Kellogg Brown and Root Inc – a former subsidiary of Halliburton and one of the top American engineering and constructing company and won man contracts with the US military during the invasion in Iraq on 2003, Vietnam war, as well as during the World War II. In 2002, the State Department of the federal government awarded to KBR a $100 million contract to build a new US embassy in Kabul, Afghanistan.
In addition to this, KBR also got the $216 million worth Logistics Civil Augmentation Program (LOGCAP) contract which includes the establishment of base camps, air base, and training camps during the entire period of Operation Enduring Freedom of the United States in Afghanistan and on other countries. In other words, the growth of Kellogg Brown and Root as a company is primarily dependent on the budget allotment of the federal government on its military sector.
An increase or decrease on the budget allotment of the federal government on its military sector can directly affect the total revenue of the company. This is why it is very crucial on the part of Kellogg Brown and Root’s management to monitor the trend of government’s budget allotment to military so they can financially adjust accordingly to changes. Kellogg Brown and Root can minimize their operational costs, if the federal budget on military is low, through the use of substandard construction materials which are relatively cheaper.
Furthermore, the company can cut the employment benefits or worse lay-off some of their workers to stabilize their financial condition. Also, the said company will shift their focus from federal government projects to private construction projects which can be more profitable on the occasion of low budget allotment on military sector. On the other hand, if there will be an increase on the federal budget, then, Kellogg Brown and Root will experience more revenue and profit. A more aggressive business acquisition can be expected from Kellogg Brown and Root.
Since its separation from Halliburton on April 2007, Kellogg Brown and Root has been exerting a lot of effort to acquire other engineering and construction based companies like the Alabama-based firm BE&K for 550 million USD. Moreover, with high profitability caused by the increase in federal budget, Kellogg Brown and Root can experience higher stock prices in the stock market. In addition to this, the labor market can expect more employment opportunities from Kellogg Brown and Root as the latter need more workers from the additional construction projects of the federal government.
With regard to the effect of the Federal Tax Policy on Kellogg Brown and Root, the said policy will only have great impact on the financial condition of the company if it will pay the right amount of tax and abide all the provisions stated on the Federal Tax policy. But considering the historical performance of Kellogg Brown and Root regarding its payment of taxes, it was found out that it has been performing a lot of ways to evade paying the right amount of taxes.