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KBR Announces Earnings Per Diluted Share of $0.16 for Third Quarter 2013



  KBR Announces Earnings Per Diluted Share of $0.16 for Third Quarter 2013

  * Backlog at $14.2 billion with book-to-bill of 1.2x
  * Total cash provided by operations of $178 million in the third quarter of
    2013
  * Operating income of $166 million, up 35% from the second quarter of 2013

Business Wire

HOUSTON -- October 24, 2013

KBR (NYSE:KBR) announced today that third quarter 2013 net income attributable
to KBR was $24 million, or $0.16 per diluted share, compared to a net loss
attributable to KBR of $81 million, or $0.55 per diluted share, in the third
quarter of 2012.

Consolidated revenue in the third quarter of 2013 was $1.8 billion compared to
$2.0 billion in the third quarter of 2012. Operating income in the third
quarter of 2013 was $166 million compared to an operating loss of $11 million
in the prior year third quarter. The third quarter of 2012 included a non-cash
goodwill impairment charge of $178 million related to a market assessment of
the minerals business.

“The third quarter was highlighted by a strong, 1.2x book-to-bill ratio and
cash flow from operations of $178 million. The quarter was unfavorably
impacted by the adverse tax ruling related to the separation from our prior
parent, several non-operational discrete tax items and the delay of key
project close-out items originally forecast in the quarter,” said Bill Utt,
Chairman, President, and Chief Executive Officer of KBR. “Looking forward, we
continue to see a strong opportunity set of major projects across all of our
businesses; however, we expect the near term competitive environment for new
awards to continue.”

Business Discussion (All comparisons are third quarter 2013 versus third
quarter 2012, unless otherwise noted).

Gas Monetization Results

Gas Monetization revenue was $552 million, down $256 million, or 32% primarily
related to completed construction on the Skikda LNG and Escravos GTL projects.
Gas Monetization job income was $157 million, up $10 million, or 7%, primarily
related to the recognition of a change order executed on the Gorgon LNG
project as well as increased activity on the Ichthys LNG EPC and other active
FEED projects. Partially offsetting the increase was lower income related to
the Skikda LNG project in Algeria.

A supplemental table outlining Gas Monetization’s historical job income and
business group overhead for the new reporting structure is attached.

Hydrocarbons Results

Hydrocarbons revenue was $364 million, up $53 million, or 17%. Hydrocarbons
job income was $69 million, down $3 million, or 4%. An $8 million gain in the
third quarter of 2012 from the completion of an ammonia project in Venezuela,
which did not recur in the third quarter of 2013, was partially offset by a $5
million gain in the third quarter of 2013 due to a favorable arbitration award
on a previously completed Egyptian project. Income from new ammonia and
ethylene EPC projects and related technology awards in North America were
offset by the completion or near completion of several offshore engineering
projects.

Infrastructure, Government and Power (IGP) Results

IGP revenue was $383 million, down $50 million, or 12%. IGP job income was $56
million, down $6 million, or 10%, primarily related to lower work volumes for
infrastructure-related projects, reduced activity on the LogCAP IV contract,
and lower construction volumes on the Allenby & Connaught project. Partially
offsetting the decrease was $6 million in cost reductions on a project in
Indonesia as well as a third quarter 2012 charge of $8 million on a project in
Indonesia that did not recur in the third quarter of 2013.

Services Results

Services revenue was $494 million, up $75 million, or 18%. Services job income
was $31 million, up $16 million, or 107%, primarily related to $21 million in
charges in the third quarter of 2012 due to increased cost estimates to
complete two construction projects in the United States that did not recur in
the third quarter of 2013, as well as increased activity on several module
fabrication projects in Canada. Partially offsetting the increase was lower
income related to a contract expiration and dry-docking of a vessel in the MMM
joint venture.

Other Results

Other revenue was $18 million, down $3 million, or 14%. Other job income was
$9 million, down $6 million, or 40%, primarily related to lower gas supply
availabilities as well as lower ammonia prices at the EBIC ammonia plant in
Egypt and increased maintenance costs at a project in the United Kingdom.

Corporate

Corporate general and administrative expense, including $14 million related to
the company’s ERP implementation, was $66 million, up $10 million, or 18%.

Third quarter of 2013 labor cost absorption expense was $10 million, a $7
million improvement from the second quarter of 2013.

The effective tax rate for the third quarter 2013 was approximately 46%
primarily due to a $38 million, or $0.26 per diluted share, tax expense
related to an unfavorable accounting referee report for a tax dispute with
KBR’s former parent as outlined in a KBR Form 8-K filed on October 11, 2013.

Noncontrolling interest was $63 million in the third quarter of 2013, which
includes approximately $50 million related to a change order executed on the
Gorgon LNG project.

Total cash provided by operating activities in the third quarter of 2013 was
$178 million.

During the third quarter of 2013, KBR had capital expenditures of $17 million
and quarterly dividend payments of $12 million for total cash deployment of
$29 million.

KBR expects 2013 EPS to be at the low end of the previous guidance range of
between $2.55 and $2.90, excluding charges related to the tax dispute with
KBR’s former parent.

Significant Achievements and Awards

  * KBR was awarded a five year extension to provide contracted construction
    and maintenance services to DuPont. KBR’s contract renewal includes an
    expansion of services from 17 sites to 26 DuPont sites across the
    northeast U.S. and gulf coast regions.
  * KBR was awarded an approximately $300 million EPC contract by an
    undisclosed client for a urea plant to be constructed in North America.
  * KBR was selected to execute a front-end engineering and design (FEED)
    contract for a crude oil refinery revamp project for one of the oldest
    operating refineries in the U.S. During the feasibility phase, KBR’s
    expertise will focus on determining the optimum economic configuration to
    increase overall heavy crude processing capability and flexibility.
  * KBR was awarded a FEED contract by INEOS Olefins & Polymers USA for one of
    the largest grassroots high-density polyethylene plants to be built in the
    Americas. KBR’s scope of work includes the FEED for the inside and outside
    battery limit facilities, development of an appropriation grade cost
    estimate, and order of long lead equipment for the project.
  * KBR was awarded a contract to provide materials management services at a
    major steam-assisted gravity drainage operation southeast of Fort
    McMurray, Alberta, Canada. KBR will supply the equipment and experienced
    materials handling personnel to facilitate the offloading and loading of
    equipment, as well as material and inventory control.
  * KBR, along with three other firms, was awarded a contract under the Navy’s
    Global Contingency Construction Multiple Award Contract valued at up to
    $800 million over five years and provides immediate response for civilian
    construction contract capability in the event of natural disasters,
    humanitarian assistance, conflict or projects with similar
    characteristics.
  * KBR was awarded a contract by International Paper to provide total
    maintenance services for one of Russia’s most productive paper mills
    located in Svetogorsk, Russia. This contract is for three years with the
    option to renegotiate commercial terms after the first year.

KBR is a global engineering, construction and services company supporting the
energy, hydrocarbons, power, industrial, civil infrastructure, minerals,
government services and commercial 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 20, 2013, 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,
                                     2013            2012            2013
Revenue:
Gas Monetization                     $   552         $   808         $ 612
Hydrocarbons                             364             311           343
Infrastructure, Government and           383             433           392
Power
Services                                 494             419           622
Other                                    18              21            27     
Total revenue                            1,811           1,992         1,996  
Business segment income:
Gas Monetization                         153             141           96
Hydrocarbons                             40              50            45
Infrastructure, Government and           26              (149   )      25
Power
Services                                 17              -             23
Other                                    6               11            14     
Total business segment income            242             53            203    
Unallocated costs:
Labor cost absorption                    (10    )        (8     )      (17   )
General and administrative               (66    )        (56    )      (63   )
Operating income (loss)                  166             (11    )      123    
Interest expense, net                    (1     )        (2     )      (1    )
Foreign currency gains (losses),         (2     )        (2     )      4
net
Other non-operating expense              (1     )        -             -      
Income (loss) before income taxes        162             (15    )      126
and noncontrolling interests
Provision for income taxes               (75    )        (45    )      (15   )
Net income (loss)                        87              (60    )      111
Net income attributable to               (63    )        (21    )      (21   )
noncontrolling interests
Net income (loss) attributable to    $   24          $   (81    )    $ 90     
KBR
                                                                      
Net income (loss) attributable to
KBR per share:
Basic                                $   0.16        $   (0.55  )    $ 0.61
Diluted                                  0.16            (0.55  )      0.61
                                                                      
Basic weighted average shares            148             147           147
outstanding
Diluted weighted average shares          149             147           148
outstanding
                                                                      
Cash dividends declared per share    $   0.08        $   0.05        $ 0.08

                                                                    
KBR, Inc.: Condensed Consolidated Statements of Income

(Millions, except per share data) (Unaudited)
                                                                      
                                                         Nine Months Ended
                                                         September 30,
                                                         2013        2012
Revenue:
Gas Monetization                                         $ 1,769     $ 2,422
Hydrocarbons                                               1,050       935
Infrastructure, Government and Power                       1,182       1,442
Services                                                   1,601       1,192
Other                                                      64          64     
Total revenue                                              5,666       6,055  
Business segment income (loss):
Gas Monetization                                           349         300
Hydrocarbons                                               133         127
Infrastructure, Government and Power                       78          (82   )
Services                                                   58          28
Other                                                      27          33     
Total business segment income                              645         406    
Unallocated costs:
Labor cost absorption                                      (42   )     (13   )
General and administrative                                 (181  )     (163  )
Operating income                                           422         230    
Interest expense, net                                      (3    )     (6    )
Foreign currency gains, net                                (2    )     -
Other non-operating expense                                (2    )     (1    )
Income before income taxes and noncontrolling              415         223
interests
Provision for income taxes                                 (120  )     (73   )
Net income                                                 295         150
Net income attributable to noncontrolling interests        (93   )     (36   )
Net income attributable to KBR                           $ 202       $ 114    
                                                                      
Net income attributable to KBR per share:
Basic                                                    $ 1.37      $ 0.77
Diluted                                                    1.36        0.76
                                                                      
Basic weighted average shares outstanding                  148         148
Diluted weighted average shares outstanding                149         149
                                                                      
Cash dividends declared per share                        $ 0.16      $ 0.15

 
KBR, Inc.: Condensed Consolidated Balance Sheets

(Millions) (Unaudited)
                                                                 
                                                  September 30,   December 31,
                                                  2013            2012
Assets
Current assets:
Cash and equivalents                              $   959         $  1,053
Receivables:
Accounts receivable, net of allowance for bad         1,046          1,196
debts of $15 and $15
Unbilled receivables on uncompleted contracts         740            704     
Total receivables                                     1,786          1,900
Current deferred income tax asset                     153            251
Other current assets                                  320            464     
Total current assets                                  3,218          3,668
Property, plant and equipment, net of
accumulated
depreciation of $384 and $356                         405            390
Goodwill                                              776            779
Intangible assets, net                                90             99
Equity in and advances to related companies           154            217
Noncurrent deferred income tax asset                  286            203
Noncurrent unbilled receivables on uncompleted        401            294
contracts
Other noncurrent assets                               90             117     
Total assets                                      $   5,420       $  5,767   
                                                                   
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable                                  $   642         $  756
Due to former parent, net                             105            49
Advanced billings on uncompleted contracts            390            536
Reserve from estimated losses on uncompleted          25             56
contracts
Employee compensation and benefits                    236            242
Current non-recourse project-finance debt of a        9              10
variable interest entity
Other current liabilities                             357            628     
Total current liabilities                             1,764          2,277
Noncurrent employee compensation and benefits         474            511
Noncurrent non-recourse project-finance debt of       80             84
a variable interest entity
Other noncurrent liabilities                          209            217
Noncurrent income tax payable                         68             90
Noncurrent deferred tax liability                     88             77      
Total liabilities                                     2,683          3,256   
KBR shareholders' equity
Preferred stock                                       -              -
Common stock                                          -              -
Paid-in-capital in excess of par                      2,061          2,049
Accumulated other comprehensive loss                  (623   )       (610   )
Retained earnings                                     1,887          1,709
Treasury stock                                        (610   )       (606   )
Total KBR shareholders' equity                        2,715          2,542
Noncontrolling interests                              22             (31    )
Total shareholders' equity                            2,737          2,511   
Total liabilities and shareholders' equity        $   5,420       $  5,767   

                                                                     
KBR, Inc.: Condensed Consolidated Statements of Cash
Flows

(Millions) (Unaudited)
                                                                       
                                                          Nine Months Ended
                                                          September 30,
                                                          2013        2012
Cash flows from operating activities:
Net income                                                $ 295       $ 150
Adjustments to reconcile net income to net cash
provided by (used in) operations:
Depreciation and amortization                               49          48
Equity in earnings of unconsolidated affiliates             (107  )     (113 )
Deferred income tax expense                                 70          61
Impairment of goodwill and long-lived assets                -           180
Other                                                       18          22
Changes in operating assets and liabilities:
Receivables                                                 126         (94  )
Unbilled receivables on uncompleted contracts               (72   )     (292 )
Accounts payable                                            (64   )     117
Advance billings on uncompleted contracts                   (103  )     (144 )
Accrued employee compensation and benefits                  (14   )     (49  )
Reserve for loss on uncompleted contracts                   (31   )     (3   )
Collection (repayment) of advances from (to)                12          (2   )
unconsolidated affiliates, net
Distribution of earnings from unconsolidated affiliates     151         60
Payment on performance bonds                                (108  )     -
Other, net                                                  (141  )     48    
Total cash flows provided by (used in) operating            81          (11  )
activities
Cash flows from investing activities:
Capital expenditures                                        (57   )     (53  )
Acquisition of business, net                                -           (1   )
Proceeds from sale of property, plant and equipment         7           -
Return of capital from equity method joint ventures         -           4     
Total cash flows used in investing activities               (50   )     (50  )
Cash flows from financing activities:
Payments to reacquire common stock                          (7    )     (36  )
Distributions to noncontrolling interests, net              (49   )     (9   )
Payments of dividends to shareholders                       (24   )     (22  )
Net proceeds from issuance of stock                         5           5
Payments on short-term and long-term borrowings             (9    )     (10  )
Excess tax benefits from share-based compensation           -           3
Other financing activities                                  1           1     
Total cash flows used in financing activities               (83   )     (68  )
Effect of exchange rate changes on cash                     (42   )     9
Decrease in cash and equivalents                            (94   )     (120 )
Cash and equivalents at beginning of period                 1,053       966   
Cash and equivalents at end of period                     $ 959       $ 846   

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

(Millions)(Unaudited)
                                                                      
                                     Three Months Ended
                                     September 30,   September 30,   June 30,
Revenue:                             2013            2012            2013
Gas Monetization                     $   552         $   808         $ 612
Hydrocarbons                             364             311           343
Infrastructure, Government and           383             433           392
Power
Services                                 494             419           622
Other                                    18              21            27     
Total revenue                            1,811           1,992         1,996  
                                                                      
                                                                      
Business segment income (loss):
Gas Monetization:
Job income                               157             147           101
Business segment overhead                (4     )        (6     )      (5    )
Total Gas Monetization                   153             141           96     
                                                                      
Hydrocarbons:
Job income                               69              72            76
Business segment overhead                (29    )        (22    )      (31   )
Total Hydrocarbons                       40              50            45     
                                                                      
Infrastructure, Government and
Power:
Job income                               56              62            62
Impairment of goodwill                   -               (178   )      -
Business segment overhead                (30    )        (33    )      (37   )
Total Infrastructure, Government         26              (149   )      25     
and Power
                                                                      
Services:
Job income                               31              15            38
Business segment overhead                (14    )        (15    )      (15   )
Total Services                           17              -             23     
                                                                      
Other:
Job income                               9               15            16
Impairment of long-lived assets          -               (2     )      -
Business segment overhead                (3     )        (2     )      (2    )
Total Other                              6               11            14     
                                                                      
Total business segment income        $   242         $   53          $ 203    

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

(Millions)(Unaudited)
 
                                             Nine Months Ended
                                             September 30,
Revenue:                                     2013        2012
Gas Monetization                             $ 1,769     $ 2,422
Hydrocarbons                                   1,050       935
Infrastructure, Government and Power           1,182       1,442
Services                                       1,601       1,192
Other                                          64          64     
Total revenue                                  5,666       6,055  
                                                          
                                                          
Business segment income (loss):
Gas Monetization:
Job income                                     363         320
Business segment overhead                      (14   )     (20   )
Total Gas Monetization                         349         300    
                                                          
Hydrocarbons:
Job income                                     220         199
Business segment overhead                      (87   )     (72   )
Total Hydrocarbons                             133         127    
                                                          
Infrastructure, Government and Power:
Job income                                     181         200
Impairment of goodwill                         -           (178  )
Gain on sales of assets                        -           2
Business segment overhead                      (103  )     (106  )
Total Infrastructure, Government and Power     78          (82   )
                                                          
Services:
Job income                                     100         72
Business segment overhead                      (42   )     (44   )
Total Services                                 58          28     
                                                          
Other:
Job income                                     36          42
Impairment of long-lived assets                -           (2    )
Gain (loss) on sales of assets                 (1    )     -
Business segment overhead                      (8    )     (7    )
Total Other                                    27          33     
                                                          
Total business segment income                $ 645       $ 406    

                                                                 
KBR, Inc.:  Backlog Information (a)

(Millions) (Unaudited)
                                                                   
                                       September 30,   June 30,   December 31,
                                       2013            2013       2012
                                                                   
Gas Monetization                       $    6,068      $ 6,672    $   7,745
Hydrocarbons                                2,334        2,074        1,354
Infrastructure, Government and Power        2,284        2,265        2,824
Services                                    2,506        1,862        2,025
Other                                       976          931          983
Total backlog^(b)                      $    14,168     $ 13,804   $   14,931

     
      Backlog is presented differently depending on whether 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 generally
      includes total expected revenue in backlog when a contract is awarded
      and/or the scope is definitized. Where contract duration is indefinite,
      projects included in backlog are limited to the estimated amount of
(a)   expected revenue within the following twelve months. Certain contracts
      provide maximum dollar limits, with actual authorization to perform work
      under the contract being agreed upon on a periodic basis with the
      customer. In these arrangements, only the amounts authorized are
      included in backlog. For projects where KBR acts solely in a project
      management capacity, KBR only includes the management fee revenue of
      each project in backlog. For certain long-term service contracts with a
      defined contract term, such as those associated with privately financed
      projects, the amount included in backlog is limited to five years.
       
      Backlog related to unconsolidated joint ventures is presented as KBR’s
      percentage ownership of the joint venture’s estimated 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 $5.2 billion, $5.3 billion and $5.8 billion at
      September 30, 2013, June 30, 2013, and December 31, 2012, respectively.
      Our backlog related to consolidated joint ventures with noncontrolling
      interest totaled $1.5 billion, $1.8 billion and $2.1 billion at
      September 30, 2013, June 30, 2013, and December 31, 2012, respectively.
       
      As of September 30, 2013, 46% of our backlog was attributable to
      fixed-price contracts and 54% 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, 2013,
      June 30, 2013, and December 31, 2012.
       
      Backlog attributable to unfunded government orders was $0.1 billion,
(b)   $0.1 billion and $0.2 billion as of September 30, 2013, June 30, 2013,
      and December 31, 2012, respectively.

                                                                         
KBR, Inc.: Historical Gas Monetization Business Segment Income and Overheads

(Millions)(Unaudited)
                                                                           
                Three Months Ended
                Mar        Jun        Sep 30,     Dec 30,     Mar 31,     Jun 30,
                31,        30,
                2012       2012       2012        2012        2013        2013
Business
group income:
Gas
Monetization:
Job income      $ 79       $ 94       $ 147       $ 125       $ 104       $ 101
Business
group             (5 )       (9 )       (6  )       (10 )       (5  )       (5  )
overhead
Total Gas         74         85         141         115         99          96   
Monetization

 
KBR, Inc.: Historical Gas Monetization Business Segment Contributions to
Noncontrolling Interests

(Millions)(Unaudited)
                  
                    Three Months Ended
                    Mar 31,    Jun 30,   Sep 30,   Dec 30,   Mar 31,   Jun 30,
                    2012       2012      2012      2012      2013      2013
Gas Monetization
Contributions to    $  (6  )   $  (6 )   $ (18 )   $ (20 )   $  (8 )   $ (18 )
Noncontrolling
Interests

Contact:

KBR
Zac Nagle, 713-753-5082
Vice President,
Investor Relations and Communications
or
Rob Kukla, Jr., 713-753-5082
Director, Investor Relations
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