01—Abstract
Summary
Summary of the 10-K filed March 1, 2005. Cited figures are marked; the original filing is the authoritative source.
Halliburton Company's 2004 Form 10-K reports record revenue of $20.47 billiona, up from $16.27 billion in 2003, driven by government services work in the Middle East and strong performance in the Energy Services Group, where operating income rose to $1.27 billion from $826 million.
Consolidated operating income was $837 millionb compared with $720 million in 2003, but the company posted a net loss of $979 million, largely due to $1.36 billion of losses from discontinued operations tied to asbestos and silica liabilities. Iraq-related work provided 26% of consolidated revenue in 2004, and the United States Government accounted for 39%, which the filing identifies as a concentration risk. The most significant event for investors is the resolution of the asbestos and silica liability through a prepackaged Chapter 11 plan that became effective in January 2005.
The company contributed approximately $2.345 billionc in cash and 59.5 million shares of Halliburton common stock to claimant trusts, and it received about $1.0 billion in insurance proceeds in January 2005, with the remaining insurance receivables of approximately $1.5 billion nominal value due in installments through 2009. The company also plans to separate its KBR engineering and construction business from Halliburton, possibly through a spin-off, split-off, public offering, or sale. The filing also discloses material risks that remain open.
Kellogg Brown & Root's Barracuda-Caratinga project has cumulative losses of $762 milliond, and the company is subject to investigations by the SEC and the Department of Justice relating to payments tied to a Nigerian natural gas project and to bidding practices, as well as to DCAA audit issues on Iraq government contracts. The filing states that no amounts have been accrued for the Nigerian and bidding investigations.
02—Key points
Key Highlights
- Total revenue rose to $20.47 billion in 2004 from $16.27 billion in 2003, with Government and Infrastructure revenue up $3.98 billion to $9.39 billion.
- Operating income was $837 million in 2004 versus $720 million in 2003, while the net loss widened to $979 million from $820 million.
- Loss from discontinued operations was $1.36 billion in 2004, driven by a $778 million charge for revaluing the 59.5 million shares contributed to the asbestos trust and a $698 million insurance receivable write-down.
- In January 2005 the company contributed about $2.345 billion in cash and 59.5 million shares to asbestos and silica trusts, and received about $1.0 billion in insurance proceeds.
- Cash and equivalents ended 2004 at $2.8 billion, and operating cash flow was $928 million, including receivable sales; $1.028 billion of revolving credit was available at year-end.
- Barracuda-Caratinga project losses reached $407 million in 2004 and $762 million inception-to-date; the project was about 92% complete at year-end.
- Iraq-related work contributed 26% of 2004 consolidated revenue and the U.S. Government 39%, and the company plans to separate KBR from Halliburton.
03—Questions
Frequently Asked Questions
What did the asbestos and silica settlement cost Halliburton?
The plan of reorganization became effective in January 2005. The company contributed about $2.345 billion in cash and 59.5 million shares of common stock, valued at about $2.335 billion ($39.24 per share), to claimant trusts. It also contributed smaller notes, including a $31 million asbestos note and a silica note valued at about $24 million. In exchange, all current and future asbestos and silica personal injury claims against the company and its affiliates were channeled into the trusts.
Why did the company report a net loss despite higher operating income?
Operating income was $837 million, but the company recorded a net loss of $979 million. The main reason was a $1.364 billion loss from discontinued operations, which included a $778 million charge for revaluing the 59.5 million shares, a $698 million write-down of asbestos and silica insurance receivables, and a $44 million charge related to a partitioning agreement.
How concentrated is the company's revenue?
The filing states that 26% of 2004 consolidated revenue came from Iraq, primarily related to work for the United States Government, and 22% came from the United States. The U.S. Government represented 39% of 2004 consolidated revenue, compared with 26% in 2003, and no other customer exceeded 10% of revenue.
What are the main unresolved legal and contract risks?
The filing describes several open matters: SEC and Department of Justice investigations of payments related to the TSKJ natural gas project in Nigeria and of possible bidding coordination on foreign projects, with no amounts accrued; DCAA audit findings and withheld invoices on Iraq government contracts, including $224 million of withheld Dining Facility costs; and a $224 million lawsuit by subcontractor La Nouvelle. The filing says that criminal penalties or contract termination could result if violations are found.
What is the plan for KBR?
The company intends to separate KBR from Halliburton, which could take the form of a spin-off, split-off, public offering, or sale. The filing notes that it may be necessary for KBR to establish a track record of positive earnings for several quarters and to resolve governmental issues, investigations, and other disputes before a transaction. KBR was restructured into two segments, Government and Infrastructure and Energy and Chemicals, effective October 1, 2004, with expected annual savings of $80 million to $100 million.
04—Continue