0001357615-20-000165.txt : 20200806 0001357615-20-000165.hdr.sgml : 20200806 20200806170613 ACCESSION NUMBER: 0001357615-20-000165 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 109 CONFORMED PERIOD OF REPORT: 20200630 FILED AS OF DATE: 20200806 DATE AS OF CHANGE: 20200806 FILER: COMPANY DATA: COMPANY CONFORMED NAME: KBR, INC. CENTRAL INDEX KEY: 0001357615 STANDARD INDUSTRIAL CLASSIFICATION: HEAVY CONSTRUCTION OTHER THAN BUILDING CONST - CONTRACTORS [1600] IRS NUMBER: 204536774 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-33146 FILM NUMBER: 201082660 BUSINESS ADDRESS: STREET 1: 601 JEFFERSON STREET STREET 2: SUITE 3400 CITY: HOUSTON STATE: TX ZIP: 77002 BUSINESS PHONE: (713) 753-2000 MAIL ADDRESS: STREET 1: 601 JEFFERSON STREET STREET 2: SUITE 3400 CITY: HOUSTON STATE: TX ZIP: 77002 10-Q 1 kbr0630202010-q.htm 10-Q Document
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended June 30, 2020
OR
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from             to
Commission File Number: 001-33146
 
 
 
kbrlogofinal2019.jpg
KBR, Inc.
(Exact name of registrant as specified in its charter)
Delaware
 
20-4536774
(State of incorporation)
 
(I.R.S. Employer Identification No.)
 
 
 
 
 
601 Jefferson Street, Suite 3400
Houston
Texas
 
77002
(Address of principal executive offices)
 
(Zip Code)

(713) 753-2000
(Registrant's telephone number including area code)
 
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading symbol
Name of each exchange on which listed
Common Stock, $0.001 par value
KBR
New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).     Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer
 
Accelerated filer
 
Non-accelerated filer
 
 (Do not check if a smaller reporting company)
Smaller reporting company
 
 
 
 
Emerging growth company
 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes      No  

As of July 22, 2020, there were 142,357,204 shares of KBR, Inc. Common Stock, par value $0.001 per share, outstanding.
 





TABLE OF CONTENTS
 



2



Forward-Looking and Cautionary Statements

This Quarterly Report on Form 10-Q contains certain statements that are, or may be deemed to be, "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act, as amended. The Private Securities Litigation Reform Act of 1995 provides safe harbor provisions for forward-looking information. Some of the statements contained in this Quarterly Report on Form 10-Q are forward-looking statements. All statements other than statements of historical fact are, or may be deemed to be, forward-looking statements. The words "believe," "may," "estimate," "continue," "anticipate," "intend," "plan," "expect" and similar expressions are intended to identify forward-looking statements. Forward-looking statements include information concerning our possible or assumed future financial performance and results of operations.

We have based these statements on our assumptions and analyses in light of our experience and perception of historical trends, current conditions, expected future developments and other factors we believe are appropriate in the circumstances. Forward-looking statements by their nature involve substantial risks and uncertainties that could significantly affect expected results, and actual future results could differ materially from those described in such statements. While it is not possible to identify all factors, factors that could cause actual future results to differ materially include:

the severity and duration of world health events, including the recent outbreak of the novel coronavirus ("COVID-19") pandemic, related economic repercussions and the resulting severe disruption in the oil and gas industry and negative impact on demand for oil and gas;

the significant surplus in the supply of oil and actions by the members of Organization of the Petroleum Exporting Countries ("OPEC") and Russia (together with OPEC and other allied producing countries, "OPEC+") with respect to oil production levels and announcements of potential changes in such levels, including the ability of the OPEC+ countries to agree on and comply with supply limitations;

operational challenges relating to the COVID-19 pandemic and efforts to mitigate the spread of the virus, including logistical challenges, protecting the health and well-being of our employees, remote work arrangements, performance of contracts and supply chain disruptions;

the level of capital spending and access to capital markets by oil and gas companies, including significant recent reductions and potential additional reductions in capital expenditures by oil and gas producers in response to commodity prices and dramatically reduced demand;    

the potentially global impact of uncertainties related to the 2020 Presidential and Congressional elections, including but not limited to regulatory changes or changes to funding related to our lines of business that could be less favorable; and

potential shut-ins of production by producers due to lack of downstream demand or storage capacity.

Many of these factors are beyond our ability to control or predict. Any of these factors, as well as the risks and uncertainties disclosed in our 2019 Annual Report on Form 10-K contained in Part I under "Risk Factors", this Quarterly Report on Form 10-Q contained or referenced in Part II under "Risk Factors", and the risk factors and other cautionary statements contained in our other filings with the SEC, or a combination of these factors, could materially and adversely affect our future financial condition or results of operations and the ultimate accuracy of the forward-looking statements. These forward-looking statements are not guarantees of our future performance, and our actual results and future developments may differ materially and adversely from those projected in the forward-looking statements. We caution against putting undue reliance on forward-looking statements or projecting any future results based on such statements or on present or prior earnings levels. In addition, each forward-looking statement speaks only as of the date of the particular statement, and we undertake no obligation to publicly update or revise any forward-looking statement.


3



Glossary of Terms

The following frequently used terms, abbreviations or acronyms are commonly used in our Quarterly Reports on Form 10-Q as defined below:
Acronym
 
Definition
AOCL
 
Accumulated other comprehensive loss
ASBCA
 
Armed Services Board of Contract Appeals
ASC
 
Accounting Standards Codification
ASU
 
Accounting Standards Update
COFC
 
U.S. Court of Federal Claims
DCAA
 
Defense Contract Audit Agency
DCMA
 
Defense Contract Management Agency
DoD
 
Department of Defense
DOJ
 
U.S. Department of Justice
EBIC
 
Egypt Basic Industries Corporation
EPC
 
Engineering, procurement and construction
ES
 
Energy Solutions
ESPP
 
Employee Stock Purchase Plan
Exchange Act
 
Securities Exchange Act of 1934, as amended
FAR
 
Federal Acquisition Regulation
FASB
 
Financial Accounting Standards Board
FCA
 
False Claims Act
FKTC
 
First Kuwaiti Trading Company
GS
 
Government Solutions
HETs
 
Heavy equipment transporters
JKC
 
JKC Australia LNG, an Australian joint venture executing the Ichthys LNG Project
LIBOR
 
London interbank offered rate
LNG
 
Liquefied natural gas
MD&A
 
Management's Discussion and Analysis of Financial Condition and Results of Operations
MFRs
 
Memorandums for Record
MoD
 
Ministry of Defence
NCI
 
Noncontrolling interests
PFIs
 
Private financed initiatives and projects
PIC
 
Paid-in capital in excess of par
PLOC
 
Performance Letter of Credit facility
SEC
 
U.S. Securities and Exchange Commission
SFO
 
U.K. Serious Fraud Office
SGT
 
Stinger Ghaffarian Technologies
SMS
 
Space and Mission Solutions
TS
 
Technology Solutions
U.K.
 
United Kingdom
U.S.
 
United States
U.S. GAAP
 
Accounting principles generally accepted in the United States
VIEs
 
Variable interest entities


4



PART I. FINANCIAL INFORMATION

Item 1. Financial Information

KBR, Inc.
Condensed Consolidated Statements of Operations
(In millions, except for per share data)
(Unaudited)

 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2020
 
2019
 
2020
 
2019
Revenues
$
1,385

 
$
1,422

 
$
2,922

 
$
2,762

Cost of revenues
(1,243
)
 
(1,262
)
 
(2,594
)
 
(2,449
)
Gross profit
142

 
160

 
328

 
313

Equity in earnings of unconsolidated affiliates
16

 
15

 
17

 
15

Selling, general and administrative expenses
(73
)
 
(88
)
 
(170
)
 
(166
)
Acquisition and integration related costs

 
(1
)
 

 
(2
)
Goodwill impairment
(37
)
 

 
(99
)
 

Restructuring charges and asset impairments
(59
)
 

 
(175
)
 

Gain (loss) on disposition of assets and investments
(1
)
 
6

 
18

 
10

Operating (loss) income
(12
)
 
92

 
(81
)
 
170

Interest expense
(19
)
 
(26
)
 
(42
)
 
(51
)
Other non-operating (loss) income
(2
)
 
2

 
5

 
7

(Loss) income before income taxes and noncontrolling interests
(33
)
 
68

 
(118
)
 
126

Provision for income taxes
(6
)
 
(18
)
 
(5
)
 
(34
)
Net (loss) income
(39
)
 
50

 
(123
)
 
92

Net income attributable to noncontrolling interests

 
(2
)
 
(20
)
 
(4
)
Net (loss) income attributable to KBR
$
(39
)
 
$
48

 
$
(143
)
 
$
88

Net (loss) income attributable to KBR per share:
 
 
 
 
 
 
 
Basic
$
(0.28
)
 
$
0.34

 
$
(1.00
)
 
$
0.62

Diluted
$
(0.28
)
 
$
0.34

 
$
(1.00
)
 
$
0.62

Basic weighted average common shares outstanding
142

 
141

 
142

 
141

Diluted weighted average common shares outstanding
142

 
141

 
142

 
141

Cash dividends declared per share
$
0.10

 
$
0.08

 
$
0.20

 
$
0.16

See accompanying notes to condensed consolidated financial statements.

5



KBR, Inc.
Condensed Consolidated Statements of Comprehensive Income (Loss)
(In millions)
(Unaudited)

 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2020
 
2019
 
2020
 
2019
Net (loss) income
$
(39
)
 
$
50

 
$
(123
)
 
$
92

Other comprehensive income (loss):
 
 
 
 
 
 
 
Foreign currency translation adjustments
34

 
(13
)
 
(48
)
 
(14
)
Pension and post-retirement benefits
6

 
5

 
12

 
9

Changes in fair value of derivatives
(1
)
 
(7
)
 
(23
)
 
(9
)
Other comprehensive income (loss)
39

 
(15
)
 
(59
)
 
(14
)
Income tax (expense) benefit:
 
 
 
 
 
 
 
Foreign currency translation adjustments

 

 

 

Pension and post-retirement benefits
(1
)
 
(1
)
 
(2
)
 
(2
)
Changes in fair value of derivatives

 

 
5

 

Income tax (expense) benefit
(1
)
 
(1
)
 
3

 
(2
)
Other comprehensive income (loss), net of tax
38

 
(16
)
 
(56
)
 
(16
)
Comprehensive income (loss)
(1
)
 
34

 
(179
)
 
76

Less: Comprehensive income attributable to noncontrolling interests

 
(2
)
 
(20
)
 
(4
)
Comprehensive income (loss) attributable to KBR
$
(1
)
 
$
32

 
$
(199
)
 
$
72

See accompanying notes to condensed consolidated financial statements.


6



KBR, Inc.
Condensed Consolidated Balance Sheets
(In millions, except share data)
 
June 30,
 
December 31,
 
2020
 
2019
 
(Unaudited)
 
 
Assets
 
 
 
Current assets:
 
 
 
Cash and equivalents
$
635

 
$
712

Accounts receivable, net of allowance for credit losses of $11 and $14
960

 
938

Contract assets
177

 
215

Other current assets
125

 
146

Total current assets
1,897

 
2,011

Claims and accounts receivable
58

 
59

Property, plant, and equipment, net of accumulated depreciation of $400 and $386 (including net PPE of $25 and $29 owned by a variable interest entity)
112

 
130

Operating lease right-of-use assets
106

 
175

Goodwill
1,176

 
1,265

Intangible assets, net of accumulated amortization of $198 and $184
456

 
495

Equity in and advances to unconsolidated affiliates
811

 
846

Deferred income taxes
254

 
236

Other assets
140

 
143

Total assets
$
5,010

 
$
5,360

Liabilities and Shareholders’ Equity
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
593

 
$
572

Contract liabilities
381

 
484

Accrued salaries, wages and benefits
231

 
209

Nonrecourse project debt
10

 
11

Operating lease liabilities
40

 
39

Other current liabilities
240

 
186

Total current liabilities
1,495

 
1,501

Pension obligations
232

 
277

Employee compensation and benefits
103

 
115

Income tax payable
93

 
92

Deferred income taxes
14

 
16

Nonrecourse project debt
2

 
7

Long-term debt
1,065

 
1,183

Operating lease liabilities
148

 
192

Other liabilities
216

 
124

Total liabilities
3,368

 
3,507

KBR shareholders’ equity:
 
 
 
Preferred stock, $0.001 par value, 50,000,000 shares authorized, none issued

 

Common stock, $0.001 par value 300,000,000 shares authorized, 178,948,190 and 178,330,201 shares issued, and 142,350,378 and 141,819,148 shares outstanding, respectively

 

PIC
2,216

 
2,206

Retained earnings
1,262

 
1,437

Treasury stock, 36,597,812 shares and 36,511,053 shares, at cost, respectively
(820
)
 
(817
)
AOCL
(1,043
)
 
(987
)
Total KBR shareholders’ equity
1,615

 
1,839

Noncontrolling interests
27

 
14

Total shareholders’ equity
1,642

 
1,853

Total liabilities and shareholders’ equity
$
5,010

 
$
5,360

See accompanying notes to condensed consolidated financial statements.

7



KBR, Inc.
Condensed Consolidated Statements of Shareholders' Equity
(In millions, except for per share data)
(Unaudited)
Dollars in millions
Total
 
PIC
 
Retained
Earnings
 
Treasury
Stock
 
AOCL
 
NCI
Balance at March 31, 2020
$
1,654

 
$
2,210

 
$
1,316

 
$
(819
)
 
$
(1,081
)
 
28

Share-based compensation
5

 
5

 

 

 

 

Common stock issued upon exercise of stock options
1

 
1

 

 

 

 

Dividends declared to shareholders ($0.10/share)
(15
)
 

 
(15
)
 

 

 

Distributions to noncontrolling interests
(2
)
 

 

 

 

 
(2
)
Other

 

 

 
(1
)
 

 
1

Net loss
(39
)
 

 
(39
)
 

 

 

Other comprehensive income, net of tax
38

 

 

 

 
38

 

Balance at June 30, 2020
$
1,642

 
$
2,216

 
$
1,262

 
$
(820
)
 
$
(1,043
)
 
$
27

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Dollars in millions
Total
 
PIC
 
Retained
Earnings
 
Treasury
Stock
 
AOCL
 
NCI
Balance at December 31, 2019
$
1,853

 
$
2,206

 
$
1,437

 
$
(817
)
 
$
(987
)
 
$
14

Cumulative adjustment for the adoption of ASC 326
(3
)
 

 
(3
)
 

 

 

Adjusted balance at January 1, 2020
1,850

 
2,206

 
1,434

 
(817
)
 
(987
)
 
14

Share-based compensation
7

 
7

 

 

 

 

Common stock issued upon exercise of stock options
3

 
3

 

 

 

 

Dividends declared to shareholders ($0.20/share)
(29
)
 

 
(29
)
 

 

 

Repurchases of common stock
(4
)
 

 

 
(4
)
 

 

Issuance of ESPP shares
2

 

 

 
2

 

 

Distributions to noncontrolling interests
(2
)
 

 

 

 

 
(2
)
Other
(6
)
 

 

 
(1
)
 

 
(5
)
Net loss
(123
)
 

 
(143
)
 

 

 
20

Other comprehensive loss, net of tax
(56
)
 

 

 

 
(56
)
 

Balance at June 30, 2020
$
1,642

 
$
2,216

 
$
1,262

 
$
(820
)
 
$
(1,043
)
 
$
27

 
 
 
 
 
 
 
 
 
 
 
 

8



Dollars in millions
Total
 
PIC
 
Retained
Earnings
 
Treasury
Stock
 
AOCL
 
NCI
Balance at March 31, 2019
$
1,798

 
$
2,194

 
$
1,310

 
$
(818
)
 
$
(910
)
 
$
22

Share-based compensation
2

 
2

 

 

 

 

Common stock issued upon exercise of stock options
1

 
1

 

 

 

 

Dividends declared to shareholders ($0.08/share)
(12
)
 

 
(12
)
 

 

 

Distributions to noncontrolling interests
(4
)
 

 

 

 

 
(4
)
Net income
50

 

 
48

 

 

 
2

Other comprehensive loss, net of tax
(16
)
 

 

 

 
(16
)
 

Balance at June 30, 2019
$
1,819

 
$
2,197

 
$
1,346

 
$
(818
)
 
$
(926
)
 
$
20

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Dollars in millions
Total
 
PIC
 
Retained
Earnings
 
Treasury
Stock
 
AOCL
 
NCI
Balance at December 31, 2018
$
1,718

 
$
2,190

 
$
1,235

 
$
(817
)
 
$
(910
)
 
$
20

Cumulative adjustment for the adoption of ASC 842
21

 

 
21

 

 

 

Cumulative adjustment for the adoption of ASC 606 for our unconsolidated affiliates
25

 

 
25

 

 

 

Adjusted balance at January 1, 2019
1,764

 
2,190

 
1,281

 
(817
)
 
(910
)
 
20

Share-based compensation
5

 
5

 

 

 

 

Common stock issued upon exercise of stock options
2

 
2

 

 

 

 

Dividends declared to shareholders ($0.16/share)
(23
)
 

 
(23
)
 

 

 

Repurchases of common stock
(3
)
 

 

 
(3
)
 

 

Issuance of ESPP shares
2

 

 

 
2

 

 

Distributions to noncontrolling interests
(4
)
 

 

 

 

 
(4
)
Net income
92

 

 
88

 

 

 
4

Other comprehensive loss, net of tax
(16
)
 

 

 

 
(16
)
 

Balance at June 30, 2019
$
1,819

 
$
2,197

 
$
1,346

 
$
(818
)
 
$
(926
)
 
$
20

See accompanying notes to condensed consolidated financial statements.



9



KBR, Inc.
Condensed Consolidated Statements of Cash Flows
(In millions)
(Unaudited)
 
Six Months Ended June 30,
 
2020
 
2019
Cash flows from operating activities:
 
 
 
Net (loss) income
$
(123
)
 
$
92

Adjustments to reconcile net income to net cash provided by (used in) operating activities:
 
 
 
Depreciation and amortization
48

 
48

Equity in earnings of unconsolidated affiliates
(17
)
 
(15
)
Deferred income tax
(16
)
 

Gain on disposition of assets and investments
(18
)
 
(10
)
Goodwill impairment
99

 

Asset impairments
90

 

Other
8

 
12

 
 
 
 
Changes in operating assets and liabilities:
 
 
 
Accounts receivable, net of allowance for credit losses
(40
)
 
(118
)
Contract assets
38

 
(17
)
Accounts payable
23

 
67

Contract liabilities
(92
)
 
26

Accrued salaries, wages and benefits
22

 
19

Other assets and liabilities
128

 
(23
)
Total cash flows provided by operating activities
$
150

 
$
81

Cash flows from investing activities:
 
 
 
Purchases of property, plant and equipment
$
(4
)
 
$
(6
)
Proceeds from disposition of assets and investments
1

 
6

Investments in equity method joint ventures
(12
)
 
(131
)
Acquisition of businesses, net of cash acquired
(9
)
 

Other
(1
)
 

Total cash flows used in investing activities
$
(25
)
 
$
(131
)
Cash flows from financing activities:
 
 
 
Borrowings on long-term debt
113