Document

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 September 30, 2020



☐	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

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 October 22, 2020, there were 142,527,053 shares of KBR, Inc. Common Stock, par value $0.001 per share, outstanding.

TABLE OF CONTENTS




	Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Information	5
Condensed Consolidated Statements of Operations	5
Condensed Consolidated Statements of Comprehensive Income	6
Condensed Consolidated Balance Sheets	7
Condensed Consolidated Statements of Shareholders' Equity	8
Condensed Consolidated Statements of Cash Flows	10
Notes to Condensed Consolidated Financial Statements	11
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	43
Item 3. Quantitative and Qualitative Disclosures About Market Risk	59
Item 4. Controls and Procedures	60
PART II. OTHER INFORMATION
Item 1. Legal Proceedings	61
Item 1A. Risk Factors	61
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	63
Item 6. Exhibits	64
SIGNATURES	65

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:

•

there is the potential for a wide range of uncertainties related to the 2020 Presidential and Congressional elections that could change funding related to our lines of business. Because we generate a substantial portion of our revenues from contracts with U.S. government agencies, our operating results could be adversely affected by spending caps or changes in budgetary priorities, as well as by delays in the government budget process, program starts or the award of contracts or task orders under contracts. Changes in spending authorizations and budgetary priorities may occur as a result of the shifts in spending priorities from defense-related and other programs as a result of competing demands for federal funds and the number and intensity of military conflicts and other factors;


•	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 COVID-19 pandemic has increased the severity and duration of world health events, including volatility in the capital markets, deteriorating financial conditions or bankruptcy, and related economic repercussions resulting from severe disruption in multiple industries, which may negatively impact our clients' ability to meet their payment obligations to us in a timely manner; and


•	the level of capital spending and access to capital markets by industrial companies, including significant reductions and potential additional reductions in capital expenditures in response to commodity prices and dramatically reduced demand

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.

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
ROU		Right of use
RPA		Master Accounts Receivable Purchase Agreement
SEC		U.S. Securities and Exchange Commission
SFO		U.K. Serious Fraud Office
SGT		Stinger Ghaffarian Technologies
SMA		Scientific Management Associates (Operations) Pty Ltd
Space		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

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						Nine Months Ended
	September 30,						September 30,
	2020			2019			2020			2019
Revenues	$	1,379		$	1,425		$	4,301		$	4,187
Cost of revenues	(1,207		)	(1,257		)	(3,801		)	(3,704		)
Gross profit	172			168			500			483
Equity in earnings of unconsolidated affiliates	13			9			30			24
Selling, general and administrative expenses	(89		)	(74		)	(259		)	(242		)
Acquisition and integration related costs	(2		)	—			(2		)	(2		)
Goodwill impairment	—			—			(99		)	—
Restructuring charges and asset impairments	(1		)	—			(176		)	—
Gain on disposition of assets and investments	—			1			18			11
Operating income	93			104			12			274
Interest expense	(18		)	(25		)	(60		)	(76		)
Other non-operating (loss) income	(4		)	3			1			10
Income (loss) before income taxes and noncontrolling interests	71			82			(47		)	208
Provision for income taxes	(19		)	(24		)	(24		)	(58		)
Net income (loss)	52			58			(71		)	150
Net income attributable to noncontrolling interests	—			(2		)	(20		)	(6		)
Net income (loss) attributable to KBR	$	52		$	56		$	(91	)	$	144
Net income (loss) attributable to KBR per share:
Basic	$	0.36		$	0.39		$	(0.64	)	$	1.01
Diluted	$	0.36		$	0.39		$	(0.64	)	$	1.01
Basic weighted average common shares outstanding	142			141			142			141
Diluted weighted average common shares outstanding	142			142			142			141
Cash dividends declared per share	$	0.10		$	0.08		$	0.30		$	0.24

See accompanying notes to condensed consolidated financial statements.

KBR, Inc.

Condensed Consolidated Statements of Comprehensive Income (Loss)

(In millions)

(Unaudited)



	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2020			2019			2020			2019
Net income (loss)	$	52		$	58		$	(71	)	$	150
Other comprehensive income (loss):
Foreign currency translation adjustments	21			(33		)	(27		)	(47		)
Pension and post-retirement benefits	6			5			18			14
Changes in fair value of derivatives	4			(1		)	(19		)	(10		)
Other comprehensive income (loss)	31			(29		)	(28		)	(43		)
Income tax (expense) benefit:
Foreign currency translation adjustments	—			(1		)	—			(1		)
Pension and post-retirement benefits	(1		)	(1		)	(3		)	(3		)
Changes in fair value of derivatives	(1		)	3			4			3
Income tax (expense) benefit	(2		)	1			1			(1		)
Other comprehensive income (loss), net of tax	29			(28		)	(27		)	(44		)
Comprehensive income (loss)	81			30			(98		)	106
Less: Comprehensive income attributable to noncontrolling interests	—			(2		)	(20		)	(6		)
Comprehensive income (loss) attributable to KBR	$	81		$	28		$	(118	)	$	100

See accompanying notes to condensed consolidated financial statements.

KBR, Inc.

Condensed Consolidated Balance Sheets

(In millions, except share data)



	September 30,			December 31,
	2020			2019
	(Unaudited)
Assets
Current assets:
Cash and equivalents	$	949		$	712
Accounts receivable, net of allowance for credit losses of $12 and $14	976			938
Contract assets	167			215
Other current assets	115			146
Total current assets	2,207			2,011
Claims and accounts receivable	31			59
Property, plant, and equipment, net of accumulated depreciation of $413 and $386 (including net PPE of $25 and $29 owned by a variable interest entity)	111			130
Operating lease right-of-use assets	113			175
Goodwill	1,179			1,265
Intangible assets, net of accumulated amortization of $207 and $184	455			495
Equity in and advances to unconsolidated affiliates	825			846
Deferred income taxes	250			236
Other assets	137			143
Total assets	$	5,308		$	5,360
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	584		$	572
Contract liabilities	355			484
Accrued salaries, wages and benefits	252			209
Nonrecourse project debt	10			11
Operating lease liabilities	39			39
Other current liabilities	193			186
Total current liabilities	1,433			1,501
Pension obligations	223			277
Employee compensation and benefits	107			115
Income tax payable	95			92
Deferred income taxes	16			16
Nonrecourse project debt	2			7
Long-term debt	1,314			1,183
Operating lease liabilities	154			192
Other liabilities	251			124
Total liabilities	3,595			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, 179,021,597 and 178,330,201 shares issued, and 142,527,053 and 141,819,148 shares outstanding, respectively	—			—
PIC	2,219			2,206
Retained earnings	1,300			1,437
Treasury stock, 36,494,544 shares and 36,511,053 shares, at cost, respectively	(817		)	(817		)
AOCL	(1,014		)	(987		)
Total KBR shareholders’ equity	1,688			1,839
Noncontrolling interests	25			14
Total shareholders’ equity	1,713			1,853
Total liabilities and shareholders’ equity	$	5,308		$	5,360

See accompanying notes to condensed consolidated financial statements.

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 June 30, 2020	$	1,642		$	2,216	$	1,262		$	(820	)	$	(1,043	)	27
Share-based compensation	3			3		—			—			—			—
Dividends declared to shareholders ($0.10/share)	(14		)	—		(14		)	—			—			—
Issuance of ESPP shares	2			—		—			2			—			—
Distributions to noncontrolling interests	(1		)	—		—			—			—			(1		)
Other	—			—		—			1			—			(1		)
Net income	52			—		52			—			—			—
Other comprehensive income, net of tax	29			—		—			—			29			—
Balance at September 30, 2020	$	1,713		$	2,219	$	1,300		$	(817	)	$	(1,014	)	$	25


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	10			10		—			—			—			—
Common stock issued upon exercise of stock options	3			3		—			—			—			—
Dividends declared to shareholders ($0.30/share)	(43		)	—		(43		)	—			—			—
Repurchases of common stock	(4		)	—		—			(4		)	—			—
Issuance of ESPP shares	4			—		—			4			—			—
Distributions to noncontrolling interests	(3		)	—		—			—			—			(3		)
Other	(6		)	—		—			—			—			(6		)
Net loss	(71		)	—		(91		)	—			—			20
Other comprehensive loss, net of tax	(27		)	—		—			—			(27		)	—
Balance at September 30, 2020	$	1,713		$	2,219	$	1,300		$	(817	)	$	(1,014	)	$	25



Dollars in millions	Total			PIC		Retained Earnings			Treasury Stock			AOCL			NCI
Balance at June 30, 2019	$	1,819		$	2,197	$	1,346		$	(818	)	$	(926	)	$	20
Share-based compensation	4			4		—			—			—			—
Common stock issued upon exercise of stock options	1			1		—			—			—			—
Dividends declared to shareholders ($0.08/share)	(11		)	—		(11		)	—			—			—
Repurchases of common stock	(1		)	—		—			(1		)	—			—
Issuance of ESPP shares	2			—		—			2			—			—
Distributions to noncontrolling interests	(2		)	—		—			—			—			(2		)
Net income	58			—		56			—			—			2
Other comprehensive loss, net of tax	(28		)	—		—			—			(28		)	—
Balance at September 30, 2019	$	1,842		$	2,202	$	1,391		$	(817	)	$	(954	)	$	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	9			9		—			—			—			—
Common stock issued upon exercise of stock options	3			3		—			—			—			—
Dividends declared to shareholders ($0.24/share)	(34		)	—		(34		)	—			—			—
Repurchases of common stock	(4		)	—		—			(4		)	—			—
Issuance of ESPP shares	4			—		—			4			—			—
Distributions to noncontrolling interests	(6		)	—		—			—			—			(6		)
Net income	150			—		144			—			—			6
Other comprehensive loss, net of tax	(44		)	—		—			—			(44		)	—
Balance at September 30, 2019	$	1,842		$	2,202	$	1,391		$	(817	)	$	(954	)	$	20

See accompanying notes to condensed consolidated financial statements.

KBR, Inc. Condensed Consolidated Statements of Cash Flows (In millions) (Unaudited)

	Nine Months Ended September 30,
	2020			2019
Cash flows from operating activities:
Net income (loss)	$	(71	)	$	150
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization	74			76
Equity in earnings of unconsolidated affiliates	(30		)	(24		)
Deferred income tax	(11		)	—
Gain on disposition of assets and investments	(18		)	(11		)
Goodwill impairment	99			—
Asset impairments	91			—
Other	25			20

Changes in operating assets and liabilities:
Accounts receivable, net of allowance for credit losses	(50		)	(123		)
Contract assets	49			(52		)
Accounts payable	15			83
Contract liabilities	(124		)	82
Accrued salaries, wages and benefits	46			31
Other assets and liabilities	150			(33		)
Total cash flows provided by operating activities	$	245		$	199
Cash flows from investing activities:
Purchases of property, plant and equipment	$	(8	)	$	(10	)
Proceeds from disposition of assets and investments	1			8
Investments in equity method joint ventures	(22		)	(146		)
Acquisition of businesses, net of cash acquired	(9		)	—
Total cash flows used in investing activities	$	(38	)	$	(148	)
Cash flows from financing activities:
Borrowings on long-term debt	359			—
Payments on short-term and long-term borrowings	(270		)	(54		)
Debt issuance costs	(3		)	—
Payments of dividends to shareholders	(40		)	(34		)
Net proceeds from issuance of common stock	3			3
Payments to reacquire common stock	(4		)	(4		)
Distributions to noncontrolling interests	(3		)	(6		)
Other	(1		)	(2		)
Total cash flows provided by (used in) financing activities	$	41		$	(97	)
Effect of exchange rate changes on cash	(11		)	(12