KBR announced that fourth quarter 2009 net income attributable to KBR was $73 million, or $0.45 per diluted share, compared to net income attributable to KBR of $88 million, or $0.54 per diluted share, in the fourth quarter of 2008. The fourth quarter of 2009 included a gain of $0.70 per diluted share related to the EPC-1 arbitration, a charge of $0.50 per diluted share for the reversal of previously recognized award fees related to the LogCAP III contract, a charge of $0.09 per diluted share for an unfavorable court ruling related to a subcontractor claim for work performed in 2003 and 2004 under the LogCAP III contract, a $0.07 charge to correct prior period errors primarily related to revenue recognition for legal fees related to ongoing lawsuits, which does not have a material impact on financial statements for previous quarters, and a $0.02 charge related to the abandonment of the Westside Houston resource center development project.
Consolidated revenue in the fourth quarter of 2009 was $3.0 billion compared to $3.4 billion in the fourth quarter of 2008. Consolidated operating income was $124 million in the fourth quarter of 2009 compared to $153 million in the fourth quarter of 2008, which included a $24 million gain from a project change order.
“2009 was a solid year for KBR in what was considered a very difficult market environment. We were able to grow revenue 5 percent and are especially pleased with KBR’s backlog performance, particularly in the second half of the year, which grew 14 percent in the last two quarters,” said Bill Utt, Chairman, President, and Chief Executive Officer of KBR. “During the quarter, we encountered changes by the U.S. Army in administering award fee determinations, which when excluding any recoveries of award fees from the 2008 and 2009 periods and applied to budgeted award fees for 2010, has the impact of reducing the low end of our 2010 guidance by $0.10 per diluted share. Nonetheless, we continue to be optimistic about KBR’s ability to deliver continued growth in our overall business despite an expected continued decline in our LogCAP volumes.”
2009 Fourth Quarter Business Unit Results
Upstream business unit income was $220 million in the fourth quarter of 2009 compared to business unit income of $65 million in the fourth quarter of 2008. Business unit income in the fourth quarter of 2009 included a $183 million gain related to a favorable arbitration award on the EPC-1 project. Business unit income in the fourth quarter of 2009 had positive contributions from various gas monetization projects, including the Pearl GTL, Gorgon LNG, and Escravos GTL projects, several offshore related projects in the Caspian area, and several topside engineering projects, offset by $24 million in additional costs related to subcontractor claims and schedule delays on two LNG projects. Business unit income in the fourth quarter of 2008 included a $24 million gain on a change order on an LNG project.
Government and Infrastructure business unit loss was $109 million in the fourth quarter of 2009 compared to business unit income of $85 million in the fourth quarter of 2008. Business unit income in the fourth quarter of 2009 included a charge of $20 million for an adverse decision on the granting of an award fee on LogCAP III, a charge of $112 million for KBR’s assessment and reversal of previously recognized award fees related to the LogCAP III contract, a charge of $19 million for an unfavorable court ruling related to a subcontractor claim for work in 2003 and 2004 under the LogCAP III contract, and $17 million to correct prior period errors primarily related to revenue recognition for legal fees related to ongoing lawsuits. Business unit income in the fourth quarter 2009 had positive contributions from the Allenby & Connaught project, work on the CENTCOM project, work for the U.K. Ministry of Defense in Afghanistan, and numerous infrastructure projects, including the Qatar-Bahrain Causeway.
Services business unit income was $55 million in the fourth quarter of 2009 compared to business unit income of $53 million in the fourth quarter of 2008. Business unit income in the fourth quarter of 2009 had positive contributions from power projects in Georgia and Texas, the Scotford Upgrader project in Canada, construction and maintenance work in Texas, the offshore service vessels in the Gulf of Mexico, and an activated carbon project in Louisiana.
Downstream business unit income was $11 million in the fourth quarter of 2009 compared to business unit income of $14 million in the fourth quarter of 2008. Business unit income in the fourth quarter of 2009 had positive contributions from program management services for the Ras Tanura project and the Yanbu export refinery in Saudi Arabia, the Lobito refinery FEED in Angola, and several other refining projects.
Technology business unit income was $7 million in the fourth quarter of 2009 compared to business unit income of $3 million in the fourth quarter of 2008. Business unit income in the fourth quarter of 2009 had positive contributions from several refining technology packages for a facility in Angola, a ROSE™ unit project in Indonesia, an ethylene project in Korea, two ammonia license and basic engineering projects in South America, and the final license payment for the completion of a ROSE™ project in the United States.
Ventures business unit income was $4 million in the fourth quarter of 2009 compared to a business unit loss of $1 million in the fourth quarter of 2008. Business unit income in the fourth quarter of 2009 had positive contributions from the Aspire Defence project and the EBIC ammonia project in Egypt.
Corporate general and administrative expense in the fourth quarter of 2009 was $60 million, which includes a $4 million write-off related to the Westside campus. This compares to $60 million reported in the prior year fourth quarter.
Total cash flows used in operating activities for the full year 2009 were $36 million, which includes an increase in working capital of approximately $220 million related to the Skikda LNG project and $35 million in tax payments made prior to the recognition of foreign tax credits arising from the EPC-1 arbitration decision. The full year 2009 net income included a gain of $117 million, net of tax, related to the favorable EPC-1 arbitration.
Significant Achievements and Awards
- KBR was awarded a Contracted Construction, Maintenance and Services Agreement (CCMS) by DuPont, covering a three year period. KBR will provide supplemental maintenance and small capital construction services to DuPont at 19 of its production facilities across the northeast United States and Gulf Coast regions. Permanent presence work teams will be located at each facility to complete construction and maintenance projects as directed by DuPont.
- KBR was awarded a basic contract by the U.S. Air Force Center for Engineering and the Environment (AFCEE) Contracting Officer to compete for future task orders under the Worldwide Environmental Restoration and Construction 2009 (WERC09) program. KBR is one of 23 companies that received contract award notification from AFCEE in the Full & Open competition. The total contract value to be dispersed among participating contractors is $3 billion and has a base contract period of five years. Under the contract and upon award of future task order(s), KBR will provide a full range of engineering and construction activities necessary to meet Air Force and other customer requirements to be carried out as specified under Task Orders at locations worldwide.
- KBR was awarded a contract from Woodside for a Front End Engineering and Design (FEED) for Train 2 and Train 3 of Woodside’s Pluto Liquefied Natural Gas (LNG) Project, including an option for early engineering, procurement and construction management (EPCM) services. The Pluto Train 2 and 3 development is being undertaken as an expansion of the onshore LNG plant at Woodside’s Pluto LNG Park located near Karratha in Western Australia, including a single LNG processing train with forecast LNG capacity of 4.3 million tonnes per year (mtpa), storage facilities and an export jetty.
- KBR was awarded a contract by Chevron USA Inc. for the FEED of the topsides for the proposed Big Foot development facility, located in the Walker Ridge Block 29 of the Gulf of Mexico and is owned by Chevron USA Inc. (operator), Statoil Gulf of Mexico LLC and Marubeni Oil & Gas (USA) Inc. The proposed facility will be installed in 5,300 feet of water approximately 200 miles from New Orleans and 35 miles south of Chevron’s producing Tahiti field. KBR will provide engineering and project management services to develop the process design, specify the required equipment, layout, modularize and integrate the decks, perform the necessary structural analyses, and provide the electrical power generation and distribution system designed to support the platform and the downhole electrical submersible pump requirements. KBR will also assist Chevron in estimating the cost of the facility and plan the subsequent phases of the development.
- KBR was awarded a contract by Suncor Energy, Inc. to provide turnaround services for Suncor’s 2010 Turnaround project at its oil sands plant in Fort McMurray, Alberta, Canada. KBR Canada will provide turnaround planning, management and execution for the shut down and maintenance of the plant including direct-hire labour resources, management of subcontractors, and coordination of activities with the client workforce and other contractors on site during the turnaround. Additionally, the Turnaround Group, Inc. (TGI), a KBR subsidiary, will work with the KBR Canada team to contribute expert project controls systems, providing high-level technical capabilities in the areas of planning, scheduling, cost estimating and forecasting, along with change management and the crucial integration of KBR’s activities with those of Suncor and other participants.
- KBR was awarded a Framework Contract by Sasol Technology (Pty) Ltd., the technology arm of the Sasol Group (Sasol), to provide engineering services across various sectors of Sasol Group’s business including downstream, petrochemical, and upstream in Southern Africa. Under the agreement and on the basis of mutually agreed terms and conditions, KBR will provide a full range of engineering services that will vary in scope depending on Sasol’s needs. The framework agreement is designed to allow Sasol and KBR to quickly engage on conceptual studies, feasibility studies and FEED packages.