Published: 2023-02-17 00:00:00 ET

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If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b) ☐

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Principles of Consolidation

The accompanying 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. We account for investments over which we have significant influence, but not a controlling financial interest, using the equity method of accounting. See Note 10 to our consolidated financial statements for further discussion of our equity investments and VIEs. All material intercompany balances and transactions are eliminated in consolidation. Certain amounts in prior periods have been reclassified to conform with current period presentation.

Basis of Presentation

The Company operates on a calendar year ending on December 31. Effective beginning with fiscal year 2023, the Company approved a change in the fiscal year end to a 52 – 53 week year ending on the Friday closest to December 31. In a 52 week fiscal year, each of the Company’s quarterly periods will comprise 13 weeks. The additional week in a 53 week fiscal year is added to the fourth quarter, making such quarter consist of 14 weeks. The Company’s first 53 week fiscal year will occur in fiscal year 2024. The Company is making the fiscal year change on a prospective basis and will not adjust operating results for prior periods. The change to our fiscal year will not impact our results for the year ended December 31, 2022. While the change will impact the prior year comparability of each of the fiscal quarters and the annual period in 2023, we do not expect the impact to be material.

Use of Estimates

The preparation of our consolidated financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the reported amounts of certain assets and liabilities, the reported amounts of revenues and expenses for the periods covered and certain amounts disclosed in the notes to our consolidated financial statements. These estimates are based on information available through the date of the issuance of the financial statements and actual results could differ from those estimates. Areas requiring estimates and assumptions by our management include the following:

•project revenues, costs and profits on our contracts

•award fees, costs and profits on government services contracts

•client claims and recoveries of costs from subcontractors, vendors and others

•provisions for income taxes and related valuation allowances and tax uncertainties

•evaluation of goodwill for impairment

•evaluation of intangibles and long-lived assets for impairment

•evaluation of equity method investments for impairment

•valuation of pension obligations and pension assets

•accruals for estimated liabilities, including litigation accruals

•valuation of assets and liabilities acquired in business combinations; and

•investments in equity securities accounted for under the measurement alternative.

Cash and Equivalents

We consider highly liquid investments with an original maturity of three months or less to be cash equivalents.

Revenue Recognition

We, and our equity method investments, recognize revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers. Revenue is measured based on the amount of consideration specified in a contract with a customer. Revenue is recognized when and as our performance obligations under the terms of the contract are satisfied which occurs with the transfer of control of the goods or services to the customer.

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Contract Combination

To determine the proper revenue recognition method for contracts, we evaluate whether two or more contracts should be combined and accounted for as one single contract and whether the combined or single contract should be accounted for as more than one performance obligation. This evaluation requires judgment and the decision to combine a group of contracts or separate a combined or single contract into multiple performance obligations could change the amount of revenue and profit recorded in a given period. Contracts are considered to have a single performance obligation if the promise to transfer the individual goods or services is not separately identifiable from other promises in the contracts primarily because we provide a significant service of integrating a complex set of tasks and components into a single project or capability. Contracts that cover multiple phases of the product lifecycle (development, construction and maintenance & support) are typically considered to have multiple performance obligations even when they are part of a single contract.

For a limited number of contracts with multiple performance obligations, we allocate the transaction price to each performance obligation using our best estimate of the relative standalone selling price of each distinct good or service in the contract. In cases where we do not provide the distinct good or service on a standalone basis, which is more prevalent than not, the primary method used to estimate standalone selling price is the expected cost plus a margin approach, under which we forecast our expected costs of satisfying a performance obligation and then add an appropriate margin for that distinct good or service.

Contract Types

The Company performs work under contracts that broadly consists of fixed-price, cost-reimbursable, time-and-materials or a combination of the three.

Fixed-price contracts include both lump-sum and unit-rate contracts. Under lump-sum contracts, we perform a defined scope of work for a specified fee to cover all costs and any profit element. Lump-sum contracts entail risk to us because they require us to predetermine the work to be performed, the project execution schedule and all the costs associated with the scope of 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 U.S. government contracting, this type of contract is generally used when there is uncertainty of the extent or duration of the work to be performed by the contractor at the time of contract award or it is not possible to anticipate costs with any reasonable degree of confidence. With respect to time-and-materials contracts, we assume the price risk because our costs of performance may exceed negotiated hourly rates. In commercial and non-U.S. government contracting, this contract type is generally used for defined and non-defined scope contracts where there is a higher degree of uncertainty and risks as to the scope of work. These types of contracts may also provide for a guaranteed maximum price where the total cost plus the fee cannot exceed an agreed upon guaranteed maximum price or not-to-exceed provisions.

Under cost-reimbursable contracts, the price is generally variable based upon our actual allowable costs incurred for materials, equipment, reimbursable labor hours, overhead and G&A expenses. Profit on cost-reimbursable contracts may be in the form of a fixed fee or a mark-up applied to costs incurred, or a combination of the two. The fee may also be an incentive fee based on performance indicators, milestones or targets and can be based on customer discretion or in form of an award fee determined based on customer evaluation of the Company's performance against contractual criteria. Cost-reimbursable contracts may also provide for a guaranteed maximum price where the total fee plus the total cost cannot exceed an agreed upon guaranteed maximum price. Cost-reimbursable contracts are generally less risky because the owner/customer retains many of the project risks, however it generally requires us to use our 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 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, including the types of costs that are allowable, is based on specific negotiations with each customer.

See Note 3 to our consolidated financial statements for further discussion of our revenue by contract type.

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Contract Costs

Contract costs include all direct materials, labor and subcontractor costs and an allocation of indirect costs related to contract performance. Customer-furnished materials are included in both contract revenue and cost of revenue when management concludes that the company is acting as a principal rather than as an agent. We recognize revenue, but not profit, on certain uninstalled materials that are not specifically produced or fabricated for a project, which revenue is recognized up to cost. Revenue for uninstalled materials is recognized when the cost is incurred and control is transferred to the customer, which revenue is recognized using the cost-to-cost method. Project mobilization costs incurred are capitalized as deferred assets and amortized on a straight-line basis over the anticipated term of the contract or a specified period of performance consistent with the transfer of control of the performance obligation to the client. These costs incurred may be to transition the services, employees and equipment to or from the customer, a prior contract or prior contractor. Pre-contract costs are expensed as incurred unless they are expected to be recovered from the client.

Contract costs incurred for U.S. government contracts, including indirect costs, are subject to audit and adjustment by the DCAA. If the U.S. government concludes costs charged to a contract are not reimbursable under the terms of the contract or applicable procurement regulations, these costs are disallowed or, if already reimbursed, we may be required to refund the reimbursed amounts to the customer. Such conditions may also include interest and other financial penalties.

We provide limited warranties to customers for work performed under our contracts that typically extend for a limited duration following substantial completion of our work on a project. Such warranties are not sold separately and do not provide customers with a service in addition to assurance of compliance with agreed-upon specifications. Accordingly, these types of warranties are not considered to be separate performance obligations.

Variable Consideration

In addition to the variable contract price under cost-reimbursable contracts, it is common for our contracts to contain variable consideration in the form of award fees, incentive fees, performance bonuses, liquidated damages or penalties that may increase or decrease the transaction price. These variable amounts generally are awarded upon achievement of certain performance metrics, program milestones or targets and can be based on customer discretion. Other contract provisions also give rise to variable consideration such as unapproved change orders and claims, and on certain contracts, index-based price adjustments. We estimate the amount of variable consideration at the most likely amount to which we expect to be entitled. Variable consideration is included in the transaction price when it is probable that a significant reversal of cumulative revenue recognized will not occur or when the uncertainty associated with the variable consideration is resolved. Our estimates of variable consideration and determination of whether to include such amounts in the transaction price are based largely on our assessment of legal enforceability, anticipated performance and any other information (historical, current or forecasted) that is reasonably available to us.

Variable consideration associated with claims and unapproved change orders is included in the transaction price only to the extent of costs incurred. We recognize claims against vendors, subcontractors and others as a reduction in recognized costs when enforceability is established by the contract and the amounts are reasonably estimable and probable of recovery. Reductions in costs are recognized to the extent of the lesser of the amounts management expects to recover or actual costs incurred.

Contract Estimates and Modifications

Due to the nature of the work required to be performed on many of our performance obligations, the estimation of total revenue and cost at completion is complex and subject to many variables and requires significant judgment. As a significant change in estimated total revenue and cost could affect the profitability of our contracts, we routinely review and update our contract-related estimates through a disciplined project review process in which management reviews the progress and execution of our performance obligations and the EAC. As part of this process, management reviews information including, but not limited to, outstanding contract matters, progress towards completion, program schedule and the associated changes in estimates of revenues and costs. Management must make assumptions and estimates regarding the availability and productivity of labor, the complexity of the work to be performed, the availability and cost of materials, the performance of subcontractors and the availability and timing of funding from the customer, along with other risks inherent in performing services under all contracts where we recognize revenue over time using the cost-to-cost method.

We recognize changes in contract estimates on a cumulative catch-up basis in the period in which the changes are identified. Such changes in contract estimates can result in the recognition of revenue in a current period for performance obligations which were satisfied or partially satisfied in prior period. Changes in contract estimates may also result in the

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reversal of previously recognized revenue if the current estimate differs from the previous estimate. If at any time the estimate of contract profitability indicates an anticipated loss on the contract, we recognize the total loss in the period it is identified. See Note 6 for changes in all other project-related estimates.

Contracts are often modified to account for changes in contract specifications and requirements. Most of our contract modifications are for goods or services that are not distinct from existing contracts due to the significant integration provided in the context of the contract and are accounted for as if they were part of the original contract. The effect of a contract modification on the transaction price and our measure of progress for the performance obligation to which it relates, is recognized as an adjustment to revenue (either as an increase in or a reduction of revenue) on a cumulative catch-up basis. We account for contract modifications prospectively when the modification results in the promise to deliver additional goods or services that are distinct and the increase in price of the contract is for the same amount as the stand-alone selling price of the additional goods or services included in the modification.

Contract Assets and Liabilities

Billing practices are governed by the contract terms of each project based upon costs incurred, achievement of milestones or predetermined schedules. Billings do not necessarily correlate with revenue recognized over time using the percentage-of-completion method. Contract assets include unbilled amounts typically resulting from revenue under long-term contracts when the percentage-of-completion method of revenue recognition is utilized and revenue recognized exceeds the amount billed to the customer. Contract liabilities consist of advance payments and billings in excess of revenue recognized as well as deferred revenue.

Retainage, included in contract assets, represent the amounts withheld from billings by our clients pursuant to provisions in the contracts and may not be paid to us until the completion of specific tasks or the completion of the project and, in some instances, for even longer periods. Retainage may also be subject to restrictive conditions such as performance guarantees.

Our contract assets and liabilities are reported in a net position on a contract-by-contract basis at the end of each reporting period.

The payment terms of our contracts from time to time require the customer to make advance payments as well as interim payments as work progresses. The advance payment generally is not considered to contain a significant financing component as we expect to recognize those amounts in revenue within a year of receipt as work progresses on the related performance obligation.

Selling, General and Administrative Expenses

Our selling, general and administrative expenses represent expenses that are not associated with the execution of the contracts. Selling, general and administrative expenses include charges for such items as executive management, corporate business development, information technology, finance and accounting, human resources and various other corporate functions. The Company classifies indirect costs incurred within or allocated to its U.S. government customers as overhead (included in cost of revenues) or selling, general and administrative expenses in the same manner as such costs are defined in the Company’s disclosure statements under CAS.

Accounts Receivable

Accounts receivable include amounts billed and currently due from customers, amounts billable where the right to consideration is unconditional and amounts unbilled. Amounts billable and unbilled amounts are recognized at estimated realizable value and consist of costs and fees, substantially all of which are expected to be billed and collected generally within one year. Unbilled amounts also include rate variances that are billable upon negotiation of final indirect rates with the DCAA.

We establish an allowance for credit losses based on the assessment of our clients' ability to pay. In addition to such allowances, there are often items in dispute or being negotiated that may require us to make an estimate as to the ultimate outcome. Past due receivable balances are written off when our internal collection efforts have been unsuccessful in collecting the amounts due.

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Additionally, we sell certain receivables to unrelated third-party financial institutions under various accounts receivable monetization programs. 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 Transfers and Servicing (Topic 860) 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 consolidated balance sheets is presented net of the transferred amount. See Note 22 to our consolidated financial statements for our further information on sales of receivables.

Property, Plant and Equipment

Property, plant and equipment are reported at cost less accumulated depreciation except for those assets that have been written down to their fair values due to impairment. Expenditures for major additions and improvements are capitalized and minor replacements, maintenance and repairs are charged to expense as incurred. The cost of property, plant and equipment sold or otherwise disposed of and the related accumulated depreciation are removed from the accounts and any resulting gain or loss is included in operating income for the respective period. Depreciation is generally provided on the straight-line method over the estimated useful lives of the related assets. Leasehold improvements are amortized using the straight-line method over the shorter of the useful life of the improvement or the lease term. See Note 8 to our consolidated financial statements for our discussion on property, plant and equipment.    

Business Combinations

We account for business combinations using the acquisition method of accounting in accordance with Business Combinations (Topic 805), which allocates the fair value of the purchase consideration to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values. The excess of the purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. We engage third-party appraisal firms when appropriate to assist in the fair value determination of intangible assets. Initial purchase price allocations are subject to revisions within the measurement period, not to exceed one year from the date of acquisition. Acquisition-related expenses and transaction costs associated with business combinations are expensed as incurred.

Goodwill and Intangible Assets

Goodwill is an asset representing the excess cost over the fair market value of net assets acquired in business combinations. In accordance with Intangibles - Goodwill and Other (Topic 350), goodwill is not amortized but is tested annually for impairment or on an interim basis when indicators of potential impairment exist. Goodwill is tested for impairment at the reporting unit level. Our reporting units are our operating segments or components of operating segments where discrete financial information is available and segment management regularly reviews the operating results. For purposes of impairment testing, goodwill is allocated to the applicable reporting units based on our reporting structure.

We have the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. Qualitative factors assessed for each of the applicable reporting units include, but are not limited to, changes in macroeconomic conditions, industry and market considerations, cost factors, discount rates, competitive environments and financial performance of the reporting units. If the qualitative assessment indicates that it is more likely than not that the carrying value of a reporting unit exceeds its estimated fair value, a quantitative test is required.

We also have the option to proceed directly to the quantitative test. Under the quantitative impairment test, the estimated fair value of each reporting unit is compared to its carrying value, including goodwill. If the carrying value of the reporting unit including goodwill exceeds its fair value, an impairment charge equal to the excess would be recognized, up to a maximum amount of goodwill allocated to that reporting unit. We can resume the qualitative assessment in any subsequent period for any reporting unit.

For 2022 and 2021, management performed a qualitative impairment assessment of our reporting units, of which there were no indications that it was more likely than not that the fair value of our reporting units were less than their respective carrying values. As such, a quantitative goodwill test was not required, and no goodwill impairment was recognized in 2022 and 2021. For 2020, as impairment indicators were identified during the interim periods, we utilized the two-step process to perform an impairment test resulting in goodwill impairment of $99 million. See Note 9 to our consolidated financial statements for reported goodwill in each of our segments and goodwill impairment recognized.

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We had intangible assets with net carrying values of $645 million and $708 million as of December 31, 2022 and 2021, respectively. Intangible assets with indefinite lives are not amortized but are subject to annual impairment tests or on an interim basis when indicators of potential impairment exist. An intangible asset with an indefinite life is impaired if its carrying value exceeds its fair value. During the year ended December 31, 2022 and 2021, there were no triggering events identified. During the year ended December 31, 2020, certain of our trade name intangible assets with an indefinite life were impaired. Intangible assets with finite lives are amortized on a straight-line basis over the useful life of those assets, ranging from 1 year to 25 years. See Note 9 to our consolidated financial statements for further discussion of our intangible assets.

Equity Method Investments

We account for non-marketable investments using the equity method of accounting if the investment gives us the ability to exercise significant influence over, but not control, of an investee. Significant influence generally exists if we have an ownership interest representing between 20% and 50% of the voting stock of the investee. Under the equity method of accounting, investments are stated at initial cost and are adjusted for subsequent additional investments and our proportionate share of earnings or losses and distributions.

Equity in earnings (losses) of unconsolidated affiliates, in the consolidated statements of operations, reflects our proportionate share of the investee's net income, including any associated affiliate taxes. Our proportionate share of the investee’s other comprehensive income (loss), net of income taxes, is recorded in the consolidated statements of shareholders’ equity and consolidated statements of comprehensive income (loss). In general, the equity investment in our unconsolidated affiliates is equal to our current equity investment plus those entities' undistributed earnings.

    

We evaluate our equity method investments for impairment at least annually or whenever events or changes in circumstances indicate, in management’s judgment, that the carrying value of an investment may have experienced an other-than-temporary decline in value. When evidence of loss in value has occurred, management compares the estimated fair value of the investment to the carrying value of the investment to determine whether an impairment has occurred. If the estimated fair value is less than the carrying value and management considers the decline in value to be other than temporary, the excess of the carrying value over the estimated fair value is recognized in the financial statements as an impairment. See Note 10 to our consolidated financial statements for our discussion on equity method investments.

In cases where we are unable to exercise significant influence over the investee, or when our investment balance is reduced to zero from our proportionate share of losses, the investments are accounted for under the measurement alternative. Under the measurement alternative, investments are carried at cost and adjusted only for other-than-temporary declines in fair value, distributions of earnings or additional investments. In cases where we have a constructive or legal obligation to fund deficits of the joint venture, we record such deficits as other current liabilities on our consolidated balance sheets.

We evaluate distributions received from our equity method investments using the nature of distribution approach. Under this approach, we evaluate the nature of activities of the investee that generated the distribution. The distributions received are either classified as a return on investment, which is presented as a component of operating activities on our consolidated statements of cash flows, or as a return of investment, which is presented as a component of investing activities on our consolidated statements of cash flows. For BRIS only, we apply the cumulative earnings approach for the cash flow classification of distributions as information is not available to evaluate the nature of the activities of the joint venture.

Other Investments

Other investments are investments in equity securities of privately held companies without readily determinable fair values and are included in other assets on our consolidated balance sheets. These investments are accounted for under the measurement alternative, provided that KBR does not have the ability to exercise significant influence or control over the investees. We measure the investments at cost, less any impairment, and adjust the carrying value to fair value resulting from observable transactions for identical or similar investments of the same issuer. If it is determined that impairment indicators exist and the carrying value is less than the fair value, we adjust the carrying value of the investment to its fair value and record the related impairment. The gains and losses on the investments are recognized in unrealized gain (loss) on other investment on our consolidated statements of operations.

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Joint Ventures and VIEs

The majority of our joint ventures are VIEs. We account for VIEs in accordance with Consolidation (Topic 810), which requires the consolidation of VIEs in which a company has both the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and the obligation to absorb losses or the right to receive the benefits from the VIE that could potentially be significant to the VIE. If a reporting enterprise meets these conditions, then it has a controlling financial interest and is the primary beneficiary of the VIE. Our unconsolidated VIEs are accounted for under the equity method of accounting.

We assess all newly created entities and those with which we become involved to determine whether such entities are VIEs and, if so, whether or not we are their primary beneficiary. Most of the entities we assess are incorporated or unincorporated joint ventures formed by us and our partner(s) for the purpose of executing a project or program for a customer and are generally dissolved upon completion of the project or program. Many of our long-term, commercial projects are executed through such joint ventures. Although the joint ventures in which we participate own and hold contracts with the customers, the services required by the contracts are typically performed by the joint venture partners, or by other subcontractors under subcontracts with the joint ventures. Typically, these joint ventures are funded by advances from the project owner, and accordingly, require little or no equity investment by the joint venture partners but may require subordinated financial support from the joint venture partners such as letters of credit, performance and financial guarantees or obligations to fund losses incurred by the joint venture. Other joint ventures, such as PFIs, generally require the partners to invest equity and take an ownership position in an entity that manages and operates an asset after construction is complete. The assets of joint ventures are restricted for use to the obligations of the particular joint venture and are not available for our general operations.

We perform a qualitative assessment to determine whether we are the primary beneficiary once an entity is identified as a VIE. Thereafter, we continue to re-evaluate whether we are the primary beneficiary of the VIE in accordance with ASC 810 - Consolidation. A qualitative assessment begins with an understanding of the nature of the risks in the entity as well as the nature of the entity’s activities. These include the terms of the contracts entered into by the entity, ownership interests issued by the entity and how they were marketed and the parties involved in the design of the entity. We then identify all of the variable interests held by parties involved with the VIE including, among other things, equity investments, subordinated debt financing, letters of credit, financial and performance guarantees and contracted service providers. Once we identify the variable interests, we determine those activities which are most significant to the economic performance of the entity and which variable interest holder has the power to direct those activities. Though infrequent, some of our assessments reveal no primary beneficiary because the power to direct the most significant activities that impact the economic performance is held equally by two or more variable interest holders who are required to provide their consent prior to the execution of their decisions. Most of the VIEs with which we are involved have relatively few variable interests and are primarily related to our equity investment, significant service contracts and other subordinated financial support. See Note 10 to our consolidated financial statements for our discussion on variable interest entities.

Occasionally, we may determine that we are the primary beneficiary as a result of a reconsideration event associated with an existing unconsolidated VIE. We account for the change in control under the acquisition method of accounting for business combinations in accordance with Business Combinations (Topic 805).

Pensions

We account for our defined benefit pension plans in accordance with ASC 715 - Compensation - Retirement Benefits, which requires an employer to:

•recognize on its balance sheet the funded status (measured as the difference between the fair value of plan assets and the benefit obligation) of the pension plan;

•recognize, through comprehensive income, certain changes in the funded status of a defined benefit plan in the year in which the changes occur;

•measure plan assets and benefit obligations as of the end of the employer’s fiscal year; and

•disclose additional information.

Our pension benefit obligations and expenses are calculated using actuarial models and methods. The more critical assumption and estimate used in the actuarial calculations is the discount rate for determining the current value of benefit obligations. Other assumptions and estimates used in determining benefit obligations and plan expenses include expected rate of return on plan assets, inflation rates and demographic factors such as retirement age, mortality and turnover. These

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assumptions and estimates are evaluated periodically (typically annually) and are updated accordingly to reflect our actual experience and expectations.

The discount rate used to determine the benefit obligations was computed using a yield curve approach that matches plan specific cash flows to a spot rate yield curve based on high quality corporate bonds. The expected long-term rate of return on assets was determined by a stochastic projection that takes into account asset allocation strategies, historical long-term performance of individual asset classes, an analysis of additional return (net of fees) generated by active management, risks using standard deviations and correlations of returns among the asset classes that comprise the plans' asset mix. Plan assets are comprised primarily of equity securities, fixed income funds and securities, hedge funds, real estate and other funds. As we have both domestic and international plans, these assumptions differ based on varying factors specific to each particular country, participant demographics or economic environment.

Unrecognized actuarial gains and losses are generally recognized using the corridor method over a period of approximately 22 years, which represents a reasonable systematic method for amortizing gains and losses for the employee group. Our unrecognized actuarial gains and losses arise from several factors, including experience and assumption changes in the obligations and the difference between expected returns and actual returns on plan assets. The difference between actual and expected returns is deferred as an unrecognized actuarial gain or loss on our consolidated statement of comprehensive income (loss) and is recognized as a decrease or an increase in future pension expense.

Income Taxes

We recognize the amount of taxes payable or refundable for the year and deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the financial statements or tax returns. We provide a valuation allowance for deferred tax assets if it is more likely than not that these items will not be realized. See Note 13 to our consolidated financial statements for our discussion on income taxes.

Income taxes are accounted for under the asset and liability method. We provide a valuation allowance for deferred tax assets if it is more likely than not that these items will not be realized. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. A current tax asset or liability is recognized for the estimated taxes refundable or payable on tax returns. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

 

In assessing the realizability of deferred tax assets, we consider whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. A valuation allowance is provided for deferred tax assets if it is more likely than not that these items will not be realized. We consider the scheduled reversal of deferred tax liabilities, income available from carryback years, projected future taxable income and available tax planning strategies in making this assessment. Additionally, we use forecasts of certain tax elements such as taxable income and foreign tax credit utilization in making this assessment of realization. Given the inherent uncertainty involved with the use of such estimates and assumptions, there can be significant variation between estimated and actual results.

 

We have operations in numerous countries other than the United States. Consequently, we are subject to the jurisdiction of a significant number of taxing authorities. The income earned in these various jurisdictions is taxed on differing bases, including income actually earned, income deemed earned and revenue-based tax withholding. The final determination of our tax liabilities involves the interpretation of local tax laws, tax treaties and related authorities in each jurisdiction. Changes in the operating environment, including changes in tax law and currency/repatriation controls, could impact the determination of our tax liabilities for a tax year.

 

We recognize the effect of income tax positions only if it is more likely than not that those positions will be sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. The Company records potential interest and penalties related to unrecognized tax benefits in income tax expense.

 

Tax filings of our subsidiaries, unconsolidated affiliates and related entities are routinely examined by tax authorities in the normal course of business. These examinations may result in assessments of additional taxes, which we work to resolve with the tax authorities and through the judicial process. Predicting the outcome of disputed assessments involves some

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uncertainty. Factors such as the availability of settlement procedures, willingness of tax authorities to negotiate and the operation and impartiality of judicial systems vary across the different tax jurisdictions and may significantly influence the ultimate outcome. We review the facts for each assessment, and then utilize assumptions and estimates to determine the most likely outcome and provide taxes, interest and penalties as needed based on this outcome.

Derivative Instruments

We enter into derivative financial transactions to hedge existing or forecasted risk to changing foreign currency exchange rates and interest rate risk on variable rate debt. We do not enter into derivative transactions for speculative or trading purposes. We recognize all derivatives at fair value on the balance sheet. Derivatives that are not designated as hedges in accordance with Derivatives and Hedging (Topic 815), are adjusted to fair value and such changes are reflected in the results of operations. If the derivative is designated as a cash flow hedge, all changes in the fair value of derivatives are recognized in other comprehensive income (loss) and are subsequently reclassified into earnings in the period in which the hedged forecasted transaction affects earnings. See Note 22 to our consolidated financial statements for our discussion on derivative instruments.

Recognized gains or losses on derivatives entered into to manage project related foreign exchange risk are included in gross profit. Foreign currency gains and losses for hedges of non-project related foreign exchange risk are reported within other non-operating income (expense) on our consolidated statements of operations. Realized gains or losses on derivatives used to manage interest rate risk are included in interest expense in our consolidated statements of operations.

Concentration of Credit Risk

Financial instruments which potentially subject our company to concentrations of credit risk consist principally of cash and cash equivalents and trade receivables. Our cash is primarily held with major banks and financial institutions throughout the world. We believe the risk of any potential loss on deposits held in these institutions is minimal.

Contracts with clients usually contain standard provisions allowing the client to curtail or terminate contracts for convenience. Upon such a termination, we are generally entitled to recover costs incurred, settlement expenses and profit on work completed prior to termination and demobilization cost.

We have revenues and receivables from transactions with an external customer that amounts to 10% or more of our revenues (which are generally not collateralized). We generated significant revenues from transactions with the U.S. government and U.K. government within our GS business segment. No other customers represented 10% or more of consolidated revenues in any of the periods presented.

The following table summarizes our revenues and accounts receivable for contracts with U.S. and U.K. government agencies for which we are the prime contractor, as well as for contracts in which we are a subcontractor and the ultimate customer is a U.S. or U.K. government agency, respectively.

Revenues and percentage of consolidated revenues from major customers:
			Years ended December 31,
Dollars in millions			2022									2021									2020
U.S. government			$	4,034		61		%				$	5,122		70		%				$	3,079		53		%
U.K. government			$	584		9		%				$	508		7		%				$	573		10		%

Accounts receivable and percentage of consolidated accounts receivable from major customers:
			December 31,
Dollars in millions			2022									2021
U.S. government			$	501		53		%				$	1,062		75		%
U.K. government			$	58		6		%				$	81		6		%

Noncontrolling interest

Noncontrolling interests represent the equity investments of the minority owners in our joint ventures and other subsidiary entities that we consolidate in our financial statements.

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Foreign currency

Our reporting currency is the U.S. dollar. The functional currency of our non-U.S. subsidiaries is typically the currency of the primary environment in which they operate. Where the functional currency for a non-U.S. subsidiary is not the U.S. dollar, translation of all of the assets and liabilities (including long-term assets, such as goodwill) to U.S. dollars is based on exchange rates in effect at the balance sheet date. Translation of revenues and expenses to U.S. dollars is based on the average rate during the period and shareholders’ equity accounts are translated at historical rates. Translation gains or losses, net of income tax effects, are reported in accumulated other comprehensive loss on our consolidated balance sheets.

Transaction gains and losses that arise from foreign currency exchange rate fluctuations on transactions denominated in a currency other than the functional currency are recognized in income each reporting period when these transactions are either settled or remeasured. Transaction gains and losses on intra-entity foreign currency transactions and balances including advances and demand notes payable, on which settlement is not planned or anticipated in the foreseeable future, are recorded in accumulated other comprehensive loss on our consolidated balance sheets.

Share-based compensation

We account for share-based payments, including grants of employee stock options, restricted stock-based awards and performance cash units, in accordance with ASC 718 - Compensation-Stock Compensation, which requires that all share-based payments (to the extent that they are compensatory) be recognized as an expense in our consolidated statements of operations based on their fair values on the award date and the estimated number of shares of common stock we ultimately expect to vest. We recognize share-based compensation expense on a straight-line basis over the service period of the award, which is no greater than 5 years. If an award is modified after the grant date, incremental compensation cost is recognized immediately as of the modification. The benefits of tax deductions in excess of the compensation cost recognized for the options (excess tax benefits) are classified as additional paid-in-capital and cash retained as a result of these excess tax benefits is presented in the statements of cash flows as financing cash inflows. See Note 20 to our consolidated financial statements for our discussion on share-based compensation and incentive plans.

Commitments and Contingencies

We record liabilities for loss contingencies arising from claims, assessments, litigation, fines and penalties, and other sources when it is probable that a liability has been incurred and the amount of the assessment can be reasonably estimated. Legal costs incurred in connection with loss contingencies are expensed as incurred.

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 consolidated financial statements for the years ended December 31, 2021 and 2020 are presented 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 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 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 and increasing the amount of related deferred income taxes. 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 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 Senior Notes.

For the years ended December 31, 2022, 2021 and 2020, the adoption of this standard did not materially impact our 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.

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

			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

Select consolidated statement of operations line items, which reflect the adoption of ASU 2020-06, are as follows:

			Year Ended December 31, 2021
Dollars in millions			As Previously Reported						Adjustments						As Adjusted
Interest Expense			$	(92)					$	12					$	(80)
Income before income taxes			$	134					$	12					$	146
Provision for income taxes			$	(108)					$	(3)					$	(111)
Net income			$	26					$	9					$	35
Net income attributable to KBR			$	18					$	9					$	27
Net income attributable to KBR per share:
Basic			$	0.13					$	0.06					$	0.19
Diluted			$	0.12					$	0.07					$	0.19
Basic weighted average common shares outstanding			140						—						140
Diluted weighted average common shares outstanding			145						(4)						141

			Year Ended December 31, 2020
Dollars in millions			As Previously Reported						Adjustments						As Adjusted
Interest Expense			$	(83)					$	11					$	(72)
Loss before income taxes			$	(25)					$	11					$	(14)
Provision for income taxes			$	(26)					$	(2)					$	(28)
Net loss			$	(51)					$	9					$	(42)
Net loss attributable to KBR			$	(72)					$	9					$	(63)
Net loss attributable to KBR per share:
Basic			$	(0.51)					$	0.07					$	(0.44)
Diluted			$	(0.51)					$	0.07					$	(0.44)
Basic weighted average common shares outstanding			142						—						142
Diluted weighted average common shares outstanding			142						—						142

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

			Year Ended December 31, 2021
Dollars in millions			As Previously Reported						Adjustments						As Adjusted
Cash flows from operating activities:
Net income			$	26					$	9					$	35
Adjustments to reconcile net loss to net cash provided by operating activities:
Deferred income tax expense			44						3						47
Other			60						(12)						48
Total cash flows provided by operating activities			$	278					$	—					$	278

			Year Ended December 31, 2020
Dollars in millions			As Previously Reported						Adjustments						As Adjusted
Cash flows from operating activities:
Net loss			$	(51)					$	9					$	(42)
Adjustments to reconcile net loss to net cash provided by operating activities:
Deferred income tax benefit			(40)						2						(38)
Other			43						(11)						32
Total cash flows provided by operating activities			$	367					$	—					$	367

Impact of Adoption of 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 adoption of this standard did not have an impact on our consolidated financial statements.

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 disclosures include information around the nature of the assistance, the related accounting policies used to account for government assistance, the effect of government assistance on the entity’s financial statements and any significant terms and conditions of the agreements, including commitments and contingencies. The adoption of this standard did not have an impact on our consolidated financial statements.

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Additional Balance Sheet Information

Other Current Assets. The components of other current assets on our consolidated balance sheets as of December 31, 2022 and 2021 are presented below: 

			December 31,
Dollars in millions			2022						2021
Prepaid expenses			$	67					$	75
Value-added tax receivable			24						21
Advances to subcontractors			18						15
Other miscellaneous assets			55						36
Total other current assets			$	164					$	147

Other Current Liabilities. The components of other current liabilities on our consolidated balance sheets as of December 31, 2022 and 2021 are presented below:

			December 31,
Dollars in millions			2022						2021
Value-added tax payable			$	32					$	34
Dividend payable			$	17					$	16
Reserve for estimated losses on uncompleted contracts			17						17
Restructuring reserve			13						17
Retainage payable			11						13
Other miscellaneous liabilities			82						65
Total other current liabilities			$	172					$	162

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. Our reportable segments follow the same accounting policies as those described in Note 1 to our consolidated financial statements.

We are organized into two core business segments, Government Solutions and Sustainable Technology Solutions and one 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, C5ISR, cyber analytics, space domain awareness, test and evaluation, systems integration and program management, global supply chain management and operations readiness and support. With the acquisition of Frazer-Nash Consultancy Limited ("Frazer-Nash") on October 20, 2021, we expanded our broad range of professional advisory services that deliver high-end systems engineering, systems assurance and technology to customers across the defense, renewable energy and critical infrastructure sectors within the U.K. Additionally, with the acquisition of VIMA Group ("VIMA") on August 2, 2022, we deliver solutions across a number of large-scale, high priority digital transformation programs to support our clients in ensuring availability of effective digital and information technology as guided by the U.K.'s Digital Strategy for Defence. See Note 4 to the consolidated financial statements for further information related to the Frazer-Nash and VIMA acquisitions.

Sustainable Technology Solutions. Our Sustainable Technology Solutions business segment is anchored by our portfolio of over 70 innovative, proprietary, sustainability-focused process technologies that accelerate and enable energy transition across the industrial base in four primary verticals: ammonia/syngas, chemical/petrochemicals, clean refining and circular process/circular economy solutions. STS also provides highly synergistic services including advisory and consulting focused on broad-based energy transition and net-zero carbon emission solutions, high-end engineering, design and program

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management centered around decarbonization, energy efficiency, environmental impact and asset optimization, as well as our digitally-enabled operating and monitoring solutions. Through early planning and scope definition, advanced technologies and facility life-cycle optimization, 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.

Operations by Reportable Segment

			Years ended December 31,
Dollars in millions			2022						2021						2020
Revenues:
Government Solutions			$	5,320					$	6,149					$	4,055
Sustainable Technology Solutions			1,244						1,190						1,712
Total revenues			$	6,564					$	7,339					$	5,767
Equity in earnings (losses) of unconsolidated affiliates:
Government Solutions			27						29						28
Sustainable Technology Solutions			(107)						(199)						2
Total equity in earnings (losses) of unconsolidated affiliates			$	(80)					$	(170)					$	30
Operating income:
Government Solutions			$	441					$	414					$	355
Sustainable Technology Solutions			47						(30)						(77)
Other			(145)						(153)						(221)
Total operating income			$	343					$	231					$	57

			Years ended December 31,
Dollars in millions			2022						2021						2020
Capital expenditures:
Government Solutions			$	52					$	18					$	13
Sustainable Technology Solutions			7						2						3
Other			12						10						4
Total			$	71					$	30					$	20
Depreciation and amortization:
Government Solutions			$	95					$	108					$	60
Sustainable Technology Solutions			14						16						26
Other			28						22						29
Total			$	137					$	146					$	115

Balance Sheet Information by Reportable Segment

Assets specific to business segments include receivables, contract assets, other current assets, claims and accounts receivable, certain identified property, plant and equipment, equity in and advances to related companies and goodwill. The remaining assets, such as cash and the remaining property, plant and equipment, are considered to be shared among the business segments and are therefore reported in "Other."

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			December 31,
Dollars in millions			2022						2021
Total assets:
Government Solutions			$	3,735					$	4,245
Sustainable Technology Solutions			915						1,145
Other			916						814
Total			$	5,566					$	6,204
Goodwill (Note 9):
Government Solutions			$	1,918					$	1,890
Sustainable Technology Solutions			169						170
Total			$	2,087					$	2,060
Equity in and advances to related companies (Note 10):
Government Solutions			$	75					$	126
Sustainable Technology Solutions			113						450
Total			$	188					$	576

Selected Geographic Information

Long-lived assets by country are determined based on the location of tangible assets.

			December 31,
Dollars in millions			2022						2021
Property, plant & equipment, net:
United States			$	103					$	70
United Kingdom			41						49
Other			38						17
Total			$	182					$	136

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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:

									Year Ended December 31,
Dollars in millions															2022						2021						2020
Government Solutions
Science & Space															$	1,055					$	1,018					$	967
Defense & Intel															1,509						1,475						959
Readiness & Sustainment															1,639						2,644						1,153
International															1,117						1,012						976
Total Government Solutions															5,320						6,149						4,055
Sustainable Technology Solutions															1,244						1,190						1,712
Total revenue															$	6,564					$	7,339					$	5,767

Government Solutions revenue earned from key U.S. government customers includes U.S. DoD agencies and NASA, 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.

Revenue by geographic destination was as follows:

			Year Ended December 31, 2022
Dollars in millions			Government Solutions						Sustainable Technology Solutions																		Total
United States			$	3,264					$	469																	$	3,733
Europe			1,351						216																		1,567
Middle East			157						249																		406
Australia			392						45																		437
Africa			86						63																		149
Asia			14						154																		168
Other countries			56						48																		104
Total revenue			$	5,320					$	1,244																	$	6,564

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			Year Ended December 31, 2021
Dollars in millions			Government Solutions						Sustainable Technology Solutions																		Total
United States			$	4,493					$	430																	$	4,923
Europe			762						223																		985
Middle East			393						197																		590
Australia			351						16																		367
Africa			87						92																		179
Asia			7						192																		199
Other countries			56						40																		96
Total revenue			$	6,149					$	1,190																	$	7,339

			Year Ended December 31, 2020
Dollars in millions			Government Solutions						Sustainable Technology Solutions																		Total
United States			$	2,280					$	751																	$	3,031
Europe			743						218																		961
Middle East			622						235																		857
Australia			272						52																		324
Africa			81						71																		152
Asia			—						203																		203
Other countries			57						182																		239
Total revenue			$	4,055					$	1,712																	$	5,767

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:

			Year Ended December 31, 2022
Dollars in millions			Government Solutions						Sustainable Technology Solutions						Total
Cost Reimbursable			$	3,293					$	—					$	3,293
Time-and-Materials			973						770						$	1,743
Fixed Price			1,054						474						$	1,528
Total revenue			$	5,320					$	1,244					$	6,564

			Year Ended December 31, 2021
Dollars in millions			Government Solutions						Sustainable Technology Solutions						Total
Cost Reimbursable			$	4,175					$	—					$	4,175
Time-and-Materials			903						739						1,642
Fixed Price			1,071						451						1,522
Total revenue			$	6,149					$	1,190					$	7,339

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			Year Ended December 31, 2020
Dollars in millions			Government Solutions						Sustainable Technology Solutions						Total
Cost Reimbursable			$	2,409					$	—					$	2,409
Time-and-Materials			608						1,215						1,823
Fixed Price			1,038						497						1,535
Total revenue			$	4,055					$	1,712					$	5,767

Performance Obligations

Changes in estimates are recognized on a cumulative catch-up basis in the current period associated with performance obligations satisfied in a prior period due to the release of a constrained milestone, modification in contract price or scope or a change in the likelihood of a contingency being resolved. We recognized revenue from performance obligations satisfied in previous periods for such matters of $49 million, $19 million and $49 million for the years ended December 31, 2022, 2021 and 2020, respectively.

On December 31, 2022, we had $11.2 billion of transaction price allocated to remaining performance obligations. We expect to recognize approximately 37% of our remaining performance obligations as revenue within one year, 35% in years two through five and 28% thereafter. Revenue associated with our remaining performance obligations to be recognized beyond one year includes performance obligations related to Aspire Defence, which has contract terms extending through 2041. Remaining performance obligations do not include variable consideration that was determined to be constrained as of December 31, 2022.

Contract Assets and Contract Liabilities

Contract assets were $252 million and $224 million and contract liabilities were $275 million and $313 million, at December 31, 2022 and 2021, respectively. The increase in contract assets was primarily attributed to revenue recognized on certain contracts partially offset by the timing of billings. The decrease in contract liabilities was due to the timing of advance payments and revenue recognized during the period. We recognized revenue of $201 million for the year ended December 31, 2022, which was previously included in the contract liability balance at December 31, 2021.

Accounts Receivable

			December 31,
Dollars in millions			2022						2021
Unbilled			$	486					$	698
Trade & other			456						713
Accounts receivable, net			$	942					$	1,411

VIMA Group

On August 2, 2022, we acquired VIMA Group, a U.K.-based leading provider of digital transformation solutions to defense and other public sector clients. VIMA Group is reported within our GS business segment. We accounted for this transaction as an acquisition of a business using the acquisition method under Business Combinations (Topic 805).

The agreed-upon purchase price for the acquisition was $82 million. The purchase price consisted of cash paid on hand at closing of $75 million, subject to certain working capital and other closing adjustments, $4 million of deferred consideration and contingent consideration with an estimated fair value of $3 million that was contingent upon the achievement of certain performance targets from closing through December 31, 2022. As the targets were not met, no consideration was paid and we recorded a benefit of $3 million in our consolidated statements of operations for the year ended December 31, 2022. We

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recognized $2 million as an intangible backlog asset, $11 million in customer relationships, $3 million in net working capital, $2 million in deferred income tax liability and $68 million of goodwill arising from the acquisition, which relates primarily to future growth opportunities. As of December 31, 2022, the estimated fair values of net assets acquired were preliminary. 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 recognized is not deductible for tax purposes.

Frazer-Nash Consultancy Limited

On October 20, 2021, we acquired 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 acquired business of Frazer-Nash provides innovative engineering and technology related professional advisory services across the defense, energy and critical infrastructure sectors primarily in the U.K. and Australia. It is reported within our GS business segment. We accounted for this transaction using the acquisition method under Business Combinations, Topic (805). The aggregate consideration paid was approximately $392 million in cash, subject to other post-closing adjustments. The Company funded the acquisition through a combination of cash on-hand and borrowings under the Revolver.

During the year ended December 31, 2021, the Company incurred $4 million in acquisition-related costs with the acquisition of Frazer-Nash, which are included in acquisition and integration related costs on the consolidated statements of operations. The acquired Frazer-Nash business contributed $31 million of revenues and $2 million of gross profit within our GS business segment during the year ended December 31, 2021.

The purchase price allocation for the business combination is final. The following table summarizes the consideration paid for this acquisition and the fair value of assets and liabilities assumed as of the acquisition date as follows:

Dollars in millions			Frazer-Nash
Fair value of total consideration paid			$	392
Recognized amounts of identifiable assets acquired and liabilities assumed:
Cash and equivalents			7
Accounts receivable			33
Other current assets			5
Total current assets			45
Property, plant, and equipment			6
Operating lease right-of-use assets			6
Intangible assets			89
Total assets			146
Accounts payable			14
Other current liabilities			6
Total current liabilities			20
Deferred income taxes			21
Operating lease liabilities			6
Total liabilities			47
Net assets acquired			99
Goodwill			$	293

The goodwill recognized of $293 million arising from this acquisition primarily relates 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. For U.S. tax purposes, the transaction is treated as a stock deal. As a result, there is no step-up in tax basis and the goodwill recognized is not deductible for tax purposes.

The following table summarizes the fair value of intangible assets and the related weighted-average useful lives:

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Dollars in millions			Fair Value						Weighted Average Amortization Period (in years)
Backlog			$	10					1
Customer relationships			79						16
Total intangible assets			$	89					14

The backlog intangible asset is comprised solely of contracted orders that had not yet been fulfilled. The customer relationships intangible assets consists of established relationships with existing customers that resulted in repeat purchases and customer loyalty. The backlog and customer relationships intangible assets were valued using the income approach, specifically the multi-period excess earnings method in which the value is derived from an estimation of the after-tax cash flows specifically attributable to backlog and customer relationships. The analysis included assumptions for forecasted revenues and EBITDA margins, contributory asset charge rates, weighted average cost of capital and a tax amortization benefit.

Harmonic Limited

On July 1, 2021, we acquired certain assets and assumed certain liabilities of Harmonic Limited ("Harmonic"). The acquired business of Harmonic provides transformation and delivery consultancy project services to UK businesses and is reported within our GS business segment. We accounted for this transaction as an acquisition of a business using the acquisition method under Business Combinations (Topic 805). The agreed-upon purchase price for the acquisition was $19 million, which consisted of cash paid at closing of $17 million, funded from cash on hand and contingent consideration with an estimated fair value of $2 million that was paid out early upon settlement of other items with management during the fourth quarter of 2022. We recognized $2 million as an intangible backlog asset, $3 million in net working capital and goodwill of $14 million arising from the acquisition, which relates primarily to future growth opportunities. The estimated fair values of net assets acquired are final. The goodwill recognized is not deductible for tax purposes.

Centauri Platform Holdings, LLC

On October 1, 2020, we acquired Centauri in accordance with an agreement and plan of merger, pursuant to which a wholly owned subsidiary of KBR merged with and into Centauri, with Centauri continuing as the surviving company and a wholly owned subsidiary of KBR. Centauri provides high-end engineering and development solutions for critical, well-funded, national security missions associated with space, intelligence, cyber and emerging technologies such as directed energy and missile defense and is reported under the GS business segment. The acquisition expands KBR's military space and intelligence business and builds upon the Company's existing cybersecurity and missile defense solutions. Furthermore, the addition of Centauri advances KBR's strategic transformation of becoming a leading provider of high-end, mission-critical technical services and solutions.

The aggregate consideration paid was approximately $830 million. The Company funded the acquisition through a combination of cash on-hand, borrowings under our Senior Credit Facility, net proceeds from the private offering of $250 million aggregate principal amount of our 4.750% Senior Notes due 2028 (the "Senior Notes") and proceeds from the sale of receivables. See Note 12 to our consolidated financial statements for more information on our Senior Credit Facility and Senior Notes and Note 22 to our consolidated financial statements for further discussion of our sale of receivables.

During the years ended December 31, 2022, 2021 and 2020, the Company recognized direct, incremental costs related to this acquisition of $1 million, $6 million and $9 million, respectively, which are included in acquisition and integration related costs on the consolidated statements of operations. The acquired Centauri business contributed $125 million of revenues and $19 million of gross profit for the year ended December 31, 2020.

The purchase price allocation for the Centauri business combination is final. No purchase price allocation adjustments were recorded during the measurement period. The following table summarizes the consideration paid for this acquisition and the fair value of assets and liabilities assumed as of the acquisition date as follows:

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Dollars in millions			Centauri
Fair value of total consideration paid			$	830
Recognized amounts of identifiable assets acquired and liabilities assumed:
Cash and equivalents			7
Accounts receivable			78
Contract assets			19
Other current assets			1
Total current assets			105
Property, plant, and equipment			18
Operating lease right-of-use assets			36
Intangible assets			226
Other assets			1
Total assets			386
Accounts payable			29
Contract liabilities			2
Accrued salaries, wages and benefits			39
Operating lease liabilities			6
Total current liabilities			76
Deferred income taxes			19
Operating lease liabilities			30
Other liabilities			7
Total liabilities			132
Net assets acquired			254
Goodwill			$	576

The goodwill recognized of $576 million arising from this acquisition 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. For U.S. tax purposes, the transaction is treated as a stock deal. As a result, there is no step-up in tax basis and the goodwill recognized is not deductible for tax purposes.

The following table summarizes the fair value of intangible assets and the related weighted-average useful lives:

Dollars in millions			Fair Value						Weighted Average Amortization Period (in years)
Funded backlog			$	28					1
Customer relationships			198						15
Total intangible assets			$	226					13

The backlog intangible asset is comprised solely of funded backlog that represents revenue that is already fully awarded and funded as of the acquisition date. The customer relationships intangible assets consists of unfunded backlog as of the acquisition date and revenue arising from existing, recompete and follow-on programs. The funded backlog and customer relationships intangible assets were valued using the income approach, specifically the multi-period excess earnings method in which the value is derived from an estimation of the after-tax cash flows specifically attributable to funded backlog and customer relationships. The analysis included assumptions for forecasted revenues and EBITDA margins, contributory asset charge rates, weighted average cost of capital and a tax amortization benefit.

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Scientific Management Associates (Operations) Pty Ltd

On March 6, 2020, we acquired certain assets and assumed certain liabilities related to the government defense business of Scientific Management Associates (Operations) Pty Ltd ("SMA"). The acquired business of SMA provides technical training services to the Royal Australian Navy and is reported within our GS business segment. We accounted for this transaction using the acquisition method under Business Combinations (Topic 805). The agreed-upon purchase price for the acquisition was $13 million, less purchase price adjustments totaling $4 million resulting in net cash consideration paid of $9 million. We recognized goodwill of $12 million arising from the acquisition, which relates primarily to future growth opportunities to expand services provided to the Royal Australian Navy. During the first quarter of 2021, contingent consideration liability that was recorded at the time of acquisition was settled for $1 million.  

Supplemental Pro Forma Information

The following unaudited supplemental pro forma results of operations have been prepared from historical financial statements that have been adjusted to give effect to the acquisition of Frazer-Nash and Centauri as though they had been acquired on January 1, 2020 and January 1, 2019, respectively. Pro forma adjustments were primarily related to the amortization of intangibles, interest on borrowings related to the acquisitions, 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 acquisitions occurred on January 1, 2020 and January 1, 2019, nor is it indicative of future results of operations.

			Year Ended December 31,
Dollars in millions			2021 (1)						2020 (1)
			(Unaudited)
Revenue			$	7,465					$	6,317
Net income attributable to KBR			$	37					$	(55)
Diluted earnings per share			$	0.26					$	0.39

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. This cash is expected to be used for project costs and distributions of earnings.

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

			December 31, 2022
Dollars in millions			International (a)						Domestic (b)						Total
Operating cash and cash equivalents			$	251					$	25					$	276
Short-term investments (c)			4						2						6
Cash and cash equivalents held in consolidated joint ventures and Aspire Defence subcontracting entities			99						8						107
Total			$	354					$	35					$	389

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

(a)Includes deposits held by non-U.S. entities with operating 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.

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			2022						2021
Amounts included in project estimates-at-completion at January 1,			$	426					$	1,048
Net decrease in project estimates			(114)						(228)
Approved change orders			(271)						(374)
Foreign currency impact			7						(20)
Amounts included in project estimates-at-completion at December 31,			$	48					$	426

The balance as of December 31, 2022 primarily relates to projects in our Government Solutions segment.

Ichthys LNG Project

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

Settlement Agreement with the Client

In October 2021, JKC entered into a binding settlement agreement (the “Settlement Agreement”) that resolved the outstanding claims and 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.

Paint and Insulation Claims Against Insurer and Paint Manufacturer

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

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

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Settlement Agreement with the 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 pursued recourse against the Consortium to recover all of the costs to complete the Power Plant, plus the additional interest and/or general damages.

In April 2022, JKC entered into a settlement agreement (the “Subcontractor Settlement Agreement”) to resolve outstanding claims and disputes between JKC and the Consortium. As a result of the Subcontractor Settlement Agreement, JKC received the first payment of AUD 270 million in April 2022. In May 2022, JKC distributed the payment to KBR at current exchange rates and net of legal expenses resulting in the receipt of approximately $190 million. The second payment of AUD 90 million is expected to be paid to JKC in March 2023. KBR recorded a non-cash charge to equity in earnings (losses) of unconsolidated affiliates in the amount of $137 million during the first quarter of 2022, which reflected KBR’s proportionate share of JKC's claims against the Consortium that were no longer collectible.

See Note 10 to our consolidated financial statements for further discussion regarding our equity method investment in JKC.

Changes in 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 and ongoing resolution of legacy projects and legal matters. We generally realize both lower and higher than expected margins on projects in any given period. We recognize revisions of revenues and costs in the period in which the revisions are known. This may result in the recognition of costs before the recognition of related revenue recovery, if any.

During the year ended December 31, 2022 within our STS business segment, we recognized a non-cash charge to equity in earnings of unconsolidated affiliates of $137 million as a result of changes in estimates on the Ichthys LNG Project in connection with the Subcontractor Settlement Agreement discussed above. Additionally, during the year ended December 31, 2022, we recorded a charge to equity in earnings of unconsolidated affiliates on a joint venture acquired from a historical GS acquisition of $10 million based on our funding obligations of projected losses. This joint venture was divested in the fourth quarter of 2022.

Sanctions and trade control measures were implemented against Russia due to the ongoing conflict between Russia and Ukraine. These measures impact our ability to operate in the region and during 2022 we continued to carry out efforts to wind down our operations in Russia. As we wind down, we are settling or ending contract relationships with suppliers and personnel and have included the estimates of such activities within our remaining project estimates. These estimates may change as we continue to assess revisions to these estimates when known. The duration and extent to which the trade sanctions against Russia affect our business will depend on future developments that remain uncertain. During the year ended December 31, 2022, we recognized an unfavorable change of $16 million in gross profit and incurred $6 million in severance and asset impairments costs associated with our winding down of operations in Russia.

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During 2020, our management initiated and approved a broad restructuring plan in response to the dislocation of the global energy market resulting from the decline in oil prices and the COVID-19 pandemic. As part of the plan, management approved strategic business restructuring activities and decided to discontinue pursuing certain projects, principally lump-sum EPC and commoditized construction services. The restructuring plan was designed to refine our market focus, optimize costs and improve operational efficiencies. The restructuring charges were substantially completed in the year ended December 31, 2020.

For the year ended December 31, 2020, we recorded restructuring charges and asset impairments as follows:

Dollars in millions			Severance						Lease Abandonment						Other						Total Restructuring Charges						Asset Impairments						Total Restructuring Charges & Asset Impairments
Government Solutions			$	2					$	—					$	—					$	2					$	2					$	4
Sustainable Technology Solutions			29						4						6						39						47						86
Other			1						54						20						75						49						124
Total			$	32					$	58					$	26					$	116					$	98					$	214

The components of our property, plant and equipment balance are as follows:

			Estimated Useful Lives in Years						December 31,
Dollars in millions									2022						2021
Land			N/A						$	4					$	5
Buildings and property improvements			1-35						120						131
Equipment and other			1-25						475						431
Total									599						567
Less accumulated depreciation									(417)						(431)
Net property, plant and equipment									$	182					$	136

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Goodwill

The changes in the carrying amount of goodwill in each of the Company’s reportable segments for the years ended December 31, 2022 and 2021 were as follows:

Dollars in millions			Government Solutions						Sustainable Technology Solutions						Total
Balance as of January 1, 2021			$	1,589					$	172					$	1,761
Goodwill acquired during the period (Note 4)			306						—						306
Foreign currency translation			(5)						(2)						(7)
Balance as of January 1, 2022			$	1,890					$	170					$	2,060
Goodwill acquired during the period (Note 4)			68						—						68
Foreign currency translation			(40)						(1)						(41)
Balance as of December 31, 2022			$	1,918					$	169					$	2,087

2020 Goodwill Impairment

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

As a result of the ongoing economic and market volatility as well as management's decision to discontinue pursuing certain projects within our legacy Energy Solutions business segment during the second quarter of 2020, we performed an interim impairment test of goodwill resulting in goodwill impairment of $37 million for the three months ended June 30, 2020. The goodwill impairment was associated with a reporting unit within our STS business segment. One reporting unit within our GS business segment had a negative carrying amount of net assets as of June 30, 2020 and goodwill of approximately $19 million. No change in the composition of our reporting units resulted from our segment reorganization, effective January 1, 2021, and as such, no reallocation of goodwill was required.

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

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Intangible Assets

Intangible assets are comprised of customer relationships, trade names, licensing agreements and other. The cost and accumulated amortization of our intangible assets were as follows:

Dollars in millions			December 31, 2022
			Weighted Average Remaining Useful Lives						Intangible Assets, Gross						Accumulated Amortization						Intangible Assets, Net
Trademarks/trade names			Indefinite						$	50					$	—					$	50
Customer relationships			13						548						(153)						395
Developed technologies			19						78						(41)						37
Contract backlog			18						278						(124)						154
Other			14						23						(14)						9
Total intangible assets									$	977					$	(332)					$	645
			December 31, 2021
			Weighted Average Remaining Useful Lives						Intangible Assets, Gross						Accumulated Amortization						Intangible Assets, Net
Trademarks/trade names			Indefinite						$	50					$	—					$	50
Customer relationships			14						546						(124)						422
Developed technologies			18						75						(39)						36
Contract backlog			18						303						(113)						190
Other			14						25						(15)						10
Total intangible assets									$	999					$	(291)					$	708

Intangibles subject to amortization are impaired if the carrying value of the intangible is not recoverable and exceeds its fair value. Intangibles that are not subject to amortization are reviewed annually for impairment or more often if events or circumstances change that would create a triggering event. During the years ended December 31, 2022 and December 31, 2021, no triggering events were identified. In 2020, in connection with the energy market decline, we recognized an impairment loss on indefinite-lived intangible assets associated with certain trade names acquired through previous business combinations of our legacy Energy Solutions business of approximately $11 million within restructuring charges and asset impairments.

Our intangibles amortization expense is presented below:

			Years ended December 31,
Dollars in millions			2022						2021						2020
Intangibles amortization expense			$	50					$	66					$	42

Our expected intangibles amortization expense for the next five years is presented below:

Dollars in millions			Expected future intangibles amortization expense
2023			$	45
2024			$	42
2025			$	42
2026			$	42
2027			$	42
Beyond 2027			$	382

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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:

Dollars in millions			2022						2021
Beginning balance at January 1,			$	576					$	881
Equity in earnings (losses) of unconsolidated affiliates (a)			(80)						(170)
Distributions of earnings of unconsolidated affiliates (b)			(53)						(72)
Payments from unconsolidated affiliates, net			(14)						(17)
(Return of) investments in equity method investment, net (c)			(198)						29
Sale of equity method investment (d) (a)			(31)						(39)
Foreign currency translation adjustments			(15)						(10)
Other (e)			3						(26)
Balance at December 31,			$	188					$	576

(a)During 2022 and 2021, non-cash charges of $137 million and $203 million, respectively, were recorded for settlement agreements associated with the Ichthys LNG project. Additionally, during the third quarter of 2022, we recorded a charge against a joint venture acquired from a historical GS acquisition of $10 million based on our funding obligations of projected losses. In the fourth quarter of 2022, we divested this joint venture and recorded an incremental loss on sale of $3 million. The remaining equity in earnings (losses) of unconsolidated affiliates in 2022 and 2021 is related to normal activities within our other joint ventures.

(b)BRIS declared a distribution in the fourth quarter of 2021 that was paid to KBR in January 2022. In the fourth quarter of 2022, BRIS and KZJV declared dividends that were not paid to KBR until January 2023.

(c)During the year ended December 31, 2022, we received a return of investment from JKC of approximately $190 million related to the Subcontractor Settlement Agreement, offset by $1 million in funding contributions to JKC. Additionally, we received a return of investment distribution from BRIS of $10 million as our cumulative distributions from inception of the joint venture exceeded our cumulative earnings. For the year ended December 31, 2021, investments include $26 million in contributions to JKC.

(d)During the first quarter of 2022, we sold two of our four U.K. Road investments. 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 an additional U.K. Road investment with a carrying value of $19 million and recorded a gain of approximately $16 million upon receipt of $35 million in cash proceeds, in addition to receipt of $2 million of deferred consideration from the Q1 2022 sales. 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.

(e)During the year ended December 31, 2021, Other included unearned income related to the Ichthys LNG project, which was previously recorded outside of the equity method investment balance and will not be realized as a result of the settlement proceedings. See Note 6 "Unapproved Change Orders and Claims Against Clients and Estimated Recoveries of Claims Against Suppliers and Subcontractors" for additional information.

Equity Method Investments

Brown & Root Industrial Services Joint Venture. On September 30, 2015, we executed an agreement with Bernhard Capital Partners ("BCP"), a private equity firm, to establish the Brown & Root Industrial Services joint venture in North America. In connection with the formation of the joint venture, we contributed our Industrial Services Americas business and received cash consideration of $48 million and a 50% interest in the joint venture. As a result of the transaction, we no longer had a controlling interest in this Industrial Services business and deconsolidated it effective September 30, 2015. The Brown & Root Industrial Services joint venture offers engineering, construction and reliability-driven maintenance services for the refinery, petrochemical, chemical, specialty chemicals and fertilizer markets. Our interest in this venture is accounted for using

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the equity method and we have determined that the Brown & Root Industrial Services joint venture is not a VIE. Results from this joint venture are included in our STS business segment.

Summarized financial information

Summarized financial information for all jointly owned operations including VIEs that are accounted for using the equity method of accounting is as follows:

Balance Sheet

			December 31,
Dollars in millions			2022						2021
Current assets			$	1,576					$	2,382
Noncurrent assets			1,717						2,996
Total assets			$	3,293					$	5,378
Current liabilities			$	1,105					$	955
Noncurrent liabilities			1,914						2,652
Total liabilities			$	3,019					$	3,607

Statements of Operations

			Years ended December 31,
Dollars in millions			2022						2021						2020
Revenues			$	3,175					$	1,294					$	2,032
Operating income (loss)			$	(325)					$	(650)					$	54
Net income (loss)			$	(321)					$	(698)					$	28

Unconsolidated Variable Interest Entities

For the VIEs in which we participate, our maximum exposure to loss consists of our equity investment in the VIE and any amounts owed to us for services we may have provided to the VIE, 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. Where our performance and financial obligations are joint and several to the client with our joint venture partners, we may be further exposed to losses above our ownership interest in the joint venture.

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

			December 31, 2022
Dollars in millions			Total Assets						Total Liabilities
Affinity joint venture (U.K. MFTS project)			$	9					$	3
Aspire Defence Limited			$	87					$	7
JKC joint venture (Ichthys LNG project)			$	15					$	—
U.K. Road project joint ventures			$	—					$	—
Plaquemines LNG project			$	23					$	36

Dollars in millions			December 31, 2021
			Total Assets						Total Liabilities
Affinity joint venture (U.K. MFTS project)			$	10					$	7
Aspire Defence Limited			$	65					$	5
JKC joint venture (Ichthys LNG project)			$	354					$	1
U.K. Road project joint ventures			$	42					$	—
Plaquemines LNG project			$	—					$	—

Affinity. In February 2016, Affinity, a joint venture between KBR and Elbit Systems, was awarded a service contract by a third party to procure, operate and maintain aircraft and aircraft-related assets over an 18-year contract period, in support of the UKMFTS project. The contract has been determined to contain a leasing arrangement and various other services between the joint venture and the customer. KBR owns a 50% interest in Affinity. In addition, KBR owns a 50% interest in the two joint ventures, Affinity Capital Works and Affinity Flying Services, which provide procurement, operations and management support services under subcontracts with Affinity. The remaining 50% interest in these entities is held by Elbit Systems. KBR has provided its proportionate share of certain limited financial and performance guarantees in support of the partners' contractual obligations. The three project-related entities are VIEs; however, KBR is not the primary beneficiary of any of these entities. We account for KBR's interests in each entity using the equity method of accounting within our GS business segment. The project is funded through KBR and Elbit Systems provided equity, subordinated debt and non-recourse third party commercial bank debt. Our maximum exposure to loss includes our equity investments in the project entities as of December 31, 2022.

Aspire Defence project. In April 2006, Aspire Defence Limited, a joint venture between KBR and two other project sponsors, was awarded a privately financed project contract by the U.K. MoD to upgrade and provide a range of services to the British Army’s garrisons at Aldershot and around Salisbury Plain in the U.K. In addition to a package of ongoing services to be delivered over 35 years, the project included a nine-year construction program to improve soldiers’ single living, technical and administrative accommodations, along with leisure and recreational facilities. The initial construction program was completed in 2014. In late 2016, Aspire Defence Limited was awarded a significant contract variation, expanding services to be provided under the existing contract including new construction, program management services and facilities maintenance across the garrisons. Aspire Defence Limited manages the existing properties and is responsible for design, refurbishment, construction and integration of new and modernized facilities. We indirectly own a 45% interest in Aspire Defence Limited, the contracting company that is the holder of the 35-year concession contract. The project is funded through equity and subordinated debt provided by the project sponsors and the issuance of publicly-held senior bonds which are nonrecourse to KBR and the other project sponsors. The contracting company is a VIE; however, we are not the primary beneficiary of this entity. We account for our interest in Aspire Defence Limited using the equity method of accounting. As of December 31, 2022, included in our GS segment, our assets and liabilities associated with our investment in this project, within our consolidated balance sheets, were $87 million and $7 million, respectively. Our maximum exposure to loss includes our equity investments in the project entities and amounts payable to us for services provided to these entities less unearned revenues to be provided to these entities as of December 31, 2022.

Prior to January 15, 2018, we also owned a 50% interest in the joint ventures that provide the construction and the related support services under subcontract arrangements with Aspire Defence Limited. On January 15, 2018, Carillion plc, our U.K. partner in these joint ventures, entered into compulsory liquidation. As a result, KBR began consolidating the subcontracting entities in its financial statements effective January 15, 2018.

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Ichthys LNG project. In January 2012, we formed a joint venture to provide EPC services to construct the Ichthys Onshore LNG Export Facility in Darwin, Australia ("Ichthys LNG project"). The project was being executed through two entities (collectively, "JKC"), which are VIEs, in which we own a 30% equity interest. We account for our investments using the equity method of accounting. At December 31, 2022, our assets and liabilities associated with our investment in JKC recorded in our consolidated balance sheets under our STS business segment were $15 million and $0 million, respectively. These assets include estimated recoveries of claims against suppliers and insurers. See Note 6 to our consolidated financial statements for further discussion on claims related to this project.

U.K. Road projects. We were involved in four privately financed projects, executed through joint ventures, to design, build, operate and maintain roadways for certain government agencies in the U.K. We had a 25% ownership interest in each of these joint ventures and accounted for them using the equity method of accounting. The joint ventures obtained financing through third parties that was nonrecourse to the joint venture partners. These joint ventures were VIEs included in our GS business segment; however, we were not the primary beneficiary. During the year ended December 31, 2022, we divested three of the U.K. Road projects. At December 31, 2022, we have no assets or liabilities associated with our investment in this project.

Plaquemines LNG project. KZJV is a joint venture with Zachary Group that performs certain design, engineering, procurement and construction-related services for a LNG facility in Plaquemines Parish, Louisiana. KBR owns a 45% interest in KZJV, which is a VIE for which we are joint and several to the client with our joint venture partner. We are not the primary beneficiary as we do not have the power to direct the activities of the VIE that most significantly impact its economic performance. The investment is accounted for within our STS business segment using the equity method of accounting.

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 years ended December 31, 2022, 2021 and 2020, our revenues included $413 million, $361 million and $511 million, respectively, related to the services we provided primarily to the Aspire Defence Limited joint venture within our GS business segment and a joint venture within our STS business segment.

Amounts included in our consolidated balance sheets related to services we provided to our unconsolidated joint ventures and undistributed earnings for the years ended December 31, 2022 and 2021 are as follows:

			December 31,
Dollars in millions			2022						2021
Accounts receivable, net of allowance for doubtful accounts			$	56					$	35
Contract assets (a)			$	2					$	2
Other current assets			$	12					$	25
Contract liabilities (a)			$	39					$	5

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

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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			December 31, 2022
			Total Assets						Total Liabilities
Fasttrax Limited (Fasttrax project)			$	14					$	5
Aspire Defence subcontracting entities (Aspire Defence project)			$	385					$	196
HomeSafe			$	31					$	19

 

Dollars in millions			December 31, 2021
			Total Assets						Total Liabilities
Fasttrax Limited (Fasttrax project)			$	23					$	8
Aspire Defence subcontracting entities (Aspire Defence project)			$	439					$	245
HomeSafe			$	—					$	—

Fasttrax Limited project. In December 2001, the Fasttrax joint venture ("Fasttrax") was created to provide to the U.K. MoD a fleet of 91 new HETs capable of carrying a 72-ton Challenger II tank. Fasttrax owns, operates and maintains the HET fleet and provides heavy equipment transportation services to the British Army. The purchase of the assets was completed in 2004, and the operating and service contracts related to the assets extend through 2023. Fasttrax's entity structure includes a parent entity and its 100% owned subsidiary, Fasttrax Limited. KBR and its partner each own a 50% interest in the parent entity, which is considered a VIE. We determined that we are the primary beneficiary of this project entity because we control the activities that most significantly impact economic performance of the entity. Therefore, we consolidate this VIE.

The purchase of the HETs by the joint venture was financed through two series of bonds secured by the assets of Fasttrax Limited and a bridge loan. Assets collateralizing Fasttrax’s senior bonds include cash and cash equivalents of $3 million and net property, plant and equipment of approximately $7 million as of December 31, 2022. The total amount of debt outstanding at December 31, 2022 related to our nonrecourse project-finance debt of this VIE consolidated by KBR was $2 million.

Aspire Defence project (subcontracting entities). As discussed above, we assumed operational management of the Aspire Defence subcontracting entities in January 2018. These subcontracting entities exclusively provide the construction and the related support services under subcontract arrangements with Aspire Defence Limited. These entities are considered VIEs, and, because we are the primary beneficiary, they are consolidated for financial reporting purposes.

HomeSafe. HomeSafe, a KBR led joint venture with Tier One Relocation, was established to be the exclusive provider of household goods move management services for the U.S. Armed Forces, U.S. DoD civilians and their families. KBR owns a 72% interest in HomeSafe. The joint venture is a VIE that is consolidated for financial reporting purposes and is accounted for within our GS business segment. We determined that we are the primary beneficiary of this project entity because we control the activities that most significantly impact economic performance of the entity.

Defined Contribution Retirement Plans

    

We have elective defined contribution plans for our employees in the U.S. and retirement savings plans for our employees in the U.K., Canada and other locations. Our defined contribution plans provide retirement benefits in return for services rendered. These plans provide an individual account for each participant and have terms that specify how contributions to the participant’s account are to be determined rather than the amount of retirement benefits the participant is to receive. Contributions to these plans are based on pretax income discretionary amounts determined on an annual basis. Our expense for the defined contribution plans totaled $104 million in 2022, $84 million in 2021 and $83 million in 2020.

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Defined Benefit Pension Plans

We have two frozen defined benefit pension plans in the U.S., one frozen and one active plan in the U.K. and one frozen plan in Germany. Substantially all of our defined benefit plans are funded pension plans, which define an amount of pension benefit to be provided, usually as a function of years of service or compensation.

We used a December 31 measurement date for all plans in 2022 and 2021. Plan assets, expenses and obligations for our defined benefit pension plans are presented in the following tables.

			Overfunded												Underfunded
			United States						Int’l						United States						Int’l
Dollars in millions			2022
Change in projected benefit obligations:
Projected benefit obligations at beginning of period			$	—					$	2,066					$	74					$	35
Service cost			—						1						—						1
Interest cost			—						34						2						1
Foreign currency exchange rate changes			—						(220)						—						(4)
Actuarial gain(1)			—						(614)						(12)						(12)
Other			—						(1)						—						—
Benefits paid			—						(61)						(5)						(1)
Projected benefit obligations at end of period			$	—					$	1,205					$	59					$	20
Change in plan assets:
Fair value of plan assets at beginning of period			$	—					$	1,992					$	66					$	31
Actual return on plan assets			—						(539)						(9)						(12)
Employer contributions			—						73						—						1
Foreign currency exchange rate changes			—						(213)						—						(3)
Benefits paid			—						(61)						(5)						(1)
Other			—						(1)						—						—
Fair value of plan assets at end of period			$	—					$	1,251					$	52					$	16
Funded status			$	—					$	46					$	(7)					$	(4)

(1) Actuarial gains primarily driven by change in discount rates.

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			Overfunded												Underfunded
			United States						Int’l						United States						Int’l
Dollars in millions			2021
Change in projected benefit obligations:
Projected benefit obligations at beginning of period			$	—					$	—					$	80					$	2,326
Service cost			—						—						—						3
Interest cost			—						—						2						33
Foreign currency exchange rate changes			—						—						—						(4)
Actuarial gain(1)			—						—						(3)						(180)
Other			—						—						—						(1)
Benefits paid			—						—						(5)						(75)
Projected benefit obligations at end of period			$	—					$	—					$	74					$	2,102
Change in plan assets:
Fair value of plan assets at beginning of period			$	—					$	—					$	64					$	1,961
Actual return on plan assets			—						—						7						94
Employer contributions			—						—						1						47
Foreign currency exchange rate changes			—						—						—						(3)
Benefits paid			—						—						(5)						(75)
Other			—						—						(1)						(1)
Fair value of plan assets at end of period			$	—					$	—					$	66					$	2,023
Funded status			$	—					$	—					$	(8)					$	(79)

(1) Actuarial gains primarily driven by change in discount rates.

The Accumulated Benefit Obligation ("ABO") is the present value of benefits earned to date. The ABO for our United States pension plans was $59 million and $74 million as of December 31, 2022 and 2021, respectively. The ABO for our international pension plans was $1.2 billion and $2.1 billion as of December 31, 2022 and 2021, respectively.

			United States						Int’l						United States						Int’l
Dollars in millions			2022												2021
Amounts recognized on the consolidated balance sheets
Other assets			$	—					$	46					$	—					$	1
Pension obligations			$	(7)					$	(4)					$	(8)					$	(80)

Net periodic pension cost for our defined benefit plans included the following components:

			United States						Int’l						United States						Int’l						United States						Int’l
Dollars in millions			2022												2021												2020
Components of net periodic benefit cost
Service cost			$	—					$	2					$	—					$	3					$	—					$	2
Interest cost			2						35						2						33						2						39
Expected return on plan assets			(3)						(83)						(3)						(87)						(3)						(59)
Prior service cost amortization			—						1						—						1						—						1
Recognized actuarial loss			1						23						2						31						2						22
Net periodic (benefit) cost			$	—					$	(22)					$	1					$	(19)					$	1					$	5

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The amounts in accumulated other comprehensive loss that have not yet been recognized as components of net periodic benefit cost at December 31, 2022 and 2021, net of tax were as follows:

			United States						Int’l						United States						Int’l
Dollars in millions			2022												2021
Unrecognized actuarial loss, net of tax of $8 and $195, $8 and $198, respectively			$	16					$	552					$	17					$	564
Total in accumulated other comprehensive loss			$	16					$	552					$	17					$	564

The weighted-average assumptions used to determine net periodic benefit cost were as follows:

			United States						Int'l						United States						Int'l						United States						Int'l
			2022												2021												2020
Discount rate			2.45		%				1.80		%				2.00		%				1.40		%				2.89		%				2.05		%
Expected return on plan assets			5.19		%				4.73		%				5.19		%				4.67		%				5.72		%				3.70		%

The weighted-average assumptions used to determine benefit obligations at the measurement date were as follows:

			United States						Int'l						United States						Int'l
			2022												2021
Discount rate			4.91		%				5.00		%				2.45		%				1.80		%

Plan fiduciaries of our retirement plans set investment policies and strategies and oversee the investment direction, which includes selecting investment managers, commissioning asset-liability studies and setting long-term strategic targets. Long-term strategic investment objectives include preserving the funded status of the plan and balancing risk and return and have diversified asset types, fund strategies and fund managers. Targeted asset allocation ranges are guidelines, not limitations and occasionally plan fiduciaries will approve allocations above or below a target range.

The target asset allocation for our U.S. and International plans for 2023 is as follows:

			2023 Targeted
			United States						Int'l
Equity funds and securities			52		%				22		%
Fixed income funds and securities			39		%				53		%
Hedge funds			—		%				7		%
Real estate funds			1		%				5		%
Other			8		%				13		%
Total			100		%				100		%

The range of targeted asset allocations for our International plans for 2023 and 2022, by asset class, are as follows:

International Plans			2023 Targeted												2022 Targeted
			Percentage Range												Percentage Range
			Minimum						Maximum						Minimum						Maximum
Equity funds and securities			20		%				50		%				20		%				50		%
Fixed income funds and securities			30		%				100		%				30		%				100		%
Hedge funds			—		%				7		%				—		%				7		%
Real estate funds			—		%				10		%				—		%				10		%
Other			—		%				35		%				—		%				34		%

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The range of targeted asset allocations for our U.S. plans for 2023 and 2022, by asset class, are as follows:

Domestic Plans			2023 Targeted												2022 Targeted
			Percentage Range												Percentage Range
			Minimum						Maximum						Minimum						Maximum
Equity funds and securities			41		%				62		%				41		%				62		%
Fixed income funds and securities			31		%				47		%				31		%				47		%
Real estate funds			1		%				1		%				1		%				1		%
Other			7		%				10		%				7		%				10		%

ASC 820 - Fair Value Measurement addresses fair value measurements and disclosures, defines fair value, establishes a framework for using fair value to measure assets and liabilities and expands disclosures about fair value measurements. This standard applies whenever other standards require or permit assets or liabilities to be measured at fair value. ASC 820 establishes a three-tier value hierarchy, categorizing the inputs used to measure fair value. The inputs and methodology used for valuing securities are not an indication of the risk associated with investing in those securities. Refer to Note 22 "Financial Instruments and Risk Management" for a description of the primary valuation methodologies and classification used for assets measured at fair value.

A summary of total investments for KBR’s defined benefit pension plan assets measured at fair value is presented below.

			Fair Value Measurements at Reporting Date
Dollars in millions			Total						Level 1						Level 2						Level 3
Asset Category at December 31, 2022
United States plan assets
Investments measured at net asset value (a)			$	52					$	—					$	—					$	—
Cash and equivalents			—						—						—						—
Total United States plan assets			$	52					$	—					$	—					$	—
International plan assets
Equities			$	60					$	—					$	—					$	60
Fixed income			—						—						—						—
Real estate			1						—						—						1
Cash and cash equivalents			31						31						—						—
Other			52						—						—						52
Investments measured at net asset value (a)			1,123						—						—						—
Total international plan assets			$	1,267					$	31					$	—					$	113
Total plan assets at December 31, 2022			$	1,319					$	31					$	—					$	113

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			Fair Value Measurements at Reporting Date
Dollars in millions			Total						Level 1						Level 2						Level 3
Asset Category at December 31, 2021
United States plan assets
Investments measured at net asset value (a)			$	65					$	—					$	—					$	—
Cash and equivalents			$	1					$	1					$	—					$	—
Total United States plan assets			$	66					$	1					$	—					$	—
International plan assets
Equities			$	88					$	—					$	—					$	88
Fixed income			—						—						—						—
Real estate			1						—						—						1
Cash and cash equivalents			6						6						—						—
Other			48						—						—						48
Investments measured at net asset value (a)			1,880						—						—						—
Total international plan assets			$	2,023					$	6					$	—					$	137
Total plan assets at December 31, 2021			$	2,089					$	7					$	—					$	137

(a) Certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the consolidated balance sheet.

The fair value measurement of plan assets using significant unobservable inputs (Level 3) changed each year due to the following:

Dollars in millions			Total						Equities						Fixed Income						Real Estate						Other
International plan assets
Balance as of December 31, 2020			$	151					$	108					$	1					$	2					$	40
Return on assets held at end of year			(15)						(21)						—						(1)						7
Return on assets sold during the year			38						36						—						—						2
Purchases, sales and settlements			(37)						(35)						(1)						—						(1)
Foreign exchange impact			—						—						—						—						—
Balance as of December 31, 2021			$	137					$	88					$	—					$	1					$	48
Return on assets held at end of year			11						7						—						—						4
Return on assets sold during the year			5						—						—						—						5
Purchases, sales and settlements, net			(26)						(26)						—						—						—
Foreign exchange impact			(14)						(9)						—						—						(5)
Balance as of December 31, 2022			$	113					$	60					$	—					$	1					$	52

Contributions. Funding requirements for each plan are determined based on the local laws of the country where such plans reside. In certain countries the funding requirements are mandatory while in other countries they are discretionary. We expect to contribute $8 million to our pension plans in 2023. On October 17, 2022, we made an advance payment to our U.K. pension plan for approximately £29 million of the £33 million required minimum annual contributions for the year ending December 31, 2023.

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Benefit payments. The following table presents the expected benefit payments over the next 10 years.

			Pension Benefits
Dollars in millions			United States						Int’l
2023			$	5					$	59
2024			$	5					$	62
2025			$	5					$	64
2026			$	5					$	66
2027			$	5					$	68
Years 2028 - 2032			$	22					$	373

Deferred Compensation Plans

Our Elective Deferral Plan is a nonqualified deferred compensation program that provides benefits payable to officers, certain key employees or their designated beneficiaries and non-employee directors at specified future dates, upon retirement, or death. The elective deferral plan is unfunded except for $12 million and $13 million of mutual funds designated for a portion of our employee deferral plan included in other assets on our consolidated balance sheets at December 31, 2022 and 2021, respectively. The mutual funds are measured at fair value using Level 1 inputs under ASC 820 and may be liquidated in the near term without restrictions. Our obligations under our employee deferred compensation plan were $57 million and $64 million as of December 31, 2022 and 2021, respectively, and are included in employee compensation and benefits in our consolidated balance sheets.

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

Dollars in millions			December 31, 2022						December 31, 2021 (1)
Term Loan A			398						441
Term Loan B			506						511
Convertible Senior Notes			350						350
Senior Notes			250						250
Senior Credit Facility			260						364
Unamortized debt issuance costs - Term Loan A			(9)						(4)
Unamortized debt issuance costs and discount - Term Loan B			(10)						(13)
Unamortized debt issuance costs and discount - Convertible Senior Notes			(2)						(4)
Unamortized debt issuance costs and discount - Senior Notes			(3)						(4)
Total debt			1,740						1,891
Less: current portion			364						16
Total long-term debt, net of current portion			$	1,376					$	1,875

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

Senior Credit Facility

On May 17, 2022, we entered into Amendment No. 6 under our existing Credit Agreement, dated as of April 25, 2018, consisting of a $1 billion revolving credit facility (the "Revolver"), a $442 million Term Loan A, ("Term Loan A") with debt tranches denominated in U.S. dollars, Australian dollars and British pound sterling and a $512 million Term Loan B ("Term Loan B"), with an aggregate capacity of $1.954 billion ("Senior Credit Facility"). Amendment No. 6 (i) removes certain provisions requiring that the net cash proceeds received from the Subcontractor Settlement Agreement be applied to prepay principal amounts owed under Term Loan A and (ii) amends a certain provision to permit KBR to apply such net cash proceeds for working capital and other general corporate purposes. See Note 6 "Unapproved Change Orders and Claims Against Clients and Estimated Recoveries of Claims Against Suppliers and Subcontractors" for additional information regarding the Subcontractor Settlement Agreement.

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On December 30, 2022, we entered into Amendment No. 7 under our existing Credit Agreement, dated as of April 25, 2018, to replace the Australian dollar tranche of Term Loan A with new term loans with an aggregate principal amount of $99 million ("2022 Refinancing Term Loan A tranche") after deducting estimated deferred financing fees and foreign exchange conversion. The amendment redenominates the original loans in the Australian dollar tranche from Australian dollars into U.S. dollars and establishes SOFR as the reference borrowing rate for such loans.

On February 6, 2023, we entered into Amendment No. 8 under our existing Credit Agreement, dated as of April 25, 2018, to (i) replace the LIBOR-based reference borrowing rate with a SOFR-based reference borrowing rate for the U.S. dollar tranche of Term Loan A and the Revolving Credit Loans under our existing Credit Agreement and (ii) implement the Company’s recent fiscal year change from a calendar year ending on December 31 to a 52-53 week year ending on the Friday closest to December 31, effective beginning with fiscal year 2023.

The interest rates with respect to the Revolver and Term Loan A are based on, at the Company's option, the respective adjusted 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
Consolidated Net Leverage Ratio						Reference Rate (a)						Base Rate												Commitment Fee
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						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						1.50		%				0.50		%										0.25		%
Less than 1.25 to 1.00						1.25		%				0.25		%										0.23		%

(a)The reference rate for the Revolver, the original U.S. dollar tranche and the 2022 Refinancing Term Loan A tranche is SOFR plus 10 bps Credit Spread Adjustment and the British pound sterling tranche is SONIA.

Term Loan A provides for quarterly principal payments of 0.625% of the aggregate principal amount that commenced with the fiscal quarter ended March 31, 2022, increasing to 1.25% starting with the quarter ending March 31, 2024. Term Loan B provides for quarterly principal payments of 0.25% of the initial aggregate principal amounts that commenced with the fiscal quarter ended 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 in 2023 and 4.00 to 1 in 2024 and thereafter. Our consolidated interest coverage ratio may not be less than 3.00 to 1 as of the last day of any fiscal quarter. As of December 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. As such, the Convertible Notes are classified as current liabilities on our consolidated balance sheets as of December 31, 2022.

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. The initial conversion price of the Convertible Notes was 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 October 18, 2022, we declared a quarterly cash dividend of $0.12 per Common Share, which exceeded our per share dividend threshold and adjusted the conversion rate to 39.5772 at a strike price of $25.27.

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

The Note Hedge Transactions cost an aggregate of $62 million and are expected generally to reduce the potential dilution of common stock and/or offset the cash payments we are required to make in excess of the principal amount upon conversion of the Convertible Notes in the event that the market price of our common stock is greater than the strike price of the Note Hedge Transactions, which was initially $25.51 (subject to adjustment), corresponding approximately to the initial conversion price of the Convertible Notes. The Note Hedge Transactions were accounted for by recording the cost as a reduction to 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 December 31, 2022 was $39.63. The Warrant Transactions have been accounted for by recording the proceeds received as 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 December 31, 2022, the if-converted value of the Convertible Notes based on the closing share price exceeded the $350 million principal amount by approximately $381 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 $39.63 resulting in value of $182 million that would have been delivered to the counterparties as of December 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 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 December 31, 2022, we had $1 billion in a committed line of credit under the Senior Credit Facility and $449 million of uncommitted lines of credit to support the issuance of letters of credit. As of December 31, 2022, with respect to our Senior Credit Facility, we had $260 million of outstanding borrowings previously issued to fund the acquisition of Centauri and $47 million of outstanding letters of credit. With respect to our $449

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million of uncommitted lines of credit, we had utilized $248 million for letters of credit as of December 31, 2022. The total remaining capacity of these committed and uncommitted lines of credit was approximately $894 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, $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.

We may also guarantee that 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. Amounts that may be required to be paid in excess of the estimated costs to complete contracts in progress are not estimable. 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.

The United States and foreign components of income (loss) before income taxes and noncontrolling interests were as follows:

			Years ended December 31,
Dollars in millions			2022						2021 (1)						2020(1)
United States			$	138					$	177					$	(197)
Foreign:
United Kingdom			161						56						76
Australia			(103)						(199)						37
Canada			—						(2)						(2)
Middle East			16						39						69
Africa			7						3						4
Other			65						72						(1)
Subtotal			146						(31)						183
Total			$	284					$	146					$	(14)

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

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The total income taxes included in the statements of operations and in shareholders' equity were as follows:

			Years ended December 31,
Dollars in millions			2022						2021 (1)						2020(1)
(Provision) benefit for income taxes			$	(92)					$	(111)					$	(28)
Shareholders' equity, foreign currency translation adjustment			—						(1)						1
Shareholders' equity, pension and post-retirement benefits			(4)						(44)						26
Shareholders' equity, changes in fair value of derivatives			(11)						(7)						3
Total income taxes			$	(107)					$	(163)					$	2

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

The components of the provision for income taxes were as follows:

Dollars in millions			Current						Deferred						Total
Year ended December 31, 2022
Federal			$	(10)					$	(7)					$	(17)
Foreign			(36)						(26)						(62)
State and other			(9)						(4)						(13)
Provision for income taxes			$	(55)					$	(37)					$	(92)
Year ended December 31, 2021
Federal			$	(1)					$	(28)					$	(29)
Foreign			(49)						(22)						(71)
State and other			(14)						3						(11)
Provision for income taxes			$	(64)					$	(47)					$	(111)
Year ended December 31, 2020
Federal			$	—					$	27					$	27
Foreign			(62)						11						(51)
State and other			(4)						—						(4)
(Provision) benefit for income taxes			$	(66)					$	38					$	(28)

The components of our total foreign income tax provision were as follows:

			Years ended December 31,
Dollars in millions			2022						2021						2020
United Kingdom			$	(29)					$	(22)					$	(14)
Australia			(13)						(23)						(6)
Canada			—						—						(1)
Middle East			(8)						(9)						(18)
Africa			—						—						—
Other			(12)						(17)						(12)
Foreign provision for income taxes			$	(62)					$	(71)					$	(51)

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Our effective tax rates on income from operations differed from the statutory U.S. federal income tax rate of 21% as a result of the following:

			Years ended December 31,
			2022						2021 (1)						2020(1)
U.S. statutory federal rate, expected (benefit) provision			21		%				21		%				21		%
Increase (reduction) in tax rate from:
Tax impact from foreign operations			1		%				—		%				3		%
Noncontrolling interests and equity earnings			8		%				38		%				(5)		%
State and local income taxes, net of federal benefit			2		%				2		%				—		%
Other permanent differences, net			4		%				4		%				11		%
Contingent liability accrual			2		%				1		%				3		%
U.S. taxes on foreign unremitted earnings			—		%				1		%				(2)		%
Change in federal and foreign valuation allowance			(2)		%				(4)		%				—		%
Research and development credits, net of provision			(6)		%				—		%				—		%
Non-deductible goodwill and restructuring charges			—		%				—		%				(231)		%
U.K. statutory rate change			2		%				13		%				—		%
Effective tax rate on income from operations			32		%				76		%				(200)		%

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

The primary components of our deferred tax assets and liabilities were as follows:

			Years ended December 31,
Dollars in millions			2022						2021 (1)
Deferred tax assets:
Employee compensation and benefits			$	65					$	88
Foreign tax credit carryforwards			186						200
Loss carryforwards			121						111
Research and development and other credit carryforwards			49						27
Insurance accruals			9						10
Allowance for credit losses			3						4
Lease obligation and accrued liabilities			85						82
Contract liabilities			21						35
Capitalized research expenditures			18						—
Other			57						61
Total gross deferred tax assets			614						618
Valuation allowances			(217)						(204)
Net deferred tax assets			397						414
Deferred tax liabilities:
Right-of-use assets			(39)						(37)
Intangible amortization			(96)						(103)
Indefinite-lived intangible amortization			(82)						(72)
Other			(59)						(41)
Total gross deferred tax liabilities			(276)						(253)
Deferred income tax (liabilities) assets, net			$	121					$	161

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

The valuation allowance for deferred tax assets was $217 million and $204 million at December 31, 2022 and 2021, respectively. The net change in the total valuation allowance was an increase of $13 million in 2022 and a decrease of $16 million in 2021. The change in 2022 was mainly driven by additional net operating losses generated from the finalized

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2021 state filings. This increase was partially offset by the additional utilization of previously valued foreign tax credits in the U.S. and the liquidation of several non-U.S. entities in 2022 that held valuation allowances.

The valuation allowance balance at December 31, 2022 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. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent on the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities (including the impact of available carryback and carryforward periods), income available from carryback years, projected future taxable income and tax-planning strategies in making this assessment.

Income related to the U.S. branches totaled $56 million, $56 million and $68 million for the fiscal years 2022, 2021, and 2020, respectively, and is included in the foreign component of income in the notes to our consolidated financial statements.

The total income (loss) related to the U.S., inclusive of branches and exclusive of non-recurring restructuring and impairment charges, totaled $194 million, $221 million and $(26) million for the fiscal years 2022, 2021, and 2020, respectively.

We concluded that future taxable income and the reversal of deferred tax liabilities, excluding those associated with indefinite-lived intangible assets, were the only sources of taxable income available in determining the amount of valuation allowance to be recorded against our deferred tax assets. The deferred tax liabilities we relied on are projected to reverse in the same jurisdiction and are of the same character as the temporary differences that gave rise to the deferred tax assets. The deferred tax liabilities are projected to reverse in the same periods as the deferred tax assets and are projected to reverse beginning in fiscal year 2023 through fiscal year 2030. We estimated future taxable income by jurisdiction exclusive of reversing temporary differences and carryforwards and applied our foreign tax credit carryforwards based on the sourcing and character of those estimates and considered any limitations.

Our ability to utilize the unreserved foreign tax credit carryforwards is based on our ability to generate income from foreign sources of at least $557 million prior to their expiration whereas our ability to utilize other net deferred tax assets exclusive of those associated with indefinite-lived intangible assets is based on our ability to generate U.S. forecasted taxable income of at least $676 million. While our current projections of taxable income exceed these amounts, changes in our forecasted taxable income in the applicable taxing jurisdictions within the carryforward periods could affect the ultimate realization of deferred tax assets and our valuation allowance.

The net deferred tax balance by major jurisdiction after valuation allowance as of December 31, 2022 was as follows:

Dollars in millions			Net Gross Deferred Asset (Liability)						Valuation Allowance						Deferred Asset (Liability), net
United States			$	366					$	(188)					$	178
United Kingdom			(79)						(1)						(80)
Australia			13						—						13
Canada			21						(19)						2
Other			17						(9)						8
Total			$	338					$	(217)					$	121

    

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At December 31, 2022, the amount of gross tax attributes available prior to the offset with related uncertain tax positions were as follows:

Dollars in millions			December 31, 2022						Expiration
Foreign tax credit carryforwards			$	186					2023-2029
Foreign net operating loss carryforwards			$	123					2023-2042
Foreign net operating loss carryforwards			$	31					Indefinite
State net operating loss carryforwards			$	1,660					Various
Research and development and other credit carryforwards			$	49					2023-2042

We provide for taxes on accumulated and current E&P on certain foreign subsidiaries. As of December 31, 2022, the cumulative amount of permanently reinvested foreign earnings is $1.9 billion. These previously unremitted earnings have been subject to U.S. tax. However, these undistributed earnings could be subject to additional taxes (withholding and/or state taxes) if remitted, or deemed remitted, as a dividend. The tax effects of remitting earnings, if any, are recognized when plan on remitting these earnings. We consider our future U.S. and non-U.S. cash needs such as 1) our anticipated foreign working capital requirements, including funding of our U.K. pension plan, 2) the expected growth opportunities across all geographical markets and 3) our plans to invest in strategic growth opportunities that may include acquisitions around the world.

The Inflation Reduction Act was signed into law by the President on August 16, 2022, which enacts a 15% corporate minimum tax effective in 2023 for C-Corporations with book profits greater than $1 billion and imposes a 1% tax on the fair market value of stock repurchases by a publicly traded U.S. corporation after December 31, 2022, which will be accounted for separately from income taxes when incurred. The Inflation Reduction Act also creates or extends certain tax-related energy incentives. KBR currently does not expect the tax-related provision of the Inflation Reduction Act to have a material impact on our financial results.

A reconciliation of the beginning and ending amount of total unrecognized tax benefits is as follows:

Dollars in millions			2022						2021						2020
Balance at January 1,			$	89					$	96					$	97
Increases related to current year tax positions			8						—						1
Increases related to prior year tax positions			1						—						6
Decreases related to prior year tax positions			(2)						(4)						(7)
Settlements			—						—						—
Lapse of statute of limitations			(2)						(2)						(3)
Other, primarily due to exchange rate fluctuations affecting non-U.S. tax positions			(2)						(1)						2
Balance at December 31,			$	92					$	89					$	96

The total amount of unrecognized tax benefits that, if recognized, would affect our effective tax rate was approximately $78 million as of December 31, 2022. The difference between this amount and the amounts reflected in the tabular reconciliation above relates primarily to deferred income tax benefits on uncertain tax positions. In the next twelve months, it is reasonably possible that our uncertain tax positions could change by approximately $34 million due to settlements with tax authorities and the expirations of statutes of limitations.

We recognize accrued interest and penalties related to uncertain tax positions in income tax expense in our consolidated statements of operations. Our accrual for interest and penalties was $34 million and $31 million as of December 31, 2022 and 2021, respectively. During the years ended December 31, 2022, 2021 and 2020 we recognized net interest and penalty charges of $2 million, $1 million and $4 million related to uncertain tax positions.

KBR is the parent of a group of domestic companies that are members of a U.S. consolidated federal income tax return. We also file income tax returns in various states and foreign jurisdictions. With few exceptions, we are no longer subject to examination by tax authorities for U.S. federal or state and local income tax for years before 2007.

KBR is subject to a tax sharing agreement primarily covering periods prior to the April 2007 separation from Halliburton. The tax sharing agreement provides, in part, that KBR will be responsible for any audit settlements directly attributable to our business activity for periods prior to our separation from our former parent. As of December 31, 2022 and

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We are a party to litigation and other proceedings that arise in the ordinary course of our business. 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 will be incurred and the amount is reasonably estimable, U.S. GAAP requires us to accrue an estimate of the probable loss or range of loss. In the event a loss is probable, but the probable loss is not reasonably estimable, we are required to 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, a reasonably possible loss or range of loss associated with any individual contingency 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 two 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 2018 case claimed $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 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. 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. On June 6, 2022, we received the full decision by the Chadian Supreme Court. We have been informed that Exxon has paid most of the judgment in the amount of 10.1 billion Central African CFA franc to an appointed court bailiff.

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, the amount awarded to the former employees has been paid by Exxon. Therefore, we consider this matter to be resolved.

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

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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 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 December 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. A mediation occurred in November 2022 which did not result in settlement. However, the joint venture, joint venture insurers and client may continue discussions concerning potential resolution of the claims.

Environmental

We are subject to numerous environmental, legal and regulatory requirements related to our operations worldwide. In the U.S, these laws and regulations include, among others: the Comprehensive Environmental Response, Compensation and Liability Act; the Resources Conservation and Recovery Act; the Clean Air Act; the Clean Water Act and the Toxic Substances Control Act. In addition to federal and state laws and regulations, other countries where we do business often have numerous environmental regulatory requirements by which we must abide in the normal course of our operations. These requirements apply to our business segments where we perform construction and industrial maintenance services or operate and maintain facilities.

Existing or pending climate change legislation, regulations, international treaties or accords are not expected to have a short-term material direct effect on our business, the markets that we serve or on our results of operations or financial position. However, climate change legislation could have a direct effect on our customers or suppliers, which could impact our business. We continue to monitor developments in this area.

Insurance Programs

Our employee-related health care benefits program is self-funded. Our workers’ compensation, automobile and general liability insurance programs include a deductible applicable to each claim. Claims in excess of our deductible are paid by the insurer. The liabilities are based on claims filed and estimates of claims incurred but not reported. As of December 31, 2022, liabilities for anticipated claim payments and incurred but not reported claims for all insurance programs totaled approximately $41 million, comprised of $19 million included in accrued salaries, wages and benefits, $3 million included in other current liabilities and $19 million included in other liabilities all on our consolidated balance sheets. As of December 31, 2021, liabilities for unpaid and incurred but not reported claims for all insurance programs totaled approximately $47 million, comprised of $19 million included in accrued salaries, wages and benefits, $3 million included in other current liabilities and $25 million included in other liabilities all on our consolidated balance sheets.

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 $61 million and $76 million for the years ended December 31, 2022, and December 31, 2021, which are recorded in other liabilities on our consolidated balance sheets.

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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. 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. Some of these matters involve allegations of violations of the FCA, which prohibits in general terms fraudulent billings to the U.S. government; these 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 for several claims under various LogCAP III subcontracts. After a series of arbitration proceedings and related litigation between KBR and the U.S. government, the panel heard the final claims this year and we received an award on July 27, 2022. FKTC filed a motion for correction of the award asking the tribunal to change its findings. The tribunal denied FKTC's motion in an order issued on October 20, 2022. KBR filed its response on February 2, 2023. On January 5, 2023, FKTC filed a motion to vacate the arbitral award in the Eastern District of Virginia Federal District Court. In addition, in March 2022, FKTC filed a new civil action in Kuwait civil court against KBR seeking $100 million in damages. This action is duplicative of the claims decided in arbitration. In September 2022, we filed a motion to dismiss for lack of jurisdiction due to the arbitration agreement between KBR and FKTC. As such, as of December 31, 2022, we continue to maintain an estimated liability in our financial statements.

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. 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 and expert reports have been completed. We have completed briefing our motion for summary judgment and motions to exclude relators' experts. At the request of the parties, the court ordered a 90-day stay of the proceedings on December 28, 2022. Although we believe the allegations of fraud by the relators are without merit, we intend to participate in mediation prior to trial. Based on our assessment of existing law and precedent, the opinions or views of legal counsel and the facts available to us, we are not able to estimate a reasonably possible loss and accordingly, no amounts have been accrued as of December 31, 2022.

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We enter into lease arrangements primarily for real estate, project equipment, transportation and information technology assets in the normal course of our business operations. Real estate leases accounted for approximately 91% of our lease obligations at December 31, 2022. An arrangement is determined to be a lease at inception if it conveys the right to control the use of identified property and equipment for a period of time in exchange for consideration. We have elected not to recognize an ROU asset and lease liability for leases with an initial term of 12 months or less. Many of our equipment leases, primarily associated with the performance of projects for U.S. government customers, include one or more renewal option periods, with renewal terms that can extend the lease term in one year increments. The exercise of these lease renewal options is at our sole discretion and is generally dependent on the period of project performance, or extension thereof, determined by our customers. When it is reasonably certain that we will exercise the option, we include the impact of the option in the lease term to determine total future lease payments. Because most of our lease agreements do not explicitly state the discount rate, we use our incremental borrowing rate on the commencement date to calculate the present value of future lease payments.

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

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

The operating ROU asset and current and noncurrent operating lease liabilities are disclosed on our consolidated balance sheets. The finance ROU asset is included in property, plant and equipment and the current and noncurrent finance lease liabilities are included in other current liabilities and other liabilities, respectively, on our consolidated balance sheets.

The components of our operating lease costs for the years ended December 31, 2022, 2021 and 2020 were as follows:

			Year Ended December 31,
Dollars in millions			2022						2021						2020
Operating lease cost			$	61					$	51					$	50
Short-term lease cost			369						528						112
Total lease cost			$	430					$	579					$	162

Operating lease cost includes operating lease ROU asset amortization of $47 million, $38 million and $37 million for the years ended December 31, 2022, 2021 and 2020, respectively, and other noncash operating lease costs related to the accretion of operating lease liabilities and straight-line lease accounting of $14 million for the year ended December 31, 2022 and $13 million for the year ended years ended December 31, 2021 and 2020.

Total short-term lease commitments as of December 31, 2022 were approximately $100 million. Additional information related to leases was as follows:

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			December 31,						December 31,						December 31,
Dollars in millions			2022						2021						2020
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases			$	63					$	59					$	61
Financing cash flows from finance leases			$	11					$	13					$	11
Right-of-use assets obtained in exchange for new operating lease liabilities			$	61					$	33					$	62
Right-of-use assets obtained in exchange for new finance lease liabilities			$	13					$	11					$	34
Weighted-average remaining lease term-operating (in years)			7 years						6 years						6 years
Weighted-average remaining lease term-finance (in years)			2 years						3 years						3 years
Weighted-average discount rate-operating leases			6.0		%				6.3		%				6.8		%
Weighted-average discount rate-finance leases			3.1		%				4.0		%				4.7		%

The following is a maturity analysis of the future undiscounted cash flows associated with our lease liabilities as of December 31, 2022:

			Year
Dollars in millions			2023						2024						2025						2026						2027						Thereafter						Total
Future payments - operating leases			$	44					$	51					$	43					$	32					$	29					$	102					$	301
Future payments - finance leases			9						8						3						—						—						—						20
Total future payments - all leases			$	53					$	59					$	46					$	32					$	29					$	102					$	321

Dollars in millions			Operating Leases						Finance Leases						Total
Total future payments			$	301					$	20					$	321
Less imputed interest			(60)						(1)						(61)
Present value of future lease payments			$	241					$	19					$	260
Less current portion of lease obligations			(48)						(9)						(57)
Noncurrent portion of lease obligations			$	193					$	10					$	203

Changes in AOCL, net of tax, by component

Dollars in millions			Accumulated foreign currency translation adjustments						Accumulated pension liability adjustments						Changes in fair value of derivatives						Total
Balance at December 31, 2020			$	(291)					$	(764)					$	(28)					$	(1,083)
Other comprehensive income (loss) adjustments before reclassifications			(11)						168						12						169
Amounts reclassified from AOCL			6						15						12						33
Net other comprehensive income (loss)			(5)						183						24						202
Balance at December 31, 2021			$	(296)					$	(581)					$	(4)					$	(881)
Other comprehensive income (loss) adjustments before reclassifications			(69)						(6)						39						(36)
Amounts reclassified from AOCL			13						19						3						35
Net other comprehensive income (loss)			(56)						13						42						(1)
Balance at December 31, 2022			$	(352)					$	(568)					$	38					$	(882)

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Reclassifications out of AOCL, net of tax, by component

Dollars in millions			December 31, 2022						December 31, 2021						Affected line item on the Consolidated Statements of Operations
Accumulated foreign currency adjustments
Reclassification of foreign currency adjustments			$	(13)					$	(6)					Net income attributable to noncontrolling interests and Gain on disposition of assets and investments
Tax benefit			—						—						Provision for income taxes
Net accumulated foreign currency			$	(13)					$	(6)
Accumulated pension liability adjustments
Amortization of actuarial loss (a)			$	(24)					$	(32)					See (a) below
Tax benefit			5						17						Provision for income taxes
Net pension and post-retirement benefits			$	(19)					$	(15)					Net of tax
Changes in fair value for derivatives
Foreign currency hedge and interest rate swap settlements			$	(4)					$	(16)					Other non-operating income (expense)
Tax benefit			1						4						Provision for income taxes
Net changes in fair value of derivatives			$	(3)					$	(12)					Net of tax

(a)This item is included in the computation of net periodic pension cost. See Note 11 to our consolidated financial statements for further discussion.

Authorized Share Repurchase Program

On February 25, 2014, 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, 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 December 31, 2021, $225 million remained available for repurchase under this authorization.

On October 18, 2022, the Board of Directors authorized an increase of approximately $420 million to our share repurchase program, increasing the authorization level to $500 million. As of December 31, 2022, $451 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.

Share Maintenance Programs

Stock options and restricted stock awards granted under the KBR, Inc. 2006 Stock and Incentive Plan ("KBR Stock Plan") may be satisfied using shares of our authorized but unissued common stock or our treasury share account.

The ESPP allows eligible employees to withhold up to 10% of their earnings, subject to some limitations, to purchase shares of KBR common stock. These shares are issued from our treasury share account.

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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 Stock Plan.

The table below presents information on our annual share repurchases activity under these programs:

			Year Ended December 31, 2022
			Number of Shares						Average Price per Share						Dollars in Millions
Repurchases under the $500 million authorized share repurchase program			4,029,686						$	47.94					$	193
Withheld to cover shares			199,642						48.64						10
Total			4,229,328						$	47.97					$	203
			Year ending December 31, 2021
			Number of Shares						Average Price per Share						Dollars in Millions
Repurchases under the $350 million authorized share repurchase program			1,874,343						$	41.52					$	78
Withheld to cover shares			148,535						32.39						4
Total			2,022,878						$	40.85					$	82

KBR Stock Plan

In November 2006, KBR established the KBR Stock Plan, which provides for the grant of any or all of the following types of share-based compensation listed below:

•stock options, including incentive stock options and nonqualified stock options;

•stock appreciation rights, in tandem with stock options or freestanding;

•restricted stock;

•restricted stock units;

•cash performance awards; and

•stock value equivalent awards.

In May 2012, the KBR Stock Plan was amended to add 2 million shares of our common stock available for issuance under the KBR Stock Plan and increase certain sublimits.

In May 2016, the KBR Stock Plan was further amended to add 4.4 million shares of our common stock available for issuance under the KBR Stock Plan. Additionally, this amendment increased the sublimit under the Stock Plan in the form of restricted stock awards, restricted stock unit awards, stock value equivalent awards or pursuant to performance awards denominated in common stock by 4.4 million. Under the terms of the KBR Stock Plan, 16.4 million shares of common stock have been reserved for issuance to employees and non-employee directors. The plan specifies that no more than 9.9 million shares can be awarded as restricted stock, restricted stock units, stock value equivalents or pursuant to performance awards denominated in common stock.

At December 31, 2022, approximately 4.2 million shares were available for future grants under the KBR Stock Plan, of which approximately 0.9 million shares remained available for restricted stock awards or restricted stock unit awards.

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KBR Stock Options

Under the KBR Stock Plan, stock options are granted with an exercise price not less than the fair market value of the common stock on the date of the grant and a term no greater than 10 years. The term and vesting periods are established at the discretion of the Compensation Committee at the time of each grant. The fair value of options at the date of grant were estimated using the Black-Scholes-Merton option pricing model. The expected volatility of KBR options granted in each year is based upon a blended rate that uses the historical and implied volatility of common stock for KBR. The expected term of KBR options granted was based on KBR's historical experience. The estimated dividend yield was based upon KBR’s annualized dividend rate divided by the market price of KBR’s stock on the option grant date. The risk-free interest rate was based upon the yield of U.S. government issued treasury bills or notes on the option grant date. We amortize the fair value of the stock options over the vesting period on a straight-line basis. Options are granted from shares authorized by our Board of Directors. There were no stock options granted in 2022, 2021 or 2020.

The following table presents stock options granted, exercised, forfeited and expired under KBR share-based compensation plans for the year ended December 31, 2022.

KBR stock options activity summary			Number  of Shares						Weighted Average Exercise Price per Share						Weighted Average Remaining Contractual Term (years)						Aggregate Intrinsic Value (in millions)
Outstanding at December 31, 2021			617,347						$	24.27					2.18						$	1.45
Granted			—						—
Exercised			(183,226)						29.27
Forfeited			—						—
Expired			(18,798)						34.58
Outstanding at December 31, 2022			415,323						$	21.60					1.67						$	1.30
Exercisable at December 31, 2022			415,323						$	21.48					1.67						$	1.30

The total intrinsic values of options exercised for the years ended December 31, 2022, 2021 and 2020 were $0.2 million, $0.6 million and $0.1 million, respectively. As of December 31, 2022, there was no unrecognized compensation cost, net of estimated forfeitures, related to non-vested KBR stock options. There was no stock option compensation expense in 2022, 2021 and 2020.

KBR Restricted stock

Restricted shares issued under the KBR Stock Plan are restricted as to sale or disposition. These restrictions lapse periodically over a period of time not exceeding 10 years. Restrictions may also lapse for early retirement and other conditions in accordance with our established policies. Upon termination of employment, shares on which restrictions have not lapsed must be returned to us, resulting in restricted stock forfeitures. The fair market value of the stock on the date of grant is amortized and ratably charged to income over the period during which the restrictions lapse on a straight-line basis. For awards with performance conditions, an evaluation is made each quarter as to the likelihood of meeting the performance criteria. Share-based compensation is then adjusted to reflect the number of shares expected to vest and the cumulative vesting period met to date.

The following table presents the restricted stock awards and restricted stock units granted, vested and forfeited during 2022 under the KBR Stock Plan. 

Restricted stock activity summary			Number of Shares						Weighted Average Grant-Date Fair Value per Share
Nonvested shares at December 31, 2021			1,126,300						$	26.85
Granted			362,443						47.94
Vested			(625,557)						23.89
Forfeited			(18,060)						35.75
Nonvested shares at December 31, 2022			845,126						$	37.90

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The weighted average grant-date fair value per share of restricted KBR shares granted to employees during 2022, 2021 and 2020 was $47.94, $33.97 and $26.66, respectively. Restricted stock compensation expense was $15 million for the year ended December 31, 2022 and $12 million for each of the years ended 2021 and 2020. Total income tax benefit recognized in net income for share-based compensation arrangements during 2022, 2021 and 2020 was $3 million, $2 million, and $3 million, respectively. As of December 31, 2022, there was $25 million of unrecognized compensation cost, net of estimated forfeitures, related to KBR’s non-vested restricted stock and restricted stock units, which is expected to be recognized over a weighted average period of 1.78 years. The total fair value of shares vested was $31 million in 2022, $16 million in 2021 and $13 million in 2020 based on the weighted-average fair value on the vesting date. The total fair value of shares vested was $15 million in 2022, $10 million in 2021 and $9 million in 2020 based on the weighted-average fair value on the date of grant.

Performance-Based Stock Awards

Under the KBR Stock Plan, a portion of the Long-term Performance Cash and Stock Awards is settled in KBR shares. These awards vest and shares are issued at the end of a three-year period. The ultimate number of shares issued could range from 0% to 200% of the original shares granted depending upon KBR's performance in relation to the Total Shareholder Return ("TSR") performance objective. Stock compensation expense for these awards was $6 million, $4 million and $0 million for the years ended December 31, 2022, 2021 and 2020, respectively.

KBR Cash Performance Based Award Units ("Cash Performance Awards")

Under the KBR Stock Plan, for Cash Performance Awards granted in 2022, 2021 and 2020, performance is based 50% on average TSR, as compared to the average TSR of KBR’s peers, and 50% on KBR’s Book-to-Bill for 2022 and Job Income Sold ("JIS") for 2021 and 2020. In accordance with the provisions of ASC 718 - Compensation-Stock Compensation, the TSR portion for the performance award units are classified as liability awards and remeasured at the end of each reporting period at fair value until settlement. The fair value approach uses the Monte Carlo valuation method which analyzes the companies comprising KBR’s peer group, considering volatility, interest rate, stock beta and TSR through the grant date. The Book-to-Bill calculation for 2022 and JIS calculation for 2021 and 2020 is based on the Company's Book-to-Bill and JIS earned at a target level averaged over a three year period. The Book-to-Bill and JIS portion of the Cash Performance Award is also classified as a liability award and remeasured at the end of each reporting period based on our estimate of the amount to be paid at the end of the vesting period. The cash performance award units may only be paid in cash.

Under the KBR Stock Plan, in 2022, we granted 16 million performance based award units ("Cash Performance Awards") with a three-year performance period from January 1, 2022 to December 31, 2024. In 2021, we granted 13 million Cash Performance Awards with a three-year performance period from January 1, 2021 to December 31, 2023. In 2020, we granted 14 million Cash Performance Awards with a three-year performance period from January 1, 2020 to December 31, 2022. Cash Performance Awards forfeited, net of previous plan payout, totaled 2 million units, 4 million units and 7 million units during the years ended December 31, 2022, 2021 and 2020, respectively. At December 31, 2022, the outstanding balance for Cash Performance Awards is 38 million units. Cash Performance Awards are not considered earned until required performance conditions are met. Additionally, approval by the Compensation Committee of the Board of Directors is required before earned Cash Performance Awards are paid.

Cost for the Cash Performance Awards is accrued over the requisite service period. For the years ended December 31, 2022, 2021 and 2020, we recognized $20 million, $26 million and $17 million, respectively, in expense for Cash Performance Awards. The expense associated with these Cash Performance Awards is included in cost of services and general and administrative expense in our consolidated statements of operations. The liability for Cash Performance Awards includes $19 million recorded within accrued salaries, wages and benefits and $17 million recorded within employee compensation and benefits on our consolidated balance sheets as of December 31, 2022. The liability for Cash Performance Awards includes $25 million recorded within accrued salaries, wages and benefits, and $15 million recorded within employee compensation and benefits on our consolidated balance sheets as of December 31, 2021.

KBR Employee Stock Purchase Plan ("ESPP")

Under the ESPP, eligible employees may withhold up to 10% of their earnings, subject to some limitations, to purchase shares of KBR’s common stock. Unless KBR’s Board of Directors determines otherwise, each six-month offering period commences at the beginning of February and August of each year. Employees who participate in the ESPP will receive a 5% discount on the stock price at the end of each period. During 2022 and 2021, our employees purchased approximately 124,000 and 147,000 shares, respectively, through the ESPP. These shares were issued from our treasury share account.

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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 for all other instruments.

A summary of the basic and diluted net income (loss) per share calculations is as follows:

			Years Ended December 31,
Shares in millions			2022						2021 (1)						2020 (1)
Net income (loss) attributable to KBR:
Net Income (loss) attributable to KBR			$	190					$	27					$	(63)
Less earnings allocable to participating securities			$	(1)					$	—					$	—
Basic net income (loss) attributable to KBR			$	189					$	27					$	(63)
Reversal of Convertible Debt interest expense			$	7					—						—
Diluted net income (loss) attributable to KBR (a)			$	196					$	27					$	(63)
Weighted average common shares outstanding:
Basic weighted average common shares outstanding			139						140						142
Convertible debt			14						—						—
Warrants			3						—						—
Stock options and restricted shares			—						1						—
Diluted weighted average common shares outstanding (a)			156						141						142
Net income (loss) attributable to KBR per share:
Basic			$1.36						$0.19						$(0.44)
Diluted (a)			$1.26						$0.19						$(0.44)

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

(a)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.

Upon 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. Additionally, for the year ended December 31, 2022, the Warrant Transactions (as defined in Note 10, "Debt and Other Credit Facilities", to our consolidated financial statements) impacted the calculation of diluted income (loss) per share as the average price of our common stock exceeded the adjusted strike price of $39.63. For the years ended December 31, 2021 and 2020, the Warrant Transactions did not impact diluted net income (loss) per share as the average price of our common stock in both periods did not exceed the adjusted strike price of $39.76 and 39.88.

For the year ended December 31, 2022, the diluted income (loss) per share calculation excluded the following weighted-average potential common shares because their inclusion would have been anti-dilutive: 11.2 million related to the Warrant Transactions and 0.5 million related to our stock options and restricted stock awards. For the year ended December 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: 13.5 million related to the Convertible Debt, 13.5 million related to the Warrant Transactions and 0.7 million related to our stock options and restricted stock awards. For the year ended December 31, 2020, 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 Convertible Debt, 13.8 million related to the Warrant Transactions and 1.7 million related to our stock options and restricted stock awards.

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Shares of common stock

Shares in millions			Shares
Balance at December 31, 2020			179.1
Common stock issued			0.9
Balance at December 31, 2021			180.0
Common stock issued			0.8
Balance at December 31, 2022			180.8

Shares of treasury stock

Shares and dollars in millions			Shares						Amount
Balance at December 31, 2020			38.3						$	864
Treasury stock acquired, net of ESPP shares issued			1.9						79
Balance at December 31, 2021			40.2						943
Treasury stock acquired, net of ESPP shares issued			4.1						200
Balance at December 31, 2022			44.3						$	1,143

Dividends

We declared dividends totaling $67 million and $63 million in 2022 and 2021, respectively. On February 10, 2023, the Board of Directors declared a dividend of $0.135 per share, which will be paid on April 14, 2023.

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 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 consolidated balance sheets are provided in the following table.

									December 31, 2022												December 31, 2021
Dollars in millions									Carrying Value						Fair Value						Carrying Value						Fair Value
Liabilities (including current maturities):
Term Loan A			Level 2						$	398					$	398					$	441					$	441
Term Loan B			Level 2						506						511						511						514
Convertible Notes			Level 2						350						731						350						669
Senior Notes			Level 2						250						220						250						256
Senior Credit Facility			Level 2						260						260						364						364

See Note 12 "Debt and Other Credit Facilities" for further discussion of our term loans, Convertible Notes, Senior Notes and Senior Credit Facility.

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.

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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 December 31, 2022, the gross notional value of our foreign currency exchange forwards and option contracts used to hedge balance sheet exposures was $33 million, all of which had durations of 17 days or less. We also had approximately $6 million (gross notional value) of cash flow hedges which had durations of 17 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 current assets, other assets and other current liabilities on our consolidated balance sheets at December 31, 2022, and 2021, respectively. 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 consolidated statements of operations for the periods presented. The net of our changes in fair value of hedges and the remeasurement of our assets and liabilities is included in other non-operating income (expense) on our consolidated statements of operations.

			Years ended December 31,
Gains (losses) dollars in millions			2022						2021
Balance Sheet Hedges - Fair Value			$	2					$	—
Balance Sheet Position - Remeasurement			2						(8)
Net			$	4					$	(8)

Interest rate risk. We use interest rate swaps to reduce interest rate risk and to manage net interest expense by converting our LIBOR based loans into fixed-rate loans. In October 2018, we entered into interest rate swap agreements with a notional value of $500 million, where we received one-month LIBOR and paid a monthly fixed rate of 3.055% for the term of the swaps which expired in September 2022. In March 2020, we entered into additional swap agreements with a notional value of $400 million, which were effective beginning October 2022 and mature in January 2027. Under the March 2020 swap agreements, we receive one-month LIBOR and pay a monthly fixed rate of 0.965% for the term of the swaps. In late September 2022 and early October 2022, we entered into additional interest rate swap agreements with an initial notional value of $250 million from the effective date of October 2022 to October 2023. Effective November 2023, the notional value will increase to $350 million through maturity in January 2027. We will receive one-month LIBOR and pay a monthly fixed rate of 3.507% 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 December 31, 2022 was a $48 million net asset, of which $19 million is included in other current assets and $29 million is included in other assets. The unrealized net gains on these interest rate swaps was $48 million and is included in AOCL as of December 31, 2022. The fair value of the interest rate swaps at December 31, 2021 was a $3 million net liability, of which $7 million is included in other assets and $10 million is included in other current liabilities. The unrealized net losses on these interest rate swaps was $3 million and included in AOCL as of December 31, 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

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receivables utilized in our loss-rate methodology and assess for any forecasted change in market conditions to adjust our credit reserve.

At December 31, 2022, our STS business segment that is subject to credit risk reported approximately $376 million of financial assets consisting primarily of accounts receivable and contract assets, net of allowance for credit losses of $9 million. Based on an aging analysis at December 31, 2022, 90% of our accounts receivable related to this segment 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. During the year ended December 31, 2022, the Company has derecognized $2,883 million of accounts receivables from the balance sheet under these agreements, of which certain receivables totaling $2,843 million were sold under the MUFG 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 non-operating income (expense) on the consolidated statements of operations.

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

			Year Ended						Year Ended
Dollars in millions			December 31, 2022						December 31, 2021
Beginning balance			$	481					$	112
Sale of receivables			2,883						2,991
Settlement of receivables			(3,228)						(2,622)
Cash collected, not yet remitted			(2)						—
Outstanding balances sold to financial institutions			$	134					$	481

Other Investments. Other investments include investments in equity securities of privately held companies without readily determinable fair values and are included in other assets on our consolidated balance sheets. These investments are accounted for under the measurement alternative, provided that KBR does not have the ability to exercise significant influence or control over the investees.

In June 2022, we entered into an agreement to invest an additional £80 million in Mura Technology ("Mura"). Funding is expected in two tranches with the first payment made in the quarter ended June 30, 2022. The remaining second tranche payment will take place in the first half of 2023, which will then bring KBR's aggregate investment in Mura to approximately 18.5%. As a result of the observable transactions associated with KBR's additional investment and additional investments from other third parties, we recorded an unrealized gain of $16 million. During the year ended December 31, 2021, we recorded an unrealized gain of $4 million as a result of the observable transactions associated with additional investments from other third parties. The carrying value of our investment was $83 million and $11 million at December 31, 2022 and December 31, 2021, respectively.

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

In 2017, the United Kingdom's Financial Conduct Authority 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 Financial Conduct Authority 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 final termination of USD LIBOR index benchmark.

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ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, as amended, helps limit the accounting impact from contract modifications, including hedging relationships, due to the transition from LIBOR to alternative reference rates that are completed by December 31, 2022. In December 2022, the FASB issued ASU 2020-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848, which extends the period of time entities can utilize the reference rate reform guidance under ASU 2020-04 from December 31, 2022 to December 31, 2024. We do not expect a significant impact to our financial results, financial position or cash flows from the transition from LIBOR to alternative reference rates, but we will continue to monitor the impact of this transition until it is completed.

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for 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 ASU 2014-09, Revenue from Contracts with Customers (Topic 606). The update will generally result in an entity recognizing contract assets and contract liabilities at amounts consistent with those recorded by the acquiree immediately before the acquisition date rather than at fair value. The new standard is effective on a prospective basis for fiscal years beginning after December 15, 2022, with early adoption permitted. This standard is effective for us on January 1, 2023 and we do not expect a significant impact to our consolidated financial statements upon adoption. However, the ultimate impact is dependent upon the size and frequency of future acquisitions.

In September 2022, the FASB issued ASU 2022-04, Liabilities—Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations, which requires that a buyer in a supplier finance program disclose sufficient information about the program to allow a user of financial statements to understand the program’s nature, activity during the period, changes from period to period and potential magnitude. The amendments require a buyer that uses supplier finance programs to make annual disclosures regarding the program’s key terms, the balance sheet presentation of related amounts, the confirmed amount outstanding at the end of the period and associated rollforward information. The confirmed amount outstanding at the end of the period must be disclosed in interim periods. The amendments are effective for all entities for fiscal years beginning after December 15, 2022 on a retrospective basis, including interim periods within those fiscal years, except for the requirement to disclose rollforward information, which is effective prospectively for fiscal years beginning after December 15, 2023. Early adoption is permitted upon issuance of the update. The new standard is effective for us on January 1, 2023 and only impacts financial statement footnote disclosures. Therefore, the adoption will not have a material effect on our consolidated financial statements.

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