KBR, INC. HOUSTON, Aug. 2, 2017 /PRNewswire/ -- 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 second quarter 2017 financial results.
Consolidated revenue in the second quarter of 2017 was $1.1 billion compared to $1.0 billion in the second quarter of 2016. Net income attributable to KBR was $77 million or $0.54 per diluted share ($0.57 per diluted share excluding $4 million in pre-tax U.S. Government legacy legal fees) in the second quarter of 2017 compared to net income of $47 million or $0.32 per diluted share ($0.35 per diluted share excluding pre-tax U.S. Government legacy legal fees of $4 million) in the second quarter of 2016.
Revenue in the second quarter increased from the same period a year ago driven by the acquisitions in the Government Services segment and expansion of existing contracts with the U.S. Military. The revenue increases were partially offset by lower activity on various projects in our Engineering and Construction segment and the completion of the final EPC power project within our Non-strategic Business segment.
Net income attributable to KBR reflects good performance across all segments in addition to the $35 million gain associated with the PEMEX settlement recognized in the quarter.
KBR finalized and completed the settlement of the EPC 1 litigation with PEMEX Exploración y Producción (PEP). The settlement provided for a cash payment of $435 million for costs and fees owed for work on the construction project and dismissals of all litigation. Settlement of this matter was a driver to the positive cash performance in the quarter.
"We achieved strong earnings driven by good performance across all of our business segments, the expansion of existing military contracts, our Government Services acquisitions, and final settlement of a commercial dispute with PEMEX," said Stuart Bradie, President and Chief Executive Office of KBR, Inc. "Improving results in our E&C segment are the result of continued strong execution performance as well as progress made on our strategy to lessen reliance on large projects and focus on winning multiple smaller, more recurring and predictable services work."
"We continue to experience improved and more consistent profit momentum and cash generation as a result of our strategy to position KBR as a global leader in differentiated professional services and project delivery, positioning the company for strong long-term growth with less risk and increased financial flexibility. Our focus on cash has allowed us to strategically allocate capital this quarter," Bradie continued.
Segment Business Results (All comparisons are second quarter 2017 versus second quarter 2016 unless otherwise noted.)
Government Services (GS) Results
GS revenue was $543 million, an increase of $314 million compared to the second quarter of 2016. The increase was primarily due to the acquisitions of Wyle and HTSI (converted into KTS) in the third quarter of 2016, as well as continued expansion of task orders on existing U.S. Government contracts including LogCAP IV and other base operational support services (BOSS) contracts in support of the U.S. military.
GS gross profit was $37 million (6.8% of revenues), a decrease of $4 million from the second quarter of 2016, due to the non-recurring favorable $33 million settlement with the U.S. government related to the sodium dichromate case in the prior year. This decrease was partially offset by the contributions from the acquisitions discussed above and expansions of task orders on existing U.S. government contracts.
Equity in earnings of unconsolidated affiliates was $18 million, an increase of $8 million from the the prior year, due to favorable adjustments this quarter associated with the U.K. Ministry of Defense project and the U.K. Military Flying Training System (UKMFTS) project.
Technology & Consulting (T&C) Results
T&C revenue was $82 million, a decrease of $16 million compared to the second quarter of 2016, due primarily to a lower volume of proprietary equipment sales partially offset by higher license revenues and by new consulting contracts from upstream projects.
T&C gross profit was $17 million (20.7% of revenues), up $2 million from the second quarter of 2016, due to improved mix of licenses in the second quarter of 2017 and cost reductions implemented in 2016.
Engineering & Construction (E&C) Results
E&C revenue was $462 million, a decrease of $159 million from the second quarter of 2016, primarily due to reduced activity on several projects across the sector. These decreases were partially offset by projects ramping up from new awards in the second half of 2016, including a construction project in Canada.
E&C gross profit was $55 million (11.9% of revenues), an increase of $20 million compared to the second quarter of 2016. This was largely attributable to the favorable settlement of the PEMEX litigation resulting in $35 million of gross profits this quarter.
Equity in earnings of unconsolidated affiliates was $14 million, a decrease of $9 million from the prior year predominantly due to lower activity on an Australian joint venture as well as our offshore maintenance joint venture in Mexico.
Non-strategic Business (NSB) Results
NSB revenue was $7 million, a decrease of $54 million from the prior year, primarily due to completion of EPC power projects as we exit this business.
NSB gross loss was $1 million, improved by $16 million compared to the second quarter of 2016, as charges for cost increases for subcontractor productivity and delays in the second quarter of 2016 did not recur in 2017.
Cash Flow and Liquidity
Cash flow from operating activities was $325 million, an increase of $316 million compared to the second quarter of 2016. The increase was driven by the cash settlement with PEP and improved focus on working capital management. We received $435 million from PEP, of which $91 million was used to pay related Mexican income taxes, $180 million was used to repay a portion of the borrowings under our Credit Agreement, and $50 million was used to repurchase shares under our stock repurchase authorization. A portion of the remainder was used to fund working capital requirements for several EPC contracts nearing completion within our E&C and NSB business segments. Cash and equivalents at June 30, 2017 totaled $491 million, including $184 million of domestic U.S. cash. As of June 30, 2017, our $1 billion revolving credit agreement had an outstanding balance of $470 million.
New Business Awards
Notable new awards during the second quarter of 2017 included:
Government Services
-- We were awarded a three-year follow-on task order by the U.S. Army to
provide systems engineering and integration, project management support,
and Foreign Military Sales (FMS) for missile defense systems for the
Department of Defense (DoD). KBRwyle will assist in integrating the
PATRIOT Missile Defense system with the Missile Defense Agency's
Ballistic Missile Defense System and the Army's Integrated Air and
Missile Defense system.
-- We were awarded a three-year task order to provide programmatic support
to the U.S. Army's Program Executive Office (PEO) for Aviation. KBRwyle
will research, analyze, and develop deliverables for PEO Aviation's
Cargo Helicopter and Fixed Wing Project Management Offices and also
provide technical support for the Army's fixed wing aircraft and Chinook
Helicopter.
-- 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 Operator Training Simulator (OTS) and Reliability Based
Maintenance (RBM) services contracts by JSC EuroChem Northwest for their
ammonia plant under construction in Kingisepp, Russia. KBR will provide
turnkey delivery of the OTS and RBM solutions and services for the plant
using KBR's highly efficient Purifier Ammonia technology.
Engineering and Construction
-- We were awarded a Front-End Engineering Design (FEED) and project
management services contract for Oman Liquefied Natural Gas LLC (Oman
LNG) in Qalhat, Oman. Oman LNG operates three liquefaction trains with
total nameplate capacity of 10.4 million tonnes per annum (mtpa).
-- We were awarded a program alliance contract by the Victorian Government
for railroad crossing removal projects in Victoria, Australia. KBR will
remove two railroad crossings in an integrated alliance with John
Holland, Metro Trains and the Level Crossing Removal Authority. KBR will
be providing engineering and design services for the crossing removals
and associated works.
KBR backlog decreased from $10.6 billion as of March 31, 2017 to $10.3 billion as of June 30, 2017, with project work-off exceeding new awards/adjustments in our E&C and T&C business segments. Backlog in the GS business segment increased $180 million from March 31, 2017.
Outlook
We are increasing the company's full year 2017 fully diluted adjusted earnings per share guidance to a range of $1.25 to $1.45 per share from the previous range of $1.10 to $1.40. Our guidance of earnings per share is on an adjusted EPS basis, which excludes legacy legal costs for U.S. Government contracts. These costs are estimated to be approximately $9 million, or $0.07 per fully diluted share in 2017. The estimated legacy legal costs do not assume any cost reimbursement from the U.S. Government that could occur in the future. Our estimated effective tax rate for 2017 is estimated to be from 23% to 25%. Our expected EBITDA range for 2017, which is on the same basis as the EPS guidance, is $300-$350 million. Our guidance for operating cash flows is increased to a range of $120 million to $200 million for 2017, up from previous guidance of $100 million to $200 million.
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.
KBR, Inc.: Consolidated Statements of Operations
(In millions, except for per share data)
(Unaudited)
Three Months Ended
June 30, June 30,
2017 2016
---- ----
Revenues:
Government Services $543 $229
Technology & Consulting 82 98
Engineering & Construction 462 621
--- ---
Subtotal 1,087 948
Non-strategic Business 7 61
---
Total revenues 1,094 1,009
----- -----
Gross profit (loss):
Government Services 37 41
Technology & Consulting 17 15
Engineering & Construction 55 35
--- ---
Subtotal 109 91
Non-strategic Business (1) (17)
---
Total gross profit 108 74
--- ---
Equity in earnings of unconsolidated affiliates:
Government Services 18 10
Technology & Consulting - -
Engineering & Construction 14 23
--- ---
Subtotal 32 33
Non-strategic Business - -
---
Total equity in earnings of unconsolidated affiliates 32 33
--- ---
General and administrative expenses (38) (34)
Asset impairment and restructuring charges - (12)
Gain on disposition of assets 1 2
---
Operating income 103 63
Interest expense (5) (2)
Other non-operating income 2 9
---
Income before income taxes and noncontrolling interests 100 70
Provision for income taxes (21) (23)
---
Net income 79 47
Net income attributable to noncontrolling interests (2) -
=== ===
Net income attributable to KBR $77 $47
=== ===
Net income attributable to KBR per share:
Basic $0.54 $0.32
Diluted $0.54 $0.32
Basic weighted average common shares outstanding 141 142
Diluted weighted average common shares outstanding 141 142
Cash dividends declared per share $0.08 $0.08
KBR, Inc.: Consolidated Statements of Operations
(In millions, except for per share data)
(Unaudited)
Six Months Ended
June 30, June 30,
2017 2016
---- ----
Revenues:
Government Services $1,058 $439
Technology & Consulting 158 195
Engineering & Construction 951 1,227
--- -----
Subtotal 2,167 1,861
Non-strategic Business 33 144
Total revenues 2,200 2,005
----- -----
Gross profit (loss):
Government Services 74 62
Technology & Consulting 31 32
Engineering & Construction 88 64
--- ---
Subtotal 193 158
Non-strategic Business (3) (16)
--- ---
Total gross profit 190 142
--- ---
Equity in earnings of unconsolidated affiliates:
Government Services 27 21
Technology & Consulting - -
Engineering & Construction 14 41
--- ---
Subtotal 41 62
Non-strategic Business - -
--- ---
Total equity in earnings of unconsolidated affiliates 41 62
--- ---
General and administrative expenses (70) (68)
Asset impairment and restructuring charges - (14)
Gain on disposition of assets 5 6
--- ---
Operating income 166 128
Interest expense (10) (4)
Other non-operating income (expense) (5) 6
--- ---
Income before income taxes and noncontrolling interests 151 130
Provision for income taxes (34) (38)
--- ---
Net income 117 92
Net income attributable to noncontrolling interests (3) (3)
=== ===
Net income attributable to KBR $114 $89
==== ===
Net income attributable to KBR per share:
Basic $0.80 $0.62
Diluted $0.80 $0.62
Basic weighted average common shares outstanding 142 142
Diluted weighted average common shares outstanding 142 142
Cash dividends declared per share $0.16 $0.16
KBR, Inc.: Consolidated Balance Sheets
(In millions)
June 30, December 31,
2017 2016
---- ----
(Unaudited)
Assets
Current assets:
Cash and equivalents $491 $536
Accounts receivable, net
of allowance for
doubtful accounts of
$14 and $14 527 592
Costs and estimated
earnings in excess of
billings on uncompleted
contracts 380 416
Claims receivable - 400
Other current assets 97 103
--- ---
Total current assets 1,495 2,047
Claims and accounts
receivable 114 131
Property, plant, and
equipment, net of
accumulated
depreciation of $324
and $324 (including net
PPE of $35 and $36
owned by a variable
interest entity) 139 145
Goodwill 961 959
Intangible assets, net
of accumulated
amortization of $114
and $100 240 248
Equity in and advances
to unconsolidated
affiliates 386 369
Deferred income taxes 121 118
Other assets 125 127
--- ---
Total assets $3,581 $4,144
====== ======
Liabilities and
Shareholders' Equity
Current liabilities:
Accounts payable $412 $535
Billings in excess of
costs and estimated
earnings on uncompleted
contracts 392 552
Accrued salaries, wages
and benefits 173 171
Nonrecourse project debt 9 9
Other current
liabilities 213 292
--- ---
Total current
liabilities 1,199 1,559
Pension obligations 468 526
Employee compensation
and benefits 168 113
Income tax payable 80 78
Deferred income taxes 59 149
Nonrecourse project debt 31 34
Revolving credit
agreement 470 650
Deferred income from
unconsolidated
affiliates 98 90
Other liabilities 197 200
--- ---
Total liabilities 2,770 3,399
===== =====
KBR shareholders'
equity:
Preferred stock - -
Common stock - -
Paid-in capital in
excess of par 2,093 2,088
Accumulated other
comprehensive loss (1,030) (1,050)
Retained earnings 580 488
Treasury stock (820) (769)
---- ----
Total KBR shareholders'
equity 823 757
Noncontrolling interests (12) (12)
--- ---
Total shareholders'
equity 811 745
--- ---
Total liabilities and
shareholders' equity $3,581 $4,144
====== ======
KBR, Inc.: Consolidated Statements of Cash Flows
(In millions)
(Unaudited)
Three Months Ended
June 30, June 30,
2017 2016
---- ----
Cash flows provided by operating
activities:
Net income $79 $47
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and
amortization 14 10
Equity in earnings of
unconsolidated
affiliates (32) (33)
Deferred income tax
(benefit) expense (90) 5
Other 5 (8)
Changes in operating assets and
liabilities:
Accounts receivable,
net of allowance for
doubtful accounts 32 (29)
Costs and estimated
earnings in excess of
billings on
uncompleted contracts 37 (33)
Claims receivable 400 -
Accounts payable (51) 41
Billings in excess of
costs and estimated
earnings on
uncompleted contracts (43) 44
Accrued salaries,
wages and benefits (14) 9
Reserve for loss on
uncompleted contracts (13) (7)
Payments from
unconsolidated
affiliates, net 4 -
Distributions of
earnings from
unconsolidated
affiliates 16 8
Income taxes payable (11) (11)
Pension funding (9) (11)
Net settlement of
derivative contracts 3 1
Other assets and
liabilities (2) (24)
--- ---
Total cash flows
provided by operating
activities 325 9
--- ---
Cash flows used in investing
activities:
Purchases of property,
plant and equipment (3) (3)
Proceeds from sale of
assets or investments 2 1
Other (1) -
--- ---
Total cash flows used
in investing
activities (2) (2)
--- ---
Cash flows used in financing
activities:
Payments to reacquire
common stock (50) -
Distributions to
noncontrolling
interests - (3)
Payments of dividends
to shareholders (11) (12)
Payments on revolving
credit agreement (180) -
Payments on short-
term and long-term
borrowings (5) (5)
Total cash flows used
in financing
activities (246) (20)
---- ---
Effect of exchange
rate changes on cash 4 (7)
--- ---
Increase (decrease) in
cash and equivalents 81 (20)
Cash and equivalents
at beginning of
period 410 824
Cash and equivalents
at end of period $491 $804
==== ====
KBR, Inc.: Consolidated Statements of Cash Flows
(In millions)
(Unaudited)
Six Months Ended
June 30, June 30,
2017 2016
---- ----
Cash flows provided by (used in)
operating activities:
Net income $117 $92
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and
amortization 27 19
Equity in earnings of
unconsolidated
affiliates (41) (62)
Deferred income tax
(benefit) expense (85) 7
Other 11 -
Changes in operating assets and
liabilities:
Accounts receivable,
net of allowance for
doubtful accounts 70 25
Costs and estimated
earnings in excess of
billings on
uncompleted contracts 41 (28)
Claims receivable 400 -
Accounts payable (126) 32
Billings in excess of
costs and estimated
earnings on
uncompleted contracts (167) (2)
Accrued salaries,
wages and benefits 2 (11)
Reserve for loss on
uncompleted contracts (35) (23)
Payments from
(advances to)
unconsolidated
affiliates, net 5 (8)
Distributions of
earnings from
unconsolidated
affiliates 30 28
Income taxes payable (5) (10)
Pension funding (18) (21)
Net settlement of
derivative contracts 1 (3)
Other assets and
liabilities (17) (47)
Total cash flows
provided by (used in)
operating activities 210 (12)
--- ---
Cash flows used in investing
activities:
Purchases of property,
plant and equipment (6) (6)
Proceeds from sale of
assets or investments 2 1
Acquisition of
businesses, net of
cash acquired 2 (22)
Other (1) -
Total cash flows used
in investing
activities (3) (27)
--- ---
Cash flows used in financing
activities:
Payments to reacquire
common stock (52) (2)
Distributions to
noncontrolling
interests (1) (9)
Payments of dividends
to shareholders (23) (23)
Excess tax benefits
from share-based
compensation - 1
Payments on revolving
credit agreement (180) -
Payments on short-
term and long-term
borrowings (5) (5)
Total cash flows used
in financing
activities (261) (38)
---- ---
Effect of exchange
rate changes on cash 9 (2)
--- ---
Decrease in cash and
equivalents (45) (79)
Cash and equivalents
at beginning of
period 536 883
Cash and equivalents
at end of period $491 $804
==== ====
KBR, Inc.: Backlog Information (a)
(In millions)
(Unaudited)
June 30, March 31, December 31,
2017 2017 2016
---- ---- ----
Government
Services $7,891 $7,711 $7,821
Technology &
Consulting 292 333 313
Engineering &
Construction 2,134 2,537 2,769
----- ----- -----
Subtotal 10,317 10,581 10,903
Non-strategic
Business 7 14 35
Total backlog $10,324 $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 June 30,
2017 and 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 $139 million at
June 30, 2017 and $151 million at
December 31, 2016.
We estimate that as of June 30, 2017,
35% of our backlog will be executed
within one year. Of this amount, 58%
will be recognized in revenues on
our condensed consolidated statement
of operations and 42% will be
recorded by our unconsolidated joint
ventures. As of June 30, 2017, $125
million of our backlog relates to
active contracts that are in a loss
position.
As of June 30, 2017, 14% of our
backlog was attributable to fixed-
price contracts, 60% was
attributable to PFIs, and 26% 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 June
30, 2017, $7.2 billion of our GS
backlog was currently funded by our
customers.
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SOURCE KBR, Inc.
