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 March 31,June 30, 1998
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)
75-2677995
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,stock, par value $2.50 per share:
Outstanding at April 30,July 31, 1998 - 262,994,985263,194,766
INDEX
Page No.
Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at March 31,June 30, 1998 and
December 31, 1997 2
Condensed Consolidated Statements of Income for the three and six
months ended March 31,June 30, 1998 and 1997 3
Condensed Consolidated Statements of Cash Flows for the threesix months
ended March 31,June 30, 1998 and 1997 4
Notes to Condensed Consolidated Financial Statements 5 - 85-8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9 - 129-15
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 6. Listing of Exhibits and Reports on Form 8-K 13 - 1417-18
Signatures 1519
Exhibits: Restated Certificate of Incorporation of Halliburton
Company filed with the Secretary of State of Delaware
on July 23, 1998.
Halliburton Elective Deferral Plan, as amended and
restated effective January 1, 1998.
Halliburton Company Senior Executives' Deferred
Compensation Plan, as amended and restated effective
January 1, 1998.
Financial data schedule for the quartersix months ended March 31,June 30, 1998
(included only in the copy of this report filed electronically
with the Commission).
Restated financial data schedules for the years ended
December 31, 1995 and 1996 and interim periods of 1996
and 1997
(included only in the copy of this report filed electronically
with the Commission).
1
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
HALLIBURTON COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(In millions of dollars and shares)
March 31shares except per share)
June 30 December 31
1998 1997
--------------- -------------------------------
ASSETS
Current assets:
Cash and equivalents $ 93.4145.4 $ 221.3
Receivables:
Notes and accounts receivable 1,947.42,039.4 1,815.8
Unbilled work on uncompleted contracts 418.5503.5 390.0
--------------- -------------------------------
Total receivables 2,365.92,542.9 2,205.8
Inventories 375.7394.1 326.9
Deferred income taxes, current 106.0129.1 106.6
Other current assets 119.8121.8 111.0
--------------- -------------------------------
Total current assets 3,060.83,333.3 2,971.6
Property, plant and equipment,
less accumulated depreciation of $2,355.3$2,372.5 and $2,325.3 1,735.71,814.2 1,662.7
Equity in and advances to related companies 364.3415.9 338.7
Excess of cost over net assets acquired 318.1312.2 323.1
Deferred income taxes, noncurrent 95.977.0 91.3
Other assets 229.7233.4 215.6
--------------- -------------------------------
Total assets $ 5,804.56,186.0 $ 5,603.0
=============== ===============================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term notes payable $ 75.6319.1 $ 2.7
Current maturities of long-term debt 8.1 7.1
Accounts payable 676.8694.8 586.5
Accrued employee compensation and benefits 183.8212.3 262.3
Advance billings on uncompleted contracts 307.3298.1 303.7
Income taxes payable 214.2198.2 213.1
Deferred revenues 46.044.9 38.4
Other current liabilities 359.8369.8 359.1
--------------- -------------------------------
Total current liabilities 1,871.62,145.3 1,772.9
Long-term debt 538.3525.4 538.9
EmployeeReserve for employee compensation and benefits 324.8329.9 323.6
Other liabilities 364.3370.0 363.2
Minority interest in consolidated subsidiaries 16.619.3 19.7
--------------- -------------------------------
Total liabilities and minority interest 3,115.63,389.9 3,018.3
--------------- -------------------------------
Shareholders' equity:
Common stock, par value $2.50 per share -
authorized 400.0 shares, issued 269.3269.5 and 268.8 shares 673.1673.6 672.0
Paid-in capital in excess of par value 101.9106.3 87.2
Cumulative translation adjustment (12.3)(17.2) (15.0)
Retained earnings 2,032.22,135.8 1,947.6
--------------- ---------------
2,794.9----------------
2,898.5 2,691.8
Less 6.46.3 and 6.5 shares of treasury stock, at cost 106.0102.4 107.1
--------------- -------------------------------
Total shareholders' equity 2,688.92,796.1 2,584.7
--------------- -------------------------------
Total liabilities and shareholders' equity $ 5,804.56,186.0 $ 5,603.0
=============== ===============================
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 Six Months
Ended March 31
-----------------------------June 30 Ended June 30
------------------------------- -------------------------------
1998 1997 ------------ -----------1998 1997
------------- -------------- ------------- --------------
Revenues:
Revenues
Energy Group $ 1,589.21,707.0 $ 1,120.31,456.4 $ 3,296.2 $ 2,576.7
Engineering and Construction Group 766.1 777.2
------------ -----------768.6 774.7 1,534.7 1,551.9
------------- -------------- ------------- -------------
Total revenues $ 2,355.32,475.6 $ 1,897.5
============ ===========2,231.1 $ 4,830.9 $ 4,128.6
============= ============== ============= =============
Operating income:income
Energy Group $ 185.0198.3 $ 117.2160.1 $ 383.3 $ 277.3
Engineering and Construction Group 28.8 29.449.9 30.0 78.7 59.4
General corporate (9.8) (7.9)
------------ -----------(8.1) (19.6) (16.0)
------------- -------------- ------------- -------------
Total operating income 204.0 138.7238.4 182.0 442.4 320.7
Interest expense (11.3) (6.1)(12.7) (9.7) (24.0) (15.8)
Interest income 3.4 4.43.5 2.1 6.9 6.5
Foreign currency gains 2.4 1.0(losses) (0.1) (0.4) 2.3 0.6
Other nonoperating income (expense), net (0.4) (0.1) 0.6
------------ -----------(0.5) 0.5
------------- -------------- ------------- -------------
Income before income taxes and minority
interest 198.4 138.6interests 228.7 173.9 427.1 312.5
Provision for income taxes (77.0) (52.7)(88.3) (68.5) (165.3) (121.2)
Minority interest in net income of subsidiaries (3.6) (2.9)
------------ -----------(3.9) (3.5) (7.5) (6.4)
------------- -------------- ------------- -------------
Net income $ 117.8136.5 $ 83.0
============ ===========
Net income101.9 $ 254.3 $ 184.9
============= ============== ============= =============
Income per share:
Basic $ 0.450.52 $ 0.330.40 $ 0.97 $ 0.73
Diluted $ 0.440.51 $ 0.320.40 $ 0.95 $ 0.72
Cash dividends paid per share $ 0.125 $ 0.125 $ 0.25 $ 0.25
See notes to condensed consolidated financial statements.
3
HALLIBURTON COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In millions of dollars)
ThreeSix Months
Ended March 31June 30
--------------------------------
1998 1997
------------- -------------
Cash flows used infrom operating activities:
Net income $ 117.8254.3 $ 83.0184.9
Adjustments to reconcile net income to net cash
from operating activities:
Depreciation and amortization 85.4 69.6
Benefit167.4 148.1
Provision (benefit) for deferred income taxes (4.0) (14.8)(8.2) (7.1)
Distributions from (advances to) related companies net of
equity in (earnings) or losses (29.1) (24.0)(81.6) (39.4)
Other non-cash items 2.3 11.612.3 5.2
Other changes, net of non-cash items:
Receivables (150.5) (17.4)(338.4) (220.2)
Inventories (48.4) (28.8)(67.3) (37.1)
Accounts payable 88.2 (121.2)119.3 (83.8)
Other working capital, net (75.4) (68.4)(91.4) (3.4)
Other, net (12.3) 22.411.4 29.0
------------- -------------
Total cash flows used infrom operating activities (26.0) (88.0)(22.2) (23.8)
------------- -------------
Cash flows used infrom investing activities:
Capital expenditures (156.3) (112.2)(326.1) (259.2)
Sales of property, plant and equipment 14.6 11.926.5 27.8
Sales (purchases) of businesses, net of cash (disposed) acquired 1.0 (2.1)4.0 (124.7)
Other investing activities (3.9) (32.8)(1.5) (35.9)
------------- -------------
Total cash flows used infrom investing activities (144.6) (135.2)(297.1) (392.0)
------------- -------------
Cash flows from financing activities:
Proceeds from long-term borrowing - 175.6
Payments on long-term borrowings - 125.2(12.7) (0.4)
Borrowings (repayments) of short-term debt 72.9 (34.3)316.4 100.8
Payments of dividends to shareholders (33.2) (31.5)(66.1) (63.3)
Proceeds from exercises of stock options 10.3 34.515.1 38.8
Payments to reacquirere-acquire common stock (0.9) (0.6)(1.4) (0.7)
Other financing activities (5.2) 3.6(4.8) 3.5
------------- -------------
Total cash flows from financing activities 43.9 96.9246.5 254.3
------------- -------------
Effect of exchange rate changes on cash (1.2) (1.9)(3.1) (1.7)
------------- -------------
Decrease in cash and equivalents (127.9) (128.2)(75.9) (163.2)
Cash and equivalents at beginning of year 221.3 213.6
------------- -------------
Cash and equivalents at end of period $ 93.4145.4 $ 85.450.4
============= =============
Cash payments during the period for:
Interest $ 19.524.6 $ 9.814.1
Income taxes 61.1 25.5158.2 55.6
Non-cash investing and financing activities:
Liabilities assumed in acquisitions of businesses $ 4.6 $ 286.3
Liabilities disposed of in dispositions of businesses 13.4 17.9
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 the disclosedand 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 1997 Annual Report on Form 10-K/A.
In the opinion of the Company, the financial statements include all
adjustments necessary to present fairly the Company's financial position as of
March 31,June 30, 1998, and the results of its operations for the three and six months
ended June 30, 1998 and 1997 and its cash flows for the threesix months ended March 31, 1998 and 1997.then ended.
The results of operations for the three and six months ended March 31,June 30, 1998 and
1997 may not be indicative of results for the full year. Certain prior year
amounts have been reclassified to conform with the current year presentation.
Note 2. Comprehensive Income
Three Months Six Months
Ended June 30 Ended June 30
---------------------------- ------------------------------
1998 1997 1998 1997
------------ -------------- ----------- -------------
(Millions of dollars) (Millions of dollars)
Comprehensive income:
Net income $ 136.5 $ 101.9 $ 254.3 $ 184.9
Cumulative translation
adjustment, net of tax (4.9) 12.9 (2.2) 1.7
------------ -------------- ------------- -------------
Total comprehensive income $ 131.6 $ 114.8 $ 252.1 $ 186.6
============ ============== ============= =============
Comprehensive income as defined by Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income," is net income plus direct
adjustments to shareholders' equity. The cumulative translation adjustment of
certain foreign entities is the only such direct adjustment recorded by the
Company.
Three Months
Ended March 31
-------------------------------------
1998 1997
---------------- ---------------
(Millions of dollars)
Comprehensive income:
Net income $ 117.8 $ 83.0
Cumulative translation adjustment, net of tax 2.7 (11.2)
--------------- ---------------
Total comprehensive income $ 120.5 $ 71.8
=============== ===============
Note 3. Inventories
March 31June 30 December 31
1998 1997
---------------- ---------------------------- ---------------
(Millions of dollars)
Sales items $ 128.5142.3 $ 114.9
Supplies and parts 171.7179.2 158.1
Work in process 44.840.5 29.3
Raw materials 30.732.1 24.6
---------------- ---------------------------- ---------------
Total $ 375.7394.1 $ 326.9
================ ============================ ===============
About forty percent 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 $3.3$3.1 million and $3.4 million higher than
reported at March 31,June 30, 1998 and December 31, 1997, respectively.
5
Note 4. General and Administrative Expenses
General and administrative expenses were $58.6$64.3 million and $51.0$57.9 million
for the three months ended March 31,June 30, 1998 and 1997, respectively. General and
administrative expenses were $122.9 million and $108.9 million for the six
months ended June 30, 1998 and 1997, respectively.
Note 5. Income Per Share
Basic income per share amounts are based on the weighted average number of
common shares outstanding during the year.period. Diluted income per share includes
additional common shares that would have been outstanding if potential common
shares with a dilutive effect had been issued. Prior year amounts have been
adjusted for the two-for-one common stock split declared on June 9, 1997 and
effected in the form of a stock dividend and paid on July 21, 1997.
The following table reconciles
basic and diluted net income.
Three Months Six Months
Ended March 31June 30 Ended June 30
------------------------------ ------------------------------
1998 1997 ---------------- ----------------1998 1997
------------ ------------- ------------ --------------
(Millions of dollars and (Millions of dollars and
shares except per share data) shares except per share data)
Net income $ 117.8136.5 $ 83.0
=============== ===============101.9 $ 254.3 $ 184.9
============ ============= ============ ==============
Basic weighted average shares 262.6 252.7262.9 253.1 262.8 252.9
Effect of common stock equivalents 3.73.6 2.9 3.5 2.8
--------------- --------------------------- ------------- ------------ --------------
Diluted weighted average shares 266.5 256.0 266.3 255.5
=============== ===============255.7
============ ============= ============ ==============
Net income per share:
Basic $ 0.450.52 $ 0.33
=============== ===============0.40 $ 0.97 $ 0.73
============ ============= ============ ==============
Diluted $ 0.440.51 $ 0.32
=============== ===============0.40 $ 0.95 $ 0.72
============ ============= ============ ==============
Options to purchase 1.1 million shares of common stock which were
outstanding during the threesix months ended March 31,June 30, 1998 which were not included in the
computation of diluted net income per share because the option exercise price
was greater than the average market price of the common shares.
Note 6. Related Companies
The Company conducts some of its operations through various joint
ventures, which are in partnership, corporate and other business forms, which
are principally accounted for using the equity method. European Marine
Contractors, Limited (EMC), which is 50% owned by the Company and part of the
Energy Group, specializes in engineering, procurement and construction of marine
pipelines. Summarized operating results for 100% of the operations of EMC are as
follows:
Three Months Six Months
Ended March 31June 30 Ended June 30
------------------------------ -------------------------------
1998 1997 ---------------- ---------------1998 1997
------------ -------------- ------------- --------------
(Millions of dollars) (Millions of dollars)
Revenues $ 67.4131.2 $ 91.4
===============144.8 $ 198.6 $ 236.2
============ ============== ============= ==============
Operating income $ 12.817.9 $ 6.6
===============34.4 $ 30.7 $ 41.0
============ ============== ============= ==============
Net income $ 8.912.3 $ 4.6
===============23.4 $ 21.2 $ 28.0
============ ============== ============= ==============
Included in the Company's revenues for the three months ended March 31,June 30,
1998 and 1997 are equity in income of related companies of $30.2$31.0 million and
$20.4$40.2 million, respectively. The amounts included in revenues for the six months
ended June 30, 1998 and 1997 are $61.2 million and $60.6 million, respectively.
In the second quarter of 1997, Halliburton Energy Services, which is part
of the Energy Group, acquired a 26% ownership interest in Petroleum Engineering
Services (PES) for approximately $33.6 million. The purchase price is included
in purchases of businesses in the condensed consolidated statements of cash
flows.
6
Note 7. Long-Term Debt
During 1997 the Company issued notes under its medium-term note program as
follows:
Amount Issue Date Due Rate Prices Yield
- ------------------------------------------------------------------------------------------------------------------------------------------------ ------------------- -------------------- -------------------- -------------------- --------------------
$ 125 million 02/11/97 02/01/2027 6.75% 99.78% 6.78%
$ 50 million 05/12/97 05/12/2017 7.53% Par 7.53%
$ 50 million 07/08/97 07/08/1999 6.27% Par 6.27%
$ 75 million 08/05/97 08/05/2002 6.30% Par 6.30%
- ------------------------------------------------------------------------------------------------------------------------------------------------ ------------------- -------------------- -------------------- -------------------- --------------------
During March 1997, the Company incurred $56.3 million of term loans in
connection with the acquisition of the Royal Dockyard in Plymouth, England (the
Dockyard Loans). The Dockyard Loans are denominated in Sterling and bear
interest at approximately LIBOR plus 0.75% payable in semi-annual installments
through March 2004. Pursuant to certain terms of the Dockyard Loans, the Company
was required to provide initially a compensating balance of $28.7 million which
is restricted as to use by the Company. The compensating balance amount
decreases in equal
installments overproportion to the term ofoutstanding debt related to the Dockyard Loans
and earns interest at a rate equal to that of the Dockyard Loans. At March 31, 1998, theThe
compensating balance of $23.6$16.6 million at June 30, 1998 is included in other
assets in the condensed consolidated balance sheets.sheet.
Note 8. 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 1800s through the mid 1950s in the southwestern portion of Missouri.
The site contains lead and zinc mine tailings produced from mining activity.
Brown & Root is one of nine participating PRPs which have agreed to perform a
Remedial Investigation/Feasibility Study (RI/FS), which, due to various delays,
is not expected to be completed until the fourth quarter of 1998.sometime in 1999. Although the entire
Jasper County Superfund Site comprises 237 square miles as listed on the
National Priorities List, in the RI/FS scope of work, the EPA has only
identified seven areas, or subsites, within this area that need to be studied
and then possibly remediated by the PRPs. Additionally, the Administrative Order
on Consent for the RI/FS only requires Brown & Root to perform RI/FS work at one
of the subsites within the site, the Neck/Alba subsite, which only comprises
3.95 square miles. Brown & Root's share of the cost of such a study is not
expected to be material. In addition to the superfund issues, the State of
Missouri has indicated that it may pursue natural resource damage claims against
the PRPs. At the present time Brown & Root cannot determine the extent of its
liability, if any, for remediation costs or natural resource damages on any
reasonably practicable basis.
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.
7
Note 9. Acquisitions and Dispositions
During March 1997, the Devonport management consortium, Devonport
Management Limited (DML), which is 51% owned by the Company, completed the
acquisition of Devonport Royal Dockyard plc, which owns and operates the
Government of the United Kingdom's Royal Dockyard in Plymouth, England, for
approximately $64.9 million. Concurrent with the acquisition of the Royal
Dockyard, the Company's ownership interest in DML increased from about 30% to
51% and DML borrowed $56.3 million under term loans.
The dockyard principally
provides repair and refitting services for the British Royal Navy's fleet of
submarines and surface ships.
During April 1997, the Company completed its acquisition of the outstanding
common stock of OGC International plc (OGC) for approximately $118.3 million.
OGC is engaged in providing a variety of engineering, operations and maintenance
services, primarily to the North Sea oil and gas production industry.
During July 1997, the Company acquired all of the outstanding common stock
and convertible debentures of Kinhill Holdings Limited (Kinhill) for
approximately $34 million. Kinhill, headquartered in Australia, provides
engineering infor mining and minerals processing, petroleum and chemicals, water
and wastewater, transportation and commercial and civil infrastructure. Kinhill
markets its services primarily in Australia, Indonesia, Thailand, Singapore,
India, and the Philippines.
In 1997, the Company recorded approximately $99.1 million excess of cost
over net assets acquired primarily related to the purchase acquisitions of OGC
and Kinhill.
On September 30, 1997, the Company completed its acquisition of NUMAR
Corporation (NUMAR) through the merger of a subsidiary of the Company with and
into NUMAR, the conversion of the outstanding NUMAR common stock into an
aggregate of approximately 8.2 million shares of common stock of the Company and
the assumption by the Company of the outstanding NUMAR stock options (for the
exercise of which the Company has reserved an aggregate of approximately 0.9
million shares of common stock of the Company). The merger qualified as a
tax-free exchange and was accounted for using the pooling of interests method of
accounting for business combinations. The Company has not restated its financial
statements to include NUMAR's historical operating results because they wereare not
material to the Company. NUMAR's assets and liabilities on September 30, 1997
were included in the Company's accounts of the same date, resulting in an
increase in net assets of $21.3 million. Headquartered in Malvern, Pennsylvania,
NUMAR designs, manufacturers and markets the Magnetic Resonance Imaging Logging
(MRIL(R)) tool which utilizes magnetic resonance imaging technology to evaluate
subsurface rock formations in newly drilled oil and gas wells.
In December 1997, the Company sold its environmental services business to
Tetra Tech, Inc. for approximately $32 million. The sale was prompted by the
Company's desire to divest non-core businesses and had no significant effect on
net income for the year.in 1997.
Note 10. Halliburton / Dresser Merger
On February 26, 1998 the Company and Dresser Industries, Inc. (Dresser)
announced that a definitive merger agreement was approved by the board of
directors of both companies.companies and executed on February 25, 1998. Approximately 175
million newly issued shares of HalliburtonCompany common stock will be issued to Dresser
shareholders at a one-for-one exchange ratio. The transaction will be accounted
for by the pooling of interests method of accounting for business combinations
and is expected to be tax-free to Dresser's shareholders. The transaction is subject to regulatory
approvals in the United States, Europe and several other countries, shareholder
approvals and customary closing conditions. Dresser is a
diversified company with operations in three industry segments: engineering
services; petroleum products and services; and energy equipment. The transaction
is subject to regulatory approvals in the United States and several other
countries and customary closing conditions. On April 20, 1998, the Company and
Dresser announced that the companies havehad received requests for additional
information concerning the proposed merger from the Antitrust Division of the
U.S. Department of Justice. The requests were not unexpected and both the
Company and Dresser plan to respond promptlyare responding to the Department of Justice. The Company has
offered the Department of Justice its written commitment to divest its 36%
interest in M-I L.L.C. On June 25, 1998, shareholders of the Company voted their
approval for (1) an amendment to the Company's Restated Certificate of
Incorporation to increase the number of authorized common shares from 400
million to 600 million and (2) the issuance of Company common stock pursuant to
the merger agreement between the Company and Dresser. Also, at a separate
meeting on June 25, 1998, shareholders of Dresser approved the merger agreement
between Halliburton and Dresser. On July 6, 1998, the Company and Dresser
received the European Commission's decision that the Commission will not oppose
the merger of the two companies. On July 9, 1998, the Company announced receipt
of an Advance Ruling Certificate from the Canadian Bureau of Competition Policy
clearing the merger of the two companies. The companies continue to expect to
complete the merger during the fall of 1998.
8
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
BUSINESS ENVIRONMENT
The Company operates in over 100 countries around the world to provide a
variety of energy services and engineering and construction services to the
petroleum industry and other energy,
industrial and governmental customers. The industries served by the Company are
highly competitive with many substantial competitors. Operations in some
countries may be adversely affected by unsettled political conditions, expropriation or
other governmental actions, exchange controls and currency devaluations. The
Company believes the geographic diversification of its business activities
reduces the risk that loss of its operations in any one country would be
material to its consolidated results of operations.
About 79% of the Company's revenues in 1997 were derived from the sale of
services and products, including construction activities, to the energy
industry. The decline in oil prices in the first half of 1998 has translated
into a decrease in the worldwide average rotary rig count and some hesitation on
the part of customers of the Company to commit to longer-term projects. In
response to potentially weakening markets in some areas of the world, the
Company is implementing plans to reduce the number of employees in those
geographic areas where activity levels are lower than expected, to scale back
discretionary spending on capital expenditures and to curtail discretionary
travel and other expenses.
RESULTS OF OPERATIONS
Second Quarter of 1998 Compared with the Second Quarter of 1997
Revenues
Consolidated revenues increased 24%11% to $2,355.3$2,475.6 million in the firstsecond
quarter of 1998 compared with $1,897.5$2,231.1 million in the same quarter of the prior
year. Approximately 61% of the Company's consolidated revenues were derived from
international activities in the firstsecond quarter of 1998 compared to 55%59% in the
firstsecond quarter of 1997. Consolidated international revenues increased 36%16% in the
firstsecond quarter of 1998 over the firstsecond quarter of 1997. Consolidated United
States revenues increased by 3% in the second quarter of 1998 compared to the
second quarter of 1997.
Energy Group revenues increased by 42% compared with a 9% increase17% for the second quarter of 1998 over
the same quarter of the prior year notwithstanding an 8% decrease in drilling
activity as measured by the worldwide rotary rig count. International revenues
increased by 22% and United States revenues increased 6% in the second quarter
of 1998 while the United States rig count decreased 7% for the second quarter of
1998 as compared to the same quarter of the prior year. United States revenues increased 20% compared to an
increase in the United States rig count of 13% over the same quarterMost of the prior year. Internationalincreased
revenues increased by 54%.were from pressure pumping activities, notably in Europe/Africa, and
upstream oil and gas engineering services.
Engineering and Construction Group revenues decreased 1%were $768.6 million in the
second quarter of 1998 compared to $766.1 million
compared with $777.2$774.7 million in the same quarter of the
prior year. The slight decrease in revenues was due to the sale of the
environmental services business in December 1997, lower activity in the pulp and
paper industry, and lower activity levels in the Group's contract to provide
technical and logistical support for military peacekeeping operations in Bosnia.
These decreases were partiallyalmost entirely offset by higherincreased revenues recognized for
engineering and construction services for refining and civil contracts in the
United States and Latin America and increased revenues for chemical
construction and maintenance contracts and higherin Asia/Pacific revenues due tofrom
Kinhill, which was acquired in the Kinhill acquisition.third quarter of 1997.
Operating incomeIncome
Consolidated operating income increased 47%31% to $204.0$238.4 million forin the
three months ended March 31,second quarter of 1998 from $138.7compared with $182.0 million forin the three months ended
March 31, 1997.same quarter of the
prior year. Approximately 55%54% of the Company's consolidated operating income was
derived from international activities in both the firstsecond quarter of 1998 compared
to 64% in the first quarter ofand
1997.
Energy Group operating income increased 58%24% to $185.0$198.3 million in the
firstsecond quarter of 1998 compared with $117.2$160.1 million in the same quarter of the
prior year. The operating income margin for the firstsecond quarter of 1998 was 11.6%
compared with 10.5% forto the firstprior year second quarter operating margin of 1997. The increase in11.0%. Improved
operating income was largely due to pressure pumping activities in the North America,
Europe/Africa and Asia/Pacific regions, improved margins on sales of completion
products in the Europe/Africa, Latin America and servicesAsia/Pacific regions, and
upstream oil and gas engineering services in Europe.Europe and North America.
Engineering and Construction Group operating income decreased 2%increased 66% to $28.8$49.9
million in the second quarter of 1998 compared with $29.4to $30.0 million forin the samesecond
quarter inof the prior year. Operating income margins were 3.8%6.5% in the second quarter of
9
1998 compared to 3.9% in the prior year second quarter. Second quarter operating
income benefited from a claim on a Middle Eastern construction project.
Excluding this settlement, operating margins for the firstsecond quarter of 1998 and 1997. The
decreasefor
the Group were about 4.5%. Included in second quarter operating income reflectsare
improved results from construction and engineering services for the salechemicals
and refining lines of the environmental business in
December 1997 and lower activity levels in the Group's contract to provide
technical and logistical support for military peacekeeping operations in Bosnia
partially offset by improved margins on engineering and construction services
contracts.business.
Nonoperating Items
Interest expense increased to $11.3$12.7 million in the firstsecond quarter of 1998
compared with $6.1to $9.7 million duringin the same quarter of the prior year due primarily to
the Company's issuance of debt under the Company's medium-term note program in
1997 for working capital, investmentscapital expenditures and acquisitions.
Interest income decreasedin the second quarter of 1998 increased to $3.4$3.5 million
from $2.1 million in the firstsecond quarter of 1997 primarily due to higher levels
of invested cash.
Foreign currency losses were $0.1 million for the second quarter of 1998
as compared with $4.4to $0.4 million duringfor the same quarter of the prior year due to
slightly lower levels of invested cash during the period.
9
in 1997.
The effective income tax rate increaseddecreased to 38.8% during38.6% for the firstsecond quarter of
1998 from 38%39.4% for the firstsecond quarter of 1997 and is expected to remain between
38% and 39% for the year of 1998.
Minority interest in net income of subsidiaries was $3.6for the second quarter of
1998 increased to $3.9 million compared to $3.5 million for the first quarter of 1998 compared to $2.9 million for the firstsecond quarter
of 1997.
Net incomeIncome
Net income in the firstsecond quarter of 1998 increased 42%34% to $117.8$136.5 million,
or $0.44$0.51 per diluted share, compared with $83.0$101.9 million, or $0.32$0.40 per diluted
share, in the same quarter of the prior year.
First Six Months of 1998 Compared with the First Six Months of 1997
Revenues
Consolidated revenues increased 17% to $4,830.9 million in the first six
months of 1998 compared with $4,128.6 million in the same period of the prior
year. Approximately 61% of the Company's consolidated revenues were derived from
international activities in the first six months of 1998 compared to 57% in the
same period of 1997. Consolidated international revenues increased 25% in the
first six months of 1998 over the same period of 1997. Consolidated United
States revenues increased by 6% in the first six months of 1998 compared to the
same period of 1997.
Energy Group revenues increased 28% for the first six months of 1998 over
the same period of the prior year compared with a 1% increase in drilling
activity as measured by the worldwide rotary rig count. International revenues
increased by 36% and United States revenues increased 13% in the first six
months of 1998 while the international rig count decreased 1% and the United
States rig count increased 3% as compared to the same period of the prior year.
A large part of the increase in revenues were from upstream oil and gas
engineering services.
Engineering and Construction Group revenues decreased 1% to $1,534.7
million in the first six months of 1998 compared with $1,551.9 million in the
same six month period of the prior year. Lower revenues were due to the sale of
the environmental services business in December 1997, lower activity in the pulp
and paper industry and lower activity levels in the Group's contract to provide
technical and logistical support for military peacekeeping operations in Bosnia.
These decreases were partially offset by improved revenues recognized for
engineering and construction services for refining and civil contracts in the
United States and Latin America and increased revenues in Asia/Pacific from
Kinhill, which was acquired in the third quarter of 1997.
Operating Income
Consolidated operating income increased 38% to $442.4 million in the first
six months of 1998 compared with $320.7 million in the same period of the prior
year. Approximately 54% of the Company's consolidated operating income was
derived from international activities in the first six months of 1998 compared
to 58% in the same period of 1997.
Energy Group operating income increased 38% to $383.3 million in the first
six months of 1998 compared with $277.3 million in the same period of the prior
year. The operating margin for the first six months of 1998 was 11.6% compared
to the prior year operating margin for the same period of 10.8%. The improvement
in operating income was due largely to pressure pumping in the North America,
Europe/Africa and Asia/Pacific regions, improved margins on sales of completion
10
products in the North America and Latin America regions, and upstream oil and
gas engineering services in Europe and North America.
Engineering and Construction Group operating income for the first six
months of 1998 increased 32% to $78.7 million compared to 1997 operating income
of $59.4 million for the same period. Operating margins improved to 5.1% for the
first six months of 1998 from 3.8% for the same period in 1997. Operating income
includes settlement of a claim on a Middle Eastern construction project.
Excluding this settlement, operating margins for the first six months of 1998
for the Group were about 4.2%. Operating income for the first six months of 1998
include improved results from construction and engineering services for the
chemicals and refining lines of business.
Nonoperating Items
Interest expense increased to $24.0 million in the first six months of
1998 compared to $15.8 million in the same period of the prior year due
primarily to the Company's issuance of debt under the Company's medium-term note
program in 1997 for working capital, capital expenditures and acquisitions.
Interest income in the first six months of 1998 increased to $6.9 million
from $6.5 million in the same period of 1997 primarily due to higher levels of
invested cash.
Foreign currency gains were $2.3 million for the first six months of 1998
as compared to $0.6 million for the same period in 1997.
The effective income tax rate was 38.7% for the first six months of 1998
and 38.8% for the same period of 1997. The effective income tax rate is expected
to remain between 38% and 39% for the year of 1998.
Minority interest in net income of subsidiaries was $7.5 million for the
first six months of 1998 compared to $6.4 million for the same period in the
prior year.
Net Income
Net income in the first six months of 1998 increased 38% to $254.3
million, or $0.95 per diluted share, compared with $184.9 million, or $0.72 per
diluted share, in the same period of the prior year.
LIQUIDITY AND CAPITAL RESOURCES
The Company ended the firstsecond quarter of 1998 with cash and cash equivalents of
$93.4$145.4 million, a decrease of $127.9$75.9 million from the end of 1997.
Operating activitiesActivities
Cash flows used infor operating activities were $26.0$22.2 million in the first
threesix months of 1998, as compared to $88.0cash flows used for operating activities of
$23.8 million in the first threesix months of 1997. The primarymajor operating activity use
of operating cash flowin 1998 was to fund working capital requirements related to increased
revenues from the Energy Group and for Engineering and Construction Group
projects. Operating cash was also used in funding cash needs of unconsolidated
subsidiaries.
Investing Activities
Capital expenditures were $156.3$326.1 million for the first quartersix months of 1998,
an increase of 39%26% over the same quarterperiod of the prior year. The increase in
capital spending primarily reflects investments in equipment and infrastructure
for the Energy Group includingwhich includes strategic investments in oil and gas
developments. The Company also continued its planned investmentinvestments in its
enterprise-wide information system.
During March 1997, DML, which is 51% owned by the Company, completed the
acquisition of Devonport Royal Dockyard plc, which owns and operates the
Government of the United Kingdom's Royal Dockyard in Plymouth, England, for
approximately $64.9 million. Concurrent with the acquisition of the Royal
Dockyard, the Company's ownership interest in DML increased from about 30% to
51% and DML borrowed $56.3 million under term loans (the Dockyard Loans) bearing
interest at approximately LIBOR plus 0.75% payable in semi-annual installments
through March 2004. Pursuant to certain terms of the Dockyard Loans, the Company
iswas required to provide initially a compensating balance of $28.7 million which
is restricted as to use by the Company. The compensating balance amount
decreases in equal installments
overproportion to the term ofoutstanding debt related to the Dockyard Loans
and earns interest at a rate equal to that of the Dockyard Loans.
11
During April 1997, the Company completed its acquisition of the
outstanding common stock of OGC International plc (OGC) for approximately $118.3
million. OGC is engaged in providing a variety of engineering, operations and
maintenance services, primarily to the North Sea oil and gas production
industry.
Also in April 1997, the Company purchased a 26% ownership interest in
Petroleum Engineering Services (PES) for approximately $33.6 million. PES
provides specialist well completions and interventions, completion services and
completion solutions.
Financing activitiesActivities
Cash flows from financing activities were $43.9$246.5 million in the first threesix
months of 1998 compared to $96.9cash flows of $254.3 million in the first threesix months
of 1997. The Company borrowed $70.0 million in short-term funds consisting of bank loans and
$2.9 million of other short-term borrowings in the first three months of 1998.
In the first three months of 1997, the Company repaid $45.0$316.4 million in short-term funds consisting of
commercial paper and bank loans in the first six months of 1998. Proceeds from
exercises of stock options provided cash flows of $15.1 million in the first six
months of 1998 compared to $38.8 million in the same period of the prior year.
In the first six months of 1997, the Company borrowed $100.8 million in
short-term funds net of repayments consisting of commercial paper and bank
loans. Also in the first six months of 1997, the Company issued $125.0 million
principal amount of 6.75% notes and $50.0 million principal amount of 7.53%
notes under the Company's medium-term note program.
The Company believes it has sufficient borrowing capacity to fund its
working capital requirements and investing activities. The Company's debt was
23% of total capitalization at June 30, 1998 compared to 18% at December 31,
1997. At March 31,June 30, 1998, the Company had committed short-term lines of credit
totaling $200.0$350.0 million available and unused, and other short-term lines of
credit totaling $275.0$315.0 million with several U.S. banks. Short-term borrowings of
$70.0$182.0 million were outstanding under these facilities at March 31,June 30, 1998.
FINANCIAL INSTRUMENT MARKET RISK
The Company is currently exposed to market risk from changes in foreign
currency exchange rates, and to a lesser extent, to changes in interest rates.
To mitigate market risk, the Company selectively hedges its foreign currency
exposure through the use of currency derivative instruments. The objective of
such hedging is to protect the Company's dollar cash flows from fluctuations in
currency rates of foreign denominated sales or purchases of goods or services.
10
Inherent in the use of derivative instruments are certain types of market risk:
volatility of the currency rates, tenor (time horizon) of the derivative
instruments, market cycles and the type of derivative instruments used. The
Company does not use derivative instruments for trading or speculative purposes.
There have been no material changes at March 31,June 30, 1998 to the amounts reported at
December 31, 1997 to the Company's calculated value at risk from foreign
exchange derivative instruments. The Company's interest rate exposures at March
31,June
30, 1998 were alsonot materially unchangedchanged from December 31, 1997.
HALLIBURTON / DRESSER MERGER
On February 26, 1998 the Company and Dresser Industries, Inc. (Dresser)
announced that a definitive merger agreement was approved by the board of
directors of both companies.companies and executed on February 25, 1998. Approximately 175
million newly issued shares of HalliburtonCompany common stock will be issued to Dresser
shareholders at a one-for-one exchange ratio. The transaction will be accounted
for by the pooling of interests method of accounting for business combinations
and is expected to be tax-free to Dresser's shareholders. The transaction is subject to regulatory
approvals in the United States, Europe and several other countries, shareholder
approvals and customary closing conditions. Dresser is a
diversified company with operations in three industry segments: engineering
services; petroleum products and services; and energy equipment. The transaction
is subject to regulatory approvals in the United States and several other
countries and customary closing conditions. On April 20, 1998, the Company and
Dresser announced that the companies havehad received requests for additional
information concerning the proposed merger from the Antitrust Division of the
U.S. Department of Justice. The requests were not unexpected and both the
Company and Dresser plan to respond promptlyare responding to the Department of Justice. The Company has
offered the Department of Justice its written commitment to divest its 36%
interest in M-I L.L.C. On June 25, 1998, shareholders of the Company voted their
approval for (1) an amendment to the Company's Restated Certificate of
Incorporation to increase the number of authorized common shares from 400
million to 600 million and (2) the issuance of Company common stock pursuant to
the merger agreement between the Company and Dresser. Also, at a separate
12
meeting on June 25, 1998, shareholders of Dresser approved the merger agreement
between Halliburton and Dresser. On July 6, 1998, the Company and Dresser
received the European Commission's decision that the Commission will not oppose
the merger of the two companies. On July 9, 1998, the Company announced receipt
of an Advance Ruling Certificate from the Canadian Bureau of Competition Policy
clearing the merger of the two companies. The companies continue to expect to
complete the merger during the fall of 1998.
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 8 to the condensed consolidated financial
statements.statements for additional information on the one site.
YEAR 2000 ISSUE
The Year 2000 (Y2K) issue is the risk that systems, products and
equipment utilizing date-sensitive software or computer programs usingchips with two-digit
date fields will fail to properly recognize the Year 2000. Such computer system failures by the
Company's software and hardware or that of government entities, service
providers, vendorssuppliers and customers could result in interruptions of the
Company's business interruptions.which could have a material adverse impact on the Company.
In response to the Year 2000Y2K issue, the Company has formed a cross-functional
task force responsible for assessingimplemented an
enterprise-wide Year 2000 Program designed to identify, assess and address
significant Y2K issues in the Company's key business operations, including
products and services, suppliers, business and engineering applications,
information technology systems, facilities and infrastructure and joint venture
projects.
The Year 2000 readiness. The task
force has developedProgram is a comprehensive, planintegrated, multi-phase process
covering information technology systems and hardware as well as equipment and
products with embedded computer chips technology. The primary phases of the
program are: (1) inventorying existing equipment and systems; (2) analyzing
equipment and systems to assess the Company's Year 2000 riskidentify those which are not Y2K ready and is in the process of performing its review. The Company's approach is
intended to
minimize the numberprioritize critical items; (3) remediating, repairing or replacing non-Y2K ready
equipment and impact of Year 2000 problems.systems; and (4) testing to verify Y2K readiness has been
achieved. The Company anticipates having the Company's products and
mission-critical systems and equipment Y2K ready during the first half of 1999
with the balance of the year reserved for testing and implementation of new and
modified programs as required.
At the end of the second quarter of 1998, the inventory of equipment and
systems was substantially complete. The analysis phase is underway.
Remediation/installation for the majority of these systems will be performed
internally. The Company is utilizing outside contractors for remediation of
major legacy accounting and administrative systems. Some information technology
systems and Company manufactured products and developed software have been
remediated and have entered the testing phase.
The Company is in contact with its major suppliers and service providers
to establish a mutual understanding of Y2K issues and to develop solutions with
those suppliers. These suppliers are being surveyed as to their ability to
provide products that certain software will require replacementare Y2K ready and to provide uninterrupted services.
Critical suppliers are being further evaluated to review their Y2K programs. No
suppliers have been identified who expect interruption of services or modification.supplies
to the Company.
Independent of, but concurrent with, the Company's Year 2000Y2K review, the
Company is installing an enterprise-wide business information system. This
information system is scheduled to replace approximately two-thirdsone-half of the
Company's key finance, administrative and marketing software systems beforeby the end
of 1999 and is Year 2000 compliant.Y2K ready. In addition, the Company is in the process of
replacing its desktop computing equipment and software.software and updating its
communications infrastructure. The Company has determined that although some of
the replaced desktop computing equipment and software may not be strictly Y2K
compliant, such replacements are nevertheless suitable for the usage intended by
the Company.
Based on the Company's review to date, it does not expect the cost of
software replacement or modification not currently included in the Company's
enterprise-wide information system to be material to its financial position or
results of operations.
13
The Company entered into a merger agreement with Dresser on February 25,
1998. Within the guidelines of the U.S. Department of Justice regulations on
pre-merger activities, the Company is evaluating Dresser's Y2K program in order
to bring the two companies into a common Y2K program after the merger.
ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information." This standard defines reporting
requirements for operating segments and related information about products and
services, geographic areas and reliance on major customers. The Company is
11
evaluating the impact of this statement on its current reporting and expects to
adopt the new standard for its year ending December 31, 1998, with interim
reporting beginning in 1999.
In February 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits." This standard revises
existing requirements for employers' disclosures for pensions and other
postretirement benefit plans. The standard does not change measurement or
recognition standards for these plans. The Company plans to present the revised
disclosure requirements in its 1998 Annual Report.
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position No. 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use" (SOP 98-1). SOP 98-1 provides
guidelines for companies to capitalize or expense costs incurred to develop or
obtain internal use software. The guidelines set forth in SOP 98-1 do not differ
significantly from the Company's current accounting policy for internal use
software and therefore the Company does not expect a material impact on its
results of operations or financial position from the adoption of SOP 98-1. The
Company plans to adopt SOP 98-1 effective January 1, 1999.
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5, "Reporting on the Costs of Start-Up
Activities" (SOP 98-5). SOP 98-5 requires costs of start-up activities and
organization costs to be expensed as incurred. The Company is evaluating when it
will adopt SOP 98-5 and is currently analyzing the impact on its results of
operations from the adoption of SOP 98-5.
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and for Hedging Activities" (SFAS 133). This standard requires
entities to recognize all derivatives on the statement of financial position as
assets or liabilities and to measure the instruments at fair value. Accounting
for gains and losses from changes in those fair values are specified in the
standard depending on the intended use of the derivative and other criteria.
SFAS 133 is effective for the Company beginning January 1, 2000. The Company is
currently evaluating SFAS 133 to identify implementation and compliance methods
and has not yet determined the effect, if any, on its results of operations or
financial position.
FORWARD-LOOKING INFORMATION
In accordance with the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995, the Company cautions that the statements in this
quarterly report and elsewhere, which are forward-looking and which provide
other than historical information, involve risks and uncertainties that may
impact the Company's actual results of operations. While such forward-looking
information reflects the Company's best judgment based on current information,
it involves a number of risks and uncertainties and there can be no assurance
that other factors will not affect the accuracy of such forward-looking
information. While it is not possible to identify all factors, the Company
continues to face many risks and uncertainties that could cause actual results
to differ from those forward-looking statements. Such factors include: unsettled
political conditions, war, civil unrest, currency controls and governmental
actions in over 100 countries of operation; trade restrictions and economic
embargoes imposed by the United States and other countries; environmental laws,
including those that require emission performance standards for new and existing
facilities; the magnitude of governmental spending for military and logistical
support of the type provided by the Company; operations in countries with
significant amounts of political risk, including, without limitation, Algeria
and Nigeria; technological and structural changes in the industries served by
the Company; computer software and hardware and other equipment utilizing
computer technology used by governmental entities, service providers, vendors,
customers and the Company which may be impacted by the Year 2000Y2K issue; completion of
14
the announced merger with Dresser; integration of acquired businesses into the
Company; changes in the price of oil and natural gas; changes in the price of
commodity chemicals used by the Company; changes in capital spending by
customers in the hydrocarbon industry for exploration, development, production,
processing, refining and pipeline delivery networks; increased competition in
the hiring and retention of employees; changes in capital spending by customers
in the wood pulp and paper industries for plants and equipment; risks from
entering into fixed fee engineering, procurement and construction projects where
failure to meet schedule, cost estimates or performance targets could result in
non-reimbursable costs which cause the project not to meet expected profit
margins; and changes in capital spending by governments for infrastructure. In
addition, future trends for pricing, margins, revenues and profitability remain
difficult to predict in the industries served by the Company.
1215
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
At the Special Meeting held in lieu of the Annual Meeting of Stockholders of the
Company on June 25, 1998, stockholders of the Company were asked to consider and
act upon (i) a proposal to amend the Company's Restated Certificate of
Incorporation (the Charter) to increase the number of authorized shares of
common stock from 400 million to 600 million, (ii) the proposal to issue
approximately 175 million shares of Company common stock pursuant to a merger
agreement between the Company and Dresser, (iii) the election of Directors for
the ensuing year, and (iv) 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 1998. 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 and broker non-votes.
i. Proposal to amend the Charter:
Number of Votes For 189,647,051
Number of Votes Against 3,181,243
Number of Votes Abstaining 326,657
Number of Broker Non-Votes 27,228,652
ii. Proposal to issue approximately 175 million shares of Company common
stock pursuant to the merger agreement with Dresser:
Number of Votes For 191,980,121
Number of Votes Against 461,627
Number of Votes Abstaining 713,203
Number of Broker Non-Votes 27,228,652
iii. Election of Directors:
Name of Nominee Votes For Votes Withheld
Anne L. Armstrong 219,675,972 707,631
Richard B. Cheney 219,736,074 647,529
Lord Clitheroe 219,710,834 672,769
Robert L. Crandall 219,670,530 713,073
Charles J. DiBona 219,749,004 634,599
William R. Howell 219,717,060 666,543
Dale P. Jones 219,763,895 619,708
Delano E. Lewis 219,775,401 608,202
C. J. Silas 219,770,552 613,051
Richard J. Stegemeier 219,709,495 674,108
iv. 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 1998:
Number of Votes For 219,832,966
Number of Votes Against 299,950
Number of Votes Abstaining 250,687
16
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
2(a) Agreement and Plan of Merger dated as of February 25, 1998 by and
among Halliburton Company, Halliburton N.C., Inc., and Dresser
Industries, Inc. (incorporated by reference to Exhibit C to
Halliburton Company's Schedule 13D filed on March 9, 1998).
2(b) Stock Option Agreement dated as of February 25, 1998 by and between
Halliburton Company and Dresser Industries, Inc. (incorporated by
reference to Exhibit B to Halliburton Company's Schedule 13D filed
on March 9, 1998).
* 3(a) Restated Certificate of Incorporation of theHalliburton Company (incorporated
by reference to the Company's Registration Statement on Form S-3
File No. 333-32731
filed with the Securities and Exchange
CommissionSecretary of State of Delaware on August 1, 1997).July 23, 1998.
3(b) By-laws of theHalliburton Company, as amended (incorporated by
reference to theHalliburton Company's Registration Statement on Form
S-3 File No. 333-32731 filed with the Securities and Exchange
Commission on August 1, 1997).
* 27(a)10(a) Halliburton Elective Deferral Plan, as amended and restated
effective January 1, 1998.
* 10(b) Halliburton Company Senior Executives' Deferred Compensation
Plan, as amended and restated effective January 1, 1998.
* 27 Financial data schedule for the quartersix months ended March 31,June 30, 1998
(included only in the copy of this report filed electronically with
the Commission).
* 27(b) Restated financial data schedules for interim periods of 1997
(included only with the copy of this report filed electronically
with the Commission).
* 27(c) Restated financial data schedules for interim and annual periods of
1996 (included only with the copy of this report filed
electronically with the Commission).
* 27(d) Restated financial data schedule for the year ended December 31,
1995 (included only with the copy of thi s report filed electronically with
the Commission).
* filed with this Form 10-Q
(b) Reports on Form 8-K
During the firstsecond quarter of 1998:
A Current Report on Form 8-K dated January 22, 1998, was filed reporting
on Item 5. Other Events, regarding a press release dated January 22, 1998
announcing fourth quarter earnings.
A Current Report on Form 8-K dated February 17, 1998, was filed reporting
on Item 5. Other Events, regarding two press releases dated February 17,
1998, announcing the Company will provide a wide range of services as part
of the Terra Nova Alliance for Petro-Canada and the Terra Nova development
and an alliance agreement at Elk Hills between two of the Company's
business units with Occidental.
A Current Report on Form 8-K dated February 19, 1998, was filed reporting
on Item 5. Other Events, regarding a press release dated February 19, 1998
announcing the shareholders' annual meeting and declaration of the first
quarter 1998 dividend.
A Current Report on Form 8-K dated February 26, 1998, was filed reporting
on Item 5. Other Events, regarding a press release dated March 3, 1997
that the Company and Dresser Industries, Inc. have entered into a
definitive merger agreement.
13
A Current Report on Form 8-K dated March 17, 1998, was filed reporting on
Item 5. Other Events, regarding a press release dated March 17, 1998
announcing the postponement of the shareholders' annual meeting.
During the second quarter of 1998 to the date hereof:
A Current Report on Form 8-K dated April 20, 1998, was filed reporting on
Item 5. Other Events, regarding a press release dated April 20, 1998
regardingdisclosing an information request from the U.S. Department of Justice
concerning the proposed merger between the Company and Dresser Industries,
Inc.Dresser.
A Current Report on Form 8-K dated April 22, 1998, was filed reporting on
Item 5. Other Events, regarding a press release dated April 22, 1998
announcing the Company's first quarter earnings.
14A Current Report on Form 8-K dated May 8, 1998, was filed reporting on
Item 5. Other Events, regarding a press release dated May 8, 1998
announcing the date of the special meeting of shareholders.
A Current Report on Form 8-K dated May 19, 1998, was filed reporting on
Item 5. Other Events, regarding a press release dated May 19, 1998
announcing declaration of the second quarter dividend.
A Current Report on Form 8-K dated June 1, 1998, was filed reporting on
Item 5. Other Events, regarding a press release dated June 1, 1998
announcing the Company had renotified its proposed merger with Dresser
to the European Commission.
A Current Report on Form 8-K dated June 12, 1998, was filed reporting on
Item 5. Other Events, regarding a press release dated June 12, 1998
announcing the initial one-month review period under the European
Community's merger regulations will expire on July 6, 1998.
A Current Report on Form 8-K dated June 25, 1998, was filed reporting on
Item 5. Other Events, regarding a press release dated June 25, 1998
announcing the results of the Company's special shareholders' meeting.
17
During the third quarter of 1998 to the date hereof:
A Current Report on Form 8-K dated July 6, 1998, was filed reporting on
Item 5. Other Events, regarding a press release dated July 6, 1998
announcing the proposed merger of the Company and Dresser was cleared by
the European Commission.
A Current Report on Form 8-K dated July 7, 1998, was filed reporting on
Item 5. Other Events, regarding a press release dated July 7, 1998
announcing the Company's Halliburton Energy Services business unit was
awarded a contract to provide zonal isolation and pumping services to
Phillips Petroleum Norway.
A Current Report on Form 8-K dated July 9, 1998, was filed reporting on
Item 5. Other Events, regarding a press release dated July 9, 1998
announcing receipt of an Advance Ruling Certificate from the Canadian
Bureau of Competition Policy clearing the merger of the Company and
Dresser.
A Current Report on Form 8-K dated July 16, 1998, was filed reporting on
Item 5. Other Events, regarding a press release dated July 16, 1998
announcing declaration of the third quarter dividend.
A Current Report on Form 8-K dated July 22, 1998, was filed reporting on
Item 5. Other Events, regarding a press release dated July 22, 1998
announcing 1998 second quarter earnings.
18
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
Date May 6,August 12, 1998 By /s/ Gary V. Morris
----------------------------- --------------------------------------------------------
Gary V. Morris
Executive Vice President and
Chief Financial Officer
Date May 6,August 12, 1998 By /s/ R. Charles Muchmore, Jr.
-----------------------------
------------------------------
R. Charles Muchmore, Jr.
Vice President and Controller
Principal(Principal Accounting OfficerOfficer)
19
Index to exhibits filed with this quarterly report.
Exhibit
Number Description
- --------------- --------------------
27(a)3(a) Restated Certificate of Incorporation of Halliburton Company
filed with the Secretary of State of Delaware on July 23, 1998.
10(a) Halliburton Elective Deferral Plan, as amended and restated
effective January 1, 1998.
10(b) Halliburton Company Senior Executives' Deferred Compensation
Plan, as amended and restated effective January 1, 1998.
27 Financial data schedule for the three months ended March 31, 1998.
27(b) Financial data schedules for the three months ended March 31,
1997; six months ended June 30, 1997; and nine months ended
September 30, 1997.
27(c) Financial data schedules for1998
(included only in the three months ended March 31,
1996; six months ended June 30, 1996; nine months ended September
30, 1996; and twelve months ended December 31, 1996.
27(d) Financial data schedule forcopy of this report filed electronically
with the year ended December 31, 1995.
15Commission).
20