Halliburton Announces Second Quarter Results; Estimates 15 Year Net Asbestos Liability of $602 Million
The second quarter 2002 net loss from continuing operations was $358 million or $0.83 per diluted share. There were four items impacting continuing operations for the quarter on a pretax basis: $330 million relating to engineering and construction asbestos exposures, $119 million relating to a loss on a project, $61 million for an impairment of an equity investment, and $56 million in restructuring costs. Excluding these items, 2002 second quarter net income from continuing operations was $78 million, or $0.18 per diluted share. Total net loss was $498 million ($1.15 per diluted share) which included a net loss attributable to discontinued operations of $140 million after-tax for asbestos exposures related to businesses no longer owned by the Company. Tables reconciling as reported amounts to pro forma amounts used in this press release are attached. Second quarter 2001 net income from continuing operations of $143 million included $10 million, net of tax, in goodwill amortization compared to no amortization in the second quarter of 2002 in accordance with changes in the accounting rules related to goodwill.
Revenues from continuing operations were $3.2 billion in the 2002 second quarter, down slightly from a year ago. Loss from operations was $405 million. Excluding the four items noted above, operating income was $161 million for the quarter, down 44 percent from last year, excluding 2001 goodwill amortization, and down eight percent, sequentially. Reduced gas drilling activities in the United States and Canada resulted in lower year-over-year revenues and profit margins.
"We took several significant steps this quarter that will position Halliburton to deliver improved future performance," said Dave Lesar, chairman, president and chief executive officer, Halliburton. "We substantially completed our restructuring activities, we have better defined our future asbestos liabilities, we have announced we will no longer pursue fixed price contracts for the offshore engineering, procurement, installation, and commissioning (EPIC) business, and we're following through on our commitment to dispose of non-core assets. Regarding the Energy Services Group, I was pleased with results for the quarter and look forward to continuing improvements throughout the remainder of the year."
Corporate Reorganization
Substantial progress has been made on the reorganization announced in the first quarter of 2002. The separation of the Energy Services and the Engineering and Construction Groups into two wholly-owned operating subsidiary groups is largely complete and is expected to be concluded by the end of this year. Approximately 1,600 employee reductions are substantially complete. We have incurred pretax restructuring charges of $56 million this quarter, and estimate additional charges in the second half of this year to be approximately $20 million. Restructuring charges principally comprise personnel related costs and asset write-downs. As a result of these actions, we expect to achieve estimated annualized savings of about $200 million, exceeding initial estimates of $100 million.
As part of our restructuring, the Production Services, Major Projects and Granherne product service lines which were previously part of the Energy Services Group are now managed and reported under the Engineering and Construction Group. In addition, the asbestos costs related to our engineering and construction business which were previously reported under General Corporate, are now reported under the Engineering and Construction Group. Prior periods have been restated to reflect these segment reporting changes. An attached table includes restated segments by quarter, back to the beginning of 2000.
2002 Second Quarter Segment Results
The Energy Services Group posted second quarter revenues of $1.8 billion, representing a four percent increase in revenues sequentially, despite a 13 percent decrease in rig count.
Halliburton Energy Services' revenues increased by three percent sequentially due to a four percent revenue increase in the United States.
Operating income, for the second quarter for the Energy Services Group, was $70 million. Excluding nonrecurring items, Energy Services Group operating income was $168 million, an increase of three percent sequentially. On the same basis, Halliburton Energy Services' operating income was $158 million, down one percent sequentially.
The Engineering and Construction Group's second quarter revenues were $1.5 billion, up 12 percent sequentially. Operating loss for the quarter was $450 million which included $330 million for asbestos exposures, a $119 million loss on an offshore field development project in Brazil, and $10 million of restructuring charges. Excluding these items, operating income was $9 million.
Backlog
Backlog for the Company as of June 30, 2002, was $9.8 billion, comprised of $9.4 billion for the Engineering and Construction Group and $400 million for the Energy Services Group.
General Corporate
General corporate costs of $25 million in the second quarter 2002 include $9 million in expenses related to the recent reorganization. The majority of these expenses relate to personnel related costs.
Discontinued Operations
The second quarter net loss from discontinued operations was $140 million after-tax, which reflects asbestos-related expenses of previously disposed businesses. In the 2001 second quarter, net income from discontinued operations was $239 million ($0.56 per diluted share), reflecting the $299 million after-tax gain on the sale of Dresser Equipment Group and $60 million after-tax charge for asbestos-related expenses.
Technology and Significant Achievements
Halliburton recently announced a number of advances in technology and new contract awards including:
- Halliburton Energy Services announced the commercialization of the ADT(TM) (applied drilling technology) optimization service suite of tools, software and technical expertise. ADT(TM) personnel are dedicated to reducing drilling trouble time and optimizing drilling practices using critical data interpretation from a variety of downhole and surface sensors and specialized software applications. The ADT(TM) service focuses on three areas of expertise critical to a successful and efficient drilling process - wellbore integrity, hydraulics management, and drillstring integrity.
- The Baroid product service line of Halliburton Energy Services introduced revolutionary synthetic-based drilling fluid called ACCOLADE, which offers operators unprecedented performance in the Gulf of Mexico. The new fluid consistently provides excellent rheological performance in the colder temperatures of deepwater environments. ACCOLADE was first utilized on an operator's well in the Gulf of Mexico with a total depth of more than 15,000 feet and water depth of approximately 4,000 feet. The well exhibited signs of a single point of mud weight that was standing between drilling ahead and severe loss of circulation. The new system significantly improved rheology control, lowered equivalent circulating density, and provided a greater margin of wellbore stability.
- PetroChina Daqing Petrochemical Company awarded Kellogg Brown & Root the design of two new 100 kilotons per annum ethylene cracking furnaces for its ethylene facility at Wolitun, Daqing City, Heilongjiang Province. The two furnaces will utilize SCORE(TM) (Selective Cracking Optimum Recovery) technology, which combines KBR and ExxonMobil knowledge acquired through a licensing agreement.
- Halliburton's Energy Services Group, has been awarded a two-year contract extension valued at $120 million with Agip KCO (formerly OKIOC) for providing integrated drilling services for the Kashagan reservoir located in the northeast sector of the Caspian Sea, Kazakhstan. The contract will provide a spectrum of services to Agip KCO, including well construction and data acquisition services, real-time data transmission, waste treatment, well-test and completion services.
- IBM and Landmark Graphics announced a three-year petroleum industry agreement to deliver comprehensive solutions to the global exploration and production (E&P) industry. The range of solutions offered by the two companies will lower costs dramatically for oil and gas producers compared to existing systems running on proprietary UNIX technologies. Oil and gas producers worldwide will benefit from migrating to open-sourced LINUX-based servers and workstations, implementing collaborative workflows and delivering e-business-on-demand services for data and applications management and the outsourcing of IT infrastructures. Combined IBM and Landmark services and solutions will help to increase returns on investment in hardware, software, training, and related information technology infrastructures.
- Devonport Management Limited has entered into a partnering agreement with the Ministry of Defense to provide warship support services at the Devonport Naval Base as part of the Warship Support Modernization Initiative. The 300 million pounds sterling, five-year contract will cover the repair and maintenance of the operational fleet, the provision of waterfront support services, the maintenance of the Naval Base estate, and the management of Naval Base distribution and transport services.
Halliburton, founded in 1919, is one of the world's largest providers of products and services to the petroleum and energy industries. The company serves its customers with a broad range of products and services through its Energy Services Group and Engineering and Construction Group business segments. The company's World Wide Web site can be accessed at www.halliburton.com.
NOTE: In accordance with the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995, Halliburton Company cautions that statements in this press release which are forward-looking and which provide other than historical information, involve risks and uncertainties that may impact the company's actual results of operations. Please see Halliburton's Form 10-K for the year ended December 31, 2001 and Form 10-Q for the quarter ended March 31, 2002 for a more complete discussion of such risk factors.
HALLIBURTON COMPANY
Consolidated Statements of Income
(Unaudited)
Quarter Ended Six Months Ended
June 30 June 30
2002 2001 2002 2001
Millions of dollars
except per share data
Revenues
Energy Services Group $1,756 $2,008 $3,445 $3,800
Engineering and
Construction Group 1,479 1,331 2,797 2,683
Total revenues $3,235 $3,339 $6,242 $6,483
Operating income
Energy Services Group $70 $268 $239 $457
Engineering and
Construction Group (450) 21 (508) 48
General corporate (25) (17) (13) (35)
Total operating income
(loss) (405) 272 (282) 470
Interest expense (30) (34) (62) (81)
Interest income 12 6 16 10
Foreign currency
losses, net (5) (1) (13) (4)
Other, net (2) -- 2 --
Income (loss) from
continuing operations
before income taxes,
minority interests,
and change in accounting
method (430) 243 (339) 395
(Provision) benefit for
income taxes 77 (98) 41 (159)
Minority interest in net
income of subsidiaries (5) (2) (10) (7)
Income (loss) from
continuing operations
before change in
accounting method (358) 143 (308) 229
Discontinued operations, net
Income (loss) from
discontinued operations (140) (60) (168) (38)
Gain on disposal of
discontinued operations -- 299 -- 299
Income (loss) from
discontinued operations (140) 239 (168) 261
Cumulative effect of
change in accounting
method, net -- -- -- 1
Net income (loss) $(498) $382 $(476) $491
Basic income per share:
Continuing operations $(0.83) $0.34 $(0.71) $0.54
Discontinued operations,
net
Income (loss) from
discontinued operations (0.32) (0.14) (0.39) (0.09)
Gain on disposal of
discontinued operations -- 0.70 -- 0.70
Income (loss) from
discontinued operations (0.32) 0.56 (0.39) 0.61
Net income (loss) $(1.15) $0.90 $(1.10) $1.15
Diluted income per share:
Continuing operations $(0.83) $0.33 $(0.71) $0.53
Discontinued operations, net
Income (loss) from
discontinued operations (0.32) (0.14) (0.39) (0.09)
Gain on disposal of
discontinued operations -- 0.70 -- 0.70
Income from discontinued
operations (0.32) 0.56 (0.39) 0.61
Net income (loss) $(1.15) $0.89 $(1.10) $1.14
Basic average common
shares outstanding 432 427 432 427
Diluted average common
shares outstanding 432 430 432 430
HALLIBURTON COMPANY
Reconciliation of As Reported Results to Pro Forma Results
Three months ended June 30, 2002
(Unaudited)
Operating Other (Provision) Net Income/ Earnings/
Income/ Income/ Benefit (loss) from (loss) per
(loss), Expense for Taxes Continuing Share from
Pretax (including Operations * Continuing
interest) Operations
Pro forma
results
(excluding
below items): $161 $(25) $(53) $78 $0.18
Restructuring
costs (56) -- 22 (34) (0.08)
Brazil project
loss (119) -- 46 (73) (0.17)
Asbestos
charge (330) -- 62 (268) (0.62)
Impairment of
equity
investment (61) -- -- (61) (0.14)
As reported $(405) $(25) $77 $(358) $(0.83)
* As reported and pro forma basis net income from continuing operations
includes $5 million in expense due to minority interest.
HALLIBURTON COMPANY
Reconciliation of As Reported Results to Pro Forma Results
Six months ended June 30, 2002
(Unaudited)
Operating Other (Provision) Net Income/ Earnings/
Income, Income/ Benefit (Loss) from (Loss) per
Pretax Expense for Taxes Continuing Share from
(including Operations * Continuing
interest) Operations
Pro forma results
(excluding
below items): $337 $(56) $(110) $161 $0.37
Sale of EMC 108 3 (43) 68 0.16
Patent lawsuit (98) (4) 40 (62) (0.14)
Highlands
receivable
write-off (80) -- 31 (49) (0.11)
Demutualization
of an insurance
company 28 -- (11) 17 0.04
Restructuring
costs (67) -- 26 (41) (0.10)
Brazil project
loss (119) -- 46 (73) (0.17)
Asbestos
charge (330) -- 62 (268) (0.62)
Impairment of
equity
investment (61) -- -- (61) (0.14)
As reported $(282) $(57) $41 $(308) $(0.71)
* As reported and pro forma basis net income from continuing operations
includes $10 million in expense due to minority interest.
HALLIBURTON COMPANY
Reconciliation of As Reported Segment Results to Pro Forma Results
Three months ended June 30, 2002
(Unaudited)
Energy Engineering and Operating
Services Construction Income/(loss)
Group Group Corporate Pretax
Pro forma results
(excluding
below items): $168 $9 $(16) $161
Restructuring costs (37) (10) (9) (56)
Brazil project loss -- (119) -- (119)
Asbestos charge -- (330) -- (330)
Impairment of equity
investment (61) -- -- (61)
As reported $70 $(450) $(25) $(405)
HALLIBURTON COMPANY
Reconciliation of As Reported Segment Results to Pro Forma Results
Six months ended June 30, 2002
(Unaudited)
Energy Engineering and Operating
Services Construction Income/(loss)
Group Group Corporate Pretax
Pro forma results
(excluding
below items): $332 $35 $(30) $337
Sale of EMC 108 -- -- 108
Patent lawsuit (98) -- -- (98)
Highlands receivable
write-off -- (80) -- (80)
Demutualization of an
insurance company -- -- 28 28
Restructuring costs (42) (14) (11) (67)
Brazil project loss -- (119) -- (119)
Asbestos charge -- (330) -- (330)
Impairment of equity
investment (61) -- -- (61)
As reported $239 $(508) $(13) $(282)
HALLIBURTON COMPANY
Reconciliation of As Reported Results to Pro Forma Results
Three months ended June 30, 2001
(Unaudited)
Operating Other Income/ Net Income Earnings per
Income, Expense Provision from Share from
Pretax (including for Taxes Continuing Continuing
interest) Operations * Operations
Pro
forma
results
(excluding
below
items): $288 $(29) $(102) $155 $0.35
Asbestos
charge (4) -- 2 (2) --
Goodwill
amorti-
zation (12) -- 2 (10) (0.02)
As
reported $272 $(29) $(98) $143 $0.33
* As reported and pro forma basis net income from continuing operations
includes $2 million in expense due to minority interest.
HALLIBURTON COMPANY
Reconciliation of As Reported Results to Pro Forma Results
Six months ended June 30, 2001
(Unaudited)
Operating Other Income/ Net Income/ Earnings/
Income, Expense Provision (Loss) from (Loss) per
Pretax (including for Taxes Continuing Share from
interest) Operations * Continuing
Operations
Pro
forma
results
(excluding
below
items): $498 $(75) $(165) $251 $0.58
Asbestos
charge (5) -- 2 (3) (0.01)
Goodwill
amorti-
zation (23) -- 4 (19) (0.04)
As
reported $470 $(75) $(159) $229 $0.53
* As reported and pro forma basis net income from continuing operations
includes $7 million in expense due to minority interest.
HALLIBURTON COMPANY
Reconciliation of As Reported Segment Results to Pro Forma Results
Three months ended June 30, 2001
(Unaudited)
Energy Engineering Corporate Operating
Services and Income,
Group Construction Pretax
Group
Pro forma results
(excluding
below items): $275 $30 $(17) $288
Asbestos charge -- (4) -- (4)
Goodwill amortization (7) (5) -- (12)
As reported $268 $21 $(17) $272
HALLIBURTON COMPANY
Reconciliation of As Reported Segment Results to Pro Forma Results
Six months ended June 30, 2001
(Unaudited)
Energy Engineering Corporate Operating
Services and Income,
Group Construction Pretax
Group
Pro forma results
(excluding
below items): $469 $64 $(35) $498
Asbestos charge -- (5) -- (5)
Goodwill amortization (12) (11) -- (23)
As reported $457 $48 $(35) $470
HALLIBURTON COMPANY
Revenue and Operating Income Comparison
By Restated Operating Segments
(Unaudited)
Quarter
Ended
2002 March 31
Revenues
Energy Services Group $1,689
Engineering and Construction Group 1,318
Total revenues $3,007
Operating Income
Energy Services Group $169
Engineering and Construction Group (58)
General Corporate 12
Total operating income $123
Quarter Ended
2001 Mar 31 Jun 30 Sep 30 Dec 31 Year
Revenues
Energy
Services
Group $1,792 $2,008 $2,098 $1,913 $7,811
Engineering
and Construction
Group 1,352 1,331 1,293 1,259 5,235
Total revenues $3,144 $3,339 $3,391 $3,172 $13,046
Operating Income
Energy Services
Group $189 $268 $321 $258 $1,036
Engineering and
Construction
Group 27 21 36 27 111
General Corporate (18) (17) (15) (13) (63)
Total operating
income $198 $272 $342 $272 $1,084
Quarter Ended
2002 Mar 31 Jun 30 Sep 30 Dec 31 Year
Revenues
Energy Services
Group $1,312 $1,485 $1,607 $1,829 $6,233
Engineering and
Construction
Group 1,547 1,383 1,417 1,364 5,711
Total revenues $2,859 $2,868 $3,024 $3,193 $11,944
Operating Income
Energy Services
Group $53 $115 $233 $188 $589
Engineering and
Construction
Group 43 27 40 (164) (54)
General Corporate (15) (16) (25) (17) (73)
Total operating
income $81 $126 $248 $7 $462
SOURCE Halliburton
CONTACT: Cedric Burgher, Vice President, Investor Relations, +1-713-676-4608, or Wendy Hall, Manager, Media Relations, +1-713-676-5227, both of Halliburton (HAL)