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Business Discussion (All comparisons are third quarter 2016 versus third quarter 2015 unless otherwise noted.)

Technology & Consulting (T&C) Results

Technology & Consulting gross profit was $17 million which was flat with results from the prior year while revenue decreased by $12 million to $67 million. The higher gross profit margin in the third quarter of 2016 of 25% reflects a change in the mix of projects executed including lower volume from proprietary equipment sales which tends to have lower profitability and an increase in licensing activities. We continue to expect the long-term margin percentages for this business to be in the low twenties but may fluctuate between quarters depending on the mix of licensing, engineering services and the supply of proprietary equipment.

The majority of the revenue and earnings in this segment are driven by the technology portfolio as the upstream consulting portion of the T&C business remains challenged from reduced volume of business caused by low oil prices.

Engineering & Construction (E&C) Results

Engineering & Construction gross profit was $1 million, down $47 million from the prior year. The reduction in gross profit was due primarily to $40 million in increased costs related to the mechanical failure of a vendor-supplied compressor and pumps during commissioning as well as various mechanical issues encountered during startup of an EPC ammonia project in the U.S. as well as lower activity on several projects including a major LNG project in Australia. The ammonia project has completed performance testing and the plant has successfully been handed over to the customer. KBR expects to seek and recover compensation from vendors on this project; however, the financial results do not currently include any estimates for recoveries.

Revenue was $595 million, a decrease of $233 million mainly due to reduced activity on several projects including one of the major LNG projects in Australia and the deconsolidation of KBR's Americas Industrial Services business which had revenues of $122 million in 3Q15.

Equity in earnings of unconsolidated affiliates was $11 million, down $15 million, predominantly due to slower activity on an LNG project joint venture in Australia as well as our offshore maintenance joint venture in Mexico.

Government Services (GS) Results

Government Services gross profit was $32 million, an increase of $24 million, while revenue was $401 million, an increase of $225 million from the prior year. This increase was primarily due to expansion of existing U.S. government contracts and task orders supporting the U.S. Military and from the inclusion of the two recent acquisitions which added approximately $200 million to revenues.

Equity in earnings of unconsolidated affiliates was $8 million, down $1 million, due to reduced equity earnings from a U.K. Ministry of Defense construction project that was nearing completion in 2015. The majority of the results related to support of the U.K. government comes through joint venture annuity-type contracts which result in equity in earnings and these results are expected to continue to grow in 2017 and beyond from activities on the U.K. Military Flying Training System (UKMFTS) program awarded earlier this year and the expected soon-to-be awarded large scale Army 2020 rebasing contract.

Under the KBRwyle brand, which now includes the capabilities and service offerings from the two recent acquisitions as well as the heritage KBR U.S. government business, KBR expects to expand its offerings and competitive position to span the full spectrum of government mission requirements including research and development, testing, engineering, logistics, deployed operations, and life-cycle sustainment ranging from austere locations on earth to outer space. We expect revenues for this segment to grow in the coming years at rates beyond the overall projected spending forecasts of U.S. and foreign governments.

Non-strategic Business (NSB) Results

Non-strategic Business had a gross loss of $86 million in the quarter on an EPC project for an electric power-generating facility due to increased forecast subcontractor costs stemming from poor subcontractor productivity, resulting schedule delays and changes in project execution strategy. These costs largely stem from the impact of poor performance by the turbine supplier which continues to adversely impact construction progress. KBR is seeking compensation from the turbine supplier, however, we have not currently assumed any recovery for financial reporting purposes. As previously announced, the Company intends to exit the fixed priced EPC power business for new power projects. This project is the last within the Company's backlog of unfilled orders and is expected to be complete in the first half of 2017. Revenue was $10 million, down $106 million, primarily due to the completion of two power projects in 2015 as well as the elimination of $9 million of revenues related to the sale of the Infrastructure Americas business in 4Q15.

Strategic Actions Update

During the third quarter, the company incurred $7 million in pre-tax restructuring costs primarily related to employee severance and real estate restructuring costs. The integration of Wyle and HTSI acquisitions made in 3Q16 are well underway with minimal business interruption. The financial results include $8 million in deal and integration costs related to the two transactions. The Company continues to seek opportunities to supplement our current technology portfolio, expand our global footprint in Industrial Services, and grow our high-end Government Services business.

Guidance

The company confirms its previously issued full year 2016 fully diluted earnings per share guidance of $0.30 to $0.50 per share, excluding legal costs associated with legacy U.S. Government contracts, from previous guidance of between $1.20 and $1.45 per share. The reduction in earnings guidance is specifically related to the expected cost increases on the EPC power project in the Non-Strategic Business segment and on the ammonia project in the E&C segment as announced in September. KBR continues to expect the legacy legal costs to be approximately $15 million, or $0.11 per fully diluted share in 2016. The estimated legacy legal fees do not assume any cost reimbursement from the U.S. Government that could occur in the future.

The effective tax rate was approximately 17% and 43% for the three and nine months ended September 30, 2016, respectively. Our estimated annual effective tax rate for 2016 is projected to be 52% primarily due to project losses in the U.S. for which we do not recognize tax benefits as well as forecasted income in higher tax rate jurisdictions.

About KBR, Inc.

KBR is a global provider of differentiated professional services and technologies across the asset and program life cycle within the Hydrocarbons and Government Services Sectors. KBR employs over 31,000 people worldwide, with customers in more than 80 countries, and operations in 40 countries, across three synergistic global businesses:

• Government Services, serving government customers globally, including capabilities that cover the full life-cycle of defense, space, aviation and other government programs and missions from research and development, through systems engineering, test and evaluation, program management, to operations, maintenance, and field logistics

• Technology & Consulting, including proprietary technology focused on the monetization of hydrocarbons (especially natural gas and natural gas liquids) in ethylene and petrochemicals; ammonia, nitric acid and fertilizers; oil refining; gasification; oil and gas consulting; integrity management; naval architecture and proprietary hulls; and downstream consulting

• Engineering & Construction, including onshore oil and gas; LNG (liquefaction and regasification)/GTL; oil refining; petrochemicals; chemicals; fertilizers; differentiated EPC; maintenance services (Brown & Root Industrial Services); offshore oil and gas (shallow-water, deep-water, subsea); floating solutions (FPU, FPSO, FLNG & FSRU) and program management

KBR is proud to work with its customers across the globe to provide technology, value-added services, integrated EPC delivery and long term operations and maintenance services to ensure consistent delivery with predictable results. At KBR, We Deliver.

Visit www.kbr.com

Forward Looking Statements

The statements in this press release that are not historical statements, including statements regarding future financial performance, are forward-looking statements within the meaning of the federal securities laws. These statements are subject to numerous risks and uncertainties, many of which are beyond the company's control that could cause actual results to differ materially from the results expressed or implied by the statements. These risks and uncertainties include, but are not limited to: the outcome of and the publicity surrounding audits and investigations by domestic and foreign government agencies and legislative bodies; potential adverse proceedings by such agencies and potential adverse results and consequences from such proceedings; the scope and enforceability of the company's indemnities from its former parent; changes in capital spending by the company's customers; the company's ability to obtain contracts from existing and new customers and perform under those contracts; structural changes in the industries in which the company operates; escalating costs associated with and the performance of fixed-fee projects and the company's ability to control its cost under its contracts; claims negotiations and contract disputes with the company's customers; changes in the demand for or price of oil and/or natural gas; protection of intellectual property rights; compliance with environmental laws; changes in government regulations and regulatory requirements; compliance with laws related to income taxes; unsettled political conditions, war and the effects of terrorism; foreign operations and foreign exchange rates and controls; the development and installation of financial systems; increased competition for employees; the ability to successfully complete and integrate acquisitions; and operations of joint ventures, including joint ventures that are not controlled by the company.

KBR's most recently filed Form 10-K, any subsequent Form 10-Qs and 8-Ks, and other U.S. Securities and Exchange Commission filings discuss some of the important risk factors that KBR has identified that may affect the business, results of operations and financial condition. Except as required by law, KBR undertakes no obligation to revise or update publicly any forward-looking statements for any reason.

(a) Backlog generally represents the dollar amount of revenues we expect to realize in the future as a result of performing work on contracts and our pro-rata share of work to be performed by unconsolidated joint ventures. We generally include total expected revenues in backlog when a contract is awarded under a legally binding agreement. In many instances, arrangements included in backlog are complex, nonrepetitive and may fluctuate due to the release of contracted work in phases by the customer. Additionally, nearly all contracts allow customers to terminate the agreement at any time for convenience. Where contract duration is indefinite and clients can terminate for convenience without having to compensate us for periods beyond the date of termination, projects included in backlog are limited to the estimated amount of expected revenues within the following twelve months. Certain contracts provide maximum dollar limits, with actual authorization to perform work under the contract agreed upon on a periodic basis with the customer. In these arrangements, only the amounts authorized are included in backlog. For projects where we act solely in a project management capacity, we only include the value of our services on each project in backlog.

In connection with our acquisitions of Wyle and HTSI, we determined that our then existing backlog policy differed from that utilized by these businesses. We concluded that the methodology utilized by Wyle and HTSI provided a better estimate of future revenues and, accordingly, we modified our backlog policy for U.S. government contracts in our GS business segment to reflect both the funded and unfunded portions of future revenue from existing contracts for which the customer has determined scope and price. We define backlog, as it relates to U.S. government contracts, as our estimate of the remaining future revenue from existing signed contracts over the remaining base contract performance period (including customer approved option periods) for which work scope and price have been agreed with the customer. We define funded backlog as the portion of backlog for which funding currently is appropriated, less the amount of revenue we have previously recognized. We define unfunded backlog as the total backlog less the funded backlog. Our previous backlog policy for U.S. government contracts only included estimated future revenues for which funding had been appropriated by the customer. Our GS backlog does not include any estimate of future potential delivery orders that might be awarded under our government-wide acquisition contracts, agency-specific indefinite delivery/indefinite quantity contracts, or other multiple-award contract vehicles nor does it include option periods that have not been exercised by the customer. The modification to our backlog policy did not have a material impact to our historical GS backlog at September 30, 2016.

Within our GS business segment, we calculate estimated backlog for long-term contracts associated with the U.K. government's privately financed initiatives or projects ("PFIs") based on the aggregate amount that our client would contractually be obligated to pay us over the life of the project. We update our estimates of the future work to be executed under these contracts on a quarterly basis and adjust backlog if necessary.

We have included in the table above our proportionate share of unconsolidated joint ventures' estimated revenues. Since these projects are accounted for under the equity method, only our share of future earnings from these projects will be recorded in our results of operations. Our proportionate share of backlog for projects related to unconsolidated joint ventures totaled $7.3 billion at September 30, 2016 and $8.5 billion at December 31, 2015. We consolidate joint ventures which are majority-owned and controlled or are variable interest entities ("VIEs") in which we are the primary beneficiary. Our backlog included in the table above for projects related to consolidated joint ventures with noncontrolling interest includes 100% of the backlog associated with those joint ventures and totaled $160 million at September 30, 2016 and $285 million at December 31, 2015.

We estimate that as of September 30, 2016, 41% of our backlog will be executed within one year. Of this amount, 66% will be recognized in revenues on our condensed consolidated statement of operations and 34% will be recorded by our unconsolidated joint ventures. As of September 30, 2016, $143 million of our backlog relates to active contracts that are in a loss position.

As of September 30, 2016, 22% of our backlog was attributable to fixed-price contracts, 46% was attributable to PFIs, and 32% of our backlog was attributable to cost-reimbursable contracts. For contracts that contain both fixed-price and cost-reimbursable components, we classify the individual components as either fixed-price or cost-reimbursable according to the composition of the contract; however, for smaller contracts, we characterize the entire contract based on the predominant component. As of September 30, 2016, $6.7 billion of our GS backlog was currently funded by our customers.