USA: KBR Announces $0.62 Earnings per Diluted Share for Third Quarter 2010 Results

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.

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Source: KBR, October 29, 2010