, England. In addition, project
offices, field camps, service centers and sales offices are operated at
approximately 20 locations in the United States, almost all of which are leased
by the Company, and at approximately 15 foreign locations in both the Eastern
and Western Hemispheres.
General Corporate operates from leased facilities in Dallas, Texas,
covering approximately 25,000 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 11 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 1997.
4
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 Chairman of the Board, since January 1996
(Age 57) Chief Executive Officer, since October 1995
Director of Registrant, since October 1995
President, October 1995 to May 1997
Senior Fellow, American Enterprise Institute, 1993
to October 1995
Secretary, U.S. Department of Defense, 1989 to
1993
Jerry H. Blurton Vice President and Treasurer, since July 1996
(Age 53) 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,
(Age 55) since May 1993
President of Energy Services Group, September 1991
to May 1993
*Dale P. Jones Director of Registrant, since December 1988
(Age 61) Vice Chairman of Registrant, since October 1995
President, June 1989 to October 1995
*David J. Lesar President and Chief Operating Officer, since May
(Age 44) 1997
President and Chief Executive Officer of Brown &
Root, Inc., since September 1996
Executive Vice President and Chief Financial
Officer, August 1995 to May 1997
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 Vice Chairman of Registrant, since May 1997
(Age 62) President and Chief Executive Officer of the
Halliburton Energy Group, September 1996 to May
1997
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 Executive Vice President and Chief Financial
(Age 45) Officer, since May 1997
Senior Vice President - Finance, February 1997 to
May 1997
Senior Vice President, May 1996 to February 1997
Vice President - Finance of Brown & Root, Inc.,
June 1995 to May 1996
Vice President - Finance of Halliburton Energy
Services, December 1993 to June 1995
Controller, December 1991 to December 1993
R. Charles Muchmore, Jr. Vice President and Controller, since August 1996
(Age 44) 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 51) 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 Exchange. 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 42 of this annual report. At December 31,
1997, there were approximately 14,400 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 pages 39
through 41 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 through 12 of this
annual report.
Item 7(a). Quantitative and Qualitative Disclosures About Market Risk.
Information relating to market risk is included in management's discussion
and analysis of financial condition and results of operations under the caption
"Financial Instrument Market Risk" on pages 10 and 11 of this annual report.
Item 8. Financial Statements and Supplementary Data.
Page No.
- --------------------------------------------------------------------------------
Responsibility for Financial Reporting........................ 13
Report of Arthur Andersen LLP, Independent Public Accountants. 14
Consolidated Statements of Income for the Years Ended
December 31, 1997, 1996 and 1995......................... 15
Consolidated Balance Sheets at December 31, 1997 and 1996..... 16
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1997, 1996 and 1995......................... 17
Consolidated Statements of Shareholders' Equity for the
Years Ended December 31, 1997, 1996 and 1995............. 18
Notes to Financial Statements................................. 19-38
Quarterly Data and Market Price Information................... 42
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 FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
BUSINESS ENVIRONMENT AND OUTLOOK
The Company operates in over 100 countries around the world to provide a
variety of oilfield services and engineering and construction services to the
petroleum industry and other energy, industrial and governmental customers. The
markets served by the Company are highly competitive with many substantial
competitors. Operations in some countries may be adversely affected by unsettled
political conditions, expropriation or other governmental actions, exchange
controls and currency devaluation. The Company believes the geographic
diversification of its business activities reduces the risk that loss of its
operations in any one country would be material to its consolidated results of
operations. The Company has only moderate exposure in the Asia Pacific region
which, including Australia, represents about 7% of 1997 revenues, 5% of 1997
operating income and 3% of backlog at December 31, 1997.
Energy Group. In 1997, the oilfield services industry experienced a year of
exceptional growth with customers worldwide expanding their petroleum
exploration, development and production activities. This increase was in
response to a combination of factors including relatively higher crude oil and
natural gas prices early in 1997, an expectation by customers of continued
improvement in the long-term demand for petroleum and the availability of
investment opportunities with good economic potential. The Company believes its
customers will continue to seek opportunities to lower the overall cost of
exploring, developing and enhancing the recovery of hydrocarbons through
increased utilization of integrated solutions, partnering and alliance
arrangements as well as the application of new technology. According to the
annual Salomon Smith Barney Survey and Analysis of 1998 Worldwide Oil and Gas
Exploration and Production Expenditures, spending during 1998 by survey
respondents is predicted to grow by 10.9%. While this growth will represent the
second highest growth rate in the past decade, it is somewhat slower than the
estimated 18.7% growth experienced during 1997. Included within this predicted
1998 growth is a high level of interest by survey respondents in the deep water
Gulf of Mexico, with some survey respondents planning spending increases there
of up to 20%. This outlook is based on West Texas Intermediate crude oil prices
of $19.23/bbl and United States gas prices of $2.19/mcf. Although crude oil and
natural gas price declines beginning late in 1997 and continuing into the first
quarter of 1998 could potentially affect the short-term outlook for the oilfield
services industry by delaying customer spending, the Company believes that
long-term hydrocarbon supply and demand fundamentals will tend to counterbalance
any short-term spending delays.
The Company believes the long-term outlook for the oilfield services
industry is positive due to expected growth in world demand for energy combined
with production declines in existing oil and gas reserves. Although the growth
experienced by the oilfield services industry in 1997 will be difficult to
repeat in 1998, the Company believes that it has good opportunities to expand
its revenue and profit through greater participation in larger projects that
allow it to utilize its project management and integrated services capabilities.
Engineering and Construction Group. Engineering and construction industry
marketing reports indicate that global demand for engineering and construction
services during 1998 may be less robust than during 1997 due in part to
uncertainty in the Asia Pacific region. However, the Company expects to see
demand for such services increase over time in Latin America, Africa and the
Middle East. The Company believes the keys to increasing its revenue and
improving profit margins in slower growing markets will be its ability to
partner with other service and equipment suppliers and customers on larger
projects, acceptance of more project success risk through gain sharing or fixed
price contracts, broadening its core competencies, acquiring and fully utilizing
proprietary technology and managing costs. The Group's improved operating
results in 1997 were the result of focusing on these key factors. During 1997,
the Engineering and Construction Group reexamined its core competencies and
decided to exit certain markets that do not offer sufficient opportunity to
achieve the Company's profit objectives. This refocusing prompted the
diversiture of the environmental services business unit at the end of 1997 and a
decision to exit certain highway and paving activities over time. The Group will
now focus on key markets in the petroleum, chemical and forest products
industries in the United States and international locations. The Company sees an
expanding market for its government services capabilities in the United States
and the United Kingdom as governmental agencies, including local government
units, continue to expand their use of outsourcing to improve service levels and
manage costs.
7
Acquisitions and dispositions. During 1997, the Company acquired NUMAR
Corporation, which was accounted for as a pooling of interests, in exchange for
approximately 8.2 million shares of the Company's Common Stock, acquired OGC
International plc for approximately $118.3 million, purchased a 26% equity
interest in PES (International) Limited for approximately $33.6 million,
acquired Kinhill Holdings Limited for approximately $34 million, and increased
its ownership of Devonport Management Limited from approximately 30% to 51%.
These acquisitions are expected to expand the Company's ability to offer quality
services and products in its core competencies and to further strengthen its
technological base. Also in 1997, the Company sold its environmental services
business for approximately $32 million. See Note 15 to the financial statements
for additional information.
RESULTS OF OPERATIONS
Revenues for 1997 were $8,818.6 million, an increase of 19% over 1996
revenues of $7,385.1 million and an increase of 50% over 1995 revenues of
$5,882.9 million. Approximately 58% of the Company's consolidated revenues were
derived from international activities in 1997 compared with 55% in 1996 and 51%
in 1995.
Energy Group revenues were $5,756.4 million for 1997, an increase of 34%
over 1996 revenues of $4,286.3 million and an increase of 60% over 1995 revenues
of $3,604.0 million. The Energy Group's increase in revenues outpaced the 15%
increase in the worldwide average rotary rig count for 1997 compared to 1996 and
the 23% increase in the worldwide average rotary rig count for 1997 compared to
1995. Approximately two-thirds of the Energy Group's revenues were derived from
international activities each year in 1997, 1996 and 1995.
Engineering and Construction Group revenues were $3,062.2 million for 1997,
a decrease of 1% from 1996 revenues of $3,098.8 million and an increase of 34%
over 1995 revenues of $2,278.9 million. Lower levels of activity under service
contracts with the U.S. Department of Defense to provide technical and
logistical support for military peacekeeping operations in Bosnia resulted in
revenue reductions of approximately $294 million in 1997 compared to 1996. This
reduction in revenues was mostly offset by the consolidation of Devonport
Management Limited revenues as a result of the Company's increased ownership
percentage in that subsidiary. See Note 15 to the financial statements for
additional information.
Operating income was $798.1 million for 1997 compared to $417.9 million for
1996 and $400.9 million for 1995. Excluding special charges of $8.6 million,
$85.8 million and $8.4 million during 1997, 1996 and 1995, respectively,
operating income for 1997 increased by 60% over 1996 and by 97% over 1995 as
shown in the following table. See Note 16 to the financial statements for
additional information on the special charges.
Millions of dollars 1997 1996 1995
- -------------------------------------------------------------------- ------------ ------------ -----------
Operating income before special charges $ 806.7 $ 503.7 $ 409.3
Merger costs associated with NUMAR acquisition (8.6)
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)
------------ ------------ -----------
Operating income $ 798.1 $ 417.9 $ 400.9
- -------------------------------------------------------------------- ----------- ------------ -----------
Approximately 53% of the Company's consolidated operating income was
derived from international activities in 1997 compared to 66% for 1996 and 65%
for 1995. Consolidated international operating margins were 8% in 1997 and 1996
and 9% for 1995.
Energy Group operating income in 1997 was $706.4 million, an increase of
46% over 1996 operating income of $484.4 million and an increase of 77% over
1995 operating income of $398.2 million. Operating margins were 12% in 1997
compared with 11% in both 1996 and 1995. Approximately 53%, 62% and 66% of the
Energy Group's operating income was derived from international activities for
1997, 1996 and 1995, respectively. Operating income in 1997 for the group's
largest business unit, Halliburton Energy Services, increased substantially due
primarily to increased activity levels and increased prices charged to customers
for pressure pumping services in North America. Operating income growth for
Halliburton Energy Services in 1996 over 1995 was 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. Energy Group results for 1996
8
include $35 million of gain sharing revenue on the group's second largest
business unit, 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 in 1996 compared to 1995 by Brown & Root Energy Services' 50% owned joint
venture, European Marine Contractors, Limited.
Engineering and Construction Group operating income for 1997 increased 149%
over 1996 and 200% over 1995 to $133.9 million. Operating margins were 4% for
1997 and 2% for 1996 and 1995, respectively. Improvement in operating income in
1997 over 1996 was realized through overhead reductions, a focus on higher
margin business lines and the consolidation of Devonport Management Limited as a
result of the Company's increased ownership percentage in that subsidiary. See
Note 15 to the financial statements. Increased operating income in 1996 compared
to 1995 from petroleum and chemical services as well as increased operating
income from support services 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.
General and administrative expenses for 1997 were $248.1 million compared
to $236.6 million and $221.7 million for 1996 and 1995, respectively. General
and administrative expenses have increased at a substantially slower rate than
overall growth in consolidated revenues, and as a percent of revenues, have
declined to 2.8% in 1997 from 3.2% in 1996 and 3.8% in 1995.
Interest expense was $42.7 million for 1997 compared to $24.1 million in
1996 and $47.1 million in 1995. The increase in 1997 over 1996 is due to the
issuance of debt under the Company's medium-term note program in 1997. The
decrease in 1996 as compared to 1995 was due to the redemption of the Company's
$390.7 million of zero coupon convertible subordinated debentures in September
1995 and the redemption of its $42 million term loan in December 1995.
Interest income decreased to $11.7 million for 1997 from $14.2 million in
1996 and $32.0 million in 1995. The decrease for 1996 compared to 1995 is due to
lower amounts of invested cash resulting from debt redeemed during 1995.
Foreign currency gains (losses) netted to a loss of $0.9 million in 1997
compared to a $3.9 million loss in 1996 and a $1.4 million gain in 1995. Losses
in 1997 are due primarily to losses in western European currencies.
Provision for income taxes was higher in 1997 than in 1996 and 1995 due to
improved earnings. The effective income tax rate was 39% in 1997, compared with
26% in 1996 and 36% in 1995. The lower effective income tax rate and provision
for 1996 are due to credits of $43.7 million recorded during the third quarter
of 1996 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 for 1996 was 36%. See Note 16 to
the financial statements.
Minority interest in net income of consolidated subsidiaries increased to
$11.9 million in 1997 as compared to $0.5 million in 1996 and $0.9 million in
1995. The increase is due primarily to the Company's ownership interest in
Devonport Management Limited, which increased from approximately 30% to 51%
during March 1997.
Income from continuing operations for 1997, 1996 and 1995 of $454.4
million, $300.4 million and $249.2 million, respectively, resulted in diluted
income per share from continuing operations of $1.75, $1.19 and $1.00,
respectively.
Discontinued operations in 1995 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 1997 with cash and equivalents of $221.3 million compared
with $213.6 million in 1996 and $239.6 million in 1995.
9
Cash flows from operating activities were $548.2 million for 1997 compared
to $452.0 million and $667.4 million for 1996 and 1995, respectively. In 1997,
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 $686.7 million for 1997
compared to $409.4 million used in 1996 and $267.3 million used in 1995. The
increase in cash used for investing activities during 1997 is due primarily to
an increase in capital expenditures of 46% over 1996 and 90% over 1995. While
increased capital expenditures during 1997 were due in part to investments in
capital equipment and deployment of new technologies, increased capital
expenditures also reflect certain strategic investments in oil and gas
developments and in the Company's infrastructure. In 1997, the Company invested
$97.8 million in oil and gas developments, with the most significant development
being its 25% share of the Sangu gas field twenty-five miles offshore Bangladesh
in the Bay of Bengal. The Company plans similar investments during 1998 as the
Company identifies opportunities that allow it to use its unique set of core
competencies and which provide adequate returns. The Company also invested $49.5
million in an enterprise-wide information systems initiative. Cash used in
investing activities in 1997 also includes the acquisition of OGC and Kinhill
and an interest in PES (International) Limited offset by the sale of the
Company's environmental business for about $32.0 million. In 1996, investing
activities included a $41.3 million expenditure for 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.
Cash flows from financing activities provided $151.6 million for 1997
compared to use of cash of $65.8 million and $599.0 million for 1996 and 1995,
respectively. Cash was provided by proceeds from debt issued under the Company's
medium-term note program of $300.0 million and proceeds from the exercise of
stock options of $49.5 million offset by payments on long-term debt of $17.7
million, net repayments on short-term borrowings of $54.6 million and dividend
payments of $127.3 million. 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 was due primarily to the redemption of the Company's $390.7
million zero coupon convertible debentures and a $42.0 million term loan. Total
debt was 18%, 10% and 10% of total capitalization at the end of 1997, 1996 and
1995, respectively.
The Company has the ability to borrow additional short-term and long-term
funds if necessary. See Note 6 to the financial statements regarding the
Company's various short-term lines of credit, notes payable and long-term debt.
FINANCIAL INSTRUMENT MARKET RISK
The Company is currently exposed to market risk from changes in foreign
currency exchange rates, and to a lesser extent, to changes in interest rates.
To mitigate market risk, the Company selectively hedges its foreign currency
exposure through the use of currency derivative instruments. The objective of
such hedging is to protect the Company's dollar cash flows from fluctuations in
currency rates of foreign denominated sales or purchases of goods or services.
Inherent in the use of derivative instruments are certain types of market risk:
volatility of the currency rates, tenor (time horizon) of the derivative
instruments, market cycles and the type of derivative instruments used. The
Company does not use derivative instruments for trading purposes. See Note 1 to
the financial statements for additional information on the Company's accounting
policies on derivative instruments. See Note 12 to the financial statements for
additional disclosures related to derivative instruments.
Foreign exchange. While the Company operates in over 100 countries, the
Company hedges only foreign currencies that are highly liquid and selects
derivative instruments or a combination of instruments whose fluctuation in
value is offset by the fluctuation in value to the underlying exposure. These
hedges generally have expiration dates that do not exceed two years. Exposures
to certain currencies are generally not hedged due primarily to the lack of
available markets or cost considerations (non-traded currencies). The Company
manages its foreign exchange hedging activities through a control system which
includes daily monitoring of cash balances in traded currencies, analytical
techniques such as value at risk estimations, and other procedures.
Interest rates. The Company currently has exposure to interest rate risk
from its long-term debt with interest based on LIBOR plus 0.75% which was
incurred in connection with its acquisition of the Royal Dockyard in Plymouth,
England (the Dockyard Loans). This risk is partially offset by a compensating
balance of approximately one-half of the outstanding debt amount which earns
interest at a rate equal to that of the Dockyard Loans. The compensating balance
is restricted as to use by the Company and is included in other assets on the
Company's consolidated balance sheet. See Note 6 to the financial statements for
additional discussion of the Dockyard Loans.
10
Value at risk. The Company uses a statistical model to assess the potential
loss related to derivative instruments used to hedge the market risk of its
foreign exchange exposure. The model utilizes historical price and volatility
patterns to predict the change in value of the derivative instruments which
could occur from adverse movements in foreign exchange rates for a specified
time period at a specified confidence level. The model is an undiversified
calculation based on the variance-covariance statistical modeling technique and
includes all foreign exchange derivative instruments outstanding at December 31,
1997. The resulting value at risk of $0.8 million estimates the potential loss
the Company could incur in a one-day period with a 95% confidence level from
foreign exchange derivative instruments due to adverse foreign exchange rate
changes.
Interest rate exposures. The table below represents principal (or notional)
amounts and related weighted average interest rates by year of maturity for the
Company's restricted cash and long-term debt obligations. Other notes of $0.1
million with varying interest rates as shown in Note 6 to the financial
statements are excluded from the table below.
Expected maturity date Fair
US $ Equivalent --------- ---------- ---------- ---------- ---------- -----------
in millions 1998 1999 2000 2001 2002 Thereafter Total Value
- ----------------------------------------- --------- ---------- ---------- ---------- ---------- ----------- --------- ------------
Assets
Restricted cash - British pound sterling 3.6 4.2 4.2 4.2 4.2 2.4 22.8 22.8
Average variable rate 8.45% 8.07% 7.83% 7.69% 7.58% 7.51% 8.03%
Long-term debt:
US dollar - 50.0 - - 75.0 375.0 500.0 554.0
Average fixed rate - 6.27% - - 6.30% 7.83% 7.77%
British pound sterling
(Dockyard Loans) 7.1 8.4 8.3 8.3 8.3 5.5 45.9 45.9
Average variable rate 8.45% 8.07% 7.83% 7.69% 7.58% 7.51% 8.03%
- ----------------------------------------- --------- ---------- ---------- ---------- ---------- ----------- --------- ------------
Weighted average variable rates are based on implied forward rates in the yield
curve at December 31, 1997. These implied forward rates should not be viewed as
predictions of actual future interest rates. Restricted cash and the Dockyard
Loans earn interest at LIBOR plus 0.75%. Instruments that are denominated in
currencies other than the US dollar reporting currency are subject to foreign
exchange rate risk as well as interest rate risk.
ENVIRONMENTAL MATTERS
The Company is involved as a potentially responsible party in remedial
activities to clean up several "Superfund" sites under applicable federal law
which imposes joint and several liability, if the harm is indivisible, on
certain persons without regard to fault, the legality of the original disposal
or ownership of the site. Although it is very difficult to quantify the
potential impact of compliance with environmental protection laws, management of
the Company believes that any liability of the Company with respect to all but
one of such sites will not have a material adverse effect on the results of
operations of the Company. See Note 11 to the financial statements.
YEAR 2000 ISSUE
The Year 2000 issue is the risk that computer programs using two-digit date
fields will fail to properly recognize the year 2000, with the result being
business interruptions due to computer system failures by the Company's software
and hardware or that of government entities, service providers, vendors and
customers. In response to the Year 2000 issue, the Company has formed a
cross-functional task force responsible for assessing the Company's Year 2000
readiness. The task force has developed a comprehensive plan to assess the
Company's Year 2000 risk and is in the process of performing its review. The
Company anticipates that certain software will require replacement or
modification. Independent of, but concurrent with, the Company's Year 2000
review, the Company is installing an enterprise-wide business information
system. This information system is scheduled to replace approximately two-thirds
of the Company's key finance, administrative and marketing software systems
before the end of 1999 and is Year 2000 compliant. Based on the Company's review
to date, it does not expect the cost of software replacement or modification not
currently included in the Company's enterprise-wide information system to be
material to its financial position or results of operations.
11
ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income," which
requires presentation of total nonowner changes in equity for all periods
displayed. The Company plans to adopt this statement for the year ending
December 31, 1998, and is evaluating alternative disclosure formats suggested by
the standard.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information." This standard defines reporting
requirements for operating segments and related information about products and
services, geographic areas and reliance on major customers. The Company is
evaluating the impact of this statement on its current reporting and expects to
adopt the new standard for its year ending December 31, 1998, with interim
reporting beginning in 1999.
FORWARD LOOKING INFORMATION
In accordance with the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995, the Company cautions that the statements in this
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. While such forward-looking information
reflects the Company's best judgment based on current information, it involves a
number of risks and uncertainties and there can be no assurance that other
factors will not affect the accuracy of such forward-looking information. While
it is not possible to identify all factors, the Company continues to face many
risks and uncertainties that could cause actual results to differ from those
forward looking statements. Such factors include: unsettled political
conditions, war, civil unrest, currency controls and governmental actions in
over 100 countries of operation; trade restrictions and economic embargoes
imposed by the United States and other countries; environmental laws, including
those that require emission performance standards for new and existing
facilities; the magnitude of governmental spending for military and logistical
support of the type provided by the Company; operations in countries with
significant amounts of political risk, including, without limitation, Algeria
and Nigeria; technological and structural changes in the industries served by
the Company; computer software and hardware used by governmental entities,
service providers, vendors, customers and the Company which may be impacted by
the Year 2000 issue; integration of acquired businesses into the Company;
changes in the price of oil and natural gas; changes in the price of commodity
chemicals used by the Company; changes in capital spending by customers in the
hydrocarbon industry for exploration, development, production, processing,
refining and pipeline delivery networks; increased competition in the hiring and
retention of employees; 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
pricing, margins, revenues and profitability remain difficult to predict in the
industries served by the Company.
12
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 a
code 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, 1997, its system of internal control
over financial reporting met those criteria.
HALLIBURTON COMPANY
by
Dick Cheney Gary V. Morris
Chairman of the Board and Executive Vice President and
Chief Executive Officer Chief Financial Officer
13
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,
1997 and 1996, and the related consolidated statements of income, cash flows and
shareholders' equity for each of the three years in the period ended December
31, 1997. 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, 1997 and 1996, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1997, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Dallas, Texas,
January 22, 1998
14
Consolidated Statements of Income
Years ended December 31
Millions of dollars except per share data 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------
Revenues
Energy Group $ 5,756.4 $ 4,286.3 $ 3,604.0
Engineering and Construction Group 3,062.2 3,098.8 2,278.9
------------------------------------------------
Total revenues $ 8,818.6 $ 7,385.1 $ 5,882.9
- -----------------------------------------------------------------------------------------------------------------------------
Operating income
Energy Group $ 706.4 $ 484.4 $ 398.2
Engineering and Construction Group 133.9 53.7 44.6
Special charges (8.6) (85.8) (8.4)
General corporate (33.6) (34.4) (33.5)
------------------------------------------------
Total operating income 798.1 417.9 400.9
Interest expense (42.7) (24.1) (47.1)
Interest income 11.7 14.2 32.0
Foreign currency gains (losses) (0.9) (3.9) 1.4
Other nonoperating income, net 0.1 0.1 0.6
------------------------------------------------
Income from continuing operations before income taxes and
minority interest 766.3 404.2 387.8
Provision for income taxes (300.0) (103.3) (137.7)
Minority interest in net income of consolidated subsidiaries (11.9) (0.5) (0.9)
------------------------------------------------
Income from continuing operations 454.4 300.4 249.2
Loss from discontinued operations - - (65.5)
------------------------------------------------
Net income $ 454.4 $ 300.4 $ 183.7
- -----------------------------------------------------------------------------------------------------------------------------
Basic income (loss) per share
Continuing operations $ 1.78 $ 1.20 $ 1.00
Discontinued operations - - (0.26)
------------------------------------------------
Net income $ 1.78 $ 1.20 $ 0.74
- -----------------------------------------------------------------------------------------------------------------------------
Diluted income (loss) per share
Continuing operations $ 1.75 $ 1.19 $ 1.00
Discontinued operations - - (0.26)
------------------------------------------------
Net income $ 1.75 $ 1.19 $ 0.74
- -----------------------------------------------------------------------------------------------------------------------------
See notes to financial statements.
15
Consolidated Balance Sheets
December 31
Millions of dollars and shares except per share data 1997 1996
- --------------------------------------------------------------------------------------------------------------------
Assets
Current assets:
Cash and equivalents $ 221.3 $ 213.6
Receivables:
Notes and accounts receivable (less allowance for bad debts of $38.4 and $43.6) 1,815.8 1,413.4
Unbilled work on uncompleted contracts 390.0 288.9
--------------------------------
Total receivables 2,205.8 1,702.3
Inventories 326.9 292.2
Deferred income taxes, current 106.6 108.7
Other current assets 111.0 81.2
--------------------------------
Total current assets 2,971.6 2,398.0
Property, plant and equipment:
At cost 3,988.0 3,560.8
Less accumulated depreciation 2,325.3 2,269.2
--------------------------------
Net property, plant and equipment 1,662.7 1,291.6
Equity in and advances to related companies 338.7 234.9
Excess of cost over net assets acquired (net of accumulated amortization
of $56.2 and $42.7) 323.1 233.9
Deferred income taxes, noncurrent 91.3 98.6
Other assets 215.6 179.6
--------------------------------
Total assets $ 5,603.0 $ 4,436.6
- --------------------------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Current liabilities:
Short-term notes payable $ 2.7 $ 46.3
Current maturities of long-term debt 7.1 0.1
Accounts payable 586.5 452.1
Accrued employee compensation and benefits 262.3 193.7
Advance billings on uncompleted contracts 303.7 336.3
Income taxes payable 213.1 135.8
Deferred revenues 38.4 18.9
Other current liabilities 359.1 321.5
--------------------------------
Total current liabilities 1,772.9 1,504.7
Long-term debt 538.9 200.0
Employee compensation and benefits 323.6 281.1
Other liabilities 363.2 290.2
Minority interest in consolidated subsidiaries 19.7 1.4
--------------------------------
Total liabilities and minority interest 3,018.3 2,277.4
Shareholders' equity:
Common stock, par value $2.50 per share - authorized 400.0 shares,
issued 268.8 (post-split) and 129.3 (pre-split) shares 672.0 323.3
Paid-in capital in excess of par value 87.2 322.2
Cumulative translation adjustment (15.0) (12.4)
Retained earnings 1,947.6 1,656.3
--------------------------------
2,691.8 2,289.4
Less 6.5 (post-split) and 4.0 (pre-split) shares treasury stock, at cost 107.1 130.2
--------------------------------
Total shareholders' equity 2,584.7 2,159.2
--------------------------------
Total liabilities and shareholders' equity $ 5,603.0 $ 4,436.6
- --------------------------------------------------------------------------------------------------------------------
See notes to financial statements.
16
Consolidated Statements of Cash Flows
Years ended December 31
Millions of dollars 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $ 454.4 $ 300.4 $ 183.7
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization 309.5 267.9 259.8
Provision (benefit) for deferred income taxes 9.4 (23.8) 46.0
Distributions from (advances to) related companies, net of equity in
(earnings) or losses (64.7) (65.9) (20.5)
Appreciation of zero coupon bonds - - 15.0
Net loss from discontinued operations - - 65.5
Other non-cash items 21.8 8.9 (8.2)
Other changes, net of non-cash items:
Receivables (300.9) (218.2) (91.6)
Inventories (14.1) (46.0) 17.6
Accounts payable (41.6) 63.7 76.5
Other working capital, net 93.7 251.5 192.1
Other, net 80.7 (86.5) (68.5)
----------------------------------------
Total cash flows from operating activities 548.2 452.0 667.4
----------------------------------------
Cash flows from investing activities:
Capital expenditures (577.1) (395.7) (303.3)
Sales of property, plant and equipment 44.9 49.8 36.0
Acquisitions of businesses, net of cash acquired (157.9) (31.6) (10.3)
Dispositions of businesses, net of cash disposed 37.6 21.6 25.9
Other investing activities (34.2) (53.5) (15.6)
----------------------------------------
Total cash flows from investing activities (686.7) (409.4) (267.3)
----------------------------------------
Cash flows from financing activities:
Borrowings of long-term debt 301.5 0.1 -
Payments on long-term debt (17.7) (5.2) (465.4)
Net borrowings (payments) of short-term debt (54.6) 38.3 (27.0)
Payments of dividends to shareholders (127.3) (117.5) (114.3)
Proceeds from exercises of stock options 49.5 25.6 9.7
Payments to reacquire common stock (2.2) (7.1) (2.2)
Other financing activities 2.4 - 0.2
----------------------------------------
Total cash flows from financing activities 151.6 (65.8) (599.0)
----------------------------------------
Effect of exchange rate changes on cash (5.4) (2.8) (2.8)
----------------------------------------
Increase (decrease) in cash and equivalents 7.7 (26.0) (201.7)
Cash and equivalents at beginning of year 213.6 239.6 441.3
----------------------------------------
Cash and equivalents at end of year $ 221.3 $ 213.6 $ 239.6
- ----------------------------------------------------------------------------------------------------------------------------
Supplemental disclosure of cash flow information:
Cash payments during the period for:
Interest $ 35.2 $ 24.9 $ 26.2
Income taxes 165.2 35.5 29.9
Non-cash investing and financing activities:
Liabilities assumed in acquisitions of businesses $ 336.5 $ 24.8 $ 4.1
Liabilities disposed of in dispositions of businesses 11.9 9.8 14.6
See notes to financial statements.
17
Consolidated Statements of Shareholders' Equity
Years ended December 31
Millions of dollars and shares except per share data 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------
Common stock (number of shares):
Balance at beginning of year 129.3 129.1 128.8
Shares issued (forfeited) under incentive stock plans, net 1.3 0.3 0.2
Cancellation of treasury stock - (0.1) -
Shares issued in connection with acquisition 8.2 - 0.1
Two-for-one common stock split 130.0 - -
-----------------------------------------------------
Balance at end of year 268.8 129.3 129.1
- -----------------------------------------------------------------------------------------------------------------------
Common stock (dollars):
Balance at beginning of year $ 323.3 $ 322.7 $ 322.1
Shares issued (forfeited) under incentive stock plans, net 3.2 0.9 0.5
Cancellation of treasury stock - (0.3) -
Shares issued in connection with acquisition 20.5 - 0.1
Two-for-one common stock split 325.0 - -
-----------------------------------------------------
Balance at end of year $ 672.0 $ 323.3 $ 322.7
- -----------------------------------------------------------------------------------------------------------------------
Paid-in capital in excess of par value:
Balance at beginning of year $ 322.2 $ 302.9 $ 298.4
Shares issued (forfeited) under incentive stock plans, net 53.4 22.9 4.5
Cancellation of treasury stock - (3.6) -
Shares issued in connection with acquisition 36.6 - -
Two-for-one common stock split (325.0) - -
-----------------------------------------------------
Balance at end of year $ 87.2 $ 322.2 $ 302.9
- -----------------------------------------------------------------------------------------------------------------------
Cumulative translation adjustment:
Balance at beginning of year $ (12.4) $ (28.0) $ (23.1)
Changes net of tax of ($0.3) in 1997, $3.7
in 1996 and ($0.5) in 1995 (2.6) 15.6 (4.9)
-----------------------------------------------------
Balance at end of year $ (15.0) $ (12.4) $ (28.0)
- -----------------------------------------------------------------------------------------------------------------------
Retained earnings:
Balance at beginning of year $ 1,656.3 $ 1,473.4 $ 1,656.6
Net income 454.4 300.4 183.7
Cash dividends paid ($0.50 per share post-split; $1.00 per
share pre-split) (127.3) (117.5) (114.3)
Spin-off of Highlands Insurance Group, Inc. - - (268.6)
Net change in unrealized gains (losses) on investments
held by discontinued operation - - 16.3
Pooling of interests acquisition (35.8) - -
Shares issued in connection with acquisition - - (0.3)
-----------------------------------------------------
Balance at end of year $ 1,947.6 $ 1,656.3 $ 1,473.4
- -----------------------------------------------------------------------------------------------------------------------
Treasury stock (number of shares):
Balance at beginning of year 4.0 4.6 5.0
Shares issued under incentive stock plans, net (0.8) (0.7) (0.5)
Purchase of common stock - 0.2 0.1
Cancellation of treasury stock - (0.1) -
Two-for-one common stock split 3.3 - -
-----------------------------------------------------
Balance at end of year 6.5 4.0 4.6
- -----------------------------------------------------------------------------------------------------------------------
Treasury stock (dollars):
Balance at beginning of year $ 130.2 $ 150.8 $ 163.8
Shares issued under incentive stock plans, net (25.3) (23.8) (15.2)
Purchase of common stock 2.2 7.1 2.2
Cancellation of treasury stock - (3.9) -
-----------------------------------------------------
Balance at end of year $ 107.1 $ 130.2 $ 150.8
- -----------------------------------------------------------------------------------------------------------------------
See notes to financial statements.
18
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 assets and liabilities, the disclosed contingent assets and
liabilities at the date of the financial statements and the reported 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. Certain
prior year amounts have been reclassified to conform with the 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 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 revenues and
recognized as revenue ratably over the contract periods of generally one year
duration. 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 $164.7 million in 1997, $133.3 million in
1996 and $113.1 million in 1995.
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 costs of $14.5 million in 1997,
$12.9 million in 1996 and $8.8 million in 1995 related to software developed for
resale. Amortization expense related to these costs was $15.0 million, $12.5
million and $10.3 million for 1997, 1996 and 1995, respectively. Once the
software is ready for release, amortization of the software development costs
begins. Capitalized software development costs are amortized over periods which
do not exceed three years.
Income Per Share. Basic income per share amounts are based on the weighted
average number of common shares outstanding during the year. Diluted income per
share includes additional common shares that would have been outstanding if
potential common shares with a dilutive effect had been issued. See Note 8 for a
reconciliation of basic and diluted income per share from continuing operations.
Prior year amounts have been adjusted for the two-for-one common stock split
declared on June 9, 1997 and effected in the form of a stock dividend and paid
on July 21, 1997.
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, 1997 include $30.4 million ($24.9
million at December 31, 1996) 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 1998. Additionally, other noncurrent
assets include $7.3 million ($6.7 million at December 31, 1996) of such
retainage which is expected to be collected in years subsequent to 1998.
Unbilled work on uncompleted contracts generally represents work currently
billable and such work is usually billed during normal billing processes in the
next month. At December 31, 1997, notes of $9.5 million ($14.6 million at
December 31, 1996) with varying interest rates are included in notes and
accounts receivable.
Inventories. Inventories are stated at the lower of cost or market. Cost
represents invoice or production cost for new items and original cost less
allowance for condition for used material returned to stock. Production cost
includes material, labor and manufacturing overhead. About forty-two percent of
all sales items are valued on a last-in, first-out (LIFO) basis. Inventories of
sales items owned by foreign subsidiaries and inventories of operating supplies
and parts are generally valued at average cost.
19
Property, Plant and Equipment. Property, plant and equipment is reported at
cost less accumulated depreciation, which is generally provided on the
straight-line method over the estimated useful lives of the assets. Expenditures
for maintenance and repairs are expensed; expenditures for renewals and
improvements are generally capitalized. Upon sale or retirement of an asset, the
related costs and accumulated depreciation are removed from the accounts and any
gain or loss is recognized. When events or changes in circumstances indicate
that assets may be impaired, an evaluation is performed comparing the estimated
future undiscounted cash flows associated with the asset to the asset's carrying
amount to determine if a write-down to market value or discounted cash flow
value is required. The Company follows the successful efforts method of
accounting for oil and gas properties. At December 31, 1997, there were no
significant oil and gas properties in the production stage of development. The
Company is implementing an enterprise-wide information system. External direct
costs of materials and services and payroll-related costs of employees working
solely on development of the software system portion of the project are
capitalized. Capitalized costs of the project will be amortized over periods of
three to ten years beginning when the system is placed in service. Training
costs and costs to reengineer business processes are expensed as incurred.
Excess of cost over net assets acquired. The excess of cost over net assets
acquired is amortized on a straight-line basis over periods not exceeding 40
years.
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 primarily enters into derivative
financial transactions to hedge existing or projected exposures to changing
foreign exchange rates and from time to time enters into derivatives to hedge
exposures to interest rates or commodity prices. The Company does not enter into
derivative transactions for speculative or trading purposes. Derivative
financial instruments to hedge exposure with an indeterminable maturity date are
generally carried at fair value with the resulting gains and losses reflected in
the results of operations. Gains or losses on hedges of identifiable commitments
are deferred and recognized when the offsetting gains or losses on the related
hedged items are recognized. Deferred gains or losses for hedges which are
terminated prior to the transaction date are recognized currently. In the event
an identifiable commitment is no longer expected to be realized, any deferred
gains or losses on hedges associated with the commitment are recognized
currently. Costs associated with entering into such contracts are presented in
other assets, while deferred gains or losses are included in other liabilities
or other assets, respectively, on the consolidated balance sheets. Recognized
gains or losses on derivatives entered into to manage foreign exchange risk are
included in foreign currency gains and losses on the consolidated statements of
income, while gains or losses on interest rate derivatives and commodity
derivatives are included in interest expense and operating income, respectively.
During the years ended December 31, 1997, 1996 and 1995, the Company did not
enter into any significant transactions to hedge interest rates or commodity
prices.
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 of the
consolidated balance sheets titled "cumulative translation adjustment."
20
Note 2. Inventories
Inventories at December 31, 1997 and 1996 are comprised of the following:
Millions of dollars 1997 1996
- -------------------------------------------------------------------------------------
Sales items $ 114.9 $ 104.3
Supplies and parts 158.1 136.3
Work in process 29.3 30.4
Raw materials 24.6 21.2
-------------------------
Total $ 326.9 $ 292.2
- -------------------------------------------------------------------------------------
If the average cost method had been in use for inventories on the LIFO
basis, total inventories would have been about $3.4 million and $13.0 million
higher than reported at December 31, 1997 and 1996, respectively.
Note 3. Property, Plant and Equipment
Property, plant and equipment at December 31, 1997 and 1996 is comprised of
the following:
Millions of dollars 1997 1996
- -------------------------------------------------------------------------------------
Land $ 62.7 $ 63.9
Buildings and property improvements 624.0 568.2
Machinery and equipment 2,768.0 2,653.8
Other 533.3 274.9
-------------------------
Total $ 3,988.0 $ 3,560.8
- -------------------------------------------------------------------------------------
At December 31, 1997 and 1996, other property includes oil and gas
investments of approximately $101.7 million and $5.9 million and software
developed for internal use of $59.5 million and $10.0 million, respectively.
21
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 1997, 1996 and 1995 are equity in income of related companies of
$124.4 million, $105.5 million and $88.4 million, respectively. Summarized
financial statements for European Marine Contractors, Limited, a 50% owned
company and a part of the Energy Group 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 1997 1996 1995
- -------------------------------------------------------------------------------------------
European Marine Contractors
Revenues $ 436.1 $ 246.5 $ 361.8
- -------------------------------------------------------------------------------------------
Operating income $ 75.9 $ 65.5 $ 106.9
- -------------------------------------------------------------------------------------------
Net income $ 48.5 $ 43.7 $ 72.6
- -------------------------------------------------------------------------------------------
Other Affiliates
Revenues $ 2,441.4 $ 2,276.4 $ 1,767.2
- -------------------------------------------------------------------------------------------
Operating income $ 247.2 $ 197.7 $ 92.9
- -------------------------------------------------------------------------------------------
Net income $ 202.5 $ 158.8 $ 63.0
- -------------------------------------------------------------------------------------------
COMBINED FINANCIAL POSITION
Millions of dollars 1997 1996
- -----------------------------------------------------------------------------------------
European Marine
Contractors
Current assets $ 214.6 $ 263.1
Noncurrent assets 31.7 25.6
---------------------------
Total $ 246.3 $ 288.7
- -----------------------------------------------------------------------------------------
Current liabilities $ 219.9 $ 226.4
Noncurrent liabilities 6.2 3.8
Shareholders' equity 20.2 58.5
---------------------------
Total $ 246.3 $ 288.7
- -----------------------------------------------------------------------------------------
Other Affiliates
Current assets $ 887.2 $ 871.3
Noncurrent assets 670.4 615.2
---------------------------
Total $ 1,557.6 $ 1,486.5
- -----------------------------------------------------------------------------------------
Current liabilities $ 450.6 $ 572.9
Noncurrent liabilities 303.4 277.4
Minority interests 8.1 6.6
Shareholders' equity 795.5 629.6
---------------------------
Total $ 1,557.6 $ 1,486.5
- -----------------------------------------------------------------------------------------
In the second quarter of 1997, Halliburton Energy Services, which is part
of the Energy Group, acquired a 26% ownership interest in PES (International)
Limited (PES) for approximately $33.6 million which includes approximately $30.0
million excess of cost over net assets acquired to be amortized over thirty
years. The purchase price is included in acquisitions of businesses in the
consolidated statements of cash flows.
22
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.
Note 5. Income Taxes
The components of the (provision) benefit for income taxes are:
Millions of dollars 1997 1996 1995
- ------------------------------------------------------------------------------------------------
Current income taxes
Federal $ (104.7) $ (21.5) $ (6.4)
Foreign (178.7) (102.7) (79.9)
State (7.2) (2.9) (5.4)
------------------------------------
Total (290.6) (127.1) (91.7)
------------------------------------
Deferred income taxes
Federal (1.3) 58.2 (11.2)
Foreign and state (8.1) (34.4) (34.8)
------------------------------------
Total (9.4) 23.8 (46.0)
------------------------------------
Total $ (300.0) $ (103.3) $ (137.7)
- ------------------------------------------------------------------------------------------------
Included in income taxes are foreign tax credits of $88.4 million in 1997,
$63.7 million in 1996 and $35.2 million in 1995. The United States and foreign
components of income from continuing operations before income taxes and minority
interests are as follows:
Millions of dollars 1997 1996 1995
- ------------------------------------------------------------------------------------------------
United States $ 461.4 $ 217.2 $ 234.6
Foreign 304.9 187.0 153.2
------------------------------------
Total $ 766.3 $ 404.2 $ 387.8
- ------------------------------------------------------------------------------------------------
23
The primary components of the Company's deferred tax assets and liabilities
and the related valuation allowances are as follows:
Millions of dollars 1997 1996
- ----------------------------------------------------------------------------------
Gross deferred tax assets
Employee benefit plans $ 120.0 $ 95.2
Accrued liabilities 67.8 71.9
Construction contract accounting methods 50.4 38.6
Intercompany profit 39.3 34.2
Insurance accruals 38.4 30.0
Net operating loss carryforwards 35.8 62.8
Foreign tax credits 21.2 29.8
Alternative minimum tax carryforward 15.1 19.3
All other 75.7 82.2
----------------------
Total 463.7 464.0
----------------------
Gross deferred tax liabilities
Depreciation and amortization 76.1 56.7
Unrepatriated foreign earnings 35.6 34.1
Safe harbor leases 11.0 12.0
All other 85.0 83.6
----------------------
Total 207.7 186.4
----------------------
Valuation allowances
Net operating loss carryforwards 24.8 36.3
All other 33.3 34.0
----------------------
Total 58.1 70.3
----------------------
Net deferred income tax asset $ 197.9 $207.3
- ----------------------------------------------------------------------------------
The Company has provided for the potential repatriation of certain
undistributed earnings of its foreign subsidiaries and considers earnings above
the amounts on which tax has been provided to be permanently reinvested. While
these additional earnings could become subject to additional tax if repatriated,
such a repatriation is not anticipated. Any additional amount of tax is not
practicable to estimate.
24
The Company has foreign tax credits which expire in 2000 of $21.2 million.
The Company has net operating loss carryforwards which expire as follows: 1998,
$13.1 million; 1999, $15.3 million; 2000, $9.6 million; 2001 through 2005, $16.1
million; 2006 through 2010, $10.6 million. The Company also has net operating
loss carryforwards of $40.6 million with indefinite expiration dates.
Reconciliations between the actual provision for income taxes and that computed
by applying the U.S. statutory rate to income from continuing operations before
income taxes and minority interest are as follows:
Millions of dollars 1997 1996 1995
- ------------------------------------------------------------------------------------------------
Provision computed at statutory rate $ (268.2) $ (141.5) $ (135.7)
Reductions (increases) in taxes resulting from:
Tax differentials on
foreign earnings (19.5) 3.7 (35.4)
State income taxes, net of
federal income tax benefit (6.6) (2.9) (5.1)
Net operating losses - 23.0 48.6
Federal income tax settlement - 16.1 -
Nondeductible meals and entertainment (5.4) (4.8) (5.0)
Other items, net (0.3) 3.1 (5.1)
------------------------------------
Total $ (300.0) $ (103.3) $ (137.7)
- ------------------------------------------------------------------------------------------------
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).
25
Note 6. Lines of Credit, Notes Payable and Long-Term Debt
At December 31, 1997, the Company had committed short-term lines of credit
totaling $200.0 million available and unused, and other short-term lines of
credit totaling $275.0 million with several U.S. banks. No borrowings were
outstanding under these facilities at December 31, 1997. In addition, the
Company had $2.7 million of other short-term debt outstanding at December 31,
1997, primarily consisting of foreign bank overdrafts with an average interest
rate of 7.31%. 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
was 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%.
Long-term debt at December 31, 1997 and 1996 consists of the following:
Millions of dollars 1997 1996
- ------------------------------------------------------------------------------------
8.75% debentures due February 15, 2021 $ 200.0 $ 200.0
Medium-term notes due February 1, 2027 125.0 -
Medium-term notes due May 12, 2017 50.0 -
Medium-term notes due July 8, 1999 50.0 -
Medium-term notes due August 5, 2002 75.0 -
Term loans at LIBOR plus 0.75% payable in semi-annual
installments through March 2004 45.9 -
Other notes with varying interest rates 0.1 0.1
------------------------
546.0 200.1
Less current portion 7.1 0.1
------------------------
Total long-term debt $ 538.9 $ 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. During 1997, the
Company issued notes under its medium-term note program as follows:
Amount Issue Date Due Rate Prices Yield
----------------- ---------------- ----------------- ------------- -------------- ------------
$ 125 million 02/11/97 02/01/2027 6.75% 99.78% 6.78%
$ 50 million 05/12/97 05/12/2017 7.53% Par 7.53%
$ 50 million 07/08/97 07/08/1999 6.27% Par 6.27%
$ 75 million 08/05/97 08/05/2002 6.30% Par 6.30%
The medium-term notes may not be redeemed at the option of the Company
prior to maturity. There is no sinking fund applicable to the notes. Each holder
of the 6.75% medium-term notes has the right to require the Company to repay
such holder's notes, in whole or in part, on February 1, 2007. The net proceeds
from the sale of the notes were used for general corporate purposes.
During March 1997, the Company incurred $56.3 million of term loans in
connection with the acquisition of the Royal Dockyard in Plymouth, England (the
Dockyard Loans). The Dockyard Loans are denominated in Sterling and bear
interest at LIBOR plus 0.75% payable in semi-annual installments through March
2004. Pursuant to certain terms of the Dockyard Loans, the Company was required
to provide initially a compensating balance of $28.7 million which is restricted
as to use by the Company. The compensating balance amount decreases in equal
installments over the term of the Dockyard Loans and earns interest at a rate
equal to that of the Dockyard Loans. At December 31, 1997, the compensating
balance of $22.8 million is included in other assets in the consolidated balance
sheets.
Long-term debt matures over the next five years as follows: $7.1 million in
1998; $58.4 million in 1999; $8.3 million in 2000; $8.3 million in 2001; and
$83.3 million in 2002.
26
Note 7. Common Stock
On May 20, 1997, the Company's shareholders voted to increase the Company's
number of authorized shares from 200.0 million shares to 400.0 million shares.
On June 9, 1997, the Company's Board of Directors approved a two-for-one stock
split effected in the form of a stock dividend distributed on July 21, 1997 to
shareholders of record on June 26, 1997. The par value of the Company's common
stock of $2.50 per share remained unchanged. As a result of the stock split,
$325.0 million was transferred from paid-in capital in excess of par value to
common stock. Historical share and per share amounts presented on the
consolidated statements of income and in the discussion below concerning stock
options and restricted stock have been restated to reflect the stock split.
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 as amended, 27 million shares of the
Company's Common Stock have been reserved for issuance to key employees. At
December 31, 1997, 14.8 million shares were available for future grants under
the 1993 Plan.
In connection with the acquisitions of Landmark Graphics Corporation
(Landmark) and NUMAR Corporation (NUMAR) (see Note 15), outstanding stock
options under the stock option plans maintained by Landmark and NUMAR were
assumed by the Company. Stock option transactions summarized below include
amounts for the 1993 Plan, the Landmark plans using the acquisition exchange
rate of 1.148 shares for each Landmark share, and the NUMAR plans using the
acquisition exchange rate of .9664 shares for each NUMAR share.
Exercise Weighted Average
Number of Price per Exercise Price
Shares Share per Share
- ---------------------------------------------------------------------------------------------------
Outstanding at December 31, 1994 6,229,642 $ 0.53 - 29.73 $ 15.69
- ---------------------------------------------------------------------------------------------------
Granted 3,966,714 15.68 - 25.32 20.53
Exercised (701,548) 0.53 - 20.91 13.81
Forfeited (265,194) 8.71 - 28.77 17.27
- ---------------------------------------------------------------------------------------------------
Outstanding at December 31, 1995 9,229,614 2.90 - 29.73 17.87
- ---------------------------------------------------------------------------------------------------
Granted 3,599,340 14.48 - 29.57 27.70
Exercised (1,994,574) 2.90 - 23.52 15.58
Forfeited (445,660) 8.71 - 28.09 18.81
- ---------------------------------------------------------------------------------------------------
Outstanding at December 31, 1996 10,388,720 3.49 - 29.73 21.67
- ---------------------------------------------------------------------------------------------------
Options assumed in acquisition 854,050 3.10 - 22.12 12.22
Granted 1,263,600 30.88 - 61.50 52.19
Exercised (2,765,247) 3.10 - 29.56 16.82
Forfeited (325,573) 9.15 - 35.13 21.56
- ---------------------------------------------------------------------------------------------------
Outstanding at December 31, 1997 9,415,550 $ 3.10 - 61.50 $ 26.35
- ---------------------------------------------------------------------------------------------------
27
Options outstanding at December 31, 1997 are 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 1997 Life Price 1997 Price
- ---------------------- ----------------- -------------- --------------- ---------------- ---------------
$ 3.10 - 11.11 351,453 4.87 $ 7.20 345,657 $ 7.13
11.25 - 18.13 2,309,203 6.93 16.35 1,957,596 16.28
18.24 - 29.19 3,002,268 7.21 22.75 1,792,155 22.11
29.56 - 61.50 3,752,626 9.22 37.18 808,284 29.56
- ---------------------- ----------------- -------------- --------------- ---------------- ---------------
$ 3.10 - 61.50 9,415,550 7.85 $ 26.35 4,903,692 $ 19.96
- ---------------------- ----------------- -------------- --------------- ---------------- ---------------
There were 4.5 million options exercisable with a weighted average exercise
price of $17.52 at December 31, 1996, and 2.6 million options exercisable with a
weighted average exercise price of $15.64 at December 31, 1995.
All stock options under the 1993 Plan, including options granted to
employees of Landmark and NUMAR since the acquisition of such companies, 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 fair value of options at the date of grant was
estimated using the Black-Scholes option pricing model. The weighted average
assumptions and resulting fair values of options granted are as follows:
Assumptions
------------------------------------------------------------------- Weighted Average
Risk-Free Expected Expected Expected Fair Value of
Interest Rate Dividend Yield Life (in years) Volatility Options Granted
- -------------------- ----------------- ----------------- ----------------- ------------- -----------------------
1997 6.0% 1.0% 5 43.3% $ 22.71
1996 5.9% 1.6% 5 39.7% $ 10.24
1995 6.2% 1.6% 5 38.4% $ 7.16
- -------------------- ----------------- ----------------- ----------------- ------------- -----------------------
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 1997, 1996 and 1995 would have been $437.6 million, $292.4
million and $181.6 million, respectively, resulting in diluted earnings per
share of $1.69, $1.16 and $0.73, 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 1997, 1996 and 1995 were
515,650; 363,800; and 412,700, respectively. The shares awarded are net of
forfeitures of 34,900; 34,600; and 9,800 shares in 1997, 1996 and 1995,
respectively. The weighted average fair market value per share at the date of
grant of shares granted in 1997, 1996 and 1995 was $45.29, $28.24 and $20.44,
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
400 restricted shares of Common Stock as a part of compensation. The Company
reserved 100,000 shares of Common Stock for issuance to non-employee directors.
The Company issued 3,200; 3,600 and 3,200 restricted shares in 1997, 1996 and
1995, respectively, under this plan. At December 31, 1997, 17,200 shares have
been issued to non-employee directors under this plan. The weighted average fair
market value per share at the date of grant of shares granted in 1997, 1996 and
1995 was $46.06, $26.57 and $20.38, respectively.
28
The Company's Employees' Restricted Stock Plan was established for
employees who are not officers, for which 200,000 shares of Common Stock have
been reserved. The Company awarded 3,500 restricted shares in 1995. Forfeitures
were 14,600; 8,400 and 1,800 in 1997, 1996 and 1995, respectively. No awards
were made in 1997 or 1996 and no further grants are being made under this plan.
At December 31, 1997, 172,200 shares (net of 24,800 shares forfeited) have been
issued. The weighted average fair market value per share at the date of grant
for shares granted in 1995 was $17.50.
Under the terms of the Company's Career Executive Incentive Stock Plan, 15
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, 1997, 11.7 million shares (net of 2.1 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 not exceeding ten years. 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 1997, 1996 and 1995 were $7.1
million, $6.9 million and $7.0 million, respectively. At December 31, 1997, the
unamortized amount is $44.3 million.
Note 8. Income per share
The Company has adopted Statement of Financial Accounting Standards No.
128, "Earnings per Share," which is effective for periods ending after December
15, 1997. The table below reconciles basic and diluted income from continuing
operations. For the years presented, diluted earnings per share were equivalent
to primary earnings per share previously reported pursuant to Accounting
Principles Board Opinion No. 15.
Millions of dollars and shares except per share data 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------
Income from continuing operations $ 454.4 $ 300.4 $ 249.2
- ---------------------------------------------------------------------------------------------------------
Basic weighted average shares 255.4 249.9 248.3
Effect of common stock equivalents 4.1 2.3 1.1
- ---------------------------------------------------------------------------------------------------------
Diluted weighted average shares 259.5 252.2 249.4
- ---------------------------------------------------------------------------------------------------------
Per share income from continuing operations:
Basic $ 1.78 $ 1.20 $ 1.00
- ---------------------------------------------------------------------------------------------------------
Diluted $ 1.75 $ 1.19 $ 1.00
- ---------------------------------------------------------------------------------------------------------
Options to purchase 1.1 million, 2.6 million and 0.9 million shares of common
stock were outstanding during 1997, 1996 and 1995, respectively, but were not
included in the computation of diluted earnings per share because the option
exercise price was greater than the average market price of the common shares.
During 1995, there were 6.6 million weighted average shares and $12.5 million in
income related to the conversion of the zero coupon convertible debentures that
were excluded from the computation because they were antidilutive.
Note 9. 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 two-hundredth of a share of the Company's
Series A Junior Participating Preferred Stock, without par value, at an exercise
price of $75, 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
29
Stock of the Company, or in certain circumstances, securities of the acquirer,
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 1997 made
the Rights exercisable.
Note 10. Business Segment Information
The Energy Group includes pressure pumping equipment and services, logging
and perforating, drilling systems and services, specialized completion and
production equipment and services and well control. Also included in the Energy
Group are upstream oil and gas, engineering, construction and maintenance
services, integrated exploration and production information systems and
professional services to the petroleum industry. The Engineering and
Construction Group provides engineering, construction, project management,
facilities operation and maintenance, and environmental services for industrial
and governmental customers. The environmental services business was sold in
December 1997.
The Company's equity in income or losses of related companies is included
in revenues and operating income of each applicable segment. Intersegment
revenues included in the revenues of the other business segments are immaterial.
Sales between geographic areas and export sales are also immaterial. General and
administrative expenses were $248.1 million in 1997, $236.6 million in 1996 and
$221.7 million in 1995. General corporate assets are primarily comprised of cash
and equivalents and certain other investments.
30
OPERATIONS BY BUSINESS SEGMENT
Years ended December 31
Millions of dollars 1997 1996 1995
- -----------------------------------------------------------------------------------------------------
Capital expenditures:
Energy Group $ 466.7 $ 313.8 $ 248.1
Engineering and Construction Group 52.3 70.5 55.1
General corporate 58.1 11.4 0.1
-----------------------------------------
Total $ 577.1 $ 395.7 $ 303.3
- -----------------------------------------------------------------------------------------------------
Depreciation and amortization:
Energy Group $ 267.6 $ 228.4 $ 220.2
Engineering and Construction Group 40.7 38.2 38.3
General corporate 1.2 1.3 1.3
-----------------------------------------
Total $ 309.5 $ 267.9 $ 259.8
- -----------------------------------------------------------------------------------------------------
Identifiable assets:
Energy Group $ 3,985.6 $ 2,899.8 $ 2,445.1
Engineering and Construction Group 1,080.8 986.3 873.6
General corporate 536.6 550.5 543.3
-----------------------------------------
Total $ 5,603.0 $ 4,436.6 $ 3,862.0
- -----------------------------------------------------------------------------------------------------
Research and development:
Energy Group $ 163.6 $ 130.7 $ 111.6
Engineering and Construction Group 1.1 2.6 1.5
-----------------------------------------
Total $ 164.7 $ 133.3 $ 113.1
- -----------------------------------------------------------------------------------------------------
OPERATIONS BY GEOGRAPHIC AREA
Years ended December 31
Millions of dollars 1997 1996 1995
- ------------------------------------------------------------------------------------------------------
Revenues:
United States $ 4,238.7 $ 3,953.2 $ 3,255.6
Europe 2,443.2 1,711.1 1,117.7
Latin America 677.0 557.4 529.9
Other areas 1,459.7 1,163.4 979.7
------------------------------------------
Total $ 8,818.6 $ 7,385.1 $ 5,882.9
- ------------------------------------------------------------------------------------------------------
Operating income (loss):
United States $ 617.1 $ 397.5 $ 231.4
Europe 101.2 62.3 3.3
Latin America 37.1 24.7 64.9
Other areas 84.9 53.6 134.8
General corporate and special charges (42.2) (120.2) (33.5)
------------------------------------------
Total $ 798.1 $ 417.9 $ 400.9
- ------------------------------------------------------------------------------------------------------
Identifiable assets:
United States $ 2,238.5 $ 1,994.7 $ 1,872.0
Europe 1,282.4 695.0 528.0
Latin America 456.8 347.3 279.7
Other areas 1,088.7 849.1 639.0
General corporate 536.6 550.5 543.3
------------------------------------------
Total $ 5,603.0 $ 4,436.6 $ 3,862.0
- ------------------------------------------------------------------------------------------------------
31
Note 11. Commitments and Contingencies
Leases. At December 31, 1997, 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 $78.5 million in 1997, $70.8 million in 1996
and $73.7 million in 1995. Future aggregate rentals on noncancelable operating
leases are as follows: 1998, $42.7 million; 1999, $25.3 million; 2000, $16.2
million; 2001, $11.0 million; 2002, $9.2 million; and thereafter, $54.0 million.
Environmental. The Company is involved as a potentially responsible party
(PRP) in remedial activities to clean up several "Superfund" sites under
applicable federal law which imposes joint and several liability, if the harm is
indivisible, on certain persons without regard to fault, the legality of the
original disposal, or ownership of the site. Although it is very difficult to
quantify the potential impact of compliance with environmental protection laws,
management of the Company believes that any liability of the Company with
respect to all but one of such sites will not have a material adverse effect on
the results of operations of the Company. 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 1800s through the mid 1950s 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 1998. Although the
entire Jasper County Superfund Site comprises 237 square miles as listed on the
National Priorities List, in the RI/FS scope of work, the EPA has only
identified seven areas, or subsites, within this area that need to be studied
and then possibly remediated by the PRPs. Additionally, the Administrative Order
on Consent for the RI/FS only requires Brown & Root to perform RI/FS work at one
of the subsites within the site, the Neck/Alba subsite, which only comprises
3.95 square miles. Brown & Root's share of the cost of such a study is not
expected to be material. In addition to the superfund issues, the State of
Missouri has indicated that it may pursue natural resource damage claims against
the PRPs. At the present time Brown & Root cannot determine the extent of its
liability, if any, for remediation costs or natural resource damages on any
reasonably practicable basis.
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 12. 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 selectively 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 two
years or less. Forward exchange contracts (commitments to buy or sell a
specified amount of a foreign currency at a specified price and time) are
generally used to hedge identifiable foreign currency commitments. Losses of
$2.6 million for identifiable foreign currency commitments were deferred at
December 31, 1997. Forward exchange contracts and foreign exchange option
contracts (which convey the right, but not the obligation, to sell or buy a
specified amount of foreign currency at a specified price) are generally used to
hedge foreign currency commitments with an indeterminable maturity date. None of
the forward or option contracts are exchange traded.
32
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 favorable fluctuations in foreign exchange rates. The notional amounts of
open forward contracts and options were $331.8 million and $161.1 million at
December 31, 1997 and 1996, 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 and adjusts the amounts hedged as appropriate.
Exposures to certain currencies are generally not hedged due primarily to
the lack of available 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.
Credit Risk. Financial instruments which potentially subject the Company to
concentrations of credit risk are primarily cash equivalents, investments and
trade receivables. It is the Company's practice to place its cash equivalents
and investments in high quality securities with various investment institutions.
The Company derives the majority of its revenues from sales and services to,
including engineering and construction for, the energy industry. Within the
energy industry, trade receivables are generated from a broad and diverse group
of customers. There are concentrations of receivables in the United States and
the United Kingdom. The Company maintains an allowance for losses based upon the
expected collectibility of all trade accounts receivable.
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.
Fair Value of Financial Instruments. The estimated fair value of long-term
debt at December 31, 1997 and 1996 was $600.0 million and $229.6 million,
respectively, as compared to the carrying amount of $546.0 million at December
31, 1997 and $200.1 million at December 31, 1996. The fair value of fixed rate
long-term debt is based on quoted market prices for those or similar
instruments. The carrying amount of variable rate long-term debt and restricted
cash (see Note 6) approximates fair value because such instruments reflect
market changes to interest rates. The carrying amount of short-term financial
instruments (cash and equivalents, receivables, short-term notes payable and
accounts payable) as reflected in the consolidated balance sheets approximates
fair value due to the short maturities of these instruments. The fair value of
currency derivative instruments, which generally approximates the carrying
amount, was $6.4 million and $27.3 million payable and $8.2 million and $28.7
million receivable at December 31, 1997 and 1996, respectively, based upon third
party quotes.
Note 13. Retirement Plans
Retirement Plans. The Company has various retirement plans which cover a
significant number of its employees. The major retirement plans are defined
contribution plans, which provide retirement contributions in return for
services rendered, provide an individual account for each participant and have
terms that specify how contributions to the participant's account are to be
determined rather than the amount of pension benefits the participant is to
receive. Contributions to these plans are based on pre-tax income and/or
discretionary amounts determined on an annual basis. The Company's expense for
the defined contribution plans totaled $166.7 million, $114.2 million and $95.1
million in 1997, 1996 and 1995, respectively. Other retirement 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 sizable reductions in the number of employees in
1995, curtailment gains of $1.3 million are reflected in the net amortization
and deferral component of net periodic pension cost for 1995. 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
33
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 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------
Return on plan assets:
United States plans 8.5% 8% to 8.5% 8.5%
International plans 7% 9% 6.5% to 9%
Discount rate:
United States plans 7.25% 7% to 7.75% 7% to 7.25%
International plans 7% to 7.5% 7% to 8.5% 4% to 8.5%
Compensation increase:
United States plans 4.5% 4.5% 4%
International plans 4.25% to 5% 4.3% to 6% 1% to 6%
- ----------------------------------------------------------------------------------------------------------------------
The net periodic pension cost (benefit) for defined benefit plans is as
follows:
Millions of dollars 1997 1996 1995
- ------------------------------------------------------------------------------------------------
Service cost - benefits earned during period $ 35.3 $ 15.8 $ 9.6
Interest cost on projected benefit obligation 85.1 29.9 27.5
Actual return on plan assets (207.3) (61.0) (46.8)
Net amortization and deferral 92.4 13.7 12.7
------------------------------------
Net periodic pension cost (benefit) $ 5.5 $ (1.6) $ 3.0
- ------------------------------------------------------------------------------------------------
The reconciliation of the funded status for defined benefit plans where
assets exceed accumulated benefits is as follows:
Millions of dollars 1997 1996
- --------------------------------------------------------------------------------------
Actuarial present value of benefit obligations:
Vested $ (1,216.5) $ (351.9)
- --------------------------------------------------------------------------------------
Accumulated benefit obligation $ (1,224.1) $ (358.4)
- --------------------------------------------------------------------------------------
Projected benefit obligation $ (1,331.1) $ (388.6)
Plan assets at fair value 1,481.6 522.0
--------------------------
Funded status 150.5 133.4
Unrecognized prior service cost 2.3 2.7
Unrecognized net gain (148.6) (133.2)
Unrecognized net transition (asset) obligation (2.4) (3.9)
--------------------------
Net prepaid (accrued) pension cost $ 1.8 $ (1.0)
- --------------------------------------------------------------------------------------
Included in the 1997 reconciliation of the funded status for defined
benefit plans where assets exceed accumulated benefits are the benefit
obligations and plan assets associated with Devonport Management Limited, the
Company's 51% owned subsidiary. See Note 15.
34
The reconciliation of the funded status for defined benefit plans where
accumulated benefits exceed assets is as follows:
Millions of dollars 1997 1996
- ------------------------------------------------------------------------------------
Actuarial present value of benefit obligations:
Vested $ (4.3) $ (2.5)
- ------------------------------------------------------------------------------------
Accumulated benefit obligation $ (7.1) $ (6.3)
- ------------------------------------------------------------------------------------
Projected benefit obligation $ (7.8) $ (6.9)
------------------------
Funded status (7.8) (6.9)
Unrecognized net gain (5.5) (6.0)
------------------------
Net accrued pension cost $ (13.3) $ (12.9)
- ------------------------------------------------------------------------------------
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 7.25% in 1997, 7.75% in 1996 and 7% in 1995.
Net periodic postretirement benefit cost is as follows:
Millions of dollars 1997 1996 1995
- -------------------------------------------------------------------------------------------------
Service cost - benefits attributed to service during the period $ 0.5 $ 0.5 $ 0.5
Interest cost on accumulated postretirement benefit obligation 1.5 1.6 2.1
Net amortization and deferral (1.3) (1.2) (1.0)
--------------------------------
Net periodic postretirement cost $ 0.7 $ 0.9 $ 1.6
- -------------------------------------------------------------------------------------------------
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,
1997 and 1996 is as follows:
Millions of dollars 1997 1996
- -----------------------------------------------------------------------------------------
Accumulated postretirement benefit obligation:
Retirees and related beneficiaries $ 12.3 $ 12.7
Fully eligible active plan participants 2.6 2.4
Other active plan participants not fully eligible 7.5 6.4
------------------------
Accumulated postretirement benefit obligation 22.4 21.5
Unrecognized prior service cost 6.3 7.4
Unrecognized gain 7.4 9.1
------------------------
Net postretirement liability $ 36.1 $ 38.0
- -----------------------------------------------------------------------------------------
35
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 (pre-split) 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
- ---------------------------------------------------------------------------
Revenues $ 252.6
- ---------------------------------------------------------------------------
Loss before income taxes $ (126.3)
Benefit for income taxes 67.5
Loss on disposition (7.6)
Benefit for income taxes 0.9
---------------
Loss from discontinued operations $ (65.5)
- ---------------------------------------------------------------------------
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)
- ---------------------------------------------------------------------------------------------
In the third quarter of 1995, 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 allowed HIGI to retain its tax basis and the value of its
deferred tax asset.
Note 15. Acquisitions and Dispositions
See Note 14 regarding the disposition of the Company's insurance segment.
During March 1997, the Devonport management consortium, Devonport
Management Limited (DML), which is 51% owned by the Company, completed the
acquisition of Devonport Royal Dockyard plc, which owns and operates the
Government of the United Kingdom's Royal Dockyard in Plymouth, England, for
approximately $64.9 million. Concurrent with the acquisition of the Royal
36
Dockyard, the Company's ownership interest in DML increased from about 30% to
51% and DML borrowed $56.3 million under term loans. The dockyard principally
provides repair and refitting services for the British Royal Navy's fleet of
submarines and surface ships.
During April 1997, the Company completed its acquisition of the outstanding
common stock of OGC International plc (OGC) for approximately $118.3 million.
OGC is engaged in providing a variety of engineering, operations and maintenance
services, primarily to the North Sea oil and gas production industry.
During July 1997, the Company acquired all of the outstanding common stock
and convertible debentures of Kinhill Holdings Limited (Kinhill) for
approximately $34 million. Kinhill, headquartered in Australia, provides
engineering in mining and minerals processing, petroleum and chemicals, water
and wastewater, transportation and commercial and civil infrastructure. Kinhill
markets its services primarily in Australia, Indonesia, Thailand, Singapore,
India and the Philippines.
In 1997, the Company recorded approximately $99.1 million excess of cost
over net assets acquired primarily related to the purchase acquisitions of OGC
and Kinhill.
On September 30, 1997, the Company completed its acquisition of NUMAR
through the merger of a subsidiary of the Company with and into NUMAR, the
conversion of the outstanding NUMAR common stock into an aggregate of
approximately 8.2 million shares of common stock of the Company and the
assumption by the Company of the outstanding NUMAR stock options (for the
exercise of which the Company has reserved an aggregate of approximately 0.9
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. The Company has not restated its financial
statements to include NUMAR's historical operating results because they were not
material to the Company. NUMAR's assets and liabilities on September 30, 1997
were included in the Company's accounts of the same date, resulting in an
increase in net assets of $21.3 million. Headquartered in Malvern, Pennsylvania,
NUMAR designs, manufactures and markets the Magnetic Resonance Imaging Logging
(MRIL(R)) tool which utilizes magnetic resonance imaging technology to evaluate
subsurface rock formations in newly drilled oil and gas wells.
In October 1997, the Company announced it had reached an agreement to sell
its environmental services business to Tetra Tech, Inc. for approximately $32
million. The transaction was completed on December 31, 1997. The sale was
prompted by the Company's desire to divest non-core businesses and had no
significant effect on net income for the year.
In October 1996, the Company completed its acquisition of 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 20.4
million shares of common stock of the Company (after giving effect to the
Company's two-for-one stock split) and the assumption by the Company of the
outstanding Landmark stock options. The merger qualified as a tax-free exchange
and was accounted for using the pooling of interests method of accounting for
business combinations. The Company's financial statements have been restated to
include the results of Landmark for all periods presented prior to the date of
acquisition.
Prior to the merger, Landmark had a fiscal year-end of June 30. Landmark's
results have been restated to conform with Halliburton Company's calendar
year-end. Combined and separate results of Halliburton and Landmark for the
periods preceding the merger were as follows:
Nine Months Ended Twelve Months Ended
Millions of dollars September 30, 1996 December 31, 1995
- --------------------------------------------------------------------------------------------------
Revenues:
Halliburton $ 5,251.5 $ 5,698.7
Landmark 143.9 184.2
-------------------------------------------
Combined $ 5,395.4 $ 5,882.9
- -----------------------------------------------------------------------------------------------
Net Income:
Halliburton $ 201.2 $ 168.3
Landmark (8.4) 15.4
-------------------------------------------
Combined $ 192.8 $ 183.7
- -----------------------------------------------------------------------------------------------
37
Note 16. Special Charges
In September 1997, the Company recorded special charges of $8.6 million
(also $8.6 million after tax) for transaction costs incurred by the Company and
NUMAR to complete the merger of a subsidiary of the Company with and into NUMAR.
The Company settled these obligations during the fourth quarter of 1997 with
funds provided by operations.
During September 1996, the Company recorded special charges of $65.3
million ($42.7 million after tax), which included provisions of $41.0 million to
terminate approximately one thousand employees related to reorganization efforts
by the Engineering and Construction Group and plans to combine various
administrative support functions into combined shared services for the Company;
$20.2 million to restructure certain Engineering and Construction Group
businesses, provide for excess lease space and other items; and $4.1 million
($3.5 million after tax) for costs related to the acquisition of Landmark. The
Company has substantially completed its reorganization plans initiated during
the third quarter of 1996. Approximately $57.6 million has been charged or
allocated to this reserve with the remaining amount to be charged over the
remaining term of excess leases through August 2003.
In September 1996, Landmark recorded special charges of $8.3 million ($7.6
million after tax) for costs incurred for merging with the Company. During 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 related redundant assets and activities.
The special charges to net income in the third quarter of 1996 were offset
by tax credits during the same 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 were utilized in the 1996 tax year. 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 1995, Landmark recorded special charges of $8.4 million, primarily for
the write-off of research and development activities of acquired companies,
merger costs and restructuring charges.
38
Halliburton Company
Selected Financial Data
Millions of dollars and shares except per share and employee data
Years ended December 31
-------------------------------------------------------------
1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------
Operating results
Net revenues
Energy Group $ 5,756.4 $ 4,286.3 $ 3,604.0 $ 3,364.0
Engineering and Construction Group 3,062.2 3,098.8 2,278.9 2,297.1
- ------------------------------------------------------------------------------------------------------------------
Total revenues $ 8,818.6 $ 7,385.1 $ 5,882.9 $ 5,661.1
- ------------------------------------------------------------------------------------------------------------------
Operating income (loss)
Energy Group $ 706.4 $ 484.4 $ 398.2 $ 264.1
Engineering and Construction Group 133.9 53.7 44.6 15.2
Special charges (a) (8.6) (85.8) (8.4) (16.6)
General corporate (33.6) (34.4) (33.5) (22.9)
- ------------------------------------------------------------------------------------------------------------------
Total operating income (loss) (a) 798.1 417.9 400.9 239.8
Nonoperating income (expense), net (31.8) (13.7) (13.1) 58.0
- ------------------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations
before income taxes and minority interest 766.3 404.2 387.8 297.8
Benefit (provision) for income taxes (b) (300.0) (103.3) (137.7) (122.2)
Minority interest in net (income) loss of
consolidated subsidiaries (11.9) (0.5) (0.9) (0.2)
- ------------------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations $ 454.4 $ 300.4 $ 249.2 $ 175.4
- ------------------------------------------------------------------------------------------------------------------
Basic income (loss) per share
Continuing operations $ 1.78 $ 1.20 $ 1.00 $ 0.71
Net income (loss) 1.78 1.20 0.74 0.73
Diluted income (loss) per share
Continuing operations 1.75 1.19 1.00 0.71
Net income (loss) 1.75 1.19 0.74 0.73
Cash dividends per share (c) 0.50 0.50 0.50 0.50
Return on average shareholders' equity 19.2% 14.7% 9.2% 8.8%
- ------------------------------------------------------------------------------------------------------------------
Financial position
Net working capital $ 1,198.7 $ 893.3 $ 987.9 $ 1,366.5
Total assets 5,603.0 4,436.6 3,862.0 4,197.4
Property, plant and equipment 1,662.7 1,291.6 1,157.9 1,117.4
Long-term debt (including current maturities) 546.0 200.1 205.2 655.7
Shareholders' equity 2,584.7 2,159.2 1,920.2 2,090.2
Total capitalization 3,133.4 2,405.6 2,130.2 2,776.6
Shareholders' equity per share (c) 9.85 8.62 7.71 8.44
Average common shares outstanding (basic) (c) 255.4 249.9 248.3 247.8
Average common shares outstanding (diluted) (c) 259.5 252.2 249.4 248.4
- ------------------------------------------------------------------------------------------------------------------
Other financial data
Cash flows from operating activities $ 548.2 $ 452.0 $ 667.4 $ 439.0
Capital expenditures 577.1 395.7 303.3 245.0
Long-term borrowings (repayments), net 283.8 (5.1) (465.4) (74.4)
Depreciation and amortization expense 309.5 267.9 259.8 271.3
Payroll and employee benefits 3,785.7 3,112.7 2,775.0 2,878.8
Number of employees (d) 70,750 60,000 58,400 57,300
39
Halliburton Company
Selected Financial Data
Millions of dollars and shares except per share and employee data
Years ended December 31
--------------------------------------------------------------
1993 1992 1991 1990
- ----------------------------------------------------------------------------------------------------------------
Operating results
Net revenues
Energy Group $ 3,765.1 $ 3,536.9 $ 3,652.4 $ 3,551.0
Engineering and Construction Group 2,459.6 2,848.1 3,124.6 3,105.4
- -----------------------------------------------------------------------------------------------------------------
Total revenues $ 6,224.7 $ 6,385.0 $ 6,777.0 $ 6,656.4
- -----------------------------------------------------------------------------------------------------------------
Operating income (loss)
Energy Group $ 253.1 $ 205.1 $ 233.9 $ 327.6
Engineering and Construction Group 13.3 (19.3) 9.7 33.8
Special charges (a) (321.8) (272.9) (118.5) -
General corporate (22.0) (21.0) (21.8) (19.9)
- -----------------------------------------------------------------------------------------------------------------
Total operating income (loss) (a) (77.4) (108.1) 103.3 341.5
Nonoperating income (expense), net (55.0) (37.2) (0.7) 17.1
- -----------------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations
before income taxes and minority interest (132.4) (145.3) 102.6 358.6
Benefit (provision) for income taxes 3.0 1.1 (76.5) (167.0)
Minority interest in net (income) loss of
consolidated subsidiaries 1.5 1.7 (2.6) (2.6)
- -----------------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations $ (127.9) $ (142.5) $ 23.5 $ 189.0
- -----------------------------------------------------------------------------------------------------------------
Basic income (loss) per share
Continuing operations $ (0.53) $ (0.62) $ 0.10 $ 0.83
Net income (loss) (0.61) (0.63) 0.17 0.89
Diluted income (loss) per share
Continuing operations (0.53) (0.62) 0.10 0.83
Net income (loss) (0.61) (0.63) 0.17 0.89
Cash dividends per share (c) 0.50 0.50 0.50 0.50
Return on average shareholders' equity (7.4)% (6.9)% 1.7% 9.1%
- -----------------------------------------------------------------------------------------------------------------
Financial position
Net working capital $ 1,217.7 $ 1,150.0 $ 1,304.6 $ 1,154.0
Total assets 4,318.6 4,185.3 4,480.6 3,971.7
Property, plant and equipment 1,189.3 1,214.6 1,204.6 1,028.2
Long-term debt (including current maturities) 637.4 657.8 654.9 192.0
Shareholders' equity 2,023.5 1,982.8 2,248.6 2,316.7
Total capitalization 2,752.9 2,641.3 2,914.3 2,514.6
Shareholders' equity per share (c) 8.19 8.62 9.80 10.12
Average common shares outstanding (basic) (c) 241.5 230.0 229.2 228.6
Average common shares outstanding (diluted) (c) 241.5 230.0 229.2 228.6
- -----------------------------------------------------------------------------------------------------------------
Other financial data
Cash flows from operating activities $ 293.0 $ 449.9 $ 294.7 $ 127.0
Capital expenditures 270.5 322.8 430.1 342.9
Long-term borrowings (repayments), net (44.7) (16.3) 440.6 (9.0)
Depreciation and amortization expense 459.8 366.9 300.2 254.4
Payroll and employee benefits 3,141.9 3,373.3 3,286.8 3,043.4
Number of employees (d) 64,600 69,000 72,700 76,600
40
(a) Operating income (loss) includes the following special charges: in 1997,
$8.6 million related to acquisition costs; 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.
(b) 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.
(c) Weighted average shares, cash dividends paid per share and shareholders'
equity per share have been restated to reflect the two-for-one common stock
split declared on June 9, 1997, and effected in the form of a stock
dividend and paid on July 21, 1997.
(d) Does not include employees of 50% or less owned affiliated companies.
41
Quarterly Data and Market Price Information
Quarter
Millions of dollars except per share data -----------------------------------------------------
(unaudited) First Second Third Fourth Year
- -----------------------------------------------------------------------------------------------------------------------
1997
Revenues $ 1,897.5 $ 2,231.1 $ 2,304.7 $ 2,385.3 $ 8,818.6
Operating income 138.7 182.0 217.0 260.4 798.1
Net income 83.0 101.9 121.1 148.4 454.4
Earnings per share: (1), (2)
Basic net income per share 0.33 0.40 0.48 0.57 1.78
Diluted net income per share 0.32 0.40 0.47 0.56 1.75
Cash dividends paid per share (2) 0.125 0.125 0.125 0.125 0.50
Common stock prices (2), (3)
High 36.69 41.00 52.88 62.69 62.69
Low 30.00 32.06 42.00 47.25 30.00
1996
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 45.5 71.8 75.5 107.6 300.4
Earnings per share: (1), (2)
Basic net income per share 0.18 0.29 0.30 0.43 1.20
Diluted net income per share 0.18 0.29 0.30 0.43 1.19
Cash dividends paid per share (2) 0.125 0.125 0.125 0.125 0.50
Common stock prices (2), (3)
High 29.19 29.38 28.63 31.44 31.44
Low 22.88 25.00 25.38 25.94 22.88
(1) Presented in accordance with Statement of Financial Accounting Standards No. 128.
(2) Amounts presented reflect the two-for-one common stock split declared on
June 9, 1997, and effected in the form of a stock dividend and paid on July
21, 1997.
(3) New York Stock Exchange - composite transactions high and low closing stock prices.
42
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
24, 1998, under the caption "Election of Directors." The information required
for the executive officers of the registrant is included under Part I, under the
caption "Executive Officers of the Registrant" on page 5 of this annual report.
Item 11. Executive Compensation.
This information is incorporated by reference to the Halliburton Company
Proxy Statement dated March 24, 1998, 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 Employment
and Change-in-Control Arrangements" and "Directors' Compensation, Restricted
Stock Plan and Retirement Plan."
Item 12. Security Ownership of Certain Beneficial Owners and Management.
This information is incorporated by reference to the Halliburton Company
Proxy Statement dated March 24, 1998, under the caption "Stock Ownership of
Certain Beneficial Owners and Management."
Item 13. Certain Relationships and Related Transactions.
Not applicable.
43
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 14 through 38 of this annual report. See index on
page 6.
2.Financial Statement Schedules: Page No.
Report on supplemental schedule of Arthur Andersen LLP.............49
Schedule II - Valuation and qualifying accounts for the
three years ended December 31, 1997................................50
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) Restated Certificate of Incorporation of the Company
(incorporated by reference to the Company's Registration
Statement on Form S-3 File No. 333-32731 filed with the
Securities and Exchange Commission on August 1, 1997).
3(b) By-laws of the Company, as amended (incorporated by reference
to the Company's Registration Statement on Form S-3 File No.
333-32731 filed with the Securities and Exchange Commission on
August 1, 1997).
4(a) Subordinated Indenture dated as of January 2, 1991 between
Halliburton Company, now known as Halliburton Energy Services,
Inc. (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).
44
3. Exhibits: (continued)
Exhibit
Number Exhibits
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).
4(e) Form of debt security of 6.75% 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, 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) Restated 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(i) Copies of instruments which define the rights of holders of
miscellaneous long-term notes of the Registrant and its
subsidiaries, totaling $46.0 million in the aggregate at
December 31, 1997, have not been filed with the Commission.
The registrant agrees herewith to furnish copies of such
instruments upon request.
4(j) Form of debt security of 7.53% Notes due May 12, 2017
(incorporated by reference to Exhibit 4.4 to the Company's
Form 10-Q for the quarterly period ended March 31, 1997).
4(k) Form of debt security of 6.27% Notes due July 8, 1999
(incorporated by reference to Exhibit 4.1 to the Company's
Form 8-K dated as of July 8, 1997).
4(l) Form of debt security of 6.30% Notes due August 5, 2002
(incorporated by reference to Exhibit 4.1 to the Company's
Form 8-K dated as of August 5, 1997).
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 (incorporated by
reference to Exhibit 10(c) to the Company's Annual Report on
Form 10-K for the year ended December 31, 1996).
45
3. Exhibits: (continued)
Exhibit
Number Exhibits
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 July 22, 1997.
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 (incorporated by reference to
Exhibit 10(h) to the Company's Annual Report on Form 10-K for
the year ended December 31, 1996).
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
(incorporated by reference to Exhibit 10(j) to the Company's
Annual Report on Form 10-K for the year ended December 31,
1996).
10(k) Halliburton Company Annual Performance Plan, as amended and
restated effective January 1, 1997 (incorporated by reference
to Exhibit 10(k) to the Company's Annual Report on Form 10-K
for the year ended December 31, 1996).
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 (incorporated by reference to
Exhibit 10(m) to the Company's Annual Report on Form 10-K for
the year ended December 31, 1996).
10(n)* Halliburton Company 1993 Stock and Long-Term Incentive Plan,
as amended and restated February 19, 1998.
11* Computation of earnings per share.
21* Subsidiaries of the registrant.
23* Consent of Arthur Andersen LLP.
46
3. Exhibits: (continued)
Exhibit
Number Exhibits
24(a) Powers of attorney for the following directors signed in
February, 1997 (incorporated by reference to the Company's
Annual Report on Form 10-K for the year ended December 31,
1996):
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
24(b)* Power of attorney signed in December 1997 for Charles J.
DiBona.
27* Financial data schedules for the registrant (filed
electronically).
* Filed with this annual report
47
(b) Reports on Form 8-K:
During the fourth quarter of 1997:
A Current Report on Form 8-K dated October 20, 1997, was filed reporting
on Item 5. Other Events, regarding a press release dated October 20, 1997,
announcing the agreement to sell the environmental services business.
A Current Report on Form 8-K dated October 22, 1997, was filed reporting
on Item 5. Other Events, regarding a press release dated October 22, 1997,
announcing third quarter earnings.
A Current Report on Form 8-K dated October 30, 1997, was filed reporting
on Item 5. Other Events, regarding a press release dated October 30, 1997,
announcing fourth quarter dividend.
A Current Report on Form 8-K dated October 30, 1997, was filed reporting
on Item 5. Other Events, regarding a press release dated October 30, 1997,
announcing award of a pipeline construction contract to a joint venture of
the Company's Brown & Root Energy Services unit.
A Current Report on Form 8-K dated November 19, 1997, was filed reporting
on Item 5. Other Events, regarding a press release dated November 19,
1997, announcing officer appointment at its Halliburton Energy Services
business unit.
A Current Report on Form 8-K dated December 8, 1997, was filed reporting
on Item 5. Other Events, regarding a press release dated December 8, 1997
announcing the election of a member to its Board of Directors.
A Current Report on Form 8-K dated December 31, 1997, was filed reporting
on Item 5. Other Events, regarding a press release dated December 31,
1997, announcing the completion of the sale of its environmental services
unit.
During the first quarter of 1998 to the date hereof:
A Current Report on Form 8-K dated January 22, 1998, was filed reporting
on Item 5. Other Events, regarding a press release dated January 22, 1998,
announcing fourth quarter earnings.
A Current Report on Form 8-K dated February 17, 1998, was filed reporting
on Item 5. Other Events, regarding two press releases dated February 17,
1998, announcing it will provide a wide range of services as part of the
Terra Nova Alliance for Petro-Canada and the Terra Nova development and an
alliance agreement at Elk Hills between two of its business units with
Occidental.
A Current Report on Form 8-K dated February 19, 1998, was filed reporting
on Item 5. Other Events, regarding a press release dated February 19,
1998, announcing first quarter 1998 dividend declaration and shareholders
annual meeting.
48
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON
SUPPLEMENTAL SCHEDULE
To Halliburton Company:
We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements included in this Form 10-K, and have
issued our report thereon dated January 22, 1998. Our audits were made for the
purpose of forming an opinion on the basic consolidated financial statements
taken as a whole. The supplemental schedule (Schedule II) is the responsibility
of Halliburton Company's management and is presented for purposes of complying
with the Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in our audits of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
Dallas, Texas,
January 22, 1998
49
HALLIBURTON COMPANY
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(MILLIONS OF DOLLARS)
Additions
-------------------------------
Balance at Charged to Charged to Balance at
Beginning Costs and Other End of
Descriptions of Period Expenses Accounts Deductions (A) Period
- ----------------------------------------- ---------------- ----------------- ------------ ------------------ -----------------
Year ended December 31, 1997:
Allowance for bad debts $ 43.6 $ 8.7 $ - $ 13.9 $ 38.4
- ----------------------------------------- ---------------- ----------------- ------------ ------------------ -----------------
Year ended December 31, 1996:
Allowance for bad debts $ 38.1 $ 12.6 $ - $ 7.1 $ 43.6
- ----------------------------------------- ---------------- ----------------- ------------ ------------------ -----------------
Year ended December 31, 1995:
Allowance for bad debts $ 36.4 $ 7.9 $ - $ 6.2 $ 38.1
- ----------------------------------------- ---------------- ----------------- ------------ ------------------ -----------------
(A) Receivable write-offs and reclassifications, net of recoveries.
50
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 23rd day of
February, 1998.
HALLIBURTON COMPANY
By /s/ RICHARD B. CHENEY
---------------------------
Richard B. Cheney
Chairman of the Board 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 23rd day of February, 1998.
Signature Title
/s/ RICHARD B. CHENEY Chairman of the Board and
- ----------------------------- Chief Executive Officer and Director
Richard B. Cheney
/s/ GARY V. MORRIS Executive Vice President and
- ----------------------------- Chief Financial Officer
Gary V. Morris
/s/ R. CHARLES MUCHMORE, JR. Vice President and Controller and
- ----------------------------- Principal Accounting Officer
R. Charles Muchmore, Jr.
51
Signature Title
/s/ *ANNE L. ARMSTRONG Director
- -----------------------------
Anne L. Armstrong
/s/ *LORD CLITHEROE Director
- -----------------------------
Lord Clitheroe
/s/ *ROBERT L. CRANDALL Director
- -----------------------------
Robert L. Crandall
/s/ *CHARLES J. DIBONA Director
- -----------------------------
Charles J. DiBona
/s/ *W. R. HOWELL Director
- -----------------------------
W. R. Howell
/s/ *DALE P. JONES Vice Chairman and Director
- -----------------------------
Dale P. Jones
/s/ *DELANO E. LEWIS Director
- -----------------------------
Delano E. Lewis
/s/ *C. J. SILAS Director
- -----------------------------
C. J. Silas
/s/ *ROGER T. STAUBACH Director
- -----------------------------
Roger T. Staubach
/s/ *RICHARD J. STEGEMEIER Director
- -----------------------------
Richard J. Stegemeier
/s/* SUSAN S. KEITH
- -----------------------------
Susan S. Keith, Attorney-in-fact
52
Index to Exhibits filed with this annual report.
Exhibit
Number Exhibits
- -------- --------
10(e) Halliburton Company 1993 Stock and Long-Term Incentive Plan,
as amended and restated July 22, 1997.
10(n) Halliburton Company 1993 Stock and Long-Term Incentive Plan,
as amended and restated February 19, 1998.
11 Computation of earnings per share.
21 Subsidiaries of the registrant.
23 Consent of Arthur Andersen LLP.
24(b) Power of attorney signed in December 1997 for Charles J.
DiBona.
27 Financial data schedule.
53