(Mark One) | |||
x | Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 | ||
For the fiscal year ended December 31, 2003 | |||
OR | |||
o | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from__ to __ | ||
Commission File Number 1-3492 |
Delaware | 75-2677995 | |||
(State or other jurisdiction of | (I.R.S. Employer | |||
incorporation or organization) | Identification No.) |
Title of each class | Name of each Exchange on which registered | |||
Common Stock par value $2.50 per share | New York Stock Exchange |
- | additional detail regarding internal control issues identified in the fourth quarter of 2003 in Item 9(a); and |
- | additional information in the “United States Government Contract Work” section of “Management’s Discussion and Analysis of Financial Condition and Results of Operations: and conforming changes elsewhere in the Form 10-K related to “United States Government Contract Work.” |
- | up to approximately $2.5 billion in cash; |
- | 59.5 million shares of Halliburton common stock; |
- | notes currently valued at approximately $52 million; and |
- | insurance proceeds, if any, between $2.3 billion and $3.0 billion received by DII Industries and Kellogg Brown & Root. |
1 | ||
- | drilling systems and services; |
- | drill bits; and |
- | logging and perforating. |
- | production enhancement; |
- | completion products; and |
- | tools and testing services. |
2 | ||
- | onshoreengineering and construction activities, including engineering and construction of liquefied natural gas, ammonia and crude oil refineries and natural gas plants; |
- | offshore deepwater engineering, marine technology, project management, and related worldwide fabrication capabilities; |
- | governmentoperations, construction, maintenance and logistics activities for government facilities and installations; |
3 | ||
- | plant operations, maintenance and start-up services for both upstream and downstream oil, gas and petrochemical facilities as well as operations, maintenance and logistics services for the power, commercial and industrial markets; and |
- | civil engineering, consulting and project management services. |
- | in January 2003, we sold our Mono Pumps business, which was reported in our Drilling and Formation Evaluation segment, to National Oilwell, Inc.; |
- | in March 2003, we sold the assets relating to our Wellstream business, a global provider of flexible pipe products, systems and solutions, which was reported in our Landmark and Other Energy Services segment, to Candover Partners Ltd.; and |
- | in May 2003, we sold certain assets of Halliburton Measurement Systems, which provides flow measurement and sampling systems and was reported in our Production Optimization segment, to NuFlo Technologies. |
- | establishing and maintaining technological leadership; |
- | achieving and continuing operational excellence; |
- | creating and continuing innovative business relationships; and |
- | preserving a dynamic workforce. |
- | price; |
- | service delivery (including the ability to deliver services and products on an “as needed, where needed” basis); |
- | service quality; |
- | product quality; |
- | warranty; and |
- | technical proficiency. |
4 | ||
Millions of dollars | 2003 |
| 2002 | ||||
Firm orders | $ | 8,928 | $ | 8,704 | |||
Government orders firm but not yet funded; letters of intent and contracts awarded but not signed | 1,138 | 1,330 | |||||
Total | $ | 10,066 | $ | 10,034 | |||
- | operations and maintenance contracts that cover multiple years are included in backlog based upon an estimate of the work to be provided over the next twelve months; and |
- | government contracts that cover a broad scope of work up to a maximum value are included in backlog at the estimated amount of work to be completed under the contract based upon periodic consultation with the customer. |
5 | ||
- | the severity and duration of the winter in North America can have a significant impact on gas storage levels and drilling activity for natural gas; |
- | the timing and duration of the spring thaw in Canada directly affects activity levels due to road restrictions; |
- | typhoons and hurricanes can disrupt offshore operations; and |
- | severe weather during the winter months normally results in reduced activity levels in the North Sea. |
6 | ||
- | the Comprehensive Environmental Response, Compensation and Liability Act; |
- | the Resources Conservation and Recovery Act; |
- | the Clean Air Act; |
- | the Federal Water Pollution Control Act; and |
- | the Toxic Substances Control Act. |
7 | ||
Location | Owned/Leased | Sq. Footage | Description | |||
Energy Services Group | ||||||
North America | ||||||
Drilling and Formation | ||||||
Evaluation Segment: | ||||||
Dallas, Texas | Owned | 352,000 | Manufacturing facility includes office, laboratory and warehouse space that primarily produces roller cone drill bits. In December 2003, we moved the production from this facility to our new facility in The Woodlands, Texas. The facility is currently for sale. | |||
The Woodlands, Texas | Leased | 256,000 | Manufacturing facility including warehouses, engineering and sales, testing, training and research. The manufacturing plant produces roller cone and rotary type drill bits. | |||
Production Optimization Segment: | ||||||
Carrollton, Texas | Owned | 649,000 | Manufacturing facility including warehouses, engineering and sales, testing, training and research. The manufacturing plant produces equipment for the Production Optimization segment, including surface and subsurface safety valves and packer assemblies. | |||
Shared Facilities: | ||||||
Duncan, Oklahoma | Owned | 1,275,000 | Four locations which include manufacturing capacity totaling 655,000 square feet. The manufacturing facility is the main manufacturing site for the cementing, fracturing and acidizing equipment. The Duncan facilities also include a technology and research center, training facility, administrative offices and warehousing. These facilities service our Drilling and Formation Evaluation, Fluids and Production Optimization segments. |
8 | ||
Location | Owned/Leased | Sq. Footage | Description | |||
Shared Facilities (continued): | ||||||
Houston, Texas | Owned | 638,000 | Two suburban campus locations utilized by our Drilling and Formation Evaluation and Fluids segments. One campus is on 89 acres consisting of office, training, test well, warehouse, manufacturing and laboratory facilities. The manufacturing facility, which occupies 115,000 square feet, produces highly specialized downhole equipment for our Drilling and Formation Evaluation segment. The other campus is a manufacturing facility with limited office, laboratory and warehouse space that primarily produces fixed cutter drill bits. | |||
Houston, Texas | Owned | 564,000 | A campus facility that is the home office for the Energy Services Group. | |||
Alvarado, Texas | Owned | 238,000 | Manufacturing facility including some office and warehouse space. The manufacturing facility produces perforating products and exploratory and formation evaluation tools for our Drilling and Formation Evaluation and Production Optimization segments. | |||
Europe/Africa | ||||||
Shared Facilities: | ||||||
Aberdeen, United Kingdom | Owned Leased | 1,216,000 365,000 | A total of 26 sites including 866,000 square feet of manufacturing capacity used by various business segments. | |||
Tananger, Norway | Leased | 319,000 | Service center with workshops, testing facilities, warehousing and office facilities supporting the Norwegian North Sea operations. | |||
Engineering and Construction Group | ||||||
North America | ||||||
Houston, Texas | Leased | 740,000 | Engineering and project support center which occupies 31 full floors in 2 office buildings. One of these buildings is owned by a joint venture in which we have a 50% ownership. The remaining 50% of the joint venture is owned by a subsidiary of Trizec Properties Inc. (NYSE: TRZ). Trizec is not affiliated with Halliburton Company or any of its directors or executive officers. |
9 | ||
Location | Owned/Leased | Sq. Footage | Description | |||
North America (continued) | ||||||
Houston, Texas | Owned | 977,000 | A campus facility occupying 135 acres utilized primarily for administrative and support personnel. Approximately 221,000 square feet is dedicated to maintenance and warehousing of construction equipment. This campus also serves as office facilities for KBR. | |||
Europe/Africa | ||||||
Leatherhead, United Kingdom | Owned | 262,000 | Engineering and project support center on 55 acres in suburban London. | |||
Corporate | ||||||
Houston, Texas | Leased | 30,000 | Corporate executive offices. |
10 | ||
Name and Age | Offices Held and Term of Office | |||
Jerry H. Blurton (Age 59) | Vice President and Treasurer of Halliburton Company, since July 1996 | |||
* | Albert O. Cornelison, Jr. (Age 54) | Executive Vice President and General Counsel of Halliburton Company, since December 2002 Vice President and General Counsel of Halliburton Company, May 2002 to December 2002 Vice President and Associate General Counsel of Halliburton Company, October 1998 to May 2002 | ||
* | C. Christopher Gaut (Age 47) | Executive Vice President and Chief Financial Officer of Halliburton Company, since March 2003 Senior Vice President, Chief Financial Officer and Member – Office of the President and Chief Operating Officer of ENSCO International Incorporated, January 2002 to February 2003 Senior Vice President and Chief Financial Officer of ENSCO International Incorporated, December 1987 to December 2001 | ||
* | John W. Gibson, Jr. (Age 46) | President and Chief Executive Officer of Energy Services Group, since January 2003 President of Halliburton Energy Services, March 2002 to December 2002 President and Chief Executive Officer of Landmark, May 2000 to February 2002 Chief Operating Officer of Landmark, July 1999 to April 2000 Executive Vice President of Integrated Products Group, February 1996 to June 1999 | ||
* | Robert R. Harl (Age 53) | Chief Executive Officer of Kellogg Brown & Root, Inc., since March 2001 President of Kellogg Brown & Root, Inc., since October 2000 Vice President of Kellogg Brown & Root, Inc., March 1999 to October 2000 Chief Executive Officer and President of Brown & Root Energy Services Division of Kellogg Brown & Root, Inc., April 2000 to February 2001 Chief Executive Officer of Brown & Root Services Division of Kellogg Brown & Root, Inc., January 1999 to April 2000 Chief Executive Officer and President of Brown & Root Services Corporation, November 1996 to January 1999 |
11 | ||
Name and Age | Offices Held and Term of Office | |||
* | David J. Lesar (Age 50) | Chairman of the Board, President and Chief Executive Officer of Halliburton Company, since August 2000 Director of Halliburton Company, since August 2000 President and Chief Operating Officer of Halliburton Company, May 1997 to August 2000 Executive Vice President and Chief Financial Officer of Halliburton Company, August 1995 to May 1997 Chairman of the Board of Kellogg Brown & Root, Inc., January 1999 to August 2000 | ||
Mark A. McCollum (Age 44) | Senior Vice President and Chief Accounting Officer, since August 2003 Senior Vice President and Chief Financial Officer, Tenneco Automotive, Inc., November 1999 to August 2003 Vice President, Global Finance of Tenneco Automotive, September 1998 to November 1999 | |||
* | Weldon J. Mire (Age 56) | Vice President – Human Resources of Halliburton Company, since May 2002 Division Vice President of Halliburton Energy Services, January 2001 to May 2002 (Country Vice President Indonesia) Asia Pacific Sales Manager of Halliburton Energy Services, November 1999 to January 2001 Director of Business Development, September 1999 to November 1999 Global Director of Strategic Business Development, January 1999 to November 1999 Senior Shared Service Manager Houston, November 1998 to January 1999 | ||
David R. Smith (Age 57) | Vice President – Tax of Halliburton Company, since May 2002 Vice President – Tax of Halliburton Energy Services, Inc., September 1998 to May 2002 |
12 | ||
13 | ||
Page No. | ||
Responsibility for Financial Reporting | 63 | |
Independent Auditors’ Report | 64-65 | |
Consolidated Statements of Operations for the years ended December 31, 2003, 2002 and 2001 | 66 | |
Consolidated Balance Sheets at December 31, 2003 and 2002 | 67 | |
Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2003, 2002 and 2001 | 68 | |
Consolidated Statements of Cash Flows for the years ended December 31, 2003, 2002 and 2001 | 69 | |
Notes to Consolidated Financial Statements | 70-122 | |
Selected Financial Data (Unaudited) | 123 | |
Quarterly Data and Market Price Information (Unaudited) | 124 |
14 | ||
- | our internal auditors identified that petty cash and bank accounts were not being reconciled to the general ledger in a timely manner. These accounts were properly reconciled prior to completing our year-end closing process; |
- | our internal auditors identified that non-labor costs were not being reconciled between the project controls subledger and the general ledger in a timely manner. These costs were properly reconciled prior to completing our year-end closing process; and |
- | KPMG LLP identified non-labor costs not yet entered into the project controls subledger (including goods and services that had been received but not invoiced) had not been fully accrued. An extensive review followed and additional resources were deployed, resulting in the identification of and accounting for the accrual of all such costs prior to completing our year-end closing process. |
- | strengthening the procurement management for government operations within KBR; |
- | adding procurement resources on the project; |
- | mobilizing a task force to assist on procurement processes and documentation until sufficient resources have been hired and trained; |
- | reinforcing requirements and adding resources to materials management and property control reconciliations; |
- | reinforcing requirements and adding resources related to reconciliation of bank and petty cash accounts; and |
- | revising and reinforcing procedures for identification of and accounting for accruals for goods and services received but not invoiced. |
15 | ||
- | up to approximately $2.5 billion in cash; |
- | 59.5 million shares of Halliburton common stock; |
- | notes currently valued at approximately $52 million; and |
- | insurance proceeds, if any, between $2.3 billion and $3.0 billion received by DII Industries and Kellogg Brown & Root. |
- | to support deployment, site preparation, operations and maintenance and transportation for United States troops; and |
- | to restore the Iraqi petroleum industry, such as extinguishing oil well fires, environmental assessments and cleanup at oil sites, oil infrastructure condition assessments, oilfield, pipeline and refinery maintenance and the procurement and importation of fuel products. |
16 | ||
- | a delayed-draw term facility that would currently provide for draws of up to $500 million to be available for cash funding of the trusts for the benefit of asbestos and silica claimants, if required conditions are met; |
- | a master letter of credit facility intended to ensure that existing letters of credit supporting our contracts remain in place during the Chapter 11 filing; and |
- | a $700 million three-year revolving credit facility for general working capital purposes which expires in October 2006. |
17 | ||
- | up to approximately $2.5 billion in cash; |
- | 59.5 million shares of Halliburton common stock (valued at approximately $1.6 billion for accrual purposes using a stock price of $26.17 per share, which is based on the average trading price for the five days immediately prior to and including December 31, 2003); |
- | a one-year non-interest bearing note of $31 million for the benefit of asbestos claimants; |
- | a silica note with an initial payment into a silica trust of $15 million. Subsequently the note provides that we will contribute an amount to the silica trust balance at the end of each year for the next 30 years to bring the silica trust balance to $15 million, $10 million or $5 million based upon a formula which uses average yearly disbursements from the trust to determine that amount. The note also provides for an extension of the note for 20 additional years under certain circumstances. We have estimated the amount of this note to be approximately $21 million. We will periodically reassess our valuation of this note based upon our projections of the amounts we believe we will be required to fund into the silica trust; and |
- | insurance proceeds, if any, between $2.3 billion and $3.0 billion received by DII Industries and Kellogg Brown & Root. |
18 | ||
- | increase or decrease our asbestos and silica liability to value the 59.5 million shares of Halliburton common stock based on the value of Halliburton stock on the date of final and non-appealable confirmation of our proposed plan of reorganization; |
- | reclassify from a long-term liability to shareholders’ equity the final value of the 59.5 million shares of Halliburton common stock; and |
- | include the 59.5 million shares in our calculations of earnings per share on a prospective basis. |
19 | ||
- | policies held by carriers with which we had either settled or which were probable of settling and for which we could reasonably estimate the amount of the settlement; and |
- | other policies. |
- | reviewed DII Industries’ historical course of dealings with its insurance companies concerning the payment of asbestos-related claims, including DII Industries’ 15-year litigation and settlement history; |
- | reviewed our insurance coverage policy database containing information on key policy terms as provided by outside counsel; |
- | reviewed the terms of DII Industries’ prior and current coverage-in-place settlement agreements; |
- | reviewed the status of DII Industries’ and Kellogg Brown & Root’s current insurance-related lawsuits and the various legal positions of the parties in those lawsuits in relation to the developed and developing case law and the historic positions taken by insurers in the earlier filed and settled lawsuits; |
- | engaged in discussions with our counsel; and |
- | analyzed publicly-available information concerning the ability of the DII Industries insurers to meet their obligations. |
20 | ||
- | included $575 million of insurance recoveries from Equitas based on the January 2004 comprehensive agreement; |
- | included insurance recoveries from other specific insurers with whom we had settled; |
- | estimated insurance recoveries from specific insurers that we are probable of settling with and for which we could reasonably estimate the amount of the settlement. When appropriate, these estimates considered prior settlements with insurers with similar facts and circumstances; and |
- | estimated insurance recoveries for all other policies with the assistance of the Navigant Consulting study. |
- | additional settlements with insurance companies; |
- | additional insolvencies of carriers; and |
- | legal interpretation of the type and amount of coverage available to us. |
21 | ||
22 | ||
- | performance letters of credit, which together have an available credit of approximately $266 million as of December 31, 2003 and which will continue to be adjusted to represent approximately 10% of the contract amount, as amended to date by change orders; |
- | retainage letters of credit, which together have available credit of approximately $160 million as of December 31, 2003 and which will increase in order to continue to represent 10% of the cumulative cash amounts paid to us; and |
- | a guarantee of Kellogg Brown & Root's performance under the agreement by Halliburton Company in favor of the project owner. |
- | pay $69 million to settle a portion of our claims, thereby reducing the amount of probable unapproved claims to $114 million; and |
- | extend the original project completion dates and other milestone dates, reducing our exposure to liquidated damages. |
- | the project was approximately 83% complete; |
- | we have recorded an inception to date pretax loss of $355 million related to the project, of which $238 million was recorded in 2003 and $117 million was recorded in 2002; |
- | the probable unapproved claims included in determining the loss were $114 million; and |
- | we have an exposure to liquidated damages of up to ten percent of the contract value. Based upon the current schedule forecast, we would incur $96 million in liquidated damages if our claim for additional time is not successful. |
23 | ||
- | directly pay the value added taxes due on all imports on the project (including Petrobras’ January 2004 payment of approximately $150 million); and |
- | reimburse us for value added taxes paid on local purchases, of which approximately $100 million will become due during 2004. |
24 | ||
25 | ||
Payments due | ||||||||||||||||||||||
Millions of dollars | 2004 | 2005 | 2006 | 2007 | 2008 | Thereafter | Total | |||||||||||||||
Long-term debt (1) | $ | 22 | $ | 324 | $ | 296 | $ | 10 | $ | 151 | $ | 2,625 | $ | 3,428 | ||||||||
Operating leases | 143 | 96 | 80 | 58 | 45 | 267 | 689 | |||||||||||||||
Capital leases | 1 | 1 | - | - | - | - | 2 | |||||||||||||||
Pension funding obligations (2) | 67 | - | - | - | - | - | 67 | |||||||||||||||
Purchase obligations (3) | 241 | 4 | 4 | 3 | 3 | 1 | 256 | |||||||||||||||
Total long-term | ||||||||||||||||||||||
contractual obligations | $ | 474 | $ | 425 | $ | 380 | $ | 71 | $ | 199 | $ | 2,893 | $ | 4,442 | ||||||||
26 | ||
27 | ||
- | our $700 million revolving credit facility would require us to provide additional collateral if our long-term unsecured debt rating falls below investment grade; |
- | our Halliburton Elective Deferral Plan contains a provision which states that, if the Standard & Poor’s rating for our long-term unsecured debt falls below BBB, the amounts credited to the participants’ accounts will be paid to the participants in a lump-sum within 45 days. At December 31, 2003 this was approximately $51 million; and |
- | certain of our letters of credit have ratings triggers that could require cash collateralization or give the banks set-off rights. These contingencies would be funded under the senior secured master letter of credit facility (see below) while it remains available. |
28 | ||
- | spending on upstream exploration, development and production programs by major, national and independent oil and gas companies; |
- | capital expenditures for downstream refining, processing, petrochemical and marketing facilities by major, national and independent oil and gas companies; and |
- | government spending levels. |
Average Oil and Gas Prices | 2003 | 2002 | 2001 | |||||||
West Texas Intermediate (WTI) oil prices (dollars per barrel) | $ | 31.14 | $ | 25.92 | $ | 26.02 | ||||
Henry Hub Gas Prices (dollars per million cubic feet) | $ | 5.63 | $ | 3.33 | $ | 4.07 | ||||
29 | ||
Average Rig Counts | 2003 | 2002 | 2001 | |||||||
Land vs. Offshore | ||||||||||
United States: | ||||||||||
Land | 924 | 718 | 1,002 | |||||||
Offshore | 108 | 113 | 153 | |||||||
Total | 1,032 | 831 | 1,155 | |||||||
Canada: | ||||||||||
Land | 368 | 260 | 337 | |||||||
Offshore | 4 | 6 | 5 | |||||||
Total | 372 | 266 | 342 | |||||||
International (excluding Canada): | ||||||||||
Land | 544 | 507 | 525 | |||||||
Offshore | 226 | 225 | 220 | |||||||
Total | 770 | 732 | 745 | |||||||
Worldwide total | 2,174 | 1,829 | 2,242 | |||||||
Land total | 1,836 | 1,485 | 1,864 | |||||||
Offshore total | 338 | 344 | 378 | |||||||
Average Rig Counts | 2003 | 2002 | 2001 | |||||||
Oil vs. Gas | ||||||||||
United States: | ||||||||||
157 | 137 | 217 | ||||||||
Gas | 875 | 694 | 938 | |||||||
Total | 1,032 | 831 | 1,155 | |||||||
* Canada: | 372 | 266 | 342 | |||||||
International (excluding Canada): | ||||||||||
Oil | 576 | 561 | 571 | |||||||
Gas | 194 | 171 | 174 | |||||||
Total | 770 | 732 | 745 | |||||||
Worldwide total | 2,174 | 1,829 | 2,242 | |||||||
30 | ||
31 | ||
- | uncertainty in estimating the technical aspects and effort involved to accomplish the work within the contract schedule; |
- | labor availability and productivity; and |
- | supplier and subcontractor pricing and performance. |
- | bidding a fixed-price and completion date before detailed engineering work has been performed; |
32 | ||
- | bidding a fixed-price and completion date before locking in price and delivery of significant procurement components (often items which are specifically designed and fabricated for the project); |
- | bidding a fixed-price and completion date before finalizing subcontractors’ terms and conditions; |
- | subcontractor’s individual performance and combined interdependencies of multiple subcontractors (the majority of all construction and installation work is performed by subcontractors); |
- | contracts covering long periods of time; |
- | contract values generally for large amounts; and |
- | contracts containing significant liquidated damages provisions. |
Fixed-Price | Cost Reimbursable | |||
2003 | 24% | 76% | ||
2002 | 47% | 53% | ||
2001 | 41% | 59% | ||
33 | ||
REVENUES: | Increase/ | Percentage | |||||||||||
Millions of dollars | 2003 | 2002 | (Decrease) | Change | |||||||||
Drilling and Formation Evaluation | $ | 1,643 | $ | 1,633 | $ | 10 | 0.6 | % | |||||
Fluids | 2,039 | 1,815 | 224 | 12.3 | |||||||||
Production Optimization | 2,766 | 2,554 | 212 | 8.3 | |||||||||
Landmark and Other Energy Services | 547 | 834 | (287 | ) | (34.4 | ) | |||||||
Total Energy Services Group | 6,995 | 6,836 | 159 | 2.3 | |||||||||
Engineering and Construction Group | 9,276 | 5,736 | 3,540 | 61.7 | |||||||||
Total revenues | $ | 16,271 | $ | 12,572 | $ | 3,699 | 29.4 | % | |||||
Geographic – Energy Services Group segments only: | |||||||||||||
Drilling and Formation Evaluation: | |||||||||||||
North America | $ | 558 | $ | 549 | $ | 9 | 1.6 | % | |||||
Latin America | 261 | 251 | 10 | 4.0 | |||||||||
Europe/Africa | 312 | 344 | (32 | ) | (9.3 | ) | |||||||
Middle East/Asia | 512 | 489 | 23 | 4.7 | |||||||||
Subtotal | 1,643 | 1,633 | 10 | 0.6 | |||||||||
Fluids: | |||||||||||||
North America | 990 | 934 | 56 | 6.0 | |||||||||
Latin America | 258 | 216 | 42 | 19.4 | |||||||||
Europe/Africa | 452 | 381 | 71 | 18.6 | |||||||||
Middle East/Asia | 339 | 284 | 55 | 19.4 | |||||||||
Subtotal | 2,039 | 1,815 | 224 | 12.3 | |||||||||
Production Optimization: | |||||||||||||
North America | 1,345 | 1,264 | 81 | 6.4 | |||||||||
Latin America | 317 | 277 | 40 | 14.4 | |||||||||
Europe/Africa | 562 | 556 | 6 | 1.1 | |||||||||
Middle East/Asia | 542 | 457 | 85 | 18.6 | |||||||||
Subtotal | 2,766 | 2,554 | 212 | 8.3 | |||||||||
Landmark and Other Energy Services: | |||||||||||||
North America | 192 | 284 | (92 | ) | (32.4 | ) | |||||||
Latin America | 71 | 102 | (31 | ) | (30.4 | ) | |||||||
Europe/Africa | 116 | 297 | (181 | ) | (60.9 | ) | |||||||
Middle East/Asia | 168 | 151 | 17 | 11.3 | |||||||||
Subtotal | 547 | 834 | (287 | ) | (34.4 | ) | |||||||
Total Energy Services Group revenues | $ | 6,995 | $ | 6,836 | $ | 159 | 2.3 | % | |||||
34 | ||
OPERATING INCOME (LOSS): | Increase/ | Percentage | |||||||||||
Millions of dollars | 2003 | 2002 | (Decrease) | Change | |||||||||
Drilling and Formation Evaluation | $ | 177 | $ | 160 | $ | 17 | 10.6 | % | |||||
Fluids | 251 | 202 | 49 | 24.3 | |||||||||
Production Optimization | 421 | 384 | 37 | 9.6 | |||||||||
Landmark and Other Energy Services | (23 | ) | (108 | ) | 85 | 78.7 | |||||||
Total Energy Services Group | 826 | 638 | 188 | 29.5 | |||||||||
Engineering and Construction Group | (36 | ) | (685 | ) | 649 | 94.7 | |||||||
General corporate | (70 | ) | (65 | ) | (5 | ) | (7.7 | ) | |||||
Operating income (loss) | $ | 720 | $ | (112 | ) | $ | 832 | NM | |||||
Geographic – Energy Services Group segments only: | |||||||||||||
Drilling and Formation Evaluation: | |||||||||||||
North America | $ | 60 | $ | 70 | $ | (10 | ) | (14.3) | % | ||||
Latin America | 30 | 29 | 1 | 3.4 | |||||||||
Europe/Africa | 30 | (6 | ) | 36 | NM | ||||||||
Middle East/Asia | 57 | 67 | (10 | ) | (14.9 | ) | |||||||
Subtotal | 177 | 160 | 17 | 10.6 | |||||||||
Fluids: | |||||||||||||
North America | 104 | 119 | (15 | ) | (12.6 | ) | |||||||
Latin America | 52 | 33 | 19 | 57.6 | |||||||||
Europe/Africa | 48 | 20 | 28 | 140.0 | |||||||||
Middle East/Asia | 47 | 30 | 17 | 56.7 | |||||||||
Subtotal | 251 | 202 | 49 | 24.3 | |||||||||
Production Optimization: | |||||||||||||
North America | 202 | 228 | (26 | ) | (11.4 | ) | |||||||
Latin America | 75 | 41 | 34 | 82.9 | |||||||||
Europe/Africa | 52 | 46 | 6 | 13.0 | |||||||||
Middle East/Asia | 92 | 69 | 23 | 33.3 | |||||||||
Subtotal | 421 | 384 | 37 | 9.6 | |||||||||
Landmark and Other Energy Services: | |||||||||||||
North America | (60 | ) | (218 | ) | 158 | 72.5 | |||||||
Latin America | 8 | 5 | 3 | 60.0 | |||||||||
Europe/Africa | 17 | 118 | (101 | ) | (85.6 | ) | |||||||
Middle East/Asia | 12 | (13 | ) | 25 | NM | ||||||||
Subtotal | (23 | ) | (108 | ) | 85 | 78.7 | |||||||
Total Energy Services Group | |||||||||||||
operating income | $ | 826 | $ | 638 | $ | 188 | 29.5 | % | |||||
35 | ||
36 | ||
- | $108 million gain on the sale of European Marine Contractors Ltd in Europe/Africa; |
- | $98 million charge for BJ Services patent infringement lawsuit accrual in North America; |
- | $79 million loss on the impairment of our 50% equity investment in the Bredero-Shaw joint venture in North America; and |
- | $64 million in expense related to restructuring charges ($51 million in North America, $3 million in Latin America, $7 million in Europe/Africa, and $3 million in Middle East/Asia). |
37 | ||
- | asbestos and silica liability was increased to reflect the full amount of the proposed settlement as a result of the Chapter 11 proceeding; |
- | charges related to our July 2003 funding of $30 million for the debtor-in-possession financing to Harbison-Walker in connection with its Chapter 11 proceedings that is expected to be forgiven by Halliburton on the earlier of the effective date of a plan of reorganization for DII Industries or the effective date of a plan of reorganization for Harbison-Walker acceptable to DII Industries; |
- | $10 million allowance for an estimated portion of uncollectible amounts related to the insurance receivables purchased from Harbison-Walker; |
- | professional fees associated with the due diligence, printing and distribution cost of the disclosure statement and other aspects of the proposed settlement for asbestos and silica liabilities; and |
- | a release of environmental and legal reserves related to indemnities that were part of our disposition of the Dresser Equipment Group and are no longer needed. |
38 | ||
REVENUES | Increase/ | Percentage | |||||||||||
Millions of dollars | 2002 | 2001 | (Decrease) | Change | |||||||||
Drilling and Formation Evaluation | $ | 1,633 | $ | 1,643 | $ | (10 | ) | (0.6) | % | ||||
Fluids | 1,815 | 2,065 | (250 | ) | (12.1 | ) | |||||||
Production Optimization | 2,554 | 2,803 | (249 | ) | (8.9 | ) | |||||||
Landmark and Other Energy Services | 834 | 1,300 | (466 | ) | (35.8 | ) | |||||||
Total Energy Services Group | 6,836 | 7,811 | (975 | ) | (12.5 | ) | |||||||
Engineering and Construction Group | 5,736 | 5,235 | 501 | 9.6 | |||||||||
Total revenues | $ | 12,572 | $ | 13,046 | $ | (474 | ) | (3.6) | % | ||||
OPERATING INCOME (LOSS) | Increase/ | Percentage | |||||||||||
Millions of dollars | 2002 | 2001 | (Decrease) | Change | |||||||||
Drilling and Formation Evaluation | $ | 160 | $ | 171 | $ | (11 | ) | (6.4) | % | ||||
Fluids | 202 | 308 | (106 | ) | (34.4 | ) | |||||||
Production Optimization | 384 | 528 | (144 | ) | (27.3 | ) | |||||||
Landmark and Other Energy Services | (108 | ) | 29 | (137 | ) | NM | |||||||
Total Energy Services Group | 638 | 1,036 | (398 | ) | (38.4 | ) | |||||||
Engineering and Construction Group | (685 | ) | 111 | (796 | ) | NM | |||||||
General corporate | (65 | ) | (63 | ) | (2 | ) | (3.2 | ) | |||||
Operating income (loss) | $ | (112 | ) | $ | 1,084 | $ | (1,196 | ) | NM | ||||
39 | ||
- | $108 million gain on the sale of our 50% interest in European Marine Contractors in 2002; |
- | $98 million charge recorded in 2002 related to patent infringement litigation; |
- | $79 million loss on the sale of our 50% equity investment in the Bredero-Shaw joint venture in 2002; |
- | $66 million of impairments recorded in 2002 on integrated solutions projects primarily in the United States, Indonesia and Colombia, partially offset by net gains of $45 million on 2002 disposals of properties in the United States; and |
- | $64 million in 2002 restructuring charges. |
40 | ||
- | liquefied natural gas and gas projects in Algeria, Nigeria, Chad, Cameroon and Egypt; and |
- | the Belenak offshore project in Indonesia. |
- | $644 million of expenses related to net asbestos and silica liabilities recorded in 2002 compared to $11 million in asbestos charges recorded in 2001; |
- | an increase in our total probable unapproved claims during 2002 which reduced reported losses by approximately $158 million as compared to 2001; |
- | $18 million in 2002 restructuring costs; and |
- | goodwill amortization in 2001 of $18 million. |
41 | ||
- | percentage-of-completion accounting for our long-term engineering and construction contracts; |
- | accounting for government contracts; |
- | allowance for bad debts; |
- | forecasting our effective tax rate, including our ability to utilize foreign tax credits and the realizability of deferred tax assets; |
- | asbestos and silica insurance recoveries; and |
- | litigation matters. |
42 | ||
- | estimates of the total cost to complete the project; |
- | estimates of project schedule and completion date; |
- | estimates of the percentage the project is complete; and |
- | amounts of any probable unapproved claims and change orders included in revenues. |
43 | ||
- | a current tax liability or asset is recognized for the estimated taxes payable or refundable on tax returns for the current year; |
- | a deferred tax liability or asset is recognized for the estimated future tax effects attributable to temporary differences and carryforwards; |
- | the measurement of current and deferred tax liabilities and assets is based on provisions of the enacted tax law and the effects of potential future changes in tax laws or rates are not considered; and |
- | the value of deferred tax assets is reduced, if necessary, by the amount of any tax benefits that, based on available evidence, are not expected to be realized. |
44 | ||
- | identifying the types and amounts of existing temporary differences; |
- | measuring the total deferred tax liability for taxable temporary differences using the applicable tax rate; |
- | measuring the total deferred tax asset for deductible temporary differences and operating loss carryforwards using the applicable tax rate; |
- | measuring the deferred tax assets for each type of tax credit carryforward; and |
- | reducing the deferred tax assets by a valuation allowance if, based on available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. |
- | policies held by carriers with which we had either settled or which were probable of settling and for which we could reasonably estimate the amount of the settlement; and |
- | other policies. |
- | reviewed DII Industries’ historical course of dealings with its insurance companies concerning the payment of asbestos-related claims, including DII Industries’ 15-year litigation and settlement history; |
- | reviewed our insurance coverage policy database containing information on key policy terms as provided by outside counsel; |
- | reviewed the terms of DII Industries’ prior and current coverage-in-place settlement agreements; |
- | reviewed the status of DII Industries’ and Kellogg Brown & Root’s current insurance-related lawsuits and the various legal positions of the parties in those lawsuits in relation to the developed and developing case law and the historic positions taken by insurers in the earlier filed and settled lawsuits; |
- | engaged in discussions with our counsel; and |
- | analyzed publicly-available information concerning the ability of the DII Industries insurers to meet their obligations. |
45 | ||
- | included $575 million of insurance recoveries from Equitas based on the January 2004 comprehensive agreement; |
- | included insurance recoveries from other specific insurers with whom we had settled; |
- | estimated insurance recoveries from specific insurers that we are probable of settling with and for which we could reasonably estimate the amount of the settlement. When appropriate, these estimates considered prior settlements with insurers with similar facts and circumstances; and |
- | estimated insurance recoveries for all other policies with the assistance of the Navigant Consulting study. |
- | additional settlements with insurance companies; |
- | additional insolvencies of carriers; and |
- | legal interpretation of the type and amount of coverage available to us. |
- | future settlements with insurance carriers; |
- | coverage issues among layers of insurers issuing different policies to different policyholders over extended periods of time; |
46 | ||
- | the impact on the amount of insurance recoverable in light of the Harbison-Walker and Federal-Mogul bankruptcies. See Note 11 to our consolidated financial statements; and |
- | the continuing solvency of various insurance companies. |
47 | ||
- | volatility of the currency rates; |
- | time horizon of the derivative instruments; |
- | market cycles; and |
- | the type of derivative instruments used. |
Millions of dollars | 2004 | 2005 | 2006 | 2007 | 2008 | Thereafter | Total | |||||||||||||||
Fixed rate debt | $ | 1 | $ | 3 | $ | 284 | $ | - | $ | 150 | $ | 2,625 | $ | 3,063 | ||||||||
Weighted average interest rate | 9.5 | % | 10.9 | % | 6.0 | % | - | 5.6 | % | 5.0 | % | 5.1 | % | |||||||||
Variable rate debt | $ | 21 | $ | 321 | $ | 21 | $ | 10 | $ | 1 | $ | - | $ | 374 | ||||||||
Weighted average interest rate | 4.8 | % | 2.8 | % | 4.8 | % | 4.8 | % | 5.6 | % | - | 3.1 | % | |||||||||
- | the Comprehensive Environmental Response, Compensation and Liability Act; |
- | the Resources Conservation and Recovery Act; |
- | the Clean Air Act; |
- | the Federal Water Pollution Control Act; and |
- | the Toxic Substances Control Act. |
48 | ||
- | the plan of reorganization complies with applicable provisions of the United States Bankruptcy Code; |
- | the debtors have complied with the applicable provisions of the United States Bankruptcy Code; |
- | the trusts will value and pay similar present and future claims in substantially the same manner; and |
- | the plan of reorganization has been proposed in good faith and not by any means forbidden by law. |
49 | ||
- | continuing asbestos and silica litigation against us, which would include the possibility of substantial adverse judgments, the timing of which could not be controlled or predicted, and the obligation to provide appeals bonds pending any appeal of any such judgment, some or all of which may require us to post cash collateral; |
- | current and future asbestos claims settlement and defense costs, including the inability to completely control the timing of such costs and the possibility of increased costs to resolve personal injury claims; |
- | the possibility of an increase in the number and type of asbestos and silica claims against us in the future; and |
- | any adverse changes to the tort system allowing additional claims or judgments against us. |
50 | ||
- | the inability or unwillingness of insurers to timely reimburse for claims in the future; |
- | disputes as to documentation requirements for DII Industries, Kellogg Brown & Root or other subsidiaries in order to recover claims paid; |
- | the inability to access insurance policies shared with, or the dissipation of shared insurance assets by, Harbison-Walker Refractories Company or others; |
51 | ||
- | the possible insolvency or reduced financial viability of our insurers; |
- | the cost of litigation to obtain insurance reimbursement; and |
- | possible adverse court decisions as to our rights to obtain insurance reimbursement. |
- | the institution of administrative, civil, or injunctive proceedings; |
- | sanctions and the payment of fines and penalties; and |
- | increased review and scrutiny of us by regulatory authorities, the media and others. |
52 | ||
53 | ||
54 | ||
- | a delayed-draw term facility that would currently provide for draws of up to $500 million to be available for cash funding of the trusts for the benefit of asbestos and silica claimants, if required conditions are met; |
- | a master letter of credit facility intended to ensure that existing letters of credit supporting our contracts remain in place during the Chapter 11 filing; and |
- | a $700 million three-year revolving credit facility for general working capital purposes, which expires in October 2006. |
55 | ||
56 | ||
- | expropriation and nationalization of our assets in that country; |
- | political and economic instability; |
- | social unrest, acts of terrorism, force majeure, war or other armed conflict; |
- | inflation; |
- | currency fluctuations, devaluations and conversion restrictions; |
- | confiscatory taxation or other adverse tax policies; |
- | governmental activities that limit or disrupt markets, restrict payments or limit the movement of funds; |
- | governmental activities that may result in the deprivation of contract rights; and |
- | trade restrictions and economic embargoes imposed by the United States and other countries, including current restrictions on our ability to provide products and services to Iran and Libya, both of which are significant producers of oil and gas. |
57 | ||
- | foreign exchange risks resulting from changes in foreign exchange rates and the implementation of exchange controls such as those experienced in Argentina in late 2001 and early 2002; and |
- | limitations on our ability to reinvest earnings from operations in one country to fund the capital needs of our operations in other countries. |
- | adverse movements in foreign exchange rates; |
- | interest rates; |
- | commodity prices; or |
- | the value and time period of the derivative being different than the exposures or cash flows being hedged. |
58 | ||
- | governmental regulations; |
- | global weather conditions; |
- | worldwide political, military and economic conditions, including the ability of OPEC to set and maintain production levels and prices for oil; |
- | the level of oil production by non-OPEC countries; |
- | the policies of governments regarding the exploration for and production and development of their oil and natural gas reserves; |
- | the cost of producing and delivering oil and gas; and |
- | the level of demand for oil and natural gas, especially demand for natural gas in the United States. |
- | a decrease in the magnitude of governmental spending and outsourcing for military and logistical support of the type that we provide. For example, the current level of government services being provided in the Middle East may not continue for an extended period of time; |
- | an increase in the magnitude of governmental spending and outsourcing for military and logistical support, which can materially and adversely affect our liquidity needs as a result of additional or continued working capital requirements to support this work; |
- | a decrease in capital spending by governments for infrastructure projects of the type that we undertake; |
- | the consolidation of our customers, which has (1) caused customers to reduce their capital spending, which has in turn reduced the demand for our services and products, and (2) resulted in customer personnel changes, which in turn affects the timing of contract negotiations and settlements of claims and claim negotiations with engineering and construction customers on cost variances and change orders on major projects; |
59 | ||
- | adverse developments in the business and operations of our customers in the oil and gas industry, including write-downs of reserves and reductions in capital spending for exploration, development, production, processing, refining, and pipeline delivery networks; and |
- | ability of our customers to timely pay the amounts due us. |
- | any acquisitions would result in an increase in income; |
- | any acquisitions would be successfully integrated into our operations; |
- | any disposition would not result in decreased earnings, revenue or cash flow; |
- | any dispositions, investments, acquisitions or integrations would not divert management resources; or |
- | any dispositions, investments, acquisitions or integrations would not have a material adverse effect on our results of operations or financial condition. |
- | the containment and disposal of hazardous substances, oilfield waste and other waste materials; |
- | the use of underground storage tanks; and |
- | the use of underground injection wells. |
- | administrative, civil and criminal penalties; |
- | revocation of permits; and |
- | corrective action orders, including orders to investigate and/or clean up contamination. |
60 | ||
61 | ||
- | evacuation of personnel and curtailment of services; |
- | weather related damage to offshore drilling rigs resulting in suspension of operations; |
- | weather related damage to our facilities; |
- | inability to deliver materials to jobsites in accordance with contract schedules; and |
- | loss of productivity. |
62 | ||
- | a documented organizational structure and division of responsibility; |
- | established policies and procedures, including a code of conduct to foster a strong ethical climate which is communicated throughout the company; and |
- | the careful selection, training and development of our people. |
/s/ DAVID J. LESAR | /s/ C. CHRISTOPHER GAUT | |
David J. Lesar | C. Christopher Gaut | |
Chairman of the Board, | Executive Vice President and | |
President, and | Chief Financial Officer | |
Chief Executive Officer |
63 | ||
/s/ KPMG LLP | |
KPMG LLP | |
Houston, Texas | |
February 18, 2004 |
64 | ||
65 | ||
Years ended December 31 | ||||||||||
2003 | 2002 | 2001 | ||||||||
Revenues: | ||||||||||
Services | $ | 14,383 | $ | 10,658 | $ | 10,940 | ||||
Product sales | 1,863 | 1,840 | 1,999 | |||||||
Equity in earnings of unconsolidated affiliates, net | 25 | 74 | 107 | |||||||
Total revenues | 16,271 | 12,572 | 13,046 | |||||||
Operating costs and expenses: | ||||||||||
Cost of services | 13,589 | 10,737 | 9,831 | |||||||
Cost of sales | 1,679 | 1,642 | 1,744 | |||||||
General and administrative | 330 | 335 | 387 | |||||||
Gain on sale of business assets | (47 | ) | (30 | ) | - | |||||
Total operating costs and expenses | 15,551 | 12,684 | 11,962 | |||||||
Operating income (loss) | 720 | (112 | ) | 1,084 | ||||||
Interest expense | (139 | ) | (113 | ) | (147 | ) | ||||
Interest income | 30 | 32 | 27 | |||||||
Foreign currency losses, net | - | (25 | ) | (10 | ) | |||||
Other, net | 1 | (10 | ) | - | ||||||
Income (loss) from continuing operations before income taxes, minority interest, and change in accounting principle | 612 | (228 | ) | 954 | ||||||
Provision for income taxes | (234 | ) | (80 | ) | (384 | ) | ||||
Minority interest in net income of subsidiaries | (39 | ) | (38 | ) | (19 | ) | ||||
Income (loss) from continuing operations before change in accounting principle | 339 | (346 | ) | 551 | ||||||
Discontinued operations: | ||||||||||
Loss from discontinued operations, net of tax (provision) benefit of $(6), $154, and $20 | (1,151 | ) | (652 | ) | (42 | ) | ||||
Gain on disposal of discontinued operations, net of tax provision of $199 | - | - | 299 | |||||||
Income (loss) from discontinued operations, net | (1,151 | ) | (652 | ) | 257 | |||||
Cumulative effect of change in accounting principle, net of tax benefit of $5, $0 and $0 | (8 | ) | - | 1 | ||||||
Net income (loss) | $ | (820 | ) | $ | (998 | ) | $ | 809 | ||
Basic income (loss) per share: | ||||||||||
Income (loss) from continuing operations before change in accounting principle | $ | 0.78 | $ | (0.80 | ) | $ | 1.29 | |||
Loss from discontinued operations, net | (2.65 | ) | (1.51 | ) | (0.10 | ) | ||||
Gain on disposal of discontinued operations, net | - | - | 0.70 | |||||||
Cumulative effect of change in accounting principle, net | (0.02 | ) | - | - | ||||||
Net income (loss) | $ | (1.89 | ) | $ | (2.31 | ) | $ | 1.89 | ||
Diluted income (loss) per share: | ||||||||||
Income (loss) from continuing operations before change in accounting principle | $ | 0.78 | $ | (0.80 | ) | $ | 1.28 | |||
Loss from discontinued operations, net | (2.64 | ) | (1.51 | ) | (0.10 | ) | ||||
Gain on disposal of discontinued operations, net | - | - | 0.70 | |||||||
Cumulative effect of change in accounting principle, net | (0.02 | ) | - | - | ||||||
Net income (loss) | $ | (1.88 | ) | $ | (2.31 | ) | $ | 1.88 | ||
Basic weighted average common shares outstanding | 434 | 432 | 428 | |||||||
Diluted weighted average common shares outstanding | 437 | 432 | 430 | |||||||
66 | ||
December 31 | |||||||
2003 | 2002 | ||||||
Assets | |||||||
Current assets: | |||||||
Cash and equivalents | $ | 1,815 | $ | 1,107 | |||
Receivables: | |||||||
Notes and accounts receivable (less allowance for bad debts of $175 and $157) | 3,005 | 2,533 | |||||
Unbilled work on uncompleted contracts | 1,760 | 724 | |||||
Total receivables | 4,765 | 3,257 | |||||
Inventories | 695 | 734 | |||||
Current deferred income taxes | 188 | 200 | |||||
Other current assets | 456 | 262 | |||||
Total current assets | 7,919 | 5,560 | |||||
Net property, plant and equipment | 2,526 | 2,629 | |||||
Equity in and advances to related companies | 579 | 413 | |||||
Goodwill | 670 | 723 | |||||
Noncurrent deferred income taxes | 738 | 607 | |||||
Insurance for asbestos and silica related liabilities | 2,038 | 2,059 | |||||
Other assets | 993 | 853 | |||||
Total assets | $ | 15,463 | $ | 12,844 | |||
Liabilities and Shareholders’ Equity | |||||||
Current liabilities: | |||||||
Short-term notes payable | $ | 18 | $ | 49 | |||
Current maturities of long-term debt | 22 | 295 | |||||
Accounts payable | 1,776 | 1,077 | |||||
Current asbestos and silica related liabilities | 2,507 | - | |||||
Accrued employee compensation and benefits | 400 | 370 | |||||
Advance billings on uncompleted contracts | 741 | 641 | |||||
Deferred revenues | 104 | 100 | |||||
Income taxes payable | 236 | 148 | |||||
Other current liabilities | 738 | 592 | |||||
Total current liabilities | 6,542 | 3,272 | |||||
Long-term debt | 3,415 | 1,181 | |||||
Employee compensation and benefits | 801 | 756 | |||||
Asbestos and silica related liabilities | 1,579 | 3,425 | |||||
Other liabilities | 479 | 581 | |||||
Total liabilities | 12,816 | 9,215 | |||||
Minority interest in consolidated subsidiaries | 100 | 71 | |||||
Shareholders’ equity: | |||||||
Common shares, par value $2.50 per share – authorized 600 shares, issued 457 and 456 shares | 1,142 | 1,141 | |||||
Paid-in capital in excess of par value | 273 | 293 | |||||
Deferred compensation | (64 | ) | (75 | ) | |||
Accumulated other comprehensive income | (298 | ) | (281 | ) | |||
Retained earnings | 2,071 | 3,110 | |||||
3,124 | 4,188 | ||||||
Less 18 and 20 shares of treasury stock, at cost | 577 | 630 | |||||
Total shareholders’ equity | 2,547 | 3,558 | |||||
Total liabilities and shareholders’ equity | $ | 15,463 | $ | 12,844 | |||
67 | ||
2003 | 2002 | 2001 | ||||||||
Balance at January 1 | $ | 3,558 | $ | 4,752 | $ | 3,928 | ||||
Dividends and other transactions with shareholders | (174 | ) | (151 | ) | (37 | ) | ||||
Comprehensive income (loss): | ||||||||||
Net income (loss) | (820 | ) | (998 | ) | 809 | |||||
Cumulative translation adjustment | 43 | 69 | (32 | ) | ||||||
Realization of losses included in net income | 15 | 15 | 102 | |||||||
Net cumulative translation adjustment | 58 | 84 | 70 | |||||||
Pension liability adjustments | (88 | ) | (130 | ) | (15 | ) | ||||
Unrealized gains (losses) on investments and derivatives | 13 | 1 | (3 | ) | ||||||
Total comprehensive income (loss) | (837 | ) | (1,043 | ) | 861 | |||||
Balance at December 31 | $ | 2,547 | $ | 3,558 | $ | 4,752 | ||||
68 | ||
Years ended December 31 | ||||||||||
2003 | 2002 | 2001 | ||||||||
Cash flows from operating activities: | ||||||||||
Net income (loss) | $ | (820 | ) | $ | (998 | ) | $ | 809 | ||
Adjustments to reconcile net income (loss) to net cash from operations: | ||||||||||
Loss (income) from discontinued operations | 1,151 | 652 | (257 | ) | ||||||
Asbestos and silica charges not included in discontinued operations, net | - | 564 | 11 | |||||||
Depreciation, depletion and amortization | 518 | 505 | 531 | |||||||
Provision (benefit) for deferred income taxes, including $27, $(133) and $(35) related to discontinued operations | (86 | ) | (151 | ) | 26 | |||||
Distributions from related companies, net of equity in (earnings) losses | 13 | 3 | 8 | |||||||
Change in accounting principle, net | 8 | - | (1 | ) | ||||||
Gain on sale of assets | (52 | ) | (25 | ) | - | |||||
Asbestos and silica liability payment prior to Chapter 11 filing | (311 | ) | - | - | ||||||
Other changes: | ||||||||||
Receivables and unbilled work on uncompleted contracts | (1,442 | ) | 675 | (199 | ) | |||||
Sale (reduction) of receivables in securitization program | (180 | ) | 180 | - | ||||||
Inventories | 7 | 62 | (91 | ) | ||||||
Accounts payable | 676 | 71 | 118 | |||||||
Other | (257 | ) | 24 | 74 | ||||||
Total cash flows from operating activities | (775 | ) | 1,562 | 1,029 | ||||||
Cash flows from investing activities: | ||||||||||
Capital expenditures | (515 | ) | (764 | ) | (797 | ) | ||||
Sales of property, plant and equipment | 107 | 266 | 120 | |||||||
Acquisitions of businesses, net of cash acquired | - | - | (220 | ) | ||||||
Dispositions of businesses, net of cash disposed | 224 | 170 | 61 | |||||||
Proceeds from sale of securities | 57 | 62 | - | |||||||
Investments – restricted cash | (18 | ) | (187 | ) | 4 | |||||
Other investing activities | (51 | ) | (20 | ) | (26 | ) | ||||
Total cash flows from investing activities | (196 | ) | (473 | ) | (858 | ) | ||||
Cash flows from financing activities: | ||||||||||
Proceeds from long-term borrowings | 2,192 | 66 | 425 | |||||||
Payments on long-term borrowings | (296 | ) | (81 | ) | (13 | ) | ||||
Repayments of short-term debt, net of borrowings | (32 | ) | (2 | ) | (1,528 | ) | ||||
Payments of dividends to shareholders | (219 | ) | (219 | ) | (215 | ) | ||||
Other financing activities | (9 | ) | (12 | ) | (24 | ) | ||||
Total cash flows from financing activities | 1,636 | (248 | ) | (1,355 | ) | |||||
Effect of exchange rate changes on cash | 43 | (24 | ) | (20 | ) | |||||
Net cash flows from discontinued operations, including $1.27 billion proceeds from the Dresser Equipment Group sale | - | - | 1,263 | |||||||
Increase in cash and equivalents | 708 | 817 | 59 | |||||||
Cash and equivalents at beginning of year | 1,107 | 290 | 231 | |||||||
Cash and equivalents at end of year | $ | 1,815 | $ | 1,107 | $ | 290 | ||||
Supplemental disclosure of cash flow information: | ||||||||||
Cash payments during the year for: | ||||||||||
Interest | $ | 114 | $ | 104 | $ | 132 | ||||
Income taxes | $ | 173 | $ | 94 | $ | 382 | ||||
69 | ||
- | the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements; and |
- | the reported amounts of revenues and expenses during the reporting period. |
- | up to approximately $2.5 billion in cash; |
- | 59.5 million shares of Halliburton common stock; |
- | notes currently valued at approximately $52 million; and |
- | insurance proceeds, if any, between $2.3 billion and $3.0 billion received by DII Industries and Kellogg Brown & Root. |
70 | ||
71 | ||
72 | ||
- | the change in fair value of the hedged assets, liabilities or firm commitments through earnings; or |
- | recognized in other comprehensive income until the hedged item is recognized in earnings. |
73 | ||
Assumptions | |||||||||||||||||||
Weighted Average | |||||||||||||||||||
Risk-Free | Expected | Expected | Expected | Fair Value of | |||||||||||||||
Interest Rate | Dividend Yield | Life (in years) | Volatility | Options Granted | |||||||||||||||
2003 | 3.2 | % | 1.9 | % | 5 | 59 | % | $ | 12.37 | ||||||||||
2002 | 2.9 | % | 2.7 | % | 5 | 63 | % | $ | 6.89 | ||||||||||
2001 | 4.5 | % | 2.3 | % | 5 | 58 | % | $ | 19.11 | ||||||||||
Years ended December 31 | ||||||||||
Millions of dollars except per share data | 2003 | 2002 | 2001 | |||||||
Net income (loss), as reported | $ | (820 | ) | $ | (998 | ) | $ | 809 | ||
Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects | (30 | ) | (26 | ) | (42 | ) | ||||
Net income (loss), pro forma | $ | (850 | ) | $ | (1,024 | ) | $ | 767 | ||
Basic income (loss) per share: | ||||||||||
As reported | $ | (1.89 | ) | $ | (2.31 | ) | $ | 1.89 | ||
Pro forma | $ | (1.96 | ) | $ | (2.37 | ) | $ | 1.79 | ||
Diluted income (loss) per share: | ||||||||||
As reported | $ | (1.88 | ) | $ | (2.31 | ) | $ | 1.88 | ||
Pro forma | $ | (1.95 | ) | $ | (2.37 | ) | $ | 1.77 | ||
74 | ||
Total Probable | Probable | ||||||||||||||||||
Millions of dollars | 2003 | 2002 | 2001 | 2003 | 2002 | 2001 | |||||||||||||
Beginning balance | $ | 279 | $ | 137 | $ | 93 | $ | 210 | $ | 102 | $ | 92 | |||||||
Additions | 63 | 158 | 92 | 61 | 105 | 58 | |||||||||||||
Costs incurred during period | - | - | - | 63 | 19 | - | |||||||||||||
Settled/Other | (109 | ) | (16 | ) | (48 | ) | (109 | ) | (16 | ) | (48 | ) | |||||||
Ending balance | $ | 233 | $ | 279 | $ | 137 | $ | 225 | $ | 210 | $ | 102 | |||||||
75 | ||
- | performance letters of credit, which together have an available credit of approximately $266 million as of December 31, 2003 and which will continue to be adjusted to represent approximately 10% of the contract amount, as amended to date by change orders; |
- | retainage letters of credit, which together have available credit of approximately $160 million as of December 31, 2003 and which will increase in order to continue to represent 10% of the cumulative cash amounts paid to us; and |
- | a guarantee of Kellogg Brown & Root's performance under the agreement by Halliburton Company in favor of the project owner. |
- | pay $69 million to settle a portion of our claims, thereby reducing the amount of probable unapproved claims to $114 million; and |
- | extend the original project completion dates and other milestone dates, reducing our exposure to liquidated damages. |
- | the project was approximately 83% complete; |
- | we have recorded an inception to date pretax loss of $355 million related to the project, of which $238 million was recorded in 2003 and $117 million was recorded in 2002; |
- | the probable unapproved claims included in determining the loss were $114 million; and |
- | we have an exposure to liquidated damages of up to ten percent of the contract value. Based upon the current schedule forecast, we would incur $96 million in liquidated damages if our claim for additional time is not successful. |
76 | ||
- | directly pay the value added taxes due on all imports on the project (including Petrobras’ January 2004 payment of approximately $150 million); and |
- | reimburse us for value added taxes paid on local purchases, of which approximately $100 million will become due during 2004. |
77 | ||
78 | ||
79 | ||
80 | ||
- | production enhancement services (including fracturing, acidizing, coiled tubing, hydraulic workover, sand control, and pipeline and process services); |
- | completion products and services (including well completion equipment, slickline and safety systems); |
- | tools and testing services (including underbalanced applications, tubular conveyed perforating and testing services); and |
- | subsea operations conducted in our 50% owned company, Subsea 7, Inc. |
- | onshore engineering and construction activities, including engineering and construction of liquefied natural gas, ammonia and crude oil refineries and natural gas plants; |
- | offshore deepwater engineering, marine technology, project management, and worldwide construction capabilities; |
- | government operations, construction, maintenance and logistics activities for government facilities and installations; |
- | plant operations, maintenance and start-up services for both upstream and downstream oil, gas and petrochemical facilities as well as operations, maintenance and logistics services for the power, commercial and industrial markets; and |
- | civil engineering, consulting and project management services. |
81 | ||
Operations by Business Segment | ||||||||||
Years ended December 31 | ||||||||||
Millions of dollars | 2003 | 2002 | 2001 | |||||||
Revenues: | ||||||||||
Drilling and Formation Evaluation | $ | 1,643 | $ | 1,633 | $ | 1,643 | ||||
Fluids | 2,039 | 1,815 | 2,065 | |||||||
Production Optimization | 2,766 | 2,554 | 2,803 | |||||||
Landmark and Other Energy Services | 547 | 834 | 1,300 | |||||||
Total Energy Services Group | 6,995 | 6,836 | 7,811 | |||||||
Engineering and Construction Group | 9,276 | 5,736 | 5,235 | |||||||
Total | $ | 16,271 | $ | 12,572 | $ | 13,046 | ||||
Operating income (loss): | ||||||||||
Drilling and Formation Evaluation | $ | 177 | $ | 160 | $ | 171 | ||||
Fluids | 251 | 202 | 308 | |||||||
Production Optimization | 421 | 384 | 528 | |||||||
Landmark and Other Energy Services | (23 | ) | (108 | ) | 29 | |||||
Total Energy Services Group | 826 | 638 | 1,036 | |||||||
Engineering and Construction Group | (36 | ) | (685 | ) | 111 | |||||
General corporate | (70 | ) | (65 | ) | (63 | ) | ||||
Total | $ | 720 | $ | (112 | ) | $ | 1,084 | |||
Capital expenditures: | ||||||||||
Drilling and Formation Evaluation | $ | 145 | $ | 190 | $ | 225 | ||||
Fluids | 54 | 55 | 92 | |||||||
Production Optimization | 124 | 118 | 209 | |||||||
Landmark and Other Energy Services Group | 27 | 149 | 105 | |||||||
Shared energy services | 103 | 91 | 112 | |||||||
Total Energy Services Group | 453 | 603 | 743 | |||||||
Engineering and Construction Group | 62 | 161 | 54 | |||||||
Total | $ | 515 | $ | 764 | $ | 797 | ||||
82 | ||
Operations by Business Segment (continued) | ||||||||||
Years ended December 31 | ||||||||||
Millions of dollars | 2003 | 2002 | 2001 | |||||||
Depreciation, depletion and amortization: | ||||||||||
Drilling and Formation Evaluation | $ | 144 | $ | 137 | $ | 126 | ||||
Fluids | 50 | 48 | 50 | |||||||
Production Optimization | 104 | 99 | 95 | |||||||
Landmark and Other Energy Services | 77 | 112 | 137 | |||||||
Shared energy services | 92 | 79 | 66 | |||||||
Total Energy Services Group | 467 | 475 | 474 | |||||||
Engineering and Construction Group | 50 | 29 | 56 | |||||||
General corporate | 1 | 1 | 1 | |||||||
Total | $ | 518 | $ | 505 | $ | 531 | ||||
Total assets: | ||||||||||
Drilling and Formation Evaluation | $ | 1,074 | $ | 1,163 | $ | 1,253 | ||||
Fluids | 1,030 | 830 | 1,071 | |||||||
Production Optimization | 1,558 | 1,365 | 1,402 | |||||||
Landmark and Other Energy Services | 895 | 1,399 | 1,766 | |||||||
Shared energy services | 1,240 | 1,187 | 1,072 | |||||||
Total Energy Services Group | 5,797 | 5,944 | 6,564 | |||||||
Engineering and Construction Group | 5,082 | 3,104 | 3,187 | |||||||
General corporate | 4,584 | 3,796 | 1,215 | |||||||
Total | $ | 15,463 | $ | 12,844 | $ | 10,966 | ||||
Operations by Geographic Area | ||||||||||
Years ended December 31 | ||||||||||
Millions of dollars | 2003 | 2002 | 2001 | |||||||
Revenues: | ||||||||||
United States | $ | 4,415 | $ | 4,139 | $ | 4,911 | ||||
Iraq | 2,399 | 1 | 2 | |||||||
United Kingdom | 1,473 | 1,521 | 1,800 | |||||||
Other areas (numerous countries) | 7,984 | 6,911 | 6,333 | |||||||
Total | $ | 16,271 | $ | 12,572 | $ | 13,046 | ||||
Long-lived assets: | ||||||||||
United States | $ | 4,461 | $ | 4,617 | $ | 3,030 | ||||
United Kingdom | 630 | 691 | 617 | |||||||
Other areas (numerous countries) | 917 | 711 | 744 | |||||||
Total | $ | 6,008 | $ | 6,019 | $ | 4,391 | ||||
83 | ||
December 31 | |||||||
Millions of dollars | 2003 | 2002 | |||||
Finished products and parts | $ | 503 | $ | 545 | |||
Raw materials and supplies | 159 | 141 | |||||
Work in process | 33 | 48 | |||||
Total | $ | 695 | $ | 734 | |||
- | $107 million deposit that collateralizes a bond for a patent infringement judgment on appeal, included in “Other current assets” (See Note 13); |
- | $78 million as collateral for potential future insurance claim reimbursements, included in “Other assets”; |
- | $37 million ordered by the bankruptcy court to be set aside as part of the reorganization proceedings, included in “Other current assets”; and |
84 | ||
- | $37 million ($22 million in “Other assets” and $15 million in “Other current assets”) primarily related to cash collateral agreements for outstanding letters of credit for various construction projects. |
Millions of dollars | 2003 | 2002 | |||||
Land | $ | 80 | $ | 86 | |||
Buildings and property improvements | 1,065 | 1,024 | |||||
Machinery, equipment and other | 4,921 | 4,842 | |||||
Total | 6,066 | 5,952 | |||||
Less accumulated depreciation | 3,540 | 3,323 | |||||
Net property, plant and equipment | $ | 2,526 | $ | 2,629 | |||
Millions of dollars | 2003 | 2002 | |||||
3.125% convertible senior notes due July 2023 | $ | 1,200 | $ | - | |||
5.5% senior notes due October 2010 | 748 | - | |||||
1.5% plus LIBOR senior notes due October 2005 | 300 | - | |||||
Medium-term notes due 2006 through 2027 | 600 | 750 | |||||
7.6% debentures of Halliburton due August 2096 | 294 | - | |||||
8.75% debentures due February 2021 | 200 | 200 | |||||
7.6% debentures of DII Industries, LLC due August 2096 | 6 | 300 | |||||
Variable interest credit facility maturing September 2009 | 69 | 66 | |||||
8% senior notes which matured April 2003 | - | 139 | |||||
Effect of interest rate swaps | 9 | 13 | |||||
Other notes with varying interest rates | 11 | 8 | |||||
Total long-term debt | 3,437 | 1,476 | |||||
Less current portion | 22 | 295 | |||||
Noncurrent portion of long-term debt | $ | 3,415 | $ | 1,181 | |||
- | during any calendar quarter (and only during such calendar quarter) if the last reported sale price of our common stock for at least 20 trading days during the period of 30 |
85 | ||
consecutive trading days ending on the last trading day of the previous quarter is greater than or equal to 120% of the conversion price per share of our common stock on such last trading day; | |
- | if the notes have been called for redemption; |
- | upon the occurrence of specified corporate transactions that are described in the indenture relating to the offering; or |
- | during any period in which the credit ratings assigned to the notes by both Moody’s Investors Service and Standard & Poor’s are lower than Ba1 and BB+, respectively, or the notes are no longer rated by at least one of these rating services or their successors. |
Amount | Due | Rate | ||||
$ | 275 million | 08/2006 | 6.00 | % | ||
$ | 150 million | 12/2008 | 5.63 | % | ||
$ | 50 million |
| 05/2017 | 7.53 | % | |
$ | 125 million | 02/2027 | 6.75 | % | ||
86 | ||
- | a delayed-draw term facility (Senior Unsecured Credit Facility) that would currently provide for draws of up to $500 million to be available for cash funding of the trusts for the benefit of asbestos and silica claimants, if required conditions are met; and |
- | a $700 million three-year revolving credit facility (Revolving Credit Facility) for general working capital purposes, which expires in October 2006. |
- | final and non-appealable confirmation of our proposed plan of reorganization; |
- | our long-term senior unsecured debt is rated BBB or higher (stable outlook) by Standard & Poor’s and Baa2 or higher (stable outlook) by Moody’s Investors Service; |
- | there is no material adverse change in our business condition; |
- | we are not in default under the Revolving Credit Facility; and |
- | there are no court proceedings pending or threatened which could have a material adverse affect on our business. |
87 | ||
- | 100% of the stock of Halliburton Energy Services, Inc. (a wholly-owned subsidiary of Halliburton); |
- | 100% of the stock or other equity interests held by Halliburton and Halliburton Energy Services, Inc. in certain of their first-tier domestic subsidiaries; |
- | 66% of the stock or other equity interests of Halliburton Affiliates LLC (a wholly-owned subsidiary of Halliburton); and |
- | 66% of the stock or other equity interests of certain foreign subsidiaries of Halliburton or Halliburton Energy Services, Inc. |
- | asbestos used in products manufactured or sold by former divisions of DII Industries (primarily refractory materials, gaskets and packing materials used in pumps and other industrial products); |
- | asbestos in materials used in our construction and maintenance projects of Kellogg Brown & Root or its subsidiaries; and |
- | silica related to sandblasting and drilling fluids operations. |
88 | ||
2003 | 2002 | 2001 | |||||||||||||||||
Continuing | Discontinued | Continuing | Discontinued | Continuing | Discontinued | ||||||||||||||
Millions of dollars | Operations | Operations | Operations | Operations | Operations | Operations | |||||||||||||
Asbestos and silica charges: | |||||||||||||||||||
Pre-packaged Chapter 11 proceedings | $ | - | $ | 1,016 | $ | - | $ | - | $ | - | $ | - | |||||||
2002 Rabinovitz Study | - | - | 564 | 2,256 | - | - | |||||||||||||
Liabilities for Harbison- Walker claims | - | - | - | - | - | 632 | |||||||||||||
Subtotal | - | 1,016 | 564 | 2,256 | - | 632 | |||||||||||||
Asbestos and silica insurance write-off/ (receivables): | |||||||||||||||||||
Navigant Study | - | 6 | - | (1,530 | ) | - | - | ||||||||||||
Write-off of Highlands accounts receivable | - | - | 80 | - | - | - | |||||||||||||
Insurance recoveries for Harbison-Walker claims | - | - | - | - | - | (537 | ) | ||||||||||||
Subtotal | - | 6 | 80 | (1,530 | ) | - | (537 | ) | |||||||||||
Other Costs: | |||||||||||||||||||
Harbison-Walker matters | - | 51 | - | 45 | - | - | |||||||||||||
Professional fees | - | 58 | - | 35 | - | 4 | |||||||||||||
Cash in lieu of interest | - | 24 | - | - | - | - | |||||||||||||
Other costs | 5 | - | - | - | 11 | - | |||||||||||||
Subtotal | 5 | 133 | - | 80 | 11 | 4 | |||||||||||||
Pretax asbestos & silica charges | 5 | 1,155 | 644 | 806 | 11 | 99 | |||||||||||||
Tax (provision) benefit | (2 | ) | 5 | (114 | ) | (154 | ) | (4 | ) | (35 | ) | ||||||||
Total asbestos & silica charges, net of tax | $ | 3 | $ | 1,160 | $ | 530 | $ | 652 | $ | 7 | $ | 64 | |||||||
December 31 | |||||||
Millions of dollars | 2003 | 2002 | |||||
Asbestos and silica related liabilities: | |||||||
Beginning balance | $ | 3,425 | $ | 737 | |||
Accrued liability | 1,016 | 2,820 | |||||
Payments on claims | (355 | ) | (132 | ) | |||
Asbestos and silica related liabilities - ending balance (of which $2,507 and $0 is current) | $ | 4,086 | $ | 3,425 | |||
Insurance for asbestos and silica related liabilities: | |||||||
Beginning balance | $ | (2,059 | ) | $ | (612 | ) | |
(Accrual)/write-off of insurance recoveries | 6 | (1,530 | ) | ||||
Write off of Highlands receivable | - | 45 | |||||
Insurance billings | 15 | 38 | |||||
Insurance for asbestos and silica related liabilities - ending balance | $ | (2,038 | ) | $ | (2,059 | ) | |
Accounts receivable for billings to insurance companies: | |||||||
Beginning balance | $ | (44 | ) | $ | (53 | ) | |
Billed insurance recoveries | (15 | ) | (38 | ) | |||
Purchase of Harbison-Walker receivable, net of allowance | (40 | ) | - | ||||
Write-off of Highlands receivable | - | 35 | |||||
Payments received | 3 | 12 | |||||
Accounts receivable for billings to insurance companies - ending balance | $ | (96 | ) | $ | (44 | ) | |
89 | ||
- | up to approximately $2.5 billion in cash; |
- | 59.5 million shares of Halliburton common stock (valued at approximately $1.6 billion for accrual purposes using a stock price of $26.17 per share, which is based on the average trading price for the five days immediately prior to and including December 31, 2003); |
- | a one-year non-interest bearing note of $31 million for the benefit of asbestos claimants; |
- | a silica note with an initial payment into a silica trust of $15 million. Subsequently the note provides that we will contribute an amount to the silica trust balance at the end of each year for the next 30 years to bring the silica trust balance to $15 million, $10 million or $5 million based upon a formula which uses average yearly disbursements from the trust to determine that amount. The note also provides for an extension of the note for 20 additional years under certain circumstances. We have estimated the amount of this note to be approximately $21 million. We will periodically reassess our valuation of this note based upon our projections of the amounts we believe we will be required to fund into the silica trust; and |
- | insurance proceeds, if any, between $2.3 billion and $3.0 billion received by DII Industries and Kellogg Brown & Root. |
90 | ||
- | increase or decrease our asbestos and silica liability to value the 59.5 million shares of Halliburton common stock based on the value of Halliburton stock on the date of final and non-appealable confirmation of our proposed plan of reorganization; |
- | reclassify from a long-term liability to shareholders’ equity the final value of the 59.5 million shares of Halliburton common stock; and |
- | include the 59.5 million shares in our calculations of earnings per share on a prospective basis. |
91 | ||
- | policies held by carriers with which we had either settled or which were probable of settling and for which we could reasonably estimate the amount of the settlement; and |
- | other policies. |
- | reviewed DII Industries’ historical course of dealings with its insurance companies concerning the payment of asbestos-related claims, including DII Industries’ 15-year litigation and settlement history; |
- | reviewed our insurance coverage policy database containing information on key policy terms as provided by outside counsel; |
- | reviewed the terms of DII Industries’ prior and current coverage-in-place settlement agreements; |
- | reviewed the status of DII Industries’ and Kellogg Brown & Root’s current insurance-related lawsuits and the various legal positions of the parties in those lawsuits in relation to the developed and developing case law and the historic positions taken by insurers in the earlier filed and settled lawsuits; |
- | engaged in discussions with our counsel; and |
- | analyzed publicly-available information concerning the ability of the DII Industries insurers to meet their obligations. |
- | included $575 million of insurance recoveries from Equitas based on the January 2004 comprehensive agreement; |
- | included insurance recoveries from other specific insurers with whom we had settled; |
92 | ||
- | estimated insurance recoveries from specific insurers that we are probable of settling with and for which we could reasonably estimate the amount of the settlement. When appropriate, these estimates considered prior settlements with insurers with similar facts and circumstances; and |
- | estimated insurance recoveries for all other policies with the assistance of the Navigant Consulting study. |
- | additional settlements with insurance companies; |
- | additional insolvencies of carriers; and |
- | legal interpretation of the type and amount of coverage available to us. |
- | there will be no legislative or other systemic changes to the tort system; |
- | we will continue to aggressively defend against asbestos claims made against us; |
- | an inflation rate of 3% annually for settlement payments and an inflation rate of 4% annually for defense costs; and |
- | we would receive no relief from our asbestos obligation due to actions taken in the Harbison-Walker Chapter 11 proceedings (see below). |
93 | ||
- | on February 14, 2002, DII Industries paid $40 million to Harbison-Walker’s United States parent holding company, RHI Refractories Holding Company (RHI Refractories); |
- | DII Industries agreed to provide up to $35 million in debtor-in-possession financing to Harbison-Walker ($5 million was paid in 2002 and the remaining $30 million was paid in 2003); and |
- | during 2003, DII Industries purchased $50 million of Harbison-Walker’s outstanding insurance receivables, of which $10 million were estimated to be uncollectible. |
94 | ||
95 | ||
- | DII Industries, LLC; |
- | Kellogg Brown & Root, Inc.; |
- | Mid-Valley, Inc.; |
- | KBR Technical Services, Inc.; |
- | Kellogg Brown & Root Engineering Corporation; |
- | Kellogg Brown & Root International, Inc. (a Delaware corporation); |
- | Kellogg Brown & Root International, Inc. (a Panamanian corporation); and |
- | BPM Minerals, LLC. |
- | substantially all affected creditors have approved the terms of the plan of reorganization and related transactions; |
96 | ||
- | the duration of the Chapter 11 proceedings are likely to be very short (anticipated to be approximately six months); |
- | the Debtors were solvent and filed Chapter 11 proceedings to resolve asbestos and silica claims rather than as a result of insolvency; and |
- | the plan of reorganization provides that we will continue to own 100% of the equity of the Debtors upon completion of the plan of reorganization. As such, the plan of reorganization will not impact our equity ownership of the Debtors. |
- | $2,507 million current asbestos and silica related liabilities; and |
- | $1,579 million long-term asbestos and silica related liabilities. |
97 | ||
Year Ended | ||||
December 31, 2003 | ||||
Revenues | $ | 2,040 | ||
Equity in earnings of majority owned subsidiaries | 70 | |||
Total revenues | 2,110 | |||
Operating costs and expenses | 2,328 | |||
Operating loss | (218 | ) | ||
Nonoperating expenses, net | (26 | ) | ||
Loss from continuing operations before income taxes | (244 | ) | ||
Income tax benefit | 88 | |||
Loss from continuing operations | (156 | ) | ||
Loss from discontinued operations, net of tax benefit of $5 | (1,160 | ) | ||
Net loss | $ | (1,316 | ) | |
98 | ||
December 31, | ||||
2003 | ||||
Assets | ||||
Current assets: | ||||
Cash and equivalents | $ | 108 | ||
Receivables: | ||||
Trade, net | 191 | |||
Intercompany, net | 50 | |||
Unbilled work on uncompleted contracts | 60 | |||
Other, net | 75 | |||
Total receivables, net | 376 | |||
Inventories | 23 | |||
Right to Halliburton shares (1) | 1,547 | |||
Other current assets | 80 | |||
Total current assets | 2,134 | |||
Property, plant and equipment, net | 91 | |||
Goodwill, net | 188 | |||
Investments in majority owned subsidiaries | 1,567 | |||
Insurance for asbestos and silica related liabilities | 2,038 | |||
Noncurrent deferred income taxes | 436 | |||
Other assets | 257 | |||
Total assets | $ | 6,711 | ||
Liabilities and Shareholders’ Equity | ||||
Current liabilities: | ||||
Accounts payable | $ | 13 | ||
Accrued employee compensation and benefits | 30 | |||
Advance billings on uncompleted contracts | 23 | |||
Prepetition liabilities not subject to compromise | 834 | |||
Current prepetition asbestos and silica related liabilities subject to compromise | 2,507 | |||
Other current liabilities | 14 | |||
Total current liabilities | 3,421 | |||
Prepetition liabilities not subject to compromise | 137 | |||
Noncurrent prepetition asbestos and silica related liabilities subject to compromise | 1,579 | |||
Other liabilities | 2 | |||
Total liabilities | 5,139 | |||
Shareholders’ equity | 1,572 | |||
Total liabilities and shareholders’ equity | $ | 6,711 | ||
99 | ||
Year Ended | ||||
December 31, 2003 | ||||
Total cash flows from operating activities | $ | (1,226 | ) | |
Total cash flows from investing activities | 2 | |||
Total cash flows from activities with Halliburton | 1,306 | |||
Effect of exchange rate changes on cash | (5 | ) | ||
Increase (decrease) in cash and equivalents | 77 | |||
Cash and equivalents at beginning of year | 31 | |||
Cash and equivalents at end of year | $ | 108 | ||
100 | ||
101 | ||
102 | ||
103 | ||
- | the Comprehensive Environmental Response, Compensation and Liability Act; |
- | the Resources Conservation and Recovery Act; |
- | the Clean Air Act; |
- | the Federal Water Pollution Control Act; and |
- | the Toxic Substances Control Act. |
104 | ||
Millions of dollars | 2003 | 2002 | 2001 | |||||||
Rental expense | $ | 193 | $ | 149 | $ | 172 | ||||
105 | ||
Years ended December 31 | ||||||||||
Millions of dollars | 2003 | 2002 | 2001 | |||||||
Current income taxes: | ||||||||||
Federal | $ | (167 | ) | $ | 71 | $ | (146 | ) | ||
Foreign | (181 | ) | (173 | ) | (157 | ) | ||||
State | 1 | 4 | (20 | ) | ||||||
Total Current | (347 | ) | (98 | ) | (323 | ) | ||||
Deferred income taxes: | ||||||||||
Federal | 80 | (11 | ) | (58 | ) | |||||
Foreign | 25 | 11 | (8 | ) | ||||||
State | 8 | 18 | 5 | |||||||
Total Deferred | 113 | 18 | (61 | ) | ||||||
Provision for Income Taxes | $ | (234 | ) | $ | (80 | ) | $ | (384 | ) | |
Years ended December 31 | ||||||||||
Millions of dollars | 2003 | 2002 | 2001 | |||||||
United States | $ | 254 | $ | (537 | ) | $ | 565 | |||
Foreign | 358 | 309 | 389 | |||||||
Total | $ | 612 | $ | (228 | ) | $ | 954 | |||
Years ended December 31 | ||||||||||
2003 | 2002 | 2001 | ||||||||
United States Statutory rate | 35.0 | % | 35.0 | % | 35.0 | % | ||||
Rate differentials on foreign earnings | 0.8 | (1.8 | ) | 3.4 | ||||||
State income taxes, net of federal income tax benefit | 0.9 | 0.9 | 1.4 | |||||||
Prior years | 1.6 | 14.5 | - | |||||||
Dispositions | (1.6 | ) | (12.3 | ) | - | |||||
Valuation allowance | - | (71.5 | ) | - | ||||||
Other items, net | 1.5 | - | 0.5 | |||||||
Total effective tax rate on continuing operations | 38.2 | % | (35.2) | % | 40.3 | % | ||||
106 | ||
December 31 | |||||||
Millions of dollars | 2003 | 2002 | |||||
Gross deferred tax assets: | |||||||
Asbestos and silica related liabilities | $ | 1,463 | $ | 1,201 | |||
Employee compensation and benefits | 275 | 282 | |||||
Foreign tax credit carryforward | 113 | 49 | |||||
Capitalized research and experimentation | 100 | 75 | |||||
Accrued liabilities | 100 | 102 | |||||
Construction contract accounting | 94 | 114 | |||||
Net operating loss carryforwards | 83 | 81 | |||||
Insurance accruals | 77 | 78 | |||||
Alternative minimum tax credit carryforward | 30 | 5 | |||||
Other | 191 | 147 | |||||
Total | $ | 2,526 | $ | 2,134 | |||
Gross deferred tax liabilities: | |||||||
Insurance for asbestos and silica related liabilities | $ | 631 | $ | 724 | |||
Depreciation and amortization | 129 | 188 | |||||
Nonrepatriated foreign earnings | 36 | 36 | |||||
Other | 11 | 13 | |||||
Total | $ | 807 | $ | 961 | |||
Valuation allowances: | |||||||
Future tax attributes related to asbestos and silica litigation | $ | 624 | $ | 233 | |||
Foreign tax credit limitation | 113 | 49 | |||||
Net operating loss carryforwards | 56 | 77 | |||||
Other | - | 7 | |||||
Total | $ | 793 | $ | 366 | |||
Net deferred income tax asset | $ | 926 | $ | 807 | |||
107 | ||
(Millions of dollars) | Common Stock | Capital in Excess of Par Value | Treasury Stock | Deferred Compensation | Retained Earnings | Accumulated Other Comprehensive Income | |||||||||||||
Balance at December 31, 2000 | $ | 1,132 | $ | 259 | $ | (845 | ) | $ | (63 | ) | $ | 3,733 | $ | (288 | ) | ||||
Cash dividends paid | - | - | - | - | (215 | ) | - | ||||||||||||
Reissuance of treasury stock for: | |||||||||||||||||||
Stock purchase, compensation and incentive plans, net | 2 | 30 | 51 | - | - | - | |||||||||||||
Acquisition | 4 | 11 | 140 | - | - | - | |||||||||||||
Treasury stock purchased | - | - | (34 | ) | - | - | - | ||||||||||||
Current year awards, net of tax | - | - | - | (24 | ) | - | - | ||||||||||||
Tax benefit from exercise of options | - | (2 | ) | - | - | - | - | ||||||||||||
Total dividends and other transactions with shareholders | 6 | 39 | 157 | (24 | ) | (215 | ) | - | |||||||||||
Comprehensive income: | |||||||||||||||||||
Net income | - | - | - | - | 809 | - | |||||||||||||
Other comprehensive income, | |||||||||||||||||||
net of tax: | |||||||||||||||||||
Cumulative translation adjustments | - | - | - | - | - | (32 | ) | ||||||||||||
Realization of losses included in net income | - | - | - | - | - | 102 | |||||||||||||
Minimum pension liability adjustment, net of income taxes of $13 | - | - | - | - | - | (15 | ) | ||||||||||||
Unrealized (loss) on investments and derivatives | - | - | - | - | - | (3 | ) | ||||||||||||
Total comprehensive income (loss) | - | - | - | - | 809 | 52 | |||||||||||||
Balance at December 31, 2001 | $ | 1,138 | $ | 298 | $ | (688 | ) | $ | (87 | ) | $ | 4,327 | $ | (236 | ) | ||||
Cash dividends paid | - | - | - | - | (219 | ) | - | ||||||||||||
Reissuance of treasury stock for: | |||||||||||||||||||
Stock purchase, compensation and incentive plans, net | 1 | (24 | ) | 62 | - | - | - | ||||||||||||
Stock issued for acquisition | 2 | 24 | - | - | - | - | |||||||||||||
Treasury stock purchased | - | - | (4 | ) | - | - | - | ||||||||||||
Current year awards, net of tax | - | - | - | 12 | - | - | |||||||||||||
Tax benefit from exercise of options | - | (5 | ) | - | - | - | - | ||||||||||||
Total dividends and other transactions with shareholders | 3 | (5 | ) | 58 | 12 | (219 | ) | - | |||||||||||
Comprehensive income: | |||||||||||||||||||
Net loss | - | - | - | - | (998 | ) | - | ||||||||||||
Other comprehensive income, net of tax: | |||||||||||||||||||
Cumulative translation adjustments | - | - | - | - | - | 69 | |||||||||||||
Realization of losses included in net income | - | - | - | - | - | 15 | |||||||||||||
Minimum pension liability adjustment, net of income taxes of $70 | - | - | - | - | - | (130 | ) | ||||||||||||
Unrealized gain on investments and derivatives | - | - | - | - | - | 1 | |||||||||||||
Total comprehensive income (loss) | - | - | - | - | (998 | ) | (45 | ) | |||||||||||
Balance at December 31, 2002 | $ | 1,141 | $ | 293 | $ | (630 | ) | $ | (75 | ) | $ | 3,110 | $ | (281 | ) | ||||
108 | ||
(Millions of dollars) | Common Stock | Capital in Excess of Par Value | Treasury Stock | Deferred Compensation | Retained Earnings | Accumulated Other Comprehensive Income | |||||||||||||
Balance at December 31, 2002 | $ | 1,141 | $ | 293 | $ | (630 | ) | $ | (75 | ) | $ | 3,110 | $ | (281 | ) | ||||
Cash dividends paid | - | - | - | - | (219 | ) | - | ||||||||||||
Reissuance of treasury stock for: | |||||||||||||||||||
Stock purchase, compensation and incentive plans, net | 1 | (19 | ) | 60 | - | - | - | ||||||||||||
Treasury stock purchased | - | - | (7 | ) | - | - | - | ||||||||||||
Current year awards, net of tax | - | - | - | 11 | - | - | |||||||||||||
Tax benefit from exercise of options | - | (1 | ) | - | - | - | - | ||||||||||||
Total dividends and other transactions with shareholders | 1 | (20 | ) | 53 | 11 | (219 | ) | - | |||||||||||
Comprehensive income: | |||||||||||||||||||
Net loss | - | - | - | - | (820 | ) | - | ||||||||||||
Other comprehensive income, net of tax: | |||||||||||||||||||
Cumulative translation adjustments | - | - | - | - | - | 43 | |||||||||||||
Realization of losses included in net income | - | - | - | - | - | 15 | |||||||||||||
Minimum pension liability adjustment, net of income taxes of $25 | - | - | - | - | - | (88 | ) | ||||||||||||
Unrealized gain on investments and derivatives | - | - | - | - | - | 13 | |||||||||||||
Total comprehensive income (loss) | - | - | - | - | (820 | ) | (17 | ) | |||||||||||
Balance at December 31, 2003 | $ | 1,142 | $ | 273 | $ | (577 | ) | $ | (64 | ) | $ | 2,071 | $ | (298 | ) | ||||
Accumulated other comprehensive income | December 31 | |||||||||
Millions of dollars | 2003 | 2002 | 2001 | |||||||
Cumulative translation adjustments | $ | (63 | ) | $ | (121 | ) | $ | (205 | ) | |
Pension liability adjustments | (245 | ) | (157 | ) | (27 | ) | ||||
Unrealized gains (losses) on investments and derivatives | 10 | (3 | ) | (4 | ) | |||||
Total accumulated other comprehensive income | $ | (298 | ) | $ | (281 | ) | $ | (236 | ) | |
Shares of common stock | December 31 | |||||||||
Millions of shares | 2003 | 2002 | 2001 | |||||||
Issued | 457 | 456 | 455 | |||||||
In treasury | (18 | ) | (20 | ) | (21 | ) | ||||
Total shares of common stock outstanding | 439 | 436 | 434 | |||||||
- | stock options, including incentive stock options and non-qualified stock options; |
- | stock appreciation rights, in tandem with stock options or freestanding; |
- | restricted stock; |
- | performance share awards; and |
- | stock value equivalent awards. |
109 | ||
Stock Options | Number ofShares | Exercise | Weighted Average | |||||||
Outstanding at December 31, 2000 | 14.7 | $ | 8.28 – 61.50 | $ | 34.54 | |||||
Granted | 3.6 | 12.93 – 45.35 | 35.56 | |||||||
Exercised | (0.7 | ) | 8.93 – 40.81 | 25.34 | ||||||
Forfeited | (0.5 | ) | 12.32 – 54.50 | 36.83 | ||||||
Outstanding at December 31, 2001 | 17.1 | $ | 8.28 – 61.50 | $ | 35.10 | |||||
Granted | 2.6 | 9.10 – 19.75 | 12.57 | |||||||
Exercised | -* | 8.93 – 17.21 | 11.39 | |||||||
Forfeited | (1.2 | ) | 8.28 – 54.50 | 31.94 | ||||||
Outstanding at December 31, 2002 | 18.5 | $ | 9.10 – 61.50 | $ | 32.10 | |||||
Granted | 2.4 | 18.60 – 24.76 | 23.45 | |||||||
Exercised | (0.4 | ) | 8.28 – 23.52 | 14.75 | ||||||
Forfeited | (1.0 | ) | 9.10 – 54.50 | 32.07 | ||||||
Outstanding at December 31, 2003 | 19.5 | $ | 9.10 – 61.50 | $ | 31.34 | |||||
Outstanding | Exercisable | |||||||||||||||
Range of Exercise Prices | Number of | Weighted | Weighted | Number of | Weighted | |||||||||||
$9.10 – 23.79 | 5.6 | 7.2 | $ | 18.30 | 1.8 | $ | 17.57 | |||||||||
$23.80 – 32.40 | 5.4 | 5.0 | 28.82 | 4.3 | 28.85 | |||||||||||
$32.41 – 39.54 | 4.9 | 5.4 | 38.44 | 4.8 | 38.44 | |||||||||||
$39.55 – 61.50 | 3.6 | 5.7 | 45.57 | 2.9 | 46.90 | |||||||||||
$9.10 – 61.50 | 19.5 | 5.9 | $ | 31.34 | 13.8 | $ | 34.59 | |||||||||
110 | ||
111 | ||
112 | ||
113 | ||
- | our defined contribution plans provide retirement contributions in return for services rendered. These plans provide an individual account for each participant and have terms that specify how contributions to the participant’s account are to be determined rather than the amount of pension benefits the participant is to receive. Contributions to these plans are based on pretax income and/or discretionary amounts determined on an annual basis. Our expense for the defined contribution plans for both continuing and discontinued operations totaled $87 million, $80 million and $129 million in 2003, 2002 and 2001, respectively; |
- | our defined benefit plans include both funded and unfunded pension plans, which define an amount of pension benefit to be provided, usually as a function of age, years of service or compensation; and |
- | our postretirement medical plans are offered to specific eligible employees. These plans are contributory. For some plans, our liability is limited to a fixed contribution amount for each participant or dependent. The plan participants share the total cost for all benefits provided above our fixed contribution. Participants’ contributions are adjusted as required to cover benefit payments. We have made no commitment to adjust the amount of our contributions; therefore, the computed accumulated postretirement benefit obligation amount is not affected by the expected future health care cost inflation rate. For another postretirement medical plan we have generally absorbed the majority of the costs; however, an amendment was made to this plan in 2003 to limit the company’s share of costs. Total amendments made in 2003 decreased the accumulated benefit obligation by $93 million. |
114 | ||
Pension Benefits | |||||||||||||||||||
Other | |||||||||||||||||||
Benefit obligations | United | Int’l | United | Int’l | Postretirement | ||||||||||||||
Millions of dollars | 2003 | 2002 | 2003 | 2002 | |||||||||||||||
Change in benefit obligation | |||||||||||||||||||
Benefit obligation at beginning of year | $ | 144 | $ | 2,239 | $ | 140 | $ | 1,968 | $ | 186 | $ | 157 | |||||||
Service cost | 1 | 72 | 1 | 72 | 1 | 1 | |||||||||||||
Interest cost | 10 | 120 | 9 | 102 | 12 | 11 | |||||||||||||
Plan participants’ contributions | - | 17 | - | 14 | 13 | 11 | |||||||||||||
Effect of business combinations and new plans | - | 12 | - | 70 | - | - | |||||||||||||
Amendments | - | - | 1 | (4 | ) | (93 | ) | - | |||||||||||
Divestitures | - | (56 | ) | - | (5 | ) | - | - | |||||||||||
Settlements/curtailments | - | 4 | (1 | ) | (1 | ) | - | - | |||||||||||
Currency fluctuations | - | 54 | - | 102 | - | - | |||||||||||||
Actuarial gain/(loss) | 18 | 107 | 5 | (27 | ) | 4 | 33 | ||||||||||||
Benefits paid | (13 | ) | (68 | ) | (11 | ) | (52 | ) | (26 | ) | (27 | ) | |||||||
Benefit obligation at end of year | $ | 160 | $ | 2,501 | $ | 144 | $ | 2,239 | $ | 97 | $ | 186 | |||||||
Accumulated benefit obligation at end of year | $ | 158 | $ | 2,230 | $ | 142 | $ | 2,032 | $ | - | $ | - | |||||||
Pension Benefits | |||||||||||||||||||
Other | |||||||||||||||||||
Plan assets | United | Int’l | United | Int’l | Postretirement | ||||||||||||||
Millions of dollars | 2003 | 2002 | 2003 | 2002 | |||||||||||||||
Change in plan assets | |||||||||||||||||||
Fair value of plan assets at beginning of year | $ | 113 | $ | 1,886 | $ | 130 | $ | 1,827 | $ | - | $ | - | |||||||
Actual return on plan assets | 8 | 152 | (6 | ) | (69 | ) | - | - | |||||||||||
Employer contributions | 2 | 53 | 1 | 36 | 13 | 16 | |||||||||||||
Settlements and transfers | - | (33 | ) | (1 | ) | - | - | - | |||||||||||
Plan participants’ contributions | 3 | 17 | - | 14 | 13 | 11 | |||||||||||||
Effect of business combinations and new plans | - | - | - | 45 | - | - | |||||||||||||
Divestitures | - | (47 | ) | - | (5 | ) | - | - | |||||||||||
Currency fluctuations | - | 43 | - | 89 | - | - | |||||||||||||
Benefits paid | (13 | ) | (68 | ) | (11 | ) | (51 | ) | (26 | ) | (27 | ) | |||||||
Fair value of plan assets at end of year | $ | 113 | $ | 2,003 | $ | 113 | $ | 1,886 | $ | - | $ | - | |||||||
115 | ||
Percentage of Plan Assets at Year End | ||||||||||||||||
Target | United | Int’l | United | Int’l | ||||||||||||
Allocation | ||||||||||||||||
2004 | 2003 | 2002 | ||||||||||||||
Asset category | ||||||||||||||||
Equity securities | 45% - 70 | % | 45 | % | 63 | % | 44 | % | 61 | % | ||||||
Debt securities | 30% - 55 | % | 23 | % | 34 | % | 26 | % | 37 | % | ||||||
Real estate | 0 | % | 0 | % | 0 | % | 0 | % | 0 | % | ||||||
Other - STIF | 0% - 5 | % | 32 | % | 3 | % | 30 | % | 2 | % | ||||||
Total | 100 | % | 100 | % | 100 | % | 100 | % | ||||||||
Pension Benefits | |||||||||||||||||||
Other | |||||||||||||||||||
United | Int’l | United | Int’l | Postretirement | |||||||||||||||
End of year (in millions of dollars) | 2003 | 2002 | 2003 | 2002 | |||||||||||||||
Fair value of plan assets at end of year | $ | 113 | $ | 2,003 | $ | 113 | $ | 1,886 | $ | - | $ | - | |||||||
Benefit obligation at end of year | 160 | 2,501 | 144 | 2,239 | 97 | 186 | |||||||||||||
Funded status | $ | (47 | ) | $ | (498 | ) | $ | (31 | ) | $ | (353 | ) | $ | (97 | ) | $ | (186 | ) | |
Employer contribution | - | 5 | - | - | 2 | 2 | |||||||||||||
Unrecognized transition obligation/(asset) | (1 | ) | (1 | ) | - | (2 | ) | - | - | ||||||||||
Unrecognized actuarial (gain)/loss | 76 | 594 | 56 | 477 | 23 | 20 | |||||||||||||
Unrecognized prior service cost/(benefit) | 1 | (1 | ) | 1 | - | (90 | ) | 2 | |||||||||||
Purchase accounting adjustment | - | (77 | ) | - | (70 | ) | - | - | |||||||||||
Net amount recognized | $ | 29 | $ | 22 | $ | 26 | $ | 52 | $ | (162 | ) | $ | (162 | ) | |||||
116 | ||
Pension Benefits | |||||||||||||||||||
Other | |||||||||||||||||||
United | Int’l | United | Int’l | Postretirement | |||||||||||||||
End of year (in millions of dollars) | 2003 | 2002 | 2003 | 2002 | |||||||||||||||
Amounts recognized in the consolidated balance sheets | |||||||||||||||||||
Prepaid benefit cost | $ | 31 | $ | 95 | $ | 30 | $ | 102 | $ | - | $ | - | |||||||
Accrued benefit liability including additional minimum liability | (76 | ) | (361 | ) | (59 | ) | (250 | ) | 162 | 162 | |||||||||
Intangible asset | - | 8 | 2 | 12 | - | - | |||||||||||||
Accumulated other comprehensive income, net of tax | 48 | 197 | 35 | 122 | - | - | |||||||||||||
Deferred tax asset | 26 | 83 | 18 | 66 | - | - | |||||||||||||
Net amount recognized | $ | 29 | $ | 22 | $ | 26 | $ | 52 | $ | 162 | $ | 162 | |||||||
Pension Benefits | |||||||
Millions of dollars | 2003 | 2002 | |||||
Projected benefit obligation | $ | 2,630 | $ | 2,319 | |||
Accumulated benefit obligation | $ | 2,363 | $ | 2,121 | |||
Fair value of plan assets | $ | 2,087 | $ | 1,942 | |||
117 | ||
Pension Benefits | ||||||||||||||||||||||||||||
Other | ||||||||||||||||||||||||||||
United | Int’l | United | Int’l | United | Int’l | Postretirement | ||||||||||||||||||||||
End of year | ||||||||||||||||||||||||||||
(millions of dollars) | 2003 | 2002 | 2001 | 2003 | 2002 | 2001 | ||||||||||||||||||||||
Components of net periodic benefit cost | ||||||||||||||||||||||||||||
Service cost | $ | 1 | $ | 72 | $ | 1 | $ | 72 | $ | 2 | $ | 60 | $ | 1 | $ | 1 | $ | 2 | ||||||||||
Interest cost | 10 | 120 | 9 | 102 | 13 | 89 | 12 | 11 | 15 | |||||||||||||||||||
Expected return on plan assets | (12 | ) | (136 | ) | (13 | ) | (106 | ) | (18 | ) | (95 | ) | - | - | - | |||||||||||||
Transition amount | - | (1 | ) | - | (2 | ) | - | (2 | ) | - | - | - | ||||||||||||||||
Amortization of prior service cost | - | - | (2 | ) | (6 | ) | (2 | ) | (6 | ) | - | - | (3 | ) | ||||||||||||||
Settlements/curtailments | 2 | - | - | (2 | ) | 16 | - | - | - | (221 | ) | |||||||||||||||||
Recognized actuarial (gain)/loss | 1 | 18 | 1 | 3 | (1 | ) | (9 | ) | 1 | (1 | ) | (1 | ) | |||||||||||||||
Net periodic benefit (income)/cost | $ | 2 | $ | 73 | $ | (4 | ) | $ | 61 | $ | 10 | $ | 37 | $ | 14 | $ | 11 | $ | (208 | ) | ||||||||
Pension Benefits | ||||||||||||||||||||||||||||
Weighted-average | Other | |||||||||||||||||||||||||||
assumptions used to determine benefit | United States | Int’l | United States | Int’l | United States | Int’l | Postretirement Benefits | |||||||||||||||||||||
obligations at | ||||||||||||||||||||||||||||
December 31 | 2003 | 2002 | 2001 | 2003 | 2002 | 2001 | ||||||||||||||||||||||
Discount rate | 6.25 | % | 2.5-18.0 | % | 7.0 | % | 5.25-20.0 | % | 7.25 | % | 5.0-8.0 | % | 6.25 | % | 7.0 | % | 7.25 | % | ||||||||||
Rate of compensation increase | 4.5 | % | 2.0-15.5 | % | 4.5 | % | 3.0-21.0 | % | 4.5 | % | 3.0-7.0 | % | N/A | N/A | N/A | |||||||||||||
Weighted-average | Pension Benefits | |||||||||||||||||||||||||||
assumptions used to | Other | |||||||||||||||||||||||||||
determine net periodic benefit cost | United States | Int’l | United States | Int’l | United States | Int’l | Postretirement Benefits | |||||||||||||||||||||
for years ended | ||||||||||||||||||||||||||||
December 31 | 2003 | 2002 | 2001 | 2003 | 2002 | 2001 | ||||||||||||||||||||||
Discount rate | 7.0 | % | 2.5-20.0 | % | 7.25 | % | 5.0-20.0 | % | 7.5 | % | 5.0-8.0 | % | 7.0 | % | 7.25 | % | 7.50 | % | ||||||||||
Expected return on plan assets | 8.75 | % | 5.5-8.0 | % | 9.0 | % | 5.5-9.0 | % | 9.0 | % | 5.5-9.0 | % | N/A | N/A | N/A | |||||||||||||
Rate of compensation increase | 4.5 | % | 2.0-21.0 | % | 4.5 | % | 3.0-21.0 | % | 4.5 | % | 3.0-7.0 | % | N/A | N/A | N/A | |||||||||||||
118 | ||
Assumed health care cost trend | ||||||||||
rates at December 31 | 2003 | 2002 | 2001 | |||||||
Health care cost trend rate assumed for next year | 13.0 | % | 13.0 | % | 11.0 | % | ||||
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate) | 5.0 | % | 5.0 | % | 5.0 | % | ||||
Year that the rate reached the ultimate trend rate | 2008 | 2007 | 2005 | |||||||
One-Percentage-Point | |||||||
Millions of dollars | Increase | (Decrease) | |||||
Effect on total of service and interest cost components | $ | - | $ | - | |||
Effect on the postretirement benefit obligation | $ | 1 | $ | (1 | ) | ||
Combined Operating Results | Years ended December 31 | |||||||||
Millions of dollars | 2003 | 2002 | 2001 | |||||||
Revenues | $ | 2,576 | $ | 1,948 | $ | 1,987 | ||||
Operating income | $ | 124 | $ | 200 | $ | 231 | ||||
Net income | $ | 74 | $ | 159 | $ | 169 | ||||
119 | ||
Combined Financial Position | December 31 | ||||||
Millions of dollars | 2003 | 2002 | |||||
Current assets | $ | 1,355 | $ | 1,404 | |||
Noncurrent assets | 3,044 | 1,876 | |||||
Total | $ | 4,399 | $ | 3,280 | |||
Current liabilities | $ | 1,332 | $ | 1,155 | |||
Noncurrent liabilities | 2,277 | 1,367 | |||||
Minority interests | 3 | - | |||||
Shareholders’ equity | 787 | 758 | |||||
Total | $ | 4,399 | $ | 3,280 | |||
Gain on Disposal of Discontinued Operations | ||||
Millions of dollars | 2001 | |||
Proceeds from sale, less intercompany settlement | $ | 1,267 | ||
Net assets disposed | (769 | ) | ||
Gain before taxes | 498 | |||
Income taxes | (199 | ) | ||
Gain on disposal of discontinued operations | $ | 299 | ||
120 | ||
- | $64 million in personnel related expense; |
- | $17 million of asset related write-downs; |
- | $20 million in professional fees related to the restructuring; and |
- | $6 million related to contract terminations. |
- | the deferral of the effective date for certain variable interests until the first quarter of 2004; |
- | additional scope exceptions for certain other variable interests; and |
- | additional guidance on what constitutes a variable interest entity. |
- | during 2001, we formed a joint venture in which we own a 50% equity interest with two other unrelated partners, each owning a 25% equity interest. This variable interest entity was formed to construct, operate and service certain assets for a third party and was funded with third party debt. The construction of the assets is expected to be completed |
121 | ||
in 2004, and the operating and service contract related to the assets extends through 2023. The proceeds from the debt financing are being used to construct the assets and will be paid down with cash flows generated during the operation and service phase of the contract with the third party. As of December 31, 2003, the joint venture had total assets of $157 million and total liabilities of $155 million. Our aggregate exposure to loss as a result of our involvement with this joint venture is limited to our equity investment and subordinated debt of $11 million and any future losses related to the construction and operation of the assets. We are not the primary beneficiary. The joint venture is accounted for under the equity method of accounting in our Engineering and Construction Group segment; and | |
- | our Engineering and Construction Group is involved in three projects executed through joint ventures to design, build, operate and maintain roadways for certain government agencies. We have a 25% ownership interest in these joint ventures and account for them under the equity method. These joint ventures are considered variable interest entities as they were initially formed with little equity contributed by the partners. The joint ventures have obtained financing through third parties which is not guaranteed by us. We are not the primary beneficiary of these joint ventures and will, therefore, continue to account for them using the equity method. As of December 31, 2003, these joint ventures had total assets of $1.3 billion and total liabilities of $1.3 billion. Our maximum exposure to loss is limited to our equity investments in and loans to the joint ventures (totaling $40 million at December 31, 2003) and our share of any future losses to the construction of these roadways. |
122 | ||
Years ended December 31 | ||||||||||||||||
Millions of dollars and shares | ||||||||||||||||
except per share and employee data | 2003 | 2002 | 2001 | 2000 | 1999 | |||||||||||
Total revenues | $ | 16,271 | $ | 12,572 | $ | 13,046 | $ | 11,944 | $ | 12,313 | ||||||
Total operating income (loss) | 720 | (112 | ) | 1,084 | 462 | 401 | ||||||||||
Nonoperating expense, net | (108 | ) | (116 | ) | (130 | ) | (127 | ) | (94 | ) | ||||||
Income (loss) from continuing operations before income taxes and minority interest | 612 | (228 | ) | 954 | 335 | 307 | ||||||||||
Provision for income taxes | (234 | ) | (80 | ) | (384 | ) | (129 | ) | (116 | ) | ||||||
Minority interest in net income of consolidated subsidiaries | (39 | ) | (38 | ) | (19 | ) | (18 | ) | (17 | ) | ||||||
Income (loss) from continuing operations | $ | 339 | $ | (346 | ) | $ | 551 | $ | 188 | $ | 174 | |||||
Income (loss) from discontinued operations | $ | (1,151 | ) | $ | (652 | ) | $ | 257 | $ | 313 | $ | 283 | ||||
Net income (loss) | $ | (820 | ) | $ | (998 | ) | $ | 809 | $ | 501 | $ | 438 | ||||
Basic income (loss) per share | ||||||||||||||||
Continuing operations | $ | 0.78 | $ | (0.80 | ) | $ | 1.29 | $ | 0.42 | $ | 0.40 | |||||
Net income (loss) | (1.89 | ) | (2.31 | ) | 1.89 | 1.13 | 1.00 | |||||||||
Diluted income (loss) per share | ||||||||||||||||
Continuing operations | 0.78 | (0.80 | ) | 1.28 | 0.42 | 0.39 | ||||||||||
Net income (loss) | (1.88 | ) | (2.31 | ) | 1.88 | 1.12 | 0.99 | |||||||||
Cash dividends per share | 0.50 | 0.50 | 0.50 | 0.50 | 0.50 | |||||||||||
Return on average shareholders’ equity | (26.86) | % | (24.02) | % | 18.64 | % | 12.20 | % | 10.49 | % | ||||||
Financial position | ||||||||||||||||
Net working capital | $ | 1,377 | $ | 2,288 | $ | 2,665 | $ | 1,742 | $ | 2,329 | ||||||
Total assets | 15,463 | 12,844 | 10,966 | 10,192 | 9,639 | |||||||||||
Property, plant and equipment, net | 2,526 | 2,629 | 2,669 | 2,410 | 2,390 | |||||||||||
Long-term debt (including current maturities) | 3,437 | 1,476 | 1,484 | 1,057 | 1,364 | |||||||||||
Shareholders’ equity | 2,547 | 3,558 | 4,752 | 3,928 | 4,287 | |||||||||||
Total capitalization | 6,002 | 5,083 | 6,280 | 6,555 | 6,590 | |||||||||||
Shareholders’ equity per share | 5.80 | 8.16 | 10.95 | 9.20 | 9.69 | |||||||||||
Average common shares outstanding (basic) | 434 | 432 | 428 | 442 | 440 | |||||||||||
Average common shares outstanding (diluted) | 437 | 432 | 430 | 446 | 443 | |||||||||||
Other financial data | ||||||||||||||||
Capital expenditures | $ | (515 | ) | $ | (764 | ) | $ | (797 | ) | $ | (578 | ) | $ | (520 | ) | |
Long-term borrowings (repayments), net | 1,896 | (15 | ) | 412 | (308 | ) | (59 | ) | ||||||||
Depreciation, depletion and amortization expense | 518 | 505 | 531 | 503 | 511 | |||||||||||
Goodwill amortization included in depreciation, depletion and amortization expense | - | - | 42 | 44 | 33 | |||||||||||
Payroll and employee benefits | (5,154 | ) | (4,875 | ) | (4,818 | ) | (5,260 | ) | (5,647 | ) | ||||||
Number of employees | 101,381 | 83,000 | 85,000 | 93,000 | 103,000 | |||||||||||
123 | ||
Quarter | ||||||||||||||||
Millions of dollars except per share data | First | Second | Third | Fourth | Year | |||||||||||
2003 | ||||||||||||||||
Revenues | $ | 3,060 | $ | 3,599 | $ | 4,148 | $ | 5,464 | $ | 16,271 | ||||||
Operating income | 142 | 71 | 204 | 303 | 720 | |||||||||||
Income from continuing operations | 59 | 42 | 92 | 146 | 339 | |||||||||||
Loss from discontinued operations | (8 | ) | (16 | ) | (34 | ) | (1,093 | ) | (1,151 | ) | ||||||
Cumulative effect of change in accounting principal, net of tax benefit of $5 | (8 | ) | - | - | - | (8 | ) | |||||||||
Net income (loss) | 43 | 26 | 58 | (947 | ) | (820 | ) | |||||||||
Earnings per share: | ||||||||||||||||
Basic income (loss) per share: | ||||||||||||||||
Income (loss) from continuing operations | 0.14 | 0.09 | 0.21 | 0.34 | 0.78 | |||||||||||
Loss from discontinued operations | (0.02 | ) | (0.03 | ) | (0.08 | ) | (2.52 | ) | (2.65 | ) | ||||||
Cumulative effect of change in accounting principal, net of tax benefit | (0.02 | ) | - | - | - | (0.02 | ) | |||||||||
Net income (loss) | 0.10 | 0.06 | 0.13 | (2.18 | ) | (1.89 | ) | |||||||||
Diluted income (loss) per share: | ||||||||||||||||
Income (loss) from continuing operations | 0.14 | 0.09 | 0.21 | 0.34 | 0.78 | |||||||||||
Loss from discontinued operations | (0.02 | ) | (0.03 | ) | (0.08 | ) | (2.51 | ) | (2.64 | ) | ||||||
Cumulative effect of change in accounting principal, net of tax benefit | (0.02 | ) | - | - | - | (0.02 | ) | |||||||||
Net income (loss) | 0.10 | 0.06 | 0.13 | (2.17 | ) | (1.88 | ) | |||||||||
Cash dividends paid per share | 0.125 | 0.125 | 0.125 | 0.125 | 0.50 | |||||||||||
Common stock prices (1) | ||||||||||||||||
High | 21.79 | 24.97 | 25.90 | 27.20 | 27.20 | |||||||||||
Low | 17.20 | 19.98 | 20.50 | 22.80 | 17.20 | |||||||||||
2002 | ||||||||||||||||
Revenues | $ | 3,007 | $ | 3,235 | $ | 2,982 | $ | 3,348 | $ | 12,572 | ||||||
Operating income (loss) | 123 | (405 | ) | 191 | (21 | ) | (112 | ) | ||||||||
Income (loss) from continuing operations | 50 | (358 | ) | 94 | (132 | ) | (346 | ) | ||||||||
Loss from discontinued operations | (28 | ) | (140 | ) | - | (484 | ) | (652 | ) | |||||||
Net income (loss) | 22 | (498 | ) | 94 | (616 | ) | (998 | ) | ||||||||
Earnings per share: | ||||||||||||||||
Basic income (loss) per share: | ||||||||||||||||
Income (loss) from continuing operations | 0.12 | (0.83 | ) | 0.22 | (0.30 | ) | (0.80 | ) | ||||||||
Loss from discontinued operations | (0.07 | ) | (0.32 | ) | - | (1.12 | ) | (1.51 | ) | |||||||
Net income (loss) | 0.05 | (1.15 | ) | 0.22 | (1.42 | ) | (2.31 | ) | ||||||||
Diluted income (loss) per share: | ||||||||||||||||
Income (loss) from continuing operations | 0.12 | (0.83 | ) | 0.22 | (0.30 | ) | (0.80 | ) | ||||||||
Loss from discontinued operations | (0.07 | ) | (0.32 | ) | - | (1.12 | ) | (1.51 | ) | |||||||
Net income (loss) | 0.05 | (1.15 | ) | 0.22 | (1.42 | ) | (2.31 | ) | ||||||||
Cash dividends paid per share | 0.125 | 0.125 | 0.125 | 0.125 | 0.50 | |||||||||||
Common stock prices (1) | ||||||||||||||||
High | 18.00 | 19.63 | 16.00 | 21.65 | 21.65 | |||||||||||
Low | 8.60 | 14.60 | 8.97 | 12.45 | 8.60 | |||||||||||
124 | ||
125 | ||
(a) | 1. | Financial Statements: | ||
The reports of Independent Public Accountants and the financial statements of the Company as required by Part II, Item 8, are included on pages 64 and 65 and pages 66 through 122 of this annual report. See index on page 14. | ||||
2. | Financial Statement Schedules: | Page No. | ||
Report on supplemental schedule of KPMG LLP | 140 | |||
Schedule II - Valuation and qualifying accounts for the three years ended December 31, 2003 | 141 | |||
Note: All schedules not filed with this report required by Regulation S-X have been omitted as not applicable or not required or the information required has been included in the notes to financial statements. | ||||
3. | Exhibits: |
Exhibit | ||
Number | Exhibits | |
2.1 | Disclosure Statement for the Proposed Joint Pre-packaged Plan of Reorganization for Mid-Valley, Inc., DII Industries, LLC, Kellogg Brown & Root, Inc., KBR Technical Services, Inc., Kellogg Brown & Root Engineering Corporation, Kellogg Brown & Root International, Inc. (a Delaware corporation), Kellogg Brown & Root International, Inc. (a Panamanian corporation), and BPM Minerals, LLC under Chapter 11 of the United States Bankruptcy Code dated September 18, 2003 (incorporated by reference to Exhibit 99 to Halliburton’s Form 8-K dated as of September 22, 2003, File No. 1-3492). | |
2.2 | Supplemental Disclosure Statement for First Amended Joint Pre-packaged Plan of Reorganization for Mid-Valley, Inc., DII Industries, LLC, Kellogg Brown & Root, Inc., KBR Technical Services, Inc., Kellogg Brown & Root Engineering Corporation, Kellogg Brown & Root International, Inc. (a Delaware corporation), Kellogg Brown & Root International, Inc. (a Panamanian corporation), and BPM Minerals, LLC under Chapter 11 of the United States Bankruptcy Code dated November 14, 2003 (incorporated by reference to Exhibit 99 to Halliburton’s Form 8-K dated as of November 19, 2003, File No. 1-3492). | |
3.1 | Restated Certificate of Incorporation of Halliburton Company filed with the Secretary of State of Delaware on July 23, 1998 (incorporated by reference to Exhibit 3(a) to Halliburton’s Form 10-Q for the quarter ended June 30, 1998, File No. 1-3492). |
126 | ||
3.2 | By-laws of Halliburton revised effective February 12, 2003 (incorporated by reference to Exhibit 3.2 to Halliburton’s Form 10-K for the year ended December 31, 2002, File No. 1-3492). | |
4.1 | Form of debt security of 8.75% Debentures due February 12, 2021 (incorporated by reference to Exhibit 4(a) to the Form 8-K of Halliburton Company, now known as Halliburton Energy Services, Inc. (the Predecessor) dated as of February 20, 1991, File No. 1-3492). | |
4.2 | Senior Indenture dated as of January 2, 1991 between the Predecessor and Texas Commerce Bank National Association, as Trustee (incorporated by reference to Exhibit 4(b) to the Predecessor’s Registration Statement on Form S-3 (Registration No. 33-38394) originally filed with the Securities and Exchange Commission on December 21, 1990), as supplemented and amended by the First Supplemental Indenture dated as of December 12, 1996 among the Predecessor, Halliburton and the Trustee (incorporated by reference to Exhibit 4.1 of Halliburton’s Registration Statement on Form 8-B dated December 12, 1996, File No. 1-3492). | |
4.3 | Resolutions of the Predecessor’s Board of Directors adopted at a meeting held on February 11, 1991 and of the special pricing committee of the Board of Directors of the Predecessor adopted at a meeting held on February 11, 1991 and the special pricing committee’s consent in lieu of meeting dated February 12, 1991 (incorporated by reference to Exhibit 4(c) to the Predecessor’s Form 8-K dated as of February 20, 1991, File No. 1-3492). | |
4.4 | Form of debt security of 6.75% Notes due February 1, 2027 (incorporated by reference to Exhibit 4.1 to Halliburton’s Form 8-K dated as of February 11, 1997, File No. 1-3492). | |
4.5 | Second Senior Indenture dated as of December 1, 1996 between the Predecessor and Texas Commerce Bank National Association, as Trustee, as supplemented and amended by the First Supplemental Indenture dated as of December 5, 1996 between the Predecessor and the Trustee and the Second Supplemental Indenture dated as of December 12, 1996 among the Predecessor, Halliburton and the Trustee (incorporated by reference to Exhibit 4.2 of Halliburton’s Registration Statement on Form 8-B dated December 12, 1996, File No. 1-3492). | |
4.6 | Third Supplemental Indenture dated as of August 1, 1997 between Halliburton and Texas Commerce Bank National Association, as Trustee, to the Second Senior Indenture dated as of December 1, 1996 (incorporated by reference to Exhibit 4.7 to Halliburton’s Form 10-K for the year ended December 31, 1998, File No. 1-3492). | |
4.7 | Fourth Supplemental Indenture dated as of September 29, 1998 between Halliburton and Chase Bank of Texas, National Association (formerly Texas Commerce Bank National Association), as Trustee, to the Second Senior Indenture dated as of December 1, 1996 (incorporated by reference to Exhibit 4.8 to Halliburton’s Form 10-K for the year ended December 31, 1998, File No. 1-3492). |
127 | ||
4.8 | Resolutions of Halliburton’s Board of Directors adopted by unanimous consent dated December 5, 1996 (incorporated by reference to Exhibit 4(g) of Halliburton’s Form 10-K for the year ended December 31, 1996, File No. 1-3492). | |
4.9 | Resolutions of Halliburton’s Board of Directors adopted at a special meeting held on September 28, 1998 (incorporated by reference to Exhibit 4.10 to Halliburton’s Form 10-K for the year ended December 31, 1998, File No. 1-3492). | |
4.10 | Restated Rights Agreement dated as of December 1, 1996 between Halliburton and Mellon Investor Services LLC (formerly ChaseMellon Shareholder Services, L.L.C.) (incorporated by reference to Exhibit 4.4 of Halliburton’s Registration Statement on Form 8-B dated December 12, 1996, File No. 1-3492). | |
4.11 | Copies of instruments that define the rights of holders of miscellaneous long-term notes of Halliburton and its subsidiaries, totaling $11 million in the aggregate at December 31, 2003, have not been filed with the Commission. Halliburton agrees to furnish copies of these instruments upon request. | |
4.12 | Form of debt security of 7.53% Notes due May 12, 2017 (incorporated by reference to Exhibit 4.4 to Halliburton’s Form 10-Q for the quarter ended March 31, 1997, File No. 1-3492). | |
4.13 | Form of debt security of 5.63% Notes due December 1, 2008 (incorporated by reference to Exhibit 4.1 to Halliburton’s Form 8-K dated as of November 24, 1998, File No. 1-3492). | |
4.14 | Form of Indenture, between Dresser and Texas Commerce Bank National Association, as Trustee, for 7.60% Debentures due 2096 (incorporated by reference to Exhibit 4 to the Registration Statement on Form S-3 filed by Dresser as amended, Registration No. 333-01303), as supplemented and amended by Form of Supplemental Indenture, between Dresser and Texas Commerce Bank National Association, Trustee, for 7.60% Debentures due 2096 (incorporated by reference to Exhibit 4.1 to Dresser’s Form 8-K filed on August 9, 1996, File No. 1-4003). | |
4.15 | Second Supplemental Indenture dated as of October 27, 2003 between DII Industries, LLC and JPMorgan Chase Bank, as Trustee, to the Indenture dated as of April 18, 1996, as supplemented by the First Supplemental Indenture dated as of August 6, 1996. | |
4.16 | Third Supplemental Indenture dated as of December 12, 2003 among DII Industries, LLC, Halliburton and JPMorgan Chase Bank, as Trustee, to the Indenture dated as of April 18, 1996, as supplemented by the First Supplemental Indenture dated as of August 6, 1996 and the Second Supplemental Indenture dated as of October 27, 2003. | |
4.17 | Form of debt security of 6% Notes due August 1, 2006 (incorporated by reference to Exhibit 4.2 to Halliburton’s Form 8-K dated January 8, 2002, File No. 1-3492). |
128 | ||
4.18 | Credit Facility in the amount of £80 million dated November 29, 2002 between Devonport Royal Dockyard Limited and Devonport Management Limited and The Governor and Company of the Bank of Scotland, HSBC Bank Plc and The Royal Bank of Scotland Plc (incorporated by reference to Exhibit 4.22 to Halliburton’s Form 10-K for the year ended December 31, 2002, File No. 1-3492). | |
4.19 | Senior Indenture dated as of June 30, 2003 between Halliburton and JPMorgan Chase Bank, as Trustee (incorporated by reference to Exhibit 4.1 to Halliburton’s Form 10-Q for the quarter ended June 30, 2003, File No. 1-3492). | |
4.20 | Form of note of 3.125% Convertible Senior Notes due July 15, 2023 (included as Exhibit A to Exhibit 4.19 above). | |
4.21 | Registration Rights Agreement dated as of June 30, 2003 among Halliburton and Citigroup Global Markets, Inc., Goldman, Sachs & Co. and J.P. Morgan Securities Inc., as representatives of the several Purchasers named in Schedule I of the Purchase Agreement dated as of June 24, 2003 (incorporated by reference to Exhibit 4.3 to Halliburton’s Registration Statement on Form S-3, Registration No. 333-110035). | |
4.22 | Senior Indenture dated as of October 17, 2003 between Halliburton and JPMorgan Chase Bank, as Trustee (incorporated by reference to Exhibit 4.1 to Halliburton’s Form 10-Q for the quarter ended September 30, 2003, File No. 1-3492). | |
4.23 | First Supplemental Indenture dated as of October 17, 2003 between Halliburton and JPMorgan Chase Bank, as Trustee, to the Senior Indenture dated as of October 17, 2003 (incorporated by reference to Exhibit 4.2 to Halliburton’s Form 10-Q for the quarter ended September 30, 2003, File No. 1-3492). | |
4.24 | Form of note of floating rate senior notes due October 17, 2005 (included as Exhibit A to Exhibit 4.23 above). | |
4.25 | Form of note of 5.5% senior notes due October 15, 2010 (included as Exhibit B to Exhibit 4.23 above). | |
4.26 | Registration Rights Agreement dated as of October 17, 2003 among Halliburton and J.P. Morgan Securities Inc., Citigroup Global Markets, Inc. and Goldman, Sachs & Co., as representatives of the several Purchasers named in Schedule I of the Purchase Agreement dated as of October 14, 2003 (incorporated by reference to Exhibit 4.5 to Halliburton’s Registration Statement on Form S-4, Registration No. 333-110420). | |
4.27 | Second Supplemental Indenture dated as of December 15, 2003 between Halliburton and JPMorgan Chase Bank, as Trustee, to the Senior Indenture dated as of October 17, 2003, as supplemented by the First Supplemental Indenture dated as of October 17, 2003. | |
4.28 | Form of note of 7.6% debentures due 2096 (included as Exhibit A to Exhibit 4.27 above). |
129 | ||
4.29 | Third Supplemental Indenture dated as of January 26, 2004 between Halliburton and JPMorgan Chase Bank, as Trustee, to the Senior Indenture dated as of October 17, 2003, as supplemented by the First Supplemental Indenture dated as of October 17, 2003 and the Second Supplemental Indenture dated as of December 15, 2003 (incorporated by reference to Exhibit 4.2 to Halliburton’s Registration Statement on Form S-4, Registration No. 333-112977). | |
4.30 | Form of Senior Notes due 2007 (included as Exhibit A to Exhibit 4.29 above). | |
4.31 | Registration Rights Agreement dated as of January 26, 2004 among Halliburton and J.P. Morgan Securities Inc., Citigroup Global Markets, Inc. and Goldman, Sachs & Co., as representatives of the several Purchasers named in Schedule I of the Purchase Agreement dated as of January 21, 2004 (incorporated by reference to Exhibit 4.4 to Halliburton’s Registration Statement on Form S-4, Registration No. 333-112977). | |
10.1 | Halliburton Company Career Executive Incentive Stock Plan as amended November 15, 1990 (incorporated by reference to Exhibit 10(a) to the Predecessor’s Form 10-K for the year ended December 31, 1992, File No. 1-3492). | |
10.2 | Retirement Plan for the Directors of Halliburton Company, as amended and restated effective May 16, 2000 (incorporated by reference to Exhibit 10.2 to Halliburton’s Form 10-Q for the quarter ended September 30, 2000, File No. 1-3492). | |
10.3 | Halliburton Company Directors’ Deferred Compensation Plan as amended and restated effective February 1, 2001 (incorporated by reference to Exhibit 10.3 to Halliburton’s Form 10-K for the year ended December 31, 2000, File No. 1-3492). | |
10.4 | Halliburton Company 1993 Stock and Incentive Plan, as amended and restated effective May 21, 2003 (incorporated by reference to Exhibit 10.1 to Halliburton’s Form 10-Q for the quarter ended June 30, 2003, File No. 1-3492). | |
10.5 | Halliburton Company Restricted Stock Plan for Non-Employee Directors (incorporated by reference to Appendix B of the Predecessor’s proxy statement dated March 23, 1993, File No. 1-3492). | |
10.6 | Dresser Industries, Inc. Deferred Compensation Plan, as amended and restated effective January 1, 2000 (incorporated by reference to Exhibit 10.16 to Halliburton’s Form 10-K for the year ended December 31, 2000, File No. 1-3492). | |
10.7 | Dresser Industries, Inc. 1982 Stock Option Plan (incorporated by reference to Exhibit A to Dresser’s Proxy Statement dated February 12, 1982, File No. 1-4003). | |
10.8 | ERISA Excess Benefit Plan for Dresser Industries, Inc., as amended and restated effective June 1, 1995 (incorporated by reference to Exhibit 10.7 to Dresser’s Form 10-K for the year ended October 31, 1995, File No. 1-4003). | |
10.9 | ERISA Compensation Limit Benefit Plan for Dresser Industries, Inc., as amended and restated effective June 1, 1995 (incorporated by reference to Exhibit 10.8 to Dresser’s Form 10-K for the year ended October 31, 1995, File No. 1-4003). |
130 | ||
10.10 | Supplemental Executive Retirement Plan of Dresser Industries, Inc., as amended and restated effective January 1, 1998 (incorporated by reference to Exhibit 10.9 to Dresser’s Form 10-K for the year ended October 31, 1997, File No. 1-4003). | |
10.11 | Stock Based Compensation Arrangement of Non-Employee Directors (incorporated by reference to Exhibit 4.4 to Dresser’s Registration Statement on Form S-8, Registration No. 333-40829). | |
10.12 | Dresser Industries, Inc. Deferred Compensation Plan for Non-Employee Directors, as restated and amended effective November 1, 1997 (incorporated by reference to Exhibit 4.5 to Dresser’s Registration Statement on Form S-8, Registration No. 333-40829). | |
10.13 | Long-Term Performance Plan for Selected Employees of The M. W. Kellogg Company, as amended and restated effective September 1, 1999 (incorporated by reference to Exhibit 10.23 to Halliburton’s Form 10-K for the year ended December 31, 2000, File No. 1-3492). | |
10.14 | Dresser Industries, Inc. 1992 Stock Compensation Plan (incorporated by reference to Exhibit A to Dresser’s Proxy Statement dated February 7, 1992, File No. 1-4003). | |
10.15 | Amendments No. 1 and 2 to Dresser Industries, Inc. 1992 Stock Compensation Plan (incorporated by reference to Exhibit A to Dresser’s Proxy Statement dated February 6, 1995, File No. 1-4003). | |
10.16 | Amendment No. 3 to the Dresser Industries, Inc. 1992 Stock Compensation Plan (incorporated by reference to Exhibit 10.25 to Dresser’s Form 10-K for the year ended October 31, 1997, File No. 1-4003). | |
10.17 | Amendment No. 1 to the Supplemental Executive Retirement Plan of Dresser Industries, Inc. (incorporated by reference to Exhibit 10.1 to Dresser’s Form 10-Q for the quarter ended April 30, 1998, File No. 1-4003). | |
10.18 | Employment Agreement (David J. Lesar) (incorporated by reference to Exhibit 10(n) to the Predecessor’s Form 10-K for the year ended December 31, 1995, File No. 1-3492). | |
10.19 | Employment Agreement (R. Randall Harl) (incorporated by reference to Exhibit 10.32 to Halliburton’s Form 10-K for the year ended December 31, 2002, File No. 1-3492). | |
10.20 | Employment Agreement (Mark A. McCollum) (incorporated by reference to Exhibit 10.1 to Halliburton’s Form 10-Q for the quarter ended September 30, 2003, File No. 1-3492). | |
10.21 | Halliburton Company Supplemental Executive Retirement Plan (formerly part of Halliburton Company Senior Executives’ Deferred Compensation Plan), as amended and restated effective January 1, 2001 (incorporated by reference to Exhibit 10.1 to Halliburton’s Form 10-Q for the quarter ended June 30, 2001, File No. 1-3492). |
131 | ||
10.22 | Halliburton Company Benefit Restoration Plan (formerly part of Halliburton Company Senior Executives’ Deferred Compensation Plan), as amended and restated effective January 1, 2001 (incorporated by reference to Exhibit 10.2 to Halliburton’s Form 10-Q for the quarter ended June 30, 2001, File No. 1-3492). | |
10.23 | Halliburton Annual Performance Pay Plan, as amended and restated effective January 1, 2001 (incorporated by reference to Exhibit 10.1 to Halliburton’s Form 10-Q for the quarter ended September 30, 2001, File No. 1-3492). | |
10.24 | Halliburton Company Performance Unit Program (incorporated by reference to Exhibit 10.2 to Halliburton’s Form 10-Q for the quarter ended September 30, 2001, File No. 1-3492). | |
10.25 | Form of Nonstatutory Stock Option Agreement for Non-Employee Directors (incorporated by reference to Exhibit 10.3 to Halliburton’s Form 10-Q for the quarter ended September 30, 2000, File No. 1-3492). | |
10.26 | Halliburton Elective Deferral Plan as amended and restated effective May 1, 2002 (incorporated by reference to Exhibit 10.1 to Halliburton’s Form 10-Q for the quarter ended June 30, 2002, File No. 1-3492). | |
10.27 | Halliburton Company 2002 Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.2 to Halliburton’s Form 10-Q for the quarter ended June 30, 2002, File No. 1-3492). | |
10.28 | Halliburton Company Directors’ Deferred Compensation Plan as amended and restated effective as of October 22, 2002 (incorporated by reference to Exhibit 10.1 to Halliburton’s Form 10-Q for the quarter ended September 30, 2002, File No. 1-3492). | |
10.29 | Employment Agreement (Albert O. Cornelison) (incorporated by reference to Exhibit 10.3 to Halliburton’s Form 10-Q for the quarter ended June 30, 2002, File No. 1-3492). | |
10.30 | Employment Agreement (Weldon J. Mire) (incorporated by reference to Exhibit 10.4 to Halliburton’s Form 10-Q for the quarter ended June 30, 2002, File No. 1-3492). | |
10.31 | Employment Agreement (David R. Smith) (incorporated by reference to Exhibit 10.39 to Halliburton’s Form 10-K for the year ended December 31, 2002, File No. 1-3492). | |
10.32 | Employment Agreement (John W. Gibson) (incorporated by reference to Exhibit 10.40 to Halliburton’s Form 10-K for the year ended December 31, 2002, File No. 1-3492). | |
10.33 | Employment Agreement (C. Christopher Gaut) (incorporated by reference to Exhibit 10.1 to Halliburton’s Form 10-Q for the quarter ended March 31, 2003, File No. 1-3492). |
132 | ||
10.34 | 3-Year Revolving Credit Agreement, dated as of October 31, 2003, among Halliburton, the Banks party thereto, Citicorp North America, Inc., as Administrative Agent, JPMorgan Chase Bank, as Syndication Agent, and ABN AMRO Bank N.V., as Documentation Agent (incorporated by reference to Exhibit 10.2 to Halliburton’s Form 10-Q for the quarter ended September 30, 2003, File No. 1-3492). | |
10.35 | Master Letter of Credit Facility Agreement, dated as of October 31, 2003, among Halliburton, Kellogg Brown & Root, Inc., and DII Industries, LLC, as Account Parties, the Banks party thereto, Citicorp North America, Inc., as Administrative Agent, JPMorgan Chase Bank, as Syndication Agent, and ABN AMRO Bank N.V., as Documentation Agent (incorporated by reference to Exhibit 10.3 to Halliburton’s Form 10-Q for the quarter ended September 30, 2003, File No. 1-3492). | |
10.36 | Senior Unsecured Credit Facility Agreement, dated as of November 4, 2003, among Halliburton, the Banks party thereto, Citicorp North America, Inc., as Administrative Agent, JPMorgan Chase Bank, as Syndication Agent, and ABN AMRO Bank N.V., as Documentation Agent (incorporated by reference to Exhibit 10.4 to Halliburton’s Form 10-Q for the quarter ended September 30, 2003, File No. 1-3492). | |
12 | Statement of Computation of Ratio of Earnings to Fixed Charges. | |
21 | Subsidiaries of the Registrant. | |
* | 23.1 | Consent of KPMG LLP. |
* | 23.2 | Notice Regarding Consent of Arthur Andersen LLP. |
24.1 | Powers of attorney for the following directors signed in January 2004: | |
Robert L. Crandall | ||
Kenneth T. Derr | ||
Charles J. DiBona | ||
W. R. Howell | ||
Ray L. Hunt | ||
Aylwin B. Lewis | ||
J. Landis Martin | ||
Jay A. Precourt | ||
Debra L. Reed | ||
C. J. Silas | ||
* | 31.1 | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
* | 31.2 | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
** | 32.1 | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
** | 32.2 | Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
* | Filed with this Form 10-K. | |
** | Furnished with this Form 10-K. |
Date Filed | Date of Earliest Event | Description of Event |
During the fourth quarter of 2003: | ||
October 1, 2003 | September 29, 2003 | Item 9. Regulation FD Disclosure for a press release announcing Halliburton will not request a stay extension of Harbison-Walker bankruptcy court’s temporary restraining order which expires on September 30, 2003. |
October 10, 2003 | October 9, 2003 | Item 12. Disclosure of Results of Operations and Financial Condition for a press release revising 2003 third quarter earning estimate. |
October 10, 2003 | October 10, 2003 | Item 9. Regulation FD Disclosure for a press release announcing exchange offer and consent solicitation for debentures issued by DII Industries, LLC. |
October 15, 2003 | October 14, 2003 | Item 9. Regulation FD Disclosure for a press release announcing pricing of a private offering of $1.05 billion of senior notes. |
October 23, 2003 | October 22, 2003 | Item 9. Regulation FD Disclosure for a press release announcing a 2003 fourth quarter dividend. |
October 28, 2003 | October 27, 2003 | Item 5. Other Events and Item 7. Financial Statements, Pro Forma Financial Information and Exhibits informing of adjustments made to certain items from the December 31, 2002 Annual Report on Form 10-K in order to update all segment information to reflect the new segment structure as disclosed in the June 30, 2003 Form 10-Q. |
October 29, 2003 | October 27, 2003 | Item 9. Regulation FD Disclosure for a press release announcing DII Industries, LLC has received consents, subsequent to an exchange offer, from holders of more than 95% of the principal amount of outstanding debentures to amend the indenture. |
134 | ||
Date Filed | Date of Earliest Event | Description of Event |
During the fourth quarter of 2003 (continued): | ||
October 30, 2003 | October 28, 2003 | Item 9. Regulation FD Disclosure for press release announcing filing of a shelf registration for previously issued $1.2 billion convertible senior notes. |
October 31, 2003 | October 29, 2003 | Item 12. Disclosure of Results of Operations and Financial Condition for a press release announcing 2003 third quarter results. |
November 6, 2003 | November 6, 2003 | Item 9. Regulation FD Disclosure for a press release announcing that DII Industries and Kellogg Brown & Root extended the voting deadline on the plan of reorganization until November 19, 2003. |
November 7, 2003 | November 6, 2003 | Item 9. Regulation FD Disclosure for a press release announcing that an agreement has been reached in principle to limit cash required for asbestos settlement to $2.775 billion. |
November 7, 2003 | November 7, 2003 | Item 12. Disclosure of Results of Operations and Financial Condition for a press release announcing an amendment to correct the classification of certain items on the balance sheet as of September 30, 2003. |
November 10, 2003 | November 7, 2003 | Item 9. Regulation FD Disclosure for a press release announcing the extension of the expiration date of the debt exchange offer relating to DII Industries debentures to November 19, 2003. |
November 18, 2003 | November 18, 2003 | Item 9. Regulation FD Disclosure for a press release announcing DII Industries, LLC, Kellogg Brown & Root, and other affected subsidiaries have completed amendments to documents implementing the companies’ planned asbestos and silica settlement and are mailing supplemental solicitation materials to asbestos and silica creditors in connection with voting on the amended plan of reorganization. |
November 26, 2003 | November 19, 2003 | Item 9. Regulation FD Disclosure to furnish the Supplemental Disclosure Statement dated November 14, 2003 to the Disclosure Statement dated September 18, 2003 of DII Industries, LLC, Kellogg Brown & Root and other affected subsidiaries with United States operations. |
135 | ||
Date Filed | Date of Earliest Event | Description of Event |
During the fourth quarter of 2003 (continued): | ||
December 15, 2003 | December 12, 2003 | Item 9. Regulation FD Disclosure for a press release announcing the preliminary results of the voting on the proposed plan of reorganization of DII Industries, LLC, Kellogg Brown & Root, and other affected subsidiaries. |
December 15, 2003 | December 11, 2003 | Item 9. Regulation FD Disclosure for a press release defending the company’s work for United States troops and the Iraqi people. |
December 16, 2003 | December 16, 2003 | Item 9. Regulation FD Disclosure for a press release announcing the plan to move ahead with the previously announced plan to resolve asbestos and silica liabilities through a pre-packaged bankruptcy. The affected subsidiaries filed Chapter 11 proceedings today in bankruptcy court in Pittsburgh, Pennsylvania. |
December 17, 2003 | December 15, 2003 | Item 9. Regulation FD Disclosure for a press release announcing an analyst and investor conference will be held in Houston, Texas on May 5, 2004. |
December 17, 2003 | December 15, 2003 | Item 9. Regulation FD Disclosure for a press release announcing a conference call to discuss 2003 fourth quarter results. |
December 17, 2003 | December 15, 2003 | Item 9. Regulation FD Disclosure for a press release announcing the completion of the company’s offer to issue its new 7.6% debentures due 2096 in exchange for a like amount of 7.60% due 2096 of its subsidiary, DII Industries, LLC. |
During the first quarter of 2004 | ||
January 22, 2004 | January 21, 2004 | Item 9. Regulation FD Disclosure for a press release announcing the pricing of $500 million of senior notes in a private offering. |
January 23, 2004 | January 21, 2004 | Item 9. Regulation FD Disclosure to provide information relating to the January 21, 2004 offering of $500 million of senior notes. |
136 | ||
Date Filed | Date of Earliest Event | Description of Event |
During the first quarter of 2004 (continued): | ||
January 26, 2004 | January 23, 2004 | Item 9. Regulation FD Disclosure for a press release announcing a credit to the United States government of $6.3 million for potential over billing until an investigation is complete. |
January 26, 2004 | January 23, 2004 | Item 9. Regulation FD Disclosure for a press release announcing the restructuring of two joint venture companies, Enventure Global Technologies LLC and WellDynamics BV, between Halliburton Energy Services and Shell Technology Ventures. |
January 26, 2004 | January 22, 2004 | Item 9. Regulation FD Disclosure for a press release announcing the award of two contracts from the United States government through a full and fair competitive bidding process. The terms and conditions of the contracts are reviewed. |
January 29, 2004 | January 28, 2004 | Item 9. Regulation FD Disclosure for a press release announcing the comprehensive agreement reached to settle asbestos insurance claims with Equitas. |
January 30, 2004 | January 29, 2004 | Item 12. Disclosure of Results of Operations and Financial Condition for a press release announcing the 2003 fourth quarter results. |
February 2, 2004 | February 2, 2004 | Item 9. Regulation FD Disclosure for a press release announcing the company is working with the Government to improve estimates on meal preparations for troops. |
February 11, 2004 | February 6, 2004 | Item 9. Regulation FD Disclosure to provide information disclosed in Amendment No. 1 to Halliburton’s Registration Statement on Form S-3. |
February 12, 2004 | February 11, 2004 | Item 5. Other Events for a press release announcing a Bankruptcy Court ruling that insurers lack standing to bring motions seeking to dismiss the pre-packaged Chapter 11 reorganization cases filed by DII Industries, Kellogg Brown & Root and other affected subsidiaries of Halliburton. |
137 | ||
Date Filed | Date of Earliest Event | Description of Event |
During the first quarter of 2004 (continued): | ||
February 19, 2004 | February 16, 2004 | Item 5. Other Events to report suspension by Kellogg Brown & Root of $140.8 million of subcontractor invoices to the Army Materiel Command relating to food services provided in Iraq and Kuwait, until an internal review is completed. Item 9. Regulation FD Disclosure for a press release reporting voluntary suspension of certain invoicing of subcontractor services for meal planning, food purchase and meal preparation for United States troops in Iraq and Kuwait. |
February 19, 2004 | February 18, 2004 | Item 9. Regulation FD Disclosure for a press release announcing a 2004 first quarter dividend and scheduling of the annual shareholders’ meeting on May 19, 2004. |
February 25, 2004 | February 24, 2004 | Item 9. Regulation FD Disclosure for a press release reporting that Kellogg Brown & Root delivered fuel to Iraq at the best value, price, and terms. |
March 1, 2004 | February 27, 2004 | Item 9. Regulation FD Disclosure for a press release responding to news reports on an internal document related to contracts with the United States government. |
138 | ||
139 | ||
/s/ | KPMG LLP | |
KPMG LLP | ||
Houston, Texas | ||
February 18, 2004 |
140 | ||
Additions | ||||||||||||||||
Descriptions | Balance at Beginning of Period | Charged to Costs and Expenses | Charged to Other Accounts | Deductions | Balance at End of Period | |||||||||||
Year ended December 31, 2001: | ||||||||||||||||
Deducted from accounts and notes receivable: | ||||||||||||||||
Allowance for bad debts | $ | 125 | $ | 70 | $ | - | $ | (64) (a | ) | $ | 131 | |||||
Liability for major repairs and maintenance | $ | 14 | $ | 4 | $ | - | $ | (5 | ) | $ | 13 | |||||
Accrued special charges | $ | 6 | $ | - | $ | - | $ | (6 | ) | $ | - | |||||
Accrued reorganization charges | $ | 16 | $ | - | $ | - | $ | (15) (b | ) | $ | 1 | |||||
Year ended December 31, 2002: | ||||||||||||||||
Deducted from accounts and notes receivable: | ||||||||||||||||
Allowance for bad debts | $ | 131 | $ | 82 | $ | - | $ | (56) (a | ) | $ | 157 | |||||
Liability for major repairs and maintenance | $ | 13 | $ | 4 | $ | - | $ | (10 | ) | $ | 7 | |||||
Accrued reorganization charges | $ | 1 | $ | 29 | $ | - | $ | (20 | ) | $ | 10 | |||||
Year ended December 31, 2003: | ||||||||||||||||
Deducted from accounts and notes receivable: | ||||||||||||||||
Allowance for bad debts | $ | 157 | $ | 44 | $ | 4 | $ | (30) (a | ) | $ | 175 | |||||
Liability for major repairs and maintenance | $ | 7 | $ | 1 | $ | - | $ | - | $ | 8 | ||||||
Accrued reorganization charges | $ | 10 | $ | - | $ | - | $ | (9 | ) | $ | 1 | |||||
(a) | Receivable write-offs and reclassifications, net of recoveries. |
(b) | Includes $4 million estimate to actual adjustment. |
141 | ||
HALLIBURTON COMPANY | ||
By | /s/ C. Christopher Gaut | |
C. Christopher Gaut | ||
Executive Vice President and | ||
Chief Financial Officer |
142 | ||