Halliburton 2009 Annual Report Download - page 84

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65
At this time, other than the claims being considered by the SFO, no claims by governmental
authorities in foreign jurisdictions have been asserted against the indemnified parties. Therefore, we are
unable to estimate the maximum potential amount of future payments that could be required to be made
under our indemnity to KBR and its majority-owned subsidiaries related to these matters. See Note 7 for
additional information.
Barracuda-Caratinga arbitration
We also provided indemnification in favor of KBR under the master separation agreement for all
out-of-pocket cash costs and expenses (except for legal fees and other expenses of the arbitration so long as
KBR controls and directs it), or cash settlements or cash arbitration awards, KBR may incur after
November 20, 2006 as a result of the replacement of certain subsea flowline bolts installed in connection
with the Barracuda-Caratinga project. Under the master separation agreement, KBR currently controls the
defense, counterclaim, and settlement of the subsea flowline bolts matter. As a condition of our indemnity,
for any settlement to be binding upon us, KBR must secure our prior written consent to such settlement’s
terms. We have the right to terminate the indemnity in the event KBR enters into any settlement without
our prior written consent.
At Petrobras’ direction, KBR replaced certain bolts located on the subsea flowlines that failed
through mid-November 2005, and KBR has informed us that additional bolts have failed thereafter, which
were replaced by Petrobras. These failed bolts were identified by Petrobras when it conducted inspections
of the bolts. We understand KBR believes several possible solutions may exist, including replacement of
the bolts. Initial estimates by KBR indicated that costs of these various solutions ranged up to $148
million. In March 2006, Petrobras commenced arbitration against KBR claiming $220 million plus interest
for the cost of monitoring and replacing the defective bolts and all related costs and expenses of the
arbitration, including the cost of attorneys’ fees. We understand KBR is vigorously defending this matter
and has submitted a counterclaim in the arbitration seeking the recovery of $22 million. The arbitration
panel held an evidentiary hearing in March 2008 to determine which party is responsible for the
designation of the material used for the bolts. On May 13, 2009, the arbitration panel held that KBR and
not Petrobras selected the material to be used for the bolts. Accordingly, the arbitration panel held
that there is no implied warranty by Petrobras to KBR as to the suitability of the bolt material and that the
parties' rights are to be governed by the express terms of their contract. The arbitration panel set the final
hearing on liability and damages for early May 2010. Our estimation of the indemnity obligation
regarding the Barracuda-Caratinga arbitration is recorded as a liability in our consolidated financial
statements as of December 31, 2009 and December 31, 2008. See Note 7 for additional information
regarding the KBR indemnification.
Securities and related litigation
In June 2002, a class action lawsuit was filed against us in federal court alleging violations of the
federal securities laws after the SEC initiated an investigation in connection with our change in accounting
for revenue on long-term construction projects and related disclosures. In the weeks that followed,
approximately twenty similar class actions were filed against us. Several of those lawsuits also named as
defendants several of our present or former officers and directors. The class action cases were later
consolidated, and the amended consolidated class action complaint, styled Richard Moore, et al. v.
Halliburton Company, et al., was filed and served upon us in April 2003. As a result of a substitution of
lead plaintiffs, the case is now styled Archdiocese of Milwaukee Supporting Fund (AMSF) v. Halliburton
Company, et al. We settled with the SEC in the second quarter of 2004.
In June 2003, the lead plaintiffs filed a motion for leave to file a second amended consolidated
complaint, which was granted by the court. In addition to restating the original accounting and disclosure
claims, the second amended consolidated complaint included claims arising out of the 1998 acquisition of
Dresser Industries, Inc. by Halliburton, including that we failed to timely disclose the resulting asbestos
liability exposure.