COVER STORYCOVER STORY

BY JOE MARTINjmartin@bizjournals.com 713-395-9638, @HBJMartin

Stuart Bradie and his wife wake up before 5 a.m.

almost every weekday. They hop in their car and head to Memorial Park where, before the sun is up, they participate in a bootcamp run by former U.S. Navy Seals.

After the barrage of situps, pushups, pullups and running, Bradie heads to the office, where he transitions from fit-ness fanatic to the CEO of Houston-based KBR Inc. (NYSE: KBR), an engineering and construction company that once catered mostly to the energy industry.

Since joining KBR in 2014, Bradie has led the company through a strategy shift that has coincided with the ongoing oil slump that cost KBR a spot on the Fortune 500 list this year. The company recent-ly announced two acquisitions valued at more than $700 million that will bol-ster KBR’s domestic government services portfolio. In May, KBR said it was buy-ing California-based Wyle Inc., an engi-neering and services company that works closely with NASA. Shortly thereafter, KBR announced it would buy Columbia, Mary-land-based Honeywell Technology Solu-tions Inc., a play that gives KBR new rev-enue streams focusing largely on satellite and naval operations.

Meanwhile, Bradie is still maneuver-ing KBR through bad press stemming from allegations of overcharging the mil-itary on contracts in Iraq, as well as other issues from when it was associated with Halliburton, which was once KBR’s par-ent company.

What’s the biggest misconception about KBR? People look at KBR as a company that typically only does big projects. That becomes the candles on the cake, but we’re still a player who wants to do and will do and are doing big projects. But it’s only part of what we do, not all of what we do.

The other misconception is that KBR historically has gotten horrible press. KBR is a very changed company. We’re very

people-oriented. We have had to make difficult choices just as everyone has in this environment.

We failed to flatter in the past because, if you look at our performance, I think with the stock market and what we promised it before we got here, we missed often. In the last six quarters, we’ve met or exceeded consensus every time. There’s a stability coming back into the business.

Culturally, we’re far more innovative. We’re far more differentiated up the food chain in terms of specialized, techni-cal services, which plays well in an ever-changing technical future.

Is there more that needs to be done to change people’s perception of KBR? I think there’s more that needs to be done. Because of the bad press and relationship issues after Iraq, KBR was a bit of a politi-cal football at the time because of the association with Dick Cheney (once CEO of Halliburton). I’m not interested in any of that. I just want to do the right thing.

I went to meet the head of the Army in the Pentagon. We agreed a way forward, and we settled all the audits and costs. It was $45 billion worth of revenues that were audited, and the giveback was less than 0.1 percent. It’s dispelled the myth of the $500 toilet or $50 ashtray or all the things that were going around at the time. We’ve come through all that as KBR with a very strong relationship with the mili-tary and dispelled the myth we were over-charging or inflated costs.

I want KBR to be seen as a good cor-porate citizen because we are, and I think we’re slowly shedding the shackles of the past.

Tell me about your two recent acquisi-tions. We’ve been very disciplined in the way we think. We wanted to focus on two areas — energy and government servic-es. It became clear as we looked inside the government services market in Aus-tralia, the U.S. and the U.K., it is typi-cally serving the military. Those markets were growing and much of what you do is cost-plus reimbursable. Its risk profile

is attractive, and you get into long-term relationships, which is something KBR wants to be in.

We needed to find something that allows us to work closer with the govern-ment in the U.S. That’s where the Wyle acquisition came in. It differentiated us into higher-end technical consulting ser-vices. We do that in hydrocarbon and understand how to do it, but it gave us a very strong domestic footprint working for NASA and different U.S. agencies like the Army, Navy and Homeland Security.

What balance does KBR see as the future between domestic services and foreign services? It’s a combination of both. The U.S. will continue to play a role interna-tionally, and as a cause of that, we’ll sup-port that as it manifests itself through the election process.

What Wyle and HTSI brings to the party for us is a strong, high-end, techni-cal capability servicing the U.S. military in its various guises in the U.S. Also, it is a different funding source for us, which is important because the funding can go up and down if there’s a conflict or not, but (other parts of the budget will remain stable). It has recurring revenue streams and the differentiation is nice because it

is still high-end skills that help us from a margin perspective, and it gives us a far greater stability for our people, stakehold-ers and shareholders.

The oil and gas industry has taken a hit, which has impacted KBR’s earnings. Is the move into the government servic-

THE BUSINESS JOURNAL INTERVIEW WITH...

StuartBradieCEO and president, KBR Inc.

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16A HOUSTON BUSINESS JOURNAL OCTOBER 14-20, 2016 OCTOBER 14-20, 2016 HOUSTON BUSINESS JOURNAL 17A

es a reaction to a down oil economy or a long-term play for KBR to stabilize the balance sheet? More the latter. It’s always been part of the strategy to focus in two areas. What we’re seeing is a lot of move-ment from people from oil and gas busi-ness into our government business, giving us a people synergy allows us to retain key talent in the business.

So is this a permanent strategy for you or just cyclical? It depends on the ebbs and flows of the business. What is clear

is that it’s very good to have two strong businesses.

KBR has historically been categorized as doing big projects in LNG or whatev-er it might be. We’re still in that business. We have key skills to do that work, but those projects are lumpy in nature. I want the base business of KBR, which I call the cake, to be recurring revenue, engineering and technically led in hydrocarbon and government services. Then the big proj-ects become the candles on the cake. That gives us a much stabler environment for our people and a longevity for our share-holders for future earnings, as well. It’s time to get a firm basis, and then be high-ly considered when you take on the big projects because they come with an ele-ment of risk.

How does the Honeywell deal play into this picture? The interesting thing with the Honeywell acquisition is that they’re very much in NASA in Virginia. KBRWyle is in Houston. The things that Honeywell are all focused on are satellites, whereas with NASA and Wyle, it is life sciences. You can see how you can start to cross-sell between the various space centers. At the moment, (with Wyle,) we’re in the middle of the life sciences program,

which is a 10-year deal. We’re looking at deep space and how you can take peo-ple into space for longer periods of time, what it does to the body, etc.

Not only does (The HTSI acquisition) take us strategically into the satellite are-na and broaden our offerings to NASA and the Air Force, it also has two pieces to it. One is around cyber to protecting industrial equipment, and we think the whole cyber side is a growing piece of the future.

The other piece they have is sup-porting pre-positioned equipment for deployment mostly on naval ships over-seas. It fits well with our legacy govern-ment business, which is very logistically driven. We couldn’t have picked a busi-ness or found a business that fit more perfectly in the middle of our legacy business than what KBRWyle is offer-ing. And the customer is essentially the same, but we’re doing different things. It adds to our capabilities, to our reach, but there is no overlap.

So what’s the next piece of the cake? We’re always looking. The truth is, you have to kiss a lot of frogs. We walk away from deals not just because of money, but because we don’t think the strate-

gic fit is right or there’s too much overlap or, even more importantly, the cultural fit isn’t there. If you don’t get that, you’re struggling from day one. We’re continu-ing to look to build our platform.

As KBR continues to move into other parts of the country, what happens to the local footprint? The oil and gas busi-ness has been hit very hard. Houston as a city has done well to diversify over the past 10 years, particularly in the medi-cal area. You don’t see it in the Houston context, but in the oil and gas business, it has been devastating, particularly for the big companies. Our total number of people we’ve lost in Houston is just over 500, which is bad enough in itself, but that’s the least amount I’ve heard in recent times. We’re trying to retain our footprint in Houston. It’s our home. Our community service and philanthropy continues even in these difficult times. I don’t see our footprint changing at all. All we’re really doing is adding comple-mentary skills that will help the business grow. We’re a global company.

This interview has been edited for length and clarity.

ERIC KAYNE/HBJ

“Culturally, we’re far more innovative. We’re far more differentiated up the food

chain in terms of specialized, technical services, which

plays well in an ever-changing technical future.”

STUART BRADIE, CEO and president, KBR Inc.

STUART BRADIECEO and president, KBR Inc.Age: 50Hometown: Edinburgh, ScotlandEducation: Bachelor’s in mechanical engineering from Aberdeen University, MBA from Edinburgh Business SchoolFamily: Married, three childrenBest piece of advice you’ve received: “Humility is an asset that’s hugely undervalued. You have two ears and one mouth. You should use them in that ratio.”Favorite Houston restaurants: Caracol, Helen Greek, Artisan’s Restaurant, Roost, Underbelly, Hugo’s. “We’re big foodies. We like to eat out.”Past employment: WorleyParsons Ltd., PT Kvaerner Indonesia and Kvaerner Philippines

R THE BRADIE FILE

KBR INC.HQ: HoustonFounded: 1998 when M.W. Kellogg, owned by Dresser Industries, merged with Brown & Root Engineering and Construction, owned by Halliburton; Separated from Halliburton and went public in 2006Top exec: Stuart Bradie, CEO and presidentRevenue: $5.1 billion in 2015, down 20 percent from 2014Employees: 31,000 worldwideNYSE: KBR

R THE KBR FILE

This ad appeared on page 16A-17A - VOL. 47, NO. 23 issue of the Houston Business Journal week of October 14-20, 2016. It has been reprinted by the Houston Business Journal andfurther reproduction by any other party is strictly prohibited. Copyrighted 2016 by Houston Business Journal, 5444 Westheimer, Suite 1700, 713-688-8811, http://houston.bizjournals.com

This ad appeared on page 16A-17A - VOL. 47, NO. 23 issue of the Houston Business Journal week of October 14-20, 2016. It has been reprinted by the Houston Business Journal andfurther reproduction by any other party is strictly prohibited. Copyrighted 2016 by Houston Business Journal, 5444 Westheimer, Suite 1700, 713-688-8811, http://houston.bizjournals.com