What drove the improvement in Halliburton's 2005 results?

The filing attributes the improvement mainly to the Energy Services Group, where higher rig counts, better equipment utilization and increased pricing lifted revenue 26% and operating income 80%. KBR also improved, moving from a $342 million operating loss in 2004 to $498 million of operating income, largely because 2004 offshore fixed-price losses did not recur and disputed Iraq costs were resolved.

How exposed is Halliburton to U.S. government spending?

U.S. Government revenue was $6.6 billion in 2005, or 31% of consolidated revenue, down from $8.0 billion in 2004. Most of this work was performed in the Middle East by the Government and Infrastructure segment, and the filing expects the LogCAP volume to continue declining in 2006.

What are the main legal and investigation risks disclosed?

The SEC and the Department of Justice are investigating payments tied to the TSKJ Bonny Island project in Nigeria under the Foreign Corrupt Practices Act, and a bidding-practices investigation is also underway. Penalties could include suspension or debarment from government contracting, which the filing says would have a material adverse effect. As of December 31, 2005, no amounts were accrued for these investigations beyond current legal expenses.

What is the company's capital return and separation plan?

The board approved a share repurchase program of up to $1.0 billion and a dividend of $0.15 per share for the first quarter of 2006, up $0.025. It also approved a 2-for-1 stock split subject to shareholder approval, and plans an initial public offering of less than 20% of KBR, with a Form S-1 expected after KBR's 2005 audited financial statements are complete.

What was the effect of the asbestos and silica settlement?

In January 2005, the company contributed about $2.345 billion in cash and 59.5 million shares of common stock to the asbestos and silica trusts, which eliminated the asbestos and silica liabilities. The company received $1.032 billion from insurance receivables in 2005, with $427 million remaining to be collected through 2010.

HAL 10-K FY2005 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed March 13, 2006. Cited figures are marked; the original filing is the authoritative source.

Halliburton Company's 2005 Form 10-K reports revenue of $20.99 billion^a, up from $20.47 billion in 2004, and operating income of $2.66 billion versus $837 million in 2004.

Net income was $2.36 billion^b, or $4.54 diluted per share, compared with a net loss of $979 million in 2004. The result was driven by the Energy Services Group (ESG), whose revenue rose to $10.10 billion from $8.00 billion and whose operating income rose to $2.28 billion from $1.27 billion, and by KBR, which swung to $498 million of operating income from a $342 million loss in 2004. Net income also benefited from a $805 million favorable adjustment to a valuation allowance and from the $2.35 billion cash contribution to the asbestos and silica trusts that resolved those liabilities in January 2005.

The company reports that about 27% of 2005 consolidated revenue came from the United States, 24% from Iraq and 10% from the United Kingdom. U.S. Government revenue was $6.6 billion^c, or 31% of revenue, down from $8.0 billion in 2004, and Iraq-related revenue fell to about $5.4 billion from $7.1 billion. The filing says the LogCAP volume is expected to keep declining in 2006.

Management also plans to separate KBR through an initial public offering of less than 20%, and the board approved a $1.0 billion^d share repurchase program, a 2-for-1 stock split subject to shareholder approval, and a dividend increase to $0.15 per share. The filing discloses substantial legal exposure. The SEC and the Department of Justice are investigating payments connected to the TSKJ Bonny Island project in Nigeria under the Foreign Corrupt Practices Act, and a separate bidding-practices investigation is underway.

The company has not accrued any amounts for these investigations other than current legal expenses. Other open matters include DCAA audit withholdings on Iraq contracts, the Petrobras arbitration seeking $220 million plus interest over subsea bolts, and Barracuda-Caratinga project closeout. Total debt was $3.17 billion at year-end, and the debt-to-capitalization ratio was 33%.

02—Key points

Key Highlights

Revenue rose 3% to $20.99 billion, while operating income more than tripled to $2.66 billion from $837 million.
Energy Services Group revenue increased 26% to $10.10 billion and operating income increased 80% to $2.28 billion; ESG operating margin was 22.6% versus 15.8% in 2004.
KBR operating income was $498 million in 2005 compared with a $342 million loss in 2004; the filing cites a $103 million benefit from LogCAP and RIO contract settlements.
Net income was $2.36 billion ($4.54 per diluted share), including a $805 million favorable valuation allowance adjustment that reduced the effective tax rate to 3%.
U.S. Government revenue fell to $6.6 billion (31% of revenue) from $8.0 billion, and Iraq-related revenue fell to about $5.4 billion, with LogCAP work expected to decline further in 2006.
The company plans to separate KBR through an IPO of less than 20%, approved a $1.0 billion share repurchase program, and approved a 2-for-1 stock split subject to shareholder approval.
Cash and equivalents reached $2.39 billion and debt-to-capitalization was 33%; the company redeemed $500 million of floating-rate notes and repaid $300 million in 2005.

03—Questions

Frequently Asked Questions

What drove the improvement in Halliburton's 2005 results?
The filing attributes the improvement mainly to the Energy Services Group, where higher rig counts, better equipment utilization and increased pricing lifted revenue 26% and operating income 80%. KBR also improved, moving from a $342 million operating loss in 2004 to $498 million of operating income, largely because 2004 offshore fixed-price losses did not recur and disputed Iraq costs were resolved.
How exposed is Halliburton to U.S. government spending?
U.S. Government revenue was $6.6 billion in 2005, or 31% of consolidated revenue, down from $8.0 billion in 2004. Most of this work was performed in the Middle East by the Government and Infrastructure segment, and the filing expects the LogCAP volume to continue declining in 2006.
What are the main legal and investigation risks disclosed?
The SEC and the Department of Justice are investigating payments tied to the TSKJ Bonny Island project in Nigeria under the Foreign Corrupt Practices Act, and a bidding-practices investigation is also underway. Penalties could include suspension or debarment from government contracting, which the filing says would have a material adverse effect. As of December 31, 2005, no amounts were accrued for these investigations beyond current legal expenses.
What is the company's capital return and separation plan?
The board approved a share repurchase program of up to $1.0 billion and a dividend of $0.15 per share for the first quarter of 2006, up $0.025. It also approved a 2-for-1 stock split subject to shareholder approval, and plans an initial public offering of less than 20% of KBR, with a Form S-1 expected after KBR's 2005 audited financial statements are complete.
What was the effect of the asbestos and silica settlement?
In January 2005, the company contributed about $2.345 billion in cash and 59.5 million shares of common stock to the asbestos and silica trusts, which eliminated the asbestos and silica liabilities. The company received $1.032 billion from insurance receivables in 2005, with $427 million remaining to be collected through 2010.

04—Continue

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