01—Abstract
Summary
Summary of the 10-K filed March 8, 2004. Cited figures are marked; the original filing is the authoritative source.
Halliburton Company's 2003 Form 10-K, filed March 8, 2004, centers on two issues: the asbestos and silica liability resolved through a pre-packaged Chapter 11 filing by DII Industries, LLC, Kellogg Brown & Root, Inc. and other subsidiaries on December 16, 2003, and rapid growth in government services work in Iraq.
Revenue rose to $16.27 billiona from $12.57 billion, with the Engineering and Construction Group contributing $9.28 billion, up from $5.74 billion. The Energy Services Group's operating income increased to $826 million from $638 million, while the company reported a net loss of $820 million, driven by a $1.151 billion loss from discontinued operations tied to the asbestos and silica charges. The proposed plan of reorganization calls for up to approximately $2.5 billion in cash, 59.5 million shares of Halliburton common stock, notes valued at about $52 million, and insurance proceeds between $2.3 billion and $3.0 billion to trusts for current and future claimants.
Confirmation hearing is scheduled for May 10 through 12, 2004. Equitas has agreed to pay $575 millionb toward the insurance recoveries, conditioned on plan confirmation and no national asbestos litigation legislation. Long-term debt rose to $3.44 billion at year-end 2003 from $1.48 billion, and cash and equivalents reached $1.82 billion.
The filing also discloses material risks: a formal SEC investigation focused on revenue recognition for unapproved claims on long-term projects, Defense Contract Audit Agency inquiries into Iraq logistics invoicing (including $141 millionc of withheld food services invoices), and the Barracuda-Caratinga project, which is in a financial loss position with $355 million in inception-to-date pretax losses. Management reported that internal control issues were identified in the fourth quarter on the Iraq logistics contracts.
02—Key points
Key Highlights
- Revenue grew to $16.27 billion in 2003 from $12.57 billion in 2002, with the Engineering and Construction Group rising to $9.28 billion from $5.74 billion, largely from government services work in the Middle East.
- Net loss of $820 million in 2003, compared with a net loss of $998 million in 2002, reflecting a $1.151 billion loss from discontinued operations tied to asbestos and silica liabilities.
- Operating income was $720 million in 2003, compared with an operating loss of $112 million in 2002.
- Iraq-related work contributed approximately $3.6 billion in consolidated revenues in 2003, and the United States Government accounted for $4.2 billion, or 26% of total revenues.
- Subsidiaries DII Industries and Kellogg Brown & Root filed Chapter 11 on December 16, 2003 to implement a pre-packaged asbestos and silica settlement, with a proposed plan requiring up to about $2.5 billion in cash and 59.5 million Halliburton shares to be contributed to trusts.
- Total backlog was $10.07 billion at December 31, 2003, compared with $10.03 billion a year earlier.
- The company disclosed an SEC formal investigation and DCAA audits of Iraq logistics invoicing, and reported internal control issues identified in the fourth quarter of 2003 on those contracts.
03—Questions
Frequently Asked Questions
What is the status of the asbestos and silica settlement?
Subsidiaries filed pre-packaged Chapter 11 proceedings on December 16, 2003, after valid votes from approximately 364,000 asbestos claimants and 21,000 silica claimants, with over 98% of voting asbestos claimants and over 99% of voting silica claimants accepting the plan. The bankruptcy court has scheduled a confirmation hearing for May 10 through 12, 2004. Some insurance carriers have sought to dismiss the proceedings or delay the plan, and the bankruptcy court ruled on February 11, 2004 that the carriers lack standing to bring dismissal motions.
How much cash has the company paid and what remains to be paid?
DII Industries paid $311 million to claimants on December 16, 2003. If the plan is confirmed, the company will contribute up to approximately $2.5 billion in cash, and it has guaranteed an additional $156 million of that amount, payable on the earlier of June 17, 2004 or final confirmation of the plan.
What is the financial impact of the Iraq government services work?
Iraq-related work contributed approximately $3.6 billion in consolidated revenues and $85 million in consolidated operating income in 2003. The company said the work requires significant working capital, that working capital requirements will increase through the first half of 2004, and that DCAA invoicing disputes could materially and adversely affect liquidity.
What are the main risks flagged in the filing?
The filing flags the outcome of the asbestos and silica plan and possible insurer challenges, an SEC formal investigation into revenue recognition on unapproved claims, DCAA audits and a Department of Defense inspector general referral related to Iraq contracts, the loss-making Barracuda-Caratinga project with up to $96 million in potential liquidated damages, and credit rating constraints that could require additional collateral for credit facilities.
How has the company financed these obligations?
Between June 2003 and January 2004, the company issued $1.2 billion of 3.125% convertible senior notes and $1.05 billion of fixed and floating rate senior notes, followed by $500 million of senior notes due 2007 in January 2004. It also entered a delayed-draw term facility of up to $500 million for trust funding and a $700 million three-year revolving credit facility, neither of which had borrowings outstanding at year-end 2003. Long-term debt was $3.44 billion at December 31, 2003.
04—Continue