UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON,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 DECEMBERFor the fiscal year ended December 31, 19941995

[ ] 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---from to

Commission File Number 1-3492

                               HALLIBURTON COMPANY
             (Exact name of registrant as specified in its charter)

                    DELAWAREDelaware                            73-0271280
           (State or other jurisdiction of            (I.R.S. Employer
            incorporation of organization)           Identification No.)

                     3600 LINCOLN PLAZA, DALLAS, TEXASLincoln Plaza, Dallas, Texas 75201
                    (Address of principal executive offices)
                   TELEPHONE NUMBERTelephone Number - AREA CODEArea 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 
             -------------------                      -----------------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 
Zero coupon convertible subordinated debentures
 due March 13, 2006            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.---10-K.

The aggregate market value of Common Stock held by nonaffiliates on March 21,
1995,February 15,
1996,  determined  using  the per  share  closing  price on the New  York  Stock
Exchange Composite tape of $37.25$54.00 on that date was approximately $4,253,900,000.$6,192,100,000.

As of March 21, 1995,February 15, 1996,  there were 114,199,702114,668,223  shares of Halliburton  Company
Common Stock $2.50 par value per share outstanding.

Portions of the  Halliburton  Company Proxy  Statement dated March 21, 1995,26, 1996, are
incorporated by reference into Part III of this report.

PART I

ITEMItem  1. BUSINESS.

     GENERAL DEVELOPMENT OF BUSINESS -Business.

     General  Development  of Business.  Halliburton  Company (the  Company) was
established in 1919 and incorporated  under the laws of the state of Delaware in
1924. The Company  provides energy  services and  engineering  and  construction
services, and property and casualty insurance
services.  Information  related to acquisitions and dispositions is set forth in
Note 1913 to the financial statements of this Annual Report.
     FINANCIAL INFORMATION ABOUT BUSINESS SEGMENTS -Financial Information About Business Segments.  The Company is comprised of
threetwo business  segments.  See Note 129 to the  financial  statements of this Annual
Report for financial information about these threetwo business segments.
     EnergyDescription  of Services product sales were $307.9 million in 1994, $414.4 million in 1993 and  $437.0 million in 1992.

     DESCRIPTION OF SERVICES AND PRODUCTS -Products.  The  following is a summary  which
briefly describes the Company's services and products for each business segment.
     ENERGY SERVICES: Halliburton  Energy  Services  (Energy  Services)  provides a wide range of
services  and  products usedto provide  integrated  solutions  to  customers  in the
exploration,  development and production of oil and natural gas. Energy Services
operates  worldwide  serving  major oil  companies,  independent  operators  and
national oil companies.  The services and products  provided by Energy  Services
include cementing,  casing equipment and water control services;  completion and
production products;  directional drilling systems,  measurement while drilling,
logging while drilling and mud logging services; open and cased hole logging and
perforating  services  and  logging  and  perforating  products;  well  testing,
reservoir  description and evaluation services,  tubing conveyed well completion
systems and reservoir engineering services;  stimulation,  and sand control services
and tools and coiled  tubing  services;  and wellhead  pressure  control  equipment,  well
control,  hydraulic  workover  and  downhole  video  services.
     In January, 1994, the Company sold
substantially all of its geophysical business. In November, 1994, the Company
sold its natural gas compression business, which was engaged in the sale and
leasing of natural gas compressors and gas processing equipment. In December,
1994, the Company sold substantially all of its U.S. based self-elevating
workover platforms. 
ENGINEERING AND CONSTRUCTION SERVICES: Engineering and Construction  Services (Brown & Root) includes services for
both land and marine activities. Included are technical and economic feasibility
studies, site evaluation, licensing, conceptual design, process design, detailed
engineering,  procurement, project and construction management, construction and
start-up  assistance  of electric  utility  plants,  chemical and  petrochemical
plants, refineries,  pulp and paper mills, metal processing plants, highways and
bridges, subsea construction,  fabrication and installation of subsea pipelines,
offshore platforms, production platform facilities, marine engineering and other
marine related  projects,  contract  maintenance  and operations and maintenance
services  for  both  industry  and  government,  engineering  and  environmental
consulting and waste management services for industry, utilities and government,
and remedial  engineering and  construction  services for hazardous waste sites (Brown & Root). 
INSURANCE SERVICES: Insurance Services provides propertysites.
     Markets  and  casualty
insurance products and services (Highlands Insurance Company).

     MARKETS AND COMPETITION -Competition.  The  Company  is  one of  the  world's  largest
diversified energy services and engineering and construction services companies.
The  Company's  services  and products  are sold in highly  competitive  markets
throughout the world.  Competition in both services and products is based onupon a
combination of price,  service  (including  the ability to deliver  services and
products on an "as needed where needed" basis),  product  quality,  warranty and
technical  proficiency.  Some Energy  Services' and Engineering and Construction
Services'  customers have  indicated a preference  for  integrated  services and
solutions. These integrated services,solutions, in the case of Energy Services, relate to
all phases of  exploration  and  production  of oil and gas, and, in the case of
Engineering  and  Construction  Services,   relate  to  all  phases  of  design,
procurement,  construction,  project  management and  maintenance of a facility.
Demand for these types of integrated  servicessolutions is based  primarily upon quality
of service, technical proficiency and overall price.
     The Company conducts  business  worldwide in over 100 countries.  Since the
market for the  Company's  services  and  products is so large and crosses  many
geographic lines, a meaningful  estimate of the number of competitors  cannot be
made.  The  markets  are,  however,  highly  competitive  with many  substantial
companies  operating  in each  market.  Generally,  the  Company's  services and
products are marketed through its own servicing and sales organizations. A small
percentage  of sales of Energy  Services'  products is made by supply stores and
third-party representatives.
     Operations  in  some  countries  may be  affected  by  unsettled  political
conditions,  expropriation or other governmental  actions,  and exchange control
and currency  problems.  The Company believes the geographic  diversification of
its business  activities reduces the risk that loss of its operations in any one
country  would be material to the  conduct of its  operations  taken as a whole.
Information regarding the Company's exposures to foreign currency  fluctuations,
risk  concentration and financial  instruments used to minimize risk is included
in Note 1511 to the financial statements of this Annual Report.

                                       CUSTOMERS AND BACKLOG -2

     Customers and Backlog.  Substantially  all of the Company's Energy Services
and a significant  portion of Engineering and Construction  Services are related
to the energy industries.industry. In 1995, 1994, and 1993, and 1992, respectively,  75%78%, 77%78% and 79%
of the  Company's  revenues  were derived from the sale of products and services
to,  including  construction  for, the energy industries.industry.  The following  schedule
summarizes the backlog of engineering and construction  projects at December 31,
19941995 and 1993:1994:
1995 1994 1993 ------ ------ (In millions) Firm orders $3,961 $3,780 $3,306 Government orders firm but not yet funded 634 828 863 Letters of intent and contracts awarded but not signed 6 84 43 ------ ------ Total $4,601 $4,692 $4,212 ====== ======
It is estimated that nearly 60%65% of the backlog existing at December 31, 19941995 will be completed during 1995.1996. The Company does not believe that engineering and construction backlog should necessarily be relied on as an indication of future operating results since such backlog figures are subject to substantial fluctuations. Arrangements included in backlog are in many instances extremely complex, nonrepetitive in nature and may fluctuate in contract value. Many contracts do not provide for a fixed amount and are subject to modification or termination by the customer. Due to the size of certain contracts, the termination or modification of any one or more contracts or the addition of other contracts may have a substantial and immediate effect on backlog. Orders for Energy Services are generally placed by customers on the basis of current need. Therefore, backlog of orders for these services and products are not material. RAW MATERIALS - All rawRaw Materials. Raw materials essential to the Company's business are normally readily available. Where the Company is dependent on a single supplier for any materials essential to its business, the Company is confident that it could make satisfactory alternative arrangements in the event of interruption in the supply of such materials. RESEARCH, DEVELOPMENT AND PATENTS -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 131 to the financial statements of this Annual Report. The Company owns a large number of patents and has pending a substantial number of patent applications covering various products and processes. It is also licensed under patents owned by others. The Company does not consider a particular patent or group of patents to be material to the Company's business. SEASONALITY -Seasonality. Weather and natural phenomena can temporarily affect the performance of the Company's services. Winter months in the Northern Hemisphere tend to affect operations negatively, but the widespread geographical locations of the Company's services serve to mitigate the seasonal nature of the Company's business. EMPLOYEES -Employees. At December 31, 19941995 the Company employed approximately 57,20057,300 people of which 21,70023,300 were located outside the United States. REGULATION -Regulation. The Company is subject to various environmental laws and regulations. Compliance with such requirements has neither substantially increased capital expenditures or adversely affected the Company's competitive position, nor materially affected the Company's earnings. The Company does not anticipate any such material adverse effects in the foreseeable future as a result of such existing laws and regulations. Note 1410 to the financial statements of this Annual Report discusses the Company's involvement as a potentially responsible party in remedial activities to clean up various "Superfund" sites. ITEMItem 2. PROPERTIES.Properties. Information relating to lease payments is included in Note 1410 to the financial statements of this Annual Report. The Company's owned and leased facilities, as described below, are suitable and adequate for their intended use. ENERGY SERVICES - Energy Services owns manufacturing facilities covering approximately 3,400,000 square feet. Principal locations of these manufacturing facilities are Davis and Duncan, Oklahoma; Alvarado, Amarillo, Carrollton, Cisco, Fort Worth, Garland, Houston and Mansfield, Texas; Arbroath, Scotland; Reynosa, Mexico; and Jurong, Singapore. The manufacturing facilities at Davis, Amarillo, Cisco, Mansfield and one of four facilitieslocations in Houston were inactiveidle at the end of 1994. One of the two facilities1995. The manufacturing facility in Carrollton was inactive at the end of 1993 andCisco, Texas was sold in 1994.1995. The manufacturing facility in Mansfield, Texas is leased to another company. Energy Services also leases manufacturing facilities covering approximately 96,000 square feet. Principal locations of these facilities are Jurong, Singapore; Basingstoke, England; and Kilwinning, Scotland. Research, development and engineering activities are carried out in owned facilities covering approximately 442,000440,000 square feet in Duncan, Oklahoma; Houston and Carrollton, Texas; and Aberdeen, Scotland; and leased facilities covering approximately 41,000 square feet in Bedford, England; and Leiderdorp, 3 Holland. One of two facilities in Houston was idle at the end of 1995. In addition, service centers, sales offices and field warehouses are operated at approximately 200 locations in the United States, almost all of which are owned, and at approximately 265270 locations outside the United States in both the Eastern and Western Hemispheres. ENGINEERING AND CONSTRUCTION SERVICES - Engineering and Construction Services owns manufacturing facilities covering approximately 441,000 square feet in Houston, Texas, and Edmonton, Canada. The Company leasedCanada of which 388,000 square feet of this manufacturing space in Houston is leased to another Company in 1994.Company. Engineering and Construction Services also owns marine fabrication facilities covering approximately 640 acres in Belle Chasse, Louisiana; Greens Bayou, Texas; Sunda Strait, Indonesia (35% owned); and Nigg and Wick, Scotland. The Harbor Island, Texas facility including approximately 220 acres and part of the Belle Chasse, Louisiana facility consisting of approximately 90 acres were sold during 1994. The remaining approximately 165 acres of the Belle Chasse, Louisiana facility continued to beis idle. Engineering and design, project management and procurement services activities are carried out in owned facilities covering approximately 1,500,0004,800,000 square feet in Houston, Texas; Edmonton, Canada; Leatherhead, England; and Aberdeen, Scotland;Scotland. Approximately 1,000,000 square feet of the Aberdeen facility was leased to another company and 400,000 square feet was idle at the end of 1995. These activities are also carried out at leased facilities covering approximately 2,000,000 square feet in Mobile, Alabama; Alhambra, California; Gaithersburg, Maryland; Aiken, South Carolina; Eastleigh and London, England; Kuala Lumpur, Malaysia; Stavanger, Norway; Singapore; Aberdeen, Scotland; Plzen, Czech Republic; Al Khobar, Saudi Arabia; and Bahrain. In addition, laboratories, servicesservice centers, and sales offices are operated at approximately 30 locations in the United States, almost all of which are leased by the Company, and at approximately 510 foreign locations in both the Eastern and Western Hemispheres. INSURANCE SERVICES - Insurance Services operates from leased facilities in Houston, Texas and London, England covering approximately 130,000 square feet. Insurance Services also operates out of approximately 10 sales and service centers in the United States and 2 international locations in the Eastern Hemisphere which are leased by the Company. GENERAL CORPORATE - General Corporate operates from leased facilities in Dallas, Texas covering approximately 55,000 square feet. The Company also leases approximately 5,500 square feet of space in Washington, D.C. Due to theIn connection with outsourcing of the Company's computer and data processing services, the owned and leased facilities85,000 square foot mainframe processing center in Arlington, Texas covering approximately 85,000 and 36,000 square feet, respectively, will be vacated during 1995 andhas been leased to another company which has the ownedexclusive right to purchase the facility is intended to be sold or leased. ITEMuntil April, 1996. Item 3. LEGAL PROCEEDINGS.Legal Proceedings. Information relating to various commitments and contingencies is described in Note 1410 to the financial statements of this Annual Report. ITEMItem 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.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 1994. ITEM1995. 4 Item 4(A). EXECUTIVE OFFICERS OF THE REGISTRANT.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 Jerry H. Blurton Vice President - Finance,Name and Age Offices Held and Term of Office * Richard B. Cheney Director of Registrant, since September 1991October 1995. (Age 50) Vice55) Chairman of the Board, since January 1996 President and Controller,Chief Executive Officer, since October 1995 Senior Fellow, American Enterprise Institute, 1993 to October 1995 Secretary, U.S. Department of Defense, 1989 to September 19911992 Lester L. Coleman Executive Vice President and General Counsel, (Age 52)53) since May 1993 President of Energy Services Group, September 1991 to May 1993 Executive Vice President of Finance and Corporate Development, January 1988 to September 1991 * Thomas H. Cruikshank Director of Registrant, since May 1977 (Age 63) Chairman of the Board, since June 1989 Chief Executive Officer, since May 1983 * Dale P. Jones Director of Registrant, since December 1988 (Age 58)59) Vice Chairman, since October 1995 President, since June 1989 to October 1995 * Tommy E. Knight President and Chief Executive Officer of (Age 57) Brown & (Age 56) Root, Inc., since May 1992 Executive Vice President - Operations of Brown & Root, Inc, January 1990 to May 1992 * David J. Lesar Executive Vice President and Chief Financial (Age 42) Officer, since August 1995 Executive Vice President of Finance and Administration of Halliburton Energy Services, November 1993 to August 1995 Partner, Arthur Andersen LLP, 1988 to November 1993 * Kenneth R. LeSuer President and Chief Executive Officer of Halliburton (Age 59) Halliburton60) Energy Services, since March 1994 President and Chief Operating Officer of Halliburton Energy Services, May 1993 to March 1994 President and Chief Executive Officer of Halliburton Services, December 1989 to May 1993 * W. Bernard Pieper Chief Operating Officer, since February 1994 (Age 62) Vice Chairman, since May 1992 President and Chief Executive Officer of Brown & Root, Inc. (Subsidiary of the Registrant), July 1990 to May 1992 President and Chief Operating Officer of Brown & Root, Inc., January 1989 to July 1990 * Members of the Executive Committee of the registrant. There are no family relationships between the executive officers of the registrant. 5 PART II ITEMItem 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS.Market for the Registrant's Common Stock and Related Stockholder Matters. The Company's common stock is traded on the New York Stock Exchange, the Stock Exchange of London, and the Swiss Stock Exchanges at Zurich, Geneva, Basel and Lausanne. The Company has initiated proceedings to de-list its common stock from the Toronto Stock 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 4630 of this Annual Report. At December 31, 1994,1995, there were approximately 17,40016,200 shareholders of record. In calculating the number of shareholders, the Company considers clearing agencies and security position listings as one shareholder for each agency or listing. ITEMItem 6. SELECTED FINANCIAL DATA.Selected Financial Data. Information relating to selected financial data is included on page 4731 of this Annual Report. ITEMItem 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.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 87 to 149 of this Annual Report. ITEMItem 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. PAGE NO. --------Financial Statements and Supplementary Data. Page No. Responsibility for Financial Reporting 15Reporting............................ 10 Report of Arthur Andersen LLP, Independent Public Accountants 16Accountants..... 11 Consolidated Statements of Income for the Years Ended December 31, 1995, 1994 1993 and 1992 171993............................. 12 Consolidated Balance Sheets at December 31, 19941995 and 1993 181994......... 13 Consolidated Statements of Cash Flows for the Years Ended December 31, 1995, 1994 1993 and 1992 191993............................. 14 Consolidated Statements of Shareholders' Equity for the Years Ended December 31, 1995, 1994 1993 and 1992 201993................. 15 Notes to Financial Statements 21Statements..................................... 16 to 4529 Quarterly Data and Market Price Information 46Information....................... 30 The related financial statement schedules are included under Part IV, Item 14 of this Annual Report. 6 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION BUSINESS ENVIRONMENT The businessAND OUTLOOK Approximately 80% of the Company is significantly affected by worldwide expenditures ofCompany's revenues are derived from services and products delivered to the energy industries.industry. The Company operates in over 100 countries.countries around the world to provide a variety of energy services and engineering and construction services. Operations in some countries may be affected by unsettled political conditions, expropriation or other governmental actions, and exchange control and currency problems. The Company believes the geographic diversification of its business activities reduces the risk that loss of its operations in any one country would be material to the conduct of its operations taken as a whole. The energy industry. The energy industry has experienced declining selling prices per barrel of oil equivalent, adjusted for inflation, during the past ten years. Per barrel costs of finding, developing and producing hydrocarbons have also declined. This is the result of several factors. Energy companies have restructured to reduce costs. Technological advances such as horizontal drilling, geosteering, logging while drilling, multi-lateral completions, 3-D seismic and coiled tubing applications are decreasing costs, improving well productivity and optimizing the ultimate recovery of hydrocarbon reserves. In addition, there is a trend toward incentive contracts between energy companies and their suppliers, alliances, contracts to produce, outsourcing arrangements and integrated solution approaches in order to reduce costs and share risks and gains from efficiencies. Although in early stages of development, the Company expects that the integrated solutions approach will be a major future growth area. The current outlook based upon published sources is that demand for oil and natural gas will increase with economic growth and that prices for oil and natural gas will be stable near term and increase moderately longer term. One major uncertainty is the potential negative impact on oil prices should Iraq reenter the market. Significant market areas with increasing exploration and development activities include international and the Gulf of Mexico. Services to the energy industry. The operations of Halliburton Energy Servicesthe Company devoted to the energy industry are impacted quickly by short-term increases and decreaseschanges in oil and natural gas development activities in major producing areas throughout the world. These development activities are sensitive to the legislative environmentgovernment actions in the United States and other major producing countries, developments in the Middle East and the impact of these and other events on the pricing of oil and natural gas.gas prices and capital spending for hydrocarbon exploration, development, production, processing and pipeline delivery networks. In response to customer efforts to reduce costs and increase production, the Company has reorganized its operations to reduce its overall service and product delivery costs through increased productivity and cost efficiencies. The operationsCompany has the capability to provide a wide range of services needed to operate an existing oil and natural gas field or a new field and to handle all phases of bringing energy to market, including drilling and completing wells, building pipelines and other means of transportation and building refineries. The Company provides project management, development planning, well construction, production enhancement and production maintenance services to the energy industry through its Energy Services and Engineering and Construction Services segments. Based upon the outlook for the energy industry, the Company expects revenue growth in 1996 with some improvement in operating margins. Other industries served. The remaining 20% of the Company's revenues are subjectderived from engineering, construction, maintenance, environmental services and logistical support services to longer-term economic trendsgovernmental and industrial customers worldwide. According to published sources, these markets are expected to grow 15% to 20% in 1996. These markets are sensitive to changes in the United Stateseconomies of the world, government actions in the major economies and other major countries. A major economic factor is the capital spending plans for hydrocarbon processingby industries and pipeline delivery networks of major oil, natural gas and chemical companiesgovernments throughout the world. Other factors include the capital spending plansThe Company's outlook. The Company's outlook could be negatively impacted by any of the pulpfactors noted above including significant changes in oil and paper industry, environmental laws which require emission standards performance for existinggas prices, world economic and political conditions, and new facilitiesor modified embargoes against oil and governmental spending for militarygas producing countries such as Iran, Iraq, Libya and logistical support by the United States and the United Kingdom. The operations of Insurance Services are impacted by the legislative and legal environment in the United States, interest rates and catastrophic events.Nigeria. RESULTS OF OPERATIONS CONSOLIDATED HIGHLIGHTS Revenues in 1995 were $5,698.7 million, an increase of 3% over 1994 were $5,740.5revenues of $5,510.2 million but a 6% decrease of 10% from 1993 revenues of $6,350.8 million and a 13% decrease from 1992 revenues of $6,565.9$6,094.1 million. Excluding the revenues of the geophysical operations which were divestedbusinesses sold in January 1994, revenues in 1995 increased by 5% over 1994 decreasedrevenues and by 3%1% over 1993 revenues. Approximately 51% of the Company's consolidated revenues were derived from international activities in 1995 compared to 45% in 1994 and 43% in 1993. Consolidated international revenues increased 17% in 1995 over 1994 and 19% over 1993. Energy Services 1995 revenues increased by 4% to $2,623.4 million in 1995 compared to 1994 but declined by 11% from 1993 revenues. Excluding the revenues of businesses sold in 1994, Energy Services 1995 revenues increased by 7% over 1994 and 6% over 1993 primarily due to higher international activity levels, partially offset by 6% from 1992.a decline in the United States. Energy Services revenues per rotary rig, excluding geophysicalthe revenues declinedof businesses sold in 1994, were up by 11% in 1995 over 1994 and up by 6% over 1993. The increases in revenues per rotary rig were accomplished at the same time the rotary rig count declined by 3% in 1995 compared to 19931994 and was the same as 1993. International revenues per rotary rig increased 15% in 1995 over 1994 and 10% over 1993. United States revenues per rotary rig increased 5% in 1995 over 1994 but increased over 1992. Revenueswas down about 1% from 1993. Engineering and Construction Services 1995 revenues increased by 3% to $3,075.3 million in 1995 compared to 1994, but decreased by 2% compared to 1993. 7 Operating income was $383.2 million in 1995 compared to $236.1 million in 1994 and Insurancean operating loss of $91.5 million in 1993. Excluding the special items and businesses sold in 1994 as described below, 1995 operating income increased by 54% over 1994 operating income of $248.4 million and by 68% over 1993 operating income of $227.7 million. Approximately 63% of the Company's consolidated operating income was derived from international activities in 1995 compared to 46% in 1994 and 60% in 1993. Consolidated international operating margins were 8% in 1995 compared to 5% in 1994 and 6% in 1993. Energy Services declined fromoperating income in 1995 was $313.7 million, compared to $191.8 million in 1994 and a loss of $148.4 million in 1993. Excluding the special items and businesses sold in 1994 as described below, operating income in 1995 increased 54% over 1994 and 84% over 1993. Operating income increased in all geographic regions worldwide. Operating margins during 1995, 1994 and 1993 were 12%, 8% and 1992.7%, respectively. The increase in 1995 margins was due to lower indirect costs and international revenue growth. Lower margins in 1994 were due primarily to decreased activities in the North Sea, Middle East and Asia Pacific, market disturbances in Nigeria and Yemen, unsettled economic, political and business conditions in the CIS and pricing pressures in the United States. Engineering and Construction Services operating income in 1995 increased 53% over 1994 and 31% over 1993 to $103.0 million. The increase in 1995 operating income is primarily due to improved performance in international marine construction activities and petrochemical engineering and construction activities in the Middle East. Operating income in 1994 was $235.0includes a $5.0 million compared with operating lossesgain on the sale of $132.6 million in 1993 and $101.4 million in 1992. Excluding the items listed below, operatingan environmental remediation subsidiary.
1994 1993 ------------------------------ ------------------------------ Energy Energy Millions of dollars Consolidated Services Consolidated Services -------------- -------------- -------------- -------------- Operating income before special items and businesses sold in 1994 $ 248.4 $ 204.1 $ 227.7 $ 170.8 Businesses sold in 1994 30.3 30.3 2.6 2.6 -------------- -------------- -------------- -------------- 278.7 234.4 230.3 173.4 Employee severance costs (42.6) (42.6) (20.0) (20.0) Loss on sale of geophysical business - - (301.8) (301.8) -------------- -------------- -------------- -------------- Operating income (loss) $ 236.1 $ 191.8 $ (91.5) $ (148.4) ============== ============== ============== ==============
Businesses sold in 1994 increased by 9% overwere the geophysical products and services business, natural gas compression business and the workover platform business. Special items recognized in 1994 and 1993 and by 32% over 1992. Most of the increase in operating income, excluding the items listed below, was from Energy Services.are as follows: In 1994, the Company sold its natural gas compression business and recognized a $102.0 million gain in other nonoperating income ($64.3 million net of income taxes). In addition, the Company recognized a $42.6 million charge against Energy Services operating income ($27.7 million net of income taxes) to recognize severance costs for the termination of about 2,700 employees. See Note 17 to the consolidated financial statements.The terminations mostly impacted middle and senior management levels and various product line support and general and administrative employees. In 1993, the Company recognized a $301.8 million charge against Energy Services operating income ($263.8 million net of income taxes) to reflect the net realizable value of the Company's geophysical operations which were disposed of in January 1994. See Note 19 to the consolidated financial statements. The Company also provided a $20.0 million charge in 1993 ($13.0 million net of income taxes) related to Energy Services non-geophysical employee severance costs. In addition, the Company provided a $46.3 million charge in 1993 and a $21.0 million charge in 1992 ($33.9 million and $17.4 million net ofThe provision for income taxes in 1993 and 1992) related to claims loss reserves on its United Kingdom insurance business in each year and expenses for the suspension of underwriting activities in 1993 of the Insurance Services United Kingdom subsidiary. See Note 11 to the consolidated financial statements. See Note 18 to the financial statements for a description of special charges in Energy Services and Engineering and Construction Services in 1992 which provided for the closing and consolidating of certain operating facilities, globalizing employee benefits and personnel reductions, relocations and associated employee benefits costs, technological obsolescence of certain inventories and equipment related to the introduction of new technologies, realignment of worldwide manufacturing capabilities, write-down of certain investments in operations which are no longer in the Company's long-term strategic interest, reduction in certain intangible assets, and other items.
Millions of dollars 1994 1993 1992 ------- ------- ------- Operating income before special items and operations of the geophysical business $ 277.6 $ 255.6 $ 210.8 Divested geophysical operations - (20.1) (26.6) ------- ------- ------- 277.6 235.5 184.2 Employee severance costs (42.6) (20.0) - Loss on sale of geophysical business in 1994 - (301.8) - Claim loss reserves and suspension of underwriting activities in the United Kingdom - (46.3) (21.0) Special charges - - (264.6) ------- ------- ------- Operating income (loss) $ 235.0 $(132.6) $(101.4) ======= ======= =======
Consolidated net income for 1994 was $177.8 million compared to net losses of $161.0 million in 1993 and $137.3 million in 1992. Excluding the items listed below, net income would have been $141.2 million in 1994, $123.2 million in 1993 and $99.7 million in 1992. Net income per share in 1994 was $1.56, compared to a loss per share of $1.43 in 1993 and a loss per share of $1.28 in 1992. Excluding the items listed above, net income per share would have been $1.24 per share in 1994, $1.10 in 1993 and $.93 in 1992.
Millions of dollars 1994 1993 1992 ------- ------- ------- Net income before special items and operations of the geophysical business $ 141.2 $ 123.2 $ 99.7 Divested geophysical operations - (20.3) (35.7) ------- ------- ------- 141.2 102.9 64.0 Gain on sale of natural gas compression business 64.3 - - Employee severance costs (27.7) (13.0) - Loss on sale of geophysical business in 1994 - (263.8) - Claim loss reserves and suspension of underwriting activities in the United Kingdom - (33.9) (17.4) Internal Revenue Service settlement - 40.4 - Change in Federal income tax laws - 6.4 - Special charges - - (185.8) Gain on sale of Health Economics Corporation - - 9.0 Interest on income tax refunds - - 6.7 Changes in accounting methods - - (13.8) ------- ------- ------- Net income (loss) $ 177.8 $(161.0) $(137.3) ======= ======= =======
ENERGY SERVICES In 1993, the Company reorganized the ten separate business units of Energy Services into a single division. The objectives of the reorganization were to deliver services and products more focused on the specific needs of its customers in each geographical area, integrate products, services and processes to deliver integrated services and solutions to customers, more easily adapt to changes in market sizes and locations, and, as a result, produce acceptable operating results and cash flows. This reorganization enabled the Company to reduce the number of Energy Services employees during 1994. In addition, the Company adopted a performance measurement and, for 1995, an incentive compensation plan based upon cash flows and shareholder value creation. The reduced cost structure, improvements in delivery of products and services to customers, and organizational efficiencies improved Energy Services operating profit performance in 1994 to the highest level since 1990. Recently, the price of natural gas declined and is expected to remain below 1994 price levels during 1995. A decline in natural gas prices tends to reduce exploration and on-land drilling activities in North America quickly, while North American offshore activities are impacted if a decline in prices is sustained over a longer period of time. During this same time period, the price of oil has risen. The net result of these factors should reduce the demand for energy services and products in North America, but increase the demand internationally. As a result, the Company expects the demand for Energy Services in 1995 to be about the same as 1994 or slightly lower. However, Energy Services will continue to benefit from its reduced cost structure and operational customer focus. Revenues in 1994 were $2,514.0 million, a 15% decrease from 1993 revenues of $2,953.4 million and an 8% decrease from 1992 revenues of $2,726.3 million. Excluding the revenues of the divested geophysical operations, revenues in 1994 decreased by 1% from 1993, but increased by 11% over 1992. The decrease in revenues in 1994 from 1993 relates primarily to reduced activities in the North Sea and Middle East and market disturbances in Nigeria and Brazil. In addition, higher levels of completion activity were experienced in the early part of 1993 on wells drilled prior to the December 31, 1992 expiration of United States section 29 tight sands gas tax credits. The increase in 1994 revenues over 1992 relates primarily to the acquisition of the drilling systems business in 1993. Operating income in 1994 was $191.1 million, compared to losses of $147.7 million in 1993 and $63.6 million in 1992. Excluding the items listed below, operating income would have been $233.7 million, a 20% increase over 1993 income of $194.2 million and a 61% increase over 1992 income of $145.0 million. Most of the increase in operating income is related to the successful implementation of strategic action plans that have continued to lower the cost structure and improve organizational efficiencies particularly in North America and increased activities in South America. Operating income in 1994 includes $12.4 million (compared to $31.0 million in 1993 and $10.5 million in 1992) resulting from a combination of ongoing operations and collections on work performed in Libya by foreign subsidiaries of the Company.
Millions of dollars 1994 1993 1992 ------- ------- ------- Operating income before special items and operations of the geophysical business $ 233.7 $ 194.2 $ 145.0 Divested geophysical operations - (20.1) (26.6) ------- ------- ------- 233.7 174.1 118.4 Employee severance costs (42.6) (20.0) - Loss on sale of geophysical business in 1994 - (301.8) - Special charges - - (182.0) ------- ------- ------- Operating income (loss) $ 191.1 $(147.7) $ (63.6) ======= ======= =======
ENGINEERING AND CONSTRUCTION SERVICES Engineering and Construction Services bid activities increased in 1994 over 1993 and this trend is expected to continue into 1995 and 1996. Improved profits and cash flows in key industries served are leading customers to expand their capital spending plans. In addition, opportunities continue to be sought for integration of services offered by Engineering and Construction Services with those of Energy Services in total energy field development and operation. Integrated service arrangements offered through alliances and partnering agreements with major energy companies and government-owned energy companies will likely expand in 1995. Engineering and Construction Services also continues to seek arrangements with government entities for privatization of services. As government entities try to maintain or reduce costs, a number of opportunities to provide services and management contracts are becoming available. The growth in these types of opportunities along with improving economic development in major countries throughout the world should be beneficial in 1995. Revenues in 1994 were $2,996.2 million, a 5% decrease from 1993 revenues of $3,140.7 million and a 16% decrease from 1992 revenues of $3,563.7 million. Most of the decrease is related to a decline in available work in downstream energy projects due primarily to uncertainty in long-term oil prices and United Kingdom tax policies on North Sea development activity as well as restrictions on customers' cash flows in the Middle East. This decrease was partially offset by awards of additional privatization service agreements primarily in Europe and Africa. Operating income in 1994 was $67.2 million, compared to income of $79.3 million in 1993 and a loss of $12.0 million in 1992. Excluding the special charges in 1992, operating income in 1992 would have been $70.6 million. The decrease in operating income in 1994 is due primarily to contract losses on North Sea marine fabrication projects and an electric utility plant project in the United States. The decline in 1994 operating income is partially offset by profitability on pipeline construction projects in the North Sea and the Far East and inclusion of a $5.0 million gain on the sale of an environmental remediation subsidiary. Operating income in 1994 also includes income of $5.1 million (compared to $13.7 million in 1993) resulting primarily from work performed in Libya by foreign subsidiaries of the Company. The backlog of unfilled firm orders for engineering and construction projects increased by 14% in 1994 over 1993. Backlog may not be a reliable indicator of future profitability or activity levels due to the duration of many projects and the complexity of various contract terms. INSURANCE SERVICES Revenues were $230.3 million in 1994, a 10% decrease from 1993 and a 17% decrease from 1992. Insurance Services exited from the assumed reinsurance property catastrophe business in 1994. However, it is still exposed to catastrophes that may occur in the future through the writing of direct property coverages, primarily in Texas and Louisiana. The reduced revenues primarily result from lower earned premiums on discontinued lines of business and from changes by some customers in the type of workers' compensation coverage to a deductible contract which delays the cash flow of premiums received. Insurance Services had an operating loss of $0.4 million in 1994 compared to a loss of $42.2 million in 1993 and a loss of $4.8 million in 1992. Excluding provisions for claim loss reserves on United Kingdom business and suspension of underwriting activities in the United Kingdom in 1993 and 1992, operating income would have been $4.1 million in 1993 and $16.2 million in 1992. Investment income was lower in 1994 and 1993 compared to 1992 due primarily to lower yields on available investments and reductions in invested balances in 1994 along with the realization in 1992 of gains from the sale of certain investments. The Company's insurance subsidiaries have numerous reinsurance agreements with other insurance companies. See Note 11 to the financial statements. NONOPERATING ITEMS Interest income in 1992 includes interest on an income tax refund of $12.8 million. Excluding the interest on this refund, interest income in 1994 and 1993 was lower than 1992 due primarily to lower interest rates available on invested cash and equivalents and lower average levels of invested cash. Foreign currency losses in 1994 were $15.6 million compared with 1993 losses of $21.0 million and 1992 losses of $32.7 million. The foreign currency losses in 1994 relate primarily to Brazil and Venezuela. Prior year losses related primarily to various Latin American and African currency exposures in 1993 and to European, African and Latin American currency exposures in 1992. Economic programs were recently initiated by the governments of Brazil, Mexico and Venezuela to stabilize their economies and curtail the rate of devaluation in their local currencies. If these programs are successful, future foreign exchange losses of the Company in these countries should be significantly smaller than in the past. However, if these programs are unsuccessful, then future foreign exchange losses in these countries will likely continue. Nigeria recently changed its currency controls. This change will likely result in about an $8 million gain in Nigeria in the first quarter of 1995. Nonoperating income in 1994 includes a gain on the sale of the Company's natural gas compression business of $102.0 million. Nonoperating income in 1992 includes a $13.6 million gain on sale of the Company's health care cost management services company. Income taxes were reduced in 1993 by $40.4 million due to a settlement with the Internal Revenue Service relating to tax assessments for the 1980-1987 taxable years. See Note 7 to the financial statements. Income taxes were further1980 - 1987 years and also reduced in 1993 by an additional $6.4 million due to changes in Federal income tax laws. The effectiveSee Note 5 to the financial statements. Interest income tax rates, excluding the items outlined above, for the yearsincreased in 1995 to $27.8 million from $16.1 million in 1994 and $14.0 million in 1993 due primarily to higher levels of invested cash. Foreign currency gains (losses) netted to a gain of $1.5 million in 1995 compared to losses of $16.0 million in 1994 and 1992 were 39%, 43% and 48%, respectively. The decline$20.8 million in 1993. Included in the Company's effective income tax rate1995 results were gains from 1993 and 1992 is primarily due todevaluations of the improvement in foreign earningsNigerian Naira and the reductionVenezuelan Bolivar offset by losses in foreignother currencies, particularly the Mexican Peso. Losses in 1994 and 1993 related primarily to Brazil and Venezuela. Losses in 1993 also included losses not fully benefitted by the Company.from certain African currency exposures. The Company reviews the probable realizability ofroutinely hedges its deferred tax assets and liabilities in each taxing jurisdiction utilizing historical and forecast information. 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 ableexposures to realize their benefit, or that future deductibility is statutorily prohibited or uncertain. Approximately 80% of the deferred tax assets at December 31, 1994 relate to United States Federal temporary differences. The Company believes it has sufficient taxable income in the combination of carryback years, future reversals of taxable temporary differences and anticipated future taxable income to utilize the future deductions represented in the deferred tax assets. In addition, the Company can implement certain tax planning strategies to accelerate taxable amounts to utilize any expiring carryforwards not offset by a valuation allowance. The Company changed its methods of accounting for income taxes and postretirement benefits other than pensions in 1992.currency fluctuations using simple currency derivative instruments. See Notes 7 and 16Note 11 to the financial statements for a description of changessuch exposures and derivative instruments. Provision for income taxes was higher in accounting methods.1995 than in 1994 and 1993 due to increased income. The effective income tax rates, excluding the businesses sold in 1994 and the special items outlined above, declined to 36% in 1995 from 42% in 1994 and 47% in 1993. The declines in the effective income tax rate were due primarily to the decrease in losses not currently benefited and increased realization of available net operating losses. 8
Millions of dollars 1994 1993 ------- ------- Income from continuing operations before special items and businesses sold in 1994 $ 116.0 $ 95.0 Businesses sold in 1994 19.7 (5.5) ------- ------- 135.7 89.5 Gain on sale of natural gas compression business 64.3 - Employee severance costs (27.7) (13.0) Loss on sale of geophysical business - (263.8) Internal Revenue Service settlement - 40.4 Change in Federal income tax laws - 6.4 ------- ------- Income (loss) from continuing operations $ 172.3 $(140.5) ======= =======
DISCONTINUED OPERATIONS consists of the Company's Insurance Services Group. The Company declared a dividend on December 26, 1995 and subsequently distributed its property and casualty insurance subsidiary, Highlands Insurance Group, Inc. (HIGI), to its shareholders in a tax-free spin-off on January 23, 1996. The operations of the Insurance Services Group have been classified as discontinued operations. During 1995, HIGI increased its reserves for claim losses and related expenses and provisions for certain legal matters which together with certain other provisions associated with the Company's complete exit from the insurance industry resulted in a $67.2 million charge against net earnings. See Note 14 to the financial statements for further information. LIQUIDITY AND CAPITAL RESOURCES The Company ended the year 19941995 with cash and equivalents of $428.1$174.9 million an increase of $379.3compared with $375.3 million from 1993in 1994 and an increase of $194.8$7.5 million from 1992. Excludingin 1993. The decrease in cash and equivalents of Insurance Services, which are restricted from general corporate purposes unless paidis primarily due to the parent as a dividend, cash and equivalents at the endprepayment of the year 1994 were $375.3debt of $432.7 million, an increase of $367.8 million from 1993 and an increase of $228.9 million from 1992. The increase in cash is due primarily to an increase in cash flows from proceeds from the sale of the geophysical business and the natural gas compression business as outlined below and from operating activities. OPERATING ACTIVITIES Cash flows from operating activities in 1994 were $443.4 million, up from $243.1 million in 1993 and $381.6 million in 1992. The increase inpartially offset by increased cash flows from operating activitiesactivities. The Company's cash return on gross invested capital, consistent with the Company's Cash Value Added performance measurement, adopted in 1994, was 13% in 1995 compared to 9% in 1994 and 5% in 1993. This is primarily due to improved profitabilityoperating cash flows, dispositions of businesses and unproductive assets, the prepayment of debt and the salespin-off of geophysical services which eliminated a source of historically negative cash flows. In addition, receivables and inventoriesHIGI. CASH FLOWS FROM OPERATING ACTIVITIES were $632.0 million in Energy Services declined, which were partially offset by declines in payables primarily related1995 compared to payments of geophysical related liabilities. Receivables also declined$415.4 million in 1994 dueand $269.6 million in 1993. The increases are attributable primarily to collections ofincreased income tax receivables.and, in 1995, reductions in working capital. CASH FLOWS FROM INVESTING ACTIVITIES Cash flows from investing activities provided $194.3used $238.3 million in 1995 compared to $210.9 million in cash provided in 1994 compared to a useand $323.4 million of $342.5 millioncash used in 1993. Capital expenditures increased in 1995 by 24% over 1994 and 18% over 1993 mostly representing investments in new technologies such as logging while drilling and a use of $138.5 million in 1992.multi-lateral completions. The 1994 increase is due to proceeds from the sale of the geophysical business and natural gas compression business, the sale of two small subsidiaries, along with reduced outflows for software development andCompany's capital expenditures are expected to continue to increase in 1996 as new technologies will continue to be developed and the elimination of outflows related to geophysical speculative data.deployed. In January 1994, the Company sold substantially all of the assets of its geophysical services and products business for $190.0 million in cash and notes subject to certain adjustments. The notes received were sold in 1994. In November 1994, the Company sold its natural gas compression business for $205.0 million. CASH FLOWS USED FOR FINANCING ACTIVITIES were $591.3 million cash. Acquisitions of property, plant and equipment were $234.7in 1995 compared to $252.7 million in 1994 down from $246.9 million in 1993 and $315.9 million in 1992. The reduction in the Company's expenditures for property, plant and equipment reflects, in part, Energy Services combining its resources to optimize the most profitable target market. The Company's expenditures for property, plant and equipment in 1995 may be slightly higher than in 1994, unless market conditions deteriorate. The Company believes that current levels of expenditures for property, plant and equipment related to Energy Services, while reduced from historical levels, are adequate to support current and anticipated replacement requirements. The Company had net payments for purchases of marketable securities in 1994 of $16.2 million, compared to net payments of $17.0 million in 1993 and net receipts from sales or maturities of $211.5 million in 1992. The net payments in 1994 and 1993 are primarily due to investment activities by Insurance Services. The net receipts for 1992 are primarily due to the maturities of the Company's investment of cash available for general corporate use in short-term securities which, at the time of purchase, had maturities in excess of 90 days. Receipts from sales of property, plant and equipment increased in 1994 over 1993 and 1992 due primarily to the sale of workover platforms. Other investing activities were $11.0 million in 1994, down from $81.8 million in 1993 and $88.0 million in 1992. Other investing activities include investments in proprietary information to be licensed or sold. The decrease is due primarily to the disposal of the geophysical business. FINANCING ACTIVITIES Cash flows from financing activities used $252.6 million in 1994 compared to $81.0 million in 1993 and $135.8 million in 1992.1993. The 1994 increase in outflows is relateddue to higher payments of long-term indebtedness. In 1995, the entire outstanding principal amounts of the zero coupon convertible subordinated debentures of $390.7 million and the $42.0 million term loan were redeemed with available cash resources. See Note 6 to the reduction of short-term indebtedness, the redemption of long-term debt and installments on the note issued by the Company to the buyer of the geophysical business. Long-term debt was $643.1 million at the end of 1994, compared to $623.9 million at the end of 1993 and $656.7 million at the end of 1992.financial statements. In 1994, the Company redeemed the remaining $23.8 million of its 10.2% debentures and made $48.8 million in installments on the $73.8 million note issued by the Company to the buyer of the geophysical business. In 1993, the Company redeemed $56.5 million principal amount of its debentures. The Company issued $42 million of short-term debt in 1992, which was refinanced as long-term debt in 1993. In addition, in 1992 the Company redeemed $55.8 million principal amount of its debentures. Total debt was 26%11%, 27%26% and 26%27% of total capitalization at the end of 1995, 1994 and 1993, and 1992, respectively. Each holder of the Company's zero coupon convertible subordinated debentures has the option to require the Company to purchase the debentures on March 13, 1996 for a purchase price equal to the issue price plus accrued original issue discount to date of purchase. The aggregate amount of debentures on March 13, 1996 is expected to be $403.2 million. Under the current market conditions, redemption of the debentures by each holder would be likely. The Company has sufficientthe ability to borrow additional short-term and long-term funds if necessary. See Note 86 to the financial statements regarding the Company's various short-term lines of credit. In July 1993, the Company filed a registration statement with the Securities and Exchange Commission covering a proposed public offering of the Company's debt securities with an aggregate initial public offering price not to exceed $500 million. The Company may offer and sell from time-to-time one or more series of its debt securities on terms to be determined at the time of the offering. In 1993, in connection with the acquisition of the drilling systems business, the Company issued 6,857,000 shares of Common Stock previously held as treasury stock. See Note 19 to the financial statements.stock valued at approximately $247 million. ENVIRONMENTAL MATTERS The Company is involved as a potentially responsible party in remedial activities to clean up various "Superfund" sites under applicable Federal law which imposes joint and several liability, if the harm is indivisible, on certain persons without regard to fault, the legality of the original disposal, or ownership of the site. Although it is very difficult to quantify the potential impact of compliance with environmental protection laws, management of the Company believes that any liability of the Company with respect to all but twoone of such sites will not have a material adverse effect on the results of operations of the Company. See Note 1410 to the financial statements for additional information on these two sites. EXPORT MATTERS See Note 14 to the financial statements concerning certain actions of the United States Government concerning exports by subsidiaries of the Company.one site. 9 RESPONSIBILITY FOR FINANCIAL REPORTING Halliburton Company is responsible for the preparation and integrity of its published financial statements. The financial statements have been prepared in accordance with accounting principles generally accepted in the United States and, as such, include amounts based on judgments and estimates made by management. The Company also prepared the other information included in the annual report and is responsible for its accuracy and consistency with the financial statements. The financial statements have been audited by the independent accounting firm, Arthur Andersen LLP, which was given unrestricted access to all financial records and related data, including minutes of all meetings of stockholders, the board of directors and committees of the board. The Company maintains a system of internal control over financial reporting, which is intended to provide reasonable assurance to the Company's management and board of directors regarding the preparation of financial statements. The system includes a documented organizational structure and division of responsibility, established policies and procedures including codes of conduct to foster a strong ethical climate, which are communicated throughout the Company, and the careful selection, training and development of our people. Internal auditors monitor the operation of the internal control system and report findings and recommendations to management and the board of directors, and corrective actions are taken to address control deficiencies and other opportunities for improving the system as they are identified. The board, operating through its audit committee, which is composed entirely of directors who are not officers or employees of the Company, provides oversight to the financial reporting process. There are inherent limitations in the effectiveness of any system of internal control, including the possibility of human error and the circumvention or overriding of controls. Accordingly, even an effective internal control system can provide only reasonable assurance with respect to financial statement preparation. Furthermore, the effectiveness of an internal control system may change over time. The Company assessed its internal control system in relation to criteria for effective internal control over financial reporting described in "Internal Control-Integrated Framework" issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based upon that assessment, the Company believes that, as of December 31, 1994,1995, its system of internal control over financial reporting met those criteria. HALLIBURTON COMPANY by (Thomas H. Cruikshank)(Dick Cheney) by (Jerry H. Blurton) Thomas H. Cruikshank Jerry H. Blurton(David J. Lesar) Dick Cheney David J. Lesar Chairman of the Board, President Executive Vice President-President and Chief Executive Officer Financeand Chief Financial Officer 10 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Shareholders and Board of Directors, Halliburton Company: We have audited the accompanying consolidated balance sheets of Halliburton Company (a Delaware corporation) and subsidiary companies as of December 31, 19941995 and 1993,1994, and the related consolidated statements of income, cash flows and shareholders' equity for each of the three years in the period ended December 31, 1994.1995. These financial statements are the responsibility of Halliburton Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Halliburton Company and subsidiary companies as of December 31, 19941995 and 1993,1994, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1994,1995, in conformity with generally accepted accounting principles. As discussed in Notes 2 and 11 to the financial statements, as required by generally accepted accounting principles, the Company changed its methods of accounting for certain investments in debt and equity securities and reinsurance of short-duration and long-duration contracts effective December 31, 1993 and January 1, 1993, respectively. In addition, as discussed in Notes 7 and 16 to the financial statements, as required by generally accepted accounting principles, the Company changed its methods of accounting for income taxes and accounting for postretirement benefits, respectively, effective January 1, 1992. (ARTHUR ANDERSEN LLP) ARTHUR ANDERSEN LLP Dallas, Texas February 1, 1995January 23, 1996 11 CONSOLIDATED STATEMENTS OF INCOMEConsolidated Statements of Income Years ended December 31
Millions of dollars and shares except per share data 1995 1994 1993 1992 --------- --------- -------------------- ----------- ----------- REVENUESRevenues Energy services $ 5,740.52,623.4 $ 6,350.82,514.0 $ 6,565.9 OPERATING COSTS AND EXPENSES: Cost of2,953.4 Engineering and construction services 3,075.3 2,996.2 3,140.7 ----------- ----------- ----------- Total revenues 5,307.7 6,265.0 6,383.6$ 5,698.7 $ 5,510.2 $ 6,094.1 =========== =========== =========== Operating income (loss) Energy services $ 313.7 $ 191.8 $ (148.4) Engineering and construction services 103.0 67.2 78.9 General and administrative 197.8 218.4 283.7 --------- --------- ---------corporate (33.5) (22.9) (22.0) ----------- ----------- ----------- Total operating costs and expenses 5,505.5 6,483.4 6,667.3 --------- --------- --------- OPERATING INCOME (LOSS) 235.0 (132.6) (101.4)income (loss) 383.2 236.1 (91.5) Interest expense (46.2) (47.1) (50.1) (53.6) Interest income 16.2 13.9 42.027.8 16.1 14.0 Foreign currency losses (15.6) (21.0) (32.7) Gainsgains (losses) 1.5 (16.0) (20.8) Gain on salessale of businessescompression services - 102.0 - 13.6 Other nonoperating income, net 0.3 0.4 0.7 0.8 --------- --------- --------- INCOME (LOSS) BEFORE INCOME TAXES, MINORITY INTEREST AND CHANGES IN ACCOUNTING METHODS 290.9 (189.1) (131.3)----------- ----------- ----------- Income (loss) from continuing operations before income taxes and minority interests 366.6 291.5 (147.7) (Provision) benefit for income taxes (112.9) 26.6 6.1(131.9) (119.0) 5.7 Minority interest in net (income) loss of consolidated subsidiaries (0.9) (0.2) 1.5 1.7 --------- --------- --------- INCOME (LOSS) BEFORE CHANGES IN ACCOUNTING METHODS 177.8 (161.0) (123.5) Cumulative effect of changes in accounting methods - - (13.8) --------- --------- --------- NET INCOME (LOSS)----------- ----------- ----------- Income (loss) from continuing operations 233.8 172.3 (140.5) Income (loss) from discontinued operations (65.5) 5.5 (20.5) ----------- ----------- ----------- Net income (loss) $ 168.3 $ 177.8 $ (161.0) =========== =========== =========== Income (loss) per share Continuing operations $ (137.3) ========= ========= ========= INCOME (LOSS) PER SHARE Before changes in accounting methods2.04 $ 1.561.51 $ (1.43) $ (1.15) Changes in accounting methods - - (0.13)(1.25) Discontinued operations (0.57) 0.05 (0.18) Net income (loss) 1.47 1.56 (1.43) (1.28) Average common shares outstanding 114.5 114.2 112.5 107.1 See notes to financial statements.
12 CONSOLIDATED BALANCE SHEETSConsolidated Balance Sheets December 31
Millions of dollars and shares 1995 1994 1993 --------- --------------------- ---------- ASSETS CASH AND EQUIVALENTSAssets Current assets: Cash and equivalents $ 428.1174.9 $ 48.8 INVESTMENTS: Available-for-sale 219.0 182.5 Held-to-maturity 435.8 474.0 --------- --------- Total investments 654.8 656.5 --------- --------- RECEIVABLES:375.3 Receivables: Notes and accounts receivable (less allowance for bad debts of $34.8$36.4 and $32.7) 1,273.1 1,304.2$34.8) 1,157.3 1,101.8 Unbilled work on uncompleted contracts 233.7 173.4 180.4 Refundable Federal income taxes - 13.4 71.5 --------- --------------------- ---------- Total receivables 1,459.9 1,556.1 --------- --------- INVENTORIES1,391.0 1,288.6 Inventories 251.5 268.9 369.0 REINSURANCE RECOVERABLES (less allowance for losses of $11.9Deferred income taxes 137.5 64.7 Other current assets 95.0 121.5 ------------ ---------- Total current assets 2,049.9 2,119.0 Property, plant and $11.5) 671.1 653.5 PROPERTY, PLANT AND EQUIPMENT:equipment: At cost 3,418.2 3,675.93,337.0 3,409.7 Less accumulated depreciation 2,341.4 2,523.1 --------- ---------2,225.8 2,334.9 ------------ ---------- Net property, plant and equipment 1,076.8 1,152.8 --------- --------- EQUITY IN AND ADVANCES TO RELATED COMPANIES1,111.2 1,074.8 Equity in and advances to related companies 115.4 94.6 86.0 EXCESS OF COST OVER NET ASSETS ACQUIREDExcess of cost over net assets acquired (net of accumulated amortization of $39.6$31.8 and $75.9) 213.4 219.2 DEFERRED INCOME TAXES 120.5 199.5 ASSETS HELD FOR SALE 26.3 219.7 OTHER ASSETS 253.9 242.0 --------- ---------$37.4) 207.5 213.3 Deferred income taxes 5.6 55.8 Net assets of discontinued operations - 286.6 Other assets 157.0 161.3 ------------ ---------- Total assets $ 5,268.33,646.6 $ 5,403.1 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY ACCOUNTS PAYABLE4,005.4 ============ ========== Liabilities and Shareholders' Equity Current liabilities: Short-term notes payable $ 303.54.8 $ 297.4 ACCRUED EMPLOYEE COMPENSATION AND BENEFITS 406.3 437.0 ADVANCE BILLINGS ON UNCOMPLETED CONTRACTS30.7 Current maturities of long-term debt 5.2 20.1 Accounts payable 357.3 242.2 Accrued employee compensation and benefits 151.8 159.4 Advance billings on uncompleted contracts 301.8 163.3 153.9 INCOME TAXES PAYABLE 25.8 60.1 SHORT-TERM NOTES PAYABLE 30.7 92.0 UNEARNED INSURANCE PREMIUMS 51.2 53.5 RESERVES FOR INSURANCE LOSSES AND CLAIMS 1,126.4 1,131.7 LONG-TERM DEBT 643.1 623.9 OTHER LIABILITIES 570.6 662.4 MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES 5.2 3.5 --------- ---------Income taxes payable 95.8 46.7 Other current liabilities 239.4 188.9 ------------ ---------- Total current liabilities 1,156.1 851.3 Long-term debt 200.0 623.0 Employee compensation and benefits 262.8 242.3 Other liabilities 277.9 346.6 ------------ ---------- Total liabilities 3,326.1 3,515.4 --------- --------- COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY:1,896.8 2,063.2 ------------ ---------- Shareholders' equity: Common stock, par value $2.50 per share --share- authorized 200.0 shares, 297.6 297.7 issued 119.1 and 119.2 shares 297.7 298.0 Paid-in capital in excess of par value 199.4 201.7 199.8 Cumulative translation adjustment (28.0) (23.1) (24.8) Net unrealized gains (losses) on investments (7.6) 9.3 Retained earnings 1,637.3 1,573.5 --------- ---------1,431.4 1,629.7 ------------ ---------- 1,900.4 2,106.0 2,055.8 Less 5.04.6 and 5.15.0 shares treasury stock, at cost 150.6 163.8 168.1 --------- --------------------- ---------- Total shareholders' equity 1,749.8 1,942.2 1,887.7 --------- --------------------- ---------- Total liabilities and shareholders' equity $ 5,268.33,646.6 $ 5,403.1 ========= =========4,005.4 ============ ========== See notes to financial statements.
13 CONSOLIDATED CASH FLOWSConsolidated Statements of Cash Flows Years ended December 31
Millions of dollars 1995 1994 1993 1992 ------- ------- ---------------- ---------- -------- CASH FLOWS FROM OPERATING ACTIVITIESCash flows from operating activities Net income (loss) $ 168.3 $ 177.8 $(161.0) $(137.3)$ (161.0) Adjustments to reconcile net income (loss) to net cash from operating activities: Depreciation and amortization 261.6 452.0 360.0244.1 260.2 450.4 Provision (benefit) for deferred income taxes 47.9 86.0 (17.5) (67.0) Gains on sales of businesses (102.0) - (13.6) Distributions from (advances to) related companies, net of equity in (earnings) or losses (20.5) (0.6) 4.7 64.9 Changes in accounting methodsAppreciation of zero coupon bonds 15.0 21.6 20.3 Gain on sale of compression services - (102.0) - 13.8Net (income) loss from discontinued operations 65.5 (5.5) 20.5 Other non-cash items (0.8) 31.8 10.7(11.5) (19.2) 15.1 Other changes, net of non-cash items: Receivables 132.3 (40.9) 108.1(83.8) 100.7 (55.6) Inventories 17.7 92.0 1.9 103.2 Insurance losses and claims, net of reinsurance recoverables (22.9) 3.5 (62.0) Accounts payable and other (180.0) (31.4) 0.8 ------- ------- -------69.9 (54.4) (109.1) Other working capital, net 189.2 (78.0) (169.1) Other, net (69.8) (63.2) 269.0 --------- ---------- -------- Total cash flows from operating activities 443.4 243.1 381.6 ------- ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES632.0 415.4 269.6 --------- ---------- -------- Cash flows from investing activities Capital expenditures (234.7) (246.9) (315.9)(288.7) (233.7) (245.3) Sales of property, plant and equipment 66.7 29.9 47.936.0 65.4 29.7 Acquisitions of businesses, net of cash acquired (11.0) (26.7) (15.7)(1.4) (10.7) (27.9) Dispositions of businesses, net of cash disposed 400.5 - 21.7 Sales or maturities of available-for-sale investments 63.0 - - Payments for available-for-sale investments (119.8) - - Calls or maturities of held-to-maturity investments 85.6 - - Payments for held-to-maturity investments (45.0) - - Sales or maturities of marketable investments - 175.5 290.6 Payments for marketable investments - (192.5) (79.1)25.9 400.2 1.2 Other investing activities (11.0) (81.8) (88.0) ------- ------- -------(10.1) (10.3) (81.1) --------- ---------- -------- Total cash flows from investing activities 194.3 (342.5) (138.5) ------- ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds(238.3) 210.9 (323.4) --------- ---------- -------- Cash flows from long-term borrowings 0.5 - 42.0 Paymentsfinancing activities Net payments on long-term borrowings (73.4) (57.1) (57.8)(452.9) (72.9) (57.0) Net borrowings (payments) of short-term debt (27.0) (65.3) 91.3 (10.3) Payments of dividends to shareholders (114.3) (114.0) (112.2) (107.3) Other financing activities (0.4) (3.0) (2.4) ------- ------- -------2.9 (0.5) (3.1) --------- ---------- -------- Total cash flows from financing activities (252.6)(591.3) (252.7) (81.0) (135.8) ------- ------- ------- EFFECT OF EXCHANGE RATE CHANGES ON CASH--------- ---------- -------- Effect of exchange rate changes on cash (2.8) (5.8) (4.1) (5.6) ------- ------- ------- INCREASE (DECREASE) IN CASH AND EQUIVALENTS 379.3 (184.5) 101.7 CASH AND EQUIVALENTS AT BEGINNING OF YEAR 48.8 233.3 131.6 ------- ------- ------- CASH AND EQUIVALENTS AT END OF YEAR--------- ---------- -------- Increase (decrease) in cash and equivalents (200.4) 367.8 (138.9) Cash and equivalents at beginning of year 375.3 7.5 146.4 --------- ---------- -------- Cash and equivalents at end of year $ 428.1174.9 $ 48.8375.3 $ 233.3 ======= ======= ======= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION7.5 ========= ========== ======== Supplemental disclosure of cash flow information Cash payments (refunds) during the period for: Interest $ 25.3 $ 29.1 $ 31.2 $ 32.8 Income taxes 28.0 (18.5) 56.7 78.5 Non-cash investing and financing activitiesactivities: Liabilities assumed in acquisitions of business $ - $ 20.8- $ 36.420.8 Liabilities disposed of in dispositions of businesses 14.6 69.9 3.8 1.9 See notes to financial statements.
14 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITYConsolidated Statements of Shareholders' Equity Years ended December 31
Millions of dollars except share data 1995 1994 1993 1992 ----------- ----------- ----------- COMMON STOCK (NUMBER OF SHARES)Common stock (number of shares): Balance at beginning of year 119,086,591 119,207,996 119,251,366 119,280,618 Shares issued (forfeited)forfeited under restricted stock plans, net (33,812) (121,405) (43,370) (29,252) ----------- ----------- ----------- Balance at end of year 119,052,779 119,086,591 119,207,996 119,251,366 =========== =========== =========== COMMON STOCK (DOLLARS)Common stock (dollars): Balance at beginning of year $ 297.7 $ 298.0 $ 298.1 $ 298.2 Shares issued (forfeited)forfeited under restricted stock plans, net (0.1) (0.3) (0.1) (0.1) ----------- ----------- ----------- Balance at end of year $ 297.6 $ 297.7 $ 298.0 $ 298.1 =========== =========== =========== PAID-IN CAPITAL IN EXCESS OF PAR VALUE:Paid-in capital in excess of par value: Balance at beginning of year $ 201.7 $ 199.8 $ 138.8 $ 136.4 Shares issued (forfeited) under restricted stock plans, net (2.3) 1.9 5.2 2.4 Shares issued for the acquisition of drilling systems business - - 55.8 - ----------- ----------- ----------- Balance at end of year $ 199.4 $ 201.7 $ 199.8 $ 138.8 =========== =========== =========== CUMULATIVE TRANSLATION ADJUSTMENT:Cumulative translation adjustment: Balance at beginning of year $ (23.1) $ (24.8) $ (15.6) $ 5.0 Sale of geophysical business - (2.1) - - Other changes (netnet of tax of $(.5) in 1995, $1.1 in 1994 and $3.6 in 1993 and $5.2 in 1992)(4.9) 3.8 (9.2) (20.6) ----------- ----------- ----------- Balance at end of year $ (28.0) $ (23.1) $ (24.8) $ (15.6) =========== =========== =========== NET UNREALIZED GAINS (LOSSES) ON INVESTMENTS:Retained earnings: Balance at beginning of year $ 9.31,629.7 $ 1.81,582.8 $ 1.51,848.5 Net income (loss) 168.3 177.8 (161.0) Net change in unrealized gains (losses) on investments held by discontinued operation 16.3 (16.9) 7.5 0.3Spin-off of Highlands Insurance Group, Inc. (268.6) - - Cash dividends paid ($1.00 per share) (114.3) (114.0) (112.2) ----------- ----------- ----------- Balance at end of year $ (7.6)1,431.4 $ 9.31,629.7 $ 1.81,582.8 =========== =========== =========== RETAINED EARNINGS:Treasury stock (number of shares): Balance at beginning of year 4,989,513 5,119,298 12,118,663 Shares issued under restricted stock plans, net (449,682) (171,150) (249,400) Purchase of common stock 37,802 41,365 107,035 Shares issued for the acquisition of drilling systems business - - (6,857,000) ----------- ----------- ----------- Balance at end of year 4,577,633 4,989,513 5,119,298 =========== =========== =========== Treasury stock (dollars): Balance at beginning of year $ 1,573.5163.8 $ 1,846.7168.1 $ 2,091.3 Net income (loss) 177.8 (161.0) (137.3) Cash dividends paid ($1.00 per share) (114.0) (112.2) (107.3)362.5 Shares issued under restricted stock plans, net (14.6) (5.6) (6.2) Purchase of common stock 1.4 1.3 3.0 Shares issued for the acquisition of drilling systems business - - (191.2) ----------- ----------- ----------- Balance at end of year $ 1,637.3 $ 1,573.5 $ 1,846.7 =========== =========== =========== TREASURY STOCK (NUMBER OF SHARES): Balance at beginning of year 5,119,298 12,118,663 12,332,609 Shares (issued) forfeited under restricted stock plans, net (171,150) (249,400) (230,400) Purchase of common stock 41,365 107,035 16,454 Shares (issued) for the acquisition of drilling systems business - (6,857,000) - ----------- ----------- ----------- Balance at end of year 4,989,513 5,119,298 12,118,663 =========== =========== =========== TREASURY STOCK (DOLLARS): Balance at beginning of year $ 168.1 $ 362.5 $ 367.8 Shares (issued) forfeited under restricted stock plans, net (5.6) (6.2) (5.8) Purchase of common stock 1.3 3.0 0.5 Shares (issued) for the acquisition of drilling systems business - (191.2) - ----------- ----------- ----------- Balance at end of year150.6 $ 163.8 $ 168.1 $ 362.5 =========== =========== =========== See notes to financial statements.
NOTE15 NOTES TO FINANCIAL STATEMENTS Note 1. SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION.Significant Accounting Policies The Company employs accounting policies that are in accordance with generally accepted accounting principles in the United States. The preparation of financial statements in conformity with generally accepted accounting principles requires Company management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Ultimate results could differ from those estimates. Principles of Consolidation. The consolidated financial statements include the accounts of the Company and all majority-owned subsidiaries. All material intercompany accounts and transactions are eliminated. Investments in other affiliated companies in which the Company has at least 20 percent20% ownership and does not have management control are accounted for on the equity method. In connection with the discontinuance of the Company's insurance segment, the Company has adopted a classified balance sheet format. Certain prior year amounts have been reclassified to conform with current year presentation. CASH EQUIVALENTS. The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. INVESTMENTS. In 1993, the Company adopted Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in DebtRevenues and Equity Securities" (SFAS 115), which requires the classification of debt and equity securities into the following categories: held-to-maturity, available-for-sale, or trading. Investments classified as held-to-maturity are measured at amortized cost. This classification is based upon the Company's intent and ability to hold these securities to full maturity. Investments classified as available-for-sale or trading are measured at fair value at the balance sheet dates. Unrealized gains and losses for available-for-sale investments are reported as a separate component of shareholders' equity. Investments primarily relate to the activities of the Company's insurance subsidiaries, and consist of commercial paper, bonds and equity securities. REINSURANCE RECOVERABLES. Reinsurance receivables (including amounts related to claims incurred but not reported) and prepaid reinsurance premiums are classified as assets. Amounts recoverable from reinsurers are estimated consistent with the determination of the claim liability associated with the reinsured policy. INVENTORIES. Inventories are stated at cost which is not in excess of market. Cost represents invoice or production cost for new items and original cost less allowance for condition for used material returned to stock. Production cost includes material, labor and manufacturing overhead. About one-half of all sales items (including related work in process and raw materials) are valued on a last-in, first-out (LIFO) basis. Inventories of sales items owned by foreign subsidiaries and inventories of operating supplies and parts are generally valued at average cost. DEPRECIATION AND MAINTENANCE. Depreciation for financial reporting purposes is provided primarily 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 property, plant and equipment, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is recognized. EXCESS OF COST OVER NET ASSETS ACQUIRED. The excess of cost over the fair value of net assets acquired is generally amortized on the straight-line basis over periods not exceeding 40 years. INCOME TAXES. In 1992, the Company adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. DERIVATIVE INSTRUMENTS. The Company enters into derivative financial transactions to hedge existing or projected exposures to changing foreign exchange rates, interest rates, security prices, or commodity prices. The Company does not enter into derivative transactions for speculative purposes. Gains and losses on commodity futures transactions, which involve hedging price movements over the life of long-term fixed price contracts, are deferred until the futures contracts are liquidated. Hedges of other than commodity prices are generally carried at fair value with the resulting gains and losses reflected in the results of operations. Gains and losses on foreign exchange contracts where the local currency is the functional currency are recorded in a separate component of shareholders' equity. RESERVES FOR INSURANCE LOSSES AND CLAIMS AND UNEARNED PREMIUMS. The reserves for insurance losses and claims include estimates of amounts required to settle losses incurred but not reported. Changes in estimates and differences between estimates and ultimate payments are reflected in income in the period in which such changes and differences become known. Unearned premiums are determined by prorating policy premiums over the terms of the policies. REVENUES AND INCOME RECOGNITION.Recognition. The Company recognizes revenues as services are rendered or products are shipped. The distinction between services and product sales is based upon the overall business intent of the particular business operation. Revenues from construction contracts are reported on the percentage of completion method of accounting using measurements of progress toward completion appropriate for the work performed. All known or anticipated losses on any contracts are provided for currently. Claims for additional compensation are recognized during the period such claims are resolved. FOREIGN CURRENCY TRANSLATION.Research and Development. Research and development expenses are charged to income as incurred. Such charges were $88.5 million in 1995, $109.5 million in 1994 and $126.5 million in 1993. In addition, the Company capitalized software development costs related primarily to integrated information technologies and project management of $3.9 million in 1995, $6.4 million in 1994 and $39.8 million in 1993. Income Per Share. Income per share is based on the weighted average number of common shares and common share equivalents outstanding during each year. Common share equivalents included in the computation represent shares issuable upon assumed exercise of stock options which have a dilutive effect. Cash Equivalents. The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. Receivables. The Company's primaryreceivables are generally not collateralized. Notes and accounts receivable at December 31, 1995 include $22.3 million ($30.1 million at December 31, 1994) due from customers in accordance with applicable retainage provisions of engineering and construction contracts, which will become billable upon future deliveries or completion of such contracts. Of the December 31, 1995 amount, approximately $17.8 million is expected to be collected during 1996 and the remainder is due in subsequent years. Unbilled work on uncompleted contracts generally represents work currently billable and such work is usually billed during normal billing processes in the next month. Inventories. Inventories are stated at cost which is not in excess of market. Cost represents invoice or production cost for new items and original cost less allowance for condition for used material returned to stock. Production cost includes material, labor and manufacturing overhead. About one-third of all sales items (including related work in process and raw materials) are valued on a last-in, first-out (LIFO) basis. Inventories of sales items owned by foreign subsidiaries and inventories of operating supplies and parts are generally valued at average cost. Depreciation, Amortization and Maintenance. Depreciation and amortization for financial reporting purposes is provided primarily on the straight-line method over the estimated useful lives of the assets not exceeding 40 years. Expenditures for maintenance and repairs are expensed; expenditures for renewals and improvements are generally capitalized. Upon sale or retirement of an asset, the related cost and accumulated depreciation or amortization are removed from the accounts and any gain or loss is recognized. In the event that facts and circumstances indicate that assets may be impaired, an evaluation of recoverability would be performed. If an evaluation is required, the estimated future undiscounted cash flows associated with the asset would be compared to the asset's carrying amount to determine if a write-down to market value or discounted cash flow value is required. Income Taxes. A valuation allowance is provided for deferred tax assets if it is more likely than not these items will either expire before the Company is able to realize their benefit, or that future deductibility is prohibited or uncertain. Deferred tax assets and liabilities are recognized for the expected future tax consequences of events that have been realized in the financial statements or tax returns. Derivative Instruments. The Company enters into derivative financial transactions to hedge existing or projected exposures to changing foreign exchange rates, interest rates, security prices, or commodity prices. The Company does not enter into derivative transactions for speculative purposes. Hedges of derivative financial transactions are generally carried at fair value with the resulting gains and losses reflected in the results of operations. 16 Foreign Currency Translation. Foreign entities whose functional currency is the U.S. dollar. Most foreign entitiesdollar translate monetary assets and liabilities at year-end exchange rates whileand 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. The remainingForeign entities usewhose functional currency is the local currency as the functional currency and translate net assets at year-end rates whileand income and expense accounts are translated at average exchange rates. Adjustments resulting from these translations are reflected in the Shareholders' equityEquity section titled "Cumulative translation adjustment". INCOME PER SHARE. Income per share is based on the weighted average number of common shares and common share equivalents outstanding during each year. Common share equivalents included in the computation represent shares issuable upon assumed exercise of stock options which have a dilutive effect. NOTENote 2. INVESTMENTS The Company adopted SFAS 115, "Accounting for Certain Investments in Debt and Equity Securities" as of the end of 1993. Investments, which are primarily held by the Company's insurance subsidiaries, at December 31, 1994 and 1993 are as follows:
At December 31, 1994: Gross Unrealized Amortized --------------------- Fair Millions of dollars Cost Gains Losses Value --------- --------- --------- --------- AVAILABLE-FOR-SALE Bonds: United States government and government agencies $ 48.5 $ - $ 1.6 $ 46.9 States, municipalities and political subdivisions 47.0 1.3 - 48.3 Mortgage-backed obligations 25.9 - 4.2 21.7 All other corporate bonds 65.1 0.7 2.4 63.4 --------- --------- --------- --------- 186.5 2.0 8.2 180.3 Preferred stocks 39.2 - 4.7 34.5 Other investments 3.5 0.7 - 4.2 --------- --------- --------- --------- Total $ 229.2 $ 2.7 $ 12.9 $ 219.0 ========= ========= ========= ========= HELD-TO-MATURITY Bonds: United States government and government agencies $ 4.4 $ 0.1 $ 0.2 $ 4.3 States, municipalities and political subdivisions 251.6 10.8 1.7 260.7 Texas Commerce Bank municipal bond fund 24.6 0.1 - 24.7 Mortgage-backed obligations 90.2 0.1 11.6 78.7 Foreign governments 2.0 - - 2.0 All other corporate bonds 63.0 - 8.1 54.9 --------- --------- --------- --------- Total $ 435.8 $ 11.1 $ 21.6 $ 425.3 ========= ========= ========= =========
At December 31, 1993: Gross Unrealized Amortized --------------------- Fair Millions of dollars Cost Gains Losses Value --------- --------- --------- --------- AVAILABLE-FOR-SALE Bonds: States, municipalities and political subdivisions $ 92.2 $ 7.0 $ - $ 99.2 Mortgage-backed obligations 6.5 0.2 0.1 6.6 Foreign governments 0.4 - - 0.4 All other corporate bonds 33.9 2.4 - 36.3 --------- --------- --------- --------- 133.0 9.6 0.1 142.5 Preferred stocks 34.2 1.3 0.2 35.3 Other investments 3.7 1.0 - 4.7 --------- --------- --------- --------- Total $ 170.9 $ 11.9 $ 0.3 $ 182.5 ========= ========= ========= ========= HELD-TO-MATURITY Bonds: United States government and government agencies $ 29.6 $ 0.3 $ - $ 29.9 States, municipalities and political subdivisions 276.5 16.5 0.1 292.9 Texas Commerce Bank municipal bond fund 23.9 2.1 - 26.0 Mortgage-backed obligations 82.5 0.2 0.1 82.6 Foreign governments 0.6 - - 0.6 All other corporate bonds 60.9 0.6 0.7 60.8 --------- --------- --------- --------- Total $ 474.0 $ 19.7 $ 0.9 $ 492.8 ========= ========= ========= =========
The Company is not a trader in bonds and has classified investments into two categories: available-for-sale and held-to-maturity. Investments classified as available-for-sale may be sold to fund liquidity requirements, assist in meeting regulatory capital requirements and other operating needs, or because of a change in credit worthiness of the issuer. All other investments are classified as held-to-maturity. These investments include bonds in which the Company has the ability and intent to hold until contractual maturity is reached. The fair value of investments is based on quoted market prices, where available, or quotes from external pricing sources such as brokers for those or similar investments and issues. No individual security issue exceeds 2% of total assets. The carrying and fair value of debt securities available-for-sale and held-to-maturity as of December 31, 1994, are shown below by contractual maturity. Actual maturities may differ from contractual maturities as securities may be restructured, called or prepaid. Securities with multiple maturity dates are disclosed separately rather than allocated over several maturity groupings.
Amortized Fair Millions of dollars Cost Value --------- --------- AVAILABLE-FOR-SALE Within one year $ 13.9 $ 14.6 After one year through five years 62.1 61.3 After five years through ten years 49.9 47.9 After ten years 34.7 34.8 Mortgage-backed obligations 25.9 21.7 --------- --------- Total $ 186.5 $ 180.3 ========= ========= HELD-TO-MATURITY Within one year $ 34.5 $ 35.1 After one year through five years 71.6 74.4 After five years through ten years 91.6 91.1 After ten years 123.3 121.3 Mortgage-backed obligations 90.2 78.7 Texas Commerce Bank municipal bond fund 24.6 24.7 --------- --------- Total $ 435.8 $ 425.3 ========= =========
Proceeds from sales of investments available-for-sale during 1994 were $63.0 million. Gross gains of $1.6 million were realized on those sales. The cost of each security sold was specifically identified in computing the related realized gain or loss. Net unrealized losses on investments available-for-sale included in shareholders' equity at December 31, 1994 was $7.6 million, net of income tax benefit of $2.6 million. At December 31, 1993, the Company had net unrealized gains on investments available-for-sale included in shareholders' equity of $9.3 million, net of income taxes of $2.3 million. Securities classified as held-to-maturity having an amortized cost of $19.9 million were called by their issuers prior to maturity during 1994 which resulted in a net realized gain of $0.3 million. NOTE 3. RECEIVABLES The Company's receivables are generally not collateralized. Notes and accounts receivable at December 31, 1994 include $30.1 million ($36.3 million at December 31, 1993) not currently due from customers in accordance with applicable retainage provisions of engineering and construction contracts. Of the December 31, 1994 amount, approximately $29.1 million is expected to be collected during 1995 and the remainder is due in subsequent years. Unbilled work on uncompleted contracts generally represents work currently billable and such work is usually billed during normal billing processes in the next month. NOTE 4. INVENTORIES Consolidated inventories at December 31, 1994 and 1993 consist of the following:
Millions of dollars 1994 1993 ------- ------- Sales items $ 97.2 $ 91.3 Supplies and parts 128.8 199.4 Work in process 23.9 41.1 Raw materials 19.0 37.2 ------- ------- Total $ 268.9 $ 369.0 ======= =======
Inventories About one-halfone-third of all sales items (including related work in process and raw materials) are valued using the LIFO method. If the average cost method had been in use for inventories on the LIFO basis, total inventories would have been about $21.9$18.3 million and $37.0$21.9 million higher than reported at December 31, 1995 and 1994, and 1993, respectively. NOTE 5. PROPERTY, PLANT AND EQUIPMENT Major classes of fixed assets at December 31, 1994 and 1993 are as follows:
Millions of dollars 1995 1994 1993--------- -------- Sales items $ 85.2 $ 97.2 Supplies and parts 121.7 128.8 Work in process 27.1 23.9 Raw materials 17.5 19.0 --------- -------- Total $ 251.5 $ 268.9 ========= ========
Note 3. Property, Plant and Equipment
Millions of dollars 1995 1994 --------- --------- Land $ 50.156.6 $ 47.950.1 Buildings and property improvements 534.4 546.3 543.9 Machinery and equipment 2,607.1 2,859.02,560.1 2,606.6 Other 214.7 225.1185.9 206.7 --------- --------- Total $ 3,418.23,337.0 $ 3,675.93,409.7 ========= =========
NOTE 6. RELATED COMPANIESNote 4. Related Companies The Company conducts some of its operations through various joint venture and other partnership forms which are principally accounted for using the equity method. Summarized financial statements for the combined jointly-owned operations which are not consolidated are as follows:
COMBINED OPERATING RESULTS Millions of dollars 1994 1993 1992 --------- --------- --------- European Marine Contractors Revenues $ 439.3 $ 296.1 $ 316.2 ========= ========= ========= Operating income $ 142.4 $ 85.4 $ 67.5 ========= ========= ========= Net income $ 94.4 $ 57.8 $ 45.5 ========= ========= ========= Other Affiliates Revenues $ 1,542.2 $ 1,476.4 $ 1,458.7 ========= ========= ========= Operating income $ 81.3 $ 64.9 $ 31.4 ========= ========= ========= Net income $ 66.2 $ 49.9 $ 7.4 ========= ========= =========
European Marine Contractors, Limited, which is 50% owned by the Company and part of Engineering and Construction Services, specializes in engineering, procurement and construction of marine pipelines. Included in the Company's revenues for 1995, 1994 1993 and 19921993 are equity in income of related companies of $88.4 million, $93.0 million $76.3 million and $40.5$76.3 million, respectively. When the Company sells or transfers assets to an affiliated company that is accounted for using the equity method and the affiliated company records the assets at fair value, the excess of the fair value of the assets over the Company's net book value is deferred and amortized over the expected lives of the assets. Deferred gains included in the Company's other liabilities were $19.4$10.1 million and $22.8$19.4 million at December 31, 1995 and 1994, respectively. Summarized financial statements for European Marine Contractors, Limited, a 50% owned company which specializes in engineering, procurement and 1993, respectively.construction of marine pipelines, and for the remaining combined jointly owned operations which are not consolidated are as follows: COMBINED OPERATING RESULTS
Millions of dollars 1995 1994 1993 ---------- --------- --------- European Marine Contractors Revenues $ 361.8 $ 439.3 $ 296.1 ========== ========= ========= Operating income $ 106.9 $ 142.4 $ 85.4 ========== ========= ========= Net income $ 72.6 $ 94.4 $ 57.8 ========== ========= ========= Other Affiliates Revenues $ 1,767.2 $ 1,542.2 $ 1,476.4 ========== ========= ========= Operating income $ 92.9 $ 81.3 $ 64.9 ========== ========= ========= Net income $ 63.0 $ 66.2 $ 49.9 ========== ========= =========
17 COMBINED FINANCIAL POSITION
Millions of dollars 1995 1994 1993 --------- ----------------- European Marine Contractors Cash and equivalentsCurrent assets $ 50.1238.4 $ 15.2 Receivables 191.5 122.1 Inventories 14.0 12.3 Property, plant and equipment, net272.1 Noncurrent assets 40.6 58.5 42.2 Other assets 16.5 17.8 --------- ----------------- Total $ 279.0 $ 330.6 ========= ========= Current liabilities $ 209.6 ========= ======== Accounts payable182.1 $ 22.9 $ 17.2 Income taxes payable 45.7 26.0 Other233.3 Noncurrent liabilities 178.6 133.718.1 13.9 Shareholders' equity 78.8 83.4 32.7 --------- ----------------- Total $ 279.0 $ 330.6 $ 209.6 ========= ================= Other Affiliates Current assets $ 752.5 $ 725.0 Noncurrent assets 476.1 378.5 --------- -------- Cash and equivalents--------- Total $ 197.2 $ 35.1 Receivables 344.0 327.3 Inventories 180.3 138.1 Property, plant and equipment, net 144.5 89.7 Other assets 237.5 5.8 --------- --------1,228.6 $ 1,103.5 ========= ========= Current liabilities $ 596.0 ========= ======== Accounts payable418.4 $ 192.0 $ 233.1 Accrued employee compensation and benefits 26.0 10.6 Income taxes payable 12.1 7.6 Long-term debt 302.5 46.0 Other230.1 Noncurrent liabilities 206.6 21.5403.7 509.1 Shareholders' equity 406.5 364.3 277.2 --------- ----------------- Total $ 1,228.6 $ 1,103.5 $ 596.0 ========= =================
NOTE 7. INCOME TAXES In 1992, the Company adopted Statement of Financial Accounting Standards No. 109, "Accounting forNote 5. Income Taxes" (SFAS 109), which recognizes deferred tax assets and liabilities for the expected future tax consequences of existing differences between the financial reporting and tax reporting bases of assets and liabilities and operating loss and tax credit carryforwards for tax purposes. The cumulative impact of adoption of SFAS 109 was a benefit of $15.5 million, or 14 cents per share.Taxes The components of the (provision) benefit for income taxes are:
Millions of dollars 1995 1994 1993 1992 ------- ------ --------------- --------- --------- CURRENT INCOME TAXESCurrent income taxes Federal $ 10.9- $ 63.112.4 $ 14.155.8 Foreign (35.8) (47.8) (72.4)(78.9) (43.5) (61.5) State (2.0) (6.2) (2.6) ------- ------ ------(5.1) (1.9) (6.1) --------- --------- --------- Total (26.9) 9.1 (60.9) ------- ------ ------ DEFERRED INCOME TAXES(84.0) (33.0) (11.8) --------- --------- --------- Deferred income taxes Federal (13.4) (55.3) 27.1 69.0 Foreign and state (34.5) (30.7) (9.6) (2.0) ------- ------ --------------- --------- --------- Total (47.9) (86.0) 17.5 67.0 ------- ------ --------------- --------- --------- Total $(112.9) $ 26.6(131.9) $ 6.1 ======= ====== ======(119.0) $ 5.7 ========= ========= =========
Included in deferred income taxes are foreign tax credits of $31.6 million in 1995 and $18.4 million in 1994 and $28.3 million in 1992 and net operating loss carryforwards utilized of $9.1 million and $7.3 million in 1993 and 1992, respectively.1994. The U.S. and foreign components of income (loss) from continuing operations before income taxes and minority interest and changes in accounting methodsinterests are as follows:
Millions of dollars 1995 1994 1993 1992 ------- ------- ---------------- --------- --------- U.S. $ 201.1 $(134.3) $(126.1)216.7 $ 192.8 $ (138.8) Foreign 89.8 (54.8) (5.2) ------- ------- -------149.9 98.7 (8.9) --------- --------- --------- Total $ 290.9 $(189.1) $(131.3) ======= ======= =======366.6 $ 291.5 $ (147.7) ========= ========= =========
18 The primary components of the Company's deferred tax assets and liabilities and the related valuation allowances are as follows:
Millions of dollars 1995 1994 1993 ------- ---------------- --------- GROSS DEFERRED TAX ASSETS Employee benefit plans $ 85.0 $ 87.0 Transition costs on sale of geophysical operations and special charges 17.9 67.2 Insurance claim loss reserves 61.5 58.2 Intercompany profit 41.1 53.5Gross deferred tax assets Net operating loss carryforwards $ 89.2 $ 48.7 52.5 Construction contract accounting methods 88.9 34.4 37.3 Excess and obsolete inventoryEmployee benefit plans 85.6 84.0 Accrued liabilities 54.7 53.6 Intercompany profit 26.8 41.1 Insurance accruals 20.9 25.4 Alternative minimum tax carryforward 15.0 1.5 Foreign tax credits 11.5 28.414.0 All other 124.4 151.7 ------- ------- 424.5 535.8 ------- ------- GROSS DEFERRED TAX LIABILITIES57.8 84.9 --------- --------- Total 450.4 387.6 --------- --------- Gross deferred tax liabilities Depreciation and amortization 58.2 60.9 Capitalized and deferred development costs 14.5 28.068.5 58.5 Unrepatriated foreign earnings 33.2 27.933.2 Safe harbor leases 13.0 13.9 14.8 All other 118.6 117.3 ------- ------- 238.4 248.9 ------- ------- VALUATION ALLOWANCES121.7 119.2 --------- --------- Total 236.4 224.8 --------- --------- Valuation allowances Net operating loss carryforwards 53.2 29.3 33.5 All other 36.3 53.9 ------- ------- 65.6 87.4 ------- -------17.7 13.0 --------- --------- Total 70.9 42.3 --------- --------- Net deferred income tax asset $ 143.1 $ 120.5 $ 199.5 ======= ================ =========
The Company has foreign tax credits which expire in 19972000 of $14.0$11.5 million. The Company has net foreign operating loss carryforwards which expire as follows: 1995, $6.1 million; 1996, $8.0$11.5 million; 1997, $9.1$19.3 million; 1998, $14.9$27.0 million; 1999, $30.2 million; 2000 through 2004, $42.42010, $108.7 million; and indefinite, $62.3$64.6 million. Reconciliations between the actual benefit (provision) for income taxes and that computed by applying the U.S. statutory rate to income or loss from continuing operations before income taxes and minority interest and changes in accounting methodsinterests are as follows:
Millions of dollars 1995 1994 1993 1992 ------- ------ --------------- --------- --------- Benefit (provision) computed at statutory rate $(101.8) $ 66.2(128.3) $ 44.6(102.0) $ 51.7 Reductions (increases) in taxes resulting from: Loss on sale of geophysical operations - (66.5) - Tax differentials on foreign earnings (16.7) (29.1) (42.6) Nondeductible goodwill (0.9) (1.2) (4.2)(36.4) (18.1) (35.8) State income taxes, net of Federal income tax benefit (2.0) (6.2) (3.2)(5.1) (1.9) (6.1) Loss on sale of geophysical operations - - (66.5) Net operating losses 46.6 0.4 9.1 Federal income tax refund - 40.4 - Nontaxable interest income 9.0 9.0 12.340.4 Change in Federal income tax laws - - 6.4 - Other items, net (0.5) 7.6 (0.8) ------- ------ ------(8.7) 2.6 6.5 --------- --------- -------- Total $(112.9) $ 26.6(131.9) $ 6.1 ======= ====== ======(119.0) $ 5.7 ========= ========= ========
During 1994, theThe Company has received a statutory noticenotices of deficiency for the 1989, 1990 and 1991 tax yearyears from the Internal Revenue Service (IRS) of $51.8 million, $92.9 million and $16.8 million, respectively, excluding any penalties or interest. The Company believes it has meritorious defenses and does not expect that any liability resulting from the 1989, 1990 or 1991 tax yearyears will result in a material adverse effect on its results of operations or financial position. In 1993, the Company reached a settlement with the IRS for the 1980-1987 taxable years. As a result of the settlement, as well as significant prepayments of 19 taxes in prior years, the Company received a refund and net income was increased by $40.4 million in 1993. NOTE 8. LINES OF CREDIT AND LONG-TERM DEBTNote 6. Lines of Credit and Long-Term Debt
Millions of dollars 1995 1994 --------- --------- 8.75% debentures due February 15, 2021 $ 200.0 $ 200.0 Zero coupon convertible subordinated debentures - 375.7 Term loan at LIBOR plus .45% - 42.0 Other notes with varying interest rates 5.2 25.4 --------- --------- 205.2 643.1 Less current portion 5.2 20.1 --------- --------- Total $ 200.0 $ 623.0 ========= =========
The Company has short-term lines of credit totaling $445.0$125.0 million with several U.S. banks. No borrowings were outstanding at December 31, 19941995 under these credit facilities. At December 31, 1994, $30.71995, $4.8 million of other short-term debt was outstanding. Long-term debt at December 31, 1994 and 1993 consists of the following:
Millions of dollars 1994 1993 ------- ------- Zero coupon convertible subordinated debentures, $728.2 due March 13, 2006 $ 375.7 $ 354.1 8.75% debentures due February 15, 2021 200.0 200.0 Term loan at LIBOR plus .45%, with annual installments of $10.5 in 1996 and 1997 and $21.0 in 1998 42.0 42.0 4.0% notes payable with installments of $5.0 due quarterly through February 1996 25.0 - 10.2% debentures due June 1, 2005 - 23.8 Other notes with varying interest rates 0.4 4.0 ------- ------- Total $ 643.1 $ 623.9 ======= =======
The Company's 8.75% debentures due February 15, 2021 do not have sinking fund requirements and are not redeemable prior to maturity. The Company's $728.2 million principal amount at maturityIn September 1995, the Company redeemed all of the zero coupon convertible subordinated debentures due 2006 do not have periodic interest payment requirements and have an annual yield to maturity of 6.00%. Each $1,000 principal amount at maturity debenture is convertible into 6.824 shares of Common Stock of the Company. Each debenture holder has the option to require the Company to purchase the debentures on March 13, 1996 and March 13, 20012006 for a purchase price equal to$390.7 million in cash, which represents the original issue price of the debentures plus accrued original issue discount to the date of purchase, which amount may be paid by the Companyredemption date. In addition, in cash or shares of the Company's Common Stock. Five million shares of the Company's Common Stock have been reserved in the event of conversion and are presently antidilutive for earnings per share purposes. The debentures are redeemable for cash at any time at the option of the Company at redemption price equal to the issue price of the debentures plus accrued original issue discount to the date of redemption. In 1994, the Company issued $73.8 million in notes to the purchaser of the geophysical business to cover some of the costs of reducing certain geophysical operations, including the cost of personnel reductions, leases of geophysical marine vessels and closing of duplicate facilities. The Company's notes are payable over two years at a rate of 4%. During 1994,December 1995, the Company redeemed $48.8all of the $42.0 million of this note payable. On June 1, 1994, the Company redeemed theterm loan. The remaining $23.8 million of the 10.2% sinking fund debentures due June 1, 2005. Maturitieswere redeemed in 1994. Long-term debt of long-term debt$5.2 million matures during 1996 and there are no maturities due for the succeeding five years are as follows: 1995, $20.1 million; 1996, $15.6 million; 1997, $10.5 million; 1998, $21.0 million; and no maturities in 1999. NOTE 9. COMMON STOCK In 1993, shareholders of the Company approved thefour years. Note 7. Common Stock The Company's 1993 Stock and Long-Term Incentive Plan (1993 Plan). The 1993 Plan provides for the grant of any or all of the following types of awards: (1) stock options, including incentive stock options and non-qualified stock options; (2) stock appreciation rights, in tandem with stock options or freestanding; (3) restricted stock; (4) performance share awards; and (5) stock value equivalent awards. Under the terms of the 1993 Plan, 5.5 million shares of the Company's Common Stock were reserved for issuance to key employees. At December 31, 1994, 3.61995, 2.0 million shares were available for future grants. Stock option transactions for 1993 and 1994 are summarized as follows:
Exercise Weighted Average Number of Price per Exercise Price Shares Share Per Share --------- --------------- ---------------- Granted during 1993 698,500 $30.50 - $40.25 35.06 1994: Granted 1,039,000 $30.88 - $33.13 Canceled32.36 Forfeited (39,000) $30.50 30.50 --------- Outstanding at December 31, 1994 1,698,500 33.52 --------- 1995: Granted 1,356,500 $36.25 - $50.63 42.39 Exercised (130,082) $30.50 - $40.25 32.02 Forfeited (41,667) $30.88 - $40.25 35.16 --------- Outstanding at December 31, 1995 2,883,251 37.74 =========
All stock options are granted at fair market value of the Common Stock at the grant date. The weighted average fair value of the stock options granted during 1995 was $13.20. The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions used for grants in 1995: risk-free interest rate of 6.22%; expected dividend yield of 2.38%; expected life of five years; and expected volatility of 32.11%. Stock options generally expire ten years from the grant date or three years after date of retirement, if earlier. Stock options vest over a three year period, with one-third of the shares becoming exercisable on each of the first three anniversaries of the grant date. The outstanding stock options at December 31, 1995 have a weighted average contractual life of 8.92 years. The number of stock option shares exercisable at December 31, 1994 were 243,826.1995 was 745,744. These stock options have a weighted average exercise price of $34.31 per share. The Company accounts for the 1993 Plan in accordance with Accounting Principles Board Opinion No. 25, under which no compensation cost has been 20 recognized for stock option awards. Had compensation cost for the 1993 Plan been determined consistent with Statement of Financial Accounting Standards No. 123, "Accounting for Stock - Based Compensation" (SFAS 123), the Company's pro forma net income and earnings per share for 1995 would have been $164.5 million and $1.44, respectively. Because the SFAS 123 method of accounting has not been applied to options granted prior to January 1, 1995, the resulting pro forma compensation cost may not be representative of that to be expected in future years. Restricted shares awarded under the 1993 Plan for 1995, 1994 and 1993 were 206,350, 80,600 (netand 107,000, respectively. The shares awarded are net of forfeitures of 4,900 and 5,000 shares)shares in 1995 and 107,000,1994, respectively. In 1993, shareholdersThe weighted average fair market value per share at the date of the Company also approved thegrant of shares granted in 1995 was $40.88. The Company's Restricted Stock Plan for Non-Employee Directors (Restricted Stock Plan). Under the terms of the Restricted Stock Plan, allows for each non-employee director receivesto receive an annual award of 200 restricted shares of Common Stock as a part of compensation. The Company reserved 50,000 shares of Common Stock for issuance to non-employee directors. At December 31, 1994, 46,600 shares were available for future issuance. In 1994, theThe Company awarded 96,750issued 1,600 restricted shares in 1995 and 1,800 restricted shares in both 1994 and 1993 under this plan. The weighted average fair market value per share at the date of grant of shares granted in 1995 was $40.75. The Company's Employees' Restricted Stock Plan. The Company reservedPlan was established for employees who are not officers, for which 100,000 shares of Common Stock for issuance to employees who are not officers. At December 31,have been reserved. The Company awarded 1,750 and 96,750 restricted shares in 1995 and 1994, 3,250respectively, and 900 restricted shares were available for future issuance.forfeited in 1995. The weighted average fair market value per share at the date of grant of shares granted in 1995 was $35.00. Under the terms of the Company's career executive incentive stock plan, adopted by the Company in 1969, 7.5 million shares of the Company's Common Stock were reserved for issuance to officers and key employees at a purchase price not to exceed par value of $2.50 per share. At December 31, 1994,1995, 5.9 million shares (net of 1.0 million shares forfeited) have been issued under the plan. No further grants will be made under the career executive incentive stock plan. Restricted shares issued under the 1993 Plan, Restricted Stock Plan, Employees' Restricted Stock Plan and the career executive incentive stock plan are limited as to sale or disposition with such restrictions lapsing periodically over an extended period of time. The fair market value of the stock, on the date of issuance, is being amortized and charged to income (with similar credits to paid-in capital in excess of par value) generally over the average period during which the restrictions lapse. Compensation costs recognized in income for 1995 was $7.0 million. At December 31, 1994,1995, the unamortized amount is $20.8$23.9 million. See Note 8 for other shares of Common8. Series A Junior Participating Preferred Stock reserved for possible issuance. NOTE 10. SERIES A JUNIOR PARTICIPATING PREFERRED STOCK In 1986, the Company declared a dividend of one preferred stock purchase right (a Right) on each outstanding share of Common Stock, par value $2.50 per share (the Common Shares). Thecommon stock, terms of the outstanding Rightswhich were subsequently modified by the Company's Board of Directors as of February 15, 1990 and December 15, 1995 (the Amended Rights Agreement). Pursuant to the Amended Rights Agreement, each Right will entitle the holder thereof to buy one one-hundredth of a share of the Company's Series A Junior Participating Preferred Stock, without par value, (the Preferred Shares), at an exercise price of $70,$150, subject to certain antidilution adjustments. The Rights will not be exercisable or transferable apart from the Common Shares, until the tenth business day after a person or group (i) acquires 20% or more of the Common Shares or (ii) announces an intention to make a tender or exchange offer for 20% or more of the Common Shares. The Rights willdo not have any voting rights or beand are not entitled to dividends. If,The Rights become exercisable in certain limited circumstances involving a potential business combination. Following certain other events after the Rights become exercisable, (i) the Company merges into another entity, (ii) an acquiring entity merges into the Company and the Common Shares of the Company are exchanged for other securities or assets, or (iii) the Company sells more than 50% of its assets or earning power, then each Right will entitle its holder to purchase, at the exercise price of the Right, that number of sharesan amount of common stock of the acquiring companyCompany, or, in certain circumstances, securities of the acquiror, having a current market value of two times the exercise price of the Right. Alternatively, if a holder acquires 20% or more of the Company's Common Shares, then each Right not owned by such acquiring person or group will entitle the holder to purchase, for the exercise price, the number of Common Shares, having a currentthen-current market value of two times the exercise price of the Right. The Rights are redeemable at the Company's option for $.05 per Right at any time prior to the time that a person or group acquires beneficial ownership of 20% or more of the Common Shares. At any time after a person or group acquires 20% or more of the Common Shares, but prior to the time such acquiring person acquires 50% or more of the Common Shares, the Company's Board of Directors may redeembefore they become exercisable. The Rights expire on December 15, 2005. No event during 1995 made the Rights (other than those owned by the acquiring person), in whole or in part, by exchanging one Common Share for each two Common Shares for which a Right is then exercisable (subject to adjustment). The Rights will expire on the earlier to occur of (i) June 1, 1996, or (ii) the exchange or redemption of the Rights. NOTE 11. INSURANCE SUBSIDIARIES The consolidated financial statements include property and casualty insurance subsidiaries and a health care management subsidiary sold effective September 30, 1992. Undistributed earnings of $177.5 million were restricted as to payment of dividends by the insurance subsidiaries at December 31, 1994. Assets of the insurance subsidiaries, with the exception of dividend payments to the parent company, are not available for general corporate use.
COMBINED OPERATING RESULTS Millions of dollars 1994 1993 1992 ------- ------- ------- REVENUES Direct premiums $ 229.1 $ 278.3 $ 332.3 Premiums assumed 149.1 83.9 89.4 Premiums ceded (160.9) (102.0) (165.5) ------- ------- ------- Net earned premiums and agency income* 217.3 260.2 256.2 Investment income 47.4 48.6 60.7 ------- ------- ------- 264.7 308.8 316.9 ------- ------- ------- OPERATING COSTS AND EXPENSES Underwriting expenses 429.2 463.9 963.7 Reinsurance recoveries (180.0) (127.2) (657.2) Investment expenses 0.8 0.7 0.9 General and administrative 15.1 13.6 14.3 ------- ------- ------- 265.1 351.0 321.7 ------- ------- ------- OPERATING INCOME (LOSS) (0.4) (42.2) (4.8) Foreign currency gains (losses) 0.5 (0.3) (5.3) Nonoperating expense, net (1.0) - (0.8) ------- ------- ------- INCOME (LOSS) BEFORE INCOME TAXES AND CHANGES IN ACCOUNTING METHODS (0.9) (42.5) (10.9) Benefit for income taxes 5.8 21.3 11.0 ------- ------- ------- INCOME (LOSS) BEFORE CHANGES IN ACCOUNTING METHODS 4.9 (21.2) 0.1 Cumulative effect of changes in accounting methods - - (0.3) ------- ------- ------- NET INCOME (LOSS) $ 4.9 $ (21.2) $ (0.2) ======= ======= ======= *Includes revenues received from other segments of the Company of $34.4 million, $52.1 million and $41.0 million in 1994, 1993 and 1992, respectively.
Insurance Services written premiums are as follows:
Millions of dollars 1994 1993 1992 ------- ------- ------- Direct premiums $ 246.4 $ 252.4 $ 305.0 Premiums assumed 150.8 83.7 90.1 Premiums ceded (164.7) (92.7) (159.0) ------- ------- ------- Net written premiums and agency income $ 232.5 $ 243.4 $ 236.1 ======= ======= =======
COMBINED FINANCIAL POSITION Millions of dollars 1994 1993 --------- --------- ASSETS CASH AND EQUIVALENTS $ 52.8 $ 41.3 INVESTMENTS: Available-for-sale 219.0 182.5 Held-to-maturity 411.7 450.6 --------- --------- Total investments 630.7 633.1 NOTES AND ACCOUNTS RECEIVABLES** 213.8 266.8 REINSURANCE RECOVERABLES (less allowance for losses of $11.9 and $11.5) 671.1 653.5 PROPERTY, PLANT AND EQUIPMENT, at cost less accumulated depreciation of $6.5 and $7.1 2.0 3.3 EXCESS OF COST OVER NET ASSETS ACQUIRED 0.1 0.2 OTHER ASSETS 22.5 15.3 --------- --------- $ 1,593.0 $ 1,613.5 ========= ========= LIABILITIES AND EQUITY ACCOUNTS PAYABLE $ 51.9 $ 26.0 ACCRUED EMPLOYEE COMPENSATION AND BENEFITS 4.7 4.3 INCOME TAXES PAYABLE (20.9) (14.3) UNEARNED INSURANCE PREMIUMS 51.2 53.5 RESERVES FOR INSURANCE LOSSES AND CLAIMS** 1,197.2 1,210.7 OTHER LIABILITIES 40.1 52.4 --------- --------- Total liabilities 1,324.2 1,332.6 HALLIBURTON COMPANY EQUITY, adjusted for net unrealized gains (losses) of $(7.6) and $9.3 268.8 280.9 --------- --------- $ 1,593.0 $ 1,613.5 ========= ========= **Includes $70.8 million in 1994 and $79.0 million in 1993 relating to incurred but not reported claims on associated company business which had no effect on Halliburton Company equity.
A United Kingdom subsidiary of the Company suspended further underwriting activities due to unacceptable loss experience in 1993 and 1992. The Company recognized a $46.3 million and a $21.0 million charge to operating income in 1993 and 1992, respectively, for additional claim loss reserves and for future administrative expenses of claims processing and other activities related to insurance coverage previously written in the United Kingdom. The subsidiary may resume underwriting activities in the future if market conditions improve. The Company's insurance subsidiaries have numerous reinsurance agreements with other insurance companies. To the extent that any reinsurance company is unable to meet its obligations under the reinsurance agreements, the Company's insurance subsidiaries would remain obligated. Total reinsurance recoverables primarily relate to ceded losses and incurred but not reported claims. Major reinsurers include American Re-Insurance Company, General Reinsurance Corporation and Cigna Property and Casualty Company with A.M. Best ratings of A+, A++ and A-, respectively. In 1993, the Company adopted SFAS 113, "Accounting and Reporting for Reinsurance of Short-Duration and Long-Duration Contracts," which requires reinsurance receivables (including amounts related to claims incurred but not reported) and prepaid reinsurance premiums to be classified as assets. Insurance losses and claims related to asbestos and environmental remediation are based upon management's best estimates using facts currently known, taking into consideration the current legislative and legal environment. Developed case law and adequate claim history do not exist for such claims. Estimates of the liability are reviewed and updated continually. Due to the significant uncertainties related to these types of claims, past claim experience may not be representative of future claim experience. NOTE 12. BUSINESS SEGMENT INFORMATIONexercisable. Note 9. Business Segment Information The Company operates in threetwo segments - Energy Services and Engineering and Construction Services, and Insurance Services. Energy Services' products and services include drilling systems and services, pressure pumping equipment and services, logging and perforating, specialized completion and production equipment and services, and well control. Engineering and Construction Services provides engineering, construction, project management, facilities operation and maintenance, and environmental services for industrial and governmentgovernmental customers. Insurance Services offers casualty, property, surety and marine insurance services. The Company's equity in income or losses of related companies is included in revenues and operating income of each applicable segment. Insurance Services' revenues include $34.4 million, $52.1 million and $41.0 million in intersegment sales for the years ended December 31, 1994, 1993 and 1992, respectively. Intersegment revenues included in the revenues of the other business segments are immaterial. Sales between geographic areas and export sales are also immaterial. General and administrative expenses were $157.8 million, $182.0 million and $195.9 million for the years ended December 31, 1995, 1994 and 1993, respectively. Depreciation and amortization expenses were increased in 1993 by the loss for the sale of the geophysical business in 1994 discussed in Note 1913 by $128.9 million. In 1992, depreciation and amortization expenses of Energy Services and Engineering and Construction Services were increased $62.1 million and $12.0 million, respectively, by the special charges discussed in Note 18. General corporate assets are primarily comprised of cash and equivalents and certain other investments. 21 OPERATIONS BY BUSINESS SEGMENT Years ended December 31
Millions of dollars 1995 1994 1993 1992 --------- --------- --------- REVENUES:Capital expenditures: Energy services $ 2,514.0232.3 $ 2,953.4188.8 $ 2,726.3197.8 Engineering and construction services 2,996.2 3,140.7 3,563.7 Insurance services 264.7 308.8 316.9 Eliminations (34.4) (52.1) (41.0)56.3 44.5 45.9 General corporate 0.1 0.4 1.6 --------- --------- --------- Total $ 5,740.5288.7 $ 6,350.8233.7 $ 6,565.9245.3 ========= ========= ========= OPERATING INCOME (LOSS):Depreciation and amortization: Energy services $ 191.1189.9 $ (147.7)204.4 $ (63.6)395.8 Engineering and construction services 67.2 79.3 (12.0) Insurance services (0.4) (42.2) (4.8)52.8 53.3 51.6 General corporate (22.9) (22.0) (21.0) --------- --------- --------- Total $ 235.0 $ (132.6) $ (101.4) ========= ========= ========= CAPITAL EXPENDITURES: Energy services $ 188.8 $ 197.8 $ 228.8 Engineering and construction services 44.5 45.9 84.0 Insurance services 1.0 1.61.4 2.5 General corporate 0.4 1.6 0.6 --------- --------- --------- Total $ 234.7 $ 246.9 $ 315.9 ========= ========= ========= DEPRECIATION AND AMORTIZATION: Energy services $ 204.4 $ 395.8 $ 294.4 Engineering and construction services 53.3 51.6 60.5 Insurance services 1.4 1.6 2.1 General corporate 2.5 3.0 3.0 --------- --------- --------- Total $ 261.6244.1 $ 452.0260.2 $ 360.0450.4 ========= ========= ========= IDENTIFIABLE ASSETS:Identifiable assets: Energy services $ 2,131.32,081.4 $ 2,570.22,129.1 $ 2,346.32,567.6 Engineering and construction services 1,021.7 938.3 1,045.1 Insurance services 1,593.0 1,613.5 1,835.91,086.5 1,019.7 936.3 General corporate 593.1 360.1 412.8 Eliminations (70.8) (79.0) (74.5)478.7 570.0 357.4 Net assets of discontinued operations - 286.6 278.3 --------- --------- --------- Total $ 5,268.33,646.6 $ 5,403.14,005.4 $ 5,565.64,139.6 ========= ========= =========
OPERATIONS BY GEOGRAPHIC AREA Years ended December 31
Millions of dollars 1995 1994 1993 1992 --------- ------------------- --------- REVENUES:Revenues: United States $ 3,416.43,109.4 $ 3,818.33,197.6 $ 4,016.53,581.3 Europe 960.9 946.7 1,090.31,093.3 949.4 927.1 Latin America 527.0 404.2 377.5 Other areas 1,363.2 1,585.8 1,459.1969.0 959.0 1,208.2 --------- ------------------- --------- Total $ 5,740.55,698.7 $ 6,350.85,510.2 $ 6,565.96,094.1 ========= ========== ========= ========= OPERATING INCOME (LOSS)Operating income (loss): United States $ 171.5217.3 $ 20.7163.1 $ (21.9)16.8 Europe (21.8) (71.5) (5.7)1.0 (12.5) (26.7) Latin America 64.6 35.8 (2.6) Other areas 108.2 (59.8) (52.8)133.8 72.6 (57.0) General corporate (33.5) (22.9) (22.0) (21.0) --------- ------------------- --------- Total $ 235.0383.2 $ (132.6)236.1 $ (101.4)(91.5) ========= ========== ========= ========= IDENTIFIABLE ASSETS:Identifiable assets: United States $ 2,909.61,743.7 $ 3,256.51,629.6 $ 3,474.71,885.8 Europe 813.5 786.2 757.8514.4 569.3 619.8 Latin America 276.8 271.9 291.0 Other areas 952.1 1,000.3 920.3633.1 678.0 707.3 General corporate 593.1 360.1 412.8478.6 570.0 357.4 Net assets of discontinued operations - 286.6 278.3 --------- ------------------- --------- Total $ 5,268.33,646.6 $ 5,403.14,005.4 $ 5,565.64,139.6 ========= =================== =========
NOTE 13. RESEARCH AND DEVELOPMENT ResearchNote 10. Commitments and development expenses are charged to income as incurred. Such charges were $109.5 million in 1994, $126.5 million in 1993 and $112.1 million in 1992. In addition, the Company capitalized software development costs related primarily to integrated information technologies and project management of $6.4 million in 1994, $39.8 million in 1993 and $44.8 million in 1992. NOTE 14. COMMITMENTS AND CONTINGENCIESContingencies Leases. At December 31, 1994,1995, the Company was obligated under noncancelable operating leases, expiring on various dates to 2108, principally for the use of land, offices, equipment and field facilities. Aggregate rentals charged to operations for such leases totaled $107.5$70.4 million in 1995, $105.3 million in 1994, $133.6and $130.8 million in 1993 and $137.4 million in 1992.1993. Future aggregate rentals on noncancelable operating leases are as follows: 1995, $74.3 million; 1996, $53.3$50.3 million; 1997, $41.0$41.8 million; 1998, $31.2$31.7 million; 1999, $22.2$23.0 million; 2000, $14.0 million; and thereafter, $101.1$94.2 million. 22 Environmental. The Company is involved as a potentially responsible party (PRP) in remedial activities to clean up various "Superfund" sites under applicable Federal law which imposes joint and several liability, if the harm is indivisible, on certain persons without regard to fault, the legality of the original disposal, or ownership of the site. Although it is very difficult to quantify the potential impact of compliance with environmental protection laws, management of the Company believes that any liability of the Company with respect to all but twoone of such sites will not have a material adverse effect on the results of operations of the Company. With respect to a site in Jasper County, Missouri (Jasper County Superfund Site), and a site in Nitro, West Virginia (Fike/Artel Chemical Superfund Site), sufficient information has not been developed to permit management to make such a determination and management believes the process of determining the nature and extent of remediation at eachthis site and the total costs thereof will be lengthy. Brown & Root, Inc. (Brown & Root), a subsidiary of the Company, has been named as a PRP with respect to the Jasper County Superfund Site by the Environmental Protection Agency (EPA). The Jasper County Superfund Site includes areas of mining activity that occurred from the 1800's through the mid 1950's in the Southwesternsouthwestern portion of Missouri. The site contains lead and zinc mine tailings produced from mining activity. Brown & Root is one of nine participating PRPs which have agreed to perform a Remedial Investigation/Feasibility Study (RI/FS), which is not expected to be completed until March 1995.the third quarter of 1996. Although the entire Jasper County Superfund Site comprises 237 square miles as listed on the National Priorities List, in the RI/FS scope of work, the EPA has only identified seven areas, or subsites, within this area that need to be studied and then possibly remediated by the PRPs. Additionally, the Administrative Order on Consent for the RI/FS only requires Brown & Root to perform RI/FS work at one of the subsites within the site, the Neck/Alba subsite, which only comprises 3.95 square miles. Brown & Root's share of the cost of such a study is not expected to be material. At the present time Brown & Root cannot determine the extent of its liability, if any, for remediation costs on any reasonably practicable basis. The Company is one of 32 companies that have been designated as PRPs at the Fike/Artel Chemical Superfund Site. Six "Operable Units" have been established by the EPA in connection with remediation activities for the site. The EPA instituted litigation in the U.S. District Court for the Southern District of West Virginia (United States v. American Cyanamid Co., Inc. et al.) against all PRPs seeking recovery of its past response costs in Operable Unit 1. The PRPs are subject to a Consent Decree with respect to the remediation of Operable Unit 2. In June 1993, the EPA issued a Unilateral Administrative Order requiring all PRPs to implement remediation of Operable Unit 3. The PRPs have entered into an Administrative Order on Consent that will allow them to perform a site-wide RI/FS (Operable Unit 4). The Company's share of past response costs alleged by the EPA for Operable Unit 1, remediation cost estimates for Operable Units 2 and 3, and cost estimates to perform the RI/FS (Operable Unit 4) range in the aggregate from approximately $1.7 million to approximately $2.3 million. There are at present no reliable estimates of costs to remediate Operable Units 5 and 6, because the EPA has not yet proposed any remediation methodology. Those costs may, however, be significantly larger than the estimates thereof for the other units. Although the liability associated with this site could possibly be significant to the results of operations of some future reporting period, management believes, based on current knowledge, that its share of costs at this site is unlikely to have a material adverse impact on the Company's consolidated financial condition. In April 1991, the U.S. Customs Service initiated an investigation of a subsidiary of the Company, Halliburton Logging Services, Inc. (HLS), and in October 1991, as a result of its own internal inquiry, HLS provided information to the U.S. Departments of Commerce and Justice, in each case regarding the export and re-export of certain oil field tools. The tools were exported by HLS and its predecessors to certain foreign affiliates and were re-exported by them to an HLS foreign affiliate in Libya without a validated re-export license. The shipments involved thermal multigate decay tools used in oil field logging operations and occurred between December 1987 and June 1989. During 1992, HLS received subpoenas to produce documents related to the foregoing matter before a Federal grand jury. The Company believes the U.S. Government will take the position that such shipments violated Presidential Executive Orders imposing sanctions against Libya (the Orders) as well as export regulations of the Department of Commerce (the Regulations). Halliburton Geophysical Services, Inc. (HGS), a subsidiary acquired by the Company in 1988, in an unrelated matter, advised the U.S. Departments of Commerce and Justice in March 1992 that the United Kingdom subsidiary of HGS, as a small part of its business, shipped to Libya, during the period from March 1987 through April 1991, United States origin spare parts, primarily for equipment of various types, and performed certain repairs and training on the equipment. The consignee was a Libyan-based geophysical company in which HGS owned an indirect, minority interest. Moreover, certain items validly shipped to this consignee in a third country were subsequently re-exported by it to Libya without specific re-export authorization. After discovering these matters, the U.K. subsidiary terminated all activities in support of Libyan companies and operations. The Company believes the U.S. Government will take the position that such actions violated the Orders and the Regulations. On July 1, 1993, HLS and HGS, as well as certain other subsidiaries of the Company, were merged into the Company. In January 1994 the Company disposed of its geophysical business which included substantially all of the business of HGS. The privilege of exporting oil field tools and other products to its affiliates is important to the Company in order to support its worldwide logging services. Sanctions against corporations for violations of the Orders and the Regulations range from civil penalties, including denial of export privileges and monetary penalties, to significant criminal fines. Although the Company cannot predict the exact nature of the sanctions the U.S. Government may seek with respect to these matters, the Company believes the U.S. Government will seek to impose civil penalties or criminal fines or both. In the opinion of the Company the amount of such penalties and fines would not be material to the results of operations or the consolidated financial position of the Company.Other. The Company and its subsidiaries are parties to various other legal proceedings. Although the ultimate dispositiondispositions of such proceedings isare not presently determinable, in the opinion of the Company any liability that mightmay ensue wouldwill not be material in relation to the consolidated financial position and results of operations of the Company. NOTE 15. FINANCIAL INSTRUMENTS AND RISK CONCENTRATION FOREIGN EXCHANGE RISK.Note 11. Financial Instruments and Risk Concentration Foreign Exchange Risk. The Company operates in over 100 countries around the world and has exposures to currency fluctuations in approximately 80 foreign currencies. These exposures subject the Company to the risk that the eventual dollar net cash flows from sales to customers and purchases from suppliers could be adversely affected by changes in exchange rates. Some currencies have established markets that facilitate the active exchange of one currency for another (traded currencies), but most currencies are not widely traded and are actively controlled by their respective governments (non-traded currencies). As part of the Company's efforts to minimize foreign exchange risk, the Company hedges its foreign currency exposure in traded currencies through the use of simple currency derivative instruments. Foreign currency transactions for speculative (trading) purposes are not permitted. It is the Company's policy to hedge significant exposures to potential foreign exchange losses considering current market conditions, future operating activities and the cost of hedging the exposure in relation to the perceived risk of loss. Techniques in managing foreign exchange risk include, but are not limited to, foreign currency borrowing, investments,investing, and the use of currency derivative instruments. Foreign currency transactions for speculative purposes are not permitted. Market Risk. As part of the Company's efforts to minimize market risk associated with foreign currency exchange rate volatility, the Company hedges its exposure in traded currencies through the use of currency derivative instruments, specifically, forward exchange contracts and foreign exchange option contracts. Such contracts generally have an expiration date of one year or less. Forward exchange contracts are commitments(commitments to buy or sell a specified amount of a foreign currency at a specified price and time.time) are generally used to hedge identifiable foreign currency commitments. Gains or losses on such contracts are deferred and recognized when the offsetting gains and losses are recognized on the related hedged items. Foreign exchange option contracts (puts or calls)(which convey the right, but not the obligation, to sell or buy a specified amount of foreign currency at a specified price. A put isprice) are generally used to hedge foreign currency commitments with an option to sell; a call is an option to buy.indeterminable maturity date. The table below provides a comparisonuse of some contracts may limit the Company's net asset (liability) position at December 31, 1994, in traded (other than U.S. dollar) and non-traded currencies as well as the fair value of the notional amounts of hedging contracts in which the Company is a buyer or a seller. The "buyer" amounts represent the U.S. dollar equivalent of contracts where the Company is the purchaser of foreign currencies and the "seller" amounts represent the U.S. dollar equivalent of contracts where the Company is the seller of foreign currencies.
Fair Value of Notional Amounts of Hedging Contracts Net Asset Net Asset ------------------- (Liability) (Liability) Buyer Seller Not Hedged ----------- ----------- ----------- ----------- Traded currencies: Exchange movements affecting: Net income $ 53.2 $ 31.1 $ 55.1 $ 29.2 Shareholders' equity 68.8 - - 68.8 Non-traded currencies (12.4) - - (12.4) ----------- ----------- ----------- ----------- Totals $ 109.6 $ 31.1 $ 55.1 $ 85.6 ----------- ----------- ----------- ----------- Percent of consolidated net assets 6% 4%
The Company limits some of its ability to benefit from favorable fluctuations in foreign exchange rates throughrates. Forward and option contracts associated with foreign currency commitments having indeterminable maturity dates are marked to market monthly with the useresulting gains or losses included in current period income. While hedging instruments are subject to fluctuations in value, such fluctuations are generally offset by the value of the underlying exposures being hedged. The forward contracts.or option contracts utilized are all purchased from a selected group of highly rated banks. None of the forward or option contracts utilized are exchange traded. At December 31, 1995, the Company held foreign currency forward contracts with net notional amounts totaling $12.4 million, in which the Company was the buyer of $3.4 million and the seller of $15.8 million of foreign currencies, and foreign currency option contracts with net notional amounts totaling $54.1 million in which the Company was the buyer of $18.1 million and the seller of $72.2 million of foreign currencies. At December 31, 1994, the Company had outstandingheld foreign currency forward contracts and currency options at fair values ofwith net notional amounts totaling $11.8 million, in which the Company was the buyer of $5.1 million and the seller of $16.9 million of foreign currencies, and foreign currency option contracts with net notional amounts totaling $12.2 million, respectively, to managein which the Company was the buyer of $26.0 million and the seller of $38.2 million of foreign currencies. The Company actively monitors its foreign exchange risk. Such contracts generally have an expiration date of one year or less. Forward contracts are generally used to hedge identifiable cash flowscurrency exposure (net 23 position) and currency options are generally used to hedge cash flows with an indeterminable maturity date. Some ofadjusts the contracts involve the exchange of two foreign currencies, according to the local needs of foreign subsidiaries. Foreign currency amounts are translated at rates current at the reporting date with gains or losses and the amortization of premiums paid for such contracts included in foreign currency gains (losses).hedged as appropriate. The table below summarizes by majorthe Company's net assets (liabilities) exposed to currency fluctuations at December 31, 1995, in traded (other than U.S. dollar) and non-traded foreign currencies as well as the fair value of thenet notional amounts of the Company's forward exchange and optionrelated hedging contracts in U.S. dollars at December 31, 1994.held.
Net Contract/ Net Assets Net Assets Notional (Liabilities) Millions of dollars Buyer Seller ------ ------(Liabilities) Amount Hedged Not Hedged ------------- ------------- ----------- Danish krone Traded currencies: UK pound sterling $ 7.010.7 $ 8.2 Indonesia rupiah - 7.827.9 $ (17.2) Canadian dollar 7.9 9.2 (1.3) Norwegian krone 13.9 21.8 Singapore dollar 5.1 -3.3 8.8 (5.5) Italian lira 8.8 7.2 1.6 Other currencies 5.1 17.3 ------ ------14.5 13.4 1.1 Non-traded currencies (32.7) - (32.7) ------------- ------------- ----------- Totals $ 31.112.5 $ 55.1 ====== ======66.5 $ (54.0) ============= ============= ===========
Cash flow exposures inExposures to non-traded currencies are generally not hedged due primarily to cost considerations and lack of available markets.markets or cost considerations. The Company attempts to manage its working capital position to minimize foreign currency exposure to thesecommitments 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 such as Brazil, Venezuela, Mexico and Nigeriacurrencies. The risk of loss is primarily due to the magnitude of currency devaluations experienced in those currencies rather than the size of the foreign currency exposures. The net foreignNet assets subject to currency exposure resulting from the use of functional currencies other than the U.S. dollar in which exchange losses in these four currenciesmovements affect shareholders' equity were $18.8$143.0 million in 1994, $24.8 million in 1993 and $20.5 million in 1992. At December 31, 1994, the combined net asset position in these four currencies was $7.6 million. INTEREST RATE RISK. The Company has an interest rate cap agreement to reduce the risk of changes in interest rates on its $42.0 million floating rate long-term debt due in 1998. The Company paid $.5 million to place a maximum interest rate cap of 6.55% per annum on this debt cumulatively from 1995 through 1998, the last three years of the credit agreement. Amounts receivable, if any, under this interest cap agreement will be treated as an adjustment to interest expense in the period it is earned and the cost of the cap will be amortized to interest expense over the three year period for which it will be effective. COMMODITY EXCHANGE RISK. The Company often enters into exchange traded commodity futures contracts to protect the Company against adverse fuel and raw material price movements over the life of long-term fixed price contracts in its engineering and construction services business. As fuel and/or raw materials are consumed, the Company reduces the number of contracts outstanding and gains or losses incurred from the liquidation of the contracts are recognized as part of the cost of the fuel or raw materials. Gains or losses from rolling the portfolio forward are deferred until the contracts are liquidated. As of December 31, 1994, the Company had deferred losses from such contracts of $.2 million. As of December 31, 1994, the notional amount of such contracts held by the Company was $2.9 million. CREDIT RISK.1995. Credit Risk. Financial instruments which potentially subject the Company to concentrations of credit risk are primarily cash equivalents, investments and trade receivables. It is the Company's practice to place its cash equivalents and investments in high quality securities with various investment institutions. The Company derives the majority of its revenues from sales and services to, including engineering and construction for, the energy industry. Within the energy industry, trade receivables are generated from a broad and diverse group of customers. There are concentrations of receivables in the United States and the United Kingdom. The Company maintains an allowance for losses based upon the expected collectibility of all trade accounts receivable. The notional amounts of the Company's foreign exchange contracts and commodity futures contracts do not generally represent amounts exchanged by the parties, and thus, are not a measure of the exposure of the Company.Company or of the cash requirements relating to these contracts. The credit exposure of the Company on foreign exchange contracts and commodity futures contracts is represented by the carrying amount of such contracts. Counterparties are selected by the Company based on creditworthiness, which the Company continually monitors, and on the counterparties' ability to perform their obligations under the terms of the transactions. There are no significant concentrations of credit risk with any individual counterparty or groups of counterparties related to the Company's derivative contracts. The Company does not expect any counterparties to fail to meet their obligations under these contracts given their high credit ratings. FAIR VALUE OF FINANCIAL INSTRUMENTS.ratings and, as such, considers the credit risk associated with its derivative contracts to be minimal. Fair Value of Financial Instruments. The financial position of the Company at December 31, 1994, includes certain financial instruments which may have a fair value that is different from the value currently reflected on the financial statements. In reviewing the financial instruments of the Company, certain assumptions and methods were used to determine the fair value of each category of financial instruments for which it is practicable to estimate that value. The carrying amounts and estimated fair value of the Company's financial instrumentslong-term debt at December 31, 1995 and 1994 was $247.9 million and 1993 are$626.1 million, respectively, as follows:
1994 1993 ------------------- ------------------- Carrying Fair Carrying Fair Millions of dollars Amount Value Amount Value -------- -------- -------- -------- Investments $ 654.8 $ 644.3 $ 656.5 $ 675.3 Long-term debt 643.1 626.1 623.9 662.0 Derivatives relating to: Foreign exchange risk 0.8 0.6 1.5 1.4 Interest rate risk 0.5 1.4 0.5 0.5 Commodity exchange risk 0.3 0.3 0.7 0.7
compared to the carrying amount of $200.0 million and $643.1 million at December 31, 1995 and 1994, respectively. The carrying amountsfair value of derivatives are included in other assets and generally represent the unamortized amounts paidlong-term debt is based on quoted market prices for thethose or similar instruments. The carrying amount of short-term financial instruments (cash and equivalents, receivables, and certain other liabilities) as reflected in the consolidated balance sheets approximates fair value due to the short maturitymaturities of thosethese instruments. The fair value of investments, long-term debt, foreign exchange riskcurrency derivative instruments, which generally approximates the carrying amount, was less than $2.5 million at December 31, 1995 and interest rate risk instruments1994. Note 12. Retirement Plans Retirement Plans. The Company has various retirement plans which cover a significant number of its employees. The major pension plans are defined contribution plans, which provide pension benefits in return for services rendered, provide an individual account for each participant, and have terms that specify how contributions to the participant's account are to be determined rather than the amount of pension benefits the participant is to receive. Contributions to these plans are based on quoted market prices, where available, pre-tax income and/or quotes from external pricing sourcesdiscretionary amounts determined on an annual basis. The Company's expense for the defined contribution plans totaled $94.2 million, $98.0 million and $54.6 million in 1995, 1994 and 1993, respectively. Other pension plans include defined benefit plans, which define an amount of pension benefit to be provided, usually as a function of one or more factors such as brokersage, years of service, or compensation. As a result of the sizable reduction in the number of employees, curtailment gains of $1.3 million and $8.9 million are reflected in the net amortization and deferral component of net periodic pension cost for those or similar investments1995 and issues.1994, respectively. 24 These plans are funded to operate on an actuarially sound basis. Assumed long-term rates of return on plan assets, discount rates in estimating benefit obligations and rates of compensation increases vary for the different plans according to the local economic conditions. Plan assets are primarily invested in equity and fixed income securities of entities domiciled in the country of the plan's operation. The carrying amountrates used are as follows:
Percentages 1995 1994 1993 ----------- ---------- ---------- Return on plan assets: United States plans 8.5% 8.5% 8.5% International plans 6.5% to 9% 7% to 9% 9% Discount rate: United States plans 7% to 7.25% 8.5% 7.5% International plans 4% to 8.5% 4% to 8.5% 4% to 8.5% Compensation increase: United States plans 4% 5% 4.25% International plans 1% to 6% 1% to 6% 1% to 6%
The net periodic pension cost for defined benefit plans is as follows:
Millions of dollars 1995 1994 1993 --------- --------- --------- Service cost - benefits earned during period $ 9.6 $ 9.5 $ 42.3 Interest cost on projected benefit obligation 27.5 26.6 25.7 Actual return on plan assets (46.8) (8.5) (78.0) Net amortization and deferral 12.7 (26.7) 56.3 --------- --------- --------- Net periodic pension cost $ 3.0 $ 0.9 $ 46.3 ========= ========= =========
The reconciliation of commodity exchange risk instrumentsthe funded status for defined benefit plans where assets exceed accumulated benefits is based onas follows:
Millions of dollars 1995 1994 --------- --------- Actuarial present value of benefit obligations: Vested $ (300.3) $ (278.2) ========= ========= Accumulated benefit obligation $ (309.0) $ (285.9) ========= ========= Projected benefit obligation $ (345.6) $ (334.3) Plan assets at fair value 423.7 371.4 --------- --------- Funded status 78.1 37.1 Unrecognized prior service cost 5.5 5.4 Unrecognized net gain (81.3) (57.2) Unrecognized net transition asset (4.5) (4.7) --------- --------- Net pension liability $ (2.2) $ (19.4) ========= =========
25 The reconciliation of the margin requirements of these instruments and,funded status for defined benefit plans where accumulated benefits exceed assets is as such, approximates fair value. NOTE 16. RETIREMENT PLANSfollows:
Millions of dollars 1995 1994 --------- --------- Actuarial present value of benefit obligations: Vested $ (3.4) $ (2.6) ========= ========= Accumulated benefit obligation $ (8.1) $ (7.5) ========= ========= Projected benefit obligation $ (9.1) $ (10.1) Plan assets at fair value 2.2 - --------- --------- Funded status (6.9) (10.1) Unrecognized net gain (1.8) (4.5) Unrecognized net transition asset (1.0) (1.1) Adjustment required to recognize minimum liability (3.4) - --------- --------- Net pension liability $ (13.1) $ (15.7) ========= =========
Postretirement Medical Plan. The Company offers a postretirement medical plan to certain employees that qualify for retirement and, on the last day of active employment, are enrolled as participants in the Company's active employee medical plan. The Company's liability is limited to a fixed contribution amount for each participant or dependent. Effective in September 1993, coverage under this plan ceases when the participant reaches age 65. However, those participants aged 65 or over on January 1, 1994, have the option to participate in an expanded prescription drug program in lieu of the medical coverage. The plan participants share the total cost for all benefits provided above the fixed Company contribution and participants' contributions are adjusted as required to cover benefit payments. The Company has made no commitment to adjust the amount of its contributions; therefore, the computed accumulated postretirement benefit obligation amount is not affected by the expected future healthcare cost inflation rate. In 1992,The weighted average discount rate used in determining the Company adopted Statement of Financial Accounting Standards No. 106 "Employers' Accounting for Postretirement Benefits Other than Pensions" (SFAS 106), which requires accrual, during the years that the employee renders the services, of the expected cost of providingaccumulated postretirement benefits. As of January 1, 1992, the Company recognized the transitionbenefit obligation of $29.3 million as a charge to the net loss, net of income taxes of $16.0 million, or 27 cents per share. Prior to adoption of SFAS 106, the Company expensed its contributions as incurred.was 7% in 1995, 8% in 1994 and 7% in 1993. Net periodic postretirement benefit cost included the following components:
Millions of dollars 1995 1994 1993 1992 ----- ----- -------------- -------- -------- Service cost - benefits attributed to service during the period $ 0.5 $ 0.8 $ 0.9 $ 1.0 Interest cost on accumulated postretirement benefit obligation 2.42.1 2.3 3.1 3.4 Amortization of prior service costNet amortization and deferral (1.0) (0.9) (0.3) - ----- ----- -------------- -------- -------- Net periodic postretirement cost $ 2.31.6 $ 2.2 $ 3.7 $ 4.4 ===== ===== ============== ======== ========
The weighted-average discount rate used in determiningNon-pension postretirement benefits are funded by the accumulated postretirement benefit obligation was 8% in 1994, 7% in 1993 and 8% in 1992.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, 19941995 and 19931994 is as follows:
Millions of dollars 1995 1994 1993 ------ --------------- -------- Accumulated postretirement benefit obligation: Retirees and related beneficiaries $ 15.215.6 $ 21.415.2 Fully eligible active plan participants 5.4 6.12.4 5.3 Other active plan participants not fully eligible 7.9 9.1 ------ ------6.7 7.7 --------- -------- Accumulated postretirement benefit obligation 28.5 36.624.7 28.2 Unrecognized prior service cost 9.4 10.38.3 9.3 Unrecognized gain (loss) 4.5 (1.9) ------ ------7.0 4.4 --------- -------- Net postretirement liability $ 42.440.0 $ 45.0 ====== ======41.9 ========= ========
The Company is not required to fund its future obligation under the plan. The Company has various retirement plans which cover a significant number of its employees. The major pension plans are defined contribution plans, which provide pension benefits in return for services rendered, provide an individual account for each participant,Note 13. Acquisitions and have terms that specify how contributionsDispositions See Note 14 as 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 $98.7 million, $56.1 million and $73.7 million in 1994, 1993, and 1992, respectively. Other pension plans include defined benefit plans, which define an amount of pension benefit to be provided, usually as a function of one or more factors such as age, years of service, or compensation. As a resultdisposition of the sizable reduction in the number of employees, curtailment gains of $8.9 million are reflected in the net amortization (deferral) component of net periodic pension cost for 1994. These plans are funded to operate on an actuarially sound basis. Assumed long-term rates of return on plan assets, discount rates in estimating benefit obligations and rates of compensation increases vary for the different plans according to the local economic conditions. The rates used are as follows:
Percentages 1994 1993 1992 ---------- ---------- ---------- Return on plan assets: United States plans 8.5% 8.5% 8.5% International plans 7% to 9% 9% 9% to 10% Discount rate: United States plans 8.5% 7.5% 8.5% International plans 4% to 8.5% 4% to 8.5% 4% to 10% Compensation increase: United States plans 5% 4.25% 5.5% International plans 1% to 6% 1% to 6% 1% to 7%
The net periodic pension cost for defined benefit plans is as follows:
Millions of dollars 1994 1993 1992 ------ ------ ------ Service cost - benefits earned during period $ 9.5 $ 42.3 $ 42.9 Interest cost on projected benefit obligation 26.6 25.7 23.2 Actual return on plan assets (8.5) (78.0) (17.6) Net amortization (deferral) (26.7) 56.3 (3.3) ------ ------ ------ Net periodic pension cost $ 0.9 $ 46.3 $ 45.2 ====== ====== ======
The reconciliation of the funded status for defined benefit plans where assets exceed accumulated benefits is as follows:
Millions of dollars 1994 1993 ------- ------- Actuarial present value of benefit obligations: Vested $(278.2) $(235.8) ======= ======= Accumulated benefit obligation $(285.9) $(251.2) ======= ======= Projected benefit obligation $(334.3) $(286.6) Plan assets at fair value 371.4 293.8 ------- ------- FUNDED STATUS 37.1 7.2 Unrecognized prior service cost 5.4 - Unrecognized net (gain) (57.2) (32.7) Unrecognized net obligation (asset) (4.7) 4.2 ------- ------- NET PENSION LIABILITY $ (19.4) $ (21.3) ======= =======
The reconciliation of the funded status for defined benefit plans where accumulated benefits exceed assets is as follows:
Millions of dollars 1994 1993 ------ ------ Actuarial present value of benefit obligations: Vested $ (2.6) $(24.4) ====== ====== Accumulated benefit obligation $ (7.5) $(29.2) ====== ====== Projected benefit obligation $(10.1) $(65.0) Plan assets at fair value - 10.4 ------ ------ FUNDED STATUS (10.1) (54.6) Unrecognized prior service cost - 4.2 Unrecognized net (gain) (4.5) (13.5) Unrecognized net obligation (asset) (1.1) 6.9 Adjustment required to recognize minimum liability - (5.0) ------ ------ NET PENSION LIABILITY $(15.7) $(62.0) ====== ======
NOTE 17. ENERGY SERVICES SEVERANCE COSTS In the second quarter of 1994, the Company recognized severance costs of $42.6 million, net of $12.7 million which was previously accrued, to provide for the termination of about 2,700 Energy Services employees. The terminations mostly impact middle and senior management levels and various product line support and general and administrative employees. Approximately 85% of the terminations occurred by year-end with the remainder to occur during the first quarter of 1995. At December 31, 1994, the remaining liability for these severance costs was $7.8 million. NOTE 18. SPECIAL CHARGES In November 1992, the Company announced restructuring and reorganization actions within Energy Services and Engineering and Construction Services designed to enable the Company to more effectively provide services and products, as well as to better meet the changing needs of its customers throughout the world. The Company, through the implementation of certain strategic initiatives, recorded special charges of $264.6 million in 1992. These special charges include $59.7 million for the closing and consolidation of certain operating facilities; $57.6 million for globalizing employee benefits and personnel reductions, relocations and associated employee benefits costs from the above actions; $53.5 million for the technological obsolescence of certain inventories and equipment related to the introduction of new technologies; $35.5 million for the realignment of worldwide manufacturing capabilities, which includes outsourcing of some items previously manufactured by the Company and the consolidation of existing capacity; $23.0 million for certain investments in operations which are no longer in the Company's long-term strategic interest; $17.9 million from the reduction in value of certain intangible assets related primarily to geophysical speculative data; and $17.4 million of other items primarily related to the cost of relocating equipment as a result of the above actions. NOTE 19. ACQUISITIONS AND DISPOSITIONSinsurance segment. The Company sold its natural gas compression business unit in November 1994 for $205$205.0 million in cash. The sale resulted in a pretax gain of $102$102.0 26 million, or 56 cents per share after tax. The business unit sold owns and operates a large natural gas compressor rental fleet in the United States and Canada. The compressors are used to assist in the production, transportation and storage of natural gas. Additionally in November 1994, the Company announced that a definitive agreement was reached regarding the sale of its industrial services business unit. The business unit provides chemical cleaning, hydrojetting and vacuum removal services to the petrochemical and refining, pulp and paper, and power industries throughout the United States. The closing of the sale was completed during the first quarter of 1995. In January 1994, the Company sold substantially all of the assets of its geophysical services and products business to Western Atlas International Inc. for $190.0 million in cash and notes subject to certain adjustments. The notes of $90.0 million were sold for cash in the first quarter of 1994. In addition, the Company issued $73.8 million in notes to Western Atlas to cover some of the costs of reducing certain geophysical operations, including the cost of personnel reductions, leases of geophysical marine vessels and the closing of duplicate facilities. The Company's notes to Western Atlas are payable over two years at a rate of interest of 4%. An initial installment of $33.8 million was made in February 1994, and eight quarterly installments of $5$5.0 million are payablehave been made thereafter. The Company recognized a $301.8 million charge ($263.8 million after tax) in 1993 related to the sale of its geophysical business. This charge includes $120.7 million for the writedownwrite-down to the net realizable value of equipment and other assets; $54.0 million for anticipated operating and contract losses through the dates of disposition or completion; $43.4 million for marine vessel leases and mobilization; $35.1 million for facility leases and closures; $34.4 million for personnel and severance; and $14.2 million for transition costs and other related matters. The sale includes some international business locations, the closings of which have been deferred pending certain approvals and consents. The approvals and consents are expected to be received within the next several months and such closings will result in some additional consideration. The Company retains ownership of certain assets and liabilities of the geophysical business including some accounts receivable, real estate properties, lease obligations, certain employee obligations, and a majority interest in an international joint venture company. Although the disposition of the remaining assets is uncertain, the remaining liabilities are expected to be settled over the next several months. Services and products provided through the geophysical business include seismic data collection and data processing services for both land and marine seismic exploration activities and manufacturing and sales of seismic equipment. The revenues, operating loss and net loss of the geophysical operations, excluding the charge in 1993, change in accounting methodwere $404.4 million, $20.1 million, and special charges in 1992 are as follows:
Millions of dollars 1993 1992 ------- ------- Revenues $ 404.4 $ 469.7 ======= ======= Operating loss $ (20.1) $ (26.6) ======= ======= Net loss $ (20.3) $ (35.7) ======= =======
$20.3 million, respectively. In March 1993, the Company acquired the assets of Smith International, Inc.'s Directional Drilling Systems and Services business for 6,857,000 shares of Halliburton Company Common Stock previously held as treasury stock, valued at approximately $247 million. The Company recorded $135.8 million as excess of cost over net assets acquired. The excess of cost over net assets acquired will be amortized over 40 years. In March 1992,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 subsidiarytax-free distribution to holders of Halliburton Company common stock. Each common shareholder of the Company completedreceived one share of common stock of HIGI for every ten shares of Halliburton Company common stock. Approximately 11.4 million common shares of HIGI were issued in conjunction with the purchasespin-off. After the spin-off transaction, HIGI issued $62.9 million of substantiallyconvertible subordinated debentures due December 31, 2005 with detachable Series A and B Common Stock Purchase Warrants to Insurance Partners, L.P. and Insurance Partners Offshore (Bermuda), L.P. (IP) and to certain members of HIGI management. The convertible subordinated debentures issued are convertible into common stock of HIGI after one year from issuance at the option of the holders. HIGI can redeem the debentures at any time after December 31, 2002. The holders would receive approximately 3.9 million shares of HIGI, or approximately 25% ownership interest in HIGI, if all of the business assetsdebentures are converted into common stock of HIGI at a manufacturerconversion price of products$16.16 per share. Interest on the debentures is payable semiannually in cash at 10% per annum. The detachable Series A Common Stock Purchase Warrants (Series A Warrants) enable the holders to servepurchase HIGI common stock at an exercise price of $14.69 per share, equal to an additional ownership interest of approximately 21% after giving effect to the gas lift portionassumed conversion of the artificial liftdebentures and the exercise of the Series A Warrants. If all of the Series A Warrants were exercised, IP would receive approximately 4.0 million shares of HIGI. The exercise price and the number of shares of HIGI common stock into which the Series A Warrants are exercisable will be subject to adjustment in certain circumstances. These warrants expire on December 31, 2005. The detachable Series B Common Stock Purchase Warrants (Series B Warrants) enable the holders to purchase shares of HIGI common stock at an exercise price of $14.69, equal to an additional ownership interest of 5% after giving effect to the assumed conversion of the debentures and the exercise of the Series A and B Warrants. The Series B Warrants become exercisable by the holders in the event that the average closing market price of HIGI common stock exceeds 1.61 times the exercise price for $10.7any 30 consecutive trading days prior to December 31, 2000 but after December 31, 1998. If all of the Series B Warrants were exercised, the holders would receive approximately 1.0 million additional shares of HIGI. The exercise price and the number of shares of HIGI common stock into which the Series A Warrants are exercisable will be subject to adjustment in cash.certain circumstances. The detachable Series B Warrants expire on December 31, 2005. If the debentures are converted into common stock of HIGI and the Series A and B Warrants are utilized by the holders to purchase common stock of HIGI, the holders will own approximately 44% of HIGI. 27 The following summarizes the results of operations and consolidated balance sheets of the discontinued operations. Such amounts are summarized as follows:
Millions of dollars 1995 1994 1993 --------- --------- --------- Revenues $ 252.6 $ 290.3 $ 324.5 ========= ========= ========= Income (loss) before income taxes $ (126.3) $ (0.6) $ (41.5) Benefit (provision) for income taxes 67.5 6.1 21.0 Loss on disposition (7.6) - - Benefit for income taxes 0.9 - - --------- --------- --------- Net income (loss) from discontinued operations $ (65.5) $ 5.5 $ (20.5) ========= ========= =========
Millions of dollars 1995 1994 ---------- ---------- ASSETS Cash and equivalents $ 85.2 $ 52.8 Investments 635.6 630.2 Premiums receivable 187.3 207.9 Receivables from reinsurers 592.4 561.5 Receivables from affiliates 47.3 26.6 Deferred income taxes 28.1 - Other assets 54.9 60.4 ---------- ---------- Total assets $ 1,630.8 $ 1,539.4 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Accounts payable and accrued liabilities $ 36.3 $ 15.9 Loss and loss adjustment expense reserves 1,243.7 1,149.2 Unearned premiums 52.6 51.2 Other liabilities 29.6 27.3 ---------- ---------- Total liabilities 1,362.2 1,243.6 Shareholders' equity 268.6 295.8 ---------- ---------- Total liabilities and shareholders' equity $ 1,630.8 $ 1,539.4 ========== ==========
In the third quarter of 1995, HIGI conducted an extensive review of its loss and loss adjustment expense reserves to assess HIGI's reserve position. The review process consisted of gathering new information and refining prior estimates and primarily focused on assumed reinsurance and overall environmental and asbestos exposure. As a result of such review, HIGI increased its reserves for loss and loss adjustment expenses and certain legal matters and the Company also recognized the estimated expenses related to the spin-off transaction and additional compensation costs and other regulatory and legal provisions directly associated with discontinuing the insurance services business segment as follows:
Millions of dollars Income (loss) before Net income income taxes (loss) ------------- ------------- Additional claim loss reserves for environmental and asbestos exposure and other exposures $ (117.0) $ (76.4) Realization of deferred income tax valuation allowance - 25.9 Provisions for legal matters (8.0) (5.2) Expenses related to the spin-off transaction (7.6) (6.7) Other insurance services expenses (7.4) (4.8) ------------- ------------- Total charges $ (140.0) $ (67.2) ============= =============
The review of the insurance policies and reinsurance agreements was based upon a recent actuarial study and HIGI management's best estimates using facts and trends currently known, taking into consideration the current legislative and legal environment. Developed case law and adequate claim history do not exist for such claims. Estimates of the liability are reviewed and updated 28 continually. Due to the significant uncertainties related to these types of claims, past claim experience may not be representative of future claim experience. The Company completedalso realized a valuation allowance for deferred tax assets primarily related to HIGI's insurance claim loss reserves. The Company had provided a valuation allowance for all temporary differences related to HIGI based upon its intent announced in 1992 that it was pursuing the sale of HIGI. A taxable transaction would have made it more likely than not that the related benefit or future deductibility would not be realized. The spin-off transaction was tax-free and allows HIGI to retain its subsidiary engaged in healthcare cost management services, Health Economics Corporation, effective September 30, 1992. The sales price was $24 milliontax basis and resulted in a pretax gainthe value of $13.6 million, or 8 cents per share afterits deferred tax reflected in the Company's 1992 third quarter earnings.asset. 29 QUARTERLY DATA AND MARKET PRICE INFORMATIONQuarterly Data and Market Price Information
Millions of dollars except per share data (unaudited) First Second Third Fourth Year --------- --------- --------- --------- --------- 1995 Revenues $ 1,273.9 $ 1,397.6 $ 1,489.8 $ 1,537.4 $ 5,698.7 Operating income 61.7 97.0 111.1 113.4 383.2 Net income (loss) Continuing operations 38.3 54.8 68.8 71.9 233.8 Discontinued operations 0.8 1.4 (67.7) - (65.5) Net income (loss) 39.1 56.2 1.1 71.9 168.3 Earnings (loss) per share Continuing operations 0.33 0.48 0.60 0.63 2.04 Discontinued operations 0.01 0.01 (0.59) - (0.57) Net income (loss) 0.34 0.49 0.01 0.63 1.47 Cash dividends paid per share 0.25 0.25 0.25 0.25 1.00 Quarterly common stock prices (3) High 38.88 39.50 45.25 50.63 50.63 Low 33.50 35.50 35.13 39.75 33.50 1994 Revenues $ 1,376.31,315.2 $ 1,425.41,369.7 $ 1,405.41,347.6 $ 1,533.41,477.7 $ 5,740.55,510.2 Operating income (loss) (1) 40.2 (14.9) 98.6 111.1 235.042.1 (15.3) 96.6 112.7 236.1 Net income (loss) Continuing operations (1) (2) 17.3 (16.7) 49.5 122.2 172.3 Discontinued operations 0.5 (2.5) 2.2 5.3 5.5 Net income (loss) (1) (2) 17.8 (19.2) 51.7 127.5 177.8 Earnings (loss) per share Continuing operations (1) (2) 0.16 (0.15) 0.43 1.07 1.51 Discontinued operations 0.00 (0.02) 0.02 0.05 0.05 Net income (loss) (1) (2) 0.16 (0.17) 0.45 1.12 1.56 Cash dividends paid per share 0.25 0.25 0.25 0.25 1.00 Quarterly common stock prices (4)(3) High 34.13 34.75 34.88 37.00 37.00 Low 29.25 28.25 29.13 31.13 28.25 1993 Revenues $ 1,559.5 $ 1,596.6 $ 1,541.4 $ 1,653.3 $ 6,350.8 Operating income (loss) (3) 42.8 57.5 (210.5) (22.4) (132.6) Net income (loss) (3) 18.8 22.9 (160.7) (42.0) (161.0) Earnings (loss) per share (3) 0.18 0.20 (1.41) (0.37) (1.43) Cash dividends paid per share 0.25 0.25 0.25 0.25 1.00 Quarterly common stock prices (4) High 37.75 43.63 41.88 39.38 43.63 Low 26.38 26.25 33.88 28.88 26.25 (1) Second quarter 1994 operating income (loss) and net income (loss) includes severance costs of $42.6 million and $27.7 million, respectively, or 24 cents per share, to provide for the termination of about 2,700 Energy Services' employees. (2) Fourth quarter 1994 net income (loss) includes a gain on the sale of the natural gas compression business of $64.3 million, or 56 cents per share. (3) Third quarter 1993 operating income (loss) and net income (loss) includes charges related to the loss on the sale of the geophysical business, claims loss reserves and suspension of underwriting activities in the United Kingdom of $266.3 million and $228.5 million, respectively. Also included in net income (loss) in the third quarter of 1993 are benefits related to the Internal Revenue Service settlement and change in Federal income tax laws of $46.8 million. Fourth quarter 1993 operating income (loss) and net income (loss) includes additional charges related to the loss on sale of the geophysical business, claim loss reserves and employee severance costs of $101.8 million and $82.2 million, respectively. (4) New York Stock Exchange - composite transactions high and low closing stock prices.
30 FIVE YEAR FINANCIAL RECORD Years ended December 31
Millions of dollars and shares except per share data and employees 1995 1994 1993 1992 1991 1990 --------- --------- --------- --------- ------------------- ---------- ---------- ---------- ---------- OPERATING RESULTS NET REVENUESOperating results Net revenues Energy services $ 2,623.4 $ 2,514.0 $ 2,953.4 $ 2,726.3 $ 2,939.0 $ 2,915.6 Engineering and construction services 3,075.3 2,996.2 3,140.7 3,563.7 3,728.0 3,654.1 Insurance---------- ---------- ---------- ---------- ---------- Total revenues $ 5,698.7 $ 5,510.2 $ 6,094.1 $ 6,290.0 $ 6,667.0 ========== ========== ========== ========== ========== Operating income (loss) Energy services* 230.3 256.7 275.9 351.8 355.8 --------- --------- --------- --------- --------- TOTAL REVENUES $ 5,740.5313.7 $ 6,350.8191.8 $ 6,565.9(148.4) $ 7,018.8(64.1) $ 6,925.5 ========= ========= ========= ========= ========= OPERATING INCOME (LOSS) Energy services** $ 191.1 $ (147.7) $ (63.6) $ 36.1 $ 283.135.2 Engineering and construction services** 103.0 67.2 79.3 (12.0) 73.7 71.0 Insurance services** (0.4) (42.2) (4.8) 7.9 1.678.9 (12.5) 73.1 General corporate expenses(33.5) (22.9) (22.0) (21.0) (21.8) (19.9) --------- --------- --------- --------- ------------------- ---------- ---------- ---------- ---------- Total operating income (loss) 235.0 (132.6) (101.4) 95.9 335.8383.2 236.1 (91.5) (97.6) 86.5 Nonoperating income (expense), net 55.9 (56.5) (29.9) (2.9) 17.7 --------- --------- --------- --------- --------- INCOME (LOSS) BEFORE INCOME TAXES, MINORITY INTEREST AND CHANGES IN ACCOUNTING METHODS 290.9 (189.1) (131.3) 93.0 353.5(16.6) 55.4 (56.2) (37.5) (2.1) ---------- ---------- ---------- ---------- ---------- Income (loss) before income taxes and minority interest 366.6 291.5 (147.7) (135.1) 84.4 Benefit (provision) for income taxes (112.9) 26.6 6.1 (63.8) (153.5)(131.9) (119.0) 5.7 (0.3) (71.3) Minority interest in net (income) loss of consolidated subsidiaries (0.9) (0.2) 1.5 1.7 (2.6) (2.6) --------- --------- --------- --------- --------- INCOME (LOSS) BEFORE CHANGES IN ACCOUNTING METHODS 177.8 (161.0) (123.5) 26.6 197.4 Changes in accounting methods, net of income taxes - - (13.8) - - --------- --------- --------- --------- --------- NET INCOME (LOSS)---------- ---------- ---------- ---------- ---------- Income (loss) from continuing operations $ 177.8233.8 $ (161.0)172.3 $ (137.3)(140.5) $ 26.6(133.7) $ 197.4 ========= ========= ========= ========= ========= Percent of net income (loss) to revenues 3.1% (2.5)% (2.1)% 0.4% 2.9%10.5 ========== ========== ========== ========== ========== Income (loss) per share before changes in accounting methodsshare: Continuing operations $ 1.562.04 $ (1.43)1.51 $ (1.15)(1.25) $ 0.25(1.24) $ 1.850.10 Net income (loss) per share1.47 1.56 (1.43) (1.28) 0.25 1.85 Cash dividends per share 1.00 1.00 1.00 1.00 1.00 Percent of net income (loss) to averageReturn on shareholders' equity of shareholders 9.3%9.6% 9.2% (8.5)% (6.7)(7.2)% 1.2% 9.0% ========= ========= ========= ========= ========= FINANCIAL POSITION========== ========== ========== ========== ========== Financial position Net working capital $ 893.8 $ 1,267.7 $ 1,116.5 $ 1,109.0 $ 1,246.5 Total assets $ 5,268.3 $ 5,403.1 $ 5,565.6 $ 5,567.0 $ 4,868.03,646.6 4,005.4 4,139.6 4,089.5 4,384.5 Property, plant and equipment 1,076.8 1,152.8 1,197.6 1,191.5 1,013.21,111.2 1,074.8 1,149.5 1,194.3 1,186.9 Long-term debt 205.2 643.1 623.9 656.7 653.2 189.8 Shareholders' equity 1,749.8 1,942.2 1,887.7 1,907.3 2,164.6 2,246.9Total capitalization 1,959.8 2,616.0 2,603.6 2,564.7 2,828.6 Shareholders' equity per share 15.28 17.02 16.55 17.80 20.24 21.04 Average common shares outstanding 114.5 114.2 112.5 107.1 106.9 106.7 ========= ========= ========= ========= ========= OTHER FINANCIAL DATA========== ========== ========== ========== ========== Other financial data Cash flow from operating activities $ 632.0 $ 415.4 $ 269.6 $ 435.0 $ 286.3 Capital expenditures 288.7 233.7 245.3 313.4 422.8 Long-term borrowings net of reductions $(repayments) (452.9) (72.9) $ (57.1) $(57.0) (15.8) $ 441.1 $ (9.0) Issuance (purchase) of common stock, net (1.5) (1.0) (0.5) (0.6) (0.1) Acquisitions of property, plant and equipment 234.7 246.9 315.9 425.9 332.3 Net property, plant and equipment of businesses acquired (disposed) (43.1) 94.9 35.0 17.7 (14.5) Depreciation and amortization expense 261.6 452.0 360.0 294.5 249.6244.1 260.2 450.4 357.9 292.4 Payroll and employee benefits 2,857.2 3,131.0 3,365.0 3,284.9 3,046.42,713.4 2,826.8 3,100.9 3,336.3 3,256.7 Number of employees*** 57,200 64,700 69,200 73,400 77,000 57,300 56,500 64,000 68,400 72,100 * Excludes insurance revenues received from other segments of the Company. ** Energy Services operating income (loss) in 1993 includes a loss on the sale of the geophysical business and employee severance costs of $321.8 million and in 1992 and 1991 includes special charges of $182.0 million and $118.5 million, respectively. Engineering and Construction Services 1992 operating income (loss) includes special charges of $82.6 million. Insurance Services operating income (loss) in 1993 and 1992 includes loss related to claims loss reserves and suspension of underwriting activities in the United Kingdom of $46.3 million and $21.0 million, respectively. *** Does not include employees of 50% or less owned affiliated companies.
--------------------------------------------------------------------------------31 EUROPEAN MARINE CONTRACTORS LIMITED COMBINED FINANCIAL STATEMENTS DECEMBER 31, 1994 THESE FINANCIAL STATEMENTS ARE PRESENTED IN POUNDS STERLING. THE EXCHANGE RATE FOR POUNDS STERLING WAS 1.56 TO THE1995 These financial statements are presented in pounds sterling. The exchange rate was 1.54 U.S. DOLLAR AT THE BALANCE SHEET DATE OF DECEMBERdollars to the pound sterling at the balance sheet date of December 31, 19941995. EUROPEAN MARINE CONTRACTORS LIMITED - -------------------------------------------------------------------------------- INDEX 1 - 2 Directors' Report 3 Statement of Directors' Responsibilities in Respect of the Financial Statements 4 Auditors' Report 5 Group Profit and Loss Account 6 Group Statement of Total Recognised Gains and Losses 7 Group and Company Balance Sheets 8 Group Statement of Cashflows 9 - 20
INDEX 1 Auditors' Report 2 Group Profit and Loss Account 3 Group Statement of Total Recognised Gains and Losses 4 Group Balance Sheet 5 Group Statement of Cashflows 6 - 17 Notes to the Financial Statements
32 - -------------------------------------------------------------------------------- DIRECTORS F Nanotti (Chairman) R G Beveridge (General Manager) V Oliveri S Cao N Chambers L E Farmer SECRETARY T R Field REGISTRATION NO. 2150753 REGISTERED OFFICE EMC House Motspur Park New Malden Surrey KT3 6JJ EUROPEAN MARINE CONTRACTORS LIMITED DIRECTORS' REPORT -------------------------------------------------------------------------------- The Directors' present their report and financial statements forTo the year ended 31 December 1994. RESULTS AND DIVIDENDS The group profit for the year, after taxation, is shown on page 5. A dividendBoard of (pounds sterling)30 million was paid during the year. PRINCIPAL ACTIVITIES The principal activity of the group continued to be the provision of complete pipelaying and marine construction services for operations in the North Sea and other waters. BUSINESS REVIEW AND FUTURE DEVELOPMENTS The Directors are pleased to report that turnover increased by 40% to (pounds sterling)283 million during 1994. Operations during the year consisted primarily of pipelaying services. The majority of the work was executed in the North Sea area, although 36% of turnover arose from services performed in the Mediterranean areas under operating agreements with Saipem SpA, and the South China Sea in a joint venture with Saipem SpA. High levels of utilisation of equipment have been achieved by obtaining winter work programmes in these areas. Results were further enhanced by improvements in productivity and reduced operating costs. The company has been successful in winning new contract awards during 1994. Work under contract at 1994 year end remained good, at levels slightly lower than the previous year end. This work will be performed during the next two years. SHAREHOLDING The shareholders of the company as at 31 December 1994 were as follows:
% of issued CLASS OF SHARE NO. OF SHARES Share Capital Saipem UK Limited (pound sterling)1 A Ordinary Shares 7,000,000 50 Brown & Root Limited (pound sterling)1 B Ordinary Shares 7,000,000 50
Each class of shares ranks pari passu with the other in all respects. AGREEMENTS AND TRANSACTIONS WITH SHAREHOLDERS A number of staff employed by the shareholders are made available to the group under secondment agreements. The occupancy agreement with Brown & Root Limited for provision of the main administrative office was terminated in June 1994 when European Marine Contractors Limited moved to new premises at Motspur Park. Certain survey/diving subcontracts have been awarded to Brown & Root Group companies. Engineering support and other advisory services are provided by the shareholders on request. During the year projects for pipelaying in the Mediterranean Straits of Gibraltar and the South China Sea were carried out in conjunction with Saipem Group companies. EUROPEAN MARINE CONTRACTORS LIMITED DIRECTORS' REPORT -------------------------------------------------------------------------------- DIRECTORS AND THEIR INTERESTS The Directors during the year were as follows:- F Nanotti R G Beveridge V Oliveri S Cao L E Farmer K N Henry resigned 23 February 1994 N Chambers appointed 23 February 1994 No director had any interest in the shares of the company. MARKET VALUE OF LAND AND BUILDINGS In the opinion of the directors, the market value of the group's land and buildings was not less than their net book value as at 31 December 1994. FIXED ASSETS Changes in fixed assets during the year are summarised in notes 9 and 10. AUDITORS Ernst & Young have expressed their willingness to continue in office as auditors and a resolution proposing their re-appointment will be put to the members at the Annual General Meeting. By order of the board T R Field Secretary 8 March 1995 EUROPEAN MARINE CONTRACTORS LIMITED STATEMENT OF DIRECTORS' RESPONSIBILITIES IN RESPECT OF THE FINANCIAL STATEMENTS -------------------------------------------------------------------------------- Company law requires the directors to prepare financial statements for each financial year which give a true and fair view of the state of affairs of the company and the group and of the profit or loss of the group for that period. In preparing those financial statements the directors are required to: o select suitable accounting policies and then apply them consistently; o make judgements and estimates that are reasonable and prudent; o state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; and o prepare the financial statements on the going concern basis unless it is inappropriate to presume that the group will continue in business. The directors confirm that the financial statements comply with the above requirements. The directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the group and to enable them to ensure that the financial statements comply with the Companies Act 1985. They are also responsible for safeguarding the assets of the group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. EUROPEAN MARINE CONTRACTORS LIMITED AUDITORS' REPORT -------------------------------------------------------------------------------- TO THE BOARD OF DIRECTORS EUROPEAN MARINE CONTRACTORS LIMITED We have audited the accompanying consolidated balance sheets of European Marine Contractors Limited as of December 31, 19941995 and 1993,1994, and the related consolidated statements of income, total recognised gains and losses and cashflows for the each of the three years in the period ended December 31, 1994.1995. These financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audits in accordance with United Kingdom auditing standards which do not differ in any significant respect from United States generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurances about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of European Marine Contractors Limited at December 31, 19941995 and 1993,1994, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 19941995 in conformity with accounting principles generally accepted in the United Kingdom ERNST & YOUNG CHARTERED ACCOUNTANTSChartered Accountants Registered Auditor London, England 8 March 199515 February 1996 33 EUROPEAN MARINE CONTRACTORS LIMITED GROUP PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31 DECEMBER 19941995 - --------------------------------------------------------------------------------
1995 1994 1993 1992 Notes (in thousands of pounds sterling) Turnover 2,3 229,000 282,870 201,766 169,635 Cost of sales (151,828) (200,888) (151,273) (122,867) ------- ------- ------- GROSS PROFIT 3 77,172 81,982 50,493 46,768 Administrative expenses (6,643) (5,863) (4,569) (5,366) Other operating costs (9,448) (12,024) (7,639) (10,810) ------- ------- ------- 61,081 64,095 38,285 30,592 Other operating income 175 125 436 2,688 ------- ------- ------- OPERATING PROFIT 4a)4 a) 61,256 64,220 38,721 33,280 Interest receivable and similar income 1,218 1,221 1,071 1,248 ------- ------- ------- 62,474 65,441 39,792 34,528 Interest payable and similar charges 5 (79) (91) (121) (872) ------- ------- ------- PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION 62,395 65,350 39,671 33,656 Tax on profit on ordinary activities 6 (22,685) (26,090) (20,315) (11,266) ------- ------- ------- PROFIT ON ORDINARY ACTIVITIES AFTER TAXATION 39,710 39,260 19,356 22,390 ======= ======= ======= AMOUNT (SETWITHDRAWN FROM/(SET ASIDE TO)/WITHDRAWN FROM RESERVES 18 10,290 (9,260) 15,644 (2,390) ======= ======= ======= DIVIDENDS (50,000) (30,000) (35,000) (20,000) ======= ======= =======
34 EUROPEAN MARINE CONTRACTORS LIMITED GROUP STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES FOR THE YEAR ENDED 31 DECEMBER 19941995 - --------------------------------------------------------------------------------
1995 1994 1993 1992 Notes (in thousands of pounds sterling) Profit on ordinary activities after taxation 39,710 39,260 19,356 22,390 Exchange differences on retranslation of net assets of subsidiary undertaking 161 45 (47) 171 Unrealised surplus on revaluation of fixed assets 18- - 54,886 - ------ ------ ------ Total recognised realised and unrealised gains and losses relating to the year 39,871 39,305 74,195 22,561 ====== ====== ====== RECONCILIATION OF SHAREHOLDERS' FUNDS Total recognised gains and losses 39,871 39,305 74,195 22,561 Dividends (50,000) (30,000) (35,000) (20,000) ------ ------ ------ Total movements during the year 9,305(10,129) (9,305) 39,195 2,561 Shareholders' funds at 1 January 67,890 58,585 19,390 16,829 ------ ------ ------ Shareholders' funds at 31 December 57,761 67,890 58,585 19,390 ====== ====== ======
35 EUROPEAN MARINE CONTRACTORS LIMITED BALANCE SHEETS AT 31 DECEMBER 19941995 - --------------------------------------------------------------------------------
Group Company1995 1994 Notes (in thousands of pounds sterling) 1994 1993 1994 1993 Notes FIXED ASSETS Tangible assets 9 36,972 48,319 62,246 47,871 61,719 Investments 10 - - 732 732 ------- ------- ------- -------36,972 48,319 62,246 48,603 62,451 ------- ------- ------- ------- CURRENT ASSETS Stocks 11 9,927 8,965 8,304 8,965 8,304 Debtors 12 124,218 133,335 94,072 138,222 92,235 Cash at bank and in hand 13 20,516 32,135 10,210 24,915 7,035 ------- ------- ------- -------154,661 174,435 112,586 172,102 107,574 CREDITORS - amounts falling due within one year 14 149,564 110,756 148,249 106,548 ------- -------122,150 142,314 ------- ------- NET CURRENT ASSETS 24,871 1,830 23,853 1,026 ------- -------32,511 32,121 ------- ------- TOTAL ASSETS LESS CURRENT LIABILITIES 73,190 64,076 72,456 63,47769,483 80,440 PROVISIONS FOR LIABILITIES AND CHARGES 15 5,300 5,491 5,300 5,49111,722 12,550 ------- ------- ------- -------57,761 67,890 58,585 67,156 57,986 ======= ======= ======= ======= CAPITAL AND RESERVES Called up share capital 17 14,000 14,000 14,000 14,000 Revaluation reserve 18 23,156 30,874 41,165 30,874 41,165 Profit and loss account 18 20,605 23,016 3,420 22,282 2,821 ------- ------- ------- -------57,761 67,890 58,585 67,156 57,986 ======= ======= ======= ======= R G Beveridge Director V Oliveri Director 8 March 1995=======
36 EUROPEAN MARINE CONTRACTORS LIMITED GROUP STATEMENT OF CASHFLOWSCASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 19941995 - --------------------------------------------------------------------------------
1995 1994 1993 1992 Notes (in thousands of pounds sterling) NET CASH INFLOW FROM OPERATING ACTIVITIES 4b)4 b) 61,048 72,304 34,278 76,133 ------- ------- ------------- ------ ------ RETURNS ON INVESTMENTS AND SERVICING OF FINANCE Interest received 1,363 945 1,429 866 Interest paid (76) (98) (383) (602) Dividends paid (50,000) (30,000) (35,000) (20,000) ------- ------- ------------- ------ ------ NET CASH OUTFLOW FROM RETURNS ON INVESTMENTS AND SERVICING OF FINANCE (48,713) (29,153) (33,954) (19,736) ------- ------- ------------- ------ ------ TAXATION ReceivedPaid for transfer of losses (11,064) - - 112 Corporation tax paid (10,997) (12,643) (12,640) Overseas tax paid (242) (6,132) (5,473) ------ ------ ------ NET TAX PAID (22,303) (18,775) (18,113) (50) ------- ------- ------- NET TAX (PAID)/RECEIVED (18,775) (18,113) 62 ------- ------- ------------- ------ ------ INVESTING ACTIVITIES Payments to acquire tangible fixed assets (1,651) (2,451) (2,969) (2,075) Receipts from sale of tangible fixed assets - - 295 ------- ------- ------------- ------ ------ NET CASH OUTFLOW FROM INVESTING ACTIVITIES 2,451)(1,651) (2,451) (2,969) (1,780) ------- ------- ------- NET CASH (OUTFLOW)------ ------ ------ (DECREASE)/INFLOW BEFORE FINANCING 21,925 (20,758) 54,679 FINANCING Repayment of long term loans - - (29,662) ------- ------- ------- NET CASH OUTFLOW FROM FINANCING - - (29,662) ------- ------- ------- ======= ======= ======= INCREASE/(DECREASE) INCREASE IN CASH 13 (11,619) 21,925 (20,758) 25,017 ======= ======= ============= ====== ======
37 EUROPEAN MARINE CONTRACTORS LIMITED NOTES TO THE FINANCIAL STATEMENTS AS AT 31 DECEMBER 19941995 - -------------------------------------------------------------------------------- 1 ACCOUNTING POLICIES ACCOUNTING CONVENTIONAccounting Convention The financial statements are prepared under the historical cost convention as modified to include the revaluation of certain fixed assets and in accordance with applicable United Kingdom accounting standards. BASIS OF CONSOLIDATIONBasis of Consolidation The group financial statements consolidate the financial statements of European Marine Contractors Limited and EMC Nederland BV drawn up to 31 December each year. No profit and loss account is present for European Marine Contractors Limited as permitted by section 230 of the Companies Act 1985. JOINT VENTUREJoint Ventures The company's share of the results of an unincorporated joint ventureventures is proportionally consolidated in the group profit and loss account and balance sheet. GOODWILLGoodwill Purchased goodwill is amortised through the profit and loss account over the directors' original estimate of its useful life. DEPRECIATIONDepreciation Depreciation is provided at rates calculated to write off the cost less the expected residual value of each fixed asset over its expected useful life.life as follows: Marine floating equipment - at 25% per annum on a reducing balance basis Buildings and leasehold improvements - over 3-15 years on a straight line basis Plant & Machinery:- Other marine equipment - over 2-5 years on a straight line basis Office equipment - over 4-5 years on a straight line basis Depreciation on assets under construction is provided when assets are partially brought into use during the year, at the appropriate rate above. EQUIPMENT MAINTENANCEEquipment Maintenance The marine floating equipment is dry-dockdry-docked for major repairs in accordance with statutory requirements. Other maintenance works are carried out on a yearly basis. Provisions towards meeting both these costs are being made each year based on an estimate of costs to be incurred and the future utilisation programmes. STOCKSStocks Stocks are valued at the lower of cost and net realisable value. FOREIGN CURRENCY COMPANY Transactions denominated in foreign currencies are recorded in sterling at the closing exchange rate of the previous month. Monetary assets and liabilities are translated at the rate of exchange prevailing at the balance sheet date. All differences are taken to the profit and loss account. EUROPEAN MARINE CONTRACTORS LIMITED NOTES TO THE FINANCIAL STATEMENTS AS AT 31 DECEMBER 1994 -------------------------------------------------------------------------------- FOREIGN CURRENCY (CONTINUED) GROUPForeign Currency The financial statements of consolidated undertakings are translated at the rate of exchange prevailing at the balance sheet date. The exchange adjustments arising on re-translating the opening net assets are taken directly to reserves. OPERATING LEASES38 EUROPEAN MARINE CONTRACTORS LIMITED NOTES TO THE FINANCIAL STATEMENTS AT 31 DECEMBER 1995 - -------------------------------------------------------------------------------- Operating Leases Rentals paid in respect of operating leases are charged to the profit and loss account on a straight line basis over the term of the lease. PENSIONSPensions Pension scheme contributions are made in accordance with actuarial advice and are charged to the profit and loss account so as to spread the pension cost over the anticipated period of service of scheme members. GOVERNMENT GRANTSGovernment Grants Government Grants on capital expenditure are credited to a deferral account and are released to revenue over the expected useful life of the relevant asset by equal annual amounts. LONG TERM CONTRACTSLong Term Contracts Profit on long term contracts is taken as the work is carried out if the final outcome can be assessed with reasonable certainty. The profit included is calculated on a basis to reflect the proportion of the work carried out at the year end, by recording turnover and related costs as contract activity progresses. Turnover is calculated on that proportion of total contract value which costs incurred to date bear to total expected costs for that contract. Revenues derived from variations on contracts are recognised only when they have been acceptaccepted by the customer. Full provision is made for losses on all contracts in the year in which they are first foreseen. DEFERRED TAXATIONDeferred Taxation Deferred taxation is provided under the liability method on all timing differences which are expected to reverse in the future without being replaced, calculated at the rate at which it is estimated that tax will be payable. Deferred tax assets are recognised only where recovery is reasonably certain. EUROPEAN MARINE CONTRACTORS LIMITED NOTES TO THE FINANCIAL STATEMENTS AS AT 31 DECEMBER 1994 -------------------------------------------------------------------------------- 2 TURNOVER Turnover comprises that part of each contract value represented by work completed at the balance sheet date. Turnover excludes applicable VAT. 3 ANALYSIS OF TURNOVER AND GROSS39 EUROPEAN MARINE CONTRACTORS LIMITED NOTES TO THE FINANCIAL STATEMENTS AT 31 DECEMBER 1995 - --------------------------------------------------------------------------------
3 ANALYSIS OF TURNOVER AND OPERATING PROFIT/(LOSS) BETWEEN ACTIVITIES AND GEOGRAPHICAL MARKETS
1995 1994 1993 1992 Gross Gross GrossOperating Operating Operating Profit Profit Profit Turnover /(Loss) Turnover /(Loss) Turnover /(Loss) (in thousands of pounds sterling) (in thousands of pounds sterling) BUSINESS SEGMENTSBusiness Segments Pipelay 226,213 60,824 281,672 82,80365,288 200,130 50,594 167,553 46,41938,798 Charters 1,743 287 336 (77)(486) 873 137 1,278 202105 Sundry 1,044 145 862 (744)(582) 763 (238) 804 147(182) ------- ------ ------- ------ ------- ------ 229,000 61,256 282,870 81,98264,220 201,766 50,493 169,635 46,768 ======= ======38,721 ======= ====== ======= ====== GEOGRAPHICAL MARKETS======= ======
1995 1994 1993 Operating Operating Operating Profit Profit Profit Turnover /(Loss) Turnover /(Loss) Turnover /(Loss) (in thousands of pounds sterling) Geographical Markets North Sea 185,560 55,754 179,139 56,98744,640 160,063 37,657 160,107 46,76828,878 Mediterranean 1,722 524 14,407 4,5173,538 29,436 12,836 9,528 -9,843 Other Waters 41,718 4,978 89,324 20,47816,042 12,267 - - - ------- ------ ------- ------ ------- ------ 229,000 61,256 282,870 81,98264,220 201,766 50,493 169,635 46,76838,721 ======= ====== ======= ====== ======= ======
Included in turnover is (pound)1,722,000 (1994: (pound)14,407,000, (1993: 29,346,000, 1992: 9,528,000)1993: (pound)29,346,000) in respect of sales to related undertakings which constitute the shareholders of European Marine Contractors Limited and their group undertakings. Turnover by destination is not materially different. The net assets of the group are substantially located in the North Sea and temporarily in the Mediterranean Sea and South East Asia.Middle East. The profit analysis for prior years has been restated on the basis of operating profit. 4 a) OPERATING PROFIT Operating profit is stated after charging/(crediting):
Operating profit is stated after charging:1995 1994 1993 1992 (in thousands of pounds sterling) Depreciation of tangible fixed assets 12,851 16,325 20,780 14,128 Operating leases : Property 856 1,081 1,335 1,331 : Plant and machinery 16,323 28,617 20,156 18,844 Auditors' remuneration - audit: Audit services 69 63 54 43 - other: Other services 76 87 6 - Amortisation of goodwill - 75- 75 Amortisation of grant (6) (14) (13) (14) Loss/(gain)Loss on foreign exchange 15 255 42 (1,566) ====== ====== ====== The profit before tax dealt with in the financial statements of the parent company was: 65,209 39,517 33,487 ====== ====== ======
40 EUROPEAN MARINE CONTRACTORS LIMITED NOTES TO THE FINANCIAL STATEMENTS AS AT 31 DECEMBER 19941995 - -------------------------------------------------------------------------------- 4 b) RECONCILIATION OF OPERATING PROFIT TO NET CASH INFLOW FROM OPERATING ACTIVITIES
1995 1994 1993 1992 (in thousands of pounds sterling)(pound)000 (pound)000 (pound)000 Operating profit 61,256 64,220 38,721 33,280 Depreciation charges 12,851 16,325 20,780 14,128 Amortisation of goodwill - 75- 75 Amortisation of grant (6) (12) (14) (14) Foreign exchange differences 984 572 (506) 499 (Decrease)/increaseIncrease in provisions for liabilities (191) 404 2,977 and charges Loss on sale of tangible assets - - 436 (828) 7,059) 404 Decrease/(Increase) in stocks (962) (661) (894) Decrease/(Increase) in debtors 11,788 (35,047) (71,631) (Decrease)/Increase in stocks (661) (894) (1,139) (Increase)/decrease in debtors (35,047) (71,631) 48,708 Increase/(decrease) in creditors 27,098(24,035) 19,848) 47,343 (22,817) ------------- ------ ------ Net cash inflow from operating activities 61,048 72,304 34,278 76,133 ====== ====== ======
5 INTEREST PAYABLE AND SIMILAR CHARGES
1995 1994 1993 1992 (in thousands of pounds sterling) Bank loans and overdrafts 35 40 51 490 Other charges 44 51 70 116 Loans from group undertaking - - 266 -- --- --- --- 79 91 121 872 ===== === ===
6 TAX ON PROFIT ON ORDINARY ACTIVITIES The tax charge is made up as follows:-
1995 1994 1993 1992Based on profit for the year: (in thousands of pounds sterling) Based on profit for the year UK corporation tax at 33% 25,390 29,979 16,832 16,030 Deferred tax (2,816) (3,940) 953 (2,628) ------ ------ ------ 22,574 26,039 17,785 13,402 Double taxation relief (12,294) (9,682) (6,409) (6,586) ------ ------ ------ 10,280 16,357 11,376 6,816 Overseas taxation 12,338 9,733 6,465 6,648 ------ ------ ------ 22,618 26,090 17,841 13,464 Tax under/(over) providedunderprovided in previous years 67 - 2,474 (2,198) ------ ------ ------ 22,685 26,090 20,315 11,266 ====== ====== ======
If full provision had been made for deferred taxation for the year, the taxation charge would have been reduced /(increased) by (pound)2m (1994: (pound)(0.3)m, 1993: Nil), as follows:
1995 1994 1993 (in thousands of pounds sterling) Depreciation in advance of capital allowances 1,259 (560) - Other timing differences 779 306 - ----- ---- --- 2,038 (254) - ===== ==== ===
41 EUROPEAN MARINE CONTRACTORS LIMITED NOTES TO THE FINANCIAL STATEMENTS AS AT 31 DECEMBER 19941995 - -------------------------------------------------------------------------------- 7 EMOLUMENTS OF DIRECTORS
1995 1994 1993 1992 (in thousands of pounds sterling) Salaries (including pension contributions) 114 222 144 101 === === ===
The emoluments (excluding pension contributions) of the directors of the company are detailed as follows:-
1995 1994 1993 1992 (in thousands of pounds sterling) Chairman - - - Highest paid director 102 116 53 101 === === == ===
Directors including above in scale:
Number 1995 1994 1993 1992 (thousands of pounds sterling)(pound) nil - -(pound)5,000 5 5 6 5 35,000 - (pound)35,001 -(pound)40,000 - - 1 - 50,000 - (pound)50,001 -(pound)55,000 - - 2 - 100,000 - (pound)100,001 -(pound)105,000 - - 1 105,000 - (pound)105,001 -(pound)110,000 1 - - 115,000 - 120,000 1 - (pound)115,001 -(pound)120,000 - 1 -
8 STAFF COSTS The average number of persons employed by the group (and their costs) during the year, including directors, was as follows:-
1995 1994 1993 1992 Number Number Number Number employed: Onshore 158 168 139 135 Offshore 35 44 44 45 --- --- --- 193 212 183 180 === === ===
1995 1994 1993 (in thousands of pounds sterling) Staff costs: Wages and salaries 6,821 7,174 6,111 5,418 Social security 650 574 549 454 Pension contributions 421479 406 332 304 ----- ----- ----- 8,1697,950 8,154 6,992 6,176 ===== ===== =====
In addition the group has used the services on average of 519 (1994: 601, (1993: 568, 1992: 532)1993: 568) persons who were directly employed by the shareholders of European Marine Contractors Limited, their group undertakings and third party agencies. 42 EUROPEAN MARINE CONTRACTORS LIMITED NOTES TO THE FINANCIAL STATEMENTS AS AT 31 DECEMBER 19941995 - -------------------------------------------------------------------------------- 9 TANGIBLE FIXED ASSETS GROUP
Lease- Lease- -holdLeasehold Plant Marine Under -holdLeasehold Land and and Floating Constr- Improve- Building M'chnry Equip -uction -ments Total 1993 (in thousands of pounds sterling) Cost or Valuation: At 1 January 1993 1,426 3,044 61,638 844 1,664 68,616 Surplus on revaluation - - 24,574 - - 24,574 Additions 196 27 - 2,384 - 2,607 Transfers - 1,881 1,111 (2,992) - - Exchange adjustment (52) (4) - - (61) (117) ----- ----- ------ ------ ----- ------ At 31 December 1993 1,570 4,948 87,323 236 1,603 95,680 ===== ===== ====== ====== ===== ====== Depreciation: At 1 January 1993 1,323 1,647 38,770 - 1,344 43,084 Surplus on revaluation - - (30,312) - - (30,312) Provided during the year 71 919 19,716 - 74 20,780 Exchange adjustment (65) (3) - - (50) (118) ----- ----- ------- ------- ----- ------- At 31 December 1993 1,329 2,563 28,174 - 1,368 33,434 ===== ===== ======= ======= ===== ======= Net book value at: 31 December 1993 241 2,385 59,149 236 235 62,246 ===== ===== ======= ======= ===== ======= 1994 Cost or Valuation: At 1 January 1994 1,570 4,948 87,323 236 1,603 95,680 Additions 87 5 - 2,288 - 2,380 Transfers - 1,083 305 (1,411) 23 - Exchange adjustment 54 5 - - 54 113 ----- ----- ------------- ------- ----- ----- ------------- At 31 December 1994 1,711 6,041 87,628 1,113 1,680 98,173 ===== ===== ============= ======= ===== ===== ============= Depreciation: At 1 January 1994 1,329 2,563 28,174 - 1,368 33,434 Provided during the year 97 1,047 14,862 239 80 16,325 Exchange adjustment 45 4 - - 46 95 ----- ----- ------------- ------- ----- ----- ------------- At 31 December 1994 1,471 3,614 43,036 239 1,494 49,854 ===== ===== ============= ======= ===== ===== ============= Net book value at: 31 December 1994 240 2,427 44,592 874 186 48,319 ===== ===== ============= ======= ===== ===== ====== 31 December 1993 241 2,385 59,149 236 235 62,246 ===== ===== ====== ===== ===== =============
43 EUROPEAN MARINE CONTRACTORS LIMITED NOTES TO THE FINANCIAL STATEMENTS AS AT 31 DECEMBER 19941995 - -------------------------------------------------------------------------------- 9 TANGIBLE FIXED ASSETSTangible Fixed Assets (continued)
COMPANY Lease- Lease- -holdLeasehold Plant Marine Under -holdLeasehold Land and and Floating Constr- mprove-Improve- Building M'chnry Equip -uction -ments Total 1995 (in thousands of pounds sterling) Cost or Valuation: At 1 January 1994 24 4,810 87,323 2361995 1,711 6,041 87,628 1,113 1,680 98,173 Additions 91 75 - 92,393 Additions1,289 - 1,455 Transfers - 846 238 (1,084) - - Disposals - (4) - - - 2,288(4) Exchange adjustment 185 16 - 2,288 Transfers - 1,083 305 (1,411) 23 - --182 383 ----- ----- ------ ----- -- ----------- ------- At 31 December 1994 24 5,893 87,628 1,113 23 94,681 ==1995 1,987 6,974 87,866 1,318 1,862 100,007 ===== ===== ====== ===== == =========== ======= Depreciation: At 1 January 1994 24 2,476 28,174 - - 30,6741995 1,471 3,614 43,036 239 1,494 49,854 Provided during the year 96 1,162 11,209 291 93 12,851 Disposals - 1,031 14,862 239 4 16,136 --(4) - - - (4) Exchange adjustment 158 12 - - 164 334 ----- ----- ------ ----- -- ------ As at----- ------- At 31 December 1994 24 3,507 43,036 239 4 46,810 == ===== ====== ===== == ======1995 1,725 4,784 54,245 530 1,751 63,035 ----- ----- ------ ----- ----- ------- Net book value at: 31 December 1994 - 2,386 44,592 874 19 47,871 ==1995 262 2,190 33,621 788 111 36,972 ===== ===== ====== ===== == ====== 31 December 1993 - 2,334 59,149 236 - 61,719 == ===== ====== ===== == =============
The assets under construction mainly consist of barge enhancements in progress at the year end. The historical cost of the vessels included in marine floating equipment is as follows:
Group and Company1995 1994 Cost: (in thousands of pounds sterling) Cost: At 1 January 199462,374 62,069 ====== ====== At 31 December 199462,612 62,374 ====== ====== Cumulative depreciation based on cost: At 1 January 199448,657 44,085 ====== ====== At 31 December 199452,146 48,657 ====== ======
The vessels will be revalued in fourthree years' time, unless market conditions change to an extent that necessitates an earlier revaluation. The increase in the depreciation charge in the year as a result of revaluation is 10.3m (pounds sterling)(pound)7.25m (1994: (pound)10.3m). 44 EUROPEAN MARINE CONTRACTORS LIMITED NOTES TO THE FINANCIAL STATEMENTS AS AT 31 DECEMBER 19941995 - -------------------------------------------------------------------------------- 10 INVESTMENTS
COMPANY (thousands of pounds sterling) Cost at 31 December 1993 and 1994 1,107 ===== Amortisation at 31 December 1993 and 1994 375 ===== Net book value at 31 December 1993 and 1994 732 =====
The group financial statements include the results of EMC Nederland BV which is incorporated in Holland. The company owns 100% of the issued share capital. EMC Nederland BV acts as a base for the North Sea operations. JOINT VENTURE The company has a 49% interest in Saipem SpA/EMC Ltd J.V., an unincorporated joint venture, which is based in Chiwan Base, Shekou, Shenzen Province, Peoples' Republic of China.Joint Venture The company has a 50% interest in Saipem SpA/EMC Ltd J.V., an unincorporated joint venture, which is based in Bangkok, Thailand. The remaining interest in the above joint venturesventure is held by the other joint venture partner, Saipem SpA, which is a fellow group undertaking of Saipem UK Limited, a shareholder of the company. These undertakings areThis undertaking is managed jointly through management committees comprised of a representative from each joint venturer. 11 STOCKS
Group and Company (thousands1995 1994 (in thousands of pounds sterling) 1994 1993 Catering supplies 258 301 437 Fuel and lubricants 392 948 221 Spares and supplies for marine equipment 9,277 7,716 7,646 ----- ----- 9,927 8,965 8,304 ===== =====
In the directors' opinion the replacement value of stocks is approximately (pounds sterling)(pound)13.1m ((pound)15.7m ((pounds sterling)15 million in 1993)1994). 45 EUROPEAN MARINE CONTRACTORS LIMITED NOTES TO THE FINANCIAL STATEMENTS AS AT 31 DECEMBER 19941995 - -------------------------------------------------------------------------------- 12 DEBTORS
Group Company1995 1994 (in thousands of pounds sterling) 1994 1993 1994 1993 Trade debtors 22,222 6,168 3,507 6,167 3,348 Amounts recoverable on long term contracts 3,799 15,171 11,612 11,489 12,490 Amounts due from subsidiary undertaking - - 2,744 1,925 Amounts due from group undertakings 85,174 100,035 65,368 91,310 61,326 Prepayments and accrued income 11,023 10,570 11,940 10,394 11,777 Other debtors 1,687 1,391 1,645 16,118 1,369Advances to Joint Venture 313 - ------- ------ ------- ------124,218 133,335 94,072 138,222 92,235 ======= ====== ======= ======
Included in prepayments and accrued income is a deferred tax asset of (pounds sterling)5,615,000 (1993: (pounds sterling)1,675,000)(pound)8,431,000 (1994: (pound)5,615,000) due after more than one year. Further details are disclosed in note 16. 13 CASH Analysis of balances as shown in the group balance sheet and changes during the current and previous years:
Change 1995 1994 1993 in Year (in thousands of pounds sterling) Cash at bank and in hand 20,516 32,135 (11,619) ====== ====== ====== Change 1995 1994 in Year (in thousands of pounds sterling) Cash at bank and in hand 32,135 10,210 21,925 ====== ====== ============= Change 1993 1992 in Year (in thousands of pounds sterling) Cash at bank and in hand 10,210 30,998 (20,788) Bank overdraft - (30) 30 ------ ------ ------------- Balance at 31 December 10,210 30,968 (20,758) ====== ====== ======= Change 1992 1991 in Year (in thousands of pounds sterling) Cash at bank and in hand 30,998 6,092 24,906 Bank overdraft (30) (141) 111 ------ ------ ------- Balance at 31 December 30,968 5,951 25,017 ====== ====== =======
14 CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR
Group Company1995 1994 1993 1994 1993(in thousands of pounds sterling) Trade creditors 1,191 2,380 1,959 1,550 1,501 Amount due to subsidiary undertaking - - 4,538 3,968 Amounts due to group undertakings 12,254 12,325 9,618 5,079 8,491 Advances from joint venture - - 14,512 1,982 Accruals and deferred income 105,541 81,649 93,788 73,184 Taxation78,977 98,291 Corporation Tax 23,469 29,303 17,503 28,782 17,422Advance Corporation Tax 6,250 - Deferred investment grants 9 15 27 - - ------- ------- ------- ------- 149,564 110,756 148,249 106,548 ======= =======122,150 142,314 ======= =======
The amounts shown under Accruals and deferred income as at 31 December 1994 have been restated in accordance with the provision restatement in note 15. 46 EUROPEAN MARINE CONTRACTORS LIMITED NOTES TO THE FINANCIAL STATEMENTS AS AT 31 DECEMBER 19941995 - -------------------------------------------------------------------------------- 15 PROVISIONS FOR LIABILITIES AND CHARGES Provision is made for the periodic dry-docking and major planned maintenance expenditure of marine floating equipment. The provision shown as at 31 December 1994 has been restated to include amounts shown under Creditors in the 1994 Accounts due to a change in the planned maintenance schedule.
Group and Company1995 1994 1993 (in thousands of pounds sterling) At 1 January 12,550 5,491 5,087 Charge for the year 2303,587 7,480 613 Utilisation (4,415) (421) (209) ----------- ------ ----- At 31 December 5,30011,722 12,550 5,491 =========== ====== =====
16 DEFERRED TAXATION The deferred tax asset included under debtors represents:
Group and Company Potential and Provided 1995 1994 (in thousands of pounds sterling) 1994 1993 Capital allowances (655) 387 (378) Other timing differences 9,086 5,228 2,053 ----- ----- 8,431 5,615 1,675 ===== =====
AThe deferred tax amounts not provided are as follows:
Unprovided 1995 1994 (in thousands of pounds sterling) Capital allowances 1,359 100 Other timing differences 3,428 2,649 ----- ----- 4,787 2,749 ===== =====
The potential tax charge of (pounds sterling)10.2m (1993: (pounds sterling) 12m)(pound)7.6m (1994: (pound)10.2m) which would arise on the sale of the revalued vessels has not been provided for as it is not the intention of the directors to dispose of these assets. 17 SHARE CAPITAL
Allotted, called Authorised up and fully paid 1995 1994 19931995 1994 1993 (in thousands of pounds sterling) 'A' Ordinary shares of(pound sterling)of(pound)1 each 10,000 10,000 7,000 7,000 'B' Ordinary shares of(pound sterling)of(pound)1 each 10,000 10,000 7,000 7,000 ------ ------ ------ ------ 20,000 20,000 14,000 14,000 ====== ====== ====== ======
Number of Shares 1995 1994 Shareholders: (in thousands) 1994 1993 Shareholders: Saipem UK Limited - 'A' Ordinary Shares 7,000 7,000 Brown & Root Limited - 'B' Ordinary Shares 7,000 7,000 ------ ------ 14,000 14,000 ====== ======
47 EUROPEAN MARINE CONTRACTORS LIMITED NOTES TO THE FINANCIAL STATEMENTS AS AT 31 DECEMBER 19941995 - -------------------------------------------------------------------------------- 18 RESERVES
Group Company1995 1994 1993 Reval- Profit and Reval- Profit and Reval- Profit and uation Loss uation Loss uation Loss Reserve Account Reserve Account Reserve Account (in thousands of pounds sterling) At 1 January 1994 41,16530,874 23,016 41,465 3,420 41,165 2,821- 5,390 Surplus on revaluation - - - - 54,886 - Depreciation on revaluation surplus (7,718) 7,718 (10,291) 10,291 (10,291) 10,291(13,721) 13,721 Foreign exchange gaingain/(loss) on consolidation - 161 - 45 - - (47) (Deficit)/Surplus for the year - (10,290) - 9,260 - 9,170(15,644) ------ ------- ------ ------ ------ ------ At 31 December 199423,156 20,605 30,874 23,016 30,874 22,28241,165 3,420 ====== ======= ====== ====== ====== ======
19 PENSIONS One hundred and twenty two (1993: 92, 1992: 89)thirty eight (1994: 122, 1993: 92) of the group's UK employees are members of a pension scheme operated by Brown & Root Limited, which controls the overall administration of the scheme. This scheme is of the defined benefit type. Contributions amounting to (pounds sterling) (pound)352,461 (1994: (pound)315,524, (1993:(pounds sterling)248,698, 1992: (pounds sterling)220,673)1993: (pound)248,698) were charged to the profit and loss account during the year. The scheme includes employee contributions at a percentage of pensionable salaries. The pension cost is assessed in accordance with the advice of independent qualified actuaries and the latest actuarial assessment of the scheme was 1 January 1993. Further details of the Brown & Root scheme are included in the Brown & Root Limited accounts. Eight (1993: 7, 1992: 6)(1994: 8, 1993: 7) other UK employees are members of the Merchant Navy Officers' Pension Fund, which was set up in July 1992. Contributions to this fund amounting to (pounds sterling)(pound)24,551 (1994: (pound)15,932, (1993: (pounds sterling) 12,129, 1992: 6,207)1993: (pound)12,129) were made during the year. A further twenty three (1994: 21, (1993: 21, 1992: 22)1993: 21) of the group's employees are members of the EMC Nederland BV pension scheme. The charge to the profit and loss account of (pounds sterling)(pound)102,451 (1994: (pound)74,550, (1993: (pounds sterling)52,195, 1992: (pounds sterling)83,810)1993: (pound)52,195), in respect of this scheme has been determined in accordance with best local practice. 20 CAPITAL COMMITMENTS The board of directors has authorised capital expenditure of (pounds sterling) 12,816,000 (1993: (pounds sterling)9,264,000)(pound)3,626,000 (1994: (pound)12,816,000) mainly in connection with the modification of vessels. Approximately (pounds sterling)172,000 (1993:(pounds sterling) 153,000)(pound)1,321,000 (1994: (pound)172,000) of this authorised expenditure has already been contracted. 21 CONTINGENT LIABILITIES There are no contingent liabilities in existence as at the date on which the financial statements are approved that would have a material impact upon the financial position of the company other than those disclosed below. Performance bonds have been issued in the ordinary course of business by bankers and supported by the shareholders to the value of (pounds sterling)85.9(pound)96.6 million (1993: (pounds sterling)91.4(1994: (pound)85.9 million). No liabilities are expected to arise from these other than those provided for in the financial statements. 48 EUROPEAN MARINE CONTRACTORS LIMITED NOTES TO THE FINANCIAL STATEMENTS AS AT 31 DECEMBER 19941995 - -------------------------------------------------------------------------------- 22 LEASING COMMITMENTS Amounts payable in the following year on operating leases which expire:
1995 1994 1993 Land Land & & Buildings Other Buildings Other (in thousands of pounds sterling) i) Within 1 year - 5,436 - 10,193 1,198 12,632 ii) In 2-5 years - 149116 - 58149 iii) Over 5 years 656 - 493 - 157 - === ====== ===== === ======
Other leases relate primarily to the charter of support vessels. -------------------------------------------------------------------------------- ITEM49 Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. None. PART III ITEMItem 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT.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 21, 1995,26, 1996, under the caption "Election of Directors." The information required for the executive officers of the Registrant is included under Part I, Item 4(A), page 65 of this Annual Report. ITEMItem 11. EXECUTIVE COMPENSATION.Executive Compensation. This information is incorporated by reference to the Halliburton Company Proxy Statement dated March 21, 1995,26, 1996, under the captions "Compensation Committee Report on Executive Compensation," "Comparison of Five Year and Three Year Cumulative Total Return," "Summary Compensation Table," "Option Grants in Last Fiscal Year," "Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values," "Retirement Plan" and "Directors' Compensation, Restricted Stock Plan and Retirement Plan." ITEM 12(A)Item 12(a). SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS.Security Ownership of Certain Beneficial Owners. This information is incorporated by reference to the Halliburton Company Proxy Statement dated March 21, 1995,26, 1996, under the caption "Stock Ownership of Certain Beneficial Owners and Management." ITEM 12(B)Item 12(b). SECURITY OWNERSHIP OF MANAGEMENT.Security Ownership of Management. This information is incorporated by reference to the Halliburton Company Proxy Statement dated March 21, 1995,26, 1996, under the caption "Stock Ownership of Certain Beneficial Owners and Management." ITEM 12(C)Item 12(c). CHANGES IN CONTROL.Changes in Control. Not applicable. ITEMItem 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.Certain Relationships and Related Transactions. This information is incorporated by reference to the Halliburton Company Proxy Statement dated March 21, 1995,26, 1996, under the caption "Certain Transactions." 50 PART IV ITEMItem 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORMExhibits, 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 1611 through 4529 of this Annual Report. See index on page 7.6. 2. Financial Statement Schedules: The financial statements of European Marine Contractors, Limited (EMC), the investment in which is accounted for on the equity method, follow the Five Year Financial Record. The EMC financial statements were prepared in accordance with accounting principles generally accepted in the United Kingdom. Certain parent company adjustments were included in the selected financial data presented in Note 64 to the Company's financial statements in order to conform with generally accepted accounting principles in the United States. Note: All schedules not filed herein for which provision is made under rules of Regulation S-X have been omitted as not applicable or not required or the information required therein has been included in the notes to financial statements. 51 3. Exhibits: EXHIBIT NUMBER EXHIBITS 3Exhibit Number Exhibits 3* By-laws of the Company, as amended through September 30,1992, incorporated by reference to Exhibit 4.3 of the Second Amendment to the Company's Registration Statement on Form S-3 dated as of March 29, 1993.February 15, 1996. 4(a) Credit Agreement dated as of February 25, 1993 between Avalon Financial Services, Ltd. and NationsBank of Texas, N.A., incorporated by reference to Exhibit 4(a) to the Company's Annual Report on Form 10-K for the year ended December 31, 1992. 4(b) Form of debt security of Zero Coupon Convertible Subordinated Debentures due March 13, 2006 of the registrant incorporated by reference to Exhibit 4(a) to the Company's Form 8-K dated as of March 13, 1991. 4(c) Resolutions of the Board of Directors of the registrant adopted at a meeting held on February 11, 1991 and of the special pricing committee of the Board of Directors of the registrant adopted at a meeting held on March 6, 1991 incorporated by reference to Exhibit 4(c) to the Company's Form 8-K dated as of March 13, 1991. 4(d)4(b) Subordinated Indenture dated as of January 2, 1991 between the Company and Texas Commerce Bank National Association, as Trustee, incorporated by reference to Exhibit 4(b) to the Company's Form 8-K dated as of March 13, 1991. 4(e)4(c) Form of debt security of 8.75% Debentures due February 15, 2021 incorporated by reference to Exhibit 4(a) to the Company's Form 8-K dated as of February 20, 1991. 4(f)4(d) Senior Indenture dated as of January 2, 1991 between the Company and Texas Commerce Bank National Association, as Trustee, incorporated by reference to Exhibit 4(b) to the Company's Form 8-K dated as of February 20, 1991. 4(g)4(e) Resolutions of the Company's Board of Directors adopted at a meeting held on February 11, 1991 and of the special pricing committee of the Board of Directors of the Registrant adopted at a meeting held on February 11, 1991 and the special pricing committee's consent in lieu of meeting dated February 12, 1991, incorporated by reference to Exhibit 4(c) to the Company's Form 8-K dated as of February 20, 1991. 4(h)4(f) Composite Certificate of Incorporation filed May 26, 1987 with the Secretary of State of Delaware and that certain Certificate of Designation, Rights and Preferences related to the authorization of the Company's Junior Participating Preferred Stock, Series A, incorporated by reference to Exhibit 4(d) to the Company's Registration Statement on Form S-3 dated as of December 21, 1990. 4(i) Amended and Restated Rights Agreement dated as of February 15, 1990 between the Company and NCNB Texas National Bank, as Rights Agent, which includes the form of Right Certificate as Exhibit A, incorporated by reference to Exhibit 1 to the Company's Form 8 dated as of February 23, 1990. 4(j)4(g) Copies of instruments which define the rights of holders of miscellaneous long-term notes of the Registrant and its subsidiaries, totaling $0.4$0.2 million in the aggregate at December 31, 1994,1995, have not been filed with the Commission. The Registrant agrees herewith to furnish copies of such instruments upon request. 4(k)4(h) Copies of the instruments which define the rights of the holder of the 4.0% notes payable totaling $25.0$5.0 million at December 31, 1994,1995, have not been filed with the Commission. The Registrant agrees herewith to furnish copies of such instruments upon request. 4(i) Amended and Restated Rights Agreement dated as of December 15, 1995, between the Company and Chemical Mellon Shareholders, L.L.C., as Rights Agent, which includes the form of Right Certificate as Exhibit A, incorporated by reference to Exhibit 2.1 to the Company's Form 8-A/A dated January 16, 1996. 10(a) Halliburton Company Career Executive Incentive Stock Plan as amended November 15, 1990, incorporated by reference to Exhibit 10(a) to the Company's Annual Report on Form 10-K for the year ended December 31, 1992. 10(b) Halliburton Company Senior Executives' Deferred Compensation Plan as amended and restated effective October 1, 1990, incorporated by reference to Exhibit 10(b) to the Company's Annual Report on Form 10-K for the year ended December 31, 1992. 10(c) Retirement Plan for the Directors of Halliburton Company adopted and effective January 1, 1990, incorporated by reference to Exhibit 10(c) to the Company's Annual Report on Form 10-K for the year ended December 31, 1992. 10(d)52 Exhibit Number Exhibits 10(c) Halliburton Company Directors' Deferred Compensation Plan as amended and restated effective May 15, 1990, incorporated by reference to Exhibit 10(d) to the Company's Annual Report on Form 10-K for the year ended December 31, 1992. 10(e)* Halliburton Company Annual Incentive Compensation Plan as amended and restated December 9, 1994. 10(f) Form of criteria for determination of Brown and Root recommendations for incentive awards to Brown and Root management dated as of March 2, 1992, incorporated by reference to Exhibit 10(f) to the Company's Annual Report on Form 10-K for the year ended December 31, 1992. 10(g)10(d) Summary Plan Description of the Executive Split-Dollar Life Insurance Plan, incorporated by reference to Exhibit 10(g) to the Company's Annual Report on Form 10-K for the year ended December 31, 1992. 10(h)10(e) Halliburton Company 1993 Stock and Long-Term Incentive Plan incorporated by reference to Appendix A of the Company's proxy statement dated March 23, 1993. 10(i)10(f) Asset acquisition agreement between Smith and the Company dated as of January 14, 1993 incorporated by reference to the Second Amendment of the Company's Registration Statement on Form S-3 dated as of March 29, 1993. 10(j)10(g) Halliburton Company Restricted Stock Plan for Non-Employee Directors, incorporated by reference to Appendix B of the Company's proxy statement dated March 23, 1993. 10(k)*10(h) Halliburton Elective Deferral Plan effective January 1, 1995, incorporated by reference to Exhibit 10(k) to the Company's Annual Report on Form 10-K for the year ended December 31, 1994. 10(i) Employment agreement, incorporated by reference to Exhibit 10 to the Company's Form 10-Q for the quarterly period ended September 30, 1995. 10(j)* Halliburton Company Senior Executives' Deferred Compensation Plan as amended and restated effective January 1, 1995. 10(k)* Halliburton Company Annual Reward Plan 10(l)* First Amendment to the Senior Executives' Deferred Compensation Plan, effective January 1, 1996. 10(m)* Second Amendment to the Senior Executives' Deferred Compensation Plan, effective January 1, 1996. 10(n)* Employment agreement 10(o)* First Amendment to the Halliburton Elective Deferral Plan, effective November 1, 1995. 10(p)* Second Amendment to the Halliburton Elective Deferral Plan, effective January 1, 1996. 10(q)* Third Amendment to the Halliburton Elective Deferral Plan, effective January 1, 1996. 11* Computation of Earnings per share. 21* Subsidiaries of the Registrant. 23* Consent of Ernst & Young.53 Exhibit Number Exhibits 24* Form of power of attorney signed in May 1994,February 1996, for the following directors: Anne L. Armstrong Robert W. CampbellRichard B. Cheney Lord Clitheroe Robert L. Crandall Thomas H. Cruikshank W. R. Howell Dale P. Jones C. J. Silas Roger T. Staubach Richard J. Stegemeier E. L. Williamson 27* Financial data schedules for the Registrant (filed electronically). * Filed with this Annual Report - -------------------------------------------------------------------------------- (b) Reports on Form 8-K: A Current Report was filed on Form 8-K dated October 19, 1994,12, 1995, reporting on Item 5. Other Events, regarding a press release dated October 18, 1994,11, 1995 announcing the Company's definitive agreement for the salespin-off of its natural gas compression business unit.Highlands Insurance Group, Inc. A Current Report was filed on Form 8-K dated October 26, 1994,27, 1995, reporting on Item 5. Other Events, regarding a press release dated October 25, 1994, regarding a discussion for a 50/50 Scottish joint venture to operate fabrication yards. A Current Report was filed on Form 8-K dated October 28, 1994, reporting on Item 5. Other Events, regarding a press release dated October 27, 1994,24, 1995 announcing the Company's earnings for thethird quarter and the nine months ended September 30, 1994.results. A Current Report was filed on Form 8-K dated November 14, 1994,8, 1995, reporting on Item 5. Other Events, regarding a press release dated November 8, 1994, regarding a1995 announcing the fourth quarter dividend declaration of 25 cents per share.dividend. A Current Report was filed on Form 8-K dated November 22, 1994, reporting on Item 5. Other Events, regarding a press release dated November 21, 1994, announcing the Company's definitive agreement for the sale of its industrial service business unit. A Current Report was filed on Form 8-K dated November 30, 1994, reporting on Item 5. Other Events, regarding a press release dated November 30, 1994, announcing the Company's completion of the sale of its natural gas compression business unit. A Current Report was filed on Form 8-K dated January 9,December 8, 1995, reporting on Item 5. Other Events, regarding a press release dated January 9,December 7, 1995 announcing that the Company entered into contracts with three firms to outsource substantially allrenewal and ten-year extension of its information technology requirements.the Shareholders Rights Plan. A Current Report was filed on Form 8-K dated January 12,December 28, 1995, reporting on Item 5. Other Events, regarding a press release dated January 11,December 26, 1995 announcing the Company's completionrecord and distribution dates for the distribution of Highlands Insurance Group, Inc. common stock. During the salefirst quarter of 1996 to the assets of its industrial services business unit.date hereof: A Current Report was filed on Form 8-K dated February 2, 1995,January 24, 1996, reporting on Item 5. Other Events, regarding a press releasereleases dated January 30,23, 1996 announcing the completion of the spin-off of Highlands Insurance Group, Inc. and fourth quarter 1995 announcing a business unit of Brown & Root, Inc., recently won a multi-million dollar contract to construct a polypropylene plant.earnings. A Current Report was filed on Form 8-K dated February 2, 1995, reporting on Item 5. Other Events, regarding a press release dated February 1, 1995, announcing the Company's earnings for the quarter and the year ended December 31, 1994. A Current Report was filed onin Form 8-K dated February 16, 1995,1996, reporting on Item 5. Other Events, regarding a press release dated February 15, 1995,1996 announcing the formation of a Scottish joint venture. A Current Report was filed on Form 8-K dated February 17, 1995, reporting on Item 5. Other Events, regarding a press release dated February 16, 1995, announcing the declaration of a first quarter dividend. A Current Report was filed on Form 8-K dated February 27, 1995, reporting on Item 5. Other Events, regarding a press release dated February 24, 1995, announcing a joint venture agreement.54 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on this 23rd8th day of March, 1995.1996. HALLIBURTON COMPANY BY (THOMAS H. CRUIKSHANK) ------------------------- Thomas H. Cruikshank,By *Richard B. Cheney Richard B. Cheney, Chairman of the Board, President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons in the capacities indicated on this 23rd8th day of March, 1995. SIGNATURE TITLE --------- ----- (THOMAS H. CRUIKSHANK)1996. Signature Title Richard B. Cheney Chairman of the Board, President Richard B. Cheney and -------------------------- Chief Executive Officer and Thomas H. Cruikshank Director (JERRY H. BLURTON)David J. Lesar Executive Vice President-FinancePresident and -------------------------- PrincipalDavid J. Lesar Chief Financial Officer Jerry H. Blurton (SCOTT R. WILLIS) Controller and Principal -------------------------- Accounting Officer Scott R. Willis SIGNATURE TITLE --------- -----Controller and Principal Scott R. Willis Accounting Officer 55 Signature Title *ANNE L. ARMSTRONG Director -------------------------- Anne L. Armstrong *ROBERT W. CAMPBELL Director -------------------------- Robert W. Campbell *LORD CLITHEROE Director -------------------------- Lord Clitheroe *ROBERT L. CRANDALL Director -------------------------- Robert L. Crandall *W. R. HOWELL Director -------------------------- W. R. Howell *DALE P. JONES PresidentVice Chairman and Director -------------------------- Dale P. Jones *C. J. SILAS Director -------------------------- C. J. Silas *ROGER T. STAUBACH Director -------------------------- Roger T. Staubach *RICHARD J. STEGEMEIER Director -------------------------- Richard J. Stegemeier *E. L. WILLIAMSON Director -------------------------- E. L. Williamson * SUSAN*SUSAN S. KEITH -------------------------- Susan S. Keith, Attorney-in-fact 56