01—Abstract
Summary
Summary of the 10-K/A filed March 15, 2004. Cited figures are marked; the original filing is the authoritative source.
Halliburton Company's 2003 Form 10-K reports revenues of $16.27 billiona, up 29.4% from $12.57 billion in 2002, driven largely by government services work in the Middle East.
Operating income was $720 millionb compared with an operating loss of $112 million in 2002, but the company posted a net loss of $820 million ($1.88 per diluted share) after a $1.151 billion loss from discontinued operations, which is primarily the asbestos and silica liability remeasurement tied to the December 16, 2003 pre-packaged Chapter 11 filings of DII Industries, Kellogg Brown & Root and other subsidiaries. Iraq-related work contributed about $3.6 billion of revenue and $85 million of operating income, and the U.S. Government accounted for $4.2 billion, or 26%, of total revenues. The filing centers on the asbestos and silica settlement, which requires up to approximately $2.5 billion in cash, 59.5 million shares of Halliburton common stock, and insurance proceeds between $2.3 billion and $3.0 billion, all subject to bankruptcy court confirmation with a hearing scheduled for May 10 through 12, 2004.
Balance sheet liquidity tightened: cash rose to $1.815 billion, but long-term debt climbed to $3.437 billionc, shareholders' equity fell to $2.547 billion from $3.558 billion, and current asbestos and silica liabilities of $2.507 billion were reclassified to short-term. The company also disclosed an SEC formal investigation, DCAA audit issues on Iraq and Kuwait government contracts, and a Barracuda-Caratinga project in a $238 million 2003 loss position. For investors, the central questions are whether the Chapter 11 plan is confirmed and whether the Iraq government-services revenue is sustainable against the scrutiny and withheld-invoice risks described in the filing, which include $141 million of food-services invoices not yet submitted.
02—Key points
Key Highlights
- Revenues of $16.27 billion in 2003, up 29.4% from $12.57 billion, largely from government services in the Middle East
- Operating income of $720 million, versus an operating loss of $112 million in 2002
- Net loss of $820 million, or $1.88 per diluted share, driven by a $1.151 billion loss from discontinued operations tied to asbestos and silica liabilities
- Pre-packaged Chapter 11 filings on December 16, 2003 by DII Industries, Kellogg Brown & Root and other subsidiaries, with confirmation hearing set for May 10 through 12, 2004
- Proposed asbestos and silica trusts would receive up to about $2.5 billion in cash, 59.5 million Halliburton shares, and insurance proceeds of $2.3 billion to $3.0 billion
- Iraq-related work contributed about $3.6 billion in revenue and $85 million in operating income; U.S. Government revenue was $4.2 billion, or 26% of total
- Long-term debt rose to $3.437 billion from $1.476 billion, and shareholders' equity fell to $2.547 billion from $3.558 billion
03—Questions
Frequently Asked Questions
What drove the net loss despite positive operating income?
The net loss of $820 million reflects a $1.151 billion loss from discontinued operations, mainly the $1.016 billion pretax charge to remeasure the asbestos and silica liability to reflect the full proposed settlement after the Chapter 11 filing. Continuing operations earned $339 million.
What must happen for the asbestos and silica settlement to be completed?
The bankruptcy court must confirm the pre-packaged plan of reorganization, the federal district court must affirm it, and the orders must become final and non-appealable. Insurance carriers have filed motions and objections, and the filing states there can be no assurance the conditions will be met. Financing conditions also apply to the delayed-draw term facility.
How concentrated is the company's revenue?
The U.S. Government accounted for $4.2 billion, or 26%, of 2003 revenues, derived almost entirely from the Engineering and Construction Group, and Iraq-related revenue totaled about $3.6 billion. Revenues from the United States Government in 2002 and 2001 were each less than 10%.
What government contract risks does the filing disclose?
The Defense Contract Audit Agency alleged a possible $61 million overcharge on fuel imports into Iraq, which was referred to the Department of Defense inspector general. The company is also withholding $141 million of food-services invoices pending an internal review, and it credited $36 million to the Department of Defense. The filing says these matters could materially and adversely affect liquidity.
What is the backlog and what is the outlook for Barracuda-Caratinga?
Total backlog at December 31, 2003 was $10.066 billion, versus $10.034 billion a year earlier, with an estimated 73% to be completed in 2004. The Barracuda-Caratinga project is about 83% complete, with an inception-to-date pretax loss of $355 million and potential liquidated damages of $96 million if the company's claim for additional time is unsuccessful, which the company considers unlikely.
04—Continue