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Q4 2011 Earnings Call

February 23, 2012 9:00 am ET


Zachary A. Nagle - Vice President of Investor Relations and Communications

William P. Utt - Chairman, Chief Executive Officer and President

Susan K. Carter - Chief Financial Officer and Executive Vice President


Joseph Ritchie - Goldman Sachs Group Inc., Research Division

Alan Fleming - Barclays Capital, Research Division

Robert F. Norfleet - BB&T Capital Markets, Research Division

Steven Fisher - UBS Investment Bank, Research Division

Jamie L. Cook - Crédit Suisse AG, Research Division

John Rogers - D.A. Davidson & Co., Research Division

Brian Konigsberg - Vertical Research Partners Inc.

Randy Bhatia - Capital One Southcoast, Inc., Research Division

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Robert Connors - Stifel, Nicolaus & Co., Inc., Research Division



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Good day, and welcome to the KBR's Fourth Quarter 2011 Earnings Conference Call hosted by KBR. This call is being recorded. [Operator Instructions] For opening remarks and introductions, I would like to turn the call over to Mr. Zach Nagle, Vice President of Investor Relations and Communications. Please go ahead, sir.

Zachary A. Nagle

Thank you, Cynthia. Good morning, and welcome to KBR's Fourth Quarter 2011 Earnings Conference Call. Today's call is also being webcast, and a replay will be available on KBR's website for 7 days. The press release announcing fourth quarter results is available on KBR's website. Joining me today are Bill Utt, Chairman, President and Chief Executive Officer; and Sue Carter, Executive Vice President and Chief Financial Officer.

During today's call, Bill will provide an overview of KBR's fourth quarter and 2011 operating results, highlighting a number of key areas. He will also cover KBR's outlook and provide color around how we see 2012 coming together. Sue will address KBR's operating performance, financial position, backlog and other financial items in greater detail. After our prepared remarks, we will open the floor for questions.

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, 2010, KBR's quarterly reports on Form 10-Q and KBR's current reports on Form 8-K. You can find all these documents at

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

William P. Utt

Thanks, Zach, and good morning, everyone. First off, I'd like to start by saying how pleased I am with KBR's results for the fourth quarter and for the full year 2011, with earnings per fully diluted share of $0.60 and $3.16, respectively. KBR's full year 2011 net revenue of $9.3 billion was in line with our expectations and when excluding the LogCAP project, was up 4% compared to 2010. We ended 2011 with a strong cash flow from operations of $650 million, a cash balance of $966 million and we return approximately $148 million back to our shareholders.

KBR's execution across our legacy businesses remain strong. Business unit income margins continue to strengthen and are 8.5% for 2011. Good overhead management and cost control within our business units contributed to the margin expansion.

KBR's backlog at December 31 was $10.9 billion. While fourth quarter backlog was down sequentially, KBR's backlog at the conclusion of the 2012 first quarter will increase significantly, driven primarily by the booking of the Ichthys LNG project.

As we close the fourth quarter, I was disappointed by the $25 million in additional cost and schedule charges for 3 legacy international projects at Roberts & Schaefer. The projects were impacted by supplier delivery issues, damage to on-site equipment and related schedule delays. We are dedicating extra management time and focus to get these projects back on track, with 2 of the projects now scheduled for completion at the end of the 2012 first quarter and the third for completion by the end of 2012. With Roberts & Schaefer now fully integrated into KBR, we expect to see significant improvements in project execution going forward.

Now I would like to talk about KBR's businesses. At Gas Monetization, the FEED for the Kitimat LNG project is essentially complete, while pre-FID site construction activities continue. We are currently in an open book EPC tendering phase, which should be completed during the second quarter of 2012. At the Browse LNG project during the fourth quarter, we moved into a bid quality FEED extension, which is now essentially complete. We are currently [indiscernible] for EPC bidding, with bids due in mid-2012. For the Gorgon LNG fourth train, pre-FEED activities continue, with an expected transition into FEED in mid-2012.

In Africa, for the Anadarko LNG project in Mozambique, pre-FEED is complete and the FEED tendering process is underway. We anticipate FEED awards to be announced during the first half of 2012. At the Pluto LNG Project, KBR continues to provide support to Woodside on the Pluto foundation project and is currently performing various additional studies on the proposed expansion project.

At KBR's Downstream business unit for the Lobito refinery project, Sonangol continues to discuss equity participation with at least 1 potential partner. We will continue to execute early-stage engineering for the project through the first quarter of 2012.

On the Sadara project, only 1 FEED envelope remains to be completed. KBR continues to provide resources and key personnel at the site, as well as coordinating PMC and pre-EPC support activities.

Regarding Aramco's GES+ initiative, I am pleased that the KBR AMCDE entity has been formally accepted by Aramco as a preferred provider. The GES+ contract will increase in kingdom, technical, engineering and construction capabilities through utilization of KBR's world-class engineering tools and work processes. At KBR, AMCDE's office has approximately 400 people and will provide front-end engineering and design, detailed design, procurement and project management services. KBR also expects, over time, to use this entity to perform engineering work outside of the hydrocarbon sector in Saudi Arabia. KBR anticipates approximately $70 million to $100 million in revenue per year from the KBR AMCDE entity.

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