Press Release

Wire Release Q4 and 2017 GAAP EPS of $1.94 and $3.06, respectively Adjusted EPS(1) for Q4 and 2017 of $0.28 and $1.49, respectively Operating cash flow of $193 million for fiscal 2017 Book-to-bill 1.2 for Q4 Assumed operational management of Aspire Defence joint venture Adjusted EPS(1) Guidance for 2018 set at $1.35 to $1.45
HOUSTON, Texas - February 23, 2018 - KBR, Inc. (NYSE: KBR) today announced strong fourth quarter and fiscal 2017 financial results. KBR, a global provider of differentiated, professional services and technologies across the asset and program life cycle within the government services and hydrocarbons industries, has posted positive earnings results in every quarter of 2017, continuing to build on consistent profit momentum and positioning the company for stable and predictable long-term growth.

"We continue to make progress on our strategy to establish KBR as a global leader in differentiated professional services and technologies and to position the company for strong long-term growth with reduced risk and increased financial flexibility," said Stuart Bradie, KBR President and CEO.Ê "We delivered consistently positive results throughout this year in terms of earnings and improved cash flow, meeting or exceeding what we set out to achieve at the beginning of the year for all our key metrics."
KBR trended positively in bookings in the second half of 2017, with an overall book-to-bill of 1.2 in Q4 which also was a record quarter of bookings and margins in our Technology and Consulting (T&C) business.Ê T&C achieved a 2.6 book-to-bill in the quarter, and our Government Services (GS) business delivered 1.3.
"These results signal improving fundamentals in our core markets and fuel positive momentum as we enter 2018," said Bradie.

KBR also announced that it has entered into a definitive agreement to acquire SGT, a leading provider of technology solutions, engineering services, mission operations and scientific and IT software solutions.Ê Upon completion of the transaction, KBR's global Government Services business, KBRwyle, will be positioned as one of the top tier service providers at NASA, across multiple space centers and delivers enhanced life-cycle capabilities to support our customers' needs in current and evolving markets for NASA, military, and commercial space.Ê KBR has also assumed operational management of the Aspire Defence project joint venture in the U.K., which will further add to its government services base with a long term, predictable profit and cash flow stream.Ê This joint venture has been performing services for the Ministry of Defence since 2006.

"Acquiring SGT and our greater role on Aspire will enhance our growth in the Government Services business segment," said Bradie.

Summary Fourth Quarter Results:
Consolidated revenue in the fourth quarter of 2017 was $937 million compared to $1.2 billion in the fourth quarter of 2016.Ê TheÊ 6% organic revenue growth in both our GS and T&C segments was offset by completion or substantial completion on various projects in our Engineering and Construction (E&C) segment and the completion of the execution phase of our last domestic EPC power project in the Non-strategic Business (NSB) segment.

Gross profit improved to $65 million compared to gross profit of $6 million in the prior year quarter.Ê Consistent project delivery across all segments and strong margin performance in our T&C segment were key contributors in the quarter.Ê Equity in earnings were $8 million compared to $10 million in the prior year.Ê The write down related to a shareholder loan receivable from our joint venture partner, Carillion plc, in our GS segment was partially offset by increased earnings on our industrial services joint venture in the E&C segment.

Net income attributable to KBR was $275 million, or $1.94 per diluted share in the fourth quarter of 2017 compared to net loss of $(87) million, or $(0.61) per diluted share in the fourth quarter of 2016.Ê Net income for 2017 includes a net tax benefit of $241 million, which reflects a reduction in our tax valuation allowance of $223 million as well as net benefits from new tax reform legislation.Ê The reduction in the tax valuation allowance was triggered by the restoration of profitability at KBR, including coming out of a three year cumulative loss position and having a more predictable and stable long-term profit outlook resulting from portfolio improvements and de-risking actions taken over the past three years.Ê The $18 million tax benefit attributed to the "Tax Act" of 2017 resulted from revaluation of deferred tax liabilities to the new lower Federal tax rate. There was no effect from the new repatriation tax as the Company was able to use available foreign tax credits to mitigate its impact. Net income attributable to KBR excluding these tax benefits was $34 million in the fourth quarter, compared to the $87 million loss in the prior year quarter.Ê This increase was due to organic growth, solid project execution and strong margins in our GS and T&C segments.

Q4 Fiscal 2017 Segment Business Results (All comparisons are fourth quarter 2017 versus fourth quarter 2016 unless otherwise noted.)

Government Services (GS) Results

GS revenue was $553 million, an increase of $34 million, or 7%, compared to the fourth quarter of 2016. The revenue increase was driven by organic growth and expansion of task orders on existing U.S. Government contracts and growth on existing program management projects in the U.K.

GS gross profit was $42 million (7.6% of revenues), a decrease of $1 million from fourth quarter 2016.Ê The fourth quarter of 2016 benefited from a non-recurring gain from an Iraqi tax benefit.

Equity in earnings of unconsolidated affiliates was $2 million, a decrease of $8 million from the prior year, with the variance attributed to a write down of a shareholder loan receivable from our joint venture partner, Carillion plc, in our Aspire joint venture in the U.K.

Technology & Consulting (T&C) Results

T&C's revenue was $90 million, an increase of $5 million, or 6%, compared to the fourth quarter of 2016.Ê The increase was due primarily to continued demand for our technologies and organic growth in consulting services for upstream projects.

T&C's gross profit was $28 million (31% of revenues), up $4 million from the fourth quarter of 2016, due to a favorable mix of technology fees and stronger consulting performance plus overall benefits of efficiency.

Engineering & Construction (E&C) Results

E&C's revenue was $293 million, a decrease of $237 million from the fourth quarter of 2016, primarily due to completion or near completion of several projects across the segment.

E&C's gross loss was $5 million (-1.7% of revenues), an improvement of $53 million compared to the fourth quarter of 2016.Ê The improvement from prior year can be attributed to solid project execution and losses associated with a downstream legacy lump-sum EPC project during the fourth quarter of 2016 that did not recur in 2017.Ê

The gross loss in the quarter was driven by labor and overhead utilization inefficiencies associated with the completion of several projects while new projects have not yet materialized.

Equity in earnings of unconsolidated affiliates was $6 million, an increase of $6 million from the prior year due to improved earnings on our industrial services joint venture in the Americas as well as our joint ventures in Europe.Ê These increases were partially offset by dilution on the Ichthys LNG joint venture, driven by increased estimates to complete resulting in lower progress for the quarter.Ê We expect the dilution in percentage completion will be recovered during 2018 and early 2019.

Non-strategic Business (NSB) Results

NSB revenue was $1 million, a decrease of $55 million from the prior year, primarily due to the completion of the execution phases of our EPC power projects as we exit this business.

NSB gross profit was $0 million, compared to a gross loss of $3 million in the fourth quarter of 2016, due to non-recurring cost increases on a power project in the fourth quarter of 2016.

Summary Fiscal 2017 Results (All comparisons fiscal 2017 versus fiscal 2016)

Revenues were $4.2 billion for 2017 compared to $4.3 billion for 2016. Excluding our NSB, revenues increased by $75 million to $4.1 billion.Ê The revenue increases were driven by full-year impact of acquisitions and growth within our GS segment, partially offset by completion or substantial completion on several projects in our E&C segment.Ê We have completed our last remaining EPC power project in the NSB segment.

Gross profit for 2017 improved to $342 million compared gross profit of $112 million in 2016.Ê The increase in gross profit was driven by growth within our GS and T&C segments, favorable settlement of PEMEX litigation and non-recurrence of unfavorable changes in project estimates and loss provisions in our E&C segment and in our NSB segment. Equity in earnings were $72 million compared to $91 million in the prior year.Ê Increased earnings in our U.K. joint ventures within our GS segment were offset with dilution on the Ichthys LNG joint venture due to increases in estimate at completion.Ê We expect the dilution in percentage completion will be recovered during 2018 and early 2019.

Net income attributable to KBR for 2017 was $434 million or $3.06 per diluted share compared to net loss of $(61) million or $(0.43) per diluted share in 2016.Ê Net income for 2017 includes a net tax benefit of $241 million, which reflects a reduction in our tax valuation allowance of $223 million and a revaluation of deferred tax liabilities to the new lower Federal tax rate.

Summary 2017 Segment Business Results (All comparisons are fiscal 2017 versus fiscal 2016)

Government Services (GS) Results

GS revenue was $2.2 billion in 2017, an increase of $834 million, or 61% compared to 2016.Ê This increase was primarily driven by the Wyle and HTSI acquisitions being included for the full year in 2017, and continued expansion under existing U.S. government services contracts. Partially offsetting the increase was a favorable settlement with the U.S. government regarding reimbursement of expensed legal fees related to the sodium dichromate case in 2016.

GS gross profit was $155 million (7.1% of revenues), an increase of $18 million compared to 2016.Ê This increase was primarily attributable to the same factors affecting revenues per above.Ê Partially offsetting the increase was a favorable settlement with the U.S. government regarding reimbursement of expensed legal fees related to the sodium dichromate case in 2016. Equity in earnings of unconsolidated affiliates was $43 million, an increase of $4 million, or 10% compared to 2016.Ê The increased activity in our Aspire U.K. joint venture and ramp up of the contract within our Affinity joint venture associated with the U.K. Military Flight Training School project was partially offset with a write down of a shareholder loan receivable from our joint venture partner, Carillion plc.

Technology & Consulting (T&C) Results

T&C's revenue was $326 million, a decrease of $21 million, or 6%, compared to 2016.Ê Increases in catalyst project revenues and consulting revenues were offset by decreases in proprietary equipment sales due to timing of project activity.

T&C's gross profit was $79 million (24.2% of revenues), up $6 million compared to 2016, driven by a favorable mix of license fees on new awards, stronger consulting performance and overall benefits of efficiency.

EngineeringÊ& Construction (E&C) Results

E&C's revenue was $1.6 billion, a decrease of $738 million, or 31%, compared to 2016, primarily due to completion or near completion of several projects across the segment.

E&C's gross profit was $108 million (6.7% of revenues), an improvement of $101 million compared to 2016.Ê The improvement from the prior year can be attributed to better project execution, a favorable settlement with PEMEX as well as the non-recurrence of unfavorable changes in estimates on two legacy lump-sum EPC projects that occurred in 2016.

Equity in earnings of unconsolidated affiliates was $29 million, a decrease of $23 million compared to 2016.Ê Increased earnings on our industrial services joint venture in the Americas as well as our joint ventures in Europe were offset by dilution on the Ichthys LNG joint venture. The dilution was driven by increased estimates to complete resulting in lower progress and is expected to be recovered during 2018 and early 2019.

Non-strategic Business (NSB) Results

NSB revenue was $38 million, a decrease of $172 million from 2016, primarily due to the completion of our EPC power projects as we exited this business.

NSB gross profit was $0 million, compared to a gross loss of $105 million in 2016, due to completion of projects as well as non-recurring cost increases on a power project in 2016.

Cash Flow and Liquidity

Cash flows generated from operating activities totaled $193 million for fiscal 2017, compared to $61 million in 2016.Ê Operating cash flows were favorably impacted by significantly improved overall profitability during the 2017.Ê Fiscal 2017 cash flows also benefited from the collection from the PEMEX settlement in Q2, which was offset by cash costs to complete several large projects which had benefited from advance payments from customers in earlier years.

Cash flows used in investing activities totaled $12 million for fiscal 2017, representing modest capital expenditures and minor M&A follow-on activity.

Cash flows used in financing activities totaled $290 million for fiscal 2017, reflecting $189 million used to reduce debt, $53 million used to buy back stock, and $45 million used for regular dividends.

Cash and equivalents at December 31, 2017 totaled $439 million.Ê As of December 31, 2017, our $1 billion revolving credit agreement had an outstanding balance of $470 million.

New Business Awards

Notable new awards:

Government ServicesWe were awarded task orders of $120 million to provide biomedical, medical and health services to NASA.Ê These task orders were awarded by NASA under the Human Health and Performance contract, under which we support all human spaceflight programs at the agency's Johnson Space Center in Houston, Texas.We were awarded a task order modification totaling $115 million to provide logistics support services to the U.S. Army.Ê The Army Contracting Command awarded this task order modification under the LogCap IV contract.

Technology and ConsultingWe were awarded both a license and engineering and a proprietary equipment supply contract by Cangzhou Dahua New Materials Co., Ltd. to build a new polycarbonate plant in Cangzhou City China.Ê Under the terms of the two contracts, KBR will provide its proprietary PCMAX technology, basic engineering design package and proprietary equipment supply for a 100,000 metric tonnes per annum single train plant in Cangzhou.We were awarded a contract from Indorama Eleme Fertilizer & Chemicals Limited and Toyo Engineering Corporation for the Train 2 ammonia plant at Indorama's Port Harcourt site in Nigeria. 

Under the terms of the contract, KBR will provide technology licensing, basic engineering design, proprietary equipment and catalyst for Indorama's planned second ammonia plant in Port Harcourt. We were awarded an ammonia plant revamp contract by Rashtriya Chemicals & Fertilizers Ltd (RCF).Ê KBR will provide a technology license and basic engineering design for the RCF ammonia plant at Trombay, Maharashtra, India. The existing plant will be revamped for energy savings to meet the new energy requirements in India.

Engineering and ConstructionWe were selected to carryout Pre-Notice to Proceed (Pre-NTP) services for the Woodfibre liquefied natural gas (LNG) Project. The selection of KBR for Pre-NTP services follows the successful completion of a competitive Front End Engineering Design process for the Woodfibre LNG Project. Woodfibre LNG expects to commence the EPC phase of the Project in 2018.We were awarded the Concept and FEED (front-end engineering design) contract by Statoil for their ground breaking Northern Lights Project, to develop an onshore carbon dioxide (CO2) - a known greenhouse gas - storage terminal in Norway.Ê The terminal is a key component of the Carbon Capture and Storage demonstration project being undertaken by Gassnova, where Statoil, in partnership with Shell and Total are responsible for transport and storage.Our joint venture, SOCAR-KBR Limited Liability Company has been awarded a FEED contract for the topsides of the Absheron Early Production Project. The platform will be located at SOCAR's Oil Rocks facility and will deliver gas and condensate into the SOCAR network.

Our joint venture, SOCAR-KBR LLC has been awarded two separate FEED contracts for a new Production, Drilling, Quarters platform - the Azeri Central East platform - to be located in the Azeri-Chirag-Gunashli (ACG) field in the Azerbaijan sector of the Caspian Sea. The joint venture will provide FEED services for the new platform in addition to brownfield tie-ins to other existing platforms in the ACG field.

KBR backlog increased by $0.3 billion to $10.6 billion as of DecemberÊ31, 2017 compared to $10.3 billion as of September 30, 2017, with backlog growth of $141 million in the T&C business segment and $172 million in the GS business segment more than offsetting declines from our E&C segment.

**2018 Guidance

Initial guidance for 2018 reflects 100% of the estimated profits from our Aspire Defence Joint Venture in the U.K. starting January 15, 2018, when we assumed operational management of the joint venture, as a result of the January 2018 insolvency of our partner, Carillion plc.Ê Guidance does not include effects from the acquisition of SGT, since that transaction has not yet closed.

The company initiates 2018 fully diluted adjusted earnings per share guidance with a range of $1.35 to $1.45 per share.Ê Our guidance of earnings per share is on an adjusted EPS basis, which excludes legacy legal costs for U.S. Government contracts. A reconciliation of GAAP EPS to adjusted EPS guidance is included at the end of this release. The legacy legal costs are estimated to be approximately $10 million or $0.07 per fully diluted share in 2018.Ê The estimated legacy legal costs do not assume any cost reimbursement from the U.S. Government that could occur in the future.

Operating cash flows for 2018 is estimated to range from $125 to $175 million. Our estimated effective tax rate for 2018 is estimated to range from 22% to 24%.Ê The passage of the new tax legislation had minimal impact on our effective tax rate.

KBR has commenced actions to complete a recapitalization plan to extend the tenor of our borrowing capacity, Êfinance the SGT acquisition, Êand provide for a limited amount of future loans to the Ichthys project joint venture. ÊKBR has secured a financing commitment of roughly $2 billion for this recapitalization from a major financial institution and expects to execute the financing components in the first half of 2018. ÊThe components are expected to include an unfunded revolver, a letter of credit facility, a term loan, a dedicated line for Ichthys, and potentially a modest amount of equity. The estimated debt rates and relevant costs of this recapitalization have been incorporated into our 2018 guidance.

 

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 industries. KBR employs approximately 34,000 people worldwide (including our joint ventures), with customers in more than 75 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

(1) See additional information at the end of this release regarding non-GAAP financial measures.

 

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 Private Securities Litigation Reform Act of 1995. 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.

These forward-looking statements represent KBR's expectations or beliefs concerning future events, and it is possible that the results described in this news release will not be achieved. KBR's most recently filed Annual Report on Form 10-K, any subsequent Form 10-Qs and 8-Ks, and other 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. Any forward looking statement speaks only as of the date on which it is made, and, 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
Investors@kbr.com

Media
Brenna Hapes
External Global Communications
713-753-3800
Mediarelations@kbr.com

 

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


Three Months Ended

December 31,

December 31,

2017

2016
Revenues:



Government Services
$
553


$
519

Technology & Consulting
90


85

Engineering & Construction
293


530

Subtotal
936


1,134

Non-strategic Business
1


56

Total revenues
$
937


$
1,190

Gross profit (loss):



Government Services
$
42


$
43

Technology & Consulting
28


24

Engineering & Construction
(5)


(58)

Subtotal
65


9

Non-strategic Business
-


(3)

Total gross profit