2
Forward-Looking
and Cautionary Statements
This
report 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 Securities Exchange Act of 1934,
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 annual report 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 risks and
uncertainties described under “Risk Factors” contained in Part I of this Annual
Report on Form 10-K.
Many
of these factors are beyond our ability to control or predict. Any of these
factors, 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 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
I
Item
1. Business
General
KBR, Inc.
and its subsidiaries (collectively, “KBR”) is a global engineering, construction
and services company supporting the energy, hydrocarbon, government services,
minerals, civil infrastructure, power and industrial sectors. We offer a wide
range of services through six business units; Government and Infrastructure
(“G&I”), Upstream, Services, Downstream, Technology and
Ventures. See Note 7 to our consolidated financial statements for
financial information about our reportable business segments.
KBR, Inc.
was incorporated in Delaware on March 21, 2006 as an indirect wholly-owned
subsidiary of Halliburton Company (“Halliburton”). KBR was formed to own and
operate KBR Holdings, LLC (“KBR Holdings”), which was contributed to KBR by
Halliburton in November 2006. In November 2006, KBR, Inc. completed
an initial public offering of 32,016,000 shares, or approximately 19%, of its
common stock. On April 5, 2007, Halliburton completed the separation
of KBR through a tax-free exchange with Halliburton’s stockholders of the
remaining 135,627,000 shares of KBR owned by Halliburton for publicly held
shares of Halliburton common stock pursuant to the terms of an exchange offer
commenced by Halliburton on March 2, 2007. See “Item 7. Management’s
Discussion and Analysis of Financial Condition and Results of Operations –
Transactions with Former Parent” for further discussion regarding our
relationship with Halliburton.
Recent
acquisitions and dispositions
In June
2007, we completed the disposition of our 51% interest in Devonport Management
Limited (“DML”) to Babcock International Group plc. DML owns and operates
Devonport Royal Dockyard, one of Western Europe’s largest naval dockyard
complexes. Our DML operations, which were part of our G&I business unit,
primarily involved refueling nuclear submarines and performing maintenance on
surface vessels for the U.K. Ministry of Defence as well as limited commercial
projects.
In April
2008, we acquired 100% of the outstanding common stock of Turnaround Group of
Texas, Inc. (“TGI”) and Catalyst Interactive. TGI is a Houston-based turnaround
management and consulting company that specializes in the planning and execution
of turnarounds and outages in the petrochemical, power, and pulp & paper
industries. Catalyst Interactive is an Australian e-learning and training
solution provider that specializes in the defense, government and industry
training sectors. TGI’s results of operations are included in our Services
business unit. Catalyst Interactive’s results of operations are included in our
Government & Infrastructure business unit.
In July
2008, we acquired 100% of the outstanding common shares of BE&K, Inc.,
(“BE&K”) a privately held, Birmingham, Alabama-based engineering,
construction and maintenance services company. The acquisition of BE&K
enhances our ability to provide contractor and maintenance services in North
America. BE&K and its acquired divisions were integrated into our
Services, Downstream and Government & Infrastructure business units based
upon the nature of the underlying projects acquired.
In
October 2008, we acquired 100% of the outstanding common stock of Wabi
Development Corporation (“Wabi”). Wabi was a privately held Canada-based general
contractor, which provides services for the energy, forestry and mining
industries. Wabi provides maintenance, fabrication, construction and
construction management services to a variety of clients in Canada and Mexico.
Wabi was integrated into our Services business unit and it provides additional
growth opportunities for our heavy hydrocarbon, forestry, oil sand, general
industrial and maintenance services business.
See Note
4 to our consolidated financial statements for further discussion of our recent
acquisitions.
Our
Business Units
Downstream. Our
Downstream business unit serves clients in the petrochemical, refining, coal
gasification and syngas markets, executing projects throughout the world. We
leverage our differentiated process technologies, some of which are the most
efficient ones available in the market today, and also execute projects using
non-KBR technologies, either alone or with joint venture or alliance partners to
a wide variety of customers. Downstream’s work with KBR’s Ventures business unit
has resulted in creative equity participation structures such as our Egypt Basic
Industries Corporation Ammonia plant which offers our customers unique solutions
to meet their project development needs. We are a leading contractor in the
markets that we serve delivering projects through a variety of service offerings
including front-end engineering design (“FEED”), detailed engineering,
engineering, procurement and construction (“EPC”), engineering, procurement and
construction management (“EPCM”) and program management. We are
dedicated to providing life cycle value to our customers.
4
Government and
Infrastructure. Our G&I business unit provides program and
project management, contingency logistics, operations and maintenance,
construction management, engineering and other services to military and civilian
branches of governments and private clients worldwide. We deliver on-demand
support services across the full military mission cycle from contingency
logistics and field support to operations and maintenance on military bases. A
significant portion of our G&I business unit’s current operations relate to
the support of the United States government operations in the Middle East, which
we refer to as our Middle East operations, and is one of the largest U.S.
military deployments since World War II. In the civil infrastructure market, we
operate in diverse sectors, including transportation, waste and water treatment
and facilities maintenance. We design, construct, maintain and operate and
manage civil infrastructure projects ranging from airport, rail, highway, water
and wastewater facilities, and mining and mineral processing to regional
development programs and major events. We provide many of these services to
foreign governments such as the United Kingdom and Australia.
Services. Our Services
business unit delivers full scope engineering, construction, construction
management, fabrication, maintenance, and turnaround expertise to customers
worldwide. Our experience is broad and based on 90 years of
successful project realization beginning with the founding of legacy company
Brown & Root in 1919. With the acquisition of BE&K, our
market reach has expanded and now includes power, alternate energy, pulp and
paper, industrial and manufacturing, and pharmaceutical industries in addition
to our base markets in the oil, gas, oil sands, petrochemicals and hydrocarbon
processing industries. We provide commercial building construction
services to education, food and beverage, healthcare, hospitality and
entertainment, life science and technology, and mixed use building clients
through our Building Group. KBR Services and its joint venture
partner offer maintenance, small capital construction, and drilling support
services for offshore oil and gas producing facilities in the Bay of Campeche
through the use of semisubmersible vessels.
Technology. Our
Technology business unit offers differentiated process technologies, some of
which are the most efficient ones available in the market today, including
value-added technologies in the coal monetization, petrochemical, refining and
syngas markets. We offer technology licenses, and, in conjunction with our
Downstream business unit, offer project management and engineering, procurement
and construction for integrated solutions worldwide. We are one of a few
engineering and construction companies to possess a technology center, with 80
years of experience in technology research and development.
Upstream. Our
Upstream business unit provides a full range of services for large, complex
upstream projects, including liquefied natural gas (“LNG”), gas-to-liquids
(“GTL”), onshore oil and gas production facilities, offshore oil and gas
production facilities, including platforms, floating production and subsea
facilities, and onshore and offshore pipelines. In gas-to-liquids, we are
leading the construction of two of the world’s three gas-to-liquids projects
under construction or start-up, the size of which exceeds that of almost any
other in the industry. Our Upstream business unit has designed and constructed
some of the world’s most complex onshore facility and pipeline projects and, in
the last 30 years, more than half of the world's operating LNG liquefaction
capacity. In oil & gas, we provide integrated engineering and program
management solutions for offshore production facilities and subsea developments,
including the design of the largest floating production facility in the world to
date.