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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
FORM 10-Q
ý
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 2019
OR
¨
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from             to
Commission File Number: 1-33146
 
 
 
kbrlogoa44.gif
KBR, Inc.
(Exact name of registrant as specified in its charter)
Delaware
 
20-4536774
(State of incorporation)
 
(I.R.S. Employer Identification No.)
 
 
 
601 Jefferson Street, Suite 3400, Houston, Texas
 
77002
(Address of principal executive offices)
 
(Zip Code)

(713) 753-3011
(Registrant's telephone number including area code)
 
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading symbol
Name of each exchange on which listed
Common Stock, $0.001 par value
KBR
New York Stock Exchange


Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes  ý    No  ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).     Yes  ý    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
ý
Accelerated filer
 
¨
Non-accelerated filer
 
¨ (Do not check if a smaller reporting company)
Smaller reporting company
 
¨
 
 
 
Emerging growth company
 
¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨ 





Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes  ¨    No  ý

As of April 23, 2019, there were 141,465,391 shares of KBR, Inc. Common Stock, par value $0.001 per share, outstanding.

 





TABLE OF CONTENTS
 
 
 
 
Page
 
Condensed Consolidated Statements of Operations
Condensed Consolidated Balance Sheets
 



3



Forward-Looking and Cautionary Statements

This Quarterly Report on Form 10-Q contains certain statements that are, or may be deemed to be, "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act, as amended. The Private Securities Litigation Reform Act of 1995 provides safe harbor provisions for forward-looking information. Some of the statements contained in this Quarterly Report on Form 10-Q are forward-looking statements. All statements other than statements of historical fact are, or may be deemed to be, forward-looking statements. The words "believe," "may," "estimate," "continue," "anticipate," "intend," "plan," "expect" and similar expressions are intended to identify forward-looking statements. Forward-looking statements include information concerning our possible or assumed future financial performance and results of operations.

We have based these statements on our assumptions and analyses in light of our experience and perception of historical trends, current conditions, expected future developments and other factors we believe are appropriate in the circumstances. Forward-looking statements by their nature involve substantial risks and uncertainties that could significantly affect expected results, and actual future results could differ materially from those described in such statements. While it is not possible to identify all factors, factors that could cause actual future results to differ materially include the risks and uncertainties disclosed in our 2018 Annual Report on Form 10-K contained in Part I under "Risk Factors" and the risk factors and other cautionary statements contained in our other filings with the SEC.
 

Many of these factors are beyond our ability to control or predict. Any of these factors, or a combination of these factors, could materially and adversely affect our future financial condition or results of operations and the ultimate accuracy of the forward-looking statements. These forward-looking statements are not guarantees of our future performance, and our actual results and future developments may differ materially and adversely from those projected in the forward-looking statements. We caution against putting undue reliance on forward-looking statements or projecting any future results based on such statements or on present or prior earnings levels. In addition, each forward-looking statement speaks only as of the date of the particular statement, and we undertake no obligation to publicly update or revise any forward-looking statement.


4



Glossary of Terms

The following frequently used abbreviations or acronyms are used in this Quarterly Report on Form 10-Q as defined below:
Acronym
 
Definition
Affinity
 
Affinity Flying Training Services Ltd.
AOCL
 
Accumulated other comprehensive loss
ASBCA
 
Armed Services Board of Contract Appeals
ASC
 
Accounting Standards Codification
ASU
 
Accounting Standards Update
Carillion
 
Carillion plc
CAS
 
Cost Accounting Standards for U.S. government contracts
COFC
 
U.S. Court of Federal Claims
DCAA
 
Defense Contract Audit Agency
DCMA
 
Defense Contract Management Agency
DoD
 
Department of Defense
DOJ
 
U.S. Department of Justice
EBIC
 
Egypt Basic Industries Corporation
EBITDA
 
Earnings before interest, taxes, depreciation and amortization
EPC
 
Engineering, procurement and construction
ES
 
Energy Solutions
ESPP
 
Employee Stock Purchase Plan
Exchange Act
 
Securities Exchange Act of 1934, as amended
FAR
 
Federal Acquisition Regulation
FASB
 
Financial Accounting Standards Board
FCA
 
False Claims Act
FKTC
 
First Kuwaiti Trading Company
FLNG
 
Floating liquefied natural gas
FPSO
 
Floating production, storage and offshore
FPUs
 
Floating production units
FSRU
 
Floating storage and regasification unit
GS
 
Government Solutions
GTL
 
Gas to liquids
HETs
 
Heavy equipment transporters
IRS
 
Internal Revenue Service
JKC
 
JKC Australia LNG, an Australian joint venture executing the Ichthys LNG Project
LIBOR
 
London interbank offered rate
LNG
 
Liquefied natural gas
MD&A
 
Management's Discussion and Analysis of Financial Condition and Results of Operations (Part I, Item 2 of this Quarterly Report on Form 10-Q)
MFRs
 
Memorandums for Record
MoD
 
Ministry of Defence
NCI
 
Noncontrolling interests
PFIs
 
Private financed initiatives and projects
PIC
 
Paid-in capital
PLOC
 
Performance Letter of Credit facility
PPE
 
Property, Plant and Equipment

5



Acronym
 
Definition
PSC
 
Private Security Contractor
SAB
 
Staff Accounting Bulletin
SEC
 
U.S. Securities and Exchange Commission
SFO
 
U.K. Serious Fraud Office
SGA
 
Selling, General and Administrative
SGT
 
Stinger Ghaffarian Technologies
TS
 
Technology Solutions
U.K.
 
United Kingdom
U.S.
 
United States
U.S. GAAP
 
Accounting principles generally accepted in the United States
VAT
 
Value-added tax
VIEs
 
Variable interest entities


6



PART I. FINANCIAL INFORMATION

Item 1. Financial Information

KBR, Inc.
Condensed Consolidated Statements of Operations
(In millions, except for per share data)
(Unaudited)

 
Three Months Ended
 
March 31,
 
2019
 
2018
Revenues
$
1,340

 
$
1,038

Cost of revenues
(1,187
)
 
(923
)
Gross profit
153

 
115

Equity in earnings of unconsolidated affiliates

 
23

Selling, general and administrative expenses
(78
)
 
(69
)
Acquisition and integration related costs
(1
)
 
(3
)
Gain on disposition of assets
4

 

Gain on consolidation of Aspire entities

 
115

Operating income
78

 
181

Interest expense
(25
)
 
(6
)
Other non-operating income (expense)
5

 
(2
)
Income before income taxes and noncontrolling interests
58

 
173

Provision for income taxes
(16
)
 
(34
)
Net income
42

 
139

Net income attributable to noncontrolling interests
(2
)
 
(1
)
Net income attributable to KBR
$
40

 
$
138

Net income attributable to KBR per share:
 
 
 
Basic
$
0.28

 
$
0.98

Diluted
$
0.28

 
$
0.97

Basic weighted average common shares outstanding
141

 
140

Diluted weighted average common shares outstanding
141

 
140

Cash dividends declared per share
$
0.08

 
$
0.08

See accompanying notes to condensed consolidated financial statements.

7



KBR, Inc.
Condensed Consolidated Statements of Comprehensive Income (Loss)
(In millions)
(Unaudited)

 
Three Months Ended
 
March 31,
 
2019
 
2018
Net income
$
42

 
$
139

Other comprehensive income (loss), net of tax:
 
 
 
Foreign currency translation adjustments:
 
 
 
Foreign currency translation adjustments, net of tax
1

 
(2
)
Reclassification adjustment included in net income

 
5

Foreign currency translation adjustments, net of taxes of $0 and $(1)
1

 
3

Pension and post-retirement benefits, net of tax:
 
 
 
Reclassification adjustment included in net income
3

 
6

Pension and post-retirement benefits, net of taxes of $(1) and $(1)
3

 
6

Changes in fair value of derivatives:
 
 
 
Changes in fair value of derivatives, net of tax
(3
)
 

Reclassification adjustment included in net income
1

 

Changes in fair value of derivatives, net of taxes of $0 and $0
(2
)
 

Other comprehensive income, net of tax
2

 
9

Comprehensive income
44

 
148

Less: Comprehensive income attributable to noncontrolling interests
(2
)
 
(1
)
Comprehensive income attributable to KBR
$
42

 
$
147

See accompanying notes to condensed consolidated financial statements.


8



KBR, Inc.
Condensed Consolidated Balance Sheets
(In millions, except share data)
 
March 31,
 
December 31,
 
2019
 
2018
 
(Unaudited)
 
 
Assets
 
 
 
Current assets:
 
 
 
Cash and equivalents
$
708

 
$
739

Accounts receivable, net of allowance for doubtful accounts of $14 and $9
974

 
927

Contract assets
186

 
185

Other current assets
103

 
108

Total current assets
1,971

 
1,959

Claims and accounts receivable
99

 
98

Property, plant, and equipment, net of accumulated depreciation of $367 and $355 (including net PPE of $33 and $35 owned by a variable interest entity)
120

 
121

Operating lease right-of-use assets
180

 

Goodwill
1,265

 
1,265

Intangible assets, net of accumulated amortization of $160 and $151
512

 
516

Equity in and advances to unconsolidated affiliates
810

 
744

Deferred income taxes
214

 
222

Other assets
146

 
147

Total assets
$
5,317

 
$
5,072

Liabilities and Shareholders’ Equity
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
580

 
$
546

Contract liabilities
472

 
463

Accrued salaries, wages and benefits
229

 
221

Nonrecourse project debt
10

 
10

Operating lease liabilities
40

 

Other current liabilities
174

 
179

Total current liabilities
1,505

 
1,419

Pension obligations
240

 
250

Employee compensation and benefits
98

 
109

Income tax payable
85

 
84

Deferred income taxes
28

 
27

Nonrecourse project debt
17

 
17

Long-term debt
1,223

 
1,226

Operating lease liabilities
207

 

Other liabilities
119

 
202

Total liabilities
3,522

 
3,334

KBR shareholders’ equity:
 
 
 
Preferred stock, $0.001 par value, 50,000,000 shares authorized, 0 shares issued and outstanding

 

Common stock, $0.001 par value 300,000,000 shares authorized, 178,000,412 and 177,383,302 shares issued, and 141,455,170 and 140,900,032 shares outstanding

 

Paid-in capital in excess of par ("PIC")
2,194

 
2,190

Retained earnings
1,308

 
1,258

Treasury stock, 36,545,242 shares and 36,483,270 shares, at cost
(818
)
 
(817
)
Accumulated other comprehensive loss ("AOCL")
(911
)
 
(913
)
Total KBR shareholders’ equity
1,773

 
1,718

Noncontrolling interests
22

 
20

Total shareholders’ equity
1,795

 
1,738

Total liabilities and shareholders’ equity
$
5,317

 
$
5,072

See accompanying notes to condensed consolidated financial statements.

9



KBR, Inc.
Condensed Consolidated Statements of Cash Flows
(In millions)
(Unaudited)
 
Three Months Ended March 31,
 
2019
 
2018
Cash flows from operating activities:
 
 
 
Net income
$
42

 
$
139

Adjustments to reconcile net income to net cash provided by (used in) operating activities:
 
 
 
Depreciation and amortization
25

 
13

Equity in earnings of unconsolidated affiliates

 
(23
)
Deferred income tax expense
3

 
25

Gain on disposition of assets
(4
)
 

Gain on consolidation of Aspire entities

 
(115
)
Other
(4
)
 
11

 
 
 
 
Changes in operating assets and liabilities:
 
 
 
Accounts receivable, net of allowance for doubtful accounts
(48
)
 
(134
)
Contract assets
(1
)
 
(44
)
Accounts payable
39

 
63

Contract liabilities
4

 
(32
)
Accrued salaries, wages and benefits
9

 
2

Reserve for loss on uncompleted contracts
(1
)
 
(3
)
Payments from unconsolidated affiliates, net
1

 
1

Distributions of earnings from unconsolidated affiliates
7

 
1

Income taxes payable
12

 
12

Pension funding
(9
)
 
(10
)
Retainage payable
2

 

Subcontractor advances
(3
)
 
(1
)
Net settlement of derivative contracts
(3
)
 
3

Other assets and liabilities
(23
)
 
(38
)
Total cash flows provided by (used in) operating activities
$
48

 
$
(130
)
Cash flows from investing activities:
 
 
 
Purchases of property, plant and equipment
$
(2
)
 
$
(9
)
Investments in equity method joint ventures
(70
)
 
(72
)
Adjustments to cash due to consolidation of Aspire entities

 
205

Other
3

 
1

Total cash flows (used in) provided by investing activities
$
(69
)
 
$
125


10



KBR, Inc.
Condensed Consolidated Statements of Cash Flows
(In millions)
(Unaudited)
 
Three Months Ended March 31,
 
2019
 
2018
Cash flows from financing activities:
 
 
 
Payments to reacquire common stock
$
(3
)
 
$
(2
)
Acquisition of remaining ownership interest in joint ventures

 
(6
)
Payments of dividends to shareholders
(11
)
 
(11
)
Net proceeds from issuance of common stock
1

 

Borrowings on revolving credit agreements

 
70

Payments on long-term borrowings
(2
)
 

Other
(2
)
 

Total cash flows (used in) provided by financing activities
$
(17
)
 
$
51

Effect of exchange rate changes on cash
7

 
1

(Decrease) increase in cash and equivalents
(31
)
 
47

Cash and equivalents at beginning of period
739

 
439

Cash and equivalents at end of period
$
708

 
$
486

Supplemental disclosure of cash flows information:
 
 
 
Cash paid for interest
$
16

 
$
3

Cash paid for income taxes (net of refunds)
$
5

 
$
4

Noncash financing activities
 
 
 
Dividends declared
$
11

 
$
11

See accompanying notes to condensed consolidated financial statements.

11



KBR, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)


Note 1. Description of Company and Significant Accounting Policies

KBR, Inc., a Delaware corporation, was formed on March 21, 2006, and is headquartered in Houston, Texas. KBR, Inc. and its wholly owned and majority-owned subsidiaries (collectively referred to herein as "KBR", the "Company", "we", "us" or "our") is a global provider of differentiated, professional services and technologies across the asset and program life-cycle within the government services and hydrocarbons industries. Our capabilities include research and development, feasibility and solutions development, specialized technical consulting, systems integration, engineering and design service, process technologies, program management, construction services, commissioning and startup services, highly specialized mission and logistics support solutions, and asset operations and maintenance services and other support services to a diverse customer base, including government and military organizations of the U.S., U.K. and Australia and a wide range of customers across the hydrocarbons value chain.

Our significant accounting policies are detailed in "Note 1. Description of Company and Significant Accounting Policies" of our Annual Report on Form 10-K for the year ended December 31, 2018.

We have evaluated all events and transactions occurring after the balance sheet date but before the financial statements were issued and have included the appropriate disclosures.

Principles of Consolidation

Our condensed consolidated financial statements have been prepared in accordance with U.S. GAAP and include the accounts of KBR and our wholly owned and majority-owned subsidiaries and VIEs of which we are the primary beneficiary. We account for investments over which we have significant influence but not a controlling financial interest using the equity method of accounting. See Note 10 to our condensed consolidated financial statements for further discussion on our equity investments and VIEs. The cost method is used when we do not have the ability to exert significant influence. All material intercompany balances and transactions are eliminated in consolidation.

Reclassifications

Certain prior year amounts have been reclassified to conform to the current year presentation in our condensed consolidated statements of operations. We have elected to classify certain indirect costs incurred as overhead (included in "Cost of revenues") or general administrative expenses for U.S. GAAP reporting purposes in the same manner as such costs are defined in our disclosure statements under U.S. Government Cost Accounting Standards ("CAS"). Effective January 1, 2019, we established a new CAS structure and revised our disclosure statements accordingly to reflect the related cost accounting practice changes. Consequently, $34 million was reclassified from "Cost of revenues" to "Selling, general and administrative expenses" on our condensed consolidated statement of operations for the quarter ended March 31, 2018.

 
Three Months Ended March 31, 2018
 
As
 
As Previously
Dollars in millions
Reported
 
Reported
Statement of Operations
 
 
 
Cost of revenues
$
(923
)
 
$
(957
)
Selling, general and administrative expenses
(69
)
 
(35
)


Business Reorganization

Effective January 1, 2019, we changed the name of our Government Services segment to "Government Solutions", our Technology segment to "Technology Solutions" and our Hydrocarbons Services segment to "Energy Solutions". The change did not have an impact on our reportable segments.


12



As of January 1, 2019, our segments consist of the following five reportable segments:

Government Solutions
Technology Solutions
Energy Solutions
Non-strategic Business
Other

See Note 2 to our condensed consolidated financial statements for further discussion on our segments. We have presented our segment results reflecting these changes for all periods presented. In conjunction with the change in segments, we evaluated goodwill associated with each of our reporting units using Level 3 fair value inputs, and no impairment indicators were identified.

Impact of Adoption of New Accounting Standards
Leases
Effective January 1, 2019, we adopted ASU No. 2016-02, Leases (Topic 842) using the modified retrospective transition approach. The modified retrospective transition approach provides for an “effective date” method for recording leases that existed or were entered into on or after January 1, 2019, without restating prior-period information. Our unconsolidated joint ventures will adopt the new lease standard effective January 1, 2020.

ASC Topic 842 provided several optional practical expedients for use in transition. We elected to use the package of practical expedients which allowed us to not reassess our previous conclusions about lease identification, lease classification and the accounting treatment for initial direct costs. We did not elect the practical expedient pertaining to the use of hindsight.
    
The most significant effects of the new standard on our consolidated financial statements are the recognition of new operating lease right-of-use ("ROU") assets and operating lease liabilities on our consolidated balance sheet for operating leases as well as significant new disclosures about our leasing activities as further discussed in Note 16. On January 1, 2019, we recorded "Operating lease right-of-use assets" and “Operating lease liabilities” of approximately $253 million, respectively, based on the present value of the remaining lease payments over the lease term. Additionally, we reclassified current and noncurrent deferred rent of $68 million associated with straight-line accounting and tenant incentives related to existing real estate leases against the initial "Operating lease right-of-use assets" as of January 2019. The adoption of the new standard did not have a material impact on our results of operations or cash flows.

As a result of the adoption, we recorded a cumulative-effect adjustment to retained earnings of $21 million, net of deferred taxes of $7 million, representing the unamortized portion of a deferred gain previously recorded in conjunction with the 2012 sale and leaseback of the office building in Houston, Texas where our corporate headquarters located. We concluded the transaction resulted in the transfer of control of the office building to the buyer-lessor at market terms and therefore would have qualified as a sale under ASC Topic 842 with gain recognition in the period in which the sale was recognized.

We recognized the cumulative effect of initially applying ASC Topic 842 as an adjustment to our assets and liabilities in our consolidated balance sheet as of January 1, 2019, as follows:

13



 
Balance at
 
Adjustments Due to
 
Balance at
Dollars in millions
December 31, 2018
 
ASC 842
 
January 1, 2019
Assets
 
 
 
 
 
Operating lease right-of-use asset
$

 
$
185

 
$
185

Other current assets
108

 
(1
)
 
107

Deferred income taxes
222

 
(7
)
 
215

 
 
 
 
 
 
Liabilities
 
 
 
 
 
Operating lease liabilities

 
40

 
40

Other current liabilities
179

 
(5
)
 
174

Operating lease liabilities (noncurrent)

 
213

 
213

Other liabilities (noncurrent)
202

 
(92
)
 
110

 
 
 
 
 
 
Shareholders' equity
 
 
 
 
 
Retained Earnings
1,258

 
21

 
1,279


Derivatives and Hedging
Effective January 1, 2019, we adopted ASU No. 2017-12, Derivatives and Hedging (Topic 815) - Targeted Improvements to Accounting for Hedge Activities, using the modified retrospective approach. This ASU is intended to improve and simplify accounting rules related to hedge accounting. The adoption of this ASU did not have a material impact to our financial statements.

Additional Balance Sheet Information

Other Current Liabilities

The components of "Other current liabilities" on our condensed consolidated balance sheets as of March 31, 2019, and December 31, 2018, are presented below:
 
March 31,
 
December 31,
Dollars in millions
2019
 
2018
Current maturities of long-term debt
$
27

 
$
22

Reserve for estimated losses on uncompleted contracts
5

 
6

Retainage payable
35

 
33

Income taxes payable
34

 
30

Taxes payable not based on income
5

 
6

Value-added tax payable
32

 
33

Insurance payable
1

 
2

Dividend payable
11

 
11

Other miscellaneous liabilities
24

 
36

Total other current liabilities
$
174

 
$
179

 


Other Liabilities

"Other liabilities" on our condensed consolidated balance sheet as of December 31, 2018 included deferred rent primarily related to real-estate leases as well as the unamortized portion of a deferred gain related to a 2012 sale-leaseback real-estate transaction totaling $92 million as of March 31, 2019. See above under "Leases" for further discussion.



14



Note 2. Business Segment Information

We are organized into three core business segments Government Solutions, Technology Solutions, and Energy Solutions and two non-core business segments. Our three core business segments provide full life cycle professional services, project solutions and technologies across two primary verticals, government and hydrocarbon. Our two non-core business segments are our Non-strategic Business segment, which includes businesses we intend to exit upon completion of existing contracts because they are no longer a part of our future strategic focus, and "Other," which includes our corporate expenses and selling, general and administrative expenses not allocated to the other business segments. Our business segments are described below:
Government Solutions. Our GS business segment provides full life-cycle support solutions to defense, space, aviation and other programs and missions for military and other government agencies in the U.S., U.K. and Australia. As program management integrator, KBR covers the full spectrum of defense, space, aviation and other government programs and missions from research and development; through systems engineering, test and evaluation, systems integration and program management; to operations support, maintenance and field logistics. Our acquisitions as described in Note 4 to our condensed consolidated financial statements have been combined with our existing operations within this business segment.

Technology Solutions. Our TS business segment combines KBR's proprietary technologies, equipment and catalyst supply and associated knowledge-based services into a global business for refining, petrochemicals, inorganic and specialty chemicals as well as gasification, syngas, ammonia, nitric acid and fertilizers. From early planning through scope definition, advanced technologies and project life-cycle support, KBR's Technology Solutions segment works closely with customers to provide the optimal approach to maximize their return on investment.
Energy Solutions. Our ES business segment provides comprehensive project and program delivery capability globally. Our key capabilities leverage our operational and technical excellence as a global provider of EPC for onshore oil and gas; LNG/GTL; oil refining; petrochemicals; chemicals; fertilizers; offshore oil and gas (shallow-water, deep-water and subsea); floating solutions (FPUs, FPSO, FLNG & FSRU); maintenance services; and consulting services.
Non-strategic Business. Our Non-strategic Business segment represents the operations or activities that we intend to exit upon completion of existing contracts. All Non-Strategic Business projects are substantially complete. We continue to finalize project close-out activities and negotiate the settlement of claims and various other matters associated with these projects.
Other. Our Other business segment includes corporate expenses and selling, general and administrative expenses not allocated to the business segments above.

The following table presents revenues, gross profit (loss), equity in earnings of unconsolidated affiliates, selling, general and administrative expenses, acquisition and integration related costs, gain on disposition of assets, gain of consolidation of Aspire entities, and operating income (loss) by reporting segment.

Operations by Reportable Segment
 
Three Months Ended
 
March 31,
Dollars in millions
2019
 
2018
Revenues:
 
 
 
Government Solutions
$
975

 
$
677

Technology Solutions
92

 
62

Energy Solutions
272

 
299

Subtotal
1,339

 
1,038

Non-strategic Business
1

 

Total revenues
$
1,340

 
$
1,038

Gross profit (loss):
 
 
 
Government Solutions
$
90

 
$
67

Technology Solutions
27

 
21

Energy Solutions
36

 
29

Subtotal
153

 
117

Non-strategic Business

 
(2
)
Total gross profit
$
153

 
$
115



15



Equity in earnings of unconsolidated affiliates:
 
 
 
Government Solutions
$
6

 
$
8

Energy Solutions
(6
)
 
15

Subtotal

 
23

Non-strategic Business

 

Total equity in earnings of unconsolidated affiliates
$

 
$
23

Selling, general and administrative expenses:
 
 
 
Government Solutions
$
(30
)
 
$
(21
)
Technology Solutions
(7
)
 
(6
)
Energy Solutions
(16
)
 
(21
)
Other
(25
)
 
(21
)
Subtotal
(78
)
 
(69
)
Non-strategic Business

 

Total selling, general and administrative expenses
$
(78
)
 
$
(69
)
Acquisition and integration related costs:
 
 
 
Government Solutions
$
(1
)
 
$
(3
)
Technology Solutions

 

Energy Solutions

 

Other

 

Subtotal
(1
)
 
(3
)
Non-strategic Business

 

Total acquisition and integration related costs
$
(1
)
 
$
(3
)
Gain on disposition of assets:
 
 
 
Government Solutions
$
4

 
$

Technology Solutions

 

Energy Solutions

 

Other

 

Subtotal
4

 

Non-strategic Business

 

Total gain on disposition of assets
$
4

 
$

Gain on consolidation of Aspire entities:
 
 
 
Government Solutions
$

 
$
120

Technology Solutions

 

Energy Solutions

 

Other

 
(5
)
Subtotal

 
115

Non-strategic Business

 

Total gain on consolidation of Aspire entities
$

 
$
115

Segment operating income (loss):
 
 
 
Government Solutions
$
70

 
$
172

Technology Solutions
20

 
15

Energy Solutions
14

 
23

Other
(26
)
 
(27
)
Subtotal
78

 
183

Non-strategic Business

 
(2
)
Total segment operating income (loss)
$
78

 
$
181


 

Changes in Project-related Estimates


16



There are many factors that may affect the accuracy of our cost estimates and ultimately our future profitability. These include, but are not limited to, the availability and costs of resources (such as labor, materials and equipment), productivity and weather, and for unit rate and construction service contracts, the availability and detail of customer supplied engineering drawings. With a portfolio of more than one thousand contracts, we sometimes realize both lower and higher than expected margins on projects in any given period. We recognize revisions of revenues and costs in the period in which the revisions are known. This may result in the recognition of costs before the recognition of related revenue recovery, if any.

We recognized changes to equity earnings as a result of various changes to estimates on the Ichthys LNG project during the three months ended March 31, 2019 and 2018. See Note 9 for a discussion of the matters impacting this project in our Energy Solutions business during the three months ended March 31, 2019.


17



Note 3. Revenue

We disaggregate our revenue from customers by type of service, geographic destination and contract type for each of our segments, as we believe it best depicts how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors. See details in the tables below.

Revenue by Service/Product line and reportable segment was as follows:
 
Three Months Ended
 
March 31,
Dollars in millions
2019
 
2018
By Service / Product Types
 
 
 
     Government Solutions
 
 
 
          Space and Mission Solutions
$
197

 
$
78

          Engineering
291

 
252

          Logistics
487

 
347

     Total Government Solutions
975

 
677

 
 
 
 
     Technology Solutions
92

 
62

 
 
 
 
     Energy Solutions
 
 
 
          EPC Projects
79

 
120

          Services and Consulting
193

 
179

     Total Energy Solutions
272

 
299

 
 
 
 
     Non-strategic business
1

 

 
 
 
 
Total net revenue
$
1,340

 
$
1,038



Government Solutions revenue earned from key U.S. government customers including U.S. DoD agencies and NASA was $763 million and $492 million for the three months ended March 31, 2019 and 2018, respectively. Government Solutions revenue earned from non-U.S. government customers including the U.K. MoD, the Australian Defence Force and others was $212 million and $185 million for the three months ended March 31, 2019 and 2018, respectively.

Revenue by geographic destination was as follows:
 
Three Months Ended March 31, 2019
Total by Countries/Regions
Dollars in millions
Government Solutions
 
Technology Solutions
 
Energy Solutions
 
Non-strategic Business
 
Total
     United States
$
521

 
$
5

 
$
101

 
$
1

 
$
628

     Middle East
198

 
5

 
44

 

 
247

     Europe
199

 
14

 
41

 

 
254

     Australia
21

 

 
53

 

 
74

     Canada

 

 
2

 

 
2

     Africa
22

 
5

 
18

 

 
45

     Asia

 
61

 
2

 

 
63

     Other countries
14

 
2

 
11

 

 
27

Total net revenue
$
975

 
$
92

 
$
272

 
$
1

 
$
1,340



18



 
Three Months Ended March 31, 2018
Total by Countries/Regions
Dollars in millions
Government Solutions
 
Technology Solutions
 
Energy Solutions
 
Non-strategic Business
 
Total
     United States
$
314

 
$
6

 
$
126

 
$

 
$
446

     Middle East
165

 
7

 
30

 

 
202

     Europe
156

 
8

 
46

 

 
210

     Australia
13

 
1

 
72

 

 
86

     Canada

 
2

 
11

 

 
13

     Africa
18

 
7

 
2

 

 
27

     Asia

 
31

 
2

 

 
33

     Other countries
11

 

 
10

 

 
21

Total net revenue
$
677

 
$
62

 
$
299

 
$

 
$
1,038



Many of our contracts contain both fixed price and cost reimbursable components. We define contract type based on the component that represents the majority of the contract. Revenue by contract type was as follows:

 
Three Months Ended March 31, 2019
Dollars in millions
Government Solutions
 
Technology Solutions
 
Energy Solutions
 
Non-strategic Business
 
Total
     Fixed Price
$
272

 
$
91

 
$
37

 
$
1

 
$
401

     Cost Reimbursable
703

 
1

 
235

 

 
939

Total net revenue
$
975

 
$
92

 
$
272

 
$
1

 
$
1,340


 
Three Months Ended March 31, 2018
Dollars in millions
Government Solutions
 
Technology Solutions
 
Energy Solutions
 
Non-strategic Business
 
Total
     Fixed Price
$
218

 
$
59

 
$
56

 
$

 
$
333

     Cost Reimbursable
459

 
3

 
243