Large
accelerated filer X
|
Accelerated
filer
|
Non-accelerated
filer
|
Page
No.
|
||
PART
I.
|
FINANCIAL
INFORMATION
|
|
Item
1.
|
Financial
Statements
|
3-29 |
- Condensed
Consolidated Statements of Operations
|
3 | |
- Condensed
Consolidated Balance Sheets
|
4 | |
- Condensed
Consolidated Statements of Cash Flows
|
5 | |
- Notes
to Condensed Consolidated Financial Statements
|
6-29 | |
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and
|
|
Results
of Operations
|
30-69 | |
Item
3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
70 |
Item
4.
|
Controls
and Procedures
|
70 |
PART
II.
|
OTHER
INFORMATION
|
|
Item
1.
|
Legal
Proceedings
|
71 |
Item
1(a).
|
Risk
Factors
|
71 |
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
71 |
Item
3.
|
Defaults
Upon Senior Securities
|
71 |
Item
4.
|
Submission
of Matters to a Vote of Security Holders
|
71 |
Item
5.
|
Other
Information
|
71 |
Item
6.
|
Exhibits
|
72 |
Signatures
|
73 |
Three
Months Ended
|
Nine
Months Ended
|
||||||||||||
September
30
|
September
30
|
||||||||||||
(Millions
of dollars and shares except per share data)
|
2006
|
2005
|
2006
|
2005
|
|||||||||
Revenue:
|
|||||||||||||
Services
|
$
|
5,001
|
$
|
4,317
|
$
|
14,171
|
$
|
12,837
|
|||||
Product
sales
|
826
|
648
|
2,373
|
1,861
|
|||||||||
Equity
in earnings (losses) of unconsolidated affiliates, net
|
4
|
(53
|
)
|
16
|
(30
|
)
|
|||||||
Total
revenue
|
5,831
|
4,912
|
16,560
|
14,668
|
|||||||||
Operating
costs and expenses:
|
|||||||||||||
Cost
of services
|
4,081
|
3,684
|
11,887
|
11,170
|
|||||||||
Cost
of sales
|
668
|
544
|
1,935
|
1,558
|
|||||||||
General
and administrative
|
115
|
89
|
315
|
286
|
|||||||||
Gain
on sale of business assets, net
|
(1
|
)
|
(85
|
)
|
(18
|
)
|
(197
|
)
|
|||||
Total
operating costs and expenses
|
4,863
|
4,232
|
14,119
|
12,817
|
|||||||||
Operating
income
|
968
|
680
|
2,441
|
1,851
|
|||||||||
Interest
expense
|
(42
|
)
|
(51
|
)
|
(132
|
)
|
(154
|
)
|
|||||
Interest
income
|
44
|
17
|
110
|
38
|
|||||||||
Foreign
currency losses, net
|
(10
|
)
|
(2
|
)
|
(12
|
)
|
(9
|
)
|
|||||
Other,
net
|
-
|
(2
|
)
|
(1
|
)
|
(7
|
)
|
||||||
Income
from continuing operations before income taxes
|
|||||||||||||
and
minority interest
|
960
|
642
|
2,406
|
1,719
|
|||||||||
Provision
for income taxes
|
(320
|
)
|
(129
|
)
|
(801
|
)
|
(445
|
)
|
|||||
Minority
interest in net income of subsidiaries
|
(25
|
)
|
(21
|
)
|
-
|
(39
|
)
|
||||||
Income
from continuing operations
|
615
|
492
|
1,605
|
1,235
|
|||||||||
Income
(loss) from discontinued operations, net of tax
|
|||||||||||||
(provision)
benefit of $2, $(3), $(47), and $(10)
|
(4
|
)
|
7
|
85
|
21
|
||||||||
Net
income
|
$
|
611
|
$
|
499
|
$
|
1,690
|
$
|
1,256
|
|||||
Basic
income (loss) per share:
|
|||||||||||||
Income
from continuing operations
|
$
|
0.61
|
$
|
0.49
|
$
|
1.57
|
$
|
1.23
|
|||||
Income
(loss) from discontinued operations, net
|
-
|
0.01
|
0.08
|
0.02
|
|||||||||
Net
income per share
|
$
|
0.61
|
$
|
0.50
|
$
|
1.65
|
$
|
1.25
|
|||||
Diluted
income (loss) per share:
|
|||||||||||||
Income
from continuing operations
|
$
|
0.58
|
$
|
0.47
|
$
|
1.51
|
$
|
1.20
|
|||||
Income
(loss) from discontinued operations, net
|
-
|
0.01
|
0.08
|
0.02
|
|||||||||
Net
income per share
|
$
|
0.58
|
$
|
0.48
|
$
|
1.59
|
$
|
1.22
|
|||||
Cash
dividends per share
|
$
|
0.075
|
$
|
0.0625
|
$
|
0.225
|
$
|
0.1875
|
|||||
Basic
weighted average common shares outstanding
|
1,011
|
1,012
|
1,021
|
1,006
|
|||||||||
Diluted
weighted average common shares outstanding
|
1,048
|
1,050
|
1,062
|
1,032
|
September
30,
|
December
31,
|
||||||
(Millions
of dollars and shares except per share data)
|
2006
|
2005
|
|||||
Assets
|
|||||||
Current
assets:
|
|||||||
Cash
and equivalents
|
$
|
3,549
|
$
|
2,391
|
|||
Receivables:
|
|||||||
Notes
and accounts receivable (less allowance for bad debts of $83 and
$90)
|
3,448
|
3,345
|
|||||
Unbilled
work on uncompleted contracts
|
1,169
|
1,456
|
|||||
Total
receivables
|
4,617
|
4,801
|
|||||
Inventories
|
1,213
|
953
|
|||||
Current
deferred income taxes
|
346
|
645
|
|||||
Other
current assets
|
490
|
522
|
|||||
Total
current assets
|
10,215
|
9,312
|
|||||
Property,
plant, and equipment, net of accumulated depreciation of $4,070 and
$3,838
|
2,884
|
2,648
|
|||||
Goodwill
|
775
|
765
|
|||||
Noncurrent
deferred income taxes
|
538
|
784
|
|||||
Equity
in and advances to related companies
|
388
|
382
|
|||||
Other
assets
|
1,184
|
1,119
|
|||||
Total
assets
|
$
|
15,984
|
$
|
15,010
|
|||
Liabilities
and Shareholders’ Equity
|
|||||||
Current
liabilities:
|
|||||||
Accounts
payable
|
$
|
1,871
|
$
|
1,967
|
|||
Advanced
billings on uncompleted contracts
|
1,059
|
661
|
|||||
Accrued
employee compensation and benefits
|
738
|
648
|
|||||
Current
maturities of long-term debt
|
86
|
361
|
|||||
Short-term
notes payable
|
2
|
22
|
|||||
Other
current liabilities
|
946
|
768
|
|||||
Total
current liabilities
|
4,702
|
4,427
|
|||||
Long-term
debt
|
2,745
|
2,813
|
|||||
Employee
compensation and benefits
|
723
|
718
|
|||||
Other
liabilities
|
579
|
535
|
|||||
Total
liabilities
|
8,749
|
8,493
|
|||||
Minority
interest in consolidated subsidiaries
|
146
|
145
|
|||||
Shareholders’
equity:
|
|||||||
Common
shares, par value $2.50 per share - authorized 2,000 shares, issued
1,059
and 1,054
|
|||||||
shares
|
2,648
|
2,634
|
|||||
Paid-in
capital in excess of par value
|
1,500
|
1,501
|
|||||
Deferred
compensation
|
-
|
(98
|
)
|
||||
Accumulated
other comprehensive income
|
(219
|
)
|
(266
|
)
|
|||
Retained
earnings
|
4,468
|
2,975
|
|||||
8,397
|
6,746
|
||||||
Less
54 and 26 shares of treasury stock, at cost
|
1,308
|
374
|
|||||
Total
shareholders’ equity
|
7,089
|
6,372
|
|||||
Total
liabilities and shareholders’ equity
|
$
|
15,984
|
$
|
15,010
|
Nine
Months Ended
|
|||||||
September
30
|
|||||||
(Millions
of dollars)
|
2006
|
2005
|
|||||
Cash
flows from operating activities:
|
|||||||
Net
income
|
$
|
1,690
|
$
|
1,256
|
|||
Adjustments
to reconcile net income to net cash from operations:
|
|||||||
Depreciation,
depletion, and amortization
|
388
|
377
|
|||||
Provision
for deferred income taxes
|
580
|
209
|
|||||
Distribution
from (advances to) related companies, net of equity in (earnings)
losses
|
(47
|
)
|
59
|
||||
Gain
on sale of assets
|
(77
|
)
|
(195
|
)
|
|||
Asbestos
and silica liability payment related to Chapter 11 filing
|
-
|
(2,345
|
)
|
||||
Collection
of asbestos- and silica-related receivables
|
166
|
1,030
|
|||||
Other
changes:
|
|||||||
Receivables
and unbilled work on uncompleted contracts
|
68
|
614
|
|||||
Accounts
receivable facilities transactions
|
-
|
(263
|
)
|
||||
Inventories
|
(248
|
)
|
(172
|
)
|
|||
Accounts
payable
|
(103
|
)
|
(570
|
)
|
|||
Contributions
to pension plans
|
(162
|
)
|
(55
|
)
|
|||
Advanced
billings
|
373
|
49
|
|||||
Other
|
251
|
(105
|
)
|
||||
Total
cash flows from operating activities
|
2,879
|
(111
|
)
|
||||
Cash
flows from investing activities:
|
|||||||
Capital
expenditures
|
(619
|
)
|
(474
|
)
|
|||
Sales
of property, plant, and equipment
|
115
|
91
|
|||||
Dispositions
(acquisitions) of business assets, net of cash disposed
|
284
|
275
|
|||||
Proceeds
from sales of securities
|
10
|
15
|
|||||
Sales
of short-term investments in marketable securities, net
|
-
|
891
|
|||||
Other
investing activities
|
(21
|
)
|
(26
|
)
|
|||
Total
cash flows from investing activities
|
(231
|
)
|
772
|
||||
Cash
flows from financing activities:
|
|||||||
Proceeds
from long-term debt, net of offering costs
|
8
|
12
|
|||||
Proceeds
from exercises of stock options
|
146
|
303
|
|||||
Payments
to reacquire common stock
|
(1,056
|
)
|
(10
|
)
|
|||
Borrowings
(repayments) of short-term debt, net
|
(15
|
)
|
(9
|
)
|
|||
Payments
of long-term debt
|
(344
|
)
|
(546
|
)
|
|||
Payments
of dividends to shareholders
|
(231
|
)
|
(190
|
)
|
|||
Other
financing activities
|
(7
|
)
|
(5
|
)
|
|||
Total
cash flows from financing activities
|
(1,499
|
)
|
(445
|
)
|
|||
Effect
of exchange rate changes on cash
|
9
|
(9
|
)
|
||||
Increase
in cash and equivalents
|
1,158
|
207
|
|||||
Cash
and equivalents at beginning of period
|
2,391
|
1,917
|
|||||
Cash
and equivalents at end of period
|
$
|
3,549
|
$
|
2,124
|
|||
Supplemental
disclosure of cash flow information:
|
|||||||
Cash
payments during the period for:
|
|||||||
Interest
|
$
|
145
|
$
|
172
|
|||
Income
taxes
|
$
|
242
|
$
|
218
|
-
|
the
reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements;
and
|
-
|
the
reported amounts of revenue and expenses during the reporting
period.
|
-
|
fines
or other monetary penalties or direct monetary damages, including
disgorgement, as a result of a claim made or assessed by a governmental
authority, or a settlement thereof, relating to alleged or actual
violations of the United States Foreign Corrupt Practices Act (FCPA)
or
particular, analogous applicable foreign statutes and regulations;
and
|
-
|
all
out-of-pocket cash costs and expenses, or cash settlements or cash
arbitration awards in lieu thereof, KBR may incur after the effective
date
of the master separation agreement as a result of the replacement
of the
subsea flowline bolts installed in connection with the Barracuda-Caratinga
project.
|
September
30,
|
December
31,
|
||||||
Millions
of dollars
|
2006
|
2005
|
|||||
Probable
unapproved claims
|
$
|
185
|
$
|
175
|
|||
Probable
unapproved claims accrued revenue
|
182
|
172
|
|||||
Probable
unapproved claims from unconsolidated
|
|||||||
related
companies
|
93
|
92
|
-
|
the
Barracuda and Caratinga vessels are both fully operational. In April
2006,
we executed an agreement with Petrobras that enabled us to achieve
conclusion of the Lenders’ Reliability Test and final acceptance of the
FPSOs. These acceptances eliminate any further risk of liquidated
damages
being assessed but do not address the bolt arbitration discussed
below;
|
-
|
in
the first quarter of 2006, we recorded a loss of $15 million related
to
additional costs to finalize the project and warranty matters. We
have
recorded inception-to-date losses on this project of approximately
$785
million; and
|
-
|
our
remaining obligation under the April 2006 agreement is primarily
for
warranty on the two vessels.
|
Three
Months Ended
|
Nine
Months Ended
|
||||||||||||
September
30
|
September
30
|
||||||||||||
Millions
of dollars
|
2006
|
2005
|
2006
|
2005
|
|||||||||
Revenue:
|
|||||||||||||
Production
Optimization
|
$
|
1,418
|
$
|
1,032
|
$
|
3,906
|
$
|
2,837
|
|||||
Fluid
Systems
|
928
|
731
|
2,634
|
2,061
|
|||||||||
Drilling
and Formation Evaluation
|
845
|
663
|
2,344
|
1,859
|
|||||||||
Digital
and Consulting Solutions
|
201
|
171
|
562
|
495
|
|||||||||
Total
Energy Services Group
|
3,392
|
2,597
|
9,446
|
7,252
|
|||||||||
Government
and Infrastructure
|
1,838
|
1,880
|
5,427
|
6,003
|
|||||||||
Energy
and Chemicals
|
601
|
435
|
1,687
|
1,413
|
|||||||||
Total
KBR
|
2,439
|
2,315
|
7,114
|
7,416
|
|||||||||
Total
revenue
|
$
|
5,831
|
$
|
4,912
|
$
|
16,560
|
$
|
14,668
|
|||||
Operating
income (loss):
|
|||||||||||||
Production
Optimization
|
$
|
406
|
$
|
248
|
$
|
1,087
|
$
|
759
|
|||||
Fluid
Systems
|
211
|
139
|
586
|
387
|
|||||||||
Drilling
and Formation Evaluation
|
227
|
144
|
588
|
375
|
|||||||||
Digital
and Consulting Solutions
|
62
|
35
|
163
|
80
|
|||||||||
Total
Energy Services Group
|
906
|
566
|
2,424
|
1,601
|
|||||||||
Government
and Infrastructure
|
53
|
150
|
141
|
275
|
|||||||||
Energy
and Chemicals
|
45
|
(10
|
)
|
(22
|
)
|
70
|
|||||||
Total
KBR
|
98
|
140
|
119
|
345
|
|||||||||
General
corporate
|
(36
|
)
|
(26
|
)
|
(102
|
)
|
(95
|
)
|
|||||
Total
operating income
|
$
|
968
|
$
|
680
|
$
|
2,441
|
$
|
1,851
|
September
30,
|
December
31,
|
||||||
Millions
of dollars
|
2006
|
2005
|
|||||
Finished
products and parts
|
$
|
844
|
$
|
715
|
|||
Raw
materials and supplies
|
272
|
181
|
|||||
Work
in process
|
97
|
57
|
|||||
Total
|
$
|
1,213
|
$
|
953
|
-
|
$104
million as collateral for potential future insurance claim reimbursements
included in “Other assets”; and
|
-
|
$23
million related to cash collateral agreements for outstanding letters
of
credit for various construction projects included in “Other
assets.”
|
Three
Months Ended
|
Nine
Months Ended
|
||||||||||||
September
30
|
September
30
|
||||||||||||
Millions
of dollars
|
2006
|
2005
|
2006
|
2005
|
|||||||||
Net
income
|
$
|
611
|
$
|
499
|
$
|
1,690
|
$
|
1,256
|
|||||
Cumulative
translation adjustments
|
14
|
1
|
51
|
(28
|
)
|
||||||||
Realization
of (gains) losses included in net income
|
2
|
-
|
(14
|
)
|
3
|
||||||||
Net
cumulative translation adjustments
|
16
|
1
|
37
|
(25
|
)
|
||||||||
Unrealized
net gains (losses) on investments
|
|||||||||||||
and
derivatives
|
(10
|
)
|
(8
|
)
|
11
|
(9
|
)
|
||||||
Realization
of gains on investments and derivatives
|
|||||||||||||
included
in net income
|
(1
|
)
|
(1
|
)
|
(1
|
)
|
(14
|
)
|
|||||
Net
unrealized gains (losses) on investments
|
|||||||||||||
and
derivatives
|
(11
|
)
|
(9
|
)
|
10
|
(23
|
)
|
||||||
Total
comprehensive income
|
$
|
616
|
$
|
491
|
$
|
1,737
|
$
|
1,208
|
September
30,
|
December
31,
|
||||||
Millions
of dollars
|
2006
|
2005
|
|||||
Cumulative
translation adjustments
|
$
|
(35
|
)
|
$
|
(72
|
)
|
|
Pension
liability adjustments
|
(184
|
)
|
(184
|
)
|
|||
Unrealized
gains (losses) on investments and derivatives
|
-
|
(10
|
)
|
||||
Total
accumulated other comprehensive income
|
$
|
(219
|
)
|
$
|
(266
|
)
|
Millions
of dollars
|
||||
Insurance
for asbestos- and silica-related liabilities:
|
||||
December
31, 2005 balance (of which $193 was current)
|
$
|
396
|
||
Payments
received
|
(166
|
)
|
||
Accretion
|
8
|
|||
Insurance
for asbestos- and silica-related liabilities - September
30,
|
||||
2006
balance (of which $68 is current)
|
$
|
238
|
-
|
the
Comprehensive Environmental Response, Compensation, and Liability
Act;
|
-
|
the
Resources Conservation and Recovery
Act;
|
-
|
the
Clean Air Act;
|
-
|
the
Federal Water Pollution Control Act;
and
|
-
|
the
Toxic Substances Control Act.
|
-
|
stock
options, including incentive stock options and nonqualified stock
options;
|
-
|
restricted
stock awards;
|
-
|
restricted
stock unit awards;
|
-
|
stock
appreciation rights; and
|
-
|
stock
value equivalent awards.
|
Three
Months Ended
|
Nine
Months Ended
|
||||||
Millions
of dollars except per share data
|
September
30, 2005
|
September
30, 2005
|
|||||
Net
income, as reported
|
$
|
499
|
$
|
1,256
|
|||
Add:
Total stock-based compensation expense included
|
|||||||
in
net income, net of related tax effects
|
4
|
23
|
|||||
Less:
Total stock-based compensation expense
|
|||||||
determined
under fair-value-based method for all
|
(11
|
)
|
(44
|
)
|
|||
awards,
net of related tax effects
|
|||||||
Net
income, pro forma
|
$
|
492
|
$
|
1,235
|
|||
Basic
income per share:
|
|||||||
As
reported
|
$
|
0.50
|
$
|
1.25
|
|||
Pro
forma
|
$
|
0.49
|
$
|
1.23
|
|||
Diluted
income per share:
|
|||||||
As
reported
|
$
|
0.48
|
$
|
1.22
|
|||
Pro
forma
|
$
|
0.47
|
$
|
1.20
|
Nine
months ended September 30
|
|||||||
2006
|
2005
|
||||||
Expected
term (in years)
|
5.24
|
5.00
|
|||||
Expected
volatility
|
42.20
|
%
|
51.28
- 52.79
|
%
|
|||
Expected
dividend yield
|
0.76-
1.06
|
%
|
0.73
- 1.16
|
%
|
|||
Risk-free
interest rate
|
4.30-
5.03
|
%
|
3.77
- 4.27
|
%
|
|||
Weighted
average grant-date fair value per share
|
$
|
14.42
|
$
|
10.08
|
Weighted
|
Weighted
|
||||||||||||
Average
|
Average
|
Aggregate
|
|||||||||||
Number
|
Exercise
|
Remaining
|
Intrinsic
|
||||||||||
of
Shares
|
Price
|
Contractual
|
Value
|
||||||||||
Stock
Options
|
(in
millions)
|
per
Share
|
Term
(years)
|
(in
millions)
|
|||||||||
Outstanding
at January 1, 2006
|
22.4
|
$
|
16.81
|
||||||||||
Granted
|
1.5
|
34.72
|
|||||||||||
Exercised
|
(5.5
|
)
|
17.54
|
||||||||||
Forfeited
|
(0.2
|
)
|
18.75
|
||||||||||
Expired
|
(0.1
|
)
|
14.82
|
||||||||||
Outstanding
at September 30, 2006
|
18.1
|
$
|
18.03
|
5.81
|
$
|
200
|
|||||||
Exercisable
at September 30, 2006
|
13.1
|
$
|
15.43
|
4.75
|
$
|
170
|
Weighted
|
|||||||
Number
of Shares
|
Average
Grant-Date
Fair
|
||||||
Restricted
Stock
|
(in
millions)
|
Value
per Share
|
|||||
Nonvested
shares at January 1, 2006
|
7.5
|
$
|
17.07
|
||||
Granted
|
2.1
|
34.76
|
|||||
Vested
|
(1.5
|
)
|
16.17
|
||||
Forfeited
|
(0.2
|
)
|
20.28
|
||||
Nonvested
shares at September 30, 2006
|
7.9
|
$
|
21.91
|
Offering
period July 1 to December 31
|
|||||||
2006
|
2005
|
||||||
Expected
term (in years)
|
0.5
|
0.5
|
|||||
Expected
volatility
|
37.77
|
%
|
30.46
|
%
|
|||
Expected
dividend yield
|
0.80
|
%
|
0.73
|
%
|
|||
Risk-free
interest rate
|
5.29
|
%
|
3.89
|
%
|
|||
Weighted
average grant-date fair value per share
|
$
|
9.32
|
$
|
5.50
|
Offering
period January 1 to June 30
|
|||||||
2006
|
2005
|
||||||
Expected
term (in years)
|
0.5
|
0.5
|
|||||
Expected
volatility
|
35.65
|
%
|
26.93
|
%
|
|||
Expected
dividend yield
|
0.75
|
%
|
1.16
|
%
|
|||
Risk-free
interest rate
|
4.38
|
%
|
3.15
|
%
|
|||
Weighted
average grant-date fair value per share
|
$
|
7.91
|
$
|
4.15
|
Three
Months
|
Nine
Months
|
||||||||||||
Ended
|
Ended
|
||||||||||||
September
30
|
September
30
|
||||||||||||
Millions
of shares
|
2006
|
2005
|
2006
|
2005
|
|||||||||
Basic
weighted average common shares outstanding
|
1,011
|
1,012
|
1,021
|
1,006
|
|||||||||
Dilutive
effect of:
|
|||||||||||||
Convertible
senior notes premium
|
27
|
22
|
30
|
12
|
|||||||||
Stock
options
|
8
|
12
|
9
|
10
|
|||||||||
Restricted
stock
|
2
|
2
|
2
|
2
|
|||||||||
Other
|
-
|
2
|
-
|
2
|
|||||||||
Diluted
weighted average common shares outstanding
|
1,048
|
1,050
|
1,062
|
1,032
|
Three
Months Ended September 30
|
|||||||||||||
2006
|
2005
|
||||||||||||
Millions
of dollars
|
United
States
|
International
|
United
States
|
International
|
|||||||||
Components
of net periodic
|
|||||||||||||
benefit
cost:
|
|||||||||||||
Service
cost
|
$
|
-
|
$
|
17
|
$
|
-
|
$
|
17
|
|||||
Interest
cost
|
2
|
43
|
2
|
42
|
|||||||||
Expected
return on plan assets
|
(2
|
)
|
(48
|
)
|
(3
|
)
|
(47
|
)
|
|||||
Amortization
of prior service cost (credit)
|
-
|
(1
|
)
|
-
|
1
|
||||||||
Recognized
actuarial loss
|
2
|
6
|
2
|
4
|
|||||||||
Net
periodic benefit cost
|
$
|
2
|
$
|
17
|
$
|
1
|
$
|
17
|
Nine
Months Ended September 30
|
|||||||||||||
2006
|
2005
|
||||||||||||
Millions
of dollars
|
United
States
|
International
|
United
States
|
International
|
|||||||||
Components
of net periodic
|
|||||||||||||
benefit
cost:
|
|||||||||||||
Service
cost
|
$
|
-
|
$
|
52
|
$
|
-
|
$
|
56
|
|||||
Interest
cost
|
7
|
130
|
7
|
128
|
|||||||||
Expected
return on plan assets
|
(7
|
)
|
(145
|
)
|
(8
|
)
|
(139
|
)
|
|||||
Amortization
of prior service cost (credit)
|
-
|
(1
|
)
|
-
|
1
|
||||||||
Settlements/curtailments
|
-
|
-
|
-
|
5
|
|||||||||
Recognized
actuarial loss
|
5
|
19
|
4
|
13
|
|||||||||
Net
periodic benefit cost
|
$
|
5
|
$
|
55
|
$
|
3
|
$
|
64
|
Three
Months Ended
|
Nine
Months Ended
|
||||||||||||
September
30
|
September
30
|
||||||||||||
Millions
of dollars
|
2006
|
2005
|
2006
|
2005
|
|||||||||
Components
of net periodic
|
|||||||||||||
benefit
cost:
|
|||||||||||||
Service
cost
|
$
|
-
|
$
|
1
|
$
|
1
|
$
|
1
|
|||||
Interest
cost
|
3
|
2
|
7
|
7
|
|||||||||
Net
periodic benefit cost
|
$
|
3
|
$
|
3
|
$
|
8
|
$
|
8
|
-
|
recognize
on its balance sheet the funded status (measured as the difference
between
the fair value of plan assets and the benefit obligation) of pension
and
other postretirement benefit plans;
|
-
|
recognize,
through comprehensive income, certain changes in the funded status
of a
defined benefit and postretirement plan in the year in which the
changes
occur;
|
-
|
measure
plan assets and benefit obligations as of the end of the employer’s fiscal
year; and
|
-
|
disclose
additional information.
|
-
|
fines
or other monetary penalties or direct monetary damages, including
disgorgement, as a result of a claim made or assessed by a governmental
authority, or a settlement thereof, relating to alleged or actual
violations of the United States Foreign Corrupt Practices Act (FCPA)
or
particular, analogous applicable foreign statutes and regulations;
and
|
-
|
all
out-of-pocket cash costs and expenses, or cash settlements or cash
arbitration awards in lieu thereof, KBR may incur after the effective
date
of the master separation agreement as a result of the replacement
of the
subsea flowline bolts installed in connection with the Barracuda-Caratinga
project.
|
-
|
improving
the utilization of our equipment and deploying additional resources
to
address the growing demand for our services and products, in particular,
our pressure pumping services and directional drilling and formation
evaluation tools in North America and the Eastern
Hemisphere;
|
-
|
increasing
pricing and reducing discounts, as the market allows, for ESG’s services
and products, due to expected labor and material cost increases and
high
demand from customers;
|
-
|
leveraging
our technologies to provide our customers with the ability to more
efficiently drill and complete their wells and to increase their
productivity;
|
-
|
capitalizing
on the liquefied natural gas (LNG) and gas-to-liquids (GTL) markets.
Forecasted LNG market growth remains strong and is expected to grow
further. Significant numbers of new LNG liquefaction plant and LNG
receiving terminal projects are proposed worldwide and are in various
stages of development. We are currently in the bidding process for
several
LNG and GTL projects, and expect to receive decisions on those in
the next
few quarters;
|
-
|
diversifying
the services of our Government and Infrastructure segment. With the
rebid
of the LogCAP contract, we are focused on diversifying the Government
and
Infrastructure project portfolio. We continue to serve the United
States
Navy under the CONCAP construction contingency contract and are positioned
for future contingency work for the United States Air Force under
the
AFCAP contract. In addition, we have strengthened our position with
the
United Kingdom Ministry of Defence;
and
|
-
|
maintaining
our ESG growth initiative both domestically and internationally through
capital expenditures of approximately $875 million during 2006 and
$1.2
billion in 2007.
|
Millions
of dollars
|
||||
October
1 through December 31, 2006
|
$
|
1
|
||
2007
|
68
|
|||
2008
|
46
|
|||
2009
|
131
|
|||
2010
|
16
|
|||
Total
|
$
|
262
|
-
|
spending
on upstream exploration, development, and production programs by
major,
national, and independent oil and gas
companies;
|
-
|
capital
expenditures for downstream refining, processing, petrochemical,
gas
monetization, and marketing facilities by major, national, and independent
oil and gas companies; and
|
-
|
government
spending levels.
|
Three
Months Ended
|
Year
Ended
|
|||||||||
September
30
|
December
31
|
|||||||||
Average
Oil Prices (dollars
per barrel)
|
2006
|
2005
|
2005
|
|||||||
West
Texas Intermediate
|
$
|
70.80
|
$
|
62.70
|
$
|
56.30
|
||||
United
Kingdom Brent
|
70.03
|
61.57
|
54.45
|
|||||||
Average
United States Gas Prices (dollars
per million British
|
||||||||||
thermal
units, or mmBtu)
|
||||||||||
Henry
Hub
|
$
|
6.35
|
$
|
9.53
|
$
|
8.79
|
Three
Months Ended
|
Nine
Months Ended
|
||||||||||||
September
30
|
September
30
|
||||||||||||
Land
vs. Offshore
|
2006
|
2005
|
2006
|
2005
|
|||||||||
United
States:
|
|||||||||||||
Land
|
1,624
|
1,330
|
1,533
|
1,250
|
|||||||||
Offshore
|
95
|
98
|
91
|
97
|
|||||||||
Total
|
1,719
|
1,428
|
1,624
|
1,347
|
|||||||||
Canada:
|
|||||||||||||
Land
|
490
|
492
|
477
|
416
|
|||||||||
Offshore
|
4
|
5
|
3
|
4
|
|||||||||
Total
|
494
|
497
|
480
|
420
|
|||||||||
International
(excluding Canada):
|
|||||||||||||
Land
|
671
|
589
|
648
|
586
|
|||||||||
Offshore
|
270
|
266
|
269
|
257
|
|||||||||
Total
|
941
|
855
|
917
|
843
|
|||||||||
Worldwide
total
|
3,154
|
2,780
|
3,021
|
2,610
|
|||||||||
Land
total
|
2,785
|
2,411
|
2,658
|
2,252
|
|||||||||
Offshore
total
|
369
|
369
|
363
|
358
|
Three
Months Ended
|
Nine
Months Ended
|
||||||||||||
September
30
|
September
30
|
||||||||||||
Oil
vs. Gas
|
2006
|
2005
|
2006
|
2005
|
|||||||||
United
States:
|
|||||||||||||
Oil
|
306
|
195
|
269
|
179
|
|||||||||
Gas
|
1,413
|
1,233
|
1,355
|
1,168
|
|||||||||
Total
|
1,719
|
1,428
|
1,624
|
1,347
|
|||||||||
Canada:
|
|||||||||||||
Oil
|
122
|
115
|
104
|
89
|
|||||||||
Gas
|
372
|
382
|
376
|
331
|
|||||||||
Total
|
494
|
497
|
480
|
420
|
|||||||||
International
(excluding Canada):
|
|||||||||||||
Oil
|
720
|
659
|
703
|
643
|
|||||||||
Gas
|
221
|
196
|
214
|
200
|
|||||||||
Total
|
941
|
855
|
917
|
843
|
|||||||||
Worldwide
total
|
3,154
|
2,780
|
3,021
|
2,610
|
|||||||||
Oil
total
|
1,148
|
969
|
1,076
|
911
|
|||||||||
Gas
total
|
2,006
|
1,811
|
1,945
|
1,699
|
-
|
growth
in worldwide petroleum demand remains robust, despite high oil
prices;
|
-
|
projected
growth in non-OPEC supplies is not expected to accommodate worldwide
demand growth;
|
-
|
worldwide
spare crude oil production capacity continues to remain low;
and
|
-
|
fear
of possible supply disruptions from OPEC, Iran, Iraq, Nigeria, and
Venezuela due to political or social
circumstances.
|
Three
Months Ended
|
|||||||||||||
REVENUE:
|
September
30
|
Increase
|
Percentage
|
||||||||||
Millions
of dollars
|
2006
|
2005
|
(Decrease)
|
Change
|
|||||||||
Production
Optimization
|
$
|
1,418
|
$
|
1,032
|
$
|
386
|
37
|
%
|
|||||
Fluid
Systems
|
928
|
731
|
197
|
27
|
|||||||||
Drilling
and Formation Evaluation
|
845
|
663
|
182
|
28
|
|||||||||
Digital
and Consulting Solutions
|
201
|
171
|
30
|
18
|
|||||||||
Total
Energy Services Group
|
3,392
|
2,597
|
795
|
31
|
|||||||||
Government
and Infrastructure
|
1,838
|
1,880
|
(42
|
)
|
(2
|
)
|
|||||||
Energy
and Chemicals
|
601
|
435
|
166
|
38
|
|||||||||
Total
KBR
|
2,439
|
2,315
|
124
|
5
|
|||||||||
Total
revenue
|
$
|
5,831
|
$
|
4,912
|
$
|
919
|
19
|
%
|
Geographic
- Energy Services Group segments only:
|
|||||||||||||
Production
Optimization:
|
|||||||||||||
North
America
|
$
|
887
|
$
|
626
|
$
|
261
|
42
|
%
|
|||||
Latin
America
|
107
|
80
|
27
|
34
|
|||||||||
Europe/Africa/CIS
|
251
|
200
|
51
|
26
|
|||||||||
Middle
East/Asia
|
173
|
126
|
47
|
37
|
|||||||||
Subtotal
|
1,418
|
1,032
|
386
|
37
|
|||||||||
Fluid
Systems:
|
|||||||||||||
North
America
|
489
|
369
|
120
|
33
|
|||||||||
Latin
America
|
109
|
88
|
21
|
24
|
|||||||||
Europe/Africa/CIS
|
215
|
177
|
38
|
21
|
|||||||||
Middle
East/Asia
|
115
|
97
|
18
|
19
|
|||||||||
Subtotal
|
928
|
731
|
197
|
27
|
|||||||||
Drilling
and Formation Evaluation:
|
|||||||||||||
North
America
|
289
|
225
|
64
|
28
|
|||||||||
Latin
America
|
121
|
103
|
18
|
17
|
|||||||||
Europe/Africa/CIS
|
198
|
172
|
26
|
15
|
|||||||||
Middle
East/Asia
|
237
|
163
|
74
|
45
|
|||||||||
Subtotal
|
845
|
663
|
182
|
28
|
|||||||||
Digital
and Consulting Solutions:
|
|||||||||||||
North
America
|
73
|
50
|
23
|
46
|
|||||||||
Latin
America
|
53
|
53
|
-
|
-
|
|||||||||
Europe/Africa/CIS
|
44
|
40
|
4
|
10
|
|||||||||
Middle
East/Asia
|
31
|
28
|
3
|
11
|
|||||||||
Subtotal
|
201
|
171
|
30
|
18
|
|||||||||
Total
Energy Services Group revenue
|
|||||||||||||
by
region:
|
|||||||||||||
North
America
|
1,738
|
1,270
|
468
|
37
|
|||||||||
Latin
America
|
390
|
324
|
66
|
20
|
|||||||||
Europe/Africa/CIS
|
708
|
589
|
119
|
20
|
|||||||||
Middle
East/Asia
|
556
|
414
|
142
|
34
|
|||||||||
Total
Energy Services Group revenue
|
$
|
3,392
|
$
|
2,597
|
$
|
795
|
31
|
%
|
Three
Months Ended
|
|||||||||||||
OPERATING
INCOME (LOSS):
|
September
30
|
Increase
|
Percentage
|
||||||||||
Millions
of dollars
|
2006
|
2005
|
(Decrease)
|
Change
|
|||||||||
Production
Optimization
|
$
|
406
|
$
|
248
|
$
|
158
|
64
|
%
|
|||||
Fluid
Systems
|
211
|
139
|
72
|
52
|
|||||||||
Drilling
and Formation Evaluation
|
227
|
144
|
83
|
58
|
|||||||||
Digital
and Consulting Solutions
|
62
|
35
|
27
|
77
|
|||||||||
Total
Energy Services Group
|
906
|
566
|
340
|
60
|
|||||||||
Government
and Infrastructure
|
53
|
150
|
(97
|
)
|
(65
|
)
|
|||||||
Energy
and Chemicals
|
45
|
(10
|
)
|
55
|
NM
|
||||||||
Total
KBR
|
98
|
140
|
(42
|
)
|
(30
|
)
|
|||||||
General
corporate
|
(36
|
)
|
(26
|
)
|
(10
|
)
|
(38
|
)
|
|||||
Total
operating income
|
$
|
968
|
$
|
680
|
$
|
288
|
42
|
%
|
Geographic
- Energy Services Group segments only:
|
|||||||||||||
Production
Optimization:
|
|||||||||||||
North
America
|
$
|
300
|
$
|
182
|
$
|
118
|
65
|
%
|
|||||
Latin
America
|
25
|
8
|
17
|
213
|
|||||||||
Europe/Africa/CIS
|
45
|
29
|
16
|
55
|
|||||||||
Middle
East/Asia
|
36
|
29
|
7
|
24
|
|||||||||
Subtotal
|
406
|
248
|
158
|
64
|
|||||||||
Fluid
Systems:
|
|||||||||||||
North
America
|
135
|
84
|
51
|
61
|
|||||||||
Latin
America
|
19
|
10
|
9
|
90
|
|||||||||
Europe/Africa/CIS
|
35
|
34
|
1
|
3
|
|||||||||
Middle
East/Asia
|
22
|
11
|
11
|
100
|
|||||||||
Subtotal
|
211
|
139
|
72
|
52
|
|||||||||
Drilling
and Formation Evaluation:
|
|||||||||||||
North
America
|
89
|
58
|
31
|
53
|
|||||||||
Latin
America
|
24
|
17
|
7
|
41
|
|||||||||
Europe/Africa/CIS
|
41
|
35
|
6
|
17
|
|||||||||
Middle
East/Asia
|
73
|
34
|
39
|
115
|
|||||||||
Subtotal
|
227
|
144
|
83
|
58
|
|||||||||
Digital
and Consulting Solutions:
|
|||||||||||||
North
America
|
34
|
23
|
11
|
48
|
|||||||||
Latin
America
|
11
|
5
|
6
|
120
|
|||||||||
Europe/Africa/CIS
|
11
|
3
|
8
|
267
|
|||||||||
Middle
East/Asia
|
6
|
4
|
2
|
50
|
|||||||||
Subtotal
|
62
|
35
|
27
|
77
|
|||||||||
Total
Energy Services Group
|
|||||||||||||
operating
income by region:
|
|||||||||||||
North
America
|
558
|
347
|
211
|
61
|
|||||||||
Latin
America
|
79
|
40
|
39
|
98
|
|||||||||
Europe/Africa/CIS
|
132
|
101
|
31
|
31
|
|||||||||
Middle
East/Asia
|
137
|
78
|
59
|
76
|
|||||||||
Total
Energy Services Group
|
|||||||||||||
operating
income
|
$
|
906
|
$
|
566
|
$
|
340
|
60
|
%
|
Nine
Months Ended
|
|||||||||||||
REVENUE:
|
September
30
|
Increase
|
Percentage
|
||||||||||
Millions
of dollars
|
2006
|
2005
|
(Decrease)
|
Change
|
|||||||||
Production
Optimization
|
$
|
3,906
|
$
|
2,837
|
$
|
1,069
|
38
|
%
|
|||||
Fluid
Systems
|
2,634
|
2,061
|
573
|
28
|
|||||||||
Drilling
and Formation Evaluation
|
2,344
|
1,859
|
485
|
26
|
|||||||||
Digital
and Consulting Solutions
|
562
|
495
|
67
|
14
|
|||||||||
Total
Energy Services Group
|
9,446
|
7,252
|
2,194
|
30
|
|||||||||
Government
and Infrastructure
|
5,427
|
6,003
|
(576
|
)
|
(10
|
)
|
|||||||
Energy
and Chemicals
|
1,687
|
1,413
|
274
|
19
|
|||||||||
Total
KBR
|
7,114
|
7,416
|
(302
|
)
|
(4
|
)
|
|||||||
Total
revenue
|
$
|
16,560
|
$
|
14,668
|
$
|
1,892
|
13
|
%
|
Geographic
- Energy Services Group segments only:
|
|||||||||||||
Production
Optimization:
|
|||||||||||||
North
America
|
$
|
2,392
|
$
|
1,658
|
$
|
734
|
44
|
%
|
|||||
Latin
America
|
296
|
252
|
44
|
17
|
|||||||||
Europe/Africa/CIS
|
716
|
554
|
162
|
29
|
|||||||||
Middle
East/Asia
|
502
|
373
|
129
|
35
|
|||||||||
Subtotal
|
3,906
|
2,837
|
1,069
|
38
|
|||||||||
Fluid
Systems:
|
|||||||||||||
North
America
|
1,386
|
1,035
|
351
|
34
|
|||||||||
Latin
America
|
303
|
273
|
30
|
11
|
|||||||||
Europe/Africa/CIS
|
599
|
477
|
122
|
26
|
|||||||||
Middle
East/Asia
|
346
|
276
|
70
|
25
|
|||||||||
Subtotal
|
2,634
|
2,061
|
573
|
28
|
|||||||||
Drilling
and Formation Evaluation:
|
|||||||||||||
North
America
|
822
|
630
|
192
|
30
|
|||||||||
Latin
America
|
343
|
295
|
48
|
16
|
|||||||||
Europe/Africa/CIS
|
534
|
468
|
66
|
14
|
|||||||||
Middle
East/Asia
|
645
|
466
|
179
|
38
|
|||||||||
Subtotal
|
2,344
|
1,859
|
485
|
26
|
|||||||||
Digital
and Consulting Solutions:
|
|||||||||||||
North
America
|
192
|
143
|
49
|
34
|
|||||||||
Latin
America
|
154
|
151
|
3
|
2
|
|||||||||
Europe/Africa/CIS
|
128
|
118
|
10
|
8
|
|||||||||
Middle
East/Asia
|
88
|
83
|
5
|
6
|
|||||||||
Subtotal
|
562
|
495
|
67
|
14
|
|||||||||
Total
Energy Services Group revenue
|
|||||||||||||
by
region:
|
|||||||||||||
North
America
|
4,792
|
3,466
|
1,326
|
38
|
|||||||||
Latin
America
|
1,096
|
971
|
125
|
13
|
|||||||||
Europe/Africa/CIS
|
1,977
|
1,617
|
360
|
22
|
|||||||||
Middle
East/Asia
|
1,581
|
1,198
|
383
|
32
|
|||||||||
Total
Energy Services Group revenue
|
$
|
9,446
|
$
|
7,252
|
$
|
2,194
|
30
|
%
|
Nine
Months Ended
|
|||||||||||||
OPERATING
INCOME (LOSS):
|
September
30
|
Increase
|
Percentage
|
||||||||||
Millions
of dollars
|
2006
|
2005
|
(Decrease)
|
Change
|
|||||||||
Production
Optimization
|
$
|
1,087
|
$
|
759
|
$
|
328
|
43
|
%
|
|||||
Fluid
Systems
|
586
|
387
|
199
|
51
|
|||||||||
Drilling
and Formation Evaluation
|
588
|
375
|
213
|
57
|
|||||||||
Digital
and Consulting Solutions
|
163
|
80
|
83
|
104
|
|||||||||
Total
Energy Services Group
|
2,424
|
1,601
|
823
|
51
|
|||||||||
Government
and Infrastructure
|
141
|
275
|
(134
|
)
|
(49
|
)
|
|||||||
Energy
and Chemicals
|
(22
|
)
|
70
|
(92
|
)
|
(131
|
)
|
||||||
Total
KBR
|
119
|
345
|
(226
|
)
|
(66
|
)
|
|||||||
General
corporate
|
(102
|
)
|
(95
|
)
|
(7
|
)
|
(7
|
)
|
|||||
Total
operating income
|
$
|
2,441
|
$
|
1,851
|
$
|
590
|
32
|
%
|
Geographic
- Energy Services Group segments only:
|
|||||||||||||
Production
Optimization:
|
|||||||||||||
North
America
|
$
|
796
|
$
|
567
|
$
|
229
|
40
|
%
|
|||||
Latin
America
|
59
|
42
|
17
|
40
|
|||||||||
Europe/Africa/CIS
|
119
|
73
|
46
|
63
|
|||||||||
Middle
East/Asia
|
113
|
77
|
36
|
47
|
|||||||||
Subtotal
|
1,087
|
759
|
328
|
43
|
|||||||||
Fluid
Systems:
|
|||||||||||||
North
America
|
375
|
235
|
140
|
60
|
|||||||||
Latin
America
|
51
|
41
|
10
|
24
|
|||||||||
Europe/Africa/CIS
|
95
|
77
|
18
|
23
|
|||||||||
Middle
East/Asia
|
65
|
34
|
31
|
91
|
|||||||||
Subtotal
|
586
|
387
|
199
|
51
|
|||||||||
Drilling
and Formation Evaluation:
|
|||||||||||||
North
America
|
240
|
150
|
90
|
60
|
|||||||||
Latin
America
|
62
|
43
|
19
|
44
|
|||||||||
Europe/Africa/CIS
|
108
|
86
|
22
|
26
|
|||||||||
Middle
East/Asia
|
178
|
96
|
82
|
85
|
|||||||||
Subtotal
|
588
|
375
|
213
|
57
|
|||||||||
Digital
and Consulting Solutions:
|
|||||||||||||
North
America
|
97
|
37
|
60
|
162
|
|||||||||
Latin
America
|
25
|
(1
|
)
|
26
|
NM
|
||||||||
Europe/Africa/CIS
|
28
|
32
|
(4
|
)
|
(13
|
)
|
|||||||
Middle
East/Asia
|
13
|
12
|
1
|
8
|
|||||||||
Subtotal
|
163
|
80
|
83
|
104
|
|||||||||
Total
Energy Services Group
|
|||||||||||||
operating
income by region:
|
|||||||||||||
North
America
|
1,508
|
989
|
519
|
52
|
|||||||||
Latin
America
|
197
|
125
|
72
|
58
|
|||||||||
Europe/Africa/CIS
|
350
|
268
|
82
|
31
|
|||||||||
Middle
East/Asia
|
369
|
219
|
150
|
68
|
|||||||||
Total
Energy Services Group
|
|||||||||||||
operating
income
|
$
|
2,424
|
$
|
1,601
|
$
|
823
|
51
|
%
|
-
|
the
Comprehensive Environmental Response, Compensation, and Liability
Act;
|
-
|
the
Resources Conservation and Recovery
Act;
|
-
|
the
Clean Air Act;
|
-
|
the
Federal Water Pollution Control Act;
and
|
-
|
the
Toxic Substances Control Act.
|
-
|
recognize
on its balance sheet the funded status (measured as the difference
between
the fair value of plan assets and the benefit obligation) of pension
and
other postretirement benefit plans;
|
-
|
recognize,
through comprehensive income, certain changes in the funded status
of a
defined benefit and postretirement plan in the year in which the
changes
occur;
|
-
|
measure
plan assets and benefit obligations as of the end of the employer’s fiscal
year; and
|
-
|
disclose
additional information.
|
-
|
expropriation
and nationalization of our assets in that
country;
|
-
|
political
and economic instability;
|
-
|
civil
unrest, acts of terrorism, force majeure, war, or other armed
conflict;
|
-
|
natural
disasters, including those related to earthquakes and
flooding;
|
-
|
inflation;
|
-
|
currency
fluctuations, devaluations, and conversion
restrictions;
|
-
|
confiscatory
taxation or other adverse tax
policies;
|
-
|
governmental
activities that limit or disrupt markets, restrict payments, or limit
the
movement of funds;
|
-
|
governmental
activities that may result in the deprivation of contract rights;
and
|
-
|
governmental
activities that may result in the inability to obtain or retain licenses
required for operation.
|
-
|
foreign
exchange risks resulting from changes in foreign exchange rates and
the
implementation of exchange controls;
and
|
-
|
limitations
on our ability to reinvest earnings from operations in one country
to fund
the capital needs of our operations in other
countries.
|
-
|
adverse
movements in foreign exchange
rates;
|
-
|
interest
rates;
|
-
|
commodity
prices; or
|
-
|
the
value and time period of the derivative being different than the
exposures
or cash flows being hedged.
|
-
|
governmental
regulations, including the policies of governments regarding the
exploration for and production and development of their oil and natural
gas reserves;
|
-
|
global
weather conditions and natural
disasters;
|
-
|
worldwide
political, military, and economic
conditions;
|
-
|
the
level of oil production by non-OPEC countries and the available excess
production capacity within OPEC;
|
-
|
economic
growth in China and India;
|
-
|
oil
refining capacity and shifts in end-customer preferences toward fuel
efficiency and the use of natural
gas;
|
-
|
the
cost of producing and delivering oil and
gas;
|
-
|
potential
acceleration of development of alternative fuels;
and
|
-
|
the
level of demand for oil and natural gas, especially demand for natural
gas
in the United States.
|
-
|
a
decrease in the magnitude of governmental spending and outsourcing
for
military and logistical support of the type that we provide. For
example,
the current level of government services being provided in the Middle
East
will not likely continue for an extended period of time and the current
rate of spending has decreased substantially compared to 2005 and
2004.
Our government services revenue related to Iraq under our LogCAP
III and
other contracts totaled approximately $3.6 billion in the nine months
ended September 30, 2006, $5.4 billion in 2005, and $7.1 billion
in 2004.
We expect the volume of work under our LogCAP III contract to continue
to
decline in 2006 as our customer scales back the amount of services
we
provide under this contract. During the second quarter of 2006, the
DoD
also announced that it would solicit competitive bids for a new,
multiple
provider LogCAP IV contract to replace the current LogCAP III contract,
under which we are the sole provider. A decrease in the magnitude
of
governmental spending and outsourcing for military and logistical
support
of the type that we provide could have a material adverse effect
on our
business, results of operations, and cash flow. In October 2006,
we
submitted the final portion of our bid on the LogCAP IV contract.
We
understand that the work will be awarded during the fourth quarter
of
2006;
|
-
|
an
increase in the magnitude of governmental spending and outsourcing
for
military and logistical support, which can materially and adversely
affect
our liquidity needs as a result of additional or continued working
capital
requirements to support this work;
|
-
|
a
decrease in capital spending by governments for infrastructure projects
of
the type that we undertake;
|
-
|
the
consolidation of our customers, which
could:
|
-
|
cause
customers to reduce their capital spending, which would in turn reduce
the
demand for our services and products;
and
|
-
|
result
in customer personnel changes, which in turn affects the timing of
contract negotiations and settlements of claims and claim negotiations
with engineering and construction customers on cost variances and
change
orders on major projects;
|
-
|
adverse
developments in the business and operations of our customers in the
oil
and gas industry, including write-downs of reserves and reductions
in
capital spending for exploration, development, production, processing,
refining, and pipeline delivery networks;
and
|
-
|
ability
of our customers to timely pay the amounts due
us.
|
-
|
any
acquisitions would result in an increase in
income;
|
-
|
any
acquisitions would be successfully integrated into our operations
and
internal controls;
|
-
|
any
disposition would not result in decreased earnings, revenue, or cash
flow;
|
-
|
any
dispositions, investments, acquisitions, or integrations would not
divert
management resources; or
|
-
|
any
dispositions, investments, acquisitions, or integrations would not
have a
material adverse effect on our results of operations or financial
condition.
|
-
|
the
containment and disposal of hazardous substances, oilfield waste,
and
other waste materials;
|
-
|
the
importation and use of radioactive
materials;
|
-
|
the
use of underground storage tanks;
and
|
-
|
the
use of underground injection wells.
|
-
|
administrative,
civil, and criminal penalties;
|
-
|
revocation
of permits to conduct business; and
|
-
|
corrective
action orders, including orders to investigate and/or clean-up
contamination.
|
-
|
evacuation
of personnel and curtailment of
services;
|
-
|
weather-related
damage to offshore drilling rigs resulting in suspension of
operations;
|
-
|
weather-related
damage to our facilities and project work
sites;
|
-
|
inability
to deliver materials to jobsites in accordance with contract schedules;
and
|
-
|
loss
of productivity.
|
-
|
volatility
of the currency rates;
|
-
|
time
horizon of the derivative
instruments;
|
-
|
market
cycles; and
|
-
|
the
type of derivative instruments
used.
|
Total
Number of
|
||||||||||
Shares
Purchased
|
||||||||||
as
Part of
|
||||||||||
Publicly
|
||||||||||
Total
Number of
|
Average
Price
|
Announced
|
||||||||
Shares
|
Paid
per
|
Plans
|
||||||||
Period
|
Purchased
(a)
|
Share
|
or
Programs (b)
|
|||||||
July
1-31
|
5,764,407
|
$
|
32.29
|
5,750,000
|
||||||
August
1-31
|
15,263,814
|
$
|
33.65
|
15,250,000
|
||||||
September
1-30
|
5,619,155
|
$
|
29.61
|
5,605,560
|
||||||
Total
|
26,647,376
|
$
|
32.51
|
26,605,560
|
(a) |
Of
the 26,647,376 shares purchased during the three-month period ended
September 30, 2006, 41,816 shares were acquired from employees in
connection with the settlement of income tax and related benefit
withholding obligations arising from vesting in restricted stock
grants.
These share purchases were not part of a publicly announced program
to
purchase common shares.
|
(b) |
In
February 2006, our Board of Directors approved a share repurchase
program
of up to $1.0 billion. In September 2006, our Board of Directors
approved
an increase to our existing common share repurchase program of up
to an
additional $2.0 billion. During the third quarter of 2006, we repurchased
26,605,560 shares of our common stock at a cost of approximately
$865
million, or an average price per share of $32.51. There is $2.0 billion
remaining under this program for future
repurchases.
|
3.1
|
By-laws
of Halliburton revised effective October 19, 2006
(incorporated
|
by
reference to Exhibit 3.1 to Halliburton’s Form 8-K
filed
|
|
October
19, 2006, File No. 1-3492).
|
|
* 12
|
Statement
of Computation of Ratio of Earnings to Fixed Charges.
|
*
31.1
|
Certification
of Chief Executive Officer pursuant to Section 302
|
of
the Sarbanes-Oxley Act of 2002.
|
|
*
31.2
|
Certification
of Chief Financial Officer pursuant to Section 302
|
of
the Sarbanes-Oxley Act of 2002.
|
|
** 32.1
|
Certification
of Chief Executive Officer pursuant to Section 906
|
of
the Sarbanes-Oxley Act of 2002.
|
|
** 32.2
|
Certification
of Chief Financial Officer pursuant to Section 906
|
of
the Sarbanes-Oxley Act of 2002.
|
|
*
|
Filed
with this Form 10-Q
|
**
|
Furnished
with this Form 10-Q
|
/s/
C. Christopher Gaut
|
/s/
Mark A. McCollum
|
C.
Christopher Gaut
|
Mark
A. McCollum
|
Executive
Vice President and
|
Senior
Vice President and
|
Chief
Financial Officer
|
Chief
Accounting Officer
|