KBR KBR Inc

KBR (NYSE:KBR) announced today that third quarter 2008 income from continuing operations was $74 million, or $0.44 per diluted share, which included a negative impact of approximately $0.04 to $0.05 per diluted share, related to Hurricane Ike. This compares to income from continuing operations of $60 million, or $0.35 per diluted share, in the third quarter of 2007. Net income for the third quarter of 2008 was $85 million, or $0.51 per diluted share, which included income from discontinued operations of $11 million, or $0.07 per diluted share, resulting from foreign tax credits related to DML. Net income for the third quarter of 2007 was $63 million, or $0.37 per diluted share, which included income from discontinued operations of $3 million, or $0.02 per diluted share, related to post-closing activities for previously disposed businesses. Consolidated revenue in the third quarter of 2008 was $3.0 billion, an increase of 39% from $2.2 billion in the third quarter of 2007. Consolidated operating income was $144 million in the third quarter of 2008 compared to $102 million in the third quarter of 2007. Operating income in the third quarter of 2008 included a $13 million reversal of a charge related to an unfavorable jury verdict of approximately $40 million from litigation with a subcontractor on the LogCAP III contract in the second quarter of 2008. Operating income in the third quarter of 2007 included an $18 million pre-tax gain on the sale of KBR�s interest in the Brown & Root-Condor Spa (BRC) joint venture in Algeria. �This was a solid quarter for KBR, in terms of revenue growth, operating income growth, and earnings per share growth from last year�s third quarter. The integration of BE&K is going extremely well and BE&K is making strong contributions with new awards and financial performance,� said Bill Utt, Chairman, President, and Chief Executive Officer of KBR. �KBR�s long-term prospects across its end-markets remain positive and KBR is well-positioned to capture those opportunities.� 2008 Third Quarter Business Unit Results Upstream business unit income was $53 million in the third quarter of 2008 compared to business unit income of $57 million in the third quarter of 2007. Business unit income in the third quarter of 2008 had positive contributions from various gas monetization projects, including the Pearl GTL, Skikda LNG, and Gorgon LNG projects, several offshore related projects in Australia and the Caspian area, and an FPSO project. The third quarter of 2007 included an $18 million pre-tax gain on the sale of BRC. Government and Infrastructure business unit income was $104 million in the third quarter of 2008 compared to business unit income of $98 million in the third quarter of 2007. Business unit income in the third quarter of 2008 included a $13 million reversal of a charge related to an unfavorable jury verdict of approximately $40 million from litigation with a subcontractor on the LogCAP III contract in the second quarter of 2008 and positive contributions from Iraq-related activities, the Allenby & Connaught project, work on the CENTCOM project, and several water projects. Business unit income in the third quarter of 2007 included a $6 million gain related to a favorable settlement on a road project. Services business unit income was $27 million in the third quarter of 2008 compared to business unit income of $6 million in the third quarter of 2007. Business unit income in the third quarter of 2008 had positive contributions from BE&K, the Scotford Upgrader project in Canada, service and maintenance vessels in the Gulf of Mexico, and various industrial service projects. Downstream business unit income was $15 million in the third quarter of 2008 compared to business unit income of $4 million in the third quarter of 2007. Business unit income in the third quarter of 2008 had positive contributions from the Yanbu export refinery project, program management services for the Ras Tanura project in Saudi Arabia, and several BE&K projects. Technology business unit income was $4 million in the third quarter of 2008 compared to business unit income of $5 million in the third quarter of 2007. Business unit income in the third quarter of 2008 had positive contributions from an ammonia project in Venezuela and a refinery fluid catalytic cracking revamp project in Colombia. Ventures business unit income was $0 million in the third quarter of 2008 compared to a business unit loss of $3 million in the third quarter of 2007. Business unit income in the third quarter of 2008 was primarily impacted by income from the investment in the Allenby & Connaught military accommodation and services project and offset by start-up costs related to the EBIC ammonia project in Egypt. Business unit loss for the third quarter of 2007 included continued operating losses generated on an investment in a railroad project in Australia. Corporate general and administrative expense in the third quarter of 2008 was $55 million compared to $65 million in the prior year third quarter. Total cash flows provided by operating activities for the first nine months ended September 30, 2008 was $1 million, which included a $158 million reduction in net committed cash from advanced payments related to consolidated joint ventures, other consolidated subsidiaries, and a contract in progress. Significant Achievements and Awards KBR announced on August 6, 2008 and completed on September 3, 2008, the company�s first share repurchase program. The company repurchased a total of 8.4 million shares at an average price of $23.35 per share. KBR announced that the Kellogg Joint Venture Group (KJVG) was awarded a Work Authorization by Chevron Australia Pty Ltd for approximately AUD$300 million to finalize front end engineering and design (FEED) for the Chevron-operated Gorgon project. Through KJVG, KBR is leading the design of the Liquefied Natural Gas facility on Barrow Island, which will consist of three, 5 million ton per annum LNG trains. The FEED also included a 300TJ/d domestic gas plant. KBR announced a division of its Services business unit, BE&K, was awarded a $232 million contract by ADA-ES, Inc. for the construction of its Red River Activated Carbon Plant located in Red River Parish, Louisiana. BE&K will provide full engineering, procurement, and construction services. KBR announced a division of its Services business unit, BE&K, was awarded a $64 million contract by EFACEC Power Transformers, Inc. for the construction of a power transformer manufacturing facility in Rincon, Georgia. BE&K will design and construct the new manufacturing facility that will be used by EFACEC to build power transformers, including core form, shell form, and mobile power substations for the U.S. market. KBR announced a division of its Services business unit, BE&K, was awarded a contract for the rebuild of a large recovery boiler for Weyerhaeuser Company in Columbus, Mississippi. BE&K will reconstruct the lower furnace of the mill�s recovery boiler, including: replacing furnace walls and existing sloped floor; upgrading the combustion air system; and replacing a smelt dissolving tank, as well as installing new agitators and soot blowers. KBR announced on October 6, 2008, it had acquired Wabi Development Corporation (Wabi) for approximately US$19.5 million. Wabi services the energy, forestry, and mining industries in Canada and will be integrated into KBR�s Services Business Unit. Wabi provides maintenance, fabrication, construction, and construction management services to a variety of clients in Canada and Mexico. KBR announced a division of its Services business unit, BE&K, was awarded a multi-million dollar contract by Georgia Power for full engineering, procurement, and construction services of a new baghouse unit at Plant Scherer near Macon, Georgia. BE&K will provide full EPC services for the installation of a new baghouse unit, including major new ductwork and ancillary facilities. KBR is a global engineering, construction and services company supporting the energy, petrochemicals, government services, and civil infrastructure sectors. The company offers a wide range of services through its Downstream, Government and Infrastructure, Services, Technology, Upstream, and Ventures business units. NOTE: The statements in this press release that are not historical statements, including statements regarding future financial performance and backlog information, are forward-looking statements within the meaning of the federal securities laws. These statements are subject to numerous risks and uncertainties, many of which are beyond the company�s control, that could cause actual results to differ materially from the results expressed or implied by the statements. These risks and uncertainties include, but are not limited to: the outcome of and the publicity surrounding audits and investigations by domestic and foreign government agencies and legislative bodies; potential adverse proceedings by such agencies and potential adverse results and consequences from such proceedings; the scope and enforceability of the company�s indemnities from Halliburton Company; changes in capital spending by the company�s customers; the company�s ability to obtain contracts from existing and new customers and perform under those contracts; structural changes in the industries in which the company operates, escalating costs associated with and the performance of fixed-fee projects and the company�s ability to control its cost under its contracts; claims negotiations and contract disputes with the company�s customers; changes in the demand for or price of oil and/or natural gas; protection of intellectual property rights; compliance with environmental laws; changes in government regulations and regulatory requirements; compliance with laws related to income taxes; unsettled political conditions, war and the effects of terrorism; foreign operations and foreign exchange rates and controls; the development and installation of financial systems; increased competition for employees; the ability to successfully complete and integrate acquisitions; and operations of joint ventures, including joint ventures that are not controlled by the company. KBR�s Annual Report on Form 10-K dated February 26, 2008, subsequent Forms 10-Q, recent Current Reports on Forms 8-K, and other Securities and Exchange Commission filings discuss some of the important risk factors that KBR has identified that may affect the business, results of operations and financial condition. KBR undertakes no obligation to revise or update publicly any forward-looking statements for any reason. KBR, Inc.: Condensed Consolidated Statements of Income (Millions of dollars and shares except per share data) (Unaudited) � Three Months Three Months Ended Ended September 30, June 30, � 2008 2007 2008 Revenue: Government and Infrastructure $ 1,759 $ 1,566 $ 1,707 Upstream 550 407 699 Services 539 77 129 Downstream 138 103 101 Technology 19 26 23 Ventures(a) 1 (2 ) (1 ) Other � � 12 � � � � � � � Total revenue � $ 3,018 � $ 2,177 � $ 2,658 � Business unit income (loss): Government and Infrastructure $ 104 $ 98 $ 63 Upstream 53 57 39 Services 27 6 17 Downstream 15 4 14 Technology 4 5 7 Ventures(a) � (3 ) � Other � � 1 � � � � � � � Total business unit income � � 204 � � 167 � � 140 � Unallocated costs: Labor cost absorption (5 ) � 2 Corporate general and administrative � � (55 ) � (65 ) � (52 ) Total operating income � � 144 � � 102 � � 90 � Interest income, net 7 17 9 Foreign currency gain (loss), net � (11 ) 1 Other non-operating gain, net � � � � � � � � � � Income from continuing operations before income taxes and minority interest 151 108 100 Provision for income taxes (55 ) (35 ) (36 ) Minority interest in net earnings of subsidiaries � � (22 ) � (13 ) � (16 ) Income from continuing operations 74 60 48 Income from discontinued operations, net � � 11 � � 3 � � � � Net income � $ 85 � $ 63 � $ 48 � Basic income per share(b): Continuing operations $ 0.45 $ 0.36 $ 0.28 Discontinued operations, net � � 0.07 � � 0.02 � � � � Net income per share � $ 0.51 � $ 0.38 � $ 0.28 � Diluted income per share(b): Continuing operations $ 0.44 $ 0.35 $ 0.28 Discontinued operations, net � � 0.07 � � 0.02 � � � � Net income per share � $ 0.51 � $ 0.37 � $ 0.28 � Basic weighted average shares outstanding 166 168 169 Diluted weighted average shares outstanding � � 167 � � 170 � � 171 � Cash dividends declared per share � $ 0.05 � $ � � $ 0.05 � (a) � Ventures segment operations generally relate to investments in less-than-50%-owned unconsolidated entities which are accounted for using the equity method. Accordingly, our revenue equals our share of the net income or loss of these entities. � (b) Due to the effect of rounding, the sum of the individual per share amounts may not equal the total shown. KBR, Inc.: Condensed Consolidated Statements of Income (Millions of dollars and shares except per share data) (Unaudited) � Nine Months Ended September 30, � 2008 2007 Revenue: Government and Infrastructure $ 5,150 $ 4,505 Upstream 1,860 1,284 Services 776 226 Downstream 339 276 Technology 61 72 Ventures(a) (3 ) (7 ) Other � � 12 � � � � Total revenue � $ 8,195 � $ 6,356 � Business unit income (loss): Government and Infrastructure $ 247 $ 226 Upstream 197 124 Services 57 33 Downstream 37 7 Technology 16 18 Ventures(a) (4 ) (9 ) Other � � 1 � � � � Total business unit income � � 551 � � 399 � Unallocated costs: Labor cost absorption � (10 ) Corporate general and administrative � � (163 ) � (177 ) Total operating income � � 388 � � 212 � Interest income, net 32 44 Foreign currency losses, net (2 ) (16 ) Other non-operating gain, net � � � � � 1 � Income from continuing operations before income taxes and minority interest 418 241 Provision for income taxes (151 ) (93 ) Minority interest in net earnings of subsidiaries � � (47 ) � (14 ) Income from continuing operations 220 134 Income from discontinued operations, net � � 11 � � 97 � Net income � $ 231 � $ 231 � Basic income per share(b): Continuing operations $ 1.31 $ 0.80 Discontinued operations, net � � 0.07 � � 0.58 � Net income per share � $ 1.38 � $ 1.38 � Diluted income per share(b): Continuing operations $ 1.30 $ 0.79 Discontinued operations, net � � 0.07 � � 0.57 � Net income per share � $ 1.37 � $ 1.37 � Basic weighted average shares outstanding 168 168 Diluted weighted average shares outstanding � � 169 � � 169 � Cash dividends declared per share � $ 0.15 � $ � � (a) � Ventures segment operations generally relate to investments in less-than-50%-owned unconsolidated entities which are accounted for using the equity method. Accordingly, our revenue equals our share of the net income or loss of these entities. � (b) Due to the effect of rounding, the sum of the individual per share amounts may not equal the total shown. KBR, Inc.: Condensed Consolidated Balance Sheets (In millions) (Unaudited) � September 30, December 31, � � 2008 2007 Assets Current assets: Cash and equivalents $ 1,110 $ 1,861 Receivables: Notes and accounts receivable, net 1,333 927 Unbilled receivables on uncompleted contracts � � 760 � � 820 � Total receivables 2,093 1,747 Deferred income taxes 167 165 Other current assets 289 282 Current assets of discontinued operations � � � � � 1 � Total current assets 3,659 4,056 Property, plant, and equipment, net of accumulated depreciation of $240 and $227 262 220 Goodwill 679 251 Intangible assets, net 74 15 Equity in and advances to unconsolidated affiliates 177 294 Noncurrent deferred income taxes 92 139 Unbilled receivables on uncompleted contracts 133 196 Other assets � � 247 � � 32 � Total assets � $ 5,323 � $ 5,203 � � Liabilities, Minority Interest and Shareholder�s Equity Current liabilities: Accounts payable $ 1,140 $ 1,117 Due to Halliburton, net 17 16 Advanced billings on uncompleted contracts 686 794 Reserve for estimated contract losses 92 117 Employee compensation and benefits 362 316 Other current liabilities 327 262 Current liabilities of discontinued operations � � 6 � � 1 � Total current liabilities 2,630 2,623 Noncurrent employee compensation and benefits 109 79 Other noncurrent liabilities 184 151 Noncurrent income tax payable 80 78 Noncurrent deferred tax liability � � 43 � � 37 � Total liabilities � � 3,046 � � 2,968 � Minority interest in consolidated subsidiaries � � � � � (32 ) Shareholders� equity and accumulated other comprehensive loss: Common stock � � Paid-in capital in excess of par value 2,086 2,070 Accumulated other comprehensive loss (136 ) (122 ) Retained earnings � � 523 � � 319 � 2,473 2,267 Treasury Stock � � (196 ) � � � Total shareholders� equity and accumulated other comprehensive loss � � 2,277 � � 2,267 � Total liabilities, minority interest, shareholders� equity and accumulated other comprehensive loss � $ 5,323 � $ 5,203 � KBR, Inc.: Condensed Consolidated Statements of Cash Flows (In millions) (Unaudited) � � Nine Months Ended September 30, � � 2008 2007 Cash flows from operating activities: Net income $ 231 $ 231 Adjustments to reconcile net income to net cash provided by (used in) operations: Depreciation and amortization 33 30 Equity earnings from unconsolidated affiliates (34 ) (71 ) Deferred income taxes 52 8 Gain on sale of assets, net � (216 ) Other 10 52 Changes in operating assets and liabilities: Receivables (119 ) (247 ) Unbilled receivables on uncompleted contracts 73 271 Accounts payable (102 ) (91 ) Advanced billings on uncompleted contracts (212 ) 87 Accrued employee compensation and benefits (2 ) 35 Reserve for loss on uncompleted contracts (25 ) (43 ) Collection (repayment) of advances from (to) unconsolidated affiliates, net 69 (39 ) Distribution of earnings from unconsolidated affiliates 88 93 Other assets (89 ) (38 ) Other liabilities � � 28 � � 110 � Total cash flows provided by operating activities � � 1 � � 172 � Cash flows from investing activities: Capital expenditures (27 ) (32 ) Sales of property, plant and equipment 6 1 Acquisition of businesses, net of cash acquired (498 ) � Disposition of business/investments, net of cash disposed � � � � � 334 � Total cash flows provided by (used in) investing activities � � (519 ) � 303 � Cash flows from financing activities: Payments to Halliburton, net � (120 ) Payments on long-term borrowings � (7 ) Payments to reacquire common stock (196 ) � Net proceeds from issuance of common stock 3 4 Excess tax benefits from stock-based compensation 2 3 Payment of dividend to shareholders (17 ) � Payments of dividends to minority shareholders � � (23 ) � (28 ) Total cash flows used in financing activities � � (231 ) � (148 ) Effect of exchange rate changes � � (2 ) � 7 � Increase (decrease) in cash and equivalents (751 ) 334 Cash and equivalents at beginning of period � � 1,861 � � 1,461 � Cash and equivalents at end of period � $ 1,110 � $ 1,795 � Noncash financing activities Dividends declared but not paid � $ 9 � $ � � KBR, Inc.: Revenue and Operating Results by Business Unit (In millions) (Unaudited) � � ��Three Months Ended September 30, � � June 30, Revenue: 2008 � 2007 2008 G&I: U.S. Government � Middle East Operations $ 1,364 $ 1,217 $ 1,340 U.S. Government � Americas Operations 183 192 156 International Operations � � � 212 � � � 157 � � � � 211 � Total G&I � � � 1,759 � � � 1,566 � � � � 1,707 � Upstream: Gas Monetization 434 265 575 Offshore 97 92 98 Other � � � 19 � � � 50 � � � � 26 � Total Upstream � � � 550 � � � 407 � � � � 699 � Services 539 77 129 Downstream 138 103 101 Technology 19 26 23 Ventures 1 (2 ) (1 ) Other � � � 12 � � � � � � � � � � Total revenue � � $ 3,018 � � $ 2,177 � � � $ 2,658 � Business unit income (loss): G&I: U.S. Government � Middle East Operations $ 78 $ 61 $ 36 U.S. Government � Americas Operations 13 31 13 International Operations � � � 42 � � � 36 � � � � 45 � Total job income � � � 133 � � � 128 � � � � 94 � Divisional overhead � � � (29 ) � � (30 ) � � � (31 ) Total G&I business unit income � � � 104 � � � 98 � � � � 63 � Upstream: Gas Monetization 37 31 32 Offshore 20 15 17 Other � � � 6 � � � 26 � � � � 4 � Total job income � � � 63 � � � 72 � � � � 53 � Divisional overhead � � � (10 ) � � (15 ) � � � (14 ) Total Upstream business unit income � � � 53 � � � 57 � � � � 39 � Services: Job income 41 9 19 Gain on sale of assets � � 1 Divisional overhead � � � (14 ) � � (3 ) � � � (3 ) Total Services business unit income � � � 27 � � � 6 � � � � 17 � Downstream: Job income 20 7 20 Divisional overhead � � � (5 ) � � (3 ) � � � (6 ) Total Downstream business unit income � � � 15 � � � 4 � � � � 14 � Technology: Job income 10 10 12 Divisional overhead � � � (6 ) � � (5 ) � � � (5 ) Total Technology business unit income � � � 4 � � � 5 � � � � 7 � Ventures: Job income (loss) 1 (2 ) (1 ) Gain on sale of assets � � 1 Divisional overhead � � � (1 ) � � (1 ) � � � � � Total Ventures business unit income (loss) � � � � � � � (3 ) � � � � � Other: Job Income 4 � � Divisional overhead � � � (3 ) � � � � � � � � � Total Other business unit income � � � 1 � � � � � � � � � � Total business unit income � � $ 204 � � $ 167 � � � $ 140 � KBR, Inc.: Revenue and Operating Results by Business Unit (In millions) (Unaudited) � �Nine Months Ended September 30, Revenue: 2008 � 2007 G&I: U.S. Government � Middle East Operations $ 4,072 $ 3,529 U.S. Government � Americas Operations 460 565 International Operations � � 618 � � � 411 � Total G&I � � 5,150 � � � 4,505 � Upstream: Gas Monetization 1,454 907 Offshore 332 260 Other � � 74 � � � 117 � Total Upstream � � 1,860 � � � 1,284 � Services 776 226 Downstream 339 276 Technology 61 72 Ventures (3 ) (7 ) Other � � 12 � � � � � Total revenue � $ 8,195 � � $ 6,356 � Business unit income (loss): G&I: U.S. Government � Middle East Operations $ 183 $ 193 U.S. Government � Americas Operations 27 49 International Operations � � 126 � � � 82 � Total job income � � 336 � � � 324 � Divisional overhead � � (89 ) � � (98 ) Total G&I business unit income � � 247 � � � 226 � Upstream: Gas Monetization 110 112 Offshore 104 38 Other � � 18 � � � 13 � Total job income � � 232 � � � 163 � Divisional overhead � � (35 ) � � (39 ) Total Upstream business unit income � � 197 � � � 124 � Services: Job income 76 41 Gain on sale of assets 1 � Divisional overhead � � (20 ) � � (8 ) Total Services business unit income � � 57 � � � 33 � Downstream: Job income 52 18 Divisional overhead � � (15 ) � � (11 ) Total Downstream business unit income � � 37 � � � 7 � Technology: Job income 32 33 Divisional overhead � � (16 ) � � (15 ) Total Technology business unit income � � 16 � � � 18 � Ventures: Job income (loss) (3 ) (7 ) Gain on sale of assets 1 � Divisional overhead � � (2 ) � � (2 ) Total Ventures business unit income (loss) � � (4 ) � � (9 ) Other: Job Income 4 � Divisional overhead � � (3 ) � � � � Total Other business unit income � � 1 � � � � � Total Business unit income � $ 551 � � $ 399 � KBR, Inc.: Backlog Information(a) (In Millions) (Unaudited) � � September 30, December 31, � 2008 2007 G&I: U.S. Government - Middle East Operations $ 1,570 $ 1,361 U.S. Government - Americas Operations 705 548 International Operations � � 1,928 � � 2,339 Total G&I(b) � � 4,203 � � 4,248 Upstream: Gas Monetization 6,597 6,606 Offshore Projects 239 173 Other � � 106 � � 118 Total Upstream � � 6,942 � � 6,897 Services � � 2,884 � � 765 Downstream � � 360 � � 313 Technology � � 95 � � 128 Ventures � � 766 � � 700 Total backlog for continuing operations(c) � $ 15,250 � $ 13,051 (a) � Backlog is presented differently depending on if the contract is consolidated by KBR or is accounted for under the equity method of accounting. Backlog related to consolidated projects is presented as 100% of the expected revenue from the project. Backlog related to projects accounted for under the equity method of accounting is presented as KBR's share of the expected future revenue from the project. Our backlog for projects related to unconsolidated joint ventures totaled $2.8 billion and $3.1 billion at September 30, 2008 and December 31, 2007, respectively. Our backlog related to consolidated joint ventures with minority interest totaled $3.5 billion and $3.2 billion at September 30, 2008 and December 31, 2007, respectively. � As of September 30, 2008, 20% of our backlog for continuing operations was attributable to fixed-price contracts and 80% was attributable to cost-reimbursable contracts. For contracts that contain both fixed-price and cost-reimbursable components, we classify the components as either fixed-price or cost-reimbursable according to the composition of the contract except for smaller contracts where we characterize the entire contract based on the predominate component. � (b) The Government and Infrastructure segment backlog from continuing operations includes backlog attributable to firm orders in the amount of $4.0 billion and $4.0 billion as of September 30, 2008 and December 31, 2007, respectively. Government and Infrastructure backlog attributable to unfunded orders was $0.2 billion as of September 30, 2008 and $0.2 billion as of December 31, 2007. � (c) As a result of the acquisition of BE&K on July 1, 2008, backlog increased approximately $2.0 billion.