Zach Nagle - VP of IR and Communications Stuart Bradie - President and CEO Brian Ferraioli - EVP and CFO.

Jamie Cook - Credit Suisse Jerry Revich - Goldman Sachs Steven Fisher - UBS Investment Bank Alan Fleming - Barclays Capital Susie Min - Deutsche Bank Martin Malloy - Johnson Rice Will Gabrielski - Stephens Brian Konigsberg - Vertical Research Partners.

Good day, and welcome to the KBR's First Quarter 2014 Earnings Conference Call. This call is being recorded. As a reminder, your lines will be in a listen-only mode for the duration of the call. There will be a question-and-answer session immediately following the prepared remarks. You will receive instructions at that time.

For opening remarks and introductions, I would like to turn the call over to Mr. Zach Nagle, Vice President of Investor Relations & Communications. Please go ahead..

Good morning, and welcome to KBR's first quarter 2014 earnings conference call. Today's call is also being webcast, and a replay would be available on KBR's Web site for seven days at kbr.com. The press release announcing first quarter results is also available on KBR's Web site.

Joining me today are Stuart Bradie, President and Chief Executive Officer; and Brian Ferraioli, Executive Vice President and Chief Financial Officer. During today's call, Stuart will begin with opening remarks. Brian will then cover the quarter’s results and our market outlook.

Please refer to the accompanying presentation that is posted on our Web site at kbr.com. After our prepared remarks, we will open the floor for questions.

Before turning the call over to Stuart, I would like to remind our audience that today's comments may include forward-looking statements reflecting KBR's views about future events and their potential impact on performance.

These matters involve risks and uncertainties that can impact operations and financial results and cause our actual results to differ from our forward-looking statements.

These risks are discussed in KBR's first quarter earnings release, KBR’s earnings presentation, KBR's Form 10-K/A for the period ended December 31, 2013, and KBR's current reports on Form 8-K. You can find all these documents at kbr.com. Now I'll turn the call over to Stuart.

Stuart?.

Thank you Zach and good morning everyone. It’s my great pleasure to be on my first earnings call as KBR’s President and CEO. I’d like to take this opportunity to make some initial comments on why I joined KBR and to touch on what would be some of my initial areas of focus.

Prior to even being approached by KBR, I recognized that KBR has a rich and bright history with long list of awards of projects, a high degree of success in technology and obviously a strong commercial history, but fundamental to KBR’s success is the quality of our 27,000 people located across the world and I am honored to be in such a prestigious organization.

As great as this organization is however I recognize that KBR has faced and continues to face some recent challenges. My focus since arriving a whole 2.5 weeks ago is however entirely on the future.

My goal is to put this company on a path that delivers value to our clients as well as our shareholders by designing and building world-class projects in a safe and economic manner. Our fundamental principle continues to be captured by the simple term, KBR or we deliver. I approach this task with a sense of urgency.

Over the coming months I’ll be letting more of our global operations as I cover the world and would be leading an in depth strategic review of the Company and how best we can address the markets we serve.

Once completed, I will share KBR’s strategic direction with you and also expect to be able to return to our previous practice of providing earnings guidance to investors. It’s my privilege to be here with you today and I look forward to getting to know you better in the coming months.

I’ll now turn the call over to Brian, who will run through the presentation and discuss our first quarter results.

Brian?.

Thank you Stuart and good morning everyone. Thank you for joining us today. Referring to the presentation I’ll start on Slide Number 3. Obviously an overview of the first quarter you know now that the CEO is in place and as we announced in the press release Stuart and the rest of the team will be undertaking a strategic review of all of our businesses.

With the filing now that the Q for the first quarter as well as the 10-K/A that we have previously filed, we’re current with all of our financial reporting to the SEC. Obviously the Q1 results were adversely impacted by the services and IGP groups. While the Gas Monetization and Hydrocarbons segments continued to perform well.

The Canadian fabrication and modular assembly contracts remained challenging with a $41 million loss for the quarter. And the EPS translated into a loss of $0.29. Clearly this is below our expectations. However, our strong cash balance of approximately $1 billion at the end of the quarter allowed us to return some cash to shareholders.

We paid the normal quarterly dividend of $12 million and we bought back $56 million worth of shares in the first quarter and $94 million year-to-date. And the share repurchase obviously was stopped prior to we learned about the problems we had in Canada.

However, the Company’s current market position remains strong and we have a very good pipeline of pre-FEED, FEED and EPC opportunities into 2014 and beyond. Turning to Slide 4 and specifically let me address the Canadian pipe and modular assembly contracts.

These are seven contracts that are a unit rate structure which are unique to our business in Canada and that was signed in 2012 through December of 2013.

Now these contracts represented significant sales growth approximately double the revenue that the business had previously undertaken and also the modules that we signed up for were larger and more complex than what we had done in the past.

Costs in general in Alberta have increased for us as well as others, but we also had significant productivity challenges in our modular assembly yard relating to these modules.

We found that we had insufficiently trained personnel on the ground in Canada to deal with this increase in sales growth as well as the complexity of the modules and that’s project managers, project controls, accounting and even in the executive management professionals that we had in Canada.

And also unfortunately we were slow in indentifying and communicating the accurate estimates door and execution and this is what led us to the restatement that we have previously filed. Four of the seven contracts are largely completed.

One project was initiated in late December 2013 and that obviously would translate into a Q1 event rather than the 2013 activity that we had previously reported and that project has roughly 10 million of the 41 million loss for the quarter.

The balance of this loss relates to increased quantities on one of these unit rate contracts and typically when quantities increase it’s an increase in business for us, but if you are in a loss position because of the cost and productivity issues that I previously mentioned obviously the loss widens.

Most of the client drawings on this project have now largely been issued so hopefully the commodity or the quantity risk is largely behind us. When we first announced the issues in Canada, we also mentioned that we have one master service type agreement which allows that client the right but not the obligation to place additional work with us.

We received no additional work from that client in the first quarter or frankly through today and we are in discussions with that client about amending the terms of that existing agreement. You see the financial impact outlined in the chart below and the results of the first quarter are obviously in our consolidated results.

Moving onto Slide 5, looking at the first quarter results, as expected with no major LNG, EPC type awards expected in 2014, our backlog declined for the quarter.

However, we are much more optimistic for our second quarter particularly for our hydrocarbons, both upstream and downstream opportunities as well as the IGP segment which we announced that we received a full notice to proceed on Marshalltown, the 650 megawatt gas fire power plant for Alliant.

So, we expect the bookings to be higher obviously in the second quarter than they were in the first quarter. The gas monetization on the two LNG projects in Australia remains very strong and we received a preliminary closeout on a legacy LNG project and we have included $33 million pretax gain in the consolidated financial results.

I refer to it as a preliminary closeout because although we have reached the agreement for most of the issues with the client, we have not yet finished the project and we still have people below us, sub-contractors and suppliers that were closing out purchase orders and agreements with them.

And I also wish to comment that in 2013 there was a $30 million improvement in the profit on gas monetization due to some cost improvements on existing work. The underperformance for the quarter was in the services business primarily with Canada fabrication that I previously talked about but we also had $8 million to closeout two of the U.S.

problem construction contracts that we have talked about in the past. IGP was adversely impacted from the decline in new bookings during the quarter, but also from charges on some legacy disputes of $14 million. And I’d like to touch on this latter point in a little bit more detail.

We are trying now to commercially resolve some of our legacy disputes rather than seek resolution exclusively through the legal process particularly on disputes with major clients.

Now this may result in reduced recoveries from what we had previously recorded on the balance sheet, but we believe it will result in cost savings on future legal fees that are typically recorded as a period expense. If we are successful it will bring resolution to these matters quickly and it will improve the timing of any cash flow.

However, I want to be very clear that when we believe there are unsubstantiated claims against KBR, we will strongly defend our shareholders interest and if the commercial settlement rule is unsuccessful we can always return to the legal process to resolve the matter.

But that resulted in $14 million in charges on the IGP and we also had some within the Hydrocarbons segment for the quarter as well. Moving onto Slide 6, speaking about the segments, the revenue declined primarily because of the reduction in the gas-to-liquid and LNG projects in Africa that are either completed or are nearing completion.

And we had a increase in the hydrocarbons revenues because of the increase in the EPC ammonia and urea projects that we have ongoing within the U.S.

In terms of the profitability, I mentioned the $33 million gain in gas monetization previously, but in hydrocarbons we continue to see the mix of profits or margins being different on the full EPC contracts compared to prior periods when we did much more in a way of technical services.

Burt we also had a 8 million in lower earnings on two of the Middle East projects from 2013 and we also had an increase of about $3 million in proposal expenses and $9 million higher cost on two EPC projects, about 50% of that 9 was for one of these legacy disputes that I articulated earlier and the balance being on another project that is nearing completion.

The IGP segment decreased primarily because of reduced volumes on the LogCap III and IV contracts as well as the $14 million in charges I previously mentioned. And services in addition to Canada and the problem U.S.

construction contracts the MMM joint venture that we have in Mexico to do offshore maintenance, the two shifts were primarily out of contract for most of the first quarter and therefore resulted in a year-over-year decline of about $7 million. Those vessels were MMM are now back in operations.

Turning to Slide 8, looking at the market, we have a lot of activity underway I should say within our Gas Monetization segment. You see we’ve commenced work on the Shell Global LNG frame agreement which we believe will lead to future EPC opportunities. And we have a number of pre-FEEDs, FEEDs and EPC opportunities as listed on the slide.

We’re about to bid three multi-billion dollar EPC contacts and you see the three listed below and their expected dates. However, we also would like to point out that the earnings that we expect to hold throughout 2014, but will be lower in 2015 compared to ’14 because of the timing of the new EPC awards.

So Stuart tell me I missed the slide I am sorry, I had something out of order..

Something you missed that Slide 7..

I missed Slide 7, something that happens technically here it jumped right to Slide 8, so I apologize, but again the gas monetization activities, remains very-very positive for the future.

Turning back to Slide 7, where I should have been, cash management and cash allocation remain an area of focus as you can see we have approximately $1 billion in cash and we articulate on this slide where we’ve allocated capital during the quarter and year-to-date.

I want to point out since January of 2007 we’ve returned $885 million to our shareholders. And so far this year we bought back about $3.4 million -- 3.4 million shares under our repurchase program. You see the capital expenditure is about $15 million which included about $9 million of our ERP spend.

Moving on to Slide 9, hydrocarbons back to the market outlook.

We believe we’re well placed for a number of offshore engineering opportunities particularly in the UK, Norway and the Gulf of Mexico the FLNG market is still rather active and we have opportunities there, we’ve won multiple refinery FEED projects in North America which positions us well for participation into the EPC phase.

We have three ammonia, urea EPC projects underway and we believe there are other opportunities coming in North America.

We expect to see opportunities in the ethylene derivatives industries in North America and our technology folks remain active throughout the world again with a particular focus on ammonia and we’re continuing to see expansion opportunities for our ongoing downstream and offshore work in the Middle East.

Moving on to Slide 10, for IGP, IGP has some good growth opportunities in the international government market, particularly in the UK and continued movement within the U.S.

power markets our Aspire or Allenby & Connaught joint venture in the UK is nearing the end of its construction phase in 2014 and we’ll continue with the services phase for approximately the next 27 years or so. So that’s a good annuity tail to the construction work that is nearing completion.

But we have multiple additional growth opportunities in the international government services business particularly with the UK’s Ministry of Defense, but also with police support services, training and other outsourcing activities in the UK as well as other countries throughout the world. We have a number of U.S.

government overseas military sustainment opportunities and process and we recently booked a new base operating support agreement in Bahrain. And as I previously mentioned the IGP Group booked the Marshalltown power plant that we had been working on for some time.

Turning to Slide 11, the services group, again there are opportunities there in the North American construction and industrial services market but this business remains very competitive.

The Mexican offshore business continues and the contract in place for these vessels typically are in three year increments and are reoccurring and we’re well capitalized, or well placed to capitalize on our activities that we have ongoing in the industrial services market in Saudi Arabia.

However, the Canadian market is attractive to us but we obviously got to get our situation clarified and fixed with our pipe in the modular assembly work in Canada. So, in summary on Slide 12, 2014 is clearly a transition year but we will be launching a new strategic review of our business.

However, KBR remains a strong global company with a diverse portfolio of businesses, technical capabilities and a very strong and technically savvy staff. We plan to capitalize on areas of our core strength LNG, hydrocarbons and international government services.

We have a large number of pre-FEEDs, FEEDs and EPC bids in the gas monetization and hydrocarbon businesses and the cash management and allocation of capital will continue to be a focus. Once we complete the strategic review we anticipate being able to return to providing earnings guidance to you in the near future.

With that, that concludes our prepared remarks and we will open it up for comments..

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Thank you. (Operator Instructions) We will take our first question from Jamie Cook of Credit Suisse..

Hi, good morning..

Hi, good morning..

Good morning, Jamie..

I guess two questions and one is for Brian and then I guess one is for Stuart. Brian I just wanted you to address the guidance because you said steady earnings through I think ’14 and then ’15 should be a down year.

So, one, you didn’t make money in the first quarter, so is it ex the charges that you have had, could you just give a little more color? And I guess while I understand that the big gas monetization project opportunities are more of a 2015 EPC opportunity, is there not enough opportunities in IGP or in hydrocarbon or in your other businesses to sort of help the earnings trajectory or does that imply the margin profile in the backlog is just that bad? And then I guess my second question, Stuart, while I understand you have only been in KBR for 2.5 weeks, you are an industry veteran.

So, my question to you is, I am assuming you did a lot of due diligence in terms of going to KBR and based on your customer conversations, what is the view on KBR because the concern from the street is that KBR has lost its game or has lost people or is it a competitive disadvantage and we will probably not be one of the beneficiaries of the whole oil and gas cycle.

So, just sort of your thoughts there and whether the management issues will resolve and you guys probably lose wining less work than KBR would have historically? Thanks..

I guess two questions and one is for Brian and then I guess one is for Stuart. Brian I just wanted you to address the guidance because you said steady earnings through I think ’14 and then ’15 should be a down year.

So, one, you didn’t make money in the first quarter, so is it ex the charges that you have had, could you just give a little more color? And I guess while I understand that the big gas monetization project opportunities are more of a 2015 EPC opportunity, is there not enough opportunities in IGP or in hydrocarbon or in your other businesses to sort of help the earnings trajectory or does that imply the margin profile in the backlog is just that bad? And then I guess my second question, Stuart, while I understand you have only been in KBR for 2.5 weeks, you are an industry veteran.

So, my question to you is, I am assuming you did a lot of due diligence in terms of going to KBR and based on your customer conversations, what is the view on KBR because the concern from the street is that KBR has lost its game or has lost people or is it a competitive disadvantage and we will probably not be one of the beneficiaries of the whole oil and gas cycle.

So, just sort of your thoughts there and whether the management issues will resolve and you guys probably lose wining less work than KBR would have historically? Thanks..

Jamie, first of all let me address the earnings. May be there is a miscommunication or I misspoke I am not sure which. I was referring to earnings being down in 2015 exclusively for the gas monetization business, not the consolidated results.

And that’s because the rundown in the two large LNG projects this year and the timing of new LNG awards, EPC LNG awards in 2015, the timing as such for those new awards that they will not offset the rundown as you know Gorgon is in the back half of its lifecycle and if this is reaching the peak or nearly at the peak.

So, exclusively to gas monetization, it will remain a strong, profitable business but it will be lower in volume in ’15 than gas mon is in ’14..

But I guess, Brian my concern would be the other businesses in the first quarter and I understand there is charges in there but it doesn’t give you a lot of confidence that that business can, the profitability can start to improve.

So what gives you confidence?.

But I guess, Brian my concern would be the other businesses in the first quarter and I understand there is charges in there but it doesn’t give you a lot of confidence that that business can, the profitability can start to improve.

So what gives you confidence?.

Well I think again as we were accommodating our position in the marketplace and the hydrocarbons business is growing, as it has increased year-over-year now the EPC margins are lower I understand that but we have plenty of opportunities in both upstream, downstream to continue to grow.

And the technology is a very steady profitable business, so those two businesses are very-very well placed.

The international government business, as I mentioned before I think there are plenty of opportunities to grow there and that is frankly more profitable than the business that we have had historically in the U.S., Services like I said we have some challenges in services and the driver will be in 2015 those other segments in terms of growth.

And let me hand the call back over to....

Wait one question, Brian before you hand it over to Stuart, how do you feel just because of may be other concern is I mean you have been on board since the fall and Stuart just joined 2.5 weeks ago.

I mean besides some of the issues that we have today, how do you feel about the inherent profitability of what’s in backlog and what’s the risk that we have more charges to come?.

Wait one question, Brian before you hand it over to Stuart, how do you feel just because of may be other concern is I mean you have been on board since the fall and Stuart just joined 2.5 weeks ago.

I mean besides some of the issues that we have today, how do you feel about the inherent profitability of what’s in backlog and what’s the risk that we have more charges to come?.

Well, I am comfortable with what we have in backlog other than the Canadian project and even there we are hopeful that that’s behind us but I can’t guarantee that obviously you know that as well as anyone.

Some of these charges that we have taken are on problem projects that are now over, some of them are on some commercial disputes that we are taking a differing view on and we’ll see how they play out. And we’ll see if we are able to dab some upside on some of these.

So I don’t view there being additional charges to kind of I thought there were additional charges to come, obviously we will take them in the first quarter that’s what the accounting requires. So again, I go back to -- we are well positioned in the marketplace. And I think the Company has a history of being able to execute well.

And there’s no reason why we can’t..

Okay.

Thanks, Brian and then Stuart?.

Okay.

Thanks, Brian and then Stuart?.

Yes. Thank you first to addressing me as a veteran, I mean, the level of work what was coming through to KBR sort of, from end business to grant owners is at very high levels.

The growth in the hydrocarbons business and really KBR’s position in that sector, it kind of demonstrates I think that there’s no sort of discerning market view on that side of the business. And I think what you’re seeing in the LNG market in terms of timing of awards is exactly that, it’s timing of awards.

And so I don’t know where you’re picking up the sentiment that KBR is not well placed to pick up work in the oil and gas, hydrocarbons and LNG marketplaces. I think I would have to say the opposite to that..

Okay.

Well I am curtained just because we haven’t won anything out I guess that’s where the concern is coming from relative to the peers?.

Okay.

Well I am curtained just because we haven’t won anything out I guess that’s where the concern is coming from relative to the peers?.

Well I mean, yes I mean there’s a number of things that I have come through the hydrocarbons in the second quarter as well with -- you’ll see it coming through into the earnings as we progress through the year..

Alrighty, I’ll get back in queue. Thank you..

Alrighty, I’ll get back in queue. Thank you..

Thank you, Jamie..

We’ll take our next question from Jerry Revich of Goldman Sachs..

Good morning..

Good morning..

Good morning, Jerry..

Brain can you talk about where are you in the receivables review process? It sounds like the Canandian have crosses over on the issues might have come up as you were working through that process.

Are you through with implementing the type of changes you were looking to put through across the company, as you think about the global practices? And are you comfortable that we’re not going to have any other similar issues like the Canadian project?.

Brain can you talk about where are you in the receivables review process? It sounds like the Canandian have crosses over on the issues might have come up as you were working through that process.

Are you through with implementing the type of changes you were looking to put through across the company, as you think about the global practices? And are you comfortable that we’re not going to have any other similar issues like the Canadian project?.

Well, yes I am comfortable. We’re not going to have issues like the Canadian projects throughout the company. We spent a lot of time and effort internally reviewing what we have in processes that we have in place. And these projects in Canada were unique to Canada.

We don’t do high fabrication and modular assembly, elsewhere in the world within our own shop. So I am quite comfortable, we don’t have that same situation somewhere else. In terms of the receivables we review receivables on an ongoing basis.

The difference is -- if you want to call it a philosophical difference or maybe a slight change in direction in trying to resolve things commercially rather than through arbitration or litigation, yes that is relatively new. And that’s something that Stuart and I reviewed within each of the businesses.

And we believe it’s a more prudent approach to take. So in my view it’s more of a timing issue, if we reduce the estimated recoveries of these receivables today and forgo the legalities going forward.

We get either to the same spot or maybe even a better spot versus keeping a larger balance on the books, spending the legal fees in the future as a period expense and then waiting for a resolution two to three years down the road.

But receivables is an area as part of our cash manager, we focus on routinely and the businesses are looking at every day..

Okay.

And Stuart, Brian can you just talk about on the Lake Charles LNG project, are you bidding on that in a partnership with Technip? And also can you just lay in, I guess in the last LNG cycle you had a very good partnership with JGC you still have one more project that you’re jointly bidding on, but can you talk about which of your peers you see building a closer partnership over the coming years? And just Stuart if it happens surely ask the question but would love your broader thoughts around that issue?.

Okay.

And Stuart, Brian can you just talk about on the Lake Charles LNG project, are you bidding on that in a partnership with Technip? And also can you just lay in, I guess in the last LNG cycle you had a very good partnership with JGC you still have one more project that you’re jointly bidding on, but can you talk about which of your peers you see building a closer partnership over the coming years? And just Stuart if it happens surely ask the question but would love your broader thoughts around that issue?.

I mean, I think you are right we had a very historically and still do have a very cross fleeces that we do to see we’re working them in the ongoing LNG projects and that they are partner in bidding Pacific Northwest and historically the projects in Indonesia that are coming up with, we saw the business positioned well with JGC in doing that work and we’ll continue to work with them in that arena.

We in terms of our competitors and how they are lined up, I mean I think you have to talk to them about that I don’t think it’s for us to comment.

But we’re working hard on Lake Charles and yes we’re partnering with Technip on that who executed that we did the pre-FEED and Technip did the FEED so we’ve got a lot of knowledge on that project to take forward onto the bid..

Thank you..

Thank you..

We will hear next from Steven Fisher of UBS..

Hi, good morning..

Hi, good morning..

Good morning Steve..

Stuart, probably a little too soon to ask you about your expectations for a strategic review, but maybe will it be fair as if you could talk about what were some of the major initiatives that you implemented at Worley you think might be value-added at KBR?.

Stuart, probably a little too soon to ask you about your expectations for a strategic review, but maybe will it be fair as if you could talk about what were some of the major initiatives that you implemented at Worley you think might be value-added at KBR?.

I think, it would be too generic an answer, I mean I think probably just returning to the strategic review that I’d would rather talk about KBR than I would liked what I did in my past.

And I mean, looking forward the intent on this is that on timing if you like it probably worth giving some guidance on that but the view is that, we started a strategic process.

It will take a couple of months to sort of bed down and really looking at that what are the attractive businesses for the future for KBR where we can be differentiated and as a consequence, the barriers of entering a high and the returns are more attractive and that’s where the focus will be so it will be a focus on quality of earnings as much as anything and ensuring we have got a differentiated position in attractive markets of the future.

That will then -- we will work that through and our intent would be to make sure we are coming back to you, I guess in the later part of this year as such that we can provide earnings guidance going into next financial year. .

Okay, and then just curious to your thoughts on risk management, I mean how much risk do you guys feel comfortable putting in the backlog at this point.

I know prior management has sort of sworn-off fixed price construction-only scope, so I guess I am curious for your thoughts on that as you pursue some of these LNG bids in particular?.

Okay, and then just curious to your thoughts on risk management, I mean how much risk do you guys feel comfortable putting in the backlog at this point.

I know prior management has sort of sworn-off fixed price construction-only scope, so I guess I am curious for your thoughts on that as you pursue some of these LNG bids in particular?.

Yes I mean it’s a good question. I mean I think that our risk processes are in what I have seen over the last couple of weeks, are actually very well hold. It’s quite a stringent process that the Company goes through, to weigh up its risks and quantify them.

In terms of lump sum construction in its own right, we will be staying away from standalone lump sum construction contracts.

In terms of us really looking at the larger LNG opportunities, I mean the way those would be looked at, and we are not even close to signing contracts on them, so it is difficult to really sort of give you detailed information about the liability associated with the construction elements of that.

The reselling elements that are clearly wrapped as a lump sum and there will be some of it that move just given the gestation period and longevity across these contracts.

I mean so I think our appetite for risk is and award will be one that we can manage and we are not going to take something on and that we feel that is something that we can’t manage going into the future.

And that encapsulates a whole bunch of different aspects from the labor markets to the procurement cycle to how defining the engineering is at the point of putting a lump sum price on the table, and et cetera. So it’s a very difficult question to answer specifically on those LNG jobs just from the cycled event today..

But I would add Steve from my part, we do have several EPC contracts that are underway in the U.S., some on the Gulf Coast, where we do have construction responsibility and although relatively early in the construction phase those projects are going relatively well.

So the Company does take fixed price construction risk in certain cases and as Stuart said, this will continue to be an area where we will be in discussions with our partners and clients about risk allocation, and what we take or don’t take, but I think it would be wrong to come away to assume that we do not and we will not take construction risk.

We do take some that we think is prudent..

But we won’t take into the future standalone construction risk. .

Right..

I mean we are involved in the engineering and the procurement of the overall project management, that’s something we feel that we can manage, whether it’s just a standalone construction within our services business, where we have seen that a number of these, U.S. contracts that Brian referred to earlier, that didn’t go particularly to plan.

So we won’t be doing that again..

Okay, great. Thanks a lot..

Okay, great. Thanks a lot..

Thank you, Steve..

Next we will hear from Andrew Kaplowitz of Barclays. .

Hi. Good morning and this is Alan Fleming standing in for Andy today. Brian maybe I’ll start with a question for you, labor cost under absorption has been an issue for you guys over the past 12 to 18 months and this quarter it looked quite a bit better than it at any point, I think probably since early 2012.

So how much of this was some of the low hanging fruit in terms of cost that you have been out able to take out of the business and how much better can absorption get this year and into ’15?.

Hi. Good morning and this is Alan Fleming standing in for Andy today. Brian maybe I’ll start with a question for you, labor cost under absorption has been an issue for you guys over the past 12 to 18 months and this quarter it looked quite a bit better than it at any point, I think probably since early 2012.

So how much of this was some of the low hanging fruit in terms of cost that you have been out able to take out of the business and how much better can absorption get this year and into ’15?.

Well, that’s a great question. We have been talking about this, the labor cost absorption, obviously since I’ve gotten here and well before I got here.

And if you recall on the prior calls we have talked about reducing the staff levels throughout the world to match the workload that we had but there was a secondary phase dealing with more of the tougher cost to reduce fixed price cost such as rents and light.

We have continued to work on that, but more importantly we have continued to work on winning new work and the chargeability factor and that has improved on both ends. So we should say the cost reductions have continued but the chargeability has also improved.

Clearly for it to continue to improve, we need to continue to win new work and as I mentioned, we are well positioned to do so and how good could it get, on the custom in my career to seeing that labor cost absorption to be over absorbed.

So it could get significantly better, but it really comes down to doing the blocking and tackling, selling new work, and keeping your cost reasonable for the peeks and valleys that occur in this industry..

Can it get significantly better in 2014 or is that significantly better in 2015 and beyond?.

Can it get significantly better in 2014 or is that significantly better in 2015 and beyond?.

It can get -- I don’t want to characterize it or quantify it I should say. It certainly couldn’t get better in both the ’14 and ’15..

Okay, okay I appreciate that.

And then if I could ask you about that the three large LNG projects you’re going after two in North America one in Indonesia, can you talk about your confidence in those pursuits? And what’s different about your approach on these projects per se Kitimat because I think investors seemed skeptical that KBR can win another larger LNG job and so can you be more aggressive on these bids than you have been in the past and do you need to be more aggressive?.

Okay, okay I appreciate that.

And then if I could ask you about that the three large LNG projects you’re going after two in North America one in Indonesia, can you talk about your confidence in those pursuits? And what’s different about your approach on these projects per se Kitimat because I think investors seemed skeptical that KBR can win another larger LNG job and so can you be more aggressive on these bids than you have been in the past and do you need to be more aggressive?.

I think it depends on what and how you define aggressive. The answer to the question is yes, but it doesn’t necessarily mean to say you have to be commercially aggressive..

And I would add that the feedback on Kitimat, I think we’ve talked about it in the past, it wasn’t, it was a reimbursable contract, it wasn’t so much terms and conditions per se or being more aggressive on terms and conditions, that was the deciding factor.

Our understanding of things were extremely close in the evaluation in other factors other than when you’re looking at a fixed priced type contract in what the determination on the client slide was. So, I don’t agree with the thought that we cannot compete and we cannot be successful in pursuing these LNG projects.

We are very-very successful in pursuing the work that we current have executing it well, and there is no reason why we can’t do that in the future..

Okay, I appreciate again..

Okay, I appreciate again..

Thank you..

We’ll hear next from Tahira Afzal of KeyBanc Capital Markets..

Hi, good morning. This is [indiscernible] on behalf of Tahira.

My first question is regarding the booking cliff going forward, can you please comment on that and the correction you expect on the book-to-bill ratio?.

Okay, in general, we have said that our backlog will be down year-over-year through 2014 and that’s because of the LNG projects. We are currently executing two. We are finishing up a third. And we have a gas to liquids project also that’s virtually complete and no new EPC bookings in 2014.

Those projects and that business is so large that it is very challenging for the other segments to offset the decline, so year-over-year we would expect backlog to be down which is no different from what we had previously been saying.

When you look at the other businesses though the hydrocarbons business, I am much more confident that we could have some growth in backlog or breakeven on year-to-year, but given the strategic review that we talked about earlier I am not going to comment too specifically on what we expect backlog to be and the same with the IGP just booked the 650 megawatt power plant.

They have some other opportunities that could be booked this year on the government services side that we could see the possibility of an uptick in their backlog.

Services is a little bit more challenging too we’ve got through the review and get the pipe fabrication and modular assembly business stabilized a little bit more challenging to predict what that business activity will be between now and the end of the year.

So the core businesses remain very confident but LNG the bigger bookings would not come until 2015..

Okay, got that.

And my question is, have restatements impacted customer perception of the company?.

Not that I’ve heard. I haven’t had any feedback or positive or negative frankly from any of our folks who deal directly with the clients..

No, likewise..

Okay.

And last question is on the FLNG projects, can you throw some color on the prospects and the opportunities you see in that space?.

I mean I don’t think we want to talk about specific prospects just given their phase of where they’re in the development cycle, but we are involved in a number of very what I call early stage development of these projects I mean in terms of pre-FEEDS and moving into the frontend hopefully in the next week as well and there is a growing number of them, it’s a market that is growing and KBR comes with all the requisite skill sets to be able to differentiate themselves in that mind..

Alright, thank you. Thanks for taking my questions..

Thank you..

We will hear next from Vishal Shah of Deutsche Bank..

Hi, this is Susie Min for Vishal Shah. Thank for taking my questions.

I guess I want to go back to the backlog comment, I know in the past you have said you expect increased in backlog and bookings and the other segments except for gas mon and bookings this quarter was pretty low, so it would imply a pretty large ramp and could you may be give a little bit more color on whether you still think that that hope to? And then I have a follow-up question.

Thanks..

Hi, this is Susie Min for Vishal Shah. Thank for taking my questions.

I guess I want to go back to the backlog comment, I know in the past you have said you expect increased in backlog and bookings and the other segments except for gas mon and bookings this quarter was pretty low, so it would imply a pretty large ramp and could you may be give a little bit more color on whether you still think that that hope to? And then I have a follow-up question.

Thanks..

Okay. Again back to the gas monetization, no, that will continue as is that will be down year-over-year. Hydrocarbons a much more opportunity for maintaining backlog reflect the growing backlog. IGP is a little bit more challenging.

It depends on timing of some of awards later on in the year which could or could not happen in ’14 but certainly the activities on the government side is quite positive. A little less optimistic on the power side may be than we were at the beginning of the year but they have good opportunities as well.

So, services is the one that’s very difficult for us to comment and in my prediction on services would likely be down year-over-year just given the fact that we are focused on stabilizing a business and we need to do that before being out aggressively seeking new business for that pipe fabrication and modular assembly business.

The construction business though in Canada and the industrial service business in Canada continues to perform reasonably well. We think there are opportunities there. Whether they are going to be able to grow the backlog is too early for me to say at this point..

Okay. Thanks, that’s really helpful.

And then in terms of the bidding environment, how competitive is it? How should we think about what the margins for these projects could look like compared to what you already have in the backlog?.

Okay. Thanks, that’s really helpful.

And then in terms of the bidding environment, how competitive is it? How should we think about what the margins for these projects could look like compared to what you already have in the backlog?.

Yes, there should be in general there is not a shift, a major shift in market conditions if that’s what you are implying by that question. So, it should not be significantly different.

Remember though on the hydrocarbons with EPC business, we will have lower margin given the construction element of that work versus a pure home office type service business where the margins are only on our technical services which tend to be higher.

So, you have a mix issue within hydrocarbons but if you compare EPC contracts within hydrocarbons I don’t think you are going to see a significant move one way or the other..

Yes, understood. Okay, great, thanks for taking my questions..

Yes, understood. Okay, great, thanks for taking my questions..

No problem. Thank you..

We will hear next from Martin Malloy of Johnson Rice..

Good morning..

Good morning..

Good morning, Marty..

Could you provide us with an update on your current thinking on capital allocation policy given the strength of the balance sheet could we possibly see KBR looking at a larger share of purchase program?.

Could you provide us with an update on your current thinking on capital allocation policy given the strength of the balance sheet could we possibly see KBR looking at a larger share of purchase program?.

Well, as we have mentioned in our prior call, we had announced the $350 million share buyback. And we always have the maintenance program in place to recover shares to cover the long-term incentive compensation that are given to employees. So, those two plans still remain in place.

We have bought back $94 million worth of shares earlier in the quarter, so we are fulfilling our statements as we said we were interested in executing a share buyback plan. At this point in time, we are not announcing or we have no intention of announcing any incremental share buyback plans.

We have sufficient firepower to do so should we wish but beyond that I am not going to comment anymore specifically about what we may or may not do in advance of any share buybacks or not share buybacks just given the sensitivities and being in the marketplace I don’t think it’s good for the Company to be telegraphing in advance to other traders what we may or may not do in that regard.

But I can tell you that capital allocation is an area that Stuart and I spend a fair amount of time discussing already about what my thoughts are, what his thoughts are and it will remain an area of focus and clearly part of the strategic review, we will dwell upon exactly that what do we do with, what we have a strong balance sheet.

So, as I have said in the past, my thinking is everything is on the table. We consider all of our options when we look at capital allocation and I don’t think anything has changed in that regard..

Okay. And then you spoke about some optimism for growth in the hydrocarbons segment, could you talk about outside of the U.S.

what you’re seeing in terms of demand geographic areas types of projects that may provide you with some optimism outside the U.S.?.

Okay. And then you spoke about some optimism for growth in the hydrocarbons segment, could you talk about outside of the U.S.

what you’re seeing in terms of demand geographic areas types of projects that may provide you with some optimism outside the U.S.?.

Yes. I mean we’re seeing a far greater level of activity for KBR under the marketplace in general. And the U.K. and the Norwegian Continental Shelf, that we recently announced a award of the FEED contract for the Maersk Culzean Project in the North Sea and we’re working with Statoil in a number of things that are happening in Norway.

And obviously working with the other IOC’s in the ongoing projects in the North Sea so the level of activity around the UK and the Norwegian Continental Shelf is very buoyant. East Africa is also extremely buoyant and you know there’s a lot of activity across Mozambique, across Tanzania into Uganda and less over at some in Kenya.

So lots of activity happening there both in LNG and in offshore and the deep water markets in Angola continue to offer opportunities as well. And then, our activities in the Middle East particularly around United, out of Emirates continue with some focus. And again there appears to be a significant projects moving forward in that arena.

And we’re reasonably positioned on a couple of those. You know that the markets in and around Australia are probably more suppressed and albeit that things like FLNG and, I guess the offshore side of hydrocarbons continues with some activity to start our onshore LNG projects that we are doing right now.

There is very few new ones coming through in Australia because of the high capital cost that’s been seen there. So that’s probably a run through. Well, that’s a and the other area is in Latin America where the activity in Mexico to publicize, you know when the Mexicans are trying hard to establish a basis of investment for their oil industry.

So following on from I guess Brazil. So it’s, there is activity all over the world and you know other than I think probably the Australia onshore big project gas arena, the activity level remains high..

Thank you..

Thank you..

Thank you..

We’ll hear next from Will Gabrielski of Stephens..

Thanks, good morning..

Thanks, good morning..

Hi, Will..

When you talk about gas mon earnings being for the rest of the year is that off of a run-rate that includes that $33 million of called non-recurring item that impacted 1Q favorably or is that off of the 1/11 you reported from an EBIT standpoint?.

When you talk about gas mon earnings being for the rest of the year is that off of a run-rate that includes that $33 million of called non-recurring item that impacted 1Q favorably or is that off of the 1/11 you reported from an EBIT standpoint?.

Well, obviously we’re not going to have the 33 every quarter, but we still think there are some other opportunities to improve upon, I guess what you refer to as the run rate.

So no, we won’t get 33 every quarter but we still have the opportunity to close out additional items on that one particular contract and there maybe some additional opportunities throughout the year.

But what we’re trying to get to is the core earnings from the two main LNG projects that are underway, we’ll continue to be strong, both Gorgon and the Ichthys projects continue to go well. And they’ll go well into 2015 that’s what we’re trying to communicate.

But the year-over-year will not be a higher and that’s because the lack of timing of bookings of EPC contracts in '14. And we don’t execute in -- we won’t execute enough of the new one in '15 to get any significant earnings from them in 2015 to offset the ramping down as the Gorgon one in particular heads towards the back end of this lifecycle..

Okay.

Can you also help with Allenby & Connaught and you know as a construction of these lines are down, is there any way you can help to quantify the size and impact to that on numbers, or how quickly that fades away or is it already gone?.

Okay.

Can you also help with Allenby & Connaught and you know as a construction of these lines are down, is there any way you can help to quantify the size and impact to that on numbers, or how quickly that fades away or is it already gone?.

No, no it’s still ongoing, but no I can’t, I don’t want to be specific about an individual projects earnings per se. I think more importantly though is there are a number of opportunities, similar opportunities in the U.K.

and possibly elsewhere where we can do other contracts like that, where we can partner with someone, maybe have a joint venture and execute construction or other type of activities and then have a tail for services. So it’s not so much the Allenby & Connaught project it’s being the only one out there.

There are other structures within the UK and some other countries where we can do similar things..

Okay. That’s helpful. The triple M or MMM vessels that you own in Mexico, I mean how, it feels like that’s a headwind more often than it’s been a tailwind. And we don’t think about modeling those specifically or I don’t anyway, but they do seem to poke their heads up more regularly over the past few quarters as a negative.

How comfortable are you that you need to be in that business, I mean how strategically it cores into your relationship with that customer or is it something that you’re very confident is going to be fully utilized now on a good consistent basis going forward?.

Okay. That’s helpful. The triple M or MMM vessels that you own in Mexico, I mean how, it feels like that’s a headwind more often than it’s been a tailwind. And we don’t think about modeling those specifically or I don’t anyway, but they do seem to poke their heads up more regularly over the past few quarters as a negative.

How comfortable are you that you need to be in that business, I mean how strategically it cores into your relationship with that customer or is it something that you’re very confident is going to be fully utilized now on a good consistent basis going forward?.

I mean I guess there is two questions you’re asking and the one I think from the strategic view point I think we’ll look at it as part of the strategic review and tell you after we’ve done that review rather than say on the fly here. So we’ll come back to you with that.

In terms of it being reported in the last few quarters, that’s quite correct because they were out of service they have recently gone back in service on sort of three year term contracts, which I think historically being the norm and so other than figuring out where we are going to strategically without business, I think that you’d probably hear less about it going forward..

We will take our next question from Brian Konigsberg of Vertical Research..

Thank you. Good morning..

Thank you. Good morning..

Good morning, Brian..

Just starting -- just on gas mon again so, just trying to think about the trajectory there. You did about 400 million of revenue in the quarter. You have a couple of things still kind of winding down. I mean are we thinking the run rate into ’15 not including the potential wins on the other LNG projects you identified.

Is 1.2 or does it ramp down even more meaningfully than that into next year and maybe buffer a little bit by the potential awards..

Just starting -- just on gas mon again so, just trying to think about the trajectory there. You did about 400 million of revenue in the quarter. You have a couple of things still kind of winding down. I mean are we thinking the run rate into ’15 not including the potential wins on the other LNG projects you identified.

Is 1.2 or does it ramp down even more meaningfully than that into next year and maybe buffer a little bit by the potential awards..

Well I don’t think we are going to give specific guidance about what the revenues may or not be of any segment. So I am going to pass on that till we get back into giving some guidance. The quarter is primarily driven by the performance on the two LNG projects we have and the closeout on one of the older projects.

There still is some revenue going through from two of the projects that are closing out but it’s really the Gorgon and Ichthys projects who will really drive the earnings of gas mon and as we said Gorgon is past its peak, so it is coming down in terms of volumes of business where Ichthys is still ramping up or near its peak, but the line just won’t cross and we won’t get enough earnings from the new jobs in ’15 to offset the ramp down on Gorgon, but beyond that I can’t be more specific at this time.

When we come out of this strategic review and we determine what guidance we’ll give then maybe we’d give you a little bit more color on that..

Okay, yes fair enough. And just separately, just on I guess employee turnover retention rate I just want to get a sense of has that been picking up over the last couple of quarters just given the disruptions within the business we’ve seen.

Are there incentives being put in place or maybe if you get color on that is that a concern of yours that needs to be addressed?.

Okay, yes fair enough. And just separately, just on I guess employee turnover retention rate I just want to get a sense of has that been picking up over the last couple of quarters just given the disruptions within the business we’ve seen.

Are there incentives being put in place or maybe if you get color on that is that a concern of yours that needs to be addressed?.

I think looking after your people should always be at the top of your list, we are a people business that’s for sure.

And I think that yes there are retention there is some retention plans in place particularly at the project levels, and things like that for key people and that’s being looked at continuously and our turnover rate very significantly across the world and really is driven by the markets in which we operate into the many UK market at the moment is good but it’s not half as hot as the Houston market for example where the turnover is a bit higher than it is in the UK.

So it’s something we monitor consistently and so we work hard on, and is it a concern? No. Is it a focus area? Yes..

And I would add, I don’t think that this is only a KBR issue particularly in the Houston market. I know a fair amount about some other E&C companies in the market and there is a fair amount of movement. So to Stuart’s point I think it’s a lot more market driven than necessarily KBR driven..

Okay, if I could just actually sneak in one more, just about the recoveries. I guess I am just trying to gauge how big that might be? I mean what are the assumed recoveries that are sitting in the balance sheet right now.

And just to be clear I mean are those items that had been recognized as revenue and profit in historical quarters that has been maybe sitting in the un-built receivables, I guess you’re reevaluating that may turn into a charge if you assume it’s not recovered.

Is that the way I should be thinking about it? And separately I know the account actually the earnings in excess of billings actually ticked up in Q1 even though you recognized a bunch of charges in the quarter.

Does that illustrates that there is some more potential costs that are being distributed between you and customers that might need to be I guess transitioned into a charge if a resolution isn’t made?.

Okay, if I could just actually sneak in one more, just about the recoveries. I guess I am just trying to gauge how big that might be? I mean what are the assumed recoveries that are sitting in the balance sheet right now.

And just to be clear I mean are those items that had been recognized as revenue and profit in historical quarters that has been maybe sitting in the un-built receivables, I guess you’re reevaluating that may turn into a charge if you assume it’s not recovered.

Is that the way I should be thinking about it? And separately I know the account actually the earnings in excess of billings actually ticked up in Q1 even though you recognized a bunch of charges in the quarter.

Does that illustrates that there is some more potential costs that are being distributed between you and customers that might need to be I guess transitioned into a charge if a resolution isn’t made?.

Okay, first of all in terms of the un-approved changeovers and billings I am trying to recall exactly which footnote it is but there is a footnote that specifically details that it’s part of I guess footnote number five.

So you can see the detail there and there is also footnote number six where we have the long-term claims and receivables which is primarily the EPC 1 project with the dispute ongoing with PEMEX as well as the government disputes that we’ve had and the IGP power. I look at not one particular line item on the balance sheet as I think you referenced.

I look at more what I consider the working capital accounts. If you look at the receivables the cost in excess or unbilled, I think you referred to it. The accounts payable and the billings in excess, we were actually slightly better.

We are down about 23 million from those same accounts as of year-end so we’ve had a net reduction of working capital and that’s an area that I am focused on and it’s an area where I think we still have additional opportunity to improve our cash flows on.

So I don’t think you should look at just one item on the balance sheet because cost move up to accounts receivable and payables and the billing and all interact with one another, so I think you should look at them those four accounts on a net basis..

That concludes today’s question-and-answer session. Mr. Bradie, at this time, I’d like to turn the conference back over to you..

I’d just like to close by saying, I look forward to meet somewhere all of you in passing over the coming few months. Thank you very much for listening. You know, it was a difficult quarter, but I think the future is very-very positive. We’ve got a lot of work to do. I don’t think anyone disputes that but it’s a -- there is a huge commitment in this.

The people I’ve met in the business so far are absolutely passionate about what they do and where the business is heading. So without saying too much more at this juncture, I thank you for your time and we’ll talk again soon..

And that concludes today’s conference. Thank you for your participation..