UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



☒			Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, ~~2020~~2021



☐			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: 001-33146

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~~) (713) 753-2000

(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~~registered
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 ☒ 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 ☒ 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

☒

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 ☒

As of October 22, ~~2020,~~2021, there were ~~142,527,053~~140,285,318 shares of KBR, Inc. Common Stock, par value $0.001 per share, outstanding.

TABLE OF CONTENTS




	Page
PART I. FINANCIAL INFORMATION
Item 1. ~~Financial Information~~Financial Statements (Unaudited)		5
Condensed Consolidated Statements of Operations		5
Condensed Consolidated Statements of Comprehensive Income (Loss)		6
Condensed Consolidated Balance Sheets		7
Condensed Consolidated Statements of Shareholders' Equity		8
Condensed Consolidated Statements of Cash Flows		10
Notes to Condensed Consolidated Financial Statements		11
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations		4340
Item 3. Quantitative and Qualitative Disclosures About Market Risk		5956
Item 4. Controls and Procedures		6057
PART II. OTHER INFORMATION
Item 1. Legal Proceedings		6158
Item 1A. Risk Factors		6158
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		6359
Item 6. Exhibits		6460
SIGNATURES		6561

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:~~include the risks and uncertainties disclosed in our latest Form 10-K and any subsequent Forms 10-Q and 8-K.

there is the potential for a wide range of uncertainties related to the 2020 Presidential and Congressional elections that could change funding related to our lines of business. Because we generate a substantial portion of our revenues from contracts with U.S. government agencies, our operating results could be adversely affected by spending caps or changes in budgetary priorities, as well as by delays in the government budget process, program starts or the award of contracts or task orders under contracts. Changes in spending authorizations and budgetary priorities may occur as a result of the shifts in spending priorities from defense-related and other programs as a result of competing demands for federal funds and the number and intensity of military conflicts and other factors;

operational challenges relating to the COVID-19 pandemic and efforts to mitigate the spread of the virus, including logistical challenges, protecting the health and well-being of our employees, remote work arrangements, performance of contracts and supply chain disruptions;

the COVID-19 pandemic has increased the severity and duration of world health events, including volatility in the capital markets, deteriorating financial conditions or bankruptcy, and related economic repercussions resulting from severe disruption in multiple industries, which may negatively impact our clients' ability to meet their payment obligations to us in a timely manner; and

the level of capital spending and access to capital markets by industrial companies, including significant reductions and potential additional reductions in capital expenditures in response to commodity prices and dramatically reduced demand

Many of these factors are beyond our ability to control or predict. Any of these factors, as well as the risks and uncertainties disclosed in our 2019 Annual Report on Form 10-K contained in Part I under "Risk Factors", this Quarterly Report on Form 10-Q contained or referenced in Part II under "Risk Factors", and the risk factors and other cautionary statements contained in our other filings with the SEC, 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.

Glossary of Terms

The following frequently used terms, abbreviations or acronyms are commonly used in our Quarterly Reports 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


~~Acronym~~		~~Definition~~
~~AOCL~~		~~Accumulated other comprehensive loss~~
~~ASBCA~~C4ISR		~~Armed Services Board of Contract Appeals~~Command, Control, Communications, Computers, Intelligence, Surveillance and Reconnaissance
~~ASC~~COFC		~~Accounting Standards Codification~~
~~ASU~~	~~Accounting Standards Update~~
~~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~~

EBIC		Egypt Basic Industries Corporation
~~EPC~~
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~~
FKTC		First Kuwaiti Trading Company
GS		~~Government Solutions~~
~~HETs~~



GS		Government Solutions

HETs		Heavy equipment transporters
~~JKC~~
ICC		International Chamber of Commerce

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
MFRs		Memorandums for Record
MoD		Ministry of Defence
NCI		Noncontrolling interests
~~PFIs~~OAW		Operation Allies Welcome
PFIs		Private financed initiatives and projects
PIC		Paid-in capital in excess of par
~~PLOC~~		~~Performance Letter of Credit facility~~
~~ROU~~PPE		~~Right of use~~Property, Plant and Equipment
~~RPA~~

RPA		Master Accounts Receivable Purchase Agreement
~~SEC~~
SEC		U.S. Securities and Exchange Commission
~~SFO~~		~~U.K. Serious Fraud Office~~
~~SGT~~SMA		~~Stinger Ghaffarian Technologies~~
~~SMA~~	Scientific Management Associates (Operations) Pty Ltd
~~Space~~STS		~~Space and Mission~~Sustainable Technology Solutions
TS		~~Technology Solutions~~
~~U.K.~~		~~United Kingdom~~
~~U.S.~~		~~United States~~
U.K.		United Kingdom
U.S.		United States
U.S. GAAP		Accounting principles generally accepted in the United States
~~VIEs~~

VIEs		Variable interest entities

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						Nine Months Ended							Three Months Ended				Nine Months Ended
	September 30,						September 30,							September 30,				September 30,
	2020			2019			2020			2019				2021		2020		2021		2020
Revenues	$	1,379		$	1,425		$	4,301		$	4,187		Revenues	$	1,843	$	1,379	$	4,840	$	4,301
Cost of revenues	(1,207		)	(1,257		)	(3,801		)	(3,704		)	Cost of revenues	(1,650)		(1,207)		(4,272)		(3,801)
Gross profit	172			168			500			483			Gross profit	193		172		568		500
Equity in earnings of unconsolidated affiliates	13			9			30			24
Equity in earnings (losses) of unconsolidated affiliates													Equity in earnings (losses) of unconsolidated affiliates	(1)		13		(175)		30
Selling, general and administrative expenses	(89		)	(74		)	(259		)	(242		)	Selling, general and administrative expenses	(91)		(89)		(283)		(259)
Acquisition and integration related costs	(2		)	0			(2		)	(2		)	Acquisition and integration related costs	(3)		(2)		(7)		(2)
Goodwill impairment	0			0			(99		)	0			Goodwill impairment	—		—		—		(99)
Restructuring charges and asset impairments	(1		)	0			(176		)	0			Restructuring charges and asset impairments	—		(1)		(2)		(176)
Gain on disposition of assets and investments	0			1			18			11			Gain on disposition of assets and investments	3		—		1		18

Operating income	93			104			12			274			Operating income	101		93		102		12
Interest expense	(18		)	(25		)	(60		)	(76		)	Interest expense	(23)		(18)		(68)		(60)
Other non-operating (loss) income	(4		)	3			1			10
Income (loss) before income taxes and noncontrolling interests	71			82			(47		)	208
Other non-operating income (loss)													Other non-operating income (loss)	(1)		(4)		(2)		1
Income (loss) before income taxes													Income (loss) before income taxes	77		71		32		(47)
Provision for income taxes	(19		)	(24		)	(24		)	(58		)	Provision for income taxes	(19)		(19)		(75)		(24)
Net income (loss)	52			58			(71		)	150			Net income (loss)	58		52		(43)		(71)
Net income attributable to noncontrolling interests	0			(2		)	(20		)	(6		)
Less: Net income attributable to noncontrolling interests													Less: Net income attributable to noncontrolling interests	3		—		7		20
Net income (loss) attributable to KBR	$	52		$	56		$	(91	)	$	144		Net income (loss) attributable to KBR	$	55	$	52	$	(50)	$	(91)
Net income (loss) attributable to KBR per share:													Net income (loss) attributable to KBR per share:
Basic	$	0.36		$	0.39		$	(0.64	)	$	1.01		Basic	$	0.39	$	0.36	$	(0.36)	$	(0.64)
Diluted	$	0.36		$	0.39		$	(0.64	)	$	1.01		Diluted	$	0.38	$	0.36	$	(0.36)	$	(0.64)
Basic weighted average common shares outstanding	142			141			142			141			Basic weighted average common shares outstanding	140		142		141		142
Diluted weighted average common shares outstanding	142			142			142			141			Diluted weighted average common shares outstanding	145		142		141		142
Cash dividends declared per share	$	0.10		$	0.08		$	0.30		$	0.24		Cash dividends declared per share	$	0.11	$	0.10	$	0.33	$	0.30

See accompanying notes to condensed consolidated financial statements.

KBR, Inc.

Condensed Consolidated Statements of Comprehensive Income (Loss)

(In millions)

(Unaudited)


	Three Months Ended						Nine Months Ended							Three Months Ended				Nine Months Ended
	September 30,						September 30,							September 30,				September 30,
	2020			2019			2020			2019				2021		2020		2021		2020
Net income (loss)	$	52		$	58		$	(71	)	$	150		Net income (loss)	$	58	$	52	$	(43)	$	(71)
Other comprehensive income (loss):													Other comprehensive income (loss):
Foreign currency translation adjustments	21			(33		)	(27		)	(47		)	Foreign currency translation adjustments	(16)		21		(4)		(27)
Pension and post-retirement benefits	6			5			18			14			Pension and post-retirement benefits	9		6		25		18
Changes in fair value of derivatives	4			(1		)	(19		)	(10		)	Changes in fair value of derivatives	4		4		23		(19)
Other comprehensive income (loss)	31			(29		)	(28		)	(43		)	Other comprehensive income (loss)	(3)		31		44		(28)
Income tax (expense) benefit:													Income tax (expense) benefit:
Foreign currency translation adjustments	0			(1		)	0			(1		)	Foreign currency translation adjustments	1		—		—		—
Pension and post-retirement benefits	(1		)	(1		)	(3		)	(3		)	Pension and post-retirement benefits	(2)		(1)		(5)		(3)
Changes in fair value of derivatives	(1		)	3			4			3			Changes in fair value of derivatives	—		(1)		(5)		4
Income tax (expense) benefit	(2		)	1			1			(1		)	Income tax (expense) benefit	(1)		(2)		(10)		1
Other comprehensive income (loss), net of tax	29			(28		)	(27		)	(44		)	Other comprehensive income (loss), net of tax	(4)		29		34		(27)
Comprehensive income (loss)	81			30			(98		)	106			Comprehensive income (loss)	54		81		(9)		(98)
Less: Comprehensive income attributable to noncontrolling interests	0			(2		)	(20		)	(6		)	Less: Comprehensive income attributable to noncontrolling interests	3		—		7		20
Comprehensive income (loss) attributable to KBR	$	81		$	28		$	(118	)	$	100		Comprehensive income (loss) attributable to KBR	$	51	$	81	$	(16)	$	(118)

See accompanying notes to condensed consolidated financial statements.

KBR, Inc.

Condensed Consolidated Balance Sheets

(In millions, except share data)


	September 30,			December 31,				September 30,		December 31,
	2020			2019				2021		2020
	(Unaudited)							(Unaudited)
Assets							Assets
Current assets:							Current assets:
Cash and equivalents	$	949		$	712		Cash and equivalents	$	550	$	436
Accounts receivable, net of allowance for credit losses of $12 and $14	976			938
Accounts receivable, net of allowance for credit losses of $13 and $13, respectively							Accounts receivable, net of allowance for credit losses of $13 and $13, respectively	1,245		899
Contract assets	167			215			Contract assets	227		178

Other current assets	115			146			Other current assets	114		121
Total current assets	2,207			2,011			Total current assets	2,136		1,634
Claims and accounts receivable	31			59			Claims and accounts receivable	30		30
Property, plant, and equipment, net of accumulated depreciation of $413 and $386 (including net PPE of $25 and $29 owned by a variable interest entity)	111			130
Property, plant, and equipment, net of accumulated depreciation of $435 and $419 (including net PPE of $21 and $24 owned by a variable interest entity), respectively							Property, plant, and equipment, net of accumulated depreciation of $435 and $419 (including net PPE of $21 and $24 owned by a variable interest entity), respectively	131		130
Operating lease right-of-use assets	113			175			Operating lease right-of-use assets	154		154
Goodwill	1,179			1,265			Goodwill	1,772		1,761
Intangible assets, net of accumulated amortization of $207 and $184	455			495
Intangible assets, net of accumulated amortization of $279 and $228, respectively							Intangible assets, net of accumulated amortization of $279 and $228, respectively	635		683
Equity in and advances to unconsolidated affiliates	825			846			Equity in and advances to unconsolidated affiliates	590		881
Deferred income taxes	250			236			Deferred income taxes	237		297
Other assets	137			143			Other assets	147		135
Total assets	$	5,308		$	5,360		Total assets	$	5,832	$	5,705
Liabilities and Shareholders’ Equity							Liabilities and Shareholders’ Equity
Current liabilities:							Current liabilities:
Accounts payable	$	584		$	572		Accounts payable	$	964	$	574

Contract liabilities	355			484			Contract liabilities	289		356
Accrued salaries, wages and benefits	252			209			Accrued salaries, wages and benefits	318		283
Nonrecourse project debt	10			11			Nonrecourse project debt	—		5
Operating lease liabilities	39			39			Operating lease liabilities	40		44
Other current liabilities	193			186			Other current liabilities	177		193
Total current liabilities	1,433			1,501			Total current liabilities	1,788		1,455
Pension obligations	223			277			Pension obligations	310		381
Employee compensation and benefits	107			115			Employee compensation and benefits	104		110
Income tax payable	95			92			Income tax payable	94		96
Deferred income taxes	16			16			Deferred income taxes	13		26
Nonrecourse project debt	2			7			Nonrecourse project debt	2		2

Long-term debt	1,314			1,183			Long-term debt	1,578		1,584
Operating lease liabilities	154			192			Operating lease liabilities	189		186

Other liabilities	251			124			Other liabilities	254		256
Total liabilities	3,595			3,507			Total liabilities	4,332		4,096
Commitments and Contingencies (Notes 6, 13 and 14)							Commitments and Contingencies (Notes 6, 13 and 14)	0		0
KBR shareholders’ equity:							KBR shareholders’ equity:
Preferred stock, $0.001 par value, 50,000,000 shares authorized, none issued	0			0
Common stock, $0.001 par value 300,000,000 shares authorized, 179,021,597 and 178,330,201 shares issued, and 142,527,053 and 141,819,148 shares outstanding, respectively	0			0
Preferred stock, $0.001 par value, 50,000,000 shares authorized, NaN issued							Preferred stock, $0.001 par value, 50,000,000 shares authorized, NaN issued	—		—
Common stock, $0.001 par value 300,000,000 shares authorized, 179,908,148 and 179,087,655 shares issued, and 140,260,422 and 140,766,052 shares outstanding, respectively							Common stock, $0.001 par value 300,000,000 shares authorized, 179,908,148 and 179,087,655 shares issued, and 140,260,422 and 140,766,052 shares outstanding, respectively	—		—
PIC	2,219			2,206			PIC	2,246		2,222
Retained earnings	1,300			1,437			Retained earnings	1,208		1,305
Treasury stock, 36,494,544 shares and 36,511,053 shares, at cost, respectively	(817		)	(817		)
Treasury stock, 39,647,726 shares and 38,321,603 shares, at cost, respectively							Treasury stock, 39,647,726 shares and 38,321,603 shares, at cost, respectively	(919)		(864)
AOCL	(1,014		)	(987		)	AOCL	(1,049)		(1,083)
Total KBR shareholders’ equity	1,688			1,839			Total KBR shareholders’ equity	1,486		1,580
Noncontrolling interests	25			14			Noncontrolling interests	14		29
Total shareholders’ equity	1,713			1,853			Total shareholders’ equity	1,500		1,609
Total liabilities and shareholders’ equity	$	5,308		$	5,360		Total liabilities and shareholders’ equity	$	5,832	$	5,705

See accompanying notes to condensed consolidated financial statements.

KBR, Inc.

Condensed Consolidated Statements of Shareholders' Equity

(In millions, except for per share data)

(Unaudited)


Dollars in millions	Total		PIC		Retained Earnings		Treasury Stock		AOCL		NCI
Balance at June 30, 2021	$	1,501	$	2,240	$	1,169	$	(895)	$	(1,045)	32
Share-based compensation	4		4		—		—		—		—

Common stock issued upon exercise of stock options	1		1		—		—		—		—
Dividends declared to shareholders ($0.11/share)	(16)		—		(16)		—		—		—
Repurchases of common stock	(26)		—		—		(26)		—		—
Issuance of ESPP shares	2		1		—		1		—		—
Investments by noncontrolling interests	—		—		—		—		—		—
Distributions to noncontrolling interests	(22)		—		—		—		—		(22)
Other	2		—		—		1		—		1
Net income	58		—		55		—		—		3
Other comprehensive loss, net of tax	(4)		—		—		—		(4)		—
Balance at September 30, 2021	$	1,500	$	2,246	$	1,208	$	(919)	$	(1,049)	$	14


Dollars in millions	Total		PIC		Retained Earnings		Treasury Stock		AOCL		NCI
Balance at December 31, 2020	$	1,609	$	2,222	$	1,305	$	(864)	$	(1,083)	$	29




Share-based compensation	12		12		—		—		—		—

Common stock issued upon exercise of stock options	11		11		—		—		—		—
Dividends declared to shareholders ($0.33/share)	(47)		—		(47)		—		—		—
Repurchases of common stock	(58)		—		—		(58)		—		—
Issuance of ESPP shares	4		1		—		3		—		—
Investments by noncontrolling interests	—		—		—		—		—		—
Distributions to noncontrolling interests	(23)		—		—		—		—		(23)
Other	1		—		—		—		—		1
Net income (loss)	(43)		—		(50)		—		—		7
Other comprehensive income, net of tax	34		—		—		—		34		—
Balance at September 30, 2021	$	1,500	$	2,246	$	1,208	$	(919)	$	(1,049)	$	14

Dollars in millions Total PIC Retained
Earnings Treasury
Stock AOCL NCI
Balance at June 30, 2020 $ 1,642
$ 2,216
$ 1,262
$ (820 ) $ (1,043 ) 27
Share-based compensation 3
3
—
—
—
—
Dividends declared to shareholders ($0.10/share) (14 ) —
(14 ) —
—
—
Issuance of ESPP shares 2
—
—
2
—
—
Distributions to noncontrolling interests (1 ) —
—
—
—
(1 )
Other 0
—
—
1
—
(1 )
Net income 52
—
52
—
—
—
Other comprehensive income, net of tax 29
—
—
—
29
—
Balance at September 30, 2020 $ 1,713
$ 2,219
$ 1,300
$ (817 ) $ (1,014 ) $ 25

Dollars in millions Total PIC Retained
Earnings Treasury
Stock AOCL NCI
Balance at December 31, 2019 $ 1,853
$ 2,206
$ 1,437
$ (817 ) $ (987 ) $ 14
Cumulative adjustment for the adoption of ASC 326 (3 ) —
(3 ) —
—
—
Adjusted balance at January 1, 2020 1,850
2,206
1,434
(817 ) (987 ) 14
Share-based compensation 10
10
—
—
—
—
Common stock issued upon exercise of stock options 3
3
—
—
—
—
Dividends declared to shareholders ($0.30/share) (43 ) —
(43 ) —
—
—
Repurchases of common stock (4 ) —
—
(4 ) —
—
Issuance of ESPP shares 4
—
—
4
—
—
Distributions to noncontrolling interests (3 ) —
—
—
—
(3 )
Other (6 ) —
—
—
—
(6 )
Net loss (71 ) —
(91 ) —
—
20
Other comprehensive loss, net of tax (27 ) —
—
—
(27 ) —
Balance at September 30, 2020 $ 1,713
$ 2,219
$ 1,300
$ (817 ) $ (1,014 ) $ 25


Dollars in millions																		Dollars in millions	Total		PIC		Retained Earnings		Treasury Stock		AOCL		NCI
Balance at June 30, 2020																		Balance at June 30, 2020	$	1,642	$	2,216	$	1,262	$	(820)	$	(1,043)	$	27

Share-based compensation																		Share-based compensation	3		3		—		—		—		—

Common stock issued upon exercise of stock options																		Common stock issued upon exercise of stock options	—		—		—		—		—		—
Dividends declared to shareholders ($0.10/share)																		Dividends declared to shareholders ($0.10/share)	(14)		—		(14)		—		—		—

Issuance of ESPP shares																		Issuance of ESPP shares	2		—		—		2		—		—

Distributions to noncontrolling interests																		Distributions to noncontrolling interests	(1)		—		—		—		—		(1)
Other																		Other	—		—		—		1		—		(1)
Net income																		Net income	52		—		52		—		—		—
Other comprehensive income, net of tax																		Other comprehensive income, net of tax	29		—		—		—		29		—
Balance at September 30, 2020																		Balance at September 30, 2020	$	1,713	$	2,219	$	1,300	$	(817)	$	(1,014)	$	25

Dollars in millions	Total			PIC		Retained Earnings			Treasury Stock			AOCL			NCI			Dollars in millions	Total		PIC		Retained Earnings		Treasury Stock		AOCL		NCI
Balance at June 30, 2019	$	1,819		$	2,197	$	1,346		$	(818	)	$	(926	)	$	20
Balance at December 31, 2019																		Balance at December 31, 2019	$	1,853	$	2,206	$	1,437	$	(817)	$	(987)	$	14
Cumulative adjustment for the adoption of ASC 326																		Cumulative adjustment for the adoption of ASC 326	(3)		—		(3)		—		—		—

Adjusted balance at January 1, 2020																		Adjusted balance at January 1, 2020	1,850		2,206		1,434		(817)		(987)		14

Share-based compensation	4			4		—			—			—			—			Share-based compensation	10		10		—		—		—		—

Common stock issued upon exercise of stock options	1			1		—			—			—			—			Common stock issued upon exercise of stock options	3		3		—		—		—		—
Dividends declared to shareholders ($0.08/share)	(11		)	—		(11		)	—			—			—
Dividends declared to shareholders ($0.30/share)																		Dividends declared to shareholders ($0.30/share)	(43)		—		(43)		—		—		—
Repurchases of common stock	(1		)	—		—			(1		)	—			—			Repurchases of common stock	(4)		—		—		(4)		—		—
Issuance of ESPP shares	2			—		—			2			—			—			Issuance of ESPP shares	4		—		—		4		—		—

Distributions to noncontrolling interests	(2		)	—		—			—			—			(2		)	Distributions to noncontrolling interests	(3)		—		—		—		—		(3)
Net income	58			—		56			—			—			2
Other noncontrolling interests activity																		Other noncontrolling interests activity	(6)		—		—		—		—		(6)
Net income (loss)																		Net income (loss)	(71)		—		(91)		—		—		20
Other comprehensive loss, net of tax	(28		)	—		—			—			(28		)	—			Other comprehensive loss, net of tax	(27)		—		—		—		(27)		—
Balance at September 30, 2019	$	1,842		$	2,202	$	1,391		$	(817	)	$	(954	)	$	20


Dollars in millions	Total			PIC		Retained Earnings			Treasury Stock			AOCL			NCI
Balance at December 31, 2018	$	1,718		$	2,190	$	1,235		$	(817	)	$	(910	)	$	20
Cumulative adjustment for the adoption of ASC 842	21			—		21			—			—			—
Cumulative adjustment for the adoption of ASC 606 for our unconsolidated affiliates	25			—		25			—			—			—
Adjusted balance at January 1, 2019	1,764			2,190		1,281			(817		)	(910		)	20
Share-based compensation	9			9		—			—			—			—
Common stock issued upon exercise of stock options	3			3		—			—			—			—
Dividends declared to shareholders ($0.24/share)	(34		)	—		(34		)	—			—			—
Repurchases of common stock	(4		)	—		—			(4		)	—			—
Issuance of ESPP shares	4			—		—			4			—			—
Distributions to noncontrolling interests	(6		)	—		—			—			—			(6		)
Net income	150			—		144			—			—			6
Other comprehensive loss, net of tax	(44		)	—		—			—			(44		)	—
Balance at September 30, 2019	$	1,842		$	2,202	$	1,391		$	(817	)	$	(954	)	$	20
Balance at September 30, 2020																		Balance at September 30, 2020	$	1,713	$	2,219	$	1,300	$	(817)	$	(1,014)	$	25

See accompanying notes to condensed consolidated financial statements.

KBR, Inc.
Condensed Consolidated Statements of Cash Flows
(In millions)
(Unaudited)
Nine Months Ended September 30,
2020 2019
Cash flows from operating activities:
Net income (loss) $ (71 ) $ 150
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization 74
76
Equity in earnings of unconsolidated affiliates (30 ) (24 )
Deferred income tax (11 ) 0
Gain on disposition of assets and investments (18 ) (11 )
Goodwill impairment 99
0
Asset impairments 91
0
Other 25
20

Changes in operating assets and liabilities:
Accounts receivable, net of allowance for credit losses (50 ) (123 )
Contract assets 49
(52 )
Accounts payable 15
83
Contract liabilities (124 ) 82
Accrued salaries, wages and benefits 46
31
Other assets and liabilities 150
(33 )
Total cash flows provided by operating activities $ 245
$ 199
Cash flows from investing activities:
Purchases of property, plant and equipment $ (8 ) $ (10 )
Proceeds from disposition of assets and investments 1
8
Investments in equity method joint ventures (22 ) (146 )
Acquisition of businesses, net of cash acquired (9 ) 0
Total cash flows used in investing activities $ (38 ) $ (148 )
Cash flows from financing activities:
Borrowings on long-term debt 359
0
Payments on short-term and long-term borrowings (270 ) (54 )
Debt issuance costs (3 ) 0
Payments of dividends to shareholders (40 ) (34 )
Net proceeds from issuance of common stock 3
3
Payments to reacquire common stock (4 ) (4 )
Distributions to noncontrolling interests (3 ) (6 )
Other (1 ) (2 )
Total cash flows provided by (used in) financing activities $ 41
$ (97 )
Effect of exchange rate changes on cash (11 ) (12 )
Increase (decrease) in cash and equivalents 237
(58 )
Cash and equivalents at beginning of period 712
739
Cash and equivalents at end of period $ 949
$ 681
Noncash financing activities
Dividends declared $ 14
$ 11
KBR, Inc.

Condensed Consolidated Statements of Cash Flows

(In millions)

(Unaudited)


	Nine Months Ended September 30,
	2021		2020
Cash flows from operating activities:
Net loss	$	(43)	$	(71)
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization	114		74
Equity in (earnings) losses of unconsolidated affiliates	175		(30)
Deferred income tax	38		(11)
Gain on disposition of assets	(1)		(18)
Goodwill impairment	—		99
Asset impairments	1		91

Other	39		25

Changes in operating assets and liabilities:
Accounts receivable, net of allowance for credit losses	(341)		(50)
Contract assets	(50)		49

Accounts payable	397		15
Contract liabilities	(41)		(124)
Accrued salaries, wages and benefits	41		46
Payments on operating lease obligation	(46)		(45)

Payments from unconsolidated affiliates, net	18		15
Distributions of earnings from unconsolidated affiliates	37		35

Pension funding	(35)		(33)



Restructuring reserve	(20)		31
Other assets and liabilities	(7)		147

Total cash flows provided by operating activities	$	276	$	245
Cash flows from investing activities:
Purchases of property, plant and equipment	$	(22)	$	(8)
Proceeds from disposition of assets and investments	44		1
Investments in equity method joint ventures	(13)		(22)
Acquisition of businesses, net of cash acquired	(14)		(9)

Acquisition of technology license	(7)		—
Other	(10)		—
Total cash flows used in investing activities	$	(22)	$	(38)
Cash flows from financing activities:
Borrowings on long-term debt	—		359
Payments on short-term and long-term borrowings	(25)		(270)
Debt issuance costs	—		(3)


Payments of dividends to shareholders	(45)		(40)
Net proceeds from issuance of common stock	11		3
Payments to reacquire common stock	(58)		(4)



Distributions to noncontrolling interests	(23)		(3)

Other	—		(1)
Total cash flows (used in) provided by financing activities	$	(140)	$	41
Effect of exchange rate changes on cash	—		(11)
Increase in cash and equivalents	114		237
Cash and equivalents at beginning of period	436		712
Cash and equivalents at end of period	$	550	$	949





Noncash financing activities
Dividends declared	$	15	$	14

See accompanying notes to condensed consolidated financial statements.

KBR, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note 1. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements were prepared using generally accepted accounting principles for interim financial information and the instructions to Form 10-Q and Regulation S-X. Accordingly, these financial statements do not include all information or notes required by generally accepted accounting principles for annual financial statements and should be read together with our ~~2019~~2020 Annual Report on Form 10-K.

The condensed consolidated financial statements include all normal and recurring adjustments necessary to present fairly our financial position as of September 30, ~~2020~~2021, and the results of our operations for the three and nine months ended September 30, ~~2020~~2021 and ~~2019,~~2020, and our cash flows for the nine months ended September 30, ~~2020~~2021 and ~~2019.~~2020.

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. We generally 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. Our significant accounting policies are detailed in "Note 1. Significant Accounting Policies" of our ~~2019~~2020 Annual Report on Form 10-K.

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

The accompanying condensed consolidated financial statements have been prepared in accordance with U.S. GAAP and include the accounts of KBR, Inc. and the subsidiaries it controls, including VIEs where it is the primary ~~beneficiary.~~beneficiary (collectively, the "Company," "KBR", "we", "us" or "our"). We account for investments over which we have significant influence, but not a controlling financial interest, using the equity method of accounting. See Note 98 to our condensed consolidated financial statements for further discussion of our equity investments and VIEs. All material intercompany balances and transactions are eliminated in consolidation.

~~Business~~Segment Reorganization ~~and Restructuring Activities~~

The impact of the decline in oil and gas prices, the COVID-19 pandemic and related economic and business and market disruptions over the first six months of 2020 continues to evolve and its future effects remain uncertain. The impact of these recent developments on our business will depend on many factors, many of which are beyond management's control and knowledge. During the first quarter of 2020, our management initiated and approved

Effective January 1, 2021, we implemented a ~~restructuring plan in response~~strategic change to the dislocation of the global energy market resulting from the decline in oil prices and the COVID-19 pandemic. The restructuring plan is designed to reduce costs and improve operational efficiencies. In the second quarter of 2020, management approved additional restructuring activities in connection with decisions to discontinue pursuing certain types of work, principally lump-sum EPC and commoditized construction services. As a result of these restructuring activities and adverse market conditions, we have performed interim impairment testsstructure of our ~~goodwill, intangible assets, significant investments~~internal organization and ~~various other assets. See Note~~ transitioned from a 3-core business segment model to a 2-core business segment model comprised of Government Solutions and Sustainable Technology Solutions. The new Sustainable Technology Solutions segment is anchored by our innovative, proprietary process technologies. It also includes our highly synergistic advisory practice focused on energy transition and net-zero carbon emission consulting as well as the technology-led industrial solutions focused on innovative digital operations and maintenance ("O&M") solutions and advanced remote operations capabilities to improve throughput, reliability and environmental sustainability. Infusing high-end, sustainability expertise, client relationships and innovative, technology-led O&M solutions into Sustainable Technology Solutions is expected to increase resilience, generate new opportunities, simplify the business model and better position us to deliver its offerings across a broader industrial base.

Effective January 1, 2021, we reorganized our reportable segments and businesses as follows:

•7Government Solutions ~~"Restructuring Charges~~includes the following 4 business units: Defense & Intel, formerly the Defense Systems Engineering and ~~Asset Impairments"~~Centauri businesses; Science & Space, formerly called Space & Mission Solutions; Readiness & Sustainment, formerly called Logistics; and ~~Note~~ International.

•8Sustainable Technology Solutions ~~"Goodwill and Goodwill Impairment" for further discussion of restructuring and impairment charges recognized during the~~ ~~three and nine~~ ~~month periods ended~~ ~~September 30, 2020~~.

~~The restructuring plan included the reorganization of KBR's management structure primarily within our~~includes Energy Solutions segment, Technology Solutions segment, and Non-strategic Business segment, with the exception of our Australian infrastructure business which moved to GS International in our Government Solutions segment.

•Other

We have presented our segment ~~during the first and second quarters of 2020. These reorganization activities did not have an impact on our identified reportable segments.~~results reflecting these changes for all periods presented. See Note 2 to our condensed consolidated financial statements for further discussion on our segments.

The following should be read together with Revenue Recognition in our significant accounting policies as detailed in "Note 1. Significant Accounting Policies" of our ~~segments.~~2020 Annual Report on Form 10-K.

~~Impact~~Revenue Recognition

Contract Types

The Company performs work under contracts that broadly consists of ~~Adoption of New Accounting Standards~~

~~Financial Instruments - Credit Losses~~

Effective January 1, 2020, we adopted ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326) - Measurement of Credit Losses on Financial Instruments, using the modified retrospective approach. This ASU replaces the incurred loss

~~impairment model that recognizes losses when~~fixed-price, cost-reimbursable, time-and-materials, or a probable threshold is met with a requirement to recognize lifetime expected credit losses immediately when a financial asset, including receivables, are recorded. The estimate of expected credit losses considers not only historical information, but also current and future economic conditions and events. As a resultcombination of the ~~adoption,~~three.

Fixed-price contracts include both lump-sum and unit-rate contracts. Under lump-sum contracts, we ~~recorded~~perform a ~~cumulative effect adjustment~~defined scope of work for a specified fee to ~~retained earnings~~cover all costs and any profit element. Lump-sum contracts entail significant risk to us because they require us to predetermine the work to be performed, the project execution schedule and all the costs associated with the scope of ~~$3 million, net~~work. Unit-rate contracts are essentially fixed-price contracts with the only variable being units of ~~tax~~work to be performed. Although fixed-price contracts involve greater risk than cost-reimbursable contracts, they also are potentially more profitable because the owner/customer pays a premium to transfer project risks to us.

Time-and-materials contracts typically provide for negotiated fixed hourly rates for specified categories of ~~$1 million,~~direct labor. The rates cover the cost of direct labor, indirect expense and fee. These contracts can also allow for reimbursement of cost of material plus a fee, if applicable. In U.S. government contracting, this type of contract is generally used when there is uncertainty of the extent or duration of the work to be performed by the contractor at the time of contract award or it is not possible to anticipate costs with any reasonable degree of confidence. With respect to time-and-materials contracts, we assume the price risk because our costs of performance may exceed negotiated hourly rates. In commercial and non-U.S. government contracting, this contract is generally used for defined and non-defined scope contracts where there is a higher degree of uncertainty and risks as to the scope of work. These types of contracts may also provide for a guaranteed maximum price where the total cost plus the fee cannot exceed an agreed upon guaranteed maximum price or not-to-exceed provisions.

Under cost-reimbursable contracts, the price is generally variable based upon our actual allowable costs incurred for materials, equipment, reimbursable labor hours, overhead, and general and administrative expenses. Profit on cost-reimbursable contracts may be in the form of a fixed fee or a mark-up applied to costs incurred, or a combination of the two. The fee may also be an incentive fee based on performance indicators, milestones or targets and can be based on customer discretion or in form of an award fee determined based on customer evaluation of the Company's performance against contractual criteria. Cost-reimbursable contracts may also provide for a guaranteed maximum price where the total fee plus the total cost cannot exceed an agreed upon guaranteed maximum price. Cost-reimbursable contracts are generally less risky because the owner/customer retains many of the project risks, however it generally requires us to use our ~~opening condensed consolidated balance sheet as~~best efforts to accomplish the scope of ~~January 1, 2020.~~ the work within a specified time and budget. Cost-reimbursable contracts with the U.S. government are generally subject to the Federal Acquisition Regulation ("FAR") and are competitively priced based on estimated or actual costs of providing the contractual goods or services. The FAR provides guidance on types of costs that are allowable in establishing prices for goods and services provided to the U.S. government and its agencies. Pricing for non-U.S. government agencies and commercial customers is based on specific negotiations with each customer.

See Note ~~19 "Financial Instruments and Risk Management" for further discussion related~~3 to ~~credit losses.~~

~~Other Standards~~

Effective January 1, 2020, we adopted ASU No. 2018-18, Clarifying the Interaction Between Topic 808 and Topic 606, which clarifies that certain transactions between participants in a collaborative arrangement should be accounted for under ASC 606 when the counterparty is a customer. The adoption of this standard did not have any impact on our financial position, results of operations or cash flows.

Effective January 1, 2020, we adopted ASU No. 2018-17, Targeted Improvements to Related Party Guidance for Variable Interest Entities. This ASU amends the guidance for determining whether a decision-making fee is a variable interest. The adoption of this standard did not have any impact on our financial position, results of operations or cash flows.

Effective January 1, 2020, we adopted ASU No. 2018-15, Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. This ASU permits customers in a hosting arrangement that is a service contract to capitalize certain implementation costs as if the arrangement was an internal-use software project. We have elected to avail this option. The adoption of this standard did not have a material impact on our financial position, results of operations or cash flows.

Effective January 1, 2020, we adopted ASU No. 2018-13, Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. This ASU amends ASC 820 to add, remove and modify certain disclosure requirements for fair value measurements. For example, the Company will now be required to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. The adoption of this standard did not have a material impact on our condensed consolidated financial statements ~~or disclosures.~~

~~Effective January 1, 2020, we adopted ASU No. 2017-04, Intangibles - Goodwill and Other (Topic 350) - Simplifying the Test~~ for Goodwill Impairment. This ASU eliminates Step 2 from the goodwill impairment test. In addition, income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit should be considered when measuring the goodwill impairment loss, if applicable. The amendments also eliminate the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. As a result of the adoption of this standard, we used Step 1 to measure the goodwill impairment losses recognized during the first and second quarters of 2020 without proceeding to Step 2 of the goodwill impairment test as required under the previous standard. See Note 8 "Goodwill and Goodwill Impairment" forfurther discussion of ~~goodwill impairment recognized for the three and six month periods ended June 30, 2020.~~

our revenue by contract type.

Additional Balance Sheet Information

Other Current Liabilities

The components of "Other current liabilities" on our condensed consolidated balance sheets as of September 30, ~~2020,~~2021, and December 31, ~~2019,~~2020, are presented below:


	September 30,		December 31,
Dollars in millions	2021		2020
Current maturities of long-term debt	$	16	$	12
Reserve for estimated losses on uncompleted contracts	15		16
Retainage payable	12		22
Income taxes payable	—		16
Restructuring reserve	20		32

Value-added tax payable	36		29

Dividend payable	16		14

Other miscellaneous liabilities	62		52
Total other current liabilities	$	177	$	193

September 30, December 31,
Dollars in millions 2020 2019
Current maturities of long-term debt $ 12
$ 27
Reserve for estimated losses on uncompleted contracts 15
10
Retainage payable 26
41
Income taxes payable 1
25
Restructuring reserve 32
0
Value-added tax payable 44
36
Dividend payable 14
11
Other miscellaneous liabilities 49
36
Total other current liabilities $ 193
$ 186

~~Impact on Previously Issued Financial Statements for the Correction of an Error~~

During the second quarter ended June 30, 2020, we identified and corrected an immaterial error affecting previously issued financial statements related to the adoption of ASU No. 2017-13, Revenue from Contracts with Customers (Topic 606) for several unconsolidated affiliates as of January 1, 2019. The error was due to the impact of improperly calculated cumulative effect of initially applying ASC Topic 606 on our assets and shareholders' equity in the balance sheet. The previously reported error resulted in an overstatement of "Equity in and advances to unconsolidated affiliates" and "Retained earnings" of approximately $4 million in our condensed consolidated balance sheets as of March 31, 2019. The error had no impact on our previously reported condensed consolidated statements of operations or cash flows. We assessed the materiality, both quantitatively and qualitatively, in accordance with the SEC's SAB No. 99 and SAB No. 108, and concluded the error was not material to any of our previously issued quarterly or annual financial statements. To correctly present the error noted above, previously issued financial statements have been revised and are presented as "As Corrected" in the table below.

As of December 31, 2019
Revised Balance Sheet Amounts: As Previously Reported Adjustments As Corrected
Equity in and advances to unconsolidated affiliates $ 850
$ (4 ) $ 846
Retained earnings $ 1,441
$ (4 ) $ 1,437

Note 2. Business Segment Information

We provide a wide range of professional services and the management of our business is heavily focused on major projects or programs within each of our reportable segments. At any given time, ~~a relatively few number of projects,~~ government programs and joint ventures represent a substantial part of our operations. We are organized into 32 core business segments, Government Solutions and Sustainable Technology Solutions and ~~Energy Solutions and 2~~1 non-core business ~~segments~~segment as described below:

Government Solutions. Our GSGovernment Solutions business segment provides full life-cycle support solutions to defense, intelligence, space, aviation and other programs and missions for military and other government agencies primarily in the U.S., U.K. and Australia. ~~KBR~~KBR's services cover the full spectrum ~~from~~spanning research and development, ~~through~~advanced prototyping, acquisition support, systems engineering, C4ISR, cyber analytics, space domain awareness, test and evaluation, systems integration and program management, toglobal supply chain management, and operations ~~support,~~ readiness and logistics. With the acquisition of Centauri Holdings Platform, LLC ("Centauri") on October 1, 2020 described in Note 4 to the condensed consolidated financial statements, our GS business segment also provides software and engineering solutions to critical national security missions across space, cyber, intelligence, surveillance and reconnaissance, missile defense and intelligence domains to the U.S. government and related defense agencies. See Note 4 "Acquisitions" for further details.support.

Sustainable Technology Solutions. Our TSSustainable Technology Solutions business segment ~~combines KBR's~~is anchored by our portfolio of over 70 innovative, proprietary, sustainability-focused process technologies ~~equipment~~that we license spanning 4 primary areas: ammonia/syngas/fertilizers, chemical/petrochemicals, clean refining and ~~catalyst supply,~~circular process/circular economy solutions. STS also includes our highly synergistic advisory and consulting practice focused on energy transition and net-zero carbon emission consulting, our high-end engineering, design and professional services offerings, as well as our technology-led industrial solutions build on our KBR INSITE® platform. KBR INSITE® is a proprietary, digital, ~~solutions~~cloud-based operations and ~~associated knowledge-based services into a global business~~maintenance platform that identifies opportunities for ~~ammonia/fertilizers, nitric acid, refining, petrochemicals, inorganic~~our clients to achieve sustainable improvements in production, reliability, environment impact, energy efficiency, and ~~specialty chemicals refining. Our TS business segment focuses on the development of advanced digital and proprietary tools.~~ultimately profitability. From early planning through scope definition, advanced technologies and ~~project~~facility life-cycle support, our TSSTS business segment works closely with customers to provide what we believe is the optimal approach to maximize their return on investment. Licensing and engineering/design services are typically provided during the front-end planning stage of both green- and brown-field capital projects, and proprietary equipment is delivered and installed as part of facility construction. Catalysts, or process consumables designed to drive process performance, efficiency and reliability, are delivered for start-up and are subsequently replenished, as needed.

~~Energy Solutions.~~ Our ES business segment provides full life-cycle support solutions across the upstream, midstream and downstream energy markets. Global events and the associated market disruptions have accelerated KBR’s transition to becoming a solutions-oriented business and a migration away from lump-sum EPC and commoditized services.

~~Non-strategic Business.~~ Non-strategic Business represents the operations or activities we determine are no longer core to our business strategy and that we have exited or intend to exit upon completion of existing contracts. All Non-strategic Business projects are substantially complete. Current activities in this business segment primarily relate to final project close-out, negotiation and settlement of claims, joint venture liquidation and various other matters associated with these projects.

Other. Our non-core Other segment includes corporate expenses and selling, general and administrative expenses not allocated to the business segments above.

Operations by Reportable Segment


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2021		2020		2021		2020
Dollars in millions
Revenues:
Government Solutions	$	1,555	$	1,013	$	3,950	$	2,948
Sustainable Technology Solutions	288		366		890		1,353

Total revenues	$	1,843	$	1,379	$	4,840	$	4,301

Gross profit:
Government Solutions	$	147	$	131	$	393	$	377
Sustainable Technology Solutions	46		41		175		123

Total gross profit	$	193	$	172	$	568	$	500

Equity in earnings (losses) of unconsolidated affiliates:
Government Solutions	$	11	$	11	$	26	$	23
Sustainable Technology Solutions	(12)		2		(201)		7

Total equity in earnings (losses) of unconsolidated affiliates	(1)		13		$	(175)	$	30

Selling, general and administrative expenses:
Government Solutions	$	(44)	$	(45)	$	(142)	$	(116)
Sustainable Technology Solutions	(16)		(20)		(51)		(63)
Other	(31)		(24)		(90)		(80)
Total selling, general and administrative expenses	(91)		(89)		$	(283)	$	(259)

Acquisition and integration related costs	(3)		(2)		(7)		(2)
Goodwill impairment	—		—		—		(99)
Restructuring charges and asset impairments	—		(1)		(2)		(176)
Gain on disposition of assets and investments	3		—		1		18
Operating income	$	101	$	93	$	102	$	12
Interest expense	(23)		(18)		(68)		(60)
Other non-operating income (loss)	(1)		(4)		(2)		1
Income (loss) before income taxes and noncontrolling interests	$	77	$	71	$	32	$	(47)

Three Months Ended Nine Months Ended
September 30, September 30,
2020 2019 2020 2019
Dollars in millions
Revenues:
Government Solutions $ 980
$ 978
$ 2,860
$ 2,986
Technology Solutions 71
96
232
281
Energy Solutions 327
351
1,205
919
Subtotal 1,378
1,425
4,297
4,186
Non-strategic Business 1
0
4
1
Total revenues $ 1,379
$ 1,425
$ 4,301
$ 4,187
Gross profit (loss):
Government Solutions $ 129
$ 110
$ 370
$ 312
Technology Solutions 30
30
82
83
Energy Solutions 15
21
55
81
Subtotal 174
161
507
476
Non-strategic Business (2 ) 7
(7 ) 7
Total gross profit $ 172
$ 168
$ 500
$ 483
Equity in earnings of unconsolidated affiliates:
Government Solutions $ 9
$ 7
$ 21
$ 21
Energy Solutions 4
2
9
16
Subtotal 13
9
30
37
Non-strategic Business 0
0
0
(13 )
Total equity in earnings of unconsolidated affiliates 13
9
30
24
Selling, general and administrative expenses:
Government Solutions $ (43 ) $ (28 ) $ (112 ) $ (93 )
Technology Solutions (6 ) (7 ) (18 ) (21 )
Energy Solutions (15 ) (14 ) (48 ) (48 )
Other (25 ) (25 ) (81 ) (80 )
Total selling, general and administrative expenses (89 ) (74 ) (259 ) (242 )

Acquisition and integration related costs (2 ) 0
(2 ) (2 )
Goodwill impairment 0
0
(99 ) 0
Restructuring charges and asset impairments (1 ) 0
(176 ) 0
Gain on disposition of assets 0
1
18
11
Operating income $ 93
$ 104
$ 12
$ 274
Interest expense (18 ) (25 ) $ (60 ) $ (76 )
Other non-operating (loss) income (4 ) 3
$ 1
$ 10
Income (loss) before income taxes and noncontrolling interests $ 71
$ 82
$ (47 ) $ 208

Note 3. Revenue

Disaggregated Revenue

We disaggregate our revenue from customers by business unit, 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.

Revenue by ~~Service/Product line~~business unit and reportable segment was as follows:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
Dollars in millions	2021		2020		2021		2020

Government Solutions
Science & Space	$	280	$	257	$	788	$	735
Defense & Intel	387		218		1,133		630
Readiness & Sustainment	632		292		1,276		847
International	256		246		753		736
Total Government Solutions	1,555		1,013		3,950		2,948

Sustainable Technology Solutions	288		366		890		1,353




Total revenue	$	1,843	$	1,379	$	4,840	$	4,301

Three Months Ended Nine Months Ended
September 30, September 30,
Dollars in millions 2020 2019 2020 2019

Government Solutions
     Space $ 256
$ 226
$ 735
$ 642
     Engineering 218
199
630
594
     Logistics 292
323
847
1,081
     International 214
230
648
669
Total Government Solutions 980
978
2,860
2,986

Technology Solutions 71
96
232
281

Energy Solutions 327
351
1,205
919

Non-strategic business 1
0
4
1

Total revenue $ 1,379
$ 1,425
$ 4,301
$ 4,187

Government Solutions revenue earned from key U.S. government customers includes U.S. DoD and intelligence agencies, NASA, and ~~NASA,~~other federal civilian agencies and is reported as Science & Space, ~~Engineering,~~Defense & Intel, and ~~Logistics.~~Readiness & Sustainment. Government Solutions revenue earned from non-U.S. government customers primarily includes the U.K. MoD and the Australian Defence Force and is reported as International.

Revenue by geographic destination was as follows:

Three Months Ended September 30, 2020
Total by Countries/Regions
Dollars in millions
Government Solutions Technology Solutions Energy Solutions Non-strategic Business Total
     United States $ 559
$ 3
$ 149
$ 1
$ 712
     Middle East 179
2
52
0
233
     Europe 165
21
42
0
228
     Australia 43
0
37
0
80
     Canada 1
0
8
0
9
     Africa 22
0
15
0
37
     Asia 0
40
(2 ) 0
38
     Other countries 11
5
26
0
42
Total revenue $ 980
$ 71
$ 327
$ 1
$ 1,379

Three Months Ended September 30, 2019
Total by Countries/Regions
Dollars in millions
Government Solutions Technology Solutions Energy Solutions Non-strategic Business Total
     United States $ 561
$ 19
$ 146
$ 0
$ 726
     Middle East 159
3
61
0
223
     Europe 205
17
50
0
272
     Australia 23
1
50
0
74
     Canada 1
1
12
0
14
     Africa 17
7
22
0
46
     Asia 0
48
2
0
50
     Other countries 12
0
8
0
20
Total revenue $ 978
$ 96
$ 351
$ 0
$ 1,425

Nine Months Ended September 30, 2020
Total by Countries/Regions
Dollars in millions
Government Solutions Technology Solutions Energy Solutions Non-strategic Business Total
     United States $ 1,593
$ 17
$ 579
$ 4
$ 2,193
     Middle East 537
6
171
0
714
     Europe 514
35
125
0
674
     Australia 114
1
133
0
248
     Canada 1
1
39
0
41
     Africa 60
2
50
0
112
     Asia 0
161
0
0
161
     Other countries 41
9
108
0
158
Total revenue $ 2,860
$ 232
$ 1,205
$ 4
$ 4,301

Nine Months Ended September 30, 2019
Total by Countries/Regions
Dollars in millions
Government Solutions Technology Solutions Energy Solutions Non-strategic Business Total
     United States $ 1,635
$ 29
$ 357
$ 1
$ 2,022
     Middle East 598
11
163
0
772
     Europe 586
51
138
0
775
     Australia 67
1
149
0
217
     Canada 1
1
19
0
21
     Africa 57
25
59
0
141
     Asia 0
161
5
0
166
     Other countries 42
2
29
0
73
Total revenue $ 2,986
$ 281
$ 919
$ 1
$ 4,187


	Three Months Ended September 30, 2021

Total by Countries/Regions Dollars in millions	Government Solutions		Sustainable Technology Solutions		Total
United States	$	1,135	$	104	$	1,239
Middle East	72		50		122
Europe	215		57		272
Australia	93		4		97
Canada	1		1		2
Africa	23		23		46
Asia	4		43		47
Other countries	12		6		18
Total revenue	$	1,555	$	288	$	1,843

	Three Months Ended September 30, 2020

Total by Countries/Regions Dollars in millions	Government Solutions		Sustainable Technology Solutions		Total
United States	$	559	$	153	$	712
Middle East	179		54		233
Europe	165		63		228
Australia	75		6		81
Canada	1		9		10
Africa	22		16		38
Asia	—		37		37
Other countries	12		28		40
Total revenue	$	1,013	$	366	$	1,379


	Nine Months Ended September 30, 2021

Total by Countries/Regions Dollars in millions	Government Solutions		Sustainable Technology Solutions		Total
United States	$	2,688	$	326	$	3,014
Middle East	348		148		496
Europe	549		162		711
Australia	260		8		268
Canada	1		2		3
Africa	61		67		128
Asia	5		145		150
Other countries	38		32		70
Total revenue	$	3,950	$	890	$	4,840

	Nine Months Ended September 30, 2020

Total by Countries/Regions Dollars in millions	Government Solutions		Sustainable Technology Solutions		Total
United States	$	1,593	$	600	$	2,193
Middle East	537		177		714
Europe	514		160		674
Australia	201		46		247
Canada	1		40		41
Africa	60		53		113
Asia	—		161		161
Other countries	42		116		158
Total revenue	$	2,948	$	1,353	$	4,301

Many of our contracts contain ~~both~~cost reimbursable, time-and-materials, and 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 September 30, 2020
Dollars in millions Government Solutions Technology Solutions Energy Solutions Non-strategic Business Total
     Fixed Price $ 240
$ 67
$ 65
$ 0
$ 372
     Cost Reimbursable 740
4
262
1
1,007
Total revenue $ 980
$ 71
$ 327
$ 1
$ 1,379

Three Months Ended September 30, 2019
Dollars in millions Government Solutions Technology Solutions Energy Solutions Non-strategic Business Total
     Fixed Price $ 266
$ 93
$ 62
$ —
$ 421
     Cost Reimbursable 712
3
289
0
1,004
Total revenue $ 978
$ 96
$ 351
$ 0
$ 1,425

We have included $73 million and $66 million of revenue from U.S. Government time-and-materials type contracts within the cost reimbursable contract type for the three months ended September 30, 2020 and 2019, respectively.

Nine Months Ended September 30, 2020
Dollars in millions Government Solutions Technology Solutions Energy Solutions Non-strategic Business Total
     Fixed Price $ 724
$ 223
$ 233
$ 0
$ 1,180
     Cost Reimbursable 2,136
9
972
4
3,121
Total revenue $ 2,860
$ 232
$ 1,205
$ 4
$ 4,301

Nine Months Ended September 30, 2019
Dollars in millions Government Solutions Technology Solutions Energy Solutions Non-strategic Business Total
     Fixed Price $ 777
$ 276
$ 147
$ 1
$ 1,201
     Cost Reimbursable 2,209
5
772
0
2,986
Total revenue $ 2,986
$ 281
$ 919
$ 1
$ 4,187

We have included $206 million and $179 million of revenue from U.S. Government time-and-materials type contracts within the cost reimbursable contract type for the nine months ended September 30, 2020 and 2019, respectively.


	Three Months Ended September 30, 2021
Dollars in millions	Government Solutions		Sustainable Technology Solutions		Total
Cost Reimbursable	$	1,063	$	—	$	1,063
Time-and-Materials	228		174		402
Fixed Price	264		114		378
Total revenue	$	1,555	$	288	$	1,843

	Three Months Ended September 30, 2020
Dollars in millions	Government Solutions		Sustainable Technology Solutions		Total
Cost Reimbursable	$	610	$	—	$	610
Time-and-Materials	148		259		407
Fixed Price	255		107		362
Total revenue	$	1,013	$	366	$	1,379


	Nine Months Ended September 30, 2021
Dollars in millions	Government Solutions		Sustainable Technology Solutions		Total
Cost Reimbursable	$	2,480	$	—	$	2,480
Time-and-Materials	666		551		1,217
Fixed Price	804		339		1,143
Total revenue	$	3,950	$	890	$	4,840

	Nine Months Ended September 30, 2020
Dollars in millions	Government Solutions		Sustainable Technology Solutions		Total
Cost Reimbursable	$	1,763	$	—	$	1,763
Time-and-Materials	412		960		1,372
Fixed Price	773		393		1,166
Total revenue	$	2,948	$	1,353	$	4,301

Performance Obligations~~Contract Assets,~~ and Contract Liabilities

We recognized ~~an immaterial amount of~~ revenue from performance obligations satisfied in previous periods of $4 million for the three months ended September 30, ~~2020~~2021 and ~~2019, and $36~~we recognized revenue from performance obligations satisfied in the period of $14 million and ~~$14~~$36 million for the nine months ended September 30, ~~2020~~2021 and ~~2019,~~2020, respectively.

On September 30, ~~2020,~~2021, we had ~~$9.9~~$11.2 billion of transaction price allocated to remaining performance obligations. We expect to recognize approximately ~~32%~~26% of our remaining performance obligations as revenue within one year, 33% in years two through five and ~~35%~~41% thereafter. Revenue associated with our remaining performance obligations to be recognized beyond one year includes performance obligations related to the Aspire Defence and Fasttrax projects, which have contract terms extending through 2041 and 2023, respectively. Remaining performance obligations ~~does~~do not include variable consideration that was determined to be constrained as of September 30, ~~2020.~~2021.

We recognized revenue of $147 million and $294 million for the nine months ended September 30, 2021 and 2020, respectively, which was previously included in the contract liability balance at ~~December 31, 2019.~~the beginning of each period.

Accounts Receivable


	September 30,		December 31,
Dollars in millions	2021		2020
Unbilled	$	791	$	476
Trade & other	454		423
Accounts receivable	$	1,245	$	899

September 30, December 31,
Dollars in millions 2020 2019
Unbilled $ 475
$ 308
Trade & other 501
630
Accounts receivable $ 976
$ 938

Note 4. Acquisitions

Harmonic Limited

On July 1, 2021, we acquired certain assets and assumed certain liabilities of Harmonic Limited ("Harmonic"). The acquired business of Harmonic provides transformation and delivery consultancy project services to UK businesses and is reported within our GS business segment. We accounted for this transaction as an acquisition of a business using the acquisition method under ASC 805, Business Combinations. The agreed-upon purchase price for the acquisition was $19 million, which consisted of cash paid at closing of $17 million, funded from cash on hand, and contingent consideration with an estimated fair value of $2 million that is contingent upon the achievement of certain performance targets over the period from closing through March 31, 2024. We recognized $2 million as an intangible backlog asset, $3 million in net working capital, and goodwill of $14 million arising from the acquisition, which relates primarily to future growth opportunities. As of September 30, 2021, the estimated fair values of net assets acquired were preliminary. The goodwill recognized is not deductible for tax purposes.

Centauri Platform Holdings, LLC

On October 1, 2020, we acquired Centauri Platform Holdings, LLC ("Centauri") for $830 million subject to certain working capital, net debt and other post-closing adjustments, if applicable. As of September 30, 2021, the estimated fair values of net assets acquired were preliminary, with possible updates primarily in our finalization of tax returns with the seller. The Company recognized goodwill of $576 million primarily related to future growth opportunities based on an expanded service offering from intellectual capital and a highly skilled assembled workforce and other expected synergies from the combined operations. Intangible assets of $226 million were recognized and comprised of customer relationships and backlog, which will be amortized over a weighted-average period of 13 years. For U.S. tax purposes, the transaction is treated as a stock deal. As a result, there is no step-up in tax basis and the goodwill and stepped-up acquired intangibles were not deductible for tax purposes.

During the three and nine months ended September 30, 2021, the Company recognized direct, incremental costs related to this acquisition of $2 million and $4 million, respectively, which are included in "Acquisition and integration related costs" on the condensed consolidated statements of operations. The acquired Centauri business contributed $148 million and $461 million of revenues and $19 million and $56 million of gross profit for the three and nine months ended September 30, 2021, respectively.

The following supplemental pro forma, combined financial information has been prepared from historical financial statements that have been adjusted to give effect to the acquisition of Centauri as though it had been acquired on January 1, 2020. Pro forma adjustments were primarily related to the amortization of intangibles, interest on borrowings related to the acquisition, significant nonrecurring transactions and acquisition related transaction costs. Accordingly, this supplemental pro forma financial information is presented for informational purposes only and is not necessarily indicative of what the actual results of operations of the combined company would have been had the acquisition occurred on January 1, 2020, nor is it indicative of future results of operations.


	Three Months Ended		Nine Months Ended
	September 30, 2020		September 30, 2020
	(Unaudited)		(Unaudited)
Revenue	$	1,537	$	4,728
Net loss attributable to KBR	$	58	$	(83)
Diluted earnings per share	$	0.40	$	(0.58)

Scientific Management Associates (Operations) Pty Ltd

On March 6, 2020, we acquired certain assets and assumed certain liabilities related to the government defense business of Scientific Management Associates (Operations) Pty Ltd ("SMA"). The acquired business of SMA provides technical training services to the Royal Australian Navy and is reported within our GS business segment. We accounted for this transaction using the acquisition method under ASC 805, Business Combinations. The agreed-upon purchase price for the acquisition was $13 million, less purchase price adjustments totaling $4 million resulting in net cash consideration paid of $9 million. We recognized goodwill of $12 million arising from the acquisition, which relates primarily to future growth opportunities to expand services provided to the Royal Australian Navy.

During the first quarter of 2021, contingent consideration liability that was recorded at the time of acquisition was settled for $1 million.

~~Centauri Platform Holdings, LLC~~

Frazer-Nash Consultancy Limited

On October ~~1, 2020,~~20, 2021, we acquired ~~Centauri~~Frazer-Nash Consultancy Limited ("Frazer-Nash") in accordance with an agreement ~~and plan of merger, pursuant to which a wholly owned subsidiary of KBR merged~~ with ~~and into Centauri, with Centauri continuing as the surviving company and a wholly owned subsidiary of KBR.~~Babcock International Group PLC. The aggregate consideration paid was approximately ~~$827~~$402 million, ~~in cash,~~ subject to certain working capital ~~net debt~~ and other post-closing ~~adjustments, if applicable.~~adjustments. The Company funded the aggregate consideration paid using ~~cash on-hand,~~ borrowings under ~~our Senior Credit Facility, net proceeds from~~ the ~~private offering~~Revolver of ~~$250~~$294 million ~~aggregate principal amount~~and international cash on hand of our 4.750% Senior Notes due 2028 (the "Senior Notes"), and proceeds from the sale of receivables. See Note 11 "Debt and Other Credit Facilities" for further discussion of our Senior Credit Facility and Senior Notes, and Note 19 "Fair Value of Financial Instruments and Risk Management" for further discussion of our sale of receivables.$108 million.

~~Centauri provides~~Frazer-Nash delivers high-end systems engineering, systems assurance and ~~development solutions for critical, well-funded, national security missions associated with space, intelligence, cyber, and emerging technologies such as directed~~technology to solve complex challenges. They provide a broad range of professional advisory services across the defense, energy and ~~missile defense. The acquisition will expand KBR's military space~~critical infrastructure sectors primarily in the U.K. and intelligence business and builds upon the Company's existing cybersecurity and missile defense solutions. Furthermore, the addition of Centauri advances KBR's strategic transformation of becoming a leading provider of high-end, mission-critical technical services and solutions.Australia. Due to the recent closing of this acquisition, certain financial information related to this acquisition including the fair value of total consideration transferred or estimated to be transferred, is not yet ~~finalized.~~available.

Note 5. Cash and Equivalents

We consider all highly liquid investments with an original maturity of three months or less to be cash equivalents. Cash and equivalents include cash balances held by our wholly owned subsidiaries as well as cash held by joint ventures that we consolidate. Joint venture and the Aspire project cash balances are limited to specific project activities and are not available for other projects, general cash needs or distribution to us without approval of the board of directors of the respective entities. We expect to use this cash for project costs and distributions of earnings.

The components of our cash and equivalents balance are as follows:


	September 30, 2021
Dollars in millions	International (a)		Domestic (b)		Total
Operating cash and equivalents	$	253	$	126	$	379
Short-term investments (c)	2		—		2
Cash and equivalents held in consolidated joint ventures and Aspire Defence subcontracting entities	169		—		169
Total	$	424	$	126	$	550


	December 31, 2020
Dollars in millions	International (a)		Domestic (b)		Total
Operating cash and equivalents	$	228	$	54	$	282
Short-term investments (c)	3		—		3
Cash and equivalents held in consolidated joint ventures and Aspire Defence subcontracting entities	151		—		151
Total	$	382	$	54	$	436

(a)Includes deposits held in non-U.S. operating accounts.

(b)Includes U.S. dollar and foreign currency deposits held in operating accounts that constitute onshore cash for tax purposes but may reside either in the U.S. or in a foreign country.

(c)Includes time deposits, money market funds, and other highly liquid short-term investments.

Note 6. Unapproved Change Orders and Claims Against Clients and ~~Accounts Receivable~~Estimated Recoveries of Claims Against Suppliers and Subcontractors

The amounts of unapproved change orders, and claims against clients and estimated recoveries of claims against suppliers and subcontractors included in determining the profit or loss on contracts are as follows:




Dollars in millions	September 30, 2021		September 30, 2020
Amounts included in project estimates-at-completion at January 1,	$	1,048	$	978
(Decrease) increase in project estimates	(228)		(1)
Approved change orders	(374)		(6)
Foreign currency impact	(19)		5
Amounts included in project estimates-at-completion at September 30,	$	427	$	976
Amounts recognized over time based on progress at September 30,*	$	427	$	976

(*)As of September 30, 2021, the balance above reflects the Settlement Agreement signed in October 2021.

KBR and its joint ventures have been pursuing approval and collection of amounts due under major unapproved client change orders and subcontractor claims. The remaining commercial matters may not be resolved in the near term. Our current estimates for approval and recoveries may differ materially from the amounts we have recorded and could have a material adverse effect on our results of operations, financial position and cash flows.

As of September 30, 2021 and 2020, the majority of unapproved change orders and claims against client and estimated recoveries of claims against suppliers and subcontractors relates to the Ichthys LNG Project discussed below.

Ichthys LNG Project

We have a 30% ownership interest in the JKC joint venture ("JKC"), which was contracted to perform the engineering, procurement, supply, construction and commissioning of onshore LNG facilities for a client in Darwin, Australia (the "Ichthys LNG Project"). The construction and commissioning of the Ichthys LNG Project is complete, and the facility has been handed over to the client and is producing LNG.

Settlement Agreement with the Client

In October 2021, JKC entered into a binding settlement agreement (the “Settlement Agreement”) that resolved the outstanding claims and ~~accounts receivable balance~~disputes between JKC and its client, Ichthys LNG Pty, Ltd (collectively, “the Parties”). As a result of the Settlement Agreement, the Parties agreed to withdraw all claims and terminate all ongoing arbitrations and court proceedings between the Parties, including the following:

•Under the cost-reimbursable scope of the contract, JKC believed amounts paid or payable to the suppliers and subcontractors in settlement of their contract claims related to the cost-reimbursable scope were an adjustment to the contract price. JKC made claims for such contract price adjustments; however, the client disputed some of these contract price adjustments. In order to facilitate the continuation of work, the client agreed to a contractual mechanism (“Funding Deed”) in 2016 providing funding in the form of an interim contract price adjustment to JKC, consented to settlement of subcontractor claims as of that date related to the cost-reimbursable scope, but reserved its right to dispute. In 2017, additional settlements pertaining to suppliers and subcontractors under the cost-reimbursable scope of the contract were presented to the client, and the client consented to payment to JKC but reserved its contractual rights. The Settlement Agreement fully resolved these matters capping JKC's recovery to amounts previously funded by the client.

•JKC was entitled to an amount of profit and overhead which was a fixed percentage of the target reimbursable costs under the reimbursable component of the contract. The Parties were unable to reach agreement on incremental amounts claimed by JKC. The Settlement Agreement fully resolved this matter.

•Claims for incurred costs related to scope increases and other factors for which JKC believed it is entitled to reimbursement under the contract along with claims asserted by the client.

As part of the Settlement Agreement, KBR’s letters of credit were also reduced to $82 million from $164 million.

The Settlement Agreement does not impact pursuit of, or positions related to, JKC’s subcontractor claims associated with the combined cycle power plant described below.

Paint and Insulation Claims Against Insurer and Paint Manufacturer

There has been deterioration of paint and insulation on certain exterior areas of the plant. As part of the Settlement Agreement, the Parties agreed to consult in good faith and to cooperate to seek maximum recovery from the insurance policies and paint manufacturer for the paint and insulation matters. The Parties agreed to collectively pursue claims against the paint manufacturer, and JKC has assigned claims under the insurance policy regarding the paint and insulation matters to the client.

Under the Settlement Agreement, the parties have agreed that if, at the date of final resolution of the above proceedings and claims with respect to the paint and insulation matters, the recovered amount from the paint manufacturer and insurance claim is less than the stipulated ceiling amount in the Settlement Agreement, JKC will pay the client the difference between the stipulated ceiling amount and the recovered amount. JKC has provided for and continues to maintain its contingent liability.

Combined Cycle Power Plant

Pursuant to JKC's fixed-price scope of its contract with its client, JKC awarded a fixed-price EPC contract to a subcontractor for the design, construction and commissioning of the Combined Cycle Power Plant (the "Power Plant"). The subcontractor was a consortium consisting of General Electric and GE Electrical International Inc. and a joint venture between UGL Infrastructure Pty Limited and CH2M Hill (collectively, the "Consortium"). On January 25, 2017, JKC received a Notice of Termination from the Consortium, and the Consortium ceased work on the Power Plant and abandoned the construction site. JKC believes the Consortium materially breached its subcontract and repudiated its obligation to complete the Power Plant, plus undertook actions making it more difficult and more costly for the works to be completed by others after the Consortium abandoned the site. Subsequently, the Consortium filed a request for arbitration with the ICC asserting that JKC repudiated the contract. The Consortium also sought an order that the Consortium validly terminated the subcontract. JKC has responded to this request, denying JKC committed any breach of its subcontract with the Consortium and restated its claim that the Consortium breached and repudiated its subcontract with JKC and is liable to JKC for all costs to complete the Power Plant.

In March 2017, JKC prevailed in a legal action against the Consortium requiring the return of materials, drawings and tools following their unauthorized removal from the site by the Consortium. After taking over the work, JKC discovered incomplete and defective engineering designs, defective workmanship on the site, missing, underreported and defective materials and the improper termination of key vendors/suppliers. JKC's investigations also indicate that progress of the work claimed by the Consortium was over-reported. JKC has completed the Consortium's work and the incurred costs significantly exceed the awarded fixed-price subcontract value. JKC's cost to complete the Power Plant includes re-design efforts, additional materials and significant re-work.

JKC is pursuing recourse against the Consortium to recover all of the costs to complete the Power Plant, plus the additional interest, and/or general damages. Each of the Consortium partners has joint and several liability with respect to all obligations under the subcontract.

Costs incurred to complete the Power Plant that have been determined to be probable of recovery from the Consortium under U.S. GAAP have been included as a reduction of cost in our estimate of profit at completion. The estimated recoveries exclude interest, liquidated damages and other related costs which JKC intends to pursue recovery from the Consortium. Amounts expected to be ~~collected within~~recovered from the ~~next 12 months was $31 million and $59 million as~~Consortium are included in the table above at the beginning of this Note 6.

As of September 30, ~~2020~~2021, JKC's claims against the Consortium were approximately $1.7 billion (net of subcontractor bonds and ~~December 31, 2019, respectively. Claims~~remaining original lump sum subcontract value) for recovery of JKC's costs. The opening hearing of the power plant arbitration was held in April 2021. The final hearing is expected to be held in April and ~~accounts receivable primarily reflect claims filed with~~May 2022. The previous hearing dates were vacated due to the ~~U.S. government related~~COVID-19 delay and the current dates may continue to ~~payments~~be impacted by the COVID-19 pandemic.

JKC asked the Australian courts to require the parent company guarantors of the Consortium to issue payment to JKC in advance of the completion of the arbitration proceedings. The court concluded that the parent companies are responsible for Consortium’s liability resulting from the arbitration outcome, but they are not ~~yet received~~required to pay in advance of the arbitration. JKC continues to pursue the resolution of this matter and will seek collection from the Consortium and their parent guarantors who are all jointly and severally liable for any damages owed to JKC.

To the extent JKC is unsuccessful in prevailing in the Arbitration or the Consortium members are unable to satisfy their financial obligations in the event of a decision favorable to JKC, we would be responsible for our pro-rata portion of unrecovered costs ~~incurred under various U.S. government cost reimbursable contracts within our GS business segment. These claims relate to disputed costs or contracts where our costs~~from the Consortium. This could have ~~exceeded the U.S. government's funded value~~a material adverse impact on the ~~task order. Included in~~profit at completion of the ~~amount is $1 million~~overall contract and ~~$28 million as~~thus on our consolidated statements of ~~September 30, 2020,~~operations and ~~December 31, 2019, respectively. The remaining assets~~financial position.

See Note 8 "Equity Method Investments and ~~liabilities associated with the previously issued Form 1s issued by the U.S. government questioning or objecting costs billed to them are immaterial~~Variable Interest Entities" to our condensed consolidated ~~balance sheet~~financial statements for further discussion regarding our equity method investment in JKC.

Changes in all other Project-related Estimates

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,

weather, and ongoing resolution of legacy projects and legal matters. We generally 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.

During the nine months ended September 30, ~~2020~~2021 within our STS business segment, we recognized a non-cash charge to equity in earnings of unconsolidated affiliates of $193 million as a result of changes in estimates on the Ichthys LNG project during the second quarter of 2021 and an ~~unfavorable FKTC containers claim ruling. See Note 13 "U.S. Government Matters"~~additional $10 million charge for ~~additional information. The amount also includes $30~~final warranty items during the third quarter of 2021. Additionally, during the nine months ended September 30, 2021, we recognized a favorable change of $37 million ~~and $31~~in gross profit associated with the settlement of a legacy EPC project matter, partially offset by $20 million asrelated to the resolution of other legacy matters.

During the nine months ended September 30, 2020, we recognized a favorable change of $16 million in estimated revenues and gross profit associated with variable consideration resulting from resolution of a contingency of a legacy EPC project during the first quarter of 2020.

Note 7. Restructuring Charges

During 2020, our management initiated and approved a broad restructuring plan in response to the dislocation of the global energy market resulting from the decline in oil prices and the COVID-19 pandemic. As part of the plan, management approved strategic business restructuring activities and decided to discontinue pursuing certain projects, principally lump-sum EPC and commoditized construction services. The restructuring plan was designed to refine our market focus, optimize costs, and improve operational efficiencies. The restructuring charges were substantially completed in the year ended December 31, 2019, respectively, related to contracts where our reimbursable costs have exceeded the U.S. government's funded values on the underlying task orders or task orders where the U.S. government has not authorized us to bill. 2020.

We ~~believe the remaining disputed costs will be resolved in our favor, at which time the U.S. government will be required to obligate funds from appropriations~~recorded restructuring charges and asset impairments of $2 million for the ~~year~~nine months ended September 30, 2021. For the nine months ended September 30, 2020, we recorded restructuring charges and asset impairments as follows:


Dollars in millions	Severance		Lease Abandonment		Other		Total Restructuring Charges		Asset Impairments		Total Restructuring Charges & Asset Impairments
Government Solutions	$	1	$	—	$	—	$	1	$	2	$	3
Sustainable Technology Solutions	33		3		—		36		50		86
Other	1		21		19		41		46		87
Total	$	35	$	24	$	19	$	78	$	98	$	176

The restructuring liability at September 30, 2021, was $71 million, of which $20 million is included in ~~which resolution occurs.~~"Other current liabilities" and $51 million is included in "Other liabilities." A reconciliation of the beginning and ending restructuring liability balances is provided in the following table.


Dollars in millions	Severance		Lease Abandonment		Other		Total
Balance at January 1, 2021	$	15	$	52	$	24	$	91

Lease restructuring charges related to operating lease liabilities	—		2		—		2
Cash payments / settlements during the period	(8)		(5)		(4)		(17)
Currency translation and other adjustments	(2)		—		(3)		(5)
Balance at September 30, 2021	$	5	$	49	$	17	$	71

~~Note 6. Unapproved Change Orders, and Claims, Against Clients and Estimated Recoveries of Claims Against Suppliers and Subcontractors~~

Dollars in millions 2020 2019
Amounts included in project estimates-at-completion at January 1, $ 978
$ 973
(Decrease) increase in project estimates (1 ) 16
Approved change orders (6 ) (7 )
Foreign currency effect 5
(37 )
Amounts included in project estimates-at-completion at September 30, $ 976
$ 945
Amounts recognized over time based on progress at September 30, $ 976
$ 938

As of September 30, 2020 and 2019, the predominant component of the change orders, customer claims and estimated recoveries of claims against suppliers and subcontractors above relates to our 30% proportionate share of unapproved change orders and claims associated with the Ichthys LNG Project discussed below.

KBR intends to vigorously pursue approval and collection of amounts due under all unapproved change orders and claims, against the clients and recoveries from subcontractors. Further, there are additional claims that KBR believes it is entitled to recover from its client and from subcontractors which have been excluded from estimated revenues and profits at completion as appropriate under U.S. GAAP. These commercial matters may not be resolved in the near term. Our current estimates for the

above unapproved change orders, client claims and estimated recoveries of claims against suppliers and subcontractors may prove inaccurate and any material change could have a material adverse effect on our results of operations, financial position and cash flows.

~~Ichthys LNG Project~~

~~Project Status~~

We have a 30% ownership interest in the JKC joint venture, which has contracted to perform the engineering, procurement, supply, construction and commissioning of onshore LNG facilities for a client in Darwin, Australia (the "Ichthys LNG Project"). The contract between JKC and its client is a hybrid contract containing both cost-reimbursable and fixed-price (including unit-rate) scopes.

The construction and commissioning of the Ichthys LNG Project is complete and all performance tests have been successfully performed. The entire facility, including two LNG liquefaction trains, cryogenic tanks and the combined cycle power generation facility, has been handed over to the client and is producing LNG. JKC is in the process of completing administrative close-out activities and continues to progress the various legal and commercial disputes with the client, suppliers and other third parties as further described below.

~~Unapproved Change Orders and Claims Against Client~~

Under the cost-reimbursable scope of the contract, JKC has entered into commercial contracts with multiple suppliers and subcontractors to execute various scopes of work on the project. Certain of these suppliers and subcontractors have made contract claims against JKC for recovery of costs and extensions of time to progress the works under the scope of their respective contracts due to a variety of issues related to alleged changes to the scope of work, delays and lower than planned subcontractor productivity. In addition, JKC has incurred costs related to scope increases and other factors and has made claims to its client for matters for which JKC believes it is entitled to reimbursement under the contract.

JKC believes any amounts paid or payable to the suppliers and subcontractors in settlement of their contract claims related to the cost-reimbursable scope are an adjustment to the contract price, and accordingly JKC has made claims for contract price adjustments under the cost-reimbursable scope of the contract between JKC and its client. However, the client disputed some of these contract price adjustments and subsequently withheld certain payments. In order to facilitate the continuation of work under the contract while JKC worked to resolve this dispute, the client agreed to a contractual mechanism (“Funding Deed”) in 2016 providing funding in the form of an interim contract price adjustment to JKC and consented to settlement of subcontractor claims as of that date related to the cost-reimbursable scope. While the client has reserved its contractual rights under this funding mechanism, settlement funds (representing the interim contract price adjustment) have been paid by the client. JKC in turn settled these subcontractor claims which have been funded through the Funding Deed by the client.

If the issues raised in the Funding Deed arbitration remain unresolved by December 31, 2020, JKC could be required to refund sums funded by the client under the terms of the Funding Deed. The legal issues were presented to the arbitration tribunal in September 2020. JKC believes the subcontractor settlement sums were properly incurred and consented to by the client. JKC remains confident the arbitration tribunal will either rule in favor of JKC on the merits or will stay the client’s call on the Funding Deed at the end of December 2020. We, along with our joint venture partners, are jointly and severally liable to the client for any amounts required to be refunded. The client has reserved their contractual rights on certain amounts previously funded to JKC and may seek recoveries of those amounts, including calling the performance and warranty letters of credit.

Our proportionate share of the total amount of the contract price adjustments under the Funding Deed included in the unapproved change orders and claims related to JKC discussed above was $159 million and $158 million as of September 30, 2020 and December 31, 2019, respectively.

In September and October 2017, additional settlements pertaining to suppliers and subcontractors under the cost-reimbursable scope of the contract were presented to the client. The client consented to these settlements and paid for them but reserved its contractual rights. In reliance, JKC in turn settled these claims with the associated suppliers and subcontractors. The formal contract price adjustments for these settlements remained pending at September 30, 2020. However, unlike amounts funded under the Funding Deed, there is no requirement to refund these amounts to the client by a certain date.

In October 2018, JKC received a favorable ruling from the arbitration tribunal related to the Funding Deeds. The ruling determined a contract interpretation in JKC's favor, to the effect that delay and disruption costs payable to subcontractors under the cost-reimbursable scope of the EPC contract are for the client's account and are reimbursable to JKC. JKC contends this ruling

resolves the reimbursability of the subcontractor settlement sums under the Funding Deed and additional settlements made in September and October 2017. Pursuant to this decision, JKC has undertaken steps for a formal contract adjustment to the cost reimbursable scope of the contract for these settlement claims which are included in the recognized unapproved change orders as of September 30, 2020. Our view is that the arbitration ruling resolves our obligations under the Funding Deeds and settlements with reimbursable subcontractors. However, the client does not agree with the impact of the arbitration award and, accordingly, we have initiated the Funding Deed proceeding referenced above to obtain further determination from the arbitration tribunal.

There has been deterioration of paint and insulation on certain exterior areas of the plant. The client previously requested and funded paint remediation for a portion of the facilities. JKC’s profit estimate at completion includes a portion of revenues and costs for these remediation activities. Revenue for the client-funded amounts are included in the table above. In the first quarter of 2019, the client demanded repayment of the amounts previously funded to JKC. JKC is disputing the client's demand. The client has also requested a proposal to remediate any remaining non-conforming paint and insulation, but JKC and its client have not resolved the nature and extent of the non-conformances, the method and degree of remediation that was and is required, or who is responsible. We believe the remaining remediation costs will be material given the plant is now operating and there will be several operating constraints on any such works.

In addition, JKC has started proceedings against the paint manufacturer and initiated claims against the subcontractors. JKC has also made demands on insurance policies in respect of these matters. JKC believes that project insurance should significantly limit any exposure it has on painting and insulation damages. Proceedings and claims against the paint manufacturer, certain subcontractors and insurance policies are ongoing. As the principal insured, it is incumbent upon the client to pursue the insurance claims with diligence. JKC is urging the client to meet its contractual obligations.

~~Combined Cycle Power Plant~~

In March 2017, JKC prevailed in a legal action against the Consortium requiring the return of materials, drawings and tools following their unauthorized removal from the site by the Consortium. After taking over the work, JKC discovered incomplete and defective engineering designs, defective workmanship on the site, missing, underreported and defective materials and the improper termination of key vendors/suppliers. JKC's investigations also indicate that progress of the work claimed by the Consortium was over-reported. JKC has evaluated the cost to complete the Consortium's work, which significantly exceeds the awarded fixed-price subcontract value. JKC's cost to complete the Power Plant included re-design efforts, additional materials and significant re-work. These costs represent estimated recoveries of claims against the Consortium and have been included in JKC's estimate to complete the Consortium's remaining obligations.

JKC is pursuing recourse against the Consortium to recover all of the costs to complete the Power Plant, plus the additional interest, and/or general damages by all means inclusive of calling bank guarantees provided by the Consortium partners. In April 2018, JKC prevailed in a legal action to call bank guarantees (bonds) and received funds totaling $52 million. Each of the Consortium partners has joint and several liability with respect to all obligations under the subcontract. JKC intends to pursue recovery of all additional amounts due from the Consortium via various legal remedies available to JKC.

Costs incurred to complete the Power Plant that have been determined to be probable of recovery from the Consortium under U.S. GAAP have been included as a reduction of cost in our estimate of profit at completion. The estimated recoveries exclude interest, liquidated damages and other related costs which JKC intends to pursue recovery from the Consortium. Amounts expected to be recovered from the Consortium are included in the table at the beginning of this Note 6.

As of September 30, 2020, JKC's claims against the Consortium were approximately $1.8 billion (net of bonds and remaining lump sum contract value) for recovery of JKC's costs. Hearings on the power plant arbitration are scheduled for April 2021 and

~~August 2021 (the "Arbitration"). The previous hearing dates were vacated due to the COVID-19 outbreak. The current dates may continue to be impacted by the COVID-19 pandemic.~~

JKC asked the Australian courts to require the parent company guarantors of the Consortium to issue payment to JKC in advance of the completion of the arbitration proceedings. The court concluded that the parent companies are responsible for Consortium’s liability resulting from the arbitration outcome, but they are not required to pay in advance of the arbitration. JKC continues to pursue the resolution of this matter and will seek collection from the Consortium and their parent guarantors who are all jointly and severally liable for any damages owed to JKC.

~~Other Disputed Matters~~

JKC is entitled to an amount of profit and overhead (“TRC Fee”) which is a fixed percentage of the target reimbursable costs ("TRC") under the reimbursable component of the contract which was to be agreed by JKC and its client. At the time of the contract, JKC and its client agreed to postpone the fixing of the TRC until after a specific milestone in the project had been achieved. Although the milestone was achieved, JKC and its client have been unable to reach agreement on the TRC. This matter was taken to arbitration in 2017. A decision was issued in December 2017 concluding that the TRC should be determined based on project estimate information available at April 2014. JKC has included an estimate for the TRC Fee in its determination of profit at completion at September 30, 2020, based on the contract provisions and the decision from the December 2017 arbitration. JKC has submitted the revised estimate of the TRC Fee to the client. The parties have not agreed to the revised estimate, and JKC has started an additional arbitration on this dispute.

In late 2019, the International Chamber of Commerce consolidated the Funding Deed arbitration, TRC arbitration and certain other claims asserted by JKC along with claims asserted by its client. A hearing for the Funding Deed arbitration took place in September 2020 and a decision is pending. Pursuant to a recent procedural order, the client is expected to file a detailed statement of its claim in May 2021. The arbitration panel has been constituted but a hearing date has not been scheduled.

~~Ichthys Project Funding~~

As a result of the ongoing disputes with the client and pursuit of recoveries against the Consortium through the Arbitration, we have funded our proportionate share of the working capital requirements of JKC to complete the project. We made investment contributions to JKC of approximately $484 million on ~~an inception-to-date basis to fund project execution activities. We continue to fund our proportionate share of ongoing legal and commercial close out costs.~~

If we experience unfavorable outcomes associated with the various legal and commercial disputes, our total investment contributions could increase which could have a material adverse effect on our financial position and cash flows. Further, if either of our joint venture partners in JKC do not fulfill their responsibilities under the JKC joint venture agreement or subcontract, we could be exposed to additional funding requirements as a result of the nature of the JKC joint venture agreement.

As of September 30, 2020, we had $164 million in letters of credit outstanding in support of performance and warranty guarantees provided to the client. The performance and warranty letters of credit have been extended to February 2021 to allow for the various disputes to be resolved.

All of the Ichthys LNG project commercial matters are complex and involve multiple interests, including the client, joint venture partners, suppliers and other third parties. Ultimate resolution may not occur in the near term and could be impacted by the COVID-19 pandemic. Our current estimates for resolving these matters may prove inaccurate and, if so, any material change could have a material adverse effect on our results of operations, financial position and cash flows.

~~See Note 9 "Equity Method Investments and Variable Interest Entities" to our condensed consolidated financial statements for further discussion regarding our equity method investment in JKC.~~

~~Note 7. Restructuring Charges and Asset Impairments~~

~~Restructuring Charges~~

During the first quarter of 2020, our management initiated and approved a restructuring plan in response to the dislocation of the global energy market resulting from the recent decline in oil prices and the COVID-19 pandemic. The restructuring plan is designed to refine our market focus, optimize costs and improve operational efficiencies. The restructuring activities and related costs approved under the plan primarily relate to rationalization of real estate and overhead across various geographies in our ES and Other segments. As part of the restructuring plan, total restructuring charges of approximately $47 million were recognized in "Restructuring charges and asset impairments" in our condensed consolidated statements of operations for the three months ended March 31, 2020, of which $23 million relates to our ES business segment and $24 million relates to our Other segment representing corporate and other overhead expenses. Total restructuring charges include severance of approximately $24 million and real estate lease abandonments of approximately $23 million associated with office facilities located in the U.S. and U.K. These lease-related restructuring charges represent accrued estimated non-lease components and other operating expenses associated with the fully abandoned office space. In estimating the fair value of the lease-related restructuring charges, we utilized a discounted cash flow model with Level 3 inputs including discount rates based on our incremental borrowing rate, management assumptions regarding future estimated operating costs, office space utilization, and inflation over the remaining lease terms.

~~During the second quarter of 2020, our management approved additional restructuring activities and decided to~~ ~~discontinue pursuing certain projects~~, principally lump-sum EPC and commoditized construction services. These restructuring activities primarily related to further rationalization of real estate and overhead in our ES and Other segments. We recognized restructuring charges of approximately $32 million in "Restructuring charges and asset impairments" in our condensed consolidated statements of operations for the three months ended June 30, 2020 related in our ES business segment. Total restructuring charges in the second quarter of 2020 primarily include severance of approximately $12 million and charges associated with certain long-term engineering software agreements of approximately $19 million. The software-related restructuring charge represents the fair value of the future costs to be incurred under these agreements without economic benefit to our operations. Our estimate of the fair value of the software restructuring charge was based on a discounted cash flow model with Level 3 inputs including discount rates based on our incremental borrowing rate, management assumptions regarding the committed costs for the excess software capacity and the remaining term of the agreements.

We expect the restructuring activities will be substantially completed in 2020. Additional restructuring activities could be identified and approved as part of the plan. Software and lease related restructuring obligations will extinguish in 2023 and 2030, respectively.

The restructuring liability at September 30, 2020 was $64 million, of which $32 million is included in "Other current liabilities" and $32 million is included in "Other liabilities." A reconciliation of the beginning and ending restructuring liability balances is provided in the following table.

Dollars in millions Severance Lease Abandonment Other Total
Balance as of January 1, 2020 $ 0
$ 0
$ 0
$ 0
Restructuring charges accrued during the period 36
23
19
78
Cash payments / settlements during the period (9 ) (1 ) (1 ) (11 )
Currency translation and other adjustments (3 ) 0
0
(3 )
Balance as of September 30, 2020 $ 24
—
$ 22
$ 18
$ 64

~~Asset Impairments~~

~~As a result of the~~ significant adverse economic and market conditions associated with the dislocation of the global energy market and COVID-19 pandemic, the significant drop in the price of our common shares, and the resulting restructuring plans initiated during the first quarter of 2020, we performed interim impairment tests of our long-lived assets including goodwill, intangible assets and equity investments as well as leased right-of-use and related assets. During the second quarter of 2020, we continued to evaluate our long-lived and other assets for impairment as a result of the ongoing economic and market volatility as well as management's decision to discontinue pursuing certain projects within our ES business segment. See Note 8 ~~"Goodwill and Goodwill Impairment" for further discussion of goodwill impairment recognized in the first and second quarters of 2020.~~

We determined the fair value of our long-lived assets based primarily on discounted cash flow analyses, and in the case of our equity investments, we used a blended income-based and market-based approach. These determinations included significant

management judgment, including short-term and long-term forecasts of operating performance, discount rates based on our weighted average cost of capital, revenue growth rates, profitability margins, capital expenditures, the timing of future cash flows based on an eventual market recovery, and in the case of long-lived assets, the remaining useful life and service potential of the asset. These impairment assessments incorporate inherent uncertainties, including projected commodity pricing, supply and demand for our services and future market conditions, which are difficult to predict in volatile economic environments and could result in impairment charges in future periods if actual results materially differ from the estimated assumptions utilized in our forecasts.

~~Leased office facilities and related assets.~~ Management's restructuring plan included the rationalization of the certain leased real estate primarily in the U.S. and U.K. As a result, we began evaluating excess office space apart from office space we will continue to utilize. We made decisions to market certain excess office space for sublease and the remaining excess office space was abandoned along with any related leasehold improvements, furniture and fixtures. The abandoned leased facilities and related assets will not provide any substantial future economic benefit and were impaired accordingly. We recognized lease right-of-use asset impairments of approximately $28 million and impairments of leasehold improvements, furniture and fixtures of approximately $7 million which are included in "Restructuring charges and asset impairments" in our condensed consolidated statements of operations for the three months ended March 31, 2020. We recognized additional lease right-of-use asset impairments of approximately $18 million and impairments of leasehold improvements, furniture and fixtures of approximately $3 million during the three months ended June 30, 2020 as a result of decisions to abandon excess office space. In determining these impairments, we utilized a discounted cash flow model with Level 3 inputs including discount rates based on our incremental borrowing rate, management assumptions regarding future cash flows over the remaining estimated useful life of the asset, office space utilization and sublease assumptions.

~~Trade name intangibles.~~ During the three months ended March 31, 2020, we recognized an impairment loss on indefinite-lived intangible assets of approximately $11 million associated with certain trade names acquired through previous business combinations. In connection with the energy market decline, management assessed the fair value of trade names utilized by certain operations within the ES business segment, concluded that they were substantially impaired and decided to cease use of those trade names. The trade names will provide no benefit to future periods and the carrying values of these intangibles were impaired accordingly. In determination of this impairment, we estimated fair value using a relief-from-royalty income approach which utilized Level 3 fair value inputs including management estimates of contract performance, hypothetical royalty rates and our weighted average cost of capital. The loss was included in "Restructuring charges and asset impairments" in our condensed consolidated statement of operations for the three months ended March 31, 2020.

~~Equity method investments.~~ We evaluated significant investments and determined that two equity method investments were impaired as of March 31, 2020, comprised of 15% interest in a project joint venture located in the Middle East and a 50% interest in a joint venture in Latin America and that those impairments were other than temporary. We recognized total impairment losses of approximately $18 million on these investments included in "Restructuring charges and asset impairments" for the three months ended March 31, 2020, of which $13 million related to the Middle East joint venture project in our ES business segment. The fair value of this investment was determined using a blended income-based and market-based approach utilizing Level 2 fair value inputs including significant management assumptions such as projected commodity prices, operating margins, cash flows and weighted average cost of capital. See Note 19 “Financial Instruments and Risk Management” for definition of three levels of inputs used in measuring fair value. We recognized an impairment loss of $5 million in the first quarter of 2020 on the joint venture in Latin America that is reported in our Non-strategic Business segment. The impairment loss includes the write-off of a shareholder loan to the joint venture and funding of costs to dispose of the underlying joint venture assets. During the second quarter of 2020, we recognized additional impairments totaling approximately $6 million related to several equity method investments associated with management's decision to ~~discontinue pursuing certain projects~~ ~~within our ES business segment.~~

The restructuring charges and impairment assessments based on fair value determinations described above incorporate inherent uncertainties, some of which are difficult to predict in volatile economic environments and could result in impairment charges in future periods if actual results materially differ from the estimated assumptions utilized in our forecasts.

Note 8. ~~Goodwill and Goodwill Impairment~~

In connection with our business reorganization and restructuring activities during the first quarter of 2020, we changed our internal management reporting structure, which resulted in changes to the underlying reporting units within our ES business segment. Additionally, given the significant adverse economic and market conditions associated with the dislocation of the global energy market and COVID-19 pandemic as well as the significant decline in the price of our common shares during the first quarter of 2020, we performed an interim impairment test of goodwill resulting in goodwill impairmen~~t of $62 million for~~ ~~the three months ended March 31, 2020. The goodwill impairment was associated with a reporting unit in our ES business segment.~~

As a result of the ongoing economic and market volatility as well as management's decision to discontinue pursuing certain projects within our ES business segment during the second quarter of 2020, we performed an interim impairment test of goodwill resulting in goodwill impairment of $37 million for the three months ended June 30, 2020. The goodwill impairment was associated with a reporting unit within our ES business segment. One reporting unit within our ES business segment had a negative carrying amount of net assets as of June 30, 2020 and goodwill of approximately $19 million.

For reporting units in our ES business segment, fair value was determined using an income approach utilizing discounted cash flow models with estimated cash flows based on internal forecasts of revenues and expenses over a specified period plus a terminal value. For all other reporting units, fair values were determined using a blended approach including market earnings multiples and discounted cash flow models. Under the market approach, we estimated fair value by applying earnings and revenue market multiples to a reporting unit’s operating performance for the trailing twelve-month period. The income approach estimates fair value by discounting each reporting unit’s estimated future cash flows using a weighted-average cost of capital that reflects current market conditions and the risk profile of the reporting unit. To arrive at our future cash flows, we used estimates of economic and market assumptions, including growth rates in revenues, costs, estimates of future expected changes in operating margins, tax rates and cash expenditures. Other significant estimates and assumptions include terminal value growth rates, future estimates of capital expenditures and changes in future working capital requirements.

~~The table below summarizes changes in the carrying amount of goodwill by business segment.~~

Dollars in millions Government Solutions Technology Solutions Energy Solutions Total
Balance as of January 1, 2020 $ 978
$ 50
$ 237
$ 1,265
Goodwill from acquisitions during the period 12
0
0
12
Impairment loss 0
0
(99 ) (99 )
Foreign currency translation 0
1
0
1
Balance as of September 30, 2020 $ 990
$ 51
$ 138
$ 1,179

~~Note 9.~~ Equity Method Investments and Variable Interest Entities

We conduct some of our operations through joint ventures, which operate through partnerships, corporations and undivided interests and other business forms and are principally accounted for using the equity method of accounting. Additionally, the majority of our joint ventures are VIEs.

The following table presents a rollforward of our equity in and advances to unconsolidated affiliates:

Nine Months Ended September 30, Year Ended December 31,
2020 2019
Dollars in millions
Beginning balance at January 1, $ 846
$ 724
Cumulative effect of change in accounting policy (a) —
25
Adjusted balance at January 1, 846
749
Equity in earnings of unconsolidated affiliates 30
35
Distributions of earnings of unconsolidated affiliates (35 ) (69 )
Advances to (payments from) unconsolidated affiliates, net (15 ) (10 )
Investments (b) 22
146
Impairment of equity method investments (c) (22 ) 0
Foreign currency translation adjustments 1
(7 )
Other (2 ) 2
Ending balance $ 825
$ 846



	Nine Months Ended September 30,		Year Ended December 31,
	2021		2020
Dollars in millions
Beginning balance at January 1,	$	881	$	846


Equity in earnings (losses) of unconsolidated affiliates	(175)		30
Distributions of earnings of unconsolidated affiliates	(37)		(38)
Advances to (payments from) unconsolidated affiliates, net	(18)		(15)
Investments (a)	13		26
Impairment of equity method investments (b)	—		(19)
Sale of equity method investment (c)	(39)		—
Foreign currency translation adjustments	(9)		50
Other (d)	(26)		1



Ending balance	$	590	$	881


~~(a)~~	At January 1, 2019, we recognized a cumulative effect adjustment of $25 million as a result of the adoption of ASC 606 by our unconsolidated project joint ventures (excluding the Aspire Defence Limited joint venture which adopted on January 1, 2018). See Note 1 "Basis of Presentation" for further discussion.


~~(b)~~	~~Investments include $20 million and $141 million in funding contributions to JKC for the nine months ended September 30, 2020 and the year ended December 31, 2019, respectively.~~


~~(c)~~	During the nine months ended September 30, 2020, we recognized an impairment of $13 million associated with our investment in a joint venture project located in the Middle East, a $3 million impairment related to a joint venture in Latin America, and a $6 million impairment related to other equity method investments. See Note 7 "Restructuring Charges and Asset Impairments" for further discussion.

(a)Investments include $10 million and $24 million in funding contributions to JKC for the nine months ended September 30, 2021, and the year ended December 31, 2020, respectively.

(b)During the year ended December 31, 2020, we recognized an impairment of $13 million associated with our investment in a joint venture project located in the Middle East, and a $6 million impairment related to other equity method investments.

(c)During the quarter ended September 30, 2021, we sold our investment interest in the Middle East Petroleum Corporation (EBIC Ammonia project). The carrying value of our investment was $39 million. We received $43 million in cash proceeds and recorded a gain of $4 million, of which $1 million was attributable to our non-controlling interests. Subsequent to the receipt of the cash proceeds, we distributed the non-controlling interests' proportionate share of $15 million.

(d)During the nine months ended September 30, 2021, Other included unearned income related to the Ichthys LNG project, which was previously recorded outside of the equity method investment balance and will not be realized as a result of the settlement proceedings. See Note 6 "Unapproved Change Orders and Claims Against Clients and Estimated Recoveries of Claims Against Suppliers and Subcontractors" for additional information.

Unconsolidated Variable Interest Entities

For the VIEs in which we participate, our maximum exposure to loss consists of our equity investment in the VIE, any amounts owed to us for services we may have provided to the VIE and any amounts that we may be contractually or constructively obligated to fund in the future reduced by any unearned revenues on the project. Our maximum exposure to loss may also include our obligation to fund our proportionate share of any future losses incurred. ~~As of September 30, 2020, we do not project any material losses related to these joint venture projects.~~ Where our performance and financial obligations are joint and several to the client with our joint venture partners, we may be further exposed to losses above our ownership interest in the joint venture.

The following summarizes the total assets and total liabilities ~~as reflected in our condensed consolidated balance sheets~~ related to our unconsolidated VIEs in which we have a significant variable interest but are not the primary beneficiary.


	September 30, 2020					September 30, 2021
Dollars in millions	Total Assets		Total Liabilities		Dollars in millions	Total Assets		Total Liabilities
Affinity joint venture (U.K. MFTS project)	$	10	$	11	Affinity joint venture (U.K. MFTS project)	$	9	$	8
Aspire Defence Limited	$	59	$	5	Aspire Defence Limited	$	61	$	5
JKC joint venture (Ichthys LNG project)	$	561	$	39	JKC joint venture (Ichthys LNG project)	$	340	$	3
U.K. Roads project joint ventures	$	57	$	0	U.K. Roads project joint ventures	$	54	$	—
Middle East Petroleum Corporation (EBIC ammonia project)	$	31	$	1	Middle East Petroleum Corporation (EBIC ammonia project)	$	—	$	—


	December 31, 2020
Dollars in millions	Total Assets		Total Liabilities
Affinity joint venture (U.K. MFTS project)	$	11	$	9
Aspire Defence Limited	$	68	$	5
JKC joint venture (Ichthys LNG project)	$	606	$	44
U.K. Roads project joint ventures	$	59	$	—
Middle East Petroleum Corporation (EBIC ammonia project)	$	31	$	1

December 31, 2019
Dollars in millions Total Assets Total Liabilities
Affinity joint venture (U.K. MFTS project) $ 14
$ 10
Aspire Defence Limited $ 67
$ 5
JKC joint venture (Ichthys LNG project) $ 546
$ 29
U.K. Roads project joint ventures $ 40
$ 21
Middle East Petroleum Corporation (EBIC ammonia project) $ 47
$ 1

Related Party Transactions

We often provide engineering, construction management, and other subcontractor services to our unconsolidated joint ventures and our revenues include amounts related to these services. For the nine months ended September 30, ~~2020~~2021 and ~~2019,~~2020, our revenues included ~~$379~~$281 million and ~~$525~~$379 million, respectively, related to the services we provided primarily to the Aspire Defence Limited joint venture within our GS business segment and two other joint ventures within our ESSTS business segment.

Amounts included in our condensed consolidated balance sheets related to services we provided to our unconsolidated joint ventures as of September 30, ~~2020,~~2021, and December 31, ~~2019~~2020 are as follows:

September 30, December 31,
Dollars in millions 2020 2019
Accounts receivable, net of allowance for credit losses $ 78
$ 74
Contract assets (a) $ 1
$ 2
Contract liabilities (a) $ 48
$ 33


	September 30,		December 31,
Dollars in millions	2021		2020
Accounts receivable, net of allowance for credit losses	$	45	$	83
Contract assets (a)	$	2	$	2
Contract liabilities (a)	$	8	$	53

(a)Reflects contract assets and contract liabilities related to joint ventures within our GS and STS business segments.


~~(a)~~	~~Reflects contract assets and contract liabilities related to joint ventures within our GS and ES business segments.~~

Consolidated Variable Interest Entities

We consolidate VIEs if we determine we are the primary beneficiary of the project entity because we control the activities that most significantly impact the economic performance of the entity. The following is a summary of the significant VIEs where we are the primary beneficiary:


Dollars in millions	September 30, 2020				Dollars in millions	September 30, 2021
	Total Assets		Total Liabilities			Total Assets		Total Liabilities

Fasttrax Limited (Fasttrax project)	$	47	$	21	Fasttrax Limited (Fasttrax project)	$	20	$	6
Aspire Defence subcontracting entities (Aspire Defence project)	$	440	$	208	Aspire Defence subcontracting entities (Aspire Defence project)	$	479	$	261


Dollars in millions	December 31, 2020
	Total Assets		Total Liabilities


Fasttrax Limited (Fasttrax project)	$	45	$	18
Aspire Defence subcontracting entities (Aspire Defence project)	$	448	$	205

Dollars in millions
December 31, 2019
Total Assets Total Liabilities
Fasttrax Limited (Fasttrax project) $ 45
$ 24
Aspire Defence subcontracting entities (Aspire Defence project) $ 530
$ 283

Note 9. Retirement Benefits

The components of net periodic pension cost (benefit) related to pension benefits for the three and nine months ended September 30, 2021 and 2020 were as follows:


	Three Months Ended September 30,
	2021				2020
Dollars in millions	United States		Int’l		United States		Int’l
Components of net periodic pension cost (benefit)
Service cost	$	—	$	1	$	—	$	1
Interest cost	$	—	$	8	$	—	$	9
Expected return on plan assets	—		(21)		—		(15)

Amortization of prior service cost	—		—		—		—
Recognized actuarial loss	—		8		—		6
Net periodic pension cost (benefit)	$	—	$	(4)	$	—	$	1

	Nine Months Ended September 30,
	2021				2020
Dollars in millions	United States		Int’l		United States		Int’l
Components of net periodic pension cost (benefit)
Service cost	$	—	$	1	$	—	$	1
Interest cost	$	1	$	24	$	1	$	28
Expected return on plan assets	(2)		(64)		(2)		(44)

Amortization of prior service cost	—		1		—		1
Recognized actuarial loss	1		24		1		17
Net periodic pension cost (benefit)	$	—	$	(14)	$	—	$	3

For the nine months ended September 30, 2021, we have contributed approximately $35 million of the $49 million we expect to contribute to our plans in 2021.

Note 10. ~~Retirement Benefits~~

~~The components of net periodic benefit cost related to pension benefits for the nine months ended September 30, 2020 and 2019 were as follows:~~

Three Months Ended September 30,
2020 2019
Dollars in millions United States Int’l United States Int’l
Components of net periodic pension cost (benefit)
Service cost $ 0
$ 1
$ 0
$ 0
Interest cost $ 0
$ 9
$ 1
$ 12
Expected return on plan assets 0
(15 ) (1 ) (18 )
Recognized actuarial loss 0
6
0
4
Net periodic benefit cost (benefit) $ 0
$ 1
$ 0
$ (2 )

Nine Months Ended September 30,
2020 2019
Dollars in millions United States Int’l United States Int’l
Components of net periodic pension cost (benefit)
Service cost $ 0
$ 1
$ 0
$ 0
Interest cost $ 1
$ 28
$ 2
$ 37
Expected return on plan assets (2 ) (44 ) (2 ) (57 )
Amortization of prior service cost 0
1
0
1
Recognized actuarial loss 1
17
1
12
Net periodic pension cost (benefit) $ 0
$ 3
$ 1
$ (7 )

~~For the nine months ended September 30, 2020, we have contributed approximately $33 million of the $48 million we expect to contribute to our plans in 2020.~~

~~Note 11.~~ Debt and Other Credit Facilities

Our outstanding debt consisted of the ~~following:~~following at the dates indicated:


Dollars in millions	September 30, 2021		December 31, 2020
Term Loan A	$	274	$	285
Term Loan B	512		516
Convertible Senior Notes	350		350
Senior Notes	250		250
Senior Credit Facility	260		260
Unamortized debt issuance costs - Term Loan A	(3)		(4)
Unamortized debt issuance costs and discount - Term Loan B	(14)		(16)
Unamortized debt issuance costs and discount - Convertible Senior Notes	(30)		(40)
Unamortized debt issuance costs and discount - Senior Notes	(5)		(5)
Total debt	1,594		1,596
Less: current portion	16		12
Total long-term debt, net of current portion	$	1,578	$	1,584

Dollars in millions September 30, 2020 December 31, 2019
Term Loan A $ 277
$ 176
Term Loan B 518
756
Convertible Notes 350
350
Senior Notes 250
0
Unamortized debt issuance costs - Term Loan A (4 ) (4 )
Unamortized debt issuance costs and discount - Term Loan B (16 ) (15 )
Unamortized debt issuance costs and discount - Convertible Notes (44 ) (53 )
Unamortized debt issuance costs and discount - Senior Notes (5 ) 0
Total debt 1,326
1,210
Less: current portion 12
27
Total long-term debt, net of current portion $ 1,314
$ 1,183

Senior Credit Facility

On ~~February 7,~~July 2, 2020, we amended our Senior Credit Facility to among other things, reduce the applicable margins and commitment fees associated with the various borrowings under the facility. Simultaneous with the amendment, we used proceeds from the new facility and cash on hand to refinance our outstanding borrowings resulting in an amended senior secured credit facility ("Senior Credit Facility") that consistedconsist of a ~~$500 million~~$1 billion revolving credit facility ~~("Revolver"~~(the "Revolver"), ~~a $500 million PLOC,~~ a $275 million Loan A, ("Term Loan A") of which a portion is denominated in Australian dollars, and a $520 million Term Loan B ("Term Loan B")~~. In addition, the amendment extended the maturity dates~~, with ~~respect to the~~an aggregate capacity of $1.795 billion. The Revolver ~~PLOC~~ and ~~the~~ Term Loan A tomature in February 2025 and Term Loan B tomatures in February ~~2027, and amended certain other provisions including the financial covenants.~~2027.

On July 2, 2020, we amended our Senior Credit Facility to convert the $500 million capacity formerly available under our PLOC to our Revolver, increasing our Revolver capacity from $500 million to $1 billion. On September 14, 2020, we further amended our Senior Credit Facility to modify the definition and calculation of Consolidated EBITDA (as defined therein) to permit pro forma cost reductions resulting from certain corporate transactions. The aggregate amount under our Senior Credit Facility remains $1.795 billion and all other terms and conditions remain unchanged.

The interest rates with respect to the Revolver and Term Loan A are based on, at the Company's option, adjusted LIBOR plus an additional margin or base rate plus additional margin. The interest rate with respect to ~~the~~ Term Loan B is LIBOR plus 2.75%. ~~The Senior Credit Facility provides for fees on letters of credit issued under the PLOC at varying rates, as shown below.~~ Additionally, there is a commitment fee with respect to the ~~Revolver and PLOC.~~Revolver.

The details of the applicable margins and commitment fees under the amended Senior Credit Facility are based on the Company's consolidated leverage ratio as follows:

Revolver and Term Loan A
Consolidated Leverage Ratio LIBOR Margin Base Rate Margin Performance Letter of Credit Fee Commitment Fee
Greater than or equal to 3.25 to 1.00 2.25 % 1.25 % 1.35 % 0.35 %
Less than 3.25 to 1.00 but greater than or equal to 2.25 to 1.00 2.00 % 1.00 % 1.20 % 0.30 %
Less than 2.25 to 1.00 but greater than or equal to 1.25 to 1.00 1.75 % 0.75 % 1.05 % 0.25 %
Less than 1.25 to 1.00 1.50 % 0.50 % 0.90 % 0.20 %


	Revolver and Term Loan A
Consolidated Leverage Ratio	LIBOR Margin		Base Rate Margin		Commitment Fee
Greater than or equal to 3.25 to 1.00	2.25	%	1.25	%	0.35	%
Less than 3.25 to 1.00 but greater than or equal to 2.25 to 1.00	2.00	%	1.00	%	0.30	%
Less than 2.25 to 1.00 but greater than or equal to 1.25 to 1.00	1.75	%	0.75	%	0.25	%
Less than 1.25 to 1.00	1.50	%	0.50	%	0.20	%

~~The~~ Term Loan A provides for quarterly principal payments of 0.625% of the aggregate principal amount commencing with the fiscal quarter ending June 30, 2020, increasing to 1.25% starting with the quarter ending June 30, 2022. ~~The~~ Term Loan B provides for quarterly principal payments of 0.25% of the initial aggregate principal amounts commencing with the fiscal quarter ending June 30, 2020.

The Senior Credit Facility contains financial covenants of a maximum consolidated leverage ratio and a consolidated interest coverage ratio (as such terms are defined in the Senior Credit Facility). Our consolidated leverage ratio as of the last day of any fiscal quarter may not exceed 4.25 to 1 through 2021, reducing to 4.00 to 1 in 2022 and 3.75 to 1 in 2023. Our consolidated interest coverage ratio as of the last day of any fiscal quarter, commencing with the fiscal quarter ending June 30, 2020 and thereafter, may not be less than 3.00 to 1. As of September 30, ~~2020,~~2021, we were in compliance with our financial covenants related to our debt agreements.

Convertible Senior Notes

Convertible Senior Notes. On November 15, 2018, we issued and sold $350 million of 2.50% Convertible Senior Notes due 2023 (the "Convertible Notes") pursuant to an indenture between us and Citibank, N.A., as trustee. The Convertible Notes are senior unsecured obligations and bear interest at 2.50% per year, and interest is payable on May 1 and November 1 of each year. The Convertible Notes mature on November 1, 2023, and may not be redeemed by us prior to maturity.

The Convertible Notes are convertible into cash, shares of our common stock or a combination of cash and shares of our

common stock, at our election. It is our current intent and policy to settle the principal balance of the Convertible Notes in cash

and any excess value upon conversion in shares of our common stock. The initial conversion price of the Convertible Notes is approximately $25.51 (subject to adjustment in certain circumstances), based on the initial conversion rate of 39.1961 Common Shares per $1,000 principal amount of Convertible Notes. Prior to May 1, 2023, the Convertible Notes will be convertible only upon the occurrence of certain events and during certain periods, and thereafter, until the close of business on the second scheduled trading day immediately preceding the maturity date. On August 21, 2021, we declared a quarterly cash dividend of $0.11 per Common Share, which exceeded our per share dividend threshold and adjusted the conversion rate to 39.4261 at a strike price of $25.36. The impact of dilution on our earnings per share from Convertible Notes is measured using the “treasury stock method”. As of September 30, 2021, the "if-converted" value of the Convertible Notes exceeded the $350 million principal amount by approximately $192 million.

The net carrying value of the equity component related to the Convertible Senior Notes was $57 million as of September 30, ~~2020~~2021, and December 31, ~~2019.~~2020. The amount of interest cost recognized relating to the contractual interest coupon was $2 million and $6 million for the three and nine months ended September 30, 2021 respectively, and $3 million and $7 million for the three and nine months ended September 30, 2020, ~~respectively, and $2 million and $6 million for the three and nine months ended September 30, 2019,~~ respectively. The amount of interest cost recognized relating to the amortization of the discount and debt issuance costs was $3 million and $10 million for the three and nine months ended September 30, ~~2020~~2021, respectively, and ~~2019~~$3 million and $9 million for the three and nine months ended September 30, 2020, ~~and 2019.~~respectively. The effective interest rate on the liability component was 6.50% as of September 30, ~~2020~~2021, and December 31, ~~2019.~~2020.

Convertible Notes Call Spread Overlay. Concurrent with the issuance of the Convertible Notes, we entered into privately negotiated convertible note hedge transactions (the "Note Hedge Transactions") and warrant transactions (the "Warrant Transactions") with the option counterparties. These transactions represent a call spread overlay, whereby the cost of the Note Hedge Transactions we purchased to cover the cash outlay upon conversion of the Convertible Notes was reduced by the sales price of the Warrant Transactions. Each of these transactions is described below.

The Note Hedge Transactions cost an aggregate of $62 million and are expected generally to reduce the potential dilution of common stock and/or offset the cash payments we are required to make in excess of the principal amount upon conversion of the Convertible Notes in the event that the market price of our common stock is greater than the strike price of the Note Hedge Transactions, which was initially $25.51 (subject to adjustment), corresponding approximately to the initial conversion price of the Convertible Notes. The Note Hedge Transactions were accounted for by recording the cost as a reduction to "Additional paid-in capital" based on the Note Hedge Transactions meeting certain scope exceptions provided under ASC Topic 815.

We received proceeds of $22 million for the Warrant Transactions, in which we sold net-share-settled warrants to the option counterparties in an amount equal to the number of shares of our common stock initially underlying the Convertible Notes, subject to customary anti-dilution adjustments. The original strike price of the warrants was $40.02 per share. The updated strike price as of September 30, 2021 was $39.79. The Warrant Transactions could have a dilutive effect to our stockholders to the extent the market price per share of our common stock, as measured under the terms of the Warrant Transactions, exceeds the applicable strike price of the warrants. The Warrant Transactions have been accounted for by recording the proceeds received as "Additional paid-in capital".

The Note Hedge Transactions and the Warrant Transactions are separate transactions, in each case entered into by us with the option counterparties, and are not part of the terms of the Convertible Notes and will not affect any holder's rights under the Convertible Notes.

Senior Notes

On September 30, 2020, we issued and sold $250 million aggregate principal amount of 4.750% Senior Notes due 2028 (the "Senior Notes") pursuant to an indenture among us, the guarantors party thereto and Citibank, N.A., as trustee. The Senior Notes are senior unsecured obligations and are fully and unconditionally guaranteed by each of our existing and future domestic subsidiaries that guarantee our obligations under the Senior Credit Facility and certain other indebtedness. The net proceeds

from the offering was approximately $245 million, after deducting fees and estimated offering expenses and were used to finance a portion of the purchase price for the acquisition of Centauri and pay related fees and expenses. Interest is payable semi-annually in arrears on March 30 and September 30 of each year, beginning on March ~~31,~~30, 2021, and the principal is due on September 30, 2028.

At any time prior to September 30, 2023, we may redeem all or part of the Senior Notes at a redemption price equal to 100% of the principal amount of the Senior Notes redeemed, plus accrued and unpaid interest, if any, to (but not including) the redemption date, plus a specified “make-whole premium.” On or after September 30, 2023, we may redeem all or part of the Senior Notes at our option, at the redemption prices set forth in the Senior Notes, plus accrued and unpaid interest, if any, to (but not including) the redemption date. At any time prior to September 30, 2023, we may redeem up to 35% of the original aggregate principal amount of the Senior Notes with the net cash proceeds of certain equity offerings at a redemption price equal to 104.750% of the principal amount of the Senior Notes, together with accrued and unpaid interest, if any, to (but not including) the redemption date. If we undergo a change of control, we may be required to make an offer to holders of the Senior Notes to repurchase all of the Senior Notes at a purchase price equal to 101% of the principal amount thereof, plus accrued and unpaid interest.

Letters of credit, surety bonds and guarantees

In connection with certain projects, we are required to provide letters of credit, surety bonds or guarantees to our customers in the ordinary course of business as credit support for contractual performance guarantees, advanced payments received from customers and future funding commitments. As of September 30, ~~2020,~~2021, we had $1 billion in a committed line of credit under the Senior Credit Facility and $415 million of uncommitted lines of credit to support the issuance of letters of credit. As of September 30, ~~2020,~~2021, with respect to our Senior Credit Facility, we had 0$260 million of outstanding borrowings previously issued to fund the acquisition of Centauri and ~~$116~~$122 million of outstanding letters of credit. ~~On October 1, 2020, the Company borrowed $260 million on the Senior Credit Facility to fund the acquisition of Centauri.~~ With respect to our $415 million of uncommitted lines of credit, we had utilized ~~$207~~$213 million for letters of credit as of September 30, ~~2020.~~2021. The total remaining capacity of these committed and uncommitted lines of credit was approximately ~~$1.1 billion.~~$820 million. Of the letters of credit outstanding under the Senior Credit Facility, none have expiry dates beyond the maturity date of the Senior

Credit Facility. Of the total letters of credit outstanding, ~~$166~~$168 million relate to our joint venture operations where the letters of credit are posted using our capacity to support our pro-rata share of obligations under various contracts executed by joint ventures of which we are a member.

Nonrecourse Project Debt

Fasttrax Limited, a consolidated joint venture in which we indirectly own a 50% equity interest with an unrelated partner, was awarded a concession contract in 2001 with the U.K. MoD to provide a Heavy Equipment Transporter Service to the British Army. Fasttrax Limited operates and maintains 91 HETs for a term of 22 years. The purchase of the HETs by the joint venture was financed through two series of bonds secured by the assets of Fasttrax Limited and subordinated debt from the joint venture partners. The secured bonds are an obligation of Fasttrax Limited and are not a debt obligation of KBR as they are nonrecourse to the joint venture partners. Accordingly, in the event of a default on the notes, the lenders may only look to the assets of Fasttrax Limited for repayment.

The secured bonds were issued in two classes consisting of Class A 3.5% Index Linked Bonds in the amount of £56.0 million and Class B 5.9% Fixed Rate Bonds in the amount of £20.7 million. Semi-annual payments on both classes of bonds ~~will continue~~continued through maturity in March 2021. The subordinated notes payable to each of the partners initially bear interest at 11.25% increasing to 16.00% over the term of the notes until maturity in 2025. For financial reporting purposes, only our partner's portion of the subordinated notes appears in the condensed consolidated financial statements.

Note ~~12.~~11. Income Taxes

The effective tax rate was approximately 25% and 234% for the three and nine months ended September 30, 2021, respectively. The effective tax rate was approximately 27% and (51)% for the three and nine months ended September 30, 2020, respectively. The effective tax rate for the nine months ended September 30, 2021, as compared to the U.S. statutory rate of 21%, was ~~approximately 30%~~primarily impacted by an equity adjustment on an LNG project and ~~28%~~the enactment of a tax rate change in the United Kingdom. Equity adjustments were booked on an entity in which KBR is a JV partner in the second and third quarter of 2021. Since the tax impact for this adjustment was taxed at the JV level, KBR will not receive a tax benefit. In the second quarter of 2021, the U.K. enacted legislation to raise the corporate tax rate from 19% to 25% beginning April 1, 2023. All deferred tax balances in this region were remeasured and the tax impact was booked accordingly. Excluding the tax impact of these adjustments, our tax rate would be 19% and 23% for the three and nine months ended September 30, ~~2019, respectively.~~2021. The ~~difference between the effective tax rate for the~~three and nine months ended September 30, 2020 ~~and the U.S. statutory rate of 21%,~~ was primarily ~~caused~~impacted by ~~certain goodwill~~impairment and ~~asset impairments~~restructuring charges incurred ~~that are not deductible for tax purposes.~~during the

period. Excluding the tax impact of ~~the goodwill and asset impairment charges,~~these adjustments, our tax rate ~~was~~would have been 27% for the three and nine months ended September 30, 2020.

Our estimated annual effective rate for ~~2020~~2021 is ~~26%~~23% excluding the effects of discrete items. Our estimated annual effective rate is subject to change based on the actual jurisdictions where our ~~2020~~2021 earnings are generated.

The valuation allowance for deferred tax assets as of September 30, ~~2020~~2021 and December 31, ~~2019~~2020 was ~~$195~~$210 million and ~~$200~~$220 million, respectively. The decrease of $5 million and $10 million for the nine months ended September 30, 2020 and 2019, respectively, was due to the reversal of certain valuation allowances related to the utilization of foreign tax credits during these periods resulting from changes in the amount and character of forecasted income. The remaining valuation allowance is primarily related to foreign tax credit carryforwards and foreign and state net operating loss carryforwards that, in the judgment of management, are not more likely than not to be realized. The ultimate realization of deferred tax assets is dependent on the generation of future taxable income, in the appropriate character and source, during the periods in which those temporary differences become deductible or within the remaining carryforward period. Management considers the scheduled reversal of deferred tax liabilities (including the impact of available carryback and carryforward periods), projected future taxable income and tax-planning strategies in making this assessment.

The utilization of the unreserved foreign tax credit carryforwards is based on our ability to generate income from foreign sources of approximately ~~$748~~$662 million prior to their expiration. The utilization of other net deferred tax assets, excluding those associated with indefinite-lived intangible assets, is based on our ability to generate U.S. forecasted taxable income of approximately ~~$586~~$614 million. Changes in our forecasted taxable income, in the appropriate character and source, as well as jurisdiction, could affect the ultimate realization of deferred tax assets.

The provision for uncertain tax positions included in "Other liabilities" and "Deferred income taxes" on our condensed consolidated balance sheets as of September 30, 2021, and December 31, 2020 was ~~$97~~$93 million and $96 million, respectively.

Note 12. Claims and Accounts Receivable

Our claims and accounts receivable balance not expected to be collected within the next 12 months was $30 million as of September 30, ~~2020~~2021, and December 31, ~~2019.~~2020. Claims and accounts receivable primarily reflect claims filed with the U.S. government related to payments not yet received for costs incurred under various U.S. government cost reimbursable contracts within our GS business segment. These claims relate to disputed costs or contracts where our costs have exceeded the U.S. government's funded value on the task order and included in the amount is $1 million as of September 30, 2021, and December 31, 2020. The amount also includes $29 million as of September 30, 2021 and December 31, 2020, related to contracts where our reimbursable costs have exceeded the U.S. government's funded values on the underlying task orders or task orders where the U.S. government has not authorized us to bill. We believe the remaining disputed costs will be resolved in our favor, at which time the U.S. government will be required to obligate funds from appropriations for the year in which resolution occurs.

Note 13. U.S. Government Matters

We provide services to various U.S. governmental agencies, including the U.S. DoD, NASA, and the Department of State. We may have disagreements or experience performance issues on our U.S. government contracts. When performance issues arise under any of these contracts, the U.S. government retains the right to pursue various remedies, including challenges to expenditures, suspension of payments, fines and suspensions or debarment from future business with the U.S. government. The negotiation, administration and settlement of our contracts are subject to audit by the DCAA. The DCAA serves in an advisory role to the DCMA, which is responsible for the administration of the majority of our contracts. The scope of these audits includes, among other things, the validity of direct and indirect incurred costs, provisional approval of annual billing rates, approval of annual overhead rates, compliance with the FAR and CAS, compliance with certain unique contract clauses and audits of certain aspects of our internal control systems. Based on the information received to date, we do not believe any completed or ongoing government audits will have a material adverse impact on our results of operations, financial position or cash flows.

Legacy U.S. Government Matters

Between 2002 and 2011, we provided significant support to the U.S. Army and other U.S. government agencies in support of the war in Iraq under the LogCAP III contract. We have been in the process of closing out the LogCAP III contract since 2011, and we expect the contract closeout process to continue for at least another year. As a result of our work under LogCAP III, there are claims and disputes pending between us and the U.S. government ~~which~~that need to be resolved in order to close the contract. The contract closeout process includes resolving objections raised by the U.S. government through a billing dispute process referred to as Form 1s and MFRs. We continue to work with the U.S. government to resolve these issues and are engaged in efforts to reach mutually acceptable ~~resolution~~resolutions of these outstanding matters. However, for certain of these

matters, we have filed claims with the ASBCA or the COFC. We also have matters related to ongoing litigation or investigations involving U.S. government contracts. We anticipate billing additional labor, vendor resolution and litigation costs as we resolve the open matters in the future.

The Company established a reserve for unallowable costs associated with open government matters related to the heritage KBR U.S. Government Services business in the amounts of $33 million ~~and $39 million~~ as of September 30, ~~2020,~~2021, and December 31, ~~2019, respectively. The balance at September 30,~~ 2020, isand are recorded in “Other liabilities.” ~~The balance at December 31, 2019, is recorded in "Contract liabilities" and "Other liabilities" in the amounts of $27 million and $12 million, respectively.~~

Investigations, Qui Tams and Litigation

The following matters relate to ongoing litigation or federal investigations involving U.S. government contracts. Many of these matters involve allegations of violations of the FCA, which prohibits in general terms fraudulent billings to the U.S. government. Suits brought by private individuals are called "qui tams." ~~We believe~~In the event we prevail in defending these allegations, a majority of our defense costs ~~of litigation and any damages that may~~will be ~~awarded in the FKTC matters described below are~~ billable under the LogCAP ~~III.~~III contract. All costs billed under LogCAP III are subject to audit by the DCAA for reasonableness.

First Kuwaiti Trading Company arbitration. In April 2008, FKTC, one of our LogCAP III subcontractors providing housing containers, filed for arbitration with the American Arbitration Association all its claims under various LogCAP III subcontracts. After complete hearings on all claims, the arbitration panel awarded FKTC $17 million plus interest for claims involving damages on lost or unreturned vehicles. In addition, we determined that we owe FKTC $32 million in connection with other subcontracts provided we are reimbursed for these same costs by the U.S. government. We previously paid FKTC $19 million and the remaining $30 million is recorded in "Other current liabilities" on our condensed consolidated balance sheets. As of September 30, 2020, we believe our recorded accruals are adequate if we are unable to favorably resolvelost our claims ~~and disputes~~ against the ~~U.S. government. See "KBR Contract Claim~~government as referenced below and have exercised our offset or clawback rights as against FKTC in the arbitration. FKTC does not agree with our right of offset and a final hearing will be needed to resolve this issue and our other counterclaims against FKTC. A hearing has been set for January 2022. Management accrued an amount that it feels is adequate to cover either liability as determined by the panel or a negotiated settlement with FKTC on ~~FKTC containers" below.~~this matter.

Howard qui tam. In March 2011, Geoffrey Howard and Zella Hemphill filed a complaint in the U.S. District Court for the Central District of Illinois alleging that KBR mischarged the government $628 million for unnecessary materials and equipment. In October 2014, the DOJ declined to intervene and the case was partially unsealed. Depositions of some DCMA and KBR personnel have taken place and more which were expected to occur in early 2020 ~~but have been~~were postponed due to ~~COVID-19.~~COVID-19 but resumed in 2021. KBR and the relators filed various motions including a motion to dismiss by KBR. Although KBR's motion to dismiss was not granted, ~~and we are considering appellate options.~~it remains an option on appeal. The deadline for all fact discovery and depositions has been extended due to COVID-19 travel restrictions and related delays and discovery continues. We believe the allegations of fraud by the relators are without merit and, as of September 30, ~~2020, 0~~2021, no amounts have been accrued.

DOJ False Claims Act complaint - Iraq Subcontractor. In January 2014, the DOJ filed a complaint in the U.S. District Court for the Central District of Illinois against KBR and 2 former KBR subcontractors, including FKTC, alleging that 3 former KBR employees were offered and accepted kickbacks from these subcontractors in exchange for favorable treatment in

the award and performance of subcontracts to be awarded during the course of KBR's performance of the LogCAP III contract in Iraq. The complaint alleges that as a result of the kickbacks, KBR submitted invoices with inflated or unjustified subcontract prices, resulting in alleged violations of the FCA and the Anti-Kickback Act. The DOJ's investigation dates back to 2004. We self-reported most of the violations and tendered credits to the U.S. government as appropriate. On May 22, 2014, FKTC filed a motion to dismiss, which the U.S. government opposed. Following the submission of our answer in April 2014, the U.S. government was granted a Motion to Strike certain affirmative defenses in March 2015. We do not believe this limits KBR's ability to fully defend all allegations in this matter.

Discovery for this complaint is now mostly complete. On March 30, 2020, the Court granted KBR’s motion to transfer the case to the Southern District of Texas and the court ~~recently ruled on various discovery motions allowing~~allowed one additional deposition to take place. KBR and the U.S. government have filed various dispositive motions which remained under consideration by the Court for an extended period. In March 2021, while granting some of KBR’s motions for summary judgment, the court also concluded that we breached the FCA as a matter of law as to several subcontracts. We filed for two motions for reconsideration, one addressing the ruling on KBR’s motion for summary judgment and one addressing the U.S. government’s motion. A preliminary meeting was held and the Court issued a ruling on both motions, granting in part and denying in part on both motions. The Court also set a trial date for February 2022 and told the parties that no further motions would be considered. Despite that ruling, the U.S. government filed a Motion of Clarification which is now pending. As of September 30, ~~2020,~~2021, we have accrued our best estimate of probable loss related to an unfavorable settlement of this matter in "Other liabilities" on our condensed consolidated balance sheets.

Other matters

KBR Contract Claim on FKTC containers. KBR previously filed a claim before the ASBCA to recover the costs paid to FKTC to settle its requests for equitable adjustment. The DCMA had disallowed the majority of those costs. Those contract claims were stayed in 2013 at the request of the DOJ so that they could pursue the FCA case referenced above. Those claims were reinstated in 2016. We tried our contract appeal in September 2017. In November 2018, we received an unfavorable ruling from the ASBCA disallowing all of our costs paid to FKTC. KBR's motion for reconsideration by a senior panel of judges at the ASBCA was denied. KBR filed its brief on appeal in September 2019. Oral arguments occurred in May 2020 and a decision was issued on September 1, 2020. Although the court agreed with KBR that the wrong legal standard was applied by the trial court, the appellate court made its own fact findings on damages based on an incomplete record and denied KBR any recovery. KBR ~~has~~ filed a motion for ~~rehearing.~~rehearing which was denied and therefore the dispute with the U.S. government has concluded. As of September 30, ~~2020,~~2021, we believe our recorded accruals are ~~adequate in the event we are unable to favorably resolve our claims and disputes against the government.~~adequate.

Note 14. Other Commitments and Contingencies

~~Unaoil Investigation.~~ We previously disclosed that the DOJ, SEC, and the SFO had been conducting investigations of Unaoil, a Monaco based company, in relation to international projects involving several global companies, including KBR. The DOJ and SEC have informed us that their investigations with regard to KBR are now closed. The SFO has informed us that its KBR investigation is no longer focused on allegations of corruption involving Unaoil although some lines of inquiry remain under investigation. To the extent necessary, KBR will continue to cooperate with the authorities in their investigations.

Chadian Employee Class Action. In May 2018, former employees of our former Chadian subsidiary, Subsahara Services, Inc. ("SSI"), filed a class action suit claiming unpaid damages arising from the ESSO Chad Development Project for Exxon Mobil Corporation ("Exxon") dating back to the early 2000s. Exxon is also named as a defendant in the case. The SSI employees previously filed 2 class action cases in or around 2005 and 2006 for alleged unpaid overtime and bonuses. The Chadian Labour Court ruled in favor of the SSI employees for unpaid overtime resulting in a settlement of approximately $25 million which was reimbursed by Exxon under its contract with SSI. The second case for alleged unpaid bonuses was ultimately dismissed by the Supreme Court of Chad.

The current case claims $122 million in unpaid bonuses characterized as damages rather than employee bonuses to avoid the previous Chadian Supreme Court dismissal and a 5-year statute of limitations on wage-related claims. SSI’s initial defense was filed and a hearing was held in December 2018. A merits hearing was held in February 2019. In March 2019, the Labour Court issued a decision awarding the plaintiffs approximately $34 million including a $2 million provisional award. Exxon and SSI have appealed the award and requested suspension of the provisional award which was approved on April 2, 2019. Exxon and SSI filed a submission to the Court of Appeal on June 21, 2019, and filed briefs at a hearing on February 28, 2020. The plaintiffs failed to file a response on March 13, 2020, and a hearing was scheduled for April 17, 2020. The hearing was postponed due to COVID-19 but took place on September 18, 2020. On October 9, 2020, the appellate court of Moundou awarded the plaintiffs approximately $19 million. ~~The court has only issued~~SSI filed an ~~extract~~appeal of ~~its~~this decision ~~so we do not know~~to the ~~legal basis~~Chadian Supreme Court on December 28, 2020. SSI’s request for suspension on the ~~decision.~~enforceability of the award from the Chadian Supreme Court was granted on January 4, 2021, and therefore there is no current risk of enforcement of the judgment.

At this time, we do not believe a risk of material loss is probable related to this matter. SSI is no longer an existing entity in Chad or the United States. Further, we believe any amounts ultimately paid to the former employees related to this adverse ruling would be reimbursable by Exxon based on the applicable contract.

North West Rail Link Project. We participate in an unincorporated joint venture with two partners to provide engineering and design services in relation to the operations, trains and systems of a metro rail project in Sydney, Australia. The project commenced in 2014 and during its execution encountered delays and disputes resulting in claims and breach notices submitted to

the joint venture by the client. Since November 2018, the client has submitted multiple claims alleging breach of contract and breach of duty by the joint venture in its execution of the services, claiming losses and damages of up to approximately $300 million Australian dollars. We currently believe the gross amount of the claims significantly exceeds the client’s entitlement as well as the joint venture’s limits of liability under the contract and that the claims will be covered by project-specific professional indemnity insurance subject to deductibles.

In August 2019, the client advised that it ~~has~~had filed legal proceedings in the Supreme Court of New South Wales to preserve its position with regards to statute of limitations. The joint venture was served a notice of proceedings in November 2019 and an initial hearing was expected to occur in April 2020 but was postponed. The client submitted an amended statement on May 28, 2020 claiming damages of $301 million Australian dollars but did not provide any detail to support that sum. KBR has a 33% participation interest in the joint venture and the partners have joint and several liability with respect to all obligations under the contract. As of September 30, ~~2020,~~2021, we have reserved an amount that is immaterial for this matter. However, it is reasonably possible that we may ultimately be required to pay material amounts in excess of reserves. At this time, fact discovery and expert review are still ongoing. Additionally, we have not received substantiation of the client’s alleged damages and therefore, a more precise estimate cannot be made at this time. The joint venture, joint venture insurers, and client ~~are~~continue to be engaged in discussions concerning potential resolution of the claims.

~~Note 15. Leases~~

We enter into lease arrangements primarily for real estate, project equipment, transportation and information technology assets in the normal course of our business operations. Real estate leases accounted for approximately 84% of our lease obligations at September 30, 2020. An arrangement is determined to be a lease at inception if it conveys the right to control the use of identified property and equipment for a period of time in exchange for consideration. We have elected not to recognize a ROU asset and lease liability for leases with an initial term of 12 months or less. Many of our equipment leases, primarily associated with the performance of projects for U.S. government customers, include 1 or more renewal option periods, with renewal terms that can extend the lease term in one year increments. The exercise of these lease renewal options is at our sole discretion and is generally dependent on the period of project performance, or extension thereof, determined by our customers. When it is reasonably certain that we will exercise the option, we include the impact of the option in the lease term to determine total future lease payments. Because most of our lease agreements do not explicitly state the discount rate, we use our incremental borrowing rate on the commencement date to calculate the present value of future lease payments.

Certain leases include payments that are based solely on an index or rate. These variable lease payments are included in the calculation of the ROU asset and lease liability. Other variable lease payments, such as usage-based amounts, are excluded from the ROU asset and lease liability, and are expensed as incurred. In addition to the present value of the future lease payments, the calculation of the ROU asset also includes any deferred rent, lease pre-payments and initial direct costs of obtaining the lease, such as commissions.

In addition to the base rent, real estate leases typically contain provisions for common-area maintenance and other similar services, which are considered non-lease components for accounting purposes. We exclude these non-lease components in calculating the ROU asset and lease liability for real estate leases and expense them as incurred. For all other types of leases, non-lease components are included in calculating our ROU assets and lease liabilities.

~~The components of lease costs for the three and nine months ended September 30, 2020 and 2019 were as follows:~~

Three Months Ended Nine Months Ended
September 30, September 30,
Dollars in millions 2020 2019 2020 2019
Operating lease cost $ 13
$ 15
$ 39
44
Short-term lease cost 19
36
88
83
Total lease cost $ 32
$ 51
$ 127
$ 127

Operating lease cost includes operating lease ROU asset amortization of $25 million and $27 million for the nine months ended September 30, 2020 and 2019, respectively, and other noncash operating lease costs related to the accretion of operating lease liabilities and straight-line lease accounting of $14 million and $17 million for the nine months ended September 30, 2020 and 2019, respectively.

~~Total short-term lease commitments as of September 30, 2020 were approximately $101 million. Additional information related to leases was as follows:~~

September 30,
Dollars in millions 2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases $ 45
Right-of-use assets obtained in exchange for new operating lease liabilities $ 11
Weighted-average remaining lease term-operating (in years) 6.0
Weighted-average discount rate-operating leases 7.1 %

~~The following is a maturity analysis of the future undiscounted cash flows associated with our operating lease liabilities as of September 30, 2020:~~

Year
Dollars in millions 2020 2021 2022 2023 2024 Thereafter Total
Future payments - operating leases $ 14
$ 47
$ 39
$ 33
$ 23
$ 91
$ 247

Dollars in millions Operating Leases
Total future payments $ 247
Less imputed interest (54 )
Present value of future lease payments $ 193
Less current portion of lease obligations (39 )
Noncurrent portion of lease obligations $ 154

Note ~~16.~~15. Accumulated Other Comprehensive Loss

Changes in AOCL, net of tax, by component


Dollars in millions	Accumulated foreign currency translation adjustments		Accumulated pension liability adjustments		Changes in fair value of derivatives		Total
Balance at December 31, 2020	$	(291)	$	(764)	$	(28)	$	(1,083)
Other comprehensive income adjustments before reclassifications	(6)		—		9		3
Amounts reclassified from AOCL	2		20		9		31
Net other comprehensive income (loss)	(4)		20		18		34
Balance at September 30, 2021	$	(295)	$	(744)	$	(10)	$	(1,049)

Dollars in millions Accumulated foreign currency translation adjustments Accumulated pension liability adjustments Changes in fair value of derivatives Total
Balance at December 31, 2019 $ (315 ) $ (654 ) $ (18 ) $ (987 )
Other comprehensive income adjustments before reclassifications (15 ) 0
(20 ) (35 )
Amounts reclassified from AOCL (12 ) 15
5
8
Net other comprehensive income (loss) (27 ) 15
(15 ) (27 )
Balance at September 30, 2020 $ (342 ) $ (639 ) $ (33 ) $ (1,014 )


Dollars in millions	Accumulated foreign currency translation adjustments		Accumulated pension liability adjustments		Changes in fair value of derivatives		Total
Balance at December 31, 2019	$	(315)	$	(654)	$	(18)	$	(987)
Other comprehensive income adjustments before reclassifications	(15)		—		(20)		(35)
Amounts reclassified from AOCL	(12)		15		5		8
Net other comprehensive income (loss)	(27)		15		(15)		(27)
Balance at September 30, 2020	$	(342)	$	(639)	$	(33)	$	(1,014)

Dollars in millions Accumulated foreign currency translation adjustments Accumulated pension liability adjustments Changes in fair value of derivatives Total
Balance at December 31, 2018 $ (304 ) $ (592 ) $ (14 ) $ (910 )
Other comprehensive income adjustments before reclassifications (48 ) 0
(17 ) (65 )
Amounts reclassified from AOCL 0
11
10
21
Net other comprehensive income (loss) (48 ) 11
(7 ) (44 )
Balance at September 30, 2019 $ (352 ) $ (581 ) $ (21 ) $ (954 )

Reclassifications out of AOCL, net of tax, by component


	Nine Months Ended September 30,								Nine Months Ended September 30,
Dollars in millions	2020			2019			Affected line item on the Condensed Consolidated Statements of Operations	Dollars in millions	2021		2020		Affected line item on the Condensed Consolidated Statements of Operations
Accumulated foreign currency adjustments								Accumulated foreign currency adjustments
Reclassification of foreign currency adjustments	$	12		$	0		Net income attributable to noncontrolling interests and Gain on disposition of assets and investments	Reclassification of foreign currency adjustments	$	(2)	$	12	Gain on disposition of assets and investments and Net income (loss) attributable to noncontrolling interests
Tax benefit	0			0			Provision for income taxes	Tax benefit	—		—		Provision for income taxes
Net accumulated foreign currency	$	12		$	0		Net of tax	Net accumulated foreign currency	$	(2)	$	12	Net of tax

Accumulated pension liability adjustments								Accumulated pension liability adjustments
Amortization of actuarial loss (a)	$	(18	)	$	(13	)	See (a) below	Amortization of actuarial loss (a)	$	(25)	$	(18)	See (a) below
Tax benefit	3			2			Provision for income taxes	Tax benefit	5		3		Provision for income taxes
Net pension and post-retirement benefits	$	(15	)	$	(11	)	Net of tax	Net pension and post-retirement benefits	$	(20)	$	(15)	Net of tax

Changes in fair value for derivatives								Changes in fair value for derivatives
Foreign currency hedge and interest rate swap settlements	$	(6	)	$	(10	)	Other non-operating income	Foreign currency hedge and interest rate swap settlements	$	(12)	$	(6)	Other non-operating income (loss)
Tax benefit	1			0			Provision for income taxes	Tax benefit	3		1		Provision for income taxes
Net changes in fair value of derivatives	$	(5	)	$	(10	)	Net of tax	Net changes in fair value of derivatives	$	(9)	$	(5)	Net of tax


~~(a)~~	~~This item is included in the computation of net periodic pension cost. See Note 10 "Retirement Benefits" to our condensed consolidated financial statements for further discussion.~~

(a)This item is included in the computation of net periodic pension cost. See Note 9 "Retirement Benefits" to our condensed consolidated financial statements for further discussion.

Note ~~17.~~16. Share Repurchases

Authorized Share Repurchase Program

On February 25, 2014, ~~our~~the Board of Directors authorized a plan to repurchase up to $350 million of our outstanding shares of common stock, which ~~plan~~ replaced and terminated the August 26, 2011 share repurchase program. As of December 31, 2019, $160 million remained available under this authorization. On February 19, 2020, ~~our~~the Board of Directors authorized an increase of approximately $190 million to our share repurchase program, returning the authorization level to $350 million. As of September 30, 2021, $250 million remains available for repurchase under this authorization. The authorization does not obligate usthe Company to acquire any particular number of shares of common stock and may be commenced, suspended or discontinued without prior notice. The share repurchases are intended to be funded through ~~our~~the Company's current and future cash flows and the authorization does not have an expiration date.

Withheld to Cover Program

We have in place a "withheld to cover" program, which allows us to withhold common shares from employees in connection with the settlement of income tax and related benefit withholding obligations arising from the issuance of share-based equity awards under the KBR, Inc. 2006 Stock and Incentive Plan.

The table below presents information on our share repurchases activity under ~~this program:~~these programs:


	Three Months Ended					Nine Months Ended
	September 30, 2021					September 30, 2021
	Number of Shares	Average Price per Share		Dollars in Millions		Number of Shares	Average Price per Share		Dollars in Millions
Repurchases under the $350 million authorized share repurchase program	647,173	$	38.61	$	25	1,328,457	$	39.78	$	53

Withheld to cover shares	3,448	$	38.47	—		144,697	$	32.06	$	4
Total	650,621	$	38.61	$	25	1,473,154	$	39.02	$	57

	Three Months Ended					Nine Months Ended
	September 30, 2020					September 30, 2020
	Number of Shares	Average Price per Share		Dollars in Millions		Number of Shares	Average Price per Share		Dollars in Millions
Repurchases under the $350 million authorized share repurchase program	—	$	—	$	—	—	$	—	$	—

Withheld to cover shares	4,914	$	23.06	—		165,046	$	25.66	$	4
Total	4,914	$	23.06	$	—	165,046	$	25.66	$	4

Three Months Ended Nine Months Ended
September 30, 2020 September 30, 2020
Number of Shares Average Price per Share Dollars in Millions Number of Shares Average Price per Share Dollars in Millions
Withheld to cover shares 4,914
$ 23.06
0
165,046
$ 25.66
$ 4

Three Months Ended Nine Months Ended
September 30, 2019 September 30, 2019
Number of Shares Average Price per Share Dollars in Millions Number of Shares Average Price per Share Dollars in Millions
Withheld to cover shares 16,534
$ 25.62
1
190,402
$ 20.47
$ 4

Note ~~18.~~17. Income (loss) per Share

Basic income (loss) per share is based upon the weighted average number of common shares outstanding during the period. Dilutive income (loss) per share includes additional common shares that would have been outstanding if potential common shares with a dilutive effect had been issued using the treasury stock method.

A reconciliation of the number of shares used for the basic and diluted income per share calculations is as follows:


	Three Months Ended September 30,		Nine Months Ended September 30,
Shares in millions	2021	2020	2021	2020
Basic weighted average common shares outstanding	140	142	141	142
Stock options, restricted shares, and convertible debt (a)	5	—	—	—
Diluted weighted average common shares outstanding (b)	145	142	141	142

Three Months Ended September 30, Nine Months Ended September 30,
Shares in millions 2020 2019 2020 2019
Basic weighted average common shares outstanding 142
141
142
141
Stock options, restricted shares, and convertible debt 0
1
0
0
Diluted weighted average common shares outstanding 142
142
142
141

(a)For the three months ended September 30, 2021, there was a diluted impact related to our convertible debt.

(b)In periods for which we report a net loss attributable to KBR, basic net loss per share and diluted net loss per share are identical as the effect of all potential common shares is anti-dilutive and therefore excluded.

For purposes of applying the two-class method in computing income (loss) per share, there were $0.3 million ~~and 0~~ net earnings allocated to participating securities, or a negligible amount per share, ~~and NaN~~ for the three ~~and nine~~ months ended September 30, ~~2020, respectively. Net~~2021 and 2020. There were no net earnings allocated to participating securities for the ~~three and~~ nine months ended September 30, ~~2019 were $0.4 million~~2021 and ~~$1.1 million, respectively, or a negligible amount~~2020. The diluted income per share calculation did not include antidilutive weighted average shares for three months ended September 30, 2021, and ~~$0.01 per share, respectively.~~did not include 0.1 million antidilutive weighted average shares for the nine months ended September 30, 2021. The diluted income (loss) per share calculation did not include 1.2 million antidilutive weighted average shares for the three and nine months ended September 30, 2020. ~~The diluted income per share calculation did not include 1.0 million and 1.3 million antidilutive weighted average shares for the three and nine months ended September 30, 2019, respectively.~~

Note ~~19.~~18. Fair Value of Financial Instruments and Risk Management

Fair value measurements. The fair value of an asset or liability is the price that would be received to sell an asset or transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The Company utilizes a fair value hierarchy that maximizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value and defines three levels of inputs that may be used to measure fair value. Level 1 inputs are quoted prices in active markets for identical assets or liabilities. Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets or liabilities in active markets, quoted prices in markets that are not active, inputs other than quoted prices that are observable for the asset or liability, or inputs derived from observable market data. Level 3 inputs are unobservable inputs that are supported by little or no market activity and are significant to the fair value of the assets or liabilities.

The carrying amount of cash and equivalents, accounts receivable and accounts payable, as reflected in the condensed consolidated balance sheets, approximates fair value due to the short-term maturities of these financial instruments. The carrying values and estimated fair values of our financial instruments that are not required to be recorded at fair value in our condensed consolidated balance sheets are provided in the following table.


													September 30, 2021				December 31, 2020
Dollars in millions										Dollars in millions			Carrying Value		Fair Value		Carrying Value		Fair Value

		September 30, 2020				December 31, 2019
Dollars in millions		Carrying Value		Fair Value		Carrying Value		Fair Value

Liabilities (including current maturities):										Liabilities (including current maturities):
Term Loan A	Level 2	$	277	$	277	$	176	$	176	Term Loan A	Level 2		$	274	$	274	$	285	$	285
Term Loan B	Level 2	518		513		756		764		Term Loan B	Level 2		512		513		516		517
Convertible Notes	Level 2	350		396		350		466		Convertible Notes	Level 2		350		564		350		480
Senior Notes	Level 2	250		252		0		0		Senior Notes	Level 2		250		256		250		262
Senior Credit Facility										Senior Credit Facility	Level 2	`	260		260		260		260
Nonrecourse project debt	Level 2	12		12		18		18		Nonrecourse project debt	Level 2		2		2		7		7

See Note 1110 "Debt and Other Credit Facilities" for further discussion of our term loans, convertibles notes, and nonrecourse project debt.

The following disclosures for foreign currency risk and interest rate risk includes the fair value hierarchy levels for our assets and liabilities that are measured at fair value on a recurring basis.

Foreign currency risk. We conduct business globally in numerous currencies and are therefore exposed to foreign currency fluctuations. We may use derivative instruments to reduce the volatility of earnings and cash flows associated with changes in foreign currency exchange rates. We do not use derivative instruments for speculative trading purposes. We generally utilize foreign exchange forwards and currency option contracts to hedge exposures associated with forecasted future cash flows and to hedge exposures present on our balance sheet.

As of September 30, ~~2020,~~2021, the gross notional value of our foreign currency exchange forwards and option contracts used to hedge balance sheet exposures was ~~$42~~$76 million, all of which had durations of 15 days or less. ~~We also had approximately~~

~~$6 million (gross notional value) of cash flow hedges which had durations of 10 months or less. The cash flow hedges are primarily related to the British Pound.~~

The fair value of our balance sheet and cash flow hedges included in "Other current assets" and "Other current liabilities" on our condensed consolidated balance sheets was immaterial at September 30, ~~2020,~~2021, and December 31, ~~2019.~~2020. The fair values of these derivatives are considered Level 2 under ASC 820, Fair Value Measurement, as they are based on quoted prices directly observable in active markets.

The following table summarizes the recognized changes in fair value of our balance sheet hedges offset by remeasurement of balance sheet positions. These amounts are recognized in our condensed consolidated statements of operations for the periods presented. The net of our changes in fair value of hedges and the remeasurement of our assets and liabilities is included in "Other non-operating income (expense)" on our condensed consolidated statements of operations.

Three Months Ended Nine Months Ended
September 30, September 30,
Gains (losses) dollars in millions 2020 2019 2020 2019
Balance Sheet Hedges - Fair Value $ (2 ) $ 0
$ (2 ) $ 0
Balance Sheet Position - Remeasurement (2 ) 3
4
8
Net $ (4 ) $ 3
$ 2
$ 8


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
Gains (losses) dollars in millions	2021		2020		2021		2020
Balance Sheet Hedges - Fair Value	$	1	$	(2)	$	—	$	(2)
Balance Sheet Position - Remeasurement	(1)		(2)		(6)		4
Net	$	—	$	(4)	$	(6)	$	2

Interest rate risk. We use interest rate swaps to reduce interest rate risk and to manage net interest expense by converting our LIBOR-rate based loans into fixed-rate loans. In October 2018, we entered into interest rate swap agreements with a notional value of $500 million, which are effective beginning October 2018 and mature in September 2022. Under the October 2018 swap agreements, we receive a one-month LIBOR rate and pay a monthly fixed rate of 3.055% for the term of the swaps. In March 2020, we entered into additional swap agreements with a notional value of $400 million, which are effective beginning October 2022 and mature in January 2027. Under the March 2020 swap agreements, we will receive a one-month LIBOR rate and pay a monthly fixed rate of 0.965% for the term of the swaps. Our interest rate swaps are reported at fair value using Level 2 inputs. The fair value of the interest rate swaps at September 30, 2021, was a $11 million net liability, of which $15 million is included in "Other current liabilities," none is included in "Other liabilities," and $4 million is included in "Other assets." The unrealized net losses on these interest rate swaps was $11 million and is included in "AOCL" as of September 30, 2021. The fair value of the interest rate swaps at December 31, 2020, was ~~$39~~a $33 million liability, of which $15 million is included in "Other current liabilities" and ~~$24~~$18 million is included in "Other liabilities." The unrealized net losses on these interest rate swaps was $39 million and is included in "AOCL" as of September 30, 2020. The fair value of the interest rate swaps at December 31, 2019 was $21 million, of which $8 million is included in "Other current liabilities" and $13 million is included in "Other liabilities." The unrealized net losses on these interest rate swaps was $21$33 million and included in "AOCL" as of December 31, ~~2019.~~2020.

Credit Losses.We are exposed to credit losses primarily related to our professional services, project delivery, and technologies offered in our ~~ES and TS~~STS business ~~segments.~~segment. We do not consider our GS business segment to be at risk for credit losses because substantially all services within this segment are provided to agencies of the U.S., U.K. and Australian governments. We determined our allowance for credit losses by using a loss-rate methodology, in which we assessed our historical write-off of receivables against our total receivables and contract asset balances over several years. From this historical loss-rate approach, we also considered the current and forecasted economic conditions expected to be in place over the life of our receivables and contract assets.

We monitor our ongoing credit exposure through an active review of our customers’ receivables balance against contract terms and due dates. Our activities include timely performance of our accounts receivable reconciliations, assessment of our aging of receivables, dispute resolution and payment confirmation. We also monitor any change in our historical write-off of receivables utilized in our loss-rate methodology and assess for any forecasted change in market conditions to adjust our credit reserve.

At September 30, ~~2020,~~2021, our ~~ES and TS~~STS business ~~segments~~segment that ~~are~~is subject to credit risk reported approximately ~~$451~~$321 million of financial assets consisting primarily of accounts receivable and contract assets, net of allowances of ~~$12~~$13 million. Although there continues to be an economic disruption resulting from the impact of COVID-19, ~~and the decline in energy markets in 2020,~~ changes in our credit loss reserve was not material for the nine months ended September 30, ~~2020.~~2021. Based on an aging analysis at September 30, ~~2020, 80%~~2021, 81% of our accounts receivable related to ~~these segments~~this segment were outstanding for less than 90 days.

Sales of Receivables. From time to time, we sell certain receivables to unrelated third-party financial institutions under various accounts receivable monetization programs. One such program is with MUFG Bank, Ltd. (“MUFG”) under a Master Accounts Receivable Purchase Agreement (the “RPA”), which provides the sale to MUFG of certain of our designated eligible receivables, with a significant portion of such receivables being owed by the U.S. government. The receivables sold under the agreements do not allow for recourse for any credit risk related to our customers if such receivables are not collected by ~~our counterparties.~~the third-party financial institutions. The Company accounts for these receivable transfers ~~under the third-party financial institutions~~ as a sale under ASC Topic 860, Transfers and Servicing, as the receivables have been legally isolated from the Company, the financial institution has the right to pledge or exchange the assets received and we do not maintain effective control over the transferred accounts receivable. Our only continuing involvement with the transferred financial assets is as the collection and servicing agent. As a result, the accounts receivable balance on the condensed consolidated balance sheets is presented net of the transferred amount. The Company has derecognized ~~$61~~$1,609 million of accounts receivables from the balance sheet under these ~~agreements.~~agreements, of which certain receivables totaling $1,583 million were sold under the MUFG RPA as of September 30, 2021. The fair value of the sold receivables approximated their book value due to their short-term nature. The fees incurred are presented in “Other non-operating income (loss) ~~income”~~” on the condensed consolidated statements of operations.

On September 21, 2020, the Company entered into a Master Accounts Receivable Purchase Agreement (the “RPA”) with MUFG Bank, Ltd. (“MUFG”), which provides for the sale to MUFG of certain of our designated eligible receivables, with a significant portion of such receivables being owed by the U.S. government. Under the RPA, the Company can sell eligible receivables up to a maximum amount of $150 million. The receivables sold under the RPA are without recourse for any credit risk or financial inability to pay any of the customers. The RPA has an initial term of one year, which will automatically renew annually unless terminated by either party During the quarter ended September 30, 2020, the Company sold certain receivables totaling $13 million under the RPA. Subsequent to the end of third quarter of 2020, the Company sold additional receivables to partially fund the acquisition of Centauri. See Note 4 "Acquisitions" for further discussion on this acquisition.

Activity for third-party financial institutions consisted of the following:


	Nine Months Ended		Nine Months Ended
Dollars in millions	September 30, 2021		September 30, 2020
Beginning balance	$	112	—
Sale of receivables	1,609		61
Settlement of receivables	(1,600)		(37)
Cash collected, not yet remitted	(8)		—
Outstanding balances sold to financial institutions	$	113	$	24

Nine Months Ended
Dollars in millions September 30, 2020
Sale of receivables 61
Cash collections 37
Outstanding balances sold to financial institutions $ 24

Note ~~20.~~19. Recent Accounting Pronouncements

New accounting pronouncements requiring implementation in future periods are discussed below.

In August 2018, the FASB issued ASU No. 2018-14, Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans. This ASU amends ASC 715 to add, remove and clarify certain disclosure requirements related to defined benefit pension and other post-retirement plans. ASU No. 2018-14 is effective for fiscal years ending after December 15, 2020, with early adoption permitted. We do not expect the adoption of ASU No. 2018-14 to have any impact on our financial position, results of operations or cash flows.

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This ASU removes specific exceptions to the general principles in ASC Topic 740 related to the incremental approach for intraperiod tax allocation, accounting for basis differences for ownership changes in foreign investments and interim period income tax accounting for year-to-date losses that exceed anticipated losses. The ASU also improves financial statement preparers’ application of income tax-related guidance and simplifies GAAP for franchise taxes that are partially based on income, transactions with a government that result in a step up in the tax basis of goodwill, separate financial statements of legal entities that are not subject to tax and enacted changes in tax laws in interim periods. For public entities, this ASU is effective for fiscal years beginning after December 15, 2020, and interim periods within those years. Early adoption is permitted. We are currently evaluating the future impact of adoption of this standard.

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848) - Facilitation of the Effects of the Interbank Offered Rate Transition on Financial Reporting to ~~ease the potential burden in~~provide optional relief from applying generally accepted accounting ~~for reference rate reform. The new guidance provides optional expedients for~~principles to contracts, hedging relationships and other transactions ~~that reference LIBOR or another~~affected by reference rate ~~expected~~reform. In addition, in January 2021, the FASB issued ASU No. 2021-01, Reference Rate Reform (Topic 848) – Scope, to ~~be discontinued if~~clarify that certain ~~criteria~~optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are ~~met. Each of~~affected by the ~~expedients~~discounting transition. The guidance is effective upon issuance and generally can be applied ~~as of January 1, 2020~~ through December 31, 2022. ~~For eligible hedging relationships existing as of January 1, 2020 and prospectively, we~~We are currently inevaluating the process of assessing the optional expedient allowing an entity to assume that the hedged forecasted transaction in a cash flow hedge is probable of occurring. As reference rate reform is still an ongoing process, we will continue to evaluate the timing and potentialfuture impact of adoption ~~for other optional expedients when deemed necessary.~~of this standard.

In August 2020, the FASB issued ASU No. 2020-06, Debt-Debt Conversion and other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity's Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Equity's Own Equity. ~~The amendments in this update affect entities that issue convertible instruments and/or~~

contracts indexed to and potentially settled in an entity's own equity. The new ASU eliminates the beneficial conversion and cash conversion accounting models for convertible instruments. It also amendsThis guidance simplifies the accounting for ~~certain contracts in an entity’s own equity that are currently accounted~~convertible instruments by reducing the number of accounting models available for ~~as derivatives because of specific settlement provisions. In addition,~~convertible debt instruments. This guidance also eliminates the ~~new guidance modifies how particular~~treasury stock method to calculate diluted earnings per share for certain convertible instruments and ~~certain contracts that may be settled in cash or shares impact~~requires the ~~diluted EPS computation. For public entities, this~~use of the if-converted method. ASU 2020-06 is effective for ~~fiscal years~~us for annual reporting periods beginning after December 15, 2021, and for interim periods within those ~~years. Early adoption is permitted.~~annual periods, and can be applied utilizing either a modified or full retrospective transition method. We are currently evaluating the future impact of adoption of this standard.

In May 2021, the FASB issued ASU No. 2021-04. Earnings Per Share (Topic 260), Debt - Modifications and Extinguishments (Subtopic 470-50), Compensation - Stock Compensation (Topic 718), and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options. This ASU provides guidance for a modification or an exchange of a freestanding equity-classified written call option that is not within the scope of another Topic. It specifically addresses measurement, treatment and recognition of a freestanding equity-classified written call option modification or exchange. ASU No. 2021-04 is effective for all entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. We are currently evaluating the future impact of adoption of this standard.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Introduction

The purpose of MD&A is to disclose material changes in our financial condition since the most recent fiscal year-end and results of operations during the current fiscal period as compared to the corresponding period of the preceding fiscal year. The MD&A should be read in conjunction with the condensed consolidated financial statements, accompanying notes, and our ~~2019~~2020 Annual Report on Form 10-K.

Overview

KBR, Inc., a Delaware corporation, ~~is a global provider of differentiated, professional services~~delivers science, technology and ~~technologies delivered across a wide government, defense~~engineering solutions to governments and ~~industrial base.~~companies around the world. Drawing from its rich 100-year history and culture of innovation and mission focus, KBR ~~combines technical, scientific and engineering~~creates sustainable value by combining deep domain expertise ~~and intellectual property~~ with ~~our~~its full life cycle capabilities ~~in its service offerings~~ to ~~clients.~~help clients meet their most pressing challenges. Our capabilities and offerings include the following:

•Scientific research such as quantum science and computing; health and human performance; materials science; life science research; and earth sciences;

~~Engineering services,~~•Defense systems engineering such as ~~systems and sustainment engineering; systems and platform integration;~~rapid prototyping; test and evaluation; aerospace acquisition support; systems and ~~rapid prototyping;~~ platform integration; and sustainment engineering;

~~Operations,~~•Operational support such as ~~command, control and communications;~~space domain awareness; C4ISR; human spaceflight and satellite operations; integrated supply chain and logistics; ~~technical training;~~ and military aviation support;

•Information operations such as cyber analytics and cybersecurity; data analytics; mission planning systems; virtual/augmented reality and technical training; and artificial intelligence and machine learning; and

•Technology such as licensing of proprietary, ~~industrial~~sustainability-focused process technology; advisory services focused on energy transition; and digitally-enabled asset optimization solutions.

~~KBR has completed a~~KBR's strategic transformation to be a provider of high-end, digitally-enabled solutions and technologies across defense, space, intelligence and industrial markets. Our people combine deep mission understanding, technical expertise and an operational focus to deliver solutions to our clients. KBR’s operating model has shifted toward agile, technology-driven, solutions-oriented delivery and away from higher risk, increasingly commoditized markets. Our focus continues to be to move upmarket into differentiated areas that we believe will provide attractive returns and consistent growth.

~~Our key areas of strategic focus~~growth vectors include:

•Defense modernization;

•Space superiority;

•Health and human performance; and

•Sustainable technology.

KBR delivers a wide range of professional services across defense, space and other government agencies spanning program management and consulting, mission planning, operational and platform support, research and development, test and evaluation, training, and logistics and facilities management. These services are provided primarily to government agencies in the U.S., U.K., Australia and other select countries under long-term programs with technical, scientific or mission-specific differentiation. CustomersKey customers include U.S. DoD agencies such as the ~~Missile Defense Agency,~~ U.S. Army, U.S. Navy and U.S. Air ~~Force;~~Force, Missile Defense Agency, National Geospatial-Intelligence Agency, National Reconnaissance Office and other intelligence agencies; U.S. civilian agencies such as NASA, U.S. Geological Survey and National Oceanic and Atmospheric Administration; the U.K. Ministry of Defence, London Metropolitan Police, ~~U.K. Army,~~ other U.K. Crown Services; ~~and~~ the Royal Australian Air Force, Navy and ~~Army.~~ Army; other national governments; and a wide range of commercial and industrial companies.

~~Consistent with our corporate focus towards sustainability,~~Our deployment priorities are to fund organic growth, maintain responsible leverage, maintain an attractive dividend, make strategic, accretive acquisitions and repurchase shares. Our acquisition thesis is centered around moving upmarket, expanding capabilities and broadening customer sets across strategic growth vectors. KBR ~~continues to develop~~also develops and ~~prioritize~~prioritizes investment in ~~process~~ technologies that are disruptive, innovative, and sustainability- and safety-focused. These technologies and solutions enable clients to ~~produce~~achieve a cleaner, ~~safer, and~~greener, more ~~sustainable outputs and also do so with improved economic outcomes. We provide~~energy efficient global future.

On October 1, 2020, we acquired Centauri, a provider of high-end ~~advisory solutions centered around energy transition, license process technologies, provide basic~~ engineering and ~~design services, sell proprietary equipment~~development solutions for critical, well-funded, national security missions associated with space, intelligence, cyber, and ~~catalysts,~~emerging technologies such as directed energy and provide asset optimization and remote facility operations monitoring. Customers include national governments, industrial companies, and oil and gas companies. Areas of long-term strategic focus include sustainable technology solutions, energy transition and technology-led asset optimization. missile defense. Additional information relating to the Centauri acquisition is described in Note 4 to our condensed consolidated financial statements.

Business Environment and Trends

Government Outlook

~~While funded through a continuing resolution that are subject to periodic congressional budget approvals, the~~The proposed U.S. defense spending budget prioritizes and furthers a national security strategy ~~continues to prioritize the restoration of military readiness, furthers investment~~ to confront near peer ~~and other~~ threats around the world, enhances the DoD’s cybersecurity strategy and cyber warfare capabilities, ~~funds~~increases the ~~U.S. Space Force under the U.S. Air Force, and~~priority of military space superiority, directs innovation to meet long-range emerging ~~threats.~~threats, and continues the restoration of military readiness. The ~~strategy~~budgets includes a number of measures to strengthen emerging technologies including cyber-science and

technologies, artificial intelligence, directed energy, hypersonics, and ~~emerging~~ biotechnologies. The proposed National Defense Authorization Act for fiscal year 2022 reflects a 5% increase in defense spending over last year's enacted budget and represents an increase from the president's requested amount. The fiscal 2022 non-defense discretionary spending proposal includes a 16% increase in funding, including a 6.5% increase in funding for NASA to support the continuation of scientific research and exploration as well as increased funding across all agencies to tackle climate change.

In early 2021, the U.S. announced a full withdrawal of U.S. forces from Afghanistan. In connection with Operation Allies Welcome ("OAW"), KBR has been engaged by the U.S. DoD to provide humanitarian support across numerous military bases to those awaiting resettlement. Such support includes temporary housing, food service, medical care and other services.

Internationally, our Government Solutions work is performed primarily for the U.K. ~~MoD~~Ministry of Defence and the Australian Department of Defence. ~~A significant majority~~The U.K. government has committed a 14% increase in defense spending over the coming four years. Recognizing the importance of ~~our work in~~strong defense and the role the U.K. ~~is contracted through long-term privately financed initiatives ("PFIs") that are expected~~plays across the globe, the U.K. has prioritized investment in military research and investment in key areas to ~~provide stable, predictable earnings~~advance and ~~cash flow over the program life, with our largest PFI extending through 2041.~~develop capabilities around artificial intelligence, cyber security and space superiority. The Australian government continues to ~~increase~~invest in defense spending, with particular focus on enhancing regional security, ~~building~~modernizing defense capabilities, strengthening cyber defenses and promoting broader economic stability.

In August 2021, we announced that we entered into a definitive agreement with Babcock International Group PLC, to acquire Frazer-Nash Consultancy Limited, a leading provider of systems engineering, assurance and technology advisory services. Frazer-Nash delivers high-end systems engineering, systems assurance and technology to solve complex challenges. They provide a broad range of professional advisory services across the defense, energy and critical infrastructure sectors primarily in the U.K. and Australia. With expertise in areas such as systems engineering, data science, cyber, and clean energy, Frazer-Nash compliments KBR's global priorities with minimal overlap because of its geographic footprint.

With defense and civil ~~budget spending~~budgets driven in part by political instability, military conflicts, aging platforms and infrastructure

and the need for technology ~~upgrades,~~advances, we expect continued opportunities to provide solutions and technologies to mission critical work aligned with our customers’ and our nation’s critical priorities.

~~Industrial~~Sustainable Technology Outlook

Long-range ~~industrial~~commercial market fundamentals are supported by global population growth, global expansion of the middle class, and acceleration of demand for energy transition and renewable energy sources for which momentum ~~and investment continue, even amidst COVID-19, as clients advance important objectives around decarbonization and climate change. Demand for our solutions and services is highly correlated~~continues to ~~the level of capital and operating expenditures of our customers and prevailing market conditions.~~build. Clients continue to prioritize investment in solutions to increase end-product flexibility and energy efficiency and to reduce their environmental footprint.

As companies continue to commit to near-term carbon neutrality and longer-range net-zero carbon emissions, we expect spending to continue in areas such as decarbonization; carbon capture, sequestration and utilization; biofuels; and circular economy. Further, leading companies across the world are proactively evaluating clean energy alternatives, including hydrogen and green ammonia which complements KBR's proprietary process technology and capabilities.

Our Business

~~Overall, we believe we have a balanced portfolio of global professional services and technologies across a wide government, defense and industrial base. Our~~KBR's business is organized into ~~three~~two core and ~~two~~one non-core business segments as follows:

Core business segments

• Government Solutions

• Sustainable Technology Solutions

~~• Energy Solutions~~

Non-core business ~~segments~~

~~• Non-strategic Business~~segment

• Other

See additional information on our business segments, including detail with respect to changes to our reportable segments in Notes 1 and 2 to our condensed consolidated financial statements.

The Company has initiated a strategic transition from its current three-core business segment model to a two-core business segment model comprised of Government Solutions and Technology Solutions. This transition will occur over the remainder of 2020. The core component of the new Technology Solutions segment will be the Company's proprietary process technologies. It will also include the Company’s advisory practice focused on energy transition and net-zero carbon ambitions as well as the technology-led industrial solutions focused on innovative digital operations and maintenance solutions and advanced remote operations capabilities to improve throughput, reliability and environmental sustainability.

Three months ended September 30, ~~2020~~2021 compared to the three months ended September 30, ~~2019~~2020

The information below is an analysis of our consolidated results for the three months ended September 30, ~~2020,~~2021, compared to the three months ended September 30, ~~2019.~~2020. See Results of Operations by Business Segment below for additional information describing the performance of each of our reportable segments.


Revenues	Three Months Ended September 30,
					2021 vs. 2020
Dollars in millions	2021		2020		$		%
Revenues	$	1,843	$	1,379	$	464	34	%

Revenues Three Months Ended September 30,
2020 vs. 2019
Dollars in millions 2020 2019 $ %
Revenues $ 1,379
$ 1,425
$ (46 ) (3 )%

The increase in overall revenue ~~decrease~~ was primarily ~~due~~attributable to ~~decisions to exit non-strategic areas~~continued organic growth in each of our GS business units, humanitarian support work performed for the OAW program, and the acquisition of Centauri in October 2020, which contributed approximately $148 million this quarter. This growth was partially offset by reduced activity in our ~~ES business segment and lower volume in our TS~~GS business segment due to ~~timing~~the withdrawal of U.S. forces from Afghanistan and ~~mix~~lower volume associated with the successful completion of ~~project deliveries. These decreases were~~non-recurring work on our Aspire program and a reduction in revenue in our STS business segment following the Company's exit from commoditized construction services in 2020.


Gross Profit	Three Months Ended September 30,
					2021 vs. 2020
Dollars in millions	2021		2020		$		%
Gross profit	$	193	$	172	$	21	12	%

The increase in overall gross profit was primarily driven by organic growth in our GS business segment, new work under the OAW program, the acquisition of Centauri in October 2020, and improvements in our STS business segment due to improved execution and market recovery in 2021.The increase was partially offset by ~~significant increases in project volume~~higher amortization of intangibles from the Centauri acquisition, reduced activity in our ~~space and defense systems engineering business areas within the~~ GS business ~~segment.~~segment due to the withdrawal of U.S. forces from Afghanistan; and lower volume associated with the successful completion of non-recurring work on our Aspire program.


Equity in Earnings (Losses) of Unconsolidated Affiliates	Three Months Ended September 30,
					2021 vs. 2020
Dollars in millions	2021		2020		$		%
Equity in earnings (losses) of unconsolidated affiliates	$	(1)	$	13	$	(14)	(108)	%

Gross Profit Three Months Ended September 30,
2020 vs. 2019
Dollars in millions 2020 2019 $ %
Gross profit $ 172
$ 168
$ 4
2 %

The overall gross profit increase was primarily due to favorable changes in estimates on projects within the GS business segment. These increases were partially offset by lower revenue volume in our ES business segment.

Equity in Earnings of Unconsolidated Affiliates Three Months Ended September 30,
2020 vs. 2019
Dollars in millions 2020 2019 $ %
Equity in earnings of unconsolidated affiliates $ 13
$ 9
$ 4
44 %

~~The increase~~decrease in equity in earnings (losses) of unconsolidated affiliates was primarily driven by ~~higher earnings from~~ a ~~U.K. joint venture~~charge in the amount of $10 million for final warranty items associated with the Ichthys LNG project recognized in the current quarter in our STS business segment. In October 2021, JKC entered into a Settlement Agreement that resolved the outstanding claims and ~~foreign exchange effects in~~disputes between JKC and its client. As a ~~project joint venture offset by reduced activity from an industrial services joint venture.~~result of the Settlement Agreement, the Parties agreed to withdraw all claims and terminate all ongoing arbitrations and court proceedings between the Parties.

Selling, General and Administrative Expenses Three Months Ended September 30,
2020 vs. 2019
Dollars in millions 2020 2019 $ %
Selling, general and administrative expenses $ (89 ) $ (74 ) $ 15
20 %


Selling, General and Administrative Expenses	Three Months Ended September 30,
					2021 vs. 2020
Dollars in millions	2021		2020		$		%
Selling, general and administrative expenses	$	(91)	$	(89)	$	2	2	%

Selling, general and administrative expenses in the three months ended September 30, ~~2020~~2021, was ~~$15~~$2 million higher than the same period in ~~2019~~ ~~principally as a result of a favorable~~2020, which was primarily driven by increased expenses attributable to the Centauri acquisition and other corporate costs, partially offset by cost ~~variance recorded~~reductions to right-size the cost base in line with the business shift to exit non-strategic areas in our ~~U.S. government contracting~~STS business in the three months ended September 30, 2019 driven by lower than expected bid and proposal and information technology costs and a larger allocation base than expected due to higher volume. Our current estimate of selling, general and administrative expenses and the relative cost bases for 2020 remains materially unchanged.segment.


Acquisition and Integration Related Costs	Three Months Ended September 30,
					2021 vs. 2020
Dollars in millions	2021		2020		$		%
Acquisition and integration related costs	$	(3)	$	(2)	$	1	n/m

Acquisition and Integration Related Costs Three Months Ended September 30,
2020 vs. 2019
Dollars in millions 2020 2019 $ %
Acquisition and integration related costs $ (2 ) $ —
$ 2
n/m

The increase in acquisition and integration related costs was comprised of acquisition costs associated with the ~~Company's~~Company’s integration of Centauri in October 2020 and the acquisition of ~~Centauri~~Frazer-Nash that closed on October ~~1, 2020. The Company anticipates incurring additional integration related costs related to its acquisition of Centauri over the next twelve months.~~

Goodwill Impairment, Restructuring Charges and Asset Impairments Three Months Ended September 30,
2020 vs. 2019
Dollars in millions 2020 2019 $ %
Goodwill impairment $ —
$ —
$ —
n/m
Restructuring charges and asset impairments $ (1 ) $ —
$ (1 ) n/m

20, 2021.

~~See Note 7 "Restructuring Charges~~


Restructuring Charges and Asset Impairments	Three Months Ended September 30,
					2021 vs. 2020
Dollars in millions	2021		2020		$		%

Restructuring charges and asset impairments	$	—	$	(1)	$	1	n/m

In 2020, as a result of the economic and ~~Asset Impairments"~~market volatility, management initiated a restructuring plan and ~~Note 8 "Goodwill~~we recognized restructuring charges and ~~Goodwill Impairments"~~assets impairments resulting from that plan.


Gain on disposition of assets and investment	Three Months Ended September 30,
					2021 vs. 2020
Dollars in millions	2021		2020		$		%
Gain on disposition of assets and investment	$	3	$	—	$	3	n/m

The increase in gain on disposition of assets and investments of $3 million was as a result of the sale of our investment interest in the ~~footnotes to our accomp~~Middle East Petroleum Corporation (EBIC Ammonia project).

~~anying condensed consolidated financial statements.~~


Interest Expense	Three Months Ended September 30,
					2021 vs. 2020
Dollars in millions	2021		2020		$		%
Interest expense	$	(23)	$	(18)	$	5	28	%

Interest Expense Three Months Ended September 30,
2020 vs. 2019
Dollars in millions 2020 2019 $ %
Interest expense $ (18 ) $ (25 ) $ (7 ) (28 )%

The ~~decrease~~increase in interest expense was primarily ~~due to lower outstanding~~driven by increased expense associated with borrowings ~~under our Senior Credit Facility during the three months ended September 30, 2020 as compared~~related to the ~~same period in 2019 and lower weighted-average interest rates as a result~~acquisition of ~~the refinancing of our Senior Credit Facility in February 2020. See Note 11 to our condensed consolidated financial statements for further discussion.~~Centauri.


Other Non-operating Income (Loss)	Three Months Ended September 30,
					2021 vs. 2020
Dollars in millions	2021		2020		$		%
Other non-operating income (loss)	$	(1)	$	(4)	$	3	75	%

Other Non-operating (Loss) Income Three Months Ended September 30,

2020 vs. 2019
Dollars in millions 2020 2019 $ %
Other non-operating (loss) income $ (4 ) $ 3
$ (7 ) 233 %

Other non-operating income (loss) ~~income~~ includes interest income, foreign exchange gains and losses, and other non-operating income or expense ~~items. The increase in loss in~~items with the ~~third quarter of 2020 was~~change primarily ~~due to unfavorable~~driven by foreign exchange ~~rate effects on certain U.S. Dollar cash positions held internationally.~~gains and losses.


Provision for Income Taxes	Three Months Ended September 30,											Provision for Income Taxes	Three Months Ended September 30,
							2020 vs. 2019										2021 vs. 2020
Dollars in millions	2020			2019			$			%		Dollars in millions	2021		2020		$		%
Income before provision for income taxes and noncontrolling interests	$	71		$	82		$	(11	)	(13	)%	Income before provision for income taxes and noncontrolling interests	$	77	$	71	$	6	8	%
(Provision) for income taxes	$	(19	)	$	(24	)	$	(5	)	(21	)%	(Provision) for income taxes	$	(19)	$	(19)	$	—	—	%

The provision for income taxes for the three months ended September 30, ~~2020~~2021 reflects a ~~27%~~25% tax rate as compared to a ~~30%~~27% tax rate for the three months ended September 30, ~~2019, both~~2020. The effective tax rate of ~~which were~~25% for the three months ended September 30, 2021 was primarily impacted by equity adjustments on joint venture projects. Excluding the tax impact of these adjustments, our tax rate would be 19% for the three months ended September 30, 2021. The effective tax rate of 27% for the three months ended September 30, 2020 was primarily impacted by the rate differential on our foreign earnings including equity in losses, of certain unconsolidated affiliates for which any tax effects are not reflected in the provision for income taxes because they are reflected on a net basis in equity in earnings of unconsolidated affiliates. See Note 1211 to our condensed consolidated financial statements for further discussion on income taxes.


Net Income Attributable to Noncontrolling Interests	Three Months Ended September 30,
					2021 vs. 2020
Dollars in millions	2021		2020		$		%
Net income attributable to noncontrolling interests	$	3	$	—	$	3	n/m

The increase in net income attributable to noncontrolling interests was primarily attributable to our partners' portion of the gain on the sale of a Middle East joint venture project in our STS business segment.

Results of Operations by Business Segment


	Three Months Ended September 30,
Dollars in millions	2021		2020
Revenues
Government Solutions	$	1,555	$	1,013
Sustainable Technology Solutions	288		366

Total revenues	$	1,843	$	1,379

Gross profit
Government Solutions	$	147	$	131
Sustainable Technology Solutions	46		41

Total gross profit	$	193	$	172

Equity in earnings (losses) of unconsolidated affiliates
Government Solutions	$	11	$	11
Sustainable Technology Solutions	(12)		2

Total equity in earnings (losses) of unconsolidated affiliates	$	(1)	$	13

Total selling, general and administrative expenses	$	(91)	$	(89)

Acquisition and integration related costs	$	(3)	$	(2)



Restructuring charges and asset impairments	$	—	$	(1)

Gain on disposition of assets	$	3	$	—



Total operating income	$	101	$	93

Three Months Ended September 30,
Dollars in millions 2020 2019
Revenues
Government Solutions $ 980
$ 978
Technology Solutions 71
96
Energy Solutions 327
351
Subtotal 1,378
1,425
Non-strategic Business 1
—
Total revenues $ 1,379
$ 1,425

Gross profit
Government Solutions $ 129
$ 110
Technology Solutions 30
30
Energy Solutions 15
21
Subtotal 174
161
Non-strategic Business (2 ) 7
Total gross profit $ 172
$ 168

Equity in earnings of unconsolidated affiliates
Government Solutions $ 9
$ 7
Energy Solutions 4
2
Total equity in earnings of unconsolidated affiliates $ 13
$ 9

Total selling, general and administrative expenses $ (89 ) $ (74 )

Acquisition and integration related costs $ (2 ) $ —

Restructuring charges and asset impairments $ (1 ) $ —

Gain on disposition of assets $ —
$ 1

Total operating income $ 93
$ 104

Government Solutions

GS revenues increased by $2$542 million to ~~$980 million~~$1.6 billion in the ~~third quarter of 2020,~~three months ended September 30, 2021 compared to ~~$978 million~~$1.0 billion in the ~~third quarter of 2019. This slight~~three months ended September 30, 2020. The increase was primarily driven by organic revenue growth across each of our GS business units, including new work associated with OAW. Revenue also increased related to the acquisition of Centauri in ~~the space and engineering businesses, ramp-up of LogCAP V Northern Command scope of work, higher volumes on projects in Australia as well as the SMA acquisition in March~~October 2020. These increases were ~~substantially~~partially offset by reduced activity due to the withdrawal of U.S. forces from Afghanistan and lower volume associated with the successful completion of ~~disaster recovery services provided to the U.S. Air Force in 2019, lower~~non-recurring construction work ~~volume~~ on ~~the LogCAP IV scope of work primarily in the Middle East, and the reduction in revenue related to the construction component of the~~our Aspire ~~Defence project in the U.K. which is nearing completion.~~program.

GS gross profit increased by ~~$19~~$16 million, or ~~17%~~12%, to ~~$129~~$147 million in the ~~third quarter of 2020~~three months ended September 30, 2021 compared to ~~$110~~$131 million in the ~~third quarter of 2019.~~three months ended September 30, 2020. The increase iswas primarily driven by the activity of growth indiscussed above, partially offset by the ~~space and engineering businesses and~~higher amortization of intangibles from the ~~non-recurrence of a contingency release on a project in the Middle East in 2019.~~Centauri acquisition.

GS equity in earnings of unconsolidated affiliates ~~increased~~change remained flat at $11 million in each of the three months ended September 30, 2021 and 2020.

Sustainable Technology Solutions

STS revenues decreased by $2$78 million, or ~~29%~~21%, to $9$288 million in the ~~third quarter of 2020~~three months ended September 30, 2021 compared to $7$366 million in the ~~third quarter of 2019.~~three months ended September 30, 2020. The ~~increase is~~decrease was primarily ~~associated with higher earnings~~driven by the company's exit from ~~a U.K. project joint venture.~~commoditized construction services in 2020.

~~Technology Solutions~~

~~TS revenues decreased~~STS gross profit increased by ~~$25~~$5 million, or ~~26%,~~12% to ~~$71~~$46 million in the ~~third quarter of 2020~~three months ended September 30, 2021 compared to ~~$96~~$41 million in the ~~third quarter of 2019,~~three months ended September 30, 2020. The increase was primarily driven by ~~higher volumes~~strong execution and market recovery in 2021 and expenses recognized in 2020 that did not recur in 2021.

STS equity in earnings (losses) of ~~proprietary equipment and catalyst sales~~unconsolidated affiliates decreased by $14 million, or 700% to $12 million loss in ~~2019 as~~the three months ended September 30, 2021 compared to ~~2020.~~

~~TS gross profit remained consistent at $30 million for the third quarter of 2020 and 2019, primarily due to favorable mix of higher margin license revenue and lower overhead spend in 2020.~~

~~Energy Solutions~~

~~ES revenues decreased by $24 million, or 7%, to $327~~$2 million in ~~the third quarter of 2020, compared to $351 million~~equity earnings in the ~~third quarter of 2019.~~three months ended September 30, 2020. The decrease was ~~largely attributable to the completion or near completion of projects and lower volumes~~ primarily ~~attributable to the downturn~~driven by an additional charge in the ~~energy market caused by COVID-19 and ensuing portfolio shaping decisions.~~

~~ES gross profit decreased by $6~~amount of $10 million ~~or 29%, to $15 million~~for final warranty items associated with the Ichthys LNG project recognized in the ~~third quarter of 2020 as compared to $21 million in the second quarter of 2019 due to reduced volume and an unfavorable mix of lower margin projects primarily in North America.~~

ES equity in earnings of unconsolidated affiliates increased by $2 million, or 100%, to $4 million in the third quarter of 2020, compared to earnings of $2 million in the third quarter of 2019. This increase was primarily due to foreign exchange effects in project joint ventures.

~~Non-strategic Business~~

current quarter.

~~Non-strategic Business revenues were~~ ~~$1 million in the third~~ ~~quarter of2020, compared to none for the third quarter of 2019, primarily associated with close-out activities on completed projects as we exit the related businesses.~~

~~Non-strategic Business incurred a gross loss of $2 million in the third~~ ~~quarter of2020, compared to $7 million gross profit in the third quarter of 2019. All Non-strategic Business projects are substantially complete as of~~Nine months ended September 30, ~~2020. We continue to finalize project close-out activities and negotiate the settlement of claims and various other matters associated with these projects.~~

~~Changes in Estimates~~

~~Information relating to our changes in estimates is discussed in Note 1 “Basis of Presentation” to our condensed consolidated financial statements.~~

~~Ninemonths endedSeptember 30, 2020~~2021 compared to the nine months ended September 30, ~~2019~~2020

The information below is an analysis of our consolidated results for the nine months ended September 30, ~~2020,~~2021, compared to the nine months ended September 30, ~~2019.~~2020. See Results of Operations by Business Segment below for additional information describing the performance of each of our reportable segments.


Revenues	Nine Months Ended September 30,
					2021 vs. 2020
Dollars in millions	2021		2020		$		%
Revenues	$	4,840	$	4,301	$	539	13	%

Revenues Nine Months Ended September 30,
2020 vs. 2019
Dollars in millions 2020 2019 $ %
Revenues $ 4,301
$ 4,187
$ 114
3 %

The increase in ~~consolidated revenues~~overall revenue was primarily driven by ~~ramp-up~~our GS business segment, which was attributable to the OAW program, the acquisition of Centauri in ~~projects within the U.S.~~October 2020, which contributed $461 million this year, and continued organic growth in our ESGS business ~~segment.~~units. This growth was partially offset by ~~lower volume~~a reduction in revenue in our STS business segment following the Company's exit from commoditized construction services in 2020, reduced activity in our GS business segment ~~pertaining~~due to ~~our contingency logistics business and a construction component~~the withdrawal of ~~the Aspire Defence project in the U.K. which nears completion,~~U.S. forces from Afghanistan and lower volume associated with the successful completion of non-recurring construction work on our Aspire program.


Gross Profit	Nine Months Ended September 30,
					2021 vs. 2020
Dollars in millions	2021		2020		$		%
Gross profit	$	568	$	500	$	68	14	%

The increase in overall gross profit was primarily driven by improvements in our TSSTS business segment due to ~~timing~~improved execution and ~~mix~~market recovery in 2021, legacy provisions recognized in 2020 that did not recur in 2021, and the net favorable resolution of ~~project deliveries.~~

Gross Profit Nine Months Ended September 30,
2020 vs. 2019
Dollars in millions 2020 2019 $ %
Gross profit $ 500
$ 483
$ 17
4 %

~~The increase~~and provisioning for legacy matters. Gross profits also increased in ~~gross profit is principally driven by the~~our GS business segment ~~primarily due to favorable changes~~that was driven by

activity of the OAW program and the acquisition of Centauri in ~~estimates on projects and improvements in margin on the Aspire Defence project in the U.K. These increases were~~October 2020. The increase was partially offset by ~~an unfavorable project mix~~higher amortization of intangibles from the Centauri acquisition, reduced activity in our ESGS business ~~segment. We also incurred higher costs in our Non-Strategic business~~ segment ~~in 2019 related to project close-out activities.~~

Equity in Earnings of Unconsolidated Affiliates Nine Months Ended September 30,
2020 vs. 2019
Dollars in millions 2020 2019 $ %
Equity in earnings of unconsolidated affiliates $ 30
$ 24
$ 6
25 %

~~Equity earnings increased primarily~~ due to the ~~non-recurrence~~withdrawal of ~~an accrued loss~~U.S. forces from Afghanistan, and lower volume associated with ~~an equity method investment in Latin America in 2019. These increases were partially offset by~~ the successful completion of ~~a North Sea project in 2019.~~

Selling, General and Administrative Expenses Nine Months Ended September 30,
2020 vs. 2019
Dollars in millions 2020 2019 $ %
Selling, general and administrative expenses $ (259 ) $ (242 ) $ 17
7 %

non-recurring construction work on our Aspire program.


Equity in Earnings (Losses) of Unconsolidated Affiliates	Nine Months Ended September 30,
					2021 vs. 2020
Dollars in millions	2021		2020		$		%
Equity in earnings (losses) of unconsolidated affiliates	$	(175)	$	30	$	(205)	n/m

The overall decrease in equity earnings (losses) was primarily driven by a non-cash charge in the amount of $193 million recognized in the second quarter and an additional charge in the amount of $10 million for final warranty items associated with the Ichthys LNG project recognized in the current quarter in our STS business segment. In October 2021, JKC entered into a Settlement Agreement that resolved the outstanding claims and disputes between JKC and its client. As a result of the Settlement Agreement, the Parties agreed to withdraw all claims and terminate all ongoing arbitrations and court proceedings between the Parties.


Selling, General and Administrative Expenses	Nine Months Ended September 30,
					2021 vs. 2020
Dollars in millions	2021		2020		$		%
Selling, general and administrative expenses	$	(283)	$	(259)	$	24	9	%

Selling, general and administrative expenses in the nine months ended September 30, ~~2020 was $17~~2021 were $24 million higher than the same period in ~~2019~~ ~~principally as a result of a favorable~~2020, which was primarily driven by increased expenses attributable to the Centauri acquisition and increased costs associated with corporate initiatives, partially offset by cost ~~variance recorded~~reductions to right-size the cost base in line with the business shift to exit non-strategic areas in our ~~U.S. government contracting~~STS business in the nine months ended September 30, 2019 driven by lower than expected bid and proposal and information technology costs and a larger allocation base than expected due to higher volume. Our current estimate of selling, general and administrative expenses and the relative cost bases for 2020 remains materially unchanged.segment.


Acquisition and Integration Related Costs	Nine Months Ended September 30,
					2021 vs. 2020
Dollars in millions	2021		2020		$		%
Acquisition and integration related costs	$	(7)	$	(2)	$	5	n/m

Acquisition and Integration Related Costs Nine Months Ended September 30,
2020 vs. 2019
Dollars in millions 2020 2019 $ %
Acquisition and integration related costs $ (2 ) $ (2 ) $ —
— %

~~Acquisition~~The increase in acquisition and integration related costs ~~for the nine months ended September 30, 2020 are comprised of acquisition costs~~was associated with ~~our~~the Company's acquisition of Centauri onin October ~~1, 2020. We expect to incur integration costs related to~~2020 and the acquisition of Centauri over the next twelve months. Acquisition and integration costs for the nine months ended September 30, 2019 are comprised of integration costs related to our acquisition of SGT. The integration of SGT was completed in early 2019.

Goodwill Impairment, Restructuring Charges and Asset Impairments Nine Months Ended September 30,
2020 vs. 2019
Dollars in millions 2020 2019 $ %
Goodwill impairment $ (99 ) $ —
$ (99 ) n/m
Restructuring charges and asset impairments $ (176 ) $ —
$ (176 ) n/m

Frazer-Nash that closed on October 20, 2021.


Goodwill Impairment, Restructuring Charges and Asset Impairments	Nine Months Ended September 30,
					2021 vs. 2020
Dollars in millions	2021		2020		$		%
Goodwill impairment	$	—	$	(99)	$	99	n/m
Restructuring charges and asset impairments	$	(2)	$	(176)	$	174	n/m

In 2020, as a result of the economic and market volatility, ~~as well as management's decision to discontinue pursuing certain projects within our ES business segment,~~management initiated a restructuring plan and we recognized goodwill impairments, ~~totaling $99 million~~ ~~associated with a reporting unit in our ES segment during the~~ ~~nine months endedSeptember 30, 2020. In addition, management initiated a~~ ~~restructuring plan during the first quarter of 2020 and as a result, we recognized~~ restructuring charges and asset impairments ~~for the nine months ended September 30, 2020 totaling $176 million~~resulting from that plan.

~~. See Note~~ 7 ~~"Restructuring Charges and Asset Impairments" and Note~~ 8 ~~"Goodwill and Goodwill Impairments" in the footnotes to our accompanying condensed consolidated financial statements.~~

Interest Expense Nine Months Ended September 30,
2020 vs. 2019
Dollars in millions 2020 2019 $ %
Interest expense $ (60 ) $ (76 ) $ (16 ) (21 )%


Interest Expense	Nine Months Ended September 30,
					2021 vs. 2020
Dollars in millions	2021		2020		$		%
Interest expense	$	(68)	$	(60)	$	8	13	%

The ~~decrease~~increase in interest expense was primarily ~~due~~driven by increased expense associated with borrowings to ~~lower outstanding borrowings under our Senior Credit Facility during~~finance the ~~nine months ended September 30, 2020 as compared to the same period in 2019 and lower weighted-average interest rates as a result~~acquisition of ~~the refinancing of our Senior Credit Facility in February 2020. See Note 11 "Debt and Other Credit Facilities" to our condensed consolidated financial statements for further discussion.~~Centauri.


Other Non-operating Income (loss)	Nine Months Ended September 30,
					2021 vs. 2020
Dollars in millions	2021		2020		$		%
Other non-operating income (loss)	$	(2)	$	1	$	(3)	(300)	%

Other Non-operating Income Nine Months Ended September 30,
2020 vs. 2019
Dollars in millions 2020 2019 $ %
Other non-operating income $ 1
$ 10
$ (9 ) (90 )%

Other non-operating income includes interest income, foreign exchange gains and losses, and other non-operating income or expense ~~items.~~ items with the change primarily driven by foreign exchange gains and losses.


Gain on disposition of assets and investment	Nine Months Ended September 30,
					2021 vs. 2020
Dollars in millions	2021		2020		$		%
Gain on disposition of assets and investment	$	1	$	18	$	(17)	94	%

The decrease in ~~income for the nine months ended September 30, 2020,~~gain on disposition of assets and investment of $17 million was primarily ~~due to less favorable foreign exchange rate effects on certain U.S. Dollar cash positions held internationally.~~driven by the liquidation of a joint venture in 2020.


Provision for Income Taxes	Nine Months Ended September 30,
					2021 vs. 2020
Dollars in millions	2021		2020		$		%
Income (loss) before provision for income taxes and noncontrolling interests	$	32	$	(47)	$	79	(168)	%
(Provision) benefit for income taxes	$	(75)	$	(24)	$	51	n/m

Provision for Income Taxes Nine Months Ended September 30,
2020 vs. 2019
Dollars in millions 2020 2019 $ %
(Loss) income before provision for income taxes and noncontrolling interests $ (47 ) $ 208
$ (255 ) (123 )%
Provision for income taxes $ (24 ) $ (58 ) $ (34 ) (59 )%

The provision for income taxes for the nine months ended September 30, ~~2020,~~2021 reflects a ~~(51)%~~234% tax rate as compared to a ~~28%~~(51)% tax rate for the nine months ended September 30, ~~2019.~~2020. The ~~difference between~~effective tax rate of 234% for the nine months ended September 30, 2021 was primarily impacted by an equity adjustment on the LNG project and the enactment of a tax rate change in the U.K. Excluding the tax impact of these adjustments, our tax rate would be 23% for the nine months ended September 30, 2021. The effective tax rate of (51)% for the nine months ended September 30, 2020 was primarily impacted by impairment and ~~the statutory rate was caused by goodwill and asset impairment~~restructuring charges incurred during the period.Excluding the tax impact of ~~the certain goodwill and asset impairments,~~these adjustments, our tax rate ~~was~~would have been 27% ~~for the~~ nine months ended September 30, 2020. The effective tax rate of 28% for the nine months ended September 30, 2019 was primarily impacted by the rate differential on our foreign earnings and equity in losses, of certain unconsolidated affiliates for which any tax effects are not reflected in the provision for income taxes because they are reflected on a net basis in equity in earnings unconsolidated affiliates. See Note 1211 to our condensed consolidated financial statements for further discussion on income taxes.


Net Income Attributable to Noncontrolling Interests	Nine Months Ended September 30,
					2021 vs. 2020
Dollars in millions	2021		2020		$		%
Net income attributable to noncontrolling interests	$	7	$	20	$	(13)	n/m

Net Income Attributable to Noncontrolling Interests Nine Months Ended September 30,

2020 vs. 2019
Dollars in millions 2020 2019 $ %
Net income attributable to noncontrolling interests $ (20 ) $ (6 ) $ 14
n/m

The ~~increase~~decrease in net income attributable to noncontrolling interests was ~~associated with variable consideration resulting from~~primarily driven by the resolution of a contingency on a completed LNG project and liquidation of the ~~associated~~ joint ~~venture.~~venture in 2020, partially offset by income earned related to a Middle East joint venture project in our STS business segment.

Results of Operations by Business Segment


	Nine Months Ended September 30,
Dollars in millions	2021		2020
Revenues
Government Solutions	$	3,950	$	2,948
Sustainable Technology Solutions	890		1,353

Total revenues	$	4,840	$	4,301

Gross profit
Government Solutions	$	393	$	377
Sustainable Technology Solutions	175		123

Total gross profit	$	568	$	500

Equity in earnings (losses) of unconsolidated affiliates
Government Solutions	$	26	$	23
Sustainable Technology Solutions	(201)		7

Total equity in earnings (losses) of unconsolidated affiliates	$	(175)	$	30

Total selling, general and administrative expenses	$	(283)	$	(259)

Acquisition and integration related costs	$	(7)	$	(2)

Goodwill impairment	$	—	$	(99)

Restructuring charges and asset impairments	$	(2)	$	(176)

Gain on disposition of assets	$	1	$	18



Total operating income	$	102	$	12

Nine Months Ended September 30,
Dollars in millions 2020 2019
Revenues
Government Solutions $ 2,860
$ 2,986
Technology Solutions 232
281
Energy Solutions 1,205
919
Subtotal 4,297
4,186
Non-strategic Business 4
1
Total revenues $ 4,301
$ 4,187

Gross profit (loss)
Government Solutions $ 370
$ 312
Technology Solutions 82
83
Energy Solutions 55
81
Subtotal 507
476
Non-strategic Business (7 ) 7
Total gross profit $ 500
$ 483

Equity in earnings of unconsolidated affiliates
Government Solutions $ 21
$ 21
Energy Solutions 9
16
Subtotal 30
37
Non-strategic Business —
(13 )
Total equity in earnings of unconsolidated affiliates $ 30
$ 24

Total selling, general and administrative expenses $ (259 ) $ (242 )

Acquisition and integration related costs $ (2 ) $ (2 )

Goodwill impairment $ (99 ) $ —

Restructuring charges and asset impairments $ (176 ) $ —

Gain on disposition of assets $ 18
$ 11

Total operating income $ 12
$ 274

Government Solutions

GS revenues ~~decreased~~increased by ~~$126 million,~~$1.0 billion, or 4%34%, to $4.0 billion in the nine months ended September 30, 2021, compared to $2.9 billion in the nine months ended September 30, ~~2020, compared to $3.0 billion in the nine months ended September 30, 2019. This decrease~~2020. The increase was primarily driven by organic revenue growth across each of our GS business units, including new work associated with the ~~completion of disaster recovery services provided to the U.S. Air Force in 2019, lower work volume on the LogCAP IV project primarily in the Middle East~~OAW program and the ~~reduction~~acquisition of Centauri in ~~revenues on the construction component of the Aspire Defence project in the U.K.~~October 2020, which ~~is nearing completion.~~ contributed $461 million.These ~~decreases~~increases were partially offset by ~~growth of human performance and behavioral health services provided~~reduced activity due to the withdrawal of U.S. ~~Special Operations Command~~forces from Afghanistan and ~~services provided to NASA, increased engineering services~~lower volume associated with the successful completion of non-recurring construction work on ~~various other U.S. government programs such as LogCAP V Northern Command, a new award from the U.K. MoD in late 2019 for the provision of services in the Middle East, and overall growth of~~ our ~~Australian business including the acquisition of SMA in March 2020.~~Aspire program.

GS gross profit increased by ~~$58~~$16 million, ~~or 19%,~~ to ~~$370~~$393 million in the nine months ended September 30, ~~2020,~~2021, compared to ~~$312~~$377 million in the nine months ended September 30, ~~2019.~~2020. The increase was primarily driven by ~~improved profitability on~~ the ~~Aspire project as uncertainties~~growth discussed above and new work under the OAW program, partially offset by the higher amortization of intangibles from the Centauri acquisition, reduced activity due to the withdrawal of U.S. forces from Afghanistan, and lower volume associated with ~~index-based price adjustments dissipate, and volume growth on~~ the ~~newly awarded LogCAP V Northern Command project. These increases were offset by lower work volume on the LogCAP IV project primarily in the Middle East, and~~successful completion of ~~disaster recovery services provided to the U.S. Air Force in 2019.~~non-recurring work on our Aspire program.

GS equity in earnings of unconsolidated affiliates ~~remained consistent at $21~~increased by $3 million to $26 million in the nine months ended September 30, ~~2020 and 2019.~~

~~Technology Solutions~~

~~TS revenues decreased by $49 million, or 17%,~~2021, compared to ~~$232~~$23 million in the nine months ended September 30, ~~2020, compared~~2020. The increase was primarily driven by better performance of joint ventures and increased work in our International business, partially offset by changes in project estimates in a domestic joint venture.

Sustainable Technology Solutions

STS revenues decreased by $463 million, or 34%, to ~~$281~~$890 million in the nine months ended September 30, ~~2019, primarily driven by higher mix of license revenue in 2020~~2021, compared to ~~2019.~~

~~TS gross profit decreased by $1 million, or 1%, to $82~~$1,353 million in the nine months ended September 30, ~~2020, compared~~2020. The decrease was primarily driven by the Company's exit from commoditized construction services in 2020.

STS gross profit increased by $52 million, or 42%, to ~~$83~~$175 million in the nine months ended September 30, ~~2019, primarily due to higher mix of license revenue offset by one-time settlements in the first half of 2020 and lower overall overhead spend.~~

~~Energy Solutions~~

~~ES revenues increased by $286 million, or 31%, to $1.2 billion in the nine months ended September 30, 2020,~~2021, compared to ~~$919~~$123 million in the nine months ended September 30, ~~2019.~~2020. The increase was ~~largely attributable to new awards~~primarily driven by strong execution and market recovery in 2021, expenses recognized in 2020 that did not recur in 2021, and the ~~ramp-up of existing projects along the U.S. Gulf Coast and Mexico.~~

ES gross profit decreased by $26 million, or 32%, to $55 million in the nine months ended September 30, 2020, compared to $81 million in the nine months ended September 30, 2019. This decrease was due to an unfavorable project mix in 2020 primarily in the U.S., reductions in project services provided to a joint venture in the Asia and the non-recurrence of anet favorable ~~close-out of an EPC project in the U.S. in 2019. These decreases were partially offset by higher volume and a favorable change in variable consideration resulting from~~ resolution of ~~a contingency on a completed LNG project during the first quarter of 2020.~~and provisioning for legacy matters.

ESSTS equity in earnings of unconsolidated affiliates decreased by $7$208 million to $9$201 million loss in the nine months ended September 30, ~~2020,~~2021, compared to $7 million in equity earnings ~~of $16 million~~ in the nine months ended September 30, ~~2019. This~~2020. The decrease was primarily ~~due to the completion of~~driven by a ~~North Sea project in 2019 and lower earnings from an industrial services joint venture~~non-cash charge in the ~~U.S.~~

~~Non-strategic Business~~

~~Non-strategic Business earned revenue~~samount of $4$193 million that was recognized during the second quarter of 2021 and an additional charge in the nine months ended September 30, 2020, compared to $1 million earned in the nine months ended September 30, 2019, primarily associated with close-out activities on completed projects as we exit the related businesses.

~~Non-strategic Business incurred a gross loss~~amount of $7 million in the nine months ended September 30, 2020 due to a settlement resolution and legal costs related to project close-out activities compared to $7 million gross profit for the nine months ended September 30, 2019. All Non-strategic Business projects are substantially complete as of September 30, 2020. We continue to finalize project close-out activities and negotiate the settlement of claims and various other matters associated with these projects.

~~Non-strategic Business earned no equity in earnings of unconsolidated affiliates for the nine months ended September 30, 2020 compared to a loss of $13~~$10 million for ~~the nine months ended September 30, 2019 due to recognition of an accrued loss~~final warranty items associated with ~~an equity method investment in Latin America in 2019.~~

~~Changes in Estimates~~

Information relating to our changes in estimates is discussed in Note 1 “Basis of Presentation” to our condensed consolidated financial statements. See Note 6 “Unapproved Change Orders, and Claims, Against Clients and Estimated Recoveries of Claims Against Suppliers and Subcontractors” to our condensed consolidated financial statements for more information on the Ichthys LNG ~~project.~~project recognized in the current quarter.

Backlog of Unfilled Orders

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 over the contract period 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. 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 expected value of our services in backlog.

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 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.

Within our GS business segment, we calculate estimated backlog for long-term contracts associated with the U.K. government's 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 below our proportionate share of unconsolidated joint ventures' estimated backlog. Because 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 ~~$2.5~~$2.9 billion at September 30, ~~2020,~~2021, and ~~$2.6~~$2.4 billion at December 31, ~~2019.~~2020. Our backlog included in the table below for projects related to consolidated joint ventures with noncontrolling interests includes 100% of the backlog associated with those joint ventures and totaled ~~$53~~$41 million and ~~$78~~$52 million at September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively.

The following table summarizes our backlog by business segment as of September 30, ~~2020~~2021, and December 31, ~~2019,~~2020, respectively:

September 30, December 31,
Dollars in millions 2020 2019
Government Solutions $ 10,868
$ 10,960
Technology Solutions 582
579
Energy Solutions 1,345
3,097
Subtotal 12,795
14,636
Non-strategic Business —
—
Total backlog $ 12,795
$ 14,636


	September 30,		December 31,
Dollars in millions	2021		2020
Government Solutions	$	12,453	$	12,661
Sustainable Technology Solutions	2,306		2,454
Total backlog	$	14,759	$	15,115

~~Backlog for the ES business segment decreased approximately $1.8 billion during the nine months ended September 30, 2020 and was primarily due to management's decision to~~
~~discontinue pursuing certain projectstotaling~~ approximating $1.2 billion. The remaining decrease was due to workoff, net of new awards during the period. For further discussion, see Notes 1 and 7 to our condensed consolidated financial statements.

We estimate that as of September 30, ~~2020, 31%~~2021, 26% of our backlog will be executed within one year. Of this amount, ~~87%~~92% will be recognized in revenues on our condensed consolidated statement of operations and ~~13%~~8% will be recorded by our unconsolidated joint ventures. As of September 30, ~~2020, $68~~2021, $95 million of our backlog relates to active contracts that are in a loss position.

As of September 30, ~~2020, 10%~~2021, 11% of our backlog was attributable to fixed-price contracts, ~~53%~~50% was attributable to PFIs, ~~and 37%~~26% was attributable to cost-reimbursable contracts, and 13% was attributable to time-and-materials contracts. For contracts that contain ~~both~~ fixed-price, cost-reimbursable, and ~~cost-reimbursable~~time-and-materials components, we classify the individual components as either fixed-price, cost-reimbursable, or ~~cost-reimbursable~~time-and-materials 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, ~~2020, $8.9~~2021, $9.7 billion of our GS backlog was currently funded by our customers.

As of September 30, ~~2020,~~2021, we had approximately ~~$3.0~~$5.2 billion of priced option periods for U.S. government contracts that are not included in the backlog amounts presented above.

The difference between backlog of ~~$12.8~~$14.8 billion and the remaining performance obligation as defined by ASC 606 of ~~$9.9~~$11.2 billion is primarily due to our proportionate share of backlog related to unconsolidated joint ventures which is not included in our remaining performance obligation. See Note 3 to our condensed consolidated financial statements for discussion of the remaining performance obligation.

Transactions with Joint Ventures

We perform many of our projects through incorporated and unincorporated joint ventures. In addition to participating as a joint venture partner, we often provide engineering, procurement, construction, operations or maintenance services to the joint venture as a subcontractor. Where we provide services to a joint venture that we control and therefore consolidate for financial reporting purposes, we eliminate intercompany revenues and expenses on such transactions. In situations where we account for our interest in the joint venture under the equity method of accounting, we do not eliminate any portion of our subcontractor revenues or expenses. We recognize the profit on our services provided to joint ventures that we consolidate and joint ventures that we record under the equity method of accounting primarily using the percentage-of-completion method. See Note 98 to our condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information. The information discussed therein is incorporated by reference into this Part I, Item 2.

Legal Proceedings

Information relating to various commitments and contingencies is described in Notes 6, 13 and 14 to our condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q, and the information discussed therein is incorporated by reference into this Part I, Item 2.

Liquidity and Capital Resources

Liquidity is provided by available cash and equivalents, cash generated from operations, our Senior Credit Facility and access to financial markets. Our operating cash flow can vary significantly from year to year and is affected by the mix, terms, timing and stage of completion of our projects. We often receive cash in the early phases of our larger fixed-price projects, and technology ~~projects, and those of our consolidated joint ventures in advance of incurring related costs.~~projects. On reimbursable contracts, we may utilize cash on hand or availability under our Senior Credit Facility and various accounts receivables monetization programs to satisfy any periodic operating cash requirements for working capital as we incur costs and subsequently invoice our customers.

ESSTS services projects generally require us to provide credit support for our performance obligations to our customers in the form of letters of credit, surety bonds or guarantees. Our ability to obtain new project awards in the future may be dependent on our ability to maintain or increase our letter of credit and surety bonding capacity, which may be further dependent on the timely release of existing letters of credit and surety bonds. As the need for credit support arises, letters of credit will be issued under our $1 billion Revolver under our Senior Credit Facility. Letters of credit may also be arranged with our banks on a bilateral, syndicated or other basis.

As discussed in Note 1110 "Debt and Other Credit Facilities" of our condensed consolidated financial statements, we amended our Senior Credit Facility on ~~February 7,~~July 2, 2020, ~~reducing the applicable margins~~to consist of a $1 billion revolving credit facility, $275 million Loan A, of which a portion is denominated in Australian dollars, and ~~commitment fees associated~~a $520 million Term Loan B, with ~~the various borrowings under the facility. Additionally, the amendment extended maturity dates with respect to the~~an aggregate capacity of $1.795 billion. The Revolver ~~PLOC~~ and Term Loan A tomature in February 2025 and Term Loan B tomatures in February 2027. On July 2, 2020, we amended our Senior Credit Facility to convert the $500 million capacity formerly available under our PLOC to our Revolver, thereby increasing our Revolver capacity from $500 million to $1 billion. On September 14, 2020, we further amended our Senior Credit Facility to modify the definition and calculation of Consolidated EBITDA (as defined therein) to provide for more flexibility in permitting pro forma cost reductions resulting from certain corporate transactions. The aggregate amount under our Senior Credit Facility remains $1.795 billion and all other terms and conditions remain unchanged. We believe that existing cash balances, internally generated cash flows, availability under our Senior Credit Facility and other lines of credit are sufficient to support our business operations for the next 12 months. Although we believe we have adequate sources of liquidity over the long-term, our business and operations are subject to a number of uncertainties that could impact our liquidity position. As of September 30, ~~2020,~~2021, we were in compliance with all financial covenants related to our debt agreements.

Cash and equivalents totaled ~~$949~~$550 million at September 30, ~~2020,~~2021, and ~~$712~~$436 million at December 31, ~~2019,~~2020, and consisted of the following:


	September 30,		December 31,
Dollars in millions	2021		2020
Domestic U.S. cash	$	126	$	54
International cash	255		231
Joint venture and Aspire Defence project cash	169		151
Total	$	550	$	436

September 30, December 31,
Dollars in millions 2020 2019
Domestic U.S. cash $ 566
$ 207
International cash 199
245
Joint venture and Aspire Defence project cash 184
260
Total $ 949
$ 712

Our cash balances are held in numerous accounts throughout the world to fund our global activities. Domestic cash relates to cash balances held by U.S. entities and is largely used to support project activities of those businesses as well as general corporate needs such as the payment of dividends to shareholders, repayment of debt and potential repurchases of our outstanding common stock.

Our international cash balances may be available for general corporate purposes but are subject to local restrictions, such as capital adequacy requirements and maintaining sufficient cash balances to support our U.K. pension plan and other obligations incurred in the normal course of business by those foreign entities. Repatriations of our undistributed foreign earnings are generally free of U.S. tax but may incur withholding and/or state taxes. We consider our future U.S. and non-U.S. cash ~~needs~~utilization as 1) our anticipated foreign working capital requirements, including funding of our U.K. pension ~~plan,~~plan; 2) the expected growth opportunities across all geographical ~~markets~~markets; and 3) our plans to invest in strategic growth opportunities, which may include acquisitions around the world (such as the recent acquisition of Frazer-Nash), including whether foreign earnings are permanently reinvested.

During the quarter ending March 31 2021, we changed our permanent reinvestment assertion on the unremitted earnings, as well as all current and future earnings in a wholly owned subsidiary in India. We determined that the past unremitted earnings of $30 million is available for future repatriation for deployment in the U.S. Accordingly, we have recorded the

income tax expense expected with the future repatriation in Q1 2021. In addition in Q1 2021, we changed our permanent reinvestment assertion on all current and future earnings in our subsidiaries in Saudi Arabia. The income tax expense associated with the current and future earnings will be reflected in the interim and annual periods in which the earnings are generated.

Joint venture cash and Aspire Defence project cash balances reflect the amounts held by joint venture entities that we consolidate for financial reporting purposes. These amounts are limited to those entities' activities and are not readily available for general corporate purposes; however, portions of such amounts may become available to us in the future should there be a distribution of dividends to the joint venture partners. We expect that the majority of the joint venture cash balances will be utilized for the corresponding joint venture projects.

As of September 30, ~~2020,~~2021, substantially all of our excess cash was held in commercial bank time deposits or interest bearing short-term investment accounts with the primary objectives of preserving capital and maintaining liquidity.

Cash Flows

The following table summarizes our cash flows for the periods indicated:



	Nine Months Ended September 30,
Dollars in millions	2021		2020
Cash flows provided by operating activities	$	276	$	245
Cash flows (used in) investing activities	(22)		(38)
Cash flows (used in) financing activities	(140)		41
Effect of exchange rate changes on cash	—		(11)

Increase in cash and equivalents	$	114	$	237

Nine Months Ended September 30,
Dollars in millions 2020 2019
Cash flows provided by operating activities $ 245
$ 199
Cash flows (used in) investing activities (38 ) (148 )
Cash flows provided by (used in) financing activities 41
(97 )
Effect of exchange rate changes on cash (11 ) (12 )
Increase (decrease) in cash and equivalents $ 237
$ (58 )

Operating Activities. Cash provided by operations totaled $276 million in the first nine months of 2021 as compared to net loss of $43 million. Cash flows from operating activities result primarily from earnings and are affected by changes in operating assets and liabilities which consist primarily of working capital balances for projects. Working capital levels vary from year to year and are primarily affected by the Company's volume of work. These levels are also impacted by the mix, stage of completion and commercial terms of projects. Working capital requirements also vary by project depending on the type of client and location throughout the world.

The primary components of our working capital accounts are accounts receivable, contract assets, accounts payable and contract liabilities. These components are impacted by the size and changes in the mix of our cost reimbursable, ~~versus~~time-and-materials, and fixed price projects, and as a result, fluctuations in these components are not uncommon in our business.

Cash provided by operations totaled $245 million in the first nine months of 2020 as compared to net loss of $71 million. The difference is principally the result of non-cash restructuring charges and asset impairments in addition to net changes in working capital balances for projects impacting operating cash flows as discussed below:

Accounts receivable unfavorable cash flow impact of $50 million primarily related to increases in accounts receivable in our GS U.S. operations partially offset by increased collections on certain projects in our ES business segment.

~~Contract assets favorable cash flow impact of $49 million was largely attributable to increased billings on U.S. government projects in our GS business segment.~~

Accounts payable favorable cash flow impact of $15 million was largely attributable to timing of payments on certain U.S. government contracts and several projects in the U.S. in our ES business segment.

Contract liabilities unfavorable cash flow impact of $124 million was primarily due to progress against project advances on the Aspire Defence project and U.S. government projects in our GS business segment and certain projects within our TS and ES business segment.

~~In addition, we received distributions of earnings from our unconsolidated affiliates of $35 million and contributed $33 million to our pension funds in the first nine months of 2020.~~

Investing Activities. Cash used in investing activities totaled ~~$38~~$22 million in the first nine months of ~~2020~~2021 and was primarily due to ~~the~~our acquisition of ~~SMA~~Harmonic, an acquisition of a technology license, an investment in a plastics recycling technology, and funding our proportionate share of JKC's ongoing legal and commercial costs. See Note 4 for further discussion on the acquisition and Note 6 for further discussion of the legal and commercial costs. This was offset by proceeds received from the sale of our investment interest in the Middle East Petroleum Corporation (EBIC Ammonia project). See Note 8 for further details.

Financing Activities. Cash ~~provided by~~used in financing activities totaled ~~$41~~$140 million in the first nine months of ~~2020~~2021 and was primarily due to approximately ~~$245 million of net proceeds from our Senior Notes offering offset by $156 million in net payments on borrowings related to the refinancing of our Senior Credit Facility, and $40~~$45 million of dividend payments to common ~~shareholders.~~shareholders, $53 million for the repurchase of common stock under our share repurchase program, dividends paid to NCI shareholders of $23 million, of which $15 million was driven by the dividends paid to the minority interest of the sale of the EBIC ammonia project plant, $10 million repayment on our finance lease obligations, $10 million in payments on borrowings related to our Senior Credit Facility; and $5 million repayment on our non-recourse debt associated with our Fasttrax joint venture. See Note 1110 "Debt and Other Credit Facilities" for further discussion of our Senior Credit Facility. This was partially offset by the net proceeds received from the issuance of common stock of $11 million.

Future sources of cash. We believe that future sources of cash include cash flows from operations (including accounts receivable monetization arrangements), cash derived from working capital ~~management,~~management; and cash borrowings under the Senior Credit Facility.

Future uses of cash. We believe that future uses of cash include working capital requirements, joint venture capital calls, capital expenditures, dividends, pension funding obligations, repayments of borrowings under our Senior Credit Facility, share repurchases and strategic investments including acquisitions. Our capital expenditures will be focused primarily on facilities and equipment to support our businesses. In addition, we will use cash to make payments under leases and various other obligations, including potential litigation payments, as they arise.

Other factors potentially affecting liquidity

Ichthys LNG Project. In reference to Note 6 "Unapproved Change Orders, and Claims, Against Clients and Estimated Recoveries of Claims Against Suppliers and Subcontractors” to our condensed consolidated financial statements, in October 2021, JKC ~~has included~~entered into a binding settlement agreement (the “Settlement Agreement”) that resolved the outstanding claims and disputes between JKC and its client, Ichthys LNG Pty, Ltd (collectively, “the Parties”). As a result of the Settlement Agreement, the Parties agreed to withdraw all claims and terminate all ongoing arbitrations and court proceedings between the Parties, including the following:

•Under the cost-reimbursable scope of the contract, JKC believed amounts paid or payable to the suppliers and subcontractors in settlement of their contract claims related to the cost-reimbursable scope were an adjustment to the contract price. JKC made claims for such contract price adjustments; however, the client disputed some of these contract price adjustments. In order to facilitate the continuation of work, the client agreed to a contractual mechanism (“Funding Deed”) in 2016 providing funding in the form of an interim contract price adjustment to JKC and consented to settlement of subcontractor claims as of that date related to the cost-reimbursable scope. In 2017, additional settlements pertaining to suppliers and subcontractors under the cost-reimbursable scope of the contract were presented to the client, and the client consented to payment to JKC but reserved its ~~project estimates-at-completion significant revenues associated~~contractual rights. The Settlement Agreement fully resolved these matters.

•JKC was entitled to an amount of profit and overhead (“TRC Fee”) which was a fixed percentage of the target reimbursable costs ("TRC") under the reimbursable component of the contract which was to be agreed by the Parties. The Parties were unable to reach agreement. The Settlement Agreement fully resolved this matter.

•Claims for incurred costs related to scope increases and other factors for which JKC believed it is entitled to reimbursement under the contract.

In connection with preliminary settlement discussions, the Company recorded a non-cash charge to equity in earnings of unconsolidated affiliates in the amount of $193 million in the quarter ended June 30, 2021, which reflected KBR’s proportionate share of the unpaid, unapproved change orders and claims. This non-cash charge does not impact JKC’s pursuit of subcontractor claims ~~against~~associated with the ~~client as well as estimated recoveries~~combined cycle power. In the quarter ended September 30, 2021, KBR recorded an additional charge of ~~claims against suppliers and subcontractors. The client has reserved their contractual rights on certain amounts previously funded to JKC and may seek recoveries~~approximately $10 million for its proportionate share of ~~those amounts, including calling~~final warranty items.

As part of the ~~performance and warranty~~Settlement Agreement, KBR’s letters of ~~credit.~~credit were also reduced to $82 million from $164 million.

The Settlement Agreement does not impact pursuit of, or positions related to, JKC’s subcontractor claims associated with the combined cycle power plant, of which JKC incurred substantial costs to complete the power plant under the fixed-price portion of the Ichthys LNG contract. JKC believes these costs are recoverable from the Consortium who abandoned their contractual obligation to complete the power plant as the original subcontractor. We have initiated arbitrations and other legal proceedings to recover these costs which may take several years to resolve. As a result, we funded our proportionate share of JKC's capital requirements to complete the power plant as these legal proceedings progress.

We made investment contributions to JKC of approximately $484 million to fund our proportionate share of the project execution activities on an inception-to-date basis. We continue to fund our proportionate share of ongoing legal and commercial costs. JKC's obligations to the client are guaranteed on a joint and several basis by the joint venture partners. Negotiations and legal proceedings with the client and the subcontractors are ongoing, the goal of which is to minimize these expected outflows. If we experience unfavorable outcomes associated with the various legal and commercial disputes, our total investment contributions could increase which could have a material adverse effect on our financial position and cash flows.

As of September 30, 2020, we had $164 million in letters of credit outstanding in support of performance and warranty guarantees provided to the client. The performance letter of credit expires upon provisional acceptance of the facility by the client and the warranty letter of credit expires upon the end of the warranty obligation.

U.K. pension obligation. We have recognized on our condensed consolidated balance sheet a funding deficit of ~~$223~~$310 million (measured as the difference between the fair value of plan assets and the projected benefit obligation as of September 30, 2020) for our frozen defined benefit pension plans. The total amount of employer pension contributions paid for the nine months ended September 30, ~~2020~~2021, was ~~$33~~$35 million and primarily related to our defined benefit plan in the U.K. The funding requirements for our U.K. pension plan are determined based on the U.K. Pensions Act of 1995. Annual minimum funding requirements are based on a binding agreement with the trustees of the U.K. pension plan that is negotiated on a triennial basis which is slated to commence in 2021 and is required to be completed by April 2022. The current agreement calls for minimum annual contributions of £33 million ($4445 million at current exchange rates) until the next valuation. In the future, pension funding may increase or decrease depending on changes in the levels of interest rates, pension plan asset return performance and other factors. A significant increase in our funding requirements for the U.K. pension plan could result in a material adverse impact on our financial position.

Credit Agreement and Senior Credit Facility

Information relating to our Senior Credit Facility is described in Note 1110 "Debt and Other Credit Facilities" to our condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q, and the information discussed therein is incorporated by reference into this Part I, Item 2.

Senior Notes

Information relating to our Senior Notes is described in Note 1110 "Debt and Other Credit Facilities" to our condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q, and the information discussed therein is incorporated by reference into this Part I, Item 2.

Convertible Senior Notes

Information relating to our Convertible Senior Notes is described in Note 1110 "Debt and Other Credit Facilities" to our condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q, and the information discussed therein is incorporated by reference into this Part I, Item 2.

Nonrecourse Project Debt

Information relating to our nonrecourse project debt is described in Note 1110 "Debt and Other Credit Facilities" to our condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q, and the information discussed therein is incorporated by reference into this Part I, Item 2.

Off-Balance Sheet Arrangements

Letters of credit, surety bonds and guarantees. In the ordinary course of business, we have entered into various arrangements providing financial or performance assurance to customers on behalf of certain consolidated and unconsolidated subsidiaries, joint ventures and other jointly executed contracts. Such off-balance sheet arrangements include letters of credit, surety bonds and corporate guarantees to support the creditworthiness or project execution commitments of these entities and typically have various expiration dates ranging from mechanical completion of the project being constructed to a period beyond completion in certain circumstances such as for warranties. We have also guaranteed that certain projects, once completed, will achieve specified performance standards. If the project subsequently fails to meet guaranteed performance standards, we may incur additional costs, pay liquidated damages or be held responsible for the costs incurred by the client to achieve the required performance standards. The potential amount of future payments that we could be required to make under an outstanding performance arrangement is typically the remaining estimated cost of work to be performed by or on behalf of third parties. For cost reimbursable contracts, amounts that may become payable pursuant to guarantee provisions are normally recoverable from the client for work performed under the contract. For lump-sum or fixed-price contracts, the performance guarantee amount is the cost to complete the contracted work, less amounts remaining to be billed to the client under the contract. Remaining billable amounts could be greater or less than the cost to complete the project. If costs exceed the remaining amounts payable under the contract, we may have recourse to third parties, such as owners, subcontractors or vendors for claims.

In our joint venture arrangements, the liability of each partner is usually joint and several. This means that each joint venture partner may become liable for the entire risk of performance guarantees provided by each partner to the customer. Typically each joint venture partner indemnifies the other partners for any liabilities incurred in excess of the liabilities the other party is obligated to bear under the respective joint venture agreement. We are unable to estimate the maximum potential amount of future payments that we could be required to make under outstanding performance guarantees related to joint venture projects due to a number of factors, including but not limited to, the nature and extent of any contractual defaults by our joint venture partners, resource availability, potential performance delays caused by the defaults, the location of the projects, and the terms of the related contracts. See “Item 1A. Risk Factors” contained in Part I of our ~~2019~~2020 Annual Report on Form 10-K for information regarding our fixed-price contracts and operations through joint ventures and partnerships.

In certain limited circumstances, we enter into financial guarantees in the ordinary course of business, with financial institutions and other credit grantors, which generally obligate us to make payment in the event of a default by the borrower. These arrangements generally require the borrower to pledge collateral to support the fulfillment of the borrower’s obligation. We account for both financial and performance guarantees at fair value at issuance in accordance with ASC 460-10 Guarantees and, as of September 30, ~~2020,~~2021, we had no material guarantees of the work or obligations of third parties recorded.

We have committed and uncommitted lines of credit available to be used for letters of credit. As of September 30, ~~2020,~~2021, our total capacity under these committed and uncommitted lines of credit was approximately $1.4 billion, of which ~~$323~~$335 million had been utilized. Information relating to our letters of credit is described in Note 1110 "Debt and Other Credit Facilities" to our condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q and the information discussed therein is incorporated by reference into this Part I, Item 2. Other than discussed in this Quarterly Report on Form 10-Q, we have not engaged in any material off-balance sheet financing arrangements through special purpose entities.

On October 1, 2020, the Company borrowed $260 million on the Senior Credit Facility to fund the acquisition of Centauri. See Note 4 “Acquisitions.”

Subsequent to September 30, 2021, as part of the Settlement Agreement, KBR's letters of credit were reduced to $82 million from $164 million. See Note 6 "Unapproved Change Orders and Claims Against Clients and Estimated Recoveries of Claims Against Suppliers and Subcontractors." Additionally, we borrowed $294 million under the Revolver to fund the acquisition of Frazer-Nash. See Note 4 “Acquisitions.”

Critical Accounting Policies and Estimates

There have been no material changes to our discussion of critical accounting policies and estimates from those set forth in our ~~2019~~2020 Annual Report on Form 10-K, for the year ended December 31, ~~2019,~~2020, which discussion is incorporated herein by reference.

See Note 1 "Description of Company and Significant Accounting Policies" to our condensed consolidated financial statements for a discussion of the potential impact of new accounting standards on our unaudited condensed consolidated financial statements.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Cash and equivalents are deposited with major banks throughout the world. We invest excess cash and equivalents in short-term securities, primarily time deposits and money market funds, which carry a fixed rate of return. We have not incurred any credit risk losses related to deposits of our cash and equivalents.

Foreign Currency Risk. Because of the global nature of our business, we are exposed to market risk associated with changes in foreign currency exchange rates. We have historically attempted to limit exposure to foreign currency fluctuations through provisions requiring the client to pay us in currencies corresponding to the currency in which cost is incurred. In addition to this natural hedge, we may use foreign exchange forward contracts and options to hedge material exposures when forecasted foreign currency revenues and costs are not denominated in the same currency and when efficient markets exist. These derivatives are generally designated as cash flow hedges and are carried at fair value. We do not enter into derivative financial instruments for trading purposes or make speculative investments in foreign currencies. ~~We recorded a net loss of $4 million and a~~No net gain ~~of $3 million~~or loss was recorded for the three months ended September 30, ~~2020~~2021, and ~~2019, respectively,~~net loss of $4 million was recorded for the three months ended September 30, 2020. We recorded a net loss of $6 million and a net gain of $2 ~~million and $8~~ million for the nine months ended September 30, ~~2020~~2021 and ~~2019,~~2020, respectively, in "Other non-operating income ~~(expense)~~(loss)" on our condensed consolidated statements of operations. The net ~~gain~~loss of $2$6 million during the nine months ended September 30, ~~2020~~2021 consisted primarily of ~~favorable~~unfavorable foreign currency movements on certain intercompany balance positions denominated in British Pounds and ~~Norwegian Krone~~European Euros resulting in foreign currency ~~gains~~loss of approximately ~~$7 million, net of $5~~$6 million related to changes in the fair value of balance sheet hedges.

We use derivative instruments, such as foreign exchange forward contracts and options, to hedge foreign currency risk related to non-functional currency assets and liabilities on our balance sheet. Each period, these balance sheet hedges are marked to market through earnings and the change in their fair value is largely offset by remeasurement of the underlying assets and liabilities. The fair value of these derivatives was not material to our condensed consolidated balance sheet as of September 30, ~~2020.~~2021. Information relating to fair value measurements is described in Note 1918 "Financial Instruments and Risk Management" to our condensed consolidated financial statements, which is incorporated by reference into this Item 3.

Interest Rate Risk. We are exposed to market risk for changes in interest rates for the Revolver and term loan borrowings under the Senior Credit Facility. We had no$260 million of borrowings outstanding under the Revolver and ~~$795~~$786 million outstanding under the term loan portions of the Senior Credit Facility as of September 30, ~~2020. On October 1, 2020, we borrowed $260 million on the Revolver to fund the acquisition of Centauri.~~2021. Borrowings under the Senior Credit Facility bear interest at variable rates as described in Note 1110 to our condensed consolidated financial statements.

We manage interest rate exposure by entering into interest rate swap agreements pursuant to which we agree to exchange, at specified intervals, the difference between fixed and variable interest amounts calculated on an agreed-upon notional principal amount. In October 2018, we entered into interest rate swap agreements covering $500 million of notional value of our outstanding term loans. Under these swap agreements, we receive a one month LIBOR rate and pay an average monthly fixed rate of 3.055% for the term of the swaps that expire in September 2022. In March 2020, we entered into additional swap agreements covering notional value of $400 million of our outstanding loans which are effective beginning

October 2022. Under these swap agreements, we will receive a one-month LIBOR rate and pay an average monthly fixed rate of 0.965% for the term of the swaps that expire in January 2027. The swap agreements were designated as cash flow hedges at inception in accordance with ASC Topic 815 Accounting for Derivative and Hedging Transactions. The total fair value of these derivative instruments was a net liability of approximately ~~$39~~$11 million as of September 30, ~~2020.~~2021.

At September 30, ~~2020,~~2021, we had fixed rate debt aggregating $1.1 billion and variable rate debt aggregating ~~$295~~$546 million, after taking into account the effects of the interest rate swaps. Our weighted average interest rate for the nine months ended September 30, ~~2020~~2021 was ~~4.66%~~3.76%. If interest rates were to increase by 50 basis points, pre-tax interest expense would increase by

approximately $1$3 million in the next twelve months net of the impact from our swap agreements, based on outstanding borrowings as of September 30, ~~2020.~~2021.

Item 4. Controls and Procedures

In accordance with Exchange Act Rules 13a-15 and 15d-15, we carried out an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of September 30, ~~2020,~~2021, to provide reasonable assurance that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC rules and forms. Our disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

During the ~~three months~~quarter ended September 30, ~~2020, there~~2021, we implemented a new financial consolidation and reporting system and made changes to related internal controls. There have been no other changes in our internal ~~controls~~control over financial reporting during the quarter ended September 30, 2021 that have materially affected, or are reasonably likely to materially affect, our internal ~~controls~~control over financial reporting.

We are in the process of a phased implementation of a company-wide enterprise resource planning ("ERP") system and expect this implementation to be completed within the next two to three years. During the second quarter of 2021, we substantially completed the implementation of the ERP system for a portion of our Government Solutions business. The next phases of the implementation will include Corporate, Sustainable Technology Solutions and the remaining business units of Government Solutions not yet implementing this ERP system. Each completed phase of our ERP implementation will enhance our internal control over financial reporting as we will benefit from having an integrated system to support end-to-end processes.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Item 1A. Risk Factors

~~We have updated certain~~Aside from the below, there are no material changes from the risk factors ~~affecting our business since those presented~~previously disclosed in Part I, Item 1A in our ~~2019~~ Annual Report on Form 10-K, which is incorporated herein by reference, for the ~~fiscal~~ year ended December 31, ~~2019 and those in~~2020.

Mandatory COVID-19 vaccination of employees may impact our ~~Quarterly Reports~~workforce which could have an adverse effect on Form 10-Q for the quarters ended March 31, 2020 and June 30, 2020. Except for the risk factors set forth below, there have been no material changes in our assessment of our risk factors from those set forth in such reports.

~~The widespread outbreak of a pandemic or epidemic, or the outbreak of an infectious disease, such as COVID-19, may materially adversely affect~~ our business, results of operations and/or cash ~~flows, including as~~flows.

On September 9, 2021, President Biden issued an Executive Order mandating COVID-19 vaccination for all Federal employees (subject to medical and religious exemptions). President Biden also announced a proposed new rule requiring all employers with at least 100 employees to require that their employees be fully vaccinated or tested weekly. The U.S. Department of Labor’s Occupational Safety and Health Administration (“OSHA”) is currently drafting an emergency regulation to carry out this mandate, which is expected to take effect in the coming weeks. At this time, it is uncertain, among other things, if the vaccine mandate will apply to all employees or only to employees who work in the office and how compliance will be documented.

As a company with more than 100 employees, it is anticipated that we would be subject to the OSHA regulation concerning COVID-19 vaccination. As a result, ~~of widespread reduced demand~~we announced a requirement for ~~oil and reduced commodity prices resulting from oversupply of oil or storage constraints.~~

The spread of COVID-19 across the globe has negatively affected worldwide economic and commercial activity, disrupted global supply chains, and created significant volatility and disruption of financial and commodity markets. Further, while the supply of hydrocarbon commodities was reduced somewhat, demand fell even more sharply as a result of COVID-19 and prices saw a sharp drop in the first quarter 2020. This low commodity price environment has continued in the ensuing months. In addition,all our ~~business and operational plans may be adversely affected by the COVID-19 pandemic due~~employees to ~~a number of factors outside of our control, including:~~

the health or availability of our workforce, including contractors and subcontractors, and restrictions that we and our customers, contractors and subcontractors impose, including limiting worksite access and facility shutdowns, to ensure the safety of employees and others;

the ability or willingness of our vendors and suppliers to provide the equipment, parts or raw materials for our operations or otherwise fulfill their contractual obligations, which in turn could impair our ability to perform under our contracts or to deliver products on a timely basis;

~~recommendations of, or restrictions imposed by, government and health authorities, including travel bans, quarantines, and shelter-in-place orders to address the COVID-19 outbreak;~~

~~potential contract delays, modifications or terminations;~~

~~increased potential for the occurrence of operational hazards, including terrorism, cyber-attacks or domestic vandalism, as well as information system failures or communication network disruptions;~~

reductions in the number and amounts of new government contract awards, delays in the timing of anticipated awards or potential cancellations of such prospects as a result of the fiscal, economic and budgetary challenges facing our customers, as well as material and equipment pricing;

~~increased cost and reduced availability of capital for growth or capital expenditures;~~

~~increased costs of operation in relation to the COVID-19 outbreak, which costs may not~~ be fully ~~recoverable or adequately covered~~vaccinated by ~~insurance; and~~

~~long-term disruption of the U.S. and global economy and financial and commodity markets.~~

The spread of COVID-19 has caused us to significantly modify our business practices (including limiting employee and contractor presence at our work locations), and we may take further actions as may be required by government authorities or that we determine are in the best interests of our employees, contractors, customers, suppliers and communities. ThereDecember 8, 2021. At this time, it is ~~no certainty that such measures will be sufficient to mitigate the risks posed by the virus, and our ability to perform critical functions could be adversely impacted.~~

~~As the potential effects of COVID-19 are difficult~~not possible to predict with certainty the ~~duration of any potential business disruption~~exact impact that the proposed new regulation or the ~~extent to which COVID-19 may negatively affect~~Company’s vaccine requirement will have on us or on our ~~operating results is uncertain. Any potential impact will depend on future developments and new information that may emerge regarding the spread, severity and duration of the COVID-19 pandemic~~workforce. Our vaccine requirement and the ~~actions taken by authorities to contain it or treat its impact, all of~~proposed new regulation, if implemented, may result in employee attrition and difficulty securing future labor needs which ~~are beyond~~could have an adverse effect on our ~~control. These potential effects, while uncertain, could adversely affect our~~ business, ~~financial condition,~~ results of operations and/or cash ~~flows, as well as our ability to pay dividends to our shareholders.~~flows.

Demand for our services and technologies depends on demand and capital spending by customers in their target markets, many of which are cyclical in nature, have been reduced in light of declining commodity prices, and have been significantly impacted by COVID-19.

Demand for many of our services in our commodity-based markets depends on capital spending by oil and natural gas companies, including national and international oil companies, and by industrial companies, which is directly affected by trends in oil, natural gas and commodities prices. Market prices for oil, natural gas and commodities have been volatile in recent years reducing the revenues and earnings of our customers. Further, the hydrocarbon commodities supply and demand imbalances, combined with the continued outbreak of COVID-19, contributed to a sharp drop in prices for oil in the first quarter of 2020. Although the supply of hydrocarbon commodities was reduced somewhat, demand fell even more sharply as a result of COVID-19. The average spot price of West Texas Intermediate (Cushing) crude oil declined to below $0 during April 2020, and more recently closed at $40.05 on September 30, 2020.

These market conditions make it difficult for our customers to accurately forecast and plan future business trends and activities that in turn could have a significant impact on the activity levels of our businesses. As a result, several leading international and national oil companies reduced their capital expenditures in 2020. Demand for LNG and other facilities for which we provide services has decreased, and could continue to decrease, in light of the sustained reduction in the price and demand for crude oil or natural gas resulting from COVID-19. Perceptions of longer-term lower oil and natural gas prices by oil and gas companies or longer-term higher material and contractor prices impacting facility costs have caused and may continue to cause our customers to reduce or defer major expenditures given the long-term nature of many large-scale projects. Even relatively minor changes in supply and demand have the potential to cause large fluctuations in the prices of oil, natural gas and commodities, as well as lead to significant market uncertainty and a variety of other factors that are beyond our control. Factors affecting the prices of oil, natural gas and other commodities include, but are not limited to:

~~world health events, including the COVID-19 pandemic, which has reduced and may continue to reduce demand for oil and natural gas because of reduced economic activity;~~

changes in the level of global demand for oil, natural gas, and industrial services due in part to governmental regulations, including travel bans and restrictions, quarantines, shelter in place orders, and shutdowns;

~~worldwide or regional political, social or civil unrest, military action and economic conditions;~~

~~governmental regulations or policies, including the policies of governments regarding the use of energy and the exploration for and production and development of their oil and natural gas reserves;~~

~~a reduction in energy demand as a result of energy taxation or a change in consumer spending patterns;~~

~~global economic growth or decline;~~

~~the global level of oil and natural gas production;~~

~~potential shut-ins of production by producers due to lack of downstream demand or storage capacity;~~

~~global weather conditions and natural disasters;~~

~~oil refining capacity;~~

~~shifts in end-customer preferences toward fuel efficiency and the use of natural gas;~~

~~potential acceleration of the development and expanded use of alternative fuels;~~

~~environmental regulation, including limitations on fossil fuel consumption based on concerns about its relationship to climate change; and~~

~~reduction in demand for the commodity-based markets in which we operate.~~

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

(a) None.

(b) None.

(c) On February 25, 2014, ~~our~~the Board of Directors authorized a $350 million share repurchase program. As of December 31, 2019, $160 million remained available under this authorization. On February 19, 2020, ~~our~~the Board of Directors authorized an increase of approximately $190 million ofto our share ~~repurchases,~~repurchase program, returning the authorization level to $350 million. As of September 30, 2021, $250 million remains available for repurchase under this authorization. The authorization does not obligate usthe Company to acquire any particular number of shares of common stock and may be commenced, suspended or discontinued without prior notice. The share repurchases are intended to be funded through ~~our~~the Company's current and future cash flows and the authorization does not have an expiration date. ~~During the three months ended September 30, 2020, we did not repurchase any shares of our common stock under this program.~~

The following is a summary of share repurchases of our common stock settled during the three months ended September 30, ~~2020.~~2021.

Purchase Period
Total Number
of Shares
Purchased ⁽¹⁾

Average
Price Paid
per Share

Total Number of
Shares Purchased
as Part of Publicly
Announced Plan

Dollar Value of Maximum Number of Shares that May Yet Be
Purchased Under the Plan
July 1 - 31, 2020 1,707
$ 22.38
—
$ 350,000,000
August 1 - 31, 2020 2,555
$ 23.13
—
$ 350,000,000
September 1 - 30, 2020 652
$ 24.55
—
$ 350,000,000


Purchase Period	Total Shares Repurchased (1)	Average Price Paid per Share		Shares Repurchased as Part of Publicly Announced Plan	Dollar Value of Maximum Number of Shares that May Yet Be Purchased Under the Plan
July 1 - 31, 2021	647,173	$	38.61	647,173	$	250,299,457
August 1 - 31, 2021	1,199	$	38.09	—	$	250,299,457
September 1 - 30, 2021	2,249	$	38.67	—	$	250,299,457
Total	650,621	—		647,173	$	250,299,457


~~(1)~~	Shares repurchased include shares acquired from employees in connection with the settlement of income tax and related benefit withholding obligations arising from issuance of share-based equity awards under the KBR, Inc. 2006 Stock and Incentive Plan. Total shares acquired from employees during the three months ended September 30, 2020 was 4,914 shares at an average price of $23.06 per share.

(1)Included within shares repurchased herein are 3,448 shares acquired from employees in connection with the settlement of income tax and related benefit withholding obligations arising from issuance of share-based equity awards under the KBR Stock and Incentive Plan at an average price of $38.47 per share.

Item 6. Exhibits


Exhibit Number			Description

Exhibit Number		~~Description~~

~~2.1~~3.1		Agreement and Plan of Merger, dated as of August 17, 2020, by and among KBR Wyle Services, LLC, Astrid Merger Sub, LLC, Centauri Platform Holdings, LLC and Centauri ACP Holdings, LLC, in its capacity as representative for the Equityholders (incorporated by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K filed on August 19, 2020; File No. 001-33146)

~~3.1~~	KBR Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to KBR’s current report on Form 8-K filed June 7, 2012; File No. 001-33146)

3.2			Amended and Restated Bylaws of KBR, Inc. (incorporated by reference to Exhibit 3.2 to KBR’s annual report on Form 10-K for the year ended December 31, 2013 filed on February 27, 2014; File No. 001-33146)

~~4.1~~*31.1			Indenture, dated September 30, 2020, by and among KBR, Inc., the guarantors party thereto and Citibank, N.A., as trustee (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on October 5, 2020; File No. 001-33146)

~~4.2~~	~~Form of 4.750% Senior Notes due 2028 (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed on October 5, 2020; File No. 001-33146)~~

~~10.51~~	Amendment No. 3 to Credit Agreement, dated as of July 2, 2020 with Bank of America, N.A., as administrative agent, swing line lender and a letter of credit issuer, the lenders party thereto, the swing line lenders party thereto, the letter of credit issuers party thereto and each of the subsidiaries of the Company party thereto (incorporated by reference to Exhibit 10.1 to KBR’s current report on Form 8-K dated July 8, 2020; File No. 001-33146)

~~10.52~~	Amendment No. 4 to Credit Agreement, dated as of September 14, 2020 with Bank of America, N.A., as administrative agent, swing line lender and a letter of credit issuer, the lenders party thereto, the swing line lenders party thereto, the letter of credit issuers party thereto and each of the subsidiaries of the Company party thereto (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated September 14, 2020; File No. 001-33146)

*31.1	Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

*31.2			Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

**32.1			Certification Furnished Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

**32.2			Certification Furnished Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

***101.Def	~~Definition Linkbase Document~~

***101.Pre	~~Presentation Linkbase Document~~

***101.Lab	~~Labels Linkbase Document~~

***101.Cal	~~Calculation Linkbase Document~~

***101.Sch	~~Schema Linkbase Document~~

***101.Ins	~~Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document~~

~~104~~	~~Cover Page Interactive Data File - the cover page XBRL tags are embedded within the Inline XBRL document contained in Exhibit 101~~



*














***101						The following financial information from this Quarterly Report on Form 10-Q of KBR, Inc. for the quarter ended September 30, 2021 formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) Condensed Consolidated Statements of Operations, (ii) Condensed Consolidated Statements of Comprehensive Income, (iii) Condensed Consolidated Balance Sheets, (iv) Condensed Consolidated Statements of Shareholders’ Equity, (v) Condensed Consolidated Statements of Cash Flows, and (vi) Notes to the Condensed Consolidated Financial Statements, tagged as blocks of text

104						Cover Page Interactive Data File - formatted as Inline XBRL contained in Exhibit 101







*			Filed with this Form 10-Q

**			Furnished with this Form 10-Q

***			Interactive data files

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized:


KBR, INC.

~~KBR, INC.~~


/s/ Mark W. Sopp	/s/ ~~Raymond L. Carney, Jr.~~Shad E. Evans
Mark W. Sopp		~~Raymond L. Carney, Jr.~~Shad E. Evans
Executive Vice President and Chief Financial Officer		Senior Vice President of Finance Operations and Chief Accounting Officer

Dated: October ~~30, 2020~~28, 2021 Dated: October ~~30, 2020~~28, 2021

6560



	As of December 31, 2019
Revised Balance Sheet Amounts:	As Previously Reported		Adjustments			As Corrected
Equity in and advances to unconsolidated affiliates	$	850	$	(4	)	$	846
Retained earnings	$	1,441	$	(4	)	$	1,437



Dollars in millions	Government Solutions		Technology Solutions		Energy Solutions			Total
Balance as of January 1, 2020	$	978	$	50	$	237		$	1,265
Goodwill from acquisitions during the period	12		0		0			12
Impairment loss	0		0		(99		)	(99		)
Foreign currency translation	0		1		0			1
Balance as of September 30, 2020	$	990	$	51	$	138		$	1,179



	Year
Dollars in millions	2020		2021		2022		2023		2024		Thereafter		Total
Future payments - operating leases	$	14	$	47	$	39	$	33	$	23	$	91	$	247



Dollars in millions	Operating Leases
Total future payments	$	247
Less imputed interest	(54		)
Present value of future lease payments	$	193
Less current portion of lease obligations	(39		)
Noncurrent portion of lease obligations	$	154



Purchase Period	Total Number of Shares Purchased ⁽¹⁾	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plan	Dollar Value of Maximum Number of Shares that May Yet Be Purchased Under the Plan
July 1 - 31, 2020	1,707	$	22.38	—	$	350,000,000
August 1 - 31, 2020	2,555	$	23.13	—	$	350,000,000
September 1 - 30, 2020	652	$	24.55	—	$	350,000,000