KBR, Inc. (KBR) Q3 2015 Earnings Report, Transcript and Summary

Good day and welcome to the KBR's Third Quarter 2015 Earnings Conference Call. This call is being recorded. As a reminder, your lines will be in a listen-only mode for the duration of the call. There will be a question-and-answer session immediately following prepared remarks. You will receive instructions at that time. For opening remarks and introductions, I would like to turn the call over to Mr. Zac Nagle, Vice President of Investor Relations. Please go ahead. Zachary A. Nagle - Vice President-Investor Relations & Communications: Good morning. Thank you for joining us for KBR's Third Quarter 2015 Earnings Conference Call. Today's call is also being webcast, and a replay will be available on KBR's website for seven days at kbr.com. The press release announcing KBR's third quarter results is also available on KBR's website. Joining me today are Stuart Bradie, President and Chief Executive Officer; and Brian Ferraioli, Executive Vice President and Chief Financial Officer. During today's call, Stuart and Brian will cover KBR's results in more detail and discuss our market outlook by major segment. Please refer to the accompanying presentation that is posted on our website at kbr.com. After our prepared remarks, we'll open the floor for questions. Before turning the call over to Stuart, I would like to remind our audience that today's comments may include forward-looking statements reflecting KBR's views about future events and their potential impact on performance. These matters involve risks and uncertainties that 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 third quarter earnings press release, KBR's earnings presentation, KBR's Form 10-K for the period ended December 31, 2014 and KBR's current reports on Form 8-K. You can find all of these documents at kbr.com. Now I'll turn the call over to Stuart. Stuart? Stuart Bradie - President & Chief Executive Officer & Group President-Engineering & Construction: Thanks, Zac. Good morning. So turning to slide three, Zero Harm programs and courage to care program continue to drive increasingly better performance in the safety and environmental arenas. You can see our performance is trending very much towards the IOGP top quartile, that's International Oil & Gas Producers top quartile performance. So very pleasing performance, but it's a journey that never ends, safety, and we've got to be vigilant and keep on it. But so far, this year the performance is improving which is very pleasing. So moving on to slide four. So in a nutshell I think the quarter was – we had a very solid performance around the operating side, improved earnings versus 2014. We announced in December last year a number of prospects that we felt would go forward even in this low price oil environment at Johan Sverdrup being one that we won and it's going ahead recently and we've just won the detailed engineering contract for Maersk Culzean in the North Sea, UK North Sea again which we identified last December. We did a frontend design and that's moving ahead into the delivery phase and will be Q4 booking, we just announced that in the last couple of days. The two mega LNG projects continue to perform well, and as previously reported, we stick by that statement. We expect to be significant earning contributors through into 2016. What was very pleasing in the quarter were the positive earnings that came from a non-strategic power projects. You may recall we did a forecast to complete exercise last December. The challenge then was very much to continue to execute those projects within the forecast. We put very strong management from our E&C Americas group on to those projects. So we very much managed them as part of the E&C Americas portfolio and again very pleasing this quarter that we're starting to see the fruits of that labor. Realized asset impairment restructuring costs of $15 million and a $6 million gain on the disposition of certain assets as we adjust our business portfolio. Those very much relate I guess to what we – in the bullet point, a couple of bullet points down when we closed the two strategic partnerships for Industrial Services and pipe fabrication, which really we hope to accelerate growth in the Industrial Services arena and the pipe fabrication area. Our cash performance was pleasing in the quarter. We maintained a very strong balance sheet and a very strong cash balance. And I think this provides confidence to our clients, particularly in a market like this and it gives us optionality as markets continue to evolve. Also in the quarter, very pleasing, the support of our banks came through and we closed on the new $1 billion bank credit facility and Brian will talk a little bit more about that in a second. We continue to be well placed on strong gas business and gas monetization prospects and on the UK government prospects we reported previously, so no change there. The decision is expected in the near-term. So all-in-all, the strategy is on track to achieve the targeted margins and the cost savings by the end of 2016. And the segment margins largely are at near target levels and we continue to be prudent in applying with regards to the competitive environment medium term. And more than $150 million of savings have been identified in actioned to-date and the net benefit will obviously come through into 2015 but also beyond. So, I'm going to hand over to Brian now. Hopefully, there are a little bit more flesh on the bone around the numbers. Brian? Brian K. Ferraioli - Chief Financial Officer & Executive Vice President: Thank you, Stuart and good morning. Turning to slide five, the backlog for unfilled orders is around $13.3 billion. We had some one-off type transactions going through backlog this quarter. The sale of the Industrial Services or 50% of the Industrial Services business that Stuart mentioned before resulted in a de-booking of $340 million from our backlog, although the work still remains within the joint venture. And like many other companies, the strong dollar had a foreign exchange impact on us reducing backlog by $391 million. Most of which relates to the activities we have in the UK government business, which extends out on one contract in particular almost 26 years. Moving onto revenues, $1.2 billion in revenues for the quarter. This is down from a year ago, which is as expected, the winding down of the Canadian pipe fabrication and North American construction projects and reduced activity on one of the LNG project, as well as the sale of the Building Group which we announced in the end of Q2, which is about $60 million in quarterly run rate revenues that we have sold. And also I should point out that we announced we have a definitive agreement in place to sell our Industrial Services businesses, and hopefully will close in the fourth quarter, which again the revenues should drop correspondingly associated with that sale – so for infrastructure, I'm sorry, I misspoke. Thank you. Gross profit and equity in earnings reflects improved business performance and the operational cost that we've been working on for some time. The G&A is down $20 million from September from a year ago. And if you recall, the September timeframe is the point in time where we're measuring our cost reduction from. As Stuart mentioned, we have restructuring and impairment charges associated with the strategy that we're implementing. And we also had a gain on the disposition of certain assets, resulting in a net between the two of about $9 million in pre-tax cost for the quarter. EPS $0.38 and EBITDA of $86 million. Turning on to page six in the segments, again, on the revenue side, Technology & Consulting continues to show reduced levels of proprietary equipment sales and lower consultancy services, primarily related to upstream oil projects. E&C, as I mentioned before, reflects the Canadian pipe fabrication and North American construction projects which we are exiting or executing as part of the joint venture, and the non-strategic again shows the impact of the Building Group. Moving on to gross profit, as Stuart mentioned also, E&C strong operating performance and lower overhead. Government Services had solid performance, increased activity particularly on the U.S. side. So that's showing up on the revenues and in the earnings side. During the third quarter of 2015, we had about $3 million in annual maintenance expenses incurred in the UK, which typically occur in Q4. So in 2015, they occurred in Q3; in 2014 they occurred in Q4. Also last year, had a $21 million award fee on the legacy LogCAP III project, which obviously did not reoccur this year. The non-strategic business reflects the power projects. We're down to basically two projects, one is largely complete and two more to go, with the second one to be finished sometime around the end of the year or early part of the first quarter, and the third one to be completed in 2017. EBITDA reflects obviously the activities above, but also a year ago, we had a gain of $24 million in the settlement with our former parent that did not reoccur this year. And it also reflects the impairment of $15 million, and the gain on sale of $6 million that we previously talked about. Moving on to slide seven and cash. It was a relatively good quarter. From a cash perspective, operating cash flow was positive $54 million, which results in a cash balance of $768 million. You see it's up $37 million from the second quarter. You see below that some of the larger unusual activities during the quarter, the cash from the sale of the Industrial Services business as well as the investment we made in the pipe fabrication business, resulting in $33 million cash inflow. We continue to fund some of those loss projects that Stuart referred to earlier, the settlement with our former parent, the dividends, pension, and the foreign exchange impact. On balance, we returned $17 million in cash to our shareholders, reflecting a balanced capital allocation policy that we've had in place for some time. And for the year, we've returned $57 million in cash in a year that had operating cash flow year-to-date so far of negative $85 million. We've returned $57 million to our shareholders and we still have a quarter to go for the balance of the year. And in total, we've returned in excess of $1 billion since we have the spinoff from the former parent. So, as Stuart mentioned, strong balance sheet, good cash gives confidence to our clients and optionality as our markets continue to evolve, which includes looking at some M&A opportunities. And I'll turn the call back over to Stuart. Stuart Bradie - President & Chief Executive Officer & Group President-Engineering & Construction: Okay. Market outlook, Technology & Consulting, market opportunities led by ammonia, refining, and olefins very much as we reported previously, but we're seeing a lot more activity particularly in the revamp arena in the Middle East, North Africa, and across Eastern Europe. We're now starting to see opportunities for our VCC technology coming through again in Eastern Europe which is good. And although the market is tight in our consulting arena, I think we've now right-sized that business and we are starting to see more activity in upstream oil and gas, albeit, sort of, I guess smaller type projects, which is normal in the consulting space. And as Brian mentioned, we continue to look for additional opportunities to expand our T&C technology portfolio into new products and services. Moving on, outlook for E&C, the strategic developments in the quarter, the Industrial Services and maintenance business with the Brown & Root joint venture closed in the quarter as did our strategic alliance for pipe fabrication and module assembly, which I think is key and de-risks some of our execution for EPC prospects in North America. We continue to capture previously identified large offshore projects. Johan Sverdrup, we mentioned before and as I said in my opening remarks, where we've been up and (14:47) awarded the Maersk Culzean offshore gas development for the UK North Sea, which is a Q4 booking. We continue with a strong base of large projects for the remainder of 2015 and into 2016. The LNGs you are well aware of and if we get favorable resolution of a pending change orders, provides the opportunity for 2016 LNG income to be comparable to 2015 as we previously reported and we are standing by those statements. Significant backlog of ammonia/urea, refining and oil and gas projects and also in the construction sector in North America. Good pipeline of near-term and long-term prospects focused on the Middle East as we're identifying a number of opportunities in that market, onshore upstream opportunities in the Middle East and Caspian and our joint venture in Azerbaijan with SOCAR is tendering heavily for some good opportunities in the offshore brownfield arena. As many of you know, we've been in Azerbaijan for many, many years and have a very good reputation there. Offshore developments continue, some in the Gulf of Mexico, some in the North Sea, obviously in Azerbaijan as previously mentioned, and some in Thailand, but again, very specific opportunities that we're targeting in those markets. We're continuing to pursue $2 billion fertilizer complex in the Midwest U.S. and the major LNG developments continue to evolve, which provide additional support for backlog growth in 2016 and of course beyond 2016. On Magnolia LNG sole-source activity, the EPC pricing and the contract award is expected in Q4 as previously reported. And on Tangguh, the FEED continues and EPC bidding is now set for early in Q1 2016, again as previously reported. Work on the Shell Global LNG Agreement continues. What's interesting is we're working also on four additional FERC FEEDs in North America. Clients are confidential, but again, more in the developmental arena. But quite a lot of activity in that space, and pre-FEED work and tendering is ongoing for two major FLNG projects as previously reported. There is a continued pursuit of LNG developments in North America where the economics are promising giving low forecasted cost of development cost and particularly low gas prices versus most regions of the world. Government Services confirmed preferred bidder for the UK MoD Fixed Wing Training contracts. Again, we expect awards in Q4 as previously reported. The UK Army re-basing discussions continue. There's a strategic review. The Ministry of Defense are doing what decisions to be made this month, which will give us a strong indication of that opportunity. Strong operational performance continue for ongoing UK PFI contracts. And we continue to see a number of opportunities around overseas base operational support, for example in Kuwait. As Brian mentioned previously, the work in Iraq continues to wrap up as we support the U.S. Military in their against the ISIS. And we continue to progress in successfully closing out U.S. Government audits, and during the summer, the legacy LogCAP III issues and RIO billings. And an example of that is we recently – the court dismissed, and this is on the sodium dichromate case, the court dismissed, I guess, the plaintiffs' only remaining claim in the last week or so. And although we can expect an appeal, I think this is still a significant and positive ruling for KBR. Okay. So in summary, I think a very solid earnings and operational performance in the quarter. The E&C management made good progress, I think, in de-risking the business through strong performance on non-strategic power projects. We very much look at those power projects as part of the E&C portfolio, which was a big, big change in the way that we execute those projects in the past, putting E&C management across them rather than the old structure from what was called IGP. So, really good performance in that area, and obviously closing out the Canadian pipe fab and module assembly projects. We continue to capture prospects we specifically identified some months ago. It was a new credit facility in place, strong balance sheet, which gives us optionality going into the future. Our near-term prospects remain strong, with backlog growth opportunities going into 2016 and beyond. And our strategy is progressing and it is on plan. Thank you. And with that, we'd like to turn the call over for questions. Operator?

Thank you. We'll go first to Tahira Afzal of KeyBanc.

Hi, folks and congratulations on the quarter. Stuart Bradie - President & Chief Executive Officer & Group President-Engineering & Construction: Thank you. Brian K. Ferraioli - Chief Financial Officer & Executive Vice President: Thank you.

So, I guess first question is, Brian, if I look at your guidance for the full year and what's implied for fourth quarter, can you provide any color on how you see that shaping up to the extent you can? Brian K. Ferraioli - Chief Financial Officer & Executive Vice President: Yeah. You'll notice that we did not give guidance because we don't give guidance on a quarterly basis. So, I'm going to refrain from being too specific about what will happen in Q4. But as Stuart mentioned, one of the things that's most pleasing or important to me is the de-risking of some of these projects that has occurred over the last several months. If you recall, we have shipped the last modules up in Canada, so those legacy pipe fabrication contracts are virtually complete. And now, on the power projects, one is completed and the second one is an outage which will be completed, as we said, around year-end. So, that will be again a significant reduction in risk. So, I remain optimistic for Q4, but I can't be too specific in terms of quantifying it at this point.

Got it. Okay. That's helpful and (21:21). Second question is probably on backlog growth. Stuart, you sound balanced in terms of your macro framework, but it seems you've sort of steered KBR to a point where perhaps you're getting market share and realizing a lot of opportunities. So even in an environment that's tough, do you still expect backlog growth in 2016 at this point? Stuart Bradie - President & Chief Executive Officer & Group President-Engineering & Construction: Well, I think, Tahira, we've been very specific on and try to be as transparent as possible on the key prospects that we are going after. And as we said last quarter, many of the decisions around those will be made in Q4. And you know if the stars aligned with a fair wind, as they say, if we can be successful in what we've identified, yes there's opportunity for backlog growth going into 2016.

Good. Thank you. And I'll hop back in the queue.

We'll go next to Jamie Cook of Credit Suisse. Jamie L. Cook - Credit Suisse Securities (USA) LLC (Broker): Hi. Good morning. Stuart Bradie - President & Chief Executive Officer & Group President-Engineering & Construction: Good morning Jamie. Jamie L. Cook - Credit Suisse Securities (USA) LLC (Broker): So, just a couple of questions. Brian, can you just remind me year-to-date. I mean I know you've identified $150 million in action, but like what you've realized through the first nine months of the year? And then as we shift forward, it looks like most of the benefits that you – the G&A has come down year-over-year but on a sequential basis were sort of flattish, I'm just trying to think about – when I think about future savings, is it more in the G&A line or up at the segment level? So, that I guess is my first question. My second question is, Stuart, really you guys sound fairly constructive with regards to LNG, if you think about some of your peers like Floor (23:05), last week they're a little more pessimistic on awards, moving forward in the short term just because of the size of the projects just for a lot of reason. So if Magnolia or Tangguh doesn't happen, can you talk about what else is left in the pipeline? And then third, I think in the Q, there was mention of the losses on the petrochemical facility. So can you just give us a little color there, how much it was unless I'm reading it wrong? Where we are in terms of percent completion, any color on that? Thanks. Brian K. Ferraioli - Chief Financial Officer & Executive Vice President: Okay. Jamie, I guess I'll go first on the cost side. The way I'd like to think about it, if you look at the G&A line, it's down $20 million from the third quarter from a year ago. So, on a run rate basis, that's $80 million alone. And even with the performance, we've had some of the compensation accruals, so probably a little bit higher than target. So, there's certainly more room on the G&A line there on a run rate basis as we go forward. But in general, what I would suggest to you, the savings have roughly been about 57% in the businesses and 43% on the G&A line, just to give you some order of magnitude on where the savings are. And as we mentioned before, as we roll through the year, actions we take in the first quarter don't appear till the second quarter, and actions we took in the second and third quarter obviously don't appear till later on. So, this is a blend which occurs throughout the year. So, we've said at least $150 million, and as I mentioned in the past, that's kind of a dynamic number where as people roll-off projects and they don't have another project to work on, that those costs would fit in overhead and that was the result in a reduction in the savings. So, the $150 million reflects where we are as of today. And we remain highly confident that we'll get the remaining $50 million by the end of next year.

We'll go next to Steven Fisher of UBS. Brian K. Ferraioli - Chief Financial Officer & Executive Vice President: Hang on. I don't think we answered all of Jamie's questions. Stuart Bradie - President & Chief Executive Officer & Group President-Engineering & Construction: Yes. I think Jamie's couple of questions is actually three. So I think on the LNG piece, Jamie, again, we've been very specific on the prospects that we're going after and where they are in the evolution. We remain positive around those opportunities progressing and actually where our focus is today. As I mentioned before, we've got a number of I guess development projects that we're working on at the moment. Will they all go ahead? Probably not, but there is a number of them and we will work with the developers to the maximum extent we can to try and get those to move forward. But I guess the statement around where we'll be in LNG remains the same and that is the work that we have in LNG will continue to contribute strongly in 2016. And what we've identified, we will continue to grow our backlog if those prospects come in. Now on the petrochem, I think the petrochemical project was really an issue around more – wasn't an execution issue. It was more of squaring up some withholding tax, which we did have to take in in the quarter. So no real operational slip up there. I think the pluses and minus overall in projects was positive. So I think that's a minor issue that – no real concern.

We'll now go to Steven Fisher of UBS.

Great. Thanks. It sounds like you're pretty confident in the potential to get these two UK government awards in the fourth quarter. So is that your base case? And then just can you remind us the magnitude of these? Would these take your backlog back above that Q2 level assuming you had, say, another $1.2 billion of sales Q4? Brian K. Ferraioli - Chief Financial Officer & Executive Vice President: Steve, this is Brian. I'll try that. In terms of the size of these contracts, these are going to be measured in the hundreds of millions. And as we said, we expect the decisions to be taken in the fourth quarter. Question exactly on the timing of the bookings. One of them is tied to third-party finance. We think that will be done and completed in the fourth quarter. But there's always the likelihood that one of these could roll over into the first quarter, just given the financing timing. In terms of the bookings of them, as I said, these are in the hundreds of millions. They certainly are not the size of the LNG projects and the floating LNGs which are measured in the billions.

Okay. That's helpful. And then, Stuart, how is your thinking and your customer thinking around some of these large E&P project changes in the last few months? Specifically thinking about the $2 billion fertilizer complex, Magnolia and Tangguh. Is the degree of confidence still there and just the timing shifting out a little bit? And what do you think it's going to take for these things to actually move forward? Stuart Bradie - President & Chief Executive Officer & Group President-Engineering & Construction: I mean, they're all different, I think, Steve is probably the first statement. Magnolia is well advanced in terms we've agreed the contract terms and conditions. It's a development project. The off-take arrangements have been made public. So I guess the input and off-take are progressing well. It's really the EPC pricing in the middle, and the capital market seems to be quite positive around the ability to stand behind a project with the arbitrage as a tooling arrangement that's in place. So that's Magnolia. I mean Midwest. It's being in the Midwest that's got a logistical advantage. So, therefore, a cost advantage in sort of producing fertilizer closer to market. And again, there's a number of financial instruments backing that. So, again, we feel quite comfortable that it will go ahead should we be able to get to the EPC pricing levels. No guarantees, of course, but that's the way it's working. Tangguh, it's a sub-train,(29:49) as we said before, of a existing two-train facility where the associated infrastructure is largely in place. There's been a number of announcements from BP in Indonesia around the sort of structure and deal they've got with the Indonesian government. So, again, no guarantees, but the likelihood of that going ahead looks favorable.

Okay. That's helpful. Thanks a lot.

We'll go next to Anna Kaminskaya of Bank of America. Anna Kaminskaya - Merrill Lynch, Pierce, Fenner & Smith, Inc.: Good morning, guys. Can you hear me okay? Stuart Bradie - President & Chief Executive Officer & Group President-Engineering & Construction: Yes, Anna. Anna Kaminskaya - Merrill Lynch, Pierce, Fenner & Smith, Inc.: Hi. So I just wanted to quickly follow up on Magnolia and Tangguh, just from the timing of awards, 4Q for Magnolia and 1Q for Tangguh, when would they actually matter for your EPS? Because my understanding, you would still have to wait for FID for Magnolia, right, if you put into the backlog. When would they actually move the needle from EPS perspective? Brian K. Ferraioli - Chief Financial Officer & Executive Vice President: Well, Anna, as you know, these'll start to ramp up next year. We start with the engineering. So they won't hit their peak until 2017, 2018. What's fortunate is the timing on the two existing LNGs. As you know, they're further to the back end of those projects. So as they start to ramp down, you have hopefully two more that we would book, would be ramping up and those lines would cross somewhere probably in 2017. Anna Kaminskaya - Merrill Lynch, Pierce, Fenner & Smith, Inc.: Okay. So you would still have some initial work starting in 2016, so we can still see it have some contribution. Stuart Bradie - President & Chief Executive Officer & Group President-Engineering & Construction: That's correct. Anna Kaminskaya - Merrill Lynch, Pierce, Fenner & Smith, Inc.: Okay. And when do we have better visibility on just overall Australian projects, I guess, co-provision? Is it 4Q or is it 1Q? Stuart Bradie - President & Chief Executive Officer & Group President-Engineering & Construction: Are you referring to the change orders? Anna Kaminskaya - Merrill Lynch, Pierce, Fenner & Smith, Inc.: Yes, the change orders. Stuart Bradie - President & Chief Executive Officer & Group President-Engineering & Construction: Oh, I think it's difficult to predict an exact timing, Anna, on that. I mean, obviously, the commitment we'll make is that when we do resolve them, we'll tell you. But it's an ongoing negotiation, and there's no line in the sand as to when that will be resolved. Anna Kaminskaya - Merrill Lynch, Pierce, Fenner & Smith, Inc.: Okay. And then, finally, I'm not sure if you can comment on it. But just looking at the structure of the Magnolia project, can you carry I believe 70% and your Korean counterparts another 30%. What will they be responsible for in the project versus your scope of work? What does that 30% of economics, what will they be doing? Because I'm thinking about you're having the labor relationship and you mentioned engineering know-how. Just trying to figure out how the scope of work will be divided between the two of you. Stuart Bradie - President & Chief Executive Officer & Group President-Engineering & Construction: I mean, SK will contribute greatly for their 30%. And at the end of the day, KBR leading it. The engineering will be driven out of our house. But if we're doing module fabrication and that happens to be in Asia, you can see where SK can play quite an important role in sort of construction management and site management of what's happening in that activity. Anna Kaminskaya - Merrill Lynch, Pierce, Fenner & Smith, Inc.: Okay. Thank you very much. Stuart Bradie - President & Chief Executive Officer & Group President-Engineering & Construction: Thank you.

We'll go next to John Rogers with D.A. Davidson. John Bergstrom Rogers - D.A. Davidson & Co.: Hi. Good morning. Stuart Bradie - President & Chief Executive Officer & Group President-Engineering & Construction: Morning, John. Brian K. Ferraioli - Chief Financial Officer & Executive Vice President: Hi, John. Morning. John Bergstrom Rogers - D.A. Davidson & Co.: Just following up a little bit more on some of the pending work out there. I guess, Stuart, are you fairly comfortable in terms of the margin profile or the risk profile with these projects? I guess one of the fears always is that as the market is slowing down or some of your competitors are hitting air pockets that there could be some margin pressure, more competitive pricing I think not only in the LNG but the fertilizer projects. Stuart Bradie - President & Chief Executive Officer & Group President-Engineering & Construction: I think your observation is correct, John, that there could be a tendency in the marketplace to be overly aggressive. I think that we've been very considerate in what we're doing. I think we've proven that with the way we dealt with Lake Charles and not taking on something we felt that as either too risky or the margins that we didn't want. And both Magnolia and on the fertilizer project in the Midwest, I guess the message is very much we're in sole-source negotiated position. John Bergstrom Rogers - D.A. Davidson & Co.: Okay. That makes sense. And then I guess, Brian, just in terms of the cash flows, the big swing factors coming into the end of the year, is it the LNG project close-outs or finishing those off or are there anything else that we should be thinking about? Brian K. Ferraioli - Chief Financial Officer & Executive Vice President: We think we're going to have a good cash quarter in the fourth quarter just from normal operations as the funding of the problem projects continues to drop off. We also have the sale of the infrastructure business that we hope to close in the quarter. So we think it's going to be a relatively good cash quarter. That does not assume we do any M&A-type transaction. John Bergstrom Rogers - D.A. Davidson & Co.: Okay. And priorities on M&A are still technology? Brian K. Ferraioli - Chief Financial Officer & Executive Vice President: Yes. I would say that remains what we set out. It's not the only thing we look at, but certainly that's a preference. John Bergstrom Rogers - D.A. Davidson & Co.: Okay, great. Thanks very much.

We'll go next to Jerry Revich of Goldman Sachs. Jerry David Revich - Goldman Sachs & Co.: Hi. Good morning. Brian K. Ferraioli - Chief Financial Officer & Executive Vice President: Morning, Jerry. Stuart Bradie - President & Chief Executive Officer & Group President-Engineering & Construction: Morning, Jerry. Jerry David Revich - Goldman Sachs & Co.: I wondered if you could just talk about the U.S. government opportunities that are in front of you where we're seeing some other parts of the budget that (35:37) military vehicle sales, moving tire which is typically correlated with your business strategy. You alluded to it in your remarks about opportunities to support U.S. in the ISIS (35:48). Can you just flesh out for us what the magnitude of opportunities could be or just help us understand the kinds of discussions you're having with your customer there? Stuart Bradie - President & Chief Executive Officer & Group President-Engineering & Construction: A lot of the stuff we do there, Jerry, is obviously in the classified arena. It's difficult to give too much disclosure around that. I think all we would say is that our relationship with the U.S. government has vastly improved and I think that we continue to support them, and I think we have a very solid performance ongoing and also recognize I think the opportunities to grow that business going forward exist and are being realized. But to give more color on that is tricky as I'm sure you can appreciate. Brian K. Ferraioli - Chief Financial Officer & Executive Vice President: One thing just to clarify, Jerry, to make sure it's clear. In terms of supplying equipment, vehicles and so forth, that's not really what we do. It'd be more of the base support and supporting troops on the ground, feeding them, and power, water... Stuart Bradie - President & Chief Executive Officer & Group President-Engineering & Construction: Managing logistics. Brian K. Ferraioli - Chief Financial Officer & Executive Vice President: Yes. All the logistics. So, base support, things like that. Jerry David Revich - Goldman Sachs & Co.: For sure. Definitely all correlated, right? And then in terms of if you could just on slide 10, you lay out at the top of the page a number of projects that could be meaningful for you folks. A, can you just flesh out for us the magnitude of opportunities on each project? Are we talking about a number of singles and doubles on the first five (37:22) that you have or any of these multi-billion dollars and KBR scope opportunities? Stuart Bradie - President & Chief Executive Officer & Group President-Engineering & Construction: I mean, if we start at the bottom and work up, I guess, I mean, the size of Magnolia has been sort of disclosed in the press. I guess they're in the $3.5 billion to $4.5 billion type range. There's a $2 billion fertilizer opportunity would be a KBR – if that goes ahead – a full KBR booking and not (37:53). The offshore developments in the North Sea are all varying levels of magnitude but significant and similarly with what we're trying to do with SOCAR in Azerbaijan. And some of the Middle East opportunities are also significant. So I think what really is important here is there's a portfolio of opportunities across a number of geographical areas where we feel that not only are we reasonably well placed but the opportunity for those projects to proceed is in the high side. Jerry David Revich - Goldman Sachs & Co.: All right. Thank you.

We'll go next to Brian Konigsberg from Vertical Research Partners.

Yes. Hi, good morning. Most of my questions have been asked, but maybe just a little bit more on cash and cash flow. Maybe just with the puts and takes, you're talking about some of the legal items that you've been facing. It sounds like those are coming in a little bit better. How do you anticipate – I know you don't want to give guidance at this point, but kind of getting out of 2016, we know Q4 is going to be a good cash flow quarter, but going into 2016, do you anticipate we're going to start seeing free cash flow in line or maybe potentially in excess of earnings? Brian K. Ferraioli - Chief Financial Officer & Executive Vice President: Well, certainly that's the goal, Brian. Once we get through funding, some of these problem projects, you would expect the earnings to be much more – the cash flow to be much more in line with earnings. A lot is going to depend upon the mix in terms of timing. If it's fixed price, you have more opportunities to have the cash maybe as good as or even better than earnings. If it's reimbursable, then obviously the cash lags because you have to fund a little bit of working capital. But all in all, we would expect next year's cash flow to be certainly much better than this year.

Okay, fair enough. And maybe just an update on Pemex, where that stands today. Is that potentially a collection over the next 12 months to 18 months? Stuart Bradie - President & Chief Executive Officer & Group President-Engineering & Construction: I think, your guess is as good as mine. I think that the vagaries of the American Legal System continue to frustrate, and that we – you know, we – the position is the same as we reported last quarter. That position is that we've – all the arguments have been made and we're waiting for the courts to rule. It's the – we understand it's the final step. The only step after this is if we get a favorable ruling is for Pemex to go to the Supreme Court, and certainly our advice from the third party counsel is that it would be unlikely that the Supreme Court would want to hear a case that's not really – that might have lower constitutional change. So, as a consequence, it would be pushed back down to the lower courts to administer, and that will be the end of it. I think, the important point is the fact that the cash or the majority of the cash is actually in a bank account in New York under escrow. So, we will – it wouldn't have to be extracted from Mexico.

Thank you. Stuart Bradie - President & Chief Executive Officer & Group President-Engineering & Construction: But as to the timing, we wait.

Fair enough. Thanks.

We'll go next to George O'Leary of Tudor, Pickering, Holt. George O’Leary - Tudor, Pickering, Holt & Co. Securities, Inc.: Good morning, guys. Stuart Bradie - President & Chief Executive Officer & Group President-Engineering & Construction: Good morning. Brian K. Ferraioli - Chief Financial Officer & Executive Vice President: Morning, George. George O’Leary - Tudor, Pickering, Holt & Co. Securities, Inc.: Yeah. See, on page 10 the increased focus on Middle East opportunities both refining and petchem. Maybe just some more color on what the composition of those opportunities look like. Is it really more refining driven, is it naphtha based cracking for ethylene? I mean, some of this increasing gas production driving some petrochemical opportunities there just kind of more color on what you're seeing in the Middle East from an opportunity standpoint? Stuart Bradie - President & Chief Executive Officer & Group President-Engineering & Construction: Yeah. I mean, the Middle East is a market where we historically have done quite a bit of work. I think what we've managed to do there is to go in and execute projects and then essentially, other than Saudi Arabia where we've got a firm presence is, we grew that market. So, we feel with our renewed focus in the Middle East in trying to build businesses there and establish relationships there, there are opportunities from a geographical perspective as well as a sector perspective. So, you know we're looking at opportunities in Kuwait. We're looking at opportunities in Qatar, in Oman, in Abu Dhabi, and also in Iraq, in addition to Saudi Arabia. In terms of what we're seeing in terms of those opportunities, there's some in the refining arena. There's some in the petrochem arena, I would say the – and some in the, I guess, what I'd call upstream onshore arena particularly in Iran and Iraq. In Saudi, they continue to having – there's a need to diversify their economy. We're seeing how do they monetize oil in a better way in order to take into chemicals, for example, or do you take it through the traditional refining process? So, there's a couple of opportunities, significant opportunities in that space. We're doing offshore work in Abu Dhabi today and there's a number of projects that they will have to do to continue to develop their fields and maintain their reservoirs in that arena. And certainly, in Qatar, there's this offshore work that again, we see will have to go ahead. So, I think, there's a balance again across the geographies and the portfolio. It's not one specific area, and I think, each of the countries is different, and I don't – we can't paint them all with the same brush. I think you have to be very specific, as we said on numerous occasions, on the client and the opportunity and really try and get your arms around the drivers as to whether these projects will go ahead or they will not go ahead. And obviously, with the ones you think you've got the best opportunity, that's where you place your focus. George O’Leary - Tudor, Pickering, Holt & Co. Securities, Inc.: Great. That's helpful color. And then maybe just one more, were there any de-bookings in the third quarter? I know you guys laid out kind of the puts and takes of the currency effects and the other items that impacted backlog in the quarter. But, any of that in the third quarter? Stuart Bradie - President & Chief Executive Officer & Group President-Engineering & Construction: That's associated with what, canceled projects? George O’Leary - Tudor, Pickering, Holt & Co. Securities, Inc.: Yes. Stuart Bradie - President & Chief Executive Officer & Group President-Engineering & Construction: No. George O’Leary - Tudor, Pickering, Holt & Co. Securities, Inc.: Okay. Thanks very much for the color, guys. Stuart Bradie - President & Chief Executive Officer & Group President-Engineering & Construction: Thank you. Brian K. Ferraioli - Chief Financial Officer & Executive Vice President: Thank you.

We'll go next to Michael Dudas of Sterne Agee.

Good morning, everyone. Stuart Bradie - President & Chief Executive Officer & Group President-Engineering & Construction: Good morning. Brian K. Ferraioli - Chief Financial Officer & Executive Vice President: Good morning, Michael.

Brian, on the $1 billion credit facility, could you remind us or share with us confidence issues relative to potential capital reallocation to shareholders through dividend and the share repurchases? I mean, maybe Stuart, is the improved confidence levels of couple these projects get booked for 2016 may improve the confidence level of returning the cash for shareholders or are there going to be a cash need here that might preclude some of this going forward, given that your stock price probably tracking through (44:47). Brian K. Ferraioli - Chief Financial Officer & Executive Vice President: First of all, on the new credit facility, there's a new cap that's been established of $750 million. That's on my page 50 of the document. It's called distribution cap. So there's certainly plenty of fire power under the credit facility in terms of how we allocate capital. There are some constraints obviously about incurring debt, if we were to do a large transaction or something in that regard. But I think the liquidity footnote spells that out pretty clearly in the document. And in terms of capital needs for these projects going forward, no, nothing significant. As I mentioned on – earlier on the call, anything that's a fixed price or approximating a fixed price-type contract allows us some flexibility in terms of structuring the payment terms, so that should not be a significant use of capital. Reimbursable-type contract -- obviously you do have a little bit of a working capital build, but nothing substantial. So we hope to get back into the generating cash mode next year, so that, again, will increase flexibility for us in how we allocate our capital. Stuart Bradie - President & Chief Executive Officer & Group President-Engineering & Construction: And it's probably worth just emphasizing the share buyback program is still in place; that's not changed.

Excellent. Thanks, gentlemen.

We'll go next to Robert Connors of Stifel. Robert Connors - Stifel, Nicolaus & Co., Inc.: Hey. Good morning, guys. Congrats on a good quarter. Stuart Bradie - President & Chief Executive Officer & Group President-Engineering & Construction: Thanks, Robert. Brian K. Ferraioli - Chief Financial Officer & Executive Vice President: Thanks, Robert. Robert Connors - Stifel, Nicolaus & Co., Inc.: I just have – I guess can you paint for us in some broad strokes just terms and conditions around some of the JV contracts that were signed recently regarding the industrial maintenance services, whether we can expect some sort of – will it be cost-plus or fixed-price type work, and any other sort of general payment-type terms you can relay over to us. Stuart Bradie - President & Chief Executive Officer & Group President-Engineering & Construction: I mean, the Industrial Services, by its very nature, is brownfield. It tends to be long-term relationship based. As a consequence of that the majority is reimbursable, which is typical for that business – is that we're not doing anything unusual there. That's just typical for that business. Robert Connors - Stifel, Nicolaus & Co., Inc.: Okay. And then on the – I believe, it was page 10, the list of the future petrochemical prospects. I didn't really see anything related to the second wave of U.S. ethylene crackers. Just wondering if you are involved in the six to seven that are sort of being talked about out there. And just because looking back in KBR's history, traditionally KBR has had some solid relationships with some of the Asian-based petrochemical producers, and I figure that maybe you'd possibly play a role in this second wave. Stuart Bradie - President & Chief Executive Officer & Group President-Engineering & Construction: I mean, it's certainly our intent to play a role in the second wave. We've got a – on the methane side, we've got a strong technology component to our offering in conjunction with ExxonMobil's technology. So we are certainly working hard to be placed in that second wave. Robert Connors - Stifel, Nicolaus & Co., Inc.: Okay. Great. Thanks for taking my question. Stuart Bradie - President & Chief Executive Officer & Group President-Engineering & Construction: Thank you, Robert.

We'll go next to Vishal Shah of Deutsche Bank.

Hi. This is Chad Dillard on the line for Vishal. It seems like you're gaining some momentum in the offshore business. So, can you share with us how you're positioned in that market given how – where the current environment is? Stuart Bradie - President & Chief Executive Officer & Group President-Engineering & Construction: Yes. As we said before, I think we recognized way back in December of last year that we felt that the reduction in oil price was not a flash in the pan. We thought it was going to be a tough market going forward. As a consequence of that, we lined the company up to be very much a gas facing company and that technology plays to that. And the oil side of our business is actually quite a small component, but an important component nonetheless. So, as a consequence of the market and the oil price, we felt that we needed to be very, very clear on the opportunities for these projects to proceed. So, Johan Sverdrup was a perfect example where we looked at that opportunity. We spoke at length with the customer, and it's a – there's a number of partners in that customer and making sure that we understood the economics and the political drivers. And we really sort of lined up thinking that project would go ahead and worked hard to secure our role in it, which we ultimately did, and the project is proceeding, and certainly with Maersk Culzean, exactly the same process. So, I think, the answer to the question is that there will be opportunities in the offshore sector. Those opportunities will be less than in history, particularly for this little while and the medium term. And the key is really understanding your customer and which projects are going to ahead. And that's really the effort we put in really hard up-front and working really, really strongly and aligned with the customer to try and get these projects over the line economically. And I think we're proving that when we identify the prospects we've done our homework, and those jobs are going ahead.

That's helpful. And the company has done a great job of executing on cost reduction, but assuming the booking environment remains soft, can you just talk about what additional latitude you have to cut cost over and above the $200 million run rate you've laid out? Stuart Bradie - President & Chief Executive Officer & Group President-Engineering & Construction: I mean, I think, if we get the $200 million, which we're confident of doing through 2016, that would be – I think that's a good effort. I mean, there are – there continues to be opportunities. The biggest risk in our business is really around people not booking the time to projects, so setting on the – on overhead, so to speak. So, we've got good opportunity to manage that very closely and make sure we minimize the time that people sit around that they're not charging to customers' projects. And we're working very hard to make sure we've got systems and processes in place globally now that we manage that very closely and an ongoing and timely basis.

Great. Thank you. I'll jump back in queue.

We'll go next to Tahira Afzal of KeyBanc.

Hi, guys. Just a quick follow-up on the M&A statement you guys made earlier on. Stuart, can you – we're quarter more in, can you talk a little more about what you're seeing out there in terms of visibility? Stuart Bradie - President & Chief Executive Officer & Group President-Engineering & Construction: I mean, the M&A is always – I think, you – what's the phrase, you got to kiss a lot of frogs, and...

Okay. Stuart Bradie - President & Chief Executive Officer & Group President-Engineering & Construction: – we're continually looking at opportunities. I think as the market continues the way it is today, there will be more opportunity, you would think. So we need to stay across that, and as Brian said before, our focus has been in the technology side, but technology only becomes available when it becomes available, and you've got to have the ability to move quickly. And so, that – having that optionality that we have now and in terms of our balance sheet now, it's really important. So, I think that we're seeing an increased level of M&A opportunity, yes, but I think we're – but that's maybe because we're more actively in the market looking than before. And that's probably the best way to put it.

Got it. And last question is really on the – I know there's been a change in management in regards to the ownership of execution of some large nuclear projects in the UK – sorry, in the U.S.; does that create a fabrication opportunity for your new venture? Brian. Stuart Bradie - President & Chief Executive Officer & Group President-Engineering & Construction: Yeah. Potentially. Potentially. I mean, I think, there's enough fabrication opportunities out there regardless, is probably the way to put it. Brian K. Ferraioli - Chief Financial Officer & Executive Vice President: Yeah. I'd say that the fabrication on the Gulf Coast in particular is relatively tight. And we view it as a strategic benefit for us to have access to these facilities for EPC projects. So, yes, I guess theoretically, but our main purpose of doing the transaction is to support our EPC activities in our traditional businesses.

Got it. Okay. Thank you, guys.

We'll go next to Jamie Cook of Credit Suisse. Jamie L. Cook - Credit Suisse Securities (USA) LLC (Broker): Hi. Sorry. Tahira sort of stole my question there, but just back on the M&A. Brian, you mentioned specifically M&A, in your prepared remarks, you mentioned it again when you were answering John Roger's question, and then when you talked about your credit facility, you talked about if we were do a large transaction, so I don't know if I'm just reading into something that there's something more eminent here. And then my second question is, given what you guys have going on in terms of the restructuring and refocusing the business, would you feel – do you feel like KBR is at a point in time where you could handle a larger transaction? Thanks. Brian K. Ferraioli - Chief Financial Officer & Executive Vice President: Okay. Since I'm the one who made the statement I guess I have to respond to... Jamie L. Cook - Credit Suisse Securities (USA) LLC (Broker): Well, you brought it up three times, so. Brian K. Ferraioli - Chief Financial Officer & Executive Vice President: No, it remains an area of focus in all seriousness. We've had this from the beginning of the year as part of our strategy, and to Stuart's point we've been looking at this quite closely. There are some activities underway. So, I'm just trying to make sure that people don't forget about it. Obviously, we don't have much to say about M&A until we actually have a transaction to announce, and at which time we would announce it. So, wait and see. Jamie L. Cook - Credit Suisse Securities (USA) LLC (Broker): But would you feel comfortable? I mean, you've made some good progress on the restructuring and rightsizing KBR. Would you feel comfortable with a larger transaction just given where you are or would it still be just small like niche technology-type stuff? Stuart Bradie - President & Chief Executive Officer & Group President-Engineering & Construction: I think, Jamie, again, it depends. I mean, the niche technology runs a very... Jamie L. Cook - Credit Suisse Securities (USA) LLC (Broker): They're easy. Stuart Bradie - President & Chief Executive Officer & Group President-Engineering & Construction: – much easier to absorb. If you do a larger transaction, it depends where the geographical overlap is. It depends where the industry overlap is. It depends what the cultural fit is. I mean, to actually – I guess to answer the question, it would be done in a very considered way. And if I felt that we could not manage it, we wouldn't do it. Jamie L. Cook - Credit Suisse Securities (USA) LLC (Broker): Okay. I'll get back in queue. Thanks.

At this time, I would like to turn the call back over to Stuart Bradie for any final remarks. Stuart Bradie - President & Chief Executive Officer & Group President-Engineering & Construction: Thank you very much. Just, again, thank you very much for the interest and taking the time this morning and the questions. As ever, they're considered and cause us some challenge sometimes. But thank you very much for your interest. And, again, we look forward to your continued support, and we look forward to getting on the road soon and meeting you again face-to-face. Thank you.

That does conclude our conference for today. We thank you for your participation.