KBR Announces Second Quarter Results
$0.28 second quarter 2008 net income per diluted share
- Revenue for the six months ended June 30, 2008 increased 23.9%
over the corresponding period last year
- Job income for the first six months ended June 30, 2008
increased 31.3% compared to the corresponding period last year
- Business unit overhead costs for the first half of 2008
decreased 3.4% over the first half of 2007
- Corporate general and administrative expense decreased 3.6% in
the first six months of 2008 compared to the first six months
of 2007
HOUSTON--(BUSINESS WIRE)--Aug. 1, 2008--KBR (NYSE:KBR) announced
today that second quarter 2008 net income was $0.28 per diluted share
which included two adverse items: a jury award related to a 2003
LogCAP III subcontract representing $0.15 per share and one-time
events on three projects resulting in a cumulative net negative impact
of $0.03 per share.
Income from continuing operations and net income was $48 million,
or $0.28 per diluted share. This compares to income from continuing
operations of $50 million, or $0.30 per diluted share, in the second
quarter of 2007. Net income for the second quarter of 2007 was $140
million, or $0.83 per diluted share, which included earnings from
discontinued operations of $90 million, or $0.53 per diluted share,
primarily related to operations from and gain on the sale of KBR's 51%
ownership interest in Devonport Management Limited.
Consolidated revenue in the second quarter of 2008 was $2.7
billion, an increase of 23.5% from $2.2 billion in the second quarter
of 2007.
Consolidated operating income was $90 million in the second
quarter of 2008 compared to $65 million in the second quarter of 2007.
Operating income in the second quarter of 2008 included a charge
related to an unfavorable jury verdict of approximately $40 million
from litigation with a subcontractor on the LogCAP III contract dating
back to 2003. Also during the second quarter of 2008, KBR recorded a
$24 million charge related to the inability to timely obtain final
customer board approval for a settlement on an LNG project, which was
partially offset by one-time events on two projects in the amount of
$15 million. Operating income in the second quarter of 2007 included a
$24 million charge related to the U.S. Embassy project in Macedonia.
"From an operations perspective, I am very pleased with KBR's
performance during the quarter and the progression of our overall
business. Unfortunately, KBR had two items this quarter that
overshadowed our strong underlying performance. I am obviously
disappointed in the unexpected and unfavorable jury award related to a
subcontractor on LogCAP III from 5 years ago and in our inability to
timely obtain final customer board approvals for a settlement reached
on one of our LNG projects," said Bill Utt, Chairman, President, and
Chief Executive Officer of KBR. "Looking forward, I remain optimistic
in KBR's ability to execute on its projects and continue to deliver
solid operating results."
2008 Second Quarter Business Unit Results
Upstream business unit income was $39 million in the second
quarter of 2008 compared to business unit income of $47 million in the
second quarter of 2007. 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. During the second quarter of 2008, the
contractor and owner reached a settlement that is expected to cover
the increases in estimated costs. Based on the timing for final
customer board approvals, the formal change order was not completed
during the second quarter of 2008. However, KBR believes it is likely
that a change order will be executed covering the increases in
estimated costs. The second quarter of 2008 was positively impacted by
various other gas monetization and offshore projects.
Government and Infrastructure business unit income was $63 million
in the second quarter of 2008 compared to business unit income of $58
million in the second quarter of 2007. Business unit income in the
second quarter of 2008 included a charge related to an unfavorable
jury verdict of approximately $40 million from litigation with a
subcontractor on the LogCAP III contract dating back to 2003, a $3
million charge on the Skopje Embassy project in Macedonia, 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 second quarter of 2007 included
a $24 million charge related to the U.S. Embassy project in Macedonia.
Services business unit income was $17 million in the second
quarter of 2008 compared to business unit income of $17 million in the
second quarter of 2007. Business unit income in the second quarter of
2008 had positive contributions from the Scotford Upgrader project in
Canada, several North American construction projects, and work with
service and maintenance vessels in the Gulf of Mexico. The second
quarter of 2007 included a positive tax credit associated with the
service and maintenance vessels in the Gulf of Mexico.
Downstream business unit income was $14 million in the second
quarter of 2008 compared to business unit income of $1 million in the
second quarter of 2007. Business unit income in the second quarter of
2008 included $8 million in change orders which reduced expected
project losses at completion on the Saudi Kayan project and additional
positive contributions from the Yanbu export refinery project, program
management services for the Ras Tanura project in Saudi Arabia, and
the EBIC ammonia plant in Egypt.
Technology business unit income was $7 million in the second
quarter of 2008 compared to business unit income of $2 million in the
second quarter of 2007. Business unit income in the second quarter of
2008 had positive contributions from an aniline plant in China and an
ammonia project in Venezuela.
Ventures business unit income was $0 million in the second quarter
of 2008 compared to a business unit loss of $1 million in the second
quarter of 2007. Business unit income in the second quarter of 2008
was primarily impacted by income on the investment in the Allenby &
Connaught military accommodation and services project and a gain on
sale of an investment share on two U.K. road projects, partially
offset by continuing operating losses on the investment in the Alice
Springs-Darwin rail road project.
Corporate general and administrative expense in the second quarter
of 2008 was $52 million compared to $55 million in the prior year
second quarter.
Significant Achievements and Awards
- KBR announced, and completed on July 1, 2008, the acquisition
of BE&K, Inc, a privately held Birmingham, Alabama based
engineering, construction, and maintenance services company.
The transaction was valued at $550 million.
- KBR announced it was awarded a four-year contract, including
an option for extension, by BP to provide Engineering and
Project Management Services for BP's future offshore
developments worldwide. In the agreement, KBR and KBR
subsidiaries Granherne and GVA Consultants will provide
conceptual studies, Front End Engineering and Design, detailed
engineering, and project management services for BP offshore
projects across the globe.
- KBR announced it was awarded a $275 million (CAD) contract for
construction and fabrication of an LCFiner unit by North West
Upgrading in Alberta, Canada. The LCFiner unit scope will
include the prefabrication of 40 modules to be later assembled
as part of the North West Upgrading project. The project is
expected to last approximately 30 months and will peak with
approximately 450 personnel.
- KBR announced its 55% owned subsidiary, M.W. Kellogg Ltd.
(MWKL) was awarded a contract to provide detailed engineering
and procurement services for a coker revamp project at
StatoilHydro's Mongstad Refinery in Norway. The project will
improve the working environment and safety of the operators on
the coker unit by automating processes to improve safety,
performance, and reliability.
- KBR announced it was awarded a $16.5 million contract for
detailed engineering for the SOME Maersk Olie Gas Halfdan
Phase IV project. KBR will be responsible for designing a new
platform as part of the continued development of the Halfdan
field located in approximately 140 feet of water 120 miles
west of Esbjerg, Denmark.
- KBR announced that its "Eos" joint venture with WorleyParsons,
was awarded contract options for the detailed engineering and
procurement management services for Woodside's North Rankin 2
(NR2) project. The NR2 contract involves the design and
construction of a new offshore platform (North Rankin B) to be
installed alongside, and bridge linked to, the existing North
Rankin A platform.
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
June 30, March 31,
----------------------- ------------
2008 2007 2008
--------------------------------- ----------- ----------- ------------
Revenue:
Government and Infrastructure $ 1,707 $ 1,482 $ 1,684
Upstream 699 485 611
Services 129 78 108
Downstream 101 88 100
Technology 23 18 19
Ventures(a) (1) 1 (3)
----------------------------------------------------------------------
Total revenue $ 2,658 $ 2,152 $ 2,519
----------------------------------------------------------------------
Business unit income (loss):
Government and Infrastructure $ 63 $ 58 $ 80
Upstream 39 47 105
Services 17 17 13
Downstream 14 1 8
Technology 7 2 5
Ventures(a) -- (1) (4)
----------------------------------------------------------------------
Total business unit income 140 124 207
----------------------------------------------------------------------
Unallocated costs:
Labor cost absorption 2 (4) 3
Corporate general and
administrative (52) (55) (56)
----------------------------------------------------------------------
Total operating income 90 65 154
----------------------------------------------------------------------
Interest income, net 9 14 16
Foreign currency gain (loss), net 1 (2) (3)
Other non-operating gain, net -- 1 --
----------------------------------------------------------------------
Income from continuing operations
before income taxes and minority
interest 100 78 167
Provision for income taxes (36) (32) (60)
Minority interest in net
(earnings) losses of
subsidiaries (16) 4 (9)
----------------------------------------------------------------------
Income from continuing operations 48 50 98
Income from discontinued
operations, net -- 90 --
----------------------------------------------------------------------
Net income $ 48 $ 140 $ 98
----------------------------------------------------------------------
Basic income per share(b):
Continuing operations $ 0.28 $ 0.30 $ 0.58
Discontinued operations, net -- 0.54 --
----------------------------------------------------------------------
Net income per share $ 0.28 $ 0.83 $ 0.58
----------------------------------------------------------------------
Diluted income per share(b):
Continuing operations $ 0.28 $ 0.30 $ 0.58
Discontinued operations, net -- 0.53 --
----------------------------------------------------------------------
Net income per share $ 0.28 $ 0.83 $ 0.58
----------------------------------------------------------------------
Basic weighted average shares
outstanding 169 168 169
Diluted weighted average shares
outstanding 171 169 170
----------------------------------------------------------------------
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.
See Footnote Table 1 for a list of significant items included in
operating income.
KBR, Inc.
Condensed Consolidated Balance Sheets
(In millions)
(Unaudited)
June 30, December 31,
2008 2007
-------------------------------------------------------- -------------
Assets
Current assets:
Cash and equivalents $ 1,556 $ 1,861
Receivables:
Notes and accounts receivable, net 1,168 927
Unbilled receivables on uncompleted
contracts 829 820
----------------------------------------------------------------------
Total receivables 1,997 1,747
Deferred income taxes 138 165
Other current assets 320 282
Current assets of discontinued operations -- 1
----------------------------------------------------------------------
Total current assets 4,011 4,056
Property, plant, and equipment, net of
accumulated depreciation of $238 and $227 220 220
Goodwill 258 251
Equity in and advances to unconsolidated
affiliates 166 294
Noncurrent deferred income taxes 148 139
Unbilled receivables on uncompleted
contracts 136 196
Other assets 239 47
----------------------------------------------------------------------
Total assets $ 5,178 $ 5,203
----------------------------------------------------------------------
----------------------------------------------------------------------
Liabilities, Minority Interest and Shareholder's Equity
Current liabilities:
Accounts payable $ 1,183 $ 1,117
Due to Halliburton, net 18 16
Advanced billings on uncompleted contracts 510 794
Reserve for estimated contract losses 106 117
Employee compensation and benefits 266 316
Other current liabilities 289 262
Current liabilities of discontinued
operations 6 1
----------------------------------------------------------------------
Total current liabilities 2,378 2,623
Noncurrent employee compensation and
benefits 85 79
Other noncurrent liabilities 175 151
Noncurrent income tax payable 97 78
Noncurrent deferred tax liability 49 37
----------------------------------------------------------------------
Total liabilities 2,784 2,968
----------------------------------------------------------------------
Minority interest in consolidated
subsidiaries (17) (32)
----------------------------------------------------------------------
Shareholders' equity and accumulated other
comprehensive loss:
Common stock -- --
Paid-in capital in excess of par value 2,082 2,070
Accumulated other comprehensive loss (117) (122)
Retained earnings 446 319
----------------------------------------------------------------------
Total shareholders' equity and accumulated
other comprehensive loss 2,411 2,267
----------------------------------------------------------------------
Total liabilities, minority interest,
shareholders' equity and accumulated
other comprehensive loss $ 5,178 $ 5,203
----------------------------------------------------------------------
KBR, Inc.
Condensed Consolidated Statements of Cash Flows
(In millions)
(Unaudited)
Six Months Ended
June 30,
-------------------------
2008 2007
-------------------------------------------- ------------ ------------
Cash flows from operating activities:
Net income $ 146 $ 168
Adjustments to reconcile net income to net
cash provided by (used in) operations:
Depreciation and amortization 17 24
Equity earnings from unconsolidated
affiliates (21) (54)
Deferred income taxes 23 22
Gain on sale of assets, net -- (216)
Impairment of equity method investments -- 18
Other (17) 43
Changes in operating assets and liabilities:
Receivables (234) (83)
Unbilled receivables on uncompleted
contracts 1 249
Accounts payable 63 (122)
Advanced billings on uncompleted
contracts (309) 207
Accrued employee compensation and
benefits (51) 10
Reserve for loss on uncompleted contracts (12) (30)
Collection (repayment) of advances from
(to) unconsolidated affiliates, net 57 (34)
Distribution of earnings from
unconsolidated affiliates 76 70
Other assets (105) (58)
Other liabilities 82 180
----------------------------------------------------------------------
Total cash flows provided by (used in)
operating activities (284) 394
----------------------------------------------------------------------
Cash flows from investing activities:
Capital expenditures (16) (23)
Sales of property, plant and equipment -- 1
Acquisition of businesses, net of cash
acquired (11) --
Disposition of business/investments, net of
cash disposed -- 334
Other investing activities 3 (1)
----------------------------------------------------------------------
Total cash flows provided by (used in)
investing activities (24) 311
----------------------------------------------------------------------
Cash flows from financing activities:
Payments to Halliburton, net -- (123)
Payments on long-term borrowings -- (7)
Excess tax benefits from stock-based
compensation 2 --
Net proceeds from issuance of common stock 2 --
Payment of dividend to shareholders (9) --
Payments of dividends to minority
shareholders (12) (19)
----------------------------------------------------------------------
Total cash flows used in financing
activities (17) (149)
----------------------------------------------------------------------
Effect of exchange rate changes 20 (1)
----------------------------------------------------------------------
Increase (decrease) in cash and equivalents (305) 555
Cash and equivalents at beginning of period 1,861 1,461
----------------------------------------------------------------------
Cash and equivalents at end of period $ 1,556 $ 2,016
----------------------------------------------------------------------
Noncash financing activities
----------------------------------------------------------------------
Cash dividends declared $ 9 $ --
----------------------------------------------------------------------
KBR, Inc.
Revenue and Operating Results by Business Unit
(In millions)
(Unaudited)
Three Months Ended
---------------------------------------
June 30, March 31,
2008 2007 2008
------------------------------ ------------- ------------ ------------
Revenue:
G&I:
U.S. Government - Middle
East Operations $ 1,340 $ 1,170 $ 1,368
U.S. Government - Americas
Operations 156 185 121
International Operations 211 127 195
----------------------------------------------------------------------
Total G&I 1,707 1,482 1,684
----------------------------------------------------------------------
Upstream:
Gas Monetization 575 360 445
Offshore 98 85 137
Other 26 40 29
----------------------------------------------------------------------
Total Upstream 699 485 611
----------------------------------------------------------------------
Services 129 78 108
Downstream 101 88 100
Technology 23 18 19
Ventures (1) 1 (3)
----------------------------------------------------------------------
Total revenue $ 2,658 $ 2,152 $ 2,519
----------------------------------------------------------------------
Business unit income (loss):
G&I:
U.S. Government - Middle
East Operations $ 36 $ 67 $ 69
U.S. Government - Americas
Operations 13 1 1
International Operations 45 23 39
----------------------------------------------------------------------
Total job income 94 91 109
----------------------------------------------------------------------
Divisional overhead (31) (33) (29)
----------------------------------------------------------------------
Total G&I business
unit income 63 58 80
----------------------------------------------------------------------
Upstream:
Gas Monetization 32 43 41
Offshore 17 11 67
Other 4 6 8
----------------------------------------------------------------------
Total job income 53 60 116
----------------------------------------------------------------------
Divisional overhead (14) (13) (11)
----------------------------------------------------------------------
Total Upstream
business unit income 39 47 105
----------------------------------------------------------------------
Services:
Job income 19 19 16
Gain on sale of assets 1 -- --
Divisional overhead (3) (2) (3)
----------------------------------------------------------------------
Total Services
business unit income 17 17 13
----------------------------------------------------------------------
Downstream:
Job income 20 5 12
Divisional overhead (6) (4) (4)
----------------------------------------------------------------------
Total Downstream
business unit income 14 1 8
----------------------------------------------------------------------
Technology:
Job income 12 7 10
Divisional overhead (5) (5) (5)
----------------------------------------------------------------------
Total Technology
business unit income 7 2 5
----------------------------------------------------------------------
Ventures:
Job income (loss) (1) -- (3)
Gain on sale of assets 1 -- --
Divisional overhead -- (1) (1)
----------------------------------------------------------------------
Total Ventures
business unit income
(loss) -- (1) (4)
----------------------------------------------------------------------
Total Business unit income $ 140 $ 124 $ 207
----------------------------------------------------------------------
KBR, Inc.
Backlog Information (a)
(In Millions)
(Unaudited)
June 30, December 31,
2008 2007
------------------------------------------- ------------- ------------
G&I:
U.S. Government - Middle East Operations $ 1,170 $ 1,361
U.S. Government - Americas Operations 490 548
International Operations 2,120 2,339
----------------------------------------------------------------------
Total G&I(b) 3,780 4,248
----------------------------------------------------------------------
Upstream:
Gas Monetization 6,531 6,606
Offshore Projects 235 173
Other 84 118
----------------------------------------------------------------------
Total Upstream 6,850 6,897
----------------------------------------------------------------------
Services 809 765
----------------------------------------------------------------------
Downstream 326 313
----------------------------------------------------------------------
Technology 100 128
----------------------------------------------------------------------
Ventures 735 700
----------------------------------------------------------------------
Total backlog for continuing operations $ 12,600 $ 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 $2.9 billion and $3.1
billion at June 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 June 30, 2008
and December 31, 2007, respectively.
As of June 30, 2008, 24% of our backlog for continuing operations
was attributable to fixed-price contracts and 76% 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 $3.6 billion and $4.0 billion as of June 30, 2008 and
December 31, 2007, respectively. Government and Infrastructure
backlog attributable to unfunded orders was $0.2 billion as of
June 30, 2008 and $0.2 billion as of December 31, 2007.
CONTACT:
KBR, Houston
Director, Communications
Heather Browne, 713-753-3775
heather.browne@kbr.com
or
Director, Investor Relations
Rob Kukla, Jr., 713-753-5082
investors@kbr.com