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Halliburton says audit could hurt its liquidity

By Kristen Hays
The Associated Press

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The company's shares dropped 91 cents, or 2.8 percent, to close at $30.70 yesterday, indicating masses of investors weren't fleeing because of information in the annual report the energy company filed with the Securities and Exchange Commission (SEC).

"If you do a bunch of work and you can't send a bill and get paid, obviously that affects your liquidity," said Joe Agular, an analyst with Johnson Rice.

But Agular noted investors are more interested in Halliburton's oil-service industry exposure, which generates the bulk of the company's earnings. Halliburton's work in the Middle East accounted for $3.6 billion of the company's $16 billion in revenues for 2003 and $85 million in profits.

The Houston-based oil-services conglomerate once run by Vice President Dick Cheney said in Monday's filing that the Defense Contract Audit Agency recently issued a deficiency report related to logistics contracts and is expected to launch a formal probe soon. A Halliburton subsidiary, KBR — formerly known as Kellogg Brown & Root — provides services for the military from building bases to delivering mail and would be a possible target.

Auditors from the Pentagon already have questioned possible overcharges connected to Halliburton's contract to serve food to U.S. troops. The company has credited the Defense Department $36 million and has delayed billing on $141 million until an investigation is complete.

In the SEC filing, the company said it thinks the $141 million is the "order of magnitude" for the remaining amounts at issue but noted that government agencies are still reviewing matters.

"Additional review and allegations are possible, and the dollar amounts at issue could change significantly," according to the filing.

The company said if it was required to make more refunds or withhold other invoices, "this could materially and adversely affect our liquidity."

"Filings require stark language with no mitigating comments, and must cover any eventuality, not just our expectations," Halliburton spokeswoman Wendy Hall said yesterday. "We continue to have about $1.8 billion in cash. When the Iraq work eventually slows, we will begin to collect the working capital currently outstanding, a major boost to our liquidity."

Robert Mackenzie, an analyst with Friedman, Billings, Ramsey, said the company's biggest issue for investors in the past year has been resolving its asbestos liabilities. Halliburton posted a net fourth-quarter loss of $947 million in 2003 because of a $1.1 billion charge related to the asbestos settlement.

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