01—Abstract
Summary
Summary of the 10-K/A filed January 15, 2004. Cited figures are marked; the original filing is the authoritative source.
Halliburton Company's 10-K/A for fiscal 2002, filed January 15, 2004, reports a 2002 net loss of $998 milliona, or $2.31 per diluted share, compared with net income of $809 million in 2001.
Revenues fell to $12.57 billionb from $13.05 billion, and operating results were driven by a $644 million asbestos and silica charge within the Engineering and Construction Group. The filing presents the company's eight business segments, which are grouped into the Energy Services Group and the Engineering and Construction Group (KBR). It also restates segment disclosures for 2001 and 2000 and notes that the report was revised after the original 2002 filing.
The central investor issue is the proposed global settlement of asbestos and silica claims against DII Industries, Kellogg, Brown & Root and their subsidiaries. The agreement in principle calls for up to $2.775 billionc in cash, 59.5 million Halliburton shares (valued at $1.1 billion at $18.71 per share) and notes with a net present value expected to be less than $100 million, to be paid to a trust upon court confirmation of a pre-packaged Chapter 11 plan. The company's asbestos and silica liability was adjusted to $3.4 billion, against insurance recoveries of $2.1 billion, and the filing states the company does not yet consider the settlement probable under SFAS No. 5.
Completing the settlement depends on financing, creditor votes and court approvals, and the filing says there is no assurance these will be obtained. The filing also discloses an SEC formal investigation into revenue recognition on unapproved claims for long-term engineering and construction projects, securities class actions, a $98 milliond patent judgment that the company is appealing, and credit rating downgrades to BBB by Standard & Poor's and Baa2 by Moody's as a result of asbestos exposure, with both agencies still reviewing ratings. Cash and equivalents rose to $1.1 billion at year-end 2002 from $290 million, and operating cash flow was $1.6 billion.
02—Key points
Key Highlights
- 2002 net loss of $998 million, or $2.31 per diluted share, versus 2001 net income of $809 million, or $1.88 per diluted share
- Total revenues of $12.57 billion in 2002, compared with $13.05 billion in 2001
- Asbestos and silica charges of $644 million in 2002 contributed to an operating loss of $112 million
- Proposed global settlement of asbestos and silica claims: up to $2.775 billion in cash, 59.5 million shares and notes, with the asbestos and silica liability adjusted to $3.4 billion and insurance receivables of $2.1 billion
- SEC formal investigation into revenue recognition on unapproved claims and cost overruns on long-term engineering and construction projects, plus multiple securities class actions
- Credit ratings lowered to BBB (S&P) and Baa2 (Moody's) with both agencies still considering possible further downgrades
- Cash and equivalents of $1.1 billion at December 31, 2002, up from $290 million a year earlier
03—Questions
Frequently Asked Questions
What is the status of the proposed asbestos and silica settlement?
The company reached an agreement in principle in December 2002 and entered into definitive written agreements with DII Industries and Kellogg, Brown & Root as of March 2003. The filing states that many prerequisites remain, including financing, a Chapter 11 plan, 75% creditor approval and final court confirmation, and that there can be no assurance they will be satisfied. The company does not currently believe the settlement is probable under SFAS No. 5.
How much has the company accrued for asbestos and silica liabilities?
The company adjusted its asbestos and silica liability to $3.4 billion at December 31, 2002, and recorded insurance receivables of $2.1 billion. If the settlement becomes probable, the filing says the liability could rise to $4.0 billion, with insurance recoveries of $2.3 billion and an additional pretax charge of $322 million.
Why did revenues and operating income decline in 2002?
Revenues fell $474 million to $12.57 billion, mainly from a 28% drop in U.S. rig counts that pressured pricing in the Energy Services Group. Operating results were further reduced by $644 million of asbestos and silica charges, a $117 million loss on the Barracuda-Caratinga project in Brazil and a $98 million patent infringement charge.
What regulatory and legal risks does the filing identify beyond asbestos?
The filing describes an SEC formal investigation into the company's accounting for revenues on unapproved claims and cost overruns, along with about twenty securities class actions and a derivative suit. It also discloses a BJ Services patent judgment of about $98 million plus interest, which the company is appealing, and an Anglo-Dutch lawsuit seeking approximately $680 million in damages.
How is the company's debt rating situation affecting its financing?
Standard & Poor's lowered the company's long-term debt rating to BBB and Moody's to Baa2, with both agencies keeping ratings under review pending the global settlement. The filing states that borrowing costs are higher and debt market access is more volatile, and that certain letter of credit facilities could require cash collateral if ratings fall further.
04—Continue