<PAGE>
FORM 10-Q/A
Amendment No. 1
UNITED STATES
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, 1999
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 30, 1999 - 441,220,000
<PAGE>
HALLIBURTON COMPANY
Index
<TABLE>
<CAPTION> Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Quarterly Condensed Consolidated Financial Statements
<S> <C>
Statements of Income for the three months and six months ended June 30, 1999 2
and 1998
Balance Sheets at June 30, 1999 and December 31, 1998 3
Statements of Cash Flows for the six months ended June 30, 1999 and 1998 4
Notes to Financial Statements
1. Management representations 5
2. Business segment information 5
3. Acquisitions and dispositions 6
4. Inventories 7
5. Dresser financial information 7
6. Commitments and contingencies 8
7. Income per share 9
8. Comprehensive income 9
9. Special charges 10
10. Change in accounting method 11
11. Investment in Bufete 11
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11
Item 3. Quantitative and Qualitative Disclosures about Market Risk 18
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 24
Item 6. Listing of Exhibits and Reports on Form 8-K 24
Signatures 26
Exhibits: Financial data schedule for the six months ended June 30, 1999 (included only in
the copy of this report filed electronically with the Commission)
</TABLE>
1
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
- -----------------------------
HALLIBURTON COMPANY
Condensed Consolidated Statements of Income
(Unaudited)
(Millions of dollars and shares except per share data)
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30 Ended June 30
----------------------------------------------------------------------------------
1999 1998 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Services $ 2,693 $ 3,256 $ 5,565 $ 6,266
Sales 933 1,269 1,957 2,461
Equity in earnings of unconsolidated affiliates 44 60 72 113
- -----------------------------------------------------------------------------------------------------------------------------------
Total revenues $ 3,670 $ 4,585 $ 7,594 $ 8,840
- -----------------------------------------------------------------------------------------------------------------------------------
Operating costs and expenses:
Cost of services $ 2,588 $ 2,870 $ 5,349 $ 5,599
Cost of sales 803 1,114 1,707 2,119
General and administrative 130 165 237 325
Special charge credits (47) - (47)
- ------------------------------------------------------------------------------------------------------------------------------------
Total operating costs and expenses 3,474 4,149 7,246 8,043
- ------------------------------------------------------------------------------------------------------------------------------------
Operating income 196 436 348 797
Interest expense (34) (31) (70) (61)
Interest income 6 7 38 14
Foreign currency gains (losses), net 4 (2) 3 (2)
Other nonoperating, net (26) (1) (24) (1)
- ------------------------------------------------------------------------------------------------------------------------------------
Income before taxes, minority interest and
change in accounting method 146 409 295 747
Provision for income taxes (53) (153) (113) (281)
Minority interest in net income of subsidiaries (10) (13) (18) (20)
- ------------------------------------------------------------------------------------------------------------------------------------
Income before accounting change 83 243 164 446
Cumulative effect of change in accounting method, net - - (19) -
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 83 $ 243 $ 145 $ 446
- ------------------------------------------------------------------------------------------------------------------------------------
Basic income per share:
Before change in accounting method $ 0.19 $ 0.55 $ 0.37 $ 1.02
Change in accounting method - - (0.04) -
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 0.19 $ 0.55 $ 0.33 $ 1.02
Diluted income per share:
Before change in accounting method $ 0.19 $ 0.55 $ 0.37 $ 1.01
Change in accounting method - - (0.04) -
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 0.19 $ 0.55 $ 0.33 $ 1.01
- ------------------------------------------------------------------------------------------------------------------------------------
Csh dividends per share * $ 0.125 $ 0.125 $ 0.25 $ 0.25
- ------------------------------------------------------------------------------------------------------------------------------------
Basic average common shares outstanding 440 438 440 438
Diluted average common shares outstanding 444 443 443 443
</TABLE>
* The 1998 cash dividends per share represent amounts paid by Halliburton
Company prior to the merger with Dresser Industries, Inc.
See notes to quarterly financial statements.
2
<PAGE>
HALLIBURTON COMPANY
Condensed Consolidated Balance Sheets
(Unaudited)
(Millions of dollars and shares except per share data)
<TABLE>
<CAPTION>
June 30 December 31
---------------------------------------------
1999 1998
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash and equivalents $ 336 $ 203
Receivables:
Notes and accounts receivable, net 2,939 3,345
Unbilled work on uncompleted contracts 538 515
- ------------------------------------------------------------------------------------------------------------------------------
Total receivables 3,477 3,860
Inventories 1,224 1,285
Deferred income taxes, current 324 432
Other current assets 231 286
- ------------------------------------------------------------------------------------------------------------------------------
Total current assets 5,592 6,066
Property, plant and equipment:
Less accumulated depreciation of $3,956 and $3,929 2,828 2,896
Equity in and advances to related companies 552 587
Excess of cost over net assets acquired 760 765
Deferred income taxes, noncurrent 363 337
Other assets 388 415
- ------------------------------------------------------------------------------------------------------------------------------
Total assets $10,483 $11,066
- ------------------------------------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Current liabilities:
Short-term notes payable $ 625 $ 515
Current maturities of long-term debt 364 59
Accounts payable 1,179 1,009
Accrued employee compensation and benefits 204 402
Advance billings on uncompleted contracts 292 513
Income taxes payable 167 246
Accrued special charges 142 359
Other current liabilities 699 834
- ------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 3,672 3,937
Long-term debt 1,064 1,370
Employee compensation and benefits 970 1,007
Other liabilities 525 521
Minority interest in consolidated subsidiaries 162 170
- ------------------------------------------------------------------------------------------------------------------------------
Total liabilities 6,393 7,005
- ------------------------------------------------------------------------------------------------------------------------------
Shareholders' equity:
Common shares, par value $2.50 per share -
Authorized 600 shares, issued 447 and 446 shares 1,118 1,115
Paid-in capital in excess of par value 43 8
Deferred compensation (47) (51)
Accumulated other comprehensive income (195) (149)
Retained earnings 3,271 3,236
- ------------------------------------------------------------------------------------------------------------------------------
4,190 4,159
Less 6 shares of treasury stock, at cost in both periods 100 98
- ------------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 4,090 4,061
- ------------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $10,483 $11,066
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to quarterly financial statements.
3
<PAGE>
HALLIBURTON COMPANY
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(Millions of dollars)
<TABLE>
<CAPTION>
Six Months
Ended June 30
--------------------------------------
1999 1998
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 145 $ 446
Adjustments to reconcile net income to net cash from operations:
Depreciation, depletion and amortization 290 291
Provision (benefit) for deferred income taxes 82 (8)
Change in accounting methods 19 -
Distributions from (advances to) related companies, net of
equity in (earnings) losses (14) (133)
Change in accrued special charges (217) (13)
Other non-cash items 49 25
Other changes, net of non-cash items:
Receivables and unbilled work 103 (366)
Inventories 78 (149)
Accounts payable 140 178
Other working capital, net (521) (170)
Other, net (161) 43
- --------------------------------------------------------------------------------------------------------------------------
Total cash flows from operating activities (7) 144
- --------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Capital expenditures (267) (470)
Sales of property, plant and equipment 100 54
Dispositions (acquisitions) of businesses 273 (36)
Other investing activities (3) (1)
- --------------------------------------------------------------------------------------------------------------------------
Total cash flows from investing activities 103 (453)
- --------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Payments on long-term borrowings (8) (11)
Net borrowings of short-term debt 119 370
Payments of dividends to shareholders (110) (133)
Proceeds from exercises of stock options 33 40
Payments to re-acquire common stock (3) (17)
Other financing activities - (5)
- --------------------------------------------------------------------------------------------------------------------------
Total cash flows from financing activities 31 244
- --------------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash 6 -
- --------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and equivalents 133 (65)
Cash and cash equivalents at beginning of period 203 346
- --------------------------------------------------------------------------------------------------------------------------
Cash and equivalents at end of period $ 336 $ 281
- --------------------------------------------------------------------------------------------------------------------------
Supplemental disclosure of cash flow information:
Cash payments during the period for:
Interest $ 70 $ 51
Income taxes $ 106 $ 195
</TABLE>
See notes to quarterly financial statements.
4
<PAGE>
HALLIBURTON COMPANY
Notes to Quarterly Financial Statements
(Unaudited)
Note 1. Management Representations
We employ accounting policies that are in accordance with generally
accepted accounting principles in the United States. In preparing financial
statements in conformity with generally accepted accounting principles our
management must make estimates and assumptions that affect:
. the reported amounts of assets and liabilities,
. the 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 were
prepared using generally accepted accounting principles for interim financial
information and the instructions to Form 10-Q and applicable rules of Regulation
S-X. Accordingly, these financial statements do not include all information or
footnotes required by generally accepted accounting principles for complete
financial statements and should be read in conjunction with our 1998 Annual
Report on Form 10-K/A.
In our opinion, the condensed consolidated financial statements present
fairly our financial position as of June 30, 1999, and the results of our
operations for the three and six months ended June 30, 1999 and 1998 and our
cash flows for the six months then ended. The results of operations for the
three and six months ended June 30, 1999 and 1998 may not be indicative of
results for the full year.
Prior year amounts have been reclassified to conform to the current year
presentation. We have revised our presentation of the amounts recorded in our
1998 special charge. We have reclassified amounts related to inventories,
property plant and equipment, excess of cost over assets acquired, and other
assets from the accrued special charge on our 1999 and 1998 consolidated balance
sheets. See Note 9.
Note 2. Business Segment Information
We have three business segments.
The Energy Services Group contains Halliburton Energy Services, Brown &
Root Energy Services and Landmark Graphics Corporation. Halliburton Energy
Services provides pressure pumping equipment and services, logging and
perforating, drilling systems and services, drilling fluids systems, drill bits,
specialized completion and production equipment and services, and well control.
Brown & Root Energy Services provides upstream oil and gas engineering,
construction and maintenance services, specialty pipe coating, insulation, and
underwater engineering services. Landmark Graphics Corporation provides
integrated exploration and production information systems and related
professional services to the petroleum industry.
The Engineering and Construction Group includes Kellogg Brown & Root and
Brown & Root Services. This group provides engineering, procurement,
construction, project management, and facilities operation and maintenance for
hydrocarbon processing and other industrial and governmental customers.
The Dresser Equipment Group designs, manufactures and markets highly
engineered products and systems. These include compressors, valves, motors,
engines, pumps, generators, blowers, fuel dispensing systems, and
instrumentation equipment principally for oil and gas producers, transporters,
processors, distributors and petroleum users throughout the world.
Our equity in pretax income or losses of related companies is included in
revenues and operating income of each applicable segment. Intersegment revenues
included in the revenues of the other business segments are immaterial.
5
<PAGE>
The table below presents revenues and operating income by segment.
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30 Ended June 30
---------------------------------------- ----------------------------------------
Millions of dollars 1999 1998 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Energy Services Group $ 1,681 $ 2,381 $ 3,434 $ 4,666
Engineering and Construction Group 1,372 1,438 2,880 2,785
Dresser Equipment Group 617 766 1,280 1,389
- ------------------------------------------------------------------------------------------------------------------------------------
Total $ 3,670 $ 4,585 $ 7,594 $ 8,840
- ------------------------------------------------------------------------------------------------------------------------------------
Operating income:
Energy Services Group $ 49 $ 304 $ 106 $ 587
Engineering and Construction Group 64 74 122 133
Dresser Equipment Group 53 77 107 116
Special charge credits 47 - 47 -
General corporate (17) (19) (34) (39)
- ------------------------------------------------------------------------------------------------------------------------------------
Total $ 196 $ 436 $ 348 $ 797
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Note 3. Acquisitions and Dispositions
On September 29, 1998, we completed the acquisition of Dresser Industries,
Inc. The outstanding Dresser common stock was converted into our common stock.
The merger qualified as a tax-free exchange to Dresser's shareholders for U.S.
federal income tax purposes and was accounted for using the pooling of interests
method of accounting for business combinations. Accordingly, our financial
statements have been restated to include the results of Dresser for all periods
presented. Beginning in 1998, Dresser's year-end of October 31 was changed to
Halliburton's calendar year-end.
The results of operations for Halliburton and Dresser prior to the merger and
the combined amounts are presented below:
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30 Ended June 30
--------------------------------------------
Millions of dollars 1998 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
Revenues:
Halliburton $2,476 $4,831
Dresser 2,109 4,009
- --------------------------------------------------------------------------------
Combined $4,585 $8,840
- --------------------------------------------------------------------------------
Net income:
Halliburton $ 136 $ 254
Dresser 107 192
- --------------------------------------------------------------------------------
Combined $ 243 $ 446
- --------------------------------------------------------------------------------
</TABLE>
In connection with the Dresser merger, we sold our worldwide logging-while-
drilling business and related measurement-while-drilling business in March 1999.
The sale was in compliance with a consent decree with the United States
Department of Justice. The financial impact of the sale was reflected in the
third quarter 1998 special charge. This business was previously a part of the
Energy Services Group.
We sold our 36% interest in M-I L.L.C. in August, 1998. This sale completed
our commitment to the U.S. Department of Justice to sell our interest in M-I in
connection with the merger with Dresser. The purchase price of $265 million was
paid with a non-interest bearing promissory note due and collected in April,
1999. M-I was previously a part of the Energy Services Group and was accounted
for using the equity method.
6
<PAGE>
Note 4. Inventories
<TABLE>
<CAPTION>
June 30 December 31
----------------------------------------------
Millions of dollars 1999 1998
- --------------------------------------------------------------------------------------
<S> <C> <C>
Finished products and parts $ 631 $ 621
Raw materials and supplies 314 250
Work in process 405 562
Progress payments (126) (148)
- --------------------------------------------------------------------------------------
Total $ 1,224 $ 1,285
- --------------------------------------------------------------------------------------
</TABLE>
The cost of U.S. manufacturing and U.S. field service inventories is
determined using the last-in, first-out method. If the last-in, first-out
method had not been used, the cost of total inventories would have been about
$110 million higher than reported at June 30, 1999, and $111 million higher than
reported at December 31, 1998.
Note 5. Dresser Financial Information
Since becoming a wholly-owned subsidiary, Dresser has ceased filing
periodic reports with the Securities and Exchange Commission. Dresser's 8%
senior notes remain outstanding and are fully and unconditionally guaranteed by
Halliburton. As long as these notes remain outstanding, summarized financial
information of Dresser will be presented in our periodic reports filed on Form
10-K and Form 10-Q. We have not presented separate financial statements and
other disclosures concerning Dresser because management has determined this
information is not material to holders of these notes.
In January 1999, as part of a reorganization associated with the merger,
Halliburton Delaware, Inc., a first tier holding company subsidiary, was merged
into Dresser. The majority of our operating assets and activities are now
included within Dresser Industries, Inc. and its subsidiaries.
<TABLE>
<CAPTION>
Dresser Industries, Inc.
Financial Position June 30 December 31
---------------------------------------
Millions of dollars 1999 1998
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Current assets $ 5,320 $ 2,417
Noncurrent assets 5,718 2,614
- ---------------------------------------------------------------------------------------
Total $ 11,038 $ 5,031
- ---------------------------------------------------------------------------------------
Current liabilities $ 2,910 $ 1,389
Noncurrent liabilities 1,896 1,544
Minority interest 162 154
Shareholders' equity 6,070 1,944
- ---------------------------------------------------------------------------------------
Total $ 11,038 $ 5,031
- ---------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Dresser Industries, Inc. Three Months Six Months
Operating Results Ended June 30 Ended June 30
-------------------------------------------------------------------------------------
Millions of dollars 1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $ 3,670 $ 2,109 $ 7,594 $ 4,009
- ------------------------------------------------------------------------------------------------------------------------------------
Operating income $ 154 $ 198 $ 311 $ 355
- ------------------------------------------------------------------------------------------------------------------------------------
Income before taxes and minority interest $ 79 $ 180 $ 215 $ 320
Income taxes (31) (65) (87) (115)
Minority interest (10) (9) (18) (13)
Change in accounting method - - (19) -
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 38 $ 106 $ 91 $ 192
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
7
<PAGE>
Note 6. Commitments and Contingencies
Asbestosis Litigation. Since 1976, Dresser has been involved in litigation
with people who allege that they have sustained injuries and damage from the
inhalation of asbestos fibers. The injuries and damages are alleged to arise
from products manufactured by Dresser and its former divisions or subsidiaries
or companies acquired by Dresser. We have additional asbestos claims which have
arisen as a result of construction and renovation work performed by the
Engineering and Construction Group segment.
At June 30, 1999, we have approximately 84,200 pending claims.
Settlements, previously reported, covering approximately 12,500 claims, are
carried as pending until releases are signed. During the first six months of
1999, approximately 20,500 claims were filed and approximately 6,800 claims
against us were settled or otherwise resolved. The settlements reached during
the first six months of 1999 were consistent with our historical experience.
Based on our experience, we continue to believe that provisions recorded are
adequate to cover the estimated loss from asbestosis litigation.
We have entered into agreements with insurance carriers to cover portions of
the expense associated with asbestosis litigation arising from products
manufactured by Dresser and its former divisions or subsidiaries. These
agreements are governed by exposure dates, payment type or product involved so
the covered amount varies by individual claim. We have filed lawsuits against
several insurance carriers to recover additional amounts related to these
claims. The Engineering and Construction Group segment is also involved in
negotiations with carriers over coverage of its claims.
<TABLE>
<CAPTION>
June 30 December 31
------------------------------------------------
Millions of dollars 1999 1998
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Accrued liability $ 40 $ 48
Receivables from insurance carriers (32) (34)
- -----------------------------------------------------------------------------------------
Net asbestosis liability $ 8 $ 14
- -----------------------------------------------------------------------------------------
</TABLE>
Dispute with Global Industrial Technologies, Inc. An agreement was entered
into at the time of the spin-off of Global Industrial Technologies, Inc.,
formerly INDRESCO, Inc., with Dresser. Under the agreement, Global assumed
liability for all asbestos related claims filed against Dresser after July 31,
1992 relating to refractory products manufactured or marketed by the former
Harbison-Walker Refractories Division of Dresser. Those business operations
were transferred to Global in the spin-off. These asbestos claims are subject
to agreements with Dresser's insurance carriers that cover expense and indemnity
payments. However, the insurance coverage is incomplete and Global has to date
paid any uncovered portion of those asbestos claims with its own funds.
Global now disputes that it assumed liability for any of these asbestos
claims based on Dresser's negligence, the acts of Harbison-Walker prior to its
merger with Dresser in 1967, or punitive damages.
In order to resolve this dispute, Global invoked the dispute resolution
provisions of the 1992 agreement, which require binding arbitration. Global has
not claimed a specific amount of damages. We expect that Global's claim for
reimbursement will be in excess of $40 million. In addition, Global is seeking
relief from responsibility for pending claims based on Dresser's negligence, the
pre-1967 acts of Harbison-Walker, punitive damages, and for all similar future
claims.
Dresser and Global are selecting an arbitrator. We expect the arbitration
to start in late 1999. We believe that the assertions by Global are without
merit and Dresser intends to vigorously defend against them. On February 19,
1999 Dresser filed suit in the Delaware Chancery Court seeking an injunction to
restrain the arbitration as being barred by the statute of limitation. On July
13, 1999 the Delaware Chancery Court dismissed the lawsuit and found that the
Court had no jurisdiction to hear the lawsuit. Separately Dresser learned that
Global had threatened to sue Continental Insurance Company, one of Dresser's
insurers, over insurance proceeds. Dresser filed a lawsuit in Texas state court
on April 9, 1999 seeking an injunction to prevent Global from suing Continental.
The Texas court granted a temporary injunction on April 29, 1999. A trial date
of December 6, 1999 has been set to hear arguments regarding a permanent
injunction. Global has appealed the temporary injunction. A submission date of
September 21, 1999 has been set for oral argument before the appellate court.
Environmental. Some of our subsidiaries are involved as potentially
responsible parties in remedial activities to clean up various "Superfund" sites
under federal law. Federal law imposes joint and several liability, if the harm
is indivisible, 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, our
management believes that any liability of our subsidiaries for all but one site
will not have a material adverse effect on the results of operations. The
Environmental Protection Agency has named our subsidiary Kellogg Brown & Root,
Inc. as a potentially responsible party
8
<PAGE>
for the Jasper County Superfund Site. Regarding this site, sufficient
information has not been developed to permit our management to make a liability
determination. Management believes the process of determining the nature and
extent of remediation at the Jasper County Superfund Site and the total costs
will be lengthy. In addition to the Superfund issues, the State of Missouri has
indicated that it may claim natural resource damage against the potentially
responsible parties at the Jasper County Superfund Site. We cannot determine the
extent of Kellogg Brown & Root's liability, if any, for remediation costs or
natural resource damages on any reasonably practicable basis.
The accrued liabilities for environmental contingencies were $33 million at
June 30, 1999 and $29 million at December 31, 1998.
Other. We, along with our subsidiaries, are parties to various other legal
proceedings. We believe any liabilities we may owe will not be material to our
consolidated financial position and results of operations.
Note 7. Income Per Share
Basic income per share amounts are based on the weighted average number of
common shares outstanding during the period. Diluted income per share includes
additional common shares that would have been outstanding if potential common
shares with a dilutive effect had been issued. Options to purchase 3.0 million
shares of common stock which were outstanding during the six months ended June
30, 1999 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.
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30 Ended June 30
----------------------------------------------------------------------------------
Millions of dollars and shares
except per share data 1999 1998 1999 1998
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Income before accounting change $ 83 $ 243 $ 164 $ 446
- ---------------------------------------------------------------------------------------------------------------------------------
Basic weighted average shares 440 438 440 438
Effect of common stock equivalents 4 5 3 5
- ---------------------------------------------------------------------------------------------------------------------------------
Diluted weighted average shares 444 443 443 443
- ---------------------------------------------------------------------------------------------------------------------------------
Income per common share before change in
accounting method:
Basic $ 0.19 $ 0.55 $ 0.37 $ 1.02
- ---------------------------------------------------------------------------------------------------------------------------------
Diluted $ 0.19 $ 0.55 $ 0.37 $ 1.01
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Note 8. Comprehensive Income
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30 Ended June 30
--------------------------------------------------------------------------------
Millions of dollars 1999 1998 1999 1998
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income $ 83 $ 243 $ 145 $ 446
Cumulative translation
adjustment, net of tax (15) (7) (39) (16)
Minimum pension liability adjustment - - (7) -
- --------------------------------------------------------------------------------------------------------------------------------
Total comprehensive income $ 68 $ 236 $ 99 $ 430
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The cumulative translation adjustment of certain foreign entities and
minimum pension liability adjustment are the only comprehensive income
adjustments recorded.
Accumulated other comprehensive income at June 30, 1999 and December 31,
1998 consisted of the following:
<TABLE>
<CAPTION>
June 30 December 31
--------------------------------------
Millions of dollars 1999 1998
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Cumulative translation adjustment $ (181) $ (142)
Minimum pension liability (14) (7)
- --------------------------------------------------------------------------------------------------
Total accumulated other comprehensive income $ (195) $ (149)
- --------------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE>
Note 9. Special Charges
During the third and fourth quarters of 1998, we incurred special charges
totaling $980 million to provide for costs associated with the merger and
industry downturn due to declining oil and gas prices. During the second
quarter of 1999, we reversed $47 million of the 1998 charge based on the most
recent assessment of total costs to be incurred associated with the merger and
industry downturn.
The table below includes the components of the pretax special charge and
the amounts utilized and adjusted through June 30, 1999.
<TABLE>
<CAPTION>
Asset Facility Merger
Related Personnel Consolidation Transaction Other
Millions of dollars Charges Charges Charges Charges Charges Total
- -----------------------------------------------------------------------------------------------------------------
1998 Charges to Expense by
Business Segment:
<S> <C> <C> <C> <C> <C> <C>
Energy Services Group $ 453 $ 157 $ 93 $ - $18 $ 721
Engineering & Construction Group 8 19 8 - 5 40
Dresser Equipment Group 18 1 2 - - 21
General corporate 30 58 23 64 23 198
- -----------------------------------------------------------------------------------------------------------------
Total 509 235 126 64 46 980
Utilized in 1998 (509) (45) (3) (60) (4) (621)
- -----------------------------------------------------------------------------------------------------------------
Balance December 31, 1998 - 190 123 4 42 359
Utilized in 1999 - (119) (40) (3) (8) (170)
Adjustments to 1998 charges - (30) (16) (1) - (47)
- -----------------------------------------------------------------------------------------------------------------
Balance June 30, 1999 $ - $ 41 $ 67 $ - $34 $ 142
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
The following summarizes reductions of employees, consultants and contract
personnel related to the 1998 special charge through June 30, 1999:
. 1998 4,400 including 3,800 within the Energy Services Group
. 1999 4,400 including 3,500 within the Energy Services Group
We now estimate 10,100 personnel reductions will occur as accrued for in
the 1998 special charge. Of this amount, 1,300 have not yet taken place. These
reductions will occur in the second half of 1999 as projects are completed and
facilities are closed. During the second quarter we reversed $30 million in
personnel charges primarily due to a reduction in estimated legal costs
associated with employee layoffs, lower than anticipated average severance per
person and fewer than expected terminations due to voluntary employee
resignations.
Through June 30, 1999, we have sold or returned to the owner 145 service
and administrative facilities related to the 1998 special charge. As of June
30, 1999, we had vacated an additional 123 properties which we are in the
process of selling, subleasing or returning to the owner. The majority of the
sold, returned or vacated properties are located within North America. Until
the properties included in the facility consolidation charges are vacated, we
plan to continue normal depreciation, lease costs and operating expenses, which
will be charged against our results of operations. The majority of these
facilities are within the Energy Services Group. We have scheduled these
properties to be vacated by the end of this year. Our most recent assessment of
facilities consolidation activities indicates that fewer facilities than
initially estimated will be exited in conjunction with the 1998 special charge
resulting in an estimated $7 million reduction in facilities consolidation
costs. This revised estimate combined with other factors including more
favorable exit costs than anticipated resulted in a $16 million adjustment to
facility consolidation charges during the second quarter.
Halliburton and Dresser merger transaction costs were estimated to be $64
million. During the second quarter, we determined that $1 million of the
estimated merger transaction costs would not be utilized, primarily as a result
of lower than previously estimated legal and other professional costs. We
included this amount in our second quarter special charge adjustments.
During the first six months of 1999, we utilized $8 million in other
special charge costs. The balance will be utilized during 1999 and possibly
2000 in connection with our renegotiation of agency agreements, supplier and
other contracts and elimination of other duplicate capabilities.
Most restructuring activities accrued for in the 1998 special charges are
expected to be completed and expended by the end of 1999. The exceptions are
reserves for losses on facilities to be disposed of and any other actions, which
may require negotiations with outside parties extending past the end of the
year. Through June 30, 1999 the Company used $266 million in cash for items
associated with the 1998 special charges. The unutilized special charge reserve
balance at June 30, 1999 is expected to result in future cash outlays of
approximately $128 million during 1999 and possibly into 2000.
10
<PAGE>
Note 10. Change in Accounting Method
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5 "Reporting on the Costs of Start-Up
Activities." This Statement requires costs of start-up activities and
organization costs to be expensed as incurred. We adopted Statement of Position
98-5 effective January 1, 1999 and recorded expense of $30 million pretax or $19
million after tax or $0.04 per diluted share. The components of the $30 million
pretax cost, all contained within the Energy Services Group, that were
previously deferred include:
. $23 million for mobilization costs associated with specific contracts
and for installation of offshore cementing equipment onto third party
marine drilling rigs or vessels; and
. $7 million for costs incurred opening a new manufacturing facility in
the United Kingdom.
Note 11. Investment in Bufete
Kellogg Brown & Root, Inc., a subsidiary within the Engineering and
Construction Group, has a net investment of $26 million in Bufete Industriale,
S.A. de C.V., a large firm in Mexico specializing in engineering, procurement
and construction. This investment is accounted for using the cost method and
reported on the "Equity in and advances to related companies" line of our
consolidated balance sheets. Bufete's financial condition deteriorated in 1999.
On July 13, 1999, Bufete announced it would default on $100 million in Eurobonds
due July 15, 1999. We believe our investment is impaired and consequently wrote
off the entire amount in the second quarter of 1999. The expense for Bufete was
reported on the "Other nonoperating, net" line of the consolidated income
statement.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
- -------------------------------------------------------------------------------
of Operations
- -------------
In this section, we discuss the operating results and general financial
condition of Halliburton and its subsidiaries.
We explain:
. what factors impact our business;
. why our earnings and expenses for the second quarter of 1999 differ from
the second quarter of last year;
. why our earnings and expenses in January through June of 1999 differ
from the same period in 1998;
. what our capital expenditures were;
. what our ending cash balance was; and
. any other items that materially affect our financial condition or
earnings.
FORWARD-LOOKING INFORMATION
- ---------------------------
As provided by the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995, we caution that forward-looking statements
involve risks and uncertainties that may impact our actual results of
operations. Statements in this quarterly report and elsewhere, which are
forward-looking and which provide other than historical information, involve
those risks and uncertainties. Our forward-looking information reflects our
best judgement based on current information. However, forward-looking
information involves a number of risks and uncertainties and there can be no
assurance that other factors will not affect the accuracy of our forward-looking
information. While it is not possible to identify all factors, we continue to
face many risks and uncertainties that could cause actual results to differ from
those forward-looking statements including:
. litigation, including, for example, asbestosis litigation and
environmental litigation;
. 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;
. unsettled political conditions, war, civil unrest, currency controls and
governmental actions in the numerous countries in which we operate;
. operations in countries with significant amounts of political risk, for
example, Russia, Algeria and Nigeria;
. the effects of severe weather conditions, including hurricanes and
tornadoes, on operations and facilities;
. the impact of prolonged mild weather conditions on the demand for and
price of oil and natural gas;
. the magnitude of governmental spending for military and logistical
support of the type that we provide;
. 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 governments for infrastructure projects
of the sort that we perform;
. changes in capital spending by customers in the wood pulp and paper
industries for plants and equipment;
11
<PAGE>
. consolidation of customers in the oil and gas industry;
. technological and structural changes in the industries that we serve;
changes in the price of oil and natural gas;
. changes in the price of commodity chemicals that we use;
. risks that result from entering into fixed fee engineering, procurement
and construction projects of the types that we provide where failure to
meet schedules, cost estimates or performance targets could result in
non-reimbursable costs which cause the project not to meet expected
profit margins;
. claim negotiations with customers on cost variances on major projects;
. computer software, hardware and other equipment utilizing computer
. technology used by governmental entities, service providers, vendors,
. customers and Halliburton which may be impacted by the Y2K issue;
. the risk inherent in the use of derivative instruments of the sort that
we use which could cause a change in value of the derivative instruments
as a result of adverse movements in foreign exchange rates;
. increased competition in the hiring and retention of employees in
competitive areas, for example, accounting, treasury and Y2K
remediation; and
. integration of acquired businesses, including Dresser Industries, Inc.
and its subsidiaries, into Halliburton.
In addition, future trends for pricing, margins, revenues and profitability
remain difficult to predict in the industries that we serve.
BUSINESS ENVIRONMENT
- --------------------
We operate in over 120 countries around the world to provide a variety of
energy services, energy equipment and engineering and construction services to
energy, industrial and governmental customers. The industries we serve are
highly competitive with many substantial competitors. Unsettled political
conditions, expropriation or other governmental actions, exchange controls and
currency devaluations may affect operations in some countries. We believe the
geographic diversification of our business activities reduces the risk that loss
of operations in any one country would be material to our consolidated results
of operations.
The majority of our revenues are derived from the sale of services and
products, including construction activities, to the energy industry. We offer a
comprehensive range of integrated and discrete services and products as well as
project management for oil and natural gas activities throughout the world.
Declines in energy industry activities that started in 1998 continued into
the second quarter of 1999, particularly in the areas of exploration and
development of hydrocarbons. The average worldwide rotary rig count in the
first half of 1999 was 34% lower than in the first half of 1998. The average
U.S. rotary rig count in the first quarter of 1999 was 43% lower compared to the
first quarter of 1998 and this decline continued into the second quarter of
1999. The average U.S. rotary rig count in the second quarter of 1999 was
nearly 40% lower than the second quarter of 1998. These declines in activity
and reduced capital spending by our customers negatively impacted our results
for the first half of 1999, particularly within the Energy Services Group
segment.
The downstream portion of the oil and gas business is serviced by both the
Engineering and Construction Group and the Dresser Equipment Group. The
downturn in activity in the first quarter of 1999 did not affect these segments
as severely as the Energy Services Group due to the longer term nature of
projects and continuing maintenance requirements. In the second quarter of
1999, however, the effects of project delays and deferral of new awards began to
negatively impact the Engineering and Construction Group. The deferrals of
projects and lack of new awards are expected to affect the segment during the
remainder of the year due to the long-term nature of most projects. The Dresser
Equipment Group also experienced a decline in activity due to industry
conditions and faces increased competition for a reduced level of available
business.
Other major changes in the energy industry include the announced mergers of
several major oil companies that have further delayed capital spending programs
by these companies. We have seen some effects of these mergers in the first
half of 1999 result in delayed projects and reduced use of software products.
Longer-term effects will depend on the spending patterns of our customers.
We still believe:
. the long-term fundamentals of the energy industry are positive,
. steadily rising population and greater industrialization efforts will
continue to propel global growth, particularly in developing nations,
and
12
<PAGE>
. these factors will cause increasing demand for oil and natural gas to
produce refined products, petrochemicals, fertilizers and power.
We are encouraged about the remainder of this year, given:
. the recent strengthening of oil and gas prices,
. a 20% increase in the U.S. rotary rig count from its April low, and
. continuing increases in the level of customer inquiries.
We look forward to a recovery in 2000 after our customers approve new capital
budgets.
RESULTS OF OPERATIONS - 1999 COMPARED TO 1998
- ---------------------------------------------
Second Quarter of 1999 Compared with the Second Quarter of 1998
<TABLE>
<CAPTION>
REVENUES Second Quarter Increase
-----------------------------------
Millions of dollars 1999 1998 (decrease)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Energy Services Group $1,681 $2,381 $(700)
Engineering and Construction Group 1,372 1,438 (66)
Dresser Equipment Group 617 766 (149)
- --------------------------------------------------------------------------------------------------------
Total revenues $3,670 $4,585 $(915)
- --------------------------------------------------------------------------------------------------------
</TABLE>
Consolidated revenues decreased 20% to $3,670 million in the second quarter
of 1999 compared with $4,585 million in the same quarter of the prior year.
International revenues for the second quarter of 1999 were 70% of total revenue,
up from 64% in the second quarter of 1998.
Energy Services Group revenues were $1,681 million for the second quarter
of 1999 reflecting a 29% decrease from the same quarter of the prior year, while
drilling activity, as measured by the worldwide rotary rig count, decreased 33%.
International revenues were 73% of total Energy Services Group revenues for the
quarter, compared to 68% for the prior year quarter. The Energy Services Group
includes Halliburton Energy Services, Brown & Root Energy Services and Landmark
Graphics Corporation.
Revenues for all product service lines within Halliburton Energy Services
were 25-35% lower compared to the prior year quarter. Halliburton Energy
Services' U.S. revenues were down 45% versus a decrease in the U.S. average
rotary rig count of nearly 40%. Halliburton Energy Services' international
revenues were down 27%, which approximated the related rig count reduction. As
in the first quarter of 1999, the largest declines in revenues were in North
America and Latin America with revenues decreasing by 35-40%. Declines in
revenue reflect reduced unit volume levels and continued pricing pressures,
particularly in North America.
Brown & Root Energy Services, which operates in the upstream oil and gas
engineering and construction services, experienced a decline in revenues of 18%
from the same period of the prior year. The decrease reflects the industry
downturn in activity caused by low oil prices. Reduced activity levels
particularly impacted the U.K. sector of the North Sea. However, increased
activity in Asia Pacific partially offset the decline in the North Sea.
Revenues from Landmark, which provides integrated exploration and
production information systems, decreased 25% compared to the second quarter of
1998. Decreases in software and hardware sales were partially offset by
increased customer service and maintenance revenues. Many customers for our
information system product lines have put off software purchases due to customer
mergers and lower activity levels.
Engineering and Construction Group revenues decreased slightly to $1,372
million in the second quarter of 1999 compared to $1,438 million in the same
quarter of the prior year. The Engineering and Construction Group is made up of
Kellogg Brown & Root and Brown & Root Services. International revenues were 68%
of total revenues for the group, compared to 61% for the prior year second
quarter.
Higher revenues from activities at the Devonport Dockyard in the U.K. and
from the contract to provide logistical support services to U.S. military
peacekeeping efforts in the Balkans partially offset revenue declines from
industrial customers due to project delays.
Dresser Equipment Group revenues decreased nearly 20% to $617 million for
the second quarter of 1999, as compared to $766 million for the second quarter
of 1998. International revenues were 64% of total Dresser Equipment Group
revenues. Revenues declined in all product lines reflecting lower spending by
customers due to market conditions. Revenues from the compression and pumping
line were lower by about 25-30%. Lower complete unit shipments of
13
<PAGE>
compression and pumping products were partially offset by increased product
services volumes. Revenues from the measurement product line were lower by 10-
15% from the prior year second quarter. Flow control and power systems combined
had about 10% lower revenues.
<TABLE>
<CAPTION>
OPERATING INCOME Second Quarter Increase
------------------------------------------------------
Millions of dollars 1999 1998 (decrease)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Energy Services Group $ 49 $ 304 $(255)
Engineering and Construction Group 64 74 (10)
Dresser Equipment Group 53 77 (24)
Special charge credits 47 - 47
General corporate (17) (19) 2
- ----------------------------------------------------------------------------------------------------------
Operating income $ 196 $ 436 $(240)
- ----------------------------------------------------------------------------------------------------------
</TABLE>
Consolidated operating income for the second quarter of 1999 of $196 million
declined 55% compared with $436 million in the same quarter of the prior year.
Energy Services Group operating income decreased 84% to $49 million in the
second quarter of 1999 compared with $304 million in the same quarter of the
prior year. The operating margin for the second quarter of 1999 was 2.9%,
compared to the prior year second quarter operating margin of 12.8%.
In spite of aggressive cost reduction efforts to reduce excess personnel and
facilities, Halliburton Energy Services operating income was down 87%. Lower
activity and higher discounts reduced operating income for all Halliburton
Energy Services' product service lines. Decreased margins for Halliburton
Energy Services were caused by the lowest rig count since 1944 in the U.S. and
decreased activity levels outside the U.S. Lower rig counts led to excess
capacity in the oil field services sector. This excess capacity continued
through the second quarter especially within the U.S. As a result of pricing
pressures, Halliburton Energy Services' average discounts in the U.S. increased
six to eight percentage points over the second quarter of 1998 when pricing
first started to soften. In spite of pricing pressures and increased
discounting in the U.S., all product service lines except logging and drilling
were able to maintain positive operating income in the second quarter of 1999.
Operating income and margins from Brown & Root Energy Services' upstream oil
and gas engineering and construction activities declined 65% from the prior year
second quarter. The major factors contributing to this decrease were lower
activity levels and performance issues related to two technically difficult
projects on which losses of $23 million were recorded.
Landmark experienced a small loss for the quarter. The loss was caused by
declines in software sales volumes and severance payments to employees
terminated due to industry conditions.
Engineering and Construction Group operating income decreased 14% to $64
million in the second quarter of 1999 compared to $74 million in the second
quarter of the prior year. Operating margins were 4.7% in the second quarter of
1999 compared to 5.1% in the prior year second quarter. Included in the second
quarter of 1998 was the settlement on a Middle East construction project.
Excluding this settlement in 1998, margins for the current year of 4.7% are
higher than the prior year's margins of 4.1%.
The second quarter benefited from higher activity related to supporting U.S.
military peacekeeping efforts in the Balkans and income recognition on U.K. toll
road projects.
Dresser Equipment Group operating income for the second quarter was $53
million, a decrease of 31% from the prior year second quarter of $77 million.
All product lines experienced a decrease in operating income primarily as a
result of lower activity levels and increased discounting in some product lines.
Special charge credits of $47 million are the result of a change in estimate
to the 1998 merger special charges for the acquisition of Dresser and industry
downturns recorded in 1998. We have been monitoring the actual costs incurred
and have re-examined our estimates of future costs. In the second quarter of
1999, we concluded that these costs, particularly for severance and facility
exit costs, were lower than previously estimated. Therefore, we reversed a
portion of the $980 million that was originally recorded.
General corporate expenses were lower by $2 million from the prior year second
quarter. The reduction of expense is the result of combining two corporate
offices into one office.
14
<PAGE>
NONOPERATING ITEMS
Interest expense increased by $3 million to $34 million in the second
quarter of 1999 compared to the same quarter of the prior year due primarily to
increased short-term borrowings and additional long-term borrowings under our
medium-term note program. The increased borrowings were used to fund working
capital requirements and special charge costs, including, severance and property
exit costs.
Interest income in the second quarter of 1999 decreased slightly to $6 million
from $7 million in the second quarter of 1998.
Foreign currency gains (losses), net was a net $4 million gain for the second
quarter of 1999. This net gain compares to a net loss of $2 million in the same
period of 1998. The gain in 1999 is primarily attributable to devaluation of
the Euro.
Other nonoperating, net in the second quarter of 1999 includes a $26 million
charge for the write-off of our net investment in Bufete Industriale, S.A. de
C.V., a large specialty engineering, procurement and construction company in
Mexico. See Note 11 to the condensed consolidated financial statements for
additional information on Bufete.
The effective income tax rate excluding special charge credits was about 39%
for the second quarter of 1999, as compared to about 37% for the second quarter
of 1998. The rate for the quarter was adversely affected by foreign income
taxes and is expected to range between 38% and 40% for the year of 1999,
excluding the special charge credits.
Net income was $83 million, or 19 cents per diluted share, a decrease of 66%
from net income of $243 million, or 55 cents per diluted share in the second
quarter of 1998.
First Six Months of 1999 Compared with the First Six Months of 1998
<TABLE>
<CAPTION>
REVENUES First Six Months Increase
-----------------------------------
Millions of dollars 1999 1998 (decrease)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Energy Services Group $3,434 $4,666 $(1,232)
Engineering and Construction Group 2,880 2,785 95
Dresser Equipment Group 1,280 1,389 (109)
- --------------------------------------------------------------------------------------------------------
Total revenues $7,594 $8,840 $(1,246)
- --------------------------------------------------------------------------------------------------------
</TABLE>
Consolidated revenues decreased 14% to $7,594 million in the first six
months of 1999 compared with $8,840 million in the first six months of the prior
year. International revenues for the first six months of 1999 were 69% of total
revenue, compared to 65% of total revenue in 1998. Only the Engineering and
Construction Group had higher revenues in the first six months of 1999 compared
to 1998.
Energy Services Group revenues were $3,434 million for the first six
months of 1999, reflecting a 26% decrease from the first six months of the prior
year, while drilling activity as measured by the worldwide rotary rig count
decreased 34%. International revenues were 72% of total Energy Services Group
revenues for the first six months compared to 69% for the prior year first six
months.
Revenues for all Halliburton Energy Services product service lines were
lower than the prior year. The largest declines in revenues were in North
America and Latin America with revenues decreasing about 37%. Declines in
revenue reflect reduced unit volume levels and continued pricing pressures,
particularly in North America. Halliburton Energy Services' U.S. revenues were
about 40% lower than in the first six months of 1998, which is consistent with
the reduction in the average rotary rig count in the U.S. during the same
period. Halliburton Energy Services' international revenues were 25% lower in
1999 than in the first half of 1998. The international average rotary rig count
for the same time period was 28% lower. The completion product service line had
the smallest percentage decline in revenues of about 20% for the first six-month
period of 1999 compared to 1998. Other product service lines within Halliburton
Energy Services experienced a 28-33% decrease from the same period in the prior
year.
Revenues from Brown & Root Energy Services' upstream oil and gas
engineering and construction services decreased 18% from the same period of the
prior year reflecting the industry downturn in activity caused by low oil
prices. Reduced activity levels particularly impacted the U.K. sector of the
North Sea. Revenues from projects in North America and Asia/Pacific were higher
than in the prior year.
Revenues from Landmark's integrated exploration and production information
systems decreased 19% compared to the first six months of 1998. Decreases in
software and hardware sales were partially offset by increased customer service
15
<PAGE>
revenues. Many customers for our information system product lines have put off
software purchases due to lower activity levels. Customer mergers have also
resulted in purchase delays.
Engineering and Construction Group total revenues increased 3% to $2,880
million in the first six months of 1999 compared to $2,785 million in the first
six months of the prior year. International revenues increased approximately
20%.
Revenues from Kellogg Brown & Root were flat in the first half of 1999
compared to 1998. Europe/Africa was the most active region with major projects
in Algeria, Norway and Nigeria.
Brown & Root Services revenues for the first six months of 1999 were up 15%
over the prior year. The increase in revenues was due to increased activities
at the Devonport Dockyard in the U.K. and from logistics support services to
military peacekeeping efforts in the Balkans.
Dresser Equipment Group revenues decreased 8% to $1,280 million for the first
six months of 1999 as compared to $1,389 million for the first six months of
1998. Revenues declined in all product lines reflecting reduced demand. The
compression and pumping product line had approximately 5% lower revenues due to
lower complete unit sales. The lower volume on complete unit sales was
partially offset by increased product service volume. The measurement product
line's revenues were about 14% lower than the prior year due to lower spending
levels and delayed maintenance spending by multinational oil companies and other
customers. Revenues from flow control products were down 7% compared to 1998
due to low upstream and downstream activity levels. Power systems' revenues
were 10% lower than the first six months of 1998. The decrease in power
systems' revenues was due to reductions in the original equipment and
aftermarket sales related to lower gas production, higher gas storage levels and
decreased equipment utilization.
<TABLE>
<CAPTION>
OPERATING INCOME First Six Months Increase
----------------------------
Millions of dollars 1999 1998 (decrease)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Energy Services Group $ 106 $ 587 $(481)
Engineering and Construction Group 122 133 (11)
Dresser Equipment Group 107 116 (9)
Special charge credits 47 - 47
General corporate (34) (39) 5
- ----------------------------------------------------------------------------------------------------------
Operating income $ 348 $ 797 $(449)
- ----------------------------------------------------------------------------------------------------------
</TABLE>
Consolidated operating income for the first six months of 1999 of $348 million
declined 56% compared with $797 million in the first six months of the prior
year.
Energy Services Group operating income decreased 82% to $106 million in the
first six months of 1999 compared with $587 million in the first six months of
the prior year. The operating margin for the first six months of 1999 was 3.1%
compared to the prior year's first six months operating margin of 12.6%.
In spite of significant cost reduction efforts to reduce excess personnel and
consolidate facilities, operating income for all Halliburton Energy Services
product service lines was significantly lower in the first six months of 1999
due to lower activity and higher discounts. Overall, Halliburton Energy
Services' operating income declined 82% from the first half of 1998. Except for
logging and drilling, all product service lines earned positive operating income
in a very difficult environment.
Operating income from Brown & Root Energy Services' upstream oil and gas
engineering and construction activities declined 77% due to lower levels of
business activity and lower manufacturing activities which carry large fixed
costs. Major project losses of $27 million were recorded in the first six
months of 1999 on two technically difficult projects. In addition, the prior
year's first six months benefited from about $40 million of project incentives.
Brown & Root Energy Services continues to address challenges on some fixed fee
contracts for which we recorded losses in the fourth quarter of 1998. Claims
discussions with customers should bring these jobs to resolution in the second
half of the year.
Landmark experienced a small loss for the first six months of 1999. The loss
was caused by lower software sales volumes and severance payments to employees
terminated due to industry conditions.
Engineering and Construction Group operating income decreased 8% to $122
million in the first six months of 1999 compared to $133 million in the first
six months of the prior year. Operating margins were 4.2% in the first six
months of 1999 compared to 4.8% in the prior year first six months. Included in
the first six months of 1998 was the settlement on a Middle East construction
project. Excluding this settlement in 1998, margins for 1999 of 4.2% are the
same as the prior year's first six months.
16
<PAGE>
Dresser Equipment Group operating income for the first six months of 1999 was
$107 million, a decrease of 8% from the prior year's first six months of $116
million. Cost reduction initiatives allowed us to maintain operating margins at
about 8.4% in the first six months of both 1999 and 1998 in spite of lower sales
volumes in 1999.
Special charge credits are the result of a change in estimate to the 1998
merger special charges for the acquisition of Dresser and industry downturns.
We have been monitoring the actual costs incurred and have re-examined our
estimates of future costs. In the second quarter of 1999, we concluded that
these costs, particularly for severance and facility exit costs, were lower than
previously estimated. Therefore, we reversed $47 million of the $980 million
that was originally recorded.
General corporate expenses were lower by $5 million from the prior year's
first six months. The reduction of expense is the result of combining two
corporate offices into one office.
NONOPERATING ITEMS
Interest expense increased to $70 million in the first six months of 1999
compared to $61 million in the first six months of the prior year due primarily
to increased short-term borrowings and additional long-term borrowings under our
medium-term note program. The increased borrowings were used to fund working
capital requirements and special charge costs, including, severance and property
exit costs.
Interest income in the first six months of 1999 increased to $38 million from
$14 million in the first six months of 1998. The increase in interest income
was due primarily to imputed interest income on the note receivable from the
sale of our interest in M-I L.L.C. and interest earned on settlement of income
tax issues in the U.S. and U.K.
Other nonoperating, net in the first six months of 1999 includes a $26 million
charge for the write-off of our net investment in Bufete Industriale, S.A. de
C.V., a large specialty engineering, procurement and construction company in
Mexico. See Note 11 to the condensed consolidated financial statements for
additional information on Bufete.
The effective income tax rate excluding special charge credits was about 39.5%
for the first six months of 1999 compared to 37.6% for the first six months of
1998. The rate for the first six months was adversely affected by foreign
income taxes and is expected to range between 38% and 40% for the year of 1999,
excluding the special charge credits.
Cumulative effect of change in accounting method of $19 million after tax
or 4 cents per diluted share reflects our adoption of Statement of Position 98-
5. Estimated annual expense for 1999 under Statement of Position 98-5 after
recording the cumulative effect of the change is not expected to be materially
different from amounts expensed under the prior accounting treatment. See Note
10 to the condensed consolidated financial statements for additional
information.
LIQUIDITY AND CAPITAL RESOURCES
We ended the second quarter of 1999 with cash and equivalents of $336 million,
an increase of $133 million from the end of 1998. Beginning in 1998 we changed
Dresser's fiscal year-end to Halliburton's calendar year-end. Dresser's cash
flows in 1998 are measured from December 31, 1997, rather than from the October
31, 1997 balances as reported on the consolidated balance sheets in our 1998
Annual Report.
Operating activities. Cash flows from operating activities used $7 million in
the first six months of 1999, as compared to $144 million provided by operating
activities in the first six months of 1998. Working capital items, which
consists of receivables, inventories, accounts payable and other working
capital, net, used $201 million in the current year compared to $507 million in
the prior year period. In 1999 working capital requirements were lower than the
prior year due to lower levels of business activity. Other, net, which includes
noncurrent assets and liabilities, used $161 million of operating cash in the
first six months of 1999. Included in these changes to working capital and
other, net, are cash outflows for special charges for personnel reductions,
facility closures and integration costs which required approximately $168
million of cash in the first six months of the current year.
Investing activities. Capital expenditures were $267 million for the first
six months of 1999, a decrease of 43% from the same period of the prior year.
The decrease in capital spending primarily reflects the current operating
environment. Capital spending was mostly for equipment and infrastructure for
the Energy Services Group. We also continued our planned investments in our
enterprise-wide information system. Cash flows from investing activities
includes $254 million of the $265 million receivable from the sale of our 36%
interest in M-I L.L.C. that was collected in the second quarter of 1999.
Imputed interest on this receivable of $11 million is included in operating cash
flows.
Financing activities. Cash flows from financing activities were $31 million
in the first six months of 1999 compared to $244 million in the first six months
of 1998. We borrowed $119 million, net of repayments, in short-term funds
consisting of commercial paper and bank loans in the first six months of 1999.
In the same period of 1998, we borrowed $370 million in short-term funds, net of
repayments, consisting of commercial paper and bank loans. Proceeds from
17
<PAGE>
exercises of stock options provided cash flows of $33 million in the first six
months of 1999 compared to $40 million in the same period of the prior year.
We believe we have sufficient borrowing capacity to fund our cash needs. As
of June 1999, we have committed short-term lines of credit totaling $650 million
available and unused, an increase of $100 million from the prior quarter. We
also have other short-term lines totaling $315 million. There were no
borrowings outstanding under any of these facilities. Our combined short-term
notes payable and long-term debt was 33.4% of total capitalization at June 30,
1999 compared to 32.4% at December 31, 1998.
FINANCIAL INSTRUMENT MARKET RISK
- --------------------------------
We are 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, we selectively hedged our foreign currency exposure through the use of
currency derivative instruments. The objective of our hedging is to protect our
cash flows related to sales or purchases of goods or services from fluctuations
in currency rates. The use of derivative instruments include the following
types of market risk:
. volatility of the currency rates,
. tenor or time horizon of the derivative instruments,
. market cycles, and
. the type of derivative instruments used.
We do not use derivative instruments for trading purposes.
We use a statistical model to estimate the potential loss related to
derivative instruments used to hedge the market risk of its foreign exchange
exposure. The model utilizes historical price and volatility patterns to
estimate the change in value of the derivative instruments. Changes in value
could occur from adverse movements in foreign exchange rates for a specified
time period at a specified confidence interval. The model is an undiversified
calculation based on the variance-covariance statistical modeling technique and
includes all foreign exchange derivative instruments outstanding at June 30,
1999. The resulting value at risk of $2 million estimates, with a 95%
confidence interval, the potential loss we could incur in a one-day period from
foreign exchange derivative instruments due to adverse foreign exchange rate
changes.
Our interest rate exposures at June 30, 1999 were not materially changed
from December 31, 1998.
RESTRUCTURING ACTIVITIES
- ------------------------
During the third and fourth quarters of 1998 we incurred special charges
totaling $980 million related to the Dresser merger and industry downturn. The
charges included amounts for asset, personnel, facility, merger transaction and
other related charges. The 1998 special charges include actions necessary to
more efficiently meet the needs of our customers, to eliminate duplicate
capabilities and excess capacity and to position us for the future. These
actions were also taken to integrate our operations into three business
segments, supported by a shared services organization across the entire company.
All business segments, shared services and corporate offices have been
impacted since the Dresser merger by the restructuring activities, including:
. integration of two corporate offices,
. integration of operational and shared services officers and management
teams,
. personnel reductions necessary to match the new business structure and
industry environment,
. integration of businesses and product service lines, including:
- Halliburton Energy Services' drilling operations into Sperry Sun,
- Dresser Oil Tools into Halliburton Energy Services completion
products,
- SubSea, Rockwater and Wellstream within Brown & Root Energy Services,
and
- M.W. Kellogg and Brown & Root Engineering and Construction into
Kellogg Brown & Root,
. integration of facilities across business units and the entire company,
. impairments or write-offs of intangible assets and software,
. impairments or write-offs of excess or duplicate machinery, equipment,
and inventory, and
. integration of shared service support functions.
We believe the management and employees have remained focused on the needs
of our customers during this transitional period, although transitional demands
have required considerable amounts of time, energy and resources. At the time
of the merger, our senior management was named. Operational and shared service
managers were named quickly thereafter. By the end of the second quarter of
1999, merger integration activities were substantially complete.
18
<PAGE>
We expect most restructuring activities accrued for in the 1998 special
charges to be completed and expended by the end of 1999. The exceptions are
reserves for losses on the disposal of facilities held for sale and any actions,
which may require negotiations with outside parties extending past the end of
the year. Through June 30, 1999, we used $278 million in cash for items
associated with the 1998 special charges. We estimate that the unutilized
special charge reserve balance at June 30, 1999 will result in future cash
outlays of approximately $130 million over the remainder of 1999 and possibly
into 2000.
During the second quarter of 1999, we concluded that the total estimated
costs of items included in the special charges, particularly severance and
facility exit costs, were lower than previously estimated. Therefore, we
reversed $47 million of the 1998 special charges.
We have in process a program to exit approximately 500 service,
administrative and manufacturing facilities, including approximately 400 accrued
for in the 1998 special charges. Most of these properties are within the Energy
Services Group.
Since July 1998, approximately 16,200 employees, consultants and contract
personnel have left Halliburton, while approximately 4,100 new personnel have
been hired, resulting in net total personnel reductions of approximately 12,100
through June 30, 1999. A majority of the new personnel were related to
projects, the largest being expansion of the contract to support U.S. military
peacekeeping activities in the Balkans. Approximately 8,800 of the total
personnel reductions through the second quarter of 1999 are associated with the
special charge.
We feel the benefits of the Dresser merger and restructuring activities are
evidenced by our ability to profitably operate in spite of oil and gas industry
conditions that have existed since the second half of 1998. As a result of the
initiatives discussed above, we feel we will ultimately reduce our costs by an
estimated $500 million on an annual basis. We are accomplishing these
reductions primarily through reduced personnel and facility requirements,
enhanced technologies and the efficiencies of common shared services, for
example, procurement, treasury, legal, tax, and accounting.
See Note 9 to the condensed consolidated financial statements for
information on accrued special charges incurred in 1998.
OTHER MERGER RELATED ACTIVITIES
- -------------------------------
We expect to incur total merger related incremental costs of approximately
$125 million that do not qualify as special charges. These expenses include $24
million incurred in the fourth quarter of 1998 and approximately $42 million
incurred during the first six months of 1999. These costs include:
. additional reductions in personnel;
. additional disposal of properties;
. relocating personnel, inventory and equipment as part of facility
consolidation efforts;
. implementing a company-wide common information technology
infrastructure;
. merging engineering work practices;
. harmonizing employee benefit programs; and
. developing common policies and procedures to provide best practices.
During the second quarter of 1999, both Halliburton Energy Services and
Landmark made additional reductions in personnel outside the 1998 special charge
plan.
YEAR 2000 ISSUES
- ----------------
The Year 2000 or Y2K issue is the risk that systems, products and equipment
utilizing date-sensitive software or computer chips with two-digit date fields
will fail to properly recognize the Year 2000. The Year 2000 issue is a problem
for most companies due to the pervasive use of computer systems. Failures by
our software and hardware or that of government entities, service providers,
suppliers and customers could result in interruptions of our business which
could have a material adverse impact on the results of our operations.
Failure to address Year 2000 issues could result in business disruption
that could materially affect our operations. In an effort to minimize potential
business interruptions we continue to develop and refine our Year 2000
contingency plans. Halliburton's Year 2000 program is designed to:
. prevent or minimize the occurrence of Year 2000 problems, and
. limit Halliburton's exposure to potential third party legal actions to
the extent reasonably possible.
19
<PAGE>
Our Year 2000 program. In response to the Year 2000 issue we have
implemented an enterprise-wide Year 2000 program. The program was expanded
after the merger to include Dresser, which had a similar program. The program
is designed to identify, assess and address significant Year 2000 issues in our
key business operations, including among other things:
. products;
. services;
. suppliers;
. business applications;
. engineering applications;
. information technology systems;
. non-information technology systems including systems embedded in
delivery tools and devices and in equipment that controls or monitors
other systems;
. facilities;
. infrastructure; and
. joint venture projects.
Systems. We operate in over 120 countries worldwide, and in over 1,000
locations including offices, manufacturing facilities, warehouses and field
camps. We maintain a Year 2000 database of over 15,000 individual information
technology and non-information technology systems. Non-information technology
items tracked in the database include systems embedded in tools and devices used
to deliver our services, and in equipment that controls or monitors other
systems. We believe that approximately 90 out of the more than 15,000 systems
in our database are significant based upon discussions with managers and our
wide use of the systems. These significant systems are all being addressed
through our Year 2000 program.
Year 2000 progress. For the purposes of this report we have divided our
Year 2000 progress into four phases. The assessment phase includes inventory
and identification of all of our systems and the assessment of the criticality
of each system. The remediation phase includes strategy, planning, and
execution for remediating, upgrading or replacing all of our systems that are
not Year 2000 ready. The testing phase includes both unit testing and system
testing where applicable. The deployment and certification phase includes
delivery of systems to our locations and certification of the readiness of the
systems as deployed in each location.
As of June 30, 1999 we have completed approximately:
. 99% of the assessment phase;
. 92% of the remediation phase;
. 88% of the testing phase; and
. 71% of the deployment and certification phase.
As of June 30, 1999 we assess our overall completion of Year 2000 related
tasks at approximately 84%.
The assessment phase was substantially complete on June 30, 1998. We
estimate the dates of substantial completion of the remaining phases of our Year
2000 program as follows:
. Remediation phase September 30, 1999
. Testing phase October 31, 1999
. Deployment and certification phase November 30, 1999
Year 2000 issue budget and costs. Our Year 2000 program does not depend
upon the allocation of Year 2000 budget funds that could limit necessary
spending. Instead, our management is required to spend the funds necessary to
achieve Year 2000 readiness. We expect to spend between 10% and 15% of our
annual information technology budget on Year 2000 remediation and deployment
costs.
All Year 2000 expenditures are funded from operations and expensed in the
year incurred.
As of June 30, 1999, approximately $35 million has been spent on our Year
2000 program. That amount does not include costs (1) associated with
initiatives that are independent of Year 2000 issues, or (2) associated with our
global implementation of an enterprise-wide business information system which
will replace many of our key finance, administrative, and marketing software
systems during 1999 and 2000. Also not included are any costs associated with
our replacement and standardization of desktop computing equipment and
information technology infrastructure.
We do not maintain precise breakdowns of costs for remediation of software
and remediation of non-information technology systems. Of the approximately $35
million, pre-tax, spent through June 30, 1999, we estimate the cost of
remediation of software and non-information technology systems as follows:
20
<PAGE>
. remediation of software systems $25 million
. remediation of non-software information technology items $6 million
. remediation of non-information technology systems $4 million
We estimate that by January 1, 2000 we will have spent approximately $48
million on Year 2000 issues.
Third party liability. After reviewing our third party liability exposure
related to Year 2000 issues, including:
. an overall assessment of our Year 2000 program performance to date,
. the nature and duration of the warranties and other limitations on
liability traditionally offered, excluded and received by Halliburton's
business units, and
. Year 2000 standards adopted by Halliburton's business units for new
contracts,
we believe that our Year 2000 liability to third parties will not be
material to our business, results of operations or financial condition.
International exposure. Our potential Year 2000 exposure in international
operations is being addressed in two primary ways:
. our international locations are being specifically evaluated for Year
2000 readiness as part of our overall Year 2000 program; and
. through our continuing process of business continuity planning by
location, we are specifically addressing the higher risks associated
with infrastructure providers in less developed countries.
Our goal is to prevent any material failure of internal systems or, to the
extent commercially reasonable, of third parties' systems through preemptive
measures. Many of the goods and services that we provide are delivered at
remote locations not directly tied to basic local infrastructure. We believe
that our business continuity planning process will allow us to provide our
customers at remote locations with goods and services without material adverse
impact on our results of operations.
Suppliers. We utilize more than 20,000 suppliers worldwide. To date, we
have mailed Year 2000 readiness questionnaires to approximately 8,000 suppliers.
We will continue to mail questionnaires through the third and fourth quarters of
1999.
As of June 30, 1999 the overall rate of response to worldwide supplier
inquiries is approximately 35%. Most suppliers respond with a standard response
providing some insight into the nature of the supplier's Year 2000 efforts but
providing no assurances of readiness.
We have identified approximately 600 significant suppliers as being
suppliers that meet one or more of the following criteria:
. the supplier represents over $1 million annually in sales volume to us,
. the supplier is the source of a commodity or product deemed essential,
or
. the supplier is deemed critical to our operations.
Questionnaires regarding Year 2000 readiness have been or will be sent to
each significant supplier. To date approximately 75% of our significant
suppliers have responded to our questionnaire. Follow-up attempts are made to
solicit responses from every significant supplier. Approximately 450 of the 600
significant suppliers have been requested to participate in our Year 2000
supplier meetings. Significant suppliers that participate in our Year 2000
meetings are required to meet with our personnel and to present details of their
world wide Year 2000 readiness effort. Our personnel who are qualified to
evaluate the quality and appropriateness of significant suppliers' Year 2000
efforts attend each meeting. Through June 30, 1999, approximately 230
significant suppliers have attended our Year 2000 meetings.
Approximately 20 of our most critical suppliers have been visited by our
personnel. Those visits include audits related to the supplier's progress
toward Year 2000 readiness. We expect to conduct additional audits in the
remainder of the year.
For any supplier who we feel has a high risk of not being Year 2000 ready,
our businesses are required to take appropriate action and to include risk
mitigation steps in their business continuity plans. Our actions may include
the selection of alternate suppliers or the stockpiling of products or
commodities supplied by high risk suppliers.
Customers. We have more than 7,000 customers in over 120 countries. No
customer outside of our top twenty customers represents more than 1% of our
annual revenue. In 1998 none of our customers exceeded 7% of our annual
revenue. Accordingly, we believe that our top twenty customers are our
significant customers.
Approximately half of our top twenty customers are major oil companies with
operations in numerous countries. The other half is made up primarily of large
national oil companies, governments and a large international chemical company.
Through a combination of face-to-face meetings and review of available public
and web site information, we have
21
<PAGE>
not identified any top twenty customer whose Year 2000 readiness, based upon
public disclosures or disclosures made to our personnel, appears to be in
substantial jeopardy. However, we have not been able to obtain as much
information from governmental customers and national oil companies as we have
from other customers. We have not identified any top twenty customer that is
expected to suffer Year 2000 disruptions that would have a material impact on
our business, results of operations or financial condition.
Worst case scenario for Year 2000 issues. With operations in over 120
countries, we recognize that some Year 2000 risk is inherent in operating in
less developed countries. Based on our reviews and experience we believe our
most reasonably likely worst case Year 2000 scenario to be failure of basic
local infrastructure providers in less developed areas of the world. We do not
believe that Year 2000 readiness of infrastructure providers, including
electricity, gas, water, and communications, in some less developed parts of the
world can be determined with any precision. We believe increased risk to be
most likely in less developed areas of Africa, Asia, and Latin America where,
without regard to Year 2000 issues, periodic infrastructure failures are
relatively common. No one country has been identified as being particularly
likely to suffer increased Year 2000 risk.
Our management believes that Halliburton's overall Year 2000 risk is
reduced by our widely dispersed operations since an infrastructure failure in
one country is not likely to directly impact another country. It is possible
that some of our significant suppliers might not be able to meet their supply
obligations to us in the face of widespread failures of infrastructure providers
in less developed countries. Our results of operations could be materially
harmed in the event of widespread or cascading infrastructure failures.
Business continuity planning. We are preparing to handle our most
reasonably likely worst-case scenario, and lesser disruptions, as well as any
failure within the Company, through business continuity plans. These plans are
designed to provide for development of plans and actions prior to the end of the
year to provide for the continuity of operations, without material disruptions.
Business continuity plans have been or are being prepared by each physical
location worldwide. Our business continuity planning process is expected to be
a continuing process through the end of the year.
Our business continuity planning process includes the possibility that
significant suppliers may not be able to meet supply obligations to us.
Alternative sources of supply have been or are being identified. In addition,
the option of maintaining larger-than-usual inventories of supplies in late 1999
and being correspondingly less dependent on January 2000 deliveries is being
considered where appropriate as part of our business continuity planning
process.
Forward-looking statements relating to the Year 2000. Our discussion
related to the Year 2000 issue includes a number of forward-looking statements
that are based on our best assumptions and estimates as of today. Assumptions
and estimates, which are not necessarily all of the assumptions and estimates,
include our statements concerning:
. estimated timetables for completing the phases of our Year 2000 project;
. estimates of the percentages of work that remains to be performed in
each phase;
. estimates of costs for work that remains to be performed;
. assessments as to which systems are significant;
. identification of potential failures related to Year 2000 issues;
. assessments of the risk of our relationships with third parties; and
. implementation of our business continuity plans.
Year 2000 risk factors. The work that we are doing under our Year 2000
program is focused on risk identification and mitigation, most likely worst case
analyses, and business continuity plans involving significant systems and
relationships with third parties. There are, however, an almost infinite number
of additional risks which are simply not assessable and for which contingency
plans cannot be established. There are risks of failure, for Year 2000 reasons,
of one or more systems or third party relationships which we do not judge to be
individually significant. These failures could cause a cascade of other
failures, which could have a material impact on our results of operation.
Actual results of our Year 2000 effort could differ materially from the
estimates expressed in our forward-looking statements, due to a number of
factors. Factors, which are not necessarily all of the factors that could cause
different results, include:
. our failure to accurately judge which of our systems and relationships
are significant;
. our ability to obtain and retain staff and third party assistance
required to complete work that remains to be performed;
22
<PAGE>
. our ability to complete the work that remains to be performed within the
timetables that we established;
. our ability to locate and correct or replace computer code and systems
embedded in equipment that controls or monitors our operating assets;
. our inability or failure to identify significant Year 2000 issues not
now contemplated or understood; and
. the failure, including infrastructure failures, of third parties to
achieve Year 2000 readiness.
ENVIRONMENTAL MATTERS
- ---------------------
Some of our subsidiaries are involved as potentially responsible parties in
remedial activities to clean up several "Superfund" sites under federal law.
Federal law imposes joint and several liability, if the harm is indivisible,
without regard to fault, the legality of the original disposal or ownership of
the site. It is very difficult to estimate a value for the potential impact of
compliance with environmental protection laws. However, our management believes
that any liability of our subsidiaries for all but one site will not have a
material adverse effect on our results of operations. See Note 6 to the
condensed consolidated financial statements for additional information on the
one site.
ACCOUNTING PRONOUNCEMENTS
- -------------------------
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and for Hedging Activities". This standard requires entities to recognize all
derivatives on the statement of financial position as assets or liabilities and
to measure the instruments at fair value. Accounting for gains and losses from
changes in those fair values are specified in the standard depending on the
intended use of the derivative and other criteria. In June 1999, the FASB
deferred the effective date of Standard No. 133 for one year. Standard No. 133
is now effective for Halliburton beginning January 1, 2001. We are currently
evaluating Standard No. 133 to identify implementation and compliance methods
and have not yet determined the effect, if any, on our results of operations or
financial position.
23
<PAGE>
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
At our Annual Meeting of Stockholders held on May 18, 1999, stockholders were
asked to consider and act upon (1) the election of Directors for the ensuing
year and (2) a proposal to ratify the appointment of Arthur Andersen LLP as
independent accountants to examine the financial statements and books and
records of Halliburton for 1999. The following table sets out, for each matter
where applicable, the number of votes cast for, against or withheld, as well as
the number of abstentions and broker non-votes.
<TABLE>
<CAPTION>
<S> <C> <C>
(1) Election of Directors:
Name of Nominee Votes For Votes Withheld
- -------------------------------- ---------------------- --------------
Anne L. Armstrong 381,186,509 1,673,529
William E. Bradford 381,280,592 1,579,446
Richard B. Cheney 381,358,018 1,502,020
Lord Clitheroe 381,269,315 1,590,723
Robert L. Crandall 381,186,444 1,673,594
Charles J. DiBona 381,227,294 1,632,744
Lawrence S. Eagleburger 377,167,172 5,692,866
W. R. Howell 381,088,385 1,771,653
Ray L. Hunt 381,112,533 1,747,505
Delano E. Lewis 381,229,169 1,630,869
J. Landis Martin 381,156,784 1,703,254
Jay A. Precourt 381,426,046 1,433,992
C. J. Silas 381,294,377 1,565,661
Richard J. Stegemeier 381,187,387 1,672,651
</TABLE>
(2) Proposal to ratify the appointment of Arthur Andersen LLP as independent
accountants to examine the financial statements and books and records of
Halliburton for 1999:
<TABLE>
<CAPTION>
<S> <C>
Number of Votes For 382,004,973
Number of Votes Against 455,186
Number of Votes Abstaining 399,879
Number of Broker Non-Votes 0
</TABLE>
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits
10 Halliburton Company Elective Deferral Plan as amended and restated
effective June 1, 1999 (incorporated by reference to Exhibit 10 to the
Company's Form 10-Q for the quarterly period ended June 30, 1999).
* 27 Amended financial data schedules for the three months ended March 31,
1999 and six months ended June 30, 1999.
* Filed with this Form 10-Q/A
24
<PAGE>
Item 6. Exhibits and Reports on Form 8-K (continued)
- -----------------------------------------------------
(b) Reports on Form 8-K
<TABLE>
<CAPTION>
Date of
Date Earliest
Filed Event Description of Event
- -----------------------------------------------------------------------------------------------------------------------
During the second quarter of 1999:
<S> <C> <C>
April 6, 1999 March 29, 1999 Item 5. Other Events for a press release announcing that Halliburton has
sold its logging-while-drilling and related measurement-while-drilling
business to W-H Energy Services, Inc.
April 21, 1999 April 13, 1999 Item 5. Other Events for a press release announcing substantial completion
of major workforce reductions.
April 28, 1999 April 21, 1999 Item 5. Other Events for a press release announcing Brown & Root Services
provides logistics services to support U.S. forces in Albania.
April 28, 1999 April 26, 1999 Item 5. Other Events for a press release announcing 1999 first quarter
earnings.
May 20, 1999 May 18, 1999 Item 5. Other Events for a press release announcing the 1999 shareholders'
meeting and declaration of the second quarter dividend.
June 9, 1999 May 24, 1999 Item 5. Other Events for a press release announcing that Brown & Root
Services has been awarded a contract by the U.S. Department of State to
perform security improvements at U.S. embassies and consulates.
June 9, 1999 June 4, 1999 Item 5. Other Events for a press release announcing the filing of Form S-4
with the SEC to acquire all of the ordinary shares of PES (International)
Limited common stock.
June 29, 1999 June 16, 1999 Item 5. Other Events for a press release announcing Brown & Root Services
has been selected as the sole preferred bidder to negotiate a U.S. $782.4
million contract to design, build, finance and operate a railway linking
Alice Springs in central Australia to the northern port city of Darwin.
</TABLE>
During the third quarter of 1999 to August 13, 1999:
<TABLE>
<CAPTION>
<S> <C> <C>
July 19, 1999 July 15, 1999 Item 5. Other Events for a press release announcing declaration of the
third quarter dividend.
July 26, 1999 July 22, 1999 Item 5. Other Events for a press release announcing 1999 second quarter
earnings.
Aug 13, 1999 Aug 12, 1999 Item 5. Other Events for a press release announcing the receipt of offers
from Ingersoll-Rand Company to sell all interests in two joint ventures,
Dresser-Rand and Ingersoll-Dresser Pump.
</TABLE>
25
<PAGE>
SIGNATURES
As required by the Securities Exchange Act of 1934, the registrant has
authorized this report to be signed on behalf of the registrant by the
undersigned authorized individuals.
HALLIBURTON COMPANY
Date January 11, 2000 By: /s/ Gary V. Morris
--------------------- ------------------------------
Gary V. Morris
Executive Vice President and
Chief Financial Officer
/s/ R. Charles Muchmore, Jr.
------------------------------
R. Charles Muchmore, Jr.
Vice President and Controller
(Principal Accounting Officer)
26
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Description
- --------------------------------------------------------------------------------------------------------------------
<S> <C>
27 Amended financial data schedules for the three months ended
March 31, 1999 and six months ended June 30, 1999
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains amended summary financial information extracted from
Halliburton Company consolidated financial statements for the three months ended
March 31, 1999 and six months ended June 30, 1999, and is qualified in its
entirety by reference to such statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<CURRENCY> U.S. DOLLARS
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1999
<PERIOD-START> JAN-01-1999 JAN-01-1999
<PERIOD-END> MAR-31-1999 JUN-30-1999
<EXCHANGE-RATE> 1 1
<CASH> 419 336
<SECURITIES> 0 0
<RECEIVABLES> 3,643 3,477
<ALLOWANCES> 0 0
<INVENTORY> 1,268 1,224
<CURRENT-ASSETS> 5,947 5,592
<PP&E> 6,802 6,784
<DEPRECIATION> 3,931 3,956
<TOTAL-ASSETS> 10,808 10,483
<CURRENT-LIABILITIES> 3,671 3,672
<BONDS> 1,365 1,064
0 0
0 0
<COMMON> 1,116 1,118
<OTHER-SE> 2,938 2,972
<TOTAL-LIABILITY-AND-EQUITY> 10,808 10,483
<SALES> 1,024 1,957
<TOTAL-REVENUES> 3,924 7,594
<CGS> 904 1,707
<TOTAL-COSTS> 3,665 7,009
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 36 70
<INCOME-PRETAX> 149 295
<INCOME-TAX> 60 113
<INCOME-CONTINUING> 81 164
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 19 19
<NET-INCOME> 62 145
<EPS-BASIC> 0.14 0.33
<EPS-DILUTED> 0.14 0.33
</TABLE>
