KBR Announces Second Quarter 2009 Results

KBR (NYSE:KBR):

Revenue for the first six months of 2009 increased 22% over the first six months of the previous year
Operating income for the first six months of 2009 increased 15% over the first six months of 2008
Solid backlog at the end of June 30, 2009 of $12.3 billion with no material project cancellations during the second quarter of 2009
Continued strong balance sheet with $1.1 billion cash and equivalents
Corporate G&A for the second quarter of 2009 was up only $2 million compared to the prior year second quarter, despite the BE&K acquisition

KBR (NYSE:KBR) announced today that second quarter 2009 net income attributable to KBR was $67 million, or $0.42 per diluted share, compared to net income attributable to KBR of $48 million, or $0.28 per diluted share, in the second quarter of 2008.

Consolidated revenue in the second quarter of 2009 was $3.1 billion, an increase of 17% from $2.7 billion in the second quarter of 2008. Consolidated operating income was $137 million in the second quarter of 2009 compared to $90 million in the second quarter of 2008.

“I am pleased with the strong revenue and operating income growth over the same period last year, which contributed to KBR’s solid earnings in the second quarter of 2009. Our cash balance increased $156 million during the quarter to $1.1 billion at the end of June 2009,” said Bill Utt, Chairman, President, and Chief Executive Officer of KBR. “Backlog remained solid at $12.3 billion with the end-markets showing positive indicators towards projects moving forward over the next few years.”

2009 Second Quarter Business Unit Results

Upstream business unit income was $65 million in the second quarter of 2009 compared to business unit income of $39 million in the second quarter of 2008. Business unit income in the second quarter of 2009 had positive contributions from various gas monetization projects, including the Pearl GTL, Skikda LNG, Gorgon LNG, Yemen LNG, and Escravos GTL projects, an offshore related project in the Caspian area, and several topside engineering projects. Business unit income in the second quarter of 2008 included a $24 million reduction in KBR’s share of the estimated profits on an LNG project, which was subsequently offset by a gain of $24 million on a change order on the same LNG project in the fourth quarter of 2008.

Government and Infrastructure business unit income was $80 million in the second quarter of 2009 compared to business unit income of $63 million in the second quarter of 2008. Business unit income in the second quarter of 2009 had positive contributions from Iraq-related activities, the Allenby & Connaught project, work on the CENTCOM project, and numerous infrastructure projects, including the Qatar-Bahrain Causeway. Business unit income in the second quarter of 2008 included a $40 million charge related to an unfavorable jury verdict from litigation with a subcontractor on the LogCAP III contract dating back to 2003 and a $3 million charge on the U.S. Embassy project in Macedonia.

Services business unit income was $29 million in the second quarter of 2009 compared to business unit income of $17 million in the second quarter of 2008. Business unit income in the second quarter of 2009 had positive contributions from BE&K, including continued work on power projects in Georgia and Texas, in addition to legacy construction and maintenance work in Texas, the offshore service vessels in the Gulf of Mexico, and an activated carbon project in Louisiana.

Downstream business unit income was $14 million in the second quarter of 2009 compared to business unit income of $14 million in the second quarter of 2008. Business unit income in the second quarter of 2009 had positive contributions from the Yanbu export refinery project, program management services for the Ras Tanura project in Saudi Arabia, the Lobito refinery FEED in Angola, and several BE&K projects. Also included in the second quarter 2009 results were additional repair costs during performance testing on the EBIC ammonia project in Egypt. However, at the end of July 2009, the EBIC ammonia project successfully completed the reliability testing, which marks substantial completion on the project, pending expected final notification from the customer in August 2009.

Technology business unit income was $5 million in the second quarter of 2009 compared to business unit income of $7 million in the second quarter of 2008. Business unit income in the second quarter of 2009 had positive contributions from several ammonia license and basic engineering projects in South America and one project in India.

Corporate general and administrative expense in the second quarter of 2009 was $54 million, up $2 million from the prior year second quarter, which did not include the BE&K corporate expenses. The slight increase primarily related to higher legal expenditures.

Total cash flows provided by operating activities for the second quarter of 2009 was $164 million. Total cash flows used in operating activities for the first six months of 2009 were $8 million.

Significant Achievements and Awards

KBR announced a division of its Services business unit, BE&K Construction Company, was awarded a power contract by Progress Energy Carolinas, Inc. to provide construction services for a new natural gas-fired combined-cycle unit at the Richmond County Energy Complex located near Hamlet, N.C. BE&K will provide general construction services including installation of foundations, power generation and auxiliary equipment, piping, electrical, instrumentation, control and related systems for the completion of the facility, which is designed to improve electric system reliability in southern and eastern North Carolina.
KBR announced the award by Esso Highlands Ltd (a subsidiary of Exxon Mobil Corporation) to the Eos Joint Venture (an unincorporated joint venture comprising WorleyParsons and Kellogg Brown & Root) an agreement covering Project Services for the PNG LNG Project. The Eos joint venture will facilitate requests from Esso Highlands to provide engineering, training, in-country support services and integrated project team services for construction and project management. This maintains Eos' engagement in the upstream component of the proposed PNG LNG development following the completion of Eos' current FEED services contract.
KBR was recognized by the British Ministry of Defence (MoD) as the department’s top Key Supplier. KBR was awarded an 8.2 out of a possible 10 points in the MoD’s performance assessment, making KBR the first Key Supplier to receive a score above an 8. KBR now sets the standard against which all other Key Suppliers of the MoD will be measured. The Performance Reviews, conducted between April 2008 and March 2009, assess the performance of 29 Key Suppliers and 97 MoD project teams. KBR’s Government & Infrastructure business unit currently works on a number of high profile projects with the MoD, delivering infrastructure and other support services to the British military including: Contractor Logistics Support (CONLOG), Afghanistan Infrastructure Support and Temporary Deployable Accommodation programs.
KBR announced that its consulting subsidiary Granherne was selected to take part in a conceptual study of StatoilHydro ASA’s Gullfaks 2030 project to extend the production from the gas field. The award builds on previous conceptual studies undertaken by Granherne evaluating the possible installation of a subsea Wet Gas Compression and the tie-back of the Peon satellite production to the Gullfaks C platform.

KBR is a global engineering, construction and services company supporting the energy, hydrocarbon, 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 25, 2009, 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 June 30, March 31, 2009 2008 2009 Revenue: Government and Infrastructure $ 1,567 $ 1,707 $ 1,729 Upstream 787 699 751 Services 588 129 569 Downstream 124 101 113 Technology 23 23 20 Ventures 3 (1 ) 8 Other 9

10 Total revenue $ 3,101 $ 2,658 $ 3,200 Business unit income: Government and Infrastructure $ 80 $ 63 $ 81 Upstream 65 39 73 Services 29 17 24 Downstream 14 14

Technology 5 7 3 Ventures 1

10 Other

1 Total business unit income 194 140 192 Unallocated costs: Labor cost absorption (3 ) 2 1 Corporate general and administrative (54 ) (52 ) (49 ) Total operating income 137 90 144 Interest income, net

9 1 Foreign currency gains (losses), net (4 ) 1 5 Other non-operating expense (1 )

Income before income taxes 132 100 150 Provision for income taxes (49 ) (36 ) (55 ) Net income $ 83 $ 64 $ 95 Less: Net income attributable to non controlling interests (16 ) (16 ) (18 ) Net income attributable to KBR $ 67 $ 48 $ 77 Net income attributable to KBR per share(a): Basic $ 0.42 $ 0.28 $ 0.48 Diluted $ 0.42 $ 0.28 $ 0.48 Basic weighted average shares outstanding 160 169 161 Diluted weighted average shares outstanding 161 171 162 Cash dividends declared per share(b) $ 0.05 $ 0.05 $ 0.05 (a) Due to the effect of rounding, the sum of the individual per share amounts may not equal the total shown. (b) The dividend in the second quarter of 2009 was declared in May 2009 for shareholders of record as of June 15, 2009.

KBR, Inc.: Condensed Consolidated Statements of Income

(Millions of dollars and shares except per share data) (Unaudited)

Six Months Ended June 30, 2009 2008 Revenue: Government and Infrastructure $ 3,296 $ 3,391 Upstream 1,538 1,310 Services 1,157 237 Downstream 237 201 Technology 43 42 Ventures 11 (4 ) Other 19

Total revenue $ 6,301 $ 5,177 Business unit income (loss): Government and Infrastructure $ 161 $ 143 Upstream 138 144 Services 53 30 Downstream 14 22 Technology 8 12 Ventures 11 (4 ) Other 1

Total business unit income 386 347 Unallocated costs: Labor cost absorption (2 ) 5 Corporate general and administrative (103 ) (108 ) Total operating income 281 244 Interest income, net 1 25 Foreign currency gains (losses), net 1 (2 ) Other non-operating expense (1 )

Income before income taxes 282 267 Provision for income taxes (104 ) (96 ) Net income $ 178 $ 171 Less: Net income attributable to non controlling interests (34 ) (25 ) Net income attributable to KBR $ 144 $ 146 Net income attributable to KBR per share(a): Basic $ 0.90 $ 0.86 Diluted $ 0.89 $ 0.86 Basic weighted average shares outstanding 160 169 Diluted weighted average shares outstanding 161 170 Cash dividends declared per share(b): $ 0.10 $ 0.10

(a) Due to the effect of rounding, the sum of the individual per share amounts may not equal the total shown.

(b) The dividend in the second quarter of 2009 was declared in May 2009 for shareholders of record as of June 15, 2009.

KBR, Inc.: Condensed Consolidated Balance Sheets

(In millions) (Unaudited)

June 30, December 31, 2009 2008 Assets Current assets: Cash and equivalents $ 1,077 $ 1,145 Receivables: Accounts receivable, net 1,398 1,312 Unbilled receivables on uncompleted contracts 751 835 Total receivables 2,149 2,147 Deferred income taxes 183 107 Other current assets 530 743 Total current assets 3,939 4,142

Property, plant, and equipment, net of accumulated depreciation of $248 and $224

245 245 Goodwill 698 694 Intangible assets, net 64 73 Equity in and advances to unconsolidated affiliates 215 185 Noncurrent deferred income taxes 190 167 Unbilled receivables on uncompleted contracts 134 134 Other assets 162 244 Total assets $ 5,647 $ 5,884 Liabilities and Shareholders’ Equity Current liabilities: Accounts payable $ 1,272 $ 1,387 Due to former parent, net 54 54 Advanced billings and unearned revenue on uncompleted contracts 424 519 Reserve for estimated contract losses 61 76 Employee compensation and benefits 324 320 Other current liabilities 532 680 Current liabilities of discontinued operations 6 7 Total current liabilities 2,673 3,043 Noncurrent employee compensation and benefits 429 403 Other noncurrent liabilities 235 333 Noncurrent income tax payable 46 34 Noncurrent deferred tax liability 64 37 Total liabilities 3,447 3,850 KBR shareholders’ equity: Common stock

Paid-in capital in excess of par value 2,099 2,091 Accumulated other comprehensive loss (428 ) (439 ) Retained earnings 732 596 Treasury stock (217 ) (196 ) Total KBR shareholders’ equity 2,186 2,052 Non-controlling interest 14 (18 ) Total shareholders’ equity 2,200 2,034 Total liabilities and shareholders’ equity $ 5,647 $ 5,884

KBR, Inc.: Condensed Consolidated Statements of Cash Flows

(In millions) (Unaudited)

Six Months Ended June 30, 2009 2008 Cash flows from operating activities: Net income $ 178 $ 171 Adjustments to reconcile net income to net cash provided by (used in) operations: Depreciation and amortization 28 17 Equity earnings from unconsolidated affiliates (47 ) (21 ) Deferred income taxes (33 ) 23 Other 2 (42 ) Changes in operating assets and liabilities: Receivables (65 ) (234 ) Unbilled receivables on uncompleted contracts 70 1 Accounts payable (125 ) 63 Advanced billings and unearned revenue on uncompleted contracts (79 ) (309 ) Accrued employee compensation and benefits 4 (51 ) Reserve for loss on uncompleted contracts (16 ) (12 ) Collection of advances from unconsolidated affiliates, net 3 57 Distribution of earnings from unconsolidated affiliates, net 17 76 Other assets (1 ) (105 ) Other liabilities 56 82 Total cash flows used in operating activities (8 ) (284 ) Cash flows from investing activities: Capital expenditures (16 ) (16 ) Acquisition of businesses, net of cash acquired

(11 ) Other investing activities 3 3 Total cash flows used in investing activities (13 ) (24 ) Cash flows from financing activities: Payments to reacquire common stock (21 )

Net proceeds from issuance of common stock

2 Excess tax benefits from stock-based compensation

2 Payments of dividends to shareholders (16 ) (9 ) Distributions to noncontrolling shareholders, net (9 ) (12 ) Other financing activities (13 )

Total cash flows used in financing activities (59 ) (17 ) Effect of exchange rate changes 12 20 Increase (decrease) in cash and equivalents (68 ) (305 ) Cash and equivalents at beginning of period 1,145 1,861 Cash and equivalents at end of period $ 1,077 $ 1,556

KBR, Inc.: Revenue and Operating Results by Business Unit

(In millions) (Unaudited)

Three Months Ended

June 30, March 31, Revenue: 2009 2008 2009 G&I: U.S. Government – Middle East Operations $ 1,301 $ 1,340 $ 1,457 U.S. Government – Americas Operations 130 156 129 International Operations 136 211 143 Total G&I 1,567 1,707 1,729 Upstream: Gas Monetization 679 575 655 Oil & Gas 108 124 96 Total Upstream 787 699 751 Services 588 129 569 Downstream 124 101 113 Technology 23 23 20 Ventures 3 (1 ) 8 Other 9

10 Total revenue $ 3,101 $ 2,658 $ 3,200 Business unit income (loss): G&I: U.S. Government – Middle East Operations $ 60 $ 36 $ 62 U.S. Government – Americas Operations 14 13 16 International Operations 39 45 35 Total job income 113 94 113 Divisional overhead (33 ) (31 ) (32 ) Total G&I business unit income 80 63 81 Upstream: Gas Monetization 50 32 65 Oil & Gas 26 21 18 Total job income 76 53 83 Divisional overhead (11 ) (14 ) (10 ) Total Upstream business unit income 65 39 73 Services: Job income 49 19 44 Gain on sale of assets

Divisional overhead (20 ) (3 ) (20 ) Total Services business unit income 29 17 24 Downstream: Job income 20 20 6 Divisional overhead (6 ) (6 ) (6 ) Total Downstream business unit income 14 14

Technology: Job income 11 12 9 Divisional overhead (6 ) (5 ) (6 ) Total Technology business unit income 5 7 3 Ventures: Job income (loss) 2 (1 ) 8 Gain on sale of assets

1 2 Divisional overhead (1 )

Total Ventures business unit income (loss) 1

10 Other: Job Income 2

3 Divisional overhead (2 )

(2 ) Total Other business unit income

1 Total business unit income $ 194 $ 140 $ 192

KBR, Inc.: Revenue and Operating Results by Business Unit

(In millions) (Unaudited)

Six Months Ended

June 30, Revenue: 2009 2008 G&I: U.S. Government – Middle East Operations $ 2,758 $ 2,708 U.S. Government – Americas Operations 259 277 International Operations 279 406 Total G&I 3,296 3,391 Upstream: Gas Monetization 1,334 1,020 Oil & Gas 204 290 Total Upstream 1,538 1,310 Services 1,157 237 Downstream 237 201 Technology 43 42 Ventures 11 (4 ) Other 19

Total revenue $ 6,301 $ 5,177 Business unit income (loss): G&I: U.S. Government – Middle East Operations $ 122 $ 105 U.S. Government – Americas Operations 30 14 International Operations 74 84 Total job income 226 203 Divisional overhead (65 ) (60 ) Total G&I business unit income 161 143 Upstream: Gas Monetization 115 73 Oil & Gas 44 96 Total job income 159 169 Divisional overhead (21 ) (25 ) Total Upstream business unit income 138 144 Services: Job income 93 35 Gain on sale of assets

1 Divisional overhead (40 ) (6 ) Total Services business unit income 53 30 Downstream: Job income 26 32 Divisional overhead (12 ) (10 ) Total Downstream business unit income 14 22 Technology: Job income 20 22 Divisional overhead (12 ) (10 ) Total Technology business unit income 8 12 Ventures: Job income (loss) 10 (4 ) Gain on sale of assets 2 1 Divisional overhead (1 ) (1 ) Total Ventures business unit income (loss) 11 (4 ) Other: Job Income 5

Divisional overhead (4 )

Total Other business unit income 1

Total Business unit income $ 386 $ 347

KBR, Inc.: Backlog Information(a)

(In Millions) (Unaudited)

June 30,

December 31, 2009 2008 G&I: U.S. Government - Middle East Operations $ 621 $ 1,428 U.S. Government - Americas Operations 425 600 International Operations 1,494 1,446 Total G&I(b) 2,540 3,474 Upstream: Gas Monetization 5,825 6,196 Oil & Gas 178 260 Total Upstream 6,003 6,456 Services 2,356 2,810 Downstream 605 578 Technology 138 130 Ventures 704 649 Total backlog $ 12,346 $ 14,097 (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 $2.3 billion and $2.4 billion at June 30, 2009 and December 31, 2008, respectively. Our backlog related to consolidated joint ventures with noncontrolling interest totaled $3.0 billion and $3.1 billion at June 30, 2009 and December 31, 2008, respectively. As of June 30, 2009, 21% of our backlog for continuing operations was attributable to fixed-price contracts and 79% 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 includes backlog attributable to firm orders in the amount of $2.4 billion and $3.3 billion as of June 30, 2009 and December 31, 2008, respectively. Government and Infrastructure backlog attributable to unfunded orders was $0.1 billion as of June 30, 2009 and $0.2 billion as of December 31, 2008.

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