FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended JuneSeptember 30, 1996
OR
[ ] Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition period from _____ to _____
Commission File Number 1-3492
HALLIBURTON COMPANY
(a Delaware Corporation)
73-0271280
3600 Lincoln Plaza
500 N. Akard
Dallas, Texas 75201
Telephone Number - Area Code (214) 978-2600
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No ___
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common stock, par value $2.50 per share:
Outstanding at July 11,October 31, 1996 - 114,869,448125,201,026
INDEX
Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at JuneSeptember 30,
1996 and December 31, 1995 2
Condensed Consolidated Statements of Income for the
three and sixnine months ended JuneSeptember 30, 1996 and 1995 3
Condensed Consolidated Statements of Cash Flows for the
sixnine months ended JuneSeptember 30, 1996 and 1995 4
Notes to Condensed Consolidated Financial Statements 5 - 79
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 89 - 1113
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 6. Listing of Exhibits and Reports on Form 8-K 12 - 1314
Signatures 1415
Exhibits: By-laws of the Company, as amended through July 18, 1996
Computation of earnings per common share for the
three and sixnine months ended JuneSeptember 30, 1996 and 1995 15
Financial data schedule for the sixnine months ended
JuneSeptember 30, 1996 (included only in the copy of this
report filed electronically with the Commission).
1
1
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
HALLIBURTON COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(In millions of dollars and shares)
JuneSeptember 30 December 31
1996 1995
---------- ------------------------ ---------------
ASSETS
Current assets:
Cash and equivalents $ 14.235.1 $ 174.9
Receivables:
Notes and accounts receivable 1,258.11,386.2 1,157.3
Unbilled work on uncompleted contracts 389.7292.3 233.7
---------- ------------------------- ---------------
Total receivables 1,647.81,678.5 1,391.0
Inventories 306.3312.3 251.5
Deferred income taxes 128.1135.2 137.5
Other current assets 100.0107.4 95.0
---------- ------------------------- ---------------
Total current assets 2,196.42,268.5 2,049.9
Property, plant and equipment,
less accumulated depreciation of $2,234.8$2,230.7
and $2,225.8 1,124.71,176.0 1,111.2
Equity in and advances to related companies 184.9219.9 115.4
Excess of cost over net assets acquired 204.5213.7 207.5
Deferred income taxes 14.153.8 5.6
Other assets 153.4154.8 157.0
========== ==========--------------- ---------------
Total assets $ 3,878.04,086.7 $ 3,646.6
========== ========================= ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term notes payable $ 49.460.3 $ 4.8
Current maturities of long-term debt 0.1 5.2
Accounts payable 403.7472.4 357.3
Accrued employee compensation and benefits 131.9164.7 151.8
Advance billings on uncompleted contracts 397.5359.7 301.8
Income taxes payable 88.094.4 95.8
Other current liabilities 236.9300.9 239.4
---------- ------------------------- ---------------
Total current liabilities 1,307.51,452.5 1,156.1
Long-term debt 200.0 200.0
Reserve for employee compensation and benefits 274.6282.0 262.8
Deferred credits and other liabilities 265.0262.7 277.9
---------- ------------------------- ---------------
Total liabilities 2,047.12,197.2 1,896.8
---------- ------------------------- ---------------
Shareholders' equity:
Common stock, par value $2.50 per share -
authorized 200.0 shares, issued 119.0
and 119.1 shares 297.6 297.6
Paid-in capital in excess of par value 207.4208.0 199.4
Cumulative translation adjustment (29.1)(26.8) (28.0)
Retained earnings 1,492.61,546.4 1,431.4
---------- ----------
1,968.5--------------- ---------------
2,025.2 1,900.4
Less 4.24.1 and 4.6 shares of treasury
stock, at cost 137.6135.7 150.6
---------- ------------------------- ---------------
Total shareholders' equity 1,830.91,889.5 1,749.8
========== ==========--------------- ---------------
Total liabilities and shareholders'
equity $ 3,878.04,086.7 $ 3,646.6
========== ========================= ===============
See notes to condensed consolidated financial statements.
2
HALLIBURTON COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(In millions of dollars except per share data)
Three Months SixNine Months
Ended JuneSeptember 30 Ended JuneSeptember 30
---------------------- ---------------------------------------------------- -----------------------------
1996 1995 1996 1995
--------- --------- --------- ---------------------- -------------- ------------- ---------------
Revenues
Energy services $ 721.5779.0 $ 629.6683.0 $ 1,384.82,163.8 $ 1,198.61,881.6
Engineering and construction services 1,055.3 768.0 2,053.4 1,472.9
========= ========= ========= =========1,034.3 806.8 3,087.7 2,279.7
-------------- -------------- -------------- ---------------
Total revenues $ 1,776.81,813.3 $ 1,397.61,489.8 $ 3,438.25,251.5 $ 2,671.5
========= ========= ========= =========4,161.3
============== ============== ============== ===============
Operating income
Energy services $ 92.1101.8 $ 71.088.2 $ 159.4261.2 $ 123.3211.5
Engineering and construction services 26.4 33.3 48.7 49.037.5 31.2 86.2 80.2
Special charges (65.3) - (65.3) -
General corporate (8.4) (7.3) (17.2) (13.6)
--------- --------- --------- ---------(9.2) (8.3) (26.4) (21.9)
-------------- -------------- -------------- ---------------
Total operating income 110.1 97.0 190.9 158.764.8 111.1 255.7 269.8
Interest expense (5.8) (12.3) (10.7) (25.1)(6.8) (15.0) (17.5) (40.1)
Interest income 2.5 5.7 5.5 14.24.0 10.0 9.5 24.2
Foreign currency gains (losses) (3.0) (1.6) (2.0) 3.1(0.5) (2.5) (2.5) 0.6
Other nonoperating income, net (0.6) (0.6) - (0.6)
--------- --------- --------- ---------(0.2) 0.1 (0.2) (0.5)
-------------- -------------- -------------- ---------------
Income from continuing operations before
income taxes 103.2 88.2 183.7 150.3
Provision61.3 103.7 245.0 254.0
Benefit (provision) for income taxes (36.1) (33.4) (65.1) (57.2)
--------- --------- --------- ---------21.3 (34.9) (43.8) (92.1)
-------------- -------------- -------------- ---------------
Income from continuing operations 67.1 54.8 118.6 93.1
Income82.6 68.8 201.2 161.9
Loss from discontinued operations, net of income taxes - 1.4(67.7) - 2.2
--------- --------- --------- ---------(65.5)
-------------- -------------- -------------- ---------------
Net income $ 67.182.6 $ 56.21.1 $ 118.6201.2 $ 95.3
========= ========= ========= =========96.4
============== ============== ============== ===============
Average number of common and common share
equivalents outstanding 115.6 114.4 115.5114.6 115.6 114.4
Income per share
Continuing operations $ 0.580.71 $ 0.480.60 $ 1.031.74 $ 0.811.41
Discontinued operations - 0.01(0.59) - 0.02
========= ========= ========= =========(0.57)
-------------- -------------- -------------- ---------------
Net income $ 0.580.71 $ 0.490.01 $ 1.031.74 $ 0.83
========= ========= ========= =========0.84
============== ============== ============== ===============
Cash dividends paid per share $ 0.25 $ 0.25 $ 0.500.75 $ 0.500.75
See notes to condensed consolidated financial statements.
3
HALLIBURTON COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In millions of dollars)
SixNine Months
Ended JuneSeptember 30
------------------------------------------------------
1996 1995
--------- ---------------------- -------------
Cash flows from operating activities:
Net income $ 118.6201.2 $ 95.396.4
Adjustments to reconcile net income to net cash
from operating activities:
Depreciation, depletion and amortization 119.6 120.1183.8 182.7
Provision (benefit) for deferred income taxes 13.1 (0.8)(27.2) 7.7
Net incomeloss from discontinued operations - (2.2)65.5
Other non-cash items (29.2) (14.9)(65.6) (22.8)
Other changes, net of non-cash items:
Receivables (257.0) (91.8)(271.6) (38.5)
Inventories (54.8) 5.8(60.8) (8.2)
Accounts payable 55.6 39.3106.3 27.9
Other working capital, net 85.6 (49.7)135.8 72.6
Other, net (48.8) 19.2
--------- ---------(52.9) (30.3)
------------- -------------
Total cash flows from operating activities 2.7 120.3
--------- ---------149.0 353.0
------------- -------------
Cash flows from investing activities:
Capital expenditures (135.7) (120.7)(242.7) (186.8)
Sales of property, plant and equipment 21.8 20.0
Purchases30.3 25.6
(Purchases) sales of businesses (0.5) (6.0)(7.8) 11.9
Other investing activities (42.3) (7.4)
--------- ---------(43.9) (8.8)
------------- -------------
Total cash flows from investing activities (156.7) (114.1)
--------- ---------(264.1) (158.1)
------------- -------------
Cash flows from financing activities:
Payments on long-term borrowings (5.1) (10.1)(405.9)
Borrowings (repayments) of short-term debt 44.6 (5.1)55.5 (7.5)
Payments of dividends to shareholders (57.4) (57.1)(86.2) (85.7)
Proceeds from exercises of stock options 13.6 0.714.4 1.8
Other financing activities (1.3) (0.4)
--------- ---------(1.8) (0.8)
------------- -------------
Total cash flows from financing activities (5.6) (72.0)
--------- ---------(23.2) (498.1)
------------- -------------
Effect of exchange rate changes on cash (1.1) (0.5)
--------- ---------(1.5) (1.3)
------------- -------------
Decrease in cash and equivalents (160.7) (66.3)(139.8) (304.5)
Cash and equivalents at beginning of year 174.9 375.3
========= =========------------- -------------
Cash and equivalents at end of period $ 14.235.1 $ 309.0
========= =========70.8
============= =============
Cash payments during the period for:
Interest $ 11.423.3 $ 13.726.6
Income taxes 19.2 14.421.5 21.5
See notes to condensed consolidated financial statements.
4
HALLIBURTON COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1. Management Representation
The Company employs accounting policies that are in accordance with
generally accepted accounting principles in the United States. The preparation
of financial statements in conformity with generally accepted accounting
principles requires Company management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenues and expenses during the reporting period.
Ultimate results could differ from those estimates.
The accompanying unaudited condensed consolidated financial statements
present information in accordance with generally accepted accounting principles
for interim financial information, and the instructions to Form 10-Q and applicable
rules of Regulation S-X. Accordingly, they do not include all information or
footnotes required by generally accepted accounting principles for complete
financial statements and should be read in conjunction with the Company's 1995
Annual Report on Form 10-K.
In the opinion of the Company, the financial statements include all
adjustments necessary to present fairly the Company's financial position as of
JuneSeptember 30, 1996, and1996; the results of its operations for the three and sixnine months
ended JuneSeptember 30, 1996 and 19951995; and its cash flows for the sixnine months then
ended. The results of operations for the three and sixnine months ended JuneSeptember
30, 1996 and 1995 may not be indicative of results for the full year. 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 the current year presentation.
Note 2. Inventories
JuneSeptember 30 December 31
1996 1995
--------- ----------------------- -------------
Millions of dollars
Sales items $ 91.496.1 $ 85.2
Supplies and parts 152.0154.5 121.7
Work in process 41.742.2 27.1
Raw materials 21.219.5 17.5
========= ===========----------- -------------
Total $ 306.3312.3 $ 251.5
========= =========== =============
About one-third40% of all sales items (including related work in process and raw
materials) are valued using the last-in, first-out (LIFO) method. If the average
cost method had been in use for inventories on the LIFO basis, total inventories
would have been about $20.9 million and $18.3 million higher than reported at JuneSeptember 30, 1996, and December 31, 1995, respectively.1996.
Note 3. General and Administrative Expenses
General and administrative expenses were $38.9$43.7 million and $41.8$33.8 million
for the three months ended JuneSeptember 30, 1996 and 1995, respectively. General
and administrative expenses were $74.5$118.2 million and $78.9$112.7 million for the sixnine
months ended JuneSeptember 30, 1996 and 1995, respectively.
Note 4. Income Per Share
Income per share amounts are based upon the average number of common and
common share equivalents outstanding. Common share equivalents included in the
computation represent shares issuable upon assumed exercise of stock options
which have a dilutive effect.
5
Note 5. Related Companies
The Company conducts some of its operations through various joint venture
and other partnership forms which are accounted for using the equity method.
Included in the Company's revenues for the three months ended September 30, 1996
and 1995 are equity in income of related companies of $25.5 million and $23.3
million, respectively. The amounts included in revenues for the nine months
ended September 30, 1996 and 1995 are $66.1 million and $63.7 million,
respectively. European Marine Contractors, Limited (EMC), which is 50% owned by
the Company and part of Engineering and ConstructionBrown & Root Energy Services, specializes in
engineering, procurement and construction of marine pipelines. Summarized
operating results for 100% of the operations of EMC are as follows:
Three Months SixNine Months
Ended JuneSeptember 30 Ended JuneSeptember 30
------------------- ---------------------------------------------- ----------------------------
1996 1995 1996 1995
-------- -------- -------- --------------------- ----------- ----------- --------------
Millions of dollars Millions of dollars
Revenues $ 60.957.1 $ 116.4119.9 $ 102.4159.5 $ 175.3
======== ======== ======== ========295.2
=========== =========== =========== =============
Operating income $ 9.723.7 $ 38.133.4 $ 29.453.1 $ 53.8
======== ======== ======== ========87.3
=========== =========== =========== =============
Net income $ 6.514.8 $ 25.021.7 $ 19.734.5 $ 35.0
======== ======== ======== ========56.7
=========== =========== =========== =============
Included in the Company's revenues for the three months ended June 30,
1996 and 1995 are equity in income of related companies of $19.5 million and
$26.6 million, respectively. The amounts included in revenues for the six months
ended June 30, 1996 and 1995 are $40.6 million and $40.4 million, respectively.
In the second quarter of 1996, M-I Drilling Fluids, Inc.L.L.C., one of the
Company's joint ventures which is 36% owned and a part of Energy Services,
purchased Anchor Drilling Fluids. The Company's share of the purchase price was
$41.3 million and is included in cash flows from other investing activities.
Note 6. Commitments and Contingencies
The Company is involved as a potentially responsible party (PRP) in
remedial activities to clean up various "Superfund" sites under applicable
Federal law which imposes joint and several liability, if the harm is
indivisible, on certain persons without regard to fault, the legality of the
original disposal, or ownership of the site. Although it is very difficult to
quantify the potential impact of compliance with environmental protection laws,
management of the Company believes that any liability of the Company with
respect to all but one of such sites will not have a material adverse effect on
the results of operations of the Company. With respect to a site in Jasper
County, Missouri (Jasper County Superfund Site), sufficient information has not
been developed to permit management to make such a determination and management
believes the process of determining the nature and extent of remediation at this
site and the total costs thereof will be lengthy. Brown & Root, Inc. (Brown &
Root), a subsidiary of the Company, has been named as a PRP with respect to the
Jasper County Superfund Site by the Environmental Protection Agency (EPA). The
Jasper County Superfund Site includes areas of mining activity that occurred
from the 1800's through the mid 1950's in the southwestern portion of Missouri.
The site contains lead and zinc mine tailings produced from mining activity.
Brown & Root is one of nine participating PRPs which have agreed to perform a
Remedial Investigation/Feasibility Study (RI/FS), which, due to various delays,
is not expected to be completed until the thirdfourth quarter of 1996.1997. Although the
entire Jasper County Superfund Site comprises 237 square miles as listed on the
National Priorities List, in the RI/FS scope of work, the EPA has only
identified seven areas, or subsites, within this area that need to be studied
and then possibly remediated by the PRPs. Additionally, the Administrative Order
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 and its subsidiaries are parties to various other legal
proceedings. Although the ultimate dispositions of such proceedings are not
presently determinable, in the opinion of the Company any liability that may
ensue will not be material in relation to the consolidated financial position
and results of operations of the Company.
6
Note 7. Acquisitions
On June 30,October 4, 1996, the Company entered into a definitive agreement providing
for thecompleted its acquisition of Landmark
Graphics Corporation (Landmark). through the merger of Landmark is the
leading supplier of integrated exploration and production information systems
and professional services for the petroleum industry. Headquartered in Houston,
Texas, Landmark customers include 90 percentwith a subsidiary
of the world's largest oil and gas
companies.
6
Under termsCompany, the conversion of the agreement, the Company will issue 0.574 of a share of
itsoutstanding Landmark common stock for each outstanding share of Landmark common stock. The
acquisition will result in the issuanceinto an
aggregate of approximately 10.010.2 million shares of common stock of the Company
common stock. Approximately 124.8and the assumption by the Company of outstanding Landmark stock options ( for
the exercise of which the Company has reserved an aggregate of approximately 1.5
million shares of the Company's
common stock will be outstanding after such issuance.
The proposed merger has received unanimous approval from the respective
boards of directors of each company, but is subject to the approval of
Landmark's stockholders and Hart-Scott-Rodino antitrust clearance. For
accounting purposes the merger will be structured as a pooling of interests and,
for federal income tax purposes, as a tax-free exchange to Landmark
shareholders. The companies anticipate completion of the Company).
Landmark, together with its subsidiaries, designs, markets and supports
sophisticated computer-aided exploration and computer-aided reservoir management
software and systems. Geologists, geophysicists, petrophysicists and engineers
in more than 70 countries use Landmark products in exploration for and
production of oil and gas.
Landmark offers an extensive line of integrated software applications for
seismic processing, three dimensional and two dimensional seismic
interpretation, geologic and petrophysical interpretation, mapping and modeling,
well log and production analysis, drilling and production engineering and data
management. Through its service consulting business, Landmark provides software
training, on-site support and assistance in designing computer networks and
integrating applications and data. In addition to providing software products,
Landmark is a value-added reseller of workstations and other hardware and
provides a range of services, including software and systems support and
training, systems configuration and network design and data loading and
management.
The acquisition duringhas been accounted for using the fall"pooling of 1996.interests"
method of accounting for business combinations. For the fiscal year ended June
30, 1996, Landmark had consolidated revenues of $187.3 million, operating income
of $4 million and net income from continuing operations of $5.3 million. At June
30, 1996, Landmark had consolidated total assets of $231.1 million and
stockholders' equity of $165.4 million.
The accompanying unaudited consolidated financial statements do not give
retroactive effect to this transaction as it was not completed until after the
same time, the Company and Landmark announced that they are pursuing
the formation of an alliance with Electronic Data Systems (EDS) to develop a
worldwide distributed data management capability that integrates all information
associated with the oil field lifecycle. This alliance will be designed to
combine the leadershipend of the Company in oil field energy services, Landmark in
geoscience and engineering software systems and services, and EDS in global
information services.
The intent of the alliance will be to create an information management
environment that will automate and integrate petroleum exploration and
production from energy company offices throughout their oil fields. This
scaleable environment will have the potential to encompass applications,
workflows, processes and data from the Company, Landmark and EDS. It will be
based on industry standards and open to any software supplier, service company
or energy company for widespread adoption.current reporting period. The following supplemental unaudited pro
forma combined financial information is based on adjustments to the historicalunaudited consolidated
financial statements
of income of the Company and Landmark to give effect to the merger
using the pooling of interests method of accounting for business combinations.
The following information may not necessarily reflect the results of operations
or the financial position of the Company that would have actually resulted had
the merger occurred as of the date and for the periods indicated or reflect the
future earnings of the Company.
UNAUDITED PRO FORMA COMBINED BALANCE SHEETS
September 30 December 31
1996 1995
------------------ ------------------
Millions of dollars
Current assets $ 2,405.3 $ 2,186.0
Noncurrent assets 1,909.6 1,678.6
------------------ -----------------
Total assets $ 4,314.9 $ 3,864.6
================== ==================
Current liabilities $ 1,512.7 $ 1,198.1
Noncurrent liabilities 745.6 746.3
Shareholders' equity 2,056.6 1,920.2
------------------ ------------------
Total liabilities and
shareholders' equity $ 4,314.9 $ 3,864.6
================== ==================
7
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
Three Months Ended June 30 SixNine Months Ended
JuneSeptember 30 --------------------------- ---------------------------September 30
----------------------------- -----------------------------
1996 1995 1996 1995
------------ ------------- ------------ ------------ -------------------------
Millions of dollars and shares, except per share data
Revenues
Energy Services $ 1,830.8825.5 $ 1,446.8722.8 $ 3,535.52,307.7 $ 2,765.7
============ ============ ============ ============2,015.6
Engineering and construction services 1,034.3 806.8 3,087.7 2,279.7
-------------- -------------- -------------- --------------
Total revenues $ 1,859.8 $ 1,529.6 $ 5,395.4 $ 4,295.3
============== ============== ============== ==============
Operating income
Energy services $ 115.7102.6 $ 103.890.8 $ 187.3270.6 $ 168.9
============ ============ ============ ============229.5
Engineering and construction services 37.5 31.2 86.2 80.2
Special charges (73.6) (3.2) (85.8) (8.4)
General corporate (9.2) (8.3) (26.4) (21.9)
-------------- -------------- -------------- --------------
Total operating income $ 57.3 $ 110.5 $ 244.6 $ 279.4
============== ============== ============== ==============
Income from continuing operations $ 71.875.5 $ 60.369.1 $ 117.3192.8 $ 101.8
============ ============ ============ ============170.9
============== ============== ============== ==============
Income per share from continuing operations $ 0.570.60 $ 0.480.55 $ 0.931.53 $ 0.82
============ ============ ============ ============1.37
============== ============== ============== ==============
Average common shares outstanding 125.6126.1 124.9 125.8 124.5
125.5 124.4
============ ============ ============ ========================== ============== ============== ==============
Operating income for the three months ended September 30, 1996 include
special charges recorded by Landmark of $8.3 million ($7.6 million after tax)
for costs incurred for merging with the Company. Operating income for the nine
months ended September 30, 1996 include special charges recorded by Landmark of
$20.5 million ($16.3 million after tax) for the write-off of in-process research
and development activities acquired in connection with the purchase by Landmark
of certain assets and assumption of certain liabilities of Western Atlas
International, Inc. and of Verticomp and the write-off of redundant assets and
activities recorded in the three-month period ended March 31, 1996, as well as
the costs for merging with the Company noted above.
Note 8. Discontinued Operations
On January 23, 1996, the Company spun-off its property and casualty
insurance subsidiary, Highlands Insurance Group, Inc. (HIGI), in a tax-free
distribution to holders of Halliburton Company common stock. Each common
shareholder of the Company received one share of common stock of HIGI for every
ten shares of Halliburton Company common stock. Approximately 11.4 million
common shares of HIGI were issued in conjunction with the spin-off.
The following summarizes the results of operations of the discontinued
operations:
Three Months SixEnded Nine Months Ended
JuneSeptember 30, 1995 Ended JuneSeptember 30, 1995
------------------- ---------------------------------------
Millions of dollars Millions of dollars
Revenues $ 81.765.7 $ 137.6
=================== ===================
Income203.5
============== ===============
Loss before income taxes $ 2.9(130.1) $ 3.9
Provision(126.3)
Benefit for income taxes (1.5) (1.7)
------------------- -------------------69.1 67.5
Loss on disposition (7.6) (7.6)
Benefit for income taxes 0.9 0.9
-------------- ---------------
Net incomeloss from discontinued
operations $ 1.4(67.7) $ 2.2
=================== ===================(65.5)
============== ===============
78
Note 9. Special Charges
In September 1996, the Company recognized special charges to operating
income of $65.3 million ($42.7 million after tax) related to reorganization of
Engineering and Construction Services, severance costs for combining general
support functions throughout the Company, and certain other business structure
costs.
The Company recognized severance costs of $41.0 million to provide for the
termination of approximately one thousand employees related to reorganization
efforts at Engineering and Construction Services and plans to combine various
administrative support functions into combined shared services for the Company.
The terminations impact mostly middle and senior management levels within
business unit operations, business unit support, and general and administrative
areas. The terminations are to occur primarily during the fourth quarter of 1996
and first half of 1997. The Company also recognized $20.2 million of costs
associated with restructuring certain Engineering and Construction Services
businesses, providing for excess lease space and other items.
The above charges to net income were offset by tax credits during the
quarter of $43.7 million due to the recognition of net operating loss
carryforwards and the settlement during the quarter of various issues with the
Internal Revenue Service. The Company reached agreement with the Internal
Revenue Service (IRS) and recognized net operating loss carryforwards of $62.5
million ($22.5 million in tax benefits) from the 1989 tax year. The net
operating loss carryforwards are expected to be utilized in the 1996 and 1997
tax years. In addition, the Company also reached agreement with the IRS on
issues related to intercompany pricing of goods and services for the tax years
1989 through 1992 and entered into an advanced pricing agreement for the tax
years 1993 through 1998. As a result of these agreements with the IRS, the
Company recognized tax benefits of $16.1 million. The Company also recognized
net operating loss carryforwards of $14.0 million ($5.1 million in tax benefits)
in certain foreign areas due to improving profitability and restructuring of
foreign operations.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
BUSINESS ENVIRONMENT AND OUTLOOK
In accordance with the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995, the Company notes that the statements in this
10-Q and elsewhere, which are forward looking and which provide other than
historical information, involve risks and uncertainties that may impact the
Company's actual results of operations. Future trends for revenues and
profitability remain difficult to predict in the industries served by the
Company. The Company continues to face many risks and uncertainties including:
unsettled political conditions, war, civil unrest, currency controls and
governmental actions in countries of operation; new trade restrictions and economic
embargoes; environmental laws, including those that require emission performance
standards for new and existing facilities; the magnitude of governmental
spending for military and logistical support;support of the type provided by the
Company; operations in higher risk countries; technological and structural
changes in the industries served by the Company; changes in the price of oil and
natural gas; changes in capital spending by customers in the hydrocarbon
industry for exploration, development, production, processing, refining and
pipeline delivery networks; changes in capital spending by customers in the wood
pulp and paper industries for plants and equipment; and changes in world
economic conditions related to capital spending by governments for
infrastructure.
The Company operates in over 100 countries around the world to provide a
variety of energy services and engineering and construction services. Operations
in some countries may be affected by unsettled political conditions,
expropriation or other governmental actions and exchange control and currency
problems. Recently enacted United States law provides for sanctions on foreign
companies and, in some cases, their affiliates which make certain investments in
petroleum resources in Iran or Libya or sell to such countries certain products
or technology which enhance the ability of those countries to develop their
petroleum resources. This new law may adversely impact the Company's ability to
provide services and/or products to some of its foreign customers, including the
cessation of operations and trading by certain foreign subsidiaries of the
Company with customers in such countries. Although at the present time it is not
possible to determine the exact nature of the impact of such law on the Company,
it is possible that the Company's ability to realize the value of equipment and
other assets, including accounts receivable, associated with such business may
become impaired and that such impairment may be material to the results of
operations of the Company for some future period.
9
RESULTS OF OPERATIONS
SecondThird Quarter of 1996 Compared with the SecondThird Quarter of 1995
Revenues
Consolidated revenues increased 27%22% to $1,776.8$1,813.3 million in the secondthird
quarter of 1996 compared with $1,397.6$1,489.8 million in the same quarter of the prior
year. Approximately 56%55% of the Company's consolidated revenues were derived from
international activities in the secondthird quarter of 1996 compared to 52%50% in the
secondthird quarter of 1995. Consolidated international revenues increased 35%33% in the
secondthird quarter of 1996 over the secondthird quarter of 1995. Consolidated United States
revenues increased by 19%10% in the secondthird quarter of 1996 compared to the secondthird
quarter of 1995.
Energy Services revenues increased by 15%14% compared with an 8%a 9% increase in
drilling activity as measured by the worldwide rotary rig count for the secondthird
quarter of 1996 over the same quarter of the prior year. International revenues
increased by 12%9%, reflecting growth in all productEurope/Africa, Latin America, Middle East,
and service lines in the
Europe/Africa markets.Canada. United States revenues increased 18%21% while the United States rig
count increased 12%8% over the same quarter of the prior year.
Engineering and Construction Services revenues increased 37%28% to $1,055.3$1,034.3
million compared with $768.0$806.8 million in the same quarter of the prior year due
primarily to higher activity levels in the pulp and paper, energy and chemicals industries as
well as increased activity pursuant to a service contract with the US Department
of Defense to provide technical and logistical support for military peacekeeping
operations in Bosnia.
Operating income
Consolidated operating income increased 13%decreased 42% to $110.1$64.8 million in the secondthird
quarter of 1996 compared with $97.0$111.1 million in the same quarter of the prior
year. Approximately 86%The operating income in the third quarter of 1996 includes special charges
of $65.3 million for the reorganization of Engineering and Construction
Services, reorganization of various company-wide administrative support
functions, and other business structure costs. See Note 9 to the condensed
consolidated financial statements for additional information about these
charges. Excluding the special charges noted above, operating income for the
quarter was $130.1 million, or 17% higher than the prior year period. Excluding
the special charges, approximately 68% of the Company's consolidated operating
income was derived from international activities in the secondthird quarter of 1996
compared to 72%71% in the secondthird quarter of 1995.
8
Energy Services operating income increased 30%15% to $92.1$101.8 million in the
secondthird quarter of 1996 compared with $71.0$88.2 million in the same quarter of the
prior year. The operating margin for the secondthird quarter of 1996 was 12.8%13.1%
compared to the prior year operating margin of 11.3%12.9%. The increase in operating
income in 1996 is primarily related to higher activity levels in several areas of the
world: North America in the Permian Basin and South Texas areas and from
deepwater drilling in the Gulf of Mexico andMexico; Europe/Africa, primarily related to
the North Sea, Nigeria,Angola/Cabinda area, and the Congo basin.basin; Asia/Pacific; the
Middle East; Russia; and Kazakhstan.
Engineering and Construction Services operating income decreased 21%increased 20% to
$26.4$37.5 million compared to $33.3$31.2 million in the secondthird quarter of the prior year.
The increase in operating income includes profits from projects for the pulp and
paper and chemicals industry customers and income from the service contract with
the US Department of Defense mentioned above. These increases were partially
offset by lower energy income primarily driven by lower activity by European
Marine Contractors, Limited, and losses on several civil jobs. Operating margins
were 2.5%3.6% in the secondthird quarter of 1996 compared to 4.3%3.9% in the prior year secondthird
quarter. Results for the quarter include $31.8 million
income relating to gain sharing revenue on the Brown & Root portion of the cost
savings realized on the BP Andrew alliance. The alliance completed the project
seven months ahead of the scheduled production of oil and achieved a $125
million savings compared with the targeted cost. This was offset by a $14.2
million reduction in income due to lower activity levels and revenues generated
by EMC, its 50%-owned pipeline construction affiliate, and a $16.3 million
charge relating to the impairment of Brown & Root's equity in the Dulles
Greenway toll road extension project.
During the second quarter Brown & Root determined that the Dulles Greenway
toll road extension project which began operation in September 1995 will never
achieve financial viability for Brown & Root and its equity partners in the
venture. This was based upon a new study of traffic projections which concluded
that traffic revenue will continue to fall short of original expectations. As a
result, the partners have ceased funding the cash shortfall and consequently
could lose their entire investment. This resulted in a $16.3 million impairment
loss in the second quarter of 1996.
Nonoperating items
Interest expense decreased to $5.8$6.8 million in the secondthird quarter of 1996
compared to $12.3$15.0 million in the same quarter of the prior year due primarily to
the redemption of the zero coupon convertible subordinated debentures in
September 1995, and the redemption of the $42.0 million term loan in December
1995.
Interest income decreased in 1996 primarily due to lower levels of
invested cash due mainly to the redemption of long-term debt.
Foreign currency losses were $3.0$0.5 million for the secondthird quarter of 1996 as
compared to $1.6$2.5 million for the same quarter in 1995. The third quarter of the
prior year included losses in the Nigerian naira.
10
The benefit (provision) for income taxes in the third quarter of 1996 were primarily attributableis a
benefit of $21.3 million as compared to a provision of $34.9 million in the
prior year quarter. The benefit in 1996 includes tax credits of $43.7 million
due to the devaluationrecognition of net operating loss carryforwards and the Venezuelan bolivar.settlement
during the quarter of various issues with the Internal Revenue Service. See Note
9 to the condensed consolidated financial statements for additional information
on the tax benefits recognized in the third quarter of 1996.
Net income
Net income from continuing operations in the secondthird quarter of 1996
increased 22%20% to $67.1$82.6 million, or 5871 cents per share, compared with $54.8$68.8
million, or 4860 cents per share, in the same quarter of the prior year.
First SixNine Months of 1996 Compared with the First SixNine Months of 1995
Revenues
Consolidated revenues increased 29%26% to $3,438.2$5,251.5 million in the first sixnine
months of 1996 compared with $2,671.5$4,161.3 million in the same period of the prior
year. Approximately 54% of the Company's consolidated revenues were derived from
international activities in the first sixnine months of 1996 compared to 52%51% in the
same period of 1995. Consolidated international revenues increased 34% in the
first sixnine months of 1996 over the same period of 1995. Consolidated United
States revenues increased by 23%18% in the first sixnine months of 1996 compared to
the same period of 1995.
Energy Services revenues increased by 16%15% compared with a 5%6% increase in
drilling activity as measured by the worldwide rotary rig count for the first
sixnine months of 1996 over the same period of the prior year. International
revenues increased by 14%12%, reflecting growth in the Europe/Africa and Latin
America markets. United States revenues increased 18%19% while the United States
rig count increased 6% over the same period of the prior year.
Engineering and Construction Services revenues increased 39%35% to $2,053.4$3,087.7
million compared with $1,472.9$2,279.7 million in the same sixnine month period of the
prior year due primarily to higher activity levels in the pulp and paper, energy
and chemicals industries as well as a service contract with the US Department of
Defense to provide technical and logistical support for military peacekeeping
operations in Bosnia.
9
Operating income
Consolidated operating income increased 20%decreased 5% to $190.9$255.7 million in the first
sixnine months of 1996 compared with $158.7$269.8 million in the same period of the prior
year. Approximately 73%The current year operating income includes special charges of $65.3
million for the reorganization of Engineering and Construction Services,
reorganization of various company-wide administrative support functions, and
other business structure costs. See Note 9 to the condensed consolidated
financial statements for additional information about these charges. Excluding
the special charges noted above, operating income for the nine months was $321.0
million, or 19% higher than the prior year period. Excluding the special
charges, approximately 71% of the Company's consolidated operating income was
derived from international activities in the first sixnine months of 1996 compared
to 65%67% in the same period of 1995.
Energy Services operating income increased 29%24% to $159.4$261.2 million in the
first sixnine months of 1996 compared with $123.3$211.5 million in the same period of the
prior year. The operating margin for the first sixnine months of 1996 was 11.5%12.1%
compared to the prior year operating margin of 10.3%11.2%. The increase in operating
income in 1996 is primarily related to higher activity levels in North America
from deepwater drilling in the Gulf of Mexico andMexico; Europe/Africa, primarily related
to the North SeaSea; and Nigeria.Latin America, from activities in Mexico.
Engineering and Construction Services operating income for the first sixnine
months of 1996 was $48.7$86.2 million compared to 1995 operating income of $49.0$80.2
million. Operating margins were 2.4%2.8% in for the first sixnine months of 1996 and
3.3%3.5% for the same period in 1995. Results for the sixnine months include $31.8fees for
the service contract to provide technical and logistical support for military
peacekeeping operations in Bosnia as well as $35.0 million of income relating to
gain sharing revenue on the Brown & Root portion of the cost savings realized on
the BP Andrew alliance. The alliance completed the project seven months ahead of
the scheduled production of oil and achieved a $125 million savings compared
with the targeted cost. This was offset by a $12.2$17.1 million reduction in income
due to lower activity levels and revenues generated by EMC, its 50%-owned pipeline construction affiliate,European Marine
Contractors, Limited, and a $16.3$17.1 million charge relating to the impairment of
Brown & Root's equity in the Dulles Greenway toll road extension project.
11
Nonoperating items
Interest expense decreased to $10.7$17.5 million in the first sixnine months of
1996 compared to $25.1$40.1 million in the same period of the prior year due
primarily to the redemption of the zero coupon convertible subordinated
debentures in September 1995, and the redemption of the $42.0 million term loan
in December 1995.
Interest income decreased in 1996 primarily due to lower levels of
invested cash due mainly to the redemption of long-term debt.
Foreign currency losses were $2.0$2.5 million for the first sixnine months of
1996 as compared to a gain of $3.1$0.6 million for the same period in 1995. The
prior year period benefited from a $7.7 million realized gain in the first quarter of 1995 in Nigeria
from the devaluation of the naira which was offset by losses primarily related
to the Mexican peso. The current year losses are primarily attributable to the
devaluation of the Venezuelan bolivar.
The provision for income taxes in the first nine months is $43.8 million
as compared to a provision of $92.1 million in the prior year period. The
provision in 1996 is net of tax credits of $43.7 million due to the recognition
of net operating loss carryforwards and the settlement during the third quarter
of various issues with the Internal Revenue Service. See Note 9 to the condensed
consolidated financial statements for additional information on the tax benefits
recognized in 1996.
Net income
Net income from continuing operations in the first sixnine months of 1996
increased 27%24% to $118.6$201.2 million, or $1.03$1.74 per share, compared with $93.1$161.9
million, or 81 cents$1.41 per share, in the same period of the prior year.
Realignment of product and service lines
The Company has announced plans to realign certain of its product and
service lines to exploit opportunities with its energy based customers.
Beginning in the 1996 fourth quarter, the Energy Services business segment will
include Halliburton Energy Services; Brown & Root Energy Services, which
includes the upstream oil and gas engineering and construction activities;
Landmark Graphics Corporation, which includes integrated exploration and
production information systems and professional services; and Halliburton Energy
Development, which has been formed to create business opportunities for the
development, production and operation of customers' oil and gas fields.
In addition, the Company has announced a restructuring of the remaining
services of the Engineering and Construction Services segment into two service
lines to more closely align with its customers. One service line will focus on
delivering engineering and construction services to commercial customers and the
other will focus on servicing government and municipal customers. The cost of
implementing this program is reflected in the 1996 third quarter $65.3 million
pre-tax charge.
LIQUIDITY AND CAPITAL RESOURCES
The Company ended the secondthird quarter of 1996 with cash and equivalents of
$14.2$35.1 million, a decrease of $160.7$139.8 million from the end of 1995.
Operating activities
Cash flows from operating activities were $2.7$149.0 million in the first sixnine
months of 1996, as compared to $120.3$353.0 million in the first sixnine months of 1995.
The major operating activity use of cash in 1996 was to fund working capital
requirements related to increased revenues including the service contract to
provide technicalfrom Energy Services and logistical support for military peacekeeping operations in
Bosnia.
10
Engineering
and Construction Services.
Investing activities
Cash flows used in investing activities were $156.7$264.1 million and $114.1$158.1
million in the first sixnine months of 1996 and 1995, respectively. Included in
1996 investing activities is $41.3 million related to the Company's share of the
purchase price of a subsidiary acquired by the Company's M-I Drilling affiliate.
Capital expenditures made by Energy Services for fixed assets were $44.9 million
higher in the first nine months of 1996 compared to the prior year period.
12
Financing activities
Cash flows used in financing activities were $5.6$23.2 million in the first
sixnine months of 1996 compared to $72.0$498.1 million in the first sixnine months of 1995.
The Company borrowed $40.0$51.5 million in short-term funds consisting of commercial
paperbank borrowings in the first
sixnine months of 1996 to fund cash requirements. Proceeds from exercises of stock
options provided $13.6$14.4 million in the first sixnine months of 1996 compared to $0.7$1.8
million in the same period of the prior year. The Company redeemed the entire
outstanding principal amount of zero coupon convertible subordinated debentures
during the third quarter of 1995 of $390.7 million.
The Company has the ability to borrow additional short-term and long-term
funds if necessary.
LANDMARK GRAPHICS ACQUISITION
On June 30,October 4, 1996, the Company entered into a definitive agreement for the
purposecompleted its acquisition of acquiring Landmark
Graphics Corporation in a stock transaction. See Note 7 to the condensed
consolidated financial statements for additional information.
DISCONTINUED OPERATIONS
The Company completed its exit from the insurance industry segment on
January 23, 1996, with distribution of the Company's property and casualty
insurance subsidiary, Highlands Insurance Group, Inc., to its shareholders in a
tax-free spin-off. The operations of the Insurance Services Group have been
classified as discontinued operations. See Note 8 to the condensed consolidated
financial statements for additional information.
ENVIRONMENTAL MATTERS
The Company is involved as a potentially responsible party in remedial
activities to clean up various "Superfund" sites under applicable Federal law
which imposes joint and several liability, if the harm is indivisible, on
certain persons without regard to fault, the legality of the original disposal,
or ownership of the site. Although it is very difficult to quantify the
potential impact of compliance with environmental protection laws, management of
the Company believes that any liability of the Company with respect to all but
one of such sites will not have a material adverse effect on the results of
operations of the Company. See Note 6 to the condensed consolidated financial
statements for additional information on the one site.
1113
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Stockholders of the Company held on May 21, 1996,
stockholders of the Company were asked to consider and act upon (i) the election
of Directors for the ensuing year, (ii) a proposal to ratify the appointment of
Arthur Andersen LLP as independent accountants to examine the financial
statements and books and records of the Company for 1996 and (iii) a proposal to
amend the 1993 Stock and Long-Term Incentive Plan. Set forth below with respect
to each such matter, where applicable, is the number of votes cast for, against
or withheld, as well as the number of abstentions.
a. Election of Directors:
Name of Nominee Votes For Votes Withheld
Anne L. Armstrong 85,943,239 9,642,607
Richard B. Cheney 85,966,923 9,618,923
Lord Clitheroe 85,951,605 9,634,241
Robert L. Crandall 85,967,354 9,618,492
William R. Howell 85,961,457 9,624,389
Dale P. Jones 85,967,534 9,618,312
C. J. Silas 85,970,238 9,615,608
Roger T. Staubach 85,194,952 10,390,894
Richard J. Stegemeier 85,962,537 9,623,309
E. L. Williamson 85,931,476 9,654,370
b. Proposal to ratify the appointment of Arthur Andersen LLP as
independent accountants to examine the financial statements and books and
records of the Company for 1996:
Number of Votes For 95,326,570
Number of Votes Against 141,892
Number of Votes Abstaining 117,384
c. Proposal to amend the 1993 Stock and Long-Term Incentive Plan:
Number of Votes For 93,519,442
Number of Votes Against 1,570,559
Number of Votes Abstaining 495,845
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(3) By-laws of the Company, as amended through July 18, 1996.
(11) Statement regarding computation of earnings per share.
(27) Financial data schedule for the sixnine months ended JuneSeptember 30, 1996
(included only in the copy of this report filed electronically with the
Commission).
(b) Reports on Form 8-K
During the secondthird quarter of 1996:
A Current Report was filed on Form 8-K dated April 10, 1996, reporting on
Item 5. Other Events, regarding a press release dated April 8, 1996,
announcing the alliance of BP, Brown & Root, and others to design and
build the surface production facility for BP's Schiehallion Field.
12
A Current Report was filed on Form 8-K dated April 25, 1996, reporting on
Item 5. Other Events, regarding a press release dated April 22, 1996,
announcing first quarter results.
A Current Report was filed on Form 8-K dated May 7, 1996, reporting on
Item 5. Other Events, regarding a press release dated May 6, 1996,
announcing the installation of first multi-lateral system with full
re-entry access.
A Current Report was filed on Form 8-K dated May 22, 1996, reporting on
Item 5. Other Events, regarding a press release dated May 21, 1996,
announcing the election results of its shareholders' meeting and the
dividend declaration of the second quarter dividend.
A Current Report was filed on Form 8-K dated June 5, 1996, reporting on
Item 5. Other Events, regarding a press release dated June 4, 1996,
announcing the Company was named U.S. Environmental Protection Agency
Green Lights Corporate Partner of the Year.
A Current Report was filed on Form 8-K dated June 21, 1996, reporting on
Item 5. Other Events, regarding a press release dated June 20, 1996,
announcing the award of a pipeline contract to a joint venture of the
Company's Brown & Root subsidiary.
During the third quarter of 1996 to the date hereof:
A Current Report was filed on Form 8-K dated July 3, 1996, reporting on
Item 5. Other Events, regarding a press release dated July 1, 1996,
announcing the definitive agreement providing for the acquisition of
Landmark Graphics Corporation by Halliburton and the formation of plans to
develop a worldwide distributed management solution with Electronic Data
Systems Corporation.
A Current Report was filed on Form 8-K dated July 19, 1996, reporting on
Item 5. Other Events, regarding a press release dated July 18, 1996,
announcing the dividend declaration of the second quarter dividend.
13A Current Report was filed on Form 8-K dated July 29, 1996, reporting on
Item 5. Other Events, regarding a press release dated July 23, 1996,
announcing second quarter results and regarding a press release dated July
25, 1996, announcing the contract-to-produce agreement with Cairn Energy
to develop the Sangu natural gas field, located in Bangladesh's offshore
Block 16.
A Current Report was filed on Form 8-K dated August 2, 1996, reporting on
Item 5. Other Events, regarding a press release dated July 31, 1996,
announcing the election of Delano E. Lewis to the Company's Board of
Directors.
A Current Report was filed on Form 8-K dated August 20, 1996, reporting on
Item 5. Other Events, regarding a press release dated August 20, 1996,
announcing the appointment of Dave Gribbin as Vice President for
Government Relations.
A Current Report was filed on Form 8-K dated September 25, 1996, reporting
on Item 5. Other Events, regarding a press release dated September 24,
1996, announcing the realignment of the Company's business segments.
During the fourth quarter of 1996 to the date hereof:
A Current Report was filed on Form 8-K dated October 8, 1996, reporting on
Item 5. Other Events, regarding a press release dated October 4, 1996,
announcing the Company had completed the acquisition of Landmark Graphics
Corporation.
A Current Report was filed on Form 8-K dated October 24, 1996, reporting
on Item 5. Other Events, regarding a press release dated October 22, 1996,
announcing third quarter results.
14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HALLIBURTON COMPANY
(Registrant)
Date July 29,November 12, 1996 By /s/ David J. Lesar
-------------------------- --------------------------- ----------------------------
David J. Lesar
Executive Vice President
Chief Financial Officer
Date July 29,November 12, 1996 By /s/ Scott R. Willis
-------------------------- -----------------------------
ScottCharles Muchmore
------------------------- ------------------------------
R. WillisCharles Muchmore
Vice President and Controller
Principal Accounting Officer
1415
Index to Exhibits
Exhibit 3 By-laws of the Company, as amended
through July 18, 1996.
Exhibit 11 Statement regarding computation of
Earnings per share.
Exhibit 27 Financial data schedule for the nine
months ended September 30, 1996.