Backlog of unfulfilled orders
A backlog is the estimate of the US dollar amount of revenues anticipated to be earned in the future by completing contracts. Backlogs are subject to unexpected adjustments and cancellations. The contracts that KBR and its peers (XLI) Jacobs Engineering Group (JEC), Chicago Bridge & Iron (CBI), and Fluor (FLR) enter into are mostly long-term.
As of September 30, 2017, KBR’s backlog was $10.3 billion. According to company filings, 95% of earnings for 2017 is secured in backlogs, and 34% of its backlog is expected to be executed within a year. As of September 30, 2017, $112 million of backlog relates to active contracts that are in a loss position.
Backlog by contract type
As of September 30, 2017, 11% of KBR’s backlog was attributable to fixed-price contracts, 61% was from PFIs (privately financed initiatives), and 28% was from cost-reimbursable contracts, which are lower risk contracts with predictable cash flows.
Backlog by business segments
Of the 11% fixed-price contracts backlog, 7% was attributable to low-risk, fixed-price contracts in the GS (Government Services) and T&C (Technology & Consulting) segments. The remaining 4% was due to fixed-price contracts in the E&C (Engineering & Construction) segment.
As of September 30, 2017, $7.6 billion of the GS backlog was currently funded by KBR’s customers. The backlog doesn’t include unexercised options and ID/IQ (indefinite delivery/indefinite quantity) and MATOC (multiple award task order contracts) contract values not yet under task order.
Within the GS segment, the backlog for long-term contracts associated with the UK government’s PFIs are estimated based on the aggregate amount the client would contractually be obligated to pay the company over the life of the project.
Next, let’s take a look at KBR’s gross margins.