KBR KBR Inc

KBR (NYSE:KBR) announced today that third quarter 2010 net income attributable to KBR was $97 million, or $0.62 per diluted share, compared to net income attributable to KBR of $73 million, or $0.45 per diluted share, in the third quarter of 2009.

Consolidated revenue in the third quarter of 2010 was $2.5 billion compared to $2.8 billion in the third quarter of 2009. Revenue for the third quarter of 2010 included an expected decrease of $440 million for North America Government & Defense compared to prior year third quarter, substantially related to LogCAP III. Consolidated operating income was $163 million in the third quarter of 2010 compared to $131 million in the third quarter of 2009.

Hydrocarbons business group revenue and job income in the third quarter of 2010 was $974 million and $120 million, up $90 million and $30 million, respectively, compared to the prior year third quarter. The Infrastructure, Government, and Power (IGP) business group revenue in the third quarter of 2010 was $983 million, down $496 million compared to the prior year third quarter, primarily related to reduced activity on LogCAP III. The IGP job income was $115 million in the third quarter of 2010, down $30 million compared to the prior year third quarter. Services revenue and job income in the third quarter of 2010 was $480 million and $45 million, up $16 million and $6 million, respectively, compared to the third quarter of 2009.

“I am pleased with KBR’s third quarter results, with earnings per diluted share up 38% from last year’s third quarter. The businesses continue to execute well on projects, with Hydrocarbons’ business group income up 43 percent and Services’ business unit income up 24 percent,” said Bill Utt, Chairman, President, and Chief Executive Officer of KBR. “The Services, I&M, and P&I businesses continued to experience a slower recovery in their respective markets; however, we are beginning to see activity slowly picking up in these markets.”

Hydrocarbons Business Group Results

Gas Monetization job income was $59 million in the third quarter of 2010 compared to job income of $40 million in the third quarter of 2009. The increase in job income was related to increased work on the Gorgon LNG project, partially offset by lower activity on the Pearl GTL and Escravos GTL projects. During the third quarter of 2010, KBR negotiated a final settlement agreement with one of its commercial agents who provided services to various Gas Monetization and Oil & Gas projects which resulted in a non-cash gain in the third quarter of 2010. Also during the third quarter of 2010, KBR identified increases in the forecast cost to complete an LNG project primarily due to actions and inactions on the part of the customer which resulted in a non-cash charge to job income in the third quarter of 2010. KBR will pursue all available remedies and mitigation actions which may reduce its exposure to the estimated project cost increases in future periods. The net impact of these two items to Hydrocarbons’ job income in the third quarter of 2010 was negligible. The third quarter of 2009 included approximately a $30 million charge on two LNG projects, which are now commercially operational, related to equipment failures, subcontractor claims, and schedule delays.

Oil and Gas job income was $24 million in the third quarter of 2010 compared to job income of $20 million in the third quarter of 2009. The increase in job income is primarily related to several new projects and higher progress on existing projects, including the CLOV FPSO, Bigfoot, Jack/St. Malo, and West Nile Delta projects. Partially offsetting the increase was lower activity on the North Rankin offshore platform project which is nearing completion.

Downstream job income was $23 million in the third quarter of 2010 compared to job income of $16 million in the third quarter of 2009. The increase in job income was primarily related to increased activity on the Lobito refinery in Angola and several projects in the Middle East, including the Shaybah NGL and Yanbu export refinery projects.

Technology job income was $14 million in the third quarter of 2010, flat compared to the third quarter of 2009.

Infrastructure, Government, and Power Business Group Results

North America Government and Defense (NAGD) job income was $73 million in the third quarter of 2010 compared to job income of $82 million in the third quarter of 2009. The third quarter of 2010 included approximately $34 million in LogCAP III award fees for work performed during the period of September 2009 through February 2010 for Iraq and from September 2009 through May 2010 for Afghanistan. The decrease in job income was primarily related to the overall lower volume on LogCAP III projects in Iraq, partially offset by increased activities on the LogCAP IV contract. In addition, the third quarter of 2009 included approximately $15 million in accrued LogCAP III award fees compared to no award fees accrued for work performed during the third quarter of 2010, as well as $17 million in income related to the reduction of a previous charge related to the ASCO litigation.

International Government and Defense (IGD) job income was $22 million in the third quarter of 2010 compared to job income of $17 million in the third quarter of 2009. The increase in job income was primarily related to warranty expirations on the Tier 3 Basra project in Iraq and higher margins on the Allenby and Connaught project.

Infrastructure and Minerals (I&M) job income was $14 million in the third quarter of 2010 compared to job income of $24 million in the third quarter of 2009. The decrease in job income was related to the overall decrease on several Australian engineering projects. Partially offsetting this decrease was higher volume on the Hope Downs 4 mining project and a water project in Australia.

Power and Industrial (P&I) job income was $6 million in the third quarter of 2010 compared to job income of $22 million in the third quarter of 2009. The decrease in job income was primarily related to the completion of the Georgia Power and Proctor & Gamble projects, lower volumes on the Red River project that is nearing completion, as well as a gain in the third quarter of 2009 from the collection of a fully-reserved receivable on a completed project.

Services Results

Services job income was $45 million in the third quarter of 2010 compared to job income of $39 million in the third quarter of 2009. The increase in job income was driven by increased activity on the multi-site DuPont maintenance project, growing contribution from on-call construction projects, and the Hunt refining project in Alabama, as well as favorable change orders on a power project in the Southeast.

Ventures Results

Ventures job income was $7 million in the third quarter of 2010 compared to job income of $5 million in the third quarter of 2009. The increase in job income was primarily related to improved financial performance at the EBIC ammonia project as a result of higher sales volume and increased ammonia prices, and the consolidation of a heavy equipment transport project for the U.K. military effective from January 1, 2010.

Corporate

Corporate general and administrative expense in the third quarter of 2010 was $53 million compared to $54 million the prior year third quarter.

Total cash provided by operating activities for the first nine months of 2010 was $541 million, driven by overall earnings, improvements in cash receipts in the Gas Monetization business unit, a decline in LogCAP working capital requirements, as well as the receipt of $94 million in award fees during the first nine months of 2010.

Full Year 2010 Outlook

The KBR full-year 2010 earnings per diluted share guidance given in July is $1.75 to $2.00. KBR now expects earnings per diluted share to be in the upper half of that range.

Significant Achievements and Awards

• KBR announced that it was awarded a contract to provide engineering, procurement management and construction management (EPCM) for the Hope Downs 4 iron ore mine in remote Western Australia. The scope of the project is valued at $1.285 billion USD. KBR will provide design, engineering, procurement management, project and construction management for the 15 million dry tonnes per annum (Mtpa) mine, which is located 620 miles (1000km) north of Perth, the capital city of Western Australia. Construction is scheduled to begin in February 2011, subject to regulatory approvals and be completed in early 2013.
• KBR announced it was awarded a contract to execute the topsides detailed design for TOTAL’s CLOV floating production, storage and offloading (FPSO) unit. This project is the fourth development pole in Angola’s deep offshore Block 17 and lead to four fields - Cravo, Lirio, Orquidea and Violeta – coming on stream. In collaboration with Daewoo Shipbuilding & Marine Eng. Co. Ltd. (DSME) – the engineering, procurement, installation and construction contractor for the project – KBR will execute the detailed engineering of topsides for the project, which is estimated to produce reserves of approximately 500 million barrels of oil. The facility will be designed to process approximately 160,000 barrels per day (BPD) of oil, 230 million standard cubic feet per day (MMSCFD) of natural gas, and have a 1.8 million barrels of oil (MMBBL) storage capacity.
• KBR announced that its affiliate, Kellogg Brown and Root South Africa (Proprietary) Limited has entered into a Broad-Based Black Economic Empowerment (BBBEE) transaction that is another step in KBR’s continuing commitment to the transformation of South Africa’s economy. This transaction makes KBR the leading engineering and construction contractor in South Africa in this regard, with an anticipated BBBEE rating at Level 4 or better.
• KBR announced that it was awarded a $62 million contract to provide engineering and construction management services for the construction of a new ceramic proppant manufacturing line at the CARBO Ceramics Inc. plant in Toomsboro, Georgia. The proppant manufacturing line is designed to produce 250-million pounds-per-year of product at completion. Construction is expected to be completed before the end of 2011.

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 September 30, September 30, June 30, 2010 2009 2010 Revenue: Hydrocarbons $ 974 $ 884 $ 1,004 Infrastructure, Government and Power 983 1,479 1,197 Services 480 464 452 Ventures 13 5 13 Other     5       8       5   Total revenue     2,455       2,840       2,671   Business unit income (loss): Hydrocarbons 93 65 116 Infrastructure, Government and Power 83 104 105 Services 26 21 25 Ventures 6 4 7 Other     5       (5 )     (1 ) Total business unit income     213       189       252   Unallocated costs: Loss on disposition of assets - corporate (1 ) (1 ) (2 ) Labor cost absorption 4 (3 ) 4 Corporate general and administrative     (53 )     (54 )     (55 ) Operating income     163       131       199   Interest expense, net (3 ) - (5 ) Foreign currency gains (losses), net 1 - (3 ) Other non-operating expenses     (1 )     (1 )     -   Income before income taxes and noncontrolling interests 160 130 191 Provision for income taxes     (43 )     (33 )     (69 ) Net income 117 97 122 Net income attributable to noncontrolling interests     (20 )     (24 )     (16 ) Net income attributable to KBR   $ 97     $ 73     $ 106     Net income attributable to KBR per share (a): Basic $ 0.62 $ 0.46 $ 0.66 Diluted $ 0.62 0.45 0.66   Basic weighted average shares outstanding 155 160 160 Diluted weighted average shares outstanding 156 161 161   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 third quarter of 2010 was declared in July 2010 for shareholders of record as of September 15, 2010.

         

KBR, Inc.: Condensed Consolidated Statements of Income

(Millions, except per share data)

(Unaudited)

  Nine Months Ended September 30, 2010 2009 Revenue: Hydrocarbons $ 2,900 $ 2,701 Infrastructure, Government and Power 3,454 4,960 Services 1,347 1,437 Ventures 41 16 Other         15         27   Total revenue         7,757         9,141   Business unit income (loss): Hydrocarbons 285 225 Infrastructure, Government and Power 234 275 Services 72 64 Ventures 21 15 Other         5         (4 ) Total business unit income         617         575   Unallocated costs: Loss on disposition of assets - corporate (3 ) (1 ) Labor cost absorption 4 (5 ) Corporate general and administrative         (157 )       (157 ) Operating income         461         412   Interest income (expense), net (12 ) 1 Foreign currency gains (losses), net (4 ) 1 Other non-operating expenses         (1 )       (2 ) Income before income taxes and noncontrolling interests 444 412 Provision for income taxes         (146 )       (137 ) Net income 298 275 Net income attributable to noncontrolling interests         (49 )       (58 ) Net income attributable to KBR       $ 249       $ 217     Net income attributable to KBR per share (a): Basic $ 1.57 $ 1.35 Diluted 1.56 1.35   Basic weighted average shares outstanding 158 160 Diluted weighted average shares outstanding 159 161   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 third quarter of 2010 was declared in July 2010 for shareholders of record as of September 15, 2010.

 

 

   

KBR, Inc.: Condensed Consolidated Balance Sheets

(Millions)

(Unaudited)

  September 30, December 31,     2010   2009 Assets Current assets: Cash and equivalents $ 1,175 $ 941 Receivables: Accounts receivable, net 1,383 1,243 Unbilled receivables on uncompleted contracts     478       657   Total receivables 1,861 1,900 Deferred income taxes 194 192 Other current assets     377       608   Total current assets 3,607 3,641 Property, plant and equipment, net of accumulated depreciation of $326 and $264 348 251 Goodwill 697 691 Intangible assets, net 75 58 Equity in and advances to related companies 217 164 Noncurrent deferred income taxes 117 120 Noncurrent unbilled receivables on uncompleted contracts 321 321 Other assets     84       81   Total assets   $ 5,466     $ 5,327     Liabilities and Shareholders' Equity Current liabilities: Accounts payable $ 938 $ 1,045 Due to former parent, net 49 53 Advanced billings on uncompleted contracts 526 407 Reserve from estimated losses on uncompleted contracts 29 40 Employee compensation and benefits 248 191 Current non-recourse project-finance debt of a variable interest entity 9 - Other current liabilities 432 552 Current liabilities related to discontinued operations, net     -       3   Total current liabilities 2,231 2,291 Noncurrent employee compensation and benefits 451 469 Noncurrent non-recourse project-finance debt of a variable interest entity 98 - Other noncurrent liabilities 106 106 Noncurrent income taxes payable 113 43 Noncurrent deferred tax liability     119       122   Total liabilities     3,118       3,031   KBR shareholders' equity Preferred stock - - Common stock - - Paid-in-capital in excess of par value 2,111 2,103 Accumulated other comprehensive loss (428 ) (444 ) Retained earnings 1,087 854 Treasury stock     (439 )     (225 ) Total KBR shareholders' equity 2,331 2,288 Noncontrolling interests     17       8   Total shareholders' equity     2,348       2,296   Total liabilities and shareholders' equity   $ 5,466     $ 5,327        

KBR, Inc.: Condensed Consolidated Statements of Cash Flows

(Millions)

(Unaudited)

  Nine Months Ended September 30,     2010     2009 Cash flows from operating activities: Net income $ 298 $ 275 Adjustments to reconcile net income to net cash provided by (used in) operations: Depreciation and amortization 45 41 Equity earnings of unconsolidated affiliates (99 ) (46 ) Deferred income taxes (9 ) (14 ) Impairment of goodwill - 6 Other 31 10 Changes in operating assets and liabilities: Receivables (151 ) (191 ) Unbilled receivables on uncompleted contracts 168 94 Accounts payable (125 ) (233 ) Advanced billings on uncompleted contracts 137 (68 )

Accrued employee compensation and benefits

59 (24 )

Reserve for loss on uncompleted contracts

(11 ) (23 ) Repayment of advances to unconsolidated affiliates, net (5 ) (1 ) Distribution of earnings from unconsolidated affiliates 45 35 Other assets 61 25 Other liabilities     97         87   Total cash flows provided by (used in) operating activities     541         (27 ) Cash flows from investing activities: Capital expenditures (39 ) (22 ) Investment in equity method joint ventures (14 ) - Investment in licensing arrangement (20 ) - Acquisition of business, net of cash acquired (10 ) - Other investing activities     -         2   Total cash flows used in investing activities     (83 )       (20 ) Cash flows from financing activities: Payments to reacquire common stock (217 ) (27 ) Payments of dividends to shareholders (24 ) (24 ) Distributions to noncontrolling shareholders, net (37 ) (30 ) Net proceeds from issuance of stock 3 1 Excess tax benefits from stock-based compensation - (1 ) Payments on short-term and long-term borrowings (9 ) - Return (funding) of cash collateral on letters of credit, net     26         (11 ) Total cash flows used in financing activities     (258 )       (92 ) Effect of exchange rate changes on cash 12 14 Increase (decrease) in cash and equivalents 212 (125 ) 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   $ 1,175       $ 1,020            

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

(Millions)

(Unaudited)

 

Three Months Ended September 30, September 30, June 30, Revenue:   2010     2009     2010 Hydrocarbons: Gas Monetization $ 698 $ 641 $ 708 Oil and Gas 107 95 104 Downstream 139 121 157 Technology     30         27         35   Total Hydrocarbons     974         884         1,004   Infrastructure, Government and Power North America Government and Defense 753 1,193 926 International Government and Defense 87 71 103 Infrastructure and Minerals 64 86 64 Power and Industrial     79         129         104   Total Infrastructure, Government and Power     983         1,479         1,197   Services 480 464 452 Ventures 13 5 13 Other     5         8         5   Total revenue   $ 2,455       $ 2,840       $ 2,671     Business unit income (loss): Hydrocarbons: Gas Monetization $ 59 $ 40 $ 83 Oil and Gas 24 20 13 Downstream 23 16 28 Technology     14         14         17   Total job income 120 90 141 Gain on disposition of assets - - 1 Division overhead     (27 )       (25 )       (26 ) Total Hydrocarbons business group income     93         65         116     Infrastructure, Government and Power: North America Government and Defense 73 82 92 International Government and Defense 22 17 22 Infrastructure and Minerals 14 24 15 Power and Industrial     6         22         15   Total job income 115 145 144 Division overhead     (32 )       (41 )       (39 ) Total IGP business group income     83         104         105     Services: Job income 45 39 43 Loss on disposition of assets - - (1 ) Division overhead     (19 )       (18 )       (17 ) Total Services business unit income     26         21         25     Ventures: Job income 7 5 8 Division overhead     (1 )       (1 )       (1 ) Total Ventures business unit income     6         4         7     Other: Job income 6 2 2 Impairment of goodwill - (6 ) - Division overhead     (1 )       (1 )       (3 ) Total Other business unit income     5         (5 )       (1 ) Total business unit income   $ 213       $ 189       $ 252          

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

(Millions)

(Unaudited)

  Nine Months Ended September 30, Revenue:   2010       2009 Hydrocarbons: Gas Monetization $ 2,081 $ 1,976 Oil and Gas 295 297 Downstream 429 358 Technology     95           70   Total Hydrocarbons     2,900           2,701   Infrastructure, Government and Power North America Government and Defense 2,689 4,150 International Government and Defense 284 208 Infrastructure and Minerals 201 258 Power and Industrial     280           344   Total Infrastructure, Government and Power     3,454           4,960   Services 1,347 1,437 Ventures 41 16 Other     15           27   Total revenue   $ 7,757         $ 9,141     Business unit income (loss): Hydrocarbons: Gas Monetization $ 195 $ 155 Oil and Gas 53 64 Downstream 73 42 Technology     43           34   Total job income 364 295 Gain on disposition of assets 1 - Division overhead     (80 )         (70 ) Total Hydrocarbons business group income     285           225     Infrastructure, Government and Power: North America Government and Defense 201 225 International Government and Defense 62 52 Infrastructure and Minerals 47 68 Power and Industrial     35           42   Total job income 345 387 Division overhead     (111 )         (112 ) Total IGP business group income     234           275     Services: Job income 125 116 Loss on disposition of assets (1 ) - Division overhead     (52 )         (52 ) Total Services business unit income     72           64     Ventures: Job income 24 15 Gain on sale of assets - 2 Division overhead     (3 )         (2 ) Total Ventures business unit income     21           15     Other: Job income 10 7 Impairment of goodwill - (6 ) Division overhead     (5 )         (5 ) Total Other business unit income     5           (4 ) Total business unit income   $ 617         $ 575        

KBR, Inc. Backlog Information(a)

(Millions)

(Unaudited)

  September 30, June 30, December 31,     2010   2010   2009 Hydrocarbons: Gas Monetization $ 5,858 $ 5,899 $ 6,976 Oil and Gas 246 228 109 Downstream 470 425 535 Technology     185     194     154 Total Hydrocarbons     6,759     6,746     7,774   Infrastructure, Government and Power: North America Government and Defense 1,115 987 1,341 International Government and Defense 1,229 1,231 1,427 Infrastructure and Minerals 139 133 167 Power and Industrial     215     239     338 Total Infrastructure, Government and Power     2,698     2,590     3,273   Services 2,051 2,307 2,302 Ventures     820     780     749

Total backlog(b)

  $ 12,328   $ 12,423   $ 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 unconsolidated joint ventures is presented as KBR’s percentage ownership of the joint venture’s revenue. However, because these projects are accounted for under the equity method, only KBR’s share of future earnings from these projects will be recorded in revenue. Our backlog for projects related to unconsolidated joint ventures totaled $1.9 billion, $1.9 billion and $2.1 billion at September 30, 2010, June 30, 2010 and December 31, 2009, respectively. Our backlog related to consolidated joint ventures with noncontrolling interest totaled $4.3 billion, $4.1 billion and $4.6 billion at September 30, 2010, June 30, 2010 and December 31, 2009, respectively.  

As of September 30, 2010, 21% of our backlog 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.

  All backlog is attributable to firm orders as of September 30, 2010, June 30, 2010, and December 31, 2009.   (b)

Backlog attributable to unfunded government orders was $0.1 billion, $0.2 billion and $0.3 billion as of September 30, 2010, June 30, 2010 and December 31, 2009, respectively.