Nelson Rowe - VP, IR Stuart Bradie - President and CEO Mark Sopp - EVP and CFO.

Jamie Cook - Credit Suisse Securities LLC Anna Kaminskaya - Bank of America Merrill Lynch Tahira Afzal - KeyBanc Capital Markets, Inc. Chad Dillard - Deutsche Bank Securities, Inc. Andrew Kaplowitz - Citi Jerry Revich - Goldman Sachs.

Good day, everyone, 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. You will receive instructions at that time.

For opening remarks and introductions, I would like to turn the call over to Nelson Rowe. Please go ahead..

Good morning, and thank you for joining us today to discuss KBR's first quarter 2017 financial results. Joining us on today's call will be KBR's President and Chief Executive Officer, Stuart Bradie; and KBR's Executive Vice President and Chief Financial Officer Mark Sopp.

Stu and Mark will discuss KBR's financial and operational results discuss the market outlook and the 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 first quarter results and KBR's first quarter Form 10-K will also be available on the website.

Before I turn 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 first quarter earnings press release, KBR's first quarter Form 10-Q 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, Nelson, and good morning. And thank you for joining us today. On slide three, I will begin as our practice with safety. We are putting considerable effort into the overall integration of our recent acquisitions and this is going really well.

Pleasingly, our new colleagues have embraced us zero harm culture and this has reflected in the continued performance improvement as we integrate these businesses. Continuous improvement takes commitment and belief from every one of our 34,000 people in KBR family.

We believe it's not only our responsibility to look after our people and those we work with, but it's simply good business. Now on to slide four. Q1 highlights. This quarter has been a reasonably clean quarter.

Earnings in line with consensus, despite ForEx headwinds and delayed profit due to a change in estimate on our large LNG project, a combined headwind was $0.08 to $0.09. Through 2016, we saw revenue stabilized, and this has now moved to growth in the first quarter of 2017 with the year-on-year increase of 11%.

Excluding the non-strategic businesses, the revenue growth would have been 18%, so very pleasing. Our project delivery performance was strong and we continue to derisk the enterprise removing uncertainty.

We have substantial completion of the final EPC power project in the U.S., we achieved the Pemex settlement including the decision of all legal proceedings.

It's worth noting that although this is a Q2 event, the moneys that are with KBR, the VAT has been settled in cooperation with Pemex and the tax computation is moving to finalization with payment later this month. The net to KBR is a cash injection of over $300 million.

We also settled a number of legal matters in the quarter to highlight as shown on the slides. In the business pursuit and capture area, we have certainly seen increased activity. Our pipeline in all our business segments increased especially in the E&C and our consulting business is getting busier, which supports this.

Speaking of market conditions, let me spend a few moments providing an overview of our markets. In our government markets, we continue to see the expansion of our long cap four contract with the growing presence in the Middle East in particularly Iraq and Eastern Europe and response to conflicts.

We expect to continue to ramp up on our contracts in the UK with Army 2020 and MFTS through 2017. Everything else in the U.S. government market is moving along, albeit slowly as the new administration gets its beak [ph] under the table. That said in the quarter, we were rewarded both the Gizmo recomplete contract and the U.S.

Air Force's Civil Engineering Module contract. This segment has a robust pipeline that we will discuss further at our Investor Day on May the 12 in New York. Moving on to hydrocarbons. We see the global industrial services market continue to provide opportunities as customers look for greater operational efficiency and cost competiveness.

We continue to participate in a number of fronts and designs for ammonia, refining, ethylene and small, and selectively large scale LNG opportunities. This supports our view that E&C backlog will grow through 2017 albeit in the latter half.

A growing part of our business is focused on OpEx spending and other areas of differentiated reimbursable services. We are pleased with our increased level of engagement with our major oil and gas and industrial customers.

We believe scale and global reach in recent months to secure long-term service agreements with Chevron, BP and International Paper to name a few. Thus, helping us to achieve long-term stable earnings streams with associated strong free cash flow.

Our technology markets are active in the Middle East, Russia, Asia and China and it's worth noting that the backlog in technology our highest margin performer grew nicely in Q1. On strategic proceeds, we secured significant operations and maintenance contracts both in government services and in E&C.

The first one is a five year recomplete win to support NASA's satellite program. This status from our Honeywell acquisition and it was the largest contract in their portfolio.

The second is again a five-year deal providing brownfield services supporting Chevron Indonesia's existing assets, but importantly, takes the route maintenance focused brand into Asia. Additionally, we secured the recomplete for our long-term maintenance contract in Russia for International Paper. Moving on to slide five.

I will touch on backlog before handing to Mark. A few key points to highlight on this slide. A secured earnings backlog for 2017 that's a 75%. The backlog mix underpinning the future earnings has been derisked significantly with the mix overwhelming weight towards recurring services contracts.

Our reported backlog is $10.6 billion, I think the option here is on secured government contracts that's moved of course into $13 billion. And further supports the future earnings profile that is less volatile more predictable and comes with associated strong cash flow conversion. Now, I'll hand over to Mark.

Mark?.

Thanks, Stuart. I'll start on slide six of the earnings presentation. As Stuart mentioned, in Q1, 2017 we made good progress and producing more stable results which we're generally in line with our expectations.

The consolidated revenue growth of 11% as fueled by acquired and organic growth and our government business, more of offset decline in our other two segments. Treating overall growth and the challenging hydrocarbons market as a significant milestone in the strategic transformation of KBR.

I'll also say we believe the Q1 year-over-year decline in the T&C segment largely a timing and mix issue. Our forecast call us organization growth for the full year as supported by recent winds.

Gross profit came in at 7.4% of revenues improved over 6.8% last year, the government services and T&C to be at normative levels where as E&C drill the overall improvement with the strong project execution. One area where result short of target was equity and earnings, this was largely a timing issue.

Due to cost growth on reimbursable cost or a large LNG joint venture project in Australia or exists and that start out in other ways. We had a percentage of conclusion adjustment which pushed out profit out of Q1 and into future quarters. This offset otherwise normal equity and earnings results from all other sources.

We expect recovery of excess over 2017 and 2018. Other elements in the P&L were normative although the effective tax rate improved 25% due to favorable a course in that mix. GAAP earnings per share and continuing operations came in at $0.26 per share and this $0.28 before legacy legal cost of $2.4 million.

After Q1 operating cash flow, net uses over a $115 million and we're consistent with our expectations. Driven by about a $150 million of net unfavorable working capital changes offset by cash earnings.

The working capital uses we driven on the liability side, with reductions and accounts payable and billing an access due to funding cost on late stage EPC contracts where we are working down advances, proceed in the earlier stages of those programs, plus reductions and reserves for the funding of loss contracts that we recorded in 2016.

On the asset side, cash collections we've good in Q1, accounts receivable coming down almost $40 million and DSOs finishing at 79 bases. Overtime, I believe we can bring this metric down even further. As mentioned in the press release the Pemex settlement was received in April and will be recorded in Q2.

The final gain on this settlement is still being fine-tuned as we finalize the tax payment and the related foreign exchange FX in May. Stuart said the good news, the cash was received in early April, and a $150 million was already used to reduced debt on our line of credit.

There will be a tax payment of roughly a $100 million and the rest of the Pemex settlement will generally be used for ongoing working capital purposes in 2017, little bit more on this later on. On to slide seven, this schedule provides a little more color on the segment results, but I think I have already summarized the major movements there.

You will note in the non-strategic business area that that's continuing to wind down and this should phase out entirely in the second half of this year. On to slide eight, some background to set the stage for the rest of the fiscal year.

In terms of with all remarks back in February government services and E&C are expected to post healthy top-line growth this year. Most of which is already secured in backlog. This should offset expected work-off of large capital projects in E&C and also in the non-strategic business area.

OpEx facing industrial services and E&C should also provide dollars [ph] until we start to see more new starts and hydrocarbon projects later on this year. Excluding the Pemex gain in Q2, gross profit plus equity and earnings is forecast to run about 10% of revenues in the out quarters and G&A is forecast to run in the low 3% range of revenues.

As profit in cash flows, we still expect ongoing working capital requirements in 2017 to fund late stage EPC contracts at loss contracts. This liquidation in 2017 should set the stage for operating cash flows to have higher correlation to cash earnings 2018 and beyond.

Taking the total cash flow picture into account, we recently reduced the debt on our line of credit by $150 million, as I said earlier and our debt now stands at $500 million, and our net debt position is approaching to zero. This is serving a strong balance sheet position, which provides KBR strategic and tactical flexibility.

This coupled with stronger expected conversion of earnings to cash flow 2018 and beyond should avail more capital deployment options as envisions in overall strategy. On to slide nine, which summarizes our current quantitative outlook for 2017. We reiterate the EPS guidance provided last quarter.

However, with the Pemex settlement completed and as suggested on the last call, we now expect EPS excluding legacy legal fees to be in the upper half of the $1.10 to $1.40 range. These legacy legal fees and amortization costs are unchanged from our last call.

We now expect the effective tax rate to be in the 25% to 27% range, an improvement from the 27%, we said on the last call. And in addition, resolution of the Pemex settlement gives us greater clarity on 2017 operating cash flows.

We expect operating cash flows to fall in the $100 million to $200 million range for the year, reflecting cash earnings of about $200 million in that Pemex settlement proceeds exceeding the $300 million and the remainder being working capital outflows to fund the later stage EPC and loss contracts, I mentioned earlier.

And finally, we of course plan to continue to our regular dividend as a high priority for the company. In conjunction with our strategic transformation goals, we see 2018 and beyond as years with significant additional deployment potential, and we'll discuss that in greater detail in our Investor Day on May 12.

That concludes my remarks, back over to Stuart..

Thank you, Mark. So on to slide 10. In conclusion, a strong start to 2017. With solid financial and project delivery performance, including the acquisitions were integration progresses on plan with no value erosion. Continued realization of strategy with key wins across segments. Our outlook across our markets is positive.

We see organic growth continuing into 2018 and beyond with opportunities were step of growth. More details on this at Investor Day. Back to our profile combined with reducing uncertainty and risk supports more predictable returns. We have a lean structure, but importantly it has been designed to be scalable.

We are predicting strong free cash flow, which gives us deployment options in to 2018 and beyond. And again, more on this at Investor Day. So, this takes us nicely to the final slide in today's presentation. Please join us on the 12th of May in New York. Thank you very much, and I will now hand back to the operator, who will open it up for questions..

Thank you. [Operator Instructions] And we'll go to Brent [ph] from D.A. Davidson..

Hi, thank you. Good morning..

Good morning..

Just trying to think about E&C segment through the remainder of this year and with respect to some of the assumptions and guidance. You've burned out quite a bit of backlog and even is that stabilizes hopefully here in the second half. It seems like you have some more pressure there coming this year.

So how do we, how do you kind of think about sustaining that mid-to-high single digit margins in that business with revenues coming in this year..

I think the margin performance is continuing and is improved a little in fact. And I mean we've been quite clear that we're seeing a greater level of activity down the pipeline consulting businesses is getting busy which is supports that statement.

And we think that we will start to see backlog growth and what we're bidding at the moment coming through at the later part of 2017.

So, I think I still saying what we said last quarter and we're not seeing that change in the market, in fact that the opportunity pipeline is growing, so the outlook I see more positive this quarter than it was last quarter..

Okay. That's great to hear.

And then maybe just one on government services, can you just comment on the widely Honeywell business is maybe on their own are they growing as the expected faster slower any thoughts there?.

Yeah, I mean the lot of the focus is been on making sure there is no volume erosion. We have secured as we said that the major main stay of the Honeywell business and their portfolio which was I think Gizmo contracts that's the one major recomplete we had this year and we want it.

So, those businesses are performing to expectation, we're seeing opportunities for I guess got some synergy wins in the Tank already and we're seeing more coming down the pipeline, but the procurement process with the government does move slowly, so I think we said all along that the realization of real synergies will deliver the next few years and we continue to believe that that's what we'll see.

So, I think overall, that the integration is going very, very well. The attrition is very low, that the sentiment and the business is very positive. And I think we feel particularly from the Honeywell side they're not belong to people business rather than product business and they're competing in a highly positively..

Thank you..

We'll go next to Rob Norfleet of Alembic Global..

Hi. Good morning. This is Nick [ph] for Rob Norfleet. Thanks for taking our call. Just digging into Brent's question a little more in the E&C segment. I was hoping you could give us some color on the specific end markets you guys are pursuing for your opportunities there.

And what the actual size the work, you're pursuing in those end markets might look like whether it's for small to medium sized projects or $1 billion plus. And also, what the mix of those project is in terms of fixed price versus cost reimbursable..

So, that's a long question. Or maybe a short question with a long answer. So, there are various components across our E&C business, we've got our maintenance business - which is continuing to grow and we've had strategic success this quarter, which underpins that growth.

So, that's one point, I think we've said before that - $100 million business KBR share for us. And we see that continuing to have substantial upside. In terms of - then we have sort of pure services business which in demand is provision of high end engineering type services, typically reimbursable likely industrial services maintenance business.

And again, predominantly what we do in Australia and Saudi Arabia - a lot of what we do in the UK and across the Asia and the Middle East and I would say in the U.S. as well and the Mexico. So, that does that's a very sort of recurring revenue reimbursable part. And then you have the what we called our EPC business.

And where we get to with that is that we're seeing and we've been gas facing business it's that we've been seeing that for a number of quarters, we're not really at the massive that oil price for say that the low gas prices particularly in the U.S.

are affording us a lot of opportunity in the monetization of that gas across value streams that might be in the ethylene sector or that's incrementally where that's polyethylene and olefins. It's also ammonia, the ammonia prices have come up, we're seeing activity in that sector again, quite attractive.

And I think generally just in the downstream side. We do see some opportunities upstream through the long-term relationships with sort of IOC customers, but they are selective.

In terms of scale, we're seeing projects mostly in the - what I call - it's probably the high 100s to the low 2 billion type size, this really saw the size which we're very comfortable in that - we're very comfortable across the range, but in terms of the risk profile, very manageable risk profile.

But I would reiterate again our strategy is technology led EPC. We want to be highly considered on the risk we take. We're being very disciplined around that commercial area.

So, I think that's a key message to the market and what I think demonstrated in the past and we just go out under of contracts that have been difficult and we're seeing at a time when I guess we had - we signed up to deals that were perhaps not as good as we should have been, we'll just go over - so, we want to be very careful of what we say out to going forward and make sure that we can manage the risk..

That's really helpful. Thanks, Stuart. We'll see you at the Investor Day..

Thank you..

We'll go next to Jamie Cook, Credit Suisse..

Hi, good morning. I guess first question just a little more color on it because I mean in terms of you talked about cost growth, so that's different profits, I think you said it's $0.08 to $0.09 in the quarter.

So, I guess how much of that do you recoup in 2017 versus 2018 and what are the offsets to maintain your guidance, is that just Pemex or is there something else that's stewing better? And then my last question obviously, there has been a lot of press with talking about issues - in the customers, so if you could just provide an update there? And if that's what's impacting the earnings deferral?.

So, the earnings deferral is associated with the change of scope, which as you know just delays the profit element of that coming through. We think the majority of that will come through in 2017, and so that's probably the first statement.

The second as we said $0.08 to $0.09, but some of that was ForEx headwinds, so it wasn't all related to excess such that probably that there are point of clarity.

In terms of the project overall, we haven't changed that position in terms of what we recorded in our financials, we feel really good about how our recovery opportunity opposite the power station piece of that and the project continues to progress.

So, I think overall there has been a lot of noise, a lot seems to be played out and they're still impressed and not just the Nexus, but in many projects, but what I'm saying it is the current KBR view..

Okay, so you'll recoup all of that, so it does imply other businesses are doing better or besides Pemex, you get Pemex?.

Yeah, I mean Pemex is a Q2 event, I think that I'm very pleased with the quarter performance Jamie. We've met consensus with actually very strong underlying performance - all the segments are doing well..

Okay. And then I guess one question for Mark and then I'll hop back in queue.

You gave the operating cash flow guidance of $100 million to $200 million and you talked about the puts and takes, but one of them was working capital versus the cash being used to fund projects so, can you give us some color on how much of the cash is being used to fund projects in 2017, obviously, you're going to give longer term targets at the Analyst Day in a couple of weeks?.

Yeah, we will Jamie, in terms of funding projects I think you mean the working capital used to complete our obligations on existing projects. There are two parts to that equation.

There's just the natural phenomena of negotiating advances in the early stages and then having that reverse in the later stages and we're in the later stages of many projects and so that's one element.

I would say that's about two-thirds of the working capital utilization that I refer to and the remaining third is tied to funding a loss prices that we announced in 2016, which there were three.

And so that's kind of how it all mixes together, the total working capital used on those two categories embodied in our guidance's 300 million to 400 million in 2017.

So that's a big number, but we will work through that, we are well capitalize to do so in 2017 and I see the conversion ratios as I said in my remarks earlier in 2018 and beyond being much stronger..

Okay, great. That's helpful. Thanks, I'll get back in queue..

We will go next to Anna Kaminskaya, Bank of America..

Good morning, guys.

So, just wanted to maybe follow-up on the problem project that you know from 2016, I know you were on a completion and what's the visibility on just kind of how much conviction or visibility do you have on cash used for that project?.

So, I'll go into performance today, so the ammonia facilities finished and handed over the final U.S. EPC project in [indiscernible] is substantially complete.

So, handed over to [indiscernible] of the customer and we have got one final domestic EPC project - at which there will be two charges in Q4 and that is progressing, I say a little bit better than we have planned in terms of progressing.

So, the numbers are holding very well there and our understanding of the market known and the productivity and et cetera is playing to that right well.

I would also remind you all that across all three of those projects we have claims both to vendors who didn't perform what we felt didn't perform on to the customer on certain change that we have no reflected in our financial. So, there is potential. There is only potential upside not downside associated with those jobs..

And relative to the cash flow there, it is very scheduled and granular for the two completed projects and we are just working that down, it 70 and then at the final one that still in flight of course.

We have good visibility of our cost structure there provided we and finished the job as expected and we are very confident that our cash flow forecast embodies everything included to finish that and as Stuart mentioned if we are successful in some of the claim areas we have not baked that into any of our cash flow guidance.

So that would be an upside..

And how tangible are those plans, I am not sure if you able to quantify..

I mean, sorry we can't really talk about that given the sensitivity arise any, so.

No problem..

What I said - results we will tell you..

And then when you discuss your E&C backlog outlook for the second half, sounds like you have relative to a wide range of projects in the pipeline, if you have to assume LNG will go forward with the backlog still growing or is it just independent of oil and LNG has all this big sizable project that you happen to have two things.

And secondly, if those projects come in at two low margins and you find that it's very tough for you to compete on the project, is there a strategic optionality for the E&C business like how do you think about it how long do you have to see the progress I mean see business before you make maybe different strategic decision versus holding on for the business.

How do you think about it internally?.

We are excited about the E&C business and where we set at the moment. We feel we've got a capability and cost base where it needs to be and that's why I talked a little bit about growth in my closing remarks.

We feel we are very much poised for step out growth and for us that would - that really comes to a differentiated offering at E&C space particularly using our sort of gas facing technology.

So, we under no illusion, we are committed to E&C business, we under no illusion, we are into the big project delivery business, but we will only do what it makes sense but we feel that a differentiation allows us to play what it makes sense..

And it is fair to say that there are opportunities outside of LNG to grow the project in the second half?.

I mean, you are right, historically LNG has been a big part of KBR, I have been at pains to explain to the market that its - we're very much across the industry sector now we are across the full life cycle of what we do in oil and gas, hydrocarbons that includes downstream and it includes chemicals, that includes fertilizers and of course that includes LNG and then LNG space, LNG is one opportunity.

I think we said before and we've disclosed that, we're involved in a number of these sort of mid-scale opportunities and where they go all ahead, who knows, but will some go ahead most likely. So, we feel pretty good about that, but we feel that we are very, very much across, we've got optionality across the hydrocarbon space.

So, I am trying very hard to get the message across the KBR as far more than LNG and in fact we're doing that and we're improving that and we're actually rolled in a whole set of entity projects today..

Great. Thank you very much..

Thanks, Anna..

We'll go next to Tahira Afzal, KeyBanc Capital Markets..

Hi, folks, congrats on getting the execution back on track..

Thank you, Tahira..

I guess first question as you look at that events for deployment of cash and it's good to see a free cash flow will hopefully be inflecting soon sustainably.

Why would it not go towards share buyback, I mean based on the message where you think there is a big disconnect between the - trading and where you think the fundamentals lay?.

This is Mark, we will talk about this of course much more in the Investor Day.

Our deployment priorities will start with making sure we're funding organic growth and maintaining an attractive dividend after that we'll talk about M&A and buybacks and we'll be strategic relative to both of those options and both of those options will be very much on the table at all times depending on the opportunities in front of us.

So, we expect to maintain an authorization and have the buyback option available to us, and we'll use it as conditions warrant..

I think it's fair to say that we will be in a far - how far more optionality around capital deployment as we move through the end of 2017 and free cash flow conversion such to realize.

And certainly, as Mark said we got the authorization in place today there is now going to maintain that so we can act quickly and buyback them certainly an option that we're looking going forward..

Got it, okay. And I guess as a follow us a little more on the E&C side. I do see that through - up more on bidding less now both on the upstream and LNG side.

Can I believe you might be on the list for some of the Chevron's upstream developments in the Gulf of Mexico? And we've see new pop up with Shell LNG which is the pretty large LNG project up in [indiscernible]. How are you it seems like you have sort of showing up on this list. Should we assume that's just because the market speaking up.

I assume it's not because you guys are getting slightly aggressive..

Our history with Chevron and with Shell is well documented. I mean they are key customers, our relationships are very good. And we are going after projects and including Canada LNG and [indiscernible] and that process is ongoing now which is a sizable LNG project I mean that's several billion dollars signed.

So, we're in partnership there and we feel pretty good about where that is today, but today it's a competitive process with deal. So, but then there are number of things that again we've been very considered to be what we're going after, our $1 billion we think about it very carefully.

And if we don't feel that we got an opportunity to A be successful but more importantly B be successful in make money then we're not going to do it..

Got it. Okay. Well, thank you folks..

Thank you, Tahira..

[Operator Instructions]. We'll go to Chad Dillard, Deutsche Bank..

Hi, good morning. Just a couple of questions on your operating cash flow guidance.

How should we think about the cadence through the rest of the year? And then also how much in cash advances from new bookings in the second half is baked into that $100 million to $200 million guide?.

Chad, the cadence is as we have discussed relative to revenue trends we are working down the projects in their later stage.

And as a result, we've got the E&C side revenues will come down from the first half to the second half at the same time margins I think will improve, but relative to the cash question, I think the burn was pretty heavy in Q1, I think it will remain heavy in Q2 and we'll start to anticipate in 3 and 4 in conjunction or correlation with that work off.

Relative to your question on advances, well we are optimistic to see new winds. In the second half, we have not factored in or otherwise a part advances proceeds their second half to make our cash flow guidance..

That's helpful.

And then what is the CapEx versus OpEx mix in few backlog right now and how should we think about that evolving as we as the 2017? And then secondly going to the profitability in E&X this quarter is about $33 million can you speak to about that run rate is sustainable for the balance for the year and how should we think about that cadence though the rest of the year?.

So, I'll talk a bit about backlog and then Mark can chip in. I think we said I think during the presentation, we look across the whole business in terms of the risk profile and the contract we expect we have.

We're over 87% in the cost reimbursable PFI type contracts and all as jumping as I talk before in the scale of our OpEx facing business in the hydrocarbon sector, but also, we've got the same in the government sector.

So that profile much derisk the volatility and I think it gives a good outlook in terms of what the business can do and the consistency of what the business can do..

And relative to profit, this is our most choppiest segment, but I would say that it's modestly down in the second half. Overall in terms of profit dollar conjunction with revenue phase, adjustment shift as new winds come to the service in the second half..

That's helpful. Thank you very much..

We'll go next to Michael Dudas [ph], Vertical Research..

Good morning, everybody and welcome to our world, Nelson..

Thanks..

We're really good people deep down.

But so, Stuart on government services, when you look at it seems like the pipelines pretty full, can you maybe share a little bit about what areas are more near-term or more opportunistic than some of others and as we look to next quarter to any big projects or any more opportunities of awards or we get announce previously next quarter too.

And relative to the employees that you have in that division, are you a 100% set or you 80% set like do you need attract more type of time or you still getting through merging to coming through where do you were are you on the human resource calculation to meet the growth targets that you have. Thank you..

Okay. So, I think to start we have probably a little bit difference some of main stake government players in the U.S. and that we've got such a significant component overseas.

That and we've got secured what already in the hopper and the tank if you like that drive organic growth into 2017 and into 2018 release PFI contract so, I mean 2020 in MFTS contract. And there is a number in the pipeline and out of the UK that we are bidding now that are due for a ward quite soon.

So, I think we're feeling pretty good about that in terms of resources in the UK that's a business we have been in for a multitude years and we're well-resourced and no consensus in the arena to continue without gross story. In terms of the U.S. the integrations of the businesses as I said before is going very well.

We've actually restructured them into three areas which is - that's kind of common sense if you like one of the space and we've got the Honeywell NASA business and the Wyle NASA business now together sort of about the space division, I mean we've got the engineering piece, which really supports all the platforms that we do in the high and technical services and that we help the logistic piece, which is KBR's legacy business combined with Honeywell sort of preposition install maintenance business.

So, that's all in place now, the leaders of those businesses are in place. As I said, our attrition has been very, very low.

When I look across the breadth of capability that we have, I think the platform for growth is substantial because we've got more capability and more excitable past experience than most and I think we can certainly use that to advantage going forward as you know much, much of what happens in government that requires excitable past performance and we've got a huge amount of it that we can take the business into other areas like ranges and things like that and that's not been in the past.

In terms of short-term growth, short-term growth that we're seeing is obviously is coming through the low cap contracts that the deployment supporting the U.S.

military at both in the Middle East and Europe and that has been growing I think for several quarters in a row now and we continue to see the ramp up there and we see that we're one of the best in the business that actually supporting and be able to move quickly and the growth in that arena has been very fruitful.

In terms of what's going down the pipeline in terms of lot we've got another engagement which we've just won which is the satellite going end-contract for NASA we have now major recoup reach in 2017 so that the base business is very way stable in and then anything above that is clearly good and the numbers of opportunities coming down that pipeline are substantial mostly we'll see of course in the U.S.

the sales supporting these major platforms and probably Mark can talk a little bit more about that..

Well, I'll give you some real pipeline data in our Investor Day number one, you'll see that it's pretty impressive for the government services business in terms of value and we'll talk about some of the exemplar elements there in carefully of course for competitive reasons.

But I'll also say that we're on the early stage of the collaboration story of putting these businesses together and based on my discussions with the team, there are some great ideas, there are some early wins on the synergy side, but we're far from really tapping into the full potential on tapping into new customer sets overtime that we've been pretty entrenched with NASA and the Navy and the Army and the legacy businesses brought together here under KBR Wyle, but reaching across and going after new areas and also other incumbencies that we now can compete against I think is the excitement of putting these things together..

That looks like we'll have to talk about in a couple of weeks. Thanks, gentlemen..

Thanks..

We'll go next to Andrew Kaplowitz of Citi..

Good morning, guys..

Good morning, Andy..

We're starting to see some stabilization and or improvement in Middle East markets and some of the other industrial companies that follow, are you starting to see what projects percolate in that region and do you think they contribute to the second half backlog ramp up that you expect?.

I mean answer to both those questions is yes. As I've said previously, we started the year with more vital of those Middle East businesses than we find in certainly my time at KBR, our performance is good, our relationships are good and it turns out our in line with expectations. So, we continue to see opportunities there.

We continue - as I said before our history and the Middle East is rich, but our legacy sort of business there is really be restricted to Saudi and Boston, we've now moved into back into Kuwait, we'll move back into Abu Dhabi and back into Qatar and Oman, and so we think this is quite significant headroom for growth just by moving back into those markets and taking market share.

But you're right, the sentiment is more positive than it was a year ago and certainly, we're starting to see opportunities down the pipeline and that will be added if the back office as we move through 2017, no doubt about it..

Okay.

So, I just wanted to follow-up on I think it was Jamie's question around excess risk, I looked at the quarter you did booked uptick in unapproved change orders and obviously, there's been noise around the power plant and what's happening on that job there did you guys take over that job and is it possible to ring censor us the cost complete that power plant job how do we think about that?.

I think the way you need to think about it is that the contractors, firstly it was a contract to the joint venture, so to be clear by that, so we have stepped into finish it, we've already mobilized contractors in there to do that.

The consortium which involves UGL, CH2 and GE, they effectively - we walked off the job and we believe breaching the contract.

We feel, we've got clear recovery rights through them, I think we had not announced that - it wasn't clear that GE were part of that consortium joined several in the past but certainly there is a balance sheet there that is quite robust in terms of our recovery.

GE has done the honorable thing, they continue to work on the project around actually supporting their machines and the technical specs that surround that.

So, in that sense we've got ourselves in a position whereby GE is standing behind the guaranty switches the key component of the power station in terms of the rest of the construction we have taken the best performer can track as on site and they have been mobilized on to the job. And we - people from completing our work in the U.S.

in fact some of our key management and give best performance over into Australia to manage the conclusion of that work..

If I remember correctly, that pipeline was hosted on when you started taking over, is that right?.

Right. I mean, yeah - I think, the percentage that - Nelson, it was above 80%, I think 89% and so yeah, it's close to be being finished but we do need to finish it and we've set ourselves up to do that. We're putting the right resources to do that. We've got the right contractors mobilized to do it and GE continues to standby their obligations.

So, we are on the part to sort of go around that note, we're moving at along..

It's fair to say that at least in a very short-term that's one of the contributors to the cash stream this year that side of it..

We think overall that there will be no cash stream in 2017..

Okay..

That is now, one of the drivers..

Okay..

This is the earlier projects discussed in 2016..

Okay, that's helpful. And then just one clarification. In last quarter, I think you suggested that the accretion from Wyle and the HDI deals in 2017 could be a bit better than you originally expected? And is that still the case, you think that they could do around $0.20 in 2017 and $0.30 to $0.40 in 2018.

How are they doing versus your verifications [ph] there?.

I think we're going to give a bit more color around how the business can do beyond 2018 across all of what we do in the Investor Day, I think that's probably rather do a little bit [indiscernible] here under go probably better to do it in entirety at the Investor Day.

But we do feel pretty good about our organic growth as I said that, we think that we've got a firm footing to grow the business organically and we do have some real step out growth opportunities and we'll talk more about that on the 12th..

And we'll go next to Steven Fisher of UBS..

Hi, Thanks guys. This is Richard [ph] on for Steve. Just, I guess a housekeeping question on excess.

Can you give us a sense of like what equity earnings you're going to step back up to on a quarterly run rate basis going forward? I mean should we be expecting to get back to that $10 million a quarter level or less than that and do you have a firm completion date in 2018, just wondering what the run rate is going forward there?.

We don't like to talk about individual project profitability. Please, but we do expect as we've said in our remarks to restore profitability in the later quarters from Q1, once the percentage of completion adjustment has been made.

And so, I think we'll be back on more normative trail, in Q2 and beyond and that will extend into 2018, which is I won't be too precise on one in 2018, but we are targeting completion in that year. And so, we'll carry through somewhere there..

But I think also it's worth noting that equity earnings is not all excess.

It actually, last year I think I've said this before is that we were building our brand and the capability and we did acquisitions in that space to build that capability, we had all the shipping cost and things last year, so not a big contributor last year but as we've moved into this year that comes through the equity and earnings line as we are growing far of our business.

And we've got joint ventures in the UK and we've got joint ventures in Mexico that also contribute through that equity and earnings line.

And those businesses are also growing, so it's wrong to think about equity and earning line is just a one click pony it's very much I think we're seeing a lot of upside in the other areas and the equity and earnings that's why market saying we'll get back to sort of normal sort of levels but we see that continue..

And not regressing..

Okay. That's helpful to understand. Thanks. And then just in terms of $2.2 billion and government options what ask to happen to convert those into backlog. It was really just timing and are those optional expansions or is there an opportunity to do something sooner..

Yeah. Mark will answer that..

Those, we're just trying to provide clarity that we and others don't recognize in backlog on unexercised options. Because of course the government has the option bring to lot extend. However, when you entrenched and incumbent unlike we are on many of our programs that history suggests that those options will be exercised and that work will be done.

And so, for that reason, we will generally expect that will carry through the full period of performance including those optional years and those revenues were ultimately be recognized..

[Operator Instruction] We'll go next to Jerry Revich, Goldman Sachs..

Hi. Good morning, everyone. Stuart, I'm wondering if you could....

Hi..

I'm wondering if you could in more about the opportunities that you are evaluating in ammonia is it similar to the type of revamp work that was awarded in your T&C business this quarter or more substantial Brownfield or Greenfield type activity. And if you can give us any color on region.

And also, you mentioned that the contract terms in the last set of Greenfield ammonia contracts weren't what you would like what's sort of contract terms should we be thinking back for you folks if you do undertake more Greenfield work at some points..

Yeah. Maybe I'll answer that the last bit first if I may that. I think there is two main contributors to where we ended up on these projects the first was whether no having and no contractual protection are on whether where we had the 100 year of that happening that two years in a row in an around this part of the world.

And not really thinking that through in terms of we build out into the schedule or how we have contractual protection within the terms and conditions. So that's the first.

The second contributor was really around understanding productivity norms as it sits today I mean the labor force and the gulf course today is very different to where it was 15 years ago, we paid a high price to understand that, I think we do understand that not certainly there are forecast to complete on the jobs that we have our productivity is actually doing a little bit better is little better than forecasters was these execution as is actually improving.

So, I think we've got both of that those very much under control and we really understand how to do this right down at the front line in terms supervisory ratios and what place planning and things like that that really make it difference so.

So that piece, that really helps us to understand, I would bet these that actually avoid those pitfalls into the future. So, I probably ask - that the last piece.

In terms of ammonia itself, we're seeing, yes, we're continually active in the revamp market, we're seeing a lot of activity there through E&C and where we can, going that through and where it makes sense into E&C. We do have grassroots opportunities in a couple of areas one in the U.S.

and one outside the U.S., we see quite a bit of activity in Russia, in this arena as well. So, it's a very much as global business, and I think with uptake in linear pricing and just obviously continuing US it's a great opportunity.

So, whether that just in the morning real to seen that across I guess the chemical sector as well on the olefins ammonia. So, I think it's - again an opportunity for step by growth is saying in front of it's a lot of part of certainty..

Okay. Thank you. And a question on the Wyle and KBR technologies solutions businesses based on the pro forma disclosures, it looks like to sales for two businesses were down about 15% year-over-year.

And I'm wondering if you could just step us through the drivers was it contract timing and presumably your folks knew about the contracts at that time, so I am curious factored into valuation but as we just get to know these businesses.

Can you just help us understand them, cadence on the flows of the drivers there?.

I mean our view at the moment as that those businesses are performing to expectations and then line particularly the earnings line sit to where we thought that would perform. A little bit confused with that data there, Mark are you....

Well, I can only - relative to the Honeywell acquisition that was, there was a lost body of work before the acquisition, it was well known and well placed.

So, there was a declining trend there, that was foreseen and priced in and we knew that it will take some time to fill that gap, as you are seeing some of that come through relative to that piece, but well known and there is a recovery story relative to the synergy and the full life cycle offerings we have when you combined KBR and Wyle together.

So that piece I can see I am not following you on the Wyle part, I see that as more stable, but together both performing in accordance with what we had expected at time of acquisition..

Okay. Thank you..

Thank you..

That will conclude today's question-and-answer session. At this time, I'd like to turn the call back over to Mr. Stuart Bradie for any additional or closing remarks..

Thank you. A pleasing quarter, I think positive outlook and we hope you will join us for Investor Day on May the 12, we will give a bit more color of what we think this business can do going forward. So, thank you for joining us today..

That does conclude today's conference. Thank you for your participation..