01—Abstract
Summary
Summary of the 10-K filed March 28, 2003. Cited figures are marked; the original filing is the authoritative source.
Halliburton Company's 10-K for fiscal 2002 reports a net loss of $998 milliona, or $2.31 per diluted share, versus net income of $809 million in 2001.
The loss was driven primarily by an asbestos and silica liability charge: the company raised its accrual to $3.4 billionb, and recorded a net pretax charge of $799 million in the fourth quarter. Revenues fell to $12.6 billion from $13.0 billion, with the Energy Services Group down 12% and the Engineering and Construction Group up 10%. Operating results declined to an operating loss of $112 million from operating income of $1.084 billion in 2001.
The central investor issue is the proposed global settlement of asbestos and silica claims against DII Industries and Kellogg, Brown & Root. Under the agreement in principle, Halliburton would pay up to $2.775 billionc in cash, 59.5 million Halliburton shares (valued at $1.1 billion), and notes with a net present value expected to be less than $100 million, with the settlement implemented through a pre-packaged Chapter 11 filing. The filing states that completion is not yet considered probable under SFAS No. 5, that financing commitments must be arranged before any Chapter 11 filing, and that the stay in the Harbison-Walker bankruptcy has been extended to July 21, 2003.
The filing also discloses liquidity pressure and other risks. Standard & Poor's lowered Halliburton's long-term debt rating to BBB in December 2002, Moody's rated it Baa2, and both agencies have kept the ratings under review for possible downgrade. Other matters include the Barracuda-Caratinga project in Brazil, a $117 milliond loss recorded on that project, a patent judgment of about $98 million from BJ Services, and an SEC formal investigation into revenue recognition on unapproved claims.
02—Key points
Key Highlights
- Net loss of $998 million ($2.31 per diluted share) in 2002, compared with net income of $809 million ($1.88 per diluted share) in 2001.
- Asbestos and silica liability accrual raised to $3.4 billion; a net pretax charge of $799 million was recorded in the fourth quarter of 2002.
- Proposed global settlement: up to $2.775 billion in cash, 59.5 million shares, and notes with NPV under $100 million, to be implemented through a pre-packaged Chapter 11 filing by DII Industries and Kellogg, Brown & Root.
- Revenues were $12.6 billion, down from $13.0 billion; Energy Services Group revenues declined 12% while Engineering and Construction Group revenues rose 10%.
- Operating loss of $112 million, compared with operating income of $1.1 billion in 2001, including a $117 million pretax loss on the Barracuda-Caratinga project.
- Credit ratings lowered: S&P at BBB and Moody's at Baa2, with both agencies keeping ratings under review pending the outcome of the global settlement.
- Cash and equivalents of $1.1 billion at year-end 2002, with cash from operating activities of $1.6 billion; the company has no debtor-in-possession or delayed-draw facilities in place yet.
03—Questions
Frequently Asked Questions
What is the main reason for the 2002 net loss?
The net loss of $998 million was driven mainly by asbestos and silica charges. Discontinued operations recorded an $806 million pretax charge, primarily from a revised asbestos and silica liability estimate, and the company also recorded a $564 million pretax expense in the Engineering and Construction Group related to these liabilities.
What does the proposed global settlement require Halliburton to pay?
Under the agreement in principle, up to $2.775 billion in cash, 59.5 million Halliburton shares (valued at $1.1 billion at the December 31, 2002 price of $18.71), and notes with a net present value expected to be less than $100 million would be paid to a trust for asbestos and silica claimants. Funding occurs only after final, non-appealable court confirmation of a plan of reorganization.
What conditions must be met before the settlement is completed?
The filing lists numerous prerequisites, including agreement on silica claimant amounts, completion of due diligence and medical review of the more than 347,000 current claims, arrangement of acceptable financing, Halliburton board approval, affirmative votes from at least 75% of current asbestos claimants, and final bankruptcy court approval and federal district court confirmation. The company states it cannot assure that these will be satisfied.
How does the settlement affect Halliburton's credit and liquidity?
Standard & Poor's lowered Halliburton's long-term debt rating to BBB in December 2002, and Moody's rates it Baa2; both are under review for possible downgrade. A downgrade below investment grade would trigger technical breaches and possible cash collateral demands on letters of credit, and the $350 million committed credit line is available only if investment grade ratings are maintained.
What is the status of the Harbison-Walker bankruptcy stay?
In March 2003, the company agreed with Harbison-Walker and the asbestos creditors committee to extend the stay of more than 200,000 pending asbestos claims against DII Industries until July 21, 2003. If the pre-packaged Chapter 11 filing is not made by July 14, 2003, the Bankruptcy Court will hear motions to lift the stay on July 21, 2003.
04—Continue