KBR, Inc. Fiscal 2022 Form 10-K Summary
Business context and reporting period
The filing is a Form 10-K for the fiscal year ended December 31, 2022, filed February 17, 2023. The request metadata refers to “2021 Q4,” but the source document is an annual 2022 filing. KBR provides science, technology, engineering, defense, logistics, digital transformation and sustainable technology solutions globally. Reportable segments are Government Solutions (GS), Sustainable Technology Solutions (STS) and Other corporate activities.
KBR employed approximately 30,000 people in 34 countries at year-end. The U.S. government represented 61% of consolidated revenue, while the U.K. government represented 9%, creating significant customer concentration.
Key financial metrics
| Metric | 2022 | 2021 | Change |
|---|---|---|---|
| Revenue | $6.564 billion | $7.339 billion | Down 11% |
| Gross profit | $828 million | $806 million | Up 3% |
| Gross margin | Approximately 12.6% | Approximately 11.0% | Improved |
| Operating income | $343 million | $231 million | Up 48% |
| Operating margin | Approximately 5.2% | Approximately 3.1% | Improved |
| Net income attributable to KBR | $190 million | $27 million | Up $163 million |
| Diluted EPS | $1.26 | $0.19 | Improved |
| Operating cash flow | $396 million | $278 million | Up $118 million |
| Capital expenditures | $71 million | $30 million | Up $41 million |
| Cash and equivalents | $389 million | $370 million | Up $19 million |
| Total debt | $1.740 billion | $1.891 billion | Down $151 million |
GS revenue declined 13% to $5.320 billion, but segment operating income increased 7% to $441 million. STS revenue increased 5% to $1.244 billion, and segment operating income improved to $47 million from a $30 million loss. KBR’s consolidated results included an $80 million loss from unconsolidated affiliates, compared with a $170 million loss in 2021.
Year-end current assets were $1.747 billion and current liabilities were $1.821 billion. The company reported $1.376 billion of long-term debt and $364 million of current debt maturities, including the $350 million convertible notes due November 1, 2023. KBR stated that cash, operating cash flow, credit facility availability and other credit lines were sufficient for the next 12 months and that it was in compliance with debt covenants.
Material changes versus the prior comparable period
- Revenue decreased primarily because approximately $1.3 billion of contingency work under Operation Allies Welcome was substantially completed, Middle East activity declined following the U.S. DoD exit, and KBR continued winding down Russia operations.
- Profitability improved despite lower revenue, supported by higher European Command activity, the Frazer-Nash acquisition, stronger STS technology and services revenue, lower Centauri amortization and project closeout gains.
- STS results benefited from lower Ichthys-related losses. KBR recorded a $137 million non-cash equity-method charge in 2022 related to the Combined Cycle Power Plant subcontractor settlement, compared with a $203 million Ichthys client-settlement charge in 2021.
- Operating cash flow increased substantially, aided by $455 million of favorable accounts receivable movements, partly offset by a $376 million unfavorable accounts payable movement and pension funding.
- Accounts receivable declined to $942 million from $1.411 billion, primarily due to collections related to Operation Allies Welcome.
- KBR acquired VIMA Group for approximately $82 million, including $75 million of cash at closing, expanding U.K. defense digital-transformation capabilities.
- Backlog increased to $15.6 billion from $15.0 billion. STS backlog rose to $4.012 billion from $2.345 billion, partially offsetting a decline in GS backlog to $11.543 billion from $12.628 billion.
- KBR repurchased approximately $193 million of common stock under its authorization and ended 2022 with $451 million of remaining authorization. Dividends declared increased to $0.48 per share from $0.44.
Guidance, outlook, commentary, risks and unusual items
Management expects continued opportunities in defense modernization, space, cyber, advanced technology, energy security, decarbonization, hydrogen, green ammonia and circular-economy solutions. The 2023 U.S. appropriations legislation increased defense and non-defense discretionary spending, but management highlighted continuing uncertainty around the federal debt ceiling, appropriations and potential government shutdowns.
KBR expects demand for sustainable technology to benefit from energy-transition investment, including decarbonization, carbon capture, hydrogen, green ammonia, biofuels and plastics recycling. The company committed an additional £80 million to Mura Technology; £48 million was funded in 2022 and the remaining £32 million was expected in the first half of 2023.
HomeSafe Alliance’s $20 billion ceiling, potentially nine-year U.S. Transportation Command contract moved forward after the Court of Federal Claims upheld the award and the stop-work order was lifted in November 2022. KBR recorded $39 million of related transition-work backlog at year-end.
- Significant risks include dependence on U.S. government spending and contract awards, contract cancellations, recompete pressure, classified work, audits and potential cost disallowances.
- Fixed-price contracts expose KBR to inflation, supply-chain, labor, subcontractor, schedule and liquidated-damages risks. Revenue and profit depend substantially on estimates of total contract costs and recoveries of claims.
- The company continued winding down operations in Russia, recording a $16 million unfavorable gross-profit impact and $6 million of severance and asset-impairment costs in 2022.
- Unapproved change orders and claims included in project estimates-at-completion declined to $48 million from $426 million.
- KBR received approximately $190 million from the first payment under the JKC subcontractor settlement; a second payment of AUD 90 million was expected in March 2023. The Ichthys project also retains contingent paint and insulation obligations.
- Government matters remain subject to DCAA audits, contract disputes and potential remedies. KBR accrued $61 million for probable and reasonably estimable unallowable costs associated with open government matters.
- The North West Rail Link joint venture faces claims of up to approximately AUD 301 million; KBR had accrued an immaterial probable loss, while the ultimate exposure remained unresolved.
- Debt includes $350 million of convertible notes due November 2023. The if-converted value exceeded principal by approximately $381 million at year-end, with note hedges intended to offset conversion dilution; related warrants could create dilution above a $39.63 strike price.
- KBR changed its fiscal year-end prospectively beginning in fiscal 2023 to a 52–53 week year ending on the Friday closest to December 31.
Most important facts for investors to verify
- Reconciliation of 2022 earnings growth and margin expansion despite the 11% revenue decline, including the effect of Operation Allies Welcome and non-cash joint-venture charges.
- Conversion of the $15.6 billion backlog into revenue and cash, particularly the $98 million of backlog in active loss positions and the 11% fixed-price component.
- Liquidity and refinancing plans for the $350 million convertible notes due in November 2023, including covenant headroom and variable-rate exposure.
- Completion and cash impact of the remaining Mura investment, the second JKC settlement payment and other joint-venture obligations.
- Potential outcomes of government audits, LogCAP III closeout matters, the FKTC proceedings, the North West Rail Link claims and Ichthys contingent obligations.
- Customer concentration and the effect of U.S., U.K. and Australian defense budgets, appropriations delays or government shutdowns on awards and payment timing.
- Whether VIMA and other acquisitions generate the expected growth and synergies without increasing goodwill or integration risk.
- Reliability of contract cost estimates, claims recoveries and variable consideration recognized under the cost-to-cost revenue model.