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Saturday, September 30, 2006

Weekend Edition: Halliburton Spin-Off

Halliburton Still Plans to Spin-Off Its KBR Unit
KBR, the former Kellogg Brown & Root, is cooperating with Halliburton (HAL) to accomplish a tax-free distribution by Halliburton to its stockholders of shares of common stock, and it agreed to promptly take any and all actions necessary or desirable to effect any such distribution. The distribution may occur through a dividend, exchange or other transaction. We still do not have any formal plan, but the plan still apears "to have a plan."

An amended filing with the SEC was dated September 22, 2006, so this is fresh and doesn't make it look like the company wants to hold off on the division of the two operations. This will also allow Halliburton and KBR to each be evaluated as pure-play companies rather than the culmination of an oil services company mixed with a warfare support and infrastructure builder.

THE TWO COMPANIES (Mostly described by themselves)

Notes from KBR regarding the filing: We will enter into a master separation agreement with Halliburton that will provide for the separation of our assets and businesses from those of Halliburton. The master separation agreement will also contain agreements relating to the conduct of this offering and future transactions, and will govern the relationship between Halliburton and us subsequent to the separation and this offering. In addition, we will enter into several ancillary agreements with Halliburton, including a tax sharing agreement, a registration rights agreement, two transition services agreements, an employee matters agreement, and an intellectual property matters agreement. The terms of these agreements were determined by Halliburton. These agreements will continue in accordance with their terms after any distribution by Halliburton of our common stock to its stockholders. Summaries of the master separation agreement and the ancillary agreements are set forth below, and these agreements will be filed as exhibits to the registration statement of which this prospectus forms a part.

Founded in 1919, Halliburton is one of the world's largest providers of products and services to the oil and gas industries. The Company adds value through the entire lifecycle of oil and gas reservoirs and provides and integrates products and services, starting with exploration and development, moving through production, operations, maintenance, conversion and refining, to infrastructure and abandonment. Halliburton employs more than 100,000 people in over 120 countries working in five major operating groups:

Halliburton's Energy Services Group consists of four business segments:
•Drilling and Formation Evaluation
•Fluid Systems
•Production Optimization
•Digital and Consulting Solutions

These segments offer a broad array of products and services to upstream oil and gas customers worldwide, ranging from the manufacturing of drill bits and other downhole and completion tools to pressure pumping services.

KBR, Halliburton’s engineering and construction subsidiary, employs more than 60,000 people in 43 countries. Its strength is in engineering and project management, with a strong historical position in LNG and oil and gas projects. The company is a leading government services contractor as well. This global technology and services company is composed of two distinct divisions: the Energy & Chemicals Division and the Government & Infrastructure Division. The Energy & Chemicals Division provides state-of-the-art engineering, procurement, construction and technology capabilities focused on upstream and downstream markets. The Government & Infrastructure Division, with its premier civil infrastructure capabilities, is one of the largest government logistics and services contractors in the world. Whether designing an LNG facility, serving as a defense industry contractor or providing capital construction, KBR delivers world-class service and performance.

There will be many indemnifications. KBR is an entirely different operation than Halliburton and it carries many different liabilities.

KBR posted revenues of $10.2 Billion and net income of $240 million. Its first half of 2006 revenues were $4.7 Billion and net income was $118 million. Its first half of 2005 showed over $5 Billion in revenues, but $91 million attributable net income. As of June 30, 2006 KBR held some $930 million in cash and total short-term assets of $3.956 Billion, and its total assets were listed as $5.623 Billion; and liabilities were broken down as $2.844 Billion in current liabilities with its total liabilities listed as $4.098 Billion.

Perhaps the most interesting issue in the entire prospectus is that the sale date and terms are blank, but it still says: Delivery of the shares of common stock will be made on or about , 2006. That still says that 2006 is the anticipated time frame. You need to be aware that this is a cookie cutter prospectus from the company, but it does still lend hope that KBR will be its own public company by the end of the year. This is an updated prospectus date September 22, and the last filing was listed as May 26. This incorporates the new six-month period of performance. There are still no listed terms because this is still pending and is still up in the air, so there is no assurance it will occur this calendar year.

There are still no underwriters listed on the prospectus, which is the same as before. That also means this may not be via a legitimate IPO, but it is too soon to know since the company hasn't determined its path. The "2006" date indication, while not specific, still lends hopes that a tax-free spin-off, sale, or distribution is the hoped-for route here. This will likely be an IPO or paid out in another tax free situation. Halliburton (HAL) has been drifting lower and lower is actually trading at the lowest level since it went ballistic last summer. It has also been trading outside of its uptrend for several weeks with the oil-patch names as oil prices have officially entered bear market territory.

We do not yet know what avenue the company will use to seperate KBR from Halliburton, but the company is still at least going through the motions that it wants to seperate the operations. KBR has been deemed a laggard and worse for the entire Halliburton organization, and the company still knows that. Hopefully this will get the process expedited.

Jon C. Ogg

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