EX-99.1 2 ex99_1.htm EXHIBIT 99.1 ex99_1.htm
Exhibit 99.1

 
KBR, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 
 The following unaudited pro forma condensed consolidated financial statements of KBR, Inc. (KBR) as of March 31, 2007 and statements of operations for the three months then ended and for each of the years ended December 31, 2006, 2005, and 2004 give effect to KBR’s completion of the sale of its 51% ownership interest in Devonport Management Limited (DML) upon consummation of the purchase and sale agreement on June 28, 2007. Under the terms of the purchase and sale agreement, KBR received $345 million in cash proceeds, net of direct transaction costs, for its 51% interest in DML.  For purposes of the unaudited pro forma condensed consolidated balance sheet, we assume that the sale occurred as of March 31, 2007, and for the unaudited pro forma condensed consolidated statements of operations for the aforementioned periods, we assume that the sale occurred on January 1, 2004.
We derived the unaudited pro forma condensed consolidated financial statements from the historical consolidated financial statements of KBR and DML. The pro forma adjustments are based on currently available information and certain preliminary estimates and assumptions and, therefore, the actual effects of the sale may differ from the effects reflected in the unaudited pro forma condensed consolidated financial statements. However, despite the fact that data is not available to make precise estimates, management believes that the assumptions provide a reasonable basis for presenting the significant effects of the sale as contemplated and that the pro forma adjustments give appropriate effect to those assumptions and are properly applied in the unaudited pro forma condensed consolidated financial statements.
You should read the following information in conjunction with KBR’s consolidated financial statements and the accompanying notes and the related “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section included in KBR’s Annual Report on Form 10-K for the year ended December 31, 2006.
 
 
KBR, INC.

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
As of March 31, 2007
($ millions)
 
   
KBR
    
Pro Forma
    
KBR
  
   
Historical
    
Adjustments
   
Pro Forma
  
         
(A)
        
Assets
                  
                   
                   
Cash and equivalents
   $
1,287
     $
336
 (B)   $
1,623
  
Receivables
    
2,310
       (176 )    
2,134
  
Deferred income taxes
    
138
      
-
      
138
  
Other current assets
    
259
       (24 )    
235
  
Total current assets
    
3,994
      
136
      
4,130
  
Property, plant, and equipment, net
    
491
       (280 )    
211
  
Goodwill
    
289
       (38 )    
251
  
Other assets
    
671
       (32 )    
639
  
Total assets
   $
5,445
     $ (214 )   $
5,231
  
                         
Liabilities, Minority Interest and Shareholders’ Equity
                        
                         
Accounts Payable
   $
1,177
     $ (97 )   $
1,080
  
Due to Halliburton, net
    
29
      
-
      
29
  
Advanced billings on uncompleted contracts
    
1,094
       (123 )    
971
  
Income taxes payable
    
-
      
119
 (B),(C)    
119
  
Other current liabilities
    
638
       (42 )    
596
  
Total current liabilities
    
2,938
       (143 )    
2,795
  
Employee compensation and benefits
    
406
       (192 )    
214
  
Other non-current liabilities
    
256
       (6 )    
250
  
Total liabilities
    
3,600
       (341 )    
3,259
  
Minority interest in consolidated subsidiaries
    
28
       (46 )     (18 )
Preferred stock
    
-
      
-
      
-
  
Common stock
    
-
      
-
      
-
  
Paid-in capital in excess of par value
    
2,060
      
-
      
2,060
  
Accumulated other comprehensive loss
     (288 )    
69
 (B),(D)     (219 )
Retained earnings
    
45
      
104
 (B)    
149
  
                         
Total stockholders’ equity and other accumulated comprehensive loss
    
1,817
      
173
      
1,990
  
                         
Total liabilities, minority interest, stockholders’ equity and other accumulated comprehensive loss
   $
5,445
     $ (214 )   $
5,231
  
 
See Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements.
 
 
 KBR, INC.
 
 UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE QUARTER ENDED MARCH 31, 2007
($ millions, except per share amounts)

         
Sale of DML
              
   
KBR
    
Pro Forma
    
Eliminate
    
KBR
  
   
Historical
    
Adjustments
    
Intercompany
    
Pro Forma
  
         
 (A)
              
                         
Revenue:
                        
Services
   $
2,253
     $ (224 )   $
-
     $
2,029
  
Equity in losses of unconsolidated affiliates, net
     (2 )    
-
      
-
       (2 )
Total Revenue
    
2,251
       (224 )    
-
      
2,027
  
                                 
Operating costs and expenses:
                                
Cost of services
    
2,160
       (209 )     2 (E)    
1,953
  
General and administrative
    
29
      
-
      
-
      
29
  
Total operating costs and expenses
    
2,189
       (209 )    
2
      
1,982
  
                                 
Operating income
    
62
       (15 )     (2 )    
45
  
                                 
Interest income, net
    
13
      
-
      
-
      
13
  
Foreign currency losses, net
     (3 )    
-
      
-
       (3 )
Income from continuing operations before income taxes and minority interest
    
72
       (15 )     (2 )    
55
  
                                 
Provision for income taxes
     (32 )     6 (F)    
-
       (26 )
                                 
Minority interest in net income of subsidiaries
     (10 )    
5
      
-
       (5 )
Income from continuing operations
   $
30
     $ (4 )   $ (2 )   $
24
  
                                 
Basic and diluted income per share from continuing operations
   $
0.18
      
 
             $
0.14 
  
                                 
Basic and diluted weighted average shares outstanding
    
168
      
 
               168   
 
 See Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements.
 
 
KBR, INC.

 UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2006
($ millions, except per share amounts)
 
         
Sale of DML
              
   
KBR
    
Pro Forma
    
Eliminate
    
KBR
  
   
Historical
    
Adjustments
    
Intercompany
    
Pro Forma
  
         
(A)
              
                         
Revenue:
                        
Services
   $
9,626
     $ (828 )   $
-
     $
8,798
  
Equity in earnings of unconsolidated affiliates, net
    
7
      
-
      
-
      
7
  
Total Revenue
    
9,633
       (828 )    
-
      
8,805
  
 
                                
Operating costs and expenses:
                                
Cost of services
    
9,285
       (742 )     8 (E)    
8,551
  
General and administrative
    
108
      
-
      
-
      
108
  
Gain on sale of assets, net
     (6 )    
-
      
-
       (6 )
Total operating costs and expenses
    
9,387
       (742 )    
8
      
8,653
  
 
                                
Operating income
    
246
       (86 )     (8 )    
152
  
 
                                
Interest expense related party
     (36 )    
(l 
 )     1 (E)     (36 )
Interest income, net
    
26
      
1
      
-
      
27
  
Foreign currency gains, net related party
    
-
      
1
      
-
      
1
  
Foreign currency losses, net
     (16 )    
-
      
-
       (16 )
Income from continuing operations before income taxes and minority interest
    
220
       (85 )     (7 )    
128
  
 
                                
Provision for income taxes
     (129 )     35 (F)    
-
       (94 )
 
                                
Minority interest in net loss (income) of subsidiaries
     (10 )    
30
      
-
      
20
  
Income from continuing operations
   $
81
     $ (20 )   $ (7 )   $
54
  
 
                                
Basic and diluted income per share from continuing operations
   $
0.58
                     $
0.39
  
 
                                
Basic and diluted weighted average shares outstanding
    
140
                      
140
  

 See Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements.
 
 
KBR, INC.
 
 UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2005
($ millions, except per share amounts)
 
         
Sale of DML
              
   
KBR
    
Pro Forma
    
Eliminate
    
KBR
  
   
Historical
    
Adjustments
    
Intercompany
    
Pro Forma
  
         
(A)
              
                         
Revenue:
                        
Services
   $
10,206
     $ (855 )   $
-
     $
9,351
  
Equity in losses of unconsolidated affiliates, net
     (60 )    
-
      
-
       (60 )
Total Revenue
    
10,146
       (855 )    
-
      
9,291
  
                                 
Operating costs and expenses:
                                
Cost of services
    
9,716
       (791 )     6 (E)    
8,931
  
General and administrative
    
85
      
-
      
-
      
85
  
Gain on sale of assets, net
     (110 )    
-
      
-
       (110 )
Total operating costs and expenses
    
9,691
       (791 )    
6
      
8,906
  
                                 
Operating income
    
455
       (64 )     (6 )    
385
  
                                 
Interest expense related party
     (24 )     (1 )     1 (E)     (24 )
Interest expense, net
     (4 )    
3
      
-
       (1 )
Foreign currency gains, net related party
    
3
      
-
      
-
      
3
  
Foreign currency gains, net
    
4
       (2 )    
-
      
2
  
Other, net
     (1 )    
-
      
-
       (1 )
Income from continuing operations before income taxes and minority interest
    
433
       (64 )     (5 )    
364
  
                                 
Provision for income taxes
     (182 )     22 (F)    
-
       (160 )
                                 
Minority interest in net income of subsidiaries
     (41 )    
22
      
-
       (19 )
Income from continuing operations
   $
210
     $ (20 )   $ (5 )   $
185
  
                                 
Basic and diluted income per share from continuing operations
   $
1.54
      
 
             $ 1.36   
                                 
Basic and diluted weighted average shares outstanding
    
136
      
 
               136   
 
See Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements.

 
KBR, INC.
 UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2004
($ millions, except per share amounts)
 
         
Sale of DML
              
   
KBR
    
Pro Forma
    
Eliminate
    
KBR
  
   
Historical
    
Adjustments)
    
Intercompany
    
Pro Forma
  
         
(A)
              
 Revenue:
                        
 Services
   $
11,960
     $ (731 )   $
-
     $
11,229
  
 Equity in losses of unconsolidated affiliates, net
     (54 )    
-
      
-
       (54 )
 Total Revenue
    
11,906
       (731 )    
-
      
11,175
  
                                 
 Operating costs and expenses:
                                
 Cost of services
    
12,171
       (681 )     6 (E)    
11,496
  
 General and administrative
    
92
      
-
      
-
      
92
  
 Total operating costs and expenses
    
12,263
       (681 )    
6
      
11,588
  
                                 
 Operating loss
     (357 )     (50 )     (6 )     (413 )
  
                                
 Interest expense related party
     (15 )     (2 )     2 (E)     (15 )
 Interest income, net
    
2
      
3
      
-
      
5
  
 Foreign currency losses, net related party
     (18 )    
-
      
-
       (18 )
 Foreign currency gains, net
    
5
      
1
      
-
      
6
  
 Other, net
     (2 )    
-
      
-
       (2 )
 Loss from continuing operations before income taxes and minority interest
     (385 )     (48 )     (4 )     (437 )
 
                                
 Benefit for income taxes
    
96
       17 (F)    
-
      
113
  
  
                                
Minority interest in net income of subsidiaries
     (25 )    
18
      
-
       (7 )
 Loss from continuing operations
   $ (314 )   $ (13 )   $ (4 )   $ (331 )
                                 
Basic and diluted loss per share from continuing operations
   $ (2.31 )                   $ (2.43 )
                                 
Basic and diluted weighted average shares outstanding
    
136
                      
136
  
 
 See Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements.
 

Note 1.
Pro Forma Adjustments and Assumptions

Pro Forma Balance Sheet and Statements of Operations

Calculation of gain on sale of DML (B)
  
Notes
  
(In millions)
  
Proceeds received in GBP
       £
350
  
Conversion rate of GBP into US dollars as of March 30, 2007
        
1.9685
  
Gross proceeds received by all DML partners in US dollars for sale of DML
       $
689
  
KBR’s ownership percentage in DML
         51 %
KBR’s proceeds based on its ownership percentage
       $
351
  
Less:  Direct transaction costs
       $ (6 )
KBR’s share of proceeds, net of direct transaction costs
       $
345
  
Less:  KBR's net book value of DML's net assets at March 31, 2007
         (53 )
Add:  Portion of cumulative translation adjustment gain KBR recorded in other accumulated comprehensive income for DML
  
(D)
    
22
  
Less:  Portion of minimum pension liability recorded in other accumulated comprehensive income for DML
  
(D)
     (91 )
Gain on sale of DML, before income taxes
       $
223
  
Less:  Income tax provision
  
(C)
     (119 )
Net gain from the sale of DML
       $
104
  

(A)
Adjustment to eliminate DML balances from KBR’s historical consolidated financial statements.

(B)
Adjustment to record the cash proceeds less DML cash sold, income taxes payable, and estimated gain to be recognized by KBR as a result of the sale as of March 31, 2007.

(C)
Calculated tax effect on gain from the sale of DML based on United States statutory rate of 36.25% (35% federal rate plus 1.25% state rate).

(D) 
Removal of cumulative translation adjustment and minimum pension liability related to DML from other accumulated comprehensive income.

(E)
Eliminate intercompany transactions with KBR from the DML statements of operations related primarily to the management fee and interest on intercompany transactions.

(F)
Generally the taxes for DML are calculated at the United Kingdom (UK) statutory rate of 30%; however, the effective tax rate for DML usually exceeds the UK statutory rate for two primary reasons:  a) some portion of the DML earnings are also subject to US tax at the higher rate of 35%; and, b) certain adjustments for prior year taxes have been recognized.  Combined, the effects of these two items result in an effective rate higher than the UK statutory rate.
 
Note 2.
Pro Forma Minority Interest
 
As reflected in the pro forma balance sheet as of March 31, 2007, KBR’s pro forma minority interest balance reflects the absorption of losses by a minority interest shareholder on a consolidated joint venture where the minority interest shareholder is contractually obligated to fund losses suffered by the joint venture.