The following tables set forth the cash and equivalents and the
consolidated capitalization of Halliburton and KBR as of
December 31, 2006. The tables should be read in conjunction
with “Summary — Selected Historical Consolidated
Financial Data of Halliburton and KBR,”
“Management’s Discussion and Analysis of Financial
Condition and Results of Operations of KBR,” the
consolidated financial statements of KBR and related notes set
forth in this Prospectus-Offer to Exchange and
“Management’s Discussion and Analysis of Financial
Condition and Results of Operations” set forth in
Halliburton’s Annual Report on
Form 10-K
for the year ended December 31, 2006 and the consolidated
financial statements of Halliburton and related notes set forth
in Halliburton’s Annual Report on
Form 10-K
for the year ended December 31, 2006, incorporated by
reference herein. Please read “Where You Can Find More
Information About Halliburton and KBR.”
Halliburton
December 31, 2006
(In millions, except
share amounts)
Cash and equivalents
$
4,379
Total debt (including current
maturities of long-term debt)
$
2,832
Shareholders’ equity:
Common stock, $2.50 par
value; authorized — 2,000 million shares;
outstanding — 1,060 million shares
2,650
Paid-in capital in excess of par
value
1,689
Accumulated other comprehensive
income (loss)
(437
)
Retained earnings
5,051
Less 62 million shares of treasury
stock, at cost
(1,577
)
Total shareholder’s equity
7,376
Total capitalization
$
10,208
KBR
December 31, 2006
(In millions, except
share amounts)
Cash and equivalents
$
1,461
Total debt (including current
maturities of long-term debt)
$
20
Shareholders’ equity:
Preferred stock, $0.001 par value;
authorized — 50 million shares;
outstanding — 0
—
Common stock, $0.001 par
value; authorized — 300 million shares;
outstanding — 168 million shares
The following unaudited pro forma condensed consolidated
financial statements of Halliburton as of and for the year ended
December 31, 2006 give effect to Halliburton’s
disposition of the 135,627,000 shares of KBR common stock it
owns upon consummation of the exchange offer to which this
Prospectus — Offer to Exchange relates. Under the
terms of the exchange offer, Halliburton is offering to exchange
all of its shares of KBR common stock for outstanding shares of
Halliburton common stock that are validly tendered and not
properly withdrawn. Please read “The Exchange
Offer — Terms of the Exchange Offer.” For
purposes of the unaudited pro forma condensed consolidated
balance sheet we assume that the exchange offer was fully
subscribed and occurred as of December 31, 2006, and for
the unaudited pro forma condensed consolidated statements of
operations for the year ended December 31, 2006 we assume
that the exchange offer was fully subscribed and occurred on
January 1, 2006.
We derived the unaudited pro forma condensed consolidated
financial statements from the historical consolidated financial
statements of Halliburton and KBR. These adjustments are based
on currently available information and certain preliminary
estimates and assumptions and, therefore, the actual effects of
the exchange offer may differ from the effects reflected in the
unaudited pro forma condensed consolidated financial statements.
However, despite the fact that data is not available to make
precise estimates, management believes that the assumptions
provide a reasonable basis for presenting the significant
effects of the exchange offer as contemplated and that the pro
forma adjustments give appropriate effect to those assumptions
and are properly applied in the unaudited pro forma condensed
consolidated financial statements.
You should read the following information in conjunction with
“Selected Historical Consolidated Financial Data for
Halliburton and KBR,” and Halliburton’s consolidated
financial statements and the accompanying notes and the related
“Management’s Discussion and Analysis of Financial
Condition and Results of Operations” section included in
Halliburton’s Annual Report on
Form 10-K
for the year ended December 31, 2006, which is incorporated
by reference into this Prospectus — Offer to Exchange.
NOTES TO
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
Note 1.
Pro Forma
Adjustments and Assumptions
The pro forma condensed consolidated financial statements assume
that Halliburton will offer to its shareholders
1.4749 shares (calculated using the indicative calculated
per-share value at March 1, 2007 for both Halliburton and
KBR) of KBR common stock in exchange for each share of
Halliburton common stock tendered, which would result in
approximately 92 million shares of Halliburton common stock
being exchanged for approximately 136 million shares of KBR
common stock, if the exchange offer is fully subscribed.
The effect on the unaudited pro forma condensed consolidated
financial statements is calculated as follows (in millions):
Expected number of shares of KBR
common stock to be issued in the exchange offer
136
Exchange ratio
1.4749
Total shares of Halliburton common
stock tendered
92
Estimated fair value of shares of
Halliburton common stock tendered at $31.16 per share, which
represents the per share value used to calculate the assumed
exchange ratio
$
2,867
Less Halliburton’s net book
value of KBR’s net assets at December 31, 2006
1,455
Less portion of accumulated other
comprehensive loss attributable to KBR
235
Net proceeds from exchange offer
1,177
Less estimated fair value of
indemnities and guarantees
125
Net gain on disposition of KBR
$
1,052
The Halliburton unaudited pro forma condensed consolidated
financial statements assume this exchange offer is fully
subscribed. The following table shows a sensitivity analysis of
what the pro forma diluted income per share from continuing
operations (“EPS”) and the net gain on the disposition
of KBR would be using a range of exchange ratios, including the
maximum exchange ratio (1.5905), and a range of indicative
calculated per-share values of both Halliburton and KBR common
stock, under a scenario in which the exchange offer is fully
subscribed and under a scenario in which the number of tendered
Halliburton shares is the minimum amount necessary to satisfy
the minimum condition (40,688,100 shares of KBR common stock).
The exchange offer does not provide for a minimum exchange ratio.
Indicative
Indicative
Shares of KBR
Calculated
Calculated
Common Stock
per-Share
per-Share
per Share of
Halliburton
Value of
Value of
Halliburton
Fully
Minimum
Common
KBR Common
Halliburton
KBR Common
Common Stock
Subscribed
Subscribed
Stock
Stock
Common Stock
Stock
Tendered
EPS
Net
Gain
(1)
EPS
Net
Gain
(1)
At March 1, 2007
At March 1, 2007
$
31.16040
$
22.83983
1.4749
$
2.25
$
1,052
$
2.11
$
237
Down 10%
Up 10%
28.04436
25.12381
1.2068
2.30
1,354
2.13
319
Down 10%
Down 10%
28.04436
20.55585
1.4749
2.25
765
2.11
150
Up 10%
Up 10%
34.27644
25.12381
1.4749
2.25
1,338
2.11
325
Up 10%
Down 10%
$
34.27644
$
20.55585
1.5905
(2)
$
2.24
$
1,133
$
2.11
$
256
(1)
Amounts shown in millions.
(2)
In this scenario, the maximum exchange ratio of 1.5905 is in
effect.
If the exchange offer is consummated but is not fully
subscribed, Halliburton will distribute in a spin-off
distribution to its shareholders the remaining shares of KBR
common stock.
The minimum amount of shares of Halliburton common stock
required to be tendered to complete the exchange offer
represents approximately 3% of Halliburton’s total
outstanding common stock. The number of shares of Halliburton
common stock that must be tendered in order for Halliburton to
distribute all of its shares of KBR common stock in this
exchange offer represents approximately 9% of Halliburton’s
total outstanding common stock.
Pro Forma
Balance Sheet
(a) Adjustment to eliminate KBR balances from the
Halliburton’s Consolidated Balance Sheet
(b) Adjustment to record the estimated gain to be
recognized by Halliburton as a result of the exchange offer.
(c) Adjustment to record Halliburton’s acquisition of
treasury shares.
(d) Reclass of intercompany receivable from KBR to other
assets.
(e) Adjustment to record a preliminary estimate, to be
measured on the separation date, of the fair value to
Halliburton of the indemnities and guarantees provided by
Halliburton to KBR under the Master Separation Agreement. This
estimate of fair value is not intended to represent an estimate
of the amount of probable loss or a range of possible loss, if
any, of the underlying matters associated with these indemnities
and guarantees. The actual estimate of the fair value of the
indemnities and guarantees could be significantly different than
the preliminary estimate. Please read “Agreements between
Halliburton and KBR and Other Related Party
Transactions — Master Separation Agreement” for
more information concerning the nature and scope of these
indemnities and guarantees.
Pro Forma
Income Statement
(f) Adjustment to eliminate KBR’s revenues and
expenses from the Halliburton’s Consolidated Statements of
Operations
(g) Adjustment to reverse elimination of intercompany
income and expenses related to activity with KBR from
Halliburton’s Consolidated Statements of Operations.
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