Harry

Anderson Accounting 211 06/23/2009

Financial Analysis o f K BR
Kellog Brown and Root (KBR) is a former subsidiary of Halliburton Corp b ased out of Houston, TX, and is currently one of the leading global engineering and construction firms in the m arket. KBRs statements of income show a $434 million, or a 286% increase in operating income since the base year ( 2006), roughly twice the percentage increase in the previous year ( 145%). Net income h owever, only increased by 90%, reflecting KBRs increased cost of services. A vertical analysis of the statements of income shows that operating cost w ere 96.3% of total r evenue in 2008 and 97.8% in 2007. Cash and Equivalents decreased by 38% on the balance sheet between 2007 and 2008, with total receivables increasing by only 23%, reflecting the 86% decrease in cash flows from the base year. Noncurrent employee compensation and benefits however, increased by $324 million, or 410%, along with total current liabilities, w hich increased by $420 million to $3043 million. Stock based compensation decreased by only 6% for 2008 from the base year; 29% less than the 35% decrease from 2006 to 2007, suggesting that the 2006-2007 decrease m ay have been an outlier. Payments of dividends to minority shareholders increase by 1067% from 2006 to 2007, and 833% from 2006 to 2008. The dividend yield rate h owever, w as still only .01. Net income per share was $1.92 in 2008, and $1.2 in 2007, up 60% and 50% from the base year, respectively. Return on equity was reported at .15, and P/E was 9.90 meaning that the buyer is p aying $9.90 for every d ollar expected to be earned and can be considered an average value. The receivables turnover was 5.39, indicating that net income has a higher contribution from cash than from receivables. The debt-to-equity ratio was fairly l ow however, at 1.88. This means that the firm has a higher proportion of liabilities to shareholders equity, which is a risk in the long run. When comparing KBRs ratio analysis to that of the engineering and construction industrys l eading firm, Fluor, there are two values that stand out. KBRs ROE (.15) doesnt is significantly lower than Fluors (140.36), and Fluors receivables turnover is also m uch h igher at 18.

Harry Anderson Accounting 211 06/23/2009

Based on KBRs increasingly high liabilities and decreasing cash flow I w ould refrain from l ong-term investment in KBR stock. However, its h igh net income is attractive and would make for p rofitable short-term trading.

Harry Anderson Accounting 211 06/23/2009

KBR, Inc. Horizontal Analysis for Fiscal Years ended December 31 20072008 Consolidated Statements of Income 2008 Total revenue Total operating costs and expenses Operating income Income from continuing operations before taxes Income from continuing operations Net income Net income per share Diluted net income per share Weighted average shares outstanding Diluted weighted average shares outstanding Consolidated Balance Sheets 2008 Assets Cash and equivalents Total Recievables Total Current Assets PPE net of accumulated depreciation Goodwill Intangible assets, net Equity and advances to related companies Noncurrent deferred income taxes Unbilled recievables on uncompleted contracts Total Assets 2007 11581 11040 586 568 308 319 1.92 1.91 166 167 2007 2006 (base year) 8642 8451 372 342 182 302 1.8 1.79 168 169 8805 8653 152 128 54 168 1.2 1.2 140 140

1145 2147 4142 245 694 73 185 167 134 5844

1861 1747 4056 220 251 15 294 139 196 5203

Liabilities, Minority Interest and Shareholders' Equity Accounts payable 1387 Advance billings on uncompleted contracts 519 Reserve for estimated losses on uncompleted co 76 Employee compensation and benefits 320 Other current liabilities 680 Total current liabilities 3043 Noncurrent employee compensation and benefit 403 Other noncurrent liabilities 333 Total liabilities 3850 Paid-in capital CS in excess of par 2091 Accumulated and other comprehensive loss -439 Retained earnings 596 Total shareholders' equity and accumulated othe 2052 Total liabilities, minority interest and shareholde 5884

1117 794 117 316 262 2623 79 151 2968 2070 -122 319 2267 5203

Consolidated Statements of Shareholders' Equity and Comprehensive Income

Harry Anderson Accounting 211 06/23/2009

KBR, Inc. Horizontal Analysis for Fiscal Years ended December 31 20072008

% change 08

% change 07 vertical analysis 2008 (%) vertical analysis 2007 (%) 100 95.32855539 5.060012089 4.904585096 2.659528538 2.7545117 0.016578879 0.016492531 100 97.78986346 4.30455913 3.957417265 2.105993983 3.494561444 0.020828512 0.020712798

31.52754117 -1.851220897 27.58580839 -2.33445048 285.5263158 144.7368421 343.75 167.1875 470.3703704 237.037037 89.88095238 79.76190476 60 50 59.16666667 49.16666667 18.57142857 20 19.28571429 20.71428571

% change 08

-38.47393874 22.89639382 2.120315582 11.36363636 176.4940239 386.6666667 -37.07482993 20.14388489 -31.63265306 12.31981549

24.17188899 -34.63476071 -35.04273504 1.265822785 159.5419847 16.01219977 410.1265823 120.5298013 29.71698113 1.014492754 259.8360656 86.8338558 -9.483899427 13.08860273

Harry Anderson Accounting 211 06/23/2009

KBR, Inc. Horizontal Analysis for Fiscal Years ended December 31 20072008 2008 Balance at January 1 Stock-based compensation Net income Total comprehensive income Balance at December 31 Consolidated Statements of Cash Flows 2008 Cash flows from operating activities Net income Total cash flows provided by operating activities Cash flows from investing activities Capital expenditures Sales of PPE Total cash flows provided by investing activities Cash flows from financing activities Net proceeds from issuance of stock Payments of dividends to minority shareholders Total cash flows used in financing activities Effect of exchange rate changes on cash Increase in cash and equivalents Cash and equivalents at beginning of period Cash and equivalents at end of period Cash payments for income taxes All data in millions, except for per unit amounts 2007 2267 16 319 2 2052 2007 1794 11 302 471 2267 1256 17 168 157 1794

319 124 -37 7 -556 3 -28 -244 -40 -716 1861 1145 200

302 248 -43 3 293 6 -35 -150 9 400 1461 1861 229

168 931 -57 6 225 512 -3 -139 50 1067 394 1461 57

Harry Anderson Accounting 211 06/23/2009

KBR, Inc. Horizontal Analysis for Fiscal Years ended December 31 20072008 % change 08 % change 07

80.49363057 42.8343949 -5.882352941 -35.29411765 89.88095238 79.76190476 -98.72611465 200 14.3812709 26.36566332

% change 08

% change 08

89.88095238 79.76190476 -86.68098818 -73.36197637 -35.0877193 -24.56140351 16.66666667 -50 -347.1111111 30.22222222 -99.4140625 833.3333333 75.53956835 -98.828125 1066.666667 7.913669065

-180 -82 -167.10403 -62.51171509 372.3350254 270.8121827 -21.62902122 27.37850787 250.877193 301.754386

Harry Anderson Accounting 211 06/23/2009

KBR Pric/earnings (P/E/) ratio Market price per shar /Earnings per share Return on equity Net income /Average stockholders Earnings per share Net income preferre /Average number of o Dividend yield rate Dividends per share /market price per sha 2008 2007 2008 2007

19.03 1.92

9.91145833

319000000 2061000000

302000000 2127000000

0.15477923

0.14198402

319000000 169709601

302000000 169709601

1.87968152

1.7795104

0.2146 19.03

0.01127693

Recievables turnover Net revenue 11581000000 /Average accounts rec 2147000000 Debt-to-equity ratio Total liabilities /Total shareholders' e Fluor Pric/earnings (P/E/) ratio Market price per shar /Earnings per share Return on equity Net income /Average stockholders Earnings per share Net income preferre /Average number of o Dividend yield rate Dividends per share /market price per sha Recievables turnover Net revenue /Average accounts rec Debt-to-equity ratio

8642000000 1747000000

5.39403819

4.94676588

3850000000 2052000000

2968000000 2267000000

1.87621832

1.30921923

50.25 3.93

12.7862595

720460000 2272770.5

316.996371

720460000 181,555,921

3.96825395

0 50.25

22,325,894 1,227,224

18

Harry Anderson Accounting 211 06/23/2009

Total liabilities /Total shareholders' e 3752639 2,671,082

1.40491344

*market price as of 6/17/2009 opening