UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 For the fiscal year ended December 31, 2001
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from to
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Commission File Number 1-3492
HALLIBURTON COMPANY
(Exact name of registrant as specified in its charter)
Delaware 75-2677995
(State or other jurisdiction of (I.R.S. Employer
incorporation of organization) Identification No.)
3600 Lincoln Plaza, 500 N. Akard St., Dallas, Texas 75201
(Address of principal executive offices)
Telephone Number - Area code (214) 978-2600
Securities registered pursuant to Section 12(b) of the Act:
Name of each Exchange on
Title of each class which registered
------------------- ----------------
Common Stock par value $2.50 per share New York Stock Exchange
Baroid Corporation 8% Guaranteed Senior Notes due 2003 New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of Common Stock held by nonaffiliates on February 28,
2002, determined using the per share closing price on the New York Stock
Exchange Composite tape of $16.50 on that date was approximately $7,162,000.00.
As of February 28, 2002, there were 435,613,251 shares of Halliburton Company
Common Stock $2.50 par value per share outstanding.
Portions of the Halliburton Company Proxy Statement dated March 19, 2002, are
incorporated by reference into Part III of this report.
PART I
Item 1. Business.
General development of business. Halliburton Company's predecessor was
established in 1919 and incorporated under the laws of the State of Delaware in
1924. Halliburton Company provides a variety of services, products, maintenance,
engineering and construction to energy, industrial and governmental customers.
See Note 2 to the financial statements for information related to recent
acquisitions and dispositions.
Financial information about business segments. We operate in two business
segments:
- Energy Services Group; and
- Engineering and Construction Group.
Dresser Equipment Group is presented as discontinued operations through
March 31, 2001 as a result of the sale in April 2001 of its remaining
businesses. See Note 4 to the financial statements for financial information
about our business segments.
Description of services and products. Our ability to mix, bundle or
integrate products and services to meet the varied needs of our customers is of
increasing importance in the highly competitive environment in which we operate.
We believe that, based upon our customers' requirements, our future success will
depend, in part, upon our ability to offer total capabilities and solutions on a
global, industry-encompassing scale as well as discrete services and products.
Our business strategy is focused on continuing to maintain global leadership in
providing our customers discrete services, products, engineering, construction
and maintenance which can be combined with our project management capabilities
to provide our customers a wide range of integrated solutions. This strategy is
dependent upon four key goals:
- technological leadership;
- operational excellence;
- innovative business relationships; and
- a dynamic workforce.
We offer a broad suite of products and services through the two business
segments. The following summary describes our services and products for each
business segment.
ENERGY SERVICES GROUP
The Energy Services Group segment consists of Halliburton Energy Services,
Landmark Graphics and operations through various product service lines in
Surface/Subsea and major projects. This segment provides a wide range of
discrete services and products, as well as integrated solutions to customers for
the exploration, development and production of oil and gas. The segment serves
major, national and independent oil and gas companies throughout the world.
Halliburton Energy Services provides discrete products and services and
integrated solutions ranging from the initial evaluation of producing formations
to drilling, completion, production and well maintenance. Major product and
service line offerings include:
- pressure pumping, including:
- cementing,
- production enhancement (fracturing and acidizing), and
- tools and testing;
- logging and perforating;
- drilling systems and services;
- drilling fluids systems;
- drill bits;
- completion products;
- integrated solutions; and
- reservoir description.
Cementing is the process used to bond the well and well casing while
isolating fluid zones and maximizing wellbore stability. This is accomplished by
pumping cement and chemical additives to fill the space between the casing and
the side of the wellbore. Our cementing service line also provides casing
equipment and services.
1
Production enhancement optimizes oil and gas reservoirs through a variety
of pressure pumping services, including: fracturing and acidizing, sand control,
coiled tubing, well control, nitrogen services and specialty services. These
services are used to clean out a formation or to fracture formations to allow
increased oil and gas production.
Tools and testing includes tubing-conveyed perforating products and
services, drill stem and other well testing tools, data acquisition services and
production applications.
Logging products and services include our Magnetic Resonance Imaging
Logging (MRIL(R)), high-temperature logging, as well as traditional open-hole
and cased-hole logging tools. MRIL(R) tools apply medical diagnostic magnetic
resonance imaging technology to the evaluation of subsurface rock formations in
newly drilled oil and gas wells. Our high temperature logging tools combine
advanced electronic and mechanical tool designs, quality materials and a
telemetry system to operate in high temperature and high pressure downhole
environments. Open-hole tools provide information on well visualization,
formation evaluation (including resistivity, porosity, lithology and
temperature), rock mechanics and sampling. Cased-hole tools provide cementing
evaluation, reservoir monitoring, pipe evaluation, pipe recovery and
perforating.
Drilling systems and services are provided by Sperry-Sun Drilling Systems.
These services include directional and horizontal drilling,
measurement-while-drilling, logging-while-drilling, multilateral wells and
related completion systems, and rig site information systems. Our drilling
systems feature increased bit stability, directional control, borehole quality,
lower vibration, and higher rates of penetration while drilling directional
wells. In 2001 we introduced the Geo-Pilot(TM), an advanced point-the-bit rotary
steerable system that expands directional drilling capabilities while reducing
overall drilling costs.
Baroid provides fluid systems and performance additives for oil and gas
drilling, completion and workover operations. In addition, Baroid sells products
to a wide variety of industrial customers.
Drill bits, offered by Security DBS, include roller cone rock bits, fixed
cutter bits, coring equipment and services, and other downhole tools used to
drill wells.
Completion products include subsurface safety valves and flow control
equipment, surface safety systems, packers and specialty completion equipment,
production automation, well screens, well control services, and slickline
equipment and services.
Integrated solutions provides value-added oilfield project management and
solutions to independent, integrated, and national oil companies. Integrated
solutions enhance field deliverability and maximize the customer's return on
investment. These services leverage all Halliburton Energy Services product
service lines and technologies as well as overall project management
capabilities.
Reservoir description is composed of two groups - geoscience and
engineering, and computed products. The geoscience and engineering group
provides a comprehensive suite of products including opportunity assessment,
reservoir characterization, field development planning, production enhancement,
reservoir surveillance, and reservoir management. The computed products group
provides interpretation for wellbore imaging, waveform sonics, cement
evaluation, production, and a variety of open and cased-hole information
evaluation logs. By combining reservoir description with field service
capabilities and technology, Halliburton Energy Services provides complete
reservoir solutions.
Landmark Graphics is the leading supplier of integrated exploration and
production software information systems as well as professional and data
management services for the upstream oil and gas industry. Landmark's software
transforms vast quantities of seismic, well log and other data into detailed
computer models of petroleum reservoirs to achieve optimal business and
technical decisions in exploration, development and production activities.
Landmark's broad range of professional services enable our worldwide customers
to optimize technical, business and decision processes. Data management services
provides efficient storage, browsing and retrieval of large volumes of
exploration and petroleum data. The products and services offered by Landmark
integrate data workflows and operational processes across disciplines including
geophysics, geology, drilling, engineering, production, economics, finance and
corporate planning, and key partners and suppliers.
Surface/Subsea and major projects product service lines provide
construction, installation and servicing of subsea facilities; flexible pipe for
offshore applications; pipeline services for offshore customers; pipecoating
services; feasibility, conceptual and front-end engineering and design, detailed
engineering, procurement, construction site management, commissioning, start-up
and debottlenecking of both onshore and offshore facilities;
2
and large integrated engineering, procurement, and construction projects
containing both surface and sub-surface components.
ENGINEERING AND CONSTRUCTION GROUP
The Engineering and Construction Group segment, operating as Halliburton
KBR, provides a wide range of services to energy and industrial customers and
government entities worldwide.
Halliburton KBR includes the following five product lines:
- Onshore operations comprises engineering and construction
activities, including liquefied natural gas, ammonia, crude oil
refineries, and natural gas plants;
- Offshore operations includes specialty offshore deepwater
engineering and marine technology and worldwide fabrication
capabilities;
- Government operations provides operations, maintenance and
logistics activities for government facilities and installations;
- Operations and maintenance provides services for private sector
customers, primarily industrial, hydrocarbon and commercial
applications; and
- Asia Pacific operations, based in Australia, provides civil
engineering and consulting services.
Markets and competition. We are one of the world's largest diversified
energy services and engineering and construction services companies. Our
services and products are sold in highly competitive markets throughout the
world. Competitive factors impacting sales of our services and products include:
price, service (including the ability to deliver services and products on an "as
needed, where needed" basis), product quality, warranty and technical
proficiency. While we provide a wide range of discrete services and products, a
number of customers have indicated a preference for integrated services and
solutions. In the case of the Energy Services Group, integrated services and
solutions relate to all phases of exploration, development and production of
oil, natural gas and natural gas liquids. In the case of the Engineering and
Construction Group, integrated services and solutions relate to all phases of
design, procurement, construction, project management and maintenance of
facilities primarily for energy and government customers. Demand for these types
of integrated services and solutions is based primarily upon quality of service,
technical proficiency, price and value created.
We conduct business worldwide in over 100 countries. Since the markets for
our services and products are vast and cross numerous geographic lines, a
meaningful estimate of the number of competitors cannot be made. The industries
we serve are highly competitive and we have many substantial competitors.
Generally, our services and products are marketed through our own servicing and
sales organizations. A small percentage of sales of the Energy Service Group's
products is made through supply stores and third-party representatives.
Operations in some countries may be adversely affected by unsettled
political conditions, acts of terrorism, expropriation or other governmental
actions, and exchange control and currency problems. We believe the geographic
diversification of our business activities reduces the risk that loss of
operations in any one country would be material to the conduct of our operations
taken as a whole. Information regarding our exposures to foreign currency
fluctuations, risk concentration, and financial instruments used to minimize
risk is included on pages 23 and 24 under the caption "Financial Instrument
Market Risk" and in Note 16 to the financial statements.
Customers and backlog. Our revenues from continuing operations during the
past three years were mainly derived from the sale of products and services to
the energy industry. Sales of products and services to the energy industry in
2001 represented 85% of revenues from continuing operations compared to 84% in
2000 and 83% in 1999. The following schedule summarizes the backlog from
continuing operations of engineering and construction projects at December 31,
2001 and 2000:
Millions of dollars 2001 2000
- -----------------------------------------------------------------------------
Firm orders $ 8,118 $ 7,652
Government orders firm but not yet funded,
letters of intent and contracts awarded but
not signed 1,794 1,751
- -----------------------------------------------------------------------------
Total $ 9,912 $ 9,403
=============================================================================
3
We estimate that 52% of the total backlog existing at December 31, 2001
will be completed during 2002. Approximately 45% of total backlog relates to
fixed-price contracts with the remaining 55% relating to cost reimbursable
contracts. For contracts which are not for a specific amount, backlog is
estimated as follows:
- operations and maintenance contracts which cover multiple years
are included in backlog based upon a rolling estimate of the work
to be provided over the next twelve months; and
- government contracts which cover a broad scope of work up to a
maximum value are included in backlog at the estimated amount of
work to be completed under the contract based upon periodic
consultation with the customer.
For projects where we act as project manager, we only include our scope of
each project in backlog. For projects related to unconsolidated joint ventures,
we only include our percentage ownership of each joint venture's backlog. Our
backlog excludes contracts for recurring hardware and software maintenance and
support services offered by Landmark. Backlog does not indicate what future
operating results will be because backlog figures are subject to substantial
fluctuations. Arrangements included in backlog are in many instances extremely
complex, nonrepetitive in nature and may fluctuate in contract value and timing.
Many contracts do not provide for a fixed amount of work to be performed and are
subject to modification or termination by the customer. The termination or
modification of any one or more sizeable contracts or the addition of other
contracts may have a substantial and immediate effect on backlog.
Raw materials. Raw materials essential to our business are normally readily
available. Where we are dependent on a single supplier for materials essential
to our business, we are confident that we could make satisfactory alternative
arrangements in the event of an interruption in supply.
Research, development and patents. We maintain an active research and
development program. The program improves existing products and processes,
develops new products and processes and improves engineering standards and
practices that serve the changing needs of our customers. Information relating
to our expenditures for research and development is included in Note 1 and Note
4 to the financial statements.
We own a large number of patents and have pending a substantial number of
patent applications covering various products and processes. We are also
licensed under patents owned by others. We do not consider a particular patent
or group of patents to be material to our business operations.
Seasonality. Weather and natural phenomena can temporarily affect the
performance of our services, but the widespread geographical locations of our
operations serve to mitigate these. Examples of how weather can impact our
business include:
- the severity and duration of the winter in North America can have
a significant impact on gas storage levels and drilling activity
for natural gas;
- the timing and duration of the spring thaw in Canada directly
affects activity levels due to road restrictions;
- typhoons and hurricanes can disrupt offshore operations; and
- severe weather during the winter months normally results in
reduced activity levels in the North Sea.
Employees. At December 31, 2001, we employed approximately 85,000 people
worldwide compared to 93,000 at December 31, 2000, which included about 9,000
related to discontinued operations.
Environmental regulation. We are subject to various environmental laws and
regulations. Compliance with these requirements has not substantially increased
capital expenditures, adversely affected our competitive position or materially
affected our earnings. We do not anticipate any material adverse effects in the
foreseeable future as a result of existing environmental laws and regulations.
See Note 9 to the financial statements.
4
Item 2. Properties.
We own or lease numerous properties in domestic and foreign locations. The
following locations represent our major facilities:
Owned/
Location Leased Sq. Footage Description
- ----------------------------------------------------------------------------------------------------------------------
Energy Services Group
North America
Duncan, Oklahoma Owned 603,000 Four locations which include manufacturing capacity
totaling 442,000 square feet. The manufacturing
facility is the main manufacturing site for the
cementing, fracturing and acidizing equipment used
by our pressure pumping product service line.
Duncan facilities also include a technology and
research center, training facility, administrative
offices, and warehousing.
Houston, Texas Owned 690,000 Two suburban campus locations. One campus is on 89
acres consisting of office, training, test well,
warehouse, manufacturing and laboratory facilities.
The manufacturing facility, which occupies 115,000
square feet, produces highly specialized down hole
equipment for our logging and drilling systems
product service lines. The other campus is a
manufacturing facility with limited office,
laboratory and warehouse space that primarily
produces fixed cutter drill bits.
Houston, Texas Owned 593,000 A campus facility that is the home office for the
Energy Services Group.
Carrollton, Texas Owned 792,000 Manufacturing facility including warehouses,
engineering and sales, testing, training and
research. The manufacturing plant produces
equipment for the completion products product
service line including surface and sub-surface
safety valves and packer assemblies.
Dallas, Texas Owned 352,000 Manufacturing facility includes office, laboratory
and warehouse space that primarily produces roller
cone drill bits.
Alvarado, Texas Owned 238,000 Manufacturing facility including some office and
warehouse space. The manufacturing facility
produces perforating products and exploratory and
formation evaluation tools for the tools, testing
and tubing conveyed perforating and logging product
service lines.
Panama City, Florida Leased 180,000 Manufacturing facility including office and
warehouse/storage space, that produces flexible pipe
used in our Surface/Subsea product service lines.
5
Owned/
Location Leased Sq. Footage Description
- ----------------------------------------------------------------------------------------------------------------------
Europe/Africa
Manchester, United Kingdom Owned 244,000 Primarily a manufacturing facility which produces
positive displacement pumps and processing units for
use in general industry, wastewater and oilfield
applications.
Newcastle, United Kingdom Owned 453,000 Manufacturing facility including office and
Leased 11,000 warehouse/storage space, that produces flexible pipe
used in our Surface/Subsea product service lines.
Arbroath, United Kingdom Owned 119,000 Manufacturing site that produces equipment for the
completions products product service line.
Aberdeen, United Kingdom Owned 1,216,000 A total of 26 sites including 866,000 square feet of
Leased 365,000 manufacturing capacity used by various product
service lines.
Tananger, Norway Leased 319,000 Service center with workshops, testing facilities,
warehousing and office facilities supporting the
Norwegian North Sea operations.
Asia Pacific
Singapore Owned 102,000 A manufacturing facility that produces surface and
subsurface safety valves and packer assemblies for
the completions products product service line.
Engineering and Construction Group
North America
Houston, Texas Leased 851,000 Engineering and project support center, as well as
the home office of Halliburton KBR which occupies 34
full floors in 2 office buildings. One of these
buildings is owned by a joint venture in which we
have a 50% ownership.
Europe/Africa
Leatherhead, United Kingdom Owned 226,000 Engineering and project support center on 55 acres
in suburban London.
Corporate
North America
Houston, Texas Owned 1,017,000 A campus facility occupying 135 acres utilized
primarily for administrative and support personnel.
Approximately 221,000 square feet is dedicated to
warehousing and construction equipment maintenance
and storage facilities.
Dallas, Texas Leased 26,000 Office facilities for our corporate headquarters.
We have two idle manufacturing facilities that we own in Longview, Texas
with 151,000 square feet. These facilities were written down to fair market
value in our 1998 special charge.
6
In addition, we have 153 international and 125 domestic field camps from
which Halliburton Energy Services delivers its products and services. We also
have numerous small facilities which include sales offices, project offices and
bulk storage facilities throughout the world. We own or lease marine fabrication
facilities covering approximately 761 acres in Texas, England and Scotland.
We have mineral rights to proven and prospective reserves of barite and
bentonite. These rights include leaseholds, mining claims and property owned in
fee. Based on the number of tons of each of the above minerals consumed in
fiscal year 2001, we estimate our proven reserves are sufficient for operations
for the foreseeable future.
All properties that we currently occupy are deemed suitable for their
intended use.
We have office space in Dallas, Texas totaling 80,000 square feet that is
fully sublet.
7
Item 3. Legal Proceedings.
Information relating to various commitments and contingencies is described
in Management's Discussion and Analysis of Financial Condition and Results of
Operations and Note 9 to the financial statements.
Item 4. Submission of Matters to a Vote of Security Holders.
There were no matters submitted to a vote of security holders during the
fourth quarter of 2001.
8
Executive Officers of the Registrant.
The following table indicates the names and ages of the executive officers
of the registrant as of February 1, 2002, along with a listing of all offices
held by each during the past five years:
Name and Age Offices Held and Term of Office
- ------------ -------------------------------
Jerry H. Blurton Vice President and Treasurer, since July 1996
(Age 57)
Margaret E. Carriere Vice President - Human Resources, since September 2000
(Age 50) Vice President and Secretary of Halliburton Energy Services, Inc., February 2000
to August 2000
Law Department Manager of Integration & Development of Halliburton
Energy Services, Inc., October 1998 to February 2000
Region Chief Counsel (London) Europe/Africa Law Department of Halliburton
Energy Services, Inc., May 1994 to September 1998
* Lester L. Coleman Executive Vice President and General Counsel, since May 1993
(Age 59)
* Douglas L. Foshee Executive Vice President and Chief Financial Officer, since August 2001
(Age 42) Chairman, President and CEO of Nuevo Energy Company, July 1997 to May 2001
President and CEO of Torch Energy Advisors, Inc., May 1995 to July 1997
* Robert R. Harl Chief Executive Officer of Kellogg Brown & Root, Inc., since March 2001
(Age 51) President of Kellogg Brown & Root, Inc., since October 2000
Vice President of Kellogg Brown & Root, Inc., March 1999 to October 2000
Chief Executive Officer and President of Brown & Root Energy Services Division
of Kellogg Brown & Root, Inc., April 2000 to February 2001
Chief Executive Officer of Brown & Root Services Division of Kellogg Brown &
Root, Inc., January 1999 to April 2000
Chief Executive Officer and President of Brown & Root Services Corporation,
November 1996 to January 1999
Vice President of Brown & Root, Inc., July 1989 to July 1998
Robert F. Heinemann Vice President and Chief Technology Officer, since February 2000
(Age 48) Vice President of Mobil Technology Company and General Manager of
Mobil Exploration and Producing Technical Center, 1997 to February 2000
Manager of Surface Engineering and Upstream Strategic Research of Mobil
Technology Company, 1996 to 1997
Arthur D. Huffman Vice President and Chief Information Officer, since August 2000
(Age 49) Chief Information Officer of Group Air Liquide, 1997 to August 2000
Vice President - Information Technology of Air Liquide America Corporation,
1995 to 1997
9
Executive Officers of the Registrant (continued)
Name and Age Offices Held and Term of Office
- ------------ -------------------------------
* David J. Lesar Chairman of the Board, President and Chief Executive Officer, since August 2000
(Age 48) Director of Registrant, since August 2000
President and Chief Operating Officer, May 1997 to August 2000
Executive Vice President and Chief Financial Officer, August 1995 to May 1997
Chairman of the Board of Kellogg Brown & Root, Inc., January 1999 to August 2000
President and Chief Executive Officer of Brown & Root, Inc., September 1996 to
December 1998
* Gary V. Morris Executive Vice President, since August 2001
(Age 48) Executive Vice President and Chief Financial Officer, May 1997 to August 2001
Senior Vice President - Finance, February 1997 to May 1997
Senior Vice President, May 1996 to February 1997
R. Charles Muchmore, Jr. Vice President and Controller, since August 1996
(Age 48)
* Edgar Ortiz Chief Executive Officer and President of Energy Services Group,
(Age 59) since April 2000
Executive Vice President of Halliburton Energy Services, Inc., since June 2000
Senior Vice President of Halliburton Energy Services, Inc., December 1997 to
June 2000
Vice President of Halliburton Energy Services, Inc., February 1997 to
December 1997
President of Halliburton Energy Services Division of Halliburton Energy
Services, Inc., November 1997 to March 2000
Senior Vice President - Global Operations of Halliburton Energy Services
Division of Halliburton Energy Services, Inc., April 1997 to November 1997
Vice President - Latin America Region of Halliburton Energy Services
Division of Halliburton Energy Services, Inc., October 1994 to April 1997
* Members of the Policy Committee of the registrant.
There are no family relationships between the executive officers of the
registrant.
10
PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholder
Matters.
Halliburton Company's common stock is traded on the New York Stock Exchange
and the Swiss Exchange. Information relating to market prices of common stock
and quarterly dividend payment is included under the caption "Quarterly Data and
Market Price Information" on pages 72 and 73 of this annual report. Cash
dividends on common stock for 2001 and 2000 were paid in March, June, September,
and December of each year. Our Board of Directors intends to consider the
payment of quarterly dividends on the outstanding shares of our common stock in
the future. The declaration and payment of future dividends, however, will be at
the discretion of the board of directors and will depend upon, among other
things:
- future earnings;
- general financial condition and liquidity;
- success in business activities;
- capital requirements; and
- general business conditions.
At December 31, 2001, there were approximately 25,100 shareholders of
record. In calculating the number of shareholders, we consider clearing agencies
and security position listings as one shareholder for each agency or listing.
Item 6. Selected Financial Data.
Information relating to selected financial data is included on pages 69
through 71 of this annual report.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Information relating to management's discussion and analysis of financial
condition and results of operations is included on pages 13 through 27 of this
annual report.
Item 7(a). Quantitative and Qualitative Disclosures About Market Risk.
Information relating to market risk is included in management's discussion
and analysis of financial condition and results of operations under the caption
"Financial Instrument Market Risk" on pages 23 and 24 of this annual report.
11
Item 8. Financial Statements and Supplementary Data.
Page No.
Responsibility for Financial Reporting 28
Report of Arthur Andersen LLP, Independent Public Accountants 29
Consolidated Statements of Income for the years ended December 31, 2001, 2000 and 1999 30
Consolidated Balance Sheets at December 31, 2001 and 2000 31
Consolidated Statements of Shareholders' Equity for the years ended December 31, 2001, 2000 and 1999 32-33
Consolidated Statements of Cash Flows for the years ended December 31, 2001, 2000 and 1999 34
Notes to Annual Financial Statements 35-68
1. Significant Accounting Policies 35-37
2. Acquisitions and Dispositions 37-38
3. Discontinued Operations 38-39
4. Business Segment Information 39-42
5. Inventories 42
6. Property, Plant and Equipment 42
7. Related Companies 42-43
8. Lines of Credit, Notes Payable and Long-Term Debt 43-44
9. Commitments and Contingencies 44-50
10. Income Per Share 51
11. Engineering and Construction Reorganization 51-52
12. Change in Accounting Method 52
13. Income Taxes 53-54
14. Common Stock 55-57
15. Series A Junior Participating Preferred Stock 57
16. Financial Instruments and Risk Management 57-58
17. Retirement Plans 58-62
18. Dresser Industries, Inc. Financial Information 62-68
Quarterly Data and Market Price Information (Unaudited) 72-73
The related financial statement schedules are included under Part IV, Item
14 of this annual report.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
12
HALLIBURTON COMPANY
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 Company and its subsidiaries. We explain:
- factors and risks that impact our business;
- why our earnings and expenses for the year 2001 differ from 2000
and why our earnings and expenses for 2000 differ from 1999;
- capital expenditures;
- factors that impacted our cash flows; and
- other items that materially affect our financial condition or
earnings.
BUSINESS ENVIRONMENT
Our business is organized around two business segments:
- Energy Services Group; and
- Engineering and Construction Group.
We currently operate in over 100 countries throughout the world, providing
a comprehensive range of discrete and integrated products and services to the
energy industry, and to other industrial and governmental customers. The
majority of our consolidated revenues is derived from the sale of services and
products, including engineering and construction activities, to large oil and
gas companies. These services and products are used throughout the energy
industry, from the earliest phases of exploration and development of oil and gas
reserves through the refining and distribution process.
The industries we serve are highly competitive with many substantial
competitors for each segment. No country other than the United States or the
United Kingdom accounts for more than 10% of our operations. Unsettled political
conditions, acts of terrorism, expropriation or other governmental actions,
exchange controls or currency devaluation may result in increased business risk
in any one country. We believe the geographic diversification of our business
activities reduces the risk that loss of business in any one country would be
material to our consolidated results of operations.
Halliburton Company
Spending on exploration and production activities and investments in
capital expenditures for refining and distribution facilities by large oil and
gas companies have a significant impact on the activity levels within our two
business segments. Throughout the first part of 2001, increased spending by
large oil and gas companies contributed to higher levels of worldwide drilling
activity, especially gas drilling in the United States. General business
conditions in the United States began to decline during the third quarter. The
events of September 11 accelerated a global economic recession which in turn
adversely impacted the energy industry, particularly in the United States.
Reduced demand for aviation fuel and increasing natural gas storage levels, due
to weakened demand for industrial and residential natural gas, resulted in
significant decreases in North American oil and natural gas drilling.
Although down, crude oil prices have remained above threshold levels that
our customers use to justify their spending on capital and drilling projects.
Generally, major oil and gas field development projects, particularly deepwater
projects in the Gulf of Mexico, West Africa and Brazil as well as downstream
energy projects, have longer lead times. The economics of these projects are
based on longer-term commodity prices. Once started, projects of this type are
less likely to be delayed due to fluctuating short-term prices.
We expect United States gas drilling activity to continue declining into
the second quarter of 2002 due to the slow global economy and unseasonably warm
winter. We expect gas drilling activity to begin recovering in the latter part
of the year. If prices for oil remain stable as compared to year-end prices, we
expect major oilfield development projects to continue providing international
opportunities. Over the longer-term, we expect increased global demand for oil
and natural gas, additional customer spending to replace depleting reserves and
our continued technological advances to provide growth opportunities for our
products and services.
13
Energy Services Group
Strong natural gas and crude oil drilling activity during the first nine
months contributed to increased demand for the products and services provided by
the Energy Services Group. Activity was especially strong in oilfield services
within the United States, reflecting increased levels of drilling for natural
gas. The rotary rig count in the United States continued to increase throughout
the first half of the year and averaged 1,206 rigs in the first nine months of
2001. This represents an increase of 40% over the average for the first nine
months of 2000. In the United States drilling activity for gas remained strong,
posting a 44% increase over the average for the first nine months of 2000. Henry
Hub gas prices for the first nine months of 2001 averaged $4.62/MCF as compared
to $3.54/MCF average for the first nine months of 2000. Increases in
international rig activity also continued through the first nine months of 2001,
up 19% compared to the first nine months of 2000. All geographic regions
experienced higher activity levels, which allowed us to increase our utilization
of equipment and personnel. This higher utilization resulted in better
profitability and opportunities to increase prices, especially within the United
States.
During the latter part of 2001, drilling activity within the United States,
primarily land-based gas rigs, began to significantly decline. Henry Hub gas
prices for the fourth quarter of 2001 averaged $2.42/MCF, almost 50% lower than
the average for the first nine months of 2001. For the month of December 2001,
the United States natural gas rig count averaged 754, down 100 rigs from
December 2000 and down 304 rigs from the peak in July 2001. United States rotary
rig count for the fourth quarter of 2001 was down 19% compared to third quarter
of 2001 and down 6% compared to the fourth quarter of 2000. At the same time,
the international rig count averaged 748 rigs for the fourth quarter of 2001 and
was down 1% compared to the third quarter of 2001, and increased 5% compared to
the fourth quarter of 2000. Natural gas prices for 2002 are expected to continue
to be weak in the first half of the year due to current high gas storage levels,
caused by an abnormally warm winter and a slow economy in the United States, but
then improve in the second half of the year. Timing of the recovery of natural
gas prices, which will lead to increased drilling activity depends, upon
depletion of existing reserves and future gas storage levels.
We expect oil prices to range between $17 and $22 per barrel in 2002. We
believe this range will support international activity at or just below current
levels. The outlook for world oil demand growth is highly uncertain due to the
slowdown in the global economy and the length of the recession in the United
States. In 2002 worldwide exploration and production spending is expected to
decrease with most of the decrease occurring in the United States and Canada.
We expect that recent declines in United States rig counts and economic
uncertainty within the United States will result in short-term declines in
revenues and operating income within the segment. The price increases we
implemented in late 2000 and during 2001 combined with our efforts to manage
costs should partially offset lower activity levels and pressures by competitors
and customers to increase discounts. The production enhancement product service
line, due to its dependence on United States gas drilling, is expected to be
significantly impacted by the current slow down in natural gas drilling. Our
drilling systems and completion products product service lines have a large
percentage of their business outside the United States and are also heavily
involved in deepwater oil and gas developments. These product service lines are
expected to remain relatively strong.
Engineering and Construction Group
Our Engineering and Construction Group did not benefit from the positive
factors which provided opportunities for growth in the Energy Services Group in
the first part of 2001. Both groups provide products and services to many of the
same customers. However, oilfield service activities, especially land-based gas
drilling activity in the United States, is more short-term focused as compared
to the long-term nature of most major engineering and construction projects. The
downturn in the energy industry that began in 1998 led our customers to severely
curtail many large engineering and construction projects during 2000 and into
2001. During this time, a series of mergers and consolidations among our major
customers also reduced our customers' levels of investment in refining and
distribution facilities as they evaluated and maximized use of combined
capacities. Due to the lack of opportunities existing throughout 2000, combined
with an extremely competitive global engineering and construction environment,
we restructured our Engineering and Construction Group in late 2000 and the
first quarter of 2001 to facilitate operational efficiencies and reduce costs.
Engineering, construction, fabrication, and project management capabilities are
now part of one operating group - Halliburton KBR.
14
In the latter part of the third quarter and throughout the fourth quarter
of 2001 we saw a slowdown of the economy. The current global economic slowdown
is expected to last until the second half of 2002. Soft demand in the first half
of 2002 will continue to delay energy related project awards, or reduce the
scope of existing projects, especially for olefins and chemicals projects.
Although slower economies and lower oil and gas prices may delay some projects,
we expect an increasing need for security and government defense and
infrastructure projects. Worldwide tightening of sulfur content in gasoline and
diesel and other new environmental regulations are likely to require changes in
refinery configurations and the addition of new process units in the long-term.
We remain optimistic about our opportunities in liquefied natural gas and
gas-to-liquids. Our optimism is based on anticipated new projects as well as the
front-end engineering and initial work contracts for liquefied natural gas
projects we received in late 2001. We expect activity levels within the
Engineering and Construction Group to remain about the same in 2002 as compared
with 2001. This expectation is based upon our:
- technologies and proven capabilities on complex projects;
- recent and pending project awards; and
- current backlog and prospects, especially for onshore and
government operations and infrastructure projects.
RESULTS OF OPERATIONS IN 2001 COMPARED TO 2000
REVENUES
Increase/
Millions of dollars 2001 2000 (Decrease)
- -------------------------------------------------------------------------------
Energy Services Group $ 8,722 $ 6,776 $ 1,946
Engineering and Construction Group 4,324 5,168 (844)
- -------------------------------------------------------------------------------
Total revenues $ 13,046 $ 11,944 $ 1,102
===============================================================================
Consolidated revenues for 2001 were $13.0 billion, an increase of 9%
compared to 2000. International revenues comprised 62% of total revenues in 2001
and 66% in 2000 as activity and pricing increased in our Energy Services Group
more rapidly in the United States particularly in the first half of 2001. Our
Engineering and Construction Group revenues, which did not benefit from the
positive factors contributing to the growth of the Energy Services Group
decreased 16%. Engineering and construction projects are long-term in nature and
customers continue to delay major projects with the slowdown in the economy
occurring in the latter part of 2001.
Energy Services Group revenues increased by $1.9 billion, or 29%, in 2001
from 2000. International revenues were 58% of the total segment revenues in 2001
compared to 62% in 2000. Revenues in 2001 from our oilfield services product
service lines were $6.8 billion. Our oilfield services product service lines
experienced revenue growth of 29% despite a 14% decline in oil prices and a 3%
decrease in natural gas prices between December 2000 and December 2001. The
revenue increase was primarily due to higher drilling activity and pricing
improvements, particularly in the United States. Revenues increased across all
product service lines and geographic regions. Our pressure pumping product
service lines experienced growth of 34% in 2001 as compared to 2000. Logging,
drilling services and drilling fluids revenues increased approximately 28%, and
drill bit revenues were 19% higher in 2001 as compared to 2000. Completion
products revenues increased 13%. Logging and drilling services revenues
increases occurred primarily in the United States, as the product service lines
benefited from higher prices and increased drilling activity. Geo-Pilot(TM) and
other new products introduced in the drilling services product service line
further contributed to the improved revenue in 2001. Drilling fluid revenues
increased in 2001 with higher activity levels in the Gulf of Mexico.
Geographically, all regions within the oilfield service product service lines
prospered with North America revenues increasing 37% from 2000 to 2001. Pressure
pumping revenues in North America were 48% higher in 2001 compared to 2000
primarily due to higher levels of drilling activity. Revenues from Latin America
increased 27% with significant increases in Venezuela and Brazil. Europe/Africa
and Middle East revenues were about 20% higher in 2001 than 2000, particularly
in Russia and Egypt. Revenues for the remainder of the segment of $1.9 billion
increased by $400 million, or 27%, primarily due to a large multi-year project
in Brazil which began in the third quarter of 2000. Integrated exploration and
15
production information systems revenues were higher by 19% partially due to the
acquisition of PGS Data Management as well as growth in software sales and
professional services.
Engineering and Construction Group revenues decreased $844 million, or 16%,
from 2000 to 2001. The decline is primarily due to the completion of several
large international onshore and offshore projects which have not yet been fully
replaced with new project awards and delays in start-ups of new projects.
International revenues were approximately 71% in 2001 as compared to 72% in
2000. On a percentage basis, revenues declined about the same inside and outside
of North America. Revenues for the Asia/Pacific region were down over 40% due to
the effects of completing two major projects, partially offset by a new
liquefied natural gas project and the start-up of construction on a railway in
Australia. In Europe/Africa, revenues were down 6%. The decline was primarily
due to the completion of a major project in Norway and lower activity on the
logistical support contract in the Balkans which moved to the sustainment phase
in late 2000. The decline was partially offset by increases in activities at our
shipyard in the United Kingdom. North American revenues declined in 2001
partially due to the completion of highway and paving construction jobs and the
baseball stadium in Houston. These declines in North America were partially
offset by a slight increase in operations and maintenance revenues as our
customers focus on maintaining current facilities and plant operations rather
than adding new facilities.
OPERATING INCOME
Increase/
Millions of dollars 2001 2000 (Decrease)
- -----------------------------------------------------------------------------------
Energy Services Group $ 1,015 $ 582 $ 433
Engineering and Construction Group 143 (42) 185
General corporate (74) (78) 4
- -----------------------------------------------------------------------------------
Operating income $ 1,084 $ 462 $ 622
===================================================================================
Consolidated operating income increased $622 million, or 135%, from 2000 to
2001. In 2000 our results of operations include two significant items: an $88
million pretax gain on the sale of marine vessels and a pretax charge of $36
million related to the restructuring of the engineering and construction
businesses. Excluding these items, operating income increased by more than 160%.
Energy Services Group operating income increased $433 million, or 74%, in
2001 over 2000. Excluding the sale of marine vessels, operating income increased
more than 100% compared to 2000. Increased operating income reflects increased
activity levels, higher equipment utilization and improved pricing, particularly
in the United States in the first nine months of 2001. Our oilfield services
product service lines operating income in 2001 exceeded $1 billion, more than
double from 2000. Operating margins for our oilfield services product service
lines increased from 8.6% in 2000 to 14.8% in 2001, resulting in an incremental
margin of 37%. Operating income was higher in 2001 as compared to 2000 in all
product service lines and geographic regions. The largest increase was in
pressure pumping in North America, which rose by over 130%. Substantial
increases in operating income were also made in the logging, drill bits and
drilling services product service lines. Operating income in North America was
higher by 78% in 2001 as compared to 2000. International regions, particularly
Latin America and Europe/Africa, made significant improvements in operating
income. Excluding the sale of marine vessels in 2000, operating income for the
remainder of the segment decreased $41 million, primarily due to lower operating
margins in our Surface/Subsea product service line and revised profit estimates
on a major project.
Engineering and Construction Group operating income increased $185 million
from 2000 to 2001. Operating margins improved to 3.3% in 2001. This increase is
primarily due to the $167 million recorded in the fourth quarter of 2000 as a
result of higher than estimated costs on specific jobs and unfavorable claims
negotiations on other jobs. We also recorded a restructuring charge of $36
million in the fourth quarter of 2000 related to the reorganization of the
engineering and construction businesses under Halliburton KBR. Excluding these
fourth quarter 2000 charges, operating income decreased $18 million, or 11%,
consistent with the decline in revenues.
General corporate expenses were $74 million for 2001 as compared to $78
million in 2000.
16
NONOPERATING ITEMS
Interest expense of $147 million in 2001 was $1 million higher than in
2000. Our outstanding short-term debt was substantially higher in the first part
of 2001 due to repurchases of our common stock in the fourth quarter of 2000
under our repurchase program and borrowings associated with the acquisition of
PGS Data Management in March 2001. Cash proceeds of $1.27 billion received in
April 2001 from the sale of the remaining businesses within the Dresser
Equipment Group were used to repay our short-term borrowings; however, our
average borrowings for 2001 were slightly higher than in 2000. The impact of
higher average borrowings was mostly offset by lower interest rates on
short-term borrowings.
Interest income was $27 million in 2001, an increase of $2 million from
2000.
Foreign currency losses were $10 million in 2001 as compared to $5 million
in 2000.
Other, net was a loss of $1 million in 2000 and less than $1 million gain
in 2001.
Provision for income taxes was $384 million for an effective tax rate of
40.3% in 2001 compared to 38.5% in 2000.
Minority interest in net income of subsidiaries in 2001 was $19 million as
compared to $18 million in 2000.
Income (loss) from discontinued operations in 2001 was a $42 million loss,
or $0.10 per diluted share, due to accrued expenses associated with asbestos
claims of disposed businesses. See Note 3. The loss was partially offset by net
income for the first quarter of 2001 from Dresser Equipment Group of $0.05 per
diluted share. Income from discontinued operations of $98 million, or $0.22 per
diluted share, represents the net income of Dresser Equipment Group for the full
year of 2000.
Gain on disposal of discontinued operations in 2001 was $299 million
after-tax, or $0.70 per diluted share. The 2001 gain resulted from the sale of
our remaining businesses within the Dresser Equipment Group in April 2001. The
gain of $215 million after-tax, or $0.48 per diluted share, in 2000 resulted
from the sale of our 51% interest in Dresser-Rand, formerly a part of Dresser
Equipment Group, in January 2000.
Cumulative effect of accounting change, net of $1 million reflects the
adoption of SFAS No. 133 "Accounting for Derivative Instruments and Hedging
Activities" in the first quarter of 2001.
Net income for 2001 was $809 million, or $1.88 per diluted share, as
compared to net income of $501 million, or $1.12 per diluted share in 2000.
RESULTS OF OPERATIONS IN 2000 COMPARED TO 1999
REVENUES
Increase/
Millions of dollars 2000 1999 (Decrease)
- -----------------------------------------------------------------------------------
Energy Services Group $ 6,776 $ 5,921 $ 855
Engineering and Construction Group 5,168 6,392 (1,224)
- -----------------------------------------------------------------------------------
Total revenues $ 11,944 $ 12,313 $ (369)
===================================================================================
Consolidated revenues for 2000 were $11.9 billion, a decrease of 3% from
1999 revenues of $12.3 billion. Lower levels of Engineering and Construction
Group revenues were partially offset by increased oilfield services revenues
within the Energy Services Group, particularly in the United States.
International revenues were 66% of our consolidated revenues in 2000, compared
with 70% in 1999.
Energy Services Group revenues were $6.8 billion for 2000, an increase of
14% from 1999 revenues of $5.9 billion. International revenues were 62% of total
segment revenues in 2000 compared with 68% in 1999. Revenues for the group were
positively impacted in late 1999 and throughout 2000 by increased rig counts and
customer spending, particularly within North America, following increases in oil
and gas prices that began in 1999. After a slight seasonal decline in the first
quarter of 2000, revenues increased consecutively each quarter across all
product service lines throughout the year. Revenues from our oilfield services
product service lines were $5.3 billion. Increased demand for natural gas and
increased drilling activity benefited our oilfield services product service
lines. The pressure pumping product service line revenues increased 30% compared
to 1999. The logging product service line revenues increased 26% compared to
17
1999. Drilling fluids increased over 20%, while drill bits and completion
products service lines increased about 14%. Drilling systems product service
line revenues increased by 9%. Geographically, strong North American activity
resulted in revenue growth of 43%, with growth experienced across all product
service lines in that region compared to 1999. North America generated 52% of
total oilfield service product service line revenues for 2000 compared to 44% in
1999. Pressure pumping accounted for approximately 50% of the increase in
revenues within North America, reflecting higher activity levels in all work
areas, particularly the Gulf of Mexico, South Texas, Canada, and Rocky
Mountains. Revenues increased by 16% in the Middle East region and 12% in the
Latin America region compared to 1999. Europe/Africa revenues were up slightly
while revenues in the Asia Pacific region declined by 3%. Activity was slower to
increase internationally throughout 2000 despite higher oil and gas prices. The
turnaround in international rig activity, which started late in the second
quarter of 2000, continued into the fourth quarter of 2000 when international
rig counts reached the highest levels since late 1998. Revenues also increased
across all regions outside North America during the fourth quarter of 2000, as
customer spending for exploration and production began to increase outside North
America.
Revenues from the remainder of the segment of $1.5 billion decreased 7%
compared to 1999. Lower revenues within the Surface/Subsea product service lines
were partially offset by record revenues within the integrated exploration and
production information systems product service line which increased 13% compared
to 1999. Increases in software and professional services revenues were partially
offset by lower hardware revenues, which have been de-emphasized. Software sales
contributed just over 19% in revenue growth, while professional services
increased over 7% compared to 1999.
Engineering and Construction Group revenues were $5.2 billion for 2000,
down 19% from $6.4 billion in 1999. Higher oil and gas prices during 2000 did
not translate into customers proceeding with new awards of large downstream
projects. Many other large projects, primarily gas and liquefied natural gas
projects, were also delayed, continuing a trend that started in 1999. Revenues
in 1999 benefited from increased logistics support services to military
peacekeeping efforts in the Balkans and increased activities at the Devonport
Dockyard in the United Kingdom. The logistics support services to military
peacekeeping efforts in the Balkans peaked in the fourth quarter of 1999 as the
main construction and procurement phases of the contract were completed. These
increases partially offset lower revenues from onshore and offshore engineering
and construction projects, particularly major projects in Europe and Africa,
which were winding down.
OPERATING INCOME
Increase/
Millions of dollars 2000 1999 (Decrease)
- -------------------------------------------------------------------------------------
Energy Services Group $ 582 $ 250 $ 332
Engineering and Construction Group (42) 175 (217)
General corporate (78) (71) (7)
Special credits - 47 (47)
- -------------------------------------------------------------------------------------
Operating income $ 462 $ 401 $ 61
=====================================================================================
Consolidated operating income was $462 million for 2000 compared to $401
million for 1999. Engineering and Construction segment results include
restructuring charges of $36 million in 2000 related to the restructuring of the
engineering and construction businesses. See Note 11. Excluding the
restructuring charge in 2000 and the special credits of $47 million in 1999,
operating income for 2000 increased by 41% from 1999.
Energy Services Group operating income in 2000 was $582 million, an
increase of 133% from 1999 operating income of $250 million. Operating margins
were 8.6% in 2000, up from 4.2% in 1999. Operating income from our oilfield
services product service lines was $452 million. During 2000, strengthening
North American drilling and oilfield activity resulted in increased equipment
utilization and improved pricing within the oilfield services product service
lines. Pressure pumping operating income increased about 135% compared to 1999
levels, while logging services operating income increased by 170% compared to
1999. Drilling fluids, drilling systems and completion products were impacted by
slow recovery in international activity. During the fourth quarter of 2000,
oilfield services recorded an $8 million reversal of bad debts related to claims
settled by the United Nations against Iraq dating from the invasion of Kuwait in
1990. Geographically, strong oil and gas prices throughout 2000 led to higher
levels of deepwater and onshore gas drilling within North America. Activity
18
increases in the Gulf of Mexico, South Texas, Canada, and Rocky Mountain work
areas were greater than most other areas. Operating income outside North America
continued to lag the performance noted within North America, reflecting
continued delays in international exploration and production for oil and gas.
However, fourth quarter 2000 operating income increased across all international
geographic regions compared to the third quarter of 2000, reflecting increased
international spending by our customers.
Operating income in 2000 for the remainder of the segment was $130 million.
Operating income benefited in 2000 from a third quarter $88 million pretax gain
on sale of two semi-submersible vessels and one multipurpose support vessel and
increasing profitability in the integrated exploration and production
information systems product service line. Excluding the gain of the sale of the
vessels, operating income declined in the Surface/Subsea product service lines.
Lower activity levels in the North Sea United Kingdom sector and
under-utilization of manufacturing and subsea equipment and vessels, which carry
large fixed costs, were the primary factors for the decline in operating income.
Operating income from integrated exploration and production information systems
in 2000 increased almost 200% compared to 1999, reflecting higher software and
professional services revenues.
Engineering and Construction Group recorded an operating loss for 2000 of
$42 million compared to operating income of $175 million in 1999, a decrease of
124%. The operating margin was 2.7% in 1999. Operating margins in 2000 declined
both internationally and in North America due to losses on projects as a result
of higher than estimated costs on selected jobs and claims negotiations on other
jobs not progressing as anticipated. Given the number and technical complexity
of the engineering and construction projects we perform, some project losses are
normal occurrences. However, the environment for negotiations with customers on
claims and change orders has become more difficult in the past few years. This
environment, combined with performance issues on a few large, technically
complex jobs, contributed to unusually high job losses on large projects of $171
million in 2000, including $167 million in the fourth quarter. At the same time,
the group recorded $36 million of restructuring charges. Lower activity due to
the trend in delayed new projects, which continued through 2000, also negatively
impacted operating income. Operating income in 1999 benefited from higher
activity levels supporting United States military peacekeeping efforts in the
Balkans, offset by reduced engineering and construction project profits due to
the timing of project awards and revenue recognition.
Special credits in 1999 are the result of a change in estimate on some
components of the 1998 special charges. In the second quarter of 1999, we
concluded that total costs, particularly for severance and facility exit costs,
were lower than previously estimated. Therefore, we reversed $47 million of the
$959 million special charge that was originally recorded.
General corporate expenses for 2000 were $78 million, an increase of $7
million from 1999. In 2000 general corporate expenses increased primarily as a
result of costs related to the early retirement of our previous chairman and
chief executive officer.
NONOPERATING ITEMS
Interest expense was $146 million for 2000 compared to $141 million in
1999. Interest expense was up in 2000 due to higher average interest rates on
short-term borrowings and additional short-term debt used to repurchase $759
million of our common stock under our share repurchase program, mostly during
the fourth quarter of 2000. These increases offset the benefits from our lower
borrowings earlier in 2000 due to the use of the proceeds from the sale of
Ingersoll-Dresser Pump and Dresser-Rand to repay short-term debt.
Interest income of $25 million in 2000 declined $49 million from 1999.
Interest income in 1999 included settlement of income tax issues in the United
States and United Kingdom and imputed interest income on the note receivable
from the sale of our ownership in M-I L.L.C.
Foreign currency losses were $5 million in 2000, down from a loss of $8
million in 1999. The losses in 2000 were primarily in Asia Pacific currencies
and the euro. Losses in 1999 occurred primarily in Russian and Latin American
currencies.
Other, net was a net loss of $1 million in 2000 compared to $19 million in
1999. The net loss in 1999 includes a $26 million charge in the second quarter
relating to an impairment of Halliburton KBR's net investment in Bufete
Industriale, S.A. de C.V., a large specialty engineering, procurement and
construction company in Mexico.
19
Provision for income taxes on continuing operations in 2000 was $129
million for an effective tax rate of 38.5%, compared to 37.8% in 1999. Excluding
our special charges and related taxes, the effective rate was 38.8% in 1999.
Minority interest in net income of subsidiaries was $18 million in 2000
compared to $17 million in 1999.
Income from discontinued operations was $98 million in 2000 and $124
million in 1999.
Gain on disposal of discontinued operations resulting from the sale of our
51% interest in Dresser-Rand was $215 million after-tax or $0.48 per diluted
share, in 2000. In 1999 we recorded a gain on the sale of our 49% interest in
Ingersoll-Dresser Pump of $159 million after-tax, or $0.36 diluted share.
Cumulative effect of change in accounting method in 1999 of $19 million
after-tax, or $0.04 per diluted share, reflects our adoption of Statement of
Position 98-5, "Reporting on the Costs of Start-Up Activities." See Note 12.
Net income was $501 million, or $1.12 per diluted share, in 2000 and $438
million, or $0.99 per diluted share, in 1999.
LIQUIDITY AND CAPITAL RESOURCES
We ended 2001 with cash and equivalents of $290 million compared with $231
million at the end of 2000 and $466 million at the end of 1999.
Cash flows from operating activities provided $1.0 billion for 2001
compared to using $57 million in 2000 and using $58 million in 1999. Working
capital items, which include receivables, inventories, accounts payable and
other working capital, net, used $50 million of cash in 2001 compared to using
$563 million in 2000 and providing $2 million in 1999. Included in changes to
working capital and other net changes are special charge usage for personnel
reductions, facility closures, merger transaction costs, and integration costs
of $6 million in 2001, $54 million in 2000 and $202 million in 1999.
Cash flows used in investing activities were $858 million for 2001, $411
million for 2000 and $107 million for 1999. Capital expenditures of $797 million
in 2001 were about 38% higher than in 2000 and about 53% higher than in 1999.
Capital spending in 2001 was mostly directed to Halliburton Energy Services,
primarily for pressure pumping equipment, directional drilling tools and
logging-while-drilling equipment. In March 2001 we acquired PGS Data Management
division of Petroleum Geo-Services ASA for $164 million cash. In addition we
spent $56 million for various acquisitions in 2001. Cash flows from investing
activities in 1999 include $254 million collected on the receivables from the
sale of our 36% interest in M-I L.L.C. Imputed interest on this receivable of
$11 million is included in operating cash flows.
Cash flows from financing activities used $1.4 billion in 2001 and $584
million in 2000 and provided $189 million in 1999. Proceeds from exercises of
stock options provided cash flows of $27 million in 2001 compared to $105
million in 2000 and $49 million in 1999. Dividends to shareholders used $215
million of cash in 2001 and $221 million in 1999 and 2000. We used the proceeds
from the sale of the remaining businesses in Dresser Equipment Group in April
2001, the sale of Dresser-Rand in early 2000 and the collection of a note from
the fourth quarter 1999 sale of Ingersoll-Dresser Pump received in early 2000 to
reduce short-term debt. On July 12, 2001, we issued $425 million in two and five
year medium-term notes under our medium-term note program. The notes consist of
$275 million of 6% fixed rate notes due August 1, 2006 and $150 million of
floating rate notes due July 16, 2003. Net proceeds from the two medium-term
note offerings were also used to reduce short-term debt. Net repayments of
short-term debt in 2001 used $1.5 billion. On April 25, 2000, our Board of
Directors approved plans to implement a share repurchase program for up to 44
million shares. We repurchased 1.2 million shares at a cost of $25 million in
2001 and 20.4 million shares at a cost of $759 million in 2000. We currently
have no plan to repurchase the remaining shares under the approved plan. In
addition, we repurchased $9 million of common stock in 2001 and $10 million in
both 2000 and 1999 from employees to settle their income tax liabilities
primarily for restricted stock lapses.
Cash flows from discontinued operations provided $1.3 billion in 2001 as
compared to $826 million in 2000 and $234 million in 1999. Cash flows for 2001
include proceeds from the sale of Dresser Equipment Group of approximately $1.27
billion. Cash flows for 2000 include proceeds from the sale of Dresser-Rand and
Ingersoll-Dresser Pump of $913 million.
20
Capital resources generally are derived from internally generated cash
flows and access to capital markets when appropriate. Our combined short-term
notes payable and long-term debt was 24% of total capitalization at the end of
2001, 40% at the end of 2000, and 35% at the end of 1999. Short-term debt was
reduced significantly in the second quarter of 2001 with the proceeds from the
sale of Dresser Equipment Group and in the third quarter from the issuance of
$425 million of medium-term notes. In 2000 we reduced our short-term debt with
proceeds from the sales of Ingersoll-Dresser Pump and Dresser-Rand joint
ventures early in the year. We increased short-term debt in the third quarter
of 2000 to fund share repurchases.
Late in 2001 and early in 2002, Moody's Investors' Services lowered its
ratings of our long-term senior unsecured debt to Baa2 and our short-term credit
and commercial paper ratings to P-2. In addition, Standard & Poor's lowered its
ratings of our long-term senior unsecured debt to A- and our short-term credit
and commercial paper ratings to A-2. The ratings were lowered primarily due to
the agencies' concerns about asbestos litigation. Although the long-term
ratings continue at investment grade levels and the short-term ratings allow
participation in the commercial paper market, the cost of new borrowing is
higher and our access to the debt markets is more volatile at the new rating
levels. Reduced ratings and concerns about asbestos litigation, along with
recent changes in the banking and insurance markets, will also result in higher
cost and more limited access to markets for other credit products including
letters of credit and surety bonds. At this time, it is not possible to compute
the increased costs of credit products we may need in the future but it is not
expected to be material based upon the current forecast of our credit needs.
We ended 2001 with cash and equivalents of $290 million and we are
projecting strong cash flow from operations in 2002. We also have $700 million
of committed lines of credit from banks that are available if we maintain an
investment grade rating. Investment grade ratings are BBB- or higher for
Standard & Poor's and Baa3 or higher for Moody's Investors' Services and we are
currently above these levels. Nothing has been borrowed under these lines and no
borrowings are anticipated during 2002. In the normal course of business we have
agreements with banks under which approximately $1.4 billion of letters of
credit or bank guarantees were issued, including $241 million which relate to
our joint ventures' operations. In addition, $320 million of these financial
instruments include provisions that allow the banks to require cash
collateralization if debt ratings of either rating agency falls below the rating
of BBB by Standard & Poor's or Baa2 by Moody's Investors' Sevices and $149
million where banks may require cash collateralization if either debt rating
falls below investment grade.
CRITICAL ACCOUNTING POLICIES
The preparation of financial statements requires the use of judgments and
estimates. Our critical accounting policies are described below to provide a
better understanding of how we develop our judgments about future events and
related estimations and how they can impact our financial statements. A critical
accounting policy is one that requires our most difficult, subjective or complex
estimates and assessments and is fundamental to our results of operations. We
identified our most critical accounting policies to be:
- percentage of completion accounting for our long-term engineering
and construction contracts; and
- loss contingencies, primarily related to
- asbestos litigation; and
- other litigation.
This discussion and analysis should be read in conjunction with our consolidated
financial statements and related notes included elsewhere in this report.
Percentage of completion
We account for our revenues on long-term engineering and construction
contracts on the percentage of completion method. This method of accounting
requires us to calculate job profit to be recognized in each reporting period
for each job based upon our predictions of future outcomes which include:
- estimates of the total cost to complete the contract;
- estimates of project schedule and completion date;
- estimates of the percentage the project is complete; and
- amounts of any probable unapproved claims and change orders
included in revenues.
At the onset of each contract, we prepare a detailed step-by-step analysis of
our estimated cost to complete the project. Our project personnel continuously
evaluate the estimated costs, claims and change orders, and percentage of
21
completion at the project level. Significant projects are reviewed in detail by
senior engineering and construction management at least quarterly. Preparing
project cost estimates and percentages of completion is a core competency within
our engineering and construction businesses. We have a long history of dealing
with multiple types of projects and in preparing accurate cost estimates.
However, there are many factors, including but not limited to weather,
inflation, labor disruptions and timely availability of materials, and other
factors as outlined in our "Forward-Looking Information" section. These factors
can affect the accuracy of our estimates and impact our future reported
earnings.
Loss contingencies
Asbestos. We have approximately 274,000 open asbestos claims pending
against us at December 31, 2001 for which we have accrued $737 million for
estimated settlements and $612 million for estimated recoveries from insurance
companies. Computing our liability for open asbestos claims requires us to make
judgments as to the most likely outcome of litigation, future settlements and
judgments to be paid for open claims. We estimate settlement payments for open
claims by applying our average historical settlement costs by type of claim to
the corresponding open claims. We believe our average historical settlement
costs are a reasonable estimate of the cost of resolving open claims. We
estimate the cost of final judgments by reviewing with our legal counsel the
probable outcome of pending appeals. If the actual cost of settlements and final
judgments differs from our estimates, our reserves for open claims may not be
sufficient. If so, any deficiency would be a loss we would be required to
recognize at the time it becomes reasonably estimable.
Estimating amounts we will recover from insurance companies for open claims
involves making assumptions about the ability of the companies to meet their
obligations under our policies. If our estimates of recoveries differ from
actual recoveries, we may have uncollectible receivables that we may be required
to write-off and we will have reduced amounts of insurance coverage for future
claims. Dozens of insurance companies provide our insurance coverage for
non-refractory and non-engineering and construction asbestos claims. We believe
this reduces our risk associated with the failure of any one insurance company.
On the other hand, a majority of our coverage for refractory asbestos claims is
with Equitas. Although we believe Equitas is currently able to meet its
obligations to us, its failure to meet its commitments in the future could have
a material adverse affect on our financial condition at that time.
We have also estimated the amount we will recover from the insurance
written by Highlands Insurance Company that covers our engineering and
construction asbestos claims. If our assumptions concerning our ability to
collect amounts owed to us by Highlands are incorrect, we may have up to $80
million of billed and accrued receivables from Highlands which will not be
collectible as of December 31, 2001. See Note 9 of our consolidated financial
statements as of December 31, 2001 for further discussion of the status and
history of our asbestos claim litigation and our insurance coverage.
Uncertainty about future asbestos claims and jury awards has caused much of
the recent volatility in our stock price and recent downgrades in our credit
ratings. We have not accrued reserves for unknown claims that may be asserted
against us in the future. We have not had sufficient information to make a
reasonable estimate of future claims. However, we recently retained a leading
claim evaluation firm to assist us in making an estimate of our potential
liability for asbestos claims that may be asserted against us in the future.
When the evaluation firm's analysis is completed it is likely that we will
accrue a material liability for future claims that may be asserted against us.
We expect the analysis will be completed during the second quarter of 2002 and
that we will accrue the liability at the end of the quarter. At the same time we
will accrue a receivable for related insurance proceeds we expect to collect
when future claims are actually paid.
Litigation. We are currently involved in other legal proceedings not
involving asbestos. As discussed in Note 9 of our consolidated financial
statements, as of December 31, 2001, we have accrued an estimate of the probable
costs for the resolution of these claims. Attorneys in our legal department
specializing in litigation claims, monitor and manage all claims filed against
us. The estimate of probable costs related to these claims is developed in
consultation with outside legal counsel representing us in the defense of these
claims. Our estimates are based upon an analysis of potential results, assuming
a combination of litigation and settlement strategies. We attempt to resolve
claims through mediation and arbitration where possible. If the actual
settlement costs and final judgments, after appeals, differ from our estimates,
our future financial results may be adversely affected.
22
LONG-TERM CONTRACTURAL OBLIGATIONS AND COMMERCIAL COMMITMENTS
The following table summarizes our various long-term contractual
obligations:
Payments due
Millions of dollars 2002 2003 2004 2005 2006 Thereafter Total
- ---------------------------------------------------------------------------------------------------
Long-term debt $ 81 $ 291 $ 2 $ 2 $ 277 $ 828 $ 1,481
Operating leases 97 83 59 43 30 97 409
- ---------------------------------------------------------------------------------------------------
Total contractual cash $ 178 $ 374 $ 61 $ 45 $ 307 $ 925 $ 1,890
===================================================================================================
In addition to these long-term contractual obligations, we have other
commercial commitments that could become contractual obligations.
We also have $700 million of committed lines of credit from banks that are
available if we maintain an investment grade rating. Investment grade ratings
are BBB- or higher for Standard & Poor's and Baa3 or higher for Moody's
Investors' Services and we are currently above these levels. In the normal
course of business we have agreements with banks under which approximately $1.4
billion of letters of credit or bank guarantees were issued, including $241
million which relate to our joint ventures' operations. In addition, $320
million of these financial instruments include provisions that allow the banks
to require cash collateralization if debt ratings of either rating agency falls
below the rating of BBB by Standard & Poor's or Baa2 by Moody's Investors'
Services and $149 million where banks may require cash collateralization if
either debt rating falls below investment grade. These letters of credit and
bank guarantees relate to our guaranteed performance or retention payments under
our long-term contracts and self-insurance. In the past, no significant claims
have been made against these financial instruments. We do not anticipate
material losses to occur as a result of these financial instruments.
FINANCIAL INSTRUMENT MARKET RISK
We are exposed to financial instrument market risk from changes in foreign
currency exchange rates, interest rates and to a limited extent, commodity
prices. We selectively manage these exposures through the use of derivative
instruments to mitigate our market risk from these exposures. The objective of
our risk management program is to protect our cash flows related to sales or
purchases of goods or services from market fluctuations in currency rates. Our
use of derivative instruments includes the following types of market risk:
- volatility of the currency rates;
- 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 do not
consider any of these risk management activities to be material. See Note 1 for
additional information on our accounting policies on derivative instruments. See
Note 16 for additional disclosures related to derivative instruments.
Interest rate risk. We have exposure to interest rate risk from our
long-term debt and related interest rate swaps.
The following table represents principal amounts of our long-term debt at
December 31, 2001 and related weighted average interest rates by year of
maturity for our long-term debt.
23
Millions of dollars 2002 2003 2004 2005 2006 Thereafter Total
- -------------------------------------------------------------------------------------------------------
Long-term debt:
Fixed rate debt $ 75 $ 139 - - $ 275 $ 824 $ 1,313
Weighted average
interest rate 6.3% 8.0% - - 6.0% 7.4% 7.1%
Variable rate debt $ 6 $ 152 $ 2 $ 2 $ 2 $ 4 $ 168
Weighted average
interest rate 3.5% 2.6% 4.2% 4.2% 4.2% 4.2% 2.7%
=======================================================================================================
Fair market value of long-term debt was $1.3 billion as of December 31,
2001.
We have two interest rate swaps which convert fixed rate debt to variable
rate debt. One of our interest rate swaps hedges $150 million of the 6% fixed
rate medium-term notes and has a fair value of $3.4 million at December 31,
2001. Under this interest rate swap agreement, the counter party pays a fixed
rate of 6% interest and we pay a variable interest rate based on published
6-month LIBOR interest rates. The payments under the agreement are settled on
February 1 and August 1 of each year until August 2006, and coincide with the
interest payment dates on the hedged debt instrument. The other interest rate
swap hedges $139 million of our 8% long-term debt and has a fair value of a loss
of $0.2 million at December 31, 2001. Under this interest rate swap agreement,
the counter party pays a fixed rate of 8% interest and we pay a variable
interest rate based on published 6-month LIBOR interest rates. The payments
under the agreement are settled on April 15 and October 15 of each year until
April 2003, and coincide with the interest payment dates on the hedged debt
instrument.
RESTRUCTURING ACTIVITIES
In the fourth quarter of 2000 we approved a plan to reorganize our
engineering and construction businesses into one business unit. This
restructuring was undertaken because our engineering and construction businesses
continued to experience delays in customer commitments for new upstream and
downstream projects. With the exception of deepwater projects, short-term
prospects for increased engineering and construction activities in either the
upstream or downstream businesses were not positive. As a result of the
reorganization of the engineering and construction businesses, we took actions
to rationalize our operating structure including write-offs of equipment,
engineering reference designs and capitalized software of $20 million and
recorded severance costs of $16 million. See Note 11.
During the second quarter of 1999, we reversed $47 million of our 1998
special charges related to the acquisition of Dresser Industries, Inc., and
industry downturn. This was based on our reassessment of total costs to be
incurred to complete the actions covered in the charges.
ENVIRONMENTAL MATTERS
We are subject to numerous environmental legal and regulatory requirements
related to our operations worldwide. As a result of those obligations we are
involved in specific environmental litigation and claims, the clean-up of
properties we own or have operated, and efforts to meet or correct
compliance-related matters. See Note 9.
FORWARD-LOOKING INFORMATION
The Private Securities Litigation Reform Act of 1995 provides safe harbor
provisions for forward-looking information. Forward-looking information is based
on projections and estimates, not historical information. Some statements in
this Form 10-K are forward-looking and use words like "may," "may not,"
"believes," "do not believe," "expects," "do not expect," "do not anticipate,"
and similar expressions. We may also provide oral or written forward-looking
information in other materials we release to the public. Forward-looking
information involves risks and uncertainties and reflects our best judgment
based on current information. Our results of operations can be affected by
24
inaccurate assumptions we make or by known or unknown risks and uncertainties.
In addition, other factors may affect the accuracy of our forward-looking
information. As a result, no forward-looking information can be guaranteed.
Actual events and the results of operations may vary materially.
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 our
forward-looking statements including:
Legal
- asbestos litigation including the recent judgments against us
and related appeals;
- asbestos related insurance litigation including our litigation
with Highlands Insurance Company;
- other litigation, including, for example, contract disputes,
patent infringements and environmental matters;
- trade restrictions and economic embargoes imposed by the United
States and other countries;
- changes in governmental regulations in the numerous countries in
which we operate including, for example, regulations that:
- encourage or mandate the hiring of local contractors; and
- require foreign contractors to employ citizens of, or
purchase supplies from, a particular jurisdiction; and
- environmental laws, including, for example, those that require
emission performance standards for facilities;
Geopolitical
- unsettled political conditions, war, the effects of terrorism,
civil unrest, currency controls and governmental actions in the
numerous countries in which we operate;
- operations in countries with significant amounts of political
risk, including, for example, Algeria, Angola, Argentina, Libya,
Nigeria, and Russia; and
- changes in foreign exchange rates and exchange controls as were
experienced in Argentina in late 2001 and early 2002;
Liquidity
- reductions in debt ratings by rating agencies such as our recent
reductions by Standard & Poor's and Moody's Investors' Services;
- access to lines of credit and credit markets;
- ability to issue letters of credit; and
- ability to raise capital via the sale of stock;
Weather related
- the effects of severe weather conditions, including, for example,
hurricanes and typhoons, on offshore operations and
facilities; and
- the impact of prolonged severe or mild weather conditions on the
demand for and price of oil and natural gas;
Customers
- the magnitude of governmental spending and outsourcing for
military and logistical support of the type that we provide,
including, for example, support services in Bosnia;
- changes in capital spending by customers in the oil and gas
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;
- consolidation of customers in the oil and gas industry such as the
proposed merger of Conoco and Phillips Petroleum; and
- claim negotiations with engineering and construction customers on
cost variances and change orders on major projects;
Industry
- technological and structural changes in the industries that we
serve;
- changes that impact the demand for oil and gas such as the
slowdown in the global economy following the terrorist attacks on
the United States on September 11, 2001;
- changes in the price of oil and natural gas, resulting from:
- OPEC's ability to set and maintain production levels and
prices for oil;
25
- the level of oil production by non-OPEC countries;
- the policies of governments regarding exploration for and
production and development of their oil and natural gas
reserves; and
- the level of demand for oil and natural gas, especially
natural gas in the United States where demand is currently
below prior year usage;
- changes in the price or the availability of commodities that we
use;
- risks that result from entering into fixed fee engineering,
procurement and construction projects, such as the
Barracuda-Caratinga project in Brazil, where failure to meet
schedules, cost estimates or performance targets could result in
non-reimbursable costs which cause the project not to meet our
expected profit margins;
- risks that result from entering into complex business arrangements
for technically demanding projects where failure by one or more
parties could result in monetary penalties; and
- 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, interest
rates, or commodity prices; or
- the value and time period of the derivative being
different than the exposures or cash flows being hedged;
Personnel and mergers/reorganizations/dispositions
- increased competition in the hiring and retention of employees in
specific areas, including, for example, energy services
operations, accounting and finance;
- integration of acquired businesses into Halliburton, such as our
2001 acquisition of Magic Earth, Inc. and PGS Data Management,
including:
- standardizing information systems or integrating data
from multiple systems;
- maintaining uniform standards, controls, procedures and
policies; and
- combining operations and personnel of acquired businesses
with ours;
- effectively reorganizing operations and personnel within
Halliburton such as the reorganization of our engineering and
construction business in early 2001;
- ensuring acquisitions and new products and services add value and
complement our core businesses; and
- successful completion of planned dispositions.
In addition, future trends for pricing, margins, revenues and profitability
remain difficult to predict in the industries we serve. We do not assume any
responsibility to publicly update any of our forward-looking statements
regardless of whether factors change as a result of new information, future
events or for any other reason. You should review any additional disclosures we
make in our press releases and Forms 10-Q, 8-K and 10-K to the United States
Securities and Exchange Commission. We also suggest that you listen to our
quarterly earnings release conference calls with financial analysts.
OTHER ISSUES
Conversion to the euro currency
On January 1, 1999, some member countries of the European Union established
fixed conversion rates between their existing currencies and the European
Union's common currency (euro). This was the first step towards transition from
existing national currencies to the use of the euro as a common currency. Euro
notes and coins were introduced on January 1, 2002 and the transition period for
the introduction of the euro ends February 28, 2002. Issues resulting from the
introduction of the euro include converting information technology systems,
reassessing currency risk, negotiating and amending existing contracts and
processing tax and accounting records. We addressed these issues prior to
December 31, 2001. In addition, our operations in the eurozone countries began
transacting most of their businesses in euros prior to December 31, 2001. Thus
far in 2002, we have not experienced any major issues related to converting to
the euro and do not anticipate any material impacts in the future.
26
New pronouncements
In August 2001, the Financial Accounting Standards Board issued SFAS No.
143 "Accounting for Asset Retirement Obligations" which addresses the financial
accounting and reporting for obligations associated with the retirement of
tangible long-lived assets and the associated assets' retirement costs. The new
standard will be effective for us beginning January 1, 2003, and we are
currently reviewing and evaluating the effects this standard will have on our
future financial condition, results of operations, and accounting policies and
practices.
In October 2001, the Financial Accounting Standards Board issued SFAS No.
144 "Accounting for the Impairment or Disposal of Long-Lived Assets." This
statement supercedes:
- SFAS No. 121 "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of"; and
- the accounting and reporting provisions of APB 30, "Reporting the
Results of Operations - Reporting the Effects of Disposal of a
Segment of a Business, Extraordinary, Unusual and Infrequently
Occurring Events and Transactions".
The new standard will be effective for us beginning January 1, 2002, and we do
not believe the effects of this standard will have a material effect on our
future financial condition or operations.
27
RESPONSIBILITY FOR FINANCIAL REPORTING
We are responsible for the preparation and integrity of our published
financial statements. The financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of America
and, accordingly, include amounts based on judgments and estimates made by our
management. We also prepared the other information included in the annual report
and are responsible for its accuracy and consistency with the financial
statements.
The financial statements have been audited by the independent accounting
firm, Arthur Andersen LLP. Arthur Andersen LLP was given unrestricted access to
all financial records and related data, including minutes of all meetings of
stockholders, the Board of Directors and committees of the Board. Halliburton's
Audit Committee of the Board of Directors consists of directors who, in the
business judgment of the Board of Directors, are independent under the New York
Exchange listing standards. The Board of Directors, operating through its Audit
Committee, provides oversight to the financial reporting process. Integral to
this process is the Audit Committee's review and discussion with management and
the external auditors of the quarterly and annual financial statements prior to
their respective filing.
We maintain a system of internal control over financial reporting, which is
intended to provide reasonable assurance to our management and Board of
Directors regarding the reliability of our financial statements. The system
includes:
- a documented organizational structure and division of
responsibility;
- established policies and procedures, including a code of conduct
to foster a strong ethical climate which is communicated
throughout the company; and
- the careful selection, training and development of our people.
Internal auditors monitor the operation of the internal control system and
report findings and recommendations to management and the Board of Directors.
Corrective actions are taken to address control deficiencies and other
opportunities for improving the system as they are identified. In accordance
with the Securities and Exchange Commission's rules to improve the reliability
of financial statements, our interim financial statements are reviewed by Arthur
Andersen LLP.
There are inherent limitations in the effectiveness of any system of
internal control, including the possibility of human error and the circumvention
or overriding of controls. Accordingly, even an effective internal control
system can provide only reasonable assurance with respect to the reliability of
our financial statements. Also, the effectiveness of an internal control system
may change over time.
We have assessed our internal control system in relation to criteria for
effective internal control over financial reporting described in "Internal
Control-Integrated Framework" issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based upon that assessment, we believe
that, as of December 31, 2001, our system of internal control over financial
reporting met those criteria.
HALLIBURTON COMPANY
by
/s/ DAVID J. LESAR /s/ DOUGLAS L. FOSHEE
- ---------------------------------- ----------------------------------
David J. Lesar Douglas L.Foshee
Chairman of the Board, Executive Vice President and
President and Chief Financial Officer
Chief Executive Officer
28
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors
Halliburton Company:
We have audited the accompanying consolidated balance sheets of Halliburton
Company (a Delaware corporation) and subsidiary companies as of December 31,
2001 and 2000, and the related consolidated statements of income, cash flows,
and shareholders' equity for each of the three years in the period ended
December 31, 2001. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Halliburton Company and
subsidiary companies as of December 31, 2001 and 2000, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2001, in conformity with accounting principles generally accepted
in the United States of America.
/s/ ARTHUR ANDERSEN LLP
---------------------------
ARTHUR ANDERSEN LLP
Dallas, Texas,
January 23, 2002 (Except with respect to certain matters discussed in Note
9, as to which the date is February 21, 2002.)
29
Halliburton Company
Consolidated Statements of Income
(Millions of dollars and shares except per share data)
Years ended December 31
------------------------------------------------
2001 2000 1999
- ----------------------------------------------------------------------------------------------------------------------
Revenues:
Services $ 10,940 $ 10,185 $ 10,826
Product sales 1,999 1,671 1,388
Equity in earnings of unconsolidated affiliates 107 88 99
- ----------------------------------------------------------------------------------------------------------------------
Total revenues $ 13,046 $ 11,944 $ 12,313
- ----------------------------------------------------------------------------------------------------------------------
Operating costs and expenses:
Cost of services $ 9,831 $ 9,755 $ 10,368
Cost of sales 1,744 1,463 1,240
General and administrative 387 352 351
Gain on sale of marine vessels - (88) -
Special credits - - (47)
- ----------------------------------------------------------------------------------------------------------------------
Total operating costs and expenses $ 11,962 $ 11,482 $ 11,912
- ----------------------------------------------------------------------------------------------------------------------
Operating income 1,084 462 401
Interest expense (147) (146) (141)
Interest income 27 25 74
Foreign currency losses, net (10) (5) (8)
Other, net - (1) (19)
- ----------------------------------------------------------------------------------------------------------------------
Income from continuing operations before taxes, minority
interest, and change in accounting method, net 954 335 307
Provision for income taxes (384) (129) (116)
Minority interest in net income of subsidiaries (19) (18) (17)
- ----------------------------------------------------------------------------------------------------------------------
Income from continuing operations before change in
accounting method, net 551 188 174
- ----------------------------------------------------------------------------------------------------------------------
Discontinued operations:
Income (loss) from discontinued operations, net of tax
(provision) benefit of $20, ($60), and ($98) (42) 98 124
Gain on disposal of discontinued operations, net of tax (provision)
of ($199), ($141), and ($94) 299 215 159
- ----------------------------------------------------------------------------------------------------------------------
Income from discontinued operations, net 257 313 283
- ----------------------------------------------------------------------------------------------------------------------
Cumulative effect of change in accounting method,
net of tax benefit of $11 in 1999 1 - (19)
- ----------------------------------------------------------------------------------------------------------------------
Net income $ 809 $ 501 $ 438
======================================================================================================================
Basic income (loss) per share:
Income from continuing operations before change
in accounting method, net $ 1.29 $ 0.42 $ 0.40
Income (loss) from discontinued operations (0.10) 0.22 0.28
Gain on disposal of discontinued operations 0.70 0.49 0.36
Change in accounting method, net - - (0.04)
- ----------------------------------------------------------------------------------------------------------------------
Net income $ 1.89 $ 1.13 $ 1.00
======================================================================================================================
Diluted income (loss) per share:
Income from continuing operations before change
in accounting method, net $ 1.28 $ 0.42 $ 0.39
Income (loss) from discontinued operations (0.10) 0.22 0.28
Gain on disposal of discontinued operations 0.70 0.48 0.36
Change in accounting method, net - - (0.04)
- ----------------------------------------------------------------------------------------------------------------------
Net income $ 1.88 $ 1.12 $ 0.99
======================================================================================================================
Basic average common shares outstanding 428 442 440
Diluted average common shares outstanding 430 446 443
See notes to annual financial statements.
30
Halliburton Company
Consolidated Balance Sheets
(Millions of dollars and shares except per share data)
December 31
-------------------------
2001 2000
- -------------------------------------------------------------------------------------------------------------
Assets
Current assets:
Cash and equivalents $ 290 $ 231
Receivables:
Notes and accounts receivable (less allowance for bad debts of $131 and $125) 3,015 2,952
Unbilled work on uncompleted contracts 1,080 982
- -------------------------------------------------------------------------------------------------------------
Total receivables 4,095 3,934
Inventories 787 723
Current deferred income taxes 154 235
Net current assets of discontinued operations - 298
Other current assets 247 236
- -------------------------------------------------------------------------------------------------------------
Total current assets 5,573 5,657
Net property, plant and equipment 2,669 2,410
Equity in and advances to related companies 551 400
Goodwill (net of accumulated amortization of $269 and $231) 720 597
Noncurrent deferred income taxes 410 340
Net noncurrent assets of discontinued operations - 391
Insurance for asbestos litigation claims 612 51
Other assets 431 346
- -------------------------------------------------------------------------------------------------------------
Total assets $ 10,966 $ 10,192
=============================================================================================================
Liabilities and Shareholders' Equity
Current liabilities:
Short-term notes payable $ 44 $ 1,570
Current maturities of long-term debt 81 8
Accounts payable 917 782
Accrued employee compensation and benefits 357 267
Advance billings on uncompleted contracts 611 377
Deferred revenues 99 98
Income taxes payable 194 113
Other current liabilities 605 700
- -------------------------------------------------------------------------------------------------------------
Total current liabilities 2,908 3,915
Long-term debt 1,403 1,049
Employee compensation and benefits 570 662
Asbestos litigation claims 737 80
Other liabilities 555 520
Minority interest in consolidated subsidiaries 41 38
- -------------------------------------------------------------------------------------------------------------
Total liabilities 6,214 6,264
- -------------------------------------------------------------------------------------------------------------
Shareholders' equity:
Common shares, par value $2.50 per share - authorized 600 shares,
issued 455 and 453 shares 1,138 1,132
Paid-in capital in excess of par value 298 259
Deferred compensation (87) (63)
Accumulated other comprehensive income (236) (288)
Retained earnings 4,327 3,733
- -------------------------------------------------------------------------------------------------------------
5,440 4,773
Less 21 and 26 shares of treasury stock, at cost 688 845
- -------------------------------------------------------------------------------------------------------------
Total shareholders' equity 4,752 3,928
- -------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 10,966 $ 10,192
=============================================================================================================
See notes to annual financial statements.
31
Halliburton Company
Consolidated Statements of Shareholders' Equity
(Millions of dollars and shares)
Years ended December 31
-------------------------------------------
2001 2000 1999
- -------------------------------------------------------------------------------------------------------------
Common stock (number of shares)
Balance at beginning of year 453 448 446
Shares issued under compensation and incentive stock plans,
net of forfeitures 1 4 2
Shares issued for acquisition 1 1 -
- -------------------------------------------------------------------------------------------------------------
Balance at end of year 455 453 448
=============================================================================================================
Common stock (dollars)
Balance at beginning of year $ 1,132 $ 1,120 $ 1,115
Shares issued under compensation and incentive stock plans,
net of forfeitures 2 9 5
Shares issued for acquisition 4 3 -
- -------------------------------------------------------------------------------------------------------------
Balance at end of year $ 1,138 $ 1,132 $ 1,120
=============================================================================================================
Paid-in capital in excess of par value
Balance at beginning of year $ 259 $ 68 $ 8
Shares issued under compensation and incentive stock plans,
net of forfeitures 30 109 47
Tax benefit (2) 38 13
Shares issued for acquisition, net 11 44 -
- -------------------------------------------------------------------------------------------------------------
Balance at end of year $ 298 $ 259 $ 68
=============================================================================================================
Deferred compensation
Balance at beginning of year $ (63) $ (51) $ (51)
Current year awards, net (24) (12) -
- -------------------------------------------------------------------------------------------------------------
Balance at end of year $ (87) $ (63) $ (51)
=============================================================================================================
Accumulated other comprehensive income
Cumulative translation adjustment $ (205) $ (275) $ (185)
Pension liability adjustment (27) (12) (19)
Unrealized loss on investments and derivatives (4) (1) -
- -------------------------------------------------------------------------------------------------------------
Balance at end of year $ (236) $ (288) $ (204)
=============================================================================================================
Cumulative translation adjustment
Balance at beginning of year $ (275) $ (185) $ (142)
Sales of subsidiaries 102 11 (17)
Current year changes (32) (101) (26)
- -------------------------------------------------------------------------------------------------------------
Balance at end of year $ (205) $ (275) $ (185)
=============================================================================================================
(continued on next page)
See notes to annual financial statements.
32
Halliburton Company
Consolidated Statements of Shareholders' Equity
(Millions of dollars and shares)
(continued)
Years ended December 31
-------------------------------------------
2001 2000 1999
- -------------------------------------------------------------------------------------------------------------
Pension liability adjustment
Balance at beginning of year $ (12) $ (19) $ (7)
Sale of subsidiary 12 7 -
Current year change, net of tax (27) - (12)
- -------------------------------------------------------------------------------------------------------------
Balance at end of year $ (27) $ (12) $ (19)
=============================================================================================================
Unrealized loss on investments
Balance at beginning of year $ (1) $ - $ -
Current year unrealized loss on investments and derivatives (3) (1) -
- -------------------------------------------------------------------------------------------------------------
Balance at end of year $ (4) $ (1) $ -
=============================================================================================================
Retained earnings
Balance at beginning of year $ 3,733 $ 3,453 $ 3,236
Net income 809 501 438
Cash dividends paid (215) (221) (221)
- -------------------------------------------------------------------------------------------------------------
Balance at end of year $ 4,327 $ 3,733 $ 3,453
=============================================================================================================
Treasury stock (number of shares)
Beginning of year 26 6 6
Shares issued under benefit, dividend reinvestment plan and
incentive stock plans, net (2) - -
Shares issued for acquisition (4) - -
Shares purchased 1 20 -
- -------------------------------------------------------------------------------------------------------------
Balance at end of year 21 26 6
=============================================================================================================
Treasury stock (dollars)
Beginning of year $ 845 $ 99 $ 98
Shares issued under benefit, dividend reinvestment plan and
incentive stock plans, net (51) (23) (9)
Shares issued for acquisition (140) - -
Shares purchased 34 769 10
- -------------------------------------------------------------------------------------------------------------
Balance at end of year $ 688 $ 845 $ 99
=============================================================================================================
Comprehensive income
Net income $ 809 $ 501 $ 438
- -------------------------------------------------------------------------------------------------------------
Cumulative translation adjustment, net of tax (32) (101) (26)
Less reclassification adjustments for (gains) losses included in
net income 102 11 (17)
- -------------------------------------------------------------------------------------------------------------
Net cumulative translation adjustment 70 (90) (43)
- -------------------------------------------------------------------------------------------------------------
Current year adjustment to minimum pension liability (15) 7 (12)
Unrealized loss on investments and derivatives (3) (1) -
- -------------------------------------------------------------------------------------------------------------
Total comprehensive income $ 861 $ 417 $ 383
=============================================================================================================
See notes to annual financial statements.
33
Halliburton Company
Consolidated Statements of Cash Flows
(Millions of dollars)
Years ended December 31
------------------------------------------
2001 2000 1999
- ----------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $ 809 $ 501 $ 438
Adjustments to reconcile net income to net cash from operations:
Income from discontinued operations (257) (313) (283)
Depreciation, depletion and amortization 531 503 511
(Benefit) provision for deferred income taxes 26 (6) 187
Distributions from (advances to) related companies, net of equity in 8 (64) 24
(earnings) losses
Change in accounting method, net (1) - 19
Accrued special charges (6) (63) (290)
Other non-cash items (3) (22) 19
Other changes, net of non-cash items:
Receivables and unbilled work on uncompleted contracts (199) (896) 616
Inventories (91) 8 (3)
Accounts payable 118 170 (179)
Other working capital, net 122 155 (432)
Other operating activities (28) (30) (685)
- ----------------------------------------------------------------------------------------------------------------
Total cash flows from operating activities 1,029 (57) (58)
- ----------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Capital expenditures (797) (578) (520)
Sales of property, plant and equipment 120 209 118
Acquisitions of businesses, net of cash acquired (220) (10) (7)
Dispositions of businesses, net of cash disposed 61 19 291
Other investing activities (22) (51) 11
- ----------------------------------------------------------------------------------------------------------------
Total cash flows from investing activities (858) (411) (107)
- ----------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from long-term borrowings 425 - -
Payments on long-term borrowings (13) (308) (59)
(Repayments) borrowings of short-term debt, net (1,528) 629 436
Payments of dividends to shareholders (215) (221) (221)
Proceeds from exercises of stock options 27 105 49
Payments to reacquire common stock (34) (769) (10)
Other financing activities (17) (20) (6)
- ----------------------------------------------------------------------------------------------------------------
Total cash flows from financing activities (1,355) (584) 189
- ----------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash (20) (9) 5
Net cash flows from discontinued operations (1) 1,263 826 234
- ----------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and equivalents 59 (235) 263
Cash and equivalents at beginning of year 231 466 203
- ----------------------------------------------------------------------------------------------------------------
Cash and equivalents at end of year $ 290 $ 231 $ 466
- ----------------------------------------------------------------------------------------------------------------
Supplemental disclosure of cash flow information:
Cash payments during the year for:
Interest $ 132 $ 144 $ 145
Income taxes $ 382 $ 310 $ 98
Non-cash investing and financing activities:
Liabilities assumed in acquisitions of businesses $ 92 $ 95 $ 90
Liabilities disposed of in dispositions of businesses $ 500 $ 499 $ 111
(1) Net cash flows from discontinued operations in 2001 include proceeds of
$1.27 billion from the sale of the remaining businesses in Dresser
Equipment Group and in 2000 proceeds of $913 million from the sales of
Dresser-Rand in 2000 and Ingersoll-Dresser Pump in 1999. See Note 3.
See notes to annual financial statements.
34
HALLIBURTON COMPANY
Notes to Annual Financial Statements
Note 1. Significant Accounting Policies
We employ accounting policies that are in accordance with accounting
principles generally accepted in the United States of America. The preparation
of financial statements in conformity with accounting principles generally
accepted in the United States of America requires us to make estimates and
assumptions that affect:
- the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements; and
- the reported amounts of revenues and expenses during the reporting
period.
Ultimate results could differ from those estimates.
Principles of consolidation. The consolidated financial statements include
the accounts of our company and all of our subsidiaries in which we own greater
than 50% interest or control. All material intercompany accounts and
transactions are eliminated. Investments in companies in which we own 50%
interest or less and have a significant influence are accounted for using the
equity method and if we do not have significant influence we use the cost
method. Prior year amounts have been reclassified to conform to the current year
presentation.
Revenues and income recognition. We recognize revenues as services are
rendered or products are shipped. The distinction between services and product
sales is based upon the overall activity of the particular business operation.
Revenues from engineering and construction contracts are reported on the
percentage of completion method of accounting using measurements of progress
towards completion appropriate for the work performed. Progress is generally
based upon physical progress, man-hours or costs incurred based upon the
appropriate method for the type of job. All known or anticipated losses on
contracts are provided for currently. Claims and change orders which are in the
process of being negotiated with customers, for extra work or changes in the
scope of work are, included in revenue when collection is deemed probable.
Training and consulting service revenues are recognized as the services are
performed. Sales of perpetual software licenses, net of deferred maintenance
fees, are recorded as revenue upon shipment. Sales of use licenses are
recognized as revenue over the license period. Post-contract customer support
agreements are recorded as deferred revenues and recognized as revenue ratably
over the contract period of generally one year's duration.
Research and development. Research and development expenses are charged to
income as incurred. See Note 4 for research and development expense by business
segment.
Software development costs. Costs of developing software for sale are
charged to expense when incurred, as research and development, until
technological feasibility has been established for the product. Once
technological feasibility is established, software development costs are
capitalized until the software is ready for general release to customers. We
capitalized costs related to software developed for resale of $19 million in
2001, $7 million in 2000 and $12 million in 1999. Amortization expense of
software development costs was $16 million for 2001, $12 million for 2000 and
$15 million for 1999. Once the software is ready for release, amortization of
the software development costs begins. Capitalized software development costs
are amortized over periods which do not exceed five years.
Income per share. Basic income per share is based on the weighted average
number of common shares outstanding during the year. Diluted income per share
includes additional common shares that would have been outstanding if potential
common shares with a dilutive effect had been issued. See Note 10 for a
reconciliation of basic and diluted income per share.
Cash equivalents. We consider all highly liquid investments with an
original maturity of three months or less to be cash equivalents.
Receivables. Our receivables are generally not collateralized. With the
exception of claims and change orders which are in the process of being
negotiated with customers, unbilled work on uncompleted contracts generally
represents work currently billable, and this work is usually billed during
normal billing processes in the next several months. The claims and change
orders, included in unbilled receivables, amounted to $234 million at December
31, 2001 and $113 million at December 31, 2000. Included in notes and accounts
receivable are notes with varying interest rates totaling $19 million at
December 31, 2001 and $38 million at December 31, 2000.
35
Inventories. Inventories are stated at the lower of cost or market. Cost
represents invoice or production cost for new items and original cost less
allowance for condition for used material returned to stock. Production cost
includes material, labor and manufacturing overhead. The cost of most
inventories is determined using either the first-in, first-out method or the
average cost method, although the cost of some United States manufacturing and
field service inventories is determined using the last-in, first-out method.
Inventories of sales items owned by foreign subsidiaries and inventories of
operating supplies and parts are generally valued at average cost. See Note 5.
Property, plant and equipment. Property, plant and equipment are reported
at cost less accumulated depreciation, which is generally provided on the
straight-line method over the estimated useful lives of the assets. Some assets
are depreciated on accelerated methods. Accelerated depreciation methods are
also used for tax purposes, wherever permitted. Upon sale or retirement of an
asset, the related costs and accumulated depreciation are removed from the
accounts and any gain or loss is recognized. When events or changes in
circumstances indicate that assets may be impaired, an evaluation is performed.
The estimated future undiscounted cash flows associated with the asset are
compared to the asset's carrying amount to determine if a write-down to market
value or discounted cash flow value is required. We follow the successful
efforts method of accounting for oil and gas properties. See Note 6.
Maintenance and repairs. Expenditures for maintenance and repairs are
expensed; expenditures for renewals and improvements are generally capitalized.
We use the accrue-in-advance method of accounting for major maintenance and
repair costs of marine vessel dry docking expense and major aircraft overhauls
and repairs. Under this method we anticipate the need for major maintenance and
repairs and charge the estimated expense to operations before the actual work is
performed. At the time the work is performed, the actual cost incurred is
charged against the amounts that were previously accrued with any deficiency or
excess charged or credited to operating expense.
Goodwill. For acquisitions occurring prior to July 1, 2001, goodwill is
amortized on a straight-line basis over periods not exceeding 40 years.
Effective July 1, 2001, we adopted SFAS No. 141, "Business Combinations" which
precludes amortization of goodwill on acquisitions completed subsequent to June
30, 2001. See Note 12 for discussion of this accounting change. Goodwill is
continually monitored for potential impairment. When negative conditions such as
significant current or projected operating losses exist, a review is performed
to determine if the projected undiscounted future cash flows indicate that an
impairment exists. If an impairment exists, goodwill, and, if appropriate, the
associated assets are reduced to reflect the estimated discounted cash flows to
be generated by the underlying business. This practice is consistent with
methodologies in SFAS No. 121 "Accounting for the Impairment of Long-lived
Assets and for Long-lived Assets to be Disposed of."
Income taxes. Deferred tax assets and liabilities are recognized for the
expected future tax consequences of events that have been recognized in the
financial statements or tax returns. A valuation allowance is provided for
deferred tax assets if it is more likely than not that these items will either
expire before we are able to realize their benefit, or that future deductibility
is uncertain.
Derivative instruments. We enter into derivative financial transactions to
hedge existing or projected exposures to changing foreign currency exchange
rates, interest rates and commodity prices. We do not enter into derivative
transactions for speculative or trading purposes. Effective January 1, 2001, we
adopted SFAS No. 133 "Accounting for Derivative Instruments and Hedging
Activities." See Note 12. SFAS No. 133 requires that we recognize all
derivatives on the balance sheet at fair value. Derivatives that are not hedges
must be adjusted to fair value and reflected immediately through the results of
operations. If the derivative is designated as a hedge under SFAS No. 133,
depending on the nature of the hedge, changes in the fair value of derivatives
are either offset against:
- the change in fair value of the hedged assets, liabilities, or
firm commitments through earnings; or
- recognized in other comprehensive income until the hedged item is
recognized in earnings.
The ineffective portion of a derivative's change in fair value is immediately
recognized in earnings. Recognized gains or losses on derivatives entered into
to manage foreign exchange risk are included in foreign currency gains and
losses on the consolidated statements of income. Gains or losses on interest
rate derivatives are included in interest expense and gains or losses on
commodity derivatives are included in operating income. During the three years
ended December 31, 2001, we did not enter into any significant transactions to
hedge commodity prices. See Note 8 for discussion of interest rate swaps and
Note 16 for further discussion of foreign currency exchange derivatives.
36
Foreign currency translation. Foreign entities whose functional currency is
the United States dollar translate monetary assets and liabilities at year-end
exchange rates and non-monetary items are translated at historical rates. Income
and expense accounts are translated at the average rates in effect during the
year, except for depreciation, cost of product sales and revenues, and expenses
associated with non-monetary balance sheet accounts which are translated at
historical rates. Gains or losses from changes in exchange rates are recognized
in consolidated income in the year of occurrence. Foreign entities whose
functional currency is the local currency translate net assets at year-end rates
and income and expense accounts at average exchange rates. Adjustments resulting
from these translations are reflected in the consolidated statements of
shareholders' equity titled "Cumulative Translation Adjustment."
Loss contingencies. We accrue for loss contingencies based upon our best
estimates in accordance with SFAS No. 5, "Accounting for Contingencies." See
Note 9 for discussion of our significant loss contingencies.
Note 2. Acquisitions and Dispositions
Magic Earth acquisition. In November 2001, we acquired Magic Earth, Inc., a
leading 3-D visualization and interpretation technology company with broad
applications in the area of data mining. Under the agreement, Halliburton issued
4.2 million shares of common stock from treasury stock valued at $100 million.
Magic Earth became a wholly owned subsidiary and is reported within our Energy
Services Group. We preliminarily recorded intangible assets of $19 million and
goodwill of $71 million, all of which is nondeductible for tax purposes, subject
to the final valuation of intangible assets and other costs. The intangible
assets will be amortized based on a five year life.
PGS Data Management acquisition. In March 2001 we acquired the PGS Data
Management division of Petroleum Geo-Services ASA (PGS) for $164 million. The
agreement also calls for Landmark to provide, for a fee, strategic data
management and distribution services to PGS for three years. We preliminarily
recorded intangible assets of $16 million and goodwill of $148 million, $9
million of which is nondeductible for tax purposes, subject to the final
valuation of intangible assets and other costs. The goodwill amortization for
2001 was based on a 15 year life and the intangible assets are being amortized
based on a three year life.
PES acquisition. In February 2000, we acquired the remaining 74% of the
shares of PES (International) Limited that we did not already own. PES is based
in Aberdeen, Scotland, and has developed technology that complements Halliburton
Energy Services' real-time reservoir solutions. To acquire the remaining 74% of
PES, we issued 1.2 million shares of Halliburton common stock. We also issued
rights that will result in the issuance of up to 2.1 million additional shares
of Halliburton common stock between February 2001 and February 2002. We issued 1
million shares in February 2001; 400,000 in June 2001; and the remaining 700,000
shares in February 2002 under these rights. We recorded $115 million of goodwill
in connection with acquiring the remaining 74%.
During the second quarter of 2001, we contributed the majority of PES'
assets and technologies, including $130 million of goodwill associated with the
purchase of PES, to a newly formed joint venture, WellDynamics. We received $39
million in cash as an equity equalization adjustment. The remaining assets and
goodwill of PES relating to completions and well intervention products have been
combined with our existing completions product service line. We own 50% of
WellDynamics and account for this investment using the equity method.
Other acquisitions. We acquired other businesses in 2001 for $56 million,
as compared to businesses acquired in 2000 for $10 million and $13 million in
1999.
2001 acquisitions. None of our 2001 acquisitions had a significant effect
on revenues or earnings.
Subsea joint venture. In October 2001, we signed a letter of intent to form
a new company by combining our Halliburton Subsea operations with DSND Subsea
ASA, a Norwegian-based company. The closing of the transaction is subject to the
execution of a definitive agreement, regulatory approvals and approvals by the
Board of Directors of each party. We will own 50% of the new company which will
be accounted for on the equity method. The new company plans to begin operations
by the end of the first quarter of 2002.
European Marine Contractors Ltd. disposition. In October 2001, we signed an
agreement to sell our 50% interest in European Marine Contractors Ltd., an
unconsolidated joint venture in the Energy Services Group, to our joint venture
partner, Saipem. The sale was finalized in January 2002 and we received $115
million in cash plus a contingent payment based on a formula linked to the Oil
Service Index performance that was exercised in February 2002 for $19 million in
cash. We expect to record a pretax gain of $108 million or $0.15 per diluted
share after-tax in the first quarter of 2002.
37
Dresser Equipment Group divestiture. Between October 1999 and April 2001,
we disposed of all the businesses in the Dresser Equipment Group. See Note 3.
LWD divestiture. In March 1999, in connection with the Dresser Industries,
Inc. merger, we sold the majority of our pre-merger worldwide
logging-while-drilling business and a portion of the pre-merger
measurement-while-drilling business. The sale was in accordance with a consent
decree with the United States Department of Justice. This business was
previously part of the Energy Services Group. We continue to provide separate
logging-while-drilling services through our Sperry-Sun Drilling Systems business
line, which was acquired as part of the merger with Dresser Industries, Inc. and
is now part of the Energy Services Group. In addition, we will continue to
provide sonic logging-while-drilling services using technologies we had before
the merger with Dresser Industries, Inc.
Note 3. Discontinued Operations
In 1999, the Dresser Equipment Group was comprised of six operating
divisions and two joint ventures that manufactured and marketed equipment used
primarily in the energy, petrochemical, power and transportation industries. In
October 1999, we announced the sales of our 49% interest in the
Ingersoll-Dresser Pump joint venture and our 51% interest in the Dresser-Rand
joint venture to Ingersoll-Rand. The sales were triggered by Ingersoll-Rand's
exercise of its option under the joint venture agreements to cause us to either
buy their interests or sell ours. Both joint ventures were part of the Dresser
Equipment Group. Our Ingersoll-Dresser Pump interest was sold in December 1999
for approximately $515 million. We recorded a gain on disposition of
discontinued operations of $253 million before tax, or $159 million after-tax,
for a net gain of $0.36 per diluted share in 1999 from the sale of
Ingersoll-Dresser Pump. Proceeds from the sale, after payment of our
intercompany balance, were received in the form of a $377 million promissory
note with an annual interest rate of 3.5% which was collected on January 14,
2000. On February 2, 2000, we completed the sale of our 51% interest in
Dresser-Rand for a price of $579 million. Proceeds from the sale, net of
intercompany amounts payable to the joint venture, were $536 million, resulting
in a gain on disposition of discontinued operations of $356 million before tax,
or $215 million after-tax, for a net gain of $0.48 per diluted share in the
first quarter of 2000.
These joint ventures represented nearly half of the group's revenues and
operating profit in 1999. The sale of our interests in the segment's joint
ventures prompted a strategic review of the remaining businesses within the
Dresser Equipment Group. As a result of this review, we determined that the
remaining businesses did not closely fit with our core businesses, long-term
goals and strategic objectives. In April 2000, our Board of Directors approved
plans to sell all the remaining businesses within the Dresser Equipment Group.
We sold these businesses on April 10, 2001. As part of the terms of the
transaction, we retained a 5.1% equity interest in the Dresser Equipment Group,
which has been renamed Dresser, Inc. In the second quarter of 2001, we
recognized a pretax gain on the sale of discontinued operations of $498 million,
or $299 million after-tax. Total value under the agreement was $1.55 billion,
less assumed liabilities, and resulted in cash proceeds of $1.27 billion from
the sale. In connection with the sale, we accrued disposition related costs,
realized $68 million of noncurrent deferred income tax assets, and reduced
employee compensation and benefit liabilities by $152 million for liabilities
assumed by the purchaser. The employee compensation and benefit liabilities were
previously included in "Employee compensation and benefits" in the consolidated
balance sheets.
The financial results of the Dresser Equipment Group through March 31, 2001
are presented as discontinued operations in our financial statements. During
2001, we recorded as expense to discontinued operations $99 million, net of
anticipated insurance recoveries for asbestos claims. This expense primarily
consisted of $91 million relating to Harbison-Walker asbestos claims arising
after our divestiture of Harbison-Walker in 1992. See Note 9.
38
Income (loss) from Operations
of Discontinued Businesses Years ended December 31
-----------------------------------------
Millions of dollars 2001 2000 1999
- --------------------------------------------------------------------------
Revenues $ 359 $ 1,400 $ 2,585
==========================================================================
Operating income $ 37 $ 158 $ 249
Other income and expense - - (1)
Asbestos litigation claims,
net of insurance recoveries (99) - -
Tax benefit (expense) 20 (60) (98)
Minority interest - - (26)
- --------------------------------------------------------------------------
Net income (loss) $ (42) $ 98 $ 124
==========================================================================
Gain on disposal of discontinued operations reflects the gain on the sale
of the remaining businesses within the Dresser Equipment Group in the second
quarter of 2001, the gain on the sale of Dresser-Rand in February 2000 and the
gain on the sale of Ingersoll-Dresser Pump in December 1999.
Gain on Disposal of Discontinued Operations
Millions of dollars 2001 2000 1999
- ---------------------------------------------------------------------------------------------
Proceeds from sale, less intercompany settlement $ 1,267 $ 536 $ 377
Net assets disposed (769) (180) (124)
- ---------------------------------------------------------------------------------------------
Gain before taxes 498 356 253
Income taxes (199) (141) (94)
- ---------------------------------------------------------------------------------------------
Gain on disposal of discontinued operations $ 299 $ 215 $ 159
=============================================================================================
Net assets of discontinued operations at December 31, 2001 are zero and at
December 31, 2000 are composed of the following items:
Millions of dollars 2000
- -----------------------------------------------------------------
Receivables $ 286
Inventories 255
Other current assets 22
Accounts payable (104)
Other current liabilities (161)
- -----------------------------------------------------------------
Net current assets of discontinued operations $ 298
=================================================================
Net property, plant and equipment $ 219
Net goodwill 257
Other assets 30
Employee compensation and benefits (113)
Other liabilities (2)
- -----------------------------------------------------------------
Net noncurrent assets of discontinued operations $ 391
=================================================================
Note 4. Business Segment Information
We have two business segments - Energy Services Group and Engineering and
Construction Group. Dresser Equipment Group is presented as part of discontinued
operations through March 31, 2001 as a result of the sale in April 2001 of the
remaining businesses within Dresser Equipment Group. See Note 3. Our segments
are organized around the products and services provided to our customers. During
the fourth quarter of 2000, we announced restructuring plans to combine all
engineering, construction, fabrication and project management operations into
one company, Halliburton KBR, reporting as our Engineering and Construction
Group. This restructuring resulted in some activities moving from the Energy
39
Services Group to the Engineering and Construction Group, effective January 1,
2001. Prior periods have been restated for this change.
Energy Services Group. The Energy Services Group provides a wide range of
discrete services and products and integrated solutions to customers for the
exploration, development, and production of oil and gas. The customers for this
segment are major, national and independent oil and gas companies. This segment
consists of:
- Halliburton Energy Services provides oilfield services and
products including discrete products and services and integrated
solutions for oil and gas exploration, development and
production throughout the world. Products and services include
pressure pumping equipment and services, logging and perforating,
drilling systems and services, drilling fluids systems, drill
bits, specialized completion and production equipment and
services, well control, integrated solutions, and reservoir
description;
- Landmark Graphics provides integrated exploration and production
software information systems, data management services and
professional services to the petroleum industry; and
- Other product service lines provide construction, installation
and servicing of subsea facilities; flexible pipe for offshore
applications; pipeline services for offshore customers;
pipecoating services; feasibility, conceptual and front-end
engineering and design, detailed engineering, procurement,
construction site management, commissioning, start-up and
debottlenecking of both onshore and offshore facilities; and
large integrated engineering, procurement, and construction
projects containing both surface and sub-surface components.
Engineering and Construction Group. The Engineering and Construction Group
provides engineering, procurement, construction, project management, and
facilities operation and maintenance for oil and gas and other industrial and
governmental customers. The Engineering and Construction Group, operating as
Halliburton KBR, includes the following five product lines:
- Onshore operations comprises engineering and construction
activities, including liquefied natural gas, ammonia, crude oil
refineries, and natural gas plants;
- Offshore operations includes specialty offshore deepwater
engineering and marine technology and worldwide fabrication
capabilities;
- Government operations provides operations, maintenance and
logistics activities for government facilities and installations;
- Operations and maintenance provides services for private sector
customers, primarily industrial, hydrocarbon and commercial
applications; and
- Asia Pacific operations, based in Australia, provides civil
engineering and consulting services.
General corporate. General corporate represents assets not included in a
business segment and is primarily composed of receivables, deferred tax assets
and other shared assets, including the investment in an enterprise-wide
information system.
Intersegment revenues included in the revenues of the business segments and
revenues between geographic areas are immaterial. Our equity in pretax earnings
and losses of unconsolidated affiliates that are accounted for on the equity
method is included in revenues and operating income of the applicable segment.
The tables below present information on our continuing operations business
segments.
40
Operations by Business Segment
Years ended December 31
------------------------------------------
Millions of dollars 2001 2000 1999
- -------------------------------------------------------------------------------------------
Revenues:
Energy Services Group $ 8,722 $ 6,776 $ 5,921
Engineering and Construction Group 4,324 5,168 6,392
- -------------------------------------------------------------------------------------------
Total $ 13,046 $ 11,944 $ 12,313
===========================================================================================
Operating income:
Energy Services Group $ 1,015 $ 582 $ 250
Engineering and Construction Group 143 (42) 175
Special credits - - 47
General corporate (74) (78) (71)
- -------------------------------------------------------------------------------------------
Total $ 1,084 $ 462 $ 401
===========================================================================================
Capital expenditures:
Energy Services Group $ 705 $ 494 $ 413
Engineering and Construction Group 47 33 35
General corporate and shared assets 45 51 72
- -------------------------------------------------------------------------------------------
Total $ 797 $ 578 $ 520
===========================================================================================
Depreciation, depletion and amortization:
Energy Services Group $ 430 $ 403 $ 409
Engineering and Construction Group 44 53 55
General corporate and shared assets 57 47 47
- -------------------------------------------------------------------------------------------
Total $ 531 $ 503 $ 511
===========================================================================================
Total assets:
Energy Services Group $ 7,075 $ 6,086 $ 5,464
Engineering and Construction Group 2,674 2,408 1,985
Net assets of discontinued operations - 690 1,103
General corporate and shared assets 1,217 1,008 1,087
- --------------------------------------------------------------------------------------------
Total $ 10,966 $ 10,192 $ 9,639
============================================================================================
Research and development:
Energy Services Group $ 226 $ 224 $ 207
Engineering and Construction Group 7 7 4
- --------------------------------------------------------------------------------------------
Total $ 233 $ 231 $ 211
============================================================================================
Special credits:
Energy Services Group $ - $ - $ (41)
Engineering and Construction Group - - (4)
General corporate - - (2)
- --------------------------------------------------------------------------------------------
Total $ - $ - $ (47)
============================================================================================
41
Operations by Geographic Area
Years ended December 31
------------------------------------------
Millions of dollars 2001 2000 1999
- --------------------------------------------------------------------------------------------
Revenues:
United States $ 4,911 $ 4,073 $ 3,727
United Kingdom 1,800 1,512 1,656
Other areas (numerous countries) 6,335 6,359 6,930
- --------------------------------------------------------------------------------------------
Total $ 13,046 $ 11,944 $ 12,313
============================================================================================
Long-lived assets:
United States $ 3,030 $ 2,068 $ 1,801
United Kingdom 617 525 684
Other areas (numerous countries) 744 776 643
- --------------------------------------------------------------------------------------------
Total $ 4,391 $ 3,369 $ 3,128
============================================================================================
Note 5. Inventories
Inventories to support continuing operations at December 31, 2001 and 2000
are composed of the following:
Millions of dollars 2001 2000
- ------------------------------------------------------------
Finished products and parts $ 520 $ 486
Raw materials and supplies 192 178
Work in process 75 59
- ------------------------------------------------------------
Total $ 787 $ 723
============================================================
Inventories on the last-in, first-out method were $54 million at December
31, 2001 and $66 million at December 31, 2000. If the average cost method had
been used, total inventories would have been about $20 million higher than
reported at December 31, 2001, and $28 million higher than reported at December
31, 2000.
Note 6. Property, Plant and Equipment
Property, plant and equipment to support continuing operations at December
31, 2001 and 2000 are composed of the following:
Millions of dollars 2001 2000
- ---------------------------------------------------------------------
Land $ 82 $ 83
Buildings and property improvements 942 968
Machinery, equipment and other 4,926 4,509
- ---------------------------------------------------------------------
Total 5,950 5,560
Less accumulated depreciation 3,281 3,150
- ---------------------------------------------------------------------
Net property, plant and equipment $ 2,669 $ 2,410
=====================================================================
At December 31, 2001 machinery, equipment and other property includes oil
and gas investments of approximately $423 million and software developed for an
information system of $233 million. At December 31, 2000 machinery, equipment
and other property includes oil and gas investments of approximately $363
million and software developed for an information system of $223 million.
Note 7. Related Companies
We conduct some of our operations through various joint ventures which are
in partnership, corporate and other business forms, and are principally
accounted for using the equity method. Information pertaining to related
companies for our continuing operations is set out below.
42
The larger unconsolidated entities include European Marine Contractors,
Ltd., and Bredero-Shaw which are both part of the Energy Services Group. We sold
our 50% interest in European Marine Contractors, Ltd., in January 2002. See Note
2. Bredero-Shaw, which is 50%-owned, specializes in pipecoating.
Combined summarized financial information for all jointly owned operations
which are not consolidated is as follows:
Combined Operating Results Years ended December 31
------------------------------------------
Millions of dollars 2001 2000 1999
- ---------------------------------------------------------------------------
Revenues $ 1,987 $ 3,098 $ 3,215
===========================================================================
Operating income $ 231 $ 192 $ 193
===========================================================================
Net income $ 169 $ 169 $ 127
===========================================================================
Combined Financial Position December 31
-----------------------------
Millions of dollars 2001 2000
- ---------------------------------------------------------------
Current assets $ 1,818 $ 1,604
Noncurrent assets 1,672 1,307
- ---------------------------------------------------------------
Total $ 3,490 $ 2,911
===============================================================
Current liabilities $ 1,522 $ 1,238
Noncurrent liabilities 1,272 947
Minority interests 2 2
Shareholders' equity 694 724
- ---------------------------------------------------------------
Total $ 3,490 $ 2,911
===============================================================
Note 8. Lines of Credit, Notes Payable and Long-Term Debt
At December 31, 2001, we had committed lines of credit totaling $700
million, of which $350 million expires in 2002 and $350 million expires in 2006.
There were no borrowings outstanding under these lines of credit. These lines
are not available if our senior unsecured long-term debt is rated lower than
BBB- by Standard & Poor's Ratings Service Group or lower than Baa3 by Moody's
Investors' Services.
Fees for committed lines of credit were immaterial.
Short-term debt consists primarily of $25 million in commercial paper with
an effective interest rate of 2.9% and $19 million of other facilities with
varying rates of interest.
Long-term debt at the end of 2001 and 2000 consists of the following:
Millions of dollars 2001 2000
- ------------------------------------------------------------------------------------
7.6% debentures due August 2096 $ 300 $ 300
8.75% debentures due February 2021 200 200
8% senior notes due April 2003 139 139
Medium-term notes due 2002 through 2027 825 400
Effect of interest rate swaps 3 -
Term loans at LIBOR (GBP) plus 0.75% payable in
semiannual installments through March 2002 4 11
Other notes with varying interest rates 13 7
- ------------------------------------------------------------------------------------
Total long-term debt 1,484 1,057
Less current portion 81 8
- ------------------------------------------------------------------------------------
Noncurrent portion of long-term debt $ 1,403 $ 1,049
====================================================================================
The 7.6% debentures due 2096, 8.75% debentures due 2021, and 8% senior
notes due 2003 may not be redeemed prior to maturity and do not have sinking
fund requirements.
43
On July 12, 2001, we issued $425 million of two and five year notes under
our medium-term note program. The notes consist of $275 million 6% fixed rate
notes due August 2006 and $150 million LIBOR + 0.15% floating rate notes due
July 2003. At December 31, 2001, we have outstanding notes under our medium-term
note program as follows:
Amount Due Rate Issue Price
- -----------------------------------------------------------------
$ 75 million 08/2002 6.30% Par
$ 150 million 07/2003 Floating% Par
$ 275 million 08/2006 6.00% 99.57%
$ 150 million 12/2008 5.63% 99.97%
$ 50 million 05/2017 7.53% Par
$ 125 million 02/2027 6.75% 99.78%
- -----------------------------------------------------------------
Each holder of the 6.75% medium-term notes has the right to require us to
repay the holder's notes in whole or in part, on February 1, 2007. We may redeem
the 5.63% and 6.00% medium-term notes in whole or in part at any time. Other
notes issued under the medium-term note program may not be redeemed prior to
maturity. The medium-term notes do not have sinking fund requirements.
We manage our ratio of fixed variable rate debt and accordingly have
entered into two interest rate swaps during the second half of 2001 on a portion
of our newly issued 6% fixed rate medium-term notes and on our 8% senior notes.
The interest rate swap agreements have notional amounts of $150 million and $139
million. The interest rate swaps have been designated as fair value hedges under
SFAS No. 133. See Note 16. At December 31, 2001 the fair value of the interest
rate swap on our 6% fixed rate medium-term notes was $3.4 million which has been
classified in "Other assets." The fair value of the interest rate swap on our 8%
senior notes at December 31, 2001 was a $0.2 million liability and has been
classified in "Other liabilities." The hedged portion of the long-term debt is
recorded at fair value. We account for these interest rate swaps using the
short-cut method, as described in SFAS No. 133, and determined there was no
ineffectiveness for the period ending December 31, 2001. Amounts to be received
or paid as a result of the swap agreements are recognized as adjustments to
interest expense. The interest rate swaps resulted in a decrease to interest
expense of $2.6 million for the year ended December 31, 2001.
Our debt matures as follows: $81 million in 2002; $291 million in 2003; $2
million in 2004 and 2005; $277 million in 2006; and $828 million thereafter.
Note 9. Commitments and Contingencies
Leases. At year end 2001, we were obligated under noncancelable operating
leases, expiring on various dates through 2021, principally for the use of land,
offices, equipment, field facilities, and warehouses. Total rentals charged to
continuing operations, net of sublease rentals, for noncancelable leases in
2001, 2000, and 1999 were as follows:
Millions of dollars 2001 2000 1999
- -------------------------------------------------------------
Rental expense $ 172 $ 149 $ 139
=============================================================
Future total rentals on noncancelable operating leases are as follows: $97
million in 2002; $83 million in 2003; $59 million in 2004; $43 million in 2005;
$30 million in 2006; and $97 million thereafter.
Asbestos litigation. Several of our subsidiaries, particularly Dresser
Industries, Inc. and Kellogg Brown & Root, Inc., are defendants in a large
number of asbestos related lawsuits. The plaintiffs allege injury as a result of
exposure to asbestos in products manufactured or sold by former divisions of
Dresser Industries, Inc. or in materials used in construction or maintenance
projects of Kellogg Brown & Root, Inc. These claims are in three general
categories:
- refractory claims;
- other Dresser Industries, Inc. claims; and
- construction claims.
44
Refractory claims
Asbestos was used in a small number of products manufactured or sold by the
refractories business of Harbison-Walker Refractories Company, which Dresser
Industries, Inc. acquired in 1967. Harbison-Walker was spun-off by Dresser
Industries, Inc. in 1992. At that time, Harbison-Walker assumed liability for
asbestos claims filed after the spin-off and it agreed to defend and indemnify
Dresser Industries, Inc. from liability for those claims. Dresser Industries,
Inc. retained responsibility for asbestos claims filed before the spin-off.
After the spin-off, Dresser Industries, Inc. and Harbison-Walker entered into
coverage-in-place agreements with a number of insurance companies. Those
agreements provide both Dresser Industries, Inc. and Harbison-Walker access to
the same insurance coverage to reimburse them for defense costs, settlements and
court judgments they pay to resolve refractory claims.
As of December 31, 2001 there were approximately 7,000 open and unresolved
pre-spin-off refractory claims against Dresser Industries, Inc. In addition,
there were approximately 125,000 post spin-off claims that name Dresser
Industries, Inc. as a defendant. Dresser Industries, Inc. has taken up the
defense of unsettled post spin-off refractory claims that name it as a defendant
in order to prevent Harbison-Walker from unnecessarily eroding the insurance
coverage both companies can access for these claims.
Other Dresser Industries, Inc. claims
As of December 31, 2001, there were approximately 110,000 open and
unresolved claims alleging injuries from asbestos used in several other types of
products formerly manufactured by Dresser Industries, Inc. Most of these claims
involve gaskets and packing materials used in pumps and other industrial
products.
Construction claims
Our Engineering and Construction Group includes engineering and
construction businesses formerly operated by The M.W. Kellogg Company and Brown
& Root, Inc., now combined as Kellogg Brown & Root, Inc. As of December 31,
2001, there were approximately 32,000 open and unresolved claims alleging
injuries from asbestos in materials used in construction and maintenance
projects, most of which were conducted by Brown & Root, Inc. Less than 1,000 of
these claims are asserted against The M.W. Kellogg Company. A prior owner of The
M.W. Kellogg Company provides Kellogg Brown & Root, Inc. a contractual
indemnification for those claims.
Harbison-Walker Chapter 11 bankruptcy
Harbison-Walker was spun-off by Dresser Industries, Inc. in 1992. At that
time Harbison-Walker agreed to assume liability for asbestos claims filed after
the spin-off and it agreed to defend and indemnify Dresser Industries, Inc. from
liability for those claims. On February 14, 2002 Harbison-Walker filed a
voluntary petition for reorganization under Chapter 11 of the United States
Bankruptcy Code in the bankruptcy court in Pittsburgh, Pennsylvania. In its
bankruptcy-related filings, Harbison-Walker said that it would seek to utilize
Sections 524(g) and 105 of the bankruptcy code to propose and have confirmed a
plan of reorganization that provides for distributions for all legitimate
asbestos pending and future claims against it or for which it has agreed to
indemnify and defend Dresser Industries, Inc. If a plan of reorganization is
ultimately confirmed, all pending and future Harbison-Walker related asbestos
claims against Harbison-Walker or Dresser Industries, Inc. could be channeled to
a Section 524(g)/105 trust for resolution and payment. In order for a trust to
be confirmed, at least a majority of the equity ownership of Harbison-Walker
would have to be contributed to the trust. Creation of a trust would also
require the approval of 75% of the asbestos claimant creditors of
Harbison-Walker.
In connection with the Chapter 11 filing by Harbison-Walker, the bankruptcy
court issued a temporary restraining order staying all further litigation of
more than 200,000 asbestos claims currently pending against Dresser Industries,
Inc. in numerous courts throughout the United States. On February 21, 2002, the
bankruptcy court extended the time period of the stay until April 4, 2002, when
the bankruptcy court will hold a hearing to decide if the stay will continue or
be modified. The stayed asbestos claims are those covered by insurance that both
Dresser Industries, Inc. and Harbison-Walker can access to pay defense costs,
settlements and judgments attributable to asbestos claims. The stayed claims
include approximately 132,000 post-1992 spin-off refractory claims, 7,000
pre-spin-off refractory claims and approximately 96,000 other types of asbestos
claims pending against Dresser Industries, Inc. that are covered by the same
shared insurance. Approximately 46,000 of the claims in the third category are
claims made against Dresser Industries, Inc. based on more than one ground for
recovery and the stay affects only the portion of the claim covered by the
shared insurance. The stay prevents litigation from proceeding while the stay is
in effect and also prohibits the filing of new claims. One of the purposes of
the stay is to allow Harbison-Walker and Dresser Industries, Inc. time to
develop and propose a plan of reorganization.
45
The stay issued on February 14, 2002, and extended on February 21, 2002, is
temporary until the bankruptcy court completes a hearing currently scheduled for
April 4, 2002. At the conclusion of that hearing, the bankruptcy court may issue
a preliminary injunction continuing the stay or it may modify or dissolve the
stay as it applies to Dresser Industries, Inc. It is also possible that the
bankruptcy court will schedule future hearings while continuing or modifying
the stay. At present, there is no assurance that a stay will remain in effect,
that a plan of reorganization will ultimately be proposed or confirmed, or that
any plan that is confirmed will provide relief to Dresser Industries, Inc. If a
plan is not ultimately confirmed that provides relief to Dresser Industries,
Inc., it will be required to defend all open claims in the courts in which they
have been filed, possibly with reduced access to the insurance shared with
Harbison-Walker.
Dresser Industries, Inc. has agreed to provide $35 million of
debtor-in-possession financing to Harbison-Walker during the pendency of the
Chapter 11 proceeding. On February 14, 2002, Dresser Industries, Inc. paid $40
million to Harbison-Walker's U.S. parent holding company, RHI Refractories
Holding Company which we will charge to discontinued operations in the first
quarter of 2002. The first payment was made on the filing of the bankruptcy
petition. Dresser Industries, Inc. had to act to protect its insurance asset
from dissipation by Harbison-Walker if there was going to be any potential to
resolve the asbestos claims through the creation of a Section 524(g)/105 trust.
The payment to RHI Refractories led RHI Refractories to forgive certain
inter-company debt owed to it by Harbison-Walker, thus increasing the assets of
Harbison-Walker. Dresser Industries, Inc. will pay another $35 million to RHI if
a plan of reorganization acceptable to Dresser Industries, Inc. is proposed in
the bankruptcy proceedings. A further $85 million will be paid to RHI if a plan
acceptable to Dresser Industries, Inc. is approved by 75% of the Harbison-Walker
asbestos claimant creditors and is confirmed by the bankruptcy court. Dresser
Industries, Inc., Harbison-Walker and RHI and its affiliates have settled all
litigation among them.
Asbestos insurance coverage
We have insurance coverage that reimburses us for a substantial portion of
the costs we incur defending against asbestos claims. This coverage also
reimburses us for a substantial portion of amounts we pay to settle claims and
amounts awarded in court judgments. The coverage is provided by a large number
of insurance policies written by dozens of insurance companies. The insurance
companies wrote the coverage over a period of more than 30 years for our
subsidiaries and their predecessors. Large amounts of this coverage are now
subject to coverage-in-place agreements that resolve issues concerning amounts
and terms of coverage. The amount of insurance coverage available to us depends
on the nature and time of the alleged exposure to asbestos, the specific
subsidiary against which an asbestos claim is asserted and other factors.
Refractory claims insurance
Dresser Industries, Inc. has approximately $2.1 billion in aggregate limits
of insurance coverage for refractory asbestos claims of which over half is with
Equitas. Many of the issues relating to the majority of this coverage have been
resolved by coverage-in-place agreements with dozens of companies, including
Equitas and other London-based insurance companies. Recently, however, Equitas
and other London-based companies have imposed new restrictive documentation
requirements on Dresser Industries, Inc. and other insureds. Equitas and the
other London-based companies have stated that the new requirements are part of
an effort to limit payment of settlements to claimants who are truly impaired by
exposure to asbestos and can identify the product or premises that caused their
exposure. On August 7, 2001 Dresser Industries, Inc. filed a lawsuit in Dallas
County, Texas, against a number of these insurance companies asserting Dresser
Industries, Inc.'s rights under existing coverage-in-place agreements. These
agreements allow Dresser Industries, Inc. to enter into settlements for small
amounts without requiring claimants to produce detailed documentation to support
their claims, when we believe settlements are an effective claims management
strategy. We believe that the new documentation requirements are inconsistent
with the current coverage-in-place agreements and are unenforceable. The
insurance companies Dresser Industries, Inc. has sued have not refused to pay
larger claim settlements where documentation is obtained or where court
judgments are entered. Also, they continue to pay previously agreed to amounts
of defense costs Dresser Industries, Inc. incurs defending refractory asbestos
claims. If a Section 524(g)/105 trust is confirmed as part of the
Harbison-Walker bankruptcy proceedings, this insurance will be used to fund that
trust.
46
Other Dresser Industries, Inc. claims insurance
Dresser Industries, Inc. has insurance that covers other open asbestos
claims against it. Some of this insurance covers Dresser Industries, Inc.
entities acquired prior to the 1986 asbestos exclusions. Many of the traditional
Dresser Industries, Inc. product manufacturing companies or divisions are
covered under these policies. Other coverage is provided by a number of
different policies which Dresser Industries, Inc. acquired rights to access for
coverage of asbestos claims when it acquired businesses from other companies. A
significant portion of this insurance coverage is shared with Federal-Mogul
Corporation, which is now in reorganization under Chapter 11 of the bankruptcy
code. The effect of that bankruptcy on Dresser Industries, Inc.'s ability to
continue to access this shared insurance is uncertain.
On August 28, 2001, Dresser Industries, Inc. filed a separate lawsuit
against Equitas and other London-based companies that provide some of this
insurance. This lawsuit is similar to the lawsuit described under Refractory
Claims Insurance above that seeks to prevent insurance companies from
unilaterally modifying the terms of existing coverage-in-place agreements.
Construction claims insurance
Nearly all of our construction asbestos claims relate to Brown & Root, Inc.
operations before the 1980s. Our primary insurance coverage for these claims was
written by Highlands Insurance Company during the time it was one of our
subsidiaries. Highlands was spun-off to our shareholders in 1996. At present,
Highlands is not paying any portion of the settlement or defense costs we incur
for construction asbestos claims. On April 5, 2000, Highlands filed a lawsuit
against us in the Delaware Chancery Court. Highlands asserted that the insurance
it wrote for Brown & Root, Inc. that covered construction asbestos claims was
terminated by agreements between Halliburton and Highlands at the time of the
1996 spin-off. Although we do not believe that a termination of this insurance
occurred, in March 2001, the Chancery Court ruled that a termination did occur
and that Highlands is not obligated to provide coverage for Brown & Root, Inc.'s
asbestos claims. A three Justice panel of the Delaware Supreme Court heard oral
arguments of our appeal of this decision on September 17, 2001. The appeal will
be reargued before the entire Delaware Supreme Court on March 12, 2002. We
believe the Chancery Court's decision is wrong and that the Delaware Supreme
Court will reverse and return the case to the Chancery Court for a trial on the
merits. We expect, based on an opinion from our outside legal counsel, to
ultimately prevail in this litigation. We anticipate the Delaware Supreme
Court's decision later this year.
In addition, on April 24, 2000, we filed a lawsuit in Harris County, Texas,
asserting that Highlands has breached its contractual obligations to provide
coverage for asbestos claims under the policies it wrote for Brown & Root, Inc.
This lawsuit is stayed pending resolution of the Delaware litigation. We are
aware that Highland's financial condition has deteriorated since this litigation
began. A.M. Best has reduced its rating for Highlands to "C-" (weak) and
Highlands has ceased all of its underwriting operations. However, we believe
that once the Delaware litigation is successfully concluded in our favor as we
expect, Highlands has the ability to reimburse us for a substantial portion of
the defense, settlement and other costs we incur defending Brown & Root, Inc.
open asbestos claims. If Highlands becomes unable to pay amounts owed to us for
coverage of Brown & Root, Inc. open asbestos claims, we have the right to seek
reimbursement from the Texas Property and Casualty Guaranty Association. This
association consists of and is funded by all insurance companies permitted to
write insurance in Texas. It provides protection to insured parties and
claimants when an insurance company licensed in Texas becomes insolvent. This
protection is limited and there are a number of issues that would need to be
resolved if we seek to collect from the association if Highlands becomes
insolvent.
Significant asbestos judgments on appeal
During 2001, there were several adverse judgments in trial court
proceedings that are in various stages of the appeal process. All of these
judgments concern asbestos claims involving Harbison-Walker refractory products.
Each of these appeals, however, has been stayed by the bankruptcy court, as
described in the Harbison-Walker Chapter 11 bankruptcy section above, until at
least April 4, 2002.
On November 29, 2001, the Texas District Court in Orange, Texas, entered
judgments against Dresser Industries, Inc. on a $65 million jury verdict
rendered in September 2001 in favor of five plaintiffs. The $65 million amount
includes $15 million of a $30 million judgment against Dresser Industries, Inc.
and another defendant. Dresser Industries, Inc. is jointly and severally liable
for $15 million in addition to $65 million if the other defendant does not pay
its share of this judgment. We believe that during the trial the court committed
numerous errors, including prohibiting Dresser Industries, Inc. from presenting
evidence that the alleged illness of the plaintiffs was caused by products of
47
other companies that had previously settled with the plaintiffs. We intend to
appeal this judgment and believe that the Texas appellate courts will ultimately
reverse this judgment.
On November 29, 2001, the same District Court in Orange, Texas, entered
three additional judgments against Dresser Industries, Inc. in the aggregate
amount of $35.7 million in favor of 100 other asbestos plaintiffs. These
judgments relate to an alleged breach of purported settlement agreements signed
early in 2001 by a New Orleans lawyer hired by Harbison-Walker, which had been
defending Dresser Industries, Inc. pursuant to the agreement by which
Harbison-Walker was spun-off by Dresser Industries, Inc. in 1992. These
settlement agreements expressly bind Harbison-Walker Refractories Company as the
obligated party, not Dresser Industries, Inc. Dresser Industries, Inc. intends
to appeal these three judgments on the grounds that it was not a party to the
settlement agreements and it did not authorize anyone to settle on its behalf.
We believe that these judgments are contrary to applicable law and will be
reversed.
On December 5, 2001, a jury in the Circuit Court for Baltimore City,
Maryland, returned verdicts against Dresser Industries, Inc. and other
defendants following a trial involving refractory asbestos claims. Each of the
five plaintiffs alleges exposure to Harbison-Walker products. Dresser
Industries, Inc.'s portion of the verdicts was approximately $30 million.
Dresser Industries, Inc. believes that the trial court committed numerous errors
and that the trial evidence did not support the verdicts. The trial court has
entered judgment on these verdicts. Dresser Industries, Inc. intends to appeal
the judgment to the Maryland Supreme Court where we expect the judgment will be
significantly reduced, if not totally reversed.
On October 25, 2001, in the Circuit Court of Holmes County, Mississippi, a
jury verdict of $150 million was rendered in favor of six plaintiffs against
Dresser Industries, Inc. and two other companies. Dresser Industries, Inc.'s
share of the verdict was $21.5 million. The award was for compensatory damages.
The jury did not award any punitive damages. The trial court has entered
judgment on the verdict. We believe there were serious errors during the trial
and we intend to appeal this judgment to the Mississippi Supreme Court. We
believe the judgment will ultimately be reversed because there was a total lack
of evidence that the plaintiffs were exposed to a Harbison-Walker product or
that they suffered compensatory damages. Also, there were procedural errors in
the selection of the jury.
Asbestos claims history. Since 1976, approximately 474,500 asbestos claims
have been filed against us. Almost all of these claims have been made in
separate lawsuits in which we are named as a defendant along with a number of
other defendants, often exceeding 100 unaffiliated defendant companies in total.
During the fourth quarter of 2001 we received approximately 14,000 new claims,
compared to 16,000 new claims in the third quarter, 27,000 new claims in the
second quarter and 18,000 new claims in the first quarter of 2001. Included in
these numbers are new Harbison-Walker claims of approximately 4,000 in the
fourth quarter and 3,000 in the third quarter. During the fourth quarter of
2001, we closed approximately 7,000 claims, resulting in approximately 36,000
closed claims during 2001. The number of open claims pending against us at the
end of each quarter of 2001 and at the end of the two preceding years is as
follows:
Total Open
Period Ending Claims
- ----------------------------------------------
December 31, 2001 274,000
September 30, 2001 146,000
June 30, 2001 145,000
March 31, 2001 129,000
December 31, 2000 117,000
December 31, 1999 107,700
==============================================
The claims reported above at December 31, 2001 include approximately
125,000 Harbison-Walker refractory related claims that name Dresser Industries,
Inc. as a defendant. These claims were added to the open claim total during the
fourth quarter.
48
We manage asbestos claims to achieve settlements of valid claims for
reasonable amounts. When that is not possible, we contest claims in court. Since
1976 we have closed approximately 200,500 claims through settlements and court
proceedings at a total cost of approximately $150 million. We have received or
expect to receive from our insurers all but approximately $40 million of this
cost, resulting in an average net cost per closed claim of less than $200.
Reserves for asbestos claims. We have accrued reserves for our estimate of
our liability for known open asbestos claims. We have not accrued reserves for
unknown claims that may be filed against us in the future. Our estimate of the
cost of resolving open claims is based on our historical litigation experience
on closed claims, completed settlements and our estimate of amounts we will
recover from insurance companies. Our estimate of recoveries from insurance
companies with which we have coverage-in-place agreements is based on those
agreements. In those instances in which agreements are still in negotiation or
in litigation, our estimate is based on our expectation of our ultimate recovery
from insurance companies. We believe that the insurance companies with which we
have signed agreements will be able to meet their obligations under these
agreements for the amounts due to us. A summary of our reserves for open claims
and corresponding insurance recoveries is as follows:
December 31
-----------------------------
Millions of dollars 2001 2000
- --------------------------------------------------------------------------
Asbestos litigation claims $ 737 $ 80
- --------------------------------------------------------------------------
Estimated insurance recoveries:
Highlands Insurance Company (45) (39)
Other insurance carriers (567) (12)
- --------------------------------------------------------------------------
Insurance for asbestos litigation claims (612) (51)
- --------------------------------------------------------------------------
Net liability for known open asbestos claims $ 125 $ 29
==========================================================================
These insurance receivables and reserves are included in noncurrent assets
and liabilities due to the extended time periods involved to settle claims.
In addition to these asbestos reserves, our accounts receivable include $35
million we expect to collect from Highlands Insurance Company for settlements
and defense costs we have already incurred for construction asbestos claims. If
we are ultimately unsuccessful in the Highlands litigation, we will be unable to
collect this $35 million as well as the $45 million estimated recovery from
Highlands included in our asbestos reserves summarized above. If this occurs, it
may have a material adverse impact on the results of our operations and our
financial position at that time.
Accounts receivable for billings to other insurance companies for payments
made on asbestos claims were $18 million at December 31, 200l and $13 million at
December 31, 2000.
We have not accrued reserves for unknown claims that may be asserted
against us in the future. We have not had sufficient information to make a
reasonable estimate of future claims. However, we recently retained a leading
claim evaluation firm to assist us in making an estimate of our potential
liability for asbestos claims that may be asserted against us in the future.
When the evaluation firm's analysis is completed it is likely that we will
accrue a material liability for future claims that may be asserted against us.
We expect the analysis will be completed during the second quarter of 2002 and
that we will accrue the liability at the end of the quarter. At the same time we
will accrue a receivable for related insurance proceeds we expect to collect
when future claims are actually paid.
The uncertainties of asbestos claim litigation and resolution of the
litigation with insurance companies described above make it difficult to
accurately predict the results of the ultimate resolution of asbestos claims.
That uncertainty is increased by the possibility of adverse court rulings or new
legislation affecting asbestos claim litigation or the settlement process.
Subject to these uncertainties and based on our experience defending asbestos
claims and our estimate of amounts we will recover from insurance, we believe
that the open asbestos claims pending against us will be resolved without a
material adverse effect on our financial position or the results of our
operations.
Fort Ord litigation. Brown & Root Services, now operating as Kellogg Brown
& Root, has been a defendant in civil litigation pending in federal court in
Sacramento, California. The lawsuit alleges that Brown & Root Services violated
provisions of the False Claims Act while performing work for the United States
Army at Fort Ord in California. This lawsuit was filed by a former employee in
1997. On February 8, 2002, this lawsuit and a related grand jury investigation
49
were settled. Kellogg Brown & Root made a $2 million payment to the United
States government and paid the former employee's legal expenses. Kellogg Brown &
Root denied wrongdoing and did not admit liability. The United States agreed to
suspend further investigation and forgo any further sanctions with regard to
the Ft. Ord contract. Kellogg Brown & Root's ability to perform further work for
the United States government has not been impaired.
BJ Services patent litigation. On March 17, 2000, BJ Services Company filed
a lawsuit against us in the United States District Court in Houston, Texas. The
lawsuit alleges that a well fracturing fluid system used by Halliburton Energy
Services infringes a patent issued to BJ in January 2000 for a method of well
fracturing using a specific fracturing fluid. A jury trial is scheduled for
March 2002. We expect BJ will seek several hundred million dollars of damages
and an injunction to prevent us from using one of our competing fracturing
fluids. We also expect BJ to allege that we intentionally infringed its patent
and to seek treble damages. We do not believe we have infringed BJ's patent and
we have filed a counterclaim that the patent is invalid and unenforceable. We
also believe that BJ's large damage claims are unsupportable. We believe that we
have no liability for infringement of the BJ patent. However, if the patent is
found to be enforceable and we are found to have infringed it, we could be held
liable for damages in an amount that has a material adverse effect on our
financial position and the results of our operations.
Environmental. We are subject to numerous environmental legal and
regulatory requirements related to our operations worldwide. We take a proactive
approach to evaluating and addressing the environmental impact of our
operations. Each year we assess and remediate contaminated properties in order
to avoid future liabilities and comply with legal and regulatory requirements.
On occasion we are involved in specific environmental litigation and claims,
including the clean-up of properties we own or have operated as well as efforts
to meet or correct compliance-related matters.
We also incur costs related to compliance with ever-changing environmental,
legal and regulatory requirements in the jurisdictions where we operate. It is
very difficult to quantify the potential liabilities. We do not expect these
expenditures to have a material adverse effect on our consolidated financial
position or our results of operations.
During the second quarter of 2001, we accrued $15 million for environmental
matters related to liabilities retained on properties included in the sale of
Dresser Equipment Group. Our accrued liabilities for environmental matters were
$49 million as of December 31, 2001 and $31 million as of December 31, 2000.
Other. We are a party to various other legal proceedings. We expense the
cost of legal fees related to these proceedings. We believe any liabilities we
may have arising from these proceedings will not be material to our consolidated
financial position or results of operations.
Letters of credit. In the normal course of business, we have agreements
with banks under which approximately $1.4 billion of letters of credit or bank
guarantees were issued, including $241 million which relate to our joint
ventures' operations. In addition, $320 million of these financial instruments
include provisions that allow the banks to require cash collateralization if
debt ratings of either rating agency fall below the rating of BBB by Standard &
Poor's or Baa2 by Moody's Investors' Sevices and $149 million where banks may
require cash collateralization if either debt rating falls below investment
grade. These letters of credit and bank guarantees relate to our guaranteed
performance or retention payments under our long-term contracts and
self-insurance. In the past, no significant claims have been made against these
financial instruments. We do not anticipate material losses to occur as a result
of these financial instruments.
50
Note 10. Income Per Share
Millions of dollars and shares
except per share data 2001 2000 1999
- ----------------------------------------------------------------------------------------------------------
Income from continuing operations before
change in accounting method, net $ 551 $ 188 $ 174
==========================================================================================================
Basic weighted average shares 428 442 440
Effect of common stock equivalents 2 4 3
- ----------------------------------------------------------------------------------------------------------
Diluted weighted average shares 430 446 443
==========================================================================================================
Income per common share from continuing operations
before change in accounting method, net:
Basic $ 1.29 $ 0.42 $ 0.40
==========================================================================================================
Diluted $ 1.28 $ 0.42 $ 0.39
==========================================================================================================
Basic income per share is 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. Included in the computation of
diluted income per share are rights we issued in connection with the PES
acquisition for between 850,000 and 2.1 million shares of Halliburton common
stock. Excluded from the computation of diluted income per share are options to
purchase 10 million shares of common stock in 2001, 1 million shares in 2000 and
2 million shares in 1999. These options were outstanding during these years, but
were excluded because the option exercise price was greater than the average
market price of the common shares.
Note 11. Engineering and Construction Reorganization
The table below summarizes non-recurring charges of $36 million pretax
recorded in the Engineering and Construction Group segment in December 2000
related to the reorganization of our engineering and construction businesses.
Asset
Related Personnel
Millions of dollars Charges Charges Total
- -------------------------------------------------------------------------------
2000 charges $ 20 $ 16 $ 36
Utilized in 2000 (20) - (20)
- -------------------------------------------------------------------------------
Balance December 31, 2000 - 16 16
Utilized in 2001 - (11) (11)
Adjustments of estimate to actual - (4) (4)
- -------------------------------------------------------------------------------
Balance December 31, 2001 $ - $ 1 $ 1
===============================================================================
These charges were reflected in the following captions of the consolidated
statements of income:
Year ended
December 31
--------------------
Millions of dollars 2000
- -----------------------------------------------------
Cost of services $ 30
General and administrative 6
- -----------------------------------------------------
Total $ 36
=====================================================
51
Asset Related Charges
As a result of the reorganization of the engineering and construction
businesses, we took actions in the fourth quarter of 2000 to rationalize our
cost structure including write-offs of equipment, engineering reference designs
and capitalized software. Cost of services includes $20 million of charges for
equipment, licenses and engineering reference designs related to specific
projects that were discontinued as a result of the reorganization. Equipment and
licenses with a net book value of $10 million were abandoned. Engineering
reference designs specific to a project with a net book value of $4 million were
written off. Software developed for internal use with a net book value of $6
million which we no longer plan to use due to standardization of systems was
also written off.
Personnel Charges
Personnel charges of $16 million include severance and related costs
incurred for the planned reduction of approximately 30 senior management
positions. As of December 31, 2001, payments of $11 million had been made and
the elimination of personnel was substantially complete. In January 2002, the
last of the planned personnel actions was completed.
Note 12. Change in Accounting Method
In July 2001, the Financial Accounting Standards Board issued SFAS No. 142
"Goodwill and Other Intangible Assets." Effective January 1, 2002, goodwill will
no longer be amortized but will be tested for impairment as set forth in the
statement. We have reviewed this new statement and have determined that our
reporting units as defined under SFAS No. 142 will be the same as our reportable
operating segments; Energy Services Group and Engineering and Construction
Group. We have completed our step one goodwill impairment analysis as of January
1, 2002 to estimate the fair value of each of our reporting units and that
analysis indicates that we do not have a goodwill impairment as a result of
adopting SFAS No. 142. Amortization of goodwill for 2001 totaled $42 million
pretax and $38 million after-tax.
In July 2001, the Financial Accounting Standards Board issued SFAS No. 141
"Business Combinations" which requires the purchase method of accounting for
business combination transactions initiated after June 30, 2001. The statement
requires that goodwill recorded on acquisitions completed prior to July 1, 2001
be amortized through December 31, 2001. Goodwill amortization is precluded on
acquisitions completed after June 30, 2001.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133
"Accounting for Derivative Instruments and for Hedging Activities", subsequently
amended by SFAS No. 137 and SFAS No. 138. 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 is specified in the standard
depending on the intended use of the derivative and other criteria. We adopted
SFAS No. 133 effective January 2001 and recorded a gain of $1 million after-tax
for the cumulative effect of adopting the change in accounting method. We do not
expect future measurements at fair value under the new accounting method to have
a material effect on our financial condition or results of operations.
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.
52
Note 13. Income Taxes
The components of the (provision) benefit for income taxes are:
Years ended December 31
-------------------------------------------
Millions of dollars 2001 2000 1999
- -----------------------------------------------------------------------------------------
Current income taxes:
Federal $ (146) $ (16) $ 137
Foreign (157) (114) (64)
State (20) (5) (2)
- -----------------------------------------------------------------------------------------
Total (323) (135) 71
- -----------------------------------------------------------------------------------------
Deferred income taxes:
Federal (58) (20) (175)
Foreign and state (3) 26 (12)
- -----------------------------------------------------------------------------------------
Total (61) 6 (187)
- -----------------------------------------------------------------------------------------
Total continuing operations $ (384) $ (129) $ (116)
- -----------------------------------------------------------------------------------------
Discontinued operations:
Current income taxes (15) (60) (98)
Deferred income taxes 35 - -
Disposal of discontinued operations (199) (141) (94)
Benefit for change in accounting method - - 11
- -----------------------------------------------------------------------------------------
Total $ (563) $ (330) $ (297)
=========================================================================================
Included in the current (provision) benefit for income taxes are foreign
tax credits of $106 million in 2001, $113 million in 2000 and $52 million in
1999. The United States and foreign components of income before income taxes,
minority interests, discontinued operations, and change in accounting method are
as follows:
Years ended December 31
---------------------------------------
Millions of dollars 2001 2000 1999
- ---------------------------------------------------------------
United States $ 565 $ 128 $ 131
Foreign 389 207 176
- ---------------------------------------------------------------
Total $ 954 $ 335 $ 307
===============================================================
The primary components of our deferred tax assets and liabilities and the
related valuation allowances, including federal deferred tax assets of
discontinued operations are as follows:
53
December 31
--------------------------------
Millions of dollars 2001 2000
- ----------------------------------------------------------------------------------
Gross deferred tax assets:
Employee benefit plans $ 214 $ 265
Capitalized research and experimentation 46 39
Accrued liabilities 121 118
Insurance accruals 82 99
Construction contract accounting methods 100 117
Inventory 53 43
Asbestos 44 10
Intercompany profit 54 44
Net operating loss carryforwards 44 35
Intangibles 18 20
Allowance for bad debt 36 31
All other 41 57
- ----------------------------------------------------------------------------------
Total $ 853 $ 878
- ----------------------------------------------------------------------------------
Gross deferred tax liabilities:
Depreciation and amortization $ 106 $ 128
Nonrepatriated foreign earnings 36 36
All other 101 103
- ----------------------------------------------------------------------------------
Total $ 243 $ 267
- ----------------------------------------------------------------------------------
Valuation allowances:
Net operating loss carryforwards $ 38 $ 28
All other 8 8
- ----------------------------------------------------------------------------------
Total 46 36
- ----------------------------------------------------------------------------------
Net deferred income tax asset $ 564 $ 575
==================================================================================
We have accrued for the potential repatriation of undistributed earnings of
our foreign subsidiaries and consider earnings above the amounts on which tax
has been provided to be permanently reinvested. While these additional earnings
could become subject to additional tax if repatriated, repatriation is not
anticipated. Any additional amount of tax is not practicable to estimate.
We have net operating loss carryforwards of $95 million which expire in
2002 through 2009. We also have net operating loss carryforwards of $25 million
with indefinite expiration dates. Reconciliations between the actual provision
for income taxes and that computed by applying the United States statutory rate
to income from continuing operations before income taxes and minority interest
are as follows:
Years ended December 31
--------------------------------------
Millions of dollars 2001 2000 1999
- ---------------------------------------------------------------------------------------------------
Provision computed at statutory rate $ (334) $ (117) $ (107)
Reductions (increases) in taxes resulting from:
Tax differentials on foreign earnings (32) (14) (14)
State income taxes, net of federal income tax benefit (13) (3) (1)
Nondeductible goodwill (11) (11) (10)
Other items, net 6 16 16
- ---------------------------------------------------------------------------------------------------
Total continuing operations (384) (129) (116)
Discontinued operations 20 (60) (98)
Disposal of discontinued operations (199) (141) (94)
Benefit for change in accounting method - - 11
- ---------------------------------------------------------------------------------------------------
Total $ (563) $ (330) $ (297)
===================================================================================================
54
Note 14. Common Stock
Our 1993 Stock and Long-Term Incentive Plan provides for the grant of any
or all of the following types of awards:
- stock options, including incentive stock options and non-qualified
stock options;
- stock appreciation rights, in tandem with stock options or
freestanding;
- restricted stock;
- performance share awards; and
- stock value equivalent awards.
Under the terms of the 1993 Stock and Long-Term Incentive Plan as amended, 49
million shares of common stock have been reserved for issuance to key employees.
The plan specifies that no more than 16 million shares can be awarded as
restricted stock. At December 31, 2001, 22 million shares were available for
future grants under the 1993 Stock and Long-Term Incentive Plan of which 11
million shares remain available for restricted stock awards.
In connection with the acquisition of Dresser Industries, Inc. in 1998, we
assumed the outstanding stock options under the stock option plans maintained by
Dresser Industries, Inc. Stock option transactions summarized below include
amounts for the 1993 Stock and Long-Term Incentive Plan and stock plans of
Dresser Industries, Inc. and other acquired companies. No further awards are
being made under the stock plans of acquired companies.
Number of Exercise Weighted Average
Shares Price per Exercise Price
Stock Options (in millions) Share per Share
- ---------------------------------------------------------------------------------------------
Outstanding at December 31, 1998 13.8 $ 3.10 - 61.50 $ 29.37
- ---------------------------------------------------------------------------------------------
Granted 5.6 28.50 - 48.31 36.46
Exercised (1.7) 3.10 - 54.50 24.51
Forfeited (0.6) 8.28 - 54.50 35.61
- ---------------------------------------------------------------------------------------------
Outstanding at December 31, 1999 17.1 $ 3.10 - 61.50 $ 32.03
- ---------------------------------------------------------------------------------------------
Granted 1.7 34.75 - 54.00 41.61
Exercised (3.6) 3.10 - 45.63 25.89
Forfeited (0.5) 12.20 - 54.50 37.13
- ---------------------------------------------------------------------------------------------
Outstanding at December 31, 2000 14.7 $ 8.28 - 61.50 $ 34.54
- ---------------------------------------------------------------------------------------------
Granted 3.6 12.93 - 45.35 35.56
Exercised (0.7) 8.93 - 40.81 25.34
Forfeited (0.5) 12.32 - 54.50 36.83
- ---------------------------------------------------------------------------------------------
Outstanding at December 31, 2001 17.1 $ 8.28 - 61.50 $ 35.10
=============================================================================================
Options outstanding at December 31, 2001 are composed of the following:
Outstanding Exercisable
----------------------------------------------- --------------------------------
Weighted
Average Weighted Weighted
Number of Remaining Average Number of Average
Range of Shares Contractual Exercise Shares Exercise
Exercise Prices (in millions) Life Price (in millions) Price
- ------------------------------------------------------------------------------------------------------------
$ 8.28 - 29.06 4.9 5.7 $ 25.11 4.0 $ 24.97
29.07 - 39.06 4.7 6.7 33.42 2.9 33.58
39.07 - 39.55 5.3 8.0 39.51 2.2 39.50
39.56 - 61.50 2.2 6.7 50.22 1.6 50.77
- ------------------------------------------------------------------------------------------------------------
$ 8.28 - 61.50 17.1 6.8 $ 35.10 10.7 $ 34.08
============================================================================================================
There were 8.8 million options exercisable with a weighted average exercise
price of $32.81 at December 31, 2000, and 9.5 million options exercisable with a
weighted average exercise price of $28.96 at December 31, 1999.
55
All stock options under the 1993 Stock and Long-Term Incentive Plan,
including options granted to employees of Dresser Industries, Inc. since its
acquisition, are granted at the fair market value of the common stock at the
grant date.
The fair value of options at the date of grant was estimated using the
Black-Scholes option pricing model. The weighted average assumptions and
resulting fair values of options granted are as follows:
Assumptions
--------------------------------------------------------------------- Weighted Average
Risk-Free Expected Expected Expected Fair Value of
Interest Rate Dividend Yield Life (in years) Volatility Options Granted
- ------------------------------------------------------------------------------------------------------
2001 4.5% 2.3% 5 58% $ 19.11
2000 5.2% 1.3% 5 54% $ 21.57
1999 5.8% 1.3% 5 56% $ 19.77
======================================================================================================
Stock options generally expire 10 years from the grant date. Stock options
under the 1993 Stock and Long-Term Incentive Plan vest ratably over a three or
four year period. Other plans have vesting periods ranging from three to 10
years. Options under the Non-Employee Directors' Plan vest after six months.
We account for the option plans in accordance with Accounting Principles
Board Opinion No. 25, under which no compensation cost has been recognized for
stock option awards other than for restricted stock grants. Compensation cost
for the stock option programs calculated consistent with SFAS No. 123,
"Accounting for Stock-Based Compensation," is set forth on a pro forma basis
below:
Millions of dollars
except per share data 2001 2000 1999
- -----------------------------------------------------------------------------------
Net income:
As reported $ 809 $ 501 $ 438
Pro forma 767 460 406
===================================================================================
Diluted earnings per share:
As reported $ 1.88 $ 1.12 $ 0.99
Pro forma 1.77 1.03 0.92
===================================================================================
Restricted shares awarded under the 1993 Stock and Long-Term Incentive Plan
were 1,484,034 in 2001, 695,692 in 2000 and 352,267 in 1999. The shares awarded
are net of forfeitures of 170,050 in 2001, 69,402 in 2000 and 72,483 in 1999.
The weighted average fair market value per share at the date of grant of shares
granted was $30.90 in 2001, $42.25 in 2000 and $43.41 in 1999.
Our Restricted Stock Plan for Non-Employee Directors allows for each
non-employee director to receive an annual award of 400 restricted shares of
common stock as a part of compensation. We reserved 100,000 shares of common
stock for issuance to non-employee directors. Under this plan we issued 4,800
restricted shares in 2001, 3,600 restricted shares in 2000 and 4,800 restricted
shares in 1999. At December 31, 2001, 33,600 shares have been issued to
non-employee directors under this plan. The weighted average fair market value
per share at the date of grant of shares granted was $34.35 in 2001, $46.81 in
2000 and $46.13 in 1999.
Our Employees' Restricted Stock Plan was established for employees who are
not officers, for which 200,000 shares of common stock have been reserved. At
December 31, 2001, 153,050 shares (net of 42,350 shares forfeited) have been
issued. Forfeitures were 800 in 2001, 6,450 in 2000 and 8,400 in 1999. No
further grants are being made under this plan.
Under the terms of our Career Executive Incentive Stock Plan, 15 million
shares of our common stock were reserved for issuance to officers and key
employees at a purchase price not to exceed par value of $2.50 per share. At
December 31, 2001, 11.7 million shares (net of 2.2 million shares forfeited)
have been issued under the plan. No further grants will be made under the Career
Executive Incentive Stock Plan.
56
Restricted shares issued under the 1993 Stock and Long-Term Incentive Plan,
Restricted Stock Plan for Non-Employee Directors, Employees' Restricted Stock
Plan and the Career Executive Incentive Stock Plan are limited as to sale or
disposition. These restrictions lapse periodically over an extended period of
time not exceeding 10 years. Restrictions may also lapse for early retirement
and other conditions in accordance with our established policies. The fair
market value of the stock, on the date of issuance, is being amortized and
charged to income (with similar credits to paid-in capital in excess of par
value) generally over the average period during which the restrictions lapse. At
December 31, 2001, the unamortized amount is $87 million. We recognized
compensation costs of $23 million in 2001, $18 million in 2000 and $11 million
in 1999.
On April 25, 2000, our Board of Directors approved plans to implement a
share repurchase program for up to 44 million shares. We repurchased 1.2 million
shares at a cost of $25 million in 2001 and 20.4 million shares at a cost of
$759 million in 2000.
Note 15. Series A Junior Participating Preferred Stock
We previously declared a dividend of one preferred stock purchase right on
each outstanding share of common stock. The dividend is also applicable to each
share of our common stock that was issued subsequent to adoption of the Rights
Agreement entered into with Mellon Investor Services LLC. Each preferred stock
purchase right entitles its holder to buy one two-hundredth of a share of our
Series A Junior Participating Preferred Stock, without par value, at an exercise
price of $75. These preferred stock purchase rights are subject to anti-dilution
adjustments, which are described in the Rights Agreement entered into with
Mellon. The preferred stock purchase rights do not have any voting rights and
are not entitled to dividends.
The preferred stock purchase rights become exercisable in limited
circumstances involving a potential business combination. After the preferred
stock purchase rights become exercisable, each preferred stock purchase right
will entitle its holder to an amount of our common stock, or in some
circumstances, securities of the acquirer, having a total market value equal to
two times the exercise price of the preferred stock purchase right. The
preferred stock purchase rights are redeemable at our option at any time before
they become exercisable. The preferred stock purchase rights expire on December
15, 2005. No event during 2001 made the preferred stock purchase rights
exercisable.
Note 16. Financial Instruments and Risk Management
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133
"Accounting for Derivative Instruments and for Hedging Activities", subsequently
amended by SFAS No. 137 and SFAS No. 138. This standard requires entities to
recognize all derivatives on the balance sheet 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. We adopted SFAS No. 133
effective January 2001 and recorded a $1 million after-tax credit for the
cumulative effect of adopting the change in accounting method. We do not expect
future measurements at fair value under the new accounting method to have a
material effect on our financial condition or results of operations.
Foreign exchange risk. Techniques in managing foreign exchange risk
include, but are not limited to, foreign currency borrowing and investing and
the use of currency derivative instruments. We selectively manage significant
exposures to potential foreign exchange losses considering current market
conditions, future operating activities and the associated cost in relation to
the perceived risk of loss. The purpose of our foreign currency risk management
activities is to protect us from the risk that the eventual dollar cash flows
resulting from the sale and purchase of products and services in foreign
currencies will be adversely affected by changes in exchange rates. We do not
hold or issue derivative financial instruments for trading or speculative
purposes.
We manage our currency exposure through the use of currency derivative
instruments as it relates to the major currencies, which are generally the
currencies of the countries for which we do the majority of our international
business. These contracts generally have an expiration date of two years or
less. Forward exchange contracts, which are commitments to buy or sell a
specified amount of a foreign currency at a specified price and time, are
generally used to manage identifiable foreign currency commitments. Forward
exchange contracts and foreign exchange option contracts, which convey the
right, but not the obligation, to sell or buy a specified amount of foreign
currency at a specified price, are generally used to manage exposures related to
assets and liabilities denominated in a foreign currency. None of the forward or
57
option contracts are exchange traded. While derivative instruments are subject
to fluctuations in value, the fluctuations are generally offset by the value of
the underlying exposures being managed. The use of some contracts may limit our
ability to benefit from favorable fluctuations in foreign exchange rates.
Foreign currency contracts are not utilized to manage exposures in some
currencies due primarily to the lack of available markets or cost considerations
(non-traded currencies). We attempt to manage our working capital position to
minimize foreign currency commitments in non-traded currencies and recognize
that pricing for the services and products offered in these countries should
cover the cost of exchange rate devaluations. We have historically incurred
transaction losses in non-traded currencies.
Assets, liabilities and forecasted cash flows denominated in foreign
currencies. We utilize the derivative instruments described above to manage the
foreign currency exposures related to certain assets and liabilities, which are
denominated in foreign currencies; however, we have not elected to account for
these instruments as hedges for accounting purposes. Additionally, we utilize
the derivative instruments described above to manage forecasted cash flows
denominated in foreign currencies generally related to long-term engineering and
construction projects. While we enter into these instruments to manage the
foreign currency risk on these projects, we have chosen not to seek hedge
accounting treatment for these contracts. The fair value of these contracts was
immaterial as of the end of 2001 and 2000.
Notional amounts and fair market values. The notional amounts of open
forward contracts and options for continuing operations were $505 million at
December 31, 2001 and $281 million at December 31, 2000. Amounts related to
discontinued operations were $61 million at December 31, 2000. The notional
amounts of our foreign exchange contracts do not generally represent amounts
exchanged by the parties, and thus, are not a measure of our exposure or of the
cash requirements relating to these contracts. The amounts exchanged are
calculated by reference to the notional amounts and by other terms of the
derivatives, such as exchange rates.
Credit risk. Financial instruments that potentially subject us to
concentrations of credit risk are primarily cash equivalents, investments and
trade receivables. It is our practice to place our cash equivalents and
investments in high-quality securities with various investment institutions. We
derive the majority of our revenues from sales and services, including
engineering and construction, to the energy industry. Within the energy
industry, trade receivables are generated from a broad and diverse group of
customers. There are concentrations of receivables in the United States and the
United Kingdom. We maintain an allowance for losses based upon the expected
collectibility of all trade accounts receivable.
There are no significant concentrations of credit risk with any individual
counterparty related to our derivative contracts. We select counterparties based
on their profitability, balance sheet and a capacity for timely payment of
financial commitments which is unlikely to be adversely affected by foreseeable
events.
Interest rate risk. We have several debt instruments outstanding which have
both fixed and variable interest rates. We manage our ratio of fixed to
variable-rate debt through the use of different types of debt instruments and
derivative instruments.
Fair market value of financial instruments. The estimated fair market value
of long-term debt at year-end 2001 was $1.3 billion and in 2000 was $1.1 billion
as compared to the carrying amount of $1.5 billion at year-end 2001 and $1.1
billion at year-end 2000. The fair market value of fixed rate long-term debt is
based on quoted market prices for those or similar instruments. The carrying
amount of variable rate long-term debt approximates fair market value because
these instruments reflect market changes to interest rates. See Note 8. The
carrying amount of short-term financial instruments, cash and equivalents,
receivables, short-term notes payable and accounts payable, as reflected in the
consolidated balance sheets approximates fair market value due to the short
maturities of these instruments. The currency derivative instruments are carried
on the balance sheet at fair value and are based upon third-party quotes. The
fair market values of derivative instruments used for fair value hedging and
cash flow hedging were immaterial.
Note 17. Retirement Plans
Our company and subsidiaries have various plans which cover a significant
number of their employees. These plans include defined contribution plans, which
provide retirement contributions in return for services rendered, provide an
individual account for each participant and have terms that specify how
contributions to the participant's account are to be determined rather than the
amount of pension benefits the participant is to receive. Contributions to these
58
plans are based on pretax income and/or discretionary amounts determined on an
annual basis. Our expense for the defined contribution plans for both continuing
and discontinued operations totaled $129 million in 2001 compared to $140
million in 2000 and $111 million in 1999. Other retirement plans include defined
benefit plans, which define an amount of pension benefit to be provided, usually
as a function of age, years of service or compensation. These plans are funded
to operate on an actuarially sound basis. Plan assets are primarily invested in
cash, short-term investments, real estate, equity and fixed income securities of
entities domiciled in the country of the plan's operation. Plan assets, expenses
and obligations for retirement plans in the following tables include both
continuing and discontinued operations.
2001 2000
---------------------------------------------------------------------
Millions of dollars United States International United States International
- -----------------------------------------------------------------------------------------------------------------------
Change in benefit obligation
Benefit obligation at beginning of year $ 288 $ 1,670 $ 413 $ 1,781
Service cost 2 60 4 57
Interest cost 13 89 20 87
Plan participants' contributions - 14 - 13
Effect of business combinations - - - 32
Amendments - - 5 -
Divestitures (111) (90) (138) (61)
Settlements/curtailments (46) - (8) -
Currency fluctuations - 15 - (168)
Actuarial gain/(loss) 8 270 13 (13)
Benefits paid (14) (60) (21) (58)
- -----------------------------------------------------------------------------------------------------------------------
Benefit obligation at end of year $ 140 $ 1,968 $ 288 $ 1,670
=======================================================================================================================
2001 2000
---------------------------------------------------------------------
Millions of dollars United States International United States International
- -----------------------------------------------------------------------------------------------------------------------
Change in plan assets
Fair value of plan assets at beginning of year $ 313 $ 2,165 $ 466 $ 2,169
Actual return on plan assets (22) (294) 18 266
Employer contribution 7 30 17 27
Settlements (46) - (14) -
Plan participants' contributions 1 14 - 13
Divestitures (109) (45) (153) (47)
Currency fluctuations - 15 - (205)
Benefits paid (14) (58) (21) (58)
- -----------------------------------------------------------------------------------------------------------------------
Fair value of plan assets at end of year $ 130 $ 1,827 $ 313 $ 2,165
=======================================================================================================================
Funded status $ (10) $ (141) $ 25 $ 495
Unrecognized transition obligation/(asset) (1) (3) (1) 17
Unrecognized actuarial (gain)/loss 34 308 4 (379)
Unrecognized prior service cost/(benefit) (2) (96) 13 (83)
- -----------------------------------------------------------------------------------------------------------------------
Net amount recognized $ 21 $ 68 $ 41 $ 50
=======================================================================================================================
59
We recognized an additional minimum pension liability for the underfunded
defined benefit plans. The additional minimum liability is equal to the excess
of the accumulated benefit obligation over plan assets and accrued liabilities.
A corresponding amount is recognized as either an intangible asset or a
reduction of shareholders' equity.
2001 2000
---------------------------------------------------------------------
Millions of dollars United States International United States International
- ----------------------------------------------------------------------------------------------------------------------
Amounts recognized in the consolidated
balance sheets
Prepaid benefit cost $ 7 $ 85 $ 54 $ 93
Accrued benefit liability (10) (36) (28) (49)
Intangible asset 1 1 10 (2)
Deferred tax asset 8 6 1 -
Accumulated other comprehensive income,
net of tax 15 12 4 8
- ----------------------------------------------------------------------------------------------------------------------
Net amount recognized $ 21 $ 68 $ 41 $ 50
======================================================================================================================
Assumed long-term rates of return on plan assets, discount rates for
estimating benefit obligations and rates of compensation increases vary for the
different plans according to the local economic conditions. The rates used are
as follows:
Weighted-average assumptions 2001 2000 1999
- -------------------------------------------------------------------------------------
Expected return on plan assets:
United States plans 9.0% 9.0% 9.0%
International plans 5.5% to 9.0% 3.5% to 9.0% 7.25% to 8.0%
Discount rate:
United States plans 7.25% 7.5% 7.5%
International plans 5.0% to 8.0% 4.0% to 8.0% 2.5% to 7.5%
Rate of compensation increase:
United States plans 4.5% 4.5% 4.5% to 5.0%
International plans 3.0% to 7.0% 3.0% to 7.6% 1.0% to 10.5%
- -------------------------------------------------------------------------------------
2001 2000 1999
-----------------------------------------------------------------------------------
United United United
Millions of dollars States International States International States International
- -------------------------------------------------------------------------------- ------------------------------------------
Components of net periodic
benefit cost
Service cost $ 2 $ 60 $ 4 $ 57 $ 7 $ 66
Interest cost 13 89 20 87 30 96
Expected return on plan assets (18) (95) (26) (99) (33) (110)
Transition amount - (2) - - 1 (2)
Amortization of prior service cost (2) (6) (1) (6) (2) (7)
Settlements/curtailments 16 - 10 - 14 -
Recognized actuarial gain (1) (9) - (10) (1) (11)
- ---------------------------------------------------------------------------------------------------------------------------
Net periodic benefit cost $ 10 $ 37 $ 7 $ 29 $ 16 $ 32
===========================================================================================================================
The projected benefit obligation, accumulated benefit obligation, and fair
value of plan assets for the pension plans with accumulated benefit obligations
in excess of plan assets as of December 31, 2001 and 2000 are as follows:
60
Millions of dollars 2001 2000
- ----------------------------------------------------------------
Projected benefit obligation $ 235 $ 172
Accumulated benefit obligation $ 215 $ 154
Fair value of plan assets $ 175 $ 82
================================================================
Postretirement medical plan. We offer postretirement medical plans to
specific eligible employees. For some plans, our liability is limited to a fixed
contribution amount for each participant or dependent. The plan participants
share the total cost for all benefits provided above our fixed contribution and
participants' contributions are adjusted as required to cover benefit payments.
We have made no commitment to adjust the amount of our contributions; therefore,
the computed accumulated postretirement benefit obligation amount is not
affected by the expected future health care cost inflation rate.
Other postretirement medical plans are contributory but we generally absorb
the majority of the costs. We may elect to adjust the amount of our
contributions for these plans. As a result, the expected future health care cost
inflation rate affects the accumulated postretirement benefit obligation amount.
These plans have assumed health care trend rates (weighted based on the current
year benefit obligation) for 2001 of 11% which are expected to decline to 5% by
2005.
Obligations and expenses for postretirement medical plans in the following
tables include both continuing and discontinued operations.
Millions of dollars 2001 2000
- ------------------------------------------------------------------------------------
Change in benefit obligation
Benefit obligation at beginning of year $ 296 $ 392
Service cost 2 3
Interest cost 15 20
Plan participants' contributions 12 11
Acquisitions/divestitures, net - (110)
Settlements/curtailments (144) -
Actuarial gain 5 11
Benefits paid (29) (31)
- ------------------------------------------------------------------------------------
Benefit obligation at end of year $ 157 $ 296
====================================================================================
Change in plan assets
Fair value of plan assets at beginning of year $ - $ -
Employer contribution 17 20
Plan participants' contributions 12 11
Benefits paid (29) (31)
- ------------------------------------------------------------------------------------
Fair value of plan assets at end of year $ - $ -
====================================================================================
Funded status $ (157) $ (296)
Employer contribution 2 3
Unrecognized actuarial gain (14) (20)
Unrecognized prior service cost 3 (78)
- ------------------------------------------------------------------------------------
Net amount recognized $ (166) $ (391)
====================================================================================
61
Millions of dollars 2001 2000
- ------------------------------------------------------------------------------------
Amounts recognized in the consolidated
balance sheets
Accrued benefit liability $ (166) $ (391)
- ------------------------------------------------------------------------------------
Net amount recognized $ (166) $ (391)
====================================================================================
Weighted-average assumptions 2001 2000 1999
- ------------------------------------------------------------------------------------
Discount rate 7.25% 7.50% 7.50%
- ------------------------------------------------------------------------------------
Millions of dollars 2001 2000 1999
- ------------------------------------------------------------------------------------
Components of net periodic benefit cost
Service cost $ 2 $ 3 $ 5
Interest cost 15 20 28
Amortization of prior service cost (3) (7) (9)
Settlements/curtailments (221) - (2)
Recognized actuarial gain (1) (1) (5)
- ------------------------------------------------------------------------------------
Net periodic benefit cost $ (208) $ 15 $ 17
====================================================================================
Assumed health care cost trend rates have a significant effect on the
amounts reported for the total of the health care plans. A one-percentage-point
change in assumed health care cost trend rates would have the following effects:
One-Percentage-Point
-----------------------------
Millions of dollars Increase (Decrease)
- -----------------------------------------------------------------------------------
Effect on total of service and interest cost $ 1 $ (1)
components
Effect on the postretirement benefit obligation $ 8 $ (7)
===================================================================================
Note 18. Dresser Industries, Inc. Financial Information
Since becoming a wholly owned subsidiary, Dresser Industries, Inc. has
ceased filing periodic reports with the United States Securities and Exchange
Commission. Dresser Industries, Inc. 8% guaranteed senior notes, which were
initially issued by Baroid Corporation, remain outstanding and are fully and
unconditionally guaranteed by Halliburton. In January 1999, as part of the legal
reorganization associated with the merger, Halliburton Delaware, Inc., a
first-tier holding company subsidiary, was merged into Dresser Industries, Inc.
The majority of our operating assets and activities are included in Dresser
Industries, Inc. and its subsidiaries. In August 2000, the United States
Securities and Exchange Commission released a new rule governing the financial
statements of guarantors and issuers of guaranteed securities registered with
the SEC. The following condensed consolidating financial information presents
Halliburton and our subsidiaries on a stand-alone basis using the equity method
and as if our current organizational structure were in place for all periods
presented.
62
Condensed Consolidating Statements
of Income Non-issuer/ Dresser Halliburton Consolidated
Year ended December 31, 2001 Non-guarantor Industries, Inc. Company Consolidating Halliburton
Millions of dollars Subsidiaries (Issuer) (Guarantor) Adjustments Company
- -------------------------------------------------------------------------------------------------------------------------
Total revenues $ 13,046 $ 596 $ 1,047 $(1,643) $13,046
Cost of revenues 11,575 - - - 11,575
General and administrative 387 - - - 387
Interest expense (41) (43) (71) 8 (147)
Interest income 25 1 57 (56) 27
Other, net (3) 189 (5) (191) (10)
- -------------------------------------------------------------------------------------------------------------------------
Income from continuing operations before
taxes, minority interest and change
in accounting method, net 1,065 743 1,028 (1,882) 954
Benefit (provision) for income taxes (387) (17) 20 - (384)
Minority interest in net income of
subsidiaries (19) - - - (19)
- -------------------------------------------------------------------------------------------------------------------------
Income from continuing operations before
change in accounting method, net 659 726 1,048 (1,882) 551
Income (loss) from discontinued operations (64) 321 - - 257
Cumulative effect of change in accounting
method, net of tax benefit 1 - - - 1
- -------------------------------------------------------------------------------------------------------------------------
Net income $ 596 $1,047 $ 1,048 $(1,882) $ 809
=========================================================================================================================
Condensed Consolidating Statements
of Income Non-issuer/ Dresser Halliburton Consolidated
Year ended December 31, 2000 Non-guarantor Industries, Inc. Company Consolidating Halliburton
Millions of dollars Subsidiaries (Issuer) (Guarantor) Adjustments Company
- -------------------------------------------------------------------------------------------------------------------------
Total revenues $ 11,944 $ 356 $ 680 $(1,036) $11,944
Cost of revenues 11,218 - - - 11,218
General and administrative 352 - - - 352
Gain on sale of marine vessels (88) - - - (88)
Interest expense (47) (45) (69) 15 (146)
Interest income 21 18 1 (15) 25
Other, net 2 129 56 (193) (6)
- -----------------------------------------------------------------------------------------------------------------------
Income from continuing operations
before taxes and minority interest 438 458 668 (1,229) 335
Benefit (provision) for income taxes (162) 7 26 - (129)
Minority interest in net income of
subsidiaries (18) - - - (18)
- -----------------------------------------------------------------------------------------------------------------------
Income from continuing operations 258 465 694 (1,229) 188
Income from discontinued operations 98 - - - 98
Gain on disposal of discontinued
operations, net of tax - 215 - - 215
- -----------------------------------------------------------------------------------------------------------------------
Net income $ 356 $ 680 $ 694 $(1,229) $ 501
=======================================================================================================================
63
Condensed Consolidating Statements
of Income Non-issuer/ Dresser Halliburton Consolidated
Year ended December 31, 1999 Non-guarantor Industries, Inc. Company Consolidating Halliburton
Millions of dollars Subsidiaries (Issuer) (Guarantor) Adjustments Company
- -------------------------------------------------------------------------------------------------------------------------
Total revenues $ 12,313 $ 555 $ 637 $(1,192) $12,313
Cost of revenues 11,608 - - - 11,608
General and administrative 351 - - - 351
Special credits (47) - - - (47)
Interest expense (50) (50) (70) 29 (141)
Interest income 77 26 - (29) 74
Other, net (29) 105 183 (286) (27)
- -----------------------------------------------------------------------------------------------------------------------
Income from continuing operations
before taxes, minority interest, and
change in accounting method, net 399 636 750 (1,478) 307
Benefit (provision) for income taxes (91) 1 (26) - (116)
Minority interest in net income of
subsidiaries (17) - - - (17)
- -----------------------------------------------------------------------------------------------------------------------
Income from continuing operations
before change in
accounting method, net 291 637 724 (1,478) 174
Income from discontinued operations 124 - - - 124
Gain on disposal of discontinued
operations, net of tax 159 - - - 159
Cumulative effect of change in
accounting method, net of
tax benefit (19) - - - (19)
- -----------------------------------------------------------------------------------------------------------------------
Net income $ 555 $ 637 $ 724 $(1,478) $ 438
=======================================================================================================================
64
Condensed Consolidating
Balance Sheets Non-issuer/ Dresser Halliburton Consolidated
Year ended December 31, 2001 Non-guarantor Industries, Inc. Company Consolidating Halliburton
Millions of dollars Subsidiaries (Issuer) (Guarantor) Adjustments Company
- -------------------------------------------------------------------------------------------------------------------------
Assets
Current assets:
Cash and equivalents $ 213 $ - $ 77 $ - $ 290
Receivables:
Notes and accounts receivable, net 3,002 13 - - 3,015
Unbilled work on uncompleted contracts 1,080 - - - 1,080
- -----------------------------------------------------------------------------------------------------------------------
Total receivables 4,082 13 - - 4,095
Inventories 787 - - - 787
Other current assets 323 71 7 - 401
- -----------------------------------------------------------------------------------------------------------------------
Total current assets 5,405 84 84 - 5,573
Property, plant and equipment, net 2,669 - - - 2,669
Equity in and advances to
unconsolidated affiliates 551 - - - 551
Intercompany receivable from
consolidated affiliates (1,089) - 2,854 (1,765) -
Equity in and advances to
consolidated affiliates - 5,296 3,122 (8,418) -
Goodwill, net 636 84 - - 720
Insurance for asbestos litigation claims 612 - - - 612
Other assets 793 27 21 - 841
- -----------------------------------------------------------------------------------------------------------------------
Total assets $ 9,577 $ 5,491 $ 6,081 $(10,183) $10,966
=======================================================================================================================
Liabilities and Shareholders' Equity
Current liabilities:
Accounts and notes payable $ 808 $ 129 $ 105 $ - $ 1,042
Other current liabilities 1,791 20 55 - 1,866
- -----------------------------------------------------------------------------------------------------------------------
Total current liabilities 2,599 149 160 - 2,908
Long-term debt 211 439 753 - 1,403
Intercompany payable from
consolidated affiliates - 1,765 - (1,765) -
Asbestos litigation claims 737 - - - 737
Other liabilities 1,016 16 93 - 1,125
Minority interest in consolidated
subsidiaries 41 - - - 41
- -----------------------------------------------------------------------------------------------------------------------
Total liabilities 4,604 2,369 1,006 (1,765) 6,214
Shareholders' equity:
Common shares 175 - 1,138 (175) 1,138
Other shareholders' equity 4,798 3,122 3,937 (8,243) 3,614
- -----------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 4,973 3,122 5,075 (8,418) 4,752
- -----------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 9,577 $ 5,491 $ 6,081 $(10,183) $10,966
=======================================================================================================================
65
Condensed Consolidating
Balance Sheets Non-issuer/ Dresser Halliburton Consolidated
Year ended December 31, 2000 Non-guarantor Industries, Inc. Company Consolidating Halliburton
Millions of dollars Subsidiaries (Issuer) (Guarantor) Adjustments Company
- -------------------------------------------------------------------------------------------------------------------------
Assets
Current assets:
Cash and equivalents $ 227 $ - $ 4 $ - $ 231
Receivables:
Notes and accounts receivable, net 2,889 63 - - 2,952
Unbilled work on uncompleted contracts 982 - - - 982
- -----------------------------------------------------------------------------------------------------------------------
Total receivables 3,871 63 - - 3,934
Inventories 723 - - - 723
Other current assets 753 1 15 - 769
- -----------------------------------------------------------------------------------------------------------------------
Total current assets 5,574 64 19 - 5,657
Property, plant and equipment, net 2,410 - - - 2,410
Equity in and advances to
unconsolidated affiliates 258 142 - - 400
Intercompany receivable from
consolidated affiliates 66 - 2,140 (2,206) -
Equity in and advances to
consolidated affiliates - 6,558 4,220 (10,778) -
Goodwill, net 510 87 - - 597
Insurance for asbestos litigation claims 51 - - - 51
Other assets 1,058 5 14 - 1,077
- -----------------------------------------------------------------------------------------------------------------------
Total assets $ 9,927 $ 6,856 $ 6,393 $(12,984) $10,192
=======================================================================================================================
Liabilities and Shareholders' Equity
Current liabilities:
Accounts and notes payable $ 767 $ 53 $ 1,540 $ - $ 2,360
Other current liabilities 1,463 36 56 - 1,555
- -----------------------------------------------------------------------------------------------------------------------
Total current liabilities 2,230 89 1,596 - 3,915
Long-term debt 205 444 400 - 1,049
Intercompany payable from
consolidated affiliates - 2,206 - (2,206) -
Asbestos litigation claims 80 - - - 80
Other liabilities 1,038 26 118 - 1,182
Minority interest in consolidated
subsidiaries 38 - - - 38
- -----------------------------------------------------------------------------------------------------------------------
Total liabilities 3,591 2,765 2,114 (2,206) 6,264
Shareholders' equity:
Common shares 391 - 1,132 (391) 1,132
Other shareholders' equity 5,945 4,091 3,147 (10,387) 2,796
- -----------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 6,336 4,091 4,279 (10,778) 3,928
- -----------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 9,927 $ 6,856 $ 6,393 $(12,984) $10,192
=======================================================================================================================
66
Condensed Consolidating Statements
of Cash Flows Non-issuer/ Dresser Halliburton Consolidated
Year ended December 31, 2001 Non-guarantor Industries, Inc. Company Consolidating Halliburton
Millions of dollars Subsidiaries (Issuer) (Guarantor) Adjustments Company
- -------------------------------------------------------------------------------------------------------------------------
Net cash flows from operating activities $ 1,021 $ (28) $ 36 $ - $ 1,029
Capital expenditures (797) - - - (797)
Sales of property, plant and equipment 120 - - - 120
Other investing activities (281) - 1,292 (1,192) (181)
Borrowings of long-term debt - - 425 - 425
Payments on long-term borrowings (8) (5) - - (13)
Net borrowings (repayments) of
short-term debt (15) - (1,513) - (1,528)
Payments of dividends to shareholders - - (215) - (215)
Proceeds from exercises of stock options - - 27 - 27
Payments to reacquire common stock - - (34) - (34)
Other financing activities (87) (1,177) 55 1,192 (17)
Effect of exchange rate on cash (20) - - - (20)
Net cash flows from discontinued
operations - 1,263 - - 1,263
- ----------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and
equivalents $ (67) $ 53 $ 73 $ - $ 59
======================================================================================================================
Condensed Consolidating Statements
of Cash Flows Non-issuer/ Dresser Halliburton Consolidated
Year ended December 31, 2000 Non-guarantor Industries, Inc. Company Consolidating Halliburton
Millions of dollars Subsidiaries (Issuer) (Guarantor) Adjustments Company
- -------------------------------------------------------------------------------------------------------------------------
Net cash flows from operating activities $ (268) $ 113 $ 98 $ - $ (57)
Capital expenditures (578) - - - (578)
Sales of property, plant and equipment 209 - - - 209
Other investing activities (42) - 72 (72) (42)
Payments on long-term borrowings (8) (300) - - (308)
Net borrowings (repayments) of
short-term debt 17 - 612 - 629
Payments of dividends to shareholders - - (221) - (221)
Proceeds from exercises of stock options - - 105 - 105
Payments to reacquire common stock - - (769) - (769)
Other financing activities (235) 143 - 72 (20)
Effect of exchange rate on cash (9) - - - (9)
Net cash flows from discontinued
operations 826 - - - 826
- -------------------------------------------------------------------------------------------------------- --------------
Increase (decrease) in cash and
equivalents $ (88) $ (44) $ (103) $ - $ (235)
=======================================================================================================================
67
Condensed Consolidating Statements
of Cash Flows Non-issuer/ Dresser Halliburton Consolidated
Year ended December 31, 1999 Non-guarantor Industries, Inc. Company Consolidating Halliburton
Millions of dollars Subsidiaries (Issuer) (Guarantor) Adjustments Company
- -------------------------------------------------------------------------------------------------------------------------
Net cash flows from operating activities $ (219) $ 52 $ 109 $ - $ (58)
Capital expenditures (520) - - - (520)
Sales of property, plant and equipment 118 - - - 118
Other investing activities 295 - (248) 248 295
Payments on long-term borrowings (9) - (50) - (59)
Net borrowings (repayments) of
short-term debt (27) - 463 - 436
Payments of dividends to shareholders - - (221) - (221)
Proceeds from exercises of stock options - - 49 - 49
Payments to reacquire common stock - - (10) - (10)
Other financing activities 297 (55) - (248) (6)
Effect of exchange rate on cash 5 - - - 5
Net cash flows from discontinued
operations 234 - - - 234
- -----------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and
equivalents $ 174 $ (3) $ 92 $ - $ 263
=======================================================================================================================
68
Halliburton Company
Selected Financial Data
(Unaudited)
Years ended December 31
Millions of dollars and shares ----------------------------------------------------------------------
except per share and employee data 2001 2000 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------
Operating results
Net revenues
Energy Services Group $ 8,722 $ 6,776 $ 5,921 $ 8,001 $ 7,830
Engineering and Construction Group 4,324 5,168 6,392 6,503 5,668
- ------------------------------------------------------------------------------------------------------------------------
Total revenues $ 13,046 $ 11,944 $ 12,313 $ 14,504 $ 13,498
========================================================================================================================
Operating income
Energy Services Group $ 1,015 $ 582 $ 250 $ 981 $ 983
Engineering and Construction Group 143 (42) 175 227 255
Special charges and credits (1) - - 47 (959) 11
General corporate (74) (78) (71) (79) (71)
- ------------------------------------------------------------------------------------------------------------------------
Total operating income (1) 1,084 462 401 170 1,178
Nonoperating income (expense), net (2) (130) (127) (94) (115) (82)
- ------------------------------------------------------------------------------------------------------------------------
Income from continuing operations
before income taxes and minority interest 954 335 307 55 1,096
Provision for income taxes (3) (384) (129) (116) (155) (406)
Minority interest in net income of consolidated
subsidiaries (19) (18) (17) (20) (30)
- ------------------------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations $ 551 $ 188 $ 174 $ (120) $ 660
========================================================================================================================
Income from discontinued operations $ 257 $ 313 $ 283 $ 105 $ 112
========================================================================================================================
Net income (loss) $ 809 $ 501 $ 438 $ (15) $ 772
========================================================================================================================
Basic income (loss) per common share
Continuing operations $ 1.29 $ 0.42 $ 0.40 $ (0.27) $ 1.53
Net income (loss) 1.89 1.13 1.00 (0.03) 1.79
Diluted income (loss) per common share
Continuing operations 1.28 0.42 0.39 (0.27) 1.51
Net income (loss) 1.88 1.12 0.99 (0.03) 1.77
Cash dividends per share 0.50 0.50 0.50 0.50 0.50
Return on average shareholders' equity 18.64% 12.20% 10.49% (0.35)% 19.16%
- ------------------------------------------------------------------------------------------------------------------------
Financial position
Net working capital $ 2,665 $ 1,742 $ 2,329 $ 2,129 $ 1,985
Total assets 10,966 10,192 9,639 10,072 9,657
Property, plant and equipment, net 2,669 2,410 2,390 2,442 2,282
Long-term debt (including current maturities) 1,484 1,057 1,364 1,426 1,303
Shareholders' equity 4,752 3,928 4,287 4,061 4,317
Total capitalization 6,280 6,555 6,590 5,990 5,647
Shareholders' equity per share 10.95 9.20 9.69 9.23 9.86
Average common shares outstanding (basic) 428 442 440 439 431
Average common shares outstanding (diluted) 430 446 443 439 436
- ------------------------------------------------------------------------------------------------------------------------
Other financial data
Capital expenditures $ (797) $ (578) $ (520) $ (841) $ (804)
Long-term borrowings (repayments), net 412 (308) (59) 122 285
Depreciation, depletion and amortization expense 531 503 511 500 465
Goodwill amortization included in depreciation,
depletion and amortization expense:
Energy Services Group 27 22 16 25 23
Engineering and Construction Group 15 22 17 11 9
Payroll and employee benefits (4) (4,818) (5,260) (5,647) (5,880) (5,479)
Number of employees (4), (5) 85,000 93,000 103,000 107,800 102,000
========================================================================================================================
(continued on next page)
69
Halliburton Company
Selected Financial Data
(Unaudited)
(continued)
Years ended December 31
Millions of dollara and shares --------------------------------------------------------------------------
except per share and employee data 1996 1995 1994 1993 1992
- ----------------------------------------------------------------------------------------------------------------------------
Operating results
Net revenues
Energy Services Group $ 5,936 $ 4,902 $ 4,548 $ 5,061 $ 4,535
Engineering and Construction Group 5,300 4,143 3,992 4,084 4,913
- ----------------------------------------------------------------------------------------------------------------------------
Total revenues $ 11,236 $ 9,045 $ 8,540 $ 9,145 $ 9,448
============================================================================================================================
Operating income
Energy Services Group $ 654 $ 553 $ 411 $ 396 $ 253
Engineering and Construction Group 178 88 66 94 82
Special charges and credits (1) (86) (8) (19) (419) (294)
General corporate (72) (71) (56) (63) (58)
- ----------------------------------------------------------------------------------------------------------------------------
Total operating income (1) 674 562 402 8 (17)
Nonoperating income (expense), net (2) (70) (34) 333 (61) (63)
- ----------------------------------------------------------------------------------------------------------------------------
Income from continuing operations
before income taxes and minority interest 604 528 735 (53) (80)
Provision for income taxes (3) (158) (167) (275) (18) (30)
Minority interest in net income of consolidated
subsidiaries - (1) (14) (24) (9)
- ----------------------------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations $ 446 $ 360 $ 446 $ (95) $ (119)
============================================================================================================================
Income from discontinued operations $ 112 $ 36 $ 97 $ 81 $ 49
============================================================================================================================
Net income (loss) $ 558 $ 381 $ 543 $ (14) $ (483)
============================================================================================================================
Basic income (loss) per common share
Continuing operations $ 1.04 $ 0.83 $ 1.04 $ (0.23) $ (0.29)
Net income (loss) 1.30 0.88 1.26 (0.04) (1.18)
Diluted income (loss) per common share
Continuing operations 1.03 0.83 1.03 (0.23) (0.29)
Net income (loss) 1.29 0.88 1.26 (0.04) (1.18)
Cash dividends per share 0.50 0.50 0.50 0.50 0.50
Return on average shareholders' equity 15.25% 10.44% 15.47% (0.43)% (12.72)%
- ----------------------------------------------------------------------------------------------------------------------------
Financial position
Net working capital $ 1,501 $ 1,477 $ 2,197 $ 1,563 $ 1,423
Total assets 8,689 7,723 7,774 8,087 7,480
Property, plant and equipment, net 2,047 1,865 1,631 1,747 1,741
Long-term debt (including current maturities) 957 667 1,119 1,129 872
Shareholders' equity 3,741 3,577 3,723 3,296 3,277
Total capitalization 4,828 4,378 4,905 4,746 4,179
Shareholders' equity per share 8.78 8.29 8.63 7.70 7.99
Average common shares outstanding (basic) 429 431 431 422 408
Average common shares outstanding (diluted) 432 432 432 422 408
- ----------------------------------------------------------------------------------------------------------------------------
Other financial data
Capital expenditures $ (612) $ (474) $ (358) $ (373) $ (405)
Long-term borrowings (repayments), net 286 (481) (120) 192 (187)
Depreciation, depletion and amortization expense 405 380 387 574 470
Goodwill amortization included in depreciation,
depletion and amortization expense:
Energy Services Group 19 17 14 11 6
Engineering and Construction Group 7 7 7 7 8
Payroll and employee benefits (4) (4,674) (4,188) (4,222) (4,429) (4,590)
Number of employees (4), (5) 93,000 89,800 86,500 90,500 96,400
============================================================================================================================
(continued on next page)
70
Halliburton Company
Selected Financial Data
(Unaudited)
(continued)
(1) Operating income includes the following special charges and credits:
1999 - $47 million: reversal of a portion of the 1998 special charges.
1998 - $959 million: asset related charges ($491 million), personnel
reductions ($234 million), facility consolidations ($124 million), merger
transaction costs ($64 million), and other related costs ($46 million).
1997 - $11 million: merger costs ($9 million), write-downs on impaired
assets and early retirement incentives ($10 million), losses from the sale
of assets ($12 million), and gain on extension of joint venture ($42
million).
1996 - $86 million: merger costs ($13 million), restructuring, merger and
severance costs ($62 million), and write-off of acquired in-process
research and development costs ($11 million).
1995 - $8 million: restructuring costs ($5 million) and write-off of
acquired in-process research and development costs ($3 million).
1994 - $19 million: merger costs ($27 million), litigation ($10 million),
and litigation and insurance recoveries ($18 million).
1993 - $419 million: loss on sale of business ($322 million), merger costs
($31 million), restructuring ($5 million), litigation ($65 million), and
gain on curtailment of medical plan ($4 million).
1992 - $294 million: merger costs ($273 million) and restructuring and
severance ($21 million).
(2) Nonoperating income in 1994 includes a gain of $276 million from the sale
of an interest in Western Atlas International, Inc. and a gain of $102
million from the sale of our natural gas compression business.
(3) Provision for income taxes in 1996 includes tax benefits of $44 million due
to the recognition of net operating loss carryforwards and the settlement
of various issues with the Internal Revenue Service.
(4) Includes employees of Dresser Equipment Group which is accounted for as
discontinued operations for the years 1992 through 2000.
(5) Does not include employees of 50% or less owned affiliated companies.
71
HALLIBURTON COMPANY
Quarterly Data and Market Price Information
(Unaudited)
Quarter
--------------------------------------------------------
Millions of dollars except per share data First Second Third Fourth Year
- -----------------------------------------------------------------------------------------------------------------------------
2001
Revenues $ 3,144 $ 3,339 $ 3,391 $ 3,172 $13,046
Operating income 198 272 342 272 1,084
Income from continuing operations before
change in accounting method, net 86 143 181 141 551
Income (loss) from discontinued operations 22 (60) (2) (2) (42)
Gain on disposal of discontinued operations - 299 - - 299
Cumulative effect of accounting change 1 - - - 1
Net income 109 382 179 139 809
Earnings per share:
Basic income (loss) per common share:
Income from continuing operations 0.20 0.34 0.42 0.33 1.29
Income (loss) from discontinued operations 0.05 (0.14) - (0.01) (0.10)
Gain on disposal of discontinued operations - 0.70 - - 0.70
Net income 0.25 0.90 0.42 0.32 1.89
Diluted income (loss) per common share:
Income from continuing operations 0.20 0.33 0.42 0.33 1.28
Income (loss) from discontinued operations 0.05 (0.14) - (0.01) (0.10)
Gain on disposal of discontinued operations - 0.70 - - 0.70
Net income 0.25 0.89 0.42 0.32 1.88
Cash dividends paid per share 0.125 0.125 0.125 0.125 0.50
Common stock prices (2)
High 45.91 49.25 36.79 28.90 49.25
Low 34.81 32.20 19.35 10.94 10.94
=============================================================================================================================
2000
Revenues $ 2,859 $ 2,868 $ 3,024 $ 3,193 $11,944
Operating income (1) 81 126 248 7 462
Income (loss) from continuing operations 27 52 130 (21) 188
Income from discontinued operations 22 23 27 26 98
Gain on disposal of discontinued operations 215 - - - 215
Net income 264 75 157 5 501
Earnings per share:
Basic income (loss) per common share:
Income (loss) from continuing operations 0.06 0.12 0.29 (0.05) 0.42
Income from discontinued operations 0.05 0.05 0.06 0.06 0.22
Gain on disposal of discontinued operations 0.49 - - - 0.49
Net income 0.60 0.17 0.35 0.01 1.13
Diluted income (loss) per common share:
Income (loss) from continuing operations 0.06 0.12 0.29 (0.05) 0.42
Income from discontinued operations 0.05 0.05 0.06 0.06 0.22
Gain on disposal of discontinued operations 0.48 - - - 0.48
Net income 0.59 0.17 0.35 0.01 1.12
Cash dividends paid per share 0.125 0.125 0.125 0.125 0.50
Common stock prices (2)
High 45.50 52.25 55.19 51.06 55.19
Low 33.44 37.50 41.19 32.25 32.25
=============================================================================================================================
(continued on next page)
72
HALLIBURTON COMPANY
Quarterly Data and Market Price Information
(Unaudited)
(continued)
(1) Includes pretax job losses and severance for engineering and construction
contracts and related restructuring of $193 million ($118 million after-tax
or $0.27 per diluted share) in the fourth quarter of 2000.
(2) New York Stock Exchange - composite transactions high and low intraday
price.
73
PART III
Item 10. Directors and Executive Officers of Registrant.
The information required for the directors of the Registrant is
incorporated by reference to the Halliburton Company Proxy Statement dated March
19, 2002, under the caption "Election of Directors." The information required
for the executive officers of the Registrant is included under Part I on pages 9
and 10 of this annual report.
Item 11. Executive Compensation.
This information is incorporated by reference to the Halliburton Company
Proxy Statement dated March 19, 2002, under the captions "Compensation Committee
Report on Executive Compensation," "Comparison of Cumulative Total Return,"
"Summary Compensation Table," "Option Grants For Fiscal 2001," "Aggregated
Option Exercises in Fiscal 2001 and December 31, 2001 Option Values,"
"Employment Contracts and Change-in-Control Arrangements" and "Directors'
Compensation."
Item 12(a). Security Ownership of Certain Beneficial Owners and Management.
This information is incorporated by reference to the Halliburton Company
Proxy Statement dated March 19, 2002, under the caption "Stock Ownership of
Certain Beneficial Owners and Management."
Item 12(b). Security Ownership of Management.
This information is incorporated by reference to the Halliburton Company
Proxy Statement dated March 19, 2002, under the caption "Stock Ownership of
Certain Beneficial Owners and Management."
Item 12(c). Changes in Control.
Not applicable.
Item 13. Certain Relationships and Related Transactions.
This information is incorporated by reference to the Halliburton Company
Proxy Statement dated March 19, 2002, under the caption "Certain Relationships
and Related Transactions."
74
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) 1. Financial Statements:
The report of Arthur Andersen LLP, Independent Public Accountants,
and the financial statements of the Company as required by Part II,
Item 8, are included on pages 28 through 68 and pages 72 and 73 of
this annual report. See index on page 12.
2. Financial Statement Schedules: Page No.
Report on supplemental schedule of Arthur Andersen LLP 83
Schedule II - Valuation and qualifying accounts for the
three years ended December 31, 2001 84
Note: All schedules not filed with this report required by
Regulation S-X have been omitted as not applicable or not required
or the information required has been included in the notes to
financial statements.
3. Exhibits:
Exhibit
Number Exhibits
------- --------
3.1 Restated Certificate of Incorporation of Halliburton
Company filed with the Secretary of State of Delaware on
July 23, 1998 (incorporated by reference to Exhibit 3(a)
to Halliburton's Form 10-Q for the quarter ended June
30, 1998).
3.2 By-laws of Halliburton revised effective May 16, 2000
(incorporated by reference to Exhibit 3 to Halliburton's
Form 10-Q for the quarter ended June 30, 2000).
4.1 Form of debt security of 8.75% Debentures due February 12,
2021 (incorporated by reference to Exhibit 4(a) to the
Predecessor's Form 8-K dated as of February 20, 1991).
4.2 Senior Indenture dated as of January 2, 1991 between the
Predecessor and Texas Commerce Bank National Association,
as trustee (incorporated by reference to Exhibit 4(b) to
the Predecessor's Registration Statement on Form S-3 (File
No. 33-38394) originally filed with the Securities and
Exchange Commission on December 21, 1990), as supplemented
and amended by the First Supplemental Indenture dated as
of December 12, 1996 among the Predecessor, Halliburton
and the Trustee (incorporated by reference to Exhibit 4.1
of Halliburton's Registration Statement on Form 8-B dated
December 12, 1996, File No. 1-03492).
4.3 Resolutions of the Predecessor's Board of Directors
adopted at a meeting held on February 11, 1991 and of the
special pricing committee of the Board of Directors of the
predecessor adopted at a meeting held on February 11, 1991
and the special pricing committee's consent in lieu of
meeting dated February 12, 1991 (incorporated by reference
to Exhibit 4(c) to the Predecessor's Form 8-K dated as of
February 20, 1991).
4.4 Form of debt security of 6.75% Notes due February 1, 2027
(incorporated by reference to Exhibit 4.1 to Halliburton's
Form 8-K dated as of February 11, 1997).
75
4.5 Second Senior Indenture dated as of December 1, 1996
between the Predecessor and Texas Commerce Bank National
Association, as Trustee, as supplemented and amended by
the First Supplemental Indenture dated as of December 5,
1996 between the Predecessor and the Trustee and the
Second Supplemental Indenture dated as of December 12,
1996 among the Predecessor, Halliburton and the Trustee
(incorporated by reference to Exhibit 4.2 of Halliburton's
Registration Statement on Form 8-B dated December 12,
1996, File No. 1-03492).
4.6 Third Supplemental Indenture dated as of August 1, 1997
between Halliburton and Texas Commerce Bank National
Association, as Trustee, to the Second Senior Indenture
dated as of December 1, 1996 (incorporated by reference to
Exhibit 4.7 to Halliburton's Form 10-K for the year ended
December 31, 1998).
4.7 Fourth Supplemental Indenture dated as of September 29,
1998 between Halliburton and Chase Bank of Texas, National
Association (formerly Texas Commerce Bank National
Association), as Trustee, to the Second Senior Indenture
dated as of December 1, 1996 (incorporated by reference to
Exhibit 4.8 to Halliburton's Form 10-K for the year ended
December 31, 1998).
4.8 Resolutions of Halliburton's Board of Directors adopted by
unanimous consent dated December 5, 1996 (incorporated by
reference to Exhibit 4(g) of Halliburton's Form 10-K for
the year ended December 31, 1996).
4.9 Resolutions of Halliburton's Board of Directors adopted at
a special meeting held on September 28, 1998 (incorporated
by reference to Exhibit 4.10 to Halliburton's Form 10-K
for the year ended December 31, 1998).
4.10 Restated Rights Agreement dated as of December 1, 1996
between Halliburton and Mellon Investor Services LLC
(formerly ChaseMellon Shareholder Services, L.L.C.)
(incorporated by reference to Exhibit 4.4 of the Company's
Registration Statement on Form 8-B dated December 12,
1996, File No. 1-03492).
4.11 Copies of instruments that define the rights of holders of
miscellaneous long-term notes of Halliburton and its
subsidiaries, totaling $17 million in the aggregate at
December 31, 2001, have not been filed with the
Commission. Halliburton agrees to furnish copies of these
instruments upon request.
4.12 Form of debt security of 7.53% Notes due May 12, 2017
(incorporated by reference to Exhibit 4.4 to Halliburton's
Form 10-Q for the quarter ended March 31, 1997).
4.13 Form of debt security of 6.30% Notes due August 5, 2002
(incorporated by reference to Exhibit 4.1 to Halliburton's
Form 8-K dated as of August 5, 1997).
4.14 Form of debt security of 5.63% Notes due December 1, 2008
(incorporated by reference to Exhibit 4.1 to Halliburton's
Form 8-K dated as of November 24, 1998).
76
4.15 Form of Indenture, between Baroid Corporation and Texas
Commerce Bank National Association, as Trustee, for 8%
Senior Notes due 2003 (incorporated by reference to
Exhibit 4.01 to the Registration Statement on Form S-3
filed by Baroid Corporation, Registration No. 33-60174),
as supplemented and amended by Form of Supplemental
Indenture, between Dresser, Baroid Corporation and Texas
Commerce Bank N.A. as Trustee, for 8% Guaranteed Senior
Notes due 2003 (incorporated by reference to Exhibit 4.3
to Registration Statement on Form S-4 filed by Baroid
Corporation, Registration No. 33-53077).
4.16 Second Supplemental Indenture dated October 30, 1997
between Dresser and Texas Commerce Bank National
Association, as Trustee, for 8% Senior Notes due 2003
(incorporated by reference to Exhibit 4.19 to
Halliburton's Form 10-K for the year ended December 31,
1998).
4.17 Third Supplemental Indenture dated September 29, 1998
between Dresser, Halliburton, as Guarantor, and Chase Bank
of Texas, National Association, as Trustee, for 8% Senior
Notes due 2003 (incorporated by reference to Exhibit 4.20
to Halliburton's Form 10-K for the year ended December 31,
1998).
4.18 Form of Indenture, between Dresser and Texas Commerce Bank
National Association, as Trustee, for 7.60% Debentures due
2096 (incorporated by reference to Exhibit 4 to the
Registration Statement on Form S-3 as amended,
Registration No. 333-01303), as supplemented and amended
by Form of Supplemental Indenture, between Dresser and
Texas Commerce Bank National Association, Trustee, for
7.60% Debentures due 2096 (incorporated by reference to
Exhibit 4.1 to Dresser's Form 8-K filed on August 9,
1996).
4.19 Form of debt security of floating rate Notes due July 16,
2003 (incorporated by reference to Exhibit 4.1 to
Halliburton's Form 8-K dated January 8, 2002).
4.20 Form of debt security of 6% Notes due August 1, 2006
(incorporated by reference to Exhibit 4.2 to Halliburton's
Form 8-K dated January 8, 2002).
10.1 Halliburton Company Career Executive Incentive Stock Plan
as amended November 15, 1990 (incorporated by reference to
Exhibit 10(a) to the Predecessor's Form 10-K for the year
ended December 31, 1992).
10.2 Retirement Plan for the Directors of Halliburton Company,
as amended and restated effective May 16, 2000
(incorporated by reference to Exhibit 10.2 to
Halliburton's Form 10-Q for the quarter ended September
30, 2000).
10.3 Halliburton Company Directors' Deferred Compensation Plan
as amended and restated effective February 1, 2001
(incorporated by reference to Exhibit 10.3 to
Halliburton's Form 10-K for the year ended December 31,
2000).
10.4 Halliburton Company 1993 Stock and Long-Term Incentive
Plan, as amended and restated effective May 16, 2000
(incorporated by reference to Exhibit 10.3 to
Halliburton's Form 10-Q for the quarter ended June 30,
2000).
10.5 Halliburton Company Restricted Stock Plan for Non-Employee
Directors (incorporated by reference to Appendix B of the
Predecessor's proxy statement dated March 23, 1993).
10.6 Employment agreement (incorporated by reference to Exhibit
10(n) to the Predecessor's Form 10-K for the year ended
December 31, 1995).
77
10.7 Employment agreement (incorporated by reference to Exhibit
10.16 to Halliburton's Form 10-K for the year ended
December 31, 1998).
10.8 Employment agreement (incorporated by reference to Exhibit
10.19 to Halliburton's Form 10-K for the year ended
December 31, 1998).
10.9 Dresser Industries, Inc. Deferred Compensation Plan, as
amended and restated effective January 1, 2000
(incorporated by reference to Exhibit 10.16 to
Halliburton's Form 10-K for the year ended December 31,
2000).
10.10 Dresser Industries, Inc. 1982 Stock Option Plan
(incorporated by reference to Exhibit A to Dresser's Proxy
Statement dated February 12, 1982, filed pursuant to
Regulation 14A, File No. 1-4003).
10.11 ERISA Excess Benefit Plan for Dresser Industries, Inc., as
amended and restated effective June 1, 1995 (incorporated
by reference to Exhibit 10.7 to Dresser's Form 10-K for
the year ended October 31, 1995).
10.12 ERISA Compensation Limit Benefit Plan for Dresser
Industries, Inc., as amended and restated effective June
1, 1995 (incorporated by reference to Exhibit 10.8 to
Dresser's Form 10-K for the year ended October 31, 1995).
10.13 Supplemental Executive Retirement Plan of Dresser
Industries, Inc., as amended and restated effective
January 1, 1998 (incorporated by reference to Exhibit 10.9
to Dresser's Form 10-K for the year ended October 31,
1997).
10.14 Stock Based Compensation Arrangement of Non-Employee
Directors (incorporated by reference to Exhibit 4.4 to
Dresser's Registration Statement on Form S-8, Registration
No. 333-40829).
10.15 Dresser Industries, Inc. Deferred Compensation Plan for
Non-employee Directors, as restated and amended effective
November 1, 1997 (incorporated by reference to Exhibit 4.5
to Dresser's Registration Statement on Form S-8,
Registration No. 333-40829).
10.16 Long-Term Performance Plan for Selected Employees of The
M. W. Kellogg Company, as amended and restated effective
September 1, 1999 (incorporated by reference to Exhibit
10.23 to Halliburton's Form 10-K for the year ended
December 31, 2000).
10.17 Dresser Industries, Inc. 1992 Stock Compensation Plan
(incorporated by reference to Exhibit A to Dresser's Proxy
Statement dated February 7, 1992, filed pursuant to
Regulation 14A, File No. 1-4003).
10.18 Amendments No. 1 and 2 to Dresser Industries, Inc. 1992
Stock Compensation Plan (incorporated by reference to
Exhibit A to Dresser's Proxy Statement dated February 6,
1995, filed pursuant to Regulation 14A, File No. 1-4003).
10.19 Amendment No. 3 to the Dresser Industries, Inc. 1992 Stock
Compensation Plan (incorporated by reference to Exhibit
10.25 to Dresser's Form 10-K for the year ended October
31, 1997).
78
10.20 Amendment No. 1 to the Supplemental Executive Retirement
Plan of Dresser Industries, Inc. (incorporated by
reference to Exhibit 10.1 to Dresser's Form 10-Q for the
quarter ended April 30, 1998).
10.21 Employment agreement (incorporated by reference to Exhibit
10.2 to Halliburton's Form 10-Q for the quarter ended June
30, 2000).
10.22 Employment agreement (incorporated by reference to Exhibit
10.1 to Halliburton's Form 10-Q for the quarter ended
September 30, 2000).
10.23 Form of Nonstatutory Stock Option Agreement for
Non-Employee Directors (incorporated by reference to
Exhibit 10.3 to Halliburton's Form 10-Q for the quarter
ended September 30, 2000).
10.24 Employment agreement (incorporated by reference to Exhibit
10.39 to Halliburton's Form 10-K for the year ended
December 31, 2000).
10.25 Agreement and Plan of Recapitalization, as amended and
restated effective April 10, 2001 (incorporated by
reference to Halliburton's Form 8-K/A dated as of May 10,
2001).
10.26 Halliburton Company Supplemental Executive Retirement Plan
(formerly part of Halliburton Company Senior Executives'
Deferred Compensation Plan), as amended and restated
effective January 1, 2001 (incorporated by reference to
Exhibit 10.1 to Halliburton's Form 10-Q for the quarter
ended June 30, 2001).
10.27 Halliburton Company Benefit Restoration Plan (formerly
part of Halliburton Company Senior Executives' Deferred
Compensation Plan), as amended and restated effective
January 1, 2001 (incorporated by reference to Exhibit 10.2
to Halliburton's Form 10-Q for the quarter ended June 30,
2001).
10.28 Employment agreement (incorporated by reference to Exhibit
10.3 to Halliburton's Form 10-Q for the quarter ended June
30, 2001).
10.29 Halliburton Annual Performance Pay Plan, as amended and
restated effective January 1, 2001 (incorporated by
reference to Exhibit 10.1 to Halliburton's Form 10-Q for
the quarter ended September 30, 2001).
10.30 Halliburton Company Performance Unit Program (incorporated
by reference to Exhibit 10.2 to Halliburton's Form 10-Q
for the quarter ended September 30, 2001).
10.31 Halliburton Elective Deferral Plan, as amended and
restated effective January 1, 2002 (incorporated by
reference to Exhibit 4.1 to Halliburton's Registration
Statement on Form S-8, Registration No. 333-73046 filed
November 9, 2001).
* 10.32 Employment agreement.
* 10.33 Employment agreement.
* 21 Subsidiaries of the Registrant.
* 23 Consent of Arthur Andersen LLP.
79
24.1 Powers of attorney for the following directors signed in
February, 1997 (incorporated by reference to Exhibit 24 to
Halliburton's Form 10-K for the year ended December 31,
1996):
Lord Clitheroe
Robert L. Crandall
W. R. Howell
C. J. Silas
24.2 Power of attorney signed in December, 1997 for Charles J.
DiBona (incorporated by reference to Exhibit 24(b) to
Halliburton's Form 10-K for the year ended December 31,
1997).
24.3 Powers of attorney for the following directors signed in
October, 1998 (incorporated by reference to Exhibit 24.3
to Halliburton's Form 10-K for the year ended December 31,
1998):
Lawrence S. Eagleburger
Ray L. Hunt
J. Landis Martin
Jay A. Precourt
24.4 Powers of attorney for the following directors signed in
May, 2001 (incorporated by reference to Exhibit 24.1 to
Halliburton's Form 10-Q for the quarter ended June 30,
2001):
Kenneth T. Derr
Aylwin B. Lewis
Debra L. Reed
24.5 Powers of attorney for Douglas L. Foshee, Robert R. Harl
and Edgar J. Ortiz (incorporated by reference to Exhibit
24.2 to Halliburton's Form 10-Q for the quarter ended June
30, 2001).
* Filed with this Form 10-K.
(b) Reports on Form 8-K:
Date of
Date Filed Earliest Event Description of Event
- -------------------------------------------------------------------------------------------------------------------
During the fourth quarter of 2001:
October 19, 2001 October 18, 2001 Item 5. Other Events for a press release announcing the signing
of a letter of intent to combine Halliburton Subsea and DSND
Subsea ASA.
October 26, 2001 October 23, 2001 Item 5. Other Events for a press release announcing 2001 third
quarter earnings.
80
Date of
Date Filed Earliest Event Description of Event
- -------------------------------------------------------------------------------------------------------------------
During the fourth quarter of 2001 (continued):
October 30, 2001 October 26, 2001 Item 5. Other Events for a press release announcing the Board of
Directors declared a 2001 fourth quarter dividend of 12.5 cents a
share payable December 20, 2001 to shareholders of record at the
close of business on November 29, 2001.
November 6, 2001 November 1, 2001 Item 5. Other Events for a press release announcing that
Halliburton KBR, formerly Kellogg Brown & Root, has acquired GVA
Consultants AB from British Maritime Technology Limited for an
undisclosed amount.
November 7, 2001 October 30, 2001 Item 5. Other Events for a press release announcing Halliburton's
dispute of asbestos claims relating to a verdict in a Mississippi
trial.
November 27, 2001 November 21, 2001 Item 5. Other Events for a press release announcing the
acquisition of Magic Earth, Inc., a leading 3-D visualization and
interpretation technology company.
December 4, 2001 November 29, 2001 Item 5. Other Events for a press release announcing judgments
against Halliburton's subsidiary, Dresser Industries, Inc.,
involving asbestos claims and Halliburton's intent to appeal.
December 7, 2001 December 5, 2001 Item 5. Other Events for a press release announcing returned
verdicts against Halliburton's subsidiary, Dresser Industries,
Inc., involving asbestos claims.
December 11, 2001 December 7, 2001 Item 5. Other Events for a press release announcing a telephone
conference by Halliburton's management to discuss asbestos
litigation.
December 12, 2001 December 11, 2001 Item 5. Other Events for a press release announcing Halliburton
maintains Standard & Poor's Investment Grade Rating.
December 20, 2001 December 17, 2001 Item 5. Other Events for a press release announcing that
Halliburton KBR Government Operations division has been awarded
the U.S. Army Logistics Civil Augmentation Program (LOGCAP) III
contract.
81
Date of
Date Filed Earliest Event Description of Event
- -------------------------------------------------------------------------------------------------------------------
During the first quarter of 2002:
January 4, 2002 January 4, 2002 Item 5. Other Events for a press release denying rumors.
January 8, 2002 July 16, 2001 Item 5. Other Events for a press release detailing the terms of
the $275 million fixed-rate note due August 1, 2006 and $150
million of floating notes due July 16, 2003.
January 28, 2002 January 23, 2002 Item 5. Other Events for a press release announcing 2001 fourth
quarter earnings.
January 28, 2002 January 23, 2002 Item 5. Other Events for a press release announcing Moody's
Investors' Services continued credit rating at investment grade.
February 1, 2002 January 30, 2002 Item 5. Other Events for a press release announcing A-/A2 credit
ratings reaffirmed by Standard & Poor's.
February 13, 2002 February 7, 2002 Item 5. Other Events for a press release announcing that Kellogg
Brown & Root, Inc. settled Qui Tam lawsuit.
February 15, 2002 February 13, 2002 Item 5. Other Events for a press release announcing the Board of
Directors declared a 2002 first quarter dividend of 12.5 cents a
share payable March 21, 2002 to shareholders of record at the
close of business on February 28, 2002. The annual meeting of
shareholders was set for May 15, 2002 in Dallas, Texas.
February 15, 2002 February 14, 2002 Item 5. Other Events for a press release announcing that a U.S.
Bankruptcy Court has issued a temporary restraining order staying
certain pending asbestos claims.
February 27, 2002 February 22, 2002 Item 5. Other Events for a press release announcing that the U.S.
Bankruptcy Court restraining order on staying certain pending
asbestos claims has extended the time period of such stay until
April 4, 2002.
82
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON SUPPLEMENTAL SCHEDULE
To the Shareholders and Board of Directors
Halliburton Company:
We have audited in accordance with auditing standards generally accepted in the
United States of America, the consolidated financial statements included in this
Form 10-K, and have issued our report thereon dated January 23, 2002. Our audits
were made for the purpose of forming an opinion on those statements taken as a
whole. The supplemental schedule (Schedule II) is the responsibility of
Halliburton Company's management and is presented for purposes of complying with
the Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, is fairly stated in all material respects in relation to the basic
financial statements taken as a whole.
/s/ ARTHUR ANDERSEN LLP
------------------------
ARTHUR ANDERSEN LLP
Dallas, Texas,
January 23, 2002 (Except with respect to certain matters discussed in Note
9, as to which the date is February 21, 2002.)
83
HALLIBURTON COMPANY
Schedule II - Valuation and Qualifying Accounts
(Millions of Dollars)
The table below presents valuation and qualifying accounts for continuing
operations.
Additions
------------------------------
Balance at Charged to Charged to Balance at
Beginning Costs and Other End of
Descriptions of Period Expenses Accounts Deductions Period
- ------------------------------------------------------------------------------------------------ ------------------------------
Year ended December 31, 1999:
Deducted from accounts and notes receivable:
Allowance for bad debts $ 66 $ 49 $ - $ (21) (a) $ 94
- -------------------------------------------------------------------------------------------------------------------------------
Reserve for repairs and maintenance $ 14 $ 4 $ - $ (3) $ 15
- -------------------------------------------------------------------------------------------------------------------------------
Accrued special charges $ 357 $ - $ - $ (288) (b) $ 69
===============================================================================================================================
Year ended December 31, 2000:
Deducted from accounts and notes receivable:
Allowance for bad debts $ 94 $ 39 $ - $ (8) (a) $ 125
- -------------------------------------------------------------------------------------------------------------------------------
Reserve for repairs and maintenance $ 15 $ 4 $ - $ (5) $ 14
- ---------------------------------------------------------------------------------- --------------------------------------------
Accrued special charges $ 69 $ - $ - $ (63) (c) $ 6
- -------------------------------------------------------------------------------------------------------------------------------
Accrued reorganization charges $ - $ 36 $ - $ (20) $ 16
===============================================================================================================================
Year ended December 31, 2001:
Deducted from accounts and notes receivable:
Allowance for bad debts $ 125 $ 70 $ - $ (64) (a) $ 131
- -------------------------------------------------------------------------------------------------------------------------------
Reserve for repairs and maintenance $ 14 $ 4 $ - $ (5) $ 13
- -------------------------------------------------------------------------------------------------------------------------------
Accrued special charges $ 6 $ - $ - $ (6) $ -
- -------------------------------------------------------------------------------------------------------------------------------
Accrued reorganization charges $ 16 $ - $ - $ (15) (d) $ 1
===============================================================================================================================
(a) Receivable write-offs and reclassifications, net of recoveries.
(b) Includes $47 million reversal of special charges taken in 1998 and $14 million for items of a long-term nature reclassified
to employee compensation and benefits in 1999.
(c) Includes $9 million for items of a long-term nature reclassified to other liabilities in 2000.
(d) Includes $4 million estimate to actual adjustment.
84
SIGNATURES
As required by Section 13 or 15(d) of the Securities Exchange Act of 1934, the
registrant has authorized this report to be signed on its behalf by the
undersigned authorized individuals, on this day of March, 2002.
----------
HALLIBURTON COMPANY
By /s/ David J. Lesar
----------------------------------------
David J. Lesar
Chairman of the Board,
President and Chief Executive Officer
As required by the Securities Exchange Act of 1934, this report has been signed
below by the following persons in the capacities indicated on this day of
------
March, 2002.
Signature Title
- --------- -----
/s/ David J. Lesar Chairman of the Board, President and
- ----------------------------------
David J. Lesar Chief Executive Officer
/s/ Douglas L. Foshee Executive Vice President and
- ----------------------------------
Douglas L. Foshee Chief Financial Officer
/s/ R. Charles Muchmore, Jr. Vice President and Controller and
- ----------------------------------
R. Charles Muchmore, Jr. Principal Accounting Officer
85
Signature Title
- --------- -----
* LORD CLITHEROE Director
- ----------------------------------
Lord Clitheroe
*ROBERT L. CRANDALL Director
- ----------------------------------
Robert L. Crandall
* KENNETH T. DERR Director
- ----------------------------------
Kenneth T. Derr
* CHARLES J. DIBONA Director
- ----------------------------------
Charles J. DiBona
* LAWRENCE S. EAGLEBURGER Director
- ----------------------------------
Lawrence S. Eagleburger
* W. R. HOWELL Director
- ----------------------------------
W. R. Howell
* RAY L. HUNT Director
- ----------------------------------
Ray L. Hunt
* AYLWIN B. LEWIS Director
- ----------------------------------
Aylwin B. Lewis
* J. LANDIS MARTIN Director
- ----------------------------------
J. Landis Martin
* JAY A. PRECOURT Director
- ----------------------------------
Jay A. Precourt
* DEBRA L. REED Director
- ----------------------------------
Debra L. Reed
* C. J. SILAS Director
- ----------------------------------
C. J. Silas
* /s/ SUSAN S. KEITH
- ----------------------------------
Susan S. Keith, Attorney-in-fact
86