KBR Q1 2010 Earnings Call Transcript

KBR Q1 2010 Earnings Call Transcript
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KBR (KBR)

Q1 2010 Earnings Call

April 29, 2010 11:00 am ET

Executives

William Utt - Chairman, Chief Executive Officer and President

Susan Carter - Chief Financial Officer and Senior Vice President

Rob Kukla - Director of Investor Relations

Analysts

Vance Edelson - Morgan Stanley

Michael Dudas - Jefferies & Company, Inc.

Barry Bannister - Stifel, Nicolaus & Co., Inc.

Peter Chang - Crédit Suisse First Boston, Inc.

Andy Kaplowitz - Barclays Capital

Will Gabrielski - Broadpoint AmTech, Inc.

Steven Fisher - UBS Investment Bank

Presentation

Operator

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Good day, and welcome to the KBR First Quarter 2010 Earnings Call hosted by KBR. [Operator Instructions] For opening remarks and introductions, I would like to turn the call over to Mr. Rob Kukla, Director of Investor Relations. Please go ahead.

Rob Kukla

Thanks, Brandon. Good morning, and welcome to KBR's First 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 first quarter results is available on KBR's website.

Joining me today are Bill Utt, Chairman, President and Chief Executive Officer; and Sue Carter, 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 will turn the call over to Bill Utt. Bill?

William Utt

Thanks, Rob, and good morning, everyone. From an earnings perspective, I was disappointed in KBR's first quarter results. However, I feel the earnings shortcomings was more the result of timing issues as opposed to unexpected costs or slowing of KBR's business. From an investor perspective, KBR's international lump-sum turnkey EPC projects frequently do not cooperate with smooth and efficient financial reporting. Let me elaborate.

For the Yemen LNG project, Train 2 successfully achieved ready for start up on March 12 and care, custody and control of the Yemen LNG project has been turned over to the client. During the quarter, KBR booked additional provisions for subcontractor claims resulting in a $6 million loss. Also during the quarter, we achieved agreements with the client on change orders to recover prior provisions related to scheduled liquidated damages, as well as subcontractor claims. However, we were not successful in concluding these change orders during the quarter.

We believe these change orders will be concluded and recognized next quarter. At the Tangguh project, the client is operating the LNG plant and both LNG trains are producing LNG for shipment. However, as a result of our client's sales commitments for LNG, KBR was requested to delay performance testing of the LNG plant, which would require a shutdown of the LNG trains. As with the Yemen LNG plant, KBR has fully provisioned the expected level of scheduled LDs and subcontractor claims. KBR is also discussing with the client change orders to close out the project that would provide recoveries of prior scheduled LDs, as well as subcontractor claims.

We believe these change orders will be concluded during 2010. The Tangguh project did not impact KBR's earnings during the first quarter. Also during the first quarter, KBR saw LogCAP revenues fall $553 million from the prior-year first quarter. This decline was not unexpected and is consistent with the announced decline in troop count in Iraq. Also, KBR continued to transition its operations in Afghanistan, and expects LogCAP activities in Afghanistan to cease by the summer.

During the quarter, KBR did not recognize any award fees from the LogCAP contract. This represents an estimated $0.05 per share impact during the quarter. During the first quarter, Award Fee Boards were convened for the period May 2008 through August 2009. We expect to receive the results of this Award Fee Board determination during the second quarter of 2010.

During the 2010 first quarter, KBR did have several business units that reported improved results over the 2009 first quarter. The Hydrocarbons business group revenue was up 4%, with job income up 5% over this period. Within the Infrastructure Government and Power business group, the International Government and Defense and Power and Industrial units reported job income growth of 29%, and 56% respectively over the 2009 first quarter.

Services job income was up $1 million for the first quarter, despite a $60 million decrease in revenue from the 2009 first quarter.

Corporately, we continue to work hard to manage our corporate overhead expenses, which were flat compared to the same quarter of last year. I would now like to make some comments on several of KBR's discrete business units.

For our Gas Monetization business unit, the Gorgon LNG, Pearl GTL and Skikda LNG projects were positive contributors to this quarter's results. The Inpex Ichthys FEED and the Pluto 2 and 3 FEED, as well as the Browse LNG basis of design projects are proceeding as planned and also contributed nominally to the quarter's results. Also during the first quarter, KBR was awarded additional scope on the Pluto 2 and 3 project for procurement services of long-lead items for the Pluto 2 segment of that project.

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