What is the status of the asbestos and silica settlement?

Subsidiaries DII Industries, LLC and Kellogg Brown & Root filed pre-packaged Chapter 11 proceedings on December 16, 2003, after over 98% of voting asbestos claimants and over 99% of voting silica claimants accepted the proposed plan. Confirmation is subject to bankruptcy court approval, with a hearing scheduled for May 10–12, 2004, and insurance carriers have filed objections. The company states there can be no assurance the plan will be approved.

How much cash does Halliburton expect to contribute to the asbestos and silica trusts?

The proposed plan provides for up to approximately $2.5 billion in cash, in addition to the $311 million paid to claimants in December 2003. Halliburton also agreed to guarantee $156 million of the remaining cash amount, payable by June 17, 2004 or upon final confirmation of the plan, whichever is earlier.

What government contract risks does the company disclose?

The DCAA preliminary audit alleged a possible $61 million overcharge on fuel imports into Iraq, which has been referred to the Department of Defense inspector general, and the Department of Justice may investigate. The company also withheld $141 million of food services invoices pending resolution of a dispute over invoicing based on meals ordered versus personnel served. Management warns these matters could materially and adversely affect liquidity.

What is the Barracuda-Caratinga project's financial impact?

The project is in a financial loss position and approximately 83% complete. The company recorded an inception-to-date pretax loss of $355 million, including $238 million in 2003. Liquidated damages could total $96 million if the company's claim for additional time is unsuccessful, though the company considers this unlikely and has not accrued it.

What are the company's main liquidity and financing arrangements?

Halliburton issued $1.2 billion of 3.125% convertible senior notes and $1.05 billion of floating and fixed rate senior notes in 2003, plus $500 million of senior notes due 2007 in January 2004. It also established a delayed-draw term facility of up to $500 million for asbestos trust funding, a $700 million three-year revolving credit facility, and a master letter of credit facility of approximately $1.5 billion.

HAL 10-K Filed May 12, 2004

01—Abstract

Summary

Summary of the 10-K/A filed May 12, 2004. Cited figures are marked; the original filing is the authoritative source.

Halliburton Company's Form 10-K/A (Amendment No. 2) for fiscal 2003 reports revenues of $16.27 billion^a, up 29.4% from $12.57 billion in 2002, driven largely by government services work in the Middle East.

Government services revenue related to Iraq totaled $3.6 billion^b in 2003, and the United States Government represented 26% of consolidated revenues. Net loss was $820 million, or $1.88 per diluted share, compared with a net loss of $998 million in 2002, primarily due to a $1.151 billion loss from discontinued operations tied to asbestos and silica liabilities. Income from continuing operations was $339 million, compared with a loss of $346 million in 2002.

The central issue for investors is the pre-packaged Chapter 11 filing made on December 16, 2003 by DII Industries, LLC, Kellogg Brown & Root, Inc. and other affected subsidiaries to resolve asbestos and silica claims. The proposed plan calls for up to approximately $2.5 billion^c in cash, 59.5 million shares of Halliburton common stock, and insurance proceeds, with a confirmation hearing scheduled for May 10 through 12, 2004. Equitas agreed to pay $575 million in insurance recoveries, conditioned on plan confirmation and no national asbestos legislation.

The company reports $2.5 billion^d of asbestos and silica liabilities classified as current and has raised substantial financing, including $1.2 billion of convertible notes and $1.6 billion of senior notes issued between June 2003 and January 2004. The filing also discloses ongoing government contract scrutiny, including a DCAA preliminary audit alleging a $61 million overcharge on fuel imports into Iraq, a $141 million withheld food services invoice amount, and a formal SEC investigation.

The amendment expands disclosure on internal control issues identified in the fourth quarter of 2003 on the LogCAP and RIO contracts. Management stated these issues were not significant deficiencies or material weaknesses.

02—Key points

Key Highlights

Total revenues rose 29.4% to $16.27 billion in 2003, with the Engineering and Construction Group contributing $9.28 billion, up 61.7%.
Net loss of $820 million ($1.88 per diluted share) in 2003, driven by a $1.151 billion loss from discontinued operations, mainly asbestos and silica charges; income from continuing operations was $339 million.
Asbestos and silica liabilities of $4.09 billion at year-end, of which $2.51 billion is classified as current, following the December 16, 2003 pre-packaged Chapter 11 filing by subsidiaries.
Proposed plan contributes up to about $2.5 billion in cash and 59.5 million Halliburton shares to asbestos and silica trusts; confirmation hearing scheduled for May 10–12, 2004.
Iraq-related government services revenue totaled $3.6 billion in 2003, and the United States Government accounted for 26% of consolidated revenues.
Cash and equivalents rose to $1.8 billion from $1.1 billion, with long-term debt increasing to $3.4 billion from $1.2 billion, reflecting new convertible and senior note issuances.
Company is subject to a formal SEC investigation regarding its disclosure of changes in revenue accounting for cost overruns and unapproved claims on long-term construction projects.

03—Questions

Frequently Asked Questions

What is the status of the asbestos and silica settlement?
Subsidiaries DII Industries, LLC and Kellogg Brown & Root filed pre-packaged Chapter 11 proceedings on December 16, 2003, after over 98% of voting asbestos claimants and over 99% of voting silica claimants accepted the proposed plan. Confirmation is subject to bankruptcy court approval, with a hearing scheduled for May 10–12, 2004, and insurance carriers have filed objections. The company states there can be no assurance the plan will be approved.
How much cash does Halliburton expect to contribute to the asbestos and silica trusts?
The proposed plan provides for up to approximately $2.5 billion in cash, in addition to the $311 million paid to claimants in December 2003. Halliburton also agreed to guarantee $156 million of the remaining cash amount, payable by June 17, 2004 or upon final confirmation of the plan, whichever is earlier.
What government contract risks does the company disclose?
The DCAA preliminary audit alleged a possible $61 million overcharge on fuel imports into Iraq, which has been referred to the Department of Defense inspector general, and the Department of Justice may investigate. The company also withheld $141 million of food services invoices pending resolution of a dispute over invoicing based on meals ordered versus personnel served. Management warns these matters could materially and adversely affect liquidity.
What is the Barracuda-Caratinga project's financial impact?
The project is in a financial loss position and approximately 83% complete. The company recorded an inception-to-date pretax loss of $355 million, including $238 million in 2003. Liquidated damages could total $96 million if the company's claim for additional time is unsuccessful, though the company considers this unlikely and has not accrued it.
What are the company's main liquidity and financing arrangements?
Halliburton issued $1.2 billion of 3.125% convertible senior notes and $1.05 billion of floating and fixed rate senior notes in 2003, plus $500 million of senior notes due 2007 in January 2004. It also established a delayed-draw term facility of up to $500 million for asbestos trust funding, a $700 million three-year revolving credit facility, and a master letter of credit facility of approximately $1.5 billion.

04—Continue

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