KBR's Consolidated Revenue Up 23.5%

KBR announced 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.
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