Zac Nagle - VP, IR & Communications Stuart Bradie - President & CEO Brian Ferraioli - EVP & CFO.

John Rogers - D.A.

Davidson Nick Chen - Alembic Global Andrew Kaplowitz - Barclays Jaime Cook - Credit Suisse Tahira Afzal - KeyBanc Capital Markets Cleve Rickard - UBS Chad Dillard - Deutsche Bank Brian Konigsberg - Vertical Research Jerry Revich - Goldman Sachs George O'Leary - Tudor, Pickering, Holt & Company Martin Malloy - Johnson Rice Robert Connors - Stifel Adam Thalhimer - BB&T Capital Markets.

Good day and welcome to the KBR’s First Quarter 2015 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 prepared remarks. You will receive instructions at that time.

And now I would like to turn the conference to Mr. Zac Nagle, Vice President of Investor Relations and Communications. Please go ahead, sir..

Good morning and thank you for joining us for KBR’s first quarter 2015 earnings conference call. Today’s call is also being webcast and a replay will be available on KBR’s website for seven days at kbr.com. The press release announcing KBR’s first quarter results is also available on KBR’s website.

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 and Brian will cover KBR’s results in more detail and discuss our market outlook by major segment.

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

Before turning the call over to Stuart, we 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 could impact operations and financial results and cause our actual results to differ significantly from our forward-looking statements.

These risks are discussed in KBR’s first quarter earnings press release, KBR’s earnings presentation, KBR’s Form 10-K for the period ended December 31, 2014 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, Zac. Good morning all. I guess the journey continues and so I’ll move to slide three where I’ll just touch on KBR’s zero harm initiative.

I think what you see in the slide are logging indicators but to get there, we have a number of leading indicators, which are really driven by executive leadership and visibility of leadership on job sites and offices across the world, really driving the message around Courage to Care and the message around Safety is 24X7 Initiative.

And now as you can see these results have really improved KBR’s safety performance. And as we move through the first quarter, we’re now really at the level where we need to be and that is moving into the top quarter of performance. We want to get the zero harm, we’re not resting in laws at all.

But its significant improvement, it’s personally very pleasing I think clicking after yourself and those are the end user, there is a core value at KBR and one I am totally behind, so this is very much good business and great job by KBR’s people to get this performance.

So, moving on to slide 4, so really the Q1 summary, significantly improved earnings performance versus 2014.

I think the strategy is on track for the segment margins and the target savings by the end of ’16 that we published before and committed to achieving before, we’ve got more than a $100 million of cost identified and action to date that will be taking at the business and realized through 2015.

The Mag LNGs continue to perform well and will remain significant contributors to earnings in 2015 and with the way the projects are looking in 2016.

That really in terms of resolution of pending change orders some of those LNG projects, I think 2016 could be compliable to 2015 in terms of LNG earnings, which is a shift from where we were before and is really just part of understanding, I guess the longevity of these projects and the complexity, simplifying the complex in terms of what it means to KBR.

We continue to win in strategically important areas, the Yara BASF we announced full EPC in that we also announced the JV with the National Oil Company of Azerbaijan and SOCAR.

Strategy around reimbursable construction base them through in the quarter and I guess our positioning in LNG with Dragon LNG EPC and boil-off liquefaction project in the UK was pleasing win in that period. Oil prices remained depressed. No doubt about it and they were also top.

But I think KBR is focused on low cost natural gas projects in international government services, position as well and also we’ve got the opportunity, we’ll discuss a little bit further on in a presentation around UK Ministry of Defense and contracts that place is well for new awards through the year.

Our expectation as we declare that earlier as the backlog will be flat and we’re standing behind that statement.

We think that the opportunities in front of us a lot more below that top end with the tailwind and as expected our balance sheet is very strong, it remains robust with zero debt but as expected cost was negatively impacted in the quarter due to certain non-project related payments, and I’ll say that again, non-project related payments and Brian will discuss that later in the presentation.

So, that’s really the summary of the quarter and I would like to handover to Brian to put bit more meat around the bones in terms of the financials.

Brian?.

Thank you, Stuart and good morning everyone. Turning to slide 5, start with the bookings at the top right hand corner of the slide 899 during the quarter which has backlog of about USD10.3 billion.

I’d like to remind everyone that we only projects in backlog going out 5 years, we do have a number of contracts that extent well beyond the five year time horizon and Stuart will touch upon those a little bit later.

Revenues declined during the quarter compared to the prior year primarily due to the completion of some North American construction projects that we had as well as the Canadian modular assembly projects and also from reduced activities on the LNG projects if you recall, we had an LNG and a gas to liquids projects that were basically winding up but still had activity in 2014.

Gross project and equity in emerging that reflected improved underlying business performance and we’ve done a good job as Stuart has mentioned previously reducing our overhead cost. So, we had a good profit of quarter. You see the G&A is also down significantly from a year ago $21 million and the net income obviously reflects the solid performance.

EBITDA for the quarter $76 million. Moving on to slide 6, looking at the individual segments the technology and consulting group had a mix up to more technology related services and less proprietary equipments so that tends to reduce the revenues but it increases the margin associated with that segment.

The E&C, the largest segment reflects the completion of the construction and modular assembly projects have previously touched upon and the government services is down a bit and that reflects less support for the UK military in Afghanistan as the UK has pulled back out of the Afghanistan, obviously the services we provide declined as well.

Moving on the gross profit and equity earnings, the technology in consulting reflects as I mentioned that shift in module work.

So it tends to bump up the margins but as we progress throughout the year, we would expect more proprietary equipment to come back into the mix and therefore the margins will tend to back down towards the targets that we had originally talked about in December, margins in the low 20’s in terms of percentile.

E&C reflects the improved performance and a lower cost over heads. In 2014, we had $41 million related to those losses on the Canadian modular assembly projects as well as 8 million on the North American construction projects, they did no reoccur but we also had a favorable settlement in 2014 of $33 million also which did not reoccur.

Government services as I talked about is related to the buying out activity, in Afghanistan we had $5 million in the U.S. related to legacy legal fees on the U.S.

government contract as we try to close out the LOGCAP III and Rio contracts and the non-strategic businesses were relatively quite the way we like them to be and you see the EBITDA reflects reduction of the overheads in the earnings that we previously talked about.

Moving on slide 7, cash -- cash was down for the quarter 758 balance and you see the breakdown between domestic and international cash. Primarily the uses of cash were as Stuart mentioned earlier non-project related.

We try to outline here the largest components we are in $12 million payment to our former parent as part of the settlement that we had reached with them last year that would appear in the operating cash flow on the cash flow statement. We had more close outs of U.S.

government audits relating to primarily the LOGCAP III and LOGCAP IV contracts that required us actually send a check of $23 million back to the U.S. government but I’d like to point out that the U.S.

government owes us more than we owe them and we would expect as we move forward for the cash flow related to these close outs to be positive when cash flow flowing to us.

We also bought out a partner in the Middle East in Saudi Arabia and that was $48 million, 8 million of which appears in the operating cash flow and 40 million will show up in the financing activities on the cash flow statement.

We bought back $16 million worth of stock, we pay $12 million in dividends and finally we had a significant impact related to the foreign exchange. During the quarter of the U.S.

dollar strengthened and $28 million of the 64 that are shown here just reflects the translation of foreign currencies pound sterling, Australian dollars and Canadian dollars, just being translated back to the U.S. dollar at a higher U.S. dollar rate. So it means those foreign currencies translate into lower U.S. dollars for financial reporting purposes.

The balance 36 is reflected in operating cash flow that was a settlement of hedges.

We had a number of hedges in place as we always do and when the dollar strengthened obviously those hedges required us to settle and it cost us $36 million in cash, offset by the gains that we had by the dollar strengthening and reducing the overhead or the overall liabilities that we had in foreign currencies.

So with that I’ll turn the conversation back over to Stuart and move on to slide 8..

Thank you, Brian. So I guess the market outlook for technology & consulting really driven by gas and really lead by ammonia refining, olefins and across the chemicals market. We just received a significant order for license basic engineering and pre-FEED for work of series of ammonia revamps that will come through in Q2 bookings.

We’ve also just been awarded a technical services agreement that leads to I guess source EPC pricing for the another grass roots ammonia plant in Mid West U.S. which is valued around about a $2 billion opportunity for E&C U.S.

Our opportunities in China particularly around VCC - Veba Combi-Cracking technology which convert heavy hydrocarbons into lighter fuels like diesels is really gaining momentum in the start-up of the first commercial facility and China has gone pretty well and as a consequence have received a number of new inquiries around that technology.

The market is tight for the consulting business but we continue to see selected opportunities in upstream on onshore and offshore and more in midstream and downstream. We continue to look for new opportunities to expand our technology portfolio as we’ve discussed earlier.

So moving onto the Slide 9 for E&C, our largest segment, a number of key wins that we’ve announced in Q1 that really support our strategic focus, the Yara / BASF, EPC award, the BG Alliance and that’s kicked off in earnest now and where that leads to over the next year with the announcement of Shell’s acquisition of BG.

We need to work closely with Shell under BG to see how that develops. Saudi Aramco, that work is in the process of kicking off in the long term agreement with them to support their offshore oil and gas assets and we discussed before this major reimbursable construction services award.

We also continue with a healthy base of backlog in E&C, the two mega LNG projects I mean those will contribute as I said before hopefully in 2015 under the resolution of pending change orders, the earnings will be comparable in ’16 as they are in ’15.

Key prospects, the support backlog growth in 2016 rather I would say that we do need to win them and we’re currently executing four ammonia urea projects in North America using our technology and what I would call a differentiated offering I guess with the technology and self-perform construction with our delivery capability.

So moving onto Slide 10, we’re going to increase our focus on the Middle-East and we have recently announced the strengthening of the management team in that area and obviously the acquisition of our Saudi partner -- one of our Saudi partners allows us very much to get clarity of focus in how we’re going to approach the market in Saudi Arabia that we feel regardless of oil price will continue to spend and develop and I think that’s absolutely vital going forward, so we’re putting a lot of effort in that marketplace.

We talked about already the EPC pricing for the 2 billion grass roots ammonia urea complex in the Mid-West.

Low cost development in the Middle-East and Caspian are driving onshore upstream opportunities and I think the JV with SOCAR where we’ve got a strong footprint in country that plays to national content and the local seen positions as well for offshore ground field projects.

We’ve been supporting BP and Azerbaijan for decades now and we’re very well-known there and have actually helped BP develop all their assets in country to-date.

Offshore developments pretty selective but they continue in the Gulf of Mexico and Africa and we’re seeing again sort of some key opportunities in the North Sea and the UK and offshore Norway.

As I said, we’ve got early works and early work award against the BG Global Alliance which is growing well and several major LNG developments are also in process that Shell Global LNG agreement, we have got a number of assignments within that, Tangguh Train 3, FEED JV work continues with pricing EPC pricing being submitted at the end of this year, we think that project will perceive in early 2016.

And Magnolia, we’ve talked about this before it’s a medium sized new technology and we’re in a so-so position there sort of working to get up pricing together by Q3 and I guess the better news there is they were working towards finalizing the EPC terms and conditions later this month.

And that’s very close to finalization and I guess the other piece that Magnolia have announced recently is they’ve signed I guess the first off take agreement for one of the trains which is really a key milestone in allowing these projects to go ahead.

We’ve also picked up a pre-FEED for a major LNG project for the confidential client and we’ve just been awarded the front end design for an exciting opportunity for FLNG in the Black Sea.

We are still in process with Pacific Northwest and Tangguh but the Technip/KBR JV was not shortlisted for Lake Charles and the reason for that is the joint venture was unwilling to take unlimited fixed price constructions risks in the Gulf Coast for a project of this magnitude and that was a highly considered decision by the joint venture.

So moving to slide 11, the outlook for government services, I think we’ve got government services really heading in the right direction. Now we’ve cleaned up what was the old IGP and we really understand our customer and where our business is heading.

So we’re seeing significant opportunities as a result that the UK Army rebasing the client has confirmed this intention to work with the KBR JV and contract with that entity, for the facilities construction, which is expected to be awarded in Q3.

The strong operational performance and incremental scope opportunities for long-term maintenance for the UK Ministry of Defense, we got the ongoing what there, we’ve got an agreement that will run for another 21 years and if we actually, we’re looking very closely now the PFI arrangements are a little bit different than your typical commercial arrangements and any contract consolidations and things like that come with some obligations on the part of the UK government, because these are finance deals.

And if we took that into backlog and we’re looking carefully whether we think that’s appropriate or not, but just to give you and the market an idea of what that means it would be of the backlog would increase by about $4 billion, which is really significant and I think is a true reflection of what the business has in hand.

We were confirmed as the preferred bidder for the UK Ministry of Defense fixedwing training contract which I talked about earlier that’s progress and there is a lot of work going on now really to sort of the financing in place et cetera to make that all happen and again is another long-term annuity contract opportunity and again the expectation is Q3 closure.

So a number of international government services opportunities with the UK police and other local governments and also with Australia. And the U.S. oversea base operational support opportunities continue and we’re recently awarded the Arabia credential with contract in Q2. We’re seeing some growth and the services and Iraq as we support the U.S.

Military and what’s happening with Isis and we expect that to grow a little bit further and with opportunities to grow even further going forward depending on what happens there.

So returning to page 12 and to summarize, I think in Q1 we saw a strong and improved operational performance and financial outcomes and the restructuring continues on track and continues on track to achieve the targets that we set out.

We continue to have good success and winning strategically in important projects and the areas where we’re pointing the business albeit we’re not running away from the fact this is a difficult market.

Backlog statements we stand behind in 2015 with opportunities to grow in ’16 and I guess the one piece again just to reiterate is the LNG projects remain significant contributors in ’15 and will be in ’16 and resolution of these pending change or this good result and LNG ’16 being comparable to ’15.

So we’re reaffirming our annual EPS guidance of $1.07 to $1.22 excluding legacy fees. And as Brian said before the fees in Q1 were $5 million of approximately $0.03. So that really concludes our prepared remarks. And I’d now like to turn the call back over to the operator for questions. Thank you..

The question-and-answer session will conducted electronically. [Operator Instructions] Our first question will come from John Rogers of D.A. Davidson..

Couple of things, first of all just on the G&A reduction that we saw in the quarter, is that a good run-rate or we continue to see that decline through this year and into 2016?.

Now as we said before, we would expect more across to the action throughout the year. So, we would expect that those numbers to as minimum be the same but hopefully throughout the balance of the year decline. So, we’re not done with the cost reductions yet..

Okay.

I guess and that would suggest that the gross profit or the segment contributions and would come down a little bit from the run rate we’ve seen recently through the rest of the year?.

We’re keeping the guidance the same. We have a long way to go as Stuart said it’s a pretty tough market. So, we’ll see. It’s early on but we’re not going to give any additional guidance in terms of what the margins will be for the on a quarterly basis for the balance of the year..

Okay, fair enough.

And if I could one more, in terms of the buyback was modest in the quarter, any update and thoughts there?.

No. You know we don’t comment about what we’re going to do or not do in terms of share buybacks.

Obviously with the year end close process there was a limited amount of time in the quarter that we could be doing buybacks but we really don’t comment because I don’t think it does anything to improve our shareholder value by telegraphing what we may or may not do in the capital markets. .

We’ll go next to Robert Norfleet of Alembic Global..

Hi, this is actually Nick Chen for Rob this morning. Congratulations on a nice quarter. Just in terms of the cash that you guys have on balance, something like three quarters a 1 billion.

How do you guys see yourself allocating that?.

Well, as we said in the past Nick, we try to have a balance of the capital allocation policy. We’re trying to grow the business and M&A would be a component of that we like the technology as an area of focus. But we also are committed to recurring capital to shareholders.

And as you see on slide 7, we had $28 million in cash return to shareholders, the repurchases and dividend and since this has been back to January 2007, we’ve paid back almost a $1 billion. And we think we’ve taken a balance approach to it..

Okay. Fair enough. And I’m looking at your guidance actual portfolio of businesses right now. You’d mentioned during the investor day looking into divestures or existing some of those businesses.

Are there any updates there?.

Yes. We continue to have discussions with both our building group and our subsidiary as well as our U.S. infrastructure our business as we previously had talked about and hopefully we’ll be able to close something this year. .

As probably what he was saying that the divestures of those businesses is really to tie that up for the company and get the management focused on the key areas of the future. There are not going to be massive dollars coming into door. And I’m trying to be very straight forward there. .

And I’d also add like Nick that these are nice little businesses and they’re not what problem business that we need into that, there is much more of a focus on the strategy we laid out in December..

We’ll go next to Andrew Kaplowitz of Barclays..

Hi guy. Nice improvement this quarter. So, Brian you stood by backlog growth in 2015 which was your previous guidance.

So maybe you can talk a little bit more about where will the back log, I should say flat backlog for the year and where will the flattish backlog come from do you still need the UK mine work this year to get there and are you counting on bigger ammonia work or anything LNG this year?.

I think all of them. It’s probably the way. I mean, we’ve come and I actually said that we expect the UK MOD contracts to close this year in Q3 and we still stand by that, we think that’s the right timing and obviously that would factor into what we’re doing in terms of backlog this year obviously.

And then you I guess our pipeline of opportunities in North America, we’ve talked about some LNG projects, we’ve talked about some ammonia projects and some chemical projects in addition to what we are looking out in UK in the hydrocarbon sector.

So I think it’s a combination, it doesn’t sort of, it doesn’t hinge on one particular ward or another, it’s a close to portfolio and so as a consequence of that that’s why we were happy to standby the statement at the moment because it’s a spread..

Got it and Stuart can I ask you about your ammonia portfolio in particular? You mentioned you are working on four ammonia projects in North America and two projects in the EPC stage.

Can you talk about the duration on these projects and your ability to maintain or grow your ammonia related business and what does seem like a more difficult overall environment for those types of projects?.

That’s a good question and I think pleasingly we’ve got some of, one of the tail end, but because of the awaken structure and we’ve got some just beginning, I guess the engineering and have got two over three years to go and we’ve got some there are in the middle.

The other nice thing is two of them are lump sum EPC and two of them are reimbursable EPC. So there is a good mix in terms of how we manage our risk there as well and I think the drivers around the ammonia interesting enough I think if you look at the starts around the implementation of the ammonia in the U.S.

I think the facilities they are planned to be build at the moment. Well actually to satisfy the demand domestically and if you think about ammonia and its use and I guess food production and fertilizers going forward, the opportunity to utilize cheap gas to become an export product from the U.S.

it hasn’t been even thought about and so when you start I am sure this has been thought about but it’s we know at that times of capacity. So I think the opportunities and the drivers behind that part of the business is somewhat different to your oil & gas markets.

But that’s why we think it’s an exciting area for us to be hugely differentiated with the technology..

We’ll go next to Jaime Cook of Credit Suisse..

Hi, good morning and nice quarter. I guess my first question I thought was interesting the comments you made about the L&G project and that the income ’15 could be comparable to ’16 assuming that you get a favorable change order.

So one, how would you handicap the probability of you getting that change order and what is that dependant on? I guess two, how much does income ramp down? I mean if you don’t get that change order and then I guess just my second question actually one of you answer that first and then I will go with my second question..

Okay. So I think Jaime we don’t really talk about individual project as you know in terms of their earnings. But what I would say is I made the statement that it will be a substantial contributor and L&G performance will be substantial contributor and ’15 obviously and then ’16 and that’s actually doing anything.

Very differently it’s just the way these projects have evolved and we think the change orders that we’re looking is not high change order.

It’s a number of the outcomes because of things changing on the projects themselves and we think that the valid was taken a very close lookout and we’ve done the forecast to complete analysis and we start those statements we stand behind, we’ve been putting this into presentation if we didn’t think what we were asking for was reasonable and contractually right..

Okay.

So you wouldn’t expect the substantial decline if you didn’t favorable resolution on the change order, that’s the way to talk about it?.

Yes, I think I mean like all these things, the way these projects evolve, it’s difficult to make a firm statement around the level of decline. But we still think it’s going to be a substantial part of around next to next year..

Okay and then just a follow up question on the cost cutting actions.

We saw the 21 million come out of G&A which I think was just ERP and Brian you sort of mentioned that, so you really don’t have any headcount reduction coming out of that? So how do we think about that in latter part of the year and then you also in the 10-Q you did mention that there were cost savings that hit the different segment lines.

So what inning of the ballgame are you with regards to the cost savings in the segment line and then again any color on how we think about this shift progress throughout the year?.

Jamie, first of the G&A same are not just ERP..

Was that majority of it?.

No, maybe half of it. ERP is a component of it, but we also as you recall, if when we stop the ERP program we must maintain and continue to operate the existing ERP system. So there’s some offset to the savings of not spending on the ERP because we need to maintain and continue to operate the existing ERP.

So the majority our cost reductions and I don’t think it’s an – I know it’s an accurate statement about there being no headcount reduction, there has been headcount reductions as the matter of matter of fact that’s where the majority of the savings have come from..

Brian, I was trying to give you compliment that it should ramp your corporate G&A should come down throughout the year, you’re on the wrong side of this but anyway..

No, I understand and I said that earlier it should come down, but I just wanted to point out that it’s not just the ERP saving, it is a very comprehensive approach to cost..

And on the segment line?.

Yes I mean I think you’re right Jamie you know that the cost of the headcount reduction you don’t calculate all in Q1, you will see more of that coming through the G&A line as Brian said, so thank you for the compliment. That’s good. We’ll take that.

And in terms of the coming through the segment line, yes we would still – we’ll continue to drive efficiencies there. We set out the target margins and we expect to achieve those through the timeframe we’ve committed to. And the cost reductions through there will be driving that move to achieving those margins..

We’ll go next to Tahira Afzal of KeyBanc Capital Markets..

I think a lot of my free cash flow questions have been taken care of.

So I’ll go to the LNG side and just wanted to find out, if I look at Magnolia LNG and the sponsors it seems like one of your key assets over there’s been on the technology side given the technology they’re using could lift we’re out to get some thoughts I know those guys have also are proposing a project they’ve had LNG in Canada.

Does that sound like an opportunity on the mix sized project there as well and some of the small to mid-sized LNG projects you’re seeing emerging in the U.S.

potentially in more interesting for yourself from a risk perspective?.

We think that the mid-sized LNG opportunities are attractive. I think the capital requirements make them a little bit more attractive that we can get there the technology to work, it becomes we feel quite compelling from a return perspective.

I think that the opportunity beyond this is clear because the capital intensity is lower if you can think about how you can actually replicate or motorize easy you can add a train after you can start offer 1 million tonne, 2 million tonne train and then add another and then add another and so that there’s ways to do that and there’s ways to get more and more efficient doing as well for the time so we think that this is a good opportunity, we think it could be very attractive to KBR’s future..

Got it okay and just in terms of some modeling new increase, I know typically E&C companies when they built in large projects, a building domain on a probability basis, so when I look at your flat backlog commentary, does that view magnolia and as a whole in terms of how you see it, does not exclude it, would love to get a little more color around that..

What I said earlier, it’s a portfolio of opportunities and it doesn’t hinge on one particular opportunity..

So hypothetically speaking if you do in booking Magnolia, this mean could we apart from your UK opportunities let assume you get those two, is there is a scenario of backlog potentially being after you through it..

I would rather stand behind the statement and the backlog is flat and you guys can do that, you can think that too and there are lot of moving parts out there and we are working hard in all of them but as of you know you can’t win everything and not everything go and so I think we would rather stand behind our statement..

Got it, okay. And congratulations, once more, great job on the cost reduction side..

Our next question comes from Steven Fisher of UBS..

This is actually Cleve Rickard on for Steve this morning. Nice quarter guys.

Just going back to cash flow a little bit -- sorry if I missed, if the CapEx was essentially was zero in the quarter, how sustainable do you think that is? Then more generally how consistent do you expect cash flow to be going forward?.

Well, we are not a really a heavy cash-flow, type business. Our cash flow tends to be more IT related, and as we mentioned earlier, we had thought the role out of a new ERP system. So, CapEx is replacement of laptops and things like that. So, it should not be a significant component going forward.

And I’m sorry, the second part of your question?.

Just on cash flow consistency and how consistent do you expect it to be in terms of operating cash flow or free cash flow?.

The goal is to try to have earnings cash flow equal or exceed earnings. We did mention though at that the beginning of the year that we have some loss projects, uptick the businesses that we are exiting on the power side. So they will consume some cash, but we are not projecting negative cash flow in total..

Okay, thanks, I appreciate it.

And then just, touching on backlog, what's your level of confidence that you can replace Gorgon on excess and you know some of the bigger downstream projects over the next 12 months to 18 months, and I guess more generally how critical is winning large projects to KBR's future, to sort of go through the evolution and restructuring. .

I mean, I think, it's the portfolio answer. I mean I think we are in a reasonably small club, in being having market confidence to execute large projects. So that will be a key part of our future.

But also you know what we are doing and what depends what these days you call big I guess, but that -- you know what they were doing -- in the ammonia sector, these are typically $400 million to $600 million type opportunities but when you put Rio on the back end it goes up to $2 billion type opportunities and I would call that reasonably big.

So again it it's a portfolio. And you know I think that in terms of the statement aren’t flat backlog. We have to be replacing what we are doing now to achieve the flat backlog..

Our next question will come from Vishal Shah of Deutsche Bank..

Hi, this is Chad Dillard for Vishal, nice quarter guys. So if I look at the government services gross profit and equity margins and back out that $5 million -- cost gets about maybe like 9.5% margins, and that compares to a target of low teens for the business.

So my question is, how do you think about closing that gap? What needs to be done in terms of, you know what projects needed to be rolled of and what you need to rely on the future bookings, or are there margins levels already in the backlog to get to that target? And can you hit that in 2015?.

I think the commitments are achieving the targeted margins, are into 2016, that's for the first statement. That being said, I mean the government services this is as I said earlier, I think have not got it on track. It's headed firmly in the right direction.

I think we're going to be working hard on the cost side of that business, but at the same time the opportunity even to hold cost or reduce them and increase the volume particularly in the UK and a little bit in the U.S. and Australia, will allow us to drive to those margins..

I mean, can you just talk about what you're seeing in your E&C business, I mean do you expect to grow backlog here in 2015? Then had there been any change in bidding activity, are you seeing any pushouts or any shift in market mix?.

I think all E&C businesses are experiencing challenges in this market. Again we have been saying that, probably as early as anyone, and our whole philosophy here is to what strategically do we need to do two, number one to be very competitive in this market place.

And secondly, position the company to take advantages of the opportunities coming our way. So far I think that strategy is bearing fruits and particularly with our exposure to gas. So I think there will be quite -- I think the mix will be similar to what you've seen in the past and particularly the recent past in North America.

And so in terms of the backlog question again it’s that portfolio answer where it won’t be in one specific area, it’d be in a number and it’ll be in a number of markets..

Our next question comes from Brian Konigsberg of Vertical Research..

Hitting again just on the cash flow question, so correct me if I’m wrong I think that you mentioned that you think actually cash flow will be positive this year which I think is actually a change in the commentary from when you spoke last time.

Can you just clarify that that is actually the case? And separately I don’t know if you could take a ballpark guess, do you think you could still end the year with about $1 billion of cash where you ended Q4 at?.

I don’t think we’ve changed anything Brian about what we’ve previously said about cash. We’re likely to be as it get back to a more normal pace, some of these one-time items that I outlined earlier go away, but the earnings the cash flow from earnings is going to be somewhat consumed by the lost projects that I mentioned earlier on the power side.

So I wouldn’t be too enthusiastic about the positive cash flow, I would think about it as more as a neutral cash flow for the balance of the year..

So neutral for the rest of the year, okay, got it. And then, can you comment on non-controlling interest so that stepped down in Q1? I mean, is that the new run-rate and as you’re progressing to ’16 does that take a step lower as Gorgon wraps up? Curious to hear your thoughts on how that progresses..

As we said before the LNG earnings we would view to be comparable in ’16 versus ’15, so there is a component related to the LNG projects on Gorgon as you correctly pointed out. So it will be the – I’m trying to avoid giving specific guidance on individual line items within the P&L..

Okay but I assume the mix between the LNG projects will change even if your contribution or the total amount will be flat, right, so that non-controlling interest line could move around?.

Yes it could but you’re right, you’re going to have Ichthys which is still ramping up versus Gorgon which is obviously closer to the back-end of the project..

And just last question.

Maybe can you just comment on this JV partnership that you bought out in the Middle-East, what is it focusing on and where is the opportunity setting out now that you’ve full control on that?.

I mean it’s I guess it was a long time historical partner of KBR’s that we together with our partner we felt that the opportunity was probably better served for both of us to part ways and we think that Saudi Arabia as a very strategic market for us.

We like doing business there and we’ve got a very healthy relationship with Aramco and with Sabic in country and it’s been a large part of our history and we think just it will continue to be a large part of our future and acquiring and taking as the partner just really tied us up how we can take that business forward..

Our next question will come from Jerry Revich of Goldman Sachs..

Stuart I’m wondering if you could just say more about the technology path on Magnolia LNG. You mentioned that it allows for a single train, but I think there’s also the operators talking about significantly lower liquefaction cost as well.

Can you just flush-out here for us your offering there and whether the competitive landscape is more narrow on that specific type of technology, any sort of color that you’re comfortable sharing with us?.

Yes I mean I think I said before I mean the component parts of the technology have all been proven before just not in combination I guess. And so that the liquefaction pieces as no different I think that’s accruing piece that comes into this through the ammonia it’s driven by ammonia.

And if anyone in the world can really understand that I would say the KBR is as good as anyone in the ammonia technology, so I think we’re kind of uniquely positioned to really understand the technology and understand what it can and cannot do.

In terms of the sort of it will produce LNG like any other LNG facilities, so in terms of its offering to the marketplace there’ll be no difference there.

I think the attraction is that the operating cost and the capital cost are highly competitive and if we get that right, it will be a compelling piece in the market place and I think that’s been proven out by the recent sort of announcement around signing the uptake.

I think the other piece in this a little, I think the commitment the technology they are looking at it is these are 2 million ton train around new typical 5 million ton trains and Magnolia its first phase is looking at 4 million tons of two trains.

But there are opportunities to do more than that, it’s something that’s being explored and for that side in particular and then you can actually replicate that model elsewhere in the world..

And where else do you think it could be the closest to being replicated?.

I think as mentioned that L&G limited to the owners of Magnolia, they have a got the beginnings of our project in Canada called bear head. So they are already looking as you can actually replicate this elsewhere and they sort of moved that project along a little bit and they certainly feel there is a market for this beyond Magnolia..

Okay and then how would you characterize the competitive landscape on Pacific North West L&G, I guess on the Japanese press there is discussions about your competitors being really aggressive on price and I’m just wondering if you could just comment broadly on how the discussions they are going?.

I mean again that’s a very-very delicate stage of bidding cycle is probably inappropriate to comment and sorry but that’s the truth of it and I guess the statement that we would make is that we will only take on projects where we feel we can make a fair return for a shareholders and we will do in a way that we feel that we manage the risk and if we force them to situations like Charles that we announced that we feel uncomfortable and in KBR JV - [indiscernible].

So they didn’t proceed. I think that’s probably the statement to make but I don’t think we can see specifically how we feel about Pacific North West at the moment..

Our next question comes from George O'Leary of Tudor, Pickering, Holt & Company..

Good morning, guys. Good quarter especially on the cost front.

And kind of in that range as we model going forward and you got a $100 million of cost save either coming in the works for achieved at this point, could you kind of split out for us where the incremental cost save come from here kind of what leverage you are looking at point and maybe just qualitatively if it’s more further test to SG&A and more if it is kind of overhead reduction within the segments..

The short answer George is going to be from both. This is a comprehensive view of cost both G&A line but also frankly in the businesses.

So it’s going to be split between the two order of magnitude probably more in the businesses because they are larger than the corporate staff and corporate activities, somewhere in the neighborhood of typically 58% to 42% is kind of the spilt..

Okay, got it. That’s very helpful color and then maybe just one more follow up on that because most of my questions have been answered. SG&A reductions quarter-on-quarter were very impressive.

Would you guys say you are kind of ahead of schedule or in line with your plan? To us I think to most people on the street it seem a little bit accelerated but just be curious to get your thoughts..

I believe these comments as we’re on track. These things go and fit and start. It’s still early days in the year. So we’re confident that we’ll achieve the 200 goal that we set out and we’ll give you update as we roll through the year..

We’ll go next to Martin Malloy of Johnson Rice..

Good morning.

Just a question on the $2 billion ammonia urea project opportunity in the Mid West, is that essentially a pre-feed, that’s what you’ve been awarded and what’s the timing of a potentially PC over there?.

So it’s a little bit more than a pre-feed because we actually have seen results and from the PC pricing. So you have to get the definition and then you need. We’re going to market and actually build up that pricing. The customer themselves have got -- they feel solid backing to move this ahead.

So it really depends on whether we can actually get the pricing and the confidence around execution which we’re working very hard to wants to know. So the timing is looking closure to year-end intend to been able to do all that work and away that sales wise of the KBR on the risks that will be taking on.

And secondly to get the owner aligned that everything in place. So that’s probably what we can say in the moment. But it’s an exciting opportunity we’re in a sort of so-so of position and that work is start at earliest..

Okay. And then as far as the government services some of the opportunity there.

Is there any help that you can give us in terms of the potential impact to BKR size of the Army, UK Army rebasing UK fixed-wing training contract?.

No. Only because we don’t really like to comment on those individual things. And again we’re in the process of negotiating those opportunities and its inappropriate to talk about scale or size or whatever it’s just not the right time to do..

We’ll go next to Robert Connors of Stifel..

I was just wondering, if you can provide some detail on the timing of which you guys pointed out recently indicated in queues of the $370 million in foreign cash that’s out there.

And couples of things I guess like timing as well as if there would be any potential taxes on that amount what would they be as will you guys intend to use that amount for?.

Well Bob, we’re tried to communicate that we have the opportunity to repatriate cash. Not necessarily the intention to repatriate cash. Well, I’m going to bring it back when we need to do so, if we need to do so. In terms of the tax implications, right now the current situation would be, would not have any significant tax implications to us.

Given that we have significant foreign tax credit as well as some tax losses. So the cash tax impact would be relatively are small and the P&L impact would be also negligible.

So it just more the goal that we have publically stated have the opportunities and move to cash around more freely, internationally without having leakage both on the P&L as well as on cash taxes..

Okay. And then can you give us, I mean looks like execution on some of those problem projects was pretty good in the quarter.

But you guys completely out of what’s there, because what we intend to find here and just E&C land is critical settlement issues tend to still pop-up usually around year-end?.

I mean part of the, I guess the objective of the way we start to the company is to get an option that focus on execution. And very much aware that we put some lumpy results usually going to long way in the past and every efforts being may to ensure that we got head of the curve going forward.

Sometimes I guess historical projects, we’ve taken a long hard look at those as far of the restructuring effort and the statements around the year-end. And I think the teams have done a good job and actually addressing those situations that are very detail project level..

We’ll go next to Adam Thalhimer of BB&T Capital Markets..

The two businesses that you’re selling the buildings group and the U.S. infrastructure business.

What should we be thinking about in terms of value and timing?.

I don’t think we can comment on the value number moving to statement earlier. And again those people actually, in the process of actually looking to acquire those businesses. So again everybody an appropriate to see a number, we have said its not, that’s it’s tens of million, it’s hundreds of millions.

We have made that statement before and that’s probably the right. So thinking around this and the timing will be through the course of the year there is no, one is more advanced than the other. But in the world of acquisitions you know you’ve got to kiss a lot of frogs and sometimes the offer at the last moment.

So, it is difficult to -- I'd love to give you a definitive answer on that but it would better to stand behind it, and we’re not going to do that. .

Okay. And the three power plants, what was the negative impact in Q1 as you look at as they start to finish up, we’ll be thinking about one of those is more of a negative drag than the others in terms of one that finishes up this year versus ’16 versus ’17..

We don’t want to comment about profitability on any individual project. So, we can’t be more specific than that. You see the results in the P&L non-strategic businesses basically had the really no significant impact from the P&L perspective. .

Okay. And lastly the pipe-fab award for the pipe fab contract in Canada runs through 2017. What’s the chance that you would have another award pop up under that agreement. .

There is always a -- I mean I think it’s pretty lower decline as maturely understand and the market is not -- the Canadian market is probably one of the first to be affected by the overall price. So, if you think about it in that context that gives you good idea. .

And that is all the time we have questions today. I’d like to turn it back to Stuart Bradie for additional or closing remark. .

I guess the closing remark is thank you for listening and we do appreciate your attendance and your questions and obviously if there any follow ups we’ll be glad to fill those. Thank you again. .

That does conclude today’s conference. Thank you all for you participation..