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 June 30, 1997
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, par value $2.50 per share:
Outstanding at July 31, 1997 - 253,513,295
INDEX
Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at June 30, 1997
and December 31, 1996 2
Condensed Consolidated Statements of Income for the three
and six months ended June 30, 1997 and 1996 3
Condensed Consolidated Statements of Cash Flows for the
six months ended June 30, 1997 and 1996 4
Notes to Condensed Consolidated Financial Statements 5-9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-13
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 6. Listing of Exhibits and Reports on Form 8-K 15-16
Signatures 17
Exhibits: Computation of earnings per common share for the three
and six months ended June 30, 1997 and 1996
Financial data schedule for the six months ended
June 30, 1997 (included only in the copy of this
report filed electronically with the Commission).
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
HALLIBURTON COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(In millions of dollars and shares)
June 30 December 31
1997 1996
--------------- ----------------
ASSETS
Current assets:
Cash and equivalents $ 50.4 $ 213.6
Receivables:
Notes and accounts receivable 1,679.0 1,413.4
Unbilled work on uncompleted contracts 440.9 288.9
--------------- ----------------
Total receivables 2,119.9 1,702.3
Inventories 350.2 292.2
Deferred income taxes 117.8 108.7
Other current assets 98.1 81.2
--------------- ----------------
Total current assets 2,736.4 2,398.0
Property, plant and equipment,
less accumulated depreciation of $2,328.4 and $2,269.2 1,487.7 1,291.6
Equity in and advances to related companies 305.2 234.9
Excess of cost over net assets acquired 303.6 233.9
Deferred income taxes 99.2 98.6
Other assets 230.8 179.6
--------------- ----------------
Total assets $ 5,162.9 $ 4,436.6
=============== ================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term notes payable $ 158.2 $ 46.3
Current maturities of long-term debt 8.4 0.1
Accounts payable 533.0 452.1
Accrued employee compensation and benefits 176.2 193.7
Advance billings on uncompleted contracts 322.4 336.3
Income taxes payable 169.5 135.8
Deferred maintenance fees 35.2 18.9
Other current liabilities 373.9 321.5
--------------- ----------------
Total current liabilities 1,776.8 1,504.7
Long-term debt 425.0 200.0
Reserve for employee compensation and benefits 291.9 281.1
Deferred credits and other liabilities 329.7 291.6
--------------- ----------------
Total liabilities 2,823.4 2,277.4
--------------- ----------------
Shareholders' equity:
Common stock, par value $2.50 per share -
authorized 400.0 and 200.0 shares, issued 260.0 and 129.3 (pre-split) shares 650.1 323.3
Paid-in capital in excess of par value 32.6 322.2
Cumulative translation adjustment (10.7) (12.4)
Retained earnings 1,777.9 1,656.3
--------------- ----------------
2,449.9 2,289.4
Less 6.7 and 4.0 (pre-split) shares of treasury stock, at cost 110.4 130.2
--------------- ----------------
Total shareholders' equity 2,339.5 2,159.2
--------------- ----------------
Total liabilities and shareholders' equity $ 5,162.9 $ 4,436.6
=============== ================
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 Six Months
Ended June 30 Ended June 30
------------------------------- ----------------------------
1997 1996 1997 1996
------------- -------------- ------------- -------------
Revenues
Energy Group $ 1,456.4 $ 1,024.6 $ 2,576.7 $ 1,896.1
Engineering and Construction Group 774.7 806.2 1,551.9 1,639.4
------------- -------------- ------------- -------------
Total revenues $ 2,231.1 $ 1,830.8 $ 4,128.6 $ 3,535.5
============= ============== ============= =============
Operating income
Energy Group $ 160.1 $ 128.3 $ 277.3 $ 207.2
Engineering and Construction Group 30.0 (4.2) 59.4 9.5
Special charges - - - (12.2)
General corporate (8.1) (8.4) (16.0) (17.2)
------------- -------------- ------------- -------------
Total operating income 182.0 115.7 320.7 187.3
Interest expense (9.7) (5.8) (15.8) (10.8)
Interest income 2.1 3.3 6.5 7.1
Foreign currency gains (losses) (0.4) (3.2) 0.6 (2.2)
Other nonoperating income, net (0.1) (0.5) 0.5 0.1
------------- -------------- ------------- -------------
Income before income taxes and minority
interests 173.9 109.5 312.5 181.5
Provision for income taxes (68.5) (37.7) (121.2) (64.3)
Minority interest in net (income) loss of subsidiaries (3.5) - (6.4) 0.1
------------- -------------- ------------- -------------
Net income $ 101.9 $ 71.8 $ 184.9 $ 117.3
============= ============== ============= =============
Income per share * $ 0.40 $ 0.29 $ 0.72 $ 0.47
============= ============== ============= =============
Cash dividends paid per share $ 0.125 $ 0.125 $ 0.25 $ 0.25
Average common shares outstanding * 256.0 251.3 255.7 251.1
* Share and per share amounts are based upon the average number of common shares outstanding adjusted for the
two-for-one common stock split declared on June 9, 1997, and effected in the form of a stock dividend distributed on
July 21, 1997, to shareholders of record at June 26, 1997.
See notes to condensed consolidated financial statements.
3
HALLIBURTON COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In millions of dollars)
Six Months
Ended June 30
--------------------------------
1997 1996
------------- -------------
Cash flows from operating activities:
Net income $ 184.9 $ 117.3
Adjustments to reconcile net income to net cash
from operating activities:
Depreciation and amortization 148.1 127.9
Provision (benefit) for deferred income taxes (7.1) 9.9
Distributions from (advances to) related companies net of
equity in (earnings) or losses (39.4) (27.7)
Other non-cash items 5.2 (1.0)
Other changes, net of non-cash items:
Receivables (220.2) (267.1)
Inventories (37.1) (53.4)
Accounts payable (83.8) 49.6
Other working capital, net (3.4) 106.8
Other, net 29.0 (37.5)
------------- -------------
Total cash flows from operating activities (23.8) 24.8
------------- -------------
Cash flows from investing activities:
Capital expenditures (259.2) (142.0)
Sales of property, plant and equipment 27.8 21.8
Purchases of businesses (124.7) (15.8)
Other investing activities (35.9) (45.8)
------------- -------------
Total cash flows from investing activities (392.0) (181.8)
------------- -------------
Cash flows from financing activities:
Proceeds from long-term borrowing 175.6 0.1
Payments on long-term borrowings (0.4) (5.0)
Borrowings (repayments) of short-term debt 100.8 44.5
Payments of dividends to shareholders (63.3) (57.4)
Proceeds from exercises of stock options 38.8 15.3
Other financing activities 2.8 (6.4)
------------- -------------
Total cash flows from financing activities 254.3 (8.9)
------------- -------------
Effect of exchange rate changes on cash (1.7) (1.2)
------------- -------------
Decrease in cash and equivalents (163.2) (167.1)
Cash and equivalents at beginning of year 213.6 239.6
------------- -------------
Cash and equivalents at end of period $ 50.4 $ 72.5
============= =============
Cash payments during the period for:
Interest $ 14.1 $ 11.5
Income taxes 55.6 19.8
Non-cash investing and financing activities:
Liabilities assumed in acquisitions of businesses $ 286.3 $ 6.4
Liabilities disposed of in dispositions of businesses 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 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 1996 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
June 30, 1997, and the results of its operations for the three and six months
ended June 30, 1997 and 1996 and its cash flows for the six months then ended.
The results of operations for the three and six months ended June 30, 1997 and
1996 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. Inventories
June 30 December 31
1997 1996
---------------- -------------------
Millions of dollars
Sales items $ 95.2 $ 104.3
Supplies and parts 193.9 136.3
Work in process 37.6 30.4
Raw materials 23.5 21.2
---------------- -------------------
Total $ 350.2 $ 292.2
================ ===================
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 $12.6 million and $13.0 million higher than
reported at June 30, 1997, and December 31, 1996, respectively.
Note 3. General and Administrative Expenses
General and administrative expenses were $57.9 million and $58.8 million
for the three months ended June 30, 1997 and 1996, respectively. General and
administrative expenses were $108.9 million and $110.9 million for the six
months ended June 30, 1997 and 1996, respectively.
Note 4. Income Per Share
Income per share amounts are based upon the average number of common shares
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. On May 20, 1997, the Company's shareholders voted
to increase the Company's number of authorized shares from 200.0 million shares
to 400.0 million shares. On June 9, 1997, the Company's Board of Directors
approved a two-for-one stock split effected in the form of a stock dividend
distributed on July 21, 1997 to shareholders of record on June 26, 1997. The par
value of the Company's common stock of $2.50 per share remained unchanged. As a
result of the stock split, $325.0 million was transferred from paid-in capital
in excess of par value to common stock. Historical share and per share amounts
presented on the condensed consolidated statements of income have been restated
to reflect the stock split.
5
During February, 1997, the Financial Accounting Standards Board approved
Statement of Financial Accounting Standard No. 128, "Earnings per Share",
effective for financial statements for both interim and annual periods ending
after December 15, 1997. The Company plans to adopt the new standard on December
31, 1997 and does not believe the effect of adoption will be material.
Note 5. 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 June 30 Ended June 30
------------------------- -------------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
Millions of dollars Millions of dollars
Revenues $ 144.8 $ 60.9 $ 236.2 $ 102.4
========== ========== ========== ==========
Operating income $ 34.4 $ 9.7 $ 41.0 $ 29.4
========== ========== ========== ==========
Net income $ 23.4 $ 6.5 $ 28.0 $ 19.7
========== ========== ========== ==========
Included in the Company's revenues for the three months ended June 30, 1997
and 1996 are equity in income of related companies of $40.2 million and $19.5
million, respectively. The amounts included in revenues for the six months ended
June 30, 1997 and 1996 are $60.6 million and $40.6 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 for approximately $33.6 million. The purchase price is included in
purchases of businesses in the condensed consolidated statements of cash flows.
In the second quarter of 1996, M-I Drilling Fluids, Inc., one of the
Company's joint ventures which is 36% owned and a part of the Energy Group,
purchased Anchor Drilling Fluids. The Company's share of the purchase price was
$41.3 million and is included as a reduction of cash flows from other investing
activities.
Note 6. Long-Term Debt
During the first eight months of 1997 to the date hereof, 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% 99.781% 6.78%
$ 50 million 05/12/97 05/12/2017 7.53% Par 7.53%
$ 50 million 07/08/97 07/08/1999 6.27% Par 6.27%
$ 75 million 08/05/97 08/05/2002 6.30% Par 6.30%
The notes may not be redeemed at the option of Halliburton prior to
maturity. There is no sinking fund applicable to the notes. Each holder of the
6.75% notes has the right to require the Company to repay such holder's notes,
in whole or in part, on February 1, 2007. The net proceeds from the sale of the
notes will be used for general corporate purposes. The July 8, 1997 and August
5, 1997 offerings of $50 million and $75 million, respectively, are not
reflected in the condensed consolidated balance sheets at June 30, 1997, or the
condensed consolidated statements of cash flows for the six months ended June
30, 1997.
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 over the term of the Dockyard Loans and earns
interest at a rate equal to that of the Dockyard Loans. The compensating balance
is included in other assets in the condensed consolidated balance sheet.
6
Note 7. 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 third quarter of 1998. Although the
entire Jasper County Superfund Site comprises 237 square miles as listed on the
National Priorities List, in the RI/FS scope of work, the EPA has only
identified seven areas, or subsites, within this area that need to be studied
and then possibly remediated by the PRPs. Additionally, the Administrative Order
on Consent for the RI/FS only requires Brown & Root to perform RI/FS work at one
of the subsites within the site, the Neck/Alba subsite, which only comprises
3.95 square miles. Brown & Root's share of the cost of such a study is not
expected to be material. In addition to the superfund issues, the State of
Missouri has indicated that they may pursue natural resource damages 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.
Note 8. Acquisitions
On October 4, 1996, the Company completed the acquisition of Landmark
Graphics Corporation (Landmark) through the merger of Landmark with and into a
subsidiary of the Company, the conversion of the outstanding Landmark common
stock into an aggregate of approximately 20.4 million shares of Common Stock of
the Company (after giving effect to the Company's two-for-one stock split) and
the assumption by the Company of the outstanding Landmark stock options. The
merger qualified as a tax free exchange and was accounted for using the "pooling
of interests" method of accounting for business combinations. Accordingly, the
Company's financial statements for the three months and six months ended June
30, 1996 have been restated to include the results of Landmark.
7
Prior to the merger, Landmark had a fiscal year-end of June 30. Landmark's
results have been restated to conform with Halliburton Company's calendar
year-end. Combined and separate results of Halliburton and Landmark for the
three and six months ended June 30, 1996 were as follows:
Three Months Six Months
Ended June 30, 1996 Ended June 30, 1996
------------------- -------------------
(Millions of dollars)
Revenues:
Halliburton $ 1,776.8 $ 3,438.2
Landmark 54.0 97.3
-------------- ----------------
Combined $ 1,830.8 $ 3,535.5
============== ================
Net Income:
Halliburton $ 67.1 $ 118.6
Landmark 4.7 (1.3)
-------------- ----------------
Combined $ 71.8 $ 117.3
============== ================
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.
During April 1997, the Company completed its acquisition of the outstanding
common stock of OGC International plc (OGC) for approximately $118.3 million.
OGC is engaged in providing a variety of engineering, operations and maintenance
services, primarily to the North Sea oil and gas production industry.
During July 1997, the Company acquired all of the outstanding common stock
and convertible debentures of Kinhill Holdings Limited (Kinhill) for
approximately $34 million. Kinhill, headquartered in Australia, provides
engineering in mining and minerals processing, petroleum and chemicals, water
and wastewater, transportation and commercial and civil infrastructure. Kinhill
markets its services primarily in Australia, Indonesia, Thailand, Singapore,
India, and the Philippines.
On June 9, 1997, the Company entered into a definitive agreement providing
for the acquisition of NUMAR Corporation (NUMAR). Headquartered in Malvern,
Pennsylvania, NUMAR designs, manufactures, and markets the Magnetic Resonance
Imaging Logging (MRIL"TM") tool which utilizes magnetic resonance imaging
technology to evaluate subsurface rock formations in newly drilled oil and gas
wells.
Under terms of the agreement, the Company will issue 0.9664 of a share of
its common stock for each share of NUMAR common stock. The acquisition will
require the Company to issue about 9 million shares of its common stock in
exchange for currently outstanding NUMAR shares and additional NUMAR shares that
will become outstanding prior to the merger upon the exercise of outstanding
NUMAR options and warrants. The proposed merger has received unanimous approval
from the respective boards of directors of each company but is subject to the
approval of NUMAR's shareholders. The merger will be accounted for as a pooling
of interests and will be a tax-free exchange to NUMAR's shareholders. The
Company expects to consummate the merger during the third quarter of 1997.
Note 9. Special Charges
During September 1996, the Company recorded special charges of $65.3
million, which included provisions of $41.0 million to terminate approximately
one thousand employees related to reorganization efforts by the Engineering and
Construction Group and plans to combine various administrative support functions
into combined shared services for the Company; and $20.2 million to restructure
certain Engineering and Construction Group businesses, provide for excess lease
space and other items. Approximately $30.2 million has been charged or allocated
to these reserves for employee related costs. Approximately $12.5 million has
been charged to the reserve in connection with excess leases and other items
with the remaining amount to be charged over the term of excess leases through
August, 2003.
8
During March 1996, Landmark recorded special charges of $12.2 million ($8.7
million after tax) for the write-off of in-process research and development
activities acquired in connection with the purchase by Landmark of certain
assets and the assumption of certain liabilities of Western Atlas International,
Inc. and the write-off of related redundant assets and activities.
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 energy,
industrial and governmental customers. The industries served by the Company are
highly competitive with many substantial competitors. Operations in some
countries may be 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. However, United States law
imposes a variety of trade sanctions restricting the ability of the Company, and
in some cases its foreign subsidiaries, to conduct business in some countries
where there are markets for the Company's goods and services. In the future,
certain of these trade sanctions may adversely affect the ability of the Company
to conduct business with foreign customers having activities in certain
countries such as Cuba, Iran or Libya which are targeted by the United States,
including restrictions on the Company's ability to do business with such
customers in unrelated countries. From time to time, discussions occur in the
United States Congress and Administration concerning the imposition of
additional trade sanctions which could affect several other countries which are
important markets for the Company. Existing or new restrictions which impair the
ability of the Company and/or its customers to conduct business in these
countries could adversely affect the results of the Company's operations in some
future period; however, recently imposed trade sanctions affecting Myanmar are
not expected to have a material adverse affect on the Company.
RESULTS OF OPERATIONS
Second Quarter of 1997 Compared with the Second Quarter of 1996
Revenues
Consolidated revenues increased 22% to $2,231.1 million in the second
quarter of 1997 compared with $1,830.8 million in the same quarter of the prior
year. Approximately 59% of the Company's consolidated revenues were derived from
international activities in the second quarter of 1997 compared to 55% in the
second quarter of 1996. Consolidated international revenues increased 29% in the
second quarter of 1997 over the second quarter of 1996. Consolidated United
States revenues increased by 13% in the second quarter of 1997 compared to the
second quarter of 1996.
Energy Group revenues increased by 42% compared with a 16% increase in
drilling activity as measured by the worldwide rotary rig count for the second
quarter of 1997 over the same quarter of the prior year. International revenues
increased by 45% and United States revenues increased 36% while the United
States rig count increased 20% over the same quarter of the prior year.
Engineering and Construction Group revenues decreased 4% to $774.7 million
compared with $806.2 million in the same quarter of the prior year. Lower
activity levels under the service contract with the US Department of Defense to
provide technical and logistical support for military peacekeeping operations in
Bosnia reduced revenues approximately $100 million. The decrease was partially
offset by increased revenues for civil services and projects in Europe and
Africa.
Operating Income
Consolidated operating income increased 57% to $182.0 million in the second
quarter of 1997 compared with $115.7 million in the same quarter of the prior
year. Approximately 54% of the Company's consolidated operating income was
derived from international activities in the second quarter of 1997 compared to
84% in the second quarter of 1996.
Energy Group operating income increased 25% to $160.1 million in the second
quarter of 1997 compared with $128.3 million in the same quarter of the prior
year. The operating margin for the second quarter of 1997 was 11% compared to
the prior year operating margin of 12.5%. Operating margins for the current year
quarter are comparatively lower due primarily to $31.8 million income relating
to gain sharing revenue on the Brown & Root Energy Services portion of the cost
savings realized on the BP Andrew alliance that was included in the results for
second quarter of 1996. The alliance completed the project seven months ahead of
the scheduled production of oil and achieved a $125 million savings compared
with the targeted cost. The increase in operating income in 1997 is primarily
related to higher pressure pumping activity and margins for Halliburton Energy
Services in North America, the Middle East, and Asia/Pacific. Logging activity
and margins in North America and Asia/Pacific and completion products activity
and margins in the Middle East were also higher. All other Halliburton Energy
Services product service lines showed increased activity and improved operating
margins. Landmark also reported higher margins and operating income compared to
the prior year quarter.
9
Engineering and Construction Group operating income increased to $30.0
million compared to a loss of $4.2 million in the second quarter of the prior
year. Operating margins were 3.9% in the second quarter of 1997 compared to 1.5%
in the prior year second quarter after excluding a $16.3 million charge in the
prior year quarter to reflect the impairment of Brown & Root's equity in the
Dulles Greenway toll road extension project. United States and international
activities contributed to the increased operating margins. The improved margins
also reflect benefits now accruing from the restructuring efforts in late 1996.
Nonoperating Items
Interest expense increased to $9.7 million in the second quarter of 1997
compared to $5.8 million in the same quarter of the prior year due primarily to
the Company's issuance of $125.0 million of 6.75% notes on February 6, 1997, and
$50.0 million of 7.53% notes on May 12, 1997, under the Company's medium-term
note program as well as interest expense related to higher levels of short-term
borrowings in 1997 as compared to 1996.
Interest income decreased in 1997 to $2.1 million from $3.3 million in the
second quarter of 1996 primarily due to lower levels of invested cash.
Foreign currency losses were $0.4 million for the second quarter of 1997 as
compared to $3.2 million for the same quarter in 1996. The losses in 1996 were
primarily attributable to the devaluation of the Venezuelan bolivar.
The effective income tax rate increased to 39.4% for the second quarter of
1997 from 34.4% for the second quarter of 1996 due primarily to increased
profitability in North America and the realization of previously reserved
foreign net operating losses during the prior year.
Minority interest in net income of subsidiaries for the second quarter of
1997 increased to $3.5 million due primarily to the Company's 51% interest in
Devonport Management Limited (DML).
Net Income
Net income in the second quarter of 1997 increased 42% to $101.9 million,
or 40 cents per share, compared with $71.8 million, or 29 cents per share, in
the same quarter of the prior year after giving effect to the two-for-one common
stock split declared on June 9, 1997.
First Six Months of 1997 Compared with the First Six Months of 1996
Revenues
Consolidated revenues increased 17% to $4,128.6 million in the first six
months of 1997 compared with $3,535.5 million in the same period of the prior
year. Approximately 57% of the Company's consolidated revenues were derived from
international activities in the first six months of 1997 compared to 54% in the
same period of 1996. Consolidated international revenues increased 23% in the
first six months of 1997 over the same period of 1996. Consolidated United
States revenues increased by 10% in the first six months of 1997 compared to the
same period of 1996.
Energy Group revenues increased by 36% compared with a 14% increase in
drilling activity as measured by the worldwide rotary rig count for the first
six months of 1997 over the same period of the prior year. International
revenues increased by 37% and United States revenues increased 33% while the
international rig count increased 12% and the United States rig count increased
21% over the same period of the prior year.
Engineering and Construction Group revenues decreased 5% to $1,551.9
million compared with $1,639.4 million in the same six month period of the prior
year. Lower activity under the service contract with the US Department of
Defense to provide technical and logistical support for military peacekeeping
operations in Bosnia reduced revenues approximately $255 million. The decrease
was partially offset by increased revenues for civil services and projects in
Europe and Africa.
10
Operating Income
Consolidated operating income increased 71% to $320.7 million in the first six
months of 1997 compared with $187.3 million in the same period of the prior
year. Excluding special charges recorded by Landmark in the prior year,
operating income increased by 61% over the first six months of 1996.
Approximately 58% of the Company's consolidated operating income was derived
from international activities in the first six months of 1997 compared to 72% in
the same period of 1996 excluding special charges recorded in 1996.
Energy Group operating income increased 34% to $277.3 million in the first
six months of 1997 compared with $207.2 million in the same period of the prior
year. The operating margin for the first six months of 1997 was 10.8% compared
to the prior year operating margin of 10.9%. Operating margins for the current
year are comparatively lower due primarily to $31.8 million income relating to
gain sharing revenue on the Brown & Root Energy Services portion of the cost
savings realized on the BP Andrew alliance that was included in results for the
first six months of 1996. The alliance completed the project seven months ahead
of the scheduled production of oil and achieved a $125 million savings compared
with the targeted cost. The increase in operating income in 1997 is primarily
related to higher pressure pumping activity and margins for Halliburton Energy
Services in North America, the Middle East and Asia/Pacific. All other
Halliburton Energy Services product service lines showed increased activities
and improved operating margins. Landmark also reported higher margins and
operating income compared to the prior year.
Engineering and Construction Group operating income for the first six
months of 1997 was $59.4 million compared to 1996 operating income of $9.5
million. Operating margins improved to 3.8% in for the first six months of 1997
from 1.6% for the same period in 1996 after excluding a $16.3 million charge in
the prior year period to reflect the impairment of Brown & Root's equity in the
Dulles Greenway toll road extension project. The increase in operating income
reflects improved performance by civil services provided in Europe and Africa as
well as improved results from engineering, procurement and construction
activities. The improved margins also reflect benefits now accruing from the
restructuring efforts in late 1996.
Nonoperating Items
Interest expense increased to $15.8 million in the first six months of 1997
compared to $10.8 million in the same period of the prior year due primarily to
the Company's issuance of $125.0 million of 6.75% notes on February 6, 1997, and
$50.0 million of 7.53% notes on May 12, 1997, under the Company's medium-term
note program as well as interest expense related to higher levels of short-term
borrowings.
Interest income decreased in 1997 to $6.5 million primarily due to lower
levels of invested cash during the first six months of 1997.
Foreign currency gains were $0.6 million for the first six months of 1997
as compared to losses of $2.2 million for the same period in 1996.
The effective income tax rate increased to 38.8% for the first six months
of 1997 from 35% in 1996 due primarily to increased profitability in North
America and the realization of previously reserved foreign net operating losses
during the prior year.
Minority interest in net income of subsidiaries was $6.4 million for the
first six months of 1997 compared to minority interest in net losses of
subsidiaries of $0.1 million for the same period in the prior year. The majority
of this increase reflects the consolidation of DML's results for the first half
of 1997 in connection with the Company increasing its ownership in DML from 30%
to 51% during March 1997.
Net Income
Net income from in the first six months of 1997 increased 58% to $184.9
million, or 72 cents per share, compared with $117.3 million, or 47 cents per
share, in the same period of the prior year after giving effect to the
two-for-one common stock split declared on June 9, 1997.
11
LIQUIDITY AND CAPITAL RESOURCES
The Company ended the second quarter of 1997 with cash and equivalents of
$50.4 million, a decrease of $163.2 million from the end of 1996.
Operating Activities
Cash flows used for operating activities were $23.8 million in the first
six months of 1997, as compared to cash flows provided by operating activities
of $24.8 million in the first six months of 1996. The major operating activity
use of cash in 1997 was to fund working capital requirements related to
increased revenues from the Energy Group and for Engineering and Construction
Group projects.
Investing Activities
Capital expenditures were $259.2 million for the first six months of 1997,
an increase of 83% over the same period of the prior year. The increase in
capital spending primarily reflects investments in equipment and infrastructure
for the Energy Group and the acquisition of the Royal Dockyard by DML, net of
related borrowings.
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
was required to provide initially a compensating balance of $28.7 million which
is restricted as to use by the Company. The compensating balance amount
decreases in equal installments over the term of the Dockyard Loans and earns
interest at a rate equal to that of the Dockyard Loans.
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.
During July 1997, the Company acquired all of the outstanding common stock
of Kinhill Holdings Limited (Kinhill) for approximately $34 million. Kinhill,
headquartered in Australia, provides engineering in mining and minerals
processing, petroleum and chemicals, water and wastewater, transportation and
commercial and civil infrastructure. Kinhill markets its services primarily in
Australia, Indonesia, Thailand, Singapore, India, and the Philippines.
Included in 1996 investing activities is $41.3 million related to the
Company's share of the purchase price of a company acquired by the Company's M-I
Drilling affiliate.
Financing Activities
Cash flows from financing activities were $254.3 million in the first six
months of 1997 compared to cash flows used in financing activities of $8.9
million in the first six months of 1996. The Company borrowed $111.8 million in
short-term funds consisting of commercial paper and bank loans in the first six
months of 1997. Proceeds from exercises of stock options provided $38.8 million
in the first six months of 1997 compared to $15.3 million in the same period of
the prior year.
On February 11, 1997, the Company issued $125.0 million principal amount of
6.75% notes (the Notes) due February 1, 2027 under the Company's medium-term
note program. The Notes were priced at 99.78%, to yield 6.78% to maturity. Each
holder of the notes has the right to require the Company to repay such holder's
notes, in whole or in part, on February 1, 2007. The Company used the net
proceeds from the sale of the Notes for general corporate purposes which
included repayment of debt, acquisitions, and loans to and/or investments in
subsidiaries of the Company for working capital, repayment of debt and capital
expenditures.
On May 12, 1997, the Company issued $50.0 million principal amount of 7.53%
notes (the May Notes) at par value due May 12, 2017 under the Company's
medium-term note program. The Company intends to use the net proceeds from the
sale of the May Notes for general corporate purposes.
12
On July 8, 1997, the Company issued $50.0 million principal amount of 6.27%
notes (the July Notes) at par value due July 8, 1999 under the Company's
medium-term note program. The Company intends to use the net proceeds from the
July Notes for general corporate purposes.
On August 5, 1997, the Company issued a $75.0 million principal amount of
6.30% notes (the August notes) at par value due August 5, 2002, under the
Company's medium-term note program. The Company intends to use the net proceeds
from the August notes for general corporate purposes.
The Company believes it has sufficient borrowing capacity to fund its
working capital requirements and investing activities. As of August 5, 1997, the
Company had approximately $375.0 million of credit facilities with various
commercial banks, of which $100.0 million was committed.
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 7 to the condensed consolidated financial
statements for additional information on the one site.
FORWARD-LOOKING INFORMATION
In accordance with the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995, the Company notes that the statements in this
Form 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. While such forward-looking information
constitutes estimates reflecting the Company's best judgment based on current
information and involve a number of risks and uncertainties, 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 estimates. 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 of operation;
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 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 capital spending by governments for
infrastructure. In addition, future trends for revenues and profitability remain
difficult to predict in the industries served by the Company.
13
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 20, 1997,
stockholders of the Company were asked to consider and act upon (i) the election
of Directors for the ensuing year, (ii) a proposal to amend the Charter to
increase the number of authorized shares of Common Stock from 200 million to 400
million, (iii) 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 1997 and (iv) a proposal to amend and restate 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 and broker non-votes.
a. Election of Directors:
Name of Nominee Votes For Votes Withheld
Anne L. Armstrong 107,896,559 384,530
Richard B. Cheney 107,936,041 345,048
Lord Clitheroe 107,920,757 360,332
Robert L. Crandall 107,893,293 387,796
William R. Howell 107,876,138 404,951
Dale P. Jones 107,935,028 346,061
Delano E. Lewis 107,877,413 403,676
C. J. Silas 107,902,713 378,376
Roger T. Staubach 107,869,022 412,067
Richard J. Stegemeier 107,878,983 402,106
b. Proposal to amend the Charter:
Number of Votes For 100,993,775
Number of Votes Against 6,949,029
Number of Votes Abstaining 338,285
c. 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 1997:
Number of Votes For 107,883,945
Number of Votes Against 141,574
Number of Votes Abstaining 255,570
d. Proposal to amend and restate the 1993 Stock and Long-Term Incentive Plan:
Number of Votes For 90,807,242
Number of Votes Against 7,357,020
Number of Votes Abstaining 667,735
Broker Non-Votes 9,449,092
14
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(4.1) Form of 6.27% Notes due July 8, 1999 (incorporated by reference to
Exhibit 4.1 to the Company's Form 8-K dated as of July 8, 1997).
(4.2) Form of 6.30% Notes due August 5, 2002 (incorporated by reference to
Exhibit 4.1 to the Company's Form 8-K dated as of August 5, 1997).
(11) Statement regarding computation of earnings per share.
(27) Financial data schedule for the six months ended June 30, 1997
(included only in the copy of this report filed electronically with
the Commission).
(b) Reports on Form 8-K
During the second quarter of 1997:
A Current Report on Form 8-K dated April 23, 1997, was filed reporting on
Item 5. Other Events, regarding a press release dated April 23, 1997
announcing the Company's first quarter earnings.
A Current Report on Form 8-K dated May 7, 1997, was filed reporting on
Item 5. Other Events, regarding a press release dated May 7, 1997
announcing the Company's $50 million note offering.
A Current Report on Form 8-K dated May 7, 1997, was filed reporting on
Item 5. Other Events, regarding a press release dated May 7, 1997
announcing the Company's purchase of a 26% ownership interest in Petroleum
Engineering Services.
A Current Report on Form 8-K dated May 20, 1997, was filed reporting on
Item 5. Other Events, regarding a press release dated May 20, 1997
announcing the results of Company shareholder's meeting and declaration of
second quarter dividend.
A Current Report on Form 8-K dated May 21, 1997, was filed reporting on
Item 5. Other Events, regarding a press release dated May 21, 1997
announcing Halliburton Company officer appointments.
A Current Report on Form 8-K dated May 28, 1997, was filed reporting on
Item 5. Other Events, regarding a press release dated May 28, 1997
announcing the Company's offer to purchase Kinhill Holdings.
A Current Report on Form 8-K dated May 29, 1997, was filed reporting on
Item 5. Other Events, regarding a press release dated May 29, 1997
announcing the award of two engineering and construction contracts in
West Africa to the Company's Brown & Root Energy Services unit.
A Current Report on Form 8-K dated June 2, 1997, was filed reporting on
Item 5. Other Events, regarding a press release dated June 2, 1997
announcing the award of a logistics support services contract to the
Company's Brown & Root Government Services unit.
A Current Report on Form 8-K dated June 10, 1997, was filed reporting on
Item 5. Other Events, regarding a press release dated June 10, 1997
declaring the Company's two-for-one common stock split.
A Current Report on Form 8-K dated June 10, 1997, was filed reporting on
Item 5. Other Events, regarding a press release dated June 10, 1997
announcing the Company's signing a definitive agreement to purchase NUMAR
Corporation.
15
During the third quarter of 1997 to the date hereof:
A Current Report on Form 8-K dated July 1, 1997, was filed reporting on
Item 5. Other Events, regarding a press release dated July 1, 1997
announcing the award of a contract for Venezuela heavy oil project to a
joint venture of the Company's Brown & Root unit.
A Current Report on Form 8-K dated July 2, 1997, was filed reporting on
Item 5. Other Events, regarding a press release dated July 2, 1997
announcing the offering of $50 million medium-term notes.
A Current Report on Form 8-K dated July 2, 1997, was filed reporting on
Item 5. Other Events, regarding a press release dated July 2, 1997
announcing the award of a facilities contract to the Company's Brown & Root
Energy Services unit.
A Current Report on Form 8-K dated July 8, 1997, was filed reporting on
Item 5. Other Events, regarding the offering, sale and delivery of $50
million notes and including the form of the note.
A Current Report on Form 8-K dated July 14, 1997, was filed reporting on
Item 5. Other Events, regarding a press release dated July 14, 1997
announcing the Hart-Scott-Rodino Antitrust Clearance of the Company's
planned acquisition of NUMAR.
A Current Report on Form 8-K dated July 17, 1997, was filed reporting on
Item 5. Other Events, regarding a press release dated July 14, 1997
announcing 1997 third quarter dividend.
A Current Report on Form 8-K dated July 18, 1997, was filed reporting on
Item 5. Other Events, regarding a press release dated July 18, 1997
announcing the award of a contract to lead the upgrade of the Devonport
Submarine Refit Facility to the Company's subsidiary Brown & Root.
A Current Report on Form 8-K dated July 23, 1997, was filed reporting on
Item 5. Other Events, regarding a press release dated July 23, 1997
announcing 1997 second quarter earnings.
A Current Report on Form 8-K dated July 25, 1997, was filed reporting on
Item 5. Other Events, regarding a press release dated July 25, 1997
announcing the award of two pipeline construction contracts to a joint
venture of the Company's Brown & Root Energy Services unit.
A Current Report on Form 8-K dated July 31, 1997, was filed reporting on
Item 5. Other Events, regarding a press release dated July 31, 1997
announcing plans by its Brown & Root unit to sell its environmental
services business.
A Current Report on Form 8-K dated July 31, 1997, was filed reporting on
Item 5. Other Events, regarding a press release dated July 31, 1997
announcing the offering of $75 million medium-term notes.
A Current Report on Form 8-K dated August 5, 1997, was filed reporting on
Item 5. Other Events, regarding filing of the Form of Note related to its
offering of $75 million medium-term notes.
16
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 August 13, 1997 By /s/ Gary V. Morris
----------------------- --------------------------------
Gary V. Morris
Executive Vice President
Chief Financial Officer
Date August 13, 1997 By /s/ R. Charles Muchmore, Jr.
----------------------- --------------------------------
R. Charles Muchmore, Jr.
Vice President and Controller
Principal Accounting Officer
17
HALLIBURTON COMPANY
EXHIBIT 11
COMPUTATION OF EARNINGS PER SHARE
The calculation below for earnings per share of the $2.50 par value Common
Stock of the Company on a primary and fully diluted basis for the three and six
months ended June 30, 1997 and 1996, is submitted in accordance with Regulation
S-K item 601 (b) (11).
Three Months Six Months
Ended June 30 Ended June 30
----------------------------- -----------------------------
1997 1996 1997 1996
------------ ------------ ------------- ------------
Millions of dollars except Millions of dollars except
per share data per share data
Primary:
Net income $ 101.9 $ 71.8 $ 184.9 $ 117.3
Average number of common and common share
equivalents outstanding 256.0 251.2 255.7 251.1
Primary net income per share $ 0.40 $ 0.29 $ 0.72 $ 0.47
- -----------------------------------------------------------------------------------------------------------------
Fully Diluted:
Net income $ 101.9 $ 71.8 $ 184.9 $ 117.3
Adjusted average number of shares outstanding 256.3 251.3 256.3 251.3
Fully diluted earnings per share $ 0.40 $ 0.29 $ 0.72 $ 0.47
The foregoing computations do not reflect any significant potentially dilutive
effect the Company's Rights Agreement could have in the event Rights become
exercisable and any shares of either Series A Junior Participating Preferred
Stock or Common Stock of the Company are issued upon the exercise of such
Rights.
18
5
1,000,000
6-mos
Dec-31-1997
Jun-30-1997
50
0
2,120
0
350
2,736
3,816
2,328
5,163
1,777
425
0
0
650
1,689
5,163
0
4,129
0
3,699
0
0
16
312
121
185
0
0
0
185
0.72
0.72
