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NONOPERATING ITEMS Interest expense was $146 million for 2000 compared to $141 million in 1999 and $134 million in 1998. 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. 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 declined $49 million from 1999 and was about the same as 1998. 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 gains (losses) netted to a loss of $5 million, down from losses of $8 million in 1999 and $10 million in 1998. The losses in 2000 were primarily in Asia Pacific currencies and the euro. Losses in 1999 occurred primarily in Russian and Latin American currencies. Losses in 1998 occurred primarily in Asia Pacific currencies. Other, net in 2000 was a net loss of $1 million compared to a net loss of $19 million in 1999 and a net gain of $3 million in 1998. The net loss in 1999 includes a $26 million charge in the second quarter relating to an impairment of Kellogg Brown & Root’s net investment in Bufete Industriale, S.A. de C.V., a large specialty engineering, procurement and construction company in Mexico. Provision for income taxes on continuing operations was $129 million for an effective tax rate of 38.5%, compared to 37.8% in 1999 and 281.8% in 1998. Excluding our special charges and related taxes, the effective rate was 38.8% in 1999 and 37.8% in 1998. Minority interest in net income of subsidiaries was $18 million in 2000 compared to $17 million in 1999 and $20 million in 1998. Income from continuing operations was $188 million in 2000 and $174 million in 1999. In 1998 continuing operations was a loss of $120 million. Income from discontinued operations was $98 million in 2000, $124 million in 1999 and $105 million in 1998. 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 per 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.” Net income in 2000 was $501 million or $1.12 per diluted share and in 1999 was $438 million or $0.99 per diluted share. In 1998 the net loss of $15 million resulted in $0.03 loss per diluted share.
LIQUIDITY AND CAPITAL RESOURCES We ended 2000 with cash and equivalents of $231 million compared with $466 million in 1999 and $203 million in 1998. Cash flows from operating activities used $57 million for 2000 compared to $58 million used for 1999 and provided $150 million for 1998. Working capital items, which include receivables, inventories, accounts payable and other working capital, net, used $563 million of cash in 2000 compared to providing $2 million in 1999 and using $533 million in 1998. 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 $54 million in 2000 and $202 million in 1999 and $112 million in 1998. Cash flows used in investing activities were $411 million for 2000, $107 million for 1999 and $790 million for 1998. Capital expenditures of $578 million in 2000 were about 11% higher than in 1999 and about 31% lower than in 1998. Capital spending was mostly for equipment for Halliburton Energy Services, which included investing in cementing equipment designed to integrate our pumping and mixing systems with new safety and technological features. 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. In 1998, net cash used for investing activities includes various acquisitions of businesses of approximately $40 million. Cash flows from financing activities used $584 million in 2000 and provided $189 million in 1999 and $267 million in 1998. We repaid $308 million on our long-term debt in 2000. Net short-term borrowings consisting of commercial paper and bank loans provided $629 million in 2000. Proceeds from exercises of stock options provided cash flows of $105 million in 2000 compared to $49 million in 1999 and 1998. Dividends to shareholders used $221 million of cash in 2000 and 1999. In April 2000 our Board of Directors approved a plan to implement a share repurchase program. As of December 31, 2000 we had repurchased over 20 million shares at a cost of $759 million. In addition, we repurchased $10 million of common stock both in 2000 and 1999 and $20 million in 1998 from employees to settle their income tax liabilities primarily for restricted stock lapses. We may periodically repurchase our common stock as we deem appropriate. Cash flows from discontinued operations provided $826 million in 2000 as compared to $234 million and $235 million in 1999 and 1998, respectively. Cash flows for 2000 include proceeds from the sale of Dresser-Rand and Ingersoll-Dresser Pump of approximately $913 million. Capital resources from internally generated funds and access to capital markets are sufficient to fund our working capital requirements, share repurchases and investing activities. Our combined short-term notes payable and long-term debt was 40%, 35% and 32% of total capitalization at the end of 2000, 1999 and 1998, respectively. 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 and increased short-term debt in the fourth quarter to fund share repurchases. We plan to use proceeds from the Dresser Equipment Group sale to pay down debt recently incurred for the repurchase of our shares. This should return the debt-to-capitalization ratio to the 30% to 35% range by the end of the second quarter of 2001.
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 hedge these exposures through the use of derivative instruments to mitigate our market risk from these exposures. The objective of our hedging is to protect our cash flows related to sales or purchases of goods or services from fluctuations in currency rates. Our use of derivative instruments includes the following types of market risk:
We do not use derivative instruments for trading purposes. We do not consider any of our hedging activities to be material. See Note 1 for additional information on our accounting policies on derivative instruments. See Note 17 for additional disclosures related to derivative instruments.
RESTRUCTURING ACTIVITIES While oil and gas prices have continued to maintain the strength that provides positive uplift to our oilfield services and integrated exploration and production information systems businesses, our engineering and construction businesses continue 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 are not positive. The continued delays of upstream and downstream projects, and the resulting decrease in our backlog and levels of work, will make it difficult to achieve acceptable margins in 2001 in our engineering and construction businesses. Accordingly, in the fourth quarter of 2000 we approved a plan to re-combine all of our engineering and construction businesses into one business unit. 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. During the third and fourth quarters of 1998, we incurred special charges totaling $980 million related to the Dresser merger and industry downturn, of which $21 million has been recorded in discontinued operations. During the second quarter of 1999, we reversed $47 million of our 1998 special charges based on our reassessment of total costs to be incurred to complete the actions covered in the charges. We have in process a program to exit approximately 500 properties, including service, administrative and manufacturing facilities. We accrued expenses to exit approximately 400 of these properties in the 1998 special charges. Most of these properties are within the Energy Services Group. Through December 31, 2000 we have vacated 97% of the approximate 500 total facilities. We have sold or returned to the owner 94% of the vacated properties.
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.
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