KBR KBR Inc

KBR (NYSE:KBR):

• Solid backlog at March 31, 2010 of $13.3 billion, up 5% over the prior year first quarter
• Continued strong balance sheet with $908 million cash and equivalents
• Revenue down $569 million compared to prior year first quarter, which includes North America Government & Defense revenue down $553 million, primarily related to LogCAP III
• First quarter of 2010 had an $0.08 per diluted share impact compared to the first quarter of 2009 from no LogCAP III award fee recognition; The estimated impact from not accruing LogCAP III award fees in the First Quarter of 2010 was approximately $0.05 per diluted share

KBR (NYSE:KBR) announced today that first quarter 2010 net income attributable to KBR was $46 million, or $0.29 per diluted share, compared to net income attributable to KBR of $77 million, or $0.48 per diluted share, in the first quarter of 2009.

Consolidated revenue in the first quarter of 2010 was $2.6 billion compared to $3.2 billion in the first quarter of 2009. Consolidated operating income was $99 million in the first quarter of 2010 compared to $144 million in the first quarter of 2009.

Hydrocarbons business group revenue and job income in the first quarter of 2010 was $922 million and $103 million, up 4% and 5%, respectively, compared to the prior year first quarter. The Infrastructure, Government, and Power (IGP) business group revenue and job income was $1.3 billion and $86 million in the first quarter of 2010, down $549 million and $35 million, respectively, compared to the prior year first quarter, primarily related to reduced activity and absence of award fee recognition related to LogCAP III. Services job income in the first quarter of 2010 was $37 million, up $1 million compared to the first quarter of 2009, despite a $60 million decline in revenue over the same time period.

“Although KBR’s earnings per share this quarter was disappointing and adversely impacted by timing to successfully conclude change orders on the close-out of two LNG projects, the absence of award fees, and the continued reduction in services on the LogCAP III project; the Hydrocarbons group, International Government and Defense, Power and Industrial, Services, and Ventures all reported increased job income compared to the first quarter of last year,” said Bill Utt, Chairman, President, and Chief Executive Officer of KBR. “Our expectations are that our performance in the remaining quarters in 2010 will improve and we remain comfortable with our previous outlook for 2010.”

Hydrocarbons Business Group Results

Gas Monetization job income was $53 million in the first quarter of 2010 compared to job income of $65 million in the first quarter of 2009. The decrease in job income was related to a first quarter 2009 gain of $16 million on the reversal of accruals on completed EPC projects, lower job income on the Skikda LNG, Escravos GTL, and Pearl GTL projects, and timing of change orders associated with the close-out of the Yemen and Tangguh LNG projects. Partially offsetting the decline in job income was increased work on the Gorgon LNG project.

Oil and Gas job income was $16 million in the first quarter of 2010 compared to job income of $18 million in the first quarter of 2009. The first quarter of 2009 included a net $7 million charge due to an unfavorable arbitration decision on the In Amenas project and several small one-time gains. The decrease in job income relates to several technical services projects that were either complete or near completion at the end of the first quarter 2010.

Downstream job income was $22 million in the first quarter of 2010 compared to job income of $6 million in the first quarter of 2009. The increase in job income was primarily related to increased work on the Lobito refinery in Angola and several petrochemical projects. Also, job income in the first quarter of 2009 was impacted by additional costs related to the commissioning and start-up of the EBIC ammonia project.

Technology job income was $12 million in the first quarter of 2010 compared to job income of $9 million in the first quarter of 2009.

Infrastructure, Government, and Power Business Group Results

North America Government and Defense (NAGD) job income was $36 million in the first quarter of 2010 compared to job income of $74 million in the first quarter of 2009. The decrease in job income was primarily related to approximately $21 million in award fees in the first quarter of 2009 and no award fees in the first quarter of 2010, as well as lower overall volume on defense projects in Iraq and Afghanistan, primarily associated with the LogCAP III project.

International Government and Defense (IGD) job income was $18 million in the first quarter of 2010 compared to job income of $14 million in the first quarter of 2009. The increase in job income was primarily related to increased contingency logistics, operations, and maintenance services for the U.K. Ministry of Defence.

Infrastructure and Minerals (I&M) job income was $18 million in the first quarter of 2010 compared to job income of $24 million in the first quarter of 2009. The decrease in job income was related to completion or near completion of several water projects.

Power and Industrial (P&I) job income was $14 million in the first quarter of 2010 compared to job income of $9 million in the first quarter of 2009. The increase in job income was primarily related to increased activity at an activated carbon project in Louisiana.

Services Results

Services job income was $37 million in the first quarter of 2010 compared to job income of $36 million in the first quarter of 2009. The increase in job income was driven by increased activity on the Scotford Upgrader project in Canada, partially offset by reduced work volume at some industrial services sites.

Ventures Results

Ventures job income was $9 million in the first quarter of 2010 compared to job income of $8 million in the first quarter of 2009. The increase in job income was related to improved financial performance at the EBIC ammonia project. In the first quarter of 2009, job income benefited from $8 million in income on two road projects related to favorable U.K. tax rulings that did not repeat in the first quarter of 2010.

Corporate

Corporate general and administrative expense in the first quarter of 2010 was $49 million, flat compared to the prior year first quarter.

Total cash flows used in operating activities for the first three months of 2010 were $5 million, which includes an approximately $95 million increase in working capital for Iraq-related activities primarily related to the timing of payments from the customer.

Significant Achievements and Awards

• KBR announced that it was awarded a contract by Woodside to execute a basis of design study for the company’s Browse Liquefied Natural Gas (LNG) Development. The study will focus on Woodside’s onshore LNG facilities within the Western Australian Government’s proposed Browse LNG Precinct in the north of Western Australia. KBR will execute the study for a 12 million tons per annum (MTPA) liquefaction facility, as well as the associated infrastructure and marine facilities.
• KBR announced that it was awarded a contract with BP-Husky to provide engineering, procurement and other project related services for BP-Husky Refining LLC’s $400 Million Reformer 3 equipment upgrade of its Toledo Refinery located in Oregon, Ohio. KBR will provide design and support services needed for the project, replacing two existing naphtha reformers and a hydrogen plant with a single, state-of-the art reformer.
• KBR announced that it signed a Collaboration Agreement with BP to promote, market, and execute licensing and engineering services for the slurry bed residue and coal upgrading Veba Combi Cracker (VCC) Technology. VCC Technology is a hydrogen addition technology suitable for processing residuum into high-quality distillates or synthetic crude oil in the refining, upstream field upgrading and coal-to-liquids (CTL).
• KBR announced it was awarded a task order by the U.S. Army Contracting Command under its current Logistics Civil Augmentation Program (LOGCAP) IV contract. KBR will execute the LOGCAP IV Corps Logistics Support Services (CLSS), Theater Transportation mission (TTM), and Postal Services Task Order in Iraq. The Period of Performance is one base year plus four option years. The award represents KBR's first major Task Order under the LOGCAP IV contract.
• KBR announced that Vinnell, Brown & Root, LLC (VBR), a 50/50 joint venture between KBR and Northrop Grumman was awarded a contract by the United States Air Force in Europe to provide base operations support services for locations in Turkey and Spain. The Turkey-Spain Base Operations Contract is a Fixed Price Incentive firm target with performance incentive contract with a potential value of $335 million (award is Euro 225.8 million) over four and a half years. VBR will provide program management, civil engineering, base services, logistics support, air terminal and ground handling, postal services and communications, occupational health/industrial hygiene, and ambulance services.
• KBR announced that its Building Group was awarded a contract by the Medical College of Georgia (MCG) to provide construction management services for a new $112 million School of Dentistry on MCG’s campus in Augusta, Georgia. MCG’s new five-story, 268,788-square-foot building is nearly double the size of the dental school’s existing 40-year-old facility and will make the MCG School of Dentistry, the state’s only dental school, among the largest in the nation.
• KBR announced that its Building Group was awarded a $94 million contract by Piedmont Healthcare to provide preconstruction and construction services for a replacement facility for Piedmont Newnan Hospital in Newnan, Georgia. When complete, the new hospital is expected to be the tallest building in the southwest metropolitan Atlanta area.
• KBR announced that its Building Group was awarded a $52 million contract by the State of North Carolina Department of Health & Human Services for construction of a new combined facility for the State Public Health Laboratory and Office of the Chief Medical Examiner in Raleigh, N.C. The anticipated 220,000-square-foot facility will consist of a single building with separate wings for the Public Health Laboratory and the Office of the Chief Medical Examiner.
• KBR announced that its Building Group was awarded a $47 million contract by the U.S. General Services Administration to provide construction management services for a new United States Federal Building and Courthouse in Tuscaloosa, Alabama. The building, designed to achieve LEED® Silver certification, replaces an outdated existing facility.
• KBR announced that it was awarded a contract to provide instrument and electrical support services to Shell’s Chemical plant in Deer Park, Texas and its refining joint venture facilities with PMI Norteamérica. KBR will provide instrument and electrical support services to include capital projects, turnarounds and continuing maintenance needs. The services will be provided by KBR subsidiary, Instrument Technology International (ITI), which specializes in providing instrument and electrical services from construction through checkout, commissioning, start-up, operational phases and post-operational maintenance, offering customers a single-point of contact.
• KBR announced that its Building Group was awarded a $25 million contract for the construction of the Lancaster County Courthouse in Lancaster, South Carolina. Construction on the project has begun and completion is expected in April 2011. Lancaster County's new 100,000-square-foot courthouse will house four courtrooms, jury deliberation rooms, lobby space, storage for court records, office and support areas, and secure facilities.

KBR is a global engineering, construction and services company supporting the energy, hydrocarbon, government services, minerals, civil infrastructure, power, and industrial markets. For more information, visit www.kbr.com.

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, 2010, 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, except per share data)

(Unaudited)

  Three Months Ended March 31, March 31, December 31, 2010 2009 2009 Revenue: Hydrocarbons $ 922 $ 884 $ 1,205 Infrastructure, Government and Power 1,274 1,823 1,328 Services 415 475 426 Ventures 15 8 5 Other     5       10       -   Total revenue   $ 2,631     $ 3,200     $ 2,964   Business unit income (loss): Hydrocarbons $ 76 $ 77 $ 239 Infrastructure, Government and Power 46 85 (87 ) Services 21 19 32 Ventures 8 10 4 Other     1       1       1   Total business unit income     152       192       189   Unallocated costs: Gain (loss) on disposition of assets - corporate - - 1 Labor cost absorption (4 ) 1 (6 ) Corporate general and administrative     (49 )     (49 )     (60 ) Operating income     99       144       124   Interest income (expense), net (4 ) 1 (2 ) Foreign currency gains (losses), net (2 ) 5 (1 ) Other non-operating expenses     -       -       (1 ) Income before income taxes and noncontrolling interest 93 150 120 Provision for income taxes     (34 )     (55 )     (31 ) Net income $ 59 $ 95 $ 89 Net income attributable to noncontrolling interest     (13 )     (18 )     (16 ) Net income attributable to KBR   $ 46     $ 77     $ 73     Net income attributable to KBR per share (a): Basis $ 0.29 $ 0.48 $ 0.46 Diluted $ 0.29 $ 0.48 $ 0.45   Basic weighted average shares outstanding 160 161 160 Diluted weighted average shares outstanding 161 162 161   Cash dividends declared per share $ 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.  

KBR, Inc.: Condensed Consolidated Balance Sheets

(Millions)

(Unaudited)

    March 31, December 31,     2010   2009 Assets Current assets: Cash and equivalents $ 908 $ 941 Receivables: Accounts receivable, net 1,693 1,243 Unbilled receivables on uncompleted contracts     486       657   Total receivables 2,179 1,900 Deferred income taxes 196 192 Other current assets     508       608   Total current assets 3,791 3,641

Property, plant and equipment, net of accumulated depreciation of $300 and $264

321 251 Goodwill 691 691 Intangible assets, net 75 58 Equity in and advances to related companies 167 164 Noncurrent deferred income taxes 127 120 Noncurrent unbilled receivables on uncompleted contracts 321 321 Other assets     96       81   Total assets   $ 5,589     $ 5,327     Liabilities and Shareholders' Equity Current liabilities: Accounts payable $ 1,009 $ 1,045 Due to former parent, net 53 53 Advanced billing on uncompleted contracts 554 407 Reserve from estimated losses on uncompleted contracts 36 40 Employee compensation and benefits 264 191 Current non-recourse project-finance debt of a variable interest entity 8 - Other current liabilities 505 552 Current liabilities related to discontinued operations, net     2       3   Total current liabilities 2,431 2,291 Noncurrent employee compensation and benefits 427 469 Noncurrent non-recourse project-finance debt of a variable interest entity 97 - Other noncurrent liabilities 92 106 Noncurrent income taxes payable 63 43 Noncurrent deferred tax liability     125       122   Total liabilities     3,235       3,031  

KBR shareholders' equity

Preferred stock - - Common stock - - Paid-in-capital in excess of par value 2,107 2,103

Accumulated other comprehensive loss

(436 ) (444 ) Retained earnings 900 854 Treasury stock     (224 )     (225 ) Total KBR shareholders' equity 2,347 2,288 Noncontrolling interests     7       8  

Total shareholders' equity

    2,354       2,296  

Total liabilities and shareholders' equity

  $ 5,589     $ 5,327  

 

     

KBR, Inc.: Condensed Consolidated Statements of Cash Flows

(Millions)

(Unaudited)

  Three Months Ended March 31,       2010   2009 Cash flows from operating activities: Net income $ 59 $ 95 Adjustment to reconcile net income to net cash provided by (used in) operations: Depreciation and amortization 15 14 Equity earnings of unconsolidated affiliates (15 ) (21 ) Deferred income taxes (17 ) (15 ) Other 8 (5 ) Changes in operating assets and liabilities: Receivables (438 ) (223 ) Unbilled receivables on uncompleted contracts 155 9 Accounts payable (28 ) (54 ) Advanced billings on uncompleted contracts 169 17 Accrued employee compensation and benefits 74 35 Reserve for loss on uncompleted contracts (4 ) (13 ) Collection (repayment) of advances from (to) unconsolidated affiliates, net (1 ) 2 Distribution of earnings from unconsolidated affiliates 9 14 Other assets (3 ) (52 ) Other liabilities       12       25   Total cash flows used in operating activities       (5 )     (172 ) Cash flows from investing activities: Capital expenditures (14 ) (7 ) Investment in equity method joint venture (4 ) - Investment in licensing arrangement (20 ) - Proceeds from sale of investments       -       2   Total cash flows used in investing activities       (38 )     (5 ) Cash flows from financing activities: Payments to reacquire common stock (1 ) (16 ) Payments of dividends to shareholders (8 ) (8 ) Distribution to noncontrolling shareholders, net (7 ) (17 ) Return of cash collateral on letters of credit, net       17       -   Total cash flows provided by (used in) financing activities       1       (41 ) Effect of exchange rate changes on cash (13 ) (6 ) Decrease in cash and equivalents (55 ) (224 ) Cash increase due to consolidation of a variable interest entity       22       -   Cash and equivalents at beginning of period       941       1,145   Cash and equivalents at end of period     $ 908     $ 921  

 

               

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

(Millions)

(Unaudited)

  Three Months Ended March 31, March 31, December 31, Revenue:         2010     2009     2009 Hydrocarbons: Gas Monetization $ 675 $ 656 $ 779 Oil and Gas 84 95 279 Downstream 133 113 120 Technology           30         20         27   Total Hydrocarbons           922         884         1,205   Infrastructure, Government and Power North America Government and Defense 1,010 1,563 1,039 International Government and Defense 94 70 80 Infrastructure and Minerals 73 86 79 Power and Industrial           97         104         130   Total Infrastructure, Government and Power           1,274         1,823         1,328   Services 415 475 426 Ventures 15 8 5 Other           5         10         -   Total revenue         $ 2,631       $ 3,200       $ 2,964     Business unit income (loss): Hydrocarbons: Gas Monetization $ 53 $ 65 $ 23 Oil and Gas 16 18 210 Downstream 22 6 17 Technology           12         9         15   Total job income 103 98 265 Division overhead           (27 )       (21 )       (26 ) Total Hydrocarbons business unit income           76         77         239     Infrastructure, Government and Power: North America Government and Defense 36 74 (112 ) International Government and Defense 18 14 19 Infrastructure and Minerals 18 24 19 Power and Industrial           14         9         26   Total job income 86 121 (48 ) Division overhead           (40 )       (36 )       (39 ) Total IGP business unit income           46         85         (87 )   Services: Job income 37 36 51 Division overhead           (16 )       (17 )       (19 ) Total Services business unit income           21         19         32   Ventures: Job income 9 8 4 Gain on sale of assets - 2 - Division overhead           (1 )       -         -   Total Ventures business unit income           8         10         4   Other: Job income 2 3 2 Division overhead           (1 )       (2 )       (1 ) Total Other business unit income           1         1         1   Total business unit income         $ 152       $ 192       $ 189  

 

               

 KBR, Inc.: Backlog Information (a)

(Millions)

(Unaudited)

  March 31, December 31,             2010       2009 Hydrocarbons: Gas Monetization $ 6,491 $ 6,976 Oil and Gas 117 109 Downstream 482 535 Technology           131       154 Total Hydrocarbons           7,221       7,774   Infrastructure, Government and Power: North America Government and Defense 1,293 1,341 International Government and Defense 1,280 1,427 Infrastructure and Minerals 145 167 Power and Industrial           285       338 Total Infrastructure, Government and Power           3,003       3,273   Services 2,338 2,302 Ventures           780       749 Total backlog           $ 13,342       $ 14,098   (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 $1.9 billion and $2.1 billion at March 31, 2010 and December 31, 2009, respectively. Our backlog related to consolidated joint ventures with noncontrolling interest totaled $4.5 billion and $4.6 billion at March 31, 2010 and December 31, 2009, respectively.

 

As of March 31, 2010, 19% of our backlog was attributable to fixed-price contracts and 81% 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)

All backlog was attributable to firm orders as of March 31, 2010 and December 31, 2009. The backlog attributable to unfunded government orders was $0.1 billion as of March 31, 2010 and $0.3 billion as of December 31, 2009.