Plaintiffs Seek KBR Records on Restatement, Failure to Complete Canadian Pipe Contracts

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By Yin Wilczek

May 12 — Shareholder plaintiffs May 12 filed a lawsuit seeking KBR Inc.'s books and records relating to the company's 2013 financial restatement after it failed to complete several Canadian pipe fabrication contracts.

In a complaint filed in the Delaware Chancery Court, the plaintiffs asserted that because of the failure to complete the contracts, KBR incurred charges that “drastically reduced” its net income for 2013 to a third of what originally was reported—from $229 million to $75 million.

Material Weakness 

According to the complaint, KBR filed an amended Form 10-K in May 2014 that disclosed a material weakness in its Canadian pipe fabrication and module assembly business that previously was described as an important revenue driver for the company.

“The records sought in the very targeted Demand would indicate what the Company’s directors and officers knew about the Company’s internal control problems and the need for the restatement, and when they knew such information,” the complaint stated.

In addition, the plaintiffs sought documents in connection with former KBR chief executive officer Bill Utt's “suspiciously timed dumping” of his KBR stocks in March 2014.

The plaintiffs said the records would help them determine whether there had been possible wrongdoing or self dealing by the company's officers and directors in connection with the restatement. They said they asked KBR for the documents in February, but their demand was rejected.

Delaware Law 

KBR's attorney, Michael Holmes, Vincent & Elkins LLP, Dallas, told Bloomberg BNA that he has not yet seen the complaint.

“We believe that the plaintiffs' Section 220 demand failed to meet the requirements of Delaware law,” he added. “We explained the basis for that to the plaintiffs’ lawyer prior to their filing this lawsuit.”

The plaintiffs are asking for expedited proceedings. They also told the court they would enter into a confidentiality agreement not to disclose any information derived from their inspection of the records.

The plaintiffs are represented by Paul Fioravanti, Prickett Jones & Elliott PA, Wilmington, Del.

To contact the reporter on this story: Yin Wilczek in Washington at ywilczek@bna.com

To contact the editor responsible for this story: Kristyn Hyland at khyland@bna.com

The complaint is available at http://www.bloomberglaw.com/public/document/Stella_Dupree_v_KBR_Inc_Docket_No_11013_Del_Ch_May_12_2015_Court_/1.