Get Started for Free Contexxia identifies hard-to-find pieces of information in SEC filings. No more highlighters, no more redlining, no more poring over huge documents. KBR, INC. (1357615) 10-K published on Feb 23, 2017 at 5:36 pm
Reporting Period: Dec 30, 2016
Also within our GS business segment, we participate in Private Finance Initiatives (“PFIs”) contracts, such as the Aspire Defense and UKMFTS projects. PFIs are long-term contracts that outsource the responsibility for the construction, procurement, financing, operation and maintenance of government-owned assets to the private sector. The PFI projects in which KBR participates are located in the U.K. and Ireland with contractual terms ranging from 15 to 35 years and involve the provision of services to various types of assets ranging from acquisition and maintenance of major military equipment and housing to transportation infrastructure. Under most of these PFI arrangements, the primary deliverables of the contracting entity are the initial provision of the asset to the customer and the subsequent provision of operations and maintenance services related to the asset once it is ready for its intended use through the remaining life of the arrangement. The amount of reimbursement from the customer to the contracting entity is negotiated on each contract and varies depending on the specific terms for each PFI.
Significant fines, penalties and other sanctions may be imposed for non-compliance with environmental and worker health and safety laws and regulations, and some laws provide for joint and several strict liabilities for remediation of releases of hazardous substances, rendering a person liable for environmental damage, without regard to negligence or fault on the part of such person. These laws and regulations may expose us to liability arising out of the conduct of operations or conditions caused by others, or for our acts that were in compliance with all applicable laws at the time these acts were performed. For example, there are a number of governmental laws that strictly regulate the handling, removal, treatment, transportation and disposal of toxic and hazardous substances, such as the Comprehensive Environmental Response Compensation and Liability Act of 1980, and comparable national and state laws, that impose strict, joint and several liabilities for the entire cost of cleanup, without regard to whether a company knew of or caused the release of hazardous substances. In addition, some environmental regulations can impose liability for the entire clean-up upon owners, operators, generators, transporters and other persons arranging for the treatment or disposal of such hazardous substances costs related to contaminated facilities or project sites. Other environmental laws applicable to our operations and the operations of our customers include affecting us include, but are not limited to, the Resource Conservation and Recovery Act, the National Environmental Policy Act, the Clean Air Act, the Clean Water Act, the Occupational Safety and the Toxic Substances Control as well as other comparable foreign and state laws. Liabilities related to environmental contamination or human exposure to hazardous substances, comparable foreign and state laws or a failure to comply with applicable regulations could result in substantial costs to us, including cleanup costs, fines and civil or criminal sanctions, third-party claims for property damage or personal injury, or cessation of remediation activities.
We may be affected by market or regulatory responses to climate change.
Continued attention to issues concerning climate change may result in the imposition of additional environmental regulations that seek to restrict, or otherwise impose limitations or costs upon, the emission of greenhouse gases. International agreements and national, regional and state legislation and regulatory measures or other restrictions on emissions of greenhouse gases could affect our clients, including those who are involved in the exploration, production or refining of fossil fuels, emit greenhouse gases through the combustion of fossil fuels, or emit greenhouse gases through the mining, manufacture, utilization or production of materials or goods. Such legislation or restrictions could increase the costs of projects for us and our clients or, in some cases, prevent a project from going forward, thereby potentially reducing the need for our services which could in turn have a material adverse effect on our operations and financial condition. We cannot predict when or whether any of these various legislative and regulatory proposals may become law or what their effect will be on us and our customers.
While the financial results were lower than our expectations in 2016, we were successful from a long-term strategic perspective with efforts to expand our government services offering and our Brown & Root Industrial Services model as well as broaden our technology portfolio. During the year, we acquired two significant, well established and highly technical government services companies and three smaller technology driven entities. Through our Brown & Root Industrial Services joint venture in North America, we acquired a turnaround and specialty welding company. All of these acquisitions are part of our strategy to pivot the company to become a global leader in differentiated professional services in the Government Services and Global Hydrocarbons industries. These businesses have historically provided stable earnings and cash flows which we expect will reduce volatility of our financial results associated with large EPC projects traditionally executed by our E&C business segment. The steady earnings and cash flows from these acquisitions also provide us with the financial flexibility to be selective in determining which EPC sales prospects we pursue in the future. As a result, we expect more than fifty percent of our 2017 revenues to come from our GS business segment which tends to have a large percentage of its work being executed under smaller reimbursable type contracts. Finally, we made significant progress in completing our last domestic EPC power project which is the final step in exiting this non-strategic business.
It is anticipated that these commercial matters may not be resolved in the near term. If these matters are not resolved for the amounts recorded, or to the extent the Ichthys JV is not successful in recovering amounts contractually due under the Deed of Settlement, it could have an adverse effect on our results of operations, financial position and cash flows.
On January 25, 2017, the Ichthys JV received Notice of Termination from the UGL-CH2M Hill JV Consortium subcontractor (the "Consortium"). The subcontract is a fixed-price contract for the design, construction and commissioning of a combined cycle power plant on the Ichthys LNG project site. The power plant is approximately 89% complete. The Ichthys JV believes the Consortium breached its contract and will seek to enforce remedies contained within such subcontract. We are currently evaluating the estimated cost to complete the Consortium’s work, which is likely to exceed the subcontract value. As a result, the Ichthys JV will pursue recourse against the Consortium to recover the amounts needed to complete the subcontractor’s obligation, inclusive of calling bank guarantees (bonds) provided by the Consortium. We expect the Consortium to challenge the Ichthys JV's recourse actions. If the Ichthys JV is unsuccessful in recovering such costs, we would be responsible for our pro rata portion of unrecovered costs which could have a material adverse impact on our consolidated statements of operations, financial position and cash flow.