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, 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, par value $2.50 per share:
Outstanding at April 30, 1998 - 262,994,985
<PAGE>
<TABLE>
<CAPTION>
INDEX
<S> <C>
Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at March 31, 1998 and
December 31, 1997 2
Condensed Consolidated Statements of Income for the three
months ended March 31, 1998 and 1997 3
Condensed Consolidated Statements of Cash Flows for the three
months ended March 31, 1998 and 1997 4
Notes to Condensed Consolidated Financial Statements 5 - 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9 - 12
PART II. OTHER INFORMATION
Item 6. Listing of Exhibits and Reports on Form 8-K 13 - 14
Signatures 15
Exhibits: Financial data schedule for the quarter ended March 31, 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
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<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
<TABLE>
HALLIBURTON COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(In millions of dollars and shares)
<CAPTION>
March 31 December 31
1998 1997
--------------- ---------------
ASSETS
<S> <C> <C>
Current assets:
Cash and equivalents $ 93.4 $ 221.3
Receivables:
Notes and accounts receivable 1,947.4 1,815.8
Unbilled work on uncompleted contracts 418.5 390.0
--------------- ---------------
Total receivables 2,365.9 2,205.8
Inventories 375.7 326.9
Deferred income taxes, current 106.0 106.6
Other current assets 119.8 111.0
--------------- ---------------
Total current assets 3,060.8 2,971.6
Property, plant and equipment,
less accumulated depreciation of $2,355.3 and $2,325.3 1,735.7 1,662.7
Equity in and advances to related companies 364.3 338.7
Excess of cost over net assets acquired 318.1 323.1
Deferred income taxes, noncurrent 95.9 91.3
Other assets 229.7 215.6
--------------- ---------------
Total assets $ 5,804.5 $ 5,603.0
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term notes payable $ 75.6 $ 2.7
Current maturities of long-term debt 8.1 7.1
Accounts payable 676.8 586.5
Accrued employee compensation and benefits 183.8 262.3
Advance billings on uncompleted contracts 307.3 303.7
Income taxes payable 214.2 213.1
Deferred revenues 46.0 38.4
Other current liabilities 359.8 359.1
--------------- ---------------
Total current liabilities 1,871.6 1,772.9
Long-term debt 538.3 538.9
Employee compensation and benefits 324.8 323.6
Other liabilities 364.3 363.2
Minority interest in consolidated subsidiaries 16.6 19.7
--------------- ---------------
Total liabilities and minority interest 3,115.6 3,018.3
--------------- ---------------
Shareholders' equity:
Common stock, par value $2.50 per share -
authorized 400.0 shares, issued 269.3 and 268.8 shares 673.1 672.0
Paid-in capital in excess of par value 101.9 87.2
Cumulative translation adjustment (12.3) (15.0)
Retained earnings 2,032.2 1,947.6
--------------- ---------------
2,794.9 2,691.8
Less 6.4 and 6.5 shares of treasury stock, at cost 106.0 107.1
--------------- ---------------
Total shareholders' equity 2,688.9 2,584.7
--------------- ---------------
Total liabilities and shareholders' equity $ 5,804.5 $ 5,603.0
=============== ===============
<FN>
See notes to condensed consolidated financial statements.
</FN>
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2
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<TABLE>
HALLIBURTON COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(In millions of dollars except per share data)
<CAPTION>
Three Months
Ended March 31
-----------------------------
1998 1997
------------ -----------
<S> <C> <C>
Revenues:
Energy Group $ 1,589.2 $ 1,120.3
Engineering and Construction Group 766.1 777.2
------------ -----------
Total revenues $ 2,355.3 $ 1,897.5
============ ===========
Operating income:
Energy Group $ 185.0 $ 117.2
Engineering and Construction Group 28.8 29.4
General corporate (9.8) (7.9)
------------ -----------
Total operating income 204.0 138.7
Interest expense (11.3) (6.1)
Interest income 3.4 4.4
Foreign currency gains 2.4 1.0
Other nonoperating income (expense), net (0.1) 0.6
------------ -----------
Income before income taxes and minority interest 198.4 138.6
Provision for income taxes (77.0) (52.7)
Minority interest in net income of subsidiaries (3.6) (2.9)
------------ -----------
Net income $ 117.8 $ 83.0
============ ===========
Net income per share:
Basic $ 0.45 $ 0.33
Diluted $ 0.44 $ 0.32
Cash dividends paid per share $ 0.125 $ 0.125
<FN>
See notes to condensed consolidated financial statements.
</FN>
</TABLE>
3
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<TABLE>
HALLIBURTON COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In millions of dollars)
<CAPTION>
Three Months
Ended March 31
--------------------------------
1998 1997
------------- -------------
<S> <C> <C>
Cash flows used in operating activities:
Net income $ 117.8 $ 83.0
Adjustments to reconcile net income to net cash
from operating activities:
Depreciation and amortization 85.4 69.6
Benefit for deferred income taxes (4.0) (14.8)
Distributions from (advances to) related companies
net of equity in (earnings) or losses (29.1) (24.0)
Other non-cash items 2.3 11.6
Other changes, net of non-cash items:
Receivables (150.5) (17.4)
Inventories (48.4) (28.8)
Accounts payable 88.2 (121.2)
Other working capital, net (75.4) (68.4)
Other, net (12.3) 22.4
------------- -------------
Total cash flows used in operating activities (26.0) (88.0)
------------- -------------
Cash flows used in investing activities:
Capital expenditures (156.3) (112.2)
Sales of property, plant and equipment 14.6 11.9
Sales (purchases) of businesses, net of cash (disposed) acquired 1.0 (2.1)
Other investing activities (3.9) (32.8)
------------- -------------
Total cash flows used in investing activities (144.6) (135.2)
------------- -------------
Cash flows from financing activities:
Proceeds from long-term borrowings - 125.2
Borrowings (repayments) of short-term debt 72.9 (34.3)
Payments of dividends to shareholders (33.2) (31.5)
Proceeds from exercises of stock options 10.3 34.5
Payments to reacquire common stock (0.9) (0.6)
Other financing activities (5.2) 3.6
------------- -------------
Total cash flows from financing activities 43.9 96.9
------------- -------------
Effect of exchange rate changes on cash (1.2) (1.9)
------------- -------------
Decrease in cash and equivalents (127.9) (128.2)
Cash and equivalents at beginning of year 221.3 213.6
------------- -------------
Cash and equivalents at end of period $ 93.4 $ 85.4
============= =============
Cash payments during the period for:
Interest $ 19.5 $ 9.8
Income taxes 61.1 25.5
<FN>
See notes to condensed consolidated financial statements.
</FN>
</TABLE>
4
<PAGE>
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 assets and liabilities, the disclosed 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, 1998, and the results of its operations and cash flows for the three
months ended March 31, 1998 and 1997. The results of operations for the three
months ended March 31, 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
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.
<TABLE>
<CAPTION>
Three Months
Ended March 31
-------------------------------------
1998 1997
---------------- ---------------
(Millions of dollars)
<S> <C> <C>
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
=============== ===============
</TABLE>
Note 3. Inventories
<TABLE>
<CAPTION>
March 31 December 31
1998 1997
---------------- ----------------
(Millions of dollars)
<S> <C> <C>
Sales items $ 128.5 $ 114.9
Supplies and parts 171.7 158.1
Work in process 44.8 29.3
Raw materials 30.7 24.6
---------------- ----------------
Total $ 375.7 $ 326.9
================ ================
</TABLE>
About forty percent of all sales items 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
million and $3.4 million higher than reported at March 31, 1998 and December 31,
1997, respectively.
5
<PAGE>
Note 4. General and Administrative Expenses
General and administrative expenses were $58.6 million and $51.0 million
for the three months ended March 31, 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. 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.
<TABLE>
Three Months
Ended March 31
1998 1997
---------------- ----------------
(Millions of dollars and shares
except per share data)
<S> <C> <C>
Net income $ 117.8 $ 83.0
=============== ===============
Basic weighted average shares 262.6 252.7
Effect of common stock equivalents 3.7 2.8
--------------- ---------------
Diluted weighted average shares 266.3 255.5
=============== ===============
Net income per share:
Basic $ 0.45 $ 0.33
=============== ===============
Diluted $ 0.44 $ 0.32
=============== ===============
</TABLE>
Options to purchase 1.1 million shares of common stock were outstanding
during the three months ended March 31, 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 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:
<TABLE>
<CAPTION>
Three Months
Ended March 31
1998 1997
---------------- ---------------
(Millions of dollars)
<S> <C> <C>
Revenues $ 67.4 $ 91.4
=============== ==============
Operating income $ 12.8 $ 6.6
=============== ==============
Net income $ 8.9 $ 4.6
=============== ==============
</TABLE>
Included in the Company's revenues for the three months ended March 31,
1998 and 1997 are equity in income of related companies of $30.2 million and
$20.4 million, respectively.
6
<PAGE>
Note 7. Long-Term Debt
During 1997, the Company issued notes under its medium-term note program
as follows:
<TABLE>
<CAPTION>
Amount Issue Date Due Rate Prices Yield
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 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%
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
During March 1997, the Company incurred $56.3 million of term loans in
connection with the acquisition of the Royal Dockyard in Plymouth, England (the
Dockyard Loans). The Dockyard Loans are denominated in Sterling and bear
interest at LIBOR plus 0.75% payable in semi-annual installments through March
2004. Pursuant to certain terms of the Dockyard Loans, the Company was required
to provide initially a compensating balance of $28.7 million which is restricted
as to use by the Company. The compensating balance amount decreases in equal
installments over the term of the Dockyard Loans and earns interest at a rate
equal to that of the Dockyard Loans. At March 31, 1998, the compensating balance
of $23.6 million is included in other assets in the consolidated balance sheets.
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. 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
<PAGE>
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 in mining and minerals processing, petroleum and chemicals, water
and wastewater, transportation and commercial and civil infrastructure. Kinhill
markets its services primarily in Australia, Indonesia, Thailand, Singapore,
India and the Philippines.
In 1997, the Company recorded approximately $99.1 million excess of cost
over net assets acquired primarily related to the purchase acquisitions of OGC
and Kinhill.
On September 30, 1997, the Company completed its acquisition of NUMAR
through the merger of a subsidiary of the Company with and into NUMAR, the
conversion of the outstanding NUMAR common stock into an aggregate of
approximately 8.2 million shares of common stock of the Company and the
assumption by the Company of the outstanding NUMAR stock options (for the
exercise of which the Company has reserved an aggregate of approximately 0.9
million shares of common stock of the Company). The merger qualified as a
tax-free exchange and was accounted for using the pooling of interests method of
accounting for business combinations. The Company has not restated its financial
statements to include NUMAR's historical operating results because they were not
material to the Company. NUMAR's assets and liabilities on September 30, 1997
were included in the Company's accounts of the same date, resulting in an
increase in net assets of $21.3 million. Headquartered in Malvern, Pennsylvania,
NUMAR designs, 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.
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. Approximately 175 million newly issued shares of
Halliburton 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. On April 20, 1998 the Company and
Dresser announced that the companies have received requests for additional
information concerning the proposed merger from the Antitrust Division of the
Department of Justice. The requests were not unexpected and both the Company and
Dresser plan to respond promptly to the Department of Justice. The companies
continue to expect to complete the merger during the fall of 1998.
8
<PAGE>
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.
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.
RESULTS OF OPERATIONS
Revenues
Consolidated revenues increased 24% to $2,355.3 million in the first
quarter of 1998 compared with $1,897.5 million in the same quarter of the prior
year. Approximately 61% of the Company's consolidated revenues were derived from
international activities in the first quarter of 1998 compared to 55% in the
first quarter of 1997. Consolidated international revenues increased 36% in the
first quarter of 1998 over the first quarter of 1997.
Energy Group revenues increased by 42% compared with a 9% increase in
drilling activity as measured by the worldwide rotary rig count for 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 quarter of the
prior year. International revenues increased by 54%.
Engineering and Construction Group revenues decreased 1% to $766.1 million
compared with $777.2 million in the same quarter of the prior year. The 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 partially
offset by higher engineering and construction services revenues for chemical
construction and maintenance contracts and higher Asia/Pacific revenues due to
the Kinhill acquisition.
Operating income
Consolidated operating income increased 47% to $204.0 million for the
three months ended March 31, 1998 from $138.7 million for the three months ended
March 31, 1997. Approximately 55% of the Company's consolidated operating income
was derived from international activities in the first quarter of 1998 compared
to 64% in the first quarter of 1997.
Energy Group operating income increased 58% to $185.0 million in the first
quarter of 1998 compared with $117.2 million in the same quarter of the prior
year. The operating income margin for the first quarter of 1998 was 11.6%
compared with 10.5% for the first quarter of 1997. The increase in operating
income was largely due to pressure pumping activities in North America,
Europe/Africa and Asia/Pacific regions, improved margins on completion products
and services and upstream oil and gas engineering services in Europe.
Engineering and Construction Group operating income decreased 2% to $28.8
million compared with $29.4 million for the same quarter in the prior year.
Operating income margins were 3.8% for the first quarter of 1998 and 1997. The
decrease in operating income reflects the sale 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.
Nonoperating Items
Interest expense increased to $11.3 million in the first quarter of 1998
compared with $6.1 million during 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 investments and acquisitions.
Interest income decreased to $3.4 million in the first quarter of 1998
compared with $4.4 million during the same quarter of the prior year due to
slightly lower levels of invested cash during the period.
9
<PAGE>
The effective income tax rate increased to 38.8% during the first quarter
of 1998 from 38% for the first 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 $3.6 million for the
first quarter of 1998 compared to $2.9 million for the first quarter of 1997.
Net income
Net income in the first quarter of 1998 increased 42% to $117.8 million,
or $0.44 per diluted share, compared with $83.0 million, or $0.32 per diluted
share, in the same quarter of the prior year.
LIQUIDITY AND CAPITAL RESOURCES
The Company ended the first quarter of 1998 with cash and cash equivalents
of $93.4 million, a decrease of $127.9 million from the end of 1997.
Operating activities
Cash flows used in operating activities were $26.0 million in the first
three months of 1998, as compared to $88.0 million in the first three months of
1997. The primary use of operating cash flow 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 $156.3 million for the first quarter of 1998, an
increase of 39% over the same quarter of the prior year. The increase in capital
spending primarily reflects investments in equipment and infrastructure for the
Energy Group including strategic investments in oil and gas developments. The
Company also continued its planned investment 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 30% to 51% and
DML borrowed $56.3 million under term loans (the Loans) bearing interest at
approximately LIBOR plus 0.75% payable in semi-annual installments through March
2004. Pursuant to certain terms of the Loans, the Company is 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 Loans and earns interest at a rate equal to that of the
Loans.
Financing activities
Cash flows from financing activities were $43.9 million in the first three
months of 1998 compared to $96.9 million in the first three 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 million in
short-term funds consisting of commercial paper and bank loans and issued $125.0
million principal amount of 6.75% 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. At March 31, 1998 the
Company had committed short-term lines of credit totaling $200.0 million
available and unused, and other short-term lines of credit totaling $275.0
million with several U.S. banks. Short-term borrowings of $70.0 million were
outstanding under these facilities at March 31, 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
<PAGE>
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, 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, 1998 were also materially unchanged 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. Approximately 175 million newly issued shares of
Halliburton 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. On April 20, 1998 the Company and
Dresser announced that the companies have received requests for additional
information concerning the proposed merger from the Antitrust Division of the
Department of Justice. The requests were not unexpected and both the Company and
Dresser plan to respond promptly to the Department of Justice. 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 financial statements.
YEAR 2000 ISSUE
The Year 2000 issue is the risk that computer programs using two-digit
date fields will fail to properly recognize the Year 2000. Such computer system
failures by the Company's software and hardware or that of government entities,
service providers, vendors and customers could result in business interruptions.
In response to the Year 2000 issue, the Company has formed a cross-functional
task force responsible for assessing the Company's Year 2000 readiness. The task
force has developed a comprehensive plan to assess the Company's Year 2000 risk
and is in the process of performing its review. The Company's approach is
intended to minimize the number and impact of Year 2000 problems. The Company
anticipates that certain software will require replacement or modification.
Independent of, but concurrent with, the Company's Year 2000 review, the Company
is installing an enterprise-wide business information system. This information
system is scheduled to replace approximately two-thirds of the Company's key
finance, administrative and marketing software systems before the end of 1999
and is Year 2000 compliant. In addition, the Company is in the process of
replacing its desktop computing equipment and software. 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.
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
<PAGE>
evaluating the impact of this statement on its current reporting and expects to
adopt the new standard for its year ending December 31, 1998, with interim
reporting beginning in 1999.
FORWARD-LOOKING INFORMATION
In accordance with the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995, the Company cautions that the statements in this
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 2000 issue;
completion of 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.
12
<PAGE>
PART II. OTHER INFORMATION
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
Schedule 13D filed on March 9, 1998).
2(b) Stock Option Agreement dated as of February 25, 1998 by and between
Halliburton and Dresser (incorporated by reference to Exhibit B to
Schedule 13D filed on March 9, 1998).
3(a) Restated Certificate of Incorporation of the Company (incorporated
by reference to the Company's Registration Statement on Form S-3
File No. 333-32731 filed with the Securities and Exchange
Commission on August 1, 1997).
3(b) By-laws of the Company, as amended (incorporated by reference to
the Company's Registration Statement on Form S-3 File No. 333-32731
filed with the Securities and Exchange Commission on August 1,
1997).
* 27(a) Financial data schedule for the quarter ended March 31, 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 first 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
<PAGE>
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
regarding an information request from the U.S. Department of Justice
concerning the proposed merger between the Company and Dresser Industries,
Inc.
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.
14
<PAGE>
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, 1998 By /s/ Gary V. Morris
----------------------------- -------------------------------
Gary V. Morris
Executive Vice President and
Chief Financial Officer
Date May 6, 1998 /s/ R. Charles Muchmore, Jr.
----------------------------- ------------------------------
R. Charles Muchmore, Jr.
Vice President and Controller
Principal Accounting Officer
Index to exhibits filed with this quarterly report.
Exhibit
Number Description
- ------- --------------------
27(a) 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 for 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 for the year ended December 31, 1995.
15
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the
Halliburton Company consolidated financial statements for the three months
ended March 31, 1998, and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<CURRENCY> USD
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-START> Jan-01-1998
<PERIOD-END> Mar-31-1998
<EXCHANGE-RATE> 1
<CASH> 93
<SECURITIES> 0
<RECEIVABLES> 2366
<ALLOWANCES> 0
<INVENTORY> 376
<CURRENT-ASSETS> 3061
<PP&E> 4091
<DEPRECIATION> 2355
<TOTAL-ASSETS> 5805
<CURRENT-LIABILITIES> 1872
<BONDS> 538
0
0
<COMMON> 673
<OTHER-SE> 2016
<TOTAL-LIABILITY-AND-EQUITY> 5805
<SALES> 0
<TOTAL-REVENUES> 2355
<CGS> 0
<TOTAL-COSTS> 2093
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11
<INCOME-PRETAX> 198
<INCOME-TAX> 77
<INCOME-CONTINUING> 118
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 118
<EPS-PRIMARY> 0.45
<EPS-DILUTED> 0.44
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the
Halliburton Company consolidated financial statements for the nine months ended
September 30, 1997, six months ended June 30, 1997 and three months ended
March 31, 1997 restated for the adoption of SFAS 128 and the common stock split
declared on June 9, 1997.
</LEGEND>
<MULTIPLIER> 1,000,000
<CURRENCY> USD
<S> <C> <C> <C>
<PERIOD-TYPE> 9-mos 6-mos 3-mos
<FISCAL-YEAR-END> Dec-31-1997 Dec-31-1997 Dec-31-1997
<PERIOD-END> Sep-30-1997 Jun-30-1997 Mar-31-1997
<EXCHANGE-RATE> 1 1 1
<CASH> 86 50 85
<SECURITIES> 0 0 0
<RECEIVABLES> 2270 2120 1698
<ALLOWANCES> 0 0 0
<INVENTORY> 346 350 321
<CURRENT-ASSETS> 2931 2736 2286
<PP&E> 3903 3816 3668
<DEPRECIATION> 2337 2328 2280
<TOTAL-ASSETS> 5482 5163 4481
<CURRENT-LIABILITIES> 1853 1777 1264
<BONDS> 540 425 373
0 0 0
0 0 0
<COMMON> 671 650 325
<OTHER-SE> 1769 1689 1924
<TOTAL-LIABILITY-AND-EQUITY> 5482 5163 4481
<SALES> 0 0 0
<TOTAL-REVENUES> 6433 4129 1898
<CGS> 0 0 0
<TOTAL-COSTS> 5722 3699 1708
<OTHER-EXPENSES> 0 0 51
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 29 16 6
<INCOME-PRETAX> 518 312 139
<INCOME-TAX> 202 121 53
<INCOME-CONTINUING> 306 185 83
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 306 185 83
<EPS-PRIMARY> 1.21 0.73 0.33
<EPS-DILUTED> 1.19 0.72 0.32
<FN>
Restated for the adoption of SFAS 128. March 31, 1997 is restated for the
two-for-one common stock split declared on June 9, 1997.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Halliburton
consolidated financial statements (including Landmark Graphics Corp.) restated
for the adoption of SFAS 128 and the common stock split in 1997.
</LEGEND>
<MULTIPLIER> 1,000,000
<CURRENCY> USD
<S> <C> <C> <C> <C>
<PERIOD-TYPE> Year 9-mos 6-mos 3-mos
<FISCAL-YEAR-END> Dec-31-1996 Dec-31-1996 Dec-31-1996 Dec-31-1996
<PERIOD-END> Dec-31-1996 Sep-30-1996 Jun-30-1996 Mar-31-1996
<EXCHANGE-RATE> 1 1 1 1
<CASH> 214 95 73 154
<SECURITIES> 0 0 0 0
<RECEIVABLES> 1702 1741 1716 1654
<ALLOWANCES> 44 0 0 0
<INVENTORY> 292 316 310 307
<CURRENT-ASSETS> 2398 2399 2330 2353
<PP&E> 3561 3499 3448 3425
<DEPRECIATION> 2269 2275 2276 2284
<TOTAL-ASSETS> 4437 4314 4105 4028
<CURRENT-LIABILITIES> 1505 1511 1362 1341
<BONDS> 200 200 200 200
0 0 0 323
0 0 0 0
<COMMON> 323 323 323 0
<OTHER-SE> 1836 1734 1674 1623
<TOTAL-LIABILITY-AND-EQUITY> 4437 4314 4105 4028
<SALES> 0 0 0 0
<TOTAL-REVENUES> 7385 5395 3536 1705
<CGS> 0 0 0 0
<TOTAL-COSTS> 6731 4961 3262 1592
<OTHER-EXPENSES> 0 0 0 0
<LOSS-PROVISION> 0 0 0 0
<INTEREST-EXPENSE> 24 18 11 5
<INCOME-PRETAX> 404 236 182 72
<INCOME-TAX> 103 44 64 27
<INCOME-CONTINUING> 300 193 117 46
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 300 193 117 46
<EPS-PRIMARY> 1.20 0.77 0.47 0.18
<EPS-DILUTED> 1.19 0.77 0.47 0.18
<FN>
Restated for the adoption of SFAS 128 and the two-for-one common stock split
declared on June 9, 1997.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from Halliburton
consolidated financial statements (including Landmark Graphics Corp.) restated
for the adoption of SFAS 128 and the common stock split in 1997.
</LEGEND>
<MULTIPLIER> 1,000,000
<CURRENCY> USD
<S> <C>
<PERIOD-TYPE> Year
<FISCAL-YEAR-END> Dec-31-1995
<PERIOD-END> Dec-31-1995
<EXCHANGE-RATE> 1
<CASH> 240
<SECURITIES> 0
<RECEIVABLES> 1499
<ALLOWANCES> 38
<INVENTORY> 256
<CURRENT-ASSETS> 2186
<PP&E> 3422
<DEPRECIATION> 2264
<TOTAL-ASSETS> 3862
<CURRENT-LIABILITIES> 1198
<BONDS> 200
0
0
<COMMON> 323
<OTHER-SE> 1598
<TOTAL-LIABILITY-AND-EQUITY> 3862
<SALES> 0
<TOTAL-REVENUES> 5883
<CGS> 0
<TOTAL-COSTS> 5260
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 47
<INCOME-PRETAX> 387
<INCOME-TAX> 138
<INCOME-CONTINUING> 249
<DISCONTINUED> (66)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 184
<EPS-PRIMARY> 0.74
<EPS-DILUTED> 0.74
<FN>
Restated for the adoption of SFAS 128 and the two-for-one common stock split
declared on June 9, 1997.
</FN>
</TABLE>
