Press Release

Wire Release

Revenues of $1.1 billion, up 11% over prior year Solid earnings; GAAP EPS of $0.26 (with $0.02 impact from legacy legal fees) Adjusted 2017 EPS expected above mid-point of $1.10 and $1.40 range Reached substantial completion on an EPC power project in the U.S. PEMEX settlement completed and cash collected in April; to be recorded in Q2 2017

HOUSTON, Texas - April 28, 2017 - KBR, Inc. (NYSE: KBR), a global provider of differentiated, professional services and technologies across the asset and program life cycle within the government services and hydrocarbons industries today announced first quarter 2017 financial results.

Consolidated revenue in the first quarter of 2017 was$1.1 billion compared to$1.0 billion in the first quarter of 2016.Ê Net income attributable to KBR was$37 million or$0.26 per diluted share ($0.28 per diluted share excluding U.S. Government legacy legal fees of$2.4 million) in the first quarter of 2017 compared to net income of$42 million or$0.30 per diluted share ($0.34 per diluted share excluding U.S. Government legacy legal fees of$5.8 million) in the first quarter of 2016.Ê
Revenue in the first quarter increased from the same period a year ago driven by the recent acquisitions in the Government Services segment and organic growth from contracts with the U.S. Military.Ê These revenue increases were partially offset by lower activity on various projects in our Engineering and Construction and Non-strategic Business segments that are now completed or nearing completion, including the final EPC power project.

Net income attributable to KBR reflects strong performance across all segments despite lower equity earnings from an LNG project joint venture inAustralia (Ichthys), which is timing related.Ê Gross profit improved to$82 million from$68 million in the prior year quarter, at 7.4% of revenues.Ê This improvement was driven by improved project execution in the E&C segment.Ê Equity in earnings decreased to$9 million from$29 million in the prior year quarter, driven by a lower percentage of completion adjustment on the Ichthys project through our Ichthys JV.

"We achieved predictable, consistent and profitable performance in our Government Services and Technology and Consulting segments, plus good progress on a number of engineering and construction projects, including the achievement of reaching substantial completion of our final EPC power project." said Stuart Bradie, President and Chief Executive Office of KBR, Inc.

InApril 2017, we settled our decade long dispute over an almost half billion judgment pertaining to the EPC 1 construction project executed for PEMEX Exploraci—n y Producci—n (PEP). Under the settlement, we have been paid$435 million for costs and fees owed for our work on the construction project.Ê This settlement ends our collection efforts and all litigation between the parties has been dismissed.

"We also achieved substantial completion of an engineering, procurement and construction (EPC) services 650-megawatt combined cycle power plant.Ê The completion of this project marks KBR's exit from the fixed price EPC power business inthe United States and achieves another milestone in our corporate strategy to exit this non-strategic business.Ê We continue to make progress in resolving legacy legal matters and commercial disputes, further de-risking the business," Bradie continued.

Segment Business Results (All comparisons are first quarter 2017 versus first quarter 2016 unless otherwise noted.)

Government Services (GS) Results

GS revenue was$515 million and gross profit was$37 million, an increase of$305 million and$16 million, respectively, over the prior year.Ê These increases were primarily due to the acquisitions of Wyle and HTSI (converted into KTS) in the third quarter of 2016, as well as from continued expansion of task orders on existing U.S. Government contracts including LogCAP IV and other international operating base contracts in support of the U.S. military.Ê Integration of Wyle and KTS into KBR is progressing to plan and both are performing in line with expectations.Ê These acquisitions position us in the domestic technology-focused engineering services industry and we expect continued growth in opportunities within this segment of our business.

Equity in earnings of unconsolidated affiliates was$9 million, down$2 million, primarily due to lower than expected maintenance activities on a U.K. Ministry of Defense project which are expected to recover throughout the remainder of 2017.Ê The majority of the equity in earnings for the Government Services segment comes from joint ventures serving two programs which support theUnited Kingdom government -- the U.K. Military Flying Training System (UKMFTS) program and the Army 2020 rebasing program.Ê These two programs are operated under annuity-type contracts which were awarded last year and are expected to continue to grow significantly in 2017 as they ramp up.Ê These two contracts extend for 18 and 23 years respectively, with a combined award value of almost$1 billion.

Technology & Consulting (T&C) Results

T&C revenue decreased by$21 million to$76 million in the first quarter of 2017 while gross profit was$14 million, down$3 million from the prior year.Ê Gross profit margin remained flat at approximately 18% in each quarter.Ê The decreases in revenue and gross profit were driven by lower volume of activity due to timing in the upstream oil and gas consulting portion of the T&C business.Ê Backlog across the T&C grew in the quarter.Ê The consulting sector appears to be gaining momentum through recent awards of smaller upstream studies and projects which typically precede larger investment decisions by the major oil and gas companies.

EngineeringÊ& Construction (E&C) Results

In the first quarter of 2017, E&C's revenue was$489 million, a decrease of$117 million from the same period in the prior year, primarily due to reduced activity across the sector.Ê These decreases were partially offset by projects ramping up from new awards in 2016, including a construction project inCanada.
E&C gross profit was up by$4 million to $33 million in the first quarter of 2017 attributable to solid project performance as well as lower overhead costs associated with previously announced cost reduction activities.

Equity in earnings of unconsolidated affiliates was zero for the first quarter of 2017, down$18 million from the prior yearÊ predominantly due to a reduction in percentage of completion estimated on the Ichthys project, where increased forecast reimbursable costs delayed profit recognition to future periods.Ê The decrease was offset with improving contributions from our Brown & Root Industrial Services joint venture maintenance business.

Non-strategic Business (NSB) Results

NSB revenue was$26 million, a decrease of$57 million primarily due to lower activity on EPC power projects as we have been winding down the fixed-price EPC power projects in the U.S.Ê The final fixed-price EPC power project in the U.S. reached substantial completion during the first quarter of 2017.Ê Gross profit decreased by$3 million to a gross loss of$2 million in the first quarter of 2017.

Cash Flow and Liquidity

Cash and equivalents decreased$126 million during the first quarter of 2017 as compared to a decrease of$59 million in the priorÊ year.Ê As expected, the decrease in cash and equivalents in 2017 was driven by higher operating cash flows used to fund several EPC contracts nearing completion within our E&C and NSB business segments.Ê Cash and equivalents at MarchÊ31, 2017 totaled$410 million, including$224 million of domestic U.S. cash.Ê As of MarchÊ31, 2017, our revolving credit agreement had an outstanding balance of$650 million, leaving$350 million of borrowing capacity.

New Business Awards and Backlog

Notable new awards during the first quarter of 2017 included:

Government ServicesWe were awarded a seat on the Worldwide Engineering & Construction (WE&C) contract by the U.S. Air Force's Civil Engineering Center. Under this contract, KBRwyle will have the opportunity to compete on task orders to provide a range of design, construction and engineering services for the U.S. Air Force. This contract consists of a five-year base period with three one year option periods with a maximum ceiling value of $950 million.We were awarded an engineering services contract by NASA to support more than 20 NASA exploration missions. This is a five-year, single award indefinite-delivery/indefinite quantity (IDIQ) contract, will provide ground systems and operations support to various NASA missions managed by Space Science Mission Operations and Earth Science Mission Operations at NASA's Goddard Space Flight Center inGreenbelt, Maryland.

Technology and ConsultingWe were awarded a revamp contract by Mangalore Chemicals and Fertilizers LTD for its ammonia plant inIndia. Under the terms of the contract, KBR will provide its ammonia technology to enhance theÊenergy efficiency of the plant.We were awarded a technology licensing and basic engineering design contracts by LG Chem for its ethylene plant inSouth Korea. Under the terms of the contract, KBR will provide license and basic engineering design services to expand the plant ethylene capacity by 230KTA to a total of 1,270KTA through the addition of two (2) new SCORETM SC-1 proprietary furnaces and product recovery system modifications. This project is part of a larger LG Chem Daesan facility expansion that will enable the company to produce additional high value-added ethylene derivative products.

Engineering and ConstructionWe were awarded a contract for independent verification services by Sydney Desalination Plant Pty Limited for its desalination plant rebuild works and associated systems commissioning. KBR previously provided Independent Verification services for the original construction of the Sydney Desalination Plant and has continued to provide engineering services for a range of projects since that time.We were awarded a contract for maintenance, planning and industrial services by International Paper (IP), a global producer of renewable packaging and paper products. The contract will be performed over the next four years. Under the new contract, KBR will provide industrial maintenance services of around 700,000 labor hours at IP's offices in Svetogorsk, Russia.Ê This contract is a continuation of KBR's long-standing service providing maintenance services for IP globally.

KBR backlog decreased from$10.9 billion as of DecemberÊ31, 2016 to$10.6 billion as of MarchÊ31, 2017, with project work-off exceeding new awards, primarily in our E&C and GS business segments.

Guidance

Our guidance of earnings per share is on an adjusted EPS basis, which excludes legacy legal costs.Ê The company reiterates its full year 2017 fully diluted adjusted earnings per share guidance of between$1.10 and $1.40 per share.Ê However, with the resolution of the PEMEX settlement, we project earnings per share to be above mid-point in the range.Ê Our diluted adjusted earnings per share excludes legal costs associated with legacy U.S. Government contracts which are expected to be approximately$9 million, or$0.07 per fully diluted share in 2017.Ê The estimated legacy legal fees do not assume any cost reimbursement from the U.S. Government that could occur in the future.Ê Our estimated effective tax rate for 2017 will range from 25% to 27%.Ê Our expected EBITDA range for 2017, which is on the same basis as the EPS guidance, is$300-$350 million.Ê The estimate for operating cash flows will range from $100 - $200 million for 2017.

 

About KBR, Inc.

KBR is a global provider of differentiated professional services and technologies across the asset and program life cycle within the Government Services and Hydrocarbons sectors. KBR employs over 34,000 people worldwide (including our joint ventures), with customers in more than 80 countries, and operations in 40 countries, across three synergistic global businesses:Government Services, serving government customers globally, including capabilities that cover the full life-cycle of defense, space, aviation and other government programs and missions from research and development, through systems engineering, test and evaluation, program management, to operations, maintenance, and field logisticsTechnology & Consulting, including proprietary technology focused on the monetization of hydrocarbons (especially natural gas and natural gas liquids) in ethylene and petrochemicals; ammonia, nitric acid and fertilizers; oil refining; gasification; oil and gas consulting; integrity management; naval architecture and proprietary hulls; and downstream consultingEngineering & Construction, including onshore oil and gas; LNG (liquefaction and regasification)/GTL; oil refining; petrochemicals; chemicals; fertilizers; differentiated EPC; maintenance services (Brown & Root Industrial Services); offshore oil and gas (shallow-water, deep-water, subsea); floating solutions (FPU, FPSO, FLNG & FSRU) and program management

KBR is proud to work with its customers across the globe to provide technology, value-added services, integrated EPC delivery and long term operations and maintenance services to ensure consistent delivery with predictable results.

At KBR, We Deliver. Visit www.kbr.com

 

Forward Looking Statement

The statements in this press release that are not historical statements, including statements regarding future financial performance, are forward-looking statements within the meaning of the federal securities laws. These statements are subject to numerous risks and uncertainties, many of which are beyond the company's control that could cause actual results to differ materially from the results expressed or implied by the statements. These risks and uncertainties include, but are not limited to: the outcome of and the publicity surrounding audits and investigations by domestic and foreign government agencies and legislative bodies; potential adverse proceedings by such agencies and potential adverse results and consequences from such proceedings; the scope and enforceability of the company's indemnities from its former parent; changes in capital spending by the company's customers; the company's ability to obtain contracts from existing and new customers and perform under those contracts; structural changes in the industries in which the company operates; escalating costs associated with and the performance of fixed-fee projects and the company's ability to control its cost under its contracts; claims negotiations and contract disputes with the company's customers; changes in the demand for or price of oil and/or natural gas; protection of intellectual property rights; compliance with environmental laws; changes in government regulations and regulatory requirements; compliance with laws related to income taxes; unsettled political conditions, war and the effects of terrorism; foreign operations and foreign exchange rates and controls; the development and installation of financial systems; increased competition for employees; the ability to successfully complete and integrate acquisitions; and operations of joint ventures, including joint ventures that are not controlled by the company.

KBR's most recently filed Annual Report on Form 10-K, any subsequent Form 10-Qs and 8-Ks, and other U.S. Securities and Exchange Commission filings discuss some of the important risk factors that KBR has identified that may affect the business, results of operations and financial condition. Except as required by law, KBR undertakes no obligation to revise or update publicly any forward-looking statements for any reason.

For further information, please contact:

Investors
Nelson Rowe
Senior Vice President, Investor Relations
713-753-5082
[email protected]

Media
Marit Babin Stout
Vice President, Global CommunicationsÊ& Government Relations
713-753-3800
[email protected]

 

KBR, Inc.: Consolidated Statements of Operations
(In millions, except for per share data)
(Unaudited)


Three Months Ended

March 31,

March 31,

2017

2016
Revenues:



Government Services
$
515

$
210
Technology & Consulting
76

97
Engineering & Construction
489

606
Subtotal
1,080

913
Non-strategic Business
26

83
Total revenues
1,106

996
Gross profit (loss):



Government Services
37

21
Technology & Consulting
14

17
Engineering & Construction
33

29
Subtotal
84

67
Non-strategic Business
(2)

1
Total gross profit
82

68
Equity in earnings of unconsolidated affiliates:



Government Services
9

11
Technology & Consulting
-

-
Engineering & Construction
-

18
Subtotal
9

29
Non-strategic Business
-

-
Total equity in earnings of unconsolidated affiliates
9

29
General and administrative expenses
(32)

(34)
Asset impairment and restructuring charges
-

(2)
Gain on disposition of assets
4

4
Operating income
63

65
Other non-operating expense
(12)

(5)
Income before income taxes and noncontrolling interests
51

60
Provision for income taxes
(13)

(15)
Net income
38

45
Net income attributable to noncontrolling interests
(1)

(3)
Net income attributable to KBR
$
37

$
42




Net income attributable to KBR per share:



Basic
$
0.26