KBR Announces Second Quarter 2018 Financial Results
HOUSTON, July 30, 2018 /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 2018 financial results.
"I'm pleased to report that KBR had a solid second quarter with positive performances from all three of our business segments," said Stuart Bradie, KBR President and CEO.
"We experienced continued year over year organic growth in our Government Services business, increased profitability in Technology and stabilized sequential revenues with a very healthy book-to-bill in our Hydrocarbons business," Bradie continued. "The signals we are getting from customers on the capital projects outlook in Hydrocarbons has improved measurably in recent months. In addition, on the operations side we maintained our targeted margins in all segments and produced a healthy cash flow result. Improving fundamentals in our government and hydrocarbons end markets coupled with our strategic positioning and performance of our recent acquisitions enable us to raise our outlook for the year," said Bradie. "Our people continue to be the foundation of this company and its success, consistently delivering the best execution and one of the strongest safety performances in the business."
Second Quarter Financial Results
Three Months Ended June 30, % Change Six Months Ended June 30, % Change
Dollars in millions 2018 2017 2018 2017
------------------- ---- ---- ---- ----
Revenue $1,267 $1,094 16% $2,305 $2,200 5%
Gross Profit $130 $108 20% $211 $190 11%
Equity in earnings of unconsolidated affiliates $10 $32 (69)% $33 $41 (20)%
Gain on consolidation of Aspire entities $ - $ - N/A $115 $ - N/A
Net income attributable to KBR $42 $77 (45)% $180 $114 58%
Adjusted EBITDA (1) $99 $119 (17)% $182 $197 (8)%
Diluted EPS $0.30 $0.54 (44)% $1.27 $0.80 59%
Adjusted EPS (1) $0.34 $0.57 (40)% $0.69 $0.85 (19)%
Operating cash flows $94 $325 (71)% $(36) $210 (117)%
(1) See additional information at the end of this release regarding non-GAAP financial measures
Three Months Ended, June 30, 2018:
Revenue: The increase in revenues was driven by strong organic growth of 11% in our GS business segment, the consolidation of acquired entities in the Aspire Defence program and our acquisition of SGT. The increase was partially offset by completion or substantial completion of several projects within our HS business segment, and the non-recurrence of $35 million in revenues associated with the PEMEX settlement in second quarter of 2017.
Gross Profit: The increase in gross profits were driven by the consolidation of the Aspire Defence project entities, the inclusion of SGT, coupled with strong organic growth in our GS business segment. Included in gross profit for the quarter was the favorable close out of an LNG project in Australia offset by the non-recurring gain associated with the PEMEX settlement in the second quarter of 2017.
Equity in earnings: The decrease in equity in earnings was driven by the consolidation of the Aspire Defence entities in our GS business segment, now reported in gross profit, and reduced activity on the Ichthys project in our HS segment as we near completion.
Operating cash flow: The cash provided by operations totaled $94 million in the three months ended June 30, 2018 compared to cash provided by operations of $325 million in the three months ended June 30, 2017. Operating cash flows in the three months ended June 30, 2017 included collection of a $344 million payment (net of tax) associated with the PEMEX settlement.
Six Months Ended, June 30, 2018:
Revenue: The increase in revenues was driven by strong organic growth in our GS business segment, the consolidation of acquired entities in the Aspire Defence program and our acquisition of SGT. The increase was partially offset by completion or substantial completion of several projects within our HS business segment and the non-recurrence of $35 million in revenue from the PEMEX settlement in second quarter of 2017.
Gross Profit: The increase in gross profits were driven by the consolidation of the Aspire Defence project entities, inclusion of SGT, organic growth in our GS business segment, and increased profit in our Technology business segment. These increases were partially offset by decreased profit in our HS business segment due to reduced activity and the non-recurring PEMEX settlement.
Equity in earnings: The decrease in equity in earnings was driven by the consolidation of the Aspire Defence project entities in our GS business segment, now reported in gross profit and decreased activity on a JV in Mexico. These decreases were partially offset by an increase in earnings provided by the Ichthys LNG project, partially resulting from increased cost estimates in the first quarter of 2017 that did not recur in 2018.
Gain on consolidation of Aspire entities: The gain was recognized upon consolidation of the Aspire Defence entities as a result of adjusting our investment to fair value as required by U.S. generally accepted accounting principles.
Operating cash flow: The cash used in operations totaled $36 million in the six months ended June 30, 2018 compared to cash provided by operations of $210 million in the six months ended June 30, 2017. Operating cash flows in the six months ended June 30, 2017 included collection of a $344 million payment (net of tax) associated with the PEMEX settlement.
New Business:
Government Services
-- We were awarded a $133 million task order by the U.S. Army to provide
technical and engineering services to the PATRIOT missile system.
-- We were awarded a cost-plus-fixed-fee contract modification to provide
base life support services to the U.S. Army under the LOGCAP IV
contract.
-- We were awarded a contract modification by the U.S. Marine Corps to
provide prepositioning and logistic support services for the USMC Blount
Island Command.
-- We secured a seat on a $900 million indefinite-delivery /
indefinite-quantity contract to provide rapid solutions to fix problems
identified through the Department of Defense's Joint Test and Evaluation
Program.
Technology
-- We were awarded an ammonia plant revamp contract by Krishak Bharati
Cooperative Ltd to provide licensing and basic engineering design
services for their ammonia plant in Hazira, India.
-- We were awarded a license, engineering and proprietary equipment supply
contract by China Pingmei Shenma Group for two new polycarbonate plants
in the Henan Province in China
-- We were awarded a license and engineering contract by GS Caltex
Corporation to supply SCORE Ethylene technology at their mixed feed
cracker project in Yeosu, South Korea.
-- We were awarded a nitric acid plant revamp contract by Haifa Chemicals
Ltd for its plant in Mishor-Rotem, Israel.
Hydrocarbons Services
-- We were awarded a multi-year contract to provide engineering,
procurement and construction management services to a fortune 100
chemicals manufacturer for their facilities in the U.S. and Mexico.
-- We were awarded a FEED leading to reimbursable construction EPC by
Arkema Chemicals to increase sulfur derivatives production at their
Beaumont, Texas site.
-- We were awarded a contract to provide project management, engineering,
procurement and construction management services for DuPont Safety &
Construction at its facility in Contern, Luxembourg.
-- We were awarded a project management consultancy services contract by
Oman LNG, to assist in the selection and management of the EPC
contractor for its 120 MW gas engine power plant.
KBR backlog increased from $13.2 billion as of March 31, 2018 to $13.5 billion as of June 30, 2018. Backlog increases in Hydrocarbons Services of $544 million and $86 million in Technology were partially offset by decreases in Government Services of $291 million, which includes unfavorable foreign exchange rate differences primarily due to strengthening of the U.S. dollar against the British pound.
Guidance
We are increasing the company's full year 2018 fully diluted adjusted earnings per share guidance range to $1.40 to $1.50 per share from the previous range of $1.35 to $1.45. Our guidance of earnings per share is on an adjusted EPS basis, which excludes legacy legal fees for U.S. Government contracts, acquisition & integration-related expenses associated with the Aspire and SGT acquisitions, new amortization associated with the Aspire acquisitions and the gain on the Aspire consolidation. The estimated legacy legal fees do not assume any cost reimbursement from the U.S. Government that could occur in the future. A reconciliation of GAAP EPS to adjusted EPS guidance is located at the end of this release.
Our estimated effective tax rate for 2018 is unchanged and estimated to range from 22% to 24%. The operating cash flows are also unchanged and estimated to range from $125 million to $175 million for 2018.
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, 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 and gasification
-- Hydrocarbons Services, 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); program management
and consulting services
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,
2018 2017
---- ----
Revenues:
Government Services $868 $543
Technology 72 70
Hydrocarbons Services 327 474
--- ---
Subtotal 1,267 1,087
Non-strategic Business - 7
--- ---
Total revenues 1,267 1,094
----- -----
Gross profit (loss):
Government Services 71 37
Technology 22 17
Hydrocarbons Services 37 55
--- ---
Subtotal 130 109
Non-strategic Business - (1)
--- ---
Total gross profit 130 108
--- ---
Equity in earnings of unconsolidated affiliates:
Government Services 6 18
Hydrocarbons Services 4 14
--- ---
Subtotal 10 32
Non-strategic Business - -
--- ---
Total equity in earnings of unconsolidated affiliates 10 32
--- ---
General and administrative expenses (41) (38)
Acquisition and integration related costs (1) -
Gain on disposition of assets - 1
Operating income 98 103
Interest expense (17) (5)
Other non-operating (expense) income (1) 2
---
Income before income taxes and noncontrolling interests 80 100
Provision for income taxes (18) (21)
Net income 62 79
Net income attributable to noncontrolling interests (20) (2)
Net income attributable to KBR $42 $77
=== ===
Net income attributable to KBR per share:
Basic $0.30 $0.54
Diluted $0.30 $0.54
Basic weighted average common shares outstanding 140 141
Diluted weighted average common shares outstanding 141 141
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,
2018 2017
---- ----
Revenues:
Government Services $1,545 $1,058
Technology 134 136
Engineering & Construction 626 973
--- ---
Subtotal 2,305 2,167
Non-strategic Business - 33
--- ---
Total revenues 2,305 2,200
----- -----
Gross profit (loss):
Government Services 123 74
Technology 38 31
Engineering & Construction 52 88
--- ---
Subtotal 213 193
Non-strategic Business (2) (3)
--- ---
Total gross profit 211 190
--- ---
Equity in earnings of unconsolidated affiliates:
Government Services 14 27
Engineering & Construction 19 14
--- ---
Subtotal 33 41
Non-strategic Business - -
--- ---
Total equity in earnings of unconsolidated affiliates 33 41
--- ---
General and administrative expenses (76) (70)
Acquisition and integration related costs (4) -
Gain on disposition of assets - 5
Gain on consolidation of Aspire entities 115 -
Operating income 279 166
Interest expense (23) (10)
Other non-operating expense (3) (5)
--- ---
Income before income taxes and noncontrolling interests 253 151
Provision for income taxes (52) (34)
--- ---
Net income 201 117
Net income attributable to noncontrolling interests (21) (3)
=== ===
Net income attributable to KBR $180 $114
==== ====
Net income attributable to KBR per share:
Basic $1.28 $0.80
Diluted $1.27 $0.80
Basic weighted average common shares outstanding 140 142
Diluted weighted average common shares outstanding 141 142
Cash dividends declared per share $0.16 $0.16
KBR, Inc.: Consolidated Balance Sheets
(In millions)
June 30, December 31,
2018 2017
---- ----
(Unaudited)
Assets
Current
assets:
Cash
and
equivalents $519 $439
Accounts
receivable, $12
net
of
allowance
for
doubtful
accounts
of
$13
and 779 510
Contract
assets 248 383
Other
current
assets 117 93
--- ---
Total
current
assets 1,663 1,425
Claims
and
accounts
receivable 104 101
Property,
plant, $329 a
and (including variable
equipment, net interest
net PPE entity)
of of
accumulated $40
depreciation and
of $34
$355 owned
and 133 130
Goodwill 1,271 968
Intangible
assets,
net
of
accumulated
amortization
of
$137
and
$122 544 239
Equity
in
and
advances
to
unconsolidated
affiliates 622 387
Deferred
income
taxes 215 300
Other
assets 158 124
--- ---
Total
assets $4,710 $3,674
====== ======
Liabilities
and
Shareholders'
Equity
Current
liabilities:
Accounts
payable $445 $350
Contract
liabilities 465 368
Accrued
salaries,
wages
and
benefits 216 186
Nonrecourse
project
debt 10 10
Other
current
liabilities 161 157
--- ---
Total
current
liabilities 1,297 1,071
Pension
obligations 349 391
Employee
compensation
and
benefits 104 118
Income
tax
payable 85 85
Deferred
income
taxes 17 18
Nonrecourse
project
debt 22 28
Revolving
credit
agreement 115 470
Long
term
debt 928 -
Deferred
income
from
unconsolidated
affiliates - 101
Other
liabilities 183 171
--- ---
Total
liabilities 3,100 2,453
===== =====
KBR
shareholders'
equity:
Preferred
stock - -
Common
stock - -
Paid-
in
capital
in
excess
of
par 2,171 2,091
Accumulated
other
comprehensive
loss (935) (921)
Retained
earnings 1,179 877
Treasury
stock (819) (818)
---- ----
Total
KBR
shareholders'
equity 1,596 1,229
Noncontrolling
interests 14 (8)
--- ---
Total
shareholders'
equity 1,610 1,221
----- -----
Total
liabilities
and
shareholders'
equity $4,710 $3,674
====== ======
KBR, Inc.: Consolidated Statements of Cash Flows
(In millions)
(Unaudited)
Three Months Ended
June 30, June 30,
2018 2017
---- ----
Cash flows provided by operating
activities:
Net income $62 $79
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and
amortization 17 14
Equity in earnings of
unconsolidated
affiliates (10) (32)
Deferred income tax
expense (benefit) 9 (90)
Other (5) 5
Changes in operating assets and
liabilities:
Accounts receivable,
net of allowance for
doubtful accounts 64 32
Contract assets 6 37
Claims receivable - 400
Accounts payable (27) (51)
Contract liabilities (26) (43)
Accrued salaries,
wages and benefits 2 (14)
Reserve for loss on
uncompleted
contracts (2) (13)
Payments from
unconsolidated
affiliates, net 5 4
Distributions of
earnings from
unconsolidated
affiliates 8 16
Income taxes payable (5) (11)
Pension funding (9) (9)
Subcontractor
advances 1 -
Net settlement of
derivative contracts (2) 3
Other assets and
liabilities 6 (2)
--- ---
Total cash flows
provided by
operating activities 94 325
--- ---
Cash flows from investing
activities:
Purchases of
property, plant and
equipment (2) (3)
Investments in equity
method joint
ventures (90) -
Proceeds from sale of
assets or
investments 1 2
Acquisition of
businesses, net of
cash acquired (357) -
Adjustments to cash
due to consolidation
of Aspire entities (8) -
Other (1) (1)
--- ---
Total cash flows used
in investing
activities (457) (2)
---- ---
Cash flows from financing
activities:
Payments to reacquire
common stock (1) (50)
Acquisition of
remaining ownership
interest in joint
ventures (50) -
Payments of dividends
to shareholders (12) (11)
Net proceeds from
issuance of common
stock 1 -
Borrowings on
revolving credit
agreements 180 -
Borrowings on long
term debt 959 -
Debt issuance costs (46) -
Payments on revolving
credit agreements (605) (180)
Payments on short-
term and long-term
borrowings (5) (5)
Other - -
Total cash flows
provided by (used
in) financing
activities 421 (246)
--- ----
Effect of exchange
rate changes on cash (25) 4
--- ---
Increase in cash and
equivalents 33 81
Cash and equivalents
at beginning of
period 486 410
Cash and equivalents
at end of period $519 $491
==== ====
KBR, Inc.: Consolidated Statements of Cash Flows
(In millions)
(Unaudited)
Six Months Ended
June 30, June 30,
2018 2017
---- ----
Cash flows from operating
activities:
Net income $201 $117
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and
amortization 30 27
Equity in earnings of
unconsolidated
affiliates (33) (41)
Deferred income tax
expense (benefit) 34 (85)
Gain on consolidation
of Aspire entities (115) -
Other 6 11
Changes in operating assets and
liabilities:
Accounts receivable,
net of allowance for
doubtful accounts (70) 70
Contract assets (38) 41
Claims receivable - 400
Accounts payable 36 (126)
Contract liabilities (58) (167)
Accrued salaries,
wages and benefits 4 2
Reserve for loss on
uncompleted
contracts (5) (35)
Payments from
unconsolidated
affiliates, net 6 5
Distributions of
earnings from
unconsolidated
affiliates 9 30
Income taxes payable 7 (5)
Pension funding (19) (18)
Net settlement of
derivative contracts 1 1
Other assets and
liabilities (32) (17)
Total cash flows
(used in) provided
by operating
activities (36) 210
--- ---
Cash flows from investing
activities:
Purchases of
property, plant and
equipment (11) (6)
Investments in equity
method joint
ventures (162) -
Proceeds from sale of
assets or
investments 1 2
Acquisition of
businesses, net of
cash acquired (357) 2
Adjustments to cash
due to consolidation
of Aspire entities 197 -
Other - (1)
Total cash flows used
in investing
activities (332) (3)
---- ---
Cash flows from financing
activities:
Payments to reacquire
common stock (3) (52)
Acquisition of
remaining ownership
interest in joint
ventures (56) -
Distributions to
noncontrolling
interests - (1)
Payments of dividends
to shareholders (23) (23)
Net proceeds from
issuance of common
stock 1 -
Borrowings on
revolving credit
agreements 250 -
Borrowings on long
term debt 959 -
Debt issuance costs (46) -
Payments on revolving
credit agreements (605) (180)
Payments on short-
term and long-term
borrowings (5) (5)
Total cash flows
provided by (used
in) financing
activities 472 (261)
--- ----
Effect of exchange
rate changes on cash (24) 9
Increase (decrease)
in cash and
equivalents 80 (45)
Cash and equivalents
at beginning of
period 439 536
Cash and equivalents
at end of period $519 $491
==== ====
KBR, Inc.: Backlog Information (a)
(In millions)
(Unaudited)
June 30, March 31, December 31,
2018 2018 2017
---- ---- ----
Government
Services $10,842 $11,133 $8,355
Technology 509 423 387
Hydrocarbons
Services 2,140 1,596 1,822
----- ----- -----
Subtotal 13,491 13,152 10,564
Non-
strategic
Business 4 5 6
Total
backlog $13,495 $13,157 $10,570
======= ======= =======
(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.
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 $2.6 billion at June 30,
2018 and $7.2 billion at December 31,
2017. 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 $6.4 billion at June
30, 2018 and $125 million at December 31,
2017.
We estimate that as of June 30, 2018, 31%
of our backlog will be executed within
one year. Of this amount, 82% will be
recognized in revenues on our condensed
consolidated statement of operations and
18% will be recorded by our
unconsolidated joint ventures. As of June
30, 2018, $87 million of our backlog
relates to active contracts that are in a
loss position.
As of June 30, 2018, 7% of our backlog was
attributable to fixed-price contracts,
62% was attributable to PFIs and 31% 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,
2018, $9.9 billion of our GS backlog was
currently funded by our customers. As of
June 30, 2018, we had approximately $4.3
billion of priced option periods for U.S.
government contracts that are not
included in the backlog amounts presented
above.
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 EBITDA
We evaluate performance based on Adjusted EBITDA. Adjusted EBITDA is defined as Net income (loss) attributable to KBR, plus interest expense, net; provision (benefit) for income taxes; other non-operating expense (income); and depreciation and amortization. Adjusted EBITDA for each of the three and six months ended June 30, 2018 and 2017 is considered a non-GAAP financial measure under the SEC's rules because Adjusted EBITDA for each such period excludes certain amounts not excluded in the calculation of net income attributable to KBR in accordance with GAAP for such periods. Management believes that Adjusted EBITDA for each of the three and six months ended June 30, 2018 and 2017 is a meaningful measure to share with investors because each measure, which adjusts net income attributable to KBR 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 EBITDA affords investors a view of what management considers KBR's core performance for each of the three and six months and fiscal years ended June 30, 2018 and 2017 and also affords investors the ability to make a more informed assessment of such core performance for the comparable periods.
Three Months Ended June 30, Six Months Ended June 30,
Dollars in millions 2018 2017 2018 2017
------------------- ---- ---- ---- ----
Net Income Attributable to KBR $42 $77 $180 $114
Add Back:
Interest expense 17 5 23 10
Provision for income taxes 18 21 52 34
Other non-operating expense (income) 1 (2) 3 5
Depreciation and amortization 17 14 30 27
Consolidated EBITDA $95 $115 $288 $190
Add Back:
Legacy legal fees 3 4 5 7
Acquisition and integration related costs 1 - 4 -
Gain on consolidation of Aspire entities - - (115) -
Adjusted EBITDA $99 $119 $182 $197
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Adjusted EPS
Adjusted diluted earnings per share from net income attributable to KBR (Adjusted EPS) for each of the three and six months ended June 30, 2018 and 2017 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 and six months ended June 30, 2018 and 2017 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 and six months ended June 30, 2018 and 2017 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 each of the three and six months ended June 30, 2018 and 2017 by adjusting EPS for the items included in the table below. Adjusted EPS for each of the three and six months ended June 30, 2018 and 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.
Three Months Ended June 30, Six Months Ended June 30,
2018 2017 2018 2017
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Diluted earnings per share:
Reported EPS $0.30 $0.54 $1.27 $0.80
Adjustment:
Legacy legal fees $0.02 $0.03 $0.03 $0.05
Acquisition and integration related expenses $ - $ - $0.02 $ -
Amortization related to Aspire acquisition $0.02 $ - $0.04 $ -
Aspire gain on consolidation $ - $ - $(0.67) $ -
Adjusted EPS $0.34 $0.57 $0.69 $0.85
We have calculated the Adjusted EPS for the 2018 guidance by adjusting EPS for the items included in the table below.
Low High
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Diluted earnings per
share:
EPS Guidance $1.88 $1.98
Adjustments:
Legacy legal fees $0.07 $0.07
Acquisition and
integration related
expenses $0.05 $0.05
Amortization related to
Aspire acquisition 0.07 0.07
Aspire gain on
consolidation $(0.67) $(0.67)
Adjusted EPS $1.40 $1.50
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SOURCE KBR, Inc.
