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KBR, Inc (



Q3 2010 Earnings Call

October 28, 2010 11:00 a.m. ET


Rob Kukla - Director, IR

Bill Utt - President & CEO

Sue Carter - SVP & CFO


Steven Fisher - UBS

Will Gabrielski - Gleacher

Rob Norfleet - BB&T Capital Markets

Joe Ritchie - Goldman Sachs

Michael Dudas - Jefferies & Company

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John Rogers - DA Davidson

Jamie Cook - Credit Suisse



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» KBR Q2 2010 Earnings Call Transcript
» KBR Q1 2010 Earnings Call Transcript
» KBR, Inc. Q4 2009 Earnings Call Transcript
» KBR, Inc. Q2 2009 Earnings Call Transcript

Good day and welcome to the KBR Third Quarter 2010 Earnings Call hosted by KBR. (Operator Instructions) For opening remarks and introductions, I'd like to turn the call over to Mr. Rob Kukla, Director of Investor Relations. Please go ahead, sir.

Rob Kukla

Thank you, William. Good morning, and welcome to KBR's Third Quarter 2010 Earnings Conference Call. Today's call is also being webcast, and a replay will be available on KBR's website for seven days. The press release announcing the third quarter results is also available on KBR's website.

Joining me today are Bill Utt, Chairman, President and Chief Executive Officer; and Sue Carter, our Senior Vice President and Chief Financial Officer.

In today's call, Bill will provide opening remarks and business outlook. Sue will address KBR's operating performance, financial position, backlog and other financial items. We will welcome questions after we complete our prepared remarks.

Before turning the call over to Bill, I would like to remind our audience that today's comments may include forward-looking statements reflecting KBR's views about future events and their potential impact on performance. These matters involve risks and uncertainties that could impact operations and financial results and cause our actual results to differ from our forward-looking statements. These risks are discussed in KBR's Form 10-K for the year ended December 31, 2009, KBR's quarterly reports on Forms 10-Q and KBR's current reports on Form 8-K.

Now I'll turn the call over to Bill Utt. Bill?

Bill Utt

Thanks, Rob, and good morning, everyone. I am pleased with KBR’s performance this quarter. As we have been discussing over the past year we are seeing KBR’s consolidated revenue decline primarily associated with the lowering volumes on the LogCAP III project.

However, KBR’s consolidated business unit income is up 13% and operating income is up 24%. Both figures comparative of third quarter of last year, the earnings per diluted share of $0.62 for third quarter is up 38% compared to the prior year third quarter.

Before making comments on KBR's discrete business units, I would like to discuss KBR's backlog. As we have discussed over the past several quarters and as highlighted during our Analyst and Investor Day at the end of June, we have been focused on creating a more profitable backlog. Compared to the third quarter of 2009, job income backlog was up 1% relative to a 9% decrease in revenue backlog. Sequentially, KBR's job income backlog was up 1% despite a less than 1% decline in revenue backlog.

During the third quarter a final settlement agreement was negotiated with one of our commercial agents who provided services to various Gas Monetization and oil and gas projects. The agent had confirmed their understanding up and compliance with KBR’s monitor approved policies on business conduct and represented that they had complied with anti-corruption laws as they relate to prior services provided to KBR.

We executed a final settlement agreement with the agents in September 2010 which resulted a non-cash gain in the third quarter. Separately due to actions and inactions on part of the customer we identified increases in the forecasted cost to complete of an LNG project. The estimated cost increases included additional labor, equipment, sub-contractor bonding and other project cost.

We are in a dialogue with our customer to resolve these issues, as a result of the increases in the forecasted project cost. We recognize a non-cash charge to job income in the third quarter of 2010.

The net impact of these two items the Hydrocarbons job income in the third quarter was negligible. For our gas monetization business unit, for the Tangguh LNG project, we continue to maintain an ongoing dialogue with the customer to close out the project and conclude final project change orders.

The Gorgon LNG project which is 28% complete and Pearl GTL project now on the commissioning phase were also positive contributors to this quarter’s results.

The impact Ichthys FEED and the Pluto FEED, as well as the Browse LNG basis of design projects are proceeding as planned and also contributed nominally with quarters results. For our oil and gas business unit, we announced earlier this month that we were awarded a contract to execute the top sides detailed design For Total's CLOV FPSO project which will be used to exploit approximately 500 million barrels of oil from all shore reserves in Angola.

The facility will be designed to process approximately 160,000 barrels per day of oil, 230 million standard cubic feet per day of natural gas and have a 1.8 million barrel oil storage capacity.

During the third quarter we are also selected by BP to undertake the second stage of concept selection and definition, for the onshore terminal and export pipelines for the West Nile Delta in Egypt.

This scope of work will be to develop a technical definition package that will process 1000 million standard cubic feet per day of gas and condensate. Our portfolio equity projects are progressing well and we believe that we will make several more announcements over the next couple of quarters as these feed projects move into detailed design specifically in the Caspian, North Sea, West Africa and Gulf of Mexico regions.

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