Lynn Nazareth - Vice President Investor Relations Stuart Bradie - President and Chief Executive Officer Brian Ferraioli - Executive Vice President and Chief Financial Officer Mark Sopp - Executive Vice President.

Robert Norfleet - Alembic Global Advisors LLC Chad Dillard - Deutsche Bank Securities, Inc. Jamie Cook - Credit Suisse Securities LLC Tahira Afzal - KeyBanc Capital Markets, Inc. Steven Fisher - UBS Securities LLC Andrew Kaplowitz - Citi Anna Kaminskaya - Bank of America Merrill Lynch.

Good day, and welcome to the KBR's 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 and you will receive instructions at that time.

For opening remarks and introductions, I would like to turn the call over to Lynn Nazareth, Vice President Investor Relations. Please go ahead..

Good morning and thank you for joining us today to discuss KBR's fourth quarter and 2016 results financial results and 2017 guidance.

Joining us on today's call will be KBR's President and Chief Executive Officer, Stuart Bradie; KBR's Executive Vice President and Chief Financial Officer, Brian Ferraioli, and KBR's Executive Vice President Mark Sopp who will assume the role of Chief Financial Officer on February 28.

Stuart and Brian and Mark will discuss KBR's financial and operational results, discuss our market outlook and provide guidance on our earnings expectations for 2017. Please refer to the accompanying presentation that is posted on our website in the Investors section of kbr.com. Following their prepared remarks, we will take your questions.

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 fourth quarter results and our annual Form 10-K are available on KBR's website as well.

Before turning the call over to Stuart, I would like to remind our audience that today’s discussion 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 fourth quarter earnings press release, Form 10-K for the period ended December 31, 2016, and current reports on the Form 8-K.

You can find all of these documents on our website. Now I will turn the call over to Stuart.

Thank you, Lynn, and welcome again this morning. Moving to Slide 4, we start as usual with safety. On commitment to Zero Harm is unwavering and our progress on safety metrics as a result of our commitment and in green culture over the last few years is shown on the graph.

We have achieved 47% decrease in our instant grade, but this is a never ending journey and so this end we sell operated globally Zero Harm day yesterday to reemphasize the improvements of KBR’s interdependent safety culture.

Today you’ll hear from a little bit more from myself or also from Mark our Incoming CFO and I wish to publicly welcome Mark to the KBR team. And for the last time, we will be hearing from Brian.

And I wish to thank Brian from all of the KBR, we are always done over the time is here, but also from stages wise and guidance has been and valuable and I wish him a very best time [indiscernible]. So now moving to Slide 5, 2016 was an absolute transformational year for KBR.

We actively needed a shift to becoming a global professional services company providing differentiated technical and professional services and technologies across the asset and program lifecycle within the government and hydrocarbons industries. There are multiple elements to making this strategic pivot.

Firstly, we continue to several strategic acquisitions in three key focus areas and we previously highlighted these areas to the market. Firstly Wiley and Honeywell technical services businesses in high end government services.

[indiscernible] and our Technology and Consulting segment and specialty welding and turnaround capabilities through our brand new joint venture, which will help us to our maintenance and services business in North America. This acquisition falls within our E&C segment.

In addition, we assume the expansion of LogCAP 4 contract with the growing presence in Iraq and Eastern Europe. We saw significant and highly strategic wins in UK. We continue to steady earnings and high margins in Technology and Consulting segment.

And we have been awarded multiple FEED and pre-FEED studies in seven strategic areas and we seen good growth coming out of E&C business in the Middle East and Australia. Sizeable employee growth has been achieved over the last two years and you can see the numbers on the slide.

And this is an highly reimbursable business environment and this has really help stabilize on revenue base. So now moving on to Slide 6. Despite the significant milestones and strategic achievements in 2016, we did take charges on certain legacy lump sum EPC projects during the year.

The projects for which we took charges in the fourth quarter is the final domestic EPC project that needs to be addressed. The charges were due primarily to weather and productivity issues.

The lessons learn and the subsequent actions taken during the year to strengthen our risk management and importantly our bidding processes will substantially reduce the risk in our portfolio going forward.

It's worth clarifying that the key finding is that the charges were not in the main and this is across projects not just the final project but all the projects and the main, we are not due to clear execution, but due to signing up product deals of the [indiscernible].

In addition, we continued our significant effort to settle, resolve and conclude on the number of legal and commercial disputes an issues, including PEP or Pemex on which settling negotiations are currently well advanced. Certainly on the [indiscernible] we talked about an earlier quarters which is now behind us.

And in this quarter we also result the electrocution case. For the number of key times, and we have not at one goal against this yet, but we have result a number of through the year and we have also made this quarter progress on the burn fits matter, particularly on cost recovery.

We closed down all of the audits related to the significant performance years on LogCAP [indiscernible]. In addition, we have got pending resolution with the SEC and with the class action losses associated with the 2013 restatement in this matter should be behind us soon.

We have also closed out a number of commercial matters which we do on a ongoing basis across several projects. Now on to the business outlook, which starts on Slide 7. Government services, this segment between the organic growth of our contracts with the U.S.

military and the new wins on work with the UK Ministry of Defense as well as the acquisitions, really gave a total GS segments on considerable scale where we expect to execute almost $3 billion in contracts in 2017.

Noting that our last portion of the UK work doesn’t comes through the revenue line, but rather comes through the equity and earnings line as the work is executed through unconsolidated joint ventures. This segment now performs much higher technical and professional services, but the government [indiscernible] in a growing market.

Therefore the outlook of this segment is strong. So, really sort of quickly restructuring on the bullet points in short, we expect growth across all our key markets in the U.S. and the UK and Australia. We see continued opportunities across the lifecycle including synergy opportunities that we called out earlier.

And one of the key points we want to highlight again is that we have got the ability to access the CET US Government funding sources. And really the key take away from this slide for me is really organic growth is highly underpinned by good work and there are no major re-competes in 2017. So, both the U.S.

work executed under the KBR [indiscernible] brand and the UK and Australia work as with customers with whom we have very strong relationships and target margins in this segment given the mix between the consolidated and unconsolidated operations is expected to be in the high single-digits to low double-digits going forward. Now moving on to Slide 8.

Technology and Consulting, the outlook for this business, this segment is steady to growing. We developed an increasing business servicing the revamp and expansion market and we have a significant installed base across our technologies in ammonia, petrochemical and refining. And so we expect our business to continue to do well in 2017.

We do have an expanding portfolio for priority technologies. And we also work very closely with customers to monetize their technologies, through sort of engineering and technical know-how, but also leveraging our best-in-class global sales force.

We seen in 2017 quite a mix of Brownfield and Greenfield opportunities and interestingly enough, we are starting to see a green ships of opportunity come through the consulting sector in the upstream area.

I guess the key takeaways for this business are the technologies are in the main gas facing and the contracts are smaller global in nature and lower risks with the ability to take advantage of Brownfield opportunities and Greenfield opportunities as they start to comeback given slightly rising commodity prices and underlying global demand.

Target margins in this segment [indiscernible] a little bit as were seen 2016 have around balance the margins will be again in the low-20s and a it will be higher lower depending on the mix of proprietary equipment. Moving on to Slide 9. So the outlook for E&C, we see growth in OpEx facing business and the lever well positioned for CapEx recovery.

In E&C we have continued to transformer business with a very, very strong focus on OpEx and small projects, while we position the company for the recovery for larger CapEx projects both onshore and offshore.

We really start to expand our maintenance business significantly and have a full service offering and that’s across not only in the U.S., but also in the Middle East, in Europe and in Asia.

And this year just to give us some context KBR’s share of that business is some of the joint ventures will be somewhere $600 million to $800 million, so quite a substantial business in our portfolio.

We are seeing key wins and growing opportunities coming through in Asia-Pacific and [indiscernible] infrastructure services market including LNG opportunities. We have got a very strong engagement with customers in North America, predominately in the downstream sector.

But we continue to work as we have previously talked on mid-scale and large-scale LNG opportunities in the Americas and we are rocking on a number of concept pre-FEED and FEED studies as we speak.

With the markets that we starting to see recoveries we said in the consulting area and really with our pipeline of opportunities, we do expect backlog to grow in E&C, but it will be waited to the lateral half of 2017.

Our focus initially in the year is to work-off lump-sum contracts and position very carefully [indiscernible] studies in consulting engagements. In the main reimbursable in nature but what has positioned us for breakout growth opportunities and downstream in LNG and other areas. For large-scale EPC, we expect 2017 continue to be a challenging year.

But as I said earlier, we see indications activity is picking up. So I guess the key takeaway is that together with the new business pipeline and our ongoing opportunities we feel that backlog will grow in the latter half of 2017 and target margins are expected to be in the mid to high single-digits. So, with that, I will now hand over to Brian..

Thank you, Stuart. And good morning everyone. Turning to Slide 11. Q4 revenues were up approximately 117 million from the prior year as this quarter reflects the first full quarter with the two recently acquired government services businesses. These acquisitions contributed approximately 290 million to the quarterly revenue.

Additionally, the heritage KBR Government services business continues to expand and collectively government services more than offset a decline in the E&C revenues caused by the market challenges that that segment has been waiting for some time.

For the full-year, it’s important to remember that the 2016 revenues no longer include the revenues from our industrial services business, which is now part of the 50/50 joint venture that Stuart mentioned earlier. Revenues from that business were 367 million in 2015.

Gross profit for the quarter includes a $94 million in charges that Stuart mentioned earlier on the E&C project, and also includes the corrections of the cumulative error of that span several years and reduced gross profit by $13 million.

Q4 equity and earnings were below the typical volume expected or that portion of our business, largely from a reduction in the percentage of completion estimate on an LNG project.

This is caused by an increase in the forecast reimbursable to complete, which has the effect of reducing the percentage of completion estimates used for financial reporting purposes, which is based on the ratio of cost incurred to-date to total forecast cost. The effective of this changes merely to the late profit recognition to future period.

Equity and earnings was also negatively impacted by reduced activity and our NexGen offshore maintenance joint venture. We continued our restructuring efforts in Q4 and incurred approximately 18 million in expense including 12 million for impairments to leases and related result improvements.

These efforts are part of our efforts to consolidated access office space particularly here in Houston. The Q4 tax provision largely reflects foreign taxes, and as a reminder we do not tax effect domestic project losses. The combination of these two factors resulted in an abnormally high effective tax rate as we will discuss later in the presentation.

We expect that 2017, effective tax rate to return to more normal levels. The net of all of these resulted in an net loss for the quarter and for the year. On the cash side, we generated 53 million in operating cash flow for the quarter and 61 million for the year.

With this, I will hand the discussion over to Mark, who will talk about 2017 forward expectations..

Okay. Thank you, Brian. Before I jump into Slide 13, a few opening remarks.

Our foremost I'm really pleased [indiscernible] to be join in the KBR team, particularly in this the transformation we stage that Stuart summarized earlier on where we are changing the course for the future transitioning to deliver balanced growth and more predictable and stable profits and cash flows in years ahead.

Coming down to the defense industries for the number of years, I can certainly say first hand, that this company has a strong and well deserved reputation of providing mission critical services to the U.S. military and our allies. And as I'm seeing since I have started also to other government agencies right NASA and many others.

I also have some experience in E&C sector and long as deep respect for KBR’s history and continued leadership in providing leading edge technologies and services to the hydrocarbons industry. Truly game changing capabilities that we have here very impressive.

Accordingly it’s really exciting to join Stuart and the rest of the KBR family to build upon the brand strengths and also to leverage the recent transformational actions to bring a new era of growth and shareholder value to creation for all constituents.

With respect to the CFO transition process, I had spent a good chunk for the last two months or so inside the company, but also at other KBR locations abroad. Mostly focusing on the 2017 financial outlook, which I will be discussing here in a moment.

I would say that Stuart, Brian, Lynn and many others here have been generous with their time in introducing with the company and all of the various dynamics that we will be dealing with.

And so Brian, he certainly [indiscernible] to fill in this role, I can now see first-hand Brian has significantly and positively impacted the evolution of the company. And very importantly I’m personally grateful for his mentoring to me over the past couple of months, which I trust with the ongoing currently some period of time.

I certainly join many folks in the company in wishing Brian a very best in his retirement. Before moving on, I did want to cover some of my initial priorities in this position. Now the company as a lot of operational strengths, my general intentions are to build on those strengths and also aggressively address areas that could benefit for more focus.

Upfront, there are some enduring foundational elements that will always be front and center for me. First ensuring there is a culture of pander, integrity, transparency and collaboration in everything we do, and we will communicate on that same basis to the street.

Second, ensuring our accounting and financial reporting is timely, accurate, predictable and insightful for both internal decision making employee and investment community.

Third, I really believe cash is came, there will be laser focus on working capital management to maximize cash flow and to optimize capital deploying opportunities for value creation. Fourth, demonstrating leadership in promoting profitable growth.

We will that continues to focus on cost reduction, leveraging different business models, performance financial analysis to identify profit and cash flow opportunities supporting pricing strategies and a number of others. And finally customer support and focusing on our people.

This is a people business, importantly build the business [indiscernible] and the professional development to try this strong results for our customers, for our shareholders, for our lenders and for our employees.

In addition to these ever present fundamentals, there are couple of foreseeable priorities, which include the successful integration and growth trajectory of our two recent government services acquisitions and also the longer term financing to replace the recent borrowings we made on our rolling line of credit to fund those acquisitions.

Now let me turn to Slide 13 in the presentation which covers the underlying conditions and underpin our 2017 operating plan. To key this up, the favorable factors for 2017 include one, the improved government and hydrocarbons market conditions that Stuart discussed earlier.

Two, the fact that our cost structure are now reflects 200 million of annualize cost reductions made over the course of the last two years, which will make us more competitive in all of our markets. Three, a substantially higher proportion of cost reimbursable contracts in our overall portfolio.

And finally four, the progress we have made on a number of legal mattes including the PEP matter that Stuart also addressed earlier. Now, the challenging factors for 2017 include reduced but ongoing execution list in our existing EPC projects.

And second that we will see large cash outflows to fund losses on the EPC projects, which for 2017 will depress otherwise improve cash flow fundamentals across the business. Now, let me turn on the liquidity story a little bit more.

I think the key takeaway is that the transformational actions we have undertaken should deliver improved and more consistent cash flow for KBR in the long-term. Importantly however, we have significant short-term funding requirement associated with the EPC loss contracts over the next 12 months.

And as a result, the real of this transformation in our cash flow model will be more evident in 2018 and beyond. With the short-term project outflows and with the assumed PEP settlement inflow, we expect 2017 net operating cash flow to be positive but much lower than it would otherwise be any more normative years.

With this, we expect to have ample liquidity to fund our operations and maintain our regular dividend which of course is vital important and meet all of our debt covenant requirements. As for our overall capital structure it’s still a mere priority to refinance the revolver borrowing and made to fund the recent acquisitions.

We are accessing the optimal time to launch this given our results, our outlook and of course state of the capital markets. Now, let me move to Slide 14, all of this background. Our guidance for EPS for 2017 is $1.10 to $1.40 per share. This exclude legacy legal fees as we consistently done with the pass.

This range also reflects the organic growth in our government services segment and our T&C segment and within the E&C segment reflects organic growth in our OpEx projects of contraction and our CapEx projects. We are assuming targeted margin performance of all of our segments.

Guidance also includes $24 million or $0.17 per share on the amortization cost. And finally, the upper end of the guidance includes our projected impact from the potential settlement of PEP. The EBITDA reflected in our EPS guidance range is $300 million to $350 million for the year.

As the bullet on the bottom of the slide shows, we have a strong confidence factor for this with over 70% of our earnings already booked in backlog coming in this year. The projected effective tax rate for 2017, is expected to be roughly 27%. This rate is the low our statutory rate due to foreign tax credits offsetting much of our planned U.S.

sourced income in 2017, as well as the jurisdictional mix of our planned non-U.S. income. Finally, to quarterly timing overall revenue should be a little higher in the first half of the year and reduced modestly in the second half as the EPC project ramp down.

[indiscernible] we expect our net profit to be waited in the second half of this year, due to low margin EPC project burn-off earlier in the year and the hydro portion of T&C license sales and other higher margins on the second half.

Now that’s it up for me, we certainly have a lot of hard work ahead of us, this is an exciting and consequential time for KBR and I look forward to getting after. Stuart, back to you..

Thank you, Mark. So moving to Slide 15, we thought, we give you a little bit more color around the backlog. And certainly across piece I guess the message is significantly lower risk profile.

But looking by businesses segment 71% of backlog is in government services T&C 3% as you would expect, because I guess the smaller projects and I guess quicker turnaround in the area and 26% in E&C.

The keys piece to takeaway in the E&C backlog, is the 65% of the E&C backlog is in cost reimbursable contracts and that’s in the maintenance arena et cetera. And backlog by contract, trying to just to get a little bit more color 84% across reimbursable PFI & Services Contracts.

And then the other 16% is going to split into, I guess here traditional lump-sum contracts in E&C and 8% in lump-sum contracts but with much lower risk profile in government service and T&C. So the total backlog just under 11 billion, but as Mark said and importantly over 70% of earnings already in backlog I guess that’s fine for 2017.

A couple of things there are no and here that will come to market that reasonably soon is that we have been awarded the NASA [indiscernible] contract, the satellite contract for NASA, which is the key heritage HTSI contract.

We won the contract and as usually basis under protest [indiscernible] when that’s resolved, but with the incumbent we are feeling pretty good about. And there is an ward in Indonesia by a major IOC for a five-year maintenance contract in oil and gas.

So again very much in line with the strategy and I will certainly to backlog to the first little bit of the year. But just moving on to 2016 to give you sort of like-for-like comparison, a constant currency component of backlog. We were negatively impacted by, I guess the effects of Brexit with the lower pound rate against the U.S.

dollar and that reduced our backlog by just over $1 billion, $1.1 billion in 2016. So we felt we could show to you on a constant currency basis and also include as we talked before and this is norm in the government contracts, I guess the options in the [indiscernible] elements.

And it’s shows that the backlog growing I guess through the course of $16 billion to just under $14 billion, so a very healthy mixture.

So moving onto Slide 17 and just to conclude 2016 was a pivotal year for KBR, very, very good and noise year with ups and downs and a good set of growth and of course charges on some of these legacy projects, but we learned many lessons, we paid quite a high prices call it to the ticket to the dance to really understand across base and the factor we need for bidding going forward.

So we feel pretty good about that. We are very much working to launch to putting the transaction to global provider high end differentiated professional services and technologies and we are very much well done in our past and 2017 is looking - we are very optimistic for 2017.

We are very well positioned for growth and both government services on hydrocarbons and we stabilize the revenue and significantly de-risked the future of the business across all of KBR. So, the legacy projects are being worked off, and as we move forward that significantly reduces our risk profile.

Our cost structure, we have talked about many times is now efficient and scalable and with the strong operational focus, as I said we have learnt many of lesson to bid and to execute will deliver stronger earnings.

More predictability under across high secured backlog and associated strong free cash flow beyond 2017 and that turn to capital deployment options.

So, with that I would also like to just announce that on May 12, as part of our future and as we have complete the pivot the company will be having an Investor Day and we are holding that in the New York Stock Exchange, you are cordially invited to that and more details to follow. So with that, thank you very much for listening.

And I would just like to hand it back over to the operator. Thank you..

Thank you. [Operator Instructions] We will take our first from Rob Norfleet of Alembic Global Advisors..

Good morning guys. A quick question. So in E&C obviously backlog right now the $2.7 billion traditionally you guys have burned about 60% of that on an annual basis. So, I guess should we expect a similar amount of burn in 2017. And secondly, you all sighted that you would expect some backlog growth in E&C in the second half of the year.

As a result of that, do you think you can grow revenue in 2018. And will there be enough no word activity and based on the timing of those ZPC contracts.

Should we actually expect to see revenue growth in 2018?.

Yes. Good question. Robert, the reason we made the statement around sort of green shoots coming through the consulting arena, I think we have had from other that feels to be accordingly it. There were all companies of certainly that had time to sort of reset their business to today's oil price and we are starting to see activity in the sector.

But we are trying to be realistic in the sense that it does take time for these projects to come to fruition and get to [FID] (Ph) hurdles. And we think that the bricking of those will be in the later part of 2017. And the reason we have made that statement is because then you will realize the volume from those bookings into 2018 and beyond.

So, currently your question the answer is, yes we see backlog growth coming through E&C in 2017 but at the later half. And I guess the earnings associated with that backlog will come through in 2018..

Okay. Great. And my last question just deals with I understand obviously the cash outflows that we expect in 2017. Can you kind of walk us through what the triggers are, I know you’re not in violation of debt covenants, but obviously with the cash outflows it does prohibit you from doing certain things like buying back stock.

What kind of needs to happen where the triggers for you to be in compliance in order to for example buyback stock or be more active in capital allocation?.

Well first of all, we are in compliance with our covenants. So, that’s not the constraints. The constraint is more as you say, we have to fund these project losses and we obviously are also very hopeful of the recovery, of the Phoenix. So the only constraint we have, if you want to call that, is really the funding of the losses.

We have been talking for some time to the first half of the year, will not be a strong cash flow period given the loss that we have previously announced and that remains unchanged..

Okay. Thanks. I will get back in the queue..

We will take our next question from Chad Dillard, Deutsche Bank..

Hi. Good morning. So you mentioned that you expect to grow your E&C backlog in second half of 2017. Can you just speak more about your visibility there.

Are there any large-scale projects went cooked in, what end markets or driving optimism and how much comes from OpEx?.

I mean a significant portion comes from growth from OpEx, but the statement around growth in backlog is clearly around the CapEx market shift. And as you know, we are heavily involved both in the very front end projects are end of consulting in our technology business and the activity levels there are picking up both onshore. And offshore the U.S.

domestic market, because of the continued [indiscernible] the activity there continues - and I think the markets talked about as only one of course 2023 is a crossover for supply and demand in LNG and if you walk backwards, we see projects leading to move forward at the end of 2017 and 2018 to meet that demand.

So I think it’s really of course downstream, petrochemical and LNG is really activity the levels will be highest in terms of geographies likely be in the Middle East and U.S. as we said before we don’t think that’s changing, I think we are very well positioned to take the opportunity.

What is clear, and I think the key point here is that v do see the market volume look bottoming out and we do see activity levels picking up in the consulting area. And we are involved in this project today and leading to larger EPC headwinds in the future and future in 2017..

That’s helpful. And then could you also just provide more color on the project charges. the $94 million charges in LNG. Can you just like walk through or a little more specifically what happened, what percentage completion on this projects. When do you expect to complete I mean is that profitable.

And then just like more broadly overall, how much of your backlog is in loss position right now?.

Yes. I mean again good question and as we have gone through the analysis of the legacy projects. I think the key take away from me is, there is much that we can improve in execution. But the real issue is not execution, the real issue signing up to deals that were probably not good deals at the beginning, so that’s reasonably harsh financial terms.

And really sort of productivity assumptions that, I think you have seen it with others in the market that with particularly around the Gulf Coast, that the people can’t deliver on today. And that’s been a key less than for us as we walk through this legacy projects.

In terms of the type of project, as a downstream project, it’s almost 60%, 58% or 59% complete, we are underground so the weather impacts are far less of an issue for us, but we did have, I guess really bad weather in an around U.S.

Gulf Coast over the last couple of years, particularly last year with the rains and if you are stuck in the ground, it’s difficult to get out of the ground. But we are out of ground in that particular project so that should be less of an issue going forward.

And we have factored in the productivity norms that we have seen across multiple projects now, as I said it's been a very expensive ticket to that dance as far as I'm concerned and quite painful. For us, the quite painful for our shareholders as well.

I'm pretty well aware of that, but we do understand it now and the forecast to complete includes those norms..

Okay. Thank you..

We will move to next to Jamie Cook of Credit Suisse..

Hi. Good morning. A couple of questions. One more strategic and then just second on the guidance. I guess Stuart I appreciate the shift towards the government and de-risking KBR's profile. But I guess that’s at a point where you just did a bunch of government activation and the E&C business is sort of trophy, because the business has been depress.

So, I'm trying to understand your approach to E&C going forward, your willingness on a go forward basis as the market picks up to do fix price work. And if won't do fix price work, how does that impact you competitively.

I'm not sure you can be a competitor, if you don’t or maybe it implies the business really isn’t as strategic to you as it was before, which is interesting as well with Mark coming on with his background. So, just sort of how you approach the market, and whether this is a core business going forward.

And then my second question is on the guidance, I'm just trying to understand how I think about the core earnings of your business given HTSI and Wyle, et cetera. So, can you sort of help us in terms of what you are assuming for - what are you assuming - did your forecast change in terms of the contribution from the acquisitions.

I'm assuming there was [indiscernible] close out in there obviously Pemex could help. So, if you could help me understand those dynamics within the guidance. Thanks..

Yes. I mean I think a little bit of two plus two equals to five there Jamie in terms of the strategic piece.

We have been very consistence since day one, our approach is to move KBR into a more professional services arena that’s across oil and gas, hydrocarbons and we do a bit of infrastructure and to steer you on so, mining what can [indiscernible], it just dependent where the markets are on the government.

The strategic approach is to be differentiated and go off to food chain somewhat so that there are higher skill and therefore sort of increasing margins. And we have be consistent through that, our core sectors remain oil and gas, remain government as one goes up and one goes down it gives a good balance to the business and we have seen that.

We knew we were going to up headwind challenges in the oil and gas market, I think we are one of the first to call that out and start to take cost in that sector, but at the same time, we also knew that we add earnings power in other areas, so that we could stabilize earnings and we have managed to achieve that.

We also recognize early on that as the market shifted that the oil companies would try to put more owners stamps on contracting in community and shift risk. So we wanted to make sure that we were in a position that we did not have to really take on owner as contract terms and conditions and we could be far more considered.

And again, I think we have proven that by the number of times we have talked to you and to others but certainly also we are prepared to do and other who will not prepare to do. We have been highly consistent that we will be in the EPC lump sum business, but we are not going to boot work for the sake of revenue.

We are going to boot work we can execute using norms that make sense in today’s market and under terms and conditions we think of fair.

We have booked Magnolia LNG project that was a negotiated deal, signed and we continue to backlog obviously, but we signed it, and we have gone back and checked the estimate against the norms so that we now fully understand and hold scrutiny.

And the difference there being that we have negotiated that deal and it’s certainly a commercial terms, it wasn’t sort of low cost wins.

And so I think that our strategic positioning has been consistent, I think we have deliver on our strategic policies and I think we have strategically shifted the business into more recurring revenue professional services earnings and that’s across a number of sectors. That is the core of our business is professional services.

That is the core going forward and we will do lump-sum EPC, when it makes sense and we will continue to pursue this opportunities and that’s what I’m talking about in terms of the tail end of 2017 in terms of backlog growth..

But is there a limit in terms of fixed price risks as a percent of total portfolio that you would look at. Like is there ratio we should be thinking about going forward, because - they did the fixed price job differently this time and then, I mean same things happens.

Right?.

Yes. I agree with that. I think it is a business that you need to be highly consider, because of the risk profile and you have seen that through the market in recent times. So we are very conscious of that, do we have a ratio in mind, I think the answer to that is no and because what is more important to us is the commercial terms contract under.

If we sign significant bit of work, we will consider signing another piece of work of sizeable scale to EPC and that would depend on whether the quality of team and quality of people accepted to execute so again we would be highly considered.

So I think the takeaway here is there are no sort of set ratios, I think, I have talked before about KBR’s history of big project risk being the cake, now it’s the candles on the cake, because it’s such a large services business across the industries we service. As the cake and the candles on the cake of EPC projects when it makes sense..

Okay. And then sorry just help on the guide, I’m trying to figure core versus what is HTI, we have project close out or Pemex.

I’m just trying to think about the different dynamics there?.

Yes. I mean, I have to say that was core - the core business for us includes all our government work, includes our services work, the bid is not core its actually working out these legacy projects that we inherited, what I think of was norms and challenges in commercial terms that we wouldn’t sign up to today. That’s the bid that’s not core.

In terms of Pemex, I’m sure someone will ask the question, we are in the middle of negotiating with that. It’s very difficult in the middle of negotiation as I’m sure you will appreciate to give any numbers. But we have talked often about what is in our history in terms of the revenue that’s been moved to just over 400 million.

The max we can get is 465 because that’s what is in escrow and so it’s a negotiation. So our view of the impact of that in earnings, we don’t know the ultimate outcome, although we are fairly well advanced in these discussions. We don’t know the ultimate outcome. But the impact in earnings is not safe that significant, they key bit for us is the cash..

Okay. Thank you. That’s helpful. I will get back in queue..

We will go next to Tahira Afzal, KeyBanc Capital Markets..

Hi folks. So and I apologies, if this question got asked earlier on. But I guess I'm glad to hear that you don’t have too much of the fixed price profile in your backlog going forward. But how should I think about some of work that a lot of us focus on which some of the mid scale LNG sector which do seem to be more fixed price.

And still being bid out very competitive environment.

How should we think about the risk on that?.

I think the way you need to think about that here is that we are involved in a number of those mix scales as we have talked before some are less competitive than others. The ones that are competitive we will put in the pricing that we feel is appropriate. And we will try to come up with smart solutions et cetera.

But at the end of the day, we will put in a prices that’s sensible and with the commercial risk profile that we think we can live with as I said before. And if we end up losing that projects, we will be it, if others want to take more risk that’s up to them.

I think we have got enough innovation and ingenuity and sort of solutions, people in the business to come up with the smart thinking to get cost and schedule done and we were probably not before that’s kind of how we got there on Magnolia. So, I think we are well positioned in that regard, but when it become competitive it becomes competitive.

And if we can’t win on terms that make sense, we are not going to win. And so, I think the way to think about that is to think about our EPC backlog as it grows will be in a manner that is less risky than the past, because it will be more considered with norms that we fully understand and the commercial terms that make sense..

Got it. Great.

Do you think is that ends up being the scenario that you will be able to grow your AMC business in terms of operating in terms of the next couple of years?.

Yes, we do..

Got it. Okay. And then the other question which is more of a fun question. The SLS Rocket that seems to be getting a lot of sense there from the commercial space industry. Seems to have really up to NASA or let say some of the private base competitive there. Could you talk about the opportunity set within that development.

And the fact that NASA's budget might be moving more back towards base and some of its provisional operations so it should be positive for you guys..

Yes, that’s exactly right. That would be very positive for us. I mean I think historically we have done somewhat for the private around the space, it's been very modest to-date.

But if you think that we have supported particularly in the Life Science area every astronaut that’s gone to space and we support as a number of private sort of ventures in that arena as well. I think that can only give us good opportunity going forward.

We also think that as NASA, sort of as you say we are focus very much on this sort of the space, particularly deep space area, which [indiscernible] very well. As we look at opportunities for the private sector, I think there is going to be - there has to be a lot of connection into what happens in NASA.

There is certain connections between the public private type partnership solutions that we feel is a great opportunity and we have done a quite a lot of that in the UK, as you know what is call PFI in the UK, PPP here.

So, we actually think there are solutions that are not yet at market, the market making when we can bring capability and have to cut somewhat around PPP and d so much off sheet balance of balance sheet financing that can create value to the private sector, but also to NASA themselves, but also keep that level of regulation that is required in that endeavor..

Got it. Thank you very much..

We will go next Steve Fisher, UBS..

Great. Thanks. Good morning. I know Stuart you said you can’t give us specific numbers on Pemex. But I want to make sure I’m interpreting the message on Slide 13 correctly on the operating cash flow section where you say that there are potential offset from Pemex to the outflows in the last contract.

So I mean should this be interpreted that the drag in the loss projects would more than offset the Pemex collection or that’s not the right way to think about it?.

I mean, I think we were very clear that we have got loss making projects going forward, they will be again in cash. We said that’s predominantly in the first half of the year and what was consistent on that. The Pemex settlement, we have not disclosed the number, so it’s difficult to give sort of guidance on that Steve.

But I think you can make your own assessments, so I think certainly Pemex will be a good help from a cash flow perspective, so I think there is no doubt about that and the deal with these loss making projects going forward..

Okay.

And then can you talk about maybe the win of this Pemex situation and when that would be result?.

I mean we are still obviously in advance negotiations, there will certainly be - we think it will be a resolved within certainly before the end of Q2..

Okay. And then just quickly on the Australian LNG project, how far into 2018, is that now going to run for you and how should we think broadly about your equity income in E&C in 2017.

Because I’m just kind of wondering if this project can - if you do end up having delays to some of these big CapEx projects, you assuming if both in the second half of 2017, can equity income in this Australian projects still support in the E&C earnings nicely into 2018..

Steve this is Brian. What I would say is the equity in earnings line should return to normative type levels in 2017. Remember, the MFTS project that really hasn’t contributed earnings yet, so that will ramp up in the second half of this year. We also have Army 2020, which is just ramping up as well.

And to your point, we have the Australian LNG, which is getting to that back end of that project, that’s been ramping down and we will continue to do so throughout the year and into 2018 as you correctly state.

But in general, there is a step back and all of the equity earnings line it’s going to be back to the more normal type rates, probably even a little bit higher than they have been recently..

And in addition to that, through the equity and earnings line in 2016, which Brian talked about very much is the maintenance business in U.S.. We had acquisitive growth there with the acquisition of [indiscernible] we had steel cost et cetera that impacted that equity and earning front.

And going forward we would try to give some flavor as to the scale of that business in the presentation, that will be a good contributor to earnings going into 2017. And that business goes into the year with over 90% of its work booked.

So it’s a very, very sort of predictable earnings base, a good growth story and we have added over 2,000 people in the last sort of while in that business. So, you saw the people numbers in the presentation earlier, but in that business it's over 2,000 people.

So, it’s a growing piece of a business that it will come through the equity and earnings line. So, it’s a good growth story for us..

All right. Thanks. And best wishes Brian and welcome Mark..

Okay. Thank you..

We will go next to Andrew Kaplowitz with Citi..

Good morning, guys. Brian, congratulations again Mark welcome..

Thank you..

Stuart, maybe I can ask Jamie’s question in a different way. When you look at Wyle in HTSI in the quarter in 4Q. Did you see organic growth in those businesses.

And have you seen improvement in growth, I know its early but, you have seen improvement in growth in those two acquisitions since you bought them or maybe revenue synergies since you bought them, I think you gave an example of last quarter.

And then is it fair to say that the accretion you expected some of the businesses in 2017 and 2018 hasn’t changed, maybe something like $0.20 in 2017 for both and $0.30 to $0.40 in 2017?.

So, let try an answer your question in [indiscernible]. The accretion has not changed, but it’s probably a little bit better that’s the first statement. In terms of the synergies, yes we have had some synergy wins and some cost synergies as well as the consolidated some of the functions which has been good.

But at the end of the day, we have only had one quarter of earnings from HTSI.

So, although that going into the next year, the plans is we start to see some synergy upside the growth is modest across that, but when you layer in and think that we are actually integrating it with our legacy GS Americas business, overall that business is going very well.

So, I mean I think it’s a fair question to ask about the statements before around accretion and are we still holding the answer for that, yes we are going to do it a bit better. In terms of the overall government business, splitting out going forward into legacy HTSI, and legacy Wyle is probably an appropriate.

I think you have to look at the overall government services sector in the U.S. as a solution because the way we are restructuring the business going forward. it’s a fully integrated business under the KBR Wyle brand as we move into 2017..

And Andy, I would add, we had 487 million in revenues for the year from the two acquisitions and 38 million of gross profit. All of that is detailed in the footnote in 10-K..

Okay, Brian that’s helpful. And Stuart this might be an early question too, sort of feel free to intercept it. But I want to ask you Mark sort of his initial impressions and he has a government services background. And now, he is taking on this role with the E&C business sort of you are trying to turn around here.

So, my question to Mark is, in the first couple of months here do you see any low hanging fruits that you go after that help improve that business?.

I think I would prefer to spend more time in the business to answer that directly, but I don’t say that a major attraction to coming to KBR, it really comes down to fit and people. And I have always been attracted to the combination of the professional services and technology.

I think my recent jobs they have that elements and that was a significant part of looking at this opportunity.

Talking about the future with Stuart has been very attractive to the notion that there is really very interesting technology on both sides on the services and in the hydrocarbon space that can allow us to differentiate with our customers on one hand, but also combined forces across those verticals in a number of cases to deliver new capabilities broadly.

So that was a major attraction my time thus far has confirmed those capabilities are differentiated and exciting and think we can make a great story out of it in the long-term..

Mike that’s helpful. And then maybe one more clean-up question for Brian. Operating margin when I look at government services with already low-teens in the quarter. I think that’s before adding some of these bigger contracts where you can get more equity earnings in the UK. And I think including acquisition related purchase accounting.

So why would margin go back to high-single-digits per your guidance for 2017, you said high single-digits to low-teens?.

Yes. The government services business is pretty consistent throughout the markets we deal with in terms of margin. You can always being in the high single-digits possibly in the low double-digits, so that just the norm.

So the fluctuation that we may get just has to do more with the math, if you get more at the equity earnings line, obviously you got earnings with revenues, so the margin looks higher, if you get more at the revenues size, the margins go down. But the underlying business is always going to be in that high single-digits and that low double-digits..

Thanks guys..

We will take our next question from Anna Kaminskaya with Bank of America Merrill Lynch..

Good morning, guys. And Brian this is second time us meeting. Good luck in your retirement. And I guess most of my questions have been answered. I wanted to touch on margins in both segments. I think before you were saying how E&C business will be running in high single-digit, I think now you are saying mid to high single-digit in 2017.

Is it more a function of the contract you have running through 2017 or is it just more of a structural shift down as you move from large EPC contract into more maintenance service type of contract.

So how should we think about that margin in 2018, 2019?.

Yes. I think Mark alluded to the fact in the first half of the year we do have these lump-sum projects with an essence of taking charges, no margin is being worked off and that’s what suppresses the margins somewhat through the year.

I think getting back to the high single-digit retirement is clearly business will be heading, also the tail end of the year as Mark alluded to and that will continue into 2018 and 2019 and so forth..

Okay. And then on the government services side, I think some of your competitor are talking more about high single-digit margin, I think you are talking about high single-digits to double-digit.

So is it just more a function of more of your contracts being booked on the equity basis or?.

I think that’s exactly right. I mean, We will get typical sort of government services margins which are high single-digits and because of the equity in earnings sort of line that pumps it up a little bit..

Okay. And can I squeeze one more on just 2017 outlook. I guess deposits several times.

But do you given the results for the last couple of quarters and happen sort of this guidance kind of how much fees can be put into the numbers, at least at the low-end, kind of how much visibility do you have, does it all just come now to your execution or kind of how can we be comfortable that next quarter we can have a number in line with expectations..

I mean that certainly the intent. I mean probably the best way to answer that is, the charges that we have taken on this downstream projects is the last domestic legacy EPC project, it’s the last one in the portfolio. We have got over 70% of our earnings booked in 2017. We have talked about the balance that in reimbursable and lump-sum contracts.

I guess the one thing that we have not talked about and we have just will all about this at the Analyst Day is really what can this business to beyond 2017. We sort of had a look at, again just to give a little bit of flavor going into 2018 on a like-for-like basis we would have booked close to 60% of our work going into 2018 already.

Just by the very long-term nature of some of these contracts. So, I think we are starting to see the fruits of our labor in terms of predictability, we are starting to see the fruits of our labor in terms of less volatility.

Certainly our intent here is that we have dealt with many of the legacy issues that should give us some clean water going forward. And if that proves out then we should be - on expectations moving forward, we certainly don’t want to get out in front of skews, probably a good way to put it. But, that is to probably give you a bit color..

Good. Thank you so much..

We will take our next question from [indiscernible] from D.A. Davidson..

Hi. Thank you. On the E&C backlog in the second half turnaround, thanks for all the color thus far. I guess my question is as you look at this how much of that turn in is dependent on the project owners looking to execute work again versus KBR seeing the right sort of opportunities out there.

I know you have been kind of retching it down over the last few years looking for the right work.

I mean how do you sort of weigh the two?.

Well, I mean I think there is a balance for sure. But you know statements or I guess backlog growth was really around the CapEx arena that’s the area where we see the OpEx side growing regardless. And I think we have put a lot of attention, focus, investment and passion around that and I think again we are seeing some good results in that area.

As I said earlier, our earnings plan for 2017 is attractive in that space.

I think in addition with the CapEx coming through again, we are starting to see that activity so increase and we are actively involved in a number of those projects I guess that’s where the confidence comes from and whether it be in a concept of free feed phase, we understand the customer base, we understand the market dynamics around those opportunities whether it be capital or whether it be commodity off take price and things like that.

So, that’s why we say we have made the statements that we have made and why we have sort of given the timing we have given..

Okay. And then in TMC not a great margin performance this quarter. I understand the comment on the longer-term percentage in the lower 20s.

But does that the 2017 guide incorporates something high than that, maybe just you had something in the backlog that runs at the higher margin?.

So, again I think we have been consistent since day one in low 20s business and it’s a predictability [indiscernible] on the mix quarter-to-quarter, but I think over the fees I think that sort of guidance reflects those sort of low 20s margins..

Okay. Thank you..

And that concludes today's conference. We thank you for your participation. You may now disconnect..

Thank you..