KBR, Inc. Form 10-K Summary
Reporting period: Fiscal year ended December 29, 2023, compared with fiscal years ended December 31, 2022 and 2021. The request identifies “2022 Q4,” but the source is an annual Form 10-K for fiscal 2023. Fiscal 2023 contained 363 days versus 365 days in 2022 following KBR’s change to a 52–53 week fiscal year.
Business context
KBR provides science, technology, engineering, logistics, defense, space, aviation, cybersecurity, and sustainable technology solutions to governments and commercial customers. The company operates through Government Solutions (GS), Sustainable Technology Solutions (STS), and a non-core Other segment.
- Government customers generated $4.0 billion, or 58%, of 2023 revenue; U.K. government customers generated $634 million, or 9%.
- Employees totaled approximately 34,000 in more than 30 countries at year-end.
- Backlog increased to $17.3 billion from $15.6 billion; management expects approximately 30% to be recognized in 2024.
Financial performance and key metrics
| dollars in millions, except percentages and per-share data | 2023 | 2022 | Change |
|---|---|---|---|
| Revenue | $6,956 | $6,564 | +6% |
| Gross profit | $977 | $828 | +18% |
| Gross margin | 14.0% | 12.6% | +140 bps |
| Operating income | $448 | $343 | +31% |
| Operating margin | 6.4% | 5.2% | +120 bps |
| Net income attributable to KBR | $(265) | $190 | $(455) |
| Net margin | (3.8%) | 2.9% | Down 670 bps |
| Basic diluted EPS | $(1.96) | $1.36 / $1.26 | Declined |
| Operating cash flow | $331 | $396 | Down $65 |
GS revenue increased 1% to $5.35 billion, while operating income fell 35% to $285 million, primarily because of a $144 million legacy legal settlement and the absence of a prior-year gain. STS revenue increased 29% to $1.60 billion and operating income rose to $324 million from $47 million, reflecting higher technology and engineering revenue and the absence of significant 2022 Ichthys-related charges.
- Cash and cash equivalents were $304 million versus $389 million at year-end 2022. Approximately $132 million was held in consolidated joint ventures and Aspire Defence entities and was restricted to project purposes.
- Total debt was approximately $1.83 billion, including $505 million drawn on the revolver, $595 million of Term Loan A, $501 million of Term Loan B, and $250 million of senior notes.
- After interest-rate swaps, fixed-rate debt was $1.35 billion and variable-rate debt was $498 million. A 50-basis-point rate increase was estimated to raise annual pretax interest expense by approximately $2 million.
- Management stated that cash, operating cash flow, available credit, and other lines of credit are sufficient for the next 12 months. The company was in compliance with debt covenants at December 29, 2023.
- Remaining performance obligations were $12.7 billion, with approximately 34% expected to convert to revenue within one year.
Material changes versus the prior comparable period
- Revenue increased $392 million, driven by GS contract growth and higher STS technology sales and professional services. This included the offset of approximately $313 million of 2022 Operation Allies Welcome revenue that had substantially wound down.
- Operating income improved by $105 million, but reported net income became a loss because of $494 million in charges related to the cash settlement, repurchase, and unwind of the 2023 Convertible Notes and related warrants.
- Equity earnings from unconsolidated affiliates improved to $114 million from an $80 million loss, primarily because 2022 included a $137 million non-cash Ichthys LNG settlement charge and a $10 million joint venture charge.
- Operating cash flow declined because of the $144 million legal settlement payment, partially offset by improved working-capital effects and lower pension funding payments.
- Debt increased from $1.74 billion to $1.83 billion, while current debt maturities declined from $364 million to $31 million after the Convertible Notes matured and were settled.
- KBR invested an additional $39 million in Mura Technology and increased its carrying value in that investment to $128 million.
Outlook, unusual items, and risks
Management expects continued opportunities from defense modernization, space, cyber, health and human performance, energy transition, decarbonization, hydrogen, green ammonia, carbon capture, biofuels, and circular-economy technologies. No formal quantitative revenue or earnings guidance is provided in the filing.
- The U.S. fiscal 2024 budget remained subject to continuing resolutions and political uncertainty. A prolonged shutdown, delayed appropriations, or shifting defense and civilian priorities could delay awards, payments, or program execution.
- Approximately 10% of backlog was fixed-price, 39% related to private-finance initiatives, 36% cost-reimbursable, and 15% time-and-materials. Fixed-price work remains exposed to labor, materials, inflation, subcontractor, schedule, and performance risks.
- U.S. government contracts are subject to audits, cost disallowances, False Claims Act matters, payment withholding, penalties, termination, and potential suspension or debarment.
- KBR maintains a $48 million liability associated primarily with its JKC/Ichthys LNG investment and related paint and insulation claims. The filing states that the ultimate maximum exposure under certain joint venture performance guarantees cannot be estimated.
- The company recorded a $144 million charge for settlement of the Howard qui tam matter and paid $109 million under the settlement; KBR denied liability or wrongful conduct.
- KBR had a defined-benefit pension funding deficit of approximately $15 million and expects approximately $42 million of pension contributions in 2024.
- Goodwill and intangible assets totaled approximately $2.73 billion. No goodwill or intangible impairment was recorded in 2023, but impairment remains a material sensitivity.
- The filing states that KBR had no material cybersecurity incidents during the preceding three fiscal years, although cybersecurity, classified information, privacy, geopolitical, foreign-exchange, and environmental risks remain significant.
Important facts for investors to verify
- Reconcile the reported net loss and $1.96 loss per share to the $494 million Convertible Notes and warrant-related charge, including which components are non-cash or one-time.
- Review post-year-end debt amendments: a new $1 billion Term Loan B facility, the January 2031 maturity extension, and the February 2029 extension for the revolver and Term Loan A facilities.
- Assess the quality and timing of the $17.3 billion backlog, including customer funding, unexercised options, fixed-price exposure, joint venture backlog, and the $164 million of active loss-position contracts.
- Evaluate conversion of operating cash flow, including the use of receivables monetization; KBR derecognized $3.1 billion of receivables under such programs during 2023.
- Monitor JKC/Ichthys contingent liabilities, joint-and-several guarantees, government audits, LogCAP III closeout matters, and unresolved litigation.
- Confirm the sustainability of dividends and the $500 million share-repurchase authorization in light of leverage, pension funding, working-capital needs, and future acquisition plans.