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 ~~June 30, 2021~~March 31, 2022


☐			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) 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 ~~July 22, 2021,~~April 21, 2022, there were ~~140,783,733~~139,560,024 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			109
Notes to Condensed Consolidated Financial Statements			1110
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations			4035
Item 3. Quantitative and Qualitative Disclosures About Market Risk			5547
Item 4. Controls and Procedures			5648
PART II. OTHER INFORMATION
Item 1. Legal Proceedings			5749
Item 1A. Risk Factors			5749
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			5750
Item 6. Exhibits			5851
SIGNATURES			5952

Forward-Looking and Cautionary Statements

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

We have based these statements on our assumptions and analyses in light of our experience and perception of historical trends, current conditions, expected future developments and other factors we believe are appropriate in the circumstances. Forward-looking statements by their nature involve substantial risks and uncertainties that could significantly affect expected results, and actual future results could differ materially from those described in such statements. While it is not possible to identify all factors, factors that could cause actual future results to differ materially include the risks and uncertainties disclosed in our ~~2020 Annual Report on~~latest Form 10-K ~~contained in Part I under "Risk Factors"~~ and ~~the risk factors~~any subsequent Forms 10-Q and ~~other cautionary statements contained in our other filings with the SEC.~~8-K.

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

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
BBSY


						Bank Bill Swap Bid Rate
C4ISR						Command, Control, Communications, Computers, Intelligence, Surveillance and Reconnaissance
COFC						U.S. Court of Federal Claims
DCAA						Defense Contract Audit Agency
DCMA						Defense Contract Management Agency
DoD						Department of Defense
DOJ						U.S. Department of Justice


EBIC						Egypt Basic Industries Corporation

EPC						Engineering, procurement and construction

ESPP						Employee Stock Purchase Plan
Exchange Act						Securities Exchange Act of 1934, as amended
FAR						Federal Acquisition Regulation
FASB						Financial Accounting Standards Board
FCA						False Claims Act

FKTC						First Kuwaiti Trading Company





GS						Government Solutions

HETs						Heavy equipment transporters

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
OAW						Operation Allies Welcome
PFIs						Private financed initiatives and projects
PIC						Paid-in capital in excess of par

PPE						Property, Plant and Equipment


RPA						Master Accounts Receivable Purchase Agreement

SEC						U.S. Securities and Exchange Commission

~~SMA~~SONIA						~~Scientific Management Associates (Operations) Pty Ltd~~Sterling Overnight Index Average
STS						Sustainable Technology Solutions



U.K.						United Kingdom
U.S.						United States
U.S. GAAP						Accounting principles generally accepted in the United States


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
		Three Months Ended				Six Months Ended					March 31,
		June 30,				June 30,						2022		2021 (1)
		2021		2020		2021		2020
Revenues	Revenues	$	1,536	$	1,385	$	2,997	$	2,922	Revenues		$	1,714	$	1,461
Cost of revenues	Cost of revenues	(1,329)		(1,243)		(2,622)		(2,594)		Cost of revenues		(1,518)		(1,293)
Gross profit	Gross profit	207		142		375		328		Gross profit		196		168
Equity in earnings (losses) of unconsolidated affiliates	Equity in earnings (losses) of unconsolidated affiliates	(186)		16		(174)		17		Equity in earnings (losses) of unconsolidated affiliates		(118)		12
Selling, general and administrative expenses	Selling, general and administrative expenses	(103)		(73)		(192)		(170)		Selling, general and administrative expenses		(107)		(89)
Acquisition and integration related costs	Acquisition and integration related costs	(3)		0		(4)		0		Acquisition and integration related costs		(1)		(1)
Goodwill impairment		0		(37)		0		(99)

Restructuring charges and asset impairments	Restructuring charges and asset impairments	(2)		(59)		(2)		(175)		Restructuring charges and asset impairments		(1)		—
(Loss) gain on disposition of assets and investments		(1)		(1)		(2)		18
Loss on disposition of assets and investments										Loss on disposition of assets and investments		—		(1)

Operating (loss) income		(88)		(12)		1		(81)
Operating income (loss)										Operating income (loss)		(31)		89
Interest expense	Interest expense	(23)		(19)		(45)		(42)		Interest expense		(20)		(19)
Other non-operating income (loss)		2		(2)		(1)		5
Loss before income taxes and noncontrolling interests		(109)		(33)		(45)		(118)
Other non-operating expense										Other non-operating expense		—		(3)
Income (loss) before income taxes										Income (loss) before income taxes		(51)		67
Provision for income taxes	Provision for income taxes	(40)		(6)		(56)		(5)		Provision for income taxes		(19)		(17)
Net loss		(149)		(39)		(101)		(123)
Net income attributable to noncontrolling interests		(3)		0		(4)		(20)
Net loss attributable to KBR		$	(152)	$	(39)	$	(105)	$	(143)
Net loss attributable to KBR per share:
Net income (loss)										Net income (loss)		(70)		50
Less: Net income attributable to noncontrolling interests										Less: Net income attributable to noncontrolling interests		1		1
Net income (loss) attributable to KBR										Net income (loss) attributable to KBR		$	(71)	$	49
Net income (loss) attributable to KBR per share										Net income (loss) attributable to KBR per share
Basic	Basic	$	(1.08)	$	(0.28)	$	(0.75)	$	(1.00)	Basic		$	(0.51)	$	0.35
Diluted	Diluted	$	(1.08)	$	(0.28)	$	(0.75)	$	(1.00)	Diluted		$	(0.51)	$	0.33
Basic weighted average common shares outstanding	Basic weighted average common shares outstanding	141		142		141		142		Basic weighted average common shares outstanding		140		141
Diluted weighted average common shares outstanding	Diluted weighted average common shares outstanding	141		142		141		142		Diluted weighted average common shares outstanding		140		155
Cash dividends declared per share	Cash dividends declared per share	$	0.11	$	0.10	$	0.22	$	0.20	Cash dividends declared per share		$	0.12	$	0.11

(1) As adjusted for the adoption of ASU 2020-06 using the full retrospective method.

See accompanying notes to condensed consolidated financial ~~statements~~statements.

KBR, Inc.

Condensed Consolidated Statements of Comprehensive Income (Loss)

(In millions)

(Unaudited)


		Three Months Ended				Six Months Ended					Three Months Ended
		June 30,				June 30,					March 31,
		2021		2020		2021		2020				2022		2021 (1)
Net loss		$	(149)	$	(39)	$	(101)	$	(123)
Net income (loss)										Net income (loss)		$	(70)	$	50
Other comprehensive income (loss):	Other comprehensive income (loss):									Other comprehensive income (loss):
Foreign currency translation adjustments	Foreign currency translation adjustments	5		34		12		(48)		Foreign currency translation adjustments		(19)		7
Pension and post-retirement benefits	Pension and post-retirement benefits	7		6		16		12		Pension and post-retirement benefits		6		9
Changes in fair value of derivatives	Changes in fair value of derivatives	0		(1)		19		(23)		Changes in fair value of derivatives		24		19
Other comprehensive income (loss)	Other comprehensive income (loss)	12		39		47		(59)		Other comprehensive income (loss)		11		35
Income tax (expense) benefit:	Income tax (expense) benefit:									Income tax (expense) benefit:
Foreign currency translation adjustments	Foreign currency translation adjustments	(1)		0		(1)		0		Foreign currency translation adjustments		—		—
Pension and post-retirement benefits	Pension and post-retirement benefits	(1)		(1)		(3)		(2)		Pension and post-retirement benefits		(1)		(2)
Changes in fair value of derivatives	Changes in fair value of derivatives	(1)		0		(5)		5		Changes in fair value of derivatives		(5)		(4)
Income tax (expense) benefit	Income tax (expense) benefit	(3)		(1)		(9)		3		Income tax (expense) benefit		(6)		(6)
Other comprehensive income (loss), net of tax	Other comprehensive income (loss), net of tax	9		38		38		(56)		Other comprehensive income (loss), net of tax		5		29
Comprehensive (loss)		(140)		(1)		(63)		(179)
Less: Comprehensive (loss) attributable to noncontrolling interests		(3)		0		(4)		(20)
Comprehensive (loss) attributable to KBR		$	(143)	$	(1)	$	(67)	$	(199)
Comprehensive income (loss)										Comprehensive income (loss)		(65)		79
Less: Comprehensive income attributable to noncontrolling interests										Less: Comprehensive income attributable to noncontrolling interests		1		1
Comprehensive income (loss) attributable to KBR										Comprehensive income (loss) attributable to KBR		$	(66)	$	78

(1) As adjusted for the adoption of ASU 2020-06 using the full retrospective method.

See accompanying notes to condensed consolidated financial ~~statements~~statements.

KBR, Inc.

Condensed Consolidated Balance Sheets

(In millions, except share data)


		June 30,		December 31,			March 31,		December 31, (1)
		2021		2020			2022		2021
		(Unaudited)					(Unaudited)
Assets	Assets					Assets
Current assets:	Current assets:					Current assets:
Cash and equivalents		$	483	$	436
Accounts receivable, net of allowance for credit losses of $13 and $13		934		899
Cash and cash equivalents						Cash and cash equivalents	$	412	$	370
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	1,035		1,411
Contract assets	Contract assets	183		178		Contract assets	211		224

Other current assets	Other current assets	126		121		Other current assets	116		147
Total current assets	Total current assets	1,726		1,634		Total current assets	1,774		2,152
Claims and accounts receivable	Claims and accounts receivable	30		30		Claims and accounts receivable	30		30
Property, plant, and equipment, net of accumulated depreciation of $431 and $419 (including net PPE of $22 and $24 owned by a variable interest entity)		136		130
Property, plant, and equipment, net of accumulated depreciation of $435 and $431 (including net PPE of $18 and $19 owned by a variable interest entity), respectively						Property, plant, and equipment, net of accumulated depreciation of $435 and $431 (including net PPE of $18 and $19 owned by a variable interest entity), respectively	132		136
Operating lease right-of-use assets	Operating lease right-of-use assets	161		154		Operating lease right-of-use assets	151		158
Goodwill	Goodwill	1,763		1,761		Goodwill	2,051		2,060
Intangible assets, net of accumulated amortization of $265 and $228		654		683
Intangible assets, net of accumulated amortization of $302 and $291, respectively						Intangible assets, net of accumulated amortization of $302 and $291, respectively	688		708
Equity in and advances to unconsolidated affiliates	Equity in and advances to unconsolidated affiliates	662		881		Equity in and advances to unconsolidated affiliates	430		576
Deferred income taxes	Deferred income taxes	245		297		Deferred income taxes	212		231
Other assets	Other assets	145		135		Other assets	166		153
Total assets	Total assets	$	5,522	$	5,705	Total assets	$	5,634	$	6,204
Liabilities and Shareholders’ Equity	Liabilities and Shareholders’ Equity					Liabilities and Shareholders’ Equity
Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable	Accounts payable	$	633	$	574	Accounts payable	$	630	$	1,026

Contract liabilities	Contract liabilities	278		356		Contract liabilities	334		313
Accrued salaries, wages and benefits	Accrued salaries, wages and benefits	293		283		Accrued salaries, wages and benefits	272		317
Nonrecourse project debt		0		5

Operating lease liabilities	Operating lease liabilities	41		44		Operating lease liabilities	43		41
Other current liabilities	Other current liabilities	198		193		Other current liabilities	182		178
Total current liabilities	Total current liabilities	1,443		1,455		Total current liabilities	1,461		1,875
Pension obligations	Pension obligations	339		381		Pension obligations	64		88
Employee compensation and benefits	Employee compensation and benefits	99		110		Employee compensation and benefits	97		111
Income tax payable	Income tax payable	95		96		Income tax payable	93		95
Deferred income taxes	Deferred income taxes	16		26		Deferred income taxes	70		70
Nonrecourse project debt	Nonrecourse project debt	2		2		Nonrecourse project debt	2		2

Long-term debt	Long-term debt	1,585		1,584		Long-term debt	1,870		1,875
Operating lease liabilities	Operating lease liabilities	194		186		Operating lease liabilities	180		188

Other liabilities	Other liabilities	248		256		Other liabilities	219		217
Total liabilities	Total liabilities	4,021		4,096		Total liabilities	4,056		4,521
Commitments and Contingencies (Notes 6, 12 and 13)						Commitments and Contingencies (Notes 6, 12 and 13)	0		0
KBR shareholders’ equity:	KBR shareholders’ equity:					KBR shareholders’ equity:
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	0		0		Preferred stock, $0.001 par value, 50,000,000 shares authorized, NaN issued	—		—
Common stock, $0.001 par value 300,000,000 shares authorized, 179,837,924 and 179,087,655 shares issued, and 140,780,015 and 140,766,052 shares outstanding, respectively		0		0
Common stock, $0.001 par value 300,000,000 shares authorized, 180,645,661 and 179,983,586 shares issued, and 139,821,173 and 139,786,136 shares outstanding, respectively						Common stock, $0.001 par value 300,000,000 shares authorized, 180,645,661 and 179,983,586 shares issued, and 139,821,173 and 139,786,136 shares outstanding, respectively	—		—
PIC	PIC	2,240		2,222		PIC	2,216		2,206
Retained earnings	Retained earnings	1,169		1,305		Retained earnings	1,200		1,287
Treasury stock, 39,057,909 shares and 38,321,603 shares, at cost, respectively		(895)		(864)
Treasury stock, 40,824,488 shares and 40,197,450 shares, at cost, respectively						Treasury stock, 40,824,488 shares and 40,197,450 shares, at cost, respectively	(976)		(943)
AOCL	AOCL	(1,045)		(1,083)		AOCL	(876)		(881)
Total KBR shareholders’ equity	Total KBR shareholders’ equity	1,469		1,580		Total KBR shareholders’ equity	1,564		1,669
Noncontrolling interests	Noncontrolling interests	32		29		Noncontrolling interests	14		14
Total shareholders’ equity	Total shareholders’ equity	1,501		1,609		Total shareholders’ equity	1,578		1,683
Total liabilities and shareholders’ equity	Total liabilities and shareholders’ equity	$	5,522	$	5,705	Total liabilities and shareholders’ equity	$	5,634	$	6,204

(1) As adjusted for the adoption of ASU 2020-06 using the full retrospective method.

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 March 31, 2021 $ 1,675 $ 2,230 $ 1,336 $ (866) $ (1,054) 29
Share-based compensation 4 4 — — — —
Common stock issued upon exercise of stock options 6 6 — — — —
Dividends declared to shareholders ($0.11/share) (15) — (15) — — —
Repurchases of common stock (28) — — (28) — —
Issuance of ESPP shares — — — — — —
Investments by noncontrolling interests — — — — — —
Distributions to noncontrolling interests (1) — — — — (1)
Other 0 — — (1) — 1
Net loss (149) — (152) — — 3
Other comprehensive income, net of tax 9 — — — 9 —
Balance at June 30, 2021 $ 1,501 $ 2,240 $ 1,169 $ (895) $ (1,045) $ 32
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 8 8 — — — —
Common stock issued upon exercise of stock options 10 10 — — — —
Dividends declared to shareholders ($0.22/share) (31) — (31) — — —
Repurchases of common stock (32) — — (32) — —
Issuance of ESPP shares 2 — — 2 — —
Investments by noncontrolling interests — — — — — —
Distributions to noncontrolling interests (1) — — — — (1)
Other (1) — — (1) — —
Net loss (101) — (105) — — 4
Other comprehensive income, net of tax 38 — — — 38 —
Balance at June 30, 2021 $ 1,501 $ 2,240 $ 1,169 $ (895) $ (1,045) $ 32


Dollars in millions	Dollars in millions	Total		PIC		Retained Earnings		Treasury Stock		AOCL		NCI		Dollars in millions	Total		PIC		Retained Earnings		Treasury Stock		AOCL		NCI
Balance at March 31, 2020		$	1,654	$	2,210	$	1,316	$	(819)	$	(1,081)	$	28
Balance at December 31, 2021														Balance at December 31, 2021	$	1,701	$	2,251	$	1,260	$	(943)	$	(881)	$	14
Cumulative adjustment for the adoption of ASU 2020-06														Cumulative adjustment for the adoption of ASU 2020-06	(18)		(45)		27		—		—		—
Adjusted balance at January 1, 2022														Adjusted balance at January 1, 2022	1,683		2,206		1,287		(943)		(881)		14

Share-based compensation	Share-based compensation	5		5		—		—		—		—		Share-based compensation	5		5		—		—		—		—

Common stock issued upon exercise of stock options	Common stock issued upon exercise of stock options	1		1		—		—		—		—		Common stock issued upon exercise of stock options	4		4		—		—		—		—
Dividends declared to shareholders ($0.10/share)		(15)		—		(15)		—		—		—
Dividends declared to shareholders ($0.12/share)														Dividends declared to shareholders ($0.12/share)	(17)		—		(17)		—		—		—
Repurchases of common stock														Repurchases of common stock	(33)		—		—		(33)		—		—
Issuance of ESPP shares														Issuance of ESPP shares	1		1		—		—		—		—

Other														Other	—		—		1		—		—		(1)
Net income (loss)														Net income (loss)	(70)		—		(71)		—		—		1
Other comprehensive income, net of tax														Other comprehensive income, net of tax	5		—		—		—		5		—
Balance at March 31, 2022														Balance at March 31, 2022	$	1,578	$	2,216	$	1,200	$	(976)	$	(876)	$	14

Distributions to noncontrolling interests		(2)		—		—		—		—		(2)
Other		0		—		—		(1)		—		1
Net loss		(39)		—		(39)		—		—		—
Other comprehensive loss, net of tax		38		—		—		—		38		—
Balance at June 30, 2020		$	1,642	$	2,216	$	1,262	$	(820)	$	(1,043)	$	27

Dollars in millions	Dollars in millions	Total		PIC		Retained Earnings		Treasury Stock		AOCL		NCI		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)		—		—		—
Balance at December 31, 2020														Balance at December 31, 2020	$	1,609	$	2,222	$	1,305	$	(864)	$	(1,083)	$	29
Cumulative adjustment for the adoption of ASU 2020-06														Cumulative adjustment for the adoption of ASU 2020-06	(27)		(45)		18		—		—		—

Adjusted balance at January 1, 2020		1,850		2,206		1,434		(817)		(987)		14
Adjusted balance at January 1, 2021														Adjusted balance at January 1, 2021	1,582		2,177		1,323		(864)		(1,083)		29

Share-based compensation	Share-based compensation	7		7		—		—		—		—		Share-based compensation	4		4		—		—		—		—

Common stock issued upon exercise of stock options	Common stock issued upon exercise of stock options	3		3		—		—		—		—		Common stock issued upon exercise of stock options	4		4		—		—		—		—
Dividends declared to shareholders ($0.20/share)		(29)		—		(29)		—		—		—
Dividends declared to shareholders ($0.11/share)														Dividends declared to shareholders ($0.11/share)	(16)		—		(16)		—		—		—
Repurchases of common stock	Repurchases of common stock	(4)		—		—		(4)		—		—		Repurchases of common stock	(4)		—		—		(4)		—		—
Issuance of ESPP shares	Issuance of ESPP shares	2		—		—		2		—		—		Issuance of ESPP shares	2		—		—		2		—		—

Distributions to noncontrolling interests		(2)		—		—		—		—		(2)

Other noncontrolling interests activity	Other noncontrolling interests activity	(6)		—		—		(1)		—		(5)		Other noncontrolling interests activity	(1)		—		—		—		—		(1)
Net loss		(123)		—		(143)		—		—		20
Net income														Net income	50		—		49		—		—		1
Other comprehensive loss, net of tax	Other comprehensive loss, net of tax	(56)		—		—		—		(56)		—		Other comprehensive loss, net of tax	29		—		—		—		29		—
Balance at June 30, 2020		$	1,642	$	2,216	$	1,262	$	(820)	$	(1,043)	$	27
Balance at March 31, 2021														Balance at March 31, 2021	$	1,650	$	2,185	$	1,356	$	(866)	$	(1,054)	$	29

See accompanying notes to condensed consolidated financial statements.

KBR, Inc.

Condensed Consolidated Statements of Cash Flows

(In millions)

(Unaudited)


		Six Months Ended June 30,					Three Months Ended March 31,
		2021		2020			2022		2021 (1)
Cash flows from operating activities:	Cash flows from operating activities:					Cash flows from operating activities:
Net loss		$	(101)	$	(123)
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Net income (loss)						Net income (loss)	$	(70)	$	50
Adjustments to reconcile net income (loss) to net cash provided by operating activities:						Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization	Depreciation and amortization	76		48		Depreciation and amortization	33		38
Equity in (earnings) losses of unconsolidated affiliates	Equity in (earnings) losses of unconsolidated affiliates	174		(17)		Equity in (earnings) losses of unconsolidated affiliates	118		(12)
Deferred income tax	Deferred income tax	35		(16)		Deferred income tax	16		8
Loss (gain) on disposition of assets		2		(18)
Goodwill impairment		0		99
Asset impairments		0		90
Loss on disposition of assets						Loss on disposition of assets	—		1

Other	Other	23		8		Other	12		8

Changes in operating assets and liabilities:	Changes in operating assets and liabilities:					Changes in operating assets and liabilities:
Accounts receivable, net of allowance for credit losses	Accounts receivable, net of allowance for credit losses	(29)		(40)		Accounts receivable, net of allowance for credit losses	370		24
Contract assets	Contract assets	(4)		38		Contract assets	14		(3)

Accounts payable	Accounts payable	65		23		Accounts payable	(400)		33
Contract liabilities	Contract liabilities	(56)		(92)		Contract liabilities	24		(62)
Accrued salaries, wages and benefits	Accrued salaries, wages and benefits	13		22		Accrued salaries, wages and benefits	(43)		9
Payments on operating lease obligation	Payments on operating lease obligation	(30)		(28)		Payments on operating lease obligation	(14)		(15)

Payments from unconsolidated affiliates, net	Payments from unconsolidated affiliates, net	10		7		Payments from unconsolidated affiliates, net	7		7
Distributions of earnings from unconsolidated affiliates	Distributions of earnings from unconsolidated affiliates	26		15		Distributions of earnings from unconsolidated affiliates	30		8

Pension funding	Pension funding	(24)		(20)		Pension funding	(11)		(11)

Restructuring reserve	Restructuring reserve	(14)		38		Restructuring reserve	(4)		(7)
Other assets and liabilities	Other assets and liabilities	(12)		116		Other assets and liabilities	7		(26)

Total cash flows provided by operating activities	Total cash flows provided by operating activities	$	154	$	150	Total cash flows provided by operating activities	$	89	$	50
Cash flows from investing activities:	Cash flows from investing activities:					Cash flows from investing activities:
Purchases of property, plant and equipment	Purchases of property, plant and equipment	$	(16)	$	(4)	Purchases of property, plant and equipment	$	(6)	$	(6)
Proceeds from disposition of assets and investments		0		1

Investments in equity method joint ventures	Investments in equity method joint ventures	(7)		(12)		Investments in equity method joint ventures	(1)		(3)
Acquisition of businesses, net of cash acquired		0		(9)

Proceeds from sale of assets or investments						Proceeds from sale of assets or investments	18		—
Acquisition of technology license	Acquisition of technology license	(7)		0		Acquisition of technology license	—		(7)
Other	Other	(8)		(1)		Other	1		(6)
Total cash flows used in investing activities		$	(38)	$	(25)
Total cash flows provided by (used in) investing activities						Total cash flows provided by (used in) investing activities	$	12	$	(22)
Cash flows from financing activities:	Cash flows from financing activities:					Cash flows from financing activities:
Borrowings on long-term debt		0		113

Payments on short-term and long-term borrowings	Payments on short-term and long-term borrowings	(19)		(263)		Payments on short-term and long-term borrowings	(7)		(7)
Debt issuance costs		0		(3)

Payments of dividends to shareholders	Payments of dividends to shareholders	(30)		(26)		Payments of dividends to shareholders	(15)		(14)
Net proceeds from issuance of common stock	Net proceeds from issuance of common stock	10		3		Net proceeds from issuance of common stock	4		4
Payments to reacquire common stock	Payments to reacquire common stock	(32)		(4)		Payments to reacquire common stock	(33)		(4)

Distributions to noncontrolling interests		(2)		(2)

Other	Other	(1)		(1)		Other	(1)		(1)
Total cash flows used in financing activities	Total cash flows used in financing activities	$	(74)	$	(183)	Total cash flows used in financing activities	$	(52)	$	(22)
Effect of exchange rate changes on cash	Effect of exchange rate changes on cash	5		(19)		Effect of exchange rate changes on cash	(7)		3
Increase (decrease) in cash and equivalents		47		(77)
Cash and equivalents at beginning of period		436		712
Cash and equivalents at end of period		$	483	$	635
Increase in cash and cash equivalents						Increase in cash and cash equivalents	42		9
Cash and cash equivalents at beginning of period						Cash and cash equivalents at beginning of period	370		436
Cash and cash equivalents at end of period						Cash and cash equivalents at end of period	$	412	$	445

Noncash financing activities	Noncash financing activities					Noncash financing activities
Dividends declared	Dividends declared	$	15	$	14	Dividends declared	$	17	$	16

(1) As adjusted for the adoption of ASU 2020-06 using the full retrospective method.

See accompanying notes to condensed consolidated financial statements.

109

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 ~~2020~~2021 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 ~~June 30, 2021,~~March 31, 2022, and the results of our operations for the three ~~and six~~ months ended ~~June 30,~~March 31, 2022 and 2021 ~~and 2020,~~ and our cash flows for the ~~six~~three months ended ~~June 30, 2021~~March 31, 2022 and ~~2020.~~2021. Certain amounts in prior periods have been reclassified to conform with current period presentation.

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 ~~2020~~2021 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 8 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.

~~Segment Reorganization~~Adoption of ASU 2020-06

Effective January 1, 2022, we adopted ASU No. 2020-06, Accounting for Convertible Instruments and Contracts in an Entity's Own Equity ("ASU 2020-06") using the full retrospective method. Accordingly, the Company is presenting the consolidated financial statements for the year ended December 31, 2021, and the condensed consolidated financial statements for the three months ended March 31, 2021, as if ASU 2020-06 had been effective for those periods. This guidance simplifies the accounting for convertible instruments by reducing the number of accounting models available for convertible debt instruments. As such, we ~~implemented~~no longer separate the Convertible Senior Notes into liability and equity components. The conversion option that was previously accounted for in equity under the cash conversion model was recombined into the Convertible Senior Notes outstanding, and as a ~~strategic change~~result, PIC and the related unamortized debt discount on the Convertible Senior Notes were reduced. The removal of the remaining debt discount recorded for this previous separation has the effect of increasing our net debt balance. ASU 2020-06 also eliminates the treasury stock method to calculate diluted earnings per share for certain convertible instruments and requires the use of the if-converted method. As such, we are required to apply the if-converted method to our Convertible Senior Notes when calculating diluted income (loss) per share. Under the if-converted method, the principal amount and any conversion spread of the Convertible Senior Notes, to the ~~structure~~extent dilutive, are assumed to be converted into common stock at the beginning of ~~our internal organization~~the period and ~~transitioned from a 3-core business segment model~~net income (loss) attributable to ~~a 2-core business segment model comprised~~KBR is adjusted to reverse the effect 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 asany interest expense associated with 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.Convertible Senior Notes.

~~Effective January 1,~~For the years ended December 31, 2021 ~~we reorganized~~and 2020, the adoption of this standard did not materially impact our ~~reportable segments and businesses~~financial performance, financial position or cash flow, but it did result in an increase in the number of diluted weighted average shares outstanding utilized in our diluted income (loss) per share calculation in periods of net income attributable to KBR. For the year ending December 31, 2022, the adoption of this standard will not materially impact our financial performance, financial position or cash flow, but it may result in an increase in the number of diluted weighted average shares outstanding utilized in our diluted income (loss) per share calculation.

Select unaudited condensed consolidated balance sheet line items, which reflect the adoption of ASU 2020-06 are as follows:

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

•~~Sustainable Technology Solutions~~ 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~~


	December 31, 2021
Dollars in millions	As Previously Reported		Adjustments		As Adjusted
Assets:
Deferred income taxes	$	226	$	5	$	231

Liabilities:
Long-term debt	$	1,852	$	23	$	1,875

KBR Shareholders' Equity:
PIC	$	2,251	$	(45)	$	2,206
Retained earnings	1,260		27		1,287

~~We have presented our segment results reflecting these changes for all periods presented. See Note 2 to our~~Select unaudited condensed consolidated ~~financial statements for further discussion on our segments.~~statement of operations line items, which reflect the adoption of ASU 2020-06 are as follows:


	Three Months Ended March 31, 2021
Dollars in millions	As Previously Reported		Adjustments		As Adjusted
Interest Expense	$	(22)	$	3	$	(19)
Income before income taxes	$	64	$	3	$	67
Provision for income taxes	$	(16)	$	(1)	$	(17)
Net income	$	48	$	2	$	50
Net income attributable to KBR	$	47	$	2	$	49
Net income attributable to KBR per share:
Basic	$	0.33	$	0.02	$	0.35
Diluted	$	0.33	$	—	$	0.33
Basic weighted average common shares outstanding	$	141	$	—	$	141
Diluted weighted average common shares outstanding	$	144	$	11	$	155

Select unaudited condensed consolidated statement of cash flows line items, which reflect the adoption of ASU 2020-06 are as follows:


	Three Months Ended March 31, 2021
Dollars in millions	As Previously Reported		Adjustments		As Adjusted
Cash flows from operating activities:
Net Income	$	48	$	2	$	50
Adjustments to reconcile net income to net cash provided by operating activities:
Deferred income tax	7		1		8
Other	11		(3)		8
Total cash flows provided by operating activities	$	50	$	—	$	50

Impact of Adoption of Other New Accounting Standards

Effective January 1, 2022, we adopted 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. The ~~following should be read together with~~ ~~Revenue Recognition~~ inadoption of this standard did not have an impact on our ~~significant accounting policies as detailed in "Note 1. Significant Accounting Policies" of our 2020 Annual Report on Form 10-K.~~financial statements.

~~Revenue Recognition~~

~~Contract Types~~

Effective January 1, 2022, we adopted ASU 2021-10, Government Assistance (Topic 832), Disclosures by Business Entities About Government Assistance, which requires entities to provide disclosures on material government assistance transactions for annual reporting periods. The ~~Company performs work under contracts that broadly consists of fixed-price, cost-reimbursable, time-and-materials, or a combination~~disclosures include information around the nature of the ~~three.~~

~~Fixed-price contracts include both lump-sum and unit-rate contracts. Under lump-sum contracts, we perform a defined scope~~assistance, the related accounting policies used to account for government assistance, the effect of ~~work for a specified fee to cover all costs~~government assistance on the entity’s financial statements 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~~terms and all the costs associated with the scope of work. Unit-rate contracts are essentially fixed-price contracts with the only variable being units of 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 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 US Government contracting, this type of contract is generally used when there is uncertaintyconditions of the ~~extent or duration of~~agreements, including commitments and contingencies. The new standard only impacts annual financial statement footnote disclosures. Therefore, the ~~work to be performed by the contractor at the time of contract award or it is~~adoption did 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-US government contracting, this contract is generally used for defined and non-defined scope contracts where there ishave 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. Profitmaterial effect 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 best efforts to accomplish the scope of 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 3 to~~ our condensed consolidated financial ~~statements for further discussion of our revenue by contract type.~~statements.

Additional Balance Sheet Information

Other Current Liabilities

The components of ~~"Other~~other current ~~liabilities"~~liabilities on our condensed consolidated balance sheets as of ~~June 30, 2021,~~March 31, 2022, and December 31, ~~2020,~~2021, are presented below:


		June 30,		December 31,			March 31,		December 31,
Dollars in millions	Dollars in millions	2021		2020		Dollars in millions	2022		2021
Current maturities of long-term debt	Current maturities of long-term debt	$	14	$	12	Current maturities of long-term debt	$	16	$	16
Reserve for estimated losses on uncompleted contracts	Reserve for estimated losses on uncompleted contracts	18		16		Reserve for estimated losses on uncompleted contracts	18		17
Retainage payable	Retainage payable	13		22		Retainage payable	13		13
Income taxes payable		7		16

Restructuring reserve	Restructuring reserve	24		32		Restructuring reserve	15		17

Value-added tax payable	Value-added tax payable	43		29		Value-added tax payable	49		34

Dividend payable	Dividend payable	16		14		Dividend payable	17		16

Other miscellaneous liabilities	Other miscellaneous liabilities	63		52		Other miscellaneous liabilities	54		65
Total other current liabilities	Total other current liabilities	$	198	$	193	Total other current liabilities	$	182	$	178

1312

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, government programs and joint ventures represent a substantial part of our operations. We are organized into 2 core business segments, Government Solutions and Sustainable Technology Solutions and 1 non-core business segment as described below:

Government Solutions. Our Government 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's services cover the full spectrum spanning research and development, advanced prototyping, acquisition support, systems engineering, C4ISR, cyber analytics, space domain awareness, test and evaluation, systems integration and program management, global supply chain management and operations ~~support,~~readiness and ~~readiness.~~support. With the acquisition of Frazer-Nash Consultancy Limited ("Frazer-Nash") on October 20, 2021 (described in Note 4 to the consolidated financial statements), our GS business segment also provides a broad range of professional advisory services to deliver high-end systems engineering, systems assurance and technology to customers across the defense, energy and critical infrastructure sectors primarily in the U.K. and Australia.

Sustainable Technology Solutions. Our Sustainable Technology Solutions business segment is anchored by our portfolio of over 70 innovative, proprietary, sustainability-focused process technologies that ~~span~~we license spanning 4 primary areas: ammonia/syngas/fertilizers, chemical/petrochemicals, clean refining and 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 ~~focused~~build on ~~innovative~~our KBR INSITE® platform. KBR INSITE® is a proprietary, digital, cloud-based operations and maintenance ~~solutions and advanced remote operations capabilities~~platform that identifies opportunities for our clients to ~~improve throughput,~~achieve sustainable improvements in production, reliability, ~~environmental sustainability,~~environment impact, energy efficiency and ultimately profitability. From early planning through scope definition, advanced technologies and ~~project~~facility life-cycle support, our STS business segment works closely with customers to provide what we believe is the optimal approach to maximize their return on investment.

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

1413

Operations by Reportable Segment


		Three Months Ended				Six Months Ended					Three Months Ended
		June 30,				June 30,					March 31,
		2021		2020		2021		2020				2022		2021 (1)
Dollars in millions	Dollars in millions									Dollars in millions
Revenues:	Revenues:									Revenues:
Government Solutions	Government Solutions	$	1,231	$	953	$	2,395	$	1,935	Government Solutions		$	1,459	$	1,164
Sustainable Technology Solutions	Sustainable Technology Solutions	305		432		602		987		Sustainable Technology Solutions		255		297

Total revenues	Total revenues	$	1,536	$	1,385	$	2,997	$	2,922	Total revenues		$	1,714	$	1,461

Gross profit:	Gross profit:									Gross profit:
Government Solutions	Government Solutions	$	130	$	117	$	246	$	246	Government Solutions		$	159	$	116
Sustainable Technology Solutions	Sustainable Technology Solutions	77		25		129		82		Sustainable Technology Solutions		37		52

Total gross profit	Total gross profit	$	207	$	142	$	375	$	328	Total gross profit		$	196	$	168

Equity in earnings (losses) of unconsolidated affiliates:	Equity in earnings (losses) of unconsolidated affiliates:									Equity in earnings (losses) of unconsolidated affiliates:
Government Solutions	Government Solutions	$	8	$	7	$	15	$	12	Government Solutions		$	10	$	7
Sustainable Technology Solutions	Sustainable Technology Solutions	(194)		9		(189)		5		Sustainable Technology Solutions		(128)		5

Total equity in earnings (losses) of unconsolidated affiliates	Total equity in earnings (losses) of unconsolidated affiliates	(186)		16		$	(174)	$	17	Total equity in earnings (losses) of unconsolidated affiliates		$	(118)	$	12

Selling, general and administrative expenses:	Selling, general and administrative expenses:									Selling, general and administrative expenses:
Government Solutions	Government Solutions	$	(49)	$	(30)	$	(98)	$	(71)	Government Solutions		$	(54)	$	(49)
Sustainable Technology Solutions	Sustainable Technology Solutions	(21)		(19)		(35)		(43)		Sustainable Technology Solutions		(15)		(14)
Other	Other	(33)		(24)		(59)		(56)		Other		(38)		(26)
Total selling, general and administrative expenses	Total selling, general and administrative expenses	(103)		(73)		$	(192)	$	(170)	Total selling, general and administrative expenses		$	(107)	$	(89)

Acquisition and integration related costs	Acquisition and integration related costs	(3)		0		(4)		0		Acquisition and integration related costs		(1)		(1)
Goodwill impairment		0		(37)		0		(99)

Restructuring charges and asset impairments	Restructuring charges and asset impairments	(2)		(59)		(2)		(175)		Restructuring charges and asset impairments		(1)		—
(Loss) gain on disposition of assets and investments		(1)		(1)		(2)		18
Operating (loss) income		$	(88)	$	(12)	$	1	$	(81)
Loss on disposition of assets and investments										Loss on disposition of assets and investments		—		(1)
Operating income (loss)										Operating income (loss)		$	(31)	$	89
Interest expense	Interest expense	(23)		(19)		(45)		(42)		Interest expense		(20)		(19)
Other non-operating income (loss)		2		(2)		(1)		5
Loss before income taxes and noncontrolling interests		$	(109)	$	(33)	$	(45)	$	(118)
Other non-operating expense										Other non-operating expense		—		(3)
Income (loss) before income taxes										Income (loss) before income taxes		$	(51)	$	67

(1) As adjusted for the adoption of ASU 2020-06 using the full retrospective method.

1514

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 business unit and reportable segment was as follows:


		Three Months Ended				Six Months Ended					Three Months Ended
		June 30,				June 30,					March 31,
Dollars in millions	Dollars in millions	2021		2020		2021		2020		Dollars in millions		2022		2021

Government Solutions	Government Solutions									Government Solutions
Science & Space	Science & Space	$	261	$	241	$	508	$	478	Science & Space		$	253	$	247
Defense & Intel	Defense & Intel	395		207		746		412		Defense & Intel		378		351
Readiness & Sustainment	Readiness & Sustainment	315		269		644		555		Readiness & Sustainment		533		329
International	International	260		236		497		490		International		295		237
Total Government Solutions	Total Government Solutions	1,231		953		2,395		1,935		Total Government Solutions		1,459		1,164

Sustainable Technology Solutions	Sustainable Technology Solutions	305		432		602		987		Sustainable Technology Solutions		255		297

Total revenue	Total revenue	$	1,536	$	1,385	$	2,997	$	2,922	Total revenue		$	1,714	$	1,461

Government Solutions revenue earned from key U.S. government customers includes U.S. DoD agencies and ~~intelligence agencies,~~ NASA, ~~and other federal civilian agencies~~ and is reported as Science & Space, Defense & Intel and 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.

1615

Revenue by geographic destination was as follows:

Three Months Ended June 30, 2021
Total by Countries/Regions
Dollars in millions
Government Solutions Sustainable Technology Solutions Total
     United States $ 804 $ 109 $ 913
     Middle East 143 54 197
     Europe 161 61 222
     Australia 90 0 90
     Canada 0 1 1
     Africa 19 24 43
     Asia 1 51 52
     Other countries 13 5 18
Total revenue $ 1,231 $ 305 $ 1,536
Three Months Ended June 30, 2020
Total by Countries/Regions
Dollars in millions
Government Solutions Sustainable Technology Solutions Total
     United States $ 521 $ 198 $ 719
     Middle East 171 59 230
     Europe 159 38 197
     Australia 68 11 79
     Canada 0 5 5
     Africa 19 14 33
     Asia 0 56 56
     Other countries 15 51 66
Total revenue $ 953 $ 432 $ 1,385
Six Months Ended June 30, 2021
Total by Countries/Regions
Dollars in millions
Government Solutions Sustainable Technology Solutions Total
     United States $ 1,553 $ 222 $ 1,775
     Middle East 276 98 374
     Europe 334 105 439
     Australia 167 4 171
     Canada 0 1 1
     Africa 38 44 82
     Asia 1 102 103
     Other countries 26 26 52
Total revenue $ 2,395 $ 602 $ 2,997
Six Months Ended June 30, 2020
Total by Countries/Regions
Dollars in millions
Government Solutions Sustainable Technology Solutions Total
     United States $ 1,034 $ 447 $ 1,481
     Middle East 358 123 481
     Europe 349 97 446
     Australia 126 40 166
     Canada 0 31 31
     Africa 38 37 75
     Asia 0 124 124
     Other countries 30 88 118
Total revenue $ 1,935 $ 987 $ 2,922

Three Months Ended March 31, 2022




Total by Countries/Regions Dollars in millions	Government Solutions		Sustainable Technology Solutions		Total
United States	$	1,011	$	109	$	1,120
Middle East	39		49		88
Europe	283		32		315
Australia	90		—		90
Canada	—		2		2
Africa	18		17		35
Asia	3		42		45
Other countries	15		4		19
Total revenue	$	1,459	$	255	$	1,714

	Three Months Ended March 31, 2021

Total by Countries/Regions Dollars in millions	Government Solutions		Sustainable Technology Solutions		Total
United States	$	749	$	113	$	862
Middle East	133		44		177
Europe	173		44		217
Australia	77		5		82
Canada	—		—		—
Africa	19		20		39
Asia	—		51		51
Other countries	13		20		33
Total revenue	$	1,164	$	297	$	1,461

Many of our contracts contain cost reimbursable, time-and-materials and fixed price 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 June 30, 2021
Dollars in millions Government Solutions Sustainable Technology Solutions Total
     Cost Reimbursable $ 728 $ 0 $ 728
     Time-and-Materials 226 187 413
     Fixed Price 277 118 395
Total revenue $ 1,231 $ 305 $ 1,536
Three Months Ended June 30, 2020
Dollars in millions Government Solutions Sustainable Technology Solutions Total
     Cost Reimbursable $ 570 $ 0 $ 570
     Time-and-Materials 140 297 437
     Fixed Price 243 135 378
Total revenue $ 953 $ 432 $ 1,385

Three Months Ended March 31, 2022



Dollars in millions	Government Solutions		Sustainable Technology Solutions		Total
Cost Reimbursable	$	955	$	—	$	955
Time-and-Materials	235		175		410
Fixed Price	269		80		349
Total revenue	$	1,459	$	255	$	1,714

	Three Months Ended March 31, 2021
Dollars in millions	Government Solutions		Sustainable Technology Solutions		Total
Cost Reimbursable	$	689	$	—	$	689
Time-and-Materials	212		190		402
Fixed Price	263		107		370
Total revenue	$	1,164	$	297	$	1,461

1716

Six Months Ended June 30, 2021
Dollars in millions Government Solutions Sustainable Technology Solutions Total
     Cost Reimbursable $ 1,417 $ 0 $ 1,417
     Time-and-Materials 438 377 815
     Fixed Price 540 225 765
Total revenue $ 2,395 $ 602 $ 2,997
Six Months Ended June 30, 2020
Dollars in millions Government Solutions Sustainable Technology Solutions Total
     Cost Reimbursable $ 1,153 $ 0 $ 1,153
     Time-and-Materials 264 701 965
     Fixed Price 518 286 804
Total revenue $ 1,935 $ 987 $ 2,922

Performance Obligations and Contract Liabilities

We recognized revenue from performance obligations satisfied in previous periods of $9$18 million for the three months ended ~~June 30, 2020, and $18 million and $37 million for the six months ended June 30, 2021 and 2020, respectively.~~March 31, 2021.

On ~~June 30, 2021,~~March 31, 2022, we had ~~$11.5~~$10.9 billion of transaction price allocated to remaining performance obligations. We expect to recognize approximately ~~30%~~33% of our remaining performance obligations as revenue within one year, 33% in years two through five and ~~37%~~34% 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,~~project, which ~~have~~has contract terms extending through ~~2041 and 2023, respectively.~~2041. Remaining performance obligations ~~does~~do not include variable consideration that was determined to be constrained as of ~~June 30, 2021.~~March 31, 2022.

We recognized revenue of ~~$144~~$82 million and $107 million for the ~~six~~three months ended ~~June 30,~~March 31, 2022 and 2021, respectively, which was previously included in the contract liability balance at ~~December 31, 2020.~~the beginning of each period.

Accounts Receivable


		June 30,		December 31,			March 31,		December 31,
Dollars in millions	Dollars in millions	2021		2020		Dollars in millions	2022		2021
Unbilled	Unbilled	$	479	$	476	Unbilled	$	496	$	698
Trade & other	Trade & other	455		423		Trade & other	539		713
Accounts receivable	Accounts receivable	$	934	$	899	Accounts receivable	$	1,035	$	1,411

Note 4. Acquisitions

~~Centauri Platform Holdings, LLC~~Frazer-Nash Consultancy Limited

On October ~~1, 2020,~~ 20, 2021, we acquired ~~Centauri for $830~~Frazer-Nash in accordance with an agreement with Babcock International Group PLC, a leading UK based provider of specialist systems, engineering and technology solutions. The aggregate consideration paid was approximately $392 million in cash, subject to ~~certain working capital, net debt and~~ other post-closing ~~adjustments, if applicable.~~adjustments. As of ~~June 30, 2021,~~March 31, 2022, the estimated fair values of net assets acquired were preliminary, with possible updates primarily in our finalization of tax ~~returns with the seller.~~returns. The Company recognized goodwill of ~~$576~~approximately $293 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~~$89 million were recognized and comprised of customer relationships and backlog, which will be amortized over a weighted-average period of 1314 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 in the individual assets and liabilities acquired and the goodwill ~~and stepped-up acquired intangibles were~~recognized is not deductible for tax purposes.

During the three and six months ended June 30, 2021, the Company recognized direct, incremental costs related to this acquisition of $1 million and $2 million, respectively, which are included in "Acquisition and integration related costs" on the condensed consolidated statements of operations. The acquired Centauri business contributed $181 million and $313 million of revenues and $20 million and $37 million of gross profit for the three and six months ended June 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~~Frazer-Nash as though it had been acquired on January 1, ~~2020.~~2021. 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,~~2021, nor is it indicative of future results of operations.

Three Months Ended Six Months Ended
June 30, 2020 June 30, 2020
(Unaudited) (Unaudited)
Revenue $ 1,524 $ 3,191
Net loss attributable to KBR $ (37) $ (141)
Diluted earnings per share $ (0.26) $ (0.98)


	Three Months Ended
Dollars in millions	March 31, 2021
	(Unaudited)
Revenue	$	1,506
Net income attributable to KBR	$	52
Diluted earnings per share	$	0.35

~~Scientific Management Associates (Operations) Pty Ltd~~

Harmonic Limited

On ~~March 6, 2020,~~July 1, 2021, we acquired certain assets and assumed certain liabilities ~~related to the government defense business~~ of ~~Scientific Management Associates (Operations) Pty Ltd~~Harmonic Limited ("~~SMA"~~Harmonic"). The acquired business of ~~SMA~~Harmonic provides ~~technical training~~transformation and delivery consultancy project services to ~~the Royal Australian Navy~~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 ~~$13~~$19 million, ~~less purchase price adjustments totaling $4~~which consisted of cash paid at closing of $17 million, ~~resulting~~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 ~~cash consideration paid of $9 million. We recognized~~working capital, and goodwill of ~~$12~~$14 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~~opportunities. The goodwill recognized is not deductible for ~~$1 million.~~ tax purposes.

Note 5. Cash and Cash Equivalents

We consider all highly liquid investments with an original maturity of three months or less to be cash equivalents. Cash and cash 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 cash equivalents balance are as follows:


		June 30, 2021							March 31, 2022
Dollars in millions	Dollars in millions	International (a)		Domestic (b)		Total		Dollars in millions	International (a)		Domestic (b)		Total
Operating cash and equivalents		$	245	$	95	$	340
Operating cash and cash equivalents								Operating cash and cash equivalents	$	232	$	52	$	284
Short-term investments (c)	Short-term investments (c)	12		0		12		Short-term investments (c)	6		—		6
Cash and equivalents held in consolidated joint ventures and Aspire Defence subcontracting entities		131		0		131
Cash and cash equivalents held in consolidated joint ventures and Aspire Defence subcontracting entities								Cash and cash equivalents held in consolidated joint ventures and Aspire Defence subcontracting entities	122		—		122
Total	Total	$	388	$	95	$	483	Total	$	360	$	52	$	412


		December 31, 2020							December 31, 2021
Dollars in millions	Dollars in millions	International (a)		Domestic (b)		Total		Dollars in millions	International (a)		Domestic (b)		Total
Operating cash and equivalents		$	228	$	54	$	282
Operating cash and cash equivalents								Operating cash and cash equivalents	$	218	$	34	$	252
Short-term investments (c)	Short-term investments (c)	3		0		3		Short-term investments (c)	2		—		2
Cash and equivalents held in consolidated joint ventures and Aspire Defence subcontracting entities		151		0		151
Cash and cash equivalents held in consolidated joint ventures and Aspire Defence subcontracting entities								Cash and cash equivalents held in consolidated joint ventures and Aspire Defence subcontracting entities	116		—		116
Total	Total	$	382	$	54	$	436	Total	$	336	$	34	$	370

(a)Includes deposits held inby non-U.S. entities with operating ~~accounts.~~accounts that constitute offshore cash for tax purposes.

(b)Includes U.S. dollar and foreign currency deposits held in U.S. entities with 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 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	Dollars in millions	June 30, 2021		June 30, 2020		Dollars in millions	March 31, 2022		March 31, 2021
Amounts included in project estimates-at-completion at January 1,	Amounts included in project estimates-at-completion at January 1,	$	1,048	$	978	Amounts included in project estimates-at-completion at January 1,	$	426	$	1,048
(Decrease) increase in project estimates	(Decrease) increase in project estimates	(228)		(1)		(Decrease) increase in project estimates	(117)		(9)
Approved change orders	Approved change orders	(11)		(6)		Approved change orders	(271)		(11)
Foreign currency impact	Foreign currency impact	(1)		(16)		Foreign currency impact	7		5
Amounts included in project estimates-at-completion at June 30,		$	808	$	955
Amounts recognized over time based on progress at June 30,		$	808	$	955
Amounts included in project estimates-at-completion at March 31,*						Amounts included in project estimates-at-completion at March 31,*	$	45	$	1,033

(*)As of March 31, 2022, the balance above reflects the Settlement Agreement with Combined Cycle Power Plant Subcontractor Consortium signed in April 2022.

AsThe balance as of ~~June 30, 2021 and 2020, the predominant component of change orders, customer claims and estimated recoveries of claims against suppliers and subcontractors above~~March 31, 2022 primarily relates to projects in our ~~30% proportionate share of unapproved change orders and subcontractor claims recovery associated with the Ichthys LNG Project discussed below.~~

KBR is currently pursuing approval and collection of amounts due under major 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.

Government Solutions segment.

Ichthys LNG Project

~~Project Status~~

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 contract between JKC and its client is a hybrid contract containing both cost-reimbursable and fixed-price (including unit-rate) scopes. We, along with our joint venture partners, are jointly and severally liable to the client.

~~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~~Settlement Agreement with 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 suppliers and subcontractors 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 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.

Client

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 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.

In October ~~2018,~~2021, JKC ~~received~~entered into a ~~favorable ruling in~~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 separate arbitration related to the Funding Deed. 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 scoperesult of the ~~EPC contract are for~~Settlement Agreement, the ~~client's account~~Parties agreed to withdraw all claims and ~~are reimbursable to JKC. However,~~terminate all ongoing arbitration and court proceedings between the ~~client did not agree with the impact~~Parties. As part of the ~~arbitration award and, accordingly, we initiated the Funding Deed proceeding referenced below~~Settlement Agreement, KBR’s letters of credit were also reduced to ~~obtain further determination~~$82 million from ~~the arbitration tribunal.~~$164 million.

~~In September 2020, JKC (1) sought a Summary Determination from the arbitration tribunal effecting a stay of the repayment date of December 31, 2020 (“Sunset Date”);~~Paint and ~~(2) presented specific legal arguments to ultimately resolve the Funding Deed without the need for a full factual enquiry.~~

In a partial award in December 2020, the arbitration tribunal held that it could not decide the merits of the Funding Deed issue without hearing further evidence on factual issues. No determination was reached as to the actual position on entitlementInsulation Claims Against Insurer and no decision has been rendered on reimbursable subcontractor settlement costs covered by the Funding Deed. In reaching this decision the arbitration tribunal also decided in its partial award that it did not have authority to stay JKC’s repayment of the funds under the Funding Deed following the passage of the Sunset Date. As the issues raised in the Funding Deed arbitration remained unresolved as of June 30, 2021, JKC could be required to refund sums funded by the client under the terms of the Funding Deed. JKC continues to assert that the subcontractor settlement sums were properly incurred and represent reimbursable costs.

In January 2021, the client demanded that JKC repay the Funding Deed amount and notified its intention to commence legal actions against JKC including claims on the parent company guarantees. The client also submitted an application to the arbitration tribunal asserting various legal theories and requesting immediate repayment of the Funding Deed. JKC opposed the application on the grounds that in seeking such relief, the client was asserting new claims that are not part of the current

arbitration. The arbitration tribunal agreed with JKC that these were new claims and declined to order immediate repayment. However, the arbitration tribunal directed the parties to incorporate the new claims into the existing consolidated arbitration process. A case management conference has been set for September 2021 on these matters.~~Subsequently, the client initiated parent company guarantee proceedings against our partner JGC Corporation in Japanese courts with respect to payment of the Funding Deed.If the client is successful against JGC, KBR would be liable to JGC for its proportional share.~~

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 $157 million as of June 30, 2021, and December 31, 2020. These amounts are subject to currency fluctuation risk and possible applicable taxes.

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 June 30, 2021. However, unlike amounts funded under the Funding Deed, there is no requirement to refund these amounts to the client by a certain date.Paint Manufacturer

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~~As part of the ~~facilities. JKC’s profit estimate at completion includes a portion of revenues~~Settlement Agreement, the Parties agreed to consult in good faith and ~~costs~~to cooperate to seek maximum recovery from the insurance policies and paint manufacturer 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~~matters. The Parties agreed to collectively pursue claims against the paint manufacturer, and ~~initiated claims against the subcontractors.~~ JKC has ~~also made demands on~~assigned claims under the insurance ~~policies in respect of these matters. JKC believes that project insurance should significantly limit any exposure it has on painting~~policy regarding the paint and insulation ~~damages. Proceedings~~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 ~~against~~with respect to the paint and insulation matters, the recovered amount from the paint manufacturer ~~certain subcontractors~~ and insurance ~~policies are ongoing. As~~claim is less than the ~~principal insured, it is incumbent upon~~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 ~~pursue the insurance claims with diligence. JKC is urging the client to meet~~maintain its ~~contractual obligations.~~contingent liability.

~~Other 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 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. Pursuant to a recent procedural order, the client is expected to file a detailed statement of its claim in August 2021. The arbitration panel has been constituted but a hearing date has not been scheduled.

~~Ongoing Negotiations~~Settlement Agreement with the ~~Client~~

~~In Q2 2021, significant settlement discussions occurred with the client.~~As a result, KBR recorded a non-cash charge to equity in earnings of unconsolidated affiliates as of June 30, 2021 in the amount of $193 million, which reflects 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 associated with the combined cycle power plant described below.

Combined Cycle Power Plant Subcontractor Consortium

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~~pursued 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.damages. 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 above at the beginning of this Note 6.

As of ~~June 30, 2021,~~March 31, 2022, JKC's claims against the Consortium were approximately ~~$1.8~~$1.7 billion (net of subcontractor bonds and remaining original lump sum ~~contract~~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 May 2022. The previous hearing dates were vacated due to the COVID-19 delay and 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.

~~To the extent~~Subsequently, in April 2022, JKC ~~is unsuccessful in prevailing in the Arbitration or the Consortium members are unable~~entered into a settlement agreement (the “Subcontractor Settlement Agreement”) to ~~satisfy their financial obligations in the event of a decision favorable to~~resolve outstanding claims and disputes between JKC ~~we would be responsible for our pro-rata portion of unrecovered costs from~~and the Consortium. ~~This could have a material adverse impact on the profit at completion of the overall contract and thus on our consolidated statements of operations and financial position.~~

~~Ichthys Project Funding~~

As a result of the ~~ongoing disputes with the client and pursuit~~Subcontractor Settlement Agreement, KBR expects to receive approximately $271 million of ~~recoveries against the Consortium through the Arbitration, we have funded~~cash in 2 payments for our proportionate share of the ~~working capital requirements~~settlement amount. The first payment of $203 million was paid to JKC in April 2022. The second payment for approximately $68 million is expected to be paid to JKC in March 2023, at prevailing exchange rates. KBR recorded a non-cash charge to equity in earnings (losses) of unconsolidated affiliates in the amount of $137 million during the quarter ended March 31, 2022, which reflected KBR’s proportionate share of its claims against the Consortium. KBR's Senior Credit Facility contains certain defined provisions under an 'Ichthys Recovery Event', including requiring JKC to ~~complete~~make distributions to the ~~project. We made investment contributions to JKC of approximately $484 million on~~ ~~an inception-to-date basis to fund project execution activities.~~

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 ventureJV partners ~~in JKC do not fulfill~~for their ~~responsibilities under the JKC joint venture agreement or subcontract, we could be exposed to additional funding requirements as a result~~proportionate share of the ~~nature~~net cash proceeds. Upon receiving such distribution from JKC, KBR is required to use commercially reasonable efforts to make mandatory prepayments under Term Loan A within 3 business days of receipt using the net settlement proceeds. KBR is in current communication with JKC ~~joint venture agreement.~~

~~As of June 30, 2021, we had $164 million in letters of credit outstanding in support of performance and warranty guarantees provided~~ to distribute the ~~client.~~

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.first payment imminently.

See Note 8 "Equity Method Investments and Variable Interest Entities" to our condensed consolidated 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.

~~Sustainable Technology Solutions~~

During the three months ~~and six months~~ ended ~~June 30, 2021,~~March 31, 2022 within our STS business segment, we recognized a non-cash charge to equity in earnings of unconsolidated affiliates of ~~$193~~$137 million as a result of changes in estimates on the Ichthys LNG ~~project described~~Project in connection with the Subcontractor Settlement Agreement discussed above. Additionally, due to the ongoing conflict between Russia and Ukraine, sanctions and trade control measures were implemented against Russia. This may have an impact on our ability to operate in the ordinary course of business as we wind down our business operations in Russia and may result in changes in estimates on our projects as we continue to assess revisions to these estimates when known. The duration and extent to which the trade sanctions against Russia effect our business will depend on future developments which still remain uncertain. As a result, during the quarter, we recognized ~~a favorable~~an unfavorable change of ~~$37~~$12 million in gross profit and incurred $4 million in severance and asset impairments costs associated with ~~the settlement of a legacy EPC project matter, partially offset by $16 million related~~our intent to ~~the resolution of other legacy matters.~~

~~During the six months ended June 30, 2020, we recognized a favorable change of $16 million~~exit commercial projects in ~~estimated revenues and gross profit associated with variable consideration resulting from resolution of a contingency of a legacy EPC project.~~Russia.

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 ~~2020 and~~ the ~~details of the restructuring charges and asset impairments incurred through fiscal~~ year ~~2020 are provided in the table below.~~

Dollars in millions Severance Lease Abandonment Other Total Restructuring Charges Asset Impairments Total Restructuring Charges & Asset Impairments
    Government Solutions $ 2 $ 0 $ 0 $ 2 $ 0 $ 2
    Sustainable Technology Solutions 29 4 6 39 49 88
    Other 1 54 20 75 49 124
      Total $ 32 $ 58 $ 26 $ 116 $ 98 $ 214

ended December 31, 2020. The restructuring liability at ~~June 30, 2021,~~March 31, 2022, was ~~$78~~$61 million, of which ~~$24~~$15 million is included in ~~"Other~~other current ~~liabilities"~~liabilities and ~~$54~~$46 million is included in ~~"Other~~other liabilities.~~" A reconciliation of the beginning and ending~~ The restructuring liability ~~balances~~at December 31, 2021, was $66 million, of which $17 million is ~~provided~~included 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 0 2 0 2
Cash payments / settlements during the period (7) (3) (3) (13)
Currency translation and other adjustments (2) 0 0 (2)
Balance at June 30, 2021 $ 6 $ 51 $ 21 $ 78

other current liabilities and $49 million is included in other liabilities.

Note 8. 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:


		Six Months Ended June 30,		Year Ended December 31,			Three Months Ended March 31,		Year Ended December 31,
		2021		2020			2022		2021
Dollars in millions	Dollars in millions					Dollars in millions
Beginning balance at January 1,	Beginning balance at January 1,	$	881	$	846	Beginning balance at January 1,	$	576	$	881

Equity in earnings (losses) of unconsolidated affiliates	Equity in earnings (losses) of unconsolidated affiliates	(174)		30		Equity in earnings (losses) of unconsolidated affiliates	(118)		(170)
Distributions of earnings of unconsolidated affiliates(a)	Distributions of earnings of unconsolidated affiliates(a)	(26)		(38)		Distributions of earnings of unconsolidated affiliates(a)	(5)		(72)
Advances to (payments from) unconsolidated affiliates, net	Advances to (payments from) unconsolidated affiliates, net	(10)		(15)		Advances to (payments from) unconsolidated affiliates, net	(7)		(17)
Investments ~~(a)~~(b)	Investments ~~(a)~~(b)	7		26		Investments ~~(a)~~(b)	1		29
Impairment of equity method investments (b)		0		(19)

Sale of equity method investment (c)						Sale of equity method investment (c)	(22)		(39)
Foreign currency translation adjustments	Foreign currency translation adjustments	(23)		50		Foreign currency translation adjustments	3		(10)
Other		7		1
Other (d)						Other (d)	2		(26)

Ending balance	Ending balance	$	662	$	881	Ending balance	$	430	$	576

(a)The Brown & Root Industrial Services joint venture declared a distribution in the fourth quarter of 2021 that was paid to KBR during the three months ended March 31, 2022.

(b)Investments include $7$1 million and ~~$24~~$26 million in funding contributions to JKC for the ~~six~~three months ended ~~June 30, 2021,~~March 31, 2022 and the year ended December 31, ~~2020,~~2021, respectively.

~~(b)~~(c)During the three months ended March 31, 2022, we sold 2 of our 3 U.K. Road projects. The carrying value of our investment was $22 million. We received $18 million in cash proceeds and the purchaser agreed to assume the $4 million of consortium relief. In the second quarter of 2022, we sold the 1 remaining U.K. Road project and recorded a gain of approximately $16 million. During the third quarter of 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 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~~2021, Other included unearned income related to ~~other equity method investments.~~

~~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. During the quarter, we recognized a non-cash charge in the amount of $193 million associated with the Ichthys LNG ~~project. Where our performance~~Project, which was previously recorded outside of the equity method investment balance and ~~financial obligations are joint~~will not be realized as a result of the settlement proceedings. See Note 6 "Unapproved Change Orders 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~~Claims Against Clients 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.~~

Estimated Recoveries of Claims Against Suppliers and Subcontractors" for additional information.

June 30, 2021
Dollars in millions Total Assets Total Liabilities
Affinity joint venture (U.K. MFTS project) $ 10 $ 9
Aspire Defence Limited $ 68 $ 5
JKC joint venture (Ichthys LNG project) $ 375 $ 6
U.K. Roads project joint ventures $ 54 $ 0
Middle East Petroleum Corporation (EBIC ammonia project) $ 38 $ 1

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 $ 0
Middle East Petroleum Corporation (EBIC ammonia project) $ 31 $ 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 ~~six~~three months ended ~~June 30,~~March 31, 2022 and 2021, ~~and 2020,~~ our revenues included ~~$194~~$104 million and ~~$276~~$79 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 STS business segment.

Amounts included in our condensed consolidated balance sheets related to services we provided to our unconsolidated joint ventures as of ~~June 30, 2021,~~March 31, 2022, and December 31, ~~2020~~2021 are as follows:

June 30, December 31,
Dollars in millions 2021 2020
Accounts receivable, net of allowance for credit losses $ 53 $ 83
Contract assets (a) $ 1 $ 2
Contract liabilities (a) $ 11 $ 53

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


	March 31,		December 31,
Dollars in millions	2022		2021
Accounts receivable, net of allowance for credit losses	$	42	$	35
Contract assets	$	1	$	2
Other current assets	$	—	$	25
Contract liabilities	$	6	$	5

2621

~~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 June 30, 2021
Total Assets Total Liabilities
Fasttrax Limited (Fasttrax project) $ 30 $ 3
Aspire Defence subcontracting entities (Aspire Defence project) $ 447 $ 214

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

Note 9. Retirement Benefits

The components of net periodic ~~benefit~~pension cost (benefit) related to pension benefits for the three ~~and six~~ months ended ~~June 30,~~March 31, 2022 and 2021 ~~and 2020~~ were as follows:


											Three Months Ended March 31,

		Three Months Ended June 30,
		2021				2020					2022				2021
Dollars in millions	Dollars in millions	United States		Int’l		United States		Int’l		Dollars in millions	United States		Int’l		United States		Int’l
Components of net periodic pension cost (benefit)
Components of net periodic pension benefit										Components of net periodic pension benefit

Interest cost	Interest cost	$	1	$	8	$	0	$	9	Interest cost	$	1	$	9	$	—	$	8
Expected return on plan assets	Expected return on plan assets	(1)		(22)		(1)		(14)		Expected return on plan assets	(1)		(22)		(1)		(21)

Amortization of prior service cost		0		1		0		1

Recognized actuarial loss	Recognized actuarial loss	0		8		1		5		Recognized actuarial loss	—		6		1		8
Net periodic benefit cost (benefit)		$	0	$	(5)	$	0	$	1

		Six Months Ended June 30,
		2021				2020
Dollars in millions		United States		Int’l		United States		Int’l
Components of net periodic pension cost (benefit)

Interest cost		$	1	$	16	$	1	$	19
Expected return on plan assets		(2)		(43)		(2)		(29)

Amortization of prior service cost		0		1		0		1
Recognized actuarial loss		1		16		1		11
Net periodic pension cost (benefit)		$	0	$	(10)	$	0	$	2
Net periodic pension benefit										Net periodic pension benefit	$	—	$	(7)	$	—	$	(5)

For the ~~six~~three months ended ~~June 30, 2021,~~March 31, 2022, we have contributed approximately ~~$24~~$11 million of the ~~$50~~$45 million we expect to contribute to our plans in ~~2021.~~2022.

Note 10. Debt and Other Credit Facilities

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


Dollars in millions	Dollars in millions	June 30, 2021		December 31, 2020		Dollars in millions	March 31, 2022		December 31, 2021 (1)
Term Loan A	Term Loan A	$	281	$	285	Term Loan A	$	438	$	441
Term Loan B	Term Loan B	514		516		Term Loan B	510		511
Convertible Senior Notes	Convertible Senior Notes	350		350		Convertible Senior Notes	350		350
Senior Notes	Senior Notes	250		250		Senior Notes	250		250
Senior Credit Facility	Senior Credit Facility	260		260		Senior Credit Facility	362		364
Unamortized debt issuance costs - Term Loan A	Unamortized debt issuance costs - Term Loan A	(3)		(4)		Unamortized debt issuance costs - Term Loan A	(4)		(4)
Unamortized debt issuance costs and discount - Term Loan B	Unamortized debt issuance costs and discount - Term Loan B	(14)		(16)		Unamortized debt issuance costs and discount - Term Loan B	(12)		(13)
Unamortized debt issuance costs and discount - Convertible Senior Notes	Unamortized debt issuance costs and discount - Convertible Senior Notes	(34)		(40)		Unamortized debt issuance costs and discount - Convertible Senior Notes	(4)		(4)
Unamortized debt issuance costs and discount - Senior Notes	Unamortized debt issuance costs and discount - Senior Notes	(5)		(5)		Unamortized debt issuance costs and discount - Senior Notes	(4)		(4)
Total debt	Total debt	1,599		1,596		Total debt	1,886		1,891
Less: current portion	Less: current portion	14		12		Less: current portion	16		16
Total long-term debt, net of current portion	Total long-term debt, net of current portion	$	1,585	$	1,584	Total long-term debt, net of current portion	$	1,870	$	1,875

(1) As adjusted for the adoption of ASU 2020-06 using the full retrospective method.

Senior Credit Facility

On ~~July 2, 2020,~~November 18, 2021, we ~~amended~~entered into Amendment No. 5 under our ~~Senior~~existing Credit ~~Facility to consist~~Agreement, dated as of April 25, 2018 ("Pro Rata Facilities"), consisting of a $1 billion revolving credit facility ~~("Revolver"~~(the "Revolver"), a ~~$275~~$442 million Term Loan A, ("Term Loan A") ~~of which a portion is~~with debt tranches denominated in US dollars, Australian dollars and British pound sterling and a ~~$520~~$512 million Term Loan B ("Term Loan B"), with an aggregate capacity of ~~$1.795 billion.~~$1.954 billion ("Senior Credit Facility"). The ~~Revolver and~~Amendment, among other things, (i) established an additional tranche of £122.1 million in Term Loan A ~~mature in February 2025~~incurred by Kellogg Brown & Root Limited, a wholly owned indirect subsidiary of KBR, Inc., organized under the laws of England and Wales, (ii) increased capacity and flexibility under certain negative covenants, (iii) permits the netting of unrestricted cash up to a specified cap for purposes of calculating the leverage ratio and (iv) reduced the interest rate payable for applicable margins and commitment fees and extended the maturity dates to November 2026 for Term Loan A and the Revolver. The maturity date of Term Loan B ~~matures in~~remained unchanged maturing February 2027.

The interest rates with respect to the Revolver and Term Loan A are based on, at the Company's option, the respective adjusted ~~LIBOR~~reference rate 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%. Additionally, there is a commitment fee with respect to the Revolver.

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


		Revolver and Term Loan A							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	%
Consolidated Net Leverage Ratio								Consolidated Net Leverage Ratio	Reference Rate (a)		Base Rate		Commitment Fee
Greater than or equal to 4.25 to 1.00								Greater than or equal to 4.25 to 1.00	2.25	%	1.25	%	0.33	%
Less than 4.25 to 1.00 but greater than or equal to 3.25 to 1.00								Less than 4.25 to 1.00 but greater than or equal to 3.25 to 1.00	2.00	%	1.00	%	0.30	%
Less than 3.25 to 1.00 but greater than or equal to 2.25 to 1.00	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 3.25 to 1.00 but greater than or equal to 2.25 to 1.00	1.75	%	0.75	%	0.28	%
Less than 2.25 to 1.00 but greater than or equal to 1.25 to 1.00	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 2.25 to 1.00 but greater than or equal to 1.25 to 1.00	1.50	%	0.50	%	0.25	%
Less than 1.25 to 1.00	Less than 1.25 to 1.00	1.50	%	0.50	%	0.20	%	Less than 1.25 to 1.00	1.25	%	0.25	%	0.23	%

(a)The reference rate for the Revolver and the U.S. dollar tranche is LIBOR, the Australian dollar tranche is BBSY and the British pound sterling tranche is SONIA.

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,~~March 31, 2022, increasing to 1.25% starting with the quarter ending ~~June 30, 2022. The~~March 31, 2024. 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 net leverage ratio and a consolidated interest coverage ratio (as such terms are defined in the Senior Credit Facility). Our consolidated net leverage ratio as of the last day of any fiscal quarter may not exceed 4.50 to 1 through 2022, reducing to 4.25 to 1 ~~through 2021, reducing to~~in 2023 and 4.00 to 1 in ~~2022~~2024 and ~~3.75 to 1 in 2023.~~thereafter. Our consolidated interest coverage ratio may not be less than 3.00 to 1 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.~~quarter. As of ~~June 30, 2021,~~March 31, 2022, 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

at our election, 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 ~~May 20, 2021,~~February 18, 2022, we declared a quarterly cash dividend of ~~$0.11~~$0.12 per Common Share, which exceeded our per share dividend threshold and adjusted the conversion rate to ~~39.3964~~39.4809 at a strike price of $25.38. The impact of dilution on our earnings per share from Convertible Notes is measured using the “treasury stock method”. As of June 30, 2021, the "if-converted" value of the Convertible Notes exceeded the $350 million principal amount by approximately $176 million.

The net carrying value of the equity component related to the Convertible Senior Notes was $57 million as of June 30, 2021, and December 31, 2020. The amount of interest cost recognized relating to the contractual interest coupon was $2 million and $4 million for the three and six months ended June 30, 2021 and 2020, respectively. The amount of interest cost recognized relating to the amortization of the discount and debt issuance costs was $3 million and $7 million for the three and six months ended June 30, 2021, respectively, and $3 million and $6 million for the three and six months ended June 30, 2020, respectively. The effective interest rate on the liability component was 6.50% as of June 30, 2021, and December 31, 2020.$25.33.

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,~~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"~~PIC 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 ~~June 30, 2021~~March 31, 2022 was $39.82. 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.$39.73. The Warrant Transactions have been accounted for by recording the proceeds received as ~~"Additional paid-in capital".~~PIC.

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.

As of March 31, 2022, the if-converted value of the Convertible Notes based on the closing share price exceeded the $350 million principal amount by approximately $406 million. The incremental value over the principal amount would be fully offset by the shares we are allowed to purchase under the Note Hedge Transaction. However, the counterparties holding the warrants would have the right to purchase the same number of shares we would receive at a strike price of $39.73 resulting in value of $207 million that would have been delivered to the counterparties as of March 31, 2022.

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~~were 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 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 ~~June 30, 2021,~~March 31, 2022, we had $1 billion in a committed line of credit under the Senior Credit Facility and ~~$365~~$521 million of uncommitted lines of credit to support the issuance of letters of credit. As of ~~June 30, 2021,~~March 31, 2022, with respect to our Senior Credit Facility, we had ~~$260~~$362 million of outstanding borrowings previously issued to fund the ~~acquisition~~acquisitions of Centauri and ~~$114~~Frazer-Nash and $49 million of outstanding letters of credit. With respect to our ~~$365~~$521 million of uncommitted lines of credit, we had utilized ~~$210~~$215 million for letters of credit as of ~~June 30, 2021.~~March 31, 2022. The total remaining capacity of these committed and uncommitted lines of credit was approximately ~~$781~~$895 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 ~~$168~~under our bilateral facilities, $85 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 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 11. Income Taxes

The effective tax rate was approximately (37)% and ~~(124)%~~25% for the three ~~and six~~ months ended ~~June 30,~~March 31, 2022 and 2021, ~~respectively. The effective tax rate was approximately (18)% and (4)% for the three and six months ended June 30, 2020,~~ respectively. The effective tax rate for the ~~six~~three months ended ~~June 30, 2021,~~March 31, 2022, as compared to the U.S. statutory rate of 21%, was primarily impacted by an equity adjustment on an LNG ~~project and the enactment of a tax rate change in the United Kingdom.~~project. An equity adjustment was ~~booked in Q2 2021~~recorded on an entity in which KBR is a JV ~~partner.~~partner in the first quarter of 2022. Since the tax impact for this adjustment was taxed at the JV level, KBR will not receive a tax benefit. In Q2 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,~~discrete items, our tax rate would be 25% for the three ~~and six~~ months ended June 30, 2021. The three and six months ended June 30, 2020 was primarily impacted by impairment and restructuring charges incurred during the period. Excluding the tax impact of these adjustments, our tax rate would have been 27% for the three and six months ended June 30, 2020.March 31, 2022.

Our estimated annual effective rate for ~~2021~~2022 is 25% excluding the effects of discrete items. Our estimated annual

effective rate is subject to change based on the actual jurisdictions where our ~~2021~~2022 earnings are generated.

The valuation allowance for deferred tax assets as of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020~~2021 was ~~$219~~$201 million and ~~$220~~$204 million, respectively. 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 ~~$690~~$538 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 ~~$581~~$619 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"~~other liabilities and ~~"Deferred~~deferred income ~~taxes"~~taxes on our condensed consolidated balance sheets as of ~~June 30, 2021,~~March 31, 2022 and December 31, 2021 was $89 million.

Note 12. Commitments and Contingencies

We are a party to litigation and other proceedings that arise in the ordinary course of our business, including matters arising under provisions relating to the protection of the environment. These types of matters could result in fines, penalties, cost reimbursements or contributions, compensatory or treble damages or non-monetary sanctions or relief. We believe the probability is remote that the outcome of any individual matter, including the matters described below, will have a material adverse effect on the corporation as a whole, notwithstanding that the unfavorable resolution of any matter may have a material effect on our net earnings and cash flows in any particular reporting period. Among the factors that we consider in this assessment are the nature of existing legal proceedings and claims, the asserted or possible damages or loss contingency (if estimable), the progress of the case, existing law and precedent, the opinions or views of legal counsel and other advisers, our experience in similar cases and the experience of other companies, the facts available to us at the time of assessment and how we intend to respond to the proceeding or claim. Our assessment of these factors may change over time as individual proceedings or claims progress.

Although we cannot predict the outcome of legal or other proceedings with certainty, when it is probable that a loss has been incurred and the amount is reasonably estimable, U.S. GAAP requires us to accrue an estimate of the probable loss or range of loss or make a statement that such an estimate cannot be made. We follow a thorough process in which we seek to estimate the reasonably possible loss or range of loss, and only if we are unable to make such an estimate do we conclude and disclose that an estimate cannot be made. Accordingly, unless otherwise indicated below in our discussion of legal proceedings, a reasonably possible loss or range of loss associated with any individual legal proceeding cannot be estimated.

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 in the unpaid overtime case 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 ~~$95~~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. SSI filed an appeal of this decision to the Chadian Supreme Court on December 28, 2020. SSI’s request for suspension on the enforceability of the award from the Chadian Supreme Court was granted on January 4, 2021. A hearing took place on December 21, 2021, and while a decision was not issued at the hearing, the Reporting Judge of the Chadian Supreme Court indicated, with regard to the fourth plea concerning the unicity of judicial matters, that this ground alone justified quashing the decision. On February 9, 2022, the Chadian Supreme Court issued an abstract of their forthcoming decision upholding the lower court’s ruling. We are still awaiting a full decision by the Chadian Supreme Court.

Regardless, at this time, based on our assessment of existing law and precedent, the opinions of legal counsel and other advisers, and the facts available to us at the time of assessment, 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 paid by Exxon based on the applicable contract and past actions by Exxon with respect to costs and awards related to this matter.

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 $301 million Australian dollars. KBR has a 33% participation interest in the joint venture and ~~$96 million, respectively.~~the partners have joint and several liability with respect to all obligations under the contract. We 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.

As of March 31, 2022, we have accrued a probable and reasonably estimable potential loss in an amount that is immaterial. At this time, fact discovery and expert review are still ongoing. The joint venture, joint venture insurers and client continue to be engaged in discussions concerning potential resolution of the claims.

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. 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. The U.S. government also retains the right to pursue various remedies under any of these contracts which could result in challenges to expenditures, suspension of payments, fines and suspensions or debarment from future business with the U.S. government.

The Company accrued for probable and reasonably estimable unallowable costs associated with open government matters related to our GS business in the amounts of $86 million as of March 31, 2022 and $76 million as of December 31, 2021, which are recorded in other liabilities on our consolidated balance sheets.

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 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 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.

Investigations, Qui Tams and Litigation

The following matters relate to ongoing litigation or federal investigations involving U.S. government contracts. Several 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." In the event we prevail in defending these allegations, a majority of our defense costs will be billable under the LogCAP 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 lost our claims against the government 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 was held on January 31 - February 1, 2022. Post-heard briefs have now been filed and we await a decision by the Tribunal, which we anticipate in the second quarter of 2022. Management accrued a probable and reasonably estimable loss amount, which is included in other liabilities on our condensed consolidated balance sheets, to cover either liability as determined by the panel or a negotiated settlement with FKTC on 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 were postponed due to 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 it remains an option on appeal. Fact discovery has been completed and expert discovery is expected to continue through July 2022. We believe the allegations of fraud by the relators are without merit and, based on our assessment of existing law and precedent, the opinions or views of legal counsel and the facts available to us as of March 31, 2022, we are not able to estimate a reasonably possible loss and accordingly, 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 complete. On March 30, 2020, the Court granted KBR’s motion to transfer the case to the Southern District of Texas and the court allowed one additional deposition to take place. KBR and the U.S government 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 2 motions for reconsideration, one addressing the ruling on KBR’s motion for summary judgment and one addressing the U.S. government’s motion. A hearing 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 which has now been postponed to May 2022. As of March 31, 2022, we have accrued a probable and reasonably estimable loss amount, which is included in other liabilities on our condensed consolidated balance sheets.

Note ~~12.~~14. 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 ~~June 30, 2021,~~March 31, 2022, and December 31, ~~2020.~~2021. 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~~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~~As of ~~June 30, 2021,~~March 31, 2022 and December 31, 2020. The remaining assets and liabilities associated with the previously issued Form 1s issued by the U.S. government questioning or objecting to costs billed to them are immaterial to our condensed consolidated balance sheet as of June 30, 2021, ~~as a result of an unfavorable FKTC containers claim ruling. See Note 13 "U.S. Government Matters" for additional information. The amount also includes~~ $29 million as of ~~June 30, 2021~~the total claims and ~~December 31, 2020, related~~accounts receivable balance relate 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. The remaining $1 million as of March 31, 2022, and December 31, 2021 relate to Form 1s issued by the U.S. government questioning or objecting to costs billed to them. 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 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 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 as of June 30, 2021, and December 31, 2020, and are recorded in “Other liabilities.”

~~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 the costs of litigation and any damages that may be awarded in the FKTC matters described below are billable under the LogCAP III. 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 lost our claims against the 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 November 2021. 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 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 were expected to occur in early 2020 but have been postponed due to COVID-19. KBR and the relators filed various motions including a motion to dismiss by KBR. Although KBR's motion to dismiss was not granted, 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 June 30, 2021, 0 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 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 Government filed a Motion of Clarification which is now pending. As of June 30, 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 filed a motion for rehearing which was denied and therefore the dispute with the U.S. government has concluded. As of June 30, 2021, we believe our recorded accruals are adequate to resolve this matter. We are in discussions with the U.S. government regarding payment.

~~Note 14. Other Commitments and Contingencies~~

~~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. SSI filed an appeal of this decision to the Chadian Supreme Court on December 28, 2020. SSI’s request for suspension on the 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 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 June 30, 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 continue to be engaged in discussions concerning potential resolution of the claims.

Note 15. Accumulated Other Comprehensive Loss

Changes in AOCL, net of tax, by component


Dollars in millions	Dollars in millions	Accumulated foreign currency translation adjustments		Accumulated pension liability adjustments		Changes in fair value of derivatives		Total		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)
Balance at December 31, 2021										Balance at December 31, 2021	$	(296)	$	(581)	$	(4)	$	(881)
Other comprehensive income adjustments before reclassifications	Other comprehensive income adjustments before reclassifications	8		0		8		16		Other comprehensive income adjustments before reclassifications	(19)		—		17		(2)
Amounts reclassified from AOCL	Amounts reclassified from AOCL	3		13		6		22		Amounts reclassified from AOCL	—		5		2		7
Net other comprehensive income (loss)	Net other comprehensive income (loss)	11		13		14		38		Net other comprehensive income (loss)	(19)		5		19		5
Balance at June 30, 2021		$	(280)	$	(751)	$	(14)	$	(1,045)
Balance at March 31, 2022										Balance at March 31, 2022	$	(315)	$	(576)	$	15	$	(876)


Dollars in millions	Dollars in millions	Accumulated foreign currency translation adjustments		Accumulated pension liability adjustments		Changes in fair value of derivatives		Total		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)
Balance at December 31, 2020										Balance at December 31, 2020	$	(291)	$	(764)	$	(28)	$	(1,083)
Other comprehensive income adjustments before reclassifications	Other comprehensive income adjustments before reclassifications	(37)		0		(23)		(60)		Other comprehensive income adjustments before reclassifications	6		—		12		18
Amounts reclassified from AOCL	Amounts reclassified from AOCL	(11)		10		5		4		Amounts reclassified from AOCL	1		7		3		11
Net other comprehensive income (loss)	Net other comprehensive income (loss)	(48)		10		(18)		(56)		Net other comprehensive income (loss)	7		7		15		29
Balance at June 30, 2020		$	(363)	$	(644)	$	(36)	$	(1,043)
Balance at March 31, 2021										Balance at March 31, 2021	$	(284)	$	(757)	$	(13)	$	(1,054)

Reclassifications out of AOCL, net of tax, by component


		Six Months Ended June 30,						Three Months Ended March 31,
Dollars in millions	Dollars in millions	2021		2020		Affected line item on the Condensed Consolidated Statements of Operations	Dollars in millions	2022		2021		Affected line item on the Condensed Consolidated Statements of Operations
Accumulated foreign currency adjustments	Accumulated foreign currency adjustments						Accumulated foreign currency adjustments
Reclassification of foreign currency adjustments	Reclassification of foreign currency adjustments	$	(3)	$	11	Gain on disposition of assets and investments and Net income attributable to noncontrolling interests	Reclassification of foreign currency adjustments	$	—	$	(1)	Net income attributable to noncontrolling interests and Gain on disposition of assets and investments
Tax benefit	Tax benefit	0		0		Provision for income taxes	Tax benefit	—		—		Provision for income taxes
Net accumulated foreign currency	Net accumulated foreign currency	$	(3)	$	11	Net of tax	Net accumulated foreign currency	$	—	$	(1)	Net of tax

Accumulated pension liability adjustments	Accumulated pension liability adjustments						Accumulated pension liability adjustments
Amortization of actuarial loss (a)	Amortization of actuarial loss (a)	$	(16)	$	(12)	See (a) below	Amortization of actuarial loss (a)	$	(6)	$	(8)	See (a) below
Tax benefit	Tax benefit	3		2		Provision for income taxes	Tax benefit	1		1		Provision for income taxes
Net pension and post-retirement benefits	Net pension and post-retirement benefits	$	(13)	$	(10)	Net of tax	Net pension and post-retirement benefits	$	(5)	$	(7)	Net of tax

Changes in fair value for derivatives	Changes in fair value for derivatives						Changes in fair value for derivatives
Foreign currency hedge and interest rate swap settlements	Foreign currency hedge and interest rate swap settlements	$	(8)	$	(6)	Other non-operating income	Foreign currency hedge and interest rate swap settlements	$	(3)	$	(4)	Other non-operating expense
Tax benefit	Tax benefit	2		1		Provision for income taxes	Tax benefit	1		1		Provision for income taxes
Net changes in fair value of derivatives	Net changes in fair value of derivatives	$	(6)	$	(5)	Net of tax	Net changes in fair value of derivatives	$	(2)	$	(3)	Net of tax

(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.

3429

Note 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 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 ~~June 30, 2021, $275~~March 31, 2022, $200 million remains available for repurchase under this authorization. The authorization does not obligate the 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 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					Six Months Ended						Three Months Ended
		June 30, 2021					June 30, 2021						March 31, 2022
		Number of Shares	Average Price per Share		Dollars in Millions		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	Repurchases under the $350 million authorized share repurchase program	681,284	$	40.89	$	28	681,284	$	40.89	$	28	Repurchases under the $350 million authorized share repurchase program		519,332	$	48.12	$	25

Withheld to cover shares	Withheld to cover shares	11,873	$	40.97	0		141,249	$	31.90	$	4	Withheld to cover shares		170,939	$	48.70	$	8
Total	Total	693,157	$	40.89	$	28	822,533	$	39.35	$	32	Total		690,271	$	48.26	$	33

		Three Months Ended					Six Months Ended						Three Months Ended
		June 30, 2020					June 30, 2020						March 31, 2021
		Number of Shares	Average Price per Share		Dollars in Millions		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	Repurchases under the $350 million authorized share repurchase program	0	$	0	$	0	0	$	0	$	0	Repurchases under the $350 million authorized share repurchase program		—	$	—	$	—

Withheld to cover shares	Withheld to cover shares	11,008	$	22.79	0		160,132	$	25.74	$	4	Withheld to cover shares		129,376	$	31.07	$	4
Total	Total	11,008	$	22.79	$	0	160,132	$	25.74	$	4	Total		129,376	$	31.07	$	4

Note 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 if-converted method for Convertible Debt and the treasury stock ~~method.~~method for all other instruments.

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


		Three Months Ended June 30,		Six Months Ended June 30,			Three Months Ended March 31,
Shares in millions	Shares in millions	2021	2020	2021	2020	Shares in millions		2022	2021 (1)
Basic weighted average common shares outstanding	Basic weighted average common shares outstanding	141	142	141	142	Basic weighted average common shares outstanding		140	141
Stock options, restricted shares, and convertible debt(a)	Stock options, restricted shares, and convertible debt(a)	0	0	0	0	Stock options, restricted shares, and convertible debt(a)		—	14
Diluted weighted average common shares outstanding(b)	Diluted weighted average common shares outstanding(b)	141	142	141	142	Diluted weighted average common shares outstanding(b)		140	155

(1) As adjusted for the adoption of ASU 2020-06 using the full retrospective method.

(a)For the three months ended March 31, 2021, there was a diluted impact primarily 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.

35Upon our full retrospective adoption of ASU 2020-06 on January 1, 2022, we are required to apply the if-converted method to our Convertible Debt when calculating diluted income (loss) per share. Under the if-converted method, the principal amount and any conversion spread of the Convertible Debt, to the extent dilutive, are assumed to be converted into common stock at the beginning of the period and net income (loss) attributable to KBR is adjusted to reverse the effect of any interest expense associated with the Convertible Debt. For the three months ended March 31, 2022, the Convertible Notes did not impact the calculation of diluted income (loss) per share as they were anti-dilutive. For the three months ended March 31, 2021, the Convertible Notes impacted the calculation of diluted income (loss) per share as the average price of our common stock exceeded the conversion price of $25.40. Additionally, diluted net income (loss) per share did not include any effect from the Warrant Transactions (as defined in Note 10, "Debt and Other Credit Facilities", to our condensed consolidated financial statements) for the three months ended March 31, 2022 as they were anti-dilutive. For the three months ended March 31, 2021, the Warrant Transactions did not impact diluted net income (loss) per share as the average price of our common stock did not exceed the exercise price of $39.85. The Warrant Transactions may have a dilutive effect on diluted net income (loss) per share in the year ending December 31, 2022 in periods for which we report net income attributable to KBR and the average price of our common stock exceeds the applicable exercise price.

For purposes of applying the two-class method in computing income (loss) per share, there ~~were 0~~was no net earnings allocated to participating securities for the three months ended March 31, 2022 and $0.3 million net earnings allocated to participating securities, or a negligible amount per share, for the three ~~and six~~ months ended ~~June 30,~~March 31, 2021. ~~There were 0 net earnings allocated to participating securities for~~For the ~~three and six months ended June 30, 2020. The diluted income per share calculation did 0t include antidilutive weighted average shares for~~ three months ended ~~June 30, 2021, and 0.2 million antidilutive weighted average shares for~~March 31, 2022, the ~~six months ended June 30, 2021. The~~ diluted income (loss) per share calculation ~~did not include 1.2~~excluded the following weighted-average potential common shares because their inclusion would have been anti-dilutive: 13.8 million ~~antidilutive weighted average shares for~~related to the Convertible Debt, 13.8 million related to the Warrant Transactions and 0.8 million related to our stock options and restricted stock awards. For the three ~~and six~~ months ended ~~June 30, 2020.~~March 31, 2021, the diluted income (loss) per share calculation excluded the following weighted-average potential common shares because their inclusion would have been anti-dilutive: 13.8 million related to the Warrant Transactions and 1.1 million related to our stock options and restricted stock awards.

Note 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 cash 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.


				June 30, 2021				December 31, 2020							March 31, 2022				December 31, 2021
Dollars in millions	Dollars in millions			Carrying Value		Fair Value		Carrying Value		Fair Value		Dollars in millions			Carrying Value		Fair Value		Carrying Value		Fair Value

Liabilities (including current maturities):	Liabilities (including current maturities):											Liabilities (including current maturities):
Term Loan A	Term Loan A	Level 2		$	281	$	281	$	285	$	285	Term Loan A	Level 2		$	438	$	438	$	441	$	441
Term Loan B	Term Loan B	Level 2		514		513		516		517		Term Loan B	Level 2		510		509		511		514
Convertible Notes	Convertible Notes	Level 2		350		543		350		480		Convertible Notes	Level 2		350		767		350		669
Senior Notes	Senior Notes	Level 2		250		251		250		262		Senior Notes	Level 2		250		244		250		256
Senior Credit Facility	Senior Credit Facility	Level 2	`	260		260		260		260		Senior Credit Facility	Level 2	`	362		362		364		364
Nonrecourse project debt	Nonrecourse project debt	Level 2		2		2		7		7		Nonrecourse project debt	Level 2		2		2		2		2

See Note 10 "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 ~~June 30, 2021,~~March 31, 2022, the gross notional value of our foreign currency exchange forwards and option contracts used to hedge balance sheet exposures was ~~$57~~$81 million, all of which had durations of 1619 days or less. We also had approximately

$1 $8 million (gross notional value) of cash flow hedges which had durations of ~~1 month~~26 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 are included in ~~"Other~~other current ~~assets"~~assets and ~~"Other~~other current ~~liabilities"~~liabilities on our condensed consolidated balance sheets ~~was immaterial~~ at ~~June 30, 2021,~~March 31, 2022, and December 31, ~~2020.~~2021. 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~~other non-operating ~~income (expense)"~~expense on our condensed consolidated statements of operations.


		Three Months Ended				Six Months Ended					Three Months Ended
		June 30,				June 30,					March 31,
Gains (losses) dollars in millions		2021		2020		2021		2020
Dollars in millions										Dollars in millions		2022		2021
Balance Sheet Hedges - Fair Value	Balance Sheet Hedges - Fair Value	$	(1)	$	(1)	$	(1)	$	0	Balance Sheet Hedges - Fair Value		$	—	$	—
Balance Sheet Position - Remeasurement	Balance Sheet Position - Remeasurement	1		0		(5)		6		Balance Sheet Position - Remeasurement		—		(6)
Net		$	0	$	(1)	$	(6)	$	6
Net loss										Net loss		$	—	$	(6)

Interest rate risk. We use interest rate swaps to reduce interest rate risk and to manage net interest expense by converting our ~~LIBOR-rate~~LIBOR 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 ~~June 30, 2021,~~March 31, 2022, was a ~~$16~~$19 million net ~~liability,~~asset, of which ~~$15~~$22 million is included in ~~"Other current liabilities," $4~~other assets, $2 million is included in ~~"Other liabilities,"~~other current assets and $3$5 million is included in ~~"Other assets."~~other current liabilities. The unrealized net ~~losses~~gain on these interest rate swaps was ~~$16~~$19 million and is included in ~~"AOCL"~~AOCL as of ~~June 30, 2021.~~March 31, 2022. The fair value of the interest rate swaps at December 31, ~~2020,~~2021, was a ~~$33~~$3 million liability, of which ~~$15~~$10 million is included in ~~"Other~~other current ~~liabilities"~~liabilities and ~~$18~~$7 million is included in ~~"Other liabilities."~~other assets. The unrealized net losses on these interest rate swaps was ~~$33~~$3 million and included in ~~"AOCL"~~AOCL as of December 31, ~~2020.~~2021.

Credit Losses. We are exposed to credit losses primarily related to our professional services, project delivery and technologies offered in our STS business 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 ~~June 30, 2021,~~March 31, 2022, our STS business segment that is subject to credit risk reported approximately ~~$347~~$357 million of financial assets consisting primarily of accounts receivable and contract assets, net of ~~allowances~~allowance for credit losses of $13 million. ~~Although there continues to be an economic disruption resulting from the impact of COVID-19, changes in our credit loss reserve was not material for the six months ended June 30, 2021.~~ Based on an aging analysis at ~~June 30, 2021, 85%~~March 31, 2022, 87% of our accounts receivable related to this segment ~~were~~was 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 the third-party financial institutions. The Company accounts for these receivable transfers 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~~During the three months ended March 31, 2022, the Company has derecognized ~~$553~~$1,287 million of accounts receivables from the balance sheet under these agreements, of which certain receivables totaling ~~$543~~$1,278 million were sold under the MUFG ~~RPA as of June 30, 2021. We did not factor any material receivables in the prior year.~~RPA. The fair value of the sold receivables approximated their book value due to their short-term nature. The fees incurred are presented in ~~“Other~~other non-operating ~~(loss) income”~~expense on the condensed consolidated statements of operations.

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


	~~Six Months Ended~~
~~Dollars in millions~~	~~June 30, 2021~~

~~Sale of receivables~~	~~553~~
~~Settlement of receivables~~	~~(434)~~
~~Cash collected, not yet remitted~~	0
~~Outstanding balances sold to financial institutions~~	$	~~119~~


	Three Months Ended		Three Months Ended
Dollars in millions	March 31, 2022		March 31, 2021
Beginning balance	$	481	112
Sale of receivables	1,287		602
Settlement of receivables	(1,649)		(597)
Cash collected, not yet remitted	(1)		—
Outstanding balances sold to financial institutions	$	118	$	117

Note 19. Recent Accounting Pronouncements

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

In 2017, the United Kingdom's Financial Conduct Authority (FCA) announced that after 2021 it would no longer compel banks to submit the rates required to calculate the London Interbank Offered Rate (LIBOR), which have been widely used as reference rates for various securities and financial contracts, including loans, debts and derivatives. This announcement indicates that the continuation of LIBOR on the current basis is not guaranteed after 2021. Subsequently in March 2021, the FCA announced some USD LIBOR tenors (overnight, 1-month, 3-month, 6-month and 12-month) will continue to be published until June 30, 2023. Regulators in the U.S. and other jurisdictions have been working to replace these rates with alternative reference interest rates that are supported by transactions in liquid and observable markets, such as the Secured Overnight Financing Rate (SOFR) for USD LIBOR. Currently, our Senior Credit Facility and certain of our derivative instruments reference LIBOR base rates. Our Senior Credit Facility contains provisions to transition into alternative reference rates including calculations to be employed when LIBOR ceases to be available as a benchmark. We have adhered to the ISDA 2020 IBOR Fallbacks Protocol, which will govern our derivatives upon the ~~FASB issued~~final termination of USD LIBOR index benchmark. ASU ~~No.~~ 2020-04, Reference Rate Reform (Topic 848) -: Facilitation of the Effects of ~~the Interbank Offered~~Reference Rate ~~Transition~~Reform on Financial Reporting, ~~to provide optional relief~~as amended, helps limit the accounting impact from ~~applying generally accepted accounting principles to contracts,~~contract modifications, including hedging relationships, ~~and other transactions affected~~due to the transition from LIBOR to alternative reference rates that are completed by December 31, 2022. We do not expect a significant impact to our financial results, financial position or cash flows from the transition from LIBOR to alternative reference ~~rate reform.~~ rates, but we will continue to monitor the impact of this transition until it is completed.

In ~~addition, in January~~October 2021, the FASB issued ASU ~~No. 2021-01, Reference Rate Reform~~2021-08, Business Combinations (Topic 848) – Scope, to clarify that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. The guidance is effective upon issuance and generally can be applied through December 31, 2022. We are currently evaluating the future impact of adoption 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)~~805): Accounting for ~~Convertible Instruments~~Contract Assets and Contract Liabilities from Contracts with Customers, which requires entities to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with ASC 2014-09, Revenue from Contracts with Customers (Topic 606). The update will generally result in an ~~Equity's Own Equity. This guidance simplifies~~entity recognizing contract assets and contract liabilities at amounts consistent with those recorded by the ~~accounting for convertible instruments by reducing~~acquiree immediately before the number of accounting models available for convertible debt instruments. This guidance also eliminates the treasury stock method to calculate diluted earnings per share for certain convertible instruments and requires the use of the if-converted method. ASU 2020-06acquisition date rather than at fair value. The new standard is effective ~~for us for annual reporting periods beginning after December 15, 2021, and for interim periods within those annual periods, and can be applied utilizing either~~on 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 entitiesprospective basis for fiscal years beginning after December 15, ~~2021, including interim periods within those fiscal years.~~2022, with early adoption permitted. We are currently evaluating the future impact of adoption of this standard.

3834

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 ~~2020~~2021 Annual Report on Form 10-K.

Overview

KBR Inc., a Delaware corporation ("KBR"), delivers science, technology and engineering solutions to governments and companies around the ~~world.~~world. Drawing from its rich 100-year history and culture of innovation and mission focus, KBR creates sustainable value by combining deep domain expertise with its full life cycle capabilities to 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;

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

•Operational support such as space domain awareness; C4ISR; human spaceflight and satellite operations; integrated supply chain and logistics; 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, sustainability-focused process ~~technology;~~licensing; advisory services focused on energy transition; and digitally-enabled asset optimization solutions.

KBR's strategic growth vectors include:

•Defense modernization;

•Space superiority;

•Health and human performance; and

•Sustainable technology.

Key customers include U.S. DoD agencies such as the U.S. Army, U.S. Navy and U.S. Air 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 and other U.K. Crown Services; the Royal Australian Air Force, Navy and Army; other national governments; and a wide range of commercial and industrial companies.

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 also develops and prioritizes investment in technologies that are disruptive, innovative and sustainability- and safety-focused. These technologies and solutions enable clients to achieve a cleaner, greener, more energy efficient global future.

On October ~~1, 2020,~~20, 2021, we acquired ~~Centauri,~~Frazer-Nash Consultancy Limited ("Frazer-Nash"), a leading provider of high-end systems engineering, assurance and ~~development solutions for critical, well-funded, national security missions associated with space, intelligence, cyber, and emerging technologies such as directed~~technology advisory services used to solve complex challenges. Frazer-Nash provides a broad range of professional advisory services across the defense, renewable energy and ~~missile defense.~~critical infrastructure sectors primarily in the U.K. and Australia. Additional information relating to the ~~Centauri~~Frazer-Nash acquisition is described in Note 4 to our condensed consolidated financial statements.

Business Environment and Trends

Government Outlook

On March 15, 2022, President Biden signed into law the $1.5 trillion Consolidated Appropriations Act 2022, which includes $782 billion in defense spending, of which $742 billion is for the DoD, and $730 billion for non-defense discretionary spending representing an increase from the fiscal 2021 budget of 6% and 7%, respectively. The fiscal ~~2021 and proposed fiscal~~ 2022 U.S. defense spending ~~budgets prioritize~~budget prioritizes and furthers a national security strategy to confront near peer threats around the world, enhances the DoD’s cybersecurity strategy and cyber warfare capabilities, increases the priority of military space superiority, directs innovation to meet long-range emerging threats and continues the restoration of military readiness. The budget includes ~~a number of~~several measures to strengthen emerging technologies including cyber-science and

technologies, artificial intelligence, directed energy, hypersonics and biotechnologies. ~~The proposed~~Additionally, the fiscal 2022 ~~national security~~defense budget ~~outlines spending of $753 billion, a 1.6% increase over the fiscal 2021 amounts, and~~ includes ~~$715~~$13.6 billion for ~~the Department of Defense.~~military and humanitarian support for Ukraine. The ~~fiscal 2022~~ non-defense discretionary ~~spending proposal~~budget includes $24 billion, or a ~~16% increase in funding, including a 6.5%~~3% 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.

On March 28, 2022, President Biden provided his proposed fiscal 2023 budget of $1.6 trillion, which included $813 billion in defense spending, of which $773 billion is for the DoD, and $785 billion for non-defense discretionary spending which represents an increase from the fiscal 2022 budget of 4% and 8%, respectively. The U.S. defense spending budget prioritizes initiatives outlined in the fiscal 2022 budget in addition to, among other things, increased support for the U.S. European Command. The non-defense discretionary spending proposal includes $26 billion, or an 8% increase from the fiscal 2022 budget, in funding for NASA to support the continuation of scientific research, exploration and space technology, as well as increased funding across all agencies to address the climate crisis.

In connection with Operation Allies Welcome ("OAW"), KBR has been engaged by the U.S. DoD to provide humanitarian support across numerous military ~~announced a full withdrawal~~bases to those awaiting resettlement. Such support includes temporary housing, food service, medical care and other services. We substantially completed this non-recurring OAW support in the first quarter of ~~U.S. forces from Afghanistan by September 11, 2021. We believe the overall impact will not be material to our financial results.~~2022.

Internationally, our Government Solutions work is performed primarily for the U.K. Ministry of Defence and the Australian Department of Defence. The U.K. government ~~was~~has committed to ~~spend £188 billion on~~a 14% increase in defense spending over the coming four ~~years, an increase of £24 billion or 14%.~~years. Recognizing the importance of strong defense and the role the U.K. plays across the globe, the U.K. has prioritized investment in military research and investment in key areas to advance and develop capabilities around artificial intelligence, cyber security and space superiority. The Australian government continues to invest in defense spending, with particular focus on enhancing regional security, modernizing defense capabilities, strengthening cyber defenses and promoting broader economic stability.

In November 2021, we announced that HomeSafe Alliance LLC (“HomeSafe”), a KBR led joint venture with Tier One Relocation, was awarded the global household goods contract by U.S. Transportation Command. The contract ceiling value is $20 billion with a potential 9-year term, inclusive of all options periods. HomeSafe is expected to be the exclusive household goods move management service provider for the U.S. Armed Forces, U.S. DoD civilians and their families. Under this contract, HomeSafe plans to modernize and infuse technology to improve the domestic and international relocation experience for all military personnel and their families. The award of this program is being protested by the non-prevailing parties at the Court of Federal Claims and the transition has been placed on hold.

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

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

Sustainable Technology Outlook

Long-range commercial market fundamentals are supported by global population growth, expanding global ~~expansion of the middle class,~~development and an acceleration of demand for energy transition and renewable energy ~~sources for which momentum continues to build.~~sources. Clients continue to prioritize investment in digital solutions to optimize operations, increase end-product flexibility and energy efficiency, reduce unplanned downtime and ~~to reduce their~~minimize 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~~utilization and ~~utilization;~~sequestration; 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.

We expect climate change and energy transition to continue to be areas of priority and investment as many countries, including the U.S., look to boost their economies and invest in a cleaner future. In advance of the Conference of the Parties 26 meeting in Scotland, the White House released details on its strategy to achieve greenhouse gas emission reduction targets as part of their agenda. On November 15, 2021, President Biden signed the bi-partisan Infrastructure Investment and Jobs Act bill into law which includes climate provisions focused on transportation and resiliency.

In response to Russia's military invasion of Ukraine, we announced our intent to exit commercial projects in Russia in a responsible manner. We expect that the reconfiguration of global supply and demand stemming from expanding sanctions on Russia will result in near and mid-term investments to enable energy, chemical and food production security globally.

Our Business

KBR's business is organized into two core and one non-core business segments as follows:

Core business segments

• Government Solutions

• Sustainable Technology Solutions

Non-core business segment

• Other

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

Results of Operations

Three months ended ~~June 30, 2021~~March 31, 2022 compared to the three months ended ~~June 30, 2020~~March 31, 2021

The information below is an analysis of our consolidated results for the three months ended ~~June 30, 2021,~~March 31, 2022 compared to the three months ended ~~June 30, 2020.~~March 31, 2021. See Results of Operations by Business Segment below for additional information describing the performance of each of our reportable segments.


Revenues		Three Months Ended June 30,
Consolidated Results										Consolidated Results	Three Months Ended March 31,
						2021 vs. 2020										2022 vs. 2021
Dollars in millions	Dollars in millions	2021		2020		$		%		Dollars in millions	2022			2021 (1)		$		%
Revenues	Revenues	$	1,536	$	1,385	$	151	11	%	Revenues	$	1,714		$	1,461	$	253	17	%
Cost of revenues										Cost of revenues	$	(1,518)		$	(1,293)	$	225	17	%
Gross profit										Gross profit	$	196		$	168	$	28	17	%
Equity in earnings (losses) of unconsolidated affiliates										Equity in earnings (losses) of unconsolidated affiliates	$	(118)		$	12	$	(130)	n/m
Selling, general and administrative expenses										Selling, general and administrative expenses	$	(107)		$	(89)	$	18	20	%
Acquisition and integration related costs										Acquisition and integration related costs	$	(1)		$	(1)	$	—	n/m

Restructuring charges and asset impairments										Restructuring charges and asset impairments	$	(1)		$	—	$	1	n/m
Loss on disposition of assets and investments										Loss on disposition of assets and investments	$	—		$	(1)	$	(1)	n/m
Operating income (loss)										Operating income (loss)	$	(31)		$	89	$	(120)	(135)	%
Interest expense										Interest expense	$	(20)		$	(19)	$	1	5	%
Other non-operating expense										Other non-operating expense	$	—		$	(3)	$	(3)	(100)	%
Income (loss) before provision for income taxes and noncontrolling interests										Income (loss) before provision for income taxes and noncontrolling interests	$	(51)		$	67	$	(118)	(176)	%
Provision for income taxes										Provision for income taxes	$	(19)		$	(17)	$	2	n/m
Net income (loss)										Net income (loss)	$	(70)		$	50	$	(120)	(240)	%
Net income attributable to noncontrolling interests										Net income attributable to noncontrolling interests	$	1		$	1	$	—	n/m
Net income (loss) attributable to KBR										Net income (loss) attributable to KBR	$	(71)	0	$	49	$	(120)	(245)	%

(1) As adjusted for the adoption of ASU 2020-06 using the full retrospective method.

n/m - not meaningful

Revenues. Revenues increased by $253 million, or 17%, to $1.7 billion for the three months ended March 31, 2022 compared to $1.5 billion for three months ended March 31, 2021. The increase ~~in overall revenue~~ was primarily driven by our GS business segment attributable to continued organic growth in our GS business ~~segment,~~units, including the OAW program which ~~was attributable to new program wins~~contributed $269 million in 2022, and ~~on-contract expansion as well as our~~the acquisition of ~~Centauri~~Frazer-Nash in October ~~2020, which contributed approximately $180 million this quarter.~~2021. This growth was partially offset by ~~a reduction~~reduced GS operational tempo in ~~revenue~~the Middle East, the impact of our announced intent to ~~$305 million~~exit commercial operations in ~~our~~Russia, timing of certain STS ~~business segment, which is in line with management expectations following~~projects and the ~~company's exit from commoditized construction services~~completion or near completion of remaining projects that we strategically exited in 2020.

Gross Profit Three Months Ended June 30,
2021 vs. 2020
Dollars in millions 2021 2020 $ %
Gross profit $ 207 $ 142 $ 65 46 %

Gross profit.

The increase in overall gross profit of $28 million, or 17%, was primarily driven by ~~improvements in our STS business segment due to improved execution~~items discussed above and market recovery in 2021, expenses recognized in 2020 that did not recur in 2021, and the net favorable resolution of and provisioning for legacy matters. Gross profits also increased in our GS business segment due to the acquisition of Centauri in October 2020. The increase was partially offset by higherlower amortization of intangibles from the Centauri ~~acquisition and lower construction work on the Aspire program in our GS business segment.~~

Equity in Earnings (Losses) of Unconsolidated Affiliates Three Months Ended June 30,
2021 vs. 2020
Dollars in millions 2021 2020 $ %
Equity in earnings (losses) of unconsolidated affiliates $ (186) $ 16 $ (202) (1,263) %
acquisition.

Equity in earnings (losses) of unconsolidated affiliates. The overall decrease in equity in earnings (losses) of unconsolidated affiliates was primarily driven by a non-cash charge in the amount of ~~$193~~$137 million associated with the Ichthys LNG ~~project~~Project recognized in the current quarter ~~in our STS business segment.~~

Selling, General and Administrative Expenses Three Months Ended June 30,
2021 vs. 2020
Dollars in millions 2021 2020 $ %
Selling, general and administrative expenses $ (103) $ (73) $ 30 41 %
as a result of a settlement agreement entered into with JKC and the consortium of subcontractors of the Combined Cycle Power Plant. As a result of the settlement agreement, the outstanding claims and disputes between the parties related to the Combined Cycle Power Plant have been resolved and the parties agreed to withdraw all claims and terminate all ongoing arbitration and court proceedings.

Selling, general and administrative expenses. Selling, general and administrative expenses in the three months ended ~~June 30, 2021, was $30~~March 31, 2022 were $18 million higher than the same period in ~~2020,~~2021, which was primarily driven by ~~increased~~incremental expenses ~~attributable to~~from the ~~Centauri acquisition, increased costs associated with~~Frazer-Nash business and the Company's return to the office, increased travel ~~beginning in early 2021 compared to 2020 as well as~~and other corporate initiatives.

4138

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

Acquisition and integration related costs. Acquisition and integration related costs inwere $1 million for each of the three months ended March 31, 2022 and 2021 ~~are~~ primarily ~~comprised of~~due to costs ~~associated with our acquisition of Centauri in October 2020.~~incurred related to the Company's historical acquisitions.

Goodwill Impairment, Restructuring Charges and Asset Impairments Three Months Ended June 30,
2021 vs. 2020
Dollars in millions 2021 2020 $ %
Goodwill impairment $ — $ (37) $ (37) n/m
Restructuring charges and asset impairments $ (2) $ (59) $ 57 n/m
Loss on disposition of assets and investments. The loss on the disposition of assets and investments remained materially consistent for each of the three months ended March 31, 2022 and 2021.

In 2020, as a result of the economic and market volatility, management initiated a restructuring plan and we recognized goodwill impairments, restructuring charges, and assets impairments resulting from that plan.

Interest expense.

Interest Expense Three Months Ended June 30,
2021 vs. 2020
Dollars in millions 2021 2020 $ %
Interest expense $ (23) $ (19) $ 4 21 %

The increase in interest expense was primarily driven by increased ~~expense associated with~~ borrowings to finance the acquisition of ~~Centauri.~~Frazer-Nash in October 2021.

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

2021 vs. 2020
Dollars in millions 2021 2020 $ %
Other non-operating (loss) income $ 2 $ (2) $ 4 200 %

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

Provision for Income Taxes Three Months Ended June 30,

2021 vs. 2020
Dollars in millions 2021 2020 $ %
Income before provision for income taxes and noncontrolling interests $ (109) $ (33) $ (76) 230 %
(Provision) for income taxes $ (40) $ (6) $ 34 567 %

Provision for income taxes.

The provision for income taxes for the three months ended ~~June 30, 2021~~March 31, 2022 reflects a (37)% tax rate as compared to a ~~(18)%~~25% tax rate for the three months ended ~~June 30, 2020.~~March 31, 2021. The effective tax rate of (37)% for the three months ended ~~June 30, 2021~~March 31, 2022 was primarily impacted by anthe non-cash charge in equity ~~adjustment on an~~in earnings associated with the Ichthy's LNG ~~project and the enactment of a tax rate change in the U.K.~~project. Excluding the tax impact of ~~these adjustments,~~discrete items, our tax rate would be 25% for the three months ended ~~June 30, 2021. The effective tax rate of (18)% for the three months ended June 30, 2020 was primarily impacted by impairment and restructuring charges incurred during the period.Excluding the tax impact of these adjustments, our rate would have been 27% for the three months ended June 30, 2020.~~March 31, 2022. See Note 11 to our condensed consolidated financial statements for further discussion on income taxes.

Net income attributable to noncontrolling interests. The net income attributable to noncontrolling interests remained materially consistent for each of the three months ended March 31, 2022 and 2021.

Net Income Attributable to Noncontrolling Interests Three Months Ended June 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 driven by income earned related to a Middle East joint venture project in our STS business segment.~~

~~Results of Operations by Business Segment~~

Three Months Ended June 30,
Dollars in millions 2021 2020
Revenues
Government Solutions $ 1,231 $ 953
Sustainable Technology Solutions 305 432
Total revenues $ 1,536 $ 1,385
Gross profit
Government Solutions $ 130 $ 117
Sustainable Technology Solutions 77 25
Total gross profit $ 207 $ 142
Equity in earnings (losses) of unconsolidated affiliates
Government Solutions $ 8 $ 7
Sustainable Technology Solutions (194) 9
Total equity in earnings (losses) of unconsolidated affiliates $ (186) $ 16
Total selling, general and administrative expenses $ (103) $ (73)
Acquisition and integration related costs $ (3) $ —
Goodwill impairment $ — $ (37)
Restructuring charges and asset impairments $ (2) $ (59)
Gain on disposition of assets $ (1) $ (1)
Total operating income $ (88) $ (12)

~~Government Solutions~~

GS revenues increased by $278 million to $1,231 million in the second quarter of 2021, compared to $953 million in the second quarter of 2020. The increase was primarily driven by organic growth across each of our business units with Readiness & Sustainment posting 17% organic growth, International posting 11% organic growth, Science & Space posting 8% organic growth, Defense & Intel posting 4% organic growth, and the acquisition of Centauri in October 2020, which contributed over $180 million during the quarter. ~~These increases were partially offset by lower volume associated with the successful completion of non-recurring construction work on our Aspire program.~~

GS gross profit increased by $13 million, or 11%, to $130 million in the second quarter of 2021 compared to $117 million in the second quarter of 2020. The increase was primarily driven by the growth discussed above, partially offset by the higher amortization of intangibles from the Centauri acquisition and wind down of construction work on the Aspire program.

~~GS equity in earnings of unconsolidated affiliates change remained flat at $8 million in each of the three months ended June 30, 2021 and 2020.~~

~~Sustainable Technology Solutions~~

STS revenues decreased by $127 million, or 29%, to $305 million in the second quarter of 2021 compared to $432 million in the second quarter of 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 208% to $77 million in the second quarter of 2021 compared to $25 million in the second quarter of 2020. The increase was primarily driven by strong execution and market recovery in 2021, expenses recognized in 2020 but did not recur in 2021, and the net favorable resolution of and provisioning for legacy matters.

STS equity in earnings (losses) of unconsolidated affiliates decreased by $203 million, or 2256% to $194 million loss in the second quarter of 2021 compared to $9 million in the second quarter of 2020. The decrease was primarily driven by a non-cash charge in the amount of $193 million associated with the Ichthys LNG project recognized in the current quarter.

~~Six months ended June 30, 2021 compared to the six months ended June 30, 2020~~

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

Revenues Six Months Ended June 30,
2021 vs. 2020
Dollars in millions 2021 2020 $ %
Revenues $ 2,997 $ 2,922 $ 75 3 %

The increase in overall revenue was primarily driven by organic growth in our GS business segment, which was attributable to new program wins and on-contract expansion as well as our acquisition of Centauri in October 2020. This growth was partially offset by a reduction in revenue to $602 million in our STS business segment, which is in line with management expectations following the company's exit from commoditized construction services in 2020.

Gross Profit Six Months Ended June 30,
2021 vs. 2020
Dollars in millions 2021 2020 $ %
Gross profit $ 375 $ 328 $ 47 14 %

The increase in overall gross profit was primarily driven by improvements in our STS business segment due to improved execution and market recovery in 2021, expenses recognized in 2020 that did not recur in 2021, and the net favorable resolution of and provisioning for legacy matters.~~Gross profits also increased in our GS business segment due to the acquisition of~~

~~Centauri in October 2020.The increase was partially offset by higher amortization of intangibles from the Centauri acquisition and lower construction work on the Aspire program in our GS business segment.~~

Equity in Earnings (Losses) of Unconsolidated Affiliates Six Months Ended June 30,
2021 vs. 2020
Dollars in millions 2021 2020 $ %
Equity in earnings (losses) of unconsolidated affiliates $ (174) $ 17 $ (191) n/m

The overall decrease in equity earnings (losses) was primarily driven by a non-cash charge in the amount of $193 million associated with the Ichthys LNG project recognized in the current quarter in our STS business segment.

Selling, General and Administrative Expenses Six Months Ended June 30,
2021 vs. 2020
Dollars in millions 2021 2020 $ %
Selling, general and administrative expenses $ (192) $ (170) $ 22 13 %

Selling, general and administrative expenses in the six months ended June 30, 2021 were $22 million higher than the same period in 2020, which was primarily driven by increased expenses attributable to the Centauri acquisition, increased costs associated with the return to the office, increased travel beginning in early 2021 compared to 2020 as well as other corporate initiatives, partially offset by cost reductions to right-size the cost base in line with the business shift to exit non-strategic areas in our STS business segment.

Acquisition and Integration Related Costs Six Months Ended June 30,
2021 vs. 2020
Dollars in millions 2021 2020 $ %
Acquisition and integration related costs $ (4) $ — $ 4 n/m

~~Acquisition and integration related costs in 2021 are primarily comprised of costs associated with our acquisition of Centauri in October 2020.~~

Goodwill Impairment, Restructuring Charges and Asset Impairments Six Months Ended June 30,
2021 vs. 2020
Dollars in millions 2021 2020 $ %
Goodwill impairment $ — $ (99) $ 99 n/m
Restructuring charges and asset impairments $ (2) $ (175) $ 173 n/m

In 2020, as a result of the economic and market volatility, management initiated a restructuring plan and we recognized goodwill impairments, restructuring charges and asset impairments resulting from that plan.

Interest Expense Six Months Ended June 30,
2021 vs. 2020
Dollars in millions 2021 2020 $ %
Interest expense $ (45) $ (42) $ 3 7 %

~~The increase in interest expense was primarily driven by increased expense associated with borrowings to finance the acquisition of Centauri.~~

Other Non-operating Income (loss) Six Months Ended June 30,
2021 vs. 2020
Dollars in millions 2021 2020 $ %
Other non-operating income (loss) $ (1) $ 5 $ (6) (120) %

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

Provision for Income Taxes Six Months Ended June 30,
2021 vs. 2020
Dollars in millions 2021 2020 $ %
Income (loss) before provision for income taxes and noncontrolling interests $ (45) $ (118) $ 73 (62) %
(Provision) benefit for income taxes $ (56) $ (5) $ 51 n/m

The provision for income taxes for the six months ended June 30, 2021 reflects a (124)% tax rate as compared to a (4)% tax rate for the six months ended June 30, 2020. The effective tax rate of (124)% for the six months ended June 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 25% for the six months ended June 30, 2021. The effective tax rate of (4)% for the six months ended June 30, 2020 was primarily impacted by impairment and restructuring charges incurred during the period.Excluding the tax impact of these adjustments, our tax rate would have been 27% six months ended June 30, 2020. See Note 11 to our condensed consolidated financial statements for further discussion on income taxes.

Net Income Attributable to Noncontrolling Interests Six Months Ended June 30,

2021 vs. 2020
Dollars in millions 2021 2020 $ %
Net income attributable to noncontrolling interests $ (4) $ (20) $ (16) n/m

The decrease in net income attributable to noncontrolling interests was primarily driven by the resolution of a contingency on a completed LNG project and liquidation of the joint 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


							Three Months Ended March 31,
		Six Months Ended June 30,									2022 vs. 2021
Dollars in millions	Dollars in millions	2021		2020		Dollars in millions	2022		2021		$		%
Revenues	Revenues					Revenues
Government Solutions	Government Solutions	$	2,395	$	1,935	Government Solutions	$	1,459	$	1,164	$	295	25	%
Sustainable Technology Solutions	Sustainable Technology Solutions	602		987		Sustainable Technology Solutions	255		297		(42)		(14)	%

Total revenues	Total revenues	$	2,997	$	2,922	Total revenues	$	1,714	$	1,461	$	253	17	%

Gross profit	Gross profit					Gross profit
Government Solutions	Government Solutions	$	246	$	246	Government Solutions	$	159	$	116	$	43	37	%
Sustainable Technology Solutions	Sustainable Technology Solutions	129		82		Sustainable Technology Solutions	37		52		(15)		(29)	%

Total gross profit	Total gross profit	$	375	$	328	Total gross profit	$	196	$	168	$	28	17	%

Equity in earnings (losses) of unconsolidated affiliates	Equity in earnings (losses) of unconsolidated affiliates					Equity in earnings (losses) of unconsolidated affiliates
Government Solutions	Government Solutions	$	15	$	12	Government Solutions	$	10	$	7	$	3	43	%
Sustainable Technology Solutions	Sustainable Technology Solutions	(189)		5		Sustainable Technology Solutions	(128)		5		(133)		n/m

Total equity in earnings (losses) of unconsolidated affiliates	Total equity in earnings (losses) of unconsolidated affiliates	$	(174)	$	17	Total equity in earnings (losses) of unconsolidated affiliates	$	(118)	$	12	$	(130)	n/m

Total selling, general and administrative expenses	Total selling, general and administrative expenses	$	(192)	$	(170)	Total selling, general and administrative expenses	$	(107)	$	(89)	$	18	20	%

Acquisition and integration related costs	Acquisition and integration related costs	$	(4)	$	—	Acquisition and integration related costs	$	(1)	$	(1)	$	—	n/m

Goodwill impairment		$	—	$	(99)

Restructuring charges and asset impairments	Restructuring charges and asset impairments	$	(2)	$	(175)	Restructuring charges and asset impairments	$	(1)	$	—	$	1	n/m

(Loss) gain on disposition of assets		$	(2)	$	18
Loss on disposition of assets and investments						Loss on disposition of assets and investments	$	—	$	(1)	$	(1)	n/m

Total operating income		$	1	$	(81)
Operating income (loss)						Operating income (loss)	$	(31)	$	89	$	(120)	(135)	%

n/m - not meaningful

Government Solutions

GS revenues increased by ~~$460~~$295 million, or ~~24%~~25%, to ~~$2.4~~$1.5 billion infor the ~~six~~three months ended ~~June 30, 2021,~~March 31, 2022, compared to ~~$1,935 million in~~$1.2 billion for the ~~six~~three months ended ~~June 30, 2020.~~March 31, 2021. The increase was primarily driven by organic revenue growth across ~~each of business each of~~ our GS business units, including work associated with ~~Readiness & Sustainment posting 15% organic growth, Science & Space posting 6% organic growth, Defense & Intel posting 5% growth, International posting 1% growth, and~~the OAW program which contributed $269 million during the three months ended March 31, 2022. Additionally, the increase is attributed to the acquisition of ~~Centauri~~Frazer-Nash in October ~~2020, which contributed $313 million this year.~~2021. These increases were partially offset by ~~lower volume associated with~~reduced activity in the ~~successful completion of non-recurring construction work on our Aspire program.~~Middle East.

GS gross profit ~~decreased~~increased by $0$43 million, to ~~$246~~$159 million infor the ~~six~~three months ended ~~June 30, 2021,~~March 31, 2022, compared to ~~$246~~$116 million infor the ~~six~~three months ended ~~June 30, 2020, despite the~~March 31, 2021. The increase ~~in revenue growth of 24% year over year, which~~ was primarily driven by ~~an increase in gross profits from the acquisition of Centauri in October 2020, partially offset by the higher~~items discussed above as well as lower amortization of intangibles from the Centauri ~~acquisition and wind down of construction work on the Aspire program.~~acquisition.

GS equity in earnings of unconsolidated affiliates increased by $3 million to ~~$15~~$10 million infor the ~~six~~three months ended ~~June 30, 2021,~~March 31, 2022, compared to ~~$12~~$7 million infor the ~~six~~three months ended ~~June 30, 2020.~~March 31, 2021. 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.~~business.

Sustainable Technology Solutions

STS revenues decreased by ~~$385~~$42 million, or ~~39%~~14%, to ~~$602~~$255 million for the three months ended March 31, 2022, compared to $297 million for the three months ended March 31, 2021. STS gross profit decreased by $15 million, or 29%, to $37 million

for the three months ended March 31, 2022, compared to $52 million in the ~~six~~three months ended ~~June 30, 2021, compared to $987 million~~March 31, 2021. The decreases in ~~the six months ended June 30, 2020. The decrease was~~revenues and gross profit were primarily driven by the ~~company's exit from commoditized construction services in 2020.~~

~~STS~~$12 million non-cash impact to gross profit ~~increased by $47 million, or 57%,~~resulting from our announced intent to ~~$129 million~~exit commercial operations in the six months ended June 30, 2021, compared to $82 million in the six months ended June 30, 2020. The increase was primarily driven by strong execution and market recovery in 2021, expenses recognized in 2020 but did not recur in 2021,Russia, timing of certain STS projects and the ~~net favorable resolution~~completion or near completion of ~~and provisioning for legacy matters.~~remaining projects that we strategically exited in 2020.

STS equity in earnings (losses) of unconsolidated affiliates decreased by ~~$194~~$133 million to ~~$189~~$128 million loss infor the ~~six~~three months ended ~~June 30, 2021,~~March 31, 2022, compared to a $5 million in equity earnings infor the ~~six~~three months ended ~~June 30, 2020.~~March 31, 2021. The decrease was primarily driven by a non-cash charge in the amount of ~~$193~~$137 million ~~associated~~relating to the settlement agreement with the ~~Ichthys LNG project recognized in~~consortium of subcontractors of the ~~current quarter.~~Combined Cycle Power Plant.

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 our consolidated and 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~~As 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 ~~$2.8~~$2.5 billion at ~~June 30, 2021,~~March 31, 2022, and ~~$2.4~~$2.6 billion at December 31, ~~2020. Our~~2021. As a result of our intent to exit commercial projects in Russia, ending backlog ~~included in the table below for projects related to consolidated joint ventures with noncontrolling interests includes 100%~~was reduced by $56 million as of ~~the backlog associated with those joint ventures and totaled $46 million and $52 million at June 30, 2021 and December~~March 31, ~~2020, respectively.~~2022.

The following table summarizes our backlog by business segment as of ~~June 30, 2021,~~March 31, 2022, and December 31, ~~2020,~~2021, respectively:


		June 30,		December 31,			March 31,		December 31,
Dollars in millions	Dollars in millions	2021		2020		Dollars in millions	2022		2021
Government Solutions	Government Solutions	$	12,374	$	12,661	Government Solutions	$	11,572	$	12,628
Sustainable Technology Solutions	Sustainable Technology Solutions	2,512		2,454		Sustainable Technology Solutions	2,412		2,345
Total backlog	Total backlog	$	14,886	$	15,115	Total backlog	$	13,984	$	14,973

We estimate that as of ~~June 30, 2021, 27%~~March 31, 2022, 29% of our backlog will be executed within one year. Of this amount, ~~83%~~89% will be recognized in revenues on our condensed consolidated statement of operations and ~~17%~~11% will be recorded by our unconsolidated joint ventures. As of ~~June 30, 2021, $118~~March 31, 2022, $71 million of our backlog relates to active contracts that are in a loss position.

As of ~~June 30, 2021, 14%~~March 31, 2022, 11% of our backlog was attributable to fixed-price contracts, ~~47%~~46% was attributable to PFIs, 25% was attributable to cost-reimbursable contracts and ~~14%~~18% was attributable to time-and-materials contracts. For contracts that contain fixed-price, cost-reimbursable and time-and-materials components, we classify the individual components as either fixed-price, cost-reimbursable or 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 ~~June 30, 2021, $9.4~~March 31, 2022, $8.5 billion of our GS backlog was currently funded by our customers.

As of ~~June 30, 2021,~~March 31, 2022, we had approximately ~~$5.0~~$4.6 billion of priced option periods not yet exercised by the customer for U.S. government contracts that are not included in the backlog amounts presented above.

The difference between backlog of ~~$14.9~~$14.0 billion and the remaining performance ~~obligation~~obligations as defined by ASC 606 of ~~$11.5~~$10.9 billion is primarily due to our proportionate share of backlog related to unconsolidated joint ventures which is not included in our remaining performance ~~obligation.~~obligations. See Note 3 to our condensed consolidated financial statements for discussion of the remaining performance ~~obligation.~~obligations.

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 8 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, 1312 and 1413 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.

4942

Liquidity and Capital Resources

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

STS services projects ~~generally~~may 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~~may be issued under ~~our $1 billion~~the Revolver ~~under our Senior Credit Facility. Letters of credit may also be arranged~~(as defined below) or with ~~our banks~~lending counterparties on a bilateral, syndicated or other basis.

As discussed in Note 10 "Debt and Other Credit Facilities" of our condensed consolidated financial statements, on November 18, 2021, we ~~amended~~entered into Amendment No. 5 under our ~~Senior~~existing Credit ~~Facility on July 2, 2020, to consist~~Agreement, dated as of April 25, 2018 ("Pro Rata Facilities") consisting of a $1 billion revolving credit facility ~~("Revolver"~~(the "Revolver"), a ~~$275~~$442 million Term Loan A, ("Term Loan A") ~~of which a portion is~~with debt tranches denominated in US dollars, Australian dollars and British pound sterling and a ~~$520~~$512 million Term Loan B ("Term Loan B"), with an aggregate capacity of ~~$1.795 billion.~~$1.954 billion ("Senior Credit Facility"). The ~~Revolver and~~Amendment, among other things, (i) established an additional tranche of £122.1 million in Term Loan A ~~mature in February 2025~~incurred by Kellogg Brown & Root Limited, a wholly owned indirect subsidiary of KBR, Inc., organized under the laws of England and Wales, (ii) increased capacity and flexibility under certain negative covenants, (iii) permits the netting of unrestricted cash up to a specified cap for purposes of calculating the leverage ratio and (iv) reduced the interest rate payable for applicable margins and commitment fees and extended the maturity dates to November 2026 for Term Loan A and the Revolver. The maturity date of Term Loan B ~~matures in~~remained unchanged maturing February 2027.

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. As of ~~June 30, 2021,~~March 31, 2022, we were in compliance with all financial covenants related to our debt agreements.

Cash and cash equivalents totaled ~~$483~~$412 million at ~~June 30, 2021,~~March 31, 2022, and ~~$436~~$370 million at December 31, ~~2020,~~2021, and consisted of the following:


		June 30,		December 31,			March 31,		December 31,
Dollars in millions	Dollars in millions	2021		2020		Dollars in millions	2022		2021
Domestic U.S. cash	Domestic U.S. cash	$	95	$	54	Domestic U.S. cash	$	52	$	34
International cash	International cash	257		231		International cash	238		220
Joint venture and Aspire Defence project cash	Joint venture and Aspire Defence project cash	131		151		Joint venture and Aspire Defence project cash	122		116
Total	Total	$	483	$	436	Total	$	412	$	370

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 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, including whether foreign earnings are permanently reinvested.

~~During~~ If management were to completely remove 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 reinvestmentindefinite investment assertion on all ~~current and future earnings in our~~foreign subsidiaries, ~~in Saudi Arabia. The income tax expense associated with~~ the ~~current and future earnings will~~exposure to local withholding taxes would be ~~reflected in the interim and annual periods in which the earnings are generated.~~less than $9 million.

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.~~purposes or for paying dividends.

As of ~~June 30, 2021,~~March 31, 2022, substantially all of our excess cash was held in ~~commercial bank time deposits or~~ interest bearing operating accounts or 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:


		Six Months Ended June 30,					Three Months Ended March 31,
Dollars in millions	Dollars in millions	2021		2020		Dollars in millions	2022		2021
Cash flows provided by operating activities	Cash flows provided by operating activities	$	154	$	150	Cash flows provided by operating activities	$	89	$	50
Cash flows (used in) investing activities	Cash flows (used in) investing activities	(38)		(25)		Cash flows (used in) investing activities	12		(22)
Cash flows (used in) financing activities	Cash flows (used in) financing activities	(74)		(183)		Cash flows (used in) financing activities	(52)		(22)
Effect of exchange rate changes on cash	Effect of exchange rate changes on cash	5		(19)		Effect of exchange rate changes on cash	(7)		3

Increase (decrease) in cash and equivalents		$	47	$	(77)
Increase in cash and cash equivalents						Increase in cash and cash equivalents	$	42	$	9

Operating Activities. Cash provided by operations totaled ~~$154~~$89 million inand $50 million for the ~~first six~~three months ofended March 31, 2022 and 2021, respectively, as compared to net loss of ~~$101 million.~~$70 million and net income of $50 million for the three months ended March 31, 2022 and 2021, respectively. 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,~~cost-reimbursable and time-and-materials ~~and~~projects versus fixed price projects, and as a result, fluctuations in these components are not uncommon in our business. Specifically, the $370 million favorable cash flow impact related to accounts receivable and the $400 million unfavorable cash flow impact related to accounts payable were primarily driven by collections and payments in the first quarter of 2022 related to the significant volume from the OAW program in the fourth quarter of 2021.

Investing Activities. Cash provided by investing activities totaled $12 million for the three months ended March 31, 2022 and was primarily due to proceeds of $18 million from the sale of our investment interest in two of our three U.K. Roads Projects. See Note 8 "Equity Method Investments and Variable Interest Entities" for further details. This was partially offset by $6 million in capital expenditures.

Cash used in investing activities totaled ~~$38~~$22 million infor the ~~first six~~three months ofended March 31, 2021 and was primarily ~~due to~~used for our acquisition of a technology license, our investment in a plastics recycling technology and funding our proportionate share of JKC's ongoing legal and commercial costs. ~~See Note 6 for further discussion of the legal and commercial costs.~~

Financing Activities. Cash used in financing activities totaled ~~$74~~$52 million infor the ~~first six~~three months ~~of 2021~~ended March 31, 2022 and was primarily due to approximately ~~$30~~$15 million of dividend payments to common shareholders, ~~$28~~$25 million for the repurchase of common stock under our share repurchase program, $7$8 million for the repurchase of common stock under our "withheld to cover" program, $3 million repayment on our finance lease obligations $6and $4 million in payments on borrowings related to our Senior Credit ~~Facility, and $6 million repayment on our non-recourse debt associated with our Fasttrax joint venture.~~Facility. See Note 10 "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 $4 million.

Cash used in financing activities totaled $22 million for the three months ended March 31, 2021 and was primarily due to approximately $14 million of dividend payments to common shareholders, $4 million repayment on our finance lease obligations and $3 million in payments on borrowings related to our Senior Credit Facility.

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 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 Q2October 2021, ~~significant~~JKC entered into a binding settlement ~~discussions occurred with~~agreement (the “Settlement Agreement”) that resolved the ~~client.~~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 arbitration and court proceedings between the Parties. As part of the Settlement Agreement, KBR’s letters of credit were also reduced to $82 million from $164 million.

In April 2022, JKC entered into a settlement agreement (the “Subcontractor Settlement Agreement”) to resolve outstanding claims and disputes between JKC and the consortium of subcontractors. As a result of the Subcontractor Settlement Agreement, KBR expects to receive approximately $271 million of cash in two payments for our proportionate share of the settlement amount. The first payment of $203 million was paid to JKC in April 2022. The second payment for approximately $68 million is expected to be paid to JKC in March 2023, at prevailing exchange rates. KBR recorded a non-cash charge to equity in earnings (losses) of unconsolidated affiliates ~~as of June 30, 2021~~ in the amount of ~~$193~~$137 million during the quarter ended March 31, 2022, which ~~reflects~~reflected KBR’s proportionate share of its claims against the ~~unpaid, unapproved change orders and claims. This non-cash charge does not impact JKC’s pursuit of subcontractor claims~~

~~associated with the combined cycle power. The client has reserved their contractual rights on~~Consortium. KBR's Senior Credit Facility contains certain ~~amounts previously funded to~~defined provisions under an 'Ichthys Recovery Event', including requiring JKC and may seek recoveries of those amounts, including calling the performance and warranty letters of credit. In January 2021, the client demanded that JKC repay the Funding Deed amount and notified JKC of its intention to commence legal actions against JKC including claims on the parent company guarantees. JKC is opposing the client’s payment demand and believes that the client has not complied with the contract requirements to make ~~these sums repayable. JKC believes~~distributions to the ~~subcontractor settlement sums were properly incurred and represent reimbursable cost.~~

~~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~~JV partners for 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~~net cash proceeds. Upon receiving such distribution from JKC, KBR is required to ~~fund our proportionate share~~use commercially reasonable efforts to make mandatory prepayments under Term Loan A within three business days of ~~ongoing legal and commercial costs. JKC's obligations to~~receipt using 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~~net settlement proceeds. KBR 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 June 30, 2021, we had $164 million~~ in ~~letters of credit outstanding in support of performance and warranty guarantees provided to the client.~~

As described in Note 6, the client demanded that JKC repay the Funding Deed amount and notified its intention to commence legal actions against JKC including claims on the parent company guarantees. The client also submitted an application to the arbitration tribunal asserting various legal theories and requesting immediate repayment of the Funding Deed. JKC opposed the application on the grounds that in seeking such relief, the client was asserting new claims that are not part of the current ~~arbitration. The arbitration tribunal agreed~~communication with JKC ~~that these were new claims and declined~~ to ~~order immediate repayment. However,~~distribute the arbitration tribunal directed the parties to incorporate the new claims into the existing consolidated arbitration process. A case management conference has been set for September 2021 on these matters.~~Subsequently, the client initiated parent company guarantee proceedings against our partner JGC Corporation in Japanese courts with respect to~~first payment ~~of the Funding Deed.If the client is successful against JGC, KBR would be liable to JGC for its proportional share.~~

U.K. pension obligation. We have recognized on our condensed consolidated balance sheet a funding deficit of ~~$339~~$64 million (measured as the difference between the fair value of plan assets and the projected benefit obligation as of ~~September 30, 2020)~~March 31, 2022) for our frozen defined benefit pension plans. The total amount of employer pension contributions paid for the ~~six~~three months ended ~~June 30, 2021,~~March 31, 2022, was ~~$24~~$11 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~~commenced in 2021 and is required to be completed by ~~April~~June 2022. The current agreement calls for minimum annual contributions of £33 million ($4744 million at current exchange rates) until the next ~~valuation.~~minimum funding requirements are finalized. 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 10 "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.

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Senior Notes

Information relating to our Senior Notes is described in Note 10 "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 1 "Basis of Presentation" and Note 10 "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 10 "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~~may enter 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~~may also ~~guaranteed~~guarantee that ~~certain projects,~~a project, 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 ~~2020~~2021 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 ~~June 30, 2021,~~March 31, 2022, we had no material guarantees of the work or obligations of third parties recorded.

~~We have~~As of March 31, 2022, we had $1 billion in a committed line of credit under the Senior Credit Facility and $521 million of uncommitted lines of credit ~~available~~ to ~~be used for~~support the issuance of letters of credit. As of ~~June 30, 2021,~~March 31, 2022, with respect to our Senior Credit Facility, we had $362 million of outstanding borrowings previously issued to fund the acquisitions of Centauri and Frazer-Nash and $49 million of outstanding letters of credit. With respect to our $521 million of uncommitted lines of credit, we had utilized $215 million for letters of credit as of March 31, 2022. The total remaining capacity ~~under~~of these committed and uncommitted lines of credit was approximately ~~$1.4 billion, of which $324 million had been utilized.~~$895 million. Information relating to our letters of credit is described in Note 10 ~~"Debt~~

"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.”~~

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 ~~2020~~2021 Annual Report on Form 10-K, for the year ended December 31, ~~2020,~~2021, which discussion is incorporated herein by reference.

See Note 1 "Basis of Presentation" to our condensed consolidated financial statements for a discussion of the impact of the adoption of ASU 2020-06 and the potential impact of other new accounting standards effective for our unaudited condensed financial statements.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Cash and cash equivalents are deposited with major banks throughout the world. We invest excess cash and cash 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 cash 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. No net gain or loss was recorded for the three months ended ~~June 30, 2021,~~March 31, 2022, and net loss of $1$6 million was recorded for the three months ended ~~June 30, 2020. We recorded a net loss of $6 million and net gain of $6 million for the six months ended June 30,~~March 31, 2021 ~~and 2020, respectively,~~ in ~~"Other~~other non-operating ~~income (expense)"~~expense on our condensed consolidated statements of operations. The net loss of $6 million during the ~~six~~three months ended ~~June 30,~~March 31, 2021 consisted primarily of unfavorable foreign currency movements on certain intercompany balance positions denominated in British Pounds and European Euros resulting in foreign currency loss of approximately $6$7 million, net of $1 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 ~~June 30, 2021.~~March 31, 2022. Information relating to fair value measurements is described in Note 18 "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 ~~$260~~$362 million of borrowings outstanding under the Revolver and ~~$795~~$948 million outstanding under the term loan portions of the Senior Credit Facility as of ~~June 30, 2021.~~March 31, 2022. Borrowings under the Senior Credit Facility bear interest at variable rates as described in Note 10 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.~~Transactions. The ~~total~~ fair value of ~~these derivative instruments~~the interest rate swaps at March 31, 2022, was a $19 million net ~~liability~~asset, of ~~approximately $16~~which $22 million ~~as of June 30, 2021.~~is included in other assets, $2 million is included in other current assets and $5 million is included in other current liabilities.

At ~~June 30, 2021,~~March 31, 2022, we had fixed rate debt aggregating $1.1 billion and variable rate debt aggregating ~~$555~~$810 million, after taking into account the effects of the interest rate swaps. Our weighted average interest rate for the ~~six~~three months ended ~~June 30, 2021,~~March 31, 2022 was ~~3.79%~~3.43%. If interest rates were to increase by 50 basis points, pre-tax interest expense would increase by approximately $3$4 million in the next twelve months net of the impact from our swap agreements, based on outstanding borrowings as of ~~June 30, 2021.~~March 31, 2022.

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 ~~June 30, 2021,~~March 31, 2022, 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.

There were no changes in our internal control ~~over financial~~ reporting during the three months ended ~~June 30, 2021,~~March 31, 2022 that have materially affected, or are reasonably likely to affect, our internal controls over financial reporting.

However, 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.

5548

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Information relating to various commitments and contingencies is described in Notes 136, 12 and 1413 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 II, Item 1.

Item 1A. Risk Factors

~~There~~Aside from the below, there are no material changes from the risk factors previously disclosed in Part I, Item 1A in our Annual Report on Form 10-K, which is incorporated herein by reference, for the year ended December 31, ~~2020.~~2021.

The ongoing conflict between Russia and Ukraine may adversely affect our business and results of operations.

Political, economic and other conditions in foreign countries and regions, including geopolitical risks such as the current conflict between Russia and Ukraine, may adversely affect our business and operations as a portion of our revenue is derived from foreign operations. We announced our intent to exit commercial projects in Russia in a responsible manner. We do not expect this exit to have a material adverse impact on our results of operations. However, sanctions and trade control measures implemented against Russia in response to the conflict may have an impact on our ability to operate in the ordinary course of business as we wind down our business operations in Russia. Any alleged or actual failure to comply with these measures as we extricate our business operations from Russia may subject us to government scrutiny, civil and/or criminal proceedings, sanctions and other liabilities, which may have an adverse effect on our international operations, financial condition and results of operations. Additionally, the broader implications of this conflict, which may include additional international sanctions, embargoes, regional instability and geopolitical shifts; increased tensions between the United States and countries in which we operate; and the extent of the conflict's effects on our business and results of operations as well as the global economy, cannot be predicted.

To the extent the current conflict between Russia and Ukraine adversely affects our business, it may also have the effect of heightening many other risks disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, any of which could materially and adversely affect our business and results of operations. Such risks include, but are not limited to, the following:

•adverse effects on macroeconomic conditions, including inflation, demand for our products and potential recessionary economic conditions;

•increased cyber security threats;

•adverse changes in trade policies, taxes, government regulations and tariffs;

•our ability to obtain compensation for increased costs incurred related to rising costs of equipment, materials and labor on fixed-price contracts;

•our ability to implement and execute our business strategy;

•disruptions in global supply chains;

•our exposure to foreign currency fluctuations; and

•constraints, volatility or disruption in the capital markets.

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 to our share repurchase program, returning the authorization level to $350 million. As of ~~June 30, 2021, $275~~March 31, 2022, $200 million remains available for repurchase under this authorization. The authorization does not obligate the 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 the Company's current and future cash flows and the authorization does not have an expiration date.

The following is a summary of share repurchases of our common stock ~~settled~~ during the three months ended ~~June 30, 2021.~~March 31, 2022:

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
April 1 - 30, 2021 767 $ 31.00 — $ 303,142,110
May 1 - 31, 2021 653,876 $ 41.75 643,088 $ 276,784,589
June 1 - 30, 2021 38,514 $ 38.56 38,196 $ 275,286,485


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
January 1 - 31, 2022	582,484	$	48.09	519,332	$	200,320,822
February 1 - 28, 2022	74,411	$	49.25	—	$	200,320,822
March 1 - 31, 2022	33,376	$	49.15	—	$	200,320,822
Total	690,271	—		519,332	$	200,320,822

(1)Included within shares repurchased herein are ~~11,873~~170,939 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 at an average price of ~~$40.97~~$48.70 per share.

5650

Item 6. Exhibits


Exhibit Number						Description

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)

~~10.~~1+*10.1+						Form of revised Restricted Stock Unit Agreement (US Employee) pursuant to Amended and Restated KBR, Inc. 2006 Stock and Incentive Plan ~~effective May 19, 2021 (incorporated by reference~~

*10.2+						Form of revised Restricted Stock Unit Agreement (International Employee) pursuant to ~~Exhibit 10.1~~Amended and Restated KBR, Inc. 2006 Stock and Incentive Plan

*10.3+						Form of revised Performance Stock Unit Agreement (US Employee) pursuant to ~~KBR’s current report on~~ Amended and Restated KBR, Inc. 2006 Stock and Incentive Plan

*10.4+						Form ~~8-K filed May 21, 2021; File No. 001-33146)~~of revised Performance Stock Unit Agreement (International Employee) pursuant to Amended and Restated KBR, Inc. 2006 Stock and Incentive Plan

*10.5+						Form of Performance Award Agreement (US/International Employee Cash Only) pursuant to Amended and Restated KBR, Inc. 2006 Stock and Incentive Plan

*10.6+						Form of Performance Award Agreement (US/International Employee Cash/Stock) pursuant to Amended and Restated KBR, Inc. 2006 Stock and Incentive Plan

*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						The following financial information from this Quarterly Report on Form 10-Q of KBR, Inc. for the quarter ended March 31, ~~2021~~2022 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





+			Management contracts or compensatory plans or arrangements

*			Filed with this Form 10-Q

**			Furnished with this Form 10-Q

***			Interactive data files

5751

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.


/s/ Mark W. Sopp						/s/ Shad E. Evans
Mark W. Sopp						Shad E. Evans
Executive Vice President and Chief Financial Officer						Senior Vice President of Finance Operations and Chief Accounting Officer

Dated: ~~July 29, 2021~~April 28, 2022 Dated: ~~July 29, 2021~~April 28, 2022

5852


	Three Months Ended June 30, 2021

Total by Countries/Regions Dollars in millions	Government Solutions		Sustainable Technology Solutions		Total
United States	$	804	$	109	$	913
Middle East	143		54		197
Europe	161		61		222
Australia	90		0		90
Canada	0		1		1
Africa	19		24		43
Asia	1		51		52
Other countries	13		5		18
Total revenue	$	1,231	$	305	$	1,536

	Three Months Ended June 30, 2020

Total by Countries/Regions Dollars in millions	Government Solutions		Sustainable Technology Solutions		Total
United States	$	521	$	198	$	719
Middle East	171		59		230
Europe	159		38		197
Australia	68		11		79
Canada	0		5		5
Africa	19		14		33
Asia	0		56		56
Other countries	15		51		66
Total revenue	$	953	$	432	$	1,385


	Six Months Ended June 30, 2021

Total by Countries/Regions Dollars in millions	Government Solutions		Sustainable Technology Solutions		Total
United States	$	1,553	$	222	$	1,775
Middle East	276		98		374
Europe	334		105		439
Australia	167		4		171
Canada	0		1		1
Africa	38		44		82
Asia	1		102		103
Other countries	26		26		52
Total revenue	$	2,395	$	602	$	2,997

	Six Months Ended June 30, 2020

Total by Countries/Regions Dollars in millions	Government Solutions		Sustainable Technology Solutions		Total
United States	$	1,034	$	447	$	1,481
Middle East	358		123		481
Europe	349		97		446
Australia	126		40		166
Canada	0		31		31
Africa	38		37		75
Asia	0		124		124
Other countries	30		88		118
Total revenue	$	1,935	$	987	$	2,922


Dollars in millions	Severance		Lease Abandonment		Other		Total Restructuring Charges		Asset Impairments		Total Restructuring Charges & Asset Impairments
Government Solutions	$	2	$	0	$	0	$	2	$	0	$	2
Sustainable Technology Solutions	29		4		6		39		49		88
Other	1		54		20		75		49		124
Total	$	32	$	58	$	26	$	116	$	98	$	214


Other Non-operating (Loss) Income	Three Months Ended June 30,
					2021 vs. 2020
Dollars in millions	2021		2020		$		%
Other non-operating (loss) income	$	2	$	(2)	$	4	200	%