KBR Announces Financial Results for Fourth Quarter and Fiscal 2017; Guidance for Fiscal 2018
HOUSTON, Feb. 23, 2018 /PRNewswire/ -- 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. "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. 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. 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. 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. 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. The 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. Consistent project delivery across all segments and strong margin performance in our T&C segment were key contributors in the quarter. Equity in earnings were $8 million compared to $10 million in the prior year. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. This increase was primarily attributable to the same factors affecting revenues per above. 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. 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. 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.
Engineering & 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. 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. 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. Operating cash flows were favorably impacted by significantly improved overall profitability during the 2017. 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. 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 Services
-- We were awarded task orders of $120 million to provide biomedical,
medical and health services to NASA. 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. The Army
Contracting Command awarded this task order modification under the
LogCap IV contract.
Technology and Consulting
-- We 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. 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). 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 Construction
-- We 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. 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 December 31, 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. 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. 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. 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%. 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, finance the SGT acquisition, and provide for a limited amount of future loans to the Ichthys project joint venture. KBR 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. The 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.
((1) )See additional information at the end of this release regarding non-GAAP financial measures.
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 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 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.
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 $65 $6
--- ---
Equity in earnings of unconsolidated affiliates:
Government Services $2 $10
Technology & Consulting - -
Engineering & Construction 6 -
--- ---
Subtotal 8 10
Non-strategic Business - -
---
Total equity in earnings of unconsolidated affiliates $8 $10
--- ---
General and administrative expenses (40) (32)
Asset impairment and restructuring charges (6) (18)
Gain on disposition of assets - 1
---
Operating income (loss) $27 $(33)
Interest expense (5) (6)
Other non-operating income 13 10
---
Income (loss) before income taxes and noncontrolling interests $35 $(29)
Benefit (provision) for income taxes 243 (57)
---
Net income (loss) $278 $(86)
Net income attributable to noncontrolling interests (3) (1)
=== ===
Net income (loss) attributable to KBR $275 $(87)
==== ====
Net income (loss) attributable to KBR per share:
Basic $1.94 $(0.61)
Diluted $1.94 $(0.61)
Basic weighted average common shares outstanding 140 142
Diluted weighted average common shares outstanding 140 142
Cash dividends declared per share $0.08 $0.08
KBR, Inc.: Consolidated Statements of Operations
(In millions, except for per share data)
Twelve Months Ended
December 31, December 31, December 31,
2017 2016 2015
---- ---- ----
Revenues:
Government Services $2,193 $1,359 $663
Technology & Consulting 326 347 324
Engineering & Construction 1,614 2,352 3,454
----- ----- -----
Subtotal 4,133 4,058 4,441
Non-strategic Business 38 210 655
--- ---
Total revenues $4,171 $4,268 $5,096
------ ------ ------
Gross profit (loss):
Government Services $155 $137 $(3)
Technology & Consulting 79 73 77
Engineering & Construction 108 7 224
--- --- ---
Subtotal 342 217 298
Non-strategic Business - (105) 27
--- ---- ---
Total gross profit $342 $112 $325
---- ---- ----
Equity in earnings of unconsolidated affiliates:
Government Services $43 $39 $45
Technology & Consulting - - -
Engineering & Construction 29 52 104
--- --- ---
Subtotal 72 91 149
Non-strategic Business - - -
--- --- ---
Total equity in earnings of unconsolidated affiliates $72 $91 $149
--- --- ----
General and administrative expenses (147) (143) (155)
Asset impairment and restructuring charges (6) (39) (70)
Gain on disposition of assets 5 7 61
--- --- ---
Operating income $266 $28 $310
Interest expense (21) (13) (11)
Other non-operating income 4 18 13
--- --- ---
Income before income taxes and noncontrolling interests $249 $33 $312
Benefit (provision) for income taxes 193 (84) (86)
--- --- ---
Net income (loss) $442 $(51) $226
Net income attributable to noncontrolling interests (8) (10) (23)
=== === ===
Net income (loss) attributable to KBR $434 $(61) $203
==== ==== ====
Net income (loss) attributable to KBR per share:
Basic $3.06 $(0.43) $1.40
Diluted $3.06 $(0.43) $1.40
Basic weighted average common shares outstanding 141 142 144
Diluted weighted average common shares outstanding 141 142 144
Cash dividends declared per share $0.32 $0.32 $0.32
KBR, Inc.: Consolidated Balance Sheets
(In millions)
December 31, December 31,
2017 2016
---- ----
Assets
Current assets:
Cash and equivalents $439 $536
Accounts receivable, net of
allowance for doubtful
accounts of $12 and $14 510 592
Costs and estimated earnings in
excess of billings on
uncompleted contracts ("CIE") 383 416
Claims receivable - 400
Other current assets 93 103
--- ---
Total current assets 1,425 2,047
Claims and accounts receivable 101 131
Property, plant, and equipment,
net of accumulated
depreciation of $329 and $324
(including net PPE of $34 and
$36 owned by a variable
interest entity) 130 145
Goodwill 968 959
Intangible assets, net of
accumulated amortization of
$122 and $100 239 248
Equity in and advances to
unconsolidated affiliates 387 369
Deferred income taxes 300 118
Other assets 124 127
--- ---
Total assets $3,674 $4,144
====== ======
Liabilities and Shareholders'
Equity
Current liabilities:
Accounts payable $350 $535
Billings in excess of costs and
estimated earnings on
uncompleted contracts ("BIE") 368 552
Accrued salaries, wages and
benefits 186 171
Nonrecourse project debt 10 9
Other current liabilities 157 292
--- ---
Total current liabilities 1,071 1,559
Pension obligations 391 526
Employee compensation and
benefits 118 113
Income tax payable 85 78
Deferred income taxes 18 149
Nonrecourse project debt 28 34
Revolving credit agreement 470 650
Deferred income from
unconsolidated affiliates 101 90
Other liabilities 171 200
--- ---
Total liabilities 2,453 3,399
===== =====
KBR shareholders' equity:
Preferred stock - -
Common stock - -
Paid-in capital in excess of
par ("PIC") 2,091 2,088
Accumulated other comprehensive
loss ("AOCL") (921) (1,050)
Retained earnings 877 488
Treasury stock (818) (769)
---- ----
Total KBR shareholders' equity 1,229 757
Noncontrolling interests
("NCI") (8) (12)
--- ---
Total shareholders' equity 1,221 745
----- ---
Total liabilities and
shareholders' equity $3,674 $4,144
====== ======
KBR, Inc.: Consolidated Statements of Cash Flows
(In millions)
Twelve Months Ended
December 31, December 31,
2017 2016
---- ----
Cash flows from operating
activities:
Net income
(loss) $442 $(51)
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation
and
amortization 48 45
Equity in
earnings of
unconsolidated
affiliates (72) (91)
Deferred income
tax (benefit)
expense (322) 18
Gain on
disposition of
assets (5) (7)
Asset
impairment - 16
Other 29 3
Changes in operating assets
and liabilities, net of
acquired businesses:
Accounts
receivable,
net of
allowance for
doubtful
accounts 92 121
Costs and
estimated
earnings in
excess of
billings on
uncompleted
contracts 40 8
Claims
receivable 400 -
Accounts
payable (193) (6)
Billings in
excess of
costs and
estimated
earnings on
uncompleted
contracts (198) 33
Accrued
salaries,
wages and
benefits 14 (50)
Reserve for
loss on
uncompleted
contracts (48) (5)
Payments from
(advances to)
unconsolidated
affiliates,
net 11 (1)
Distributions
of earnings
from
unconsolidated
affiliates 62 56
Income taxes
payable - (52)
Pension funding (37) (41)
Retainage
payable (16) (2)
Subcontractor
advances - 8
Net settlement
of derivative
contracts 3 (9)
Other assets
and
liabilities (57) 68
--- ---
Total cash
flows provided
by operating
activities 193 61
=== ===
Cash flows from investing
activities:
Purchases of
property,
plant and
equipment (8) (11)
Payments for
investments in
equity method
joint ventures - (61)
Proceeds from
sale of assets
or investments 2 2
Acquisition of
businesses,
net of cash
acquired (4) (911)
Other (2) -
--- ---
Total cash
flows used in
investing
activities (12) (981)
=== ====
Cash flows from financing
activities:
Payments to
reacquire
common stock (53) (4)
Investments
from
noncontrolling
interests 1 -
Distributions
to
noncontrolling
interests (4) (9)
Payments of
dividends to
shareholders (45) (46)
Excess tax
benefits from
share-based
compensation - 1
Borrowings on
revolving
credit
agreement - 700
Payments on
revolving
credit
agreement (180) (50)
Payments on
short-term
and long-term
borrowings (9) (9)
Other - 1
---
Total cash
flows (used
in) provided
by financing
activities (290) 584
==== ===
Effect of
exchange rate
changes on
cash 12 (11)
--- ---
Decrease in
cash and
equivalents (97) (347)
Cash and
equivalents at
beginning of
period 536 883
---
Cash and
equivalents at
end of period $439 $536
==== ====
KBR, Inc.: Consolidated Statements of Cash Flows
(In millions)
(Unaudited)
Three Months Ended
December 31, December 31,
2017 2016
---- ----
Cash flows from operating
activities:
Net income
(loss) $278 $(86)
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and
amortization 10 14
Equity in
earnings of
unconsolidated
affiliates (8) (10)
Deferred income
tax (benefit)
expense (247) 11
Gain on
disposition of
assets - (1)
Asset impairment - 11
Other 4 (2)
Changes in operating assets and
liabilities, net of acquired
businesses:
Accounts
receivable, net
of allowance
for doubtful
accounts (8) 112
Costs and
estimated
earnings in
excess of
billings on
uncompleted
contracts 29 (17)
Accounts payable (49) (45)
Billings in
excess of costs
and estimated
earnings on
uncompleted
contracts 9 19
Accrued
salaries, wages
and benefits (25) (31)
Reserve for loss
on uncompleted
contracts (5) 10
Payments from
unconsolidated
affiliates, net 5 2
Distributions of
earnings from
unconsolidated
affiliates 21 13
Income taxes
payable 7 (33)
Pension funding (9) (10)
Retainage
payable (6) 1
Subcontractor
advances 1 1
Net settlement
of derivative
contracts (1) (1)
Other assets and
liabilities (51) 95
--- ---
Total cash flows
(used in)
provided by
operating
activities (45) 53
=== ===
Cash flows from investing
activities:
Purchases of
property, plant
and equipment (2) (3)
Payments for
investments in
equity method
joint ventures - (56)
Acquisition of
businesses, net
of cash
acquired (6) -
Total cash flows
used in
investing
activities (8) (59)
=== ===
Cash flows from financing
activities:
Payments to
reacquire
common stock (1) (2)
Investments from
noncontrolling
interests 1 -
Distributions to
noncontrolling
interests (3) -
Payments of
dividends to
shareholders (11) (12)
Excess tax
benefits from
share-based
compensation - 1
Payments on
short-term and
long-term
borrowings (4) (4)
Other - 1
Total cash flows
used in
financing
activities (18) (16)
=== ===
Effect of
exchange rate
changes on cash (1) (11)
--- ---
Decrease in cash
and equivalents (72) (33)
Cash and
equivalents at
beginning of
period 511 569
Cash and
equivalents at
end of period $439 $536
==== ====
KBR, Inc.: Backlog Information (a)
(In millions)
December 31, September 30, December 31,
2017 2017 2016
---- ---- ----
(Unaudited)
Government
Services $8,355 $8,183 $7,821
Technology &
Consulting 419 278 313
Engineering &
Construction 1,790 1,874 2,769
----- ----- -----
Subtotal 10,564 10,335 10,903
Non-strategic
Business 6 7 35
---
Total backlog $10,570 $10,342 $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 or due to
movements in foreign exchange rates.
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
compensating us for periods beyond the
date of termination, backlog is 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 expected value of our
services in backlog.
We define backlog, as it relates to U.S.
government contracts, as our estimate of
the remaining future revenue from
existing signed contracts over the
remaining base contract performance
period (including customer approved
option periods) for which work scope and
price have been agreed with the customer.
We define funded backlog as the portion
of backlog for which funding currently is
appropriated, less the amount of revenue
we have previously recognized. We define
unfunded backlog as the total backlog
less the funded backlog. Our GS backlog
does not include any estimate of future
potential delivery orders that might be
awarded under our government-wide
acquisition contracts, agency-specific
indefinite delivery/indefinite quantity
contracts, or other multiple-award
contract vehicles nor does it include
option periods that have not been
exercised by the customer.
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 $7.2 billion at December
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 $125 million at December 31, 2017
and $151 million at December 31, 2016.
We estimate that as of December 31, 2017,
34% of our backlog will be executed
within one year. Of this amount, 60% will
be recognized in revenues on our
condensed consolidated statement of
operations and 40% will be recorded by
our unconsolidated joint ventures. As of
December 31, 2017, $92 million of our
backlog relates to active contracts that
are in a loss position.
As of December 31, 2017, 10% of our
backlog was attributable to fixed-price
contracts, 60% 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
December 31, 2017, $7.6 billion of our GS
backlog was currently funded by our
customers.
Non-GAAP Financial Information
The following information provides reconciliations of certain non-GAAP financial measures presented in the press release to which this reconciliation is attached to the most directly comparable financial measures calculated and presented in accordance with generally accepted accounting principles (GAAP). The company has provided the non-GAAP financial information presented in the press release, which is not calculated or presented in accordance with GAAP, as information supplemental and in addition to the financial measures presented in the press release that are calculated and presented in accordance with GAAP. Such non-GAAP financial measures should not be considered superior to, as a substitute for or alternative to, and should be considered in conjunction with, the GAAP financial measures presented in the press release. The non-GAAP financial measures in the press release may differ from similar measures used by other companies.
Adjusted EPS
Adjusted diluted earnings per share from net income attributable to KBR (Adjusted EPS) for each of the three months and fiscal years ended December 31, 2017 and 2016 is considered a non-GAAP financial measure under the SEC's rules because the Adjusted EPS for each such period excludes certain amounts not excluded in the diluted earnings per share from net income attributable to KBR calculated in accordance with GAAP (EPS) for such periods. Management believes that the Adjusted EPS for each of the three months and fiscal years ended December 31, 2017 and 2016 is a meaningful measure to share with investors because each measure, which adjusts EPS for such periods for certain items recorded in such periods, is the measure that best allows comparison of the performance for the comparable period. In addition, Adjusted EPS affords investors a view of what management considers KBR's core earnings performance for each of the three months and fiscal years ended December 31, 2017 and 2016 and also affords investors the ability to make a more informed assessment of such core earnings performance for the comparable periods.
We have calculated Adjusted EPS for the three months and fiscal year ended December 31, 2017 by adjusting EPS for the following: (1) legacy legal costs, (2) shareholder loan receivable impairment, and (3) the net tax benefit due to tax reform. Adjusted EPS for the three months and fiscal year ended December 31, 2017 is a non-GAAP financial measure. The most directly comparable financial measure calculated in accordance with GAAP is Diluted EPS for the same periods.
Adjusted EPS - Fiscal 2017
Three Months Ended December 31, 2017
------------------------------------
Diluted
earnings per
share:
Reported EPS $1.94
Adjustments:
Legacy Legal
Costs $0.02
Shareholder
loan
receivable
impairment 0.04
Net Tax Benefit (1.72)
-----
Net Adjustments $(1.66)
Adjusted EPS $0.28
Fiscal Year Ended Ended December 31, 2017
-----------------------------------------
Diluted
earnings per
share:
Reported EPS $3.06
Adjustments:
Legacy Legal
Costs $0.10
Shareholder
loan
receivable
impairment 0.04
Net Tax Benefit (1.71)
-----
Net Adjustments $(1.57)
Adjusted EPS $1.49
As previously disclosed in our fiscal year ended December 31, 2016 press release, we have calculated the Adjusted EPS for the three months and the fiscal year ended December 31, 2016 by adjusting the EPS for each period for the amount of the impact of legacy legal costs. Adjusted EPS for the three months and fiscal year ended December 31, 2016 is a non-GAAP financial measure. The most directly comparable financial measure calculated in accordance with GAAP is Diluted EPS for the same periods.
Adjusted EPS - Fiscal 2016
Three Months Ended December 31, 2016
------------------------------------
Diluted earnings per
share:
Reported EPS $(0.61)
Adjustment:
Legacy Legal Costs $0.02
Adjusted EPS $(0.59)
Fiscal Year Ended Ended December 31, 2016
-----------------------------------------
Diluted earnings per
share:
Reported EPS $(0.43)
Adjustment:
Legacy Legal Costs $0.10
Adjusted EPS $(0.33)
We have calculated the Adjusted EPS for the 2018 guidance by adjusting the EPS for the amount of the impact of legacy legal costs. The most directly comparable financial measure calculated in accordance with GAAP is Diluted EPS for the same periods.
Adjusted EPS - 2018 Guidance
Low High
--- ----
Diluted earnings per share:
EPS - Guidance $1.28 $1.38
Adjustment:
Legacy Legal Costs $0.07 $0.07
Adjusted EPS $1.35 $1.45
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SOURCE KBR, Inc.
