Sharck, Re: HAL from June 2001 Dallas Bidness Journal:
June 29, 2001
Halliburton may assume Harbison-Walker asbestos liabilities
Goldman Sachs on Friday downgraded Halliburton Co. (NYSE: HAL) to market perform from recommended buy, after Halliburton announced late Thursday it may assume asbestos liability for Harbison-Walker Refractories Co.
Harbison-Walker has requested that Halliburton unit Dresser Industries Inc. provide claims management and financial assistance for asbestos claims Harbison assumed when it was spun off from Dresser in 1992.
Dallas-based Halliburton is the oil field services company previously headed by Vice President Dick Cheney.
Halliburton said many of the Harbison claims are asserted in lawsuits that also name Dresser as a defendant and Harbison is, in effect, co-insured with Dresser under a substantial insurance program that covers these claims and other asbestos claims against Dresser. Consequently, Dresser has substantial interest in their resolution and the most effective use of this insurance, Halliburton said.
In 1967, Dresser acquired Harbison's refractory manufacturing business and operated it as a division. In 1992, the refractory business and other non-core Dresser businesses were placed in a new unit, Indresco Inc., and spun off to Dresser's shareholders. Indresco's name was later changed to Harbison-Walker Refractories Co., which is now a unit of RHI AG, an Austrian company.
In conjunction with the 1992 spin-off, Dresser agreed to retain asbestos claims filed prior to the spin-off, and Harbison agreed to assume claims filed after the spin-off and to indemnify and defend Dresser against those claims.
Halliburton said it is now investigating Harbison's asbestos claims, and based on information received, it believes that Harbison now has about 165,000 open claims, of which approximately 52,000 are subject to various settlement negotiations or agreements. Halliburton said it previously did not report these claims because of Harbison's agreement to assume full responsibility for these claims and to indemnify and defend Dresser against them.
(Problem is the spinoff never had any significant assets so the Plaintiff attorneys could crank up the punitive damage argument if HAL was found to be running away from the liability)
If Halliburton determines that Harbison is not able to perform adequately its obligations under the assumption agreement and that it is in Halliburton's best interest to do so, Halliburton said it may take the primary role for management and resolution of Harbison's claims. A decision on this is expected in the next several weeks.
Halliburton said it believes that if such a decision is made it would require an additional reserve for estimated known claims at June 30, 2001, net of insurance recoveries, of about $50 million to $60 million, after tax. This reserve would be recorded as a discontinued operations expense and be reduced by the contributions Harbison is capable of making toward the resolution of these claims. Halliburton will report a gain on the sale of the DEG Business Segment of about $300 million after tax. This gain and any required expense associated with the asbestos issues would be netted together and both be included in the total discontinued operations. Results from continuing operations will not be affected, the company said.
"This is an unexpected development,'' Halliburton CEO Dave Lesar, said in a statement. "Although Harbison reaffirmed its responsibility for these claims as recently as last year, it appears that it may be in our best interest to step in and protect our shareholders.''
Shares of Halliburton fell 4 percent to $35.60 a share by the end of trading on the New York Stock Exchange on Friday.
Company web site: halliburton.com |
