KBR, INC. HOUSTON, April 28, 2017 /PRNewswire/ --
-- 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
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. 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.
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. 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 in Australia (Ichthys), which is timing related. Gross profit improved to $82 million from $68 million in the prior year quarter, at 7.4% of revenues. This improvement was driven by improved project execution in the E&C segment. 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.
In April 2017, we settled our decade long dispute over an almost half billion judgment pertaining to the EPC 1 construction project executed for PEMEX Exploración y Producción (PEP). Under the settlement, we have been paid $435 million for costs and fees owed for our work on the construction project. 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. The completion of this project marks KBR's exit from the fixed price EPC power business in the United States and achieves another milestone in our corporate strategy to exit this non-strategic business. 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. 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. Integration of Wyle and KTS into KBR is progressing to plan and both are performing in line with expectations. 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. The majority of the equity in earnings for the Government Services segment comes from joint ventures serving two programs which support the United Kingdom government -- the U.K. Military Flying Training System (UKMFTS) program and the Army 2020 rebasing program. 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. 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. Gross profit margin remained flat at approximately 18% in each quarter. 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. Backlog across the T&C grew in the quarter. 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.
Engineering & 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. These decreases were partially offset by projects ramping up from new awards in 2016, including a construction project in Canada.
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 year 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. 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. The final fixed-price EPC power project in the U.S. reached substantial completion during the first quarter of 2017. 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 prior year. 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. Cash and equivalents at March 31, 2017 totaled $410 million, including $224 million of domestic U.S. cash. As of March 31, 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 Services
-- We 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 in Greenbelt, Maryland.
Technology and Consulting
-- We were awarded a revamp contract by Mangalore Chemicals and Fertilizers
LTD for its ammonia plant in India. Under the terms of the contract, KBR
will provide its ammonia technology to enhance the energy efficiency of
the plant.
-- We were awarded a technology licensing and basic engineering design
contracts by LG Chem for its ethylene plant in South 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 SCORE(TM) 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 Construction
-- We 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. 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 December 31, 2016 to $10.6 billion as of March 31, 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. The company reiterates its full year 2017 fully diluted adjusted earnings per share guidance of between $1.10 and $1.40 per share. However, with the resolution of the PEMEX settlement, we project earnings per share to be above mid-point in the range. 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. The estimated legacy legal fees do not assume any cost reimbursement from the U.S. Government that could occur in the future. Our estimated effective tax rate for 2017 will range from 25% to 27%. Our expected EBITDA range for 2017, which is on the same basis as the EPS guidance, is $300-$350 million. 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 logistics
-- Technology & 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 consulting
-- Engineering & 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
Investors@kbr.com
Media
Marit Babin Stout
Vice President, Global Communications & Government Relations
713-753-3800
Mediarelations@kbr.com
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 $0.30
Diluted $0.26 $0.30
Basic weighted average common shares outstanding 143 142
Diluted weighted average common shares outstanding 143 142
Cash dividends declared per share $0.08 $0.08
KBR, Inc.: Consolidated Balance Sheets
(In millions)
March 31, December 31,
2017 2016
---- ----
(Unaudited)
Assets
Current assets:
Cash and equivalents $410 $536
Accounts receivable,
net of allowance for
doubtful accounts of
$9 and $14 562 592
Costs and estimated
earnings in excess of
billings on
uncompleted contracts 414 416
Claims receivable 400 400
Other current assets 95 103
--- ---
Total current assets 1,881 2,047
Claims and accounts
receivable 122 131
Property, plant, and
equipment, net of
accumulated
depreciation of $315
and $324 (including
net PPE of $35 and $36
owned by a variable
interest entity) 143 145
Goodwill 959 959
Intangible assets, net
of accumulated
amortization of $107
and $100 242 248
Equity in and advances
to unconsolidated
affiliates 369 369
Deferred income taxes 119 118
Other assets 127 127
--- ---
Total assets $3,962 $4,144
====== ======
Liabilities and
Shareholders' Equity
Current liabilities:
Accounts payable $462 $535
Billings in excess of
costs and estimated
earnings on
uncompleted contracts 433 552
Accrued salaries, wages
and benefits 187 171
Nonrecourse project
debt 9 9
Other current
liabilities 252 292
--- ---
Total current
liabilities 1,343 1,559
Pension obligations 518 526
Employee compensation
and benefits 106 113
Income tax payable 79 78
Deferred income taxes 150 149
Nonrecourse project
debt 35 34
Revolving credit
agreement 650 650
Deferred income from
unconsolidated
affiliates 90 90
Other liabilities 200 200
--- ---
Total liabilities 3,171 3,399
===== =====
KBR shareholders'
equity:
Preferred stock - -
Common stock - -
Paid-in capital in
excess of par 2,090 2,088
Accumulated other
comprehensive loss (1,030) (1,050)
Retained earnings 513 488
Treasury stock (770) (769)
---- ----
Total KBR shareholders'
equity 803 757
Noncontrolling
interests (12) (12)
--- ---
Total shareholders'
equity 791 745
--- ---
Total liabilities and
shareholders' equity $3,962 $4,144
====== ======
KBR, Inc.: Consolidated Statements of Cash Flows
(In millions)
(Unaudited)
Three Months Ended
March 31, March 31,
2017 2016
---- ----
Cash flows used in operating
activities:
Net income $38 $45
Adjustments to reconcile net
income to net cash used in
operating activities:
Depreciation and
amortization 13 9
Equity in earnings
of unconsolidated
affiliates (9) (29)
Deferred income tax
expense 5 2
Other 6 8
Changes in operating assets
and liabilities:
Accounts receivable,
net of allowance
for doubtful
accounts 38 54
Costs and estimated
earnings in excess
of billings on
uncompleted
contracts 4 5
Accounts payable (75) (9)
Billings in excess
of costs and
estimated earnings
on uncompleted
contracts (124) (46)
Accrued salaries,
wages and benefits 16 (20)
Reserve for loss on
uncompleted
contracts (22) (16)
Payments from
(advances to)
unconsolidated
affiliates, net 1 (8)
Distributions of
earnings from
unconsolidated
affiliates 14 20
Income taxes payable 6 1
Pension funding (9) (10)
Net settlement of
derivative
contracts (2) (4)
Other assets and
liabilities (15) (23)
--- ---
Total cash flows
used in operating
activities (115) (21)
---- ---
Cash flows used in investing
activities:
Purchases of
property, plant and
equipment (3) (3)
Acquisition of
businesses, net of
cash acquired 2 (22)
Total cash flows
used in investing
activities (1) (25)
--- ---
Cash flows used in financing
activities:
Payments to
reacquire common
stock (2) (2)
Distributions to
noncontrolling
interests (1) (6)
Payments of
dividends to
shareholders (12) (11)
Excess tax benefits
from share-based
compensation - 1
Total cash flows
used in financing
activities (15) (18)
--- ---
Effect of exchange
rate changes on
cash 5 5
Decrease in cash and
equivalents (126) (59)
---- ---
Cash and equivalents
at beginning of
period 536 883
Cash and equivalents
at end of period $410 $824
==== ====
KBR, Inc.: Backlog Information (a)
(In millions)
(Unaudited)
March 31, December 31,
2017 2016
---- ----
Government Services $7,711 $7,821
Technology & Consulting 333 313
Engineering &
Construction 2,537 2,769
----- -----
Subtotal 10,581 10,903
Non-strategic Business 14 35
Total backlog $10,595 $10,938
======= =======
(a) Backlog generally represents the
dollar amount of revenues we expect
to realize in the future as a result
of performing work on contracts and
our pro-rata share of work to be
performed by unconsolidated joint
ventures. We generally include total
expected revenues in backlog when a
contract is awarded under a legally
binding agreement. In many
instances, arrangements included in
backlog are complex, nonrepetitive
and may fluctuate due to the release
of contracted work in phases by the
customer. Additionally, nearly all
contracts allow customers to
terminate the agreement at any time
for convenience. Where contract
duration is indefinite and clients
can terminate for convenience
without having to compensate us for
periods beyond the date of
termination, projects included in
backlog are limited to the estimated
amount of expected revenues within
the following twelve months. Certain
contracts provide maximum dollar
limits, with actual authorization to
perform work under the contract
agreed upon on a periodic basis with
the customer. In these arrangements,
only the amounts authorized are
included in backlog. For projects
where we act solely in a project
management capacity, we only include
the value of our services on each
project in backlog.
Within our GS business segment, we
calculate estimated backlog for
long-term contracts associated with
the U.K. government's privately
financed initiatives or projects
("PFIs") based on the aggregate
amount that our client would
contractually be obligated to pay us
over the life of the project. We
update our estimates of the future
work to be executed under these
contracts on a quarterly basis and
adjust backlog if necessary.
We have included in the table above
our proportionate share of
unconsolidated joint ventures'
estimated revenues. Since these
projects are accounted for under the
equity method, only our share of
future earnings from these projects
will be recorded in our results of
operations. Our proportionate share
of backlog for projects related to
unconsolidated joint ventures
totaled $7.4 billion at March 31,
2017 and $7.4 billion at December
31, 2016. We consolidate joint
ventures which are majority-owned
and controlled or are variable
interest entities ("VIEs") in which
we are the primary beneficiary. Our
backlog included in the table above
for projects related to consolidated
joint ventures with noncontrolling
interest includes 100% of the
backlog associated with those joint
ventures and totaled $147 million at
March 31, 2017 and $151 million at
December 31, 2016.
We estimate that as of March 31,
2017, 36% of our backlog will be
executed within one year. Of this
amount, 59% will be recognized in
revenues on our condensed
consolidated statement of operations
and 41% will be recorded by our
unconsolidated joint ventures. As of
March 31, 2017, $176 million of our
backlog relates to active contracts
that are in a loss position.
As of March 31, 2017, 13% of our
backlog was attributable to fixed-
price contracts, 57% was
attributable to PFIs, and 30% of our
backlog was attributable to cost-
reimbursable contracts. For
contracts that contain both fixed-
price and cost-reimbursable
components, we classify the
individual components as either
fixed-price or cost-reimbursable
according to the composition of the
contract; however, for smaller
contracts, we characterize the
entire contract based on the
predominant component. As of March
31, 2017, $7.1 billion of our GS
backlog was currently funded by our
customers.
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SOURCE KBR, Inc.
