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July 22, 2002, 6:15 p.m. EDT

Substantial Q2 charges for Halliburton

Asbestos exposure estimate expected Wednesday

By Lisa Sanders, CBS.MarketWatch.com

DALLAS (CBS.MW) - Shares of Halliburton dropped Monday after the oil services firm said it would announce a substantial charge later in the week related to future asbestos litigation.

Also Monday, the company announced that second-quarter earnings would be reduced by 47 cents a share related to a previously announced restructuring, a loss at its construction unit, and its decision to exit another business.

But the big concern for investors is what the company will say Wednesday. In conjunction with the release of its second-quarter earnings Wednesday, Halliburton said it would announce the amounts of its future liabilities and what it can recover under insurance for potential asbestos claims.

"The charge will be substantial and impact both continuing and discontinued operations," the company said in a statement.

Halliburton lost $1.58, or 13.7 percent, to close at $9.97.

The Dallas-based company said the pre-tax charge for restructuring would amount to $56 million, or 8 cents a share, primarily reflecting severance costs and asset write-downs. Halliburton (NYS:HAL) expects to take $20 million more in charges by the end of 2002. The company expects to take yearly pre-tax savings of a minimum of $200 million.

Announced in March, the restructuring was designed to split the oil service business from Kellogg, Brown & Root -- the engineering and construction unit beset by asbestos litigation. The idea is to shield the oil service group from liability incurred by the construction group.

The company commissioned a study, now basically completed, to help it estimate the total number and value of potential future asbestos claims.

Also Monday, Halliburton said its KBR unit would record a pre-tax loss of $119 million, or about 25 cents a share, on an offshore engineering and construction job.

Stephen Gengaro, an analyst at Jeffries & Co., said the loss at KBR was the only big surprise to him.

"We expected a restructuring charge, we expected them to sell some non-core businesses to generate cash, and we know they are evaluating their asbestos liability," Gengaro said.

Though Halliburton didn't identify the KBR project at issue, Gengaro estimated that the loss likely represented at least 20 to 25 percent of the project's value.

In addition, the company said it would exit the pipe coating business after identifying it as a non-core business. The impact to second-quarter earnings has been estimated at $61 million, or 14 cents a share.

Analysts polled by Thomson Financial/First Call currently expect Halliburton to earn an average of 16 cents a share in the second quarter.

Later Monday, Halliburton said it would sell its 50 percent interest in the joint venture Bredero-Shaw to partner ShawCor for $150 million. It's the first divestiture in the company's previously announced plan of ridding itself of non-core assets.

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